Important Notice

IMPORTANT NOTICE

IMPORTANT: You must read the following before continuing. The following applies to the prospectus (the “Prospectus”) which follows and you are therefore advised to read this notice carefully before reading, accessing or making any use of the Prospectus. In accessing the Prospectus, you agree to be bound by the following terms and conditions, including any modifications made to them from time to time by esure Group plc (the “Company”) as a result of such access. The Prospectus has been prepared solely in connection with the proposed initial public offering of its ordinary shares (the “Ordinary Shares”).

THIS DOCUMENT IS NOT TO BE PUBLISHED, REPRODUCED, COPIED, REDISTRIBUTED OR PASSED ON, IN WHOLE OR IN PART, TO ANY OTHER PERSON OR FOR ANY PURPOSE. FAILURE TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN A VIOLATION OF APPLICABLE SECURITIES LAWS.

This document has been sent to you in electronic form and you are reminded that documents transmitted via this medium may be altered or changed during the process of electronic transmission and consequently neither the Company nor Deutsche Bank AG, London Branch (“Deutsche Bank”), J.P. Morgan Securities plc (“JPMC” and, together with Deutsche Bank, the “Joint Global Co- ordinators”), Canaccord Genuity Limited (“Canaccord Genuity”) and/or Numis Securities Limited (“Numis” and, together with Canaccord Genuity, the “Co-Lead Managers”), nor any director, officer, employer, employee or agent of any of them, nor any affiliate of any such person, accepts any liability or responsibility whatsoever in respect of any difference between this document distributed to you in electronic format and the hard copy version available to you on request from the Company. Recipients of this document in electronic form are responsible for protecting against viruses and other destructive items and use of the relevant email and attached document is at the recipient’s own risk. It is the recipient’s responsibility to take precautions to ensure that each of the e-mail and the document are free from viruses and other items of a destructive nature.

This document does not constitute an offer of, or the solicitation of an offer to buy or to subscribe for, Ordinary Shares to any person in any jurisdiction to whom or in which jurisdiction such offer or solicitation is unlawful and, in particular, is not for distribution in Australia, Canada or Japan. The Ordinary Shares have not been and will not be registered under the US Securities Act of 1933, as amended (the “US Securities Act”) or qualified for sale under the laws of any state of the United States or under any applicable securities laws of Australia, Canada or Japan. The Ordinary Shares are being offered and sold within the United States only to persons reasonably believed to be “qualified institutional buyers” (as defined in Rule 144A under the US Securities Act) in reliance on Rule 144A or pursuant to another exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act and outside the United States in reliance on Regulation S under the US Securities Act.

The Ordinary Shares have not been approved or disapproved by the US Securities and Exchange Commission (“SEC”), any state securities commission in the United States or any US regulatory authority, nor have any of the foregoing authorities passed upon or endorsed the merits of the offering of the Ordinary Shares or the accuracy or adequacy of this document. Any representation to the contrary is a criminal offence in the United States.

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

Each of Deutsche Bank, JPMC, Canaccord Genuity and Numis Securities is regulated in the UK by the FSA and is acting exclusively for the Company and for no other person in connection with the Offer and will not regard any other person (whether or not a recipient of this document) as its client in relation to the Offer and will not be responsible to anyone other than the Company for providing the protections afforded to its clients or for providing advice in relation to the Offer or any transaction or arrangement referred to in this document.

Apart from the responsibilities and liabilities, if any, which may be imposed on Deutsche Bank, JPMC, Canaccord Genuity and Numis Securities by the Financial Services and Markets Act 2000, or the regulatory regime established thereunder, or under the regulatory regime of any other jurisdiction where exclusion of liability under the relevant regulatory regime would be illegal, void or unenforceable, none of Deutsche Bank, JPMC, Canaccord Genuity and Numis Securities accept any responsibility whatsoever and make no representation or warranty, express or implied, for the contents of this document, including its accuracy or completeness, or for any other statement made or purported to be made by any of them, or on behalf of them, the Company or any other person in connection with the Company, the Ordinary Shares or the Offer and nothing contained in this document is or shall be relied upon as a promise or representation in this respect, whether as to the past or future. Each of Deutsche Bank, JPMC, Canaccord Genuity and Numis Securities accordingly disclaims all and any responsibility or liability whether arising in tort, contract or otherwise (save as referred to above) which any of them might otherwise have in respect of this document or any such statement.

By accepting this document you agree to be bound by the foregoing provisions, limitations and conditions and, in particular, you will be deemed to have represented, warranted and undertaken that: (i) you are a “qualified institutional buyer” (as defined in Rule 144A under the US Securities Act) or are not within the United States; (ii) if you are in any member state of the European Economic Area other than the United Kingdom, you are a “qualified investor” within the meaning of the Prospectus Directive (Directive 2003/71/EC and amendments thereto, including Directive 2010/73/EU to the extent implemented in a relevant EEA Member State) (“Qualified Investors”) and/or Qualified Investor acting on behalf of Qualified Investors, to the extent you are acting on behalf of persons or entities in the European Economic Area; (iii) you are an investor that is eligible to receive this document, and in your jurisdiction, this offer of securities can lawfully be made without contravention of any unfulfilled registration or other legal requirements; (iv) you have read and agree to comply with the contents of this notice; and (v) you will not at any time have any discussion, correspondence or contact concerning the information given in this document with any of the directors or employees of the Company or its subsidiaries nor with any of its suppliers, or any governmental or regulatory body without the prior written consent of the Company.

IF YOU HAVE GAINED ACCESS TO THIS DOCUMENT CONTRARY TO ANY OF THE FOREGOING RESTRICTIONS, INCLUDING IF YOU ARE WITHIN THE UNITED STATES AND ARE NOT A “QUALIFIED INSTITUTIONAL BUYER” (AS DEFINED ABOVE), OR HAVE OTHERWISE RECEIVED THIS DOCUMENT IN ERROR, YOU MUST NOT CONTINUE READING THIS DOCUMENT, YOU ARE NOT AUTHORISED AND WILL NOT BE ABLE TO PURCHASE ANY OF THE ORDINARY SHARES DESCRIBED IN THIS DOCUMENT, AND YOU MUST DELETE THIS DOCUMENT IMMEDIATELY. PRICE RANGE PROSPECTUS

8 MARCH 2013

PRICE RANGE PROSPECTUS 8 MARCH 2013 esure Group plc, The Observatory, Castlefield Road, Reigate, Surrey, RH2 0SG

160414 Dorothy Prelim Prospectus (Cover).indd 1 08/03/2013 08:52 This document, which comprises a prospectus relating to esure Group plc prepared in accordance with the Prospectus Rules of the UK Listing Authority made under section 73A of FSMA, has been approved by the UK Listing Authority in accordance with section 87A of FSMA and has been made available to the public in accordance with Rule 3.2 of the Prospectus Rules. This document has been prepared in connection with the offer of Ordinary Shares to certain institutional and other investors described in Part IX (Information about the Offer) of this document and the admission of Ordinary Shares to the premium listing segment of the Official List of the UK Listing Authority and to the London Stock Exchange’s main market for listed securities. The Directors, whose names appear on page 57 of this document, and the Company accept responsibility for the information PR Ann I, 1.1, 1.2 contained in this document. To the best of the knowledge of the Directors and the Company (who have taken all reasonable care to ensure that such is the case) such information is in accordance with the facts and this document does not omit anything likely to affect the import of such information. PR Ann III, 1.1, 1.2 Application will be made to the UK Listing Authority for all of the issued and to be issued Ordinary Shares to be admitted to the premium listing segment of the Official List and to the London Stock Exchange for the Ordinary Shares to be admitted to trading PR Ann III, 6.1, 6.2 on the London Stock Exchange’s main market for listed securities, which together will constitute official listing on a stock exchange under the Listing Rules. No application has been made or is currently intended to be made for the Ordinary Shares to be admitted to listing or trading on any other exchange. Conditional dealings in the Ordinary Shares are expected to commence on the London Stock Exchange on 22 March 2013 (International Security Identification Number: GB00B8KJH563). It is expected that Admission will become effective, and that unconditional dealings in the Ordinary Shares will commence on the London Stock Exchange, at 8.00 a.m. on 27 March 2013. Dealings on the London Stock Exchange before Admission will only be settled if Admission takes place. All dealings before the commencement of unconditional dealings will be on a “when issued” basis and will be of no effect if Admission does not take place and such dealings will be at the sole risk of the parties concerned. Prospective investors should read the whole of this document and, in particular, the discussion of certain risks and other factors that should be considered in connection with an investment in the Ordinary Shares as set out in the section entitled “Risk Factors” on pages 26 to 51 of this document. Prospective investors should be aware that an investment in the Company involves a degree of risk and that, if one or more of the risks described in this document were to occur, investors may find that their investment is materially adversely affected. Accordingly, an investment in the Ordinary Shares is only suitable for investors who are knowledgeable in investment matters and who are able to bear the loss of the whole or part of their investment.

esure Group plc (incorporated in England and Wales under the Companies Act 2006 with registered number 07064312)

1 Offer of up to 210,216,667 Ordinary Shares of ⁄12 p each at an Offer Price expected to be between 240p and 310p per Ordinary Share and admission to the premium listing segment of the Official List and to trading on the main market of the London Stock Exchange

Joint Global Co-ordinator Joint Global Co-ordinator, and Joint Bookrunner Joint Bookrunner and Sole Sponsor Deutsche Bank J.P. Morgan Cazenove

Co-Lead Manager Co-Lead Manager Canaccord Genuity Numis Securities Maximum ordinary share capital immediately following Admission Issued and fully paid Ordinary Shares Number Nominal Amount up to up to 420,433,334 £350,361

The Company is offering up to 210,216,667 Ordinary Shares, comprising the issue of New Ordinary Shares and the sale of Existing Ordinary Shares on behalf of Selling Shareholders. The Company will not receive any of the net proceeds of the sale of the Existing Ordinary Shares, all of which will be paid to the Selling Shareholders. The Price Range is indicative only: it may change during the course of the Offer and the Offer Price may be set within, above or below the Price Range. The amount to be raised and the number of Ordinary Shares to be issued by the Company or sold by the Selling Shareholders may be increased or decreased during the course of the Offer. A number of factors will be considered in determining the Offer Price, the amount to be raised by the Company pursuant to the Offer and the basis of allocation to Investors, PR Ann III, 5.1.9 including the level and nature of the demand for the Ordinary Shares during the book-building process, prevailing market conditions and the objective of establishing an orderly after-market in the Ordinary Shares. Unless required to do so by law or regulation, the Company does not envisage publishing any supplementary prospectus or a pricing statement, as the case may be, until announcement of the Offer Price. A Pricing Statement containing the Offer Price, confirming the number of Ordinary Shares which are the subject of the Offer and containing any other outstanding information is expected to be published on or about 22 March 2013. Further details of how the Offer Price is to be determined are contained in Part IX (Information about the Offer) of this document. The number of Existing Ordinary Shares to be made available by the Selling Shareholders pursuant to the Offer is indicative only and the selling indications of certain Existing Shareholders described in, assumed in or implied by this document are non-binding. Although the maximum number of Existing Ordinary Shares that are subject to the Offer cannot be increased, it can decrease (including, in theory, to such number as would, when added with the number of New Ordinary Shares made available by the Company pursuant to the Offer, still allow the Company to meet the minimum free float requirements of the UK Listing Authority). The Company consents to the use of this document (which comprises a prospectus prepared in accordance with the Prospectus Rules of the UK Listing Authority made under section 73A of FSMA) by the Intermediaries in connection with the Intermediaries PR Ann XXX, 1.1, Offer in the UK, the Channel Islands and the Isle of Man on the following terms: (i) in respect of Intermediaries who are appointed prior to the date of this document, from the date of this document and (ii) in respect of Intermediaries who are appointed after 1.2, 1.4, 2B the date of this document, from the date on which they are appointed to participate in the Intermediaries Offer and agree to adhere to and be bound by the terms of the Intermediaries Agreement, in each case until the closing of the Intermediaries Offer. The Company accepts responsibility for the information contained in this document with respect to any purchaser of or subscriber for Ordinary Shares pursuant to the Offer. Any Intermediary that uses this document must state on its website that it uses this document in accordance with the Company’s consent. Intermediaries are required to provide the terms and conditions of the Intermediaries Offer to any prospective investor who has expressed an interest in participating in the Intermediaries Offer. Any application made by investors to any Intermediary is subject to the terms and conditions imposed by each Intermediary. The New Ordinary Shares to be issued pursuant to the Offer will, following Admission, rank pari passu in all respects with the Existing Ordinary Shares, including for all dividends and distributions declared, made or paid on or in respect of the Ordinary Shares after Admission. This document does not constitute an offer of, or the solicitation of an offer to buy or to subscribe for, Ordinary Shares to any person in any jurisdiction to whom or in which jurisdiction such offer or solicitation is unlawful and, in particular, is not for distribution in Australia, Canada (except in compliance with an exemption from applicable securities laws) or Japan. The Ordinary Shares have not been and will not be registered under the US Securities Act of 1933, as amended (the “US Securities Act”) or qualified for sale under the laws of any state of the United States or under any applicable securities laws of Australia, Canada or Japan. The Ordinary Shares are being offered and sold within the United States only to persons reasonably believed to be “qualified institutional buyers” (as defined in Rule 144A under the US Securities Act) in reliance on Rule 144A or pursuant to another exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act and outside the United States in reliance on Regulation S under the US Securities Act. The Ordinary Shares have not been approved or disapproved by the US Securities and Exchange Commission (“SEC”), any state securities commission in the United States or any US regulatory authority, nor have any of the foregoing authorities passed upon or endorsed the merits of the offering of the Ordinary Shares or the accuracy or adequacy of this document. Any representation to the contrary is a criminal offence in the United States. The distribution of this document and the offer, sale and/or issue of Ordinary Shares in certain jurisdictions may be restricted by law. No action has been or will be taken by the Company, the Directors, the Joint Global Co-ordinators or the Co-Lead Managers to permit a public offer of Ordinary Shares or possession or distribution of this document (or any other offering or publicity material or application form relating to the Ordinary Shares) in any jurisdiction, other than in the UK. Persons into whose possession this document comes are required by the Company, the Directors, the Joint Global Co-ordinators and the Co-Lead Managers to inform themselves about and to observe any such restrictions. This document does not constitute or form part of an offer to sell, or the solicitation of an offer to buy, Ordinary Shares to any person in any jurisdiction to whom or in which such offer or solicitation is unlawful. THE JOINT GLOBAL CO-ORDINATORS, JOINT BOOKRUNNERS AND CO-LEAD MANAGERS Each of Deutsche Bank, J.P. Morgan Cazenove, Canaccord Genuity and Numis Securities is regulated in the UK by the FSA and is acting exclusively for the Company and for no other person in connection with the Offer and will not regard any other person (whether or not a recipient of this document) as its client in relation to the Offer and will not be responsible to anyone other than the Company for providing the protections afforded to its clients or for providing advice in relation to the Offer or any transaction or arrangement referred to in this document. The Underwriters and any of their respective affiliates may have engaged in transactions with, and provided various investment banking, financial advisory and other services for, the Company and certain of the Selling Shareholders, for which they would have received customary fees. The Underwriters and any of their respective affiliates may provide such services to the Company and the Selling Shareholders and any of their respective affiliates in the future. In connection with the Offer, the Joint Global Co-ordinators, each of the Underwriters and any of their respective affiliates acting as an investor for its or their own account(s) may subscribe for or purchase Ordinary Shares and, in that capacity, may retain, purchase, sell, offer to sell or otherwise deal for its or their own account(s) in the Ordinary Shares, any other securities of the Company or other related investments in connection with the Offer or otherwise. Accordingly, references in this document to the Ordinary Shares being issued, offered, subscribed for or otherwise dealt with should be read as including any issue or offer to, or subscription or dealing by, the Underwriters or any of them and any of their respective affiliates acting as an investor for its or their own account(s). The Underwriters do not intend to disclose the extent of any such investment or transactions otherwise than in accordance with any legal or regulatory obligation to do so. In addition, in connection with the Offer, certain of the Underwriters may enter into financing arrangements with investors, such as share swap arrangements or lending arrangements where Ordinary Shares are used as collateral, that could result in such Underwriters acquiring shareholdings in the Company. Apart from the responsibilities and liabilities, if any, which may be imposed on Deutsche Bank, J.P. Morgan Cazenove, Canaccord Genuity and Numis Securities by FSMA, or the regulatory regime established thereunder, or under the regulatory regime of any other jurisdiction where exclusion of liability under the relevant regulatory regime would be illegal, void or unenforceable, none of Deutsche Bank, J.P. Morgan Cazenove, Canaccord Genuity and Numis Securities accept any responsibility whatsoever and make no representation or warranty, express or implied, for the contents of this document, including its accuracy or completeness, or for any other statement made or purported to be made by any of them, or on behalf of them, the Company or any other person in connection with the Company, the Ordinary Shares or the Offer and nothing contained in this document is or shall be relied upon as a promise or representation in this respect, whether as to the past or future. Each of Deutsche Bank, J.P. Morgan Cazenove, Canaccord Genuity and Numis Securities accordingly disclaims all and any responsibility or liability whether arising in tort, contract or otherwise (save as referred to above) which any of them might otherwise have in respect of this document or any such statement.

2 STABILISATION In connection with the Offer, J.P. Morgan Cazenove (as Stabilising Manager), or any of its agents, may (but will be under no obligation to), to the extent permitted by applicable law and for stabilisation purposes, over-allot Ordinary Shares up to a total of 15 per cent of the total number of Ordinary Shares comprised in the Offer or effect other transactions with a view to supporting the market price of the Ordinary Shares at a higher level than that which might otherwise prevail in the open market. The Stabilising Manager is not required to enter into such transactions and such transactions may be effected on any securities market, over-the-counter market, stock exchange or otherwise and may be undertaken at any time during the period commencing on the date of the conditional dealings of the Ordinary Shares on the London Stock Exchange and ending no later than 30 calendar days thereafter. Such stabilisation, if commenced, may be discontinued at any time without prior notice. In no event will measures be taken to stabilise the market price of the Ordinary Shares above the Offer Price. Except as required by law or regulation, neither the Stabilising Manager nor any of its agents intends to disclose the extent of any over-allotments made and/or stabilisation transactions conducted in relation to the Offer. For the purposes of allowing the Stabilising Manager to cover short positions resulting from any such over-allotment and/or from sales of Ordinary Shares effected by it during the stabilising period, it has entered into the Over-allotment Option with the Major Shareholders pursuant to which it may purchase (or nominate purchasers of) additional Ordinary Shares representing up to 15 per cent of the total number of Ordinary Shares comprised in the Offer (before utilisation of the Over-allotment Arrangements) (the “Over-allotment Shares”) at the Offer Price (in the proportions of up to 50 per cent from Peter Wood and the remainder from Tosca Penta Investments LP). The Over-allotment Option may be exercised in whole or in part upon notice by the Stabilising Manager at any time on or before the 30th calendar day after the commencement of conditional dealings of the Ordinary Shares on the London Stock Exchange. Any Over-allotment Shares made available pursuant to the Over-allotment Option will be sold on the same terms and conditions as Ordinary Shares being offered pursuant to the Offer and will rank pari passu in all respects with, and form a single class with, the other Ordinary Shares (including for all dividends and other distributions declared, made or paid on the Ordinary Shares). NOTICE TO PROSPECTIVE INVESTORS IN THE UNITED STATES The Ordinary Shares have not been and will not be registered under the US Securities Act and may not be offered or sold within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act and in compliance with any applicable state securities laws. Prospective investors are hereby notified that sales of Ordinary Shares may be made in reliance on an exemption from the provisions of Section 5 of the US Securities Act. The Underwriters, through their respective selling agents, may arrange for the offer and resale of the Ordinary Shares in the United States only to persons reasonably believed to be QIBs in reliance on Rule 144A or pursuant to another exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act. Any offer or sale of shares in the United States will be made by broker-dealers who are registered as such under the US Securities Exchange Act of 1934, as amended (the ‘‘US Exchange Act’’). For a description of these and certain further restrictions on the offer, sale and transfer of the Ordinary Shares and distribution of this document, see section 12 of Part IX (Information about the Offer) of this document. Please note that by receiving this document, purchasers shall be deemed to have made certain representations, acknowledgements and agreements set out herein including, without limitation, those set out in section 13 of Part IX (Information about the Offer) of this document. NOTICE TO NEW HAMPSHIRE RESIDENTS ONLY NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES (“RSA 421-B”) WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH. AVAILABLE INFORMATION FOR INVESTORS IN THE UNITED STATES Neither the Company nor any of its subsidiaries is required to file periodic reports under Section 13 or Section 15(d) of the US Exchange Act. For so long as any Ordinary Shares are ‘‘restricted securities’’ within the meaning of Rule 144(a)(3) of the US Securities Act, the Company will, during any period in which it is neither subject to Section 13 or 15(d) of the US Exchange Act nor exempt from reporting pursuant to Rule 12g3-2(b) of the US Exchange Act, provide, upon written request, to holders of Ordinary Shares, any owner of any beneficial interest in Ordinary Shares or any prospective purchaser designated by such holder or owner, the information required to be delivered pursuant to Rule 144A(d)(4) under the US Securities Act. This document is being furnished by the Company in connection with an offering exempt from the registration requirements of the US Securities Act, solely for the purpose of enabling a prospective investor to consider the subscription for or acquisition of Ordinary Shares described herein. The information contained in this document has been provided by the Company and other sources identified herein or therein. This document is being furnished on a confidential basis only to persons reasonably believed to be QIBs in the United States. Any reproduction or distribution of this document, in whole or in part, in the United States and any disclosure of its contents or use of any information herein or therein in the United States for any purpose, other than in considering an investment by the recipient in the Ordinary Shares offered hereby or thereby, is prohibited. Each potential investor in the Ordinary Shares, by accepting delivery of this document agrees to the foregoing. INTERPRETATION Certain terms used in this document are defined in Schedule I (Definitions) to this document. References to the singular in this document shall include the plural and vice versa, where the context so requires. References to sections or Parts are to sections or Parts of this document. The terms “subsidiary”, “subsidiary undertaking” and “undertaking” have the meanings given to them by the Companies Act. All references to time in this document are to London time unless otherwise stated. The date of this document is 8 March 2013.

3 TABLE OF CONTENTS

Page SUMMARY 5

EXPECTED TIMETABLE OF PRINCIPAL EVENTS 24

OFFER AND ADMISSION STATISTICS 25

RISK FACTORS 26

IMPORTANT NOTICES 52

DIRECTORS, COMPANY SECRETARY, REGISTERED OFFICE AND ADVISERS 57

PART I THE BUSINESS 58

PART II DIRECTORS, CORPORATE GOVERNANCE AND REMUNERATION 95

PART III FINANCIAL INFORMATION RELATING TO THE GROUP 106

PART IV MARKET OVERVIEW 112

PART V OPERATING AND FINANCIAL REVIEW 116

PART VI CAPITALISATION AND INDEBTEDNESS 150

PART VII UNAUDITED PRO FORMA FINANCIAL INFORMATION 152

PART VIII REPORTING ACTUARY’S OPINION 155

PART IX INFORMATION ABOUT THE OFFER 158

PART X REGULATORY INFORMATION 173

PART XI TAXATION 186

PART XII ADDITIONAL INFORMATION 192

SCHEDULE I DEFINITIONS 241

SCHEDULE II HISTORICAL FINANCIAL INFORMATION F-1

4 SUMMARY

Summaries are made up of disclosure requirements known as “Elements”. These Elements are numbered in Sections A – E (A.1 – E.7).

This summary contains all the Elements required to be included in a summary for this type of security and issuer. Because some Elements are not required to be addressed, there may be gaps in the numbering sequence of the Elements.

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

Section A – Introduction and Warnings A.1Warning to This summary should be read as an introduction to this prospectus. investors Any decision to invest in the Ordinary Shares should be based on a consideration of this prospectus as a whole by the investor.

Where a claim relating to the information contained in this prospectus is brought before a court, a plaintiff investor might, under the national legislation of the European Economic Area member states, have to bear the costs of translating this prospectus before the legal proceedings are initiated.

Civil liability attaches to the Directors and the Company, who are responsible for this summary including any translation thereof, but only if this summary is misleading, inaccurate or inconsistent when read together with the other parts of this prospectus or if it does not provide, when read together with the other parts of this prospectus, key information in order to aid investors when considering whether to invest in the Ordinary Shares.

A.2Consent for The Company consents to the use of this document by the Intermediaries in Intermediaries connection with the Intermediaries Offer in the UK, the Channel Islands and the Isle of Man on the following terms: (i) in respect of Intermediaries who are appointed prior to the date of this document, from the date of this document and (ii) in respect of Intermediaries who are appointed after the date of this document, from the date on which they are appointed to participate in the Intermediaries Offer and agree to adhere to and be bound by the terms of the Intermediaries Agreement, in each case until the closing of the Intermediaries Offer.

Prospective investors interested in participating in the Intermediaries Offer should apply for Ordinary Shares through the Intermediaries by following their relevant application procedures by no later than 19 March 2013.

Intermediaries are required to provide the terms and conditions of the Intermediaries Offer to any prospective investor who has expressed an interest in participating in the Intermediaries Offer to such Intermediary. Any application made by investors to any Intermediary is subject to the terms and conditions imposed by each Intermediary.

5 Section B – Issuer B.1Legal and The legal name of the Company is esure Group plc. commercial name

B.2Domicile/legal The Company is domiciled in the UK. It was incorporated in England and Wales form/ on 3 November 2009 and is registered as a public company limited by shares legislation/ under number 07064312. The Company operates under the Companies Act. country of incorporation

B.3Current The Group is a UK-focused personal lines insurer founded in 2000 by Peter operations Wood, the foremost general insurance entrepreneur in the UK and the and principal Company’s Chairman. activities Motor insurance business The Group’s principal underwriting business is the sale of motor insurance policies in the UK. As at 31 December 2012, the Group had 1.25 million in-force motor insurance policies, representing an estimated 5 per cent share of the total UK private motor insurance market. Policies are sold primarily under the Group’s strong and widely-recognised “esure” and “Sheilas’ Wheels” brands, and approximately 82 per cent of its new customer policies originated through price comparison websites in 2012.

The Group adopts a conservative approach to motor insurance underwriting. It targets customers with a statistically low underwriting risk profile and places a strong emphasis on measures to monitor the underwriting risk exposure and risk profile of the Group’s in-force policy books. This disciplined approach to underwriting, together with the Group’s anti-fraud measures and efficient claims handling processes, enabled it to deliver motor Loss Ratios of 70.0 per cent and 70.6 per cent in 2012 and 2011 respectively. In 2011, this represented one of the UK insurance industry’s lowest motor Loss Ratios.

In addition to the revenue generated from the underwriting of core motor policies, the Group also generates revenues from its motor business through the provision of Additional Services. Revenues from Additional Services are generated in four principal ways: (i) sales of Additional Insurance Products to motor insurance customers; (ii) instalment interest on premium payment plans; (iii) policy administration fees; and (iv) legal panel membership fees and fees generated from the appointment of firms used during the claims process, including medical, vehicle repair and car hire suppliers.

Home insurance business The Group has offered home insurance since September 2001 (shortly after the launch of the motor insurance business), but since 2008, and as part of the Group’s strategy to place a greater focus on diversifying beyond motor insurance, its home underwriting business has grown significantly. The growth

6 of the Group’s home insurance business has also accelerated in part due to the significant growth in recent years of price comparison websites as a distribution channel for home insurance policies together with the Group’s own focus on (and experience in) the price comparison website channel. As a result, the Group now has over 500,000 in-force home policies (which the Group estimates to account for approximately 2 per cent of the UK home insurance market) after achieving a compound annual growth rate in the number of its in-force home policies of 24 per cent in the period from 1 January 2008 to 31 December 2012.

As with its motor business, the Group targets home market segments with a statistically low underwriting risk profile, and has carried across the same underwriting, claims handling and anti-fraud discipline as it applies to its motor insurance business. The Group has also adopted the same multi-channel distribution strategy for its home insurance business, with particular emphasis on the price comparison website channel. While the price comparison website channel is not as dominant in the UK home insurance market as it is in the UK motor insurance market (with banks and building societies, as providers of mortgages and loans to homeowners, retaining a leading market share via other distribution channels), price comparison websites have gained a greater foothold in recent years, with market share of new business sales increasing rapidly from an estimated 20 per cent in 2010 to an estimated 29 per cent in 2012. The Directors believe that the Group’s focus on (and experience in) selling insurance products through price comparison websites, together with its established brands, puts it in a strong position to capitalise on a continuation of this trend.

The Group has also developed a specific range of home Additional Insurance Products to supplement the core home insurance cover provided by its home insurance policies, and, as with its motor insurance business, also generates revenues from the provision of other Additional Services to its home insurance policyholders.

Broker service In November 2011, the Group launched its esure – and Sheilas’ Wheels – branded motor insurance broker services. These services enable the Group, via a panel of selected third party insurers, to extend the coverage of its motor insurance footprint beyond its own underwriting risk parameters to an estimated 85 per cent of the total UK motor insurance market (by number of policies). This offers the potential for the Group to leverage its market position, brand strength and infrastructure to generate further revenues from motor insurance policies that can be brokered to panel insurers without retention of any motor insurance underwriting risk by the Group. These revenues are generated by way of Additional Services provided by the Group in connection with brokered policies, and there is also the potential for the Group to earn commissions through any margin it achieves on successful policy sales for panel insurers. At the same time, the Group’s panel insurers benefit not only from the strength of the esure and Sheilas’ Wheels brands but also from the Group’s up-front applicant screening and anti-fraud procedures (which the Directors believe are more comprehensive than typically employed by UK motor insurance broker services). In 2012, the first full year of operation, the Group’s broker services generated approximately 50,000 motor insurance policy sales for its panel insurers.

The Group has also recently entered the telematics market through the “Model Driver” policies offered by the Sheilas’ Wheels broker service in order to explore and develop the potential of telematics (where the use of an in-car “black box”

7 equipped with GPS, GSM/GPRS and accelerometer technologies monitors an individual’s driving behaviour and provides feedback which can be used to adjust future premiums on a quarterly basis). The broker service could also be used for home insurance or to enable the Group to expand its motor insurance coverage to further products such as van/motorbike insurance and a multi-car insurance offering.

Gocompare.com The Group also owns a 50 per cent interest in the price comparison website Gocompare.com, one of the top four price comparison websites for motor and home insurance products in the UK.

B.4a Significant Motor Insurance recent trends The UK motor insurance market has tended to fluctuate in cyclical patterns affecting the characterised by periods of significant competition and over-capacity (exerting Group and its downward pressure on premium rates) followed by periods of lessened industry competition (leading to increases in premium rates). From the end of 2009 until 2011, the market saw premium rates increase in response to a significant rise in the frequency and severity of personal injury claims experienced across the UK private motor insurance market. However, by late 2011 premium rates across the market had plateaued, and in 2012 they subsequently fell during the year, indicating the commencement of a period of increased competition in pricing. This softening of motor insurance premium rates has continued into 2013. Against that backdrop, the following additional factors are expected to have an impact on the motor insurance industry during 2013 and over the short to medium-term.

Implementation of gender-neutral pricing As a result of developments in EU law, the implementation of gender-neutral pricing came into force across the UK insurance industry on 21 December 2012. Motor insurance has been one of the classes of insurance most affected by this change due to the historic industry-wide reliance on gender as a rating factor (reflecting the statistically lower claims costs of women compared to men, particularly in younger age groups). As at 31 December 2012, approximately 95 per cent of the 0.7 million Sheilas’ Wheels motor policyholders were female. The Directors believe that a policy book of this size and gender profile is particularly valuable now that UK motor insurers are required to price on a gender-neutral basis, providing the Group with a degree of flexibility to balance retention rates with margin growth over a number of renewal cycles. In addition, the Group will continue with its female- focused marketing and advertising of the Sheilas’ Wheels brand, and generally to promote Sheilas’ Wheels in ways that appeals primarily to women, with the aim of preserving this advantage when writing new business. The Group has seen early evidence in 2013 of a positive impact on renewal retention rates for Sheilas’ Wheels policyholders as a result of increased renewal quote competitiveness. However, the Directors believe that the benefits that will accrue from the gender-neutral pricing regime will be weighted towards the second half of the year, when there is expected to be an increased number of renewals from younger female drivers (particularly as a result of actions taken by the Group in the second half of 2012 to increase the number of female insured-only policyholders under the age of 35).

8 Civil justice reforms Certain civil justice reforms are expected to come into force in the UK from April 2013, including: (i) a prohibition on the payment and receipt of referral fees in personal injury cases; (ii) a reduction in the fixed costs permitted to be recovered by solicitors for conducting claims under the Ministry of Justice’s “Pre-Action Protocol for low value personal injury claims in road traffic accidents” (£1,200 to £500); (iii) the withdrawal of the ability for successful claimants to recover after-the-event insurance premiums and success fees under conditional fee arrangements; and (iv) an increase of 10 per cent to the level of general damages. The Directors believe that the Group is well placed to be a net beneficiary of these civil justice reforms. In particular, the Directors believe that the benefits resulting from the ban on referral fees, when taken together with the £700 reduction in the fixed costs permitted to be recovered by solicitors for conducting Road Traffic Accident Protocol claims, will more than outweigh the loss of certain revenue streams (such as Legal Panel membership fees). In addition, the Directors believe that any reduction in personal injury claimant frequency resulting from these reforms may also provide the Group with the opportunity to re-enter segments of the UK motor insurance market that it had exited as a result of the personal injury claims phenomenon in the late 2000s which were profitable prior to the advent of that phenomenon. However, the Directors believe that any net benefit to the Group resulting from these reforms is unlikely to be evident until the second half of 2013, as they will only begin to take effect from April 2013.

Home insurance While weather trends and the incidence of adverse weather events (including severe cold weather and snow) can have a significant effect on the performance of home insurers, the Group's claims experience in 2013 to date has been broadly in line with expectations. In particular, while the UK did experience short periods of very cold weather and heavy snowfalls in early 2013, these have not given rise to claims greater than would ordinarily be expected for a winter period.

Investment returns Insurers hold significant levels of investments (in particular to support their technical reserves), and as such are exposed to a range of general economic trends that affect investment returns (particularly interest rates). The Group’s investment income has been adversely affected by, among other factors, the low market interest rates in the UK over recent years, and investment returns to date during 2013 have continued to be dampened by the current low interest rate environment. The Directors believe that this low interest rate environment is likely to persist for some time to come, affecting the Group’s investment returns going forward.

B.5Group The Company is the holding company of the Group. The Company has three structure principal operating subsidiaries: esure Insurance Limited, esure Services Limited and esure Broker Limited. esure Insurance Limited and esure Services Limited are regulated by the FSA. esure Broker Limited is registered with the FSA as an appointed representative of esure Services Limited.

esure Insurance Limited operates the general insurance business of the Group. esure Services Limited acts as an insurance intermediary and management

9 service provider for other members of the Group and holds the Group’s interest in Gocompare.com. esure Broker Limited provides insurance mediation services for the Group’s branded broker service.

B.6Major Insofar as was known to the Company, as at 7 March 2013 (being the latest Shareholders practicable date prior to the publication of this document), Peter Wood and Tosca Penta Investments LP will, on Admission, be directly or indirectly interested in three per cent or more of the issued share capital of the Company (being the threshold for notification of interests that will apply to the Company and Shareholders as of Admission pursuant to Chapter 5 of the Disclosure and Transparency Rules of the UK Listing Authority). The indicative interests in Ordinary Shares of the Major Shareholders immediately prior to Admission (calculated on the basis that the Offer Price is set at the mid-point of the Price Range), together with a corresponding estimate of their interests in Ordinary Shares immediately following Admission, are set out below.

Interests Ordinary Shares Interests immediately to be sold immediately prior to pursuant to following Admission(1) the Offer(1) Admission(1) –––––––––––––––––––– –––––––––––––––––––– –––––––––––––––––––– % of % of total % of total Major Shareholder No. issued No. holding No. issued Peter Wood(2) ...... 194,969,635 48.8% 48,981,745 25.1% 145,987,890 34.9% Tosca Penta Investments LP ...... 155,887,956 39.0% 87,386,545 56.1% 68,501,411 16.4%

On Admission, the Major Shareholders will not have special voting rights and the Ordinary Shares owned by them will rank pari passu in all respects with other Ordinary Shares.

Pursuant to a relationship agreement between the Company and Peter Wood that will have effect from Admission, Peter Wood will be able to nominate one person to be a director of the Company for so long as he (and any of his connected persons, when taken together) hold at least 15 per cent of the Ordinary Shares.

As at 7 March 2013 (being the latest practicable date prior to the publication of this document), the Company is not aware of any persons who, directly or indirectly, jointly or severally, will control the Company on or after Admission.

10 B.7Selected The table below summarises the development in certain key financial and historical key operating measures in 2010, 2011 and 2012. financial FYE information 2010(1) 2011 2012 In-force policies (end of period) (000s) Group ...... 1,565 1,653 1,759 Motor segment ...... 1,184 1,210 1,255 Home segment ...... 380 443 504

In-force policies (average)(2) (000s) ...... 1,625 1,593 1,718

Gross written premiums (£m) Group ...... 456.3 499.5 515.0 Motor segment ...... 390.2 423.1 429.0 Home segment ...... 66.1 76.4 86.0

Total income from Additional Services(3) (£m) ...... 75.1 87.0 104.1

Additional Services revenues per average in-force policy(4) (£) Group ...... 46.2 54.6 60.6 Motor underwriting...... 54.3 65.7 75.3 Home underwriting ...... 18.1 22.8 22.8

Group trading profit (loss)(5) (£m) Group ...... 16.0 86.1 138.1 Motor segment ...... (47.0) 20.8 30.5 Home segment ...... (20.7) 8.0 4.2 Non-underwritten Additional Services...... 49.3 53.2 51.7 Investment income ...... 24.7 (13.1) 39.4 Share of joint venture (Gocompare) profit ...... 9.7 17.2 12.3

Loss Ratio(6) (%) Group ...... 91.5 68.3 69.2 Motor underwriting...... 89.6 70.6 70.0 Home underwriting ...... 104.0 55.5 64.5

Expense Ratio(7) (%) Group ...... 23.9 25.2 23.6 Motor underwriting...... 22.6 24.0 22.4 Home underwriting ...... 32.1 32.5 30.0

Combined Operating Ratio(8) (%) Group ...... 115.4 93.5 92.8 Motor underwriting...... 112.3 94.6 92.4 Home underwriting ...... 136.1 88.0 94.5

Investment return(9) (%) ...... 3.3 (1.7) 5.2

Notes: (1) Information set out in this table reflects the consolidated results of operations for esure Holdings Limited and, following the Management Buy-out, the Company for 2010 (combined), and for the Company for 2011 and 2012. (2) Average of the in-force policies is calculated by taking the average of the number of in-force policies at each month end for all months within the relevant financial year. (3) Total income from Additional Services includes four main components: (i) sales of underwritten and non- underwritten Additional Insurance Products to motor and home insurance customers; (ii) instalment interest on premium payment plans; (iii) policy administration fees; and (iv) legal panel membership fees and fees generated from the appointment of firms used during the claims process, including medical, vehicle repair and car hire suppliers. Total income from Additional Services is stated before the deduction of any internal costs of acquisition or administration. Non-underwritten Additional Insurance Products revenue represents the commission margins for the Group generated from sales of such products. Underwritten Additional Services Products revenue is stated after the deduction of claims costs. Total income from Additional Services is a non-IFRS measure which management uses to evaluate group performance and is unaudited. It may not be comparable with similarly titled measures used by other companies. (4) Additional Services revenues per average in-force policy is calculated by taking total income from Additional Services and dividing by the average number of in-force policies on a rolling 12-month basis. (5) Trading profit is defined as earnings before interest, non-trading costs, tax, and amortisation of acquired intangible assets. Trading profit is a non-IFRS measure which management uses to evaluate group

11 performance. It may not be comparable with similarly titled measures used by other companies. Non- trading costs amounted to £5.2 million in 2012, £nil in 2011 and £7.0 million in 2010. (6) Loss Ratio is claims incurred, net of reinsurance as a percentage of earned premiums, net of reinsurance. (7) Expense Ratio is insurance expenses plus claims handling costs as a percentage of earned premiums, net of reinsurance. (8) Combined Operating Ratio is calculated as the sum of the Loss Ratio and Expense Ratio. (9) Ratio of total investment income (excluding instalment income) to the average of investment assets (which includes fixed income securities, cash and money market funds, equities and accrued interest).

Certain significant changes to the Group’s financial condition and results of operations occurred during these periods:

• In 2008 and 2009, there was a material increase in costs relating to personal injury claims across the UK motor insurance industry as a whole, and this continued to have a significant impact on the Group’s results of operations in 2010 (as reflected in the Group’s motor Loss Ratio and motor segment trading loss for that year). As a result of this personal injury claims phenomenon, in 2009, 2010 and 2011 the Group undertook a strategic de-risking of its in-force policy books to reduce its exposure to segments of the motor insurance market demonstrating a high incidence of personal injury claims. The results of this strategy are reflected in the improvement in the Group’s motor Loss Ratios from 2010 to 2011 and 2012, and in the turnaround of its motor trading profitability from 2010 to 2011 and subsequent increase in 2012.

• In 2010, severe cold weather was experienced across the UK both at the start of the year (January) and at the end of the year (November and December). As a result of these weather events, which were unusual in their severity, coverage and proximity, there was a consequent increase in the number and severity of claims experienced by the Group’s home underwriting business in 2010, principally due to water damage resulting from burst pipes. This is reflected in the high level of the home Loss Ratio and Combined Operating Ratio in 2010 by comparison with 2011 and 2012.

• The Group was also affected by general market conditions in investments. Since 2009, the returns on the Group’s bond portfolio have been substantially affected by the low interest rate environment in the UK, US and Europe and, during that period, equity markets were particularly volatile and the performance of the Group’s portfolio of equity investments was affected by the performance of the stock markets generally. The Group’s equity investments substantially underperformed the UK equity markets as a whole in 2011 due to the particular performance of the specialist equity funds in which the Group had invested. This led to significant net unrealised and, to a lesser degree, realised, losses on financial investments in the second half of 2011 (reflected in the negative investment yield in 2011). However, strong returns in 2012 from corporate bonds, covered bonds and residential mortgage backed securities within the Group’s fixed income investment portfolio, together with a recovery of the majority of 2011’s unrealised losses in equity investments as a result of strong performance by the specialist equity funds in which the Group had invested, is reflected in the significantly higher level of investment yield in 2012. Save for a £40 million reduction in capital of the Company on 21 February 2013 by way of cancellation of 4,000,000,000 Non-Voting Old Ordinary Shares (and, in consideration, the payment of £40 million in cash by the Company to Tosca Penta Investments LP), further details of which are set out in note 2 to Element

12 B.8 below, there has been no significant change in the financial condition or operating results of the Group since 31 December 2012, the end of the period covered by the selected historical key financial information set out in the table above.

B.8Selected key The unaudited pro forma statement of net assets set out below has been pro forma prepared to illustrate the impact of the Offer (and use of proceeds of the Offer) financial and certain other adjustment items on the net assets of the Group as if these had information happened on 31 December 2012. The unaudited pro forma net assets statement has been prepared for illustrative purposes only in accordance with Annex I and Annex II to the Prospectus Directive Regulation and should be read in conjunction with the notes set out below. Because of its nature, it addresses a hypothetical situation and therefore does not represent the Group’s actual financial position.

Adjustments ––––––––––––––––––––––––––––––––––––––––––––––––––––– Repay- Unaudited ment of Expenses pro forma Repurchase Perpetual of total As at of non- Proceeds Subord. Admission as at 31 Dec. Reduction voting of the Loan and the 31 Dec. 2012 of capital equity Offer Notes Offer 2012 Note(1) Note(2) Note(3) Note(4) Note(5) Note(6) Note(7) £m £m £m £m £m £m £m Assets Total assets...... 1,314.5 (40.0) (45.5) 50.0 (50.0) (7.0) 1,222.0 ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– –––––––

Equity and liabilities ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– Total equity ...... 231.1 (40.0) (45.5) 50.0 – (7.0) 188.6 ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– Liabilities Borrowings ...... 50.0 – – – (50.0) – –

Other liabilities ...... 1,033.4 – – – – – 1,033.4 ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– –––––––

Total liabilities .... 1,083.4 0.0 0.0 0.0 (50.0) 0.0 1,033.4 ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– Total equity and liabilities ...... ––––––– 1,314.5 ––––––– (40.0) ––––––– (45.5) ––––––– 50.0 ––––––– (50.0) ––––––– (7.0) ––––––– 1,222.0 Notes: (1) The financial information as at 31 December 2012 has been extracted without adjustment from the Historical Financial Information. (2) On 21 February 2013, the Company reduced its capital by the cancellation of 4,000,000,000 Non-Voting Old Ordinary Shares of £0.01 each and, in consideration, paid £40 million in cash to Tosca Penta Investments LP (the holder of the Non-Voting Old Ordinary Shares so cancelled). The reduction of capital was carried out in accordance with provisions in the Shareholders’ Agreement and the Pre-Admission Articles relating to the return of investment capital provided by Tosca Penta Investments LP at the time of the Management Buy-out. (3) On Admission, the Company will repurchase the outstanding 4,485,014,000 Non-Voting Old Ordinary Shares of £0.01 each at par and the outstanding 1,000 Redeemable Priority Return Shares of £0.01 each for an amount equal to the Priority Return (as defined and determined in accordance with the Pre-Admission Articles) from Tosca Penta Investments LP. The Non-Voting Old Ordinary Shares and Redeemable Priority Return Shares so purchased will be cancelled and a non-distributable capital redemption reserve of £44.85 million will be created. Assuming Admission occurs on or around 27 March 2013, the amount payable in respect of the Priority Return (as defined in the Pre-Admission Articles) will be £0.6 million. The repurchase of these Non-Voting Old Ordinary Shares and the Redeemable Priority Return Shares is being carried out in accordance with provisions in the Shareholders’ Agreement and the Pre-Admission Articles relating to the return of investment capital provided by Tosca Penta Investments LP at the time of the Management Buy-out. (4) The proceeds of the Offer receivable by the Company are calculated on the basis that the Company issues sufficient New Ordinary Shares at the Offer Price to raise £50 million. (5) On Admission, the Company will use all of the £50 million proceeds of the Offer to fund the repayment of the Group’s 50,000,000 Perpetual Subordinated Loan Notes of £1 each at par. (6) The aggregate expenses of, or incidental to, Admission and the Offer to be borne by the Company are approximately £7.0 million (inclusive of amounts in respect of VAT), which the Company intends to pay out of cash resources. (7) Save as set out in Note 2, no account has been taken of actual changes in the financial position of the Group since 31 December 2012. This pro forma financial information does not constitute financial statements within the meaning of section 434 of the Companies Act.

13 B.9Profit Not applicable; the Group has not made any profit forecasts which remain forecasts outstanding as at the date of this document.

B.10Audit report Not applicable; there is no audit report. KPMG Audit Plc’s accountant’s report on historical in respect of the consolidated Group financial information for the three years financial ended 31 December 2012 was unqualified. information – qualifications

B.11Working Not applicable. The Company is of the opinion that, taking into account the capital – proceeds of the Offer receivable by the Company, the Group has sufficient qualifications working capital for its present requirements (that is, for at least the next 12 months from the date of the publication of this document).

Section C – Securities C.1Description of The Ordinary Shares will have an International Security Identification Number class of the GB00B8KJH563. The Ordinary Shares will, on Admission, comprise the entire securities issued and to be issued ordinary share capital of the Company.

C.2Currency of The Ordinary Shares are denominated in Pounds Sterling. the securities issue

1 C.3Number of On Admission, there will be up to 420,433,334 Ordinary Shares of ⁄12 pence issued and each in issue. The exact number of Ordinary Shares that will be in issue on fully paid Admission is dependent on the Offer Price and will be announced in the Pricing Ordinary Statement. All Ordinary Shares in issue on Admission will be fully paid. Shares

C.4Rights The Ordinary Shares rank pari passu in all respects with each other, including attaching to for voting purposes and in full for all dividends and distributions on Ordinary the Ordinary Shares declared, made or paid after their issue and for any distributions made Shares on a winding up of the Company.

Subject to the provisions of the Companies Act, any equity securities issued by the Company for cash must first be offered to Shareholders in proportion to their holdings of Ordinary Shares. The Companies Act and the Listing Rules allow for the disapplication of pre-emption rights which may be waived by a special resolution of the Shareholders, either generally or specifically, for a maximum period not exceeding five years.

Except in relation to dividends which have been declared and rights on a liquidation of the Company, the Shareholders have no rights to share in the profits of the Company.

The Ordinary Shares are not redeemable. However, the Company may purchase or contract to purchase any of the Ordinary Shares on- or off-market, subject to the Companies Act and the requirements of the Listing Rules.

C.5Description of Save as described in the paragraph below, there are no restrictions on the free restrictions transferability of the Ordinary Shares. on free Transfer restrictions under the Companies Act transferability The Company may, under the Companies Act, send out statutory notices to of the those it knows or has reasonable cause to believe have an interest in its shares, Ordinary asking for details of those who have an interest and the extent of their interest Shares

14 in a particular holding of shares. When a person receives a statutory notice and fails to provide any information required by the notice within the time specified in it, the Company can apply to the court for an order directing, among other things, that any transfer of shares which are the subject of the statutory notice is void.

Transfer restrictions under the Articles The Board can decline to register any transfer of any share which is not a fully paid share. The Board may also decline to register a transfer of a certificated share unless the instrument of transfer: • is duly stamped or certified or otherwise shown to the satisfaction of the Board to be exempt from stamp duty and is accompanied by the relevant share certificate or such other evidence of the right to transfer as the Board may reasonably require; • is in respect of only one class of share; and • if to joint transferees, is in favour of more than four such transferees.

Registration of a transfer of an uncertificated share may be refused in the circumstances set out in the uncertificated securities rules (as defined in the Articles) and where, in the case of a transfer to joint holders, the number of joint holders to whom the uncertificated share is to be transferred exceeds four.

The Board may decline to register a transfer of any of the Company’s certificated shares by a person with an interest of 0.25 per cent or more of the existing Ordinary Shares (exclusive of any shares held in treasury) if such a person has been served with a restriction notice (as defined in the Articles) after failure to provide the Company with information concerning interests in those shares required to be provided under the Companies Act, unless the transfer is shown to the Board to be pursuant to an arm’s length sale (as defined in the Articles).

C.6Applications Application has been made for the entire issued and to be issued ordinary share for admission capital of the Company to be admitted to the premium segment of the Official to trading on List of the UK Listing Authority and to trading on the London Stock Exchange’s regulated main market for listed securities. markets No application has been made or is currently intended to be made for the Ordinary Shares to be admitted to listing or trading on any other exchange.

C.7Dividend The Directors intend to adopt a dividend policy which will reflect the Group’s aim policy of generating sustainable value for Shareholders while ensuring that it retains sufficient capital for regulatory purposes and to fund planned growth.

Assuming that sufficient distributable reserves are available at the time and subject to any regulatory capital requirements (including, in the future, pursuant to the incoming Solvency II regime), the Board initially intends to target the declaration of a “base dividend” each year of 50 per cent of the Group’s reported profits after tax.

In addition, the Board will carry out an assessment of the Group’s available and accumulated capital at the time of each dividend declaration to determine whether, in addition to the target “base dividend” (and after taking into account the cash required for any planned expansion or capital expenditure together with a prudent margin for contingencies), there is the potential for the Board to enhance the “base dividend” by a further “special dividend”.

15 If this policy had applied in respect of the financial years ended 31 December 2011 and 31 December 2012, the Directors believe that the Company would have achieved the target “base dividend” of 50 per cent of reported profits after tax for each of those years and would have been in a position to increase that amount by a further “special dividend” of at least 20 per cent of reported profits after tax for each of those years (with the aggregate amount being paid out across the interim and final dividends declared in respect of each of those years).

Going forward, it is envisaged that interim dividends will be paid in October of the relevant financial year and final dividends in May of the following financial year, in the approximate proportions of one-third and two-thirds respectively of the aggregate “base” and “special” dividends for the relevant year.

It is anticipated that the first dividend following Admission will be the interim dividend for the 2013 financial year (expected to be paid in October 2013), which owing to the fact that the Company will only have been listed for three months of the interim financial period, will represent an amount equal to half of the usual interim dividend which would have been paid if the Company had been listed for the full six months of the interim financial period. However, the final dividend for the 2013 financial year (expected to be paid in May 2014) will be determined by the Board in accordance with the dividend policy described above and, therefore, will represent approximately two thirds of the aggregate “base” and “special” dividends for the 2013 financial year, without any adjustment for the fact that the Company will not have been listed for the full financial year.

The Group may revise its dividend policy from time to time.

Section D – Risks

D.1 Key (A) Key information on the key risks relating to the industry in which the information Group operates on key risks • The Group operates in a highly competitive environment where the growth relating to the of price comparison websites has increased price competition to acquire Group and customers, new market entrants have in the past implemented aggressive the general pricing policies and growth targets and certain competitors have greater insurance resources than the Group. industry • The Business is concentrated in the UK private motor and home insurance markets and is therefore particularly vulnerable to adverse developments in these markets (including material increases in the cost of claims and changes in the regulatory, legislative or judicial landscape). • The Business is exposed to the effects of changing weather patterns, climatic conditions and catastrophes. The unpredictability of these factors may result in differences between actual experience and the Group’s assumptions on pricing and risk, leading to unexpected increases in the frequency and severity of claims incurred by the Group. • Cyclical market patterns (including in relation to the economy, weather, competition and underwriting capacity in the insurance and reinsurance industries), some of which are unpredictable, may lead to cyclical fluctuations and volatility in the Group’s results of operations or financial condition.

16 • The Group is subject to wide-ranging legal and regulatory (including capital) requirements and supervision, changes to which may result in additional compliance costs and diversion of management time and resources. Failure to comply with such requirements may result in investigations, disciplinary action, fines, reputational damage and the revocation of the Group’s licences, permissions or authorisations. For example, the consequences of the reforms made under the Legal Aid, Sentencing and Punishment of Offenders Act 2012, enacted on 4 May 2012, and other reforms proposed by Lord Justice Jackson in his review of the civil justice system, are difficult to predict and may have an adverse impact on the Group’s financial performance. • There is significant uncertainty around the timing of implementation and requirements of the Solvency II Directive, which will impose new risk- based capital requirements on European-domiciled insurance companies and may, when implemented, require an increase in the Group’s capital (including in the event that the Group is required to apply the prescribed standard formula rather than its own internal model when calculating solvency capital requirements or as a result of any projected volatility and/or year-on-year fluctuations in Loss Ratios). • The ongoing investigation by the Competition Commission into certain aspects of the UK private motor insurance market following a reference from the Office of Fair Trading may lead to market reforms that adversely affect the way the Group sells or prices motor insurance or manages the payment or receipt of fees generated from the appointment of service providers used during the claims process. • The Group’s ability to price risk effectively and accurately may be affected by the recent restrictions on taking into account gender-related factors in pricing, potentially leading to an unintended increase in the Group’s risk profile and/or resulting in loss of market share if competitors are able to adapt more efficiently or cost-effectively – the impact of these restrictions is not yet clear.

(B) Key information on key risks relating to the Group • The Group’s underwriting performance may be affected if it fails to make an accurate assessment of the risks it assumes, including any failure to collect and analyse data, to develop, test and apply accurate rating formulae, to promptly recognise and monitor claim trends, to identify and prevent fraud and/or to project severity and frequency of claims with accuracy. • The underwriting and/or management of insurance risks is subject to a number of uncertainties and variable factors, and any changes in these factors or any failures in the Group’s estimation techniques, assumptions or loss-mitigation actions may result in the Group’s claims reserves not adequately covering actual claims. • The Group and its operations are based in the UK and are therefore affected by any deterioration in UK economic, market and fiscal conditions (which may affect sales volumes and lead to increased fraud).

• Factors outside the Group’s control, including economic conditions, cyclical trends and the general business and regulatory environment, may affect revenues from Additional Services (in particular in relation to Additional Insurance Products).

17 • The Group’s investment returns are exposed to risks including interest rate, equity price and credit risks, as well as the risk of a general economic downturn (including deterioration caused by uncertainties arising in relation to the Euro and the Eurozone). • The Group’s brands, reputation and goodwill may be affected by factors including litigation, employee misconduct, operational failures, regulatory investigations, negative publicity, poor performance and changes to its relationships with price comparison websites. • The Group is dependent on its Chairman, Executive Directors and senior management team as well as certain other key personnel and may face operational challenges as well as challenges in recruiting and retaining suitable personnel if such persons leave the Business. • The Group may not be able to manage its underwriting risk successfully through reinsurance arrangements if risk appetites change and reinsurers withdraw their products or increase prices, or if reinsurers fail to meet their payment obligations. D.3Key • There has been no prior public trading market for the Ordinary Shares, and information an active trading market may not develop or be sustained in the future. on the key risks relating • The share price of publicly traded companies can be highly volatile, to the including for reasons related to differences between expected and actual Ordinary operating performance, corporate and strategic actions taken by such Shares companies or their competitors, speculation about the business and management of such companies and general market conditions and regulatory changes.

• Future substantial sales of Ordinary Shares, or the perception that such sales might occur, could depress the market price of the Ordinary Shares.

• The Company’s ability to pay dividends in future depends, among other things, on the Group’s financial performance and capital requirements and is therefore not guaranteed.

• Future substantial sales of Ordinary Shares, or the perception that such sales might occur, could depress the market price of the Ordinary Shares. In particular, the Group is unable to predict whether, following the termination of the lock-up restrictions put in place in connection with the Offer, substantial amounts of Ordinary Shares will be sold in the open market by those subject to such restrictions, including Tosca Penta Investments LP and/or Peter Wood.

Section E – Admission and the Offer E.1Total net Through the issue of New Ordinary Shares pursuant to the Offer, the Company proceeds of expects to raise £50 million. The aggregate expenses of, or incidental to, the Offer and Admission and the Offer to be borne by the Company are estimated to be estimated approximately £7.0 million (inclusive of amounts in respect of VAT), which the expenses Company intends to pay out of cash resources. Through the sale of Existing Ordinary Shares pursuant to the Offer, the Company expects that the Selling Shareholders will in aggregate raise approximately £438.3 million (on the basis of the Mid-point Assumptions) before taking into account expenses. On that basis, the aggregate underwriting commissions and amounts in respect of stamp duty or SDRT payable by the

18 Selling Shareholders in connection with the Offer are estimated to be up to approximately £15.3 million. No expenses will be directly charged to Investors in connection with Admission or the Offer by the Company or Selling Shareholders. E.2aReasons for The Directors believe that Admission is an important step in the Group’s the Offer and development, providing the Group with a stable corporate platform and long use of term ownership structure on which to base the next stage of its development, proceeds as well as further increasing the Group’s profile, brand recognition and credibility with its customers, suppliers and employees and assisting in the recruitment, retention and incentivisation of senior management and employees. All of the proceeds of the Offer received by the Company will be applied in repaying the Group’s outstanding £50 million Perpetual Subordinated Loan Notes, all of which were issued by the Group to Tosca Penta Investments LP at the time of the Management Buy-out.

Since the redemption of the Perpetual Subordinated Loan Notes involves the replacement of all existing interest bearing debt with non-interest bearing ordinary equity, the Offer will make a positive contribution to the Group’s financial results in future periods. There will be an additional benefit that the New Ordinary Shares, unlike the Perpetual Subordinated Loan Notes, will, along with the Existing Ordinary Shares, constitute qualifying Tier 1 capital for regulatory purposes.

E.3Terms and All Ordinary Shares subject to the Offer will be sold at the Offer Price, which will conditions of be determined by the Company, the Major Shareholders and the Joint Global the Offer Co-ordinators. It is currently expected that the Offer Price will be within the Price Range, although it may be set above or below this range. A number of factors will be considered when setting the Offer Price, including the level and nature of demand for Ordinary Shares and the objective of encouraging the development of an orderly after-market in the Ordinary Shares.

The Offer comprises an Institutional Offer and an Intermediaries Offer. Under the Institutional Offer, the Ordinary Shares are being made available (i) to certain institutional investors in the UK and elsewhere outside the United States in reliance on Regulation S, and (ii) in the United States, only to persons reasonably believed to be QIBs in reliance on Rule 144A or pursuant to another exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act. Under the Intermediaries Offer, the Ordinary Shares are being offered to intermediaries in the UK who will facilitate the participation of their retail investor clients in the UK, the Channel Islands and the Isle of Man.

In addition, Ordinary Shares (representing up to 15 per cent of the total number of Ordinary Shares that are subject to the Offer) are being made available pursuant to the Over-allotment Arrangements.

It is expected that Admission will take place and unconditional dealings in the Ordinary Shares will commence on the London Stock Exchange at 8.00 a.m. on 27 March 2013. Prior to Admission, it is expected that dealings in the Ordinary Shares will commence on a conditional basis on the London Stock Exchange on 22 March 2013. The earliest date for settlement of such dealings will be 27 March 2013. All dealings in the Ordinary Shares prior to the commencement of unconditional dealings will be on a “when issued” basis and will be of no effect if Admission does not take place and such dealings will be at the sole risk of the parties concerned. These dates and times may be changed without further notice.

19 The Offer is subject to the satisfaction of certain conditions contained in the Underwriting Agreement, which are typical for an agreement of this nature, including the absence of any breach of representation or warranty under the Underwriting Agreement, there having been no material adverse change since the date of the Underwriting Agreement and Admission having occurred not later than 8.00 a.m. on 27 March 2013 or such later time and/or such date as the Company may agree with the Joint Global Co-ordinators (on behalf of themselves and the other Underwriters).

None of the Ordinary Shares may be offered for subscription, sale or purchase or be delivered, or be subscribed, sold or delivered, and this document and any other offering material in relation to the Ordinary Shares may not be circulated, in any jurisdiction where to do so would breach any securities laws or regulations of any such jurisdiction or give rise to an obligation to obtain any consent, approval or permission, or to make any application, filing or registration.

Investors agreeing to subscribe for New Ordinary Shares and/or purchase Existing Ordinary Shares pursuant to the Offer agree with each of the Company, the Selling Shareholders and the Underwriters to be bound by certain terms and conditions upon which Ordinary Shares will be issued and/or sold under the Offer. Upon being allocated Ordinary Shares in accordance with the Offer, each Investor agrees to become a member of the Company, to acquire the Ordinary Shares allocated to it at the Offer Price and to pay the Offer Price for the Ordinary Shares allocated to it. Where an Investor fails to pay as directed, the relevant Investor shall remain liable to pay such amount and shall be deemed to have appointed the Joint Global Co-ordinators to sell any or all of the Ordinary Shares allocated to it at such price as the Joint Global Co- ordinators may be able to achieve at such time.

Under the terms and conditions of the Offer, each Investor makes certain representations, warranties and acknowledgements to the Company, the Selling Shareholders and the Underwriters customary for an offer of this type, including but not limited to: (i) in relation to certain characteristics of the Investor; (ii) the Investor’s compliance with restrictions contained in the Offer and with specified laws and regulations; (iii) reliance, responsibility and liability in respect of this document, the Offer and information outside of this document; (iv) compliance with laws; (v) jurisdiction; and (vi) liability for duties or taxes.

On request, an Investor may be required to disclose certain information, including any information about the agreement to subscribe for and/or purchase Ordinary Shares, the Investor’s nationality (if an individual) and jurisdiction in which the Investor’s funds are managed or owned (if a discretionary fund manager). The terms and conditions also provide for the following issues: the sending of documents to the Investor; the Investor being bound by the Articles upon transfer or issue of Ordinary Shares; the application of English law to the contract to subscribe for and/or purchase Ordinary Shares; and the situation where there exists joint agreements to subscribe for and/or purchase Ordinary Shares.

From Admission, the Offer is fully underwritten by the Underwriters in accordance with the terms of the Underwriting Agreement.

E.4Material The Company considers that: interests in the Offer • Peter Wood has interests that are material to the Offer by virtue of the size of his existing shareholding in the Company; and

20 • Tosca Penta Investments LP has interests that are material to the Offer by virtue of the size of its existing shareholding in the Company and its agreement with the Company in relation to the repurchase of its Non- Voting Old Ordinary Shares and redemption of its Perpetual Subordinated Loan Notes (both of which are subject to Admission occurring).

The Company does not consider that these are conflicting interests, or that there are any other interests, including conflicts of interest, that are material to the Offer.

E.5 Selling (A) Expected interests of Selling Shareholders immediately prior to and Shareholders/ following Admission Lock-up Up to 191,735,483 Existing Ordinary Shares will be sold by Selling Arrangements Shareholders pursuant to the Offer (representing 48.0 per cent of the Existing Ordinary Shares immediately prior to Admission). The indicative interests in Ordinary Shares of the Selling Shareholders immediately prior to Admission (calculated on the basis that the Offer Price is set at the mid-point of the Price Range), together with a corresponding estimate of their interests in Ordinary Shares immediately following Admission, are set out in the table below. Interests in Interests in Ordinary Ordinary Ordinary Shares Shares Shares immediately to be sold immediately prior to pursuant following Admission(1) to the Offer(1) Admission(1) –––––––––––––––––––– –––––––––––––––––––– –––––––––––––––––––– % of % of total % of total Selling Shareholder No. issued No. holding No. issued

Peter Wood(2)(5)...... 194,969,635 48.8% 48,981,745 25.1% 145,987,890 34.9% Tosca Penta Investments LP(2)(3)(4) ...... 155,887,956 39.0% 87,386,545 56.1% 68,501,411 16.4%

Stuart Vann(5) ...... 3,088,087 0.8% 1,019,068 33.0% 2,069,019 0.5%

Darren Ogden(5) ...... 1,781,538 0.4% 587,907 33.0% 1,193,631 0.3%

Anthony Hobson(4)(5)...... 342,749 0.1% 113,107 33.0% 229,642 0.1%

Peter Ward(4)(5) ...... 342,749 0.1% 113,107 33.0% 229,642 0.1%

Dame Helen Alexander(5).. 126,435 0.0% 41,723 33.0% 84,712 0.0%

Employee Shareholders(5) 30,310,980 7.6% 10,002,599 33.0% 20,308,381 4.9% Non-Employee Shareholders(5) ...... 11,129,653 2.8% 11,129,653 100.0% 0 0.0% Notes: (1) Calculated on the basis that (i) the Offer Price is set at the mid-point of the Price Range; (ii) the Company issues sufficient New Ordinary Shares to raise proceeds of £50 million; (iii) each of the Directors (other than Peter Wood) sells the maximum number of Existing Ordinary Shares through the Offer which he or she has indicated, on a non-binding basis, that he or she may sell; (iv) that all other Existing Shareholders sell the maximum number of Existing Ordinary Shares that they are permitted to sell through the Offer (which for Employee Shareholders is 33 per cent of their holdings and for Non-Employee Shareholders is 100 per cent of their holdings, assuming that scale-back is not applied); (v) that Peter Wood and Tosca Penta Investments LP sell, in aggregate, such number of their Existing Ordinary Shares as is necessary to ensure that the total number of Ordinary Shares subject to the Offer (taking into account (i) to (iv) above) represents 42.5 per cent of the total number of Ordinary Shares in issue immediately following Admission (calculated before utilisation of the Over-allotment Arrangements); and (vi) there is no exercise of the Over-allotment Option. (2) In addition, Peter Wood and Tosca Penta Investments LP may sell, in aggregate, up to a further 26,633,590 Ordinary Shares pursuant to the Over-allotment Arrangements (calculated on the basis of the assumptions set out in Note (1) above) in the proportions of up to 50 per cent by Peter Wood and the remainder by Tosca Penta Investments LP. (3) Tosca Penta Investments LP also holds 4,485,014,000 Non-Voting Old Ordinary Shares and 1,000 Priority Return Shares, all of which will be repurchased by the Company on Admission for, in aggregate, £45.45 million. David Calder and Charles Schrager von Altishofen, Directors, are both partners of Penta Capital LLP, which manages Tosca Penta Investments LP. David Calder and Charles Schrager von

21 Altishofen will retire from the Board on Admission. The business address of Tosca Penta Investments LP is 150 St. Vincent Street, Glasgow G2 5NE. (4) In addition, each of Anthony Hobson and Peter Ward have a 0.025 per cent economic interest in Tosca Penta Investments LP. Tosca Penta Investments LP is managed by Penta Capital LP. Anthony Hobson and Peter Ward do not have the ability to exercise voting rights in respect of the Ordinary Shares owned by Tosca Penta Investments LP, nor do they have the ability to call for the distribution of any Ordinary Shares owned by Tosca Penta Investments LP. (5) The business address of the Directors and (for the purposes of the Offer) of the Employee Shareholders and Non-Employee Shareholders is The Observatory, Castlefield Road, Reigate, Surrey RH2 0SG.

(B) Lock-up Arrangements Pursuant to the Underwriting Agreement and other arrangements to be entered into by Selling Shareholders, subject to certain customary exceptions: • the Company has undertaken not to issue any Ordinary Shares, other than pursuant to the Offer and the operation of any share schemes in existence at the date of Admission, for a period of 180 days from the date of the Underwriting Agreement;

• Peter Wood and the other Directors (except David Calder and Charles Schrager von Altishofen, who will both retire from the Board on Admission) have each undertaken not to sell any Ordinary Shares, other than pursuant to the Offer (and, in the case of Peter Wood, pursuant to the Over-allotment Arrangements), for a period of 365 days from the date of the Underwriting Agreement;

• Tosca Penta Investments LP has undertaken not to sell any Ordinary Shares, other than pursuant to the Offer and the Over-allotment Arrangements, for a period of 180 days from the date of the Underwriting Agreement;

• each Employee Shareholder who elects to sell Ordinary Shares pursuant to the Offer will be required to undertake not to sell any further Ordinary Shares for a period of 365 days from the date of the Underwriting Agreement; and

• each Non-Employee Shareholder who elects to sell Ordinary Shares pursuant to the Offer will be required to undertake not to sell any further Ordinary Shares for a period of 180 days from the date of the Underwriting Agreement.

In addition, Peter Wood has entered into an extended lock-up whereby he has undertaken to the Company that, from the date of this document, he will not, for a period ending two years after Admission, sell Ordinary Shares representing approximately two thirds of his holding immediately following Admission (calculated on the basis of the assumptions described in Note (1) to the table set out in Element B.6 (Major Shareholders) of this Summary).

E.6 Dilution The Existing Ordinary Shares will be diluted by the issue of up to 20,833,334 New Ordinary Shares pursuant to the Offer. Assuming that the Company issues sufficient New Ordinary Shares to raise proceeds of £50 million, the Existing Ordinary Shares will represent between approximately 95.0 per cent (if the Offer Price is set at the bottom of the Price Range) and approximately 96.1 per cent (if the Offer Price is set at the top of the Price Range) of the total issued Ordinary Shares immediately following Admission.

E.7Expenses No expenses will be directly charged to Investors by the Company or Selling charged to Shareholders. The Company intends to pay for the expenses of, or incidental to, Investors Admission and the Offer to be borne by it out of cash resources.

22 Any expenses incurred by any Intermediary are for its own account. Investors should confirm separately with any Intermediary whether there are any commissions, fees or expenses that will be applied by such Intermediary in connection with any application made through that Intermediary pursuant to the Intermediaries Offer. The Intermediaries appointed as at the date of this document have informed the Company that the aggregate commissions, fees and expenses to be charged by them in relation to the Intermediaries Offer to any of their respective clients acquiring Ordinary Shares pursuant to the Intermediaries Offer will range from 0 per cent to 1.95 per cent of the amount paid by such clients for the Ordinary Shares. To the extent that there is any change in the amount of such commissions, fees and expenses charged to the clients of the Intermediaries that arises after the date of this document, including as a result of the appointment of additional Intermediaries, this information will be made available on the Company’s website at www.esuregroup.com.

23 EXPECTED TIMETABLE OF PRINCIPAL EVENTS

Time and Date(1)(2) Latest time and date for receipt of completed application PR Ann III, 4.7, forms by the Intermediaries in respect of the Intermediaries Offer 5.00 p.m. 19 March 2013 5.1.3, 5.1.9, 5.3.2

Latest time and date for receipt of indications of interest from institutional investors in respect of the Institutional Offer 5.00 p.m. 21 March 2013

Announcement of the Offer Price through a Regulatory Information Service, publication of the Pricing Statement and notification of allocations of Ordinary Shares(3) 7.00 a.m. 22 March 2013

Commencement of conditional dealings in Ordinary Shares on the London Stock Exchange 8.00 a.m. 22 March 2013

Admission and commencement of unconditional dealings in Ordinary Shares on the London Stock Exchange 8.00 a.m. 27 March 2013

CREST accounts credited in respect of Ordinary Shares in uncertificated form 27 March 2013

Latest date for despatch of definitive share certificates (where applicable) for Ordinary Shares in certificated form 10 April 2013

Notes: (1) Times and dates set out in the timetable above and mentioned throughout this document that fall after the date of publication of this document are indicative only and may be subject to change without further notice. (2) All references to time in this timetable are to London time. (3) The Offer Price and details of the final number of Ordinary Shares subject to the Offer will be announced via a Regulatory Information Service and set out in the Pricing Statement. The Pricing Statement will not automatically be sent to persons who receive this document, but will be available free of charge at the registered office of the Company at The Observatory, Castlefield Road, Reigate, Surrey RH2 0SG. In addition, the Pricing Statement will, subject to certain restrictions, be published in electronic form and be available on the Company’s website at www.esuregroup.com.

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

24 OFFER AND ADMISSION STATISTICS

Price Range (per Ordinary Share)(1) 240p to 310p LR 2.2.7 Number of Existing Ordinary Shares in issue immediately prior to Admission 399,600,000 PR Ann III, 5.1.2 5.3.1 Minimum number of Ordinary Shares which may be comprised in the Offer(2) 145,505,161 Maximum number of Ordinary Shares which may be comprised in the Offer(3) 210,216,667 Maximum number of Ordinary Shares in existence on Admission(4) 420,433,334 Indicative number of Ordinary Shares in the Offer as a percentage Between 35% of total number of Ordinary Shares in existence on Admission(5) and 50% Maximum number of Existing Ordinary Shares subject to the Over-allotment Arrangements(6) 31,532,500 Estimated proceeds of the Offer receivable by the Company(7) £50 million Estimated proceeds of the Offer receivable by the Selling Shareholders(8) £438.3 million Indicative market capitalisation of the Company at mid-point of the Price Range(9) £1,148.9 million

Notes: (1) It is currently expected that the Offer Price will be within the Price Range; however, this range is indicative only and may change during the course of the Offer. If the Price Range does change, the Company would not envisage making an announcement until determination of the Offer Price, unless required to do so by law or regulation. To the fullest extent permitted by law, applications received under the Institutional Offer and the Intermediaries Offer are irrevocable and are based on the amount the applicant wishes to invest and not the number of Ordinary Shares or the Offer Price. The Company expects to publish the Pricing Statement containing the Offer Price and the number of Ordinary Shares which are the subject of the Offer on or around 22 March 2013. Further details of the Offer are contained in Part IX (Information about the Offer) of this document. (2) Calculated on the basis that the Offer Price is set at the top of the Price Range and on the assumption that the total number of Ordinary Shares subject to the Offer represents 35 per cent of the total number of Ordinary Shares in issue immediately following Admission (calculated before utilisation of the Over-allotment Arrangements) and there is no exercise of the Over- allotment Option. (3) Calculated on the basis that the Offer Price is set at the bottom of the Price Range and on the assumption that the total number of Ordinary Shares subject to the Offer represents 50 per cent of the total number of Ordinary Shares in issue immediately following Admission (calculated before utilisation of the Over-allotment Arrangements) and there is no exercise of the Over-allotment Option. (4) Assuming that the Offer Price is set at the bottom of the Price Range and that the Company issues sufficient New Ordinary Shares pursuant to the Offer to raise proceeds of £50 million. (5) It is currently expected that the Major Shareholders will, in aggregate, sell such number of their Existing Ordinary Shares as is necessary to ensure that the total number of Ordinary Shares subject to the Offer represent between 35 per cent and 50 per cent of the total number of Ordinary Shares in issue immediately following Admission (calculated before utilisation of the Over-allotment Arrangements); however, the Company does not know with certainty whether the Major Shareholders will do so and the number of Ordinary Shares subject to the Offer may represent a higher or lower percentage than that indicated (subject to meeting the free float requirements for Admission). (6) Calculated on the basis that the total number of Ordinary Shares subject to the Offer represents 50 per cent of the total number of Ordinary Shares in issue immediately following Admission (calculated before utilisation of the Over-allotment Arrangements). In the event that fewer Ordinary Shares are subject to the Offer, the number of Existing Ordinary Shares subject to the Over-allotment Arrangements would correspondingly reduce to such number as represents a maximum of 15 per cent of the Ordinary Shares subject to the Offer. (7) The estimated proceeds receivable by the Company are stated without the deduction of underwriting commissions and other estimated fees and expenses of approximately £7.0 million (inclusive of amounts in respect of VAT) payable by the Company and incurred in connection with Admission and the Offer, which the Company intends to fund from cash resources. (8) The estimated proceeds receivable by the Selling Shareholders are stated on the basis that the total number of Ordinary Shares subject to the Offer represents 42.5 per cent of the total number of Ordinary Shares in issue immediately following Admission (calculated before utilisation of the Over-allotment Arrangements) and that the Offer Price is set at the mid-point of the Price Range. Proceeds are stated without the deduction of underwriting commissions and amounts in respect of stamp duty or SDRT payable by the Selling Shareholders in connection with the Offer, which are estimated to amount to up to £15.3 million. (9) Assuming the Company issues sufficient New Ordinary Shares to raise proceeds of £50 million. The market capitalisation of the Company at any given time will depend on the market price of the Ordinary Shares at that time. There can be no assurance that the market price of an Ordinary Share will be equal to or exceed the Offer Price.

25 RISK FACTORS PR Ann I, 4 PR Ann III, 2 Any investment in the Company is subject to a number of risks. Accordingly, prospective investors should carefully consider the risks and uncertainties associated with any investment in the Ordinary Shares, the Group’s business and the industry in which it operates, described below, together with all other information contained in this document, prior to making an investment decision.

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

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

1. RISKS RELATING TO THE MARKETS IN WHICH THE GROUP OPERATES 1.1 The Group operates in a highly competitive environment where the growth of price comparison websites has increased price competition to acquire customers, new market entrants have in the past implemented aggressive pricing policies and growth targets and certain competitors have greater resources than the Group The Group operates in a highly competitive environment. Beyond regulatory considerations, including raising and maintaining adequate levels of capital for its underwriting activities (including additional capital expected to be required by the Solvency II Directive), there are relatively few barriers to entry for businesses seeking to compete with the Group’s private motor and home insurance product lines, or with its insurance intermediary services. In recent years, developments in the general insurance industry, in particular the rapid growth of price comparison websites (also known as aggregators), have made it easier for consumers to compare the prices and terms offered by various insurance providers. Price comparison websites have also enabled the entry into the market of small and niche private motor and home insurers by allowing them to reach a large number of potential customers without incurring significant up-front marketing costs. The overall importance of price comparison websites (in particular, as the predominant retail distribution channel for motor insurance policies and as an increasingly important retail distribution channel for home insurance policies) has led, at times, to increased price competition to acquire targeted customers. If competitive pressures compel the Group to reduce prices, its operating margins and underwriting results may be materially adversely affected.

In the past, the Group has faced increased competition from new entrants into the market, including those with substantial new capital or those looking to leverage the status of recognised and trusted brands. For example, a number of supermarkets offer private motor, home and other general insurance through underwriting arrangements with insurers. In addition, new entrants to the general insurance market have in the past implemented aggressive pricing policies to achieve market penetration and gain market share. Lower pricing of policies by competitors seeking aggressive growth targets within the Group’s target underwriting risk market for motor and/or home policies could lead to a reduction in the volume of policies written by the Group and/or force the Group to lower its pricing to compete. Either of

26 these outcomes may have a material adverse effect on the Group’s operating margins and underwriting results.

Some of the Group’s principal and potential competitors have greater resources than the Group. To the extent such insurers were to target the segments of the motor and home insurance markets in which the Group operates or which it targets, competition for customers could become more intense, which may cause the average premium rates for private motor insurance and home insurance to fall and/or the expense of acquiring and properly servicing and retaining each customer to increase. For example, in the context of home insurance, mortgage lenders and banks may have greater resources than the Group and generally benefit from having recognised and trusted brands and early access to homeowners and potential home insurance customers through the mortgage application process. The Group may incur additional costs in seeking to acquire customers from such competitors and may have to lower its home insurance premiums to attract such customers. Either of these outcomes, if they were to arise, may have a material adverse effect on the Group’s operating margins and underwriting results.

1.2 The Business is concentrated in the UK private motor and home insurance markets and is therefore particularly vulnerable to adverse developments in these markets (including material increases in the cost of claims and changes in the regulatory, legislative or judicial landscape) The Group’s primary business is underwriting motor and home insurance. Approximately 83 per cent and 17 per cent of the Group’s gross written premiums for 2012 were generated from private motor insurance policies and home insurance policies, respectively.

Adverse developments in the markets for private motor and home insurance could cause the Group’s results of operations or financial condition to suffer materially. Such developments may arise from a change in the applicable regulatory or legislative regime or in the approaches of regulators or judges who apply that regulation or legislation such that this leads, for example, to an increase in compensation awards or legal costs for personal injury claims or a decreased ability to evaluate risk. Sections 1.5 to 1.13 of these Risk Factors describe the material legal and regulatory risk factors that affect the Group.

The Business and the Group’s results of operations are also affected by adverse cost trends. In particular, factors which negatively affect cost trends for private motor insurance include:

• increased claimant and law firm awareness of the ability to claim for personal injury;

• increases in the costs of medical care (for example, as a result of increased investment in medical science leading to the continued rise in the cost of treatments and equipment and to increases to the life expectancy of catastrophic injury victims);

• increases in cost of provision of replacement cars due to use of credit hire arrangements; and

• inflation in motor repair costs and motor parts costs, as well as increases in used car prices.

Factors which negatively affect cost trends for private home insurance include:

• increases in the costs of repairs and building work;

• inflation in home contents goods; and

• the occurrence of severe weather events, climate change, and increased unpredictability of weather patterns and climatic conditions.

In 2009 and 2010, the Group’s motor Loss Ratio increased significantly due to a material increase in personal injury claims at the same time as the Group was growing the volume of policies in its portfolio. Such sudden and/or sustained inflation in claims costs experienced by the Group as a result of these or similar trends could have a material adverse effect on the Business and on the Group’s results of operations or financial condition, particularly during the time it takes the Group to identify and respond to them.

27 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. Some examples of potential changes in legislation or regulation which could impact the Group are discussed in sections 1.5 to 1.13 of these Risk Factors.

1.3 The Business is exposed to the effects of changing weather patterns, climatic conditions and catastrophes. The unpredictability of these factors may result in differences between actual experience and the Group’s assumptions on pricing and risk, leading to unexpected increases in the frequency and severity of claims incurred by the Group The frequency and severity of claims incurred by the Group is affected by the incidence of adverse weather events and catastrophes.

Severe weather events like rainstorms, windstorms, snowstorms, hailstorms and freeze events represent a material risk to the Group and may cause significant damage to vehicles and homes, particularly in heavily populated areas where there is a commensurate concentration of risk. In severe cold weather, water pipes may freeze and burst, leading to water damage and a consequent increase in the number and value of home insurance claims. A period of prolonged or frequent rainstorms may cause increased levels of flood damage, whereas prolonged periods of dry and hot weather may lead to increased levels of subsidence, each of which can lead to an increase in the frequency and severity of home insurance claims. Similarly, in prolonged periods of wet or icy conditions, there is likely to be an increase in the number of motor accidents, increasing the frequency and severity of motor insurance claims suffered by the Group.

Weather-related events cannot be predicted with accuracy, and UK weather patterns and conditions in recent years have created additional unpredictability and uncertainty about risk exposure and future trends. As a result of the uncertainty and unpredictability of weather patterns and climatic conditions, the Group’s assumptions regarding weather-related events may turn out to be incorrect in the future. Since the Group’s assumptions on weather-related events and climatic conditions are a factor in the pricing of policy premiums and in its reserving policies and reinsurance arrangements, an increased incidence of such events in any one year or over a number of years could have a material adverse effect on the Business and on the Group’s results of operations or financial condition. For example, in 2010 the UK was affected by severe cold weather in January, November and December, contributing to a Loss Ratio across the Group’s home insurance policies of 104.0 per cent, whereas in 2011 (when no such severe weather events occurred) the Loss Ratio across the Group’s home insurance policies was 55.5 per cent.

The Group’s assumptions on the impact of weather-related events and climatic conditions on the Business may also be affected by other external factors beyond its control. For example, in relation to home insurance, government initiatives or policies relating to flood control and the cover offered to properties at risk of flood, and changes to the funding or resourcing of such initiatives or policies, may result in increased pricing risk for the Group. The Statement of Principles on flooding that was agreed between Government and the insurance industry in 2000 which obliges insurance companies to offer flood cover as part of standard policies so long as they fit certain criteria expires on 30 June 2013. The Government and the Association of British Insurers (the “ABI”) are currently negotiating potential replacements for the Statement of Principles. One solution proposed by the ABI is a levy-based system to guarantee cover to high flood risk properties in future using a pool of capital from which to settle flood claims known as “Flood Re”. Under this proposal, insurers would agree to underwrite flood-risk properties but pass the flooding element of the risk into Flood Re. The Directors believe that if this solution is enacted it could affect the Group in the short term by temporarily reducing the competitive advantage of its low flood risk book of business as other insurers with greater flood exposure within

28 their books would be able to pass the cost of this exposure into a pool that the Group would in part pay for while having little benefit itself. There is also a risk that the implementation of Flood Re could take the industry several years to implement and that a complete failure of the Statement of Principles during this period could lead to more rapid action by Government to oblige all insurers to take on their market proportion of high flood risk properties at ‘affordable’ prices. In this event, the Group potentially has the ability to participate in a flood underwriting scheme known as Project Noah, which has been proposed by insurance brokers Marsh Limited and Guy Carpenter & Company, LLC. Such participation would pass the Group’s flood- risk in relation to the relevant properties to the scheme in return for a technical premium calculated with reference to advanced flood mapping tools, subject to a retention of 10 per cent of losses, which could lead to an increase in costs for the Group. Apart from covering adverse weather events, certain of the Group’s insurance products also provide cover for losses from catastrophes, including acts of terrorism and civil disorder. While the Group seeks to reduce its exposure to such events through reinsurance, the incidence and severity of catastrophes are inherently unpredictable, and a single catastrophe or multiple severe catastrophes in any one period could have a material adverse effect on the Group’s results of operations or financial condition.

1.4 Cyclical market patterns (including in relation to the economy, weather, competition and underwriting capacity in the insurance and reinsurance industries), some of which are unpredictable, may lead to cyclical fluctuations and volatility in the Group’s results of operations or financial condition Historically, the general (and, in particular, motor) insurance industry has been subject to cyclical patterns, some of which are unpredictable. In the past, this has caused significant cyclical fluctuations and volatility in the results of operations of general insurers. Many of the factors contributing to these cyclical patterns are beyond the control of any insurer, such as changes in the economic environment (including an economic downturn), the timing, location or severity of weather-related and catastrophic events, increases or decreases in the levels of insurance and reinsurance underwriting capacity in the industry and increases or decreases in levels of competition. The Group is exposed to the cyclical effects of such developments, including the need to increase or decrease policy prices to remain profitable and/or competitive, which could have a material adverse effect on the Business and the Group’s results of operations or financial condition. Cyclicality may be made more acute if such developments coincide with each other. The financial performance of the private motor insurance industry in particular has tended to fluctuate in cyclical patterns characterised by periods of significant competition in pricing and underwriting terms and conditions, which is known as a ‘‘soft’’ insurance market, followed by periods of lessened competition and increasing premium rates, which is known as a ‘‘hard’’ insurance market. Although an individual company’s financial performance is dependent on its own specific business characteristics, the profitability of most private motor insurance companies tends to follow this cyclical market pattern, with profitability generally increasing in hard markets and decreasing in soft markets. If the private motor insurance industry softens significantly over the short to medium term, the Group’s profitability may be materially adversely affected. Over the longer term, the unpredictability and competitive nature of the motor and home insurance industries may lead to significant period-to-period and year-to-year volatility in the Group’s results of operations and financial condition.

1.5 The Group is subject to extensive regulatory supervision and may, from time to time, be subject to enquiries or investigations that could divert management time and resources and result in fines, sanctions, variation or revocation of permissions and authorisations, reputational damage or loss of goodwill The conduct of the Business is subject on an ongoing basis to significant regulatory supervision. PR Ann I, 9.2.3 Insurance underwriting and insurance intermediary services are activities that are highly regulated in the UK and such regulation is largely based on requirements contained in relevant EU directives. To carry out such activities, the Group is required to hold and maintain certain licences, permissions and authorisations and to comply on an ongoing basis with applicable rules and regulations.

29 The FSA has wide powers to supervise and intervene in the affairs of insurance companies, insurance intermediaries and their authorised representatives, and has broad supervisory powers dealing with all aspects of the business activities of such entities including, among other things, the authority to grant and, in specific circumstances, to vary or cancel authorisations. The establishment of the PRA and FCA, which are expected to replace the FSA as the Group’s regulators with effect from 1 April 2013, could lead to material substantive changes in the applicable prudential and conduct of business rules and guidance and may, in due course, mean that the Group’s dual-regulated insurance subsidiaries are subjected to more invasive and vigorous supervision.

Regulatory supervision is a feature of the insurance industry landscape. Relevant Regulator(s) may, from time to time, make enquiries of the Group regarding its compliance with particular regulations governing the operation of its Business. The Group believes that it dedicates sufficient resources to its compliance programme for each of its regulated business activities. The Group endeavours to respond to regulatory enquiries in an appropriate way and to take corrective action when warranted. In the past, and in common with many other UK financial services firms, this has included providing undertakings to Relevant Regulator(s) to improve business practices and to revise contract terms where necessary. However, there can be no assurance that these efforts will eliminate the risk that a Relevant Regulator could find that the Group has failed to comply with applicable regulations or has not undertaken corrective action as required. It is also possible that the Group may attract increased attention from the Relevant Regulator(s) as it grows and as a result of Admission.

Relevant Regulator(s) (including for these purposes the Office of Fair Trading) can conduct industry- wide investigations into certain products, selling practices or other aspects of UK insurers’ businesses. A Relevant Regulator may determine that the Group has failed to comply with applicable regulations or, following such a determination, has not undertaken corrective action where required.

The impact of the Group being found to be non-compliant by any such enquiry and/or investigation is difficult to assess or quantify. The Relevant Regulator(s) may, among other things, seek to vary the Group’s permissions, impose a fine or require the Group to undertake customer redress in such circumstances. The amount of any such potential fine or redress is currently indeterminable and may remain unknown for substantial periods of time after a determination of non-compliance has been made. In addition, such enquiries or investigations could result in adverse publicity for, or negative perceptions regarding, the Group. Such enquiries or investigations could also affect the Group’s relations with current and potential customers, as well as divert management’s attention away from the day-to-day management of the Business.

1.6 In addition to the extensive regulatory supervision described in section 1.5 of these Risk Factors, the Group is also subject to wide-ranging legal requirements, changes to which may result in additional compliance costs and diversion of management time and resources. Failure to comply with such requirements may result in investigations, prosecution, disciplinary action, fines, reputational damage and the revocation of the Group’s licences, permissions or authorisations The conduct of the Business is subject to significant legal requirements and their interpretation, enforcement and development could adversely affect the Business and the Group’s results of operations and/or financial condition.

Among other things, insurance laws and regulations applicable to the Group:

• require the maintenance of certain solvency levels, which are expected to change when the Solvency II Directive (which imposes new risk-based capital requirements on European- domiciled insurance companies) is implemented;

• regulate transactions undertaken, including transactions with affiliates and intra-group guarantees;

• affect the licensing of insurers and intermediaries (and their management);

30 • regulate the rating methodology and pricing of insurance policies;

• regulate the sale, marketing and content of insurance policies;

• regulate the management of various distribution channels;

• limit the right to cancel or refuse to renew policies;

• limit the types and amounts of investments made by the Group;

• require reinsurance, underwriting, or involuntary assignments of high-risk policies;

• regulate the right to withdraw from markets or terminate involvement with intermediaries;

• restrict the payment of dividends or other distributions; and

• require the disclosure of financial and other information to regulators and/or the general public.

Failure by the Group to comply with applicable law and/or regulation could lead to investigation of the Group by, and/or onerous requests for information from, relevant regulators and national and supranational governmental bodies (including, for example, the European supervisory bodies), disciplinary action, prosecution, the imposition of fines, or the revocation of the licences, permissions or authorisations the Group requires to conduct the Business. This could have a material adverse effect on the Business and the Group’s results of operations or financial condition and could also harm its reputation.

Insurance laws, regulations, policies, accounting rules and practices currently affecting the Group may change at any time, including as a result of investigation and regulatory activity by one or more governmental, supervisory and/or enforcement authorities (which in recent years have involved common industry practices such as referral fees, as further described in section 1.7 below), in ways which may have a material adverse effect on the Business and the Group’s results of operations or financial condition and could lead to litigation. In addition to any changes impacting the Business, the Group may face increased compliance costs due to the need to set up additional compliance controls or the direct cost of such compliance because of changes to applicable insurance laws or regulation. This may also require management to divert significant time and attention to the implementation of such changes and/or transitional arrangements, potentially to the detriment of the day-to-day running of the Business. The Group cannot predict the timing, form or extent of any future legal, regulatory, accounting or tax initiatives or prospective or retrospective legislative or court decisions impacting the Business or the Group as a whole. Further, inconsistent application of directives (including Solvency II – as described further in section 1.9 below) by regulators in different Member States may place the Group’s business at a competitive disadvantage to other European financial services groups with competing businesses in the UK.

1.7 Civil justice reforms could reduce the revenues of the Group, increase the incidence of personal injury claims that are litigated or otherwise affect the Group’s results of operations and/or financial condition The Legal Aid, Sentencing and Punishment of Offenders Act 2012 (“LASPO”) was enacted on 4 May 2012 and, among other things, will ban the payment or receipt of personal injury referral fees for legal services (scheduled to take effect in April 2013). In 2012, the Group generated £7.1 million of revenues from legal panel membership fees relating to personal injury claims and may no longer be able to generate such revenues as a result of this legislation. The legislation may also have an impact on the ability of the Group to generate revenues relating to personal injury claims through the use of other legal service fee models such as fee sharing or alternative business structures established pursuant to the Legal Services Act 2007. This could have a material adverse effect on the Business and the Group’s results of operations or financial condition, particularly if the related proposals by the Ministry of Justice regarding reduction of the fixed costs permitted to be recovered by solicitors for conducting Road Traffic Accident Protocol claims and increases to the upper limit for Road Traffic Accident Protocol claims (which, as originally proposed, the Directors believe would lead to a reduction in the Group’s overall

31 claims costs) are not implemented at all or if, when implemented, their final provisions are not sufficient to offset the expected loss of legal panel membership fees. Following the rejection on 1 March 2013 of the judicial review application in respect of these proposals brought by the Association of Personal Injury Lawyers and the Motor Accident Solicitors Society, the Directors expect the proposed reduction in fixed recoverable costs in Road Traffic Accident Protocol claims to be implemented from the end of April 2013 and the proposed increase to the upper limit for Road Traffic Accident Protocol claims to be implemented from the end of July 2013, as announced by the Ministry of Justice. However, the Association of Personal Injury Lawyers and the Motor Accident Solicitors Society were granted permission to appeal, and it is not yet known whether any further legal or political challenge to the proposals will be more successful than the original application for review. Further, LASPO also permits the use by plaintiffs’ lawyers of contingency fee arrangements, which in some other jurisdictions are viewed as increasing the incidence of personal injury claims. Other reforms to costs in the English civil justice system proposed by Lord Justice Jackson, including a 10 per cent increase in general damages, have the propensity to increase as well as reduce the Group’s income and costs.

Accordingly, while the Directors believe that the changes introduced by LASPO and other related civil justice reforms should reduce the Group’s overall claims costs and in addition reduce personal injury claimant frequency in previously high frequency areas of the motor insurance market, there is a risk that the reforms will fail to reduce the Group’s exposure to loss relating to personal injury in the manner anticipated and that the Group will also lose the income streams currently afforded by referral arrangements and legal service fee models.

1.8 The impact of the restriction on using gender-related factors in pricing (which came into force on 21 December 2012) on the Group’s ability to price risk effectively and accurately is not yet clear and could potentially lead to an unintended increase in the Group’s risk profile and/or result in loss of market share if competitors are able to adapt more efficiently or cost-effectively On 1 March 2011, the European Court of Justice ruled that the use of gender-related factors in determining the premiums and benefits of insurance policies by insurance companies in the European Union was no longer permitted as it was incompatible with the fundamental right of equal treatment between men and women set out in the Treaty on the European Union. Prior to this decision, Article 5(2) of the European Union’s Gender Directive (Directive 2004/113/EC) had provided for a derogation from the principle of equal treatment in respect of differences in individuals’ premiums and benefits where the use of gender is “a determining factor in the assessment of risk based on relevant and accurate actuarial and statistical data”. As a result of the ruling, the derogation under Article 5(2) ceased to be available with effect from 21 December 2012. Insurers, including the Group, are now no longer permitted to use gender as one of the risk factors in establishing premium rates, if doing so results in differences in the premiums charged to men and women or in the benefits provided to men and women. Prior to this change, gender was an important element of the Group’s risk-based pricing and the Group’s pricing of premiums reflected the fact that women have historically filed fewer personal injury claims than men. As a result, the Group has had to amend the basis of calculations when generating quotes for premiums on both new and renewal business. These amendments have been particularly pertinent for policies written under the Sheilas’ Wheels brand where gender was previously an important factor in pricing. If the Group’s revised approach to pricing results in less effective or less accurate pricing of risk, the risk profile of the Group’s policy books may increase (or may already have increased). This could lead to the cost of claims exceeding projections and may require the Group to increase its future claims provisions. The Group may also come under pricing pressure or lose market share if the Group’s competitors adopt more efficient or cost-effective ways of complying with the new regime, or if the new regime leads to a period of volatile or unpredictable pricing by competitors as adjustments to gender-neutral pricing are made.

32 1.9 The Solvency II Directive, which will impose new risk-based capital requirements on PR Ann I, 10.4 European-domiciled insurance companies, may, when implemented, require an increase in the Group’s capital (including in the event that the Group is required to apply the prescribed standard formula rather than its own internal model when calculating solvency capital requirements or as a result of any projected volatility and/or year-on-year fluctuations in Loss Ratios) The Solvency II Directive, which will impose new risk-based capital requirements on European- domiciled insurance companies, was formally approved by the European Parliament in 2009. The requirements and timing for implementation of Solvency II are yet to be confirmed. Although new rules implementing Solvency II were expected to come into force on 1 January 2014, this change is now anticipated to be delayed beyond such date.

The Group is in the process of implementing a Solvency II programme which was initially established to meet the requirements of Solvency II, as currently articulated in the draft legislation and draft regulatory technical standards, by the previously expected implementation date of 1 January 2014. The Group has since revised its planning assumptions in line with market expectations of a later implementation date. It is possible that a Relevant Regulator could seek to impose increased capital requirements in the interim period before Solvency II is implemented in its final form – this has the potential to increase costs for the Group during such period and to take up management time as a result of the uncertainty surrounding any new requirements.

As currently provided for in Solvency II, insurers will be permitted to calculate solvency capital requirements by using a detailed standard formula approach or by developing their own internal model, which must be approved by the Relevant Regulator. The Group is participating in the FSA’s “Internal Model Approval Process”, and intends to seek approval for an internal model. The Group is also developing a standard formula as a contingency. If the internal model is not approved and the standard formula is applied, this may lead to higher capital requirements than those required pursuant to the Group’s existing solvency capital requirements and than would be required pursuant to an internal model under Solvency II and result in less cash being available for distribution to Shareholders.

In addition, there is considerable uncertainty regarding the impact that Solvency II will have on insurance companies. Since the requirements of Solvency II are yet to be finalised, there is a risk that the final Solvency II requirements may differ from the draft legislation and lead to further increases in the capital required to support the Group’s insurance business. In particular, details in relation to the standard formula for calculating solvency capital requirements have not been finalised and may lead to higher capital requirements than currently anticipated.

Since Solvency II imposes risk-based capital requirements, the level of the Group’s Loss Ratios may affect the level of capital needed in connection with its insurance business lines. While the Group seeks to manage its Loss Ratios to provide a sustainable basis for the profitable growth of the Business, the level of the Group’s Loss Ratios is affected by factors outside the Group’s control, including economic conditions, weather-related events and catastrophes, fraud and adverse litigation outcomes. There is a risk that higher projected Loss Ratios or more year-to-year volatility in Loss Ratios under an internal model could result in an increase in capital requirements under Solvency II. Either of these outcomes would mean that less cash would be available for distribution to Shareholders.

1.10 The ongoing investigation by the Competition Commission into certain aspects of the UK PR Ann I, 9.2.3 private motor insurance market following a reference from the Office of Fair Trading may lead to market reforms that adversely affect the way the Group sells or prices motor insurance or manages the payment or receipt of fees generated from the appointment of service providers used during the claims process On 28 September 2012, the Office of Fair Trading published its final decision to refer the UK market for the supply or acquisition of private motor insurance and related goods or services to the Competition Commission for a market investigation. This followed a market study, launched by the Office of Fair Trading on 14 December 2011, into the supply of private motor insurance in the UK, with a specific

33 focus on the provision of third party vehicle repairs and credit hire replacement vehicles to drivers involved in accidents where they were not-at-fault. Following the Office of Fair Trading’s initial review pursuant to the market study, it issued a provisional decision on 31 May 2012 which reached the same conclusion as its final decision. The market study was launched after a three month call for evidence, which sought information on a number of areas, including the reasons behind the reported increase in private motor insurance premiums between 2009 and 2011.

The Office of Fair Trading’s final decision concluded that it had reasonable grounds to suspect that there are features of the market for private motor insurance in the UK preventing, restricting or distorting competition. The Office of Fair Trading estimated that these features cost private motor insurers £225 million in 2011, which, according to the Office of Fair Trading, indicated that consumers could be paying an extra £10 per private motor insurance policy. As a result, the Office of Fair Trading made a market investigation reference to the Competition Commission.

As a result of the market investigation reference, the Competition Commission will take between 18 and 24 months to conduct its inquiry. The statutory deadline for the Competition Commission to reach its final decision is 27 September 2014. It is not possible to predict the outcome of this inquiry with any certainty at this stage (the Competition Commission currently anticipates publishing its provisional findings in September 2013). If motor insurance providers are found to carry on practices that allow them to generate revenues through fees or rebates received as a result of the appointment of credit hire vehicle suppliers and vehicle repair companies in connection with claims, while simultaneously inflating the costs that the insurer of the at-fault driver has to meet, the Competition Commission has the power to implement significant reforms to the selling and pricing of motor insurance and to industry practices such as the payment and receipt of referral fees. In 2011 and 2012, the Group generated £5.5 million and £7.3 million of revenues, respectively, from fees received as a result of the appointment of credit hire vehicle suppliers and vehicle repair companies in connection with claims. Reforms implemented by the Competition Commission could affect the ability of private motor insurers, including the Group, to generate such revenues.

1.11 The Group’s ability to price risk effectively and accurately may be affected if the use of age as a factor in risk-assessment is prohibited as a result of legal developments in Europe and in the UK The European Commission has proposed a draft directive that prohibits, among other things, age discrimination in certain contexts. The proposed directive provides an exemption for insurers that permits the use of age in pricing where age is a determining factor in the assessment of risk, based on relevant actuarial principles, accurate statistical data or medical knowledge. This exemption is worded similarly to the exemption used in Article 5(2) of the Gender Directive. As set out in section 1.8 of these Risk Factors, the European Court of Justice’s ruling that Article 5(2) of the Gender Directive be invalid from 21 December 2012 led to the changes described in that section. Given the similarities between the exemption in Article 5(2) in the Gender Directive and the exemption under the proposed directive, there is a risk that the exemption in the proposed directive may be subject to challenge. If the Group cannot use age in the assessment of risk, this will materially limit an important element of risk-based pricing. This may result in less effective or less accurate pricing of risk, and the Group’s results of operations and financial condition may be materially adversely affected.

In the UK, exemptions from the age discrimination provisions under the Equality Act 2010 that would otherwise also prohibit insurers from discriminating on the grounds of age in the provision of insurance services came into force on 1 October 2012. These exemptions incorporated an exemption that permits insurers to take age into account in the assessment of risk. There is a risk that this exemption may be open to challenge if the age-related exemptions in the draft directive are withdrawn for any reason. As discussed in the paragraph above, if the Group cannot use age as a risk factor, this may result in less effective or less accurate pricing of risk, and the Group’s results of operations and financial condition may be materially adversely affected.

34 1.12 Changes to the institutional framework for financial regulation in the UK, including the break-up of the FSA and the accompanying reorganisation of the UK regulatory system, could lead to administrative and operational disruption and affect the ability of regulated firms to deal effectively with regulatory authorities and to anticipate and respond appropriately to developments in regulatory policy. It could also lead to unanticipated changes in the nature of, or policies for, prudential and conduct of business supervision, which may affect the Group’s ability to respond to, and satisfy the supervisory requirements of, the Relevant Regulator(s) The Financial Services Act 2012 received Royal Assent on 19 December 2012. As more particularly summarised in section 1.1 of Part X, the Act, when implemented, will effect a break-up of the FSA and the reallocation of its current responsibilities between the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) and will also establish the Financial Policy Committee which will be a new authority at the Bank of England with responsibility for macro-prudential regulation. It is envisaged that the PRA and the FCA will assume their responsibilities from the FSA on 1 April 2013 (defined in this document as the “Legal Cutover”).

It is not presently anticipated that the structural reorganisation and reallocation of the FSA’s regulatory responsibilities will, by itself, lead to material substantive changes in the prudential and conduct of business rules and guidance which have been made or which have been recently consulted on by the FSA. However, the changes have the potential to generate for regulated firms uncertainty and compliance complexity in, for example, the following respects:

• while, in preparation for the changes implemented by the Financial Services Act 2012, the FSA has implemented a shadow internal structure with a sub-division of responsibilities reflecting the respective roles of the PRA and FCA after Legal Cutover, the reorganisation has the potential to cause administrative and operational disruption for regulated firms and could affect a dual regulated firm’s ability to deal effectively with its supervisors in the period immediately before and after Legal Cutover and could also impact such firms’ seamless transition to the new regulatory regime;

• following Legal Cutover, firms dually regulated by the PRA and the FCA (including, for example, esure Insurance Limited) will have to expend time and expertise to modify their compliance procedures and processes to reflect that they will be subject to separate supervision by two separate regulators; and

• as more particularly described in section 1.3 of Part X, firms dually regulated by the PRA and FCA will, in certain circumstances following Legal Cutover, be required to refer to two new sets of rules (i.e. the PRA rules and FCA rules) rather than a single source (i.e. the FSA Handbook) as is the case currently.

It is possible that the nature of, or policies for, prudential and conduct of business supervision by the PRA and FCA will, in future, differ from the approach currently taken by the FSA, including in relation to regulatory requirements. In addition, the PRA and FCA will have new powers (conferred under the Financial Services Act 2012) in relation to regulated firms and unregulated parent companies. This could lead to a period of uncertainty for direct insurance businesses and insurance intermediaries and for the Group because the full implications of any new supervisory style or regulatory power are currently unknown and no assurance can be given in respect of the Group’s ongoing ability to respond to, and satisfy the supervisory requirements of, the Relevant Regulator(s). As a result of this uncertainty, there can be no assurance that these changes will not have a material adverse effect on the Business or the Group’s results of operations and/or financial condition.

1.13 Adverse litigation outcomes, an increase in the use of periodical payments orders, and/or a change in the Ogden Tables used to determine the discount rate for litigation settlements could result in higher costs of claims for the Group The Group, in common with the insurance industry in general, has been involved in, and expects to continue to be involved in, legal proceedings that may be costly irrespective of the outcome and that

35 could divert management’s attention from running the Business. In the ordinary course of the Group’s insurance activities, it is routinely involved in legal, mediation and arbitration proceedings with respect to liabilities which are the subject of policy claims.

To the extent that legal decisions increase court awards, the impact of which may be applied prospectively or retrospectively, the provisions the Group makes for claims may prove insufficient to cover actual claims, claim adjustment expenses or future policy benefits. As a result, the Group may have to increase its claims provisions and incur a charge to its earnings. This could have a material adverse effect on the Group’s results of operations and/or financial condition.

In relation to private motor insurance, the cost of claims could rise significantly above historical or expected levels to the extent that claims for personal injuries are determined or settled with PPOs (periodical payment orders). PPOs are effectively annuity payment orders that can be established by the courts to settle large personal injury and care claims (as an alternative to lump sum payments) resulting from motor accidents. They add an increased risk (i.e. mortality) which can increase the uncertainty of the total cost and, as a result of the indexation allowance built into reinsurance treaties being generally lower than the indexation allowance built by the courts into PPO claim settlements (generally based on the ASHE index), reinsurance may not cover the full costs of such claims.

The recent increase in the use of PPOs to settle personal injury claims makes the estimation of reserves increasingly complex and uncertain. Since PPOs typically involve periodic payments during the entire lifetime of an injured person, an increased range of assumptions is required to estimate risk exposure. It may be difficult to set accurate reserves due to uncertainties over life expectancy, inflation, investment income, payment patterns or other factors. Though the Group’s exposure to PPOs to date has been limited, such claims tend to be large and are expected to pay out over a long period, which increases the uncertainties discussed above.

The Group bears the risk that the cost of claims may ultimately be higher than projected. To compensate for this uncertainty, the Group may have to divert additional funds towards loss provisioning. Further, if the Group has reinsured such exposure, the Group may bear: (i) a credit risk in relation to the reinsurer; and (ii) the risk that the Group may need to account for excess amounts as a result of the rate of inflation during the term of the PPOs being greater than any cap on indexation contained in any such reinsurance policy’s terms.

If personal injury claims are determined or settled with lump sum payments, such payments are calculated in accordance with the Ogden Tables. The Ogden Tables contain a discount rate that is set by the UK government and that is applied when calculating the present value of loss of earnings for claims settlement purposes. This discount rate is currently under review, and the timing of the conclusion of this review is unclear and it is still uncertain whether or by how much the rate will change. A change in the discount rate used in the Ogden Tables, whether as a result of the UK government’s current review or any future review, could affect all relevant claims settled after that date, regardless of whether the insurance to which the claim relates was priced on that basis or not (or occurred after that date or not). In particular, a reduction in the Ogden discount rates will increase lump sum payments to UK personal injury claimants. This may have a material adverse effect on the Business and the Group’s results of operations or financial condition.

1.14 The Group may be exposed to fines, penalties, reputational damage and the potential loss or revocation of permissions or authorisations if it fails to identify and eliminate potential mis-selling practices If the Group, or any third party outsourcer used by the Group, fails to identify and eliminate potential mis-selling practices, or to effectively manage and reduce the risk of mis-selling, the Group may be exposed to financial and reputational risk.

If disputes arise in relation to the way in which an insurance policy or product was sold or administered by the Group or in relation to the fair treatment of customers by the Group they may, if not successfully resolved, be dealt with by the Financial Ombudsman Service and/or a Relevant Regulator.

36 The Group may be subject to investigations conducted by or commissioned by a Relevant Regulator, which could result in regulatory fines or penalties and the Group may be required to improve its systems and controls and/or its business policies and practices, which could include making changes to sales processes, withdrawing products, or providing restitution to affected customers. Relevant Regulators have powers that could be used to require the Group to make these changes. Restitution has in one instance in the recent past been required on the basis where the relevant insurer was required to refund the entire amount of a product purchased by affected customers, rather than just in relation to that part of the product that was affected by mis-selling. In addition, the Group’s brands and reputation may be affected if such customers seek redress publicly, either through the courts or otherwise or if a Relevant Regulator decides to publicly censure any member of the Group. The Group may suffer such brand and reputational damage even in circumstances where allegations of mis-selling by customers and/or consumer groups are not ultimately upheld. A Relevant Regulator could also vary or withdraw the Group’s permissions, or vary or withdraw the permissions held by individual employees of the Group. Any of these could have a material adverse effect on the Business and the Group’s results of operations and/or financial condition.

1.15 The Group may suffer from increased charges, financial loss, penalties and reputational damage if tax rates, tax laws or HMRC’s published practice change, or if the Group fails to manage tax risks adequately Changes in tax rates, tax laws or HMRC’s published practice, or changes in or interpretation of or misinterpretation of the law or HMRC’s published practice, or any failure to manage tax risks adequately could result in increased charges, financial loss, penalties and reputational damage, which may have an adverse effect on the Group’s financial condition. In particular, any changes to, withdrawal of or change in the application of, the current UK VAT exemption that applies to insurance activities may affect the Group’s outsourcing costs. The Group cannot predict the impact of future changes in tax rates, tax laws or HMRC’s published practice on its products or the Business. Such changes and/or the introduction of new tax legislation could have a material adverse effect on the Business and the Group’s results of operations and/or financial condition.

2. RISKS RELATING TO THE GROUP

2.1 The Group’s underwriting performance may be affected if it fails to make an accurate assessment of the risks it assumes, including any failure to collect and analyse data, to develop, test and apply accurate rating formulae, to promptly recognise and monitor claim trends, to identify and prevent fraud and/or to project severity and frequency of claims with accuracy The Group’s results of operations and financial condition depend on its ability to underwrite and set rates and prices accurately for its targeted spectrum of risks. Rate adequacy is necessary to generate sufficient premiums to cover losses and underwriting expenses and to earn profit on its own underwriting. If the Group fails to assess accurately the risks that it assumes, it may fail to establish adequate premium rates, which could result in the Group making losses from its underwriting activities. Such losses could have a material adverse effect on the Business or the Group’s results of operations and/or financial condition. Sections 1.8 and 1.11 of these Risk Factors describe certain other risks that could affect the accuracy of risk pricing.

In order to price its products accurately, the Group must collect and properly analyse a substantial volume of data; develop, test and apply appropriate rating formulae; promptly recognise and closely monitor trends; identify and prevent fraud; and project both severity and frequency of losses with reasonable accuracy. The Group’s ability to do these successfully and, as a result, price its products accurately, is subject to a number of risks and uncertainties, including:

• the availability of and ability to use sufficiently reliable data;

• correct analysis of available data;

• uncertainties inherent in estimates and assumptions generally;

37 • the selection and application of appropriate rating formulae or other pricing methodologies;

• unanticipated or inconsistent court decisions, legislation or regulatory action;

• changes in the Group’s claims settlement practices, which can influence the amount paid on claims;

• changes in frequency or severity of claims; and

• changes over time in consumer behaviour and habits.

Accurate pricing of motor insurance is subject to a number of specific uncertainties, including:

• changing driving and other consumer patterns, which could adversely affect both frequency and severity of claims;

• unanticipated increases in the number and severity of bodily injury claims;

• increases in cost of provision of replacement cars due to use of credit hire arrangements; and

• unanticipated inflation in motor repair costs, motor parts prices and used motor prices, adversely affecting motor physical damage claim severity.

Accurate pricing of home insurance is subject to a number of specific uncertainties, including:

• increases in the costs of repairs and building work;

• inflation in home contents goods; and

• unanticipated weather patterns and climatic conditions, as well as catastrophes.

Such risks may result in the Group’s pricing being based on inadequate or inaccurate data or inappropriate analyses, assumptions or methodologies, and may cause the Group to estimate incorrectly future increases in the frequency and severity of claims. As a result, the Group could underprice risks, which could negatively affect its Loss Ratio, or the Group could overprice risks, which could reduce its business volume and competitiveness.

Underwriting is a matter of judgement involving important assumptions about matters that are inherently unpredictable and beyond the Group’s control and for which historical experience and probability analysis may not provide sufficient guidance. Notwithstanding the risk mitigation and underwriting controls employed, one or more catastrophic or other loss events could result in claims that substantially exceed the Group’s expectations, which may have a material adverse effect on its financial condition and/or results of operations.

2.2 The underwriting and/or management of insurance risks is subject to a number of uncertainties and variable factors, and any changes in these factors or any failures in the Group’s estimation techniques, assumptions or loss-mitigation actions may result in the Group’s claims reserves not adequately covering actual claims The Group’s claims reserves may prove to be inadequate to cover the actual claims made.

The underwriting and/or management of insurance risks is, by its nature, subject to uncertainty and there can be no assurances that the Group’s estimation techniques, assumptions or loss-mitigation actions will result in provisions being sufficient. Among other issues, the uncertainties under insurance contracts include:

• uncertainty whether an event has occurred which would give rise to a customer suffering an insured loss;

• uncertainty about the extent of policy coverage and limits applicable;

38 • uncertainty about the amount of insured loss suffered by a customer as a result of the event occurring, in particular given the relatively short nature of the Group’s large loss claims history (with the Group having only carried out underwriting for 11 years);

• uncertainty over the timing of a settlement to a customer for a loss suffered; and

• uncertainty over the level of claims expenses to be incurred.

In addition to the inherent uncertainty of having to make provision for unreported claims, there is also uncertainty regarding the eventual outcome of the claims that have been reported as at the end of the accounting period, but remain unsettled. This includes claims that may have occurred but have not yet been reported to the Group (either in full or at all) and those that are not yet apparent to the customer (either in full or at all). Claims provisions do not therefore represent an exact calculation of liability, but rather are estimates of the expected cost of the ultimate settlement of claims. As a consequence of these uncertainties, the eventual cost of settlement of outstanding claims and unexpired risks can vary substantially from initial estimates.

As a consequence of the uncertainty inherent in estimating and providing for insurance liabilities, sophisticated estimation techniques need to be applied in order to determine the appropriate provisions. The estimation of insurance liabilities involves the use of judgements and assumptions that are specific to the relevant insurance risks and the particular type of insurance risk covered. These estimates are based on actuarial and statistical projections and assumptions, including the time required to learn of and settle claims, of facts and circumstances known at a given time, as well as estimates of trends in claims severity. The estimates are also based on other variable factors, including changes in the legal and regulatory environment, results of litigation, changes in medical costs, the cost of repairs and replacement and general economic conditions. The Group’s earnings depend significantly upon the extent to which the Group’s actual claims experience is consistent with the projections and the assumptions it uses in setting claims reserves and subsequent premium levels. Changes in the trends or other variable factors, such as inflation and interest rates, used to produce these estimates could result in claims in excess of relevant claims provisions. Consequently, actual claims and related expenses paid may differ from estimates reflected in the claims provisions in the Group’s financial statements.

To the extent claims provisions are insufficient to cover actual losses or loss adjustment expenses, the Group may have to add to these claims provisions and may incur a charge to the Group’s earnings. Conversely, if the Group’s premiums and claims provisions are too high as a result of an over-estimation of risk, the Group may become uncompetitive, leading to a loss of customers and market share.

2.3 The Group and its operations are based in the UK and are therefore vulnerable to any deterioration in UK economic, market and fiscal conditions (which may affect sales volumes and lead to increased fraud) The Group is based in the UK and only sells its products to customers in the UK. The Group is therefore exposed to the economic, market, and fiscal conditions in the UK and to changes in any of these conditions.

Any deterioration in economic conditions in the UK (including deterioration caused by uncertainties arising in relation to the Euro and the Eurozone) could result in a downturn in new business and sales volumes of the Group’s products and a decrease of its investment return. Any such development could have a material adverse effect on the Business and the Group’s results of operations and financial condition. An economic downturn could also result in increased incidence of internal and/or external fraud.

39 2.4 Factors outside the Group’s control, including economic conditions, cyclical trends and the general business and regulatory environment, may affect revenues from Additional Services (in particular in relation to Additional Insurance Products) The Directors consider revenues from Additional Services, and in particular revenues from the sale of Additional Insurance Products, to be an important element of the Business because of the diversity they offer to the Group’s core underwriting revenue streams and because of their higher returns on capital employed and potential for further growth.

There are risks that the revenues from Additional Services may not develop as expected. Economic conditions, cyclical trends and the general business and regulatory environment could also have an impact on the growth of Additional Services. Customers may be less likely to acquire optional Additional Insurance Products in an economic downturn. In 2011 and 2012, the Group generated £8.6 million and £7.1 million of revenues, respectively, from legal panel membership fees relating to personal injury claims and £5.5 million and £7.3 million of revenues, respectively, from the appointment of credit hire vehicle suppliers and vehicle repair companies in connection with claims. LASPO, which bans the payment or receipt of personal injury referral fees from April 2013, may affect revenues that the Group generates from legal panel membership fees. Similarly, the outcome of the Competition Commission market investigation referred to in section 1.10 of these Risk Factors may affect the ability of private motor insurers, including the Group, to generate revenues from the appointment of credit hire vehicle suppliers and vehicle repair companies in connection with claims.

In its 2012 and 2013 business plan, the FSA identified the sale of supplementary cover products alongside insurance policies as an area on which it will focus. The FCA will continue this work after Legal Cutover and, if necessary, intervene to take corrective action which might include intervening to remove particular products from the market. The FSA notes that where there is little profit margin in the primary general insurance product, insurers may seek to supplement their income through sales of supplementary cover products with a high profit margin, some of which replicate other existing rights or free services or are historically included in a standard policy. According to the FSA, insurers may also seek to pressure sell or automatically include supplementary cover products without explaining the cover properly or that it is optional. The FSA has said it intends to take action against firms that sell products of poor value or that mis-sell the products to their customers. The Group has established procedures and controls designed to ensure that Additional Insurance Products are transparent, offer genuine protection to customers and are sold in compliance with applicable laws and regulations, including regulatory codes of conduct. However, there is no assurance that such procedures and controls will operate effectively or that a Relevant Regulator will find them to be adequate. If such procedures and controls fail to operate as intended, or if a Relevant Regulator finds them to be inadequate, the Group may be required to redesign or withdraw one or more of its Additional Insurance Products, to provide customer redress, and to review and improve its procedures and controls and could be subject to a variation or revocation of its permissions. The Group may also be subject to censure and disciplinary action by a Relevant Regulator. Any of these outcomes may have a material adverse effect on the Group’s reputation and results of operations.

Other factors beyond the Group’s control that may affect the development of Additional Services include actions taken by competitors and market and consumer reaction to new products and/or services.

2.5 The Group’s investment returns are exposed to risks including interest rate, equity price and credit risks, as well as the risk of a general economic downturn Investment returns, both positive and negative, affect the Group’s overall profitability. In 2012, the Group had investment income of £39.4 million (2011: £13.1 million loss; 2010: £24.7 million). The Group is exposed to market risk from open positions in interest rate and equity products, all of which are exposed to general and specific market movements. Certain investments are less liquid than others and the Group’s ability to manage its portfolio may be affected by its ability to exit certain positions in a timely basis. The primary risks that the Group faces due to the nature of its investments and liabilities are interest rate risk (arising primarily from investments in fixed interest securities) and equity price risk (as a result of the Group’s holdings in equity investments, classified as financial assets at fair value through

40 profit or loss). The Group also has some exposure to credit risk in relation to reinsurers, policyholders, investment counterparties, and debt securities. Adverse movements in interest rates or the equity markets and contractual non-performance in respect of, or changes in the credit-worthiness of, invested assets could have a material adverse effect on the Business or the Group’s results of operations and/or financial condition.

As at 31 December 2012, 96 per cent of the Group’s assets were invested in fixed income securities and cash instruments, with only 4 per cent invested in equities. Equities are generally subject to greater risks and more volatility than fixed income securities and cash instruments. General economic conditions, stock market conditions and many other factors beyond the Group’s control can adversely affect the equity markets.

Fluctuations in interest rates affect returns on and the market values of the Group’s fixed income investments. For an increase or decrease of one percentage point in interest yields, the Group’s profit before tax for 2012 would have increased or decreased by £7.1 million. Generally, investment income will be reduced during sustained periods of lower interest rates as higher yielding fixed income securities are redeemed prior to their maturity date, mature or are sold and the proceeds reinvested at lower rates. During periods of rising interest rates, prices of fixed income securities tend to fall and realised gains upon their sale are reduced. The Group’s investment income has been adversely affected by the low interest rates in the UK over recent years, and the Directors believe that this low interest rate environment could persist for some time to come.

The Group’s investment returns are also susceptible to changes in general economic conditions, including changes that impact the general creditworthiness of the issuers of debt securities and equity securities held in the Group’s portfolios. The Group’s investments could be affected by uncertainties arising in relation to the Euro and the Eurozone and the possibility of one or more countries exiting the Eurozone. Investment returns are consequently volatile. The value of the Group’s fixed income securities may be affected by changes in the credit rating of the issuer of such securities. When the credit rating of the issuer of a debt security falls, the value of that debt security may also decline. In addition, changes in the credit rating of an issuer may affect the yield on such debt securities. If the credit rating of the issuer falls to a level that would prevent the Group from holding securities issued by that issuer, pursuant to regulatory guidelines or internal investment policies, the resulting disposal may lead to a significant loss on the Group’s investment. Furthermore, it is possible that an issuer may default on such securities, which could lead to a total loss by the Group on its investment.

From time to time, the Group uses hedging, forward contracts and derivative instruments to reduce its exposure to adverse fluctuations in interest rates and foreign exchange rates. Any failure by any of the Group’s counterparties to discharge their obligations or to provide adequate collateral could have a material adverse effect on the Business or the Group’s results of operations and/or financial condition.

2.6 The Group’s brands, reputation and goodwill may be affected by factors including litigation, employee misconduct, operational failures, regulatory investigations, negative publicity, poor performance and changes to its commercial relationships with price comparison websites The Group’s brands (esure and Sheilas’ Wheels) and reputation underpin its customer and market perception. The Group operates in an industry where integrity, trust and confidence are paramount and is consequently exposed to risks including: products not performing as expected, litigation, failure or default by counter-parties or recommended suppliers, employee misconduct, operational failures, adverse regulatory investigations, negative publicity or press speculation (including widespread adverse social media commentary), disclosure of confidential information and inadequate services, among other factors. Such eventualities could impact the Group’s brands or reputation causing loss of consumer confidence and customers which could in turn have a material adverse effect on the Group’s results of operations and/or financial condition. In particular, as price comparison sites are a major distribution channel for the Group, any failure of such price comparison sites to perform as expected may also affect the Group’s reputation and business and any adverse change in arrangements with such price comparison sites may affect the Group’s brand penetration and branding strategy.

41 As an example of the risk posed by its relationships with third party service providers and suppliers, the Group’s reputation could be impacted as a result of credit hire arrangements provided by Drive Assist UK Limited (“Drive Assist”). Drive Assist entered into administration in December 2012. The Group was one of a number of motor insurance providers which had entered into agreements whereby Drive Assist would offer credit hire and repair services to motor insurance customers who had been involved in an accident for which another party was primarily at fault. Drive Assist would provide a like-for-like hire vehicle and manage this element of the customers uninsured loss claim against the at-fault third party insurer and, in some instances, arrange repair services. The Group has similar credit hire arrangements with Helphire Group plc. The Directors believe that customers separately contracted with Drive Assist pursuant to which customers accepted that if the at-fault insurer failed to pay the claim in full then the customer would be liable to Drive Assist for any shortfall. Negotiated settlements with third party insurers were common place prior to Drive Assist entering into administration but so far as the Directors are aware Drive Assist never sought to attempt to claim any shortfalls from customers. Drive Assist’s administrators have asserted a reservation of right to request payment from customers in accordance with the Drive Assist contract terms with those customers. The risk is that the Group may suffer reputational loss as a result of customer disturbance by Drive Assist. The Group made a provision of approximately £4.3 million for the year ended 31 December 2012 in respect of amounts the Group may not recover in full or at all from Drive Assist or at-fault third party insurers as a result of Drive Assist entering into administration. The Directors do not consider that the Group has any further financial exposure to Drive Assist as a result of the administration which would not have arisen in the ordinary course of the Group’s business with Drive Assist (for example under claims handled by Drive Assist where a customer of the Group was the at-fault driver). The Group will continue to monitor the actions of, and liaise with, the administrators.

2.7 The Group is dependent on its Chairman, Executive Directors and senior management team as well as certain other key personnel and may face operational challenges as well as challenges in recruiting and retaining suitable personnel if such persons leave the Business The Group’s success will depend on its ability to attract and retain executives and personnel. In the insurance industry, there is a shortage of executives and the Group may face challenges in recruiting and retaining suitable personnel. The Group’s management team have made a significant contribution to the growth and success of the business and are expected to continue to do so. Many members of the management team have been with the Group for many years.

Peter Wood, who founded the Group and who has over 35 years’ experience in the UK personal lines insurance industry, is an important part of this team. Stuart Vann, the Group’s Chief Executive Officer, who has 17 years’ experience in the insurance sector, also played an integral part in the development of the Group, particularly in leading the Group’s response to the personal injury claims phenomenom and driving the Group’s wider diversification strategy.

The loss of Peter Wood, Stuart Vann, Darren Ogden or a number of other members of the senior management team, or any delay in replacing any of them, may have a material adverse effect on the Business.

As the Group grows, it will need to recruit and retain additional qualified personnel, and failure to do so could affect the Business or result in a reduction in the Group’s profitability. Further, if a Relevant Regulator considers that certain executives or members of management do not have the appropriate qualifications and/or experience or are not fit and proper to perform their functions, the Relevant Regulator may not approve, or may withdraw its approval of, the appointment of such individuals. In addition, if the Group were to fail to recruit or retain significant numbers of claims and IT employees, where expertise has been in short supply, the ability of the Group’s claims department and IT infrastructure to handle an increasing workload could be adversely affected, potentially affecting growth in these areas. In addition, the Group may suffer a decrease in the quality of claims handling, which may have a material adverse effect on the Group’s results of operations and/or financial condition.

42 The Group is exposed to changes in the behaviour of its customers and the markets in which it sells its insurance products and its success is dependent to a large extent on management’s ability to anticipate, react to and take advantage of such changes. For example, changes in lifestyle, technology, regulation, or taxation could significantly alter customers’ actual or perceived need for insurance and the types of insurance sought. Changes in technology could also give rise to new types of entrants into the insurance and/or insurance sales markets, for example, pay-as-you-go motor insurance, or the development of new distribution channels, such as through social media, may require further adaptation of the Group’s business and operations. Such changes could result in reduced demand for the Group’s products and require the Group to expend significant energy, resources and 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 people. Changes to customer behaviour could also result in higher customer turnover.

2.8 The Group may not be able to manage its underwriting risk successfully through reinsurance arrangements if risk appetites change and reinsurers withdraw their products or increase prices, or if reinsurers fail to meet their payment obligations An important element of the Group’s risk management strategy is to purchase reinsurance, thereby transferring exposure to certain risks to others through reinsurance arrangements. The Group currently uses the reinsurance markets primarily to limit its risk, to support its growth and to manage its capital more efficiently. The Group has historically relied on excess of loss reinsurance agreements to maintain its exposure to loss at or below a level that is within the capacity of its capital resources.

The Group is exposed to the cyclical nature of the reinsurance industry. This may adversely affect the pricing and availability of reinsurance, as well as its terms and conditions. Reductions in risk appetite among reinsurers may result in changes in price or willingness to reinsure certain risks, which could have a material adverse effect on the Group’s results of operations or financial condition. In private motor reinsurance, the recent increase in PPOs to settle bodily injury claims has already led to increases in the price of reinsurance. Further changes in the price of motor reinsurance or willingness to provide motor reinsurance may develop if PPOs and the liabilities attached to such orders continue to increase. If reinsurers do not offer to renew their products and services, in whole or in part, for any reason, there is a risk that the Group may be unable to procure replacement cover for any reinsurance agreements terminated at rates equivalent to those of the terminated cover and that the Group may be exposed to un-reinsured losses during any interim period between termination of the existing agreements and the start of any replacement cover.

While reinsurance makes the assuming reinsurer liable to the Group to the extent of the risk ceded, it does not discharge the Group from its primary obligation to pay under an insurance policy for losses incurred. The Group is therefore subject to credit risk with respect to its current and future reinsurers, as the ceding of risk to reinsurers does not relieve the Group of liability to its customers regarding the portion of the risk that has been reinsured, if the reinsurers fail to meet their payment obligations for any reason. The insolvency of any reinsurers or their inability or refusal to pay claims under the terms of any of their agreements with the Group could therefore have a material adverse effect on the Group. Collectability of reinsurance is largely a function of the solvency of reinsurers. While the Group carefully reviews the financial condition of the reinsurers it selects, a reinsurer’s insolvency or inability or unwillingness to make payments under the terms of a reinsurance arrangement could have a material adverse effect on the Group’s results of operations and/or financial condition.

2.9 Growing sophistication in fraud techniques and/or any failure by the Group to identify and prevent fraud could affect the profits of the Group if, as a result of such fraud, claims incidence and average payouts increase or policy sales decrease The Group is exposed to actual and attempted financial crime activity. Insurance fraud may rise during a recession and is an important consideration for the Group’s industry. The Group is at risk both from customers who misrepresent or fail to provide full disclosure in relation to the risk against which they are seeking cover before such cover is purchased, and from customers who fabricate claims and/or inflate the value of their claims.

43 The Group is also at risk from members of its staff who undertake, or fail to follow procedures designed to prevent, fraudulent activities.

If the Group does not provide effective training to employees working within its claims department, does not continue to work with the UK Insurance Fraud Bureau in developing counter-fraud measures or otherwise fails to implement or sustain an effective counter-fraud strategy, the ability of the Group to combat fraud could be adversely affected. In addition, there can be no guarantee that the Group’s proactive anti-fraud measures will be successful in the prevention or detection of fraud. A failure to combat the risks of fraud effectively could adversely affect the profits of the Group as claims incidence and average payouts could increase. Further, such costs may have to be passed on to customers in the form of higher premium levels, which could result in a decrease in policy sales.

2.10 The Business uses price comparison websites to distribute most of its products. The loss of business provided in this way or a change in the Group’s arrangements with price comparison websites could lead to decreased brand visibility and fewer sales of new policies, while the sustained growth of price comparison websites may exert downward pricing pressures on the Group In common with the majority of its competitors, the Group uses price comparison websites for sales of its products. Approximately 82 per cent of the Group’s new policies for motor and home insurance in 2012 was generated through price comparison websites. The remaining 18 per cent for motor and home insurance in 2012 was generated through direct telephone and website sales in approximately equal proportions.

Any failure by the Group to maintain its commercial relationships with existing price comparison websites, or a failure to build relationships with new entrants to the market, could have a material adverse effect on the Group’s results of operations and/or financial condition.

The Group’s results of operations could also be adversely affected by changes in the commercial arrangements with price comparison websites, such as increases in the fees charged to the Group, changes in fee charging practices, changes in search algorithms used by the price comparison website, and/or changes in the basis on which renewals of business sourced through price comparison websites have been dealt with to date. To the extent that price comparison websites become more dominant in the market, this risk will increase.

In addition, the growth in number and size of price comparison websites and the increased use of price comparison websites by consumers could lead to downward pricing pressures on the Group. If the Group lowers its premiums to compete with other insurers quoted on price comparison websites, the Group’s profitability and results of operations could be adversely affected.

The Group uses price comparison websites to create the initial relationship with its customers. It relies, to some extent, on customers acquired in this way renewing their policies with it directly rather than going back to price comparison websites at renewal. To the extent that this changes and results in the Group paying higher fees to price comparison websites, the Group’s results of operations could be adversely affected.

As an industry, price comparison websites themselves face a number of risks to their businesses, including:

• changes in law or regulation making it unlawful or impractical to continue to run their businesses in the current manner. Such changes could result from regulatory investigations into the industry;

• changes in customer perception of price comparison websites being a trusted market place, for example following the loss or misuse of personal data from any price comparison website;

• insurers ceasing to sell products through price comparison websites resulting in price comparison websites being less popular with consumers;

• insurer retention rates improving, in particular, for renewals;

44 • the technology used by price comparison websites becoming obsolete or incapable of properly comparing insurance products as they develop in complexity;

• damage or interruption to price comparison websites from power loss, telecommunications failures, computer viruses, attacks or other attempts to harm its systems;

• changes to the current distribution landscape or the emergence of other distribution channels, including, for example, the potential use of search engines or social media platforms for sales and distribution;

• competition among price comparison websites and from other insurance intermediaries; and

• changes in internet practices resulting in price comparison websites being less able to market their websites.

These risks may result in price comparison websites ceasing to be able to operate their businesses or changing the manner in which they operate their businesses. This may in turn affect the ability of the Group to generate sales, result in higher product marketing and distribution costs, lead to decreased brand visibility and loss of market share, exert downward pricing pressures on the Group, or require the Group to review and revise the way it sells or markets its products.

2.11 The Group’s financial performance may be adversely affected by the performance and value of Gocompare, which may in turn be affected by a range of factors, including competition from other price comparison websites and Gocompare’s ability to continue attracting customers The Group holds a 50 per cent interest in Gocompare, which operates a price comparison website. In 2012, the Group’s IFRS share of Gocompare’s reported profits after taxation was £7.3 million, representing approximately 8 per cent of the Group’s profit after tax of £88.1 million.

As a price comparison website, Gocompare is exposed to the risks to which its industry is exposed, as described in section 2.10 of these Risk Factors. In addition to those industry risks, as between price comparison websites the industry itself is highly competitive. There are currently four main price comparison websites specialising in personal lines insurance operating in the UK (confused.com, moneysupermarket.com, comparethemarket.com and Gocompare.com) along with some currently smaller operators, including Tesco’s price comparison website and Google. Each of the four main price comparison websites has a strong brand presence and for motor and home insurance provides a broadly similar service to the others (at least in terms of public perception).

The attractiveness of Gocompare’s services to insurance providers and advertisers is determined by its ability to attract consumers to its websites in a cost-effective manner and to convert visits to its websites into sales. To continue to attract consumers to its website, Gocompare will, in common with other price comparison websites, have to make substantial investments in marketing and in the functionality of its services. There is no guarantee that Gocompare will be successful in attracting customers to its website and/or converting visits to its website into sales. An inability to attract customers and/or to convert visits into sales may result in a deterioration in the financial performance of Gocompare, which in turn could have a material adverse effect on amounts available to be distributed as dividends by Gocompare to the Group.

Although the Group has appointed three non-executive directors to the board of Gocompare (out of a total of six directors), the Group does not control Gocompare and Gocompare’s business is managed and operated independently of, and on an arm’s length basis from, the Group. Accordingly, on a day-today basis Gocompare could be managed in a way that is detrimental to either its business or the Business, and the Group would have only a limited ability to intervene in its capacity as a shareholder. If Gocompare’s financial performance deteriorates, the Group’s financial condition may in turn be affected by virtue of the Group’s 50 per cent interest in Gocompare.

45 The call for evidence on the private motor insurance sector by the Office of Fair Trading, described in section 1.10 of these Risk Factors, also examined the role of price comparison websites. While the market study that followed the call for evidence did not consider price comparison websites, the Office of Fair Trading noted in the summary of responses to the call for evidence that ownership links between private motor insurance providers and price comparison websites could have the potential to confer a competitive advantage on those private motor insurance providers over their rivals by, for example, allowing insurers with links to price comparison websites to access rival insurers’ quote data in real time. The Office of Fair Trading stated that if there were evidence of this type of activity, it would be concerned about its potential to distort and restrict competition and would consider whether to prioritise taking further action. Following the market investigation reference, the Competition Commission has confirmed that it intends to investigate these issues as part of its inquiry, but initially only at a high level. The Group does not have access to other insurers’ real time or historical quote data via Gocompare.com or any other price comparison website.

2.12 The Group may require additional capital in the longer term, depending on factors including proposed regulatory changes, underwriting performance and fluctuations in fixed income and equity markets. Such additional capital may not be available or may only be available on unfavourable terms The Group is in the process of implementing a Solvency II programme and expects to meet requirements of Solvency II, as currently articulated in the draft legislation, by the expected Solvency II implementation date (formerly expected to be 1 January 2014 but now expected to be later than that date). However, in the longer term, the Group’s capital requirements depend on many factors, including any unanticipated regulatory changes to capital requirements, the Group’s ability to write new business successfully and its ability to establish premium rates and reserves at levels sufficient to cover losses.

Insurers in the UK are required to maintain a minimum level of assets in excess of their liabilities. These regulatory requirements apply to individual insurance subsidiaries on a stand-alone basis and in respect of the Group as a whole. Fluctuations in fixed income and equity markets could, directly or indirectly, affect the levels of regulatory capital held by the Group. An inability to meet the regulatory capital requirements in the longer term may lead to intervention by a Relevant Regulator which, in the interests of customer security, could be expected to require the Group to take steps to restore regulatory capital to acceptable levels, potentially by requiring the Group to raise additional funds through financings or to reduce or cease to write new business.

Any equity or debt financing required in the longer term to meet any increased capital requirements, if available at all, may be on terms that are not favourable to the Group. In the case of equity financing, dilution to the Company’s shareholders could result, and in any case securities issued as part of such equity financings may provide holders with rights, preferences and privileges that are senior to those provided to holders of the Ordinary Shares. If the Group cannot, in the longer term, obtain adequate capital on favourable terms or at all, the Business or the Group’s financial condition or operating results could be adversely affected. As described in section 1.9 of these Risk Factors, implementation of Solvency II may also have an adverse impact on the Group’s capital requirements.

2.13 Changes to IFRS which affect insurance companies may adversely affect the Group’s financial results The Group’s financial results may be adversely affected by changes to IFRS which may result in negative effects on the accounting treatment and valuation of the Group’s insurance and reinsurance contracts.

The IASB published proposals as part of its IFRS 4 Insurance Contracts Phase II for Insurers Exposure Draft that would make significant changes to the financial reporting landscape of insurance entities. These proposals are not expected to become effective before 2015 but could affect the way in which the Group presents its financial information, including the effect of technical reserves and reinsurance on the value of insurance contracts. It is uncertain whether and how the proposals in the exposure draft will affect the Group should they become definitive international financial reporting standards but there

46 is potential for them to adversely affect the Group’s financial position. The Group may also have to devote resources to adapt the Group’s organisation, processes and systems to reflect these changes. On the currently envisaged timetable, any changes may also need to be considered alongside other regulatory changes which may come into effect, and in particular Solvency II.

2.14 Any failure in the Group’s websites, computer and data processing systems, whether as a result of actions taken by third parties, failure to develop or adopt necessary technology, malicious attacks or inadequate business continuity planning, could affect the Business and the Group’s reputation, results of operations and financial condition The Business is dependent upon the successful functioning of the Group’s websites as well as the computer and data processing systems underlying its websites and other operations, most of which are supported by third party providers. There can be no assurance that third parties will be willing and able to perform their obligations in accordance with the terms and conditions of their contracts and arrangements with the Group. In particular, the Group has outsourced the operation and maintenance of a significant part of its IT infrastructure to CapGemini. If this agreement is not performed in accordance with its terms, the processing and storage of data and the day-to-day management of the Group’s business may be affected. While the Group has disaster recovery and business continuity contingency plans, no assurance can be given that these would work as intended. If the agreement with CapGemini is terminated, the Directors believe that there would be no significant difficulty in selecting a replacement provider of IT operation and maintenance services. However, exit arrangements provided for under the CapGemini agreement may not be adequate or sufficient to prevent disruption to the Business during the potentially lengthy transitional period while alternative arrangements are put in place. Any such disruption could have a material adverse effect on the Group’s results of operations and/or financial condition.

The Group relies on its computer and data processing systems for critical elements of its business process, including entry and retrieval of individual risk details, pricing and reserving, premium and claims processing, monitoring aggregate exposures and financial and regulatory reporting. No assurance can be given that the Group will be able to continue to design, develop, implement or utilise, in a cost-effective manner, information systems that provide the capabilities necessary for the Group to compete effectively. Any failure to adapt to technological developments could mean that the Group fails to increase or maintain its share of the online insurance market and this may have an adverse effect on the Business and future prospects.

Attacks on, or the failure or substantial degradation of, the Group’s websites or its computer and data processing systems could interrupt the Group’s operations or materially impact its ability to conduct business or otherwise adversely affect its reputation. Material flaws or damage to the websites or the system, if sustained or repeated, could result in the loss of existing or potential business relationships, compromise the Group’s ability to pay claims in a timely manner or give rise to regulatory implications, which could result in a material adverse effect on the Business and the Group’s results of operations and financial condition.

The Group launched a new claims handling system at the end of 2012 which is now currently operational in respect of third party damage claims (which represented 26.0 per cent of the Group’s motor claims costs in 2012) and personal injury claims (which, net of reinsurance, represented 43.7 per cent of the Group’s motor claims costs incurred in 2012). There can be no guarantee that the new system will be as effective as anticipated by the Group. Any failure of the new system to meet the Group’s expectations could have a disruptive effect on the Group’s operations.

The Group collects, retains and processes confidential information in its systems regarding its business dealings, including personal data of its customers, third-party claimants, business contacts and employees, as part of the operation of its business. The Group must therefore comply with data protection and privacy laws and industry standards in the United Kingdom. Those laws and standards impose certain requirements on the Group in respect of the collection, use, processing and storage of such personal information. If data collected by the Group is not processed accurately and in accordance with notifications made to, or obligations imposed by, data subjects, regulators, other

47 counterparties or applicable law, the Group faces the risk of regulatory censure, fines, reputational and financial costs. A security breach of the Group’s computer or other systems could damage its reputation or result in liability or regulatory action. The Group might be required to spend significant capital and other resources to protect against such breaches or to alleviate problems caused by such breaches. Any publicised compromise of security could deter transactions involving the transmission of confidential information, including personal data.

Further, the Group’s insurance coverage might not adequately compensate it for material losses that could occur due to disruptions to its service as a result of failure of its websites or systems.

2.15 The Group is exposed to payment processing risks, including increases in interchange and other fees, actions taken by third parties that disrupt the Group’s operations, failure by the Group to fully comply with rules and standards governing payment processing, and system failures and security breaches The Group pays interchange and other fees for card payments, which may increase over time and raise operating costs and lower margins. The Group relies on third parties to provide payment processing services, and it could disrupt the Group’s operations if these companies become unwilling or unable to provide these services. The Group is also subject to payment card association operating rules, certification requirements, Payment Card Industry Data Security Standards and rules governing electronic funds transfers which could change or be reinterpreted to make them difficult or impossible to comply with. The Company is not yet fully compliant with the Payment Card Industry Data Security Standards (in particular in relation to standards concerning the transmission of card data in web-based payments and the requirement to prevent recording of card details during the telephone sales process). Non-compliance with these standards is common to a range of business sectors, including the financial services sector. The Group is in the process of developing plans to become fully compliant with these rules, and currently expects to achieve full compliance within the first six months of 2014. No guarantee can be given that such plans will be successful or will complete on schedule. Until such time as the Group is fully compliant, or if in future the Group fails to comply with these rules or requirements, the Group may be subject to fines and/or higher transactions fees and in extreme cases may lose its ability to accept credit or debit card payments from customers, process electronic funds transfers or facilitate other types of online payments. Should a security breach occur and customer data be accessed or stolen, then the Group could be liable for losses associated with the breach.

Any failure of the Group’s payment processing systems, whether caused by a systems failure or otherwise, will adversely affect the Group’s income in the short term and may result in it losing customers which may have an adverse effect on the Group’s financial condition and future prospects. In addition, there can be no assurance that advances in computer capabilities, new discoveries in the field of cryptography, or other events or developments will not result in a compromise or breach of the processes used by the Group to protect customer transaction data. If any such compromise or breach were to occur, it could have an adverse effect on the Business and the Group’s reputation, future prospects, financial condition and/or results of operations.

2.16 Protecting the Group’s intellectual property could involve costly and time-consuming measures or litigation, and failure to prevent the use of the Group’s intellectual property by third parties could adversely affect the Business and future prospects The Group holds a portfolio of registered UK and European trade marks which protect the names and logos of the esure, Sheilas’ Wheels and First Alternative brands along with some related slogans. Although the Group has taken steps to reduce the risks of intellectual property infringement by third parties against the Group, including instructing trade mark attorneys to operate a watch service to identify applications for trade marks similar to those which protect the names and logos of esure and Sheilas’ Wheels, such steps may be inadequate. In addition, third parties may independently discover the Group’s trade secrets and proprietary information or systems, and, in such cases, the Group may not be able to rely on any intellectual property rights to prevent the use of such trade secrets, information or systems by such parties. Costly and time-consuming litigation could be necessary to

48 determine and enforce the scope of the Group’s proprietary rights and the outcome of such litigation could not be guaranteed. Failure to prevent the use of such secrets, information or systems by such third parties could adversely affect the Business and future prospects.

3. RISKS RELATING TO THE OFFER AND THE ORDINARY SHARES 3.1 There has been no prior public trading market for the Ordinary Shares, and an active trading market may not develop or be sustained in the future Prior to Admission, there has been no public trading market for the Ordinary Shares. Although the Company has applied to the UK Listing Authority for admission to the premium listing segment of the Official List and has applied to the London Stock Exchange for admission to trading on its main market for listed securities, the Company can give no assurance that an active trading market for the Ordinary Shares will develop or, if developed, could be sustained following the closing of the Offer. If an active trading market is not developed or maintained, the liquidity and trading price of the Ordinary Shares could be adversely affected.

3.2 The share price of publicly traded companies can be highly volatile, including for reasons related to differences between expected and actual operating performance, corporate and strategic actions taken by such companies or their competitors, speculation and general market conditions and regulatory changes Prospective investors should be aware that, following Admission, the value of an investment in the Ordinary Shares may decrease or increase abruptly. The price of Ordinary Shares may fall in response to market appraisal of the Group’s strategy, if the Group’s operating results and/or prospects are below the expectations of market analysts or Shareholders, or in response to any regulatory changes affecting the Group’s operations. In addition, stock markets have, from time to time, and especially in recent years, experienced significant price and volume fluctuations which have affected the market price of securities. A number of factors outside the control of the Group may impact the price and performance of the Ordinary Shares. The factors which may affect the Company’s share price include:

• differences between the Group’s expected and actual operating performance as well as between the expected and actual performance of the insurance industry generally;

• seasonal and cyclical fluctuations in the performance of the Business and the market in general;

• conditions or trends in online commerce;

• strategic actions by the Group or its competitors, such as mergers, acquisitions, divestitures, partnerships and restructurings;

• the relative performance or activities (or speculation about the relative performance or activities) of other insurance companies admitted or seeking admission to the premium listing segment of the Official List and to trading on the London Stock Exchange’s main market for listed securities;

• speculation in the press, media or investment community, whether or not well founded, about the Business or the Group’s competitors, mergers or acquisitions involving the Group or the Group’s competitors and/or major divestments by the Group or the Group’s competitors;

• speculation, whether or not well founded, regarding the intentions of the Company’s major Shareholders or significant sales of shares by any such Shareholders or short-selling of the Company’s shares;

• speculation, whether or not well founded, about possible changes in the Group’s management team;

• the publication of research reports by analysts; and

• general market conditions and regulatory changes.

49 3.3 The issue of additional shares in the Company in connection with future acquisitions, capital raisings, any share incentive or share option plan or otherwise may dilute all other shareholdings The Group may seek to raise financing to fund future acquisitions and other growth opportunities. The Group may, for these and other purposes, such as in connection with share incentive and share option plans, issue additional equity or convertible equity securities. As a result, the Company’s existing Shareholders would suffer dilution in their percentage ownership.

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

3.5 Future substantial sales of Ordinary Shares, or the perception that such sales might occur, could depress the market price of the Ordinary Shares. In particular, the Group is unable to predict whether, following the termination of the lock-up restrictions put in place in connection with the Offer, substantial amounts of Ordinary Shares will be sold in the open market by those subject to such restrictions, including Tosca Penta Investments LP and/or Peter Wood On the basis of the Mid-point Assumptions, Peter Wood is expected to be the beneficial owner of approximately 34.9 per cent of the issued Ordinary Shares and Tosca Penta Investments LP is expected to be the beneficial owner of approximately 16.4 per cent of the issued Ordinary Shares immediately following Admission. Except as a result of exercise of the Over-allotment Option or pursuant to certain other customary exceptions, Peter Wood has agreed to refrain from selling any more of his Ordinary Shares for a period of 365 days from the date of the Underwriting Agreement, Tosca Penta Investments LP has agreed to refrain from selling any more of its Ordinary Shares for a period of at least 180 days from the date of the Underwriting Agreement. In addition, Peter Wood has entered into an extended lock-up arrangement whereby he has undertaken to the Company that he will retain, for a period ending two years after Admission, Shares representing approximately two-thirds of his holding immediately following Admission (calculated on basis of the Mid-point Assumptions). The Group is unable to predict whether, following the termination of the lock-up restrictions put in place in connection with the Offer, substantial amounts of Ordinary Shares will be sold in the open market by those subject to such restrictions, including Peter Wood and/or Tosca Penta Investments LP. Any sales of substantial amounts of Ordinary Shares in the public market by Major Shareholders or by the Company, or the perception that such sales might occur, could result in a material adverse effect on the market price of the Ordinary Shares.

3.6 Holders of Ordinary Shares in jurisdictions outside the UK may not be able to exercise their pre-emption rights unless the Company decides to take additional steps to comply with applicable local laws and regulations of such jurisdictions In the case of certain increases in the Company’s issued share capital, the Company’s existing Shareholders are generally entitled to pre-emption rights pursuant to the Companies Act unless such rights are waived by a special resolution of the Shareholders at a general meeting or, in certain circumstances, pursuant to the Articles. Holders of Ordinary Shares outside the UK may not be able to exercise their pre-emption rights over Ordinary Shares unless the Company decides to comply with

50 applicable local laws and regulations and, in the case of holders of Ordinary Shares in the United States, a registration statement under the US Securities Act is effective with respect to such rights and Ordinary Shares, or an exemption from the registration requirements of the US Securities Act is available. The Company cannot assure any Shareholders outside the UK that steps will be taken to enable them to exercise their pre-emption rights, or to permit them to receive any proceeds or other amounts relating to their pre-emption rights.

3.7 Applicable insurance laws in the UK may discourage potential acquisition proposals and delay, deter or prevent a change of control of the Company, which may in turn reduce the value of the Ordinary Shares Currently in the UK, the prior approval of the FSA under Part XII of FSMA is required of any person proposing to acquire or increase its “control” of a firm authorised and regulated under FSMA, including an insurer such as esure Insurance Limited or an insurance intermediary such as esure Services Limited. For these purposes, a person acquires control over a UK authorised person if such person holds, or is entitled to exercise or control the exercise of, 10 per cent or more (20 per cent or more if the UK authorised person is an insurance intermediary) of the voting power at any general meeting of the UK authorised person or of the parent undertaking of the UK authorised person. A person is also regarded as acquiring control over the UK authorised person if that person exercises significant influence over the management of the UK authorised person or its parent. Accordingly, any person who proposes to acquire 10 per cent or more of the Ordinary Shares would become a controller of esure Insurance Limited and any person who proposes to acquire 20 per cent or more of the Ordinary Shares would become a controller of esure Services Limited and, in each case, prior approval by the Relevant Regulator would be required. Similarly, currently, if a person who is already a controller of a UK insurer proposes to increase its control in excess of certain thresholds set out in section 181 of FSMA, such person will also require the prior approval of the FSA. The FSA (or, after the Legal Cutover, the Relevant Regulator) has 60 working days from the day on which it acknowledges the receipt of a notice of control to determine whether to approve the new controller or object to the transaction, although this period may (subject to limits) cease to run while the Relevant Regulator is awaiting the provision of further information that it requests from an applicant during the approval process. If approval is given, it may be given unconditionally or subject to such conditions as the Relevant Regulator considers appropriate. Breach of the notification and approval regime imposed by the Relevant Regulator on controllers is a criminal offence.

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

3.8 Peter Wood will have significant influence over the Company after the Offer as a result of his shareholding, and his interests may not be aligned with those of the other Shareholders On the basis of the Mid-point Assumptions, Peter Wood is expected to be the beneficial owner of approximately 34.9 per cent of the issued Ordinary Shares immediately following Admission.

As a result, Peter Wood will be able to exercise significant influence over matters requiring shareholder approval, including the election of directors and significant corporate transactions. This concentration of ownership may have the effect of delaying, deferring or preventing a change in control, merger, consolidation, takeover or other business combination or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control, which in turn could have an adverse effect on the trading price of the Ordinary Shares. The interests of Peter Wood may not necessarily be aligned with the other Shareholders.

51 IMPORTANT NOTICES

STABILISATION In connection with the Offer, J.P. Morgan Cazenove (as Stabilising Manager), or any of its agents, may PR Ann III, 6.5.1, (but will be under no obligation to), to the extent permitted by applicable law and for stabilisation 6.5.2, 6.5.3, 6.5.4 purposes, over-allot Ordinary Shares up to a total of 15 per cent of the total number of Ordinary Shares comprised in the Offer or effect other transactions with a view to supporting the market price of the Ordinary Shares at a higher level than that which might otherwise prevail in the open market. The Stabilising Manager is not required to enter into such transactions and such transactions may be effected on any securities market, over-the-counter market, stock exchange or otherwise and may be undertaken at any time during the period commencing on the date of the conditional dealings of the Ordinary Shares on the London Stock Exchange and ending no later than 30 calendar days thereafter. Such stabilisation, if commenced, may be discontinued at any time without prior notice. In no event will measures be taken to stabilise the market price of the Ordinary Shares above the Offer Price. Except as required by law or regulation, neither the Stabilising Manager nor any of its agents intends to disclose the extent of any over-allotments made and/or stabilisation transactions conducted in relation to the Offer.

For the purposes of allowing the Stabilising Manager to cover short positions resulting from any such PR Ann III, 5.2.5(a), over-allotment and/or from sales of Ordinary Shares effected by it during the stabilising period, it has 5.2.5(b), entered into the Over-allotment Option with the Major Shareholders pursuant to which it may purchase 5.2.5(c) (or nominate purchasers of) additional Ordinary Shares representing up to 15 per cent of the total number of Ordinary Shares comprised in the Offer (before any utilisation of the Over-allotment Arrangements) (the “Over-allotment Shares”) at the Offer Price (in the proportions of up to 50 per cent from Peter Wood and the remainder from Tosca Penta Investments LP). The Over-allotment Option may be exercised in whole or in part upon notice by the Stabilising Manager at any time on or before the 30th calendar day after the commencement of conditional dealings of the Ordinary Shares on the London Stock Exchange. Any Over-allotment Shares made available pursuant to the Over-allotment Option will be sold on the same terms and conditions as Ordinary Shares being offered pursuant to the Offer and will rank pari passu in all respects with, and form a single class with, the other Ordinary Shares (including for all dividends and other distributions declared, made or paid on the Ordinary Shares).

THE JOINT GLOBAL CO-ORDINATORS, JOINT BOOKRUNNERS AND CO-LEAD MANAGERS Each of Deutsche Bank, J.P. Morgan Cazenove, Canaccord Genuity and Numis Securities is regulated in the UK by the FSA and is acting exclusively for the Company and for no other person in connection with the Offer and will not regard any other person (whether or not a recipient of this document) as its client in relation to the Offer and will not be responsible to anyone other than the Company for providing the protections afforded to its clients or for providing advice in relation to the Offer or any transaction or arrangement referred to in this document.

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

In connection with the Offer, the Joint Global Co-ordinators, each of the Underwriters and any of their respective affiliates acting as an investor for its or their own account(s) may subscribe for or purchase Ordinary Shares and, in that capacity, may retain, purchase, sell, offer to sell or otherwise deal for its or their own account(s) in the Ordinary Shares, any other securities of the Company or other related investments in connection with the Offer or otherwise. Accordingly, references in this document to the Ordinary Shares being issued, offered, subscribed for or otherwise dealt with should be read as

52 including any issue or offer to, or subscription or dealing by, the Underwriters or any of them and any of their respective affiliates acting as an investor for its or their own account(s). The Underwriters do not intend to disclose the extent of any such investment or transactions otherwise than in accordance with any legal or regulatory obligation to do so. In addition, in connection with the Offer, certain of the Underwriters may enter into financing arrangements with investors, such as share swap arrangements or lending arrangements where Ordinary Shares are used as collateral, that could result in such Underwriters acquiring shareholdings in the Company.

Apart from the responsibilities and liabilities, if any, which may be imposed on Deutsche Bank, J.P. Morgan Cazenove, Canaccord Genuity and Numis Securities by FSMA, or the regulatory regime established thereunder, or under the regulatory regime of any other jurisdiction where exclusion of liability under the relevant regulatory regime would be illegal, void or unenforceable, none of Deutsche Bank, J.P. Morgan Cazenove, Canaccord Genuity and Numis Securities accepts any responsibility whatsoever and make no representation or warranty, express or implied, for the contents of this document, including its accuracy or completeness, or for any other statement made or purported to be made by any of them, or on behalf of them, the Company or any other person in connection with the Company, the Ordinary Shares or the Offer and nothing contained in this document is or shall be relied upon as a promise or representation in this respect, whether as to the past or future. Each of Deutsche Bank, J.P. Morgan Cazenove, Canaccord Genuity and Numis Securities accordingly disclaims all and any responsibility or liability whether arising in tort, contract or otherwise (save as referred to above) which any of them might otherwise have in respect of this document or any such statement.

NOTICE TO INVESTORS Prospective investors should rely only on the information in this document (and any supplementary prospectus required to be published by the Company pursuant to section 87G of FSMA and paragraph 3.4 of the Prospectus Rules) when making a decision as to whether to invest in Ordinary Shares. No person has been authorised to give any information or make any representations in connection with Admission or the Offer other than those contained in this document and, if given or made, such information or representations must not be relied upon as having been authorised by the Company, the Directors, Deutsche Bank, J.P. Morgan Cazenove, Canaccord Genuity or Numis Securities.

Without prejudice to any obligation of the Company to publish a supplementary prospectus pursuant to section 87G of FSMA and paragraph 3.4 of the Prospectus Rules, neither the delivery nor the publication of this document nor any subscription or sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company or the Group taken as a whole since the date of this document or that the information contained herein is correct as at any time after the date of this document.

In the event the Company is required to publish a supplementary prospectus pursuant to section 87G PR Ann III, 5.1.7 of FSMA and paragraph 3.4 of the Prospectus Rules, prospective Investors will have a statutory right to withdraw their acceptance to subscribe for or purchase Ordinary Shares in the Offer before the end of a period of two working days commencing on the first working day after the date on which the supplementary prospectus is published pursuant to section 87Q of FSMA.

The contents of this document are not to be construed as legal, financial or tax advice. Each prospective Investor should consult his, her or its own legal adviser, financial adviser or tax adviser for legal, financial or tax advice.

Any reproduction or distribution of this document, in whole or in part, and any disclosure of its contents or use of any information contained in this document for any purpose other than considering an investment in the Ordinary Shares, is prohibited.

NO INCORPORATION OF WEBSITE The contents of the websites of the Group do not form part of this document, and prospective investors should not rely on them.

53 FINANCIAL INFORMATION Prospective investors should consult their own professional advisers to gain an understanding of the financial information contained in this document. An overview of the basis for presentation of financial information in this document is set out below.

Presentation of financial information The Historical Financial Information has been prepared in accordance with the requirements of the Prospectus Directive Regulation and the Listing Rules in accordance with the basis of preparation included in Note 2 (Accounting policies) to the Historical Financial Information (set out on pages F-7 to F-17 of Schedule II (Historical Financial Information) to this document).

The Historical Financial Information has been presented on the following basis:

• the consolidated statement of comprehensive income and the consolidated statement of cashflows (and the related notes) of esure Holdings Limited for the period from 1 January 2010 to 10 February 2010 (the period until its acquisition by esure Group plc pursuant to the Management Buy-out);

• the esure Group plc financial information for the period from 11 February 2010 to 31 December 2010 and the years ended 31 December 2011 and 31 December 2012, comprising the consolidated statements of comprehensive income, consolidated statements of changes in equity, consolidated statements of financial position, and consolidated statements of cash flows (including related notes); and

• a further ‘combined’ statement of consolidated comprehensive income and consolidated statement of cash flows (including related notes), aggregating the consolidated results and cash flows of the esure Holdings Limited group prior to 10 February 2010 and the consolidated results and cashflows of esure Group plc group subsequent to 10 February 2010 to cover the period from 1 January 2010 to 31 December 2010.

On the basis described above, the Historical Financial Information has been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU except as described below.

IFRSs as adopted by the EU do not provide for the preparation of combined financial information, and accordingly in preparing the combined statement of consolidated comprehensive income and consolidated cash flow statement (including related notes) for the year ended 31 December 2010 certain accounting conventions commonly used for the preparation of historical financial information for inclusion in investment circulars as described in the Annexure to SIR 2000 (Investment Reporting Standard applicable to public reporting engagements on historical financial reporting) issued by the UK Auditing Practices Board have been applied. The application of these conventions results in the following material departure from IFRSs as adopted by the EU:

• the combined statement of consolidated comprehensive income and consolidated cash flow statement (including related notes) for the year ended 31 December 2010 was prepared by combining the results for esure Holdings Limited for the period from 1 January 2010 to 10 February 2010 with the results of esure Group plc for the period from 11 February 2010 to 31 December 2010.

In other respects IFRSs as adopted by the EU have been applied.

The Company originally prepared its statutory accounts for the years ended 31 December 2010 and 31 December 2011 in accordance with UK Generally Accepted Accounting Practice (UK GAAP), as did esure Holdings Limited in respect of the year ended 31 December 2010. The Historical Financial Information has been prepared in connection with Admission and is the Group’s first published financial information that has been prepared under IFRS. IFRS differs in significant respects from UK GAAP, requiring management to amend certain accounting and valuation methods when preparing the

54 Historical Financial Information in order to comply with IFRS. Please refer to Note 33 to the Historical Financial Information, which is set out on pages F-65 to F-73 of Schedule II (Historical Financial Information) to this document, for certain disclosures relating to the transition from UK GAAP to IFRS for the first time.

The preparation of financial information in conformity with IFRS requires the use of certain critical accounting estimates. Please refer to section 7 of Part V (Operating and Financial Review) for further details. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Historical Financial Information are disclosed in the Note 3 to the Historical Financial Information, which is set out on pages F-18 to F-20 of Schedule II (Historical Financial Information) to this document.

Non-IFRS financial measures Parts of this document contain information regarding “Group trading profit”, and “Total income from Additional Services” and “Additional Services Revenue per average in-force policy”, which are non-IFRS financial measures. There are no generally accepted accounting principles governing the calculation of non-IFRS measures and the criteria upon which they are based can vary from company to company. The Directors consider certain non-IFRS measures to be useful to better understand the trading performance of the Group. Such measures, by themselves, do not provide a sufficient basis to compare the Group’s performance with that of other companies and should not be considered in isolation, or as a substitute for, or as an alternative to, any other measures of performance under IFRS.

Abbreviations and rounding of figures The Group’s financial information is presented in Pounds Sterling. The abbreviations “£m” or “£ million” represent millions of Pounds Sterling, and references to “pence” and “p” represent pence in Pounds Sterling.

The financial information presented in a number of tables in this document 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 this document reflect calculations based upon the underlying information prior to rounding, and, accordingly, may not conform exactly to the percentages that would be derived if the relevant calculations were based upon the rounded numbers.

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

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

55 It is strongly recommended that prospective investors read the section titled Risk Factors set out on pages 26 to 51 of this document for a more complete discussion of the factors that could affect the Group’s future performance and the industry in which it operates. In light of these risks, uncertainties and assumptions, the forward-looking events described in this document may not occur. The forward- looking statements referred to above speak only as at the date of this document. Subject to any obligations under applicable law, including the Prospectus Rules, the Listing Rules and the Disclosure and Transparency rules, the Company undertakes no obligation to release publicly any revisions or updates to these forward-looking statements to reflect events, circumstances or unanticipated events occurring after the date of this document. All subsequent written and oral forward-looking statements attributable to the Group or individuals acting on behalf of the Group are expressly qualified in their entirety by this paragraph.

SERVICE OF PROCESS AND ENFORCEMENT OF CIVIL LIABILITIES The Company has been incorporated under the laws of England and Wales. Substantially all of the assets of the Company are located in the UK. None of the Directors or officers is a citizen or resident of the United States. As a result, it may not be possible for investors to effect service of process within the United States upon the Company or such persons or to enforce outside the United States judgments obtained against the Company or such persons in US courts, including, without limitation, judgments based upon the civil liability provisions of the US federal securities laws or the laws of any state or territory within the United States. In addition, awards of punitive damages in actions brought in the United States or elsewhere may be unenforceable in the UK. Investors may also have difficulties enforcing, in original actions brought in courts in jurisdictions outside the United States, liabilities under the US securities laws.

56 DIRECTORS, COMPANY SECRETARY, REGISTERED OFFICE AND ADVISERS

Directors Peter Wood (Chairman) PR Ann I, 1.1 14.1 Dame Helen Alexander (Deputy Chairman and SID) PR Ann III, 1.1 7.1 Stuart Vann (Chief Executive Officer) Darren Ogden (Chief Finance Officer) Anthony Hobson (Non-Executive Director) Anne Richards (Non-Executive Director) Peter Ward (Non-Executive Director) David Calder* (Non-Executive Director) Charles Schrager von Altishofen* (Non-Executive Director) * Note: David Calder and Charles Schrager von Altishofen will retire from the Board on Admission

Company Secretary Carolyn Gibson

Registered Office The Observatory, Castlefield Road, Reigate, Surrey RH2 0SG Telephone No: +44 (0) 1737 222 222

Joint Global Co-ordinator, Joint J.P. Morgan Securities plc PR Ann III 5.4.1, Bookrunner and Sole Sponsor 25 Bank Street, Canary Wharf, London E14 5JP 5.4.3, 10.1

Joint Global Co-ordinator Deutsche Bank AG, London Branch and Joint Bookrunner Winchester House, 1 Great Winchester Street, London EC2N 2DB

Co-Lead Manager Canaccord Genuity Limited 88 Wood Street, London EC2V 7QR

Co-Lead Manager Numis Securities Limited 10 Paternoster Square, London EC4M 7LT

Reporting Accountants KPMG Audit Plc PR Ann I, 2.1, 23.1 and Auditors 15 Canada Square, London E14 5GL PR Ann III, 10.3

Reporting Actuary Towers Watson Limited Saddlers Court, 64-74 East Street, Epsom, Surrey KT17 1HB

Legal Advisers to the Company Slaughter and May as to English law One Bunhill Row, London EC1Y 8YY

Legal Advisers to the Company Davis Polk & Wardwell London LLP as to US law 99 Gresham Street, London EC2V 7NG

Legal Advisers to the Joint Ashurst LLP Global Co-ordinators, Joint Broadwalk House, 5 Appold Street, London EC2A 2HA Bookrunners and Sponsor as to English Law and US Law

Registrar Equiniti Limited Aspect House, Spencer Road, Lancing, West Sussex BN9 6DA

57 PART I

THE BUSINESS

1. OVERVIEW OF THE BUSINESS The Group is a UK-focused personal lines insurer founded in 2000 by Peter Wood, the foremost general insurance entrepreneur in the UK and the Company’s Chairman. The Group has established a strong platform for growth and a track record of profitability. The Group has achieved this against a backdrop of challenging market conditions through a disciplined and conservative approach to its motor underwriting business, the application of the same philosophy in growing its home underwriting business, and a strong focus on generating revenues from associated activities such as the sale of Additional Insurance Products alongside its core motor and home insurance policies and, more recently, the development of its branded broker services. These associated activities offer higher returns on capital employed and another source of cash generation that, together with the home underwriting business, are part of a diversifica tion strategy aimed at reducing the Group’s exposure to the cyclicality of the motor insurance market.

Motor underwriting business The Group’s principal underwriting business is the sale of motor insurance policies in the UK. Policies are sold primarily under the Group’s strong and widely recognised “esure” and “Sheilas’ Wheels” brands, and distributed through a wide range of retail channels. These currently include direct website and telephone sales, though the Group’s product distribution has continued to evolve with consumer habits and approximately 82 per cent of its new customer motor policies originated through price comparison websites in 2012.

The Group takes a conservative approach to insurance underwriting. It targets customers with a statistically low underwriting risk profile and places a strong emphasis on measures to monitor the underwriting risk exposure and overall risk profile of the Group’s in-force policy books. This disciplined approach to underwriting, together with the Group’s anti-fraud measures and effective claims handling processes, enabled it to deliver motor Loss Ratios of 70.0 per cent and 70.6 per cent in 2012 and 2011 respectively. In 2011, the motor Loss Ratio represented one of the UK insurance industry’s lowest motor Loss Ratios, and the further improvement in 2012 was achieved despite the negative impact of the number of weather-related motor claims resulting from the adverse weather events in the last nine months of 2012.

These Additional Services, and in particular the sale of Additional Insurance Products, are considered by the Directors to be an important part of the Group’s diversification strategy because they offer further revenue streams which are not subject to the same market cyclicality as the Group’s motor insurance revenue stream and because of their potential for further growth. In addition, while the Group retains some underwriting risk for most of its motor Additional Insurance Products, these products and the Group’s non-underwritten motor Additional Insurance Products still offer a higher return on capital employed than the Group’s motor insurance underwriting.

Home underwriting business The Group has offered home insurance since September 2001 (shortly after the launch of the motor insurance business), but since 2008, and as part of the Group’s strategy to place a greater focus on diversifying beyond motor insurance, its home underwriting business has grown significantly. The growth of the Group’s home insurance business has also accelerated in part due to the significant

58 growth in recent years of price comparison websites as a distribution channel for home insurance policies, together with the Group’s own focus on (and experience in) the price comparison website channel. As a result, the Group now has over 500,000 in-force home policies (which the Group estimates to account for approximately 2 per cent of the UK home insurance market) after achieving a compound annual growth rate in the number of its in-force home policies of 24 per cent in the period from 1 January 2008 to 31 December 2012.

As with its motor business, the Group targets home market segments with a statistically low underwriting risk profile, and has carried across the same underwriting, claims handling and anti-fraud discipline as it applies to its motor insurance business. The Group has also adopted the same multi- channel distribution strategy for its home insurance business, with particular emphasis on the price comparison website channel. While the price comparison website channel is not as dominant in the UK home insurance market as it is in the UK motor insurance market (with banks and building societies, as providers of mortgages and loans to homeowners, retaining a leading market share via other distribution channels), price comparison websites have gained a greater foothold in recent years, with market share of new business sales increasing rapidly from an estimated 20 per cent in 2010 to an estimated 29 per cent in 2012. The Directors believe that the Group’s focus on (and experience in) selling insurance products through price comparison websites, together with its established brands, puts it in a strong position to capitalise on a continuation of this trend.

Broker service In November 2011, the Group launched its esure – and Sheilas’ Wheels – branded motor insurance broker services. These services enable the Group, via a panel of selected third party insurers, to extend the coverage of its motor insurance footprint beyond its own underwriting risk parameters to an estimated 85 per cent of the total UK motor insurance market (by number of policies). This offers the potential for the Group to leverage its market position, brand strength and infrastructure to generate further revenues from motor insurance policies that can be brokered to panel insurers without retention of any underwriting risk by the Group. These revenues are generated by way of Additional Services provided by the Group in connection with brokered policies, and there is also the potential for the Group to earn commissions through margins generated from successful policy sales on behalf of its panel insurers. At the same time, the Group’s panel insurers benefit not only from the strength of the esure and Sheilas’ Wheels brands but also from the Group’s up-front applicant screening and anti-fraud procedures (which the Directors believe are more comprehensive than typically employed by broker services). In 2012, the first full year of operation, the Group’s broker services generated approximately 50,000 motor insurance policy sales for its panel insurers. The Group’s trading profit was impacted by a net investment of £4.6 million (on a pre-tax basis) in growing the new broker business in 2012. The Directors believe that the broker services will require continued investment by the Group in 2013, but at a level that will have a lower incremental impact on trading profit compared with 2012. The Directors expect the broker services to be profit generating during 2014. As the broker business grows, it is expected that it will offer further diversification of revenue streams (thereby reducing the Group’s sensitivity to the market cyclicality that affects its motor business).

The Group has also recently entered the telematics market through the “Model Driver” policies offered by the Sheilas’ Wheels broker in order to explore and develop the potential of telematics (where an in- car “black box” equipped with GPS, GSM/GPRS and accelerometer technologies is used to monitor an individual’s driving behaviour and gather data for use in calculating future premiums). The broker service could also enable the Group to expand its motor insurance coverage to further products such as van/motorbike insurance and provide the Group with sufficient market coverage to offer a broad multi-car insurance offering.

59 Gocompare.com The Group also owns a 50 per cent interest in the price comparison website Gocompare.com, one of the top four price comparison websites for motor and home insurance products in the UK. The Group’s investment in the Gocompare.com business has been a successful one and the Group has recently, together with the other Gocompare shareholders, committed to undertake a joint sales process for the sale of the entire issued share capital of Gocompare. Notwithstanding this, the Directors consider that a number of different outcomes to a sale of the Group’s interest in Gocompare are still possible, including, among such other outcomes, the retention of the Group’s current shareholding level going forward.

2. STRENGTHS The Directors believe that the Group has a number of key strengths which underpin the Group’s core motor and home underwriting businesses and mean that the Group is well placed to manage the effects of motor insurance market cyclicality.

2.1 Innovative and entrepreneurial approach led by Peter Wood, Stuart Vann, Darren Ogden and the Group’s experienced management team Peter Wood, the Group’s Chairman, has over 35 years’ experience in the UK personal lines insurance industry and a distinguished record of success and innovation. In addition to his role in founding the Group, Peter is also widely recognised for founding Direct Line and pioneering the direct selling of general insurance in the 1980s and 1990s, as well as founding three other insurance companies around the world (including Línea Directa Aseguradora, a company serving the Spanish direct insurance market).

Stuart Vann, the Group’s Chief Executive Officer, has over 17 years’ experience in the UK insurance industry and has also played an integral part in the development of the Group since joining in 2000. In particular, Stuart led the Group’s response to the personal injury claim phenomenon and has driven the Group’s wider diversification strategy.

Darren Ogden, the Group’s Chief Finance Officer has over 20 years’ experience in the UK insurance industry, and 10 years with the Group including heading the Group’s finance department since 2007.

Peter, Stuart and Darren are complemented by a strong and experienced senior management team comprising nine executives with an average of 20 years’ experience in the insurance industry. The Chairman, Executive Directors and the senior management team have a significant personal investment in the success of the Group, with all but one involved in the 2010 Management Buy-out and 9 of the 12 involved with the Group for over 10 years, having joined within three and a half years of its launch in 2000.

Peter, Stuart, Darren and the management team have a proven track record of successfully growing and evolving the business. As one of the first internet-branded insurers in the UK, the Group’s focus from its inception on the internet market anticipated the development of the internet as the major distribution channel for insurance and the potential for efficiency gains provided by e-commerce in the UK personal lines insurance sector. Since then, the development of the Group has been characterised by an innovative and entrepreneurial approach to take advantage of changes to market dynamics and customer behaviours. Examples of this include:

• the strategic decision to target the female motor insurance market through its Sheilas’ Wheels brand;

• navigating the change in retail approach required by the emergence of price comparison websites as a distribution channel (2006 onwards), including through the Group’s strategic start- up investment in Gocompare.com to take further advantage of this trend;

• implementing new revenue growth strategies to diversify its revenue streams and manage the Group’s exposure to market cyclicality of the motor insurance sector, including:

60 (i) targeted growth of home insurance underwriting business;

(ii) investment in research and development in and the launch of a number of customer- focused Additional Insurance Products to enhance the Group’s core motor and home insurance products and meet customer needs; and

(iii) the launch of the esure – and Sheilas’ Wheels – branded broker operation as a means of driving growth in revenues from Additional Services and broking commissions;

• driving a successful turnaround of the Group’s profitability in 2009, 2010, and 2011 through an effective early response to the deterioration of the motor book Loss Ratio that arose as a result of the advent of the industry-wide personal injury claims phenomenon; and

• positioning the Group to take advantage of the potential opportunities afforded by social media as a potential new distribution channel for the Group’s products and a medium by which to raise further awareness of its brands (including through the establishment of a research and development department to focus on this area).

Further details of the Chairman and the Executive Directors, including their relevant experience and credentials, are set out in section 1 of Part II (Directors, Corporate Governance and Remuneration) of this document.

2.2 Conservative and highly focused underwriting philosophy The Group adopts a conservative approach to underwriting, targeting statistically low risk segments of the motor and home insurance markets, maintaining tight risk control and applying rigorous technical pricing when setting premium rates. This approach is founded on detailed diligence, modelling and analysis of internal data at a very granular level, supplemented by external data where relevant.

The Group’s underwriting platform, which consists of a suite of underwriting systems, controls and processes, provides the ability to monitor actively and manage the Group’s underwriting risk exposure and is designed to enable it to identify and react to emerging trends, such as adverse claims experience in particular market segments or disproportionate exposure within the Group’s policy books to certain types of risk, at an early stage in their development. In turn, this active monitoring informs the Group’s underwriting risk selection and pricing when writing both new and renewal business, allowing the Group to manage more effectively the overall composition and risk profile of its in-force policy books.

The Directors believe that the Group’s prompt identification of the advent of the personal injury claim phenomenon (a material unanticipated increase in claims costs relating to personal injury that arose in 2008 and 2009 across the UK motor insurance industry as a whole) is testament to the strength and effectiveness of the Group’s underwriting philosophy and capabilities, allowing the Group to institute and complete a quick turnaround to the deterioration in Loss Ratio it experienced in 2008 and 2009 and to adapt swiftly its underwriting approach in a manner focused on delivering profitable growth in the new motor insurance environment that had emerged. Please refer to section 1.3 (Claims) of Part IV (Market Overview) for further details.

Further, the Directors believe that the Group’s continual focus on data collection and analysis and on enhancing its underwriting systems, controls and processes should allow the Group to identify and respond rapidly to changing developments in the motor and home insurance markets.

This philosophy is underpinned in the Group’s approach to pricing, as described in section 10 of this Part I (The Business).

2.3 Efficient and effective claims management The Group operates a well-resourced and innovative claims function. The Group’s specialised claims staff use its newly-launched, in-house designed, claims imaging workflow management system, helping to ensure that claims are managed efficiently and effectively. The Group has set up a number of initiatives and arrangements to keep the costs of claims down by avoiding excessive repair, credit hire

61 and legal fees, including through its network of motor repairers and through a dedicated service for “not at fault” third parties claiming against any of the Group’s policyholders.

The Directors believe that the Group has particular expertise in the early identification of claims which have the potential to exceed £100,000. These are managed centrally in a dedicated large loss unit. The Group also operates a triage system to allocate certain types of personal injury claim (for example, multiple passenger claims or claims notified an atypically long time after the date of the accident) to specialist claims teams with the relevant experience, who are supported by an over 40 person strong anti-fraud unit.

The Group launched a new, in-house designed, claims imaging workflow management system at the end of 2012 and is expected to improve claims performance and customer service. Ultimately, these benefits will flow through to the Groups combined operating ratio.

The new system will also provide a rich source of additional management information about claimant litigation behaviour and settlement trends, which the Directors believe will enable the Group to exercise greater control over its personal injury indemnity payouts and minimise unnecessary costs. The Directors believe that the implementation of this new system should provide the Group with a competitive advantage during the implementation of the legal cost reforms expected under LASPO and other expected civil justice reforms. Further information about this new system is provided in section 13 of this Part I.

2.4 Prudent reserving policy The Group operates a prudent reserving policy for retained underwriting risk, reserving significantly in excess of the “best estimate” level of its outstanding claims reserves (as determined through standard actuarial techniques and verified by independent consulting actuaries). This is a reflection both of the Group’s conservative approach to up-front recognition of the expected costs of reported claims (these costs then being reflected in the Group’s Outstanding Claims Reserves) and the Group’s steady year- on-year accumulation of substantial IBNR Reserves.

Accordingly, the Group has historically experienced a favourable run-off in these reserves as claims have ultimately been settled at a lower cost than initially booked. Although this is reflected in the Group’s consistent prior year reserve releases, the Group has nevertheless historically increased this prudence margin which, in absolute terms, has increased in every year since the Group commenced trading in 2001.

As a result of this reserving policy, the Group has established sizeable prudence margins within its reserves. As at 31 December 2012, the amount of the Group’s reserves for outstanding claims, net of outward reinsurance, together with the related reserves in respect of the requirement for claims handling expenses, additional unexpired risk reserves and reinsurance bad debt as at 31 December 2012 exceeded Towers Watson’s independent actuarial best estimate of those reserves by in excess of 15 per cent (as set out in Towers Watson’s opinion included in Part VIII (Reporting Actuary’s Opinion) of this document).

In addition, the Directors believe that the Group is well placed to meet the anticipated requirements of Solvency II (with the Group’s existing “prudence margin” being in excess of the margin required to be held over best estimate under the current draft Solvency II requirements) as well as being in a strong position to fund the anticipated growth of the Business.

2.5 Strong and widely recognised brands The esure and Sheilas’ Wheels brands are well established personal lines brands in the UK:

• the esure brand was launched in 2001 and became one of the UK’s fastest growing motor insurance brands through its iconic “Calm Down Dear” advertising campaigns fronted by the late Michael Winner and its focus on offering cheaper premiums to customers with higher accumulated “no claims discounts”; and

62 • the Sheilas’ Wheels brand was launched in 2005 and today is the most widely recognised female- focused financial services brand in the UK. Through this brand, the Group has built a policy book comprising a vast majority of female policyholders who have historically demonstrated a lower incidence of personal injury claims. As at 31 December 2012, approximately 95 per cent of policyholders in the Group’s Sheilas’ Wheels motor insurance policy book were female. The Directors believe that this female-focused brand (and the significant female weighting of in-force policies it has helped to create) provides the Group with a competitive advantage now that the use of gender-related factors in determining premiums and benefits is prohibited, as further explained in section 2.6 of this Part I.

The Directors believe that the strength of these brands remains a strong competitive advantage even in current circumstances where price comparison websites form the dominant retail channel, since consumer recognition continues to be important in generating sales (in particular by mitigating the significance of providing the cheapest out of a number of similarly priced quotes). In addition, the Directors believe that the strength of the esure and Sheilas’ Wheels brands provides a valuable hedge against potential changes in the retail distribution landscape, including the increasing use of social media.

The strength of the esure and Sheilas’ Wheels brands has also underpinned the launch of the Group’s branded broker service, providing the ability to leverage consumer recognition of these brands to drive additional revenue growth by accessing segments of the insurance market that do not fall within the Group’s own core motor underwriting risk profile.

2.6 Well positioned in the gender-neutral pricing environment Since 21 December 2012, the Group has priced all its insurance products on a gender neutral basis (as has been required from that date by EU law). Motor insurance has been one of the classes of insurance most affected by this change due to the historical industry-wide reliance on gender as a rating factor reflecting the statistically lower claims costs of women, particularly in younger age groups.

The Directors believe that the gender profile and marketing of the Sheilas’ Wheels brand means the Group is well positioned under this new gender-neutral pricing regime.

While policies written under the Sheilas’ Wheels brand have always been available to both men and women since the launch of the brand in 2005, the female-focused marketing, advertising and, until 21 December 2012, pricing of the Sheilas’ Wheels brand have enabled the Group to build a book of motor insurance policies under the Sheilas’ Wheels brand in which the vast majority of main driver policyholders are female. As at 31 December 2012:

• approximately 95 per cent of policyholders under Sheilas’ Wheels-branded motor insurance policies were female; and

• approximately 64 per cent of policyholders across the esure – and Sheilas’ Wheels-branded motor insurance policies were female.

Since 21 December 2012, early signs have indicated that, as had been generally anticipated, the most visible effects of the implementation of gender-neutral pricing in the wider UK motor insurance market are increases to premium rates for female drivers with the largest increases for younger female drivers.

By contrast, the relatively large proportion of female policyholders within the Sheilas’ Wheels book (including the large number of female drivers between the age of 21 and 35 added during 2012) has enabled the Group to minimise the price disruption caused by the advent of gender-neutral pricing. This is because there are fewer young male policyholders within the Sheilas’ Wheels policy book to raise the individual premiums of the female policyholders to the level implied on a gender neutral basis when calculated according to a market-representative gender split. Accordingly, the Directors expect that existing female Sheilas’ Wheels policyholders have seen or will see lower than market-average changes in their renewal premiums for policies commencing on or after 21 December 2012, which the Directors expect will help to deliver strong retention for the current renewal cycle and/or margin growth. Indeed, the Group has seen early evidence of a positive impact on retention under the Sheilas’ Wheels brand

63 as this lower than average level of price increase for female policyholders is reflected in renewal quote competitiveness.

Going forward, notwithstanding that the Group now provides gender neutral pricing to individual Sheilas’ Wheels policyholders, the Directors believe that the Sheilas’ Wheels book and brand will provide the Group with an ongoing competitive advantage at least over the short to medium term:

• the Group made determined efforts in 2012 to underwrite greater volumes of policies for young female drivers under the Sheilas’ Wheels brand, which the Directors anticipate will lead to increased flexibility in balancing retention rates with profit margins through the Group’s pricing strategy within those segments over a number of renewal cycles; and

• the Group will continue with its female-focused marketing and advertising of the Sheilas’ Wheels brand and generally to promote the Sheilas’ Wheels brand in ways that appeal primarily to women. The Directors therefore believe that the Sheilas’ Wheels brand will continue to attract more female customers than male customers, and should therefore continue to have a large proportion of female drivers for the foreseeable future.

In addition, even if the Sheilas’ Wheels brand were to experience equal new business take-up between men and women coupled with similar retention patterns to those currently experienced, the Directors believe that the high proportion of female policyholders existing at today’s date would take a number of years to be materially eroded.

As a result of the historic development of the Sheilas’ Wheels brand, there is a higher proportion of males within the esure policy book than would be implied by a market-representative split. However, the Group’s predominant focus on drivers over the age of 30 with no history of driving convictions or “at fault” insurance claims within the previous five years when underwriting policies under the esure brand meant that the use of gender as a rating factor typically resulted in a relatively small difference between male and female premiums. As such, despite the removal of gender as a rating factor within the Group’s rating algorithm following the implementation of gender-neutral pricing, the majority of existing esure policyholders have so far seen little change to renewal premiums for policies commencing on or after 21 December 2012 and, over the first two months of 2013, there has been little disruption to retention metrics.

2.7 Integrated anti-fraud focus Over 40 staff with specialised knowledge manage claims in high propensity fraud categories such as low impact collisions, claims involving multiple claimants, personal injury claims notified an atypically long time after the accident, staged motor theft and accidents, and opportunistic home claims.

In addition, the Group's focus on anti-fraud procedures extends beyond detection in the claims process to areas of fraud prevention at the application stage. These include mitigating current key risks such as “address fronting” (the deliberate misrepresentation of address to obtain a reduced premium) and combating so-called “ghost broking” (misuse of sales channels by unregulated or illegal ‘brokers’ who arrange policies on behalf of others, often characterised by material non disclosure or misrepresentation in order to obtain reduced premiums). The Group is a member of (and sits on the Technical Board of) the Insurance Fraud Bureau. It is also a member of CIFAS (operator of the UK’s National Fraud Database), and works actively with the Insurance Fraud Enforcement Department of the City of London Police.

The Group also has a track record of both leadership and early adoption of fraud prevention tools:

• it was the first UK insurance group to implement the SIRA fraud detection system, which is used extensively in both the underwriting and the claims functions;

• it was an early adopter of Digilog Voice Stress Analysis screening to highlight potential inconsistencies in the claims verification process; and

• it was the first UK insurance group to use the contempt of court process to prosecute a participant in a staged accident, creating a landmark judgment.

64 The net financial benefit to the Group resulting from its proactive anti-fraud measures at the “claims stage” is estimated by the Group to have been approximately £20.6 million in 2012 (unaudited). This is calculated by looking at the value of claims that would have been settled but for being identified as fraudulent (and, as a result, successfully challenged), and offsetting the costs directly incurred in relation to that claim (such as investigator costs and solicitors’ fees). In addition, the Group estimates that it saves significant further amounts as a result of its preventative “application stage” anti-fraud measures which are geared to detecting fraud in policy applications. While by its nature it is difficult to quantify exactly the financial benefit to the Group resulting from the rejection of applications (or cancellation/voidance of policies) where the underlying application is found to be fraudulent, the Directors believe this, together with the “claims stage” anti-fraud activity, is an important driver not only of the Group’s Loss Ratio performance but also in terms of the value offered by the Group’s branded broker service to its panel insurers (and therefore is also a key component in the Group’s efforts to scale the Broker business).

2.8 Scalable operating platform to capitalise on growth opportunities The Group has made significant investments in its business premises, IT platform and infrastructure since 2001. As a result, the Directors believe that the Group is well positioned to accommodate growth, whether in underwriting, broking or through Additional Services, without significant additional capital expenditure and the Group’s three business premises in Reigate, Manchester and Glasgow offer additional physical office and call centre capacity. In addition, because of its significant investment in previous years in building the esure and Sheilas’ Wheels brands and its focus on the price comparison website distribution channel, the Directors do not believe that significant marketing spend will be a requirement for future growth.

2.9 Strong free cash generation Since the Group derives a substantial proportion of its earnings from outside its core motor and home insurance underwriting activities through diversified, but related, business activities which are highly cash generative, a significant proportion of its annual earnings are expected to be available for reinvestment and/or distribution to Shareholders.

In recent years, free cash resources accumulated by the Group have put it in the position to repay £62 million of Unsecured Loan Notes (£30 million repaid in October 2011 and £32 million in April 2012) and £85.45 million of Non-Voting Old Ordinary Shares and Priority Return Shares (£40 million by way of capital reduction in February 2013 and £45.45 million to be repurchased using existing cash resources on Admission). Following these repayments and the repayment of the £50 million Perpetual Subordinated Loan Notes from the proceeds of the Offer on Admission, the Group will have no interest bearing debt or preference share capital and the Ordinary Shares will constitute the Group’s sole class of shares.

For information on the Group’s stated dividend policy with respect to the Ordinary Shares going forward, please see section 6 (Dividend Policy) of this Part I.

3. STRATEGY The Group aims to deliver profitable and sustainable growth through a combination of three inter-linked areas of strategic focus:

(A) Central strategic focus on Loss Ratio performance: at the heart of the Group’s strategy is a disciplined focus on managing the Loss Ratios of its in-force policy books in order to provide a sustainable basis for the profitable growth of the Business. The Group aims to do this through:

• the active monitoring and management of its underwriting risk exposure and the application of rating and pricing adjustments based on detailed monitoring and granular analysis of risk and related management information;

• tight risk control by the Group’s underwriting function (in coordination with the Group’s operational and online sales management functions) at policy inception and renewal;

65 • the application of preventative and remedial anti-fraud measures in its sales, policy management and claims functions;

• the ability and willingness quickly to reduce take-up within (or withdraw completely from) market segments whose performance exhibits adverse claims experience; and

• efficient claims management processes, including prudent and consistent reserving on notification of a claim, a strong repair network and taking control over third party claims in order to minimise costs.

Loss Ratio performance ultimately drives the Group’s capital requirements and its control is considered by the Directors to be the key foundation for profitable growth, underpinning the Group’s two other strategic objectives.

(B) Targeted in-force policy growth and retention: maintaining tight control of the Group’s Loss Ratios and underwriting risk exposure provides the foundation for the Group to pursue targeted in-force policy book growth within “low risk” market segments:

• the Group continually monitors the Loss Ratio performance and contribution of discrete segments of its motor and home policy books, using this information to identify particular target segments of the market that are believed to offer the potential for profitable growth; and

• the Group seeks to acquire and retain customers from these target segments through the use of tactical pricing, strong brands and product differentiators (for example, through an extended “no claims discount” scale). The presentation of prices and related benefits is principally through price comparison websites, although this is supplemented by the use of advertising through traditional media directed at target segments and on websites that are likely to be visited by customers within those target segments. In future, the Directors believe that social media will also have a role to play in distribution and as a tool for raising further brand awareness.

Targeted growth, supplementing the existing customer base of the Group’s in-force policy books, provides economies of scale and customer relationships which underpin the generation of a number of revenue streams from new and existing customers.

(C) Diversification of income streams: since the Management Buy-out in February 2010, the Group has placed strong emphasis on diversifying its revenue streams away from its motor insurance business in order to mitigate the effects of motor insurance market cyclicality:

• the growth of the Group’s home insurance underwriting business;

• the development and sale of motor and home Additional Insurance Products that meet customer requirements and enhance the cover of the Group’s core motor and home insurance policies in order to increase Additional Insurance Product penetration both with new customers at policy inception and with existing customers at renewal and at the time of any mid-term policy adjustments;

• the development of the motor insurance broker service in order to generate revenues from commissions received from panel insurers on policy inception and through administration fees, premium instalment payments and Additional Insurance Product sales linked to customer relationships that would not previously have been created through the Group’s own motor underwriting business due to its narrower underwriting footprint.

4. HISTORY AND DEVELOPMENT OF THE GROUP PR AnnI, 5.1.5 4.1 Ownership The Group was founded in 2000 by Peter Wood, the Group’s Chairman, together with financial backing from Halifax plc (which became part of HBOS Group in 2001). HBOS Group (which itself became part of Lloyds Banking Group in January 2009) continued to own 70 per cent of the Group until February

66 2010, when a management team led by Peter Wood, together with an outside investor (Tosca Penta Investments LP), acquired the Group through the Management Buy-out. Details of Peter Wood’s and Tosca Penta Investments LP’s existing shareholdings (and their expected shareholdings following Admission) are set out in section 8.2 of Part XII (Additional Information).

4.2 Key development milestones Some key milestones in the Group’s development include:

• 2001: the Group wrote its first policies in January as the provider of “white label” car insurance to Halifax plc, whereby policies underwritten by the Group were sold to customers under the Halifax Car Insurance brand. In July 2001, the Group launched the esure brand, which focused on low risk customers (such as those with at least four years’ “no claims discount”) who were targeted through a dual focus on direct internet and telephone sales. The Group’s esure-branded home insurance offering was also launched in September 2001.

• 2003: launch of the esure brand’s high profile “Calm Down Dear” advertising campaign, which was nominated in the 2003 National Business Awards for the Advertiser of the Year category. This campaign helped esure become one of the UK’s fastest ever growing motor insurance brands between 2001 and 2005.

• 2005: launch of the female-focused Sheilas’ Wheels brand through its well-recognised commercials featuring three pink-clad singers and the “Sheilamobile”. The Sheilas’ Wheels brand attracted high volumes of female policyholders from the outset and today is the most widely- recognised female-focused financial services brand in the UK. Sheilas’ Wheels-branded home insurance was subsequently launched in 2008.

• 2006: as the rising popularity of the price comparison website retail channel became clear, the Group started to distribute its products through confused.com and moneysupermarket.com.

• 2007: sensing the emergence of a potential duopoly in the price comparison website distribution channel, in January the Group made a strategic investment in start-up price comparison website Gocompare.com.

• 2009: reacting early to the advent of the industry-wide personal injury claims phenomenon within the motor insurance marketplace, the Group commenced steps to adapt its underwriting approach and reduce the Group’s exposure to segments of the market displaying heightened personal injury claim risk.

• 2010: successful completion of the Management Buy-out with financial backing from Tosca Penta Investments LP. Cessation of “white label” arrangements with HBOS for sale of insurance polices under the Halifax Car Insurance brand, with Lloyds TSB retaining the associated policy book.

• 2011: adoption of new strategic focus on generating revenues from Additional Services through the development and sale of customer-focused Additional Insurance Products, and completion of strategic de-risking of the Group’s motor insurance policy books in response to the personal injury claims phenomenon. In November 2011, the Group introduced its branded broker service as a launchpad for driving incremental revenue growth from segments of the motor insurance market which are outside the Group’s own underwriting risk appetite. Repayment of £30 million of the £197 million investment made by Tosca Penta Investments LP in the Group at the time of the Management Buy-out from accumulated cash resources.

• 2012: repayment of a further £32 million of the investment made in the Group by Tosca Penta Investments LP from accumulated cash resources. The Group also introduced two new motor insurance Additional Insurance Products (Misfuelling Cover and Key Cover) to increase customer choice, and set up a research and development department to explore the potential opportunities provided by social media for sales and brand awareness.

• 2013: entry into the telematics market via the Sheilas’ Wheels broker service. Introduction of a further motor Additional Insurance Product (Excess Cover) with home Additional Insurance

67 Product (Travel) to follow. Return of a further £134.85 million of the investment made by Tosca Penta Investments LP (of which: (i) £40 million was returned in February 2013; (ii) £44.85 million will be satisfied from existing cash resources on Admission; and (iii) £50 million will be funded by the proceeds of the Offer), leaving the Group debt free.

5. REASONS FOR THE OFFER AND USE OF PROCEEDS PR Ann III, 3.4 The Directors believe that Admission is an important step in the Group’s development, providing the Group with a stable corporate platform and long-term ownership structure on which to base the next stage of its development, as well as further increasing the Group’s profile, brand recognition and credibility with its customers, suppliers and employees and assisting in the recruitment, retention and incentivisation of senior management and employees.

It is anticipated that the Company will raise proceeds of £50 million through the Offer, all of which will be applied in repaying the Group’s outstanding £50 million Perpetual Subordinated Loan Notes (which were issued to Tosca Penta Investments LP at the time of the Management Buy-out).

Since the redemption of the Perpetual Subordinated Loan Notes involves the replacement of all of the Group’s existing interest bearing debt with non-interest bearing ordinary equity, the Offer will also make a positive contribution to the Group’s financial results in future periods. There will be an additional benefit that the New Ordinary Shares, unlike the Perpetual Subordinated Loan Notes, will, along with the Existing Ordinary Shares, constitute qualifying Tier 1 capital for regulatory purposes.

The Offer also includes the sale of Existing Ordinary Shares by the Selling Shareholders. However, the Group’s two largest Shareholders (Peter Wood and Tosca Penta Investments LP) and the Executive Directors will continue to have substantial shareholdings in the Group following Admission. In addition:

• Peter Wood and the other Directors (except David Calder and Charles Schrager von Altishofen, PR Ann III, 7.2 who will both retire from the Board on Admission) are subject to lock-up arrangements pursuant to the Underwriting Agreement, whereby they have each undertaken, subject to certain customary exceptions, to withhold from any further sales of their Ordinary Shares for a period of at least 365 days from the date of the Underwriting Agreement. Peter Wood has also entered into an extended lock-up whereby he has undertaken to the Company that, from the date of this document, he will not, for a period ending two years after Admission, sell Ordinary Shares representing approximately two thirds of his holding immediately following Admission (calculated on the basis of the Mid-point Assumptions);

• Tosca Penta Investments LP is subject to lock-up arrangements pursuant to the Underwriting PR Ann III, 7.2 Agreement, whereby it has undertaken, subject to certain customary exceptions, to withhold from any further sale of their Ordinary Shares for a period of at least 180 days from the date of the Underwriting Agreement; and

• in order to sell through the Offer, Employee Shareholders will be required to agree to undertake to withhold from any further sales of their Ordinary Shares for a period of 365 days from the date of the Underwriting Agreement (subject to certain customary exemptions).

Further details of these arrangements and the lock-up arrangements that will apply to the Company and the other Selling Shareholders are described in section 7 of Part IX (Information about the Offer).

6. DIVIDEND POLICY PR Ann I, 20.7, 20.7.1 The Directors intend to adopt a dividend policy which will reflect the Group’s aim of generating sustainable value for shareholders while ensuring that it retains sufficient capital for regulatory purposes and to fund planned growth.

68 In addition, the Board will carry out an assessment of the Group’s available and accumulated capital at the time of each dividend declaration to determine whether, in addition to the target “base dividend” (and after taking into account the cash required for any planned expansion or capital expenditure together with a prudent margin for contingencies), there is the potential for the Board to enhance the “base dividend” by a further “special dividend”.

If this policy had applied in respect of the financial years ended 31 December 2011 and 31 December 2012, the Directors believe that the Company would have achieved the target “base dividend” of 50 per cent of reported profits after tax for each of those years and would have been in a position to increase that amount by a further “special dividend” of at least 20 per cent of reported profits after tax for each of those years (with the aggregate amount being paid out across the interim and final dividends declared in respect of each of those years).

It is envisaged that interim dividends will be paid in October of the relevant financial year and final dividends in May of the following financial year, in the approximate proportions of one-third and two- thirds respectively of the aggregate “base” and “special” dividends for the relevant year.

The Group may revise its dividend policy from time to time.

69 7. DESCRIPTION OF THE GROUP’S BUSINESS PR Ann I, 6.1.1, 7.1 Motor insurance underwriting 6.1.2, 6.2 (A) Overview The Group’s principal underwriting business is the sale of motor insurance policies. As at 31 December 2012, the Group had 1.255 million in-force motor insurance policies, representing an estimated 5 per cent share of the total UK private motor insurance market.

The Group focuses on the private motor insurance market, and does not currently underwrite commercial policies (albeit the Group may decide to enter the commercial market via its branded broker services, further details of which are set out at section 7.3 of this Part I). The table below provides certain information with respect to the Group’s motor insurance business for each of 2010, 2011 and 2012.

Motor Insurance Book FYE 2010 2011 2012 In-Force Policies(1) (000s) Group...... 1,184 1,210 1,255 esure...... 522 507 527 Sheilas’ Wheels...... 483 616 668 Other brands(2) ...... 179 87 60 Gross Written Premiums (£m) Group...... 390.2 423.1 429.0 esure...... 167.3 181.2 186.1 Sheilas’ Wheels...... 151.4 209.4 220.4 Other brands(2) ...... 71.5 32.5 22.5 Loss Ratio(3) (%) ...... 89.6 70.6 70.0 Expense Ratio(4) (%)...... 22.6 24.0 22.4 Combined Operating Ratio(5) (%)...... 112.3 94.6 92.4

Notes: (1) In-force policies as at the end of each period.

(2) “Other brands” includes policies written under the First Alternative brand, policies written under the Sainsbury’s brand pursuant to the historic “white label” arrangement with Sainsbury’s Bank (in 2010 and 2011 this includes both new business and renewal business, and in 2012 this includes renewal business only), and policies written under the Halifax Car Insurance brand pursuant to the historic “white label” arrangement with HBOS Group (included in the figures for 2010 only – no policies have been written by the Group under the Halifax Car Insurance brand since October 2010 and the last of the Group’s in-force Halifax Car Insurance policies expired in October 2011).

(3) Loss Ratio is claims incurred, net of reinsurance as a percentage of earned premiums, net of reinsurance.

(4) Expense Ratio is calculated as insurance expenses plus claims handling costs as a percentage of earned premium, net of reinsurance.

(5) Combined Operating Ratio is calculated as Loss Ratio plus Expense Ratio.

(B) Underwriting approach The Group writes motor insurance policies principally through the esure and Sheilas’ Wheels brands, which together accounted for 95.2 per cent of the Group’s in-force motor policies as at 31 December 2012. Through both brands, the Group targets motor insurance market segments with statistically low risk profiles – for example, as at 31 December 2012:

• approximately 91 per cent of main policyholders were drivers who have at least five years of “no claims discount”;

• approximately 64 per cent of main policyholders were female;

• approximately 97 per cent of main policyholders were over the age of 25;

• approximately 87 per cent of main policyholders were over the age of 30; and

70 • approximately 81 per cent of main policyholders under the age of 30 were female.

In recent years, growth of the Group’s overall in-force motor policy count has been predominantly achieved through policies written to the Sheilas’ Wheels policy book, which can be attributed to it having fared significantly better than the policy books of the Group’s other brands in the face of the personal injury claims phenomenon throughout 2009 and 2010 due to its distinct gender profile and the Group’s strategic decision to add significant volumes of female drivers to the Sheilas’ Wheels book (particularly female insured-only drivers in the age range of 21 to 35) in anticipation of the implementation of gender-neutral pricing in December 2012.

The table below provides certain information with respect to the positioning of the Group’s principal brands as at 31 December 2012.

Positioning of principal brands Sheilas’ Wheels esure Proportion of Group’s total in-force motor policies...... 53.2% 42.0% Age % main policyholders (over 30) ...... 81.6% 92.8% % main policyholders (30 and under)...... 18.4% 7.2% Gender % main policyholders (all ages)...... 94.6% female 27.9% female 5.4% male 72.1% male % main policyholders (30 and under)...... 99% female 26% female 1% male 74% male Average premium ...... £301 £325

The Directors believe that the Group’s motor underwriting business has further growth potential. Although the UK motor insurance industry is at a stage of the cycle where there is and will likely continue to be significant competition in pricing and underwriting terms and conditions over the short to medium term, the Directors believe the Group is well placed to mitigate the impact of this and achieve growth. In particular:

• the Group’s upper quartile motor insurance retention rates (for example, overall motor retention rates for policyholders reaching the end of their policy term was approximately 75 per cent in the six months ended October 2012 against a market average of approximately 68 per cent over the same period) provides a strong foundation for supporting growth;

• as discussed in section 2.6 (Well positioned in the gender-neutral pricing environment) of this Part I, the Directors believe that particular characteristics of the Group’s Sheilas’ Wheels policy book give the Group a competitive advantage in the gender-neutral pricing environment;

• the Directors believe that the Group is well placed to be a net beneficiary of enacted and proposed civil justice reforms. Significant provisions in LASPO and other related regulations or consultations include, among others:

(i) abolishing the recoverability of additional amounts in respect of conditional fee arrangement success fees and after-the-event insurance premiums (from April 2013);

(ii) abolishing referral fees in personal injury cases and prohibiting the sale of accident victim data (from April 2013);

(iii) increasing general damages by 10 per cent (from April 2013);

(iv) increasing the limit on small claims track non-personal injury claims to £10,000 (from April 2013);

(v) tighter regulation of claims management companies by transferring responsibility for complaints about claims management companies to the Legal Ombudsman (intended by the Government to be in place by the end of 2013);

71 (vi) reducing the fixed costs permitted to be recovered by solicitors for conducting Road Traffic Accident Protocol Claims (from end of April 2013) and increasing the upper limit for claims through the Road Traffic Accident Protocol to £25,000 (from end of July 2013); and

(vii) proposals to implement greater medical scrutiny of whiplash injury claims and ease of challenge in the small claims court with the stated intent of bringing down the number and cost of whiplash claims (in consultation with the Ministry of Justice).

While none of the measures described above are currently in force, the Directors believe that the likely overall impact of these measures will be to reduce personal injury claimant frequency in previously high frequency areas by reducing the margins that can be made through claims farming by claims management companies. If this occurs, this will potentially allow the Group to re-enter market segments it had previously exited and seek to grow policy numbers and margin contribution. In addition, the Directors believe that any reduction in referral income that the Group might previously have expected to receive will be substantially exceeded by improvement in the Group’s claims costs. The Group has never sold accident victim data and will therefore not lose a revenue stream as a result of reforms preventing the sale of accident victim data.

(C) Other motor underwriting Historically, the Group has also used the First Alternative brand. The First Alternative renewal book is small but profitable, and the Group does not currently use this brand to write significant quantities of new business. As at 31 December 2012, there were approximately 15,200 in-force First Alternative policies, accounting for approximately 1.2 per cent of the Group’s in-force motor policies.

In addition to policies written under its own brands, the Group has in the past entered into “white label” arrangements with Halifax Group plc and Sainsbury’s Bank plc. The arrangement to underwrite policies sold under the Halifax Car Insurance brand ceased in February 2010 following the Management Buy- out. As a result, the Group stopped writing Halifax-branded policies completely from October 2010. The Group does retain limited claims exposure to its historic Halifax book, for which the Group currently holds reserves and reinsurance protection. The arrangement to underwrite new business under the Sainsbury’s brand ceased in May 2011. However, the Group has retained the right to renewal business on the profitable book of policies written by the Group under the Sainsbury’s brand prior to that date. As at 31 December 2012, there were approximately 45,000 in-force policies within the retained Sainsbury’s renewal book, accounting for approximately 3.6 per cent of the Group’s total in-force motor policies.

(D) Revenues from Additional Services – Motor The Group also generates revenues from its motor underwriting activities through the provision of Additional Services alongside the core motor insurance policy itself. In 2012, total income from Additional Services relating to motor insurance was £93.1 million, up 20.1 per cent from £77.5 million in 2011 (2010: £68.6 million).

The Group generates revenues from Additional Services relating to its motor underwriting business in four principal ways:

• Additional Insurance Products: these offer additional cover and protection over and above that offered by the core motor insurance policy, and now account for the largest share of revenues generated by Additional Services relating to motor insurance policies: in 2012, total income from Additional Insurance Products was £36.8 million, up 31.4 per cent from £28.0 million in 2011 (2010: £22.1 million). The motor Additional Insurance Products currently being offered or developed by the Group comprise: (i) Motor Legal Protection: covering legal fees in pursuing a claim for uninsured losses defence against prosecution for motoring offences, and access to a 24 hour legal helpline. Launched in 2001 (cover and indemnity limits enhanced in 2012). (ii) Breakdown Assistance Cover: breakdown cover provided through Green Flag. Launched in 2001.

72 (iii) Personal Injury Benefit: providing capital benefits in the event of death or severe disablement (in addition to any sums paid under the core motor policy) for drivers involved in an accident and cover for certain medical expenses of drivers involved in “at fault” accidents. Launched in 2011 (enhanced in 2012 to give increased level of cover to drivers involved in “at fault” accidents). (iv) Car Hire Cover: providing a replacement hire car to the policyholder for a period of up to three weeks in the event that the insured car is stolen or declared a write-off. Launched in 2011. (v) Misfuelling Cover: for customers who have accidentally put the incorrect fuel in their car. This covers the costs of recovery of the vehicle, driver and passengers, drainage and cleaning of the fuel system, replenishment of the correct fuel, and related out of pocket expenses not covered by the core motor policy. Launched in 2012. (vi) Key Cover: covering the cost of replacing lost, stolen or damaged car keys together with related out of pocket expenses not covered by core motor policy. Launched in 2012. (vii) Excess Protection Cover: pays the driver’s policy excess in the event of a fault accident or fire and theft claim, subject to policy limits. Launched in January 2013. These motor Additional Insurance Products are insurance policies and, with the exception of Breakdown Assistance Cover, involve the Group carrying some underwriting risk. However, these products (and the Group’s non-underwritten Breakdown Cover) still offer a higher return on capital employed than the Group’s core motor insurance policy itself. The Group is mindful of the financial and reputational damage that could be caused to it by allegations of mis-selling, whether of its core insurance products or Additional Insurance Products, and, accordingly, has established a number of procedures and controls designed to ensure that all of its products are sold in compliance with applicable law and regulation, including regulatory codes of conduct, with the objective of treating customers fairly in all circumstances. Further details regarding the Group’s procedures and controls are set out in section 14 of this Part I. • Instalment Income: this comprises interest income received from customers who choose to pay for motor policies in monthly instalments rather than through a single premium payment at policy purchase.

• Policy Administration Fees: this comprises income received as a result of administration charges (for example, as a result of mid-term alterations to policy details by the policyholder) and cancellation charges.

• Claims Income: this comprises income generated by the Group from panel membership fees and fees generated from the appointment of firms used during the claims process, including medical and car hire suppliers.

In addition, the Group also generates small amounts of revenue by redirecting customers seeking motorbike and van insurance quotes or who are otherwise outside of the Group’s underwriting criteria to third party intermediaries (including Gocompare.com).

73 7.2 Home insurance underwriting (A) Overview The Group has offered home insurance since September 2001 (shortly after the launch of the motor insurance business), but it is since 2008 that the Group’s strategy to diversify beyond motor insurance to its home underwriting business has been particularly successful. The growth of the Group’s home insurance business was accelerated in part due to the changing industry distribution and the Group’s emphasis on the price comparison website channel. As a result, the Group now has over 500,000 in- force home policies (which the Group estimates to account for 2 per cent of the UK home insurance market) after achieving a compound annual growth rate of 24 per cent in the period from 1 January 2008 to 31 December 2012. The table below provides certain information with respect to the Group’s home insurance business for each of 2010, 2011 and 2012.

Home Insurance Book FYE 2010 2011 2012 In-Force Policies(1) (000s) Group...... 380 443 504 esure...... 182 264 305 Sheilas’ Wheels...... 198 179 199 Gross Written Premiums (£m) Group...... 66.1 76.4 86.0 esure...... 34.2 48.2 54.1 Sheilas’ Wheels...... 31.9 28.2 31.8 Loss Ratio(2) (%) ...... 104.0 55.5 64.5 Expense Ratio(3) (%)...... 32.1 32.5 30.0 Combined Operating Ratio(4) (%)...... 136.1 88.0 94.5

Notes: (1) In-force policies as at the end of each period.

(2) Loss Ratio is claims incurred, net of reinsurance as a percentage of earned premiums, net of reinsurance.

(3) Expense Ratio is calculated as insurance expenses plus claims handling costs as a percentage of earned premium, net of reinsurance.

(4) Combined Operating Ratio is calculated as Loss Ratio plus Expense Ratio.

(B) Underwriting approach The Group writes home insurance policies under both the esure and the Sheilas’ Wheels brands. As with the Group’s motor insurance policies, the Group targets market segments with statistically low risk profiles. In terms of property selection, this involves avoiding areas where subsidence and flood are deemed high risk, with rating applied down to full postcode level. In addition, the Group introduced a windstorm rating factor into its home insurance pricing algorithm from early 2011.

Accordingly, as at 31 December 2012:

• 98 per cent of properties insured by the Group were located in areas considered to have a low risk of flooding;

• 96 per cent of properties insured by the Group were in zones which have historically demonstrated low subsidence risk (according to Environment Agency and other external data sourced and developed by the Group); and

• 98 per cent of properties insured by the Group were in “non-storm” zones according to the Group’s windstorm rating data.

In addition, the Group’s approach also involves the screening of applicants with adverse claims history or who conceal previous claims, using the Claims Underwriting Exchange (the UK insurance industry’s

74 shared databases of insurance claims that help insurers identify non-disclosure, concurrent claims activity and prevent fraud) as a risk selection tool rather than waiting until the point of claim.

The Directors believe that the Group’s home underwriting business has further growth potential. Although, in contrast to the motor industry, the leading aggregate share of the UK home insurance market is held by banks and building societies (as providers of mortgages and loans to homeowners), price comparison websites have gained a greater foothold in the home insurance market in recent years and the Directors believe that this trend will benefit the Group (as an internet-based direct insurer with well-established brands). Please refer to section 2.2 of Part IV (Market Overview) for further discussion regarding trends in home insurance sales and distribution.

The Directors also believe that growth of the Group’s home underwriting business will provide further diversification from the motor underwriting cycle (as there is little correlation between the cyclicality of the motor insurance market and events that would impact the performance of the home insurance market), while at the same time allowing the Group to gain greater economies of scale as the administration and claims processes are similar across personal lines insurance.

Further opportunities in the home insurance sector may arise if the Statement of Principles on flooding that was agreed between the Government and the insurance industry in 2000 is replaced with either a Government or an industry-led scheme that allows the Group to expand its underwriting footprint into flood-risk zones while placing the flooding element of its exposure into a communal pool. The Directors believe that the pricing impact of an industry-wide initiative such as this could potentially present the Group with opportunities if the changes prompt customers to ‘shop around’ for their home policy – in particular through increased use of price comparison websites – to a greater extent than is the case in the current home insurance market.

(C) Revenues from Additional Services – Home As with motor insurance, the Group also generates revenues from its home insurance activities through Additional Services in three principal ways: (i) sales of Additional Insurance Products to home insurance customers; (ii) instalment interest on premium payments; and (iii) policy administration fees. The home Additional Insurance Products currently being offered or developed by the Group comprise:

• Family Legal Protection: covering legal fees incurred by household members in connection with pursuing disputes over purchased goods and services, employment contracts and disputes with neighbours, subject to certain limits. Launched in 2001.

• Home Emergency Cover: cover for the cost of emergency repairs such as broken central heating and blocked drains, subject to certain limits. Launched in 2003.

• Pest Cover: cover for the cost of professional extermination or control of wasps, hornets, rats, mice and grey squirrels and for the treatment of bedbugs, subject to certain limits. Launched in 2005.

• Travel Insurance: comprehensive annual multi-trip worldwide travel insurance cover for the family which will complement home insurance cover (Currently in development).

In 2012, total income from Additional Services relating to home insurance was £11.0 million, up 17.0 per cent from £9.4 million in 2011 (2010: £6.5 million). While the incremental revenue contribution of Additional Services relating to home insurance is relatively small in the context of the Group’s other revenue streams, the Directors believe that the Group’s ability to offer a range of Additional Insurance Products to potential home insurance customers on a complementary basis for the first policy year forms an important part of the Group’s home insurance retail strategy, in particular as a way of driving sales volumes on price comparison websites. In addition, the Directors believe that there is the potential for contribution of revenues from home Additional Services to increase as a growing number of home insurance policyholders move through renewal cycles and decide to retain the coverage provided by the Additional Insurance Product at their own expense following the end of the free period.

75 7.3 Broker service In November 2011, the Group launched its esure and Sheilas’ Wheels branded broker service. While the “low risk” customers targeted by the Group in its own underwriting business represent an estimated 40 per cent of the total UK motor insurance market (by number of policies), the Directors believe that revenues from Additional Services can be profitably generated from a much wider footprint within those markets. Accordingly, the philosophy behind the broker service is twofold: first, to leverage the Group’s existing market position, brand strength and infrastructure to attract customers from market segments that are outside the Group’s underwriting risk appetite and broker the underwriting of the core insurance policy (without retention of any underwriting risk exposure to that policy by the Group) to one of a select panel of third party insurers who do target risk in those segments; and secondly to generate Additional Services revenues for the Group from a customer relationship that would not otherwise have been created by its own core underwriting activities. In addition, there is also the potential for the Group to earn commissions through any margin it achieves on successful policy sales for panel insurers.

The broker service currently has arrangements with a panel of 12 third party motor insurers, extending the Group’s access to an estimated 85 per cent of the total UK motor insurance market (by number of policies). In addition, the Group is using the broker service to explore and develop the potential of telematics through its Sheilas’ Wheels Broker “Model Driver” offering. As with the Group’s own underwriting activities, sales are primarily originated through price comparison websites (where the Group’s broker service appears in the rankings as “esure Broker” and “Sheilas’ Wheels Broker”). Sales are also generated through referrals of customers who do not meet the Group’s own underwriting criteria from the esure and Sheilas’ Wheels telephone channels, as well as through customers visiting the direct website and telephone channels established for the broker service itself.

Through sales generated in these ways, the third party insurers receive motor customers who have passed the Group’s stringent ‘up-front’ acquisition controls (fraud prevention measures, including claims checks and use of public data), helping to deliver reliable business in return for competitive rates from the third party insurers. The Group not only has the potential to earn commissions through any margin it achieves on successful policy sales, but also retains ownership of the direct relationship with these customers (and therefore, crucially, any income generated from fees, instalment interest and Additional Insurance Product sales linked to those customers) both at policy inception and throughout the renewal process (including the right to re-broke the renewal business to another panel insurer).

The Group’s branded broker service could also potentially be used to move into home and other insurance broking (such as motorbike and van insurance) and to enable the Group to offer a broad multi-car product offering capable of covering most of the UK motor insurance market.

8. GOCOMPARE PR Ann I 5.2.1, 25 The Group holds a 50 per cent interest in Gocompare.com. Gocompare.com is a price comparison website which offers a free online service to customers enabling them to search for and compare a range of products and services, including insurance, financial and travel products, as well as utilities and broadband services. Gocompare.com has a particular focus on motor insurance and home insurance. Under agreements with its panels of insurers, Gocompare is authorised to extract quotes from the insurers’ websites, which are then collated and displayed to customers in price-rank order. Customers are then able to click through to the relevant insurer’s website in order to purchase a policy for which Gocompare receives a fee.

Although the Group has appointed three non-executive directors to the board of Gocompare (out of a total of six directors), the Group does not control Gocompare and the Gocompare.com business is independent and operationally separate from the Group, and the Group’s participation as a panel member of Gocompare.com is on strictly arm’s length commercial terms.

The Directors believe that the Group’s investment in Gocompare.com has to date proved to be a sound financial investment, and has assisted the Group in developing its understanding of the price comparison market in general. Gocompare.com has grown to become one of the top four price comparison websites in the UK in terms of both motor and home insurance new business sales, and

76 as of July 2010 had repaid in full the £16 million loaned to Gocompare under the Group’s start-up investment loan facility, together with all interest. In 2012, the Group’s IFRS share of Gocompare’s reported profits before taxation, net of amortisation of acquired intangibles, was £10.3 million on its IFRS share of Gocompare’s reported revenue of £52.7 million. In 2012, the Group received dividends of £5.5 million from Gocompare, bringing the total dividends received to £18.5 million.

The Group and the other shareholders in Gocompare have committed to undertake a joint sales process for the sale of the entire issued share capital of Gocompare. Notwithstanding this, the Directors consider that a number of different outcomes to a sale of the Group’s interest in Gocompare are still possible, one of which is the retention of the Group’s current shareholding level going forward.

For further information on the Group’s shareholder arrangements with Gocompare, please refer to section 16.1 of Part XII (Additional Information).

9. DISTRIBUTION AND MARKETING 9.1 Distribution The Group employs a low-cost, multi-channel distribution strategy. While the Group has adapted to trends in the market and now generates approximately 82 per cent of new business sales through the price comparison website distribution channel, the Directors believe that the Group’s direct telephone and website sales operations remain important customer touchpoints, in particular in the case of telephone by providing direct personal contact with the Group’s customers.

(A) Motor and home policy distribution The Group obtains referrals through the four leading UK price comparison websites (comparethemarket.com, confused.com, Gocompare.com and moneysupermarket.com) as well as certain other smaller price comparison websites (including Tesco’s price comparison website and Google Compare). Where an esure or Sheilas’ Wheels quote is generated in response to an enquiry on a price comparison website, the price comparison website will provide a link that takes the customer directly to the esure or Sheilas’ Wheels website, where the quoted policy can be purchased and the customer will be offered the Group’s range of Additional Insurance Products. Price comparison websites are paid a fixed fee by the Group for each referral that results in a sale. The Group benefits from varying restrictions on the ability of certain price comparison websites to resolicit that customer for business.

Potential customers can also obtain a direct quote for a policy by entering relevant details into an online form on the esure, Sheilas’ Wheels or First Alternative websites, or by providing details over the telephone to sales staff at the Group’s call centres. The policy can then be purchased directly through the websites or over the phone, together with any Additional Insurance Products selected.

In line with FSA requirements, customers are sent a renewal notice at least 21 days before the expiry of their policy. This renewal notice will contain details of the terms on which the policy may be renewed, together with any changes to policy cover (save that in certain circumstances, customers may be informed that cover can no longer be provided). Customers who pay by monthly direct debit or who have given a continuous payment authority for payment to be taken from their debit or credit card have their policy automatically renewed upon expiry unless they request otherwise. Customers can also renew their policy directly through a dedicated renewal telephone line.

(B) Broker distribution Broker sales are generated in a number of ways, including:

• through price comparison websites. Quotes from the esure and Sheilas’ Wheels broker’s panel of third party motor insurers can be generated automatically, with the most competitive quote being fed through to the price comparison website where it is displayed in the normal way under the esure Broker or Sheilas’ Wheels Broker brand;

77 • through referrals from the esure and Sheilas’ Wheels call centres, where a potential customer is outside the Group’s own underwriting risk appetite or where the Group cannot price such risk competitively; and

• directly through the Group’s esure Broker and Sheilas’ Wheels Broker websites and dedicated broker service call centre.

9.2 Marketing The Group’s principal brands – esure and Sheilas’ Wheels – became nationally recognised during the period 2001 to 2008 and remain widely recognised brands. Its early TV campaigns for esure, particularly those involving the late Michael Winner and the ‘Calm Down, Dear’ catchphrase, went on to achieve national awareness and are still referenced today (recently most notably by David Cameron in the House of Commons).

The Group was nominated for a National Business Award for its advertising in 2003. The following year it went on to develop the Sheilas’ Wheels brand in a similar way, investing heavily in TV and media advertising to build brand recognition. From 2005 to 2008, adverts featuring the three pink-sequined “Sheilas” and their catchy theme song also went on to achieve national fame.

The emergence of price comparison websites has changed the way in which UK personal lines insurers compete for customers. In the first half of the 2000s, direct telephone and website channels accounted for the majority of policy sales and customers were sourced via speculative media advertising. However, now that the Group generates approximately 82 per cent of new business sales through price comparison websites, where the brand strength previously achieved for both esure and Sheilas’ Wheels remains a significant contributor to consumer awareness. As a result of the use of this distribution channel, the Group’s current marketing focus can be based on efficient and cost-effective methods of communication with a relatively fixed cost base and, where considered appropriate, specific targeted awareness media campaigns.

In addition, the Group continues to seek new ways to take advantage of the brand awareness created by its previous investment in building the brand. For example, the Group has a dedicated internal resource tasked with developing and implementing a strategy of using social media to distribute and market the Group’s products. This activity was formally launched in the fourth quarter of 2012.

10. PRICING The pricing of premiums for new and renewal business is overseen by a multi-disciplinary pricing team, which meets at least weekly to review matters including premium levels, the risk mix and Loss Ratios of the Group’s in-force books, new and renewal business volumes, and market and general business trends.

Pricing levels are determined based on a wide range of data, both internal and external, which is analysed through the Group’s internally developed risk and pricing models. The output of this analysis is used by the pricing team to make judgements regarding the risk weighting of the various factors within the rating algorithms that are ultimately used to generate premium quotes. The data used is continually refined and adapted to meet changing business needs and market trends.

A key part of the pricing process is the constant review of modelled and actual outcomes of business written (new and renewal), both at rating factor level and at segmental level. Regular updates of risk and pricing models and rating relativities are undertaken to ensure that the pricing team has an up-to- date view of risk. This enables the pricing team to quickly identify opportunities and potential under- pricing issues. The Group has a rating engine that enables changes to be made to the rating algorithm on a daily basis, when required. This enables the pricing team to reduce the time to market of pricing changes.

Rating and pricing flexibility allows separate consideration of new business and renewal pricing. In particular, pricing adjustments can be made in a highly targeted fashion on renewals by the application of premium loadings or discounts for individual policyholders. Renewal business benefits from an

78 enhanced “no claims discount” scale that continues to increase beyond the five year scale commonly used elsewhere in the UK motor insurance market in order to reward customer loyalty and “claim free” driving.

In accordance with its “low risk” approach to underwriting, the Group maintains tight risk control by avoiding certain segments of the market altogether through the imposition of strict minimum acceptance criteria in the Group’s policy application and quotation systems. For example, motor policy applicants must have held a full UK driving licence for three years at the date of policy inception, must not have received any major convictions or driving bans during the five years prior to the date of policy inception, and must have made no more than one “at fault” claim during the three years prior to the date of policy inception.

The Group applies stricter acceptance thresholds to certain categories of drivers. For example, the limited number of motor policy applicants under the age of 25 who are accepted by the Group have to meet very strict acceptance criteria. The Group also has the flexibility to tailor acceptance criteria at the level of individual make and model of car, for example by setting higher minimum age or longer minimum driving experience thresholds. In this way, the Group is able to avoid accepting underwriting risk on younger or inexperienced drivers with high-powered or expensive cars.

As well as absolute acceptance criteria, the Group also uses pricing as a risk selection mechanism to avoid or control exposure to certain segments by ensuring that premiums are conservatively priced.

Sales staff have little or no authority to override acceptance rules. Through the telephone distribution channel, applicants who fall marginally outside the Group’s acceptance criteria (for example, because of convictions that are within a short period of expiry) can be referred to the underwriting team for individual consideration.

11. RESERVES, RESERVING POLICIES AND ULTIMATE LOSS RATIOS 11.1 Technical reserves The Group is required by applicable insurance laws and regulations and IFRS to establish technical reserves with the aim of ensuring it has sufficient funds available to pay its insurance liabilities when they fall due. The Group’s technical reserves consist of:

• unearned premium reserve, representing the proportion of those premiums written prior to the balance sheet date, which relate to periods of risk after the balance sheet date, net of associated reinsurance costs;

• claims reserve, to cover the future cost of settling claims that have occurred prior to the balance sheet date, whether already known to the Group or not yet reported, net of associated reinsurance recoveries;

• claims handling expense reserve, to cover the future cost of handling and administering outstanding claims included within the claims reserves; and

• unexpired risk reserve, to cover the estimated cost of future claims and expenses on unearned policy periods in excess of the balance on the unearned premium reserves, calculated across related classes of business after allowing for deferred acquisition expenses and investment income.

79 The historical breakdown of the Group’s technical reserves as at 31 December 2010, 2011 and 2012 is set out in the table below.

As at 31 December 2010 2011 2012 (£m) Gross Unearned premium reserve ...... 228.0 252.3 255.6 Less: Reinsurers’ share ...... (11.6) (12.4) (13.7) –––––––– –––––––– –––––––– Net Unearned premium reserve ...... ––– ––––– 216.4 –––––––– 239.9 –––––––– 241.9 Gross claims reserve before deduction of salvage and subrogation..... 625.1 607.4 677.5 Less: Reinsurers’ share ...... (146.2) (160.5) (219.7) Less: Salvage and subrogation ...... (17.8) (14.9) (17.1) Claims Handling Expense Reserve ...... 11.1 14.9 14.3 –––––––– –––––––– –––––––– Net Claims and claims handing expense reserves ...... ––– ––––– 472.2 –––––––– 446.9 –––––––– 455.0 Unexpired Risk Reserve ...... 2.5 – – –––––––– –––––––– –––––––– Total Net Technical Reserves ...... ––– ––––– 691.1 –––––––– 686.8 –––––––– 696.9 11.2 Calculation of claims reserve The Group’s profitability is in part dependent on the extent to which its actual claims experience is consistent with the assumptions and estimates it uses in establishing its claims reserve. This reserve typically consists of two key elements:

• Outstanding Claims Reserves, being the sum of the estimated costs of settling individual reported claims. These estimates are recorded on the claims system and updated regularly by experienced claims staff on the basis of up-to-date information on the claim and any associated damage and/or injury. The reserve is reduced by any claims payments actually made in part settlement of the claim; and

• IBNR Reserves, which are a statistical estimate of the likely projected cost of settling costs and expenses of claims which have been incurred but for which information has not yet been reported to the Group. This would include estimates of costs and expenses of claims which have been incurred as at the balance sheet date, but of which the Group is currently not aware, together with an estimate of the projected development (adverse or favourable) on costs and expenses of existing recorded claims relating to information updates which have not yet been reported. The IBNR Reserves are reviewed based on actuarial assumptions, appropriate actuarial methods and statistical procedures, using historical claims and loss experience and adjusting for anticipated future trends (such as claims inflation).

The ultimate costs and expenses of the claims for which these reserves are held are subject to a number of material uncertainties. As time passes between the report of a claim to the final settlement of the claim, circumstances can change that may require established reserves to be adjusted either upwards or downwards. Factors such as changes in the legal environment, results of litigation, propensity of personal injury claims, changes in medical and care costs and costs of vehicle and home repairs can all substantially impact overall costs and expenses of claims, and cause a material divergence from the bases and assumptions on which the reserves were calculated. These factors can cause actual developments to vary materially from the projections and assumptions on which the Group’s technical reserves were calculated.

The Board believes that it continues to maintain a consistent and prudent reserving philosophy. As set out in section 2.4 (Prudent reserving policy) of this Part I, the Group has always established its Outstanding Claims Reserves and IBNR Reserves at a prudent level in excess of the “best estimate” level determined through standard actuarial techniques. This prudent approach recognises both the relatively short nature of the Group’s large loss claims history (with the Group having only been established for 12 years), as well as the uncertainty and volatility seen in motor claim frequency and

80 severity in recent years due to the personal injury claim phenomenon. However, as set out in further detail in section 11.4 (Claims Development) of this Part I, the Group has historically experienced favourable development in its claims reserves over time as claims have ultimately settled at a lower cost than initially calculated for the purposes of its booked Outstanding Claims Reserves and IBNR Reserves.

Since the commencement of its insurance underwriting activities in 2001, the Group has commissioned independent external actuarial reviews of the adequacy of its outstanding claims reserves on at least an annual basis and on a six-monthly basis since 2004, with reviews of other associated technical reserves on a periodic basis. These reviews are currently undertaken by Towers Watson (and were previously undertaken by EMB Consultancy LLP until its acquisition by Towers Watson in 2011). The amount of the Group’s reserves for outstanding claims, net of outward reinsurance, together with the related reserves in respect of the requirement for claims handling expenses, additional unexpired risk reserves and reinsurance bad debt at 31 December 2012 exceeded Towers Watson’s corresponding independent actuarial best estimate by in excess of 15 per cent (as set out in Towers Watson’s opinion included in Part VIII (Reporting Actuary’s Opinion) of this document).

11.3 Accident year loss ratios In analysing the development and ultimate settlement of claims costs over time, it is usual to attribute the expected costs to a defined period, typically associated with the incident or reporting date of the claim. For example, all costs associated with accidents which occurred in a particular calendar year can be attributed to that particular “Accident Year”. In that way it is possible to track the expected ultimate costs of those accidents over time by periodically assessing the expected ultimate costs of claims attributed to that particular Accident Year. Thus, as claims are settled or the levels of Outstanding Claims Reserves or IBNR Reserves are re-assessed for a particular claim or period, then the expected “Ultimate Cost” associated with a particular Accident Year will change. By comparing the expected Ultimate Cost of claims for each Accident Year against the net earned premiums associated with such Accident Year, it is possible to determine an “Ultimate Loss Ratio” for that accident year and thus also track the development of that Ultimate Loss Ratio over time.

As noted in section 11.2 (Calculation of claims reserve) the Group takes a prudent approach to reserving and holds reserves in excess of Towers Watson’s latest independent actuarial best estimate. As a result of the Group’s prudent approach, the initial Loss Ratio booked in the financial results, the “Initial Booked Loss Ratio” for each Accident Year has historically always been higher than the initial best estimate of the Ultimate Loss Ratio for each Accident Year. The table below shows the difference between the Initial Booked Loss Ratio and the initial best estimate Ultimate Loss Ratios and also the Initial Booked Loss Ratio and the latest best estimate Ultimate Loss Ratio for the 2003–2012 Accident Years. The initial best estimates of the Ultimate Loss Ratios are calculated at the end of the relevant Accident Year. The latest best estimate of the Ultimate Loss Ratios is calculated on the basis of the estimated claims costs for each Accident Year as of 31 December 2012.

Accident Year (as at 31 December 2012) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Initial Booked Loss Ratio...... 74% 72% 73% 79% 84% 88% 99% 99% 78% 84% Difference between Initial Booked Loss Ratio and initial best estimate Ultimate Loss Ratio (percentage points)... 5% 2% 3% 3% 10% 5% 5% 12% 10% 9% Difference between Initial Booked Loss Ratio and latest best estimate Ultimate Loss Ratio (percentage points)... 9% 8% 10% 8% 17% 3% 2% 17% 14% n/a

Historically, and based on the latest best estimate Ultimate Loss Ratio projection for each Accident Year since 2003, the Group’s Initial Booked Loss Ratios have developed favourably for all Accident Years. This is partly a result of the Initial Booked Loss Ratio being higher than the initial best estimate Ultimate Loss Ratio in all Accident Years and also because in all Accident Years with the exception of 2008 and 2009 (when higher levels of personal injury claims emerged across the market) the latest best estimate Ultimate Loss Ratio is lower than the initial best estimate Ultimate Loss Ratio.

81 Over the period 2003–2011 in addition to the level of favourable development between the Initial Booked Loss Ratio and the initial best estimate Ultimate Loss Ratio, the Group has seen average favourable development of 3.5 percentage points between the initial best estimate of the Ultimate Loss Ratio and the latest best estimate Ultimate Loss Ratio. Excluding the 2008 and 2009 Accident Years the favourable development would be 5.2 percentage points.

To date, in no year since the Group’s commencement of underwriting activities in 2001 have the initial booked claim reserves been insufficient to cover the latest view of the best estimate Ultimate Costs, which the Directors believe is testament to the Group’s conservative approach to reserving.

The following tables illustrate the development over time of the Group’s reported claims costs and the Initial Booked Loss Ratio by Accident Year, showing the development of the Booked Loss Ratio as at the end of each successive year as a result of the Group’s increased awareness of further information pertaining to unsettled claims in the respective Accident Year.

Accident Year £m 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Ultimate net earned premium...... 180.4 248.3 276.5 263.9 321.4 424.1 514.9 452.1 459.7 480.2 Booked claims costs: At end of reporting year ...... 133.6 178.2 203.1 208.5 270.9 374.5 510.3 446.8 360.1 401.0 Liability re-estimated as of: One year later...... 127.1 180.0 198.6 204.3 254.9 373.8 495.0 392.5 317.3 Two years later ...... 124.6 178.3 194.6 203.1 227.0 372.0 495.0 374.6 Three years later ...... 120.9 168.5 185.1 193.7 220.0 371.7 495.1 Four years later ...... 118.7 160.8 179.5 188.2 223.5 367.6 Five years later ...... 117.2 159.2 176.3 187.1 219.8 Six years later...... 117.3 158.7 175.6 187.0 Seven years later...... 117.2 158.6 175.6 Eight years later ...... 117.3 158.3 Nine years later ...... 117.2

Accident Year Booked loss ratio 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Initial Booked Loss Ratio at end of reporting year ...... 74% 72% 73% 79% 84% 88% 99% 99% 78% 84% Liability re-estimated as of: One year later...... 71% 73% 72% 77% 79% 88% 96% 87% 69% Two years later ...... 69% 72% 70% 77% 71% 88% 96% 83% Three years later ...... 67% 68% 67% 73% 69% 88% 96% Four years later ...... 66% 65% 65% 71% 70% 87% Five years later ...... 65% 64% 64% 71% 68% Six years later...... 65% 64% 64% 71% Seven years later...... 65% 64% 64% Eight years later ...... 65% 64% Nine years later ...... 65%

The favourable development in the Accident Year Booked Loss Ratios shown in the table above is reflective of the prudence included in the Initial Booked Loss Ratio at the end of each reporting year as well as development from the initial best estimate Ultimate Loss Ratio to the latest best estimate Ultimate Loss Ratio.

For additional information regarding the Group’s reserves, see Notes 20.1 and 20.4 of the Notes to the Historical Financial Information included in Schedule II of this prospectus.

82 11.4 Claims Development The movements in the Group’s reported claims, including claims handling expenses both gross and net of reinsurance (RI) for the three financial years ended 31 December 2010, 2011 and 2012 are set out in the table below.

2010 2011 2012 –––––––––––––––––––– –––––––––––––––––––– –––––––––––––––––––– Gross RI Net Gross RI Net Gross RI Net At 1 January ...... 542.5 (97.7) 444.8 607.3 (146.2) 461.1 592.5 (160.5) 432.0 Cash paid for claims settled in year.... (403.1) 5.6 (397.5) (346.2) 9.8 (336.4) (328.2) 4.8 (323.4) Change arising from: Current year claims...... 475.4 (28.5) 446.9 392.8 (32.6) 360.2 442.0 (41.0) 401.0 Prior year claims ...... (7.5) (25.6) (33.1) (61.4) 8.5 (52.9) (45.9) (23.0) (68.9) –––––– –––––– –––––– –––––– –––––– –––––– –––––– –––––– –––––– At 31 December...... 607.3 (146.2) 461.1 592.5 (160.5) 432.0 660.4 (219.7) 440.7 Provision for claims handling costs.... 11.1 – 11.1 14.9 – 14.9 14.3 – 14.3 Salvage and subrogation...... 17.8 – 17.8 14.9 – 14.9 17.1 – 17.1 –––––– –––––– –––––– –––––– –––––– –––––– –––––– –––––– –––––– At 31 December including claims handling and salvage and subrogation ...... 636.2 (146.2) 490.0 622.3 (160.5) 461.8 691.8 (219.7) 472.1 –––––– –––––– –––––– –––––– –––––– –––––– –––––– –––––– –––––– The Board has historically ensured the initial booked reserves are set with particular awareness to the risks and sensitivities inherent in both the outstanding and IBNR claims liabilities. To date, this has resulted in favourable movements in the initial booked reserve amounts for all Accident Years. In addition, as the insurance account has developed, the absolute margin between the booked reserves and the best estimate reserves (at the end of each financial year) has increased year on year.

12. REINSURANCE The Group purchases reinsurance as a risk transfer mechanism to remove risks that are outside the Group’s appetite for individual claim or event exposure and to reduce the volatility caused by large individual and accumulation losses. By doing so the Group protects its capital and the underwriting result of each line of business.

Currently the Group has in place non-proportional excess of loss reinsurance programmes for its motor and home underwriting activities. These cover both individual large losses and accumulation losses arising from natural and other catastrophe events. Motor reinsurance treaties are in place covering all years in which the Group has underwritten motor policies. At the present time the Group has no quota share reinsurance or co-insurance arrangements in place.

The Group’s reinsurance programmes are reviewed on an annual basis and capital modelling is used to identify the most appropriate structure and risk retention profile, taking into account the Group’s business objective of minimising volatility and the prevailing cost and availability of reinsurance in the market. The Group engages Aon Benfield to provide advice and guidance, and to place the Group’s reinsurance programmes in the market at the best possible rates.

In its motor reinsurance programmes covering the current and five previous years of claims, the Group has retained exposure to the first £0.5 million of every claim but has purchased unlimited reinsurance cover above that level. For motor reinsurance programmes covering years prior to 2008, the Group never retained exposure beyond the first £0.8 million of every claim.

In its home reinsurance programmes, the Group has retained exposure to £0.25 million and the balance of amounts over £1.5 million of every claim for each year since 2007. Unlimited reinsurance cover is not purchased under the home programme since the likelihood of a claim exceeding £1.5 million is very small relative to motor insurance save that reinsurance for home liability claims is in place for amounts in excess of £1.5 million up to policy cover limits.

For the Group’s home catastrophe programme (providing reinsurance for the aggregate level of claims resulting from single large events classified as catastrophes), the Group’s retention is 20 per cent of its

83 aggregate home gross written premiums and the balance of amounts above the level actuarially determined to be the cost of claims that would be suffered by the Group as a result of a one in two hundred year event. In 2012, this meant that the upper limit of catastrophe reinsurance cover purchased by the Group was 120 per cent of gross written premiums.

Counterparty credit risk is a key consideration when the Group enters into reinsurance treaties. The minimum credit rating that the Group requires for participation in its reinsurance programmes is Standard & Poor’s A- or the A.M. Best equivalent, and there are internal policies on the level of ceded premium by credit rating, and also for reinsurers in the same corporate group or otherwise linked. Standard & Poor’s (full legal name: Standard & Poor’s Credit Market Services Europe Limited) and A.M. Best (full legal name: A.M. Best Europe – Rating Services Limited) are each credit rating agencies established in the European Union and registered under Regulation (EC) No 1060/2009 and each of them is, as at the date of this document, 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 credit ratings of the Group’s reinsurers are actively monitored for any deterioration in outlook or rating, and the Group has the option of removing a reinsurer from its property risk and catastrophe reinsurance treaties if their credit rating falls below the minimum requirement.

13. CLAIMS MANAGEMENT AND ANTI-FRAUD CONTROLS The Group’s prudent reserving practice is supported by a speed of settlement philosophy within its claims function to ensure that claims are correctly paid in a timely manner and claims reserve provisions are made on a case-by-case basis (and updated as soon as further information is known) in order to better reflect the Group’s potential future liabilities.

The Group’s internal claims management personnel undertake all aspects of claims handling from the first notification of a claim through to settlement. They are supported with a carefully selected panel of external providers who may be engaged during the course of the claim – from solicitors, loss adjusters and specialist investigation experts through to a range of household goods and building services suppliers. However, claims management is considered by the Group to be a core competency and, as such, the Group does not generally outsource or delegate claims under policies that it has underwritten to third party providers either in the UK or offshore.

Part of the Group’s claims philosophy is to have well-resourced and specialised staff who have the benefit of working with the latest technology to manage and prioritise the inbound flow of correspondence relating to claims. This allows the Group’s claims management personnel to respond promptly and accurately to policyholders and other claimants to ensure that high levels of customer service are maintained, contributing to rapid settlement rates.

In addition, the Group has recently implemented an enhanced, in-house designed, claims imaging workflow management system which is expected to increase productivity and to deliver savings in claims costs. For example, the workflow engine will link directly and seamlessly to the online portal used for communications between claimants and defendants in the course of Road Traffic Accident Protocol claims. This will assist in ensuring that the tight timescales within the protocol are adhered to and will provide a rich source of management information about claims processes, procedures and participants. The system was first launched in late 2012 and is now currently operational in respect of third party damage claims (which represented 26.0 per cent of the Group’s motor claims costs in 2012) and personal injury claims (which, net of reinsurance, represented 43.7 per cent of the Group’s motor claims costs incurred in 2012).

The Group’s claims function seeks to deliver both customer service benefits and claims cost containment:

• over 90 per cent of new claims in 2012 were notified by phone with the aim of ensuring that cover is verified immediately and repairs authorised the same day;

• the Group manages its own network of 80 carefully selected motor repairers (all of which carry the Thatcham BSI Kitemark certifying that they meet the requirements of the industry agreed PAS 125 technical standards for vehicle damage repair) and achieved approximately a

84 90 per cent deployment rate of its own network in 2012 to manage costs down and keep quality and service levels up. Courtesy cars are provided as standard for the duration of the repair if the Group’s own network is used;

• comprehensive anti-fraud strategies are used to identify and allocate potentially suspect claims to specialist units, ranging from a unit specialising in “low impact” personal injury claims to the “Special Investigation Unit” set up to combat larger fraud rings. The Group currently has approximately 60 staff engaged in such counter-fraud activities, with approximately 40 of those individuals involved in all forms of claims fraud detection and claims fraud management and the remainder involved in all other aspects of fraud prevention (ranging from application-stage fraud, corporate fraud, supplier fraud and general intelligence gathering);

• the Group has established a dedicated “direct claimant services” unit to proactively offer “not at fault” third party claimants a wide range of services directly in order to minimise where possible the Group’s exposure to excessive motor repair costs, “credit hire” replacement car costs and legal fees in relation to personal injury compensation. In 2012, the direct claimant services unit achieved approximately a 24 per cent deployment rate for motor repairs in the Group’s own network, a 33 per cent deployment of non-credit hire replacement car arrangements and a 27 per cent deployment in fixed fee (as opposed to more expensive variable fee) credit hire replacement car arrangements, and managed approximately 18 per cent of direct claimant personal injury claims without third party legal intervention (saving an estimated 50 per cent of costs on those claims);

• external law firms work “in house” co-located with the Group’s own staff in order to provide an efficient process for pursuing subrogated claims recoveries and providing defendant services on litigated claims, as well as technical advice and training; and

• all motor liability and home claims estimated to be in excess of £100,000 are handled by a dedicated in-house “Large Loss Unit” which also provides audit and technical training to the other claims areas.

In addition, the Group’s focus on anti-fraud procedures extends beyond claims detection in the claims process to areas of fraud prevention. The Group is a member of (and sits on the Technical Board of) the Insurance Fraud Bureau. It is also a member of CIFAS (operator of the UK’s National Fraud Database), and works actively with the Insurance Fraud Enforcement Department of the City of London Police. The Group also has a track record of both leadership and early adoption of fraud prevention tools:

• it was the first UK insurance group to implement the SIRA fraud detection system, which is used extensively in both the underwriting and the claims functions;

• it was one of the first UK insurance groups to use Digilog Voice Stress Analysis screening to highlight potential inconsistencies in the claims verification process; and

• it was the first UK insurer to use contempt of court to prosecute a participant in a staged accident, creating a landmark judgment.

14. CUSTOMER SERVICE 14.1 Sales and Compliance The Group currently has approximately 1,000 staff engaged in servicing, selling and administering policies across its three sites. Specific activities include the selling of core motor and home policies together with additional services insurance products, making policy amendments, processing renewals, the motor “no claims discount” verification process, customer account queries and a credit control function. All these activities are governed by a comprehensive regulatory regime aimed at supporting the principle of “treating customers fairly”. A comprehensive set of control mechanisms are in place to ensure that the Group’s customer-facing activities are fully compliant with the regulatory regimes to which it is subject. These include:

85 • an internal specialist regulatory risk team that is independent of the sales function which has responsibility for carrying out new product and business initiative risk assessments and for the approval of all customer documentation, website content, call scripts, sales aids and training materials for sales and customer services staff. These are reviewed on a regular basis in order to ensure that any changes to the regulatory regime are incorporated;

• a dedicated quality assurance and compliance team which (reporting directly to the Group’s independent compliance department) monitors adherence to call scripts, in particular in relation to the sales process of core motor and home insurance products and Additional Insurance Products, with well-established reporting mechanisms for raising concerns regarding non- compliance by sales and customer services staff with senior management;

• in addition to the quality assurance team, a further suite of risk-based compliance controls covering the complaints process, feedback forms following complaints from customers, underwriting quality audits, anomalies from sales-related incentive payments and policy or Additional Insurance Product cancellations by customers within the 14-day “cooling off” period applicable to sales of general insurance policies in the UK, all of which could be indicative of non- compliant behaviour;

• a carefully considered salary structure for sales and customer service staff, with appropriate disincentives for non-compliance (including bonus clawback). In 2012, sales-related incentive payments represented on average less than 20 per cent of salary for sales and customer agents. Sales-related incentive payments are subject to meeting the required standards of compliance, and while they are subject to clawback on the basis of non-compliance identified by the call monitoring team, they also can be enhanced based on customer service measures rather than pure sales volume measures; and

• strict disciplinary policies and procedures for more serious or repeated shortfalls in compliance, including dismissal.

14.2 Complaints handling The Group has a specialised, dedicated complaint management function which provides customers and potential customers with a fair and timely review of any complaints, whether raised verbally or in writing. The function sits outside of the sales and claims management functions to ensure that cases are reviewed independently. The Group aims to use knowledge gained during complaints reviews to improve the service offered to customers, with a view, in turn, to reducing operational costs. Root cause analysis and business feedback on matters which give rise to complaints are raised and discussed with senior management through established reporting procedures.

During 2012, approximately half of complaints raised and recorded by the Group were resolved by close of business the next working day and thus not reportable to the FSA, illustrating the Group’s approach to efficient and effective complaint management. On the occasions that the Group is unable to resolve a complaint to a customer’s satisfaction, a customer may ask the Financial Ombudsman Service to carry out an independent review of the complaint. However, the Directors believe, based on publicly available data published by the Financial Ombudsman Service and the FSA, that the Group has low levels of reportable complaints as a proportion of in-force policies (0.55 per cent in 2012) when compared with its general insurance peers, and that a lower than average proportion of complaints made against it are referred to the Financial Ombudsman Service. Further, of those complaints that are referred to the Financial Ombudsman Service, the Directors believe that a lower than average proportion result in the Group’s original decision being overturned in favour of the customer.

86 The table below sets out further information regarding the Group’s complaint volumes (compiled from data published by the FSA) and Financial Ombudsman Service statistics for 2010, 2011 and 2012.

FYE 2010 2011 2012 Complaints(1) Number of IFPs ...... 1,564,728 1,653,053 1,759,337 Number of complaints opened ...... 6616 8842 9625 Number of complaints opened as a percentage of IFPs ...... 0.42% 0.53% 0.55% Number of complaints closed ...... 6627 9053 9477 Complaints closed within 8 weeks...... 6441 8628 9220 Percentage of complaints closed within 8 weeks...... 97.2% 95.3% 97.3% Percentage of complaints upheld ...... 43% 41% 45%

Financial Ombudsman Service (FOS) referrals(2) Cases referred to FOS...... 213 268 318 Cases referred to FOS as % of in-force policies...... 0.014% 0.016% 0.018% Cases referred to FOS as % of all reportable complaints ...... 3.2% 3.0% 3.3% % of cases referred to FOS resulting in a change in favour of the customer ...... 32% 40% 40% General insurance industry: average % of cases referred to FOS resulting in a change in favour of the customer (excluding PPI) ... 66.5% 46.5% 45.5%

Notes: (1) Data as reported to the FSA under the FSA’s Dispute Resolution (DISP) rules.

(2) Information presented relates to the Group’s principal insurance subsidiary, esure Insurance Limited, only. Volumes of complaints for the Group’s other subsidiaries fall below the Financial Ombudsman Service’s publication criteria and, accordingly, are not presented.

15. INVESTMENTS The Group’s investment activity falls into two categories: investment of technical reserves which back PR Ann I, 5.2.1, the Group’s estimated future insurance liabilities, and investment of the Group’s surplus capital. 5.2.2

Investment of reserves Investments of insurance technical reserves are made with the intention of matching the principal amount and duration of invested assets with the Group’s estimated future insurance liabilities when they fall due. The timing of these liabilities is estimated on an actuarial basis and the matching reserves are invested predominantly in high credit-rating, fixed income, assets that mature within similar or shorter timeframes, such as government bonds, investment grade corporate bonds, highly rated asset-backed securities and AAA rated money market funds.

Investment of surplus capital Investments of the Group’s surplus capital are made with the objective of producing higher returns in order to improve the overall financial position of the Group. Historically, this has involved investment in equity funds and, during 2012, a small allocation to high yield bonds and bank loans to provide some diversity of returns and greater potential for capital appreciation. In view of the volatility of equities and the risk tolerance deemed by the Directors to be appropriate for a listed company, the Group has recently lowered its exposure to this asset class as part of its preparations for Admission.

15.1 Investment strategy and performance (A) Overview Reflecting the fact that the significant majority of the Group’s investment activity relates to its technical reserves, the Group’s investment portfolio mainly consists of a fixed income securities portfolio and AAA-rated money market funds and cash portfolio. A small proportion of the Group’s overall funds are invested in higher risk assets, such as equities and high yield bonds, partly as an inflation hedge and to provide an opportunity to derive additional investment income in a low interest rate environment.

87 The following tables set out the overall asset allocation of the Group’s investments as at 31 December 2010, 2011 and 2012 and the performance returns for 2010, 2011 and 2012: Allocation as at 31 December(1) 2010 2011 2012 ––––––––––––––– ––––––––––––––– ––––––––––––––– £m % £m % £m % Fixed Income Securities, money market and cash ...... 679.8 90 720.5 95 789.2 96 Equities...... 75.3 10 38.4 5 29.4 4 –––––– –––––– –––––– –––––– –––––– –––––– Total ...... –––––– 755.1 –––––– 100 ––––– 758.9– –––––– 100 –––––– 818.6 –––––– 100 Note: (1) Please refer to Note 19 (Financial Assets and Liabilities) to the Historical Financial Information set out on pages F-39 to F-48 of Schedule II (Historical Financial Information) to this document for further details. Return for the year 2010 2011 2012 % % % Investment return(1) ...... 3.3 (1.7) 5.2

Investment Return (excluding Equities)(2)...... 3.0 0.9 3.6 Notes: (1) Ratio of total investment income (excluding instalment income) to the average of investment assets (which includes fixed income securities, cash and money market funds, equities and accrued interest). (2) Ratio of investment income for fixed income securities and cash and money market funds (excluding instalment income) to the average of investment assets (which includes fixed income securities, cash and money market funds, and accrued interest). The Group allocated a small proportion of its investment portfolio to equities in 2009 and increased that proportion to 10 per cent in 2010, in part as an inflation hedge given an expectation at that time that market interests rates would be likely to rise on the back of increased inflationary pressures. Were this to have been the case, the intention was that these equities would provide additional returns to compensate in part for any consequential loss on the valuation of the fixed interest bond portfolio. Following changes in the economic outlook, together with the volatility of the equity portfolio experienced during 2011 and the prospective transition to a listed company, the Group decided to further reduce the equity component of its investment portfolio.

The portfolio of fixed income securities was reduced substantially during the third quarter of 2010 following the sale of a large holding of UK Government bonds, to realise mark-to-market valuation gains. The resulting funds were held in cash given the prevailing uncertainty around market interest rates at that time. During 2011 and 2012, given the expectation that market interest rates were unlikely to increase in the foreseeable future, the Investment Committee took the decision to invest a greater proportion of the funds supporting technical liabilities into short duration fixed and floating rate bonds and also to allocate a small proportion of the funds supporting surplus capital (amounting to approximately 5 per cent of funds) to high yield corporate bonds and bank loans.

(B) Investments in fixed income securities and money market funds and cash The Group aims to spread its investment in fixed income instruments and money market funds according to a strategic allocation with limits on duration, asset classes and credit quality. In particular, in order to avoid the need to sell assets quickly to meet unanticipated cash flow requirements, a significant level of cash is held in AAA-rated money market liquidity funds. Since the majority of the Group’s insurance liabilities are relatively short-tailed (the average time for settlement of a claim by the Group being between 12 and 18 months), the average duration of the Group’s fixed income instruments and money market funds is also kept short and as at 31 December 2012 was just below one year.

The management of the Group’s investment in fixed income assets and money market funds is primarily undertaken by specialist third party investment managers. These external investment managers have discretion to manage the funds on a day-to-day basis within parameters defined by the Group’s investment guidelines. Subject to the well-defined limits, investment managers are permitted to take

88 shorter-term tactical positions by being under or overweight relative to the Group’s target asset allocation, providing flexibility to ensure that an appropriate risk/reward balance is maintained in changing investment environments. The Group’s investment managers are not permitted to take any currency risk, and are required to fully hedge any currency risk that the Group would otherwise be exposed to as a result of investment in non-Sterling denominated assets. Derivatives are permitted to be used only for hedging purposes, efficient portfolio management, and for the reduction of risk.

The Investment Committee maintains a key focus on the credit quality of the underlying investments, to minimise the risk of any capital loss. The following sets out a broad analysis of the credit ratings of the Group’s fixed income securities portfolio and money market fund investments and cash portfolio as at 31 December 2010, 2011 and 2012:

As at 31 December 2010 2011 2012 ––––––––––––––– ––––––––––––––– ––––––––––––––– £m % £m % £m % AAA ...... 555.4 82 381.2 53 365.2 46 AA...... 57.5 9 98.5 14 99.5 13 A ...... 57.4 8 200.5 28 229.7 29 BBB or below or not rated...... 9.5 1 40.3 5 94.8 12 –––––– –––––– –––––– –––––– –––––– –––––– Total ...... –––––– 679.8 –––––– 100 ––––– 720.5– –––––– 100 –––––– 789.2 –––––– 100 Note: Ratings for financial instruments are those ascribed to the individual issuer and represent the lower of that from Standard & Poor’s and Moody’s. Standard & Poor’s (full legal name: Standard & Poor’s Credit Market Services Europe Limited) and Moody’s (full legal name: Moody’s Investors Service Ltd) are each credit rating agencies established in the European Union and registered under Regulation (EC) no 1060/2009 and each of them is, as at the date of this document, 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 returns on the Group’s fixed income securities portfolio in each of 2010, 2011 and 2012 have been, and continue to be, substantially affected by the low interest rate environment in the UK and elsewhere. As a consequence, the Group has increased its investments in corporate bonds since 2011 to seek higher returns from credit spreads, and increased its investments in securitised instruments and floating rate notes. As set out in the table above, the portfolio is primarily invested in instruments with high credit ratings. While there has been a reduction in the credit quality of the Group’s fixed income securities portfolio since 2010, this is not indicative of any downgrading of the individual invested instruments, but rather primarily reflects: • a general decrease in the rating environment over recent years due to the economic climate; • a strategic decision to reduce investment in sovereign debt and increase investment in corporate debt securities, to both reduce exposure to specific sovereign territories and increase investment yields; and • the addition, in the first quarter of 2012, of a relatively small (approximately 5 per cent of total funds) investment in a high-yield portfolio consisting of sub-investment grade corporate bonds and bank loans.

Since 2011, the allocation of the Group’s investments in government bonds was reduced due to the low yields that they offered and the risk of a capital loss if government bond yields rose. In addition, investment managers were instructed to keep average duration of the investment portfolio short and to have a higher floating rate component, reducing the risk of capital losses in the event that interest rates were to start to normalise. At all times the investment focus has remained on ensuring that the portfolio was primarily focused on higher rated instruments. The mandates with investment managers also prohibit investment in peripheral Eurozone financial instruments. The Group achieved a positive fixed income securities investment return in 2012 by holding asset classes that offered a spread over government bond rates or LIBOR and were in high demand by investors throughout the year. These products included investment grade corporate bonds, a small allocation to sub investment grade bonds, floating rate notes, covered bonds and European Residential

89 mortgage backed securities, all of which rallied throughout the year. The return was not achieved by increasing duration risk and this was kept short at around one year.

(C) Investments in equities Investments in equities pose greater risks and also the opportunity for greater reward. Equity prices tend to be more volatile than prices for fixed income securities and equity markets have been very volatile over the past several years. The performance of the Group’s equity investments has been, and is, therefore affected by the performance of the stock markets generally.

As at 31 December 2010, the total equity portfolio of £75.3 million represented 10 per cent of total investment funds. However, during 2011 the Group recorded valuation losses on its equity portfolio of £18.2 million. These losses primarily related to losses on investments in certain managed equity funds which targeted investments in companies where the fund manager believed the valuations, or potential valuations, were out of line with market consensus. The re-rating of these equities occurred in 2012 and the majority of the unrealised losses of the previous year were recovered. Following changes in the economic outlook, together with the volatility of the equity portfolio experienced during 2011 and the prospective transition to a listed company, the Group decided to further reduce the equity component of its portfolio. This took place gradually during 2012 as opportunities to exit equity investments presented themselves following the recovery of the majority of the 2011 unrealised losses.

15.2 Investment Governance The Board has overall responsibility for determining the Group’s investment strategy and prescribing the investment risk parameters for the Group. These are reviewed on at least a six-monthly basis, and more frequently if deemed necessary by the Board.

The Board’s Investment Committee, which meets on at least a quarterly basis, has responsibility for ensuring that all investment risks are kept within the limits adopted by the Board and for recommending any changes in the agreed investment strategy to the Board for approval. Investment risks monitored and managed by the Investment Committee include those relating to interest rates, equity prices, default and credit spread. Risk management measures taken by the Investment Committee include, where relevant, setting duration, issuer and concentration limits for each asset class.

Asset allocation decisions are made by the Investment Committee, giving due consideration to the duration and profile of the Group’s liabilities, investment objectives and investment risk parameters. In addition, the Investment Committee oversees the performance of external investment managers, as well as recommending investment strategies, guidelines and policies to the Board.

The day-to-day management of treasury and investment activity is overseen by a finance committee established by the Group, consisting of the Chief Executive Officer, Chief Finance Officer, Chief Risk Officer (“CRO”), General Counsel and key senior management from the Group’s finance department responsible for cash flow projections and managing the ongoing relationships with the investment managers. This Finance Committee is responsible for the day-to-day monitoring of the Group’s investment performance and for ensuring that these investments are managed in accordance with the framework set by the Investment Committee.

The Group also engages an experienced external investment adviser to assist both the Investment Committee and the Finance Committee by providing input on any developments in investment markets and recommending, where relevant, alternative longer-term strategic asset allocations or short-term tactical changes to the portfolio composition.

16. RISK MANAGEMENT The Board has set a robust risk management strategy and framework as an integral element in its pursuit of business objectives and in the fulfilment of its obligations to all stakeholders – policyholders, shareholders, regulators and staff.

90 The strategy is designed to evaluate all risks facing the Group, although the nature of the Group’s business model creates inherent exposure in particular to insurance (underwriting), market and operational risks.

The fundamental objectives of the Group’s approach to risk management are to identify, manage and mitigate the internal and external threats to the achievement of business objectives and to the stability of earnings; to allocate capital and resources efficiently so as to optimise the balance of risk and reward; to ensure compliance with all applicable laws and regulations and to ensure the fair and equitable treatment of customers.

The Group’s risk management framework is organised around the core elements of risk governance and risk appetite and reporting, with the latter incorporating a risk-based approach to strategic and business planning and capital management.

16.1 Risk Governance The Board is responsible for prudent oversight of the Group’s business and financial operations, ensuring that they are conducted in accordance with sound business principles and with applicable law and regulation. This oversight encompasses a responsibility to articulate and monitor adherence to quantifiable and measurable statements of the Board’s appetite for exposure to all risk types. The Board also ensures that measures are in place to provide independent and objective assurance on the effective identification and management of risk and on the effectiveness of the controls in place to mitigate those risks.

This independence and objectivity is achieved through two committees of the Board, composed only of independent Non-Executive Directors:

• the Audit Committee: responsible for review of the effectiveness of the Group’s internal controls and of the assurance processes, based on reports from functions which are themselves independent: Internal Audit, Risk Management and Compliance; and

• the Risk Committee: responsible for oversight of the Group’s risk and control management framework, including the composition and performance of the risk management function and of adherence to the Board’s stated risk strategy and appetite.

The Board has also delegated authority to other committees of the Board addressing specific aspects of prudent management: the Investment Committee and Remuneration Committee, which each meet at least quarterly.

The risk strategy, framework and appetite are articulated in a suite of policies covering all risk types and supported by detailed procedural documents. Each of these documents is subject to annual review and approval by the Board.

The senior management of the Group are responsible for the day-to-day management of the business operations of the Group and for ensuring that the risk and control strategy, framework and culture are understood and observed at every level of the organisation. A separate executive risk committee, meeting monthly, follows an exclusively risk-based agenda with a view to ensuring continuous adherence to the established principles and in particular with a view to ensuring that any variance from risk appetite or control standards is identified, evaluated and remediated promptly.

The executive risk committee also receives updates from specialist executive committees established to ensure regular review and evaluation of specific aspects of the Group’s business operations:

• pricing committee;

• insurance risk and reserving committee;

• financial crime governance group; and

• customer response action group.

91 The Group’s risk governance is underpinned by a risk management function headed by the CRO, a member of senior management reporting to the Chief Executive Officer but with independence assured through direct and independent access to the chairman of the Audit Committee and the Risk Committee.

Either the CRO or another senior management representative from the risk function is in attendance at all of the specialist executive risk committees. The CRO also attends the meetings of the Board’s Audit Committee, Risk Committee and Investment Committee, in addition to Board meetings themselves, on a regular basis.

In accordance with recognised good practice, the Group operates a ‘three lines of defence’ governance framework, with the operational business area in the first line, responsible for day-to-day management of risks and controls. The risk management function and an associated regulatory risk and compliance function sit in the second line, responsible for the maintenance of the risk management framework, for the independent oversight and challenge of the Business’ assessment and reporting of risk exposures within that framework and for independent and objective reporting of risk exposures. The third line is provided by an independent internal audit function.

The risk management function also provides independent oversight and validation of the performance of the internal model used to calculate regulatory and economic capital requirements based on the Group’s risk exposures (the “Internal Model”).

The critical importance of effective management of insurance risk to the survival of the Group’s business model is recognised through:

• separate executive positions for the Head of Insurance Risk and Acquisition and Head of Claims, responsible for separate underwriting and claims management functions;

• an actuarial function responsible for, inter alia actuarial best estimate reserve reviews, calculation of the technical provisions, informing senior management of the reliability and adequacy of the calculation of the Group’s technical provisions, estimation of future Loss Ratio projections for use in financial forecasting and of parameters for use in the Internal Model;

• separate in-house underwriting and claims functions;

• an executive pricing committee chaired by the Head of Insurance Risk and Acquisition, charged with monitoring the key performance indicators affecting pricing and profitability of the Group’s core underwritten products, reviewing existing and proposed reinsurance arrangements and approving the assumptions underpinning the pricing models, seeking independent assurance where appropriate; and

• an executive insurance risk and reserving committee, chaired by the Chief Finance Officer charged with approving the results of both internal and external reserving reviews, agreeing the Company’s policy and approach for reserving and providing independent oversight and approval for the key underwriting risk inputs to and outputs from the Internal Model.

16.2 Risk reporting The risk management framework is designed to ensure that the Board and the Group’s various risk committees can receive timely and appropriate reporting on the Group’s exposure to existing and emerging risks in each of the core risk categories – insurance (underwriting), market, counterparty credit, operational and liquidity risk. Strategic risks and the reputational consequences of other risk exposures are considered alongside this risk reporting.

In order to set boundaries to the acceptance of risk exposures, the Board have set out a Group risk appetite statement, incorporating a range of quantitative measures of risk appetite, expressed as tolerances against which the actual or planned exposures can be monitored. This monitoring will be reflected in regular reporting to both the executive risk committee and the Board’s Risk Committee.

92 Such reporting is supported, inter alia, by: quarterly updates to the Group’s risk registers covering current and emerging risks; reports on events that have resulted in actual or potential financial or reputational losses to the Group’s customers; the results of stress, scenario and sensitivity testing and the findings, recommendations and management actions arising from reviews conducted by the compliance and internal audit functions.

A key strand of the Group’s risk management strategy is the integration of risk assessment and evaluation into the Group’s business planning and capital management processes. The Group’s Internal Model has been used for several years both to calculate the Group’s view of the capital required to protect the business from ruin and to provide decision support for such exercises as the annual reinsurance programme. The Group is further enhancing the Internal Model ultimately to meet Solvency II requirements, but more immediately to inform improved decision support and depth to the Group’s risk reporting, particularly in assessing ranges of possible outcomes.

To bring a number of strands of integrated risk reporting together, the Group has adopted the Solvency II terminology ‘Own Risk & Solvency Assessment’ (ORSA) and will produce a report, prepared by the risk management function, incorporating at least: an assessment of the regulatory and economic capital that the Group requires to hold to support its business operations and protect it from ruin; a commentary on the Group’s risk exposure profile and control environment and on any actual or anticipated changes which might breach the Group’s risk appetite or solvency position.

17. IT INFRASTRUCTURE With approximately 90 per cent of the Group’s new policies being originated online, the Group’s information technology infrastructure and systems underpin the Business. As such, the Group strives to ensure that its information technology infrastructure and systems are kept up to date with evolving technology and meet the requirements and needs of the Group’s staff and customers.

As at 31 December 2012, the Group’s information technology team comprised approximately 120 permanent staff. In addition to those employees, additional resource is available through an outsourcing agreement with HCL Great Britain Limited (which relates to development and testing) and through the Outsourcing Agreement with CapGemini (further details of which are set out in Section 16.2 (Outsourcing Agreement) of Part XII (Additional Information). The Group’s own staff provide all primary contact points with the Business.

The availability and performance of all the Group’s core information technology systems, including the primary insurance administration system (“TIA”), has historically been strong and capacity has been managed well within industry standards. The Group’s systems architecture is based on an Oracle/Unix platform, with TIA as the core insurance administration application and interaction with price comparison websites is managed through web services. The Group is working towards full compliance with Payment Card Industry Data Security Standards and expects to achieve this for both its online and telephone business within the first six months of 2014. The Group’s business continuity and disaster recovery arrangements are managed centrally, with work area recovery sites provisioned through an agreement with Sungard.

The security of the Group’s systems is regarded by the Group as being of paramount importance. As a result, an internal information technology security team is responsible for and monitors all related activities. To date, no material information technology security breaches have occurred to the Group’s systems.

The Group has recently implemented a major enhancement to its claims system comprising scanning/imaging, process optimisation, a new business rules platform and enhanced management information capability.

The Group has also recently undertaken a full replacement, outsourcing and centralisation of its Windows platform; upgrading to contemporary versions of operating software and associated applications.

93 18. INTELLECTUAL PROPERTY The Group holds a portfolio of registered UK and European trade marks which protect the names and PR Ann I, 6.4 logos of the esure, Sheilas’ Wheels and First Alternative brands along with some related slogans. The Group actively protects its trade mark portfolio and instructs its trade mark attorneys to operate a watch service to identify applications for similar trade marks. The Group regularly takes action to oppose the registration of similar trade marks and to enforce its rights against third party infringers.

While other branding materials such as slogans, logos, colours and designs are not registered, some protection may be afforded by unregistered design rights, unregistered trade marks and copyright. The Group does not own any patents.

The key websites for the Group’s brands all have current domain name registrations held by or on behalf of the Group. Registrations for a number of domain names which are similar to the names of the Group’s key websites or are related to advertising campaigns undertaken by the Group are also held by or on behalf of the Group.

Customer databases created internally are owned by the Group.

There are currently no outstanding intellectual property infringement actions involving any member of the Group as defendant or any charges over any intellectual property rights held by the Group.

94 PART II

DIRECTORS, CORPORATE GOVERNANCE AND REMUNERATION

1. DIRECTORS The Directors and their principal functions within the Group, together with a brief description of their PR Ann I, 14.1 business experience and principal business activities outside the Group, are set out below. The business address of each of the Directors (in such capacity) is The Observatory, Castlefield Road, Reigate, Surrey RH2 0SG.

Peter Wood – Chairman Peter Wood founded the Group in February 2000 and led the Management Buy-out of Lloyds Banking Group’s stake in the Group in February 2010. Peter has served as the Group’s Chairman since February 2000. Peter previously also served as the Group’s Chief Executive Officer from April 2006 until February 2012.

Previously, Peter founded the Direct Line general insurance business in 1985. Peter built it up to become the UK’s largest ever private motor insurer and direct home insurer and one of the UK’s leading direct financial services brands. Peter retired as chairman of Direct Line in June 1997. During the 1990s, Peter also served as a director of Bankinter SA in Spain, and founded three other insurance companies around the world including Línea Directa Aseguradora, a company serving the Spanish direct insurance market. Peter also founded Privilege Insurance with Royal Bank of Scotland.

Between 1996 and 2000, Peter was a non-executive director of Centrica plc. In 1998, he was appointed as a non-executive director to the board of the Economist Group, where he served until March 2004.

In 1996, Peter received the honour of Commander of the British Empire in recognition of his services to the UK financial services industry.

Dame Helen Alexander – Deputy Chairman and SID Dame Helen Alexander joined the Board as Deputy Chairman in December 2011. Dame Helen chairs the Remuneration Committee and is a member of the Nomination Committee.

Dame Helen is chairman of UBM plc, the Port of London Authority and Incisive Media, and a non- executive director and chair of the remuneration committee at Rolls-Royce Group plc. Dame Helen is a senior adviser to Bain Capital and Chancellor of the University of Southampton. Dame Helen served as president of the CBI until June 2011, and as chief executive of the Economist Group until 2008, having joined the company in 1985. Dame Helen was President of the CBI from 2009 to 2011.

Dame Helen is also currently involved with not-for-profit organisations in media, the internet, the arts and education, through the trustees at Thomson-Reuters, the WorldWide Web Foundation, the Grand Palais in Paris, the Said Business School in Oxford and St. Paul’s Girls’ School.

Dame Helen was awarded a CBE for services to publishing in 2004 and, in June 2011, was made a Dame Commander of the Order of the British Empire in the Queen’s Birthday Honours List for her services to business.

Stuart Vann – Chief Executive Officer Stuart Vann is a qualified accountant with 17 years’ multi-disciplinary experience in the insurance sector.

Stuart joined the Group’s finance department in 2000, becoming Head of Corporate Planning in 2006 and then Head of Insurance Risk and Acquisition in 2010. Following the Management Buy-out, Stuart was promoted to the role of Chief Operating Officer and was subsequently appointed to the Board in September 2011. Stuart was appointed to the role of Chief Executive Officer in February 2012.

95 Stuart led the Group’s response to the personal injury claims phenomenon and has been the driving force behind the Group’s earnings diversification strategy, including the targeted growth of the Group’s home insurance underwriting business, the focus on increasing sales of Additional Insurance Products, the launch of the Group’s branded broker service and the Group’s strategic investment in Gocompare.com. In May 2012, Stuart was appointed to the board of Gocompare.

Stuart was recently appointed as a member of the General Insurance Council, a committee of the Association of British Insurers made up of a number of chief executives from the UK insurance market. He is also a member of The Worshipful Company of Insurers.

Darren Ogden – Chief Finance Officer Darren Ogden is a qualified accountant with over 20 years’ experience of working within the insurance industry. Darren has spent 13 years in a number of finance-related roles at Legal & General, primarily in the general insurance division before joining the Group.

Darren joined the Group in 2003. Initially responsible for overseeing the Financial Planning and Analysis function, Darren was then promoted to the position of Head of Finance in 2007 and was appointed to the Board as Chief Finance Officer in November 2012.

Anthony Hobson – Non-Executive Director Anthony Hobson has been a Non-Executive Director since September 2003. Anthony is the Senior Independent Director of Dyson James Group Limited and Chairman of Changing Faces, the leading UK disfigurement charity. He was until recently Chairman of The Sage Group plc and of Northern Foods plc.

Anthony was Group Finance Director of Legal & General Group plc from 1987 to 2001. He is a Chartered Accountant and holds an MBA from the Darden Graduate Business School, University of Virginia.

Anthony chairs the Investment Committee and sits on the Audit, Risk, Remuneration and Nomination Committees.

Anne Richards – Non-Executive Director Anne Richards was appointed as a Non-Executive Director in November 2012.

Anne is the Chief Investment Officer and head of the EMEA region for Aberdeen Asset Management, where she is also a main board director. She began her career as a research fellow at CERN, the European Organisation for Nuclear Research, in Geneva, moving into the investment world in 1992. Her career has included research analysis, portfolio management and global asset allocation, and includes time with JP Morgan and Mercury Asset Management, later Merrill Lynch Investment Managers. In 2002 she joined the main board of Edinburgh Fund Managers plc as Chief Investment Officer and Joint Managing Director. She continued in her role as global Chief Investment Officer for the combined entity when Edinburgh Fund Managers plc was taken over by Aberdeen Asset Management in 2003.

Anne also holds a number of other non-executive positions, including at EveryChild, the University of Edinburgh and the Duchy of Lancaster. A graduate of the University of Edinburgh and INSEAD, Anne is a Chartered Engineer, a Chartered Fellow of the Chartered Institute for Securities and Investment, and holds a Certified Diploma in Accounting and Finance (ACCA).

Anne sits on the Audit, Risk and Investment Committees.

Peter Ward – Non-Executive Director Peter Ward was appointed to the Board as a Non-Executive Director in 2001. He is the chair of the Audit Committee and of the Risk Committee and sits on the Remuneration and Investment Committees. Peter is an actuary who spent his career in insurance working for Commercial Union in Australia, South Africa

96 and the UK. In 1994, Peter was appointed as a Group Executive Director of Commercial Union plc, a position from which he retired in 2000. Peter is a Fellow of the Institute of Actuaries and of the Chartered Insurance Institute, a Past President of the Insurance Institute of London and a Past Master of The Worshipful Company of Insurers.

David Calder – Non-Executive Director David Calder has been a Non-Executive Director since February 2010, having led Tosca Penta Investments LP’s investment in the Group at the time of the Management Buy-out. David has been a partner of Penta Capital LLP, a Glasgow and London-based private equity manager, since 1999 and serves as an investor director on a number of portfolio companies. Prior to joining Penta Capital LLP, David was a senior manager in the group corporate finance department of Royal Bank of Scotland and an Investment Director within Royal Bank Development Capital. David qualified as a Chartered Accountant in 1989 with Deloitte Haskins & Sells. In May 2012, David was appointed to the board of Gocompare, where he serves as its chairman.

David will retire from the Board with effect from Admission.

Charles Schrager von Altishofen – Non-Executive Director Charles Schrager von Altishofen has been a Non-Executive Director since February 2010 following Tosca Penta Investments LP’s investment in the Group at the time of the Management Buy-out. Charles has been a partner of Penta Capital LLP, a Glasgow and London-based private equity manager, since 2009. Prior to joining Penta Capital LLP, Charles was a Managing Director within Credit Suisse’s financial institutions group. Charles holds an MBA from Henley Management College.

Charles will retire from the Board with effect from Admission.

2. THE BOARD AND CORPORATE GOVERNANCE The Group is firmly committed to high standards of corporate governance and maintaining a sound PR Ann I, 16.4 framework for the control and management of the Business. As a general insurer, the Group has been regulated by the FSA since 2000. Accordingly, many of the corporate governance practices and principles expected of listed companies are already well-established within the Group. In addition, in anticipation of Admission, the Board has adopted a number of measures with regard to its governance arrangements in order to be in a position to comply with the principles and provisions of the UK Corporate Governance Code on Admission.

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

2.2 Compliance with corporate governance requirements Overview The Group complies, and in the financial year ended 31 December 2012 complied, with the corporate governance requirements of the Companies Act and with the corporate governance requirements of FSMA (and regulations made thereunder) applicable to it as a result of its insurance and insurance mediation businesses. As an unlisted company, the UK Corporate Governance code does not apply to the Group as at the date of this document, and, accordingly, the Group complies with all applicable corporate governance standards.

97 Compliance with UK Corporate Governance Code From Admission, the UK Corporate Governance Code will apply to the Group. The Group will, on Admission, comply with the UK Corporate Governance Code. Thereafter the Group intends to continue to comply with the principles and provisions of the UK Corporate Governance Code on an ongoing basis.

Board and Committee independence The UK Corporate Governance Code recommends that at least half the board of directors of a UK listed company (excluding the chairman) should comprise “independent” non-executive directors, being individuals determined by the Board to be independent in character and judgement and free from relationships or circumstances which may affect, or could appear to affect, the director’s judgement. It also recommends that a UK company’s remuneration and audit and risk committees should comprise at least three independent non-executive directors, and that its nomination committee should comprise a majority of independent directors.

From Admission, the Board will comprise seven members: the Chairman, the two Executive Directors and the four Non-Executive Directors. The Chairman, Peter Wood, has served in this role since 2000 and on appointment was not independent. Of the four Non-Executive Directors:

• Dame Helen Alexander and Anne Richards are considered by the Board to be independent for the purposes of the UK Corporate Governance Code; and

• Anthony Hobson and Peter Ward have served on the Board for more than nine years from the date of their respective first elections, but are considered by the Board to be independent for the purposes of the UK Corporate Governance Code notwithstanding the length of their service.

In reaching these conclusions regarding the independence of Anthony Hobson and Peter Ward, the Board have:

• considered the requirements of the UK Corporate Governance Code and the nature of the relationships and circumstances outlined above which are relevant to the Board’s determination of independence; and

• evaluated the historic contribution of these Directors to the Group in scrutinising the performance of management, monitoring the reporting of performance and constructively challenging and assisting the development of the Group’s proposals on strategy.

In addition to the assessment of independence pursuant to the UK Corporate Governance Code, the Board also believes that the ongoing involvement of Anthony Hobson and Peter Ward as Non-Executive Directors (and their fulfilling roles recommended for independent non-executives by the UK Corporate Governance Code) is in the best interests of the Group and Shareholders bearing in mind their extensive experience of, and detailed knowledge of, the Business, particularly in the context of the Company’s flotation as a newly listed and publicly traded entity.

The Company therefore considers that it complies with the relevant requirements of the UK Corporate Governance Code in relation to the balance of executive and independent non-executive directors on the Board and with the requirements for composition of the Group’s Audit Committee, Remuneration Committee and Nomination Committee and the Group expects to appoint a further independent non- executive director in the 12 months following Admission.

Senior Independent Director The UK Corporate Governance Code also recommends that the Board should appoint one of its independent non-executive directors to be the senior independent director (the ‘‘SID’’). The SID should be available to shareholders if they have concerns that the normal channels of chairman, chief executive officer or other executive directors have failed to resolve or for which such channel of communication is inappropriate. Dame Helen Alexander has been appointed as the Company’s SID.

98 Annual re-election The UK Corporate Governance Code recommends that all directors of FTSE 350 companies should be subject to annual election by shareholders. Accordingly, the Company’s directors will all voluntarily put themselves up for re-election at the Company’s next annual general meeting (to be held in the second quarter of 2014). Going forward, it is currently intended that, for so long as is recommended by the UK Corporate Governance Code, the Company’s directors will continue to be subject to annual re-election at each further annual general meeting. In addition, prior to recommending their re-election to Shareholders, the Board will also carry out an annual re-assessment of the ongoing independence of each of the non-executive directors and make an appropriate statement disclosing their status in the Company’s annual report.

Diversity As at Admission, the Board will have 29 per cent women members and all future appointments will be made with regards to diversity, including gender (as recommended in Lord Davies’ “Women on Boards” report (February 2011)). In accordance with the UK Corporate Governance Code, the Group will report on the Board’s policy on diversity, including gender, in its next Annual Report.

2.3 Board Committees The Board has established a number of committees, whose terms of reference are documented formally and updated as necessary. If the need should arise, the Board may set up additional committees as appropriate. The Group has operated with an Audit Committee since 2001, an Investment Committee since 2001, and a Remuneration Committee since 2011. A Nomination Committee and Risk Committee were established in 2012 in anticipation of Admission, and a Disclosure Committee was formed in 2013.

(A) Audit Committee The Audit Committee is chaired by Peter Ward, and its other members on Admission will be Anthony PR Ann I, 16.3 Hobson and Anne Richards. The Audit Committee meets at least four times a year, or more frequently if required.

The Audit Committee’s terms of reference state that the Audit Committee must comprise at least three independent non-executive directors, of whom at least one must have recent and relevant financial experience. The Board considers each of Peter Ward, Anthony Hobson and Anne Richards to have recent and relevant financial experience. At least one member of the Audit Committee must also be a member of the Risk Committee.

Appointments to the Audit Committee are made by the Board, on recommendation by the Nomination Committee. Appointments to the Audit Committee are for a period of up to three years and may be extended for further periods of up to three years, provided the director whose appointment is being considered still meets the criteria for membership.

The responsibilities of the Audit Committee include: (i) receiving and reviewing reports from the Company’s external auditors, monitoring their effectiveness and independence and making recommendations to the Board in respect of their remuneration, appointment and dismissal; (ii) monitoring and reviewing internal audit activities, reports and findings; (iii) reviewing the financial statements of the Company; (iv) overseeing the Company’s procedures for detecting fraud, preventing bribery and non-compliance; and (v) reviewing, on behalf of the Board, the effectiveness of the Group’s system of internal financial controls and internal control systems.

When appropriate, the Audit Committee meets with the Group’s senior managers in attendance. The Group also meets separately at least once a year with the Group’s external and internal auditors without management present. From Admission, the chairman of the Audit Committee will be available at annual general meetings of the Company to respond to questions from Shareholders on the Audit Committee’s activities.

99 The Audit Committee has considered and adopted a policy on the provision of non-audit services by the external auditors and procedures to protect the auditor’s independence and objectivity.

(B) Risk Committee The Risk Committee is chaired by Peter Ward, and its other members on Admission will be Anthony Hobson and Anne Richards. The Risk Committee, which was established recently in anticipation of Admission, will meet at least four times a year, or more frequently if required.

The Risk Committee’s terms of reference state that the Risk Committee must comprise at least three independent non-executive directors, of whom at least one must have recent and relevant finance or risk management experience. The Board considers that each of Peter Ward, Anthony Hobson and Anne Richards have recent and relevant experience. At least one member of the Risk Committee must also be a member of the Audit Committee.

Appointments to the Risk Committee are made by the Board. Appointments to the Risk Committee are for a period of up to three years and may be extended for further periods of up to three years, provided the director whose appointment is being considered still meets the criteria for membership.

The responsibilities of the Risk Committee include: (i) advising the Board on the Company’s risk strategy, risk policies and current risk exposures, including any prudential risks; (ii) overseeing the implementation and maintenance of the overall risk management framework and systems; and (iii) reviewing the Company’s risk assessment processes and capability to identify and manage new risks.

When appropriate, the Risk Committee will meet with the Group’s senior managers in attendance. From Admission, the Risk Committee chairman will be available at annual general meetings of the Company to respond to questions from Shareholders on the activities of the Risk Committee.

(C) Remuneration Committee The Remuneration Committee is chaired by Dame Helen Alexander, and on Admission its other PR Ann I, 16.3 members will be Anthony Hobson and Peter Ward. The Remuneration Committee will meet at least two times a year, or more frequently if required.

The Remuneration Committee’s terms of reference state that the Remuneration Committee must comprise at least three independent non-executive directors.

Appointments to the Remuneration Committee are made by the Board, on recommendation by the Nomination Committee. Appointments to the Remuneration Committee are made for a period of up to three years which may be extended for further periods of up to three years, provided the director whose appointment is being considered still meets the criteria for membership.

The responsibilities of the Remuneration Committee include: (i) determining and agreeing with the Board the remuneration policy and total individual remuneration packages of the Chairman and other Executive Directors and other senior management, including, where relevant, benefits and pension arrangements; (ii) determining and agreeing with the Board any performance-related pay schemes for senior management; and (iii) overseeing any major changes in employee benefit structures throughout the Group. No Director or executive shall be involved in any decisions about his or her own remuneration.

(D) Nomination Committee The Nomination Committee is chaired by Peter Wood, and on Admission its other members will be Anthony Hobson and Dame Helen Alexander. The Nomination Committee, which was established recently in anticipation of Admission, will meet at least two times a year, or more frequently if required.

The Nomination Committee’s terms of reference state that a majority of its members must be independent non-executive directors.

100 Appointments to the Nomination Committee are made by the Board, and are for a period of up to three years (which may be extended for further periods of up to three years, provided the director whose appointment is being considered still meets the criteria for membership).

The responsibilities of the Nominations Committee include: (i) reviewing the size, structure and composition of the Board and ensuring that the Board comprises the right balance of skills, knowledge, diversity and experience; (ii) identifying and nominating for approval candidates to fill any vacancies on the Board; (iii) giving full consideration to succession planning for the Group; and (iv) making recommendations to the Board concerning membership of the Audit, Risk, Remuneration and Investment Committees.

From Admission, the Nomination Committee will also generate a report to be included in the Company’s annual report. This will describe the activities of the Nomination Committee including the process used to make appointments and explain if external advice or open advertising has not been used.

(E) Investment Committee The Investment Committee is chaired by Anthony Hobson and on Admission its other members will be Darren Ogden, Anne Richards, Stuart Vann, Peter Ward, and the CRO. The Investment Committee was established to oversee the Board’s investment strategy and meets at least four times a year.

The Investment Committee’s terms of reference state that its membership shall comprise at least three non-executive directors and three executive directors (or other members of senior management).

Appointments to the Investment Committee are made by the Board. The Board shall appoint the Investment Committee chairman who should be either the Chairman of the Board or an independent non-executive director.

The primary purpose of the Investment Committee is to review the performance of the Investment Managers and to ensure that the day-to-day management of the Group’s investment funds is undertaken effectively and in accordance with the risk appetite and control processes as expressed in the policies for Market Risk, Credit Risk and Liquidity Risk and in accordance with the prevailing investment management agreements.

(F) Disclosure Committee The Disclosure Committee is made up of the Chairman, Chief Executive Officer, Chief Finance Officer, Group Financial Controller, General Counsel, Company Secretary and Head of Corporate Communications and is chaired by a member of the Disclosure Committee appointed by the Board. The Disclosure Committee will meet at such times as shall be necessary or appropriate, as determined by the chairman of the Disclosure Committee.

The Disclosure Committee is responsible for monitoring, evaluating and enhancing disclosure controls and procedures of the Group.

The terms of reference of the Disclosure Committee cover such issues as membership and frequency of meetings, together with the requirements for a quorum for meetings. The duties of the Disclosure Committee covered in the terms of reference are in relation to financial reporting and other material disclosures.

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

101 3. REMUNERATION 3.1 Remuneration philosophy The Group will give careful consideration to aligning rewards with Shareholders’ and other stakeholders’ interests, as well as the Group’s business strategy, in as clear a way as possible. The Group will aim to balance fairness with affordability to ensure that market-related salaries are offered to employees. The Group will aim to provide a level of remuneration which attracts and retains high calibre employees across the whole of the Business. The Group’s remuneration philosophy is based on the following principles. • Affordability: the level of remuneration will reflect the performance of the Group as well as the performance and contribution of individuals – only success will be rewarded; • Behaviours: the Group’s remuneration policy will aim to drive behaviours which will support the Group’s desire to conduct its Business in a way which will ensure the fair treatment of customers, support the Group’s stated risk appetite and support the highest standards of corporate governance; and • Fairness: each employee’s pay rate will be fair, consistent and justifiable in relation to others within the Business. Remuneration levels will be competitive in relation to other organisations of a similar type and size and to those with whom the Group competes in its principal markets, helping to attract and retain the best talent for the Business.

3.2 Overview of remuneration policy In contemplation of Admission, having taken specialist, independent advice where necessary, the Group’s remuneration policy has been revised by the Remuneration Committee in order to ensure that it is appropriate for the listed company environment.

The Group seeks to attract and retain the best talent for the benefit of the Business and to align the interests of executive directors, senior management and employees with the long-term interests of Shareholders and other stakeholders. To that end, the Group’s remuneration policies aim to provide appropriate reward for good performance without creating incentives that will encourage excessive risk taking.

In connection with that aim, the Board has adopted, conditional on Admission, the Annual Bonus Plan and a share-based long-term incentive plan – the esure Performance Share Plan 2013 (the “PSP”). In addition, the Board has also adopted, conditional on Admission, two all-employee share incentive plans: the esure Share Incentive Plan 2013 (the “SIP”) and the esure Sharesave Plan 2013 (the “Sharesave Plan” and, together with the SIP, the “All-employee Plans”), subject to any amendments required to obtain the necessary approvals from HMRC. The PSP, SIP and Sharesave Plan are described in section 11 of Part XII (Additional Information), and a summary of the incentive arrangements that will be in place on or around Admission pursuant to these plans is set out at section 3.4 of this Part II. The Remuneration Committee is conscious that there should be no reward for failure, and that the operation of the Group’s remuneration policy should ensure that performance-related payments will only be made if the Group performs sufficiently well.

Overall remuneration levels have been set that are considered by the Remuneration Committee to be appropriate for the size and nature of the Business, recognising that the Group should pay no more than is necessary to secure the directors, senior managers and employees needed to manage the Business. Appropriate benchmarking has been undertaken against other companies. In setting remuneration policy and process, the Remuneration Committee has also paid regard to the provisions within the FSA’s Remuneration Code (even though the Group is not required to comply with that code) and to the anticipated requirements of Solvency II with the intention of ensuring that remuneration policies are aligned with risk management and the Group’s long-term objectives. In particular, the Remuneration Committee will consider carefully the link between remuneration and risk. There will be formal liaison between the Risk Committee and the Remuneration Committee, and the Risk Committee will review the structure of all incentive plans for the Group’s executive directors and other senior management.

102 The Remuneration Committee will regularly review remuneration trends across the Group, including the differential between the total remuneration at the highest and lowest levels of employees within the Group.

Details of the Group’s remuneration arrangements, including as regards the operation of the Group’s incentive plans and payments made under them, will be set out each year in a remuneration report contained in the Group’s annual report.

3.3 Remuneration of Chairman, Executive Directors and other senior management Peter Wood will from Admission be paid an annual salary of £730,000 and will be entitled to private health cover and certain other benefits (as described in section 10.1(A) of Part XII) but no pension. Recognising the natural alignment of interest that exists between Peter Wood, other Shareholders and the Company as a result of his already significant shareholding (which, on Admission is expected to represent approximately 34.9 per cent of the Ordinary Shares on the basis of the Mid-point Assumptions), Peter Wood will not participate in the Group’s Annual Bonus and he will not be eligible to participate in the PSP. In addition, in accordance with the current legislation governing the All- employee Plans, Peter Wood will not be eligible to participate in the All-employee Plans as he holds a “material interest” in the Company (broadly, beneficial ownership of 25 per cent of the Ordinary Shares). Although Peter Wood will be eligible to participate in the All-employee Plans if and when the UK government’s proposals to remove the “material interest” restrictions from the SIP and sharesave legislation is effected, he has indicated that he will not accept an invitation to participate in the All- employee Plans in such circumstances.

The remuneration packages for the Executive Directors and senior management have been structured in such a way that the fixed non-performance related elements are set with reference to mid-market levels. The base salary for Stuart Vann and Darren Ogden will from Admission be £475,000 and £310,000 per annum respectively. Benefits in kind comprise family private health cover and death in service life assurance. The Group will pay pension contributions, or salary supplements in lieu of pension contributions, equivalent to 16 per cent of base salary in respect of Stuart Vann and Darren Ogden.

The Remuneration Committee considers that total remuneration for the Executive Directors is also in the mid-market range in the event that the performance targets for the Annual Bonus and the PSP are achieved. The performance targets initially will be focused on the Group achieving sustainable increases to profitability and superior stock market returns compared to a selected comparator group of companies (see section 3.4(A) of this Part II) and the Remuneration Committee will ensure that there is a strong link between strategies adopted for the Business and the targets set for each PSP award and Annual Bonus cycle. In the remuneration policy, the balance between Annual Bonus and the PSP has been weighted towards the PSP to ensure that there is a strong focus on the delivery of longer term strategic goals, therefore providing a stronger alignment of interest between Executive Directors and Shareholders.

It is intended that the Remuneration Committee will have discretion to scale back Annual Bonus payments for the 2013 Annual Bonus cycle and/or the vesting level for the first PSP awards granted to the Executive Directors and senior management (other than the Long Service Awards or One-Off Awards) in the event that the level of bonus or long term incentive payments represent an excessive proportion of the Group’s overall profitability to ensure that a proportionate balance is maintained between performance-related financial rewards, profit retained by the Company and dividends paid to Shareholders. In addition, the Annual Bonus Plan (commencing with the 2013 Annual Bonus cycle) and the PSP include clawback provisions, which may be operated at the discretion of the Remuneration Committee broadly in the event of material financial misstatement, an error in assessing any applicable performance condition or an employee’s gross misconduct.

The Remuneration Committee has adopted formal shareholding guidelines encouraging executive directors and other senior management to retain no less than 50 per cent of the net-of-tax value of any vested PSP award until such time as a shareholding equivalent in value to 150 per cent of base salary has been achieved for executive directors and 50 per cent of base salary for senior management.

103 3.4 Incentive arrangements in place on or around Admission (A) Annual Bonus 2013 Annual Bonus payments (if any) for the 2013 Annual Bonus Cycle will be made under the Annual Bonus Plan. It is intended that, for the 2013 Annual Bonus cycle, Annual Bonus payments for Stuart Vann and Darren Ogden and senior management will be based on trading profit targets. The Remuneration Committee may decide in future years to revise this approach and to add non-financial or strategic objectives for a part of an Annual Bonus. It is intended that, under the 2013 awards, the Remuneration Committee will have overriding discretion to scale back Annual Bonus payments in the event of, inter alia, risk or regulatory compliance issues and as set out above in the event that the level of bonus represents an excessive proportion of the Group’s overall profitability. In addition, the Annual Bonus Plan contains clawback provisions set out above at section 3.3 of this Part II. Annual Bonus payments for the 2013 Annual Bonus cycle for Stuart Vann and Darren Ogden will be subject to a maximum limit of 75 per cent and 50 per cent of base salary respectively. The Annual Bonus for 2013 will normally be payable in cash in early 2014 after the Group’s 2013 financial statements have been audited.

(B) First PSP Award On or shortly after Admission, the first awards will be made under the PSP:

• Stuart Vann will receive performance-related awards over Ordinary Shares with a value at grant equal to 175 per cent of base salary;

• Darren Ogden will receive performance-related awards over Ordinary Shares with a value at grant equal to 150 per cent of base salary; and

• lower levels of award (as a percentage of salary) will be made to approximately four senior managers.

These awards will normally vest, subject to continued employment with a group company and any applicable performance and other conditions, on the later of the third anniversary of Admission and the date on which the Remuneration Committee determines that the performance and other conditions have been satisfied (in whole or in part).

The performance conditions that will apply to the awards granted to Stuart Vann, Darren Ogden and the four senior managers are as follows:

• two-thirds of each award will be based on the Group’s earnings per share (“EPS”) performance and one-third on the Group’s total shareholder return (“TSR”) performance (with the two measures applying independently to different parts of each award);

• the EPS performance measure involves a comparison of an EPS figure for the year ended 31 December 2012 (calculated as the profit after taxation for the year ended 31 December 2012 divided by the aggregate number of Existing Ordinary Shares and New Ordinary Shares in existence on Admission) and the EPS figure reported in the Group’s audited consolidated financial statement for the year ending 31 December 2015. For the avoidance of doubt, the 2012 EPS figure for the purposes of the EPS performance condition will be different to the illustrative basic and diluted earnings per Existing Ordinary Share presented in Note 15 to the Historical Financial Information on page F-31 of Schedule II (Historical Financial Information) to this document. For the portion of the award subject to the EPS measure:

(i) 25 per cent will vest if EPS for the year ending 31 December 2015 exceeds the EPS for the year ended 31 December 2012 (calculated on the basis described above) by 21 per cent;

(ii) 100 per cent will vest if EPS for that year for the year ending 31 December 2015 exceeds the EPS for the year ended 31 December 2012 (calculated on the basis described above) by 39 per cent; and (iii) if EPS for the year ending 31 December 2015 falls between these targets, vesting will occur on a straight-line basis.

104 • TSR performance will be measured by comparing the Group’s TSR from the date of Admission to 31 December 2015 to the TSR of the constituents of the FTSE 250 Index (excluding investment trusts and the Company) over the same period. For the first PSP awards, the opening TSR of the Company will be the Offer Price. For the portion of the award subject to the TSR measure: (i) 25 per cent will vest if the Group achieves median TSR performance against this comparator group; (ii) 100 per cent will vest if the Group’s TSR performance is at the upper quartile or above; and (iii) if TSR performance is between the median and the upper quartile, vesting will occur on a straight-line basis. In addition, the first PSP awards will be subject to an additional term, which will allow the Remuneration Committee to reduce the level of vesting of each award if it considers that the vesting level is not appropriate having regard to the growth in profitability over the performance period. Holders of these first PSP awards will receive dividend equivalents in respect of the Ordinary Shares which vest under their awards calculated on a basis and paid in a manner to be determined by the Remuneration Committee before the awards vest.

(C) Long Service Awards On or shortly after Admission, a one-off “Long Service Award” in the form of a right to receive free Ordinary Shares will be made to selected employees who did not already own shares in the Company prior to Admission and who had been employed by the Group for more than two years at Admission. The award levels will be dependent on length of service. Long Service Awards will normally vest three years after Admission, subject to continued employment with a group company.

Holders of these Long Service Awards will receive dividend equivalents in respect of the Ordinary Shares which vest under their awards calculated on a basis and paid in a manner to be determined by the Remuneration Committee before the awards vest.

The Ordinary Shares held by the Group’s existing employee benefit trust on Admission will be sufficient to satisfy these Long Service Awards and the One-Off Awards described below.

It is intended that the Long Service Awards will be granted under the PSP and shall not be subject to performance conditions or the operation of clawback.

(D) One-Off Awards On or shortly after Admission, a “One-Off Award” in the form of a right to receive Ordinary Shares will be made to a small number of senior employees of the Group. The One-Off Awards will normally vest one year after Admission, subject to continued employment with a group company.

Holders of these One-Off Awards will receive dividend equivalents in respect of the Ordinary Shares which vest under their awards calculated on a basis and paid in a manner to be determined by the Remuneration Committee before the awards vest.

The Ordinary Shares held by the Group’s existing employee benefit trust on Admission will be sufficient to satisfy these One-Off Awards and the Long Service Awards described above.

It is intended that the One-Off Awards will be granted under the PSP and shall not be subject to performance conditions or the operation of clawback.

105 PART III LR 6.1.4 PR Ann I 20.1 PR Ann III 10.2 FINANCIAL INFORMATION RELATING TO THE GROUP

1. PREPARATION OF HISTORICAL FINANCIAL INFORMATION Schedule II (Historical Financial Information) sets out the Historical Financial Information, comprising LR 6.1.3(1) the consolidated Group financial information for the three years ended 31 December 2012, together PR Ann I, 20.4.1, with the notes to that financial information. The Historical Financial Information has been prepared in 20.5.1 accordance with the requirements of the Prospectus Directive Regulation and the Listing Rules in accordance with the basis of preparation included in Note 2 (Accounting policies) to the Historical Financial Information (set out on pages F-1 to F-17 of Schedule II (Historical Financial Information) to this document). Please refer to the section entitled Presentation of Financial Information on page 54 of this document for further details regarding the presentation of the Historical Financial Information.

2. CROSS-REFERENCE LIST PR Ann I, 20.3, 20.6.1, 20.6.2 The following list is intended to enable the easy identification of specific items of Historical Financial Information. The page numbers in the tables below refer to the relevant pages of Schedule II (Historical Financial Information), which is numbered F-1 to F-73. In Schedule II, references to “ordinary shares” in Notes 15 and 27 on pages F-31 and F-60 respectively are to be taken as references to Non-Voting Old Ordinary Shares.

Consolidated Group financial information for the three years ended 31 December 2012 • Accountant’s report F-1 to F-2 LR 6.1.3(2) • Consolidated statement of comprehensive income F-3 • Consolidated statement of financial position F-4 • Consolidated statement of changes in equity F-5 • Consolidated statement of cash flows F-6 • Notes to the consolidated financial statements F-7 to F-73

3. SELECTED HISTORICAL FINANCIAL INFORMATION The tables in sections 3.1 to 3.3 of this Part III set out certain consolidated income, balance sheet and PR Ann I, 3.1, 3.2 cash flow information relating to the Group for 2010, 2011 and 2012. The table in section 3.4 sets out certain key financial and operating measures in respect of the same periods. The information contained in tables 3.1 to 3.4 has been extracted or derived without material adjustment from the Historical Financial Information set out in Schedule II (Historical Financial Information) or, where indicated, from the Group’s unaudited accounting records, operating systems and other information prepared by the Group.

Prospective investors should read the whole document and not just rely on the key or summarised information set out in the tables below. In particular, the selected historical financial information set out below should be read in conjunction with Part V (Operating and Financial Review) and Schedule II (Historical Financial Information) as well as the rest of this document.

106 3.1 Consolidated statement of comprehensive income The table below sets out certain consolidated income statement information relating to the Group for the three years ended 31 December 2010, 2011 and 2012.

Year ended Year ended Year ended 31 December 31 December 31 December 2010(1) 2011 2012 £m £m £m Gross written premiums...... 456.3 499.5 515.0 –––––––– –––––––– –––––––– Gross earned premiums ...... 466.9 475.2 511.7 Earned premiums, ceded to reinsurers ...... (27.0) (29.0) (31.5) –––––––– –––––––– –––––––– Earned premiums, net of reinsurance ...... 439.9 446.2 480.2 Investment income and instalment interest ...... 48.8 12.3 67.9 Fees for additional services ...... 34.0 38.4 44.4 –––––––– –––––––– –––––––– Net income...... 522.7 496.9 592.5 –––––––– –––––––– –––––––– Claims incurred and claims handling expenses ...... (477.6) (351.4) (413.4) Claims incurred recoverable from reinsurers...... 54.1 24.1 64.0 –––––––– –––––––– –––––––– Claims incurred, net of reinsurance ...... (423.5) (327.3) (349.4) Insurance expenses...... (84.1) (90.1) (96.1) Other operating expenses ...... (24.3) (19.7) (29.6) –––––––– –––––––– –––––––– Net expenses...... (531.9) (437.1) (475.1) Negative goodwill arising on business combination ...... 15.7 – – Share of profit after tax of joint venture ...... 5.1 9.4 7.3 Finance costs...... (15.8) (14.1) (9.2) –––––––– –––––––– –––––––– (Loss)/profit before tax...... (4.2) 55.1 115.5 Tax credit/(expense)...... 4.5 (12.0) (27.4) –––––––– –––––––– –––––––– Profit attributable to the owners of the parent...... 0.3 43.1 88.1 –––––––– –––––––– –––––––– Other comprehensive income ...... – – – Total comprehensive income for the period attributable to owners of the parent...... 0.3 43.1 88.1 –––––––– –––––––– –––––––– Note: (1) Information presented for 2010 reflects the combined consolidated results of esure Holdings Limited for the period from 1 January 2010 to 10 February 2010 and of the Company for the period from 11 February 2010 to 31 December 2010. Please refer to the section entitled Presentation of Financial Information on page 54 of this document for further details regarding this basis of presentation.

107 3.2 Consolidated balance sheet information The table below sets out certain consolidated balance sheet information relating to the Group as at 31 December 2010, 2011 and 2012.

As at As at As at 31 December 31 December 31 December 2010 2011 2012 £m £m £m Assets Intangible assets...... 28.2 20.1 16.6 Deferred acquisition costs ...... 18.7 23.4 25.9 Property, plant and equipment...... 14.3 14.5 13.4 Investment in joint venture ...... 33.4 35.8 37.6 Financial investments...... 736.2 726.4 779.2 Reinsurance assets ...... 157.8 172.9 233.4 Insurance and other receivables...... 143.0 150.1 169.0 Cash and cash equivalents...... 18.9 32.5 39.4 –––––––– –––––––– –––––––– Total assets...... 1,150.5 1,175.7 1,314.5 –––––––– –––––––– –––––––– Equity and liabilities Share capital...... 85.2 85.2 85.2 Share premium account...... – 0.0 0.0 Retained earnings...... 14.7 57.8 145.9 –––––––– –––––––– –––––––– Total equity ...... 99.9 143.0 231.1 –––––––– –––––––– –––––––– Liabilities Insurance contract liabilities...... 866.7 874.6 947.4 Provisions for liabilities and charges ...... 0.6 – – Borrowings...... 112.4 83.0 50.0 Insurance and other payables ...... 69.5 67.2 69.4 Deferred tax liabilities ...... 1.4 1.5 0.5 Derivative financial liabilities ...... – 0.4 0.3 Current tax liabilities ...... – 6.0 15.8 –––––––– –––––––– –––––––– Total liabilities ...... 1,050.6 1,032.7 1,083.4 –––––––– –––––––– –––––––– Total equity and liabilities ...... 1,150.5 1,175.7 1,314.5 –––––––– –––––––– ––––––––

108 3.3 Consolidated cash flow information The table below sets out certain consolidated cash flow information relating to the Group for the three years ended 31 December 2010, 2011 and 2012.

Year ended Year ended Year ended 31 December 31 December 31 December 2010(1) 2011 2012 £m £m £m Cash flows from operating activities Profit after tax for the period...... 0.3 43.1 88.1 Adjustments to reconcile profit after tax to net cash flows: – Finance costs...... 15.8 14.1 9.2 – Depreciation of property, plant and equipment ...... 1.0 1.5 2.1 – Amortisation of intangible assets ...... 9.4 9.7 4.0 – Unrealised investment (gains)/losses ...... (9.9) 23.8 (24.1) – Share of profits after tax of joint venture...... (5.1) (9.4) (7.3) – Negative goodwill arising on business combination ...... (15.7) – – – Taxation expense/(credit)...... (4.5) 12.0 27.4 – Interest and dividends receivable on financial investments...... (11.6) (11.5) (16.6) – Interest receivable ...... (24.1) (25.4) (28.5) –––––––– –––––––– –––––––– Operating cash flows before movements in working capital, tax and interest paid...... (44.4) 57.9 54.3 Sales of financial investments ...... 426.1 415.8 538.2 Purchase of financial investments...... (423.2) (429.7) (567.0) Interest and dividends received on financial investments...... 13.9 8.6 16.0 Interest received...... 23.4 25.9 29.0 Changes in working capital: – (Increase)/decrease in insurance and other receivables...... (43.1) (24.7) (21.2) – Increase/(decrease) in insurance contract liabilities and insurance and other payables...... 55.0 5.6 14.3 Taxation paid...... (3.9) (6.1) (18.5) –––––––– –––––––– –––––––– Net cash generated in operating activities ...... 3.8 53.3 45.1 –––––––– –––––––– –––––––– Cash flows from investing activities Acquisition of business...... (190.1) – – Cash acquired in acquisition of business...... – – – Dividends received...... 6.0 7.0 5.5 Purchases of property, plant and equipment and software...... (0.3) (3.3) (1.5) –––––––– –––––––– –––––––– Net cash (used in)/from investing activities...... (184.4) 3.7 4.0 –––––––– –––––––– –––––––– Cash flows from financing activities Proceeds on issue of ordinary shares...... 85.2 0.0 – Interest paid ...... (12.3) (13.4) (10.2) Issue/(Repayment) of loans...... 112.0 (30.0) (32.0) –––––––– –––––––– –––––––– Net cash from/(used in) financing activities ...... 184.9 (43.4) (42.2) –––––––– –––––––– –––––––– Net increase/(decrease) in cash and cash equivalents ...... 4.3 13.6 6.9 –––––––– –––––––– –––––––– Cash and cash equivalents at the beginning of the period...... 14.6 18.9 32.5 –––––––– –––––––– –––––––– Cash and cash equivalents at the end of the period...... 18.9 32.5 39.4 –––––––– –––––––– ––––––––

Note: (1) Information presented for 2010 reflects the combined consolidated results of esure Holdings Limited for the period from 1 January 2010 to 10 February 2010 and of the Company for the period from 11 February 2010 to 31 December 2010. Please refer to the section entitled Presentation of Financial Information on page 54 of this document for further details regarding this basis of presentation.

109 3.4 Non-IFRS performance measures and other operating information The following table summarises the development in the key financial and operating measures that the Directors and the management of the Group use to monitor the Business. FYE 2010(1) 2011 2012 In-force policies (end of period) (000s) Group ...... 1,565 1,653 1,759 Motor segment...... 1,184 1,210 1,255 Home segment ...... 380 443 504 In-force policies (average)(2) (000s) ...... 1,625 1,593 1,718 Gross written premiums (£m) Group ...... 456.3 499.5 515.0 Motor segment...... 390.2 423.1 429.0 Home segment ...... 66.1 76.4 86.0 Total income from Additional Services(3) (£m)...... 75.1 87.0 104.1 Additional Services revenues per average in-force policy(4) (£) Group ...... 46.2 54.6 60.6 Motor underwriting...... 54.3 65.7 75.3 Home underwriting...... 18.1 22.8 22.8 Group trading profit (loss)(5) (£m) Group ...... 16.0 86.1 138.1 Motor segment...... (47.0) 20.8 30.5 Home segment ...... (20.7) 8.0 4.2 Non-underwritten Additional Services ...... 49.3 53.2 51.7 Investment income...... 24.7 (13.1) 39.4 Share of joint venture (Gocompare) profit...... 9.7 17.2 12.3 Loss Ratio(6) (%) Group ...... 91.5 68.3 69.2 Motor underwriting...... 89.6 70.6 70.0 Home underwriting...... 104.0 55.5 64.5 Expense Ratio(7) (%) Group ...... 23.9 25.2 23.6 Motor underwriting...... 22.6 24.0 22.4 Home underwriting...... 32.1 32.5 30.0 Combined Operating Ratio(8) (%) Group ...... 115.4 93.5 92.8 Motor underwriting...... 112.3 94.6 92.4 Home underwriting...... 136.1 88.0 94.5 Investment return(9) (%)...... 3.3 (1.7) 5.2

Notes: (1) Information presented for 2010 reflects the combined consolidated results of esure Holdings Limited for the period from 1 January 2010 to 10 February 2010 and of the Company for the period from 11 February 2010 to 31 December 2010. Please refer to the section entitled Presentation of Financial Information on page 54 of this document for further details regarding this basis of presentation. (2) Average of the in-force policies is calculated taking the average of the number of in-force policies at each month end during the relevant financial year. (3) Total income from Additional Services includes four main components: (i) sales of underwritten and non-underwritten Additional Insurance Products to motor and home insurance customers; (ii) instalment interest on premium payment plans; (iii) policy administration fees; and (iv) legal panel membership fees and fees generated from the appointment of firms used during the claims process, including medical, vehicle repair and car hire suppliers. Total income from Additional Services is stated before the deduction of any internal costs of acquisition or administration. Non-underwritten Additional Insurance Products revenue represents the commission margins for the Group generated from sales of the products. Underwritten Additional Services Products revenue is stated after the deduction of claims costs. Total income from Additional Services is a non-IFRS measure which management uses to evaluate group performance. It may not be comparable with similarly titled measures used by other companies. Please refer to the section entitled “Non-IFRS Financial Measures” on page 55 of this document for further details. (4) Additional Services revenues per average in-force policy is calculated by taking total income from Additional Services and dividing by the average number of in-force policies on a rolling 12-month basis. (5) Trading profit is defined as earnings before interest, non-trading costs, tax, and amortisation of acquired intangible assets. Trading profit is a non-IFRS measure which management uses to evaluate group performance. It may not be comparable with similarly titled measures used by other companies. Please refer to the section entitled “Non-IFRS Financial Measures” on page 55 of this document for further details. The reconciliation of the Group’s profit after tax to Group trading profit is as follows:

110 FYE 2010 2011 2012 (£m) (£m) (£m) Profit attributable to owners of the parent ...... 0.3 43.1 88.1

Amortisation of acquired intangibles ...... 11.1 12.3 5.2

Non-trading costs ...... 7.0 – 5.2

Negative goodwill arising on business combination ...... (15.7) – –

Finance costs ...... 15.7 14.1 9.2

Tax expense/credit (inclusive of tax attributable to joint venture profit ...... (2.4) 16.6 30.4 –––––––– –––––––– –––––––– Group trading profit 16.0 86.1 138.1 –––––––– –––––––– –––––––– (6) Loss Ratio is claims incurred, net of reinsurance as a percentage of earned premiums, net of reinsurance.

(7) Expense Ratio is insurance expenses plus claims handling costs as a percentage of earned premiums, net of reinsurance.

(8) Combined Operating Ratio is calculated as Loss Ratio plus Expense Ratio.

(9) Ratio of total investment income (excluding instalment income) to the average of investment assets (which includes fixed income securities, cash and money market funds, equities and accrued interest).

111 PART IV

MARKET OVERVIEW

1. UK PRIVATE MOTOR INSURANCE MARKET PR Ann I, 6.2 1.1 Premiums Under the Road Traffic Act 1988, it is a criminal offence to drive a car for personal purposes on public roads in the UK without having insurance to cover legal liabilities for injuries to others and damage to third party property. Despite the relatively limited statutory requirement of ‘‘third party liability’’ insurance, the vast majority of private drivers in the UK opt for comprehensive cover.

The Group estimates that the UK private motor insurance market consisted of approximately 26 million PR Ann I, 6.5 policies in 2012. The Group, with 1.25 million in-force private motor insurance policies as at 31 December 2012, therefore had a market share of approximately 5 per cent of that market. The Group estimates that its target underwriting market is approximately 10 million policies, based on price comparison website quotability.

Each individual private motor insurance business’s financial performance is dependent on its own specific business characteristics, with companies over-performing or under-performing the market at various points in the economic cycle. However, the performance of the UK private motor insurance market as a whole has tended to fluctuate in cyclical patterns characterised by periods of significant competition in pricing and underwriting terms followed by periods of lessened competition and PR Ann I, 12.1 increasing premium rates. From the end of 2009 until 2011, the market saw premium rates increase in response to the significant rise in frequency and severity of personal injury claims experienced across the UK private motor insurance market in the late 2000s. However, by late 2011 premium rates had plateaued, and in 2012 they subsequently fell during the year, indicating the commencement of a period of increased competition in pricing.

The Directors believe that the size of the UK private motor insurance market provides the Group with significant headroom to achieve its strategic targeted focus of profitable in-force policy growth within low risk market segments and provides its esure – and Sheilas’ Wheels – branded broker services with a broad and deep market in which to operate.

1.2 Distribution channels In the UK, private motor insurance products are marketed and distributed to the public either directly or through some form of intermediary. The internet continues to grow in importance as a distribution channel for private motor insurance, in particular as a result of the growth of price comparison websites. The relatively commoditised nature of motor insurance products make them well suited to internet sales and the speed of the process, ease of usage and competitive pricing make using the internet, and, in particular, price comparison websites, increasingly attractive to customers.

The Group employs a low-cost, multi-channel distribution strategy. While the Group has adapted to trends in the market and now generates approximately 82 per cent of new business sales through the price comparison website distribution channel, the Directors believe that the Group’s direct telephone and website sales operations (accounting for approximately 10 per cent and 8 per cent of new business sales respectively) remain important customer touch-points, in particular in the case of telephone by providing personal contact.

1.3 Claims Historically, claims costs for UK motor insurance companies were primarily driven by vehicle repair costs. In this market environment, insurers were able to achieve profitability principally by targeting customer segments less likely to be involved in an accident as well as managing vehicle repair costs more efficiently.

112 In the mid-2000s, a number of legal developments in the UK occurred which led to an upsurge in claims costs relating to personal injury claims. In October 2003, a predictable fixed costs system was introduced in the UK (except for Scotland) for low value personal injury claims and, in 2004, the Law Society relaxed its rules to permit solicitors to pay referral fees to introducers of personal injury claims. As a consequence, in the mid-2000s, solicitors and a number of claims management companies began to advertise seeking individuals with personal injury claims offering “no win – no fee” arrangements for potential claimants.

In the late 2000s, UK private motor insurance companies began to experience significant increases in PR Ann I, 12.1 claims costs relating to the “personal injury phenomenon”. Personal injury costs and associated legal costs now comprise an increasingly significant part of a UK private motor insurers’ claims cost base. The increase in personal injury-related costs reflected an upsurge in both the frequency and severity of claims. Among the factors that contributed to this material increase in personal injury claim costs, in addition to that noted above, were:

• an increase in “claims farming” across the back books of insurers. Claims management companies acquired claims information from certain market participants and then contacted previous accident victims to notify them that they had a potential injury claim against the at-fault driver’s insurer (due to the relevant statute of limitations, the “claims farming” of the back books of motor insurers led to potential claims based on accidents which occurred up to three years prior to making the claim (save in certain circumstances, for example in respect of minors involved in the accident));

• an increase in the number of whiplash claims, which are relatively easy to claim and difficult to disprove (particularly if reported many months or even years after the accident date);

• an increase in the number of claimants per claim. This included additional passengers in the not- at-fault vehicle and also passengers in the at-fault vehicle itself (such as the spouse or children of the driver); and

• an increase in fraudulent or exaggerated claims, from both genuine passengers in vehicles and others who saw an opportunity to either cause accidents to occur or create fictitious accidents as a means to allow them to claim for non-existent injuries.

In addition, over recent years, motor insurers have seen an increase in the number of PPOs awarded to settle large injury and care claims resulting from motor accidents as an alternative to lump sum payments. This has led to an increase in the cost of the higher layers of reinsurance cover where the costs of PPOs are more likely to be covered, and the withdrawal of some reinsurers from the market. As at 31 December 2012, the Group had exposure to seven existing PPO settlements on which it was making payments and potential exposure to an estimated further 24 claims that could result in a PPO but which had not been settled as at that date. The Directors believe that the Group’s exposure to PPOs is currently relatively small because of its underwriting criteria and, more importantly, due to it having retained a maximum £0.5 million retention level per claim on its motor reinsurance programme since 2008 and a maximum £0.8 million retention level per claim in periods prior to 2008.

As a result of the increase in claims costs, coupled with the effect of pricing transparency primarily through price comparison websites holding down premium rates, loss ratios across the UK private motor insurance industry increased significantly, beginning in 2009 and continuing into 2011.

The Directors believe that the Group’s prompt identification of the personal injury claim phenomenon is testament to the strength and effectiveness of the Group’s underwriting philosophy and risk management capabilities, allowing the Group to institute and complete a quick turnaround to the deterioration in Loss Ratio it experienced in 2008 and 2009 and swiftly to adapt and enhance its underwriting approach in a manner focused on delivering profitable growth in the motor insurance environment that exists following the personal injury claim phenomenon.

113 2. UK HOME INSURANCE MARKET 2.1 Premiums Home insurance is an important market in the general insurance sector, given its significant size and the potential for long-term profitability. Gross written premiums have grown in the home insurance market in the UK over the past few years. Historically, home insurance customers have tended to take home insurance from their mortgage provider and have been less price conscious and less likely to change PR Ann I, 12.1 their insurance provider than personal motor insurance customers. However, this has been changing in recent years with greater consumer awareness of the availability of, and value benefits on offer from, alternative providers of home insurance and increased distribution of home insurance products through price comparison websites. As a result, value and brand recognition are becoming increasingly important factors in growing and retaining market share in the home insurance market.

The Group estimates that the UK personal home insurance market consisted of approximately PR Ann I, 6.5 26 million households in 2012. The Group, with over 500,000 in-force home insurance policies as at 31 December 2012, therefore had a market share of approximately 2 per cent of that market. The Group estimates that its target underwriting market is approximately 12 million policies, based on price comparison website quotability.

Home insurance performance has not typically experienced similar cyclicality as motor insurance. Instead, profitability is more correlated with the occurrence of severe weather events which are unpredictable. Premium rates are set with an expectation of a certain level of weather-related claims, but claims costs will tend to be higher when severe weather occurs.

In 2010, severe cold weather was experienced across the UK both at the start of the year (January) and again at the end of the year (November and December). Having two such severe cold weather events occurring in the same year was particularly unusual. Due to this severe cold weather, water pipes froze and burst, leading to water damage and a consequent increase in the number and severity of claims experienced in the home insurance book in 2010. The weather was more benign in 2011, and other than the wet weather in 2012 and the cold weather in 2010, the last severe weather event experienced in the UK were floods in the summer of 2007.

As at 31 December 2012, the Group’s home underwriting business was in excess of 500,000 in-force policies (representing approximately 29 per cent of the Group’s total number of motor and home in- force insurance policies as at 31 December 2012). The Directors believe that the Group’s home underwriting business has further growth potential. Growth of the Group’s home underwriting business will provide further diversification from the motor underwriting cycle (as there is little correlation between the motor insurance cycle and weather and other catastrophic events that impact the home insurance market), while at the same time allowing the Group to gain greater economies of scale, as the administration and claims processes are similar across personal lines insurance.

2.2 Distribution channels The pattern of distribution differs in the UK home insurance market from that of the private motor insurance market. Banks and building societies, as providers of mortgages and loans to homeowners, retain a leading distribution share in the UK home insurance market. While borrowers do not have to buy their insurance from their mortgage provider it is often included in the mortgage offer and occasionally added to the amount of the mortgage itself.

In recent years, direct distribution has expanded its presence in the UK home insurance market. As the PR Ann I, 12.1 direct, low-cost model has developed in the motor insurance market, it is becoming increasingly popular in the UK home insurance market. Price comparison websites have gained a greater foothold in the home insurance market in recent years by making customers aware that they can make substantial savings by breaking the link with their long-standing provider and buying their home insurance directly. To date, the price comparison website distribution channel is not as dominant in the UK home insurance market as it is in the UK private motor insurance market, although its market share is growing significantly year-on-year, which the Directors believe should benefit an internet-based direct insurer with well-established brands such as the Group. The Group generated approximately 83 per cent of

114 new business sales through the price comparison website channel in 2012, with the remaining policies originated via direct website sales (15 per cent) and telephone sales (2 per cent).

2.3 Claims Average home insurance premiums tend to be lower than those for motor and the average loss ratios over the longer term also tend to be better. However, one-off severe weather events, such as rainstorms, windstorms, snowstorms, hailstorms and freeze events can produce significant damage to homes, which can lead to significant increases in the frequency and severity of claims and consequently lead to high loss ratios in a particular accident year. Insurers typically then seek to recover these higher costs over following years.

As with the Group’s motor insurance policies, the Group targets market segments with statistically low risk profiles. Please refer to section 7.2 of Part I (The Business) for further details.

3. REGULATORY INFORMATION Part X (Regulatory Information) of this document contains a discussion of the main features of the UK regulatory regime for insurance business as it applies to the Group’s authorised insurance companies.

115 PART V PR Ann I, 9.1

OPERATING AND FINANCIAL REVIEW

The following operating and financial review is intended to convey the Directors’ perspective on the Group’s operating performance and its financial condition. The Directors intend this disclosure to assist readers in understanding and interpreting the Historical Financial Information set out in Schedule II (Historical Financial Information) and summarised in Part III (Financial Information relating to the Group). The Historical Financial Information has been prepared in accordance with the requirements of the PD regulation and the Listing Rules in accordance with the basis of preparation included in Note 2, Accounting policies, in the Group’s historical financial information included in Schedule II (Historical Financial Information). The discussion of the results of operations for 2010 has been prepared using the “combined” consolidated statement of comprehensive income, combining the results of esure Holdings Limited for the period from 1 January 2010 to 10 February 2010 and the results of the Company for the period from 11 February 2010 to 31 December 2010. See Note 2 (Accounting Policies–Basis of Presentation) to the historical financial information for 2010–2012 in Schedule II (Historical Financial Information) for further details.

Investors should read this Part V in conjunction with the section entitled Risk Factors, Part I (The Business), Part III (Selected Historical Financial Information relating to the Group), Schedule II (Historical Financial Information) and the other information included in this document.

1. OVERVIEW The Group is a UK-focused personal lines insurer founded in 2000 by Peter Wood, the foremost general insurance entrepreneur in the UK and the Company’s Chairman. The Group has established a strong platform for growth and a track record of profitability. The Group has achieved this against a backdrop of challenging market conditions through a disciplined and conservative approach to its motor underwriting business, the application of the same philosophy in growing its home underwriting business, a strong focus on generating revenues from associated activities such as the sale of Additional Insurance Products alongside its core motor and home insurance policies and, more recently, the development of its branded broker services. These associated activities offer higher returns on capital employed and another source of cash generation that, together with the home underwriting business, are part of a diversification strategy aimed at reducing the Group’s exposure to the cyclicality of the motor insurance market.

As discussed further below, the Group’s results of operations over the periods under review have been significantly influenced by the personal injury claim phenomenon that arose in 2008 and 2009 in the UK and the Group’s success in adapting to the new motor insurance environment that had emerged and has evolved over the past several years. See section 1.3 (Claims) of Part IV (Market Overview) for further details. The Directors believe that the Group’s prompt identification of the advent of the personal injury claim phenomenon is testament to the strength and effectiveness of the Group’s underwriting philosophy and capabilities, allowing the Group to institute and complete a quick turnaround to the deterioration in Loss Ratio it experienced in 2009 and 2010 and swiftly to adapt its underwriting approach in a manner focused on delivering profitable growth in the new motor insurance environment. The Group’s success has been underscored by its ongoing utilisation of its strong technical underwriting capabilities to monitor and manage its underwriting risk exposure, its application of a rigorous approach to claims management and its implementation of enhanced fraud protection.

The Group’s gross written premiums (“GWPs”) were £515.0 million in 2012, compared with £499.5 million and £456.3 million in 2011 and 2010, respectively. As at 31 December 2012, the Group had 1.25 million motor insurance in-force policies (2011: 1.21 million; 2010: 1.18 million) and 0.50 million home insurance in-force policies (2011: 0.44 million; 2010: 0.38 million). The Group’s Loss Ratio was 69.2 per cent in 2012, compared with 68.3 per cent and 91.5 per cent in 2011 and 2010, respectively. The Group’s Combined Operating Ratio was 92.8 per cent in 2012, compared with 93.5 per cent and 115.4 per cent in 2011 and 2010, respectively.

116 The Group’s trading profit, defined as earnings before interest, non-trading costs, tax and amortisation of acquired intangible assets, was £138.1 million in 2012 compared with £86.1 million in 2011 and £16.0 million in 2010. While much of the increase in the Group’s trading profit in 2012 compared with 2011 can be attributed to a significant turnaround in investment performance, there was also an improvement in the underlying performance of the insurance business. This improvement in the underlying performance included both growth in GWPs and its continued disciplined approach to underwriting and cost management, which helped to improve the Group’s Combined Operating Ratio to 92.8 per cent in 2012 from 93.5 per cent in 2011 (the motor Combined Operating Ratio improved to 92.4 per cent in 2012 from 94.6 per cent in 2011). The improved underwriting performance was achieved despite 2012 being the second wettest year on record in the UK (according to the UK Met Office) resulting in an increase in the number of both motor weather-related claims and water damage to homes from rainfall and storm surges. The growth in trading profit in 2012 compared with 2011 was aided by continued growth in non-underwritten Additional Services offset in part by lower share of profit before tax from Gocompare, costs of approximately £4.3 million as a result of Drive Assist, one of the Group’s credit hire counterparties, going into administration and a net investment of £4.6 million (on a pre-tax basis) in growing the new broker business.

The significant turnaround in the investment performance to a gain of £39.4 million in 2012 from a loss of £13.1 million in 2011 was primarily associated with unrealised gains on a small equity portfolio in 2011 being largely recovered in 2012. In addition, the 2012 performance also benefited from further significant unrealised gains from the Group’s fixed income portfolio, particularly from corporate bonds, arising from a tightening of credit spreads across the market.

The increase in trading profit to £86.1 million in 2011 from £16.0 million in 2010 was primarily due to the significant improvement in the Loss Ratio for both the motor and the home underwriting business. This was primarily due to (i) lower frequency of motor personal injury claims in 2011 (due to de-risking action taken by the Group to address the higher claims frequency and severity experienced by the Group with respect to personal injury claims) and (ii) better claims experience in the home insurance book in 2011 than in 2010, a year in which the UK experienced two unusually severe weather events at both the start (January) and again at the end (November and December) of the year. These developments resulted in a significantly improved Combined Operating Ratio of 93.5 per cent in 2011 compared with 115.4 per cent in 2010. Trading profit in 2011 was negatively impacted by a loss of £13.1 million from investments mainly due to net unrealised losses on the Group’s equity investment portfolio in that year (the Group had £24.7 million of investment income in 2010).

Underwriting business The Group’s core business is the sale of motor and home insurance policies in the UK. In the case of motor insurance policies, these provide third party liability and, in most cases, comprehensive cover. In the case of home insurance policies, these provide cover for home contents and, in most cases, buildings. Policies are sold primarily under the Group’s strong and widely recognised “esure” and “Sheilas’ Wheels” brands, with approximately 82 per cent of its new customer policies originated through price comparison websites in 2012.

The Group takes a conservative approach to insurance underwriting. It targets customers with a statistically low underwriting risk profile and places a strong emphasis on measures to monitor the underwriting risk exposure and overall risk profile of the Group’s in-force policy books. This disciplined approach to underwriting, together with the Group’s anti-fraud measures and effective claims handling processes, enabled it to deliver motor Loss Ratios of 70.0 per cent and 70.6 per cent in 2012 and 2011, respectively. These Loss Ratios represent a material improvement over 2010 (loss ratio of 89.6 per cent) which was affected by the personal injury claim phenomenon that arose during 2008/2009. In 2011, the motor Loss Ratio represented one of the UK insurance industry’s lowest motor Loss Ratios, and the further improvement in 2012 was achieved despite the negative impact on the number of weather-related motor claims resulting from the adverse weather events in the last nine months of 2012.

The home underwriting segment also delivered strong Loss Ratios of 64.5 per cent in 2012, despite adverse weather events in the last nine months of 2012, and of 55.5 per cent in the relatively more

117 benign 2011, while simultaneously providing the Group with diversification to the motor insurance underwriting cycle. The home Loss Ratios in 2012 and 2011 represented a material improvement over 2010 (Loss Ratio of 104.0 per cent) when two severe cold weather events were experienced across the UK.

The Group’s Combined Operating Ratio was 92.8 per cent in 2012 compared with 93.5 per cent in 2011 and 115.4 per cent in 2010, largely reflecting movements in the Loss Ratio discussed above, as well as a reduction in the Group Expense Ratio to 23.6 per cent, from 25.2 per cent in 2011 (23.9 per cent in 2010). The higher Expense Ratio in 2011 reflected a conscious decision to invest in the claims systems and IT infrastructure following the Management Buy-out in 2010. 2012 saw a reduction in the Expense Ratio as the volume of business written in 2012 increased and as the Group continued its disciplined approach to the management of claims handling costs and total expenses.

In addition to the revenue generated from the underwriting of core motor and home policies, the Group also generates revenues from its motor and home businesses through the provision of Additional Services. These Additional Services, and in particular the sale of Additional Insurance Products, are considered by the Directors to be an important part of the Group’s diversification strategy as they offer further revenue streams which are not subject to the same market cyclicality as the Group’s principal motor insurance revenue stream, and because of their higher returns on capital employed and potential for further growth.

The Group reports revenue derived from underwritten Additional Insurance Products within its motor business segment. There are currently no such products in relation to the Group’s home business. See Note 4 (Segmental Information) to the historical financial information for 2010-2012 in Schedule II (Historical Financial Information).

Broker services In November 2011, the Group launched its esure – and Sheilas’ Wheels – branded motor insurance broker services. These services enable the Group, via a panel of selected third party insurers, to extend the coverage of its motor insurance footprint beyond its own underwriting risk parameters to an estimated 85 per cent of the total UK motor insurance market (by number of policies). This offers the potential for the Group to leverage its market position, brand strength and infrastructure to generate further revenues from motor insurance policies that can be brokered to panel insurers without retention of any underwriting risk by the Group. These revenues are generated by way of Additional Services provided by the Group in connection with brokered policies, and there is also the potential for the Group to earn commissions through margins generated from successful policy sales on behalf of its panel insurers. At the same time, the Group’s panel insurers benefit not only from the strength of the esure and Sheilas’ Wheels brands but also from the Group’s up-front applicant screening and anti-fraud procedures (which the Directors believe are more comprehensive than typically employed by broker services). In 2012, the first full year of operation, the Group’s broker services generated approximately 50,000 motor insurance policy sales for its panel insurers. The Group’s trading profit was impacted by a net investment of £4.6 million (on a pre-tax basis) in growing the new broker business in 2012. The Directors believe that the broker services will require continued investment by the Group in 2013, but at a level that will have a lower incremental impact on trading profit compared with 2012. The Directors expect the broker services to be profit generating during 2014. As the broker business grows, it is expected that it will offer further diversification of revenue streams (thereby reducing the Group’s sensitivity to the market cyclicality that affects its motor business).

The results of the Group’s broker service activity are principally reported within the non-underwritten Additional Services segment.

Gocompare.com The Group also owns a 50 per cent interest in the price comparison website Gocompare.com, one of the top four price comparison websites for motor and home insurance products in the UK. The Group’s investment in the Gocompare.com business has been a successful one and the Group has recently,

118 together with the other Gocompare shareholders, committed to undertake a joint sales process for the sale of the entire issued share capital of Gocompare. Notwithstanding this, the Directors consider that a number of different outcomes to a sale of the Group’s interest in Gocompare are still possible, including, among such other outcomes, the retention of the Group’s current shareholding level going forward.

In 2012, the Group’s IFRS share of Gocompare’s reported profits after taxation was £7.3 million, from which the Group received dividends of £5.5 million from Gocompare. The Group’s share of Gocompare’s reported profits after taxation was £9.4 million and £5.1 million and dividends were £7.0 million and £6.0 million, in 2011 and 2010, respectively.

2. FACTORS AFFECTING THE GROUP’S RESULTS OF OPERATIONS The Group’s results of operations are affected by the conditions and developments that also impact the PR Ann I, 6.3, 9.2.1 whole of its industry, in particular, in the periods under review, the personal injury claim phenomenon, its impact on the UK motor insurance environment and the Group’s success in adapting to this new environment that has emerged and evolved. See Part IV (Market Overview) for a description of conditions and developments of the UK motor and home insurance industry.

The Group’s results of operations are also affected by numerous factors pertaining to how successful it is in conducting its business within its market environment. In particular, the Group’s results of operations depend to a large extent on:

• the ability of its underwriting practices to anticipate and reduce the risk incurred; • the effectiveness of its pricing in anticipating the claim loss levels to be incurred; • the Group’s efficiency in managing claims and the effectiveness of its anti-fraud measures; • the management of operating and administration expenses; • the efficient and effective use of reinsurance arrangements to manage risk; • the volume of policies sold and renewed; • the level of revenues generated from Additional Services, in particular as a result of the volume of Additional Insurance Products sold; and • its level of investment returns.

2.1 Underwriting Profitability Underwriting profits from the Group’s core motor and home underwriting business are influenced by changes in premium rates and insurance expenses, as well as trends in the frequency and size of claims. Profitability is measured primarily through the Combined Operating Ratio. A Combined Operating Ratio below 100 per cent is indicative of an underwriting profit (without taking into account investment income or trading profit from non-underwritten Additional Services).

The Combined Operating Ratio of the Group was 92.8 per cent in 2012, a marginal improvement of 0.7 percentage points compared with 93.5 per cent in 2011. While the Combined Operating Ratio improved in the motor underwriting segment in 2012 by more than two percentage points, the home underwriting segment experienced some deterioration in the Combined Operating Ratio during the year due to adverse weather conditions causing water damage from rainfall and storm surges in the last nine months of 2012. This adverse weather during 2012 is estimated to have increased the Group’s net incurred claims by approximately £7 million (£4 million of motor claims and £3 million of home claims) compared with the Group’s projections for 2012, whereas the relatively benign weather of 2011 benefited the Group’s net incurred claims by approximately £2 million on the same basis. See the section “Home Insurance Claims Frequency and Severity” in section 2.1(B) (Claims Frequency and Severity) below for further details. 2012 also saw a reduction in the Expense Ratio as the volume of business written in 2012 increased and as a result of a continuing, disciplined approach to the management of claims handling costs and total expenses. To maintain the improvements in its Combined Operating Ratio, the Group is focused on its Loss Ratio performance monitoring and control

119 through the Group’s underwriting systems, controls and processes, based on rigorous data capture and analysis. The monitoring and control of the Loss Ratio performance of the Group’s in-force policy book underpins and informs all other activity.

The 2011 Combined Operating Ratio of 93.5 per cent reflected a significant improvement compared with 2010 (115.4 per cent). The Group’s higher Combined Operating Ratio in 2010 compared with 2011 reflected in large part the continuing impact of the personal injury claim phenomenon generally experienced in the UK private motor insurance industry, an increase in motor insurance premium rates in 2011 and a higher Loss Ratio from the home underwriting segment in 2010 due to two severe cold weather events. See section 1.3 (Claims) of Part IV (Market Overview) for further details. The Loss Ratio of the Group was 69.2 per cent in 2012, 68.3 per cent in 2011 and 91.5 per cent in 2010. The 2011 and 2012 Loss Ratios reflected a significant improvement compared with 2010 due to the steps taken by the Group to de-risk its motor underwriting business and, in 2011, the relative absence of adverse weather events, which impacted home Loss Ratios in 2012 and 2010.

(A) Premium Rates and Distribution The Group is exposed to the cyclicality of the general UK insurance industry, in particular the motor insurance industry, including changes in premium levels. In particular, the financial performance of the motor insurance industry has tended to fluctuate due to periods of significant competition in pricing and underwriting terms and conditions followed by less competition and increases in premium rates. The private motor insurance market and the Group were adversely affected by the advent of the personal injury claim phenomenon (see 2.1(B) (Claims Frequency and Severity) of this Part V for further details), which led to a significant deterioration in underwriting results generally for UK motor insurers, particularly in 2008 through 2010. In light of the personal injury claim phenomenon, the Group and others within its industry increased premium rates significantly in 2010 and early 2011. In late 2011, premium rate levels started to plateau and then reduce with reductions continuing throughout 2012. By the end of 2012, according to the confused.com/Towers Watson Car Insurance Price Index of Private Car comprehensive new business quotes, the motor insurance premium rates had decreased by 12.7 per cent year-on-year on average for the UK market, compared with estimated premium rate increases of 4.9 per cent in 2011 and 37.8 per cent in 2010. See Part IV (Market Overview) for more information about the impact of cyclicality on the Group’s results.

The importance of price comparison websites to the distribution of motor insurance has grown increasingly in the UK market since 2007. See section 1.2 (Distribution Channels) of Part IV (Market Overview) for further details. In 2012 and 2011, approximately 82 per cent of the Group’s new policies were initiated through price comparison websites. Price comparison websites offer the Group an efficient means of reaching its target customer base utilising the strength of its well-established brands while incurring low ongoing marketing costs (the price comparison websites themselves incur significant marketing spend to advertise their websites). The importance of price comparison websites and the resultant price transparency within the market enables the Company to react to market price movements. The rise in the importance of price comparison websites since 2007, which has coincided with the advent of the personal injury claim phenomenon, contributed to the significant deterioration in underwriting results generally for UK motor insurers, particularly in 2008 through 2010, noted above.

While the price comparison website channel is not as dominant in the UK home insurance market as it is in the UK motor insurance market (with banks and building societies, as providers of mortgages and loans to homeowners, retaining a leading market share via other distribution channels), price comparison websites have gained a greater foothold in recent years, with market share of new business sales increasing rapidly from an estimated 20 per cent in 2010 to an estimated 29 per cent in 2012. 83 per cent of the Group’s new business home insurance policies in 2012 were sold via price comparison websites and esure believes that it has between 10 and 15 per cent of the price comparison website distribution channel in new home insurance business, according to management estimates based on benchmarking analysis.

120 (B) Claims Frequency and Severity The Group’s results of operations depend in part on its actual claims experience, including the frequency and severity of motor claims and the impact of severe weather events, and its ability to manage its underwriting risks. The Group manages its underwriting risk primarily through its underwriting systems, controls and processes, as well as by utilising reinsurance arrangements. See section 12 (Reinsurance) of Part I (The Business) for further details of the Group’s reinsurance programmes.

Motor Insurance Claims Frequency and Severity As a result of the significant change in type and level of claims costs due to the advent of the personal injury claim phenomenon, motor underwriting needed to change to focus more on correctly pricing the risk of personal injury claims, management of legal costs and avoidance of fraud. Partly owing to the policyholder and claims data available to it at the time of this phenomenon and the extent of its data analysis process (outlined below), the Directors believe that the Group’s underwriting platform enabled it to identify fundamental shifts in the UK motor market earlier than many of its competitors. In the first quarter of 2009, the Group began to undertake initiatives to de-risk its motor portfolio by reducing exposure to the growth in personal injury claims and otherwise improve its underwriting profitability. See section 2.1(C) (Underwriting Profitability Drivers) of this Part V for further details. Following the implementation of these initiatives, the Group’s motor underwriting business improved materially with motor Loss Ratios of 70.0 per cent in 2012 and of 70.6 per cent in 2011, compared with a motor Loss Ratio of 89.6 per cent in 2010.

The motor Loss Ratio in 2012 improved despite the negative impact of the adverse weather events in 2012 which led to an increase in the number of claims made under the Group’s motor insurance policies compared with 2011. The adverse weather during 2012 is estimated to have increased the Group’s motor insurance net incurred weather-related claims by approximately £4 million compared with the Group’s projections for 2012.

Home Insurance Claims Frequency and Severity Movements in the home Loss Ratio are mainly dependent on occurrences of severe weather. The home Loss Ratios in 2010 and, to a lesser extent, 2012 were affected by adverse weather events occurring in those years. Largely as a result of the severe weather in 2010 and 2012 the Group reported home Loss Ratios of 104.0 per cent and 64.5 per cent in 2010 and 2012, respectively. The weather was more benign in 2011, with the result that the Group reported a better home Loss Ratio of 55.5 per cent.

In 2010, severe cold weather was experienced across the UK both at the start (January) and at the end (November and December) of the year. Having two such cold weather events, which were unusual in their severity and coverage, occurring in the same year was particularly atypical. Due to this severe cold weather, water pipes froze and burst, leading to water damage and a consequent increase in the number and severity of claims experienced in the home insurance book in 2010.

2012 was the second wettest year on record in the UK according to the UK Met Office. In the last nine months of the year, the UK experienced periods of heavy rainfall which caused flooding from storm surges and water damage leading to an increase in the number and severity of claims made under the Group’s home insurance policies compared with 2011. While the heavy rainfall caused flooding in parts of the UK, the Group experienced relatively little impact from flood damage due to the Group’s underwriting criteria. The adverse weather during 2012 is estimated to have increased the Group’s home insurance net incurred claims by approximately £3 million compared with the Group’s projections for 2012.

Other than the events in 2010 and 2012, the last severe weather event experienced in the UK was flooding in the summer of 2007.

121 (C) Underwriting Profitability Drivers

Motor Underwriting The Directors believe that the Group’s prompt identification of the personal injury claim phenomenon is testament to the strength and effectiveness of its underwriting philosophy and capabilities. This allowed the Group to institute and complete a quick turnaround to the deterioration in Loss Ratio it experienced in 2009 and 2010 and swiftly to adapt its underwriting approach in a manner focused on delivering profitable growth in the new motor insurance environment that had emerged. The drivers of this turnaround included the following:

• Concentrating on lower risk customer segments. While the Group has always targeted the lower risk customer segments of the motor insurance market, beginning in 2009, the Group began to narrow its target underwriting segment for its motor business to reduce its exposure to personal injury claims. As a result of these efforts to reduce personal injury exposure, the Group did stop underwriting some higher premium business. While the Group increased base premium rates generally in line with the market over the past three years through the middle of 2012, its average written premium did not reflect the full extent of this increase. However, the reduction in risk exposure was far more dramatic in improving the Loss Ratio performance in 2011 and 2012. In addition, the Group reduced its in-force policies significantly from 1.52 million as at 31 December 2008 through to a low point at the end of the first quarter of 2011 of 1.16 million motor policies.

• Utilising significant ongoing data capture, analysis and focus. The Group has strong technical underwriting capabilities, which are founded on detailed diligence, modelling and analysis of internal data at a very granular level, and supplemented by external data where relevant. The Group’s underwriting systems, controls and processes provide the Group with the ability actively to monitor and manage its underwriting risk exposure and are designed to enable the Group to identify and react to emerging trends. See section 2.2 (Conservative and Highly Focused Underwriting Philosophy) and section 10 (Pricing) of Part I (The Business) for further details. The Group’s ongoing data capture, analysis and focus were instrumental in identifying the key characteristics driving the increased personal injury claims and in making continuing corrections to the underwriting criteria in order to reduce the Group’s risk exposure;

• Applying a rigorous approach to claims management. The Group has implemented processes designed to process claims efficiently and effectively, including by settling genuine claims quickly to minimise legal fees. The Group has a well-resourced and innovative claims function, with specialised claims staff helping to ensure that claims for which the Group may be liable are managed efficiently and effectively. The Group has set up a number of initiatives and arrangements to keep the costs of claims down. The claims function has also responded positively and robustly to the increase in personal injury claims by triaging certain types of injury claims (such as multiple passenger claims or late notified claims) to specialist claims teams. The Group launched a new claims imaging workflow management system at the end of 2012 which the Directors believe will lead to further improvements in claims management performance, customer service and, ultimately, the Combined Operating Ratio for the motor underwriting business. See section 2.3 (Efficient and Effective Claims Management) and section 13 (Claims Management and Anti-Fraud Controls) of Part I (The Business) for further details; and

• Implementing enhanced fraud detection. The Group has taken a very tough stance on fraud, both in terms of controls at the time of inception by avoiding policies which are assessed to have greater risk of fraud and also in the claims management process itself. The Group also has a track record of being a leader or early adopter of fraud prevention solutions. Claims identified as suspicious are investigated fully and, if appropriate, referred to the Group’s special investigations unit, which, in certain circumstances, may take legal action against the claimant. The net financial benefit to the Group resulting from its proactive anti-fraud measures at the “claims stage” is estimated by the Group to have been approximately £20.6 million in 2012 (unaudited). This is calculated by looking at the value of claims that would have been settled but for being identified as fraudulent (and, as a result, successfully challenged), and offsetting the costs directly incurred

122 in relation to that claim (such as investigator costs and solicitors’ fees). In addition, the Group estimates that it saves significant further amounts as a result of its preventative “application stage” anti-fraud measures which are geared to detecting fraud in policy applications. While by its nature it is difficult to quantify exactly the financial benefit to the Group resulting from the rejection of applications (or cancellation/voidance of policies) where the underlying application is found to be fraudulent, the Directors believe this, together with the “claims stage” anti-fraud activity, is an important driver not only of the Group’s Loss Ratio performance but also in terms of the value offered by the Group’s branded broker service to its panel insurers. See section 2.8 (Integrated anti-fraud focus) and section 13 (Claims Management and Anti-Fraud Processes) of Part I (The Business) for further details.

Home Underwriting The Group’s home insurance book has experienced rapid growth (from 339,000 in-force policies as at 31 December 2009 to 504,000 in-force policies as at 31 December 2012). Growth in the Group’s home insurance book provides further diversification from the motor underwriting cycle (as there is little correlation between the motor and home insurance cycles), while at the same time, it allows the Group to gain greater economies of scale, as the administration and claim processes are similar across personal lines insurance. The Group has carried across the same underwriting focus and disciplined risk selection outlined above for its motor book to its home insurance book. In light of its experience as an internet-based direct insurer with well-established brands, the Directors believe the Group is well- positioned to capitalise on the increasing market share of price comparison websites as a distribution channel for home insurance. See section 2.2 (Distribution Channels) of Part IV (Market Overview) for further details.

2.2 Development and Growth of Additional Services Additional Services, and in particular the sale of Additional Insurance Products, are considered by the Directors to be an important part of the Group’s diversification strategy as they are not subject to the same market cyclicality as the Group’s motor underwriting revenue stream and offer the potential for further growth. In addition, while the Group retains some underwriting risk for most of its motor Additional Insurance Products, these products and the Group’s non-underwritten Additional Insurance Products offer a higher return on capital employed than the Group’s core motor and home insurance. The establishment of the Group’s branded brokerage service in November 2011 was intended to leverage the Group’s market position, brand strength and infrastructure to generate further revenues from Additional Services on insurance policies that, while outside the Group’s own underwriting risk parameters for motor insurance, can be brokered without retention of any core underwriting risk to a panel of third party insurance companies selected by the Group.

Additional Insurance Products include additional insurance cover and protection over and above that offered by the core motor or home insurance policy. Although the Group has always marketed Additional Insurance Products alongside its core insurance products, since the Management Buy-out in February 2010, the Group has adopted a new strategic focus on meeting customer needs through an increased offering of Additional Insurance Products. This resulted in the introduction of new Additional Insurance Products relating to motor insurance in March 2011 (Car Hire Cover and Personal Injury Benefit) and in August 2012 (Misfuelling Cover and Key Cover). The Group is also in the process of developing additional home propositions with the aim of replicating the growth already experienced with motor insurance Additional Insurance Products. See sections 7.1 and 7.2 of Part I (The Business) for further information on the Group’s motor and home Additional Insurance Products.

Additional Insurance Products relating to home insurance in the periods under review have been, and currently are, provided to policyholders at no cost in the first policy year. The Directors believe that the Group’s ability to offer a range of Additional Insurance Products to potential home insurance customers on a complementary basis for the first policy year provides a way of driving sales volumes on price comparison websites. In addition, the Directors believe that there is the potential for contribution of revenues from home Additional Services to increase as a growing number of home insurance

123 policyholders move through renewal cycles and decide to retain the coverage provided by the Additional Insurance Product at their own expense following the end of the free period.

See section 2.4 of the Risk Factors for risks associated with the growth of development of revenues from Additional Services and sections 7.1 (Motor insurance underwriting) and 7.2 (Home insurance underwriting)of Part I (The Business) for further details, including a description of the Additional Insurance Products and other Additional Services offered by the Group. The Group reports non- underwritten Additional Services as a separate segment (including non-underwritten Additional Insurance Products). The additional premiums paid for underwritten Additional Insurance Products relating to motor insurance underwritten by the Group are included in the motor underwriting segment (there are no underwritten Additional Insurance Products in relation to the Group’s home business).

Additional Services Revenue (from both underwritten and non-underwritten activities) per average in- force policy is a key management measure of business performance as Additional Services are a significant contributor to the Group’s overall profitability. Additional Services Revenue per average in- force policy is a non-IFRS measure which may not be comparable with similarly titled measures used by other companies, and it is stated before the deduction of any internal costs of acquisition or administration which are reflected in the Group’s IFRS profit before tax.

The table below sets forth the breakdown of the Group’s total income from Additional Services for the periods indicated on a management basis used to calculate Additional Services revenue per average in-force policy:

FYE(1) 2010 2011 2012 (£m, unless otherwise stated) Non-underwritten Additional Insurance Products(2)...... 7.0 8.5 9.8 Policy administration fees and other income(3) ...... 13.4 14.7 19.2 Claims income(4) ...... 13.6 15.2 15.4 –––––––– –––––––– –––––––– Fees for additional services ...... 34.0 38.4 44.4 Instalment income...... 24.1 25.4 28.5 –––––––– –––––––– –––––––– Non-underwritten Additional Services segment(5) ...... 58.1 63.8 72.9 –––––––– –––––––– –––––––– Underwritten Additional Insurance Products(6) ...... 17.0 23.2 31.2 –––––––– –––––––– –––––––– Total income from Additional Services ...... 75.1 87.0 104.1 –––––––– –––––––– –––––––– Additional Services revenue per average in-force policy, £(7) ...... 46.2 54.6 60.6 –––––––– –––––––– –––––––– Notes: (1) Total income from Additional Services is stated before the deduction of any internal costs of acquisition or administration. (2) Non-underwritten Additional Insurance Products revenue represents the commission margins for the Group generated from the sale of products. See section 7.1 and 7.2 of Part I (The Business) for further information on the Group’s motor and home Additional Insurance Products. (3) Policy administration fees comprise income received as a result of administration charges (for example, as a result of mid-term alterations to policy details by the policyholder) and cancellation charges. Other income includes introduction fees where the Group does not have a continuing relationship with the customer. See section 7.1 and 7.2 of Part I (The Business) for a description of some of the sources included in this line item. (4) Claims income comprises income generated by the Group from legal panel membership fees and fees generated from the appointment of firms used during the claims process, including medical and car hire suppliers. (5) Total income from the Group’s non-underwritten Additional Services reporting segment. See Note 4 (Segmental Information) in Schedule II (Historical Financial Information) for further details. (6) Underwritten Additional Insurance Products is calculated by deducting the Group’s claims costs associated with its underwritten Additional Insurance Products from the GWPs relating to these products in a particular period. In doing so, management seeks to provide an equivalent to the revenue from non-underwritten Additional Insurance Products. The premiums and claims costs for underwritten Additional Insurance Products are recorded within the Group’s motor underwriting segment. See sections 7.1 and 7.2 of Part I (The Business) for further information on the Group’s motor and home Additional Insurance Products. (7) Calculated as Total income from Additional Services divided by the average number of in-force policies. The average number of in-force policies, to the nearest thousand, in 2012 was 1,718,000 (2011: 1,593,000; 2010: 1,625,000). The average number of in-force policies is calculated as the rolling 12 month average of the number of in-force policies at each month end. This measure is stated before the deduction of any internal costs of acquisition or administration which are reflected in the Group’s profit before tax.

124 In 2012, the Group generated £7.1 million of revenues (2011: £8.6 million and 2010: £6.8 million) from legal panel membership fees and may no longer be able to generate such revenues as a result of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO), which bans the payment or receipt of personal injury referral fees for legal services from April 2013. See section 1.7 of Risk Factors for further details. Referral fees for credit hire vehicles and vehicle repair are currently under review by the Competition Commission. In 2012, the Group generated £7.3 million of revenues (2011: £5.5 million and 2010: £6.1 million) from referral fees for credit hire vehicles and vehicle repair. See section 1.10 of Risk Factors for further details. The Directors believe that any potential reduction in personal injury referral fees for legal services, credit hire vehicles and vehicle repair is likely to be substantially exceeded by improvements in claims costs. See section 3.4 of Part X (Regulatory Information) for further information.

2012 compared with 2011 The Group’s total income from Additional Services was £104.1 million in 2012 compared with £87.0 million in 2011, a 19.7 per cent increase, which was principally due to increases in underwritten Additional Insurance Products and growth in policy administration fees consistent with overall volume growth. Instalment income also increased in 2012 as policy numbers increased and a greater number of policyholders opted to pay in instalments. Additional Services Revenue per average in-force policy increased to £60.6 in 2012 compared with £54.6 in 2011.

The Group’s total income from Additional Services relating to motor insurance increased to £93.1 million in 2012 from £77.5 million in 2011, primarily due to the inclusion of revenue for a full year from the two new Additional Insurance Products launched in March 2011 noted above as well as increases in revenues from policy administration fees and instalment income (as noted above). Additional Services Revenue from the Group’s motor business per average in-force motor policy increased to £75.3 in 2012 compared with £65.7 in 2011, a 14.6 per cent increase (based on average motor in-force policies, rounded to the nearest thousand, of 1,237,000 in 2012 and 1,181,000 in 2011).

The Group’s total income from Additional Services relating to home insurance increased to £11.0 million in 2012 from £9.4 million in 2011, primarily due to the increase in in-force policies during 2012. Additional Services Revenue from the Group’s home business per average in-force home policy remained constant at £22.8 in both 2012 and in 2011 (based on average home in-force policies, rounded to the nearest thousand, of 481,000 in 2012 and 412,000 in 2011).

2011 Compared with 2010 The Group’s total income from Additional Services was £87.0 million in 2011 compared with £75.1 million in 2010, a 15.8 per cent increase which was due to the increase in the fees from Additional Services related to both motor and home insurance, as further described below. Additional Services Revenue per in-force policy increased to £54.6 in 2011 compared with £46.2 in 2010.

The Group’s total income from Additional Services relating to motor insurance increased to £77.5 million in 2011 from £68.6 million in 2010, due to the launch of two new Additional Insurance Products in March 2011, together with increases in revenue from motor legal protection and claims income. Additional Services Revenue from the Group’s motor business per average in-force motor policy increased to £65.7 in 2011 compared with £54.3 in 2010, a 21.0 per cent increase (based on average motor in-force policies, rounded to the nearest thousand, of 1,181,000 in 2011 and 1,265,000 in 2010).

The Group’s total income from Additional Services relating to home insurance increased to £9.4 million in 2011 from £6.5 million in 2010, mainly due to higher revenue from instalment income, family legal protection cover and home emergency protection cover. Additional Services Revenue from the Group’s home business per average in-force home policy increased to £22.8 in 2011 compared with £18.1 in 2010, a 26.0 per cent increase (based on average home in-force policies, rounded to the nearest thousand, of 412,000 in 2011 and 360,000 in 2010).

125 2.3 Legal and Regulatory Environment The UK general insurance market is heavily regulated. Changes in laws and regulations as well as court PR Ann I, 9.2.3 rulings in the UK can affect premium rates, claims frequency and severity and claims reserves. Legal developments impacting the Group’s results of operations in the periods under review are principally those which led, in part, to the claims developments discussed in section 1 (Overview) of this Part V and Part IV (Market Overview).

The legal and regulatory developments, which may be of particular significance to the Group’s results of operations or financial condition going forward include the Legal Aid, Sentencing and Punishment of Offenders Act 2012, the Competition Commission’s market investigation into the UK private motor insurance market and Solvency II. See section 3 (Future Developments) of Part X (Regulatory Information) for further details of these developments as well as other legal and regulatory developments which are expected to impact the UK insurance industry and the Group.

2.4 Seasonality The Group’s results of operations are generally impacted by seasonal fluctuations in levels of both GWPs and cost of claims. The level of aggregate GWPs in a particular period is affected by the trend in the United Kingdom for a high proportion of drivers to renew motor policies during the later summer months of the year. As a consequence of the higher GWPs during this period, earned premiums are generally greater during the second half of the financial year than the first half. On the other hand, the Group’s claims levels are typically higher near the beginning and end of the year as a result of cold winter weather and related weather events such as snow and ice as well as the fewer daylight hours during these months in the UK.

3. CURRENT TRADING AND PROSPECTS Trading update Overall trading to date in 2013 has been broadly in line with the Group’s expectations. The normal PR Ann I, 12.2 seasonality of the business generally means that the first few months of the year are some of the least profitable, with lower written premiums particularly compared with the second half of the year due to a higher proportion of UK drivers renewing their motor policies during the later summer months as well as higher cost of claims caused by fewer daylight hours and cold winter weather. An improvement in performance during the latter part of the year is likely to be more apparent in 2013, due to the following two additional factors:

• the benefits that the Group expects to accrue from increased premium rates for younger females, following the move to gender-neutral pricing across the market in December 2012 and actions taken in the second half of 2012 to increase the number of under 30 female-insured only motor policyholders, will be more weighted to the second half of the year when there is expected to be an increased number of renewals from younger female insured-only drivers; and

• since certain LASPO and other related civil justice reforms will not be enacted until April 2013, any growth in policy numbers and GWPs arising as a result of re-entering those segments of the market which the Group previously exited would not be seen until the second half of 2013.

Since 31 December 2012, the Group has continued to achieve growth in the number of in-force policies for both the motor underwriting business and the home underwriting business against a back drop of a softening UK motor insurance market that is still adapting to the new gender-neutral pricing environment. Sheilas’ Wheels has experienced a high level of renewal conversion during the first two months of 2013, particularly for the younger female segment.

Overall, claim experience to date has been broadly in line with what would be expected for a winter period. While the UK did experience short periods of very cold weather and heavy snowfalls in January and February of this year, these did not give rise to claims greater than would ordinarily be expected for such period.

126 Since 31 December 2012, the Group has also achieved continued growth in Additional Services Revenues per in-force policy.

Investment returns during 2013 to date have continued, as expected, to be dampened by the current low interest rate environment and are in line with expectations.

Capital management On 21 February 2013, the Company reduced its capital through the cancellation of 4,000,000,000 Non- Voting Old Ordinary Shares of £0.01 each and, in consideration, paid £40 million in cash to Tosca Penta Investments LP (the holder of the Non-Voting Old Ordinary Shares so cancelled).

See section 5 (Reasons for the Offer and Use of Proceeds) of Part I (The Business), Part VI (Capitalisation and Indebtedness) and Part VII (Unaudited Pro Forma Financial Information) for further information.

4. PRINCIPAL COMPONENTS OF THE STATEMENT OF COMPREHENSIVE INCOME The following is a description of the principal components of the Group’s statement of comprehensive income. See Note 2 (Accounting Policies) and the other Notes for 2010–2012 in Schedule II (Historical Financial Information) for further details.

4.1 Gross written premiums GWPs comprise the total premiums receivable for the whole period of cover provided by contracts entered into during the accounting period, excluding taxes or duties based on premiums. GWPs are recognised on the date on which the policy commences. GWPs include any adjustments arising in the accounting period for premiums receivable in respect of business written in prior accounting periods.

4.2 Earned premiums, net of reinsurance Earned premiums, net of reinsurance, are calculated as gross earned premiums less earned premiums, ceded to reinsurance. Gross earned premiums are equal to GWPs plus/minus the change in unearned premium provision. Premiums written during one reporting period do not necessarily represent the risks actually carried during that period. In a typical reporting period, the Group earns a portion of the premiums written during that period together with premiums that were written during earlier periods. Likewise, some part of the Group’s premiums written will not be earned until future periods. The Group allocates premiums written but not yet earned to an unearned premium reserve, which represents a liability on its balance sheet. The unearned premium reserve is calculated as the proportion of GWPs which is estimated to relate to underwriting risk in a subsequent financial period, computed separately for each insurance contract using the daily pro rata method, adjusted if necessary to reflect any variation in the incidence of risk during the period covered by the contract. As time passes, the unearned premium reserve in relation to a policy is gradually reduced and the corresponding amount is released through the statement of comprehensive income as premiums are earned. All insurance policies written by the Group have a duration of one year. Earned premiums, ceded to reinsurance, are calculated as the sum of premiums payable on reinsurance contracts and change in unearned premium provisions on reinsurance contracts.

4.3 Investment income and instalment interest income Investment income comprises (i) interest income on financial investments, (ii) fair value gains and losses on derivative financial instruments, (iii) net gains or losses on financial investments, (iv) dividend income from equity securities and (v) rental income from operating leases. The Group’s approach to investments is discussed in section 15 (Investments) of Part I (The Business). Instalment interest income relates to interest charged to customers paying for their insurance in instalments over the policy term.

127 4.4 Fees for additional services Fees for Additional Services relates primarily to revenue earned as a result of Additional Services (as discussed in section 2.2 (Development and Growth of Additional Services) of this Part V and sections 7.1 (Motor insurance underwriting) and 7.2 (Home insurance underwriting)of Part I (The Business)). The components of the income from Additional Services that are not included in this line item include instalment interest income and premium income arising from the sale of those Additional Insurance Products that are underwritten by the Group, which are recorded as GWPs under IFRS.

4.5 Claims incurred, net of reinsurance Claims incurred, net of reinsurance, is calculated as the sum of (i) claims incurred net of amounts recoverable from reinsurers and the movement in unexpired risk provision (“net incurred claims”) and (ii) claims handling costs. Net incurred claims refers to claims payments and reserve movements on both outstanding claims and incurred but not reported (“IBNR”) claims, net of actual or estimated recoveries from reinsurers. Net incurred claims accounted for 95.0 per cent of claims incurred, net of reinsurance in 2012 (2011: 93.1 per cent; 2010: 95.1 per cent).

Claims handling costs refer to the portion of internal costs to the Group related to its managing and settling of claims liabilities. Claims handling costs accounted for 5 per cent of net claims incurred, net of reinsurance, in 2012 (2011: 7 per cent; 2010: 5 per cent).

4.6 Insurance expenses Insurance expenses consist of (i) expenses relating to acquisition of insurance contracts, an item which comprises all commission and fees as well as other acquisition costs arising from the conclusion of insurance contracts, and (ii) administration costs. Acquisition costs are deferred and subsequently expensed over the period in which the related premium revenues are earned.

4.7 Other operating expenses Other operating expenses represents the portion of the Group’s expenses attributable to its non- insurance activities, including amortisation of acquired intangibles and other non-insurance expenses relating to revenues generated from Additional Services, together with certain trading and non-trading costs.

4.8 Negative goodwill arising on business combination Following the acquisition on 10 February 2010 of esure Holdings Limited by the Group through its subsidiary esure Finance Limited in connection with the Management Buy-out, a number of fair value adjustments were made to the Group’s assets and liabilities. The fair value of net assets acquired exceeded the consideration paid and is recognised as negative goodwill, which is immediately recorded as a gain in the statement of comprehensive income in the year it is recognised.

4.9 Share of profit after tax of joint venture The Group’s share of the post-acquisition profit or loss after tax and other comprehensive income represents the Group’s 50 per cent share of Gocompare’s reported profit after tax, after appropriate adjustments to align the accounting policies of the joint venture with those of the Group. Adjustments are made for the amortisation of separately identifiable intangible assets recognised on acquisition and to eliminate unrealised profits relating to commission charged to the Group by the joint venture. See section 8 (Gocompare) of Part I (The Business) for further details.

4.10 Finance costs Finance costs consist of interest expenses on the Group’s debt financing and, when applicable, preference shares.

128 4.11 Tax expense Tax expense consists of current taxes on income for the reporting period, as well as deferred taxes for the accounting period, effects of changes in tax rate and adjustments in respect of tax expected to be payable or recoverable in respect of previous periods.

5. RESULTS OF OPERATIONS Years ended 31 December 2010, 2011 and 2012 The table below sets forth a summary of the Group’s results for 2010, 2011 and 2012. The financial information in this table has been extracted from the consolidated and combined esure Group historical financial information for the three years ended 31 December 2012 included in Schedule II (Historical Financial Information).

FYE 2010(1) 2011 2012 ( £m) Gross written premiums ...... 456.3 499.5 515.0 ––––––– ––––––– ––––––– Gross earned premiums ...... 466.9 475.2 511.7 Earned premiums, ceded to reinsurers ...... (27.0) (29.0) (31.5) ––––––– ––––––– ––––––– Earned premiums, net of reinsurance ...... 439.9 446.2 480.2 Investment income and instalment interest ...... 48.8 12.3 67.9 Fees for additional services ...... 34.0 38.4 44.4 ––––––– ––––––– ––––––– Total income ...... 522.7 496.9 592.5 ––––––– ––––––– ––––––– Claims incurred and claims handling expenses ...... (477.6) (351.4) (413.4) Claims incurred recoverable from reinsurers ...... 54.1 24.1 64.0 ––––––– ––––––– ––––––– Claims incurred, net of reinsurance ...... (423.5) (327.3) (349.4) Insurance expenses ...... (84.1) (90.1) (96.1) Other operating expenses ...... (24.3) (19.7) (29.6) ––––––– ––––––– ––––––– Total expenses ...... (531.9) (437.1) (475.1) ––––––– ––––––– ––––––– Negative goodwill arising on business combination(2) ...... 15.7 – – Share of profit after tax of joint venture ...... 5.1 9.4 7.3 Finance costs ...... (15.8) (14.1) (9.2) ––––––– ––––––– ––––––– (Loss)/profit before tax...... (4.2) 55.1 115.5 Taxation credit/(expense) ...... 4.5 (12.0) (27.4) ––––––– ––––––– ––––––– Profit attributable to the owners of the parent ...... 0.3 43.1 88.1 ––––––– ––––––– ––––––– Other comprehensive income ...... – – – ––––––– ––––––– ––––––– Total comprehensive income for the period attributable to owners of the parent ...... 0.3 43.1 88.1 ––––––– ––––––– ––––––– (1) The figures for 2010 consist of a combination of the consolidated statement of comprehensive income, the consolidated statement of cash flows and the related notes of esure Holdings Limited for the period from 1 January 2010 to 10 February 2010 (the period until the acquisition of esure Holdings Limited by the Group), and the Group’s consolidated financial statements for the period from 11 February 2010 to 31 December 2010. See Note 2 (Accounting Policies–Basis of Presentation) to the historical financial information for 2010–2012 in Schedule II (Historical Financial Information) for further details.

(2) As the fair value of net assets acquired as part of the Management Buy-out was in excess of the consideration paid, negative goodwill of £15.7 million was recognised on acquisition in the statement of comprehensive income in 2010. See section 5.1(M) (Negative Goodwill Arising on Business Combination) of this Part V for further details.

(A) Gross written premiums Group The Group’s GWPs were £515.0 million in 2012 compared with £499.5 million in 2011, a 3.1 per cent increase reflecting higher GWPs from both the motor underwriting segment and the home underwriting segment. GWPs from the Group’s core brands increased by 6.1 per cent for the Sheilas’ Wheels brand and 4.7 per cent for the esure brand, respectively, between 2011 and 2012.

129 The Group’s GWPs were £499.5 million in 2011 compared with £456.3 million in 2010, a 9.5 per cent increase reflecting higher GWPs from both the motor underwriting segment and the home underwriting segment (which increased by 8.4 per cent and 15.6 per cent, respectively). GWPs from the Group’s core brands, Sheilas’ Wheels and esure, increased by 29.6 per cent and 13.8 per cent, respectively, between 2010 and 2011.

Motor Underwriting Segment 2012 Compared with 2011 GWPs in the motor underwriting segment were £429.0 million in 2012 compared with £423.1 million in 2011, a 1.4 per cent increase. This increase primarily resulted from growth in the number of motor insurance in-force policies during 2012 (from 1.21 million as at 31 December 2011 to 1.25 million as at 31 December 2012) reflecting growth in the number of in-force policies in the Group’s core Sheilas’ Wheels and esure brands more than offsetting lower numbers of in-force policies from the Group’s non- core brands. Average written premiums in the motor underwriting segment were marginally lower in 2012 compared with 2011 due to a decline in the motor insurance premium rates in a softening market, particularly during the second half of the year, offset in part by the positive impact on average written premiums of a targeted increase in risk mix which included the Group increasing the proportion of younger female policyholders (female insured-only drivers in the age range of 21 to 35) in the motor portfolio as it focused in 2012 on increasing its number of female policyholders.

Combined motor GWPs from the Group’s Sheilas’ Wheels brand and esure brand increased by 4.0 per cent in 2012, reflecting a 5.2 per cent increase in GWPs from the Sheilas’ Wheels brand and a 2.7 per cent increase in GWPs from the esure brand. The increases in GWPs from the Sheilas’ Wheels brand and the esure brand were both largely driven by the growth in in-force policies. As at 31 December 2012, the Group had approximately 668,000 motor insurance in-force policies under the Sheilas’ Wheels brand (of which women made up approximately 95 per cent as of 31 December 2012), an increase of approximately 52,000, or 8.4 per cent, compared with 31 December 2011, reflecting the Group’s focus particularly on increasing its number of female policyholders (including female insured- only drivers in the age range of 21 to 35). As at 31 December 2012, the Group had approximately 527,000 motor insurance in-force policies under the esure brand, an increase of approximately 19,000, or 3.8 per cent, compared with 31 December 2011.

GWPs from the Group’s other motor brands decreased by 30.6 per cent or £10.0 million in 2012 compared with 2011. This decrease was mainly due to the Sainsbury’s Car Insurance brand, which experienced a reduction in GWPs of £10.6 million in 2012 compared with 2011. Following the notification of the termination of its sales agreement with Sainsbury’s Bank plc in 2010, the Group ceased underwriting new business policies under the Sainsbury’s brand in May 2011, though the exit arrangement allowed the Group to retain the right to underwrite renewals of policies underwritten by the Group prior to that date. The Sainsbury’s portfolio had reduced to approximately 45,000 in-force policies as at 31 December 2012 compared with approximately 72,000 in-force policies as at 31 December 2011. Although the number of in-force policies has been in decline since 2010, this portfolio has continued to provide a positive contribution to the Group’s profitability.

2011 Compared with 2010 GWPs in the motor underwriting segment were £423.1 million in 2011 compared with £390.2 million in 2010, an 8.4 per cent increase which in part resulted from the higher price environment in 2011 largely reflecting increased premium rates undertaken in response to the motor insurance environment following the advent of the personal injury claim phenomenon. The increase was also attributable to growth in the number of motor insurance in-force policies in 2011, which had declined to approximately 1,156,000 policies at the end of the first quarter in 2011 but had grown to approximately 1,210,000 policies as at 31 December 2011 compared with approximately 1,184,000 as at 31 December 2010. The impact of higher premium rates and increased in-force policies more than offset the loss of some historically higher premium rate policies as a result of the Group’s de-risking actions (which included, in certain instances, the strategic re-pricing of the renewal book to price out bad risks).

130 Combined motor GWPs from the Group’s Sheilas’ Wheels brand and esure brand grew by 22.6 per cent in 2011, reflecting a 38.3 per cent increase in GWPs from the Sheilas’ Wheels brand and a 8.3 per cent increase in GWPs from the esure brand. The increase in GWPs from the Sheilas’ Wheels brand and the esure brand were both largely driven by significant growth in new business, following the de-risking process. As premium increases were introduced in the motor market generally, the Group was competitive with its targeted customer segment within its underwriting risk footprint. The increase in GWPs was less marked with the esure brand than with the Sheilas’ Wheels brand, largely as a result of the de-risking action taken by the Group to reduce its personal injury exposure, which had less impact on the Sheilas’ Wheels portfolio than on the esure portfolio. The greater increase in GWPs from the Sheilas’ Wheels portfolio also reflected the Group’s decision to grow the Sheilas’ Wheels portfolio due to its closer correlation with the Group’s narrowed target customer focus (female policyholders have historically demonstrated a lower incidence of large personal injury claims) following the advent of the personal injury claim phenomenon. As at 31 December 2011, the Group had approximately 616,000 motor insurance in-force policies under the Sheilas’ Wheels brand, an increase of approximately 133,000, or 27.4 per cent, compared with 31 December 2010, reflecting the factors mentioned above. As at 31 December 2011, the Group had approximately 507,000 motor insurance in-force policies under the esure brand, a decrease of approximately 14,000, or 2.8 per cent, compared with 31 December 2010, mainly due to the de-risking of the motor book during 2010.

GWPs from the Group’s other motor brands, Halifax Car Insurance (all business under this brand ceased during 2011), Sainsbury’s and First Alternative, decreased by 54.5 per cent or £39.0 million in 2011, compared with 2010. This decrease was mainly due to changes in relation to the Halifax Car Insurance and Sainsbury’s brands, which resulted in a reduction in GWPs of £38.0 million in 2011 compared with 2010. As part of the Management Buy-out, the Group ceased underwriting new and renewal business under the Halifax Car Insurance Brand, which had a declining book of business in recent years and was particularly affected by the personal injury claim phenomenon, in 2010 and the last renewal policy was transferred to another provider in October 2011. As noted above, the Sainsbury’s Car Insurance portfolio, which had approximately 72,000 in-force policies as at 31 December 2011, ceased underwriting new business in May 2011.

Home Underwriting Segment 2012 Compared with 2011 GWPs in the home underwriting segment were £86.0 million in 2012 compared with £76.4 million in 2011, a 12.6 per cent increase. The increase was primarily attributable to the significant increase in the number of policies written by the Group in 2012 as it continued to expand its home insurance portfolio. The Group had approximately 504,000 policies as at 31 December 2012 compared with approximately 443,000 policies as at 31 December 2011, an increase of 13.8 per cent.

2011 Compared with 2010 GWPs in the home underwriting segment were £76.4 million in 2011 compared with £66.1 million in 2010, a 15.6 per cent increase which primarily resulted from the Group writing more policies in 2011 as it continued to expand its home insurance portfolio, particularly through the esure brand. The Group had approximately 443,000 policies as at 31 December 2011 compared with approximately 380,000 policies as at 31 December 2010, an increase of 16.6 per cent.

(B) Earned premiums, net of reinsurance Premiums are earned over a twelve month period from inception of the policy. Therefore, any growth or reduction in earned premiums, net of reinsurance, lags behind the movements in GWP. While written premiums may increase across the market, it can often take time for the benefit of these increases to feed through to the earned premiums recorded in the statement of comprehensive income. Consequently, it can generally take 12 to 18 months for changes in GWP to show through to the levels of earned premiums.

131 The table below sets forth the Group’s earned premiums, net of reinsurance, for the periods indicated for the Group and for the motor and home underwriting segments:

FYE 2010 2011 2012 (£m) Gross written premiums ...... 456.3 499.5 515.0 Change in unearned premium provision ...... 10.6 (24.3) (3.3) –––––––– –––––––– –––––––– Gross earned premiums ...... 466.9 475.2 511.7 Earned premiums, ceded to reinsurers ...... (27.0) (29.0) (31.5) –––––––– –––––––– –––––––– Earned premiums, net of reinsurance ...... 439.9 446.2 480.2 –––––––– –––––––– ––––––––

Earned premiums, by segment: Motor underwriting Gross earned premiums ...... 405.5 404.0 429.3 Earned premiums, net of reinsurance ...... 382.6 379.5 403.2 Home underwriting Gross earned premiums ...... 61.4 71.3 82.3 Earned premiums, net of reinsurance ...... 57.3 66.7 77.0

The Group’s earned premiums, net of reinsurance, were £480.2 million in 2012 compared with £446.2 million in 2011, a 7.6 per cent increase, resulting primarily from a combination of the growth in GWPs in 2011 and the continuation of the growth in 2012. The Group ceded 6.2 per cent of gross earned premiums to reinsurers in 2012 compared with 6.1 per cent in 2011.

The Group’s earned premiums, net of reinsurance, were £446.2 million in 2011 compared with £439.9 million in 2010, a 1.4 per cent increase, which primarily resulted from the higher GWPs written in 2011. This was partly offset by the increase in the change in unearned premium provision due to both growth in GWPs during the year and a greater proportion of these GWPs being written in the second half of the year compared with 2010. The Group ceded 6.1 per cent of gross earned premiums to reinsurers in 2011 compared with 5.8 per cent in 2010.

The change in unearned premium reserves in each of the periods is in line with the developments of the Group’s business and the ratio of premiums ceded to reinsurers.

132 (C) Investment income and instalment interest The table below sets forth the development in the Group’s investment income and instalment interest for the periods indicated:

FYE 2010 2011 2012 (£m) Interest income on financial investments at fair value through profit or loss...... 11.2 11.4 16.6 Interest income on cash deposits...... 0.1 0.1 0.4 Investment expenses ...... (1.2) (0.8) (1.7) Fair value gains on derivative financial instruments...... 0.4 (0.2) 2.5 Gains/(losses) on financial investments at fair value through profit or loss...... 13.4 (23.8) 21.5 Dividend income...... 0.4 0.1 – Rental income...... 0.4 0.1 0.1 –––––––– –––––––– –––––––– Investment income ...... 24.7 (13.1) 39.4

Instalment interest income(1) ...... 24.1 25.4 28.5 –––––––– –––––––– –––––––– Investment income and instalment interest ...... 48.8 12.3 67.9 –––––––– –––––––– –––––––– (1) Instalment interest income is included as part of the Non-underwritten Additional Services segment.

2012 Compared with 2011 The Group’s investment income and instalment interest was £67.9 million in 2012 compared with £12.3 million in 2011, an increase of £55.6 million. This increase was primarily attributable to net gains on financial investments of £21.5 million in 2012 (consisting of an unrealised gain of £23.8 million and a realised loss of £2.3 million) compared with net losses of £23.8 million in 2011 (consisting of an unrealised loss of £23.6 million and a realised loss of £0.2 million), both of which reflect primarily the market movements in fair value of the Group’s equity and bond investment portfolios during those periods.

Investment income increased to £39.4 million in 2012 from a net loss of £13.1 million in 2011. This improvement was mainly due to unrealised losses on a small equity portfolio in 2011 being largely recovered in 2012 as well as an increased return on the Group’s fixed income portfolio in 2012. The Group’s fixed income portfolio benefited from holding a higher level of corporate bonds, as high investor demand for these asset classes drove credit spreads tighter and prices higher in 2012. The Directors do not anticipate that investment income in 2013 will benefit from similar levels of unrealised gains when compared to 2012. In addition, the Directors anticipate a continuation of the current low interest rate environment which would have a dampening effect on investment return going forward. Total investment return in 2012 was 5.2 per cent compared with a negative return of 1.7 per cent in 2011. Total investment return, excluding equities, was 3.6 per cent in 2012, compared with 0.9 per cent in 2011.

During 2011 the Group recorded valuation losses on its equity portfolio of £18.2 million. These losses primarily related to losses on investments in certain managed equity funds. These were specialist equity funds which targeted investments in companies where the fund manager believed the valuations, or potential valuations, were out of line with market consensus. Following changes in the economic outlook, the underperformance of the equity portfolio in 2011 and the prospective transition to a public company, the Group decided to further reduce the equity component of its investment portfolio. This took place gradually during 2012 as opportunities to exit equity investments presented themselves following the recovery of the majority of the 2011 unrealised losses. As at 31 December 2012, the total equity portfolio of £29.4 million represented 3.6 per cent of total investment funds compared with 5.1 per cent as at 31 December 2011.

133 Instalment interest income increased 12.2 per cent in 2012 to £28.5 million compared with £25.4 million in 2011 primarily due to the higher number of in-force policies and an increase in the number of policyholders paying by instalments.

2011 Compared with 2010 The Group’s investment income and instalment interest was £12.3 million in 2011 compared with £48.8 million in 2010, a decrease of £35.5 million, all attributable to the decline in investment income discussed above.

Investment income declined to negative £13.1 million in 2011 from £24.7 million in 2010. This decrease was mainly due to net unrealised and, to a lesser degree, realised losses on financial investments relating to a fall in the value of the Group’s equity investment portfolio in the second half of 2011 as described above. As at 31 December 2010, the total equity portfolio of £75.3 million represented 10.0 per cent of total investment funds.

In 2010, the Group experienced gains in the corresponding line items primarily on the bond portfolio reflecting changes in the levels of future interest rates anticipated by the markets. These gains had been partly realised in the third quarter of 2010 following a decision by the Group to liquidate a specific portfolio of UK Government bonds. The mark-to-market valuation gains on the bond portfolio in 2010 were offset in part by a reduction in the net interest income in the year due to the sale of such higher yielding bonds.

Instalment interest income increased 5.4 per cent in 2011 to £25.4 million compared with £24.1 million in 2010 primarily due to the increased number of in-force policies and an increase in the number of policyholders paying by instalments.

(D) Fees for additional services 2012 Compared with 2011 The Group’s fees for additional services were £44.4 million in 2012 compared with £38.4 million in 2011, a 15.6 per cent increase. The increase was mainly due to an increase in policy administration fees and other income of £4.5 million and increased penetration of non-underwritten Additional Insurance Products.

2011 Compared with 2010 The Group’s fees for additional services were £38.4 million in 2011 compared with £34.0 million in 2010, a 12.9 per cent increase. The increase was mainly due to an increased number of in-force policies and an increase in claims income, to £15.2 million in 2011 from £13.6 million in 2010, primarily from panel membership fees, and increased penetration of non-underwritten Additional Insurance Products with respect to new policies and renewals.

(E) Total income The Group’s total income was £592.5 million in 2012 compared with £496.9 million in 2011, a 19.2 per cent increase, as a result of the developments in the line items described above. The Group’s total income was £496.9 million in 2011 compared with £522.7 million in 2010, a 4.9 per cent decrease, as a result of the developments in the line items described above.

134 (F) Claims incurred, net of reinsurance The table below sets forth the development of the Group’s claims incurred, net of reinsurance, by segment and financial year, for the periods indicated:

FYE 2010 2011 2012 (£m) Net incurred claims Motor underwriting ...... 343.0 267.8 282.4 Home underwriting ...... 59.6 37.0 49.7 –––––––– –––––––– –––––––– Group ...... 402.6 304.8 332.1

Claims handling costs...... 20.9 22.5 17.3 –––––––– –––––––– –––––––– Claims incurred, net of reinsurance ...... ––– ––––– 423.5 –––––––– 327.3 –––––––– 349.4 Group 2012 Compared with 2011 The Group’s claims incurred, net of reinsurance, were £349.4 million in 2012 compared with £327.3 million in 2011, an increase of £22.1 million or 6.8 per cent due to increases in net incurred claims in both motor and home underwriting more than offsetting a decrease in claims handling costs, as explained further below.

The Group’s net incurred claims were £332.1 million in 2012 compared with £304.8 million in 2011, an increase of £27.3 million or 9.0 per cent. The increase in net incurred claims in 2012 reflects the increase in the Group’s earned premiums, net of reinsurance, and the additional weather-related claims in 2012. Net incurred claims accounted for 95.0 per cent and 93.1 per cent of claims incurred, net of reinsurance, in 2012 and 2011, respectively.

The Group’s claims handling costs were £17.3 million in 2012, a decrease of £5.2 million, or 23.1 per cent, from £22.5 million in 2011. The decrease in claims handling costs in 2012 reflects a £0.6 million reduction in the claims handling reserve, compared with an increase in the reserve of £3.8 million in 2011, as the Group’s experience of personal injury claims handling costs developed further during 2012 and the future efficiencies anticipated as a result of the enhancement of the claims imaging workflow management system in 2012.

2011 Compared with 2010 The Group’s claims incurred, net of reinsurance, were £327.3 million in 2011 compared with £423.5 million in 2010, a decrease of £96.2 million or 22.7 per cent due to decreases in net incurred claims in both motor and home underwriting more than offsetting an increase in claims handling costs, as explained further below.

The Group’s net incurred claims were £304.8 million in 2011 compared with £402.6 million in 2010, a decrease of £97.8 million or 24.3 per cent. Net incurred claims accounted for 93.1 per cent and 95.1 per cent of claims incurred, net of reinsurance, in 2011 and 2010, respectively. The significant decrease in net incurred claims in 2011 compared with 2010 was primarily due to (i) lower frequency of personal injury claims in 2011 (due to the de-risking action taken by the Group to address the higher claims frequency and severity experienced by the Group with respect to personal injury claims) and (ii) better claims experience in the home insurance book in 2011 than in 2010, a year in which the UK experienced two unusually severe weather events at both the start (January) and again at the end (November and December) of the year.

The Group’s claims handling costs were £22.5 million in 2011 compared with £20.9 million in 2010, a 7.7 per cent increase, mainly due to an increase in the level of the Group’s resources to handle claims and a further increase in 2011, of £3.8 million, in the Group’s reserve set aside for future claims handling costs compared with an increase in the claims handling reserve of £3.3 million in 2010. These increases reflected the Group’s re-assessment undertaken in 2010 and completed in 2011 of the level

135 and possible quantum of future claims handling costs in response to its experience of personal injury claims.

The Group established a £13.6 million unexpired risk provision (reserves in excess of the unearned premium reserve) in 2009 at a time when the Group was experiencing a spike in personal injury claims due to the personal injury phenomenon, which related to motor insurance contracts for which the Group expected to pay claims in excess of the related unearned premium provision. The provision was released during 2010 (£11.1 million) and 2011 (£2.5 million) following the improved underwriting performance of the motor business.

Motor Underwriting Segment 2012 Compared with 2011 Net incurred claims for the motor underwriting segment were £282.4 million in 2012 compared with £267.8 million in 2011, an increase of 5.5 per cent. This increase was mainly due to additional volumes of business written in 2012. Although the Group’s disciplined approach to underwriting had a positive effect on 2012 net incurred claims, the Group’s net incurred claims are estimated to have increased by approximately £4 million due to additional weather-related claims compared with the Group’s projections for 2012 and also included £2.3 million of non-recoverable claims costs arising as a result of Drive Assist, one of the Group’s credit hire counterparties, going into administration in December 2012.

2011 Compared with 2010 Net incurred claims for the motor underwriting segment were £267.8 million in 2011 compared with £343.0 million in 2010, a decrease of 21.9 per cent. The Directors believe that the decline in motor net incurred claims primarily was a result of the Group reducing its personal injury claims through an increased focus on underwriting risk management, as well as enhanced anti-fraud measures and upfront checks, as the Group de-risked its motor insurance account.

Home Underwriting Segment 2012 Compared with 2011 Net incurred claims for the home underwriting segment were £49.7 million in 2012 compared with £37.0 million in 2011, an increase of 34.3 per cent. Net incurred claims were higher in 2012 than in 2011 due to higher levels of in-force policies and adverse weather conditions causing water damage from rainfall and storm surges in the last nine months of 2012.

2011 Compared with 2010 Net incurred claims for the home underwriting segment were £37.0 million in 2011 compared with £59.6 million in 2010, a decrease of 37.9 per cent. The higher level of claims in 2010 compared with 2011 was mainly due to the UK experiencing unusually severe national weather events in the months of January, November and December of 2010 compared with the relatively benign weather in 2011. As a result of this severe cold weather, water pipes froze and burst leading to water damage and a consequent increase in the number of claims on home insurance.

(G) Loss Ratio The Group’s Loss Ratio is calculated as net incurred claims as a percentage of earned premiums, net of reinsurance. The table below sets forth the Group’s Loss Ratio for the periods indicated:

FYE 2010 2011 2012 Loss Ratio (%) Group ...... 91.5 68.3 69.2 Motor underwriting segment ...... 89.6 70.6 70.0 Home underwriting segment ...... 104.0 55.5 64.5

136 2012 Compared with 2011 The Group’s Loss Ratio increased to 69.2 per cent in 2012 from 68.3 per cent in 2011, primarily due to a 9.0 per cent increase in net incurred claims more than offsetting a 7.6 per cent increase in earned premiums, net of reinsurance. The increase in net incurred claims in 2012 primarily reflects the increase in the Group’s earned premiums, net of reinsurance as a result of the larger book of business following growth in in-force policies in 2011 and 2012 as well as the negative impact of an increase in weather- related claims in 2012 due to the wet weather in that year compared with the relatively more benign weather in 2011.

2011 Compared with 2010 The Group’s Loss Ratio decreased to 68.3 per cent in 2011 from 91.5 per cent in 2010, primarily due to a 24.3 per cent decline in net incurred claims and a 1.4 per cent increase in earned premiums, net of reinsurance. The significant decline in net incurred claims reflected the lower frequency of personal injury claims in 2011 following the de-risking of the motor book and the better claims experience in the home insurance book due to the relatively more benign weather in 2011. Earned premiums, net of reinsurance increased in 2011 compared with 2010, primarily due to the Group beginning to grow the motor portfolio following the de-risking of the portfolio in 2009 and 2010 and an increase in premium rates.

(H) Insurance expenses The table below sets forth the development in the Group’s insurance expenses for the periods indicated:

FYE 2010 2011 2012 (£m) Acquisition of insurance contracts ...... 37.9 47.6 52.3 Movement in deferred acquisition costs asset ...... 2.4 (4.7) (2.5) Administration costs ...... 43.8 47.2 46.3 –––––––– –––––––– –––––––– Insurance expenses ...... ––– ––––– 84.1 –––––––– 90.1 –––––––– 96.1 2012 Compared with 2011 The Group’s insurance expenses were £96.1 million in 2012 compared with £90.1 million in 2011, an increase of 6.7 per cent. The Group achieved a small reduction in administration costs of £0.9 million (a decrease of 1.9 per cent) in 2012. However, this was more than offset by an increase in the cost of acquisition of insurance contracts of £4.7 million (an increase of 9.9 per cent). The increase in the cost of acquisition of insurance contracts was principally attributable to increases in the rates payable to price comparison websites, increases in postal rates and a general increase in expenses in line with the growth in the number of in-force policies and the strategy of providing certain Additional Insurance Products for free in the first year of a home insurance policy.

2011 Compared with 2010 The Group’s insurance expenses were £90.1 million in 2011 compared with £84.1 million in 2010, an increase of 7.1 per cent. This was mainly due to an increase in administration costs of 7.8 per cent due to continued investment in the Group’s IT infrastructure following the Management Buy-out as well as an increased volume of in-force policies. Costs relating to the acquisition of insurance contracts also increased between 2010 and 2011 following growth in new business in 2011 which led to an increase in price comparison website fees (net of acquisition costs deferred to subsequent years).

(I) Other operating expenses 2012 Compared with 2011 Other operating expenses were £29.6 million in 2012 compared with £19.7 million in 2011, an increase of £9.9 million, or 50.3 per cent. The increase between 2011 and 2012 was mainly due to a number of trading and non-trading costs in 2012 totalling £7.2 million. These trading costs included an impairment charge of £2.0 million in connection with the administration of Drive Assist. The non-trading costs,

137 totalling £5.2 million, related to costs associated with preparations for the Offer, the strategic review of the Company’s shareholding in Gocompare.com and an expense arising from a revaluation of the Group’s Reigate property, whereas there were no non-trading costs in 2011. Other operating expenses also increased due to the Group’s investment in its broker services; see section 1 (Overview) above.

The Group’s charge in respect of intangible assets, which amounted to £3.2 million in 2012, will reduce as the remaining net book amount, as at 31 December 2012, was £1.1 million.

2011 Compared with 2010 Other operating expenses were £19.7 million in 2011 compared with £24.3 million in 2010, a decrease of £4.6 million, or 18.9 per cent. Other operating expenses in 2011 were affected by an impairment of £3.0 million taken in that year relating to the First Alternative motor intangible asset due to a strategic decision to cease actively marketing the brand. The decline year-on-year was principally due to non- trading costs of £7.0 million, which consisted of the transaction costs incurred in 2010 by the Group during the acquisition of esure Holdings Limited as part of the Management Buy-out.

(J) Total expenses The Group’s total expenses, including claims costs, were £475.1 million in 2012 compared with £437.1 million in 2011, an increase of £38.0 million, or 8.7 per cent. This increase was due to the developments in the claims incurred, net of reinsurance, insurance expenses and other operating expenses line items described above. The Group’s total expenses, including claims costs, were £437.1 million in 2011 compared with £531.9 million in 2010, a decrease of £94.8 million, or 17.8 per cent. This decrease was mainly due to the lower cost of claims incurred in both motor and home, net of reinsurance, and lower other operating expenses, partly offset by higher net insurance expenses as described above.

(K) Expense Ratio The Group’s Expense Ratio is calculated as insurance expenses plus claims handling costs as a percentage of earned premium, net of reinsurance. The table below sets forth the Group’s Expense Ratio for the periods indicated:

FYE 2010 2011 2012 Expense Ratio (%) Group ...... 23.9 25.2 23.6 Motor underwriting ...... 22.6 24.0 22.4 Home underwriting ...... 32.1 32.5 30.0

2012 Compared with 2011 The Group Expense Ratio decreased to 23.6 per cent in 2012 from 25.2 per cent in 2011, as a result of a disciplined approach to cost management (including the management of claims handling costs) and the growth in earned premiums, net of reinsurance, allowing the Group to leverage its fixed cost base.

2011 Compared with 2010 The Group Expense Ratio increased to 25.2 per cent in 2011 from 23.9 per cent in 2010, mainly as a result of increased volume-related acquisition costs on the new business levels (largely fixed unit costs paid to price comparison websites) as well as investment in the Group’s IT infrastructure.

138 (L) Combined Operating Ratio The table below sets forth the Group’s Loss Ratio, Expense Ratio and Combined Operating Ratio for the periods indicated:

FYE 2010 2011 2012 Group Loss Ratio(1) (%) ...... 91.5 68.3 69.2 Expense Ratio(2) (%) ...... 23.9 25.2 23.6 –––––––– –––––––– –––––––– Combined Operating Ratio (3) (%)...... ––– –––––115.4 –––––––– 93.5 –––––––– 92.8 Motor underwriting segment Loss Ratio (%)...... 89.6 70.6 70.0 Expense Ratio (%)...... 22.6 24.0 22.4 –––––––– –––––––– –––––––– Combined Motor Operating Ratio (%)...... ––– –––––112.3 –––––––– 94.6 –––––––– 92.4 Home underwriting segment Loss ratio (%) ...... 104.0 55.5 64.5 Expense ratio (%) ...... 32.1 32.5 30.0 –––––––– –––––––– –––––––– Combined Home Operating Ratio (%) ...... ––– –––––136.1 –––––––– 88.0 –––––––– 94.5 (1) Loss Ratio is net incurred claims as a percentage of earned premiums, net of reinsurance.

(2) Expense Ratio is insurance expenses plus claims handling costs as a percentage of earned premium, net of reinsurance.

(3) Loss Ratio plus Expense Ratio.

For details on the causes of movements in the Combined Operating Ratio, please see section 2.1 (“Underwriting Profitability”) and sub-sections “(G) Loss Ratio” and “(K) Expense Ratio” of this section 5 (“Results of Operations”).

(M) Negative goodwill arising on business combination Following the acquisition by the Group of esure Holdings Limited in 2010, a number of fair value adjustments were made, mainly in relation to intangible assets internally generated by esure Holdings Limited (which could not be recognised by that company, but had to be recognised by the Group under IFRS as a result of the Management Buy-out).

The total consideration for the acquisition was £190.1 million, paid in cash to HBOS Group, and a one for one share exchange of management shares in esure Holdings Limited for shares in esure Group plc. As the fair value of net assets acquired of £205.8 million was in excess of the consideration paid, negative goodwill of £15.7 million was recognised on acquisition in the statement of comprehensive income in 2010. See Note 17 (Acquisition of esure Holdings Limited by esure Group plc) to the historical financial information for 2010-2012 in Schedule II (Historical Financial Information) for further details.

139 (N) Share of profit after tax of joint venture With effect from 1 April 2010 the investment in Gocompare has been accounted for as a 50 per cent joint venture under the equity method. The table below sets forth the Group’s share of revenue and results of the joint venture that is included in the consolidated statement of financial position and income statement:

FYE 2010 2011 2012 (£m) Share of reported revenue...... 37.9 54.5 52.7 Share of reported expenses ...... (27.8) (37.1) (40.5) –––––––– –––––––– –––––––– Amortisation of intangible assets recognised on application of the equity method...... (2.4) (3.2) (2.0) Adjustment to eliminate unrealised profits ...... (0.2) (0.2) 0.1 –––––––– –––––––– –––––––– Share of profit before tax ...... 7.5 14.0 10.3 Income tax expense ...... (2.4) (4.6) (3.0) –––––––– –––––––– –––––––– Share of profit after tax ...... ––– ––––– 5.1 –––––––– 9.4 –––––––– 7.3 2012 Compared with 2011 The Group’s share of the profit after tax of Gocompare decreased to £7.3 million in 2012 from £9.4 million in 2011. This decrease was due to a combination of the impact on Gocompare’s reported revenues from continuing competition in the price comparison website market, an associated need to increase marketing expenditure by Gocompare and an increase in Gocompare staff numbers over the year of approximately 34 per cent (as an investment by Gocompare to support its strategic development plans.)

2011 Compared with 2010 The Group’s share of the profit after tax of Gocompare increased to £9.4 million in 2011 from £5.1 million in 2010. This increase was mainly due to the Group sharing in Gocompare’s profit after tax for the full year of 2011, whereas the Group only shared in Gocompare’s results for nine months in 2010, having recognised its 50 per cent economic interest in Gocompare with effect from 1 April 2010. The increase also resulted from the higher level of profit before tax recorded by Gocompare in 2011 compared with 2010, amongst other things driven by a successful marketing campaign.

(O) Finance costs 2012 Compared with 2011 The Group’s finance costs were £9.2 million in 2012 compared with £14.1 million in 2011, a 34.8 per cent decrease. This decrease was due to the repayment of £30.0 million of its Unsecured Loan Notes in October 2011 and the repayment of the remaining outstanding £32.0 million of the Group’s Unsecured Loan Notes in April 2012. Finance costs for 2012 included £9.5 million in respect of the interest expense on the Perpetual Subordinated Loan Notes, which the Group intends to repay in connection with the Offer contemplated herein. All of the outstanding Perpetual Subordinated Loan Notes will be repaid in 2013. Please refer to Part VII (Unaudited Pro Forma Financial Information) for details.

2011 Compared with 2010 The Group’s finance costs were £14.1 million in 2011 compared with £15.8 million in 2010, a 10.8 per cent decrease. This decrease was mainly due to the conversion of preference shares to ordinary share capital following the business combination in February 2010 in connection with the Management Buy- out which meant that there was no interest payable on preference shares from that date. This was partly offset by the fact that the Group’s Perpetual Subordinated Loan Notes, which were issued in February 2010, were outstanding for the full year of 2011.

140 (P) Profit before tax The Group’s profit before tax was £115.5 million in 2012 compared with profit before tax of £55.1 million in 2011, a £60.4 million increase, primarily as a result of the developments described above. The Group’s profit before tax was £55.1 million in 2011 compared with a loss before tax of £4.2 million in 2010, a £59.3 million increase, primarily as a result of the developments described above.

(Q) Taxation credit/(expense) 2012 Compared with 2011 The Group’s tax expense was £27.4 million in 2012 compared with £12.0 million in 2011. The increase in the Group’s tax expense was mainly due to the Group’s increased profitability.

The effective rate of tax (defined as taxation credit/expense per income statement divided by profit/loss before tax per income statement) was 23.7 per cent in 2012 (while the standard UK tax rate was 24.5 per cent), compared with 21.8 per cent in 2011. The lower level of effective tax rate in 2011 was due to the impact of non-taxable income.

2011 Compared with 2010 The Group’s tax expense was £12.0 million in 2011 compared with a tax credit of £4.5 million in 2010. The difference was mainly due to higher taxable profits in 2011 and a £4.2 million deferred tax credit in 2010, largely attributable to the unwinding of deferred tax liabilities that arose in respect of intangible assets recognised at the time of the Management Buy-out. The increase in tax expense was partly offset by a deferred tax asset arising on insurance company losses carried forward into 2011.

(R) Profit attributable to owners of the parent The Group’s profit attributable to owners of the parent was £88.1 million in 2012, an increase of £45.0 million from £43.1 million in 2011, primarily as a result of the developments in the line items described above. The Group’s profit attributable to owners of the parent was £43.1 million in 2011 compared with £0.3 million in 2010, a £42.8 million increase primarily as a result of the developments in the line items described above.

6. LIQUIDITY AND CAPITAL RESOURCES 6.1 Liquidity and Cash Flows The Group’s principal sources of funds for its operations consist of payments received on premiums, PR Ann I, 10.1, 10.2 instalment interest and administration fees from its insurance business, cash receipts from its intermediary business in respect of other non-underwritten Additional Insurance Products (including commissions and fees associated with placing and administering insurance contracts), payment of investment earnings from its portfolio of invested assets and payments under reinsurance contracts. The Group generates substantial cash flow from operations. These positive operating cash flows, along with that portion of the Group’s investment portfolio held in cash and highly liquid securities, have historically met the liquidity requirements of the Group’s insurance operations. To date, the principal uses are the payment of claims incurred and operating expenses, as well as capital expenditures, the servicing of the Group’s debt obligations and taxes. Following Admission, the Directors also anticipate that the Group will begin to pay dividends. See section 6 (Dividend Policy) of Part I (The Business).

In the insurance industry, “liquidity” generally refers to the ability of a business to generate adequate amounts of cash from its normal operations, including its investment portfolio, in order to meet its financial commitments, which are principally obligations under its insurance policies. The liquidity of the Group’s insurance operations is affected by the frequency and severity of losses under its policies.

The liquidity requirements of the Group’s insurance operations are met on both short- and long-term bases by funds provided by insurance premiums collected, cash receipts from investment assets and collected reinsurance receivables, and from the sale and maturity of investments.

141 The table below sets forth the credit risk assets of the Group available to cover its claims costs and other expenses, together with an analysis by credit rating:

As at 31 December 2010 2011 2012 Assets bearing credit risk by type (£m) Debt securities and other fixed income securities ...... 237.6 438.2 617.0 Deposits with credit institutions ...... 422.9 249.6 132.4 Insurance receivables, other debtors and salvage and subrogation assets ...... 136.4 141.7 161.1 Cash at bank and in hand ...... 18.9 32.5 39.4 Derivative financial instruments ...... 0.4 0.2 0.4 –––––––– –––––––– –––––––– Financial assets ...... 816.2 862.2 950.3 Shares and other variable-yield securities and units in unit trusts ...... 75.3 38.4 29.4 Reinsurance assets ...... 157.8 172.9 233.4 –––––––– –––––––– –––––––– ––– 1,049.3––––– –––––––– 1,073.5 –––––––– 1,213.1 Assets bearing credit risk by credit rating(1) AAA(2) ...... 560.5 387.0 365.2 AA...... 112.8 163.0 196.1 A ...... 154.5 301.9 367.1 BBB ...... 9.5 40.3 58.1

Below BBB or not subject to credit rating(3) ...... 212.0 181.3 226.6 –––––––– –––––––– –––––––– ––– 1,049.3––––– –––––––– 1,073.5 –––––––– 1,213.1 Notes: (1) Ratings for financial instruments are those ascribed to the individual issuer and represent the lower of that from Standard & Poor’s and Moody’s. Standard & Poor’s (full legal name: Standard & Poor’s Credit Market Services Europe Limited) and Moody’s (full legal name: Moody’s Investors Services Limited) are each credit rating agencies established in the European Union and registered under Regulation (EC) no 1060/2009 and each of them is, as at the date of this document, included in the list of credit rating agencies published by the European Securities and Markets Authority on its website in accordance with such Regulation. (2) Includes cash at bank and in hand as well as cash held through deposits with credit institutions. (3) Includes equities and instalments due from customers.

The decrease in financial investments with a credit rating of AAA between 2010 and 2011 shown in the table above principally reflects that the Group having held larger amounts of cash (principally through deposits with credit institutions) at the end of 2010 following a sale of UK gilt government bonds (cash being included in the AAA category). This cash was subsequently reinvested in corporate and other bonds during 2011.

Similar action was also taken during 2012 and is responsible for the further reduction in AAA rated assets. The increase in 2012 of assets rated A reflects the fact that the general rating environment for corporate credit is now lower. However, the overall investment portfolio continues to have a high quality with an average credit rating of AA, which is unchanged from 2011.

142 The table below sets forth as at 31 December 2012 the contractual maturity of the Group’s financial liabilities, outstanding claims and financial assets (the amounts below represent undiscounted cash flows and include payments of both principal and interest):

Less than Between 1 More than Carrying 1 year and 5 years 5 years Total value (£m) Financial and insurance liabilities As at 31 December 2012 Borrowings ...... – 50.0 – 50.0 50.0 Derivative financial instruments ...... 0.3 – – 0.3 0.3 Insurance and other payables ...... 22.8 – – 22.8 22.8 –––––––– –––––––– –––––––– –––––––– –––––––– Financial liabilities ...... 23.1 50.0 – 73.1 73.1 Claims outstanding...... 220.7 354.4 116.7 691.8 691.8 –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– 243.8 –––––––– 404.4 ––––––– 116.7– –––––––– 764.9 –––––––– 764.9 Financial assets, salvage and subrogation assets and reinsurers’ share of claims outstanding: As at 31 December 2012 Derivative financial instruments ...... 0.4 – – 0.4 0.4 Debt securities and other fixed income securities ...... 138.6 447.6 74.5 660.7 617.0 Deposits with credit institutions ...... 132.4 – – 132.4 132.4 Cash at bank and in hand ...... 39.4 – – 39.4 39.4 Insurance receivables, other debtors and salvage and subrogation assets...... 159.9 1.2 – 161.1 161.1 –––––––– –––––––– –––––––– –––––––– –––––––– Financial assets ...... 470.7 448.8 74.5 994.0 950.3 Reinsurers’ share of outstanding claims ...... 21.9 141.0 56.8 219.7 219.7 –––––––– –––––––– –––––––– –––––––– –––––––– Financial assets and reinsurers’ share of claims outstanding ...... –––––––– 492.6 –––––––– 589.8 ––––––– 131.3– –––––––– 1,213.7 –––––––– 1,170.0 The table below sets forth the Group’s cash flows for the periods indicated:

FYE 2010(1) 2011 2012 (£m) Operating cash flow before movements in insurance contract liabilities, other working capital, tax and interest paid ...... (44.4) 57.9 54.3 Increase/(decrease) in net insurance contract liabilities and working capital ...... 11.9 (19.1) (6.9) –––––––– –––––––– –––––––– Operating cash flow before movements in financial investments and taxation paid ...... (32.5) 38.8 47.4 Sale of financial investments ...... 426.1 415.8 538.2 Interest and dividends received ...... 37.3 34.5 45.0 Purchase of financial investments ...... (423.2) (429.7) (567.0) –––––––– –––––––– –––––––– Net cash flow on financial investments ...... 40.2 20.6 16.2 –––––––– –––––––– ––––––––

Taxation paid ...... (3.9) (6.1) (18.5) –––––––– –––––––– –––––––– Net cash generated in operating activities ...... ––– ––––– 3.8 –––––––– 53.3 –––––––– 45.1 Note: (1) Information presented for 2010 reflects a combination of the consolidated results of esure Holdings Limited for the period from 1 January 2010 to 10 February 2010 and of the Company for the period from 11 February 2010 to 31 December 2010.

Net cash generated in operating activities was £45.1 million in 2012, which was £8.2 million lower than the £53.3 million generated in 2011. This reduction arose principally because of the higher tax paid in 2012 (£18.5 million compared with £6.1 million in 2011), which was partly offset by an increase in the

143 operating cash flow generated before movements in financial investments and tax paid (£47.4 million in 2012 compared with £38.8 million in 2011).

The Group chose not to reinvest the cash generated from its financial investments, resulting in a cash inflow of £16.2 million. After allowing for taxation payments of £18.5 million, this allowed the Group to repay the remaining £32 million of its Unsecured Loan Notes during 2012.

Net cash generated in operating activities was £53.3 million in 2011, primarily due to the Group’s improved underwriting performance and Additional Services income growth in the year, demonstrated by operating cash flows before movements in financial investments and taxation paid of £38.8 million. The Group chose not to reinvest the cash generated from its financial investments, resulting in a cash inflow of £20.6 million. After allowing for taxation payments of £6.1 million, this allowed the Group to repay £30 million of its Unsecured Loan Notes in 2011.

Net cash generated in operating activities was £3.8 million in 2010, primarily due to the decline in in- force policy volumes (reducing cash generated from GWPs) and payment of claims relating to the personal injury claim phenomenon that were largely incurred in 2009, due to the time lag between recognition and settlement of claims liabilities associated with the personal injury claim phenomenon. See section 5.1(B) (Earned premiums, net of reinsurance) of this Part V and Note 20.5(a) (Claims reported and claims handling expenses) to the historical financial information for 2010-2012 in Schedule II (Historical Financial Information) for further details. This resulted in an operating cash outflow before movements in financial investments and taxation paid of £32.5 million. As such, the Group did not reinvest the cash generated from its financial investments of £40.2 million as the cash was used to meet its obligation to pay claims, taxation and finance costs.

Capital Expenditure The Group invested £1.5 million in capital expenditure in 2012, £3.3 million in 2011 and £0.3 million in 2010. The capital expenditure in 2011 mainly related to investment in IT infrastructure and software, with expenditure in the other years being routine capital expenditure. The Group does not currently anticipate any material capital expenditures in the foreseeable future.

6.2 Banking Facilities and Loans As at the date of this document, other than the Group’s borrowings of £50.0 million, relating to the PR Ann I, 10.3 Perpetual Subordinated Loan Notes described below, the Group does not hold any debt or credit facilities. PR Ann III, 3.4

The Group intends to repay the Perpetual Subordinated Loan Notes (together with accrued interest) in full with proceeds it receives from the Offer. See section 5 (Reasons for the Offer and Use of Proceeds) of Part I (The Business) for further details on the use of the proceeds.

Perpetual Subordinated Loan Notes. On 11 February 2010, esure Finance Limited, a wholly owned subsidiary undertaking, created and issued 50,000,000 unsecured perpetual subordinated loan notes of £1.00 each (the “Perpetual Subordinated Loan Notes”). The interest rate is 18.9 per cent per annum for the period in which the Perpetual Subordinated Loan Notes are outstanding. The Perpetual Subordinated Loan Notes are listed on the Channel Islands Stock Exchange.

Unsecured Loan Notes. On 11 February 2010, esure Finance Limited, a wholly owned subsidiary undertaking, created and issued 62,000,000 unsecured loan notes of £1.00 each (the “Unsecured Loan Notes”). The Unsecured Loan Notes were listed on the Channel Islands Stock Exchange. £30.0 million of the Unsecured Loan Notes were repaid in October 2011 and the remaining £32.0 million were repaid in April 2012 so that there are no outstanding Unsecured Loan Notes. The interest rate was 7.0 per cent per annum for the period in which the Unsecured Loan Notes were outstanding.

The Group did not breach any of its loan agreements during the periods under review.

6.3 Off-Balance Sheet Arrangements The Group does not have any off-balance sheet arrangements as defined in accordance with IFRS.

144 6.4 Contractual Obligations The table below sets forth certain of the Group’s contractual obligations, other than the contractual obligations under insurance contracts, that the Group enters into in the ordinary course of business for the periods indicated:

As at 31 December 2010 2011 2012 (£m) Capital commitments(1) Contracted for but not provided in the financial statements...... 1.4 0.2 0.3 –––––––– –––––––– ––––––––

Operating lease commitments(2) – where the Group is a lessee Not later than 1 year...... 3.2 3.2 3.2 Later than 1 year and no later than 5 years...... 12.8 13.0 13.1 Later than 5 years ...... 14.0 10.6 7.3 –––––––– –––––––– –––––––– ––– ––––– 30.0 –––––––– 26.8 –––––––– 23.6 (1) Contracts for assets which have not been provided for at the balance sheet date.

(2) Future aggregate minimum lease payments under non-cancellable operating leases.

6.5 Regulatory Capital The Group is subject to the capital adequacy requirements of the European Insurance Groups Directive PR Ann I, 10.4 (“IGD”) as implemented by the FSA in the UK. The IGD pertains to groups whose activities are primarily concentrated in the insurance sector. The IGD capital adequacy requirements involves aggregating surplus capital held in the regulated subsidiaries, from which Group borrowings, except those subordinated debt issues that qualify as capital, are deducted. The IGD test is passed when this aggregate number is positive. A negative result at any point in time is a notifiable breach of UK regulatory requirements.

The Group is well capitalised with an IGD surplus of £241.0 million and an IGD coverage ratio of 350 per cent as at 31 December 2012. The table below sets forth the statutory solvency capital position and IGD capital position as at 31 December 2010, 2011 and 2012:

As at 31 December(1) 2010 2011 2012 (£m, except ratios) Statutory solvency capital Ordinary shareholders equity ...... 99.9 143.0 231.1 Regulatory adjustments ...... 56.2 61.1 56.3 –––––––– –––––––– –––––––– Total tier 1 capital ...... 156.1 204.1 287.4 Tier 2 capital...... 50.0 50.0 50.0 –––––––– –––––––– –––––––– Total regulatory capital resource ...... ––– ––––– 206.1 –––––––– 254.1 –––––––– 337.4 European Insurance Groups Directive (IGD) IGD required capital ...... 98.5 96.4 96.4 IGD excess solvency ...... 107.6 157.7 241.0 IGD coverage ratio ...... 2.09 2.64 3.50

(1) This IGD table is as per disclosed to the FSA for 2010 and 2011 and expected to be disclosed for 2012, and as such includes a mark to model adjustment for the holding in Gocompare. Please see Part VII (Unaudited Pro Forma Financial Information) for an illustration of the impact of the Offer (and use of proceeds of the Offer) on the net assets of the Group. On 21 February 2013, the Company reduced its capital through the cancellation of 4,000,000,000 Non- Voting Old Ordinary Shares of £0.01 each and, in consideration, paid £40 million in cash to Tosca Penta Investments LP (the holder of the Non-Voting Old Ordinary Shares so cancelled). On Admission, the Company will repurchase the outstanding 4,485,014,000 Non-Voting Old Ordinary Shares of £0.01 each at par and the outstanding 1,000 Redeemable Priority Return Shares of £0.01 each for an amount equal to the Priority Return (as defined and determined in accordance with the Pre-Admission Articles) from Tosca Penta Investments LP. The Non-Voting Old Ordinary Shares and Redeemable Priority

145 Return Shares so purchased will be cancelled and a non-distributable capital redemption reserve of £44.85 million will be created. On Admission, the Company will also use all of the £50 million proceeds of the Offer to repay 50,000,000 Perpetual Subordinated Loan Notes of £1 each at par. The Company’s unaudited pro forma total equity as of 31 December 2012 would have been £188.6 million taking into account the impact of the Offer (and use of proceeds of the Offer) on the net assets of the Group. See Part VII (Unaudited Pro Forma Financial Information) for further information.

In addition to Group capital requirements established under the IGD, the solo insurance company, esure Insurance Limited, is also subject to Individual Capital Guidance (“ICG”) from the FSA. The guidance is provided by the FSA on a periodic basis following the submission of a risk-based Individual Capital Assessment (“ICA”) to the FSA by the company. The ICA, and thus ICG, are typically greater than the Group IGD capital requirement and, as such, place a greater regulatory capital requirement on the Group than the IGD calculation for the Group. It is this higher capital requirement which is used by the Group in determining its risk-based capital requirements. This approach indicates that the risk-based capital requirements, inclusive of an appropriate buffer, is broadly equivalent to 40 per cent of net written premiums (GWPs, net of reinsurance).

Both the solo ICA regime and the Group IGD requirements are expected to be replaced by the requirements established by the Solvency II Directive following its implementation, which is currently not expected to be before 1 January 2016. The Group is developing an “Internal Model” for use in determining capital requirements under Solvency II, largely based on the same model currently used to undertake the Individual Capital Assessment under the ICA. The Group is intending to seek approval to use the Internal Model in the determination of its regulatory capital requirements from the implementation date of Solvency II and, to this end, is focusing on documenting, implementing and embedding the associated processes. Given the uncertainties surrounding the final requirements of Solvency II, including the achievement of approval for the Internal Model, there can be no assurance that the Group will be in a position to apply the Internal Model in determining regulatory capital requirements following Solvency II implementation. Accordingly, the Group is also calculating likely capital requirements using the Solvency II standard formula approach. This indicates that the Group’s Regulatory Capital requirements under Solvency II are unlikely to be materially greater than assessed under the current risk-based modelling approach.

7. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of the consolidated historical financial information requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. However, the historical information presented is based on conditions that existed at the reporting date. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Summarised below are those critical accounting policies that require management to make significant estimates, judgements or assumptions and which could result in materially different results under different assumptions or conditions. Please see Note 3 (Critical accounting judgements and estimates) for 2010–2012 in Schedule II (Historical Financial Information) for further details on accounting policies that require management’s judgements, estimates and assumptions.

7.1 Classification and fair value of financial instruments The Group classifies its investments in financial instruments in the following categories: (i) financial assets at fair value through profit or loss (“FVTPL”), (ii) loans and receivables or (iii) held for trading, as appropriate.

146 The Group designates on initial recognition its financial assets held for investment purposes (financial investments) at FVTPL with the exception of derivatives, which are classified as held for trading. All other financial assets are classified as loans and receivables. As at 31 December 2012, the Group had £779.2 million in financial investments at FVTPL and £183.4 million in financial assets accounted for as loans and receivables.

Financial assets at FVTPL are stated at fair value, with any resultant gain or loss in fair value recognised through the income statement. The fair value of financial instruments traded in active markets is based on quoted bid prices at the balance sheet date.

Where the fair values of financial assets and financial liabilities recorded on the statement of financial position cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of discounted cash flow models. The inputs to these models are derived from observable market data where possible, but where observable market data is not available, judgement is required to establish fair values. The Group had £17.8 million of assets where one or more of the inputs was not based on observable market data (so-called “Level 3” assets) as at 31 December 2012, consisting of investment in a managed fund closed to new investment. Estimated future cash flows and discount rates are based on current market information and rates applicable to financial instruments with similar yields, credit quality and maturity characteristics. Discount rates are influenced by risk-free interest rates and credit risk. Changes in assumptions about these factors could affect the reported fair value of the financial instruments. See Note 19.3(e) (Fair Value Estimation) to the historical financial information for 2010–2012 in Schedule II (Historical Financial Information) for further details on the Group’s fair value estimation.

Loans and receivables are measured at amortised cost less accumulated impairment losses. Such assets are adjusted for impairments, where there is a decline in value that is considered to be an impairment assessed at each balance sheet date. Investment income on assets classified as loans and receivables is recognised in the income statement as it accrues and is calculated by using the effective interest rate method. See Note 19.3(e) (Fair Value Estimation) to the historical financial information for 2010–2012 in Schedule II (Historical Financial Information) for further details on the Group’s fair value estimation.

7.2 Claims reserves The Group establishes IBNR claims reserves covering both claims that have been incurred but not yet reported to the Group and future developments on claims which are known to the Group but have not been finally settled. Estimates have to be made both for the expected ultimate cost of claims reported at the reporting date and for the expected ultimate cost of claims incurred but not reported at the reporting date. It can take a significant period of time before ultimate claims costs can be established with certainty and, for some types of claims, IBNR claims accounts for the majority of the liability in the statement of financial position.

The ultimate cost of outstanding claims is estimated by carrying out standard actuarial projections on triangles of number of reported claims, claims paid and incurred claims as at the reporting date for each type of claim. The main assumption underlying these techniques is that a group’s past claims development experience can be used to project future claims development and hence ultimate claims cost. As such, these methods extrapolate the development of earlier years and expected Loss Ratios. Historical claims development is mainly analysed by accident years, as well as by significant business lines and claim type. Large claims are usually separately addressed, either by being based on the loss adjuster estimates or separately projected in order to reflect their future developments. In most cases, no explicit assumptions are made regarding future rates of claims inflation or Loss Ratios. Instead, the assumptions used are those implicit in the historical claim development data on which the projections are based. Additional qualitative judgement is used to assess the extent to which past trends may not apply in future.

Similar judgements, estimates and assumptions are employed in the assessment of adequacy of provisions for unearned premium and hence whether there is a requirement for an unexpired risk

147 provision. See the explanation under the heading “Reserving Risk” in Note 20.1 to the historical financial information for 2010-2012 in Schedule II (Historical Financial Information) for further details.

8. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Group is principally exposed to market risks arising from interest rate risk, currency risk and equity price risk, all of which are exposed to general and specific market movements. The risks that the Group primarily faces due to the nature of its financial investments and liabilities are interest rate risk and equity price risk. See Note 19 (Financial assets and liabilities) for 2010–2012 in Schedule II (Historical Financial Information) for a discussion of the Group’s financial risk management objectives, including in relation to market risk, interest rate risk, equity price risk, currency risk, credit risk, liquidity risk and capital management, as well as Note 20 (Reinsurance assets and insurance contract liabilities) for 2010-2012 in Schedule II (Historical Financial Information) for a discussion of the Group’s exposure to insurance risk, underwriting and pricing risk, claims management risk, reinsurance risk and reserving risk.

8.1 Interest rate risk Interest rate risk arises primarily from investments in fixed interest securities. The Investment Committee balances the portfolio of investments to manage the exposure to interest rate risk. In addition, to the extent that claims inflation is correlated to interest rates, liabilities to policyholders are exposed to interest rate risk.

The Group monitors interest rate risk on a regular basis by calculating the mean duration of key elements of the investment portfolio and of the liabilities to policyholders under insurance contracts. The mean duration is an indicator of the sensitivity of the assets and liabilities to changes in current interest rates. The mean duration of the technical liabilities is determined by means of projecting expected cash flows using standard actuarial claims projection techniques. Asset allocation decisions made by the Investment Committee give due consideration to the duration and profile of liabilities to avoid any significant mismatch in the asset and liability profiles. In order to preserve capital and to reduce the risk of an investment loss due to interest rate movements, it is acceptable for the duration of the asset portfolio, from time to time, to be shorter, but not longer, than the average duration of the liabilities.

The Group also uses government bond futures as a mechanism to adjust investment portfolio duration.

The sensitivity analysis for interest rate risk illustrates how changes in the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates at the reporting date. For an increase/decrease of 100 basis points in interest yields, the profit before tax for 2012 would decrease/increase by £7.1 million (2011: £5.8 million, 2010: £5.3 million).

8.2 Equity price risk The Group is exposed to equity securities price risk as a result of its holdings in equity investments, classified as financial assets at FVTPL. Exposures to individual companies and to equity shares in aggregate are monitored in order to ensure compliance with the relevant regulatory limits for solvency purposes.

Equity exposure is through managed equity funds, which are primarily invested in listed equity securities.

If equity market indices had increased/decreased by 10 per cent, the profit for 2012 would have increased/decreased by £2.9 million (2011: £3.8 million, 2010: £7.5 million).

8.3 Currency risk The Group has some exposure to currency risk in respect of certain investments denominated in currencies other than Sterling. The most significant currency to which the Group is exposed is the Euro.

148 The Group seeks to mitigate the risk by the use of forward contracts and other derivatives matching the estimated foreign currency denominated assets with liabilities denominated in the same currency. As a result, there is negligible exposure to currency risk. The Group has no designated hedging contracts.

8.4 Credit risk Credit risk is the risk that a counterparty will not be able to pay amounts in full when due in accordance with the term of the contract, causing the Group to incur a financial loss.

Key areas where the Group is exposed to credit risk are:

• Credit instruments held within the investment portfolio;

• amounts due from investment counterparties;

• reinsurers’ share of insurance liabilities;

• amounts due from reinsurers in respect of claims already paid;

• amounts due from policyholders; and

• subrogation and salvage recoveries plus amounts due from claims suppliers.

Reinsurance is used to manage insurance risk. This does not, however, discharge the Group’s liability as primary insurer. If a reinsurer fails to pay a claim, the Group remains liable for the payment to the policyholder.

The creditworthiness of reinsurers is considered on an annual basis by reviewing their financial strength prior to finalisation of any contract. In addition, management assesses the creditworthiness of all reinsurers by reviewing credit grades provided by rating agencies and other publicly available financial information. An analysis of reinsurers by Standard & Poor’s Credit Market Services Europe Limited and A.M. Best Europe – Rating Services Limited ratings is produced and reviewed on a monthly basis.

The Group manages the levels of investment counterparty credit risk it accepts by placing limits on its exposure to a single counterparty, or groups of counterparties, and to geographical counterparties and geographical segments. Such risks are subject to regular review.

Owing to the high number of individual policyholders through which the Group has minimal individual exposure, the overall risk of default to the Group is considered to be insignificant.

No credit limits were exceeded during the period. No financial assets are past due but not impaired at the reporting date. During 2012, £2.0 million (2011: £nil; 2010: £nil) was charged to other operating expenses in the consolidated income statement in respect of financial assets classified as other debtors that were past due and impaired.

149 PART VI

CAPITALISATION AND INDEBTEDNESS PR Ann III, 3.2

The following tables show the Group’s unaudited consolidated capitalisation and indebtedness as at 31 December 2012. The following tables do not reflect the impact of the Offer on the Group’s capitalisation and indebtedness (including receipt of the net proceeds by the Company, the repurchase of the Non-Voting Old Ordinary Shares and Redeemable Priority Return Shares and the repayment of the Perpetual Subordinated Loan Notes (together with accrued interest)). Please refer to Part VII (Unaudited Pro Forma Financial Information) for an analysis of the impact of the Offer (and the use of proceeds for those purposes) on the consolidated net assets of the Group.

1. CAPITALISATION AND INDEBTEDNESS The information contained in this table sets out the unaudited capitalisation and indebtedness of the Group as at 31 December 2012 and, unless otherwise noted, has been extracted without material adjustment from the Group’s Historical Financial Information.

£m (Unaudited) Current debt – Guaranteed...... – – Secured ...... – – Unguaranteed/Unsecured ...... – –––––––– Total current debt ...... –––––––– – Non-current debt (excluding current portion of long-term debt) – Guaranteed...... – – Secured ...... – – Unguaranteed/Unsecured(1) ...... 50.0 –––––––– Total non-current debt ...... –––––––– 50.0 Shareholders’ Equity – Share capital...... 85.2 – Legal reserve...... – – Other reserves...... 145.9 –––––––– Total ...... –––––––– 281.1 Notes: (1) On 11 February 2010, esure Finance Limited, a wholly owned subsidiary undertaking, created and issued 50,000,000 unsecured Perpetual Subordinated Loan Notes of £1 each. The interest rate is 18.9 per cent per annum, paid annually.

150 2. NET INDEBTEDNESS The information contained in this table sets out the unaudited net indebtedness of the Group as at 31 December 2012 and, unless otherwise noted, has been extracted without material adjustment from the Group’s Historical Financial Information.

£m (Unaudited) Cash ...... 39.4 Deposits with credit institutions ...... 132.4 Trading securities...... 646.8 –––––––– Liquidity ...... –––––––– 818.6 Current Financial Receivables ...... – Current bank debt...... – Current portion of non-current debt ...... – Other current financial debt...... – –––––––– Current Financial Debt...... – –––––––– Net Current Financial liquidity/(indebtedness)...... 818.6 Non-current Bank loans...... – Bonds issued ...... (50.0) Other non-current loans ...... – –––––––– Non-current Financial Indebtedness ...... (50.0) –––––––– Net financial liquidity ...... –––––––– 768.6 Notes: The Group has no other indirect or contingent liabilities, nor any contingent commitments.

3. POST BALANCE SHEET AND ADMISSION DATE EVENTS In accordance with the provisions of the Shareholders’ Agreement relating to the repurchase or repayment of the equity and debt instruments held by Tosca Penta Investments LP in the Company and esure Finance Limited at such time as the Group has accumulated sufficient excess capital over and above its regulatory solvency requirements:

• On 21 February 2013, the capital of the Company was reduced by the cancellation of 4,000,000,000 Non-Voting Old Ordinary Shares of £0.01 each and £40 million in cash was paid in consideration by the Company to Tosca Penta Investments LP out of existing financial resources; and

• by a share purchase agreement dated 25 February 2013, the Group has agreed, subject only to Admission, to repurchase the remaining 4,485,014,000 Non-Voting Old Ordinary Shares of £0.01 each at par and the 1,000 Redeemable Priority Return Shares of £0.01 each for an amount equal to the Priority Return (as defined and determined in accordance with the Pre-Admission Articles) out of existing financial resources.

In addition, on Admission the Group will repay the £50 million Perpetual Subordinated Loan Notes from the proceeds of the Offer.

151 PART VII

UNAUDITED PRO FORMA FINANCIAL INFORMATION

The unaudited pro forma statement of net assets set out below has been prepared to illustrate the PR Ann I, 20.2 impact of the Offer (and use of proceeds of the Offer) on the net assets of the Group. It has been PR Ann II, 1 compiled using the Group’s consolidated statement of financial position at 31 December 2012, adjusted to illustrate the pro forma effect of the Offer and other consequential items as if they had occurred on 31 December 2012. The unaudited pro forma net assets statement has been prepared under IFRS (in accordance with the accounting policies applied in preparing the Historical Group Financial Statements set out in Schedule II (Historical Financial Information) to this document), on the basis set out in the notes below, and in accordance with Annex I and Annex II to the Prospectus Directive Regulation.

The unaudited pro forma information has been prepared for illustrative purposes only and, because of its nature, addresses a hypothetical situation and, therefore, does not represent the Group’s actual financial position or results. It may not, therefore, give a true picture of the Group’s financial position or results nor is it indicative of the results that may or may not be expected to be achieved in the future.

Adjustments PR Ann II, 2, 3, 5 –––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– Unaudited Repayment of pro forma As at Repurchase of Perpetual Expenses of total as at 31 December Reduction of non-voting Proceeds of Subord. Loan Admission & 31 December 2012 capital equity the Offer Notes the Offer 2012 Note (1) Note (2) Note (3) Note (4) Note (5) Note (6) Note (7) £m £m £m £m £m £m £m Assets Total assets ...... –––––––– 1,314.5 –––––––– (40.0) –––––––– (45.5) –––––––– 50.0 –––––––– (50.0) –––––––– (7.0) –––––––– 1,222.0 Equity and liabilities Total equity ...... 231.1 (40.0) (45.5) 50.0 – (7.0) 188.6 –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– Liabilities Borrowings ...... 50.0 – – – (50.0) – – Other liabilities ...... 1,033.4 – – – – – 1,033.4 –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– Total liabilities ...... –––––––– 1,083.4 –––––––– 0.0 –––––––– 0.0 –––––––– 0.0 –––––––– (50.0) –––––––– 0.0 –––––––– 1,033.4 Total equity and liabilities –––––––– 1,314.5 –––––––– (40.0) –––––––– (45.5) –––––––– 50.0 –––––––– (50.0) –––––––– (7.0) –––––––– 1,222.0 Notes: PR Ann II, 4, 6 (1) The financial information as at 31 December 2012 has been extracted without adjustment from the Historical Financial Information set out in Schedule II (Historical Financial Information) to this document.

(2) On 21 February 2013, the Company reduced its capital by the cancellation of 4,000,000,000 Non-Voting Old Ordinary Shares of £0.01 each and, in consideration, paid £40 million in cash to Tosca Penta Investments LP (the holder of the Non-Voting Old Ordinary Shares so cancelled).

(3) On Admission, the Company will repurchase the outstanding 4,485,014,000 Non-Voting Old Ordinary Shares of £0.01 each at par and the outstanding 1,000 Redeemable Priority Return Shares of £0.01 each for an amount equal to the Priority Return (as defined and determined in accordance with the Pre-Admission Articles) from Tosca Penta Investments LP. The Non-Voting Old Ordinary Shares and Redeemable Priority Return Shares so purchased will be cancelled and a non-distributable capital redemption reserve of £44.85 million will be created. Assuming Admission occurs on or around 27 March 2013, the amount payable in respect of the Priority Return (as defined in the Pre- Admission Articles) will be £0.6 million.

(4) The proceeds of the Offer receivable by the Company are calculated on the basis that the Company issues sufficient New Ordinary Shares at the Offer Price to raise £50 million.

(5) On Admission, the Company will use all of the £50 million proceeds of the Offer to fund the repayment of the Group’s 50,000,000 Perpetual Subordinated Loan Notes of £1 each at par.

(6) The aggregate expenses of, or incidental to, Admission and the Offer to be borne by the Company are approximately £7.0 million (inclusive of amounts in respect of VAT), which the Company intends to pay out of cash resources.

(7) Save as set out in Note 2, no account has been taken of actual changes in the financial position of the Group since 31 December 2012. This pro forma financial information does not constitute financial statements within the meaning of section 434 of the Companies Act.

152 REPORT FROM KPMG AUDIT PLC ON THE PR Ann II, 7 UNAUDITED PRO FORMA FINANCIAL INFORMATION

KPMG Audit Plc Chartered Accountants 15 Canada Square Canary Wharf London E14 5GL United Kingdom

The Directors esure Group plc The Observatory Reigate Surrey RH2 0SG

8 March 2013

Dear Sirs esure Group plc

We report on the pro forma financial information (the ‘Pro forma financial information’) set out in Part VII of the prospectus dated 8 March 2012, which has been prepared on the basis described in notes 1 to 7, for illustrative purposes only, to provide information about how the Offer might have affected the financial information presented on the basis of the accounting policies set out in note 2 to the esure Group historical financial information on pages F-7 to F-17 of Schedule II (Historical Financial Information) to the prospectus. This report is required by paragraph 20.2 of Annex I of the Prospectus Directive Regulation and is given for the purpose of complying with that paragraph and for no other purpose.

Responsibilities It is the responsibility of the directors of esure Group plc to prepare the Pro forma financial information in accordance with paragraph 20.2 of Annex I of the Prospectus Directive Regulation.

It is our responsibility to form an opinion, as required by paragraph 7 of Annex II of the Prospectus Directive Regulation, as to the proper compilation of the Pro forma financial information and to report that opinion to you.

In providing this opinion we are not updating or refreshing any reports or opinions previously made by us on any financial information used in the compilation of the Pro forma financial information, nor do we accept responsibility for such reports or opinions beyond that owed to those to whom those reports or opinions were addressed by us at the dates of their issue.

Save for any responsibility arising under Prospectus Rule 5.5.3R (2)(f) to any person as and to the extent there provided, to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with paragraph 23.1 of Annex I of the Prospectus Directive Regulation, consenting to its inclusion in the prospectus.

Basis of Opinion We conducted our work in accordance with the Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. The work that we performed for the purpose of making this report, which involved no independent examination of any of the underlying financial information,

153 consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the Pro forma financial information with the directors of esure Group plc.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with reasonable assurance that the Pro forma financial information has been properly compiled on the basis stated and that such basis is consistent with the accounting policies of esure Group plc.

Our work has not been carried out in accordance with auditing or other standards and practices generally accepted in the United States of America or other jurisdictions and accordingly should not be relied upon as if it had been carried out in accordance with those standards and practices.

Opinion In our opinion:

• the Pro forma financial information has been properly compiled on the basis stated; and

• such basis is consistent with the accounting policies of esure Group plc.

Declaration For the purposes of Prospectus Rule 5.5.3R (2)(f) we are responsible for this report as part of the prospectus and declare that we have taken all reasonable care to ensure that the information contained in this report is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is included in the prospectus in compliance with paragraph 1.2 of Annex I of the Prospectus Directive Regulation.

Yours faithfully

KPMG Audit Plc

154 PART VIII

REPORTING ACTUARY’S OPINION

Saddlers Court 64-74 East Street Epsom Surrey KT17 1HB United Kingdom

T +44 1372 751060 F +44 1372 751061

towerswatson.com

8 March 2013

The Board of Directors esure Group plc (the “Company”) The Observatory Castlefield Road Reigate RH2 0SG

Dear Sirs

Independent External Actuaries’ Statement

Introduction At your request, Towers Watson Limited trading as Towers Watson (“we” or “Towers Watson”) has undertaken an independent actuarial review of outstanding claims provisions, claims handling expense provisions, additional unexpired risk reserves and reinsurance bad debt provisions of esure Group plc and its subsidiaries (the “esure Group”) as at 31 December 2012. Our review has been undertaken in connection with the proposed offering of ordinary shares of the Company and the admission to listing in the premium segment of the Official List maintained by the FSA and to trading on the London Stock Exchange.

This report, which has been produced for inclusion in the Prospectus issued by the Company dated 8 March 2013, sets out the scope of the work we have undertaken and summarises the conclusions of our work.

Save for any responsibility arising under Prospectus Rule 5.5.3R (2)(f) to any person as and to the extent there provided, to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any person or entity other than the Company for any loss suffered by any such other person or entity as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with paragraph 23.1 of Annex I of the Prospectus Directive Regulation, consenting to its inclusion in the Prospectus.

Our opinion based on this review is set out below.

Scope of Work This opinion addresses the net of outwards reinsurance outstanding claims provisions of the esure Group as at 31 December 2012 in respect of periods to 31 December 2012, and the related provisions in respect of the requirement for claims handling expenses, additional unexpired risk reserves and reinsurance bad debt.

Our independent actuarial review is in respect of the Motor, Household, Motor Legal Protection, Personal Injury Benefit, Car Hire Cover, Misfuelling Cover and Key Cover classes of business and

155 covers 100 per cent of the esure Group’s total booked consolidated reserves for net of outwards reinsurance outstanding claims, claims handling expenses, additional unexpired risk reserves and reinsurance bad debt.

A review of the premium reserves, reserves for future commissions, the need for any reinstatement premiums for reinsurance and any other technical provisions was outside the scope of our work and this opinion.

Reserves and provisions are calculated on an undiscounted basis with the exception of Periodical Payment Order claims (and associated reinsurance bad debt provisions) on the Motor account and the provision for additional unexpired risk reserves, consistent with UK financial reporting standards.

Opinion Based on the scope of work set out above, and subject to the reliances and limitations set out below, we report our conclusions as follows:

The esure Group establishes the reserves for its insurance business including a margin over and above its best estimate of future liabilities. Including this margin, in respect of periods to 31 December 2012, the esure Group held a net of outwards reinsurance outstanding claims provision together with the related provisions in respect of the requirement for claims handling expenses, additional unexpired risk reserves and reinsurance bad debt, together totalling £455.0 million as at 31 December 2012.

In our opinion, the esure Group’s overall outstanding claims provision, net of outwards reinsurance, together with the related provisions in respect of the requirement for claims handling expenses, additional unexpired risk reserves and reinsurance bad debt held at 31 December 2012 in respect of periods to 31 December 2012 (totalling £455.0 million) exceed our corresponding estimate by in excess of 15 per cent of our estimate.

Reliances and Limitations In our work, we have relied on audited and unaudited information and data supplied to us by the esure Group, including information given orally and on information from a range of other sources. We relied on the accuracy and completeness of this information without independent verification. In particular, reliance was placed on, but not limited to, the accuracy of levels of earned premiums and provisions, claim payments and provisions, terms of reinsurance arrangements, and basic data records regarding the above.

The results shown in this report are based on a series of assumptions regarding the future. It should be recognised that actual future claim experience is likely to deviate, perhaps materially, from our estimates. This is because the ultimate liability for claims will be affected by future external events; for example, the likelihood of claimants bringing suit, the size of judicial awards, changes in standards of liability, and the attitudes of claimants towards the settlement of their claims. We have employed appropriate techniques and assumptions, and the conclusions presented in this opinion are reasonable, given the information currently available.

We have not anticipated any extraordinary changes to the legal, social, inflationary or economic environment, or to the interpretation of policy language, that might affect the cost, frequency, or future reporting of claims. In addition, our estimates make no provision for potential future claims arising from causes not substantially recognised in the historical data (such as new types of mass torts, latent injuries or pandemic events), except in so far as claims of these types are included incidentally in the reported claims and are implicitly developed.

We have not attempted to determine the quality of the current asset portfolio of the esure Group, and we have assumed throughout our analysis that the esure Group’s claims reserves are backed by valid assets with suitably scheduled maturities and/or adequate liquidity to meet cash flow requirements. To the extent that the assets backing the reserves are not held in matching currencies, future changes in exchange rates may lead to exchange gains or losses.

156 We have not reviewed the adequacy of the balance sheet provisions except as otherwise disclosed herein.

It has been assumed for the purposes of this opinion that all of the esure Group’s reinsurance protection will be valid and collectible, although we have included in this opinion a reinsurance bad debt provision as at 31 December 2012 in respect of future reinsurance bad debt relating to reinsurer inability to pay. We understand that there are no known issues on outstanding reinsurance recoveries.

The scope of our analysis does not include comment on capital requirements. In particular we have not investigated the level of capital required to protect the esure Group from adverse claims experience.

The results shown in this report are not intended to represent an opinion of market value and should not be interpreted in that manner. This report does not purport to encompass all of the many factors that may bear upon a market value.

Our analysis of the liabilities was carried out based on data and documentation that was made available to us as at 31 December 2012. While we have considered some elements of the actual experience in the period to 2 January 2013 in respect of the December 2012 UK flood event when deriving our opinion as at 31 December 2012, our analysis does not consider other development or information that became available after this date. Our results, opinions and conclusions presented herein may be rendered inaccurate by developments or information after 31 December 2012.

Declaration For the purposes of Prospectus Rule 5.5.3R (2)(f) we are responsible for this report as part of the Prospectus and declare that we have taken all reasonable care to ensure that the information contained in this report is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is included in the Prospectus in compliance with paragraph 1.2 of Annex I of the Prospectus Directive Regulation.

Yours sincerely

Karl P Murphy MA FIA FSAI Anju Bell MA FIA Fellow of the Institute and Faculty of Actuaries Fellow of the Institute and Faculty of Actuaries For and on behalf of Towers Watson Limited For and on behalf of Towers Watson Limited

157 PART IX

INFORMATION ABOUT THE OFFER

1. OVERVIEW OF THE OFFER Issue of New Ordinary Shares by the Company Pursuant to the Offer, the Company shall issue up to 20,833,334 New Ordinary Shares, raising proceeds of £50 million. The underwriting commissions and other estimated fees and expenses to be borne by the Company in relation to the Offer and Admission are estimated to be approximately £7.0 million (inclusive of amounts in respect of VAT). Assuming the Offer Price is set at the mid-point of the Price Range, the New Ordinary Shares will represent approximately 4.4 per cent of the issued ordinary share capital of the Company on Admission.

Sale of Existing Ordinary Shares by Selling Shareholders The Company is also facilitating the sale of Existing Ordinary Shares by Existing Shareholders. The PR Ann III, 7.2, 8.1 maximum number of Existing Ordinary Shares that may be subject to the Offer is 191,735,483. Based on the Mid-point Assumptions, the number of Existing Ordinary Shares subject to the Offer would be 159,375,454, representing approximately 38.1 per cent of the issued ordinary share capital of the Company on Admission, pursuant to which the Company expects that the Selling Shareholders would in aggregate raise approximately £438.3 million (before taking into account expenses). On that basis, the aggregate underwriting commissions and amounts in respect of stamp duty or SDRT payable by the Selling Shareholders in connection with the Offer will be up to approximately £15.3 million. In addition, up to a further 31,532,500 Existing Ordinary Shares may be sold by the Major Shareholders pursuant to the Over-allotment Arrangements or, based on the Mid-point Assumptions, a further 26,633,590 Existing Ordinary Shares.

The number of Existing Ordinary Shares to be made available by the Selling Shareholders pursuant to the Offer is indicative only and the selling indications of certain Existing Shareholders described in, assumed in or implied by this document are non-binding. Although the maximum number of Existing Ordinary Shares that are subject to the Offer cannot be increased, it can decrease (including, in theory, to such number as would, when added with the number of New Ordinary Shares made available by the Company pursuant to the Offer, still allow the Company to meet the minimum free float requirements of the UK Listing Authority).

Ordinary Shares in public hands On the basis that the number of Ordinary Shares subject to the Offer represents between approximately LR 6.1.19 35 per cent and approximately 50 per cent of the Ordinary Shares in issue immediately following Admission, it is estimated that between approximately 38 per cent and approximately 54 per cent of the Ordinary Shares will be in public hands (within the meaning of Rule 6.1.19 of the Listing Rules) immediately following Admission (calculated before utilisation of the Over-allotment Arrangements). If the Over-allotment Option is exercised in full, it is estimated that between approximately 43 per cent and approximately 61 per cent of the Ordinary Shares will be in public hands.

Underwriting Arrangements The Offer is, subject to certain conditions, fully underwritten by the Underwriters in accordance with the terms of the Underwriting Agreement summarised in section 16.5 of Part XII (Additional Information).

Structure of the Offer The Offer is being made by way of: PR Ann III, 5.2.1

• an Institutional Offer: (i) to certain institutional investors in the UK and elsewhere outside the United States in reliance on Regulation S and (ii) in the United States, only to persons reasonably believed to be QIBs in reliance on Rule 144A or pursuant to another exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act; and

158 • an Intermediaries Offer to Intermediaries for onward distribution to retail investors in the UK, the Channel Islands and the Isle of Man.

Certain restrictions that apply to the distribution of this document and the Ordinary Shares being issued or sold in jurisdictions outside the UK are described in section 12 of this Part IX.

Conditions to the Offer The Offer is conditional on, inter alia: PR Ann III, 5.1.1

(A) the Underwriting Agreement becoming unconditional (save for Admission) and not having been terminated in accordance with its terms prior to Admission; and

(B) Admission occurring on or prior to 27 March 2013 (or such later date as the Joint Global Co- ordinators (on behalf of the Underwriters) and the Company may agree).

The Company, the Major Shareholders and the Underwriters expressly reserve the right to determine, PR Ann III, 5.1.4 at any time prior to Admission, not to proceed with the Offer. If such right is exercised, the Offer will lapse and any monies received in respect of the Offer will be returned to Investors without interest.

2. ALLOCATION Allocations under the Offer will be determined by the Company in consultation with the Joint Global Co-ordinators (on behalf of the Underwriters). Applicants under the Offer may be allocated Ordinary Shares having a value which is less than the sum applied for. A number of factors will be considered in determining the basis of allocation, including the level and nature of demand for Ordinary Shares and PR Ann III, 5.1.8 the objective of establishing an orderly after-market in the Ordinary Shares. All Ordinary Shares issued or sold pursuant to the Offer will be issued or sold, payable in full, at the Offer Price. Each Investor will be required to undertake to pay the Offer Price for the Ordinary Shares sold or issued to such Investor in such manner as shall be directed by the Underwriters.

Liability for stamp duty and SDRT is described in Part XI (Taxation).

Investors will be notified of the number of Ordinary Shares they have been allocated by the Joint Global PR Ann III, 5.1.7, Co-ordinators. Dealing may not begin before notification is made. Upon accepting any allocation, each 5.2.4 Investor will be contractually committed to acquire the number of Ordinary Shares allocated to it at the Offer Price and, to the fullest extent permitted by law, will be deemed to have agreed that it will not be entitled to exercise any rights to rescind or terminate or, subject to any statutory withdrawal rights, otherwise withdraw from, such commitment.

3. LISTING, DEALING AND SETTLEMENT ARRANGEMENTS The Offer is subject to the satisfaction of certain conditions contained in the Underwriting Agreement, which are typical for an agreement of this nature. Certain conditions are related to events which are outside the control of the Company, the Major Shareholders, the Directors and the Underwriters. Further details of the Underwriting Agreement are described in section 16.5 of Part XII (Additional Information) of this document.

It is expected that Admission will take place and unconditional dealings in the Ordinary Shares will PR Ann III, 4.7, 5.1.3 commence on the London Stock Exchange at 8.00 a.m. on 27 March 2013. Prior to Admission, it is expected that dealings in the Ordinary Shares will commence on a conditional basis on the London Stock Exchange on 22 March 2013. The earliest date for settlement of such dealings will be 27 March 2013. All dealings in the Ordinary Shares prior to the commencement of unconditional dealings will be on a “when issued” basis and will be of no effect if Admission does not take place and such dealings will be at the sole risk of the parties concerned. These dates and times may be changed without further notice.

159 It is expected that Ordinary Shares allocated to Investors pursuant to the Offer will be delivered in PR Ann III, 4.3, uncertificated form and settlement will take place through CREST on Admission. If applicable, definitive 5.1.8 share certificates will be despatched by the Registrar. No temporary documents of title will be issued. Dealings in advance of crediting of the relevant CREST stock account shall be at the risk of the person concerned.

4. OVER-ALLOTMENT AND STABILISATION In connection with the Offer, J.P. Morgan Cazenove (as Stabilising Manager), or any of its agents, may PR Ann III, 6.5.1, (but will be under no obligation to), to the extent permitted by applicable law and for stabilisation 6.5.2, 6.5.3, 6.5.4 purposes, over-allot Ordinary Shares up to a total of 15 per cent of the total number of Ordinary Shares comprised in the Offer or effect other transactions with a view to supporting the market price of the Ordinary Shares at a higher level than that which might otherwise prevail in the open market. The Stabilising Manager is not required to enter into such transactions and such transactions may be effected on any securities market, over-the-counter market, stock exchange or otherwise and may be undertaken at any time during the period commencing on the date of the conditional dealings of the Ordinary Shares on the London Stock Exchange and ending no later than 30 calendar days thereafter. Such stabilisation, if commenced, may be discontinued at any time without prior notice. In no event will measures be taken to stabilise the market price of the Ordinary Shares above the Offer Price. Except as required by law or regulation, neither the Stabilising Manager nor any of its agents intends to disclose the extent of any over-allotments made and/or stabilisation transactions conducted in relation to the Offer.

For the purposes of allowing the Stabilising Manager to cover short positions resulting from any such PR Ann III, 5.2.5(a), over-allotment and/or from sales of Ordinary Shares effected by it during the stabilising period, it has 5.2.5(b), entered into the Over-allotment Option with the Major Shareholders pursuant to which it may purchase 5.2.5(c) (or nominate purchasers of) Over-allotment Shares representing up to 15 per cent of the total number of Ordinary Shares comprised in the Offer (before any utilisation of the Over-allotment Arrangements) at the Offer Price. The Over-allotment Option may be exercised in whole or in part upon notice by the Stabilising Manager at any time on or before the 30th calendar day after the commencement of conditional dealings of the Ordinary Shares on the London Stock Exchange. Any Over-allotment Shares made available pursuant to the Over-allotment Option will be sold on the same terms and conditions as Ordinary Shares being offered pursuant to the Offer and will rank pari passu in all respects with, and form a single class with, the other Ordinary Shares (including for all dividends and other distributions declared, made or paid on the Ordinary Shares).

For further details regarding the Over-allotment Option, please refer to section 16.5 (Underwriting Agreement) of Part XII (Additional Information) of this document.

5. CREST CREST is a paperless settlement system allowing securities to be transferred from one person’s PR Ann III, 4.3, CREST account to another’s without the need to use share certificates or written instruments of transfer. 5.1.8 On Admission, the Articles will permit the holding of Ordinary Shares under the CREST system. The Company has applied for the Ordinary Shares to be admitted to CREST with effect from Admission. Accordingly, settlement of transactions in the Ordinary Shares following Admission may take place within the CREST system if any Shareholder so wishes. CREST is a voluntary system and holders of Ordinary Shares who wish to receive and retain share certificates will be able to do so.

6. UNDERWRITING ARRANGEMENTS From Admission, the Offer is fully underwritten by the Underwriters in accordance with the terms of the PR Ann III, 5.4.4 Underwriting Agreement, which was entered into by the Underwriters, the Company, the Directors and 6.4 the Major Shareholders on 8 March 2013. A description of the principal terms of the Underwriting Agreement is set out in sections 16.5 of Part XII (Additional Information).

160 7. RESTRICTIONS AND LOCK-UP ARRANGEMENTS Pursuant to the Underwriting Agreement: PR Ann III, 7.3

• the Company has agreed that, except pursuant to certain customary exemptions (including so as to permit compliance with applicable law and/or regulation), from the date of the Underwriting Agreement it will not:

(i) for a period of 60 days, enter into any material commitments or agreements except for those that have previously been publicly disclosed or are in the ordinary course of business;

(ii) for a period of 180 days, directly or indirectly allot or issue any new Ordinary Shares or securities convertible into or exchangeable for, or substantially similar to, new Ordinary Shares or enter into any transaction with the same economic effect as, or agree to do, any of the foregoing, in each case, other than:

(a) pursuant to the Offer; and

(b) pursuant to the operation of any share schemes in existence at the date of Admission (including the PSP); and

(iii) for a period of 60 days, issue any public announcement that is material in the context of the Offer,

without the prior written consent of the Joint Global Co-ordinators (on behalf of the Underwriters) (other than in the case of the issue of new Ordinary Shares or exchangeable or convertible securities, such consent not to be unreasonably withheld or delayed);

• Peter Wood and the other Directors (except David Calder and Charles Schrager von Altishofen, who will both retire from the Board on Admission), have undertaken that, from the date of the Underwriting Agreement, they will not for a period of 365 days sell any Ordinary Shares outside the Offer without the prior written consent of the Joint Global Co-ordinators (on behalf of the Underwriters) except pursuant to certain customary exemptions (which, in respect of Peter Wood, include any sale of Ordinary Shares pursuant to the Over-allotment Arrangements or pursuant to the Stock Lending Agreement); and

• Tosca Penta Investments LP has undertaken that, from the date of the Underwriting Agreement, it will not for a period of 180 days sell any Ordinary Shares outside the Offer without the prior written consent of the Joint Global Co-ordinators (on behalf of the Underwriters) except pursuant to certain customary exemptions (which include any sale of Ordinary Shares pursuant to the Over-allotment Arrangements or pursuant to the Stock Lending Agreement).

The ability of the Joint Global Coordinators to exercise a waiver of any of the share sale or share issue lock-up undertakings shall only arise 90 days after Admission.

Peter Wood has also entered into an extended lock-up whereby he has undertaken to the Company that, from the date of this document, he will not, for a period ending two years after Admission, sell Ordinary Shares representing approximately two thirds of his holding immediately following Admission (calculated on the basis of the Mid-point Assumptions).

In addition, in order to sell through the Offer, other Selling Shareholders will be required pursuant to the Small Selling Shareholder Arrangements to undertake to the Company to withhold from any further sales of their Ordinary Shares for the following periods:

• in the case of Employee Shareholders, for a period of at least 365 days from the date of the Underwriting Agreement; and

161 • in the case of Non-Employee Shareholders, for period of at least 180 days from the date of the Underwriting Agreement, in each case subject to certain customary exemptions.

8. OFFER PRICE AND BOOKBUILDING The Offer Price will be agreed between the Company, the Major Shareholders and the Joint Global PR Ann III, 5.3.2 Co-ordinators and is expected to be announced on or around 22 March 2013 via a Regulatory 5.3.7 Information Service, together with details of the final number of Ordinary Shares subject to the Offer. This information will also be set out in the Pricing Statement. The Pricing Statement will not automatically be sent to persons who receive this document, but will be available free of charge at the registered office of the Company at The Observatory, Castlefield Road, Reigate, Surrey RH2 0SG. In addition, the Pricing Statement will, subject to certain restrictions, be published in electronic form and be available on the Company’s website at www.esuregroup.com.

Price of Ordinary Shares sold pursuant to the Offer The Ordinary Shares being issued or sold to Investors pursuant to the Offer will be issued or sold at the Offer Price, which is expected to be announced on or around 22 March 2013 and published in the Pricing Statement.

It is currently expected that the Offer Price will be within the Price Range, but this range is indicative only and the Offer Price may be set within, above or below it. A number of factors will be considered in determining the Offer Price, including the level and the nature of the demand for Ordinary Shares, the prevailing market conditions and the objective of establishing an orderly and liquid after-market in the Ordinary Shares. The Offer Price will be established at a level determined in accordance with these arrangements, taking into account indications of interest received (whether before or after the times and/or dates stated) from persons (including market-makers and fund managers) connected with the Joint Global Co-ordinators. The Company, the Major Shareholders and the Joint Global Co-ordinators reserve the right to increase or decrease the aggregate number of Ordinary Shares made offered pursuant to the Offer. If the Price Range changes prior to the announcement of the final Offer Price, the revised Price Range will be announced and advertised as soon as possible and the Company will publish a supplementary prospectus and each applicant may exercise their withdrawal rights as set out in paragraph 11 below.

The Underwriters will solicit from prospective investors indications of interest in acquiring Ordinary PR Ann III, 5.1.3 Shares under the Institutional Offer. Prospective institutional investors will be required to specify the 5.2.1 number of Ordinary Shares which they would be prepared to acquire either at specified prices or at the Offer Price (as finally determined). There is no minimum or maximum number of Ordinary Shares which can be applied for under the Institutional Offer.

In addition, applications are expected to be sought by the Intermediaries from their selected clients under the Intermediaries Offer on the basis that the number of Offer Shares which may be allocated will vary depending on the final Offer Price. Applications will then be made by the Intermediaries on behalf of their clients through the Joint Global Co-ordinators and this demand will be taken into account by the Company and the Joint Global Co-ordinators alongside indications of interest in the Institutional Offer in conducting the bookbuilding process described above in respect of the Offer.

Allocations under the Offer will be determined by the Company following consultation with the Joint Global Co-ordinators (on behalf of the Underwriters). A number of factors will be considered in determining the basis of allocation, including the level and nature of demand for the Ordinary Shares in the Offer and the objective of establishing an orderly and liquid after-market in the Ordinary Shares. If there is excess demand for Ordinary Shares, allocations may be scaled down and applicants may be allocated Ordinary Shares having an aggregate value which is less than the sum applied for. Such Ordinary Shares may be allocated at the discretion of the Company following consultation with the Joint Global Co-ordinators (on behalf of the Underwriters). In such event, there is no obligation for such

162 Ordinary Shares to be allocated proportionately (and some applicants may receive no Ordinary Shares).

9. THE INSTITUTIONAL OFFER Under the Institutional Offer, the Ordinary Shares will be offered to (i) certain institutional investors in PR Ann III, 5.2.1 the UK and elsewhere outside the United States in reliance on Regulation S and (ii) in the United States, 5.2.4 only to persons reasonably believed to be QIBs in reliance on Rule 144A or pursuant to another exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act. Certain restrictions that apply to the distribution of this document and the offer and sale of the Ordinary Shares in jurisdictions outside the United Kingdom are described below in paragraph 12.

The latest time and date for indications of interest in acquiring Ordinary Shares under the Institutional Offer are set out on page 24 (Expected Timetable of Principal Events) but that time may be extended at the discretion of the Joint Global Co-ordinators (with the agreement of the Company and the Major Shareholders).

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

10. THE INTERMEDIARIES OFFER Members of the general public will not be able to apply directly for Ordinary Shares in the Offer. They PR Ann III, 5.1.5 may, however, be eligible to apply for Ordinary Shares through the Intermediaries, by following their 5.2.1 relevant application procedures, by no later than 19 March 2013. The Intermediaries may not permit the PR Ann XXX, 1.3 underlying applicants to make more than one application under the Intermediaries Offer (whether on their own behalf or through other means, including, but without limitation, through a trust or pension plan).

The Intermediaries Offer is being made to retail investors in the United Kingdom, the Channel Islands PR Ann XXX, 1.4 and the Isle of Man only.

No Ordinary Shares allocated under the Intermediaries Offer will be registered in the name of any person whose registered address is outside the United Kingdom except in certain limited circumstances and with the consent of the Joint Global Co-ordinators. Applications under the Intermediaries Offer must be by reference to the total monetary amount the applicant wishes to invest and not by reference to a number of shares or the Offer Price.

An application for Ordinary Shares in the Intermediaries Offer means that the applicant agrees to acquire the Ordinary Shares at the Offer Price. Each applicant must comply with the appropriate money laundering checks required by the relevant Intermediary. Where an application is not accepted or there are insufficient Ordinary Shares available to satisfy an application in full, the relevant Intermediary will be obliged to refund the applicant as required and all such refunds shall be made without interest and shall be despatched by post to return address given by the applicant and will be despatched at the relevant Intermediary’s risk. The Company, the Underwriters and the Major Shareholders accept no responsibility with respect to the obligation of the Intermediaries to refund monies in such circumstances.

In making an application, each Intermediary will also be required to represent and warrant that they are not located in the United States and are not acting on behalf of anyone located in the United States.

163 The Intermediaries may prepare certain materials for distribution or may otherwise provide information PR Ann III 5.2.4 or advice to retail investors in the UK, subject to the terms of the Intermediaries Agreement. Any such PR Ann XXX, 2B materials, information or advice are solely the responsibility of the Intermediaries and shall not be reviewed or approved by any of the Underwriters, the Selling Shareholders or the Company. Any liability relating to such documents will be for the Intermediaries only. Any Intermediary that uses this document must state on its website that it uses this document in accordance with the Company’s consent. Intermediaries are required to provide the terms and conditions of the Intermediaries Offer to any prospective investor who has expressed an interest in participating in the Intermediaries Offer.

Each Intermediary will be informed by the Joint Global Co-ordinators by fax or email of the aggregate number of Ordinary Shares allocated in aggregate to their underlying clients (or to the Intermediaries themselves) and the total amount payable in respect thereof. The aggregate allocation of Ordinary Shares as between the Institutional Offer and the Intermediaries Offer will be determined by the Company in consultation with the Joint Global Co-ordinators (on behalf of the Underwriters). Under the Intermediaries Offer, the Ordinary Shares will be offered outside the United States only in offshore transactions as defined in, and in reliance on, Regulation S.

The publication of this document and/or any supplementary prospectus and any other actions of the Company, the Major Shareholders, the Underwriters, the Intermediaries or other persons in connection with the Offer should not be taken as any representation or assurance by any such person as to the basis on which the number of Ordinary Shares to be offered under the Intermediaries Offer or allocations within the Intermediaries Offer will be determined, and all liabilities for any such action or statement are hereby disclaimed by the Company, the Major Shareholders and the Underwriters.

Pursuant to the Intermediaries Agreement, the Intermediaries have undertaken to make payment on their own behalf (not on behalf of any other person) of the consideration for the Ordinary Shares allocated, at the Offer Price, to the Joint Global Co-ordinators in accordance with details to be communicated on or after the time of allocation, by means of CREST against the delivery of the Ordinary Shares at the time and/or date set out on page 24 (Expected Timetable of Principal Events), or at some other time and/or date after the day of publication of the Offer Price as may be agreed by the Company, the Major Shareholders and the Joint Global Co-ordinators and notified to the Intermediaries.

11. WITHDRAWAL RIGHTS In the event that the Company is required to publish any supplementary prospectus, applicants who PR Ann III, 5.1.7 have applied for Ordinary Shares in the Offer shall have at least two clear business days following the publication of the relevant supplementary prospectus within which to withdraw their offer to subscribe for or purchase Ordinary Shares in the Offer in its entirety. The right to withdraw an application to subscribe for or purchase Ordinary Shares in the Offer in these circumstances will be available to all Investors. If the application is not withdrawn within the stipulated period, any offer to apply for Ordinary Shares in the Offer will remain valid and binding.

Any supplementary prospectus will not automatically be distributed to prospective Investors but will be published in accordance with the Prospectus Rules (and notification thereof will be made to a Regulatory Information Service). Any such supplementary prospectus will be available in printed form free of charge at the registered office of the Company and at the offices of the Joint Global Co- ordinators until 28 days after Admission.

Details of how to withdraw an application will be made available if a supplementary prospectus is published. Applicants who have applied via an Intermediary should contact the relevant Intermediary for details of how to withdraw an application.

12. SELLING RESTRICTIONS The distribution of this document and the offer of Ordinary Shares in certain jurisdictions may be restricted by law and therefore persons into whose possession this document comes should inform

164 themselves about and observe any restrictions, including those set out in the paragraphs that follow. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction.

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

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

(A) United States The Ordinary Shares have not been and will not be registered under the US Securities Act and may not be offered or sold within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act and in compliance with any applicable state securities laws. Prospective Investors are hereby notified that sales of Ordinary Shares may be made in reliance on an exemption from the provisions of Section 5 of the US Securities Act. The Underwriters, through their respective selling agents, may arrange for the offer and resale of the Ordinary Shares in the United States only to persons reasonably believed to be QIBs in reliance on Rule 144A or pursuant to another exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act. Any offer or sale of shares in the United States will be made by broker-dealers who are registered as such under the US Exchange Act.

(B) European Economic Area In relation to each EEA State which has implemented the Prospectus Directive (each a “relevant member state”), no Ordinary Shares have been offered or will be offered pursuant to the Offer to the public in that relevant member state prior to the publication of a prospectus in relation to the Ordinary Shares which has been approved by the competent authority in that relevant member state or, where appropriate, approved in another relevant member state and notified to the competent authority in the relevant member state, all in accordance with the Prospectus Directive, except that offers of Ordinary Shares may be made to the public in that relevant member state at any time under the following exemptions under the Prospectus Directive, if they are implemented in that relevant member state:

(i) to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities;

(ii) to any legal entity which has two or more of (i) an average of at least 250 employees during the last financial year; (ii) a total balance sheet of more than €43 million; and (iii) an annual turnover of more than €50 million, as shown in its last annual or consolidated accounts;

(iii) to fewer than 150 natural or legal persons in a relevant member state (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the Underwriters; or

165 (iv) in any other circumstances which do not require the publication by the Company of a prospectus pursuant to Article 3(2) of the Prospectus Directive, provided that no such offer of Ordinary Shares shall result in a requirement for the publication of a prospectus pursuant to Article 3 of the Prospectus Directive or any measure implementing the Prospectus Directive in a relevant member state and each person who initially acquires any Ordinary Shares or to whom any offer is made under the Offer will be deemed to have represented, acknowledged and agreed that it is a “qualified investor” within the meaning of Article 2(1)(e) of the Prospectus Directive.

For the purposes of this provision, the expression “an offer of any Ordinary Shares to the public” in relation to any Ordinary Shares in any relevant member state means the communication to persons in any form and by any means presenting sufficient information on the terms of the Offer and any Ordinary Shares to be offered so as to enable an investor to decide to acquire any Ordinary Shares, as the same may be varied in that relevant member state by any measure implementing the Prospectus Directive in that relevant member state.

In the case of any Ordinary Shares being offered to a financial intermediary as that term is used in Article 3(2) of the Prospectus Directive, such financial intermediary will also be deemed to have represented, acknowledged and agreed that the Ordinary Shares acquired by it in the Offer have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to persons in circumstances which may give rise to an offer of any Ordinary Shares to the public other than their offer or resale in a relevant member state to qualified investors as so defined or in circumstances in which the prior consent of the Underwriters has been obtained to each such proposed offer or resale. The Company, the Selling Shareholders, the Underwriters and their affiliates, and others will rely upon the truth and accuracy of the foregoing representation, acknowledgement and agreement. Notwithstanding the above, a person who is not a qualified investor and who has notified the Underwriters of such fact in writing may, with the prior consent of the Underwriters, be permitted to acquire Ordinary Shares in the Offer.

(C) Australia This document has not been, and will not be, lodged with the Australian Securities and Investments Commission as a disclosure document under Chapter 6D of the Australian Corporations Act 2001 (the “Corporations Act”). This document does not purport to include the information required of a disclosure document under Chapter 6D of the Corporations Act. Accordingly, this document and any other document or material in connection with the Offer or Sale, or invitation for subscription or purchase, of Ordinary Shares must not be issued or distributed directly or indirectly in or into Australia, and no Ordinary Shares may be offered for sale (or transferred, assigned or otherwise alienated) to investors in Australia for at least 12 months after their issue, except in circumstances where disclosure to investors is not required under Part 6D.2 of the Corporations Act 2001.

Each investor acknowledges the above and, by applying for Ordinary Shares under this document, gives an undertaking to the Company not to offer, sell, transfer, assign or otherwise alienate those securities to persons in Australia (except in the circumstances referred to above) for 12 months after their issue.

(D) Canada The Ordinary Shares have not been, and will not be, qualified by a prospectus in accordance with the prospectus requirements under applicable securities law in any Canadian jurisdiction and therefore may not be offered or sold, directly or indirectly, in Canada except in compliance with an exemption from applicable Canadian securities laws.

(E) Japan The Ordinary Shares offered hereby have not been and will not be registered under the Financial Instruments and Exchange Act of Japan (Act No. 25 of 1948, as amended) (the ‘‘Financial Instruments and Exchange Act’’). Accordingly, no Ordinary Shares will be offered or sold, directly or indirectly, in

166 Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organised under the laws of Japan) or to others for re-offering or resale, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Act and other relevant laws and regulations of Japan.

(F) Switzerland This document does not constitute a prospectus within the meaning of Art. 652a of the Swiss Code of Obligations. The Ordinary Shares may not be sold directly or indirectly in or into Switzerland except in a manner which will not result in a public offering within the meaning of the Swiss Code of Obligations. Neither this document nor any other offering materials relating to the Ordinary Shares may be distributed, published or otherwise made available in Switzerland except in a manner which will not constitute a public offer of the Ordinary Shares in Switzerland.

13. TERMS AND CONDITIONS OF THE OFFER These terms and conditions apply to Investors agreeing to subscribe for New Ordinary Shares and/or PR Ann III, 5.1.1 purchase Existing Ordinary Shares under the Offer. Each Investor agrees with each of the Company, the Selling Shareholders and the Underwriters to be bound by these terms and conditions as being the terms and conditions upon which Ordinary Shares will be issued and/or sold under the Offer.

13.1 Agreement to acquire Ordinary Shares Conditional on (i) Admission occurring on or prior to 27 March 2013 (or such later date as the Joint PR Ann III, 5.1.3, Global Co-ordinators (on behalf of the Underwriters) and the Company may agree), and (ii) the Investor 5.2.3(g) being allocated Ordinary Shares, each Investor agrees to become a member of the Company and agrees to acquire Ordinary Shares at the Offer Price. The number of Ordinary Shares allocated to such Investor under the Offer shall be in accordance with the arrangements described in section 2 of this Part IX (Information about the Offer). To the fullest extent permitted by law, each Investor acknowledges and agrees that it will not be entitled to exercise any rights to rescind or terminate or, subject to any statutory withdrawal rights, otherwise withdraw from, such commitment.

13.2 Payment for Ordinary Shares PR Ann III, 5.1.8 Each Investor undertakes to pay the Offer Price for the Ordinary Shares issued to or acquired by such Investor in such manner as shall be directed by the Joint Global Co-ordinators (on behalf of themselves and the other Underwriters). In the event of any failure by any Investor to pay as so directed by the Joint Global Co-ordinators, the relevant Investor shall be deemed thereby to have appointed the Joint Global Co-ordinators or any nominee of the Joint Global Co-ordinators to sell (in one or more transactions) any or all of the Ordinary Shares in respect of which payment shall not have been made as directed by the Joint Global Co-ordinators and indemnifies on demand the Joint Global Co-ordinators and/or any relevant nominee of the Joint Global Co-ordinators in respect of any liability for stamp duty and/or SDRT arising in respect of any such sale or sales.

Liability for stamp duty and SDRT is described in Part XI (Taxation).

13.3 Representations and warranties Each Investor and, in the case of sub-paragraphs (K) and (U) below, any person confirming an agreement to subscribe for and/or to purchase Ordinary Shares on behalf of an Investor or authorising the Joint Global Co-ordinators (on behalf of themselves and the other Underwriters) to notify the Investor’s name to the Registrars, represents, warrants and acknowledges to each of the Company, the Selling Shareholders and the Underwriters that:

167 (A) if the Investor is a natural person, such Investor is not under the age of majority (18 years of age in the UK) on the date of such Investor’s agreement to subscribe for and/or purchase Ordinary Shares under the Offer;

(B) the content of this document is exclusively the responsibility of the Company and the Directors PR Ann I, 1.1, 1.2 and that neither the Underwriters nor any person acting on their behalf is responsible for or shall PR Ann III, 1.1, 1.2 have any liability for any information, representation or statement contained in this document or any information previously published by or on behalf of the Company or any member of the Group and will not be liable for any decision by an Investor to participate in the Offer based on any information, representation or statement contained in this document or otherwise;

(C) in agreeing to subscribe for and/or purchase Ordinary Shares under the Offer, the Investor is relying on this document and any supplementary prospectus that may be issued by the Company, and not on any other information or representation concerning the Group, the Selling Shareholders, the Ordinary Shares or the Offer. Such Investor agrees that none of the Company, the Selling Shareholders, the Underwriters nor any of their respective officers, partners or directors will have any liability for any such other information or representation and irrevocably and unconditionally waives any rights it may have in respect of any such other information or representation. This section 13.3 of Part IX (Information about the Offer) shall not exclude any liability for fraudulent misrepresentation;

(D) the Underwriters are not making any recommendations to Investors or advising any of them regarding the suitability or merits of any transaction they may enter into in connection with the Offer, and each Investor acknowledges that participation in the Offer is on the basis that it is not and will not be a client of any of the Underwriters and that the Underwriters are acting for the Company and the Selling Shareholders and no one else, and they will not be responsible to anyone else for the protections afforded to their respective clients, and that the Joint Global Co- ordinators will not be responsible to anyone other than the Company for providing advice in relation to the Offer, the contents of this document or any transaction, arrangements or other matters referred to herein, and the Underwriters will not be responsible to anyone other than the relevant party to the Underwriting Agreement in respect of any representations, warranties, undertakings or indemnities contained in the Underwriting Agreement or for the exercise or performance of the Underwriters’ rights and obligations thereunder, including any right to waive or vary any condition or exercise any termination right contained therein;

(E) if the laws of any place outside the UK are applicable to the Investor’s agreement to subscribe for and/or purchase Ordinary Shares, such Investor has complied with all such laws and none of the Company, the Selling Shareholders or the Underwriters will infringe any laws outside the UK as a result of such Investor’s agreement to subscribe for and/or purchase Ordinary Shares or any actions arising from such Investor’s rights and obligations under the Investor’s agreement to subscribe for and/or purchase Ordinary Shares and under the Articles (and, in making this representation and warranty, the Investor confirms that it is aware of the selling and transfer restrictions set out in section 12 of Part IX (Information about the Offer));

(F) it understands that no action has been or will be taken in any jurisdiction other than the UK by the PR Ann III, 5.2.1 Company or any other person that would permit a public offering of the Ordinary Shares, or possession or distribution of this document, in any country or jurisdiction where action for that purpose is required; (G) if the Investor is in any EEA State which has implemented the Prospectus Directive it is: (a) a legal entity which is authorised or regulated to operate in the financial markets or, if not so authorised or regulated, its corporate purpose is solely to invest in securities; (b) a legal entity which has two or more of (i) an average of at least 250 employees during the last financial year; (ii) a total balance sheet of more then €43 million; and (iii) an annual turnover of more than €50 million, as shown in its last annual or consolidated accounts; or (c) otherwise permitted by law to be offered and sold Ordinary Shares in circumstances which do not require the publication by the Company of a prospectus pursuant to Article 3 of the Prospectus Directive or other applicable laws;

168 (H) the Investor is not a national, resident or citizen of Australia or Japan or a corporation, partnership or other entity organised under the laws of Australia or Japan, that the Investor will not offer, sell, renounce, transfer or deliver, directly or indirectly, any of the Ordinary Shares in Australia or Japan or to any national, resident or citizen of Australia or Japan and the Investor acknowledges that the Ordinary Sharers have not been and will not be registered under the applicable securities laws of Australia or Japan and that the same are not being offered for subscription or sale, and may not, directly or indirectly, be offered, sold, transferred or delivered, in Australia or Japan;

(I) the Investor is participating in the Offer in compliance with the selling and transfer restrictions set out in section 12 of Part IX (Information about the Offer), including the representations and acknowledgements contained therein. The Ordinary Shares have not been and will not be registered under the US Securities Act, or qualified for sale under the laws of any state of the United States. Subject to certain exceptions, the Ordinary Shares may not be offered or sold in or into the United States. The Ordinary Shares are being offered and sold in the United States to persons reasonably believed to be QIBs in reliance on Rule 144A or pursuant to another exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act and outside the United States in accordance with Regulation S;

(J) the Investor is liable for any capital duty, stamp duty, stamp duty reserve tax and all other stamp, PR Ann III, 5.3.1 issue, securities, transfer, registration, documentary or other duties or taxes (including any interest, fines or penalties relating thereto) payable outside the UK by it or any other person on the acquisition by it of any Ordinary Shares or the agreement by it to acquire any Ordinary Shares;

(K) in the case of a person who confirms to any Underwriter, on behalf of an Investor, an agreement to subscribe for and/or purchase Ordinary Shares and/or who authorises the Joint Global Co- ordinators (on behalf of themselves and the other Underwriters) to notify the Investor’s name to the Registrars, that person represents and warrants that he, she or it has authority to do so on behalf of the Investor;

(L) the Investor has complied with its obligations in connection with money laundering and terrorist financing under the Proceeds of Crime Act 2002, the Terrorism Act 2000 and the Money Laundering Regulations 2007 (the “Regulations”) and, if it is making payment on behalf of a third party, it has obtained and recorded satisfactory evidence to verify the identify of the third party as required by the Regulations;

(M) the Investor is not, and is not applying as nominee or agent for, a person which is, or may be, mentioned in any of sections 67, 70, 93 and 96 of the Finance Act 1986 (depository receipts and clearance services);

(N) if the Investor is in the UK, it is: (a) a person having professional experience in matters relating to investments who falls within the definition of “investment professionals” in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Financial Promotion Order”); or (b) a high net worth body corporate, unincorporated association or partnership or trustee of a high value trust as described in Article 49(2) of the Financial Promotion Order, or is otherwise a person to whom an invitation or inducement to engage in investment activity may be communicated without contravening section 21 of FSMA;

(O) the Investor acknowledges that the Ordinary Shares have not been and will not be registered under the US Securities Act, or qualified for sale under the laws of any state of the United States and that, subject to certain exceptions, the Ordinary Shares may not be offered or sold in or into the United States except to persons reasonably believed to be QIBs in reliance on Rule 144A or pursuant to another exemption from, or in a transaction not subject to, the registration requirements of the US Securities Act. The Ordinary Shares are being offered and sold outside the United States in accordance with Regulation S;

169 (P) each Investor who purchases Ordinary Shares pursuant to Regulation S will be deemed to have represented and agreed that it has received a copy of this document and such other information as it deems necessary to make an informed investment decision and that:

• the Investor acknowledges that the Ordinary Shares have not been and will not be registered under the US Securities Act, or with any securities regulatory authority of any state of the United States, and are subject to significant restrictions on transfer;

• the Investor is, and the person, if any, for whose account or benefit the Investor is acquiring the Ordinary Shares was, located outside the United States at the time the buy order for the Ordinary Shares was originated;

• the Investor is aware of the restrictions on the offer and sale of the Ordinary Shares pursuant to Regulation S described in this document; and

• the Company shall not recognise any offer, sale, pledge or other transfer of the Ordinary Shares made other than in compliance with the above-stated restrictions.

(Q) each Investor who purchases the Ordinary Shares within the United States pursuant to Rule 144A or pursuant to another exemption from the registration requirements of the US Securities Act will be deemed to have represented and agreed that it has received a copy of this document and such other information as it deems necessary to make an informed investment decision and that:

• the Investor acknowledges that the Ordinary Shares have not been and will not be registered under the US Securities Act or with any securities regulatory authority of any state of the United States and are subject to significant restrictions on transfer;

• the Investor (i) is a QIB, (ii) is aware that the sale to it is being made in reliance on Rule 144A or pursuant to another exemption from the registration requirements of the US Securities Act, and (iii) is acquiring such Ordinary Shares for its own account or for the account of a QIB;

• the Investor is aware that the Ordinary Shares are being offered in the United States in a transaction not involving any public offering in the United States within the meaning of the US Securities Act;

• if, in the future, the Investor decides to offer, resell, pledge or otherwise transfer such Ordinary Shares, such Ordinary Shares may be offered, sold, pledged or otherwise transferred only (i) to a person whom the beneficial owner and/or any person acting on its behalf reasonably believes is a QIB in a transaction meeting the requirements of Rule 144A, (ii) in accordance with Regulation S, or (iii) in accordance with Rule 144 under the US Securities Act (if available), in each case in accordance with any applicable securities laws of any state of the United States or any other jurisdiction;

• the Ordinary Shares are “restricted securities” within the meaning of Rule 144(a)(3) and no representation is made as to the availability of the exemption provided by Rule 144 for resales of any Ordinary Shares;

• the Investor will not deposit or cause to be deposited such Ordinary Shares into any depositary receipt facility established or maintained by a depositary bank other than a Rule 144A restricted depositary receipt facility, so long as such Ordinary Shares are “restricted securities” within the meaning of Rule 144(a)(3); and

• the Company shall not recognise any offer, sale pledge or other transfer of the Ordinary Shares made other than in compliance with the above-stated restrictions;

(R) each Investor acknowledges that the Company, the Selling Shareholders and the Underwriters will rely upon the truth and accuracy of the acknowledgements, representations and agreements

170 set out in (P) and (Q) above, and agrees that if any of the acknowledgements, representations or warranties deemed to have been made by it by its purchase of shares are no longer accurate, it shall promptly notify the Company and the Underwriters;

(S) if they are acquiring Ordinary Shares as a fiduciary or agent for one or more investor accounts, they represent that they have sole investment discretion with respect to each such account and they have full power to make the foregoing acknowledgements, representations and agreements on behalf of each such account;

(T) each Investor in a relevant member state of the European Economic Area who acquires any Ordinary Shares under the Offer contemplated hereby will be deemed to have represented, warranted and agreed with each of the Underwriters and the Company that:

• it is a qualified investor within the meaning of the law in that relevant member state implementing Article 2(1)(e) of the Prospectus Directive; and

• in the case of any Ordinary Shares acquired by it as a financial intermediary, as that term is used in Article 3(2) of the Prospectus Directive, (i) it is one of the Intermediaries; or (ii) the Ordinary Shares acquired by it in the Offer have not been acquired on behalf of, nor have they been acquired with a view to their offer or resale to, persons in any relevant member state other than qualified investors, as that term is defined in the Prospectus Directive, or in other circumstances falling within Article 3(2) of the Prospectus Directive and the prior consent of the Underwriters has been given to the offer or resale; or (iii) where Ordinary Shares have been acquired by it on behalf of persons in any relevant member state other than qualified investors, the offer of those Ordinary Shares to it is not treated under the Prospectus Directive as having been made to such persons.

For the purposes of this provision, the expression an ‘‘offer’’ in relation to any of the Ordinary Shares in any relevant member states means the communication in any form and by any means of sufficient information on the terms of the offer and any Ordinary Shares to be offered so as to enable an investor to decide to purchase or subscribe for the Ordinary Shares, as the same may be varied in that relevant member state by any measure implementing the Prospectus Directive in that relevant member state.

(U) in the case of a person who confirms to any Underwriter, on behalf of an Investor which is an entity other than a natural person, an agreement to subscribe for and/or to purchase Ordinary Shares and/or who authorises the notification of such Investor’s name to the Registrars, that person warrants that he, she or it has authority to do so on behalf of the Investor; and

(V) the Company, the Selling Shareholders and the Underwriters will rely upon the truth and accuracy of the foregoing representations, warranties and undertakings.

13.4 Supply and disclosure of information If the Company or the Joint Global Co-ordinators (on behalf of themselves and the other Underwriters) or any of their agents request any information about an Investor’s agreement to subscribe for and/or purchase Ordinary Shares, such Investor must promptly disclose it to them and ensure that such information is complete and accurate in all respects.

13.5 Miscellaneous (A) The rights and remedies of the Company, the Selling Shareholder and the Underwriters under these terms and conditions are in addition to any rights and remedies which would otherwise be available to them, and the exercise or partial exercise of one will not prevent the exercise of others.

171 (B) On application, each Investor may be asked to disclose, in writing or orally, to the Joint Global Co- ordinators (on behalf of themselves and the other Underwriters):

• if he or she is an individual, his or her nationality; or

• if he, she or it is a discretionary fund manager, the jurisdiction in which the funds are managed or owned.

(C) All documents will be sent at the Investor’s risk. They may be sent by post to such Investor at an address notified to the Joint Global Co-ordinators (on behalf of themselves and the other Underwriters).

(D) Each Investor agrees to be bound by the Articles (as amended from time to time) once the Ordinary Shares which such Investor has agreed to subscribe for and/or purchase have been issued or transferred to such Investor.

(E) The contract to subscribe for and/or purchase Ordinary Shares and the appointments and PR Ann III, 4.2 authorities mentioned herein will be governed by, and construed in accordance with, English law. For the exclusive benefit of the Company, the Selling Shareholders, and the Underwriters, each Investor irrevocably submits to the exclusive jurisdiction of the English courts in respect of these matters. This does not prevent an action being taken against an Investor in any other jurisdiction.

(F) In the case of a joint agreement to subscribe for and/or purchase Ordinary Shares, references to an Investor in these terms and conditions are to each of such Investors and any Investors’ liability is joint and several.

The Company, the Major Shareholders and the Joint Global Co-ordinators (on behalf of PR Ann III, 5.1.3, themselves and the other Underwriters) expressly reserve the right to modify the Offer 5.1.4 (including, without limitation, its timetable and settlement) at any time before the Offer Price and allocations are determined.

172 PART X

REGULATORY INFORMATION

The Group’s direct insurance and insurance mediation businesses are primarily subject to the laws of the constituent parts of the UK and also regulation imposed by or under FSMA. The Group’s principal subsidiary, esure Insurance Limited, is authorised and regulated under FSMA as an insurance company; esure Services Limited is authorised and regulated under FSMA as an insurance intermediary; and esure Broker Limited is currently registered, pursuant to FSMA, as an appointed representative of esure Services Limited, providing insurance mediation services on behalf of its principal firm. None of the Group’s authorised subsidiaries has exercised single market passporting rights to establish a branch or provide cross-border services comprising regulated activities elsewhere in the EEA.

FSMA confers on the Relevant Regulator(s) broad supervisory powers over many aspects of the Group’s insurance business each of which has the potential to impact, among other things, the Group’s marketing and selling practices, advertising, licensing agents, product development structures, premium rates, policy forms, claims and complaint handling practices, data and records management, systems and controls, controlled function holders, capital adequacy, and permitted investments.

The following discussion considers the main features of the UK regulatory regime for insurance businesses as it applies and/or will apply to the Group’s authorised insurance companies. It should be noted that the UK regulatory regime also applies to Gocompare and therefore considerations similar to those summarised in this Part X and elsewhere may potentially be relevant for it.

1. UK REGULATORY ENVIRONMENT 1.1 Financial Services Act 2012 The FSA is currently the regulator for all persons authorised to undertake FSMA-regulated activities in the UK. As stated above, the FSA currently has extensive powers which include powers to make rules and issue guidance in respect of persons who are subject to its regulation and supervision.

The Financial Services Act 2012 will, when implemented, reform the UK’s current system of financial regulation. As a result, the FSA will cease to exist in its current form and instead the following three new regulators will be established in its place:

• the Prudential Regulation Authority (“PRA”);

• the Financial Conduct Authority (“FCA”); and

• the Financial Policy Committee.

The PRA, a subsidiary of the Bank of England, will oversee and be responsible for the micro-prudential regulation of banks, insurers and some large investment firms. The FCA, which will be a separate entity, will be charged with responsibility for conduct of business regulation in relation to all authorised firms and the prudential regulation of firms not regulated by the PRA. The FCA will also inherit the majority of the FSA’s market regulatory functions. Finally, the Financial Policy Committee (which will sit within the Bank of England) will be tasked with responsibility for macro-prudential regulation of the entire financial services sector.

The Financial Services Act 2012 received Royal Assent on 19 December 2012 and the transfer to the new regulatory structure is expected to occur on 1 April 2013 when the PRA and the FCA assume their respective responsibilities from the FSA. Persons currently authorised and regulated by the FSA will continue to be so regulated until 1 April 2013 when, on Legal Cutover, they will become either solely regulated by the FCA or dually regulated by both the PRA and the FCA. In recognition of the changes to be made by the Financial Services Act 2012, this document uses the terms “Relevant Regulator” and “Relevant Regulator(s)” to refer, as the context requires, to one or more of the FSA, PRA and/or FCA.

173 In addition to effecting the structural reorganisation of the current UK regulatory framework and the reallocation of the FSA’s powers, the Financial Services Act 2012 also confers new powers on the PRA and FCA. The PRA, for example, will have the following three new powers that can be applied directly to qualifying parent undertakings where those parent undertakings are not themselves regulated: a power of direction; a rule-making power for information gathering; and a supporting disciplinary power to fine or censure a qualifying parent undertaking for breaches of a direction or an information rule. This new power could potentially be applied to the Company given that it will have a PRA-authorised and regulated subsidiary. The FCA, on the other hand, has new early intervention powers which will enable it to intervene directly in the market and make product intervention rules with the aim of preventing harm to consumers (e.g. the FCA could make rules to restrict the Group’s promotion of a particular product to only certain types of consumers). As stated above in section 1.5 of the Risk Factors, these new powers have the potential to subject the Group to a regulatory regime more rigorous and intrusive than that currently operated by the FSA.

1.2 Authorisation to carry on Regulated Activities in the UK Subject to certain exemptions provided in FSMA no person may carry on a regulated activity in the UK unless appropriately authorised to do so in accordance with FSMA. Regulated activities include the activity of effecting or carrying out contracts of insurance (referred to in this Part as carrying on the business of an “insurance company”) and insurance mediation activities, including dealing as agent, arranging, advising on deals, or assisting in administration and performance in relation to a contract of insurance (referred to in this Part as carrying on the business of an “insurance intermediary”). Exemptions under FSMA include, in respect of insurance mediation activities, an exemption for appointed representatives who have been validly appointed and an exemption allowing intermediation of certain motor and travel insurance contracts with an annual premium of less than 500 Euros.

Firms must at all times meet specified “threshold conditions”, which relate to matters including the adequacy of the firm’s financial and other resources and whether a firm is a fit and proper person to conduct its regulated activities, having regard to all the circumstances (including whether the firm’s affairs are conducted soundly and prudently). The threshold conditions are currently set out in Schedule 6 to FSMA. Schedule 6 to FSMA is due to be amended prior to legal cutover to create separate threshold conditions for firms regulated by the FCA and firms regulated by the PRA. Therefore, after Legal Cutover the application of threshold conditions will become more complex for the Group. In this regard, persons solely regulated by the FCA (such as esure Services Limited) will be required, on an ongoing basis, to meet the FCA’s threshold conditions. Dual-regulated firms (such as esure Insurance Limited) will need to meet the PRA’s threshold conditions in addition to the FCA’s threshold conditions. The Group will therefore need to ensure that each of its constituent regulated entities meets (both at the point of Legal Cutover and thereafter) the FCA’s threshold conditions and where a constituent firm is dual-regulated, it will additionally need to ensure that that firm meets the PRA’s threshold conditions.

In granting an application by a firm for authorisation, the Relevant Regulator(s) may delineate the scope of, and include such restrictions on, the grant of permission as it deems appropriate. In granting or varying the terms of a firm’s permissions, the Relevant Regulator(s) must ensure again that the firm meets certain threshold conditions. In addition, under FSMA the Relevant Regulator(s) can impose such requirements on a firm as it considers appropriate to require it to take or refrain from taking specified action. These requirements may relate to a range of matters, including the scope of the firm’s business, capital, liquidity and interactions with affiliates. The FSA has used these powers more extensively in recent years in relation to firms which it authorised and regulates, including insurance companies. It is likely that both the PRA and the FCA will continue to use these powers in the future.

Once authorised, and in addition to continuing to meet the threshold conditions for authorisation, firms are currently obliged to comply with the FSA’s high-level Principles for Businesses, which include the maintenance of adequate systems and controls, treating customers fairly and communicating with customers in a manner that is clear, fair and not misleading. Firms are also currently required to comply with the FSA’s rules also contained in the FSA Handbook and considered in more detail at section 1.3 of this Part X.

174 Moreover, FSMA obliges firms to secure the FSA’s prior approval of the appointment of individuals performing specified “controlled functions” within a firm or on its behalf with respect to the carrying on by the firm of regulated activities (known as the “approved persons” regime, which is discussed at section 1.4 of this Part X).

In the wake of the financial crisis, the FSA adopted a strategy of “intensive supervision” and a move to what it has described as “outcomes focused regulation”. This was coupled with a publicly announced strategy of “credible deterrence”, involving an increased focus on, and publicity of, enforcement activities. Based on the PRA and FCA’s published approaches to regulation, it is likely that they will continue the FSA’s vigorous high profile approach to enforcement.

1.3 Requirements for Authorised Firms in the UK: the FSA Handbook Authorised persons are obliged to comply with, among other things, FSMA (and secondary legislation made under it), other relevant UK and directly effective European Union legislation (including, for example, the Consumer Credit Act 1974 (as amended)) and the FSA rules as currently set out in the FSA Handbook.

The rules within the FSA Handbook are contained within a number of sourcebooks. The most relevant sourcebooks (and parts thereof) for the Group’s subsidiaries undertaking FSMA regulated insurance business and insurance mediation business are currently the Senior Management Arrangements, Systems and Controls Sourcebook (“SYSC”); the General Prudential Sourcebook (“GENPRU”), the Prudential Sourcebook for Insurers (“INSPRU”) and the Interim Prudential Sourcebook for Insurers (“IPRU (INS)”), which together contain prudential rules; the Conduct of Business Sourcebook (“COBS”) and the Insurance: (Conduct of Business) Sourcebook (“ICOBS”), which contain certain conduct of business requirements; and the Prudential Sourcebook for Mortgage and Home Finance Firms and Insurance Intermediaries (“MIPRU”), which is relevant for insurance intermediaries.

At Legal Cutover, the FSA Handbook will be split between the PRA and the FCA to form two new rulebooks, one for the PRA and one for the FCA. Most provisions of the FSA Handbook are expected to be incorporated into the PRA’s rulebook, the FCA’s rulebook, or both, in line with each Relevant Regulator’s set of responsibilities and objectives.

Following Legal Cutover, the PRA and the FCA will each be responsible for developing their own suites of rules and guidance as independent bodies in accordance with FSMA. The PRA, in particular, has indicated that it intends to replace its parts of the existing FSA Handbook with its own rulebook. It is therefore likely that, over time, the PRA and FCA suites of rules and guidance will develop their own distinctive character reflecting each regulator’s particular responsibilities and individual regulatory approach.

For present purposes, references to rules and guidance contained within, for example, COBS, ICOBS etc relate to the FSA Handbook as it stands at the date of this prospectus. However, after Legal Cutover, such references will relate to the relevant successor rules and guidance as contained in (either or both) of the suites of rules and guidance to be issued by the PRA and the FCA.

(A) Conduct of business rules The COBS and ICOBS rules apply to every authorised firm carrying on relevant regulated activities. These rules regulate the day-to-day conduct of business standards to be observed by authorised firms in carrying on regulated activities.

The scope and range of obligations imposed on an authorised firm under the COBS and ICOBS rules vary according to the scope of the firm’s business and the nature of its clients. Generally speaking, however, the obligations imposed on an authorised firm by the COBS and ICOBS rules will include the need to provide clients with information about the firm, meet certain standards of product disclosure, ensure that promotional materials which it produces are clear, fair and not misleading, assess suitability when advising on certain products, manage conflicts of interest, report appropriately to its clients and provide certain protections in relation to client assets.

175 Additionally, esure Insurance Limited is a member of the Association of British Insurers. The Association of British Insurers issues non-binding guidance relevant to insurance firms, including a good practice guide for firms offering insurance online to consumers and a code of practice for assisting third parties who have been in an accident with the insurer’s policyholder.

(B) Prudential standards It is an ongoing requirement for authorised firms carrying on regulated activities to comply with the prudential standards imposed by a Relevant Regulator. It is a fundamental requirement of the FSA’s prudential rules and Principle 4 of the FSA’s current Principles for Businesses that firms maintain adequate financial resources. This requirement and the obligation for an insurance company (but not an insurance intermediary) to carry out a risk-based assessment of its own capital requirements are contained in GENPRU. Rules relating to the calculation of capital resources by an insurance intermediary are contained in MIPRU. Provisions relating to the requirement to manage risks in general and details relating to the management of particular types of risk are set out in INSPRU and SYSC. The rules in SYSC also require a firm’s senior managers to ensure that, among other things: (i) their firm’s employees have suitable skills, knowledge and expertise; and (ii) their firm has in place appropriate compliance, record keeping and audit systems.

(C) Treating Customers Fairly The Treating Customers Fairly initiative (“TCF”) was initiated as part of the FSA’s principles-based approach to regulation and was based upon Principle 6 of the FSA’s Principles for Businesses (i.e. that a firm must pay due regard to the interests of its customers and treat them fairly). This initiative will be continued by the FCA.

The FSA’s approach was generally to refrain from making detailed rules on how to comply with TCF. However, the FSA published a number of papers and case studies providing an indication of its expectations of authorised firms in areas such as product development, complaints handling, financial promotions and systems and controls and these are expected to continue to be useful guidance for firms after Legal Cutover.

1.4 The Approved Persons regime An authorised firm is required to obtain a Relevant Regulator’s approval for any individual who carries on any specific “controlled function”, such as, for example, executive or non-executive directors and persons responsible for risk management, internal audit or compliance. These individuals are known as “Approved Persons” and must comply with a set of principles which largely mirror the FSA’s Principles for Businesses.

A Relevant Regulator will only approve an individual to undertake a controlled function if that individual is assessed to be a fit and proper person. In particular, the Relevant Regulator must be satisfied as to the person’s honesty, integrity and reputation, competence and capability for the role that the person is to assume in the firm and their financial soundness. If an individual is applying for approval to perform a “significant influence function” (which are, broadly, controlled functions relating to key management, compliance and operational roles), the FSA’s assessment of the applicant’s fitness and propriety often involves an interview of the applicant.

In light of the structural reorganisation of the FSA as summarised in section 1.1 of this Part X, changes are expected to be made to the current Approved Persons regime for dual-regulated firms. In this regard, the current list of controlled functions (as set out in the FSA Handbook) is anticipated to be split between the PRA and FCA with a view to minimising unnecessary duplication for dual-regulated firms. In addition, it is expected that the current Statements of Principle (currently contained in the Statements of Principle and Code of Practice for Approved Persons (“APER”) in the FSA Handbook) will be extended to a wider range of activities, and their application will be extended to people approved by both regulators. The consequence of this is that both the PRA and the FCA are expected to have the ability to discipline certain categories of approved person.

176 1.5 Change of control of authorised firms Under the FSMA change of control regime a person who has decided to acquire or increase its “control” over a UK firm authorised and regulated under FSMA is required to notify the Relevant Regulator of his or her or its decision and to receive approval from the Relevant Regulator before becoming a “controller” or increasing his or her or its interest in such a firm to or above certain thresholds. A person must also notify the Relevant Regulator when the transaction which results in that increase takes place. Any acquisition of control over the Company would be subject to this regime.

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

“Control” over a UK authorised firm is acquired if the acquirer:

• holds 10 per cent or more (20 per cent or more if the authorised firm is an insurance intermediary) of the shares or voting rights in that company or in its parent undertaking; or

• is able to exercise significant influence over the management of the firm by virtue of the acquirer’s shares or voting power in the company or its parent undertaking.

Increases in control of an insurance company require the consent of the Relevant Regulator where they reach thresholds of 20, 30 and 50 per cent of the shares or voting power in the firm or its parent. Increases in control of an insurance intermediary registered in accordance with the Insurance Mediation Directive beyond the 20 per cent threshold do not require the consent of the Relevant Regulator. Reducing or proposing to reduce control below the relevant threshold also gives rise to an obligation to notify the Relevant Regulator.

Breach of the notification and approval regime imposed by FSMA on controllers is a criminal offence.

1.6 Regulatory capital for insurance companies Rules currently in force in the UK (in large part implementing EU insurance directives) require general insurance firms (such as esure Insurance Limited) to maintain capital resources equal to, or in excess of, their applicable minimum level of capital (the “minimum capital requirement” or “MCR”). Detailed rules in GENPRU and INSPRU define how to calculate the capital resources requirement and what constitutes capital for these purposes.

The MCR for a general insurance company is calculated as the higher of (i) the base requirement (EU Directive minimum) and (ii) the general insurance capital requirement (which is itself calculated as the highest of the “premiums amount”, the “claims amount” and the “brought forward amount” which are each calculated according to rules and guidance in INSPRU).

In addition, INSPRU requires general insurance companies to calculate an “enhanced capital requirement” (“ECR”), which serves as an indicative measure of the capital resources that the firm may need to hold, based on risk-sensitive calculations applied to insurance, credit, market and other risks arising in relation to its business profile. Again, this is calculated according to rules and guidance in INSPRU.

Rules currently in the FSA Handbook require a firm to calculate its capital requirements through its own risk assessment (known as an “individual capital assessment” or “ICA”). If the Relevant Regulator disagrees with a firm’s ICA, it may draw up its own Individual Capital Guidance (“ICG”) for the firm, which it will provide on a confidential basis. An ICG can be imposed as a requirement on the scope of the firm’s permissions.

Insurance companies (along with banks, building societies and certain investment firms) are required to undertake reverse stress testing. Reverse stress testing requires firms to work backwards from an assumed point of business model failure, to identify the stress scenarios that could result in such adverse outcomes. Each firm must then consider whether the likelihood of these scenarios, taking into account likely management actions, is consistent with its risk appetite and, if not, must initiate actions to address any inconsistencies.

177 A description of the Group’s reserves and capital management policies can be found in section 11 of Part I (The Business). It should also be noted that a new and substantially different capital regime will apply to insurers under Solvency II and this is summarised in more detail in section 3.1 of this Part X.

Solvency requirements for insurance intermediaries The rules in MIPRU require senior managers and directors to take responsibility for an insurance intermediary’s affairs, and include a general solvency requirement and a requirement to maintain capital resources calculated in accordance with the rules and guidance in MIPRU.

1.7 Supervision and enforcement Supervision Each Relevant Regulator has wide powers to supervise, and intervene in, the affairs of a firm authorised and regulated under, or registered pursuant to, FSMA. It can, for instance, require firms to provide particular information or documents to it, require the production of a report by a “skilled person” appointed by a Relevant Regulator or formally investigate a firm.

The nature and extent of a Relevant Regulator’s supervisory relationship with a firm depends on how much of a risk the Relevant Regulator considers that firm could pose to its statutory objectives. The FSA currently employs a risk-based approach to supervision pursuant to which each regulated firm’s risk is assessed by the FSA using a methodology called “ARROW” – the Advanced Risk-Responsive Operating Framework. For medium and high-impact firms the FSA carries out a regular risk assessment (every one to four years) and determines a risk mitigation programme (“RMP”) proportionate to the risks identified. A firm is required to address the actions set out in the RMP within the time-frame set by the FSA. In due course, the PRA and FCA will introduce their own separate risk mitigation programmes. These will replace ARROW. As a consequence, dual-regulated firms will potentially have two sets of mitigating actions, of equal importance, to address.

Under the new regulatory regime discussed in section 1.1 (Financial Services Act 2012) of this Part X, the PRA will be responsible for the micro-prudential regulation of certain firms including insurance companies. The PRA’s supervisory interventions will focus on reducing the likelihood of a firm failing and on ensuring that if it does fail, it does so in an orderly manner. The PRA will introduce the ‘Proactive Intervention Framework’ to support early identification of risks to a firm’s viability (and enable appropriate supervisory actions to be taken to address such risks if necessary) on the basis of information collected in risk assessments.

Enforcement Relevant Regulator(s) have the power to take a range of enforcement actions, including the ability to sanction companies and individuals carrying out functions within them. Most notably, enforcement actions may include restrictions on undertaking new business, public censure, restitution, fines and, ultimately, revocation of permission to carry on regulated activities or of an approved person’s status. The Relevant Regulator(s) can also vary or revoke the permissions of an authorised firm that has not engaged in regulated activities for 12 months, or fails to meet the threshold conditions.

In addition to the above, the FSA currently has the power to impose sanctions on an authorised person who is found to have committed market abuse and it has the power to prosecute: (i) criminal offences arising under FSMA; (ii) insider dealing under Part V of the Criminal Justice Act 1993; and (iii) breaches of the money laundering regulations. Since 2008, the FSA has increased the use of its powers to prosecute, especially in respect of insider dealing. This has led in recent years to an increased number of convictions. This vigorous approach to enforcement is likely to be maintained by the FCA.

1.8 Consumer complaints and compensation Insurance companies and insurance intermediaries, along with all other firms regulated by the FSA and certain other unregulated businesses, are under the compulsory jurisdiction of the Financial Ombudsman Service (“FOS”) which has been set up under FSMA. Authorised firms must have appropriate complaints handling procedures but, where these are exhausted, the FOS provides for

178 dispute resolution in respect of certain categories of customer complaints brought against applicable firms by individuals and small business customers.

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

The Financial Services Compensation Scheme (“FSCS”) was been established by the FSA under FSMA and provides compensation to certain categories of customers who suffer losses as a consequence of the inability of a regulated firm to meet its liabilities arising from claims made in connection with regulated activities. The FSCS is funded by means of levies on all its participating financial services firms, including insurance companies and insurance intermediaries. The levy is calculated separately for each class of financial services (including insurance) with each class divided into sub-classes based on provider or intermediation activities. In 2012, esure Insurance Limited contributed £729,965 and esure Services Limited contributed £272,646.

The levy operates on the basis that a sub-class makes contributions, up to a specified threshold, to compensate investors upon the default of a market participant in that sub-class. It should be noted, however, that such contributions are not restricted to failures in the sub-classes to which a particular firm belongs, as there is the possibility that cross-subsidy between sub-classes may be required.

The Motor Insurers’ Bureau (“MIB”) was set up in 1946 to provide a way of compensating the victims of uninsured or untraced motorists. Every insurance company underwriting compulsory motor insurance is obliged, by virtue of the Road Traffic Act 1988, to be a member of MIB and to contribute to its funding. The amount that each member contributes is calculated by means of a formula and is relative to the level of gross premium income generated by the member. In 2012, esure Insurance Limited contributed £7,508,128.

1.9 Reporting requirements Under IPRU (INS), insurance companies must currently file a number of items with the FSA, including their audited annual accounts and balance sheets, which constitute their Annual Return. The directors of the insurance company must certify that the company has completed its Annual Return properly in accordance with the instructions of a Relevant Regulator, and that the directors are satisfied that the company has complied in all material respects with the requirements set out in the FSA rules. Annual Returns are used to monitor an insurance company’s solvency. For general insurers, the Annual Return is also retrospectively used to assess the adequacy of the company’s claims provision.

1.10 Money laundering and other financial crime All FSMA authorised firms are required to undertake certain administrative procedures and checks, which are designed to prevent money laundering. SYSC contains rules which require firms to take reasonable care to establish and maintain effective systems and controls for countering the risk that the firm might be used to further financial crime. For these purposes, financial crime includes any offence involving fraud or dishonesty, misconduct in, or misuse of information relating to, a financial market or handling the proceeds of crime, as well as bribery and corruption offences. The reduction of financial crime is one of the FSA’s statutory objectives. Similarly, when the FCA assumes its responsibilities from the FSA at Legal Cutover, one of its statutory objectives is to protect and enhance the integrity of the UK financial system which includes, among other things, reducing the opportunity for the UK financial system to be used for purposes connected with financial crime.

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

179 see section 2.6 of Part I (The Business) for a discussion of the effect of this decision on the Business (in particular, the Sheilas’ Wheels brand) and the mitigating action being taken.

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

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

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

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

The Distance Marketing Directive requires EU member states to implement a framework of rules and guidance in order to protect consumers by: (a) setting minimum standards for information that must be provided to consumers before entering a financial services contract by ‘distance means’ (such as by telephone or over the internet); and (b) providing a specified cooling-off period for certain products and services, where a consumer may cancel a contract without penalty.

The following directives are also relevant to the Group’s business. The Unfair Contract Terms Directive, implemented in the UK through the Unfair Terms in Consumer Contracts Regulations 1999, is relevant to all firms which use standard form agreements with consumers. These regulations protect consumers by providing that, where a term is found to be “unfair”, it is unenforceable against the consumer (although some terms, including those that relate to the price, or the level of cover of an insurance contract, are not within the scope of the regulations). Responsibility for the enforcement of the

180 regulations in relation to financial services contracts is currently shared between the Office of Fair Trading and the FSA.

The Unfair Commercial Practices Directive, implemented in the UK through the Consumer Protection from Unfair Trading Regulations 2008, requires Member States to protect consumers from unfair commercial practices by businesses and specifically to prohibit certain misleading or aggressive sales or marketing techniques. Any person engaging in any such unfair or proscribed commercial practices could face criminal liability in the UK.

The Consumer Credit Directive requires EU member states to implement a regime regulating lending and credit related activities, and the main piece of implementing legislation in the UK is the Consumer Credit Act 1974. The Consumer Credit Act 1974 and associated legislation protect consumers by regulating consumer credit advertising, the content and format of consumer credit agreements and the provision of pre- and post-contractual information, among other things. Non-compliance with the Consumer Credit Act 1974 can make an agreement unenforceable and some breaches, including failure to obtain a licence, are criminal offences.

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

3. FUTURE DEVELOPMENTS 3.1 Solvency II The EU has for a number of years been developing proposals for the revision of insurance companies’ PR Ann I, 9.2.3 solvency requirements under the EU Insurance Directives (“Solvency II”).

Solvency II adopts a three pillar approach to prudential regulation, which is similar to the “Basel II” approach that has already been adopted in the banking sector in Europe:

• Pillar 1 relates to minimum capital requirements, covering technical provisions, the Solvency Capital Requirement (“SCR”) and Minimum Capital Requirement (“MCR”), the rules on market consistent valuation, investment of assets and the use of internal models to calculate the SCR;

• Pillar 2 covers risk management, governance requirements, the Own Risk and Solvency Assessment (“ORSA”) and supervisory review; and

• Pillar 3 covers public and supervisory reporting and disclosure.

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

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

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

181 The Solvency II “Level 1” Directive was formally adopted by the European Council in November 2009, setting out a framework which will be supplemented by further and more detailed technical implementing measures drafted by the European Commission.

In January 2011 the European Commission published the draft Omnibus II Directive. This draft Directive proposes a number of amendments to the existing Solvency II framework. These changes take account of the new supervisory architecture within the EU, including the replacement of the Committee of European Insurance and Occupational Pensions Supervisors by the European Insurance and Occupational Pensions Authority (“EIOPA”) on 1 January 2011. Omnibus II will define the scope of EIOPA’s powers in the context of the Solvency II regime, including its powers to resolve disagreements between national supervisors and to act as a coordinator in “emergency situations”. The proposed amendments also define the areas in which EIOPA may issue binding technical standards and set out an expanded role for EIOPA in monitoring compliance by European member states.

The opportunity has also been taken in the draft Omnibus II Directive and subsequent Presidency Compromise texts to develop Solvency II in other areas. These include delaying the date of Solvency II’s implementation and authorising the European Commission to implement transitional measures in certain areas (subject to specified maximum periods). Because of delays to the Solvency II implementation timetable, it is expected that new rules implementing Solvency II will not apply to firms from 1 January 2014 as previously intended, although the precise date from which they will apply has not been announced yet.

3.2 Retail Distribution Review In June 2006 the FSA launched its Retail Distribution Review (“RDR”) in response to recurrent problems in the market for the distribution of retail investment products, including insurance contracts. The RDR has since been a key retail priority for the FSA and complements its long-term work to ensure that firms treat their customers fairly.

The RDR came into effect on 31 December 2012 and is the new regulatory framework for the financial services advice industry. The key points arising from the review were:

• any persons offering “advice” to consumers must be appropriately qualified;

• the new level of appropriate qualification will be higher than the existing level;

• all advice will need to be paid for by the consumer directly to the adviser and not by product manufacturers to the adviser; and

• there must be transparency and clarity for consumers as to the service they will receive and what the charging structure is for that service.

However, the RDR does not apply to providers of, or advisers in respect of, general insurance or pure protection contracts. In this regard it will not affect the Group’s general insurance business activities.

3.3 Insurance Mediation Directive review

The European Commission adopted a proposal for a revised Mediation Directive on 3 July 2012 (“IMD II”) after conducting a review which related among other things, to the requirement to align the current Insurance Mediation Directive’s provisions with the Solvency II regime. The European Parliament has indicated that its plenary sitting to consider the Commission’s proposal will take place on 2 July 2013. The Commission envisages that IMD II will, among other things:

• expand the scope of application of the current Insurance Mediation Directive to all sellers of insurance products, including insurance companies;

• include measures designed to manage and mitigate conflicts of interest, including rules mandating the disclosure of remuneration by intermediaries;

• enhance the suitability and objectivity of advice; and

182 • ensure that sellers’ professional qualifications match the complexity of the products they sell.

3.4 Regulation of consumer credit under Consumer Credit Act 1974 (as amended)

Currently, in the UK, the licensing and regulation of consumer credit is undertaken by the Office of Fair Trading (“OFT”) further to powers conferred on it under the Consumer Credit Act 1974 (as amended) (“CCA”). Group companies, when undertaking CCA-regulated business, must comply with the CCA. Compliance with the CCA involves, among other things, being appropriately licensed by the OFT and complying with other requirements relating to, for example, the advertisement of consumer credit and the form and content requirements of CCA-regulated agreements.

The Government has indicated that it favours transferring responsibility for the regulation of consumer credit from the OFT to the FCA. The Financial Services Act 2012 confers on HM Treasury the power to effect such a transfer of responsibility. The Government expects to make its final decision on whether to transfer responsibility for consumer credit regulation to the FCA during the course of 2013.

If the Government decides to proceed with that transfer then the FCA has indicated that it would expect to assume that responsibility in 2014, with the introduction of an interim regime pending consultation and development of a full regime which the FCA would look to apply from 2016 onwards. How that interim or new regime will affect the Group’s CCA licence-holding subsidiaries is as yet unknown, but it is likely that an FCA-administered consumer credit regime will involve supervision which is more intensive than that currently overseen by the OFT.

3.5 Competition Commission market investigation into the UK private motor insurance market The OFT, together with the UK Competition Commission, enforces consumer protection laws, including those relating to price fixing, collusion and other anti-competitive behaviour in the United Kingdom.

On 28 September 2012, the OFT published its final decision to refer the UK market for the supply or acquisition of private motor insurance and related goods or services to the Competition Commission for a market investigation. This followed a market study, launched by the OFT on 14 December 2011, into the supply of private motor insurance in the UK, with a specific focus on the provision of third party vehicle repairs and credit hire replacement vehicles to drivers involved in accidents where they were not at fault.

The market study was launched after a three-month call for evidence, which sought information on a number of areas, including the reasons behind the reported increase in private motor insurance premiums between 2009 and 2011. The OFT’s summary of responses to the call for evidence stated, among other things, that the call for evidence had given the OFT reasonable grounds for suspecting that there were features of the market for private motor insurance in the UK which prevented, restricted or distorted competition. The OFT had stated that the aim of the market study was “to clarify whether a market investigation reference to the Competition Commission is appropriate”.

Following the market study, the OFT published a provisional decision on 31 May 2012 which stated that it had reasonable grounds to suspect that there are features of the market for private motor insurance in the UK preventing, restricting or distorting competition. These findings were repeated by the OFT in its final decision. In particular, the OFT identified practices that allow motor insurance providers to generate revenues through referral fees or rebates, while simultaneously inflating the costs that the insurer of the at-fault driver has to meet. According to the OFT, this had an overall effect of raising costs across the private motor insurance industry. The OFT estimated that these features cost private motor insurers £225 million in 2011, which, according to the OFT, indicates that consumers could be paying an extra £10 per private motor insurance policy. As a result, the OFT exercised its discretion to make a market investigation reference to the Competition Commission.

The Competition Commission has a maximum of 24 months to conduct its inquiry from the date of reference. The statutory deadline for the Competition Commission’s investigation is therefore 27 September 2014. It is not possible to predict the outcome of this inquiry with any certainty at this stage (the Competition Commission has stated that it anticipates publishing its provisional findings in

183 September 2013). The Competition Commission has the power to implement significant reforms to the selling and pricing of motor insurance and to industry practices like the payment and receipt of referral fees. The Directors believe that any potential reduction in revenues from the appointment of credit hire vehicle suppliers and vehicle repair companies in connection with claims is likely to be substantially exceeded by improvements in claims costs.

The OFT’s call for evidence on the private motor insurance sector also examined the role of price comparison websites. While the market study and final decision did not refer to the competitive effects of price comparison websites, the OFT noted in the summary of responses to the call for evidence that ownership links between private motor insurance providers and price comparison websites could have the potential to confer a competitive advantage on those private motor insurance providers over their competitors. The OFT may decide to undertake further work in relation to price comparison websites. In particular, the OFT stated that it may take further action if there was evidence that insurers with links to price comparison websites could access, in real time, the quote data of competing private motor insurers. Following the market investigation reference, the Competition Commission has confirmed that it intends to investigate these issues as part of its inquiry, but initially only at a high level. The Group does not have access to other insurers’ real time or historic quote data via Gocompare.com or any other price comparison website.

3.6 Civil justice reforms in England and Wales A number of different civil justice reform initiatives have been discussed or proposed recently, a number of which could have a significant impact on the UK insurance industry and on the Group. The most important of these include:

• Lord Justice Jackson’s Final Report: Lord Justice Jackson (“Jackson LJ”) completed a detailed final report on costs in the English civil justice system in January 2010 in which he recommended a number of specific changes including that general damages be increased by 10 per cent (which the Court of Appeal has stated its intention to apply from April 2013).

• LASPO: LASPO implemented many of Jackson LJ’s recommendations. Significant provisions of LASPO include, among others:

(i) Abolishing in most circumstances, the recoverability of conditional fee agreement (“CFA”) success fees and after-the-event (“ATE”) insurance premiums from a losing party (with certain exceptions). Instead LASPO requires success fees and ATE insurance premiums to be paid by the party funded that way with the intended result of giving that party an incentive to control costs incurred on its behalf. The success fees are to be subject to a maximum limit and the government has said that it intends to retain the limit of 100 per cent of base costs, except in personal injury cases, in which success fees will be subject to an additional cap at 25 per cent of damages (excluding for future care and loss);

(ii) Permitting the use of contingency fee or damages based agreements (“DBAs”) in civil litigation. The fees of a DBA funded lawyer relate to the damages awarded rather than the time spent on the matter by the lawyer. DBAs are intended to be subject to similar requirements as for CFAs (i.e. the amount of payment that lawyers can take from damages in personal injury cases will be capped at 25 per cent of damages excluding future care and loss).

(iii) Abolishing referral fees in personal injury cases. The rules banning referral fees apply to authorised persons under the FSMA, solicitors, barristers and any person providing claims management services under the Compensation Act 2006. Sanctions for breach of the rules will be imposed by the relevant regulator.

The provisions referred to above are expected to come into force from April 2013.

• Government court reforms: In February 2012, the Ministry of Justice published proposals to reform the County Court system to prevent cost escalation in disputes. Among the proposals, the government intends to enable road traffic accidents of up to £25,000 to benefit from the fixed

184 recoverable cost scheme, which is currently used for low value road accidents of up to £10,000. There are also plans to this scheme to cover other types of personal injury to cover employers’ liability and public liability claims. The government is also considering increasing the small claims limit from £5,000 to £10,000 with the possibility of extending it to £15,000 upon further evaluation, as well as increasing the small claims limit for personal injury cases from £1,000 to £5,000.

• House of Commons Transport Committee: The House of Commons Transport Committee published the Twelfth Report of Session 2010-12 in January 2012, containing a range of recommendations. The Department for Transport’s response was published as the Thirteenth Special Report of Session 2010-12 on 20 April 2012. This response noted the Government’s commitment to implementing the Legal Aid, Sentencing and Punishment of Offenders Act 2012, extending the threshold for Road Traffic Accident Protocol claims from £10,000 to £25,0000, reducing the level of fixed fees recoverable by lawyers in Road Traffic Accident Protocol claims, and reducing the number and cost of whiplash claims.

Subsequently, the Ministry of Justice has announced that a reduction in the level of fixed recoverable costs for Road Traffic Accident Protocol Claims from £1,200 to £500 will be implemented from the end of April 2013 and the increase of to the upper limit for claims under the Road Traffic Accident Protocol to £25,000 will be implemented from July 2013.

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

185 PART XI PR Ann III, 5.3.1

TAXATION

1. UK TAXATION The following statements do not constitute tax advice and are intended only as a general guide to current UK law and HMRC published practice (which are both subject to change at any time, possibly with retrospective effect). They relate only to certain limited aspects of the UK taxation treatment of Shareholders and are intended to apply only, except to the extent stated below, to persons who are resident and, if individuals, ordinarily resident and domiciled in the UK for UK tax purposes, who are absolute beneficial owners of the Ordinary Shares (otherwise than through an Individual Savings Account or a Self Invested Personal Pension) and who hold the Ordinary Shares as investments (and not as securities to be realised in the course of a trade). They may not apply to certain Shareholders, such as dealers in securities, insurance companies and collective investment schemes, Shareholders who are exempt from taxation and Shareholders who have (or are deemed to have) acquired their Ordinary Shares by virtue of an office or employment. Such persons may be subject to special rules.

Any person who is in any doubt as to their tax position, or who is subject to taxation in any jurisdiction other than the UK, should consult their own professional adviser without delay.

1.1 Taxation of chargeable gains (A) Individual Shareholders A disposal of Ordinary Shares may give rise to a chargeable gain (or allowable loss) for the purposes of UK capital gains tax, depending on the circumstances and subject to any available exemption or relief.

(B) Corporate Shareholders Where a Shareholder is within the charge to corporation tax, a disposal of Ordinary Shares may give rise to a chargeable gain (or allowable loss) for the purposes of UK corporation tax, depending on the circumstances and subject to any available exemption or relief. Indexation allowance may reduce the amount of chargeable gain that is subject to corporation tax, but may not create or increase any allowable loss.

(C) Non-UK Resident Shareholders A Shareholder who is an individual and who is only temporarily resident outside the UK for UK tax purposes at the date of a disposal of Ordinary Shares may be liable to UK tax on chargeable gains on becoming resident or ordinarily resident in the UK again in respect of disposals made while he or she was temporarily resident outside the UK, depending on the circumstances and subject to any available exemption or relief.

A Shareholder who is neither resident nor, in the case of an individual, ordinarily resident in the UK (and is not temporarily resident outside the UK) will not be liable for UK tax on chargeable gains realised on a disposal of Ordinary Shares unless such Shareholder carries on:

• (in the case of a Shareholder who is an individual) a trade, profession or vocation in the UK through a branch or agency and the Ordinary Shares either have been used in or for the purposes of the trade, profession or vocation, or have been used or held for the purposes of the branch or agency, or acquired for use by or for the purposes of the branch or agency; or

• (in the case of a Shareholder which is a company) a trade in the UK through a permanent establishment and the Ordinary Shares either have been used in or for the purposes of the trade carried on through the permanent establishment, or have been used or held for the purposes of the permanent establishment or acquired for use by or for the purposes of the permanent establishment.

186 1.2 Stamp Duty and SDRT The comments in this section relating to stamp duty and SDRT apply whether or not a Shareholder is resident, ordinarily resident or domiciled in the UK.

(A) Issue of Ordinary Shares and sale of Existing Shares No stamp duty or SDRT will generally arise on the issue of Ordinary Shares.

Notwithstanding that stamp duty or SDRT may technically be payable by Investors on the sale to them by Selling Shareholders of Existing Ordinary Shares, separate arrangements have been made, and Investors other than persons providing clearance services or issuing depositary receipts (or, in either case, their nominee or agent) should have no liability in this regard.

Subject to certain exemptions, a charge to stamp duty or SDRT will arise on the transfer of Ordinary Shares to particular persons providing a clearance service, their nominees or agents, or to an issuer of depositary receipts, its nominee or agent, where that transfer is not an integral part of an issue of share capital. The rate of stamp duty or SDRT, as the case may be, in such circumstances will generally be 1.5 per cent of the amount or value of the consideration for the transfer or, in some circumstances, the value of the Ordinary Shares concerned, in the case of stamp duty rounded up, if necessary, to the nearest multiple of £5.

(B) Subsequent dealings in Ordinary Shares Any subsequent dealings in Ordinary Shares will generally be subject to stamp duty or SDRT in the normal way. An instrument effecting the transfer on sale of Ordinary Shares will generally be liable to stamp duty at the rate of 0.5 per cent (rounded up to the nearest multiple of £5) of the amount or value of the consideration payable. An unconditional agreement to transfer such shares will generally be liable to SDRT at the rate of 0.5 per cent of the amount or value of the consideration payable, but such liability will be cancelled, or a right to a repayment (generally, with interest) in respect of the payment of such SDRT liability will arise, if the agreement is completed by a duly stamped transfer within six years of the agreement having become unconditional. Stamp duty and SDRT are normally the liability of the purchaser.

No stamp duty or SDRT will arise on a transfer of Ordinary Shares into the CREST system provided that, in the case of SDRT, the transfer is not for money or money’s worth. Paperless transfers of Ordinary Shares within CREST are liable to SDRT (at a rate of 0.5 per cent of the amount or value of the consideration payable) rather than stamp duty, and SDRT on relevant transactions settled within the system or reported through it for regulatory purposes will be collected by CREST.

It should be noted that certain categories of person, including specified market intermediaries, are entitled to an exemption from stamp duty and SDRT in respect of purchases of securities in specified circumstances.

Certain other persons, being mainly persons providing clearance services or issuing depositary receipts (or, in either case, their nominee or agent), may be liable to account for stamp duty or SDRT at a higher rate of 1.5 per cent on securities transferred to them. See above for the position with respect to transfers to such persons.

1.3 Taxation of dividends PR Ann III, 4.11 (A) General There is no UK withholding tax on dividends.

(B) Individual Shareholders When the Company pays a dividend to a Shareholder who is an individual resident (for tax purposes) in the UK, the Shareholder will be entitled to a tax credit equal to one-ninth of the dividend received. The dividend received plus the related tax credit (the ‘‘gross dividend’’) will be part of the Shareholder’s total income for UK income tax purposes and will be regarded as the top slice of that income. However,

187 in calculating the Shareholder’s liability to income tax in respect of the gross dividend, the tax credit (which equates to 10 per cent of the gross dividend) is set off against the tax chargeable on the gross dividend.

Basic Rate Taxpayers In the case of a Shareholder who is liable to income tax at the basic rate, the Shareholder will be subject to tax on the gross dividend at the rate of 10 per cent. The tax credit will, in consequence, satisfy in full the Shareholder’s liability to income tax on the gross dividend.

Higher Rate Taxpayers In the case of a Shareholder who is liable to income tax at the higher rate, the Shareholder will be subject to tax on the gross dividend at the rate of 32.5 per cent, to the extent that the gross dividend falls above the threshold for the higher rate of income tax but below the threshold for the additional rate of income tax when it is treated (as mentioned above) as the top slice of the Shareholder’s income. This means that the tax credit will satisfy only part of the Shareholder’s liability to income tax on the gross dividend, so that the Shareholder will have to account for income tax equal to 22.5 per cent of the gross dividend (which equates to 25 per cent of the dividend received). For example, a dividend of £90 from the Company would represent a gross dividend of £100 (after the addition of the tax credit of £10 (being one-ninth of £90)) and the Shareholder would be required to account for income tax of £22.50 on the dividend, being £32.50 (i.e. 32.5 per cent of £100) less £10 (the amount of the tax credit).

Additional Rate Taxpayers In the case of a Shareholder who is liable to income tax at the additional rate, the Shareholder will be subject to tax on the gross dividend at the dividend additional rate to the extent that the gross dividend falls above the threshold for the additional rate of income tax when it is treated (as mentioned above) as the top slice of the Shareholder’s income (the dividend additional rate is currently 42.5 per cent, but from (and including) 6 April 2013 it will be 37.5 per cent). This means that the tax credit will satisfy only part of the Shareholder’s liability to income tax on the gross dividend, so that (applying a dividend additional rate of 37.5 per cent) the Shareholder will have to account for income tax equal to 27.5 per cent of the gross dividend (which equates to approximately 30.6 per cent of the dividend received). For example (applying a dividend additional rate of 37.5 per cent), a dividend of £90 from the Company would represent a gross dividend of £100 (after the addition of the tax credit of £10 (being one-ninth of £90)) and the Shareholder would be required to account for income tax of £27.50 on the dividend, being £37.50 (i.e. 37.5 per cent of £100) less £10 (the amount of the tax credit).

(C) Corporate Shareholders Shareholders within the charge to UK corporation tax which are ‘‘small companies’’ (for the purposes of UK taxation of dividends) will not generally expect to be subject to tax on dividends from the Company.

Other Shareholders within the charge to UK corporation tax will not be subject to tax on dividends (including dividends from the Company) so long as the dividends fall within an exempt class and certain conditions are met. In general: (i) dividends paid on shares that are not redeemable and do not carry any present or future preferential rights to dividends or to a company’s assets on its winding up; and (ii) dividends paid to a person holding less than 10 per cent of the issued share capital of the payer (or any class of that share capital) are examples of dividends that fall within an exempt class.

(D) Tax Credit Other than as set out below, a Shareholder (whether an individual or a company) who is not liable to tax on dividends from the Company will not be entitled to claim payment of the tax credit in respect of those dividends.

The right of a Shareholder who is not resident (for tax purposes) in the UK to a tax credit in respect of a dividend received from the Company and to claim payment of any part of that tax credit will depend

188 on the existence and terms of any double taxation convention between the UK and the country in which the holder is resident, although generally no such payment will be available.

2. US TAXATION This disclosure is limited to the US federal tax issues addressed herein. Additional issues may exist that are not addressed in this disclosure and that could affect the US federal tax treatment of the Ordinary Shares. This tax disclosure was written in connection with the marketing of the Ordinary Shares by the Company, and it cannot be used by any person for the purpose of avoiding penalties under the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). Prospective investors should seek their own advice based on their particular circumstances from independent tax advisers.

The following is a description of certain US federal income tax consequences to a US Holder described herein of owning and disposing of Ordinary Shares, but it does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a particular person’s decision to acquire Ordinary Shares. The discussion applies only to a US Holder that holds Ordinary Shares as capital assets for US federal income tax purposes. In addition, it does not describe all of the tax consequences that may be relevant in light of a US Holder’s particular circumstances, including alternative minimum tax consequences and tax consequences applicable to US Holders subject to special rules, such as:

• certain financial institutions;

• dealers or traders in securities;

• persons holding Shares as part of a straddle, wash sale, conversion transaction or integrated transaction, or persons entering into a constructive sale with respect to the Ordinary Shares;

• persons whose functional currency for US federal income tax purposes is not the US Dollar;

• partnerships or other entities classified as partnerships for US federal income tax purposes;

• tax-exempt entities, including “individual retirement accounts” and “Roth IRAs”;

• persons that own or are deemed to own Ordinary Shares representing 10 per cent or more of the Group’s voting stock; or

• persons holding Ordinary Shares in connection with a trade or business conducted outside of the United States.

If an entity that is classified as a partnership for US federal income tax purposes owns Ordinary Shares, the US federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partnerships owning Ordinary Shares and partners therein should consult their tax advisers as to the particular US federal income tax consequences of owning and disposing of the Ordinary Shares.

This discussion is based on the Internal Revenue Code, administrative pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, all as of the date hereof. These laws are subject to change, possibly with retroactive effect.

US Holders should consult their tax advisers concerning the US federal, state, local and foreign tax consequences of purchasing, owning and disposing of Ordinary Shares in their particular circumstances.

For purposes of this discussion, a “US Holder” is a beneficial owner of Ordinary Shares that is, for US federal income tax purposes:

• a citizen or individual resident of the United States;

189 • a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state therein or the District of Columbia; or

• an estate or trust the income of which is subject to US federal income taxation regardless of its source.

This discussion assumes that the Company is not, and will not become, a passive foreign investment company, as described in section 2.3 (Passive Foreign Investment Company Rules) below.

2.1 Taxation of Distributions Distributions paid on the Ordinary Shares, other than certain pro rata distributions of Ordinary Shares, will generally be treated as dividends to the extent paid out of the Company’s current or accumulated earnings and profits, as determined under US federal income tax principles. Because the Company does not maintain calculations of earnings and profits under US federal income tax principles, it is expected that distributions generally will be reported to US Holders as dividends.

Dividends will be included in a US Holder’s income on the date of receipt and generally will be treated as foreign-source income for purposes of the foreign tax credit rules. Dividends will not be eligible for the dividends-received deduction generally allowed to US corporations under the Internal Revenue Code. If a dividend is paid in Pounds Sterling, the amount that a US Holder will be required to include in income will equal the US Dollar value of the Pounds Sterling, calculated by reference to the exchange rate in effect on the date of receipt, regardless of whether the payment is in fact converted into US Dollars. If the dividend is converted into US Dollars on the date of receipt, a US Holder generally should not be required to recognise foreign currency gain or loss in respect of the dividend income. A US Holder may have foreign currency gain or loss (which will be US-source gain or loss for foreign tax credit purposes) if the cash dividend is converted into US Dollars after the date of its receipt.

Subject to applicable limitations, dividends paid to certain non-corporate US Holders may be taxable at favourable rates. US Holders should consult their tax advisers regarding the availability of the reduced tax rate on dividends in their particular circumstances.

2.2 Sale or Other Taxable Disposition of Ordinary Shares For US federal income tax purposes, gain or loss realised on the sale or other taxable disposition of Ordinary Shares will be capital gain or loss, and will be long-term capital gain or loss if the US Holder held the Ordinary Shares for more than one year. The amount of the gain or loss will equal the difference between the US Holder’s tax basis in the Ordinary Shares disposed of and the amount realised on the disposition, in each case as determined in US Dollars. Any gain or loss will generally be US-source for purposes of the foreign tax credit rules. The deductibility of capital losses is subject to limitations.

2.3 Passive Foreign Investment Company Rules Based on the nature of the company’s insurance business, the Company does not expect to be a passive foreign investment company (“PFIC”) for US federal income tax purposes for its current taxable year or in the foreseeable future. However, because a company’s PFIC status depends on the nature of its income and assets and the market value of its assets (including assets of 25 per cent-owned subsidiaries) from time to time, there can be no assurance that the Company will not be a PFIC for any taxable year.

If the Company were a PFIC for any taxable year during which a US Holder held Ordinary Shares, gain recognised by the US Holder on a sale or other disposition (including certain pledges) of the Ordinary Shares, and income from certain “excess distributions,” would be allocated rateably over the US Holder’s holding period for the Ordinary Shares. The amounts allocated to the taxable year of the sale or other disposition or the excess distribution and to any year before the Company became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest tax rate in effect for individuals or corporations, as applicable, for that taxable year,

190 and an interest charge would be imposed on the resulting tax liability for each such year. Certain elections may be available that would result in alternative treatments (such as mark-to-market treatment). If the Company were a PFIC for the taxable year in which it paid a dividend of the prior taxable year, the favourable rates discussed above with respect to dividends paid to certain non- corporate U.S. Holders would not apply.

2.4 Information Reporting and Backup Withholding Payments of dividends and proceeds from the sale of Ordinary Shares that are made within the United States or through certain US-related financial intermediaries may be subject to information reporting and backup withholding unless (i) the US Holder is a corporation or other “exempt recipient” or (ii) in the case of backup withholding, the US Holder provides a correct taxpayer identification number and certifies that it is not subject to backup withholding. The amount of any backup withholding from a payment to a US Holder will be allowed as a credit against US federal income tax liability and may entitle the US Holder to a refund, provided that the required information is timely furnished to the Internal Revenue Service.

191 PART XII

ADDITIONAL INFORMATION

1. RESPONSIBILITY STATEMENT The Directors, whose names appear in section 1 of Part II (Directors, Corporate Governance and PR Ann I, 1.1, 1.2 Remuneration), and the Company accept responsibility for the information contained in this document. PR Ann III, 1.1, 1.2 To the best of the knowledge of the Directors and the Company, each having 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.

2. INCORPORATION AND ACTIVITY OF THE COMPANY The Company was incorporated and registered in England and Wales under the Companies Act as a PR Ann I, 5.1.1, private company limited by shares on 3 November 2009 with the name “Yellow Buyer Limited” and the 5.1.2, 5.1.3, 5.1.4 registered number 07064312. The Company changed its name to “esure Group Holdings Limited” on LR 2.2.1, 2.2.2 15 February 2010. On 26 February 2013, the Company was re-registered as a public limited company and changed its name to “esure Group plc”.

The principal legislation under which the Company operates is the Companies Act and regulations made thereunder.

The Company is domiciled in the UK with its registered and head office at The Observatory, Castlefield Road, Reigate, Surrey RH2 0SG. The telephone number of the Company’s registered office is +44 (0) 1737 222 222.

The Company has, since 11 February 2010, been the holding company of the Group. PR Ann I, 7.1

3. SHARE CAPITAL OF THE COMPANY 3.1 Issued share capital of the Company immediately prior to Admission Immediately prior to Admission, the issued share capital of the Company will be as follows:

Number of Aggregate Ordinary Shares Nominal value shares issued nominal value 1 Existing Ordinary Shares ...... ⁄12 pence 399,600,000 £333,000.00 Non-Voting Old Ordinary Shares(1)...... £0.01 4,485,014,000 £44,850,140.00 Redeemable Priority Return Shares(1)...... £0.01 1,000 £10.00 ––––––––––––– £45,183,150.00 ––––––––––––– Notes:

(1) On Admission, the Company will repurchase all of the Non-Voting Old Ordinary Shares at par and all of the Redeemable Priority Return Shares for an amount equal to the Priority Return (as defined and determined in accordance with the Pre-Admission Articles).

3.2 Maximum issued share capital of the Company immediately following Admission Immediately following Admission, the maximum issued share capital of the Company (assuming that the Offer Price is set at the bottom of the Price Range) will be as follows:

Number of Aggregate Ordinary Shares Nominal value shares issued nominal value

1 Existing Ordinary Shares ...... ⁄12 pence 399,600,000 £333,000.00

1 New Ordinary Shares...... ⁄12 pence 20,833,334 £17,361 –––––––––– –––––––––– –––––––––– 1 Total (Ordinary Shares)...... ⁄12 pence 420,433,334 £350,361 –––––––––– –––––––––– ––––––––––

192 3.3 Dilution The Existing Ordinary Shares will be diluted by the issue of up to 20,833,334 New Ordinary Shares PR Ann III, 9.1 pursuant to the Offer. Assuming that the Company issues sufficient New Ordinary Shares to raise proceeds of £50 million, the Existing Ordinary Shares will represent between approximately 95.0 per cent (if the Offer Price is set at the bottom of the Price Range) and approximately 96.1 per cent (if the Offer Price is set at the top of the Price Range) of the total issued Ordinary Shares immediately following Admission.

3.4 History of the Share Capital The Company was incorporated with a single ordinary share of £1 nominal value. Since then, the PR Ann I, 21.1.7 following changes have occurred in its issued and fully paid share capital:

(A) On 11 February 2010, the aggregate nominal value of the Company’s share capital was increased from £1 to £85,174,581.88 by the creation and issue of:

(i) 9,990,000 A Ordinary Shares of £0.01 nominal value;

(ii) 7,468,088 B Ordinary Shares of £0.01 nominal value;

(iii) 14,985,000 C Ordinary Shares of £0.01 nominal value;

(iv) 8,485,014,000 Non-Voting Old Ordinary Shares of £0.01 nominal value; and

(v) 1,000 Redeemable Priority Return Shares of £0.01 nominal value.

In addition, the Company’s existing ordinary share of £1 nominal value was sub-divided and converted into 100 B Ordinary Shares of £0.01 nominal value.

(B) Between 11 February 2010 and 31 December 2010, the aggregate nominal value of the Company’s share capital was increased from £85,174,581.88 to £85,182,220.38 by the following issues of shares:

Number of Aggregate Date of Issue Class shares issued nominal value 1 April 2010 ...... B Ordinary Shares 728,450 £7,284.50 16 April 2010 ...... B Ordinary Shares 625 £6.25 26 April 2010 ...... B Ordinary Shares 14,975 £149.75 28 June 2010...... B Ordinary Shares 19,800 £198.00 –––––––– –––––––– 763,850 £7,638.50 –––––––– –––––––– (C) Between 1 January 2011 and 31 December 2011, the aggregate nominal value of the Company’s share capital was increased from £85,182,220.38 to £85,183,150.00 by the following issues of shares:

Number of Aggregate Date of Issue Class shares issued nominal value 18 November 2011 ...... B Ordinary Shares 9,000 £90.00 30 November 2011 ...... B Ordinary Shares 5,000 £50.00 21 December 2011...... B Ordinary Shares 78,962 £789.62 –––––––– –––––––– 92,962 £929.62 –––––––– –––––––– (D) Between 1 January 2012 and 31 December 2012, there were no new issues of shares.

193 (E) The issued and fully paid share capital of the Company at 31 December 2012, the date of the PR Ann I, 21.1.1 most recent balance sheet of the Company included in Schedule II (Historical Financial Information), was as follows:

Number of Aggregate Class Nominal value shares issued nominal value A Ordinary Shares...... £0.01 9,990,000 £99,900.00 B Ordinary Shares...... £0.01 8,325,000 £83,250.00 C Ordinary Shares...... £0.01 14,985,000 £149,850.00 Non-Voting Old Ordinary Shares...... £0.01 8,485,014,000 £84,850,140.00 Redeemable Priority Return Shares...... £0.01 1,000 £10.00 ––––––––––––– £85,183,150.00 ––––––––––––– (F) Between 31 December 2012 and 7 March 2013 (being the latest practicable date prior to the publication of this document), the following changes to the share capital of the Company occurred:

(i) on 21 February 2013, the aggregate nominal value of the Company’s share capital was decreased by £40 million from £85,183,150.00 to £45,183,150 by the cancellation of 4,000,000,000 Non-Voting Old Ordinary Shares of £0.01 each; and

(ii) on 25 February 2013, each A Ordinary Share, B Ordinary Share and C Ordinary Share was subdivided into 12 shares of the same class (each having a nominal value of 1 ⁄12 pence) in connection with the adoption of the Pre-Admission Articles.

3.5 Pre-Admission reorganisation of the share capital (A) As at the date of this document, the Company’s C Ordinary Shares are owned by Tosca Penta Investments LP and the majority of the Company’s A Ordinary Shares and B Ordinary Shares are held by Peter Wood (with the remainder of the shares of those share classes held by the Directors as well as employees, former employees and the Company’s employee benefit trust). Immediately prior to Admission, the respective equity and voting rights attributable to the B Ordinary Share and C Ordinary Share classes will be varied in accordance with the Pre- Admission Articles based on the aggregate valuation of A Ordinary Shares, B Ordinary Shares and C Ordinary Shares (the “Ratchet Shares”) implied by the Offer Price. Following the operation of this variation, the Ratchet Shares will convert into a single class of ordinary shares (the Ordinary Shares). This reorganisation will involve the following steps:

(i) the conversion of a certain number of the A Ordinary Shares and a certain number of either the B Ordinary Shares or C Ordinary Shares into a certain number of “deferred 1 shares” of ⁄12 pence in proportions to be determined in accordance with the Pre-Admission Articles;

(ii) thereafter, the immediate repurchase by the Company of all of the deferred shares of 1 ⁄12 pence each from the persons who, prior to the conversion thereof, held the relevant Ratchet Shares for an aggregate total consideration of £1.00 (and the subsequent cancellation of those deferred shares);

(iii) immediately thereafter, a bonus issue of such number of Ratchet Shares as is required to restore the aggregate number of Ratchet Shares to that which existed immediately prior to the conversion of some Ratchet Shares into deferred shares, as described above. Such issue will be, paid up out of the reserve created by the cancellation of the deferred shares, and made to the holders of the A Ordinary Shares, B Ordinary Shares and C Ordinary Shares pro rata to their holdings of such shares immediately following such conversion of Ratchet Shares into deferred shares as described above; and

194 (iv) immediately following such bonus issue, the conversion of all Ratchet Shares into a single class of Ordinary Shares on a 1:1 basis.

No further corporate authorisations or Shareholder resolutions are required in order to implement this reorganisation and those steps.

(B) On Admission, completion of the repurchase of all the Non-Voting Old Ordinary Shares and all the Redeemable Priority Return Shares by the Company will occur pursuant to an agreement with Tosca Penta Investments LP dated 25 February 2013. Further details of this contract are set out in section 16 of this Part XII. On repurchase, the Non-Voting Old Ordinary Shares and the Redeemable Priority Return Shares will be cancelled.

3.6 Authorisations relating to the share capital of the Company PR Ann III, 4.6

Shareholder resolutions By written resolutions of the Shareholders passed on 25 February, it was resolved that:

(A) the Board be generally and unconditionally authorised to exercise all powers of the Company to allot Ordinary Shares up to an aggregate nominal amount of £57,000 in connection with the Offer;

(B) subject to and conditional upon (in the case of the authorities described of paragraphs (i) and (ii) below) Admission, the Board be generally and unconditionally authorised, in substitution for (with effect from Admission) all subsisting authorities, to exercise all of the powers of the Company to allot shares in the Company and to grant rights to subscribe for or to convert any security into shares in the Company:

(i) up to an aggregate nominal amount of £130,000 (such amount to be reduced by the nominal amount of any shares in the Company allotted or rights to subscribe for or to convert any security into shares in the Company granted under sub-paragraph (ii) below in excess of such sum); and

(ii) comprising equity securities (as defined in section 560(1) of the Companies Act) up to an aggregate nominal amount of £260,000 (such amount to be reduced by any allotments of any shares in the Company or grants of rights to subscribe for or to convert any security into shares in the Company made under sub-paragraph (i) above) in connection with an offer by way of a rights issue:

(a) to holders of Ordinary Shares in proportion (as close as may be practicable) to their existing holdings; and

(b) to holders of other equity securities as required by the rights of those securities or as the Board otherwise considers necessary,

and so that the Board may impose any limits or restrictions and make any arrangements which it considers necessary or appropriate to deal with treasury shares, fractional entitlements, record dates, legal, regulatory or practical problems in, or under the laws of, any territory or any other matter,

such authorities to apply until the end of the next annual general meeting of the Company (or, if earlier, until the close of business on 31 July 2014) but, in each case, during this period the Company may make offers and enter into agreements which would, or might, require shares to be allotted or rights to subscribe for or convert securities into shares to be granted after the authority ends and the Board may allot shares or grant rights to subscribe for or convert securities into shares in the Company under any such offer or agreement as if the authority had not ended;

195 (C) subject to and conditional upon the passing of the resolutions described in sections 3.6(A) and PR Ann III, 5.3.3 3.6(B) above, the Board be given the power, in substitution for all subsisting powers, to allot equity securities (as defined in section 560(1) of the Companies Act) for cash under the authority given by the resolution described in section 3.6(B) above and/or to sell Ordinary Shares held by the Company as treasury shares for cash as if section 561 of the Companies Act did not apply to any such allotment or sale, such power to be limited:

(i) to the allotment of equity securities up to an aggregate nominal amount of £57,000 in connection with the Offer;

(ii) to the allotment of equity securities and sale of treasury shares for cash in connection with an offer of, or invitation to apply for, equity securities (but in the case of the authority granted under paragraph (ii) of the resolution described at section 3.6(B) above, by way of a rights issue only):

(a) to holders of Ordinary Shares in proportion (as nearly as may be practicable) to their existing holdings; and

(b) to holders of other equity securities, as required by the rights of those securities, or as the Board otherwise considers necessary as permitted by the rights of those securities,

(iii) in the case of the authority granted under paragraph (i) of the resolution described at section 3.6(B) above and/or in the case of any sale of treasury shares for cash, to the allotment (otherwise than under paragraph (i) above) of equity securities or sale of treasury shares up to a nominal amount of £19,500,

such power to apply until the end of the next annual general meeting of the Company (or, if earlier, until the close of business on 31 July 2014) but, in each case, during this period the Company may make offers and enter into agreements which would, or might, require equity securities to be allotted (and treasury shares to be sold) after the power ends and the Board may allot equity securities (and sell treasury shares) under any such offer or agreement as if the power had not ended; and

(D) subject to and conditional upon Admission, the Company be authorised for the purposes of section 701 of the Companies Act to make one or more market purchases (as defined in section 693(4) of the Companies Act) of its Ordinary Shares, such power to be limited:

(i) to a maximum number of 50,000,000 Ordinary Shares;

(ii) by the condition that the minimum price which may be paid for an Ordinary Share is 1 ⁄12 pence and the maximum price which may be paid for an Ordinary Share is the highest of:

(a) an amount equal to five per cent above the average market value of an Ordinary Share for the five Business Days immediately preceding the day on which that Ordinary Share is contracted to be purchased; and

(b) the higher of the price of the last independent trade and the highest current independent bid on the trading venue where the purchase is carried out,

in each case, exclusive of expenses;

such power to apply until the end of the next annual general meeting of the Company (or, if earlier, 31 July 2014) but in each case so that the Company may enter into a contract to purchase

196 Ordinary Shares which will or may be completed or executed wholly or partly after the power ends and the Company may purchase Ordinary Shares pursuant to any such contract as if the power had not ended.

Board undertaking in relation to share capital authorities At the time that the shareholder resolutions in respect of the share capital authorities set out at sections 3.6(A) to 3.6(D) above were proposed and passed, it was not possible to determine how many New Ordinary Shares would need to be issued by the Company in order to raise proceeds of £50 million. As a result, the headroom contained within those authorities will mean that, on Admission, the standing share capital authorities available to the Board until the Company’s next annual general meeting in 2014 are in excess of the level of standing annual authorities generally considered to be appropriate for a listed company. Accordingly, in order to demonstrate that the Group does not intend to breach, inter alia, the guidance of investment protection committees (such as the ABI, NAPF and PIRC) or the Pre-Emption Group’s “Statement of Principles” regarding routine disapplication of pre-emption rights, the Board has resolved that:

• to the extent that the authority conferred by the resolution described at sub-paragraph (i) of section 3.6(B) above is in respect of an aggregate nominal amount which exceeds one-third of the aggregate nominal amount of the Company’s issued ordinary share capital immediately following Admission (the “Admission Capital”), it will not exercise that authority in respect of such excess without first seeking Shareholder approval;

• to the extent that the authority conferred by the resolution described at sub-paragraph (ii) of section 3.6(B) above is in respect of an aggregate nominal amount which exceeds two-thirds of the Admission Capital, it will not exercise that authority in respect of such excess;

• it will limit the exercise of the power conferred by the resolution described at section 3.6(C) above, as limited by sub-paragraph (iii) of that section, to an aggregate nominal amount which is not more than five per cent of the Admission Capital; and

• to the extent that the authority conferred by the resolution described at section 3.6(D) above is in respect of an aggregate number of shares which exceeds ten per cent of the aggregate number of Ordinary Shares in issue immediately following Admission, it will not exercise that authority in respect of such excess.

3.7 Confirmations At the date of this document, and save as otherwise disclosed in this Part XII: PR Ann I, 21.1.1, 21.1.3, 21.1.6 (A) no share or loan capital of the Company has, since the incorporation of the Company, been issued or agreed to be issued, or is now proposed to be issued, fully or partly paid, either for cash or for a consideration other than cash, to any person;

(B) no commission, discounts, brokerages or other special terms have been granted by the Company in connection with the issue or sale of any share or loan capital;

(C) no share or loan capital of the Company is under option or agreed, conditionally or LR 6.1.22 unconditionally, to be put under option; and

(D) the Company held no treasury shares (as defined in the Companies Act).

4. INFORMATION ABOUT THE ORDINARY SHARES 4.1 Description of the type and class of securities being offered The Ordinary Shares being offered pursuant to the Offer will be denominated in Pounds Sterling (having PR Ann III, 4.1, 4.2, 1 4.4, 4.5 a nominal value of ⁄12 pence each) and will be created under the Companies Act. On Admission, the International Security Identification Number (ISIN) of the Ordinary Shares will be GB00B8KJH563 and the SEDOL number will be B8KJH56.

197 On Admission, the Company will complete the repurchase of (and cancel) all the Non-Voting Old LR 2.2.4, 2.2.9 Ordinary Shares and all the Redeemable Priority Return Shares. Thereafter, the Company’s share capital will consist entirely of the Ordinary Shares, comprising the Existing Ordinary Shares and the New Ordinary Shares. Each of the Existing Ordinary Shares and the New Ordinary Shares offered pursuant to the Offer will be credited as fully paid and free from all liens, equities, charges, encumbrances and other interests. The Existing Ordinary Shares and the New Ordinary Shares will (when issued and fully paid) rank pari passu in all respects with each other, including in full for all dividends and distributions on Ordinary Shares declared, made or paid after their issue.

4.2 Listing Application will be made to the UK Listing Authority for all of the Ordinary Shares to be admitted to the PR Ann III, 6.1, 6.2 premium listing segment of the Official List. Application will also be made to the London Stock LR 2.2.3 Exchange for the Ordinary Shares to be admitted to trading on its main market for listed securities. No application has been made for admission of the Ordinary Shares to trading on any other stock exchange (nor is it the current intention of Company to make any such application in future).

It is expected that conditional dealings in the Ordinary Shares (on a “when issued” basis) will commence on the London Stock Exchange on 22 March 2013. It is expected that Admission will become effective and that unconditional dealings in the Ordinary Shares will commence on the London Stock Exchange by no later than 8.00 a.m. (London time) on 27 March 2013. Dealings on the London Stock Exchange before Admission will only be settled if Admission takes place. All dealings before the commencement of unconditional dealings will be of no effect if Admission does not take place and such dealings will be at the sole risk of the parties concerned.

4.3 Form of the Ordinary Shares The Ordinary Shares will be in registered form and will be capable of being held in certificated and PR Ann III, 4.3 uncertificated form. The Registrar of the Company is Equiniti Limited of Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA.

Title to the certificated Ordinary Shares (if any) will be evidenced by entry in the register of members of the Company and title to uncertificated Ordinary Shares will be evidenced by entry in the operator register maintained by Euroclear UK (which will form part of the register of members of the Company).

No share certificates will be issued in respect of the Ordinary Shares in uncertificated form. If any such Ordinary Shares are converted to be held in certificated form, share certificates will be issued in respect of those Ordinary Shares in accordance with applicable legislation. No temporary documents of title have been or will be issued in respect of the Ordinary Shares.

It is currently anticipated that the Ordinary Shares will be eligible to join CREST, the computerised PR Ann III, 4.3 paperless system for settlement of sales and purchases of shares in the London securities market, with LR 6.1.23 effect immediately upon Admission and the commencement of unconditional dealings on the London Stock Exchange.

4.4 Rights attached to the Ordinary Shares Subject to the provisions of the Companies Act, any equity securities issued by the Company for cash PR Ann III, 4.5, 5.3.3 must first be offered to Shareholders in proportion to their holdings of Ordinary Shares. The Companies Act and the Listing Rules allow for the disapplication of pre-emption rights which may be waived by a special resolution of the Shareholders, either generally or specifically, for a maximum period not exceeding five years. Please refer to section 3.6 of this Part XII for a description of the waivers that will apply on Admission.

Except in relation to dividends which have been declared and rights on a liquidation of the Company, the Shareholders have no rights to share in the profits of the Company.

The Ordinary Shares are not redeemable. However, the Company may purchase or contract to purchase any of the Ordinary Shares on- or off-market, subject to the Companies Act and the

198 requirements of the Listing Rules. The Company may purchase Ordinary Shares only out of distributable reserves or the proceeds of a new issue of shares made for the purpose of funding the repurchase. Please refer to section 3.6 of this Part XII for a description of the authorisations relating to the purchase of Ordinary Shares that will apply from Admission.

Further details of the rights attached to the Ordinary Shares in relation to attendance and voting at general meetings, entitlements on a winding-up of the Company and transferability of shares are set out in the Articles, which are summarised in section 5 of this Part XII and available for inspection at the locations and times specified in section 29 of this Part XII.

Further details of the voting and dividend rights attaching to Ordinary Shares that are the subject of awards under the SIP and PSP are set out in section 11 of this Part XII.

4.5 Description of restrictions on free transferability Save as described below, the Ordinary Shares will be freely transferable. PR Ann III, 4.8 LR 2.2.4 Transfer restrictions under the Companies Act The Company may, under the Companies Act, send out statutory notices to those it knows or has reasonable cause to believe have an interest in its shares, asking for details of those who have an interest and the extent of their interest in a particular holding of shares. When a person receives a statutory notice and fails to provide any information required by the notice within the time specified in it, the Company can apply to the court for an order directing, among other things, that any transfer of shares which are the subject of the statutory notice is void.

(A) is duly stamped or certified or otherwise shown to the satisfaction of the Board to be exempt from stamp duty and is accompanied by the relevant share certificate or such other evidence of the right to transfer as the Board may reasonably require;

(B) is in respect of only one class of share; and

The Board may decline to register a transfer of any of the Company’s certificated shares by a person with a 0.25 per cent interest (as defined in the Articles) if such a person has been served with a restriction notice (as defined in the Articles) after failure to provide the Company with information concerning interests in those shares required to be provided under the Companies Act, unless the transfer is shown to the Board to be pursuant to an arm’s length sale (as defined in the Articles).

4.6 Taxation Certain information on taxation in the UK and the United States with regard to the Offer is set out in PR Ann III, 4.11 Part XI (Taxation). The information contained in Part XI (Taxation) is intended only as a general guide to the current tax position in the UK and the United States for the Shareholders described therein. Prospective investors should consult their own tax advisers regarding the tax treatment of the ownership and disposal of Ordinary Shares in light of their own circumstances. Prospective investors who are in any doubt as to their tax position or who are subject to tax in any other jurisdiction should consult an appropriate professional adviser immediately.

199 5. SUMMARY OF THE ARTICLES The Articles, which were adopted on 25 February 2013 subject to and with effect upon Admission, contain (among others) provisions to the following effect.

5.1 Unrestricted objects The objects of the Company are unrestricted. PR Ann I, 21.2.1

5.2 Limited Liability The liability of the Company’s members is limited to any unpaid amount on the shares in the Company held by them.

5.3 Change of Name The Articles allow the Company to change its name by resolution of the Directors. This is in addition to the Company’s statutory ability to change its name by special resolution under the Companies Act.

5.4 Share rights Subject to any rights attached to existing shares, shares may be issued with such rights and restrictions PR Ann I, 21.2.3 as the Company may by ordinary resolution decide, or (if there is no such resolution or so far as it does PR Ann III, 4.5 not make specific provision) as the Directors may decide. These rights and restrictions will apply as if they were set out in the Articles. Redeemable shares may be issued, subject to any rights attached to existing shares. The Directors can decide on the terms and conditions and the manner of redemption of any redeemable shares. These terms and conditions will apply as if they were set out in the Articles. Subject to the Articles, any resolution passed by the Shareholders and other Shareholders’ rights, the Directors may decide how to deal with any shares in the Company.

5.5 Voting rights Shareholders will be entitled to vote at a general meeting or class meeting whether on a show of hands PR Ann I, 21.2.3 or a poll, as provided in any applicable statutes in force from time to time concerning companies insofar PR Ann III, 4.5 as it applies to the Company (in this section, the “Companies Acts”). The Companies Acts provide that:

(A) on a show of hands every member present in person has one vote and every proxy present who has been duly appointed by one or more members will have one vote, except that a proxy has one vote for and one vote against if the proxy has been duly appointed by more than one member and the proxy has been instructed by one or more members to vote for and by one or more other members to vote against. For this purpose, the Articles provide that, where a proxy is given discretion as to how to vote on a show of hands, this will be treated as an instruction by the relevant Shareholder to vote in the way that the proxy decides to exercise that discretion; and

(B) on a poll every member has one vote per share held by him, her or it and he, she or it may vote in person or by one or more proxies. Where he, she or it appoints more than one proxy, the proxies appointed by him, her or it taken together shall not have more extensive voting rights than he, she or it could exercise in person.

This is subject to any rights or restrictions which are given to any shares or on which shares are held.

If more than one joint Shareholder votes (including voting by proxy), the only vote which will count is the vote of the person whose name is listed before the other voters on the register for the share.

5.6 Restrictions No Shareholder shall be entitled to vote at any general meeting or class meeting in respect of any share PR Ann I, 21.2.3 held by him, her or it if any call or other sum then payable by him, her or it in respect of that share PR Ann III, 4.5 remains unpaid or if a member has been served with a restriction notice (as defined in the Articles) after

200 failure to provide the Company with information concerning interests in those shares required to be provided under the Companies Acts.

5.7 Dividends and other distributions The Company may by ordinary resolution from time to time declare dividends not exceeding the amount PR Ann III, 4.5 recommended by the Board. Subject to the Companies Acts, the Board may pay interim dividends, and also any fixed rate dividend, whenever the financial position of the Company, in the opinion of the Board, justifies its payment. If the Board acts in good faith, it is not liable to holders of shares with preferred or pari passu rights for losses arising from the payment of interim or fixed dividends on other shares.

The Board may withhold payment of all or any part of any dividends or other monies payable in respect of the Company’s shares from a person with a 0.25 per cent interest (as defined in the Articles) if such a person has been served with a restriction notice (as defined in the Articles) after failure to provide the Company with information concerning interests in those shares required to be provided under the Companies Acts.

Except insofar as the rights attaching to, or the terms of issue of, any share otherwise provide, all dividends shall be apportioned and paid pro rata according to the amounts paid up on the share during any portion of the period in respect of which the dividend is paid. Except as set out above, dividends may be declared or paid in any currency.

The Board may, if authorised by an ordinary resolution of the Company, offer Shareholders (excluding any member holding shares as treasury shares) in respect of any dividend the right to elect to receive ordinary shares by way of scrip dividend instead of cash.

Any dividend unclaimed after a period of 12 years from the date when it was declared or became due for payment shall be forfeited and revert to the Company unless the Board decides otherwise.

The Company may stop sending cheques, warrants or similar financial instruments in payment of dividends by post in respect of any shares or may cease to employ any other means of payment, including payment by means of a relevant system, for dividends if either (i) at least two consecutive payments have remained uncashed or are returned undelivered or that means of payment has failed or (ii) one payment remains uncashed or is returned undelivered or that means of payment has failed and reasonable enquiries have failed to establish any new postal address or account of the holder. The Company may resume sending dividend cheques, warrants or similar financial instruments or employing that means of payment if the holder requests such resumption in writing.

5.8 Variation of rights Subject to the Companies Acts, rights attached to any class of shares may be varied with the written PR Ann I, 21.2.4 consent of the holders of not less than three-fourths in nominal value of the issued shares of that class PR Ann III, 4.5 (calculated excluding any shares held as treasury shares), or with the sanction of a special resolution passed at a separate general meeting of the holders of those shares. At every such separate general meeting (except an adjourned meeting) the quorum shall be two persons holding or representing by proxy not less than one-third in nominal value of the issued shares of the class (calculated excluding any shares held as treasury shares).

The rights conferred upon the holders of any shares shall not, unless otherwise expressly provided in the rights attaching to those shares, be deemed to be varied by the creation or issue of further shares ranking pari passu with them.

5.9 Transfer of shares The shares are in registered form. Any shares in the Company may be held in uncertificated form and, subject to the Articles, title to uncertificated shares may be transferred by means of a relevant system. Provisions of the Articles do not apply to any uncertificated shares to the extent that such provisions

201 are inconsistent with the holding of shares in uncertificated form or with the transfer of shares by means of a relevant system.

Subject to the Articles, any member may transfer all or any of his or her certificated shares by an PR Ann III, 4.8 instrument of transfer in any usual form or in any other form which the Board may approve. The instrument of transfer must be signed by or on behalf of the transferor and (in the case of a partly paid share) the transferee.

The transferor of a share is deemed to remain the holder until the transferee’s name is entered in the register.

The Board can decline to register any transfer of any share which is not a fully paid share. The Board may also decline to register a transfer of a certificated share unless the instrument of transfer:

(B) is in respect of only one class of share; and

The Board may decline to register a transfer of any of the Company’s certificated shares by a person with a 0.25 per cent interest (as defined in the Articles) if such a person has been served with a restriction notice (as defined in the Articles) after failure to provide the Company with information concerning interests in those shares required to be provided under the Companies Acts, unless the transfer is shown to the Board to be pursuant to an arm’s length sale (as defined in the Articles).

5.10 Sub-division of share capital Any resolution authorising the Company to sub-divide any of its shares can provide that, as between PR Ann I, 21.2.8 the shares resulting from the sub-division, any of them may have a preference or advantage or be subject to any restriction as compared with the others.

5.11 General meetings The Articles rely on the Companies Act provisions dealing with the calling of general meetings. The PR Ann I, 21.2.5 Companies Act provides that an annual general meeting must be called by notice of at least 21 days. Upon listing, the Company will be a “traded company” for the purposes of the Companies Act and as such will be required to give at least 21 days’ notice of any other general meeting unless a special resolution reducing the period to not less than 14 days has been passed at the immediately preceding annual general meeting or at a general meeting held since that annual general meeting or, prior to the Company’s first annual general meeting following Admission, at any other general meeting following Admission.

Notice of a general meeting must be given in hard copy form, in electronic form, or by means of a website and must be sent to every member and every Director. It must state the time and date and the place of the meeting and the general nature of the business to be dealt with at the meeting. As the Company will be a traded company, the notice must also state the website address where information about the meeting can be found in advance of the meeting, the voting record time, the procedures for attending and voting at the meeting, details of any forms for appointing a proxy, procedures for voting in advance (if any are offered), and the right of shareholders to ask questions at the meeting. In addition, a notice calling an annual general meeting must state that the meeting is an annual general meeting.

202 Each Director shall be entitled to attend and speak at any general meeting. The chairman of the meeting may invite any person to attend and speak at any general meeting where he or she considers that this will assist in the deliberations of the meeting.

5.12 Directors PR Ann I, 21.2.2 (A) Number of Directors The Directors shall be not less than two and not more than 14 in number. The Company may by ordinary resolution vary the minimum and/or maximum number of Directors.

(B) Directors’ shareholding qualification A Director shall not be required to hold any shares in the Company.

(C) Appointment of Directors Directors may be appointed by the Company by ordinary resolution or by the Board. A Director appointed by the Board holds office only until the next following annual general meeting of the Company and is then eligible for re-appointment.

The Board or any committee authorised by the Board may from time to time appoint one or more Directors to hold any employment or executive office for such period and on such terms as they may determine and may also revoke or terminate any such appointment.

(D) Retirement of Directors At every annual general meeting, (i) any director appointed since the last annual general meeting, (ii) any director who has held office for two preceding annual general meetings without retiring from office and (iii) any director who has held office of the Company for a continuous period of nine years or more shall retire from office and each such person may offer himself or herself for re-appointment by the shareholders.

(E) Removal of Directors by special resolution In addition to any power of removal conferred by the Companies Acts, the Company may by special resolution remove any Director before the expiration of his or her period of office.

(F) Vacation of office The office of a Director shall be vacated if:

(i) he or she resigns or offers to resign and the Board resolves to accept such offer;

(ii) his or her resignation is requested by all of the other Directors and all of the other Directors are not less than three in number;

(iii) he or she is or has been suffering from mental or physical ill-health and the Board resolves that his or her office be vacated;

(iv) he or she is absent without the permission of the Board from meetings of the Board (whether or not an alternate Director appointed by him or her attends) for six consecutive months and the Board resolves that his or her office is vacated;

(v) he or she becomes bankrupt or compounds with his or her creditors generally;

(vi) he or she is prohibited by law from being a Director;

(vii) he or she ceases to be a Director by virtue of the Companies Acts; or

(viii) he or she is removed from office pursuant to the Articles.

If the office of a Director is vacated for any reason, he or she must cease to be a member of any committee or sub-committee of the Board.

203 (G) Alternate Directors Any Director may appoint any person to be his or her alternate and may at his or her discretion remove such an alternate Director. If the alternate Director is not already a Director, the appointment, unless previously approved by the Board, shall have effect only upon and subject to being so approved.

(H) Proceedings of the Board Subject to the provisions of the Articles, the Board may meet for the despatch of business, adjourn and otherwise regulate its meetings as it thinks fit. The quorum necessary for the transaction of the business of the Board may be fixed by the Board and, unless so fixed at any other number, shall be two. A meeting of the Board at which a quorum is present shall be competent to exercise all the powers, authorities and discretions vested in or exercisable by the Board.

The Board may appoint a Director to be the chairman or a deputy chairman and may at any time remove him or her from that office. Questions arising at any meeting of the Board shall be determined by a majority of votes. In the case of an equality of votes the chairman of the meeting shall have a second or casting vote.

All or any of the members of the Board may participate in a meeting of the Board by means of a conference telephone or any communication equipment which allows all persons participating in the meeting to speak to and hear each other. A person so participating shall be deemed to be present at the meeting and shall be entitled to vote and to be counted in the quorum.

The Board may delegate any of its powers, authorities and discretions (with power to sub-delegate) to any committee, consisting of such person or persons as it thinks fit, provided that the majority of persons on any committee or sub-committee must be Directors. The meetings and proceedings of any committee consisting of two or more members shall be governed by the provisions contained in the Articles for regulating the meetings and proceedings of the Board so far as the same are applicable and are not superseded by any regulations imposed by the Board.

(I) Remuneration of Directors Each of the Directors shall be paid a fee at such rate as may from time to time be determined by the Board, but the aggregate of all such fees so paid to the Directors shall not exceed £2.0 million per annum or such higher amount as may from time to time be decided by ordinary resolution of the Company. Any Director who is appointed to any executive office shall be entitled to receive such remuneration (whether by way of salary, commission, participation in profits or otherwise) as the Board or any committee authorised by the Board may decide, either in addition to or in lieu of his or her remuneration as a Director. In addition, any Director who performs services which in the opinion of the Board or any committee authorised by the Board go beyond the ordinary duties of a Director, may be paid such extra remuneration as the Board or any committee authorised by the Board may determine. Each Director may be paid his or her reasonable travelling, hotel and incidental expenses of attending and returning from meetings of the Board, or committees of the Board or of the Company or any other meeting which as a Director he or she is entitled to attend, and shall be paid all other costs and expenses properly and reasonably incurred by him or her in the conduct of the Company’s business or in the discharge of his or her duties as a Director. The Company may also fund a Director’s or former Director’s expenditure and that of a Director or former Director of any holding company of the Company for the purposes permitted under the Companies Acts and may do anything to enable a Director or former Director or a Director or former Director of any holding company of the Company to avoid incurring such expenditure as provided in the Companies Acts.

(J) Pensions and gratuities for Directors The Board or any committee authorised by the Board may exercise the powers of the Company to provide benefits by the payment of gratuities or pensions or by insurance or in any other manner for any Director or former Director or his or her relations, dependants or persons connected to him or her, but no benefits (except those provided for by the Articles) may be granted to or in respect of a Director or former Director who has not been employed by or held an executive office or place of profit under the

204 Company or any of its subsidiary undertakings or their respective predecessors in business without the approval of an ordinary resolution of the Company.

(K) Directors’ interests The Board may, subject to the provisions of the Articles, authorise any matter which would otherwise involve a Director breaching his or her duty under the Companies Acts to avoid conflicts of interest. Where the Board gives authority in relation to a conflict of interest, or where any of the situations described in (i) to (v) below applies in relation to a Director, the Board may (a) require the relevant Director to be excluded from the receipt of information, the participation in discussion and/or the making of decisions related to the conflict of interest or situation; (b) impose upon the relevant Director such other terms for the purpose of dealing with the conflict of interest or situation as it may determine; and (c) provide that the relevant Director will not be obliged to disclose information obtained otherwise than through his or her position as a Director of the Company and that is confidential to a third party or to use or apply the information in relation to the Company’s affairs, where to do so would amount to a breach of that confidence. The Board may revoke or vary such authority at any time.

Subject to the provisions of the Companies Acts, and provided he or she has declared the nature and extent of his or her interest to the Board as required by the Companies Acts, a Director may:

(i) be party to, or otherwise interested in, any contract with the Company or in which the Company has a direct or indirect interest;

(ii) hold any other office or place of profit with the Company (except that of auditor) in conjunction with his or her office of Director for such period and upon such terms, including remuneration, as the Board may decide;

(iii) act by himself or herself or through a firm with which he or she is associated in a professional capacity for the Company or any other company in which the Company may be interested (otherwise than as auditor);

(iv) be or become a Director or other officer of, or employed by or otherwise be interested in any holding company or subsidiary company of the Company or any other company in which the Company may be interested; and

(v) be or become a Director of any other company in which the Company does not have an interest and which cannot reasonably be regarded as giving rise to a conflict of interest at the time of his or her appointment as a Director of that other company.

A Director shall not, by reason of his or her office be liable to account to the Company or its members for any benefit realised by reason of having an interest permitted as described above or by reason of having a conflict of interest authorised by the Board and no contract shall be liable to be avoided on the grounds of a Director having any such interest.

(L) Restrictions on voting No Director may vote on or be counted in the quorum in relation to any resolution of the Board concerning his or her own appointment, or the settlement or variation of the terms or the termination of his or her own appointment, as the holder of any office or place of profit with the Company or any other company in which the Company is interested save to the extent permitted specifically in the Articles.

Subject to certain exceptions set out in the Articles, no Director may vote on, or be counted in a quorum in relation to, any resolution of the Board in respect of any contract in which he or she has an interest and, if he or she does so, his or her vote shall not be counted.

Subject to the Companies Acts, the Company may by ordinary resolution suspend or relax to any extent the provisions relating to Directors’ interests or the restrictions on voting or ratify any transaction not duly authorised by reason of a contravention of such provisions.

205 (M) Borrowing and other powers Subject to the Articles and any directions given by the Company by special resolution, the business of the Company will be managed by the Board who may exercise all the powers of the Company, whether relating to the management of the business of the Company or not. In particular, the Board may exercise all the powers of the Company to borrow money, to guarantee, indemnify, mortgage or charge any of its undertaking, property, assets (present and future) and uncalled capital and to issue debentures and other securities and to give security for any debt, liability or obligation of the Company or of any third party. The Articles do not impose any borrowing restrictions on the Board or the Company.

(N) Indemnity of Directors To the extent permitted by the Companies Acts, the Company may indemnify any Director or former Director of the Company or any associated company against any liability. In addition, the Company may purchase and maintain for any Director or former Director of the Company or any associated company insurance against any liability.

5.13 Methods of service Any notice, document (including a share certificate) or other information may be served on or sent or supplied to any Shareholder by the Company personally, by post, by means of a relevant system, by sending or supplying it in electronic form to an address notified by the Shareholder to the Company for that purpose, where appropriate, by making it available on a website and notifying the Shareholder of its availability, or by any other means authorised in writing by the Shareholder.

6. MANDATORY BIDS AND COMPULSORY ACQUISITION RULES RELATING TO ORDINARY SHARES

Other than as provided by the Takeover Code and Chapter 28 of the Companies Act, there are no rules PR Ann III, 4.9 or provisions relating to mandatory bids and/or squeeze-out and sell-out rules that apply to the Ordinary Shares.

6.1 Mandatory bid The Takeover Code applies to the Company. Under Rule 9 of the Takeover Code, if an acquisition of interests in shares were to increase the aggregate holding of the acquirer and its concert parties to interests in shares carrying 30 per cent or more of the voting rights in the Company, the acquirer and, depending on circumstances, its concert parties would be required (except with the consent of the Panel on Takeovers and Mergers (“Panel”)) to make a cash offer for the outstanding shares in the Company at a price not less than the highest price paid for interests in shares by the acquirer or its concert parties during the previous 12 months. This requirement would also be triggered by any acquisition of interests in shares by a person holding (together with its concert parties) shares carrying between 30 per cent and 50 per cent of the voting rights in the Company if the effect of such acquisition were to increase that person’s percentage of the total voting rights in the Company.

“Interest in shares” is defined broadly in the Takeover Code. A person who has long economic exposure, whether absolute or conditional, to changes in the price of shares will be treated as interested in those shares. A person who only has a short position in shares will not be treated as interested in those shares.

In particular, people will be treated as having an interest in shares if:

• they own them;

• they have the right (whether conditional or absolute) to exercise or direct the exercise of the voting rights attaching to them or have general control of them;

• by virtue of any agreement to purchase an option or derivative they:

206 (a) have the right or option to acquire them or call for their delivery; or

(b) are under an obligation to take delivery of them, whether the right, option or obligation is conditional or absolute and whether it is in the money or otherwise; or

• they are party to any derivative:

(a) whose value is determined by reference to its price; and

(b) which results, or may result, in their having a long position in it.

“Voting rights” for these purposes means all the voting rights attributable to the share capital of a company which are currently exercisable at a general meeting.

Persons acting in concert comprise persons who, pursuant to an agreement or understanding (whether formal or informal), co-operate to obtain or consolidate control (as defined below) of a company or to frustrate the successful outcome of an offer for a company. Certain categories of people will be deemed to be acting in concert with each other unless the contrary is established. For details regarding Shareholders and other persons presumed by the Panel to be acting in concert with respect to the Group on Admission for the purposes of Rule 9 of the Takeover Code, please refer to section 8.3 (Rule 9 Disclosures) of this Part XII.

6.2 Squeeze-out Under the Companies Act, if a “takeover offer” (as defined in section 974 of the Companies Act) is made for the Ordinary Shares and the offeror were to acquire, or unconditionally contract to acquire, not less than 90 per cent in value of the Ordinary Shares to which the offer relates and not less than 90 per cent of the voting rights carried by the Ordinary Shares to which the offer relates, it could, within three months of the last day on which its takeover offer can be accepted, compulsorily acquire the remaining 10 per cent. The offeror would do so by sending a notice to outstanding members telling them that it will compulsorily acquire their Ordinary Shares and then, six weeks later, it would execute a transfer of the outstanding Ordinary Shares in its favour and pay the consideration for the outstanding Ordinary Shares to the Company, which would hold the consideration on trust for outstanding members. The consideration offered to the members whose shares are compulsorily acquired under this procedure must, in general, be the same as the consideration that was available under the original offer unless a member can show that the offer value is unfair.

6.3 Sell-out The Companies Act also gives minority members a right to be bought out in certain circumstances by an offeror who has made a takeover offer. If a takeover offer related to all the Ordinary Shares and, at any time before the end of the period within which the offer could be accepted, the offeror held or had agreed to acquire not less than 90 per cent in value of the Ordinary Shares and not less than 90 per cent of the voting rights carried by the Ordinary Shares, any holder of Ordinary Shares to which the offer related who had not accepted the offer could by a written communication to the offeror require it to acquire those Ordinary Shares. The offeror is required to give any member notice of his/her right to be bought out within one month of that right arising. The offeror may impose a time limit on the rights of minority members to be bought out, but that period cannot end less than three months after the end of the acceptance period or, if later, three months from the date on which notice is served on members notifying them of their sell-out rights. If a member exercises his/her rights, the offeror is entitled and bound to acquire those Ordinary Shares on the terms of the offer or on such other terms as may be agreed.

207 7. ORGANISATIONAL STRUCTURE As at the date of this document, the Group comprises the Company and its subsidiary undertakings. PR Ann I, 7.1, 7.2 The Company has the following subsidiaries, all of which are directly or indirectly 100 per cent owned by it:

Company name Place of incorporation Principal activity esure Finance Limited England and Wales Intermediate holding company esure Holdings Limited England and Wales Intermediate holding company esure Services Limited England and Wales Administration/management and insurance intermediary esure Insurance Limited England and Wales General insurance esure Broker Limited England and Wales Insurance intermediary esure Property Limited England and Wales Property investment esure Property Management Limited England and Wales Dormant esure Sociedad Limitada Spain Non-trading

Note: (1) In addition, esure Services Limited holds the Group’s 50 per cent interest in Gocompare.

The Company, esure Finance Limited and esure Holdings Limited are holding companies. The Company and esure Finance Limited became the holding companies of the Group on 11 February 2010 pursuant to the Management Buy-out. esure Holdings Limited was the ultimate 100 per cent holding company of the Group prior to the Management Buy-out. esure Insurance Limited operates the general insurance business of the Group. esure Services Limited acts as an insurance intermediary and management service provider for other members of the Group. It also holds the Group’s 50 per cent interest in Gocompare. esure Broker Limited is registered with the FSA as an appointed representative of esure Services Limited, providing insurance mediation services for the Group’s branded broker service. esure Property Limited is a property investment company that holds the Group’s UK real estate interests. esure Sociedad Limitada is a non-trading company used to hold the Group’s Spanish domain name registration. esure Property Management Limited is dormant.

208 8. INTERESTS OF MAJOR SHAREHOLDERS AND SELLING SHAREHOLDERS PR Ann I, 18.1 8.1 Major Shareholders PR Ann III, 3.3, 5.2.2 Insofar as was known to the Company as at 7 March 2013 (being the latest practicable date prior to the publication of this document), Peter Wood and Tosca Penta Investments LP will, on Admission, be directly or indirectly interested in three per cent or more of the issued share capital of the Company (being the threshold for notification of interests that will apply to the Company and Shareholders as of Admission pursuant to Chapter 5 of the Disclosure and Transparency Rules of the FSA). Their expected interests both immediately prior to and immediately following Admission are disclosed in the table set out below in section 8.2 of this Part XII.

8.2 Selling Shareholders In addition to the New Ordinary Shares that will be issued by the Company pursuant to the Offer, PR Ann III, 7.2 Existing Ordinary Shares will be sold by the Selling Shareholders pursuant to the Offer. The Selling Shareholders are the Major Shareholders (Peter Wood and Tosca Penta Investments LP), the Directors PR Ann III, 7.1, 7.2 listed in the table below, and such of the other Existing Shareholders (who are either current or former employees) who enter into the Small Selling Shareholder Arrangements described in section 17 of this Part XII following the date of this document. The indicative interests in Ordinary Shares of the Selling Shareholders immediately prior to Admission (calculated at the mid-point and each end of the Price Range), together with corresponding estimates of their interests in Ordinary Shares immediately following Admission at those respective points of the Price Range, are set out in the table below.

Interests Ordinary Shares Interests immediately to be sold immediately prior to pursuant to following Admission (1) the Offer (1)(2) Admission –––––––––––––––––––– –––––––––––––––––––– –––––––––––––––––––– % % % of total of of total (A) Mid-point of the Price Range No. issued No. holding No. issued Peter Wood(3)(7) ...... 194,969,635 48.8% 48,981,745 25.1% 145,987,890 34.9% Tosca Penta Investments LP(3)(4) ...... 155,887,956 39.0% 87,386,545 56.1% 68,501,411 16.4% Stuart Vann(5)(7) ...... 3,088,087 0.8% 1,019,068 33.0% 2,069,019 0.5% Darren Ogden(5)(7)...... 1,781,538 0.4% 587,907 33.0% 1,193,631 0.3% Anthony Hobson(6)(7) ...... 342,749 0.1% 113,107 33.0% 229,642 0.1% Peter Ward(6)(7) ...... 342,749 0.1% 113,107 33.0% 229,642 0.1% Dame Helen Alexander(7) ...... 126,435 0.0% 41,723 33.0% 84,712 0.0% Employee Shareholders(6)(7) ...... 30,310,980 7.6% 10,002,599 33.0% 20,308,381 4.9% Non-employee Shareholders(6)(7) ...... 11,129,653 2.8% 11,129,653 100.0% 0 0.0% % % % of total of of total (B) Bottom of the Price Range No. issued No. holding No. issued Peter Wood(7) ...... 170,913,715 42.8% 47,672,408 27.9% 123,241,307 29.3% Tosca Penta Investments LP(3)(4) ...... 185,957,828 46.5% 89,342,083 48.0% 96,615,745 23.0% Stuart Vann(5)(7) ...... 2,600,467 0.7% 858,154 33.0% 1,742,313 0.4% Darren Ogden(5)(7)...... 1,465,489 0.4% 483,611 33.0% 981,878 0.2% Anthony Hobson(6)(7) ...... 288,660 0.1% 95,257 33.0% 193,403 0.0% Peter Ward(6)(7) ...... 288,660 0.1% 95,257 33.0% 193,403 0.0% Dame Helen Alexander(7) ...... 95,734 0.0% 31,592 33.0% 64,142 0.0% Employee Shareholders(6)(7) ...... 26,016,108 6.5% 8,585,287 33.0% 17,430,821 4.1% Non-employee Shareholders(6)(7) ...... 10,687,184 2.7% 10,687,184 100.0% 0 0.0% % % % of total of of total (C) Top of the Price Range No. issued No. holding No. issued Peter Wood(3)(7) ...... 199,440,680 49.9% 51,955,109 26.1% 147,485,571 35.5% Tosca Penta Investments LP(3)(4) ...... 150,299,151 37.6% 85,190,064 56.7% 65,109,087 15.7% Stuart Vann(5)(7) ...... 3,178,716 0.8% 1,048,976 33.0% 2,129,740 0.5% Darren Ogden(5)(7)...... 1,840,279 0.5% 607,292 33.0% 1,232,987 0.3% Anthony Hobson(6)(7) ...... 352,802 0.1% 116,424 33.0% 236,378 0.1% Peter Ward(6)(7) ...... 352,802 0.1% 116,424 33.0% 236,378 0.1% Dame Helen Alexander(7) ...... 132,141 0.0% 43,606 33.0% 88,535 0.0% Employee Shareholders(6)(7) ...... 31,109,231 7.8% 10,266,020 33.0% 20,843,211 5.0% Non-employee Shareholders(6)(7) ...... 11,211,891 2.8% 11,211,891 100.0% 0 0.0%

209 Notes: (1) By virtue of the pre-Admission re-organisation of the share capital described in section 3.5 (Pre-Admission reorganisation of the share capital) of this Part XII, the respective equity and voting rights attributable to the B Ordinary Shares (held by Peter Wood and certain other Directors, employees and former employees) and C Ordinary Shares (held by Tosca Penta Investments LP) will, before their conversion into Ordinary Shares immediately prior to Admission, be varied based on the aggregate valuation of the Company implied by the Offer Price (excluding, for the purposes of this calculation, the proceeds of £50 million to be raised by the Company pursuant to the Offer). The figures presented reflect the respective share interests of Tosca Penta Investments LP and Peter Wood, certain other Directors and other Selling Shareholders on the basis that the Offer Price is set at the bottom, mid-point and the top of the Price Range respectively. (2) Calculated on the basis that (i) the Company issues sufficient New Ordinary Shares to raise proceeds of £50 million; (ii) each of the Directors (other than Peter Wood) sells the maximum number of Existing Ordinary Shares through the Offer which he or she has indicated, on a non- binding basis, that he or she may sell (subject to a maximum of 33 per cent of his or her holdings); (iii) all other Existing Shareholders sell the maximum number of Existing Ordinary Shares that they are permitted to sell through the Offer (which for Employee Shareholders is 33 per cent of their holdings and for Non-Employee Shareholders is 100 per cent of their holdings, assuming that scale back is not applied); (iv) Peter Wood and Tosca Penta Investments LP sell, in aggregate, such number of their Existing Ordinary Shares as is necessary to ensure that the total number of Ordinary Shares subject to the Offer (taking into account (i) to (iv) above) represents 42.5 per cent of the total number of Ordinary Shares in issue immediately following Admission (calculated before utilisation of the Over-allotment Arrangements); and (v) there is no exercise of the Over-allotment Option. (3) In addition, Peter Wood and Tosca Penta Investments LP may, in aggregate, sell up to a further 15 per cent of the Ordinary Shares comprised in the Offer pursuant to the Over-allotment Arrangements, in proportions of up to 50 per cent by Peter Wood and the remainder by Tosca Penta Investments LP. On the basis of the assumptions set out in Notes (1) and (2) above, the number of Ordinary Shares that Peter Wood and Tosca Penta Investments LP may, in aggregate, sell pursuant to the Over-allotment Arrangements is 26,802,624 at the bottom of the Price Range, 26,633,590 at the mid-point of the Price Range and 26,502,724 at the top of the Price Range. (4) Tosca Penta Investments LP also holds 4,485,014,000 Non-Voting Old Ordinary Shares and 1000 Priority Return Shares, all of which will be repurchased by the Company on Admission for, in aggregate, £45.45 million. David Calder and Charles Schrager von Altishofen, Directors, are both partners of Penta Capital LLP, which manages Tosca Penta Investments LP. David Calder and Charles Schrager von Altishofen will retire from the Board on Admission. The business address of Tosca Penta Investments LP is 150 St. Vincent Street, Glasgow G2 5NE. (5) In addition, on or shortly after Admission (i) Stuart Vann will receive performance-related awards over Ordinary Shares with a value at grant equal to approximately £0.83 million (being 175 per cent of his base salary) and (ii) Darren Ogden will receive performance-related awards over Ordinary Shares with a value at grant equal to approximately £0.47 million (being 150 per cent of his base salary). Subject to applicable performance and other conditions, these awards will normally vest on the later of the third anniversary of Admission and the date on which the Remuneration Committee determines that the performance and other conditions have been satisfied (in whole or in part). Please refer to section 3.4(A) (First PSP Award) of Part II of this document for further details, including performance conditions. (6) In addition, each of Anthony Hobson and Peter Ward have a 0.025 per cent economic interest in Tosca Penta Investments LP. Tosca Penta Investments LP is managed by Penta Capital LP, and Anthony Hobson and Peter Ward do not have the ability to exercise voting rights in respect of the Ordinary Shares owned by Tosca Penta Investments LP, nor do they have the ability to call for the distribution of any Ordinary Shares owned by Tosca Penta Investments LP. (7) The business address of the Directors and the agent for service address of the other Selling Shareholders (for the purposes of the Offer and apart from Tosca Penta Investments LP) is The Observatory, Castlefield Road, Reigate, Surrey RH2 0SG.

8.3 Rule 9 Disclosures Overview For the purposes of Rule 9 of the Takeover Code (which is described in section 6.2 (Mandatory Bid) of this Part XII), the Company understands that the Panel will generally presume that shareholders in a company before a public offering of its shares, together with their closely connected persons/friends, will be acting in concert with each other. The Company further understands that, until such time as the relevant Existing Shareholders or connected persons demonstrate otherwise, the Panel will presume Peter Wood, Penta Capital LLP (“Penta”), any funds managed or advised by Penta (including Tosca Penta Investments LP) and, by virtue of his interests in Penta, Martin Hughes and all funds and entities controlled directly or indirectly by Martin Hughes (including Toscafund Asset Management LLP (“Toscafund”) and any funds managed or advised by Toscafund) to be acting in concert for the purposes of Rule 9 of the Takeover Code (the “Potential Concert Party”). Notwithstanding the above presumption, Peter Wood, on the one hand, and Martin Hughes and Penta Capital, on the other hand, are of the view that they are not acting in concert and have confirmed to the Company in writing that there will be no agreement or understanding (whether formal or informal) in place between them on Admission to co-operate to obtain or consolidate control (as defined in the Takeover Code) of the Company or to frustrate the successful outcome of an offer for the Company following Admission. The Company understands that no other Existing Shareholder will be presumed to be acting in concert with any member of the Potential Concert Party.

Stabilisation arrangements in connection with the Offer Under the stabilisation arrangements described in the section entitled Important Notices on page 52 of this document, the Stabilising Manager may borrow Ordinary Shares (representing in aggregate up to 15 per cent of the Ordinary Shares available in the Offer) from the Major Shareholders under the terms of the Stock Lending Agreement for the purposes of satisfying over-allotments of Ordinary Shares. The

210 Stabilising Manager will, within 30 calendar days of the date of the commencement of conditional dealings of the Ordinary Shares on the London Stock Exchange, re-deliver to each Major Shareholder any equivalent securities in respect of any borrowing it makes under the terms of the Stock Lending Agreement by transferring the same number of Ordinary Shares to each Major Shareholder as the Stabilising Manager has borrowed from that Major Shareholder. The Stabilising Manager may also utilise the Over-allotment Option to acquire Ordinary Shares representing in aggregate up to 15 per cent of the Ordinary Shares available in the Offer (prior to the utilisation of the Over-allotment Arrangements) from the Major Shareholders (in the proportions of up to 50 per cent from Peter Wood and the remainder from Tosca Penta Investments LP), whereupon each Major Shareholder will be obliged to transfer such Ordinary Shares to the Stabilising Manager.

As a result of the combined effect of lending Ordinary Shares pursuant to the Stock Lending Agreement and granting the Over-allotment Option, each Major Shareholder’s shareholding in the Company can only remain the same or decrease from what his or its shareholding would be if he or it were not party to any stabilisation arrangements. In particular, each Major Shareholder’s shareholding in the Company will:

• increase when the loan is repaid by a percentage equal to the percentage of the issued share capital of the Company which he or it lends to the Stabilising Manager under the Stock Lending Agreement; and/or

• will decrease if the Stabilising Manager acquires Ordinary Shares from him or it pursuant to utilisation of the Over-allotment Option.

The Panel has confirmed, on an ex parte basis, to the Company and each Major Shareholder that no mandatory offer for the Company need be made as a result of an increase in either Major Shareholder’s shareholding in the Company as a result of the arrangements and transactions described above. In particular, the Takeover Panel has confirmed that, pursuant to Note 4 to the definition of “Interests in securities” in, and Notes 17 and 18 to Rule 9.1 of, the Takeover Code, each Major Shareholder will not be treated as having disposed of an interest in any Ordinary Shares when he or it lends Ordinary Shares to the Stabilising Manager under the Stock Lending Agreement and will not therefore be treated as having increased his or its interest in Ordinary Shares upon the repayment of such loan.

An announcement will be made by the Company or by the Stabilising Manager on its behalf following utilisation of the Over-allotment Option, not later than one week after the end of the stabilisation period, and a further announcement will be made to record the movements that have taken place in either Major Shareholder’s shareholding in the Company consequent upon the arrangements referred to above. Subject to the matters described below, Rule 9 of the Takeover Code will then continue to apply.

Acquisitions of further shares following Admission Prospective investors should be aware that, depending on the Offer Price and assuming that the Over- allotment Option is not exercised in full, following Admission, the members of the Potential Concert Party may between them hold more than 50 per cent of the Company’s voting share capital and (if the Potential Concert Party was deemed to exist at any relevant time) may accordingly be able to increase their aggregate shareholding without incurring any obligation under Rule 9 to make a general offer, although, subject to the waivers referred to below pursuant to Note 4 to Rule 8.1 of the Takeover Code, individual members of the Potential Concert Party or any sub-group of the Potential Concert Party will not, without the consent of the Panel, be able to increase their interests in Ordinary Shares in the Company through a Rule 9 threshold (i.e. to or through 30 per cent of the voting rights or any increase between (and including) 30 per cent but no more than 50 per cent of the voting rights) without incurring an obligation under Rule 9 to make a general offer for the Company. Notwithstanding that Rule 9 of the Takeover Code may not apply to an acquisition of an interest in Ordinary Shares by a controlling shareholder or shareholders as described above, the Company understands that the Panel would seek to regulate an attempt by a controlling shareholder or shareholders to acquire all outstanding shares of a company by way of an offer under the Takeover Code.

211 In addition, each member of the Potential Concert Party has entered into a standstill arrangement with the Company pursuant to which each member of the Potential Concert Party has undertaken not to acquire any interest in shares in the Company if and for so long as the aggregate interest of any concert party of which that member is presumed to be a member exceeds 50 per cent of the Company’s voting share capital. The Company understands that the members of the Potential Concert Party have also entered into an agreement with themselves whereby no member will acquire any interest in shares in the Company without the others’ prior written consent for a period of five years following Admission or, if earlier, until such time as the presumption of concertedness between them has been rebutted or their aggregate interest in the shares of the Company represents less than 10 per cent of the Company’s voting share capital.

Whitewash procedure When a company redeems or purchases its own voting shares, under Rule 37 of the Takeover Code any resulting increase in the percentage of shares carrying voting rights in which a person or group of persons acting in concert is interested will be treated as an acquisition for the purpose of Rule 9 of the Takeover Code. Rule 37 of the Takeover Code provides that, subject to prior consultation, the Panel will normally waive any resulting obligation to make a general offer if there is a vote of independent shareholders and a procedure along the lines of that set out in Appendix 1 to the Takeover Code is followed. Appendix 1 to the Takeover Code sets out the procedure which should be followed in obtaining that consent of independent shareholders. Under Note 1 on Rule 37 of the Takeover Code, a person who comes to exceed the limits in Rule 9.1 in consequence of a company’s purchase of its own shares will not normally incur an obligation to make a mandatory offer unless that person is a director, or the relationship of the person with any one or more of the directors is such that the person is, or is presumed to be, acting in concert with any of the directors. However, there is no presumption that all the directors (or any two or more directors) are acting in concert solely by reason of a proposed purchase by a company of its own shares, or the decision to seek shareholders’ authority for any such purchase.

Under Note 2 on Rule 37 of the Takeover Code, the exception in Note 1 on Rule 37 described above will not apply, and an obligation to make a mandatory offer may therefore be imposed, if a person (or any relevant member of a group of persons acting in concert) has acquired an interest in shares at a time when he, she or it had reason to believe that such a purchase of its own shares by the company would take place. However, Note 2 will not normally be relevant unless the relevant person has knowledge that a purchase for which requisite shareholder authority exists is being, or is likely to be, implemented (whether in whole or in part).

The Panel must be consulted in advance in any case where Rule 9 of the Takeover Code might be relevant. This will include any case where a person or group of persons acting in concert is interested in shares carrying 30 per cent or more but does not hold shares carrying more than 50 per cent of the voting rights of a company, or may become interested in 30 per cent or more on full implementation of the proposed purchase of own shares. In addition, the Panel should always be consulted if the aggregate interests in shares of the directors and any other persons acting in concert, or presumed to be acting in concert, with any of the directors amount to 30 per cent or more, or may be increased to 30 per cent or more on full implementation of the proposed purchase of own shares.

Subject to certain limits, the Company has authority to purchase Ordinary Shares under the terms of the shareholder resolution summarised in section 3.6(C) of this Part XII. The maximum number of Ordinary Shares that the Company may purchase under this authority is 50,000,000 but the Board has resolved not to purchase more than such lower number that, following the issue of New Ordinary Shares pursuant to the Offer, represents ten per cent of the issued share capital of the Company on Admission. The authority is due to expire at the conclusion of the first annual general meeting of the Company following Admission or 31 July 2014, whichever later.

If, prior to such expiry: • the Company were to exercise that authority in full;

212 • the aggregate percentage shareholding of Peter Wood in the Company immediately following Admission is approximately 34.9 per cent (on the basis of the Mid-point Assumptions); and • none of the Ordinary Shares which Peter Wood holds are purchased by the Company under that authority and no Ordinary Shares had been newly issued by the Company between the date of Admission and the date that the authority is fully exercised, then Peter Wood’s shareholding in the Company would increase to approximately 38.8 per cent.

If, prior to such expiry:

• the Company were to exercise that authority in full;

• the percentage shareholding of the Potential Concert Party in the Company immediately following Admission is approximately 51.3 per cent (on the basis of the Mid-point Assumptions); and

• none of the Ordinary Shares which any member of the Potential Concert Party holds are purchased by the Company under that authority and no Ordinary Shares had been newly issued by the Company between the date of Admission and the date on which the authority is fully exercised, then the Potential Concert Party’s aggregate shareholding in the Company would increase to approximately 57.0 per cent.

These increases would be less to the extent that any of the Potential Concert Party’s Ordinary Shares are purchased by the Company. In addition, as noted above, each of the Major Shareholder’s shareholdings will be lower, and will therefore increase by a lesser amount, if the Company were to purchase Ordinary Shares from other Shareholders or to the extent that the Stabilising Manager had exercised the Over-allotment Option by acquiring further Ordinary Shares from the Major Shareholders.

Notwithstanding the provisions of Rule 37 of the Takeover Code, the Panel has waived any obligation which would otherwise require Peter Wood and any person deemed to be acting in concert with Peter Wood to make a mandatory offer under Rule 9 of the Takeover Code on the grounds that his or their interest in the Ordinary Shares has increased as a result only of the purchase by the Company of its own shares pursuant to the authority conferred by the written resolution summarised above. The Company currently expects to seek renewal of that authority from Shareholders at the first annual general meeting of the Company following Admission and to seek Shareholder consent to an equivalent waiver in respect of any renewed authority to purchase Ordinary Shares that is sought. The granting of the waiver will then also be subject to renewed approval from the Panel, without which Rule 9 of the Takeover Code will apply with respect to increases in interests in Ordinary Shares in the Company caused by the purchase by the Company of its own shares.

8.4 Other disclosures relating to Shareholders (A) As of Admission (following the repurchase by the Company of all the Non-Voting Old Ordinary PR Ann I, 18.2 Shares and Redeemable Priority Return Shares on Admission), the Ordinary Shares will be the only class of share capital of the Company. All Shareholders will have equal voting rights.

(B) Other than as described at section 8.3 (Rule 9 Disclosures) of this Part XII, as at 7 March 2013 PR Ann I, 18.3, 18.4 (being the latest practicable date prior to the publication of this document), the Company is not aware of any persons who, directly or indirectly, jointly or severally, will exercise or could exercise control over the Company on or after Admission.

213 9. DIRECTORS 9.1 Directorships and partnerships outside the Group The details of those companies and partnerships outside the Group of which the Directors are currently PR Ann I, 14.1 directors or partners, or have been directors or partners at any time during the five years prior to the publication of this document, are as follows: Peter Wood Current directorships and partnerships: P.J. Wood Associates Limited The Plymouth Rock Company Incorporated Previous directorships and partnerships: Cobweb Solutions Limited Halifax CHS Company 2 Limited Post Restaurants Limited Halifax CHS Company 1 Limited Halifax CHS Company 3 Limited El Cielo Hotels Limited TonyTobin @ The Dining Room Limited

Dame Helen Alexander Current directorships and partnerships: Incisive Media Holdings Limited Rolls-Royce Holdings plc Port of London Authority Limited UBM plc St Paul’s Girls’ School Réunion des Musées Nationaux Grand Palais Confederation of British Industry Saïd Business School Worldwide Web Foundation Thomson Reuters Founder’s Share Company Limited Previous directorships and partnerships: Thirty Club of London, Limited (The) Economist Newspaper Limited (The) Centrica plc Tate Enterprises Ltd

Stuart Vann Current directorships and partnerships: Gocompare.com Holdings Limited Previous directorships and partnerships: None

Darren Ogden Current directorships and partnerships: None Previous directorships and partnerships: None

Anthony Hobson Current directorships and partnerships: Changing Faces Dyson James Group Limited Previous directorships and partnerships: Northern Foods plc Halifax CHS Company 2 Limited Halifax CHS Company 1 Limited Bank of Scotland plc HBOS plc Halifax Limited Cenkos Securities plc Glas Cymru Cyfyngedig Dwr Cymru Cyfyngedig The Sage Group plc

214 Anne Richards Current directorships and partnerships: Aberdeen Asset Management plc Aberdeen Asset Management Charitable Foundation Orbita Capital Return Strategy Limited Orbita Capital Return Strategy (Euro) Limited Orbita Capital Return Strategy (Sterling) Limited Orbita European Growth Strategy Limited Orbita European Growth Strategy (Sterling) Limited Orbita European Growth Strategy (Dollar) Limited Orbita Global Opportunities Strategy Limited Orbita Global Opportunities Strategy (Euro) Limited Orbita Global Opportunities Strategy (Sterling) Limited Orbita Asian Growth Strategy Limited Orbita Asian Growth Strategy (Sterling) Limited Orbita Asian Growth Strategy (Euro) Limited Orbita North American Growth Strategy Limited Orbita North American Growth Strategy (Singapore Dollar) Limited Orbita North American Growth Strategy (Sterling) Limited Orbita Universal Strategies Limited Novus Global Emerging Markets Strategy Limited Novus Global Emerging Markets Strategy (Euro) Limited Novus Global Emerging Markets Strategy (Sterling) Novus Global Credit Opportunities Strategy Limited Limited Novus Global Credit Opportunities Strategy (Euro) Limited Novus Global Credit Opportunities Strategy (Sterling) Limited Novus Natural Resources Strategy Limited Novus Natural Resources Strategy (Euro) Limited Novus Natural Resources Strategy (Sterling) Limited Novus Global Special Situations Strategy Limited Novus Global Special Situations Strategy (Euro) Limited Novus Global Special Situations Strategy (Sterling) Limited Novus Global Special Situations Strategy (Singapore Novus Global Special Situations Strategy (Sterling Dollar) Limited Closed-Ended) Limited OUS Euro Subsidiary Limited OUS Dollar Subsidiary Limited OUS Sterling Subsidiary Limited Aberdeen General Partner CAPELP Limited Aberdeen General Partner CGPLP Limited Aberdeen General Partner CMENAPELP Limited Aberdeen General Partner CPELP II Limited Duchy of Lancaster Scottish Chamber Orchestra Limited EveryChild Jubilee Trust University of Edinburgh

Previous directorships and partnerships: Edinburgh Fund Managers plc Edinburgh Unit Trust Managers Limited Sutherland Holdings Limited GIM Holdings Limited Scottish Financial Enterprise Aberdeen Pension Trustees Limited Caledonian Research Foundation Nuclear Liabilities Fund Limited

Peter Ward Current directorships and partnerships: None Previous directorships and partnerships: Euler Hermes Holdings UK plc Euler Hermes UK plc Halifax CHS Company 2 Limited Halifax CHS Company 1 Limited Swiss Re GB plc

David Calder Current directorships and partnerships: Penta Partner Limited Penta Co-Investment 2011 GP Limited Penta 2011 SP Limited Penta 2011 Limited Penta TPI Limited Penta TPI SP Limited Penta Capital LLP (Designated Member) Penta GP LP (2009) Limited Penta GP Holdings Limited Penta Private Equity Limited Penta Co-Invest GP Limited Penta Capital Investments Limited Penta ESOP Trustee Limited Penta Capital SP GP Limited Penta Fund I GP Limited Penta Capital Partners Limited Jonali Investments Limited Argentis Financial Group Limited Omniport Holdings Limited Gocompare.com Holdings Limited Penta 2012 Limited Penta 2012 GP Limited Penta GPCP Limited Penta Founder Limited Scottish Golf Union Limited

Previous directorships and partnerships: Pentech Fund II GP Limited Pentech Fund IB GP Limited Pentech Fund IA GP Limited Pentech Capital Limited Tosca Penta Holdings Limited Euphony Holdings Limited Datacare Software Group Limited

215 Charles Schrager von Altishofen Current directorships and partnerships: Penta Capital LLP Penta TPI Limited Penta TPI SP Limited Penta 2011 Limited Penta 2011 SP Limited Penta Co-Investment 2011 GP Limited Penta Partner Limited Penta GPCO Limited Penta Founder Limited 66 Cadogan Square Limited CSVA Investments Limited Oliver House Stud Polo Partnership Tosca MOD Fund LP Toscafund CIP

Previous directorships and partnerships: MOD Loans Limited

9.2 Conflicts of interest Save as set out below, there are no actual or potential conflicts of interests between the duties of the PR Ann I, Directors to the Company and the private interests and/or other duties that they may also have: 14.2 (A) David Calder and Charles Schrager von Altishofen are partners of Penta Capital LLP, which is the fund manager of Tosca Penta Investments LP (one of the Major Shareholders). David Calder and Charles Schrager von Altishofen will retire from the Board on Admission. David Calder is also a director of Gocompare (in which the Group has a 50 per cent interest), and will remain a director of Gocompare following Admission; and (B) Stuart Vann is a director of Gocompare (in which the Group has a 50 per cent interest). From time to time, Gocompare and the Company (or its subsidiaries) are involved in commercial discussions regarding the basis on which the Group’s insurance products are quoted on Gocompare’s price comparison website. Although the directorships and partnerships set out in (A) and (B) above are considered by the Board to represent potential conflicts of interest, as at the date of this document they are not considered by the Board to represent actual conflicts of interest.

9.3 Directors’ confirmations (A) Save as set out in section 9.4, as at the date of this document, no Director has during the last PR Ann I, five years: 14.1 (i) been convicted in relation to fraudulent offences; (ii) been associated with any bankruptcy, receivership or liquidation while acting in the capacity of a member of the administrative, management or supervisory body or of senior manager of any company; (iii) been subject to any official public incrimination and/or sanctions by any statutory or regulatory authorities (including designated professional bodies); or (iv) been disqualified by a court from acting as a member of the administrative, management or supervisory body of a company or from acting in the management or conduct of the affairs of any company. (B) No Director was selected to act in such capacity pursuant to any arrangement or understanding with any shareholder, customer, supplier or any other person having a business connection with the Group. The Shareholders’ Agreement will terminate on Admission and the existing rights of Peter Wood and Tosca Penta Investments LP to appoint directors under that agreement will cease as of Admission. Tosca Penta Investments LP will not have any right of appointment as of Admission. Pursuant to the Relationship Agreement, Peter Wood will, conditional on Admission, have the right to appoint one director for so long as certain circumstances continue to exist. Please refer to section 16.4 (Relationship Agreement) of this Part XII for further details. (C) There are no family relationships between any of the Directors. (D) There are no outstanding loans or guarantees granted or provided by any member of the Group for the benefit of any of the Directors.

216 9.4 Qualifications to Directors’ confirmations In relation to the Directors’ confirmation in section 9.3(A)(ii), David Calder was a director of Euphony PR Ann I, 14.1 Holdings Limited when an administrator was appointed on 14 December 2009. The principal business and assets of Euphony Holdings Limited were sold in the weeks following administration and Euphony Holdings Limited was ultimately dissolved on 17 November 2011. David Calder will retire from the Board on Admission.

9.5 Interests of Directors in the share capital of the Company The direct and indirect interests of the Directors in the Ordinary Shares expected to exist immediately PR Ann I, 17.2 prior to Admission (calculated on the basis that the Offer is set at the mid-point of the Price Range), PR Ann III, together with a corresponding estimate of their interests in Ordinary Shares immediately following 3.3, 5.2.2 Admission, are set out in the table below. Interests Ordinary Shares Interests immediately to be sold immediately prior to pursuant following Admission to the Offer(1) Admission(1) –––––––––––––––––––– –––––––––––––––––––– –––––––––––––––––––– % of Director No. % No. holding No. % Peter Wood(2) ...... 194,969,635 48.8% 48,981,745 25.1% 145,987,890 34.9% Dame Helen Alexander ...... 126,435 0.0% 41,723 33.0% 84,712 0.0% Stuart Vann(3) ...... 3,088,087 0.8% 1,019,068 33.0% 2,069,019 0.5% Darren Ogden(3) ...... 1,781,538 0.4% 587,907 33.0% 1,193,631 0.3% Anthony Hobson(4)...... 342,749 0.1% 113,107 33.0% 229,642 0.1% Anne Richards ...... – – – – – – Peter Ward(4) ...... 342,749 0.1% 113,107 33.0% 229,642 0.1% David Calder(5) ...... – – – – – – Charles Schrager von Altishofen(5) ...... – – – – – –

Notes: (1) Calculated on the basis that (i) the Offer Price is set at the mid-point of the Price Range; (ii) the Company issues sufficient New Ordinary Shares to raise proceeds of £50 million; (iii) each of the Directors (other than Peter Wood) sells the maximum number of Existing Ordinary Shares through the Offer which he or she has indicated, on a non-binding basis, that he or she may sell; (iv) that all other Existing Shareholders sell the maximum number of Existing Ordinary Shares that they are permitted to sell through the Offer (which for Employee Shareholders is 33 per cent of their holdings and for Non-Employee Shareholders is 100 per cent of their holdings, assuming that scale-back is not applied); (v) Peter Wood and Tosca Penta Investments LP sell, in aggregate, such number of their Existing Ordinary Shares as is necessary to ensure that the total number of Ordinary Shares subject to the Offer (taking into account (i) to (iv) above) represents 42.5 per cent of the total number of Ordinary Shares in issue immediately following Admission (calculated before utilisation of the Over-allotment Arrangements); and (vi) there is no exercise of the Over-allotment Option. (2) In addition, Peter Wood may sell up to a further 13,316,795 Ordinary Shares pursuant to the Over-allotment Arrangements (calculated on the basis of the assumptions set out in Note (1) above). (3) In addition, on or shortly after Admission (i) Stuart Vann will receive performance-related awards over Ordinary Shares with a value at grant equal to approximately £0.83 million (being 175 per cent of his base salary) and (ii) Darren Ogden will receive performance-related awards over Ordinary Shares with a value at grant equal to approximately £0.47 million (being 150 per cent of his base salary). Subject to applicable performance and other conditions, these awards will normally vest on the later of the third anniversary of Admission and the date on which the Remuneration Committee determines that the performance and other conditions have been satisfied (in whole or in part). Please refer to section 3.4(A) (First PSP Award) of Part II of this document for further details, including performance conditions. (4) In addition, each of Anthony Hobson and Peter Ward have a 0.025 per cent economic interest in Tosca Penta Investments LP. Tosca Penta Investments LP is managed by Penta Capital LP, and Anthony Hobson and Peter Ward do not have the ability to exercise voting rights in respect of the Ordinary Shares owned by Tosca Penta Investments LP, nor do they have the ability to call for the distribution of any Ordinary Shares owned by Tosca Penta Investments LP. (5) David Calder and Charles Schrager von Altishofen, Directors, are both partners of Penta Capital LLP, which manages Tosca Penta Investments LP. David Calder and Charles Schrager von Altishofen will retire from the Board on Admission.

Save as set out above, no Director has any interests (beneficial or non-beneficial) in the share capital of the Company. Save as set out above, no Director holds an interest in any other securities of the Company. The Directors are parties to the Underwriting Agreement, the terms of which restrict the ability of each Director (other than David Calder and Charles Schrager von Altishofen, who will both retire from the Board on Admission) to dispose of their Ordinary Shares for a period of 365 days from 8 March 2013. Further details of these lock-up restrictions are set out in section 7 of Part IX (Information about the Offer).

217 10. DIRECTORS’ SERVICE CONTRACTS AND LETTERS OF APPOINTMENT PR Ann I, 15.1 10.1 Service contracts of the Chairman and the Executive Directors The Chairman and each of the Executive Directors has a service contract with the Group (through esure Services Limited) relating to the provision of services to the Group. In contemplation of Admission, the Chairman and the Executive Directors entered into new service contracts in early March 2013 to commence on Admission. The terms of these contracts have been approved by the Remuneration Committee. The principal terms of the Chairman’s and the Executive Directors’ contracts are summarised below. (A) General terms Stuart Vann and Darren Ogden will be paid annual salaries of £475,000 and £310,000 respectively, which are to be reviewed, but not necessarily increased, annually. In addition, Stuart Vann and Darren Ogden will be entitled to participate in the Annual Bonus, PSP, SIP and Sharesave Plan. Stuart Vann and Darren Ogden will also receive benefits in kind comprising family private health cover and death in service life assurance. The Group will pay pension contributions, or salary supplements in lieu of pension contributions, equivalent to 16 per cent of base salary in respect of Stuart Vann and Darren Ogden. Peter Wood will be paid an annual salary of £730,000, which is to be reviewed, but not necessarily increased, annually. Peter Wood will be eligible to participate in a private health cover scheme but will not receive pension contributions and will not participate in the Annual Bonus. In addition, Peter Wood is not eligible to participate in the PSP. Although Peter Wood will be eligible to participate in the All-employee Plans if and when the UK government’s proposals to remove the “material interest” restrictions from the SIP and sharesave legislation is effected, Peter Wood has indicated that he will not accept an invitation to participate in the All-employee Plans. Peter Wood will also be entitled to the use of a driver (for business and personal travel). (B) Termination provisions PR Ann I, 16.2 The service agreements of the Chairman and the Executive Directors can be terminated by not less than 12 months’ notice by the Chairman or the Executive Director (as relevant) and 12 months’ notice by the Group. The Group may put the Chairman and the Executive Directors on garden leave during their notice period, and can elect to terminate employment by making a payment in lieu of notice equivalent to up to 12 months’ base salary. This payment may be made as either a lump sum on termination or with an amount equivalent of up to 6 months’ base salary payable in a lump sum on termination and 6 months’ salary payable in monthly instalments from the seventh month to the twelfth month, subject to offset against any earnings elsewhere during that period in any new role. The service agreements of the Chairman and the Executive Directors also contain post-termination restrictions. These include 12 month restrictions on competition with the Group and solicitation of employees, interference with suppliers and engagement with certain price comparison website providers.

10.2 Non-Executive Directors’ letters of appointment and fees The Non-Executive Directors are appointed by letters of appointment. (A) General terms Dame Helen Alexander is entitled to a single annual fee covering her role as Deputy Chairman, SID and all other Board duties (including committee memberships and chairmanships). The other Non-Executive Directors are entitled to an annual fee comprising a base fee and a supplementary fee for chairing the Audit Committee, Risk Committee and/or Investment Committee. The levels of these fees are reviewed on an annual basis by the Board. The fee levels that will apply from Admission are set out in the table below.

218 Supplementary Name Committee Chairmanships Base Fee Fees Dame Helen Alexander...... Chairman of the Remuneration Committee £125,000 N/A(1) Anthony Hobson...... Chairman of the Investment Committee £60,000 £10,000(2) Anne Richards ...... – £60,000 – Peter Ward ...... Chairman of the Audit Committee £60,000 £20,000(3) Chairman of the Risk Committee

Notes: (1) Dame Helen Alexander is entitled to a single annual fee covering her role as Deputy Chairman, SID and all other Board duties. (2) Comprising £10,000 for chairmanship of the Investment Committee. (3) Comprising £10,000 for chairmanship of the Audit Committee and £10,000 for chairmanship of the Risk Committee. In addition, each Non-Executive Director is entitled to be reimbursed for expenses incurred by him or her in the course of their duties to the Group in accordance with the Group’s policy from time to time. The Non-Executive Directors will not participate in the Annual Bonus and are not eligible to participate in the PSP, SIP or Sharesave Plan.

(B) Term of office The appointment of each of the Non-Executive Directors is also terminable by either the Non-Executive PR Ann I, 16.1 Director or the Group on three months’ notice.

10.3 Indemnity Insurance Each of the Directors has the benefit of indemnity insurance maintained by the Group on their behalf indemnifying them against liabilities they may potentially incur to third parties as a result of their office as Director.

10.4 Directors’ remuneration in 2012 In 2012, the amounts of remuneration paid (including salary and other emoluments) and benefits in kind PR Ann I, 15.1, 15.2 granted to each of the Directors by the Group for services in all capacities to the Group are set out in the table below. Basic salary Taxable Pensions Director and fees Bonus benefits contributions Total Peter Wood...... £750,000 £150,100 – – £900,100 Stuart Vann ...... £317,026 £47,600 £737 £50,724 £416,087 Darren Ogden(1)...... £166,583 £31,600 £737 £18,633 £217,553 Dame Helen Alexander ...... £125,000 – – – £125,000 Anthony Hobson...... £70,000 – – – £70,000 Anne Richards(2) ...... £4,889 – – – £4,889 Peter Ward ...... £55,000 – – – £55,000 David Calder(3) ...... – – – – – Charles Schrager von Altishofen(3) ...... – – – – –

Notes:

(1) Darren Ogden was appointed to the Board on 5 November 2012, and previously provided services to the Group throughout 2012 in his role as Head of Finance.

(2) Anne Richards was appointed to the Board on 29 November 2012, and did not provide services to the Group in any other capacity in 2012.

(3) While neither David Calder nor Charles Schrager von Altishofen received a fee, in 2012 the Group paid Penta Capital LLP a monitoring fee of £50,000 per annum in aggregate in respect of the performance of their duties as Non-Executive Directors. David Calder and Charles Schrager von Altishofen will each retire from the Board on Admission and the arrangement whereby the Group pays a monitoring fee to Penta Capital LLP will terminate.

11. SUMMARY OF SHARE-BASED INCENTIVE PLANS Following Admission, the Group intends to operate up to three employee share plans: a discretionary executive share plan (“PSP”) and, subject to HMRC approval, up to two all-employee share ownership plans (the SIP and the Sharesave Plan).

11.1 The PSP PR Ann I, 17.3 The PSP was adopted by the Board on 25 February 2013, conditional on Admission.

219 Status The PSP is a discretionary executive share plan. Under the PSP, the Remuneration Committee may grant options and/or conditional awards (i.e. a right to receive free shares) over Ordinary Shares to eligible employees. Options may be granted at nil-cost or with an exercise price. The Remuneration Committee may also decide to grant cash-based awards of an equivalent value to share-based awards or, in certain circumstances, to satisfy share-based options/awards in cash. No payment is required for the grant of an option/award.

Eligibility Other than the Chairman, any employee of the Group (including the Executive Directors) will be eligible to participate in the PSP at the discretion of the Remuneration Committee.

Limitations on grant The PSP may operate over new issue Ordinary Shares, treasury Ordinary Shares or Ordinary Shares purchased in the market. The rules of the PSP provide that, in any period of ten calendar years, not more than 10 per cent of the Company’s issued ordinary share capital may be issued under the PSP and any other employees’ share scheme adopted by the Company. In addition, in any period of 10 calendar years, not more 5 per cent of the Company’s issued ordinary share capital may be issued under the PSP and any other executive share plan adopted by the Company. Ordinary Shares transferred out of treasury to satisfy options/awards granted under the PSP will count towards these limits for so long as this is required under institutional shareholder guidelines. Ordinary Shares issued or transferred out of treasury to any employee benefit trust prior to Admission will not count towards these limits. The Remuneration Committee may grant options/awards within six weeks following the dealing day after the Company’s announcement of its results for any period. The Remuneration Committee may also grant options/awards within six weeks of the adoption of the PSP by the Board or at any other time when the Remuneration Committee considers that there are exceptional circumstances which justify the granting of options/awards. However, no options/awards may be granted more than 10 years after the date when the PSP was adopted. Options/awards are not transferable other than to the participant’s personal representatives in the event of his or her death. The benefits received under the PSP are not pensionable. Unless the Remuneration Committee determines that the circumstances are exceptional, an employee may not receive options/awards under the PSP in any financial year over Ordinary Shares having a market value in excess of 200 per cent of his or her annual base salary in that financial year. Descriptions of the terms of the first PSP awards, the Long Service Awards (grants under which are intended to be made under the PSP) and the One-Off Awards (grants under which are also intended to be made under the PSP) are set out respectively in section 3.4(B), section 3.4(C) and section 3.4(D) of Part II (Directors, Corporate Governance and Remuneration).

Performance conditions and other conditions The vesting of options/awards may be subject to performance conditions and other conditions set by the Remuneration Committee. The Long Service Awards and the One-off Awards will not be subject to performance conditions. The performance conditions and other conditions that will apply to the first PSP awards are set out in section 3.4(B) of Part II (Directors, Corporate Governance and Remuneration). The Remuneration Committee can set different performance conditions from those applying to the first PSP awards for future awards under the PSP. Any performance conditions set will demonstrate the achievement of demanding overall corporate performance over the relevant measurement period.

220 The Remuneration Committee can, acting fairly and reasonably, amend any performance condition if an event has occurred which causes the Remuneration Committee reasonably to consider it appropriate to amend that performance condition provided that, in the reasonable opinion of the Remuneration Committee, the new performance condition is not materially less difficult to satisfy than the original performance condition would have been but for the event in question.

Vesting of awards/exercising options Subject to continued employment with the Group, options/awards will normally vest on the third anniversary of grant (or such other date or dates determined by the Remuneration Committee prior to grant) to the extent that any applicable performance conditions and other conditions have been satisfied and to the extent permitted under any operation of clawback. Options are then normally exercisable up to the 10th anniversary of grant (or such shorter period determined by the Remuneration Committee prior to grant).

Details of the normal vesting dates for the first PSP awards, the Long Service Awards and the One-off Awards are set out respectively in section 3.4(B), section 3.4(C) and section 3.4(D) of Part II (Directors, Corporate Governance and Remuneration).

Leaving service As a general rule, an option/award will lapse immediately upon a participant ceasing to be employed by or to hold office with a group company. However, if a participant so ceases because of his or her injury, disability, his or her employing company or the business for which he or she works being transferred out of the group, or in other circumstances at the discretion of the Remuneration Committee (“Good Leaver Reasons”), his or her option/award will vest on the date when it would have vested if he or she had not so ceased to be an employee or director of a group company, subject to: (i) the satisfaction of any applicable performance conditions measured over the original performance period, (ii) the satisfaction of other conditions, (iii) the operation of clawback, and (iv) (unless the Remuneration Committee decides that pro-rating would be inappropriate in the particular circumstances) pro-rating to reflect the reduced period of time between grant and the participant’s cessation of employment as a proportion of the normal vesting period.

If a participant ceases to be an employee or director of a group company for a Good Leaver Reason, the Remuneration Committee can decide that his or her option/award will vest early when he or she leaves. If a participant dies, his or her option/award will vest on the date of his or her death (unless the Remuneration Committee decides, in exceptional circumstances, that his or her award will vest on the date when it would have vested if he or she had not died, in which case the normal vesting provisions for good leavers (above) will apply). The extent to which an option/award will vest in these situations will depend upon: (i) the extent to which any applicable performance conditions and other conditions have been satisfied at the date of cessation, (ii) the operation of clawback, and (iii) (unless the Remuneration Committee decides that pro-rating would be inappropriate in the particular circumstances) pro-rating by reference to the proportion of the vesting period that has then elapsed.

To the extent that options vest in accordance with the above provisions, they may be exercised for a period of 12 months following vesting and will otherwise lapse at the end of that period. To the extent that a participant who leaves for a Good Leaver reason or dies held vested options, they may be exercised for a period of 12 months following the date of cessation or death and will otherwise lapse at the end of that period.

Corporate events In the event of a takeover or winding up of the Company (other than an internal re-organisation), options/awards will vest early subject to: (i) the extent that any applicable performance conditions and other conditions have been satisfied at that time, and (ii) (unless the Remuneration Committee decides that pro-rating would be inappropriate in the particular circumstances) pro-rating to reflect the reduced period of time between grant and early vesting as a proportion of the vesting period that has then elapsed.

221 In the event of an internal corporate re-organisation, options/awards may (with the consent of the acquiring company) be replaced by equivalent new options/awards over shares in the acquiring company unless the Remuneration Committee decides that options/awards should vest as in the case of a takeover.

If a demerger, special dividend or other corporate event is proposed which, in the opinion of the Remuneration Committee, would affect the market price of Ordinary Shares to a material extent, the Remuneration Committee may decide that options/awards will vest as in the case of a takeover (except that any such vesting will also depend on the operation of clawback).

To the extent that options vest in accordance with the above provisions, they may be exercised for a short period and will otherwise lapse at the end of that period.

Clawback Unless the Remuneration Committee decides otherwise on or before the date of grant, options/awards will be subject to the operation of clawback as detailed below. The Long Service Awards and the One- off Awards will not be subject to the operation of clawback.

The Remuneration Committee may decide within three years of the relevant option/award vesting that a participant’s option/award will be subject to clawback where, broadly, there has been a material misstatement in the Company’s financial results or an error in assessing any applicable performance condition or other condition or if the participant’s employment is terminated for gross misconduct. The clawback may be satisfied by way of a reduction in the amount of any future bonus, the vesting of any subsisting or future share option awards, the number of shares under any vested but unexercised option granted under certain share incentive plans and/or a requirement to make a cash payment.

The Remuneration Committee may also decide to reduce the number of Ordinary Shares subject to a PSP option/award to effect a clawback provision in any share incentive plan or cash bonus plan operated by the Company or its subsidiaries.

Dividend equivalents The Remuneration Committee may decide that participants will receive a payment (in cash and/or additional Ordinary Shares) equal in value to any dividends that would have been paid on the Ordinary Shares which vest under their option/award by reference to dividend record dates falling between the time when the options/awards were granted and the time of vesting. This amount may assume the reinvestment of dividends and may include or exclude any special dividend or any particular dividend.

Holders of the first PSP awards, Long Service Awards and One-Off Awards will receive dividend equivalents in respect of the Ordinary Shares which vest under their awards calculated on a basis and paid in a manner to be determined by the Remuneration Committee before the awards vest.

Participants’ rights Options/awards under the PSP will not confer any shareholder rights on participants until the options have been exercised/awards have vested and the Ordinary Shares under option/award have been delivered.

Rights attaching to Ordinary Shares Any Ordinary Shares allotted when an option/award is exercised/vests will rank equally with Ordinary Shares then in issue (except for rights arising by reference to a record date prior to their allotment).

Variation of capital In the event of any variation of the Company’s share capital or in the event of a demerger, payment of a special dividend or other corporate event which materially affects the market price of the Ordinary Shares, the Remuneration Committee may make such adjustment as it considers appropriate to the number or class of Ordinary Shares subject to option/award and/or any exercise price.

222 Amendments The Remuneration Committee may at any time amend the rules of the PSP. The prior approval of Shareholders at a general meeting of the Company must be obtained in the case of any amendment to the advantage of participants which is made to the provisions relating to eligibility, individual or overall limits, the basis for determining an employee’s entitlement to, or the terms of, Ordinary Shares or cash provided under the PSP, the adjustments that may be made in the event of any variation of capital and the rule relating to such prior approval, except for (a) any minor amendment to benefit the administration of the PSP, to take account of any change in legislation, or to obtain or maintain favourable tax, exchange control or regulatory treatment for employees, the Company and/or its subsidiaries, or (b) any permitted alteration to a performance condition. Any amendment to the material disadvantage of participants (other than a permitted alteration to the performance conditions) requires the majority consent of those disadvantaged participants invited to indicate whether or not they approve the alteration and who so give an indication.

11.2 The All-employee Plans PR Ann I, 17.3 The following section describes the unique features of the SIP and the Sharesave Plan and then describes those features which are common to both All-employee Plans.

The All-employee Plans were adopted by the Board on 25 February 2013, conditional on Admission and subject to any amendments required by HMRC in order to approve formally the All-employee Plans.

Principal terms of the SIP Elements comprising the SIP Under the SIP, the Board or a designated committee of the Board (for this section 11.2 of this Part XII only, the “committee”) may:

(A) give up to £3,000 worth of free Ordinary Shares (“Free Shares”) to eligible employees; or

(B) offer eligible employees the opportunity of buying Ordinary Shares up to the lower of £1,500 and 10 per cent of the employee’s pre-tax salary a year (“Partnership Shares”) out of pre-tax salary;

(D) allow or require eligible employees to purchase up to £1,500 worth of Ordinary Shares a year using any dividends received on Ordinary Shares held in the SIP (“Dividend Shares”). The UK government proposes to remove this upper limit from 6 April 2013; if this change is made to the SIP legislation, the £1,500 limit will automatically be removed from the SIP rules.

Eligibility Each time that the Board/committee decides to operate the SIP, all UK resident tax-paying employees (including the Chairman and the Executive Directors) of the Company and its participating subsidiaries must be offered the opportunity to participate. Other employees may be permitted to participate at the Board’s/committee’s discretion. Employees invited to participate may be required to have completed a minimum qualifying period of employment before they can participate. That period must not exceed 18 months or, in certain circumstances, six months.

Employees who hold (or held within the previous 12 months) a “material interest” (defined in the relevant tax legislation as beneficial ownership of, or the ability to control or acquire, 25 per cent of the ordinary share capital in the Company) are not allowed to participate in the SIP. The associates of such employees (in essence, their relatives and the trustees of any trusts they have set up) are also excluded from participation. The UK government proposes to remove the material interest requirement with effect from the enactment of the Finance Bill 2013; if this change is made to the SIP legislation, the “material interest” provisions will automatically be deleted from the SIP rules. There are also restrictions on employees participating in other tax-approved share incentive plans operated by the Company or a connected company.

223 Free Shares Up to £3,000 worth of Free Shares can be awarded to each employee in a tax year. Free Shares must be awarded on the same terms to all eligible employees. The number awarded to each employee can, however, be determined by reference to the employee’s remuneration, length of service or number of hours worked and/or objective performance criteria. The award of Free Shares can, if the Company so chooses, be subject to the satisfaction of a pre-award performance target which measures the objective success of the individual, team, division or business.

There is a holding period of between three and five years (the precise duration to be determined by the Board/committee) during which the employee cannot withdraw the Free Shares from the UK-resident trust through which the SIP operates (the “SIP Trust”) (or otherwise dispose of the Free Shares) unless the employee ceases employment with a group company.

The Board/committee can, at its discretion, provide that the Free Shares will be forfeited if the employee ceases employment with a group company other than in the circumstances of injury, disability, redundancy, transfer of the employing business or company out of the group, on retiring on or after reaching the age of 50 or on death (“Permitted Reasons”). The UK government proposes to remove the requirement to set a specific retirement age with effect from the enactment of the Finance Bill 2013; if this change is made to the SIP legislation, all retirees will automatically be deemed to leave employment with a group company for a Permitted Reason. Forfeiture can only take place within three years of the Free Shares being awarded.

Partnership Shares The Board/committee may allow an employee to use pre-tax salary to buy Partnership Shares. The maximum limit is the lower of £1,500 or 10 per cent of pre-tax salary in any tax year. If a minimum amount of deductions is set, it shall not be greater than £10. The salary allocated to Partnership Shares can be accumulated for a period of up to 12 months (the “Accumulation Period”) or Partnership Shares can be purchased out of deductions from the employee’s pre-tax salary when those deductions are made. In either case, Partnership Shares must be bought within 30 days of, as appropriate, the end of the Accumulation Period or the deduction from pay.

An employee may stop and start (or, with the agreement of the Company, vary) salary deductions at any time. Once acquired, Partnership Shares may be withdrawn from the SIP by the employee at any time (subject to the payment of any applicable income tax and national insurance contributions) and will not be capable of forfeiture.

Matching Shares The Board/committee may offer Matching Shares free to an employee who has purchased Partnership Shares. If awarded, Matching Shares must be awarded on the same basis to all employees up to a maximum of two Matching Shares for every Partnership Share purchased.

There is a holding period of between three and five years (the precise duration to be determined by the Board/committee) during which the employee cannot withdraw the Matching Shares from the SIP Trust unless the employee ceases employment with a group company.

The Board/committee can, at its discretion, provide that the Matching Shares will be forfeited if the associated Partnership Shares are withdrawn by the employee (other than on a corporate event or where the employee ceases employment with a group company for a Permitted Reason) or if the employee ceases employment with a group company other than for a Permitted Reason. Forfeiture can only take place within three years of the Matching Shares being awarded.

Re-investment of dividends The Board may allow an employee to re-invest dividends paid on Ordinary Shares held in the SIP in up to £1,500 worth of Ordinary Shares each tax year (which limit the UK government proposes to remove from 6 April 2013). Dividend Shares must be held in the SIP Trust for three years, unless the employee

224 ceases employment with a group company. Once acquired, Dividend Shares are not capable of forfeiture.

SIP Trust The SIP operates through a UK-resident trust (the “SIP Trust”). The SIP Trust purchases or subscribes for shares that are awarded to or purchased on behalf of employees under the SIP.

An employee will be the beneficial owner of any Ordinary Shares held on his or her behalf by the trustee of the SIP Trust. Any Ordinary Shares held in the SIP Trust will rank equally with Ordinary Shares then in issue. If an employee ceases to be employed by a group company he or she will be required to withdraw his or her Free, Partnership, Matching and Dividend Shares from the SIP Trust.

Corporate events In the event of a general offer being made to Shareholders – or a similar takeover event taking place – during a holding period, employees will be able to direct the trustee of the SIP Trust as to how to act in relation to their Ordinary Shares held in the SIP. In the event of a corporate re-organisation, any Ordinary Shares held by employees may be replaced by equivalent shares in a new holding company.

Variation of capital Ordinary Shares acquired on a variation of share capital of the Company will usually be treated in the same way as the Ordinary Shares acquired or awarded under the SIP in respect of which the rights were conferred and as if they were acquired or awarded at the same time. In the event of a rights issue during a holding period, participants will be able to direct the trustee of the SIP Trust as to how to act in respect of their Ordinary Shares held in the SIP.

Principal terms of the Sharesave Plan Eligibility All UK resident tax-paying employees (including the Chairman and the Executive Directors) of the Company and its participating subsidiaries are eligible to participate. The Board or the committee may require employees to have completed a qualifying period of employment of up to five years before the grant of options. The Board may also allow other employees to participate.

Employees who hold (or held within the previous 12 months) a “material interest” (broadly 25 per cent of the ordinary share capital of the Company) and their associates are not allowed to participate in the Sharesave Plan. An employee who obtains a “material interest” prior to exercise will be prohibited from exercising his or her option. The UK government proposes to remove the material interest requirement with effect from the enactment of the Finance Bill 2013. If this change is made to the sharesave legislation, the “material interest” provisions will automatically be deleted from the Sharesave Plan rules.

Grant of options Options can only be granted to employees who enter into HMRC-approved savings contracts, under which monthly savings are normally made over a period of three or five years. Options must be granted within 30 days (or 42 days if applications are scaled back) of the first day by reference to which the option price is set. The number of Ordinary Shares over which an option is granted will be such that the total option price payable for those Ordinary Shares will correspond to the proceeds on maturity of the related savings contract.

Individual participation Monthly savings by an employee under all savings contracts linked to options granted under any sharesave scheme may not exceed the statutory maximum (currently £250). The Board/committee may set a lower limit in relation to any particular grant.

225 Option price The price per Ordinary Share payable upon the exercise of an option will not be less than the higher of: (i) 80 per cent of the average middle-market quotation of an Ordinary Share on the London Stock Exchange over three days preceding a date specified in an invitation to participate in the plan (or the middle-market price on that date), or such other day or days as may be agreed with HMRC); and (ii) if the option relates only to new issue Ordinary Shares, the nominal value of an Ordinary Share.

The option price will be determined by reference to dealing days which fall within the period of six weeks starting on the dealing day after the day on which the Company announces its results for any period or at any other time when the Board/committee considers there to be exceptional circumstances which justify offering options under the Sharesave Plan.

Exercise of options Options will normally be exercisable for a six-month period from the third, fifth or seventh anniversary of the commencement of the related savings contracts (the UK government proposes to remove seven- year savings contracts during the course of 2013 and any such changes are expected to apply automatically to the Sharesave Plan rules). Earlier exercise is permitted, however, in the following circumstances:

• following cessation of employment by reason of death, injury, disability, redundancy, retirement on reaching age 60 (or any other age at which the employee is bound to retire under his or her terms of employment) or the business or company that the employee works for ceasing to be part of the group (the UK government proposes to remove the requirement to set a specific retirement age with effect from the enactment of the Finance Bill 2013; if this change is made to the sharesave legislation, all retirees will automatically be able to exercise their options as described above);

• when an employee reaches 60 (the UK government proposes to remove this early exercise circumstance with effect from the enactment of the Finance Bill 2013; if this change is made to the sharesave legislation, this early exercise circumstance will be automatically deleted from the Sharesave Plan rules);

• where employment ceases more than three years from grant for any reason other than dismissal for misconduct; and

• in the event of a takeover, amalgamation, reconstruction or winding-up of the Company, except in the case of an internal corporate re-organisation when the Board/committee may decide to offer the exchange of existing options for equivalent new options over shares in a new holding company.

Except where stated above, options will lapse on cessation of employment or directorship with a group company.

Shares will be allotted or transferred to participants within 30 days of exercise.

Variation of capital If there is a variation in the Company’s share capital then the Board/committee may, subject to HMRC approval, make such adjustment as it considers appropriate to the number of Ordinary Shares under option and the option price.

Principal terms common to the All-employee Plans Status Both the All-employee Plans are all-employee share ownership plans. The All-employee Plans have been designed to comply with the relevant legislation so that formal HMRC approval can be sought in the future in order to provide Ordinary Shares to UK employees under the All-employee Plans in a tax-efficient manner.

226 Operation The operation of the All-employee Plans will be supervised by the Board/committee.

Non-transferability of options/awards Options/awards made under the All-employee Plans are not transferable other than to a participant’s personal representatives in the event of his or her death.

Benefits received under the All-employee Plans are not pensionable.

Rights attaching to Ordinary Shares Any Ordinary Shares allotted under the All-employee Plans will rank equally with Ordinary Shares then in issue (except for rights arising by reference to a record date prior to their allotment).

Limits The All-employee Plans may operate over new issue Ordinary Shares, treasury Ordinary Shares or Ordinary Shares purchased in the market.

The rules of the All-employee Plans provide that, in any period of 10 calendar years, not more than 10 per cent of the Company’s issued ordinary share capital may be issued under the All-employee Plans and under any other employees’ share scheme adopted by the Company. Ordinary Shares issued out of treasury under the All-employee Plans will count towards this limit for so long as this is required under institutional shareholder guidelines. Ordinary Shares issued or transferred out of treasury to any employee benefit trust (including the SIP Trust) prior to Admission will not count towards this limit.

However, no options/awards may be granted more than 10 years after the date when the All-employee Plans were adopted.

Amendments The Board/committee (and, in the case of the SIP, with the consent of the trustees of the SIP Trust) may at any time amend the rules of the All-employee Plans. The prior approval of Shareholders at a general meeting of the Company must be obtained in the case of any amendment to the advantage of participants which is made to the provisions relating to eligibility, individual or overall limits, the basis for determining an employee’s entitlement to, and the terms of, Ordinary Shares provided under the All- employee Plans, the adjustments that may be made in the event of any variation to the share capital of the Company and/or the rule relating to such prior approval, save that there are exceptions for any minor amendment to benefit the administration of the All-employee Plans, to take account of any change in legislation or to obtain or maintain favourable tax, exchange control or regulatory treatment for employees, the Company and/or, in the case of the Sharesave Plan and broadly in the case of the SIP, its subsidiaries or, in the case of the SIP, the trustees of the SIP Trust. Once formal HMRC approval has been obtained, any change to the key features of the All-employee Plans (being provisions necessary to meet the requirements of the relevant tax legislation) requires the prior approval of HMRC.

11.3 Employee benefit trusts The Company may operate the PSP and the All-employee Plans in conjunction with any existing employee benefit trust or any other employee benefit trust which the Company reserves the right to establish for the purposes of operating the PSP and the All-employee Plans or any other equity-based employee incentivisation arrangements operated by the Company.

Any trust which is established following Admission may acquire Ordinary Shares either by market purchase or by subscription and the trustee shall be entitled to hold or distribute Ordinary Shares in respect of options/awards pursuant to the PSP and the All-employee Plans. It is intended that any such trust will be funded by way of loans and other contributions from the Company and may not, at any time without prior shareholder approval, hold more than five per cent of the issued ordinary share capital of the Company (or such other greater percentage as may be required under institutional shareholder guidelines from time to time). Any Ordinary Shares issued to an employee benefit trust following

227 Admission will count for the purposes of the limits set out in the paragraphs entitles “Limitations on grant” and “Limits” above.

12. PENSION LIABILITIES The Group contributes to the personal pension plans of its staff through a defined contribution group PR Ann I, 15.2 personal pension scheme which is administered by Jardine Lloyd Thompson Group plc. As at 31 December 2012, 792 employees participate in the scheme. Employer contributions to the scheme are a percentage of salary based on level of employee contributions. Employer contributions are subject to a maximum of 7.5 per cent of salary for those joining the scheme after 30 June 2010 (and those who joined the scheme prior to this but change their employee contributions). For employees who joined the Scheme prior to 1 July 2010, employer contributions can reach up to 16 per cent of salary and in certain limited circumstances up to 22 per cent of salary.

No amounts have been set aside or accrued by the Group to provide pension, retirement or similar benefits. Before May 2010, the Group was a participating employer in a defined benefit pension scheme and a defined contribution pension scheme. Both schemes were administered by HBOS plc. The assets of those schemes are held separately from those of the Group in independently administered funds. Participation in those schemes ended in May 2010, and the Group has no ongoing exposure to the liabilities of either scheme.

13. EMPLOYEES PR Ann I, 17.1 The Group employs approximately 1,500 people. The average number of employees (including Directors) employed by the Group for the years ended 31 December 2010, 2011 and 2012 was as follows: Year ended 31 December 2010 2011 2012 Total employees ...... 1,354 1,431 1,538

14. LITIGATION There are no governmental, legal or arbitration proceedings (including any such proceedings which are PR Ann I, 20.8 pending or threatened of which the Company is aware) which may have, or have had during the 12 months preceding the date of this document, a significant effect on the Group or its financial position or profitability.

15. RELATED PARTY TRANSACTIONS PR Ann I, 19 (A) Between 1 January 2010 and the date of this document, no member of the Group entered into any Related Party Transactions other than:

(i) as disclosed in Note 30 to the Historical Financial Information (set out on pages F-63 to F-64 of Schedule II (Historical Financial Information) to this document);

(ii) the standstill agreement described in section 8.3 (Rule 9 Disclosures) of this Part XII, Peter Wood’s extended lock-up arrangements described in section 7 (Restrictions and Lock-up Arrangements) of Part IX and the agreements described sections 16.1 (Gocompare Option and Shareholders’ Deed), 16.3(B) (Non-Voting Old Ordinary Shares and Priority Return Shares) and 16.4 (Relationship Agreement) of this Part XII; and (iii) as set out below in paragraph (B). (B) The following Related Party Transactions were carried out between 31 December 2012 and the date of this document:

(i) Commissions and fees receivable for introducing insurance business: The Group receives commissions and fees for customer introduction services provided to Gocompare for introducing insurance business. The value of transactions during the

228 period from 1 January 2013 to the date of this document was £0.0 million. The amount receivable at 7 March 2013 was £0.0 million. These transactions arise in the normal course of business through fixed fees, and are based on arm’s length arrangements.

(ii) Commissions and fees payable for introducing insurance business: The Group pays commissions and fees for customer introduction services provided by Gocompare for introducing insurance business. The value of transactions during the period from 1 January 2013 to the date of this document was £0.9 million. The amount payable at 7 March 2013 was £0.4 million.

These transactions arise in the normal course of obtaining insurance business through brokerages, and are based on arm’s length arrangements.

(iii) Transactions with shareholders, subsidiaries, associates and joint ventures The following transactions took place with shareholders, subsidiaries, associates and joint ventures in the period from 1 January 2013 to the date of this document:

• One of the Directors has a beneficial part ownership interest in restaurants which had been used by the Group for corporate events and entertaining purposes.

• Fees in respect of services provided by employees of Penta Capital LLP in their capacity as non-executive directors of the Group. Period ended 7 March 2013 £m Value of transactions during the period/year: Restaurants ...... 0.0 Penta Capital LLP ...... 0.0 –––––––– 0.0 –––––––– Amount payable at the period/year end: Restaurants ...... – Penta Capital LLP ...... – –––––––– – –––––––– (iv) Compensation of key management personnel The key management personnel are considered to be the Directors. Directors’ remuneration and contributions to post employment benefit plans for the period from 1 January 2013 to the date of this document were as follows:

Period ended 7 March 2013 £m Emoluments ...... 0.3 Contributions to defined contribution pension schemes ...... 0.3 –––––––– 0.3 –––––––– 16. MATERIAL CONTRACTS Save as disclosed below, there are no contracts (other than contracts entered into in the ordinary course PR Ann I, 22 of business) to which the Company or any member of the Group is a party which: (i) are, or may be, material to the Group and which have been entered into in the two years immediately preceding the date of this document; or (ii) contain obligations or entitlements which are, or may be, material to the Group as at the date of this document.

229 16.1 Gocompare Option and Shareholders’ Deed The Group, through esure Services Limited, is party to an Option and Shareholders’ Deed relating to Gocompare dated 25 January 2007 (and which was amended on 31 March 2010 and supplemented and amended on 4 December 2012) with Gocompare, Hayley Parsons and other shareholders in Gocompare. Under the Option and Shareholders’ Deed, in consideration of the payment of £2,699,000 by the Group to Gocompare, Gocompare granted the Group an option to subscribe for shares representing up to 50 per cent of the issued and fully diluted share capital of Gocompare for an exercise price of £1,000. The Group has now exercised this option in full and therefore owns 50 per cent of the issued and fully diluted share capital of Gocompare.

The Option and Shareholders’ Deed entitles the Group to appoint up to 50 per cent in number of the board of directors of Gocompare. The directors currently appointed to the board by the Group are David Calder, Stuart Vann and Nick Edwards. The consent of the Group is also required under the Option and Shareholders’ Deed for a number of matters, including the making or permitting of any substantial alteration or cessation to the general nature of the business of the Gocompare Group, the payment of dividends outside of an agreed dividend policy, material financial or capital restructuring, or the issue of any shares or other securities by Gocompare.

The consent of the Board (acting by majority) is required for a number of other matters, including the entry by members of the Gocompare group into certain material contracts or transactions, increasing the remuneration of any director, the establishment or amendment of any incentive scheme for directors or employees and the approval of the annual accounts of Gocompare and its operating subsidiary. esure Services Limited and the other shareholders in Gocompare have committed to undertake a joint sales process for the sale of the entire issued share capital of Gocompare and on 15 February 2013 the board of Gocompare appointed a financial adviser to assist with the joint sales process. Each shareholder in Gocompare has undertaken to sell its shares pursuant to an offer made under such joint sales process if that offer meets certain terms and conditions, including that the offer is made by a bidder which is not ultimately controlled by any private equity fund or funds and that each shareholder receives consideration under the offer which is at least equal to a pro rata share of £275 million on a “cash-free debt-free” basis (to the extent such offer is also acceptable to other shareholders in Gocompare) and is offered terms or arrangements that are no less favourable than those offered to any other shareholder. Under any offer pursuant to which esure Services Limited may be required to sell its shares in Gocompare, esure Services Limited would not be required to provide any other comfort to a purchaser other than market standard institutional investor warranties as to title to its shares and its capacity to sell those shares. Each shareholder in Gocompare has, subject to limited exceptions, undertaken not to sell any shares in Gocompare until 30 September 2013 other than as part of such joint sales process.

16.2 Outsourcing Agreement The Group, through esure Services Limited, entered into an agreement for the outsourcing of IT services with CapGemini on 28 July 2009 (amended on 16 October 2009). Under the terms of the agreement, the Group outsourced the operation and maintenance of a significant part of its IT infrastructure to CapGemini. The initial term of the agreement is for five years from 1 April 2010 to 31 March 2015 and continues thereafter until terminated. The total service charge payable in each year of the initial term is approximately £4.5 million.

The Group can terminate the agreement in certain circumstances, including for material breach of the agreement by CapGemini (where such breach is not capable of being remedied) and at any time on six months’ written notice. The Group is obliged to pay termination charges if it terminates the agreement for convenience prior to the expiry of the initial term. The termination charges payable depend on the services to be terminated and the remaining term of the agreement. If the entire agreement is terminated, the termination charges payable are approximately £2.4 million for termination in year three of the initial term (1 April 2012 – 31 March 2013) and approximately £1.3 million for termination in year four of the initial term (1 April 2013 – 31 March 2014). There is no termination charge for termination

230 in year five of the initial term. CapGemini can also terminate the agreement in certain circumstances, including for material breach of the agreement by the Group and at any time following the expiry of the initial term by providing 12 months’ written notice to the Group.

16.3 Loan Notes and Share Repurchase Agreements PR Ann I, 10.3 (A) Perpetual Subordinated Loan Notes On 11 February 2010, esure Finance Limited created and issued Perpetual Subordinated Loan Notes with a nominal value of £50 million to Tosca Penta Investments LP. All Perpetual Subordinated Loan Notes will be repaid by the Group on Admission using the proceeds of the Offer. See section 6.2 (Banking Facilities and Loans) of Part V (Operating and Financial Review) for further details on the terms of these loan notes. (B) Non-Voting Old Ordinary Shares and Priority Return Shares Pursuant to a share purchase contract dated 25 February 2013, the Company has agreed, subject to Admission, to repurchase all of its outstanding Non-Voting Old Ordinary Shares at par (amounting, in total, to £44.85 million) and Priority Return Shares for an amount equal to the Priority Return (as defined and determined in accordance with the Pre-Admission Articles). On the basis that Admission occurs on or around 27 March 2013, the amount payable in respect of the Priority Return will be £0.6 million.

16.4 Relationship Agreement The Company and Peter Wood entered into the Relationship Agreement on 8 March 2013, conditional only on Admission. The principal purpose of the Relationship Agreement is to ensure that the Company is capable at all times of carrying on its business independently of Peter Wood and certain persons deemed to be connected with him (together the “Potential Controlling Shareholders”).

The Relationship Agreement will take effect on Admission and will continue until the earlier of (i) the Ordinary Shares ceasing to be admitted to the Official List of the FSA and to trading on the London Stock Exchange; or (ii) the Potential Controlling Shareholders ceasing to own, when taken together, 15 per cent or more of the Ordinary Shares or the voting rights attaching to the Ordinary Shares unless at the time the Potential Controlling Shareholders shall cease to own, when taken together, 15 per cent or more of the Ordinary Shares or the voting rights attaching to the Ordinary Shares, Peter Wood remains the Chairman of the Company, in which event the Relationship Agreement shall terminate six months after Peter Wood ceases to be the Chairman of the Company.

In addition, until the Relationship Agreement terminates, Peter Wood has undertaken that neither he nor any of his connected persons shall operate, establish, own or acquire an undertaking which engages in any business that competes with the Group. This non-compete undertaking is limited to the UK but shall not prohibit, after Admission, a Potential Controlling Shareholder from being entitled to acquire up to (but not more than) five per cent in aggregate of the shares of any class of any company engaged in business that would constitute a competing business provided (a) the shares of such company are listed on a recognised stock exchange and (b) Peter Wood shall not be a consultant to or director of such company.

Furthermore, until the Relationship Agreement terminates, Peter Wood shall not and will procure that none of his connected persons shall, solicit for employment any of the Executive Directors, without the prior approval of the majority of the independent Directors on the Board of the Company.

Peter Wood also has also undertaken, until the Relationship Agreement terminates, that he and, insofar as is within his power or control, any of his connected persons shall:

• not take any action that precludes the Company or any other member of the Group from carrying on its business independently of any Potential Controlling Shareholder;

• not exercise any of his voting rights in relation to any transaction, agreement or arrangement between any member of the Group and any Potential Controlling Shareholder; and

231 • conduct all transactions, agreements or arrangements entered into between any member of Group and any Potential Controlling Shareholder on an arm’s length basis and on, in the Company’s reasonable opinion, normal commercial terms and in accordance with the related party transaction rules set out in Chapter 11 of the Listing Rules.

The Company has undertaken that, for so long as Peter Wood and any concert party (within the meaning of the Takeover Code) of Peter Wood have (in aggregate) an interest, either direct or indirect, in 30 per cent or more of the aggregate voting rights attaching to the Ordinary Shares, and subject to the prior consent of the Panel being obtained (if necessary) by the Company and/or Peter Wood: (a) at each annual general meeting of the Company, the Company shall propose to the independent Shareholders (being the Shareholders other than Peter Wood and any concert party of Peter Wood) by poll a resolution to waive the obligation by Peter Wood to make a general offer to the independent Shareholders for their Ordinary Shares in accordance with Rule 9 of the Takeover Code that might otherwise arise if the Company were to purchase its Ordinary Shares in the future; and (b) in the event the Company proposes to issue new Ordinary Shares and the participation by Peter Wood in such subscription would or might reasonably compel Peter Wood to make a general offer to the independent Shareholders for their Ordinary Shares in accordance with Rule 9 of the Takeover Code, the Company shall convene a general meeting of its shareholders at which the Company shall propose to the independent Shareholders by poll a resolution to waive any obligation by Peter Wood or his concert party to make a general offer to the independent Shareholders for their Ordinary Shares in accordance with Rule 9 of the Takeover Code as a result of Peter Wood taking up his entitlement to acquire such new shares.

The Relationship Agreement entitles Peter Wood to nominate one person to be a director of the Board for so long as Peter Wood or any of his connected persons, when taken together, hold at least 15 per cent of the Ordinary Shares or voting rights exercisable at a general meeting of the Company.

Notwithstanding Peter Wood’s right to nominate one person to be a director of the Board (as described in the paragraph above), the Board believes that, together with the provisions of the Listing Rules relating to “related party transactions” and the provisions of the Companies Act relating to conflicts of interest and Peter Wood’s duties as a director of the Company, the terms of the Relationship Agreement will enable the Company to carry on its business independently from Peter Wood and his connected persons, and ensure that all transactions and relationships between the Company and Peter Wood and his connected persons are, and will be, at arm’s length and on, in the Company’s reasonable opinion, normal commercial terms.

16.5 Underwriting Agreement PR Ann III, 5.4.3 5.4.4 The Company, the Directors, the Major Shareholders and the Underwriters have entered into the Underwriting Agreement dated 8 March 2013. Pursuant to the Underwriting Agreement:

• the Company has agreed, subject to certain conditions (the last condition being Admission), to allot and issue, at the Offer Price, the New Ordinary Shares to be issued in connection with the Offer and the Underwriters have severally agreed, subject to certain conditions (the last condition being Admission), to procure purchasers for (or, failing which, to subscribe for themselves) such New Ordinary Shares (in such proportions as set out in the Underwriting Agreement) pursuant to the Institutional Offer;

• the Major Shareholders have agreed, subject to certain conditions (the last condition being Admission), to sell, at the Offer Price, the Existing Ordinary Shares to be sold by them in connection with the Institutional Offer and the Underwriters have severally agreed, subject to certain conditions (the last condition being Admission), to procure purchasers for (or, failing which, to purchase themselves) such Existing Ordinary Shares (in such proportions as set out in the Underwriting Agreement) pursuant to the Institutional Offer;

• the Major Shareholders have agreed, subject to certain conditions (the last condition being Admission), to sell, at the Offer Price, the Existing Ordinary Shares to be sold by them in

232 connection with the Intermediaries Offer and the Underwriters have severally agreed, subject to certain conditions (the last condition being Admission), to use reasonable endeavours to procure that the Intermediaries purchase (or, failing which, to purchase themselves) such Existing Ordinary Shares (in such proportions as set out in the Underwriting Agreement) pursuant to the Intermediaries Offer;

• in addition, the Company acting as agent and attorney for the other Selling Shareholders (including the Directors other than Peter Wood) has agreed, subject to certain conditions (the last condition being Admission), to sell, at the Offer Price, the Existing Ordinary Shares to be sold by such Selling Shareholders in connection with the Institutional Offer and pursuant to the Small Selling Shareholder Arrangements described in section 17 of this Part XII, and the Underwriters have severally agreed, subject to certain conditions (the last condition being Admission) to procure purchasers for such Ordinary Shares (in such proportions as set out in the Underwriting Agreement) (or, failing which, the Underwriters shall purchase such Existing Ordinary Shares themselves (in such proportions as set out in the Underwriting Agreement)) pursuant to the Institutional Offer;

• in consideration for their services under the Underwriting Agreement and subject to Admission occurring, the Company has agreed to pay to the Joint Global Co-ordinators (on behalf of the Underwriters) a base commission of two per cent of the amount equal to the product of the Offer Price and the number of New Ordinary Shares issued and sold by the Company pursuant to the Institutional Offer (plus, if applicable, amounts in respect of VAT);

• in consideration for their services under the Underwriting Agreement and subject to Admission occurring, each Major Shareholder has agreed to pay to the Joint Global Co-ordinators (on behalf of the Underwriters) a base commission of two per cent of the amount equal to the product of the Offer Price and the number of Existing Ordinary Shares sold by him or it pursuant to the Institutional Offer and the Intermediaries Offer. As a provider of the Over-allotment Option, following any exercise of the Over-allotment Option and subject to certain other conditions, each of the Major Shareholders has also agreed to pay to the Underwriters a commission of two per cent of the amount equal to the product of the Offer Price and the number of Existing Ordinary Shares sold by him or it pursuant to the Over-allotment Arrangements (plus, if applicable, amounts in respect of VAT);

• subject to Admission occurring, the Company may also decide to award to some or all of the Underwriters an incentive commission at a level to be determined by the Company with the consent of the Major Shareholders of up to, in aggregate, one per cent of the amount equal to the product of the Offer Price and the aggregate number of New Ordinary Shares issued and sold by it pursuant to the Offer (the “Incentive Commission”) (plus, if applicable, amounts in respect of VAT);

• in the event that the Company pays the Incentive Commission, each Major Shareholder shall pay an additional commission of an amount equal to (i) the percentage of the Offer Price paid by the Company as Incentive Commission multiplied by the number of Existing Ordinary Shares sold by him or it pursuant to the Institutional Offer, the Intermediaries Offer and the Over-allotment Arrangements, less (ii) any amount paid by such Selling Shareholder as commission pursuant to the Intermediaries Agreement (plus, if applicable, amounts in respect of VAT);

• the obligations of the Underwriters to procure purchasers for or, failing which, themselves to subscribe for and/or purchase the Ordinary Shares to be issued and sold in connection with the Offer on the terms of the Underwriting Agreement are subject to certain conditions. These conditions include the absence of any breach of representation or warranty under the Underwriting Agreement, there having been no material adverse change since the date of the Underwriting Agreement and Admission having occurred not later than 8.00 a.m. on 27 March 2013 or such later time and/or such date as the Company may agree with the Joint Global Co- ordinators (on behalf of themselves and the other Underwriters). In addition, any of the Joint

233 Global Co-ordinators (on behalf of themselves and the other Underwriters) has the right to terminate the Underwriting Agreement, exercisable in certain circumstances prior to Admission. These circumstances, which are typical for agreements of this nature, include the occurrence of any material adverse change and certain changes in financial, political or economic conditions;

• the Company has agreed to reimburse the Underwriters for all reasonable and properly incurred out-of-pocket expenses and disbursements incurred by the Underwriters in connection with their roles in the Offer;

• each Major Shareholder has agreed to pay to and reimburse the Underwriters in respect of any stamp duty and/or SDRT arising on the initial sale of its Existing Ordinary Shares under the Offer and the sale of its Existing Ordinary Shares pursuant to the Over-allotment Arrangements, subject to certain limitations;

• each of the Company, the Major Shareholders and the Directors has given certain representations, warranties and undertakings to the Underwriters. The liabilities of the Company under the Underwriting Agreement are not limited as to amount or by time. The liabilities of the Directors and the Major Shareholders under the Underwriting Agreement are limited as to time and amount;

• pursuant to the Underwriting Agreement, the Company and the Major Shareholders have given an indemnity to the Underwriters in a form that is typical for an agreement of this nature;

• the parties to the Underwriting Agreement have given certain undertakings to each other regarding compliance with laws and regulations affecting the making of the Offer in relevant jurisdictions; and

• the Company, the Major Shareholders and the Directors (other than David Calder and Charles Schrager von Altishofen) have agreed to be subject to certain share sale and share issue lock- up arrangements, further details of which are set out in section 7 of Part IX (Information about the Offer). The ability of the Joint Global Coordinators to exercise a waiver of any of the share sale or share issue lock-up undertakings shall only arise 90 days after Admission. The Underwriting Agreement also contains the terms of the Over-allotment Arrangements more fully described in section 4 of Part IX (The Offer).

16.6 Intermediaries Agreement The Company, the Underwriters, the Major Shareholders and the Intermediaries have entered into the Intermediaries Agreement. Pursuant to the terms of the Intermediaries Agreement:

• the Intermediaries agree that, in connection with the Intermediaries Offer, they will be acting as agent, or as discretionary fund manager or principal for their clients who apply for shares in the Intermediaries Offer (the “underlying applicants”). None of the Company, the Major Shareholders or the Joint Global Co-ordinators will have any liability to the Intermediaries for liabilities, costs, fees or expenses incurred by the Intermediaries in connection with the Intermediaries Offer;

• the Joint Global Co-ordinators agree to coordinate applications from the Intermediaries under the Intermediaries Offer. Determination of the number of Ordinary Shares offered pursuant to the Intermediaries Offer will be determined solely by the Company in consultation with the Joint Global Co-ordinators. Allocations to Intermediaries will be determined solely by the Company in consultation with the Joint Global Co-ordinators. No specific number of Ordinary Shares has been set aside for allocation to the Intermediaries Offer and there will be no preferential treatment of Intermediaries or any underlying applicant;

• the Intermediaries agree to procure the investment of the maximum number of Ordinary Shares which can be acquired at the Offer Price for the sum applied for by such Intermediaries on behalf of their respective underlying applicants;

234 • a minimum of £1,000 per underlying applicant will apply. Intermediaries agree not to make more than one application per underlying applicant;

• conditional upon Admission, the Selling Shareholders agree to pay each Intermediary a commission of one per cent of the aggregate value of the Ordinary Shares allocated to and paid for by such Intermediary pursuant to the Intermediaries Offer. No deductions may be made directly by Intermediaries from any amount they are required to pay under the Intermediaries Offer in respect of this commission;

• the Intermediaries give certain undertakings regarding their use of information provided in a fact sheet (prior to publication of this document) and other written information in connection with the Intermediaries Offer. The Intermediaries have also given undertakings regarding the form and content of written and oral communications with clients; and

• the Intermediaries also give representations and warranties that are relevant for the Intermediaries Offer, and indemnify the Selling Shareholders, the Company, and the Underwriters against any loss or claim arising out of any breach by them of the Intermediaries Agreement.

17. SMALL SELLING SHAREHOLDER ARRANGEMENTS In addition to the sale of Existing Ordinary Shares by the Major Shareholders, other Existing Shareholders may sell Existing Ordinary Shares through the Offer pursuant to the Small Selling Shareholder Arrangements: • Employee Shareholders and Directors (excluding, for these purposes, Peter Wood) may sell up to 33 per cent of their Existing Ordinary Shares pursuant to the Offer; and • Non-Employee Shareholders may sell all of their Existing Ordinary Shares pursuant to the Offer. As described in section 16.5 of this Part XII, the sale of Existing Ordinary Shares through the Offer by such Existing Shareholders is underwritten on the terms and subject to the conditions of the Underwriting Agreement. In addition, in order to sell Existing Ordinary Shares through the Offer, each such Existing Shareholder will himself or herself be required, prior to the determination of the Offer Price, to execute a deed under which he or she agrees, inter alia:

• to pay to the Joint Global Co-ordinators (on behalf of the Underwriters) a commission of two per cent of the amount equal to the product of the Offer Price and the number of Ordinary Shares sold by him or her pursuant to the Offer (plus, if applicable, amounts in respect of VAT), and to pay to and reimburse the Underwriters in respect of any stamp duty and/or SDRT arising on the initial sale of his or her Existing Ordinary Shares under the Offer. These amounts shall be deducted by the Joint Global Co-ordinators from the payment to be made by the Joint Global Co- ordinators to such Existing Shareholder in respect of the sale of his or her Existing Ordinary Shares pursuant to the Offer;

• in the event that the Company, in its absolute discretion, pays the Incentive Commission pursuant to the Underwriting Agreement, to pay to the Joint Global Co-ordinators (on behalf of the Underwriters) an additional commission equal to the product of (i) the percentage of the Offer Price paid by the Company as Incentive Commission (which is capped at one per cent); (ii) the Offer Price; and (iii) the number of Ordinary Shares sold by him or her pursuant to the Offer (plus, if applicable, amounts in respect of VAT).

• to give certain representations, warranties and undertakings to the Underwriters. The liabilities of such Existing Shareholders pursuant to these representations, warranties and undertakings are limited as to time and amount;

• to undertake that: (i) if he or she is an Employee Shareholder, he or she will not for a period of 365 days from the date of the Underwriting Agreement sell any Ordinary Shares outside the Offer without the prior written consent of the Company; and

235 (ii) if he or she is a Non-Employee Shareholder, he or she will not for a period of 180 days from the date of the Underwriting Agreement sell any Ordinary Shares outside the Offer without the prior written consent of the Company, in each case except pursuant to certain customary exemptions. In aggregate and assuming the Offer Price is set at the mid-point of the Price Range, Employee Shareholders and Non-Employee Shareholders may sell up to 21,132,252 Existing Ordinary Shares pursuant to the Small Selling Shareholder Arrangements (representing 5.3 per cent of the issued share capital of the Company immediately prior to Admission). The Company has yet to ascertain the selling intentions (if any) of any the Employee Shareholders and Non-Employee Shareholders, and the aggregate number of Existing Ordinary Shares to be sold pursuant to the Offer by such Existing Shareholders will be set out in the Pricing Statement. Please refer to section 8.2 of this Part XII for further details on the expected interests of the Directors immediately prior to and after Admission.

18. STOCK LENDING ARRANGEMENTS In connection with the Over-allotment Arrangements, the Stabilising Manager will enter into the Stock Lending Agreement with the Major Shareholders, pursuant to which the Stabilising Manager, on Admission, will be able to borrow up to the number of Ordinary Shares that are subject to the Over- allotment Option for the purposes, among other things, of allowing the Stabilising Manager to settle, at Admission, over-allotments, if any, made in connection with the Offers pursuant to the Over-allotment Arrangements. If the Stabilising Manager borrows any Ordinary Shares pursuant to the Stock Lending Agreement, it will be required to return equivalent securities to the relevant lender in accordance with the terms of the Stock Lending Agreement.

236 19. PROPERTY PR Ann I, 8.1 The Group has the following property interests, all of which are held by esure Property Limited:

Purchase Tenure/ Quality Price/Rent Major Property Size/Use Location of Title (exc. VAT) Ter m Encumbrances 45,477 sq ft for The Office Tower Leasehold £1,059,994 per 15 years from N/A Office Rossetti Place, Title absolute annum, subject to and including Tower/Offices Quay Street, review in 23 December Manchester December 2013 2003 to M3 4AL 22 December 2018 1,971 sq ft/ Studio Unit 2 Leasehold £46,862 per 15 years from N/A Office Space Rossetti Place, Title absolute annum, subject to and including Quay Street, review in 23 December Manchester December 2013 2003 to M3 4AL 22 December 2018 2,997 sq ft/Office Studio Unit 3 Leasehold £69,434 per 15 years from and N/A Space Rossetti Place, Title absolute annum, subject to including 23 Quay Street, review in December 2003 to Manchester December 2013 22 December M3 4AL 2018 Residential Apartment 802 Leasehold £264,000 150 years less 3 N/A Rossetti Place, Title absolute purchase price days from 31 May 2 Lower Byrom paid in 2004 2003 Street, £250 per annum Manchester, ground rent, M3 4AN. subject to review in 2028 5,339.6 sq m/ The Observatory One leasehold £9,000 purchase The lease is for Subject to: Offices Castlefield Road, title (good price paid in 2002 999 years from (i) a lease to Reigate RH2 0SG leasehold title) for one of the 24 March 1939 esure Services leasehold title and Two freehold Limited for 20 one of the titles (both title years from 6 July freehold titles absolute) 2010; £20,149,275 (ii) a lease to purchase price International paid in 2000 for Rectifier Company one of the (Great Britain) freehold titles Limited for 5 years from 9 August 2010; and (iii) lease of a basement level substation at Redland House for 99 years from 12 May 2000. 6,308 sq The Equinox Leasehold £1,726,060 per From 18 March Subject to a m/Offices 15-23 Cadogan annum subject to 2002 to 3 October substation lease Street, Glasgow (1) increase to 2030 to SP Distribution G2 6QQ £1,860,000 per Limited for 60 annum from years from 4 October 2015, 15 October 2001. (2) review on 4 October 2020 and then on the expiration of each succeeding period of 5 years during the lease duration Residential 10/5 The Bridge Heritable £273,500 N/A N/A 348-382 Argyle purchase price Street, Glasgow paid in 2004 G2 8NE

237 The Company does not believe that there are any material environmental issues which may affect the Company’s utilisation of its tangible fixed assets.

20. SIGNIFICANT CHANGE PR Ann I, 20.9 Save for the £40 million reduction in capital of the Company on 21 February 2013 by way of cancellation of 4,000,000,000 Non-Voting Old Ordinary Shares (and, in consideration, the payment of £40 million in cash by the Company to Tosca Penta Investments LP), there has been no significant change in the financial or trading position of the Group since 31 December 2012, being the date to which the Historical Financial Information set out in Schedule II (Historical Financial Information) was prepared.

21. WORKING CAPITAL STATEMENT The Company is of the opinion that, taking into account the net proceeds of the Offer receivable by it, LR 6.1.16 the Group has sufficient working capital for its present requirements, that is, for at least the next 12 PR Ann III, 3.1 months from the date of the publication of this document.

22. ANNOUNCEMENT OF RESULTS OF THE OFFER PR Ann III, 5.1.9, 5.2.4 The Company will make an appropriate announcement to a Regulatory Information Service giving the details of the results of the Offer.

23. CONSENTS PR Ann I, 23.1 PR Ann III 10.3 The Company has received the following written consents, which are available for inspection at the times and locations set out in section 29 of this Part XII, in connection with the publication of this document: (A) KPMG Audit Plc has given and has not withdrawn its written consent to the inclusion in this document of: (ii) the report set out on pages F-1 to F-2 of Schedule II (Historical Financial Information); and (ii) the report set out in Part VII (Unaudited Pro Forma Financial Information), and the references thereto in the form and context in which they appear and has authorised the contents of its reports for the purposes of item 5.5.3R(2)(f) of the Prospectus Rules; and (B) Towers Watson Limited has given and has not withdrawn its written consent to the inclusion in this document of its name, its report in Part VIII (Reporting Actuary’s Opinion) and the references thereto in the form and context in which they appear and has authorised the contents of its report for the purposes of item 5.5.3R(2)(f) of the Prospectus Rules. A written consent under the Prospectus Rules is different from a consent filed with the SEC under section 7 of the US Securities Act. As the offered Ordinary Shares have not been and will not be registered under the US Securities Act, neither KPMG Audit Plc nor Towers Watson Limited have filed a consent under Section 7 of the US Securities Act.

24. EXPENSES OF ADMISSION AND THE OFFER PR Ann III, 5.3.1 8.1 The aggregate expenses of, or incidental to, Admission and the Offer to be borne by the Company are estimated to be approximately £7.0 million (assuming the discretionary part of the Underwriters’ commission described in section 16.5 of this Part XII and the discretionary elements of the fees of the Company’s other advisers are paid in full) (inclusive of amounts in respect of VAT). Each Selling Shareholder will bear the amount of any stamp duty or SDRT chargeable on the sale of his/her/its Ordinary Shares and his/her/its pro rata share of any selling commissions.

25. AUDITOR KPMG Audit Plc, whose registered office is 15 Canada Square, London E14 5GL, has been the auditor PR Ann I, 2.1 of the Company since the date of its incorporation and the auditor of the Group since 2000. Its report in respect of the Historical Financial Information, which is available for inspection at the times and

238 locations set out in section 29 of this Part XII, was unqualified and did not contain a statement under section 498(2) or (3) of the Companies Act. KPMG Audit Plc is a member of the Institute of Chartered Accountants in England and Wales and has no material interest in the Group.

26. INTERMEDIARIES The Intermediaries authorised at the date of this document to use this document in connection with the PR Ann XXX, 1.5 Intermediaries Offer are: 2A.1 2A.2 Name Address AJ Bell Securities Limited...... Trafford House, Chester Road, Manchester M32 0RS Barclays Stockbrokers Ltd...... Tay House, 300 Bath Street, Glasgow G2 4JR Collins Stewart CI Limited ...... 88 Wood Street, London EC2V 7QR Collins Stewart Wealth Management Ltd ...... 88 Wood Street, London EC2V 7QR Charles Stanley & Co. Limited...... 25 Luke Street, London EC2A 4AR Hargreave Hale Limited ...... Neptune Court, Hallam Way, Blackpool, Lancs FY4 5LZ Hargreaves Lansdown Asset Management Limited...... 1 College Square South, Anchor Road, Bristol BS1 5HL Interactive Investor Trading Limited ...... Standon House, 21 Mansell Street, London E1 8AA Jarvis Investment Management Ltd ...... 78 Mount Ephraim, Tunbridge Wells, Kent TN4 8BS Killik & Co. LLP ...... 46 Grosvenor Street, London W1K 3HN Paul E. Schweder Miller & Co...... 46-50 Tabernacle Street, London EC2A 4SJ Redmayne-Bentley LLP...... 9 Bond Court, Leeds LS1 2JZ Simplystockbroking Ltd ...... 49 Whitehall, London SW1A 2BX Talos Securities Ltd (trading as Selftrade)...... Boatman’s House, 2 Selsdon Way, London E14 9LA The Share Centre Limited ...... Oxford House, Oxford Road, Aylesbury, Bucks HP21 8SZ Walker Crips Stockbrokers Limited ...... Finsbury Tower, 103-105 Bunhill Row, London EC1Y 8LZ WH Ireland Limited ...... 11 St James’s Square, Manchester M2 6WH Any new information with respect to financial intermediaries unknown at the time of publication of this document, including in respect of: (i) any intermediary financial institution that is appointed by the Company in connection with the Intermediaries Offer after the date of this document following its agreement to adhere to and be bound by the terms of the Intermediaries Agreement; and (ii) any Intermediary that ceases to participate in the Intermediaries Offer, will be made available on the Company’s website at www.esuregroup.com.

27. NO INCORPORATION OF WEBSITE INFORMATION The contents of the Group’s websites do not form part of this document.

28. SOURCES OF INFORMATION 28.1 Financial information Unless otherwise stated, in this document financial information in relation to the Group referred to in the document has been extracted without material adjustment from the Historical Financial Information set out in Schedule II (Historical Financial Information) to this document or has been extracted from those of the Group’s accounting records that have been used to prepare that financial information. Investors should ensure that they read the whole of this document and not only rely on the key information or information summarised within it. KPMG Audit Plc’s report on the Historical Financial Information is set out on pages F-1 to F-2 in PR Ann III, 10.2 Schedule II (Historical Financial Information) to this document. Unless otherwise indicated, none of the financial information relating to the Group or any operating information relating to the Group has been audited (even where such operating information includes certain financial metrics). Statutory audited accounts of the Company, on which KPMG Audit Plc has given unqualified reports and which contained no statement under sections 498(2) or 498(3) of the Companies Act, have been delivered to the Registrar of Companies in respect of the accounting period ended 31 December 2010 and the financial years ended 31 December 2011 and 2012.

239 28.2 Unaudited operating information Unaudited operating information in relation to the Group is derived from the following sources: (i) PR Ann I, 20.4.3 management accounts for the relevant accounting periods presented; and (ii) internal financial reporting systems supporting the preparation of financial statements. Operating information derived from management accounts or internal reporting systems in relation to the Group is to be found principally in the Summary, Part I (The Business), Part III (Financial Information relating to the Group), and Part V (Operating and Financial Review). Management accounts are prepared using information derived from accounting records used in the preparation of the Group’s Historical Financial Information, but may also include certain other management assumptions and analyses.

28.3 Industry and market data PR Ann I, 23.2 The year-on-year movement in average UK market motor insurance premium rates referred to in section PR Ann III, 10.4 2.1(A) Premium Rates and Distribution) of Part V (Operating and Financial Review) has been sourced from third parties. The Company confirms that such information has been accurately reproduced and, so far as it is aware and has been able to ascertain from information published by such third parties, no facts have been omitted which would render the reproduced information inaccurate or misleading.

29. DOCUMENTS AVAILABLE FOR INSPECTION Copies of the following documents may be inspected at the registered office of the Company at The PR Ann I, 24 Observatory, Castlefield Road, Reigate, Surrey RH2 0SG and at the offices of Slaughter and May, One Bunhill Row, London EC1Y 8YY during normal business hours on any weekday (Saturdays, Sundays and public holidays excepted) for a period of 28 days from the date of publication of this document: (A) the Articles;

(B) the Historical Financial Information as set out in Schedule II (Historical Financial Information) and KPMG Audit plc’s review report thereon;

(C) the unaudited pro forma financial information and the report thereon by KPMG Audit Plc, as set out in Part VII (Unaudited Pro Forma Financial Information);

(D) the report from Towers Watson Limited as Reporting Actuary, as set out in Part VIII (Reporting Actuary’s Opinion);

(E) the written consent letter of KPMG Audit Plc referred to in section 23 of this Part XII;

(F) the written consent letter of Towers Watson Limited referred to in section 23 of this Part XII; and

(G) a copy of this document.

Copies of this document are also available for inspection on the National Storage Mechanism at www.hemscott.com/nsm.do.

For the purposes of item 3.2.4 of the Prospectus Rules, this document will be published in printed form and available free of charge, during normal business hours on any weekday (Saturdays, Sundays and public holidays excepted) for a period of 28 days from the date of publication of this document at The Observatory, Castlefield Road, Reigate, Surrey RH2 0SG and at the offices of the Joint Global Co- ordinators. In addition, the Prospectus will be published in electronic form and be available on the Company’s website at www.esuregroup.com, subject to certain access restrictions applicable to persons resident outside the UK.

240 SCHEDULE I

DEFINITIONS

The definitions set out below apply throughout this document, unless the context requires otherwise.

1 “A Ordinary Shares” means the A Ordinary Shares of ⁄12 pence each in the capital of the Company. These will convert into Ordinary Shares immediately prior to Admission;

“Additional Insurance Product” means the additional insurance products offered by the Group for purchase alongside a motor or home insurance policy (including, in the case of motor, alongside brokered policies);

“Additional Services” means (i) sales of Additional Insurance Products; (ii) instalment interest on premium payments; (iii) policy administration fees; (iv) legal panel membership fees and fees generated from the appointment of firms used during the claims process, including medical, vehicle repair and car hire suppliers; and (v) certain other de minimis items, as more fully described in sections 7.1 and 7.2 of Part I (The Business);

“Admission” means the admission of the Ordinary Shares to the premium listing segment of the Official List and the admission of such shares to trading on the London Stock Exchange’s main market for listed securities (in accordance with the Standards);

“All-employee Plans” means the SIP and the Sharesave Plan;

“Annual Bonus” means the annual bonus arrangements for Executive Directors and other senior management implemented by the Group from time to time;

“Annual Bonus Plan” means the Annual Bonus Plan for management and staff grade 13 and above adopted by the Board on 25 February 2013

“Articles of Association” or means the articles of association of the Company in force as of “Articles” Admission;

1 “B Ordinary Shares” means the B Ordinary Shares of ⁄12 pence each in the capital of the Company. These will convert into Ordinary Shares immediately prior to Admission;

“Board” means the board of directors of the Company from time to time (and, in respect of periods prior to 11 February 2010, the board of esure Holdings Limited from time to time);

“Business” means the business of the Group;

“Business Day” means any day other than a Saturday or Sunday on which banks are generally open for the transaction of business in London, other than solely for the purposes of trading and settlement in Euro;

1 “C Ordinary Shares” means the C Ordinary Shares of ⁄12 pence each in the capital of the Company. These will convert into Ordinary Shares immediately prior to Admission;

“Canaccord Genuity” means Canaccord Genuity Limited of 88 Wood Street, London EC2V 7QR;

“CapGemini” means CapGemini UK plc;

241 “certificated” or “in means recorded on the relevant register as being held in certificated form” certificated form and title to which may be transferred by means of a bank transfer form;

“Chairman” means Peter Wood, whose details are set out in Part II (Directors, Corporate Governance and Remuneration);

“Combined Operating Ratio” is a metric for assessing the performance of a general insurance firm, calculated as Loss Ratio plus Expense Ratio;

“Companies Act” means the Companies Act 2006 of England and Wales, as amended, supplemented or replaced from time to time;

“Company” means esure Group plc, a company incorporated in England and PR Ann I, 5.1.1, Wales with registered number 7064312 whose registered office 5.1.2 is The Observatory, Castlefield Road, Reigate, Surrey RH2 0SG;

“Controlling Shareholder” means Peter Wood and any of his connected persons holding Ordinary Shares and any person holding Ordinary Shares as nominee for any of them;

“CREST” means the system for the paperless settlement of trades in securities and the holding of uncertificated securities in accordance with the CREST Regulations operated by Euroclear UK;

“CREST Regulations” means The Uncertificated Securities Regulations 2001 (SI 2001 No. 3755) as amended from time to time;

“CRO” means the Chief Risk Officer of the Group;

“Deutsche Bank” means Deutsche Bank AG, London Branch of Winchester House, 1 Great Winchester Street, London EC2N 2DB;

“Directors” means the directors of the Company (being the Chairman, the Deputy Chairman, the Executive Directors and the Non- Executive Directors), whose details are set out in Part II (Directors, Corporate Governance and Remuneration);

“Disclosure and means the disclosure rules and transparency rules made by the Transparency Rules” FSA under Part VI of FSMA (as set out in the FSA Handbook), as amended;

“EEA State” means a state which is a contracting party to the agreement on the European Economic Area signed at Oporto on 2 May 1992, as it has effect for the time being;

“Employee Shareholders” means the Existing Shareholders (other than the Executive Directors and Peter Wood) who are employed by the Group;

“EU” or “European Union” means the European Union first established by the treaty made at Maastricht on 7 February 1992;

“Euroclear UK” means Euroclear UK & Ireland Limited (formerly named CRESTCo Limited), the operator of CREST;

“Euros” or “€” means the single currency of the member states of the European Union that adopt or have adopted the Euro as their lawful currency under the legislation of the EU or European Monetary Union;

“Executive Directors” means Stuart Vann and Darren Ogden, whose details are set out in Part II (Directors, Corporate Governance and Remuneration);

242 “Existing Ordinary Shares” means the Ordinary Shares in issue immediately prior to Admission as a result of the pre-Admission reorganisation of the A Ordinary Shares, B Ordinary Shares and C Ordinary Shares;

“Existing Shareholders” means the holders of the Existing Ordinary Shares immediately prior to Admission;

“Expense Ratio” means the Group’s gross insurance expenses plus claims handling costs as a percentage of earned premiums, net of reinsurance;

“FCA” or “Financial means the Financial Conduct Authority of the UK to be Conduct Authority” established pursuant to the Financial Services Act 2012, responsible for, among other things, the conduct regulation of all firms authorised regulated under FSMA and the prudential regulation of firms which are not regulated by the Prudential Regulation Authority;

“FOS” means the UK Financial Ombudsman Service;

“FSA” or “Financial means the Financial Services Authority of the UK and, where Services Authority” relevant, any successor entity;

“FSA Handbook” means the FSA’s Handbook of Rules and Guidance;

“FSCS” means the Financial Services Compensation Scheme as more fully described in section 1.8 of Part X (Regulatory Information);

“FSMA” means the Financial Services and Markets Act 2000, as amended;

“FYE” means financial year ended;

“GAAP” means generally accepted accounting principles;

“Gender Directive” means the European Union’s Gender Directive (Directive 2004/113/EC);

“Gocompare” means Gocompare.com Holdings Limited, a company incorporated in England and Wales with registered number 6062003 whose registered office is Unit 6, Imperial Courtyard, Newport, Gwent NP10 8UL;

“Group” means: (i) for periods from and including 11 February 2010, the Company and its subsidiaries; and (ii) for periods prior to and including 10 February 2010, esure Holdings Limited and its subsidiaries;

“GWP” means gross written premiums;

“Historical Financial Information” means the consolidated Group financial information for the three years ended 31 December 2012 (as reported on by KPMG Audit Plc) as set out in Schedule II (Historical Financial Information);

“HMRC” means Her Majesty’s Revenue & Customs;

“IASB” means the International Accounting Standards Board;

“IBNR Reserves” has the meaning given to it in section 11.2 of Part I (The Business);

“IFRS” means International Financial Reporting Standards;

243 “Institutional Offer” means the offer of Ordinary Shares to certain institutional investors including QIBs in the United States described in section 9 (The Institutional Offer) of Part IX (The Offer);

“Intermediaries” means the intermediaries listed in section 26 of Part XII (Additional Information), together with any other intermediary financial institution (if any) that is appointed by the Company in connection with the Intermediaries Offer after the date of this document and agrees to adhere to and be bound by the terms of the Intermediaries Agreement;

“Intermediaries Agreement” means the agreement in respect of the Intermediaries Offer between the Company, the Major Shareholders, the Underwriters and the Intermediaries, the principal terms of which are set out at section 16.6 (Intermediaries Agreement) of Part XII (Additional Information);

“Intermediaries Offer” means the offer to the Intermediaries described in section 10 (The Intermediaries Offer) of Part IX;

“Internal Revenue Code” means the US Internal Revenue Code of 1986, as amended;

“Investor” means any person who acquires Ordinary Shares pursuant to the Offer;

“Joint Global Co-ordinators” means Deutsche Bank and J.P. Morgan Cazenove;

“J.P. Morgan Cazenove” means J.P. Morgan Securities plc of 25 Bank Street, Canary Wharf, London E14 5JP;

“Legal Cutover” means 1 April 2013 (or any such later date) when the Prudential Regulation Authority and the Financial Conduct Authority assume their powers and responsibilities pursuant to the Financial Services Act 2012;

“Listing Rules” means the listing rules made by the UK Listing Authority under Part VI of FSMA (as set out in the FSA Handbook), as amended;

“Lloyds Banking Group” means Lloyds Banking Group plc;

“London Stock Exchange” means the London Stock Exchange plc or its successor(s);

“Loss Ratio” means claims incurred, net of reinsurance as a percentage of earned premiums, net of reinsurance;

“Major Shareholder” means each of Peter Wood and Tosca Penta Investments LP;

“Management Buy-out” means the acquisition of esure Holdings Limited from Lloyds Banking Group by esure Group Holdings Limited on 11 February 2010. esure Group Holdings Limited was incorporated for the purposes of the acquisition by Peter Wood and certain other members of the Group’s then management, together with financial backing from Tosca Penta Investments LP;

“Mid-point Assumptions” means the assumptions that: (i) the Offer Price is set at the mid- point of the Price Range; (ii) the Company issues sufficient New Ordinary Shares to raise proceeds of £50 million; (iii) each of the Directors (other than Peter Wood) sells the maximum number of Existing Ordinary Shares through the Offer which he or she has indicated, on a non-binding basis, that he or she may sell; (iv) that all other Existing Shareholders sell the maximum number of Existing Ordinary Shares that they are permitted to sell through the Offer (which for Employee Shareholders is 33 per cent of their holdings and for Non-Employee Shareholders is 100 per

244 cent of their holdings, assuming that scale-back is not applied); (v) Peter Wood and Tosca Penta Investments LP sell, in aggregate, such number of their Existing Ordinary Shares as is necessary to ensure that the total number of Ordinary Shares subject to the Offer (taking into account (i) to (iv) above) represents 42.5 per cent of the total number of Ordinary Shares in issue immediately following Admission (calculated before utilisation of the Over-allotment Arrangements); and (vi) there is no exercise of the Over-allotment Option;

“Model Code” means the code set out at Annex 1 to Rule 9 of the Listing Rules;

“New Ordinary Shares” means the new Ordinary Shares to be allotted and issued by the Company pursuant to the Offer;

“Non-Employee Shareholders” means the Existing Shareholders (other than Tosca Penta Investments LP) who are not employees of the Group;

“Non-Executive Directors” means Dame Helen Alexander, David Calder, Anthony Hobson, Ann Richards, Charles Schrager von Altishofen and Peter Ward, whose details are set out in Part II (Directors, Corporate Governance and Remuneration);

“Non-Voting Old Ordinary Shares” means the non-voting ordinary shares of £0.01 in the capital of the Company which will be repurchased on Admission;

“Numis Securities” means Numis Securities Limited of 10 Paternoster Square, London EC4M 7LT;

“Offer” means the offer of the Ordinary Shares pursuant to the Institutional Offer and the Intermediaries Offer to investors in the UK and elsewhere as described in Part IX (Information about the Offer);

“Offer Price” means the price at which the Ordinary Shares are to be offered and sold under the Offer;

“Official List” means the official list of the UK Listing Authority;

“OFT” means the Office of Fair Trading of the UK;

1 “Ordinary Shares” means the ordinary shares with a nominal value of ⁄12 pence each in the capital of the Company;

“Outstanding Claims Reserves” has the meaning ascribed to it in section 11.2 of Part I (The Business);

“Over-allotment Arrangements” means the arrangements described in Part IX (Information about the Offer) pursuant to which Ordinary Shares representing up to an additional 15 per cent of the Ordinary Shares comprised in the Offer may be made available to Investors;

“Over-allotment Option” means the option granted by the Major Shareholders to the Stabilising Manager to buy Ordinary Shares at the Offer Price, in accordance with the Over-allotment Arrangements;

“Overseas Shareholders” means holders of Ordinary Shares with registered addresses outside the UK or who are citizens of, incorporated in, registered in or otherwise resident in, countries outside the UK;

“Panel” means the Panel on Takeovers and Mergers;

“pence” or “p” means the lawful currency of the UK;

“PFIC” means a passive foreign investment company;

245 “Pounds” or “£” or means the lawful currency of the UK; “Pounds Sterling” “PPOs” means periodical payment orders, as described in section 1.11 of the Risk Factors;

“PRA” or “Prudential means the Prudential Regulation Authority of the UK to be Regulation Authority” established pursuant to the Financial Services Act 2012 and responsible for the micro-prudential regulation of banks, insurers and certain large investment firms;

“Pre-Admission Articles” means the articles of association of the Company adopted on 25 February which, on Admission, will be replaced by the Articles;

“Price Range” means the range of prices within which the Offer Price is expected to fall, being 240p to 310p per Ordinary Share;

“Pricing Statement” means the statement expected to be published by the Company on or around 22 March 2013, in which the Offer Price will be announced;

“Prospectus Directive” means the EU Prospectus Directive (2003/71/EC) (and amendments thereto);

“Prospectus Directive Regulation” means the EU Prospectus Directive Regulation (No. 2004/809/EC);

“Prospectus Rules” means the prospectus rules made by the UK Listing Authority under Part VI of FSMA (as set out in the FSA Handbook), as amended;

“PSP” means the esure Performance Share Plan 2013, the principal terms of which are summarised in section 11 of Part XII (Additional Information);

“Qualified Institutional means as ascribed to it by Rule 144A; Buyer” or “QIB” “Redeemable Priority means the redeemable priority return shares of £0.01 each in Return Shares” the capital of the Company. These will be repurchased by the Company on Admission;

“Registrars” means Equiniti Limited of Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA;

“Regulation S” means Regulation S under the US Securities Act;

“Regulatory Information Service” means one of the regulatory information services authorised by the UK Listing Authority to receive, process and disseminate regulatory information from listed companies;

“Related Party Transaction” has the meaning ascribed to “related party transactions” in paragraph 9 of IAS 24, being the Standard adopted according to Regulation (EC) No. 1606/2002;

“Relationship Agreement” means the relationship agreement dated 8 March 2013 between the Company and Peter Wood, the key terms of which are described in section 16.4 (Relationship Agreement) of Part XII;

“Relevant Regulator” means, as appropriate in the context, any one or more of the FSA, the PRA and/or the FCA, or any successor thereof;

“Road Traffic Accident Protocol” means the Ministry of Justice’s Pre-Action Protocol for low value personal injury claims in road traffic accidents;

246 “Rule 144A” means Rule 144A under the US Securities Act;

“Sainsbury’s Bank” means Sainsbury’s Bank plc;

“SDRT” means stamp duty reserve tax;

“SEC” means United States Securities and Exchange Commission;

“Selling Shareholders” means Existing Shareholders who sell Existing Ordinary Shares pursuant to the Offer;

“Shareholder(s)” holder(s) of Ordinary Shares from time to time;

“Shareholders’ Agreement” the Shareholders’ Agreement between the Company and certain of the Company’s Shareholders dated 11 February 2010, as amended on 4 November 2011, and which will terminate on Admission;

“Sharesave Plan” means the esure Sharesave Plan 2013, the principal terms of which are summarised in section 11 of Part XII (Additional Information);

“SIP” means the esure Share Incentive Plan 2013, the principal terms of which are summarised in section 11 of Part XII (Additional Information);

“Small Selling Shareholder means the arrangements for the sale of Existing Ordinary Arrangements” Shares by Existing Shareholders (other than the Major Shareholders) described in section 17 of Part XII (Additional Information);

“Sponsor” means J.P. Morgan Cazenove;

“Stabilising Manager” means J.P. Morgan Cazenove;

“Standards” means the current edition of the Admission and Disclosure Standards produced by the London Stock Exchange;

“stock account” means an account within a member account in CREST to which a holding of a particular share or other security in CREST is credited;

“Stock Lending Agreement” means the agreement described in section 18 of Part XII (Additional Information);

“Takeover Code” means the City Code on Takeovers and Mergers;

“UK” means the United Kingdom of Great Britain and Northern Ireland;

“UK Corporate Governance Code” means the UK Corporate Governance Code published by the Financial Reporting Council, as in force from time to time;

“UK Listing Authority” means the Financial Services Authority acting in its capacity as the competent authority for the purposes of Part VI of FSMA;

“uncertificated” or “in means recorded on the relevant register of the share or security uncertificated form” concerned as being held in uncertificated form in CREST and title to which, by virtue of the CREST Regulations, may be transferred by means of CREST;

“Underwriters” means J.P. Morgan Cazenove, Deutsche Bank, Canaccord Genuity and Numis Securities;

247 “Underwriting Agreement” means the agreement between the Company, the Underwriters, the Selling Shareholders and the Directors dated 8 March 2013, details of which are set out in section 16.5 (Underwriting Agreement) of Part XII (Additional Information);

“United States” or “US” means the United States of America, its territories and possessions, any state of the United States and the District of Columbia;

“US Dollars” or “USD” or “US$” means the lawful currency of the United States;

“US Exchange Act” means the US Securities Exchange Act of 1934, as amended;

“US Holder” means a beneficial owner of Ordinary Shares that is, for US federal income tax purposes:

(A) a citizen or individual resident of the United States;

(B) a corporation, or other entity taxable as a corporation, created or organised in or under the laws of the United States, any state therein or the District of Columbia; or

“US Securities Act” means the US Securities Act of 1933, as amended; and

“VAT” means value added tax.

248 SCHEDULE II PR Ann I, 3.1 20.1 HISTORICAL FINANCIAL INFORMATION

KPMG Audit Plc Chartered Accountants 15 Canada Square Canary Wharf London E14 5GL United Kingdom

The Directors esure Group plc The Observatory Reigate Surrey RH2 0SG

8 March 2013

Dear Sirs, esure Group plc (the ‘Company’) We report on the financial information set out on pages F-3 to F-73 for the three years ended 31 December 2012. This financial information has been prepared for inclusion in the prospectus dated 8 March 2013 of esure Group plc on the basis of the accounting policies set out in note 2. This report is required by paragraph 20.1 of Annex I of the Prospectus Directive Regulation and is given for the purpose of complying with that paragraph and for no other purpose.

Responsibilities The Directors of the Company are responsible for preparing the financial information on the basis of preparation set out in note 2 to the financial information.

It is our responsibility to form an opinion on the financial information and to report our opinion to you.

Basis of opinion We conducted our work in accordance with Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. Our work included an assessment of evidence relevant to the amounts and disclosures in the financial information. It also included an assessment of the significant estimates and judgments made by those responsible for the preparation of the financial information and whether the accounting policies are appropriate to the entity’s circumstances, consistently applied and adequately disclosed. We planned and performed our work so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial information is free from material misstatement whether caused by fraud or other irregularity or error.

F-1 Opinion on financial information In our opinion, the financial information gives, for the purposes of the prospectus dated 8 March 2013, a true and fair view of the state of affairs of esure Group plc as at 31 December 2010, 31 December 2011, and 31 December 2012, of its combined profit, cash flows and changes in equity for the year ended 31 December 2010, and of its consolidated profits, cash flows and changes in equity for the years ended 2011 and 2012 in accordance with the basis of preparation set out in note 2.

Yours faithfully

KPMG Audit Plc

F-2 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Combined 1 January 11 February Year Year Year 2010 to 2010 to ended ended ended 10 February 31 December 31 December 31 December 31 December 2010 2010 20101 2011 2012 Notes £m £m £m £m £m

Gross written premiums 46.4 409.9 456.3 499.5 515.0 –––––––– –––––––– –––––––– –––––––– –––––––– Gross earned premiums 5 56.2 410.7 466.9 475.2 511.7 Earned premiums, ceded to reinsurers 5 (3.1) (23.9) (27.0) (29.0) (31.5) –––––––– –––––––– –––––––– –––––––– –––––––– Earned premiums, net of reinsurance 5 53.1 386.8 439.9 446.2 480.2 Investment income and instalment interest 6 5.5 43.3 48.8 12.3 67.9 Fees for additional services 3.4 30.6 34.0 38.4 44.4 –––––––– –––––––– –––––––– –––––––– –––––––– Total income 62.0 460.7 522.7 496.9 592.5 –––––––– –––––––– –––––––– –––––––– –––––––– Claims incurred and claims handling expenses (71.8) (405.8) (477.6) (351.4) (413.4) Claims incurred recoverable from reinsurers 4.7 49.4 54.1 24.1 64.0 –––––––– –––––––– –––––––– –––––––– –––––––– Claims incurred, net of reinsurance (67.1) (356.4) (423.5) (327.3) (349.4) Insurance expenses 9 (9.3) (74.8) (84.1) (90.1) (96.1) Other operating expenses 9 (1.0) (23.3) (24.3) (19.7) (29.6) –––––––– –––––––– –––––––– –––––––– –––––––– Total expenses (77.4) (454.5) (531.9) (437.1) (475.1) Negative goodwill arising on business combination 17 – 15.7 15.7 – – Share of profit after tax of joint venture 11 – 5.1 5.1 9.4 7.3 Finance costs 12 (3.1) (12.7) (15.8) (14.1) (9.2) –––––––– –––––––– –––––––– –––––––– –––––––– (Loss)/profit before tax (18.5) 14.3 (4.2) 55.1 115.5 Taxation credit/(expense) 13 4.1 0.4 4.5 (12.0) (27.4) –––––––– –––––––– –––––––– –––––––– –––––––– (Loss)/profit attributable to the owners of the parent (14.4) 14.7 0.3 43.1 88.1 –––––––– –––––––– –––––––– –––––––– –––––––– Other comprehensive income – – – – – Total comprehensive income for the period attributable to owners of the parent (14.4) 14.7 0.3 43.1 88.1 –––––––– –––––––– –––––––– –––––––– –––––––– Earnings per share (pence per share) – A, B, C and ordinary shares, basic and diluted 15 (0.17) 0.19 0.01 0.51 1.03 – Redeemable priority shares, basic and diluted 27 – – – – –

1 The historical financial information for the period 1 January 2010 to 10 February 2010 is that of esure Holdings Limited; for the period 11 February 2010 to 31 December 2010 it is that of esure Group plc. The historical financial information for the combined year ended 31 December 2010 is the aggregate of these two periods. For all other periods the historical financial information presented is that of esure Group plc.

The notes on pages F-7 to F-73 are an integral part of this historical financial information.

F-3 CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at As at As at 31 December 31 December 31 December 2010 2011 2012 Notes £m £m £m

Assets Intangible assets 16 28.2 20.1 16.6 Deferred acquisition costs 22 18.7 23.4 25.9 Property, plant and equipment 18 14.3 14.5 13.4 Investment in joint venture 11 33.4 35.8 37.6 Financial investments 19 736.2 726.4 779.2 Reinsurance assets 20 157.8 172.9 233.4 Insurance and other receivables 19, 21 143.0 150.1 169.0 Cash and cash equivalents 19, 23 18.9 32.5 39.4 –––––––– –––––––– –––––––– Total assets –––––––– 1,150.5 –––––––– 1,175.7 –––––––– 1,314.5 Equity and liabilities Share capital 27 85.2 85.2 85.2 Share premium account 27 – 0.0 0.0 Retained earnings 14.7 57.8 145.9 –––––––– –––––––– –––––––– Total equity –––––––– 99.9 –––––––– 143.0 –––––––– 231.1 Liabilities Insurance contract liabilities 20 866.7 874.6 947.4 Provisions for liabilities and charges 26 0.6 – – Borrowings 19 112.4 83.0 50.0 Insurance and other payables 19, 24 69.5 67.2 69.4 Deferred tax liabilities 25 1.4 1.5 0.5 Derivative financial liabilities 19 – 0.4 0.3 Current tax liabilities – 6.0 15.8 –––––––– –––––––– –––––––– Total liabilities –––––––– 1,050.6 –––––––– 1,032.7 –––––––– 1,083.4 Total equity and liabilities –––––––– 1,150.5 –––––––– 1,175.7 –––––––– 1,314.5

The notes on pages F-7 to F-73 are an integral part of this historical financial information.

F-4 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Attributable to owners of the parent Share Share premium Retained Total capital account earnings equity Notes £m £m £m £m esure Holdings Limited Period ended 10 February 2010 At 1 January 2010 27 3.3 – (152.3) (149.0) Loss for the period – – (14.4) (14.4) –––––––– –––––––– –––––––– –––––––– Total comprehensive income for the period – – (14.4) (14.4) –––––––– –––––––– –––––––– –––––––– Total transactions with owners – – – – –––––––– –––––––– –––––––– –––––––– At 10 February 2010 –––––––– 3.3 ––––––– – –––––––– (166.7) –––––––– (163.4) esure Group plc Period ended 31 December 2010 At 11 February 2010 27 0.0 – – – Profit for the period – – 14.7 14.7 –––––––– –––––––– –––––––– –––––––– Total comprehensive income for the period – – 14.7 14.7 –––––––– –––––––– –––––––– –––––––– Transactions with owners: Issue of share capital 27 85.2 – – 85.2 –––––––– –––––––– –––––––– –––––––– Total transactions with owners 85.2 – – 85.2 –––––––– –––––––– –––––––– –––––––– At 31 December 2010 –––––––– 85.2 ––––––– – –––––––– 14.7 –––––––– 99.9 Year ended 31 December 2011 At 1 January 2011 27 85.2 – 14.7 99.9 Profit for the year – – 43.1 43.1 –––––––– –––––––– –––––––– –––––––– Total comprehensive income for the year – – 43.1 43.1 –––––––– –––––––– –––––––– –––––––– Transactions with owners: Issue of share capital 0.0 0.0 – 0.0 –––––––– –––––––– –––––––– –––––––– Total transactions with owners 0.0 0.0 – 0.0 –––––––– –––––––– –––––––– –––––––– At 31 December 2011 –––––––– 85.2 ––––––– 0.0– –––––––– 57.8 –––––––– 143.0 Year ended 31 December 2012 At 1 January 2012 27 85.2 0.0 57.8 143.0 Profit for the year – – 88.1 88.1 –––––––– –––––––– –––––––– –––––––– Total comprehensive income for the year – – 88.1 88.1 –––––––– –––––––– –––––––– –––––––– Transactions with owners: Issue of share capital – – – – –––––––– –––––––– –––––––– –––––––– Total transactions with owners – – – – –––––––– –––––––– –––––––– –––––––– At 31 December 2012 –––––––– 85.2 ––––––– 0.0– –––––––– 145.9 –––––––– 231.1

The notes on pages F-7 to F-73 are an integral part of this historical financial information.

F-5 CONSOLIDATED STATEMENT OF CASH FLOWS

Period Period Combined ended ended Year ended Year ended Year ended 10 February 31 December 31 December1 31 December 31 December 2010 2010 2010 2011 2012 Notes £m £m £m £m £m Cash flows from operating activities (Loss)/profit after tax (14.4) 14.7 0.3 43.1 88.1 Adjustments to reconcile (loss)/profit after tax to net cash flows: – Finance costs 12 3.1 12.7 15.8 14.1 9.2 – Depreciation of property, plant and equipment 18 0.0 1.0 1.0 1.5 2.1 – Amortisation and impairment of intangible assets 16 0.1 9.3 9.4 9.7 4.0 – Unrealised investment (gains)/losses (1.3) (8.6) (9.9) 23.8 (24.1) – Share of profit after tax of joint venture 11 – (5.1) (5.1) (9.4) (7.3) – Negative goodwill arising on business combination 17 – (15.7) (15.7) – – – Taxation expense/(credit) 13 (4.1) (0.4) (4.5) 12.0 27.4 – Interest and dividends receivable on financial investments (1.5) (10.1) (11.6) (11.5) (16.6) – Interest receivable (2.6) (21.5) (24.1) (25.4) (28.5) –––––––– –––––––– –––––––– –––––––– –––––––– Operating cash flows before movements in working capital, tax and interest paid (20.7) (23.7) (44.4) 57.9 54.3 Sales of financial investments 39.1 387.0 426.1 415.8 538.2 Purchase of financial investments (35.9) (387.3) (423.2) (429.7) (567.0) Interest and dividends received on financial investments 1.8 12.1 13.9 8.6 16.0 Interest received 2.3 21.1 23.4 25.9 29.0 Changes in working capital: – (Increase)/decrease in insurance and other receivables 11.9 (55.0) (43.1) (24.7) (21.2) – Increase in insurance contract liabilities and insurance and other payables 6.0 49.0 55.0 5.6 14.3 Taxation paid (0.5) (3.4) (3.9) (6.1) (18.5) –––––––– –––––––– –––––––– –––––––– –––––––– Net cash generated in operating activities 4.0 (0.2) 3.8 53.3 45.1 –––––––– –––––––– –––––––– –––––––– –––––––– Cash flows from investing activities Acquisition of business 17 – (190.1) (190.1) – – Cash acquired on acquisition of business 17 – 18.6 – – – Dividends received – 6.0 6.0 7.0 5.5 Purchase of PPE and software 16, 18 – (0.3) (0.3) (3.3) (1.5) –––––––– –––––––– –––––––– –––––––– –––––––– Net cash (used in)/from investing activities – (165.8) (184.4) 3.7 4.0 –––––––– –––––––– –––––––– –––––––– –––––––– Cash flows from financing activities Proceeds on issue of ordinary shares 27 – 85.2 85.2 0.0 – Interest paid – (12.3) (12.3) (13.4) (10.2) Issue/(repayment) of loans 19 – 112.0 112.0 (30.0) (32.0) –––––––– –––––––– –––––––– –––––––– –––––––– Net cash from/(used in) financing activities 0.0 184.9 184.9 (43.4) (42.2) –––––––– –––––––– –––––––– –––––––– –––––––– Net increase in cash and cash equivalents 4.0 18.9 4.3 13.6 6.9 –––––––– –––––––– –––––––– –––––––– –––––––– Cash and cash equivalents at the beginning of the period 23 14.6 0.0 14.6 18.9 32.5 –––––––– –––––––– –––––––– –––––––– –––––––– Cash and cash equivalents at the end of the period 23 18.6 18.9 18.9 32.5 39.4 –––––––– –––––––– –––––––– –––––––– –––––––– 1 The historical financial information for the period 1 January 2010 to 10 February 2010 is that of esure Holdings Limited; for the period 11 February 2010 to 31 December 2010 it is that of esure Group plc. The historical financial information for the combined year ended 31 December 2010 is the aggregate of these two periods. For all other periods the historical financial information presented is that of esure Group plc. The notes on pages F-7 to F-73 are an integral part of this historical financial information.

F-6 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

1. General information esure Group plc (formerly esure Group Holdings Limited) is a company incorporated in England and Wales. Its registered office is The Observatory, Reigate, Surrey RH2 0SG.

The nature of the group’s operations is the writing of general insurance for private cars and homes. The company’s principal activity is that of a holding company. esure Group plc acquired esure Holdings Limited on 11 February 2010.

All of the company’s subsidiaries are located in the United Kingdom, except for esure S.L.U, which is incorporated in Spain.

2. Accounting policies Basis of preparation This financial information presents

• the consolidated statement of comprehensive income and the consolidated statement of cashflows of esure Holdings Limited for the period from 1 January 2010 to 10 February 2010 (the period until acquisition by esure Group plc).

• a further ‘combined’ statement of consolidated comprehensive income and consolidated statement of cash flows, aggregating the results and cash flows of the esure Holdings Limited group prior to acquisition and the esure Group plc group subsequent to the acquisition to cover the period from 1 January 2010 to 31 December 2010.

This basis of preparation note describes how the financial information has been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU except as described below.

IFRSs as adopted by the EU do not provide for the preparation of combined financial information, and accordingly in preparing the combined statement of consolidated comprehensive income and consolidated cash flow statement for the year ended 31 December 2010 certain accounting conventions commonly used for the preparation of historical financial information for inclusion in investment circulars as described in the Annexure to SIR 2000 (Investment Reporting Standard applicable to public reporting engagements on historical financial reporting) issued by the UK Auditing Practices Board have been applied. The application of these conventions results in the following material departures from IFRSs as adopted by the EU. In other respects IFRSs as adopted by the EU have been applied:

• The combined statement of consolidated comprehensive income and combined consolidated cash flow statement for the year ended 31 December 2010 were prepared by combining the results for esure Holdings Limited for the period for 1 January 2010 to 10 February 2010 with the results of esure Group plc for period from 11 February 2010 to 31 December 2010.

In other respects the basis of accounting and accounting policies adopted for the combined statement of consolidated comprehensive income and consolidated cash flow statement for the year ended 31 December 2010 are consistent with the other financial information.

The consolidated financial information has been prepared in accordance with IFRSs as adopted by the European Union. 2012 was the first year that esure Group plc presented financial information under IFRSs. UK GAAP differs in certain respects from IFRSs, hence when preparing this financial

F-7 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

2. Accounting policies (continued) information, management has amended certain accounting and valuation methods to comply with IFRSs. The disclosures required by IFRS 1 ‘First-time Adoption of International Financial Reporting Standards’ (IFRS 1) concerning the transition from UK GAAP to IFRSs, are given in note 33.

The group has elected not to apply IFRS 3 ‘Business Combinations’ retrospectively to business combinations prior to 1 January 2009. No goodwill arose on business acquisitions before this date.

In accordance with IFRS 4 ‘Insurance Contracts’, the group continues to apply the accounting policies previously applied under UK GAAP and the ABI SORP, with the exception that provisions for possible future claims (equalisation provision) are not recognised as these are not permitted under IFRS 4.

The financial information has been prepared on a going concern basis. In considering the appropriateness of this assumption, the board has reviewed the group’s projections for the next twelve months and beyond, including cash flow forecasts and regulatory capital surpluses. Consequently, the directors believe that the group has adequate resources to continue in operational existence for the foreseeable future.

The financial information has been presented in Sterling and rounded to the nearest hundred thousand. Throughout this financial information any amounts which are less than £0.05 million are shown by 0.0, whereas a dash (-) represents that no balance exists.

The financial information has been prepared on the historical cost basis and certain financial assets that are measured at fair value. The principal accounting policies adopted are set out below.

The following standards, and amendments to existing standards which have been endorsed by the EU, but are not mandatory for the year ended 31 December 2012 have not been early adopted by the group. Where these standards are relevant to the group, management are in the process of evaluating the full impact of these standards and amendments on the financial information:

• Effective 1 January 2013: Amendments to IFRS 7 Financial Instruments: Disclosures – Offsetting Financial Assets and Financial Liabilities and IFRS 13 Fair Value Measurement

• Effective 1 January 2014: Amendments to IAS 32 Financial Instruments: Presentation – Offsetting Financial Assets and Financial Liabilities, IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interests in Other Entities, IAS 27 Separate Financial Statements and IAS 28 Investments in Associates and Joint Ventures

There are a number of standards, amendments and interpretations which have been issued by the IASB but which have not yet been endorsed by the EU thus the date and impact of applying these is uncertain.

Basis of consolidation Subsidiaries are entities over which the group has the power to govern the financial and operating policies to obtain benefit to the group. Subsidiary companies acquired during the period are consolidated using the acquisition method.

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the group obtained control, and continue to be consolidated until the date when such control ceases.

In preparing the consolidated historical financial information, any intra-group balances, unrealised gains and losses or income and expenses arising from intra-group trading are eliminated. Where accounting policies used in individual financial statements of a subsidiary company differ from group policies, adjustments are made to bring these policies in line with group policies.

F-8 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

2. Accounting policies (continued)

Joint ventures The group’s interests in jointly controlled entities are accounted for using the equity method of accounting. The group recognises the cost of the investments which, together with the group’s share of the joint ventures’ post-acquisition changes to shareholders’ funds, is included in the consolidated statement of financial position. The group’s share of post-acquisition profit or loss and other comprehensive income is stated after appropriate adjustments to align the accounting policies of the joint venture with those of the group. In addition, adjustments are made for the amortisation of separately identifiable intangible assets recognised on acquisition and to eliminate unrealised profits relating to commission charged to esure Group plc by the joint venture. Carrying values are reviewed at each reporting date to determine whether there are any indications of impairment. If any such indications exist, the asset’s recoverable amount is estimated and compared to the carrying value. Impairment losses are recognised through the income statement. Impairment may be reversed if conditions subsequently improve and credited through the income statement.

Business combinations Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of non-controlling interest in the acquiree, plus if the business combination is achieved in stages, the fair value of the pre-existing equity interest in the acquiree. For each business combination, the group has an option to measure any non-controlling interests in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets.

Goodwill is recognised at the date of acquisition as the excess of the cost of the acquisition over the fair value of the identifiable assets acquired and liabilities assumed. Where the excess is negative a gain is recognised in the income statement at the date of acquisition.

When the group acquires a business, it assesses, with the exception of insurance contracts and operating leases, the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions at the acquisition date. All acquisition-related costs are expensed in the income statement when incurred.

Revenue Gross premiums Gross written premiums, being the total premiums receivable for the whole period of cover provided by contracts entered into during the accounting period, excluding taxes or duties based on premiums, are recognised on the date which the policy commences. Gross written premiums include any adjustments arising in the accounting period for premiums receivable in respect of business written in prior accounting periods.

Unearned premiums The proportion of gross written premiums that are to be earned in the accounting period after the reporting date are deferred as a provision for unearned premiums. Premiums earned are computed separately for each insurance contract and are recognised as revenue using the daily pro rata method, which is consistent with the incidence of risk assumed over the coverage period of the related policy.

Reinsurance premiums Reinsurance premiums are recognised and measured in a manner consistent with the related insured contracts issued by the group and the specific terms of each reinsurance contract. Reinsurance

F-9 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

2. Accounting policies (continued) premiums are expensed over the period that the reinsurance cover is provided based on the expected pattern of the reinsured risks. The unexpired portion of ceded reinsurance premiums is included in reinsurance assets.

Unearned reinsurance premiums Unearned reinsurance premiums are those proportions of premiums written in a year that relate to periods of risk after the reporting date. Unearned reinsurance premiums are deferred over the term of the underlying direct insurance policies for risks-attaching contracts and over the term of the reinsurance contract for losses-occurring contracts.

Fees for additional services Additional services revenues comprise sales of additional insurance products to motor and home insurance customers; policy administration fees; and legal panel membership fees and fees generated from the appointment of firms used during the claims process, including medical, vehicle repair and car hire suppliers.

Revenue earned on the sale of additional services includes both brokerage fees and commission, where the group has a continuing relationship with the customer, and introducer fees where the group does not have a continuing relationship with the customer.

Revenue relating to insurance broking is brought into account at the later of policy inception date or when the policy placement has been completed and confirmed. Where the group has an obligation to provide future services to the customer an element of income relating to the policy is deferred to cover the cost of fulfilling the associated contractual obligation plus a reasonable profit margin. Deferred revenue is credited to the income statement over the period matching the group’s obligations to provide those services. Where the group has no contractual obligation to provide future services, the revenue is recognised immediately.

In certain circumstances, where the revenue cannot be reliably measured at the contract or policy inception date, broking fees and commission are recognised on a periodic basis when the consideration becomes due. Rebates of commissions and fees relating to the return of premiums for additional insurance products and services are recognised as they arise.

Administration fees are recognised in the period in which the related administration services are provided. Panel Membership fees are agreed with legal suppliers every six months and recognised on an accruals basis. Other referral fees from credit hire and repair are recognised at the later of the point of invoice or when the policy fees are due.

Investment income and instalment interest Investment income (including interest received from policyholders who pay by instalment) on assets classified as loans and receivables is recognised in the income statement as it accrues and is calculated by using the effective interest rate method.

The effective interest rate method is a method of calculating the amortised cost of a financial asset or liability and of allocating the interest income or interest expense over the expected life of the asset or liability. The effective interest rate is the rate that exactly discounts estimated future cash flows to the instrument’s initial carrying amount. Calculation of the effective interest rate takes into account fees payable or receivable that are an integral part of the instruments yield, premiums or discounts on acquisition or issue, early redemption fees and transaction costs. All contractual terms of a financial instrument are considered when estimating future cash flows.

F-10 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

2. Accounting policies (continued)

Investment income also comprises interest and dividend income and net gains (both realised and unrealised) on financial assets classified at fair value through profit or loss, including derivative financial instruments. Dividends are recognised when the right to receive payment is established. For listed securities, this is the date the security is listed as ex-dividend.

Investment income also includes rental income. Rental income represents income arising from operating leases and is recognised on a straight-line basis over the lease term.

Government grants Government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as income over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Where the grant relates to an asset, it is recognised as deferred income and released to the income statement in equal amounts over the expected useful life of the related asset.

Claims and expenses recognition Gross claims incurred and claims handling expenses Gross claims include all claims incurred during the year, whether reported or not, less other recoveries, together with related internal and external handling costs that are directly related to the processing and settlement of claims, and any adjustment to claims outstanding from previous years.

Reinsurance claims Reinsurance claims are recognised and measured in a manner consistent with the related insurance contracts issued by the group and the specific terms of the reinsurance contract.

Finance costs Finance costs comprise of interest paid which is recognised in the income statement as it accrues and is calculated by using the effective interest rate method. Accrued interest is included within the carrying value of the interest bearing financial liability.

Taxation Current tax Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those enacted or substantively enacted by the reporting date. Current tax assets and liabilities also include adjustments in respect of tax expected to be payable or recoverable in respect of previous periods.

Current tax relating to items recognised directly in equity or other comprehensive income is recognised in equity or other comprehensive income and not in the income statement.

Deferred tax Deferred tax is provided in full using the balance sheet liability method, providing for temporary differences arising between the carrying amount of assets and liabilities for accounting purposes, and the amounts used for taxation purposes. It is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is recovered, using tax rates enacted or substantially enacted by the reporting date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.

F-11 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

2. Accounting policies (continued)

Deferred tax relating to items recognised outside the income statement is also recognised outside the income statement, either in other comprehensive income or directly in equity as appropriate.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Intangible assets Goodwill Goodwill is recognised on business combinations and the acquisition of joint ventures at cost less accumulated impairment losses. Goodwill arising on business combinations is presented in intangible assets. For joint ventures, goodwill is not separately presented but is included in the carrying amount of the investment. Negative goodwill is recognised in the group income statement at the date of acquisition. Positive goodwill is not amortised.

Impairment of goodwill Goodwill arising on a business combination is tested annually for impairment. An impairment loss is recognised if the carrying amount of the cash generating unit (or units) to which the goodwill is allocated exceeds its recoverable amount. A recognised impairment loss on goodwill arising on a business combination is not reversed.

Goodwill attributed to an investment in a joint venture accounted under the equity method is not tested for impairment separately. The entire carrying amount of the investment is tested for impairment only if there is objective evidence of impairment. A recognised impairment loss on an investment in a joint venture may be reversed if conditions subsequently improve.

Intangible assets Intangible assets acquired are stated at cost less accumulated amortisation and any accumulated impairment losses. Intangible assets are amortised over their useful lives. For intangible assets that are recognised as part of business combinations, the group makes an assessment of the fair value of the identified intangible assets acquired in the business combination. Intangible assets other than those arising as part of business combinations are recognised as long as it is probable that the expected future economic benefits that are attributable to the asset will flow to the group and its cost can be measured reliably. The group holds no intangible assets with indefinite useful lives other than goodwill. The carrying value of intangible assets with finite useful lives is reviewed at every reporting date for evidence of impairment and the value being written down if any impairment exists. If conditions subsequently improve, the previously recognised impairment may be reversed and credited through the income statement.

The economic lives and amortisation methods of acquired intangible assets, other than software, are as follows: Customer relationships 5 to 6 years, based on the pattern of consumption of the benefits Brands 8 to 10 years, on a straight-line basis

Software Purchased software is recognised as an intangible asset, with the carrying value being reviewed at every reporting date for evidence of impairment and the value being written down if any impairment exists. If conditions subsequently improve, the previously recognised impairment may be reversed. The cost of purchased software is amortised on a straight-line basis over the expected useful life of the intangible asset. This has been set between two and five years.

F-12 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

2. Accounting policies (continued)

Expenditure on research activities is recognised in the income statement as an expense as incurred. Costs associated with the development of software for internal use are capitalised only if the software is technically feasible for sale or use on completion and the group has both the intent and sufficient resources to complete the development. Subsequent expenditure is capitalised only if the cost of the asset can be reliably measured, will generate future economic benefits and there is an ability to use or sell the asset.

The cost of internally generated software is amortised over the expected useful life of the intangible asset on a straight-line basis. The expected useful life is between three and five years.

Property, plant and equipment Property, plant and equipment comprise land and buildings occupied by the group and fixtures, fittings and equipment (including computer hardware). These assets are depreciated over their estimated useful lives after taking into account residual values. Replacement or major inspection costs are capitalised when incurred if it is possible that future economic benefits associated with the item will flow to the entity and the costs can be measured reliably.

Land and buildings are stated at fair value, less subsequent depreciation for buildings. All other assets are stated at cost less depreciation and accumulated impairment. Depreciation is calculated using the straight-line method to write off the cost less residual values of the assets over their economic lives with the exception of freehold land which is not depreciated. The economic lives are as follows:

Fixtures, fittings and equipment between 3 and 8 years Freehold buildings 100 years

The assets’ residual values, useful lives and method of depreciation are reviewed and adjusted prospectively, if appropriate.

An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement in the year in which the asset is derecognised.

Impairment and revaluation of property, plant and equipment Carrying values are reviewed at each reporting date to determine whether there are any indications of impairment. If any such indications exist, the asset’s recoverable amount is estimated and compared to the carrying value. The recoverable amount is the higher of the fair value of the asset, less costs to sell and the asset’s value in use. Impairment losses are recognised through the income statement. Impairment may be reversed if conditions subsequently improve and credited through the income statement.

Revaluations of land and buildings are undertaken at least once every three years, with more frequent revaluations occurring where an assessment is made that the carrying amount may differ materially from its fair value. Where a revaluation occurs, any accumulated depreciation at the time of the revaluation is eliminated against the gross carrying amount of the asset.

Increases in the carrying amount arising on the revaluation of group occupied property are credited to revaluation reserves in other comprehensive income.

Decreases that offset the previous increases of the same asset are charged against revaluation surplus directly in other comprehensive income; other decreases are charged to the income statement.

F-13 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

2. Accounting policies (continued)

Financial assets Classification Financial assets falling within the scope of IAS 39 are designated as ‘at fair value through profit or loss’, ‘loans and receivables’ or ‘held for trading’. The group determines the classification of its financial assets at initial recognition. The group does not classify any financial assets as held to maturity or available-for-sale financial assets.

The group’s financial assets include cash and cash equivalents, insurance and other receivables and quoted and unquoted financial investments including derivatives.

Initial recognition of financial assets The group designates on initial recognition its financial assets held for investment purposes (financial investments) at fair value through the profit or loss (FVTPL) with the exception of derivatives, which are classified as held for trading. This is in accordance with the group’s documented investment strategy and is consistent with investment risk being assessed on a portfolio basis. Information relating to investments is provided internally to the group’s directors and key managers on a fair value basis. All other financial assets are classified as loans and receivables.

Subsequent measurement Financial assets at FVTPL are stated at fair value, with any resultant gain or loss recognised through the income statement.

Loans and receivables are measured at amortised cost less accumulated impairment losses using the effective interest method.

Impairment of financial assets The group assesses at each reporting date whether any financial assets held at amortised cost are impaired. Financial assets are impaired where there is evidence that one or more events occurring after the initial recognition of the asset may lead to a reduction in the estimated future cash flows arising from the asset. Impairment losses on financial assets classified as loans and receivables are calculated as the difference between the carrying value and the present value of estimated future cash flows discounted at the asset’s original effective interest rate. Impairment losses and any reversals of impairments are recognised through the income statement.

Objective evidence of impairment may include default on cash flows from the asset and reporting financial difficulty of the issuer or counterparty.

Derecognition of financial assets A financial asset is derecognised when the rights to receive cash flows from that asset have expired or when the group transfers substantially all the risks and rewards of ownership of the financial assets.

Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if, and only if, the group has a currently enforceable legal right to offset the recognised amounts and it intends to settle on a net basis, or to realise the assets and settle the liabilities simultaneously. Income and expenses are not offset in the income statement unless required or permitted by any accounting standard or interpretation.

Reinsurance The group cedes insurance risk in the normal course of business for the purpose of limiting its potential losses from accepting insurance risk. Reinsurance assets represent amounts expected to be recovered

F-14 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

2. Accounting policies (continued) from reinsurers in respect of claims incurred under the related insurance contracts and are estimated in a manner consistent with the outstanding claims provision or settled claims under the related insurance contracts.

Reinsurance assets are reviewed for impairment at each reporting date or more frequently when an indication of impairment arises during the reporting period. Impairment occurs when there is objective evidence as a result of an event that occurred after initial recognition of the reinsurance asset that the group may not receive all outstanding amounts due under the terms of the contract and the event has a reliably measurable impact on the amounts that the group will receive from the reinsurer. Any impairment loss is recorded in the income statement.

Insurance receivables Insurance receivables are recognised when due and are measured on initial recognition at the fair value of the consideration received or receivable. Subsequent to initial recognition, insurance receivables are measured at amortised cost less accumulated impairment losses, using the effective interest rate method. The carrying value of insurance receivables is reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable, with the impairment loss recorded in the income statement.

Insurance receivables are derecognised when the derecognition criteria for financial asset, as described in the financial asset accounting policy, have been met.

Deferred acquisition costs (DAC) Acquisition costs comprise all commission and other acquisition costs arising from the conclusion of insurance contracts. Deferred acquisition costs represent the proportion of acquisition costs incurred that corresponds to the unearned premiums provision at the reporting date, and are deferred to the extent that these costs are recoverable out of future premiums. All other acquisition costs are recognised as an expense when incurred.

Subsequent to initial recognition, DAC assets are amortised over the period in which the related revenues are earned.

DAC assets are derecognised when the obligations under the related insurance contracts are either transferred or settled.

Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call with banks, and other short-term deposits with original maturities of three months or less.

Insurance contract liabilities Provision for unearned premiums The provision for unearned premiums represents that portion of premiums received or receivable that relates to risks that have not yet expired at the reporting date. The provision is recognised when the contracts are entered into and premiums are charged, and is brought to account as premium income over the term of the contract in accordance with the pattern of insurance service provided under the contract.

Unexpired risk provision At each reporting date the group reviews its unexpired risk and performs a liability adequacy test to determine whether the estimated cost of future claims and deferred acquisition costs exceeds the provision for unearned premiums. This calculation uses current estimates of future contractual cash

F-15 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

2. Accounting policies (continued) flows after taking account of the investment return expected to arise on assets relating to the relevant technical provision. If these estimates show that the carrying amount of the unearned premium is inadequate, the deficiency is recognised in the income statement by setting up a provision for unexpired risk.

Outstanding claims provision The provision for claims outstanding comprises provisions for the estimated cost of settling all claims incurred but not settled at the reporting date including related claims handling expenses, whether reported or not. Anticipated reinsurance recoveries are disclosed separately as assets.

Insurance payables Insurance payables are recognised when due and measured initially at fair value. Subsequent to initial recognition, they are measured at amortised cost using the effective interest rate method.

Insurance broking debtors and creditors The group recognises on its statement of financial position amounts due to insurers from clients, and money held on behalf of insurers in relation to the insurance transactions that the company handles on behalf of those parties. The cash at bank balances presented in this consolidated historical financial information represent the aggregation of the money held for the benefit of the company, clients and insurers.

Financial liabilities Financial liabilities falling within the scope of IAS 39 are classified as ‘derivatives’ held for trading, or ‘other financial liabilities’. The group determines the classification of its financial liabilities at initial recognition.

The group’s ‘other financial liabilities’ include insurance and other payables and borrowings.

Initial recognition All financial liabilities are measured initially at fair value less, in the case of other financial liabilities, directly attributable transaction costs.

Subsequent measurement After initial recognition, other financial liabilities are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in the income statement when the liabilities are derecognised.

Amortised cost is calculated by taking into account any fees or costs that are an integral part of effective interest rate, transaction costs and all other premiums and discounts. The amortisation is included in finance costs in the income statement.

Derecognition of financial liabilities A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification, is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the income statement.

Derivatives Derivatives are measured at fair value both initially and subsequent to initial recognition. All changes in fair value are recognised in the income statement. Derivatives are presented as assets when the fair values are positive and as liabilities when the fair values are negative.

F-16 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

2. Accounting policies (continued)

Hedge accounting The group does not currently designate any derivatives as hedging instruments.

Share Capital Shares are classified as equity when there is no contractual obligation to transfer cash or other assets to holders of the financial instruments.

Provisions Provisions are recognised when the group has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Where the group expects some or all of the expenditure required to settle a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the income statement net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

Employee benefits – Pensions The group contributes to a defined contribution scheme for its employees. The contributions payable to this scheme are charged to the income statement in the accounting period to which they relate.

Leases Group as a lessor Leases where the group does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned.

Group as a lessee – operating leases Leases which do not transfer to the group substantially all the risks and benefits incidental to ownership of the leased items are classified as operating leases. Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term. Contingent rentals are recognised as an expense in the period in which they are incurred.

Share based payments Equity-settled share-based payments to employees are measured at the grant date at the fair value of the equity instruments (excluding the effect of non-market vesting conditions but including the effect of market vesting conditions) and are not subsequently re-measured.

The fair value of equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the best estimate of the number of awards which will ultimately vest unconditionally with employees. The estimate of the number of awards expected to vest is revised at each reporting date, with any consequential changes to the charge recognised in the income statement.

Where equity-settled share-based payments are modified, any incremental fair value is expensed on a straight-line basis over the revised vesting period.

F-17 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

3. Critical accounting judgements and estimates The preparation of this consolidated historical financial information requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates; however the consolidated historical financial information presented is based on conditions that existed at the reporting date.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Key sources of estimation uncertainty The key assumptions concerning the future, and other key sources of estimation uncertainty at each reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below:

Insurance contract liabilities Estimates have to be made both for the expected ultimate cost of claims reported at the reporting date and for the expected ultimate cost of claims incurred but not reported (IBNR) at the reporting date. It can take a significant period of time before ultimate claims cost can be established with certainty and for some types of claims, IBNR claims account for the majority of the liability in the statement of financial position.

The ultimate cost of outstanding claims is estimated by carrying out standard actuarial projections on triangles of number of reported claims; claims paid and incurred claims as at the reporting date for each type of claim.

The main assumption underlying these techniques is that a group’s past claims development experience can be used to project future claims development and hence ultimate claims cost. As such, these methods extrapolate the development of earlier years and expected loss ratios. Historical claims development is mainly analysed by accident years, as well as by significant business lines and claim type. Large claims are usually separately addressed, either by being based on the loss adjuster estimates or separately projected in order to reflect their future developments. In most cases, no explicit assumptions are made regarding future rates of claims inflation or loss ratios. Instead, the assumptions used are those implicit in the historical claim development data on which the projections are based. Additional qualitative judgement is used to assess the extent to which past trends may not apply in the future. Similar judgements, estimates and assumptions are employed in the assessment of adequacy of provisions for unearned premium and hence whether there is a requirement for an unexpired risk provision. Please refer to note 20 for additional details.

Fair value of financial instruments Where the fair values of financial assets and financial liabilities recorded on the statement of financial position cannot be derived from active markets, they are determined using a variety of valuation

F-18 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

3. Critical accounting judgements and estimates (continued) techniques that include the use of discounted cash flow models. The inputs to these models are derived from observable market data where possible, but where observable market data is not available, judgement is required to establish fair values.

Estimated future cash flows and discount rates are based on current market information and rates applicable to financial instruments with similar yields, credit quality and maturity characteristics. Discount rates are influenced by risk-free interest rates and credit risk.

Changes in assumptions about these factors could affect the reported fair value of the financial instruments. Please refer to note 19 for additional details.

Critical judgements in applying the group’s accounting policies The following are the critical accounting judgements that the directors have made in the process of applying the group’s accounting policies and that have the most significant effect on the amounts recognised in the consolidated historical financial information.

Recognition and measurement of tax assets and liabilities A deferred tax asset arising on losses carried forward can only be recognised to the extent that it is considered probable that there will be sufficient profits generated in the respective tax jurisdiction in the future to recover the losses. Refer to note 25 for further details.

The measurement of current and deferred tax assets and liabilities requires an assessment to be made of the potential tax consequence of certain items that will only be resolved when agreed by the relevant tax authorities. Assessment of the likely outcome is based on historical experience, professional advice from external advisors, and the current status of any judgmental issues.

Identification and determination of fair value of intangible assets acquired on business combination On acquiring esure Holdings Limited and an investment in Gocompare.com Holdings Limited (Gocompare), the group recognised intangible assets separately from goodwill as required by IFRS 3 ‘Business Combinations’. The valuations were performed using fair value as the standard of value, being the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction.

The valuation techniques applied to the identified intangible assets were selected based on the nature of the asset and experience of management, being the relief from royalty basis for the brands, the income approach for customer relationships and current cost to recreate for other assets, including an allowance for tax amortisation benefit.

Cashflow projections underlying the valuation were based on management approved forecasts at the date of acquisition. Management judgement was applied in calibrating key inputs to the valuation models including; profit margins, growth rates, persistency, royalty rates, contributory charges and the discount rate.

The useful life of each intangible asset represents management’s view of the period over which it expects the associated benefits to be consumed. The amortisation charge is based on the pattern in which management expects the business to consume those benefits. Customer relationships are amortised on the basis of the pattern of consumption of the benefits. All other intangible assets are amortised on a straight-line basis.

F-19 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

3. Critical accounting judgements and estimates (continued)

Useful lives of property, plant and equipment and software Property, plant and equipment, other than land, and certain intangible assets are depreciated on a straight-line basis to write off the cost less estimated residual value of each asset over their estimated useful lives. The determination of appropriate useful lives requires the use of judgement based on a number of factors, including the expected usage of the asset, expected deterioration and technological obsolescence. Determining the useful lives for the software licences requires particular judgement to be applied as follows:

The useful life of software licences is determined by management at the time the software is acquired and brought into use and is regularly reviewed for appropriateness. The useful life represents management’s view of expected benefits over which the group will receive benefits from the software, but not exceeding the licence term. For unique software products, the life is based on historical experience with similar products as well as anticipation of future events which may impact their life such as changes in technology.

4. Segmental information Operating segments The group has four operating segments as described below. These segments are also the group’s reportable segments and represent the manner in which the business is regularly reported to the group’s executive and board of directors.

Motor underwriting This segment incorporates the revenues and expenses directly attributable to the group’s motor insurance underwriting activities inclusive of additional insurance products underwritten by the group.

Home underwriting This segment incorporates the revenues and expenses directly attributable to the group’s home insurance underwriting activities.

Non-underwritten additional services This segment represents the revenue and expenses relating to sales of additional insurance products to motor and home insurance customers; policy administration fees; and legal panel membership fees and fees generated from the appointment of firms used during the claims process, including medical, vehicle repair and car hire suppliers.

Investments This segment represents income from investments (to manage liabilities under insurance contracts and generate return for shareholders) and a strategic equity holding in a joint venture.

F-20 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

4. Segmental information (continued)

Segmental revenues, expenses and other information An analysis of the group’s results by reportable segment is shown below:

Non- underwritten Motor Home additional underwriting underwriting services Investments Total £m £m £m £m £m

Year ended 31 December 2012 Gross written premiums 429.0 86.0 – – 515.0 –––––––– –––––––– –––––––– –––––––– –––––––– Earned premiums, net of reinsurance 403.2 77.0 – – 480.2 Investment income – – – 39.4 39.4 Instalment interest income – – 28.5 – 28.5 Fees for additional services – – 44.4 – 44.4 –––––––– –––––––– –––––––– –––––––– –––––––– Total income –––––––– 403.2 –––––––– 77.0 –––––––– 72.9 ––– ––––– 39.4 –––––––– 592.5 Net incurred claims (282.4) (49.7) – – (332.1) Claims handling costs (15.5) (1.8) – – (17.3) Insurance expenses (74.8) (21.3) – – (96.1) Other operating expenses (excl. amortisation of intangibles) – – (21.2) – (21.2) –––––––– –––––––– –––––––– –––––––– –––––––– Total expenses –––––––– (372.7) –––––––– (72.8) –––––––– (21.2) ––– ––––– – –––––––– (466.7) Share of joint venture profit (gross of tax and amortisation) 12.3 12.3 Trading profit 30.5 4.2 51.7 51.7 138.1 –––––––– –––––––– –––––––– –––––––– –––––––– Amortisation of acquired intangibles (5.2) Non-trading costs (5.2) Finance costs (9.2) –––––––– Profit before taxation 118.5 Tax expense (30.4) –––––––– Profit after taxation –––––––– 88.1

Net expense ratio 22.4% 30.0% 23.6% Net loss ratio 70.0% 64.5% 69.2% Combined operating ratio 92.4% 94.5% 92.8%

The average number of in-force policies during the year ended 31 December 2012 was 1.7 million.

F-21 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

4. Segmental information (continued)

Non- underwritten Motor Home additional underwriting underwriting services Investments Total £m £m £m £m £m

Year ended 31 December 2011 Gross written premiums 423.1 76.4 – – 499.5 –––––––– –––––––– –––––––– –––––––– –––––––– Earned premiums, net of reinsurance 379.5 66.7 – – 446.2 Investment income – – – (13.1) (13.1) Instalment interest income – – 25.4 – 25.4 Fees for additional services – – 38.4 – 38.4 –––––––– –––––––– –––––––– –––––––– –––––––– Total income –––––––– 379.5 –––––––– 66.7 –––––––– 63.8 ––– ––––– (13.1) –––––––– 496.9 Net incurred claims (267.8) (37.0) – – (304.8) Claims handling costs (19.5) (3.0) – – (22.5) Insurance expenses (71.4) (18.7) – – (90.1) Other operating expenses (excl. amortisation of intangibles) – – (10.6) – (10.6) –––––––– –––––––– –––––––– –––––––– –––––––– Total expenses –––––––– (358.7) –––––––– (58.7) –––––––– (10.6) ––– ––––– – –––––––– (428.0) Share of joint venture profit (gross of tax and amortisation) – – – 17.2 17.2 Trading profit 20.8 8.0 53.2 4.1 86.1 –––––––– –––––––– –––––––– –––––––– –––––––– Amortisation of acquired intangibles (12.3) Finance costs (14.1) –––––––– Profit before taxation 59.7 Tax expense (16.6) –––––––– Profit after taxation –––––––– 43.1 Net expense ratio 24.0% 32.5% 25.2% Net loss ratio 70.6% 55.5% 68.3% Combined operating ratio 94.6% 88.0% 93.5%

The average number of in-force policies during the year ended 31 December 2011 was 1.6 million.

F-22 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

4. Segmental information (continued)

Non- underwritten Motor Home additional underwriting underwriting services Investments Total £m £m £m £m £m

Combined year ended 31 December 2010 Gross written premiums 390.2 66.1 – – 456.3 –––––––– –––––––– –––––––– –––––––– –––––––– Earned premiums, net of reinsurance 382.6 57.3 – – 439.9 Investment income – – – 24.7 24.7 Instalment interest income – – 24.1 – 24.1 Fees for additional services – – 34.0 – 34.0 –––––––– –––––––– –––––––– –––––––– –––––––– Total income –––––––– 382.6 –––––––– 57.3 –––––––– 58.1 ––– ––––– 24.7 –––––––– 522.7 Net incurred claims (343.0) (59.6) – – (402.6) Claims handling costs (18.6) (2.3) – – (20.9) Insurance expenses (68.0) (16.1) – – (84.1) Other operating expenses (excl. amortisation of intangibles) – – (8.8) – (8.8) –––––––– –––––––– –––––––– –––––––– –––––––– Total expenses –––––––– (429.6) –––––––– (78.0) –––––––– (8.8) ––– ––––– – –––––––– (516.4) Share of joint venture profit (gross of tax and amortisation) – – – 9.7 9.7 Trading profit (47.0) (20.7) 49.3 34.4 16.0 –––––––– –––––––– –––––––– –––––––– –––––––– Amortisation of acquired intangibles (11.1) Non-trading costs (7.0) Negative goodwill arising on business combinations 15.7 Finance costs (15.7) –––––––– Loss before taxation (2.1) Tax credit 2.4 –––––––– Profit after taxation –––––––– 0.3 Net expense ratio 22.6% 32.1% 23.9% Net loss ratio 89.6% 104.0% 91.5% Combined operating ratio 112.3% 136.1% 115.4%

The average number of in-force policies during the combined year ended 31 December 2010 was 1.6 million.

F-23 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

4. Segmental information (continued)

There are no other material components of income and expense or non-cash items.

Trading profit, being earnings before interest, tax, exceptional non-trading costs and amortisation of acquired intangible assets, is management’s measure of the overall profitability of the group’s operating activities. The group’s segmental trading profit, comprised of motor underwriting, home underwriting, investments and non-underwritten additional services is £138.1 million (2011: £86.1 million, combined 2010: £16.0 million).

The group’s profit after tax is £88.1 million (2011: £43.1 million, combined 2010: £0.3 million).

The group has incurred non-trading costs of £5.2 million in 2012 primarily relating to potential corporate transactions. The group incurred non-trading costs of £7.0 million in 2010 in relation to the acquisition of the esure Holdings Limited group.

Segmental profit drivers Motor and Home underwriting The performance of the Motor and Home underwriting segments is measured by reference to a number of Key Performance Indicators, including in-force policies and the combined operating ratio.

Profitability of segmental underwriting activities is measured by reference to the net loss ratio, being net incurred claims as a percentage of net earned premiums. For the year ended 31 December 2012, the Motor underwriting net loss ratio was 70.0 per cent (2011: 70.6 per cent, combined 2010: 89.6 per cent) and the Home underwriting net loss ratio was 64.5 per cent (2011: 55.5 per cent, combined 2010: 104.0 per cent). The total net loss ratio was 69.2 per cent (2011: 68.3 per cent, combined 2010: 91.5 per cent).

Overall profitability of the group’s underwriting activities is measured by reference to the combined operating ratio, being the net expense ratio (net insurance expenses plus claims handling costs as a percentage of earned premiums, net of reinsurance) plus the net loss ratio. For the year ended 31 December 2012, the net expense ratio was 23.6 per cent (2011: 25.2 per cent, combined 2010: 23.9 per cent) giving a combined operating ratio of 92.8 per cent (2011: 93.5 per cent, combined 2010: 115.4 per cent).

All Motor and Home underwriting income is generated in the UK.

Additional services The performance of additional services (inclusive of add-ons underwritten by the group that are reported within the motor underwriting segment), is measured by reference to revenue per in-force policy (IFP) on a rolling 12 month basis. At 31 December 2012, revenue per IFP was £60.6 (2011: £54.6, 2010: £46.2).

All additional services revenue is generated in the UK.

Statement of Financial Position The assets and liabilities of the group are managed on an aggregated consolidated basis. They are not allocated to reportable segments and are reported on the same basis as disclosed in the consolidated statement of financial position on page F-4.

Reconciliation of segmental reporting to IFRSs statement of comprehensive income The group’s segmental reporting presents amortisation of acquired intangible assets separately from other operating expenses. The group’s share of joint venture profit is presented before tax and amortisation.

F-24 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

5. Earned premiums, net of reinsurance Combined 1 January 11 February Year Year Year 2010 to 2010 to ended ended ended 10 February 31 December 31 December 31 December 31 December 2010 2010 2010 2011 2012 £m £m £m £m £m

Gross written premiums 46.4 409.9 456.3 499.5 515.0 Change in unearned premium provision 9.8 0.8 10.6 (24.3) (3.3) –––––––– –––––––– –––––––– –––––––– –––––––– Premium revenue arising from insurance contracts issued 56.2 410.7 466.9 475.2 511.7 –––––––– –––––––– –––––––– –––––––– –––––––– Written premiums, ceded to reinsurers (2.6) (24.9) (27.5) (29.9) (32.8) Change in unearned premium provision (0.5) 1.0 0.5 0.9 1.3 –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– (3.1) –––––––– (23.9) –––––––– (27.0) ––– ––––– (29.0) –––––––– (31.5) Earned premiums, net of reinsurance 53.1 386.8 439.9 446.2 480.2 –––––––– –––––––– –––––––– –––––––– ––––––––

6. Investment income and instalment interest Combined 1 January 11 February Year Year Year 2010 to 2010 to ended ended ended 10 February 31 December 31 December 31 December 31 December 2010 2010 2010 2011 2012 £m £m £m £m £m

Interest income on financial investments at FVTPL 1.5 9.7 11.2 11.4 16.6 Interest income on cash deposits 0.0 0.1 0.1 0.1 0.4 Investment expenses (0.1) (1.1) (1.2) (0.8) (1.7) Fair value gains on derivative financial instruments – 0.4 0.4 (0.2) 2.5 Gains/(losses) on financial investments at FVTPL 1.4 12.0 13.4 (23.8) 21.5 Dividend income 0.0 0.4 0.4 0.1 – Rental income 0.1 0.3 0.4 0.1 0.1 –––––––– –––––––– –––––––– –––––––– –––––––– Total investment income 2.9 21.8 24.7 (13.1) 39.4 –––––––– –––––––– –––––––– –––––––– –––––––– Instalment interest 2.6 21.5 24.1 25.4 28.5 –––––––– –––––––– –––––––– –––––––– –––––––– Total investment income and instalment interest 5.5 43.3 48.8 12.3 67.9 –––––––– –––––––– –––––––– –––––––– ––––––––

F-25 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

7. Employee benefit expense Combined 1 January 11 February Year Year Year 2010 to 2010 to ended ended ended 10 February 31 December 31 December 31 December 31 December 2010 2010 2010 2011 2012 £m £m £m £m £m

Wages and salaries 4.4 34.9 39.3 39.6 42.5 Social security costs 0.4 3.3 3.7 4.0 4.1 Pension costs 0.3 1.8 2.1 2.2 2.4 –––––––– –––––––– –––––––– –––––––– –––––––– Total employee benefit expense 5.1 40.0 45.1 45.8 49.0 –––––––– –––––––– –––––––– –––––––– –––––––– The average number of employees, including directors, during each period was: Combined 1 January 11 February Year Year Year 2010 to 2010 to ended ended ended 10 February 31 December 31 December 31 December 31 December 2010 2010 2010 2011 2012

Operations 1,090 1,059 1,071 1,126 1,192 Support 286 282 283 305 346 –––––––– –––––––– –––––––– –––––––– –––––––– 1,376 1,341 1,354 1,431 1,538 –––––––– –––––––– –––––––– –––––––– –––––––– 8. Directors’ remuneration Combined 1 January 11 February Year Year Year 2010 to 2010 to ended ended ended 10 February 31 December 31 December 31 December 31 December 2010 2010 2010 2011 2012 £m £m £m £m £m

Emoluments 0.3 2.3 2.6 1.2 1.8 Contributions to defined contribution pension scheme 0.0 0.0 0.0 0.0 0.1 –––––––– –––––––– –––––––– –––––––– –––––––– 0.3 2.3 2.6 1.2 1.9 –––––––– –––––––– –––––––– –––––––– ––––––––

Combined 1 January 11 February Year Year Year 2010 to 2010 to ended ended ended 10 February 31 December 31 December 31 December 31 December 2010 2010 2010 2011 2012 £m £m £m £m £m

Remuneration of the highest paid director Emoluments 0.2 1.9 2.1 0.8 0.9 Contributions to defined contribution pension scheme – – – – – –––––––– –––––––– –––––––– –––––––– –––––––– 0.2 1.9 2.1 0.8 0.9 –––––––– –––––––– –––––––– –––––––– –––––––– During 2012, no retirement benefits were accruing to any director (2011: 0, 2010: 1) in respect of defined benefit pension schemes and retirement benefits were accruing to 3 directors (2011: 2, 2010: 1) in respect of defined contribution pension schemes. Aggregate contributions paid by the company in respect of directors’ qualifying services were £92,000 (2011: £47,000, 2010: £22,000).

F-26 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

9. Insurance and other operating expenses Combined 1 January 11 February Year Year Year 2010 to 2010 to ended ended ended 10 February 31 December 31 December 31 December 31 December 2010 2010 2010 2011 2012 £m £m £m £m £m

Acquisition of insurance contracts 3.6 34.3 37.9 47.6 52.3 Movement in DAC 0.7 1.7 2.4 (4.7) (2.5) Administration 5.0 38.8 43.8 47.2 46.3 –––––––– –––––––– –––––––– –––––––– –––––––– Insurance expenses 9.3 74.8 84.1 90.1 96.1 –––––––– –––––––– –––––––– –––––––– –––––––– Other operating expenses 1.0 23.3 24.3 19.7 29.6 –––––––– –––––––– –––––––– –––––––– ––––––––

10. Profit after tax Loss/profit after tax is stated after charging:

Combined 1 January 11 February Year Year Year 2010 to 2010 to ended ended ended 10 February 31 December 31 December 31 December 31 December 2010 2010 2010 2011 2012 £m £m £m £m £m

Employee benefits expense (note 7) 5.1 40.0 45.1 45.8 49.0 Depreciation of property, plant and equipment – 1.0 1.0 1.5 1.3 Amortisation of intangible assets 0.1 9.3 9.4 6.7 4.0 Impairment of intangible assets – – – 3.0 – Operating lease payments 0.3 2.6 2.9 3.1 3.2

Auditor’s remuneration: Fees for audit services Group 0.0 0.2 0.2 0.2 0.2 Subsidiaries 0.0 0.0 0.0 0.0 0.0 –––––––– –––––––– –––––––– –––––––– –––––––– Total audit fees 0.0 0.2 0.2 0.2 0.2 –––––––– –––––––– –––––––– –––––––– –––––––– Fees for non-audit services Audit related assurance services 0.0 0.0 0.0 0.0 0.1 Tax compliance services 0.0 0.0 0.0 0.0 0.1 Corporate finance transactions 0.0 0.1 0.1 – 0.8 Other non-audit services 0.0 0.1 0.1 0.1 0.3 –––––––– –––––––– –––––––– –––––––– –––––––– Total non-audit fees 0.0 0.2 0.2 0.1 1.3 –––––––– –––––––– –––––––– –––––––– –––––––– Total Group auditor remuneration 0.0 0.4 0.4 0.3 1.5 –––––––– –––––––– –––––––– –––––––– –––––––– Amortisation arises on software, acquired brands and customer relationships. The impairment charge relates to the First Alternative motor intangible asset and is classified in other operating expenses. Amortisation charged is recorded within insurance expenses and other operating expenses.

F-27 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

11. Investment in joint venture Joint venture At 31 December 2012 the group owned 50 per cent of the ordinary share capital and had a 50 per cent interest in Gocompare.com Holdings Limited (Gocompare), an internet based price comparison business. On 1 April 2010 an option held to acquire a 50 per cent interest in Gocompare was exercised. After this date the group received 50 per cent of all dividends paid and had a 50 per cent interest in the net assets. With effect from 1 April 2010, the interest has been accounted for as a joint venture under the equity method of accounting.

The following represents the group’s share of assets, liabilities, revenue and results of the joint venture that is included in the consolidated statement of financial position and consolidated statement of comprehensive income: As at As at As at 31 December 31 December 31 December 2010 2011 2012 £m £m £m

Assets recoverable in more than one year 29.1 25.9 24.2 Assets recoverable in less than one year 10.5 17.0 19.1 –––––––– –––––––– –––––––– Total assets –––––––– 39.6 –––––––– 42.9 –––––––– 43.3 Payables: amounts falling due less than one year 6.2 7.1 5.7 Payables: amounts falling due after one year 0.0 0.0 – –––––––– –––––––– –––––––– Total liabilities –––––––– 6.2 –––––––– 7.1 –––––––– 5.7 Net assets –––––––– 33.4 –––––––– 35.8 –––––––– 37.6 Share of reported revenue 37.9 54.5 52.7 Share of reported expenses (27.8) (37.1) (40.5) Amortisation of intangible assets recognised on application of the equity method (2.4) (3.2) (2.0) Adjustment to eliminate unrealised profits (0.2) (0.2) 0.1 –––––––– –––––––– –––––––– Share of profit before tax 7.5 14.0 10.3 Taxation expense (2.4) (4.6) (3.0) –––––––– –––––––– –––––––– Share of profit after tax –––––––– 5.1 –––––––– 9.4 –––––––– 7.3 Gocompare is part of a VAT group of which each member is jointly and severally liable. The VAT group’s liability at 31 December 2012 was £1.4 million (2011: £1.6 million, 2010: £1.3 million). The VAT group is external to esure Group plc and esure Group plc is not liable in respect of the VAT group.

Goodwill and amortisation Goodwill of £20.8 million arose on acquisition of the 50 per cent interest in Gocompare on 1 April 2010. Intangible assets relating to customer relationships, internally generated software and brands with a fair value of £10.8 million (total value £21.6 million, of which the group has a 50 per cent interest) were recognised on application of the equity method. Amortisation of £2.0 million was included as part of the esure Group plc share of profit after tax of the joint venture in the year ended 31 December 2012 (2011: £3.2 million, 2010: £2.4 million).

There were no indicators of impairment of the investment in the joint venture in the periods reported and as a result no impairment testing was performed.

F-28 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

12. Finance costs Finance costs in each period represent the total interest expense calculated using the effective interest rate method.

1 January 11 February Combined 2010 to 2010 to Year ended Year ended Year ended 10 February 31 December 31 December 31 December 31 December 2010 2010 2010 2011 2012 £m £m £m £m £m

Interest on preference share capital (see note 27) 3.1 – 3.1 – – Interest expense on subordinated loan notes (see note 19) – 8.4 8.4 9.5 9.5 Interest expense on unsecured loan notes (see note 19) – 4.3 4.3 4.6 (0.3) –––––––– –––––––– –––––––– –––––––– –––––––– 3.1 12.7 15.8 14.1 9.2 –––––––– –––––––– –––––––– –––––––– ––––––––

13. Taxation

1 January 11 February Combined 2010 to 2010 to Year ended Year ended Year ended 10 February 31 December 31 December 31 December 31 December 2010 2010 2010 2011 2012 £m £m £m £m £m

Current taxes on income for the reporting period (3.7) 3.4 (0.3) 11.9 28.3 –––––––– –––––––– –––––––– –––––––– –––––––– Total current tax (3.7) 3.4 (0.3) 11.9 28.3 –––––––– –––––––– –––––––– –––––––– –––––––– Deferred tax for the reporting period (0.4) (3.6) (4.0) 0.2 (0.8) Effect of change in tax rate – (0.2) (0.2) (0.1) (0.1) –––––––– –––––––– –––––––– –––––––– –––––––– Total deferred tax (0.4) (3.8) (4.2) 0.1 (0.9) –––––––– –––––––– –––––––– –––––––– –––––––– Taxation (credit)/expense (4.1) (0.4) (4.5) 12.0 27.4 –––––––– –––––––– –––––––– –––––––– ––––––––

The tax rate used for the calculations is the corporate tax rate of 24.5 per cent (2011: 26.5 per cent, 2010: 28 per cent) payable by the corporate entities in the UK on taxable profits under tax law in that jurisdiction. The rates used are those that apply to the year the tax charge or credit is expected to materialise.

F-29 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

13. Taxation (continued)

The expense/(credit) for the year can be reconciled to the profit/(loss) per the income statement as follows:

1 January 11 February Combined 2010 to 2010 to Year ended Year ended Year ended 10 February 31 December 31 December 31 December 31 December 2010 2010 2010 2011 2012 £m £m £m £m £m

(Loss)/Profit before taxation (18.5) 14.3 (4.2) 55.1 115.5 –––––––– –––––––– –––––––– –––––––– –––––––– Taxation calculated at 24.5% (2011: 26.5%, 2010: 28%) (5.2) 4.0 (1.2) 14.6 28.3 Effect of expenses that are not deductible (0.5) 2.0 1.5 (2.0) 1.3 Unrelieved tax losses – – – (0.1) – Adjustments in relation to the current tax of prior years – (0.8) (0.8) – (0.3) Non taxable income 1.6 (5.4) (3.8) (0.4) (1.8) Change in tax rate – (0.2) (0.2) (0.1) (0.1) –––––––– –––––––– –––––––– –––––––– –––––––– Taxation (credit)/expense (4.1) (0.4) (4.5) 12.0 27.4 –––––––– –––––––– –––––––– –––––––– ––––––––

Factors affecting the tax charge for future periods The main rate of corporation tax reduced from 26 per cent to 24 per cent with effect from 1 April 2012. It has also been announced that the rate will be reduced to 23 per cent with effect from 1 April 2013 and to 21 per cent with effect from 1 April 2014.

Other than the enacted changes, the effects of the announced changes are not reflected in the consolidated historical financial information for the year ended 31 December 2012 as they are not substantively enacted at the year end. The potential effect of these rate changes is a decrease in the deferred tax liability by an amount which is not expected to be material.

14. Dividends No dividends were declared in 2012, 2011 or 2010 by esure Group plc.

F-30 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

15. Earnings Per Share 1 January 11 February Combined 2010 to 2010 to Year ended Year ended Year ended 10 February 31 December 31 December 31 December 31 December 2010 2010 2010 2011 2012 £m £m £m £m £m

(Loss)/profit after taxation (14.4) 14.7 0.3 43.1 88.1 Weighted average number of shares – basic (see below) 33,300,000 7,561,272,378 7,561,272,378 8,518,283,750 8,518,315,000 ordinary A, B, C and A, B, C and A, B, C and A, B, C and shares ordinary ordinary ordinary ordinary shares shares shares shares Unadjusted earnings per share – basic (pence per share) (43.24) 0.19 0.01 0.51 1.03 Weighted average number of shares – diluted 33,300,000 7,561,272,378 7,561,272,378 8,518,283,750 8,518,315,000 ordinary A, B, C and A, B, C and A, B, C and A, B, C and shares ordinary ordinary ordinary ordinary shares shares shares shares Unadjusted earnings per share – diluted (pence per share) (43.24) 0.19 0.01 0.51 1.03 ––––––––– ––––––––– ––––––––– ––––––––– ––––––––– Please refer to note 27 for a description of the distribution rights of each type of share in issue. The weighted average number of shares presented for the combined period is taken as the same as for the period ended 31 December 2010. The shares in issue in esure Holdings Limited and esure Group plc for the periods disclosed are detailed in note 27. Were the share structure in esure Holdings Limited to have been the same as the share structure of esure Group plc on the day of acquisition, the basic and diluted earnings per share for the period ended 10 February 2010 would be (0.17p). For comparability, it is this figure that is presented on the face of the income statement. The basic and diluted earnings per share of the Redeemable Priority Return shares is nil for all periods presented.

Illustrative basic and diluted earnings per Existing Ordinary Share On 21 February 2013, the capital of the Company was reduced by the cancellation of 4,000,000,000 Non-Voting Old Ordinary Shares (referred to as ‘ordinary shares’ above and in note 27) of £0.01 each. Pursuant to a share purchase agreement dated 25 February 2013, the Group has agreed, subject to Admission, to repurchase the remaining 4,485,014,000 Non-Voting Ordinary Shares of £0.01 each and the 1,000 Redeemable Priority Return Shares of £0.01 each. Please refer to note 32 for additional details.

On 25 February 2013, each A Ordinary Share, B Ordinary Share and C Ordinary Share was subdivided 1 into 12 shares of the same class (each having a nominal value of ⁄12 pence) in connection with the pre- Admission Articles. Immediately prior to Admission, the resulting A Ordinary Shares, B Ordinary Shares 1 and C Ordinary Shares, in total amounting to 399,600,000 shares of ⁄12 pence each, will convert into a single class of ordinary shares (“Existing Ordinary Shares”) in accordance with the Articles of Association such that, following conversion, there will in aggregate be 399,600,000 Existing Ordinary 1 Shares of ⁄12 pence each.

F-31 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

15. Earnings Per Share (continued)

Illustrative basic and diluted earnings per Existing Ordinary Share is presented in order to demonstrate the earnings attributable to the Existing Ordinary Shares at Admission pursuant to the Offer. The calculation of Illustrative basic and diluted earnings per Existing Ordinary Share is based on the profit attributable to ordinary shareholders, as disclosed below, and on 399,600,000 Existing Ordinary Shares.

1 January 11 February Combined 2010 to 2010 to Year ended Year ended Year ended 10 February 31 December 31 December 31 December 31 December 2010 2010 2010 2011 2012 £m £m £m £m £m

(Loss)/profit after taxation (14.4) 14.7 0.3 43.1 88.1 Weighted average number of shares (million) 399.6 399.6 399.6 399.6 399.6 Basic and diluted earnings per Existing Ordinary share (pence per share) –––––––– (3.60) –––––––– 3.68 –––––––– 0.08 ––– ––––– 10.79 –––––––– 22.05 The calculation of the illustrative basic and diluted earnings per Existing Ordinary Share does not reflect the New Ordinary Shares expected to be issued pursuant to the Offer. The calculation of the illustrative basic and diluted earnings per Existing Ordinary Share does not include adjustments to the (loss)/profit after taxation to reflect changes to the debt and equity structure that have occurred since 31 December 2012, or are expected to occur on Admission.

16. Intangible assets esure Holdings Limited Acquired Software brands Total £m £m £m Cost 1 January 2010 8.6 11.3 19.9 Additions in the period 0.0 – – Disposals in the period – – – ––––––– ––––––– ––––––– As at 10 February 2010 8.6 11.3 19.9 ––––––– ––––––– ––––––– Accumulated amortisation and impairment At 1 January 2010 6.8 7.1 13.9 Charge for the period 0.1 0.0 0.1 ––––––– ––––––– ––––––– As at 10 February 2010 6.9 7.1 14.0 ––––––– ––––––– ––––––– Net book value As at 10 February 2010 1.7 4.2 5.9 ––––––– ––––––– ––––––– The acquired brand at 31 December 2009 and 10 February 2010 represents the fair value of the rights to renew the policies and to continue to use the brand of First Alternative following the acquisition of the insurance business of First Alternative Insurance Company Limited in March 2007.

F-32 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

16. Intangible assets (continued) esure Group plc Acquired Customer Software brands relationships Total £m £m £m £m Cost On acquisition of esure Holdings Limited 1.7 24.2 11.3 37.2 Additions in the period 0.3 – – 0.3 Disposals in the period – – – – –––––––– –––––––– –––––––– –––––––– As at 31 December 2010 2.0 24.2 11.3 37.5 –––––––– –––––––– –––––––– –––––––– Additions in the year 1.6 – – 1.6 Disposals in the year – – – – –––––––– –––––––– –––––––– –––––––– As at 31 December 2011 3.6 24.2 11.3 39.1 –––––––– –––––––– –––––––– –––––––– Additions in the year 0.5 – – 0.5 Disposals in the year – – – – –––––––– –––––––– –––––––– –––––––– As at 31 December 2012 4.1 24.2 11.3 39.6 –––––––– –––––––– –––––––– –––––––– Accumulated amortisation and impairment On acquisition of esure Holdings Limited – – – – Charge for the period 0.7 2.9 5.7 9.3 –––––––– –––––––– –––––––– –––––––– As at 31 December 2010 0.7 2.9 5.7 9.3 –––––––– –––––––– –––––––– –––––––– Charge for the year 0.7 2.9 3.1 6.7 Impairment loss – 3.0 – 3.0 –––––––– –––––––– –––––––– –––––––– As at 31 December 2011 1.4 8.8 8.8 19.0 –––––––– –––––––– –––––––– –––––––– Charge for the year 0.8 1.8 1.4 4.0 –––––––– –––––––– –––––––– –––––––– As at 31 December 2012 2.2 10.6 10.2 23.0 –––––––– –––––––– –––––––– –––––––– Net book value As at 31 December 2010 1.3 21.3 5.6 28.2 –––––––– –––––––– –––––––– –––––––– As at 31 December 2011 2.2 15.4 2.5 20.1 –––––––– –––––––– –––––––– –––––––– As at 31 December 2012 1.9 13.6 1.1 16.6 –––––––– –––––––– –––––––– –––––––– The acquired brands intangible asset represents the First Alternative, Sheilas’ Wheels and esure brands. The Sheilas’ Wheels and esure brands were acquired by the group as part of the acquisition of esure Holdings Limited and were fair valued at the date of acquisition in accordance with the requirements of IFRS 3.

The customer relationships intangible asset represents customer relationships acquired by the group as part of the acquisition of esure Holdings Limited and were fair valued at the date of acquisition in accordance with the requirements of IFRS 3.

Impairment testing on intangible assets The group tests intangible assets with finite useful lives for impairment where there are indicators that their carrying value may be impaired.

F-33 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

16. Intangible assets (continued)

Software There were no indicators of impairment in the periods reported and as a result no impairment testing was performed.

Brands First Alternative (FA) Given the length of time since acquiring the brand and the decline in business volumes associated with the FA motor brand, the group considered it appropriate to conduct impairment reviews in the years ended 31 December 2011 and 31 December 2010. The decline was largely due to a strategic decision to cease actively marketing the brand with a consequent reduction in policy volumes. The recoverable amount of the FA brand was determined from value in use calculations derived from financial plans approved by the board. The key assumptions used in the value in use calculations were net loss ratios (56.7 per cent after three years), net expense ratios (variable over time), growth rates in premiums (negative 15 per cent after three years) and discount rates that reflect the current market assessment of the time value of money and risks specific to the business (8 per cent).

Following a reassessment of the relationship between fixed costs of operating the brand and the net expense ratio at 31 December 2011, the intangible asset was fully impaired and an impairment loss of £3.0 million was recognised.

Sheilas’ Wheels and esure There were no indicators of impairment in the periods reported and as a result no impairment testing was performed.

Customer relationships There were no indicators of impairment in the periods reported and as a result no impairment testing was performed.

F-34 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

17. Acquisition of esure Holdings Limited by esure Group plc On 11 February 2010 esure Group plc (formerly esure Group Holdings Limited) acquired 100 per cent of the ordinary and preference share capital and voting rights of esure Holdings Limited. The preference shares were subsequently converted to ordinary shares. esure Group plc was a new holding company which acquired the existing holding company, esure Holdings Limited.

The total consideration for the acquisition was £190.1 million in cash and a one for one share exchange of management shares in esure Holdings Limited for shares in esure Group plc. Conditions applying to the issued shares meant that, in general, the individuals concerned were required to remain in the employment of the group for between two to six years from the date that the shares were issued otherwise the shares would not vest. These shares in esure Group plc were valued at nil at the date of the business combination (see note 27).

A number of adjustments were made to the esure Holdings Limited accounting policies in order to ensure consistency with IFRSs. The book values presented of the identifiable assets and liabilities acquired are the IFRS book values at the date of acquisition. Fair values IFRSs book Fair value at date of values adjustments acquisition £m £m £m Assets Intangible assets 5.9 31.3 37.2 Other financial investments 766.0 – 766.0 Property, plant and equipment 14.2 1.1 15.3 Reinsurance assets 112.8 – 112.8 Cash and cash equivalents 18.6 – 18.6 Other assets 152.5 (1.3) 151.2 ––––––– ––––––– ––––––– Total assets 1,070.0 31.1 1,101.1 ––––––– ––––––– ––––––– Liabilities Insurance contract liabilities (814.6) – (814.6) Other liabilities (73.3) (7.4) (80.7) ––––––– ––––––– ––––––– Total Liabilities (887.9) (7.4) (895.3) ––––––– ––––––– ––––––– Net assets 182.1 23.7 205.8 ––––––– ––––––– ––––––– Negative goodwill on acquisition (15.7) ––––––– ––––––– ––––––– Cost of acquisition 190.1 ––––––– ––––––– –––––––

F-35 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

17. Acquisition of esure Holdings Limited by esure Group plc (continued)

The negative goodwill on acquisition of £15.7 million arose as a result of uncertainties surrounding the value of the Sheilas’ Wheels brand, esure brand and customer relationships at the time of acquisition. The fair value attributed by esure Group plc to the intangible assets at the date of acquisition, based on esure Group plc’s expectations at that time regarding the future cash flows associated with these assets, is set out in note 16.

The fair value adjustments made are explained below:

Revaluation At the date of acquisition, the fair value of land and buildings was revised upwards from the last value reported at 31 December 2009.

Acquired intangible assets – brands and customer relationships As required under IFRS 3, internally generated intangible assets, being brands and customer relationships, have been recognised at fair value on acquisition of esure Holdings Limited.

The negative goodwill arising has been credited to the income statement and is classified as negative goodwill arising on business combination.

Other assets and liabilities – deferred tax The deferred tax impact of the adjustments made have been taken account of in the reduction of deferred tax assets classified as other assets and an increase in deferred tax liabilities classified as other liabilities in the disclosure.

Insurance contract liabilities Management estimated that there was no significant variance between the IFRSs book values of the insurance contract liabilities and their fair value at the date of the business combination.

In order to maintain consistency of presentation the fair value of obligations assumed for providing future insurance coverage are presented on a gross basis (i.e. as unearned premium provision and DAC) in the statement of financial position.

F-36 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

18. Property, plant and equipment esure Holdings Limited Land and Fixtures buildings and Fittings Total £m £m £m Cost At 1 January 2010 11.6 31.5 43.1 Additions in the period – 0.0 0.0 Disposals in the period – – – –––––––– –––––––– –––––––– As at 10 February 2010 11.6 31.5 43.1 –––––––– –––––––– –––––––– Accumulated depreciation At 1 January 2010 0.1 28.8 28.9 Charge for the period 0.0 0.0 0.0 –––––––– –––––––– –––––––– As at 10 February 2010 0.1 28.8 28.9 –––––––– –––––––– –––––––– Carrying amount As at 10 February 2010 11.5 2.7 14.2 –––––––– –––––––– –––––––– esure Group plc Land and Fixtures buildings and Fittings Total £m £m £m Cost On acquisition of esure Holdings Limited 12.6 2.7 15.3 Additions in the period – 0.0 0.0 Disposals in the period – – – –––––––– –––––––– –––––––– As at 31 December 2010 12.6 2.7 15.3

Additions in the year – 1.7 1.7 Disposals in the year – – – –––––––– –––––––– –––––––– As at 31 December 2011 12.6 4.4 17.0

Additions in the year – 1.0 1.0 Revaluation of land and buildings (1.2) – (1.2) Disposals in the year – – – –––––––– –––––––– –––––––– As at 31 December 2012 11.4 5.4 16.8 –––––––– –––––––– –––––––– Accumulated depreciation As at 11 February 2010 – – – Charge for the period 0.1 0.9 1.0 –––––––– –––––––– –––––––– As at 31 December 2010 0.1 0.9 1.0 Charge for the year 0.1 1.4 1.5 –––––––– –––––––– –––––––– As at 31 December 2011 0.2 2.3 2.5 Charge for the year 0.2 1.1 1.3 Revaluation of land and buildings (0.4) – (0.4) –––––––– –––––––– –––––––– As at 31 December 2012 – 3.4 3.4 –––––––– –––––––– –––––––– Carrying amount As at 31 December 2010 12.5 1.8 14.3 –––––––– –––––––– –––––––– As at 31 December 2011 12.4 2.1 14.5 –––––––– –––––––– –––––––– As at 31 December 2012 11.4 2.0 13.4 –––––––– –––––––– –––––––– F-37 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

18. Property, plant and equipment (continued)

Owner-occupied properties are stated at their revalued amounts, as assessed by qualified external valuers at least once every three years, all with recent relevant experience. These values are assessed in accordance with the relevant parts of the current RICS Valuation Standards in the UK (“Red Book”). More frequent revaluations are performed by management to assess that the carrying amount does not materially differ from its fair value.

This assessment, on the basis of existing use value and in accordance with UK Valuation Standard 1.3, is the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing wherein the parties had acted knowledgeably, prudently and without compulsion, assuming that the buyer is granted vacant possession of all parts of the property required by the business and disregarding potential alternative uses and any other characteristics of the property that would cause its market value to differ from that needed to replace the remaining service potential at least cost. The valuation assessment adopts market-based evidence and is in line with guidance from the International Valuation Standards Committee and the requirements of IAS 16, Property, Plant and Equipment.

Independent valuations were performed as at 31 December 2010 and 31 December 2012. At other reporting dates where a revaluation has been made, management has assessed the fair value of the freehold land and buildings using market indices to calculate the fair value.

The group assessed that there was no material difference between the carrying value and market value at 31 December 2011 and as a result, no revaluation was performed.

If land and buildings were held under the cost model, land and buildings would have a carrying value at 31 December 2012 of £12.2 million (31 December 2011: £12.4 million, 31 December 2010: £12.5 million).

F-38 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

19. Financial Assets and Liabilities 19.1 Financial assets As at As at As at 31 December 31 December 31 December 2010 2011 2012 £m £m £m Financial investments designated as FVTPL: Shares and other variable yield securities and units in unit trusts 75.3 38.4 29.4 Debt securities and other fixed income securities 237.6 438.2 617.0 Deposits with credit institutions 422.9 249.6 132.4 Financial investments held for trading: Derivative financial instruments 0.4 0.2 0.4 –––––––– –––––––– –––––––– Financial investments at FVTPL 736.2 726.4 779.2 Loans and receivables: Insurance and other receivables (note 21) 118.6 126.8 144.0 Cash and cash equivalents (note 23) 18.9 32.5 39.4 –––––––– –––––––– –––––––– Total financial assets –––––––– 873.7 –––––––– 885.7 –––––––– 962.6 Financial investments are held to support the group’s insurance activities and may be required to be realised in order to meet the obligations arising out of those activities at any time. On that basis, the investments are deemed to be recoverable within 12 months.

Of the financial investments and cash above, £365.2 million have a credit rating of AAA as at 31 December 2012 (2011: £381.3 million, 2010: £555.3 million), £99.5 million have a credit rating of AA (2011: £98.5 million, 2010: £57.5 million), £229.7 million have a credit rating of A (2011: £167.8 million, 2010: £38.5 million) and £58.1 million have a credit rating of BBB (2011: £40.3 million, 2010: £9.5 million). The shares and other variable yield securities, units in unit trusts and derivative financial instruments as shown above are not subject to credit rating.

Derivative financial instruments, at fair value through profit or loss To eliminate as far as possible the effect of exchange rate fluctuations on the value of investments denominated in currencies other than Sterling, the group has purchased over-the-counter forward currency contracts. The group also uses government bond futures as a mechanism to adjust investment portfolio duration. The group’s exposure to currency risk is set out in note 19.3 (a) (iii).

F-39 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

19.2 Financial liabilities As at As at As at 31 December 31 December 31 December 2010 2011 2012 £m £m £m

Financial liabilities at FVTPL: Derivative financial instruments – 0.4 0.3 Other financial liabilities: Borrowings (see below) 112.4 83.0 50.0 Other financial liabilities included as part of insurance and other payables (note 24) 21.4 19.8 22.8 –––––––– –––––––– –––––––– Total financial liabilities –––––––– 133.8 –––––––– 103.2 –––––––– 73.1 Borrowings Subordinated loan notes 50.0 50.0 50.0 Unsecured loan notes 62.4 33.0 – –––––––– –––––––– –––––––– Total borrowings –––––––– 112.4 –––––––– 83.0 –––––––– 50.0 Derivative financial instruments are due within one year. All of the subordinated loan note liability at 31 December 2012, 31 December 2011 and 31 December 2010 was due in more than one year. Of the unsecured loan notes liability at 31 December 2010, £0.4 million was due within one year and £62 million was due in more than one year. A payment of £30 million was made in October 2011 and the loan was fully repaid in April 2012. Of the unsecured loan notes liability at 31 December 2011, £31 million was payable in more than one year and the remainder was payable in less than one year.

Subordinated Loan Notes On 11 February 2010, esure Finance Limited, a wholly owned subsidiary undertaking, created and issued 50,000,000 unsecured perpetual subordinated loan notes of £1 each (the Perpetual Loan Notes). The interest rate is 18.9 per cent per annum, paid annually.

The Perpetual Loan Notes are listed on the Channel Islands’ Stock Exchange.

The group has developed and applied a fair value methodology in respect of gross exposures of loans measured at amortised cost. The methodology incorporates the projected cash flows for each class of liability, discounted by reference to yields for similar traded instruments, adjusted to reflect the credit risk and structure of the underlying instrument.

Under this methodology the fair value of the perpetual subordinated loan notes is £57.1 million (2011: £57.2 million, 2010: £59.0 million).

Unsecured loan notes On 11 February 2010, esure Finance Limited, a wholly owned subsidiary undertaking, created and issued 62 million unsecured loan notes of £1 each (the Loan Notes). The interest rate was 7 per cent per annum, paid annually. The loan was fully repaid in April 2012.

The Loan Notes were listed on the Channel Islands’ Stock Exchange.

The group did not breach any of their loan agreements during the term of the loan.

F-40 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

19.3 Financial risk management objectives The group is exposed to a range of financial risks through its financial assets, financial liabilities, reinsurance assets and policyholder liabilities. In particular, the key financial risk is that the proceeds from financial assets are not sufficient to fund the obligations arising from insurance policies as they fall due. The most important components of this financial risk are market risk (including interest rate risk, equity price risk and currency risk), credit risk and liquidity risk. As at 31 December 2012, the group had no direct exposure to Eurozone sovereign debt or to the economies of Greece, Ireland, Italy, Portugal or Spain.

(a) Market risk These risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market movements. The market risks that the group primarily faces due to the nature of its investments and liabilities are interest rate risk and equity price risk. In addition the group’s investments are also subject to credit risk arising from the counterparty exposure to the issuers of debt securities.

The group manages financial risk by virtue of its risk management framework, incorporating the group’s risk appetite and setting an appropriate investment strategy.

The majority of investments held are listed and traded on the UK and other recognised stock exchanges. The group has a defined investment strategy and market risk policy which sets limits on the group’s exposure by setting where applicable duration, issuer and concentration limits for each asset class.

The Board is responsible for setting the investment strategy, defining the risk appetite and appointing investment managers. The day to day management of investments is delegated to the investment fund managers and monitored by the Investment Committee. The Committee recommends investment strategies, guidelines and policies in line with the Board approved risk appetite.

Investment Committee meetings are held at least quarterly. At these, directors and senior managers representing the group companies meet to discuss investment return and concentration across the group.

(i) Interest rate risk Interest rate risk arises primarily from investments in fixed interest securities. The Investment Committee balances the portfolio of investments to manage the exposure to interest rate risk. In addition to the extent that claims inflation is correlated to interest rates, liabilities to policyholders are exposed to interest rate risk.

The group monitors interest rate risk on a regular basis by calculating the mean duration of key elements of the investment portfolio and of the liabilities to policyholders under insurance contracts. The mean duration is an indicator of the sensitivity of the assets and liabilities to changes in current interest rates. The mean duration of the technical liabilities is determined by means of projecting expected cash flows using standard actuarial claims projection techniques. Asset allocation decisions made by the Investment Committee give due consideration to the duration and profile of liabilities to avoid any significant mismatch in the asset and liability profiles. In order to preserve capital and to reduce the risk of an investment loss due to interest rate movements, it is acceptable for the duration of the asset portfolio, from time to time, to be shorter, but not longer than the average duration of the liabilities. The group also uses government bond futures as a mechanism to adjust investment portfolio duration.

F-41 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

19.3 Financial risk management objectives (continued)

The sensitivity analysis for interest rate risk illustrates how changes in the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates at the reporting date. For an increase/decrease of 100 basis points in interest yields the profit before tax for the year would decrease/increase by £7.1 million (2011: £5.8 million, 2010: £5.3 million).

(ii) Equity price risk The group is exposed to equity securities price risk as a result of its holdings in equity investments, classified as financial assets at FVTPL. Exposures to individual companies and to equity shares in aggregate are monitored in order to ensure compliance with the relevant regulatory limits for solvency purposes.

Equity exposure is through managed equity funds, which are primarily invested in listed equity securities.

If equity market indices had increased/decreased by 10 per cent, the profit for the year would increase/decrease by £2.9 million (2011: £3.8 million, 2010: £7.5 million).

(iii) Currency risk The group has some exposure to currency risk in respect of certain investments denominated in currencies other than Sterling. The most significant currency to which the group is exposed is the Euro. The group seeks to mitigate the risk by the use of forward contracts and other derivatives matching the estimated foreign currency denominated assets with liabilities denominated in the same currency. As a result, there is negligible exposure to currency risk. The group has no designated hedging contracts.

(b) Credit risk Credit risk is the risk that a counterparty will not be able to pay amounts in full when due in accordance with the term of the contract, causing the group to incur a financial loss. Key areas where the group is exposed to credit risk are: • credit instruments held within the investment portfolio; • other amounts due from investment counterparties; • reinsurers’ share of insurance liabilities; • amounts due from reinsurers in respect of claims already paid; • amounts due from policyholders; • subrogation and salvage recoveries plus amounts due from claims suppliers. Reinsurance is used to manage insurance risk. This does not, however, discharge the group’s liability as primary insurer. If a reinsurer fails to pay a claim, the group remains liable for the payment to the policyholder. The creditworthiness of reinsurers is considered on an annual basis by reviewing their financial strength prior to finalisation of any contract. In addition, management assesses the creditworthiness of all reinsurers by reviewing credit grades provided by rating agencies and other publicly available financial information. An analysis of reinsurers by Standard & Poor’s (S&P) and A.M. Best ratings is produced and reviewed on a monthly basis. The group manages the levels of investment counterparty credit risk it accepts by placing limits on its exposure to a single counterparty, or groups of counterparties, and to geographical counterparties and geographical segments. Such risks are subject to regular review.

F-42 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

19.3 Financial risk management objectives (continued)

The assets bearing credit risk are summarised below, together with an analysis by credit rating:

31 December 31 December 31 December 2010 2011 2012 £m £m £m Derivative financial instruments 0.4 0.2 0.4 Debt securities 237.6 438.2 617.0 Deposits with credit institutions 422.9 249.6 132.4 Insurance receivables, other debtors and salvage and subrogation assets 136.4 141.7 161.1 Reinsurance assets 157.8 172.9 233.4 Cash at bank and in hand 18.9 32.5 39.4 –––––––– –––––––– –––––––– –––––––– 974.0 –––––––– 1,035.1 –––––––– 1,183.7 AAA 560.5 387.0 365.2 AA 112.8 163.0 196.1 A 154.5 301.9 367.1 BBB 9.5 40.3 58.1 Below BBB or not rated 0.7 1.3 38.8 Assets not subject to credit rating 136.0 141.6 158.4 –––––––– –––––––– –––––––– –––––––– 974.0 –––––––– 1,035.1 –––––––– 1,183.7 Assets not subject to credit rating are primarily due from policyholders. Owing to the high number of individual policyholders through which the group has minimal individual exposure, the overall risk of default to the group is considered to be insignificant. The analysis by credit rating illustrates a slight reduction in credit quality over the period under review, with a lower proportion of assets rated AAA in 2011 and 2012 compared to 2010. This primarily reflects the following factors: • a general decrease in the rating environment over recent years due to the economic climate; • a strategic decision to reduce investments in sovereign debt and increase investments in corporate debt securities, to both reduce exposure to specific sovereign territories and increase investment yields; and • the addition in 2012 of a relatively small new investment fund which predominantly invests in high yield, sub-investment grade corporate bonds.

No credit limits were exceeded during the period and no financial assets are past due but not impaired at the reporting date. During the year £2.0 million (2011: £nil, 2010: £nil) was charged to other operating expenses in the consolidated income statement in respect of financial assets classified as other debtors that were past due and impaired; the following table gives the analysis by age: £m Not due 0.7 0 to 30 days past due 0.7 31 to 60 days past due 0.6 ––––––– ––––––– 2.0

F-43 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

19.3 Financial risk management objectives (continued)

(c) Liquidity risk Liquidity risk is the risk that the group, although solvent, either does not have available sufficient financial resources to enable it to meet its obligations as they fall due, or can secure them only at excessive cost. The primary liquidity risk of the group is the obligation to pay claims to policyholders as they fall due. Due to the nature of the business the cash flows are such that the liquidity risk has only to be considered for catastrophe type events.

The tables below and on pages F-45 and F-46 analyse the contractual maturity of the group’s financial liabilities, outstanding claims and financial assets.

The analysis of non-derivative financial liabilities and assets is based on the remaining period at the reporting date to the contractual maturity date. The analysis of claims outstanding is based on the expected dates on which the claims will be settled.

The amounts disclosed in the tables below and on pages F-45 and F-46 represent undiscounted cash flows and include payments of both principal and interest.

Financial assets, salvage and subrogation assets and reinsurers’ share of claims outstanding Less than Between 1 More than Carrying 1 year and 5 years 5 years Total value £m £m £m £m £m At 31 December 2012 Derivative financial instruments 0.4 – – 0.4 0.4 Debt securities and other fixed income securities 138.6 447.6 74.5 660.7 617.0 Deposits with credit institutions 132.4 – – 132.4 132.4 Cash at bank and in hand 39.4 – – 39.4 39.4 Insurance receivables, other debtors and salvage and subrogation assets 159.9 1.2 – 161.1 161.1 –––––––– –––––––– –––––––– –––––––– –––––––– Financial assets 470.7 448.8 74.5 994.0 950.3 Reinsurers’ share of outstanding claims 21.9 141.0 56.8 219.7 219.7 –––––––– –––––––– –––––––– –––––––– –––––––– Financial assets and reinsurers’ share of claims outstanding –––––––– 492.6 –––––––– 589.8 –––––––– 131.3 –––––––– 1,213.7 –––––––– 1,170.0 Financial and insurance liabilities At 31 December 2012 Borrowings – 50.0 – 50.0 50.0 Derivative financial instruments 0.3 – – 0.3 0.3 Insurance and other payables 22.8 – – 22.8 22.8 –––––––– –––––––– –––––––– –––––––– –––––––– Financial liabilities 23.1 50.0 – 73.1 73.1 Claims outstanding 220.7 354.4 116.7 691.8 691.8 –––––––– –––––––– –––––––– –––––––– –––––––– Financial and insurance liabilities –––––––– 243.8 –––––––– 404.4 –––––––– 116.7 –––––––– 764.9 –––––––– 764.9

F-44 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

19.3 Financial risk management objectives (continued)

Financial assets, salvage and subrogation assets and reinsurers’ share of claims outstanding Less than Between 1 More than Carrying 1 year and 5 years 5 years Total value £m £m £m £m £m At 31 December 2011 Derivative financial instruments 0.2 – – 0.2 0.2 Debt securities and other fixed income securities 188.3 233.0 43.9 465.2 438.2 Deposits with credit institutions 249.6 – – 249.6 249.6 Cash at bank and in hand 32.5 – – 32.5 32.5 Insurance receivables, other debtors and salvage and subrogation assets 140.8 0.9 – 141.7 141.7 –––––––– –––––––– –––––––– –––––––– –––––––– Financial assets 611.4 233.9 43.9 889.2 862.2 Reinsurers’ share of outstanding claims 4.0 143.6 12.9 160.5 160.5 –––––––– –––––––– –––––––– –––––––– –––––––– Financial assets and reinsurers’ share of claims outstanding –––––––– 615.4 –––––––– 377.5 –––––––– 56.8 –––––––– 1,049.7 –––––––– 1,022.7 Financial and insurance liabilities At 31 December 2011 Borrowings 12.7 107.7 – 120.4 83.0 Derivative financial instruments 0.4 – – 0.4 0.4 Insurance and other payables 19.8 – – 19.8 19.8 –––––––– –––––––– –––––––– –––––––– –––––––– Financial liabilities 32.9 107.7 – 140.6 103.2 Claims outstanding 265.3 326.2 30.8 622.3 622.3 –––––––– –––––––– –––––––– –––––––– –––––––– Financial and insurance liabilities –––––––– 298.2 –––––––– 433.9 –––––––– 30.8 –––––––– 762.9 –––––––– 725.5

F-45 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

19.3 Financial risk management objectives (continued)

Financial assets, salvage and subrogation assets and reinsurers’ share of claims outstanding Less than Between 1 More than Carrying 1 year and 5 years 5 years Total value £m £m £m £m £m At 31 December 2010 Derivative financial instruments 0.4 – – 0.4 0.4 Debt securities and other fixed income securities 70.9 139.6 43.1 253.6 237.6 Deposits with credit institutions 422.2 – – 422.2 422.9 Cash at bank and in hand 18.9 – – 18.9 18.9 Insurance receivables, other debtors and salvage and subrogation assets 135.3 1.1 – 136.4 136.4 –––––––– –––––––– –––––––– –––––––– –––––––– Financial assets 647.7 140.7 43.1 831.5 816.2 Reinsurers’ share of outstanding claims 4.0 136.9 5.3 146.2 146.2 –––––––– –––––––– –––––––– –––––––– –––––––– Financial assets and reinsurers’ share of claims outstanding –––––––– 651.7 –––––––– 277.6 –––––––– 48.4 –––––––– 977.7 –––––––– 962.4 Financial and insurance liabilities At 31 December 2010 Borrowings 13.8 152.5 – 166.3 112.4 Insurance and other payables 21.4 – – 21.4 21.4 –––––––– –––––––– –––––––– –––––––– –––––––– Financial liabilities 35.2 152.5 – 187.7 133.8 Claims outstanding 273.1 331.8 31.3 636.2 636.2 –––––––– –––––––– –––––––– –––––––– –––––––– Financial and insurance liabilities –––––––– 308.3 –––––––– 484.3 –––––––– 31.3 –––––––– 823.9 –––––––– 770.0 (d) Capital management The group maintains a capital structure consistent with the group’s risk profile and the regulatory and market requirements of its business.

The group’s objectives in managing its capital are: • to match the profile of its assets and liabilities, taking account of the risks inherent in the business; • to maintain financial strength to support business growth; • to satisfy the requirements of its policyholders and regulators; • to retain financial flexibility by maintaining strong liquidity and access to a range of capital markets.

The group manages as capital all items that are eligible to be treated as capital for regulatory purposes. This includes equity, allowing for regulatory adjustments, unsecured subordinated loan notes and a mark to model based valuation of the group’s interest in Gocompare.

Insurance entities within the group are regulated by the Financial Services Authority (FSA) and the group and those regulated entities are subject to insurance solvency regulations which specify the minimum amount and type of capital that must be held in addition to assets held to back the insurance liabilities. The group manages capital in accordance with these rules and has embedded in its monitoring framework the necessary tests to ensure continuous and full compliance with such regulations. Both the group and the regulated entities within it have complied with all externally imposed capital requirements throughout the year.

F-46 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

19.3 Financial risk management objectives (continued)

(e) Fair value estimation In accordance with IFRS 7 financial instruments held at FVTPL have been categorised into a fair value measurement hierarchy as follows:

Quoted prices (unadjusted) in active markets for identical assets or liabilities – (Level 1) Inputs to Level 1 fair values are quoted prices (unadjusted) in active markets for identical assets. An active market is a market in which transactions for the asset occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) – (Level 2) Fair value measurements are derived from inputs other than quoted prices included in Level 1, if all significant inputs required to fair value an instrument are observable, the instrument is included in Level 2. The majority of assets classified as Level 2 are over the counter corporate bonds, where trades are less frequent owing to the nature of the assets. Inputs used in pricing the group’s level 2 assets include:

• Quoted prices for similar (i.e. not identical) assets in active markets; • Quoted prices for identical or similar assets in markets that are not active, the prices are not current, or price quotations vary among market makers, or in which little information is released publically; • Inputs that are derived principally from, or corroborated by, observable market data by correlation; • For forward foreign exchange contracts, the use of observable forward exchange rates at the reporting date, with the resulting value discounted back to present value; and • Other techniques, such as discounted cash flow analysis, which consider on a prudent basis the likely realisable value.

Inputs for the asset or liability that are not based on observable market data (unobservable inputs) – (Level 3) Unobservable inputs have been used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset at the measurement date (or market information for the inputs to any valuation models). As such, unobservable inputs reflect assumptions about the inputs that market participants would use in pricing the asset.

If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3. The group holds Level 3 equity securities of £17.8 million at 31 December 2012 (2011: £13.2 million), representing an investment in a managed fund. Although the fair value is calculated using simple models and extrapolation techniques by reference to the observable market prices of the underlying assets, the fund was closed to new investment during 2011 and hence reclassified from level 2 to level 3. During the year ended 31 December 2012 £4.7 million was credited to the income statement in respect of Level 3 financial assets (2011: £7.6 million charged).

At 31 December 2012 and 31 December 2011, the majority of investments held by the fund classified at Level 3 are listed investments. Therefore, no sensitivity analysis has been performed due to the nature of the investments.

F-47 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

19.3 Financial risk management objectives (continued)

The following table presents the group’s assets and liabilities measured at fair value:

Total fair Level 1 Level 2 Level 3 value £m £m £m £m At 31 December 2012 Financial assets Assets at FVTPL: Derivative financial instruments – 0.4 – 0.4 Equity securities – 11.6 17.8 29.4 Debt securities 84.7 532.3 – 617.0 Deposits with credit institutions 132.4 – – 132.4 –––––––– –––––––– –––––––– –––––––– Total financial assets at FVTPL –––––––– 217.1 –––––––– 544.3 –––––––– 17.8 –––––––– 779.2 Financial liabilities Derivative financial instruments – 0.3 – 0.3 –––––––– –––––––– –––––––– –––––––– Total financial liabilities at FVTPL –––––––– – –––––––– 0.3 –––––––– – –––––––– 0.3

At 31 December 2011 Financial assets Assets at FVTPL: Derivative financial instruments – 0.2 – 0.2 Equity securities – 25.2 13.2 38.4 Debt securities 59.3 378.9 – 438.2 Deposits with credit institutions 249.6 – – 249.6 –––––––– –––––––– –––––––– –––––––– Total financial assets at FVTPL –––––––– 308.9 –––––––– 404.3 –––––––– 13.2 –––––––– 726.4 Financial liabilities Derivative financial instruments – 0.4 – 0.4 –––––––– –––––––– –––––––– –––––––– Total financial liabilities at FVTPL –––––––– – –––––––– 0.4 –––––––– – –––––––– 0.4

At 31 December 2010 Financial assets Assets at FVTPL: Derivative financial instruments – 0.4 – 0.4 Equity securities 30.4 44.9 – 75.3 Debt securities 24.4 213.2 – 237.6 Deposits with credit institutions 422.9 – – 422.9 –––––––– –––––––– –––––––– –––––––– Total financial assets at FVTPL –––––––– 477.7 –––––––– 258.5 –––––––– – –––––––– 736.2 Financial liabilities Derivative financial instruments – – – – –––––––– –––––––– –––––––– –––––––– Total financial liabilities at FVTPL –––––––– – –––––––– – –––––––– – –––––––– –

F-48 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

20. Reinsurance assets and insurance contract liabilities

20.1 Insurance risk Insurance risk arises from the inherent uncertainties as to the occurrence, amount and timing of insured events that could lead to significant individual or aggregated claims in terms of quantity or value. These would include significant weather related events and large personal injury claims. The Board is responsible for setting the overall underwriting strategy and defining the risk appetite, with monitoring delegated to the Pricing Committee. The group uses excess of loss reinsurance contracts to mitigate insurance risk, essentially by reducing exposure to large individual claims or aggregated losses from single events.

Underwriting and pricing risk The group underwrites general insurance business for private cars and homes in the UK apart from Northern Ireland. The book consists of a large number of individual policies spread across the whole geographic area which helps to minimise concentration risk especially in terms of weather related risks. As well as pricing the group has additional controls in place to segment the market and restrict access to its products to those segments it wishes to underwrite. Further systems and controls are in place to mitigate application fraud risk.

The group has systems and management information in place to continually monitor underwriting performance and pricing adequacy through the Pricing Committee. Detailed statistical analyses of performance by rating factor ensure that the group is well-placed to react very quickly to any external factors or market trends.

Claims management risk The group employs a variety of strategies to ensure the correct claims are paid in a timely manner and reserve provisions made on a case by case basis to reflect the group’s future liabilities. These include: • A well resourced and expertly trained staff with the benefit, from the end of 2012, of the latest image and workflow technology to control paper flow and procedures to enhance efficiency and effectiveness; • The group manages its own network of motor repairers, achieving a 90 per cent deployment rate to manage costs down and quality and service levels up; • Comprehensive anti-fraud strategies to triage claims to specialist units from ‘low impact’ personal injury claims to the Special Investigation Unit (‘SIU’) who combat the larger fraud rings; and • The ‘Direct Claimant Services’ team is a dedicated unit offering an extensive range of services directly to ‘not at fault’ third parties, to avoid excessive credit hire costs and legal fees in relation to injury compensation.

A sophisticated set of performance metrics ensures the indemnity spend is well controlled and claims handling expenses optimised.

Reinsurance The group purchases reinsurance as a risk transfer mechanism to mitigate risks that are outside the group’s appetite for individual claim or event exposure and to reduce the volatility caused by large individual and accumulation losses. By doing so the group protects its capital and the underwriting result of each line of business.

F-49 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

20.1 Insurance risk (continued)

Currently the group has in place non-proportional excess of loss reinsurance programmes for its motor and home underwriting activities. These cover both individual large losses and accumulation losses arising from natural and other catastrophe events. Motor reinsurance treaties are in place covering all years in which the group has underwritten motor policies. At the present time the group has no quota share reinsurance or co-insurance arrangements in place.

The group’s reinsurance programmes are reviewed on an annual basis and capital modelling is used to identify the most appropriate structure and risk retention profile, taking into account the group’s business objective of minimising volatility and the prevailing cost and availability of reinsurance in the market.

Counterparty credit risk is a key consideration when the group enters into reinsurance treaties. The minimum credit rating that the group requires for participation in its reinsurance programmes is Standard & Poor’s A- or the a.m. Best equivalent. There are internal policies on the level of ceded premium by credit rating, and the financial security of reinsurers is continually monitored in accordance with the group’s insurance and credit risk policies (see note 19).

Reserving risk Reserving risk is the risk that insufficient funds have been set aside to settle and handle claims as the amounts fall due. The group analyses and projects historical claims development data and uses a number of actuarial techniques to both test and forecast claims provisions. In addition the group also provides data to external actuaries who assess the adequacy of the group’s claims provisions.

Apart from historical analyses the group also takes into account changes in risk profile and underwriting policy conditions, changes in legislation or regulation and changes in other external factors.

The claims provision is sensitive to the number and cost of large motor claims which have been incurred but not reported and reserved. Typically the group would expect a number of large claims from expired risks to be identified in the future, either from being newly reported or from existing claims increasing in magnitude. The claims provision allows for an expected level of such claims.

Claims subject to periodic payment orders (PPO) are a significant area of uncertainty relating to the claims provision at 31 December 2012. For known PPO and claims which have been identified as likely PPO awards, cash flow projections are carried out in order to estimate an ultimate cost on a gross and net of reinsurance basis. The cash flow projections were undertaken on a discounted basis.

In addition the Ministry of Justice has been reviewing the discount rate used in the calculation of damage awards in bodily injury and fatal claims for some time. At the date this historical financial information was approved the discount rate used in these calculations remained at 2.5 per cent. However, while individual case reserves have been established by applying this current discount rate, an allowance has been made within the total reserves to reflect an assumed reduction of one percentage point.

The group’s policy is to hold sufficient provisions, including those to cover claims which have been incurred but not reported (IBNR) to meet all liabilities as they fall due. Apart from that part of the provisions relating to PPOs, claims provisions are not discounted. The directors remain satisfied that the outstanding claims reserves included in this financial information provide an appropriate margin over projected ultimate claims costs.

F-50 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

20. Reinsurance assets and insurance contract liabilities (continued)

20.2 Analysis of recognised amounts As at As at As at 31 December 31 December 31 December 2010 2011 2012 £m £m £m

Gross Claims outstanding (before deduction of salvage and subrogation) and claims handling expenses 636.2 622.3 691.8 Unearned premiums 228.0 252.3 255.6 Unexpired risk provision 2.5 – – –––––––– –––––––– –––––––– Total insurance liabilities, gross 866.7 874.6 947.4 –––––––– –––––––– –––––––– Recoverable from reinsurers Claims outstanding 146.2 160.5 219.7 Unearned premiums 11.6 12.4 13.7 –––––––– –––––––– –––––––– Total reinsurers’ share of insurance liabilities 157.8 172.9 233.4 –––––––– –––––––– –––––––– Net of reinsurance Claims outstanding (before deduction of salvage and subrogation) and claims handling expenses 490.0 461.8 472.1 Unearned premiums 216.4 239.9 241.9 Unexpired risk provision 2.5 – – –––––––– –––––––– –––––––– Total insurance liabilities, net –––––––– 708.9 –––––––– 701.7 –––––––– 714.0 Recoverable within one year (gross) 501.1 517.6 476.7 Recoverable more than one year (gross) 365.6 357.0 470.7

Reinsurance Assets Reinsurers’ share of insurance liabilities 157.8 172.9 233.4 –––––––– –––––––– –––––––– Total assets arising from reinsurance contracts –––––––– 157.8 –––––––– 172.9 –––––––– 233.4 Recoverable within one year 15.4 16.2 35.6 Recoverable more than one year 142.4 156.7 197.8

Amounts due from reinsurers in respect of claims already paid by the group on the contracts that are reinsured are included in insurance and other receivables (note 21). No reinsurance assets have been impaired.

In claims outstanding and claims handling expenses the claims outstanding are shown before deducting amounts in respect of salvage and subrogation.

As at As at As at 31 December 31 December 31 December 2010 2011 2012 £m £m £m

Claims outstanding (before deduction of salvage and subrogation) and claims handling expenses 490.0 461.8 472.1 Salvage and subrogation (17.8) (14.9) (17.1) –––––––– –––––––– –––––––– Claims outstanding and claims handling expenses –––––––– 472.2 –––––––– 446.9 –––––––– 455.0

F-51 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

20.3 Sensitivity of recognised amounts to changes in assumptions The following table shows the impact of a 1 per cent variation in the loss ratio on profit or loss and shareholders’ equity after tax as at 31 December 2012:

Accident year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Net loss ratio 65% 64% 64% 71% 68% 87% 96% 83% 69% 84% Impact of 1% variation (£m) 1.4 1.9 2.1 2.0 2.4 3.2 3.9 3.4 3.5 3.6

The impact is stated net of reinsurance and tax at the current rate.

20.4 Claims development tables The development of insurance liabilities provides a measure of the group’s ability to estimate the ultimate value of claims.

Tables (a) and (b) illustrate how the group’s estimate of total claims incurred for each accident year has developed over the past 10 years, including a reconciliation to the claims liability reported in the consolidated statement of financial position.

Table (c) expresses the development of net incurred claims by reference to the loss ratio for each accident year over the past 10 years.

(a) Insurance claims – gross ultimate claims (£m)

Accident year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 TOTAL Ultimate gross earned premium 189.5 262.2 288.8 276.7 335.9 447.1 544.3 479.1 488.7 511.7 3,824.0 Booked claims costs: At end of reporting year 146.1 190.9 222.0 225.8 289.2 399.1 540.2 475.3 392.7 442.0 One year later 136.9 197.4 212.8 220.5 268.8 398.2 535.3 416.8 355.7 Two years later 130.8 196.3 207.5 219.7 242.0 407.5 536.6 399.0 Three years later 124.2 183.5 194.0 207.9 233.0 399.9 549.8 Four years later 122.4 173.5 187.4 205.5 232.9 382.9 Five years later 120.3 168.0 186.6 203.4 229.4 Six years later 122.1 166.7 186.0 215.4 Seven years later 121.8 166.8 188.2 Eight years later 121.6 166.6 Nine years later 120.9 ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– Current estimate of cumulative claims 120.9 166.6 188.2 215.4 229.4 382.9 549.8 399.0 355.7 442.0 3,049.9 Cumulative payments to date (120.4) (166.5) (178.4) (186.2) (211.7) (349.3) (453.3) (324.9) (225.0) (185.1)(2,400.8) ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– Liability recognised in the consolidated statement of financial position 649.1 Reserve in respect of prior periods 11.3 Provision for claims handling costs 14.3 Salvage and subrogation 17.1 ––––––– Total reserve included in the consolidated statement of financial position 691.8 –––––––

F-52 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

20.4 Claims development tables (continued) (b) Insurance claims – net ultimate claims (£m)

Accident year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 TOTAL Ultimate net earned premium 180.4 248.3 276.5 263.9 321.4 424.1 514.9 452.1 459.7 480.2 3,621.4 Booked claims costs: At end of reporting year 133.6 178.2 203.1 208.5 270.9 374.5 510.3 446.8 360.1 401.0 One year later 127.1 180.0 198.6 204.3 254.9 373.8 495.0 392.5 317.3 Two years later 124.6 178.3 194.6 203.1 227.0 372.0 495.0 374.6 Three years later 120.9 168.5 185.1 193.7 220.0 371.7 495.1 Four years later 118.7 160.8 179.5 188.2 223.5 367.6 Five years later 117.2 159.2 176.3 187.1 219.8 Six years later 117.3 158.7 175.6 187.0 Seven years later 117.2 158.6 175.6 Eight years later 117.3 158.3 Nine years later 117.2 ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– Current estimate of cumulative claims 117.2 158.3 175.6 187.0 219.8 367.6 495.1 374.6 317.3 401.0 2,813.5 Cumulative payments to date (116.8) (158.2) (175.1) (181.2) (207.2) (348.8) (453.3) (324.6) (225.0) (182.8)(2,373.0) ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– Liability recognised in the consolidated statement of financial position 440.5 Reserve in respect of prior periods 0.2 Provision for claims handling costs 14.3 ––––––– Claims outstanding and claims handling expenses 455.0 Salvage and subrogation 17.1 ––––––– Total reserve included in the consolidated statement of financial position 472.1 ––––––– (c) Insurance claims – net loss ratio development Accident year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Booked loss ratio: At end of reporting year 74% 72% 73% 79% 84% 88% 99% 99% 78% 84% One year later 71% 73% 72% 77% 79% 88% 96% 87% 69% Two years later 69% 72% 70% 77% 71% 88% 96% 83% Three years later 67% 68% 67% 73% 69% 88% 96% Four years later 66% 65% 65% 71% 70% 87% Five years later 65% 64% 64% 71% 68% Six years later 65% 64% 64% 71% Seven years later 65% 64% 64% Eight years later 65% 64% Nine years later 65%

F-53 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

20.5 Movements in insurance liabilities and reinsurance assets

(a) Claims reported and claims handling expenses (£m) The movements in claims reported, excluding claims handling expenses, both gross and net of reinsurance (RI), are shown below:

2010 2011 2012 —————————————— —————————————— —————————————— Gross RI Net Gross RI Net Gross RI Net Total at beginning of year 542.5 (97.7) 444.8 607.3 (146.2) 461.1 592.5 (160.5) 432.0 Cash paid for claims settled in year (403.1) 5.6 (397.5) (346.2) 9.8 (336.4) (328.2) 4.8 (323.4) Change arising from: Current year claims 475.4 (28.5) 446.9 392.8 (32.6) 360.2 442.0 (41.0) 401.0 Prior year claims (7.5) (25.6) (33.1) (61.4) 8.5 (52.9) (45.9) (23.0) (68.9) –––––– –––––– –––––– –––––– –––––– –––––– –––––– –––––– –––––– Total at end of year 607.3 (146.2) 461.1 592.5 (160.5) 432.0 660.4 (219.7) 440.7 Provision for claims handling costs 11.1 – 11.1 14.9 – 14.9 14.3 – 14.3 Salvage and subrogation 17.8 – 17.8 14.9 – 14.9 17.1 – 17.1 –––––– –––––– –––––– –––––– –––––– –––––– –––––– –––––– –––––– Total reserve per consolidated statement of financial position 636.2 (146.2) 490.0 622.3 (160.5) 461.8 691.8 (219.7) 472.1 –––––– –––––– –––––– –––––– –––––– –––––– –––––– –––––– –––––– Claims incurred and claims handling expenses as disclosed in the consolidated statement of comprehensive income comprise:

2010 2011 2012 —————————————— —————————————— —————————————— Gross RI Net Gross RI Net Gross RI Net Claims incurred 467.9 (54.1) 413.8 331.4 (24.1) 307.3 396.1 (64.0) 332.1 Claims handling expenses 20.8 – 20.8 22.5 – 22.5 17.3 – 17.3 Release of unexpired risk provision (11.1) – (11.1) (2.5) – (2.5) – – – –––––– –––––– –––––– –––––– –––––– –––––– –––––– –––––– –––––– Claims incurred and claims handling expenses 477.6 (54.1) 423.5 351.4 (24.1) 327.3 413.4 (64.0) 349.4 –––––– –––––– –––––– –––––– –––––– –––––– –––––– –––––– ––––––

(b) Provisions for unearned premiums and unexpired insurance risks (£m) The movements for the year, both gross and net of reinsurance are summarised below:

2010 2011 2012 —————————————— —————————————— —————————————— Gross RI Net Gross RI Net Gross RI Net Unearned premium provision At 1 January 238.6 (11.1) 227.5 228.0 (11.6) 216.4 252.3 (12.4) 239.9 Premiums written in the period 456.3 (27.5) 428.8 499.5 (29.8) 469.7 515.0 (32.8) 482.2 Premiums earned in the period (466.9) 27.0 (439.9) (475.2) 29.0 (446.2) (511.7) 31.5 (480.2) –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– At 31 December –––––––– 228.0 –––––––– (11.6) –––––––– 216.4 –––––––– 252.3 –––––––– (12.4) ––––– 239.9––– –––––––– 255.6 –––––––– (13.7) –––––––– 241.9 Unexpired risk provision At 1 January 13.6 2.5 – Release in the period (11.1) (2.5) – –––––––– –––––––– –––––––– At 31 December 2.5 – – –––––––– –––––––– –––––––– The unexpired risk provision related to motor insurance contracts for which the group expected to pay claims in excess of the related unearned premium provision.

F-54 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

21. Insurance and other receivables As at As at As at 31 December 31 December 31 December 2010 2011 2012 £m £m £m

Insurance receivables 118.4 126.7 142.1 Prepayments and accrued income 6.6 8.4 7.9 Other debtors 0.2 0.1 1.9 Salvage and subrogation assets 17.8 14.9 17.1 –––––––– –––––––– –––––––– Total insurance and other receivables –––––––– 143.0 – ––––––– 150.1 –––––––– 169.0 Insurance receivables and other debtors are financial assets classified as loans and receivables. For more details see note 19, which includes the ageing of these loans and receivables.

The directors believe the carrying value of these financial assets approximates their fair value. A £2.0 million provision for bad or doubtful debts has been included as part of insurance receivables. For more details, see note 19.

All insurance receivables and other receivables are recoverable within one year, aside from £1.2 million of salvage and subrogation assets which are recoverable in more than one year (2011: £0.9 million, 2010: £1.1 million).

22. Deferred acquisition costs Movement in the deferred acquisition costs asset are as follows: 1 January 11 February 2010 to 2010 to Year ended Year ended 10 February 31 December 31 December 31 December 2010 2010 2011 2012 £m £m £m £m

Deferred Acquisition Costs At beginning of period/year 21.1 20.4 18.7 23.4 Movement during the period/year (0.7) (1.7) 4.7 2.5 –––––––– –––––––– –––––––– –––––––– At end of period/year 20.4 18.7 23.4 25.9 –––––––– –––––––– –––––––– –––––––– Deferred acquisition costs are recoverable within one year.

23. Cash and cash equivalents As at As at As at 31 December 31 December 31 December 2010 2011 2012 £m £m £m

Cash at bank and in hand 18.9 32.5 39.4 –––––––– –––––––– –––––––– Total –––––––– 18.9 –––––––– 32.5 –––––––– 39.4

F-55 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

24. Insurance and other payables As at As at As at 31 December 31 December 31 December 2010 2011 2012 £m £m £m

Insurance payables 12.0 9.7 13.6 Accrued expenses 40.2 35.7 34.3 Social security and other taxes 9.4 10.1 9.2 Deferred income 7.9 11.7 12.3 –––––––– –––––––– –––––––– –––––––– 69.5 –––––––– 67.2 –––––––– 69.4 Insurance and other payables include financial liabilities of £22.8 million (2011: £19.8 million, 2010: £21.4 million) classified as other financial liabilities.

Insurance payables and accrued expenses principally comprise amounts outstanding for suppliers and ongoing costs. The average credit period taken for invoiced trade purchases is 7.0 days (2011: 6.2 days, 2010: 5.0 days). The directors consider that the carrying amount of insurance and other payables approximates their fair value. All insurance and other payables are due within one year aside from government grants.

Included within deferred income is £0.6 million in government grants (2011: £0.5 million, 2010: nil). This is recognised as income over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate.

25. Deferred tax assets and liabilities The following are the deferred tax assets and liabilities recognised by the group and movements thereon during the current and prior periods.

The analysis of deferred tax assets and deferred tax liabilities is as follows:

As at As at As at 31 December 31 December 31 December 2010 2011 2012 £m £m £m

Deferred tax assets 5.0 3.6 4.0 Deferred tax liabilities (6.4) (5.1) (4.5) –––––––– –––––––– –––––––– Net deferred tax liabilities –––––––– (1.4) –––––––– (1.5) –––––––– (0.5) The net movement on the deferred tax account is as follows:

1 January 11 February 2010 to 2010 to Year ended Year ended 10 February 31 December 31 December 31 December 2010 2010 2011 2012 £m £m £m £m

At beginning of period/year 3.2 3.6 (1.4) (1.5) Acquisition of subsidiary (note 17) – (8.8) – – Consolidated statement of comprehensive income credit/(charge) (note 13) 0.4 3.6 (0.2) 0.8 Effect of change in tax rate – 0.2 0.1 0.2 –––––––– –––––––– –––––––– –––––––– At end of period/year –––––––– 3.6 –––––––– (1.4) –––––––– (1.5) –––––––– (0.5) The deferred tax rate used is 23.25 per cent (2011: 25.25 per cent, 2010: 27 per cent).

F-56 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012 25. Deferred tax assets and liabilities (continued)

The movement in deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows: Short Accelerated Deferred Claims term capital Unrelieved acquisition handling employee Lease Expense allowances losses costs reserve benefits incentive Reallocation Total £m £m £m £m £m £m £m £m Deferred tax assets esure Holdings Limited At 1 January 2010 1.3 – 2.5 – 0.1 – 0.3 4.2 Credited to the consolidated statement of comprehensive income 0.0 – 0.1 – 0.0 – 0.0 0.1 ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– At 10 February 2010 ––––––– 1.3 ––––––– – ––––––– 2.6 ––––––– – ––––––– 0.1 ––––––– – ––––––– 0.3 ––––––– 4.3 esure Group plc On acquisition of esure Holdings Limited 11 February 2010 1.3 – 2.6 – 0.1 – 0.3 4.3 (Charged)/credited to the consolidated statement of comprehensive income (0.3) 1.3 (0.3) – 0.0 0.0 (0.0) 0.7 ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– At 31 December 2010 ––––––– 1.0 ––––––– 1.3 ––––––– 2.3 ––––––– – ––––––– 0.1 ––––––– 0.0 ––––––– 0.3 ––––––– 5.0 Brought forward as at 1 January 2011 1.0 1.3 2.3 – 0.1 0.0 0.3 5.0 (Charged)/credited to the consolidated statement of comprehensive income (0.0) (1.3) 0.5 0.1 (0.0) 0.1 (0.8) (1.4) ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– At 31 December 2011 ––––––– 1.0 ––––––– – ––––––– 2.8 ––––––– 0.1 ––––––– 0.1 ––––––– 0.1 ––––––– (0.5) ––––––– 3.6 Brought forward as at 1 January 2012 1.0 – 2.8 0.1 0.1 0.1 (0.5) 3.6 (Charged)/credited to the consolidated statement of comprehensive income (0.0) – 0.6 (0.0) (0.1) (0.0) (0.1) 0.4 ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– At 31 December 2012 ––––––– 1.0 ––––––– – ––––––– 3.4 ––––––– 0.1 ––––––– – ––––––– 0.1 ––––––– (0.6) ––––––– 4.0 Deferred tax assets are recognised in 2010 for tax loss carry-forwards to the extent that the realisation of the related tax benefit through future taxable profits is probable.

There is an unrecognised deferred tax asset on land and buildings of £5.4 million at 31 December 2012 (2011: £5.5 million, 2010: £5.6 million).

F-57 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012 25. Deferred tax assets and liabilities (continued)

Claims Intangible equalisation Onerous Derivatives Software assets reserve lease Total £m £m £m £m £m £m

Deferred tax liabilities esure Holdings Limited At 1 January 2010 – (0.1) – (0.9) – (1.0) Credited to the consolidated statement of comprehensive income – 0.0 – 0.3 – 0.3 ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– At 10 February 2010 ––––––– – ––––––– (0.1) ––––––– – ––––––– (0.6) – –––––– – ––––––– (0.7) esure Group plc On acquisition of esure Holdings Limited on 11 February 2010 – (0.1) (8.8) (0.6) – (9.5) (Charged)/credited to the consolidated statement of comprehensive income (0.1) 0.1 2.5 0.6 – 3.1 ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– At 31 December 2010 ––––––– (0.1) ––––––– (0.0) ––––––– (6.3) ––––––– – – –––––– – ––––––– (6.4) Brought forward as at 1 January 2011 (0.1) (0.0) (6.3) – – (6.4) (Charged)/credited to the consolidated statement of comprehensive income 0.1 0.0 1.7 (0.5) – 1.3 ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– At 31 December 2011 ––––––– – ––––––– – ––––––– (4.6) ––––––– (0.5) – –––––– – ––––––– (5.1) Brought forward as at 1 January 2012 – – (4.6) (0.5) – (5.1) (Charged)/credited to the consolidated statement of comprehensive income – – 1.2 (0.6) (0.0) 0.6 ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– At 31 December 2012 ––––––– – ––––––– – ––––––– (3.4) ––––––– (1.1) – –––––– (0.0) ––––––– (4.5) 26. Provisions for other liabilities and charges Contractual Dispute The group had made provision for the anticipated legal costs associated with a contractual dispute as at 31 December 2010 of £0.6 million. During 2011, this dispute was resolved and the provision released in the year.

There were no provisions for other liabilities and charges as at 31 December 2012.

F-58 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

27. Share capital esure Holdings Limited esure Holdings Limited had 33,300,000 ordinary shares in issue at 31 December 2009 and 10 February 2010. No ordinary shares were issued during the period ended 10 February 2010.

In addition, esure Holdings Limited had Class A Preference Shares and Class B Preference Shares in issue. In accordance with IAS 32, the preference shares were classified as financial liabilities with unpaid dividends on those shares charged as a finance cost.

All shares are fully paid. esure Group plc Ordinary shares Share premium Total £m £m £m

Balance at 10 February 2010 0.0 – 0.0 Shares issued during the period 85.2 – 85.2 –––––––– –––––––– –––––––– Balance at 31 December 2010 –––––––– 85.2 –––––––– – –––––––– 85.2 Shares issued during the year 0.0 0.0 0.0 –––––––– –––––––– –––––––– Balance at 31 December 2011 –––––––– 85.2 –––––––– 0.0 –––––––– 85.2 Shares issued during the year – – – –––––––– –––––––– –––––––– Balance at 31 December 2012 –––––––– 85.2 –––––––– 0.0 –––––––– 85.2 During the period ended 31 December 2010, esure Group plc issued 9,990,000 A Ordinary Shares of 1p each, 8,232,038 B Ordinary Shares of 1p each, 14,985,000 C Ordinary Shares of 1p each, 8,485,014,000 Ordinary Shares of 1p each and 1,000 Redeemable Priority Return Shares of 1p each. At 31 December 2010, this was the share capital in issue.

During the year ended 31 December 2011, esure Group plc issued 92,962 B Ordinary Shares of 1p each. At 31 December 2011, esure Group plc had in issue 9,990,000 A Ordinary Shares of 1p each, 8,325,000 B Ordinary Shares of 1p each, 14,985,000 C Ordinary Shares of 1p each, 8,485,014,000 Ordinary Shares of 1p each and 1,000 Redeemable Priority Return Shares of 1p each.

No shares were issued in the year ended 31 December 2012. At 31 December 2012, esure Group plc had in issue 9,990,000 A Ordinary Shares of 1p each, 8,325,000 B Ordinary Shares of 1p each, 14,985,000 C Ordinary Shares of 1p each, 8,485,014,000 Ordinary Shares of 1p each and 1,000 Redeemable Priority Return shares of 1p each. All shares are fully paid.

Please refer to note 32 for details of changes to the share capital in issue subsequent to 31 December 2012.

A Ordinary Shares The shares have attached to them full voting rights; dividend rights of any further profits available after the payments to the Redeemable Priority Return Shareholders pro-rata to the paid up amount upon each such share held provided that (before a listing, sale or liquidation) any profits distributed in respect of these shares shall be allocated amongst the holders of these shares at 30 per cent of the sum available to the A Shareholders pro-rata of the number of A Ordinary Shares held by each A Shareholder; return of capital rights of any further amounts available after payments to the Redeemable Priority Return Share holders pro-rata to the paid up amount upon each such share held provided that (before a listing, sale or liquidation) any profits distributed in respect of these shares shall

F-59 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

27. Share capital (continued) be allocated amongst the holders of these shares at 30 per cent of the sum available to the A Shareholders pro-rata to the number of A Ordinary Shares held by each A Shareholder; they do not confer any rights of redemption.

B Ordinary Shares The shares have attached to them full voting rights; dividend rights of any further profits available after the payments to the Redeemable Priority Return Shareholders pro-rata to the paid up amount upon each such share held provided that (before a listing, sale or liquidation) any profits distributed in respect of these shares shall be allocated amongst the holders of these shares at 10 per cent of the sum available to the B Shareholders pro-rata to the number of B Ordinary Shares held by each B Shareholder; return of capital rights of any further amounts available after payments to the Redeemable Priority Return Shareholders pro-rata to the paid up amount upon each such share held provided that (before a listing, sale or liquidation) any profits distributed in respect of these shares shall be allocated amongst the holders of these shares at 10 per cent of the sum available to the B Shareholders pro-rata to the number of B Ordinary Shares held by each B Shareholder; they do not confer any rights of redemption.

C Ordinary Shares The shares have attached to them full voting rights; dividend rights of any further profits available after the payments to the Redeemable Priority Return Shareholders pro-rata to the paid up amount upon each such share held provided that (before a listing, sale or liquidation) any profits distributed in respect of these shares shall be allocated amongst the holders of these shares at 60 per cent of the sum available to the C Shareholders pro-rata to the number of C Ordinary Shares held by each C Shareholder; return of capital rights of any further amounts available after payments to the Redeemable Priority Return Shareholders pro-rata to the paid up amount upon each such share held provided that (before a listing, sale or liquidation) any profits distributed in respect of these shares shall be allocated amongst the holders of these shares at 60 per cent of the sum available to the C Shareholders pro-rata to the number of C Ordinary Shares held by each C Shareholder; they do not confer any rights of redemption.

Ordinary Shares The shares have attached to them no voting rights unless the business of any general meeting or class meeting of the holders of Ordinary Shares includes a resolution for the winding up of the company, or for the appointment of an administrator or the approval of a voluntary arrangement, or a reduction in the capital of the company and/or a resolution altering, varying or abrogating any of the special rights and/or privileges attaching to the Ordinary Shares; dividend rights of any further profits available after the payments to the Redeemable Priority Return Shareholders pro-rata to the paid up amount upon each such share; return of capital rights of any further amounts available after payments to the Redeemable Priority Return Shareholders pro-rata to the paid up amount upon each such share held; they do not confer any rights of redemption.

Redeemable Priority Return Shares The shares have attached to them no voting rights unless the business of any general meeting or class meeting of the holders of the Redeemable Priority Return Shares includes a resolution for the winding up of the company, or for the appointment of an administrator or the approval of a voluntary arrangement, or a reduction in the capital of the company and/or a resolution altering, varying or abrogating any of the special rights and/or privileges attaching to the Redeemable Priority Return Shares; dividend rights; the priority payment of an amount equal to the priority return on each Redeemable Priority Return Share held by them less any part of the priority return previously paid in respect of each such share by the distribution of profits; capital distribution (including on winding up)

F-60 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

27. Share capital (continued) rights of priority payment of an amount equal to the priority return on each Redeemable Priority Return Share held by them less any part of the priority return previously paid in respect of each such share by the distribution of profits or a return of capital; they confer rights of redemption of an amount equal to the priority return in respect of each such share less any part of the priority return previously paid in respect of each such share by the distribution of profits or a return of capital.

Share Based Payments As part of the group reorganisation carried out on 11 February 2010, A Ordinary Shares were issued to certain directors and employees of the group. At that date, certain directors and employees were also invited to subscribe for B Ordinary Shares. In addition, further B Ordinary Shares were issued to employees in April 2010, June 2010, November 2011 and December 2011. A full description of shares issued and the rights of these share classes is set out above.

A proportion of the A Ordinary Shares and B Ordinary Shares include certain restrictions over the ownership of these shares, in general requiring the individuals to remain in the employment of the group for a period of between two and six years from the date the shares were acquired before the full ownership rights vest with the individual. Where a holder of the A Ordinary Shares or B Ordinary Shares leaves the employment of the group, any shares held which have not yet vested are required to be relinquished by the individual.

The B Ordinary Shares also include a ratchet mechanism whereby the relative share of the total proceeds from an exit event (as defined by the articles of association) attributable to the B Ordinary Shares increases as the exit value (as defined by the articles of association) increases above certain thresholds.

The conditions attaching to those A Ordinary Shares with restrictions meet the definition of service conditions for the purposes of share-based payments. The conditions attaching to those B Ordinary Shares with restrictions meet the definition of performance conditions for the purpose of share-based payments.

The fair value of the share-based payment attaching to the A Ordinary shares was determined using a binomial pricing model, taking into account the impact of the ownership restrictions on the current price of the share for IFRS 2 purposes and expected increases value over the vesting period.

The fair value of the share-based payment attaching to the B Ordinary Shares was determined using a binomial pricing model, taking into account the impact of the ownership restrictions on the current price of the share for IFRS 2 purposes and expected increases value over the vesting period. In addition, Monte Carlo simulation techniques were applied to determine the expected impact on the fair value of the share-based payment arising from the ratchet mechanism.

The fair value of the share-based payment attaching to the A Ordinary Shares and the share-based payment attaching to the B Ordinary Shares were estimated to be nil. As such, no share-based payment charge has been recognised in the income statement.

The ratchet mechanism attached to the B Ordinary Shares was amended in November 2011, thus representing a modification as defined by IFRS 2. The incremental fair value of the modification was determined as the difference between the fair value of the modified awards less the fair value of the original awards, both measured at the date of modification. In each case the fair value was calculated using a binomial option pricing model together with Monte Carlo simulation techniques with regard to the expected impact on the fair value of the share-based payment arising from the amended ratchet mechanism. As a result of these calculations, it was determined that the modification of the share- based payments resulted in no incremental fair value.

F-61 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

28. Commitments (a) Pension capital commitments The group contributes to a Group Personal Pension defined contribution scheme available to all staff of which 782 (2011: 812, 2010: 841) employees participate in the scheme.

The pension cost charge for the period represents contributions payable by the group to the scheme and amounted to £2.4 million (2011: £2.2 million, period ended 31 December 2010: £1.8 million, period ended 10 February 2010: £0.3 million). There were no outstanding or prepaid contributions at either the beginning or end of the financial year.

(b) Capital commitments The group has entered into the following contracts for assets which have not been provided for at the reporting date:

As at As at As at 31 December 31 December 31 December 2010 2011 2012 £m £m £m

Fixed asset acquisitions contracted for but not provided in this historical financial information –––––––– 1.4 –––––––– 0.2 –––––––– 0.3 (c) Operating lease commitments – where the group is a lessee The future aggregate minimum lease payments under non-cancellable operating leases are as follows:

As at As at As at 31 December 31 December 31 December 2010 2011 2012 £m £m £m

Not later than 1 year 3.2 3.2 3.2 Later than 1 year and no later than 5 years 12.8 13.0 13.1 Later than 5 years 14.0 10.6 7.3 –––––––– –––––––– –––––––– –––––––– 30.0 –––––––– 26.8 –––––––– 23.6 (d) Operating lease commitments – where the group is a lessor The future aggregate minimum lease payments receivable under non-cancellable operating leases are as follows:

As at As at As at 31 December 31 December 31 December 2010 2011 2012 £m £m £m

Not later than 1 year 0.2 0.1 0.1 Later than 1 year and no later than 5 years 0.5 0.4 0.2 Later than 5 years – – – –––––––– –––––––– –––––––– –––––––– 0.7 –––––––– 0.5 –––––––– 0.3

F-62 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

29. Group subsidiary companies esure Group plc has the following principal subsidiaries as at 31 December 2012:

Country of Class of Principal Held directly Percentage incorporation shares held activity or indirectly held esure Insurance Limited England and Wales Ordinary General insurance Indirect 100% esure Services Limited England and Wales Ordinary Administration and Indirect 100% management esure Holdings Limited England and Wales Ordinary Holding company Indirect 100% esure Property Limited England and Wales Ordinary Property investment Indirect 100% esure Finance Limited England and Wales Ordinary Holding company Direct 100% esure Property England and Wales Ordinary Non-trading Indirect 100% Management Limited esure S.L.U. Spain Ordinary Non-trading Indirect 100% esure broker Limited England and Wales Ordinary Insurance intermediary Indirect 100% esure Group plc and esure Finance Limited were incorporated on 3 November 2009 as the acquiring entities for the business combination that took place on 10 February 2010 and these companies commenced trading on that date. Prior to this esure Holdings Limited was the 100 per cent parent entity of the esure group. esure broker limited was incorporated on 8 December 2010 under the name Sheilas’ Wheels Driving Academy Limited. On 6 May 2011 the company name was changed to esure broker Limited.

30. Related party transactions The following transactions took place with related parties:

(a) Commissions and fees receivable for introducing insurance business The group receives commissions and fees for customer introduction services provided to Gocompare for introducing insurance business. The value of transactions during the year to 31 December 2012 was £0.1 million (2011: £0.1 million, 2010: £0.1 million). The amount receivable at 31 December 2012 is nil (2011: £0.1 million, 2010: £0.1 million).

These transactions arise in the normal course of business through fixed fees, and are based on arm’s length arrangements.

(b) Commissions and fees payable for introducing insurance business The group pays commissions and fees for customer introduction services provided by Gocompare for introducing insurance business. The value of transactions during the period to 31 December 2012 was £6.2 million (2011: £7.1 million, period ended 31 December 2010: £5.3 million, period ended 10 February 2010: £0.2 million). The amount payable at 31 December 2012 is £0.2 million (2011: £0.4 million, 2010: £0.5 million).

In addition, the group paid commissions and fees to Sainsbury’s Bank PLC, an associate of HBOS Plc on behalf of which the group underwrites motor insurance. Sainsbury’s Bank PLC ceased to be a related party as HBOS was no longer a related party following the acquisition of the group by esure Group plc. In the period ended 10 February 2010 fees of £0.2 million were paid by the group. No amounts were payable at the period end.

These transactions arise in the normal course of obtaining insurance business through brokerages, and are based on arm’s length arrangements.

F-63 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012 30. Related party transactions (continued)

(c) Fees payable for management services Fees were payable to HBOS from esure Holdings Limited for management services provided to the group, primarily in respect of IT and payroll services. Following the acquisition of esure Holdings Limited by esure Group plc on the 11 February 2010, and after a transitional period during 2010, all transactions of this nature ceased with HBOS. During the period ended 10 February 2010, the group paid £0.3m in respect of such services. No amounts were payable at period end.

(d) Transactions with shareholders, subsidiaries, associates and joint ventures The following transactions took place with shareholders, subsidiaries, associates and joint ventures:

• Interest due in respect of a loan facility provided to Gocompare. The loan was repaid in full during 2010.

• One of the directors has a beneficial part ownership interest in restaurants which had been used by the group for corporate events and entertaining purposes.

• Fees in respect of services provided by employees of Penta Capital LLP in their capacity as non- executive directors of the group.

1 January 11 February Combined 2010 to 2010 to Year ended Year ended Year ended 10 February 31 December 31 December 31 December 31 December 2010 2010 2010 2011 2012 £m £m £m £m £m

Value of transactions during the period/year: Gocompare 0.2 0.1 0.3 – – Restaurants 0.1 – 0.1 0.1 0.1 Penta Capital LLP – 0.0 0.0 0.1 0.1 –––––––– –––––––– –––––––– –––––––– –––––––– 0.3 0.1 0.4 0.2 0.2 –––––––– –––––––– –––––––– –––––––– –––––––– Amount payable at the period/year end: Gocompare – – – – – Restaurants – – – – – Penta Capital LLP – 0.0 0.0 0.1 0.0 –––––––– –––––––– –––––––– –––––––– –––––––– – 0.0 0.0 0.1 0.0 –––––––– –––––––– –––––––– –––––––– ––––––––

(e) Other transactions REAL Digital International Limited, is a supplier of the group to which one of the company’s directors made a commercial loan. The loan was repaid prior to 31 December 2010. Invoices payable to REAL Digital International Limited amounted to £1.6m during the year ended 31 December 2010 of which £0.2 million remained due at 31 December 2010.

(f) Compensation of key management personnel The key management personnel are considered to be the directors. Please refer to note 8 for details of the directors’ remuneration.

F-64 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

31. Ultimate controlling party esure Group plc is a company incorporated in England and Wales, and is controlled by Tosca Penta Investments LP and Peter Wood.

32. Post balance sheet events note On 21 February 2013, the capital of the Company was reduced by the cancellation of 4,000,000,000 Non-Voting Old Ordinary Shares (referred to as ‘ordinary shares’ in note 27) of £0.01 each and £40 million in cash was paid in consideration by the Company to Tosca Penta Investments LP out of existing financial resources.

Pursuant to a share purchase agreement dated 25 February 2013, the Group has agreed, subject to Admission, to repurchase the remaining 4,485,014,000 Non-Voting Ordinary Shares of £0.01 each at par (amounting, in total, to £44.85 million) and the 1,000 Redeemable Priority Return Shares of £0.01 each for an amount equal to the Priority Return (as defined and determined in accordance with the Company’s articles of association) out of existing financial resources. On the basis that Admission occurs on or around 27 March 2013, the amount payable in respect of the Priority Return will be £0.6 million.

All Perpetual Subordinated Loan Notes will be repaid by the Group on Admission using the proceeds of the Offer.

33. Restatement of prior periods to IFRSs 2012 was the first year that esure Group plc presented financial information under IFRSs. The following disclosures are required in the year of transition. The last consolidated financial statements prepared under UK GAAP for esure Group plc were for the period ended 31 December 2011; however the date of transition to IFRSs is deemed to be the date of incorporation (3 November 2009). As the date of incorporation is taken to be the date of transition, no transition tables have been prepared for the opening balance sheet as there are no adjustments required.

The group has applied IFRS 1 in preparing this historical financial information.

F-65 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

33.1 Reconciliation of UK GAAP Equity to IFRSs Equity as at 31 December 2010 UK GAAP IFRSs 31 December 31 December 2010 Adjustments 2010 £m £m £m

Assets Intangible assets 11.0 17.2 28.2 Property, plant and equipment 15.7 (1.4) 14.3 Investment in joint venture 35.0 (1.6) 33.4 Insurance and other receivables and deferred acquisition costs 153.3 8.4 161.7 Financial investments 736.2 – 736.2 Reinsurance assets 157.8 – 157.8 Deferred tax 2.3 (2.3) – Cash and cash equivalents 18.9 – 18.9 –––––––– –––––––– –––––––– Total assets –––––––– 1,130.2 – ––––––– 20.3 –––––––– 1,150.5 Equity and liabilities Ordinary shares 85.2 – 85.2 Share premium account 0.0 – 0.0 Retained earnings 14.1 0.6 14.7 –––––––– –––––––– –––––––– Total equity –––––––– 99.3 – ––––––– 0.6 –––––––– 99.9 Liabilities Insurance liabilities 848.8 17.9 866.7 Insurance and other payables and provisions for liabilities and charges 69.7 0.4 70.1 Deferred tax – 1.4 1.4 Borrowings 112.4 – 112.4 –––––––– –––––––– –––––––– Total liabilities –––––––– 1,030.9 – ––––––– 19.7 –––––––– 1,050.6 Total equity and liabilities –––––––– 1,130.2 – ––––––– 20.3 –––––––– 1,150.5

F-66 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

33.2 Analysis of adjustments to the Balance sheet as at 31 December 2010 Reclass- ification Intangible of expenses Reclass- Reversal of assets reco- associated Internal ification amorti- IFRS 3 gnised on Deferred with software of salvage IAS 32 sation accou- Reclass- application Revaluation acquisition additional develop- and Short term Deferred of goodwill nting for ification of of equity Total of land and costs services ment costs subrogation employee tax on on joint Lease acquisition purchased method to Adjust- buildings and CHR revenue capitalised assets benefits derivatives venture incentive of eHL software Gocompare ments Notead efgh jk lmno £m £m £m £m £m £m £m £m £m £m £m £m £m Assets Intangible assets – – – 0.1––– –15.8 1.3 – 17.2 Property, plant and equipment (0.1) – – –––– ––(1.3) – (1.4) Investment in joint venture – (0.2) – ––––1.2–––(2.6) (1.6) Insurance and other F-67 receivables and deferred acquisition costs – (8.2) (1.3) – 17.9–––– ––8.4 Financial investments – – – –––––––––– Reinsurance assets–– ––––––––––– Cash and cash equivalents – – – –––– ––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– Total assets (0.1) (8.4) (1.3) 0.1 17.9 – – 1.2 – 15.8 – (2.6) 22.6 ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– Equity and liabilities Ordinary shares – – – –––––––––– Share premium account – – – –––––––––– Retained earnings (0.1) (6.2) (0.9) 0.0 – (0.2) (0.1) 1.2 (0.1) 9.5 – (2.6) 0.6 ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– Total equity (0.1) (6.2) (0.9) 0.0 – (0.2) (0.1) 1.2 (0.1) 9.5 – (2.6) 0.6 ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– Liabilities Derivative financial liabilities – – – –––––––––– Insurance liabilities – – – – 17.9–––––––17.9 Insurance and other payables –– –––0.3––0.1–––0.4 Deferred tax – (2.2) (0.4) 0.1 – (0.1) 0.1 – (0.0) 6.3 – – 3.7 Borrowings –– ––––––––––– Current income tax liabilities – – – –––––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– Total liabilities – (2.2) (0.4) 0.1 17.9 0.2 0.1 – 0.1 6.3 – – 22.0 ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– Total equity and liabilities (0.1) (8.4) (1.3) 0.1 17.9 – – 1.2 – 15.8 – (2.6) 22.6 ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

33.3 Reconciliation of profit on ordinary activities after tax for the period ended 31 December 2010 Period ended 31 December 2010 Note £m

Profit on ordinary activities after tax reported under UK GAAP 14.1 Revaluation of land and buildings a (0.1) Reversal of claims equalisation reserve c (2.0) Deferred acquisition costs and claims handling reserve d 0.7 Reclassification of expenses associated with additional services revenue e 0.0 Internal software development costs capitalised f (0.3) Deferred tax j 2.7 Amortisation of intangible assets arising in IFRS 3 accounting for esure Holdings Limited acquisition m (8.1) Reversal of amortisation of goodwill arising on joint venture and on acquisition of esure Holdings Limited k, m 1.5 Lease incentive l (0.1) Short term employee benefits h (0.0) Negative goodwill arising on acquisition m 15.7 Transaction fees expensed on acquisition m (7.0) Recognition and amortisation of intangibles arising on application of equity method to interest in Gocompare o (2.4) ––––––– Profit on ordinary activities after tax reported under IFRSs ––––––– 14.7

F-68 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

33.4 Reconciliation of UK GAAP Equity to IFRSs Equity as at 31 December 2011 UK GAAP IFRSs 31 December 31 December 2011 Adjustments 2011 £m £m £m

Assets Intangible assets 7.1 13.0 20.1 Property, plant and equipment 16.8 (2.3) 14.5 Investment in joint venture 39.2 (3.4) 35.8 Insurance and other receivables and deferred acquisition costs 167.7 5.8 173.5 Financial investments 726.4 – 726.4 Reinsurance assets 172.9 – 172.9 Deferred tax 1.0 (1.0) - Cash and cash equivalents 32.5 – 32.5 –––––––– –––––––– –––––––– Total assets –––––––– 1,163.6 – ––––––– 12.1 –––––––– 1,175.7 Equity and liabilities Ordinary shares 85.2 – 85.2 Share premium account 0.0 – 0.0 Retained earnings 61.2 (3.4) 57.8 –––––––– –––––––– –––––––– Total equity –––––––– 146.4 – ––––––– (3.4) –––––––– 143.0 Liabilities Derivative financial liabilities 0.4 – 0.4 Insurance liabilities 861.4 13.2 874.6 Insurance and other payables 66.4 0.8 67.2 Deferred tax – 1.5 1.5 Borrowings 83.0 – 83.0 Current income tax liabilities 6.0 0.0 6.0 –––––––– –––––––– –––––––– Total liabilities 1,017.2 15.5 1,032.7 –––––––– –––––––– –––––––– Total equity and liabilities –––––––– 1,163.6 – ––––––– 12.1 –––––––– 1,175.7

F-69 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

33.5 Analysis of adjustments to the Balance sheet as at 31 December 2011 Reclass- ification Intangible of expenses Reclass- Reversal of assets reco- associated ification amorti- IFRS 3 gnised on Reversal Deferred with of salvage sation accou- Reclass- application Revaluation of Claims acquisition additional and Short term Reclass- of goodwill nting for ification of of equity Total of land and Equalisation costs services subrogation employee ification of on joint Lease acquisition purchased method to Adjust- buildings Reserve and CHR revenue assets benefits deferred tax venture incentive of eHL software Gocompare ments Noteac degh ik lmno £m £m £m £m £m £m £m £m £m £m £m £m £m Assets Intangible assets – – – ––––––10.8 2.2 – 13.0 Property, plant and equipment (0.1) – – –––––––(2.2) – (2.3) Investment in joint venture – – (0.3) – – – 2.8–––(5.9) (3.4) Insurance and other receivables and F-70 deferred acquisition costs – – (10.8) 1.7 14.9–––––––5.8 Financial investments – – – –––––––––– Reinsurance assets–– ––––––––––– Deferred tax – – – – – – (1.0) –––––(1.0) Cash and cash equivalents – – – –––––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– Total assets (0.1) – (11.1) 1.7 14.9 – (1.0) 2.8 – 10.8 – (5.9) 12.1 ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– Equity and liabilities Ordinary shares – – – –––––––––– Share premium account – – – –––––––––– Retained earnings (0.1) 1.6 (8.8) 1.3 – (0.2) – 2.8 (0.4) 6.3 – (5.9) (3.4) ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– Total equity (0.1) 1.6 (8.8) 1.3 – (0.2) – 2.8 (0.4) 6.3 – (5.9) (3.4) ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– Liabilities Derivative financial liabilities – – – –––––––––– Insurance liabilities – (2.2) 0.5 – 14.9–––––––13.2 Insurance and other payables –– –––0.3––0.5–––0.8 Deferred tax – 0.6 (2.8) 0.4 – (0.1) (1.0) – (0.1) 4.5 – – 1.5 Borrowings –– ––––––––––– Current income tax liabilities – – – ––––––0.0––0.0 ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– Total liabilities – (1.6) (2.3) 0.4 14.9 0.2 (1.0) – 0.4 4.5 – – 15.5 ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– Total equity and liabilities (0.1) – (11.1) 1.7 14.9 – (1.0) 2.8 – 10.8 – (5.9) 12.1 ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– ––––––– NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

33.6 Reconciliation of profit on ordinary activities after tax for the year ended 31 December 2011 Year ended 31 December Note 2011 esure Group plc £m Profit on ordinary activities after tax reported under UK GAAP 47.0 Reversal of claims equalisation reserve c 2.2 Deferred acquisition costs and claims handling reserve d (1.5) Reclassification of expenses associated with additional services revenue e 1.3 Internal software developments costs capitalised f (0.1) Deferred tax j 1.3 Amortisation of intangible assets arising in IFRS 3 accounting for esure Holdings Limited acquisition m (5.3) Reversal of amortisation of goodwill arising on joint venture and on acquisition of esure Holdings Limited k, m 1.9 Lease incentive l (0.4) Short term employee benefits h 0.0 Recognition and amortisation of intangibles arising on application of equity method to interest in Gocompare o (3.3) ––––––– Profit on ordinary activities after tax reported under IFRSs ––––––– 43.1 33.7 Adjustments made under IFRSs Below is a summary of the adjustments made to convert esure Group plc from UK GAAP to IFRSs:

(a) Revaluation of land and buildings Under the group’s adopted IFRSs accounting policies, land and buildings are subject to a fair value adjustment at each reporting date. The change in accounting policy has resulted in adjustments to carrying value.

(b) Fair valuing of the option to acquire shares in Gocompare Under IAS 39 an option held to acquire 50 per cent of the shares in Gocompare was subject to a fair value adjustment up to the date of acquisition of esure Holdings Limited. As a result, the IFRSs book value of financial investments held by esure Holdings Limited at the date of acquisition was £31.7 million greater than reported under UK GAAP, and the fair value adjustments required at the date of acquisition were £31.7 million less.

(c) Reversal of Claims Equalisation Reserve Under UK GAAP, a claims equalisation reserve was provided for. However provisions for possible future claims (equalisation provision) are not permitted under IFRS 4.

(d) Deferred acquisition costs and claims handling reserve The following change in accounting policy has been made. In order to show the correct technical result under UK GAAP certain intra-group transactions were not eliminated in the consolidated financial statements under UK GAAP. Applying IFRSs, upon elimination, acquisition costs that were previously deferred are recognised as an expense, including deferred acquisition costs relating to expenses incurred to the joint venture. Additionally, a claims handling reserve is recognised in respect of expenses previously attributed to a non insurance risk carrying entity at the consolidated level. The

F-71 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

33.7 Adjustments made under IFRSs (continued) change in accounting policy has resulted in adjustments to the profit on ordinary activities after tax reported under IFRSs.

(e) Reclassification of expenses associated with additional services revenue During 2011, the group adopted a new approach for allocating expenses to activities generating additional services revenue. A reclassification has been made to state prior year figures on the same basis. There is a resulting impact to deferred acquisition costs.

(f) Internal software developments costs capitalised Under IAS 38, internally developed software must be capitalised if it meets the recognition criteria.

(g) Reclassification of salvage and subrogation assets Under IFRSs, insurance contract liabilities are stated gross of salvage and subrogation recoveries, which are recognised as an asset.

(h) Short term employee benefits Under IFRSs, a provision for short term employee benefits must be accrued for at each reporting date.

(i) Reclassification of deferred tax Deferred tax arising under UK GAAP has in certain cases been reclassified as a result of the net tax position changing.

(j) Recognition of deferred tax arising on adjustments made Certain measurement differences have given rise to deferred tax assets and liabilities not previously recognised under UK GAAP. The impact of these is given for each balance sheet item. The reconciliation of the income statement provides each item gross and therefore an adjustment is also included to take account of the deferred tax arising separately.

(k) Reversal of amortisation of goodwill on joint venture Amortisation arising as a result of entering into a joint venture has been reversed as goodwill is not amortised under IFRSs.

(l) Lease incentive The accounting treatment for a lease incentive held by the group has altered under IFRSs in order to be accounted for over the length of the lease, rather than the non-cancellable period after which the lease can be re-negotiated.

(m) IFRS 3 accounting for acquisition of esure Holdings Limited By adopting IFRS 3 in accounting for the acquisition of esure Holdings Limited, a number of adjustments have arisen, primarily to recognise acquired intangible assets at fair value. As a result of the recognition of the intangibles acquired, negative goodwill arises on the acquisition and this has been recognised in the income statement at the date of acquisition.

(n) Reclassification of purchased software In accordance with the requirements of IAS 38, purchased software has been reclassified as an intangible asset.

F-72 NOTES TO THE HISTORICAL FINANCIAL INFORMATION For the 3 years ended 31 December 2012

33.7 Adjustments made under IFRSs (continued)

(o) Recognition and amortisation of intangibles arising on application of equity method to interest in Gocompare In accordance with the requirements of IAS 28 and IAS 31, intangible assets for customer relationships, brands and internally generated software have been recognised on application of the equity method to the interest held in Gocompare. A further adjustment for the amortisation of these intangible assets has been recorded.

(p) Reclassification of income and expenditure associated with policy and administration fees from additional services Policy administration fees (2011: £13.5 million, 2010: £10.9 million) were classified within earned premiums when preparing financial statements under UK GAAP. This revenue is classified as fees from additional services in the financial information. Related expenditure (2011: £3.3 million, 2010: £2.6 million) has been reclassified to other expenses from insurance expenses.

33.8 Adjustments made under IFRSs to cashflows The consolidated statement of cashflows has been adjusted to reflect the above IFRSs conversion adjustments. There have been no changes to the overall cash result, however the presentation of a statement of cashflows on an IFRSs basis has resulted in the reclassification of certain items compared to the presentation under UK GAAP.

F-73

sterling 160414 PRICE RANGE PROSPECTUS

8 MARCH 2013

PRICE RANGE PROSPECTUS 8 MARCH 2013 esure Group plc, The Observatory, Castlefield Road, Reigate, Surrey, RH2 0SG

160414 Dorothy Prelim Prospectus (Cover).indd 1 08/03/2013 08:52