Acquisition of AXA's UK Life Business

RNS Number : 1663O

Resolution Limited

24 June 2010

 

 

 

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION (DIRECTLY OR INDIRECTLY) IN WHOLE OR IN PART, IN OR INTO THE UNITED STATES OR JAPAN, OR ANY OTHER JURISDICTION WHERE TO DO THE SAME WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION.

THE NIL PAID RIGHTS, THE FULLY PAID RIGHTS, THE PROVISIONAL ALLOTMENT LETTERS AND THE NEW ORDINARY SHARES (COLLECTIVELY, THE "SECURITIES") REFERRED TO HEREIN HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED OR SOLD, TAKEN UP, EXERCISED, RESOLD, RENOUNCED TRANSFERRED OR DELIVERED IN THE UNITED STATES UNLESS THEY ARE REGISTERED UNDER APPLICABLE LAW OR EXEMPT FROM REGISTRATION. THE COMPANY DOES NOT INTEND TO REGISTER ANY PORTION OF THE RIGHTS OFFER IN THE UNITED STATES OR TO CONDUCT A PUBLIC OFFERING OF THE SECURITIES IN THE UNITED STATES. ANY OFFERING OF SECURITIES WILL BE MADE BY MEANS OF A PROSPECTUS THAT MAY BE OBTAINED FROM THE COMPANY SUBJECT TO CERTAIN RESTRICTIONS AND WILL CONTAIN DETAILED INFORMATION ABOUT THE COMPANY AND MANAGEMENT AS WELL AS FINANCIAL STATEMENTS. NO MONEY, SECURITIES OR OTHER CONSIDERATION IS BEING SOLICITED AND, IF SENT IN RESPONSE TO THE INFORMATION CONTAINED HEREIN, WILL NOT BE ACCEPTED. THE COMPANY WILL NOT BE REGISTERED UNDER THE US INVESTMENT COMPANY ACT OF 1940, AS AMENDED, AND INVESTORS WILL NOT BE ENTITLED TO THE BENEFITS OF THE ACT.

24 June 2010

For immediate release

Resolution Limited ("Resolution" or the "Company")

ACQUISITION OF AXA'S UK LIFE BUSINESS AND ACCELERATION OF RESOLUTION'S LIFE CONSOLIDATION PROJECT

SUMMARY

Further to the announcements made on 14 June 2010, Resolution and AXA are pleased to announce the agreed acquisition of the AXA UK Life Business by FPH, a subsidiary undertaking of Resolution.

The total consideration payable is up to £2,750 million, comprising:

·; £2,250 million to be paid in cash to the Seller;

·; up to £500 million, consisting of Deferred Consideration Notes to be issued to the Seller; and

·; consideration to be reduced if less than £1,000 million of the AXA reattributed inherited estate is available for release in 2011. If none of the estate is available, the consideration will fall to £2,600 million.

 

The transaction is being financed by:

·; a fully underwritten rights issue of approximately £2,055 million (gross) with leading Shareholders having already sub-underwritten more than 52 per cent of the Rights Issue; and

·; a 'certain funds' Acquisition Finance Facility of £400 million. 

 

Discussions with other Shareholders are expected to result in further sub-underwriting being taken up. 

 

The Board believes that the Acquisition of the AXA UK Life Business is a logical next step in RSL's UK Life Project:

 

·; the businesses being acquired have a good operational fit with Friends Provident and provide increased scale in the key product areas of protection and corporate pensions, as well as an enhanced opportunity in the annuity market. In particular:

 

o the addition of the AXA UK Life Business would have doubled the 2009 market share of the Friends Provident business (to be rebranded as 'Friends Life') in the UK life and pensions market;

o the AXA UK Life Business had a pro forma MCEV (on the RSL Group basis) of £3,446 million as at 31 December 2009 and had approximately £53 billion of financial assets. Total new business written in 2009 in respect of the acquired AXA UK Life Business had an APE of approximately £499 million, and the gross value of that new business was approximately £37 million;

o the Acquisition price represents 79.8 per cent of the pro forma MCEV of the AXA UK Life Business, and the Acquisition price (net of external debt) represents 72.7 per cent of the pro forma Net MCEV. This implies a blended average net acquisition price (net of external debt) for Friends Provident and the AXA UK Life Business of 68.8 per cent of Net MCEV; and

o the Acquisition is a key step in achieving the targeted £10 billion MCEV for the Life and Asset Management Group.

·; expected annualised expense synergies are approximately £75 million per annum emerging over three years, with the full impact expected in 2014, and associated one-off implementation costs and separation costs of £74 million and £57 million respectively. There is also the potential for further revenue and financial synergies;

·; the Acquisition is expected to improve cashflow and dividend prospects, with a targeted aggregate annual free cashflow after interest costs of at least £400 million from 2011 at FPH level. In particular:

o the Board's intention is to continue to pay a dividend in line with its current level of payout. Following the Rights Issue and Share Consolidation, this will be 16.39 pence per Consolidated Ordinary Share, at a total annual cost (assuming payment of the dividend fully in cash) of £238 million; and 

o as the Enlarged Group progresses towards the end of the UK Life Project, the Board intends to keep under review the appropriateness of the Company moving to a growing dividend in line with the policy it targets to be in place for the Life and Asset Management Group by the end of the UK Life Project.

·; the AXA Sun Life non-profit fund contains a re-attributed inherited estate (''RIE''). The RIE had grown to £2,200 million at 31 December 2009. Of this, £1,200 million is in the form of net assets, which will be mostly in cash by Completion. The RIE is capable of being released from the non-profit fund to the shareholders' fund, subject to five yearly testing. If after the next testing, on 31 December 2010, less than £1,000 million is available for release, a portion of the Deferred Consideration Notes will be cancelled, with a total of £150 million of the Deferred Consideration Notes being cancelled if no part of the RIE is available for release. Whilst it is possible to utilise the RIE to support the business of the Life and Asset Management Group, irrespective of whether or not it has been transferred to the shareholders' fund, optionality for its use is increased by any transfer;

·; the Board expects that the IGCA surplus of the Life and Asset Management Group will be around £2,000 million at the end of 2010, representing a ratio of over 200 per cent of Group Capital Resource Requirements (excluding any With-profit Insurance Capital Components) compared to the target of 150 per cent;

·; the AXA UK Life Business has a high quality asset portfolio, with 97 per cent of non-unit linked fixed income assets being investment grade;

·; the Acquisition will lead to a further strengthening of the FPH management team; and

·; the Company believes that the returns delivered by the Acquisition should be consistent with its target of a mid‑teens percentage gross internal rate of return over the term of the UK Life Project.

Following the Acquisition, the Company will seek further scale acquisitions for the Life and Asset Management Group. The Board, advised by ROL, believes that there are a range of potential acquisition opportunities which will have an attractive fit within the Life and Asset Management Group and that significant further Shareholder value can be created from such acquisitions.

SHARE CONSOLIDATION AND RIGHTS ISSUE

The Board intends to undertake a share consolidation to ensure that, following the Rights Issue, the number of shares in issue and the likely share price is appropriate for a company of RSL's size in the UK market on the following basis:

1 Consolidated Ordinary Share for every 30 Existing Ordinary Shares held by Shareholders at the Share Consolidation Record Date

The Company proposes to raise approximately £2,055 million (gross) by way of the Rights Issue on the following basis:

17 New Ordinary Shares at 150 pence per New Ordinary Share for every 30 Existing Ordinary Shares held and registered in their name at close of business on the Rights Issue Record Date1

([1] If the effect of the Share Consolidation is disregarded the Rights Issue is being made on a 17 for 1 basis at 5p per share, a discount of 38.1 per cent to the theoretical ex-rights Price of 8.1p per unconsolidated share.)

The Rights Issue has been fully underwritten (on a several basis) in the Underwriting Proportions by RBC Capital Markets and Barclays Capital, in accordance with and subject to the terms set out in the Underwriting Agreement.

Taking into account the Share Consolidation, the Rights Issue is being made on the following basis:

17 New Ordinary Shares for every 1 Consolidated Ordinary Share

and the Rights Issue Price represents a 38.1 per cent discount to the theoretical ex-rights price of 242.2 pence per Consolidated Ordinary Share, based on the Closing Price of 60.30p on 11 June 2010.

CONDITIONALITY / EXPECTED TIMETABLE TO COMPLETION

Further information relating to the Acquisition, Rights Issue and Share Consolidation will be set out in the Prospectus and Circular, which will be published by the Company by the end of June 2010. It is expected that the current suspension of the listing of, and dealings in, the Existing Ordinary Shares will be lifted at 8.00 a.m. on the Business Day following the date of publication of the Prospectus.

The Acquisition is expected to complete in September and is subject to a number of conditions, including the approval of change of control by the FSA (on terms reasonably satisfactory to FPH) and the approval of the Acquisition by the Shareholders at the General Meeting.

Both Resolution and AXA have held detailed discussions with the FSA regarding the Acquisition. The formal application for the FSA to consider the change of control of the AXA UK Life Business is expected to be submitted shortly.

Commenting on the Acquisition, Mike Biggs, Chairman of RSL, said:

"We are delighted that Shareholders continue to support our UK Life Project. We are confident that it will deliver significant value to investors."

Commenting on the Acquisition, John Tiner, Chief Executive of ROL, said:

"The Enlarged Group will be well positioned to create value from enhanced cashflow, significant synergies and selected profitable new business growth. We see a strong pipeline of potential further consolidation steps which will help complete the Company's UK Life Project, and we will remain highly disciplined on the selection and pricing of possible transactions."

ENQUIRIES:

Investors / analysts
Mike Biggs, Resolution Limited	+44 (0)1481 745 368
John Tiner, Resolution Operations LLP	+44 (0)20 3372 2948
Neil Wesley, Resolution Operations LLP	+44 (0)20 3372 2928
Media
Alex Child-Villiers, Temple Bar Advisory	+44 (0)20 7002 1080
Structuring Adviser and Syndicate Manager
Elizabeth Gilbert, Resolution Financial Markets LLP Jon Hack, Resolution Financial Markets LLP	+44 (0)20 3372 2900
Joint Financial Adviser, Joint Underwriter, Joint Bookrunner, Sponsor and Joint Corporate Broker to the Transaction
Joshua Critchley, RBC Capital Markets Matthew Coakes, RBC Capital Markets Martin Eales, RBC Capital Markets	+44 (0)20 7653 4000
Joint Financial Adviser, Joint Underwriter, Joint Bookrunner and Joint Corporate Broker to the Transaction
Jim Renwick, Barclays Capital Richard Boath, Barclays Capital Stefano Marsaglia, Barclays Capital Mark Warham, Barclays Capital	+44 (0)20 7623 2323

 

Media Conference Call Details Time 07:45	Phone: 0800 694 0257 or +44 (0)1452 555 566 Conference ID: 83919360
Analyst Meeting Venue Time 09:30	The Connaught, Carlos Place, Mayfair, London, W1K 2AL (Please note the analyst presentation will be accessible via audio cast live from Resolution's website (www.resolution.gg) and then on demand from 14:00.)

 

Important Notice

This Announcement is an advertisement and not a prospectus and investors should not subscribe for or purchase any shares referred to in this Announcement except on the basis of information in any Prospectus to be published by the Company in relation to any matters referred to in this Announcement in due course in connection with the admission of the ordinary shares in the capital of the Company to the Official List of the Financial Services Authority and to trading on London Stock Exchange's main market for listed securities. The Prospectus will be available from the Company's website, at www.resolution.gg

Footnotes

Certain statements in this summary are also repeated in the main body of this Announcement with an explanatory footnote.

Forward-looking Statements

This Announcement may contain certain statements that are, or may be deemed to be, "forward-looking statements". In some cases, these forward-looking statements can be identified by the use of forward-looking terminology, including the terms "targets", "believes", "estimates", "anticipates", "expects", "intends", "may", "will" or "should" or, in each case, their negative or other variations or comparable terminology. They include statements regarding the intentions, beliefs or current expectations of the Company and the Board of the Company concerning, among other things: (i) the Company's objective, acquisition and financing strategies, target return, results of operations, financial condition, capital resources, prospects, capital appreciation of the Company's ordinary shares and dividends; (ii) future deal flow and implementation of active management strategies; (iii) trends in the life assurance, general insurance, asset management, banking and diversified/general financial sectors in which the Company intends to invest; and (iv) anticipated financial and other benefits resulting from the potential acquisition, and the Company's plans and objectives following the potential acquisition. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance. The Company's actual performance, results of operations, internal rate of return, financial condition, distributions to shareholders and the development of its financing strategies may differ materially from the impression created by the forward-looking statements contained in this announcement. In addition, even if the Company's actual performance, results of operations, internal rate of return, financial condition, distributions to shareholders and the development of its financing strategies are consistent with the forward-looking statements contained in this Announcement, those results or developments may not be indicative of results or developments in subsequent periods. The Company undertakes no obligation publicly to update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

Resolution Operations LLP

Resolution Operations LLP ("ROL") is a privately owned advisory and operating firm which provides services to the Company. ROL is part of the Resolution Group that also includes Resolution Capital Limited and Resolution Financial Markets LLP ("RFML"). Resolution Capital Limited facilitated the creation and initial public offering of the Company. RFML undertakes for ROL a range of activities that include working with investors to facilitate the direct placing of equity and debt with institutions.

Each of ROL and RFML is acting for the Company and no one else in connection with the matters referred to in this Announcement and will not regard any other person (whether or not a recipient of this Announcement) as a client in relation to such matters and will not be responsible to anyone (whether or not a recipient of this Announcement) other than the Company for providing the protections afforded to its clients or for providing advice in relation to any matters referred to in this Announcement.

Apart from any responsibilities and liabilities, if any, which may be imposed on ROL under FSMA or any regulatory regime established thereunder, neither ROL nor RFML, nor any other member of the Resolution Group, accepts any responsibility whatsoever, or makes any representation or warranty, express or implied, in relation to, the contents of this Announcement, including its accuracy, completeness or verification, or for any other statement made or purported to be made by it, or on its behalf, in connection with the Company, the Nil Paid Rights, the Fully Paid Rights or the New Ordinary Shares, the Acquisition or the Rights Issue. Subject to applicable law, each of ROL, RFML and each other member of the Resolution Group accordingly disclaims all and any responsibility and liability, whether arising in tort, contract or otherwise (save as referred to above) which it might otherwise have in respect of this Announcement or any such statement.

RBC Capital Markets, Barclays Capital and Lazard

Each of Royal Bank of Canada Europe Limited (trading as RBC Capital Markets), Barclays Capital (the investment banking division of Barclays Bank PLC) and Lazard & Co. Limited ("Lazard") are authorised and regulated in the United Kingdom by the FSA, and are acting for the Company and no one else in connection with the Acquisition and the Rights Issue and will not regard any other person (whether or not a recipient of this Announcement) as a client in relation to the Acquisition or the Rights Issue and will not be responsible to anyone (whether or not a recipient of this Announcement) other than the Company for providing the protections afforded to their respective clients or for providing advice in relation to the Acquisition or the Rights Issue or any other matter referred to in this Announcement.

This Announcement has been issued by and is the sole responsibility of the Company. Apart from the responsibilities and liabilities, if any, which may be imposed on RBC Capital Markets, Barclays Capital and Lazard under FSMA or the regulatory regime established thereunder, none of RBC Capital Markets, Barclays Capital or Lazard accepts any responsibility whatsoever for, or makes any representation or warranty, express or implied, in relation to, the contents of this Announcement, including its accuracy, completeness or verification, or for any other statement made or purported to be made by it, or on its behalf, in connection with the Company, the Nil Paid Rights, the Fully Paid Rights or the New Ordinary Shares, the Acquisition or the Rights Issue. Subject to applicable law, each of RBC Capital Markets, Barclays Capital and Lazard accordingly disclaims all and any responsibility and liability, whether arising in tort, contract or otherwise (save as referred to above) which it might otherwise have in respect of this Announcement or any such statement.

RBC Capital Markets and Barclays Capital as Underwriters of the Rights Issue may, in accordance with applicable legal and regulatory provisions and subject to the Underwriting Agreement, engage in transactions in relation to the Nil Paid Rights, Fully Paid Rights, the New Ordinary Shares and/or related instruments for their own account. Except as required by applicable law or regulation, RBC Capital Markets and Barclays Capital do not propose to make any public disclosures in relation to such transactions.

INFORMATION ON THE ACQUISITION, RIGHTS ISSUE AND SHARE CONSOLIDATION

1. Introduction

Further to the announcements made on 14 June 2010, Resolution and AXA are pleased to announce the agreed acquisition of the AXA UK Life Business by FPH, a subsidiary undertaking of Resolution.

The total consideration payable to the Seller is up to £2,750 million. The consideration comprises:

·; £2,224 million to be paid in cash to the Seller at Completion;

·; £26 million net (plus interest) to be paid in cash on completion of certain steps in an agreed post-Completion reorganisation; and

·; up to £500 million, consisting of Deferred Consideration Notes to be issued to the Seller, further details of which are set out in Appendix 1 to this Announcement.

The consideration will be reduced if less than £1,000 million of the AXA reattributed inherited estate is available for release in 2011. If none of the estate is available, the consideration will fall to £2,600 million.

FPH has agreed to acquire the AXA UK Life Business by purchasing all of the issued shares of AXA Sun Life Holdings Limited and Winterthur Life UK Limited, respectively.

The Acquisition is conditional upon satisfaction of certain conditions (including receipt of change of control clearance by the FSA (on terms reasonably satisfactory to FPH)), further details of which are set out in paragraph 8 below. The Board believes that the Company will be able to satisfy the change of control clearance condition. The Acquisition will also not proceed if the Acquisition Resolutions are not passed by Shareholders at the General Meeting, or if the conditions to the Acquisition Finance Facility and the Rights Issue (which are described in more detail below) are not satisfied.

Due to the value of the consideration payable in respect of the Acquisition in relation to the aggregate market value of the Existing Ordinary Shares, the Acquisition is classified under the Listing Rules as a reverse takeover. Accordingly, following the announcement by the Company that it was in discussions relating to the Acquisition, listing of the Existing Ordinary Shares on the Official List and dealings in the Existing Ordinary Shares on the London Stock Exchange were suspended on 14 June 2010. The listing of, and dealings in, the Existing Ordinary Shares are both expected to be restored at 8.00 a.m. on the Business Day following publication of the Prospectus.

2. Information on the Company

2.1 Formation and Initial Listing

The Company's Ordinary Shares were admitted to the Official List (by way of a Standard Listing under Chapter 14 of the Listing Rules) and admitted to trading on the main market of the London Stock Exchange in December 2008. The Company transferred to a Premium Listing as it completed its first acquisition on 4 November 2009 and is subject to those provisions of the Listing Rules that apply to overseas companies with a Premium Listing. The Company's objective is to acquire businesses, and provide the public markets with a series of restructuring opportunities, in the financial services industry in the UK and Western Europe. The Company will only make acquisitions where it considers them capable, in aggregate over the life of a restructuring project, of generating returns consistent with its target of a mid-teens percentage gross internal rate of return2.

(2 The gross internal rate of return is calculated before any payment of the Value Share (as described in Appendix 4 and defined in Appendix 5 to this Announcement) and the rate of interest such that the present value of all investor cash flows is zero. Investor cash flows are the net investor outflows and investor inflows. The investor outflows include the initial fund raising by the Company (including issue costs) and future shareholder investments (for example, by way of rights issues of shares as consideration for an acquisition); the investor inflows include all dividends and returns of capital made by the Company, whether by cash or the distribution in specie of shares in acquired businesses to Shareholders or otherwise.)

At the time of Initial Listing in 2008, the Company appointed ROL to advise and assist the Company in achieving its objectives, including sourcing, negotiating and closing acquisitions and implementing its restructuring and consolidation plans.

2.2 UK Life Project: strategy

At the time of Initial Listing, the Company identified the UK life and asset management sectors as being most likely to provide value-creating consolidation and restructuring opportunities in the financial services industry in the near term. Accordingly, in 2009 it launched its first restructuring project (the ''UK Life Project'').

The Board believes that the growth of the UK life and asset management sectors in the 1980s and 1990s, which was followed by a 10 year period of stagnation, has led to too many product manufacturers, with high cost bases. In the Board's view, product manufacturers have been focused on sales volumes and market share rather than optimising cash generation and returns for shareholders.

The Board believes that, as a result, the UK life and asset management sectors:

·; suffer from overcapacity and structural inefficiencies;

·; face growing uncertainty given the current economic environment and regulatory issues; and

·; reflect depressed business valuations.

The Board further believes that this creates an opportunity to acquire businesses at attractive prices relative to both their underlying value and the potential value which can be created through consolidation and disciplined financial management. The Board, advised by ROL, sees the benefits of consolidation as being underpinned by synergies which emerge from cost reductions, with further potential value coming from the creation of a scale competitor writing new business in key product areas. The Board believes that the Life and Asset Management Group that the Company expects to create will have strong management focus and financial discipline, and should benefit from the reduction in industry capacity which would result from industry consolidation.

In terms of new business, the Board believes that the focus should be on products where life group insurance companies with scale should have sustainable competitive advantages, such as annuities, protection and corporate pensions (or guaranteed savings and other collectivised workplace-based savings). Products of the Life and Asset Management Group will be chosen on the basis of their ability to produce what are, in the Board's view, returns and payback periods that will contribute to the overall returns expected from the Life and Asset Management Group.

In developing the UK Life Project, the Company anticipates making a small number of acquisitions in order to build a Life and Asset Management Group which has a Market Consistent Embedded Value (''MCEV") of approximately £10 billion, a strong and predictable cash flow profile emerging from its in-force business and leading market positions for new business in its selected key product areas, and which will be capable of delivering attractive returns to investors.

The Board believes that, through consolidation, the completed UK Life Project will create a scale life insurer, which will focus on delivering earnings growth with stable cash generation to support the payment of a sustainable, growing dividend. In particular, the business of the Life and Asset Management Group is expected to target:

·; achieving a sustainable return on embedded value per annum of at least 12 per cent;

·; having sufficient free cash generation after all costs and debt service to be capable of paying a sustainable and growing dividend, with an expected cash flow coverage ratio of approximately 1.5 times the cash cost of the dividend;

·; an efficient corporate and capital structure;

·; a net debt to gross embedded value ratio of 25 to 30 per cent; and

·; an interest coverage ratio of 4 to 5 times the cash cost of the interest.

The Company does not intend to be the long-term owner of the Life and Asset Management Group. The Board expects the UK Life Project to last between two to four years, having commenced with the acquisition of Friends Provident. The acquisition of the AXA UK Life Business is the proposed next step in this phase of the UK Life Project. Upon completion of the UK Life Project, the Company expects to return value to Shareholders, for example, by demerging the Life and Asset Management Group or selling it and returning proceeds to Shareholders in a fiscally efficient manner.

2.3 Acquisition of Friends Provident

The acquisition of Friends Provident by the Company was completed on 4 November 2009, for a price equal to 65.5 per cent of Net MCEV3.

(3 Determined by dividing (i) the aggregate consideration paid for Friends Provident on the Friends Provident Completion Date; by (ii) the MCEV of the Friends Provident Group (on the RSL Group's basis), after deducting the market value of Friends Provident's listed debt instruments.)

The Friends Provident Group is a specialist life and pensions group which comprises a UK life and pensions business, an international life assurance business and a specialist wealth management business.

The acquisition of Friends Provident brought with it:

·; a franchise which the Board believes is attractive and can benefit from consolidation;

·; an experienced management team;

·; a strong capital position; and

·; a good fit with future possible acquisitions.

Since the acquisition of Friends Provident, the Company, advised by ROL, has conducted a detailed review of the business and operating structure of the Friends Provident Group. The Company believes that it has a clear view of where financial and operational improvements can be made within Friends Provident, where opportunities for growing market share through acquisition exist and where synergies can be realised.

The Friends Provident life and pensions group is being rebranded as Friends Life, which is intended to be the key brand for the Life and Asset Management Group going forward.

3. The AXA UK Life Business

3.1 Acquisition of the AXA UK Life Business

The Board believes that the acquisition of the AXA UK Life Business is a logical next step in the UK Life Project and will maintain a wide range of options for future consolidation. The businesses being acquired provide a good operational fit with Friends Provident and will provide increased scale in the key product areas of protection and corporate pensions. The Acquisition will realise an attractive indicative blended average acquisition price (net of external debt) for Friends Provident and the AXA UK Life Business of 68.8 per cent of Net MCEV4 from which to create value for Shareholders, and is also expected to result in:

(4 Determined by dividing (i) the aggregate consideration paid for Friends Provident on the Friends Provident Completion Date, and the aggregate consideration to be paid for the AXA UK Life Business, less the face value of the debt financing (including the Deferred Consideration Notes) for the Acquisition; by (ii) the acquired Net MCEV of Friends Provident at the Friends Provident Completion Date (as set out in the Company's annual report and accounts for the financial year ended 31 December 2009) and the pro-forma MCEV of the AXA UK Life Business as at 31 December 2009 (as set out in the pro forma financial information in Appendix 3 to this Announcement) less the value of the debt financing.)

·; annualised expense synergies of approximately £75 million per annum emerging over three years, with the full run-rate achieved in 2014;

·; a targeted aggregate cash emergence at FPH after interest costs of at least £400 million per annum from 2011, as described in paragraph 4.4 below;

·; improved dividend prospects from the emergence of cash;

·; potential revenue and financial synergies;

·; a high quality asset portfolio, with 97 per cent of non-unit linked fixed income assets in the AXA UK Life Business being investment grade;

·; a strengthened management team; and

·; the delivery of returns which the Company believes should be consistent with its target of a mid-teens percentage gross internal rate of return over the term of the UK Life Project.

The total consideration payable to the Seller is equal to 79.8 per cent of the pro forma MCEV of the AXA UK Life Business as at 31 December 20095, and the total consideration payable (net of external debt) is equal to 72.7 per cent of the Net MCEV of the AXA UK Life Business as at 31 December 20096.

(5 Determined by dividing (i) the aggregate consideration to be paid for the AXA UK Life Business; by (ii) the adjusted pro forma MCEV (on the RSL Group basis) of the AXA UK Life Business as at 31 December 2009 (as set out in the pro formafinancial information in Appendix 3 to this Announcement)

(6 Determined by dividing (i) the aggregate consideration to be paid for the AXA UK Life Business, less the face value of the debt financing (including the Deferred Consideration Notes) for the Acquisition; by (ii) the adjusted pro forma MCEV (on the RSL Group basis) of the AXA UK Life Business (as set out in the pro forma financial information in Appendix 3 to this Announcement), less the face value of the debt financing.)

The RSL Group had a Net MCEV of £3,488 million as at 31 December 2009, and the AXA UK Life Business being acquired has a pro forma gross MCEV of £3,446 million as at 31 December 2009 against which £900 million of new debt is being raised, resulting in a Net MCEV of £2,546 million7. The Acquisition is therefore a key step towards achieving the Company's target of a Life and Asset Management Group with a £10 billion MCEV. The Company is raising £2,055 million in the Rights Issue, of which £1,850 million together with £400 million from the Acquisition Finance Facility is being used to pay the £2,250 million cash consideration for the Acquisition. After taking into account the costs of £110 million, this will leave a cash surplus of £95 million.

(7 Net MCEV for the RSL Group taken from the Company's annual report and accounts for the financial year ended 31 December 2009; and pro forma Net MCEV for the AXA UK Life Business taken from the pro forma financial information in Appendix 3 of this Announcement.)

3.2 Information on the AXA UK Life Business

The AXA UK Life Business comprises the majority of AXA's life insurance operations in the UK. The business has significant presence in the protection, corporate pensions and traditional life and pensions markets in the UK; in particular, through its single premium onshore bond investment business.

The AXA UK Life Business had a pro forma MCEV (on the RSL Group basis) of approximately £3.4 billion as at 31 December 2009 and had approximately £53 billion of financial assets.

Total new business written in 2009 in respect of the acquired AXA UK Life Business had an APE of £499.4 million, with a gross value of new business of £36.8 million.

The combination of the Friends Provident business with the AXA UK Life Business is expected to double the 2009 market share of Friends Provident in the UK life and pensions market. The combined business will ultimately be carried on under the new brand, "Friends Life".

The AXA UK Life Business will have long term investment management arrangements in place with the AXA group for a period of up to 10 years on the same fee and discount arrangements as currently in place. These can be terminated, and funds withdrawn, during the term of the arrangements upon payment of compensation to the AXA group.

The bancassurance distribution business will stay with the AXA UK Retained Business, but FPH and the Seller will seek to reach new arrangements with the existing bancassurance partners, which may lead to the AXA UK Life Business having direct distribution arrangements with those partners for its protection products.

4. Enlarged Group

4.1 Market position and product development

The Acquisition brings together two major life insurance businesses in the UK, creating a Life and Asset Management Group with a significant combined market share of the UK life insurance market, measured in APE.

The Life and Asset Management Group will have a substantial offering in protection and corporate pensions products and the opportunity to capture significant volumes of vesting annuities. Protection, corporate pensions and annuities are the three broad product areas where the Company believes life companies have a sustainable advantage and where there are strong consumer needs to be met.

The following table sets out on an APE basis the premiums for 2009 of the AXA UK Life Business and Friends Provident in each of the key product areas of protection, corporate pensions and annuities.

		2009 APE £m
Protection	AXA UK Life Business Friends Provident	48 50 98
Corporate Pensions	AXA UK Life Business Friends Provident	203 310 513
Annuities	AXA UK Life Business Friends Provident	27 23 50

Protection

The combination of Friends Provident with the AXA UK Life Business will have a leading position in the individual protection market. The Life and Asset Management Group will be strong in all key product lines, comprising mortgage and stand alone term assurance, critical illness, income protection and business protection.

In the IFA market, the aim will be to launch a new proposition set, based on enhancing the market leading menu-based protection offer provided by the AXA UK Life Business, and leveraging Friends Provident's capabilities in the ''non-advice'' market with simplified protection propositions. The intention would be to bring together these entities under the Friends Life brand in 2011, once the combined platform has been established.

In the non-IFA market, Friends Provident and the AXA UK Life Business utilise complementary distribution channels which can be leveraged further. FPH and the Seller will seek to reach new arrangements with the existing bancassurance partners of the AXA UK Life Business to provide direct distribution arrangements with those partners for the Life and Asset Management Group's protection products. Friends Provident has developed its business through new brands (''brandassurers'') such as Tesco Bank, Virgin and John Lewis, and estate agency chain Countrywide. Given the depth of knowledge in this area, the strategy will be to build on these relationships and seek further distribution deals of this nature.

Corporate Pensions

The combination of Friends Provident Group with the AXA UK Life Business will result in a corporate pensions business with approximately £18 billion of pension funds under management and over one million individual scheme members. The Life and Asset Management Group will therefore have a leading position in the corporate pensions market, and will aim to leverage Friends Provident's market leading corporate pensions and e-commerce platform and reputation for service excellence.

The Life and Asset Management Group will be well positioned in the non-commission sector, on which both the Friends Provident and the AXA UK Life Business have focused over the last 18 months, each having withdrawn from the commission paying market. It will also have strong relationships with Employee Benefits Consultants and will seek to develop business through this channel, as well as through a direct to employer sales force.

In addition, the combined know-how and resources of the Life and Asset Management Group should enable the acceleration of the development of a broad based corporate pension, investment and savings platform (a ''corporate wrap''), which allows employers to sponsor a wide range of long term savings vehicles for their employees. Both organisations are already developing products for this business line and combining the two businesses will allow for rationalisation of effort. Both have strong workplace savings enrolment and education capabilities which can be leveraged in this product area. The Life and Asset Management Group should also be able to use this capability to develop investment business from Trustees of unbundled pension schemes.

Annuities

With over one million corporate pension customers, the Life and Asset Management Group will seek to develop propositions to meet their needs at retirement as well as in the accumulation stage. Both Friends Provident and the AXA UK Life Business have a relatively low penetration of annuity sales when existing pension products mature, and the initial priority will be to improve the annuity proposition to serve that customer need. The Life and Asset Management Group will then seek to build out an enhanced customer management capability to serve both corporate pension customers and other 'orphan customers' of the two businesses.

Following the Acquisition, the Life and Asset Management Group will aim to take advantage of its increased scale to create a leading presence in these product areas whilst retaining the Company's focus on cash generation, reducing payback periods and increasing internal rates of returns.

4.2 Synergies

On Completion of the Acquisition, the Company and FPH, assisted by ROL, will initiate a 100 day plan to develop clear financial controls, common policies and management information across the Enlarged Group. The 100 day plan will also look to develop a coherent approach to governance and communication, complete the reorganisation among management and employees, and ensure that the transitional service arrangements in place are operating effectively. Thereafter the FSA has asked for an independent review of the RSL Group's plans for integrating the enlarged Life and Asset Management Group. The Company's assessment of available synergies has taken this timing into account.

On the basis of the RSL Group's integration and operational plan, it is anticipated that the combination of Friends Provident and the AXA UK Life Business will generate annualised cost synergies of approximately £75 million before tax by 2014. Of these identified savings, 40 per cent are expected to emerge from the areas of sales and marketing, principally by combining and enhancing the product proposition, streamlining the sales forces, saving on brand spend and eliminating the duplication in management, sales and marketing.

The remaining identified savings are expected to be in the broad areas of customer service and IT, and operations and support costs; comprising finance and governance functions, HR, facilities, and locations. The broad drivers of the identified savings in these areas are expected to be a reduction in management and technical duplication, the expectation of co-location of functions over time, (with a resulting rationalisation of locations), streamlining teams, the integration of IT infrastructure, a reduction in supplier fees and optimising practices across the Enlarged Group.

The achievement of these savings is expected to be phased broadly evenly over three years, to the end of 2013, with the first full year benefit in 2014. The estimated pre-tax cost of achieving these savings is expected to be £74 million and the cost to the RSL Group of separating the AXA UK Life Business from the AXA UK Retained Business is expected to be £57 million (in each case, including irrecoverable VAT).

Expected source of cost synergies:

	Estimated pre-tax cost synergy (£m)
Sales and marketing	31
Customer service and IT	20
Operations and support costs	24
Total	75

The expected annualised cost synergies of £75 million represent 16 per cent of the combined cost bases of Friends Provident and the AXA UK Life Business.

The Board is confident that further operational benefits will emerge from the combination of the two businesses over time.

No assumptions as to revenue synergies nor any expected financial or asset management synergies have been made in the modelling of returns and cash flow.

However, the Board believes that specific opportunities for revenue synergies exist, for example, in respect of the potential to improve the capture of vesting annuities across the corporate pensions businesses of both Friends Provident and the AXA UK Life Business.

The Company is investigating opportunities for financial and asset management synergies and expects these to emerge over time.

4.3 Organisational structure of the Enlarged Group

The Board believes that the operational and new business fit between the AXA UK Life Business and Friends Provident is strong. The combination of the two businesses, ultimately under the Friends Life brand, will create one of the market leading providers in the corporate pensions and protection markets in the UK. It is expected that the sales and marketing activities of the two businesses will be combined within a short period after Completion and that the various support activities will be combined thereafter.

The AXA UK Life Business will be acquired and held by FPH, and the FPH Board and leadership team will have responsibility for the oversight and management of the day-to-day operations. At Completion, a new organisational structure will be implemented which will broaden the complement of top management in the business.

Trevor Matthews, CEO of Friends Provident, will continue in that capacity following Completion. The FPH Board is expected to be strengthened by the appointment of two new executive directors to the Board. One of these two new directors, David Hynam, is expected to join from AXA on Completion as Executive Director - Operations. In recognition of the increased demands of the Enlarged Group and the trend towards board level risk roles, the current role of Chief Financial Officer is being split. Upon Completion, Evelyn Bourke, currently Chief Financial Officer of Friends Provident, will become Executive Director - Strategy, Capital and Risk and the group has already started an internal and external search for an Executive Director - Finance. In the event that the appointee is not available at Completion, an internal appointment will be made on an interim basis.

The market facing business units covering individual and corporate will be led from Completion by Graham Harvey and Paul McMahon, respectively, who are joining from AXA. They will be members of the Friends Provident Leadership Team along with the CEO, the executive directors and the Head of International of Friends Provident, but will not join the FPH Board.

4.4 Cash and capital position

Following Completion, the Enlarged Group intends to write new business in a way which enables it to use surplus capital deployed within regulated life companies to finance new business strain in a manner which is as efficient as possible.

Cash emergence at the FPH level (which is targeted to be at least £400 million per annum after interest costs from 2011) is expected to result from:

·; net cash generated (surplus emerging less new business strain) from operating entities within the Friends Provident Group on a stand alone basis;

·; net cash generated (surplus emerging less new business strain) from operating entities within the AXA UK Life Business on a stand alone basis;

·; releases of capital (including RIE) in excess of target capital ratios from operating entities within the Enlarged Group;

·; new business strain management; and

·; the cost synergies described in paragraph 4.2 above.

Further upsides may arise from additional releases of capital (including RIE), and from cash released as a result of any financial restructuring and delivery of capital synergies.

FPH is expected to target an Insurance Group Capital Adequacy (''IGCA'') capital position of at least 150 per cent of Group Capital Resource Requirements, excluding any With-profit Insurance Capital Components. The Board expects that the IGCA surplus will be around £2,000 million at the end of 2010, representing a ratio of over 200 per cent compared to the target of 150 per cent referred to above.

5. Financial Effects of the Acquisition

On a pro forma basis, and assuming that Completion had occurred on 31 December 2009, the Enlarged Group would have had unaudited IFRS net assets of £6,660 million (based on the audited net assets of RSL and the audited net assets of the AXA UK Life Business as at 31 December 2009).

If completion of the Acquisition had occurred on 1 January 2009, it would have been accretive to the consolidated earnings of the RSL Group on an IFRS basis for the financial year ended 31 December 20098.

(8 Nothing in this document is intended, or is to be construed as a profit forecast or to be interpreted to mean that earnings per Ordinary Share for the current or future financial years will necessarily match or exceed the historical earnings per Ordinary Share.)

6. Future developments

Following the Acquisition and throughout the restructuring phase of the UK Life Project, the Company expects the Enlarged Group, among other things, to focus on:

·; carefully controlling expenses within acquired businesses and delivering expense synergies across those businesses;

·; focusing on the efficiency of cash emergence from the acquired in-force portfolios;

·; taking action to de-risk acquired portfolios and accelerate the emergence of cash;

·; achieving capital synergies: derived from the accumulation of portfolios of business with differing risk attributes, and resulting capital diversification benefits;

·; achieving financial synergies, for example, from the accumulation of portfolios which may have differing tax attributes;

·; creating value from asset management either by improving terms from suppliers or by acquiring an appropriate in-house asset management business;

·; achieving scale in selected lines of new business, combined with the necessary financial discipline on required returns and payback periods; and

·; further developing the management and control infrastructure, in order to facilitate the evaluation and implementation of future transactions.

In carrying out this restructuring, the Board considers that, absent any future acquisitions, the Acquisition would still provide Shareholders with annual returns on an embedded value basis, arising from:

·; the unwind of the basic embedded value (comprising investment returns on shareholder net assets and the unwind of the value of in-force business);

·; the positive effect of the acquisition discount and the external debt leverage on the base return referred to above;

·; the anticipated contribution from new business to be written by the Life and Asset Management Group; and

·; the impact of the anticipated synergies referred to in paragraph 4.2 above.

However, the Board further considers that there are additional potential upsides to this return, including:

·; the impact of possible revenue and financial synergies;

·; potential upsides from asset management;

·; future potential transactions in pursuit of the Company's stated strategic objectives; and

·; possible market re-rating.

To this end, the Company will seek further scale acquisitions for the Enlarged Group. The Board, advised by ROL, believes that there are a range of potential targets which will have an attractive fit within the Enlarged Group and that significant further Shareholder value can be created from such acquisitions.

7. Dividend policy of the Enlarged Group

The Company expects that returns for Shareholders will derive primarily from capital appreciation of its Ordinary Shares and the returns of proceeds from disposals.

However, the Acquisition is expected to be a significant step towards the Company's objective of creating an enlarged Life and Asset Management Group capable of paying a sustainable and growing dividend by the time the UK Life Project is completed.

The Directors currently intend that the Company should continue to pay dividends equivalent to 4.08 pence per Existing Ordinary Share. Following the Rights Issue and Share Consolidation, the dividend policy will therefore be to pay an annual dividend of 16.39 pence per Consolidated Ordinary Share. Dividends will continue to be paid one third interim and two thirds final. This would cost a total of £238 million per annum (if all Shareholders receive cash rather than elect for the Scrip Option).

As the Enlarged Group progresses towards the end of the UK Life Project, the Board intends to keep under review the appropriateness of the Company moving to a growing dividend in line with the policy it targets to be in place for the Life and Asset Management Group by the end of the UK Life Project.

8. Terms of the Acquisition

The main terms of the Acquisition are set out in a Share Purchase Agreement dated as of the date of this Announcement. Under the terms of the Share Purchase Agreement, FPH has agreed to acquire the AXA UK Life Business by purchasing all of the issued shares of ASLH and WLUK. The shares in ASLH (which owns the bulk of the assets and entities which form part of the UK Life Business) will be acquired at Completion. The shares in WLUK will be acquired post-Completion as part of an ongoing reorganisation and separation. Both RSL and AXA have held detailed discussions with the FSA regarding the Acquisition and the formal application for the FSA to consider the change of control.

8.1 Consideration payable to the Seller

The total consideration payable to the Seller is up to £2,750 million. The consideration comprises:

·; £2,224 million to be paid in cash to the Seller at Completion;

·; £26 million net (plus interest thereon) to be paid in cash on completion of certain steps in the agreed post-Completion reorganisation, including the acquisition of the shares in WLUK; and

·; up to £500 million, consisting of Deferred Consideration Notes to be issued to the Seller, further details of which are set out in Appendix 1 to this Announcement.

The consideration will be reduced if less than £1,000 million of the AXA reattributed inherited estate is available for release in 2011. If none of the estate is available, the consideration will fall to £2,600 million.

The price payable at Completion for the shares in ASLH could be increased by up to £50 million if the Seller is required to inject further capital into the AXA UK Life Business for regulatory reasons prior to Completion.

The consideration which is payable in connection with the implementation of the post-Completion reorganisation steps (described in paragraph 8.3 below) will be adjusted in accordance with the terms of the Framework Agreement to take account of changes in the value of the business that FPH will acquire from the Seller, and the insurance policies that a subsidiary of the Seller will acquire from the AXA UK Life Business, as a part of these post-Completion reorganisation steps.

The terms of the Deferred Consideration Notes are described in Appendix I.

8.2 Conditions to the Acquisition

The Share Purchase Agreement is conditional upon: (i) the approval of the Acquisition by the Shareholders at the General Meeting; (ii) receipt of change of control clearance by the Financial Services Authority, on terms reasonably satisfactory to FPH; (iii) the Underwriting Agreement having become unconditional and not having been terminated and the Nil Paid Rights representing the Ordinary Shares issued under the Rights Issue being admitted to the Official List of the UK Listing Authority; (iv) the Acquisition Finance Facility being available for drawdown; and (v) AXA having completed certain steps in relation to the reorganisation of the AXA UK Life Business to FPH's reasonable satisfaction.

Further details of the Acquisition are set out in Appendix 1 of this announcement.

8.3 AXA reorganisation/post-Completion matters

The AXA UK Life Business forms a part of the AXA UK Life and Savings Business.

In order to be able to effect the sale of the AXA UK Life Business to FPH by means of the acquisition of the entire issued share capital of ASLH and WLUK, AXA is in the process of reorganising its UK group corporate structure to separate the assets and entities to be acquired by FPH from the assets and entities which will be retained within the AXA UK Retained Business following Completion. Certain of these steps will be carried out prior to Completion, but there will also be additional actions agreed to be taken post-Completion in order to complete the reorganisation, including certain Part VII Schemes to transfer from the AXA UK Life Business some insurance portfolios to form part of the businesses and assets of the AXA UK Retained Business.

The reorganisation is to be effected in accordance with the Framework Agreement between FPH, the Seller, the Company and AXA. FPH and the Seller have also entered into the Transitional Services Agreement, the purpose of which is to ensure that the AXA UK Life Business has the services and assets it requires to continue to operate effectively during the transitional period following Completion.

Further details of the reorganisation (including of the provisions of the Framework Agreement and Transitional Services Agreement) are set out in Appendix 1 of this announcement.

8.4 Related party aspects

Prior to Initial Listing, the Company agreed with ROL that it will hold all of its business through limited partnerships, of which the Company would be the general partner. Holdco No 1 LP, the first of these limited partnerships, is 100 per cent indirect owner of FPH, the UK intermediate holding company that will acquire the AXA UK Life Business.

For the purposes of the Acquisition, the Company will be making a cash equity investment in Holdco No 1 LP alongside RCAP. The acquisition of the AXA UK Life Business through Holdco No 1 LP will mean that RCAP will have a right to the potential Value Share on any realisation of the Life and Asset Management Group incorporating the AXA UK Life Business. Both of these elements of the Acquisition are required by, and provided for in, the documentation governing the relationship between the Company and the Resolution Group, put in place at the time of the Initial Listing, and are not subject to the related party requirements of Listing Rule 11.

The Company will also be issuing the Deferred Consideration Notes to the Seller, in return for Holdco No 1 LP assuming from Completion a back-to-back indebtedness to the Company. While this agreement has been newly entered into for the purposes of the Acquisition, the debt between the Company and Holdco No 1 LP will be on normal commercial terms and therefore does not constitute a related party transaction to which the provisions of Listing Rule 11 apply.

As a separate matter, ROL (through its appointed representative, RFML) is involved in the provision of certain services to the Company in connection with the financing of the Acquisition. While this is a related party agreement entered into for the purposes of the Acquisition, its relative size means that there is no requirement to obtain Shareholder approval of this arrangement. Further details are set out in Appendix 1 to this Announcement.

9. Financing

The total cash consideration for the Acquisition, together with associated expenses, will be fully funded using the proceeds of the Rights Issue, the Acquisition Finance Facility and existing funds of the RSL Group.

9.1 Acquisition Finance Facility

Under the Acquisition Facility Agreement dated the date of this Announcement, a term loan of £400 million will be made available to finance the Acquisition. The Acquisition Finance Facility is provided on a certain funds basis and drawdown under the Acquisition Finance Facility is subject to the satisfaction of conditions precedent customary for acquisition financing facilities with certain funds. The initial maturity date of the Acquisition Facility Agreement is the first anniversary of the date of Completion, but this may be extended at the option of the borrower, Resolution Holdings (Guernsey) Limited, to 30 June 2012. It is currently expected that the Acquisition Finance Facility will be refinanced using the net proceeds of an issue of Tier 2 (as defined by the FSA) securities by FPH.

The Acquisition Facility Agreement contains customary representations, warranties and covenants made by Resolution Holdings (Guernsey) Limited (as the borrower) and the Company (as the parent company of the RSL Group) in favour of the lenders. Drawings under the Acquisition Facility Agreement bear interest at the aggregate of (i) an agreed margin; (ii) LIBOR; and (iii) additional mandatory costs (if any). The initial margin is 2.50 per cent per annum, and will increase on specified margin step-up dates.

Further details of the principal terms and conditions of the Acquisition Facility Agreement are set out in Appendix 1 to this announcement.

9.2 Share Consolidation

The Directors are proposing to consolidate the Company's existing share capital to ensure that, following the Rights Issue, the number of shares in issue and the likely share price is appropriate for a company of RSL's size in the UK market. The proposed Share Consolidation is on the basis of:

1 Consolidated Ordinary Share for every 30 Existing Ordinary Shares

held by Shareholders on the Company's register of members at the Share Consolidation Record Date. The proportion of the issued ordinary share capital of the Company held by each Shareholder following the Share Consolidation will, save for fractional entitlements, remain unchanged. Each Consolidated Ordinary Share will carry the same rights as set out in the Articles that currently attach to the Existing Ordinary Shares.

Subject to the Acquisition Resolutions being approved, a request will be made to the UKLA and to the London Stock Exchange to reflect the Share Consolidation, on the Official List and the main market for listed securities respectively.

Any fractional entitlements arising on the Share Consolidation (together with the Nil Paid Rights attaching to such aggregated fractional entitlements) will be sold in the market on behalf of the Shareholder so entitled, save that where the net proceeds (aggregated with any net proceeds from fractions arising on the Rights Issue) are less than five pounds (£5) per entitled Shareholder then the net proceeds of such sale will be retained for the benefit of the Company.

New share certificates in respect of the Consolidated Ordinary Shares are expected to be posted at the risk of Shareholders shortly after the Share Consolidation takes effect to those Shareholders who, at the Share Consolidation Record Date, hold their shares in certificated form. These will replace existing certificates which should then be destroyed. Pending the receipt of new certificates, transfers of Consolidated Ordinary Shares held in certificated form will be certified against the register of members of the Company.

Statements for holders within the Resolution Share Account showing the number of Consolidated Ordinary Shares issued and New Ordinary Shares allocated through the Rights Issue will be despatched on or around the same date.

All Existing Ordinary Shares standing to the credit of CREST accounts will be consolidated into Consolidated Ordinary Shares at 8.00 a.m. on the Admission Date.

9.3 Principal terms and conditions of the Rights Issue

The Company proposes to raise approximately £2,055 million (gross) by way of the Rights Issue. The New Ordinary Shares will be offered for subscription by way of rights to Qualifying Shareholders on the following basis:

17 New Ordinary Shares at 150 pence per New Ordinary Share for every 30 Existing Ordinary Shares9

held and registered in their name at close of business on the Rights Issue Record Date.

(9 If the effect of the Share Consolidation is disregarded, the Rights Issue is being made on a 17 for 1 basis at 5p per share, a discount of 38.1 per cent to the theoretical ex-rights price of 8.1p per unconsolidated share.)

Taking into account the Share Consolidation, the Rights Issue is being made on the following basis:

17 New Ordinary Shares for every 1 Consolidated Ordinary Share

that a Qualifying Shareholder would hold.

Taking into account the Share Consolidation, the Rights Issue Price effectively represents a 91.7 per cent discount to the Closing Price of an Existing Ordinary Share of 60.30 pence on 11 June 2010 (being the trading day prior to suspension of trading in Existing Ordinary Shares), and a 38.1 per cent discount to the theoretical ex-rights price of 242.2 pence per Consolidated Ordinary Share, based on such Closing Price. If a Qualifying Shareholder does not take up any of his entitlement to New Ordinary Shares, his proportionate shareholding will be diluted by 94.4 per cent. However, if a Qualifying Shareholder takes up his rights in full, he will, following the Share Consolidation and the Rights Issue being completed and subject to the treatment of fractions, have the same proportional voting rights and entitlements to distributions as he had on the Rights Issue Record Date.

The New Ordinary Shares will, when issued and fully paid, rank pari passu in all respects with the Consolidated Ordinary Shares, including the right to all future dividends or other distributions made, paid or otherwise declared after the date of their issue.

The Rights Issue has been fully underwritten (on a several basis) in the Underwriting Proportions by the Underwriters in accordance with the terms of the Underwriting Agreement and is conditional upon (inter alia):

(A) the Share Purchase Agreement not having been terminated and none of the conditions precedent to Completion set out therein having become incapable of satisfaction prior to Admission;

(B) the Acquisition Facility Agreement not having been terminated and none of the conditions precedent to drawdown set out therein having become incapable of satisfaction prior to Admission;

(C) the Acquisition Resolutions being passed at the General Meeting and the Share Consolidation becoming effective;

(D) the Underwriting Agreement otherwise becoming unconditional in all respects and not having been terminated in accordance with its terms prior to Admission; and

(E) Admission becoming effective by not later than 8.00 a.m. on the Admission Date agreed by the Company and the Underwriters.

ROL and RFML have worked with the Underwriters to structure the Rights Issue to achieve a better outcome for the Company and Shareholders than the current market standard. Key objectives have been to:

·; lower the overall fees paid by the Company; and

·; seek to better align returns with risk for the Underwriters.

The Underwriting Agreement is subject to certain customary matters being satisfied prior to Admission and may also be terminated prior to Admission upon the occurrence of certain specified events, in which case neither the Rights Issue nor the Acquisition will proceed. After Admission, however, the underwriting arrangements will not be subject to any right of termination (including in respect of any statutory withdrawal rights).

It is expected that Admission will occur and that dealing in the New Ordinary Shares (nil paid) will commence on the London Stock Exchange at 8.00 a.m. on the Business Day after the General Meeting to approve the Rights Issue, to be held in mid-July.

The Rights Issue will increase the size of the Company's market capitalisation, which is expected to raise its position in the FTSE All‑Share Indices.

10. Current trading, trends and prospects

In its unaudited interim management statement for the period from 1 January 2010 to 31 March 2010, the Company announced that total sales for the first quarter of 2010 measured on an APE basis were £178 million, up 19 per cent on the same period in 2009. International sales were £57 million, up 49 per cent on the first quarter of 2009. Lombard sales were up 62 per cent at £33 million measured against the same period in 2009. UK sales at £88 million were down 3 per cent on the first quarter of 2009 with group pensions down 5 per cent, individual protection down 4 per cent and annuities up 37 per cent period-on-period.

As at the date of this Announcement, market conditions within the UK life insurance industry remain difficult, with little prospect of significant economic growth in the short term. Friends Provident has maintained pricing discipline and is focused on cash generation. International sales have maintained the momentum seen in 2009 with most regions performing well. Lombard's first quarter results were influenced by stronger performance in Italy, Finland, Asia and in UK private banks.

Friends Provident continues to focus on improving the efficiency of capital and cash resources. In total £180 million was paid from the operating companies to Friends Provident Group in March 2010. Of this, £65 million was used to pay a dividend to RHG, in order to fund the 2009 final dividend paid by the Company in May, £19 million was used in respect of interest payments and the balance has been retained by FPH and Friends Provident Group plc. A further £35 million will be paid up to RHG in the second half of 2010 to part fund the interim dividend.

11. Use of Proceeds

If Completion takes place, the Rights Issue proceeds will be applied (net of expenses) towards the financing of the Acquisition.

However, while the Rights Issue will not proceed if the Share Purchase Agreement has been terminated before Admission, the Rights Issue is not itself conditional upon Completion of the Acquisition. In the event that the Rights Issue settles but Completion does not take place, the Directors' current intention is that the proceeds of the Rights Issue will be invested on a short term basis while the Directors evaluate other acquisition opportunities and, if no acquisitions can be found on acceptable terms, the Directors will consider how best to return surplus capital to Shareholders. Such a return could carry fiscal costs for certain Shareholders and will have costs for the Company. The Directors will either return funds to Shareholders or seek Shareholder approval to continue to hold the cash, if no other acquisition is announced by 31 December 2010.

12. Risk Factors

Shareholders who participate in the Rights Issue may face a number of risks in relation to the acquisition of New Ordinary Shares and/or the trading of their Nil Paid Rights. See Appendix 4 of this Announcement which sets out a summary of a number of risks and uncertainties which investors should carefully consider in relation to participation in the Rights Issue. Shareholders who do not acquire New Ordinary Shares in the Rights Issue will experience dilution in their ownership of the Company as their proportionate ownership and voting interests in the Company will be reduced.

13. Recommendation

The Board has received financial advice from both RBC Capital Markets and Barclays Capital in relation to the Acquisition and the Rights Issue. In providing their financial advice to the Board, RBC Capital Markets and Barclays Capital have each relied upon the Board's commercial assessment of the Acquisition and the Rights Issue.

The Board considers that each of the Acquisition, the Rights Issue and the Share Consolidation, and accordingly also each of the Acquisition Resolutions, is in the best interests of the Company and its Shareholders as a whole.

The Board therefore intends unanimously to recommend that Shareholders vote in favour of the Acquisition Resolutions to be proposed at the General Meeting, as the Directors intend to do in respect of their own registered and beneficial holdings.

APPENDIX 1

DETAILS OF THE ACQUISITION

1. Acquisition structure

RSL and its subsidiary undertaking, FPH, have entered into the Share Purchase Agreement with the Seller pursuant to which FPH has agreed to acquire all of the issued and outstanding share capital of ASLH. The businesses carried on by ASLH and its subsidiaries comprise the bulk of the AXA UK Life Business and some insurance portfolios which AXA is to retain and which will be transferred back to AXA when post-Completion reorganisation and separation has been effected. Under an Option Agreement between FPH and a subsidiary of the Seller, subject to the fulfilment of certain conditions, FPH shall have the right to require the subsidiary of the Seller to sell, and the subsidiary of the Seller shall have the right to require FPH to acquire, the shares of WLUK. Following completion of the reorganisation and separation, ASLH and WLUK, and their respective subsidiaries, will together comprise the AXA UK Life Business. The Company and AXA are also parties to the Share Purchase Agreement in order to guarantee the obligations of FPH and the Seller, respectively, under the Acquisition documents, and the Framework Agreement.

All of the companies to be acquired by FPH are subsidiaries of AXA. The principal life companies are held directly by ASLH which is a direct, wholly owned subsidiary of the Seller. ASLH directly holds the shares in AXA Services, which is a service company that provides marketing, sales and administration services to a number of companies in the AXA Sun Life Holdings Group under exclusive agreements.

2. Pre-Completion reorganisation of the AXA UK Life Business

The AXA UK Life Business forms a part of the AXA UK Life and Savings Business.

In order to be able to effect the sale of the AXA UK Life Business to FPH by means of the acquisition of the entire issued share capital of ASLH and WLUK, AXA is in the process of reorganising its UK group corporate structure to separate the assets and entities to be acquired by FPH from the assets and entities which will be retained within the AXA UK Retained Business following Completion. Certain of these steps will be carried out prior to Completion, but there will also be additional actions agreed to be taken post-Completion in order to complete the reorganisation and separation, including (i) certain Part VII Schemes to transfer from the AXA UK Life Business some insurance portfolios which are intended to form part of the business and assets of the AXA UK Retained Business; and (ii) and the acquisition of WLUK.

The reorganisation and separation is to be effected in accordance with the Framework Agreement between FPH, the Seller, the Company and AXA. FPH and the Seller have entered into the Transitional Services Agreement, the purpose of which is to ensure that the AXA UK Life Business has the services and assets they require to continue to operate effectively during the transitional period following Completion of the Share Purchase Agreement and the exercise of the put or call option under the Option Agreement. The Framework Agreement also contains provisions relating to the transfer by the Company to an entity within AXA's retained group of UK companies of certain insurance policies which the AXA UK Retained Business is to retain but which the Company will acquire under the Share Purchase Agreement. In addition, the Framework Agreement contains provisions to ensure that any assets which FPH has not agreed to acquire, but which remain in the AXA UK Life Business at Completion, can be transferred back to AXA UK plc. Conversely, the Framework Agreement also contains provisions to ensure that any assets which FPH has agreed to acquire, but which remain outside the AXA UK Life Business at Completion, can be transferred to FPH after Completion.

The key terms of the Share Purchase Agreement, Option Agreement, Framework Agreement and the Transitional Services Agreement are set out below.

3. Principal terms of the Share Purchase Agreement

3.1 Introduction

Under the terms of the Share Purchase Agreement, FPH, a subsidiary undertaking of Resolution, has agreed to acquire the AXA UK Life Business by purchasing all of the issued and outstanding share capital of ASLH.

Following the pre-Completion reorganisation and separation, ASLH will be the holding company of the AXA UK Life Business. The principal subsidiaries within the AXA UK Life Business are AXA Sun Life plc, AXA Annuity Company Limited, Sun Life Assurance Society plc, WLUK and AXA Sun Life Services plc. WLUK will not, however, form part of the group being acquired at Completion, but will be transferred to the RSL Group under the terms of the Option Agreement when further reorganisation and separation steps have been implemented after Completion.

Under the Share Purchase Agreement, the Company is obliged to pay the Seller a break fee of £14,547,000 which is equal to 1 per cent of the Company's market capitalisation as at Friday 11 June plus VAT (to the extent recoverable by the Company) in the event that (i) the Acquisition Resolutions are not passed; or (ii) RSL's board withdraws or adversely modifies its recommendation to proceed with the transaction; or (iii) the Acquisition Finance Facility is cancelled as a result of breach of, or failure to comply with, its terms by Resolution Holdings (Guernsey) Limited, such that Completion does not occur, other than where any member of the AXA group has breached any of its material obligations under any of the transaction documents and such breach has caused or materially contributed to the circumstances set out in (i), (ii) and/or (iii) above.

3.2 Consideration

The total consideration payable to the Seller is up to £2,750 million. The consideration comprises:

(i) £2,224 million to be paid in cash to the Seller at Completion; (ii) up to £500 million in interest-bearing Deferred Consideration Notes, to be issued to the Seller (and other members of the AXA group); and

(iii) up to £26 million net (plus interest thereon) to be paid on completion of certain steps in the post‑Completion reorganisation.

The price payable at Completion could be increased by up to £50 million if the Seller is required to inject such amount of further capital into the AXA UK Life Business for regulatory reasons prior to Completion.

On the Completion Date, the Company will issue the Deferred Consideration Notes in an initial principal amount of £500 million. Details of the Deferred Consideration Notes are set out in paragraph 10 below.

3.3 Representations, warranties and indemnities

The Share Purchase Agreement contains various customary warranties and indemnities. The warranties from the Seller to the Company cover, amongst other things:

(i) the organisation and corporate power of ASLH; (ii) the capital of ASLH; (iii) the authorisation, due execution and delivery of, inter alia, the Share Purchase Agreement, and the absence of conflicts with existing agreements or obligations; (iv) certain matters related to ASLH's financial information; (v) the absence of undisclosed liabilities; (vi) the absence of certain material developments or events affecting ASLH and its business; (vii) the title, ownership and condition of ASLH's assets; (viii) the nature of certain contracts, commitments and arrangements applicable to ASLH and its business; (ix) certain matters related to intellectual property rights; (x) certain matters relating to licences, consents and permissions required to carry on the business conducted by the AXA UK Life Business; (xi) certain matters relating to intra-group and third-party arrangements of the AXA group which are material in the context of the reorganisation of the AXA UK Life Business; (xii) the absence of material litigation; (xiii) compliance with applicable laws and regulations; (xiv) certain employment matters (including in relation to the absence of material disputes, and the existence of collective bargaining agreements and union membership); (xv) certain matters related to employee benefit arrangements and applicable legal requirements; (xvi) certain matters related to insurance coverage; and (xvii) certain matters related to tax.

The warranties are subject to certain customary qualifications and limitations.

The Share Purchase Agreement also provides Resolution with indemnities in respect of certain risks and legacy issues associated with the AXA UK Life Business.

3.4 Pre-Completion obligations

The Seller has covenanted that, amongst other things, prior to Completion, it will ensure that ASLH will:

(A) use commercially reasonable efforts to operate its business only in the ordinary course of business consistent with past practice;

(B) not take or omit to take any action that would cause certain developments outside the ordinary course of business to occur;

(C) provide Resolution with certain information and reasonable access to premises and personnel of the AXA UK Life Business;

(D) not take certain actions, including the following:

(i) entering into, or terminating, a contract outside the ordinary course of business or otherwise restricting in any material respect the conduct of its business; (ii) making any loan or investment (other than advances to its employees during the course of business consistent with past practice); (iii) increasing the compensation, incentive arrangements or other benefit to any officer or employee of ASLH, except in the ordinary course of business consistent with past practice; (iv) redeeming, purchasing or otherwise acquiring directly or indirectly any of its issued and outstanding capital stock, or declaring, paying or making any distribution or dividend other than within certain limited exceptions; (v) changing its auditors or making any material change to the accounting or actuarial practices of the AXA UK Life Business; (vi) amending its articles of incorporation or issuing or selling any shares; (vii) directly or indirectly engaging in any transaction, arrangement or contract with any affiliate other than in the ordinary course of business; (viii) executing any guarantee, issuing any debt, borrowing any money or otherwise incurring any indebtedness except in the ordinary course of business consistent with past practice; (ix) purchasing, selling, or disposing of any material property or assets other than in the ordinary course of business consistent with past practice; (x) other than in the ordinary course of business, assuming or incurring any liability for an amount which is in excess of £2 million; (xi) abstaining from making any payments on any taxes, principal or interest on borrowed funds save for making scheduled repayments or other expenses as they become due; (xii) receiving rights to intellectual property; or (xiii) agreeing or committing to do any of the foregoing or other restricted actions;

(E) afford RSL reasonable co-operation in connection with the completion of the transaction;

(F) provide prompt written notice of any breach of the foregoing; and

(G) not make or change any tax election or change any annual accounting period or change any accounting method or file any amended tax returns or other matters.

3.5 Conditions precedent to Completion

Completion of the Acquisition pursuant to the terms of the Share Purchase Agreement is conditional upon: (i) the approval of the Acquisition by the Shareholders at the General Meeting; (ii) receipt of change of control clearances by the Financial Services Authority (on terms reasonably satisfactory to FPH); (iii) the Underwriting Agreement having become unconditional and not having been terminated and the Nil Paid Rights representing the ordinary shares issued under the Rights Issue being admitted to the Official List of the UK Listing Authority; (iv) the Acquisition Finance Facility being available for drawdown at Completion; and (v) the AXA group having completed certain steps in relation to the reorganisation of the AXA UK Life Business to FPH's reasonable satisfaction.

4. Principal terms of the Transitional Services Agreement

Under the Transitional Services Agreement, the transitional services will be provided for a term which will differ from service to service and each party will use their reasonable endeavours to provide the services to a standard equivalent to that on which such services were provided in the 12 month period prior to Completion. The parties shall agree a written plan to migrate from the transitional services provided by the other.

The liability of each party under the TSA per year is limited to the aggregate amount of charges payable to it by the other for that year. The TSA continues until the last date upon which any service is provided under it or until all activities contemplated by the migration plan are completed; however, either party may terminate the TSA if the other party suffers an insolvency event or is in material breach of the terms of the agreement and the Service Provider (as defined in the TSA) has a right to terminate for convenience on 6 month's notice after the third anniversary of the date of the TSA. Either party also has the right to terminate the agreement or an individual service (save for certain long-term services to be provided by AXA) upon the provision of 6 month's notice not to be provided prior to the third anniversary of Completion.

Further agreements between FPH and the AXA group govern the novation and/or amendment of certain contracts to which the AXA UK Life Business companies are party following Completion.

5. Principal terms of the Master Services Agreement

The Company will enter into a Master Services Agreement ("MSA") with AXA Tech. Under the MSA, AXA Tech will provide transitional IT services to relevant members of the AXA UK Life Business in materially the same manner as such services were provided in the 12 months prior to Completion. The MSA is on similar terms to the TSA.

The MSA will become effective on completion and, unless terminated, will continue in force until 31 December 2012. The Company is entitled to extend the term of the MSA on six months written notice to AXA Tech (to be given prior to the second anniversary of the contract) for three years in respect of certain printing services and six months in respect of all other services.

Either party may terminate the MSA if the other party suffers an insolvency event or, in certain circumstances, if the other party is in material breach of the terms of the agreement. In addition, if the Company fails to pay an undisputed invoiced amount for a period of more than ninety days, AXA Tech may terminate the service or project to which the invoice relates provided it gives notice to the Company and the Company fails to make the payment within twenty Business Days of such notice.

The liability of each party under the MSA per year is limited to 50 per cent of service charges payable in respect of that year.

6. Principal terms of the Framework Agreement

Principal terms of the Framework Agreement

The Framework Agreement sets out the principles and obligations of the parties in relation to the separation of the AXA UK Life Business from the AXA UK Life and Savings Business and establishes the framework of arrangements agreed between the parties in relation to the conduct of business between the AXA UK Life Business and AXA UK Life and Savings Business for a period after Completion. The Framework Agreement also deals with the way in which costs associated with the separation of the AXA UK Life Business are to be apportioned between the parties, as well as certain other ancillary matters arising out of or in relation to the Acquisition.

Under the Framework Agreement, the Seller and the Company agree to work to produce and agree an interim separation plan which is consistent with agreed objectives and principles within 8 weeks of the date on which the Framework Agreement is executed and to agree a final separation plan by the date the Acquisition is completed or at least within 60 days thereafter. The separation plan will deal with, amongst other things, the way in which certain parts of the AXA UK Life Business are to be separated from the AXA UK Retained Business and transferred to the RSL Group and the way in which certain insurance policies which are acquired by the Company under the Share Purchase Agreement, but which are to be retained by the AXA group are to be transferred back to the AXA group. It will also address the separation of the underlying administration and other arrangements which are relevant to the operation of the AXA UK Life Business. The parties have agreed to establish an implementation committee which will be responsible, amongst other things, for agreeing and overseeing the implementation of the interim separation plan and the separation plan and monitoring the necessary budgets and expenditure. The implementation committee is also responsible for monitoring compliance with the conduct of business restrictions set out in the Framework Agreement. Matters on which the implementation committee is unable to agree will be escalated to the chief executive officer of the Seller and a director of FPH.

It is currently intended that any insurance policies which are to be transferred between companies in connection with the reorganisation and separation will be effected by way of a Part VII transfer pursuant to FSMA. In the event that any of the Part VII transfers fails for any reason, the Framework Agreement includes provisions to ensure that the economic risk and reward of these insurance policies is borne by the intended party. The Framework Agreement also provides for consideration adjustments to take account of the way in which the transfer of these policies is effected.

The Framework Agreement anticipates the novation of the bancassurance distribution agreements of the AXA UK Life Business with Clydesdale Bank plc and "Britannia" (a trading division of Co-operative Bank plc (formerly Britannia Building Society), and the termination of the appointed representative arrangements with West Bromwich Building Society, to be replaced by a new appointed representative agreement with the AXA group, with the consent of the relevant counterparties. Both FPH and the Seller undertake to seek these commutations of the relevant agreements. The Seller has agreed to assist FPH to enter into a direct agreement with the bancassurance counterparties for the distribution by them of the AXA UK Life Business protection products.

The Framework Agreement terminates if the Share Purchase Agreement has not become unconditional by 24 December 2010 or such later date as the parties may agree.

7. Principal terms of the Option Agreement

Some of the assets and liabilities currently held by WLUK and its subsidiaries do not form part of the AXA UK Life Business and will therefore need to be transferred to the AXA group before WLUK can be transferred to the RSL Group. Once these transfers have taken place, and once Resolution has received the consideration due for the transfer of certain insurance policies acquired under the Share Purchase Agreement but which are to be retained by the AXA group, under the terms of the Option Agreement, a subsidiary within the AXA group shall have the right to require FPH to acquire, and FPH shall have the right to require the AXA group subsidiary to sell, the entire issued share capital of WLUK. The sale and purchase of WLUK is conditional upon, inter alia, approval of the change of control by the FSA and the purchase by the AXA group of the proposed retained insurance portfolios from ASLH and its subsidiaries as envisaged by the Framework Agreement.

8. Principal terms of the Master Agreement relating to Investment Management

FPH will at Completion of the Acquisition enter into the Master Agreement with the various members of the AXA group in relation to the continuation of the existing investment management arrangements between the AXA group and the AXA UK Life Business. The fees, discounts and investment guidelines under the new arrangements will remain the same under the existing arrangements. The term of the new arrangements is 10 years from Completion of the Acquisition. FPH will agree to seek to retain the services of the AXA group for investment management of the funds of the AXA UK Life Business currently managed by the AXA group and, in the case of certain of the funds under the management, to the extent that it chooses to withdraw funds from these investment management compensation fees will become payable. These compensation fees will be equivalent to a percentage of the net present value of the fees referable to the withdrawn funds for the unexpired term. The relevant percentage is 100 per cent for the first five years and 40-50 per cent for the period from the fifth anniversary to the end of the term, depending on the type of funds withdrawn. Where the withdrawal is at the initiative of the relevant insurance funds with-profits committee, the relevant percentage is 10 per cent.

9. Principal terms of the Acquisition Facility Agreement

On the date of this announcement, Resolution Holdings (Guernsey) Limited, (as the borrower) and the Company, (as the parent Company of the RSL Group), have entered into an acquisition finance term loan facility agreement with (i) Barclays Capital (the investment banking division of Barclays Bank PLC) and Royal Bank of Canada, as mandated lead arrangers and original lenders; and Barclays Bank PLC as facility agent, pursuant to which a term loan facility is made available (the ''Acquisition Finance Facility''). The Acquisition Finance Facility is available to fund the consideration payable under the Share Purchase Agreement and all fees and costs incurred by any Group Company in connection with the Acquisition.

9.1 Conditions precedent

The availability of the Acquisition Finance Facility for drawing is subject to a number of customary conditions precedent. Whilst a number of conditions precedent were satisfied on the date on which the Acquisition Facility Agreement was signed, there are a number of conditions precedent which, by their nature, can only be satisfied subsequently, once the Rights Issue proceeds have been received and the conditions to Completion (other than those relating to the Acquisition Finance Facility) have been satisfied. In particular, the Acquisition Finance Facility will only be available for drawing (i) after the Company has confirmed that it has received or will receive the proceeds of the Rights Issue, (ii) when conditions under the Share Purchase Agreement have been satisfied, and (iii) once Resolution Holdings (Guernsey) Limited (as borrower) submits a utilisation request. In addition, as is customary for facilities made available on a certain funds basis, there are also a limited series of circumstances which, if constituting a major default, an illegality or a change of control with respect to Resolution Holdings (Guernsey) Limited, would mean that the Acquisition Finance Facility would not be available.

9.2 Certain funds

The certain funds period under the Acquisition Finance Facility expires on the earlier of: (i) the date of Completion; (ii) the date the Share Purchase Agreement is terminated without Completion having occurred; (iii) the date immediately following the date of drawdown under the Acquisition Finance Facility; (iv) the date falling six months from the date of the Acquisition Facility Agreement. During the certain funds period, the provisions of the Acquisition Facility Agreement (and any documents ancillary to it) will not operate to prevent or limit an advance being made to Resolution Holdings (Guernsey) Limited. An advance under the Acquisition Finance Facility during the certain funds period is subject only to the mandatory cancellation provisions (discussed below) and the satisfaction of the condition precedents mentioned above, provided that no major default, illegality or change of control with respect to Resolution Holdings (Guernsey) Limited occurs.

9.3 Maturity

The initial maturity date of the Acquisition Finance Facility is the first anniversary of the date of Completion. However, Resolution Holdings (Guernsey) Limited may extend the Acquisition Finance Facility's maturity date to 30 June 2012.

9.4 Prepayment and cancellation

The Acquisition Finance Facility may be cancelled or voluntarily prepaid in whole or in part (subject to a de minimis threshold of £5 million and integral multiples of £1 million) by Resolution Holdings (Guernsey) Limited by giving at least 5 business days' notice.

The Acquisition Finance Facility shall be mandatorily cancelled (i) in full if Completion has not occurred and the Share Purchase Agreement is terminated, (ii) if following the first and only utilisation of the Acquisition Finance Facility there remain any undrawn commitments, to the extent of such undrawn commitments. In addition if, prior to the utilisation of the Acquisition Finance Facility, a Group Company raises finance (excluding the Rights Issue) the Acquisition Finance Facility will be cancelled to the extent of such net proceeds to the extent of any net proceeds received by a member of the RSL Group from such financing.

The Acquisition Finance Facility shall be prepaid in the following circumstances: (i) with the net proceeds of any refinancing of the Acquisition Finance Facility and (ii) with the net proceeds of certain specified permitted disposals (which include disposal of assets (other than in the ordinary course of business of the disposing entity) for cash consideration) subject to a £50 million threshold, below which proceeds may be retained by the RSL Group. In addition an individual lender may require prepayment in respect of their individual participation following a person or group of persons acting in concert acquiring control of Resolution Holdings (Guernsey) Limited (provided such lender gives notice within 30 days of notification of such change of control); or if it becomes unlawful for that lender to perform any of its obligations under the Acquisition Facility Agreement or to fund or maintain its participation in any loan under the Acquisition Finance Facility. The Acquisition Finance Facility shall also be repaid in the event that the parent ceases to control FPH or the parent ceases to hold at least 50 per cent of the shares in FPH following a sale of such shares.

9.5 Interest

The interest rate per annum for drawn amounts is LIBOR plus an agreed margin plus mandatory costs (if any) intended to compensate the lenders for the cost of regulatory compliance. The initial margin that applies in respect of drawn amounts will be 2.50 per cent per annum. Thereafter the margin is subject to periodic step-ups (commencing December 2010). The maximum margin payable under the Acquisition Facility Agreement is extended to 30 June 2012. In addition to interest, with effect from December 2010, duration fees are also payable and are calculated on the basis of the amount that remains outstanding under the Acquisition Finance Facility. In addition, a commitment fee equal to 0.5 per cent per annum of the unused and uncancelled amount of the Acquisition Finance Facility is payable from the date of the Acquisition Finance Facility on the unused and uncancelled amount of the commitments under the Acquisition Finance Facility. In addition, management and agency fees are payable. The Board believes that these fees are advantageous by comparison to customary pricing in the current market.

9.6 Representations and warranties and covenants

The Acquisition Facility Agreement contains customary representations and covenants for a facility of this type. The covenants comprise general undertakings applicable to the business of the RSL Group, financial covenants and information covenants which require the provision of financial information and other information that is material to RSL Group's business or which the lenders may request. The general undertakings and financial covenants are in more detail below.

9.7 General covenants and financial covenants

The Acquisition Facility Agreement prohibits any member of the RSL Group and, following Completion, the Enlarged Group from making any investment in or acquisition of any company, business or undertaking or the whole or substantially the whole of the assets or business of any person, or any assets which constitute a division of or operating unit of the business of any person without the prior written consent of the majority lenders. This prohibition on acquisitions is subject to certain exceptions, including, but not limited to, the Acquisition, acquisitions to which a member of the AXA UK Life Business is already committed prior to the date of Completion (where the consideration payable, when aggregated with any other exempt acquisitions, does not exceed £500,000), intra-group acquisitions and any other acquisition where the consideration paid in any financial year in respect thereof, when aggregated with the consideration paid during the life of the Acquisition Finance Facility in respect of any other acquisition (other than any acquisitions which fit within the exceptions described herein) does not exceed £50 million.

The Acquisition Facility Agreement also contains restrictions on disposals of assets by members of the RSL Group and, following Completion, the Enlarged Group, subject to certain exceptions, which includes disposals made in the ordinary course of business and certain other disposals made on arms' length terms for cash consideration. In addition, no member of the RSL Group or, following Completion, the Enlarged Group may enter into any amalgamation, merger, demerger or corporate reconstruction which would materially alter the structure of the RSL Group from that in existence as at the date of the Acquisition Finance Facility (although this provision does not restrict the Acquisition or a solvent amalgamation, merger, demerger or corporate reconstruction).

The Acquisition Facility Agreement also contains a negative pledge (which restricts the ability of any Group Company to create or permit to subsist, security interests over any of its assets, subject to the permitted exceptions which include, but are not limited to, existing security interests, security to support derivative and reinsurance arrangements and security over assets having an aggregate book value of up to £150 million) and a restriction on the ability of any Group Company to incur financial indebtedness. Again, the restriction on financial indebtedness is subject to a number of permitted exceptions with a securatisation (subject to a £500 million maximum), Tier 1 and Tier 2 capital, indebtedness constituted by the Deferred Consideration Notes, borrowings under the Friends Provident Facility and a general £300 million basket for financial indebtedness.

The financial covenants include a statement that equity shareholders' funds shall not at any time be less than £1,400,000,000 provided that following Completion, equity shareholders' funds are required to be not less than £4,000,000,000, that consolidated net debt shall not at any time exceed 50 per cent of equity shareholders' funds and that adjusted consolidated net debt shall not at any time exceed 60 per cent of adjusted equity shareholder's funds. In addition, the financial covenants also measure the capital resources of certain entities. Specifically, FPLP shall maintain capital resources (calculated in accordance with GENPRU, but excluding any capital resources held in respect of the capital component for "with-profits insurance business" of a realistic basis life firm, as determined in accordance with INSPRU 1.3) which meet or exceed 150 per cent of its minimum group capital resources requirement. With effect from Completion, the same financial covenant test will also apply to ASL and a group capital resources test will also apply to FPH. Under the group test, FPH will be required to maintain group capital resources (calculated in accordance with INSPRU and including in the calculation each of FPH's regulated related undertakings, but again excluding any capital resources held in respect of the capital component for "with-profits insurance business" which meet or exceed 150 per cent of its minimum group capital requirement. The Acquisition Facility Agreement also provides that Resolution Holdings (Guernsey) Limited shall not declare, make or pay any dividend or distribution on or at any time after the occurrence of an event of default or certain defaults which are continuing.

9.8 Events of default

The events of default provisions in the Acquisition Facility Agreement are on customary commercial terms for an acquisition facility of this nature and include non-payment, misrepresentation, breach of covenant, cross default, material adverse change and insolvency related matters (in each case subject to de minimis thresholds and cure rights where appropriate). A clean-up period of 120 days in respect of events or circumstances which arise or become apparent solely in relation to the AXA UK Life Business that would otherwise constitute events of default under the Acquisition Facility Agreement shall apply.

9.9 Miscellaneous

The Acquisition Finance Facility may be refinanced by any financing, whether by bond, loan or equity capital raising, whether publicly placed and whether undertaken as a single financing or a number of separate financings. It is currently expected that the Acquisition Finance Facility will be refinanced by the issue of Tier 2 (as defined by the FSA) securities by FPH.

10. Principal terms of the Deferred Consideration Notes

On the Completion Date, the Company will issue the Deferred Consideration Notes in a principal amount of £500 million. The Deferred Consideration Notes will constitute senior, unsecured and unsubordinated obligations of the Company and will be divided into two series. The first series will be the £300 million Deferred Consideration Notes due 2015 (the "A Notes") and the second will be the £200 million Deferred Consideration Notes due 2018 (the "B Notes"). The A Notes shall be partially redeemed on each of the five first anniversaries of the last day of the month in which the Completion Date occurs (each an "A Note Instalment Date") in the amount (the "A Note Instalment Amount") of £60,000,000. The B Notes shall be partially redeemed on each of the anniversaries of the last day of the month in which the Completion Date occurs (each a "B Note Instalment Date" and together with the A Note Instalment Dates, the "Instalment Dates") in the amount (the "A Note Instalment Amount" and together with the A Note Instalment Amount, an "Instalment Amount") of £2,500,000 on each of the first five B Note Instalment Dates and in the amount of £62,500,000 on each of the sixth, seventh and eighth B Note Instalment Dates. In each case, such partial redemption shall be subject, inter alia, to no Mandatory Redemption Events having occurred.

Interest will be paid on each Instalment Date and will accrue on the A Notes at a rate of 6 per cent per annum and on the B Notes at an initial rate of 7.25 per cent per annum, reducing incrementally on each B Note Instalment Date such that from the fifth B Note Instalment Date onwards the interest rate shall be 6.50 per cent per annum. If, at a date to be determined following Completion (the "Reduction Date"), the amount calculated by the Company to be capable of release from the Inherited Estate is less than £1 billion, the principal amount outstanding of the Deferred Consideration Notes shall be reduced by an amount calculated by reference to such shortfall. The Instalment Amount(s) shall be adjusted accordingly. Only the B Notes will be subject to this principal reduction adjustment, with such reduction to be made to the Instalment Amount(s) payable by the Issuer on each Instalment Date falling after the Reduction Date. 

The initial holder of the Deferred Consideration Loan Notes will be the Seller. The Deferred Consideration Notes will be freely transferrable within the Seller's Group and the A Notes are freely transferable to the Seller's UK pension trustee.

The Deferred Consideration Notes are subject to mandatory redemption: (i) to the extent of the net proceeds of any flotation of any member or the RSL Group or any new company formed for these purposes where any such company does not hold any UK insurance business or in full, if the flotation is of a member of the RSL Group or any new company formed for such purpose which holds all or part of the UK insurance business of the RSL Group; (ii) in full on the sale of assets of one or more members of the RSL Group with an aggregate value which is more than 50% of the gross value of all assets of all members of the RSL Group; or (iii) following a change of control of the Company (each a "Mandatory Redemption Event").

If the Company pays an extraordinary dividend, being a dividend per Ordinary share in excess of 4.5p (the "Reference Amount") per Ordinary Share, the Company shall redeem the Deferred Consideration Notes in an amount equal to the total value of the extraordinary dividend to be paid divided by the embedded value of the RSL Group and then multiplied by the principal amount of the Deferred Consideration Notes outstanding at the time of the redemption of the Deferred Consideration Notes. The Reference Amount is subject to adjustment in the event of changes to the share capital of the Company, including but not limited to the Rights Issue and the Share Consolidation as well as other customary adjustments in relation to the share capital of the Company.

11. Principal terms of the Underwriting Agreement

The Company and the Underwriters have entered into the Underwriting Agreement on the date of this Announcement, pursuant to which the Underwriters have agreed severally, subject to certain conditions, to use reasonable endeavours to procure subscribers for, or failing which to subscribe in the Underwriting Proportions for, all of the New Ordinary Shares to the extent not taken up by Qualifying Shareholders under the Rights Issue, in each case at the Rights Issue Price. In consideration of the services to be provided by the Underwriters under the Underwriting Agreement, the Company will pay to the Underwriters a commission of 2.72 per cent of the value of the New Ordinary Shares at the Rights Issue Price (such amount being shared in the Underwriting Proportions). Such commission shall be payable whether or not the Underwriters are required to subscribe (or procure subscribers) for the Underwritten Shares, but shall be paid only in the event that the Underwriting Agreement does not terminate prior to Admission, and the Underwriters make payments to the Company of the amounts owed under the Underwriting Agreement.

In addition to the commissions set out above (and whether or not the obligations of the Underwriters become unconditional in all respects or the Underwriting Agreement is terminated), the Company shall pay, all reasonable costs and expenses properly incurred in connection with, the Underwriting Agreement, the Rights Issue, the General Meeting, the allotment, issue, registration and delivery of the Nil Paid Rights or the New Ordinary Shares, the crediting of Nil Paid Rights to any stock account in CREST or the registration of New Ordinary Shares (including without limitation such part of any such costs or expenses as relates to the VAT chargeable on any supply or supplies for which such costs or expenses are all or any part of the consideration). The obligations of the Underwriters under the Underwriting Agreement are subject to certain conditions including, amongst others:

(i) the Share Purchase Agreement not having been terminated and none of the conditions precedent to completion of the Acquisition set out therein having become incapable of satisfaction; (ii) the Acquisition Facility Agreement not having been terminated and none of the conditions precedent to the drawdown set out therein having become incapable of satisfaction; (iii) the Acquisition Resolutions being passed at the General Meeting and the Share Consolidation becoming effective; (iv) the fulfilment by the Company of certain of its obligations under the Underwriting Agreement, including the delivery of certain documents to the Underwriters, by the times and dates specified in the Underwriting Agreement; and (v) Admission becoming effective by such time and/or date (being not later than 30 July 2010) as the Company and the Underwriters may agree.

No Underwriter is entitled to terminate the Underwriting Agreement after admission of the Nil Paid Rights. However, prior to Admission, any Underwriter may terminate the Underwriting Agreement in certain circumstances, including if (i) there has been a breach by the Company of any of the representations, warranties or undertakings in the Underwriting Agreement or any of the same were untrue or inaccurate or misleading when made (or would be untrue, inaccurate or misleading if repeated in accordance with the Underwriting Agreement by reference to the facts then existing) which in any such case is materially adverse in the context of the RSL Group taken as a whole or the Rights Issue; or (ii) there has occurred any event which has or will result in a material adverse change in or affecting the financial condition, trading position, results of operations or prospects of the RSL Group taken as a whole, or the AXA UK Life Business with materiality measured in the context of the Rights Issue.

The Underwriting Agreement also contains certain customary warranties by the Company including as to the accuracy of the information contained in the Prospectus and customary indemnities from the Company in favour of the Underwriters.

12. ROL

Under the Operating Agreement, ROL receives an annual fee of 0.5 per cent of the Non-Cash Value of the Company (subject to a minimum payment of £10 million per annum). The annual fee is payable monthly in arrears. Pursuant to an amendment agreement entered into between the Company and ROL on 7 September 2009, ROL agreed to provide certain group finance services previously expected to be provided by the Administrator, with effect from 1 November 2009. ROL will receive a further fee for the provision of these services, calculated on the basis of the aggregate remuneration cost to ROL of employing appropriate individuals to undertake the relevant services plus a 20 per cent margin.

In addition, ROL has agreed in the Operating Agreement, upon request by the Board, to provide (or procure that another member of the Resolution Group provides) certain services associated with capital raising, for which the relevant member of the Resolution Group would receive a fee from the Company. This fee would vary depending on the nature of the services being provided and prevailing market rates for the same or similar services but will not, in any event, exceed 2 per cent of the gross proceeds of the relevant capital raising.

In relation to the financing of the Acquisition, the Company has appointed ROL (and, through ROL, RFML) to carry out certain capital raising activities which the Board believes fall within the scope of such services referred to in the Operating Agreement. The engagement covers, inter alia, (i) acting as structuring adviser and arranger in connection with the Rights Issue (including introducing potential sub-underwriters to the Company and the Underwriters); and (ii) acting as transaction facilitator and arranger in connection with the Acquisition Finance Facility (including identifying and liaising with potential lenders). Consistent with its model as working on behalf of public market shareholders, ROL and RFML have sought to ensure that capital raisings are as efficient and effective for the Company and Shareholders as possible. In consideration for these services, the Company will pay ROL a fee of up to £4.5 million.

In agreeing the fee to be paid to ROL under these arrangements, the Board took independent advice to ensure that (in accordance with the provisions of the Operating Agreement) the fee:

·; is no more than the usual commercial consideration payable to a third party for provision of the same or substantially similar services; and

·; does not, in the reasonable opinion of the Board, result in the aggregate fees payable by the RSL Group to all advisers in respect of the Rights Issue and the Acquisition Finance Facility exceeding the fees that would otherwise have been payable.

The Board also believes that, in overall terms, the Company's aggregate fees payable for the Rights Issue and the Acquisition Finance Facility are lower than they would have been had ROL not been appointed to provide these services.

The Company may agree with ROL that it should play a similar role in any refinancing of the Acquisition Finance Facility, but any fee would be agreed at that time and would itself be subject to the related party rules in Listing Rule 11.

Lazard is advising the Board in connection with the terms of the appointment of ROL and RFML in respect of the financing of the Acquisition and has confirmed to the UKLA that it considers that the terms of such appointment are fair and reasonable as far as shareholders are concerned.

The Resolution Group has indicated that it intends to use these fees, net of any estimated taxes due, to fund or contribute towards the funding of the subscription of rights in the Rights Issue, which arise as a result of the Resolution Group's interest in Shares, which is held through RCAP. RCAP has an interest in 0.8 per cent of the Company's share capital and would need to invest £16.6 million in the Company in order to take up all of its rights. RCAP intends to invest £8 million, funded by the fees referred to above and out of new capital, in taking up part of its rights, and also intends to raise additional capital to take up further rights by selling Nil-Paid Rights in the market.

The Company reimburses ROL for third-party expenses incurred by ROL and its affiliates in fulfilling its duties, including due diligence costs and professional fees and expenses incurred in connection with acquisitions and disposals (and aborted acquisitions and disposals) and any other transactions, but only to the extent that such fees are incurred after such potential transaction is accepted for close scrutiny by the Company and subject to such limits as the Company may impose. In practice, this means that, subject to such limits, the Company bears the full costs of third-party due diligence once a potential transaction has been so accepted.

 

APPENDIX 2

INFORMATION ON THE AXA UK LIFE BUSINESS

1. Introduction and history

1.1 Formation of the AXA UK Life and Savings Business

The AXA UK Life and Savings Business was originally formed in 1997 as a result of the merger of the UK life businesses of AXA SA and Sun Life & Provincial Holdings plc (known respectively as "AXA Equity & Law" and "Sun Life"). As part of the merger, a new life company, ASL, and a new life group holding company, ASLH, were established.

The AXA UK Life and Savings Business has included Winterthur's UK businesses since the acquisition of Winterthur by AXA SA in 2006, and includes a service company, AXA Sun Life Services plc, which undertakes all servicing activity on behalf of the group in return for fixed per policy expense fees, and a second services company, Winterthur Financial Services UK, which provides similar services to Winterhur's UK business.

There have been several internal reorganisations in the AXA UK Life and Savings Group. In 2001, the business of AELLAS was transferred to ASL and approximately 88 per cent of the inherited estate of the AELLAS with-profits fund was re-attributed to the ASL non-profit funds.

In 2007, a reorganisation scheme took place to transfer the non-profit and unit-linked business previously written in Sun Life Unit Assurance Limited, Sun Life Pensions Management Limited and PPP Lifetime Care Limited to ASL.

Also in 2007, the AXA UK Life and Savings Business created a separate pension annuity company. AXA Annuity Company Limited ("AAC"), which was converted into an insurance special purpose vehicle in 2008 and is now owned by ASL. In 2007 and 2009 the annuity business was internally reinsured to AAC, including £2,000 million of reserves from Sun Life Assurance Society in 2009. Following this activity, 95 per cent of the longevity risk was externally reinsured.

The AXA UK Life and Savings Business has substantial books of in-force traditional with-profits, non-profit and unit-linked business, and concentrates on writing new business in the areas of wealth management, corporate benefits and protection business.

Distribution is primarily via IFAs, but the group also has bancassurance agreements with Yorkshire and Clydesdale banks, the Britannia Building Society and the West Bromwich Building Society.

1.2 The AXA UK Life Business to be acquired

FPH is not acquiring the whole of the current AXA UK Life and Savings Business, but only those entities and businesses included in the AXA UK Life Business, taking into account the pre and post Completion reorganisation of the AXA UK Life and Savings Business. This will be achieved through the acquisition of the entire issued share capital of ASLH, which holds a number of wholly owned subsidiaries (including the key operating subsidiaries ASL, AAC, Sun Life Assurance and AXA Services), and (subject to court approval of a Part VII transfer scheme) of WLUK. The businesses carried on by these entities comprise the traditional and protection businesses, and most of the corporate benefits business, currently carried on by the AXA UK Life and Savings Business. The acquired AXA UK Life Business will also take on a small part of the Wealth Management business described below. but this will in large part stay within the AXA UK Retained Business. In addition, there will be post-Completion transfers between the AXA UK Life Business and the AXA UK Retained Business to reflect the reallocation of certain assets between them.

The AXA UK Life and Savings Business is a leading business for attracting new business in the UK. The AXA UK Life Business to be acquired by FPH represents approximately 90 per cent of the embedded value, approximately 60 per cent of new business (measured in APE terms) and 31 per cent of new business (measured in value terms) of the AXA UK Life and Savings Business, in each case based on figures for the year ended 31 December 2009.

2. The AXA UK Life Business

2.1 Organisational structure

The AXA UK Life and Savings Business is currently run as five Strategic Business Units ("SBUs") and one distribution business. The following chart shows, in simplified form, the organisational structure as it is currently operated.

AXA UK LIFE AND SAVINGS BUSINESS

 

AXA UK LIFE AND SAVINGS BUSINESS

Traditional

Corporate Benefits

Protection

Bancassurance

Wealth Management

Sun Life Direct

Shared Services: Finance, HR, Business Risk, IT, Marketing, Communications, Property and Procurement

 

 

The following chart shows, in simplified form, the organisational structure of the AXA UK Life Business which is to be acquired by FPH.

AXA UK LIFE BUSINESS

 

AXA UK LIFE BUSINESS

Traditional

Protection

Corporate Benefits (majority)

Bancassurance relationships

Wealth Management (minority only)

Shared Services: Finance, HR, Business Risk, IT, Marketing, Communications, Property and Procurement

2.2 Description of SBUs being acquired

Pursuant to the Acquisition and taking into account the pre and post Completion reorganisation of the AXA UK Life and Savings Business, the RSL Group will acquire the traditional and protection businesses, most of the corporate benefits business and a minority part of the wealth management business carried on by the AXA UK Life and Savings Business.

Traditional

The Traditional business predominantly manages the legacy business of the AXA UK Life and Savings Business; that is. business lines that are no longer open to new customers. The policies were sold over many years under a number of different brands including Sun Life, AXA, Equity & Law, Winterthur Life, Lifetime Care and Provident Life.

Customer service for these policies has been outsourced to Capita (who deal with around 2.9 million policies) and HCL (approximately 0.3 million policies). The Capita outsourcing commenced on 1 June 2009, with the transfer of some 1,150 AXA staff to Capita in the UK and the transfer of some 550 AXA roles to Capita India. Customer service is provided from a number of sites in the UK and India, with all call centres being based in the UK.

The Traditional business offers maturing pension policyholders annuities to customers who have vesting pensions, and at the end of 2009 had annuity liabilities of £3.6 billion written in non-profit funds and £3.1 billion written in with-profit funds, in which shareholders have only a 10 per cent interest in profits.

The focus of the Traditional business is to serve and retain customers. Over the last few years, the group has implemented a number of successful retention strategies with customers, both proactive and reactive, that have improved retention of business.

Protection

The Protection business consists of a range of protection policies (including term assurance. critical illness and income protection) which are offered to individuals and are distributed through IFAs, banks and building societies. Quotations and policy applications are primarily handled electronically, including through the use of intelligent automated electronic underwriting. AXA offers an in-house tele-underwriting capability (a central team which gathers medical information directly from clients rather than through IFAs), with approximately 25 per cent of its UK business being processed this way. Relationships with IFAs, banks and building societies are managed via a field sales operation of approximately 20 staff spread across the UK, supported by a Bristol-based telesales team of 26 staff. Marketing, underwriting and customer service functions are split across two sites, Bristol and Coventry, with a headcount of around 500.

Corporate Benefits (majority)

The Corporate Benefits business offers a corporate pension proposition, where the primary products sold are stakeholder, Group Personal Pension and Contracted in Money Purchase pension products. These are distributed through Employee Benefit Consultants (EBCs) and IFAs. Up until April 2009, the group offered initial commission terms for the distribution of new business. Since that date, the business has operated on a fee-only basis where distributors are remunerated directly by the client. The business has a small new business sales team working to a consultative sales model and a larger worksite sales team who service a targeted proportion of existing schemes. Annuities are offered to customers who have vesting pension policies with the group; however, the AXA UK Life Business does not actively compete in the open market for individual annuities or bulk annuities.

FPH will acquire the majority of the Corporate Benefits business, consisting of the following primary products: stakeholder, Group Personal Pension and Contracted in Money Purchase pension products.

The Corporate Benefits business employs approximately 365 staff. It operates from locations in Bristol and Basingstoke, with an offshore administration function based in India undertaking selected back office processes. The business operates on a series of administrative platforms, several of which are now managed by Capita as part of a wider commercial outsource arrangement established by AXA in 2009.

Wealth Management (minority only)

The Wealth Management business is a specialist investment, retirement and tax planning business targeting mass affluent and high net worth customers. FPH will acquire the personal pension, income drawdown and onshore investment bond business from the Wealth Management Business. Of these business lines, only the onshore investment bond business is currently open to new business.

Within the Wealth Management business there are approximately 1,550 staff based in Bristol, Basingstoke, the Isle of Man, Dublin and London, responsible for sales, marketing and customer and investment services and the business operates from three core administration platforms. Of these, only around 400 staff, providing largely administration and customer services will transfer to the RSL Group.

Bancassurance (relationships)

Bancassurance, which is a distribution business, is principally responsible for the sales and marketing of the AXA UK Life and Savings Business's wealth and protection products with three banking partners (Clydesdale plc, Britannia, a trading division of the Co-operative Bank plc (formerly Britannia Building Society), and West Bromwich Building Society). The bancassurance distribution business will stay within the AXA UK Retained Business, but FPH and the Seller will seek to reach new arrangements with the existing bancassurance partners of the AXA UK Life Business to provide direct distribution arrangements with those partners for the protection products which are sold by the acquired AXA UK Life Business.

Shared Services

The SBUs are supported using a shared service model. Functions within Shared Services are finance, human resources (HR), business risk, IT, marketing, communications, property and procurement. There are some 960 staff working directly for the AXA UK Life Business. There are a further 642 staff who work in transitional functions that support the AXA UK Life Business and the wider AXA group. Those functions of Shared Services that are required to support the AXA UK. Life Business will move across, with about 650 Shared Services staff transferring over to FPH.

2.3 Range of products

The following chart sets out the range of products sold by the AXA UK Life Business. 

	Year to 31 December 2009				Year to 31 December 2008
UK Life Business	New business profits (£m)	New business profits (%)	New business APE (£m)	New business APE (%)	New business profits (£m)	New business profits (%)	New business APE (£m)	New business APE (%)
Investment & savings	8.9	24	93.0	19	9.3	18	111.7	17
Individual Pensions	-1.4	-4	128.8	26	-1.9	-4	203.5	31
Corporate pensions	8.7	24	203.4	40	18.7	36	272.4	41
Annuities	19.4	53	26.5	5	21.7	43	28.7	4
Protection	1.2	3	47.6	10	3.8	7	47.1	7
Total UK Life Business	36.8	100	499.4	100	51.6	100	663.4	100

 

2.4 Transitional arrangements

FPH will acquire ASL (the principal services company) as part of the AXA UK Life Business, and AXA will retain the Winterthur services company, Winterthur Financial Services UK Limited. The employees who work wholly or mainly for the AXA UK Life Business will transfer to the RSL Group. However, as part of the transitional arrangements relating to the Acquisition, for a period of up to two years following Completion, there will be services provided between the AXA UK Retained Business and the AXA UK Life Business upon which the other is dependent, until such time as full separation can be concluded by both parties. These transitional services will be provided to the same standard and at the same cost as the services were provided prior to the Acquisition.

3. Current trading, trends and prospects

Total sales by the AXA UK Life Business for the first quarter of 2010, measured on an APE basis, were £99 million, down 30 per cent on the same period of 2009. Investment and savings sales (mostly of onshore bonds) were £23 million, up 18 per cent on the first quarter of 2009 as consumer sentiment toward medium/long term investment improved. Individual pension sales were £13 million, down 61 per cent on the first quarter of 2009 following the closure to new business of a pension product range in November 2009. Corporate pension sales were £45 million, down 37 per cent on the first quarter of 2009 reflecting the business's withdrawal from the initial commission market in April 2009. Annuity sales were £7 million, down 3 per cent on the first quarter of 2009. Protection sales were £12 million, up 1 per cent on the first quarter of 2009.

Sales generated through IFAs totalled £91 million in the first quarter of 2010, a decrease of 34 per cent on the same period in 2009. Sales generated through bancassurance partnerships in the same period totalled £8 million.

Net money flow was an outflow of £623 million in the first quarter of 2010, an increase in net outflow of 29 per cent on the same period in 2009. Inflows from individual pension products were reduced following closure to new business in November 2009. Outflows increased in advance of new retirement age legislation, and due to an increase in the market value of assets (which leads to an increase in the average surrender value of policies and therefore the average surrender rate).

Market conditions within the UK life insurance industry remain difficult; however, 2010 has seen the first signs of an economic recovery and an increased willingness of investors to consider longer term investments. The AXA UK Life Business has maintained pricing discipline and is focused on reducing the cash strain of new business where new business margins are lower. In particular, the AXA UK Life Business withdrew initial commission from its corporate pension proposition in April 2009 and in November 2009 closed the individual pension product range to new business.

4. Analysis of Life and Pensions new business

The financial information in this paragraph 4 relates to the AXA UK Life Business to be acquired.

As with Friends Provident, in classifying new business premiums, the following basis of recognition is adopted:

·; single new business premiums consist of those contracts under which there is no expectation of continuing premiums being paid at regular intervals;

·; regular new business premiums consist of those contracts under which there is an expectation of continuing premiums being paid at regular intervals, including repeated or recurrent single premiums where the level of premiums is defined, or where a regular pattern in the receipt of premiums has been established:

·; non-contractual increments under existing corporate pensions schemes are classified as new business premiums:

·; transfers between products where open market options are available are included as new business; and

·; regular new business premiums are included on an annua!ised basis.

(A) Life & Pensions new business - regular and single premiums

	Regular Premiums			Single Premiums
AXA UK Life Business	3 months ended 31 March 2010 (£m)	3 months ended 31 March 2009 (£m)	Change %	3 months ended 31 March 2010 (£m)	3 months ended 31 March 2009 (£m)	Change %
Investment & savings	0.1	0.3	-52	224.3	187.0	20
Individual pensions	4.4	11.9	-63	81.9	210.5	-61
Corporate pensions	38.2	63.0	-39	69.0	80.1	-14
Annuities	0.0	0.0	-	67.1	70.4	-5
Protection	10.5	10.2	2	12.5	12.4	1
Total AXA UK Life Business	53.2	85.4	-38	454.8	560.3	-19

 

(B) New business - APE

APE represents annualised new regular premiums plus 10 per cent of single premiums.

AXA UK Life Business	3 months ended 31 March 2010 (£m)	3 months ended 31 March 2009 (£m)	Change %	3 months ended 31 March 2010 (£m)	3 months ended 31 December 2009 (£m)	Change %
Investment & savings	22.6	19.1	18	22.6	27.9	-19
Individual Pensions	12.6	32.4	-61	12.6	25.5	-51
Corporate pensions	45.1	71.0	-37	45.1	37.0	22
Annuities	6.7	7.0	-3	6.7	6.8	-1
Protection	11.7	11.6	1	11.7	11.4	3
Total AXA UK Life Business	98.7	141.1	-30	98.7	108.6	-9

 

(C) Net Money Flow

The following table sets out for the period represented the net money flow for the AXA UK Life Business, which represents total policyholder cash inflows less total cash outflows leaving the business through maturities, transfers and surrenders.

AXA UK Life Business	3 months ended 31 March 2010 (£m)	3 months ended 31 March 2009 (£m)	Change %	3 months ended 31 March 2010 (£m)	3 months ended 31 December 2009 (£m)	Change %
Investment & savings	-250.1	-314.5	20	-250.1	-200.9	-24
Individual Pensions	-401.9	-208.9	-92	-401.9	-360.9	-11
Corporate pensions	92.1	94.9	-3	92.1	66.7	38
Annuities	-75.8	-69.7	-9	-75.8	-60.3	-26
Protection	12.8	14.8	-14	12.8	11.7	10
Total AXA UK Life Business	-622.9	-483.4	-29	-622.9	-543.7	-15

 

5. Summary financial information

The table below sets out the AXA UK Life Business's selected financial information for the periods indicated, prepared in accordance with IFRS.

	For The Year To 31 December
	2009 £m	2008 £m	2007 £m
Net Earned Premium	1,569	1,989	2,300
IFRS Operating Profit / (loss) before shareholder tax	222	(65)	122
Total Assets	58,176	53,737	64,488
Parent Company net investment	2,605	2,357	2,322

 

6. Regulatory capital position

The information in this paragraph 6 is based upon the position for the whole of the AXA UK Life and Savings Business before adjusting for businesses not being acquired by Resolution (see above). However, the Directors believe that the impact of adjusting for these businesses would not materially alter the reported position as set out below.

AXA SA manages its business on the basis of economic capital. AXA SA has for many years used an economic capital model to manage capital efficiency. The AXA UK Life and Savings Business currently manages its business on the basis of both local regulatory and AXA SA economic capital. Post completion the AXA UK Life Business is expected to move to adopt similar target capital ratios as Friends Provident. Allowance for EEV required capital is set at the higher of regulatory capital, capital as required by the Court when it approved the Scheme in relation to the ASL inherited estate (as described in paragraph 7 below) and requirements arising from internal capital management policies, which include economic risk capital objectives. In practice the requirements of the Scheme and the 5 year test, described in more detail in paragraph 7 below, have determined the total capital held by ASL. In addition, the internal capital management policy of the AXA UK Life and Savings Business is to maintain at least 130 per cent of the Individual Capital Assessment in each of its life companies. This policy applies where the level of regulatory capital is not effectively set by the Court requirements under the Scheme.

In addition to maintaining sufficient capital on the bases set out above, the AXA UK Life and Savings Business also currently complies with all other regulatory capital requirements. These include the realistic solvency requirement for each of the with-profits businesses in the AXA UK Lire Business, and regulatory solvency in accordance with FSA regulations for the remainder of the AXA UK Life Business.

6.1 AXA UK Life Business capital position

AXA regularly monitors the Pillar 1 and Pillar 2 positions of its life companies.

The majority of the group's capital is held in the non-profits funds of ASL and is therefore constrained by the terms of the Scheme described in paragraph 7 below. While the capital is not freely fungible, ASL has made loans to other group companies and invested in AXA group strategic assets, which will be replaced by cash prior to Completion of the Acquisition.

6.2 Group solvency

The AXA SA Group is required to comply with the IGCA. Consequently, the AXA UK Life and Savings Business has not been required to comply with the IGCA on a stand alone basis.

6.3 AXA UK Life Business realistic solvency

The assets and liabilities of the with-profits funds of the AXA UK Life Business are calculated on a realistic basis. Policyholder liabilities (including options and guarantees) are valued using a market consistent stochastic model.

The table below summarises the Pillar 1 solvency position for the insurance entities within the AXA UK Life Business at 31 December 2009.

2009/£m	AXA Sun Life plc	Sun Life Assurance Society plc	Winterthur Life UK Limited
Capital resources	2,404	1,180	202
Capital requirements	1,277	821	116
Surplus of resources over requirements	1,127	359	86
Coverage ratio	188%	144%	174%

 

ASL is subject to a Court Scheme and its PPFM has been written so as to maintain consistency with that Scheme. The assets of the fund are managed in three pools: asset shares, guarantee fund and surplus assets. The asset shares and surplus assets are invested to achieve the investment aims of the policyholders, whereas the guarantee fund is invested to provide a significant degree of matching for the fund's guarantees and options.

Sun Life Assurance Society is formally closed and consequently surplus assets in the with‑profits fund are set to zero by increasing the planned enhancements to with‑profits policies. In practice, planned enhancements can vary to accommodate market shocks and so are a form of capital available to the with-profits fund. This amounted to £745 million in Sun Life Assurance Society at the end of 2009.

The Winterthur Life UK with-profits fund is also subject to a Court Scheme and its PPFM has also been written to maintain consistency with that Scheme, which provides a high degree of variability over the investment mix of the fund and allows bonus rates to vary widely between calendar years. Surplus assets of the fund are invested in options so as to provide a high degree of matching for the benefits guaranteed by the fund and to provide a stable equity backing ratio.

Sun Life Assurance Society is subject to a formal run-off plan, agreed with the FSA. The intention of the run‑off plan is to distribute the whole fund to the remaining policyholders. with shareholders taking their 10 per cent share, over time. To achieve a fair distribution, the assets of the fund are managed in three pools. Asset shares are managed to achieve the investment aims of the policyholders, a guarantee fund is used to provide matching for options and guarantees and surplus assets are invested in government bonds. The fund has accumulated a significant liability in respect of non-profits annuities. Around £2 billion of these liabilities (45 per cent of all immediate pension annuities) were reinsured to AAC in 2009.

6.4 AXA UK Life Business regulatory solvency

In addition to the realistic basis, the solvency of the with-profits funds in the AXA UK Life Business is also assessed on a regulatory basis. The two calculations are then compared and the more onerous requirement is applied. For the years ended 31 December 2008 and 2009, the more onerous requirement for each of the with-profits funds was the realistic basis.

7. The ASL inherited estate

7.1 Introduction

ASL contains a re-attributed inherited estate ("RIE") which was transferred to the ASL non-profit funds ("NPFs") as part of the reattribution of the AELLAS inherited estate. The reattribution was implemented as part of an intra group Part VII scheme (the "Scheme") transferring business into ASL. The Scheme took effect on 1 April 2001 and was amended as part of a subsequent transfer of mainly unit linked business into ASL on I January 2007 (the "2006 Scheme").

With-profits policies which had been elected to take part in the re-attribution were transferred to the ASL new with-profits fund ("NWPF"), With-profits policies which were not so elected were transferred to the ASL old with-profits fund ("OWPF") with their approximately 13 per cent share of the AELLAS inherited estate.

As at the end of 2009, the RIE had a face value of £2.2 billion. Of this amount £1.0 billion was invested in AXA strategic assets, £1.0 billion represented the VIF of non-profit and unit-linked business written in the ASL NPF, and £0.2 billion was invested in other assets. £0.9 billion of the strategic assets will be replaced by cash prior to or at Completion and approximately £250 million of the VIF will be replaced by cash following completion of the Part VII scheme to transfer the Sun Life Direct business written in the ASL NPF back to AXA (expected to be in the second half of 2011).

7.2 Support arrangements for ASL With-Profits Funds

Whilst the RIE is retained within the ASL NPFs it is available to provide financial support to the ASL with-profit funds ("WPFs").

The support arrangements were included for the benefit of the NWPF into which the policies of those who accepted the reattribution proposals (either initially or in response to a subsequent offer) were transferred. They also apply to those policies allocated to or reassured to the OWPF.

The support arrangements are made up of the following elements:

·; An arrangement, whereby assets are transferred from the NPF to one of the with profit funds in the event that a with-profit fund has insufficient assets to cover (a) its regulatory liabilities; or (b) its liabilities calculated on a basis specified in the Scheme. Such a temporary transfer can turn into a permanent transfer of assets in the event that the ASL board, having taken actuarial advice, considers that the transfer is unlikely to be reversed in the foreseeable future. As at 31 December 2009, there were no outstanding transfers to the ASL WPFs. The test using regulatory liabilities is performed monthly.

·; A further test specified in the Scheme must be performed at least annually and is currently performed as at 1 January each year. The test as at 1 January 2010 has been completed and there were no transfers required at that time.

·; In order to protect the interests of policyholders in the with-profits funds, ASL is required to manage the WPFs in accordance with specified Principles of Financial Management set out in the Scheme. In particular, the WPFs have to be managed in a manner consistent with the investment and bonus strategies that AELLAS would have adopted had the Scheme not occurred, unless the FSA otherwise agrees.

7.3 Releases of the ASL inherited estate

There are conditions applicable to future transfers to shareholders from the NPFs. The amount of, and conditions permitting, transfers from the NPFs to shareholder's funds are set out in the Scheme, as altered by the 2006 Scheme to exclude surplus on business transferred into the NPFs as part of the 2006 transfer. Similarly, there are conditions applicable to the use of the inherited estate within the OWPF to declare special bonuses on OWPF with profits policies.

Transfers of the RIE to the ASL Shareholders Fund can only take place following the completion of stochastic modelling of ASL and the application of certain other tests in relation to the financial strength of ASL. No such transfer can be made without the approval of the ASL board and until 30 days after the FSA has been notified of the proposed transfer. These tests must be undertaken every five years and the next date on which such testing can be undertaken is 31 December 2010. The results of such testing are highly dependent on a number of factors including:

·; the size of the RIE relative to the size of the ASL NWPF;

·; the financial strength of ASL; and

·; the volume of new WP business expected to be written by ASL in the future.

At the effective date of the re-attribution in 2001, the RIE was around £1.25 billion and the NWPF contained assets with a market value of around £8.2 billion. At this time, ASL was writing around £120 million per annum of new with-profits business APE.

Since 2001, the RIE has grown significantly to around £2.2 billion at 31 December 2009, whilst the NWPF has reduced in size by around 30 per cent over the same period. As a result, whilst the RIE was around 15 per cent of the value of the NWPF assets at the time of the re‑attribution, this figure had increased to around 37 per cent by the end of 2009. Further, the volume of new with-profits APE being written by ASL had reduced by 96 per cent to only £5 million in 2009.

Some of the above trends were beginning to establish themselves when the last release testing was undertaken as at the end of 2005. The results of this testing indicated that a transfer of RIE to the ASL Shareholders Fund would have been permitted, but, as allowed under the Scheme, the ASL Board exercised its discretion and decided to retain the entire RIE within the NPFs. Similarly, the results of the release testing for the OWPF indicated that a release of the inherited estate within the OWPF was possible and a special bonus could be declared. A special bonus costing £48 million was therefore declared on all with-profits policies allocated to or reassured to the OWPF at 31 December 2005.

The quantum of the RIE which might be transferable to the ASL Shareholders Fund following the testing to take place as at 31 December 2010 cannot be accurately predicted. However factors which are expected to influence the results of the testing are:

·; the NWPF had grown from around £8.2 billion in 2001 to £8.8 billion in 2005, but has subsequently reduced in size by around 35 per cent between the end of 2005 of and the end of 2009;

·; the RlE has increased in size materially since the end of 2005;

·; the volume of new with-profits business being written by ASL has continued to decline since the end of 2005; and

·; any transfer of RIE to the ASL Shareholders Fund could not exceed the face value of the non‑VIF element of the re-attributed estate at the time the transfer was made

The results of the release testing required to be undertaken in relation to the RlE will determine the maximum amounts which can be paid as special bonuses in the OWPF or transferred to the ASL Shareholders Fund from the ASL NPFs. The extent to which any RIE transferred to the ASL Shareholders Fund can then be dividended out of the company will be dependent on the need to retain sufficient capital within ASL to ensure it can meet its target capital ratios on a Pillar 1 and Pillar 2 basis and can finance future new business as required.

It is possible to utilise the RIE to support the business irrespective of whether or not it has been transferred to the ASL Shareholders Fund. Approximately £900 million of the RIE is currently invested in equity holdings in certain AXA strategic assets (primarily shares in AXA Asia Pacific). Prior to completion of the Acquisition, these assets will be sold to AXA for cash consideration.

In determining the appropriate financing structure for this transaction, and in setting targets for cash emergence from the Enlarged Group, RSL has taken account of the ability to access the RlE to support the business, for example by financing new business strain, in future years.

APPENDIX 3

UNAUDITED PRO FORMA FINANCIAL INFORMATION

Pro forma financial information on the Enlarged Group

The unaudited pro forma financial information set out below has been prepared to illustrate the impact of (i) the Acquisition of the AXA UK Life Business; (ii) the financing of the Acquisition (through the Rights Issue, the issue of the Deferred Consideration Notes and the Acquisition Finance Facility); and (iii) certain asset sales by Friends Provident, on the net assets of the RSL Group. The pro forma financial information has been prepared for illustrative purposes only and because of its nature, addresses a hypothetical situation and does not, therefore, represent the Enlarged Group's actual financial position or results.

The pro forma financial information is based on combining the net assets of the RSL Group and the AXA UK Life Business as at 31 December 2009, and adjustments have been made (i) to illustrate the effect on the consolidated net assets of the Enlarged Group as if the financing and the Acquisition had taken place on that date; (ii) to take account of the settlement of loans between the AXA UK Retained Business and the AXA UK Life Business that is to take place on Completion of the Acquisition; and (iii) to reflect the financial consequences of the sale in April 2010 of a 16 per cent holding in F&C Commercial Property Trust by Friends Provident. The pro forma financial information has been prepared under IFRS and on the basis set out in the notes below and in accordance with Annexes 1 and 2 of the PD Regulation. The pro forma financial information has been prepared on the basis of, and is consistent with, the accounting policies of the RSL Group.

Under IFRS 3, RSL will account for the transaction as an acquisition of the AXA UK Life Business and will be required to measure the identifiable assets acquired and the liabilities assumed at their acquisition-date fair values. The difference between (i) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed as at 31 December 2009; and (ii) the consideration transferred, measured at fair value, has been reflected as a gain on acquisition. The fair value exercise as at the acquisition date may result in different values being attributed to the net assets acquired than those shown below.

Unaudited pro forma statement of net assets under IFRS

		Adjustments
	RSL Group at 31	AXA UK Life Business at 31	Sale of shares in	Rights issue	Arising
	December	December	F&C	and new	from the
	2009(1)	2009(2)	CPT(3)	loans(4)	Acquisition(5)	Total
	£m	£m	£m	£m	£m	£m
Assets
Pension scheme surplus	38	-	-	-	-	38
Intangible Assets:
AVIF	2,879	141	-	-	1,886 (a)	4,906
Other	372	28	-	-	(5) (b)	395
Investment property	1,546	2,056	(731)	-	-	2,871
Financial assets	48,315	52,782	203	-	(408)	100,892
Deferred acquisition costs	46	1,316	-	-	(1,316) (c)	46
Reinsurance assets	1,972	1,143	-	-	-	3,115
Cash and cash equivalents	5,386	331	4	2,345	(2,250)	5,816
Other assets	537	379	(5)			911
Total Assets	61,091	58,176	(529)	2,345	(2,093)	118,990
Liabilities
Insurance contracts	12,107	23,358	-	-	-	35,465
Unallocated surplus	273	966	6	-	-	1,245
Financial liabilities:
Investment contracts	40,495	29,403	-	-	-	69,898
Loans and borrowings	590	423	(219)	400	92	1,286
Amounts due to reinsurers	1,610	-	-	-	-	1,610
Net asset value
attributable to unitholders	668	394	-	-	-	1,062
Deferred and current tax	504	198	-	-	(129) (d)	573
Other liabilities	528	829	(19)	-	(147) (e)	1,191
Total liabilities	56,775	55,571	(232)	400	(184)	112,330
Net assets	4,316	2,605	(297)	1,945	(1,909)	6,660
Equity attributable to
equity holders of the parent	3,536	2,605	-	1,945	(1,909)	6,177
Attributable to non-controlling interests	780	-	(297)	-	-	483
Total equity	4,316	2,605	(297)	1,945	(1,909)	6,660

In accordance with market practice regarding the application of IFRS3 Business Combinations to life insurance groups, the fair value of the AXA UK Life Business at 31 December 2009 has been assumed to be the embedded value at that date of the business being acquired, as set out below:

This is derived from the UK Life and Savings section of the published AXA report entitled ''Embedded Value 2009 Report'', adjusted as described below.

 

 

EEV of AXA UK Life and Savings (which includes the AXA UK Life Business) as reported in AXA embedded value report entitled ''Embedded Value 2009 Report''		€3,220 million
	£m	£m
Sterling value of EEV of AXA UK Life and Savings at exchange rate of €1.13/£ (being the rate used at the 2009 year end by AXA)	2,858
Value of Shares in AXA Asia Pacific held by the AXA UK Life Business(6)	709
Value of business acquired		3,567
AXA UK Life Business share of AXA UK pension scheme deficit retained by the AXA UK Retained Business(7)	226
EEV of businesses retained by the AXA UK Retained Business(8)	(626)
Value of business retained		(400)
Total acquired EEV on the AXA basis at 31 December 2009		3,167
Alignment of methodology and assumptions with RSL Group basis(9)		279
MCEV of the AXA UK Life Business on RSL Group basis at 31 December 2009		3,446
Acquisition Finance Facility		(400) (4)
Deferred Consideration Notes		(500) (5)
Net MCEV of the AXA UK Life Business on RSL Group basis at 31 December 2009 attributable to equity holders		2,546

The difference between the embedded value and the IFRS basis net assets of the AXA UK Life Business at 31 December 2009, as set out below, is an adjustment arising from the acquisition and is the implied value of the acquired in-force life business (''AVIF'') which is recorded as an intangible asset.

	£m
IFRS basis net assets of AXA UK Life Business	2,605
Implied value of AVIF before adjustments set out below	841
Embedded value of AXA UK Life Business	3,446

In accordance with the generally accepted approach to acquisition accounting for a life insurance business, certain intangible assets and liabilities relating to the AXA UK Life Business included in the IFRS basis net assets are reclassified for the purposes of this pro forma information as AVIF. These adjustments, which are shown below, have no overall impact on the recorded fair value arising from the Acquisition.

		Other net	Total net
	AVIF	assets	assets
	£m	£m	£m
Embedded value of AXA UK Life Business	841	2,605	3,446
Reclassification of intangible assets as AVIF:
(a) other intangible assets - existing AVIF	141	(141)
(b) other intangible assets - goodwill	5	(5)
(c) deferred acquisition costs	1,316	(1,316)	-
(d) tax on adjustments to intangible assets	(129)	129	-
(e) other liabilities - deferred income reserve	(147)	147	-
	2,027	1,419	3,446
AVIF in the AXA UK Life Business as at 31 December 2009	141
(f) Additional adjustment arising from the Acquisition	1,886
	2,027

 

Notes

(1) The financial information in respect of the RSL Group has been extracted without material adjustment from page 73 of the audited annual report and accounts for the year ended 31 December 2009. No account has been taken of changes in financial performance or financial condition of the RSL Group since 31 December 2009,

(2) The financial information in respect of the AXA UK Life Business has been extracted without material adjustment from the audited financial information as at 31 December 2009. No account has been taken of changes in the final performance or financial condition of the AXA UK Life Business since 31 December 2009.

(3) Adjustments have been made to account for the sale of 16 per cent of the shares in F&C Commercial Property Trust by Friends Provident. The financial information in respect of F&C Commercial Property Trust as at 31 December 2009 has been extracted without material adjustment from the accounting records of the RSL Group.

(4) Adjustments have been made to reflect the expected proceeds of the Rights Issue of £2,055 million and the Acquisition Finance Facility of £400 million under the Acquisition Facility Agreement, less associated expenses of £110 million.

(5) Adjustments have been made to reflect the fair value of the assets and liabilities of the AXA UK Life Business at 31 December 2009 and aggregate cash consideration of £2,250 consisting of £2,224 million payable in cash by RSL at Completion and up to £26 million net to be paid by RSL on completion of certain steps in the agreed post-Completion reorganisation. Adjustments have also been made to reflect the settlement of loans with entities within the AXA UK Retained Business that are to be settled on Completion of the Acquisition reducing financial assets and loans and borrowings by £408 million and the issuance of the Deferred Consideration Notes of £500 million (issue price and estimated fair value) resulting in a net adjustment to loans and borrowings of £92 million.

(6) The shares in AXA Asia Pacific will be replaced by cash by the Seller on an agreed basis prior to Completion of the Acquisition as part of the agreed transaction. This adjustment reflects the market value of the AXA Asia Pacific shares held by the AXA UK Life and Savings Business as at 31 December 2009, which was not included in the published EEV of the AXA UK Life and Savings Business at 31 December 2009.

(7) This adjustment reflects the fact that the Seller will retain all financial risk in relation to the AXA UK pension scheme in respect of the scheme deficit. The deficit was included in the published EEV of the AXA UK Life and Savings Business at 31 December 2009.

(8) This adjustment reflects the Seller's retention of that part of the business that was included within the published EEV of the AXA UK Life and Savings Business at 31 December 2009.

(9) The alignment of methodology and assumptions with the RSL's basis reflects the adjustments necessary to present the AXA EEV in accordance with RSL's MCEV methodologies and assumptions, as set out on pages 174 to 179 and 199 to 205 of RSL's Annual Report and Accounts 2009.

 

The adjustment sourced from AXA's underlying financial records:

	£m
Harmonisation of illiquidity premium (i)	80
Alignment of cost of capital assumptions (ii)	144
Alignment of tax assumptions (iii)	101
Alignment of expense inflation assumptions (iv)	(60)
Other minor adjustments	14
	279

(i) Revision of illiquidity premium to 75bps on annuity business as per RSL Group's basis at 31 December 2009; (ii) Revised to reflect expected cost of capital in the RSL Group Structure, net of cost of non-hedgeable risk; (iii) Revised to reflect corporate tax rates and assumptions in RSL Group Structure, net of increased VAT on asset management and transitional service arrangements; and (iv) Harmonisation of expense inflation rate and assumptions.

APPENDIX 4

ADDITIONAL INFORMATION

RISK FACTORS

The Rights Issue and any investment in the Company and the Ordinary Shares carry a significant degree of risk. A summary of possible risk factors involved is set out below.

1. RISKS RELATING TO THE COMPANY AND ITS BUSINESS STRATEGY

1.1 Each of the Company and ROL is an entity with a limited operating history and the track record of ROL and its associated entities may not be indicative of their, the Company's or ROL's future performance. The past performance of Friends Provident and any other business acquired by the Company (including the AXA UK Life Business) is also not necessarily indicative of its future performance. The past performance of Friends Provident and any other business acquired by the Company (including the AXA UK Life Business) is also not necessarily indicative of its future performance

1.2 The Company has established a target in connection with its business objective, which relies on certain assumptions and estimates regarding the ability of the Company successfully to restructure any business it acquires (including Friends Provident and, following the Acquisition, the AXA UK Life Business) and realise their value; accordingly there is no assurance that the Company will meet its target return or any other level of return

1.3 The Company's business strategy is dependent on the effectiveness of restructuring strategies. There is no assurance that these strategies will be successfully implemented and, if implemented, that they will be effective in increasing the valuation and facilitating the disposal of the acquired business

1.4 Although the Company believes that the current financial services and economic environment has created acquisition opportunities, the Company expects there will be significant competition for certain of these opportunities and there is no assurance that ROL will identify sufficient suitable acquisition opportunities or that the Company will be successful in completing acquisitions that will allow the Company to meet its target returns

1.5 There can be no assurance that the disposal of a business or company held by the Company will achieve a price that is consistent with the target return, or that any company demerged by the Company will achieve a market price that is consistent with the target return

1.6 The Company expects cash invested in temporary investments from time to time to generate returns which are significantly lower than the Company's target for capital employed in relation to the acquisitions consistent with the strategy

1.7 The due diligence that the Company undertakes in connection with acquisitions may not reveal all facts that may be relevant in connection with any such acquisitions and in certain cases, in particular where it only has access to public information, may not reveal liabilities which could have a material adverse effect on the Company's financial condition or results of operations

1.8 The Company may be unable to raise the necessary funds to make further acquisitions

1.9 The Company intends to acquire a limited number of business in a limited number of sectors and this will concentrate risk

1.10 The Company is highly dependent on ROL and other third-party service providers, which are subject to their own operational risks, and there can be no assurance that the Company will have continued access to them. In addition, the Company is reliant on the management of FPH and will also be reliant on existing personnel within other businesses that it acquires

1.11 The Company may be subject to restrictions in offering its Ordinary Shares as consideration for acquisitions or may have to provide alternative consideration which may have an adverse effect on its operations

1.12 The Company may acquire an interest of less than 100 per cent of the voting control of a target business where it believes such interest will give it sufficient influence to enable it to implement its strategic objective, Such an arrangement could adversely affect its decision making authority and ability to implement restructuring plans which may, in turn, impact its ability to achieve its target return, and result in disputes between the Company and third-party minority shareholders

1.13 As the Company intends to continue to acquire Financial Services Businesses, most of the businesses which it will seek to acquire will be authorised and regulated by one or more regulatory authorities, and will be subject to laws and regulations that could prohibit an acquisition, delay its completion or place a number of restrictions or conditions on an acquisition of that business

1.14 The cost of the RSL Group's borrowings may be adversely affected by changes in interest rates

1.15 Although the RSL Group intends to refinance the Debt Facilities, there can be no assurance that it will be able to do so, Further, there can be no assurance that the RSL Group will be able to secure additional borrowings on commercially viable terms or at all to refinance its existing debt

1.16 The Enlarged Group's hedging policy in connection with the financing of future acquisitions may adversely affect the Enlarged Group's business

1.17 Foreign investment and exchange risks may reduce the Company's operating results

1.18 Changes in standards, or in the interpretation of IFRS and other valuation methodologies, both specifically in relation to insurance and more generally, could have a negative effect on the RSL Group's financial results, distributable reserves or net assets or MCEV of the RSL Group and/or the Enlarged Group

1.19 The valuation bases for financial assets in the Company's consolidated accounts may include methodologies estimations and assumptions which are subject to differing interpretations and, depending on the interpretation, could result in changes to investment valuations

2. RISKS RELATING TO THE COMPANY'S RELATIONSHIP WITH ROL AND POTENTIAL CONFLICTS OF INTEREST

2.1 The Company is highly dependent on ROL and there can be no assurance that ROL will continue to provide services to it. Conversely, the Company may not be able to terminate ROL's services to the Company until the end of the five-year period after Initial Listing

2.2 The Company is highly dependent on key Resolution Group personnel and there can be no assurance that they will continue to provide services to the Company on behalf of ROL, or that ROL will be able to recruit further suitably qualified personnel. In addition, the Company's business strategy is reliant on retaining key management personnel in the businesses it acquires (such as the executive management of the FPH Board) in order to be able to implement the Company's value-enhancing strategies, and if the Company is unable to retain such personnel it could have a material adverse effect on the Company's business strategy and achieving its target returns

2.3 ROL is currently authorised and regulated by the FSA and is therefore subject to regulatory requirements that may affect its ability to provide services under the Operating Agreement

2.4 Changes to the laws, regulations or regulatory policies in the financial services sector may adversely affect ROL's ability to provide services under the Operating Agreement

2.5 ROL may in future undertake activities that conflict with its duties to, and/or the interests of, the Company; it may also enter into transactions with the Company

2.6 The structure of the Value Share may not provide an incentive to the members of the Resolution Team and other Resolution Group personnel to maximize the capital value of the Company in all circumstances

2.7 The structure of the Value Share may act as a disincentive to shareholders of a target company in assessing an offer by the Company that includes Ordinary Shares as all or part of the consideration, or to a third party considering a takeover bid for the Company

3. RISKS RELATING TO THE FINANCIAL SERVICES BUSINESSES THAT THE COMPANY MAY ACQUIRE

3.1 A further deterioration in general economic and market conditions could have a material adverse effect on the RSL Group's financial position, and the RSL Group may be sensitive to financial and industry cycles

3.2 Businesses acquired by the RSL Group and therefore the Enlarged Group may be exposed to liquidity risk

3.3 Businesses acquired by the RSL Group which have credit ratings, may suffer adverse changes in those credit ratings

3.4 Interest rate volatility can adversely affect insurance, asset management and banking businesses carried on by the RSL Group, or which the RSL Group may acquire

3.5 Substantially all of the businesses which the Company has acquired or may acquire, including the Friends Provident Group and the AXA UK Life Business, are regulated and authorised by the regulatory authorities and are therefore subject to laws, regulations and regulatory policies the application of which, or changes in the application of which could adversely affect the relevant business

3.6 Changes to the regulatory systems that apply to Financial Services Businesses acquired by the RSL Group could have a detrimental effect on the strategy and profitability of the RSL Group and any other businesses that may be acquired by the RSL Group

3.7 The RSL Group and any other Financial Services Businesses which the RSL Group may acquire may have significant exposure to counterparty risk and could be negatively affected by the financial soundness of counterparties and/or the financial soundness of other financial institutions, which could result in significant systemic liquidity problems, losses or defaults by other financial institutions and counterparties

3.8 Risk management methods of the RSL Group and any other Financial Services Businesses which the RSL Group may acquire, may leave such businesses exposed to unidentified, unanticipated or incorrectly quantified risks, which could lead to material losses or material increases in liabilities

3.9 Operational risks of Financial Services Businesses acquired by the Company can adversely affect the RSL Group

3.10 The Company is vulnerable to adverse market perception as it operates in a highly regulated industry where it must display a high level of integrity and have the trust and the confidence of its customers and their advisers

4. RISKS RELATING TO (i) THE LIFE ASSURANCE INDUSTRY GENERALLY AND (ii) THE LIFE AND PENSIONS BUSINESS OF FRIENDS PROVIDENT AND THE AXA UK LIFE BUSINESS IN PARTICULAR

4.1 The market for new life assurance and pensions business is highly competitive, and success in that market is, to some extent, dependent on scale of operations

4.2 The Friends Provident Group's Life and Pensions Business and the AXA UK Life Business are, and other RSL Life Businesses may be, dependent on distributor firms for the sale of new business

4.3 The success of any long-term insurance business within the RSL Life Businesses depends to a significant extent on the values of claims paid in the future relative to the assets accumulated on the date of the claim

4.4 Adverse experience compared with the assumptions used in pricing products, establishing provisions and reporting business results could have a material adverse effect on the financial position of the RSL Group, and changes to such assumptions may lead to changes in the level of capital required to be maintained

4.5 The RSL Group's MCEV and liabilities as reported under IFRS will decrease and increase, respectively, if the yield curve used in valuing such MCEV and liabilities incorrectly reflects returns on assets with minimal credit risk, which could have a material adverse effect on the RSL Group's MCEV, IFRS results and financial condition

4.6 RSL's shareholders may be required to support guaranteed benefits attributed to with profits policies within any life assurance and pensions businesses that are acquired

4.7 Changes in mortality/longevity or morbidity rates may adversely affect the profitability of the Friends Provident Life and Pensions Business, the AXA UK Life Business and any other RSL Life Business acquired by the Company

4.8 Performance of the products of the Friends Provident Group, the AXA UK Life Business and/or of any other RSL Life Business will depend on the ability of the relevant business to set accurate prices for the products it sells

4.9 Policyholder behaviour may not accord with expectations

4.10 The Friends Provident Life and Pensions Business and the AXA UK Life Business have, and other RSL Life Business are likely to have, a substantial exposure to reinsurers through reinsurance arrangements

4.11 The success of the Enlarged Group is dependent on continued performance of outsourcing arrangements

4.12 There have been significant changes in relevant legislation and regulation, in particular since 2005, a number of which have had a significant impact on the UK life assurance industry. Various new reforms to the relevant legislation and regulation have also been proposed which could involve significant implementation costs and may create uncertainty in the application of relevant laws or regulation

4.13 The European Commission is currently in the process of introducing a new regime governing solvency margins and reserves, the effect of which is uncertain

4.14 Policyholders may attempt to seek redress against the RSL Group where they allege that a product fails to meet the reasonable expectations of the policyholder, including where there are future changes in legislation

4.15 Potential FSA (or overseas regulator) intervention may occur on industry wide issues

4.16 There may be changes to the current VAT rules which result in VAT being chargeable on certain outsourcing agreements of the Friends Provident Group, the AXA UK Life Business and any other RSL Life Business that the Company may acquire, and such VAT suffered not being recoverable from HMRC as deductible VAT input tax

4.17 The with profits funds in the RSL Life Businesses are overseen by a supervisory committee which could limit the ability of the Enlarged Group to take certain courses of action in relation to the with profits funds

4.18 The Friends Provident Group may be required to make significant further contributions to its pension fund if its assets are not sufficient to cover potential obligations

4.19 The ASL inherited estate may not be accessible by the shareholder of ASL at all or in full and the amount and timing of any releases is therefore uncertain

5. RISKS RELATING TO THE ACQUISITION

5.1 Completion of the Acquisition is conditional, including as to regulatory change of control approval that may not be obtained on terms satisfactory to FPH

5.2 The Enlarged Group will encounter numerous integration challenges as a consequence of the Acquisition

5.3 The increase in scale of the Enlarged Group and the possible impact of the separation and subsequent integration of the AXA UK Life Business may expose the Enlarged Group's business to greater operational risks

5.4 Following the Acquisition, the success of the Enlarged Group will be dependent on the continued performance of outsourcing arrangements by Capita, and of transitional services by the AXA UK Retained Business

5.5 FPH will not have full recourse to the Seller under the Share Purchase Agreement against all potential liabilities in the business, whether identified or unidentified

5.6 The uncertainties about the effects of the Acquisition could materially and adversely affect the business and operations of the RSL Group

5.7 The use of borrowings in connection with the Acquisition may adversely affect the Company's business, in particular through covenants contained in the relevant agreements

5.8 There may be a risk that the Pensions Regulator could, in certain circumstances, impose a contribution notice or financial support direction on companies in the AXA UK Life Business for up to six years following Completion

5.9 Certain arrangements to effect the separation of the AXA UK Life Business from the AXA UK Retained Business are conditional upon Court approval, and a failure to obtain such approval could have a material adverse effect on the effectiveness of the Company restructuring strategy, its ability to achieve its target returns and the results of operations of the Enlarged Group

5.10 Certain companies in the AXA UK Life Business will be required to pay an "exit debt" on their withdrawal from the AXA defined benefit pension scheme, and the indemnity from AXA covering these amounts might not be available when called for

5.11 There may be a risk of other liabilities arising from the companies in the AXA UK Life Business as a result of their withdrawal from the AXA pension scheme

5.12 The Enlarged Group's success depends upon its ability to attract and retain key personnel within the AXA UK Life Business

6. RISKS RELATING TO THE RIGHTS ISSUE AND AN INVESTMENT IN ORDINARY SHARES

6.1 The price of the Ordinary Shares may be volatile and/or, may decrease, and Shareholders may not be able to sell the Ordinary Shares at a favourable price after the Rights Issue

6.2 An active trading market in the Nil Paid Rights may not develop

6.3 The listing and admission to trading of the New Ordinary Shares on the London Stock Exchange may not occur when expected

6.4 The re-listing and re-admission to trading of the Ordinary Shares on the London Stock Exchange may not occur when expected

6.5 Shareholders who do not acquire New Ordinary Shares in the Rights Issue will experience dilution in their ownership of the Company

6.6 If the conditions to the Rights Issue are not satisfied, the Rights Issue will not proceed

6.7 The Company anticipates that further substantial equity commitments (in addition to the Rights Issue) are likely to be required to be made in cash as the Company fulfils its business strategy. A Shareholder which does not exercise its pre-emption rights in relation to future share issues for cash will not maintain its percentage ownership of the Company and such issuance may dilute the value of its Ordinary Shares. Pre-emption rights may also be removed from the Articles by a special Shareholder resolution and certain non pre-emptive share issues may occur

6.8 Pre-emption rights do not apply where Ordinary Shares are offered for non-cash consideration, meaning there may be a significant dilution of ownership on completion of an acquisition involving Ordinary Shares as consideration

6.9 Certain members of the RSL Group and the AXA UK Life Business are restricted by applicable regulatory and other requirements in their ability to pay dividends; further, there is a risk that dividends may not be paid according to the dividend policy, or that the dividend policy may change in the future

6.10 A prospective investor's ability to invest in the Ordinary Shares or to transfer any Ordinary Shares that it holds may be limited by the Articles of Incorporation of the Company and certain ERISA, US Tax Code and other considerations

6.11 The Company is not, and does not intend to become, regulated in the United States as an investment company under the US Investment Company Act. As a result, transfer restrictions for Shareholders in the United States or that are US Persons have been imposed and may make it difficult to resell the New Ordinary Shares or may have an adverse impact on the market price of the Ordinary Shares generally

7. TAX

7.1 Failure to maintain the non-UK tax resident status of the Company would adversely affect the Company's financial and operating results

7.2 Taxation of returns from assets located outside Guernsey may reduce any net return to investors

7.3 Changes in tax law and tax rates may reduce any net returns to investors

7.4 Changes in taxation law may impact RSL Life Businesses, including the Friends Provident Life and Pensions Business and, following the Acquisition, the AXA UK Life Business, and may impact upon the decisions of policyholders and potential policyholders

7.5 The Company may be a passive foreign investment company for US federal income tax purposes

7.6 There can be no assurance that the Company will be able to make returns to Shareholders in a tax efficient manner

OTHER PROJECTS

ROL and other members of the Resolution Group continue their research and development activities in other financial services sectors and geographies which may benefit from the Resolution Team's restructuring skills, be capable of delivering returns in line with the Company's targets, and be of interest to investors. This research and development work suggests that there are opportunities in the asset management sector, both as a project on its own merits and due to the synergy benefits of asset management with life assurance. Outside the UK and Western European life and asset management sectors, the Board and the Resolution Group see the US life assurance industry as having the potential to provide interesting opportunities in the near to medium term.

The Directors and the Resolution Team are committed to ensuring that, where Shareholders want to, they can participate in new value-creating opportunities identified by the Resolution Group as and when they arise. The Board has not, however, taken any decision in relation to any other restructuring project and, together with the Resolution Team, continues to assess the attractiveness of other projects being undertaken within the Company concurrently with the UK Life Project. Some institutional Shareholders have suggested that they may prefer to invest in specific projects directly, rather than as part of a single investment through the Company and hence may prefer for new restructuring projects to be pursued outside the RSL Group, with the Resolution Group providing similar services to the entity or entities undertaking these projects as they currently provide to the Company.

The Board would seek approval of Shareholders, either if it decides to undertake a new project within the Company before the end of the existing UK Life Project, or if Shareholders are presented with an opportunity to participate in a new project that is otherwise within the current scope of the Company through a separate entity with services provided to it by ROL. In the latter case, this would be in line with the requirements of the Operating Agreement, which would not allow ROL to provide services to any entity other than the Company unless this were approved by Shareholders. Both these approvals would be measured by a simple majority of those voting, and, in the case of a new project to be undertaken by the Company, would be in addition to any specific transaction related vote required under the class tests required by the Listing Rules.

Should the Resolution Group choose to initiate projects which are outside the scope of the Company and wish to utilise the services of ROL to support these projects, the Board would also consider this on behalf of Shareholders and bring forward a Shareholder vote where it is considered necessary.

VALUE SHARE

The Value Share is receivable by RCAP in respect of the ''added value'' realised from a particular limited partnership through which the acquisitions for a restructuring project are made once the accumulated value of the Company's ''deployed equity capital'' contributed to that limited partnership, together with an amount equal to the ''agreed return'' on the deployed equity capital, has been returned to the Company (''returned capital''). There is also a Value Share receivable on a Change of Control, which is described below.

On the making of an acquisition, the Board, having taken advice from ROL, will determine whether such acquisition is allocated to an existing or a new limited partnership (and accordingly whether a new limited partnership should be established to hold the acquisition). The Board expects that it would normally determine that an acquisition is for a new restructuring project and will be held through a separate limited partnership if the acquisition is of a company operating in a different sector of the financial services market, or in a different geographical location, to the business(es) in an existing restructuring project. Additionally, if the restructuring programme being undertaken is within an existing restructuring project which is nearing completion in accordance with the applicable business plan and the remaining operations held within the applicable limited partnership for that restructuring project are expected to be disposed of within the next 12 months, the Board would normally expect to conclude that it would be appropriate to form a new restructuring project for the new acquisition (subject to the approval of Shareholders), even if that new acquisition involved businesses operating in the same sectors or geographies as those in the existing restructuring project.

The Acquisition will be made through Resolution Holdco No 1 LP, the existing limited partnership established prior to the Initial Listing.

If the Board decides to undertake a new restructuring project before the end of the UK Life project, the Company will seek the approval of its Shareholders (measured by a simple majority of those voting). This approval vote would be in addition to, but held at the same time as, any specific transaction-related vote required under the class tests set out in the Listing Rules.

From time to time the Board, having taken advice from ROL, may determine that it is appropriate to transfer acquired businesses between the limited partnerships that hold the businesses acquired under restructuring projects. When such a transfer is to take place, the asset concerned would be transferred at the purchase price allocated to it for the purpose of the Company's financial statements, or (if lower) at fair market value which shall, if the Board considers it necessary, be independently verified.

For the purpose of determining the Value Share receivable in relation to a limited partnership holding the businesses acquired under a restructuring project:

''deployed equity capital'' comprises: (i) cash contributed to the limited partnership which owns the project assets to fund the acquisition of such assets; and (ii) the value of any Ordinary Shares issued by the Company in consideration for the acquisition of the assets held by such limited partnership (calculated as the average Closing Price for the Ordinary Shares over the 40 business days before such acquisition was announced or, if earlier, prior to the date on which listing of the shares or equity securities were suspended pending publication of further information on the acquisition);

''returned capital'' comprises: (i) all cash distributed to the Company by the relevant limited partnership (whether subsequently used by the Company for the purpose of another restructuring project or distributed to Shareholders); and (ii) the value of all listed shares which are demerged to the Shareholders from the relevant limited partnership (calculated as the average Closing Price for such shares over the 40 business days following their admission to listing);

''added value'' means the amount by which: (i) all returned capital exceeds (ii) all deployed equity capital, plus an agreed return on such deployed capital; and

''agreed return'' means a compounded annualised return on deployed equity capital, calculated on the basis of the higher of: (i) the annualised gross redemption yield on three-year UK gilts, as shown on the FT.com website on the date on which RSL (in its capacity as general partner) makes its first equity capital contribution to the relevant limited partnership (the ''Relevant Date'') or, if the relevant gross redemption yield is not available from FT.com on such day, the gross redemption yield on the UK fixed interest gilt with a maturity date closest to the day three years after the Relevant Date as available from the UK Debt Management Office (or any successor); and (ii) 4.0 per cent per annum, and shall be reset on the same basis at each 3 year anniversary of the Relevant Date.

For the purpose of the Acquisition, the ''deployed equity capital'' is expected to be approximately £2,140 million, consisting of the cash consideration funded by the Rights Issue, the total transaction costs expected to be incurred by RSL in relation to the Acquisition (which are expected to be approximately £110 million), together with £150 million of working capital which it is proposed be injected into FPH, and £30 million of working capital to be injected into Resolution Holdings (Guernsey) Limited. The Acquisition Finance Facility funding the remainder of the cash consideration will be taken on by Resolution Holdings (Guernsey) Limited directly. In the case of the Deferred Consideration Notes, where the Company is taking on indebtedness for the purposes of the Acquisition, this will be reflected through intra-group debt between Holdco No 1 LP (on the one hand) and the Company (on the other), which will reflect the terms of the Deferred Consideration Notes in relation to the repayment terms and interest rates. This debt will effectively rank ahead of the equity capital invested in the limited partnership and will not form part of the deployed equity capital.

If the Company is subject to a Change of Control, the Company will be required to buy out all of RCAP's limited partnership interests at a value that, in aggregate, is equal to (i) 20 per cent of the added value at the date of the Change of Control if the date of the Change of Control is on or before 31 December 2010, or (ii) 10 per cent of the added value at the date of the Change of Control if such date is after 31 December 2010, calculated, in each case, on the basis that the returned capital is an amount equal to the total consideration payable for the entire issued share capital of the Company (calculated on a fully diluted basis) pursuant to the Change of Control, less any cash or equivalents (other than borrowings) held by the Company (the ''Acquisition Consideration''). Where there is more than one class of shares of the Company in issue, the total consideration payable for the entire issued share capital of the Company shall be deemed to include the aggregate value of such other classes of shares, being either the highest price offered for the acquisition of such shares in connection with the Change of Control, or if no offer or acquisition has been made at the relevant time, the value at which such shares were issued. The Acquisition Consideration will be allocated between limited partnerships on the basis of a ratio calculated by reference to the value of the net capital inflows from the Company into any particular limited partnership, relative to the aggregate net capital inflows from the Company into all of the limited partnerships in which the Company has an interest as at the Change of Control.

APPENDIX 5

DEFINITIONS

The following definitions apply throughout this announcement unless the context requires otherwise:

''Acquisition''	means the acquisition by FPH of the AXA UK Life Business, to be effected through the purchase by FPH of the entire issued share capital of AXA Sun Life Holdings Limited and Winterthur Life UK Limited;
''Acquisition Facility Agreement''	means the facility agreement dated the date of this Announcement pursuant to which the Acquisition Finance Facility is provided;
''Acquisition Finance Facility''	means the £400 million term loan facility which Barclays Bank PLC and Royal Bank of Canada have agreed to provide to Resolution Holdings (Guernsey) Limited;
''Acquisition Resolutions''	means the resolutions approving the Acquisition, the issue of shares in the Rights Issue and the Share Consolidation, to be set out in the Notice of General Meeting;
''Admission''	means the proposed admission of the New Ordinary Shares, nil paid, to the Official List of the UKLA and to trading on the London Stock Exchange's main market for listed securities;
"Admission Date"	means the date of Admission;
"Announcement"	means this announcement;
"annual premium equivalent" or "APE"	means a measure of new business activity that is calculated as the sum of annualised regular premiums from new business plus 10 per cent of single premiums on new business written during the period;
''Articles of Incorporation'' or ''Articles''	means the articles of incorporation of the Company in force from time to time;
"ASL"	means AXA Sun Life plc;
"ASLH"	means AXA Sun Life Holdings Limited;
"AXA group"	means AXA SA and its subsidiary undertakings;
"AXA Services"	means AXA Sun Life Services plc;
"AXA Tech"	means AXA Technology Services UK Limited;
''AXA UK Life and Savings Business''	means all the life and savings business carried on by AXA UK plc and its subsidiaries and subsidiary undertakings in the UK;
''AXA UK Life Business''	means the traditional and protection business, most of the corporate benefits business and a minority part of the wealth management business carried on by AXA UK Life and Savings Business which are to be acquired by the RSL Group pursuant to the Acquisition, taking into account the pre and post completion reorganisation of the AXA UK Life and Savings Business (and where the context requires, shall include reference to ASLH and its subsidiaries);
''AXA UK Retained Business''	means that part of the AXA UK Life and Savings Business which is not the AXA UK Life Business and will not be acquired by the RSL Group taking into account the pre and post completion reorganisation of the AXA UK Life and Savings Business;
"Barclays Capital"	means the investment banking division of Barclays Bank PLC;
''Board''	means the board of directors of the Company;
''Business Day''	means any day on which banks are generally open in London for the transaction of business other than a Saturday or Sunday or public holiday;
''certificated'' or ''in certificated form''	means in relation to a share or other security, a share or other security, title to which is recorded in the relevant register of the share or other security concerned as being held in certificated form (that is, not in CREST);
''Change of Control''	means the acquisition of control by any person or persons acting in concert (as defined in the Takeover Code) who did not previously have control of the company, where ''control'' for these purposes means the ownership of or entitlement to acquire the majority of the issued ordinary share capital or the voting rights in the company;
"Circular"	means the circular to be despatched to Shareholders in connection with the Acquisition, the Rights Issue and the Share Consolidation;
''Closing Price''	means the closing middle market price of a relevant share as derived from SEDOL on any particular day;
"Companies Act 2006"	means the Companies Act 2006 of the UK, as amended;
"Company"	means Resolution Limited;
''Companies Law''	means the Companies (Guernsey) Law, 2008, as amended;
''Completion''	means completion of the acquisition of the AXA UK Life Business pursuant to the Share Purchase Agreement;
''Completion Date''	means the date on which Completion occurs;
''Consolidated Ordinary Share''	means an Ordinary Share as consolidated pursuant to the Share Consolidation;
''CREST'' or ''CREST system''	means the paperless settlement procedure operated by Euroclear enabling system securities to be evidenced otherwise than by certificates and transferred otherwise than by written instrument;
''Debt Facilities''	means the Acquisition Finance Facility and the Friends Provident Facility;
''Deferred Consideration Notes Instrument''	means the instrument pursuant to which the Company will constitute the Deferred Consideration Notes;
''Deferred Consideration Notes''	means the A Notes and B Notes to be issued by the Company in connection with the Acquisition;
''Directors''	means the directors of the Company or the directors from time to time of the Company, as the context requires, and ''Director'' is to be construed accordingly;
"EEV"	means a basis upon which certain supplementary financial information is prepared in accordance with the European Insurance CFO Forum European Embedded Value Principles (EEV Principles), issued in May 2004 and supplemented by the Additional Guidance of European Embedded Value disclosures published in October 2005;
''Enlarged Group''	means the RSL Group as enlarged by the Acquisition and the Rights Issue proceeds (following Completion of the Acquisition and completion of the Rights Issue, respectively);
"Ernst & Young"	means Ernst & Young LLP, whose registered office is at 1 More London Place, London SE1 2AF, United Kingdom
''Euroclear'' or ''Euroclear UK''	means Euroclear UK & Ireland Limited;
''Existing Ordinary Shareholders"	means the holders of Existing Ordinary Shares;
''Existing Ordinary Shares''	means the Ordinary Shares of no par value in the capital of the Company in issue as at the date on which the Prospectus is published;
"Financial Services Business"	means companies and/or businesses in the life assurance, asset management, general insurance, banking and diversified general financial sectors or certain of those sectors, as the context may require;
''Framework Agreement''	means the framework agreement under the terms of which AXA agrees to carry out a reorganisation of its UK group corporate structure to separate the assets and entities to be acquired by FPH under the Share Purchase Agreement from the assets and entities which will be retained by AXA following Completion;
''FPH''	means Friends Provident Holdings (UK) Limited;
''FPH board''	means the board of directors of FPH;
"FPLP"	means Friends Provident Life and Pensions Limited;
''Friends Provident''	means Friends Provident Group plc and any of its subsidiaries as the context may require;
''Friends Provident Completion Date''	means 4 December 2009, the date of completion of the acquisition of Friends Provident by the Company;
''Friends Provident Facility''	means the up to £500 million multicurrency revolving credit facility which, amongst others, Barclays Bank PLC and Royal Bank of Canada have agreed to provide to FPH;
''Friends Provident Facility Agreement''	means the facility agreement pursuant to which the Friends Provident Facility is provided;
''Friends Provident Group''	means FPH and its subsidiaries (including on and from Completion AXA Sun Life Holdings Limited and its subsidiaries);
''FSA''	means the UK Financial Services Authority;
''FSA Handbook''	means the FSA's Handbook of Rules and Guidance, as amended, varied, substituted or replaced from time to time;
''FSA Rules''	means the rules of the FSA as set out in the FSA Handbook;
''FSMA''	means the Financial Services and Markets Act 2000 of the UK, as amended;
"Fully Paid Rights"	means the rights to acquire New Ordinary Shares, fully paid;
"General Meeting"	means the general meeting of the Company to approve, inter alia, the Acquisition Resolutions;
"GENPRU"	means the General Prudential Sourcebook, part of the FSA Handbook;
"Group Company"	means any parent company of the Company, any subsidiary undertaking of such parent company and any subsidiary undertaking of the Company, and for this purpose the expressions "subsidiary undertaking" and "parent company" shall have the meaning given in the Companies Act 2006;
''Guernsey''	means the Island of Guernsey;
''IFA''	means an Independent Financial Adviser;
''IFRS''	means International Financial Reporting Standards;
"IGCA"	means Insurance Group Capital Adequacy;
"IGD Surplus"	means the surplus capital adequacy available to the relevant group as required by the Insurance Group Directive (98/78/EC);
''Initial Listing''	means the admission of the Company's equity shares to a Standard Listing on the Official List and to dealing on the London Stock Exchange in December 2008;
''INSPRU''	means the Prudential Sourcebook for Insurers, part of the FSA Handbook;
"IPRU (INS)"	means the Interim Prudential Sourcebook for Insurers, part of the FSA Handbook;
"Lazard"	means Lazard & Co., Limited;
''Life and Asset Management Group''	means companies and/or businesses which are part of the RSL Group and have substantial operations consisting of life assurance and/or asset management activities, and/or are listed in, or undertake a significant part of their business in, the UK and/or Western Europe (which, following Completion of the Acquisition, will include the Friends Provident Group and the AXA UK Life Business);
"Life and Pensions Business"	means the business carried on by life assurance companies within the Friends Provident Group;
"Limited Partnership" or "Holdco No. 1 LP"	means Resolution Holdco No 1 LP;
''Listing Rules''	means the listing rules made by the UK Listing Authority under Section 73A of FSMA as amended from time to time;
''London Stock Exchange''	means London Stock Exchange plc;
"MCEV"	means the Market Consistent Embedded Value;
"Net MCEV"	means MCEV net of external debt;
"Net Proceeds"	means the funds received on closing the Rights Issue, less any expenses paid in connection with the Rights Issue;
''New Ordinary Shares''	means the new Ordinary Shares proposed to be issued pursuant to the Rights Issue;
''Nil Paid Rights''	means rights to acquire New Ordinary Shares, nil paid;
"Non-Cash Value"	means the average of the market capitalisation of the Company less cash or cash equivalent liquid temporary investments held by the Company or a limited partnership through which it makes acquisitions (but excluding, for this purpose, any cash or cash equivalent held by the Company or any such limited partnership which has been lent to it by an external third party) on the first and last business days of each month;
"Notice of General Meeting"	means the notice of the General Meeting to be held in mid July included in the Circular;
''Official List''	means the Official List maintained by the UKLA;
"Operating Agreement"	means the operating Agreement dated 4 December 2008 between ROL and the Company (as amended);
''Option Agreement''	means the option agreement entered into between, inter alia, FPH and AXA plc relating to the Acquisition;
''Ordinary Shareholders''	means holders of Ordinary Shares;
''Ordinary Shares''	means the ordinary shares of no par value in the capital of the Company including, if the context requires, New Ordinary Shares and Consolidated Ordinary Shares;
''Pounds Sterling'', ''Sterling'' or ''£''	means the lawful currency of the United Kingdom;
"PPFM"	Means the AXA UK Life Businesses' Principles and Practices of Financial Management;
''Premium Listing''	means the listing by the FSA of the entire ordinary share capital of the Company on the Official List in accordance with Chapter 6 of the Listing Rules (known as a Primary Listing prior to 6 April 2010);
"Prospectus"	means the prospectus to be published in connection with the Acquisition, Rights Issue and Share Consolidation;
''Provisional Allotment Letter''	means the provisional allotment letter issued to Qualifying non-CREST Shareholders;
"Qualifying CREST Shareholder"	means a Qualifying Shareholder holding Ordinary Shares in uncertificated form;
''Qualifying non-CREST Shareholders''	means Qualifying Shareholders holding Ordinary Shares in certificated form;
''Qualifying Shareholder''	means a holder of Existing Ordinary Shares on the register of members of the Company on the Rights Issue Record Date;
''RBC'' or ''RBC Capital Markets''	means Royal Bank of Canada Europe Limited;
''RCAP''	means RCAP Guernsey LP, a limited partnership established under Guernsey Law with registered number 1115;
"Receiving Agent" or "Computershare"	means Computershare Investor Service plc, or any other Receiving Agent appointed by the Company from time to time;
Regulatory Information Service"	means one of the regulatory information services authorised by the UK Listing Authority to receive, process and disseminate regulatory information from listed companies;
''Resolution Group''	means ROL, RFML, RCAP, Resolution Capital Limited (UK Company Number 6726654) and their respective subsidiaries and subsidiary undertakings from time to time (and, for the avoidance of doubt, neither the RSL Group nor the Company are part of the Resolution Group);
"Resolution Share Account"	means the arrangement pursuant to which certain beneficial holders of Ordinary Shares hold their interests through Computershare Company Nominees Limited in whose name the relevant Ordinary shares are registered;
"Resolution Team"	means Clive Cowdery, John Tiner, Ian Maidens, Jim Newman, Brendan Meehan, Elizabeth Gilbert and Jon Hack;
''RFML''	means Resolution Financial Markets LLP, a UK limited liability partnership with registered number OC346277;
"RHG"	means Resolution Holdings (Guernsey) Limited;
"RIE" or "reattributed inherited estate"	means an inherited estate which has been transferred from a with-profits fund to a non-profits fund as part of a reconstruction scheme, and in which with-profits policyholders no longer have an interest;
''Rights Issue''	means the offer by way of rights to Qualifying Shareholders to acquire New Ordinary Shares, on the terms and conditions which will be set out in the Prospectus and, in the case of Qualifying non-CREST Shareholders only, the Provisional Allotment Letter;
''Rights Issue Price''	means 150 pence per New Ordinary Share;
''Rights Issue Record Date''	means the record date for the Rights Issue, to be included in the Circular;
"RNS"	means the Regulatory News Service of the London Stock Exchange;
''ROL''	means Resolution Operations LLP, a UK limited liability partnership authorised by the FSA with registered number OC339989;
"ROL Partners"	means Clive Cowdery, John Tiner, Ian Maidens, Brendan Meehan and Jim Newman;
''RSL'' or the ''Company''	means Resolution Limited, a company incorporated with limited liability in Guernsey under the Companies Law on 9 October 2008, with registered number 49558;
''RSL Group''	means the Company, its subsidiary undertakings, Resolution Holdco LP No 1 and any other limited partnership of which the Company is general partner from time to time and the companies or businesses they acquire (directly or indirectly) from time to time, and does not include the Resolution Group;
"RSL Life Business"	means business carried on by the life insurance companies within the RSL Group from time to time;
''SEDOL''	means the Stock Exchange Daily Official List of share identifiers;
''Seller''	means AXA UK plc;
"Seller's Group"	means the Seller, any parent company of the Seller, any subsidiary undertaking of such parent company and any subsidiary undertaking of the Seller, at any time following the Closing Date, and for this purpose the expressions "subsidiary undertaking" and "parent company" shall have the meanings given in the Companies Act 2006;
''Share Consolidation''	means the consolidation of the Company's Ordinary Shares as described in paragraph 9.2 of this Announcement;
''Share Consolidation Record Date''	means the record date in relation to the Share Consolidation, to be included in the Circular;
''Shareholder''	means a holder of ordinary shares in RSL;
''Share Purchase Agreement''	means the share purchase agreement dated the date of this Announcement between, inter alia, FPH and the Seller relating to the Acquisition;
''Standard Listing''	means the listing by the FSA of the entire ordinary share capital of the Company on the Official List in accordance with Chapter 14 of the Listing Rules (known as a Secondary Listing prior to 6 April 2010);
"Takeover Code"	means the City Code on Takeovers and Mergers;
''Transitional Services Agreement'' or ''TSA''	means the transitional services agreement under the terms of which each of FPH and AXA plc agrees to provide to the other certain transitional services including, but not limited to, information technology, finance/treasury, human resources, property and operational services;
''UKLA'' or ''UK Listing Authority''	means the FSA in its capacity as the competent authority for listing in the UK pursuant to Part VI of FSMA;
''UK Life Project''	means the Company's restructuring project in respect of the Life and Asset Management Sectors as described in this announcement;
''Uncertificated'' or ''Uncertificated Form''	means, in relation to a share or other security, a share or other security, title to which is recorded in the relevant register of the share or other security concerned as being held in uncertificated form (that is, in CREST) and title to which may be transferred by using CREST;
''Underwriters''	means each of RBC Capital Markets and Barclays Capital, and ''Underwriter'' is to be construed accordingly;
''Underwriting Agreement''	means the underwriting agreement dated the date of this announcement between the Company and the Underwriters relating to the Rights Issue, as described in Appendix I;
''Underwriting Proportions''	means in relation to an Underwriter, that proportion of the total underwriting commitment that each such underwriter has given pursuant to the Underwriting Agreement;
"Underwritten Shares"	means the 1,370,315,821 New Ordinary Shares to be issued pursuant to the Rights Issue;
''United Kingdom'' or ''UK''	means the United Kingdom of Great Britain and Northern Ireland;
"United States" or "US"	means the United States of America, its territories and possessions, any state of the United States of America, the District of Columbia and all other areas subject to its jurisdictions;
"US Person"	means as defined as defined in Regulation S under the US Securities Act of 1933;
''Value Share''	means a share of the ''added value'' created by each limited partnership through which acquisitions are made as part of a restructuring project above an agreed rate of return, as more particularly described in Appendix 3 of this announcement;
"VAT"	means (i) within the EU, any tax imposed by any member state in conformity with the directive of the council of the European Union on the common system of value added tax (2006/112/EC), and (ii) outside the EU, any tax corresponding to, or substantially similar to, the common system of value added tax referred to in paragraph (i) of this definition;
''Western Europe''	means Austria, Belgium, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, The Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the UK;
''WLUK"	means Winterthur Life UK Limited; and
"With Profits Insurance Capital Component" or WPICC"	means the capital component for "with-profits" insurance business" of a realistic basis life firm, calculated in accordance with INSPRU 1.3.

References to a ''company'' in this announcement shall be construed so as to include any company, corporation or other body corporate, wherever and however incorporated or established.

APPENDIX 6

EXPECTED TIMETABLE OF PRINCIPAL EVENTS

Each of the times and dates in the table below is indicative only and may be subject to change.

2010

Announcement of potential acquisition and subsequent suspension of trading of Ordinary Shares on the London Stock Exchange	7.00 a.m. on 14 June
Announcement of the Acquisition and the Rights Issue	24 June
Publication of the Prospectus and posting of the Circular and Notice of General Meeting	by end of June
Latest time and date for receipt of Forms of Proxy for the General Meeting	48 hours prior to General Meeting
General Meeting	mid July
Admission	next Business Day following General Meeting
Dealings in Nil Paid Rights and Fully Paid Rights commence	next Business Day following General Meeting
Latest time and date for acceptance, payment in full and registration of renunciation of Provisional Allotment Letters	end July/beginning of August
Dealings in New Ordinary Shares, fully paid, commence on the London Stock Exchange	next Business Day following end of Rights Issue offer period
New Ordinary Shares credited to CREST stock accounts	as soon as practicable after fully paid dealings commence on London Stock Exchange
Completion of the Acquisition and Readmission of the Company's Ordinary Shares	in September

 

All references to time are to London time.

CE101670106

This information is provided by RNS

The company news service from the London Stock Exchange