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Just Group plc (JUST)

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Thursday 14 March, 2019

Just Group plc

Proposed placing 9.99% existing issued share cap

RNS Number : 8532S
Just Group PLC
14 March 2019
 

THIS ANNOUNCEMENT (INCLUDING THE APPENDICES) AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, HONG KONG, NEW ZEALAND, SINGAPORE, SOUTH AFRICA OR ANY OTHER JURISDICTION IN WHICH SUCH RELEASE, PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL. PLEASE SEE THE IMPORTANT NOTICE AT THE END OF THIS ANNOUNCEMENT.

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 ("MAR").  Upon publication of this announcement, the inside information is now considered to be in the public domain for the purposes of MAR.

Just Group plc

Proposed placing of 9.99% of existing issued share capital

Proposed benchmark restricted tier 1 debt offering with a minimum size of £300 million

Introduction

Following the release of Policy Statement 31/18 (the "Policy Statement") by the Prudential Regulation Authority (the "PRA"), the Board of Just Group plc ("Just" or the "Company", together with its subsidiaries, the "Group"), has decided to strengthen the Group's capital base to support its new business franchise and maintain its focus on growing profits.

Just today announces its intention to conduct an underwritten non-pre-emptive cash placing (the "Placing") to institutional investors (the "Placees") of 94,012,782 new ordinary shares of 10 pence each (the "Placing Shares") in the capital of the Company which represents approximately 9.99% of the existing issued share capital of the Company. The issue of the Placing Shares is to be effected by way of a cash box placing. The Placing will be conducted through an accelerated bookbuilding process (the "Bookbuild") which will commence immediately following this announcement and will be subject to the terms and conditions set out in Appendix A to this announcement. Rodney Cook, Chief Executive Officer of the Company, has indicated his intention to participate in the Placing up to 9.99% of his existing holding. Further details of the Placing are set out below.

Barclays Bank PLC ("Barclays") and Numis Securities Limited ("Numis") have been appointed as Joint Global Coordinators in respect of the Placing (the "Joint Global Coordinators").

As well as the Placing, the Group also announces the launch of an underwritten benchmark debt offering with a minimum size of £300 million (the "Debt Offering") and its expectation to recommence dividend payments during FY 2019. The Debt Offering will take the form of fixed rate reset perpetual non-call 5.1 yr restricted tier 1 contingent convertible notes (the "Notes"), which will be more fully described in an offering memorandum (the "Debt Offering Memorandum") to be made available to eligible investors in the Debt Offering in due course.

The Placing has been underwritten by the Joint Global Coordinators pursuant to a placing agreement and the Debt Offering has been separately underwritten by Barclays pursuant to an underwriting agreement, in each case upon the terms and subject to the conditions set out in the respective agreements (which include certain termination rights). The Placing is not conditional upon successful completion of the Debt Offering and the Debt Offering is not conditional upon successful completion of the Placing.

The Company has also today announced its results for the year ended 31 December 2018.

Background to and reasons for the Placing and Debt Offering

On 10 December 2018, the PRA released the Policy Statement, setting out its conclusions on the treatment of equity release mortgages ("ERMs") being held to back annuity liabilities. The Policy Statement followed the three month consultation process which began with the release of Consultation Paper 13/18 - Solvency II: Equity Release Mortgages (the "CP") on 2 July 2018.

As previously announced, following the release of the Policy Statement, the Board has been determining the optimal capital mix and level in order to provide a prudent base to support the development of the Group's business going forward, including reviewing the strength of the Group's capital base and the range of capital options available to it. After careful consideration, the Board has decided to strengthen the Group's capital base through the Placing and Debt Offering (together, the "Capital Actions").

The Capital Actions will enable the Group to maintain its focus on growing profits by taking advantage of the growth opportunities in its chosen markets whilst maintaining a stronger solvency ratio. They have been selected to optimise the Group's cost of capital, maintain appropriate leverage and to support the Group's "A+" insurer financial strength rating from Fitch.

Assuming a debt offering size of £300 million and assuming proceeds from the Placing of £80 million, the Capital Actions would result in an increase in the Group's solvency ratio from 136% to 160% on a pro forma basis as at 31 December 2018. Own funds as at 31 December 2018 were calculated on a basis equivalent to using a 13% volatility and 0.3% deferment rate assumption ("13/0.3") in relation to the treatment of lifetime mortgages within the effective value test (the "EVT"). The Policy Statement prescribes the use of 13/0 at 31 December 2019, moving to a 13% volatility and 1% deferment rate ("13/1") by 31 December 2021.  

The Group is committed to achieving capital self-sufficiency and expects own funds to increase organically from 2022, following implementation of a number of management actions to improve new business capital efficiency, reduce expenses, enhance management of the no-negative equity guarantee and optimise the Group's investment approach.

Following completion of the Capital Actions, the Board believes that the Group's revised capital structure will allow it to maintain its focus on growing profits and support value creation for shareholders. The Group is well positioned in structurally growing segments of the United Kingdom retirement market, being Defined Benefit ("DB") de-risking, ERMs and Guaranteed Income for Life ("GIfL"). The DB de-risking market continues to represent a significant long term opportunity for the Group; Hyman Robertson expects the market to have exceeded £21bn in 2018, an increase of more than 70% on 2017, yet this still represents less than 1% of the total £2.2 trillion of DB liabilities. The ERM market grew by 29% in 2018 and has now tripled in size over the last 5 years, with increased supply, greater customer awareness and a growing number of retirees that are asset rich, but income poor set to support growth going forward. The GIfL "open" market also recorded growth in 2018 and will continue to benefit from a structural shift towards defined contribution pensions and the Financial Conduct Authority's encouragement of shopping around.

As previously announced, the Group has already aligned new business pricing with the expected post-CP capital requirements and remains committed to delivering attractive mid-teen returns on shareholder capital applied to new business.

Dividend Update

As previously communicated, the Board decided to defer the 2018 interim dividend due to the uncertainty surrounding the potential outcomes from the CP. Following the release of the Policy Statement, the Board has decided to strengthen the Group's capital base through the proposed Capital Actions and, under these circumstances, and having considered the views of its largest shareholders, has considered it appropriate not to pay a dividend for the 2018 financial year.

The Board's current expectation is to recommence dividend payments during the 2019 financial year at a rebased level. The rebased level for the 2019 full year dividend is expected to be approximately one third of the 3.72 pence total dividend paid during the 2017 financial year, subject to the Group's earnings, cash flow and capital position.

Shareholder consultation

Ahead of the proposed Placing, the Group has consulted with a number of its leading shareholders regarding the rationale for the proposed Placing and its non pre-emptive nature. The Board's belief that the proposed Placing is in the best interest of shareholders has been strengthened as a result of these discussions.

Details of the Placing

The Placing is subject to the terms and conditions set out in Appendix A to this announcement. The Bookbuild will commence today in respect of the Placing. The book will open with immediate effect following this announcement.

The price per ordinary share at which the Placing Shares are to be placed (the "Placing Price") will be decided at the close of the Bookbuild. Each of the Joint Global Coordinators has severally (and not jointly or jointly and severally) agreed with the Company, to the extent that Placees are not procured, to take up the Placing Shares at a certain price, or in the event of any default by any Placee in paying the Placing Price in respect of any Placing Shares allotted to it, to take up such Placing Shares themselves at the Placing Price in each case in the agreed proportions as set out in the Placing Agreement. 

The timing of the closing of the Bookbuild, the Placing Price and allocations are at the discretion of the Company and the Joint Global Coordinators. Details of the Placing Price and the number of Placing Shares will be announced as soon as practicable after the close of the Bookbuild.

When issued, the Placing Shares will be credited as fully paid and will rank pari passu in all respects with the existing ordinary shares of 10 pence each in the share capital of the Company, including the right to receive all dividends and other distributions declared, made or paid on or in respect of such shares after the date of issue of the Placing Shares.

Application will be made for the Placing Shares to be admitted to the premium listing segment of the Official List of the Financial Conduct Authority and to trading on the main market for listed securities of the London Stock Exchange (together, "Admission").

Settlement of the Placing Shares and Admission are expected to take place at 8.00am on 18 March 2019 (or such later date as may be agreed between the Company and the Joint Global Coordinators). The Placing is conditional upon, inter alia, Admission becoming effective and the Placing Agreement not being terminated.

Pursuant to the terms of the Placing Agreement, the Company has given certain customary indemnities to the Joint Global Coordinators and has also agreed that it will not, without the prior written consent of the Joint Global Coordinators and subject to certain customary exceptions, for a period of 180 days after Admission, offer, issue or grant any rights over any ordinary shares in the Company or related securities.

Appendix A to this announcement (which forms part of this announcement) sets out further information relating to the Bookbuild and the terms and conditions of the Placing.

Risk factors

Prospective investors in the Placing Shares should consider fully and carefully the risk factors associated with the Company, the Placing and the Placing Shares which are set out in Appendix B to this announcement.

Contacts

Just Group plc

James Pearce, Director of Group Finance                                   

Alistair Smith, Investor Relations Manager

Barclays Bank PLC - Corporate Broker to Just Group

Michael Lamb

Mark Astaire

Phil Drake

 

Numis Securities Limited - Corporate Broker to Just Group

Charles Farquhar

Jonathan Abbott

 

 

IMPORTANT NOTICES RELATING TO THE PLACING

THIS ANNOUNCEMENT HAS BEEN ISSUED BY, AND IS THE SOLE RESPONSIBILITY OF, THE COMPANY.

MEMBERS OF THE PUBLIC ARE NOT ELIGIBLE TO TAKE PART IN THE PLACING.  THIS ANNOUNCEMENT (INCLUDING THE APPENDICES) AND THE TERMS AND CONDITIONS SET OUT HEREIN (TOGETHER, THIS "ANNOUNCEMENT") ARE DIRECTED ONLY AT PERSONS WHOSE ORDINARY ACTIVITIES INVOLVE THEM IN ACQUIRING, HOLDING, MANAGING AND DISPOSING OF INVESTMENTS (AS PRINCIPAL OR AGENT) FOR THE PURPOSES OF THEIR BUSINESS AND WHO HAVE PROFESSIONAL EXPERIENCE IN MATTERS RELATING TO INVESTMENTS AND ARE: (1) IF IN A MEMBER STATE OF THE EUROPEAN ECONOMIC AREA ("EEA"), QUALIFIED INVESTORS AS DEFINED IN ARTICLE 2(1)(e) OF DIRECTIVE 2003/71/EC AS AMENDED (THE "PROSPECTUS DIRECTIVE"); (2) IF IN THE UNITED KINGDOM, QUALIFIED INVESTORS WHO (A) FALL WITHIN ARTICLE 19(5) OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (FINANCIAL PROMOTION) ORDER 2005, AS AMENDED (THE "ORDER") (INVESTMENT PROFESSIONALS) OR (B) FALL WITHIN ARTICLE 49(2)(a) TO (d) (HIGH NET WORTH COMPANIES, UNINCORPORATED ASSOCIATIONS, ETC.) OF THE ORDER (ALL SUCH PERSONS TOGETHER BEING REFERRED TO AS "RELEVANT PERSONS").

THIS ANNOUNCEMENT AND THE INFORMATION IN IT MUST NOT BE ACTED ON OR RELIED ON BY PERSONS WHO ARE NOT RELEVANT PERSONS.  PERSONS DISTRIBUTING THIS ANNOUNCEMENT MUST SATISFY THEMSELVES THAT IT IS LAWFUL TO DO SO.  ANY INVESTMENT OR INVESTMENT ACTIVITY TO WHICH THIS ANNOUNCEMENT RELATES IS AVAILABLE ONLY TO RELEVANT PERSONS AND WILL BE ENGAGED IN ONLY WITH RELEVANT PERSONS.  THIS ANNOUNCEMENT DOES NOT ITSELF CONSTITUTE AN OFFER FOR SALE OR SUBSCRIPTION OF ANY SECURITIES IN JUST GROUP PLC.

THE PLACING SHARES HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR JURISDICTION OF THE UNITED STATES OF AMERICA (INCLUDING ITS TERRITORIES AND POSSESSIONS, ANY STATE OF THE UNTIED STATES OF AMERICA AND THE DISTRICT OF COLUMBIA (THE "UNITED STATES" OR "US"), AND MAY NOT BE OFFERED, SOLD OR TRANSFERRED, DIRECTLY OR INDIRECTLY, IN THE UNITED STATES EXCEPT PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES.  THE PLACING SHARES ARE BEING OFFERED AND SOLD ONLY (I) OUTSIDE OF THE UNITED STATES IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT AND OTHERWISE IN ACCORDANCE WITH APPLICABLE LAWS AND (II) IN THE UNITED STATES TO A LIMITED NUMBER OF "QUALIFIED INSTITUTIONAL BUYERS" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN TRANSACTIONS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT.  NO PUBLIC OFFERING OF THE PLACING SHARES IS BEING MADE IN THE UNITED STATES OR ELSEWHERE.

THIS ANNOUNCEMENT IS FOR INFORMATION PURPOSES ONLY AND DOES NOT CONSTITUTE AN OFFER TO SELL OR ISSUE, OR THE SOLICITATION OF AN OFFER TO BUY, ACQUIRE OR SUBSCRIBE FOR SHARES IN THE CAPITAL OF THE COMPANY IN THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, HONG KONG, NEW ZEALAND, SINGAPORE OR THE REPUBLIC OF SOUTH AFRICA OR ANY OTHER STATE OR JURISDICTION IN WHICH SUFFER OFFER OR SOLICITATION IS NOT AUTHORISED OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. ANY FAILURE TO COMPLY WITH THESE RESTRICTIONS MAY CONSISTUTE A VIOLATION OF THE SECURITIES LAWS OF SUCH JURISDICTIONS.

THIS ANNOUNCEMENT (INCLUDING THE APPENDICES) AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR INTO OR FROM THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, HONG KONG, NEW ZEALAND, SINGAPORE, THE REPUBLIC OF SOUTH AFRICA OR ANY OTHER JURISDICTION IN WHICH SUCH RELEASE, PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL.

THIS ANNOUNCEMENT IS NOT FOR PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES.  THIS ANNOUNCEMENT IS NOT AN OFFER OF SECURITIES FOR SALE INTO THE UNITED STATES.  THE SECURITIES REFERRED TO HEREIN HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES, EXCEPT PURSUANT TO AN APPLICABLE EXEMPTION FROM REGISTRATION.  NO PUBLIC OFFERING IS BEING MADE IN THE UNITED STATES.

The distribution of this Announcement and/or the Placing and/or issue of the Placing Shares in certain jurisdictions may be restricted by law.  No action has been taken by the Company, the Joint Global Coordinators or any of their respective affiliates, agents, directors, officers or employees that would permit an offer of the Placing Shares or possession or distribution of this Announcement or any other offering or publicity material relating to such Placing Shares in any jurisdiction where action for that purpose is required.  Persons into whose possession this Announcement comes are required by the Company and the Joint Global Coordinators to inform themselves about and to observe any such restrictions.

This Announcement or any part of it does not constitute or form part of any offer to issue or sell, or the solicitation of an offer to acquire, purchase or subscribe for, any securities in the United States (including its territories and possessions, any state of the United States and the District of Columbia (the "United States" or the "US")), Australia, Canada, Japan or the Republic of South Africa or any other jurisdiction in which the same would be unlawful.  No public offering of the Placing Shares is being made in any such jurisdiction.

The Placing Shares have not been approved or disapproved by the US Securities and Exchange Commission, any state securities commission or other regulatory authority in the United States, nor have any of the foregoing authorities passed upon or endorsed the merits of the Placing or the accuracy or adequacy of this Announcement.  Any representation to the contrary is a criminal offence in the United States.  The relevant clearances have not been, nor will they be, obtained from the securities commission of any province or territory of Canada, no prospectus has been lodged with, or registered by, the Australian Securities and Investments Commission or the Japanese Ministry of Finance; the relevant clearances have not been, and will not be, obtained for the South Africa Reserve Bank or any other applicable body in the Republic of South Africa in relation to the Placing Shares and the Placing Shares have not been, nor will they be, registered under or offered in compliance with the securities laws of any state, province or territory of Australia, Canada, Japan, Hong Kong, New Zealand, Singapore or the Republic of South Africa.  Accordingly, the Placing Shares may not (unless an exemption under the relevant securities laws is applicable) be offered, sold, resold or delivered, directly or indirectly, in or into Australia, Canada, Japan, Hong Kong, New Zealand, Singapore or the Republic of South Africa or any other jurisdiction outside the United Kingdom.

Persons (including, without limitation, nominees and trustees) who have a contractual right or other legal obligations to forward a copy of this Announcement should seek appropriate advice before taking any action.

By participating in the Bookbuild and the Placing, each Placee by making an oral and legally binding offer to acquire Placing Shares will be deemed to have read and understood this Announcement in its entirety, to be participating, making an offer and acquiring Placing Shares on the terms and conditions contained herein and to be providing the representations, warranties, indemnities, acknowledgements and undertakings contained in Appendix A.

This Announcement may contain and the Company may make verbal statements containing "forward-looking statements" with respect to certain of the Company's plans and its current goals and expectations relating to its future financial condition, performance, strategic initiatives, objectives and results.  Forward-looking statements sometimes use words such as "aim", "anticipate", "target", "expect", "estimate", "intend", "plan", "goal", "believe", "seek", "may", "could", "outlook" or other words of similar meaning.  By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which are beyond the control of the Company, including amongst other things, United Kingdom domestic and global economic business conditions, market-related risks such as fluctuations in interest rates and exchange rates, the policies and actions of governmental and regulatory authorities, the effect of competition, inflation, deflation, the timing effect and other uncertainties of future acquisitions or combinations within relevant industries, the effect of tax and other legislation and other regulations in the jurisdictions in which the Company and its respective affiliates operate, the effect of volatility in the equity, capital and credit markets on the Company's profitability and ability to access capital and credit, a decline in the Company's credit ratings; the effect of operational risks; and the loss of key personnel.  As a result, the actual future financial condition, performance and results of the Company may differ materially from the plans, goals and expectations set forth in any forward-looking statements.  Any forward-looking statements made in this Announcement by or on behalf of the Company speak only as of the date they are made.  Except as required by applicable law or regulation, the Company expressly disclaims any obligation or undertaking to publish any updates or revisions to any forward-looking statements contained in this Announcement to reflect any changes in the Company's expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based.

Solely for the purposes of the product governance requirements contained within: (a) EU Directive 2014/65/EU on markets in financial instruments, as amended ("MiFID II"); (b) Articles 9 and 10 of Commission Delegated Directive (EU) 2017/593 supplementing MiFID II; and (c) local implementing measures (together, the "MiFID II Product Governance Requirements"), and disclaiming all and any liability, whether arising in tort, contract or otherwise, which any "manufacturer" (for the purposes of the Product Governance Requirements) may otherwise have with respect thereto, the Placing Shares have been subject to a product approval process, which has determined that the Placing Shares are: (i) compatible with an end target market of (a) retail investors, (b) investors who meet the criteria of professional clients and (c) eligible counterparties, each as defined in MiFID II; and (ii) eligible for distribution through all distribution channels as are permitted by MiFID II (the "Target Market Assessment"). Notwithstanding the Target Market Assessment, distributors should note that: the price of the Placing Shares may decline and investors could lose all or part of their investment; the Placing Shares offer no guaranteed income and no capital protection; and an investment in the Placing Shares is compatible only with investors who do not need a guaranteed income or capital protection, who (either alone or in conjunction with an appropriate financial or other adviser) are capable of evaluating the merits and risks of such an investment and who have sufficient resources to be able to bear any losses that may result therefrom. The Target Market Assessment is without prejudice to the requirements of any contractual, legal or regulatory selling restrictions in relation to the Placing. Furthermore, it is noted that, notwithstanding the Target Market Assessment, the Joint Global Coordinators will only procure investors who meet the criteria of professional clients and eligible counterparties.

For the avoidance of doubt, the Target Market Assessment does not constitute: (a) an assessment of suitability or appropriateness for the purposes of MiFID II; or (b) a recommendation to any investor or group of investors to invest in, or purchase, or take any other action whatsoever with respect to the Placing Shares.

Each distributor is responsible for undertaking its own target market assessment in respect of the Placing Shares and determining appropriate distribution channels.

Barclays is authorised by the Prudential Regulation Authority (the "PRA") and regulated by the Financial Conduct Authority ("FCA") and the PRA in the United Kingdom and is acting exclusively for the Company and no one else in connection with the Placing, and Barclays will not be responsible to anyone (including any Placees) other than the Company for providing the protections afforded to its clients or for providing advice in relation to the Placing or any other matters referred to in this Announcement.

Numis is authorised and regulated by the FCA in the United Kingdom and is acting exclusively for the Company and no one else in connection with the Placing, and Numis will not be responsible to anyone (including any Placees) other than the Company for providing the protections afforded to its clients or for providing advice in relation to the Placing or any other matters referred to in this Announcement.

No representation or warranty, express or implied, is or will be made as to, or in relation to, and no responsibility or liability is or will be accepted by the Joint Global Coordinators or by any of their respective affiliates or agents as to, or in relation to, the accuracy or completeness of this Announcement or any other written or oral information made available to or publicly available to any interested party or its advisers, and any liability therefore is expressly disclaimed.

In addition, in the event that the Joint Global Coordinators acquire Placing Shares in the Placing, the Joint Global Coordinators may co-ordinate disposals of such shares in accordance with applicable law and regulation. Except as required by applicable law or regulation, the Joint Global Coordinators and their respective affiliates do not propose to make any public disclosure in relation to such transactions.

No statement in this Announcement is intended to be a profit forecast or estimate, and no statement in this Announcement should be interpreted to mean that earnings per share of the Company for the current or future financial years would necessarily match or exceed the historical published earnings per share of the Company.

This Announcement does not constitute a recommendation concerning any investor's options with respect to the Placing. Each investor or prospective investor should conduct his, her or its own investigation, analysis and evaluation of the business and data described in this Announcement. The price and value of securities can go down as well as up. Past performance is not a guide to future performance. The contents of this Announcement are not to be construed as legal, business, financial or tax advice. Each investor or prospective investor should consult his, her or its own legal adviser, business adviser, financial adviser or tax adviser for legal, financial, business or tax advice.

The Placing Shares to be issued pursuant to the Placing will not be admitted to trading on any stock exchange other than the London Stock Exchange.

Neither the content of the Company's website nor any website accessible by hyperlinks on the Company's website is incorporated in, or forms part of, this Announcement.

 

 

APPENDIX A - TERMS AND CONDITIONS OF THE PLACING

FURTHER DETAILS OF THE PLACING

TERMS AND CONDITIONS

THIS APPENDIX, AND THE INFORMATION CONTAINED IN IT, IS RESTRICTED AND IS NOT FOR PUBLIC RELEASE, PUBLICATION, OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, HONG KONG, NEW ZEALAND, SINGAPORE, SOUTH AFRICA OR ANY OTHER STATE OR JURISDICTION IN WHICH SUCH RELEASE, PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL.

IMPORTANT INFORMATION FOR INVITED PLACEES ONLY REGARDING THE PLACING

MEMBERS OF THE PUBLIC ARE NOT ELIGIBLE TO TAKE PART IN THE PLACING. THIS ANNOUNCEMENT AND THE TERMS AND CONDITIONS SET OUT IN THIS APPENDIX ARE FOR INFORMATION PURPOSES ONLY AND ARE DIRECTED ONLY AT PERSONS WHO ARE: (A) PERSONS IN MEMBER STATES OF THE EUROPEAN ECONOMIC AREA ("EEA") WHO ARE QUALIFIED INVESTORS WITHIN THE MEANING OF ARTICLE 2(1)(E) OF EU DIRECTIVE 2003/71/EC AND AMENDMENTS THERETO (THE "PROSPECTUS DIRECTIVE") ("QUALIFIED INVESTORS"), (B) IF IN THE UNITED KINGDOM, PERSONS WHO (I) HAVE PROFESSIONAL EXPERIENCE IN MATTERS RELATING TO INVESTMENTS WHO FALL WITHIN THE DEFINITION OF "INVESTMENT PROFESSIONALS" IN ARTICLE 19(5) OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (FINANCIAL PROMOTION) ORDER 2005, AS AMENDED (THE "ORDER"), OR ARE HIGH NET WORTH COMPANIES, UNINCORPORATED ASSOCIATIONS OR PARTNERSHIPS OR TRUSTEES OF HIGH VALUE TRUSTS AS DESCRIBED IN ARTICLE 49(2) OF THE ORDER AND (II) ARE "QUALIFIED INVESTORS" AS DEFINED IN SECTION 86 OF THE FINANCIAL SERVICES AND MARKETS ACT 2000, AS AMENDED ("FSMA"),AND (C) OTHERWISE, TO PERSONS TO WHOM IT MAY OTHERWISE BE LAWFUL TO COMMUNICATE IT TO (EACH A "RELEVANT PERSON"). NO OTHER PERSON SHOULD ACT OR RELY ON THIS ANNOUNCEMENT AND PERSONS DISTRIBUTING THIS ANNOUNCEMENT MUST SATISFY THEMSELVES THAT IT IS LAWFUL TO DO SO. BY ACCEPTING THE TERMS OF THIS ANNOUNCEMENT YOU REPRESENT AND AGREE THAT YOU ARE A RELEVANT PERSON. THIS APPENDIX AND THE TERMS AND CONDITIONS SET OUT HEREIN MUST NOT BE ACTED ON OR RELIED ON BY PERSONS WHO ARE NOT RELEVANT PERSONS. ANY INVESTMENT OR INVESTMENT ACTIVITY TO WHICH THIS ANNOUNCEMENT (INCLUDING THIS APPENDIX) AND THE TERMS AND CONDITIONS SET OUT HEREIN RELATE IS AVAILABLE ONLY TO RELEVANT PERSONS AND WILL BE ENGAGED IN ONLY WITH RELEVANT PERSONS. THIS ANNOUNCEMENT (INCLUDING THIS APPENDIX) DOES NOT ITSELF CONSTITUTE AN OFFER TO SELL OR ISSUE OR THE SOLICITATION OF AN OFFER TO BUY OR ACQUIRE ANY SECURITIES IN THE COMPANY.

THE INFORMATION CONTAINED HEREIN IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES (INCLUDING ITS TERRITORIES AND POSSESSIONS, ANY STATE OF THE UNITED STATES AND THE DISTRICT OF COLUMBIA) AUSTRALIA, CANADA, JAPAN, HONG KONG, NEW ZEALAND, SINGAPORE, SOUTH AFRICA OR ANY JURISDICTION IN WHICH SUCH RELEASE, PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL. THIS DOCUMENT (AND THE INFORMATION CONTAINED HEREIN) DOES NOT CONSTITUTE AN OFFER OF SECURITIES FOR SALE IN THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, HONG KONG, NEW ZEALAND, SINGAPORE, SOUTH AFRICA OR IN ANY OTHER JURISDICTION IN WHICH THE SAME WOULD BE UNLAWFUL.

THE PLACING SHARES HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE US SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER THE APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES, AND MAY NOT BE OFFERED, SOLD, ACQUIRED, RESOLD, TRANSFERRED OR DELIVERED, DIRECTLY OR INDIRECTLY WITHIN, INTO OR IN THE UNITED STATES, EXCEPT PURSUANT TO AN APPLICABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH THE SECURITIES LAWS OF ANY RELEVANT STATE OR OTHER JURISDICTION OF THE UNITED STATES. THERE WILL BE NO PUBLIC OFFER OF THE PLACING SHARES IN THE UNITED STATES, THE UNITED KINGDOM OR ELSEWHERE.

EACH PLACEE SHOULD CONSULT ITS OWN ADVISERS AS TO LEGAL, TAX, BUSINESS, FINANCIAL AND RELATED ASPECTS OF ACQUIRING THE PLACING SHARES.

Persons who are invited to and who choose to participate in the Placing (and any person acting on such person's behalf) by making an oral or written offer to acquire Placing Shares, including any individuals, funds or others on whose behalf a commitment to acquire Placing Shares is given ("Placees"), will be deemed to have read and understood this Announcement including this Appendix, in its entirety and to be making such offer on the terms and conditions, and to be providing the representations, warranties, acknowledgements and undertakings, contained in this Appendix.  In particular, each such Placee represents, warrants and acknowledges that:

1.    it is a Relevant Person and undertakes that it will acquire, hold, manage or dispose of any Placing Shares that are allocated to it for the purposes of its business only;

2.    if it is in a member state of the EEA and/or if it is a financial intermediary, as that term is used in Article 3(2) of the Prospectus Directive, that any Placing Shares acquired by it in the Placing will not be acquired on a non-discretionary basis on behalf of, nor will they be acquired with a view to their offer or resale to, persons in any member state of the EEA in circumstances which may give rise to an offer of securities to the public, other than an offer or resale in a member state of the EEA which has implemented the Prospectus Directive to Qualified Investors, or in circumstances in which the prior consent of each of Barclays Bank PLC ("Barclays") and Numis Securities Limited ("Numis") has been given to each such proposed offer or resale;

3.    it is acquiring the Placing Shares for its own account or is acquiring the Placing Shares for an account with respect to which it exercises sole investment discretion and has the authority to make and does make the representations, warranties, indemnities, acknowledgements, undertakings and agreements contained in this Announcement;

4.    it understands (or if acting for the account of another person, such person has confirmed that such person understands) the resale and transfer restrictions set out in this Appendix;

5.    it acknowledges that the Placing Shares have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction of the United States and may not be offered, sold or transferred, directly or indirectly, within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States;

6.    except for a limited number of "qualified institutional buyers" ("QIBs") as defined in Rule 144A under the Securities Act ("Rule 144A") who have executed and delivered to the Company, Barclays and Numis a US investor letter substantially in the form provided to it, (i) it and the person(s), if any, for whose account or benefit it is acquiring the Placing Shares are purchasing the Placing Shares in an "offshore transaction" as defined in Regulation S under the Securities Act; (ii) it is aware of the restrictions on the offer and sale of the Placing Shares pursuant to Regulation S; and (iii) the Placing Shares have not been offered to it by means of any "directed selling efforts" as defined in Regulation S;

7.    The Company, Barclays and Numis will rely upon the truth and accuracy of the foregoing representations, acknowledgements and agreements.

The Placing Shares have not been approved or disapproved by the US Securities and Exchange Commission, any state securities commission or other regulatory authority in the United States, nor have any of the foregoing authorities passed upon or endorsed the merits of the Placing or the accuracy or adequacy of this Announcement. Any representation to the contrary is a criminal offence in the United States.

The relevant clearances have not been, and nor will they be, obtained from the securities commission or similar regulatory authority of any province or territory of Canada. The offering of the Placing Shares is being made on a private placement basis only in the provinces of British Columbia, Alberta, Ontario and Quebec and is exempt from the requirement that the Company prepare and file a prospectus with the relevant securities regulatory authorities in Canada. No offer of securities is made pursuant to this Announcement in Canada except to a person who has represented to the Company and the Joint Global Coordinators that such person (i) is purchasing as principal, or is deemed to be purchasing as principal in accordance with applicable Canadian securities laws, for investment only and not with a view to resale or redistribution; (ii) is an "accredited investor" as such term is defined in section 1.1 of National Instrument 45-106 Prospectus Exemptions or, in Ontario, as such term is defined in section 73.3(1) of the Securities Act (Ontario); and (iii) is a "permitted client" as such term is defined in section 1.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the Placing Shares acquired by a Canadian investor in this offering must be made in accordance with applicable Canadian securities laws, which may vary depending on the relevant jurisdiction, and which may require resales to be made in accordance with Canadian prospectus requirements, a statutory exemption from the prospectus requirements, in a transaction exempt from the prospectus requirements or otherwise under a discretionary exemption from the prospectus requirements granted by the applicable local Canadian securities regulatory authority. These resale restrictions may under certain circumstances apply to resales of the Placing Shares outside of Canada.

No prospectus has been lodged with, or registered by, the Australian Securities and Investments Commission or the Japanese Ministry of Finance; and the Placing Shares have not been, and nor will they be, registered or otherwise qualified for offer and sale under the securities laws of any state, province or territory of Australia, Japan, Hong Kong, New Zealand, Singapore or South Africa. Accordingly, the Placing Shares may not (unless an exemption under the relevant securities laws is applicable) be offered, sold, resold or delivered, directly or indirectly, in or into the United States, Australia, Japan, Hong Kong, New Zealand, Singapore or South Africa or any other jurisdiction outside the United Kingdom.

Persons (including, without limitation, nominees and trustees) who have a contractual or other legal obligation to forward a copy of this Appendix or the Announcement of which it forms part should seek appropriate advice before taking any action.

Neither Barclays nor Numis makes any representation to any Placees regarding an investment in the Placing Shares.

Information to Distributors

Solely for the purposes of the product governance requirements contained within: (a) EU Directive 2014/65/EU on markets in financial instruments, as amended ("MiFID II"); (b) Articles 9 and 10 of Commission Delegated Directive (EU) 2017/593 supplementing MiFID II; and (c) local implementing measures (together, the "MiFID II Product Governance Requirements"), and disclaiming all and any liability, whether arising in tort, contract or otherwise, which any "manufacturer" (for the purposes of the MiFID II Product Governance Requirements) may otherwise have with respect thereto, the Placing Shares have been subject to a product approval process, which has determined that such securities are: (i) compatible with an end target market of retail investors and investors who meet the criteria of professional clients and eligible counterparties, each as defined in MiFID II; and (ii) eligible for distribution through all distribution channels as are permitted by MiFID II (the "Target Market Assessment"). Notwithstanding the Target Market Assessment, distributors should note that: the price of the Placing Shares may decline and investors could lose all or part of their investment; the Placing Shares offer no guaranteed income and no capital protection; and an investment in Placing Shares is compatible only with investors who do not need a guaranteed income or capital protection, who (either alone or in conjunction with an appropriate financial or other adviser) are capable of evaluating the merits and risks of such an investment and who have sufficient resources to be able to bear any losses that may result therefrom. The Target Market Assessment is without prejudice to the requirements of any contractual, legal or regulatory selling restrictions in relation to the Issue. Furthermore, it is noted that, notwithstanding the Target Market Assessment, the Joint Global Coordinators will only procure investors who meet the criteria of professional clients and eligible counterparties.

For the avoidance of doubt, the Target Market Assessment does not constitute: (a) an assessment of suitability or appropriateness for the purposes of MiFID II; or (b) a recommendation to any investor or group of investors to invest in, or purchase, or take any other action whatsoever with respect to the Placing Shares.

Each distributor is responsible for undertaking its own target market assessment in respect of the Placing Shares and determining appropriate distribution channels.

Details of the Placing Agreement and of the Placing Shares

The Company has today entered into an agreement (the "Placing Agreement") with Barclays and Numis, who are each acting as global coordinators and bookrunners (the "Joint Global Coordinators"), under which, subject to the conditions set out therein, each of the Joint Global Coordinators has agreed, as agent for and on behalf of the Company, to use its reasonable endeavours to procure Placees for the Placing Shares at a price to be determined following completion of the Bookbuild (as described in this Announcement and defined below).

Each of the Joint Global Coordinators has severally (and not jointly or jointly and severally) agreed with the Company, to the extent that Placees are not procured, to take up the Placing Shares at a certain price, or in the event of any default by any Placee in paying the Placing Price (as defined below) in respect of any Placing Shares allotted to it, to take up such Placing Shares themselves at the Placing Price in each case in the agreed proportions as set out in the Placing Agreement.

The Placing Shares will, when issued, be credited as fully paid and will rank pari passu in all respects with the existing ordinary shares in the Company, including the right to receive all dividends and other distributions declared, made or paid in respect of such ordinary shares after the date of issue of the Placing Shares.

The issue of the Placing Shares is to be effected by way of a cash box placing. The Company will allot the Placing Shares to Placees in consideration for the transfer to the Company by Barclays of certain shares in a Jersey incorporated subsidiary of the Company, certain of which shares in the Jersey company Barclays shall be obliged to subscribe for using the proceeds of the Placing (net of any agreed commission and expenses).

Applications for listing and admission to trading

Applications will be made to the Financial Conduct Authority (the "FCA") for admission of the Placing Shares to listing on the premium listing segment of the Official List of the FCA (the "Official List") and to the London Stock Exchange plc ("London Stock Exchange") for admission of the Placing Shares to trading on its main market for listed securities (together, "Admission").

It is expected that Admission will become effective on or around 8.00 a.m. on 18 March 2019 and that dealings in the Placing Shares will commence at that time.

Bookbuild

The Joint Global Coordinators will today commence the bookbuilding process in respect of the Placing (the "Bookbuild") to determine demand for participation in the Placing by Placees. This Appendix gives details of the terms and conditions of, and the mechanics of participation in, the Placing. No commissions will be paid to Placees or by Placees in respect of any Placing Shares.

The Joint Global Coordinators and the Company shall be entitled to effect the Placing by such alternative method to the Bookbuild as they may, in their sole discretion, determine.

Participation in, and principal terms of, the Placing

Barclays and Numis are arranging the Placing and acting as Joint Global Coordinators and agents of the Company in connection with the Placing.

1.    Participation in the Placing will only be available to persons who may lawfully be, and are, invited to participate by the Joint Global Coordinators. The Joint Global Coordinators' agents and their respective affiliates are each entitled to enter bids in the Bookbuild as principal.

2.    The Bookbuild will establish a single price per Placing Share payable to the Joint Global Coordinators by all Placees whose bids are successful (the "Placing Price"). The final number of Placing Shares and the Placing Price will be agreed between the Joint Global Coordinators and the Company following completion of the Bookbuild. Any discount to the market price of the existing ordinary shares of the Company will be determined in accordance with the FCA's Listing Rules. The Placing Price and the number of Placing Shares will be announced on an FCA-listed regulatory information service (a "Regulatory Information Service") following the completion of the Bookbuild (the "Pricing Announcement").

3.    To bid in the Bookbuild, Placees should communicate their bid by telephone or in writing (including via Bloomberg chat or email) to their usual sales contact at either of the Joint Global Coordinators. Each bid should state the number of Placing Shares which the prospective Placee wishes to acquire at either the Placing Price which is ultimately established by the Company and the Joint Global Coordinators or at prices up to a price limit specified in its bid. Bids may be scaled down by the Joint Global Coordinators on the basis referred to in paragraph 9 below. Each of the Joint Global Coordinators is arranging the Placing severally (and not jointly, or jointly and severally), each as agent of the Company.

4.    The Bookbuild is expected to close no later than 5.00 p.m. (London time) today, 14 March 2019, but may be closed earlier or later at the absolute discretion of the Joint Global Coordinators. The Joint Global Coordinators may, in agreement with the Company, accept bids that are received after the Bookbuild has closed.  The Company reserves the right (upon the agreement of the Joint Global Coordinators) to reduce the amount to be raised pursuant to the Placing. The total number of shares to be issued pursuant to the Placing shall not exceed 9.99% of the Company's existing issued ordinary share capital.

5.    Each prospective Placee's allocation will be determined following agreement between the Joint Global Coordinators and the Company and will be confirmed orally by one of the Joint Global Coordinators as agent of the Company following the close of the Bookbuild. That oral confirmation will constitute an irrevocable legally binding commitment upon that person in favour of the relevant Joint Global Coordinator (who will at that point become a Placee) to acquire the number of Placing Shares allocated to it at the Placing Price on the terms and conditions set out in this Appendix and in accordance with the Company's articles of association and each Placee will be deemed to have read and understood this Announcement (including this Appendix) in its entirety.

6.    Each prospective Placee's allocation and commitment will be evidenced by a contract note issued to such Placee by one of the Joint Global Coordinators. The terms of this Appendix will be deemed incorporated by reference therein.

7.    A bid in the Bookbuild will be made on the terms and subject to the conditions in this Announcement (including this Appendix) and will be legally binding on the Placee on behalf of which it is made and, except with the consent of the Joint Global Coordinators, will not be capable of variation or revocation after the time at which it is submitted. Each Placee will also have an immediate, separate, irrevocable and binding obligation, owed to the relevant Joint Global Coordinator, to pay as principal to the relevant Joint Global Coordinator (or as it may direct) in cleared funds immediately on the settlement date an amount equal to the product of the Placing Price and the number of Placing Shares such Placee has agreed to acquire and the Company has agreed to allot and issue to that Placee.

8.    Subject to paragraphs 4 and 5 above, the Joint Global Coordinators may choose to accept bids, either in whole or in part, on the basis of allocations determined in agreement with the Company and may scale down any bids for this purpose on such basis as they may determine. The Joint Global Coordinators may also, notwithstanding paragraphs 4 and 5 above, (i) allocate Placing Shares after the time of any initial allocation to any person submitting a bid after that time; and (ii) allocate Placing Shares after the Bookbuild has closed to any person submitting a bid after that time.

9.    Except as required by law or regulation, no press release or other announcement will be made by the Joint Global Coordinators or the Company using the name of any Placee (or its agent), in its capacity as Placee (or agent), other than with such Placee's prior written consent.

10.  Irrespective of the time at which a Placee's allocation pursuant to the Placing is confirmed, settlement for all Placing Shares to be acquired pursuant to the Placing will be required to be made at the same time, on the basis explained below under "Registration and Settlement".

11.  All obligations under the Bookbuild and Placing will be subject to fulfilment or (where applicable) waiver of the conditions referred to below under "Conditions of the Placing" and to the Placing not being terminated on the basis referred to below under "Right to terminate under the Placing Agreement".

12.  By participating in the Bookbuild, each Placee will agree that its rights and obligations in respect of the Placing will terminate only in the circumstances described below and will not be capable of rescission or termination by the Placee.

13.  To the fullest extent permissible by law, neither of the Joint Global Coordinators nor any of their respective affiliates, nor any of their or their respective affiliates' agents, directors, officers or employees shall have any liability to Placees (or to any other person whether acting on behalf of a Placee or otherwise). In particular, neither of the Joint Global Coordinators nor any of their respective affiliates, agents, directors, officers or employees shall have any liability (including to the extent permissible by law, any fiduciary duties) to Placees (or to any person whether acting on behalf of a Placee or otherwise) in respect of the Joint Global Coordinators' conduct of the Bookbuild or of such alternative method of effecting the Placing as the Joint Global Coordinators and the Company may agree.

Conditions of the Placing

The obligations of the Joint Global Coordinators under the Placing Agreement in respect of the Placing Shares are conditional on, inter alia:

a)    certain publication of announcement obligations;

b)    the warranties in the Placing Agreement being true and accurate and not misleading on and as of the date of the Placing Agreement and at all times prior to Admission by reference to the facts and circumstances then subsisting;

c)    fulfilment by the Company of its obligations under the Placing Agreement;

d)    allotment of the Placing Shares, subject only to Admission;

e)    no material adverse change in respect of the Company having occurred;

f)     the obligations of the Joint Global Coordinators under the Placing Agreement not having been terminated prior to Admission; and

g)    Admission occurring by 8.00am on 18 March 2019 (or such later time and date as the Joint Global Coordinators and the Company may agree).

The Joint Global Coordinators have a discretion to waive compliance with the conditions (where capable of waiver) and/or agree an extension in time for their satisfaction.

If (i) any of the conditions contained in the Placing Agreement, including those described above, are not fulfilled (or, where permitted, waived or extended in writing by the Joint Global Coordinators) or become incapable of fulfilment on or before the date or time specified for the fulfilment thereof (or such later date and/or time as the Joint Global Coordinators and the Company may agree); or (ii) the Placing Agreement is terminated in the circumstances specified below, the Placing will not proceed and the Placees' rights and obligations hereunder in relation to the Placing Shares shall cease and terminate at such time and each Placee agrees that no claim can be made by the Placee in respect thereof.

The Joint Global Coordinators may, at their discretion and upon such terms as they think fit, waive compliance by the Company with the whole or any part of any of the Company's obligations in relation to the conditions in the Placing Agreement, save that conditions (a), (d) and (g) above may not be waived. Any such extension or waiver will not affect Placees' commitments as set out in this Announcement (including this Appendix).

Neither the Joint Global Coordinators nor the Company shall have any liability to any Placee (or to any other person whether acting on behalf of a Placee or otherwise) in respect of any decision they may make as to whether or not to waive or to extend the time and/or the date for the satisfaction of any condition to the Placing nor for any decision they may make as to the satisfaction of any condition or in respect of the Placing generally, and by participating in the Placing each Placee agrees that any such decision is within the absolute discretion of the Joint Global Coordinators.

Lock-up

The Company has undertaken that it will not at any time between the date of the Placing Agreement and the date which is 180 calendar days from the date of Admission without the prior written consent of the Joint Global Coordinators, (i) issue, allot, offer, pledge, sell, contract to sell, grant any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any ordinary shares or other shares in the capital of the Company or any securities convertible into or exchangeable for ordinary shares or other shares in the capital of the Company; or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of ordinary shares or other shares in the capital of the Company, whether any such transaction described in (i) or (ii) above is to be settled by delivery of ordinary shares or other shares in the capital of the Company or such other securities, in cash or otherwise, provided that the foregoing shall not prevent or restrict the issue of shares or other securities in connection with the Placing, the Debt Offering or as a result of the conversion of the Restricted Trier 1 Bonds issued pursuant to the Debt Offering; the issue of shares on the exercise or conversion of any outstanding securities previously disclosed; the grant of options under, or the allotment and issue of shares pursuant to options under, any existing employee share schemes of the Company previously disclosed; or the issue of shares the Company is required to issue pursuant to the implementation of an offer made to the shareholders of the Company in accordance with the Takeover Code and which has become unconditional.

Right to terminate under the Placing Agreement

At any time before Admission, the Joint Global Coordinators are entitled to terminate the Placing Agreement in the following circumstances, amongst others: (i) if any of the Company's warranties or representations are not or cease to be true and accurate or have become misleading; or (ii) if any of the conditions have not been satisfied or waived by the Joint Global Coordinators by the date specified therein; or (iii) if the Company's applications to the FCA and the London Stock Exchange, respectively, are refused by the FCA or the London Stock Exchange (as appropriate); or (iv) if the Company has failed to comply with any of its obligations under the Placing Agreement; or (v) if there has occurred any material adverse change in any major financial market in the United States, the United Kingdom or any member of the European Economic Area or in other international financial markets which make it impracticable or inadvisable to proceed with the Placing; or (vi) if trading in the ordinary shares of the Company is suspended or limited by the London Stock Exchange; or (vii) if a banking moratorium has been declared; or (viii) if there is a change or development in tax materially affecting the Ordinary Shares or the transfer thereof or exchange controls having been imposed by the United States  the United Kingdom or any other member of the EEA.

Upon such notice being given, the parties to the Placing Agreement shall be released and discharged (except for any liability arising before or in relation to such termination) from their respective obligations under or pursuant to the Placing Agreement, subject to certain exceptions.

By participating in the Placing, Placees agree that the exercise by either of the Joint Global Coordinators of any right of termination or other discretion under the Placing Agreement shall be within the absolute discretion of the Joint Global Coordinators, and that it need not make any reference to Placees and that the Joint Global Coordinators and the Company (or its directors, officers or employees) shall have no liability to Placees whatsoever in connection with any such exercise or failure so to exercise.

No prospectus

No offering document or prospectus or admission document has been or will be published or submitted to be approved by the FCA in relation to the Placing and Placees' commitments will be made solely on the basis of their own assessment of the Company, the Placing Shares and the Placing based on the Company's publicly available information taken together with the information contained in this Announcement (including this Appendix) released by the Company today and any information publicly announced to a Regulatory Information Service by or on behalf of the Company on or prior to the date of this Announcement, and subject to the further terms set forth in the contract note to be provided to individual prospective Placees. Each Placee, by accepting a participation in the Placing, agrees that the content of this Announcement (including this Appendix) is exclusively the responsibility of the Company and confirms that it has neither received nor relied on any other information, representation, warranty or statement made by or on behalf of the Company, the Joint Global Coordinators or any other person and neither of the Joint Global Coordinators or the Company nor any of their respective affiliates will be liable for any Placee's decision to participate in the Placing based on any other information, representation, warranty or statement which the Placees may have obtained or received. Each Placee acknowledges and agrees that it has relied on its own investigation of the business, financial or other position of the Company in accepting a participation in the Placing. Each Placee should not consider any information in this Announcement to be legal, tax or business advice. Each Placee should consult its own attorney, tax adviser and business advisor for legal, tax and business advice regarding an investment in the Placing Shares. Nothing in this paragraph shall exclude the liability of any person for fraudulent misrepresentation by that person.

Registration and settlement

Settlement of transactions in the Placing Shares (ISIN: GB00BCRX1J15) following Admission will take place within the CREST system, subject to certain exceptions. The Company and the Joint Global Coordinators reserve the right to require settlement for and delivery of the Placing Shares (or a portion thereof) to Placees by such other means that they deem necessary, including in certificated form, if in the Joint Global Coordinators' reasonable opinion delivery or settlement is not possible or practicable within the CREST system within the timetable set out in this Announcement or would not be consistent with the regulatory requirements in the Placee's jurisdiction.

Following the close of the Bookbuild for the Placing, each Placee allocated Placing Shares in the Placing will be sent a contract note or electronic confirmation in accordance with the standing arrangements in place with Barclays or Numis (as applicable) stating the number of Placing Shares to be allocated to it at the Placing Price, the aggregate amount owed by such Placee to Barclays or Numis (as applicable) and settlement instructions. Each Placee agrees that it will do all things necessary to ensure that delivery and payment is completed in accordance with the standing CREST or certificated settlement instructions that it has in place with the Joint Global Coordinators.

The Company will deliver the Placing Shares to a CREST account operated by Barclays as agent for and on behalf of the Company and will enter its delivery (DEL) instruction into the CREST system. Barclays will hold any Placing Shares delivered to this account as nominee for the Placees. The input to CREST by a Placee of a matching or acceptance instruction will then allow delivery of the relevant Placing Shares to that Placee against payment.

It is expected that settlement will be on 18 March 2019 on a T+2 basis in accordance with the instructions set out in the contract note.

Interest is chargeable daily on payments not received from Placees on the due date in accordance with the arrangements set out above at the rate of two percentage points above LIBOR as determined by the Joint Global Coordinators.

Each Placee is deemed to agree that, if it does not comply with these obligations, the Joint Global Coordinators may sell any or all of the Placing Shares allocated to that Placee on such Placee's behalf and retain from the proceeds, for the account and benefit of the Joint Global Coordinators, an amount equal to the aggregate amount owed by the Placee plus any interest due. The relevant Placee will, however, remain liable for any shortfall below the aggregate amount owed by it and may be required to bear any stamp duty or stamp duty reserve tax or other stamp, securities, transfer, registration, execution, documentary or other similar impost, duty or tax (together with any interest or penalties thereon or other similar taxes imposed in any jurisdiction) which may arise upon the sale of such Placing Shares on such Placee's behalf. By communicating a bid for Placing Shares, each Placee confers on Barclays or Numis (as applicable) all such authorities and powers necessary to carry out any such transaction and agrees to ratify and confirm all actions which Barclays or Numis (as applicable) lawfully takes on such Placee's behalf.

If Placing Shares are to be delivered to a custodian or settlement agent, Placees should ensure that the contract note or electronic trade confirmation (as applicable) is copied and delivered immediately to the relevant person within that organisation.

Insofar as Placing Shares are registered in a Placee's name or that of its nominee or in the name of any person for whom a Placee is contracting as agent or that of a nominee for such person, such Placing Shares should, subject as provided below, be so registered free from any liability to UK stamp duty or stamp duty reserve tax. If there are any other circumstances in which any stamp duty or stamp duty reserve tax (including any interest and penalties relating thereto) is payable in respect of the allocation, allotment, issue or delivery of the Placing Shares (or for the avoidance of doubt if any stamp duty or stamp duty reserve tax is payable in connection with any subsequent transfer of or agreement to transfer Placing Shares), neither of the Joint Global Coordinators nor the Company shall be responsible for the payment thereof.  Placees (or any nominee or other agent acting on behalf of a Placee) will not be entitled to receive any fee or commission in connection with the Placing.

Representations and warranties

By submitting a bid and/or participating in the Placing, each prospective Placee (and any person acting on such Placee's behalf) irrevocably acknowledges, confirms, undertakes, represents, warrants and agrees (as the case may be) with each Joint Global Coordinator (in its capacity as a global coordinator, bookrunner and agent of the Company, in each case as a fundamental term of its application for Placing Shares) that:

1.    it has read and understood this Announcement (including this Appendix) in its entirety and that its participation in the Bookbuild and the Placing and its acquisition of Placing Shares is subject to and based upon all the terms, conditions, representations, warranties, indemnities, acknowledgements, agreements and undertakings and other information contained herein;

2.    no offering document or prospectus or admission document has been prepared in connection with the Placing and it has not received a prospectus, admission document or other offering document in connection with the Bookbuild, the Placing or the Placing Shares;

3.    if it has received any "inside information" as defined in the EU Market Abuse Regulation ("MAR") about the Company in advance of the Placing, it has not: (a) dealt in the securities of the Company; (b) encouraged or required another person to deal in the securities of the Company; or (c) disclosed such information to any person, prior to the information being made publicly available;

4.    it has the power and authority to carry on the activities in which it is engaged, to acquire Placing Shares and to execute and deliver all documents necessary for such acquisition;

5.    neither of the Joint Global Coordinators nor the Company nor any of their respective affiliates, agents, directors, officers or employees nor any person acting on behalf of any of them has provided, and none of them will provide it, with any material regarding the Placing Shares or the Company other than information included in this Announcement (including this Appendix), nor has it requested either of the Joint Global Coordinators, the Company or any of their respective affiliates or any person acting on behalf of any of them to provide it with any such information;

6.    (i) it has made its own assessment of the Company, the Placing Shares and the terms of the Placing based on this Announcement (including this Appendix) and any information publicly announced to a Regulatory Information Service by or on behalf of the Company prior to the date of this Announcement (the "Publicly Available Information"); (ii) the Company's ordinary shares are listed on the premium listing segment of the Official List and the Company is therefore required to publish certain business and financial information in accordance with the rules and practices of the London Stock Exchange and relevant regulatory authorities (the "Exchange Information"), which includes a description of the nature of the Company's business, most recent balance sheet and profit and loss account, and similar statements for preceding years, and it has reviewed such Exchange Information as it has deemed necessary or that it is able to obtain or access the Exchange Information without undue difficulty; and (iii) it has had access to such financial and other information (including the business, financial condition, prospects, creditworthiness, status and affairs of the Company, the Placing and the Placing Shares, as well as the opportunity to ask questions) concerning the Company, the Placing and the Placing Shares as it has deemed necessary in connection with its own investment decision to acquire any of the Placing Shares and has satisfied itself that the information is still current and relied on that investigation for the purposes of its decision to participate in the Placing;

7.    (i) none of the Company, the Joint Global Coordinators or any of their respective affiliates has made any representations to it, express or implied, with respect to the Company, the Placing and the Placing Shares or the accuracy, completeness or adequacy of the Publicly Available Information or the Exchange Information, and each of them expressly disclaims any liability in respect thereof; and (ii) it will not hold the Joint Global Coordinators or any of their respective affiliates responsible for any misstatements in or omissions from any Publicly Available Information or any Exchange Information. Nothing in this paragraph or otherwise in this Announcement (including this Appendix) excludes the liability of any person for fraudulent misrepresentation made by that person;

8.    the content of this Announcement (including this Appendix) and the Publicly Available Information has been prepared by and is exclusively the responsibility of the Company and that neither of the Joint Global Coordinators nor any of their respective affiliates, agents, directors, officers or employees nor any person acting on their behalf has or shall have any liability for any information, representation or statement contained in this Announcement (including this Appendix) or any information previously published by or on behalf of the Company and will not be liable for any Placee's decision to participate in the Placing based on any information, representation or statement contained in this Announcement or otherwise. Each Placee further represents, warrants and agrees that the only information on which it is entitled to rely and on which such Placee has relied in committing itself to acquire the Placing Shares is contained in this Announcement (including this Appendix) and any Publicly Available Information including (without limitation) the Exchange Information, such information being all that it deems necessary to make an investment decision in respect of the Placing Shares and that it has neither received nor relied on any other information given, investigation made or representations, warranties or statements made by either of the Joint Global Coordinators or the Company nor any of their respective affiliates, agents, directors, officers or employees nor any person acting on its or their behalf and neither of the Joint Global Coordinators nor the Company nor any of their respective affiliates, agents, directors, officers or employees will be liable for any Placee's decision to accept an invitation to participate in the Placing based on any other information, representation, warranty or statement;

9.    in making any decision to acquire the Placing Shares, it has knowledge and experience in financial, business and international investment matters as is required to evaluate the merits and risks of taking up the Placing Shares. It further confirms that it is experienced in investing in securities of this nature in this sector and is aware that it may be required to bear, and is able to bear, the economic risk of participating in, and is able to sustain a complete loss in connection with, the Placing. It further confirms that it relied on its own examination and due diligence of the Company and its associates taken as a whole, and the terms of the Placing, including the merits and risks involved, and not upon any view expressed or information provided by or on behalf of either of the Joint Global Coordinators;

10.  it and each account it represents is not and at the time the Placing Shares are acquired will not, other than as set out in paragraphs 14, 25, 27 and 28 below, be a resident of Australia, Canada, Japan, Hong Kong, New Zealand, Singapore, South Africa or any other jurisdiction in which it is unlawful to make or accept an offer to acquire the Placing Shares;

11.  the Placing Shares are being offered and sold on behalf of the Company (i) outside the United States in offshore transactions (as defined in Regulation S under the Securities Act) pursuant to Regulation S under the Securities Act and (ii) in the United States solely to QIBs (as defined in Rule 144A under the Securities Act) in reliance upon Rule 144A under the Securities Act or another exemption from, or transaction not subject to, the registration requirements under the Securities Act. It and the prospective beneficial owner of the Placing Shares is, and at the time the Placing Shares are subscribed for will be either: (i) outside the United States and subscribing for the Placing Shares in an "offshore transaction" as defined in, and in accordance with, Regulation S under the Securities Act or (ii) a QIB which has duly executed a US investor letter in a form provided to it and delivered the same to one of the Joint Global Coordinators or its affiliates. In addition, it has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Placing Shares, will not look to the Joint Global Coordinators for all or part of any such loss it may suffer, is able to bear the economic risk of an investment in the Placing Shares, is able to sustain a complete loss of the investment in the Placing Shares, has relied upon its own examination and due diligence of the Company and its affiliates taken as a whole, and the terms of the Placing (including the merits and risks involved) and has no need for liquidity with respect to its investment in the Placing Shares and, with respect to (iii) above, it is subscribing for the Placing Shares for its own account or for one or more accounts as to each of which it exercises sole investment discretion and each of which is a QIB, for investment purposes only and not with a view to any distribution or for resale in connection with the distribution thereof in whole or in part, in the United States; and it has full power to make the acknowledgements, representations and agreements herein on behalf of each such account. The Placing Shares have not been and will not be registered or qualified for offer or sale nor will a prospectus be cleared or approved in respect of any of the Placing Shares under the securities laws or legislation of the United States, Australia, New Zealand, Canada, Japan, or South Africa and, subject to certain exceptions, may not be offered, sold, resold, delivered, pledged or transferred, directly or indirectly, within those jurisdictions;

12.  it understands, and each account it represents has been advised that, (i) the Placing Shares have not been and will not be registered under the Securities Act or under the applicable securities laws of any state or other jurisdiction of the United States; (ii) the Placing Shares are being offered and sold only (a) to persons reasonably believed to be QIBs in transactions exempt from, the registration requirements of the Securities Act or (b) in "offshore transactions" within the meaning of and pursuant to Regulation S under the Securities Act; and (iii) no representation has been made as to the availability of any exemption under the Securities Act or any relevant state or other jurisdiction's securities laws for the reoffer, resale, pledge or transfer of the Placing Shares;

13.  it will not distribute, forward, transfer or otherwise transmit this document or any other materials concerning the Placing (including any electronic copies thereof), in or into the United States;

14.  if in Australia, that it is (i) a "sophisticated investor" within the meaning of section 708(8) of the Australian Corporations Act 2001 (Cth) (the "Corporations Act") or a "professional investor" within the meaning of section 9 and section 708(11) of the Corporations Act, and (ii) a "wholesale client" as defined in section 761G(7) of the Corporations Act, and the issue of the Placing Shares to it does not require a prospectus or other form of disclosure document under the Corporations Act;

15.  if it is a pension fund or investment company, its acquisition of Placing Shares is in full compliance with applicable laws and regulations;

16.  neither it, nor the person specified by it for registration as holder of Placing Shares is, or is acting as nominee or agent for, and the Placing Shares will not be allotted to, a person who is or may be liable to stamp duty or stamp duty reserve tax under any of sections 67, 70, 93 and 96 of the Finance Act of 1986 (depositary receipts and clearance services) and (ii) the Placing Shares are not being acquired in connection with arrangements to issue depositary receipts or to issue or transfer Placing Shares into a clearance system;

17.  it has complied with its obligations in connection with money laundering and terrorist financing under the Proceeds of Crime Act 2002, the Criminal Justice Act 1993, the Terrorism Act 2000, the Terrorism Act 2006 and the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 and any related or similar rules, regulations or guidelines issued, administered or enforced by any government agency having jurisdiction in respect thereof (together the "Regulations") and, if making payment on behalf of a third party, that satisfactory evidence has been obtained and recorded by it to verify the identity of the third party as required by the Regulations;

18.  if a financial intermediary, as that term is used in Article 3(2) of the Prospectus Directive, the Placing Shares acquired by it in the Placing will not be acquired on a non-discretionary basis on behalf of, nor will they be acquired with a view to their offer or resale to, persons in a member state of the EEA other than to Qualified Investors, or in circumstances in which the prior consent of the Joint Global Coordinators has been given to the proposed offer or resale;

19.  it and any person acting on its behalf falls within Article 19(5) and/or 49(2)(a) to (d) of the Order and undertakes that it will acquire, hold, manage and (if applicable) dispose of any Placing Shares that are allocated to it for the purposes of its business only;

20.  it has not offered or sold and will not offer or sell any Placing Shares to the public in any member state of the EEA except in circumstances falling within Article 3(2) of the Prospectus Directive which do not result in any requirement for the publication of a prospectus pursuant to Article 3 of that Directive;

21.  it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) relating to the Placing Shares in circumstances in which section 21(1) of FSMA does not require approval of the communication by an authorised person;

22.  it has complied and will comply with all applicable provisions of FSMA with respect to anything done by it in relation to the Placing Shares in, from or otherwise involving, the United Kingdom;

23.  it is a professional client and/or eligible counterparty, each as defined in MiFID II;

24.  if in a member state of the EEA, it is a "qualified investor" within the meaning of the Prospectus Directive;

25.  if in Canada, it is an "accredited investor" as such term is defined in section 1.1 of National Instrument 45-106 Prospectus Exemptions or, in Ontario, as such term is defined in section 73.3(1) of the Securities Act (Ontario); and (iii) is a "permitted client" as such term is defined in section 1.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations;

26.  if in the UK, that it is a person (i) who has professional experience in matters relating to investments falling within Article 19(5) of the Order, (ii) falling within Article 49(2)(A) to (D) ("High Net Worth Companies, Unincorporated Associations, etc") of the Order, or (iii) to whom this Announcement may otherwise be lawfully communicated;

27.  if in Singapore, it is either (i) an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the "SFA"), or (ii) a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA;

28.  if in Hong Kong, it is a "professional investor" as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance;

29.  that no action has been or will be taken by either the Company or either of the Joint Global Coordinators or any person acting on behalf of the Company or either of the Joint Global Coordinators that would, or is intended to, permit a public offer of the Placing Shares in any country or jurisdiction where any such action for that purpose is required;

30.  it is acting as principal only in respect of the Placing or, if it is acting for any other person: (i) it is duly authorised to do so and has full power to make the acknowledgments, representations and agreements herein on behalf of each such person; and (ii) it is and will remain liable to the Company and/or the Joint Global Coordinators for the performance of all its obligations as a Placee in respect of the Placing (regardless of the fact that it is acting for another person). Each Placee agrees that the provisions of this paragraph 28 shall survive the resale of the Placing Shares by or on behalf of any person for whom it is acting;

31.  (i) it and any person acting on its behalf is entitled to acquire the Placing Shares under the laws of all relevant jurisdictions which apply to it, (ii) it has paid any issue, transfer or other taxes due in connection with its participation in any territory, (iii) it has not taken any action which will or may result in the Company, the Joint Global Coordinators, any of their affiliates or any person acting on their behalf being in breach of the legal and/or regulatory requirements of any territory in connection with the Placing, (iv) that the acquisition of the Placing Shares by it or any person acting on its behalf will be in compliance with applicable laws and regulations in the jurisdiction of its residence, the residence of the Company, or otherwise, and (v) it has all necessary capacity and has obtained all necessary consents and authorities to enable it to commit to this participation in the Placing and to perform its obligations in relation thereto (including, without limitation, in the case of any person on whose behalf it is acting, all necessary consents and authorities to agree to the terms set out or referred to in this Announcement (including this Appendix)) and will honour such obligations;

32.  it (and any person acting on its behalf) will make payment for the Placing Shares allocated to it in accordance with the terms and conditions of this Announcement (including this Appendix) on the due time and date set out herein, failing which the relevant Placing Shares may be placed with other persons or sold as the Joint Global Coordinators may in their discretion determine and it will remain liable for any amount by which the net proceeds of such sale falls short of the product of the Placing Price and the number of Placing Shares allocated to it and may be required to bear any stamp duty for stamp duty reserve tax (together with any interest or penalties due pursuant to the terms set out or referred to in this Announcement) which may arise upon the sale of such Placee's Placing Shares on its behalf;

33.  its allocation (if any) of Placing Shares will represent a maximum number of Placing Shares which it will be entitled, and required, to acquire, and that the Joint Global Coordinators may call upon it to acquire a lower number of Placing Shares (if any), but in no event in aggregate more than the aforementioned maximum;

34.  neither of the Joint Global Coordinators, nor any of their respective affiliates, agents, directors, officers or employees, nor any person acting on behalf of any of them, is making any recommendations to it or advising it regarding the suitability of any transactions it may enter into in connection with the Placing and participation in the Placing is on the basis that it is not and will not be a client of either of the Joint Global Coordinators and the Joint Global Coordinators have no duties or responsibilities to it for providing the protections afforded to their respective clients or customers or for providing advice in relation to the Placing nor in respect of any representations, warranties, undertakings or indemnities contained in the Placing Agreement nor for the exercise or performance of any of their respective rights and obligations thereunder including any rights to waive or vary any conditions or exercise any termination right;

35.  the person whom it specifies for registration as holder of the Placing Shares will be (i) itself; or (ii) its nominee, as the case may be. Neither of the Joint Global Coordinators nor the Company will be responsible for any liability to stamp duty or stamp duty reserve tax or other similar taxes resulting from a failure to observe this requirement. Each Placee and any person acting on behalf of such Placee agrees to participate in the Placing and it agrees to indemnify on an after-tax basis and hold harmless the Company, each of the Joint Global Coordinators and their respective affiliates, agents, directors, officers and employees in respect of the same on the basis that the Placing Shares will be allotted to the CREST stock account of Numis who will hold them as nominee on behalf of such Placee until settlement in accordance with its standing settlement instructions;

36.  it indemnifies and holds harmless the Company, the Joint Global Coordinators and their respective affiliates, agents, directors, officers and employees from any and all costs, claims, liabilities and expenses (including legal fees and expenses) arising out of or in connection with any breach of the representations, warranties, acknowledgements, agreements and undertakings in this Appendix and further agrees that the provisions of this Appendix shall survive after completion of the Placing;

37.  in connection with the Placing, a Joint Global Coordinator and any of its affiliates acting as an investor for its own account may acquire Placing Shares in the Company and in that capacity may acquire, retain, purchase or sell for its own account such ordinary shares in the Company and any securities of the Company or related investments and may offer or sell such securities or other investments otherwise than in connection with the Placing. Neither of the Joint Global Coordinators intends to disclose the extent of any such investment or transactions otherwise than in accordance with any legal or regulatory obligation to do so. In addition, in the event that the Joint Global Coordinators acquire Placing Shares in the Placing, the Joint Global Coordinators may co-ordinate disposals of such shares in accordance with applicable law and regulation. Except as required by applicable law or regulation, the Joint Bookrunners and their respective affiliates do not propose to make any public disclosure in relation to such transactions;

38.  its commitment to acquire Placing Shares on the terms set out in this Announcement (including this Appendix) will continue notwithstanding any amendment that may or in the future be made to the terms and conditions of the Placing and that Placees will have no right to be consulted or require that their consent be obtained with respect to the Company's or the Joint Global Coordinators' conduct of the Placing;

39.  neither the Company nor either of the Joint Global Coordinators owes any fiduciary or other duties to any Placee in respect of any representations, warranties, undertakings or indemnities in the Placing Agreement;

40.  its commitment to acquire Placing Shares on the terms set out herein and in the contract note will continue notwithstanding any amendment that may in future be made to the terms of the Placing and Placees will have no right to be consulted or require that their consent be obtained with respect to the Company's or the Joint Global Coordinators' conduct of the Placing;

41.  these terms and conditions and any agreements entered into by it pursuant to these terms and conditions (including any non-contractual obligations arising out of or in connection with such agreements) shall be governed by and construed in accordance with the laws of England and it submits (on behalf of itself and on behalf of any person on whose behalf it is acting) to the exclusive jurisdiction of the English courts as regards any claim, dispute or matter arising out of any such contract, except that enforcement proceedings in respect of the obligation to make payment for the Placing Shares (together with any interest chargeable thereon) may be taken by the Joint Global Coordinators in any jurisdiction in which the relevant Placee is incorporated or in which any of its securities have a quotation on a recognised stock exchange; and

42.  the foregoing acknowledgements, agreements, undertakings, representations, warranties and confirmations are given for the benefit of each of the Company and the Joint Global Coordinators (for their own benefit and, where relevant, the benefit of their respective affiliates and any person acting on their behalf) and are irrevocable. The Company, the Joint Global Coordinators and their respective affiliates, agents, directors, officers and employees and others will rely upon the truth and accuracy of the foregoing acknowledgements, representations, warranties and agreements and it agrees that if any of the acknowledgements, representations, warranties and agreements made in connection with its acquiring of Placing Shares is no longer accurate, it shall promptly notify the Company and the Joint Global Coordinators. It irrevocably authorises Barclays, Numis and the Company to produce this Announcement pursuant to, in connection with, or as may be required by any applicable law or regulation, administrative or legal proceeding or official inquiry with respect to the matters set out herein.

The agreement to allot and issue Placing Shares to Placees (or the persons for whom Placees are contracting as nominee or agent) free of stamp duty and stamp duty reserve tax relates only to their allotment and issue to Placees, or such persons as they nominate as their agents, direct from the Company for the Placing Shares in question. Such agreement is subject to the representations, warranties and further terms above and assumes, and is based on the warranty from each Placee, that the Placing Shares are not being acquired in connection with arrangements to issue depositary receipts or to issue or transfer the Placing Shares into a clearance service. If there are any such arrangements, or the settlement relates to any other dealing in the Placing Shares, stamp duty or stamp duty reserve tax or other similar taxes may be payable, for which neither the Company nor either of the Joint Global Coordinators will be responsible and each Placee shall indemnify on an after-tax basis and hold harmless the Company, each of the Joint Global Coordinators and their respective affiliates, agents, directors, officers and employees for any stamp duty or stamp duty reserve tax paid by them in respect of any such arrangements or dealings.

Neither the Company nor either of the Joint Global Coordinators is liable to bear any capital duty, stamp duty and all other stamp, issue, securities, transfer, registration, documentary or other duties or taxes (including any interest, fines or penalties relating thereto) payable in or outside the United Kingdom by any Placee or any other person on a Placee's acquisition of any Placing Shares or the agreement by a Placee to acquire any Placing Shares. Each Placee agrees to indemnify on an after-tax basis and hold harmless the Company, each Joint Global Coordinator and their respective affiliates, agents, directors, officers and employees from any and all interest, fines or penalties in relation to any such duties or taxes to the extent that such interest, fines or penalties arise from the unreasonable default or delay of that Placee or its agent.

Each Placee should seek its own advice as to whether any of the above tax liabilities arise and notify the Joint Global Coordinators accordingly.

Each Placee, and any person acting on behalf of each Placee, acknowledges and agrees that the Joint Global Coordinators and/or any of their respective affiliates may, at their absolute discretion, agree to become a Placee in respect of some or all of the Placing Shares.

When a Placee or person acting on behalf of the Placee is dealing with the Joint Global Coordinators any money held in an account with either of the Joint Global Coordinators on behalf of the Placee and/or any person acting on behalf of the Placee will not be treated as client money within the meaning of the rules and regulations of the FCA made under FSMA. The Placee acknowledges that the money will not be subject to the protections conferred by the client money rules; as a consequence, this money will not be segregated from the relevant Joint Global Coordinators' money in accordance with the client money rules and will be used by the relevant Joint Global Coordinator in the course of its own business; and the Placee will rank only as a general creditor of the Joint Global Coordinators.

The rights and remedies of the Banks and the Company under these Terms and Conditions are in addition to any rights and remedies which would otherwise be available to each of them and the exercise or partial exercise of one will not prevent the exercise of others.

If a Placee is a discretionary fund manager, it may be asked to disclose, in writing or orally to the Banks the jurisdiction in which the funds are managed or owned.

All times and dates in this Announcement (including this Appendix) may be subject to amendment. The Joint Global Coordinators shall notify the Placees and any person acting on behalf of the Placees of any changes.

 

 

APPENDIX B - RISK FACTORS

Any investment in the Company is subject to a number of risks.  Accordingly, prospective investors should carefully consider the risk factors set out below as well as the detailed information contained in this announcement and any other publicly available information about the Group before making a decision whether to invest in the Company.

The factors described in this Appendix B are contingencies which may or may not occur and the Company is not in a position to express a view on the likelihood of such a contingency occurring.

Any of these risk factors, individually or in the aggregate, could have an adverse effect on the Group and the impact each risk could have on the Group is set out below.

Factors which the Directors of the Company believe may be material for the purpose of assessing the market risks associated with the Placing Shares are described below.

The Directors of the Company believe that the factors described below represent the principal risks inherent in investing in the Placing Shares and the Company does not represent that the statements below regarding the risks of holding the Placing Shares are exhaustive.

1.            RISKS RELATING TO THE GROUP'S BUSINESS AND INDUSTRY

1.1          Risks associated with the Group's insurance products

The assumptions used by the Group in pricing products and establishing provisions and determining regulatory capital may not be consistent with actual experience

The Group operates in the retirement income sector providing products and services to both retail and corporate clients. In particular, it sells and underwrites products including defined benefit ("DB") de-risking solutions to corporate clients and guaranteed income for life solutions ("GIfL") (previously known as individual annuities) and lifetime mortgages ("LTMs") to retail clients. The Group also provides care products through Partnership Life Assurance Company Limited ("PLACL"), though these are not provided in material quantities as compared to the rest of the Group's business. These products create assets and liabilities for the Group that are dependent on future mortality, longevity, morbidity and withdrawal rates. For example, the Group is subject to the risk that annuity holders or pension scheme members (as applicable) live longer (or, equivalently, mortality rates decrease), compared to what was projected at the time their policies were issued, with the result that the Group must continue paying out to the annuitants or pension scheme members (as applicable) for longer than anticipated and, therefore, longer than was reflected in the price paid by the customer for the annuity or bulk purchase agreement. Conversely, increased mortality rates, compared with those projected at the time of pricing, may result in earlier redemptions of LTMs than anticipated and lead to lower returns for the Group.

To deal with the uncertainties arising out of the products it sells, the Group uses assumptions when pricing, underwriting and reserving for business. These assumptions are based on a variety of factors including market data and historical experience (including customer longevity, corporate bond yields, interest rates, property values and expenses), estimates and individual expert judgements in respect of known or potential future changes as well as statistical projections of what the Group believes will be the costs and cash flows of its assets and liabilities.

Based on the assumptions made, the Group makes decisions aimed at ensuring that cash inflows from investments (including LTMs) at least match expected cash outflows in respect of liabilities to customers (including its DB de-risking and GIfL customers). These decisions include the allocation of investments among fixed-income, lifetime mortgages and other asset classes and the setting of terms under which products may be cancelled or surrendered. However, the risks inherent in using assumptions and the nature of the risks underlying its business, as detailed in the following paragraphs, mean that it is not possible to determine precisely: (i) the amounts that the Group will ultimately be required to pay to meet its liabilities attaching to DB de-risking solutions, its GIfL solutions and other insurance products; or (ii) the return on, or the repayment of, its LTMs and other investments. Amounts actually payable to customers of the Group's products may vary from estimates, particularly as the liabilities under DB de-risking solutions, GIfL solutions and other insurance products may extend further into the future than expected, and the income and timing of cash flows from investments, including LTMs, may be different from that assumed.

As a consequence of the foregoing, the Group's results depend significantly on whether the actual timing of deaths and investment income experience are consistent with the pricing models and assumptions it has used in underwriting and setting prices for these products and also on the returns made by the Group on its investments. If actual experience is less favourable than the assumptions used by the Group or the assumptions used by the Group are wrong or need to be changed, this could have a material adverse effect on the Group's business, results of operations, financial condition and prospects. In addition, this could also lead to a need to increase reserves for policyholder liabilities and/or the level of regulatory capital that the Group is required to maintain which, if significant, may reduce the amount of cash or other assets available for other business purposes or to meet the Group's financing commitments (including the ability of the Company to pay dividends to its shareholders).

The following paragraphs summarise the risks relating to the writing of DB de-risking solutions, GIfL solutions and LTMs. These risks largely arise from a divergence between actual experience and assumptions used when pricing the products. Should any of these risks materialise, they could have a material adverse effect on the Group's business, results of operations, financial condition and prospects.

(A)         DB de-risking solutions, GIfL (excluding capped drawdown contracts ("CDCs")) solutions

The accurate pricing of the Group's products is dependent on a detailed understanding of the impact of relevant lifestyle and medical factors on the longevity of prospective customers. There are two elements to longevity assumptions for each product line: a base level of mortality derived from an analysis of historic experience (whether the Group's own experience data or market data); and assumed future mortality improvements. The assumed level of base mortality may be inaccurate to the extent that the available observed experience is not fully credible or completely relevant for pricing new business. This could lead to the application of inaccurate assumptions at the time of pricing. Assumed future mortality improvements for each product line should reflect the extent to which improvements in national, population-level longevity are likely to occur in the future, but also the degree to which the pace of improvement is likely to differ for the Group's customers given their socio-economic class profile and relevant lifestyle and medical factors. A failure to anticipate changes in future longevity relevant to the Group's specific customer base could lead to the application of inaccurate assumptions at the time of pricing the products. Inaccurate reporting of medical conditions by pricing or underwriting applications could also result in the mispricing of the Group's products.

Further, Just Retirement Limited ("JRL") entered the DB de-risking solutions market with the assistance of RGA International Reinsurance Company Limited (UK Branch) and RGA Global Reinsurance Company, Ltd. (together the "Reinsurance Group of America"), and until 2018 based its pricing and underwriting on their reinsurance terms. There is a risk that such reinsurance terms were not appropriate for the business underwritten.

These risks, by resulting in higher than anticipated payouts for a given premium, to the extent such payouts are in excess of the amounts reinsured, could have a material adverse effect on the Group's business, results of operations, financial condition and prospects.

(B)          LTMs

The Group uses its LTM assets to match some of its liabilities arising under its DB de-risking solutions, GIfL solutions and other insurance products. This matching partially hedges the general population longevity risk inherent in DB de-risking and GIfL solutions with LTMs where increasing population longevity tends to increase the potential value of mortgage assets. However, the two populations are not identical, hence the hedge is expected to be partial and there is no assurance that general population longevity risk inherent in the insurance products sold by the Group can be wholly mitigated by LTMs. This is the case because of certain assumptions used by the Group when pricing and valuing the LTM assets:  the key assumptions relating to pricing and the subsequent valuation of the LTM assets are the expected tenure of the mortgage, house price inflation and the timing of repayment (typically triggered by the death of the mortgagor or his or her move into a long-term care home). In the event that repayments under the LTMs occur earlier than anticipated, less interest will have accrued and the amount repayable to the Group under such mortgages will be less than had been assumed at the time of sale. In the event that repayments occur later, although more interest will have accrued and the amount repayable by the customers will be greater than had been assumed at the time of their sale, the cash inflows associated with the repayment of such mortgages will be received later than had originally been anticipated.

While a general increase in longevity would have the effect of increasing the total amount repayable under the relevant LTMs, it will also, all other things being equal, increase the average loan to value ("LTV") ratio of the Group's LTMs and could increase the risk of the Group not being repaid in full as a consequence of the no-negative-equity guarantees ("NNEG") that the Group provides to customers in connection with all of its LTMs. The NNEG is a contractual guarantee from the relevant Group entity that if the LTM becomes repayable due to the borrower dying or going into long-term care, the borrower will not owe more than the net sales proceeds from the property securing his or her LTM and no debt will therefore be left to his or her estate as a consequence of such mortgage. The NNEG does not limit the repayment required if the borrower voluntarily chooses to repay the LTM in circumstances other than death or going into long-term care.

The Group is exposed to lapse (or withdrawal) risk through early redemption of LTMs

LTM customers can withdraw by repaying all or part of their total outstanding mortgage early, subject (typically) to the payment of an early redemption charge. LTM lapses occur for a number of reasons including as a function of the movement in mortgage interest rates since the product was taken out, the desire and ability of the mortgagor to repay or switch provider, the level of the early repayment charge, movements in house prices, the competitiveness of other mortgage providers (also with respect to LTV) and other product alternatives in the retirement income market. If the monies repaid by customers cannot be reinvested by the Group in similarly yielding assets, a significant increase in lapses by LTM customers could have a material adverse effect on the Group's business, results of operations, financial condition and prospects.

The amounts the Group reserves for current and future administrative and other expenses when it sells its products could prove to be inadequate

The Group allocates reserves when it sells products not only for expected payments to annuitants under the Group's retirement income products, but also for current and future administrative and other expenses (including an appropriate allowance for inflation) in connection with those retirement income products. In the event that the Group fails to establish sufficient reserves to cover current and future administrative and other expenses in connection with its products, it could have a material adverse effect on the business, results of operations, financial condition and prospects of the Group.

The Group's LTMs must comply with prescriptive rules and regulations and a failure to comply with such rules and regulations, including inadvertently, could adversely affect the Group

Certain mortgage contracts, including the Group's LTMs, are regulated under the Financial Services and Markets Act 2000 ("FSMA").  Entering into and administering these agreements are regulated activities, to conduct which a person must be authorised by the FCA.  The Mortgages and Home Finance Conduct of Business Sourcebook ("MCOB"), and related rules and regulations, sets out detailed content and conduct requirements for these activities.

MCOB can be difficult to interpret and implement with absolute certainty, which means that inadvertent non-compliance with its requirements can occur. If the regulated agreements or conduct of the Group were found to be materially defective, such failure would amount to a breach of regulation and, possibly, lead to customer remediation if the breach were considered to have caused customer detriment.

In particular, early repayment charges payable under a regulated mortgage contract are subject to MCOB and consumer fairness requirements regarding their reasonableness and transparency. If a clause seeking to impose an early repayment charge breaches these requirements, a lender may be unable to rely on that clause, and may also be required to remediate customers who have been required to pay such charges in accordance with that clause in the past.

The issues described above could reduce the Group's income from operations, impact its reputation in the market and could have a material adverse effect on the Group's business, results of operations, financial condition and prospects.

1.2          Regulatory risks

The Group operates in a highly regulated sector and its operations and practices may be affected by changes in law and regulation, changes in interpretation or emphasis with respect to existing law and regulation and/or industry wide changes in approach to law and regulation and/or potential interventions by the FCA, Prudential Regulation Authority (the "PRA") and other regulators

The Group operates in the UK financial services industry which is a highly regulated sector and one which has witnessed an increase in regulatory activity, more intense regulatory supervision and significant change to the legal and regulatory framework in recent years. Changes in relevant legislation and regulation are continually being introduced, which may have a considerable effect on the Group's strategy and day-to-day operations which could, in turn, have a material adverse effect on the Group's business, results of operations, financial condition and prospects. For example, Solvency II (as defined in the Conditions, and which became effective on 1 January 2016) increased the regulatory requirements on PLACL, JRL and other members of the Group, and is described more fully in the risk factor titled "The regulatory capital regime applying to certain members of the Group is extensive and subject to change and a failure to comply with this regime could have a variety of negative regulatory and operational implications for the Group". Alternatively, a relevant regulator may reinterpret or place new emphasis on an existing piece of law or legislation.

Changes in government policy, to legislation and regulation or to the interpretation of, or approach to, enforcement of legislation and regulation (at a national and/or international level) applicable to companies operating in the pensions or financial services sectors in any of the markets in which the Group operates may occur in the future and could be applied retrospectively. Such changes may adversely affect the Group's underlying profitability, its product range, distribution channels, capital requirements and, consequently, results and financing requirements.

In particular, in order to conduct their regulated activities in the UK, JRL, PLACL and other entities within the Group must hold and maintain licences, permissions and authorisations from the PRA and the FCA. The PRA and FCA each have significant statutory powers in respect of the regulation of PLACL, JRL and the other regulated entities in the Group. While regulating these entities in the Group, the PRA and the FCA may use these statutory powers to make regulatory interventions, including through investigations, requests for data and analysis, interviews or reviews and requiring the production of skilled persons reports under section 166 of the FSMA.

In recent years, the PRA and the FCA have each adopted an approach of intensive supervision in respect of the firms operating in the life and pensions sector, including JRL and PLACL. Going forwards, the Company does not believe the incidence of regulatory intervention is likely to decrease in any material way.

The PRA and the FCA also carry out formal ''thematic reviews'' which are sector wide reviews or other informal sector wide inquiries in respect of a particular issue or a particular type of product. The Group has participated in, and expects to continue to participate in, such reviews from time to time. Regulatory intervention, including of the sort described above (including "thematic reviews"), may lead to the FCA and/or the PRA requiring (among other things):

(a)       specific remediation in respect of historic practices (which could include compensating customers, fines or other financial penalties);

(b)       changes to the Group's practice; and/or

(c)       public censure; and/or 

(d)       the loss or restriction of regulatory permissions necessary to carry the Group's business in the same manner as before.

Regulatory interventions against a member of the Group or a determination that the Group has failed to comply with applicable law or regulation could give rise to any of the matters described arising. Further, the Group may face increased compliance or compensation costs due to changes to financial services legislation or regulation or the need to set up additional compliance controls. If any such matters were to occur they could have a material adverse effect on the Group's business, results of operations, financial condition and prospects, or otherwise divert management's attention from the day-to-day operation of the business, potentially affecting its ongoing or future performance.

Just Retirement Life (South Africa) Limited also holds a licence from South Africa's Financial Services Board to provide retirement income solutions in South Africa. As a consequence, Just Retirement Life (South Africa) Limited is subject to regulation in South Africa resulting in potential policyholder claims and regulatory intervention in that jurisdiction.

The terms on which products are sold or contracts are entered into with customers by the Group must comply with various 'fairness' and 'reasonableness' requirements under UK law and guidance provided by regulatory and trade bodies (including, without limitation, the Unfair Contract Terms Act 1977 and the Consumer Rights Act 2015), some of which currently implement EU law. These requirements apply to both express terms of a contract and to terms that have not been agreed by the parties but are implied into the contract by a court. The application and interpretation of these requirements involves an important element of judgement and there can be no assurance that governments or regulators will not determine at some point in the future that certain terms presently in use do not meet the relevant standards. Where products of the Group contain such terms, the effect could be to prevent reliance on those terms by the Group, including retrospectively in respect of existing products held by the Group's customers, which may adversely affect the Group's underlying profitability, its product range, distribution channels, investment strategy, capital requirements and, consequently, its results of operation and financial condition.

The Group is also subject to competition and consumer protection laws enforced by the Competition and Markets Authority ("CMA") and the European Commission's Directorate-General for Competition, such as laws relating to price fixing, collusion and other anti-competitive behaviour in the UK. This regime is supported by formal cooperation between the CMA and the FCA, along with the FCA's furtherance of its operational objective to promote effective competition in the interests of consumers, and its duty to promote effective competition when addressing its other operational objectives. This is further supported by the FCA's concurrent powers with the CMA to enforce competition laws in the UK insofar as they relate to the provision of financial services.

The Group is subject to risks arising from the UK referendum vote to withdraw from the EU ("Brexit") and any resulting changes in law and regulation

The regulatory environment that entities like the Group operate in within the UK is largely derived from EU financial services legislation. For so long as the UK remains part of the EU, it is required to implement and apply such legislation. However, it is anticipated that Brexit may result in changes to the UK and EU's regulatory system. Following Brexit, the PRA is also likely to have greater flexibility to create additional rules which would impact the Group (positively or negatively). This is because currently a significant portion of the relevant regulatory regime is derived from EU sources and subject to oversight by EU bodies - such as the European Insurance and Occupational Pensions Authority ("EIOPA") and the EU Commission. While the business of the Group is primarily situated in the UK, some of the changes to the regulatory system of the UK and the EU arising as a consequence of Brexit may affect the business of the Group (positively or negatively). Members of the Group make use of their passporting rights to service a small number of existing customers based in member states of the EU. These rights may be limited or cancelled following Brexit. Changes may also affect the regulation of UK business if the UK and EU regulatory systems diverge. As a result, it is possible that Brexit may require the Group to take mitigating action or to change parts of its business, which may have a material effect on the Group's business, results of operations, financial condition and prospects.

The regulatory capital regime applying to certain members of the Group is extensive and subject to change, and a failure to comply with this regime could have a variety of negative regulatory and operational implications for the Group

The Solvency II regime, which is the regulatory capital regime applicable to the EU insurance sector is a prudential framework which is designed to ensure the financial stability of the insurance industry across the EU and is intended to protect policyholders through establishing solvency requirements better matched to the true risks of the business. Firms which are authorised to underwrite insurance in the UK, including certain members of the Group, are required to comply with Solvency II.

Solvency II includes a requirement for firms to maintain a minimum margin of capital in excess of the value of their liabilities, in order to comply with a number of regulatory requirements relating to their solvency and reporting bases. The Group's capital position can be adversely affected by a number of factors, in particular, factors that erode the Group's capital resources and/or which affect the quantum of risk to which the Group is exposed. In addition, any event that erodes current profitability and is expected to reduce future profitability and/or make profitability more volatile could affect the Group's capital position, which in turn could have a material adverse effect on the Group's business, results of operations, financial condition and prospects.

There are four aspects of the Solvency II regime in particular that have the potential to create risks for the Group, although there are other aspects of the regime that could also be applied in an adverse way depending on how circumstances develop over time. These four aspects are:

(e)       the Solvency Capital Requirement ("SCR");

(f)       the risk margin;

(g)       the matching adjustment ("MA"); and

(h)       transitional measures on technical provisions ("TMTP deduction").

The use of an internal model to calculate the SCR, the use of MA and the availability of TMTP deduction are all matters which require PRA approval. JRL (but not PLACL) currently benefits from PRA approval to use a full internal model to calculate its SCR and the Group has approval to calculate its group SCR using a partial internal model. Each of JRL and PLACL currently benefit from approval from the PRA to apply MA and TMTP deductions, while PLACL currently benefits from approval from the PRA to apply a volatility adjustment. 

The risk margin is a component of an insurer's technical provisions that is calculated by reference to the present value of the future cost of capital associated with the in-force business.  Under Solvency II rules, this present value is required to be calculated using risk-free interest rates. This method of calculation makes the risk margin very sensitive to changes in interest rates, particularly where an insurer has a portfolio of business that is expected to remain in force for many decades, as is the case for JRL and PLACL. This exposes insurers to risks of significant fluctuations in their technical provisions which are unrelated to the riskiness of the underlying business.

It is possible that the interpretation or implementation of the rules, or the withdrawal of or failure to obtain any approvals from the relevant regulator (for example, to use an internal model to calculate SCR or to apply MA in relation to certain types of assets, liabilities or reinsurance of such liabilities) may give rise to greater capital requirements than is currently the case or may require changes to the structures and/or businesses or result in price increases for products of the Group, which, in each case, could have a material adverse effect on the business, results of operations, financial condition and prospects of the Group.

Further, an increase in the regulatory capital and/or reserving requirements of an entity or a restriction on the use of capital within the Group may reduce the profits of the Group or trap cash or assets in certain companies within the Group. There are also circumstances where the Group may choose to move cash or assets from another part of the Group to meet an increased regulatory capital requirement. Consequently, a change in the regulatory capital and/or reserving requirements and, in particular, the loss of certain discretionary reductions in those requirements, could have a material adverse effect on the Group's business, results of operations, financial condition and prospects.

In addition, if the Group is unable to meet applicable regulatory capital requirements in any of its regulated subsidiaries, it would have to take other measures to protect its capital and solvency position, such as increasing the prices of its products, reducing the volume of or types of business underwritten, increasing reinsurance coverage, altering its investment and/or hedging strategy or divesting parts of its business, any of which may be difficult or costly or result in a significant loss, particularly in cases where such measures are required to be undertaken quickly. If the Group is required to take any of these measures, such measures could have a material adverse effect on the Group's business, results of operations, financial condition and prospects.

Following the introduction of the Solvency II regime, the PRA has published and continues to publish consultations and supervisory statements that set out its expectations relating to elements of the Solvency II regime. As a result of these consultations, a number of Supervisory Statements have been issued or updated. These include, amongst others, consultations and supervisory statements relating to illiquid assets, the MA and the TMTP deduction.

In particular, Supervisory Statement 3/17 ("SS3/17") sets out the PRA's expectations in respect of firms that are subject to the Solvency II regime, and that invest in illiquid, unrated assets within their MA portfolios. Amongst other matters, SS3/17 states that firms will have to explain how they will group assets in their Solvency II MA portfolios with respect to credit quality steps ("CQS"), asset class and duration for the purposes of determining the fundamental spread, and that where assessing internally-rated assets, greater judgement is involved and firms need to "have confidence that the risk management of these more complex credit exposures, in particular the CQS mapping process and the size of the MA benefit claimed on them, is fit for purpose."

In December 2018, following a consultation initiated by Consultation Paper 13/18 ("CP13/18"), the PRA published amendments to SS3/17.  These amendments have parameterised various tests that restrict the total effective value of LTMs that can be reflected on insurers' balance sheets through the combination of asset value and discounting of liabilities (these tests are referred to together as the "effective value test").  The parameters set out in the amendments are within the ranges for which the Group had been planning while awaiting the publication of the amendments.  The PRA has announced that these tests will not be required to be applied retrospectively to the pre-Solvency II valuation, so a TMTP deduction remains available to offset the impact of SS3/17 on the MA benefit, to the extent that the impact would otherwise affect pre-2016 business.

When publishing the amendments to SS3/17, the PRA announced that it will consult on a number of matters, including how to deal with the interest rate volatility that will arise from the parameters that form part of the effective value test, and what changes might be needed to reflect the impact of the application of the effective value test in future stress scenarios.

There is a risk that a future change in the regulatory treatment of LTMs will result in a material increase in technical provisions, which could have a negative effect on the business, results of operations, financial condition and prospects of the Group, JRL, and PLACL.  In particular, it could affect the ability of JRL and PLACL to pay dividends to their shareholder, the Company, and this could affect the ability of the Company to pay dividends to its shareholders.

There is a risk that the implementation of one or more of the PRA consultation papers or supervisory statements may give rise to greater capital requirements than are currently the case (for example, based upon the proposed consultation on the application of the effective value test in future stress scenarios, there is a risk that more regulatory capital will need to be held in respect of illiquid assets) or may require changes to the structures and/or businesses, or result in price increases for products of the Group, all of which could have a material adverse effect on the business, results of operations and financial condition of the Group.

Changes to financial reporting requirements generally or specifically for insurance companies may materially adversely affect the reporting of the Group's financial results

International Financial Reporting Standards (as adapted by the EU) ("IFRS") 17 which has been issued by the International Accounting Standards Board will come into effect on 1 January 2022 and replace IFRS 4 (though companies have the option to implement it before that date, subject to certain conditions).  IFRS 17 sets out the reporting requirements that insurance companies are required to adopt in relation to insurance and reinsurance contracts that they enter into, including reinsurance contracts under which they lay off the risk of their insurance contracts.  The International Accounting Standards Board has also issued IFRS 9 on the classification and measurement of financial assets, financial liabilities and hedging. The implementation of IFRS 9 for insurance companies has been deferred to 2022 to coincide with the introduction of IFRS 17 and the two will be implemented in tandem.

IFRS 17 and IFRS 9 are intended to increase transparency, consistency and comparability in the reporting of new and existing business by insurers, with clearer reporting on sources of profits and quality of earnings. The new standards also change the effect of reinsurance on the reported value of insurance contracts, and the relevant periods for presentation of revenue. In particular, the profit earned on long-term insurance contracts such as those which are regularly issued by members of the Group, will be required to be recognised gradually over the life of the contracts, rather than the expected profit being recognised at the date of entering into the contract, as is currently permitted by accounting rules. This change will have the effect of deferring the recognition of distributable profits by the Group, and may therefore impact the tax profile of the Group and the ability of the Company to pay dividends to its shareholders.

Any changes to IFRS or the statutory reporting of insurance entities referred to above, and any other changes to accounting standards that may be proposed in the future, whether or not specifically targeted at insurance companies, could materially adversely affect the reporting of the Group's business, results of operations, financial condition and prospects.

Individual and groups of customers may refer their disputes with the Group to the Financial Ombudsman Service

Disputes relating to the sale of financial services products by the Group in the UK are subject to the Financial Ombudsman Service ("FOS") regime. The FOS exists to resolve disputes involving individual or small business policyholder disputes. Applicants may pursue customary legal remedies if decisions are considered unacceptable.

There is a risk that decisions taken by the FOS may, if extended to a particular class or grouping of policyholders, have a material adverse effect on the Group's business, results of operations, financial condition and prospects.

The Group may in future become subject to regimes governing the recovery, resolution or restructuring of insurance companies and, as the scope and implications of these regimes are still evolving, it is unclear what the consequences could be for the Group

As part of the global regulatory response to the risk that systemically important financial institutions could fail, banks, and more recently insurance companies, have been the focus of new recovery and resolution planning requirements developed by regulators and policy makers nationally and internationally. Recovery and resolution reforms for banks in the EEA now provide regulators with the power, as part of resolution authority, to write down indebtedness or to convert that indebtedness to capital (known as "bail-in"), as well as other resolution powers.

It remains unclear whether and in what form the recovery and resolution regimes currently applicable to banks could be extended to other financial institutions such as insurance companies. It therefore remains unclear what recovery and resolution regime could apply to the Group in the future and, consequently, what the implications could be for the Group.

Regulatory focus on climate risk could have an impact on the Group's business and assets in its investment portfolios

Regulators are increasingly seeking to develop regulations that are directly and indirectly focused on sustainable finance and climate change. In October 2018, the PRA launched a consultation on a draft supervisory statement setting out the PRA's expectations regarding insurers' and banks' approaches to managing financial risks from climate change. Such regulatory focus on the issue of sustainable finance and particularly the risks that climate change could have on the safety and soundness of firms and stability of the financial system may accelerate actions of market participants that then have an impact on the availability and attractiveness of certain securities.

1.3          Market risks

The economic environment and financial market conditions may have a significant influence on the value of the Group's income, assets, and liabilities

Any actual or perceived changes in monetary policies globally may have severe consequences for the UK economy. With a large deficit, the UK still faces considerable structural and economic challenges. The impact of any changes in monetary policies could be exacerbated by the marked reduction in asset liquidity resulting in magnified market movements and the inability to buy and sell assets in affected markets. The Bank of England has also responded to recent economic conditions in the UK by modestly tightening its monetary policy, and is of the view that if the economy follows the path currently expected, further increases in the UK bank rate would be warranted over the next few years to return inflation sustainably to its target. Further, the current US administration has various trade, tax and immigration policies that, if enacted, could have a material impact on the global economy and on the performance of capital markets globally.

The Company believes that there is a risk that the economic outlook may reduce the availability of attractive investments to offset its liabilities to customers, which could have a material adverse effect on the Group's business, results of operations, financial condition and prospects.

Additionally, declines in the financial markets, including equity markets, can reduce the value of a customer's pension funds available to purchase an annuity, which could influence the decision to look for alternative products rather than purchase an annuity.

The premiums paid by the Group's customers are invested by the Group to enable future benefits to be paid.  Although the Group generally holds its financial assets to maturity, the value of the Group's financial assets and liabilities is determined at the end of each financial period, with the movements in market value and present value in each period being reflected in the Group's statement of comprehensive income. The Company believes that the market value or present value of the Group's financial assets and liabilities may be affected by, among other things, changes in: (i) interest rates; (ii) inflation; (iii) credit ratings of, or the credit spreads in respect of, the issuers of fixed income securities; and (iv) liquidity in the bond markets. Any of these factors could affect returns on, and the market values of, UK and international fixed income investments in the Group's financial asset portfolio as well as the present value of its LTMs and financial liabilities. For instance, when the credit rating of a given issuer of fixed income securities falls, or the credit spread with respect to such issuer increases, the market value of such issuer's fixed income securities may also decline, and such decreases in value would be recognised in the Group's statement of comprehensive income for such period. Changes in the market value and/or present value of the Group's financial assets and liabilities can have a material adverse effect on the Group's results of operations, financial condition and/or prospects.

The value of the Group's LTM assets is subject to accurate property valuations at the time of issue of the LTM assets and subsequently to fluctuations in housing market values

The Group's LTMs comprise a significant proportion of its financial assets supporting its liabilities arising on the sale of its pension products including its DB de-risking and GIfL products. Inaccurate property valuations at the time of issuing new loans and, to the extent the Group purchases previously written LTM books to supplement the LTMs that it originates, insufficient due diligence by the originators of such previously written LTMs or by the Group could also expose the Group to lower than expected returns on its LTMs which could have a material adverse effect on the Group's business, results of operations, financial condition and prospects.

Although the average LTV ratio in respect of the Group's LTMs as at 31 December 2017 was 29%, given that the LTMs are secured by a mortgage over a particular property owned by the borrower (typically such borrower's house), a substantial decline in UK housing market values could adversely affect the Group's: (i) returns on existing LTMs by increasing the provisions required to be held for the NNEG (which applies under defined circumstances on repayment of a mortgage if the outstanding balance of the LTM loan secured on a property exceeds the net sales proceeds from the property at the time of the redemption - see the risk factor entitled "The assumptions used by the Group in pricing products and establishing provisions and determining regulatory capital may not be consistent with actual experience" above); (ii) returns on existing LTMs, including actual losses if the prices realised on the sale of the properties securing such loans fall below the amount of outstanding principal and accrued interest at redemption; and/or (iii) cash inflow from LTMs by delaying sales of the properties securing such loans. The Group is also exposed to the risk that a fall in residential property prices could reduce the attractiveness of the LTM product to customers and it could reduce the amounts received from mortgage redemptions.  Further, the regulatory capital required to be held by the Group to support the possible shortfall in the redemption of an LTM increases if there is a fall in residential property prices.  If any of these events were to occur, they could have a material adverse effect on the Group's business, results of operations, financial condition and prospects.

As explained above (see the risk factor entitled "The regulatory capital regime applying to certain members of the Group is extensive and subject to change, and a failure to comply with this regime could have a variety of negative regulatory and operational implications for the Group"), the PRA issued guidance in SS3/17 which, through the effective value test, imposes restrictions on the total effective value that insurers can recognise on their balance sheets in respect of LTMs, and it made amendments to SS3/17 in December 2018 in which it has been more specific about what the effective value test requires.  The PRA also announced that it will be consulting on some related matters during 2019.  Although the amendments made in December 2018 were within the range for which the Group had been planning, there is a risk that future changes in the regulatory requirements and guidance could reduce the overall financial benefit that the Group can obtain through investing in LTMs.

Conversely, significant future rises in property values could increase early redemptions on LTMs leading to an earlier receipt of anticipated cash flows and a need to reinvest those cash flows in other assets which yield suitable returns.

Demand for the Group's GIfL solutions could be adversely affected by low interest rates or declines in annuity yields

Prices charged for, and the returns associated with, the Group's GIfL solutions are, in part, dependent upon the current long-term interest rate environment existing at the time that GIfL solutions are sold and the financial assets supporting such liabilities are purchased.

The GIfL solutions sold by the Group can be adversely affected by periods of consistently low interest rates. In a period of consistently low interest rates, as is currently the case, new GIfL business volumes may be affected as alternative retirement income products may become relatively more attractive to customers.  Moreover, declines in annuity yields could make the purchase of GIfL products unattractive and inhibit market growth.  Such challenges could result in reduced demand for GIfL products which may have a material adverse effect on the Group's business, results of operations, financial condition and prospects.

Demand for the Group's LTMs could be adversely affected by high interest rates

Prices charged for, and the returns associated with the Group's LTMs are, in part, dependent upon the current long-term interest rate environment existing at the time LTMs are sold to customers.

The LTMs sold by the Group can be adversely affected by periods of consistently high interest rates. During high interest rate periods, LTMs may become less attractive to customers whilst other retirement income products, such as GIfL products, may become relatively more attractive to customers. Reduced demand for LTMs in periods of consistently high interest rates may have a material adverse effect on the Group's business, results of operations, financial condition and prospects.

Changes in interest and/or inflation rates may cause policyholders to surrender their LTMs early, reduce the value of the Group's investment portfolios and may have an adverse impact on their asset and liability matching, which could adversely affect the Group's results of operations and financial condition

The sale of retirement investment products, such as annuities, exposes the Group to the risk that changes in interest rates will reduce the "spread" or the difference between the amounts that are required to be paid under the annuities and the rate of return the Group is able to earn on investments intended to support obligations under the contracts. The Group manages this risk through the careful matching of the asset/liability duration.

As interest rates decrease, or if they remain at low levels, the Group may be forced to reinvest proceeds from investments that have matured or have been prepaid or sold at lower yields, reducing the investment margin. Moreover, in a low interest rate environment, borrowers may redeem the LTMs with greater frequency in order to borrow at lower market rates, which exacerbates this risk. In a high interest rate environment borrowers are less likely to redeem LTMs, which reduces this risk.

Changes in the interest rate environment affect the returns available on financial assets and thus can affect the prices charged for GIfL solutions. A material fall in interest rates may also increase the amount of regulatory capital that the Group is required to hold.

In addition, risk-free interest rates (as measured by swap rates) are a component of the discount rate that the Group uses to determine the present value of its DB de-risking solutions and retirement income products such as GIfL and LTMs when calculating the margins on such products. In an environment where swap rates decrease, they positively affect LTM margins and adversely affect the margins on GIfL products. The overall impact on the Group will therefore depend on the mix of new retirement income product sales, but could be negative. As a result, periods of consistently low interest rates could have a material adverse effect on the business, results of operations, financial condition and prospects of the Group.

The Group's exposure to inflation risk increases as a result of increases in volumes of DB de-risking solutions sold by the Group. Most defined benefit pension schemes link member benefits to either inflation indexation and/or limited price indexation. As the Group's exposure to inflation risk increases, it expects to increase its usage of inflation hedging mechanisms which may result in the Group needing to hold more liquid assets or longer-term gilts to offset potential increases in collateral requirements when the future inflation curve is low. Inflation risk increases and a tightening of the Group's liquidity position could have a material adverse effect on the Group's business, results of operations, financial condition and prospects.

The Group's mitigation efforts with respect to interest rate and inflation risk are primarily focused on maintaining an investment portfolio with diversified maturities that has a weighted average duration approximately equal to the duration of the Group's estimated liability cash flow profile. However, it is not possible for the Group to hold assets that will provide cash flows to exactly match those relating to policyholder liabilities. This is due to the duration and uncertainty of the liability cash flows and the lack of sufficient assets of suitable duration. This results in a residual asset/liability mismatch risk that can be managed but not eliminated. In addition, the Group's estimate of the liability cash flow profile may be inaccurate for other reasons, such as varying mortality or morbidity rates, and the Group may be forced to liquidate investments prior to maturity at a loss in order to cover the liability. Such matters could have a material adverse effect on the business, results of operations, financial condition and prospects of the Group.

As explained above, in December 2018 the PRA finalised the parameters that it expects insurers to use when applying the effective value test under SS3/17.  One of these parameters relates to the deferment rate, which the PRA has said should be assumed to be 1%.  The PRA has acknowledged that fixing this percentage may lead to volatility in insurers' technical provisions in the event that risk-free interest rates change.  It is proposing to consult on how this volatility may be avoided, which may involve a mechanism by which the parameter that insurers are expected to use (currently 1%) can be updated whenever there is a material change in interest rates.  Until a mechanism is introduced to address the potential volatility, the Group will be exposed to this risk of volatility in its technical provisions. 

The Group uses hedging to manage currency exposures and there is a risk that early redemption or default by an issuer may materially affect the Group

The Group acquires a proportion of its fixed income securities denominated in US dollars or other foreign currencies for its financial asset portfolios. Although the Group hedges these currency exposures, there is a risk that as a result of an early redemption or default by an issuer, the derivative becomes mismatched. If the Group fails to close the hedge quickly, a currency loss could occur and/or break costs could be incurred which could have a material adverse effect on the business, results of operations, financial condition and prospects of the Group.

The UK Government's pension reforms implemented in April 2015 have had, and will continue to have, a fundamental impact on the expected shape and future of the retirement income market in the UK and there can be no certainty that the response of the Group to both these pension reforms and to the Taxation of Pensions Act 2014 (together with the pension reforms implemented in April 2015 referred to as "Pension Freedom Reforms") will fully mitigate any adverse effects the Group may suffer as a consequence of the Pension Freedom Reforms

In the UK, a number of significant changes to law and regulation are currently being proposed or have been implemented over the last four years. In the pensions sector, the effect of the legal and regulatory changes may drive changes in customer behaviours which may take a while to identify.

Of particular note are the series of legal, tax and regulatory changes known as the Pension Freedom Reforms. Historically, the UK's tax regime provided favourable tax treatment for individuals who saved using their pension policies but limited the manner in which that tax treatment could be preserved through the purchase of an annuity. The Pensions Freedom Reforms changed how people are able to access their pension savings including the cessation of the effective requirement for pension benefits to be taken in the form of an annuity (consumers approaching retirement age may now opt to take their entire pension pot as cash, with the first 25% remaining tax-free and the balance taxed at the individual consumer's marginal rate) and a requirement for customers to receive guidance on their options at the time of retirement.

The Pension Freedom Reforms also introduced a free, impartial guidance service for individuals approaching retirement on their choices at the point of retirement ("Pension Wise"). As a result of all these changes, customers are more likely to seek advice, decide to "self select" their retirement solutions or indeed move from their existing provider. Given the increased choice and flexibility that customers now have, it is important that customers receive appropriate guidance or advice. If only a small proportion take up the offer of guidance and/or the guidance is ineffective, then there is a risk that customers fail to move from their existing pension providers which could result in less appetite for the Group's retirement income products. The medium term extent of behavioral changes by the Group's potential customers as a result of the Pension Freedom Reforms remains difficult to predict, though at present, it appears that customers have generally reacted by looking in the market for more flexible retirement solutions, and in some cases, deferring their retirement decisions.

Of the products in the retirement income market which the Group provides, the Pension Freedom Reforms only pose a risk to the sales of GIfL solutions, as inter alia, retirees have greater flexibility in deciding the extent to which they convert their pensions savings to GIfL solutions, if at all. To date, the Pension Freedom Reforms have reduced the number of people purchasing an annuity within the UK retirement income market, thus reducing the total sales of UK annuities and reducing the revenue which the Group derives from sales of GIfL products. The Group's ability to grow its GIfL business is dependent in part on improving customer awareness of the benefits of purchasing a GIfL product when considered alongside alternative at-retirement propositions, including cash withdrawals. If lower volumes of annuity sales persist or volumes of sales decrease further and cannot be successfully replaced through other retirement income product revenue streams (especially if coupled with a reduction in demand for the DB de-risking solutions of the Group), it could have a material adverse effect on the Group's business, results of operations, financial condition and prospects.

The considerable uncertainty in the UK created by the Pension Freedom Reforms is likely to persist given that it will take time for market participants' and consumers' behaviour to adjust to the Pension Freedom Reforms as well as to the innovative and more flexible retirement income products which are likely to continue to emerge as a result of such reforms.

There is also the possibility that the UK Government may further liberalise or remove restrictions on customers accessing their pension funds on retirement. For example, the UK Government has announced a "pensions dashboard" proposal, which is expected to apply from 2019. This will enable customers to view all of their pension policies (across multiple providers). The Group is monitoring and projecting the impact of these reforms on its business, but the true impact will only become clear once all relevant laws and regulations are implemented and, following that, a stable pattern of customer experience has emerged.

There is no certainty as to: (i) the full impact of the Pension Freedom Reforms on the UK retirement income market; and (ii) the effectiveness of the Group's revised strategy in respect of the UK retirement income market. Any response of the Group to changes in the UK retirement income market may be costly, may expose the Group to other risks not mentioned in this document, and may not ultimately be successful in preventing the occurrence of material adverse effect on the Group's business, results of operations, financial condition and prospects.

1.4          Liquidity risks

The Group may experience a tightening in liquidity and require significantly larger cash balances than anticipated and/or experience a shortfall in the availability of suitable assets in the markets in the amounts required

Whilst the Group is not expecting any liquidity shortfalls in the short term irrespective of SS3/17 (as amended in December 2018), under extreme and unforeseen circumstances a tightening of the Group's liquidity position could have a material adverse effect on the Group's business, results of operations, financial condition and prospects in the medium to longer term.

Premiums received from the Group's customers in connection with the sale of retirement income products are invested in financial assets, such as fixed income securities and LTMs, so as to attempt to match cash inflows from such investments against expected future cash outflows associated with liabilities to customers. This matching depends on the accuracy of its projections of cash inflows (premiums received, the repayment of fixed income securities and LTMs, coupon payments made on fixed income securities and early redemptions of LTMs) and outflows (the purchase of fixed income securities, payments to annuitants and defined benefit pension schemes, mortgage advances, commissions, expenses and tax), which are subject to a number of assumptions, which are necessarily less certain the further into the future such projections are made. Accordingly, the Group is subject to the risk of cash flow mismatches in the longer term between its financial liabilities to customers and the assets held to support those liabilities, as a result of, among other things, inaccurate assumptions regarding the timing and duration of future cash inflows and/or cash outflows. In the event of such a mismatch, the Group may be unable to pay its financial liabilities to customers as they fall due on account of insufficient cash inflows, which could have a material adverse effect on the Group's business, results of operations, financial condition and prospects.

If it were necessary to sell assets in order to generate liquidity, there is no guarantee that the price achieved would reflect the valuations at which such assets are recorded in the financial statements of the Group, especially for illiquid classes of assets. In particular, it may not be possible to readily sell LTMs due to the lack of a market in which to trade them.

From time to time liquidity is needed to be able to collateralise derivative positions that are used to hedge against interest rates, inflation rates and foreign currencies. Liquidity is also required to ensure the continued funding of LTMs and, under Solvency II, to support the restructuring of LTMs required by regulatory rules. In extreme circumstances, collateral calls could require more liquid assets to be posted than are readily available. In this case, one of the actions that the Group could take to reduce the liquidity strain is to close out derivative positions. This would increase the exposure of the Group to those risks that were being hedged by the relevant derivative position, and were the risk to materialise, it could have a material adverse effect on the business, results of operations, financial condition and prospects of the Group.

Further, the Group may also choose to invest in particular assets in order to benefit from specific regulatory approvals which give rise to discretionary reductions in regulatory capital and/or reserving requirements. If suitable assets are not available to purchase in the market in the amounts required (for example, because competition for such assets is high as a consequence of other insurers wishing to hold them to benefit from regulatory approvals), it may be difficult to find suitable alternative assets in the market in the amounts required which could have a material adverse effect on the Group's business, results of operations, financial condition and prospects.

Any determination to restrict further drawdowns of the undrawn portion of drawdown LTMs in order to manage liquidity could adversely affect the reputation and brand of the Group

The Group's drawdown LTMs enable borrowers to drawdown further advances subsequent to the initial drawdown of the loan, subject to certain terms and conditions. If there were to be a sharp increase in customers' propensity to drawdown the undrawn portion of drawdown LTMs, the Group may not be able to facilitate these drawdowns. Although under the terms of its drawdown LTMs the Group may restrict drawdowns as a result of certain events (including to meet the liquidity needs of the Group), such an eventuality could adversely affect the Group's reputation, sales and brand, which could in turn have a material adverse effect on the Group's business, results of operations, financial condition and prospects.

1.5          Third party and other counterparty risks

The Group is exposed to counterparty risk in relation to reinsurers

Under the reinsurance agreements, members of the Group retain primary liability as the direct insurer on all risks reinsured. Consequently, reinsurance arrangements do not eliminate their obligation to pay claims although under the reinsurance agreements the relevant Group company can recover amounts paid from the reinsurer. As a consequence, the members of the Group entering into reinsurance agreements are subject to the credit risk of the reinsurer with respect to their ability to recover amounts due from them. Even where the reinsurer has an obligation to provide collateral in support of its operations, there can be no certainty that such collateral will satisfy the full amount of the reinsurer's liability and, as a result, those members of the Group entering into reinsurance agreements could be left with a shortfall to the extent that the amounts paid by the members of the Group on claims made are not recovered from the reinsurer.

In addition, some circumstances, could lead to reinsurers exercising a right to terminate the existing reinsurance agreements for cause, either in relation to new business only or in relation to new and existing business . The termination could have a material adverse effect on the Group both by increasing the amount of capital required to be set aside for regulatory purposes and by exposing the Group to increased risk in respect of which it would have no ongoing protection.

The Group is exposed to counterparty risk in relation to other entities

In addition to the matters described in the risk factor entitled "The Group is exposed to counterparty risk in relation to reinsurers", the Group is also exposed to counterparty default risk in relation to third parties including derivative counterparties, investment managers, brokers, distribution partners and other supplier contracts, as well as financial institutions holding its cash and collateral deposits. The Group's business could suffer if any of the Group's counterparties fail to honour their obligations. The potential consequences resulting from counterparties' failure to honour obligations and payments could have a material adverse effect on the Group's business, results of operations, financial condition and prospects.

The Group places substantial reliance on intermediaries, in particular financial intermediaries, employee benefit consultants ("EBCs"), retirement specialists and key corporate partners in the UK, to sell and distribute its products

The Group sells its retirement income products through intermediary distribution channels, such as financial intermediaries, EBCs, retirement specialists and key corporate partners. The Group's relationships with its intermediaries and certain key corporate partners could be damaged or terminated as a result of a variety of events. Partners are subject to change from time to time, the Group may be unable to renew its agreements with such partners on similar terms, or at all, and could subsequently be unable to secure agreements with new distribution partners. Termination or non-renewal of, or any other material changes to, the Group's relationships with its distribution partners could adversely affect the sale of the Group's retirement income products and its growth opportunities in the UK. Termination of distribution relationships can also result in disputes over the dissolution or final settlement of distribution agreements, which can potentially lead to litigation. In addition, the Group could be required to fulfil the obligations of its agreements with distribution partners in the event of the termination of a relationship. The distribution agreements include various requirements on the Group, and the Group may have to pay damages under the arrangements if it fails to fulfil these obligations. Any of the foregoing events could have a material adverse effect on the business, results of operations, financial condition and prospects of the Group.

Sales of GIfL solutions are dependent, in part, on the availability of advice to consumers through their financial intermediary or via Pension Wise. The Group's ability to grow sales of its GIfL products is dependent in part on raising consumer awareness and on customers taking advantage of the open market option ("OMO"), and, if they qualify, by purchasing an annuity underwritten on medical and lifestyle factors. The OMO allows an individual to use pension savings from any defined contribution pension fund to purchase an annuity from any annuity provider and effectively enables an individual to choose the best available retirement product from all providers. Should financial intermediaries fail to advise customers to take advantage of the OMO or fail to advise customers who so qualify to purchase an annuity, this could adversely affect the sales of annuities and, accordingly, have a material adverse effect on the business, results of operations, financial condition and prospects of the Group.

In addition, the Group considers that the number of financial intermediaries who have demonstrated a proactive approach to advising on LTMs has, to date, been limited. The Group believes this is a result of the relative complexity of the issues required to be considered when advising on LTMs and the perceived reputational risks to financial intermediaries, such as claims of potential mis-selling or provision of investment advice. Continuing reluctance in the financial intermediary community to sell LTMs could constrain the future growth in sales of LTMs by the Group, which could in turn have a material adverse effect on the Group's business, results of operations, financial condition and prospects.

Distribution channels may also be adversely affected should the FCA, in any future review of the distribution model of the Group or the activities of any relevant distributors, consider that any of the distribution agreements the Group has for payments made and services provided to the Group, are or are at risk of non-compliance with its interpretation of its rules or the spirit thereof. Further, in the event of any mis-selling of products by financial intermediaries or other distribution partners, the Group could face the risk of regulatory censure from the FCA, fines and related compensation costs and reputational damage. Any of these developments could have a material adverse effect on the Group's business, results of operations, financial condition and prospects.

Legal and regulatory change in the form of the Insurance Distribution Directive (the "IDD") may lead to a decline in the number and/or size of distribution firms. Inter alia, this is because financial advisers may decide to consolidate or to leave the sector in response to anticipated increased compliance costs that may be realised and the higher professional standards required. If a reduction in the capacity of the intermediary distribution sector does occur, this may result in fewer opportunities for the Group's products to be distributed by intermediary firms. The impact of these changes could adversely affect the strategic importance of these financial intermediaries as a distribution channel for the Group.

The Group is subject to the risk that reinsurance may not be available, affordable or adequate to protect it against losses and/or its existing longevity risk transfer arrangements may be terminated, may not be renewed, or may be renewed on terms less favourable than those under the existing treaties

As part of its overall risk mitigation and capital management strategy, the Group purchases reinsurance from a number of reinsurance providers (including Reinsurance Group of America, Gen Re and SCOR Global Life SE - UK Branch) to cover a significant proportion of its longevity risk (i.e. the risk of annuitants living longer than expected). Market conditions beyond the Group's control determine the future availability and cost of appropriate reinsurance and the receipt of future reinsurance recoveries as well as the financial strength of reinsurers. Risk appetite among reinsurers may change, resulting in changes in price or their willingness to reinsure certain risks in the future. Any significant changes in reinsurance pricing may result in the Group being forced to incur additional expenses for reinsurance, writing less business, having to obtain reinsurance on less favourable terms or not being able to or choosing not to obtain reinsurance. The availability of reinsurance to UK insurers may also depend on the precise terms of the UK's Brexit arrangements. Any of these could have a material adverse effect on the Group's business, results of operations, financial condition and prospects.

The Group could face difficulties in entering into an agreement on similar terms with benefits equivalent to those described above or at all, with other reinsurers, particularly as there are only a limited number of reinsurers with credit ratings satisfactory to the Group who are able to provide equivalent protection for risks of the type written by the Group.

Third party reinsurers' unwillingness or inability to meet their obligations under reinsurance agreements, or potential termination of any of the reinsurance treaties or failure of these treaties to continue on terms similar to those presently in force, could have a material adverse effect on the Group's business, results of operations, financial condition and prospects.

Failure of a sufficiently large and important institution or other major counterparty may materially disrupt the markets and could adversely affect the Group

In the global financial system, financial institutions, including reinsurers, are interdependent. The interdependence of financial institutions means that the failure of a sufficiently large and influential financial institution or other major counterparty, for whatever reason, could materially disrupt markets. This risk, known as "systemic risk", could adversely affect the Group in several ways, some of which may be unpredictable, including increased default or counterparty risk. It may also adversely affect future sales as a result of reduced confidence in the insurance industry or difficulties encountered in clearing premiums and payments through the banking system. The Company believes that, despite increased focus by regulators with respect to systemic risk, this risk remains part of the financial system, and dislocations caused by the interdependence of financial market participants could have a material adverse effect on the business, results of operations, financial condition and prospects of the Group.

The Group is subject to the risk of defaults by the issuers of fixed income securities in its financial asset portfolio

Premiums received by the Group from customers are invested in financial assets, such as fixed income securities and LTMs, so as to match cash inflows from such investments against the Group's expected future cash outflows in respect of its retirement income products.

One of the principles of the Group's investment strategy is that the investment portfolio comprises high quality, low risk assets.

The Group actively monitors the quality of its overall investment portfolio, which is not intended to have a particular concentration by sub-sector or instrument. Nevertheless, the Group is exposed to default risk with respect to these securities in the event of adverse market conditions or other factors affecting the bond market as a whole.

If the issuers of securities held (directly or indirectly) by the Group default on their obligations, the Group could suffer significant losses on account of such defaults, which could materially adversely affect the Group's business, results of operations, financial condition and prospects.

The Group is dependent on the use of third-party suppliers, including investment managers, IT software and internet (including cloud) service providers

The Group is dependent on the use of certain third party suppliers in order to conduct its business. The Group is reliant in part on the continued performance, accuracy, compliance and security of such services. If the contractual arrangements with any third party providers are terminated, the Group may not find an alternative outsource provider or supplier for the services, on a timely basis, on equivalent terms or without significant expense or at all, in which case the Group would need to handle such services in-house, which could involve potential additional costs and delays.

Any reduction in third party product quality or any failure by a third party utilised by the Group to comply with internal, contractual, regulatory or other requirements, including requirements with respect to the handling of customer data, could cause a material disruption to or adverse financial and/or reputational impact on the Group's business which could have a material adverse effect on the Group's business, results of operations, financial condition and prospects.

The Group may not be able to refinance its borrowings in the longer term and/or the cost of finance could increase

In the longer term, the Group expects to access debt funding to refinance its existing indebtedness, comprising the £250,000,000 9.00% guaranteed subordinated notes issued by the Company on 26 October 2016, the £230,000,000 3.5% subordinated notes issued by the Company on 7 February 2018 and the £100,000,000 9.5% guaranteed subordinated notes issued by Partnership Assurance Group plc (which was subsequently replaced and substituted as principal obligor by Partnership Life Assurance Company Limited with effect from 4 April 2016) on 24 March 2015, at or prior to the time when they reach the end of their respective terms. The Group may not be successful in identifying lenders and/or investors who are willing to lend on similar terms to those which apply to the Group's existing indebtedness, or at all. No assurance can be given that the Group's existing indebtedness will, in the longer term, be able to be refinanced on similar terms, or at all, upon maturity. A reduction in the availability of finance or an increase in the future cost of finance (whether for macroeconomic reasons, such as a lack of liquidity in debt markets, or reasons specific to the Group) could adversely affect the Group's business.  If, in the longer term, the Group is not able to refinance borrowings as they mature and/or the terms of such refinancing are less favourable than the existing terms of borrowing, this could have a material adverse effect on the business, financial condition, results of operations, cash flows and prospects of the Group.

1.6          External environment risks

Following Brexit, uncertainty surrounding the UK's future relationship with the EU may have a materially adverse effect on global economic conditions, financial markets and the Group's business

The potential outcome of the negotiations on UK withdrawal from the EU and any subsequent negotiations on trade and access to the country's major trading markets, including the single EU market, is currently unknown. The terms of the UK's exit are also unclear and remain to be determined by the negotiations currently taking place. Under the terms of the current withdrawal agreement that has yet to be approved by the UK Parliament, a transition period to 31 December 2020 will commence after the UK's exit, during which the relationship between the UK and the EU on trade and other matters will be negotiated. However, if the withdrawal agreement is not approved by the UK Parliament, the UK could leave the EU without a formal agreement and transition period. In the alternative, the UK could, subject to agreement by the European Council, extend the Article 50 deadline for the UK's exit from the EU, or ultimately revoke its notification of its intent to leave the EU. There is therefore considerable uncertainty over the arrangements to be put in place between the UK and the EU after 29 March 2019 or, if applicable, after the end of any transitional period agreed under the withdrawal agreement. The potential impact of exiting the EU on the Group's business operations and assets remains uncertain and adverse outcomes from the UK's negotiations with the EU may have a material adverse effect on the Group's business, results of operations, financial conditions and prospects. See also the risk factor entitled "The Group is subject to risks arising from the UK referendum vote to withdraw from the EU ("Brexit") and any resulting changes in law and regulation".

The intellectual property of the Group, in particular its extensive database of mortality data, is crucial to its operations and the Group is exposed to the risk of its theft, loss, deterioration or corruption

The most significant portion of the intellectual property of the Group is its data, which comprises 2.8 million person-years of medical and mortality data which is continually updated. The Company believes that this mortality data enables the Group to price and reserve more accurately than they could without such data and to secure reinsurance agreements on attractive terms.

Any theft of this data by an employee or competitor or another third party, or loss or corruption of such data, for example as a result of systems failure, or the deterioration of the relevance of the dataset over time as a result of medical advances or changes in longevity trends generally, could impair the ability of the Group to price its products accurately and obtain reinsurance on attractive terms, which could have a material adverse effect on the business, results of operations, financial position or prospects of the Group.

The Group faces competition

The Group operates in the competitive retirement income market in which the most important competitive factors for products include price, which in large measure is determined by the quality and extent of the relevant mortality dataset, the predicted investment return and required returns on capital, together with brand recognition, the utilisation of various distribution channels, the quality of customer services before and after a contract is entered into, product flexibility, product innovation and policy terms and conditions.

In addition, the LTM segment continues to grow and to benefit from increasing consumer demand. The market is currently dominated by a limited number of specialist lenders but recent drivers such as the maturity of interest only mortgages has led to more providers entering this market. Despite the market growth, the intensity of competition for products similar to LTMs (such as interest only mortgages) has increased which may lead to compression of the Group's profit margins. The Group expects this trend to continue.

As a consequence, the Group faces, or may face, significant competition from domestic insurers, international insurance groups, consolidator funds, non-insurance groups such as investment managers and others (in any such case, whether they are established market participants, new entrants to the market or start-up operations), which offer and/or may in the future offer the same or similar products and services as the Group in the retirement income market to individual and corporate clients, and also in the LTM segment. Such competitors may be willing to accept higher risk or lower margins than the Group, and those who have assembled their own sets of mortality data may then be able to price across the spectrum of annuities at an increased level of accuracy. Further, the pace of technological change and the introduction of new technology by its competitors could potentially be disruptive to the markets in which the Group operates and could lead to increased competition. If any of these were to occur, they could adversely affect the Group's ability to obtain new customers, compete with competitors, or its ability to adjust prices, which could constrain the growth or otherwise have a material adverse effect on its business, results of operations, financial condition and prospects.

Changes in lifestyle, medicine or technology could reduce demand for the products of the Group

The Group is exposed to changes in the behaviour of its customers and the markets in which it sells its insurance products. For example, changes in lifestyle or medicine could significantly alter customers' and potential customers' actual or perceived need for GIfL products. Changes in technology could also give rise to new types of entrants into the insurance and/or insurance sales sectors, or the development of new distribution channels requiring further adaptation of the Group's business and operations.

Such changes could result in reduced demand for the Group's products and/or require the Group to expend significant energy, resources and capital to change its product offering, build new risk and pricing models, modify and renew its operating and IT systems and/or retrain or hire new people. Such changes could have a material adverse effect on the business, results of operations, financial condition and prospects of the Group.

The Group's future success may depend on its ability to develop and market new products, or enter new geographical markets successfully

Further changes to pension legislation and to social attitudes are key factors, which may drive a reduction in the UK retirement income market in the future. Political and social commentary may also have a destabilising effect on customer confidence. In addition, further changes to regulation or taxation may make alternative at-retirement propositions more attractive to customers than annuities or LTMs. In these circumstances, the need for the Group to diversify increases, but diversification also entails risks associated with change. Such diversification could include: development of new products and services that better meet the needs of those deferring retirement; further expansion into new markets in the UK or overseas; and/or expanding the advice proposition and/or brand and customer led strategies.

Should the Group prove to be unable to diversify successfully in order to meet these challenges, such failure could have a material adverse effect on the Group's business, results of operations, financial condition and prospects.

Legal and arbitration proceedings could cause the Group to incur significant expenses, which could have an adverse effect on the Group

In the ordinary course of business the Group is from time to time party to various claims and complaints, including legal and arbitration proceedings, in respect of which monetary damages and/or compensation are sometimes sought.

The Group's management cannot predict with certainty the outcome of any pending legal and arbitration proceedings or potential future legal and arbitration proceedings, and the Group may incur substantial expense in pursuing or defending these proceedings. Potential liabilities may not be covered by insurance, the Group's insurers may dispute coverage or may be unable to meet their obligations, or the amount of the Group's insurance coverage may be inadequate. Moreover, even if claims brought against the Group are unsuccessful or without merit, the Group would have to defend itself against such claims. The defence of any such actions may be time consuming and costly, may distract the attention of management and potentially result in reputational damage. As a result, the Group may incur significant expenses and may be unable to effectively operate its business. Accounting provisions recognised by the Group in its financial statements may prove to be insufficient. Any of the above and any adverse outcomes and reputational damage arising out of such litigation could have a material adverse effect on the Group's business, results of operations, financial condition and prospects.

The Group is subject to the risk of receiving complaints alleging the provision of unsuitable advice

The Group's distribution arm, HUB Financial Solutions Limited, provides advice to customers in relation to LTMs and, more recently, annuities, in particular immediate needs annuities. HUB Financial Solutions Limited has also launched a simplified advice service for customers who are determining how to disinvest retirement savings. The Group has also recently entered the Defined Pensions Transfer Advice market via its acquisition of Corinthian Pension Consulting Limited. The Group may be subject to complaints alleging the provision of unsuitable advice through any of its advisory businesses. There is also a risk that the process driven nature of the simplified advice service could contain systematic errors that could result in the same mistake being made repeatedly before it is discovered, giving rise to multiple claims. If any such complaints were sustained, the Group may be subject to disciplinary or enforcement action by the FCA, which could, for example, result in private or public censure, fines or sanctions, or the award of compensation to customers. This could in turn result in reputational damage that could have a material adverse effect on the Group's business, results of operations, financial condition and prospects. See also the risk factor entitled "Individual and groups of customers may refer their disputes with the Group to the Financial Ombudsman Service".

Downgrades or the revocation of the Group's ratings could affect its standing in the market and result in a loss of business and/or reduced earnings

JRL has been assigned an insurer financial strength rating of "B+ - very strong" by the actuarial consulting firm AKG Financial Analytics Ltd ("AKG"), as last confirmed in March 2018, and PLACL has similarly been assigned an insurer financial strength of "B+ - very strong" by AKG, as last confirmed in March 2018. Each of these insurer financial strength ratings is subject to periodic review by, and may be revised downward or revoked at the sole discretion of AKG (including as a result of regulatory developments). Fitch have assigned JRL an insurer financial strength rating of A+ and issuer default rating of A, and assigned the Group an issuer default rating of A. Fitch upgraded their outlook on the group from negative to stable in December, following the publication of PS31/18. Each of these ratings is subject to periodic review by, and may be revised downward or revoked at the sole discretion of Fitch (including as a result of regulatory developments). Fitch have noted that a downgrade could result from a weakening in capitalisation, an increase in financial leverage, a weakening in financial flexibility or a deterioration in business profile. In particular, Fitch note that a downgrade is likely in the event of weakening of the Group's capitalisation (as evidenced by a prolonged fall in the Prism Factor-Based Capital Model score to the low end in the "Very Strong" category, or a decrease in the Group's Solvency II ratio to below 130%) or, a weakening of the Group's financial leverage ratio to above 30% on a sustained basis. The ratings could also be downgraded as a result of a sustained weakening in the Group's financial flexibility, as evidenced, for example, by the Group's fixed charge coverage ratio declining to below 3:1.

Pursuant to the terms of the £200,000,000 revolving credit facility dated 16 June 2017 between the Company as original borrower and original guarantor and its subsidiaries Just Retirement Group Holdings Limited, Just Retirement (Holdings) Limited, Partnership Assurance Group Limited, Partnership Holdings Limited and Partnership Group Holdings Limited as original guarantors (the "2017 Revolving Credit Facility"), a downgrade in the rating of the Company to below BBB-/Baa3 (or equivalent) from a recognised rating agency would result in an increase to the margin payable by the Company in respect of amounts it has borrowed under the 2017 Revolving Credit Facility, thereby increasing its borrowing costs.  A downgrade in the rating of the Company to below BBB-/Baa3 (or equivalent) would also result in the application of a more restrictive covenant package under the 2017 Revolving Credit Facility. This could impair the Group's ability to implement its strategy if consent from the majority lenders were not provided.

A downgrade or revocation of any of these ratings could have a material adverse effect on the Group's public reputation, ability to secure reinsurance, and competitive position in the market, especially in relation to its distribution arrangements and commercial business, where partners, EBCs or customers may not be willing or permitted to place their business with a lower rated insurer, which could result in reduced business volumes and income. Further, interest rates paid on borrowings by the entities within the Group are influenced by the existence and strength of the ratings above, and so a downgrade or revocation could affect the borrowing costs and/or future financial flexibility of the Group. The occurrence of any of the above could have a material adverse effect on the Group's business, results of operations, financial condition and prospects.

The political, regulatory, economic and business conditions in new geographical markets could impair the ability of the Group to succeed in new territories

Any expansion into new geographies will expose the Group to different local political, regulatory, business and financial risks and challenges which may affect its ability to implement the intended strategy and business plans for those geographic markets. These risks could include political, social or economic instability, credit and counterparty risks in new geographies, lack of local business experience and risks of cultural incompatibility with foreign parties. The occurrence of any of these events could have a material adverse effect on the business, results of operations, financial condition and prospects of the Group.

The Group is exposed to the risk of damage to its brand, the brands of its distribution partners, its reputation, or a decline in customer confidence in the Group or its products

The Group's success and results are influenced by its financial strength, reputation and its brand. The Group and its brand are vulnerable to adverse market perception as the Group operates in an industry where integrity, customer trust and confidence are paramount.

Negative publicity or damage to the brand or the Group's reputation could result from, inter alia, litigation (including mis-selling claims), employee misconduct, operational failures, the outcome of regulatory or other investigations or actions, allegation or determination that the Group has failed to comply with regulatory or legislative requirements, failure in business continuity or performance of the Group's IT systems, loss of customer data or confidential information, fraudulent activities, malign influences, unsatisfactory service and support levels or insufficient transparency or disclosure of information. Negative publicity adversely affecting the Group's brand or its reputation could also result from misconduct or malpractice by intermediaries, business promoters or other third parties linked to the Group (such as strategic partners, distributors and suppliers).

The Group's brand and reputation could also face threats from external risks such as regulatory intervention or enforcement action, whether directly or as part of a larger and more general action against other companies that operate in the same sectors as the Group's operating entities. See "The UK Government's pension reforms implemented in April 2015 have had, and will continue to have, a fundamental impact on the expected shape and future of the retirement income market in the UK and there can be no certainty that the response of the Group to both these pension reforms and to the Taxation of Pensions Act 2014 (together with the pension reforms implemented in April 2015 referred to as "Pension Freedom Reforms") will fully mitigate any adverse effects the Group may suffer as a consequence of the Pension Freedom Reforms". In particular, the Pension Freedom Reforms have affected customer confidence in annuities and reduced the number of people purchasing an annuity within the UK retirement income market, resulting in a reduction in the total sales of UK annuities and a reduction in the revenue which the Group derives from sales of GIfL products.

Damage to the Group's brands or reputation could cause existing customers, partners or intermediaries to withdraw their business from the Group and potential customers, partners or intermediaries to be reluctant, or elect not, to do business with the Group. Such damage to the Group's brand or reputation could cause disproportionate damage to the Group's business, even if the negative publicity is factually inaccurate or unfounded. Furthermore, negative publicity could result in greater regulatory scrutiny and influence market or rating agencies' perception of the Group, restricting the Group's access to distribution channels or the ability to access funding in the capital markets. The occurrence of any of these events could have a material adverse effect on the Group's business, results of operations, financial condition and prospects.

1.7          Internal operations and management

The Group's operations support complex transactions and are highly dependent on the proper functioning of IT and communication systems

The Group relies on its operational processes and IT systems to conduct its business, including the pricing and sale of its products, measuring and monitoring its underwriting liabilities, processing claims, assessing acceptable levels of risk exposure, setting required levels of provisions and capital, producing financial and management reports on a timely basis and maintaining customer service and accurate records. These processes and systems may not operate as expected, may not fulfil their intended purpose or may be damaged or interrupted by increases in usage, human error, unauthorised access, power failures, natural hazards or disasters, blackouts, computer viruses, terrorist attacks or war or similarly disruptive events. Any failure of the Group's IT and communications systems and/or third party infrastructure on which the Group relies could lead to costs and disruptions that could materially adversely affect the Group's business, results of operations, financial condition and prospects as well as harm the Group's reputation and/or attract increased regulatory scrutiny.

If the Group were to introduce new consumer products beyond its current offering, it may be required to develop new operational processes and information systems or to ensure current systems are adequate to support these products. Development of new systems or the expansion of current systems may require experience and resources beyond those the Group currently possesses. Failure to support new products with necessary resources could lead to costs or the failure of new product offerings. The occurrence of a serious disaster resulting in interruptions, delays, the loss or corruption of data, or the cessation of the availability of systems, could, to the extent not mitigated by the Group's disaster recovery and business contingency plans, have a material adverse effect on the Group's business, results of operations, financial condition and prospects.

If the Group is unable to maintain the availability of its systems and safeguard the security of its data, including customer and employee data, due to accidental loss, cyber-crime, the occurrence of disasters or other unanticipated events affecting the Group or its service providers, its ability to conduct business may be compromised which may have an adverse effect on the Group

The Group collects and processes personal data (including name, address, age, medical details, bank details and other personal data) from its customers, business contacts and employees as part of the operation of its business, and therefore it must comply with data protection and privacy laws and industry standards in the UK and the countries of residence of the Group's policyholders. Those laws and standards impose certain requirements on the Group in respect of the collection, use, processing and storage of such personal information. This includes compliance with the General Data Protection Regulation (EU 2016/679) which came into force on 25 May 2018 (the "GDPR") and introduced substantial changes to the EU data protection regime. The GDPR places a large compliance burden on companies who retain customer data and may impair the ability to use data.

There is a risk that data collected by the Group and its third party service providers is not processed in accordance with notifications made to, or obligations imposed by, data subjects, regulators, or other counterparties or applicable law. Failure to operate effective data collection controls could potentially lead to regulatory censure, fines, reputational and financial costs as well as result in potential inaccurate rating of risks or overpayment of claims. In particular, fines under the GDPR are based on a two-tier system, and fines up to a maximum of €10 million or 2% of annual global turnover, or, for more severe infringements, a maximum of €20 million of 4% of annual global turnover, may be imposed.

Business organisations, such as the Group, are increasingly becoming targets for cyber-crime, particularly if those organisations retain personal information about many people. The Group is exposed to the risk that the personal data it controls could be wrongfully accessed, copied, used and/or destroyed whether by employees or other third parties, or otherwise lost or disclosed or processed in breach of data protection regulations. If the Group or any of the third party service providers on which it relies fails to process, store or protect such personal data in a secure manner or if any such theft or loss of personal data were otherwise to occur, the Group could face liability under data protection laws. This could also result in damage to the Group's brand and reputation, the loss of new or repeat business and/or the Group incurring a large fine, any of which could, to the extent not mitigated by the Group's disaster recovery and business continuity contingency plans, have a material adverse effect on the Group's business, results of operations, financial condition and prospects.

The Group's risk management policies and procedures may not be effective and may leave the Group exposed to unidentified or unexpected risks

The Group's policies, procedures and practices used to identify, measure, monitor and manage a variety of risks may fail to be effective. As a result, the Group faces the risk of losses, including losses resulting from human error, the payment of incorrect amounts to policyholders due to incorrect administration, market movements and fraud. The Group's risk management methods rely on a combination of technical and human controls and supervision that can be subject to error and failure. Some of the Group's methods of managing risk are based on internally developed controls and observed historical market behaviour, and also involve reliance on industry standard practices. Whilst the Group is continually updating its risk management policies and procedures to manage new risks which emerge (for example, those arising in relation to its IT systems and cyber-crime), these methods may not adequately prevent future losses, particularly if such losses relate to extreme or prolonged market movements, which may be significantly greater than the historical measures indicate. These methods also may not adequately prevent losses due to technical errors if the Group's testing and quality control practices are not effective in preventing technical software or hardware failures.

Ineffective risk management policies and procedures could have a material adverse effect on the Group's business, results of operations, financial condition and prospects.

The Group is exposed to the risk of financial crime (including bribery, money laundering and corruption)

The Group is exposed to the risk of internal and external fraud from a variety of sources such as employees, suppliers, intermediaries, customers and other third parties. This includes both policy (i.e. application-related) fraud and claims fraud. Although the Group employs fraud detection processes to help monitor and combat fraud, the Group is at risk from customers, financial intermediaries or other distribution partners or employees who misrepresent or fail to provide full disclosure of the risks or over-disclose medical or lifestyle risk factors before policies are purchased and from a range of other fraud-related exposures, such as the fraudulent use of Group-related confidential information. These risks are potentially higher in periods of widespread financial stress.

Additionally, the Group is exposed to risk from employees and staff members who fail to follow, or who circumvent, procedures designed to prevent fraudulent activities.

The occurrence or persistence of fraud in any aspect of the Group's business could damage its reputation and brands as well as its financial standing, and could have a material adverse effect on its business, results of operations, financial condition and prospects.

The Group is exposed to operational risk in the course of its business and it relies on its employees, operational processes and IT systems to conduct its business in line with its values, governance standards, policies and procedures

The Group relies on its people to deliver the quality of products and services for which it is known and/or the productivity of its people for the cost efficiencies it is able to deliver. In an organisation that is dependent on its talent, their continued commitment, engagement and development is crucial in seeking to address many operational risk factors. The importance of people to the success of the Group's business model means that risks relating to talent attraction, development and retention are considerable.

The employees of the Group underpin all that it does, and how they undertake their duties is influenced by the Group's corporate culture. The Group believes that a positive culture brings positive attitudes and enthusiasm to embrace and adopt change. The Group also acknowledges the destructive consequences of an inappropriate culture. The development of an inappropriate culture could result in employees of the Group failing to adhere to, or follow the recommendations of, the Group's governance standards, policies and procedures and could in turn increase the likelihood of operational risks materialising. Should such risks materialise, this could have a material adverse effect on the Group's business, results of operations, financial condition and prospects.

The Group is exposed to conduct risk

The Group is also exposed to the risk that decisions and behaviours of its Directors or employees do not support the integrity of financial markets, leading to unfair treatment of customers or clients, or otherwise detrimental customer or client outcomes. This might arise where, inter alia, the Group fails to maintain appropriate policies and procedures, to communicate appropriately with customers or clients, to deal with complaints efficiently or to provide appropriate investment or financial advice planning to customers or clients (such as the advice services provided by HUB Financial Solutions Limited). The Group might also be exposed to conduct risk by the conduct or misconduct of employees, over which the Group only has limited control by way of employee policies and procedures.

Conduct risk is an area of close regulatory scrutiny and a failure by the Group (or its employees) to protect the interests of customers or clients could lead to legal proceedings or enforcement action by regulators. This could in turn lead to financial penalties, reputational damage and/or suspension or revocation of regulatory permissions, licenses or approvals, which could in turn have a material adverse effect on the Group's business and prospects.

If the Group experiences difficulties arising from outsourcing relationships, its ability to conduct business may be compromised

The Group outsources some of its key customer service, policy administration and other administrative functions under formal outsourcing arrangements (including Capita in respect of administration and Insight, Robeco, BlackRock and other specialists in relation to the management of the Group's fixed income portfolio). The Group only enters into outsourcing relationships with firms which the Company believes have the know-how, expertise and business models that meet the Group's required standards. The Group aims to maintain effective systems and controls for outsource providers in compliance with the Group's ongoing obligations. However, there can be no assurance that such systems and controls will be completely successful in seeking to avoid, or reduce the potential effects of, underperformance. In particular, while the outsourcing relationships are carefully monitored, underperformance may also result in breaches of applicable law and regulation, which could result in regulatory intervention. There is also a risk that the providers will not be able to keep up with the pace of legal and/or regulatory change (including as a result of Brexit), in which case the Group's operations may become non-compliant.

If the Group does not effectively develop, implement and monitor its outsourcing strategy, or outsourcing relationships do not perform as anticipated or the Group experiences problems with a transition of outsourcing arrangements, the Group may experience poor investment returns, operational difficulties, increased costs, reputational damage and a loss of business that may have a material adverse effect on the Group's business, results of operations, financial condition and prospects. In addition, the failure or insolvency of, or inability to provide the relevant services by, one or more of the Group's third party service providers could have a material adverse effect on the Group's ability to sustain its ongoing operations, which could have a material adverse effect on the Group's business, results of operations, financial condition and prospects.

The Group could be materially adversely affected by the loss of key employees, or by an inability to attract and retain, or obtain FCA or PRA approval for, qualified personnel

The loss of services of key employees could adversely affect the Group. It may need to temporarily fill certain key roles with interim employees while recruitment of permanent staff is concluded. The Group's continued success also depends on its ability to attract, motivate and retain highly competent specialists, particularly those with financial, IT, underwriting, actuarial and other specialist skills. Competition for senior managers, as well as personnel with these skills and proven ability, is intense among insurance companies.

The Group competes with other financial services groups for skilled personnel, primarily based on its reputation, financial position, location, remuneration policies and support services. If the Group fails to compete effectively in the labour market, it may incur significant costs to recruit and retain appropriately qualified individuals.

In addition to regulating the financial services firms themselves, the FCA and the PRA also regulate the individual managers performing certain significant roles. The Group's inability to attract and retain, or obtain FCA or PRA approval for, directors and highly skilled personnel, and to retain, motivate and train its staff effectively, could adversely affect its competitive position, which could in turn result in a material adverse effect on its business, results of operations, financial condition and prospects.

1.8          Taxation risks

Changes in taxation laws may affect decisions of customers

There are specific rules governing the taxation of policyholders. The Group's management cannot predict accurately the impact of future changes in tax law on the taxation of life and pension policies in the hands of policyholders. Amendments to existing legislation (particularly if there is a withdrawal of any tax relief or an increase in tax rates) or the introduction of new rules may impact upon the decisions of policyholders, and could have a material adverse effect on the Group's business, results of operations, financial condition and prospects.

Changes in taxation law may have a material adverse effect on the Group

Changes in corporate and other tax rules (whether in the UK or in other jurisdictions in which the Group operates) could have both a prospective and retrospective impact on the Group's business, results of operations, financial condition and prospects. In general, changes to existing tax laws or their interpretation, or amendments to existing tax rates (corporate or personal), or the introduction of new tax legislation may materially adversely affect the Group's business, results of operations, financial condition and prospects, either directly or indirectly, for example by effecting changes in the insurance purchasing decisions of customers. Changes to legislation that specifically governs the taxation of insurance companies might adversely affect the Group's business. While changes in taxation laws may affect the insurance sector as a whole, changes may be particularly detrimental to certain operators or certain products in the industry. The relative impact on the Group will depend on the areas affected by the changes, the mix of business within the Group's portfolio and other relevant circumstances at the time of the change.

Further, there is currently uncertainty in the UK around the long-term approach to taxation. Should there be a change in government, or a weakening of the existing government's position, this may create uncertain economic conditions and create further uncertainty over the UK's negotiating position with the EU in relation to Brexit, all of which could have a material adverse effect on economic conditions within the UK including the UK property market and could, among other things, lead to an increase in UK tax rates, which could in turn have a material adverse effect on the Group's business, results of operations, financial condition and prospects.

2.            RISKS RELATING TO THE PLACING AND THE PLACING SHARES

Certain members of the Group may be restricted by regulatory and other requirements in their ability to pay dividends

Any decision to declare and pay dividends will be made at the discretion of the Board and will depend on, among other things, applicable regulatory, insurance, foreign exchange and tax laws, rules and regulations that limit the payment of dividends and/or require approval for their payment; the Company's and the Group's financial position and the availability of cash and distributable reserves within the Group; there being sufficient excess above regulatory capital requirements; Board approved capital management policies and buffers agreed with the PRA; working capital requirements; asset and cash liquidity within the Group; gearing levels within the Group; the covenants within the Group's finance and senior debt arrangements; the potential impact on the maintenance of the Group's investment grade rating; finance costs; general economic conditions and other factors the Directors deem significant from time to time.

In certain circumstances, if there is an increase in the regulatory capital requirements of any member of the Group in excess of amounts currently held, or significant threats to policyholder protection were identified, the PRA could intervene in the interests of policyholder security, for example, by imposing restrictions on the fungibility or movement of capital between members of the Group, including the payment of dividends by the Company to Shareholders or the payment of dividends by JRL and PLACL and other regulated entities within the Group to the Company. Moreover, the Company may elect to reduce or forgo dividend payments as a means of maintaining or enhancing its capital position.

In particular, on 6 September 2018, the Board decided to defer the 2018 interim dividend due to the uncertainty surrounding the potential outcomes of the CP. Following the release of the Policy Statement, the Board has decided to strengthen the Group's capital base through the proposed Capital Actions and, under these circumstances, and having considered the views of its largest shareholders, has considered it prudent not to pay a dividend for the 2018 financial year.

Accordingly, changes in circumstances, including changes in applicable regulations, may restrict the ability of the Group to pay dividends and there can be no assurance that the Group will pay dividends in the future. It is also possible that the dividend policy may change in the future as a consequence of any such matters.

The value of an investment in the Placing Shares may go down as well as up and any fluctuations may be material and may not reflect the underlying asset value

Publicly traded securities from time to time experience significant price and volume fluctuations that may be unrelated to the operating performance of the companies that have issued them. In addition, the market price of the Placing Shares may prove to be highly volatile. The market price of the Placing Shares may fluctuate significantly in response to a number of factors, many of which are beyond the Group's control, including:

(a)  any of the matters described in earlier risk factors occurring;

(b)  changes in financial estimates by securities analysts;

(c)  changes in market valuation of similar companies;

(d)  announcements by the Group of significant contracts, acquisitions, strategic alliances, joint ventures or capital commitments;

(e)  additions or departures of key personnel;

(f)   any shortfall in revenues or net income or any increase in losses or decrease in profits from levels expected by securities analysts;

(g)  future issues or sales of ordinary shares; and

(h)  stock market price and volume fluctuations.

Any of these events could result in a material decline in the price of the Placing Shares.

The market price for the Placing Shares may decline below the Placing Price

There is no assurance that the public trading market price of the Placing Shares will not decline below the Placing Price. Should that occur, shareholders who sell their ordinary shares will suffer an immediate loss as a result. Moreover, there can be no assurance that, following an investor's acquisition of ordinary shares, such investors will be able to sell their ordinary shares at a price equal to or greater than the acquisition price for those ordinary shares.

Any future issue of ordinary shares will further dilute the holdings of shareholders and could adversely affect the market price of the Placing Shares

The restricted tier 1 contingent convertible notes (the "Notes") to be issued pursuant to the underwritten benchmark debt offering (the "Debt Offering") will be converted into ordinary shares upon the occurrence of certain trigger events (each a "Trigger Event").

The Notes are not convertible at the option of noteholders, and will only be converted into ordinary shares on the occurrence of a Trigger Event. A Trigger Event shall occur if the Company determines that it has ceased to comply with its capital requirements under Solvency II in a significant way. In particular, a Trigger Event shall occur if the amount of own fund items is equal to or less than 75% of the Solvency Capital Requirement or is equal to or less than the Minimum Capital Requirement, or if there has been a breach of the Solvency Capital Requirement for a continuous period of three months or more.

Subject to the foregoing, the Company has no current plans for an offering or other issue of ordinary shares other than in connection with the Group Share Plans (but subject to the dilution limits in those plans).

However, it is possible that the Company may decide to offer additional ordinary shares in the future either to raise capital or for other purposes. If shareholders do not take up such offer of Placing Shares or are not eligible to participate in such offering, their proportionate ownership and voting interests in the Company will be reduced and the percentage that their ordinary shares would represent of the total issued share capital of the Company would be reduced accordingly. An additional offering, or significant sales of shares by major shareholders, could have a material adverse effect on the market price of the Placing Shares as a whole.

Admission of the Placing Shares may not occur when expected

Application for Admission of the Placing Shares is subject to the approval (subject to satisfaction of any conditions which such approval is expressed) of the London Stock Exchange. Admission will only become effective once a dealing notice has been issued by the London Stock Exchange has acknowledged that the Placing Shares will be admitted to trading. There can be no guarantee that the conditions for Admission will be met or that the London Stock Exchange will issue a dealing notice.

 

 

 


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