1.4 Aside from the Tower Pool Business, the insurance business carried on by RSAI will not be transferred to Knapton and will remain with RSAI.

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1 SUMMARY OF SCHEME AND INDEPENDENT EXPERT'S REPORT Proposed transfer of the Tower Pool business of Royal & Sun Alliance Insurance plc to Knapton Insurance Limited 1. OVERVIEW 1.1 Royal & Sun Alliance Insurance plc (RSAI) is an insurance company incorporated in England and Wales. RSAI was incorporated on 19 June 1907 under the name Royal Insurance Public Limited Company and changed its name to its current name on 1 November RSAI is authorised by the Prudential Regulation Authority (the PRA) to effect and carry out contracts of non-life insurance in the UK and regulated by the PRA and the Financial Conduct Authority (the FCA) in its conduct of such business. RSAI s business consists of effecting and carrying out contracts of non-life insurance both for commercial customers and for retail customers (where it principally offers home, motor and pet insurance under the MORE TH>N brand). 1.2 RSAI wishes to transfer to Knapton Insurance Limited (Knapton) certain insurance business originally written by Phoenix Assurance Public Limited Company (subsequently known as Phoenix Assurance Limited and then PA (GI) Limited and referred to herein as Phoenix) through Phoenix s participation in an underwriting pool known as the Tower Pool which was active between 1967 and 1972 (the Tower Pool Business). In 2012 Phoenix transferred certain of its legacy non-life insurance business (including the Tower Pool Business) to RSAI pursuant to an insurance business transfer undertaken in accordance with Part VII of the Financial Services and Markets Act 2000 (the FSMA). RSAI s liability in respect of the Tower Pool Business is currently reinsured by Knapton. The parties wish to transfer the Tower Pool Business from RSAI to Knapton in order to align the legal liability for such business with the economic liability for such business, whilst avoiding any adverse impact to policyholders and the need for the parties to agree upon a commutation price (which would have been necessary had the parties opted to effect a commutation of the reinsurance arrangement between them). 1.3 Knapton is an insurance company incorporated in England and Wales. Knapton was incorporated on 18 November 1880 under the name The Engine, Boiler and Employers Liability Insurance Company Limited. It changed its name to The British Engine, Boiler and Electrical Insurance Company Limited on 18 June 1904, subsequently changed its name to British Engine Insurance Limited on 1 November 1978 and then changed to its current name on 3 March Knapton is authorised by the PRA to effect and carry out contracts of nonlife insurance in the UK and regulated by the PRA and the FCA in its conduct of such business, albeit Knapton is required to obtain a non-objection from the PRA and the FCA before it effects contracts of insurance. Knapton has obtained such a non-objection from each of the PRA and the FCA in respect of the Tower Pool Business. 1.4 Aside from the Tower Pool Business, the insurance business carried on by RSAI will not be transferred to Knapton and will remain with RSAI. 1.5 It is proposed that the Tower Pool Business will be transferred to Knapton (the Proposal) under a scheme pursuant to Part VII of the FSMA. 1.6 Under the terms of the Proposal, all of the insurance policies forming part of the Tower Pool Business will be transferred to Knapton. However, the terms of those policies will not otherwise be affected as a result of the transfer. Consequently, policyholders do not need to take any action in relation to their policies or any claims they may have made or may make in the future under such policies. 2. PROCESS 2.1 The Proposal will be effected under provisions contained in Part VII of the FSMA. These provisions permit a business carried on by an insurance company in the UK to be transferred to another insurance company. The details of such a transfer must be set out in a scheme (the Scheme), which can only become effective with the sanction of the Court.

2 RSAI and Knapton made an application to the Court in respect of the Proposal by a Claim Form issued on 7 May The Court hearing is expected to take place on 7 October The application to the Court was accompanied by a report on the terms of the Scheme in a form approved by the PRA (following consultation with the FCA), and made by a person appearing to the PRA to have the skills necessary to make a proper report (the Independent Expert's Report) and approved by the PRA (following consultation with the FCA) to do so. A summary of the Independent Expert's Report appears in section 4 of this document. 2.3 Any person (including an employee of RSAI or of Knapton) who dissents to the Scheme or considers that he or she would be adversely affected by the carrying out of the Scheme is entitled to be heard by the Court at the Court hearing, as are the PRA and the FCA, or to make written representations setting out their dissent or concern to the Court prior to the hearing which will be considered at the hearing. Any person who wishes to object to the application by appearing in person at the Court hearing or who wishes to make such written representations is requested to notify his or her objections, including the reasons for his or her dissent to the Scheme or concern that he or she will be adversely affected by the Scheme, as soon as possible, and, where possible, by no later than 10 business days prior to the hearing, to Norton Rose Fulbright LLP, 3 More London Riverside, London, SE1 2AQ, solicitors for RSAI, quoting the reference RAXH/LN Subject to the granting of an order of the Court sanctioning the Scheme, the Scheme is expected to become effective at 23:59 on 31 October 2015 (the Effective Date). 3. SUMMARY OF THE SCHEME 3.1 Transfer of the Tower Pool Business Under the Scheme all the business of RSAI relating to Phoenix s prior participation in the Tower Pool shall transfer to Knapton, but no other business of RSAI shall transfer to Knapton. From the Effective Date, Knapton will become the insurer of the insurance policies that constitute the Tower Pool Business in place of RSAI and will be wholly responsible for all obligations under such policies. Certain outwards reinsurance contracts that protect the Tower Pool Business will likewise be transferred on the Effective Date so that Knapton will become the reinsured in place of RSAI. 3.2 Litigation Other than claims-related litigation in the ordinary course of business, RSAI is not party to any litigation in respect of the Tower Pool Business. However, the Scheme provides for the continuation by or against Knapton of any legal proceedings commenced prior to the Effective Date by or against RSAI that relate to its rights and obligations in respect of the Tower Pool Business. 4. SUMMARY OF THE INDEPENDENT EXPERT'S REPORT 4.1 About the Independent Expert Derek Newton, a principal of Milliman LLP and a Fellow of the Institute and Faculty of Actuaries, has been appointed as an independent expert (the Independent Expert) to provide the Independent Expert's Report on the effects of the Scheme on the policyholders of RSAI and Knapton. As mentioned at section 2.2 above, Mr Newton's appointment has been approved by the PRA. 4.2 About the Independent Expert s Report Part VII of the FSMA requires that, in transfers such as that proposed by the Scheme, an Independent Expert provides a report so that the Court may properly assess the potential impact of the Scheme on all affected policyholders, including the security of their policies and the levels of service that policyholders could expect to receive after the transfer.

3 - 3 - This section 4 of this document provides a summary of the Independent Expert's Report prepared by the Independent Expert to meet the above requirements. This summary is subject to the same limitations on its use as those set out in the Independent Expert's Report. The Independent Expert's Report contains the reasoning behind the Independent Expert s conclusions, some of the detail of which has been omitted from this summary. The Independent Expert's Report also includes further information regarding RSAI and Knapton which has not been included within this summary. While the Independent Expert is satisfied that this summary provides an appropriate synopsis of the Independent Expert's Report, reliance on the summary alone could be misleading. How to obtain copies of the Independent Expert's Report and any subsequent update is set out in section 5 of this document. 4.3 Purpose of the Scheme The primary purpose of the Scheme is to align the legal liability for the Tower Pool Business with the economic liability for the Tower Pool Business, whilst avoiding any adverse impact to policyholders and the need for the parties to agree upon a commutation price (which would have been necessary had the parties opted to effect a commutation of the reinsurance arrangement between them described in this section 4.3). The economic liability in respect of the Tower Pool Business has been carried by Knapton since October 2006 (originally under Knapton s previous name, British Engine Insurance Limited), in accordance with a general reinsurance agreement between RSAI and Knapton, which was amended and restated on 29 September 2009 and further amended and restated on 13 March 2014 (the GRA). 4.4 Who will be affected by the Scheme? The following policyholder groups might be affected by the proposed Scheme: those policyholders of RSAI whose policies are to be transferred to Knapton (the Transferring Policyholders); the current policyholders of RSAI who have policies that are not being transferred; and the current policyholders of Knapton. The Independent Expert has assessed the change in circumstances, security and levels of service of each group of policyholders separately. He considers that policyholders of no other insurance companies would be affected by the proposed Scheme. 4.5 Is there an impact on security of the Transferring Policyholders? The Independent Expert has reviewed the level of excess assets held by both RSAI and Knapton relative to their respective capital requirements, using various measures of those requirements. That review suggests that, in terms of excess assets and the security that the respective parties afford policyholders, the Transferring Policyholders would benefit from the Scheme being sanctioned. It should be borne in mind that, although the excess assets in RSAI are, in relative terms, less than those in Knapton, in absolute terms the amount of excess assets is far greater in RSAI, and policyholders of RSAI also benefit from being part of a large, well-diversified insurance company. In contrast, Knapton is significantly smaller and is less diversified, with a different risk profile. These different aspects are not wholly quantifiable and hence are not directly comparable with one another. However, taking all of these aspects into account, the Independent Expert has concluded that, on an ongoing basis, the Transferring Policyholders will not be materially affected by differences in the financial strength between RSAI and Knapton. In the event of Knapton becoming insolvent prior to the Effective Date, the Transferring Policyholders would continue to have their claims paid by RSAI. Furthermore, given the small size of the Tower Pool Business relative to RSAI s entire portfolio, a default on its reinsurance contract by Knapton would be very unlikely to have a significant financial effect on RSAI.

4 - 4 - Were Knapton to become insolvent after the Effective Date, the policyholders of the Tower Pool Business would not have any recourse to RSAI. Moreover, in accessing the remaining assets of Knapton in the event of its insolvency, the holders of transferring policies that were in the form of reinsurance by Phoenix of other Tower Pool members (these being the majority of the Transferring Policyholders) would rank behind direct policyholders of Knapton. However, given the level of excess assets within Knapton, the insolvency of Knapton would presently appear to be only a remote possibility, and one that would not be materially affected by the Scheme. 4.6 Is there an impact on security of the current policyholders of RSAI who have policies that are not being transferred? As the Tower Pool Business is currently a very small part of RSAI s portfolio and is already 100% reinsured into Knapton, the non-transferring policyholders will be, to all intents and purposes, unaffected by the Scheme. 4.7 Is there an impact on security of the current policyholders of Knapton? As the liabilities of the Tower Pool Business are already reinsured into Knapton, there will be no change to the reserves or risk exposures in Knapton as a result of the Scheme. However, in the event of an insolvency of Knapton, the existing Knapton policyholders may be disadvantaged as a result of the Scheme, as those Transferring Policyholders with direct policies would rank alongside the existing direct policyholders of Knapton and ahead of those with inwards reinsurance contracts, whereas currently the liabilities of the Transferring Policyholders via the GRA would (as reinsurance policyholders) rank behind existing Knapton direct policyholders. RSAI and Knapton have, however, identified just two direct policies within the Tower Pool Business and therefore the extent to which Knapton would have additional direct policyholders as a result of the Scheme is likely to be very limited. Furthermore, based on his assessment of the excess assets of Knapton, as referred to in section 4.5 above, the Independent Expert considers the likelihood of an insolvency of Knapton to be remote. Therefore, the Independent Expert has concluded that the Scheme will not have a materially adverse effect on the security of existing Knapton policyholders. The Independent Expert has concluded that the Scheme does not impact to any materially adverse extent the security of those policyholders whom he has identified as possibly being affected by the Scheme. He believes that no other policyholders will be affected by the Scheme. 4.8 Will the Scheme affect levels of service? There will be no change to the administration of claims and policies as a result of the proposed Scheme and it is expected that the current service standards will be maintained following the implementation of the Scheme. The Independent Expert has concluded that no group of policyholders affected by the Scheme will suffer any reduction in service standards as a result of the Scheme. 4.9 Conclusion In carrying out his review and producing the Independent Expert s Report, the Independent Expert has relied, without detailed verification, upon the accuracy and the completeness of the data and information provided to him by RSAI and Knapton. His conclusions depend on the substantial accuracy of this data, information and the underlying calculations. At the time of preparing the Independent Expert s Report, the Independent Expert was not aware of any issue that might cause him to doubt the accuracy of the data and other information provided to him by RSAI and Knapton. He has confirmed that all information that he has requested in relation to his review has been provided. As far as he is aware, there are no matters which he has not taken into account in undertaking his assessment of the Scheme and in preparing the Independent Expert s Report, but which nonetheless should be drawn to the attention of policyholders in their consideration of the Scheme.

5 - 5 - In the opinion of the Independent Expert, provided the proposed Scheme operates as intended, and he has no grounds for believing it will not do so: 4.10 Update Report the security of benefits of policyholders of RSAI and Knapton will not be materially adversely affected by the implementation of the Scheme on the Effective Date; and the Scheme will not have an impact on service standards (operated in accordance with Treating Customers Fairly criteria) experienced by the policyholders of RSAI and Knapton. The Independent Expert s analysis has been based upon the material supplied to him, including balance sheets and other information, based on accounting positions as at 31 December Since the proposed Effective Date for the Scheme is 31 October 2015, he will revisit the analysis closer to the time to confirm that there have been no material changes to the information that he has reviewed that would affect his overall opinion. He will then prepare and issue an update report to be made available to the Court prior to the final Court hearing. 5. COPIES OF DOCUMENTS RELATING TO THE PROPOSAL Copies of the Independent Expert's Report and of this document are available on RSAI's website at and will also be provided, free of charge, by RSAI, who can be contacted by electronic mail sent to tower.pool@uk.rsagroup.com, by written request addressed to The Group General Counsel and The Company Secretary (RSA Insurance Part VII) at RSA Insurance Group plc, 20 Fenchurch Street, London, EC3M 3AU or by telephoning +44 (0)