POLICYHOLDER BOOKLET

Transcription

1 POLICYHOLDER BOOKLET Proposed transfers to The Royal London Mutual Insurance Society Limited of the life insurance business of: 1. Royal London (CIS) Limited, and 2. Royal London Pooled Pensions Company Limited.

2 CONTENTS Page Part A Introduction and key information about the proposed transfers 1 Introduction 4 2 Key information about the proposed transfers 5 3 The legal process and what you can do 10 4 Answers to some questions you may have 11 Part B Proposed RLCIS Transfer If you would like a copy of this leaflet in large print, please call us on Summary of the RLCIS Scheme 18 6 Summary of the Independent Expert s report 22 7 Copy of the Legal Notice 29 8 Guernsey or Jersey policies 30 Part C Proposed RLPPC Transfer 9 Summary of the RLPPC Scheme Summary of the Independent Expert s report Copy of the Legal Notice 39 Part D Useful terms 40 When we say we in this booklet, we mean The Royal London Mutual Insurance Society Limited. We ve used certain terms in this booklet that need a more detailed explanation than we can give in the text. We have highlighted these like this and explain them in Part D. References in this booklet to life insurance business include pensions business. 2 3

3 PART A INTRODUCTION AND KEY INFORMATION ABOUT THE PROPOSED TRANSFERS 1 INTRODUCTION This booklet tells you about the proposed transfer to The Royal London Mutual Insurance Society Limited (Royal London) of the life insurance business of each of: Royal London (CIS) Limited (RLCIS), and Royal London Pooled Pensions Company Limited (RLPPC). In addition, the booklet: explains what the proposed transfers would mean for you as a Royal London with-profits policyholder answers some of the questions that you may have, and tells you how you can ask any further questions or raise any concerns. We refer to: the proposed transfer of the RLCIS life insurance business as the RLCIS Transfer, and the proposed transfer of the RLPPC life insurance business as the RLPPC Transfer. The proposed RLCIS Transfer would transfer approximately 3.4m policies from RLCIS to Royal London. It would increase the funds we manage from 52 billion to approximately 72 billion. The proposed RLPPC Transfer would transfer around 100 policies from RLPPC to Royal London. It would increase the funds we manage by a further 2-3 billion. Although you won t notice any difference as a result of the proposed transfers (we explain this in section 2.2) there are certain risks associated with the proposed RLCIS Transfer, which we explain in section 2.4. The proposed transfers, which are independent of each other, need to be approved by the Court. If the Court approves them, we expect that they will both take effect on the Effective Date. If you are concerned that either or both of the proposed transfers could adversely affect you, you have the right to raise your concerns with the Court. We explain how to do this in section 3.2. However, if you are happy with them, you don t need to do anything. Insurance business is transferred by a Court process under terms which are set out in a legal document called a Scheme. This booklet includes for each of the proposed transfers: a summary of the Scheme a summary of the report by the Independent Expert on the Scheme, and a copy of the Legal Notice. We ve put the full Schemes and the full Independent Expert s reports on our website, where you can read, download and print them. If you prefer, you can ask us to send you copies. Our website address is royallondon.com. You will find information about the proposed transfers at royallondon.com/ proposedtransfers. Here are our contact details. We re available 8am to 6pm Monday to Friday, unless it s a bank holiday in England. Write to: Team 7 Royal London Royal London House Alderley Road WILMSLOW SK9 1PF Telephone International telephone KEY INFORMATION ABOUT THE PROPOSED TRANSFERS 2.1 Impact on fund structure Within Royal London we invest groups of with-profits policies in different sub funds. The sub-fund that your policy is invested in depends on the company that your policy was taken out with. For example, with-profits policies started with The Scottish Life Assurance Company are invested in the Scottish Life Closed Fund. The proposed transfers would not affect how we manage the existing funds and sub-funds within Royal London. In 2013 we bought Co-operative Insurance Society Limited from the Co-operative Banking Group (CBG ), re-naming it Royal London (CIS) Limited. In this booklet we refer to Royal London (CIS) Limited as RLCIS. The proposed RLCIS Transfer would move the life insurance business of RLCIS, which is a company owned by Royal London, into a new sub-fund within Royal London called the Royal London (CIS) Sub-Fund. We also propose to transfer the life insurance business of RLPPC, another company owned by Royal London, into the Royal London Main Fund. The diagram on the next page shows how the proposed RLCIS Transfer and the proposed RLPPC Transfer would affect the fund structure of each of Royal London, RLCIS and RLPPC, assuming that the Court approves both transfers. We ve drawn the diagram to scale so you can see the relative size of each fund, sub-fund or company (figures as at 31 December 2013). We explain these funds and sub-funds in Part D. 4 5

4 Before the proposed transfers The Royal London Long Term Fund of The Royal London Mutual Insurance Society Limited Royal London Main Fund 23.1bn Royal London (CIS) Limited RLCIS Long Term Business Fund 18.6bn This is what we expect to happen if the proposed RLCIS Transfer and the proposed RLPPC Transfer go ahead. On the Effective Date: o the life insurance business of RLCIS would transfer to Royal London and be allocated to the Royal London (CIS) Sub-Fund which would close to new policies, and 2.2 Impact on you You won t notice any difference as a result of the proposed transfers. That s because the proposed transfers would NOT: reduce the guaranteed benefits payable under your policy reduce any annual bonuses already added to your policy RA IB Sub Fund, UF IB Sub Fund, UF OB Sub Fund 3.7bn 0.7bn PLAL With-Profits Sub-Fund Scottish Life Closed Fund 2.7bn Royal Liver Sub-Fund 2.4bn After the proposed transfers The Royal London Long Term Fund of The Royal London Mutual Insurance Society Limited Royal London Main Fund 25.5bn includes funds previously in RLPPC RLCIS Shareholder Fund, including the General Reserve 0.2bn Royal London Pooled Pensions Company Limited RLPPC Long-Term Business Fund 2.4bn o the life insurance business of RLPPC would transfer to Royal London and be allocated to the Royal London Main Fund. The RLCIS Shareholder Fund (including the 200m General Reserve) and the RLPPC Shareholder Fund would remain in RLCIS and RLPPC respectively. However, we would expect to receive the assets in these funds shortly after the Effective Date. We intend to use 180 million of the General Reserve to pay CBG a deferred part of the purchase price of RLCIS, as agreed in the Sale and Purchase Agreement. Shortly after the Effective Date we would put the remaining 20 million of the General Reserve, and the balance of the RLCIS Shareholder Fund (approximately 11 million), in the Royal London Long Term Fund where it would form part of the overall reserves available to support the Royal London Main Fund and its sub-funds (thereby improving the prospects for future mutual dividends). We explain mutual dividends in section 2.5. In due course RLCIS and RLPPC would stop operating as separate companies. affect your policy terms and conditions change your insurer from Royal London affect the way we administer your policy increase the charges we make for administering your policy change the way we manage the investments backing your policy change your policy number, or change the address and telephone number you need if you want to ask us anything about your policy. Royal London (CIS) Sub-Fund 18.6bn RA IB Sub Fund, UF IB Sub Fund, UF OB Sub Fund 3.7bn 0.7bn PLAL With-Profits Sub-Fund Scottish Life Closed Fund 2.7bn Royal Liver Sub-Fund 2.4bn There are certain risks associated with the proposed RLCIS Transfer, which we explain in section 2.4. We consider that there is no material risk associated with the proposed RLPPC Transfer to you as a policyholder. The Independent Expert has separately considered the likely impact of each of the proposed RLCIS Transfer and the proposed RLPPC Transfer on Royal London s existing policyholders. You can read: 6 7

5 a summary of his report on the proposed RLCIS Transfer in section 6 a summary of his report on the proposed RLPPC Transfer in section 10, and his full reports on the proposed RLCIS Transfer and the proposed RLPPC Transfer on our website (you will find our website address in section 1). 2.3 Creation of the Royal London (CIS) Sub-Fund within the Royal London Long Term Fund This is what will happen on the Effective Date if the Court approves the proposed RLCIS Transfer. The RLCIS Long Term Business Fund will close to new policies. The life insurance business of RLCIS will transfer to a separate ring-fenced part of the Royal London Long Term Fund. This part of the fund would: o contain all of the life insurance business of RLCIS, and o be called the Royal London (CIS) Sub-Fund. By ring-fenced we mean that this part of the Royal London Long Term Fund would: contain only the assets and liabilities relating to the life insurance business of RLCIS, and be managed separately from the rest of the Royal London Long Term Fund. These changes mean that we would need to make some changes to the Practices in the PPFM of the Royal London Long Term Fund, to take effect from the Effective Date. If the proposed RLCIS Transfer goes ahead, we will outline these changes on our website, where you can read, download and print them. You will find our website address in section 1. We would not change any of the Principles in the PPFM. 2.4 Risk between funds As far as possible we manage each of the sub-funds within Royal London to be self-sufficient. This means that each sub-fund should meet its own capital requirements without financial support from other funds or sub-funds. By capital requirements we mean assets that the Prudential Regulation Authority requires us to set aside in addition to the expected cost of paying policyholders benefits in order to ensure that we could pay these even in adverse circumstances. An example of such an adverse circumstance would be a substantial fall in financial markets. If one sub-fund was unable to meet its capital requirements, which would only happen in adverse circumstances, the Royal London Main Fund would, in the first instance, provide the required financial support. There is a remote risk that the Royal London Main Fund may not be able to provide the required financial support. If that happened, we would call on the other funds and sub-funds in the Royal London Long Term Fund to provide the support if they can. While RLCIS and RLPPC remain as companies owned by Royal London, we do not, in law, have to provide such financial support to their life insurance businesses. However, if the Court approves the proposed RLCIS Transfer and once the transfer takes effect, the RLCIS life insurance business would become part of Royal London. In adverse circumstances we would then have to provide financial support to the Royal London (CIS) Sub-Fund, if we can, in a manner similar to that which, in adverse circumstances, we would currently have to provide to our existing funds and sub funds. We believe that the likelihood of the Royal London (CIS) Sub-Fund requiring any such support is remote. If the Royal London (CIS) Sub-Fund did receive any such support from the Royal London Main Fund or the other funds and sub-funds in the Royal London Long Term Fund, we intend that it would repay this support as soon as it no longer required it. It is also possible that other parts of the Royal London Long Term Fund might, in adverse circumstances, require financial support from the Royal London (CIS) Sub Fund. Again, we believe that the likelihood of such support being required is remote. If the Court approves the RLPPC Transfer, the life insurance business of RLPPC will become part of Royal London and will be allocated to the Royal London Main Fund. We consider that: the risk associated with the proposed RLCIS Transfer is very unlikely to make any noticeable difference to you as a policyholder, and there is no material risk associated with the proposed RLPPC Transfer to you as a policyholder. The Independent Expert has also considered these risks and concluded that there would be no material adverse effect on the benefit expectations or the security of benefits for any of the policyholders of Royal London, RLCIS or RLPPC. You can read: a summary of the Independent Expert s report on the proposed RLCIS Transfer in section 6, and a summary of the Independent Expert s report on the proposed RLPPC Transfer in section Mutual dividend In 2007 we adopted a new approach to sharing profits with eligible with-profits policyholders through a mutual dividend. We allocate such a dividend (which for some with-profits policies we call a special enhancement) by increasing the underlying value (or asset share) of relevant policies. If your policy has received a mutual dividend or special enhancement for a particular year, we will have told you this in your yearly statement for that year. If our profits increase in future years, then the likelihood that we can distribute a mutual dividend for those years increases and would affect the amount of any such dividend. While we expect to generate additional profit through the acquisition of RLCIS, we do not expect the proposed RLCIS Transfer itself to make any significant difference to our future profits or, therefore, to the prospects for future mutual dividends. However, we expect that our future profits and, therefore, the prospects for future mutual dividends would be affected positively by: any share in the release of the General Reserve, and 8 9

6 any efficiencies arising from managing the life insurance business of RLCIS within Royal London rather than in a company that we own. 3 THE LEGAL PROCESS AND WHAT YOU CAN DO 3.1 The legal process The proposed transfers are being effected by following a process prescribed in Part VII of the Financial Services and Markets Act The process requires us to send you notice of the proposed transfers. You can read: a copy of the Legal Notice of the RLCIS Scheme in section 7, and a copy of the Legal Notice of the RLPPC Scheme in section 11. We and RLCIS have applied to the Court for approval of the RLCIS Transfer. We and RLPPC have applied to the Court for approval of the RLPPC Transfer. The Court must be satisfied that, in all the circumstances of each proposed transfer, it is appropriate to approve it. To help the Court decide, the Independent Expert separately reports his opinion on the likely effect of each proposed transfer on policyholders. You can read summaries of his reports in sections 6 and 10 respectively. We expect the Court to consider the proposed transfers at separate hearings on the Hearing Date. If this date changes, we will post the new date on our website. You can also ask us if the date has changed. You will find our website address and contact details in section 1. The Court may approve one, both or neither of the transfers. We expect any approved transfer to take effect on the Effective Date. There is a separate legal process in each of Guernsey and Jersey in respect of the local equivalent of the proposed RLCIS Transfer. There is more information about the Guernsey and Jersey Schemes in section 8. There are no overseas transfers required in relation to the proposed RLPPC Transfer. 3.2 What you can do If, after reading this booklet, you are happy with the proposed transfers, you don t need to do anything. We ve put the full Schemes and the full Independent Expert s reports on our website, where you can read, download and print them. If you prefer, you can ask us to send you copies. You ll find our website address and contact details in section 1. If you have any questions or concerns, please ask us. If you think that you would be adversely affected by either or both of the proposed transfers, you have a right to attend the Court hearing and express your views. You can attend either or both of the Court hearings in person or a legal representative can represent you. It would be helpful if you would inform our solicitors in writing at the address below before the Hearing Date, but preferably as soon as possible, if you wish to attend either or both of the Court hearings, setting out the reasons why you believe you would be adversely affected by either or both of the proposed transfers. If you do not wish to attend either or both of the Court hearings, you can still make representations about either or both of the proposed transfers, before the Hearing Date but preferably as soon as possible, by: calling us on the number in section 1 writing to us at the address in section 1, or writing to our solicitors at the address below setting out the reasons why you believe you would be adversely affected by either or both of the proposed transfers. Ashurst LLP (Ref. HAKHTA/IKIRWA) Broadwalk House 5 Appold Street LONDON EC2A 2HA If you decide to raise your concerns about the proposed RLCIS Transfer with the Court, please read the copy of the Legal Notice in section 7 carefully. If you decide to raise your concerns about the proposed RLPPC Transfer with the Court, please read the copy of the Legal Notice in section 11 carefully. 3.3 Timetable for the proposed RLCIS Transfer and the proposed RLPPC Transfer Hearing Date of RLCIS Scheme Hearing Date of RLPPC Scheme Effective Date for both Schemes 9 December December December ANSWERS TO SOME QUESTIONS YOU MAY HAVE 4.1 What is this all about? This booklet describes the proposed transfer of two life insurance businesses to Royal London. The terms of each transfer are documented in a legal document called a Scheme, which must be approved by the Court. 4.2 Why are you writing to me? According to our records you have a with-profits policy invested in the Royal London Long Term Fund. The law says we have to let you know in writing: about the proposed transfers how you can get further information, and how you can raise any questions, concerns or objections you may have. 4.3 My policy was taken out with a different company. Why does the letter accompanying this booklet say I have a policy with Royal London? You now have a Royal London policy if your policy was taken out with: Refuge Assurance Plc Phoenix Life Assurance Company Limited Royal Liver Assurance Limited, or The Scottish Life Assurance Company. These companies are now part of Royal London and the information in this booklet applies equally to your policy even if it was taken out with one of these companies

7 4.4 Who is Royal London (CIS) Limited? Royal London (CIS) Limited (RLCIS) is a life insurance company owned by Royal London. Here is a brief history of RLCIS. Formerly known as Co-operative Insurance Society Limited, it was part of CBG. 31 July Royal London acquired Co-operative Insurance Society Limited. 1 August Co-operative Insurance Society Limited changed its name to Royal London (CIS) Limited. 4.5 Who is Royal London Pooled Pensions Company Limited? Royal London Pooled Pensions Company Limited (RLPPC ) sells a single product providing investment funds for pension schemes. Here is a brief history of RLPPC Scottish Life Pensions Annuity Company Limited (SLPAC) formed. 4.6 Why are Royal London, RLCIS and RLPPC proposing these transfers? RLCIS and RLPPC are companies owned by Royal London. It is more efficient for us to manage the businesses of RLCIS and RLPPC within the Royal London Long Term Fund than within companies that we own. We bought RLCIS from CBG in July We agreed in the Sale and Purchase Agreement to use our best endeavours to achieve the transfer of the life insurance business of RLCIS to Royal London in order to pay a deferred part of the purchase price for RLCIS using part of the RLCIS Shareholder Fund. Because of the relatively small size of RLPPC s business, it has not previously been cost effective to transfer its life insurance business to Royal London. In the context of the proposed RLCIS Transfer, we concluded that we could carry out the RLPPC Transfer more cost effectively (in respect of professional fees, etc) by effecting the proposed RLPPC Transfer at the same time as the proposed RLCIS Transfer. 4.8 When would the proposed RLCIS Transfer and the proposed RLPPC Transfer happen? If the Court approves the proposed RLCIS Transfer and the proposed RLPPC Transfer on the Hearing Date, we expect the transfers to take effect on the Effective Date. As we explain in section 8, there are separate legal processes to transfer RLCIS policies over which the Royal Court of Guernsey or the Royal Court of Jersey have jurisdiction. We and RLCIS have applied, or will apply, to the Royal Court of Guernsey and the Royal Court of Jersey for approval of the proposed transfers. If the Royal Court of Guernsey and the Royal Court of Jersey approve the proposed transfer at the hearings scheduled for 19 December 2014 and 15 December 2014 respectively, we expect that the transfer of the relevant policies will take effect at the same time as the RLCIS Transfer. There are no overseas transfers required in relation to the proposed RLPPC Transfer Will the proposed transfers affect my policy? You won t notice any changes if the Court approves the proposed transfers. We explain this in section 2.2. We would, however, need to make some small changes to the Practices in the PPFMs of the Royal London Long Term Fund (these explain how we manage our with-profits business). That s because we would invest the RLCIS policies in a separate ring-fenced sub-fund within the Royal London Long Term Fund, called the Royal London (CIS) Sub-Fund. We would produce separate PPFMs for the with-profits business of the Royal London (CIS) Sub-Fund. We explain this in section 2.3. We consider that: the risk to your policy associated with the proposed RLCIS Transfer is very unlikely to make any noticeable difference (we explain this is section 2.4), and there is no material risk to your policy associated with the proposed RLPPC Transfer Royal London acquired The Scottish Life Assurance Company Limited and its subsidiaries (including SLPAC) SLPAC changed its name to RLPPC Royal London invited its other institutional pooled pension customers to move to RLPPC. Since then it has continued to operate its business under the management of RLAM. 4.7 How would the proposed RLCIS Transfer and the proposed RLPPC Transfer happen? The proposed RLCIS Transfer and the proposed RLPPC Transfer would be effected by following a process prescribed in Part VII of the Financial Services and Markets Act We and RLCIS have applied to the Court for approval of the RLCIS Transfer. We and RLPPC have applied to the Court for approval of the RLPPC Transfer. The proposed RLCIS Transfer and the proposed RLPPC Transfer cannot proceed without the approval of the Court. 4.9 Who would pay for the cost of these proposed transfers? The cost of the proposed RLCIS Transfer and proposed RLPPC Transfer would be met from the working capital of the Royal London Main Fund Would I receive a payment as a result of either of these proposed transfers? No, you would not receive a payment as a result of the proposed RLCIS Transfer or proposed RLPPC Transfer going ahead Would the proposed transfers affect how much tax I pay? The proposed transfers would not affect the tax status of your policy. If you are unsure about your tax position, you should seek advice from a tax adviser How would my interests as a policyholder be protected under the proposed transfers? The proposed RLCIS Transfer and the proposed RLPPC Transfer will only take 12 13

8 effect if the Court approves them. The Court will only approve each such transfer if it is satisfied that each meets all the necessary legal requirements, including that each transfer as a whole is fair, taking into account the interests of all those affected (including Royal London with-profits policyholders like you). As part of the process, the Independent Expert has assessed the proposed transfers and concluded that there would be: no material adverse effect on the benefit expectations of Royal London or RLCIS policyholders as a result of the RLCIS Transfer no adverse effect on the benefit expectations of Royal London or RLPPC policyholders as a result of the RLPPC Transfer, and no material adverse effect on the security of benefits for any of the policyholders of Royal London, RLCIS or RLPPC as a result of either of the proposed transfers. You can read: a summary of the Independent Expert s report on the proposed RLCIS Transfer in section 6, and a summary of the Independent Expert s report on the proposed RLPPC Transfer in section 10. The Actuarial Function Holder of Royal London, RLCIS and RLPPC (the same person holds this position in all three companies) has reported to the Board of Directors of each relevant company that in his opinion: there would be no material adverse impact on the benefit expectations or financial security of RLCIS or Royal London policyholders as a result of the proposed RLCIS Transfer the proposed RLPPC Transfer would not adversely affect the benefit expectations or, to any material extent, the security of benefits of RLPPC policyholders or Royal London policyholders, and the carrying out of the proposed transfers would not be inconsistent with the requirement to treat customers fairly. The With-Profits Actuary of Royal London has also reported to the Board of Directors of Royal London that in his opinion, subject to certain fee arrangements remaining in place (which we explain in section 5.7), the security of benefits and the benefit prospects of Royal London s with-profits policyholders should not be adversely affected by the RLCIS Transfer. He has also concluded that the security of benefits and the benefit prospects of Royal London s with-profits policyholders should not be adversely affected by the RLPPC Transfer and that carrying out each of the RLCIS Transfer and the RLPPC Transfer would not be inconsistent with Royal London s requirement to treat customers fairly. We ve put all these reports on our website, where you can read, download and print them. If you prefer, you can ask us to send you copies. You will find our website address and contact details in section 1. The following people will write supplementary reports shortly before the Court hearing: the Independent Expert the Actuarial Function Holder of Royal London, RLCIS and RLPPC, and the With-Profits Actuaries of each of Royal London and RLCIS. They will do this so that the Board of Directors of each of Royal London, RLCIS and RLPPC and the Court can take account of the latest available financial information and any significant developments or changes that may affect policyholders ahead of the Court hearings. We will add these reports to our website once they are available and before the Court hearings. In addition, the Regulators have the right to make written representations about each proposed transfer to the Court and to attend the Court hearings. We worked closely with the Regulators as we developed the proposed transfers Do I need to do anything now? You should read this booklet to help you fully understand the proposed RLCIS Transfer and the proposed RLPPC Transfer. If you are happy with the proposed transfers, you don t need to do anything. If you have any questions or concerns, please ask us. You will find our contact details in section 1. If you are concerned that either or both of the proposed transfers could adversely affect you, you have the right to raise your concerns with the Court. We explain how to do this in section How will I find out if the Court has approved the proposed transfers? You can find out the outcome of the Court hearings by: looking on our website shortly after the hearings, or calling us. You will find our website address and contact details in section 1. If the Court approves the proposed transfers, we expect that they will take effect on the Effective Date. If the Court does not approve the proposed RLCIS Transfer, the life insurance business of RLCIS will not transfer to Royal London. Instead it will remain in RLCIS and the RLCIS Long Term Business Fund will remain open to new policies (for the time being). If the Court does not approve the proposed RLPPC Transfer, the life insurance business of RLPPC will not transfer to Royal London. Instead it will remain in RLPPC What should I do if I am bankrupt or about to be declared bankrupt? You should show this booklet and your accompanying letter to your: trustee-in-bankruptcy (the person appointed by the court to administer your affairs) receivers, or administrative receivers What should I do if I am the trustee of a policy? Please tell the policy beneficiaries and any other trustees about the contents of this booklet and your accompanying letter

9 4.18 I am the parent or guardian of a policyholder what should I do now? Please read this booklet to make sure you understand the proposed transfers to enable you to act in the best interests of the policyholder I assigned my policy to someone else what should I do now? If you have assigned your policy, it means that you have passed the rights to claiming on it to someone else, called the assignee. Please show them this booklet and your accompanying letter Will the Guernsey and Jersey Schemes affect me? The information in this booklet about the likely effect of the proposed RLCIS Transfer on Royal London policyholders applies equally to each of the Guernsey and Jersey Schemes. The transfer of policies of RLPPC will not be subject to the approval of the Royal Court of Guernsey or the Royal Court of Jersey Where can I find out more information? You can read more about the proposed RLCIS Transfer and the proposed RLPPC Transfer on our website, or you can contact us to ask us anything about either or both of the proposed transfers. You will find our website address and contact details in section 1. 16

10 PART B PROPOSED RLCIS TRANSFER 5 SUMMARY OF THE RLCIS SCHEME This section summarises the key terms of the proposed transfer (the RLCIS Scheme) to Royal London of the life insurance business of RLCIS. Please read it carefully. 5.1 Transfer of business On the Effective Date, subject to the approval of the Court and our receipt of the Financial Conduct Authority s confirmation that it will issue the direction referred to in the penultimate paragraph in this section, RLCIS will transfer all of the policies, assets and liabilities of its life insurance business to Royal London. This means that Royal London will then be the insurer and responsible for the transferred policies instead of RLCIS (which is a company owned by Royal London). On the Effective Date, we will acquire all the rights, benefits and powers of RLCIS in relation to the transferred business. To the extent described in the RLCIS Scheme, the transferring policyholders will be entitled to the same rights against us in respect of their policies as they were against RLCIS. Any contracts between RLCIS and a third party relating to the transferring life insurance business, for example reinsurance agreements, will also transfer so that they will be between us and the third party. As we explain in section 2.1, the RLCIS Shareholder Fund, which includes the General Reserve, will not transfer to Royal London under the RLCIS Scheme. The RLCIS Scheme will effectively delete all references to the General Reserve and the RLCIS Shareholder Fund in the transferring business, including the RLCIS policies, marketing literature and certain other contracts and documents. The transfer is conditional on the Financial Conduct Authority confirming to us that it will issue us a direction in respect of a regulatory requirement that specifies the basis for charges to a with-profits fund. The purpose of the direction is to enable us to charge the Royal London (CIS) Sub-Fund for services provided to it by us (such as administrative services) according to rates that were agreed when we acquired RLCIS. These rates were agreed on the basis that they provided us with a commercially reasonable return while protecting RLCIS policyholders from the impact of costs-per-policy inflating as the number of policies in the fund reduces. Without the direction, we would only be able to charge for such services at cost, which would be contrary to the agreed rates and would undermine the commercial justification for our acquisition of RLCIS. The Court will consider a report on the RLCIS Scheme s terms by the Independent Expert. You can read a summary of the Independent Expert s report in section RLCIS policies and future changes to the Royal London (CIS) Sub-Fund On the Effective Date policies allocated to the RLCIS Long Term Business Fund will be transferred to the Royal London (CIS) Sub-Fund, a new sub-fund of the Royal London Long Term Fund, which we will establish in accordance with the terms of the RLCIS Scheme. The Royal London (CIS) Sub-Fund will contain the same sub-fund structure as currently exists within the RLCIS Long Term Business Fund. We will allocate each policy to the sub-fund within the Royal London (CIS) Sub-Fund that corresponds to the sub-fund within the RLCIS Long Term Business Fund to which it is currently allocated. We may cease to maintain the Royal London (CIS) Sub-Fund in certain circumstances; for example when its value falls below a certain size. If this happens: the terms of the RLCIS Scheme relating to the maintenance of the Royal London (CIS) Sub-Fund as a separate sub-fund will no longer apply we will transfer all policies, assets and liabilities from the Royal London (CIS)Sub-Fund to the Royal London Main Fund, and we may make changes to the RLCIS Scheme to enable us to change our fund structure. 5.3 RLCIS unit-linked funds On the Effective Date, the assets of each unit-linked fund will be transferred into a new corresponding unit-linked fund that we will establish within the Royal London (CIS) Sub-Fund. Immediately following the Effective Date, RLCIS policyholders with unit-linked policies will have the same number and value of units as they did before. The only change will be that these funds will now be held and administered by Royal London. 5.4 Future changes to unit-linked funds The RLCIS Scheme allows us to: close to new or further investment any unit-linked fund that we have established in accordance with the terms of the RLCIS Scheme amalgamate part or all of any unit-linked fund that we have established in accordance with the terms of the RLCIS Scheme with any other unit-linked fund that we operate divide any unit-linked fund that we have established in accordance with the terms of the RLCIS Scheme wind up any unit-linked fund that we have established in accordance with the terms of the RLCIS Scheme, or effect any combination of the above. The RLCIS Scheme also allows us to modify or enlarge the investment objectives of any unit-linked fund that we have established in accordance with the terms of the RLCIS Scheme to allow investment in assets that are reasonably similar to, or provide reasonably similar investment exposure to, the assets already held in the fund. If we take any of the actions above, RLCIS policyholders with unit-linked policies will be able (under and in accordance 18 19

11 with the terms of the RLCIS Scheme) to switch from the unit-linked fund or funds that their policy is invested in to another Royal London unit-linked fund or funds. We will not charge RLCIS policyholders for switching their policy or policies to a different unit-linked fund or funds on the first occasion they switch after we take any of the actions listed above, provided that the switch occurs within twelve months of us taking the action. We may only take these actions in certain circumstances. The RLCIS Scheme contains protections designed to ensure that we treat policyholders affected by the changes fairly. 5.5 Excluded policies It is possible that some of the policies that would otherwise be included in the transfer will not transfer on the Effective Date, for example: if the Prudential Regulation Authority has not provided a certificate prior to Court approval of the RLCIS Scheme that is required for the transfer of the policy, or if the policy is a Guernsey or Jersey policy, because the relevant local court has not approved the transfer, or if the policy is not capable of being transferred on the Effective Date under the relevant legislation. If these excluded policies subsequently transfer to us, the assets and liabilities relating to such policies will, to the extent not previously transferred, transfer to us and be dealt with as if they had transferred on the Effective Date. Until an excluded policy subsequently transfers to us, it will remain a liability of RLCIS but all of it will be reinsured by us, and the reinsurance will be allocated to the sub-fund of the Royal London (CIS) Sub-Fund to which the policy would have been allocated if it had transferred under the RLCIS Scheme. 5.6 Continuity of legal proceedings The RLCIS Scheme allows, to the extent described in the RLCIS Scheme, for any legal proceedings or applications to any authority that are pending by or against RLCIS in respect of the transferred insurance business, policies, assets and liabilities to be continued by or against us. If there are any legal proceedings or applications to any authority pending by or against RLCIS in relation to excluded policies, such proceedings or applications will be continued by or against RLCIS, if and until the excluded policies transfer to us. 5.7 Administration We currently provide, or procure the provision of, certain administration services to the RLCIS Long Term Business Fund. After the Effective Date, we will provide, or procure the provision of, the same services to the Royal London (CIS) Sub-Fund. The charging arrangements for the provision of these services are set out in the RLCIS Scheme and are substantially the same charging arrangements that currently apply to the RLCIS Long Term Business Fund. 5.8 Capital support As we explain in section 2.4, if in adverse circumstances the Royal London (CIS) Sub-Fund cannot meet its capital requirements determined on a stand alone basis, the Royal London Main Fund, if it has the resources to do so, would provide capital support to the Royal London (CIS) Sub-Fund to help the Royal London (CIS) Sub-Fund to meet its capital requirements. In the circumstances described above, we will manage the Royal London (CIS) Sub-Fund so that we can remove the requirement for capital support from the Royal London Main Fund at the earliest possible time. The Royal London (CIS) Sub-Fund would incur a charge for receiving capital support in excess of 10 million. We would determine the charge in accordance with the terms specified in the RLCIS Scheme. 5.9 Data protection Under the terms of the RLCIS Scheme, we will take over the rights, liabilities and obligations of RLCIS in respect of personal data which: relates to RLCIS s life insurance business is controlled by RLCIS, and is subject to the Data Protection Act This means that, from the Effective Date, we will become the data controller of such information and will be under the same duty to respect the confidentiality and privacy of such information as RLCIS was when it was the data controller. As the new data controller, we will use any personal data in accordance with any data protection consent given by a person to RLCIS as if such consent had been given to us Costs The costs in connection with the preparation and implementation of the RLCIS Scheme will be met by the Royal London Main Fund. RLCIS would pay part of the costs of closing the RLCIS Long Term Business Fund to new policies. If the proposed RLCIS Transfer goes ahead, the closure would happen on the Effective Date Investment policy From the Effective Date, we would determine the investment policy of the Royal London (CIS) Sub-Fund and the bonus policy of RLCIS with-profits policies as if the Royal London (CIS) Sub-Fund was a stand-alone mutual insurance company. This approach would continue the present RLCIS investment policy and approach to asset management Jersey and Guernsey Schemes The transfer of certain RLCIS policies to Royal London requires the consent of the court in Jersey or Guernsey. The terms of the Schemes required in Jersey and Guernsey are based on the terms of the RLCIS Scheme, and the summary of the RLCIS Scheme in this section 5 of this booklet applies equally to those Jersey and Guernsey Schemes. However, in reading this summary of the RLCIS Scheme with regard to the Jersey and Guernsey Schemes, you should note that: the Schemes in Jersey and Guernsey relate to the business which was 20 21

12 conducted by RLCIS in or from within Jersey or policies issued to residents of the Bailiwick of Guernsey only, not to all of the life insurance business of RLCIS which is to be transferred under the RLCIS Scheme, and in relation to the Jersey and Guernsey Schemes, where we refer to the approval of the Court in this booklet, you should read this as also referring to the approval by the Royal Court of Jersey and the Royal Court of Guernsey. The Independent Expert has considered and reported on the impact of the RLCIS Scheme on all RLCIS policyholders, including those in Jersey and Guernsey. His conclusions and the summary of his report apply equally to the Jersey and Guernsey Schemes as to the RLCIS Scheme. 6 SUMMARY OF THE INDEPENDENT EXPERT S REPORT This summary of the Independent Expert s report has been prepared by the Independent Expert. References in this section to I and me are to the Independent Expert. 6.1 Introduction This section provides a summary of the Independent Expert report that I have prepared, having been appointed by Royal London and RLCIS and approved by the Prudential Regulation Authority as the Independent Expert to report on the proposed transfer. The Independent Expert report is required under section 109 of the Financial Services and Market Act 2000 in order that the Court may properly assess the impact of the proposed RLCIS Scheme. My Independent Expert report describes the proposed transfer of business under the RLCIS Scheme, and discusses and concludes on its effects on all policyholders, including the effects on their benefit expectations and benefit security. Should there be any inconsistency between this summary report and my full report, the latter constitutes the definitive position. My Independent Expert report and the summary set out below are also applicable to the equivalent Schemes in Jersey and Guernsey. 6.2 Background of Royal London Royal London is a mutual long-term insurance company and has written all common forms of long-term life and pension businesses. It is the top level company of the Royal London Group. Royal London consists of a number of partitioned sub-funds the Royal London Main Fund which is the original fund of Royal London and which is open to new business, and six other ring-fenced closed to new business sub-funds (collectively referred to as the Royal London Closed Funds) which contain businesses taken in over a number of years by Royal London from various other companies. The Royal London Main Fund provides the ultimate security for the benefits of the Royal London Closed Funds and incurs the running costs of these sub-funds in return for receiving charges from them. The Royal London Main Fund is much larger than any of the Royal London Closed Funds. 6.3 Background of RLCIS Prior to 31 July 2013, the Co-operative Insurance Society Limited (CIS ) was owned by the Co-operative Banking Group Limited (CBG ). Royal London acquired CIS on 31 July 2013 under a Sale and Purchase Agreement dated 18 March 2013 and an Amendment to the Sale and Purchase Agreement dated 22 July 2013 (collectively referred to as the Sale and Purchase Agreement in this summary report). Just after the acquisition, CIS was renamed as RLCIS. RLCIS s business comprises life insurance and pensions business written in its Long Term Business Fund (the RLCIS Long Term Business Fund ). RLCIS previously also wrote general insurance business in its Shareholder Fund (the RLCIS Shareholder Fund ). However, under another insurance business transfer scheme which became effective on 31 March 2014, this general insurance business was fully transferred to a subsidiary of CBG, and hence RLCIS is now a pure long-term insurer. RLCIS currently has three sub-funds within the RLCIS Long Term Business Fund. There is the main sub-fund which contains most of the life insurance and pensions business. In addition there are two smaller sub-funds which require separately identifiable assets for certain product administration reasons. In addition to the RLCIS Long Term Business Fund, RLCIS also has (as noted above) a Shareholder Fund (the RLCIS Shareholder Fund ), which now contains no insurance business, but does contain a significant amount of assets. These assets include what is known as the General Reserve, and this General Reserve is considered further below. 6.4 Rationale for the transfer Although not formally part of my role as Independent Expert, it is I believe important for me to be aware of the rationale for carrying out the proposed transfer. Royal London wishes to have all of the Royal London Group s long-term business within the same company, as this helps to maximise expense and capital efficiency for the benefit of all policyholders. In my view, this rationale is perfectly valid and would apply to any long-term insurer which owns another long-term insurer. Additionally in this case, the Sale and Purchase Agreement requires a transfer to be pursued for reasons connected with the General Reserve, as explained below. 6.5 Negotiations on acquisition As part of the negotiations which took place when Royal London acquired RLCIS, a number of agreements were reached for the benefit and protection of the RLCIS policyholders, and these are contained within the Sale and Purchase Agreement. My role as Independent Expert has not been to reconsider the agreements which were reached, but has been effectively to ensure that these agreements are properly incorporated into the RLCIS Scheme. Additionally, my role has been to consider those aspects of the RLCIS Scheme which do not follow from the Sale and Purchase Agreement

13 6.6 Effects of the RLCIS Scheme in practice The RLCIS Scheme will transfer the entire RLCIS Long Term Business Fund into Royal London, such that the RLCIS Long Term Business Fund will become a further sub-fund within Royal London, sitting alongside the existing sub-funds of Royal London. The three sub-funds within the former RLCIS Long Term Business Fund will continue to be operated within Royal London in essentially the same way as they are currently operated within RLCIS. Further details are provided below. The General Reserve is not transferred to Royal London under the RLCIS Scheme. Following the implementation of the RLCIS Scheme, most of the General Reserve will be paid by Royal London to CBG. The remainder of the RLCIS Shareholder Fund will be paid from RLCIS into the Royal London Main Fund. I have paid particular attention to this aspect of the RLCIS Scheme, and further details are provided below. Although not part of the RLCIS Scheme itself, I note that the former RLCIS sub-funds will become closed to new business coincident with the Effective Date of the RLCIS Scheme. Additional payments into existing policies will still be allowed, as is the usual practice. Over time the entire assets of the former RLCIS sub-funds will be distributed to the policyholders, with the with-profits policyholders receiving the benefit of any surplus assets. The detailed aspects of this distribution process do not form part of my role as the Independent Expert in respect of the RLCIS Scheme. The following paragraphs of this section set out more detail on the key aspects of the RLCIS Scheme. Sub-fund operation and PPFM The RLCIS Scheme describes how Royal London will replace the existing sub-funds within RLCIS with a new sub-fund within Royal London. The new sub-fund will itself have three sub-funds, which will operate as ring-fenced funds. Every UK with-profits fund or sub-fund has to publish a document called the Principles and Practices of Financial Management (PPFM ) which sets out in detail all the key aspects of the operation of that fund or sub-fund. I have reviewed the three current PPFMs of RLCIS and the three proposed modified PPFMs that would apply following the implementation of the RLCIS Scheme. The modifications to the PPFMs post-transfer are largely those consequential on the sub-funds being within Royal London as opposed to RLCIS, and becoming closed to new business. Modifications also arise from the absence of the General Reserve and the provision instead of support where necessary from the Royal London Main Fund as explained further below. Currently, RLCIS and Royal London each have their own With-Profits Committee and their own With-Profits Actuary, whose roles are to advise on the fair treatment of the respective with-profits policyholders. Following the implementation the RLCIS Scheme, the With-Profits Committee and the With-Profits Actuary of Royal London will assume these roles in respect of the Royal London (CIS) Sub-Fund, this being the common situation for a company with several with-profits sub-funds. Investment strategy The current approach to investment strategy and asset management will continue, and there will be no changes to these aspects arising from the RLCIS Scheme. Expenses and charges for administration and asset management The Sale and Purchase Agreement put into place tariff arrangements for the charging of administration expenses to the Royal London (CIS) Sub-Fund. The two smaller RLCIS sub-funds already have charges which are essentially at predetermined levels. The tariff arrangements for the Royal London (CIS) Sub-Fund ensure that the sub-fund is protected from expenses rising above inflation in the future. The tariff itself runs for 20 years, after which the arrangement becomes one based on Royal London costs but with limits derived from market sources. In addition, various one-off and exceptional costs properly incurred are charged to the Royal London (CIS) Sub-Fund. All these Sale and Purchase Agreement arrangements have been incorporated into the RLCIS Scheme. Asset management services are now provided to the former RLCIS sub-funds under an investment management agreement with RLAM (a company owned by Royal London), and this will continue following the implementation of the RLCIS Scheme. The RLCIS Scheme contains provisions for the governance process to ensure that the charges for these services are consistent with market rates. The costs of implementing the RLCIS Scheme itself will be met by surplus assets within the Royal London Main Fund, other than that amount which also relates to the closure to new business aspects, part of which will be charged to the main Royal London (CIS) Sub-Fund. Capital support From time to time a with-profits sub-fund may require capital support, either on a temporary basis or (in extreme circumstances) on a permanent basis. Currently that capital support is provided to the RLCIS sub-fund by the General Reserve. Following the implementation of the RLCIS Scheme, the General Reserve and other RLCIS Shareholder Fund assets will not be present, and the capital support for the Royal London (CIS) Sub-Fund will be provided where required by the Royal London Main Fund. The Royal London Main Fund will be allowed to levy charges whenever this capital support is provided above a certain minimum level. The arrangements for capital support and the corresponding charges are set out in the RLCIS Scheme. The RLCIS Scheme goes into more detail than the Sale and Purchase Agreement, but the essential principles are very similar. Other aspects The RLCIS Scheme sets out various other provisions, for example in relation to the conditions under which the Royal London (CIS) Sub-Fund may no longer be separately maintained, and the charging of tax to the Royal London (CIS) Sub-Fund. Membership of Royal London The RLCIS Scheme does not confer membership of Royal London on any RLCIS policyholder. I note that none 24 25