Equitas HoldingsLimited

Solvency & Financial Condition Report

As at 31 March 2017

Corporate references

Firm Reference NumberLegal Entity Identifier (LEI)Registered Number

20401921 3800WGE6LUYDKRIO303136296

I

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CONTENTS

SUMMARY 3

A. BUSINESS AND PERFORMANCE 7

B SYSTEM OF GOVERNANCE 11

C. RISK PROFILE 17

D. VALUATION FOR SOLVENCY PURPOSES 19

E. CAPITAL MANAGEMENT 24

APPROVAL BY THE ADMINISTRATIVE, MANAGEMENT OR SUPERVISORY

BODY (AMSB) OF THE SFCR AND REPORTING TEMPL’TES 28

INDEPENDENT AUDITOR’S REPORT 29

LIST OF APIENDICES 32

Appendix 1— GROUP STRUCTURE CHARTAppendix 2— REINSURANCE CHAIN OF SECURITY

Appendix 3 — $FCR TEMPLATES — EQUITAS HOLDINGS LIMITEI)

Appendix 1- SFCR TEMPLATES - EQUITAS INSURANCE LIMITED

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SUMMARY

Introduction and summary

This document is the first Solvency Financial Conditions Report (SFCR) forEquitas Holdings Limited; it is based on the financial position as at 31 March2017. This SFCR incorporates both consolidated information at the level ofEquitas Holdings Limited and its subsidiaries (“the Group”), and solo informationfor the subsidiary insurance undertaking Equitas Insurance Limited (“EIL orSolo”). A structure chart for the Group is attached at Appendix 1.

This report is prepared in compliance with a waiver granted by the PRA witheffect from 18 May 2017.

Key Capital Performance Indicators

Solo Group

2017 2017

£000s £000sAvailable and Eligible Own Funds (56,738) (50,198)

Standard Formula Solvency Capital Requirement128,441 125,946

SCR Deficit

transaction was completed in March 2007.

(185,179) (176,444)

32,110 32,110

(88,848) (82,608)

Minimum Capital Requirement (MCR)

MCR Deficit

Review of the business

Equitas Limited, based in London, was established in September 1996 toreinsure and run-off the 1992 and prior years’ non-life liabilities of Names, orUnderwriters, at Lloyd’s of London.

The Company was transformed when it entered into an agreement in November2006 under which National Indemnity Company, a member of the BerkshireHathaway group of companies, reinsured its liabilities and another member ofthe Berkshire Hathaway group, Resolute iVianagement Services Limited(“RMSL”), took over responsibility for the run-off. This first phase of this

The second phase of the transaction was completed when the High Court madean order on 25 June 2009 approving the transfer under Part WI of the FinancialServices & Markets Act 2000 of the 1992 and prior non-life business of membersand former members of Lloyd’s to Equitas Insurance Limited, a wholly ownedsubsidiary of Equitas Holdings Limited formed for that purpose. The transfercovers all the business reinsured by Equitas Limited at the time ofReconstruction and Renewal in 1996, and includes the PCW syndicates’ business

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reinsured by Lioncover Insurance Company Lmitecl and the Warrilow

syndicates’ business reinsured by Ccntrcwrite Limited. The transfer took effect

on 30 June 2009, and means that Names are no longer liable for their 1992 and

prior years’ underwriting liabilities at Lloyd’s as a matter of UK law. The

transfer is recognised in all EEA jurisdictions.

In jrevious years the Group purchased a total of $7 billion reinsurance cover,

over and above the provisions at 31 March 2006, from National Indemnity

Company (“National Indemnity”), a member of the Berkshire Hathaway group of

insurance companies. A review of the development of the transaction with

National Indemnity is set out below.

The Group has continued to pursue its strategy to run-off the liabilities reinsured

in 1996 which were transferred from the Names to the Group in 2009. A chart

showing the chain of reinsurance is attached at Appendix 2.

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The National Indemnity Reinsurance Agreement

Overview

There were two phases to the transaction. The first phase involved the purchaseof an additional $5.7 billion of reinsurance cover over and above the existingEquitas provisions at 31 March 2006, less claims payments and reinsurancerecoveries received between 1 April 2006 and 31 March 2007. The second phasecompleted during the year ended 31 March 2010 involved the transfer of Names’obligations to policyholders to a new Group company, Equitas Insurmce Limited,and the purchase of additional reinsurance cover of $1.3 billion from NationalIndemnity.

Current cover position

The additional reinsurance cover available at the 31 March is set out in the tablebelow:

2017 2016

$m $rn

Additional reinsurance cover available at 1 April 2016/2015 4,707 4,965

Movement in provisions (54) (235)

Exchange differences (52) (23)

Additional reinsurance cover available at

31 March 2017/2016 4,601 4,707

As at 31 March 2017, $2,399 million (or 34.3%) (2016: $2,293 million (or 32.8%))of the additional $7.0 billion of reinsurance cover purchased from NationalIndemnity has been utilised to cover reserve deterioration since 1 April 2006.The cover remaining that is not yet required is not shown in the financialstatements, nor in the SIT balance sheet in this SFCR.

The level of cover remaining to meet potential liabilities significantly strengthensthe Group’s financial position. The risk that assets will not be sufficient to meetthe liabilities as they fall due has become extremely remote as a result of thereinsurance purchased from National Indemnity.

How the run-off is managed

Resolute Management Services Limited (“RM$L”), a member of the BerkshireHathaway group, manages the run-off as agent for Equitas Insurance Limited(formerly the Names prior to the Part VII transfer). The costs of running RMSLare met by National Indemnity, for as long as the total of claims paid (net ofreinsurance recoveries) by National Indemnity is less than the total coverprovided. RMSL is entitled to exercise wide powers to manage the retrocededbusiness and is required to exercise those powers in the interests of the Groupand Names.

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Protection against reinsurer credit risk

RM$L manages the claims adjusting process. National Indemnity will not be

required to provide security for its reinsurance obligations for so long as National

Indemnity’s insurer financial strength rating, as measured by Standard & Poor’s,

remains at AA- or higher. If, however, National Indemnity’s rating were to drop

below this level, it must either provide a letter of credit or establish a trust fund,

eqtial to 102 per cent of its net liabilities under the agreement (provided that this

does not exceed the remaining reinsurance cover), plus estimated future

operating expenses. If National Indemnity’s rating falls below A- then the 102

per cent requirement increases to 125 per cent (provided that this does not

exceed the remaining reinsurance cover).

At the date of this report the Standard & Poor’s rating for National Indemnity

remains very strong at AA+. The Berkshire Hathaway group (of which National

Indemnity is a part) had a rating of AA. At 31 December 2016, National

Indemnity had $lOlbn surplus as regards policyholders and total assets of

$ 178bn.

Valuation and adequacy of Regulatory Capital

The Standard Formula produces a Solvency Capital Requirement which

management accept as appropriate to use for the business under Solvency II

standards: i.e. corresponding to the Value-at-Risk of the basic own funds of the

company subject to a confidence level of 99.5% over a one-year period. As the

Group is in run-off, management also considers the capital requirement to a

confidence level of 97.5% to ultimate; this is considered managements’ Own

Economic Capital Requirement (OECR).

For the purposes of calculating our SCR we need to arrive at our best estimate of

all possible future outcomes rather than just reasonably foreseeable outcomes.

We therefore have to consider the possibility that losses are significantly greater

than current expectations such that. the National Indemnity reinsurance cover

exhausts. We make an assumption regarding the variability of the different

components of the provisions and then use a stochastic model to determine the

expected net loss to Equitas Insurance Limited (EIL) in excess of the National

Indemnity reinsurance cover.

It is forecast that fIb will continue to fail to meet 1)0th the Standard Formula

Solvency Capital Requirement and management’s Own Economic Capital

Requirement over the current planning horizon; there arc no current indicators

that suggest that this is likely to change over the longer term.

EIL was formed under the less onerous capital requirements of Solvency I and

the Group has no means of raising additional capital. Nevertheless, the Board

believes that the substantial unutilised reinsurance cover available makes the

prospect of the failure of NIL extremely remote. Equitas Insurance Limited is

subject to the requirements of the Solvency II directive and Equitas Holdings

Limited is required to report under Solvency II as the group holding company.

Equitas Limited and Equitas Reinsurance Limited whilst not subject to Solvency

II do have to report solvency criteria in line with the Solvency I requirements

and, for similar reasons do not meet the capital requirements. At the time the

Part VII was approved by the High Court our confidence level was assessed at

96.9%.

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A. BUSINESS AND PERFORMANCEA.1 Business

Eqtiitas Limited, based in London, was established in September 1996 toreinsure and run-off the 1992 and prior years’ non-life liabilities of Names, orUnderwriters, at Lloyd’s of London.

Equitas Reinsurance Limited (“ERL”) completed the reinsurance of the 1992 andprior years’ business, except business previously reinsured by LioncoverInsurance Company Limited (“Lioncover business”), with effect from 3 September1996 and reinsured the Lioncover business with effect from 18 December 1997.It retroceded these businesses to Equitas Limited. Equitas Reinsurance Limitedand Equitas Limited are authorised and regulated under the Financial Servicesand Markets Act 2000 by the Prudential Regulation Authority and the FinancialConduct Authority under Solvency I.

Equitas Limited was transformed when it entered into an agreement inNovember 2006 under which National Indemnity Company, a member of theBerkshire 1-lathaway group of companies, reinsured its liabilities and anothermember of the Berkshire Hathaway group, Resolute Management ServicesLimited (“RMSL”), took over responsibility for the run-off. This first phase of thistransaction was completed in March 2007.

The second phase of the transaction was completed when the High Court madean order on 25 June 2009 approving the transfer under Part VII of the FinancialServices & Markets Act 2000 of the 1992 and prior non-life business of membersand former members of Lloyd’s to Equitas Insurance Limited, a wholly ownedsubsidiary of Equitas Holdings Limited formed for that purpose. The transfercovers all the business reinsured by Equitas Limited at the time ofReconstruction and Renewal in 1996, and includes the PCW syndicates’ businessreinsured by Lioncover Insurance Company Limited and the Warrilowsyndicates’ business reinsured by Centrewrite Limited. The transfer took effecton 30 June 2009, and means that Names are no longer liable for their 1992 andprior years’ underwriting liabilities at Lloyd’s as a matter of UK law. Thetransfer is recognised in all EEA jurisdictions.

During 2009 a newly formed company, Equitas Insurance Limited (“EIL”)accepted the transfer of Lloyd’s Names 1992 and prior year business pursuant tothe Part VII transfer described earlier. It is a wholly owned subsidiary ofEquitas Holdings Limited formed for that purpose and is authorised andregulated under the Financial Services and Markets Act 2000 by the PrudentialRegulation Authority and the Financial Conduct Authority under Solvency II. Itis only authorised to effect and carry out the business that was transferred to itpursuant to the Part WI transfer and cannot accept any new business. Appendix1 shows the group structure and Appendix 2 shows the chain of reinsurance.

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Name and legal form of the Undertakings

Equitas Holdings Limited (EHL) is a limited company incorporated and

domiciled in England and Wales (No. 03136296). Regulated under Solvency II,

El-IL’s registered address is $ Fenchurch Place, London EC3M 4AJ.

Equitas Insurance Limited (f IL) is a limited company incorporated and

domiciled in England and Wales (No. 06704451). Regulated under Solvency II,

E1L’s registered address is $ Fenchurch Place, London EC3M 4AJ.

Equitas Reinsurance Limited (ERL) is a limited company incorporated and

domiciled in England and Wales (No. 03136300). Regulated under Solvency I,

ERL’s registered address is $ Fenchurch Place, London EC3M 4AJ.

Equitas Limited (EL) is a limited company incorporated and domiciled in

England and Wales (No. 03173352). Regulated under Solvency I, EL’s registered

address is $ Fenchurch Place, London EC31VI 4AJ.

The National Indemnity Transaction

On 30 i\’larch 2007 Equitas Limited entered into a whole account retrocession

agreement with National Indemnity Company, a member of the Berkshire

Hathaway group of companies.

Futtire outlook

The Group will continue to focus on monitoring the run-off, which is managed by

RMSL as agent for Equitas Insurance Limited (formerly Reinsured Names).

As expected, the caj)ital requirements have not been met and it is unlikely that

the requirement will be met in the foreseeable future. Equitas Insurance Limited

(ML) was formed under the less onerous capital requirements of Solvency I and

the Group has no means of raising additional capital. Nevertheless, the Board

believes that the substantial unutiised reinsurance cover available makes the

prospect of the failure of ML extremely remote. Equitas Insurance Limited is

subject to the requirements of the Solvency II directive and Equitas Holdings

Limited is required to report under Solvency II as the group holding company.

Equitas Limited and Equitas Reinsurance Limited whilst not subject to Solvency

II do have to report solvency criteria in line with the Solvency I requirements

and, for similar reasons do not meet the capital requirements.

The Company employs only one member of staff its Chief Executive. By virtue

of the remsurance contract between the Group and National Indemnity, the day

to day operations are undertaken by Resolute Management Services Limited, a

member of the Berkshire Hathaway Group. This can he considered to be a form of

outsourcing although it arises from the reinsurance transaction rather than

separate outsource agreement.

There are some items that fall outside the remit of the reinsurance contract, but

the great majority of the activities fall within its remit. One of the key

responsibilities of the Chief Executive is to monitor the operation of the run-off to

ensure that it is being managed appropriately in accordance with the contract.

Whilst. the remaining cover is significantly greater than the liabilities, the

financial risk lies with National indemnity, and so by virtue of the contractual

agreement, the ability to control the day to day operations is very limited.

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Supervision

The Group is authorised by the Prudential Regulation Authority and regulatedby the Financial Conduct Authority and Prudential Regulation Authority.The PRA may be contacted through their website at www.bankofeng1and.co.uj/paor at 20 Moorgate, London, EC2R 6DA.

The FCA may be contacted through their website at www.fca.org.uk or at 25 NorthColonnade, Canary Wharf, London, EN 5HS.

Auditor

As reported in the Report and Accounts, the Group’s external auditor isPricewaterhouseCoopers LLP, 7 More London Riverside, London $E1 2RT.

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A2 Underwriting Performance in 2017

Management are responsible for ensuring that the business is adequately

capitalised and safely managed. rp Governance structure and Risk

management processes are designed to ensure this. The Group took on its UK-

written liabilities in 1996 and 1997 and has not written any insurance business

since that time.

For the year ended 31 March 2017, the Group reported a loss after taxation of

£43 1k.

As at 31 March 2017, the Group had Shareholders’ funds amounting to £78,045k

and UK GAAP Balance Sheet Technical gross provisions as set out below:

Provision for claims outstanding for both EHL Group & EIL Solo

Claims Reinsurance Net

£000s £000s £000s

Provisions at 1 April 2016 4,768,176 (‘1.768,176) -

Payments, receipts and accruals (425,135) 425,135 -

Reassessment of liabilities and reinsurances 28,767 (28,767) -

Exchange movements 593,678 (593,678) -

Provisions at 31 March 2017 4,965,486 (1,965.186) -

The above Gross £2$,767k of Incurred losses have arisen fully from UK-written

business, of which £27,222k (or 95%) has arisen from the Liability classes.

Because of the uncertainties inherent in the Group’s liabilities, there are many

assumptions and estimation techniques which individually could have a material

impact on the amount of liabilities and the related reinsurance assets. Actual

experience will often vary from these assumptions, and any consequential

adjustments to amounts previously reported will be reflected in the results of the

year in which they are identified. The provision for claims outstanding is based

upon actuarial and other studies of the ultimate cost of liabilities including

exposure based and statistical estimation techniques.

Significant delays occur in the notification and settlement of certain claims, and

a substantial measure of experience and judgment is involved in making the

assumptions for assessing outstanding liabilities, the ultimate cost of which

cannot he known with certainty at the balance sheet date. rllhe gross provision

for claims outstanding and related reinsurance recoveries is estimated on the

basis of information currently available.

The provision for claims outstanding includes significant amounts in respect of

notified and potential IBNR claims for long tail liabilities. The settlement of

these claims is not expected to occur for many years, and there is considerable

uncertainty as to the amounts at which they will be settled.

Where a claim is disputed, the validity of the claim is ultimately an issue that

can only be determined by the courts. The provisions for disputed claims are

based on the Group’s view as to the expected outcomes of such court decisions.

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Uncertainty is further increased because of the potential for unforeseen changesin the legal, judicial, technological or social environment, which may increase ordecrease the cost, frequency or reporting of claims, and because of the potentialfor new sources or types of claim to emerge.

A3 Investment Performance in 2017

Investments are invested in shares and other variable yield securities, debtsecurities and other fixed interest securities. The external investment manager,BlackRock, is permitted to use derivative financial instruments for efficientportfolio management purposes. At 31 March 2017 the derivative position was anet zero.

The Fund is held to invest the long term ongoing capital reserves of the Group.There are strict limits placed on the type, value and term of such contracts; thesecontracts are included in the financial statements on a fair value basis. Up to50% of the Fund can be invested in non-Sterling assets on a fully hedged basis atany one time. Fixed forward currency contracts are arranged to eliminate thecurrency risk. Gilt, Bund and US futures and options are bought or sold duringthe year to gain exposure to that market or reduce duration risk and are fullycovered by cash holdings. Credit default swaps are used to hedge specific creditrisk and to implement investment views. Further details of the investments andderivative positions are provided in the Report and Accounts.

The estimated fair value of these investments held by the Group as at 31 March2017 was £$3,169k (EIL £37,144). For the year ended 31 March 2017, theCompany Group reported an investment return gain of £904k, with associatedinvestment management fees of221k (EIL: £53$k income less £98k fees).

The EHL Board of Directors is satisfied with the 2017 performance of the Group.

A4 Performance of Other Activities

The Group does not undertake any other activities other than the orderly run-offof Claims provisions. Administration expenses for the Group for the year ended31 March 2017 were £1,335k for the Group, including1,163k for EIL.

A5 Any Other Material Information

The information presented in section A is extracted from the FinancialStatements and provides a complete view of the business and performance of theCompany during the period.

There is no other material information relating to business and performance

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B. SYSTEM OF GOVERNANCE

Bi. General information on the System of Governance

Ownership

Equitas Holdings Limited is owned by the Equitas Trust. The current Trustees

are Mr ME MeL Deeny (Chairman), Messrs DES Shipley, R13 Spooner and Sir

Adam Ridley.

The Corporation of Lloyd’s owns the one deferred share in the capital of EHL,

which carries the right to appoint one Director.

Board

EHL and its wholly-owned subsidiaries are is run by a common Board of

Directors. Meetings are normally held on a quarterly basis with additional

meetings scheduled as required.

Board members at 3] March are:

David Shipley - Chairman

Jeremy Heap - Chief Executive Officer

Jane Barker - Non-executive Director

Glenn Brace - Non-executive Director

Michael Deeny - Trustees’ Nominated Director

John Parry - Lloyd’s Nominated Director (appointed 22 Juno 2016)

Sir Adam Ridley - Trustees’ Nominated Director

Richard Spooner - Trustees’ Nominated Director

The Board meets regularly to receive the operational reports for the Group from

RMSL relating to the run-off activities, monitor the investment portfolio, deal

with regulatory matters and handle any other corporate business.

Whilst the 4 main key Governance functions of Risk Management, Internal

Control, Compliance and Actuarial are all outsourced to RMSL, full responsibility

remains with the Group Board and is exercised by direct oversight by the Group

Chief Executive Officer (CEO). These functions and reporting procedures are

applied consistently across the Group, and the CEO satisfies himself that the

resources applied are appropriate.

Furthermore, the CEO is a member of the RMSL Audit committee.

There are no committees of the Board since all matters are brought to the

attention of the whole Board.

1)irectors’ remuneration is on a fixed fee basis which is reviewed annually by the

Board.

Risk Management, Internal Control systems and reporting procedures are

applied consistently across the Group.

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Key responsibilities of the Board include:1. Determining the strategic direction of the Group and to define Risk Appetite.2. Ensuring that the Group has a suitably resourced system of Compliance and

Independent Review and to monitor the adequacy of its operation.

3. Ensuring that the Group Treats Customers Fairly and has adequate systemsto address Financial Crime risks.

4. Ensuring that the Group is compliant with all relevant legislation. Thisincludes PRA & FCA and applicable overseas Insurance Regulations andCodes of Practice.

5. Preparing an OR$A report (Forward Looking Assessment of Own Risks inaccordance with the Own Risk and Solvency Assessment principles)

6. Ensuring the System of Governance remains appropriate.

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B2. Fit and Proper Requirements

The Group has a policy which sets out the procedures to ensure that all those

undertaking controlled functions on behalf of the company are and remain fit and

proper to carry out those functions.

These procedures ensure that the CEO

‘ meets the requirements of the Regulators’ ‘fit and proper’ test and follow its

principles;

• complies with the Statement of Responsibilities; and

• reports anything that could affect their on-going suitability.

The following factors are taken into account when deciding whether an individual

is fit and proper:

their honesty, integrity and reputation;

• their competence and capability; and

• their financial soundness.

Fitness and propriety checks are made by the Board before an individual is

appointed to carry out a controlled function.

B3. Risk management system including the own risk and solvency

assessment

The Group remains exposed to financial risk through its reinsurance assets,

financial assets and liabilities. The Group recognises the importance of having

efficient and effective risk management systems in place to identify, manage and

monitor those risks. EHL has developed a risk register which is considered by the

Board at each of its meetings.

The key business strategy for El-IL was encapsulated in the decision to purchase

the whole account run off reinsurance from National Indemnity Company and to

transfer the day-to-day management of the claims’ run-off and the collection of

the reinsurances to RMSL. EHL therefore takes few business decisions in

respect of the run off while the National Indemnity contract is operating properly

and valid claims are being paid.

rIhe Equitas Group continues close oversight of this Outsource by the Group CEo

workrng closely with the RMSL Senior management.

The contract with National Indemnity is specific on the triggers at which EHL

must commence taking key business decisions. The Board review regularly

whether any protections in the contract with National Indemnity have been or

should be triggered.

Own Risk and Solvency Assessment (ORSA)

EHL has developed an “Own Risk and Solvency Assessment” (ORSA) process. It

is an on-going process that produces an ORSA Report (being a Forward Looking

Assessment of Own Risks or “FLAOR”) at least annually, both at Group and

Insurer level. The process and report are central to the management of risk, and

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monitoring capital requirements and availability, and is executed by the GroupCEO’s close interaction with RMSL Senior management.

The OR$A is a continuing process and the ORSA Report will normally beproduced annually and presented to the Board for their review, challenge andapproval.

The report will be updated at other times for the following defined events:

Significant changes in the assessment of gross provisions

Downgrade of National Indemnity rating;

1 Significant change to investment strategy

B4. Internal Control System

Internal controls are implemented to control risk. All internal controls areefficiently designed to achieve the required level of control in a cost—effectivemanner.

Internal controls are required where the inherent risk is in excess of the agreedrisk appetite. Internal controls that are required to reduce the residual risk tothe agreed risk appetite are defined as key controls. Controls required forregulatory purposes are identified as such.

As noted above the responsibility for running off the claims and collection of thereinsurances falls to RMSL and they have put in place an internal control systemfor their operations in relation to the Equitas business they manage.

RMSL Internal controls are identified with a defined owner responsible formaintenance of the control.

RMSL Internal controls are fully documented. The documentation includes:

• description of the control

• control category — preventative/detective/corrective

• control type — manual] automatic/organisational

‘ control owner

• risks mitigated by control, and control importance relative to risks (keycontrol]supplementary control)

• whether control is a regulatory requirement and applicable regulation

• explanatory note regarding control operation

• for detective controls — identification of control performer; definition ofcontrol frequency; documentation requirement for evidence of controlperformance

Internal control performance is recorded in the Risk Management and InternalControl System. There is a quarterly management report to the RMSL riskcommittee reporting control performance.

Internal controls are subject to verification of control operation and existence bythe RM$L Chief Compliance OffIcer and RMSL Head of Group Internal Audit.

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B5. Internal Audit Function

The function of Internal Audit is to 1)rovide independent, objective assurance.

R1\’iSJJs operations arc assessed by their Internal Audit team to evaluate and

improve the effectiveness of risk management, control and governance processes.

Reporting directly to the Chair of the RM$L Audit Committee, the RMSL Head

of Group internal Audit operates independently from the business and has

unrestricted access to all activities undertaken in RMSL, in order to review,

appraise and report on:

The adequacy and effectiveness of the systems of financial, operational and

management control and their operation in practice in relation to the

business risks to be addressed;

• The extent of compliance with, relevance of and financial effect of, policies,

standards, plans and procedures and the extent of compliance with external

laws and regulations, including reporting requirements of regulatory bodies;

• The extent to which adequate business continuity plans exist;

• The suitability, accuracy, reliability and integrity of financial and other

management information and the mems used to identify measure, classify

and report such information;

The integrity of processes and systems, including those under development,

to ensure that controls offer adequate protection against error, fraud and loss

of all kinds; and that the process aligns with the organisation’s strategic

goals;

• The suitability of the organisation of the units audited for carrying out their

functions, and to report where services arc provided in a way which is

economical, efficient and effective;

• Recommendation of the follow-up action required to be taken to remedy

weaknesses identified by Internal Audit review including monitoring

completion against the required resolution date, and, ensuring that good

practice is identified and communicated widely;

Preparation of an annual audit plan and submission of the plan for review

and approval to the RMSL Audit committee;

• Carrying out the approved audit plan and reporting to the RMSL Audit

committee;

Reporting to the RIVISL Audit and Risk Committee at least annually on:

a. Assessments of the adequacy and effectiveness of RMSL’s systems of risk

management and internal control based on the work of Internal Audit

h. reporting significant issues related to the processes for controlling

RMSL’s activities, including potential improvements to those processes,

and provide information concerning such issues through to resolution;

andc. Providing periodic information on the status and results of the annual

audit plan and the sufficiency of Internal Audit resources.

The CEO of Equitas Holdings Limited is a member of the RMSL Audit

committee.

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B6. Actuarial Function

RMSL has developed an Actuarial Team that specialises in the assessment andreserving of companies in run-off that are managed by Resolute.

The actuarial function engages with the Board, regulators, and auditors toensure that the risks that the group faces are well understood and reflected inthe analysis performed as part of the reserving processes.

Principal responsibilities of the Actuarial Function are:

• Advising the Board on the appropriate level of provisions.

• To keep the group updated with significant reserving related developmentsthroughout the year.

• To undertake the calculation of the technical provisions of the group andexplain any material changes in data, methodologies or assumptions betweenvaluation dates.

• The provision of actuarial information to the business as required includinginto Solvency II Pillar 3 Reporting.

B7. Outsourcing Arrangements

Outsourcing is an arrangement where an Outsource Provider is appointed toperform particular activities which would otherwise be undertaken by staffdirectly employed by the company. The Company employs only one member ofstaff. By virtue of the reinsurance contract between the Equitas Group andNational Indemnity, the day to day operations are undertaken by RMSL, amember of the Berkshire Hathaway Group. RIVI$L is a UK company. This can beconsidered to be a form of outsourcing although it arises from the reinsurancetransaction rather than separate outsource agreement.

There are some items that fall outside the remit of the reinsurance contract, butthe great majority of the activities fall within its remit. One of the keyresponsibilities of the Chief Executive is to monitor the operation of the run-off toensure that it is being managed appropriately in accordance with the contract.Whilst the remaining cover is significantly greater than the liabilities, thefinancial risk lies with National Indemnity, and so by virtue of the contractualagreement, the ability to control the day to day operations is very limited. It isa requirement of the contract that a financial report is prepared by RMSL eachquarter which is presented to the board of EHL. Members of Resolute attendparts of the EHL board meeting to present their’ report and answer questions,thus the board is not reliant on the Chief Executive as their sole source ofinformation.

The Equitas Group does have the right to consider certain claims, reinsuranceand commutation transactions when they arc of a significant size and they arewith a counterparty that is related to the Berkshire Hathaway group. Thedefinition of such related party activities is very widely drawn.There are other activities which do not fall under the reinsurance contract whereEHL has chosen to outsource these activities, some of them to RMSL and othersto third parties.

Page 17

RMSL provide the following services to the Equ.itas Group (EHL):

1. Keeping and maintaining accounting records which are sufficient to show

and explain the EHL transactions and disclose with reasonable accuracy (at

any time) the financial position of El-IL to enable the Directors to ensure that

the EHL balance sheet and profit and loss are properly prepared.

2. Preparing (subject to the approval of the Board) annual reports and accounts

and providing the Board with any or all information, explanations and

assistance as they may require in connection with the accounts of EHL.

3. Reviewing and finalising quarterly management accounts as reasonably

required by El-IL.

4. Providing the auditors with any or all information, explanations and

assistance as they may require in connection with auditing the accounts of

EUL.

5. Supplying internal audit services as may be required by EIIL from time to

time.

6. Preparing and submitting returns to the regulators on behalf of El-IL and

dealing with all matters relating to the preparation and submission of such

returns.

7. Providing premises and information technology.

The Chief Executive is responsible for the oversight of the services provided by

RMSL.

Investment Management is outsourced to Blackrock Investment Management

(UK) Ltd. (Blackllock), based in London. The investment mandate is established

by the Board, with any changes to the mandate and applied by l3lackRock.

Furthermore, BlackRock’s compliance to the investment mandate is

independently verified by RMSL Finance, in conjunction with a specialist

investment reporting company, Clearw ater Analytics Inc.

BlackRock is permitted to use derivative financial instruments for efficient

portfolio management purposes. The Fund is held to invest the long term on

going capital reserves of the Group. There are strict limits placed on the type,

value and term of such contracts: these contracts are included in the financial

statements on a fair value basis. Up to 50% of the Fund can be invested in non-

Sterling assets on a fully hedged basis at any one tune. Fixed forward currency

contracts are arranged to eliminate the currency risk. Gilt, Bund and US futures

and options arc bought or sold during the year to gain exposure to that market or

reduce duration risk and are fully covered by cash holdings. Credit default swaps

are used to hedge specific credit risk and to implement investment views.

Entering into an outsource arrangement does not relieve the Board of its

responsibility for the outsourced activity.

B8. Any Other Information

There is no other material information relating to the system of governance for

the Equitas Group.

Page 18

C. RISK PROFILE

rThe Group distinguishes between Strategic Risks and Operating Risks as themanagement of these risks have different characteristics.

Strategic Risks involve both risk and reward. In the context of the Group theseare essentially insurance Risk, Market Risk, Reinsurer Credit Risk, and MarketRisk.

Analysis of Risk Profile (As per Form S.25.O1)

EIL Solo basis and EHL Group basis, as at 31 March 2017

EIL Solo EHL Group

£000s £000s

Insurance Risk 26,228 26,228

Market Risk 30,586 26,811Counterparty default Risk 69,970 70,096Diversification Credit (27,983) (26,254)

Basic SCR 98,801 96,881

Operational Risk 29,640 29,065

Final Standard Formula 5CR 128,441 125,946

MCR 32,110 32,110

Cl. Insurance Risk (Underwriting Risk)

The group is in run-off and considers insurance risk within its general insuranceactivity to be the management of claims and the adequacy of reserving. The riskrelates to the inherent uncertainty around the level of provisions held. Actuarialclaims reserving is conducted by RMSL on a prudent basis such that provisionsare more likely to be overstated rather than understated, however there remainsa reasonable possibility that the final outcome will show that provisions areunderstated and possibly by a material margin. The additional reinsuranceprotection purchased by the group provides substantial protection in excess ofcurrent gross liabilities. The adequacy of the Company’s provisions is overseen bythe Board.

C2. Market Risk

Market Risk is the risk of an adverse financial imp act because of changes infuture cash flows of financial instruments owing to fluctuations in interest ratesand market prices. The Company’s investment strategy is conservative to ensurethat investments are managed in accordance with the prudent persons principle.The mandate for the external fund manager (Blackrock) places controls overinvestment quality and restricts the level of exposure to each non-governmentcounterparty. A minimum of 25°A of the portfolio is invested in UK government

Page 19

related instruments or cash at all times. The Company has no off-balance sheet

transactions.

C3. Reinsurer Credit Risk

Reinsurer Credit Risk is the risk of loss in the financial assets due to

counterparties failing to meet all 01. part of their obligations.

Reinsurance remains in force from the syndicates pre-1993, the reinsurance

contract with National Indemnity Inc (NICO) includes all the credit risks for this

original reinsurance hence the Group only considers the NICO contract in

relation to credit risk.

In the event of significant adverse claims experience, the Group is highly reliant

on the ability of its reinsurer, National Indemnity Company (National

Indemnity) to respond. Based on year end available figures, National Indemnity

reported surplus assets of greater than U$$lOlbn and total assets of U$$182bn

and is rated AA+ by S&P rating agency.

In addition, should the rating of National Indemnity fall below AA-, National

Indemnity has to collateralise its’ obligations by either a letter of credit, or

putting assets into a trust fund.

However, it should be noted that we are unable to recognise NICO’s

collateralisation obligations within the standard formula calculation of

Counterp arty default Risk, hence this is a significant component of the SCR.

C4. Liquidity Risk

Liquidity risk is the risk that the Group cannot meet its obligations associated

with financial liabilities as they fall due. The Group manages its liquidity in

order to maintain sufficient financial resources to meet obligations as they fall

due. A portion of the Group’s resources that would cover several months’

expenses is retained in readily realisable bank and money market deposits and

thus liquidity risk is low. National Indemnity is responsible for settling insurance

claims as they become due.

Given that liquidity is not a material risk for the Group, no specific risk

sensitivity is provided.

C5. Operational Risk

Operational Risk is the risk of an adverse financial impact owing to being in

business and can arise from the operation’s people, processes, and systems.

Reliance is placed on the Chief Executive and the Company Secretary to provide

oversight of each other’s actions. RMSL has issued a procedures and controls

document for the activities it undertakes.

C6. Other Material Risks

There are no other material risks.

Page 20

C7. Stress testing and sensitivity analysis

As the group is in run-off, management also considers the capital requirement toa confidence level of 97.5% to ultimate. rfhis is considered managements’ OwnEconomic Capital Requirement and this gives management an additional view ofthe Risk Profile.

The models used to calculate best estimate provisions and capital requirementsare based on a number of parameter assumptions.

Sensitivity analyses are performed on these models. This informs managementregarding the more sensitive parameters. These sensitivity exercises areundertaken for both the managers’ assessment of the OECR and for the SolvencyII regulatory capital requirement.

Scenario testing is also undertaken based on a number of management definedscenarios which are applied and reported for ultimate best estimate. Thescenarios are by definition considered to be adverse, and potentially extreme,events and therefore a representation of the circumstances that may apply andprompt one of the adverse scenarios in the capital modelling; they are used tohelp contextualise extreme outcomes projected by modelling.

Key results of Stress testing

Analysis shows that Insurance Risk is material. The most sensitive parameterassumptions are those that determine the distribution of gross insurance losses,since more variable distribution assumptions lead to a larger simulatedprobability that the NICO cover exhausts, leading to a larger net best estimateand larger OECR.

Sensitivity Discounted Net Of CRBest Estimate (Ultimate

, basis)£000sL000s

Base, selected 78,496 448,497

Higher loss variability 124,849 1,016,282

Lower loss variability 50,569 -27,962’

Higher correlation between classes 87.835 582,098

Lower correlation between classes 72,410 339,797

The analysis also demonstrated that Reinsurer Credit Risk is not material. Thisis due to the mitigating effect of the collateral arrangements within the NICOreinsurance contract, which we are unable to recognise in our standard formula$CR calculation, but do recognise in our OECR assessment.

1 A negative OECR indicates that the net best estimate (mean) is above the 97.5”percentile

Page 21

Another well informed actuary with access to the same underlying information

may well regard either our ‘Higher loss variability’ scenario or our ‘Lower loss

variability’ scenario as their preferred best estimate. Our selected best estimate

sits in the middle of what we would regard as a range of reasonable best

estimates. This highlights the materiality of Insurance Risk and an unavoidable

limitation in the analysis.

Material Risk concentrations

With reference to the Group’s Risk profile above, the most material risk

concentration arises within the Counterparty default risk measure, and is due to

the fact that all Reinsurer Credit Risk relates to the NICO contract. However

this risk is greatly reduced by the collateral obligations within the contract.

There are no material risks concentrations within the Insurance, Market or

Operational Risks.

Page 22

D. VALUATION FOR SOLVENCY PURPOSES

The details of the Group’s Assets and Liabilities as at 31 March 2017 aredisclosed in the table below, along with the valuations adjustments between UKGAAP and the Solvency II equivalents.

The equivalent table for Equitas Insurance Limited (Solo) is also presentedbelow.

In accordance with Article 75 of the Solvency II Directive, the Company’s assetsand liabilities other than technical provisions are measured in accordance withprinciples of an arm length transaction between knowledgeable willing partiesusing consistent valuations methods.

Page 23

Eguitas Holdings Limited Solvency II Value

Group ReclassnAdjustments Solvency II

Notes UK GAAPSolvency IC Balance Sheet AdJ s Technical

Otheras at 31 March 2017. £000 I rovisions

As sets

Total Investments 81,892 1,106 82,998

Government Bonds 1 16,448 66 16,514

Corporate Bonds 1 31,566 352 31,918

Collateralised Securities 1 7,780 6 7,786

Collective Investment Undertakings 1 26,561 26,564

Derivatives 3 (466) 682 215

Deposits other than cash equivalents 1

Reinsurance Recoverables 2 4,965,486 (957,098) 4,008,388

Non-life excluding health 4,860,548 (950,052) 3,930.496

Health similar to non-life 84,938 (7,046) 77,892

Cash and cash equivalents 1 2,643 2,643

Other assets 1 440 (414) 25

Total Assets 5,050,461 692 (957.098) 4,094,055

Liabilities

Total Non-Life Technical 4,965,486 (828,555) 4,136,931Provisions

Technical ProVisions — non-life4 4880548 (824,013) 4,056,535

excluding ]tealth

Best list mtate .1 4,007,463

Risk margin 49,072

Technical provisions - health (similar84,938 (4,542) 80,397

to non-life)

l3est estimate 4 79,422

Risk Margini 4 975

Derivatives 3 692 692

Other liabilities 5 6,930 6,930

Total Liabilities 4,972,415 (628,555) — — 4,1.44,553

Excess of Assets over Liabilities 78,045 (128,543) (50,498)

Page 24

Solvency II ValueReclass’n Adjustments

Adj’s TechnicalProvisions

Eguitas Insurance Limited Solo

Solvency II Balance Sheetas at 31 March 2017, £000

As sets

Notes UK GAAPSolvency II

Other

Total Investments 77,222 499 77,721

Holdings in related undertakings 40,673 40,673

Government Bonds 1 7,520 30 7,550

Corporate Bonds 1 14,079 163 14,242

Collateralised Securities 1 3,416 3 3,419

Collective Investment Undertakings 1 11,745 11,745

Derivatives 3 (210) 303 93

Deposits other than cash equivalents 1

Reinsurance Recoverables 2 4,965,486 (957,098) 4,008,388

Non-life excluding health 4,880,548 (950,052) 3,930,496

Health similar to non-life 84,938 (7,046) 77,892

Cash and cash equivalents 1 613 613

Other assets 1 198 (191) 7

Total Assets 5,043,519 308 (957.098) 4,086,730

Liabilities

Total Non-Life Technical4,965,486 (828,631) 4,136,856Provisions

Technical provisions — non-life1 4,880,548 (824,089) 4,056,461excluding health

Best Estimate 4 4,007,463

Risk margin 48,998rIechnicay provisions - health (similar

84,938 (4,542) 80,395to non-life)

Best estimate 4 79,422

Risk Margin 4 974

Derivatives 3 308 308Sub-Ordinated Loans 5 20,242 20,242

Other liabilities 5 6,305 6,305

Total Liabilities 4,992,031 308 (828,631) 4,163,710

Excess of Assets over Liabilities 51487] (128,467) (76,980)

Page 25

Dl. Assets

Note 1 For Solvency II valuation mirposes:

Investments

Bonds and collateralised securities are valued at the quoted market price plus

the value of accrued interest due as at the balance sheet date and therefore

requires a reclassification transfer from UK GAAP. All investments are

individually assessed against publicly-available market sources to assess and

confirm that they remain actively traded.

Money Market Funds — IVloney market funds are valued at the quoted market

price as at the balance sheet date.

Deposits other than cash equivalents — Deposits are valued at the value of the

deposit as at the balance sheet date.

Cash and cash equivalents

Cash and cash equivalents are valued at fair value as at the balance sheet date.

Investments valued on a Solvency II basis include accrued interest income which

is included in other debtors on a UK GAAP basis.

Overall these adjustments have nil impact on the valuation of the Assets, and are

simply reclassifications for Solvency II Reporting.

Other assets

Trade Receivables (not insurance) are valued at fair value as at the balance sheet

date. These include Accrued Interest on Investments on the UK GAAP valuation,

with this being re-allocated to the Investments themselves on the Solvency 11

valuation basis.

Holdings in related undertakings are in respect of non-Solvency II administered

subsidiaries, and: -

For Group — these are removed upon consolidation for both the UK GAAP

and Solvency II reporting purposes;

Ior EIL — these are valued at Net Asset Valuation for both the UK GAAP

and Solvency II reporting purposes.

Page 26

Note 2 For Solvency II valuation purposes:

Reinsurance recoverable

Reinsurance Recoverable — Solvency II values are calculated by applying theNational Indemnity cover to the best-estimate gross claims; as opposed to thebook (i.e. prudent) gross claims reported in the statutory accounts. The SolvencyII values are also discounted; whereas the statutory values are not.

Solvency II values are calculated using a stochastic model to determine theexpected net loss to Equitas in excess of the National Indemnity cover andtherefore determine a best estimate for reinsurance recovery.

Note 3 For Solvency II valuation purposes

Derivatives

Derivatives including futures, options and credit default swaps are stated at bidprices provided by various recognised sources. For short term money marketinstruments, where market values are not available, fair values are calculated bydiscounting expected cash flows at prevailing interest rates at the balance sheetdate. The fair values of forward exchange contracts are determined based onmarket forward exchange rates at the balance sheet date.

For UK GAAP reporting purposes, the Derivatives’ assets and liabilities arereported collectively as a Net asset, whereas Solvency II requires these to bereported separately.

Overall these adjustments have nil impact on the valuation of the Assets, andare simply reclassifications for Solvency II Reporting.

Page 27

D2 Technical Provisions

Note 4 For Solvency II valuation purposes:

The Board has determined that it is appropriate to use the So]vency TI Standard

Formula to set the SCR Risk Capital for this company. We have used the 2016

(version 7) Lloyd’s standard formula template for our’ calculations, and this

strategy has been approved by the Prudential Regulatory Authority.

With reference to the Solvency II Balance Sheets for’ EHL Group and EIL Solo on

pages 24 & 25 the required Solvency II adjustments are as follows:

Discounted Claims’ Best Estimate —On a GAAP basis it is assumed that

under all reasonably foreseeable events claims will not be significant enough to

exhaust the NICO reinsurance, hence GAAP net provisions are zero GBP.

Solvency II (SIT) requires technical provisions to reflect a best estimate of all

possible outcomes. We use a Stochastic Model to simulate losses against the

NICO reinsurance. In a small minority of simulations the NICO reinsurance

exhausts, leading to a Undiscounted Net Best Estimate of £69,$23k. Risk free

curves as specified by EIOPA (no volatility adjustment) are applied within each

simulation of the Stochastic Model to arrive at the discounted provisions. The

Discounted Net Best Estimate $11 provisions are £40,452k.

All of’ the above figures are the same for both Group & Solo.

Expenses - The STI technical provisions include an allowance for expenses (both

ULAE and non ULAE). National Indemnity also provides significant aggregate

cover for expenses, but a small amount is added to the SIT technical provision to

allow for exhaustion and Bad Debt of’ this expense cover. The total expense

figures (excluding had debt) added to the SIT technical provision for Group was

£37,052k undiscounted and £29, 147k discounted.

MI of the above figures are the same for both Group & Solo.

Bad Debt - the bad debt provision is an adjustment to take into account the

potential losses owing to the default of the reinsurance counterparties. Although

there is a contractual commitment by National Indemnity to collateralise their

obligations should their rating published by Standard & Poors fall below AA-, the

regulations do not allow us to take any credit for this in our SCR calculations. in

addition, there are long-standing regulatory trust funds maintained in USA,

Canada & Australia containing assets in excess of £2.3 billion which are

available to pay the underlying claims in the event of default by National

Indemnity. However, the SIT regulations do not allow us to take these into

account in our SCR calculations. Perversely, our. Technical Provisions for bad

debt will likely improve if National Indemnity’s credit rating falls, due to the

collateral being additionally then provided.

Owing to the very low probability of the reinsurance not responding, for Solvency

11 valuation purposes the Bad Debt is £l2,529k undiscounted and £8,897k

discounted.

AU of the above figures are the same for both Group & Solo.

Page 28

Risk Margin - the Risk Margin is calculated by first obtaining the SolvencyCapital Requirement (5CR) using the standard formula calculation (excludingMarket Risk). This is assumed to decrease over time in line with the net reserveand bad debt patterns obtained from the stochastic model. A 6% capital chargewas then applied to each projected year and discounted using the EIOPA riskfree rates.

The resulting risk margin for Group was £50, 047k (Solo £4•9,971k).

Page 29

D3 Other Liabilities

Note 5 For Solvency II valuation purposes:

Sub-ordinated Loan with related undertaking is valued at the fair value of

the amount outstanding, being:

For Group — these are removed upon consolidation for both the UK GAAP

and Solvency II reporting purposes;

For EIL — these are valued at Net realisable valuation for both the UK

GAAP and Solvency II reporting purposes, based on the cost of the loan

plus the associated compound interest charged.

Reinsurance payables are valued at the fair value of the amount outstanding

reduced by the bad debt provision where applicable. Owing to the short term

nature of these amounts discounting is considered to be unnecessary.

Trade Payables (not insurance) are valued at fair value as at the balance sheet

date.

D3 Alternative Valuation Methods

The Group do not use any alternative valuation methods

P4. Any Other Information

There is no other material infbrmation relating to the valuation fr Solvency II

purposes of the Group during the period.

Page 30

E. CAPITAL MANAGEMENT

Equitas Insurance Limited tElL) is subject to the requirements of the Solvency IIdirective and Equitas Holdings Limited is required to report under Solvency II asthe group holding company. EIL was formed under the less onerous capitalrequirements of Solvency I and the Group has no means of raising additionalcapital.

El. Own Funds

All Own Funds for the Group are Tier 1 funds and consist of ordinary sharecapital and retained earnings. All of these Tier 1 Funds are classed asunrestricted and of a high quality.

Own funds for Equitas Insurance Limited include a subordinated loan of£20,242k subordinated loan from Equitas Holdings Limited, classified as Tier 2capital. Interest of795k has been rolled into capital during the year. The loan isavailable for as long as it is required by the Company.

Aside from the movement in the profit and loss account there has been no changein capital for either the Group or Equitas Insurance Limited.

All of these Basic Own Funds are available to meet both the Solvency CapitalRequirement (5CR) and the Minimum Capital Requirement (MCR).

The details of the Group’s Own Funds as at 31 March 2017 are disclosed in theTable below along with the differences between the Solvency II valuations andthe UK GAAP equivalents. The Solvency II Net Assets along with the UK GAAPequivalent are also presented.

Given that there is no means of raising additional capital there is little that canhe done in terms of managing own funds from a business planning perspective.On the Solvency II valuation the liabilities currently exceed the assets, givingnegative own funds to meet the SCR. Our Own Risk and Solvency Assessment(ORSA) includes a Forward Looking Assessment of our technical provisions andcapital requirements in future years. On the assumption that claims provisionsdo not deteriorate from our current best estimate, this Forward LookingAssessment shows that as liabilities develop and claims are paid, the likelihoodof the NICO reinsurance exhausting should reduce over time, leading us toexpect a decrease in Solvency II technical provisions. After 5 years we expectown funds available to meet the SCR to have moved to a positive value, so long asgross claims provisions do not deteriorate.

Page 31

Solvency II Own Funds and Net Assets with UK GAAP Equivalents

Solvency II GAAP

• . . . value valueEquitas Holdings Limited Group £000 £000

Tier 1 Funds

Called up share capital --

Retained Earnings -78,048

Reconciliation reserve (50,498) -

Net Assets (Excess Assets over Liabilities) (50,498) 78,045

Reconciliation difference - -

Total available own funds to meet Group SCR (50,498) 78,045

Solvency II GAAP

• .value value

Equitas Instirance Limited £000 £000

Tier 1 Funds

Called up share capital 16,500 16,500

Retained Earnings - 34,987

Reconciliation reserve (93,180) —

Net Assets (Excess Assets over Liabilities) (76,980) 51,487

Tier 2 Funds

Subordinated Loan 2042 20,242

Reconciliation difference -

Total available own funds to meet Company 5CR (56,738) 71,729

The reconciliation reserve represents the retained earnings on Solvency II basis

including the difference between the Solvency II valuation of the balance sheet

and the statutory valuations under current UK GAAP.

The Group does not have any ancillary own funds.

Own funds are not required to finance insurance claims payments and are

invested in a bond portfolio managed by BlackRock investment managers.

Page 32

E2. Solvency Capital Requirement and Minimum Capital Requirement

The Group uses an accounting consolidation model for reporting purposes thatincludes all of the subsidiary companies listed in appendix 1.

Both EHL Group and fIL Solo use the Standard Formula as the basis forcalculating capital requirements having reviewed the assumptions underlyingthe formula and assessed them as appropriate. There is no Internal Modellingundertaken for either Group or Solo.

The Group’s Solvency Capital Requirement (SCR) at 31 March 2017 was£125,946k and Minimum Capital Requirement (MCR) at 31 March 2017 was£32, 110k.

f IL’s Solvency Capital Requirement at 31 March 2017 was £128,441k and theMinimum Capital Requirement at 31 March 2017 was £32,llOk.

A breakdown of the Solvency II adjustments for each entity is detailed below:

EIL Solo basis and EHL Group basis, as at 31 March 2017

EIL Solo EHL Group

£000s £000s £000s £000sTechnical provisions’ adjustments

Net best estimate 78,496 78,496Risk Margin 49,971 50,017

Total TPs 128,467 128,543

Standard Formula SCR

Reserve Risk 26,228 26,228Interest Rate Risk 11,508 11,111

Equity Risk 8,948 0

Spread Risk 1,321 1,086

Currency Risk 19,355 19,368

Concentration Risk 32 0Diversification (10,578) [8,057

Market Risk 30,586 26,811Counterparty default Risk 69,970 70,096Diversification Credit (27,983) (26,251)Basic SCR 98,801 96,881Operational Risk 29,640 29,065

Final Standard Formula SCR 128,441 125,946

MCR 32,110 32,110

Page 33

Calculation of Minimum Capital Requirement, as at 31 March 2017

EIL Solo EHL Group

£000s £000s

Linear MCR. 10.555 10,555

SCR 128,441 125,946

MCR cap 45% of 5CR 57,798 56,676

MCR Floor 25% of $CR 32,110 31,486

Combined MCR 32,110 32,110

Abo1ute Floor of the MCR C3,700 3,332 3,332

Minimum Capital Requirement 32,110 32,110

F3. Use of the duration-based equity risk sub-module in the calculation

of the Solvency Capital Requirement

The Equitas Group has not used the duration-based equity risk sub-module of

the Solvency Capital Requirement.

F4. Differences between the standard formula and internal model used

The Equitas Group has not utilised an Internal model to calculate the Solvency

Capital Requirement.

The Equitas Group applies the standard formula model to calculate the Solvency

Capital Requirement, and therefore no differences exist.

E5. Non-compliance with the Minimum Capital Requirement and non

compliance with the Solvency Capital Requirement

Both the Group and Equitas Insurance Limited did not meet of the Solvency

Capital Requirement (and hence the Minimum Capital Requirement) over the

reporting period.

The Group has surplus funds under UK GAAP of £7$,045k. The Solvency II

additional Technical Provisions adjustment of £128,543k as offset by the

£78,045k UK GAAP Retained Earnings, results in a shortfall in capital of

£50,49$k therefore the Group does not meet either the Solvency Capital

Page 34

Requirement or the Minimum Capital Requirement referred to in E2 above. TheGroup does not expect the shortfall to be rectified in the foreseeable future.Similarly, Equitas Insurance Limited had surplus funds of £51,4$7k under UKGAAP, increasing to £71,729k with the inclusion of the Subordinated Loan due toEquitas Holdings Limited. The Solvency II additional Technical provisionsadjustment of128,467k as offset by the £34,9$7k UK GAAP Retained Earnings,results in a shortfall of £56,738k therefore the Company does not meet theSolvency Capital Requirement or the Minimum Capital Requirement. TheCompany does not expect the shortfall to be rectified in the foreseeable future.

Page 35

APPROVAL BY THE ADMINISTRATIVE,

MANAGEMENT OR SUPERVISORY BODY (AM$B) OF

THE SFCR AND REPORTING TEMPLATES

Equitas Holdings Limited

Approval by the Board of Directors of the Solvency rnd Financial Condition

Report

Financial period ended 31 March 2017

We certify that:

the Solvency and Financial Condition Report (“SFCR”) has been properly

prepared in all material respects in accordance with the PRA rules and Solvency

II Regulations; and

we are satisfied that, with the exception of meeting the Solvency Capital

Requirement and the Minimum Capital Requirement:

(a) throughout the financial year in question, the Group has complied in all

material respects with the requirements of the PRA rules and Solvency II

Regulations as applicable to the insurer; and

(h) it is reasonable to believe that, at the date of the publication of the SFCR,

the Group has continued so to comply, and will continue so to comply in

future.

J W Heap

Chief Executive OfficerDate:

Page 36

INDEPENDENT AUDITOR’S REPORTReport of the external independent auditors to the Directors of EqtiitasHoldings Limited (‘the Company’) pursuant to Rtile 4.1 (2) of theExternal Audit Part of the PRA Rulebook applicable to Solvency II firmsReport on the Audit of the relevant elements of the Single Group-Wide’Solvency and Financial Condition Report

Opinion

We have audited the following documents prepared by the Company as at 31March 2017:

‘ The ‘Valuation for solvency purposes’ and ‘Capital Management’ sections ofthe Single Group-Wide Solvency and Financial Condition Report of theCompany as at 31 March 2017, (‘the Narrative Disclosures subject to audit’);and

• Group templates 5.02.01.02, S.23.01.22, $.25.01.22 and 5.32.01.22 (‘theGroup Templates subject to audit’).

Company templates $.02.01.02, S.17.01.02, 5.23.01.01, S.25.01.21 and5.28.01.01 in respect of Equitas Insurance Limited (‘the Company Templatessubject to audit’)

The Narrative Disclosures subject to audit, the Group Templates subject to auditand the Company Templates subject to audit are collectively referred to as the‘relevant elements of the Single Group-Wide Solvency and Financial ConditionReport’.

We are not required to audit, nor have we audited, and as a consequence do notexpress an opinion on the Other Information which comprises:

• The ‘Summary’, ‘Business and performance’, ‘System of governance’ and ‘Riskprofile’ elements of the Single Group-Wide Solvency and Financial ConditionReport;

Group templates S.05.01.02 and S.05.02.01 and Company templates$.05.01.02, 5.05.02.01 and S. 19.01.21;

• The written acknowledgement by management of their responsibilities,including for the preparation of the Single Group-Wide Solvency andFinancial Condition Report (‘the Responsibility Statement’);

In our opinion, the information subject to audit in the relevant elements of theSingle Group-Wide Solvency and Financial Condition Report of the Company asat 31 March 2017 is prepared, in all material respects, in accordance with thefinancial reporting provisions of the PRA Rules and Solvency II regulations onwhich they are based, as modified by relevant supervisory modifications, and assupplemented by supervisory approvals and determinations.

Page 37

Basis for opinion

We conchicted our audit in accordance with International Standards on Auditing

(UK and Ireland) (ISAs (UK & I)), International Standard on Auditing (UK) 800

and International Standard on Auditing (UK) 805, and applicable law. Our

responsibilities under those standards are further described in the Auditors’

Responsibdities for (lie Audit of the relevant eie,iients of the Single Group- Wide

Solvency and Financial Condition Report section of our report.

Emphasis of Matter - Basis of Accounting

We draw attention to the ‘Valuation for solvency ptirposes’ and ‘Capital

Management’ of the Single Group-Wide Solvency and Financial Condition

Report, which describe the basis of accounting. The Single Group-Wide Solvency

and Financial Condition Report is Prepared in compliance with the financial

reporting provisions of the PRA Rules and Solvency Ii regulations, and therefore

in accordance with a special purpose financial reporting framework. The Single

Group-Wide Solvency and Financial Condition Report is required to be published,

and intended users include but are not limited to the Prudential Regulation

Authority. As a result, the Single Group-Wide Solvency and Financial Condition

Report may not be suitable for another purpose. Our opinion is not modified in

respect of this matter.

Responsibilities of Directors for the Single Group-Wide Solvency and

Financial Condition Report

The Directors are responsible for the preparation of the Single Group-Wide

Solvency and financial Condition Report in accordance with the financial

reporting provisions of the PRA rules and Solvency II regulations, which have

been modified by the modifications made by the PRA under section 138A of

FSMA, the PRA Rules and Solvency II regulations on which they are based as

detailed below:

Modifications• Permission to publish a Single Group-Wide SFCR (PRA refs # 4173603,

4553909 & 4553911)

The Directors are also responsible for such internal control as they determine is

necessary to enable the preparation of a Single Group-Wide Solvency and

Financial Condition Report that is free from material misstatement, whether due

to fraud or error.

Auditors’ Responsibilities for the Audit of the relevant elements of the

Single Group-Wide Solvency and Financial Condition Report

It is our responsibility to form an independent opinion, in accordance with

applicable law, ISAs (UK & 1) and ISAs (UK) 800 and 805 as to whether the

information subject to audit in the relevant elements of the Single Group-Wide

Solvency and Financial Condition Report is prepared, in all material respects, in

accordance with the financial reporting provisions of the PRA Rules and Solvency

II regulations on which they are based. ISAs (UK & I) require us to comply with

the Auditing Practices Board’s Ethical Standard for Auditors.

An audit involves obtaining evidence about the amounts and disclosures in the

relevant elements of the Single Group-Wide Solvency and Financial Condition

Report sufficient to give reasonable assurance that the relevant elements of the

Page 38

Single Group-Wide Solvency and Financial Condition Report are free frommaterial misstatement, whether caused by fraud or error. This includes anassessment of: whether the accounting policies are appropriate to the Company’scircumstances and have been consistently applied and adequately disclosed; thereasonableness of significant accounting estimates made by the Directors; andthe overall presentation of the relevant elements of the Single Group-WideSolvency and Financial Condition Report. In addition, we read all the financialand non-financial information in the Single Group-Wide Solvency and FinancialCondition Report to identify material inconsistencies with the audited relevantelements of the Single Group-Wide Solvency and Financial Condition Report. Ifwe become aware of any apparent material misstatements or inconsistencies weconsider the implications for our report.

This report, including the opinion, has been prepared for the Directors of theCompany to comply with their obligations under External Audit rule 2.1 of theSolvency II firms Sector of the PRA Rulebook and for no other purpose. We donot, in providing this report, accept or assume responsibility for any otherpurpose save where expressly agreed by our prior consent in writing.

Report on Other Legal and Regulatory Requirements.

In accordance with Rule 4.1 (3) of the External Audit Part of the PRA Rulebookfor Solvency II firms we are required to read the Other Information and considerwhether it is materially inconsistent with the relevant elements of the SingleGroup-Wide Solvency and Financial Condition Report and our knowledgeobtained in the audits of the Single Group-Wide Solvency and FinancialCondition Report and of the Company’s statutory financial statements. If, basedon the work we have performed, we conclude that there is a materialmisstatement of this other information, we are required to report that fact. Wehave nothing to report in this regard.

cnPricewaterhouseCoopers LLP

Chartered Accountants

London

12 September 2017

• The maintenance and integrity of the Equitas Holdings Limited website isthe responsibility of the directors; the work carried out by the auditors doesnot involve consideration of these matters and, accordingly, the auditorsaccept no responsibility for any changes that may have occurred to the SingleGroup-Wide Solvency and Financial Condition Report since it was initiallypresented on the website.

• Legislation in the United Kingdom governing the preparation anddissemination of Solvency and Financial Condition Reports may differ fromlegislation in other jurisdictions.

Page 39

LIST OF APPENDICIE$

1. Group Organisation Chart

2. Reinsurance Chain of Security

3. SFCR Templates for Equitas Holdings Limited

4. SFCR Templates for Equitas Insurance Limited

Page 40

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Equitas InsuranceLimited

Solvency and FinancialCondition Report

Disclosures

31 March

2017

(Monetary amounts in GBP thousands)

General information

Undertaking name

Undertaking identification code

Type of code of undertaking

Type of undertaking

Country of authorisation

Language of reporting

Reporting reference date

Currency u5ed for reporting

Accounting standards

Method of Calculation of the SCR

Matching adjustment

Volatility adjustment

Transitional measure on the risk-free interest rate

Transitional measure on technical provisions

Equitas Insurance Limited

549300Y0D2W0N085H41 0

LEI

Non-life undertaking5

__________________

GB

en

31 March 2017

GBP

The undertaking is using local GAAP (other than IFRS)

Standard formula

No use of matching adjustment

No use of volatility adjustment

No use of transitional measure on the risk-free interest rate

No use of transitional measure on technical provisions

List ot reported templates

S.02.01 .02 - Balance 5heet

S0501 .02 - Premiums, claims and expenses by line of business

S.05.02.01 - Premiums, claims and expenses by country

517.01.02 - Non-Life Technical Provisions

S.19.01 .21 - Non-Life insurance claims

S.23.01 .01 - Own Funds

S.25.01 .21 - Solvency Capital Requirement - for undertakings on Standard Formula

5.28.01.01 - Minimum Capital Requirement - Only life or only non-life insurance or reinsurance activity

S.02.01 .02

Balance sheet

Solvency IIvalue

Assets C0010R0030 Intangible assets

R0040 Deferred tax assets

R0050 Pension benefit surptus

R0060 Property, plant equipment held for own use 0R0070 Investments (other than assets held for index-linked and unit-linked contracts) 77,721R0080 Property (other than for own use) 0R0090 Holdings in reta ted undertakings, including participations 40,673R0100 Equities 0ROllO Equities - listed 0R0120 Equities - unlisted 0R0130 Bonds

—

______

25,211R0140 Government Bonds I 7,550ROl 50 Corporate Bonds 14,242R0160 Structured notes

- -

—

0R0170 Colloteralised securities 3,419R0180 Collective Investments Undertakings

__________

11,745R0190 Derivatives 93R0200 Deposits other than cash equivalents 0R0210 Other investments 0R0220 Assets held for index-tinked and unit-linked contracts

R0230 Loans and mortgages 0R0240 Loans on policies 0R0250 Loans and mortgages to individuals

R0260 Other loans and mortgages

R0270 Reinsurance recoverabtes from: 4,008,388R0280 Non-life and health similar to non-life 4,008,388R0290 Non-life excluding health 3,930,496R0300 Health similar to non-life

- 77,892:R0310 Life and health similar to life, excluding index-linked and unit-linked 0’R0320 Health similar to life

___________—_______

R0330 Life excluding health and index-linked and unit-linkedR0340 Life index-linked and unit-linked

R0350 Deposits to cedants 0R0360 Insurance and intermediaries receivables

R0370 Reinsurance receivables

R0380 Receivables (trade, not insurance)

R0390 Own shares fhetd directly)

______=

0

R0400 Amounts due in respect of own fund items or initial fund catted up but not yet paid in 0

R0410 Cash and cash equivalents 613R0420 Any other assets, not elsewhere shown 7R0500 Total assets 4 086.730

R0510

R0520

R0530

R0540

R0550

R0560

R0570

R0580

R0590

R0600

R0610

R0620

R0630

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R0800

R0810

R0820

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R0840

R0850

R0860

R0870

R0880

R0900

S.02.01 .02

Balance sheet

Solvency II

value

Coolo

________

4,136,856

________

4,056,461

0

4,007,463

48,998

80,395

______

0

________

79,422

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308

20,242

- 20,242

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4,163,710

Liabilities

TechnicaL provisions - non-life

Technical provisions - non-life (excluding health)

TP calculated as a whole

Best Estimate

Risk margin

Technical provisions - health (similar to non-life)

TP calculated as a whole

Best Estimate

Risk margin

Technical provisions - life (excluding index-linked and unit-linked)

Technical provisions - health (similar to life)

TP calculated as a whole

Best Estimate

Risk margin

Technical provisions - life (excluding health and index-linked and unit-linked)

TP calculated as a whole

Best Estimate

Risk margin

Technicat provisions - index-linked and unit-Linked

TP calculated as a whole

Best Estimate

Risk margin

Contingent Liabilities

Provisions other than technical provisions

Pension benefit obligations

Deposits from reinsurers

Deferred tax liabiLities

Derivatives

Debts owed to credit institutions

FinanciaL liabilities other than debts owed to credit institutions

Insurance a intermediaries payabtes

Reinsurance payables

Payables (trade, not insurance)

Subordinated liabilities

Subordinated tiabitities not in BOF

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Any other liabilities, not elsewhere shown

Total liabilities

0

0

—..————————————————

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5.28.01.01

Minimum Capital Requirement - Only life or only non-life insurance or reinsurance activity

Linear formula component for non-life insurance and reinsurance obligations COOlO

ROOlO MCR51 Result 10,555

Net (of- Net (of reinsurance)

reinsurance/SPV) best- written premiums in

estimate and TPthe last 12 months

calculated as a whole

C0020 -- C0030 —

0

0

384

226

27,863

729

29

C0040

0

Net (ofreinsurance/SPV) best

- Net (of- reinsurance/SPV) total

estimate and TPcapital at risk

calculated as a whole

Obligations with profit participation - guaranteed benefits

_____________________

Obligations with profit participation - future discretionary benefits

Index-linked and unit-linked insurance obligations

___________________

Other life (re)insurance and health (re)insurance obligations

_________________ _________________________

Total capital at risk for all tile (re)insurance obligations

Overall MCR calculation

Linear MCR

5CR

MCR cap

MCR floor

Combined MCR

Absolute floor of the MCR

R0020 Medical expense insurance and proportional reinsurance

R0030 Income protection insurance and proportional censurance

R0040 Workers compensation insurance and proportional reinsurance

R0050 Motor vehicle liability insurance and proportional reinsurance

R0060 Other motor insurance and proportional reinsurance

R0070 Marine, aviation and tcanspors insurance and proportional reinsurance

R0080 Fire and other damage to property insurance and proportional reinsurance

R0090 General liability insurance and proportional reinsurance

R0100 Credit and suretyship insurance and proportional reinsurance

ROllO Legal expenses insurance and proportional reinsurance

R0120 Assistance and proportional reinsurance

R0130 Miscellaneous financial loss insurance and proportional reinsurance

R0140 Non-proportional health reinsurance

R0150 Non-propoitionat casualty reinssrance

R0160 Non-proportional marine, aviation and transport reinsuranco

R0170 Non-proportional property reinsurance

Linear formula component for life insurance and reinsurance obligations

R0200 MCR Result

R0210

R0220

R0230

R0240

R0250

R0300

R0310

R0320

R0330

R0340

R0350

C0050 — C0060

—

C0070

10,555

128,441

57.798

32,110

32,110

3,332

32130R0400 Minimum capital Requirement

Equitas HoldingsLimited

Solvency and FinancialCondition Report

Disclosures

31 March

2017

(Monetary amounts in GBP thousands)

General information

Participating undertaking name

Group identification code

Type of code of group

Country of the group supervisor

Language of reporting

Reporting reference date

Currency used for reporting

Accounting standards

Method of Calculation of the group 5CR

Method of group solvency calculation

Matching adjustment

Volatility adjustment

Transitional measure on the risk-free interest raW

Transitional measure on technical provisions

Equitas Holdings Limited

21 3800WGE6LLJYDKRI03

LEI

____________GB

L___ en

31 March 2017

:__________ GBP

The group is using local GAAP (other than IERS)

Method 1 is used exclusively

No use of matching adjustment

No use of volatility adjustment

No use of transitional measure on the risk-free interest rate

No use of transitional measure on technical provisions

Standard formula

List ot reported templates

$0201.02 - Balance sheet

$05.01 .07 - Premiums, claims and expenses by line of business

S.05.02.01 - Premiums, claims and expenses by country

5.23.01.27 - Own Funds

5.25.01.22 - Solvency Capital Requirement - for groups on Standard Formula

5.32.01.22 - Undertakings in the scope of the group

5.02.01.02

Balance sheet

Assets

Intangible assets

Deferred tax assets

Pension benefit surplus

Property, plant & equipment held for own use

Investments (other than assets held for index-linked and unit-linked contracts)Property (other than for own use)

Holdings in related undertakings, including participations

Equities

Equities - listed

Equities - unlisted

Bonds

Government Bonds

Corporate Bonds

Structured notes

Collateral ised securities

Collective Investments Undertakings

Derivatives

Deposits other than cash equivalents

Other investments

Assets held for index-Linked and unit-linked contracts

Loans and mortgages

Loans on policies

Loans and mortgages to individuals

Other loans and mortgages

Reinsurance recoverabtes from:

Non-life and health similar to non-life

Non-life excluding heatth

Health similar to non-life

Life and health similar to life, excluding index-linked and unit-linkedHealth similar to life

Life excluding health and index-tinked and unit-linkedLife index- linked and unit- linked

Deposits to cedants

Insurance and intermediaries receivables

Reinsurance receivables

Receivables (trade, not insurance)

Own shares (held directLy)

0

2,643

25

4,094,055

Solvency IIvalue

coolo

lEE FER0030

R0040

R0050

R0060

R0070

R0080

R0090

R0100

ROllO

R0120

R0130

R0140

R0150

ROl 60

R0170

R0180

R0190

R0200

R0210

R0220

R0230

R0240

R0250

R0260

R0270

R0280

R0290

R0300

R0310

R0320

R0330

R0340

R0350

R0360

R0370

R0380

R0390

R0400 Amounts due in respect of own fund items or initial fund called up but not yet paid in

R0410 Cash and cash equivaLents

R0420 Any other assets, not elsewhere shown

R0500 TotaL assets

0

5.02.01 .02

Balance sheet

Solvency II

value

Liabilities COOlO

R0510 Technical provisions - non-life 4,136,931

R0520 Technical provisions - non-life (excluding heatth) 4,056,535

R0530 TP calculated as a whole 0

R0540 Best Estimate 4,007,463

RO550 Risk margin 49,072

R0560 Technical provisions - health (similor to non-life) 80,397

R0570 TP calculated as a whole 0

R0580 Best Estimate 79,422

R0590 Risk margin 975

R0600 Technical provisions - life (excluding index-linked and unit-linked) 0

R0610 Technical provisions - health (similar to life) 0

R0620 TP calculated as a whole

R0630 Best Estimate

R0640 Risk margin

R0650 Technical provisions - life (excluding health and index-linked and unit-linked) 0

R0660 TP calculated as a whole

R0670 Best Estimate

R0680 Risk margin

_________________

R0690 Technical provisions - index-tinked and unit-linked — 0

R0700 TP calculated as a whole

R0710 Best Estimate

R0720 Risk margin

R0740 Contingent liabilities

R0750 Provisions other than technical provisions

R0760 Pension benefit obligations

R0770 Deposits from reinsurers

R0780 Deferred tax liabilities

R0790 Derivatives 692

R0800 Debts owed to credit institutions

R0810 Financial liabilities other than debts owed to credit institutions

R0820 Insurance Ft intermediaries payables --

R0830 Reinsurance payables

R0840 Payables (trade, not insurance)

R0850 Subordinated liabitities 0

R0860 Subordinated liabilities not in BOF

R0870 Subordinated liabilities in BOF - 0

R0880 Any other liabilities, not elsewhere shown 6,930

R0900 Total liabilities 4,144,553

R1000 Excess of assets over liabilities -50,498

5.0

5.0

1.0

2

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and

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