EXPLANATORY CIRCULAR

EXPLANATORY CIRCULAR RELATING TO A PROPOSED TRANSFER OF BUSINESS by PRINCIPLE INSURANCE COMPANY LIMITED (PRINCIPLE) to R&Q INSURANCE (MALTA) LIMITED (R&Q Malta) UNDER PART VII OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (Act) 1409217 39138130.8 1

Introduction Principle is proposing to transfer all of its insurance business (Transferring Business) to R&Q Malta using a mechanism called an insurance business transfer scheme. The rules governing the use of an insurance business transfer scheme are set out in Part VII of the Financial Services and Markets Act 2000 (Act). Principle is a UK insurance company, authorised by the UK Prudential Regulation Authority (the PRA) and regulated by both the PRA and the UK Financial Conduct Authority (the FCA). R&Q Malta is a company incorporated in Malta and authorised and regulated by the Malta Financial Services Authority (MFSA). R&Q (Malta) has all the necessary authorisations to carry out the Transferring Business. This document provides you with information about the application that has been made to the High Court of Justice of England and Wales (the Court) to approve the transfer of all of Principle's insurance business (described in section 2 below) to R&Q Malta, and about the terms of the insurance business transfer scheme which will govern the transfer (Scheme). It includes (at Appendix A) a summary of the terms of the Scheme and (at Appendix B) a summary of a report prepared by an independent expert, Alex Marcuson, (the Independent Expert) who has been appointed to report on the effect of the proposed transfer of business on policyholders. His appointment and the form of his report have been approved by the PRA (in consultation with the FCA). 1 Reason for the Transfer Principle and R&Q Malta are both part of the Randall & Quilter group of companies (Group). Following a review of its business, the Group has decided to consolidate the business of insurers in the Group that are in run-off and are based in the European Economic Area (EEA), into one insurance company. An insurance company in run-off is one, like Principle, which is no longer issuing new insurance policies. The consolidation of the business will allow it to be managed more cost 1409217 39138130.8 2

effectively and while maintaining service standards for policyholders and their financial security. R&Q Malta was established as the insurer into which the business of the Group's insurers in run-off will be merged or transferred. The strategy of the Group is also to merge or transfer future acquisitions of run-off business from EEA insurers who are not currently part of the Group into R&Q Malta. The Group envisages that further books of run-off business from within the Group and/or from third parties will be transferred into R&Q Malta some time in 2015, subject to the necessary regulatory approvals being received. Its business plan provides for further acquisitions in 2015, should the opportunity arise, and subject to obtaining the necessary regulatory approvals. All of Principle's insurance business is to be transferred to R&Q Malta. As part of the Court application to approve the Scheme, the parties will also be seeking an order for the dissolution without winding up of Principle, to take effect after the Transfer has occurred and after Principle has ceased to be an authorised insurer and has transferred any remaining regulatory capital it was required to hold to R&Q Malta. 2 Transferring Business Principle issued Takaful motor insurance and household buildings and contents insurance between July 2008 and October 2009. Takaful insurance is a form of insurance which complies with the principles of Sharia law, by eliminating the three forbidden elements of gambling, uncertainty and interest. The business transferring under the Scheme comprises all policies issued by Principle. If you are uncertain whether or not you have a policy with Principle, please contact Principle at the address and reference given on page 6 of this circular for further assistance. 3 Effect of the Scheme A summary of the terms of the Scheme is at Appendix A to this circular. In broad terms, if the Scheme is approved, Principle's rights and obligations under policies issued by it will be transferred without alteration to R&Q Malta. Each policyholder's rights and obligations under policies issued by Principle will remain unchanged, but will following the transfer be exercisable against or owed to R&Q 1409217 39138130.8 3

Malta instead of Principle. Policyholders' valid claims will continue to be paid, although payment will be made by R&Q Malta, rather than Principle. Currently, Principle's policyholders have the protection of the Financial Services Compensation Scheme (FSCS). This means that in the event that Principle becomes insolvent, the FSCS would pay 100% of any claim under a compulsory motor insurance policy issued by Principle; and 90% of a claim under any other insurance policy issued by Principle. Policyholders will continue to have this protection following the Transfer in the event that R&Q (Malta) becomes insolvent and is unable to pay their claims. There is however no reason to expect that either Principle or R&Q Malta will be unable to meet the claims of policyholders. Following implementation of the Scheme, Principle will have no further insurance liabilities, will cease to be an authorised insurer and will be dissolved. 4 How the Scheme becomes effective In order to become effective, the Scheme must be approved by the Court. The necessary application has already been lodged with the Court and formal notice of the application is at Appendix C to this circular. The Court is currently expected to hear the application on 5 June 2015. If the Scheme is approved the Transfer is expected to occur at 23:59 (London time) on 9 June 2015. There are provisions for the date to be extended, although if the Transfer has not occurred by 30 June 2015, it will not take place without a further court application. Further details are given in the summary at Appendix A. The Court will consider the views of the PRA, FCA and any objectors before deciding whether to approve the Scheme. Policyholders, and any other party who believes they may be adversely affected by the Scheme, are entitled to raise objections to the Scheme by stating how they may be adversely affected. The Court has a wide discretion as to whether to sanction a transfer, and will consider whether the transfer will have a material adverse effect on any party before making its decision. The Court will be assisted by the report (Scheme Report) prepared by the Independent Expert. 5 The Independent Expert The Independent Expert is Alex Marcuson of Marcuson Consultants Limited. Mr Marcuson is a fellow of the Institute and Faculty of Actuaries experienced in loss 1409217 39138130.8 4

reserving and capital modelling for non-life insurance companies, who is independent of the parties to the Transfer. The appointment of the Independent Expert has been approved by the PRA (in consultation with the FCA). The form of the Scheme Report has been approved by the PRA (in consultation with the FCA). The Scheme Report considers the effect of the Scheme on policyholders and on the security of policyholders' contractual rights. In making the Scheme Report, the Independent Expert owes a duty to the Court, rather than to the parties appointing him. A summary of the Scheme Report is set out at Appendix B to this circular. As will be seen from the summary, the Independent Expert has concluded that, in terms of financial security, the Transfer is unlikely to materially adversely affect the policyholders of Principle transferring to R&Q Malta and will not materially adversely affect the existing policyholders of R&Q Malta. He has also concluded that the Transfer will have no material non-financial impact on policyholders. The reasons for these conclusions are set out in the summary at Appendix B. A copy of the Scheme Report may be obtained free of charge by writing to the Transferor, at the address and reference given below and may be downloaded from the website www.rqih.com/news-events/principle-part-vii-transfer. The Independent Expert will submit a supplemental report shortly before the Court hearing, explaining whether there have been any relevant developments during the period since the Scheme Report, and if so, whether they affect his conclusions. 6 Next Steps We do not believe that the Transfer will have a material adverse effect on your policy or any claim; but if you think that you would be adversely affected by the Transfer you can make representations by writing to Principle at 110 Fenchurch Street, London, EC3M 5JT Ref: Sangeeta Johnson or by email at principle@rqih.com. You may also contact the PRA at the following address and reference: Prudential Regulation Authority Bank of England 20 Moorgate London EC2R 6DA 1409217 39138130.8 5

Ref: The Insurance Risk and Transactions Team If you plan to object to the Transfer, please outline your concerns in your letter or email, so that your representation or a summary can be provided to the Court, the Independent Expert and the PRA and FCA prior to the Court hearing, for their consideration. You may also appear in person (or via a barrister or solicitor advocate) at the Court hearing and make representations directly. Further details are given in the Notice at Appendix C. We should be grateful if any person who intends to appear at the Court hearing, or who does not intend to appear but who believes they may be adversely affected by the Transfer, would write to us as soon as possible - and preferably before 28 May 2015 - at the postal or e-mail address detailed above. This will allow us to keep you informed of any changes to the hearing date, and where possible address any concerns raised. 7 The Sanction Hearing The application to sanction the Scheme will be heard at the High Court, Rolls Building, 7 Rolls Buildings, Fetter Lane, London, EC4A 1NL, United Kingdom. It is expected to take place on 5 June 2015. 8 Further Information Further copies of this circular and a copy of the Scheme Report can be found on our website www.rqih.com/news-events/principle-part-vii-transfer. If you have any questions or require any information or assistance in relation to the Transfer, you can contact Principle at the following address and reference: 110 Fenchurch Street, London EC3M 5JT Ref: Sangeeta Johnson Email: principle@rqih.com You may also contact Principle on 020 7780 5925. 1409217 39138130.8 6

Appendix A Scheme Summary This summary sets out the principal provisions of the Scheme. Unless otherwise defined in this summary, capitalised terms used in this summary have the meanings given to them in the main body of the circular. The Scheme provides for the Transfer of the whole of the business of Principle. This includes all insurance policies issued by Principle and all reinsurance policies purchased by Principle providing cover in respect of its insurance liabilities. The Transfer of business under the Scheme is intended to occur at 23:59 (London time) on 9 June 2015, unless the directors of Principle, and R&Q Malta have earlier resolved on a later date, which cannot be later than 30 June 2015 (Longstop Date). The Scheme contains provision for Principle and R&Q Malta to apply to Court to extend the Longstop Date. If the Scheme does not take effect on or before the Longstop Date (or any later date approved by the Court), it will not take effect at all. It is intended that all of Principle's assets will transfer to R&Q Malta on the Effective Date. However, it is possible that the transfer of some assets may be delayed. This is because until Principle's authorisation as an insurer is cancelled, it must maintain a minimum level of capital (MCR). While it is expected that Principle's authorisation will be cancelled on the Effective Date, the Scheme provides for the possibility of a delay by allowing for Principle to retain assets equal to its MCR, which will be transferred to R&Q Malta as soon as practicable following Principle's de-authorisation. Funds representing Takaful contributions that are currently held in Sharia compliant bank account will continue to be held in a Sharia compliant bank account following the transfer until the Transferee is satisfied that all insurance liabilities arising from the transferring policies have been discharged. There will be no changes to the terms and conditions of the transferring policies under the Scheme. The Scheme imposes an obligation on Principle to account to R&Q Malta for all benefits which may be received by it in respect of the Transferring Business from the Effective Date. The Scheme provides that any legal proceedings (including any complaint or claim to any ombudsman) in progress at the Effective Date by or against Principle will from the Effective Date be continued by or against R&Q Malta. Proceedings, complaints 1409217 39138130.8 7

or claims relating to Principle's business which are commenced after the Transfer takes effect must be commenced against R&Q Malta. The Scheme also provides that Principle and R&Q Malta may agree on behalf of all persons concerned to any modification of or addition to the Scheme or any further condition or provision in the Scheme which the Court may approve or impose, whether before or after the Scheme becomes effective, provided that any modification to the substance of the Scheme may only be made with the consent of the PRA and the FCA. Any addition or modification after Principle has been dissolved may be made without Principle's agreement. Principle's rights and obligations under agreements with various third party service providers who provide claims handling or legal defence services to Principle will also be transferred to R&Q Malta. Provision of these services will therefore continue after the Transfer takes effect. 1409217 39138130.8 8

Appendix B Summary of the Report of the Independent Expert 1. The Independent Expert and the Scheme Report In accordance with Section 109 of the Act, Alex Marcuson, of Marcuson Consulting Ltd (the Independent Expert) and a fellow of the Institute and Faculty of Actuaries, has been appointed to prepare a report on the terms of the Scheme (Scheme Report). The Independent Expert was nominated by the Transferor to consider the Scheme. The PRA (having consulted the FCA) has approved his appointment in accordance with Section 109 of the Act. The Independent Expert s Report sets out the analysis that the Independent Expert has performed in order to form his opinion as to what the effect of the Scheme will be on the interests of policyholders of Principle and RQIML and the conclusions he has reached. It also sets out the purpose of the report and the terms of use of the report. Those terms apply equally to this summary. A copy of the Scheme Report is available as detailed below. This summary highlights the key aspects of the Scheme Report and the conclusions reached by the Independent Expert. Anyone wishing to understand the analysis that has led to these conclusions should refer to the full Scheme Report. 2. The Independent Expert's Work To reach his conclusions, the Independent Expert has considered the effect of the transfer on the following: The balance sheet and technical provisions of R&Q Malta and Principle. This has involved considering the historic and anticipated positions of the R&Q Malta before and after the transfer. The risks faced by each company and the anticipated capital resources required to reduce to a sufficiently low level the risk to policyholders of non-payment of claims. The business plans of R&Q Malta including the impact of a number of specific transactions of which he has been advised by R&Q. Various non-financial matters affecting policyholders including changes in regulatory and legal environment brought about as a result of the Transfer. 1409217 39138130.8 9

3. Conclusion In his report, the Independent Expert has reached four conclusions: (i) The Transfer is unlikely to materially adversely affect the policyholders of Principle Insurance Company Limited transferring to R&Q Insurance (Malta) Limited. This conclusion is based on a review of the anticipated financial position of R&Q Malta following the Transfer, taking into account the timescale over which he anticipates that the claims of the Transferring Policyholders will all be paid out. The Independent Expert explains at paragraph 3.5.7 that "unlikely" for these purposes means an outcome that has a 5% or lower chance of occurring. (ii) The Transfer will not materially adversely affect the Existing Policyholders of R&Q Malta. He has reached this conclusion because: the liabilities transferring to R&Q Malta under the Transfer are immaterial relative to the existing pre-transfer liabilities; and significant assets in excess of these liabilities will be transferred to R&Q Malta under the Transfer. (iii) There will be no Remaining Policyholders in Principle Insurance Company Limited after the Transfer. (iv) The Transfer will have no material non-financial impact on the policyholders. He has reached this conclusion because: There will be no change to the policy and claims administration arrangements in place as a result of the Transfer. While there are differences between the UK and Maltese prudential regulatory regimes, in the context of the Transfer he did not find that these appeared to be material. He did not identify any other material changes in various regulatory and other aspects arising from the Transfer. 1409217 39138130.8 10

Appendix C IN THE HIGH COURT OF JUSTICE No. 2139 of 2015 CHANCERY DIVISION COMPANIES COURT IN THE MATTER OF PRINCIPLE INSURANCE COMPANY LIMITED AND R&Q INSURANCE (MALTA) LIMITED AND IN THE MATTER OF PART VII OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 TRANSFER OF INSURANCE BUSINESS NOTICE IS HEREBY GIVEN that, by application issued on 20 March 2015, Principle Insurance Company Limited (Principle) and R&Q Insurance (Malta) Limited (R&Q Malta) applied to the High Court of Justice of England and Wales for, amongst other things, an order under Section 111(1) of the Financial Services & Markets Act 2000 (the Act) sanctioning an insurance business transfer scheme (the Scheme) providing for the transfer of insurance business to R&Q Malta and for an order making provision under Section 112 of the Act. The business included in the proposed transfer (the Transferring Business) comprises all of the general insurance business of Principle. Copies of a report on the terms of the Scheme prepared by an independent expert in accordance with section 109 of the Act (the Scheme Report) and copies of a statement setting out the terms of the Scheme and containing a summary of the Scheme Report may be obtained, free of charge, by emailing principle@rqih.com, or by writing to Principle at 110, Fenchurch Street, London EC3M 5JT, Ref Sangeeta Johnson; or by calling 020 7780 5925. Alternatively, these documents may be downloaded from the website: www.rqih.com/news-events/principle-part-vii-transfer. Anyone who has questions regarding the proposed transfer or who requires any further information regarding the transfer may also contact Principle at the above address and telephone number. The application will be heard on 5 June 2015 before a Judge of the Chancery Division of the High Court at the Rolls Building, 7 Rolls Buildings, Fetter Lane, London, EC4A 1NL, United Kingdom. Any person who alleges that he or she would be adversely affected by the carrying out of the Scheme is entitled to: (i) (ii) (iii) appear at the hearing and make representations in person; instruct a barrister or solicitor advocate to appear at the hearing and make representations on his/her behalf; or make representations in writing. If you intend to appear at the hearing in person, or to instruct someone to appear on your behalf, you are requested to give notice of your intention to do so in writing, setting out the reasons why you believe you may be adversely affected. 1409217 39138130.8 11

You are requested to send such notice, or if you are not intending to appear in person or by your legal representative, any written representations that you may have, to Principle at the above address or to Clyde & Co LLP, The St Botolph Building, 138 Houndsditch, London, EC3A 7AR (ref: GEQ/LXP/1409217 ). Please provide such notice or such written representations by close of business on 28 May 2015. If the Scheme is approved by the Court, it will result in the transfer of all the contracts, property, assets and liabilities of Principle to R&Q Malta notwithstanding any restriction or right that might otherwise apply in relation to such transfer. Any such restriction or right will only be enforceable to the extent allowed by the order of the Court approving the Scheme. Clyde & Co LLP, The St Botolph Building, 138 Houndsditch, London, EC3A 7AR. Solicitors to Principle and R&Q Insurance (Malta) Limited (Ref: GEQ/LXP/1409217) 1409217 39138130.8 12