Chairman’s introduction

Dear shareholders and other stakeholders Corporate Our commitment to good corporate governance As Chairman, I want to ensure that Direct Line Group is well governed. I am pleased to report that we have complied with substantially all of the provisions of the UK Corporate governance Governance Code (September 2012). The Board has worked hard during the year seeking to ensure that high governance standards have been maintained throughout the Group.

The following Corporate governance report gives shareholders a clear and comprehensive view of the Group’s governance arrangements and how we have operated within them over the past year. The way we do business The way we do business and our underlying values are central to Direct Line Group’s success. Our Code of Business Conduct governs the way we interact with our stakeholders and our values determine our behaviours. Both determine how we do business throughout the Group and define our corporate identity. They also influence our business relationships and reputation, which are key to our long-term success. Our Code of Business Conduct is set out below, our values are on the following page and you can also view them and our Ethical Code for Suppliers at www.directlinegroup.com . Relationship with RBS Group It was another significant year for Direct Line Group. On 27 February 2014, RBS Group sold its entire remaining Mike Biggs, shareholding in the Company, save for a small number of Chairman shares it retained to satisfy long-term incentive awards issued by RBS Group to Direct Line Group management. As “We have a strong team in place to explained in last year’s Annual Report, a European Commission obligation required RBS Group to sell its continue delivering our strategy, to shareholding by the end of 2014. As such, Direct Line Group capitalise on opportunities and meet is no longer owned by RBS Group and our operations are the challenges ahead.” now largely separate. The sale does not affect our business strategy. We will continue our journey towards our goal of becoming the leading personal and small business general insurer in the UK.

Our Code of Business Conduct

Business practices Dealing with customers Dealing with shareholders Dealing with employees We shall engage in honest, We shall treat customers and other stakeholders We shall maintain a working professional and ethical fairly, openly and honestly, We shall seek to maximise environment that attracts, conduct and maintain and operate an effective shareholder value over time, motivates and retains effective procedures to complaints process to address recognising that wealth employees, and shall be prevent confidential any perceived departure generated also benefits intolerant of any type of information being misused. from these standards. customers, employees and discrimination, harassment the communities where or victimisation. we operate.

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www.directlinegroup.com d on whatonis d right, what not across all functions;all leverageacross irit, have fun and make this a this make and fun have irit, d professionald integrity;do to foster mutual trust, respect respect trust, mutual foster to will and understanding, and in officials to anything offer not return for favourable treatment. Dealing with regulatorswith Dealing a maintain shall We open constructive and regulators our with relationship ourshareholders wider our and lts; develop relationships based developbased relationshipslts; self; have adult to adult ace change; learn from learn change;our ace Version 10.1 Draft and Secret www.direclinegroup.com 51 values Our people, customers, our our For rightthe Do thing makestakeholders; decisions base is easy;is personaldemonstrate an rightwhat’s for the long-term sustainability of our business. Striveto be the Aim higherbestin every area of the business; be relentlesslyandinnovative; courageous ambitious, challenge andseek embr improve; and mistakes;persevere, deliveralways ourpromises don’tand settlefor second best. levelsand all across Collaborate together Work theskills, knowledge and experience,irrespective of hierarchy, resu possible best deliverthe to trustingupon eachother, partnerships and win-wins; recognise celebrate and success. Treatlike it business;it’s OUR takethe initiative, ifcan you see a better way, go and make a difference; take decisions, be in for actions whateveryouout; accountable your role carry Takeownership developmentown personal your responsibility for take performance.and to true authenticand real, Be conversationswith all audiences; listen, seek to understand likeis it it Say respect and diversity of views; open, be callout issues we see; share informationand keep thingsassimple as possible. our you; celebrate whole and real the be, can you best the Be work allofto Bring yourself model role a be personalities; and experiences skills, of diversity sp do’ ‘can demonstrate others, to our and Company our about excited be be; to place great and empowered. confident feel yourself, in believe future; competition law. competition Dealing with competitorswith Dealing shallwith We compete competitors andhonestly in relevant the with accordance lectionprocess, Sebastian Dealing with communitieswith Dealing andthe environment shallWe contribute to the and well- social economic beingof thosecommunities wherewe are an employer, encourage and employees in participate projects to toinitiativesstrengthen and thosecommunities. le experience in these fields fields these in experience le oup’s nominated Non-Executive Non-Executive oup’s nominated mposition of the Direct Line Direct of the mposition additiontoOn Board. behalfthe of the liers of liers Chairman Chairman pp with su with g and avoiding compromisingavoiding and hospitality.ofand offers gifts relationships with suppliers suppliers with relationships bythem partners treating and andhonestly with respect, business partnerships partnerships business shallthe We maintain possiblehighest standardsof integrityin business Dealin goodsand services and MichaelBiggs,N 2015 March 2

I am confidentam I havewe a strong team in place continueto and opportunities the on lise strategy,capita our delivering meetthe challenges ahead. You can findinformation diversityatcan further Boardandon You level theBoardeffectiveness review intheCorporate governance page on 57. report Following a reviewFollowinga of theBoard’s ofbalance skills, knowledge aexperience,and rigorous and se 28digitalon AugustWith Board joined 2014. James the marketingand customer service increasingly important ourto bringsvaluabSebastian business, important an is and amBoard,I delighted to welcomehim aas Non-Executive the of Company. Director I would liketowould I thank Mark for hisexcellent contribution to duringtimeandon Company his Board the the wish him inthewell future. Director, stepped down on 7 March 2014. 2014. March 7 on down stepped Director, InsuranceGroup plc Board took place during 2014.Following Group’s RBS sale of substantiallyall ofits shareholding in the Gr RBS Catton, Mark Company, Board composition composition Board co the in changes of A number

Board of Directors

1 2 3 4 5

1 Mike Biggs (62), Chairman of the Board External appointments (appointed April 2012) (N and R) John is a trustee and director of Farm Africa and is an alternate representative of the Association of British Insurers on the Panel Biography on Takeovers and Mergers. Mike is also Chair of the Nomination Committee. He has over 40 years’ experience of the UK and international financial services sector. 4 Glyn Jones (62), Senior Independent Non-Executive Director He is a respected figure in the insurance industry and is well regarded (appointed September 2012) (A, I, N and +) by City investors. Biography Mike was previously Chairman of Resolution Limited, the FTSE 100 UK Glyn is Chair of the Investment Committee. He has undertaken a life assurance business, and has acted as Chief Executive Officer and number of senior roles within the financial services industry and, as Group Finance Director of Resolution plc. He was previously Group a former Chief Executive Officer in the asset management industry, Finance Director of Aviva plc. he also understands the City and shareholders well. He has a Masters degree in History from the University of Oxford and Glyn was Chairman of Towry Holdings Limited between 2006 and is an Associate of the Institute of Chartered Accountants in England 2011 and Chairman of Aspen UK from 2007 to 2014. He also and Wales. served as Chairman of Hermes Fund Managers from 2008 to 2011 External appointments and was Chairman of its sister company, BT Pension Scheme None Management, for a part of this period. Glyn was Chief Executive Officer of the independent investment group, Thames River Capital, 2 Paul Geddes (45), Chief Executive Officer (appointed August from 2005 to 2006. From 2000, he served as Chief Executive (C) 2009) Officer of Gartmore Investment Management in the UK for four years. Biography Before this, Glyn was Chief Executive Officer of Coutts NatWest Paul is Chief Executive Officer. His experience in leading one of the Group and Coutts Group, having joined in 1997. Glyn joined UK’s largest retail banking businesses during a challenging period for Standard Chartered in Hong Kong in 1990 where he became the the industry and improving its customer and financial performance General Manager of Global Private Banking. He was a consulting against peers singled him out in 2009 as the Chief Executive able partner with Coopers & Lybrand/Deloitte Haskins & Sells Management to lead the turnaround of Direct Line Group and its divestment from Consultants from 1981 to 1990. He is a graduate of the University RBS Group. of Cambridge and a Fellow of the Institute of Chartered Accountants in England and Wales. He was the Chief Executive Officer of RBS Group’s mainland UK retail banking business, having joined in 2004 as Managing Director with External appointments responsibility for products and marketing. Before joining RBS Group, Glyn is Chairman of Aspen Insurance Holdings Limited, a New York Paul held a number of senior roles in multi-channel retailing in the GUS listed specialty lines insurer. He is also Chairman of Aldermore Group and Kingfisher groups. Paul started his career in marketing, with UK plc and its subsidiary Aldermore Bank plc. and European roles at Procter & Gamble. Paul read Philosophy, Politics and Economics at the University of Oxford. He is a Fellow 5 Jane Hanson (47), Non-Executive Director (appointed December (A, B, C, I and +) of the Chartered Institute of Bankers in Scotland. 2011) External appointments Biography Paul is a member of the Association of British Insurers’ Board, a Jane is Chair of the Board Risk Committee. She has extensive member of the Financial Ombudsman Service’s insurance industry experience of risk management, corporate governance and internal steering group, and a member of the Financial Conduct Authority’s control. She also has extensive experience of developing and Practitioner Panel. monitoring customer frameworks. She spent 12 years with KPMG, where she worked in the financial 3 John Reizenstein (58), Chief Financial Officer (appointed sector, becoming the Director responsible for delivery of corporate December 2010) governance, internal audit and risk management services in the North Biography of England. Jane has also held executive roles including Director of John is an experienced Chief Financial Officer and former banker with Audit, and Risk and Governance Director at Aviva’s UK Life business. extensive City and financial services experience. She is a graduate of the University of York with a degree in Music and is a Fellow of the Institute of Chartered Accountants in England and Wales. John was previously an Executive Director at the Co-operative Insurance Society, CIS General Insurance and The Co-operative Bank. He was Chief Financial Officer of these entities between 2003 and 2007, and subsequently Managing Director, Corporate and Markets. Prior to that, John spent more than 20 years in investment banking with UBS and Goldman Sachs. He is an Economics graduate of the University of Cambridge.

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www.directlinegroup.com industry, including as Lead Audit stomer facingstomer industries, including both technical both and marketterms. rience andknowledge gainedfrom companies through change and e she was Group HumansheGroup wase Resources human resources positions across a oratestrategy. She has worked both in Mathematicsand Fellow a is p Humanp Resources Director at

Non-Executive (appointedDirector Non-Executive (appointedDirector (B, R and +) R and (B, (A, B, C, I and +) and I C, B, (A, 9 Version 10.1 Draft and Secret www.direclinegroup.com 53 Priscilla Vacassin (57), Clare Thompson (60),

Biography Clareis Chair of the Corporate Social Responsibility Committee. She brings with herexpeextensive roles theacross professionalservices Partner PwC,at whereshe guided acted as an adviserto insurance companies. She gainedsignificant experienceof bothgeneral and life insurance thisin role. years 23 her During to 2011. from 1988 PwC at partner a was Clare as a partner atPwC, she held several senior and highprofile roles, particularly within theinsurance sector. She is a graduateof the of University York with a degree ofthe Institute of Chartered Accountantsin England and Wales. appointments External Clare is a Non-Executive memberof thePartnership Boardof Miller Disasters the of Treasurer and Trustee a is and LLP Services Insurance plc. Bonds Charity Retail of Director a also is She Committee. Emergency 9 September 2012) Biography Priscillais Chair of Remunerationthe Committee. Shehas great knowledge and experience of developing organisational values, and creatingthe leadership,succession, developmentand remuneration corp support to required structures as a practitionerand as anadviser andtherefore understands the in remuneration complexity around Priscillawas most Grou recently Prudential plc and a Non-Executive Director at the Ministry of Defence. Defence. of Ministry the at Director Non-Executive a and plc Prudential Priscillahas previouslyheld senior numberfinancialof services and cu roles at Abbey National plc, wherewas she ExecutiveDirector, Resources;Human BAA plc, wher Director; and Kingfisher plc. She graduated in Law from the University London. North East of appointments External Priscillahas ownher search andconsultancy business. Key: Key: (A) Audit Committee Committee Risk Board (B) Committee Responsibility Social Corporate (C) Committee Investment (I) Committee Nomination (N) Committee Remuneration (R) Independent (+) 8 September 2012) 8 plc and is also is also and plc or (appointed March March (appointed or ief ExecutiveOfficer of Synergy tee. He tee. hasundertaken a number Dixons Carphone Carphone Dixons d a Non-Executived of a Director Royal Children and Tablets for Schools. for Tablets Schools. and Children ingthrough his membershipthe of 7 and completed an MBA at INSEAD. Non-Executive (appointedDirector August

es(48),

(A, B, I, N, R and +) N, R and B, I, (A, (C, R and +) (C, R and Sebastian Jam Sebastian Andrew Palmer (61), Non-ExecutiveDirect

6

Biography isAndrew Chair of Auditthe Commit rolessenior of within the financial services andinsurance industries. In addition, he has insight into corporate governance developments and best practicein financial report FinancialReporting PanelReview of Financialthe Reporting Council. the was he where plc, Group ral retiredGene from & Andrew Legal of Institute the of Fellow is He a Director,in 2009. Finance Group Chartered Accountants in England and Wales. appointments External and Trustee a Needlework, of School Royal the of Trustee a is Andrew Treasurer of CancerResearch UK an the of a member is also He Society Limited. Insurance Mutual London Council. Reporting the Financial of Panel Review Reporting Financial 2014) 2014) External appointments External Jane is Chair of Reclaim Fund Ltd and a Non-Executive Director of Independent an also is She Limited. Management Wealth Mutual Old ofMember Fairnessthe Committee ReAssure at Ltd. She hasownher financial sector consulting business, deliveringaudit, enterprise risk management and corporate governance advisory and magistrate. a is services.also She consulting 6 Biography Sebastianis Group Chief Executive Dixons of Carphoneplc and has held numbera strategicsenior of andoperational positions in sectors. insurance consulting retail, and the from 2012 plc Retail Dixons of Chief Group Executive was Sebastian August on 6 Group plc Warehouse Carphone with merger its until 2014. this,Before Sebastian was Ch Insurance ServicesLimited, a privateequity backed insurance company,and was previously StrategyDirector at Mothercare plc. He began his career atThe Boston ConsultingGroup, having graduated thefrom University Oxford of External appointments External Group of is Executive Chief Sebastian a Trusteea ofthe charities Savethe 7 2011) 2011) Executive Committee

1 2 3 4 5

6 7

The Executive Committee is chaired by Paul Geddes and, in addition 5 Angela Morrison, Chief Information Officer (joined 2010) to John Reizenstein, comprises the following individuals: Experience and qualifications Angela was previously Chief Information Officer at J Sainsbury’s and 1 Jonathan Greenwood, Managing Director of Commercial a member of their Operating Board. She previously worked for ASDA (joined 2000) / Wal-Mart where she held a number of roles including European Experience and qualifications Strategy Director, Chief Information Officer through the ASDA / Jonathan joined the Group in 2000 as Product and Pricing Director Wal-Mart integration and e-Commerce Director which included for UK partnerships, which included Tesco, BMW and Nationwide establishing ASDA’s home grocery business. Angela holds a degree Building Society. Following the acquisition of Churchill, Jonathan in Electrical and Electronic Engineering from the University of Bristol. became Commercial Director and then Managing Director of the Group’s household and life businesses. Jonathan was appointed 6 Humphrey Tomlinson, General Counsel (joined 2011) Managing Director of Commercial in 2009. Experience and qualifications Humphrey was previously Group Legal Director at RSA. He is a 2 Mike Holliday-Williams, Managing Director of Personal Lines solicitor with over 25 years’ experience, including advising on (joined May 2014) corporate and commercial matters, a wide range of corporate Experience and qualifications transactions in the UK and internationally, legal risk management and Mike was previously Chief Executive Officer of RSA Group’s corporate governance issues. Prior to RSA, he worked at City law firm Scandinavian businesses, Codan A/S and Trygg-Hansa. Before Ashurst Morris Crisp. He is a graduate of the University of Oxford. joining RSA, Mike worked in the energy, telecoms and retail sectors, beginning his career at WH Smith Limited, before moving to various 7 José Vazquez, Chief Risk Officer (joined 2012) Centrica-owned businesses, including British Gas and Onetel. He has Experience and qualifications also served as Managing Director of MORETH>N Limited and holds José was previously Global Chief Risk Officer at HSBC Insurance. an EMBA from Ashridge Business School. Prior to joining HSBC, José held senior actuarial roles at Zurich Insurance and also worked as a consultant with KPMG in London. 3 Simon Linares, Human Resources Director (joined September 2014) José is a Mathematics graduate from Brunel University and a Fellow Experience and qualifications of the Institute of Actuaries. Simon was Group HR Director at ITV and before that Human Resources Director of Telefonica’s digital businesses globally. Prior to that, Simon was Group Human Resource Director of O2’s European businesses, having had previous success in senior HR roles with Diageo.

4 Steve Maddock, Managing Director of Claims and Business Services (joined 2010) Experience and qualifications Steve was previously Director of Strategic and Technical Claims at RSA, a role he assumed in 2004. He has over 20 years’ insurance industry experience, including roles as Director of Claims and Customer Service at Capita and Director of Operations at AMP. Steve holds an MBA from the University of Reading and is Chairman of the Motor Insurers’ Bureau.

54 Direct54 Direct Line Line Group Group Annual Annual Report Report & Accounts & Accounts 2014 2014 Version 10.1 Draft and Secret Governance review 55 www.directlinegroup.com to certain members of Direct of members certain to r month formonth r the Non-Executive be able todevote able be sufficient the Ordinary Shares of Direct of Shares the Ordinary appointed toon Board the intment for the Chairman and Chairman the for intment s 4,185,643excluded shares, rt, the Board comprises the the comprises Board the rt,

Board and Committee membership and succession planning planning successionand Committeemembership and Board Theremuneration policy forDirectors and seniorexecutives GroupThe12 policieswhich form thepartof highlevel governanceframework • • • additionIn to the Matters Reserved, eachBoard Committee writtenhas terms referenceof defining its role and the authority delegated it.to canYou find further details onthe Board Committeesinthe BoardCommittees’ section from 61pages 70. to compositionBoard ofthisdate Repo the at As whoChairman, to independentonthe appointment was his ChiefExecutive the Officer,Board, Financial ChiefOfficer the sixand independent Non-Executive Directors. All theof current except period, reporting the throughout served Directors James,Sebastian whowas for 2014. August 28 canYou find the names of theDirectors atas the dateof andpagesreport biographicalon52 this their information 53. and anominatedas whowas by Group Catton, RBS Mark Non-Executive Directoraccordancein with the termsof the RelationshipAgreement between DirectLine Insurance Group resignedGroup, March RBS 7 onfromand Board plc the 27 Hisfollowedon resignation2014. Group by RBS sale the interest its in of 2014 February Thi Insurance plc. Line Group whichwere retained to satisfylong-term incentive planawards by Group granted RBS previously LineGroup’s management. Theseshares have since been Since BenefitTrust. Employee Group transferredRBS toan disposingitsof shareholding,RBS Grouplonger no ahas right nominateto a director to theBoard. the Board of Structure TheBoard and its Committees have been established to anappropriatethat balanceofexperience, ensure skills, independence, sectorknowledge and diversity exists to enablethe Directors to discharge their dutiesand responsibilities effectively. Non-ExecutiveAll Directors must time theto role todischarge their duties and responsibilities effectively. lettersThe of appo eachof the Non-ExecutiveDirectors set out the anticipatedtime commitmentof at least threedays per week for the Chairman pedays three averageof an and Directors.The Nomination Committeereviews thistime commitmentannually. ”). ”). ”) has”) complied Matters Reserved ”) throughout the year, year, the throughout ”) Company riately. The Board sets the Board The riately. vestmentsand contracts that , ensuring they are effectively effectively are they ensuring , Code to the effect that Senior the to effect the porting and controls, including andcontrols, porting Youfindcan information further ”)attendshould sufficient tegic aims and objectives. objectives. and aims tegic fromCompany’sandthe brokers appetite statements SID rman and the Chair ofthe Chair rman the and Group plc (the “ plc Group Annual Report & Accounts 2014Version 10.1 Draft andSecret Direct LineGroup Major capital projects, major in major projects, capital Major areeither materially strategic or theabove Chief Executive delegatedOfficer’s authority TheGroup’s strategic aims and objectives Theannualoperating and capital expenditure budgets Corporategovernance matters financialre structure, Capital dividendpolicy Thesystem internalof controls and risk management, risk Group’s the including 55 managed, that prudent controls are in place, and that risks risks that and place, in are controls prudent that managed, approp managed and assessed are Leadership The Board Board’sThe primary roleis toorganise and directGroup’s the affairs mannerin a isthat most likely topromote its long-term Board whole. The a as shareholders of its benefit success for the Group’s operations the supervises Group’s strategyand monitors management’s performance and progress againststra the Thespecific dutiesof the Board setareout in the Schedule Reserved(the Matters for Board “ of the The UK Corporate Governance Code Governance Corporate UK The DirectLine Insurance • This report details the role andactivitiesdetails role of Boardreport the the This and explains corporatehow governance is operated throughout Group. the Corporate governance report governance Corporate • • • • isionsprov andprinciples with the of theUK Corporate (theCode2012 Governance “ theon Codeon the Financial Reporting Council’s website . www.frc.org.uk at TheMatters Reserved are reviewed annuallyby theBoard containand thoseitems thatare specifically reserved for requiringMatters by Board. considerationandapproval the include: Board the by approval • Details ofDetails howCompanyappliedCode’s principles the the withreportand complied this the and in provisions its are report. remuneration Directors’ IndependentDirector (the “ RemunerationCommittee. Additionally, theChairman has met shareholdersmajorcertain during theyear and, through the brokers,offered othermajorshareholders the opportunity to discussany matters with orhim theSID. TheBoard satisfiedis that,on thebasis reportsof through theChairman, it understands theviews theof majorshareholders. Company’s with the exceptionof the recommendation contained Code the Provisionof E.1.1in withmeetings a rangeof major shareholders.This is to listen theirto views to develop help a understandingbalanced of theissues and concerns major of shareholders. TheBoard corporate Company’s the regularfrom received updates brokersonthe views of its institutional shareholders. Major shareholders havethe opportunityto anydiscuss theyissues Chai the with raise to wish Corporate governance report continued

On behalf of the Board, the Nomination Committee assessed Director or between the Director’s duties to the Group and the independence, skills, knowledge and experience of the another person. Non-Executive Directors as part of its annual review of each Director’s performance. The Board concluded that all of the Each Director has a duty to avoid conflicts of interest. They current Non-Executive Directors were independent, continued must declare any conflict of interest that could interfere with to contribute effectively and demonstrated commitment to the their ability to act in the Group’s best interests. The Board role. The Nomination Committee’s work in the year resulted has adopted procedures for ensuring its powers to authorise in the appointment of Sebastian James as an additional Non- conflicts operate effectively. Executive Director. It also resulted in certain changes to the The Board has given a number of authorisations in this manner. membership of the Committees, which were announced in Notwithstanding such authorisation, the Board continues to September 2014. You can find further details of these activities ensure that any actual conflict of interest or duty, should it and the Nomination Committee’s work in the year on pages arise, is dealt with appropriately. This would usually involve 68 to 69. ensuring the Director does not participate in the relevant Chairman and Chief Executive Officer Board or Committee discussion or decision. The Board has agreed role profiles for the Chairman, Mike For this purpose, the Company Secretary maintains a register Biggs, and the Chief Executive Officer, Paul Geddes, which of conflicts, and of any authorisation of a conflict granted clearly define their respective roles and responsibilities. This by the Board. The Board reviews this register regularly. is to ensure no one individual has unfettered powers of decision-making. Board activities during 2014 During 2014, the Board’s specific areas of focus, challenge The Chairman’s priority is leading the Board and ensuring and supervision included: its effectiveness. The Chief Executive Officer’s priorities are managing the Group and delivering the Group’s strategy • Participating in developing and challenging the Group’s and financial results. strategic plan Senior Independent Director • Overseeing the prudent management of the Group’s capital, Glyn Jones is the Senior Independent Director (“SID”). His role ensuring that capital reserves remain robust, while enabling is to provide a sounding board for the Chairman, to serve as the return of capital to investors by way of special dividends an intermediary for the other Directors when necessary and to • Approving and monitoring a comprehensive programme of be available to shareholders, should they have any concerns investment in technology, organisational restructuring and they cannot resolve through normal channels. His cultural change. This programme aims to improve customer responsibilities also include evaluating the Chairman’s experience, making it easier to do business with the Group, performance annually. and deliver outstanding customer service Non-Executive Directors • Overseeing the management and reduction of the Group’s The Non-Executive Directors objectively and constructively cost base challenge management. They also use their wider business • Overseeing a review and streamlining of the Group’s experience to help develop the Group’s strategy. governance framework, including reviewing and approving risk-based policies Non-Executive Directors are initially appointed for a term of three years. They may serve two fixed terms of three years • Supporting the Chief Executive Officer in restructuring his and, in appropriate circumstances, may be invited to serve a management team and appointing new senior executives further three year term. The Nomination Committee nominates • Considering strategic options for the Group’s International the Directors for appointment. The Board then approves the businesses, and subsequently authorising and monitoring appointments. Non-Executive Directors are subject to election the proposed sale of the Group’s International businesses. or re-election annually at the Company’s Annual General There was particular emphasis on obtaining fair outcomes Meeting (“AGM”). You can find the standard terms and for all stakeholders conditions of the appointments at www.directlinegroup.com . • Encouraging management initiatives for cultural Information and support transformation All Directors have access to the assistance and advice of the • Monitoring the progress of the complex programme of Company Secretary. The Board is satisfied that it receives migrating IT systems and telephony from RBS Group to information in a timely manner and of an appropriate quality to new Direct Line Group platforms, networks and data centres enable the Directors to discharge their duties. Directors may seek external independent professional advice at the • Encouraging the relaunch of the Direct Line brand and Company’s expense if they require it to discharge their duties. challenging the related brand and customer-service propositions Conflicts of interest • Overseeing the Group’s regulatory relationships and In accordance with the Companies Act 2006, the Company’s preparations for the forthcoming implementation of Articles of Association allow the Board to authorise a matter in Solvency II relation to which there is, or may be, a conflict between the Group’s interests and the direct or indirect interests of a

56 Direct56 Direct Line Line Group Group Annual Annual Report Report & Accounts & Accounts 2014 2014 Version 10.1 Draft and Secret Governance review 57

ing reports. ing reports. www.directlinegroup.com le forle the Director attend. to and visits to ofseveral consultant performedconsultant and ployees on pageson ployees 34 and 35. ship with institutional institutional shipwith ents, StandardFormula ents, ented a regularcorporate a ented Board, distributingBoard, toit ttribution,diversification and ses and preparand ses ffectiveness review.ffectiveness the 2014, In g candidates for the Board. Board. the for gcandidates Version 10.1 Draft and Secret www.direclinegroup.com 57 ”) submission”) requirem IMAP Visitsby Non-ExecutiveDirectors operationalto business meetunits to the management teams better and understand thetheway business operates. Theseincluded visits to the TechnicalClaims, Largeand Loss, Customer Relations and Glasgow,in teams Fraud Counter UKthe Assistance RepairAccident Centres Limited sites Internal training workshopson Solvency II, including capital modelling,Approval Process catastrophe Internal Model and (“ anda profit loss calculation, dependencies/correlations pres CompanySecretary The governanceupdate to theBoard TheGroup’s brokersand financial advisers presented updatesindustrymarket to Boardquarterly and the TheInvestor Relations reportedteam regularlyto the relation Group’s the on Board andinvestors analysts Boardeffectiveness review 2013,In an independent external facilitated Board’sthe first e chose Board to conduct its effectivenessreview in-house. The designedSecretary Company an coordinated process. d the Thisinvolved agreeing a structuredquestionnaire with the andChairman of members the collatingrespon stakeholders, TheBoardand ofeach its Committeesreviewed and discussed these reports. • • • • • Group’sLine Direct approach to diversity ThecarefullyBoard considered thediversity of itsmembers varietyfroma of perspectives. It soughttoalso ensure that Directorshad therelevant range knowledge,of skills, experienceand, where necessary, independence to help the strategy. its deliver Group TheCompany believes in themerits of diversity. the Of Board’smembers,nine threeare However,women. while thetakeBoardwill care considerto diversity when selecting committed is to members,it appointingnew the most candidate. appropriate TheNomination Committee’s termsreference of statethat due regard to thebenefits of diversity, including gender diversity, selectinin given be should TheCorporate SocialResponsibility Committee considersalso thismatter inthe context of ensuringthe Group’s talentpipeline diverseremains meetfutureto requirements. The Group providesmentoring schemes for high-potentialcandidates and associatedtraining and development programmes. canYou find numericalrelatingdata to thegender diversity of the Board,senior managers and em attendance Percentage 1

2 of 2 3 of 4 100% 75% meetings Scheduled Scheduled 10 of 11 91% 11 of 11 11 of 11 100% 100% 11 of 11 11 of 11 100% 11 of 11 11 of 11 100% 100% 11 of 11 100% 100% Board meetings was held held was meetings Board cretary is responsibleis cretary all Board meetings. Atmeetings. Board the all d transformationald priorities, eworks, capital and financialand capital eworks, its annual strategy day in in day strategy annual its d anti-briberyand corruption utives andutives external advisers mes commencedmes tailored a

3

2 Trainingonspecific topics,including: competition law, an investments for accounting ohn Reizenstein ohn ane Hanson Notes: Notes: applicab 1. or possible meetings such of number the of out attended meetings scheduled of number the as expressed is Attendance 2. 2014. March 7 on Board the of Director a as resigned Catton Mark 3. 2014. August 28 on Board the of Director a as appointed was James Sebastian • On appointment, Sebastian Ja Sebastian appointment, On ThemainBoard training and development activities inthe year underreview included thefollowing: forhelping the Chairmanregularly andreview organise an maintains and trainingDirectors appropriate the for trainingannual Committees. its agendathe and for Board inductionprogramme, comprising sessions.16 The programmedesignedwas to providean understanding of the an strategic businesses, Group’s and fram regulatory governance andriskframework. management, Board induction,Board resources and training TheBoardis committed trainingto and developing Directorsall employees.and The Company Se Executive DirectorsExecutive Geddes Paul J AndrewPalmer ThompsonClare Vacassin Priscilla MarkCatton J James Sebastian Senior Independent Director Independent Senior GlynJones Non-Executive Directors Chairman Biggs Mike Thetable below sets out attendance at the scheduled meetings 2014:in wereinvited to attendBoard meetings and present on business developmentsand governance issues. The CompanyattendedThe Secretary in Glasgow as part of aas of visit. Board part Glasgow site in discretion,senior Board’s exec Meetings held scheduled Board 11 The meetings2014 in and nine meetings.additional weremeetingsadditional The ad hoc sub-committeeorBoardmeetings to consider specific matters, Group’s proposed example, Internationalthe sale for the of held businesses. The also Board One2014. June of the scheduled Corporate governance report continued

The questionnaire encouraged respondents to comment on aspects Governance framework and structure perceived as working well in the 2013 review and areas thought The Board is responsible for ensuring an appropriate system of to require improvement. Relating to the Board, its Committees and governance is in place throughout the Group. This includes a its individual directors, the questionnaire focused on: robust system of internal controls and a sound Risk Management framework. The Group’s Governance Framework is detailed in • The flow of information, including the quality and sufficiency the High Level Control and System of Governance document. of reports, management information and training The Board reviews this document annually. In addition to this • The behaviour of, and interaction between, the Board or document, the core elements are: Committee and management, including the proportion of time spent on strategic matters, the degree of challenge by • The Enterprise-wide Risk Management (“ERM”) strategy Non-Executive Directors, the Board’s culture and composition and framework, which sets out the Group’s robust risk management approach and the ownership and oversight • Administration, including the number and frequency of of risks meetings, the volume of papers, the quality of systems and processes for, Board and Committee support • The Executive Governance Framework, which outlines how each business function is governed and details the The Chairman discussed the outcome of the effectiveness delegation of authority to Executive Committee members review with the Non-Executive Directors and the Chief • The Group Policy Framework, which comprises a set of Executive Officer, providing them with feedback on their policies that are required to be approved by the Board and performance and contributions. Feedback on the Chairman’s are underpinned by Minimum Standards which translate the performance was provided by the Senior Independent policies into requirements that are implemented throughout Director, with input from his fellow Non-Executive Directors. the Group

Based on responses to the structured questionnaire and the The diagram below summarises the split of responsibilities for the resulting reports, the Directors are satisfied that the Board and different components of the Group’s Governance Framework. its Committees operated effectively during 2014. The Directors are also satisfied that significant progress was made regarding areas identified in 2013 as requiring improvement. The Board and its Committees agreed an action plan for further improvement, which will be pursued in 2015.

Board Board Matters Reserved High Level Control and System Board approves and Committee of Governance document High Level Governance terms of reference framework, risk appetite and Group Policies are set by the Risk appetite Board, following review by the Board Risk Committee, for implementation by the Executive. Policies are drafted by Executive Group Policies policy owners.

Board Risk Board Risk Committee Committee Enterprise-wide Risk approves Management framework is approved by the Board Risk Committee, following review ERM strategy and framework by the Risk Management Committee.

Executives Risk Management Committee approve Developed by the Executives within the framework approved by the Board. Minimum Standards are reviewed by the Group’s Policy Executive Governance Framework Group Minimum Standards and Minimum Standard owners’ review forum. The Executive Governance Framework and Minimum Standards are approved by Executives within the Risk Management Committee.

Business unit and operational area implementation

58 Direct58 Direct Line Line Group Group Annual Annual Report Report & Accounts & Accounts 2014 2014 Version 10.1 Draft and Secret Governance review 59

Director Simon Linares Chair Human Resources Committee Remuneration Priscilla Vacassin www.directlinegroup.com Officer plaining their responsibilities Angela Morrison iding shareholders with awith fair, shareholders iding Chief Information It supports himsupports settinginIt s of responsibilitys their for ssessmentof Company’s the Executive Officer in the day-to- ExecutiveOfficer the in Chair Committee Mike Biggs Nomination Tomlinson Humphrey General Counsel Version 10.1 Draft and Secret www.direclinegroup.com 59 Chair Officer Investment Committee Glyn Jones Chief Financial John Reizenstein Accountability Accountability Financialand business reporting provfor responsible is Board The andbalanced understandable a alsoBoardresponsible for is The andthe prospects. position maintenanceof adequateaccounting records and ensuring statutoryandobligations.with regulatory compliance Director the from explanation An preparingthe financial statements is setout inthe statement Directors’of responsibilities on 97.page The statement by Company’s Auditorthe external ex 102.page on is Executive CommitteeExecutive TheExecutive Committee is the principalmanagement committee thatassistsChief the ofGroup. management the day performancetargets, implementing the Group’s strategyand asmonitoringdeterminedkeydirection and the by Board, objectivesand commercial to plans help achieve theGroup’s targets. alsoIt helps evaluatebusinessnewhim initiatives considers opportunities,andreceives reportsand and on operationalmatters, where these are material to theGroup cross-company implications. have or Thediagrambelow depicts the management-governance framework. Chairman Mike Biggs Paul Geddes Board of Directors Chief Executive Officer José Vazquez Chair Chief Risk Officer Committee Responsibility Clare Thompson Corporate Social Claims and Steve Maddock Business Services details the namesof the Managing Director tions.delegationsThe also Chair ecutives the have appropriate the Group and deliver its deliverits the and Group Committee Board Risk Jane Hanson Williams Personal Lines Mike Holiday- Managing Director Chair Jon Greenwood Commercial Andrew Palmer Audit Committee Managing Director

In In Geddes turn,Paul cascaded has certain elements of his delegatedauthority to themembers of theExecutive senior that ensure help delegations These Committee. executivesare accountable and responsiblefor managing their andbusinesses func respective strategic objectives.strategic involve ensuringthe ex senior Chief Executive Officer ultimately is responsibleBoard for the the Although success theCompany,of Geddes, Paul the Chief Executive Officer, receivedhas delegated authority fromthe Board manageto day-to-daythe operationsof financial,and other, authorities needed to manage those businessareas. Board CommitteesBoard TheBoardhas establisheda numberCommitteesof to help meetits responsibilities. Each Committee aplays roleinvital ensuringthe Boardoperates efficiently and considers matters appropriately. diagramaboveThe BoardEachCommittee has separate terms of reference. TheBoardreviews these annually. canYou find details of thecomposition, attendance, roleand focus of each pages61 on to 70. Committee andChairs. the Committees Board

Corporate governance report continued

The Board meets the specific responsibilities that the Code The Directors know that any system of internal control is places on it as follows: designed to manage, not eliminate, the risk of failing to achieve business objectives. It can only provide reasonable, • An explanation of how the Company generates value over not absolute, assurance against material misstatement or the long term is included within the business model on page financial loss. 8 and the strategy for delivering Company objectives on page 16 On behalf of the Board, the Audit Committee regularly reviews • How the Board has concluded that the business remains a the effectiveness of the Group’s internal control systems. Its going concern is discussed on page 96 monitoring covers all material controls. Principally, it reviews and challenges reports from management, the Group Audit • The arrangements established by the Board for the function and external Auditors. This enables it to consider how application of risk management and internal control to manage or mitigate risk in line with the Group’s risk strategy. principles are detailed below The Committee did not identify or report any major failings or • The Board has delegated oversight of the management of weaknesses to the Board in 2014. the relationship with the Company’s external Auditor to the Audit Committee. The Audit Committee report on pages 61 Remuneration to 63 provides details of its role, activities and relationship The Board has delegated to the Remuneration Committee with the internal and external Auditors responsibility for the remuneration arrangements of the Group’s Executive Directors and for overseeing senior executives’ Risk management and internal control system remuneration. Find out more information on the remuneration The Board oversees the Group’s risk management and internal arrangements and policy in the Directors’ remuneration report control system. It has complied with the Code by establishing on page 71. a continuous process for identifying, evaluating and managing the significant risks the Group faces. This process includes risks Relations with shareholders arising from social, environmental and ethical matters. The Board believes that actively engaging with the Company’s shareholders is fundamental to the Group’s business. An active The Group operates a ‘three lines of defence model’, further dialogue and ongoing engagement with investors is vital to details of which can be found in the Risk Management section keeping up-to-date on opinions. It also provides the Company with on pages 28 to 31. the opportunity to address any questions and concerns proactively.

During the year, the Board reviewed the effectiveness of the The Executive Directors meet frequently with investors and ensure Group’s risk management and internal controls. The Group’s shareholder concerns are communicated to the Board. The assessment process included output from a system for reporting Chairman, Senior Independent Director and Non-Executive on all significant risks that stand in the way of the Group’s Directors are available to attend meetings with major shareholders objectives. The system reported on the nature and effectiveness at their request. This gives the Directors the opportunity to discuss of the controls and other management processes that manage governance and strategy with shareholders. these risks. The system also sets risk appetites for key categories of quantifiable risk. Additionally, it encompassed The Company’s Investor Relations team facilitates the Directors’ risk owners’ self-assessment of control throughout the Group. ongoing dialogue with institutional investors, fund managers The second and third lines of defence independently challenge and analysts. The Board receives regular updates on investor their assertions. Furthermore, Group Audit has undertaken relations, including feedback from analysts. The Company’s reviews in the financial year to support this. corporate brokers also regularly attend Board meetings to inform the Board of shareholder views. The Board Risk Committee regularly reviews significant risks, their potential impact on the Group’s financial position, Annual General Meeting variations from agreed risk appetites, and the actions taken The Board views the Company’s AGM as a good opportunity to manage those risks. for private shareholders to communicate directly with the Board. All shareholders are entitled to attend the AGM. Internal systems of control All Directors attended the AGM in 2014. The Board has established a management structure with defined lines of responsibility and clear delegation of authority. The Chief Executive Officer presents the Group’s results before This control framework cascades through the divisions and the Chairman proposes the AGM’s formal business. All central functions, detailing clear responsibilities for ensuring shareholders are encouraged to ask questions relating to the appropriate controls are in place at an operational level. This meeting’s business. The Chairman, the Committee Chairs includes controls relating to the financial reporting process. and the remaining Directors are also available at the meeting.

The Group Audit function supports the Board by providing an independent and objective assurance of the adequacy and effectiveness of the Group’s operations. It brings a systematic and disciplined approach to evaluating and improving the effectiveness of its risk management, control and governance frameworks and processes.

60 Direct60 Direct Line Line Group Group Annual Annual Report Report & Accounts & Accounts 2014 2014 Version 10.1 Draft and Secret Governance review 61

www.directlinegroup.com ntractthe against backdrop iary,U K Insurance Limited the 2013& the Report Annual the Company’sthe performance, mmissioning an external external mmissioningan ditor’s independence ditor’s practice developments Version 10.0 Draft and Secret www.direclinegroup.com 61 Reviewedcritical accounting estimatesand judgements, Reviewedreports and received training for Solvency II Assessedthe going concern status the of Company and Reviewedthe effectiveness of internalcontrol processes plan reviewedAudit and Group Group the Approved Reviewedthe results of the externalaudit relating to the Reviewedthe external Au Determinedthe externalAuditor’s remuneration and Consideredthe Group’spolicy tenderingon its Recommendedreappointmentthe of externalthe Auditor Reviewedreserving governance processes, and Consideredan externalpeer review reservesof Consideredregulatory developments and their impact Assessedand monitored therisks associated with Reviewedthe Groupfunction’s Audit performance and Reviewedthe Group-wide Financial Reporting minimum Adoptedmonitoredand and policy Group’s the Reviewedthe impact sellingof theInternational division Reviewedfinancial results announcements, including the Assesseddisclosures the in on assumptionson judgementsand used inthe Group’s reporting and reserving outstandingincluding provisionsclaims and related reinsurancerecoveries, impairment provisions on financial properties,deferredacquisitionof costs value fair assets, goodwill and its principal operatingprincipal subsid its issues control key on reports Audit year 2013 end approvedand the of scope the external regardingyearaudit 2014 end the objectivity and recommendedit to theBoard independentexternal audit co best and regulatory of atshareholders 2014 forby the Board, approval the to GeneralAnnual Meeting consideredand proposed and actuarial quarterly managementbest estimatestechnicalof reserves migrating the Group’s financeGroup’s systems RBS the from Group migrating platform IT new Group’s the to co including effectiveness, offunction assessment the quality Framework Control standardfor the Independenceof External Audit theon financial statements 2014Accounts, & the HalfReport Year Annual 2013 InterimReport, and Interim Management Statements Accountsto provideadvice to theBoardon whether the fair, was balancedreport, as whole, and taken a understandablenecessary providedinformation and the assess to shareholders for model strategy business and • • • • • • • • • • • • • Audit Committee focus during 2014 focus Committee Audit • • • • • • •

g and other internal controls. controls. internal other and g sponsibilities effectively. sponsibilities

All CommitteemembersAll are members of the Instituteof CharteredAccountants in England and Wales. Theyalso have recentand relevant financial experience, enablingthem to contributediverse expertise to the Committee’s proceedings. keepTo currentskills and relevant, members of theCommittee received have training Deloittefocused by LLP on Solvency II trends and inthe insurancemotor market, in addition to Board. whole to the available training Committee composition, skillscomposition, Committee experience and TheCommittee comprisesfourindependent Non-Executive Directors:Andrew Palmer; Jane Hanson;Glyn Jones; and Thompson.Clare canYou find the members’ biographical pageson 52information to53. You canYou find the Committee’sAudit terms of reference at . www.directlinegroup.com TheCommittee unrestrictedhas accessmanagementto and externaladvisers to help discharge its duties. Itis satisfied that, andit reliable 2014, received timely sufficient, during reperformits to information TheCommittee reviews theadequacy integrity and of the Group’sinternal financial controls and internal control systems, theand procedures formonitoring their effectiveness. Italso monitors thework and effectiveness theof Group’s internal auditors external and and actuaries. Role of the Audit Committee Audit the of Role TheCommittee is responsible for overseeing and challenging theeffectiveness theof Group’s systemsfinancialof control, reportin regulatory and financial AndrewPalmer, Chair of Chair theAudit Committee Audit Committee report Committee Committee reports Committee reports continued

Meetings activity, key findings, management responses and proposed The Audit Committee held five scheduled meetings in 2014, action plans. The Group Audit function monitors completion at appropriate times in the financial and regulatory reporting of these actions. and audit cycle. The following table sets out attendance at the scheduled meetings: During 2014, and following a formal tender-evaluation process, the Committee appointed Deloitte LLP to conduct an Scheduled Percentage external quality assessment of Group Audit in accordance meetings attendance with the guidelines of the Chartered Institute of Internal Auditors Andrew Palmer (Chair) 5 of 5 100% (“CIIA”). The assessment included evaluating the effectiveness Jane Hanson 5 of 5 100% of Group Audit, with reference to CIIA’s Standards and Code Glyn Jones 5 of 5 100% of Ethics and its recommendations for Effective Internal Audit in the Financial Services Sector. A benchmark against Clare Thompson 5 of 5 100% comparable industry peers was also performed. Deloitte LLP submitted the resulting report to the Committee, which Sub-committees of the Audit Committee met in May and concluded that Group Audit is performing effectively. The October 2014 to approve the Group’s Interim Management Committee endorsed recommendations for continuing Statements relating to the first and third quarters of the 2014 improvement and was satisfied that Group Audit has access financial year. The quorum of both sub-committee meetings to appropriate resources. comprised Andrew Palmer, Paul Geddes and John Reizenstein. The Committee considered the Group’s internal controls and The Chief Executive Officer, Chief Financial Officer, Chief Risk processes for identifying and responding to the risk of fraud. Officer, Group Financial Controller and Head of External Reporting are invited to attend Audit Committee meetings. The Reserves Actuarial Director, external actuarial advisers, external Auditor The Committee approves annual plans for reviews of reserves, and Group Head of Audit are also invited to attend meetings informed by emerging internal and external issues. It also and meet privately with the Audit Committee, in the absence of considers an appropriate balance between internal and management. The Managing Director of Claims and Business external actuarial review. Consultants appointed to provide Services is also invited to attend appropriate sections of Audit actuarial reviews of reserves are subject to approval by the Committee meetings. Committee. The external actuarial review was carried out by The Chair reports on matters dealt with at each Committee PricewaterhouseCoopers LLP for Direct Line Insurance Group 1 meeting to the subsequent scheduled Board meeting. plc and its relevant affiliates only and not for anyone else. Internal control and Group Audit Every quarter, the Committee reviews and challenges the key assumptions and judgements, emerging trends, movements and During the year, the Audit Committee reviewed the adequacy analysis of uncertainties underlying the actuarial best estimate and effectiveness of the Group’s internal control systems. of technical provisions. At the same time, the Committee The Group’s Financial Reporting Control Framework (“FRCF”) considers and challenges the appropriateness of the Chief forms part of its wider internal controls system. It is based on Financial Officer’s proposals for the management best estimate the principles of the Committee of Sponsoring Organisations of reserves. These are informed by actuarial analysis, wider of the Treadway Commission’s Enterprise Risk Management commercial and risk-management insights, and principles of Framework and is designed to address risks relating to consistency from period to period. financial reporting. The Board’s supervision of the FRCF is After reviewing the actuarial best estimate and management delegated to the Audit Committee. Daily responsibility for best estimate of reserves, the Committee recommends them the FRCF is delegated to the Chief Financial Officer. to the Board. During 2014, management reviewed and tested the FRCF’s Financial reporting design and effectiveness. The Committee received reports focusing on control deficiencies, and mitigating and remedial During the year, the Committee reviewed the preliminary action taken. The Committee also assessed and monitored the announcement of the Group’s 2013 results, the 2013 Annual risks associated with migrating the Group’s finance systems Report & Accounts, and the 2014 Half Year Interim Report. The from RBS Group to the Group’s new IT platform. Committee then recommended them to the Board for approval.

The Audit Committee oversees the work of Group Audit and The review process focused on critical accounting policies ensures Group Audit appropriately adopts industry best and practices, emphasising those requiring a major element practice. The Group Head of Audit reports functionally to the of judgement. The review also considered going concern Chair of the Committee and has a secondary reporting line to assumptions, impairment reviews, reserving provisions, the Chief Financial Officer for management purposes. At each unusual transactions, clarity of disclosures and significant of its meetings, Group Audit provides the Committee with audit adjustments. independent and objective reports on the appropriateness and The Committee also advised the Board whether the financial effectiveness of the Group’s internal controls and governance statements, taken as a whole, were fair, balanced and frameworks. The Committee approves Group Audit’s annual understandable and provided sufficient information to enable plan, and receives quarterly reports detailing internal audit the reader to assess the Group’s performance, business model and strategy. Note: 1. The relevant affiliates are U K Insurance Limited and Churchill Insurance Company Limited.

62 Direct62 Direct Line Line Group Group Annual Annual Report Report & Accounts & Accounts 2014 2014 Version 10.0 Draft and Secret Governance review 63

Proportion £m 2.7 Fees 2.3 0.4 85.2% 14.8% www.directlinegroup.com loitte LLP LLP loitte had effectivelyand ial Officer, a Officer, ial formal review

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1 Version 10.1 Draft and Secret www.direclinegroup.com 63 During 2014, in addition to regularto addition inAuditorquestioning 2014, the During of duringits meetings, theAudit Committee assessed the effectivenessof the externalAuditor. achievedIt this through detaileda questionnaire comp FinancChief with the discussions Deloitte independen of LLP’s offulfilment the agreedaudit plan. TheCommittee concludedthat De obligationsas performed its externalappropriately Auditor theto Group. Followingthis review, theAudit Committee has Board recommended the thatto reappointedLLP be Deloitte externalas Auditor to AtheGroup. resolution to thiseffect will to put the atbe shareholders 2015 the AGM. ofEffectiveness Committee Audit the TheCompany Secretary facilitated the Committee’sreview year.Secretary effectivenessduringthe Company its The of abased prepared report also theCommitteeof and other stakeholders to pre-agreeda questionnaire. Havingreviewed discussedand the resulting report, theCommittee concluded that it was effective and has to duties.access sufficientresources to its perform on report this andreviewedapproved Board The 2015. March 2 AndrewPalmer, Audit fees Audit Non-auditfees Total for fees audit servicesand other Havingreviewed the applicationof Group’s the minimum standard on andaudit non-audit services during 2014, the Committeeissatisfied adequate that procedures inplace are to objectivity. and independence Auditor’s external the safeguard Effectivenessre- the ofand external the process audit Auditors external the of appointment Authority hasbeendelegated to theChair of theAudit toCommittee approve any non-audit services costing to up £100,000. Non-audit services Committee The approval. requireCommittee’s £100,000 the receivesreviews and a onreport consultancy all spend, includingnon-audit services, at least twicea year. Committee year,the the During forDeloitteLLP services relatednot to audit£0.4 workof million. Thesefeesrelated auditto assurance andtax services. Thefollowing is breakdowna of feespaid to Deloitte inLLP ofendedrespect year the 31 2014. December n-audit services policy policy services n-audit Group’s policy on maintaining on policy Group’s no auditor liability agreement liability auditor no LLP cannot be reappointed as reappointed be cannot LLP provided be by external the duledto rotatedbe after the tor of the Company tor the depends of leasean onerousof lease totheGroup. financial statements. Provisions, including the re the including Provisions, provisionafter purchasing propertya and recognising subsequenta impairment charge valuescarrying The of goodwill other and intangible assets, provisionsneedimpairment the for any and disclosure fair-value for properties investment Classifying purposes Thecarrying value of theGroup’sfinancial investments and theneed forany impairment provisions value carrying the particularly tax, regarding Judgements anyof deferred assetstax and liabilities Thesale of the Internationaldivision Reinsurancerecoverables Note: Note: in found be can information 1. Further division. International Group’s the operations, discontinued for fee audit the Includes In accordanceIn with the Independenceof External Audit formallyaof standard,Committee approves list minimum the andaudit non-audit services to Auditor independence and no and independence Auditor TheGroup has anadopted Independenceof External Audit standardminimum which establishedparameters forpreventing mitigatingor any compromise of the externalAuditor’s independenceproviding virtue or of their non- by objectivity services audit financialeach year. before Auditor External Audit External 2000. LLP Company’s since Deloitte has asthe Auditor served divisionauditedofa was RBS as Group the listing, Before Group.In accordance with the rotation, auditor and tendering audit for rules transitional the Under and Order Authority’s Markets and Competition the in out set as Deloitte Regulation, Audit EU the Thereare no contractual obligations restricting the Company’s andof Auditor choice external theindependence of externalaudit, Deloitte LLP must ensure regularlypartnerrotated audit is the audit that engagedthe on theand current partneris sche year 2015 end. has Committee The 2023. June after Company the of Auditor tenderdate a that of before considertiming the will it decided currentthe with partner’saudit and rotation align duringto 2015, addition In account. into priorities strategic Group’s the taking responsiblebe forwill Committee negotiating the underOrder, the audit. the of scope the setting and fee audit the beenhas enteredinto. Equally, recommendationany to asAudi LLP Deloitte reappoint on continuedon satisfactory performance. • • • • • • • TheCommittee reviewedalso and delegated authority to approveto the Interim sub-committee quarterly a ManagementStatements. In additionIn to matters relating to reserving, issues and judgementsconsidered the by Committeeincluded:

Committee reports continued

Board Risk Committee report The Director of Compliance and Regulatory Risk, Director of Financial Risk, Enterprise Risk Director, and Head of Investigations and Anti-Bribery are also invited to attend appropriate sections of the Board Risk Committee meetings.

The Chair reports on matters dealt with at each Committee meeting to the subsequent scheduled Board meeting.

Board Risk Committee focus during 2014 • Assessed and monitored the Risk function’s oversight of major change initiatives. These included IT migration and transformation programmes Jane Hanson, • Reviewed and challenged the Solvency II programme Chair of the Board Risk Committee plan and timetable, and received reports and training Role of the Board Risk Committee on various Solvency II matters. These included: the IMAP plan; outputs of external validation and assurance The Committee is responsible for providing oversight and activities; the strengths and limitations of the Internal advice to the Board in relation to the Group’s current and Economic Capital Model; and dependencies, potential future risk exposures and the strategic approach to correlations and diversification managing risk. The Committee recommends risk appetite and tolerance levels to the Board, and promotes a risk-awareness • Reviewed the stress testing and scenario analysis plan for culture within the Group. 2014, and the outputs of two specific reverse stress tests undertaken at the Committee’s request The Committee has unrestricted access to management and • Commissioned an external review of the Financial external advisers to help discharge its duties. It is satisfied Promotions team and considered the findings and that during 2014, it received sufficient, reliable and timely recommendations information to perform its responsibilities effectively. During the year, at the Committee’s request, external consultants undertook • Reviewed the findings and output of a review undertaken specific reviews. These included validation activities regarding by an external consultant regarding the maturity of the the IMAP submission. Risk Management Committee • Reviewed the strategic approach to managing risk You can find the Board Risk Committee’s terms of reference across the Group and monitored the effectiveness of at www.directlinegroup.com . the ERM framework Committee composition, skills and experience • Approved the Risk and Compliance plan and Conduct The Committee comprises four independent Non-Executive and Compliance assurance plan, and assessed the level Directors: Jane Hanson; Andrew Palmer; Clare Thompson; and effectiveness of resource within the Risk function and Priscilla Vacassin. You can find the members’ biographical • Recommended approving the Group’s risk appetite and information on pages 52 to 53. risk policies to the Board Meetings • Reviewed and challenged the Group’s conduct risk and The Board Risk Committee held six scheduled meetings in compliance management processes to drive the right 2014, one of which was a joint meeting with the Remuneration customer outcomes. The Committee regularly reviewed Committee. Additionally, four sub-committee meetings were held and challenged key risk indicators and measures to consider Solvency II and IMAP matters. The following table covering the key areas of treating customers fairly and sets out attendance at the scheduled meetings: core regulatory interactions • Reviewed the adequacy of the Group’s arrangements to Scheduled Percentage meetings attendance allow employees to raise concerns and reviewed reports on these matters. Assessed the effectiveness of the Jane Hanson (Chair) 6 of 6 100% Group’s anti-money laundering and sanctions systems Andrew Palmer 6 of 6 100% and controls Clare Thompson 6 of 6 100% • Worked with the Remuneration Committee to ensure risk Priscilla Vacassin 5 of 6 83% management is considered and included when assessing the performance of senior executives, and incorporated The Chief Executive Officer, Chief Financial Officer, Chief Risk into the incentive schemes for customer facing roles and Officer, Group Head of Audit, General Counsel and a for technicians and support staff in the accident and representative from the External Auditor are invited to attend repair centres Board Risk Committee meetings. In addition to regular one-to- one meetings with the Chair, the Chief Risk Officer also met • Reviewed the ORSA report for 2014 privately with the Committee, in the absence of management.

64 Direct64 Direct Line Line Group Group Annual Annual Report Report & Accounts & Accounts 2014 2014 Version 10.0 Draft and Secret Governance review 65

www.directlinegroup.com ticularemphasis onachieving rancesales and servicecontact ardto ensurethat theGroup r on updates the Company’s Remunerationand Committees on responses from the members d thehow performance of any each key at developments fficer’s report, the Committee Committee the report, fficer’s Chair of the Board of Riskthe Committee Chair Version 10.1 Draft and Secret www.direclinegroup.com 65 Remuneration Remuneration RiskBoard year,the the During a held jointmeeting to ensurerisk management metricsare consideredpartas of evaluatingthe performance of senior executives,and areincorporated into the incentive schemes for insu the facing in customer roles andcentres, for techniciansand staffUK support the within AssistanceAccident and Repair Centres. TheCommittees consideredmatters including regulatory developments in remunerationandthe level of preparedness inrelation to the an guidance; II Solvency draft inindividuals Control Functions beassessed.should Effectivenessof Boardthe Committee Risk TheCompany Secretary facilitated the Committee’sreview year.Secretary effectivenessduringthe Company its The of abased prepared report also theCommitteeof and other stakeholders to pre-agreeda questionnaire. Havingreviewed discussedand the resulting report, theCommittee concluded that it was effective and access has to sufficient resources perform to its duties. on report this andreviewedapproved Board The 2015. March 2 Jane Hanson, Conduct and compliance risk risk compliance and Conduct ofpart ChiefAs the Risk O reviewedchallengedand theconduct and compliance risk measures,covering customer andregulatory interactions across a with par functions, Group’s the theright customer outcomes. The Committee commissioned an externalreview theFinancialof Promotionsteam, focusing on andcontrols.of processes and governance approval systems Additionally,the Committee ensuredthat there isstanding a agendaitem onandCompliance Regulatory Risk,including on withupdates risk, conduct scheduledCommittee meeting from theGroup’s Director of Regulatory and Risk. Compliance crime financial and Whistleblowing regula received Committee The whistleblowing process. Itreviewedalso the arrangements for employeesto report any concerns about suspected illegal or unethicalbehaviour withinDirect Group,Line withoutfear of adverseconsequences. TheCommittee received annual reports fromtheMoney Laundering Reporting Officer, haswho Bo authoritythe delegated from toandcontrolsmanage place insystems appropriate has laundering money and sanction risks; and the UK designated Anti-Briberyand Officer.Corruption statements: maintain statements: to IMAP validation andvalidation the to IMAP rrelations and diversification. rrelations nsultantof the transformation o analysis,includingo reverse and Material Register; Risk e drivers impacting the risk the impacting drivers e p’s capabilities, develop capabilities, new p’s p’s strategic objectives andobjectives strategic p’s ent access to funding andtofunding access ent derconfidence, togetherwith Group.Duringthe year, the ents that ents these. supported mitations; profit and loss profit mitations; rnal Economic Capital Model Capital Economic rnal component of the Group’s ERM of Group’s component the sk objectivesk appetite Risk appetite monitoring appetite Risk TheCommittee received regular correspondingreports to strategicri three the stable/effici adequacy; capital andliquidity; maintain stakehol TheCommittee monitored theGroup’s exposure against appetites,these assessed and th status. appetite lower level risklevel lower appetite statem Risk management framework framework management Risk reviewedapprovedandCommittee 2014, the During several enhancementsto the ERM framework. Theseincluded the re- andanandMinimumStandards, Policies Group launched enhancedEmerging Risks Register, which provides a forward- perspectiveon looking facingemergingthe risks organisation. TheCommittee reviewed also and challenged the ORSAin Solvencyof advance II. TheCommittee provided oversight riskmanagement of operations reviewing by theRisk and operationalCompliance plan.These included the Group’s conductandreviewingto culture; approach and approving the AppetiteRisk Group’s Statements consideringand the effectivenessof theERM framework. stresstesting, is core a Stress and scenario testing scenario and Stress stress Regular testingand scenari IMAPsubmission process; Inte supportsGrou It the framework. Solvency II Solvency progressingcontinuedtowards Group 2014, During the compliancewithSolvency requirements;II theSolvency II Directive an has implementation ofdate January1 2016. TheCommittee consideredhas rangea Solvencyof IImatters meetings scheduled andat trainingsessions. Key ofareas approachincluded: have the focus andstrengths li developments, attribution;and dependencies, co anarea is increasing of focus theforPRA. During theyear, requestedtheCommittee thatthe Risk function undertake two reversestress tests:the weatherofimpact multiple events; and themis-selling of customer policies. The Committee reviewed challengedand theoutputs of thesereverse stresstests, and consideredthe proposedmanagement actions. programme to expand Grou to the programme technologyand toolsdigital to supporton focusing customers, governanceand programme setup. The reviews culminated detailed in presentations at scheduledmeetings,Committee where thefindings were reviewed and actions agreed. Major change programmes programmes change Major majorchange the on reports regular received Committee The the in undertaken programmes Committeecommissioned several reviews,including a detailed an assessment externalrisk by co Committee reports continued

Corporate Social Responsibility CSR Committee focus during 2014 Committee report • Reviewed and approved the Group’s CSR 2015 strategy and four key focus areas • Reviewed and approved the adoption of a CSR Charter • Received regular reports from the Diversity Network Alliance group, focusing on the gender, working families and diversity strands • Held a scheduled Committee meeting in the Glasgow office, following an informal lunch with colleagues representing the Glasgow Local Community Team, and the Charity and Social Committee • Reviewed updates on emerging CSR matters, including Clare Thompson, presentations from external speakers Chair of the Corporate Social Responsibility Committee • Received regular reports from the Health and Safety Role of the Corporate Social Responsibility Committee Committee, and assessed health and safety performance The Corporate Social Responsibility (“CSR”) Committee against the previously agreed plan provides oversight and advice in relation to how the Group • Reviewed progress against the Group’s sustainability conducts its business responsibly, including in relation to health targets, which are published on our website and safety, the environment, employee engagement and wellbeing, community involvement and ethical matters. The • Received updates on employee engagement in relation Committee considers the role of the Group in society, including to CSR matters, volunteering and community activities environment and community engagement policies. Committee composition CSR 2015 strategy The Committee comprises three independent Non-Executive The Committee reviewed and approved the Group’s CSR Directors: Jane Hanson; Sebastian James; and Clare Thompson; 2015 strategy. It incorporates an overarching principle that together with Paul Geddes, Chief Executive Officer; and Angela a clear benefit to the Group’s business, customers and people Morrison, Chief Information Officer. You can find the members’ must be embedded in the CSR strategy and every focus area. biographical information on pages 52 to 54. The four focus areas, each sponsored by a member of the Executive Committee, are as follows: During the year, Clare Thompson became Chair of the CSR Committee. Jane Hanson retired as Chair at that time but • Helping to make our society safer – Mike Holliday-Williams continues to be a member. The Board also approved the • Proud to be here – Simon Linares appointment of Angela Morrison as a member of the Committee, following Tom Woolgrove’s departure from the • Reduce, Reuse and Recycle – Steve Maddock Group, and the appointment of Sebastian James as an • Being recognised as part of our communities – Jon additional Committee member. Greenwood Meetings You can find more information on the Group’s approach and The CSR Committee held four scheduled meetings in 2014. The priorities regarding CSR in the CSR report on pages 32 to 35. following table sets out attendance at the scheduled meetings: Effectiveness of the CSR Committee

Scheduled Percentage The Company Secretary facilitated the Committee’s review meetings attendance of its effectiveness during the year. The Company Secretary Clare Thompson (Chair) 4 of 4 100% also prepared a report based on responses from the members of the Committee and other stakeholders to a pre-agreed Paul Geddes 3 of 4 75% questionnaire. Having reviewed and discussed the resulting Jane Hanson 4 of 4 100% report, the Committee concluded that it was effective and 1 Sebastian James 1 of 1 100% has access to sufficient resources to perform its duties. Angela Morrison1 3 of 3 100% Tom Woolgrove1 2 of 2 100% The Board reviewed and approved this report on 2 March 2015. The Human Resources Director, Managing Director of Claims and Business Services, Head of Public Affairs and Sustainability, Head of Employee Relations and Engagement and CSR

Manager are invited to attend CSR Committee meetings. Clare Thompson, Chair of the CSR Committee The Chair reports on matters dealt with at each Committee meeting to the subsequent scheduled Board meeting. Note: 1. Attendance is expressed as the number of scheduled meetings attended out of the number of such meetings possible or applicable to attend.

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www.directlinegroup.com for Solvencyfor II reporting strategies to help identify identify help to strategies tandingof therationale and antcapital implications) the market and investigated ucture debt,as toucture include swithin the Investment and frommanagement regarding erling private placement erling placement private backing Periodical Payment Periodical backing pportunities (appropriateforpportunities an d, whichd, approved them: ”) liabilities”) PPO Chair of the Investment Committee Committee Investment the of Chair Version 10.1 Draft and Secret www.direclinegroup.com 67 part of the asset strategy strategy asset the of part (“ Order yield high Dollar short-duration into US An investment portfolio the from returns expected future enhance to debt bonds to enhanceexpected returns and provide further diversificationforportfolioissuer the An allocation toallocation infrastrAn UK allocationAn to St Pound

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Effectiveness ofEffectiveness Committee Investment the TheCompany Secretary facilitated the Committee’sreview of its effectiveness duringtheyear. TheCompany Secretary also reporta prepared based re on theCommittee and other stakeholders to pre-agreeda questionnaire. Havingreviewed discussedand the resulting report, theCommittee concluded that it was effective and has to duties.access sufficientresources to its perform TheChair reports onmatters dealt withat each Committee meeting theto subsequent scheduled Boardmeeting. TheChief Executive Officer, Chief Financial Officer, Chief Risk DirectorOfficer, of InvestmentManagement and Treasury, and DirectorFinancial of areRisk invited attendto Investment meetings. Committee J AndrewPalmer ThompsonClare GlynJones (Chair) TheInvestment Committeeheld fourscheduled meetings in a called to meeting consider was one Additionally, 2014. investmentnew allocation. Thefollowing tablesets out the at attendance Meetings Committee composition, skillscomposition, Committee experience and TheCommittee comprisesfourindependent Non-Executive Directors:Glyn Jones; Jane Hanson;Andrew Palmer; and Thompson.Clare canYou find the members’ biographical pageson 52information to53. Role of the Investment CommitteeInvestment of the Role TheCommittee is responsible for overseeing the development andmanagement and the strategy investment Group’s the of portfolio.investment of Group’s performance the Glyn Jones, Jones, Glyn Chairof theInvestment Committee Investment Committee report report Committee Investment

Committee reports continued

Nomination Committee report Nomination Committee focus during 2014 • Evaluated the Board’s balance of skills, knowledge, experience and diversity • Considered the requirement for an additional Non- Executive Director, defined search criteria, engaged JCA Group Limited (“JCA Group”) as external search consultants, assessed potential candidates, and recommended appointing Sebastian James to the Board • Reviewed the Group’s leadership needs and considered succession planning for Executive and Non-Executive Directors, and senior executives Mike Biggs, Chair of the Nomination Committee • Reviewed the membership and chairmanship of Board Committees, and recommended appropriate changes Role of the Nomination Committee • Reviewed the letters of appointment and appointment The Committee is responsible for keeping the Board’s structure, terms for Non-Executive Directors size, composition, and balance of skills, experience and expertise under review. The Committee recommends Board • Reviewed the independence and time commitment of and Committee appointments to the Board, reviews the Directors, and recommended their re-election at the Group’s leadership needs, and monitors the Executive and 2014 AGM Non-Executive Director succession plans. It also reviews Directors’ time commitment and considers and recommends the re-election of Directors at the Company’s AGM. Changes to the Board Mark Catton, who had been nominated to represent RBS You can find the Nomination Committee’s terms of reference Group on the Board, stepped down on 7 March 2014. This at www.directlinegroup.com . followed RBS Group selling substantially all of its shareholding in the Company in February 2014. Sebastian James was Committee composition, skills and experience appointed as a Non-Executive Director of the Company on The Committee comprises the Chairman, Mike Biggs, and two 28 August 2014. independent Non-Executive Directors: Glyn Jones; and Andrew Palmer. You can find the members’ biographical information Board appointment and reappointment process on pages 52 to 53. During 2014, the Committee oversaw the appointment of Sebastian James as a Non-Executive Director. Following a Meetings review of the expertise and experience of members of the The Nomination Committee held three scheduled meetings Board, the Committee produced a detailed candidate brief in 2014. Additionally, three meetings were held to deal with and engaged external search consultants, JCA Group, to find matters emerging during the year. The following table sets suitable candidates. JCA Group is a signatory to the Voluntary out attendance at the scheduled meetings: Code of Conduct for executive search firms and has no other connection to the Company. A long list of candidates of Scheduled Percentage meetings attendance appropriate merit from diverse backgrounds was prepared and the Committee agreed a shortlist and interviewed candidates. Mike Biggs (Chair) 3 of 3 100% It then approached the PRA and FCA for approval, and Glyn Jones 3 of 3 100% recommended Sebastian James’ appointment as a Andrew Palmer 3 of 3 100% Non-Executive Director to the Board.

The Chief Executive Officer is invited to attend Nomination Sebastian James, having been appointed during the year, Committee meetings. The Chair of the Remuneration will submit himself for election at the Company’s 2015 AGM. Committee, Human Resources Director and General Counsel Sebastian James is considered independent within the meaning are also invited to attend appropriate sections of the of the Code. Nomination Committee meetings. Election and re-election of Directors The Chair reports on matters dealt with at each Committee Before the proposed re-election of Directors at the 2014 meeting to the subsequent scheduled Board meeting. AGM, the Committee reviewed the independence of Non- Executive Directors. It concluded that Jane Hanson, Glyn Jones, Andrew Palmer, Clare Thompson and Priscilla Vacassin were all independent within the meaning of the UK Corporate Governance Code. Mike Biggs was independent on his appointment as Chairman. The Committee recommended to the Board and shareholders that all serving Directors be re- elected at the Company’s 2014 AGM.

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attendance Percentage

1 8 of 8 8 of 8 1 of 1 100% 8 of 8 100% 7 of 7 100% 100% 100% www.directlinegroup.com meetings Scheduled Scheduled relating overlappingto remits tian James was James appointedtian ce at ce thescheduled meetings:

ives, approves share incentiveives,share approves e, and Clare ThompsonClare retired and e, share plansshare requiring Sebastian James; and AndrewSebastianand James; Version 10.1 Draft and Secret www.direclinegroup.com 69 out of the number of such meetings possible or applicable to attend. attend. to applicable or possible meetings such of number the of out Committee composition, skillscomposition, Committee experience and TheCommittee comprisesthree independentNon-Executive Vacassin; Priscilla Directors: Palmer;and the BoardChairman, Mike Biggs. canYou find members’the biographical information on pages 52 53. to Sebas 2014, 30 September On membera as of theCommitte member.a as Meetings TheRemuneration Committee held eight scheduledmeetings a 2014,ofwas jointin onemeeting which with Board the mattersdiscuss to Committee Risk betweenthe twoCommittees. Additionally,two meetings The year. the during arising matters with deal to held were tablesetsfollowing attendanout (Chair) Vacassin Priscilla Biggs Mike James Sebastian AndrewPalmer ThompsonClare Note: 1. attended meetings scheduled of number the as expressed is Attendance Remuneration Remuneration Committee report Vacassin,Priscilla Chairof theRemuneration Committee Committee Remuneration the of Role TheCommittee is responsible for setting and overseeing theimplementation of theGroup’s remuneration policy. TheCommittee oversees thelevel and structure remuneration of execut forsenior arrangements andplansand, plans, recommends the share to Board changes applicable, when to shareholderapproval. canYou find the Remuneration Committee’sterms referenceof . www.directlinegroup.com at on responses from the members velopingpotential among Chairof the NominationCommittee MichaelBiggs,N

TheCompany Secretary facilitated the Committee’sreview year.Secretary effectivenessduringthe Company its The of abased prepared report also on report this andreviewedapproved Board The 2015. March 2 seniorexecutives. theCommitteeof and other stakeholders to pre-agreeda questionnaire. Havingreviewed discussedand the resulting report, theCommittee concluded that it was effective and access has to sufficient resources perform to its duties. Effectiveness ofEffectiveness Committee Nomination the effectivenessreviewBoardCommittee 2013 and The identifiedthe needfor greater focus successionon planning. Thisincorporatedwas into the NominationCommittee’s agendafor 2014. The Committee hasreviewed the Executive Non-Executiveand Director succession plans. It alsohas managementguided onsuccession planning, inparticular identifying,assessing and de You can find more information on the Group’s approach to to findapproach Group’s more can informationthe You on diversity on the 32section in pages CSR to 35. Diversity TheGroup celebrates thediversity of itsworkforce. Weseek recruitto the best candidates for positions all throughoutthe business,irrespective of gender. Threeof our nine Directors arewomen(33% theBoard). of Thislevel exceedsthe target recommendedby theDavies Reportonboardroom diversity. TheacknowledgesBoard thebenefit of diversity. The NominationCommittee has encapsulated in its termsof referencerequirementa to consider candidates for merit,on to Board appointment the criteria againstobjective diversity,genderincludingto diversity. regard due with and

Committee reports continued

The Chief Executive Officer, Human Resources Director and Effectiveness of the Remuneration Committee senior representatives of the Human Resources function are The Company Secretary facilitated the Committee’s review invited to attend Remuneration Committee meetings. FIT of its effectiveness during the year. The Company Secretary Remuneration Consultants LLP, who act as independent also prepared a report based on responses from the members advisers to the Committee, are also invited to attend of the Committee and other stakeholders to a pre-agreed Remuneration Committee meetings. questionnaire. Having reviewed and discussed the resulting report, the Committee concluded that it was effective and The Chair reports on matters dealt with at each Committee has access to sufficient resources to perform its duties. meeting to the subsequent scheduled Board meeting. The Board reviewed and approved this report on Remuneration Committee focus during 2014 2 March 2015.

• Considered the continued suitability of the current remuneration framework

• Reviewed regulatory developments relating to remuneration and considered the implications for the Group Priscilla Vacassin, Chair of the Remuneration Committee • Reviewed the share-ownership guidelines for senior executives and the extent of compliance with the guidelines • Determined the 2013 bonus pool and individual allocations to senior executives, in light of the performance of the business, advice from the Chairs of the Audit and Board Risk Committees, the audit of the Group’s results, and individual performance • Determined that no clawback of awards under the Annual Incentive Plan (“AIP”) was required in 2014 • Considered the implications of selling the Group’s International division on remuneration at the International division and Group levels • Considered the compensation for senior executives joining and leaving the Group • Considered management recommendations for a restricted share award to outstanding employees not eligible for the Long-Term Incentive Plan (“LTIP”), and approved a proposal for a free share award to all employees • Determined the quantum of awards under the LTIP, in view of business and individual performance • Considered the required approach for the AIP for employees in control functions, including Risk and Group Audit • Approved the metrics and targets for the 2014 AIP • Worked with the Board Risk Committee to ensure risk management metrics were considered and included when assessing the performance of senior executives, and incorporated into the incentive schemes for customer facing roles and for technicians and support staff in the accident and repair centres • Reviewed the compensation for Executive Directors and supervised the compensation review for members of the Executive Committee, other senior executives and other employees

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