With-Profits Actuary

SCOTTISH EQUITABLE PLC Supplementary report of the With-Profits Actuary on the proposed transfer of business from BlackRock Life Limited to Scottish Equitable plc pursuant to Part VII of the Financial Services and Markets Act 2000 Alan McBride FFA With-Profits Actuary (Scottish Equitable) June 2018 Page 1 of 13

Contents 1. INTRODUCTION... 3 2. THE SCHEME AND DEVELOPMENTS IN SE... 6 3. SE RISK MANAGEMENT... 7 4. UPDATED SE FINANCIAL IMPACTS... 8 5. CONCLUSION... 12 Page 2 of 13

REPORT OF THE WITH-PROFITS ACTUARY 1. INTRODUCTION 1.1. In my capacity as With-Profits Actuary, I prepared a report dated February 2018 (the Main Report ) in which I reviewed the impact on policyholders in the With-Profits Sub-Fund ( WPSF ) of Scottish Equitable plc ( SE ) of the proposed transfer (the Transfer ) of certain unitised defined contribution pensions policies which are currently liabilities of BlackRock Life Limited ( BLL ) to the Non-Profit Sub-Fund ( NPSF ) of SE. 1.2. The Transfer is to take effect by means of a court approved insurance business transfer scheme (the Scheme ) under Part VII of the Financial Services and Markets Act 2000 ( FSMA ). 1.3. In my Main Report ( Report of the With-Profits Actuary dated February 2018) which was prepared for the Board of SE (the SE Board ) I considered the Transfer from the perspective of the policyholders of the SE WPSF and whether the Transfer has any materially adverse impact on these policyholders. My review covered both withprofits policyholders in the WPSF who participate in the profits and losses arising in the WPSF and non-profit policyholders in the WPSF who do not participate in the profits and losses that arise on business in the WPSF. 1.4. Following the Directions Hearing held on 7 March 2018, subsequent correspondence with transferring policyholders, and further discussion with regulatory authorities, it is intended that the High Court will be asked to approve the proposed Transfer at a hearing on 21 June 2018. The proposed Scheme Effective Date ( SED ) is 1 July 2018. 1.5. Within this context, the purpose of this Supplementary With-Profits Actuary s report is to consider: Any material changes that have been made to the Scheme or other material developments that have taken place in the period since my last report. Updated financial information including updated consideration of the solvency position of SE and the WPSF after the Transfer. Whether the conclusions presented in my Main Report remain valid. 1.6. This report is written for the SE Board in my capacity as With-Profits Actuary for SE, and should be read in conjunction with my Main Report, the Scheme, the Chief Actuary s Main Report dated February 2018, the Chief Actuary s supplementary report, the report by the Independent Expert ( IE ), Nick Dumbreck, dated 2 March 2018, and the supplementary report by the IE. Status and Disclosure 1.7. I am a Fellow of the Institute & Faculty of Actuaries, having qualified in 2001, and hold a Practising Certificate issued by the Institute & Faculty of Actuaries to act as a Chief Actuary and a Practising Certificate to act as a With-Profits Actuary. I have over 20 years of experience working in the UK life assurance industry, and since 2014 have been the With-Profits Actuary for SE. 1.8. I am an employee of Aegon UK Corporate Services Ltd ( AUKCS ), an Aegon UK Group service company which provides services to SE. SE is a significant part of the Group to which the service company provides services. Page 3 of 13

1.9. Details of any Aegon interests: As an employee of AUKCS I am subject to a similar pay and benefits structure as other senior managers in the organisation. I have no individual performance incentives directly related to the success or otherwise of the proposed Transfer. I do not hold any Aegon NV shares and I have no Aegon NV shares due to vest in the future. I have an ISA (Individual Savings Account) investment with Aegon as a customer of Aegon Investment Solutions Ltd. I have a Group Personal Pension Policy with SE as part of the company s Staff Pension Arrangements. 1.10. I consider myself to be free from conflict that would prevent me from assessing the impact of the Scheme on WPSF policyholder benefits and the security of those benefits. Other advice and opinions 1.11. Mr Nick Dumbreck of Milliman LLP has continued to act in the capacity of Independent Expert. In finalising this Supplementary With-Profits Actuary s report, I have read a draft of his supplementary report and considered his conclusions. A copy of this report has also been provided to Mr Dumbreck. 1.12. In addition, I have read and considered the supplementary report of the Chief Actuary, Mr James Crispin. A copy of this Supplementary With-Profits Actuary s report has also been provided to Mr Crispin. Definitions and abbreviations 1.13. A list of the defined terms and abbreviations used in this report is included in Annex A. Defined terms used but not defined in this report have the same meaning as those used in the Scheme document and the IE s Report unless otherwise highlighted. Compliance with Technical Actuarial Standards 1.14. This report has been prepared in accordance with, and complies with Technical Actuarial Standards TAS 100: Principals for Technical Actuarial Work, and TAS 200: Insurance issued by the Financial Reporting Council and applicable from 1 July 2017. Review of actuarial work 1.15. With effect from 1 July 2015, actuaries are required to comply with the requirements of Actuarial Professional Standard X2: Review of Actuarial Work. In this regard therefore, this document has been reviewed by a suitably qualified actuary employed by AUKCS. Structure of report 1.16. This report is structured as follows: - Section 2 considers any changes to the Scheme and any developments that have taken place within the operations of SE, covering both WPSF and NPSF, since my Main Report; Page 4 of 13

- Section 3 provides an update on the SE approach to risk management; - Section 4 provides updated information on the financial position of SE, covering both NPSF and WPSF, before and after the Transfer; - Section 5 summarises my conclusions; and - Annex A lists the defined terms and abbreviations used in this report. Summary of key conclusions 1.17. I have updated my review of the potential impact of the Scheme on the security and benefit expectations of the WPSF policyholders in SE. My conclusion remains that the Scheme will not result in a materially adverse impact on the security of WPSF policyholders or their benefit expectations compared to the status quo. Page 5 of 13

2. THE SCHEME AND DEVELOPMENTS IN SE Changes to the Scheme 2.1. There have been some minor changes to the Scheme compared to the version on which my Main Report was based. These changes do not change my conclusions as set out in that report. Developments in SE 2.2. Subsequent to my Main Report, the following developments have taken place in SE which are worthy of note or are relevant to the proposed Transfer: In order to help support Aegon UK plc, its parent company, achieve its corporate objectives, SE paid a dividend of 150m to Scottish Equitable Holdings Ltd on 29 May 2018. Subsequent to the payment of this dividend, Aegon UK plc repaid to SE an existing loan of 50m. The impact of this dividend and loan repayment was to reduce SE s solvency coverage and this has been reflected in the figures shown in Section 4 of this report. We continue to carry out a number of Asset and Liability Management activities over H1 2018 which are expected to help ensure we remain within our Risk Appetite for market risks, improve our liquidity position and either have a neutral or positive impact on capital position. 2.3. In addition to these specific developments, SE has experienced some evolution of its in-force portfolio through policy exits (for example due to maturities, lapses/surrenders, and deaths) and new business. Market movements have also affected the underlying financial position of SE. The impact of these changes is reflected in the discussion contained in Section 5 of this report. 2.4. Taking these developments into account, I am satisfied that there has not been a material change to the nature of the business undertaken by SE or to the risk profile of SE compared to that which I discussed in Section 3 and Section 7 of my Main Report. I therefore do not discuss the relative risk profile of SE before and after the Transfer further in this report. Page 6 of 13

3. SE RISK MANAGEMENT 3.1. As the SE risk management approach formed an important consideration in the discussion contained in my Main Report, I consider it useful to reiterate the SE approach to risk and capital management and, in particular, the requirement under the SE capital management policy to maintain extra capital above its regulatory capital requirements. It is also useful to reiterate that the WPSF aims to maintain sufficient assets to cover 100% of the regulatory capital requirements associated with the liabilities of the WPSF plus further assets sufficient to maintain an appropriate amount of working capital within the fund. This policy continues to operate unchanged since and as described in my Main Report, and will not be changed as a result of the Scheme. Page 7 of 13

4. UPDATED SE FINANCIAL IMPACTS 4.1. This section contains updated information on the financial position of SE before and after the Transfer and supplements the information that was provided in Section 5 of my Main Report. As mentioned in the Main Report, in order to assess whether or not the security of WPSF policyholder benefits is materially affected by the Scheme, it is useful to compare the solvency position of SE, before and after the Transfer. Solvency calculations 4.2. My Main Report considered the impact of the Transfer on the Solvency II position of SE as at 30 June 2017. 4.3. The SE solvency assessment as at 31 December 2017 is shown in the tables below. I consider the positions at this date to be suitable for the purpose of assessing the impact of the Scheme on policyholder security. 4.4. The results shown are derived from the regulatory submission of quantitative reporting templates for 31 December 2017 as approved by the SE Board and published on 4 May 2018. 4.5. A number of factors have driven changes in the 31 December 2017 reported solvency position of the WPSF relative to the adjusted 30 June 2017 position shown in my Main Report. The overall surplus in the WPSF has fallen slightly, with both the Own Funds and SCR having fallen more significantly. Some of the key drivers of these changes are: The implementation of a reduction in the charge made against participating WPSF policies for guarantee costs within the fund. A provision for a further payment in respect of the data audit following the transfer of non-profit annuities from the WPSF to Rothesay Life Limited on 30 June 2017. Sales and purchases of assets within the fund with differing capital requirements. An increase in provisions for the correction of various historic errors in valuation data. Ongoing modelling improvements. Market movements. 4.6. The solvency position shown has been adjusted from the reported 31 December 2017 position to allow for the following items: The pre-sed fund restructuring undertaken in March 2018 to reduce SE s existing exposure to BLL as described in Section 3.10 of the Chief Actuary s supplementary report. The payment on 29 May 2018 of a dividend of 150m by SE to Scottish Equitable Holdings Ltd as described in Section 2.2. The subsequent repayment of a 50m loan by Aegon UK to SE as described in Section 2.2. 4.7. Additionally, the solvency position will have moved since 31 December 2017 due to the following: Market movements; Ongoing ALM and investment activity (see Section 2.2); Page 8 of 13

Unwind of existing business; New business written. No allowance has been made for these additional items in the solvency figures presented below and any such allowance would not alter the conclusions of my report. 4.8. Taking these items into account, I am not aware of any events since 31 December 2017 (up to the date of this report) that would materially alter the conclusions on the Transfer obtained from the 31 December 2017 position. 4.9. The post-transfer figures shown below consider the position immediately following completion of the Transfer, allowing for the planned pre-transfer restructuring by BLL of transferring funds; and the position which is expected to be reached following further fund restructuring which is planned to complete post-transfer, including the further restructuring of SE s existing pre-transfer exposure to BLL. See Section 3 of the Chief Actuary s supplementary report for more detail on fund restructuring. Solvency II position pre-transfer 4.10. The table below shows the (pro-forma) pre-transfer Solvency II position for SE, allowing for the adjustments described in Section 4.6 above. SII Results ( m) NPSF WPSF WPSF Ringfence SE Plc Own Funds 1,998 290 (229) 2,059 SCR 1,196 61-1,257 Surplus (deficit) 802 229 (229) 802 Solvency ratio 167% 476% N/A 164% Note that the WPSF is a stand-alone ring-fenced fund, with any excess assets ultimately being distributed to WPSF policyholders over the remaining life of the fund. As a result, the WPSF surplus shown in the table does not increase surplus at a total SE plc level. Solvency II position post-transfer before additional fund restructuring 4.11. The table below shows the (pro forma) post-transfer Solvency II position for SE. As described in Section 4.9 above, this allows for the impact of planned pre-transfer restructuring of transferring funds by BLL. SII Results ( m) NPSF WPSF WPSF Ringfence SE Plc Own Funds 2,007 290 (229) 2,068 SCR 1,309 61-1,369 Surplus (deficit) 698 229 (229) 698 Solvency ratio 153% 476% N/A 151% Page 9 of 13

Solvency II position post Transfer following additional fund restructuring 4.12. The table below shows the (pro forma) post-transfer Solvency II position for SE. As described in Section 4.9 above, this allows for the additional impact of planned post- Transfer restructuring of transferring BlackRock funds and of SE s existing exposure to BLL. SII Results ( m) NPSF WPSF WPSF Ringfence SE Plc Own Funds 2,017 290 (229) 2,078 SCR 1,290 61-1,351 Surplus (deficit) 727 229 (229) 727 Solvency ratio 156% 476% N/A 154% Impact of Transfer 4.13. The results show that the WPSF position continues to not be directly affected by the Transfer as no policies are transferring into or out of the WPSF. 4.14. The results show that while the impact of the Transfer is to reduce SE s solvency ratio, the ratio continues to remain within the target range of 140% to 180% as prescribed in the SE capital management policy. This is the case both before and after the additional fund restructuring planned to be implemented after completion of the Transfer. The impact of the Transfer is slightly less negative than presented in my Main Report, largely as a result of increases in the value of unit funds being transferred (primarily due to market improvements). 4.15. The figures I have presented do not make allowance for any additional dividend payment that might be paid to Scottish Equitable Holdings Ltd in 2018 subsequent to the date of this report. 4.16. Under SE s dividend policy, subject to a number of constraints, dividend payments are possible to a level which would leave the post dividend solvency ratio at 135%. Any reduction in solvency ratio from the base end-december position presented above will reduce the size of any potential dividend payment (or prevent a dividend being paid at all), with policyholder security ultimately being provided by the target solvency coverage ratio of 140% to 180% as described above. The reduction in solvency ratio which occurs as a result of the Transfer does not take the solvency ratio below the bottom of the target range and does not therefore significantly affect policyholder security when viewed in combination with the dividend policy. Conclusions on the overall financial impact of the Scheme and its impact on WPSF policyholder security 4.17. Based on the analysis undertaken and summarised above, I continue to consider that the security of benefits of SE WPSF policyholders is not materially adversely affected by the Scheme. In presenting this conclusion I would note in particular: The analyses and results discussed in this section demonstrate that SE s WPSF solvency position will be unaffected by the Transfer; and The overall solvency position of SE will remain within the target range set by SE s capital management policy. The existing WPSF and SE capital and risk appetite policies will not be changed as a Page 10 of 13

result of the Scheme and this provides me with additional comfort that WPSF policyholder benefits will retain a similar level of ongoing protection after the Transfer. 4.18. I therefore do not consider that this updated financial analysis impacts upon the conclusion set out in my Main Report that these is no materially adverse impact on the security of benefits of WPSF policyholders as a result of the Transfer. Page 11 of 13

5. CONCLUSION 5.1. I have produced this report in my role as With-Profits Actuary of SE to consider whether any developments since my Main Report have changed the conclusions I reached in that report. 5.2. Based on the considerations summarised in this report, it continues to be my view that: (i) (ii) (iii) (iv) As no policies are being transferred into or out of the WPSF, WPSF policyholder benefits will not be directly affected as a result of the Scheme. Taking into account the assets and liabilities transferring from BLL and the impact of this on SE, the security of existing WPSF policyholder benefits will not be materially adversely impacted as a result of the Scheme. The capital and risk appetite policies of SE provides further comfort that the security of WPSF policyholder benefits will not be materially adversely impacted as a result of the Scheme. The Scheme will not result in changes to the benefit expectations of any SE WPSF participating or non-participating policyholders. 5.3. I therefore continue to be satisfied that the Scheme will not result in a materially adverse impact on the security of WPSF policyholders or their benefit expectations compared to the status quo. 5.4. I also continue to be satisfied that there will be no material change to the servicing that WPSF policyholders will receive as a result of the Scheme. 5.5. Taking all of the above into account, I continue to be satisfied that the obligations to treat WPSF customers fairly will not be materially adversely affected by the Transfer. It is therefore my conclusion that the Transfer may proceed. 5.6. SEPT has reviewed this report and has not objected to any of the conclusions. Alan McBride FFA With-Profits Actuary to Scottish Equitable June 2018... Page 12 of 13

ANNEX A DEFINED TERMS AND ABBREVIATIONS USED WITHIN THIS REPORT AUKCS BLL Aegon UK Corporate Services Ltd BlackRock Life Limited FSMA Financial Services and Markets Act 2000 IE NPSF Own Funds SCR SE SED SE Board SEPT Solvency II Transfer WPSF Independent Expert Non-Profit Sub-Fund which is a separate account in the Long Term Fund maintained in respect of business other than with-profits business This is the difference between the value of a company s assets and the value of its liabilities on a Solvency II basis Solvency Capital Requirement which is regulatory capital that is required to be held by an insurer under Solvency II regulations Scottish Equitable plc Scheme Effective Date Scottish Equitable plc Board Scottish Equitable Policyholders Trust Ltd which acts as the withprofits committee for SE s WPSF Risk based prudential regime for insurance and reinsurance undertakings in the European Union Proposed transfer of certain unitised defined contribution pensions policies from BLL to SE With-Profits Sub-Fund which is a separate account in the LTF maintained in respect of with-profits business Page 13 of 13