Important Notice Not for Distribution to Any U.S

IMPORTANT NOTICE

NOT FOR DISTRIBUTION TO ANY U.S. PERSON OR TO ANY PERSON OR ADDRESS IN THE U.S.

IMPORTANT: You must read the following before continuing. The following applies to the Offering Memorandum following this page, and you are therefore advised to read this carefully before reading, accessing or making any other use of the Offering Memorandum. In accessing the Offering Memorandum, you agree to be bound by the following terms and conditions, including any modifications to them any time you receive any information from us as a result of such access.

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. NOTHING HEREIN CONSTITUTES AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY THE SECURITIES OF THE ISSUER OR PENSION INSURANCE CORPORATION GROUP LIMITED. THE FOLLOWING OFFERING MEMORANDUM MAY NOT BE FORWARDED OR DISTRIBUTED TO ANY OTHER PERSON AND MAY NOT BE REPRODUCED IN ANY MANNER WHATSOEVER AND, IN PARTICULAR, MAY NOT BE FORWARDED TO ANY U.S. PERSON OR TO ANY U.S. ADDRESS. ANY FORWARDING, DISTRIBUTION OR REPRODUCTION OF THIS DOCUMENT IN WHOLE OR IN PART IS UNAUTHORISED. FAILURE TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN A VIOLATION OF THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR THE APPLICABLE LAWS OF OTHER JURISDICTIONS.

This Offering Memorandum has been delivered or made available to you on the basis that you are a person into whose possession this Offering Memorandum may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located. By accessing the Offering Memorandum, you shall be deemed to have confirmed and represented to us that (a) you understand and agree to the terms set out herein, (b) you consent to delivery of the Offering Memorandum by electronic transmission, (c) you are not a U.S. person (within the meaning of Regulation S under the Securities Act) or acting for the account or benefit of a U.S. person and the electronic mail address that you have given to us and to which this e-mail has been delivered is not located in the United States, its territories and possessions (including Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands) or the District of Columbia and (d) if you are a person in the United Kingdom, that you are a person who (i) is an investment professional falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 or (ii) may lawfully be delivered this Offering Memorandum.

This Offering Memorandum has been distributed or made available to you in an electronic form. You are reminded that documents made available or transmitted via this medium may be altered or changed during the process of electronic transmission and consequently none of Pension Insurance Corporation plc, Pension Insurance Corporation Group Limited, HSBC Bank plc, J.P. Morgan Securities plc or NatWest Markets Plc nor any person who controls any such person or any director, officer, employee, agent or affiliate of any such person accepts any liability or responsibility whatsoever in respect of any difference between the Offering Memorandum distributed or made available to you in electronic format and the hard copy version made available to you on request from Pension Insurance Corporation plc, HSBC Bank plc, J.P. Morgan Securities plc or NatWest Markets Plc.

OFFERING MEMORANDUM DATED 23 JULY 2019

Pension Insurance Corporation plc

(Incorporated with limited liability in England and Wales with Registered no.05706720)

£450,000,000 7.375 per cent. Fixed Rate Reset Perpetual Restricted Tier 1 Contingent Convertible Notes

Issue price: 100 per cent.

The £450,000,000 7.375 per cent. Reset Perpetual Restricted Tier 1 Contingent Convertible Notes (the “Notes”) will be issued by Pension Insurance Corporation plc (“PIC” or the “Issuer”) and constituted by a trust deed to be dated on or about 25 July 2019 (as amended or supplemented from time to time, the “Trust Deed”) between, among others, the Issuer and the Trustee (as defined in “Terms and Conditions of the Notes” (the “Conditions”, and references herein to a numbered “Condition” shall be construed accordingly)). The Notes will bear interest from 25 July 2019 (the “Issue Date”) to (but excluding) 25 July 2029 (the “First Call Date”) at a rate of 7.375 per cent. per annum and thereafter at a fixed rate of interest which will be reset on the First Call Date and on each fifth anniversary of the First Call Date thereafter (each a “Reset Date”), payable (subject to cancellation as provided below and as described in the Conditions) semi-annually in arrear on 25 January and 25 July in each year (each an “Interest Payment Date”) commencing on 25 January 2020. The Issuer may elect at any time to cancel (in whole or in part) any payment of interest otherwise scheduled to be paid on an Interest Payment Date and shall, save as otherwise permitted pursuant to the Conditions, cancel in full an interest payment upon the occurrence of a Mandatory Interest Cancellation Event (as defined in the Conditions) with respect to that interest payment. Any interest accrued in respect of an Interest Payment Date which falls on or after the date on which the Trigger Event (as defined in the Conditions) occurs shall also be cancelled. The cancellation of any interest payment shall not constitute a default for any purpose on the part of the Issuer. Any interest payment (or part thereof) which is cancelled in accordance with the Conditions shall not become due and payable in any circumstances. Payments in respect of the Notes will be made without withholding or deduction for, or on account of, taxes of the Relevant Jurisdiction (as defined in the Conditions, and currently being the United Kingdom), unless such withholding or deduction is required by law. If any such withholding or deduction is made in respect of payments of interest (but not in respect of any payments of principal), additional amounts may be payable by the Issuer, subject to certain exceptions as are more fully described in the Conditions. The Notes will be perpetual securities with no fixed redemption date. The Issuer shall only have the right to redeem or purchase the Notes in accordance with the Conditions. Holders of the Notes (“Noteholders”) will have no right to require the Issuer to redeem or purchase the Notes at any time. Subject to the Regulatory Clearance Condition (as defined in the Conditions) having been satisfied, and to compliance with the other Redemption and Purchase Conditions (as defined in the Conditions), the Notes may be redeemed at the option of the Issuer (i) on the First Call Date or any Reset Date thereafter or (ii) at any time in the event that 80 per cent. or more of the principal amount of the Notes have been purchased and cancelled by the Issuer (or any of its Subsidiaries), in each case at their principal amount plus accrued interest (if any). Upon the occurrence of certain specified events relating to taxation or upon the occurrence of (or if there will occur in the forthcoming period of six months) a Capital Disqualification Event or a Ratings Methodology Event (each as defined in the Conditions), the Issuer may redeem the Notes at their principal amount plus accrued interest (if any) or substitute the Notes for, or vary the terms of the Notes such that the Notes become or remain, Qualifying Securities (as defined in the Conditions) or Rating Agency Compliant Securities (as defined in the Conditions), in each case subject to satisfaction of the Regulatory Clearance Condition (as defined in the Conditions) and to compliance with the other Redemption and Purchase Conditions, as more fully described in the Conditions. UPON THE OCCURRENCE OF A TRIGGER EVENT THE NOTES WILL BE IRREVOCABLY CONVERTED INTO ORDINARY SHARES OF THE ISSUER AT THE PREVAILING CONVERSION PRICE (AS DEFINED IN THE CONDITIONS). FOLLOWING CONVERSION, NOTEHOLDERS MAY RECEIVE CONVERSION SHARES ISSUED BY THE CONVERSION SHARES ISSUER (WHICH MAY BE CONSTITUTED BY ORDINARY SHARES OF THE ISSUER OR AN ENTITY OTHER THAN THE ISSUER), AS MORE FULLY DESCRIBED IN THE CONDITIONS. With effect from the Conversion Date (as defined in the Conditions) no Noteholder will have any rights against the Issuer with respect to the repayment of principal or interest in respect of the Notes. The Notes are not convertible at the option of the Noteholders at any time. The Notes will be direct, unsecured and subordinated obligations of the Issuer, ranking pari passu and without preference amongst themselves, and will, in the event of the winding-up of the Issuer or in the event of an administrator of the Issuer being appointed and giving notice that it intends to declare and distribute a dividend, be subordinated to the claims of all Senior Creditors (as defined in the Conditions) of the Issuer. The Notes will be issued in registered form in denominations of £200,000 and integral multiples of £1,000 in excess thereof. 2

MiFID II professionals/ECPs-only / No PRIIPs KID / PI Instrument – Manufacturer target market (Directive 2014/65/EU (as amended, “MiFID II”)) is eligible counterparties and professional clients only (each as defined in MiFID II) (all distribution channels). No Regulation (EU) No 1286/2014 (the “PRIIPs Regulation”) key information document (“KID”) has been prepared as the Notes are not available to retail investors in the European Economic Area (the “EEA”, as defined in MiFID). The Notes are further not intended to be sold and should not be sold to retail clients in the EEA, per the rules set out in the Product Intervention (Contingent Convertible Instruments and Mutual Society Shares) Instrument 2015 (as amended or superseded, the “PI Instrument”). See “Restrictions on Marketing and Sales to Retail Investors” for further information. This Offering Memorandum does not comprise a prospectus for the purposes of Article 5 of Directive 2003/71/EC (as amended or superseded) (the “Prospectus Directive”). This Offering Memorandum has been approved as Listing Particulars by The Irish Stock Exchange plc, trading as Euronext Dublin (“Euronext Dublin”). Application has been made to Euronext Dublin for the Notes to be admitted to the official list (the “Official List”) and to trading on the Global Exchange Market of Euronext Dublin (“GEM”). References in this Offering Memorandum to the Notes being “listed” (and all related references) shall mean that the Notes have been admitted to the Official List and have been admitted to trading on GEM. GEM is the exchange regulated market of Euronext Dublin and is not a regulated market for the purposes of MiFID II. The Notes are expected to be rated BBB- by Fitch Ratings Limited (“Fitch”). Fitch is established in the European Union and is registered under Regulation (EU) No. 1060/2009, as amended (the “CRA Regulation”). Fitch appears on the latest update of the list of registered credit rating agencies (as of 5 July 2019) on the European Securities and Markets Authority (“ESMA”) website https://www.esma.europa.eu/supervision/credit-rating-agencies/risk. A security rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, reduction or withdrawal at any time by the assigning rating agency. An investment in the Notes involves certain risks. Prospective investors should have regard to the factors described under the section headed “Risk Factors” in this Offering Memorandum.

Sole Structuring Agent to the Issuer J.P. Morgan Cazenove Joint Lead Managers HSBC J.P. Morgan Cazenove NatWest Markets

Responsibility Statement

The Issuer accepts responsibility for the information contained in this Offering Memorandum. To the best of the knowledge of the Issuer (having taken all reasonable care to ensure that such is the case) the information contained in this Offering Memorandum is in accordance with the facts and does not omit anything likely to affect the import of such information.

Pension Insurance Corporation Group Limited (“PICG”) accepts responsibility for the information contained in this Offering Memorandum insofar as it relates to PICG (the “PICG Information”). To the best of the knowledge of PICG (having taken all reasonable care to ensure that such is the case) the information contained in this Offering Memorandum which is PICG Information is in accordance with the facts and does not omit anything likely to affect the import of such information.

Important Information

Any information contained in this Offering Memorandum which has been sourced from a third party has been accurately reproduced and, as far as each of the Issuer and PICG is aware and is able to ascertain from information published by that third party, no facts have been omitted which would render the reproduced information inaccurate or misleading.

This Offering Memorandum is to be read in conjunction with all documents which are incorporated herein by reference (see “Documents Incorporated by Reference” below) and shall be read and construed on the basis that such documents are incorporated in and form part of this Offering Memorandum.

No person is or has been authorised to give any information or to make any representation other than those contained in or consistent with this Offering Memorandum in connection with the issue or sale of the Notes and, if given or made, such information or representations must not be relied upon as having been authorised by or on behalf of the Issuer, the Joint Lead Managers (as named and defined in “Subscription and Sale” below) or the Trustee. Neither the delivery of this Offering Memorandum nor any sale made in connection herewith shall, under any circumstances, create any implication that there has been no change in the affairs of the Issuer or PICG since the date hereof or that there has been no adverse change in the financial position of the Issuer or PICG since the date hereof or that any other information supplied in connection with the Notes is correct as of any time subsequent to the date on which it is supplied or, if different, the date indicated in the document containing the same.

The Joint Lead Managers and the Trustee have not separately verified the information contained in this Offering Memorandum. None of the Joint Lead Managers nor the Trustee makes any representation, express or implied, or accepts any responsibility, with respect to the accuracy or completeness of any of the information contained in this Offering Memorandum or any other information provided by the Issuer in connection with the offering of the Notes or as to any act or omission of the Issuer or any other person in connection with the offering of the Notes. None of the Joint Lead Managers nor the Trustee accepts any liability in relation to the information contained or incorporated by reference in this Offering Memorandum or any other information provided by the Issuer in connection with the offering of the Notes or their distribution. Neither this Offering Memorandum nor any other information supplied in connection with the offering of the Notes is intended to constitute, and should not be considered as, a recommendation by any of the Issuer, the Joint Lead Managers or the Trustee that any recipient of this Offering Memorandum or any other information supplied in connection with the offering of the Notes should purchase the Notes. Each 4 potential purchaser of Notes should determine for itself the relevance of the information contained in this Offering Memorandum and its purchase of Notes should be based upon such investigation as it deems necessary. None of the Joint Lead Managers nor the Trustee undertakes to review the financial condition or affairs of the Issuer during the life of the arrangements contemplated by this Offering Memorandum nor to advise any investor or potential investor in the Notes of any information coming to their attention.

Important Information Regarding the Use of this Offering Memorandum and Offers of the Notes Generally

Neither this Offering Memorandum nor any other information provided by the Issuer in connection with the offering of the Notes constitutes an offer of, or an invitation by or on behalf of, the Issuer or the Joint Lead Managers or the Trustee or any of them to subscribe for, or purchase, any of the Notes (see “Subscription and Sale” below). This Offering Memorandum does not constitute an offer to sell or the solicitation of an offer to buy the Notes in any jurisdiction to any person to whom it is unlawful to make the offer or solicitation in such jurisdiction. The distribution of this Offering Memorandum and the offer or sale of Notes may be restricted by law in certain jurisdictions. The Issuer, the Joint Lead Managers and the Trustee do not represent that this Offering Memorandum may be lawfully distributed, or that the Notes may be lawfully offered, in compliance with any applicable registration or other requirements in any such jurisdiction, or pursuant to an exemption available thereunder, or assume any responsibility for facilitating any such distribution or offering. In particular, no action has been taken by the Issuer, the Joint Lead Managers or the Trustee which is intended to permit a public offering of the Notes or the distribution of this Offering Memorandum in any jurisdiction where action for that purpose is required. Accordingly, no Notes may be offered or sold, directly or indirectly, and neither this Offering Memorandum nor any advertisement or other offering material may be distributed or published in any jurisdiction, except under circumstances that will result in compliance with any applicable laws and regulations. Persons into whose possession this Offering Memorandum or any Notes may come must inform themselves about, and observe, any such restrictions on the distribution of this Offering Memorandum and the offering and sale of Notes. In particular, there are restrictions on the distribution of this Offering Memorandum and the offer or sale of Notes in the U.S., the United Kingdom and the EEA. Persons in receipt of this Offering Memorandum are required by the Issuer, the Joint Lead Managers and the Trustee to inform themselves about and to observe any such restrictions. For a description of certain further restrictions on offers and sales of Notes and distribution of this Offering Memorandum, see “Subscription and Sale” below.

The Notes and any shares which may be delivered upon or following conversion have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”) or the securities laws of any state of the United States and are subject to U.S. tax law requirements. Subject to certain exceptions, the Notes and any shares which may be delivered upon or following conversion may not be offered, sold or delivered within the U.S. or to U.S. persons, as defined in Regulation S under the Securities Act. For a description of certain restrictions on offers and sales of Notes and on distribution of this Offering Memorandum, see “Subscription and Sale” below.

Restrictions on Marketing and Sales to Retail Investors

The Notes are complex financial instruments and are not a suitable or appropriate investment for all investors. In some jurisdictions, regulatory authorities have adopted or published laws, regulations or guidance with respect to the offer or sale of securities with similar features to the Notes to retail investors. In particular, in June 2015, the Financial Conduct Authority (the “FCA”) published the PI Instrument. In addition, (i) on 1 January 2018, the provisions of the PRIIPs Regulation became directly applicable in all EEA member states and (ii) MiFID II was required to be implemented in EEA member states by 3 January 2018. Together the PI Instrument, the PRIIPs Regulation and MiFID II are referred to as the “Regulations”.

The Regulations set out various obligations in relation to (i) the manufacture and distribution of financial instruments and (ii) the offering, sale and distribution of packaged retail and insurance- based investment products and certain contingent write down or convertible securities, such as the Notes.

Potential investors in the Notes should inform themselves of, and comply with, any applicable laws, regulations or regulatory guidance with respect to any resale of the Notes (or any beneficial interests therein) including the Regulations.

Each of the Joint Lead Managers is required to comply with some or all of the Regulations. By purchasing, or making or accepting an offer to purchase, any Notes (or a beneficial interest therein) from the Issuer and/or a Joint Lead Manager, each prospective investor represents, warrants, agrees with, and undertakes to, the Issuer and the Joint Lead Managers that:

(1) it is not a retail client (as defined in MiFID II);

(2) whether or not it is subject to the Regulations, it will not:

(i) sell or offer the Notes (or any beneficial interest therein) to retail clients (as defined in MiFID II); or

(ii) communicate (including the distribution of this Offering Memorandum, in preliminary or final form) or approve an invitation or inducement to participate in, acquire or underwrite the Notes (or any beneficial interests therein) where that invitation or inducement is addressed to or disseminated in such a way that it is likely to be received by a retail client (as defined in MiFID II);

(3) in selling or offering the Notes or making or approving communications relating to the Notes, each prospective investor may not rely on the limited exceptions set out in the PI Instrument; and

(4) it will at all times comply with all applicable laws, regulations and regulatory guidance (whether inside or outside the EEA) relating to the promotion, offering, distribution and/or sale of the Notes (and any beneficial interest therein), including (without limitation) the Regulations (as applicable) and any such laws, regulations and regulatory guidance relating to determining the appropriateness and/or suitability of an investment in the Notes (or any beneficial interest therein) by investors in any relevant jurisdiction.

Each prospective investor further acknowledges that: 6

(i) the identified target market for the Notes (for the purpose of the product governance obligations in MiFID II) is eligible counterparties and professional clients;

(ii) all channels for distribution to eligible counterparties and professional clients are appropriate; and

(iii) no KID under the PRIIPs Regulation has been prepared and therefore offering or selling the Notes or otherwise making them available to any retail investor may be unlawful under the PRIIPs Regulation.

Where acting as agent on behalf of a disclosed or undisclosed client when purchasing, or making or accepting an offer to purchase, any Notes (or any beneficial interest therein) from the Issuer and/or a Joint Lead Manager, the foregoing representations, warranties, agreements and undertakings will be given by and be binding on both the agent and its underlying client(s).

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

PRIIPs Regulation – Prohibition of sales to EEA retail investors – The Notes are not intended to be offered, sold or otherwise made available to and should not be offered, sold or otherwise made available to any retail investor in the EEA. For these purposes, a retail investor means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of MiFID II; or (ii) a customer within the meaning of Directive 2002/92/EC (as amended or superseded, the “IMD”), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II. Consequently no KID required by the PRIIPs Regulation for offering or selling the Notes or otherwise making them available to retail investors in the EEA has been prepared and therefore offering or selling the Notes or otherwise making them available to any retail investor in the EEA may be unlawful under the PRIIPs Regulation.

Notification under Section 309B(1) of the Securities and Futures Act (Chapter 289) of Singapore, as modified or amended from time to time (the “SFA”) – Solely for the purposes of its obligations pursuant to Sections 309B(1)(a) and 309B(1)(c) of the SFA, the Issuer has determined, and hereby notifies all persons, including all relevant persons (as defined in Section 309A(1) of the SFA), that the Notes are prescribed capital markets products (as defined in the Securities and Futures (Capital Markets Products) Regulations 2018 of Singapore) and Excluded Investment Products (as defined in Monetary Authority of Singapore (“MAS”) Notice SFA 04-N12: Notice on the Sale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on Investment Products). 7

Presentation of Financial and Other Information

In this Offering Memorandum, unless otherwise specified, all references to “pounds”, “sterling”, “£”, “p” or “pence” are to the lawful currency of the United Kingdom and all references to “euros” or “EUR” are to the currency introduced at the third stage of European economic and monetary union pursuant to the Treaty on the functioning of the European Union, as amended.

Forward-Looking Statements

This Offering Memorandum includes certain “forward-looking statements”. Statements that are not historical facts, including statements about the beliefs and expectations of the Issuer, PICG and PICG and its subsidiaries (the “PICG Group”) and their respective directors or management, are forward- looking statements. Words such as “believes”, “anticipates”, “estimates”, “expects”, “intends”, “plans”, “aims”, “potential”, “will”, “would”, “could”, “considered”, “likely”, “estimate” and variations of these words and similar future or conditional expressions, are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. By their nature, forward- looking statements involve risk and uncertainty because they relate to events and depend upon future circumstances that may or may not occur, many of which are beyond the control of the Issuer, PICG or the PICG Group and all of which are based on their current beliefs and expectations about future events. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Issuer, PICG or the PICG Group, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the present and future business strategies of the Issuer, PICG and the PICG Group and the environment in which the Issuer and the PICG Group will operate in the future. These forward-looking statements speak only as at the date of this Offering Memorandum.

Except as required by Euronext Dublin or by any other applicable law or regulation, the Issuer expressly disclaims any obligations or undertakings to release publicly any updates or revisions to any forward-looking statements contained in this Offering Memorandum to reflect any change in the Issuer’s or PICG’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

Alternative Performance Measures

To supplement its consolidated financial statements presented in accordance with IFRS, the PICG Group uses certain ratios and measures included or referred to in this Offering Memorandum that would be considered Alternative Performance Measures (“APMs”) as defined in the ESMA Guidelines. These measures are considered useful to investors to enhance their understanding of the PICG Group’s financial performance. APMs should not be considered in isolation from, or as a substitute for, financial information presented in compliance with IFRS. Where applicable, an explanation of an APM's components and calculation method can be found in this Offering Memorandum and the documents incorporated by reference herein.

Stabilisation

In connection with the offering of the Notes, J.P. Morgan Securities plc (the “Stabilisation Manager”) (or persons acting on behalf of the Stabilisation Manager) may over-allot Notes or effect transactions with a view to supporting the market price of the Notes at a level higher than that which might 8 otherwise prevail. However, stabilisation may not necessarily occur. Any stabilisation action may begin on or after the date on which adequate public disclosure of the terms of the offer of the Notes is made and, if begun, may cease at any time, but must end no later than the earlier of 30 days after the issue date of the Notes and 60 days after the date of the allotment of the Notes. Any stabilisation action or over-allotment must be conducted by the Stabilisation Manager (or persons acting on behalf of the Stabilisation Manager) in accordance with all applicable laws and rules. 9

Table of Contents

Documents Incorporated by Reference 10

Overview of the Principal Features of the Notes 12

Risk Factors 26

Terms and Conditions of the Notes 69

Overview of the Notes while in Global Form 146

The PICG Group 151

Description of the PIC Ordinary Shares 189

Description of the PICG Ordinary Shares 194

Regulatory Overview 203

Taxation 214

Subscription and Sale 215

General Information 218

Documents Incorporated by Reference

This Offering Memorandum should be read and construed in conjunction with the following documents (or sections of documents):

(1) the audited annual financial statements of the Issuer for the financial year ended 31 December 2017 together with the audit report thereon;

(2) the audited annual financial statements of the Issuer for the financial year ended 31 December 2018 together with the audit report thereon;

(3) the audited annual financial statements of PICG for the financial year ended 31 December 2017 together with the audit report thereon;

(4) the audited annual financial statements of PICG for the financial year ended 31 December 2018 together with the audit report thereon; and

(5) pages 2 to 4 (Report of the Independent External Auditor), pages 5 to 8 (Summary), pages 27 to 37 (Valuation for Solvency Purposes), and pages 38 to 43 (Capital Management) of the solvency and financial condition report of the Issuer for the financial year ended 31 December 2018 (the “Issuer SFCR”),

each of which has been previously published or is published simultaneously with this Offering Memorandum and which has been filed with Euronext Dublin.

The documents referred to above shall be incorporated in, and form part of this Offering Memorandum, save that any statement contained in a document which is incorporated by reference herein shall be deemed to be modified or superseded for the purpose of this Offering Memorandum to the extent that a statement contained herein modifies or supersedes such earlier statement (whether expressly, by implication or otherwise). Any statement so modified or superseded shall not, except as so modified or superseded, constitute a part of this Offering Memorandum.

Following the publication of this Offering Memorandum a supplement may be prepared by the Issuer. Statements contained in any such supplement (or contained in any document incorporated by reference therein) shall, to the extent applicable (whether expressly, by implication or otherwise), be deemed to modify or supersede statements contained in this Offering Memorandum. Any statement so modified or superseded shall not, except as so modified or superseded, constitute part of this Offering Memorandum.

Copies of documents incorporated by reference in this Offering Memorandum can be obtained from the registered office of the Issuer and from the specified offices of the Paying Agents for the time being in London. Copies of documents incorporated by reference in this Offering Memorandum are also available for viewing on the website of the Issuer at https://www.pensioncorporation.com/financials/. The website of the Issuer does not form part of this Offering Memorandum.

Any documents themselves incorporated by reference in the documents incorporated by reference in this Offering Memorandum shall not form part of this Offering Memorandum. 11

Any non-incorporated parts of a document referred to herein are either deemed not relevant for an investor or are otherwise covered elsewhere in this Offering Memorandum. 12

Overview of the Principal Features of the Notes

The following overview refers to certain provisions of the terms and conditions of the Notes and the Trust Deed and is qualified by the more detailed information contained elsewhere in this Offering Memorandum. Terms which are defined in “Terms and Conditions of the Notes” below have the same meaning when used in this overview, and references herein to a numbered “Condition” shall refer to the relevant Condition in “Terms and Conditions of the Notes”.

Issue £450,000,000 7.375 per cent. Fixed Rate Reset Perpetual Restricted Tier 1 Contingent Convertible Notes.

Issuer Pension Insurance Corporation plc.

Perpetual Securities The Notes will be perpetual securities with no fixed redemption date. The Noteholders will have no right to require the Issuer to redeem or purchase the Notes at any time.

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

The rights and claims of the Noteholders against the Issuer are subordinated in a winding-up of the Issuer in accordance with Condition 3 and the provisions of the Trust Deed.

Solvency Condition Except in a winding-up, or in relation to the cash component of any Conversion Shares Offer Entitlement, all payments in respect of the Notes (including, without limitation, payments of interest and principal) will be conditional upon the Issuer satisfying the Solvency Condition, and no amount will be payable in respect of the Notes until such time as the same can be paid in compliance with the Solvency Condition.

See Condition 3(e).

Set-off By acceptance of the Notes, subject to applicable law, each Noteholder will be deemed to have waived and to have directed and authorised the Trustee on its behalf to have waived any right of set-off or counterclaim that such Noteholder might otherwise have against the Issuer in respect of or arising under the Notes or the Trust Deed whether prior to or in liquidation, winding-up or administration.

Interest The Notes will bear interest on their principal amount:

(i) from the Issue Date to (but excluding) 25 July 2029 (the “First Call Date”) at a fixed rate of 7.375 per cent. per annum; and 13

(ii) thereafter at a fixed rate of interest which will be reset on the First Call Date and on each fifth anniversary of the First Call Date thereafter (each a “Reset Date”) to be the sum of the gross redemption yield on a semi-annual compounding basis of the relevant Benchmark Gilt plus the Margin,

payable (subject to cancellation as provided below and as described in the Conditions) semi-annually in arrear on each Interest Payment Date.

Interest Payment Dates 25 January and 25 July of each year, starting on 25 January 2020.

Cancellation of Interest Interest Payments shall not be made by the Issuer in the following Payments circumstances (in each case as more fully described in the Conditions):

(i) the cancellation of such Interest Payment, or such Interest Payment not becoming due and payable, in accordance with the provisions described under “Mandatory Cancellation of Interest Payments” below;

(ii) the Issuer’s exercise of its discretion otherwise to cancel such Interest Payment (or relevant part thereof) as described under “Interest Payments Discretionary” below; or

(iii) the cancellation of such Interest Payment (or relevant part thereof) on the occurrence of a Trigger Event as described under “Conversion” below.

Any Interest Payment (or relevant part thereof) which is cancelled or does not become due and payable in accordance with the Conditions shall not accumulate or be payable at any time thereafter and such cancellation or non-payment shall not constitute a default or event of default for any purpose.

Mandatory Cancellation of Subject to certain limited exceptions as further described Interest Payments hereunder, the Issuer shall be required to cancel in full any Interest Payment if:

(i) the Solvency Condition is not met at the time for payment of such Interest Payment, or would cease to be met immediately following, and as a result of making, such Interest Payment;

(ii) there is non-compliance with the Solvency Capital Requirement at the time for payment of such Interest Payment, or non-compliance with the Solvency Capital 14

Requirement would occur immediately following, and as a result of making, such Interest Payment;

(iii) there is non-compliance with the Minimum Capital Requirement at the time for payment of such Interest Payment, or non-compliance with the Minimum Capital Requirement would occur immediately following, and as a result of making, such Interest Payment;

(iv) the amount of such Interest Payment, when aggregated together with any interest payments or distributions which have been paid or made by the Issuer or which are scheduled simultaneously to be paid or made by the Issuer on all Tier 1 Own Funds (excluding any such payments which do not reduce the Issuer’s Distributable Items and any payments already accounted for by way of deduction in determining the Issuer’s Distributable Items) since the end of the latest financial year of the Issuer and prior to, or on, such Interest Payment Date, would exceed the amount of the Issuer’s Distributable Items as at the Interest Payment Date in respect of such Interest Payment; or

(v) the Issuer is otherwise required by the Relevant Regulator or under the Relevant Rules to cancel the relevant Interest Payment.

The Issuer shall not be required to cancel an Interest Payment where such an event or circumstance has occurred and is continuing, or would occur if payment of interest on the Notes were to be made, to the extent permitted by the Relevant Rules, where:

(A) it is of the type described in sub-paragraph (ii) above only;

(B) the Relevant Regulator has exceptionally waived the cancellation of the Interest Payment;

(C) payment of the Interest Payment would not further weaken the solvency position of the Issuer or the Insurance Group; and

(D) the Minimum Capital Requirement will be complied with immediately following such Interest Payment, if made.

See Condition 5. 15

Issuer’s Distributable With respect to and as at any Interest Payment Date, without Items double-counting, an amount equal to:

(i) the Distributable Profits of the Issuer, calculated on an unconsolidated basis, as at the last day of the then most recently ended financial year of the Issuer; plus

(ii) the interim retained earnings (if any) of the Issuer, calculated on an unconsolidated basis, for the period from the Issuer’s then latest financial year end to (but excluding) such Interest Payment Date; less

(iii) the interim net loss (if any) of the Issuer, calculated on an unconsolidated basis, for the period from the Issuer’s then latest financial year end to (but excluding) such Interest Payment Date.

See Condition 5(b).

Interest Payments Interest on the Notes is due and payable only at the sole and Discretionary absolute discretion of the Issuer, subject to the additional restrictions set out in the Conditions. Accordingly, the Issuer may at any time elect to cancel any interest payment (or part thereof) which would otherwise be payable on any Interest Payment Date.

See Condition 5(a).

Purchases Subject to certain limited exceptions as more fully described in the Conditions, the Issuer or any of the Issuer’s Subsidiaries may at any time purchase Notes in any manner and at any price.

See Conditions 12(b) and 12(n).

Optional Redemption The Issuer may, subject to certain conditions and upon notice to Noteholders, elect to redeem all (but not some only) of the Notes on the First Call Date or on any Reset Date thereafter at their principal amount together with any other accrued and unpaid interest (to the extent not cancelled) to (but excluding) the date of redemption.

See Conditions 12(b) and 12(f).

Early Redemption at the The Issuer may, subject to certain conditions and upon notice to Option of the Issuer upon Noteholders, at any time elect to redeem all (but not some only) the occurrence of a Tax of the Notes, at their principal amount together with any other Event, a Capital accrued and unpaid interest (to the extent not cancelled) to (but Disqualification Event or a excluding) the date of redemption, if a Tax Event, Capital Ratings Methodology Disqualification Event or Ratings Methodology Event has Event occurred and is continuing. 16

A “Tax Event” will occur if:

(i) as a result of a Tax Law Change, the Issuer would on the next Interest Payment Date be required to pay Additional Amounts and the Issuer cannot avoid the foregoing by taking measures reasonably available to it; or

(ii) as a result of a Tax Law Change, in respect of the Issuer’s obligation to make any payment of interest on the next following Interest Payment Date, (x) the Issuer would not be entitled to claim a deduction in respect of computing its taxation liabilities in the Relevant Jurisdiction, or such entitlement is materially reduced or (y) the Issuer would not to any material extent be entitled to have any loss or non-trading deficit set against the profits of companies with which it is grouped for applicable United Kingdom tax purposes (whether under the group relief system current as at the date of the Tax Law Change or any similar system or systems having like effect as may from time to time exist), and in each such case the Issuer cannot avoid the foregoing by taking measures reasonably available to it.

A “Capital Disqualification Event” is deemed to have occurred if as a result of any change to (or change to the interpretation by any court or authority entitled to do so of) the Relevant Rules the whole or any part of the principal amount of the Notes is excluded from counting as Tier 1 Capital for the purposes of the Issuer or all or any part of the Insurance Group (which part includes the Issuer and at least one other member of the Insurance Group), whether on a solo, group or consolidated basis, except (in either case) where such non-qualification is only as a result of the aggregate amount of eligible items available to be counted towards Tier 1 Capital (or a relevant component part thereof) exceeding any applicable upper limit on the aggregate amount of such items permitted to be so counted (other than a limit derived from any transitional or grandfathering provisions under the Relevant Rules).

A “Ratings Methodology Event” will be deemed to occur if at any time there occurs a change in (or clarification to) the methodology of Fitch or a Subsequent Rating Agency (if applicable) (or in the interpretation of such methodology) as a result of which the “equity credit” (or such other nomenclature as may be used by Fitch or the relevant Subsequent Rating Agency (as applicable) from time to time to describe the degree to which the terms of an instrument are supportive of an issuer’s senior obligations in terms of either leverage or total capital) assigned by Fitch or the relevant Subsequent Rating Agency (as applicable) to the Notes is, as notified by Fitch or the relevant 17

Subsequent Rating Agency (as applicable) to the Issuer or as published by Fitch or the relevant Subsequent Rating Agency (as applicable), reduced when compared to (i) in the case of Fitch, the “equity credit” assigned by Fitch to the Notes on or around the Issue Date and (ii) in the case of any Subsequent Rating Agency, the “equity credit” first assigned by such Subsequent Rating Agency to the Notes.

See Conditions 12(b), 12(g), 12(h) and 12(i).

Early Redemption upon a The Issuer may, subject to certain conditions and upon notice to Clean-up Call Noteholders, at any time elect to redeem all (but not some only) of the Notes, at their principal amount together with any other accrued and unpaid interest (to the extent not cancelled) to (but excluding) the date of redemption, if at any time after the Issue Date 80 per cent. or more of the aggregate principal amount of the Notes originally issued (any further securities issued pursuant to Condition 21 so as to be consolidated and form a single series with the Notes being deemed to have been originally issued) has been purchased by the Issuer or any of its Subsidiaries and cancelled pursuant to the Conditions.

See Conditions 12(b) and 12(j).

Conditions to Redemption Subject to certain conditions, the Issuer may not redeem or and Purchase purchase any Notes unless each of the following conditions, to the extent required by the Relevant Rules, is satisfied:

(i) the relevant date of any redemption or purchase is on or after the fifth anniversary of the Issue Date unless such redemption or purchase is funded out of the proceeds of a new issuance of, or the Notes are exchanged into, Tier 1 Own Funds of the same or a higher quality than the Notes;

(ii) in respect of any redemption or purchase of the Notes occurring on or after the fifth anniversary of the Issue Date and before the tenth anniversary of the Issue Date, the Relevant Regulator has confirmed to the Issuer that it is satisfied that the Solvency Capital Requirement is exceeded by an appropriate margin (taking into account the solvency position of the Issuer including the Issuer’s medium-term capital management plan) unless such redemption or purchase is funded out of the proceeds of a new issuance of, or the Notes are exchanged into, Tier 1 Own Funds of the same or a higher quality than the Notes;

(iii) the Solvency Condition is met immediately prior to the redemption or purchase of the Notes (as applicable) and 18

the redemption or purchase (as applicable) would not cause the Solvency Condition to be breached;

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

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

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

(vii) the Regulatory Clearance Condition is satisfied; and

(viii) any other requirements or pre-conditions to which the Issuer is otherwise subject and which may be imposed by the Relevant Regulator or the Relevant Rules have (in addition or in the alternative to the foregoing subparagraphs, as the case may be) been complied with (and shall continue to be complied with following the proposed redemption or purchase).

The Issuer shall not be entitled to amend or otherwise vary the terms of the Notes unless (to the extent then required by the Relevant Regulator or the Relevant Rules) it has notified the Relevant Regulator in writing of its intention to do so not less than one month (or such other period of notice as may be required or accepted by the Relevant Regulator or the Relevant Rules at the relevant time) prior to the date on which such amendment, variation or substitution is to become effective and the Regulatory Clearance Condition has been satisfied in respect of such proposed amendment, variation or substitution.

In addition to satisfying the requirements above, prior to the publication of any notice of redemption, the Issuer shall deliver to the Trustee a certificate signed by two (2) Directors (or other officers acceptable to the Trustee) stating that the circumstances allowing the Issuer to redeem the Notes exist.

See Conditions 12(b) and 12(l).

Substitution and Variation The Issuer may, subject to certain conditions and upon notice to Noteholders, at any time elect to substitute the Notes for, or vary 19

the terms of the Notes so that they remain or become (as applicable):

(i) Qualifying Securities if (x) a Tax Event has occurred and is continuing, or (y) a Capital Disqualification Event has occurred and is continuing or, as a result of any change in, or amendment to, or any change in the application or official interpretation of, the Relevant Rules (or other official publication), a Capital Disqualification Event will occur within the forthcoming period of six months; or

(ii) Rating Agency Compliant Securities if:

(1) a Ratings Methodology Event has occurred and is continuing; or

(2) as a result of a change in (or clarification to) the methodology of Fitch or a Subsequent Rating Agency (if applicable) (or in the interpretation of such methodology), a Ratings Methodology Event will occur within the forthcoming period of six months.

See Conditions 12(b), 12(g), 12(h) and 12(i).

Additional Amounts Payments by or on behalf of the Issuer in respect of the Notes shall be made without deduction or withholding for or on account of tax imposed by or on behalf of the Relevant Jurisdiction, unless such withholding or deduction is required by law. In the event that any such withholding or deduction is required by law, the Issuer shall pay such additional amounts in respect of interest payments, but not in respect of principal, as shall result in receipt by the Noteholders of such net amounts as would have been receivable by them in respect of the Notes, as the case may be, had no such withholding or deduction been required by law to be made, subject to some exceptions, as described in Condition 13(a).

See Condition 13(a).

Events of Default and If default is made for a period of 14 days or more in the payment Enforcement of any principal due in respect of the Notes or any of them, the Trustee in its discretion may, and if so requested by Noteholders of at least one quarter in principal amount of the Notes then outstanding or if so directed by an Extraordinary Resolution shall (subject in each case to the Trustee having been indemnified and/or secured and/or pre-funded to its satisfaction), institute proceedings for an Issuer Winding-Up in England and Wales (but not elsewhere) and/or prove in the winding-up or administration of the Issuer and/or claim in the liquidation of the Issuer for such 20

payment, but may take no further or other action to enforce, prove or claim for any such payment.

No payment in respect of the Notes or the Trust Deed may be made by the Issuer pursuant to Condition 15(a) nor will the Trustee accept the same, otherwise than during or after a winding-up of the Issuer or after an administrator of the Issuer has given notice that it intends to declare and distribute a dividend, unless the Issuer has given prior written notice (with a copy to the Trustee) to the Relevant Regulator and the Relevant Regulator has indicated that it has no objection, which the Issuer shall confirm in writing to the Trustee.

The Trustee, on behalf of the Noteholders, shall have no right to institute winding-up proceedings in respect of the Conversion Shares Issuer (if not the Issuer) or PICG.

See Condition 15.

Conversion If a Trigger Event occurs, each Note shall be irrevocably discharged and satisfied by its Conversion into Ordinary Shares or Issuer Ordinary Shares (as applicable), credited as fully paid, and the issuance of such Ordinary Shares or Issuer Ordinary Shares (as applicable) to the Conversion Shares Depositary to be held on trust for (and, if applicable, subject to the irrevocable direction and authorisation of) the Noteholders (subject to any Conversion Shares Offer).

Following such Conversion, if the Conversion Shares Issuer is not the Issuer, on the Share Delivery Date and in consideration for the transfer to the Conversion Shares Issuer of the Issuer Ordinary Shares referred to above, the Conversion Shares Issuer shall issue and deliver to the Conversion Shares Depositary, credited as fully paid, Ordinary Shares to be held on trust for the Noteholders (subject to any Conversion Shares Offer).

See Condition 6(b) and 6(c).

Conversion Shares Issuer The Conversion Shares Issuer shall be the Issuer, unless an IPO Event has occurred, in which case it shall be the relevant person whose Ordinary Shares are listed on a Recognised Stock Exchange pursuant to the IPO Event.

or (iii), immediately following the IPO Event no person beneficially owns 75 per cent. or more of the relevant Ordinary Shares. The IPO Event shall be treated as occurring on the day on which trading in such Ordinary Shares begins on an unconditional basis.

Ordinary Shares In all cases the Conversion Shares issued and delivered on the Share Delivery Date will be fully paid and non-assessable and will in all respects rank pari passu with the fully paid Ordinary Shares in issue on the Share Delivery Date, save as provided in the Conditions.

See Condition 6(d).

Issuer Ordinary Shares The Issuer Ordinary Shares (if any) issued and delivered on the Share Delivery Date will be fully paid voting ordinary shares in the capital of the Issuer.

See Condition 6(d).

Conversion Trigger Event A Trigger Event shall occur if at any time:

(i) the amount of Own Fund Items eligible to cover the Solvency Capital Requirement is equal to or less than 75 per cent. of the Solvency Capital Requirement;

(ii) the amount of Own Fund Items eligible to cover the Minimum Capital Requirement is equal to or less than the Minimum Capital Requirement; or

(iii) a breach of the Solvency Capital Requirement has occurred and such breach has not been remedied within a period of three months from the date on which the breach was first observed.

Whether the Trigger Event has occurred at any time shall be determined by the Issuer, and such determination shall (in the absence of manifest error) be binding on the Trustee and the Noteholders.

See Conditions 6(b) and 24.

Conversion Price The Conversion Price means:

(i) prior to the occurrence of an IPO Event, the Pre-IPO Conversion Price prevailing at such time; and

(ii) on and from the occurrence of an IPO Event, the Post- IPO Conversion Price prevailing at such time, 22

provided that, if the Conversion Shares Issuer is not the Issuer, the Conversion Price per Issuer Ordinary Share in respect of the Notes is equal to the Initial Pre-IPO Conversion Price.

The Initial Pre-IPO Conversion Price means £2.71.

The Initial Post-IPO Conversion Price means, subject to Condition 9(a)(i) pursuant to which the Initial Post-IPO Conversion Price shall be the applicable New Conversion Price), (a) the Pre-IPO Conversion Price prevailing at the time of the relevant IPO Event or, if higher, (b) such price as is equal to 70 per cent. of the final price per share at which the relevant Ordinary Shares are offered in connection with the relevant IPO Event.

In all cases, the Conversion Price shall be subject to certain anti- dilutive adjustments in accordance with the Conditions.

See Conditions 6(b) and 8(f).

Conversion Shares Offer Subject to delivering to the Trustee an appropriate opinion in respect thereof, and non-objection by the Relevant Regulator, the Conversion Shares Issuer may, in its sole and absolute discretion, make an election that the Conversion Shares Depositary (or any agent(s) on its behalf) will make an offer of all or some of the Conversion Shares to be delivered on Conversion to, in the Conversion Shares Issuer's sole and absolute discretion, all or some of the Eligible Offerees at the time of such offer, such offer to be at a price (the “Conversion Shares Offer Price”) not lower than the Conversion Shares Offer Floor Price. For the avoidance of doubt, the Conversion Shares Offer Price may be lower than the Conversion Price. The Conversion Shares Issuer may, on behalf of the Conversion Shares Depositary, appoint one or more Conversion Shares Offer Agents to act as a placement or other agent to facilitate the Conversion Shares Offer.

The Conversion Shares Issuer’s election (if any) must be made:

(i) where the Conversion Shares Issuer is the Issuer, not later than 30 Business Days following the Conversion Date; or

(ii) where the Conversion Shares Issuer is not the Issuer:

(A) at least 10 Business Days following the Issuer Ordinary Share Delivery Date; and

(B) not later than 30 Business Days following the Issuer Ordinary Share Delivery Date. 23

The Conversion Shares Offer Period shall end no later than 40 Business Days after the giving of the Conversion Shares Offer Notice by the Conversion Shares Issuer.

Upon expiry of the Conversion Shares Offer Period, the Conversion Shares Depositary will provide notice to the Noteholders of the composition of the Conversion Shares Offer Entitlement (and of the deductions to the cash component, if any, of the Conversion Shares Offer Entitlement (as set out in the definition of Conversion Shares Offer Entitlement)) per Calculation Amount and the amount (if any) of any Excess Amount (as defined in “Conversion Shares Offer Entitlement” below). The Conversion Shares Offer Entitlement shall be held on trust by the Conversion Shares Depositary for the Noteholders, and any Excess Amount shall be held on trust by the Conversion Shares Depositary for the Issuer until paid to or to the order of the Issuer. The cash component of any Conversion Shares Offer Entitlement shall be payable by the Conversion Shares Depositary to the Noteholders in Sterling irrespective of whether or not the Solvency Condition is or would be satisfied upon any such payment.

“Conversion Shares Offer Floor Price” means the price per Conversion Share specified as such in the Conversion Shares Offer Notice. The Conversion Shares Offer Floor Price to be so specified shall be the lower of:

(i) the Current Price; and

(ii) the Conversion Price, in each case at the Conversion Date.

“Eligible Offeree” means a person who is at the relevant time a shareholder in one or more of the following:

(i) the Issuer;

(ii) the Conversion Shares Issuer; and

(iii) any parent company of the Issuer or the Conversion Shares Issuer, provided that a member of the Insurance Group shall only be an Eligible Offeree in respect of a Conversion Shares Offer if such person’s participation in such offer, considered with any arrangements for the funding of that participation (including any direct or indirect contribution of assets to that person or any other 24

member of the Insurance Group), would not reduce the Tier 1 Capital of the Insurance Group on a consolidated basis.

See Conditions 7(a) and 7(b).

Conversion Shares Offer In respect of each Note and as determined by the Conversion Entitlement Calculation Agent:

(i) if all of the Conversion Shares to be issued and delivered on Conversion are sold in the Conversion Shares Offer, the pro rata share of the cash proceeds from the sale of such Conversion Shares attributable to each Calculation Amount translated, if necessary, into Sterling at the Prevailing Rate on the last day of the Conversion Shares Offer Period (less any foreign exchange transaction costs);

(ii) if some but not all of such Conversion Shares are sold in the Conversion Shares Offer:

(A) the pro rata share of the cash proceeds from the sale of such Conversion Shares attributable to each Calculation Amount translated, if necessary, into Sterling at the Prevailing Rate on the last day of the Conversion Shares Offer Period (less any foreign exchange transaction costs); and

(B) the pro rata share of such number of Conversion Shares not sold pursuant to the Conversion Shares Offer attributable to such Note; and

(iii) if no Conversion Shares are sold in a Conversion Shares Offer, the relevant number of Conversion Shares attributable to each Calculation Amount (subject to rounding in accordance with the Conditions),

subject, in the case of paragraphs (i) and (ii)(A), to deduction from any such cash proceeds of an amount equal to the pro rata share of any stamp duty, stamp duty reserve tax, or any other capital, issue, transfer, registration, financial transaction or documentary tax that may arise or be paid as a consequence of the transfer of (or any agreement to transfer) any interest in such Conversion Shares to the Conversion Shares Depositary (or Conversion Shares Offer Agent(s) (if any)) as a consequence of the Conversion Shares Offer;

provided that if the cash component (if any) of the Conversion Shares Offer Entitlement in respect of each Calculation Amount determined in accordance with the foregoing (after the 25

deductions referred to in the immediately preceding paragraph) would exceed the product of (x) the principal amount of such Note and (y) the proportion (expressed as a percentage) of the Conversion Shares sold in the Conversion Shares Offer (such excess, the “Excess Amount”), the Excess Amount shall not form part of the Conversion Shares Offer Entitlement, and shall instead be payable to the Issuer as provided in the Conditions.

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

Save in limited circumstances, Notes in definitive form will not be issued in exchange for interests in the registered global certificate representing the Notes.

Listing Application has been made for the Notes to be admitted to the Official List of The Irish Stock Exchange plc, trading as Euronext Dublin, and for the Notes to be admitted to trading on the Global Exchange Market of Euronext Dublin.

Ratings The Notes are expected to be rated BBB- by Fitch Ratings Limited.

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

Trustee Citicorp Trustee Company Limited.

Principal Paying and Citibank, N.A., London Branch. Conversion Agent and Transfer Agent

Conversion Calculation Conv-Ex Advisors Limited. Agent

Registrar Citigroup Global Markets Europe AG.

Joint Lead Managers HSBC Bank plc J.P. Morgan Securities plc NatWest Markets Plc.

Listing Agent Arthur Cox Listing Services Limited.

Risk Factors

Each of the Issuer and PICG believes that the following factors may affect its ability to fulfil their respective obligations under the Notes. All of these factors are contingencies which may or may not occur and neither the Issuer nor PICG is in a position to express a view on the likelihood of any such contingency occurring.

Any of these risk factors, individually or in the aggregate, could have an adverse effect on the Issuer and/or PICG and the impact each risk could have on either or both of the Issuer or PICG is set out below.

Factors which each of the Issuer and PICG believes may be material for the purpose of assessing the market risks associated with the Notes are also described below.

Each of the Issuer and PICG believes that the factors described below represent the principal risks inherent in investing in the Notes, but either the Issuer or PICG may be unable to pay interest, principal or other amounts, as applicable, on or in connection with the Notes for other reasons, and neither the Issuer nor PICG represents that the statements below regarding the risks of holding the Notes are exhaustive. Prospective investors should also read the detailed information set out elsewhere in this Offering Memorandum and reach their own views prior to making any investment decision.

The Issuer is the sole insurance undertaking and primary operating company within the PICG Group. The risk factors relevant to the PICG Group (including PICG) are, therefore, primarily those which have the potential to impact the business, results of operations and financial condition, of the Issuer. Where PICG considers that specific risks arise in relation to its business, results of operations or financial condition, separately from PIC, these are also presented below.

INSURANCE, BUSINESS AND ECONOMIC RISKS

1. Risks relating to the business of the PICG Group

1.1 The PICG Group only writes one line of insurance business and therefore any increase in the costs associated with that type of insurance or any failure accurately to assess the value of the liabilities insured could have an adverse effect on the PICG Group’s business

The PICG Group’s insurance business is currently limited to insuring the liabilities of defined benefit pension funds, in-payment annuities and deferred annuities for which the benefit amounts are well defined either in real or nominal terms, and where sufficient data are available to enable assessment of the value of those liabilities. If the data on which the PICG Group relies in order to assess the liabilities are incorrect or unreliable, or the cost of such liabilities becomes subject to a sudden, unexpected or unprotected increase, in the absence of sufficient reinsurance arrangements and other reserves, the PICG Group may not be prepared or able to cover the increased cost of such liabilities. As the PICG Group does not write diversified lines of business, this could have an adverse impact on the PICG Group’s business, results of operations and/or financial condition.

There can be no assurance that the PICG Group will continue to write a single line of insurance business and any decision by the PICG Group to change its business strategy or to write new types of insurance business could result in the PICG Group being subject to 27

different solvency or other regulatory requirements. Future diversification of the PICG Group’s business could also subject it to risk which could affect its existing business, including increased conduct risks should the PICG Group begin to issue individual annuity policies. Conduct risk could arise as a result of the PICG Group’s interaction with policyholders and represents the risk that the PICG Group achieves outcomes which are, or could be expected to become, detrimental to policyholders. This in turn could result in regulatory censure and fines, the suspension or revocation of regulatory permissions and/or approvals, additional costs incurred, policyholders redress and/or reputational damage. See also the risk factor entitled “The PICG Group may be subject to litigation, legal proceedings and/or regulatory investigations in the future (including investigation and intervention by the FCA and/or PRA), which could have a material adverse effect on its business and results of operations” below.

In addition, future diversification of the PICG Group’s business or the commencement of other lines of business by members of the PICG Group could have an adverse impact on the PICG Group’s business, results of operations and/or financial condition.

1.2 The PICG Group’s capital position may be impacted by sudden increases in longevity expectations

The PICG Group has a specific risk appetite, with its primary insurance-related risk being longevity risk. To mitigate longevity risk, the PICG Group aims to reinsure the majority of longevity risk by entering into reinsurance treaties after a buy-in or buyout pension insurance transaction is executed. However, the PICG Group is subject to limitations in respect of the liabilities for which it can obtain reinsurance cover. In any event, the PICG Group will only obtain reinsurance cover where it is economical to do so; the proportion of longevity risk that is retained by the PICG Group will depend on the availability and cost of suitable reinsurance cover, as well as the nature of the underlying risks. Reinsurance arrangements are managed subject to the PICG Group’s defined counterparty risk limits.

There are additional uncertainties associated with longevity risk as a result of the length of the period for which the risk persists and difficulties in predicting future drivers of longevity improvements. There is a risk that the PICG Group’s assumptions regarding longevity are incorrect or inaccurate, such that policyholders live longer than was originally assumed when pricing new business (e.g., following a step change in cancer diagnostics or Alzheimer’s treatment). Within this, the PICG Group is exposed to longevity “basis risk” and “measurement lag risk”. Basis risk occurs where patterns detected are not commensurate with the subgroups that are relevant to the PICG Group (for example national trends may not be relevant to the membership of UK defined benefit schemes). Measurement lag risk applies where well-defined improvement patterns do not become apparent in the data until a period of time has first elapsed. See also the risk factor entitled “Inaccurate data, incorrect projections or incorrect assumptions may result in the PICG Group holding insufficient reserves to support its liabilities” below.

Changes in longevity expectations may result in the PICG Group having to hold a higher level of reserves and/or capital and/or may impact the PICG Group’s profitability, which could have an adverse impact on the PICG Group’s business, results of operations and/or financial condition. 28

1.3 Inaccurate data, incorrect projections or incorrect assumptions may result in the PICG Group holding insufficient reserves to support its liabilities

The PICG Group makes assumptions relating to the proportion of policyholders who are married, the age of a policyholder’s spouse and the proportion of benefits that will be taken as a lump sum compared to those taken as regular payments. There may be instances in which the proportion of policyholders who are married is higher than expected and a greater number of spouses than anticipated are eligible to receive benefits following the deaths of policyholders, requiring the PICG Group to pay a greater than expected amount of contingent spouse benefits. Similarly, the PICG Group may be required to pay out more than expected where a deceased policyholder’s spouse, who is eligible to receive benefits following the death of a policyholder, is younger than assumed, leading to a longer than expected stream of benefit payments. In the event that a greater proportion of benefits across the policyholder base is drawn down as a lump sum than is anticipated, the PICG Group could be required to meet more upfront payments than expected, although in this instance the PICG Group is released from the obligation to pay the regular annuity benefits that are being settled via the lump sum payment, with a corresponding release of reserve margins and capital.

The PICG Group holds reserves to ensure that it has sufficient funds available to pay its insurance liabilities when they fall due. The reserves are based on, among other things, the assumptions reflecting the PICG Group’s best estimate of such liabilities at the time, allowing a margin for risk and adverse deviation, and the reserves include allowance for expenses. The PICG Group monitors actual experience as compared with the actuarial assumptions used and it refines its assumptions on the basis of experience. While the PICG Group currently believes that the reserves established in respect of the PICG Group’s business are sufficiently conservative to meet its obligations to policyholders, and include reserving for the expenses associated with servicing these obligations, the PICG Group’s assumptions may prove to be incorrect or inaccurate (whether as a result of miscalculation by the PICG Group, changes in factors such as longevity which are outside the PICG Group’s control, or inaccuracies in the data held by the PICG Group), and as such the amount the PICG Group is required to pay policyholders, and the expenses and outgoings incurred by the PICG Group, may be greater than the PICG Group’s reserves and the PICG Group could be required to establish additional reserves which would have a material impact on the PICG Group’s business, results of operations and/or financial condition.

Inaccuracies in data held by the PICG Group or in projections or assumptions made by the PICG Group may result in the PICG Group having to hold a higher level of reserves and/or capital which could have an adverse impact on the PICG Group’s business, results of operations and/or financial condition.

1.4 The unavailability of adequate reinsurance coverage may adversely impact the PICG Group

The PICG Group enters into longevity reinsurance arrangements with third party reinsurers in order to cover a proportion of its risk. The availability and cost of reinsurance depends upon market conditions, and reinsurers’ own financial condition. Changes to the legislation and regulation applicable to the PICG Group or its reinsurers could have material impacts on the PICG Group’s ability to obtain reinsurance coverage, particularly where such changes give rise to an increase in the cost of reinsurance cover or reluctance of reinsurers to reinsure the risks applicable to the PICG Group. In any event, the PICG Group will only obtain 29

reinsurance cover where it is economical to do so and in line with the PICG Group’s risk appetite.

It is possible that the PICG Group could enter into a buy-in or buyout transaction and subsequently be unable to obtain a level of reinsurance in respect of the liabilities assumed in line with the PICG Group’s risk appetite. If the PICG Group is unable to obtain reinsurance, either due to a lack of reinsurance coverage available (whether as a result of conditions in the reinsurance market or otherwise), or reinsurance cover is available but only on terms the PICG Group is not willing or able to meet, the PICG Group would be required to retain a portion of risk in excess of the PICG Group’s risk appetite and would be subject to higher capital requirements as a result. This could have a material adverse effect on the PICG Group’s business, results of operations and/or financial condition.

1.5 Failure by the PICG Group appropriately to hedge its liabilities in relation to a buy-in or buyout transaction or for the purposes of portfolio management could adversely impact the PICG Group

The PICG Group uses derivatives to manage aspects of its investment activities, asset allocation and risk management, which can include cross currency swaps, forward exchange contracts, credit default swaps, interest rate swaps, inflation swaps and futures. Interest and inflation swaps are used for the purpose of matching assets and liabilities, and credit default swaps are used to manage credit risk. The PICG Group often provides pricing quotes for buy-in or buyout transactions which include assumptions about the hedging arrangements that may be put in place following the completion of the transaction. There is a risk that the PICG Group may not be able to enter into appropriate hedging arrangements, or a risk that it would be unable to do so at a reasonable cost, following the execution of the relevant buy- in or buyout transaction.

The PICG Group is further exposed more generally to execution risk in respect of hedging transactions entered into after the completion of buy-in and buyout transactions and in respect of future replacements or renewals of such hedging arrangements. Failure by the PICG Group adequately to hedge its liabilities could have a material impact on the PICG Group's business, results of operations and/or financial condition.

1.6 The PICG Group enters into reinsurance treaties, agreements and hedging contracts with a range of counterparties. Any failure by those counterparties to meet their obligations to the PICG Group could have a material adverse effect on the PICG Group’s financial condition

Credit risk arises from to the risk of loss due to the default in another party performing its financial obligations to the PICG Group.

The PICG Group enters into both quota share and longevity swap reinsurance arrangements in respect of its longevity related liabilities with a range of counterparties. In the event of default or other failure by any reinsurance counterparty to meet its obligations to the PICG Group, the PICG Group’s ability to meet its own obligations to the policyholder may be affected. As well as potentially adversely impacting the reputation of the PICG Group, this could have a material adverse effect on the PICG Group's business, results of operations and/or financial condition. 30

The PICG Group has reinsurance contracts in place with a range of external reinsurers. These reinsurers include the following (being the reinsurers to which the PICG Group has its largest reinsurance exposures as at the date of this Offering Memorandum): the Prudential Insurance Company of America, Canada Life, Hannover Re, SCOR, RGA, Pacific Life and Berkshire Hathaway Life Insurance Company of Nebraska. As such, a failure of a reinsurance counterparty could have a material adverse effect on the PICG Group’s business, results of operations and/or financial condition.

The PICG Group is exposed to counterparty risk in relation to the interest rate and inflation hedging contracts to which it is a party. These hedging contracts are fully collateralised on a daily basis. In the normal course of business, the PICG Group expects to be able to replace the contracts of any defaulting counterparty. However, the PICG Group is exposed to overnight collateral risk and a default by a hedging counterparty could have an adverse effect on the PICG Group’s business, results of operations and/or financial condition.

Counterparty risk also arises by virtue of the PICG Group’s relationships with its third party service providers and its outsourcing arrangements. A default by such a third party service provider or a failure by such a service provider to perform its obligations to the PICG Group could have a material impact on the PICG Group’s business, results of operations and/or financial condition.

See the risk factor entitled “The PICG Group has exposure to default risk in relation to its investments” below for discussion of default risk in the context of the PICG Group’s investments.

1.7 The PICG Group operates in a sector in which results of operations and in particular the volume of new business can vary from year to year

The volume of pension fund buy-ins and buyouts will fluctuate over time and from year to year as a result of, among other things, changes in the affordability of pension fund buy-in and buyout transactions.

Past performance is not an indicator of future performance and there can be no assurance that the PICG Group will write the same volume of business as in previous years or that there will be linear transaction growth in the pension fund buy-in/buyout sector. Similarly, there can be no assurance that the PICG Group’s business will not be affected by any adverse publicity arising from any difference between the PICG Group’s results of operations in any financial year and commentators’ expectations for such results.

1.8 Circumstances may arise which result in the PICG Group ceasing to write new business in the future

There is a variety of factors which could result in the PICG Group being unable to write new business in the future including, but not limited to, the actions of key personnel, regulatory intervention and/or adverse market conditions.

Changes in pensions regulation and legislation in particular may have an adverse effect on the volume of new business written by the PICG Group. The Pensions Act 2004 (the “Pensions Act”) introduced changes to the way in which pension fund liabilities are managed by increasing the regulatory requirements for defined benefit occupational pension funds. 31

These included, among other things, introducing a requirement for the pension fund sponsor to meet any deficit in the pension fund on the funding basis agreed between the trustees and the sponsor. This means that the sponsor must meet the cost of insuring the pension fund liabilities on a buyout basis (and the pension fund must then enter into an insurance buy-in in respect of all such liabilities) in order to remove the obligation to make any further deficit contributions. See also the risk factors entitled “Competition in the UK market could affect the profitability of the PICG Group and the long-term viability of its business model” and “The structure of the financial regulatory authorities in the UK and the UK regulatory framework that applies to insurers, including the PICG Group, may be the subject of further reform and reorganisation” below.

Following these events, there has been a growth in the volume of pension buyouts and buy- ins. However, any future changes to pensions legislation and/or the regulation of pension funds could have a negative impact on the volume of policies underwritten by the PICG Group or increase the PICG Group’s cost of doing so, which could adversely affect the PICG Group’s business, results of operations and/or financial condition.

Failure to continue writing new business would have an adverse effect on the financial position of the PICG Group in circumstances where the PICG Group fails to scale back its cost base to correspond with the reduction in new business volumes.

1.9 Competition in the UK market could affect the profitability of the PICG Group and the long- term viability of its business model

The UK pension insurance industry has experienced significant change in the last decade. Increased competition could displace smaller and weaker companies from the market and companies may merge, cease to write business and go into run-off or otherwise withdraw from major lines of business. In line with other participants in the UK pension insurance industry, the PICG Group faces strong competition in its business, and its continuing profitability, and the long-term viability of its product range depends upon an adequate response to such competition.

Competition from other business models may also impact the future and continued level of demand for the PICG Group’s services. Consolidation options, which involve bringing defined benefit schemes within larger bodies to benefit from shared functions and shared governance, are an emerging source of competition. Examples of consolidation options include shared administration services, asset pooling, fiduciary management, defined benefit master trusts or pension scheme based “Superfund” vehicles, as proposed by the Pension and Lifetime Savings Association (“PLSA”). On 19 March 2018, the UK Government published a White Paper which raised the question as to whether new pension fund-based consolidation vehicles, such as PLSA’s proposed “Superfund” model, could improve efficiency within the sector and potentially offer a more affordable option to those pension funds that are unable to afford an insured buyout, such as those offered by the PICG Group. The Department for Work and Pensions (“DWP”) published a public consultation in December 2018 on consolidation of defined benefit pension funds. The consultation set out proposals for the structure, governance, regulation, financial management and other aspects of trust-based pension consolidation vehicles and invited comments on these proposals. The consultation closed on 1 February 2019 and generated responses from industry participants and led to debate and coverage in the media. No formal communications have been made by the DWP as to what (if any) the next steps, including any legislative proposals, will be with 32

respect to this subject since the closing of the consultation, following on from the DWP’s review of the consultation responses. It is therefore not yet clear what impact these and other developments relevant to the pension risk transfer sector may have on the PICG Group’s business, results of operations and/or financial condition.

The PICG Group’s ability to generate an appropriate return depends upon its capacity to anticipate and respond appropriately to these competitive pressures, and a failure to do so may have a material adverse effect on the PICG Group’s business, results of operations and/or financial condition.

1.10 The PICG Group’s business is concentrated in the UK and is exposed to events affecting the UK

The PICG Group writes all its business in the UK and is therefore exposed to the economic, market, fiscal, regulatory, legislative, political and social conditions in the UK. Adverse events affecting the economy of the UK and its citizens could have a material adverse effect on the PICG Group’s business. The PICG Group is particularly sensitive to UK market and economic conditions in respect of its investment portfolio and any events which have an adverse impact on the UK economy could have a significant impact on the PICG Group’s business, results of operations and/or financial condition. See the risk factors entitled “A deterioration in the UK and global economic and financial market conditions could have a material adverse impact on the PICG Group’s operations and its financial position” and “Uncertainty surrounding the UK’s decision to withdraw from the EU” below for discussion of the sources of potential risk arising out of the PICG Group’s exposure to the UK.

There can be no assurance that the PICG Group’s business will continue to be concentrated in the UK. Although the PICG Group does not currently intend to do so, the PICG Group may in future seek to carry out business overseas. As a result, the PICG Group could become subject to additional risks which could affect its business, including by exposing the PICG Group to additional, local regulatory regimes and requirements. This in turn could have an adverse impact on the PICG Group’s business, results of operations and/or financial condition.

1.11 The PICG Group may be exposed to market movements adversely impacting the premium paid for new business transactions when certain premium roll-forward calculation methods are applied

During the origination of new business it is routine for the PICG Group to provide what is referred to as a “Gilt Roll Forward” or “Asset Lock” for a period of exclusivity (usually no more than three months) ahead of the risk transfer date for the new business transaction. This requires the PICG Group to set its premium by reference to the value of a defined portfolio of assets (usually gilts) that the PICG Group will receive on the risk transfer date. As a result, the PICG Group is exposed to the risk that there is a mismatch between the movement in the market value of the assets into which the PICG Group intends to invest the premium and the movement in the market value of the gilts to be received by the PICG Group as the premium. The PICG Group is exposed to losses when credit spreads versus gilts narrow. To mitigate this risk the PICG Group may choose to pre-fund asset purchases during the exclusivity period by selling gilts. This exposes the PICG Group to a secondary risk that, should the deal not complete, the PICG Group would be exposed to losses were credit spreads to widen versus gilts. 33

1.12 The failure to understand and respond effectively to the risks associated with climate change could adversely affect the PICG Group

Climate change poses potential risks to the PICG Group through the value and future performance of its long-term investment assets, the financial strength of the PICG Group’s reinsurance counterparties and the availability of reinsurance.

The risk to investment asset value and performance arises not only from the physical impacts of climate change, but also from the transition risks associated with the shift to a low carbon economy.

Specific climate-related events, such as natural disasters and the increase in global temperatures, could adversely affect the value of investment assets and the cash flows deriving from them. In addition, such events are likely to increase the risks in the Property and Casualty insurance market, which could have an adverse impact on the financial strength of reinsurers, and potentially lead to a reduction in availability of reinsurance in general.

Conversely, as the climate risk landscape continues to evolve, corporate efforts to transition to a low carbon economy could have an adverse impact on the value of global investment assets. This would have an adverse impact on the value of assets owned by the PICG Group and by reinsurers. In particular, there is a risk that this transition, including the related changes to technology, policies and regulations and the speed of their implementation, could result in some sectors (such as, but not limited to, the fossil fuel industry) facing significantly higher costs and a disorderly adjustment to their asset values.

1.13 Neither the Issuer nor PICG has listed equity in issue and therefore each has no ready access to the public equity capital markets

As a wholly-owned subsidiary within the PICG Group, the Issuer does not have equity securities listed on a market or exchange. Similarly, PICG does not have equity securities listed on a market or exchange. Neither the Issuer nor PICG therefore has ready access to the public equity capital markets. The shareholders of PICG are under no obligation to contribute further equity to support the PICG Group in the ordinary course or in the event of solvency stress.

1.14 Downgrades or the revocation of the PICG Group’s ratings could affect its standing in the market and result in a loss of business and/or reduced earnings

The PICG Group’s financial strength and credit ratings, which are used by the market to measure its ability to meet policyholder obligations, are an important factor affecting public confidence in its products and as a result, its competitiveness. The Issuer has been assigned an insurer financial strength rating of A+ by Fitch and a credit rating of A by Fitch. There is a risk that the ratings may not reflect all of the risks in the business of the Issuer or the PICG Group. The ratings are subject to a periodic review by, and may be revised downward or revoked at the sole discretion of, Fitch. In addition, changes in methodologies and criteria used by Fitch could result in downgrades that do not reflect changes in the general economic conditions or the Issuer’s or the PICG Group’s financial condition. 34

Any downgrade in the Issuer’s ratings could have an adverse effect on the PICG Group’s business, results of operations and/or financial condition. In particular, the interest rates the Issuer pays on its borrowings are affected by its ratings.

CREDIT, MARKET AND LIQUIDITY RISKS

2. Risks relating to the PICG Group’s investments

2.1 The PICG Group has exposure to various investment assets and any changes in the value of the PICG Group’s investments may have a material adverse impact on the PICG Group’s financial position

The PICG Group’s primary investment classes comprise corporate bonds, gilts and collateralised derivative assets, with other investments which include property and infrastructure, covered bonds, asset backed securities, insurance linked securities, hedge funds, private equity funds, equity release mortgages (“ERM”) and collateralised loan obligations. The PICG Group holds investments in order to meet its liabilities, and its profitability depends to a large extent on the returns achieved on its investment portfolio.

The value of investment assets fluctuates, which can have a sudden and unexpected impact on the PICG Group’s capital levels. In the event of a change in the fixed income and/or other investment markets, there is a risk that the PICG Group’s liabilities will exceed the value of its assets. This would have an adverse impact on the PICG Group’s financial position.

See also the risk factor entitled “Challenging conditions in the capital and credit markets may significantly impact the PICG Group’s ability to meet its liquidity needs” below.

2.2 The PICG Group has exposure to default risk in relation to its investments

As noted above, the majority of the PICG Group’s investment assets comprise corporate bonds, gilts and collateralised derivative assets, pursuant to which the PICG Group is entitled to receive payments of interest and repayment of principal from the issuers of such instruments. The PICG Group is therefore exposed to the risk of a default in payment by the issuers of the instruments held in the PICG Group’s investment portfolio. The loss of all or part of the cash flow generated by the PICG Group’s investment assets could have a direct, immediate and materially adverse impact on the value of the PICG Group’s investment portfolio and on the income and returns which the PICG Group expects to realise on such investments.

If the investments held by the PICG Group are subject to defaults, this may have a material adverse impact on the PICG Group’s business, results of operations and/or financial condition.

See also the risk factor entitled “The PICG Group enters into reinsurance treaties, agreements and hedging contracts with a range of counterparties. Any failure by those counterparties to meet their obligations to the PICG Group could have a material adverse effect on the PICG Group’s financial condition” above for discussion of the counterparty risk faced by the PICG Group. 35

2.3 Credit spread volatility may adversely affect the net unrealised value of the PICG Group’s investment portfolio

Credit spreads are sensitive to many factors including governmental policies, changes in tax policy or legislation, default on fixed income securities, domestic and international economic and political considerations, inflationary factors, regulatory requirements, fiscal deficits and other factors beyond the PICG Group’s control. Any widening of credit spreads will generally reduce the value of fixed income securities, which could have a material adverse effect on the PICG Group’s regulatory capital position and may result in the PICG Group being required to sell its investments in order to meet its liabilities. Credit spread tightening will generally increase the value of fixed income securities.

In the event that credit spreads widen in anticipation of a default, the fall in the value of the PICG Group’s assets may not be matched by an equivalent fall in the value of the PICG Group’s liabilities, which may have a material adverse impact on the PICG Group’s business, results of operations and/or financial condition.

2.4 Changes in interest rates, inflation and foreign exchange rates may adversely affect the value of the PICG Group’s assets and liabilities

The PICG Group seeks to hedge its liability cash flows to interest rates, inflation rates and exposure to changes in foreign exchange rates, but there can be no assurance that such hedging will be effective in protecting the PICG Group from such risk. In the event that such hedging fails, the PICG Group would be exposed to risk of changes in interest rates, inflation and foreign exchange rates.

As is the case for credit spreads, interest rates are sensitive to many factors. Fluctuations in interest rates in particular affect the returns the PICG Group may earn on fixed interest investments or other interest rate sensitive investments. Changes in interest rates affect the market values of the fixed interest securities that the PICG Group holds. Interest rate risk arises primarily where assets and liabilities are structurally mismatched in relation to the PICG Group’s rate curve exposure.

The PICG Group seeks to meet the cash outflows with respect to its liabilities with the cash flows and proceeds of its assets. Although the Bank of England made its first increase to the UK base rate in over a decade in November 2017 and made a further increase in August 2018, there is risk that the low interest rate environment will persist. As the prolonged low interest rate environment continues, and investments held by the PICG Group reach maturity, the PICG Group may be required to reinvest the proceeds of these matured investments at lower yields, which could adversely impact the PICG Group’s capital position.

In addition to interest rate risk arising out of general market conditions, the sustainability of LIBOR as a benchmark, as well as certain other benchmarks, has been questioned in light of the absence of relevant active underlying markets and the possible disincentives for market participants (such as panel banks) to continue contributing to those benchmarks. In particular, on 27 July 2017, and in a subsequent speech on 12 July 2018, the Chief Executive of the FCA confirmed that the FCA will no longer persuade, or use its powers to compel, panel banks to submit rates for the calculation of LIBOR after 2021. Thereafter, the continuation of LIBOR cannot be guaranteed. In the context of LIBOR, the FCA expects firms to assume that discontinuation will occur and to prepare on that basis. Central banks, 36

regulators and industry bodies are taking differing approaches to the replacement of benchmarks, generating uncertainty for market participants. For example, the Bank of England and the FCA have announced that, from January 2018, the Bank of England Working Group on Sterling Risk-Free Rates has been mandated with implementing a broad- based transition to the Sterling Overnight Index Average (“SONIA”) over the next four years across sterling bond, loan and derivative markets, so that SONIA is established as the primary sterling interest rate benchmark by the end of 2021. Whilst the PICG Group expects to be able to manage the transition away from LIBOR and other benchmarks, there is currently uncertainty about the impact of this change on LIBOR-based instruments, including as to which alternative reference rates (if any) will be applicable in substitution for LIBOR in existing instruments or applicable from the outset in new instruments. The uncertainty generated by benchmark reform increases the interest rate risk faced by the PICG Group.

Inflation, as measured by reference to consumer and retail price indices, is a continuing risk for the PICG Group. Although some of the PICG Group’s liabilities are protected from inflation rises, inflation risk typically arises where the PICG Group’s assets and liabilities are structurally mismatched in relation to the inflation rate expectation curve. Fluctuations in inflation affect the value of the PICG Group’s liabilities, as they are typically index-linked. They may also impact the returns the PICG Group earns on its index-linked investments as well as the market values of those investments. In particular, a sustained fall in inflation and move to a deflationary environment may have a material adverse impact on the valuation of certain of the PICG Group’s assets and liabilities.

The PICG Group’s assets and liabilities are primarily denominated in sterling but the PICG Group also holds some investments which are denominated in other currencies. Exchange rate fluctuations could affect the value of the PICG Group’s investment assets and the cash flows deriving from them.

2.5 Challenging conditions in the capital and credit markets may significantly impact the PICG Group’s ability to meet its liquidity needs

The PICG Group needs liquidity in order to fund its insurance operations, and to meet claims and operating expenses. The PICG Group depends on its holdings of liquid assets, investment income and premiums to meet its liquidity requirements. Difficult market conditions may reduce the availability of such liquidity sources which, in extreme circumstances, could have an impact on the PICG Group’s ability to meet its obligations to policyholders and third parties as they arise.

In the event of an illiquid market, the PICG Group may need to seek additional financing in order to meet its short-term cash flow requirements as they fall due. Depending on the availability of credit and/or ease with which the PICG Group can access other forms of financing (such as the debt capital markets), PICG Group Issuer may have difficulty in obtaining the necessary capital required to operate its business and may have to realise investments at a depressed value.

If the PICG Group is forced to sell assets at significantly lower prices than the price at which they were recorded and/or suspend policyholder and third party payments, this could adversely affect the PICG Group’s reputation and, consequently, its business, results of operations and/or financial condition. 37

In addition, large short-term cash flow requirements may arise from the collateral calls generated by the PICG Group’s portfolio of hedging instruments such as interest rate swaps, inflation swaps and foreign exchange contracts. Although the PICG Group seeks to ensure that it has adequate collateral arrangements in place to support such transactions, there can be no assurance that these arrangements will always be sufficient, particularly in times of severe market volatility.

3. Risks relating to the macro-economic environment, the financial strength and financial condition of the PICG Group

3.1 A deterioration in the UK and global economic and financial market conditions could have a material adverse impact on the PICG Group’s operations and its financial position

Like other insurance companies, the PICG Group is affected by changes in the general economic and financial market conditions. This can cause its results to fluctuate and potentially adversely affect its financial condition and its ability to meet its solvency obligations. Adverse economic conditions can also influence the counterparty credit risks to which the PICG Group is exposed.

The current economic climate, following the global financial crisis and the subsequent Eurozone sovereign debt crisis, is characterised by a higher number of economic risks than expected in a normal economic cycle. Issues arising out of a re-emergence of a sovereign debt crisis in highly-indebted European countries could cause investors to lose confidence in the safety and soundness of European financial institutions and the stability of European economies. The recent imposition of unilateral tariffs by the U.S. has caused certain governments to impose or to consider imposing trade sanctions on certain U.S. goods, which could lead to a global reduction of trade and/or increase in prices. Due to the nature of some of the PICG Group’s investments, it is also exposed to economic volatility in emerging markets. These, and other, macroeconomic events and shocks, could negatively affect the value of the PICG Group’s investment assets and the cash flows deriving from them.

3.2 Uncertainty surrounding the UK’s decision to withdraw from the EU

On 23 June 2016, the UK held a referendum in which the majority voted in favour of the UK leaving the EU. On 29 March 2017, the UK Government formally served notice of its intention to withdraw from the EU pursuant to Article 50 of the Treaty on the European Union. The UK was originally due to formally depart from the EU at 11pm GMT 29 March 2019, but the departure date has been deferred for up to six months. Unless a further extension is mutually agreed between the UK and the EU, the UK will leave the EU on the earlier of (i) the last day of the month in which the UK Parliament ratifies the proposed agreement between the UK and the EU on the withdrawal of the UK from the EU (the “Withdrawal Agreement”), or (ii) 11pm GMT on 31 October 2019. Considerable uncertainty exists over the arrangements which will be put in place between the UK and the EU when, and potentially if, the UK departs from the EU, including the UK’s continued access to the EU single market in relation to trade in goods and services, during and after any transitional period (if any) that might be agreed.

The potential impact of exiting the EU on the PICG Group’s operations and investment assets remains uncertain. The negotiations regarding the future relationship between the UK and the EU could adversely affect the PICG Group’s business, results of operations and/or financial position. 38

It is also anticipated that the UK’s departure from the EU may result in significant changes to the UK and EU’s respective regulatory systems. Such changes may require the PICG Group to take mitigating actions or to change parts of its business, which may have a material impact on its business, results of operations and/or financial position. See “Regulatory Overview” for further discussion of the implications of the UK’s anticipated departure from the EU.

3.3 Events leading to a negative perception of the financial services sector as a whole or the bulk purchase annuity sub-sector in particular, could adversely affect the PICG Group

The PICG Group’s creditworthiness is influenced by the perception and confidence of wholesale investors in relation to the UK financial services sector as a whole and the bulk purchase annuity sub-sector in particular. Factors impacting these perceptions include the adverse performance of investment markets, actions by regulators against organisations operating in the sector, the conduct of other market participants and shock events such as significant market failures, although the PICG Group seeks wherever practicable to mitigate the effects of these risks.

The 2007 financial crisis, subsequent investment performance and the low interest rate environment together with customers’ perceptions of the robustness of financial institutions may also impact customer attitudes to long-term savings. Regulatory actions may also adversely impact customers’ perception of the value of insurance products and result in changes to the regulatory and legislative environment in which the PICG Group operates, which could adversely affect the creditworthiness of the PICG Group.

OPERATIONAL AND STRATEGIC RISKS

4. Risks relating to the PICG Group’s strategy and business plan, including those relating to reliance on individuals within the PICG Group and/or third-party service providers

4.1 The PICG Group relies on the contributions of key individuals for the continued success of its business, and its ability to attract, train, motivate and retain such individuals, the loss of which could have an impact on the PICG Group’s operations and profitability

The PICG Group’s future success depends on the continued services and performance of key personnel and on its ability to attract, train, motivate and retain high quality and highly skilled personnel. The PICG Group is substantially dependent upon the continued services and performance of its board of directors and other members of the senior management team. While the PICG Group has entered into employment contracts or letters of appointment with these key personnel, and the board of directors of PIC and PICG periodically reviews succession planning, no assurance can be given that they will continue to be employed by, and provide services to the PICG Group. The loss of their services, whether through retirement or otherwise, could have a material adverse effect on the PICG Group’s business, financial condition and/or operating or financial results.

The PICG Group’s success also requires it to continue to attract, train, motivate and retain a growing team of employees of suitable skill and experience for all areas of the PICG Group’s business. The PICG Group may in the future be unable to attract, motivate and retain such people. The PICG Group’s continued success and profitability depends on its ability not only 39

to attract and retain increasing numbers of staff, but also to dedicate sufficient resources to their training and professional development.

4.2 The PICG Group relies on Pension Services Corporation Limited for the provision of its employees

PICG’s subsidiary, and the Issuer’s sister company, Pension Services Corporation Limited (“PSC”), is the PICG Group’s services company, which provides the PICG Group (including the Issuer) with employment services. The PICG Group is dependent upon PSC for the provision of services from employees, directors and consultants and any significant event affecting PSC or any other failure by PSC to continue to provide services to the rest of the PICG Group could have an adverse effect on the PICG Group’s business, results of operations and/or financial condition.

4.3 The PICG Group’s brand and reputation are of significant importance to the PICG Group’s ability to attract clients and any damage to that brand could have a material impact on the PICG Group’s business and profitability

The PICG Group’s brand has become increasingly recognisable as the PICG Group has expanded and grown its business. Any damage to the PICG Group’s brand or reputation or a decline in policyholder, trustee, client or counterparty confidence in the PICG Group or its products could have a material adverse effect on the PICG Group’s business, results of operations and/or financial position.

The PICG Group’s success and results are, to a large extent, dependent upon the PICG Group’s brand as well as the reputation of the boards of directors and senior management team within the PICG Group. Integrity, customer trust and confidence are paramount to the PICG Group’s brand and reputation. Any adverse publicity (whether well-founded or not) associated with the PICG Group and potentially other specialist insurers of defined benefit pension funds could result in a loss of business. A material operational loss, any adverse regulatory or legal actions impairing the PICG Group’s brand or any adverse publicity or fines could damage the public image of the PICG Group and its brand and negatively affect customer confidence in the PICG Group, resulting in a loss of current business in respect of that portion of the PICG Group’s business which can be surrendered by the policyholder, and a downturn in new business volumes and sales.

4.4 The PICG Group is reliant on its internal and external systems, processes and controls (including information technology) and any failure of such systems, processes and controls (including as a result of a targeted attack) could have a material adverse effect on the PICG Group’s business

Operational risk is inherent within the PICG Group’s business, including the risk of direct or indirect loss resulting from inadequate or failed internal and external processes and controls, systems, human error, negligence, fraud, external events and failure to attract, motivate and retain skilled personnel.

The PICG Group is heavily reliant on its operational systems, business resilience systems and IT capabilities to conduct its business. IT is key to a number of the functions within the PICG Group’s business including calculating and measuring its capital requirements, taking into account its liabilities, assessing risk exposure, producing financial and management 40

reports, processing and retaining data relating to the pension funds and members which it has underwritten and maintaining accurate data and records. In the event of any damage, failure, harm to or interruption in the IT deployed in respect of these functions, whether as a result of human error, unauthorised usage, natural disasters or other matters outside the PICG Group’s control, the PICG Group’s operations may be severely disrupted and/or the PICG Group may be subject to customer and/or counterparty complaints or litigation and could incur significant costs which in turn could have a material adverse effect on the PICG Group’s profitability, results of operations and/or financial condition.

Although the PICG Group has disaster recovery and business continuity plans in place, there is no guarantee that these will be sufficient in the event of a particular issue or disaster which the PICG Group’s systems, processes and controls are not equipped to deal with. Any material loss or damage to the information or data stored in the PICG Group’s systems could significantly impair the PICG Group’s ability to conduct its business and may have an adverse effect on the PICG Group’s results of operations and/or financial condition.

The cyber-security threat continues to evolve globally in sophistication and potential significance. As a result of the PICG Group’s market profile, there is a possibility of the PICG Group being considered as a target by cyber criminals. The threat from untargeted but sophisticated and automated attacks also exists. The threat of a targeted attack on the PICG Group’s data, systems, processes and controls is regularly monitored for any increase in exposure. Nevertheless, any successful attack would have a material adverse effect on the PICG Group’s profitability, results of operations and/or financial condition, including in harming the reputation of, and trust in, the PICG Group.

See the risk factors entitled “The PICG Group collects, retains and maintains policyholder and pension fund information and data and any failure to protect such information could have a material adverse effect on the PICG Group” and “The PICG Group is subject to conduct risk from a range of sources, including being judged not to comply with the FCA’s “Treating Customers Fairly” or “TCF” principles, which are central to the FCA’s regulatory approach” below for further details of the regulatory environment within which the PICG Group operates and which imposes certain requirements on the PICG Group to manage operational and conduct risk.

4.5 The PICG Group collects, retains and maintains policyholder and pension fund information and data and any failure to protect such information could have a material adverse effect on the PICG Group

The PICG Group is required to process, collect and maintain certain information and data, including personal data. The processing, collection and retention of such data is subject to the EU General Data Protection Regulation (“GDPR”), supplemented by the UK’s Data Protection Act 2018 (“DPA 2018”) that came into effect on 25 May 2018. The DPA 2018 exercises certain national derogations permitted under the GDPR and deals with certain issues that are not covered by the GDPR. The GDPR introduces substantial changes to the EU data protection regime, and there is uncertainty over how compliance with the regulation will be applied and interpreted by the UK’s Information Commissioner’s Office (“ICO”) and by the courts in the event of customer litigation. See “Regulatory Overview” below for further information on the data protection regime. 41

Large organisations that have access to large amounts of personal information, such as the PICG Group, are increasingly becoming targets for cyber-crime. The PICG Group is exposed to the risk that the personal data it controls could be wrongfully accessed and/or used, whether by employees or other third parties, or otherwise lost or disclosed or processed in breach of data protection laws. Failure by the PICG Group or any of its third party service providers to comply with the GDPR or the DPA 2018 could result in significant fines or other action by the ICO, which could have a material impact on the PICG Group’s financial condition. Any loss or unauthorised use or sharing of data held by the PICG Group could also result in adverse publicity, which could affect the PICG Group’s business and results of operations.

4.6 The PICG Group relies on various third-party service providers to which it outsources key functions and services. Any loss of, or any negative financial consequences arising in connection with, the provision of these functions or services could have a material impact on the PICG Group’s business

The PICG Group outsources certain activities to outsourcing partners. These partners include: Barnett Waddingham and XPS Pensions Group, which provides liability pricing services; Janus Henderson Investors, Schroders, JPMorgan Asset Management and 24AM, which provide asset management services; Capita, which provides services relating to the administration and servicing of policies; JPMorgan, which provides services relating to investment accounting, custody, investment fund and performance reporting; Northern Trust, which provides custody and transaction services; and Willis Towers Watson, which provides Actuarial Function Holder services. The outsourced nature of the services provided means that there remains a risk that customer outcomes or service standards may fall below required levels. In the event that an outsourcing partner fails to adhere to adequate contractual or regulatory standards, particularly in a customer facing element of the business, the PICG Group is exposed to the material risk of regulatory action and reputational harm.

LEGAL AND REGULATORY RISKS

5. Risks relating to the regulatory and legislative environment, including those relating to accounting standards and taxation

5.1 The structure of the financial regulatory authorities in the UK and the UK regulatory framework that applies to insurers, including the PICG Group, may be the subject of further reform and reorganisation

The Issuer is authorised by the PRA and is regulated by both the FCA and the PRA. The PRA has responsibility for the prudential regulation of insurers and the FCA has responsibility for the regulation of conduct of business.

As the regulatory approach of the FCA and the PRA advances, there may be future changes to the nature of, or policies for, prudential regulation and conduct of business supervision, and this could lead to a period of uncertainty for the PICG Group. In particular, the departure of the UK from the EU may catalyse reform of the UK’s regulatory framework. No assurance can be given about the likelihood or timing of further changes to the regulatory regime. Any such changes may have a material adverse effect on the business of the PICG Group and its strategy and profitability, and therefore on its financial condition, results of operations and/or future prospects. 42

The Issuer is required to obtain and maintain certain permissions from the PRA and to comply with various rules and regulations in order to conduct its insurance business lawfully in the UK. For more details about the regulatory environment within which the Issuer operates, please see “Regulatory Overview” below. Failure to comply with any regulatory requirements may result in the PRA and/or the FCA taking action against the Issuer, which could include imposing fines or sanctions or limiting or revoking the necessary permissions, as well as resulting in adverse publicity for the PICG Group. This could ultimately result in the PICG Group being unable to carry on its insurance business.

5.2 The PICG Group is required to comply with capital adequacy requirements and failure to do so could have a material adverse effect on the PICG Group’s business

The Issuer is required to maintain a minimum margin of capital in excess of the value of its liabilities in order to comply with certain regulatory requirements. These requirements relating to solvency are set out in more detail in “Regulatory Overview” below.

The solvency regime applicable to the EU insurance sector, known as Solvency II, has applied since on 1 January 2016 and replaced the previous regime known as Solvency I. The main aim of the Solvency II regime is to ensure the financial stability of the insurance industry across the EU and protect policyholders through establishing solvency requirements better matched to the true risks of the business.

One key feature of Solvency II is that insurers and reinsurers are able to make use of internal models to calculate capital requirements if the model has been approved by the appropriate regulator. The Issuer has received approval from the PRA to use a full internal model to calculate its regulatory capital requirements and to apply the matching adjustment, volatility adjustment and transitional measures on technical provisions to the valuation of its technical provisions (i.e., the amount required to cover the Issuer’s (re)insurance liabilities). There is a risk that these approvals could be withdrawn, or that the Issuer is otherwise unable to use these approvals, which would have a negative impact on the Issuer’s capital position. This is particularly the case for the matching adjustment.

While the Issuer is currently able to meet its regulatory capital requirements, changes in legislation, regulation, regulatory requirements or market conditions may result in the Issuer being unable to do so in the future. In particular, there is a risk that in the future changes are required to be made to the approved internal model or other approvals, which could have a material impact on the Issuer’s Solvency II capital position. Where internal model changes are subject to regulatory approval, there is a risk that the approval is delayed or not given. In such circumstances, changes in the Issuer’s risk profile would not be able to be appropriately reflected in the Issuer’s internal model, which could have a material impact on the Issuer’s Solvency II capital position.

The uncertainty about the UK’s future relationship with the EU in relation to financial services also creates uncertainty about the regulatory regime that may apply following the UK’s departure from the EU.

In relation to those pension funds which the PICG Group has insured by way of buy-in transactions only, an adverse event which results in a deterioration in the PICG Group’s solvency could result in the recapture of the relevant assets and an unwinding of the transaction by the fund’s trustees, releasing the Issuer’s obligations, if such a recapture is a 43 right of the trustee under the relevant buy-in insurance policy. There is currently one such buy-in insurance policy with recapture rights. However, the PICG Group may in the future enter into new buy-in insurance policies where a trustee recapture right is a feature of the policy. Such recapture could have an adverse effect on the PICG Group’s business, results of operations and/or financial condition.

Following the introduction of the Solvency II regime, the PRA has published and continues to publish consultations and supervisory statements that set out its expectations relating to elements of the Solvency II regime. As a result of these consultations, a number of Supervisory Statements have been issued or updated. These include, amongst others, consultations and supervisory statements relating to illiquid assets.

In particular, Supervisory Statement 3/17 (“SS3/17”) sets out the PRA’s expectations in respect of firms that are subject to the Solvency II regime, and that invest in illiquid, unrated assets within their matching adjustment portfolios. Amongst other matters, SS3/17 states that firms will have to explain how they will group assets in their Solvency II MA portfolios with respect to credit quality steps ("CQS"), asset class and duration for the purposes of determining the fundamental spread, and that where assessing internally-rated assets, greater judgement is involved and firms need to “have confidence that the risk management of these more complex credit exposures, in particular the CQS mapping process and the size of the MA benefit claimed on them, is fit for purpose”.

In December 2018, following a consultation initiated by Consultation Paper 13/18, the PRA published amendments to SS3/17. These amendments have parameterised various tests that restrict the total effective value of ERM that can be reflected on insurers’ balance sheets through the combination of asset value and discounting of liabilities (these tests are referred to together as the “effective value test”). ERM represent less than one per cent. of the PICG Group’s financial investments and the PICG Group allocates only a small proportion of this asset class to its new business pricing assumptions. The Issuer is currently applying for an internal model change to permit its ERM portfolio to be internally structured so that part of the ERM can be allocated to PIC’s Solvency II matching fund and thereby enable some matching adjustment to be derived from this asset. The parameters set out in the amendments to SS3/17 are within the ranges for which the PICG Group had been planning while awaiting the publication of the amendments. The PICG Group is not, therefore, expecting to make any material changes to its proposed treatment of ERM as a result of the amendments.

When publishing the amendments to SS3/17, the PRA announced that it will consult on a number of matters, including how to deal with the interest rate volatility that will arise from the parameters that form part of the effective value test, and what changes might be needed to reflect the impact of the application of the effective value test in future stress scenarios. There is a risk that the implementation of one or more of the PRA consultation papers or supervisory statements, whether related to ERM or otherwise, may give rise to greater capital requirements than are currently the case, which could have a material adverse effect on the business, results of operations and financial condition of the PICG Group. 44

5.3 A change of law or regulation or changes in the interpretation or operation of existing legislation or regulation may adversely affect the PICG Group’s business, results of operations and/or financial condition

The PICG Group will not always be able to predict the impact of future legislation or regulation or changes in the interpretation or operation of existing legislation or regulation on its business, results, operations and/or financial condition. Changes in government policy, legislation or regulatory interpretation applying to companies in the financial services and insurance industries in any of the markets in which the PICG Group operates, which may be applied retrospectively, may adversely affect its capital requirements, its ability to meet its obligations in respect of the Notes and, consequently, results and financing requirements. This uncertainty is particularly acute following the outcome of the UK’s referendum on leaving the EU. The mechanical process of incorporation of existing EU law, such as Solvency II, into UK domestic law under the European Union (Withdrawal) Act 2018 (the “Withdrawal Act”) may result in unintended consequences, the impact of which is unpredictable at this stage. It is also unclear to what extent domesticated EU law retained under this Act will be updated in line with changes in EU law and/or repealed.

The PICG Group may also face increased compliance costs due to the need to set up additional compliance controls because of changes to financial services legislation or regulation.

On 19 March 2018, the UK Government published a White Paper which raised the question as to whether new pension fund based consolidation vehicles, such as PLSA’s proposed “Superfund” model, could improve efficiency within the sector and potentially offer a more affordable alternative to the insurance buyout or buy-in services offered by the PICG Group (see the risk factor entitled “Competition in the UK market could affect the profitability of the PICG Group and the long-term viability of its business model” above for further information). The UK government formally consulted on this issue between December 2018 and February 2019, but is yet to issue any legislative proposals. It is not clear what impact these and other developments relevant to the pension risk transfer sector may have on the PICG Group’s business, results of operations and/or financial condition.

See also the risk factor entitled “The PICG Group is required to comply with capital adequacy requirements and failure to do so could have a material adverse effect on the PICG Group’s business” above.

5.4 The PICG Group is subject to conduct risk from a range of sources, including being judged not to comply with the FCA’s “Treating Customers Fairly” or “TCF” principles, which are central to the FCA’s regulatory approach

The PICG Group operates in a heavily regulated environment, with the FCA and the ICO each regulating aspects of the PICG Group’s conduct, including market conduct (FCA), business conduct (FCA) and data protection (ICO). The European Insurance and Occupational Pensions Authority (“EIOPA”) also issues guidelines and binding technical standards with which the PICG Group is required to comply. The Bank of England, the PRA and the FCA have stated that guidance issued by EIOPA will remain relevant after the UK leaves the EU, as explained in more detail in “Regulatory Overview” below. 45

The FCA regulates business conduct. Any behaviour or practice that harms customers, causes the firm reputational damage, undermines the integrity of the financial markets or contributes to the financial markets failing to work well can be considered a “conduct risk”. In particular, the TCF regime that is enforced by the FCA requires the PICG Group to have due regard to the interests of its customers in the conduct of its business, with an overriding requirement to treat them fairly. As a result, conduct risk is far reaching. A firm’s policies, procedures, business practices or behaviour of individuals or groups in an organisation can present conduct risk at any point during the policyholder or business life cycle.

Any determination by the FCA, ICO or EIOPA that the PICG Group is failing to respect and pay due regard to the requirements those bodies impose could lead to enforcement action against the PICG Group, which could have a material adverse effect on the PICG Group’s reputation and its business, results of operations and/or financial condition.

5.5 The PICG Group is subject to competition and consumer protection legislation, failure to comply with which could result in the imposition of fines or sanctions on the PICG Group or a requirement to make significant changes to the PICG Group’s business model

The PICG Group is required to comply with competition laws and regulations as well as those relating to consumer protection which are currently enforced by the European Commission, the UK Competition and Markets Authority and the FCA. The competition laws and regulations applicable to the PICG Group relate to matters such as price fixing, collusion and other forms of anti-competitive behaviour. The FCA is also concerned with the promotion of competition in the UK.

A determination that the PICG Group has failed to comply with any applicable laws and/or regulations relating to matters of competition or consumer protection, or any regulatory action in respect thereof could result in the imposition of sanctions on the PICG Group, which may include fines and/or public censure. This could have a material impact on the PICG Group’s reputation and its business, financial condition and/or future prospects.

5.6 Changes to tax legislation could materially impact the PICG Group’s business and/or decisions of customers

Corporate and individual tax rules are subject to change and any changes could have both a prospective and retrospective impact on the PICG Group’s business, financial condition and/or results of operations. The introduction of new tax legislation, or amendments to existing tax rules or rates (individual or corporate) could materially impact the PICG Group’s business and the choices policyholders make with respect to the nature of their relationship with the PICG Group and/or the PICG Group’s policies. Although the implications of any future changes in tax legislation or rules for the PICG Group and policyholders cannot be predicted, specific changes to the taxation of insurance companies could have a material adverse effect on the PICG Group’s financial condition and/or future prospects.

5.7 Changes to IFRS generally or specifically for insurance companies may have an adverse impact on the PICG Group’s business

PICG’s and the Issuer’s financial statements conform to the International Financial Reporting Standards (“IFRS”) as published by the International Accounting Standards Board (“IASB”), as adopted by the EU. 46

On 18 May 2017 the IASB issued IFRS 17 Insurance Contracts which will replace IFRS 4, the current accounting standard used to report insurance contracts. This standard has a mandatory effective date for accounting periods beginning on or after 1 January 2021. The IASB is expected to release a new exposure draft in June 2019 (with a final standard expected to be released by the end of 2019). This is anticipated to propose a one-year delay to the mandatory effective date to 1 January 2022. Implementation of the standard within the EU is subject to endorsement by the European Commission.

The PICG Group intends to adopt IFRS 17 for the financial year beginning on 1 January 2022. The adoption of the standard is expected to have a significant impact on the PICG Group’s financial statements as it will transform the way the PICG Group measures, presents and discloses the insurance and reinsurance assets and liabilities in the statement of comprehensive income, statement of financial position and notes to the financial accounts. Under IFRS 17, new business profits at inception are recognised as Contractual Service Margin (“CSM”), which is released into the Statement of Comprehensive Income over time. In addition to the CSM, an explicit margin called the Risk Adjustment (“RA”) is required to be held for non-financial risks. More quantitative and qualitative information will be disclosed, including the reconciliations of CSM, RA and present value of future cashflows. The Statement of Comprehensive Income will no longer include premium and claim volumes, and instead will focus on new measures, such as insurance contract revenue and insurance service expense. In addition, IFRS 17 is expected to introduce significant operational changes, including new models and significant updates to current systems and processes to account for new requirements for the collection, aggregation and analysis of data.

The PICG Group has established an IFRS 17 implementation team which is currently developing the required methodology and modelling capability for the implementation of the requirements of IFRS 17 by the PICG Group. However, the impact of the adoption of IFRS 17 on the PICG Group’s financial statements remains subject to a significant degree of uncertainty.

5.8 The PICG Group may be subject to litigation, legal proceedings and/or regulatory investigations in the future (including investigation and intervention by the FCA and/or PRA), which could have a material adverse effect on its business and results of operations

Following the financial crisis, the PRA and the FCA have adopted a more direct style of regulation, which means that PRA and/or FCA-authorised firms, including the Issuer, face increasing supervisory scrutiny. The PRA and the FCA have the power to take a range of investigative, disciplinary and enforcement actions, penalties for which can include public censure, restitution, fines and sanctions. The regulators may also make enquiries of the firms which they regulate and require the provision of particular information or documents. The regulators may take such action or make such enquiries in relation to aspects of the PICG Group’s business and operations, including its systems and controls, IT systems, capital requirements, capital adequacy and permitted investments. Regulatory action may be specific to the PICG Group or part of more general action in respect of firms that operate in the PICG Group’s sector. The PICG Group has regular dialogue with its regulators to ensure compliance with applicable regulatory standards. In the normal course of its business, the PICG Group is engaged in discussions with the PRA and the FCA in relation to a range of business matters, although, there are currently no issues of material regulatory concern under discussion. 47

Whilst the PICG Group believes that its systems, controls and operations are compliant with applicable regulations, there is a risk that one or more regulators could find that the PICG Group has failed to fully comply with all relevant regulatory requirements, or has not undertaken any corrective action as required.

More generally, it is possible that the PICG Group may be subject to legal and/or regulatory action from time to time. This may or may not arise during the ordinary course of business and could potentially have a significant impact on the PICG Group’s business. It is not possible to predict the significance of any proceedings that may be brought against, or any investigations that may be conducted into, the PICG Group nor is it possible to predict the financial impact of a successful claim, fine or penalty to which the PICG Group may become subject.

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

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

Recovery and resolution reforms for banks in the EEA now provide regulators with the power, as part of resolution authority, to write down indebtedness or to convert that indebtedness to capital (known as “bail-in”), as well as other resolution powers. It remains unclear whether and in what form the recovery and resolution regimes currently applicable to banks could be extended to other financial institutions, such as insurance companies. It therefore remains unclear what recovery and resolution regime could apply to the PICG Group in the future and, consequently, what the implications could be for the PICG Group and its creditors.

RISKS RELATED TO THE NOTES AND THE MARKET

Defined terms used in the following risk factors have the meaning given in the Conditions.

6. Risks relating to the Notes

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

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

If, at any time prior to the date on which a Trigger Event occurs an Issuer Winding-Up occurs, there shall be payable by the Issuer in respect of each Note (in lieu of any other payment by the Issuer) such amount, if any, that would have been payable in respect of that Note if, on the day prior to the commencement of the winding-up or liquidation of the Issuer or the Issuer's entry into administration and thereafter, the holder of that Note was the holder of one of a class of preference shares in the Issuer (“Notional Preference Shares”): 48

(a) having a preferential right to a return of assets in such winding-up, liquidation or administration to, and so ranking in priority to, the holders of the Issuer’s ordinary shares (“PIC Ordinary Shares”) and any other class of shares in issue or deemed to be in issue for the time being in the capital of the Issuer (other than any shares which may be issued or deemed to be in issue for the time being in the capital of the Issuer which, by their terms, rank or are expressed to rank, pari passu with, or in priority to, the Notional Preference Shares in a winding-up or other return of capital); and

(b) having an equal right to a return of assets in such winding-up, liquidation or administration to, and so rank pari passu with, the holders of securities of the Issuer which, by their terms, rank or are expressed to ranking, pari passu with the Notes in a winding-up. liquidation or other return of capital (including, without limitation, shares of any class which may be issued or deemed to be in issue for the time being in the capital of the Issuer which, by their terms, rank or are expressed to rank pari passu with the Notional Preference Shares in a winding-up, liquidation or other return of capital); and

(c) ranking junior to the claims of Senior Creditors and the holders of shares of any class which may be issued or deemed to be in issue for the time being in the capital of the Issuer which, by their terms, rank or are expressed to rank senior to the Notional Preference Shares in a winding-up, liquidation or other return of capital.

If, at any time on or after the date on which a Trigger Event occurs, an Issuer Winding-Up occurs but (if the Conversion Shares Issuer is the Issuer) the relevant Ordinary Shares to be issued and delivered to the Conversion Shares Depositary on Conversion or (if the Conversion Shares Issuer is not the Issuer) the relevant Issuer Ordinary Shares to be issued and delivered to the Conversion Shares Depositary have not been so delivered, there shall be payable by the Issuer in respect of each Note (in lieu of any other payment by the Issuer) such amount, if any, that would have been payable in respect of that Note if, on the day prior to the commencement of the winding-up, liquidation or administration of the Issuer and thereafter, the holder of that Note was the holder of such number of Ordinary Shares or (if the Conversion Shares Issuer is not the Issuer) the relevant Issuer Ordinary Shares to be issued and delivered to the Conversion Shares Depositary as it would have been entitled to receive on Conversion of that Note in accordance with Condition 6 (ignoring for these purposes the Conversion Shares Issuer's right to make an election for a Conversion Shares Offer to be effected in accordance with Condition 7(a)).

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

In addition, investors should be aware that, upon and following Conversion of the Notes following a Trigger Event, subject to the procuring of a Conversion Shares Offer, Noteholders will be effectively further subordinated (and may (where the Conversion Shares Issuer is not the Issuer) be structurally subordinated to other creditors of the Issuer) as they will be treated 49

as, and subsequently become, holders of Ordinary Shares, even if other existing subordinated indebtedness and preference shares remain outstanding. There is a risk that Noteholders will lose the entire amount of their investment, regardless of whether the Issuer has sufficient assets available to settle what would have been the claims of Noteholders or of securities subordinated to the same or greater extent as the Notes, in winding-up proceedings or otherwise. See further the risk factor entitled “Following an IPO Event, in relation to an entity other than the Issuer, the Issuer will cease to be the Conversion Shares Issuer. Following Conversion post-such an IPO Event, the Noteholders will be treated as, and subsequently become, holders of Ordinary Shares issued by an entity other than the Issuer, which may be PICG or another entity” below.

Although the Notes may pay a higher rate of interest than comparable notes which are not subordinated, there is a material risk that an investor in the Notes will lose all or some of its investment should the Issuer become insolvent.

6.2 Payments by the Issuer are conditional upon the Issuer being solvent

The payment obligations by the Issuer under the Notes are conditional upon (other than in the circumstances set out in Conditions 3(c) and 3(d), or in relation to the cash component of any Conversion Shares Offer Entitlement) there being no breach of the Solvency Condition (as described in Condition 3(e)) at the time of such payment and no such breach occurring as a result of such payment. Any payment of interest that would have been due and payable but for the inability to comply with the Solvency Condition shall be cancelled in full pursuant to Condition 3(e).

6.3 Payments of interest on the Notes are wholly discretionary. Cancelled interest payments shall not be due and shall not accumulate or be payable at any time thereafter

Interest payments on the Notes are wholly discretionary and the Issuer may at any time elect to cancel any interest payment, in whole or in part, which would otherwise be due and payable on any Interest Payment Date. Accordingly, interest on the Notes will be due and payable only at the sole and absolute discretion of the Issuer. Furthermore, interest payments are subject to mandatory cancellation in certain circumstances as provided in the Conditions. See also the risk factor entitled “Payments by the Issuer are conditional upon the Issuer being solvent” above.

At the time of publication of this Offering Memorandum, it is the intention of the directors of the Issuer to take into account the relative ranking in the Issuer’s capital structure of PIC Ordinary Shares and any Tier 1 Own Funds (including, but not limited to, the Notes) whenever exercising its discretion to declare dividends on the former or to cancel interest on the latter. However, the directors of the Issuer may depart from this policy at any time in their sole discretion.

Any interest payment (or relevant part thereof) which is cancelled shall not accumulate and shall not become due and payable at any time thereafter. In the event of such cancellation, Noteholders will have no rights in respect of the interest payment (or relevant part thereof) which is cancelled. In addition, cancellation or non-payment of interest in accordance with the Conditions shall not constitute a default or event of default on the part of the Issuer for any purpose. 50

Any actual or perceived likelihood of cancellation of any interest payment can be expected to have a material adverse effect on the market price of the Notes. Investors in the Notes may find it difficult to sell their Notes in such circumstances, or may only be able to sell their Notes at a price which may be significantly lower than the price at which they purchased their Notes. In such a sale, investors may lose some or substantially all of their investment in the Notes. In addition, as a result of the cancellation provisions of the Notes, the market price of the Notes may be more volatile than the market prices of other securities or instruments that do not permit or require cancellation of interest payments, and may be more sensitive generally to adverse changes in the Issuer's financial condition.

In addition, the Notes may trade, and/or the prices for the Notes may appear, in trading systems with accrued interest. Purchasers of Notes in the secondary market may pay a price which reflects such accrued interest on purchase of the Notes. If an interest payment is cancelled (in whole or in part), a purchaser of Notes in the secondary market will not be entitled to the accrued interest (or part thereof) reflected in the purchase price of the Notes.

See further the risk factor entitled “In certain circumstances, payments of interest on the Notes must be cancelled. Cancelled interest payments shall not be due and shall not accumulate or be payable at any time thereafter” below.

6.4 In certain circumstances, payments of interest on the Notes must be cancelled. Cancelled interest payments shall not be due and shall not accumulate or be payable at any time thereafter

The Issuer must cancel any interest payment on the Notes in full pursuant to Condition 5(b) in the event that, among other things, the Issuer cannot make the payment (including, if applicable, any Additional Amounts) in compliance with the Solvency Condition, the Solvency Capital Requirement or the Minimum Capital Requirement, or where the interest payment would, when aggregated together with certain interest payments or distributions on the Issuer’s Tier 1 own funds, exceed the amount of the Issuer’s Distributable Items as at the time for payment, or if required to cancel any interest payment by the Relevant Regulator or under the Relevant Rules. Any interest payments due on or after the date of a Trigger Event must also be cancelled under Condition 5(d).

The Issuer’s Distributable Items as at 31 December 2018 are further described in “The PICG Group – Available Distributable Items” below.

Any interest payment (or relevant part thereof) which is cancelled or does not become due and payable in accordance with the Conditions shall not accumulate or be payable at any time thereafter.

See further the risk factor entitled “Payments of interest on the Notes are wholly discretionary. Cancelled interest payments shall not be due and shall not accumulate or be payable at any time thereafter” above for consideration of the risks inherent in the potential for cancellation of interest payments on the Notes. 51

6.5 The Notes have no scheduled maturity and Noteholders have only a limited ability to exit their investment in the Notes

The Notes are perpetual securities and have no fixed maturity date or fixed redemption date and are not redeemable at the option or election of the Noteholders. Although the Issuer may, under certain circumstances, redeem the Notes, the Issuer is under no obligation to do so and Noteholders have no right to call for the Issuer to exercise any right it may have to redeem the Notes.

Therefore, Noteholders have no ability to exit their investment, except (i) in the event of the Issuer exercising its right to redeem the Notes in accordance with the Conditions, (ii) by selling their Notes or, following the occurrence of a Trigger Event and the issue and delivery of Ordinary Shares to Noteholders, such shares (provided the Ordinary Shares issued following Conversion are not all sold pursuant to a Conversion Shares Offer), (iii) through the cash component of any Conversion Shares Offer Entitlement or (iv) upon an Issuer Winding Up, in which limited circumstances the Noteholders may receive some of any resulting liquidation proceeds following payment being made in full to all senior and more senior subordinated creditors. The proceeds, if any, realised as a result of any of the actions described in (i) to (iv) may be substantially less than the principal amount of the Notes or the price paid by an investor for the Notes. In particular, Noteholders should be aware that the price applicable to any Conversion Shares Offer may be below the applicable Conversion Price and that they will not be entitled to any Excess Amount (as further described in the risk factor entitled “Noteholders may receive Conversion Shares Offer Entitlement instead of Ordinary Shares upon Conversion” below).

See also the risk factor entitled "The secondary market generally" below.

6.6 The Issuer may redeem the Notes at par in certain circumstances, and an investor may not be able to reinvest the redemption proceeds at as effective a rate of return as that in respect of the Notes

The Notes may, subject as provided in Condition 12, at the sole discretion of the Issuer, be redeemed at their principal amount together with accrued but unpaid interest to (but excluding) the date of redemption, (i) at the Issuer’s option on the First Call Date or on any Reset Date thereafter, (ii) in the event of certain changes to the tax treatment of the Notes (or payments due thereunder) or the Issuer’s entitlement to have any loss or non-trading deficit set against the profits of companies with which it is grouped for applicable United Kingdom tax purposes, each occurring as a result of a Tax Law Change, (iii) in the event of a Capital Disqualification Event, (iv) if a Ratings Methodology Event (being a change in (or clarification to) the methodology of Fitch or a subsequent Rating Agency (if applicable) (or in its interpretation) which results in a loss or reduction of “equity credit” assigned to the Notes) occurs or will occur in the future or (v) in exercise of a clean-up call option by the Issuer (in the event that 80 per cent. or more of the principal amount of the Notes (including any Further Notes) has been purchased and cancelled by the Issuer or any of its subsidiaries).

The cash paid to investors upon such a redemption may be less than the then current market value of the Notes or the price at which investors purchased the Notes, and any actual or perceived possibility of redemption by the Issuer could also impact the market value of the Notes. Subject to the contractual and regulatory restrictions on doing so (including those set out in the Conditions), the Issuer might be expected to redeem the Notes when its cost of 52

borrowing for an instrument with a comparable regulatory capital treatment at the time is lower than the interest payable on them. At those times, an investor generally would not be able to reinvest the redemption proceeds at an effective interest rate as high as the interest payable on the Notes being redeemed and may only be able to do so at a significantly lower rate.

Investors should consider reinvestment risk in the light of other investments available at that time.

6.7 The Issuer is required to defer redemption or cancel purchase of the Notes in certain circumstances

The Conditions set out certain conditions to the redemption or purchase of the Notes, including requiring that the Solvency Condition, the Solvency Capital Requirement and the Minimum Capital Requirement are met or satisfied at the time of such payment and no breach occurring as a result of such payment (such conditions being the “Redemption and Purchase Conditions”). If the Redemption and Purchase Conditions are not met, the Issuer may not redeem or purchase any Notes and the redemption or purchase of the Notes shall instead be deferred or cancelled, respectively, as provided in the Conditions.

The deferral or cancellation of redemption or purchase of the Notes does not constitute a default or event of default under the Notes for any purpose and does not give Noteholders (or the Trustee) any right to take any enforcement action under the Notes.

Any actual or anticipated deferral or cancellation of redemption or purchase of the Notes can be expected to have a material adverse effect on the market price of the Notes. In addition, as a result of the deferral and cancellation provisions of the Notes, the market price of the Notes may be more volatile than the market prices of other securities or instruments that do not permit or require deferral of redemptions or purchases, and may be more sensitive generally to adverse changes in the Issuer's financial condition.

6.8 The Issuer’s interests may not be aligned with those of the Noteholders

The Issuer’s satisfaction of the Solvency Condition and the availability of Distributable Items, as well as there being no occurrence of a Trigger Event, will depend in part on decisions made by the Issuer and other entities in the PICG Group relating to their businesses and operations, as well as the management of their capital positions.

While the directors of the Issuer are under an obligation to consider the interests of all stakeholders of the Issuer, including the Noteholders, the interests of other stakeholders of the Issuer could be unaligned with, and outweigh, the interests of the Noteholders, including but not limited to in the context of capital management. The Issuer may decide not to raise capital at a time when it is feasible to do so, even if that would result in, or fail to avoid the occurrence of a Trigger Event. In addition, the Issuer (or the Issuer’s ultimate holding company, PICG) may not be able to raise capital at any time, particularly in light of each of the Issuer’s and PICG’s equity currently being unlisted (on which, see the risk factor entitled “Neither the Issuer nor PICG has listed equity in issue and therefore each has no ready access to the public equity capital markets” above). The Issuer may decide not to propose to its shareholder to reallocate share premium to a distributable reserve account or to take other actions necessary in order for share premium or other reserves or earnings to be 53

included in Distributable Items. Moreover, in order to avoid the use of public resources, the PRA may decide that the Issuer should allow a Trigger Event or a Mandatory Interest Cancellation Event to occur or should cancel an interest payment at a time when it is feasible to avoid this. Noteholders will not have any claim against the Issuer or any other entity of the PICG Group relating to decisions that affect the capital position of the PICG Group, regardless of whether they result in the occurrence of a Trigger Event or a lack of Distributable Items or breach of the Solvency Condition. Such decisions could cause Noteholders to lose the full amount of their investment in the Notes.

6.9 Other capital instruments issued by the Issuer may not absorb losses at the same time, or to the same extent as the Notes

The terms and conditions of other regulatory capital instruments issued from time to time by the Issuer may vary and accordingly such instruments may not convert into equity or be written-down at the same time, or to the same extent, as the Notes, or at all. Therefore, the Notes may be subject to a greater degree of loss absorption than would otherwise have been the case had such other instruments been written down or converted at the same time as or prior to the Notes.

6.10 No limitation on issuing senior or pari passu securities

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

6.11 Notes may be mandatorily converted into PIC Ordinary Shares

Following the occurrence of a Trigger Event, subject to certain exceptions, the Notes will be mandatorily converted into PIC Ordinary Shares on the Conversion Date. Once such PIC Ordinary Shares have been issued and delivered to the Conversion Shares Depositary, all of the Issuer's obligations under the Notes (including any payment obligation in respect of principal and/or accrued interest) shall be irrevocably discharged and satisfied. If the Conversion Shares Issuer is not the Issuer, the Conversion Shares Issuer shall, in consideration for the transfer to it of the relevant PIC Ordinary Shares, issue and deliver a number of Ordinary Shares to the Conversion Shares Depositary (as more fully described in the Conditions). Once such Ordinary Shares have been issued and delivered to the Conversion Shares Depositary, all of the Conversion Share Issuer's obligations under the Notes shall be irrevocably discharged and satisfied.

As a result, Noteholders may lose all or part of the value of their investment in the Notes as, following Conversion, they will receive only (i) the Conversion Shares and/or (ii) (if the Conversion Shares Issuer elects that a Conversion Shares Offer be made) the Conversion Shares Offer Entitlement. Following a Conversion Shares Offer, there can be no assurances that the Noteholders will receive any Conversion Shares. Furthermore, there can be no assurances, therefore, that Noteholders will receive Conversion Shares (whether PIC Ordinary Shares or otherwise, and whether as part of the Conversion Shares Offer 54

Entitlement following a Conversion Shares Offer or otherwise) following the occurrence of a Trigger Event. See also the risk factors entitled “Following an IPO Event, in relation to an entity other than the Issuer, the Issuer will cease to be the Conversion Shares Issuer. Following Conversion post-such an IPO Event, the Noteholders will be treated as, and subsequently become, holders of Ordinary Shares issued by an entity other than the Issuer, which may be PICG or another entity” and “Noteholders may receive Conversion Shares Offer Entitlement instead of Ordinary Shares upon Conversion” below.

Although the value of any Conversion Shares (if any) received by Noteholders may increase (or decrease) over time, the Conversion Price at the time the Conversion Shares are issued may not reflect (and may be considerably higher than) the market value of the Ordinary Shares. A Conversion Price that is higher than the market price of an Ordinary Share will represent a loss for Noteholders, since (through Conversion) they will obtain Ordinary Shares (subject to a Conversion Shares Offer) at a higher price than they will be able to sell such Ordinary Shares at in the market.

Any Conversion of the Notes shall be irrevocable and Noteholders shall not be entitled to any compensation in the event that the value of the Conversion Shares or Conversion Shares Offer Entitlement, as applicable, received by them is less than the principal amount of their Notes, or if the solvency position of the Issuer subsequently improves following Conversion (including if the circumstances giving rise to the Trigger Event have ceased to continue). Furthermore, the sole remedy available to Noteholders as against the Issuer in the event that the Issuer fails to delivery Ordinary Shares or (if the Conversion Shares Issuer is not the Issuer) Issuer Ordinary Shares to the Conversion Shares Depositary on or after the Trigger Event will be to apply to the court to obtain an order requiring the Issuer to issue and deliver such shares to the Conversion Shares Depositary or, where applicable, participate in the liquidation proceeds of the Issuer as if such shares had been issued. Once the Ordinary Shares or (if the Conversion Shares Issuer is not the Issuer) Issuer Ordinary Shares to be delivered on Conversion have been issued and delivered to the Conversion Shares Depositary, the only claims Noteholders will have will be against the Conversion Shares Depositary for delivery of Ordinary Shares or (if the Conversion Shares Issuer is not the Issuer) Issuer Ordinary Shares (subject, however, to the Noteholders’ direction and authorisation as to the transfer of such shares) and/or Conversion Shares Offer Entitlement, as applicable.

For the avoidance of doubt, the Noteholders will have no right to convert their Notes into Ordinary Shares or (if the Conversion Shares Issuer is not the Issuer) Issuer Ordinary Shares at their election. Conversion of the Notes will occur only following the occurrence of a Trigger Event.

6.12 Following an IPO Event, in relation to an entity other than the Issuer, the Issuer will cease to be the Conversion Shares Issuer. Following Conversion post-such an IPO Event, the Noteholders will be treated as, and subsequently become, holders of Ordinary Shares issued by an entity other than the Issuer, which may be PICG or another entity

Where an IPO Event has occurred prior to the Trigger Event, in relation to an entity other than the Issuer, the Issuer will cease to be the Conversion Shares Issuer for the purposes of the Conditions. Instead, the Conversion Shares Issuer shall be the relevant person whose Ordinary Shares are listed pursuant to such IPO Event. An “IPO Event” means the first admission to trading and listing on any Recognised Stock Exchange of the voting ordinary 55 shares in the capital of (i) the Issuer, (ii) any member of the Insurance Group which (directly or indirectly) beneficially owns at least 75 per cent. of the issued ordinary shares of the Issuer or (iii) any person that beneficially owns (directly or indirectly) the entire ordinary share capital of the Issuer, provided that in, respect of (ii) or (iii), immediately following the IPO Event no person beneficially owns 75 per cent. or more of the relevant ordinary shares, as more fully described in the Conditions. Investors should be aware, therefore, that an IPO Event will not occur in respect of the first admission to trading and listing on any Recognised Stock Exchange of (i) a member of the Insurance Group, other than the Issuer, which does not beneficially own at least 75 per cent. of the issued ordinary shares of the Issuer, (ii) a person outside the Insurance Group which does not own the entire ordinary share capital of the Issuer or (iii) any person (other than the Issuer) when immediately following the IPO Event another person beneficially owns 75 per cent. or more of the relevant ordinary shares, in each case notwithstanding that such person may be a holding company of the Issuer. If no IPO Event has occurred, including for the reasons described in the preceding sentence, the Conversion Shares Issuer shall remain the Issuer, and, following a Trigger Event, subject to any subsequent Conversion Shares Offer, Noteholders shall receive Ordinary Shares in the Issuer (as opposed to the shares admitted to trading and listing).

As the holding company of the PICG Group, it is possible that an IPO Event may occur in respect of PICG in the future, although there can be no assurance that an IPO Event will occur at all (and there are, as at the date hereof, no such plans) or, if an IPO Event does occur, that it will occur in respect of PICG rather than another member of the PICG Group (whether or not such person is a member of the PICG Group as at the date hereof) or a holding company of PICG. In the event that such relevant person is PICG, however, PICG would become the Conversion Shares Issuer. Following a Trigger Event, and pursuant to the Noteholders’ irrevocable direction and authorisation, on Conversion the Issuer would issue Issuer Ordinary Shares to the order of PICG (as Conversion Shares Issuer), in consideration of which PICG would issue its ordinary shares (“PICG Ordinary Shares”) to the Conversion Shares Depositary by way of Conversion Shares. Subject to the election that a Conversion Shares Offer be made in respect of such Conversion Shares, following a Conversion, Noteholders will be treated as, and subsequently become, holders of PICG Ordinary Shares.

PICG is a holding company that conducts no business operations of its own and has no significant assets other than its investments in its subsidiary companies. Furthermore, in addition to being subordinated to more senior creditors of PICG, holders of PICG Ordinary Shares are structurally subordinated to all existing and future liabilities and obligations of PICG’s Subsidiaries, including the Issuer.

In the event that an IPO Event occurs in respect of a relevant person other than PICG, such person would become the Conversion Shares Issuer. The Issuer can provide no assurances as to the nature or identity of any such person or the risks associated with becoming an actual or potential shareholder therein.

Investors in the Notes should be aware that, although the method of calculation of the Conversion Price following an IPO Event is set at the time of issuance (with the Initial Post- IPO Conversion Price being the higher of (i) the Pre-IPO Conversion Price prevailing at the time of the relevant IPO Event or (ii) 70 per cent. of the final price per share at which the relevant Ordinary Shares are offered in connection with the relevant IPO Event), there can be no assurances that the Conversion Price will not be higher than the Pre-IPO Conversion 56

Price or will not otherwise result in fewer Conversion Shares being issued following Conversion than would have been issued prior to the IPO Event.

See “The PICG Group” for further information about PICG and “Description of the PICG Ordinary Shares” for further information about the PICG Ordinary Shares.

6.13 Upon the occurrence of a Trigger Event, Notes may be convertible into shares in an entity other than the Issuer where a Qualifying Change of Control occurs, or may be written-down to zero where a Non-Qualifying Change of Control occurs following an IPO Event

If a Qualifying Change of Control occurs, the Notes will, following Conversion, become convertible into Relevant Shares of the Approved Entity, as described in Condition 9(a). The Issuer can provide no assurances as to the nature of any such Approved Entity or the risks associated with becoming an actual or potential shareholder therein. A Qualifying Change of Control may, therefore, have an adverse effect on the value of the Notes.

If a Non-Qualifying Change of Control occurs following an IPO Event (which shall also be deemed to occur on the occurrence of a Qualifying Change of Control) then the Notes shall not be subject to Conversion at any time but, instead, upon the occurrence of a Trigger Event the full principal amount outstanding of each Note will automatically be written down to zero, each Note will be cancelled and each Note will be de-listed from the Official List and will no longer be traded on the GEM. In such circumstances, the Noteholders would not be entitled to receive any shares or other compensation and would lose their entire investment in the Notes. Therefore, if a Non-Qualifying Change of Control occurs following an IPO Event, or if the market anticipates that such an event may occur, this may have an adverse effect on the value of the Notes.

In addition, the Issuer and the Approved Entity may have discretion in determining whether a Qualifying Relevant Event or a Non-Qualifying Relevant Event has occurred following a Change of Control. A Qualifying Relevant Event requires the New Conversion Condition to be satisfied. For the New Conversion Condition to be satisfied, the Issuer and the Approved Entity must, not later than seven days following the occurrence of a Change of Control in respect of which the Approved Entity Status Condition is satisfied, enter into arrangements to the satisfaction of the Issuer pursuant to which the Approved Entity provides an undertaking to the Trustee, for the benefit of the Noteholders, agreeing to be bound by the provisions of the Conditions as Conversion Shares Issuer. If the Issuer and the Approved Entity do not enter into such arrangements within this timeframe, the New Conversion Condition would not be satisfied. In this case, a Non-Qualifying Change of Control shall have occurred. Furthermore, if the New Conversion Condition is not satisfied by virtue of the Approved Entity Status Condition not being satisfied, neither a Qualifying Change of Control nor a Non-Qualifying Change of Control shall have occurred, with the effect that the loss- absorbency mechanism applicable to the Notes following a Trigger Event remains the same as the mechanism in effect immediately prior to such Change of Control.

6.14 The occurrence of a Trigger Event may depend on factors outside of the Issuer’s control

A Trigger Event shall occur if the Issuer determines at any time (acting reasonably and after consultation with the Relevant Regulator) that (i) the amount of Own Fund Items eligible to cover the Solvency Capital Requirement is equal to or less than 75 per cent. of the Solvency Capital Requirement, (ii) the amount of Own Fund Items eligible to cover the Minimum 57

Capital Requirement is equal to or less than the Minimum Capital Requirement, or (iii) a breach of the Solvency Capital Requirement has occurred and such breach has not been remedied within a period of three months from the date on which the breach was first observed.

The occurrence of a Trigger Event and, therefore, Conversion is to some extent unpredictable and depends on a number of factors, some of which may be outside of the Issuer's control, including actions that the Issuer is required to take at the direction of the Relevant Regulator and regulatory changes. Accordingly, the trading behaviour of the Notes may not necessarily follow the trading behaviour of other types of subordinated securities, including the Issuer's other subordinated debt securities. Any indication that the Issuer or the PICG Group may be at risk of failing to meet its Solvency Capital Requirement or Minimum Capital Requirement may have an adverse effect on the market price and liquidity of the Notes. Therefore, investors may not be able to sell their Notes easily (if at all) or at prices that will provide them with a yield comparable to other types of subordinated securities, including the Issuer's other subordinated debt securities. In addition, the risk of Conversion could drive down the price of the Ordinary Shares and have a material adverse effect on the market value of any Conversion Shares received upon or following Conversion.

See also the risk factor entitled “The Issuer’s interests may not be aligned with those of the Noteholders” above.

6.15 Changes to Solvency II may increase the risk of the occurrence of a Trigger Event, cancellation of interest payments or the occurrence of a Capital Disqualification Event

Solvency II requirements adopted in the UK may change, whether as a result of further changes to Solvency II or changes to the way in which the PRA interprets and applies these requirements to the UK insurance industry. Any such changes, either individually and/or in aggregate, may lead to further unexpected requirements in relation to the calculation of the Issuer's or the PICG Group's Solvency Capital Requirement, and such changes may make the Issuer's or the PICG Group's capital adequacy requirements more onerous. Such changes that may occur in the application of Solvency II in the UK subsequent to the date of this Offering Memorandum and/or any subsequent changes to such rules and other variables may individually and/or in aggregate negatively affect the calculation of the Issuer's or the PICG Group's Solvency Capital Requirement and thus increase the risk of cancellation of payments of interest, the occurrence of a Capital Disqualification Event and subsequent redemption of the Notes by the Issuer, or a Trigger Event occurring, which will lead to a Conversion, as a result of which a Noteholder could lose all or part of the value of its investment in the Notes. See also the risk factors entitled “The PICG Group is required to comply with capital adequacy requirements and failure to do so could have a material adverse effect on the PICG Group’s business” and “A change of law or regulation or changes in the interpretation or operation of existing legislation or regulation may adversely affect the PICG Group’s business, results of operations and/or financial condition” above.

6.16 Noteholders must submit a Conversion Shares Settlement Notice to receive delivery of Conversion Shares or Conversion Shares Offer Entitlement following Conversion

In order to obtain delivery of the relevant Conversion Shares or the Conversion Shares Offer Entitlement, as applicable, following a Conversion of the Notes, the relevant Noteholder must take a number of steps, including delivering a duly completed Conversion Shares Settlement 58

Notice to the Conversion Shares Depositary, which must contain specified information. Any Noteholder delivering a Conversion Shares Settlement Notice after the Notice Cut-off Date will have to provide evidence of its entitlement to the relevant Conversion Shares or the relevant Conversion Shares Offer Entitlement, as applicable, satisfactory to the Conversion Shares Depositary in its sole and absolute discretion in order to receive delivery of such Conversion Shares or such Conversion Shares Offer Entitlement, as applicable.

The Issuer shall have no liability to any Noteholder for any loss resulting from such Noteholder not receiving any Conversion Shares or the relevant Conversion Shares Offer Entitlement, as applicable, or from any delay in the receipt thereof, in each case as a result of such Noteholder failing to submit, inter alia, a valid Conversion Shares Settlement Notice, on a timely basis or at all.

6.17 The Notes will remain in existence following Conversion for a period with Noteholders having limited rights

Following Conversion, the Notes will remain in existence until the applicable Settlement Date (or, if earlier, the Final Cancellation Date) for the sole purpose of evidencing each Noteholder's right to have the Issuer Ordinary Shares delivered to the Conversion Shares Depositary (if relevant) and to receive Conversion Shares or Conversion Shares Offer Entitlement from the Conversion Shares Depositary, in each case as applicable. The Notes shall be cancelled on the applicable Settlement Date (or, if earlier, the Final Cancellation Date).

Receipt by the Conversion Shares Depositary of the Conversion Shares shall irrevocably discharge and satisfy the Conversion Shares Issuer's obligations in respect of the Notes. Receipt by the Conversion Shares Depositary of the Issuer Ordinary Shares (if the Conversion Shares Issuer is not the Issuer) shall irrevocably discharge and satisfy the Issuer's obligations in respect of the Notes. Under no circumstances shall any released obligations of the Issuer, and (if applicable) the Conversion Shares Issuer, be reinstated. A Noteholder shall, with effect on and from the Conversion Date, only have recourse to the Conversion Shares Depositary for the delivery to it of the relevant Conversion Shares or, if the Conversion Shares Issuer elects that a Conversion Shares Offer be made, of any Conversion Shares Offer Entitlement to which such Noteholder is entitled. Neither the Issuer nor (if the Conversion Shares Issuer is not the Issuer) the Conversion Shares Issuer shall have any liability for the performance of the obligations of the Conversion Shares Depositary. There may, therefore, be a period following Conversion during which the Noteholders remain in possession of their Notes but are owed no obligations thereunder by the Issuer and/or (if the Conversion Shares Issuer is not the Issuer) the Conversion Shares Issuer. There can be no assurance that Noteholders will be able to sell any or all of their Notes following the occurrence of a Trigger Event.

6.18 There may be a delay in Noteholders being able to transfer any Conversion Shares following Conversion

No Noteholder will be able to sell or otherwise transfer any Conversion Shares following a Conversion until such time as they are finally delivered to such Noteholder and registered in its name. In the event of a Conversion Shares Offer only some (or none) of the relevant Conversion Shares may be delivered to the Noteholders. As noted above, there can be no 59

assurance that Noteholders will be able to sell any or all of their Notes following the occurrence of a Trigger Event.

6.19 Noteholders are subject to all changes made with respect to Conversion Shares prior to their registration as a holder of such shares

Noteholders will be unable to exercise voting rights and other rights related to any Ordinary Shares, including PIC Ordinary Shares or (if applicable) PICG Ordinary Shares, as applicable, until such shares have been issued and delivered to the Conversion Shares Depositary and subsequently delivered to the Noteholders, and such Noteholder has been registered in the Issuer's share register or (if the Conversion Shares Issuer is not the Issuer) the Conversion Shares Issuer’s (which may be PICG’s) share register, as applicable, as a shareholder in accordance with the provisions of, and subject to the limitations provided in, the articles of association of the Issuer (the “PIC Articles”) or the articles of association of the Conversion Shares Issuer (which may be PICG (the articles of association of PICG being the “PICG Articles”)), as applicable. Prior to such registration, Noteholders will be subject to all changes made with respect to the Conversion Shares, but will not be entitled to any of the rights of a shareholder.

A particular consideration in respect of PICG, should PICG become the Conversion Shares Issuer, is that PICG would need to be re-registered as a public company limited by shares on or prior to a Conversion occurring, at which time certain provisions of the PICG Articles may require amendment in order to, among other things, comply with, or conform to, the law applicable to public companies generally. Such changes may affect the rights and obligations attaching to the PICG Ordinary Shares.

See “Description of the PIC Ordinary Shares” and “Description of the PICG Ordinary Shares” below for a description of the PIC Ordinary Shares and PICG Ordinary Shares, respectively.

6.20 Noteholders may need approval by the Relevant Regulator and/or may be subject to disclosure obligations

If the Conversion Shares Issuer is the Issuer, the Conversion Shares, once issued, will be of a regulated insurance undertaking. If the Conversion Shares Issuer is PICG or another relevant person, the Conversion Shares, once issued, may be of regulated insurance holding company or another regulated entity. Accordingly, the Conversion Shares to be delivered following Conversion above a certain level may require the Noteholder to obtain regulatory approval or subject the Noteholder to additional regulation. Non-compliance with such approval requirements may lead to the incurrence by Noteholders of substantial fines and/or suspension of voting rights associated with the Conversion Shares. Any potential investor should consult its financial, legal and other professional advisers as to the terms of the Notes and the potential legal or regulatory implications for such potential investor if a Trigger Event were to occur.

In addition, a holding of Conversion Shares may result in Noteholders having to comply with certain disclosure requirements pursuant to laws and regulations applicable in the jurisdiction in which the Conversion Shares Issuer is incorporated or, if different, the jurisdictions in which such Conversion Shares are admitted to trading and listing (if any). 60

No assurances can be given as to (i) the regulatory status of the Conversion Shares Issuer at the time of delivery (if any) of the Conversion Shares or (ii) the regulatory impact on the Noteholders of such delivery. See also the risk factor entitled “Following an IPO Event, in relation to an entity other than the Issuer, the Issuer will cease to be the Conversion Shares Issuer. Following Conversion post-such an IPO Event, the Noteholders will be treated as, and subsequently become, holders of Ordinary Shares issued by an entity other than the Issuer, which may be PICG or another entity” above.

6.21 Noteholders may be subject to taxes following Conversion

Neither the Issuer, the Conversion Shares Issuer (if not the Issuer), PICG nor any member of the PICG Group shall be liable for any taxes (including any capital, stamp, issue, registration, financial transaction, documentary or transfer taxes or duties) arising on, or as a result of, Conversion or that may arise or be paid as a consequence of the issue and delivery of Conversion Shares upon or following Conversion or the transfer of Ordinary Shares in any Conversion Shares Offer. Noteholders must pay any such taxes arising on Conversion in connection with the issue and delivery of the relevant Conversion Shares, whether to the Conversion Shares Depositary on behalf of the relevant Noteholder or otherwise to or for the benefit of such Noteholder, and Noteholders must pay all, if any, such taxes arising by reference to any disposal or deemed disposal of its Notes or interest therein, save that the Conversion Shares Issuer will pay any such taxes arising on Conversion in connection with the issue and delivery of Issuer Ordinary Shares to the Conversion Share Depositary and in connection with the transfer of the Issuer Ordinary Shares to the Conversion Shares Issuer. It is intended to be made a condition of any Conversion Shares Offer that any capital, stamp, issue, registration, financial transaction, documentary or transfer taxes or duties arising on delivery or transfer of Conversion Shares to a purchaser in any Conversion Shares Offer are borne by the relevant purchaser.

6.22 Noteholders may be obliged to make a takeover bid following Conversion

Upon the occurrence of the Trigger Event, Noteholders receiving Conversion Shares from the Conversion Shares Depositary may have to make a takeover bid addressed to the shareholders of the Conversion Shares Issuer pursuant to laws and regulations applicable in the jurisdiction in which the Conversion Shares Issuer is incorporated or, if different, the jurisdictions in which such Conversion Shares are admitted to trading and listing (if any) if any Noteholder's aggregate holding in the Conversion Shares Issuer exceeds any applicable threshold or meets any applicable criteria therefor as a result of the holding by such Noteholder of the relevant Conversion Shares.

6.23 Absence of public market for Conversion Shares

There can be no assurance that an active public market for any Conversion Shares will develop following Conversion.

This would be a particular consideration were the Conversion Shares to be constituted by PIC Ordinary Shares, which are not (and may, at the time of Conversion, continue not to be) admitted to trading on any market. There can be no assurance that the PIC Ordinary Shares (including any issued and delivered upon Conversion) will be admitted to trading prior to the relevant Trigger Event, or at all. If a Noteholder receives PIC Ordinary Shares upon Conversion at a time when such PIC Ordinary Shares are not admitted to trading (and remain unlisted), 61

Noteholders are unlikely to be able easily to compare the Conversion Price with any general market valuation for the PIC Ordinary Shares. See also the risk factor entitled “Notes may be mandatorily converted into PIC Ordinary Shares” above.

Even if an active trading market does develop in any Conversion Shares (including any PIC Ordinary Shares, as applicable), it may not be liquid and may not continue. Therefore, investors may not be able to sell Conversion Shares, once received, easily or at all.

6.24 Noteholders may receive Conversion Shares Offer Entitlement instead of Ordinary Shares upon Conversion

Subject to delivering to the Trustee an appropriate opinion in respect thereof, and non- objection by the Relevant Regulator, the Conversion Shares Issuer may elect, in its sole and absolute discretion, that a Conversion Shares Offer be conducted by the Conversion Shares Depositary (or any agent(s) on its behalf) upon the occurrence of the Trigger Event. If the Conversion Shares Issuer elects that a Conversion Shares Offer be conducted, the Conversion Shares Depositary (or any agent(s) on its behalf) will make an offer of all or some of the Conversion Shares to Eligible Offerees.

The price at which such Conversion Shares Offer shall be conducted is subject to a floor, as set out more fully in the Conditions, (the “Conversion Shares Offer Floor Price”). The Conversion Shares Offer Floor Price shall be the lower of (i) the Current Price of the Ordinary Shares and (ii) the Conversion Price. Accordingly, the price at which such Conversion Shares Offer is made may be more or less than the Conversion Price.

Subject to certain provisions of the Conditions, if all of the Conversion Shares are sold in the relevant Conversion Shares Offer, Noteholders will be entitled to receive, in respect of each Note and as determined by the Conversion Shares Issuer, the pro rata share of the cash proceeds of the sale of the Conversion Shares attributable to such Note (less the pro rata share of any foreign exchange transaction costs), subject (in applicable circumstances) to a cap, as described more fully below.

If not all of the Conversion Shares are sold in the relevant Conversion Shares Offer, Noteholders shall be entitled to receive, in respect of each Note and as determined by the Conversion Shares Issuer, (i) the pro rata share of the cash proceeds of the sale of the Conversion Shares attributable to such Note (if any) (less the pro rata share of any foreign exchange transaction costs), subject (in applicable circumstances) to a cap, as described more fully below, together with (ii) the pro rata share of the Conversion Shares not sold pursuant to the relevant Conversion Shares Offer attributable to such Note (subject to rounding in accordance with the Conditions).

Accordingly, if the Conversion Shares Issuer elects that a Conversion Shares Offer be made, Noteholders may not ultimately receive Ordinary Shares, or may receive Ordinary Shares as part of the Conversion Shares Offer Entitlement. In the event that the Conversion Shares Issuer does not elect that a Conversion Share Offer is conducted, or the Conversion Shares Issuer is not entitled to elect that a Conversion Shares Offer is conducted, Noteholders will received Ordinary Shares on conversion (see “Upon the occurrence of a Trigger Event, Notes may be mandatorily converted into PIC Ordinary Shares” above). 62

If any Conversion Shares are sold in the Conversion Shares Offer and the cash component (if any) of the Conversion Shares Offer Entitlement in respect of a Note would otherwise exceed the product of (i) the principal amount of such Note and (ii) the proportion (expressed as a percentage) of the Conversion Shares sold in the Conversion Shares Offer (such excess, the “Excess Amount”), the Excess Amount shall not form part of the Conversion Shares Offer Entitlement. In the case of any Conversion Shares Offer, the Noteholders will be deemed, by virtue of their holding, to have waived any and all entitlement to any such Excess Amount, and such Excess Amount shall instead be payable to the Issuer for its own account. In such circumstances, the value of the Conversion Shares Offer Entitlement received by a Noteholder may be less than the market value of the Ordinary Shares which it would have been entitled to receive if the Conversion Shares Issuer had not elected that a Conversion Shares Offer be made.

No interest or other compensation is payable in respect of the period from the Conversion Date to the date of delivery of the Conversion Shares or the cash proceeds from any sale of such shares in the circumstances described above. Furthermore, neither the occurrence of a Trigger Event nor, following the occurrence of a Trigger Event, the election (if any) by the Conversion Shares Issuer that a Conversion Shares Offer be made, will preclude the Conversion Shares Issuer or (if the Conversion Shares Issuer is not the Issuer) the Issuer from undertaking an issue of shares at any time on such terms as either the Conversion Shares Issuer or (if the Conversion Shares Issuer is not the Issuer) the Issuer deems appropriate in each of their sole discretions, including, for the avoidance of doubt, but without limitation, the offer of shares at or below the Conversion Shares Offer Price.

Notice of the results of any Conversion Shares Offer will be provided to Noteholders only at the end of the Conversion Shares Offer Period. Accordingly, Noteholders would not know the composition of their potential entitlement until the end of the relevant Conversion Shares Offer Period.

6.25 The Conversion Price (or the method of calculation thereof following an IPO Event) is fixed at the time of issue of the Notes and will be subject to adjustment only in response to a limited number of events

Subject to certain limited anti-dilution provisions set out in the Conditions, the Conversion Price (or the method of calculation thereof following an IPO Event) is fixed on the Issue Date. The occurrence of a Trigger Event is linked to a deterioration in the regulatory solvency position of the Issuer and/or the PICG Group and, therefore, its occurrence will likely be accompanied and preceded by a deterioration in the value of the PIC Ordinary Shares (which, if the Conversion Shares Issuer is the Issuer, will constitute the Conversion Shares). The Issuer accounts for a significant proportion of the assets and revenue of the PICG Group and, therefore, it is likely that the occurrence of a Trigger Event would also be preceded by a deterioration in the value of the Ordinary Shares (if the Conversion Shares Issuer is not the Issuer) (see “The PICG Group” below for further information regarding the Issuer’s position within the PICG Group as at the date hereof). Therefore, if a Trigger Event were to occur, investors would receive Conversion Shares or, as the case may be, Conversion Shares Offer Entitlement at a time when the value of the Ordinary Shares is diminished. In addition, there may be a delay in a Noteholder receiving its Conversion Shares (if any) following the Trigger Event, during which time the value of such shares may decline further. As a result, the realisable value of the Conversion Shares may be below the Conversion Price. Although the market value of such shares may increase over time, they may never be 63

equal to the principal amount of the Notes converted. Despite potentially receiving Ordinary Shares, it is possible that investors in the Notes may nevertheless lose some or substantially all of their investment in the Notes.

6.26 Noteholders have limited anti-dilution protection

The number of Conversion Shares to be delivered in respect of the Notes will be determined by dividing the principal amount outstanding of the Notes by the Conversion Price prevailing at the relevant time. Fractions of Conversion Shares will not be delivered to the Conversion Shares Depositary or to Noteholders upon a Conversion and no cash payment will be made in lieu thereof.

The Conversion Price will be adjusted in accordance with Condition 8(f) in the event that there is a (i) consolidation, reclassification, redesignation or subdivision in relation to the Ordinary Shares which alters the number of Ordinary Shares in issue, (ii) an issuance of Ordinary Shares in certain circumstances by way of capitalisation of profits or reserves, (iii) payment of an Extraordinary Dividend, (iv) an issue of Ordinary Shares to Shareholders as a class by way of rights in certain circumstances or (v) (prior to the occurrence of an IPO Event) a non-rights issue of Ordinary Shares at a price per Ordinary Share which is at the date of issue less than 95 per cent. of the Current Price of an Ordinary Share, in each case as further described in the Conditions.

Any New Conversion Price following a Qualifying Change of Control will be similarly adjusted.

There is no requirement that there should be an adjustment for every corporate or other event that may affect the value of the Ordinary Shares. Furthermore, the adjustment events that are included are less extensive than those often included in the terms of other convertible securities. As a result, events in respect of which no adjustment to the Conversion Price is made may adversely affect the value of the Notes.

6.27 The terms of the Notes may be modified, or the Notes may be substituted, by the Issuer without the consent of the Noteholders in certain circumstances, subject to certain restrictions

Subject as provided in Condition 12, the Issuer may (subject to certain conditions) at its option and without the consent of the Noteholders, at any time substitute all (but not some only) of the Notes for, or vary the terms of the Notes so that they remain or become (as applicable), in the event of certain specified events relating to taxation or if a Capital Disqualification Event occurs or will occur in the future, Qualifying Securities, or if a Ratings Methodology Event occurs or will occur in the future, Rating Agency Compliant Securities (which securities shall also be required to constitute Qualifying Securities).

Qualifying Securities and Rating Agency Compliant Securities must (among other things) have terms not materially less favourable to holders than the terms of the Notes, as reasonably determined by the Issuer in consultation with an independent investment bank of international standing. Rating Agency Compliant Securities must also be assigned substantially the same equity credit or, at the absolute discretion of the Issuer, a lower equity credit (provided such equity credit is still higher than the equity credit assigned to the Notes immediately after the occurrence of the relevant Ratings Methodology Event) as that which was assigned to the Notes (i) in the case of equity credit assigned by Fitch, on or around the 64

Issue Date or (ii) in the case of equity credit assigned by any Subsequent Rating Agency, on the date that such equity credit was first assigned by the relevant Subsequent Rating Agency.

However, there can be no assurance that, due to the particular circumstances of individual investors, such Qualifying Securities or Rating Agency Compliant Securities will be as favourable to each investor in all respects or that, if it were entitled to do so, a particular investor would make the same determination as the Issuer as to whether the terms of the Qualifying Securities or Rating Agency Compliant Securities are not materially less favourable to holders than the terms of the Notes.

6.28 The Conditions contain very limited covenants

There is no negative pledge in respect of the Notes. The Issuer is generally permitted to sell or otherwise dispose of any or substantially all of its assets to another corporation or other entity under the terms of the Notes. If the Issuer decides to dispose of a large amount of its assets, investors in the Notes will not be entitled to declare an acceleration of the Notes, and those assets will no longer be available to support the Notes or, subject to certain exceptions, for distribution in the event of an Issuer Winding-up. In addition, the Notes do not require the Issuer to comply with financial ratios or otherwise limit its ability or that of its subsidiaries to incur additional debt, nor do they limit the Issuer’s ability to use cash to make investments or acquisitions, or the ability of the Issuer to pay dividends, repurchase shares or otherwise distribute cash. Such actions could potentially affect the Issuer’s ability to service its debt obligations, including those of the Notes. Such actions could also potentially affect the compliance by the Issuer and/or the PICG Group with certain regulatory capital requirements, which may in turn lead to a Trigger Event or otherwise require a cancellation of payments of interest.

6.29 Restricted remedy for non-payment when due

In accordance with the current requirements for eligible Restricted Tier 1 Capital, the sole remedy against the Issuer available to the Trustee or (where the Trustee has failed to proceed against the Issuer as provided in the Conditions) any Noteholder for recovery of amounts which have become due in respect of the Notes will be the institution of proceedings for the winding-up of the Issuer and/or proving in such winding-up or administration and/or claiming in the liquidation of the Issuer. In particular, a deferral or cancellation of payments as described above shall not constitute a default under the Notes or the Trust Deed for any purpose, including enforcement action against the Issuer.

6.30 The terms of the Notes may be modified with the consent of specified majorities of the Noteholders at a duly convened meeting, and the Trustee may consent to certain modifications to the Notes, or substitution of the Issuer, without the consent of the Noteholders

The Trust Deed constituting the Notes contains provisions for calling meetings of Noteholders to consider matters affecting their interests generally. These provisions permit defined majorities to bind all Noteholders, including Noteholders who did not attend and vote at the relevant meeting and Noteholders who voted in a manner contrary to the majority. The Trust Deed constituting the Notes also provides that, subject to the prior consent of the Relevant Regulator being obtained (to the extent that such consent is required), the Trustee may (except as set out in the Trust Deed), without the consent of Noteholders, agree to 65

certain modifications of, or to the waiver or authorisation of any breach or proposed breach of, any of the provisions of the Notes or to the substitution of another company as principal debtor or guarantor under the Notes in place of the Issuer (in the circumstances described in Condition 18).

6.31 Change of law

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

6.32 Limitation on gross-up obligation under the Notes

The Issuer’s obligation, if any, to pay Additional Amounts in respect of any deduction or withholding in respect of taxes imposed in the Relevant Jurisdiction under the terms of the Notes applies only to interest payments and not to payments of principal.

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

6.33 The interest rate on the Notes will be reset on each Reset Date, which may affect the market value of the Notes

The Notes will initially accrue interest at the Initial Fixed Interest Rate to, but excluding, the first Reset Date. From, and including, the first Reset Date, however, the interest rate will be reset on each Reset Date to the Reset Rate of Interest (as described in Condition 4). This Reset Rate of Interest could be less than the Initial Fixed Interest Rate, which could affect the amount of any interest payments under the Notes and the market value of an investment in the Notes. See also the risk factor entitled “Interest rate risks” below.

6.34 Integral multiples of less than £200,000

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

If Definitive Notes are issued, Noteholders should be aware that Definitive Notes which have a denomination that is not an integral multiple of £200,000 may be illiquid and difficult to trade. 66

7. Risks related to the market generally

7.1 The secondary market generally

The Notes have no established trading market when issued, and one may never develop. If a market for the Notes does develop it may not be liquid. Investors may not be able to sell their Notes easily or at prices that will provide them with a yield comparable to similar investments that have a developed secondary market. Illiquidity may have a materially adverse effect on the market value of the Notes. Publicly traded securities from time to time experience significant price and volume fluctuations that may be unrelated to the operating performance of the companies that have issued them, and such volatility may be increased in an illiquid market, including in circumstances where a significant proportion of the Notes are held by a limited number of initial investors.

If the Issuer’s financial condition deteriorates such that there is an increased risk that a Trigger Event may occur in respect of the Notes or that the Issuer may be wound-up or enter into administration, or if at any time there is any actual or anticipated redemption, Conversion (or, following a Non-Qualifying Change of Control, write-down) of the Notes following the occurrence of a Trigger Event, in each case in accordance with the Conditions, such circumstances can be expected to have a material adverse effect on the market price of the Notes, and could increase volatility and/or reduce liquidity in the market (if any) for the Notes, especially if the Issuer elects or is required to cancel any interest payment (or if the market anticipates such a cancellation) or if the Issuer's solvency position deteriorates such that there is an increased likelihood of a Trigger Event occurring. Investors in the Notes may find it difficult to sell their Notes in such circumstances, or may only be able to sell their Notes at a price which may be significantly lower than the price at which they purchased their Notes. In such a sale, investors may lose some or substantially all of their investment in the Notes.

7.2 Exchange rate risks and exchange controls

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

Government and monetary authorities may impose exchange controls that could adversely affect an applicable exchange rate, as some have done in the past. As a result, investors may receive less interest or principal than expected, or no interest or principal.

7.3 Interest rate risks

Investment in the Notes, which bear a fixed rate of interest (subject to reset from time to time), involves the risk that increases in market interest rates in the period from Issue Date to the First Call Date and thereafter between each Reset Date may adversely affect the 67

market value of the Notes. See also the risk factor entitled “The interest rate on the Notes will be reset on each Reset Date, which may affect the market value of the Notes” above.

7.4 Legal investment considerations may restrict certain investments

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

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

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

While the Notes are represented by the Global Certificate, the Issuer will discharge its payment obligations under the Notes by making payments to or to the order of the registered holder as nominee for the Common Depositary for Euroclear or Clearstream, Luxembourg for distribution to their accountholders. A holder of a beneficial interest in the Global Certificate must rely on the procedures of Euroclear and Clearstream, Luxembourg to receive payments under the Notes. The Issuer does not have responsibility or liability for the records relating to, or payments made in respect of, beneficial interests in the Global Certificate.

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

Fitch, an independent credit rating agency, has assigned a rating of A to the Issuer and is expected to assign a rating of BBB- to the Notes. The ratings may not reflect the potential impact of all risks relating to the structure of the Notes, the market, additional factors discussed in this section and any other factors that may affect the value of the Notes. A credit rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, reduction or withdrawal at any time by the assigning rating agency.

Any adverse change in the credit rating assigned to the Notes by Fitch or the assignment of an unfavourable rating (whether solicited or unsolicited) by another rating agency may adversely affect the market value of the Notes. 68

7.7 Yield

Investors should note that the indication of the yield of the Notes provided at page 218 below applies only to investments made at the issue price and not to investments made above or below the issue price.

If an investor invests in the Notes at a price above or below the issue price, the yield on that investment will be different from that provided below. In addition, the indication of the yield is calculated as at the Issue Date and is not an indication of future yield. 69

Terms and Conditions of the Notes

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

The issue of the £450,000,000 7.375 per cent. Fixed Rate Reset Perpetual Restricted Tier 1 Contingent Convertible Notes (the “Notes”, which expression shall in these Conditions, unless the context otherwise requires, include any Further Notes issued pursuant to Condition 21) was (save in respect of any such Further Notes) authorised by resolutions of the board of directors of Pension Insurance Corporation plc (the “Issuer”, which term shall include any substitute therefor from time to time pursuant to the terms of Condition 18) passed on 19 June 2019 and the committee of the Issuer passed on 11 July 2019.

The Notes are constituted by a trust deed dated 25 July 2019 (the “Trust Deed”) between the Issuer, Pension Insurance Corporation Group Limited (“PICG”) and Citicorp Trustee Company Limited (the “Trustee”, which expression shall include all persons for the time being and from time to time appointed as the trustee or trustees under the Trust Deed) as trustee in respect of the Notes. These terms and conditions (the “Conditions”) include summaries of, and are subject to, the detailed provisions of the Trust Deed. The Notes have the benefit of a paying and conversion agency agreement dated 25 July 2019 (the “Agency Agreement”) relating to the Notes between the Issuer, the Trustee, Citigroup Global Markets Europe AG as registrar (the “Registrar”, which expression shall include any successor thereto) and Citibank, N.A., London Branch as transfer agent (the “Transfer Agent”, which expression shall include any successor thereto and any additional transfer agents appointed thereunder), initial agent bank (the “Agent Bank”, which expression shall include any successor thereto) and initial principal paying and conversion agent (the “Principal Paying and Conversion Agent”, which expression shall include any successor thereto, and, together with any further paying and conversion agents appointed thereunder, the “Paying and Conversion Agents”, which expression shall include any successors thereto). A conversion calculation agency agreement dated 25 July 2019 (as modified from time to time, the “Conversion Calculation Agency Agreement”) has been entered into in relation to the Notes between the Issuer and Conv-Ex Advisors Limited as conversion calculation agent (the “Conversion Calculation Agent” which expression shall include any successor as conversion calculation agent).

Copies of the Trust Deed, the Agency Agreement and the Conversion Calculation Agency Agreement are available for inspection during usual business hours at the specified offices of the Principal Paying and Conversion Agent, the Registrar and any Transfer Agent. The Noteholders are entitled to the benefit of, are bound by, and are deemed to have notice of, all the provisions of the Trust Deed and are deemed to have notice of those applicable to them of the Agency Agreement and the Conversion Calculation Agency Agreement.

All capitalised terms that are not defined in these Conditions will have the meanings given to them in the Trust Deed. 70

1. Form, Denomination and Title

(a) Form and Denomination

The Notes are issued in registered form in principal amounts of £200,000 and integral multiples of £1,000 in excess thereof (referred to as the “principal amount” of a Note, and references in these Conditions to “principal” in relation to a Note shall be construed accordingly) without coupons attached. A certificate (each, a “Certificate”) will be issued to each Noteholder in respect of its registered holding of Notes. Each Certificate will be numbered serially with an identifying number which will be recorded on the relevant Certificate and in the register of Noteholders which the Issuer will procure to be kept by the Registrar (the “Register”) on which shall be entered the names, addresses and account details of Noteholders and the particulars of the Notes held by them and of all transfers and repayments of Notes.

(b) Title

Title to the Notes passes only by transfer and registration in the Register. The holder of any Note will (except as otherwise required by law or as ordered by a court of competent jurisdiction) be treated as its absolute owner for all purposes (whether or not it is overdue and regardless of any notice of ownership, trust or any interest or any writing on, or the theft or loss of, the Certificate issued in respect of it) and no person will be liable for so treating the holder. In these Conditions, “Noteholder” and (in relation to a Note) “holder” means the person against whose name a Note is registered in the Register (or, in the case of joint holders, the first named thereof). Each Noteholder shall be entitled to receive only one Certificate in respect of its entire holding of Notes.

2. Transfers of Notes and Issue of Certificates

(a) Transfers

Subject to Conditions 2(d) and (e), each Note may be transferred (in whole or in part, subject to such transfer being in a minimum denomination of £200,000 and integral multiples of £1,000 in excess thereof) by depositing the Certificate issued in respect of that Note, together with the form of transfer in respect thereof duly completed and executed at the specified office of the Registrar or a Transfer Agent.

No transfer of a Note will be valid unless and until entered on the Register. A Note may be registered only in the name of, and transferred only to, a named person (or persons not exceeding four in number) or a nominee.

(b) Delivery of new Certificates

Each new Certificate to be issued upon a transfer of Notes will, within five Business Days of receipt by the Registrar or the relevant Transfer Agent of the duly completed, executed and (where applicable) stamped form of transfer endorsed on the relevant Certificate, be mailed by uninsured mail at the risk of the holder entitled to the Note (but free of charge to the Noteholder) to the address specified in the form of transfer. The form of transfer shall be available at the specified offices of the Transfer Agents. 71

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

Registration of transfer of any Notes will be effected without charge by or on behalf of the Issuer, the Registrar or any Transfer Agent but upon (i) payment (or the giving of such indemnity as the Issuer or any Agent may reasonably require) in respect of any tax or other governmental charges which may be imposed in relation to such transfer and (ii) the Registrar or the relevant Transfer Agent being satisfied with the documents of title and/or the identity of the person making the application.

(d) Closed periods

No Noteholder may require the transfer of a Note (or part thereof) to be registered:

(i) during the period of 15 days prior to (and including) any date on which Notes may be called for redemption by the Issuer at its option pursuant to Condition 12(f);

(ii) after the Notes have been called for redemption pursuant to Condition 12;

(iii) during the period of seven days ending on (and including) any Record Date; or

(iv) at any time after the second Business Day following the giving of a Trigger Event Notice by the Issuer.

(e) Regulations

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

3. Status of the Notes and rights on a winding-up

(a) Status

The Notes constitute direct, unsecured and subordinated obligations of the Issuer and rank pari passu and without any preference among themselves. The rights and claims of the Noteholders in any Issuer Winding-Up are as described in the Trust Deed, this Condition 3 and Condition 15. 72

(b) Issuer Winding-Up prior to a Trigger Event

The rights and claims of the Noteholders (and the Trustee on their behalf) are subordinated to the claims of Senior Creditors in that if at any time prior to the date on which a Trigger Event occurs an Issuer Winding-Up occurs, there shall be payable by the Issuer in respect of each Note (in lieu of any other payment by the Issuer) such amount, if any, as would have been payable to the holder of such Note if, throughout such winding-up or administration, such Noteholder were the holder of one of a class of preference shares in the capital of the Issuer (“Notional Preference Shares”) having an equal right to a return of assets in the winding-up or administration to, and so ranking pari passu with, the holders of the most senior class or classes of issued preference shares (if any) in the capital of the Issuer from time to time and which have a preferential right to a return of assets in the winding-up or administration over, and so rank ahead of, the holders of all other classes of issued shares for the time being in the capital of the Issuer but ranking junior to the claims of Senior Creditors, on the assumption that the amount that such Noteholder was entitled to receive in respect of each Notional Preference Share on a return of assets in such winding-up or administration were an amount equal to the principal amount of the relevant Note and any accrued but unpaid interest thereon (other than any interest which has been cancelled pursuant to these Conditions) together with any damages awarded for breach of any obligations in respect of such Note, whether or not the Solvency Condition is satisfied on the date upon which the same would otherwise be due and payable (and, in the case of an administration, on the assumption that shareholders were entitled to claim and recover in respect of their shares to the same degree as in a winding-up or liquidation).

If, at any time on or after the date on which a Trigger Event occurs, an Issuer Winding-Up occurs but (if the Conversion Shares Issuer is the Issuer) the relevant Ordinary Shares to be issued and delivered to the Conversion Shares Depositary on Conversion or (if the Conversion Shares Issuer is not the Issuer) the relevant Issuer Ordinary Shares to be issued and delivered to the Conversion Shares Depositary (in either case in accordance with Condition 6) have not been so delivered, there shall be payable by the Issuer to each Noteholder in respect of each Note (in lieu of any other payment by the Issuer) such amount, if any, that would have been payable if, on the day prior to the commencement of the winding- up or liquidation of the Issuer or the Issuer's entry into administration and thereafter, the holder of that Note was the holder of such number of Ordinary Shares or (if the Conversion Shares Issuer is not the Issuer) the relevant Issuer Ordinary Shares to be issued and delivered to the Conversion Shares Depositary as it would have been entitled to receive following Conversion of that Note in accordance with Condition 6 (ignoring for these purposes the Conversion Shares Issuer's right to make an election for a Conversion Shares Offer to be effected in accordance with Condition 7(a), as applicable), whether or not the Solvency Condition is satisfied on the date upon which the same would otherwise be due and payable (and, in the case of an administration, on the assumption that shareholders were entitled to claim and recover in respect of their shares to the same degree as in a winding-up or liquidation). 73

(d) Trustee's fees

Nothing in the Trust Deed or these Conditions shall affect or prejudice the payment of the costs, fees, charges, expenses, liabilities or remuneration of the Trustee under the Trust Deed or the rights and remedies of the Trustee in respect thereof.

(e) Solvency Condition

Other than in circumstances where an Issuer Winding-Up has occurred or is occurring or where a Trigger Event has occurred, all payments under or arising from the Notes or (subject as provided in Condition 3(d)) the Trust Deed shall be conditional upon the Issuer being solvent at the time for payment by the Issuer and no amount shall be payable by the Issuer under or arising from the Notes or the Trust Deed (including any damages awarded for breach of obligations thereunder) except to the extent that the Issuer could make such payment and still be solvent immediately thereafter (the “Solvency Condition”).

Any payment of interest that would have been due and payable but for the operation of this Condition 3(e) shall be cancelled.

For the purposes of this Condition 3(e), the Issuer will be solvent if (i) it is able to pay its debts owed to Senior Creditors as they fall due and (ii) its Assets exceed its Liabilities.

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

(f) Set off, etc.

By acceptance of the Notes, subject to applicable law, each Noteholder will be deemed to have waived and to have directed and authorised the Trustee on its behalf to have waived any right of set-off or counterclaim that such Noteholder might otherwise have against the Issuer in respect of or arising under the Notes or the Trust Deed whether prior to or in liquidation, winding-up or administration. Notwithstanding the preceding sentence, if any of the rights and claims of any Noteholder in respect of or arising under the Notes or the Trust Deed are discharged by set-off, such Noteholder will immediately pay an amount equal to the amount of such discharge to the Issuer or, if applicable, the liquidator, trustee, receiver or administrator of the Issuer and, until such time as payment is made, will hold a sum equal to such amount on trust for the Issuer or, if applicable, the liquidator, trustee, receiver or administrator in the relevant liquidation, winding-up or administration. Accordingly, such discharge will be deemed not to have taken place. 74

4. Interest

(a) Interest Rate and Interest Payment Dates

Subject to Conditions 3(e) and 5, the Notes bear interest on their principal amount at the applicable Interest Rate from (and including) the Issue Date in accordance with the provisions of this Condition 4.

Subject to Conditions 3(e) and 5, interest shall be payable on the Notes semi-annually in arrear on each Interest Payment Date in equal instalments (in respect of each Interest Period ending prior to the First Call Date, of £36.88 per Calculation Amount if paid in full), in each case as provided in this Condition 4.

Where it is necessary to compute an amount of interest in respect of any Note for any period, the relevant day-count fraction shall be determined on the basis of the number of days in the relevant period, from (and including) the date from which interest begins to accrue to (but excluding) the date on which it falls due, divided by the product of (a) two and (b) the actual number of days in the Interest Period in which the relevant period falls (including the first such day but excluding the last).

(b) Interest Accrual

Subject to Conditions 3(e) and 5, the Notes will accrue interest in respect of each Interest Period and cease to bear interest from (and including) the due date for redemption or substitution thereof pursuant to Condition 12, unless, upon surrender of the Certificate representing any Note, payment of all amounts due in respect of such Note is not properly and duly made, in which event interest shall continue to accrue on the principal amount of such Note, both before and after judgment, and shall be payable, as provided in these Conditions up to (but excluding) the Relevant Date.

Interest in respect of any Note shall be calculated per Calculation Amount and the amount of interest per Calculation Amount shall, save as provided in Condition 4(a) in relation to equal instalments and subject to Conditions 3(e) and 5, be equal to the product of the Calculation Amount, the relevant Interest Rate and the day-count fraction as described in Condition 4(a) for the relevant period, rounding the resultant figure to the nearest penny (half a penny being rounded upwards). Where the denomination of a Note is more than the Calculation Amount, the amount of interest payable in respect of each such Note, is the aggregate of the amounts (calculated as aforesaid) for each Calculation Amount comprising the denomination of the Note.

For the Initial Fixed Rate Interest Period, the Notes bear interest, subject to Conditions 3(e) and 5, at the rate of 7.375 per cent. per annum (the “Initial Fixed Interest Rate”).

(d) Reset Rate of Interest

The Interest Rate will be reset (each a “Reset Rate of Interest”) in accordance with this Condition 4 on each Reset Date. The Reset Rate of Interest in respect of each Reset Period 75 will be determined by the Agent Bank on the relevant Reset Determination Date as the sum of the relevant Reset Reference Rate and the Margin.

(e) Determination of Reset Rate of Interest

The Agent Bank will, as soon as practicable after 11.00 a.m. (London time) on each Reset Determination Date, subject to receipt from the Issuer of the bid and offered price of the Benchmark Gilt as provided by the Reset Reference Banks (if any), determine the Reset Rate of Interest in respect of the relevant Reset Period. The determination of the Reset Rate of Interest by the Agent Bank shall (in the absence of manifest error) be final and binding upon all parties.

(f) Publication of Reset Rate of Interest

The Agent Bank shall cause notice of the Reset Rate of Interest determined in accordance with this Condition 4 in respect of each Reset Period to be given to the Trustee, the Principal Paying and Conversion Agent, the Registrar, each of the Transfer Agents, any stock exchange on which the Notes are for the time being listed or admitted to trading and, in accordance with Condition 17, the Noteholders, in each case as soon as practicable after its determination but in any event not later than the fourth Business Day thereafter.

If the Notes become due and payable pursuant to Condition 15, the Reset Rate of Interest payable in respect of the Notes shall nevertheless continue to be calculated by the Agent Bank in accordance with this Condition 4 but no publication of the Reset Rate of Interest need be made unless the Trustee otherwise requires.

(g) Agent Bank

The Issuer will maintain an Agent Bank. The name of the initial Agent Bank is set out in the preamble to these Conditions.

The Issuer may, with the prior written approval of the Trustee, from time to time replace the Agent Bank with another leading investment or commercial bank or financial institution of international repute. If the Agent Bank is unable or unwilling to continue to act as the Agent Bank or fails duly to determine the Reset Rate of Interest in respect of any Reset Period as provided in Condition 4(e), the Issuer shall forthwith appoint another leading investment or commercial bank or financial institution of international repute approved in writing by the Trustee to act as such in its place. The Agent Bank may not resign its duties or be removed without a successor having been appointed as aforesaid.

(h) Determinations of Agent Bank Binding

All notifications, opinions, determinations, certificates, calculations, quotations and decisions given, expressed, made or obtained for the purposes of this Condition 4 by the Agent Bank, shall (in the absence of manifest error) be binding on the Issuer, the Agent Bank, the Trustee, the Principal Paying and Conversion Agent, the Registrar, the Conversion Calculation Agent, the Transfer Agents and all Noteholders and (in the absence of wilful default or gross negligence) no liability to the Noteholders, the Trustee or the Issuer shall attach to the Agent Bank in connection with the exercise or non-exercise by it of any of its powers, duties and discretions. 76

5. Cancellation of Interest

(a) Interest Payments Discretionary

Interest on the Notes is due and payable only at the sole and absolute discretion of the Issuer and is, in all cases, subject to the provisions of Conditions 3(e), 5(b) and 5(d). Accordingly, the Issuer may at any time elect to cancel any Interest Payment (or any part thereof) which would otherwise be due and payable on any Interest Payment Date.

If the Issuer does not make an Interest Payment or part thereof on the relevant Interest Payment Date, such non-payment shall evidence the non-payment and cancellation of such Interest Payment (or relevant part thereof) by reason of it not being due in accordance with Condition 3(e), the cancellation of such Interest Payment in accordance with Condition 5(b), the cancellation of interest upon the occurrence of a Trigger Event in accordance with Condition 5(d) or, as appropriate, the Issuer's exercise of its discretion otherwise to cancel such Interest Payment (or relevant part thereof) in accordance with this Condition 5(a), and accordingly such interest shall not in any such case be due and payable.

(b) Mandatory Cancellation of Interest

To the extent required by the Relevant Rules from time to time and save as otherwise permitted pursuant to Condition 5(c), the Issuer shall cancel in full any Interest Payment on the Notes in accordance with this Condition 5 if (in each case, other than as described in sub-paragraph (i) below, to the extent required by the Relevant Rules at the relevant time):

(i) the Solvency Condition is not met at the time for payment of such Interest Payment, or would cease to be met immediately following, and as a result of making, such Interest Payment;

(ii) there is non-compliance with the Solvency Capital Requirement at the time for payment of such Interest Payment, or non-compliance with the Solvency Capital Requirement would occur immediately following, and as a result of making, such Interest Payment;

(iv) the amount of such Interest Payment when aggregated together with any interest payments or distributions which have been paid or made by the Issuer or which are scheduled simultaneously to be paid or made by the Issuer on all Tier 1 Own Funds (excluding any such payments which do not reduce the Issuer's Distributable Items and any payments already accounted for by way of deduction in determining the Issuer's Distributable Items) since the end of the latest financial year of the Issuer and prior to, or on, such Interest Payment Date, would exceed the amount of the Issuer's Distributable Items as at the Interest Payment Date in respect of such Interest Payment; or 77

(v) the Issuer is otherwise required by the Relevant Regulator or under the Relevant Rules to cancel the relevant Interest Payment, each of the events or circumstances described in subparagraphs (i) to (v) (inclusive) above being a “Mandatory Interest Cancellation Event”.

A certificate signed by two (2) Directors (or other officers acceptable to the Trustee) confirming that (i) a Mandatory Interest Cancellation Event has occurred and is continuing, or would occur if payment of interest on the Notes were to be made or (ii) a Mandatory Interest Cancellation Event has ceased to occur and/or payment of interest on the Notes would not result in a new or further Mandatory Interest Cancellation Event occurring, shall, in the absence of manifest error, be treated and accepted by the Issuer, the Trustee, the Noteholders and all other interested parties as correct and sufficient evidence thereof and shall be binding on all such persons. The Trustee shall be entitled to rely absolutely on such certificate without liability to any person and without any obligation to verify or investigate the accuracy thereof.

Notwithstanding Condition 5(b), the Issuer shall not be required to cancel an Interest Payment where a Mandatory Interest Cancellation Event has occurred and is continuing, or would occur if payment of interest on the Notes were to be made (to the extent permitted by the Relevant Rules) where:

(i) the Mandatory Interest Cancellation Event is of the type described in subparagraph (ii) of Condition 5(b) only;

(ii) the Relevant Regulator has exceptionally waived the cancellation of the Interest Payment;

(iii) payment of the Interest Payment would not further weaken the solvency position of the Issuer or the Insurance Group; and

(iv) the Minimum Capital Requirement will be complied with immediately following such Interest Payment if made.

A certificate signed by two (2) Directors (or other officers acceptable to the Trustee) confirming that the conditions set out in this Condition 5(c) are met, shall, in the absence of manifest error, be treated and accepted by the Issuer, the Trustee, the Noteholders and all other interested parties as correct and sufficient evidence thereof and shall be binding on all such persons. The Trustee shall be entitled to rely absolutely on such certificate without liability to any person and without any obligation to verify or investigate the accuracy thereof.

(d) Accrued Interest on Conversion

Any interest in respect of an Interest Payment Date which falls on or after the date of a Trigger Event shall, whether or not the same has become due and without any action required on the part of the Issuer or any other person, be deemed to have been immediately and automatically cancelled in full upon the occurrence of such Trigger Event and shall not thereafter be or become due and payable. 78

(e) Effect of Cancellation of Interest Payments

Any Interest Payment (or relevant part thereof) which is cancelled in accordance with this Condition 5 or which is otherwise not due and payable in accordance with Condition 3(e) shall not become due and shall not accumulate or be payable at any time thereafter, and Noteholders shall have no rights in respect thereof (whether in an Issuer Winding-Up or otherwise) and any such cancellation or non-payment shall not constitute a default or event of default on the part of the Issuer for any purpose and will not give Noteholders or the Trustee any right to accelerate repayment of the Notes or take any enforcement action under the Notes or the Trust Deed.

(f) Notice of Cancellation of Interest

The Issuer shall provide notice of any cancellation of any Interest Payment (or any part thereof) pursuant to Condition 5(a) or 5(b) to Noteholders in accordance with Condition 17, and to the Trustee in a certificate signed by two (2) Directors (or other officers acceptable to the Trustee) (any such certificate, shall in the absence of manifest error, be treated and accepted by the Issuer, the Trustee, the Noteholders and all other interested parties as correct and sufficient evidence thereof and shall be binding on all such persons and the Trustee shall be entitled to rely absolutely on such certificate without liability to any person and without any obligation to verify or investigate the accuracy thereof), and the Principal Paying and Conversion Agent and the Registrar in writing, at least five Business Days prior to the relevant Interest Payment Date (or, if the determination that such Interest Payment (or any part thereof) is to be cancelled is made after such fifth Business Day, as soon as is practicable following the making of such determination). However, any failure to provide such notice will not invalidate the cancellation of the relevant Interest Payment (or relevant part thereof) and shall not constitute a default or event of default on the part of the Issuer for any purpose.

6. Conversion upon Trigger Event

(a) Notes not convertible at the option of Noteholders or the Trustee

The Notes are not convertible at the option of Noteholders or the Trustee at any time.

(b) Conversion upon Trigger Event

(i) If a Trigger Event occurs:

(A) if the Conversion Shares Issuer is the Issuer, the Issuer's obligation to repay the principal amount outstanding of each Note shall, subject to and as provided in this Condition 6 and Condition 9 and without any further action required on the part of the Issuer or the Trustee, be irrevocably discharged and substituted for an undertaking on the part of the Issuer to issue and deliver Ordinary Shares, credited as fully paid, in the manner and in the circumstances described below to the Conversion Shares Depositary, to be held on trust (on terms permitting, but in no case dependent upon, a Conversion Shares Offer in accordance with Condition 7(a) (if applicable)) for the Noteholders, as provided below; or 79

(B) if the Conversion Shares Issuer is not the Issuer, the Issuer's obligation to repay the principal amount outstanding of each Note shall, subject to and as provided in this Condition 6 and without any further action required on the part of the Issuer or the Trustee, be irrevocably discharged and substituted for an undertaking on the part of the Issuer to issue and deliver Issuer Ordinary Shares, credited as fully paid, in the manner and in the circumstances described below to the Conversion Shares Depositary to be held on trust for (and subject to the irrevocable direction and authorisation of) the Noteholders.

Following the occurrence of a Trigger Event, subject to Condition 9(b), in all cases the Notes will be converted into fully paid voting ordinary shares in the capital of the Issuer. Such Conversion is not dependent or conditional on the subsequent procuring by the Conversion Shares Issuer of any Conversion Shares Offer, if any, or on the availability of Ordinary Shares of the Conversion Shares Issuer (if not the Issuer) for issuance and delivery in accordance with Condition 6(c) below. Condition 9(b) provides that if a Non-Qualifying Change of Control occurs following an IPO Event then the Notes shall not be subject to Conversion at any time but, instead, upon the occurrence of a Trigger Event shall be automatically and permanently written down to zero.

(ii) If the Conversion Shares Issuer is the Issuer, on the Share Delivery Date the Issuer shall issue and deliver to the Conversion Shares Depositary a number of Ordinary Shares determined by dividing the aggregate principal amount outstanding of the Notes by the Conversion Price prevailing on the last Business Day immediately preceding the Share Delivery Date (subject to Condition 8(d)).

If the Conversion Shares Issuer is not the Issuer, on the Issuer Ordinary Share Delivery Date the Issuer shall issue and deliver to Conversion Shares Depositary (as trustee for the Noteholders) a number of Issuer Ordinary Shares determined by dividing the aggregate principal amount outstanding of the Notes by the Pre-IPO Conversion Price prevailing on the last Business Day immediately preceding the Issuer Ordinary Share Delivery Date (subject to Condition 8(d)).

(iii) If the Conversion Shares Issuer is the Issuer, upon the issue and delivery of the Conversion Shares to the Conversion Shares Depositary on the Share Delivery Date, the Issuer shall be deemed to have redeemed the Notes on the Conversion Date in an amount equal to their principal amount outstanding and the Noteholders shall be deemed irrevocably to have directed and authorised the Issuer to apply such sum on their behalf in paying up the Conversion Shares issued and delivered to the Conversion Shares Depositary on the Share Delivery Date.

If the Conversion Shares Issuer is not the Issuer, upon the issue and delivery of the Issuer Ordinary Shares to the Conversion Shares Depositary on the Issuer Ordinary Share Delivery Date, the Issuer shall be deemed to have redeemed the Notes on the Conversion Date in an amount equal to their 80

principal amount outstanding and the Noteholders shall be deemed to have directed and authorised (i) the Issuer to apply such sum on their behalf in paying up the Issuer Ordinary Shares issued and delivered to the Conversion Shares Depositary on the Issuer Ordinary Share Delivery Date, which direction and authorisation shall be irrevocable; and (ii) (subject as described in Condition 3(c)) the transfer of the Issuer Ordinary Shares by the Conversion Shares Depositary to the Conversion Shares Issuer on the Share Delivery Date without any further action being required to taken by, and without any cost or expense to, the Noteholders or the Trustee, which direction and authorisation shall be irrevocable provided that such direction and authorisation shall be deemed revoked and cancelled and no such transfer shall be made in the event that an Issuer Winding-up occurs prior to such transfer being made (provided that the Conversion Shares Depositary shall be under no obligation to monitor or enquire as to whether an Issuer Winding-up has occurred prior to making any transfer of Issuer Ordinary Shares on behalf of the Noteholders)).

(iv) If the Conversion Shares Issuer is the Issuer, once a Note has been converted into Ordinary Shares, there is no provision for the re-conversion of such Ordinary Shares back into Notes.

If the Conversion Shares Issuer is not the Issuer, once a Note has been converted into Issuer Ordinary Shares, there is no provision for the re- conversion of such Issuer Ordinary Shares back into Notes.

(v) Immediately upon the issue and delivery by the Issuer of the Conversion Shares or the Issuer Ordinary Shares (as applicable) to the Conversion Shares Depositary in accordance with these Conditions, the Issuer's obligations under the Notes shall irrevocably be discharged in full and no Noteholder will have any rights against the Issuer with respect to such obligations. Provided that the Issuer so issues and delivers (as applicable):

(A) if the Conversion Shares Issuer is the Issuer, the Conversion Shares, from (and including) the Share Delivery Date Noteholders shall have recourse only to the Conversion Shares Depositary for the delivery to them of such Conversion Shares or, subject to and as provided in Condition 7(a), the Conversion Shares Offer Entitlement; or

(B) if the Conversion Shares Issuer is not the Issuer, the Issuer Ordinary Shares, from (and including) the Issuer Ordinary Share Delivery Date Noteholders shall have recourse only to the Conversion Shares Depositary for the delivery to them (or at their irrevocable direction and authorisation) of such Issuer Ordinary Shares.

(vi) Subject to Condition 3(c), if the Issuer fails to issue and deliver the Conversion Shares or the Issuer Ordinary Shares (as applicable) to the Conversion Shares Depositary on the Share Delivery Date or the Issuer Ordinary Share Delivery Date (as applicable), a Noteholder's only right under the Notes against the Issuer for any such failure will be to claim to have such 81

Conversion Shares or the Issuer Ordinary Shares (as applicable) so issued and delivered.

If the Conversion Shares Issuer is not the Issuer:

(i) the Share Delivery Date shall be at least 10 Business Days following the Issuer Ordinary Share Delivery Date;

(ii) on the Share Delivery Date and in consideration for the transfer to it of the Issuer Ordinary Shares referred to in Condition 6(b)(ii) above, the Conversion Shares Issuer shall issue and deliver to the Conversion Shares Depositary a number of Ordinary Shares determined by dividing the aggregate principal amount outstanding of the Notes by the Conversion Price prevailing on the last Business Day immediately preceding the Share Delivery Date (subject to Condition 8(d));

(iii) once the Issuer Ordinary Shares have been transferred to the Conversion Shares Issuer pursuant to the irrevocable direction and authorisation of the Noteholders provided above, there is no provision for the delivery or redelivery of such Issuer Ordinary Shares to or for the benefit of the Noteholders.

(iv) immediately upon the issue and delivery by the Conversion Shares Issuer of the Conversion Shares to the Conversion Shares Depositary in accordance with these Conditions, the Conversion Shares Issuer’s obligations under the Trust Deed shall irrevocably be discharged in full and no Noteholder or the Trustee will have any rights against the Conversion Shares Issuer with respect to such obligations. Provided that the Conversion Shares Issuer so issues and delivers the Conversion Shares, from (and including) the Share Delivery Date Noteholders shall have recourse only to the Conversion Shares Depositary for the delivery to them of such Conversion Shares or, subject to and as provided in Condition 7(a), the Conversion Shares Offer Entitlement; and

(v) (subject to Condition 3(c) and subject to receipt by the Conversion Shares Depositary of the Issuer Ordinary Shares), if the Conversion Shares Issuer fails to issue and deliver the Conversion Shares to the Conversion Shares Depositary on the Share Delivery Date, a Noteholder's only right under the Trust Deed against the Conversion Shares Issuer for any such failure will be to claim to have such Conversion Shares so issued and delivered by the Conversion Shares Issuer and the Noteholders shall have no rights against the Issuer in respect of the delivery of the Conversion Shares.

(d) Issuer Ordinary Shares and Ordinary Shares

(i) If the Conversion Shares Issuer is not the Issuer, the Issuer Ordinary Shares issued and delivered on the Issuer Ordinary Share Delivery Date will be fully 82

paid and non-assessable and will in all respects rank pari passu with the fully paid voting ordinary shares in the capital of the Issuer in issue on the Issuer Ordinary Share Delivery Date, except in any such case for any right excluded by mandatory provisions of applicable law, and except that any Issuer Ordinary Shares so issued and delivered will not rank for (or, as the case may be, the relevant Noteholder shall not be entitled to receive) any rights, distributions or payments the record date or other due date for the establishment of entitlement for which falls prior to the Issuer Ordinary Share Delivery Date.

(ii) In all cases, the Conversion Shares issued and delivered on the Share Delivery Date will be fully paid and non-assessable and will in all respects rank pari passu with the fully paid Ordinary Shares in issue on the Share Delivery Date, except in any such case for any right excluded by mandatory provisions of applicable law, and except that any Conversion Shares so issued and delivered will not rank for (or, as the case may be, the relevant Noteholder shall not be entitled to receive) any rights, distributions or payments the record date or other due date for the establishment of entitlement for which falls prior to the Share Delivery Date.

(e) Notification of the occurrence of a Trigger Event

(i) Whether the Trigger Event has occurred at any time shall be determined by the Issuer, and such determination shall (in the absence of manifest error) be binding on the Trustee and the Noteholders. Following the occurrence of a Trigger Event, the Issuer shall promptly notify the Relevant Regulator and shall deliver to the Trustee a certificate signed by two (2) Directors (or other officers acceptable to the Trustee) confirming that a Trigger Event has occurred. The certificate shall, in the absence of manifest error, be treated and accepted by the Issuer, the Conversion Shares Issuer (if not the Issuer), the Trustee, the Noteholders and all other interested parties as correct and sufficient evidence thereof, shall be binding on all such persons. The Trustee shall be entitled to rely absolutely on such certificate without liability to any person and without any obligation to verify or investigate the accuracy thereof.

(ii) Following the occurrence of a Trigger Event, but only after delivery to the Trustee of the certificate referred to in Condition 6(e)(i), the Issuer shall promptly (and, in any event, within such period as the Relevant Regulator may require) give notice thereof to the Noteholders (a “Trigger Event Notice”) in accordance with Condition 17, and to the Trustee and the Principal Paying and Conversion Agent in writing, stating:

(A) details of the Trigger Event;

(B) the date on which the Trigger Event occurred (the “Conversion Date”);

(C) the Conversion Price prevailing on the Conversion Date (which shall remain subject to any subsequent adjustment pursuant to Condition 83

8(f) up to the last Business Day immediately preceding the Share Delivery Date);

(D) (if the Conversion Shares Issuer is not the Issuer) the Issuer Ordinary Share Delivery Date or expected Issuer Ordinary Share Delivery Date;

(E) the Share Delivery Date or expected Share Delivery Date (which date shall, if applicable, comply with the requirements of Condition 6(c)(i), taking into account the expected Issuer Ordinary Share Delivery Date specified in the Trigger Event Notice);

(F) the Notice Cut-off Date and the Final Cancellation Date;

(G) details of the Conversion Shares Depositary;

(H) (if applicable) that the Conversion Shares Issuer has the option, at its sole and absolute discretion, to elect that a Conversion Shares Offer be conducted and that the Conversion Shares Issuer will issue a Conversion Shares Offer Notice in accordance with Condition 17 within the applicable time period specified in Condition 7(a)(ii) notifying Noteholders of its decision as to such election; and

(I) that the Notes shall remain in existence until the applicable Settlement Date (or, if earlier, the Final Cancellation Date) for the sole purpose of evidencing the relevant Noteholder's rights under this Condition 6 (including the right to have the Issuer Ordinary Shares delivered to the Conversion Shares Depositary (if relevant) and the right to receive Conversion Shares or Conversion Shares Offer Entitlement, as applicable, from the Conversion Shares Depositary).

Whilst, as provided in Condition 2(d)(iv), Noteholders may not require the transfer of a Note to be registered at any time after the second Business Day following the giving of a Trigger Event Notice, interests in the Notes may still be traded in the clearing systems operated by Euroclear Bank SA/NV and Clearstream Banking S.A. up to the Suspension Date – see "Overview of the Notes while in Global Form – Suspension Date following Conversion".

(iii) Failure by the Issuer to deliver a certificate to the Trustee or to give notice to Noteholders and to the Trustee and the Principal Paying and Conversion Agent of the occurrence of a Trigger Event pursuant to this Condition 6(e) shall in no way invalidate or otherwise affect the automatic Conversion of the Notes pursuant to Condition 6(b). 84

7. Conversion Shares Offer

(a) Conversion Shares Offer

(i) Subject to Condition 7(b) below, the Conversion Shares Issuer shall be entitled to elect, in its sole and absolute discretion, that the Conversion Shares Depositary (or any agent(s) on its behalf) will make an offer, in the Conversion Shares Issuer's sole and absolute discretion, of all or some of the Conversion Shares to, in the Conversion Shares Issuer's sole and absolute discretion, all or some of the Eligible Offerees at the time of such offer, such offer to be at a price (the “Conversion Shares Offer Price”) not lower than the Conversion Shares Offer Floor Price, all in accordance with this Condition 7(a) (the “Conversion Shares Offer”). For the avoidance of doubt, the Conversion Shares Offer Price may be lower than the Conversion Price.

(ii)

(A) Where the Conversion Shares Issuer is the Issuer, not later than 30 Business Days following the Conversion Date; or

(B) Where the Conversion Shares Issuer is not the Issuer:

(1) at least 10 Business Days following the Issuer Ordinary Share Delivery Date; and

(2) not later than 30 Business Days following the Issuer Ordinary Share Delivery Date,

the Conversion Shares Issuer shall give notice (a “Conversion Shares Offer Notice”) to the Noteholders in accordance with Condition 17, and to the Trustee and the Principal Paying and Conversion Agent in writing, stating whether or not it has elected that a Conversion Shares Offer be conducted and specifying the other information referred to at Condition 7(a)(iv) below. If the Conversion Shares Issuer fails to give such notice on or before such thirtieth (30th) Business Day, the Conversion Shares Issuer shall be treated as having elected not to make a Conversion Shares Offer.

(iii) The Conversion Shares Issuer may, on behalf of the Conversion Shares Depositary, appoint one or more Conversion Shares Offer Agents to act as a placement or other agent to facilitate the Conversion Shares Offer. The Conversion Shares Issuer may not purchase any Conversion Shares for its own account pursuant to a Conversion Shares Offer.

(iv) A Conversion Shares Offer Notice shall specify the Conversion Shares Offer Floor Price and the period of time for which the Conversion Shares Offer will be open (the “Conversion Shares Offer Period”). The Conversion Shares Offer Period shall end no later than forty (40) Business Days after the giving of the Conversion Shares Offer Notice by the Conversion Shares Issuer. A Conversion Shares Offer Notice may also specify a final or indicative 85

Conversion Shares Offer Price and/or the basis on which the final Conversion Shares Offer Price will be determined (which, for the avoidance of doubt, may be wholly within the Conversion Shares Issuer's discretion) and/or communicated to persons who are eligible to participate in the Conversion Shares Offer.

(v) Upon expiry of the Conversion Shares Offer Period, the Conversion Shares Depositary will provide notice to the Noteholders in accordance with Condition 17, and to the Trustee and the Principal Paying and Conversion Agent in writing, of the composition of the Conversion Shares Offer Entitlement (and of the deductions to the cash component, if any, of the Conversion Shares Offer Entitlement (as set out in the definition of “Conversion Shares Offer Entitlement”)) per Calculation Amount and the amount (if any) of any Excess Amount per Calculation Amount. The Conversion Shares Offer Entitlement shall be held on trust by the Conversion Shares Depositary for the Noteholders, and any Excess Amount shall be held on trust by the Conversion Shares Depositary for the Issuer until paid to or to the order of the Issuer. In accordance with Condition 8(b)(vi), the cash component of any Conversion Shares Offer Entitlement shall be payable by the Conversion Shares Depositary to the Noteholders in Sterling irrespective of whether or not the Solvency Condition is or would be satisfied upon such payment.

(vi) The Conversion Shares Issuer reserves the right, in its sole and absolute discretion, to elect that the Conversion Shares Depositary terminates the Conversion Shares Offer at any time during the Conversion Shares Offer Period. If the Conversion Shares Issuer makes such election, it will promptly provide notice to the Noteholders in accordance with Condition 17, and to the Trustee and the Principal Paying and Conversion Agent in writing, and the Conversion Shares Depositary may then, in its sole and absolute discretion, take steps to deliver to Noteholders the Conversion Shares at a time that is earlier than the time at which they would have otherwise received the Conversion Shares Offer Entitlement had the Conversion Shares Offer been completed.

(vii) By virtue of its holding of any Note, each Noteholder acknowledges and agrees that if the Conversion Shares Issuer elects, in its sole and absolute discretion, that a Conversion Shares Offer be conducted by (or on behalf of) the Conversion Shares Depositary, such Noteholder shall be deemed to have: (i) irrevocably consented to any Conversion Shares Offer and, notwithstanding that such Conversion Shares are held by the Conversion Shares Depositary on trust for the Noteholders, to the Conversion Shares Depositary using the Conversion Shares to settle any Conversion Shares Offer; (ii) irrevocably consented to the transfer of the interest such Noteholder has in the Conversion Shares to one or more purchasers identified by the Conversion Shares Depositary in connection with the Conversion Shares Offer; (iii) irrevocably agreed that the Conversion Shares Issuer and the Conversion Shares Depositary may take any and all actions necessary to conduct the Conversion Shares Offer in accordance with the terms of the Notes; (iv) irrevocably waived any and all entitlement to Excess 86

Amounts (if any) and instructed that any such Excess Amounts be paid to the Issuer; and (v) irrevocably agreed that none of the Issuer, (if not the Issuer) the Conversion Shares Issuer, the Trustee or the Conversion Shares Depositary shall, to the extent permitted by applicable law, incur any liability to the Noteholders in respect of the Conversion Shares Offer (except for the obligations of the Conversion Shares Depositary in respect of the Noteholders' entitlement to, and the subsequent delivery of, any Conversion Shares Offer Entitlement).

(viii) Any Conversion Shares Offer shall be made subject to applicable laws and regulations in effect at the relevant time and shall be conducted, if at all, only to the extent that the Conversion Shares Issuer, in its sole and absolute discretion, determines that the Conversion Shares Offer is practicable. The purchasers of the Conversion Shares sold in any Conversion Shares Offer shall bear the costs and expenses of any Conversion Shares Offer (other than the taxes or duties and foreign exchange transaction costs referred to in Condition 8(e) and in the definition of Conversion Shares Offer Entitlement as being payable by the Noteholders or the Conversion Shares Issuer or deductible from the cash proceeds of the Conversion Shares Offer), including the fees of any Conversion Shares Offer Agent, if any. Neither the occurrence of a Trigger Event nor, following the occurrence of a Trigger Event, the election (if any) by the Conversion Shares Issuer to undertake a Conversion Shares Offer on the terms set out herein, shall preclude either the Issuer or (if not the Issuer) the Conversion Shares Issuer from undertaking a rights issue at any time on such terms as the Issuer or (if not the Issuer) the Conversion Shares Issuer (as applicable) deems appropriate, at its sole discretion (including, for the avoidance of doubt but without limitation, the offer of Ordinary Shares at or below the Conversion Shares Offer Price).

(ix) The Trustee shall not be responsible for monitoring any Conversion Shares Offer, nor for monitoring or enforcing the obligations of the Conversion Shares Depositary in respect thereof. Following Conversion and delivery of the Issuer Ordinary Shares and the Conversion Shares (as applicable) to the Conversion Shares Depositary, Noteholders must look to the Conversion Shares Depositary for any Issuer Ordinary Shares, Conversion Shares or Conversion Shares Offer Entitlement due to them at the relevant time.

(b) Conversion Shares Offer Disapplication

The Conversion Shares Issuer shall not be entitled to elect that a Conversion Shares Offer be undertaken unless, prior to making such election:

(i) the Issuer has delivered to the Trustee an opinion from a nationally recognised law firm or other tax adviser in the United Kingdom experienced in such matters to the effect that, under the law applicable at the time of such election, the sale of Conversion Shares pursuant to the Conversion Shares Offer should not result in a reduction of the Issuer’s Own Funds arising by reason of the payment of tax or use or set-off of tax losses by the Issuer; and 87

(ii) the Issuer has notified the Relevant Regulator no later than 15 Business Days (or such shorter period as the Relevant Regulator may from time to time accept) prior to making such election of its intention to undertake a Conversion Shares Offer and a non-objection has been received from the Relevant Regulator prior to the date of such election on the grounds of the expected use or set-off of tax losses by the Issuer to eliminate or reduce a liability to pay tax as a result of such Conversion Shares Offer.

8. Settlement, Delivery and Conversion Price Adjustment

(a) Conversion Shares Depositary

(i) The Issuer shall use all reasonable endeavours to appoint a Conversion Shares Depositary as soon as reasonably practicable following the occurrence of a Trigger Event.

(ii) If the Issuer is unable to appoint a Conversion Shares Depositary, it shall make such other arrangements for the issuance and delivery of the Conversion Shares and (if applicable) the Issuer Ordinary Shares as it shall consider reasonable in the circumstances, which may include issuing and delivering the Conversion Shares or (if applicable) the Issuer Ordinary Shares to another independent nominee to be held on trust ((in the case of the Conversion Shares only) on terms permitting a Conversion Shares Offer in accordance with Condition 7(a) (if applicable)) for the Noteholders or to the Noteholders directly. The issuance and delivery of the Conversion Shares and (if applicable) the Issuer Ordinary Shares pursuant to such other arrangements shall irrevocably discharge and satisfy all of the Issuer’s and (if not the Issuer) the Conversion Shares Issuer's obligations under the Notes and/or the Trust Deed (as applicable) as though the relevant Conversion Shares and (if applicable) the Issuer Ordinary Shares had been issued and delivered to the Conversion Shares Depositary and, in which case, where the context so admits, references in these Conditions to the issue and delivery of Conversion Shares and (if applicable) the Issuer Ordinary Shares to the Conversion Shares Depositary, and all references herein regarding matters to be undertaken by, or in respect of, the Conversion Shares Depositary shall be construed as though they were references to such other arrangements and apply mutatis mutandis (including, without limitation, for the purposes of the delivery of Conversion Shares Settlement Notices by Noteholders and the receipt by them of the Conversion Shares or, as the case may be, Conversion Shares Offer Entitlement to which they are entitled).

(iii) The Conversion Shares and (if applicable) the Issuer Ordinary Shares shall (except where the Issuer has been unable to appoint a Conversion Shares Depositary as contemplated in Condition 8(a)(ii)) initially be registered in the name of the Conversion Shares Depositary, which (subject to the provisions of Condition 8(a)(ii)) shall hold such Conversion Shares and (if applicable) the Issuer Ordinary Shares on trust for the Noteholders. By virtue of its holding of any Note, each Noteholder shall be deemed to have irrevocably directed the Issuer and (if not the Issuer) the Conversion Shares Issuer to 88

issue and deliver such Conversion Shares and (if applicable) the Issuer Ordinary Shares to the Conversion Shares Depositary for transfer (in the case of the Issuer Ordinary Shares) to the Conversion Shares Issuer on the Share Delivery Date as set out in this Condition 8 (subject to the provisos set out in Condition 6(b)(iii) above).

(iv) For so long as the Conversion Shares or (if applicable) the Issuer Ordinary Shares are held by the Conversion Shares Depositary on trust for the Noteholders, the Noteholders shall be entitled to direct the Conversion Shares Depositary to exercise on their behalf all rights of an ordinary shareholder (including voting rights and rights to receive dividends) except that Noteholders shall not be able to sell or otherwise transfer such Conversion Shares or (if applicable) the Issuer Ordinary Shares unless and until such time as they have been delivered to Noteholders in accordance with Condition 8(b) (if at all, following any direction and authorisation of such Noteholders).

(v) Following the issuance and delivery of the Conversion Shares to the Conversion Shares Depositary on the Share Delivery Date, the Notes shall remain in existence until the applicable Settlement Date (or, if earlier, the Final Cancellation Date) for the purpose only of evidencing the Noteholders' rights as aforesaid (including their respective rights to have the Issuer Ordinary Shares delivered to the Conversion Shares Depositary (if relevant) and the right to receive the Conversion Shares or the Conversion Shares Offer Entitlement, as the case may be, to be delivered by the Conversion Shares Depositary).

(b) Settlement Procedure

(i) To obtain delivery from the Conversion Shares Depositary of Conversion Shares or, as applicable, the relevant Conversion Shares Offer Entitlement, Noteholders will be required to deliver a Conversion Shares Settlement Notice and the relevant Certificate representing the relevant Note to the Conversion Shares Depositary (or an agent designated for the purpose in the Trigger Event Notice) on or before the Notice Cut-off Date.

(ii) If such Conversion Shares Settlement Notice or Certificate is delivered after the end of normal business hours at the specified office of the Conversion Shares Depositary, such delivery shall be deemed for all purposes to have been made or given on the following Business Day.

(iii) If a Noteholder fails to deliver a Conversion Shares Settlement Notice or Certificate on or before the Notice Cut-off Date, or the relevant Conversion Shares Settlement Notice is otherwise determined by the Conversion Shares Depositary to be null and void, then the Conversion Shares Depositary shall continue to hold the relevant Conversion Shares or the relevant Conversion Shares Offer Entitlement, as the case may be, on trust for that Noteholder until a valid Conversion Shares Settlement Notice (and the Certificate representing the relevant Notes) is so delivered. If any such Conversion Shares or the relevant Conversion Shares Offer Entitlement (as 89

applicable) have not been claimed for 12 years after the Final Cancellation Date as aforesaid, the Issuer may, at any time after such time and in its sole and absolute discretion, instruct the Conversion Shares Depositary (or an agent on its behalf) to sell for cash all or some of any such Conversion Shares or any Conversion Share component of any Conversion Shares Offer Entitlement (as applicable) and any such cash proceeds from such sale(s) and any such cash component of any Conversion Shares Offer Entitlement will, in each case, be forfeited and will be transferred to the Issuer for its own account unless the Issuer decides, in its sole and absolute discretion, otherwise and the Issuer will not be a trustee of any such cash and the Issuer shall have no liability to any Noteholder for any loss resulting from such Noteholder not receiving any Conversion Shares, the relevant Conversion Shares Offer Entitlement or the cash proceeds from any such sale(s) as aforesaid (as applicable).

(iv) Any determination as to whether any Conversion Shares Settlement Notice has been properly completed and delivered together with the relevant Certificate(s) as provided in these Conditions, or whether any evidence of entitlement to Conversion Shares or Conversion Shares Offer Entitlement, as applicable, is satisfactory, shall be made by the Conversion Shares Depositary in its sole and absolute discretion and shall be conclusive and binding on the relevant Noteholders.

(v) Subject as otherwise provided herein, the relevant Conversion Shares (or the Conversion Shares component of any Conversion Shares Offer Entitlement) will be delivered on the applicable Settlement Date by or on behalf of the Conversion Shares Depositary in accordance with the instructions given in the relevant Conversion Shares Settlement Notice.

(vi) Any cash component of any Conversion Shares Offer Entitlement shall be paid by or on behalf of the Conversion Shares Depositary on the applicable Settlement Date by transfer to a Sterling account with a bank capable of processing payments in Sterling (as may be specified in the relevant Conversion Shares Settlement Notice) in accordance with the instructions contained in the relevant Conversion Shares Settlement Notice.

(vii) If not previously cancelled on the applicable Settlement Date, the Notes shall be cancelled in full on the Final Cancellation Date and any Noteholder delivering a Conversion Shares Settlement Notice after the Notice Cut-off Date will have to provide evidence of its entitlement to the relevant Conversion Shares or the relevant Conversion Shares Offer Entitlement, as applicable, satisfactory to the Conversion Shares Depositary in its sole and absolute discretion in order to receive delivery of such Conversion Shares or such Conversion Shares Offer Entitlement, as applicable. None of the Issuer, the Conversion Shares Issuer (if not the Issuer) or the Trustee shall have any liability to any Noteholder for any loss resulting from such Noteholder not receiving any Conversion Shares or the relevant Conversion Shares Offer Entitlement, as applicable, or from any delay in the receipt thereof, in each case as a result of such Noteholder failing to submit a valid 90

Conversion Shares Settlement Notice and the relevant Certificate, on a timely basis or at all.

(i) Conversion Shares (or the Conversion Shares component of any Conversion Shares Offer Entitlement) will be delivered to Noteholders: (i) prior to the occurrence of an IPO Event, in certificated form; and (ii) on or following the occurrence of an IPO Event, in uncertificated form through the dematerialised securities trading system operated by Euroclear UK & Ireland Limited, known as CREST, unless at the relevant time the Conversion Shares are not a participating security in CREST, in which case Conversion Shares will be delivered either through the primary electronic trading system (if any) in which the Ordinary Shares are, at such time, traded or in certificated form. Where any Conversion Shares (or the Conversion Shares component of any Conversion Shares Offer Entitlement) are to be delivered to Noteholders by the Conversion Shares Depositary through CREST or any other electronic trading system, they will be delivered to the account specified by the relevant Noteholder in the relevant Conversion Shares Settlement Notice, on the applicable Settlement Date. Where any Conversion Shares (or the Conversion Shares component of any Conversion Shares Offer Entitlement) are to be delivered to Noteholders in certificated form, a certificate in respect thereof will be dispatched by mail free of charge to the relevant Noteholder or as it may direct in the relevant Conversion Shares Settlement Notice (in each case uninsured and at the risk of the relevant recipient) within twenty-eight (28) days following the date of the relevant Conversion Shares Settlement Notice.

(ii) The Conversion Shares (or the Conversion Shares component of any Conversion Shares Offer Entitlement) will not be available for issue or delivery (A) to, or to a nominee for, Euroclear Bank SA/NV or Clearstream Banking S.A. or any other person providing a clearance service within the meaning of Section 96 of the Finance Act 1986 of the United Kingdom or otherwise falling within Section 70 of that Act or (B) to a person, or nominee or agent for a person, whose business is or includes issuing depositary receipts within the meaning of Section 93 of the Finance Act 1986 of the United Kingdom or otherwise falling within Section 67 of that Act, in any case where relevant prior to the "abolition day" as defined in Section 111(1) of the Finance Act 1990 of the United Kingdom or (C) to the CREST account of such a person described in (A) or (B).

(d) Fractions

Fractions of Ordinary Shares or, as applicable, Issuer Ordinary Shares will not be delivered by the Conversion Shares Issuer or the Issuer (as applicable) to the Conversion Shares Depositary on the Share Delivery Date or the Issuer Ordinary Share Delivery Date (as applicable) or to Noteholders on the applicable Settlement Date (as applicable) and no cash payment will be made in lieu thereof. However, if one or more Conversion Shares Settlement Notices and relevant Certificates are delivered to the Conversion Shares Depositary such that any Ordinary Shares (or any Ordinary Share component of any Conversion Shares Offer 91

Entitlement, as applicable) to be issued and delivered to a Noteholder on Conversion are to be registered in the same name, the number of Ordinary Shares to be issued and delivered in respect thereof shall be calculated by the Conversion Calculation Agent on the basis of the aggregate principal amount of such Notes to be converted.

(e) Taxes and Duties

Except as provided for in this Condition 8(e), neither the Issuer nor the Conversion Shares Issuer nor any member of the Insurance Group shall be liable for any taxes (including any capital, stamp, issue, registration, financial transaction, documentary or transfer taxes or duties) arising on, or as a result of, Conversion or that may arise or be paid as a consequence of the issue and delivery of Ordinary Shares on Conversion or the transfer of any Ordinary Shares in any Conversion Shares Offer. A Noteholder must pay any such taxes arising on Conversion in connection with the issue and delivery of the Conversion Shares whether to the Conversion Shares Depositary on behalf of such Noteholder or otherwise to or for the benefit of such Noteholder in accordance with Condition 8(a)(ii) and such Noteholder must pay all, if any, such taxes arising by reference to any disposal or deemed disposal of such Noteholder's Notes or interest therein. The Conversion Shares Issuer will pay any such taxes arising on Conversion in connection with the issue and delivery of Issuer Ordinary Shares to the Conversion Shares Depositary and in connection with the transfer of the Issuer Ordinary Shares to the Conversion Shares Issuer as contemplated in Condition 6. Any capital, stamp, issue, registration, financial transaction, documentary or transfer taxes or duties arising on delivery or transfer of Conversion Shares to a purchaser in any Conversion Shares Offer shall be payable by the relevant purchaser of those Ordinary Shares.

(f) Adjustment of Conversion Price

For the purposes of Conditions 8(f), 8(g), 8(h), 8(i) and 8(j), in the event that the Conversion Shares Issuer is not the Issuer:

(A) references to the Conversion Shares Issuer shall be deemed to include each of the Issuer and the relevant Conversion Shares Issuer; and

(B) references to the Ordinary Shares shall be deemed to include each of the Issuer Ordinary Shares and the relevant Ordinary Shares and in each case related definitions and interpretation provisions shall be construed accordingly. For the avoidance of doubt the Conversion Price applicable to each of the Issuer Ordinary Shares and the Ordinary Shares may be subject to adjustment pursuant to the following provisions, where applicable to the Issuer Ordinary Shares and/or the Ordinary Shares.

Upon the happening of any of the events described below, the Conversion Price shall be adjusted by the Conversion Calculation Agent as follows:

(i) If and whenever there shall be a consolidation, reclassification, redesignation or subdivision in relation to the Ordinary Shares which alters the number of Ordinary Shares in issue, the Conversion Price shall be adjusted by multiplying the Conversion Price in force immediately prior to the date on which such consolidation, reclassification, re-designation or subdivision takes effect by the following fraction: 92

A/B

where:

A is the aggregate number of Ordinary Shares in issue immediately before such consolidation, reclassification, re-designation or subdivision, as the case may be; and

B is the aggregate number of Ordinary Shares in issue immediately after, and as a result of, such consolidation, reclassification, redesignation or subdivision, as the case may be.

Such adjustment shall become effective on the date the consolidation, reclassification, re-designation or subdivision, as the case may be, takes effect.

(ii) If and whenever the Conversion Shares Issuer shall issue any Ordinary Shares to Shareholders credited as fully paid by way of capitalisation of profits or reserves (including any share premium account or capital redemption reserve) other than: (A) where any such Ordinary Shares are or are to be issued instead of the whole or part of a Cash Dividend which the Shareholders would or could otherwise have elected to receive; (B) where the Shareholders may elect to receive a Cash Dividend in lieu of such Ordinary Shares; or (C) where any such Ordinary Shares are or are expressed to be issued in lieu of a dividend (whether or not a Cash Dividend equivalent or amount is announced or would otherwise be payable to the Shareholders, whether at their election or otherwise), the Conversion Price shall be adjusted by multiplying the Conversion Price in force immediately prior to the date on which such Ordinary Shares are issued by the following fraction:

A/B

where:

A is the aggregate number of Ordinary Shares in issue immediately before such issue; and

B is the aggregate number of Ordinary Shares in issue immediately after such issue.

Such adjustment shall become effective on the date of issue of such Ordinary Shares.

In these Conditions, “Cash Dividend” means any dividend or distribution in respect of the Ordinary Shares which is to be paid or made to Shareholders as a class in cash (in whatever currency) and however described and whether payable out of the share premium account, profits, retained earnings or any other capital or revenue reserve or account, and including a 93

distribution or payment to Shareholders upon or in connection with a reduction of capital.

(iii) If and whenever the Conversion Shares Issuer shall pay any Extraordinary Dividend to the Shareholders, the Conversion Price shall be adjusted by multiplying the Conversion Price in force immediately prior to the Effective Date by the following fraction:

(A-B)/A

where:

A is the Current Price of one (1) Ordinary Share on the Effective Date; and

B is the portion of the Fair Market Value (as at the Effective Date) of the aggregate Extraordinary Dividend attributable to one (1) Ordinary Share, with such portion being determined by dividing the aggregate Extraordinary Dividend by the number of Ordinary Shares entitled to receive the relevant Extraordinary Dividend.

Such adjustment shall become effective on the Effective Date.

“Effective Date” means, in respect of this Condition 8(f)(iii):

(a) if the Ordinary Shares are then admitted to trading on a Relevant Stock Exchange, the first date on which the Ordinary Shares are traded ex- the Extraordinary Dividend on the Relevant Stock Exchange; or

(b) otherwise, on the date on which the Extraordinary Dividend is paid,

“Extraordinary Dividend” means any Cash Dividend (or portion thereof) that is expressly declared by the Conversion Shares Issuer to be a capital distribution, extraordinary dividend, extraordinary distribution, special dividend, special distribution or return of value to Shareholders as a class or any analogous or similar term, in which case the Extraordinary Dividend shall be such Cash Dividend (or, as applicable, such portion).

(iv) If and whenever the Conversion Shares Issuer shall issue Ordinary Shares to Shareholders as a class by way of rights, or the Conversion Shares Issuer or any of its Subsidiaries or (at the direction or request or pursuant to arrangements with the Conversion Shares Issuer or any of its Subsidiaries) any other company, person or entity shall issue or grant to Shareholders as a class by way of rights, any options, warrants or other rights to subscribe for or purchase or otherwise acquire Ordinary Shares, or any Relevant Securities which by their terms of issue carry (directly or indirectly) rights of conversion into, or exchange or subscription for, or the right to purchase or otherwise acquire any Ordinary Shares (or shall grant any such rights in respect of existing Relevant Securities so issued), in each case at a price 94

per Ordinary Share which is less than 95 per cent. of the Current Price per Ordinary Share on the Effective Date, the Conversion Price shall be adjusted by multiplying the Conversion Price in force immediately prior to the Effective Date by the following fraction:

(A + B)/(A + C)

A is the number of Ordinary Shares in issue on the Effective Date;

B is the number of Ordinary Shares which the aggregate consideration (if any) receivable for the Ordinary Shares issued by way of rights, or for the Relevant Securities issued by way of rights, or for the options or warrants or other rights issued by way of rights and for the total number of Ordinary Shares deliverable on the exercise thereof, would purchase at such Current Price per Ordinary Share on the Effective Date; and

C is the number of Ordinary Shares to be issued or, as the case may be, the maximum number of Ordinary Shares which may be issued upon exercise of such options, warrants or rights calculated as at the date of issue of such options, warrants or rights or upon conversion or exchange or exercise of rights of subscription or purchase or acquisition in respect thereof at the initial conversion, exchange, subscription or purchase price or rate,

provided that if, on the Effective Date, such number of Ordinary Shares is to be determined by reference to the application of a formula or other variable feature or the occurrence of any event at some subsequent time, then for the purposes of this Condition 8(f)(iv), C shall be determined by the application of such formula or variable feature or as if the relevant event occurs or had occurred as at the Effective Date and as if such conversion, exchange, subscription, purchase or acquisition had taken place on the Effective Date.

Such adjustment shall become effective on the Effective Date.

“Effective Date” means, in respect of this Condition 8(f)(iv):

(a) if the Ordinary Shares are then admitted to trading on a Relevant Stock Exchange, the first date on which the Ordinary Shares are traded ex-rights, ex-options or ex-warrants on the Relevant Stock Exchange; or

(b) otherwise, the day following the expiry of the relevant options, warrants or rights.

(v) Prior to the occurrence of an IPO Event, if and whenever the Conversion Shares Issuer shall issue for cash or non-cash consideration or no consideration Ordinary Shares (other than Ordinary Shares issued on the exercise of any rights of conversion into, or exchange or subscription for or 95 purchase of, or right to otherwise acquire Ordinary Shares) to any Existing Ordinary Shareholder(s), or if and whenever the Conversion Shares Issuer shall issue or grant for cash or non-cash consideration or no consideration any options, warrants or other rights to subscribe for or purchase or otherwise acquire any Ordinary Shares or any Relevant Securities which by their terms of issue carry (directly or indirectly) rights of conversion into, or exchange or subscription for, or the right to acquire any Ordinary Shares (or shall grant any such rights in respect of existing Relevant Securities so issued) (otherwise than as mentioned in Condition 8(f)(ii) or (iv)), in each case at a price per Ordinary Share which is less than 95 per cent. of the Current Price per Ordinary Share on the date of such issue or grant (in respect of this Condition 8(f)(v), the “Effective Date”), then the Conversion Price shall be adjusted by multiplying the Conversion Price in force immediately prior to the Effective Date by the following fraction:

(A + B)/(A + C) where:

A is the total number of Ordinary Shares in issue immediately before the Effective Date;

B is the number of Ordinary Shares which the aggregate consideration (if any) receivable for the issue of such Ordinary Shares, or, as the case may be, for the Ordinary Shares to be issued or otherwise made available upon the exercise of any such options, warrants or rights, or upon conversion or exchange or upon exercise of the right of subscription, purchase or acquisition attached to such Relevant Securities would purchase at such Current Price per Ordinary Share on the Effective Date; and

C is the number of Ordinary Shares issued pursuant to such issue of Ordinary Shares or, as the case may be, the maximum number of Ordinary Shares which may be issued upon exercise of such options, warrants or rights or upon conversion or exchange or upon exercise of the right of subscription, purchase or acquisition attached to such Relevant Securities at the initial subscription, purchase, acquisition, conversion, exchange price or rate; provided that if, on the Effective Date, such number of Ordinary Shares is to be determined by reference to the application of a formula or other variable feature or the occurrence of any event at some subsequent time, then for the purposes of this Condition 8(f)(v), C shall be determined by the application of such formula or variable feature or as if the relevant event occurs or had occurred as at the Effective Date and as if such conversion, exchange, subscription, purchase or acquisition had taken place on the Effective Date.

Any amendment to the rights attaching to any Ordinary Shares (or to any options, warrants or other rights in respect thereof) which would, upon the 96

occurrence of an IPO Event, result in the holder of such Ordinary Shares receiving more Ordinary Shares per existing Ordinary Share than prior to such, shall be deemed to be an issue of Ordinary Shares for the purposes of this paragraph (v) and the Conversion Price shall be adjusted mutatis mutandis as provided in this paragraph (v) with such adjustments as (if the Conversion Calculation Agent determines in its sole discretion it is able to make such determination in its capacity as Conversion Calculation Agent) the Conversion Calculation Agent or (otherwise) an Independent Adviser acting in good faith determines are appropriate to reflect that the adjustment arises from an amendment to the rights attaching to Ordinary Shares (or to any options, warrants or other rights in respect thereof).

As used herein, “Existing Ordinary Shareholder” means, in respect of any issue of Ordinary Shares, a person who, at any point during the period of three months ending immediately prior to such new issue of Ordinary Shares, was a holder of any Ordinary Shares (as shown on the Issuer's register of shareholders) or of any beneficial interest in any Ordinary Shares or (in either case) any entity which is an affiliate of such person.

(vi) Notwithstanding the foregoing provisions, where the events or circumstances giving rise to any adjustment pursuant to this Condition 8(f) have already resulted or will result in an adjustment to the Conversion Price, or where the events or circumstances giving rise to any adjustment arise by virtue of any other events or circumstances which have already given or will give rise to an adjustment to the Conversion Price or where more than one event which gives rise to an adjustment to the Conversion Price occurs within such a short period of time that, in the opinion of the Conversion Shares Issuer, a modification to the operation of the adjustment provisions is required to give the intended result:

(A) such modification shall be made to the operation of the adjustment provisions as may be determined in good faith by an Independent Adviser to be in its opinion appropriate to give the intended result; and

(B) such modification shall be made to the operation of these Conditions as may be determined in good faith by an Independent Adviser to be in its opinion appropriate: (a) to ensure that an adjustment to the Conversion Price or the economic effect thereof shall not be taken into account more than once; (b) to ensure that the economic effect of an Extraordinary Dividend is not taken into account more than once; and (c) to reflect a redenomination of the issued Ordinary Shares for the time being into a new currency.

For the avoidance of doubt, the issue of Ordinary Shares upon Conversion of the Notes or upon any conversion or exchange in respect of any other securities or the exercise of any other options, warrants or other rights shall not result in an adjustment to the Conversion Price. 97

(g) Determination of Consideration Receivable

For the purpose of any determination (which shall be made by the Conversion Calculation Agent, unless otherwise specified) or calculation of the consideration receivable or price pursuant to Condition 8(f)(iv)) or 8(f)(v), the following provisions shall apply:

(i) the aggregate consideration receivable or price for Ordinary Shares issued for cash shall be the amount of such cash;

(ii) (x) the aggregate consideration receivable or price for Ordinary Shares to be issued or otherwise made available upon the conversion or exchange of any Relevant Securities shall be deemed to be the consideration or price received or receivable for any such Relevant Securities;

(y) the aggregate consideration receivable or price for Ordinary Shares to be issued or otherwise made available upon the exercise of rights of subscription attached to any Relevant Securities or upon the exercise of any options, warrants or rights shall be deemed to be that part (which may be the whole) of the consideration or price received or receivable for such Relevant Securities or, as the case may be, for such options, warrants or rights which are attributed in good faith by the Conversion Shares Issuer to such rights of subscription or, as the case may be, such options, warrants or rights or, if no part of such consideration or price is so attributed, the Fair Market Value of such rights of subscription or, as the case may be, such options, warrants or rights as at the relevant Effective Date,

plus, in the case of each of (x) and (y) above, the additional minimum consideration receivable or price (if any) upon the conversion or exchange of such Relevant Securities, or upon the exercise of such rights of subscription attached thereto or, as the case may be, upon exercise of such options, warrants or rights; and

(z) the consideration receivable or price per Ordinary Share upon the conversion or exchange of, or upon the exercise of such rights of subscription attached to, such Relevant Securities or, as the case may be, upon the exercise of such options, warrants or rights shall be the aggregate consideration or price referred to in (x) or (y) above (as the case may be) divided by the number of Ordinary Shares to be issued upon such conversion or exchange or exercise at the initial conversion, exchange or subscription price or rate;

(iii) if the consideration or price determined pursuant to Condition 8(g)(i) or 8(g)(ii) (or any component thereof) shall be expressed in a currency other than the Relevant Currency, it shall be converted into the Relevant Currency at the Prevailing Rate on the relevant Effective Date;

(iv) in determining the consideration or price pursuant to the above, (x) any non- cash consideration shall be deemed to be (A) such amount as is attributed 98

thereto in good faith by the Conversion Shares Issuer or (b) if no such amount is so attributed, the Fair Market Value of such non-cash consideration as at the relevant Effective Date, and (y) no deduction shall be made for any commissions or fees (howsoever described) or any expenses paid or incurred for any underwriting, placing or management of the issue of the relevant Ordinary Shares or Relevant Securities or options, warrants or rights, or otherwise in connection therewith; and

(v) the consideration or price shall be determined as provided above on the basis of the consideration or price received, receivable, paid or payable, regardless of whether all or part thereof is received, receivable, paid or payable by or to the Conversion Shares Issuer or another entity.

(h) Decision of the Conversion Calculation Agent or an Independent Adviser

(i) Adjustments to the Conversion Price shall be calculated by the Conversion Calculation Agent upon request from the Conversion Shares Issuer and/or, to the extent so specified in the Conditions, in good faith by an Independent Adviser. Adjustments to the Conversion Price calculated by the Conversion Calculation Agent or, where applicable, an Independent Adviser and any other determinations made by the Conversion Calculation Agent or, where applicable, an Independent Adviser, or an opinion of an Independent Adviser, pursuant to these Conditions shall in each case be made in good faith and shall be final and binding (in the absence of manifest error) on the Issuer, the Conversion Shares Issuer (if not the Issuer), the Trustee, the Noteholders, the Agent Bank, the Paying and Conversion Agents and (in the case of a determination by an Independent Adviser) the Conversion Calculation Agent. Subject to the provisions of the Conversion Calculation Agency Agreement, the Conversion Calculation Agent may consult on any matter (including, but not limited to, any legal matter), any legal or other professional adviser and it shall be able to rely upon, and it shall not be liable and shall incur no liability as against the Issuer, the Conversion Shares Issuer (if not the Issuer), the Trustee, the Noteholders, the Agent Bank or the Paying and Conversion Agents in respect of anything done, or omitted to be done, relating to that matter in good faith in accordance with that adviser's opinion.

(ii) The Conversion Calculation Agent shall act solely upon the request from, and exclusively as agent of, the Conversion Shares Issuer. Neither the Conversion Calculation Agent (acting in such capacity) nor any Independent Adviser appointed in connection with the Notes (acting in such capacity) will thereby assume any obligations towards or relationship of agency or trust with, and shall not be liable and shall incur no liability in respect of anything done, or omitted to be done in good faith in connection with their appointment as Conversion Calculation Agent or, as the case may be, Independent Adviser, as against the Trustee, the Noteholders, the Agent Bank or the Paying and Conversion Agents. 99

(iii) So long as any Notes remain outstanding, the Issuer will maintain a Conversion Calculation Agent, which may be the Issuer or another person appointed by the Issuer to serve in such capacity.

(iv) The Issuer may at any time, but without prior notice to or consent from the Agent Bank, the Trustee, the Paying and Conversion Agents or the Noteholders, replace the Conversion Calculation Agent with itself or an independent financial institution or an independent financial adviser with appropriate expertise. Notice of any termination or appointment of the Conversion Calculation Agent will be given to the Trustee by the Issuer promptly following such termination or appointment.

(v) If any doubt shall arise as to whether an adjustment falls to be made to the Conversion Price or as to the appropriate adjustment to the Conversion Price, the Conversion Shares Issuer may at its discretion appoint an Independent Adviser and, following consultation between the Conversion Shares Issuer and such Independent Adviser, a written opinion of such Independent Adviser in respect thereof shall (save in the case of manifest error) be conclusive and binding on the Issuer, the Conversion Shares Issuer (if not the Issuer), the Trustee, the Noteholders, the Conversion Calculation Agent and all other interested parties.

(i) Share Option Schemes

No adjustment will be made to the Conversion Price where Ordinary Shares or other Relevant Securities (including rights, warrants and options) are issued, offered, exercised, allotted, purchased, appropriated, modified or granted to, or for the benefit of, employees or former employees (including directors holding or formerly holding executive office or the personal service company of any such person) or their spouses or relatives, in each case, of the Conversion Shares Issuer or any of its Subsidiaries or any associated company or to a trustee or trustees to be held for the benefit of any such person, in any such case pursuant to any share or option scheme.

(j) Rounding Down and Notice of Adjustment to the Conversion Price

(i) On any adjustment of the Conversion Price pursuant to Condition 8(f), if the resultant Conversion Price is not an integral multiple of £0.0001, it shall be rounded down to the nearest integral multiple of £0.0001. No adjustment shall be made to the Conversion Price where such adjustment (rounded down if applicable) would be less than one (1) per cent. of the Conversion Price then in effect. Any adjustment not required to be made, and/or any amount by which the Conversion Price has been rounded down, shall be carried forward and taken into account in any subsequent adjustment, and such subsequent adjustment shall be made on the basis that the adjustment not required to be made had been made at the relevant time and/or, as the case may be, that the relevant rounding down had not been made.

(ii) The Conversion Price shall not in any event be reduced to below the nominal value of an Ordinary Share for the time being. The Conversion Shares Issuer undertakes that it shall not take any action, and shall procure that no 100

action is taken, that would otherwise result in an adjustment to the Conversion Price to below such nominal value.

(iii) In the event the Conversion Price is required to be adjusted pursuant to this Condition 8, the Conversion Shares Issuer shall deliver to the Trustee a certificate promptly after the occurrence of the event giving rise to such adjustment, setting forth, inter alia, a brief description of such event and (if then known) the adjusted Conversion Price and the date on which the adjustment takes effect (and if not then known, the Conversion Shares Issuer shall deliver a further certificate to the Trustee signed by two (2) Directors (or other officers acceptable to the Trustee) specifying the same promptly following the determination thereof) (upon which the Trustee shall be entitled to rely without liability to any person). Such event and adjustment to the Conversion Price shall be notified by the Conversion Shares Issuer to the Principal Paying and Conversion Agent and, in accordance with Condition 17, to Noteholders promptly after delivery of the relevant certificate to the Trustee.

9. Change in Terms on Change of Control

(a) Qualifying Change of Control

(i) Subject to the subsequent operation of this Condition 9, if the New Conversion Condition Effective Date in respect of a Qualifying Change of Control occurs on or prior to the earlier of the Issuer Ordinary Share Delivery Date (if any) and the Share Delivery Date, an IPO Event with respect to the relevant Approved Entity shall be deemed to have occurred on such New Conversion Condition Effective Date, such that, with effect from such New Conversion Condition Effective Date:

(A) the Conversion Shares Issuer shall be the relevant Approved Entity;

(B) the Initial Post-IPO Conversion Price shall be the New Conversion Price; and

(C) the relevant Approved Entity (as Conversion Shares Issuer) shall be bound by the provisions of these Conditions (as may be so supplemented, amended or modified, including as provided below).

For the avoidance of doubt, the relevant Approved Entity may elect that a Conversion Shares Offer be conducted in accordance with Condition 7(a) in respect of any Ordinary Shares issued and delivered by it in its capacity as Conversion Shares Issuer, if applicable.

(ii) For the avoidance of doubt, the New Conversion Price shall be subject to adjustment in the circumstances provided in Condition 8(f) .

(iii) In the case of a Qualifying Change of Control the Issuer and PICG shall, on or prior to the New Conversion Condition Effective Date, enter into such agreements and arrangements, which may include deeds supplemental to 101

the Trust Deed, and such amendments and modifications to the Trust Deed shall be made, in each case as may be required to give effect to the provisions of Condition 9(a)(i).

The Trustee shall be obliged (at the expense of the Issuer) to concur with the Issuer in making any such amendments and modifications to the Trust Deed, and to execute any such deeds supplemental to the Trust Deed, provided that the Trustee shall not be bound to do so if any such amendments, modifications or deeds would, in the opinion of the Trustee, have the effect of: (i) exposing the Trustee to any liability against which it is not indemnified and/or secured and/or pre- funded to its satisfaction; (ii) changing, increasing or adding to the obligations or duties of the Trustee; or (iii) removing or amending any protection or indemnity afforded to, or any other provision in favour of, the Trustee under the Trust Deed, the Conditions and/or the Notes.

(b) Non-Qualifying Change of Control

(i) If, following the occurrence of an IPO Event, a Non-Qualifying Change of Control occurs then, notwithstanding any other provision of these Conditions, with effect from the occurrence of such Non-Qualifying Change of Control and unless the earlier of the Issuer Ordinary Share Delivery Date (if any) and the Share Delivery Date shall have occurred prior to such date, (i) neither the Issuer nor any other person shall have any on-going obligations pursuant to Conditions 6 to 10; and (ii) the Notes shall not be subject to Conversion at any time notwithstanding the occurrence of a Trigger Event but, instead, upon the occurrence of a Trigger Event in such circumstances the full principal amount outstanding of each Note will automatically be written down to zero, each Note will be cancelled, the Noteholders will be automatically deemed to have irrevocably waived their right to receive, and no longer have any rights against the Issuer with respect to, repayment of the aggregate principal amount of the Notes written down pursuant to this Condition and all accrued but unpaid interest and any other amounts payable on each Note will be cancelled, irrespective of whether such amounts have become due and payable prior to the occurrence of a Trigger Event. For the avoidance of doubt, once the full principal amount outstanding of each Note has been written down, it will not be restored under any circumstances, including where the relevant Trigger Event has ceased to continue. For the avoidance of doubt, nothing in this Condition 9(b) shall affect or prejudice the payment of the costs, charges, expenses, liabilities or remuneration of the Trustee or the rights and remedies of the Trustee in respect thereof, and the Trustee shall not be liable to any person for acting in accordance with this Condition 9(b).

(ii) For the purposes of Condition 9(b)(i), whether the Trigger Event has occurred at any time shall be determined by the Issuer, and such determination shall (in the absence of manifest error) be binding on the Trustee and the Noteholders. Following the occurrence of the Trigger Event referred to above in Condition 9(b)(i), the Issuer shall: 102

(A) promptly notify the Relevant Regulator;

(B) deliver to the Trustee a certificate signed by two (2) Directors (or other officers acceptable to the Trustee) confirming that a Trigger Event has occurred (any such certificate, shall in the absence of manifest error, be treated and accepted by the Issuer, the Trustee, the Noteholders and all other interested parties as correct and sufficient evidence thereof and shall be binding on all such persons and the Trustee shall be entitled to rely absolutely on such certificate without liability to any person and without any obligation to verify or investigate the accuracy thereof); and

(C) (only after delivery to the Trustee of the certificate referred to in paragraph (B) above) promptly (and, in any event, within such period as the Relevant Regulator may require) give notice thereof to the Noteholders in accordance with Condition 17, and to the Trustee and the Principal Paying and Conversion Agent in writing, stating the details of the Trigger Event and the date on which the Trigger Event occurred.

(iii) For the avoidance of doubt, if a Non-Qualifying Change of Control occurs prior to the occurrence of an IPO Event, then no changes shall be made to these Conditions nor shall any change be made to the Conversion Price pursuant to this Condition 9.

(i) Within ten (10) days following the occurrence of a Qualifying Change of Control or a Non-Qualifying Change of Control, the Issuer shall give notice thereof to the Noteholders (a “Change of Control Notice”) in accordance with Condition 17.

(ii) A Change of Control Notice shall specify:

(A) the identity of the Acquiror;

(B) whether the Change of Control is a Qualifying Change of Control or a Non-Qualifying Change of Control;

(D) in the case of a Non-Qualifying Change of Control following the occurrence of an IPO Event, that, with effect from the occurrence of such Non-Qualifying Change of Control and unless a Trigger Event has occurred prior to the date of such Non-Qualifying Change of Control and the earlier of the Issuer Ordinary Share Delivery Date (if any) and the Share Delivery Date in respect thereof shall have occurred prior to such date, outstanding Notes shall not be subject to Conversion at any time notwithstanding the occurrence of a 103

Trigger Event but that, instead, upon the occurrence of a Trigger Event in such circumstances, the full principal amount of each Note will automatically and permanently be written down to zero, each Note will be cancelled, the Noteholders will be automatically deemed to have irrevocably waived their right to receive, and no longer have any rights against the Issuer with respect to, repayment of the aggregate principal amount of the Notes written down pursuant to Condition 9(b) and all accrued but unpaid interest and any other amounts payable on each Note will be cancelled, irrespective of whether such amounts have become due and payable prior to the occurrence of Trigger Event.

(d) Definitions

As used in this Condition 9:

“Acquiror” means the person which, following a Change of Control, controls the Issuer.

“Approved Entity” means a body corporate which, on the occurrence of the Change of Control, has in issue Relevant Shares. the “Approved Entity Status Condition” shall be satisfied unless the Notes would otherwise qualify as “hybrid capital instruments” for the purposes of Part 5 of the Corporation Tax Act 2009 and will cease to so qualify if there are arrangements in place such that, in the event of Conversion, there will be an issue of Relevant Shares by the Approved Entity. a “Change of Control” shall occur if any person or persons acting in concert (as defined in the Takeover Code of the United Kingdom Panel on Takeovers and Mergers) acquires control of the Issuer (other than as a result of a Newco Scheme), where “control” means: (a) the acquisition or holding of legal or beneficial ownership of more than 50 per cent. of the issued Ordinary Shares of the Issuer; or (b) the right to appoint and/or remove all or the majority of the members of the board of directors of the Issuer, whether obtained directly or indirectly and whether obtained by ownership of share capital, contract or otherwise.

“Change of Control Notice” shall have the meaning given to such term in Condition 9(c) above.

The “New Conversion Condition” shall be satisfied if by not later than seven (7) days following the occurrence of a Change of Control where the Acquiror is an Approved Entity and the Approved Entity Status Condition is satisfied, the Issuer shall have entered into arrangements to its satisfaction with the Approved Entity pursuant to which the Approved Entity provides an undertaking to the Trustee, for the benefit of the Noteholders, agreeing to be bound by the provisions of these Conditions as Conversion Shares Issuer, all as contemplated in Condition 9(a)(i) above.

“New Conversion Condition Effective Date” means the date with effect from which the New Conversion Condition shall have been satisfied. 104

“New Conversion Price” means the amount (rounded down to the nearest whole multiple of £0.0001) determined by the Conversion Calculation Agent in accordance with the following formula:

VWAPRS NCP = ECP x VWAPOS

where:

“NCP” is the New Conversion Price.

“ECP” is the Conversion Price in effect immediately prior to the New Conversion Condition Effective Date, provided that for the purpose of this definition only, if in accordance with Condition 8(j) any adjustment was not required to be made to the Conversion Price and/or the Conversion Price was rounded down in respect of an adjustment pursuant to Condition 8(f), the Conversion Price in effect immediately prior to the New Conversion Condition Effective Date shall be the Conversion Price that would have been in effect at such time if such adjustment which was not made had actually been made at the relevant time and/or, as the case may be, if such rounding down had not been made.

“VWAPRS” means the average of the Volume Weighted Average Price of the Relevant Shares (translated, if necessary, into Sterling at the Prevailing Rate on the relevant Dealing Day) on each of the 10 Dealing Days ending on the Dealing Day prior to the date the Change of Control shall have occurred.

“VWAPOS” is:

(i) if the Ordinary Shares are then admitted to trading on a Relevant Stock Exchange, the average of the Volume Weighted Average Price of the Ordinary Shares (translated, if necessary, into Sterling at the Prevailing Rate on the relevant Dealing Day) on each of the 10 Dealing Days ending on the Dealing Day prior to the date the Change of Control shall have occurred; or

(ii) otherwise, the fair value of the Ordinary Share as at close of business on the Business Day immediately preceding the date on which the Change of Control shall have occurred, as determined by the Conversion Shares Issuer, acting in good faith.

“Non-Qualifying Change of Control” means a Change of Control that is not a Qualifying Change of Control (except where such Change of Control does not constitute a Qualifying Change of Control by virtue of the Approved Entity Status Condition not being satisfied at the time of the relevant Change of Control, in which case such Change of Control shall be neither a Non-Qualifying Change of Control nor a Qualifying Change of Control).

“Qualifying Change of Control” means a Change of Control where:

(i) the Acquiror is an Approved Entity; and

(ii) the New Conversion Condition is satisfied, 105

provided that where, following a Change of Control which satisfies limb (i) above but which does not satisfy the New Conversion Condition by virtue of the Approved Entity Status Condition not being satisfied, the Approved Entity Status Condition is subsequently satisfied at a time when the Approved Entity referred to in limb (i) above controls the Issuer, a further Change of Control shall be deemed to have occurred on the date (for the purposes of this Condition 9 only) on which the Issuer notifies the Trustee that the Approved Entity Status Condition has been so satisfied (without prejudice to operation of Condition 9(c) in respect thereof).

“Relevant Shares” means ordinary share capital of the Approved Entity that constitutes equity share capital or the equivalent (or depositary or other receipts representing the same) which is listed and admitted to trading on a Regulated Market which is also a Recognised Stock Exchange.

10. Undertakings and Covenants

(a) Issuance and delivery

(i) If the Conversion Shares Issuer is PICG, PICG has undertaken and covenanted in the Trust Deed that in consideration for the transfer to it of the Issuer Ordinary Shares referred to in Condition 6(b)(iii) above it shall issue and deliver Ordinary Shares, credited as fully paid, to the Conversion Shares Depositary on the Share Delivery Date, to be held on trust (on terms permitting, but in no case dependent upon, a Conversion Shares Offer in accordance with Condition 7(a) (if applicable)) for the Noteholders in accordance with the provisions of Condition 6.

(ii) If the Conversion Shares Issuer is neither the Issuer nor PICG, PICG has undertaken in the Trust Deed that prior to such entity becoming the Conversion Shares Issuer PICG shall procure that such entity shall have acceded to the Trust Deed in respect of the obligations of the Conversion Shares Issuer described herein.

(iii) Whilst any Note remains outstanding, the Issuer, PICG and (if the Conversion Shares Issuer is not the Issuer), the Conversion Shares Issuer shall (if and to the extent permitted by the Relevant Rules from time to time and only to the extent that such covenant would not cause a Capital Disqualification Event to occur), save with the approval of an Extraordinary Resolution:

(A) not make any issue, grant or distribution or take or omit to take any other action if the effect thereof would be that, on the Share Delivery Date or the Issuer Ordinary Share Delivery Date (as applicable), Ordinary Shares or (if the Conversion Shares Issuer is not the Issuer), Issuer Ordinary Shares could not, under any applicable law then in effect, be legally issued as fully paid;

(B) in the event of a Newco Scheme, 106

(I) (where such Newco Scheme is undertaken on or following the occurrence of an IPO Event) take (or shall procure that there is taken) all necessary action to ensure that the Newco Scheme is an Exempt Newco Scheme and that immediately after completion of the Scheme of Arrangement Newco becomes bound by the provisions of these Conditions as are applicable to the Conversion Shares Issuer (on the basis that Newco is the Conversion Shares Issuer) as at the date of completion of such Scheme of Arrangement; and

(II) (where such Newco Scheme is undertaken prior to the occurrence of an IPO Event) take (or shall procure that there is taken) all necessary action to ensure that immediately after completion of the Scheme of Arrangement Newco becomes bound by the provisions of these Conditions as are applicable to PICG as at the date of completion of such Scheme of Arrangement..

The Trustee shall be obliged (at the expense of the Issuer) to concur in effecting such amendments, provided that the Trustee shall not be bound so to concur if to do so would, in the opinion of the Trustee, have the effect of: (1) exposing the Trustee to any liability against which it is not indemnified and/or secured and/or pre-funded to its satisfaction; (2) changing, increasing or adding to the obligations or duties of the Trustee; or (3) removing or amending any protection or indemnity afforded to, or any other provision in favour of, the Trustee under the Trust Deed, the Conditions and/or the Notes;

(C) in the event of a Change of Control where the Acquiror is an Approved Entity, use all reasonable endeavours to ensure that the New Conversion Condition is satisfied such that the Change of Control is a Qualifying Change of Control;

(D) following the occurrence of an IPO Event, use all reasonable endeavours to ensure that the Ordinary Shares delivered on the Share Delivery Date shall be admitted to listing and trading on the Relevant Stock Exchange;

(E) notwithstanding the provisions of Condition 7(a), at all times keep available for issue or allotment, free from any pre-emptive or other preferential rights, sufficient Ordinary Shares and (if the Conversion Shares Issuer is not the Issuer), Issuer Ordinary Shares to enable the issue of all Conversion Shares and (if the Conversion Shares Issuer is not the Issuer), Issuer Ordinary Shares as would be necessary to satisfy in full the obligation of the Conversion Shares Issuer to issue and deliver Conversion Shares and, if the Conversion Shares Issuer is not the Issuer, the obligation of the Issuer to deliver Issuer Ordinary Shares, in each case following the occurrence of a Trigger Event; and 107

(F) where these Conditions require or provide for a determination by an Independent Adviser, the Conversion Shares Issuer and/or the Issuer (as applicable) shall use all reasonable endeavours promptly to appoint an Independent Adviser for such purpose.

(b) Purchases and redemptions permitted

The Conversion Shares Issuer or any Subsidiary of the Conversion Shares Issuer may, subject to Condition 7(a)(iii), exercise such rights as it may from time to time enjoy to purchase or redeem or buy back any shares of the Conversion Shares Issuer (including Ordinary Shares) or any depositary or other receipts or certificates representing the same without the consent of Noteholders. Where the Conversion Shares Issuer is not the Issuer, the provisions of this Condition 10(b) shall apply to the Issuer and the Issuer Ordinary Shares mutatis mutandis.

11. Payments

(a) Payments in respect of Notes

(i) Payments of principal and interest shall be made on the date scheduled for payment to the persons shown on the Register at the close of business on the date falling 15 days before the due date in respect of such payment (the “Record Date”). Payment of principal and interest will be made by transfer to the registered account of the relevant Noteholder.

(ii) Payments of principal and interest due at the time of redemption of the Notes will only be made against surrender of the relevant Certificate at the specified office of any of the Paying Agents.

(iii) For the purposes of this Condition 11, a Noteholder's registered account means the Sterling account maintained by or on behalf of it with a bank that processes payments in Sterling, details of which appear on the Register at the close of business on the date falling two Business Days before the due date for payment.

(b) Payments subject to applicable laws

Payments will be subject in all cases to (i) any fiscal or other laws and regulations applicable thereto in the place of payment, but without prejudice to the provisions of Condition 13 and (ii) any withholding or deduction imposed or required pursuant to Sections 1471 through 1474 of the US Internal Revenue Code of 1986 (the “Code”), any current or future regulations or official interpretations thereof, any agreements entered into pursuant to Section 1471(b) of the Code, or any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement entered into in connection with the implementation of such Sections of the Code (or any law implementing such an intergovernmental agreement) (each, a “FATCA Withholding Tax”). 108

No commissions or expenses shall be charged to the Noteholders in respect of any payments made in accordance with this Condition 11.

(d) Payment on Business Days

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

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

(e) Partial payments

If the amount of principal or interest which is scheduled and due to be paid on the Notes is not paid in full, the Registrar will annotate the Register with a record of the amount of principal or interest in fact paid. With respect to the amount of any Interest Payment or part thereof, the Registrar shall have regard to the provisions of Condition 5(a).

(f) Agents

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

(i) at all times maintain a Principal Paying and Conversion Agent, an Agent Bank, a Conversion Calculation Agent, a Registrar and a Transfer Agent; and

(ii) at all times maintain such other agents as may be required by any stock exchange on which the Notes may be listed.

Notice of any termination or appointment and of any changes in specified offices of any of the Agents or the Conversion Calculation Agent will be given to the Noteholders promptly by the Issuer in accordance with Condition 17.

12. Redemption, Substitution, Variation and Purchase

(a) No Redemption Date

The Notes are perpetual securities in respect of which there is no fixed redemption date and (without prejudice to Conversion of the Notes in accordance with Condition 6) the Issuer shall only have the right to redeem or purchase the Notes in accordance with the following 109 provisions of this Condition 12. The Notes are not redeemable at the option of the Noteholders at any time.

(b) Conditions to Redemption and Purchase

To the extent required pursuant to the Relevant Rules at the relevant time, and save as otherwise permitted pursuant to Condition 12(c), the Issuer may not redeem or purchase any Notes unless each of the following conditions is satisfied:

(i) the relevant date of any redemption or purchase of the Notes pursuant to Condition 12(g), 12(h), 12(i), 12(j) or 12(n) is on or after the fifth anniversary of the Issue Date unless such redemption or purchase is funded out of the proceeds of a new issuance of, or the Notes are exchanged into, Tier 1 Own Funds of the same or a higher quality than the Notes;

(ii) in respect of any redemption or purchase of the Notes occurring on or after the fifth anniversary of the Issue Date and before the tenth anniversary of the Issue Date, the Relevant Regulator has confirmed to the Issuer that it is satisfied that the Solvency Capital Requirement is exceeded by an appropriate margin (taking into account the solvency position of the Issuer including the Issuer's medium-term capital management plan) unless such redemption or purchase is funded out of the proceeds of a new issuance of, or the Notes are exchanged into, Tier 1 Own Funds of the same or a higher quality than the Notes;

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

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

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

(viii) any other additional or alternative requirements or pre-conditions to which the Issuer is otherwise subject and which may be imposed by the Relevant Regulator or the Relevant Rules have (in addition or in the alternative to the foregoing subparagraphs, as the case may be) been complied with (and shall continue to be complied with following the proposed redemption or purchase), 110

the conditions set out in paragraphs (i) to (viii) (inclusive) above being the “Redemption and Purchase Conditions”.

If on the proposed date for redemption of the Notes the Redemption and Purchase Conditions are not met, redemption of the Notes shall instead be suspended and such redemption shall occur only in accordance with Conditions 12(c) and 12(d). If on the proposed date for purchase of the Notes the Redemption and Purchase Conditions are not met, the purchase of the Notes shall instead be cancelled.

A certificate signed by two (2) Directors (or other officers acceptable to the Trustee) confirming that Redemption and Purchase Conditions are met, shall, in the absence of manifest error, be treated and accepted by the Issuer, the Trustee, the Noteholders and all other interested parties as correct and sufficient evidence thereof and shall be binding on all such persons. The Trustee shall be entitled to rely absolutely on such certificate without liability to any person and without obligation to verify or investigate the accuracy thereof.

Notwithstanding Condition 12(b), the Issuer shall be entitled to redeem or purchase Notes (to the extent permitted by the Relevant Rules) where:

(i) all Redemption and Purchase Conditions are met other than that described in paragraph (iv) of Condition 12(b);

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

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

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

A certificate signed by two (2) Directors (or other officers acceptable to the Trustee) confirming that the conditions set out in this Condition 12(c) are met, shall, in the absence of manifest error, be treated and accepted by the Issuer, the Trustee, the Noteholders and all other interested parties as correct and sufficient evidence thereof and shall be binding on all such persons. The Trustee shall be entitled to rely absolutely on such certificate without liability to any person and without obligation to verify or investigate the accuracy thereof.

(d) Suspension of Redemption

The Issuer shall notify the Trustee, in a certificate signed by two (2) Directors (or other officers acceptable to the Trustee) the Principal Paying and Conversion Agent and the Registrar in writing and, in accordance with Condition 17, the Noteholders no later than five Business Days prior to any date set for redemption of the Notes if such redemption is to be suspended in accordance with Condition 12(b), provided that if an event occurs or is determined less 111 than five Business Days prior to the date set for redemption that results in the Redemption and Purchase Conditions ceasing to be met, the Issuer shall notify the Trustee, in a certificate signed by two (2) Directors (or other officers acceptable to the Trustee) the Principal Paying and Conversion Agent and the Registrar in writing and, in accordance with Condition 17, the Noteholders as soon as reasonably practicable following the occurrence or determination (as the case may be) of such event.

If redemption of the Notes does not occur on the date specified in the notice of redemption by the Issuer under Condition 12 as a result of the operation of Condition 12(b), the Issuer shall redeem such Notes at their principal amount outstanding together with any accrued and unpaid interest (in each case, to the extent that such amounts have not been cancelled pursuant to these Conditions), upon the earlier of:

(i) the date falling 10 Business Days after the date on which the Redemption and Purchase Conditions are met or redemption of the Notes is otherwise permitted pursuant to Condition 12(c) (unless on such tenth Business Day the Redemption and Purchase Conditions are again not met or the redemption of the Notes on such date would result in the Redemption and Purchase Conditions ceasing to be met (in each case save for the Redemption and Purchase Condition at subparagraph (iv) of Condition 12(b) to the extent waived under Condition 12(c)), in which case the provisions of Condition 12(b) and this subparagraph (i) of this Condition 12(d) will apply mutatis mutandis to determine the rescheduled due date for redemption of the Notes); or

(ii) the date on which an Issuer Winding-Up occurs (insofar as such Issuer Winding-Up occurs prior to the date on which a Trigger Event occurs).

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

(e) Suspension of Redemption and Cancellation of Purchases Not a Default

Notwithstanding any other provision in these Conditions or in the Trust Deed, the suspension of redemption of the Notes and any cancellation of any purchases of any Notes in accordance with Condition 12(b) and 12(d) shall not constitute a default or event of default on the part of the Issuer for any purpose and will not give Noteholders or the Trustee any 112 right to accelerate repayment of the Notes or take any enforcement action under the Notes or the Trust Deed.

(f) Redemption at the Option of the Issuer

Provided that the Redemption and Purchase Conditions are met, the Issuer may, at its option, having given not less than 30 nor more than 60 days' notice to the Trustee, the Principal Paying and Conversion Agent, the Registrar and, in accordance with Condition 17, the Noteholders (which notice shall (save as provided in Condition 12(p) below) be irrevocable and shall specify the date fixed for redemption) redeem all (but not some only) of the Notes, on the First Call Date or on any Reset Date thereafter at their principal amount together with (to the extent that such interest has not been cancelled in accordance with these Conditions) any accrued and unpaid interest to (but excluding) the date of redemption.

(g) Redemption, substitution or variation at the option of the Issuer due to a Tax Event

Provided that (in the case of a redemption) the Redemption and Purchase Conditions and (in any case) the relevant preconditions to redemption, variation and substitution in Condition 12(l) are met, if a Tax Event has occurred and is continuing, then the Issuer may, at its option (without any requirement for the consent or approval of the Noteholders), and having given not less than 30 nor more than 60 days' notice to the Trustee, the Principal Paying and Conversion Agent, the Registrar and, in accordance with Condition 17, the Noteholders (which notice shall (save as provided in Condition 12(p) below) be irrevocable and shall specify, as applicable, the date fixed for redemption or on which any variation or substitution is to become effective) either:

(i) redeem all (but not some only) of the Notes at any time at their principal amount, together with (to the extent that such interest has not been cancelled in accordance with these Conditions) any accrued and unpaid interest to (but excluding) the date of redemption; or

(ii) substitute at any time all (but not some only) of the Notes for, or vary at any time the terms of the Notes so that they become or remain, Qualifying Securities, and the Trustee shall (subject to the receipt by it of the certificates of the Directors (or other officers acceptable to the Trustee) referred to in Condition 12(l) below and in the definition of “Qualifying Securities”) agree to such substitution or variation,

provided that:

(1) no such notice shall be given earlier than 90 days prior to the earliest date on which:

(A) with respect to limb (a)(i) of the definition of Tax Event, the Issuer would be obliged to pay such Additional Amounts;

(B) with respect to limb (a)(ii)(1) of the definition of Tax Event, the payment of interest would no longer be deductible for Relevant Jurisdiction tax purposes or such deduction would be materially reduced; or 113

(C) with respect to limb (a)(ii)(2) of the definition of Tax Event, the Issuer would not to any material extent be entitled to have the loss or non- trading deficit set against the profits as provided in such limb (a)(ii)(2); and

(2) the Issuer shall also deliver to the Trustee an opinion from a nationally recognised law firm or other tax adviser in the applicable Relevant Jurisdiction experienced in such matters to the effect that the relevant requirement or circumstance referred to in limb (a) of the definition of Tax Event applies or will apply on the next Interest Payment Date (and, for the avoidance of doubt, such opinion need not provide any confirmation as to whether the Issuer could avoid the occurrence of the relevant Tax Event by taking measures reasonably available to it).

Subject as aforesaid, upon expiry of such notice the Issuer shall either redeem, vary or substitute the Notes, as the case may be.

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

Provided that (in the case of a redemption) the Redemption and Purchase Conditions and (in any case) the relevant preconditions to redemption, variation and substitution in Condition 12(l) are met, if a Capital Disqualification Event has occurred and is continuing or, as a result of any change in, or amendment to, or any change in the application or official interpretation of, the Relevant Rules (or other official publication), a Capital Disqualification Event will occur within the forthcoming period of six months, then the Issuer may, at its option (without any requirement for the consent or approval of the Noteholders), and having given not less than 30 nor more than 60 days' notice to the Trustee, the Principal Paying and Conversion Agent, the Registrar and, in accordance with Condition 17, the Noteholders (which notice shall (save as provided in Condition 12(p) below) be irrevocable and shall specify, as applicable, the date fixed for redemption or on which any variation or substitution is to become effective) either:

(ii) substitute at any time all (but not some only) of the Notes for, or vary at any time the terms of the Notes so that they become or remain, Qualifying Securities and the Trustee shall (subject to the receipt by it of the certificates of the Directors (or other officers acceptable to the Trustee) referred to in Condition 12(l) below and in the definition of “Qualifying Securities”) agree to such substitution or variation, provided, however, that no such notice of redemption, substitution or variation shall be given more than 12 months following the occurrence of the relevant Capital Disqualification Event.

Subject as aforesaid, upon expiry of such notice the Issuer shall either redeem, vary or substitute the Notes, as the case may be. 114

(i) Redemption, substitution or variation at the option of the Issuer due to a Ratings Methodology Event

Provided that (in the case of a redemption) the Redemption and Purchase Conditions and (in any case) the relevant preconditions to redemption, variation and substitution in Condition 12(l) are met, if a Ratings Methodology Event has occurred and is continuing or, as a result of a change in (or clarification to) the methodology of Fitch or a Subsequent Rating Agency (if applicable) (or in the interpretation of such methodology), a Ratings Methodology Event will occur within the forthcoming period of six months, then the Issuer may, at its option (without any requirement for the consent or approval of the Noteholders), and having given not less than 30 nor more than 60 days' notice to the Trustee, the Principal Paying and Conversion Agent, the Registrar and, in accordance with Condition 17, the Noteholders (which notice shall (save as provided in Condition 12(p) below) be irrevocable and shall specify, as applicable, the date fixed for redemption or on which any variation or substitution is to become effective) either:

(ii) substitute at any time all (but not some only) of the Notes for, or vary at any time the terms of the Notes so that they become or remain, Rating Agency Compliant Securities and the Trustee shall (subject to the receipt by it of the certificates of the Directors (or other officers acceptable to the Trustee) referred to in Condition 12(l) below and in the definitions of “Qualifying Securities” and “Rating Agency Compliant Securities”) agree to such substitution or variation, provided, however, that no such notice of redemption, substitution or variation shall be given more than 12 months following the occurrence of the relevant Ratings Methodology Event.

Subject as aforesaid, upon expiry of such notice the Issuer shall either redeem, vary or substitute the Notes, as the case may be.

(j) Clean-up redemption at the option of the Issuer

Provided that the Redemption and Purchase Conditions and the relevant preconditions to redemption in Condition 12(l) are met, if at any time after the Issue Date 80 per cent. or more of the aggregate principal amount of the Notes originally issued (and, for these purposes, any Further Notes issued pursuant to Condition 21 will be deemed to have been originally issued) has been purchased by the Issuer or any of its Subsidiaries and cancelled, then the Issuer may, at its option (without any requirement for the consent or approval of the Noteholders), and having given not less than 30 nor more than 60 days' notice to the Trustee, the Principal Paying and Conversion Agent, the Registrar and, in accordance with Condition 17, the Noteholders (which notice shall (save as provided in Condition 12(p) below) be irrevocable and shall specify the date fixed for redemption), redeem all (but not some only) of the Notes at any time at their principal amount, together with (to the extent that such interest has not been cancelled in accordance with these Conditions) any accrued and unpaid interest to (but excluding) the date of redemption (the “Clean-up Call”). 115

Subject as aforesaid, upon expiry of such notice the Issuer shall redeem the Notes.

(k) Trustee role on redemption, variation or substitution; Trustee not obliged to monitor

(i) Subject to Condition 12(b), the Trustee shall (at the expense of the Issuer) use its reasonable endeavours to co-operate with the Issuer (including, but not limited to, entering into such documents or deeds as may be necessary) to give effect to the substitution or variation of the Notes for or into Qualifying Securities pursuant to Condition 12(g) or 12(h) above or Rating Agency Compliant Securities pursuant to Clause 12(i) above, provided that the Trustee shall not be obliged to co-operate in any such substitution or variation if the securities resulting from such substitution or variation, or the co-operation in such substitution or variation, would, in the Trustee's opinion, have the effect of (1) exposing the Trustee to any liability against which it is not indemnified and/or secured and/or pre-funded to its satisfaction; (2) changing, increasing or adding to the obligations or duties of the Trustee; or (3) removing or amending any protection or indemnity afforded to, or any other provision in favour of, the Trustee under the Trust Deed, the Conditions and/or the Notes. If the Trustee does not so co-operate as provided above, the Issuer may, subject as provided above, redeem the Notes as provided in this Condition 12.

(ii) The Trustee shall not be under any duty to monitor whether any event or circumstance has happened or exists for the purposes of this Condition 12 and will not be responsible to Noteholders for any loss arising from any failure by it to do so. Unless and until the Trustee has written notice pursuant to these Conditions or the Trust Deed of the occurrence of any event or circumstance to which this Condition 12 relates, it shall be entitled to assume that no such event or circumstance exists or has arisen.

(l) Preconditions to redemption, variation and substitution

(i) Prior to the publication of any notice of redemption, variation or substitution pursuant to Condition 12(g), 12(h), 12(i) or 12(j), the Issuer shall deliver to the Trustee a certificate signed by two (2) Directors (or other officers acceptable to the Trustee) stating that, as the case may be, the Issuer is entitled to redeem, vary or substitute the Notes on the grounds that a Tax Event, a Capital Disqualification Event or a Ratings Methodology Event has occurred and is continuing or, for the purposes of Condition 12(j), that 80 per cent. or more of the aggregate principal amount of the Notes originally issued has been purchased and cancelled, in any such case as at the date of the certificate or, as the case may be (in the case of a Capital Disqualification Event or a Ratings Methodology Event) will occur within a period of six months and, in the case of a redemption pursuant to Condition 12(g), 12(h) or 12(i), that it would have been reasonable for the Issuer to conclude, judged at the Relevant Issue Date, that the relevant Tax Event, Capital Disqualification Event or Ratings Methodology Event was unlikely to occur.

(ii) The Issuer shall not be entitled to amend or otherwise vary the terms of the Notes or substitute the Notes unless (to the extent then required by the 116

Relevant Regulator or the Relevant Rules) it has notified the Relevant Regulator in writing of its intention to do so not less than one month (or such other period of notice as may be required or accepted by the Relevant Regulator or the Relevant Rules at the relevant time) prior to the date on which such amendment, variation or substitution is to become effective and the Regulatory Clearance Condition has been satisfied in respect of such proposed amendment, variation or substitution.

A certificate signed by any two (2) Directors (or other officers acceptable to the Trustee) to the Trustee confirming compliance with the relevant requirements set out above shall, in the absence of manifest error, be conclusive and binding on the Issuer, the Trustee, the Noteholders and all other interested parties. The Trustee shall be entitled to accept such certificate as sufficient evidence of such compliance and shall be entitled to rely absolutely on such certificate without liability to any person and without any obligation to verify or investigate the accuracy thereof.

(m) Compliance with stock exchange rules

In connection with any substitution or variation of the Notes in accordance with Condition 12(g), 12(h) or 12(i), the Issuer shall comply with the rules of any stock exchange or other relevant authority on which the Notes are for the time being listed or admitted to trading.

(n) Purchases

Provided that the Redemption and Purchase Conditions are met at the time of such purchase, the Issuer or any of the Issuer's Subsidiaries may purchase Notes in any manner and at any price. All Notes purchased by or on behalf of the Issuer or any Subsidiary of the Issuer may be held, reissued, resold or, at the option of the relevant purchaser, surrendered for cancellation to the Registrar.

(o) Cancellations

All Notes redeemed or substituted by the Issuer pursuant to this Condition 12, and all Notes purchased and surrendered for cancellation pursuant to Condition 12(n), will forthwith be cancelled. Any Notes so surrendered for cancellation may not be reissued or resold and the obligations of the Issuer in respect of any such Notes shall be discharged.

(p) Notices Final

Subject to and without prejudice to the Redemption and Purchase Conditions and to Condition 12(d), any notice of redemption as is referred to in this Condition 12 shall, except in the circumstances described in the following paragraph of this Condition 12(p), be irrevocable and on the redemption, variation or (as the case may be) substitution date specified in such notice, the Issuer shall be bound to redeem or, as the case may be, vary or substitute the Notes in accordance with the terms of the relevant Condition.

The Issuer may not give a notice of redemption, substitution or variation of the Notes pursuant to this Condition 12 if a Trigger Event resulting in a Conversion of the Notes has occurred. If a Trigger Event occurs after a notice of redemption, substitution or variation has been given by the Issuer but before the relevant redemption, substitution or (as the case may 117

be) variation date, such notice of redemption, substitution or variation (as applicable) shall automatically be revoked and be null and void and the relevant redemption, substitution or variation (as applicable) shall not be made or effected and the Notes shall be converted in accordance with and subject to Condition 6.

13. Taxation

(a) Payment without withholding

All payments by or on behalf of the Issuer in respect of the Notes shall be made free and clear of, and without withholding or deduction for or on account of, any taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or on behalf of the Relevant Jurisdiction, unless such withholding or deduction is required by law. In that event, the Issuer shall pay such additional amounts in respect of interest payments but not in respect of any payments of principal, as shall result in receipt by the Noteholders of such net amounts as would have been receivable by them had no such withholding or deduction been required by law to be made (“Additional Amounts”), except that no such Additional Amounts shall be payable with respect to any Note:

(i) Other connection: the holder of which is liable to such taxes, duties, assessments or governmental charges in respect of such Note by reason of his having some connection with the Relevant Jurisdiction other than the mere holding of the Note; or

(ii) Lawful avoidance of withholding: surrendered for payment by or on behalf of, a holder who could lawfully avoid (but has not so avoided) such deduction or withholding by complying or procuring that any person who is associated or connected with the holder for the purposes of any taxes, duties, assessments or governmental charges complies with any statutory requirements or by making or procuring that any such person makes a declaration of non-residence or other similar claim for exemption to any tax authority in the place where the relevant Note is presented for payment; or

(iii) Surrendered more than 30 days after the Relevant Date: surrendered for payment more than 30 days after the Relevant Date (as defined below) except to the extent that the holder of it would have been entitled to such Additional Amounts on surrendering it for payment on the thirtieth day (assuming that day to have been a Business Day); or

(iv) Combination: where such withholding or deduction arises out of any combination of paragraphs (i) to (iii) above.

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

As used in these Conditions, “Relevant Date” means (i) in respect of any payment other than a sum to be paid by the Issuer on an Issuer Winding-Up the date on which payment in 118

respect of it first becomes due or (if any amount of the money payable is improperly withheld or refused) the date on which payment in full of the amount outstanding is made or (if earlier) the date seven days after that on which notice is duly given to the Noteholders that, upon further surrender of the Certificate representing such Note being made in accordance with the Conditions, such payment will be made, provided that payment is in fact made upon such surrender, and (ii) in respect of a sum to be paid by the Issuer on an Issuer Winding-Up, the date which is one day prior to the date on which an order is made or a resolution is passed for the winding-up (or, in the case of an administration, one day prior to the date on which any dividend is distributed).

(b) Additional Amounts

Any reference in these Conditions to any amounts payable in respect of the Notes shall be deemed also to refer to any Additional Amounts which may be payable under this Condition 13 or under any undertakings given in addition to, or in substitution for, this Condition 13 pursuant to the Trust Deed.

14. Prescription

Claims against the Issuer in respect of principal and interest will become prescribed unless made within 10 years (in the case of principal) and five years (in the case of interest) from the Relevant Date.

15. Non-payment of principal when due

(a) Proceedings for an Issuer Winding-Up

The right to institute winding-up proceedings by the Trustee on behalf of the Noteholders in respect of the Issuer is limited to circumstances where a payment of principal in respect of the Notes by the Issuer under the Conditions or any provisions of the Trust Deed has become due and is not duly paid. No amount shall be due from the Issuer in circumstances where payment of principal could not be made in compliance with the Solvency Condition, after a Trigger Event has occurred, where payment cannot be made in compliance with the Redemption and Purchase Conditions or where redemption is suspended pursuant to Condition 12(d).

If default is made by the Issuer for a period of 14 days or more in the payment of principal due in respect of the Notes or any of them, the Trustee at its discretion may, and if so requested by Noteholders of at least one-quarter in principal amount of the Notes then outstanding or if so directed by an Extraordinary Resolution shall (but in each case subject to it having been indemnified and/or secured and/or pre-funded to its satisfaction) institute proceedings for an Issuer Winding-Up in England and Wales (but not elsewhere).

Subject to Condition 6, in the event of a winding-up or administration of the Issuer (whether or not instituted by the Trustee, and whether in England and Wales or elsewhere), the Trustee at its discretion may, and if so requested by Noteholders of at least one-quarter in principal amount of the Notes then outstanding or if so directed by an Extraordinary Resolution shall (but in each case subject to it having been indemnified and/or secured and/or pre-funded to its satisfaction) prove in the winding-up or administration of the Issuer and/or (as the case may be) claim in the liquidation or administration of the Issuer, such claim being as provided 119 in, and subordinated in the manner described in, Condition 3(b) or Condition 3(c) (as applicable), but may take no further or other action to enforce, prove or claim for any payment by the Issuer in respect of the Notes or the Trust Deed.

No payment in respect of the Notes or the Trust Deed may be made by the Issuer pursuant to this Condition 15(a), nor will the Trustee accept the same, otherwise than during or after a winding-up of the Issuer or after an administrator of the Issuer has given notice that it intends to declare and distribute a dividend, unless the Issuer has given prior written notice (with a copy to the Trustee) to the Relevant Regulator and the Relevant Regulator has indicated that it has no objection, which the Issuer shall confirm in writing to the Trustee and upon which the Trustee may rely conclusively without liability to any person.

The Trustee on behalf of the Noteholders shall have no right to institute winding-up proceedings in respect of the Conversion Shares Issuer (if not the Issuer) or PICG.

(b) Enforcement

Without prejudice to Condition 15(a), the Trustee may at its discretion and without further notice institute such proceedings against the Issuer, PICG or the Conversion Shares Issuer as it may think fit to enforce any term or condition binding on the Issuer, PICG or the Conversion Shares Issuer under the Trust Deed or the Notes (other than any payment obligation of the Issuer, PICG or the Conversion Shares Issuer under or arising from the Notes or the Trust Deed, including any payment of damages awarded for breach of any obligations thereunder, but excluding any payments made to the Trustee acting on its own account under the Trust Deed in respect of its costs, expenses, liabilities or remuneration) but in no event shall the Issuer, PICG or the Conversion Shares Issuer, by virtue of the institution of any such proceedings, be obliged to pay any sum or sums, in cash or otherwise, sooner than the same would otherwise have been payable by it. Nothing in this Condition 15(b) shall, however, prevent the Trustee or the Noteholders from pursuing the remedies to which they are entitled pursuant to Condition 15(a).

The Trustee shall not be bound to take any of the actions referred to in Condition 15(a) or 15(b) above against the Issuer, PICG or the Conversion Shares Issuer (if applicable) to enforce the terms of the Trust Deed or the Notes or to take any other action under or pursuant to the Trust Deed unless (i) it shall have been so directed by an Extraordinary Resolution of the Noteholders or requested in writing by the holders of at least one-quarter in principal amount of the Notes then outstanding and (ii) it shall have been indemnified and/or secured and/or pre-funded to its satisfaction.

(d) Right of Noteholders

No Noteholder shall be entitled to proceed directly against the Issuer, PICG or the Conversion Shares Issuer (if applicable) or to institute proceedings for the winding-up or prove in the winding-up or administration of the Issuer, PICG or the Conversion Shares Issuer (if applicable) or claim in the liquidation of the Issuer, PICG or the Conversion Shares Issuer (if applicable) (to the extent permitted pursuant to this Condition 11) unless the Trustee, having become so bound to proceed or being able to prove in such winding-up or administration or claim in such liquidation, fails or is unable to do so within a reasonable 120

period and such failure or inability shall be continuing, in which case the Noteholders shall have only such rights against the Issuer, PICG or the Conversion Shares Issuer (if applicable) as those which the Trustee is entitled to exercise as set out in this Condition 15.

(e) Extent of Noteholders' remedy

No remedy against the Issuer, PICG or the Conversion Shares Issuer (if applicable), other than as referred to in this Condition 15, shall be available to the Trustee or the Noteholders, whether for the recovery of amounts owing in respect of the Notes or under the Trust Deed or in respect of any breach by the Issuer, PICG or the Conversion Shares Issuer (if applicable) of any of its other obligations under or in respect of the Notes or under the Trust Deed.

16. Replacement of Certificates

If any Certificate is lost, stolen, mutilated, defaced or destroyed it may be replaced at the specified office of the Registrar or other Transfer Agent (or any other place notice of which shall have been given in accordance with Condition 17) upon payment by the claimant of the expenses incurred in connection with the replacement and on such terms as to evidence and indemnity as the Issuer may reasonably require. Mutilated or defaced Certificates must be surrendered before replacements will be issued.

17. Notices

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

18. Substitution of Issuer

Subject to the Issuer giving at least one month's notice to the Relevant Regulator (or such other period of notice as may be required or accepted by the Relevant Regulator or the Relevant Rules at the relevant time, and for so long as there is a requirement to give such notice), and the Relevant Regulator having indicated that it has no objection, the Trustee may agree with the Issuer, without the consent of the Noteholders and subject to the Notes being (other than where the Substitute Obligor (as defined below) is the successor in business to the Issuer) unconditionally and irrevocably guaranteed by the Issuer on a subordinated basis equivalent to Condition 3, to the substitution of a Subsidiary or parent company of the Issuer or the successor in business to the Issuer, in any such case, in place of the Issuer as principal debtor under the Trust Deed and the Notes (each such substitute being hereinafter referred to as the “Substitute Obligor”) provided that in each case:

(a) a trust deed or some other form of undertaking, supported by one or more legal opinions, is executed by the Substitute Obligor in a form and manner satisfactory to the Trustee, agreeing to be bound by the terms of the Trust Deed and the Notes, with any consequential amendments which the Trustee may deem appropriate, as 121

fully as if the Substitute Obligor has been named in the Trust Deed and the Notes, as the principal debtor in place of the Issuer (or of any previous Substitute Obligor, as the case may be) (and such consequential amendments may include, without limitation, amending those references to “England and Wales” in Condition 15 which are applicable to such Substitute Obligor to refer instead to the jurisdiction of incorporation of such Substitute Obligor);

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

(c) two (2) Directors (or other officers acceptable to the Trustee) of the Substitute Obligor certify that the Substitute Obligor is solvent at the time at which the substitution is proposed to be in effect, and immediately thereafter (it being declared that the Trustee may rely absolutely on such certification without liability to any person and shall not be bound to have regard to the financial condition, profits or prospects of the Substitute Obligor or to compare the same with those of the Issuer or (as the case may be) any previous Substitute Obligor);

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

(e) the provisions of Condition 6 and the effect thereof, including (without limitation) the rights of Noteholders to receive Ordinary Shares (or, as the case may be, the relevant Conversion Shares Offer Entitlement) following the occurrence of a Trigger Event, are preserved in all material respects (but without prejudice to the provisions of Condition 9);

(f) if the Substitute Obligor is, or becomes, subject in respect of payments made by it of principal and/or interest on the Notes to the taxing jurisdiction of a territory or any authority of or in that territory with power to tax (the “Substituted Territory”) other than the territory of the taxing jurisdiction of which (or to any such authority of or in which) the Issuer (or any previous Substitute Obligor) is subject in respect of such payments (the “Original Territory”), the Substitute Obligor will (unless the Trustee otherwise agrees) give to the Trustee an undertaking satisfactory to the Trustee in terms corresponding to Condition 13 with the substitution in the definition of "Relevant Jurisdiction" (for the purposes of both Condition 13 and Condition 12(g)) of references to the Original Territory with references to the Substituted Territory whereupon the Trust Deed and the Notes will be read accordingly;

(g) the Issuer and the Substitute Obligor comply with such other requirements as are reasonable in the interests of the Noteholders, as the Trustee may direct; and 122

(h) without prejudice to the rights of reliance of the Trustee under subparagraphs (B) and (C) above, the Trustee shall be satisfied that the interests of the Noteholders will not be materially prejudiced by the substitution proposed pursuant to this Condition 18.

Any substitution effected in accordance with this Condition 18 shall be binding on the Noteholders and (unless the Trustee otherwise agrees) shall be notified promptly by the Issuer to the Noteholders in accordance with Condition 17.

19. Meetings of Noteholders, Modification, Waiver and Authorisation

(a) Meetings of Noteholders

The Trust Deed contains provisions for convening meetings of the Noteholders to consider any matter affecting their interests, including the modification or abrogation by Extraordinary Resolution of any of these Conditions or any of the provisions of the Trust Deed. Such a meeting may be convened by the Issuer, the Trustee or Noteholders holding not less than 10 per cent. in principal amount of the Notes for the time being outstanding.

The quorum at any meeting for passing an Extraordinary Resolution will be one or more persons present holding or representing more than 50 per cent. in principal amount of the Notes for the time being outstanding, or at any adjourned such meeting one or more persons present whatever the principal amount of the Notes held or represented by him or them, except that, at any meeting the business of which includes the modification or abrogation of certain of the provisions of these Conditions and/or certain of the provisions of the Trust Deed (such provisions being set out in the Trust Deed), the necessary quorum for passing an Extraordinary Resolution will be one or more persons present holding or representing not less than two-thirds (a “Special Quorum”), or at any adjourned such meeting not less than one-third, of the principal amount of the Notes for the time being outstanding. An Extraordinary Resolution passed at any meeting of the Noteholders will be binding on all Noteholders, whether or not they are present at the meeting.

The Trust Deed also provides that a written resolution executed by or on behalf of the holders of not less than three-quarters in principal amount of the Notes outstanding who would have been entitled to vote upon it if it had been proposed at a meeting at which they were present shall take effect as if it were an Extraordinary Resolution duly passed at such a meeting.

The agreement or approval of the Noteholders shall not be required in the case of any variation of these Conditions and/or the Trust Deed provided for and made in compliance with Condition 9 or Condition 10 made in connection with the substitution or variation of the Notes pursuant to Conditions 12(g), 12(h) or 12(i) or any consequential amendments to these Conditions and/or the Trust Deed approved by the Trustee in connection with a substitution of the Issuer pursuant to Condition 18.

(b) Modification, waiver, authorisation and determination

The Trustee may agree, without the consent of the Noteholders, to any modification of, or to the waiver or authorisation of any breach or proposed breach of, any of these Conditions or any of the provisions of the Trust Deed or the Agency Agreement (provided that, in any such case, it is not, in the opinion of the Trustee, materially prejudicial to the interests of the 123

Noteholders) or may agree, without any such consent as aforesaid, to any modification which, in its opinion, is of a formal, minor or technical nature or to correct a manifest error or to comply with mandatory provisions of the law of the jurisdiction in which the Issuer is incorporated.

In connection with the exercise by it of any of its trusts, powers, authorities and discretions (including, without limitation, any modification, waiver, authorisation, determination or substitution of obligor), the Trustee shall have regard to the general interests of the Noteholders as a class but shall not have regard to any interests arising from circumstances particular to individual Noteholders (whatever their number) and, in particular but without limitation, shall not have regard to the consequences of any such exercise for individual Noteholders (whatever their number) resulting from their being for any purpose domiciled or resident in, or otherwise connected with, or subject to the jurisdiction of, any particular territory or any political sub-division thereof and the Trustee shall not be entitled to require, nor shall any Noteholder be entitled to claim, from the Issuer, the Trustee or any other person any indemnification or payment in respect of any tax consequence of any such exercise upon individual Noteholders except to the extent already provided for in Condition 13 and/or any undertaking given in addition to, or in substitution for, Condition 13 pursuant to the Trust Deed.

(d) Notification to the Noteholders

Any modification, abrogation, waiver, authorisation, determination or substitution made in accordance with this Condition 19 shall be binding on the Noteholders and, unless the Trustee agrees otherwise, shall be notified by the Issuer to the Noteholders as soon as practicable thereafter in accordance with Condition 17.

(e) Regulatory Clearance Condition

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

20. Indemnification of the Trustee and its Contracting with the Issuer

(a) Indemnification of the Trustee

The Trust Deed contains provisions for the indemnification of the Trustee and for its relief from responsibility, including (i) provisions relieving it from taking proceedings unless indemnified and/or secured and/or prefunded to its satisfaction and (ii) provisions limiting or excluding its liability in certain circumstances.

The Trust Deed provides that, when determining whether an indemnity or any security or pre-funding is satisfactory to it, the Trustee shall be entitled (i) to evaluate its risk in any given circumstance by considering the worst-case scenario and (ii) to require that any indemnity or security given to it by the Noteholders or any of them be given on a joint and several basis and be supported by evidence satisfactory to it as to the financial standing and creditworthiness of each counterparty and/or as to the value of the security and an opinion 124

as to the capacity, power and authority of each counterparty and/or the validity and effectiveness of the security.

(b) Limitation on Trustee actions

The Trustee may refrain from taking any action in any jurisdiction if the taking of such action in that jurisdiction would, in its opinion based upon legal advice in the relevant jurisdiction, be contrary to any law of that jurisdiction. Furthermore, the Trustee may also refrain from taking such action if it would otherwise render it liable to any person in that jurisdiction or if, in its opinion based upon such legal advice, it would not have the power to do the relevant thing in that jurisdiction by virtue of any applicable law in that jurisdiction or if it is determined by any court or other competent authority in that jurisdiction that it does not have such power.

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

(d) Trustee contracting with the Issuer

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

(e) Regulatory Clearance Condition

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

21. Further Issues

The Issuer may from time to time, without the consent of the Noteholders, create and issue further notes ranking pari passu in all respects (or in all respects save for the first payment of interest thereon) and so that the same shall be consolidated and form a single series with the outstanding Notes (“Further Notes”). Any such Further Notes shall be constituted by a deed supplemental to the Trust Deed. 125

22. Governing Law

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

23. Rights of Third Parties

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

24. Defined Terms and Interpretation

Defined Terms

In these Conditions:

“Additional Amounts” has the meaning given to it in Condition 13;

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

“Agent Bank” has the meaning given in the preamble to these Conditions;

“Agents” means the Principal Paying and Conversion Agent, the Agent Bank, the Registrar and the Transfer Agents or any of them and shall include such other agents appointed from time to time under the Agency Agreement;

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

“Business Day” means:

(a) except for the purposes of Conditions 2, 8(b)(ii) and 11(d), a day (other than a Saturday, Sunday or public holiday) on which commercial banks and foreign exchange markets are open for general business in London;

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

(c) for the purposes of Condition 8(b)(ii), a day (other than a Saturday, Sunday or public holiday) on which commercial banks are open for business in the city in which the specified office of the Conversion Shares Depositary is located; and

(d) for the purpose of Condition 11(d), a day (other than a Saturday, Sunday or public holiday) on which commercial banks are open for business in London and, in the case of surrender of a Certificate, in the place in which the Certificate is surrendered; 126

“Calculation Amount” means £1,000 in principal amount of the Notes; a “Capital Disqualification Event” is deemed to have occurred if, as a result of any replacement of or change to (or change to the interpretation by any court or authority entitled to do so of) the Relevant Rules the whole or any part of the principal amount of the Notes is excluded from counting as Tier 1 Capital for the purposes of the Issuer or all or any part of the Insurance Group (which part includes the Issuer and at least one other member of the Insurance Group) (whether on a solo, group or consolidated basis), except (in either case) where such non-qualification is only as a result of the aggregate amount of eligible items available to be counted towards Tier 1 Capital (or a relevant component part thereof) exceeding any applicable upper limit on the aggregate amount of such items permitted to be so counted (other than a limit derived from any transitional or grandfathering provisions under the Relevant Rules);

“Certificate” has the meaning given in Condition 1(a);

“Clean-up Call” has the meaning given in Condition 12(j);

“Closing Price” means, in respect of a Relevant Security, option, warrant or other right on any Dealing Day, the official closing price of such Relevant Security, option, warrant or other right on the Relevant Stock Exchange on such Dealing Day as published by or derived from Bloomberg page “HP” (or any successor page) (using the setting “Last Price”, or any successor setting) in respect of such Relevant Security, option, warrant or other right for the Relevant Stock Exchange in respect thereof on such Dealing Day or, if such price is not available from Bloomberg as aforesaid, in any such case, such other source as shall be determined in good faith to be appropriate by an Independent Adviser on such Dealing Day, provided that if on any such Dealing Day such price is not available or cannot otherwise be determined as provided above, the Closing Price of a Relevant Security, option, warrant or other right, as the case may be, in respect of such Dealing Day shall be the Closing Price, determined as provided above, on the immediately preceding Dealing Day on which the same can be so determined, or if such price cannot be determined as provided above, the Closing Price shall be determined as an Independent Adviser might otherwise determine in good faith to be appropriate;

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

“Conversion” means the conversion of the Notes into Ordinary Shares (where the Conversion Shares Issuer is the Issuer) or Issuer Ordinary Shares (where the Conversion Shares Issuer is not the Issuer) pursuant to Condition 6, and "convert" and "converted" shall be construed accordingly;

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

“Conversion Date” has the meaning given to such term in Condition 6(e)(ii);

“Conversion Price” means: 127

(a) prior to the occurrence of an IPO Event, the Pre-IPO Conversion Price prevailing at such time; and

(b) on and from the occurrence of an IPO Event, the Post-IPO Conversion Price prevailing at such time, provided that, if the Conversion Shares Issuer is not the Issuer, the Conversion Price per Issuer Ordinary Share in respect of the Notes is equal to the Initial Pre-IPO Conversion Price, as most recently adjusted (if at all) pursuant to Condition 8(f);

“Conversion Shares” means the Ordinary Shares of the Conversion Shares Issuer to be issued and delivered to the Conversion Shares Depositary (or to the relevant recipient in accordance with these Conditions) by the Conversion Shares Issuer on the Share Delivery Date on and subject to the terms set out in Condition 6;

“Conversion Shares Depositary” means a reputable financial institution, trust company or similar entity (which in each such case is wholly independent of the Issuer and the Conversion Shares Issuer (if not the Issuer)) to be appointed by the Issuer on or prior to any date when a function ascribed to the Conversion Shares Depositary in these Conditions is required to be performed to perform such functions and that will hold the Conversion Shares (and any Conversion Shares Offer Entitlement) and (where relevant) the Issuer Ordinary Shares on trust for the Noteholders of the Notes in one or more segregated accounts, unless otherwise required to be transferred out of such accounts for the purposes of the Conversion Shares Offer or in accordance with these Conditions, and otherwise on terms consistent with these Conditions;

“Conversion Shares Issuer” means the Issuer, unless an IPO Event has occurred, in which case it shall be the relevant person whose Ordinary Shares are listed on a Recognised Stock Exchange pursuant to the IPO Event;

“Conversion Shares Offer” has the meaning given to such term in Condition 7(a)(i);

“Conversion Shares Offer Agent” means the agent(s), if any, to be appointed on behalf of the Conversion Shares Depositary by the Conversion Shares Issuer, in its sole and absolute discretion, to act as placement or other agent of the Conversion Shares Depositary to facilitate a Conversion Shares Offer;

“Conversion Shares Offer Entitlement” means, in respect of each Calculation Amount and as determined by the Conversion Calculation Agent:

(a) if all of the Conversion Shares to be issued and delivered on Conversion are sold in the Conversion Shares Offer, the pro rata share of the cash proceeds from the sale of such Conversion Shares attributable to each Calculation Amount translated, if necessary, into Sterling at the Prevailing Rate on the last day of the Conversion Shares Offer Period (less any foreign exchange transaction costs), and rounded to the nearest whole multiple of £0.01, with £0.005 rounded upwards;

(b) if some but not all of such Conversion Shares are sold in the Conversion Shares Offer: 128

(i) the pro rata share of the cash proceeds from the sale of such Conversion Shares attributable to each Calculation Amount translated, if necessary, into Sterling at the Prevailing Rate on the last day of the Conversion Shares Offer Period (less any foreign exchange transaction costs), and rounded to the nearest whole multiple of £0.01, with £0.005 rounded upwards; and

(ii) the pro rata share of such number of Conversion Shares not sold pursuant to the Conversion Shares Offer attributable to each Calculation Amount (for the purposes of this paragraph (b)(ii), without rounding (but without prejudice to subsequent rounding under Condition 8(d))); and

(c) if no Conversion Shares are sold in a Conversion Shares Offer, the relevant number of Conversion Shares attributable to each Calculation Amount (for the purposes of this paragraph (c), without rounding (but without prejudice to subsequent rounding under Condition 8(d))), subject, in the case of paragraphs (a) and (b)(i) above, to deduction from any such cash proceeds of an amount equal to the pro rata share of any stamp duty, stamp duty reserve tax, or any other capital, issue, transfer, registration, financial transaction or documentary tax or duty that may arise or be paid as a consequence of the transfer of (or any agreement to transfer) any interest in such Conversion Shares to the Conversion Shares Depositary (or Conversion Shares Offer Agent(s) (if any)) as a consequence of the Conversion Shares Offer (but excluding, for the avoidance of doubt, any costs and expenses borne by the purchasers of the Conversion Shares in the Conversion Shares Offer pursuant to Condition 7(a)(viii)); provided that if the cash component (if any) of the Conversion Shares Offer Entitlement in respect of each Calculation Amount determined in accordance with the foregoing (after the deductions referred to in the immediately preceding paragraph) would exceed the product of (a) the Calculation Amount and (b) the proportion (expressed as a percentage) of the Conversion Shares sold in the Conversion Shares Offer (such excess, the “Excess Amount”), the Excess Amount shall not form part of the Conversion Shares Offer Entitlement, and shall instead be payable to the Issuer as provided in Condition 7(a)(v);

(a) the Current Price; and

(b) the Conversion Price, in each case as at the Conversion Date;

“Conversion Shares Offer Notice” has the meaning given to such term in Condition 7(a)(ii);

“Conversion Shares Offer Period” has the meaning given to such term in Condition 7(a)(iv);

“Conversion Shares Offer Price” has the meaning given to such term in Condition 7(a)(i); 129

“Conversion Shares Settlement Notice” means a notice in the form for the time being currently available from the specified office of any Paying and Conversion Agent and which is required to be delivered to the Conversion Shares Depositary (or its agent(s) designated for the purpose in the Conversion Event Notice) in connection with a Conversion of the Notes;

“Current Price” means, in respect of an Ordinary Share at a particular date:

(a) in the case of Ordinary Shares which are admitted to trading on a Relevant Stock Exchange, the average of the daily Volume Weighted Average Prices of an Ordinary Share on each of the five (5) consecutive Dealing Days ending on the Dealing Day immediately preceding such date; and

(b) otherwise, the fair value of the Ordinary Share at close of business on the Business Day immediately preceding such date, as determined by the Conversion Shares Issuer, acting in good faith, provided that, in the case of (a) above, for the purposes of Condition 8(f)(iv), if at any time during the said five (5) dealing-day period the Volume Weighted Average Price shall have been based on a price ex-dividend (or ex- any other entitlement) and during some other part of that period the Volume Weighted Average Price shall have been based on a price cum- dividend (or cum- any other entitlement), then:

(i) if the Ordinary Shares to be issued and delivered do not rank for the dividend (or entitlement) in question, the Volume Weighted Average Price on the dates on which the Ordinary Shares shall have been based on a price cum- such dividend (or cum- such any other entitlement) shall, for the purposes of this definition, be deemed to be the amount thereof reduced by an amount equal to the Fair Market Value of any such dividend or entitlement per Ordinary Share as at the Ex-Date in respect of such dividend or entitlement, in any such case, determined on a gross basis and disregarding any withholding or deduction required to be made for or on account of tax, and disregarding any associated tax credit; or

(ii) if the Ordinary Shares to be issued and delivered do rank for the dividend (or entitlement) in question, the Volume Weighted Average Price on the dates on which the Ordinary Shares shall have been based on a price ex- dividend (or ex- any other entitlement) shall, for the purposes of this definition, be deemed to be the amount thereof increased by an amount equal to the Fair Market Value of any such dividend or entitlement per Ordinary Share as at the Ex-Date in respect of such dividend or entitlement, in any such case, determined on a gross basis and disregarding any withholding or deduction required to be made for or on account of tax, and disregarding any associated tax credit, and provided further that, for the purposes of Condition 8(f)(iv), if on each of the said five (5) Dealing Days the Volume Weighted Average Price shall have been based on a price cum- dividend (or cum- any other entitlement) in respect of a dividend (or other entitlement) which has been declared or announced but the Ordinary Shares to be issued and delivered do not rank for that dividend (or other entitlement), the Volume Weighted Average Price on each of such dates shall, for the purposes of this definition, be deemed to be the amount thereof 130 reduced by an amount equal to the Fair Market Value of any such dividend or entitlement per Ordinary Share as at the date of first public announcement of the terms such dividend or entitlement, in any such case, determined on a gross basis and disregarding any withholding or deduction required to be made for or on account of tax, and disregarding any associated tax credit, and provided further that, if the Volume Weighted Average Price of an Ordinary Share is not available on one or more of the said five (5) Dealing Days (disregarding for this purpose the proviso to the definition of Volume Weighted Average Price), then the average of such Volume Weighted Average Prices which are available in that five (5) Dealing Day period shall be used (subject to a minimum of two (2) such prices) and if only one, or no, such Volume Weighted Average Price is available in the relevant period, the Current Price shall be determined in good faith by an Independent Adviser;

“Dealing Day” means, in respect of the Ordinary Shares, Relevant Securities, Relevant Shares, options, warrants or other rights, a day on which the Relevant Stock Exchange in respect thereof is open for business and on which such Ordinary Shares, Relevant Securities, Relevant Shares, options, warrants or other rights (as the case may be) may be dealt in (other than a day on which such Relevant Stock Exchange is scheduled to or does close prior to its regular weekday closing time);

“Director” means a director of the Issuer;

“Distributable Items” means, subject as otherwise defined from time to time in the Relevant Rules, with respect to and as at any Interest Payment Date, without double-counting, an amount equal to:

(a) the Distributable Profits of the Issuer, calculated on an unconsolidated basis, as at the last day of the then most recently ended financial year of the Issuer; plus

(b) the interim retained earnings (if any) of the Issuer, calculated on an unconsolidated basis, for the period from the Issuer's then latest financial year end to (but excluding) such Interest Payment Date; less

(c) the interim net loss (if any) of the Issuer, calculated on an unconsolidated basis, for the period from the Issuer's then latest financial year end to (but excluding) such Interest Payment Date;

“Distributable Profits” has the meaning given to such term under section 736 of the Companies Act (or, in the case of a Substitute Obligor which is not a United Kingdom company, the relevant provision under the law of the jurisdiction of incorporation of the Substitute Obligor) or (in each case) any equivalent or replacement provision;

“EEA Regulated Market” means a market as defined by Article 4.1(21) of Directive 2014/65/EU (as amended, “MiFID II”).

“Eligible Offeree” means a person who is at the relevant time a shareholder in one or more of the following:

(a) the Issuer; 131

(b) the Conversion Shares Issuer; and

(c) any parent company of the Issuer or the Conversion Shares Issuer, provided that a member of the Insurance Group shall only be an Eligible Offeree in respect of a Conversion Shares Offer if such person’s participation in such offer, considered with any arrangements for the funding of that participation (including any direct or indirect contribution of assets to that person or any other member of the Insurance Group), would not reduce the Tier 1 Capital of the Insurance Group on a consolidated basis;

“Excess Amount” has the meaning given in the definition of "Conversion Shares Offer Entitlement";

“Ex-Date” means, in relation to any dividend, capitalisation, redesignation, reclassification, sub-division, consolidation, issue, grant, offer or other entitlement, unless otherwise defined herein, the first Dealing Day on which the Ordinary Shares are traded ex- the relevant dividend, capitalisation, redesignation, reclassification, sub-division, consolidation, issue, grant, offer or other entitlement.

“Exempt Newco Scheme” means a Newco Scheme where, immediately after completion of the relevant Scheme of Arrangement, the ordinary shares or units or equivalent of Newco (or depositary or other receipts or certificates representing ordinary shares or units or equivalent of Newco) are:

(a) admitted to trading on the Relevant Stock Exchange on which the Ordinary Shares were admitted to trading immediately prior to the Newco Scheme (if any); or

(b) admitted to listing or trading on such other Regulated Market as the Conversion Shares Issuer or Newco may determine;

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

“FATCA Withholding Tax” has the meaning given in Condition 11(b);

“Fair Market Value” on any date (the “FMV Date”) means:

(a) with respect to a Cash Dividend, the amount of such Cash Dividend, as determined by the Conversion Calculation Agent;

(b) with respect to a cash amount, the amount of such cash, as determined by the Conversion Calculation Agent;

(c) with respect to Relevant Securities, options, warrants or other rights that are publicly traded on a Relevant Stock Exchange of adequate liquidity (as determined in good faith by (if the Conversion Calculation Agent determines in its sole discretion that it is able to make such determination in its capacity as Calculation Agent) the Conversion Calculation Agent or (otherwise) an Independent Adviser): 132

(i) with respect to such Relevant Securities (to the extent constituting equity share capital), the arithmetic mean of the daily Volume Weighted Average Prices of such Relevant Securities; and

(ii) with respect to such Relevant Securities (other than to the extent constituting equity share capital), options, warrants or other rights, the arithmetic mean of the daily Closing Prices of such Relevant Securities, options, warrants or other rights,

in the case of each of (i) and (ii), during the period of five Dealing Days on the Relevant Stock Exchange commencing on such FMV Date (or, if later, the date (the “Adjusted FMV Date”) which is the first such Dealing Day such Relevant Securities, options, warrants or other rights are publicly traded) or such shorter period as such Relevant Securities, options, warrants or other rights are publicly traded, all as determined by the Conversion Calculation Agent; and

(d) with respect to Relevant Securities, options, warrants or other rights that are not publicly traded on a Relevant Stock Exchange of adequate liquidity (as aforesaid), the fair market value on such FMV Date of such Relevant Securities, options, warrants or other rights as determined in good faith by an Independent Adviser, on the basis of a commonly accepted market valuation method and taking account of such factors as it considers appropriate, including the market price per Ordinary Share, the dividend yield of an Ordinary Share, the volatility of such market price, prevailing interest rates and the terms of such Relevant Securities, options, warrants or other rights, including as to the expiry date and exercise price (if any) thereof.

Such amounts shall, in the case of (a) and (b) above, be translated (if expressed in a currency other than the Relevant Currency) into the Relevant Currency (if declared, announced, made, paid or payable in a currency other than the Relevant Currency, and if the relevant dividend is payable at the option of the Conversion Shares Issuer or a Shareholder in any currency additional to the Relevant Currency, the relevant dividend shall be treated as payable in the Relevant Currency) at the rate of exchange (if any) used to determine the amount payable to Shareholders who were paid or are to be paid or are entitled to be paid the Cash Dividend in the Relevant Currency; and, in any other case, shall be translated into the Relevant Currency (if expressed in a currency other than the Relevant Currency) at the Prevailing Rate on such FMV Date (or, if applicable, Adjusted FMV Date), all as determined by the Conversion Calculation Agent. In addition, in the case of (a) and (b) above, the Fair Market Value shall be determined by the Conversion Calculation Agent on a gross basis and disregarding any withholding or deduction required to be made for or on account of tax, and disregarding any associated tax credit;

“Final Cancellation Date” means the date on which any Notes in relation to which no Conversion Shares Settlement Notice has been received by the Conversion Shares Depositary (or its designated agent(s)) on or before the Notice Cut-off Date shall be cancelled, which date is expected to be no more than twelve (12) Business Days following the Notice Cut-off Date and which will be notified to Noteholders in the Trigger Event Notice;

“First Call Date” means 25 July 2029;

“Fitch” means Fitch Ratings Limited; 133

“Further Notes” has the meaning ascribed to it in Condition 21;

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

“Independent Adviser” means an independent financial institution of international repute or independent adviser with appropriate expertise (which may be (without limitation) the Conversion Calculation Agent) appointed by the Issuer and/or the Conversion Shares Issuer at its or their own expense;

“Initial Fixed Interest Rate” has the meaning given to it in Condition 4(c);

“Initial Fixed Rate Interest Period” means the period from (and including) the Issue Date to (but excluding) the First Call Date;

“Initial Post-IPO Conversion Price” means, subject to Condition 9(a)(i) (pursuant to which the Initial Post-IPO Conversion Price shall be the applicable New Conversion Price), (i) the Pre-IPO Conversion Price prevailing at the time of the relevant IPO Event or, if higher (ii) such price (converted if necessary into Sterling at the Prevailing Rate on the date of the occurrence of the relevant IPO Event and rounded to the nearest whole multiple of £0.0001 (with £0.00005 rounded upwards)) as is equal to 70 per cent. of the final price per share at which the relevant Ordinary Shares are offered in connection with the relevant IPO Event;

“Initial Pre-IPO Conversion Price” means £2.71;

“Insolvent Insurer Winding-up” means (a) the winding-up of any Group Insurance Undertaking; or (b) the appointment of an administrator of any Group Insurance Undertaking, in each case where the Issuer has determined, acting reasonably, that the Policyholder Claims of that Group Insurance Undertaking may or will not all be met in full;

“Insurance Group” means, at any time, the Insurance Group Holding Company and its Subsidiaries at such time;

“Insurance Group Holding Company” means the ultimate insurance holding company of the Issuer that is subject to consolidated supervision by the Relevant Regulator for the purposes of the Relevant Rules (such ultimate holding company being, as at the Issue Date, Pension Insurance Corporation Group Limited);

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

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

“Interest Payment” means, in respect of any Interest Payment Date, the amount of interest which is (or would, but for cancellation in accordance with these Conditions, be) due and payable on such Interest Payment Date;

“Interest Payment Date” means 25 January and 25 July in each year, commencing on 25 January 2020; 134

“Interest Period” means the period from (and including) the Issue Date to (but excluding) the first Interest Payment Date and each successive period from (and including) an Interest Payment Date to (but excluding) the next following Interest Payment Date;

“Interest Rate” means the Initial Fixed Interest Rate and/or the applicable Reset Rate of Interest, as the case may be;

“IPO Event” means the first admission to trading and listing on any Recognised Stock Exchange of the voting ordinary shares in the capital of (i) the Issuer; (ii) any member of the Insurance Group which (directly or indirectly) beneficially owns at least 75 per cent. of the issued ordinary shares of the Issuer; or (iii) any person that beneficially owns (directly or indirectly) the entire ordinary share capital of the Issuer, provided that in, respect of (ii) or (iii), immediately following the IPO Event no person beneficially owns 75 per cent. or more of the relevant Ordinary Shares. The IPO Event shall be treated as occurring on the day on which trading in such Ordinary Shares begins on an unconditional basis;

“Issue Date” means 25 July 2019;

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

“Issuer Ordinary Share Delivery Date” means, following the occurrence of a Trigger Event in respect of which the Conversion Shares Issuer is not the Issuer, the date on which the Issuer delivers the Issuer Ordinary Shares to the Conversion Shares Depositary in accordance with these Conditions which date is expected to be no more than five (5) Business Days following the Conversion Date and which will be notified to Noteholders in the Trigger Event Notice;

“Issuer Ordinary Shares” means fully paid voting ordinary shares in the capital of the Issuer to be issued and delivered to the Conversion Shares Depositary by the Issuer on the Issuer Ordinary Share Delivery Date on and subject to the terms of Condition 6;

“Issuer Winding-Up” means:

(a) an order is made, or an effective resolution is passed, for the winding-up of the Issuer (except, in any such case, a solvent winding-up solely for the purpose of a reconstruction or amalgamation or the substitution in place of the Issuer of a successor in business to the Issuer, the terms of which reconstruction, amalgamation or substitution (A) have previously been approved in writing by the Trustee or by an Extraordinary Resolution or which is effected in accordance with Condition 18 and (B) do not provide that the Notes or any amount in respect thereof shall thereby become payable); or

(b) an administrator of the Issuer is appointed and such administrator gives notice that it intends to declare and distribute a dividend;

“Liabilities” means the unconsolidated gross liabilities of the Issuer as shown in the latest published audited balance sheet of the Issuer, but adjusted for contingent liabilities and for subsequent events, all in such manner as the Directors may determine; 135

“Mandatory Interest Cancellation Event” has the meaning given to such term in Condition 5(b);

“Margin” means 6.658 per cent.;

“Member State” means a member of the European Economic Area;

“Minimum Capital Requirement” means the Minimum Capital Requirement as applicable to the Issuer or the Insurance Group (whether on a solo, group or consolidated basis) or the minimum Solvency Capital Requirement as applicable to the Issuer or the Insurance Group (whether on a solo, group or consolidated basis) referred to in, or any other minimum capital requirement howsoever described in, the Relevant Rules;

“Newco Scheme” means a scheme of arrangement or analogous proceeding (“Scheme of Arrangement”) which effects the interposition of a limited liability company (“Newco”) between the Shareholders of (i) following the occurrence of an IPO Event, the Conversion Shares Issuer, or (ii) prior to the occurrence of an IPO Event, PICG, immediately prior to the Scheme of Arrangement (the “Existing Shareholders”) and the Conversion Shares Issuer or, as the case may be, PICG, provided that:

(a) only ordinary shares or units or equivalent of Newco or depositary or other receipts or certificates representing ordinary shares or units or equivalent of Newco are issued to Existing Shareholders;

(b) immediately after completion of the Scheme of Arrangement the only holders of ordinary shares, units or equivalent of Newco or, as the case may be, the only holders of depositary or other receipts or certificates representing ordinary shares or units or equivalent of Newco (except for a nominal holding by initial subscribers, if applicable), are Existing Shareholders holding in the same proportions as immediately prior to completion of the Scheme of Arrangement;

(c) immediately after completion of the Scheme of Arrangement, Newco is (or one or more wholly-owned Subsidiaries of Newco are) the only shareholder of the Conversion Shares Issuer or PICG (as applicable);

(d) all Subsidiaries of the Conversion Shares Issuer or PICG (as applicable) immediately prior to the Scheme of Arrangement (other than Newco, if Newco is then a Subsidiary of the Conversion Shares Issuer or PICG (as applicable)) are Subsidiaries of the Conversion Shares Issuer or PICG (as applicable) immediately after completion of the Scheme of Arrangement; and

(e) immediately after completion of the Scheme of Arrangement the Conversion Shares Issuer or PICG (as applicable) holds, directly or indirectly, the same percentage of the ordinary share capital and equity share capital of those Subsidiaries as was held by the Conversion Shares Issuer or PICG (as applicable) immediately prior to the Scheme of Arrangement;

“Noteholder” has the meaning given in Condition 1(b);

“Notes” has the meaning given in the preamble to these Conditions; 136

“Notice Cut-off Date” means the date specified as such in the Trigger Event Notice, which date shall be at least twenty (20) Business Days following the Share Delivery Date;

“Notional Preference Shares” has the meaning given to such term in Condition 3(b);

“Ordinary Shares” means (if the Conversion Shares Issuer is the Issuer) fully paid voting ordinary shares in the capital of the Issuer or (if the Conversion Shares Issuer is not the Issuer) fully paid voting ordinary shares in the capital of the Conversion Shares Issuer;

“Own Fund Items” means any own fund item referred to in the Relevant Rules;

“Own Funds” has the meaning given to such term by the Relevant Rules from time to time;

“Paying Agents” means the Principal Paying and Conversion Agent, the Paying and Conversion Agents and the Registrar (and such term shall include any successor, replacement or additional paying agents appointed under the Agency Agreement);

“Paying and Conversion Agents” has the meaning given in the preamble to these Conditions;

“Post-IPO Conversion Price” means, at any time, the Initial Post-IPO Conversion Price as most recently adjusted (if at all) pursuant to Condition 8(f);

“Pre-IPO Conversion Price” means, at any time, the Initial Pre-IPO Conversion Price as most recently adjusted (if at all) pursuant to Condition 8(f);

“Prevailing Rate” means, in respect of any currencies on any day, the spot mid-rate of exchange between the relevant currencies prevailing as at 12 noon (London time) on that date as appearing on or derived from Bloomberg page BFIX (or any successor page) in respect of such pair of currencies or, if such a rate cannot be so determined, the rate prevailing as at 12 noon (London time) on the immediately preceding day on which such rate can be so determined or, if such rate cannot be so determined, the rate determined in such other manner as an Independent Adviser shall in good faith prescribe;

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

“Principal Paying and Conversion Agent” has the meaning given in the preamble to these Conditions;

“Qualifying Securities” means securities issued directly or indirectly by the Issuer that:

(a) have terms not materially less favourable to an investor than the terms of the Notes (as reasonably determined by the Issuer in consultation with an independent 137

investment bank of international standing, and provided that a certification to such effect (including as to the consultation with the independent investment bank and in respect of the matters specified in (b)(1) to (7) below) signed by two (2) Directors (or other officers acceptable to the Trustee) shall have been delivered to the Trustee (upon which the Trustee shall be entitled to rely without liability to any person) prior to the issue of the relevant securities); and

(b) (subject to (a) above) (1) contain terms which comply with the then-current requirements of the Relevant Regulator and the Relevant Rules in relation to Tier 1 Capital; (2) bear the same rate of interest from time to time applying to the Notes and preserve the same Interest Payment Dates; (3) contain terms providing for the deferral, suspension and/or cancellation of payments of interest or principal only if such terms are not materially less favourable to an investor than equivalent terms contained in the terms of the Notes; (4) rank senior to, or pari passu with, the ranking of the Notes; (5) preserve the obligations (including the obligations arising from the exercise of any right) of the Issuer as to redemption of the Notes, including (without limitation) as to timing of, and amounts payable upon, any such redemption; (6) contain terms providing for or requiring the Issuer to write down or convert into equity the whole or any part of the principal amount of the Notes only if such terms are not materially less favourable to an investor than equivalent terms contained in the terms of the Notes; and (7) preserve in full any existing rights under the Notes to any accrued interest which has accrued to Noteholders but not been cancelled or paid (but without prejudice to any right of the Issuer subsequently to cancel any such rights so preserved in accordance with the terms of the Qualifying Securities); and

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

“Rating Agency Compliant Securities” means securities issued directly or indirectly by the Issuer that are:

(a) Qualifying Securities; and

(b) assigned substantially the same “equity credit” (or such other nomenclature as may be used by Fitch and any Subsequent Rating Agency (if applicable) from time to time to describe the degree to which the terms of an instrument are supportive of an issuer’s senior obligations in terms of either leverage or total capital) or, at the absolute discretion of the Issuer, a lower “equity credit” (provided such “equity credit” is still higher than the “equity credit” assigned to the Notes immediately after the occurrence of the Ratings Methodology Event) as that which was assigned to the Notes (A) in the case of “equity credit” assigned by Fitch, on or around the Relevant Issue Date or (B) in the case of “equity credit” assigned by a Subsequent Rating Agency, on the date that such “equity credit” was first assigned by the relevant Subsequent Rating Agency; and provided that a certification to the effect of (a) and (b) above, signed by two (2) Directors, (or other officers acceptable to the Trustee) shall have been delivered to the Trustee (upon 138 which the Trustee shall be entitled to rely without liability to any person) prior to the issue of the relevant securities; a “Ratings Methodology Event” will be deemed to occur if at any time there occurs a change in (or clarification to) the methodology of Fitch or a Subsequent Rating Agency (if applicable) (or in the interpretation of such methodology) as a result of which the “equity credit” (or such other nomenclature as may be used by Fitch or the relevant Subsequent Rating Agency (as applicable) from time to time to describe the degree to which the terms of an instrument are supportive of an issuer’s senior obligations in terms of either leverage or total capital) assigned by Fitch or the relevant Subsequent Rating Agency (as applicable) to the Notes is, as notified by Fitch or the relevant Subsequent Rating Agency (as applicable) to the Issuer or as published by Fitch or the relevant Subsequent Rating Agency (as applicable), reduced when compared to (i) in the case of Fitch, the “equity credit” assigned by Fitch to the Notes on or around the Relevant Issue Date and (ii) in the case of any Subsequent Rating Agency, the “equity credit” first assigned by such Subsequent Rating Agency to the Notes;

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

“Record Date” has the meaning given to such term in Condition 11(a);

“Redemption and Purchase Conditions” has the meaning given to such term in Condition 12(b);

“Register” has the meaning given in Condition 1(a);

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

“Regulated Market” means a regulated, regularly operating United Kingdom stock exchange or securities market, an EEA Regulated Market or another regulated, regularly operating, internationally recognised stock exchange or securities market;

“Regulatory Clearance Condition” means, in respect of any proposed act on the part of the Issuer, the Relevant Regulator having approved or consented to, or provided a statement of non-objection in respect of, such act (in any case only if and to the extent required by the Relevant Rules, the Relevant Regulator or any applicable rules of the Relevant Regulator at the relevant time);

“Relevant Currency” means Sterling or (if different) the currency in which the Ordinary Shares or the Relevant Shares (as applicable) are quoted or dealt in on a Relevant Stock Exchange at such time;

“Relevant Date” has the meaning given in 13(a);

“Relevant Issue Date” means the later of (i) the Issue Date and (ii) the issue date of any further securities issued pursuant to Condition 21 so as to be consolidated and form a single series with the Notes; 139

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

“Relevant Regulator” means the UK Prudential Regulation Authority or such successor or other authority having primary supervisory authority with respect to prudential matters in relation to the Issuer and/or the Insurance Group;

“Relevant Rules” means, at any time, any legislation, rules or regulations (whether having the force of law or otherwise) then applying to the Issuer or the Insurance Group relating to own funds, capital resources, capital requirements, financial adequacy requirements or other prudential matters (including, but not limited to, the characteristics, features or criteria of any of the foregoing) and, for the avoidance of doubt and without limitation to the foregoing, includes (to the extent then applying as aforesaid) Solvency II and any legislation, rules or regulations of the Relevant Regulator relating to such matters; and references in these Conditions to any matter, action or condition being required or permitted by, or in accordance with, the Relevant Rules shall be construed in the context of the Relevant Rules as they apply to Tier 1 Capital and on the basis that the Notes are intended to continue to have the characteristics of Tier 1 Capital under the Relevant Rules (notwithstanding the occurrence of a Capital Disqualification Event);

“Relevant Securities” means any securities including, without limitation, shares in the capital of the Conversion Shares Issuer, or options, warrants or other rights to subscribe for or purchase or acquire shares in the capital of the Conversion Shares Issuer (and each a “Relevant Security”);

“Relevant Shares” has the meaning given to such term in Condition 9(d);

“Relevant Stock Exchange” means in respect of any Ordinary Shares, any Relevant Security, option, warrant or other right or any other securities, the principal stock exchange or securities market (if any) on which the Ordinary Shares, such Relevant Security, option, warrant or other right are then listed, admitted to trading or quoted or accepted for dealing;

“Reset Date” means the First Call Date and each fifth anniversary of the First Call Date thereafter;

“Reset Determination Date” means, in respect of a Reset Period, the second Business Day prior to the first day of such Reset Period;

“Reset Period” means the period from (and including) the First Call Date to (but excluding) the next Reset Date, and each successive period from (and including) a Reset Date to (but excluding) the next succeeding Reset Date;

“Reset Rate of Interest” has the meaning given to it in Condition 4(d);

“Reset Reference Banks” means five brokers of gilts and/or gilt-edged market makers selected by the Issuer; 140

“Reset Reference Rate” means in respect of a Reset Period, the gross redemption yield (as calculated by the Agent Bank in accordance with generally accepted market practice at such time, on a semi-annual compounding basis (rounded up (if necessary) to four decimal places) of the Benchmark Gilt in respect of that Reset Period, with the price of the Benchmark Gilt for the purpose of determining the gross redemption yield being the arithmetic average (rounded up (if necessary) to the nearest 0.001 per cent. (0.0005 per cent. being rounded upwards)) of the bid and offered prices of such Benchmark Gilt quoted by the Reset Reference Banks at 11.00 a.m. (London time) on the Reset Determination Date in respect of such Reset Period on a dealing basis for settlement on the next following benchmark gilt dealing day in London. Such quotations shall be obtained by or on behalf of the Issuer and provided to the Agent Bank. If at least four quotations are provided, the Reset Reference Rate will be determined by reference to the rounded arithmetic mean of the quotations provided, eliminating the highest quotation (or, in the event of equality, one of the highest) and the lowest quotation (or, in the event of equality, one of the lowest). If only two or three quotations are provided, the Reset Reference Rate will be determined by reference to the rounded arithmetic mean of the quotations provided. If only one quotation is provided, the Reset Reference Rate will be determined by reference to the rounded quotation provided. If no quotations are provided, the Reset Reference Rate will be the previous Reset Reference Rate or (in the case of the first Reset Period) 0.717 per cent., where:

“Benchmark Gilt” means, in respect of a Reset Period, such United Kingdom government security customarily used at the time of selection in the pricing of new issues with a similar tenor having an actual or interpolated maturity date on or about the last day of such Reset Period as the Issuer (on the advice of an investment bank of international repute) may determine to be appropriate following any guidance published by the International Capital Market Association at the relevant time (if any); and

“benchmark gilt dealing day” means a day on which the London Stock Exchange plc (or such other stock exchange on which the Benchmark Gilt is at the relevant time listed) is ordinarily open for the trading of securities;

“Senior Creditors” means:

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

(b) all creditors of the Issuer whose claims are in respect of instruments or obligations which constitute, or would, but for any applicable limitation on the amount of such capital constitute, Tier 2 Capital (including, for so long as any of the same remain outstanding, the Issuer's £300,000,000 6.50 per cent. Fixed Rate Subordinated Notes due 2024 (XS1083983376), the Issuer's £250,000,000 8.000 per cent. Fixed Rate Subordinated Notes due 2026 (XS1523966197) and the Issuer's £350,000,000 5.625 per cent. Fixed Rate Subordinated Notes due 2030 (XS1872365256)); and

(c) all other creditors of the Issuer whose claims are, or are expressed to be, subordinated to the claims of other creditors of the Issuer (other than those whose 141

claims are in respect of instruments or obligations which constitute, or would but for any applicable limitation on the amount of any such capital constitute, Tier 1 Capital, or whose claims otherwise rank, or are expressed to rank, pari passu with, or junior to, the claims of the Noteholders against the Issuer in a winding-up or administration of the Issuer occurring prior to the date on which a Trigger Event occurs);

“Settlement Date” means:

(a) where the Conversion Shares Issuer has not elected that a Conversion Shares Offer will be conducted, with respect to any Note in relation to which a Conversion Shares Settlement Notice is received by the Conversion Shares Depositary or its designated agent on or before the Notice Cut-off Date, the date that is two (2) Business Days after the latest of:

(i) the Share Delivery Date;

(ii) the date on which the Conversion Shares Issuer announces that it will not elect for a Conversion Shares Offer to be conducted (or, if no such announcement is made, the last date on which the Conversion Shares Issuer is entitled to give the Conversion Shares Offer Notice); and

(iii) the date on which the relevant Conversion Shares Settlement Notice has been received by the Conversion Shares Depositary or its designated agent;

(b) where the Conversion Shares Issuer has elected that a Conversion Shares Offer will be conducted, with respect to any Note in relation to which a Conversion Shares Settlement Notice is received by the Conversion Shares Depositary or its designated agent on or before the Notice Cut-off Date, the date that is two (2) Business Days after the later of:

(i) the date on which the Conversion Shares Offer Period expires or is terminated; and

(ii) the date on which the relevant Conversion Shares Settlement Notice has been so received by the Conversion Shares Depositary or its designated agent; and

(c) with respect to any Note in relation to which a Conversion Shares Settlement Notice is not received by the Conversion Shares Depositary or its designated agent on or before the Notice Cut-off Date, the date on which the Conversion Shares Depositary delivers the relevant Conversion Shares or Conversion Shares Offer Entitlement, as applicable, to the relevant Noteholder;

“Share Delivery Date” means, following the occurrence of a Trigger Event, the date on which the Conversion Shares Issuer delivers the Conversion Shares to the Conversion Shares Depositary in accordance with these Conditions which date is expected to be no more than twenty-five (25) Business Days following the Conversion Date (or, where the Conversion Shares Issuer is not the Issuer, is expected to be no more than twenty-five (25) Business Days following the Issuer Ordinary Share Delivery Date) and which will be notified to Noteholders in the Trigger Event Notice; 142

“Shareholders” means the holders of Ordinary Shares;

“Solvency II” means the Solvency II Directive and any implementing measures adopted pursuant to the Solvency II Directive including, without limitation, the Solvency II Regulation (for the avoidance of doubt, whether implemented by way of regulation or by further directives or otherwise);

“Solvency II Directive” means Directive 2009/138/EC of the European Union (as amended) on the taking-up and pursuit of the business of insurance and reinsurance (Solvency II) and transposed by Member States pursuant to Article 309 of Directive 2009/138/EC;

“Solvency II Regulation” means Commission Delegated Regulation (EU) 2015/35 of 10 October 2014 supplementing Directive 2009/138/EC of the European Parliament and of the Council on the taking up and pursuit of the business of Insurance and Reinsurance (Solvency II);

“Solvency Capital Requirement” means the Solvency Capital Requirement as applicable to the Issuer or the Insurance Group (whether on a solo, group or consolidated basis) referred to in, or any other equivalent capital requirement (other than the Minimum Capital Requirement) howsoever described in, the Relevant Rules;

“Solvency Condition” has the meaning given in Condition 3(e);

“Sterling” or “£” or “penny” means the lawful currency of the United Kingdom from time to time;

“Subsequent Rating Agency” means Moody’s Investors Service Ltd or S&P Global Ratings Europe Limited or any affiliate thereof or successor thereto that assigns “equity credit” (or such other nomenclature as may be used by such rating agency from time to time to describe the degree to which the terms of an instrument are supportive of an issuer’s senior obligations in terms of either leverage or total capital) to the Notes after the Relevant Issue Date;

“Subsidiary” has the meaning given to that term under section 1159 of the Companies Act;

“Substitute Obligor” has the meaning given in Condition 18;

“successor in business” means any body corporate which as a result of any amalgamation, merger, reconstruction, acquisition or transfer:

(a) beneficially owns the whole or substantially the whole of the undertaking, property and assets owned by the Issuer or a successor in business to the Issuer prior thereto; and

(b) carries on as successor to the Issuer or a successor in business to the Issuer, the whole or substantially the whole of the business carried on by the Issuer or a successor in business to the Issuer immediately prior thereto; a “Tax Event” is deemed to have occurred if: 143

(a) as a result of a Tax Law Change, on the next Interest Payment Date either:

(i) the Issuer would be required to pay Additional Amounts as provided or referred to in Condition 13; or

(ii) in respect of the Issuer's obligation to make any payment of interest:

(1) the Issuer would not be entitled to claim a deduction in computing its taxation liabilities in the Relevant Jurisdiction, or such entitlement is materially reduced; or

(2) the Issuer would not to any material extent be entitled to have any loss or non-trading deficit set against the profits of companies with which it is grouped for applicable United Kingdom tax purposes (whether under the group relief system current as at the date of the Tax Law Change or any similar system or systems having like effect as may from time to time exist); and

(b) in any such case, the effect of the foregoing cannot be avoided by the Issuer taking measures reasonably available to it;

“Tax Law Change” means any change in or proposed change in, or amendment or proposed amendment to, the laws or regulations of a Relevant Jurisdiction, including any treaty to which such Relevant Jurisdiction is a party, or any change in the application or official interpretation of such laws or regulations, including a decision of any court or tribunal, or any interpretation or pronouncement by any relevant tax authority that provides for a position with respect to such laws or regulations, that differs from the previously generally accepted position in relation to similar transactions (in respect of securities similar to the Notes and which have the characteristics of restricted Tier 1 Capital under the rules applicable at issuance) or which differs from any specific written confirmation given by a tax authority in respect of the Notes, which change or amendment becomes, or would become, effective or, in the case of a change or proposed change in law of the United Kingdom (or any political subdivision thereof), if such change is enacted (or, in the case of a proposed change, is expected to be enacted) by United Kingdom Act of Parliament or by Statutory Instrument, on or after the Relevant Issue Date;

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

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

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

“Transfer Agent” has the meaning ascribed to it in the preamble to the Conditions; a “Trigger Event” shall occur if at any time:

(a) the amount of Own Fund Items eligible to cover the Solvency Capital Requirement is equal to or less than 75 per cent. of the Solvency Capital Requirement; 144

(b) the amount of Own Fund Items eligible to cover the Minimum Capital Requirement is equal to or less than the Minimum Capital Requirement; or

(c) a breach of the Solvency Capital Requirement has occurred and such breach has not been remedied within a period of three months from the date on which the breach was first observed;

“Trigger Event Notice” means the notice referred to as such in Condition 6 which shall be given by the Issuer to the Noteholders, in accordance with Condition 17, the Trustee, the Registrar, the Conversion Shares Issuer (if not the Issuer), the Principal Paying and Conversion Agent and the Relevant Regulator, and which shall state with reasonable detail the nature of the relevant Trigger Event, the basis of its calculation and the Conversion Date (being the date on which the Trigger Event occurred);

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

“Trustee” has the meaning given in the preamble to these Conditions; and

“Volume Weighted Average Price” means, in respect of an Ordinary Share (or Relevant Share, as applicable) or Relevant Security, options, warrants or other rights on any Dealing Day, the order book volume-weighted average price of such Ordinary Share (or Relevant Share) or Relevant Security on the Relevant Stock Exchange in respect thereof as published by or derived from Bloomberg page HP (or any successor page) (using the setting “Weighted Average Line” or any successor setting) in respect of such Ordinary Shares (or Relevant Shares), options, warrants or other rights for the Relevant Stock Exchange in respect thereof on such Dealing Day, or, if such price is not available from Bloomberg as aforesaid, in any such case, such other source as shall be determined in good faith to be appropriate by an Independent Adviser on such Dealing Day, provided that if on any such Dealing Day such price is not available or cannot otherwise be determined as provided above, the Volume Weighted Average Price of an Ordinary Share (or Relevant Share, as applicable), Relevant Security, option, warrant or other right, as the case may be, in respect of such Dealing Day shall be the Volume Weighted Average Price, determined as provided above, on the immediately preceding Dealing Day on which the same can be so determined or determined as an Independent Adviser might otherwise determine in good faith to be appropriate.

Interpretation

For the purposes of these Conditions, unless the context otherwise requires:

(i) references to any act or statute or any provision of any act or statute shall be deemed also to refer to any statutory modification or re-enactment thereof or any statutory instrument, order or regulation made thereunder or under such statutory modification or re-enactment;

(ii) references to "ordinary share capital" have the meaning provided in Section 1119 of the Corporation Tax Act 2010 and "equity share capital" has the meaning provided in Section 548 of the Companies Act;

(iii) references to any issue or offer or grant to Shareholders or Existing Shareholders "as a class" or "by way of rights" shall be taken to be 145

references to an issue or offer or grant to all or substantially all Shareholders or Existing Shareholders, as the case may be, other than Shareholders or Existing Shareholders, as the case may be, to whom, by reason of the laws of any territory or requirements of any recognised regulatory body or any other stock exchange or securities market in any territory or in connection with fractional entitlements, it is determined not to make such issue or offer or grant;

(iv) references to a "person" includes any individual, company, unincorporated association, government, state agency, international organisation or other entity and, in all cases includes its successors and assigns;

(v) in making any calculation or determination of Current Price or Volume Weighted Average Price, such adjustments (if any) shall be made as the Conversion Calculation Agent or an Independent Adviser determines in good faith to be appropriate to reflect any consolidation or sub-division of the Ordinary Shares (or, as applicable, Issuer Ordinary Shares) or any issue of Ordinary Shares (or, as applicable, Issuer Ordinary Shares) by way of capitalisation of profits or reserves, or any like or similar event; and

(vi) for the purposes of Conditions 6 to 10, (1) references to the "issue" of Ordinary Shares (or, as applicable, Issuer Ordinary Shares) or Ordinary Shares (or, as applicable, Issuer Ordinary Shares) being "issued" shall, unless otherwise expressly specified, include the delivery of Ordinary Shares (or, as applicable, Issuer Ordinary Shares), whether newly issued and allotted or previously existing or held by or on behalf of the Conversion Shares Issuer (or, as applicable, the Issuer) or any of its Subsidiaries, and (2) Ordinary Shares (or, as applicable, Issuer Ordinary Shares) held by or on behalf of the Conversion Shares Issuer (or, as applicable, the Issuer) or any of its Subsidiaries (and which, in the case of Condition 8(f)(iv), do not rank for the relevant right or other entitlement) shall not be considered as or treated as "in issue" or "issued" or entitled to receive the relevant dividend, right or other entitlement.

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Overview of the Notes while in Global Form

The Notes will be represented initially by a single global certificate (the “Global Certificate”). The Global Certificate will be deposited with, and registered in the name of a nominee (the “Registered Holder”) for, the common depositary for Euroclear and Clearstream, Luxembourg and may be delivered on or prior to the original issue date of the Notes.

Each Accountholder (as defined below) must look solely to Euroclear and Clearstream, Luxembourg (as the case may be) (each a “Clearing System”) for its share of each payment made by the Issuer to the holder of the Global Certificate and in relation to certain other rights arising under the Global Certificate, subject to and in accordance with the respective rules and procedures of the relevant Clearing System. Such persons shall have no claim directly against the Issuer in respect of payments due on the Notes for so long as the Notes are represented by such Global Certificate and such obligations of the Issuer will be discharged by payment to or to the order of the holder of such Global Certificate in respect of each amount so paid.

The Global Certificate contains provisions which apply to the Notes while they are in global form, some of which modify the effect of the terms and conditions of the Notes set out in this Offering Memorandum. The following is a summary of certain of those provisions.

1. Nominal Amount and Exchange

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

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

Transfers of the holding of Notes represented by the Global Certificate may only be made in whole but not in part for Certificates only if:

(a) the Issuer has been notified that the relevant Clearing System is closed for business for a continuous period of 14 days (other than by reason of holiday, statutory or otherwise) or has announced an intention permanently to cease business or has done so and no successor clearing system is available; or

(b) the Issuer has or will become subject to tax consequences which would not be suffered were the Notes evidenced by the Global Certificate in definitive form,

(each an “Exchange Event”).

The Issuer will promptly give notice to the Noteholders in accordance with Condition 17 if an Exchange Event occurs. In the event of the occurrence of an Exchange Event as described in (a) or (b) above, Euroclear and/or Clearstream, Luxembourg, as the case may be, acting on the instructions of any Accountholder may give notice to the Registrar requesting exchange and, in the event of the occurrence of an Exchange Event as described in (b) 147

above, the Issuer may also give notice to the Registrar requesting exchange. Any exchange shall occur no later than 10 days after the date of receipt of the first relevant notice by the Registrar.

Exchanges will be made upon presentation of the Global Certificate at the office of the Registrar by or on behalf of the Registered Holder on any day on which banks are open for general business in Luxembourg and will be effected by the Registrar (i) entering each Accountholder in the Register as the registered holder of the principal amount of Notes equal to such Accountholder's holding and (ii) completing, authenticating and dispatching to each Accountholder a Certificate evidencing such Accountholder's holding. The aggregate principal amount of the Notes evidenced by Certificates issued upon an exchange of the Global Certificate will be equal to the aggregate outstanding principal amount of the Notes evidenced by the Global Certificate.

The Registrar will not register title to the Notes in a name other than that of a nominee for Euroclear and/or Clearstream, Luxembourg acting as the common depositary for a period of 15 calendar days preceding the due date for any payment of principal or interest in respect of the Notes.

2. Payments

For so long as the Registered Holder is shown in the Register as the holder of the Notes evidenced by the Global Certificate, the Registered Holder shall (subject as set out herein) in all respects be entitled to the benefit of such Notes and shall be entitled to the benefit of the Agency Agreement. Payments of all amounts payable under the Conditions in respect of the Notes as evidenced by the Global Certificate will be made to the Registered Holder pursuant to the Conditions.

Distributions of amounts with respect to book-entry interests in the Notes held through Euroclear or Clearstream, Luxembourg will be credited, to the extent received by the Principal Paying and Conversion Agent, to the cash accounts of Euroclear or Clearstream, Luxembourg participants in accordance with the relevant system's rules and procedures.

Upon any payment of any amount payable under the Conditions the amount so paid shall be entered by the Registrar on the Register, which entry shall constitute prima facie evidence that the payment has been made.

All payments in respect of Notes represented by the Global Certificate will be made to, or to the order of, the person whose name is entered on the Register at the close of business on the record date which shall be on the Clearing System Business Day immediately prior to the date for payment, where "Clearing System Business Day" means Monday to Friday inclusive except 25 December and 1 January. None of the Issuer, the Trustee, any Paying Agent nor the Registrar will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Global Certificate or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. 148

3. Calculation of interest

Notwithstanding the provisions of the second paragraph of Condition 4(b), for so long as all of the Notes are represented by the Global Certificate, interest shall be calculated on the aggregate principal amount of the Notes represented by such Global Certificate (and not per Calculation Amount), but otherwise shall be calculated in accordance with Condition 4.

4. Notices

For so long as all of the Notes are represented by the Global Certificate and such Global Certificate is held on behalf of one or more relevant Clearing System(s), notices to Noteholders may be given by delivery of the relevant notice to such relevant Clearing System(s) for communication to the relevant Accountholders (or otherwise in such manner as the Trustee, the Principal Paying Agent and the relevant Clearing System(s) may approve for this purpose) rather than by publication as required by Condition 17. Any such notice shall be deemed to have been given to the Noteholders on the day on which such notice is delivered to the relevant Clearing System as aforesaid.

So long as the Notes are admitted to listing or trading on any stock exchange, the requirements of such stock exchange shall also be complied with.

5. Accountholders

For so long as any Notes are represented by the Global Certificate and the same is held on behalf of any Clearing System(s), each person (other than a relevant Clearing System) who is for the time being shown in the records of the relevant Clearing System(s) as entitled to a particular principal amount of such Notes (each an “Accountholder”) (in which regard any certificate or other document issued by a relevant Clearing System as to the principal amount of such Notes standing to the account of any person shall, in the absence of manifest error, be conclusive and binding for all purposes) shall be treated as the holder of such principal amount of such Notes for all purposes (including, but not limited to, for the purposes of any quorum requirements of, or the right to demand a poll at, meetings of the Noteholders) other than with respect to payments on such Notes, the right to which shall be vested, as against the Issuer and the Trustee, solely in the Registered Holder in accordance with and subject to the rules and procedures for the time being of the relevant Clearing System and the terms of the Trust Deed. Each Accountholder must look solely to the relevant Clearing System for its share of each payment made to the Registered Holder subject to and in accordance with the respective rules and procedures of the relevant Clearing System. Accountholders shall have no claim directly against the Issuer in respect of payments due on the Notes for so long as the Notes are represented by the Global Certificate, and such obligations of the Issuer will be discharged by payment to the Registered Holder in respect of each amount so paid.

6. Transfers

Transfers of book-entry interests in the Notes will be effected through the records of the relevant Clearing System(s) and their respective participants in accordance with the rules and procedures of such Clearing System(s) and their respective direct and indirect participants. 149

7. Cancellation

Cancellation of any Note represented by the Global Certificate that is required by the Conditions to be cancelled (other than upon its redemption) will be effected by a reduction in the aggregate principal amount of the Notes in the register of Noteholders and by the annotation of the appropriate schedule to the relevant Global Certificate

8. Conversion

For so long as any Notes are represented by the Global Certificate and the same is held on behalf of any Clearing System(s), any Conversion of such Notes will be effected in accordance with the Conditions and, if and to the extent necessary, in accordance with the standard operating procedures of such Clearing System(s).

9. Suspension Date following Conversion

In the case of Notes represented by a Global Certificate, any Conversion Shares Settlement Notice delivered prior to the day following the Suspension Date shall be void.

For the purposes of this provision, "Suspension Date" shall mean a date specified by the Issuer in the Trigger Event Notice or the Conversion Shares Issuer in the Conversion Shares Offer Notice (and any notice of termination of the Conversion Shares Offer), as the case may be, as being the date on which the relevant Clearing System(s) shall suspend all clearance and settlement of transactions in the Notes in accordance with its rules and procedures which date shall, in the case of a Conversion Shares Offer, be as proximate to the end of the Conversion Shares Offer Period as is reasonably practicable in accordance with the rules and procedures of the relevant Clearing System(s).

10. Electronic Consent and Written Resolutions

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

(i) approval of a resolution proposed by the Issuer or the Trustee (as the case may be) given by way of electronic consents communicated through the electronic communications systems of the relevant Clearing System(s) in accordance with their operating rules and procedures by or on behalf of the Noteholders of not less than 75 per cent. in nominal amount of the Notes outstanding (an “Electronic Consent”) shall, for all purposes (including matters that would otherwise require an Extraordinary Resolution (as defined in the Trust Deed) to be passed at a meeting for which the Special Quorum (as defined in the Trust Deed) was satisfied), take effect as an Extraordinary Resolution passed at a meeting of Noteholders duly convened and held, and shall be binding on all Noteholders whether or not they participated in such Electronic Consent; and

(ii) where Electronic Consent is not being sought, for the purpose of determining whether a Written Resolution (as defined in the Trust Deed) has been validly passed, the Issuer and the Trustee shall be entitled to rely on consent or instructions given in writing directly to the Issuer and/or the Trustee, as the case may be, by accountholders in the relevant Clearing System(s) with entitlements to such Global 150

Certificate or, where the accountholders hold any such entitlement on behalf of another person, on written consent from or written instruction by the person for whom such entitlement is ultimately beneficially held, whether such beneficiary holds directly with the accountholder or via one or more intermediaries and provided that, in each case, the Issuer and the Trustee have obtained commercially reasonable evidence to ascertain the validity of such holding and have taken reasonable steps to ensure that such holding does not alter following the giving of such consent or instruction and prior to the effecting of such amendment. Any resolution passed in such manner shall be binding on all Noteholders, even if the relevant consent or instruction proves to be defective. As used in this paragraph, “commercially reasonable evidence” includes any certificate or other document issued by Euroclear, Clearstream, Luxembourg or any other relevant Clearing System, or issued by an accountholder of them or an intermediary in a holding chain, in relation to the holding of interests in the Notes. Any such certificate or other document shall, in the absence of manifest error, be conclusive and binding for all purposes. Any such certificate or other document may comprise any form of statement or print out of electronic records provided by the relevant clearing system (including Euroclear’s EUCLID or Clearstream, Luxembourg’s CreationOnline system) in accordance with its usual procedures and in which the accountholder of a particular principal or nominal amount of the Notes is clearly identified together with the amount of such holding. Neither the Issuer nor the Trustee shall be liable to any person by reason of having accepted as valid or not having rejected any certificate or other document to such effect purporting to be issued by any such person and subsequently found to be forged or not authentic.

11. Euroclear and Clearstream, Luxembourg

Notes represented by the Global Certificate are transferable in accordance with the rules and procedures for the time being of the relevant Clearing System(s).

References in the Global Certificate to Euroclear and/or Clearstream, Luxembourg shall be deemed to include references to any other clearing system approved by the Trustee in which the Notes are held from time to time. 151

The PICG Group

1. Overview of the Issuer

PIC was incorporated and registered as a private limited company in England and Wales on 13 February 2006 under the Companies Act 1985, with registered number 05706720. On 9 June 2014, PIC was re-registered as a public limited company. PIC is authorised by the PRA and regulated by the FCA and the PRA (reference number 454345). PIC’s principal activity is providing wholesale insurance annuity products to UK defined benefit occupational pension funds and their members, commonly referred to as "pension insurance".

The principal legislation under which PIC operates is the Companies Act 2006 and regulations made thereunder.

The financial year end of PIC is 31 December.

The registered office of PIC and the business address of each of its directors for matters concerning PIC's business is 14 Cornhill, London EC3V 3ND. The telephone number of the registered office is +44 (0)20 7105 2000.

2. Overview of PICG

PICG was incorporated and registered as a private limited company in England and Wales on 19 August 2015 under the Companies Act 2006, with registered number 09740110. On 2 December 2015, PICG changed its name to its current name, Pension Insurance Corporation Group Limited (having previously been named Lockward Limited). PICG’s principal activity is to act as the holding company for the other companies within the PICG Group, including PIC. PICG does not have operations independent of its subsidiaries.

The principal legislation under which PICG operates is the Companies Act 2006 and regulations made thereunder.

The financial year end of PICG is 31 December.

The registered office of PICG and the business address of each of its directors for matters concerning PICG's business is 14 Cornhill, London EC3V 3ND. The telephone number of the registered office is +44 (0)20 7105 2000.

3. History, Ownership and Management of the PICG Group

PIC is a wholly-owned subsidiary PIC Holdings Limited. PIC Holdings Limited is a wholly- owned subsidiary of PICG. PIC was incorporated in 2006, at which time it was authorised and regulated by the Financial Services Authority. PIC wrote its first insurance business in 2008.

Until 9 October 2012, PIC was a wholly owned subsidiary of Cornhill Corporation Holdings LLP (formerly Pension Insurance Corporation Holdings LLP). On 9 October 2012, a reorganisation took place, which resulted in PIC becoming a wholly owned subsidiary of Pension Corporation Group Limited, which was incorporated in Guernsey in 2012. In late 2015 a restructuring took place, in which then-dormant companies which no longer served a 152

corporate purpose were put into liquidation and PICG became the ultimate holding company of PIC.

The three principal shareholders of PICG are Reinet Fund SCA FIS (“Reinet”), CVC Capital Partners (“CVC”) and Luxinva, a wholly owned subsidiary of Abu Dhabi Investment Authority (“ADIA”) which had a 43.7 per cent., a 17.4 per cent. and a 17.1 per cent. shareholding (measured on a voting basis), respectively, as at 9 July 2019. As at 9 July 2019, the other institutional shareholders of PICG included Legend Holdings Corporation (“Legend”) (5.3 per cent.), Istithmar World (4.7 per cent.) and Swiss Re (4.3 per cent.) (each such shareholding measured on a voting basis). PICG also has a number of private individual shareholders.

Under the arrangements agreed by the principal shareholders of PICG, there are certain reserved matters in relation to PIC that require the prior approval of Reinet (the “Reserved Matters”). See “Description of the PICG Ordinary Shares” for further explanation of the nature of the Reserved Matters.

PICG is managed by a board of directors (the “PICG Board”). PIC is managed by a board of directors (the “PIC Board”), nine of whom are also directors of PICG. Refer to “Boards of Directors” below for further information about PICG and PIC’s respective boards and governance structures.

4. Organisational Structure of the PICG Group

4.1 PICG Group Structure Chart

PIC is the main operating subsidiary in the PICG Group.

Pension Services Corporation Limited is the PICG Group’s services company, employing all employees within the PICG Group. PIC is dependent upon Pension Services Corporation Limited for the provision of services from its employees, directors and consultants. The PICG Group had an average of 189 employees over 2018 and 219 employees at 30 June 2019, in each case excluding Non-Executive Board members. 153

4.2 PICG Group companies

Percentage owned by Country of Name of Company PICG(1) Incorporation Nature of Business Pension Insurance N/A England and Wales Holding company Corporation Group Limited PIC Holdings Limited 100% England and Wales Holding company Pension Insurance 100% England and Wales Pension insurance Corporation PLC Pension Services 100% England and Wales Service company Corporation Limited (1) Each subsidiary has only one class of ordinary shares. PICG has both ordinary shares each of £0.00161678179673884 nominal value and C shares each of £0.00161678179673884 nominal value in issue.

5. Pension Insurance Sector Overview

Pension insurance comprises the provision of wholesale insurance annuity products to UK defined benefit occupational pension funds and their members.

Funding comparisons for the UK defined benefit occupational pension funds that are eligible for entry into the UK’s Pension Protection Fund (the “PPF”) are estimated to be as follows:

Dec 2017 Dec 2018 Aggregate (£87.6)bn £14.3bn balance Funding ratio 94.7% 100.9% Aggregate £1,563.5bn £1,580.3bn assets Aggregate £1,651.1bn £1,566.0bn liabilities

(Source: PPF website: https://ppf.co.uk/ppf-7800-index)

The PPF was established as a statutory fund under the provisions of the Pensions Act 2004 to pay compensation to members of eligible defined benefit occupational pension funds, when there is a qualifying insolvency event in relation to the sponsoring employer and where there are insufficient assets in the pension fund to cover PPF levels of compensation.

The aggregate market value of the assets in such funds was estimated to be £1.6tn as at 31 December 2018 (Source: PPF Purple Book 2018). The pension insurance sector has grown over the last ten years, but still only a small proportion of the liabilities of UK defined benefit occupational pension funds are insured. 154

The following graph shows the total value of insurance buy-in and buyout transactions in each year between 2008 and 2018:

0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

PIC Others

(Source: Aon, LCP, Willis Towers Watson and company estimate, refers to buy-in and buyout only.)

The following graph shows the UK pension risk transfer cumulative market share between 2008 and 2018:

Pension Insurance Corporation 8% 4% L&G 4% 28% Rothesay Life 6% Aviva

10% Prudential

Just

11% Scottish Widows 29% Others

(Source: LC, Willis Towers Watson and company estimate)

Key changes and trends which have influenced the buy-in and buyout sector have included:

(i) the introduction of the Pensions Act 2004, which significantly increased the regulatory requirements for defined benefit occupational pension funds, and in particular introduced a requirement that the pension fund sponsoring employer must meet any deficit in the pension fund on the funding basis agreed between the trustees and the sponsoring employer. This means that the sponsoring employer must meet the cost of insuring the pension fund liabilities on a buyout basis (and the pension fund must then enter into an insurance buy-in in respect of all such liabilities) if it wishes to remove the obligation to make any further deficit contributions; 155

(ii) changes to the UK accounting rules for pension fund liabilities, which increased the visibility of pension fund deficits and the costs to sponsoring employers as set out in their financial statements;

(iii) that most defined benefit occupational pension funds have been closed to new entrants and a significant proportion of closed funds have subsequently been frozen to the accrual of future benefits for existing fund members; and

(iv) an increased industry focus on de-risking in pension fund asset and liability management. This is evidenced by the increasing proportion of pension fund assets held in gilts and fixed interest securities and the reducing proportion held in equities: in 2006, 28.3 per cent. of pension fund assets were invested in bonds, and by 2018 this percentage had increased to 59.0 per cent. By contrast, the proportion of pension fund assets held in equities reduced from 61.1 per cent. in 2006 to 27 per cent. in 2018 (Source: PPF Purple Book 2018). De-risking strategies such as these more accurately match the profile of the assets of the pension fund with its liabilities and may then facilitate subsequent buy-in insurance transactions (with the ultimate aim of insuring all of the fund’s liabilities in a subsequent buyout transaction).

The main participants in the pension buy-in and buyout sector include PIC, Aviva, Just Group, Legal & General, Rothesay Life, Canada Life, Phoenix and Scottish Widows.

The issue of defined benefit pensions has remained on the political agenda as the UK Government launched a consultation on the “Security and Sustainability in Defined Benefit Pension Schemes” on 20 February 2017. This concluded on 19 March 2018 through the publication of a White Paper entitled “Protecting Defined Benefit Pension Schemes”. The paper concluded that the UK Government is committed to protect pensions for those who have saved for their retirement and to help employers to meet their promises to pension schemes. Pension buy-ins and buyouts are viewed as enabling pensions to be protected and ensuring pension promises are met. The White Paper also raised the question as to whether new pension fund based consolidation vehicles could improve efficiency within the sector and potentially offer an alternative to those pension funds that are unable to afford an insured buyout, such as those offered by the Issuer.

A number of parties are proposing to set up such trust-based pension fund consolidation vehicles (or have done so). The DWP published a public consultation in December 2018 on consolidation of defined benefit pension funds. The consultation set out proposals for the structure, governance, regulation, financial management and other aspects of trust-based pension consolidation vehicles and invited comments on these proposals. The consultation closed on 1 February 2019 and generated responses from industry participants and led to debate and coverage in the media. No formal communications have been made by the DWP as to what (if any) the next steps will be with respect to this subject since the closing of the consultation, following on from the DWP’s review of the consultation responses.

6. Business of the PICG Group

PIC is the primary operating subsidiary of the PICG Group, of which PICG is the ultimate holding company. PICG has no material operations or assets other than as arise in connection with its position as a holding company. 156

6.1 Business, Services and Products

PIC’s principal activity is the provision of pension buy-in and buyout contracts to corporate pension schemes (“pension insurance” or “bulk annuities”). Pension insurance products are used by pension funds to transfer to an insurance company the risks and liabilities arising from the benefit promises made to pension fund members. Pension insurance is also used as a means by which ultimate responsibility to pay the benefits promised is transferred to the insurance company through the issuance of an individual annuity insurance policy to the pension fund member.

PIC's strategy is to use its capital resources and expertise to provide long-term security for its policyholders and to generate target returns for its shareholders by writing pension insurance for UK defined benefit pension funds.

PIC aims to deliver these objectives through:

 a strong and sustainable pipeline of new business: PIC provides tailored products to meet the specific requirements of each of its clients, dealing with complexity through innovation and flexibility, and offering price certainty where this is a requirement;

 risk-adjusted asset performance: PIC aims to source and acquire long-dated assets which provide investment returns over and above those needed to meet the liabilities assumed, whilst optimising the impact of those assets on capital requirements and reserve calculations;

 hedging out unwanted risks: PIC seeks to pass on inflation, interest rate and currency risk through hedging strategies, and to manage its longevity risk through the use of reinsurance;

 a focus on administration efficiency and customer service levels: PIC aims to provide policyholders with a high-quality service, adhering to the requirements and principles of the FCA’s “Treating Customers Fairly” principles, whilst building on its reputation in this key area; and

 focused use of skills and resources: PIC aims to be efficient in deploying resources to manage and operate its business, and uses services from outsourcing partners where it is efficient and cost effective to do so.

PIC originates new business through active engagement with, and marketing to, pension fund trustees and their advisers, as well as to the corporate sponsors of such funds. Specialist advisers in this field, appointed by trustees and sponsoring employers, play a key role in any evaluation or execution of a pension insurance solution and include advisers such as Aon, Barnett Waddingham, Capita, Hymans Robertson, JLT, KPMG, Lane Clark & Peacock, Mercer, PwC, Willis Towers Watson and XPS Pensions Group. 157

Services and Products

A summary of PIC’s principal product categories is set out below.

Insurance Buyout: This is an insurance annuity policy purchased by the trustees of a pension fund in the name of the pension fund member. If a pension fund member has died and his, or her, beneficiaries, including spouse, children or other dependants, have a right to benefits from the pension fund ("dependent beneficiaries") then an annuity policy may also be purchased for such individuals. The members of the pension fund and dependent beneficiaries for whom insurance annuity policies have been purchased then become direct policyholders of the insurance company. The pension fund is then relieved of the obligations in respect of which annuity policies have been purchased. Where insurance annuity policies are purchased in respect of all of the members and dependent beneficiaries in respect of all of their benefit entitlements, known as a “full buyout”, the pension fund can be wound up.

Operationally, an insurance buyout is typically preceded by an insurance buy-in, pending detailed verification of benefits due to the pension fund members and the data held in respect of them.

Insurance Buy-In: This is an insurance annuity policy purchased by the trustees of a pension fund in respect of some or all of its members and dependent beneficiaries in respect of some or all of their benefit entitlements under the pension fund. A single annuity policy (the buy-in policy, often referred to as a bulk annuity) will be issued to the trustees of the pension fund in respect of all of the members and dependent beneficiaries covered. The buy- in policy is then held by the trustees alongside the other pension fund assets. The buy-in of a subset of the pension funds liabilities (e.g., covering in-payment pensioners only) is usually entered into as part of a phased strategy of the pension fund to reduce risk.

In this situation, the pension fund trust continues to exist and the trustees continue to be responsible for the payment of the pensions. The insurance company will pay the insured benefits to the pension fund which will then pay them to the pension fund members and dependent beneficiaries (although the trustees of the pension fund may ask the insurance company to make payments direct to the members and dependent beneficiaries on their behalf).

Summary of PIC buyout and buy-in transactions of £300m and over

Date Size(1) Transaction Type December 2008 £1,100m Full buyout November 2009 £476m Pensioner buy-in May 2010 £300m Full buyout July 2012 £300m Pensioner buy-in July 2013 £1,500m Full buyout November 2013 £670m Full buyout June 2014 £1,600m Pensioner buy-in November 2015 £2,400m Full buyout April 2016 £300m Pensioner buy-in May 2016 £900m Pensioner buy-in 158

October 2017 £600m Pensioner buy-in November 2017 £725m Pensioner buy-in July 2018 £850m Full buyout July 2018 £1.3bn Pensioner buy-in August 2018 £800m Full Buyout December 2018 £1.5bn Pensioner buy-in January 2019 £425m Pensioner buy-in April 2019 £1.2bn Pensioner buy-in May 2019 £900m Pensioner buy-in June 2019 £3.3bn Pensioner buy-in

(1) As stated in the transaction announcement.

Although insurance buyout and buy-in transactions currently constitute its principal product categories, PIC and the PICG Group remain open to the possibility of entering new product markets in the future.

On occasion, a pension insurer will sell some or all of its annuity back-book to another pension insurer. These secondary transactions typically occur when the seller wishes to exit the pension insurance market. PIC has yet to acquire another insurer’s annuity back-book, but the PIC Board considers such opportunities when they arise and PIC may make such an acquisition in the future if the PIC Board considers it to be appropriate.

6.2 Summary of Business Written by PIC

The tables below show the new business that PIC has written, the total number of pension funds insured by PIC since its inception and the level of PIC’s financial investments between 2008 and 30 June 2019.

2008 2009 2010 2011 2012 2013 New business 1,572 1,089 718 615 1,512 3,663 premiums in period (£m) Number of pension 5 15 20 31 52 87 funds insured since inception Financial investments 1,855 2,748 3,376 3,928 5,366 8,936 (£m)

2014 2015 2016 2017 2018 HY 2019

New business 2,646 3,755 2,598 3,704 7,150 5,969 premiums in period (£m) Number of pension 106 119 136 156 186 195 funds insured since inception Financial investments 13,316 16,613 22,594 25,671 31,371 39,590 (£m) 159

The table below additionally shows, for more recent years, the number of pension funds insured in each year, total assets and changes in PIC’s expenses as a percentage of its financial instruments.

2016 2017 2018

New business premiums in year (£m) 2,598 3,704 7,150

Number of pension funds insured 17 20 30 Number of pension funds insured since inception 136 156 186

Total assets (£m) 34,789 37,387 43,479 Financial investments (£m) 22,594 25,671 31,371 Expenses % of financial investments (annualised) 0.33% 0.36% 0.35%

PIC transactions by premium size and number of transactions:

160

PIC new business by premium size and annual premiums:

Between 31 December 2018 and 30 June 2019, PIC has written new business premiums of approximately £6.0bn in aggregate for nine pension funds.

6.3 Market position

PIC has established a significant presence in the buy-in and buyout sector since it commenced writing business in the second quarter of 2008, with a share of this sector between the second quarter of 2008 and the end of 2018 of 27 per cent. In 2018, PIC’s share of this sector was 30 per cent. (Source: Aon, LCP, Willis Towers Watson and PIC data). In addition, PIC has received numerous industry awards reflecting its success in product service and provision, including over the past five years:

Provider Award Year European Pensions Awards Insurance Company of the Year 2015 CIO European Innovation Awards Strategy & Tactics: Swaps/Buy-in 2015 Professional Pensions Awards Risk Reduction Provider of the Year 2015 Pensions Age Awards Risk Management Provider of the Year 2015 Director of Finance Awards Pension Solution of the Year 2015 European Pensions Awards Insurance Company of the Year 2016 PIPA (FT Pensions Awards) Derisking Provider (Buyout, Buy-in, Longevity Swaps) 2016 Pensions Age Awards Risk Management Provider of the Year 2017 The Institute of Customer Service ICS Quality Service Provider 2017 The Institute of Customer Service Service Mark with Distinction (accredited from Oct ’17 2017 to Jun ’20 Korn Ferry Outstanding Employer Award 2018 The Institute of Customer Service ICS Quality Service Provider 2018 Pensions Age Awards Risk Management Provider of the Year 2018 The Institute of Customer Service Customer Commitment Award 2019 European Pensions Awards Risk Management Firm of the Year – 2019 2019 161

6.4 Approach to Pricing

PIC seeks to generate profit by charging a premium for the liabilities and risks it assumes. The premium charged is greater than the value of assets which are expected to be needed to meet the projected claims and expenses. The balance equates to the profit margin in the premium that is expected to accrue to PIC over time. Therefore, each new business transaction increases the amount of profits expected in the future.

New business transactions typically require additional capital resources to be held in addition to the premium received. These capital resources are then expected to be released over time.

When pricing new business, PIC calculates the premium required such that the profit margin in that premium is expected to result in its target internal rate of return on capital employed being met.

6.5 Underwriting of New Business

PIC undertakes a full programme of both assessing and underwriting the risks associated with new business transactions and then managing these risks once they are on PIC’s balance sheet. All new business transactions are reviewed and approved typically on a weekly basis by PIC’s management pricing committee, under the supervision of the PIC Board Investment and Origination Committee and, ultimately, the PIC Board. The approach is designed to ensure that:

(i) the nature and profile of the business written meets management’s criteria and objectives and is in line with PIC's business model;

(ii) the liabilities and risks of the business written are fully understood and appropriately priced; and

(iii) the profits anticipated when a transaction is priced are delivered within an acceptable range, which will depend on how the actual experienced outcomes of the risks insured differ over the duration of the transaction from those assumed for pricing purposes.

Market risk (i.e., the risk that asset markets will not perform in line with expectations) for a new insurance transaction is assessed according to the assets in which the premium will be invested. The assets into which new business premiums are to be invested are kept under regular review by PIC’s management investment committee (which meets typically weekly or more frequently depending on market movements). In determining the appropriate asset mix, PIC considers, among other things, the yield, risk, hedging and dealing costs, capital efficiency and duration for which the assets will be held.

Underwriting of longevity risk and other demographic risks (such as the existence and age of an eligible spouse) is carried out by a specialist team within PIC. This team makes an assessment of the insurance risk based on a number of sources, including pension fund- specific experience data and information supplied from bodies such as the Office for National Statistics (“ONS”) and the Continuous Mortality Investigation (“CMI”). The CMI is a subsidiary body of the Institute and Faculty of Actuaries. 162

This underwriting is supplemented by an annual review of PIC’s longevity and expense experience as a further check on the assumptions made.

6.6 Reserving

PIC holds Solvency II technical provisions calculated on actuarial bases to ensure it has sufficient funds available to pay its technical liabilities when they fall due and to compensate potential acquirers of these liabilities for holding capital against those risks that are not considered hedgeable. These technical provisions comprise a best-estimate liability (“BEL”) and a risk margin (“RM”).

The BEL is calculated as the discounted value of the expected future liability cash flows, using a risk-free rate, increased by a matching adjustment which reflects the risk-adjusted yield on the assets backing the liabilities for those liabilities that are backed by PIC’s fund for assets eligible for the matching adjustment (the “Matching Adjustment Fund”). The cash flows of the liabilities backed by the Matching Adjustment Fund and the backing assets in that fund are closely matched by time and amount in order for the company to be eligible to apply the matching adjustment. Where liabilities are not backed by assets within the Matching Adjustment Fund (which typically would only apply to a very small proportion of the company’s overall liabilities), the BEL is calculated as the discounted value of the expected future liability cash flows, using a risk-free rate increased where appropriate by a Volatility Adjustment. The Volatility Adjustment is prescribed by EIOPA as the risk adjusted yield on a reference portfolio of assets.

The RM calculation, which is defined under the Solvency II regulations, is determined by considering the amount that a notional third party would require in order to take over the liabilities and have sufficient capital to support them over their lifetime. It is calculated as the estimated cost of solvency capital for the reference undertaking in each future year, valued at a prescribed rate of 6.0 per cent. per annum and discounted at the risk free rate.

PIC also applies a Solvency II transitional measures adjustment on these technical provisions, which provides capital relief on transitioning from the old Solvency I regime to the Solvency II regime which came into force on 1 January 2016.

Longevity assumptions, including both the current base level of longevity and the assumptions for future longevity improvements, are based on standard industry tables, scheme specific factors and PIC's own longevity experience.

The assumptions used for investment returns are based on the risk-adjusted current market yields of the assets held to back the liabilities. The assumptions used for expenses reflect PIC’s budget and expected future experience.

The methodology and assumptions used to calculate these technical reserves are proposed by the Actuarial Function Holder (appointed by PIC to advise on actuarial issues in accordance with UK insurance regulations), and are reviewed and approved by the PIC Board.

At 30 June 2019, PIC revised its expense assumptions to reflect identified reductions in both internal and external per policy maintenance costs, expense inflation and the expense modelling approach. In addition, PIC carried out an annual update to the market data used 163

to value the allowance for credit risk within the IFRS insurance liabilities. The impact of these expense adjustments at 30 June 2019 is to reduce Solvency II BEL net of reinsurance by £172m and IFRS Reserves net of reinsurance by £335m.

6.7 Asset and Liability Management

The PIC Board reviews and sets key parameters for the investment of PIC’s assets. These parameters include inflation risk, interest rate risk and currency risk exposures and various asset class limits. Actions to manage the investment portfolio and strategy are taken by PIC’s management investment committee which typically meets weekly, under the review of the PIC Board’s Investment and Origination Committee, which meets quarterly for scheduled meetings and as and when business needs require. Exceptions to policy or limits are escalated from the management investment committee to the PIC Board’s Investment and Origination Committee and, ultimately, to the PIC Board.

The asset strategy focuses on sourcing and acquiring assets which provide investment returns that meet or exceed those assumed for pricing purposes. The majority of PIC’s assets are long-dated fixed income investments which are eligible to be used in the Matching Adjustment Fund. PIC utilises the services of external asset managers such as Janus Henderson Investors, Schroders, JPMorgan Asset Management and 24AM, as appropriate, who together managed 47 per cent. of PIC’s financial investments as at 31 December 2018. PIC directly manages its portfolio of UK gilts, supranational bonds and hedging instruments. In addition, PIC sources and directly manages a portfolio of direct debt instruments.

PIC has a comprehensive framework to manage its counterparty exposure. As at 31 December 2018, no single counterparty (excluding the UK Government (which is deemed to include Network Rail)) exceeded 2 per cent. of total investment assets.

PIC is exposed to inflation, interest rate and currency risk through its holdings of fixed interest securities and other investments, and through its liabilities. PIC seeks to hedge these risks as far as practicable in order to protect its balance sheet against adverse movements. The hedging programme uses a range of instruments comprising gilts (including index-linked gilts) and inflation rate, interest rate and currency derivatives. PIC reviews its hedging profiles on a frequent basis and rebalances its hedging arrangements accordingly.

PIC’s bond strategy is to focus on avoiding downgrades and defaults rather than spread volatility. The discount rate for PIC’s liabilities is the yield on the assets it holds to match them. This provides a hedge against spread movements. PIC’s managers work on a “buy and hold” basis with an emphasis on divesting deteriorating credits to maintain asset quality.

PIC’s Solvency II liabilities had an average duration of 13.5 years, net of reinsurance, as at 31 December 2018. 164

Asset portfolio mix

PIC’s investment assets as at 31 December 2018 and 31 December 2017 are set out in the tables below:

Investment Assets

AAA AA A BBB BB Unrated Total 31 December 2017 £m £m £m £m £m £m £m Loans and debt securities Debt securities – Government 402 8,459 206 357 - - 9,424 Debt securities – Corporate1 789 1,633 5,626 5,859 203 189 14,299 Mortgage backed and other asset backed 12 23 130 30 - 152 347 securities1 1,203 10,115 5,962 6,246 203 341 24,070 Other assets Derivative assets - 943 6,173 1,659 - - 8,775 Participation in investment schemes2 538 - - - - 486 1,024 Deposits with credit institutions - - 577 - - - 577 Receivables and other financial assets 15 30 59 80 1 131 316 Cash and cash equivalents - - - 33 - - 33 553 973 6,809 1,772 1 617 10,725

1 Within the above, there are £59m AAA rated, £381m AA rated, £768m A rated, £641m BBB rated and £59m BB rated corporate debt securities, and £4m A rated and £1m BBB rated mortgage and asset backed securities, which have been rated using internally assessed credit ratings. 2 The participation in investment schemes represents £538m in Aviva and Northern Trust liquidity funds £439m in alternative investments and £47m in fixed income funds.

AAA AA A BBB BB Unrated Total 31 December 2018 £m £m £m £m £m £m £m Loans and debt securities Debt securities – Government 347 10,020 619 732 - 38 11,756 Debt securities – Corporate1 1,060 2,015 6,315 6,776 244 122 16,532 Mortgage backed and other asset backed - 17 290 21 - 28 356 securities1 Equity release mortgages - - - - - 294 294 1,407 12,052 7,224 7,529 244 482 28,938 Other assets Derivative assets - 2,823 4,786 2,148 - - 9,757 Participation in investment schemes2 538 - - - - 800 1,338 Receivables and other financial assets 18 34 66 103 2 53 276 Deposits with credit institutions - 290 805 - - - 1,095 Cash and cash equivalents - - - 67 - - 67 556 3,147 5,657 2,318 2 853 12,533

1 Within the above, there are £69m AAA rated, £848m AA rated and £1,288m A rated, £747m BBB rated and £121m BB rated debt securities, and £4m A rated and £1m BBB rated mortgage and asset backed securities, which have been rated using internally assessed credit ratings. 2 The participation in investment schemes represents £538m in Aviva and Northern Trust liquidity funds, £731m in alternative investments and £69m in fixed income funds.

PIC has a long-term track record of investing in secure, long-term assets that are sourced privately alongside those invested in the listed debt markets. In 2018, PIC invested £2.5bn (2017: £1.1bn) in direct investments across nearly 40 different transactions. The breakdown by sector of direct investments over 2018 was:

31 December 2018 Sector breakdown Commercial property 6% Education 19% Financials 4% Not for profit 11% Project finance 12% Social housing 11% Student accommodation 17% 165

Student Loans 7% Transport 6% Utilities 7% Total 100%

PIC sources corporate debt securities across a wide range of geographic areas. The table below shows PIC’s corporate debt exposures split by country / region of issuance at 31 December 2018:

£m % 31 December 2018 UK 8,332 50.4% US 5,141 31.1% Europe 1,699 10.3% Rest of the World 1,360 8.2% Total 16,532 100.0%

As at 31 December 2018, PIC’s largest sovereign exposure was to the United Kingdom and had a market value of £6,001m.

Investment Operations

The Investment Operations team is separately managed and works with the Investment team to execute investment decisions, and manage, monitor and report on the asset portfolio. The Investment Operations team is also responsible for managing PIC’s relationship with, and service delivery from, its two outsourcing partners for custody and investment services, JPMorgan and Northern Trust.

Default Experience

Since 2013 PIC has experienced no defaults.

The assumed annual default rate as defined by EIOPA under Solvency II at 31 December 2018 and included within the Solvency II Best Estimate Liabilities was 0.21 per cent.

Equity Release Mortgages

In 2017, PIC started funding ERM originated by third parties and, as at 31 December 2018, PIC held £294m of ERM (constituting 0.9 per cent. of PIC’s financial investments). PIC allocates only a small proportion of this asset class to its new business pricing assumptions.

PIC currently holds these mortgages on a direct unstructured basis and therefore is not deriving any matching adjustment in respect of them (i.e., the yield on ERM is not being allocated towards the valuation of PIC’s Solvency II liabilities). In addition, PIC applies a conservative stress in assessing the contribution of this asset to its internal model solvency capital requirements.

PIC is seeking to apply for Solvency II internal model capital treatment to allow the ERM portfolio to be internally structured so that part of the ERM can be allocated to PIC’s Solvency II matching fund and thereby enable some matching adjustment to be derived from this asset. See also the risk factor entitled “The PICG Group is required to comply with capital adequacy requirements and failure to do so could have a material adverse effect on the PICG Group’s business” above for a description of the implications of SS3/17 on PIC’s ERM portfolio. 166

6.8 Reinsurance

In order to reduce its exposure to certain demographic and other insurance related risks, PIC enters into reinsurance contracts with third party reinsurance companies, where it is considered appropriate and economic to do so. Given the additional risk margin capital required to be held for longevity risk under Solvency II, there is greater demand for simultaneous reinsurance to be negotiated and executed on the completion of writing of new pension insurance business.

Currently, PIC aims to reinsure greater than 60 per cent. of its longevity risk exposure, although the actual level of reinsurance varies from time to time. As at 31 December 2018, PIC had reinsured 74 per cent. of its total longevity exposure, with further reinsurance coverage the subject of negotiation with a range of counterparties. PIC had reinsured over 75 per cent. of its total longevity exposure at 30 June 2019.

The reinsurance that PIC has arranged to date takes two forms: longevity swap reinsurance and quota share reinsurance. Under the former, PIC has entered into a number of reinsurance contracts under which it has committed to pay the reinsurer a schedule of fixed payments based on the expected survivorship at the outset of the relevant underlying policyholders. In return, the reinsurer undertakes to reimburse the corresponding payments based on actual, realised survivorship. Importantly, these payments are not subject to a monetary cap and are payable for an unlimited term. The net effect is to eliminate the impact of uncertainty in future longevity experience in respect of the benefits insured. As part of these arrangements, a separate reinsurance fee is payable by PIC to the reinsurer.

The reinsurers with which PIC currently has longevity swap reinsurance contracts are Hannover Re, Munich Re, Pacific Life, the Prudential Insurance Company of America, Canada Life, RGA, SCOR, Swiss Re, Challenger, and PartnerRe.

In addition, PIC has entered into a number of quota share arrangements with Berkshire Hathaway Life Insurance Company of Nebraska, a US-regulated insurer and Risicom Rueckversicherung AG, a subsidiary of Siemens.

Each of the reinsurance arrangements referred to above is subject to the periodic posting of collateral or other security arrangements and in certain cases rating triggers apply before the posting of collateral is required. This is structured so as to reduce PIC’s exposure to default by the reinsurer. All new reinsurance transactions are reviewed and approved by PIC’s management pricing committee, and exceptions to policy or limits are escalated to the PIC Board’s Investment and Origination Committee and, ultimately, to the PIC Board as required.

6.9 Risk Management

PIC has a comprehensive risk management framework overseen by the PIC Board and by the PIC Board’s Risk Committee. The risk management framework is reinforced through the Risk Appetite and Tolerance Framework which is overseen by the management risk committee, the Chief Risk Officer and the Risk Function that reports to him.

Under Solvency II, PIC uses an internal model to set its regulatory Solvency Capital Requirement (“SCR”). This evaluates market risk, insurance risk, operational risk, expense 167

risk and counterparty risk. In addition, PIC produces an Own Risk and Solvency Assessment (ORSA).

PIC manages its business according to the risk strategy, risk appetites and tolerances set out in its risk policies. Specifically, PIC's solvency risk appetite defines a target level of capital that it wishes to maintain, which is regularly monitored and reported against. Capital volatility is managed through risk management techniques, including the use of inflation rate, interest rate, credit default and currency hedging instruments to reduce exposure to potential adverse market movements. PIC is also able to manage its capital position through the level of new business it writes and its broader investment and reinsurance strategies.

PIC focuses on hedging its best estimate liabilities and Solvency II SCR to interest rates and inflation rates. This provides a proxy to IFRS and embedded value sensitivities, although some basis risk remains. PIC aims to remove all foreign exchange risk through cross- currency hedging. Longevity risk is managed through reinsurance, where the majority of risk is transferred.

6.10 Administration

The administration of the issuance of new insurance policies and servicing of existing policyholders is an important function within PIC’s operations. PIC has an experienced in- house administration team. This team is currently supported by the services of Capita, an administration outsourcing partner based in the UK.

As at 31 December 2018, PIC was responsible for paying the pensions of approximately 192,100 individuals and had approximately 114,100 current individual policies in issue, in respect of 103 pension funds (31 December 2017: 84,300; 90). The remaining pension funds that are insured are either in the transition process, which includes the verification of scheme data and finalisation of liabilities prior to individual policies being issued by PIC, or are buy- ins under which the policy is issued to the fund trustee, rather than to individuals.

PIC aims to have effective and high-quality communication with its policyholders and has established a dedicated UK-based helpline for its customers, which includes a free call-back facility if requested by the customer. PIC also maintains a dedicated section of its website for the provision of online services to its policyholders. In addition, PIC holds regular forums around the UK to which policyholders are invited to learn more about PIC and to discuss relevant issues.

The service quality which PIC provides to its policyholders is closely managed and monitored by PIC and its outsourcing partners to ensure that it not only fulfils its regulatory obligation to treat its customers fairly, but also to verify its service levels. PIC has attained the Institute of Customer Service’s ServiceMark for outstanding customer service. PIC has also been awarded Platinum status by the Plain English Campaign, in recognition of the clarity of its customer documentation. 168

7. Financial Information for the years ended 31 December 2017 and 31 December 2018

7.1 Statement of Comprehensive Income (IFRS) (PIC and PICG consolidated) (£m)

2017 2018

2017 2017 2018 2018 (PIC) (PICG (PIC) (PICG consolidated) consolidated) Revenue Gross Premiums Written 3,704 3,704 7,150 7,150 Outward Reinsurance Premiums (41) (41) (29) (29) Net Premium Revenue Earned 3,663 3,663 7,121 7,121

Investment Return and Commissions 1,093 1,093 (977) (977) Earned

Total Revenue (net of Reinsurance 4,756 4,756 6,144 6,144 Premiums)

Expenses Claims Paid – Gross (1,003) (1,003) (1,248) (1,248) Reinsurers' share of claims paid 94 94 74 74 (909) (909) (1,174) (1,174)

Increase in insurance liabilities - gross (3,252) (3,252) (3,727) (3,727)

Change in reinsurers' share of insurance (72) (72) (596) (596) liabilities (3,324) (3,324) (4,323) (4,323)

Acquisition Expenses (51) (51) (52) (52) Other Operating expenses (40) (48) (95) (72) Finance costs (41) (41) (46) (46) (132) (140) (193) (170)

Total Claims and Expenses (4,365) (4,373) (5,690) (5,667)

Profit before taxation 391 383 454 477

Income tax charge (75) (73) (86) (91)

Profit for the year 316 310 368 386

Other comprehensive income - - - - 169

Total Comprehensive Income 316 310 368 386

PIC position

Profit before taxation was £454m in 2018, compared to £391m in 2017. The increase in profits reflects the record level of new business activity; significantly higher reinsurance activity than in the prior year; and ongoing work in transitioning new business premiums received fully into target asset allocations. PIC expects that as assets are fully invested and reinsurance in respect of new business written in 2018 is completed, these activities will lead to prudency margins being released and translated into actual earned profits.

During 2018, PIC reinsured a record amount of longevity exposure, covering £5.6 billion of reserves, and at year end 74 per cent. of PIC’s total longevity exposure had been reinsured (2017: 73 per cent.). Claims paid during the year were £1,248m (2017: £1,003m), an increase of 24 per cent. mainly due to the growth in the insurance book during 2018.

The assets in which PIC invests are carefully chosen in order to match the policyholder obligations that they are designed to pay. PIC’s investment strategy is to select assets that generate cash flows that match its future claims payments in both timing and amount. This means that the value of PIC’s assets and its liabilities should move broadly in tandem as factors such as interest rates and inflation rates change. Whilst PIC’s overall investment return (which comprises both investment income received, and changes in market value of assets) in 2018 was negative, this was offset by reductions in PIC’s corresponding liability valuations.

Expenses and finance costs increased from £132m for 2017 to £193m for 2018. The 2018 figure includes amounts relating to Group share based payment costs which were previously incurred in PICG. This resulted in a one-off charge in PIC of £25m and a one-off credit in PICG of the same amount. The rest of the increase reflects the increased new business activity in 2018, as well as additional asset origination costs as PIC continues to invest in developing its asset portfolio.

At 31 December 2018, PIC had total financial investments of £31.4bn, compared with £25.7bn at the end of 2018. The increase of £5.7bn in 2018 was principally due to the record level of new business written in 2018, offset by decreases in market value of the assets and claim payments made to policyholders during the period.

Gross derivative assets and derivative liabilities have both increased since 31 December 2017, as PIC implements hedges on the assets and liabilities associated with new business written in 2018 and rebalancing hedges on existing liabilities.

The IFRS insurance liabilities, which have increased significantly due to the new business in 2018, include certain prudent margins which are expected to be translated into actual earned future profits as they are released over the run-off of the underlying insurance contracts. As at 31 December 2018, these prudent margins rose to approximately £2.5bn (31 December 2017: £1.9bn), with the increase largely reflecting the new business written during 2018, and changes due to economic factors. 170

PIC-PICG Reconciliation

The £23m difference in operating expenses between the PIC and the consolidated PICG Group arises from two items.

The first relates to the Group share-based payment costs. Historically these costs were incurred and accounted in the parent entity, PICG. During 2018, it was determined that these expenses should be recognised in Pension Services Corporation Limited, and subsequently recharged to PIC. This has resulted in a one-off charge in PIC of £25m, reflecting the cumulative expenses incurred pre 2018, and a one-off credit in PICG of the same amount. This change did not impact the consolidated Group results.

The second relates to £2m of operating expenses incurred by entities within the Group other than PIC. This does not impact the solo PIC results. 171

7.2 Balance Sheet (IFRS) (PIC and PICG consolidated) (£m)

2017 2018

2017 2017 2018 2018 (PIC) (PICG (PIC) (PICG consolidated) consolidated)

Assets Investment properties 99 99 96 96 Reinsurers’ share of insurance liabilities 2,450 2,450 1,854 1,854 Receivables and other financial assets 316 320 276 280 Deferred Tax Asset - 3 - 3 Prepayments 43 45 58 61 Financial investments 25,671 25,671 31,371 31,371 Derivative assets 8,775 8,775 9,757 9,757 Cash and cash equivalents 33 43 67 79

Total Assets 37,387 37,406 43,479 43,501

Total Equity 2,076 2,083 2,434 2,457

Liabilities Gross insurance liabilities 24,993 24,993 28,720 28,720 Borrowings 543 543 891 891 Deferred tax liability 4 4 3 3 Derivative liabilities 9,663 9,663 11,303 11,303 Insurance and other payables 48 21 72 14 Current taxation 44 43 37 41

(1) Accruals 16 56 19 72 Total Liabilities 35,311 35,323 41,045 41,044

Total Equity and Liabilities 37,387 37,406 43,479 43,501

1 Reflects accounting consolidation adjustments.

At 30 June 2019, the net asset values of PIC and PICG were £2,505m and £2,528m, respectively. 172

PIC-PICG Reconciliation

A reconciliation of the differences between certain line items of the balance sheet positions of PIC and the PICG Group is provided in the following table:

Consolidation adjustments Other PICG (elimination PICG PIC Group of consolidated (£m) entities intercompany (£m) (£m) balances) (£m)

Receivables and other financial assets 276 89 (85) 280 Deferred Tax Asset - 3 - 3 Prepayments 58 3 - 61 Cash and cash equivalents 67 12 - 79 Insurance and other payables 72 26 (84) 14 Current taxation 37 5 (1) 41 Accruals 19 53 - 72

7.3 Statement of Adjusted Operating Profit (IFRS) for the years ended 31 December 2017 and 2018 (PIC and PICG consolidated) (£m)

Adjusted Operating Profit 2017 2017 2018 2018 (PIC) (PICG (PIC) (PICG consolidated) consolidated)

Return from operations 195 195 238 238 New business and reinsurance 69 69 59 59 surplus Net release from operations 264 264 297 297

Changes in valuation assumptions 172 172 400 400 Experience variances1 61 53 (7) 16

Finance and project costs (51) (51) (64) (64) Adjusted operating profit before 446 438 626 649 tax Investment volatility (55) (55) (172) (172) IFRS profit before tax 391 383 454 477

1 The differences in experience variances are driven by the same items as explained in Section 7.1 above.

Adjusted operating profit before tax has been defined to reflect the activities which are core to PIC’s business, and to reflect the management choices and decisions around those activities. These encompass the writing and management of pension insurance contracts, the management of risk through reinsurance, and the day-to-day investment and 173 management of the insurance assets and liabilities. Within this, management have defined a measure of “return from operations” which captures the returns made from the in-force book of insurance liabilities and expected long-term returns from surplus assets.

The adjusted operating profit basis is aligned to the way management view the business, and the decisions which management make around PIC’s core activities.

During 2018, management decided to amend certain definitions and descriptions within the adjusted operating profit basis, with the main changes being as follows:

 The items previously captioned “Return on Surplus Assets”, and “Return on in-force book” have been added together to be called “Return from operations”. The measurement of these items is, however, unchanged. This change was made as it was felt there was little value in providing this level of granularity.

 Actuarial valuation assumption changes, which in the previous presentation were shown outside of Adjusted Operating Profit, have been moved to be within Adjusted Operating Profit. This change was made to reflect that assumptions made, and changes to those assumptions, are an integral part of the long-term value creation of the business, and to the extent that these assumptions prove to be either too prudent or too imprudent, this should be reflected alongside the core profit emergence rather than being excluded.

 Finance costs have been moved to be within Adjusted Operating Profit. Whilst these costs could be considered outside of operating profit, it was determined that as they support the ability to write new business it was more appropriate to include such costs within adjusted operating profit.

These changes do not alter the total amount of profits or losses recognised within any accounting period, but management believes that by bringing these items within operating profit, it serves to better describe the activities of PIC, and the profits or losses arising.

2017 figures have been changed so as to align to the new presentation format and are presented above.

An explanation of the main components of PIC’s Adjusted Operating Profit is set out below.

The item “net release from operations” comprises the returns arising from the management of PIC’s assets and liabilities. This is derived by using assumptions about long-term returns on the underlying investment portfolio backing liabilities, and on the surplus assets of PIC. It also includes the impact on profit, on a pricing basis, from writing new buy-in and buyout insurance contracts, and entering into contracts of reinsurance. At £297m for 2018, this is £33m greater than the 2017 figure of £264m, principally reflecting the growth in financial investments during the year.

The impact of new business and reinsurance was, as expected, relatively small, reflecting the prudent initial margins established for new business.

“Changes in Valuation Assumptions” gave rise to a positive £400m in 2018, due mainly to two significant assumption changes, as discussed previously. The first related to longevity 174 assumptions, where PIC moved fully to the CMI 2016 model during the year. This change released £144m.

The impact of the change to the liability discount rate prudence level involved a slight reduction in the level of prudence and released £320m into profit before tax in 2018. These two changes, in addition to a number of smaller assumption changes totalling £(64)m made during the course of the year, resulted in the net £400m assumption change impact.

Experience variances, which reflect both the actual claims experience compared to the expected amounts, and the impacts of data updates on underlying policyholder information, were negative in 2018, totalling £(7)m (2017: £61m).

The interest costs of the subordinated debt capital issued by PIC rose to £46m in 2018 from £41m the previous year, following the issuance of a further £350m of debt in September 2018. Project costs in 2018 were £18m (2017: £10m).

Changes in the levels of actuarial assumptions have several impacts on the future profitability of PIC. Firstly, the recognition of assumption changes in 2017 and 2018 has had the effect of accelerating the recognition of future profits, meaning that amounts are recognised in the period that the assumption change is made, rather than being released slowly into profit over many years as the prudent margins unwind. Secondly, the credit default assumption change serves to increase the reported profitability of new business when it is written on an IFRS basis, as there is less prudence in the reserves set up to meet the future policyholder payments.

Going forward, management would therefore expect the return from operations in 2019 and future years to be lower than in 2018 due to the accelerated release of prudent margins in 2018 – albeit that this will be applied to an in-force book which is of a bigger size due to the record levels of new business written in 2018. Against this, management would expect the amount of profits shown as new business to be greater on an IFRS basis going forwards, as less prudence will be built with the insurance liabilities for new business that would have applied previously.

To reconcile from adjusted operating profit before tax to the IFRS profit before tax figure, PIC adjusts differences between its longer term assumptions about investment return and the returns experienced during the year.

Profit before tax includes actual investment returns earned on the surplus assets, whereas the adjusted operating profit is based on the expected returns which are calculated using the management assumption of long-term returns. The long-term rates of return earned on excess assets are derived with reference to longer term swap rates with additional spreads added to take into account the risk associated with the underlying type of asset. The difference between the actual and the expected long-term returns is included within Investment volatility, outside of Adjusted Operating Profit.

The long-term expected rate of return on surplus assets (i.e., those assets not backing liabilities, which consist mainly of UK government securities, cash and liquidity funds) and which represented 11 per cent. of total assets of the Group in 2018 (2017: 10 per cent.), is weighted based on the asset classes held at the beginning of the year. For 2018, the rate was 2.26 per cent. (2017: 2.09 per cent.) for the surplus assets, which comprised government 175

securities of 31 per cent. (2017: 21 per cent.), cash and liquidity funds of 40 per cent. (2017: 56 per cent.) and other asset classes (including hedge funds, asset backed securities and mortgage backed securities) of 29 per cent. (2017: 23 per cent.).

The impact of investment volatility on PIC’s assets and liabilities was £(172)m in 2018 (2017: £(55)m). PIC carefully manages its exposures to factors such as interest rates, inflation, credit spreads and foreign exchange rates, and enters into derivative hedging contracts to manage these exposures in accordance with its risk appetite. PIC’s hedging basis is designed around its solvency balance sheet, and accordingly there is a small degree of mismatch between the hedging basis and the IFRS balance sheet, meaning that some degree of volatility flows through into the annual IFRS results. This resulted in PIC incurring losses due to interest rates of £57m and due to inflation movements of £21m. Additionally, PIC incurred a loss of £94m during the year relating to the differences between the long-term expected returns used within Adjusted Operating Profit, and the actual investment result for the year.

7.4 Embedded Value

With effect from 1 January 2017, PIC adopted the European Insurance CFO Forum market consistent embedded values principles (Stichting CFO Forum Foundation 2008 ©) issued in April 2016 (“MCEV principles”) for its market consistent embedded value (“MCEV”) measurement and reporting. The MCEV principles are based on Solvency II, rather than the IFRS statement of financial position.

The MCEV results are prepared in accordance with the MCEV principles. MCEV breaks down the solvency balance sheet sufficiently to demonstrate the present value of shareholders’ interest in the expected distributable profits of the business over the long-term, after making sufficient allowance for residual risks.

A reconciliation of the PIC Solvency II figures to MCEV is shown below for the financial years ended 31 December 2017 and 31 December 2018.

31 December 2017 (£m) Solvency II Allow for Recognise Release RM Release Tax on MCEV balance sub-debt the frictional DTL net of MA future sheet cost of transitional, margins profits required recognise cost capital of non- hedgeable risk Assets 25,155 BEL (20,876) Risk margin and deferred (951) tax liability (DTL), net of transitional relief Solvency II own funds 3,328 3,328 (Adjusted net worth) PVFP 951 512 (355) 1,108 CRNHR (675) (675) FCoC (161) (161) Subordinated debt (674) (674) MCEV 2,926 31 December 2018 (£m) Solvency II Allow for Recognise Release RM Release Tax on MCEV balance sub-debt the frictional DTL net of MA future sheet cost of transitional, margins profits required recognise cost capital 176

of non- hedgeable risk Assets 30,197 BEL (24,957) Risk margin and deferred (1,323) tax liability (DTL), net of transitional relief Solvency II own funds 3,917 3,917 (Adjusted net worth) PVFP 1,323 579 (413) 1,489 CRNHR (622) (622) FCoC (207) (207) Subordinated debt (962) (962) MCEV 3,615

Methodology overview:

Adjusted net worth

This is equal to the unadjusted own funds under Solvency II.

Present value of future profits (“PVFP”)

There are certain regulatory margins within the Solvency II own funds which, in a “best estimate” scenario, are expected to be released to shareholders as free capital over time. These regulatory margins principally relate to prudence within the liability discount rate (also known as the fundamental spread), and the risk margin (net of any adjustment for the impact of transitional measures on the own funds). The present value, after tax, of the future release of these regulatory margins is equal to the “present value of future profits”.

Cost of residual non-hedgeable risks (“CRNHR”)

Under the MCEV principles allowance is made for the cost of holding capital in respect of non-hedgeable risks. Market risks are assumed to be hedgeable and so no cost is allowed for any capital that might be held under the regulatory solvency regime. For 2018 longevity risk is treated as hedgeable but only in respect of pensioner (individuals who have retired) business, whether this risk is reinsured or not, and reinsured deferred business. This represents an assumption change from prior periods where only longevity risk in respect of reinsured business (whether pensioner or deferred) was treated as hedgeable. The change was made to reflect that in practice PIC has been very successful in reinsuring the majority of its pensioner business. The impact of this assumption change at 2018 was to increase the MCEV by £135m.

Frictional cost of required capital (“FCoC”)

There is a minimum amount of regulatory capital PIC expects to hold (the required capital) and for the purposes of the MCEV calculation this is modelled as 130 per cent. of its SCR. There is a cost associated with the assets used to support this, principally in respect of investment management fees and tax on investment income. This cost is captured as the “frictional cost of required capital”.

Subordinated debt 177

As at the date of this Offering Memorandum, PIC has issued a total of £900m of subordinated debt, which counts as Tier 2 capital for regulatory purposes. As the expectation is that this debt will be fully paid at maturity, the fair value of the debt is recognised for MCEV purposes.

The IFRS Leverage of PIC, defined as borrowings / (IFRS equity plus borrowings), was 18.5 per cent. FY15, 23.6 per cent. FY16, 20.9 per cent. FY17 and 27.0 per cent. FY18.

The Interest Cover of the issuer, defined as IFRS earnings before finance costs and tax divided by finance costs was 6.2x FY15, 13.5x FY16, 10.5x FY17 and 10.9x FY18.

Key MCEV assumptions:

The key MCEV assumptions are:

 economic matching adjustment (“MA”) is similar to the Solvency II matching adjustment but with a more realistic view on the cost of default and downgrade. It is set at 18 basis points (“bps”) above the MA used for Solvency II at 31 December 2018. This assumption is driven by the actual asset spread, net of the expected cost of default and downgrade; and

 cost of residual non-hedgeable risks is an allowance for the cost of the risks which cannot be readily hedged in a liquid market. In MCEV calculations the following categorisations are made for the risks:

o PIC has assumed that longevity reinsurance is not a readily available hedge for unreinsured deferred pensioner insurance risk, hence this is included within CRNHR calculation;

o PIC treats all market-related risks as hedgeable or having symmetric impact on shareholder value; and

o PIC assumes unreinsured deferred longevity risk as non-hedgeable.

Other differences between Solvency II and MCEV assumptions relate to:

 subordinated Tier 2 debt and RT1 notes, which are treated as Tier 2 and Tier 1 capital, respectively, under Solvency II, and which is recognised at fair value for the purposes of embedded value;

 SCR, which is released over time and is replaced with FCoC for MCEV; and

 risk margin, which is released over time and replaced with CRNHR, with a cost of capital rate of 3.2 per cent. per annum.

The key economic assumptions used in the production of the embedded value are summarised below. 178

Embedded Value – Key Assumptions 2017 2018

Economic MA 122 bps 172 bps Reference rate Solvency II risk free Solvency II risk free rate + Economic MA rate + Economic MA Cost of capital 3.20% 3.20% Required capital 130% of Solvency II 130% of Solvency II SCR SCR

Under the MCEV principles, the reference rate is set based on an economic MA, which is derived based on the spread between the weighted average asset spread and the risk free rate plus adjustments for cost of default and downgrades.

Embedded Value (£m) 2017 2018

Free Surplus 620 879

Required Capital 2,708 3,038

Adjusted Net Worth 3,328 3,917

Value of in-force business after tax 1,108 1,489

Less Subordinated debt (674) (962)

EV before cost of capital 3,762 4,444

Frictional Cost of Capital (161) (207)

Cost of residual non-hedgeable risk (675) (622)

EV Net of Cost of Capital 2,926 3,615

The PIC EV increased from £2,926m as at 31 December 2017 to £3,615m as at 31 December 2018. This was primarily due to:

 new business after tax and cost of capital of £195m in 2017 and £513m in 2018;

 the update to the CRNHR to treat the longevity risk associated with all pensioner business (pensions in payment) as hedgeable, which increased the MCEV by £135m. Previously only longevity risk associated with business that had been reinsured at the balance sheet date was treated as hedgeable; and 179

 other variations reflecting changes to PIC’s existing business, the value of PIC’s subordinated debt, investment variances, assumptions and the cost of capital.

As at 30 June 2019, the PIC EV was £3,871m (FY18: £3,615m) and PICG EV was £3,890m (FY18: £3,638m).

7.5 Solvency and Capital position

PIC is authorised by the PRA and regulated by the FCA and the PRA. Its capital requirements are prescribed by PRA rules which implement certain EU insurance directives and provide additional standards applicable to the UK. These rules are explained in detail in “Regulatory Overview” below.

The PRA prescribes regulatory capital requirements in accordance with the SCR and minimum capital requirement (“MCR”) of the Solvency II regime. PIC has obtained approval from the PRA to use an internal model to calculate its:

 SCR, which requires the entity to define the capital required in addition to its technical provisions such that it will be able to meet its obligations to policyholders over the following 12 months with a 99.5 per cent. probability; and

 MCR, which is calculated as a defined formula, but subject to a minimum of 25 per cent. and a maximum of 45 per cent. of the SCR and an absolute floor of €3,700,000.

PIC has obtained approval from the PRA to make use of the matching adjustment and volatility adjustment and to utilise transitional measures on its technical provisions under Solvency II.

At 30 June 2019, PIC’s unaudited solvency capital ratio on the Solvency II basis was 157 per cent. after applying transitional measures. PIC’s Solvency II positions for the years ended 31 December 2017 and 2018 and half-year ended 30 June 2019 are set out below:

PIC’s Solvency II Surplus Capital and 2017 2018 2019 Solvency HY (£m unless otherwise stated)

Own funds “(a)” 3,328 3,917 4,271 Solvency Capital Requirements “(b)” 2,082 2,343 2,714 Solvency II Surplus funds ((a) - (b)) 1,246 1,574 1,557 Solvency Capital Ratio ((a) / (b)) 160% 167% 157%

8. Illustrative Solvency II Cash Generation and Balance Sheets Comparison

The graph below illustrates PIC’s expected Solvency II surplus cash generation after tax prior to debt coupon and principal payments from its in-force business as at 31 December 2018. 180

Illustrative future cash generation after tax prior to debt coupon and principal payments

In accordance with regulatory requirements, PIC publishes an annual solvency and financial condition report, certain sections of which are incorporated in and form part of this Offering Memorandum.

The illustration below compares the IFRS and Solvency II (“SII”) balance sheets as at 30 June 2019 and the level of prudent margins recognised on each basis.

Comparison of IFRS and Solvency II balance sheets

* SII prudent margins and risk margins net of transitional measures on technical provisions, Solvency II and IFRS valuation differences including deferred tax. 181

9. Key Sensitivities – IFRS, Embedded Value and Solvency Position

The table below sets out estimates of the sensitivity of PIC’s results and metrics to changes in underlying economic conditions. All impacts are as at 31 December 2018.

IFRS:

31 December 2018 Assets Liabilities Tax Profit after tax

£m £m £m £m 25 bps increase in interest (873) 831 8 (34) rates 25 bps decrease in interest 924 (887) (7) 30 rates £100m credit default (no (100) - 19 (81) recovery) 1% decrease in base - (26) 5 (21) mortality rates1 1 1% decrease in base mortality rates is equivalent to 0.1 year increase in life expectancy from 22.7 years to 22.8 years for a typical male aged 65. EV:

PIC Sensitivity of MCEV to changes in assumptions (£m)

Value of in- Cost of At 31 December 2018 Net worth1 force after MCEV capital2 tax

MCEV 2,955 1,489 (829) 3,615

Impact of economic assumption changes:-

- 25 bps increase in interest 59 (153) 42 (52) rates - 25 bps decrease in interest (90) 185 (45) 50 rates - 10 bps increase in CoC (to - - (19) (19) 3.3%) - 10 bps increase in - 276 - 276 economic MA - 10 bps decrease in - (276) - (276) economic MA

Impact of demographic assumption changes:-

- 5% decrease in base (127) 43 (16) (100) mortality rates3 182

1 Net of subordinated debt 2 Cost of capital is a FCoC and CRNHR 3 5% decrease in base mortality rates is equivalent to 0.4 year increase in life expectancy from 22.7 years to 23.1 years for a typical male aged 65.

Solvency II:

Regulatory solvency: impact on Own funds Solvency ratio (£m) (%) As at 31 December 2018 3,917 167% Interest rates 25bps decrease in interest rates1 8 (6.9)% 25bps increase in interest rates1 (22) 6.1%

£100m credit default (no recovery) (83) (4.3)% 5% decrease in base mortality2 (126) (8.3)%

1 Assumes recalculation of transitional deduction measures on technical provisions as appropriate, with interest rate sensitivities allowing for hedge rebalancing. 2 5% decrease in base mortality rates is equivalent to 0.4 year increase in life expectancy from 22.7 years to 23.1 years for a typical male aged 65.

10. Available Distributable Items

The Issuer is subject to the Companies Act 2006, under which distributions can be made out of its accumulated realised profits, less any accumulated realised losses. Under the terms and conditions of the Notes, the Issuer must cancel any interest payment in the event that such interest payment (together with any applicable Additional Amounts) would exceed the amount of the Issuer’s Distributable Items.

As at 31 December 2018, the Issuer had an aggregate of £1,374 million in Distributable Items.

11. Dividend Policies

11.1 PIC

PIC does not have a formal dividend policy. PIC paid its first dividend of £10m in 2018.

11.2 PICG

PICG does not have a formal dividend policy. PICG has never paid a dividend.

12. Boards of Directors

12.1 PIC Board

The PIC Board is composed as follows: 183

Jon Aisbitt, Chairman, Non-Executive Director

Jon has over 20 years’ experience in international corporate finance and was a partner of the Investment Banking division at Goldman Sachs. He has significant technical knowledge of capital markets and the complex regulatory backdrop in which they operate. He has significant change management experience. Jon was Chairman of Man Group plc until he stepped down in May 2016. He was also previously Deputy Chairman of Ocean Rig plc and Honorary Treasurer of the NSPCC. He is a Fellow of the Institute of Chartered Accountants of England and Wales. Jon is Chairman of New Forests Company Holdings Limited (African sustainable forestry and timber processing) and Chairman of Ascension Healthcare plc. At PIC, Jon is Chairman of the PIC Board, Chairman of the Nomination Committee and a member of the Remuneration Committee. He attends Audit, Risk and Investment and Origination Committee meetings by invitation.

Tracy Blackwell, Chief Executive Officer, Executive Director

Tracy has more than 25 years’ experience of investment markets, including matching pension assets to liabilities and risk hedging strategies. She has a strong knowledge and understanding of the regulatory landscape. Tracy joined PIC at its founding in 2006 as Chief Investment Officer. Prior to PIC, she held senior roles in Goldman Sachs, including as Head of Risk Management, EMEA at Goldman Sachs Asset Management, and an executive director in Goldman Sachs International’s Pension Services Group, which involved advising large European and UK pension funds and insurance companies. Tracy is a Non-Executive Director of United Trust Bank. She is also the Honorary Treasurer of the Elton John AIDS Foundation. At PIC, Tracy is Chief Executive Officer and an Executive member of the Board. She attends all PIC Board Committee meetings by invitation.

Rob Sewell, Chief Financial Officer, Executive Director

Rob has extensive managerial, financial and accounting experience in the insurance and regulatory markets. In a professional career of over 30 years, Rob’s previous roles have included being UK CFO for Legal & General Group plc, and CEO of National Westminster Life Assurance. He is a Fellow of the Institute of Chartered Accountants in England and Wales. Rob serves as a Non-Executive Director of HCT Group. At PIC, Rob is Chief Financial Officer and an Executive member of the Board. He attends all PIC Board Committee meetings by invitation.

Stuart King, Non-Executive Director

Stuart has over 25 years’ experience working in the UK financial regulation industry as both regulator and at regulated firms and led the enhanced supervision approach of major insurance groups following the financial crisis in 2007. Stuart has previously worked at the Bank of England before moving to become Head of UK Banks Regulation and then Head of Major Insurance Groups Regulation at the Financial Services Authority (“FSA”) (predecessor of the FCA). After his time at the FSA, Stuart became Managing Director at advisory firm Promontory Financial Group and after that Group Compliance Director at Aviva plc. Stuart remains an external advisor for financial services firms. At PIC, Stuart is an independent Non-Executive Director and a member of the Audit Committee. 184

Arno Kitts, Non-Executive Director

Arno has been involved in investment management since 1989. Arno has held senior roles at BlackRock, Henderson Global Investors (now Janus Henderson Investors) and JPMorgan Asset Management and JPMorgan Life. He has been responsible for institutional investment business with clients worldwide, encompassing strategy, sales and marketing, product development, and client and consultant relationship management and service. He has served as a director of many investment funds and the PLSA. Arno was a Member of the Council and Finance & Investment Board of the Actuarial Profession. He is a Fellow of the Institute of Actuaries and holds a PhD from Southampton University. Arno is a director of Perspective Investments and of Wake Trade Technologies. At PIC, Arno is an independent Non-Executive Director and Chairman of the Investment and Origination Committee and a member of the Risk Committee.

Roger Marshall, Senior Independent Director

Roger has gained substantial financial services expertise through his career at PricewaterhouseCoopers LLP (“PwC”) and subsequent non-executive roles. Roger held senior roles at PwC, including the Chairmanship of PwC’s Global Audit Policy Board and its global Corporate Reporting Task Force. Roger is a Fellow of the Institute of Chartered Accountants in England and Wales. Roger was a member of the Financial Reporting Council (“FRC”) FRC Board, the FRC Codes and Standards Committee and the FRC Corporate Reporting Council and director of Old Mutual plc. Roger also serves on the board of the European Financial Reporting Advisory Group. At PIC, Roger is a Senior Independent Director, Chairman of the Audit Committee and a member of the Risk Committee.

Eloy Michotte, Non-Executive Director

Eloy has extensive experience in international business and finance, having worked with Ford, McKinsey & Co and Bankers Trust Company prior to joining Richemont at the time of its formation in 1988. He graduated in engineering and applied mathematics from the University of Louvain in Belgium and holds an MBA from the University of Chicago. At PIC, Eloy is a Non-Executive Director and member of the Investment and Origination, Nomination and Remuneration Committees.

Jérôme Mourgue D’Algue, Non-Executive Director

Jérôme has spent 25 years working in the financial services industry with a strong background in asset management. Jérôme was previously an Associate at McKinsey & Company and Vice President of Morgan Stanley Capital Partners in London. Jérôme was a Partner at private equity firm Englefield Capital LLP. Jérôme has been an employee of ADIA since 2012, joining as Senior Portfolio Manager, Principal Investments before becoming Head of Financial Services, Private Equities in 2017 and Head of EMEA, Private Equities in 2018. Jérôme is currently Head of EMEA, Private Equities at ADIA and represents ADIA on the boards of various entities ADIA has invested in. Jérôme holds an MBA from the Wharton School and a BA from ESSEC. At PIC, Jérôme is member of the Nomination and Remuneration Committee and Investment and Origination Committee. 185

Peter Rutland, Non-Executive Director

Peter has 18 years’ experience in the banking, investment and insurance industries as well as experience as a director of both private and listed companies. Peter is Global Co-Head of CVC’s Financial Services Group and is based in London. He also serves on the Board of Domestic & General, Newday, Paysafe, TMF and dxc.technology. Prior to joining CVC, he worked for Advent International since 2002. Prior to working at Advent, Peter worked for Goldman Sachs in the Investment Banking Division. Peter holds an MA Degree from the University of Cambridge and an MBA from INSEAD. At PIC, Peter is a Non-Executive Director, Chairman of the Remuneration Committee and member of the Investment and Origination Committee.

Steve Sarjant, Non-Executive Director

Steve has over 30 years’ experience in the financial services industry. Steve spent 20 years at Towers Watson (previously R Watson & Sons and Watson Wyatt, and currently Willis Towers Watson) where he was a Managing Director in its Risk and Financial Services segment and Global Leader, Mergers and Acquisitions. Prior to this Steve held roles at Criterion Assurance Group and National Provident Institution in a variety of roles. Steve has a BSc in Mathematics from the University of Bristol. He is a Fellow of the Institute and Faculty of Actuaries. Steve is a Non-Executive Director and Chairman of the Actuarial Committee for Vitality Health and Vitality Life, and an independent member of the With Profits Committee of Liverpool Victoria Friendly Society. At PIC, Steve is an independent Non-Executive Director, Chair of the Risk Committee and member of the Audit Committee.

Mark Stephen, Non-Executive Director

Mark has over 30 years’ experience of advising and working with insurance company boards on many aspects of business, including how they adapt to the changing regulatory and business landscape. Mark was previously a partner at PwC. He is a member of the Institute of Chartered Accountants in England and Wales. He is a Director of TransRe London Limited and Hyperion Insurance Group Limited. At PIC, Mark is an independent Non-Executive Director and member of the Nomination and Remuneration, and Audit Committees.

Wilhelm Van Zyl, Non-Executive Director

Wilhelm has a strong background in the international financial services sector, including investment strategy. Wilhelm is the Chief Executive of Reinet Investments Manager S.A. and Reinet Fund Manager S.A. Prior to this Wilhelm held senior roles in a long career at Metropolitan Holdings and MMI Holdings. Wilhelm holds a BCom degree from the University of Stellenbosch and is a Fellow of the Institute and Faculty of Actuaries (UK) and Fellow of the Actuarial Society of South Africa. He serves on the boards of a number of companies in which Reinet holds interests. At PIC, Wilhelm is a Non-Executive Director and member of the Risk Committee. 186

12.2 PIC Board Committees

Audit Committee

The Audit Committee has primary responsibility for the appointment and management of the external auditors and the annual audit, the appointment and overview of the internal audit function, systems of governance and compliance, systems of internal controls including those financial and information technology, and review of financial statements and related accounting policies and judgements.

Nomination and Remuneration Committee

The Nomination and Remuneration Committee reviews the structure, size and composition (including the skills, knowledge, experience and diversity) of the PIC Board and makes recommendations to the PIC Board with regard to any changes. It also determines and agrees with the PIC Board the framework or broad policy for the remuneration and recruitment of the company's chairman, non-executive directors, chief executive, the executive directors and such other members of the executive management as it is designated to consider.

Investment and Origination Committee

The Investment and Origination Committee oversees the management of all aspects of PIC’s new business and reinsurance origination within established strategy and risk frameworks. The Committee also oversees the management of all aspects of investment policy and strategy for PIC and provides oversight of the operation of PIC's investment portfolios within an established strategy and risk framework.

Risk Committee

The Risk Committee provides oversight and advice to the PIC Board with regard to PIC’s current and likely risk exposures, risk tolerances and appetite, risk measurement; risk management performance and its risk policies and procedures and risk controls. The Risk Committee recommends the risk policy to the PIC Board and reports to the PIC Board on the effectiveness of the risk controls.

12.3 PICG Board and Committees

The PICG Board is composed as follows:

 Jon Aisbitt, Chairman; Non-Executive Director;

 Tracy Blackwell, Chief Executive Officer;

 Stuart King, Non-Executive Director;

 Arno Kitts, Non-Executive Director;

 Josua Malherbe, Non-Executive Director – 187

Josua has over 30 years’ experience in corporate finance and has had executive experience at companies since 1993. Josua qualified as a chartered accountant in South Africa in 1984 having worked at a predecessor firm to PwC. Josua became Chief Executive Officer of VenFin Limited (“VenFin”) in 2000 until 2006 when he held the position of Deputy Chairman. Josua now serves as Deputy Chairman of Remgro Limited (which acquired VenFin) and Compagnie Financière Richemont SA., and is a Non- Executive Director at Reinet Investments SCA. At PICG, Josua is Non-Executive Director;

 Roger Marshall, Non-Executive Director;

 Jérôme Mourgue D’Algue, Non-Executive Director;

 Peter Rutland, Non-Executive Director;

 Mark Stephen, Non-Executive Director; and

 Wilhelm van Zyl, Non-Executive Director.

The principal activities performed by the PICG directors, to the extent these are significant with respect to PICG, are either disclosed immediately above or under “PIC Board” above.

The PICG Board does not customarily establish committees but has delegated consideration of various matters to the following committees of PIC: the Nomination and Remuneration Committee, the Audit Committee and the Risk Committee.

13. Conflicts of Interest

The directors below are also shareholders, or shareholder representatives, in respect of the PICG Group (directorships indicated in parentheses):

 Jon Aisbitt (PIC and PICG);

 Tracy Blackwell (PIC and PICG);

 Roger Marshall (PIC and PICG);

 Eloy Michotte (PIC only);

 Josua Malherbe (PICG only);

 Jérôme Mourgue D’Algue (PIC and PICG);

 Peter Rutland (PIC and PICG);

 Rob Sewell (PIC only);

 Mark Stephen (PIC and PICG); and

 Wilhelm van Zyl (PIC and PICG). 188

Jérôme was appointed to these directorships as the representative for Luxinva SA, Eloy, Josua and Wilhelm were appointed to these directorships as representatives of Reinet PC Investments (Jersey) Limited and Peter as the representative for Blue Grass Holdings Limited. These companies are affiliated with ADIA, Reinet and CVC (respectively), each of which are significant shareholders in PICG. From time to time, circumstances may arise in which the duties of Jérôme, Eloy, Josua, Wilhelm, and/or Peter as directors of PIC and/or PICG, as applicable, may conflict with their respective interests as the representatives of shareholders in PICG.

Jon Aisbitt, Tracy Blackwell, Roger Marshall, Rob Sewell and Mark Stephen are directors of PIC and/or PICG (as indicated in parenthesis above) as well as shareholders of PICG. From time to time circumstances may arise in which the duties of these persons as directors of PIC and/or PICG, as applicable, may conflict with their interests as shareholders of PICG.

Save for any conflicts which may arise by virtue of the foregoing, there are no other conflicts of interest between the duties of the PIC directors to PIC (or the PICG directors to PICG) and their private interests or other duties. PIC and PICG have appropriate procedures in place to identify and manage any conflicts of interest should they arise. 189

Description of the PIC Ordinary Shares

The following overview describes certain provisions of the memorandum and articles of association of the Issuer and certain provisions of English law applicable to companies generally, in each case as in effect on the date of this Offering Memorandum.

1. Share Capital

As at 9 July 2019, the Issuer’s share capital consisted of 999,810,351 ordinary shares of £1.00 each.

2. Memorandum and Articles of Association

The PIC Articles were adopted by special resolution of the Issuer on 9 June 2014. A summary of the material provisions of the PIC Articles, and the rights attached to the Ordinary Shares, is set out below.

2.1 Objects of the Issuer

The objects of the Issuer are unrestricted.

2.2 Limited Liability

The liability of the shareholders is limited to the amount, if any, unpaid on the PIC Ordinary Shares respectively held by them.

2.3 Limitations on non-UK shareholders

There are no limitations imposed by English law or the PIC Articles restricting the rights of non-residents of the UK or non-citizens of the UK to hold or vote shares of the Issuer.

3. Shares

3.1 Ranking

Ordinary Shares rank pari passu in all respects with each other and have the same rights (including with respect to voting, dividends and distributions of capital) and restrictions, as set out in the PIC Articles.

3.2 Alteration of Share Capital

The Issuer may exercise the powers conferred by the applicable statutory provisions to:

(a) increase its share capital by allotting new shares;

(b) reduce its share capital;

(d) redenominate all or any of its shares and reduce its share capital in connection with such redenomination.

3.3 Issue of Shares

The Issuer may from time to time pass an ordinary resolution authorising, in accordance with Section 551 of the Companies Act 2006, the PIC Board to exercise all the powers of the Issuer to allot shares or to grant rights to subscribe for or to convert any security into shares in the Issuer up to the maximum nominal amount specified in the resolution. The Issuer may also from time to time resolve, by special resolution, to disapply the statutory pre-emption rights generally applicable to the issue of equity shares.

Without prejudice to the rights attached to any existing share, the Issuer may issue further classes of shares with such rights or restrictions as may be determined by ordinary resolution or, if no such resolution has been passed or so far as the resolution does not make specific provision, as the directors may decide.

Further, subject to the provisions of the Companies Act 2006, the Issuer may issue shares which are to be redeemed, or are liable to be redeemed at the option of the Issuer or the relevant shareholder, and the directors may determine the terms, conditions and manner of redemption of any such shares.

3.4 General Meetings

The PIC Articles are silent on the calling and conduct of general meetings, with the Companies Act 2006 provisions applying.

Under the Companies Act 2006, an annual general meeting must be called by notice of at least 21 days. Notice of a general meeting must be given in hard copy form, in electronic form, or by means of a website, and must be sent to every member and every director. It must state the time and date and the place of the meeting and the general nature of the business to be dealt with at the meeting. In addition, a notice calling an annual general meeting must state that the meeting is an annual general meeting. Accidental omission to give any notice of a meeting to any person entitled to receive it shall not invalidate the proceedings at that meeting.

Each director shall be entitled to attend and speak at any general meeting. The chairman of the meeting may invite any person to attend and speak at any general meeting, whether or not such person is a shareholder in the Issuer or is otherwise entitled to exercise the rights of shareholders in relation to general meeting.

If, and for so long as, the Issuer has only one member, the sole member or a proxy for that member or (if the member is a corporation) a duly authorised representative of that member is a quorum. Otherwise, two shareholders present at a meeting are a quorum.

3.5 Voting Rights

Shareholders are entitled to vote at a general meeting or class meeting. A resolution put to the vote of a general meeting must be decided on a show of hands unless a poll is demanded in accordance with the PIC Articles. 191

A poll may be demanded in advance of or at the relevant general meeting, by among others (i) the chairman of the meeting, (ii) the directors, (iii) two or more persons having the right to vote on the resolution, or (iv) a person or persons representing not less than one tenth of the total voting rights of all the shareholders having the right to vote on the resolution.

The Companies Act 2006 provides that:

(a) on a show of hands every member present in person has one vote and every proxy present who has been duly appointed by one or more members will have one vote, except that a proxy has one vote for and one vote against if the proxy has been duly appointed by more than one member and the proxy has been instructed by one or more members to vote for and by one or more other members to vote against. For this purpose the PIC Articles provide that, where a proxy is given discretion as to how to vote on a show of hands, this will be treated as an instruction by the relevant member to vote in the way that the proxy decides to exercise that discretion; and

(b) on a poll every member has one vote per share held by such member and such member may vote in person or by one or more proxies. Where a member appoints more than one proxy, the proxies appointed by such member taken together shall not have more extensive voting rights than that member could exercise in person.

3.6 Dividends

Subject to the provisions of the Companies Act 2006, the PIC Articles and regulatory requirements, the Issuer may pay dividends upon a recommendation by the PIC Board and approval by a majority of the shareholders, who have the right to decrease but not to increase the amount of the dividend recommended by the PIC Board. Such dividends are known as final dividends and become a debt payable to shareholders when they are approved by the shareholders. Subject to the provisions of the Companies Act 2006, the PIC Articles and regulatory requirements, the PIC Board may declare and pay dividends without shareholder approval. Such dividends are known as interim dividends and, unlike final dividends, become a debt payable to the shareholders only upon actual payment.

All dividends will be divided and paid in proportions based on the amounts paid up on the Ordinary Shares during any period for which the dividend is paid, but if any share is issued on terms providing that it shall rank for dividend as from a particular date, that share shall rank for dividend accordingly.

See “The PICG Group - Dividend Policies” above for a description of PIC’s dividend history and policy.

3.7 Unclaimed dividends

All dividends or other sums which are payable in respect of shares and unclaimed after having been declared or becoming payable may be invested or otherwise made use of by the PIC Board for the benefit of the Issuer until claimed. If 12 years have passed since the date on which a dividend or other sum became due for payment, and the person entitled to such distribution has not claimed it, such person ceases to be entitled to that dividend or other sum and it ceases to remain owing by the Issuer. 192

3.8 Transfer of Shares

Shares may be transferred by means of an instrument of transfer in any usual form or any other form approved by the PIC Board.

The PIC Board can decline to register the transfer of any share and, if they do so, the instrument of transfer must be returned to the transferee with the notice of refusal, unless the PIC Board suspects the proposed transfer may be fraudulent.

The PIC Articles do not provide for shares to be held in uncertificated form.

4. Directors

4.1 Appointment, resignation and termination

The number of directors shall be not less than two but shall not be subject to any maximum in number.

Any person who is willing to act as a director, and is permitted by law to do so, may be appointed to be a director by ordinary resolution of the Issuer, by a decision of the PIC Board, or by notice from a shareholder or shareholders holding a majority in nominal value of the Issuer’s issued shares.

Any director may resign from office, or be removed in accordance with the terms of the PIC Articles. Under the terms of the PIC Articles, a person ceases to be a director as soon as, inter alia:

(a) that person ceases to be a director by virtue of any provision of the Companies Act 2006 or is prohibited from being a director by law;

(b) a bankruptcy order is made against that person; or

(c) notice is received from a shareholder or shareholders holding a majority in nominal value of the Issuer’s issued shares specifying that person’s removal as a director.

4.2 Directors’ remuneration

The directors may be entitled to such remuneration as the directors determine, including the provision of benefits, whether by the payment of a pension, allowance or gratuities, or any death, sickness or disability benefits or by insurance or otherwise.

4.3 Proceedings of the PIC Board

Any of the directors may call a meeting of the PIC Board by giving notice of the meeting to the directors or by authorising the company secretary to give such notice. Such notice need not be in writing, and the directors can waive the requirement to give notice either before or after the relevant meeting without affecting such meeting’s validity.

The quorum for meetings of the PIC Board may be fixed from time to time by a decision of the directors, but it must never be less than two, and unless otherwise fixed it is two. 193

Decisions of the PIC Board are taken by simple majority vote, except in the case of written resolutions which require unanimous consent. 194

Description of the PICG Ordinary Shares

The following overview describes certain provisions of the memorandum and articles of association of PICG and certain provisions of English law applicable to companies generally, in each case as in effect on the date of this Offering Memorandum.

1. Share Capital

As at 9 July 2019, PICG’s share capital consisted of:

Class of Share Nominal Value Number

Ordinary shares £0.00161678179673884 1,085,093,439

C shares £0.00161678179673884 2,000

2. Memorandum and Articles of Association

The PICG Articles were adopted by special resolution of PICG on 28 June 2017. A summary of the material provisions of the PICG Articles and the rights attached to the PICG Ordinary Shares is set out below.

2.1 Objects

The objects of PICG are unrestricted.

2.2 Limited Liability

The liability of the shareholders is limited to the amount, if any, unpaid on the PICG Ordinary Shares respectively held by them.

2.3 Limitations on non-UK shareholders

There are no limitations imposed by English law or the PICG Articles restricting the rights of non-residents of the UK or non-citizens of the UK to hold or vote shares of the Issuer.

3. Shares

3.1 Ranking

The PICG Ordinary Shares rank pari passu in all respects with each other and have the same rights (including with respect to voting, dividends and distributions of capital) and restrictions, as set out in the PICG Articles, save that:

(a) the PICG Articles contain a voting cap which states that, if the voting rights on a resolution attributable to Reinet PC Investments (Jersey) Limited (“Reinet PC”) and its affiliates (together, the “Reinet Group”), are greater than 49 per cent. of the total number of voting rights exercisable on such resolution, then the Reinet Group’s aggregate voting rights shall be capped at 49 per cent. Reinet may, at any time, elect (subject to all applicable regulatory approvals being granted) to remove this voting 195

cap, at which time full voting rights on any resolution attributable to the Reinet Group are restored; and

(b) there are restrictions relating to certain existing PICG Ordinary Shares issued prior to March 2016 that relate to a shareholders’ agreement originally entered into between Pension Corporation Group Limited, Reinet PC and others. PICG replaced Pension Corporation Group Limited as a party to this agreement as part of the reorganisation referred to at “The PICG Group - History, Ownership and Management of the PICG Group” above.

3.2 Voting Rights

Holders of the PICG Ordinary Shares are entitled to vote at a general meeting or class meeting. A resolution put to the vote of a general meeting must be decided by poll.

Each PICG Ordinary Share shall confer one vote upon its holder (whether present in person or by proxy) on any resolution of PICG, as provided in the Companies Act 2006.

3.3 Issue of shares

The PICG Articles provide that any issue of shares must be undertaken on a pre-emptive basis. This general restriction is subject to the following exceptions, among others:

(a) an issue of shares in a solvency stress scenario;

(b) an issue of shares relating to certain specified management incentive plans; and

3.4 Reserved Matters

The PICG Articles contain certain Reserved Matters which require Reinet’s consent. The PICG Articles make a distinction between “Special Reserved Matters” and Reserved Matters. However because of changes in the shareholding structure of PICG since the PICG Articles were adopted, the relevant decision would require Reinet’s (and no other shareholder’s) consent.

These Reserved Matters include, but are not limited to:

(a) approval of and any changes to the business plan of the PICG Group;

(b) the entry into any significant transaction by any member of the PICG Group;

(d) any amendment to the articles of association of any company in the PICG Group (including the PIC Articles);

(e) changes to the capital structure of any member of the PICG Group; 196

(f) taking steps to wind up PICG or any of its material subsidiaries; and

(g) any declaration or payment of any dividend (whether final or interim) or other distribution, except as contemplated in PICG’s current business plan.

3.5 General Meetings

The PICG Board may call general meetings and, on the requisition of shareholders, shall forthwith proceed to call a general meeting, within 21 days after the receipt of the requisition in accordance with the Companies Act 2006, to be held on a date not more than 28 days after the date of notice convening the meeting.

Any general meeting of PICG shall be called by at least 14 days’ notice, provided that a general meeting may be deemed to have been duly called by shorter notice if it is so agreed by all shareholders entitled to attend and vote thereat. Accidental omission to give notice of a meeting to, or the non-receipt of notice of a meeting by, any person entitled to receive notice shall not invalidate the proceedings at the meeting.

Each director, and/or a representative of PICG’s auditor, shall be entitled to attend and speak at any general meeting and at any separate meeting of the shareholders.

Two shareholders present at a meeting are a quorum.

3.6 Dividends

Subject to the provisions of the Companies Act 2006, the PICG Articles and regulatory requirements, PICG may pay dividends upon a recommendation by the PICG Board and approval by a majority of the shareholders, who have the right to decrease but not to increase the amount of the dividend recommended by the PICG Board. Such dividends are known as final dividends and become a debt payable to shareholders when they are approved by the shareholders. Subject to the provisions of the Companies Act 2006, the PICG Articles and regulatory requirements, the PICG Board may declare and pay dividends without Shareholder approval, if it appears to them that the payment of such dividends are justified by the assets of PICG. Such dividends are known as interim dividends and, unlike final dividends, become a debt payable to the shareholders only upon actual payment.

In addition to the approvals process described in the preceding paragraph, and in accordance with the Reserved Matters regime summarised at paragraph 3.4, no dividend (whether final or interim) may be paid without the prior written consent of Reinet unless such dividend is contemplated by PICG’s business plan at the relevant time

Except as otherwise provided by the rights attached to the shares or the provisions of the Companies Act 2006, all dividends shall be declared and paid according to the amounts paid up on the shares on which the dividend is paid. If any share is issued on terms providing that it shall rank for dividend as from a particular date, that share shall rank for dividend accordingly.

A general meeting declaring a dividend may, upon the recommendation of the PICG directors, direct that it shall be satisfied wholly or partly by the issue of shares in PICG or by the distribution of assets. 197

See “The PICG Group - Dividend Policies” above for a description of PICG’s dividend history and policy.

3.7 Unclaimed dividends

Any dividend which has remained unclaimed for ten years from the date when it became due for payment shall, if the PICG directors so resolve, be forfeited and cease to remain owing by PICG.

3.8 Transfer of Shares

Transfer Instrument

Shares may be transferred by means of an instrument of transfer in any usual form or any other form approved by the PICG Board.

Refusal to Register a Transfer of Shares

The PICG Board can decline to register any transfer of any share (i) which is not fully paid, (ii) over which PICG has a lien or (iii) which is held by certain existing shareholders in PICG (and subsequent transferees) in connection with which there remains an outstanding liability due to PICG under the terms of the PICG Articles.

General Restriction on Transfer of Shares

Additionally, the PICG Articles contain a general restriction on the transfer of shares, unless such transfer is, among other things:

(a) an intragroup transfer;

(b) carried out in accordance with certain rights of first refusal as detailed below;

(c) a transfer of shares by any major shareholder of PICG to any other existing shareholder following the occurrence of an emergency event in respect of PIC’s solvency as determined by the PICG Board;

(d) a transfer of shares by a shareholder which has been acquired by a third party to any other existing shareholder; or

(e) a compulsory transfer as described at “Compulsory Transfers” below.

Any transfer made in breach of this general restriction, or in breach of any other provision of the PICG Articles, is void.

The general restriction on the transfer of shares does not apply in circumstances where a transferring shareholder offers existing shareholders the right of first refusal to buy some or all of its shares (the “Sale Shares”) in accordance with the PICG Articles. This right of first refusal provides that before carrying out a transfer of PICG Ordinary Shares, the relevant shareholder must first notify each of the other holders, and such holders shall be permitted to purchase the Sale Shares in proportion to their existing holdings. Following the expiry of 198

the period for accepting such offer, or following receipt of acceptances or refusals from each other holder, the selling shareholder may sell to a third party any shares not required to be allocated to existing holders on the same terms as was applicable to the offer to existing holders.

Financial Assistance

Subject to the provisions of the Companies Act 2006, PICG may give financial assistance, as defined in the Companies Act 2006, directly or indirectly for the purposes of or in connection with the acquisition of its shares.

3.9 Variation of Rights

Whenever the capital of PICG is divided into different classes of shares, the rights attached to any class may (subject to the terms of issue of the shares and the provisions of the Companies Act 2006) be varied or abrogated with the written consent of at least 75 per cent. in value of the issued shares of the relevant class, or with the sanction of a special resolution passed at a separate general meeting of the shareholders of the shares of the relevant class.

The rights conferred upon the holders of any shares or class of shares in PICG shall (unless otherwise expressly provided by the conditions of issue of such shares) be deemed not to be varied by the creation or issue of further shares ranking pari passu therewith.

3.10 Third party acquisitions, New Shareholder Cap, Drag Along and Tag Along Rights

Third party acquisitions

If upon completion of any acquisition of PICG shares a third party who is not at such time a shareholder in PICG would hold a controlling interest in PICG (being an interest, broadly, equating to 50 per cent. of the voting rights), such acquisition will not be able to complete unless:

(a) such acquisition has been approved in writing by 66 per cent. by value of the existing shareholders; and

(b) the third party acquirer serves a drag along notice or a tag along notice on the existing shareholders.

A summary of the drag along notice and tag along notice provisions is described below at “Drag Along and Tag Along Rights”.

New Shareholder Cap

Under the terms of the PICG Articles, no New Shareholder may, for a period of three years starting with the date on which such shareholder became a shareholder (the “Standstill Period”), acquire PICG Ordinary Shares totalling 22.5 per cent. or more of the PICG Ordinary Shares then outstanding (the “New Shareholder Cap”). For these purposes, a “New Shareholder” is a person who becomes a shareholder after 1 March 2016 as a result of a subscription for shares or a transfer of shares. 199

Notwithstanding the general prohibition described above, a New Shareholder may acquire an interest in PICG in excess of the New Shareholder Cap, provided that:

(a) such acquisition takes place in the context of a solvency stress scenario relating to the Issuer, as determined by the PICG Board; or

(b) the acquisition is approved by at least 66 per cent. by value of the remaining shareholders.

Additionally, a New Shareholder may acquire a controlling interest in PICG if:

(a) such acquisition takes place in the context of an emergency event in respect of the Issuer’s solvency capital, as determined by the PICG Board; or

(b) the acquisition is approved by at least 66 per cent. by value of the remaining shareholders; and

Following the end of the Standstill Period, a New Shareholder may seek the approval in writing of the other shareholders for an acquisition by it of a controlling interest in PICG. If:

(a) at least 66 per cent. by value of the other shareholders approve the acquisition, the New Shareholder may only complete the acquisition if it serves a drag along notice or tag along notice; and

(b) less than 66 per cent. by value of the other shareholders approve the acquisition, the New Shareholder may only complete the acquisition if it serves a tag along notice (and will not be entitled in these circumstances to serve a drag along notice).

Old Shareholder acquisition of a controlling interest

At any time from the Issue Date an Old Shareholder may seek the approval in writing of the other shareholders for an acquisition by the acquiring shareholder of a controlling interest in PICG. If:

(a) at least 66 per cent. by value of the other shareholders approve the acquisition, the Old Shareholder may only complete the acquisition if it serves a drag along notice or tag along notice; and

(b) less than 66 per cent. by value of the other shareholders approve the acquisition, the Old Shareholder may only complete the acquisition if it serves a tag along notice (and will not be entitled in these circumstances to serve a drag along notice).

For these purposes an Old Shareholder is any shareholder in PICG which is not a New Shareholder. 200

Drag Along and Tag Along Rights

As noted above, the PICG Articles contain certain “drag-and-tag” provisions. These take effect as follows:

(a) where a drag along notice is served, in the circumstances described in “Third party acquisitions”, “New Shareholder Cap” and “Old Shareholder acquisition of a controlling interest” above, the shareholders in PICG not subject to the relevant offer will be required to sell their shares to the acquiring party on the same terms and conditions as apply to the original offer; and

(b) where a tag along notice is served, in the circumstances described in “Third party acquisitions”, “New Shareholder Cap” and “Old Shareholder acquisition of a controlling interest” above, the acquiring party offers to purchase from the shareholders in PICG not subject to the relevant offer their PICG shares. In the case of a tag along notice, such shareholders are not under an obligation to sell to the acquiring party.

3.11 Change of Control

Subject to limited exceptions, any shareholder which undergoes a change of control will be required to offer its shares for sale to other shareholders in proportion to their existing holdings, on such terms as the PICG Board determines. The consideration for such sale will be determined by the PICG Board based on its reasonable assessment of the look through value of such shares.

3.12 Compulsory transfers

The PICG Articles describe certain circumstances in which shareholders are subject to compulsory transfer orders requiring them to transfer shares back to the relevant transferee or the other shareholders, as appropriate. These circumstances include, but are not limited to:

(a) the termination of intra-group relationships where a shareholder has transferred its shares to a member of its group;

(b) the insolvency of a shareholder;

(d) breach of the transfer provisions of the PICG Articles.

3.13 Forfeiture and Lien

If any call remains unpaid on any share after it has become due and payable, the PICG Board may serve a notice on the holder requiring payment of the amount unpaid together with any interest which may have accrued and any expenses which may have been incurred by PICG in respect thereof. If the notice is not complied with, any share in respect of which it was given may be forfeited and the forfeiture shall include all dividends or other monies payable in respect of the forfeited shares. 201

A forfeited share may be sold, re-allotted or otherwise disposed of on such terms and in such manner as the PICG Board determines.

PICG shall have a first and paramount lien on every share (not being a fully paid share) for all amounts payable (whether presently or not) in respect of that share. The PICG Board, on behalf of PICG, may sell any shares on which PICG has a lien if a sum in respect of which the lien exists is presently payable and is not paid within 14 days after notice in writing has been given to the shareholder of such shares. The net proceeds of the sale by PICG of any share on which it has a lien shall be applied in payment of so much of the sum for which the lien exists as is presently payable and any residue shall be paid to the person entitled to the shares at the date of the sale.

4. Directors

4.1 Appointment, resignation and termination

At all times the number of directors shall not be more than 13, of which no more than two shall be executive directors.

A shareholder holding more than 10 per cent. of the voting rights in PICG has the right to appoint, replace or remove one non-executive director by written notice to PICG.

Reinet has the right to appoint, replace or remove two non-executive directors by written notice to PICG, provided that it, in conjunction with its group, holds at least 30 per cent. of the voting rights in PICG at the time of such appointment, replacement or removal (as the case may be).

Further non-executive directors may be appointed by the PICG Board or by an ordinary resolution of the shareholders, based on criteria set out by the PICG Board from time to time.

The office of a director shall be vacated, for example: (i) by ordinary resolution of the shareholders approving the removal of such director, (ii) if such director’s removal is requested by the shareholder who appointed such director in accordance with the PICG Articles, or (iii) if such director resigns.

4.2 Directors’ remuneration

The directors may be entitled to such remuneration as PICG may by ordinary resolution determine or in accordance with such agreements relating to the provision of the services of the directors as may be entered into by PICG from time to time. In addition, the directors may be paid all travelling, hotel and other expenses properly incurred by them in connection with their attendance at meetings.

4.3 Proceedings of the PICG Board

Meetings of the PICG Board may be called by any director on no less than ten business days’ notice, except (i) for urgent matters, in which case a three day notice period will apply, and (ii) where all the directors have waived the requirement to provide notice. 202

The quorum for meetings of the PICG Board shall be two directors, comprising, if there is a director appointed by Reinet on the PICG Board, at least one director appointed by Reinet.

Subject to the Reserved Matters detailed above, the PICG Board shall decide all matters by simple majority vote, except in the case of written resolutions where at least 75 per cent. (or the nearest whole number above that percentage) of the directors entitled to receive notice of the meeting and vote on the resolution are required to indicate agreement. 203

Regulatory Overview

1. Introduction

The Issuer is an insurer authorised by the PRA and regulated by both the PRA (as regards prudential requirements) and the FCA (as regards conduct of business requirements).

As a company carrying on insurance business in the UK, the Issuer is subject to detailed regulatory requirements, including the requirements to be authorised to carry on insurance business and to comply with comprehensive prudential and conduct of business rules. This section provides an overview of the key features of the regulatory regime for companies carrying on insurance business in the UK, as it applies to the Issuer. This regime is derived, to a large extent, from EU legislation.

2. Dual regulation by the PRA and the FCA

Insurance companies in the UK are dual-regulated, which means that they are authorised, prudentially regulated and supervised by the PRA, and regulated for conduct of business purposes by the FCA.

The PRA is responsible for the authorisation and micro-prudential regulation of insurance companies, banks and certain large investment firms. The PRA’s primary purpose and objective is to promote the safety and soundness of PRA-authorised persons. It also has a specific “insurance objective” of contributing to the securing of an appropriate degree of protection for those who are or may become policyholders of PRA-authorised insurers.

The FCA regulates the conduct of every authorised firm. Its “operational objectives” are to: secure an appropriate degree of protection for consumers; protect and enhance the integrity of the UK financial system; and promote effective competition in the interests of consumers in the markets for regulated financial services and services provided by recognised investment exchanges. The FCA also has a “strategic objective” of ensuring that relevant markets function well.

The Financial Policy Committee, a committee of the Bank of England’s governing body, is responsible for the macro-prudential regulation of the entire financial services sector.

3. Permission to Carry on Insurance Business in the UK

Under section 19 of FSMA, it is unlawful to effect or carry out contracts of insurance in the UK (i.e., carry on the business of an insurer) without permission to do so from the PRA under Part 4A of FSMA (a “Part 4A Permission”). The FCA must also consent to the granting of the permission.

In order to grant a Part 4A Permission, the PRA, with input from the FCA where appropriate, must determine that the applicant meets the requirements of FSMA, including certain “threshold conditions”. The threshold conditions are the minimum conditions which must be satisfied (both at the time of authorisation, and on an ongoing basis) in order for a firm to gain and continue to have permission to carry on the relevant regulated activities under FSMA. Dual-regulated firms must meet both the PRA and the FCA threshold conditions. These relate to matters including the applicant’s legal form, whether the applicant has 204

adequate resources (both financial and non-financial) to carry on its business and whether, having regard to all the circumstances (including whether the applicant’s affairs are conducted soundly and prudently), the applicant is a fit and proper person to conduct the relevant regulated activities.

The Part 4A Permission contains a description of the activities that an authorised firm is permitted to carry on. When granting a Part 4A Permission, the PRA may impose such limitations and requirements as it considers appropriate.

Once authorised, in addition to continuing to meet the threshold conditions, firms must comply with the provisions of FSMA, related secondary legislation and the rules made by the PRA and the FCA under FSMA. These rules are set out in the PRA Rulebook and the FCA Handbook, respectively.

4. Brexit and the EU Regulatory Framework

The regulatory framework that applies to insurers in the UK is derived to a large extent from EU legislation. Prior to Exit Day (as referred to in the Withdrawal Act): (i) the UK is required to implement the requirements of EU Directives in national law; and (ii) EU Regulations and other directly applicable EU law apply in UK domestic law without the need for further implementing measures. The relevant EU legislation has, to the extent that it is not directly applicable in the UK, been implemented in UK domestic law by changes to the FCA Handbook and/or the PRA Rulebook.

The Withdrawal Act will repeal the European Communities Act 1972 (as amended) (the “ECA”) with effect from Exit Day. If the UK Parliament agrees to the Withdrawal Agreement negotiated between the UK and the EU27 (being the EU member states, excluding the UK), the UK’s withdrawal from the EU will be subject to a transitional period ending on 31 December 2020 (subject to extension by agreement with the EU27). In those circumstances, the UK government proposes to pass legislation (the European Union (Withdrawal Agreement) Bill) that would preserve the effect of the ECA until the end of the transitional period.

As such, with effect from Exit Day (if the Withdrawal Agreement is not ratified by the UK Parliament) or from the end of the transitional period (if it is), the Withdrawal Act will:

(A) preserve UK domestic legislation that has implemented non-directly applicable EU law (such as EU directives);

(B) convert directly applicable legislation (such as EU regulations, decisions and certain tertiary legislation) into UK domestic legislation; and

(C) preserve as UK domestic law any EU rights (such as directly effective EU treaty rights) that are not otherwise captured by the provisions referred to in paragraphs (A) or (B) above.

The Withdrawal Act also gives HM Treasury the power to remedy (by subordinate legislation) deficiencies in retained EU law arising from its domestication under the Withdrawal Act. HM Treasury has exercised this power in numerous statutory instruments which are due to come into force on Exit Day. Subordinate legislation made under the Withdrawal Act also gives the 205

PRA, the FCA and the Bank of England (amongst other UK regulators) the power to make instruments (which must be approved by HM Treasury) correcting deficiencies in domesticated EU implementing technical standards and regulatory technical standards. The PRA and the FCA have also made or proposed a number of changes to their rules and guidance to reflect the UK’s withdrawal from the EU and the legislative changes referred to above.

The Bank of England, the PRA and the FCA have also issued guidance clarifying their approach to guidance and other non-binding materials issued by the three European Supervisory Authorities (“ESAs”), including EIOPA. Under the approach adopted by the UK regulators, these materials will continue to be relevant following Exit Day, unless the relevant regulator had previously informed the relevant ESA that it did not intend to comply with them. As such, UK firms will be expected to continue to apply such material as they did prior to Exit Day. The UK regulators, for their part, will continue to have regard to this material as appropriate.

If the UK Parliament approves the European Union (Withdrawal Agreement) Bill (and with it, the Withdrawal Agreement), any EU regulations and other directly applicable legislation adopted by the EU after Exit Day but during the transition period would have direct effect in the UK. The UK would also be required to implement any EU directives (and other non- directly applicable EU legislation) adopted during that period. If Parliament does not approve the Withdrawal Agreement, and the UK leaves the EU with no deal, the Financial Services (Implementation of Legislation) Bill would, if passed, give HM Treasury the power to adopt subordinate legislation to give effect to specified EU financial services legislation that, as at Exit Day, has been adopted but does not yet apply, as well as specified legislative proposals that, as at Exit Day, have been published, but not yet adopted, by the European Parliament and the European Commission.

5. Solvency II

Solvency II sets out the framework for the solvency and supervisory regime for EU insurance firms. The main aim of the prudential framework under Solvency II is to ensure the financial stability of the insurance industry across the EU and protect policyholders through establishing solvency requirements better matched to the true risks of the business.

Solvency II adopts a three pillar approach to prudential regulation:

(i) Pillar 1 relates to minimum capital requirements, covering technical provisions, the SCR and the MCR, rules on market consistent valuation, investment of assets and the use of internal models to calculate the SCR;

(ii) Pillar 2 covers risk management, governance requirements, supervisory review and the Own Risk and Solvency Assessment (“ORSA”) of an insurer; and

(iii) Pillar 3 covers public and supervisory reporting and disclosure.

The regime consists of a “Level 1” Directive (as amended), which has been implemented by means of both “Level 2” measures, including delegated acts and binding technical standards, and “Level 3” guidance, including non-binding supervisory standards, recommendations and 206

guidelines. Solvency II has been fully implemented in the UK since 1 January 2016, largely through changes and additions to the PRA Rulebook.

EIOPA is the ESA charged with producing draft technical standards and guidelines under Solvency II. Guidelines are non-binding, although supervisory authorities and firms to whom they are addressed are expected to apply them on a “comply or explain” basis.

6. The PRA Rulebook and the FCA Handbook

The PRA Rulebook sets out the PRA’s rules, which focus on prudential matters and are the core ongoing requirements for PRA-authorised firms. It is supplemented by PRA Supervisory Statements, which set out guidance on the application of the rules. The FCA Handbook sets out the FCA’s approach to regulation and the standards it requires firms to maintain.

The PRA Rulebook comprises a number of Parts and is divided according to the different types of firm regulated by the PRA. The Issuer must comply with the rules set out in those Parts of the Rulebook that apply to Solvency II firms. The FCA Handbook comprises a number of sourcebooks which also contain rules and guidance that apply to dual-regulated firms.

6.1 The Fundamental Rules and Principles for Business

PRA-authorised insurance companies are subject to certain overarching rules issued by the PRA, the so-called “Fundamental Rules”. These rules are core to the PRA’s supervisory approach and underpin the PRA Rulebook. The Fundamental Rules require firms, among other things, to: conduct their business with integrity; maintain adequate financial resources; and organise and control their affairs responsibly and effectively.

In addition to this, all firms must comply with the overarching principles set out by the FCA in its “Principles for Business”. These principles are intended to ensure fairness and integrity in the provision of financial services in the United Kingdom.

The FCA has also established six key outcomes that it expects firms to focus on in order to ensure that they are treating customers fairly in accordance with the Principles. These include ensuring that: (i) consumers can be confident they are dealing with firms where the fair treatment of customers is central to the firm’s corporate culture; and (ii) products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and are targeted accordingly.

The FCA has wide-ranging powers to take enforcement action against both firms and individuals (for example, against those approved as Senior Managers under the Senior Managers and Certification Regime (see below) if it considers that they have failed in their responsibilities) for failing to treat customers fairly, including where it finds that a firm’s systems or actions cause actual or potential consumer detriment. 207

6.2 Prudential standards

The PRA Rulebook implements the prudential standards established under Solvency II. The fundamental requirement of the PRA’s prudential rules is that firms maintain adequate financial resources to meet their capital requirements.

Under Solvency II, firms must hold eligible own funds covering both the SCR and the MCR. The ‘Own Funds’ Part of the PRA Rulebook, supplemented by the Solvency II Regulation, sets out the capital resources that are deemed to be eligible for these purposes, while provisions relating to the SCR and the MCR are set out in the ‘Solvency Capital Requirement’ and ‘Minimum Capital Requirement’ Parts of the PRA Rulebook, respectively.

The ‘Technical Provisions’ Part of the PRA Rulebook requires firms to establish adequate technical provisions with respect to all of their insurance and reinsurance liabilities. The ‘Investments’ Part sets out the risk-management requirements that insurers must follow when investing their assets, including those held to cover technical provisions, while the ‘Valuation’ Part sets out overriding standards with which firms must comply when valuing assets and liabilities.

6.3 Senior Management, Systems and Controls

Solvency II requires insurers to ensure that all persons who effectively run a firm, or otherwise hold key functions, to: have adequate professional qualifications; have the requisite knowledge and experience to enable sound and prudent management; and be of good repute and integrity. The Senior Managers and Certification Regime (“SMCR”), which was extended to apply to insurers in 2018, implements these requirements in the UK.

The SMCR has three main components.

First, the SMCR contains a senior managers regime, which requires individuals performing senior management functions (“SMFs”) to be pre-approved by regulators before they start their role. The PRA and the FCA both produce lists of SMFs, which include the chief executive function, the chief financial function, the chief risk function and the chief actuary function. Individuals who hold SMFs have a duty in relation to their prescribed responsibilities. The FCA and the PRA can take action against individuals who hold SMFs if there is a regulatory breach within their area of responsibility and they do not take reasonable steps to avoid the breach.

Second, the SMCR contains a certification regime for staff employed in roles that do not entail the performance of SMFs but could nonetheless pose a significant risk of harm to their firm or its customers (“certification roles”). A firm is responsible for ensuring that no employee performs certification roles without having been certified as fit and proper by the firm (on recruitment and then on an annual basis). Employees performing certification roles in relation to insurers must be certified by 10 December 2019.

Third, the SMCR contains a conduct regime for senior managers and other employees. There are two tiers of conduct rules, contained in both the PRA Rulebook and the FCA Handbook. Some of these rules apply only to senior managers; some apply to senior managers and non-executive directors; and others apply to the majority of employees within the firm. 208

The FCA’s Senior Management Arrangements, Systems and Controls Sourcebook also contains rules on the apportionment of significant responsibilities among an insurer’s directors and other senior managers and, more generally, the systems and controls that insurers are required to have in place. In particular, firms must take reasonable care to establish and maintain effective systems and controls for compliance with applicable regulatory requirements and for countering the risk that they might be used to further financial crime.

6.4 Reporting requirements

The Issuer is subject to certain ongoing reporting requirements set out in the ‘Reporting’ Part of the PRA Rulebook, which implements Pillar 3 of Solvency II. Firms are under a general requirement to submit to the PRA information necessary for the PRA’s supervision of the firm.

The Solvency II Regulation sets out more prescriptive reporting requirements:

(A) the submission of a regular supervisory report (“RSR”) at least once every three years (with updates submitted at the end of each financial year). This is submitted to the PRA, but is not made public;

(B) the annual submission and publication of a report on a firm’s solvency and financial condition, known as a solvency and financial condition report (“SFCR”). The required content of this report is prescribed by the ‘Reporting’ Part of the PRA Rulebook and includes details of the firm’s SCR and MCR;

(D) annual and quarterly reporting of quantitative data that supplement the RSR and the SFCR.

These requirements apply on both a solo and consolidated basis. UK insurers within the scope of Solvency II must also disclose on an ongoing basis the nature and effects of any major developments that significantly affect its prior disclosures.

6.5 Conduct of Business requirements

The FCA regulates, through its Conduct of Business Sourcebook (“COBS”) and its Insurance Conduct of Business Sourcebook (“ICOBS”), the distribution and sale of insurance products. COBS applies where such insurance products have an investment element, such as pension policies, and ICOBS applies to non-investment insurance products.

The scope and range of the obligations imposed on an authorised firm under COBS and ICOBS vary according to the scope of the firm’s business and the nature of its clients. Many of the provisions only apply to insurers that deal directly with retail customers or to transactions with retail customers. Broadly, the rules in COBS and ICOBS require firms to provide clients with information about the firm, meet certain standards of product disclosure, assess suitability when advising on certain products, report appropriately to clients and provide certain protections in relation to client assets. 209

These sourcebooks implement the Insurance Distribution Directive (“IDD”). The IDD, which members states were obliged to apply to relevant firms by 1 October 2018, covers all participants in the sale of insurance products. The IDD was intended to strengthen policyholder protection and make it easier for firms to trade cross-border.

7. Change of Control of Insurance Companies

Section 178 of FSMA requires any person who intends to acquire or increase its “control” over a UK authorised insurance company to notify the PRA of its decision and to receive approval from the PRA before becoming a “controller” or increasing its interest in such a firm to or above certain thresholds.

The PRA must, within 60 working days from the date on which it acknowledges receipt of a notification (provided it has received all the necessary information), either: approve the acquisition or increase in control unconditionally; propose to approve it subject to conditions; or propose to object to it entirely. In reaching its decision, the PRA is required to consult with the FCA. The FCA may require the PRA to reject the application or impose conditions on the approval of the application in certain circumstances.

The PRA must also be notified when the transaction that results in the change of control takes place. No prior approval for reducing control below one of the thresholds referred to below is needed, although notification must still be given to the PRA of the relevant transaction.

A proposed “controller” for the purposes of the controller regime is any natural or legal person or such persons “acting in concert” who has or have taken a decision to acquire or increase, directly or indirectly, a holding above a certain level in, broadly, a UK authorised firm (including a UK insurance company).

Broadly, “control” over a UK authorised insurer is acquired if the acquirer:

(i) acquires 10 per cent. or more of the shares or voting rights in that insurer or in its parent undertaking; or

(ii) otherwise becomes able to exercise significant influence over the management of the firm by virtue of the acquirer’s shares or voting power in the company or its parent undertaking.

Increases in control of an insurance company require the prior consent of the PRA where they reach thresholds of 20, 30 and 50 per cent. of the shares or voting power in the regulated firm or its parent undertaking.

Breach of the requirements to notify the PRA of a decision to acquire or increase control or to obtain approval before effecting the transaction in question is a criminal offence attracting potentially unlimited fines. Other offences exist for breaches of the provisions of the change of control regime described above. 210

8. Consumer Complaints and Compensation

Insurance companies, along with other regulated firms and certain other unregulated businesses, fall under the compulsory jurisdiction of the Financial Ombudsman Service (“FOS”), which is a body established under FSMA, in relation to regulated activities carried on from an establishment in the UK. Authorised firms are required to have adequate complaints handling procedures in place but, where these are exhausted and the complaint or dispute has not been resolved, the FOS provides for dispute resolution in respect of certain categories of customer complaints brought by individuals and small business customers. Insurance firms covered by the FOS are required to pay levies and case fees, which provide the funding for the FOS. Awards made by the FOS are binding on the firms to which they relate.

The Financial Services Compensation Scheme (“FSCS”), established under FSMA, seeks to protect policyholders when a UK authorised insurer is unable or unlikely to be able to meet its financial obligations to policyholders. The FSCS provides compensation to certain categories of customer who suffer loss as a consequence of the failure by a regulated firm to meet its liabilities arising from claims made in connection with regulated activities. The FSCS is funded by way of levies imposed on all of its participating financial services firms, including the Issuer.

9. Own Funds and Technical Provisions

Rules in force in the UK (in large part implementing Solvency II) require insurance companies to maintain capital resources to meet their capital requirements. A key purpose of these capital requirements is to protect the insurer’s solvency against variations in claim expectations (i.e., the liability profile of the business) and the value of assets held in support of such liabilities. Detailed rules in the PRA Rulebook and the Solvency II delegated regulation (Regulation (EU) 2015/35) set out the way in which firms must calculate their capital requirements, as well as setting out what constitutes eligible capital for these purposes.

Firms must hold eligible own funds covering the SCR, which is calculated using either the standard formula set out in the Solvency II Regulation or an approved internal model. The SCR must be calibrated to ensure that all quantifiable risks to which the firm is exposed are taken into account. It must cover at least the following risks: non-life underwriting risk; life underwriting risk; health underwriting risk; market risk; credit risk; and operational risk. The level of a firm’s SCR corresponds to the value-at-risk of its basic own funds subject to a confidence level of 99.5 per cent. over a one-year period. Breach of the SCR leads to supervisory intervention but will not lead to a firm’s authorisation being withdrawn unless the position of the firm weakens further. There are, however, other consequences if the SCR is breached such as the need to cancel or defer distributions on capital instruments.

In addition to the SCR requirement, a firm must hold eligible own funds to cover its MCR. The MCR corresponds to the value-at-risk of the basic own funds of the firm subject to a confidence level of 85 per cent. over a one-year period. The MCR has an absolute floor expressed in numbers of euros. For long-term insurers such as the Issuer, this is currently set at EUR 3,700,000. In addition to this, a firm’s MCR must be no less than 25 per cent., and no higher than 45 per cent., of the firm’s SCR. 211

The own fund items that firms may hold against their capital requirements are classified as Tier 1, Tier 2 or Tier 3 own funds. Tier 1 own funds have the highest level of permanence and loss absorbency and are treated as high-quality capital, while Tier 3 own funds are deemed to have the lowest level of permanence and loss absorbency. In broad terms, Tier 1 items correspond to a firm’s paid-in shares and related share premium, “surplus funds” (calculated according to the ‘Surplus Funds’ Part of the Rulebook), reconciliation reserve and certain subordinated liabilities. Tier 2 own funds will be classified as such provided that they substantially possess the characteristic of subordination and may include non-paid-in shares and related share premium and certain subordinated liabilities. Tier 3 funds must be deeply subordinated with an original maturity of at least five years and must also provide for the suspension of repayment or redemption where there is a breach of the SCR and for the deferral of distributions where there is a breach of the MCR.

Insurers must also establish technical provisions in respect of their insurance obligations towards policyholders. Technical provisions must be equal to the sum of (i) BEL, being the expected present value of future cash flows on the in-force business projected using probability-weighted average assumptions, and (ii) the RM, an amount intended to represent the sum that a third-party taking on the liabilities would require in excess of the BEL such that it would hold eligible own funds sufficient to cover its SCR (on the assumption that any hedgeable risks were eliminated) and thereby be able to support the insurance obligations taken on over their remaining life time. The risk margin in respect of pre-2016 business may be reduced by a transitional measures adjustment designed to ensure that companies would not have needed to hold more in technical provisions at 31 December 2015 than was the case under the previous regulatory regime. Firms must ensure that assets held to cover technical provisions are invested in a manner appropriate to the nature and duration of the firm’s insurance liabilities and in the best interests of all policyholders, taking into account any disclosed policy objectives.

10. Supervision and Enforcement

10.1 Supervision

The PRA and the FCA have extensive powers to supervise and intervene in the affairs of the firms they are responsible for regulating, for example, if they consider it appropriate in order to protect policyholders against the risk that the firm may be unable to meet its liabilities as they fall due, that the threshold conditions may cease to be met, that the firm or its parent has failed to comply with obligations under the relevant legislation or rules, that the firm has furnished them with misleading or inaccurate information or that there has been substantial departure from any proposal or forecast submitted to the relevant regulator. The PRA can, for instance, require firms to provide particular information or documents to it, require the production of a report by a “skilled person” appointed by the PRA or formally investigate a firm.

The nature and extent of the PRA’s supervisory relationship with a firm depends on how much of a risk the PRA considers it could pose to its statutory objectives. The PRA assigns firms to one of five “impact categories”, based on its overall assessment of a firms’ systemic importance, its proximity to failure and the context in which the firm operates.

The FCA’s supervisory approach involves: (i) identifying harm (including through sectoral analyses and working with whistleblowers); (ii) acting on intelligence (including by mandating 212

firms to provide it with information); (iii) remedying breaches quickly and proportionately; and (iv) evaluating its own supervisory activities.

10.2 Enforcement

The PRA and the FCA have powers to take a range of enforcement action, including the ability to sanction companies and individuals under the SMCR. Most notably, enforcement action may include restrictions on undertaking new business, public censure, restitution, fines and, ultimately, revocation of permission to carry on regulated activities or of an approved person’s status. The PRA (and, where relevant, the FCA) can also vary or revoke the permissions of an authorised firm that has not engaged in regulated activities for 12 months, or that fails to meet the threshold conditions.

In addition to the above, the FCA has the power to impose sanctions on an authorised person who is found to have committed market abuse and it has the power to institute criminal proceedings for offences under: (i) FSMA or any statutory instruments made under it (with the exception of certain provisions for which the PRA is the relevant regulator); (ii) the Financial Services Act 2012; (iii) the insider dealing provisions of the Criminal Justice Act 1993; and (iv) certain provisions contained in anti-money laundering and counter-terrorist financing legislation.

11. Money Laundering and Financial Crime

The FCA has a duty to consider the importance of minimising the risk of the firms it regulates being used for financial crime. It therefore looks at measures a firm takes to monitor, detect, and prevent financial crime. This includes measures in respect of money laundering, terrorist financing, data security, bribery and corruption, fraud and sanctions breaches.

12. Data Protection

The GDPR came into effect across the EU on 25 May 2018 and in the three non-EU EEA states (Iceland, Liechtenstein and Norway) on 20 July 2018. The GDPR regulates the processing of the personal data of living individuals (“data subjects”) by, among others: (i) companies that collect or receive personal data and control the use of that data (“data controllers”); and (ii) companies that process personal data that are either data controllers themselves or do so on behalf of a data controller (“data processors”).

In the UK, the Data Protection Act 2018 repeals the Data Protection Act 1998 (which set out the pre-GDPR data protection regime in the UK), exercises on the part of the UK the limited discretions accorded to member states under the GDPR and deals with certain data processing issues that are not covered by the GDPR. It also seeks to ensure that UK and EU data protection regimes are aligned post-Brexit, and that the UK will be able to freely exchange personal data with the EU post-Brexit (although the UK’s ability to do so ultimately depends on a determination of the European Commission (see further below)).

Personal data includes any information relating to data subjects who can be identified from that information (with or without other information already held, or likely to be held, by the data controller). It can therefore include: personal details such as name, address, email address, telephone number and date of birth; information relating to the individual, whether 213 in their personal, family or professional life; and any expression of opinion about an individual or indications of a company’s (or any other person’s) intentions in respect of that individual.

The processing of personal data covers any activity done to or in relation to the personal data, including obtaining, organising, adapting, altering, retrieving, storing, consulting, using, disclosing, disseminating, aligning, combining, blocking, erasing or destroying personal data.

The GDPR obliges data controllers (and, to a lesser extent, data processors) to comply with various data protection principles. Personal data must be: (i) processed fairly, lawfully and transparently (in some cases, only with explicit consent); (ii) collected for specified, explicit and legitimate purposes and only processed in line with those purposes; (iii) adequate, relevant and limited to what is necessary in relation to the purposes for which it is processed; (iv) accurate and, where necessary, up to date; stored only for as long as necessary; and (v) processed securely.

The GDPR also grants data subjects various rights over their personal data, such as the right to erasure and the right to request information.

The territorial scope of the GDPR extends outside the EU. For example, it applies where non-EU companies process personal data in relation to the offering of goods or services to individuals in the EU or the monitoring of the behaviour of individuals within the EU.

Data controllers and data processors should not transfer personal data outside the EEA without putting in place appropriate safeguards and on the condition that enforceable rights and remedies are available for data subjects, unless the transfer is to a jurisdiction officially declared by the European Commission to be ‘adequate’.

For breaches of the GDPR, national supervisory authorities can impose fines of up to 4 per cent. of annual turnover, or 20 million euro, whichever is greater. In the UK, the national supervisory authority is the Information Commissioner’s Office.

If the UK leaves the EU without a ratified Withdrawal Agreement, the UK would become a ‘third country’ for the purposes of the EU’s GDPR regime. The UK government has issued a technical note stating that, in this scenario, it would continue to allow personal data to be transferred freely from the UK to the EU. However, the European Commission has not confirmed that the UK will be deemed an ‘adequate’ jurisdiction post-Brexit, and therefore there could be restrictions on the transfer of personal data from the EU to the UK in a no- deal scenario. 214

Taxation

The comments below, which are of a general nature and are based on the Issuer’s understanding of current United Kingdom tax law and HM Revenue & Customs published practice, describe only the United Kingdom withholding tax treatment of payments of interest (as that term is understood for United Kingdom tax purposes) in respect of the Notes. They are not exhaustive. They do not deal with any other United Kingdom taxation implications of acquiring, holding or disposing of Notes. Prospective Noteholders who are in any doubt as to their tax position or who may be subject to tax in a jurisdiction other than the United Kingdom are strongly advised to consult their own professional advisers.

The Notes issued will constitute “quoted Eurobonds” provided they are and continue to be listed on a recognised stock exchange, within the meaning of section 1005 of the Income Tax Act 2007. The securities are “listed on a recognised stock exchange” if they are admitted to trading on an exchange designated as a recognised stock exchange by an order made by the Commissioners for HMRC and either they are included in the United Kingdom official list (within the meaning of Part 6 of the Financial Services and Markets Act 2000) or they are officially listed, in accordance with provisions corresponding to those generally applicable in European Economic Area states, in a country outside the United Kingdom in which there is a recognised stock exchange. Euronext Dublin is a recognised stock exchange for these purposes. The Issuer’s understanding of current HMRC practice is that securities which are officially listed and admitted to trading on GEM will be regarded as “listed on a recognised stock exchange” for these purposes. While the Notes are and continue to be quoted Eurobonds, payments of interest by the Issuer on the Notes may be made without withholding or deduction for or on account of United Kingdom income tax.

In other cases, absent any other relief or exemption (such as a direction by HM Revenue & Customs that interest may be paid without withholding or deduction for or on account of United Kingdom tax to a specified Noteholder following an application by that Noteholder under an applicable double tax treaty), an amount must generally be withheld on account of United Kingdom income tax at the basic rate (currently 20 per cent.) from payments of interest on the Notes.

Where Notes are issued at a discount (i.e., at an issue price of less than 100 per cent. of their principal amount), any payments in respect of the accrued discount element of such Notes will not be made subject to any withholding or deduction on account of United Kingdom income tax as long as they do not constitute payments in respect of interest. 215

Subscription and Sale

Pursuant to a Subscription Agreement dated 23 July 2019 (the “Subscription Agreement”), HSBC Bank plc, J.P. Morgan Securities plc and NatWest Markets Plc (each a “Joint Lead Manager”) have agreed with the Issuer, subject to the satisfaction of certain conditions, to subscribe for the Notes at the issue price of 100 per cent. of their principal amount less commissions. Each Joint Lead Manager is entitled to terminate and to be released and discharged from its obligations under the Subscription Agreement in certain circumstances prior to payment to the Issuer. In addition, the Issuer has agreed to reimburse the Joint Lead Managers for certain of their expenses in connection with the issue of the Notes. The Subscription Agreement entitles the Joint Lead Managers to terminate the agreement in certain circumstances prior to payment being made to the Issuer.

United States

The Notes and any shares which may be delivered upon or following conversion or exchange of the Notes have not been and will not be registered under the Securities Act or the securities laws of any state of the United States and may not be offered, sold or delivered within the United States or to, or for the account or benefit of U.S. persons except in certain transactions exempt from the registration requirements of the Securities Act and applicable state securities laws. Terms used in this paragraph have the meanings given to them by Regulation S under the Securities Act.

Each Joint Lead Manager has agreed that, except as permitted by the Subscription Agreement, it will not offer, sell or deliver the Notes, (i) as part of their distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering and the Issue Date, within the United States or to, or for the account or benefit of, U.S. persons, and it will have sent to each dealer to which it sells Notes during the distribution compliance period a confirmation or other notice setting forth the restrictions on offers and sales of the Notes within the United States or to, or for the account or benefit of, U.S. persons.

In addition, until 40 days after the commencement of the offering, an offer or sale of Notes within the United States by a dealer that is not participating in the offering may violate the registration requirements of the Securities Act.

United Kingdom

Each Joint Lead Manager has represented warranted and agreed that: (i) it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) received by it in connection with the issue or sale of any Notes in circumstances in which section 21(1) of FSMA would not, if the Issuer were not an authorised person, apply to the Issuer; and (ii) it has complied and will comply with all applicable provisions of FSMA with respect to anything done by it in relation to such Notes in, from or otherwise involving the United Kingdom.

Prohibition of Sales to EEA Retail Investors

Each Joint Lead Manager has represented and agreed that it has not offered, sold or otherwise made available and will not offer, sell or otherwise make available any Notes to any retail investor in the EEA. For the purposes of this provision the expression “retail investor” means a person who is one (or more) of the following: (i) a retail client as defined in point (11) of Article 4(1) of MiFID II; or (ii) a 216 customer within the meaning of the IMD, where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II.

Singapore

Each Joint Lead Manager has acknowledged that this Offering Memorandum has not been registered as a prospectus with the MAS. Accordingly, each Joint Lead Manager has represented, warranted and agreed that it has not offered or sold any Notes or caused the Notes to be made the subject of an invitation for subscription or purchase and will not offer or sell any Notes or cause the Notes to be made the subject of an invitation for subscription or purchase, and has not circulated or distributed, nor will it circulate or distribute, this Offering Memorandum or any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the Notes, whether directly or indirectly, to any person in Singapore other than (i) to an institutional investor (as defined in Section 4A of the SFA) pursuant to Section 274 of the SFA, (ii) to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

Where the Notes are subscribed or purchased under Section 275 of the SFA by a relevant person which is:

(a) a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or

(b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, securities or securities-based derivatives contracts (each term as defined in Section 2(1) of the SFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the Notes pursuant to an offer made under Section 275 of the SFA except:

(1) to an institutional investor or to a relevant person, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA;

(2) where no consideration is or will be given for the transfer;

(3) where the transfer is by operation of law;

(4) as specified in Section 276(7) of the SFA; or

(5) as specified in Regulation 37A of the Securities and Futures (Offers of Investments) (Securities and Securities-based Derivatives Contracts) Regulations 2018 of Singapore. 217

General

No action has been or will be taken by the Issuer or the Joint Lead Managers that would permit a public offering of the Notes or possession or distribution of this document or other offering material relating to the Notes in any jurisdiction where, or in any circumstances in which, action for these purposes is required. This document does not constitute an offer and may not be used for the purposes of any offer or solicitation in or from any jurisdiction where such an offer or solicitation is not authorised.

Neither the Issuer nor the Joint Lead Managers represent that the Notes may at any time lawfully be sold in or from any jurisdiction in compliance with any applicable registration requirements or pursuant to an exemption available thereunder or assumes any responsibility for facilitating such sales. 218

General Information

Except where otherwise defined in this General Information section, terms which are defined in “Terms and Conditions of the Notes” above have the same meaning when used in this section.

(1) The net proceeds of the issue will be used by the Issuer for general corporate purposes.

(2) The Notes have been accepted for clearance through Euroclear and Clearstream, Luxembourg with a Common Code of 184343142, an ISIN Code of XS1843431427, a FISN Code of PENSION INSURAN/EUR NT 22001231 SU and a CFI Code of DBFXFR (in the case of the FISN and CFI Codes, as updated, as set out on the website of the Association of National Numbering Agencies (ANNA) or alternatively sourced from the National Numbering Agency that assigned the ISIN).

(3) The address of Euroclear is Euroclear Bank SA/NV, 1 Boulevard du Roi Albert II, B-1210 Brussels, Belgium and the address of Clearstream, Luxembourg is Clearstream Banking S.A., 42 Avenue JF Kennedy, L-1855 Luxembourg, Luxembourg.

(4) The yield of the Notes to (but excluding) the First Call Date is 7.375 per cent., calculated on a semi-annual basis. The yield is calculated as at the Issue Date on the basis of the issue price and the interest rate of 7.375 per cent. per annum and on the assumption (solely for the purposes of determining the indicative yield) that all interests payments were made in full and that the Notes were redeemed on the First Call Date. It is not an indication of future yield.

(5) The Issuer has obtained all necessary consents, approvals and authorisations in connection with the issue and performance of the Notes. The issue of the Notes was authorised by a resolution of the PIC Board passed on 19 June 2019 and a resolution of the committee of the PIC Board passed on 11 July 2019.

(6) The Trust Deed provides that the Trustee may rely on certificates or reports from any auditors or other parties in accordance with the provisions of the Trust Deed whether or not any such certificate or report or engagement letter or other document in connection therewith contains any limit on the liability of such auditors or such other party.

(7) There has been no significant change in the financial or trading position of either the Issuer or PICG since 31 December 2018, nor has there has been any material adverse change in the prospects of either the Issuer or PICG since 31 December 2018 (in each case, being the last day of the financial period in respect of which each of the Issuer and PICG published their respective latest annual audited financial statements).

(8) There are no, nor have there been any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which either the Issuer or PICG, respectively, is aware) which may have, or have had during the period of 12 months prior to the date of this document, a significant effect on the financial position or profitability of either the Issuer or PICG.

(9) There are no material contracts entered into other than in the ordinary course of either the Issuer’s or PICG’s respective businesses which could result in either the Issuer or PICG being under an obligation or entitlement that is material to either the Issuer’s or PICG’s 219

respective ability to meet their respective obligations to Noteholders in respect of the Notes and/or shareholders in respect of any shares issued on conversion or exchange of the Notes (as applicable).

(10) Arthur Cox Listing Services Limited is acting solely in its capacity as listing agent for the Issuer in connection with the Notes and is not itself seeking admission of the Notes to trading on the GEM.

(11) For so long as the Notes are outstanding and admitted to listing on the Official List and to trading on the GEM, and the rules and regulations of that exchange so require, copies of:

(i) the annual report and audited consolidated financial statements of the Issuer for the years ended 31 December 2017 and 31 December 2018;

(ii) the annual report and audited consolidated financial statements of PICG for the years ended 31 December 2017 and 31 December 2018;

(iii) the Issuer SFCR;

(iv) this Offering Memorandum, together with any supplement thereto;

(v) the Trust Deed and the Agency Agreement;

(vi) the memorandum and articles of association of the Issuer;

(vii) the memorandum and articles of association of PICG,

will be available in electronic form for inspection at the specified offices of each of the Paying Agents during normal business hours.

(12) KPMG LLP, Registered Auditors with the Institute of Chartered Accountants in England and Wales, have audited, and rendered an unqualified audit report on, in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board and International Financial Reporting Standards, the consolidated financial statements of each of the Issuer and PICG, in each case for the two years ended 31 December 2017 and 31 December 2018. KPMG LLP has no material interest in either the Issuer or PICG.

(13) The Issuer does not intend to provide any post-issuance information in relation to the Notes.

(14) The Joint Lead Managers and their respective affiliates may have engaged, and may in the future engage, in investment banking and/or commercial banking transactions with, and may perform services for, the Issuer and its affiliates in the ordinary course of business.

(15) The Issuer’s Legal Entity Identifier (“LEI”) is M31AVDIX8NY21MAUQF46. PICG’s LEI is 549300UN2IF0TWMZYC35.

559354948 220

PRINCIPAL OFFICE OF THE ISSUER Pension Insurance Corporation plc 14 Cornhill London EC3V 3ND United Kingdom

TRUSTEE PRINCIPAL PAYING AND CONVERSION AGENT AND TRANSFER AGENT

Citicorp Trustee Company Limited Citibank, N.A., London Branch Citigroup Centre Citigroup Centre Canada Square Canada Square Canary Wharf Canary Wharf London E14 5LB London E14 5LB

REGISTRAR CONVERSION CALCULATION AGENT Citigroup Global Markets Europe AG Conv-Ex Advisors Limited Reuterweg 16 30 Crown Place 60323 London EC2A 4EB Frankfurt Germany

JOINT LEAD MANAGERS

HSBC Bank plc J.P. Morgan Securities plc 8 Canada Square 25 Bank Street London E14 5HQ Canary Wharf London E14 5JP NatWest Markets Plc 250 Bishopsgate London EC2M 4AA

AUDITOR OF THE ISSUER AND PICG

KPMG LLP 15 Canada Square London E14 5GL United Kingdom

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LEGAL ADVISERS

To the Issuer To the Joint Lead Managers and the Trustee Slaughter and May Allen & Overy LLP One Bunhill Row One Bishops Square London EC1Y 8YY London E1 6AD United Kingdom United Kingdom

IRISH LISTING AGENT

Arthur Cox Listing Services Limited Ten Earlsfort Terrace Dublin 2 Ireland