Milliman Client Report Transfer of certain business of Mobius Life Limited to Scottish Friendly Assurance Society Limited. The report of the Independent Expert 19 July 2018 Prepared by: Philip Simpson, FIA July 2018 MILLIMAN | Client Report CONTENTS 1. Executive Summary ...................................................................................................................... 4 Introduction .................................................................................................................................................... 4 Overview of the Scheme ................................................................................................................................ 4 Financial position of SF and Mobius pre- and post-Scheme .......................................................................... 8 The profile of risks to which the policyholders of Mobius and SF are exposed ............................................ 11 The governance, management and service standards applicable to the Mobius and SF policies pre- and post-Scheme ................................................................................................................................................ 12 The reasonable benefit expectations of the policyholders of Mobius and SF pre- and post-Scheme .......... 13 The policyholder communications proposed for this transfer ....................................................................... 15 Conclusions ................................................................................................................................................. 16 2. Introduction ................................................................................................................................. 17 The Independent Expert ............................................................................................................................... 17 The purpose and scope of my report ........................................................................................................... 17 Developments whilst my report was in progress .......................................................................................... 18 Qualifications and disclosures ...................................................................................................................... 18 The parties for whom my report has been prepared .................................................................................... 19 Limitations .................................................................................................................................................... 19 Technical Actuarial Standards (“TASs”) ....................................................................................................... 19 The Actuarial Profession Standards (“APSs”) .............................................................................................. 19 The structure of my report ............................................................................................................................ 20 3. The UK Life Insurance market and regulatory environment .................................................. 21 Introduction .................................................................................................................................................. 21 The UK regulators ........................................................................................................................................ 21 The Solvency II regulatory regime ................................................................................................................ 21 The governance of UK long-term insurers ................................................................................................... 23 The governance of UK pension providers .................................................................................................... 23 The governance of UK friendly societies ...................................................................................................... 24 A firm’s risk appetite and internal capital management policy ...................................................................... 24 The products and long-term business relevant to this report ....................................................................... 24 4. General considerations of the Independent Expert ................................................................ 26 The role of the Independent Expert .............................................................................................................. 26 The definition of ‘policyholder’ ...................................................................................................................... 26 Security of policyholder benefits................................................................................................................... 27 Treating customers fairly .............................................................................................................................. 27 The framework for my consideration of the proposed Scheme .................................................................... 27 My assessment of the effect of the proposed Scheme ................................................................................. 27 The supplementary report ............................................................................................................................ 28 Reliances of the Independent Expert on the work of others ......................................................................... 28 1 July 2018 MILLIMAN | Client Report 5. Background on Scottish Friendly Assurance Society Limited .............................................. 30 Background .................................................................................................................................................. 30 Structure of SF ............................................................................................................................................. 30 The SF Main Fund business ........................................................................................................................ 32 The SLL business ........................................................................................................................................ 33 LANMAS business ....................................................................................................................................... 33 Rational Shelley business ............................................................................................................................ 34 M&GM business ........................................................................................................................................... 34 Administration .............................................................................................................................................. 34 Financial condition ....................................................................................................................................... 35 Governance and risk management .............................................................................................................. 35 Membership rights ........................................................................................................................................ 37 Reinsurance ................................................................................................................................................. 37 Capital management .................................................................................................................................... 38 With-profits and capital management ........................................................................................................... 39 Risk profile ................................................................................................................................................... 40 6. Background on Mobius Life Limited ......................................................................................... 41 Background .................................................................................................................................................. 41 Products ....................................................................................................................................................... 41 Administration .............................................................................................................................................. 43 Financial condition ....................................................................................................................................... 43 Governance and risk management .............................................................................................................. 44 Reinsurance ................................................................................................................................................. 46 Capital management .................................................................................................................................... 46 Risk profile ................................................................................................................................................... 47 7. The proposed