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Annual report For the year ended 31 December 2015 Issued: 23 March 2016

Annual report - Towergate · Insurance Limited). ... John Tiner was appointed as Non-Executive Chairman with ... This annual report is prepared by the Group in connection with the

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Annual report For the year ended 31 December 2015

Issued: 23 March 2016

2

Table of contents Page

General 3

Recent Developments 3

Presentation of financial and other information 6

Forward looking statements 7

Summary unaudited pro forma financial information and other data 8

Business review 11

Management’s discussion and analysis of financial condition and results of operations 21

Risk factors 27

Management 32

Principal shareholders 36

Related party transactions 36

Description of share capital 36

Appendices

1. Detailed unaudited pro forma financial information and other pro forma data 38

2. Consolidated statutory information 45

3. Consolidated financial statements 48

3

General

This annual report should be read in conjunction with the audited consolidated financial statements of TIG

Finco Plc (Finco) and TIG Topco Limited (Topco) for the year ended 31 December 2015. The consolidated

financial statements can be found in appendix 3 of this report.

On 2 April 2015 the Group completed a financial restructuring in relation to the senior secured creditors and

senior unsecured creditors of Towergate Finance Plc (a former intermediate parent company of Towergate

Insurance Limited). Historical consolidated results are presented for Towergate Insurance Limited together

with its subsidiary companies, forming the predecessor group (TIL or TIL Group). As part of the Group’s

financial restructuring Finco, a newly formed holding company, acquired TIL. Topco, also a newly formed

holding company, is the indirect parent company of Finco. Sentry Holdings Limited (Sentry) is the ultimate

parent company and is the largest group in which the results will be consolidated.

This annual report presents consolidated unaudited pro forma financial information and other pro forma data

for the period ended 31 December 2015 for Finco and Topco and its subsidiary companies, together with the

results of TIL and its subsidiary companies for the period prior to 2 April 2015 (together, Towergate or

Group). For comparative purposes, the results of TIL and its subsidiary companies have been used for the

years ended 31 December 2014 and 31 December 2013. Unless otherwise stated the results and financial

position of Finco and Topco are the same.

This annual report has been prepared under International Financial Reporting Standards as adopted by the

European Union (IFRSs as adopted by the EU).

Recent developments

The following items have been noted as updates to ongoing matters or items to bring to the attention of the

reader:

Continued discussions with the Financial Conduct Authority (FCA) in relation to client money and advice provided by the Towergate Financial (TF) business

Acquisitions and disposals Group financial restructuring Impairment Senior management changes Financial review Post balance sheet events

FCA

During Q3 2013 the Group identified that £15.0 million (m) of client and insurer monies had been

misallocated to an unrestricted account between November 2007 and January 2011. As soon as the

misallocation was confirmed management transferred £15.0m to the relevant client and insurer accounts. The

FCA was notified.

The Group is continuing discussions with the FCA in connection with past advice provided by the Towergate

Financial business on pension Enhanced Transfer Values (ETV) and Unregulated Collective Investment

Schemes (UCIS).

During the year £19.8m has now been recognised as management’s best estimate of future obligations to pay

UCIS redress costs. Further information is provided within the provisions and contingent liabilities discussion

on page 26.

Acquisitions and disposals

No acquisitions were made during the year ended 31 December 2015. During the year TIL disposed of three

businesses, of which two were small portfolios. On 16 March 2015 TIL disposed of its Towergate Financial

business to Palatine Private Equity for a gross consideration of £8.6m. TF was a provider of independent

financial and mortgage advice and operated outside the Group’s core UK specialist personal lines and SME

markets. Provisions and contingent liabilities in respect of ETV and UCIS were not transferred to Palatine

Private Equity and remain with the Group.

4

Group financial restructuring

On 2 April 2015 the Group completed a financial restructuring in relation to the senior secured creditors and

senior unsecured creditors of Towergate Finance Plc (a former intermediate parent company of TIL). As part

of these arrangements, Finco acquired TIL for the consideration of £735.0m. This was made up of the issue of

£425.0m of senior secured notes by Finco and the issue of new shares in Finco’s indirect parent company,

Topco, valued at £310.0m.

As a result of these arrangements, on 2 April 2015 funds controlled or managed by Highbridge Principal

Strategies LLC (Highbridge) became the Group’s majority shareholder.

As part of the financial restructuring, additional capital of £122.0m was received by the Group through the

issue by Topco of new shares for £50.0m and the issue by Finco of £75.0m of super senior secured notes at a

discount of £3.0m.

The additional funds provided liquidity to the Group and have enabled it to fund the costs of the restructuring

of £40.9m, the vesting of long term incentive plans which have crystallised or will in the future crystallise as a

result of the restructuring of £30.5m, retention bonuses of £8.0m and minority interest buy outs of £1.6m.

Impairment

International accounting standards require that a full impairment review of goodwill is performed annually.

The carrying value of goodwill at 31 December 2015 has been assessed based on its value in use. This has

resulted in an impairment of £86.4m which has been recognised in the consolidated statement of

comprehensive income. The impairment arises as a result of a fall in expected future cash flows from the Small

Business Unit (SBU) in Manchester which forms part of the Retail segment.

Senior management changes

There have been a number of senior management changes since 1 January 2015 including:

Alastair Lyons resigned from his role as Non-Executive Chairman as of 29 June 2015.

John Tiner was appointed as Non-Executive Chairman with effect from 29 June 2015.

It was announced that Pat Butler would be joining as Non-Executive Director on 22 February 2016.

Scott Egan changed his role from Chief Financial Officer to Interim Chief Executive Officer on 10

February 2015. He resigned from this position as of 14 September 2015.

David Ross joined Towergate on 2 November 2015 as Chief Executive Officer.

Mark Mugge was appointed as Chief Operating Officer on 26 February 2015. He subsequently accepted

the position of Chief Financial Officer with effect from 6 July 2015. Mark continued with his

responsibilities as Chief Operating Officer until Adrian Brown joined on 14 September 2015.

Oliver Corbett was appointed Interim Chief Financial Officer on 10 March 2015 and resigned from this

role on 31 July 2015.

Adrian Brown joined Towergate on 14 September 2015 as Interim Chief Executive Officer. Following the

appointment of David Ross, Adrian was appointed as Chief Operating Officer and Chief Executive Officer

for Underwriting.

Janice Deakin joined as Chief Executive Officer of Insurance Broking on 12 August 2015.

Steve Wood was appointed as Chief Executive Officer of Paymentshield with effect from 16 March 2015.

Clive Nathan resigned from his position as Chief Executive Officer for Underwriting as of 30 October

2015.

Mike Lawton resigned from his position as Chief Executive Officer for Broking as of 9 October 2015.

James Tugendhat was appointed Chief Commercial Officer with effect from 15 October 2015 and has since

resigned with effect from 1 April 2016.

Keith Jackson resigned from his role as Chief Risk Officer with effect from 31 August 2015.

Sarah Dalgarno joined as Strategic Risk Officer on 4 September 2015.

Jill Lucas departed from her role as Group Chief Information Officer with effect from 31 December 2015.

Gordon Walters was appointed as Interim Group Chief Information Officer on 14 August 2015, a role he

was appointed to on a permanent basis from 31 January 2016.

Carole Jones resigned from her role as Interim Group HR Director with effect from 31 July 2015.

Steve Pratt was appointed Interim Group HR Director with effect from 1 August 2015, pending the arrival

of Catherine Lynch, who arrived on 9 November 2015.

Catherine Lynch was appointed Group HR Director with effect from 9 November 2015.

Jennifer Owens resigned from her role as of General Counsel with effect from 29 February 2016.

Geoff Gouriet was appointed as General Counsel with effect from 1 March 2016.

5

Financial review

Despite the challenges faced during 2015, Towergate remains the UK’s largest independent insurance broking

platform, the largest SME focused UK broker and largest underwriting managing general agent that continues

to serve over two million customers.

We go into 2016 with the entire new Executive team in place, plus new senior hires in key leadership roles to

support the business turnaround. Towergate is focused on creating the UK’s most trusted and recommended

adviser, leveraging a fully integrated operating infrastructure underpinned by the right control and conduct

framework.

Post balance sheet events

Additional funding

During Q1 2016 Towergate secured two sources of additional funding totalling up to £65m from Highbridge

Principal Strategies LLP (Highbridge). Binding heads of terms have been signed for both of these transactions.

Details are as follows:

• Disposal of the entire issued share capital of The Broker Network Limited and Countrywide Insurance

Management Limited, both wholly owned subsidiaries of the Group, and the assets of Broker Network

Underwriting, a trading style of Towergate Underwriting Group Limited. The consideration for the

acquisition shall be satisfied in part by the allotment to Towergate of approximately 19.9% of the shares

(subject to adjustment) in the acquisition vehicle; and;

• A five year facility from Highbridge secured by certain legacy assets of the Group.

Both initiatives remain subject to appropriate consents and / or approvals and will result in a cash injection to

the Group.

In addition to the above, the Towergate secured a short term loan facility from Highbridge for an amount of up

to £28m which will result in a cash injection to the Group if it is drawn.

Proceeds from these initiatives will be largely applied towards an acceleration of the strategic investments in

the group transformation plan.

IT Transformation

During February 2016 the Group signed a contract with Accenture under which Accenture will become the

Group’s information technology (IT) strategic partner, overseeing its IT Transformation change program.

Under the contract Accenture will also manage service support across the whole IT Infrastructure estate for a

period of five years. The Group is currently undertaking a number of major change programs designed to

improve efficiency across the business, to build regulatory resilience, to position the Group to exploit future

scale advantages and to enhance the customer proposition.

6

Presentation of financial and other information

This annual report is prepared by the Group in connection with the indentures relating to the £425.0m senior

secured notes and £75.0m floating rate super senior secured notes (together the Notes) issued by Finco on 2

April 2015 and the shareholders’ deed relating to Topco and the Group dated 2 April 2015.

In accordance with guidance issued by the Institute of Chartered Accountants in England and Wales, the

independent auditor’s report in the consolidated financial statements for Finco and Topco (together, the

Companies) state that: they were made solely to the members of Finco and Topco as a body in accordance with

Chapter 3 of Part 16 of the UK Companies Act 2006; the independent auditor’s work was undertaken so that

the independent auditor might state to the members of Finco and Topco those matters that were required to be

stated to them in an auditor’s report and for no other purpose; and, to the fullest extent permitted by law, the

independent auditor does not accept or assume responsibility to anyone other than the Companies and their

members as a body for its audit work or the opinions it has formed. The independent auditor’s reports for the

Companies for the period ended 31 December 2015 was unqualified. KPMG LLP was the auditor of the

Companies for the accounting period ended 31 December 2015.

Investors in the Notes should understand that in making these statements, the independent auditor confirmed

that it does not accept or assume any liability to parties (such as the purchasers of the Notes) other than to the

Companies and their members as a body with respect to the report and to the independent auditor’s audit work

and opinions. The US Securities and Exchange Commission would not permit such limiting language to be

included in a registration statement or a prospectus used in connection with an offering of securities registered

under the US Securities Act or in a report filed under the US Exchange Act. If a US court (or any other court)

were to give effect to such limiting language, the recourse that investors in the Notes may have against the

independent auditor based on its report or the consolidated financial statements to which it relates could be

limited.

The consolidated financial statements of the Group have been prepared in accordance with IFRS’s as adopted

by the EU.

On 2 April 2015 the group completed a financial restructuring in relation to the senior secured creditors and

senior unsecured creditors of Towergate Finance Plc (a former intermediate parent company of TIL). The

unaudited financial information has been presented in this annual report on a pro forma basis as if this group

structure had been in place form 1 January 2015. However in the financial statements of Finco and Topco the

transaction has been presented as an acquisition of the TIL group and accounted for in accordance with IFRS3

Business Combinations.

The unaudited financial information of the Group presented in this annual report and discussed in the

management’s discussion and analysis of financial condition and results of operations has been prepared on a

pro forma basis in order to present a two-year financial track record. Adjustments have therefore been made in

respect of:

Subtraction of the results of disposed businesses:

o Hayward Aviation Limited for the period 1 January 2013 to 23 December 2014.

o Folgate Insurance Company Ltd (FICL) for the period 1 January 2013 to 29 August 2014.

o TF for the period 1 January 2014 to 16 March 2015.

Addition of the trading results of TIL for the period 1 January 2013 to 1 April 2015.

Inclusion of the new debt structure for the period 1 January 2013 to 1 April 2015.

Certain data contained in these financial results, including financial information, have been subject to rounding

adjustments. Accordingly, in certain instances, the sum of the numbers in a column or a row in tables may not

conform exactly to the total figure given for that column or row.

These financial results include certain financial measures and ratios, including EBITDA, Adjusted EBITDA,

Adjusted EBITDA margin and certain leverage and coverage ratios that are not presented in accordance with

IFRS.

EBITDA

In these financial results, references to EBITDA are to profit / (loss) on ordinary activities before interest

payable and similar charges, tax, depreciation and amortisation of intangibles. Accordingly, EBITDA can

be extracted from the consolidated financial statements of Finco, Topco and TIL by taking profit / (loss) on

ordinary activities and adding back interest payable and similar charges, tax, depreciation and amortisation

of intangibles.

7

Adjusted EBITDA

References to Adjusted EBITDA for Finco, Topco and TIL represent EBITDA as adjusted for acquisition

and financing costs, group reorganisation costs, regulatory costs, loss on disposal of business, asset write-

downs in connection with business restructuring, long term incentive plan charges, business investment

costs and acquisition costs.

EBITDA-based measures

EBITDA-based measures are not presented as measures of the results of operations. EBITDA-based

measures have important limitations as an analytical tool, and should not be considered in isolation or as

substitutes for analysis of the Group’s results of operations. Management believes that the presentation of

EBITDA-based measures is helpful to investors as a measure of the operating performance and ability to

service debt. EBITDA-based measures may not be comparable to similarly titled measures used by other

companies.

EBITDA, Adjusted EBITDA, Adjusted EBITDA margin and leverage and coverage ratios are not

measurements of financial performance under IFRS and should not be considered as alternatives to other

indicators of the Group’s operating performance, cash flows or any other measure of performance derived in

accordance with IFRS.

The discussion includes forward looking statements, which, although based on assumptions that are considered

reasonable, are subject to risks and uncertainties which could cause actual events or conditions to differ

materially from those expressed or implied herein. Undue reliance cannot be placed on these forward looking

statements. These forward looking statements are made as of the date of this report and are not intended to

give any assurance as to future results.

Segmental analysis is presented in this financial information. From time to time structural changes are made

within the business and trading businesses may move between the reported segments. When this occurs

financial information is restated in respect of the corresponding prior year period to facilitate the discussion

and analysis of the results.

Forward looking statements

This report contains statements under the caption management’s discussion and analysis of financial condition

and results of operations, and in other sections 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 words “aims”, “believes”, “estimates”, “anticipates”, “expects”, “intends”, “may”, “will”,

“plans”, “predicts”, “assumes”, “shall”, “continue” or “should” or, in each case, their negative or other

variations or comparable terminology or by discussions of strategies, plans, objectives, targets, goals, future

events or intentions.

Many factors may cause the Group’s operations, financial condition, liquidity and the development of the

industries in which it operates to differ materially from those expressed or implied by the forward-looking

statements contained in this annual report. The Group treats these as risks to its objectives, as discussed in the

Risk factors section of this annual report. The Group takes a systematic approach to the management of risks,

as described in the Risk management section on page 16.

Any forward-looking statements are only made as of the date of this report, and the Group does not intend, and

does not assume any obligation, to update forward-looking statements set forth in this report. Readers of this

document should interpret all subsequent written or oral forward-looking statements attributable to the Group

or to persons acting on its behalf as being qualified by the cautionary statements in this report. As a result,

readers of this document should not place undue reliance on these forward-looking statements.

8

Summary unaudited pro forma financial information and other data

The pro forma financial information presented in this section has been prepared in accordance with the

information given in presentation of financial and other information.

The adjustments made in order to present the unaudited pro forma financial information have been made based

on available information and assumptions that the boards of the Companies, as applicable, believe are

reasonable. The unaudited pro forma financial information is for informational purposes only and does not

purport to present what the Group’s results would actually have been had the disposals of TF, Hayward

Aviation and FICL along with the restructuring transaction, and the application of the proceeds therefrom not

occurred on the dates presented, nor should it be used as the basis of projections of the results of operations or

financial condition for any future period.

The unaudited pro forma financial information should be read in conjunction with the consolidated financial

statements and the notes thereto for Finco and Topco for the period ended 31 December 2015, together with

management’s discussion and analysis of financial condition and results of operations. For comparative

purposes, the results of TIL have been used for the years ended 31 December 2014 and 31 December 2013.

Unless otherwise stated, the results and financial position of Finco and Topco are the same.

The following tables provide a summary of the pro forma consolidated statement of comprehensive income,

pro forma consolidated statement of financial position, consolidated cash flow and reconciliation of the loss on

ordinary activities to Adjusted EBITDA.

Pro forma consolidated statement of comprehensive income

Finco Topco(1) TIL TIL

2015 2015 2014 2013

£000 £000 £000 £000

Year ended 31 December

Commission and fees 351,838 351,838 375,921 409,601

Investment income 351 351 480 858

Salaries and associated expenses (183,399) (184,752) (193,220) (172,744)

Other operating costs (200,583) (210,156) (329,774) (134,250)

Depreciation and amortisation charges (44,726) (44,726) (22,504) (19,123)

Impairment of goodwill (86,400) (86,400) (552,861) (35,874)

Group operating (loss) / profit (162,919) (173,845) (721,958) 48,468

Finance costs (45,801) (45,801) (44,913) (49,964)

Finance income 498 498 336 135

Impairment of associates - - - (902)

Loss before taxation (208,222) (219,148) (766,535) (2,263)

Income tax 6,734 6,734 878 (19,476)

Loss on ordinary activities after taxation (201,488) (212,414) (765,657) (21,739)

(1) Topco includes additional costs associated with the Group board, primarily directors’ fees and the settlement with regards to the litigation by Arthur J. Gallagher

as discussed on page 25.

9

Pro forma consolidated statement of financial position

Finco Topco TIL TIL

2015 2015 2014 2013

£000 £000 £000 £000

As at 31 December

Intangible assets 700,293 700,293 823,561 1,362,475

Property, plant and equipment 9,310 9,310 11,993 11,515

Other non-current assets 13,137 13,137 11,196 7,705

Trade and other receivables (1)55,718 50,232 70,808 207,718

Cash and cash equivalents 205,888 205,888 199,018 197,066

Current liabilities (242,227) (2)(247,667) (285,893) (255,316)

Non-current liabilities (566,465) (566,465) (503,304) (522,756)

Net assets 175,654 164,728 327,379 1,008,407

Statutory consolidated cash flow

Finco Topco TIL TIL

2015 2015 2014 2013

£000 £000 £000 £000

Period ending 31 December(3)

Cash flows from operating activities

Net cash inflow from operations 47,960 51,989 52,348 105,058

Exceptional items(4) (81,651) (85,680) (45,001) (24,996)

(Decrease) / increase in net insurance broking

creditors (10,181) (10,181) (3,135) 4,001

Net interest (paid) / received and investment

income 654 654 841 (305)

Taxation(5) (47) (47) (1) (675)

Net cash (outflow) / inflow from operating

activities (43,265) (43,265) 5,052 83,083

Cash flows from investing activities

Acquisitions and disposals (63,634) (63,634) 2,223 (16,156)

Purchase of software and commission buy outs (4,441) (4,441) (14,873) (14,064)

Purchase of property, plant and equipment (1,386) (1,386) (5,701) (3,063)

Net cash outflow from investing activities (69,461) (69,461) (18,351) (33,283)

Cash flows from financing activities

Issue of share capital 300,000 300,000 - -

Debt financing 18,614 18,614 5,175 (46,572)

Net cash inflow from financing activities 318,614 318,614 5,175 (46,572)

Increase / (decrease) in net cash 205,888 205,888 (8,124) 3,228

(1) The Finco balance includes additional costs in relation to Topco of £5.5m which is eliminated in the Topco statement of financial position.

(2) Topco includes an additional provision of £4m and £1.2m accrued settlement and legal fees in the statement of financial position.

(3) The cash flows for Finco and Topco are for the statutory period from 5 February for Finco and 4 February for Topco to 31 December 2015. The

comparative TIL cash flow is for the statutory period from 1 January 2014 to 31 December 2014.

(4) Exceptional items include acquisition and financing costs, group reorganisation costs and regulatory costs as described on page 24.

(5) The taxation paid relates to corporation tax on profits arising in companies before being acquired by Towergate.

10

Reconciliation of loss on ordinary activities to Adjusted EBITDA

Finco Topco TIL TIL

2015 2015 2014 2013

£000 £000 £000 £000

Year ended 31 December

Loss on ordinary activities after tax (201,488) (212,414) (765,657) (21,739)

Add back / (deduct from):

Finance costs(1) 45,801 45,801 44,913 49,964

Income tax (6,734) (6,734) (878) 19,476

Depreciation and amortisation charges 44,726 44,726 22,504 19,123

Impairment of goodwill 86,400 86,400 552,861 35,874

EBITDA (31,295) (42,221) (146,257) 102,698

Add back:

Loss / (profit) on disposal of business 340 340 (75) 2,155

Related party bad debt provision(2) - - 190,534 -

Reduction in value of contingent consideration (1,456) (1,456) (9,127) (1,132)

Acquisition and financing costs 41,212 41,212 10,289 -

Group reorganisation costs(3) 19,058 28,315 37,390 27,002

Finance legacy review - - 3,702 10,000

Regulatory costs 29,240 29,240 8,898 -

Asset write-downs in connection with business

restructuring 285 285 257 210

Long-term incentive plan(4) - - (984) 564

Business investment costs(5) 664 664 541 1,590

Acquisition costs 13 13 933 599

Adjusted EBITDA 58,061 56,392 96,101 143,686

Adjusted EBITDA margin 16.50% 16.03% 25.56% 35.08%

(1) Finance costs are comprised of interest payable on bank loans, directors’ loans, the Notes, finance charges payable in respect of finance leases and hire

purchase contracts and certain other charges.

(2) The provision of £190.5m for impairment of related party debt due to the Group financial restructuring.

(3) Topco includes the settlement in relation to the litigation by Arthur J. Gallagher.

(4) Represents non-cash provisions charged in connection with potential future settlement costs of long-term incentive plans. Certain members of the Group’s

board of directors and senior management were entitled to a one-time cash bonus, in addition to any annual bonus, based on the value appreciation of

Towergate. The vesting conditions of the bonus were a 90% sale of shares of certain Towergate group companies or a listing of certain Towergate group

companies. As a result of the financial restructuring which completed on 2 April 2015 the existing long-term incentive plans were deemed to have a zero value

and amounts previously provided in relation to these have been credited to the statement of comprehensive income for the year ended 31 December 2014. The

remaining long term incentive plans in place relate to certain individuals with guaranteed amounts.

(5) Represents investment costs which are incurred for the purposes of generating future EBITDA and value growth. Business investments costs will include,

amongst other things: recruitment and compensation costs paid in relation to market professionals recruited from competitors for the period following their

resignation from such competitors and prior to when they are able to solicit clients on the Group’s behalf due to non-compete clauses in favour of such

competitors, and the costs of recruitment and appointment of executive, non-executive and specialist advisers.

11

Business review

Overview of Towergate

Towergate is a leading independently-owned insurance intermediary group distributing general insurance

products in the UK. In 2015 it distributed insurance products with an aggregated value (in terms of gross

written premiums) of approximately £2.9 billion. Towergate is not an underwriting business and does not

assume insurance risk in relation to the products it distributes. Its business model and capital requirements

reflect the agency (as opposed to principal) nature of its activities.

Insurance products are distributed through Group and third party brokers as well as mortgage intermediaries.

Towergate’s end customers are primarily retail consumers and small and medium sized enterprises (SMEs).

The Group also provides services to members of its broker network. Historically Towergate has been an

acquisition-led business and since 1997 has acquired nearly 300 broking and underwriting agency businesses

however no acquisitions were made during the year ended 31 December 2015.

Towergate has five operating divisions or segments as follows:

Advisory: the Advisory division distributes personal lines and SME-focused products via 81 advisory offices

located across the UK. Brokers place the insurance policies of customers through underwriting agencies or

directly with insurance carriers depending on customer needs.

Historically, a part of Advisory offered regulated and unregulated financial advisory services to corporate and

private clients across the UK under the brand name Towergate Financial. The Towergate Financial business

was sold by the Group to Palatine Private Equity on 16 March 2015 and the Group ceased to offer these

services on that date although liabilities in relation to past sales remain with the Group.

Retail (previously known as Direct): the Retail division distributes insurance products to specialist customer

segments ranging from military personnel and high net worth individuals to caravan owners. Services are

provided to multiple niche retail markets, as well as to SME businesses including members of the Federation

of Small Businesses. The division operates from eight locations in the UK.

Underwriting: the Underwriting division provides insurance products to Group businesses and around 3,000

third party insurance brokers who in turn act on behalf of insured customers. The division prices insurance

coverage, issues insurance policies and in most cases handles insurance claims on behalf of the underlying

insurance companies on whose behalf it is acting. Insurance companies (and not Towergate) are ultimately

responsible for insurance claim costs and thus carry the associated principal risk. There are over 200 insurance

products within the Underwriting division covering a wide variety of risks. As in the Advisory and Retail

divisions, these insurance products are aimed both at personal lines customers and the SME marketplace. The

division has offices in 15 locations across the UK.

Paymentshield: Paymentshield is one of the UK’s leading providers of general insurance products to the

mortgage intermediary market. It is focused on the supply of household-related insurance products such as

buildings and contents, mortgage payment protection (MPPI), income protection and landlord insurance

products. Paymentshield’s principal route to market is the mortgage broking channel, where its relationships

include two of the UK’s largest mortgage networks as well as independent financial advisers and estate agents.

It also distributes a small amount of business direct to retail customers. As with the Advisory, Retail and

Underwriting businesses, underwriting or principal risk is carried by insurance partners.

Broker Network: the Broker Network division is the largest and longest established full service general

insurance network for insurance brokers in the UK. The Broker Network division provides community based,

independent insurance brokers with access to insurance products and a variety of business support services.

Members typically receive enhanced commission rates negotiated by the Broker Network. The business

support services provided to members assist them in managing their business and range from client money

under the FCA CASS rules, compliance services and advice, HR support, marketing, web design, e-trade

products and access to restricted markets.

Central: The Central division provides core support to the rest of the business divisions. It is made up of nine

functions: IT; Property; Finance, including IBA; Internal Audit; Human Resources; Legal; Compliance and

Risk; Communications; Executive costs. All costs are monitored centrally and are fully allocated out to the

businesses using various methodologies.

12

Strategy

The strategic focus concentrates on the remediation and streamlining of the back office support functions and

IT systems, with continued focus on revenue generation.

No acquisitions are currently planned for 2016.

Towergate’s key strengths include:

Its market position in a profitable industry: Towergate is one of the largest specialist personal lines and SME-

focused intermediary and insurance managing general agent in the UK. Towergate’s core proposition of strong

distribution and underwriting excellence offers compelling value for both consumers and insurers.

Its knowledge base and expertise in a highly regulated industry: insurance distribution is a regulated activity

in the UK. The Financial Conduct Authority (FCA) is the Group’s principal regulator. The intensity and

complexity of regulation is growing, providing a competitive advantage for large and well-resourced market

participants.

Demand for the insurance products it distributes is linked to economic activity: the continued improvement

in the economic performance of the UK is likely to present Towergate with opportunities for growth.

The strength of its financial characteristics and business model: the Group generates attractive operating

margins. It has the potential to be highly cash generative.

Significant organisational change is well progressed: Restructuring and operational changes in the

Manchester unit were completed by the end of 2015. Full integration into the Retail SME business will take

place as we move into 2016, as well as continued streamlining of the IT and Finance centres of excellence and

focus on cost efficiencies.

Towergate has an experienced management team: We go into 2016 with the entire new Executive team in

place, supported by a further 26 key new hires that strengthen the leadership of all areas of the business.

Support staff attrition levels are reducing and retention of key client-facing staff is high.

Disposal of non-core businesses: the disposal of non-core businesses has enabled the Group to improve its

strategic focus.

Advisory

Overview

The Advisory business places the insurance requirements of commercial and individual customers with

insurers. As part of the service, Towergate brokers offer advice on insurance needs and risk management to

customers and negotiate competitive policy terms with insurance companies on their behalf. Advisory also

offers customers access to certain third-party products and services such as premium financing arrangements

for the payment of premium by instalments, legal expenses insurance and claims assistance. With 81 broking

offices located across the UK, Advisory offers a local service with access to expert advice, risk management

and a wide selection of insurance products.

Products

The Advisory business offers a wide variety of specialist and non-specialist commercial and personal lines

products, including over 200 products available from the Underwriting division.

The Advisory business has offices throughout the United Kingdom. The national coverage is an advantage in

the preferred SME market, in which customers appreciate local contact and service. The (as it was then called)

Insurance Broking business set up a specialist unit in Manchester to service small premium business through a

dedicated contact centre with extended opening times. This has caused material disruption to the business.

Advisory distributes all types of personal lines business but has particular expertise in specialist lines such as

non-standard household, motor, caravans and park homes, and yachts and pleasure craft.

Competition

The Advisory business operates in a highly competitive market in which numerous national and local broking

firms actively compete for customers. Differentiation in the Advisory business is based on knowledge of our

customer’s needs, product breadth, innovation, quality of service and price. Some of the largest retail broker

competitors are Aon, Marsh, Willis, Arthur J Gallagher and Bluefin. In addition there is competition from

insurance companies that solicit customers directly without the assistance of a broker and with insurance

companies that have their own broker distribution capacity such as AXA, which controls Bluefin.

13

Retail

Overview

Retail is one of the leading providers of specialist personal lines and small business insurance in the UK. It

serves distinct communities such as caravan owners with products tailored to their needs and distributes via

both telephone and the internet. Retail markets directly to consumers through Towergate own brands and

works through affinity partners and aggregators such as comparethemarket.com.

Being in the specialist arena, the Retail business is less likely to come under price attack than the more

commoditised personal lines segment, particularly in the online mass market. Retail is looking to grow its

online channel over time, although currently most customers complete their sale via telephone. Strategically,

online sales and service will increase as consumer behaviour changes, even in the niche areas, but currently the

Retail business uses digital primarily for lead generation. Connecting with customers through affinity partners

with strong consumer brands also helps the Retail business access volume and this has been demonstrated

through a range of partnerships. The Retail business has relationships in place with Lloyds, the AA, SAGA,

comparethemarket.com, Ageas, Admiral, Confused, FSB, NICEIC and multiple IFA networks together with

smaller more localised trade associations and networks.

Products

The Retail business is compensated for its services through commissions paid by insurance companies and

these differ by product, market opportunity and other similar factors. As commission rates for specialist

products are typically higher than for other products it generates a greater margin than some of its competitors.

Retail’s main lines of business are:

Non-standard home and specialist household

Let property (residential and commercial)

Small business insurance

Van

Caravans and boats

Military insurance

Car hire insurance

Commercial care products

Fleet and large truck

Classic car / bike

Competition

Many of the markets in which the Retail business operates are fragmented without clear market leaders,

particularly in the small business sector. Although the Retail business is prominent in all its chosen markets,

there is headroom for growth in the majority of the segments.

Underwriting

Overview

The Underwriting business provides services in commercial and personal lines insurance across a wide variety

of products. The business consists principally of issuing insurance policies on behalf of insurance companies

to customers through the internal Advisory and Retail businesses and third-party brokers. The Underwriting

business operates as a virtual insurer, performing most of the functions of an insurance company other than the

provision of capital in respect of insurance claims. The Underwriting business does not incur liability in

respect of insurance claims.

The Underwriting business assesses risks, issues policies, administers policies, handles renewals and handles

claims. In writing an insurance policy, it will agree the underwriting criteria and the delegated authority under

which it will operate on behalf of the insurance company. In respect of most policies, it will take the lead in

rating and pricing risks, as it has the expertise in various commercial and personal lines products and

knowledge in the specialist market segments in which it operates. This expertise in rating and pricing risks

means that the Underwriting business aims to offer stable performance to insurance company partners and

attractive prices to customers.

14

The Underwriting division is made up of three units as follows:

Commercial Lines, which is further divided into:

o Fusion Insurance: which provides tailored commercial insurance and risk management solutions

for SME businesses operating in a wide range of trades.

o Arista: which was acquired in April 2014 and provides commercial combined, motor and package

insurance for SME clients via eight branch offices around the UK.

o Towergate Commercial Underwriting: which focuses on e-traded SME package commercial

products.

Personal Lines, which is further divided into:

o Towergate Underwriting Household: providing standard and non-standard household and let

property products distributed by brokers and providing specialist white labelled products on the

home panels of corporate partners.

o Private Clients: offering insurance solutions to high and mid-net worth individuals

o Travel: providing insurance solutions from individual trip travel and tour operators needs, to major

travel crises and failure of travel.

Agriculture: which operates two brands in the farm market, AIUA and BiBU, whose combined

market share makes Towergate the second largest participant in the UK agricultural insurance market.

The Underwriting business obtains its underwriting capacity from a panel of leading insurance companies,

which provide capital and incur all liability in respect of insurance claims. During 2015 approximately 76% of

the underwriting capacity was provided by five insurance companies, RSA, Allianz, Canopius, QBE and

Cardif Pinnacle.

Products

The Underwriting business currently offers underwriting services in respect of over 200 different insurance

products. These products are developed in conjunction with insurance company partners and range from farm

motor vehicles to events cancellation insurance.

Commercial lines insurance focuses primarily on SMEs. Personal lines insurance focuses primarily on

specialist lines, such as non-standard household insurance and private clients (including cherished cars and

high net worth).

Competition

Commercial Lines: As an MGA, the Underwriting business works with a number of insurer partners which

gives us a wide underwriting footprint. We are in a soft market with almost unprecedented levels of

competition and we have seen the larger insurers be particularly aggressive on pricing during the last year.

Whilst there is a drive to more digital solutions for the smaller SME customer, regional brokers still dominate

the SME market and continue to value access to known underwriters who have the ability and authority to

respond in a timely manner. This will remain the case for the foreseeable future.

Personal Lines: The top 10 insurers make up approximately 80% of the market and their action in the first half

of 2016 will determine market profitability, which has already been adversely impacted by recent weather

conditions. Towergate has sought to mitigate this by applying rate increases, following the market up and

improving loss ratios with insurers.

The distribution landscape for Household is dominated by Bancassurers, and Towergate has a good foothold in

this space with a number of large distributors. The primary opportunity for Towergate lies with aggregators.

We estimate circa 300,000 Home quotations are processed per day by the four largest comparison sites,

highlighting the scale of the opportunity.

In a market with these competitive dynamics, Towergate must be able to react more quickly than the

competition and a key priority for 2016 is to invest in new systems to drive pricing and product, allowing the

business to “think and act” like a direct insurer.

15

Paymentshield

Overview

Paymentshield administers and distributes its products primarily to the mortgage intermediary market, acting

as an intermediary between mortgage brokers and underwriters. It earns commission from its underwriters,

paying away a share to brokers, together with fee and instalment income from customers.

It distributes products through mortgage brokers, estate agents, independent financial advisors, loan brokers

and networks. In many cases, Paymentshield has exclusive agreements in place with networks of mortgage

intermediaries.

The majority of policies administered are household insurance policies. Paymentshield also administers a

mortgage protection payment insurance book underwritten by Aviva and a short-term income protection

product underwritten by Cardif Pinnacle, although new business levels for these products have declined over

the last few years, with 97% of new business sales in 2015 relating to household products. Paymentshield

administers all of the policies it places, except those within its British Insurance brand, and handles the claims

for the mortgage payment protection insurance business on behalf of Aviva. Other claims are handled by the

relevant insurer. Paymentshield issues legal expenses insurance policies on behalf of ULR and home

emergency policies on behalf of DAS. The liability in respect of insurance claims is retained by insurers.

Paymentshield has profit commission arrangements in place across the household and mortgage insurance

books.

Products

Products include mortgage payment protection insurance, short-term income protection insurance, household

insurance and certain other related insurance products including home emergency insurance and legal expenses

insurance relating to home ownership. The household insurance includes buildings-only cover, contents-only

cover and combined buildings and contents cover. Short-term income protection insurance includes

unemployment-only insurance coverage.

Paymentshield designs its own household-related insurance products in partnership with insurance companies

and distributes them to mortgage intermediaries via its Inertia point-of-sale software system, a front-end

software system linked to a web-based platform through which its products can be accessed.

Competition

The main sources of competition for the general insurance associated with mortgage activity are price

comparison websites, direct providers/insurers or via insurers’ affinity relationships with banks, building

societies or retailers.

Competition to secure the activity of mortgage brokers, especially the larger networks, comes direct from

insurers and other home and contents insurance panel operators who exist in the market, but who are not of a

comparable size to Paymentshield.

Broker Network

Overview

As a member of Broker Network, independent brokers benefit from different levels of insurer and business

support services, depending on their level of membership.

The Broker Network business offers brokers three levels of membership: Premier, Advantage and Connect

(previously branded as Countrywide).

Before Premier membership is granted, all prospective Premier members are subject to due diligence which

includes external credit checks, a review of financial statements, confirmation from insurance companies of

credit issues, review of client money reconciliations and a review of their general control environment

including their regulatory reporting submissions. Within three months of a broker joining the network, a

compliance audit is conducted to assess areas of weakness in satisfying FCA requirements and the network

business works with the member to remedy where necessary.

The Broker Network receives commission and fees from both members and insurance companies for services

in respect of all membership categories.

16

Products

Premier members benefit from access to the products and services of insurance companies and intermediaries

at commission rates that would not ordinarily be available to them. With the combined buying power of all

members, the Broker Network business is able to negotiate enhanced commission rates with partner insurance

companies and intermediaries for the members.

Competition

The Broker Network business competes with other networks; the five top competitors are Compass (part of

Arthur J. Gallagher), Cobra, Willis Networks, Purple (part of Marsh) and Bluefin.

Risk management

Towergate encounters a variety of risks, most of which are operational in nature. The effective management of

these risks is critical to the running of the business and provides a greater prospect of achieving both Group

and divisional objectives.

An effective Risk Management Framework (RMF) can inform the Group’s decision making by helping to

identify business opportunities and potential risks to profitability, capital and long-term sustainability. An

RMF gives a competitive advantage and is an integral part of maintaining financial stability for customers and

other stakeholders. The Group’s board agrees the appetite for taking individual risks and gains assurances that

they are being appropriately identified and managed within the boundaries set. The Group aims to take risks

that will give consistent long-term returns and manage those risks that could prevent it from achieving its

objectives.

The management of risk is underpinned by the application of a three lines of defence governance model, which

may be defined as follows:

The first line: this sits in the business and is responsible for the identification and management of all

material risks

The second line: is made up of Group Risk and Compliance and which provides challenge, guidance

and support to the business on the first line risk assessment

The third line: is delivered by Group Internal Audit, which independently assesses the effectiveness

of the internal controls, governance and risk management

Risk management process

The RMF defines the approach for identifying, managing and reporting risk within Towergate as part of the

Group’s overall governance and control arrangements. The RMF and associated governance is overseen

centrally, although individual businesses are responsible for implementation and ensuring that the RMF is

appropriate for their specific needs.

Towergate made some significant enhancements to its risk management framework in 2014 and in 2015 the

focus was on the implementation and embedding of the framework. The key areas that were implemented in

2015 were:

A more robust process for risk identification and monitoring, including more effective tools for the

reporting of risks.

More co-ordinated recording of risk events that occur, focusing on those that could have a significant

financial or reputational impact on the organisation.

Improved trend analysis on risks and risk events, ensuring that lessons learned from incidents or risks

are shared across the Group to facilitate better mitigating strategies.

Risk reports enhanced to focus on those areas where risks are above appetite, with an increased

emphasis on the actions being taken to bring the risk back within appetite.

A stronger link developed between the issues being raised by Internal Audit and Compliance

Monitoring reviews and recent control failures, and the identification and assessment of the risks,

including ensuring the analysis uses a similar basis for assessment.

All business and control functions within the Group are required to review their risk profiles on a quarterly

basis. These are formally reported to the Group’s Leadership Team and Group Risk Committee. The Group

Risk and Compliance function provides robust challenge to business management as to their risk assessments,

with particular focus on the consistency of the assessment, the effectiveness of the controls, the exposure of the

risk against appetite and the adequacy of any actions being taken to reduce or mitigate the risk.

17

Each of the Group risks is owned by a member of the Leadership Team, who reviews and agrees the

assessment, and challenges the business as to the effectiveness of their assessment. Possible future risks to the

Group are also considered and documented and preventative measures taken as appropriate. The diagram

shows the governance and component parts of the risk management process:

The enhanced divisional governance processes introduced in 2014 have been embedded in the last 12 months.

The Group’s risk profile is reviewed by the Group Risk Committee and similarly the business profiles are

reviewed at the Divisional Regulatory Committees (RegCos), all of which have non-executive members as

well as the key executives. The quality of reporting to these committees improved significantly in 2015, which

has enabled more informed discussions as to the risks and their adequate mitigation. The risks in each division

and central function are also discussed on a regular basis at the management meetings in those areas, with clear

ownership for each risk and any accompanying actions.

In addition to the Group and Divisional Committees each risk type has a Group owner who is responsible for

ensuring the risk is appropriately and consistently managed across all areas of the business. These risk owners

are also responsible for setting the risk appetite on an annual basis, and ensuring that the controls are

appropriate.

Risk appetite

Risk appetite is an expression of the amount and type of risk that the Group is willing to accept in order to

achieve its strategic objectives. The Group’s risk appetite influences the risk management strategy which in

turn influences the business culture and operating decisions. Risk appetite statements have been developed for

each risk category and a range of techniques is used to ensure that risk exposures are monitored against these

statements. All risks are formally considered against appetite on a quarterly basis. Any risk exposures outside

of appetite are escalated and reported to the Group Risk Committee, and action plans to reduce the risk are

monitored for effectiveness and timely completion. The risk appetite statements are reviewed and approved by

the Group Risk Committee and Group board on an annual basis.

18

Information technology

The Towergate IT systems are managed collectively by an in-house team of IT professionals, relying heavily

on a series of outsource contracts with key suppliers.

The main ongoing focus of the IT department is on continuing to provide secure and performant services

whilst addressing the underlying complex, expensive and ageing infrastructure through comprehensive

renewal programmes.

IT initiatives

IT systems are critical in providing the tools for the business to manage its customers efficiently and cost-

effectively. System stability was a key challenge through 2015 and key measures being undertaken to

remediate this are:

Current system stability and security. A programme of tactical initiatives has resulted in a more stable

environment with a significant increase in performance and decrease in incidents impacting the ability to

transact business.

Redesigning infrastructure. The Infrastructure Transformation Programme (ITTP) has been developed

and has gained Group board approval to renew all of the WAN/LAN, data centres and end-user

environments across the estate. The first of these, mobile telephony and printing are well advanced

through delivery. The overall architecture, approach and business case has been developed and ratified

and the programme will move into delivery from the end of Q1 2016.

System access controls and information security

System access controls manage authentication procedures and allow controlled access to data and applications.

There are in place multiple firewalls and mail filtering, virus scanning and spam controls to protect the

network. The IT department also employs a certified security manager to review data protection and network

security. In addition, a specialist security organisation performs penetration testing and highlights any potential

system weaknesses. As part of the Control Framework programme, Towergate has developed a Group-wide

Information Governance framework to protect its information assets. In line with industry standards,

Towergate has appointed a Data Protection Officer to oversee data security and standards.

Business continuity and disaster recovery

The business sites are connected to one of two data centres in Birmingham and Reading. Each of the data

centres is built to support highly resilient power services, as well as banking security and communication

standards. Whilst business continuity and disaster recovery plans exist these are not considered optimal and

these will be materially upgraded as part of the ITTP delivery.

Intellectual property

Towergate relies on copyright and trademark laws, confidentiality procedures and contractual provisions to

protect its intellectual proprietary rights. Towergate actively takes steps to protect the Group’s intellectual

property rights when and where deemed appropriate.

Towergate markets the majority of its products and services under approximately 130 trademarks, all of which

are registered in the United Kingdom. The Towergate trademark, as well as major service and product brands,

enhance the competitive advantage and are essential to the business.

Towergate has registered an extensive number of internet domain names. These domain names are either used

by the businesses to deliver services and information to customers or held to protect trading names and brands

developed by the businesses.

Although the businesses have contributed to the development of certain of the software platforms that are

licensed, such as Landscape and Guidewire, the proprietary rights in the intellectual property of these software

platforms rests with their licensors. However, the businesses exclusively own the business process intellectual

property resulting from the integration of these software platforms with the existing systems and the

customisation of these platforms. Towergate has no patents or patent applications pending.

Environmental matters

Towergate believes that it does not have any material environmental compliance costs or environmental

liabilities.

19

Property portfolio

Towergate leases its registered office, which is located at Towergate House, Eclipse Park, Sittingbourne,

Maidstone, Kent, ME14 3EN, England. It also leases over 100 properties, circa 85 of which are advisory and

retail offices. The remainder are principally offices which conduct underwriting, mortgage broker solutions

and network operations in various locations throughout the United Kingdom.

The property portfolio is managed internally by a property team, supported by external specialists where

appropriate. This team is responsible for ensuring that each site is in compliance with the relevant statutory

requirements, including health and safety requirements.

Insurance

The operations are subject to various actual and potential claims, lawsuits and other proceedings relating

principally to alleged errors and omissions in connection with the placement of insurance in the ordinary

course of business. Errors and omissions claims, lawsuits and other proceedings arising in the ordinary course

of business are covered in part by professional indemnity or other appropriate insurance.

Regulation

Towergate businesses are regulated by the FCA. The FCA Rules include rules that impose, among other

things, high level standards on the establishment and maintenance of proper systems and controls and

minimum threshold conditions that must be satisfied for an insurance firm to remain authorised as well as rules

on the conduct of business and treating customers fairly. The FCA Rules also impose certain minimal capital

and liquidity requirements on firms. Firms have an ongoing obligation to provide the FCA with certain

information regularly. Monitoring is carried out by the FCA to assess compliance with regulatory requirements

and the FCA has almost unlimited investigative and disciplinary powers. A number of senior individuals in

Towergate are approved persons (under FCA rules) and are required to satisfy certain fitness and propriety

criteria.

Towergate has regular contact with the FCA who has a scheduled programme of update meetings with

members of the senior management. There are a few areas, such as governance and operational controls where

the FCA has required Towergate to take some action to improve its position. These areas are making good

progress and are expected to be completed in 2016.

Legal proceedings

At any given point in time the Group is subject to various actual and potential claims, lawsuits and proceedings

relating principally to alleged errors, omissions or unfair provisions in connection with the placement of

insurance or the provision of financial services advice in the ordinary course of business. As the Group often

assists its customers with matters, including the placement of insurance coverage and the handling of related

claims and the provision of financial services advice, involving substantial amounts of money, errors and

omissions claims against the Group may arise that allege its potential liability for all or part of the amounts in

question. Claimants can seek large damage awards and these claims can involve potentially significant defence

costs.

The Group maintains professional indemnity insurance for errors and omissions claims, the terms of which

vary by policy year. In recent years, the Group’s self-insured risks have increased. In respect of such risks, the

Group has established a provision for claims in respect of outstanding errors and omissions claims that the

Group believes to be adequate in light of current information and legal advice and the Group adjusts such

provision from time to time according to developments.

Currently the most significant errors and omissions notifications relate to the ETV and UCIS reviews which is

discussed further on page 26. In addition in the normal course of business the Group has a provision of £2.2m

to cover potential claims based on an estimate of the likely outcome of outstanding and potential claims.

20

Employees

The Group had an average of 4,618 (2014: 4,969) full time equivalent employees. Virtually all of the

employees are located in the United Kingdom. The table below shows the Group’s number of full time

equivalent employees by division.

2015 2014

Advisory 1,725 2,002

Retail 1,234 1,295

Underwriting 791 803

Paymentshield 252 271

Broker Network 138 143

Central Support 478 455

4,618 4,969

None of the employees is represented by a labour union. The Group considers the relations with employees to

be good.

21

Management’s discussion and analysis of financial condition and results of

operations

Significant factors affecting results of operations

Commissions and fees

Insurance brokers and underwriting agents derive the majority of their revenue from commissions and fees.

Commissions are generally based on insurance premiums and negotiated commission rates. Fees are paid for

individual services based on negotiated amounts. As rating is currently soft, commission income is depressed.

The net commission rates are mostly affected by up front trading deals signed between 2013 and 2014 and

operational complexity linked to the high number of Policy Administration Systems.

The Group also enters into profit sharing arrangements, fees for the provision of payment instalment plans and

other one-off deals with third parties which are recognised over the life of the relevant arrangement or when

they can be measured with reasonable certainty. Such trading deal income includes contributions to marketing

or product development, volume payments and profit commissions receivable. The amount and timing of

trading deal income is inherently uncertain and individual amounts may be material. Amounts accrued at the

year end and recognised as assets may be subject to judgement.

Acquisitions

The TIL Group has historically pursued a strategy of acquisitions to deliver scale advantage.

This acquisition strategy was focussed on both intermediary (or broking) business and on underwriting

agencies. In evaluating potential acquisitions, the TIL Group considered the market position, growth prospects

and underwriting performance of target businesses, as well as their geographic, distribution channel and

product mix fit with its existing operations. The price paid for acquisitions was based primarily on the

commission and fee income streams of the target business and the potential to increase such streams following

the acquisition.

Acquisitions affect the results of operations in several ways. First, the results for the period during which an

acquisition takes place includes the results of the acquired business in that and subsequent accounting periods.

Second, the results for subsequent periods may be affected by applying the Group’s enhanced commission

arrangements to the policies that the acquired business places, and by cross-selling products. Third, the results

for subsequent periods may be affected if synergies are realised from shared services and infrastructure.

Insurance cycle

The insurance industry is inherently cyclical, meaning that the pricing and terms and conditions of cover vary

over time. The insurance cycle is characterised by soft and hard market conditions. Soft conditions reflect

muted demand, low or negative premium rates, widening coverage and the free availability of capital. As a

result soft markets generally result in a lower level of underlying profitability for both insurance carriers and

intermediaries. Hard market conditions generally follow a period of heightened loss activity and capital

erosion. As a result the supply of insurance is limited, rating or pricing increases and coverage narrows. It

follows that underlying profitability for both insurance carriers and intermediaries generally rises in a hard

market, although there can be a lag between the market turn and the effect on reported profits.

Seasonality

The Group experiences some seasonality in the volumes of insurance policies transacted and, consequently, in

commission and fees. The Group historically transacted less business from November to February than in most

other months of the year. Accordingly, although volumes typically increase in March, commission and fees for

the first quarter tends to be lower than the second and third quarter, before declining again in the fourth quarter.

22

Group financial performance

The following discussion and analysis compares pro forma consolidated results of operations for the year

ended 31 December 2015 for Finco and Topco, along with the 2014 pro forma consolidated results for TIL.

The tables below set out the commission and fees and Adjusted EBITDA results for the divisions:

Year ended 31 December

Finco

2015

£000

Topco

2015

£000

TIL

2014

£000

Commission and fees

Advisory 131,518 131,518 130,683

Retail 84,334 84,334 90,942

Underwriting 74,342 74,342 81,195

Paymentshield 48,830 48,830 58,873

Broker Network 13,011 13,011 13,652

Other(1) (197) (197) 576

351,838 351,838 375,921

Adjusted EBITDA

Advisory 18,275 18,275 13,139

Retail 23,112 23,112 37,434

Underwriting 21,390 21,390 27,437

Paymentshield 33,174 33,174 44,365

Broker Network 3,940 3,940 5,023

Other(1) (41,830) (2)(43,499) (31,297)

58,061 56,392 96,101

(1) Other primarily comprises non allocated central support costs.

(2) Topco includes additional costs associated with the Group board, primarily directors’ fees.

23

Description and performance of key line items

Set out below is a brief description and performance of the composition of the key line items of the Group’s

consolidated statement of comprehensive income.

Commission and fees

Commissions and fees represents income received from third parties net of commissions paid to sub-agents and

brokers. When a sub-agent or broker refers a customer to the Group, it typically shares that commission with

the sub-agent or broker. For the purposes of the analysis of results below, commission and fees are analysed by

division. Income from trading deals with insurers is included in commission and fees.

Advisory:

Commission and fees are broadly in line with last year. Retention rates have strengthened towards the end of

the year and are getting back to the levels achieved prior to the change programme. Adjusted EBITDA has

increased by 39.1% resulting from a reduction in expenses which include the Group restructuring fair value

adjustments.

Retail:

The SBU and Direct divisions were combined to form the Retail division in 2015. Commission and fees

declined by 7.3%, mainly due to continued challenges in the SBU division, this has been partly offset by a

strong and resilient performance in Direct which has seen new business increase year on year. Adjusted

EBITDA has declined by 38.3%, impacted by both the decrease in income as well as an increase in costs,

notably the annualised effect of the old SBU division which was originally launched during 2014.

Underwriting:

Commission and fees declined by 8.4% resulting from a challenging year in 2015 and the impact of the

financial restructuring, notably felt in retention and new business. Other negative impacts include lost revenues

as internal broking businesses declined and the exit from certain lines that didn’t meet required returns.

Adjusted EBITDA has decreased by 22.0% driven by the shortfall in income. Expenses are broadly flat, in line

with last year.

Paymentshield:

Commission and fees declined by 17.1%, impacted by a £6m non-cash income adjustment in 2014. The

underlying income decline is 10.1%, excluding this adjustment, which is driven by the continued reduction in

back books of MPPI and Household. Adjusted EBITDA has decreased by 25.2% largely due to the decrease in

income, with expenses broadly in line with last year.

Broker Network:

Commission and fees declined by 4.7% due to a fall in member numbers and refreshed pricing of the existing

book in response to an increasingly competitive market. Adjusted EBITDA has declined by 21.6%, resulting

from a decrease in income and an increase in expenses. The uplift in costs includes higher bonuses and one-off

premises costs in 2015.

Investment income

Investment income represents the interest received on restricted cash.

In the year ended 31 December 2015 investment income has decreased by £0.1m (26.9%) for Finco and Topco

compared to TIL for the same period in 2014.

Salaries and associated expenses

Salaries and associated expenses represent the costs of staff and staff related costs incurred in the operations of

the Group and will include staff related costs for exceptional spend not in the normal course of operations of

the Group.

Salaries and associated expenses have decreased in the year ended 31 December 2015 by £9.8m (5.1%) at

Finco and £8.5m (4.4%) at Topco reflecting a decrease in the cost of the workforce compared to TIL for the

same period in 2014.

24

Other operating expenses

Other operating expenses represent all other administrative costs and will include exceptional spend not in the

normal course of operations of the Group.

Other operating expenses decreased in the year ended 31 December 2015 by £129.2m (39.2%) at Finco and

£119.6m (36.3%) at Topco compared to TIL for the same period in 2014. This is primarily due to the related

party bad debt write off in 2014 offset by additional expenditure on acquisition and financing costs, group

reorganisation costs and regulatory costs in 2015 not incurred in 2014.

Depreciation and amortisation charges

Depreciation and amortisation charges represent the depreciation charge of tangible assets and the amortisation

of intangible assets.

Depreciation and amortisation charges have increased by £22.2m (98.7%) in the year ended 31 December

2015 compared to TIL for the same period in 2014. This is primarily due to increased amortisation on

intangibles, where fair values increased as a result of the Group restructuring.

Impairment of Goodwill

Impairment of goodwill in 2015 and 2014 represented the impairment of the goodwill based on the value in use

or fair value less costs to sell of the Group. This was conducted at cash generating unit level which reflects the

divisional structure of the Group.

Finance costs

Finance costs represent the interest and other financing costs of the Group.

Finance costs have been subject to pro forma adjustments in order to present the cost of the current debt as if it

was in place for both comparative periods.

Finance income

Finance income represents the interest on available cash and the changes in fair value of the financial

instruments in the statement of financial position.

Finance income has increased by £0.2m in the year to 31 December 2015 compared to 2014, primarily due to

increased office cash balances being held following the Group restructuring on 2 April 2015.

Income tax credit

An income tax credit arises on the unwinding of the deferred tax liability in respect of the amortisation charged

on the intangible assets and due to a change in corporation tax rate which has been applied to the deferred tax

asset and liability.

Exceptional costs

Group change programmes

During 2014 and 2015 the Group has undertaken a number of change programmes. These programmes were

designed to improve efficiency across the business, to build regulatory resilience, to position the Group to

exploit future scale advantages and to enhance the customer proposition. These programmes have been

separately disclosed within exceptional items on the face of the consolidated statement of comprehensive

income.

Acquisition and financing costs and bad debt provision for related parties

The Group has undergone a financial restructuring which completed on 2 April 2015. Costs of £41.2m were

incurred in the year to 31 December 2015 (2014: £10.3m). In addition in 2014, TIL recognised a provision of

£191.2m against amounts due from previous holding companies which are considered irrecoverable following

the restructuring, of which £0.7m relates to the Towergate Financial business and has been re-analysed as part

of the assets held for sale balances in the statement of financial position.

25

Group reorganisation costs

In February 2014 TIL began a major finance transformation with the creation of accounting centres in Leeds

and Maidstone. The majority of insurance broking accounting and client money processing was consolidated

into an in-house facility in Leeds, with some ongoing support from an outsourced third party provider. In

parallel, financial accounting and management accounting was centralised in a second in-house facility in

Maidstone. These two centres are developing standardised policies and procedures and will allow future

investment to be focused and prioritised. They will also allow IT hardware and software used by the Group to

be streamlined and re-focused with the objective, over time, of improving control while exploiting scale

advantage.

In April 2014, TIL announced the creation of a new business unit in Manchester. This unit is designed to

service small premium business through a dedicated contact centre with extended opening times. In addition,

a site consolidation to rationalise the office network across the Advisory, Retail and Underwriting businesses

was undertaken.

On 25 August 2015, a settlement was reached with regards to the litigation by Arthur J. Gallagher in relation to

certain members of its executive team joining Towergate following the financial restructuring. The Group

agreed to fund £8.0m of this settlement, payable in two £4.0m tranches in August 2015 and April 2016, plus

£1.2m of estimated legal fees.

The group reorganisation initiatives had an aggregate cost of £19.1m for Finco and £28.3m for Topco (2014:

£37.4m for TIL).

Regulatory costs

The Group has incurred exceptional regulatory costs of £29.2m in 2015 (2014: £8.9m). These items primarily

represent the creation of a provision for UCIS of £19.8m and other costs incurred in relation to the ongoing

regulatory investigations into advice provided by TF on ETV and UCIS, investigation into client and insurer

monies, and a strengthening of the Group’s control framework. ETV remains a contingent liability and is

disclosed on page 26.

Finance legacy review

The Group launched a review in 2013 to improve financial processing, reporting and controls across

Towergate. This included a re-assessment of the recoverability of certain legacy balances. The finance legacy

review continued in 2014, as a result of which a further £3.7m was identified as irrecoverable or impaired and

so was written off as an exceptional cost (2013: £10.0m).

Financial strength

On a pro forma basis Finco had net assets of £175.7m and net current assets of £19.4m as at 31 December

2015. Topco had net assets of £164.7m and net current assets of £10.9m. TIL had net assets of £327.4m and

net current liabilities of £16.1m as at 31 December 2014. The Group had regulatory capital requirements within

its regulated companies of £19.9m at 31 December 2015 and TIL had £18.8m at 31 December 2014.

Prior to the financial restructuring, presented consolidated financial statements in respect of TIL did not

include debt which was held in Towergate Finance Plc, the previous parent company of Towergate Insurance

Limited. Previously, TIL supported the debt held by Towergate Finance Plc through a guarantee. Following the

restructuring on 2 April 2015, the level of debt supported by the Group has significantly reduced and the

overall leverage position of the Group has reduced from 11.8x at 31 March 2015 to 7.9x at 31 December 2015.

Cash flow

The statutory net cash flow generated from operating activities for the period to 31 December 2015 was an

outflow of £43.3m (year ended 31 December 2014: inflow of £5.1m) and included spend in relation to

exceptional items of £81.7m for Finco and £85.7m for Topco (year ended 31 December 2014: £45.0m). The

net increase in cash balances of £205.9m for the period to 31 December 2015 includes £186.7m of cash

received as part of the financial restructuring.

The cash outflow from investing activities is negative in both periods, representing expenditure on

acquisitions, intangibles and property, plant and equipment in excess of proceeds from disposals.

The positive cash flows from financing activities in both periods reflects funds received from the issue of share

capital, receipt of funds from debt facilities and capital contributions from parent entities.

26

Contractual obligations

The following table summarises material contractual obligations as of 31 December 2015:

Total Less than 1

year

1-5 years More than 5

years

£m £m £m £m

Senior secured notes 425.0 - 425.0 -

Floating rate super senior secured notes 72.4 - 72.4 -

Operating leases 42.7 14.0 24.5 4.2

Other obligations(1) 4.7 3.9 0.8 -

Total contractual obligations 544.8 17.9 522.7 4.2

Deferred consideration

Deferred consideration is payable in respect of certain acquisitions based on the performance of the acquired

business typically in the 24 month period following the acquisition and in connection with put and call options

granted to shareholders of businesses we have acquired in respect of the remaining minority interest of such

shareholders, typically for the 36 month period following the acquisition.

Operating leases

Contractual obligations for operating leases reflect the Group’s annual commitments under non-cancellable

operating leases.

Off balance sheet arrangements

The Group had no off balance sheet arrangements at 31 December 2015.

Contingent liabilities

The Group is in discussion with the FCA about past advice provided by the TF Group businesses on ETV. The

independent file reviews for the investigation are ongoing. Customer contact, which will be a key factor in

determining the extent of the Group’s redress obligation, commenced in 2015 and is expected to be phased

over the next two years. Payment of redress is expected to occur over similar periods of time once customers

have been contacted and the redress methodology has been approved by the FCA. We expect material

payments to start in 2016.

Given the number of material uncertainties that exist around ETV redress, it is not yet possible to make a

reliable estimate of the Group’s ultimate liability. However, purely for the purposes of developing business

plans and cash flow projections for the Group, it has adopted a range of £45.0m to £65.0m in potential redress

costs, excluding costs and expenses.

This internal range is derived from a set of assumptions based on currently available information. As explained

above, in view of the material uncertainties all such assumptions are subject to change and the Group can give

no assurances as to whether its ultimate liability will be within this range or not. The ultimate liability for ETV

may, therefore, be materially different.

The foregoing does not include any recoveries that may be available either from third parties or under the

Group’s insurance arrangements, both of which the Group continues to pursue. The maximum recoverable

amount under insurance arrangements is £12m in addition to costs, although the ultimate extent and timing of

any recovery remains uncertain.

(1) Represents deferred consideration and redemption liability on non-controlling interest put options of £4.5m and obligations under finance

leases and hire purchase contracts in an amount of £0.2m.

27

Risk factors

The risks below are not the only risks the Group face. Additional risks and uncertainties not currently known

to us or that we consider immaterial may also significantly and adversely affect our business or operations in

the future. Any of the following risks could result in a material adverse effect on our business, results of

operations and financial condition.

Risks relating to our business

Our business may be adversely affected by a decline in economic conditions.

Our business, like others, is affected by economic conditions in the United Kingdom and the resultant decline

in business and customer confidence. Economic conditions may have a significant negative impact on the

buying behaviour of some of our commercial and individual customers. In addition, economic conditions may

negatively impact the buying behaviour of customers of mortgage intermediaries placing business with

Paymentshield and customers purchasing insurance from brokers in our broking division and network for

brokers. Insolvencies associated with continuing economic uncertainty could also adversely affect our

underwriting and broking businesses through the loss of customers or by hindering our ability to place

insurance. If unemployment increases, claims against mortgage protection insurance will also increase and

place downward pressure on commissions earned by Paymentshield. Due to their size, our small to medium-

sized business (SME) customers may be more vulnerable to any economic downturn and may be more prone

to insolvency than larger commercial customers. While it is difficult to predict the consequences for our

business of a deterioration in economic conditions, any significant reduction or delay by customers in

purchasing insurance or making payment of premiums could have a negative impact on our business.

In addition, we have a significant amount of trade accounts receivable from some of the insurance companies

with which we place insurance. If those insurance companies experience liquidity problems or other financial

difficulties, we could encounter delays or defaults in payments owed to us. Furthermore, if a significant insurer

fails or withdraws from writing certain insurance coverage that we offer our clients, overall capacity in the

industry could be negatively affected, which could reduce our placement of certain lines and types of

insurance. The failure of an insurer with whom we place business could also result in errors and omissions

claims by our clients.

Our mortgage broking solutions business, Paymentshield, may be adversely affected by a downturn in the

property market.

Our mortgage broker solutions business, Paymentshield, is materially affected by changes in the property

market and mortgage lending in the United Kingdom. Any decline in property prices in the United Kingdom or

in applications for new mortgages and any tightening of lending criteria employed by mortgage providers

when assessing mortgage applicants may lead to a decrease in mortgage lending activity. This may lead to a

reduction in customers purchasing or renewing mortgage protection insurance and household protection

insurance.

Volatility or declines in premiums, as well as declines in commission rates, may seriously undermine our

business and results of operations.

We derive most of our revenue from commissions and fees for underwriting and broking services. Our

commissions are generally based on insurance premiums, which are cyclical in nature and may vary widely

based on market conditions. Competition, economic difficulties or other factors may prevent increases in

premiums or may even cause premium rates to decline. As insurance companies continue to outsource the

issuance of insurance policies to non-affiliated agents and brokers such as ourselves, they may seek to further

bring down their expenses by reducing commission rates payable to such organisations. A significant reduction

in commissions, along with general volatility or declines in premiums, could have a significant adverse effect

on our business.

We depend on insurance companies providing us with underwriting capacity and products.

We are an insurance intermediary and depend on insurance companies providing us with insurance

underwriting capacity and products. The underwriting capacity of insurance companies depends on, among

other things, their ability to procure reinsurance, over which we have no control. To the extent that reinsurance

becomes less widely available, as a result, for example, of adverse economic conditions, we may not be able to

provide the amounts or types of coverage desired by our customers. To retain underwriting capacity, we also

need to maintain satisfactory loss ratios for our insurance company partners. A withdrawal by insurance

companies of underwriting capacity and products in circumstances where no replacement underwriting

capacity or products can be procured, or an excessive increase in the rates charged by an insurance company

would be a big risk to our business performance.

28

We depend on relationships with third-party brokers, mortgage intermediaries and networks of mortgage

intermediaries, and any adverse changes in these relationships could materially adversely affect our

business, results of operations and financial condition.

Our success depends, in significant part, on the quality of services provided by, and our relationships with,

third-party brokers, mortgage intermediaries and networks of mortgage intermediaries through which we

distribute a substantial portion of our insurance products. A significant amount of written premiums placed by

Paymentshield are sourced from mortgage intermediaries and networks of mortgage intermediaries. Although

we have some exclusive and long-term relationships with networks of mortgage intermediaries, most of our

relationships with third-party brokers and mortgage intermediaries are not exclusive or long-term. In addition,

we do not have control over whether the third-party brokers and mortgage intermediaries through which we

distribute our products comply with FCA regulations. If the third-party brokers, mortgage intermediaries and

networks of mortgage intermediaries through which we distribute our products do not provide customers with

competitive levels of service or a significant number of third-party brokers and mortgage intermediaries

choose not to distribute our products, the level of written premiums we place with customers may decline. If

the third-party brokers and mortgage intermediaries through which we distribute our products fail to comply

with FCA regulations or have other difficulties, we may lose the confidence and trust of our insurance

company partners and also the business provided by such third-party brokers and mortgage intermediaries.

Competition in our industry is intense, and if we are unable to compete effectively, our business may be

materially adversely affected.

We face intense competition in all of the businesses in which we operate, based on product breadth,

innovation, quality of service and price. In our insurance Underwriting and Broking businesses, numerous

firms, as well as insurance companies that directly solicit customers without the assistance of an agent or

broker, compete for a share of the various insurance markets and customers. Paymentshield faces competition

both from other insurance providers and large lenders, such as major retail banks and building societies and

standalone providers. Broker Network faces competition from other companies offering services to

independent insurance brokers.

If we fail to comply with regulatory requirements, we may not be able to conduct our business or may be

subject to sanctions or substantial fines that may have a material adverse effect on our results of operations

and financial condition.

Our business is primarily regulated by the Financial Conduct Authority (FCA). The FCA prescribes rules,

principles and guidance (Rules). The Rules impose high level standards on the establishment and maintenance

of proper systems and controls and minimum ‘‘threshold conditions’’ that must be satisfied for a firm to

remain authorised as well as rules on the conduct of business and fair treatment of customers. The Rules also

impose certain minimum capital and liquidity requirements on us. Our ‘‘treating customers fairly’’ obligation

requires us to demonstrate that we are consistently delivering fair outcomes to consumers and that senior

management are taking responsibility for ensuring that we, and our staff at all levels, deliver the consumer

outcomes relevant to our business by establishing an appropriate culture. Situations can arise where the

interests of Towergate differ from those of customers, or the interests of one customer differ from those of

another customer. The FCA rules oblige us to manage conflicts of interest fairly and we risk regulatory action

if we do not do so.

Firms have an ongoing obligation to periodically provide the FCA with information, including their financial

performance and customer outcomes. The FCA supervises firms’ activities to assess compliance with

regulatory requirements, including client money rules. The FCA will seek additional information from firms

via surveys, thematic reviews and formal risk assessments. The FCA has broad investigative and disciplinary

powers, including the power to impose fines and vary or cancel regulatory permissions. While we maintain an

ongoing dialogue with the FCA in the ordinary course of business and consider our compliance with the Rules

to be robust, failure to comply with the Rules could lead to disciplinary action, including requiring customers

to be compensated for loss, the imposition of penalties and the revocation or variation of our authorisations to

conduct business, in whole or in part.

29

Profit commissions are less predictable than traditional commissions, and we are less able to forecast the

amount of profit commissions that we will receive.

We derive a small portion of our revenue from profit commissions from insurance companies. Profit

commissions are typically based on the profitability of the business placed with the insurance company, as a

function of premiums earned net of commissions less claims, expenses and target minimum returns for the

insurance company. We are less able to forecast profit commissions than traditional commissions. In addition,

catastrophic events, whether natural or otherwise, may affect the amount of claims being made and therefore

the profitability of the business placed by us. A large proportion of the business we place insures risk in the

United Kingdom, and therefore the profitability of our business is significantly affected by catastrophic events

in the United Kingdom. Moreover, insurance companies may seek to negotiate profit sharing agreements with

less favourable terms to us as a result of a decrease in the profitability of the business we place with them.

Our business, results of operations and financial condition may be materially adversely affected by

legislative or taxation changes or HMRC enforcement actions.

We are subject to the laws of England and Wales and the taxation rules administered by HM Revenue &

Customs (HMRC). Changes in legislation or regulations and actions by regulators, including changes in

administration and enforcement policies, could from time to time require operational improvements or

modifications, the conduct of reviews and audits or the cessation of certain business practices, product lines or

income streams that could result in higher costs or restrict our ability to operate our business and, as a result,

have a material adverse effect on our business, results of operations and financial condition. In 2015, for

example, the UK government raised the rate of insurance premium tax from 6% to 9.5%. Currently,

commissions payable on insurance premiums are exempt from Value Added Tax. Any change to these taxation

rates or the treatment of taxation on our other sources of income could have an adverse effect on our business

performance.

HMRC may also take enforcement actions against us which may result in fines, penalties and/or interest

charges being imposed on us which may have a material adverse effect on our business, results of operations

and financial condition. We are required to certify to HMRC that we have appropriate tax accounting

arrangements in place. In reviewing the processes and procedures which support tax compliance obligations

certain matters came to light in 2012 concerning liability for value added tax on services received from abroad,

the requirement to account for withholding tax on certain annual interest paid to non-residents, the efficacy of

certain employment arrangements and the taxation of some benefits in kind provided to staff. The only

outstanding point relates to some benefits in kind provided to staff for which we await HMRC feedback. There

are some outstanding points from HMRC regarding corporation tax on the group. It is not anticipated that any

of these points will lead to a significant tax liability or penalties or interest.

Our business, results of operations and financial condition may be materially adversely affected by errors

and omissions and the outcome of certain actual and potential claims, lawsuits and other proceedings.

We are subject to various actual and potential claims, lawsuits and other proceedings relating principally to

alleged errors, omissions or unfair provisions in connection with the placement of insurance or the provision of

financial services advice in the ordinary course of business. As we often assist our customers with matters,

including the placement of insurance coverage and the handling of related claims and the provision of financial

services advice, involving substantial amounts of money, errors and omissions claims against us may arise that

allege our potential liability for all or part of the amounts in question. As a result, claimants can seek large

damage awards from us and these claims can involve potentially significant defence costs. Such claims,

lawsuits and other proceedings could, for example:

allegations of damages as a result of our employees, agents or sub-agents improperly failing to place

coverage or to notify claims on behalf of customers;

failing to inform clients of relevant warranties and exclusions applying to their policies;

failing to adequately advise customers of their duties of disclosure and the risk of underinsurance;

failing to provide insurance companies with complete and accurate information relating to the risks being

insured or to appropriately apply funds that we hold for our customers on a fiduciary basis.

30

We maintain professional indemnity insurance for errors and omissions claims. The terms of this insurance

vary by policy year and our ability to obtain professional indemnity insurance in the amounts and with the

deductibles we desire in the future may be adversely impacted by general developments in the market for such

insurance or our own claims experience. In recent years, our self-insured risks have increased. In the case of

self-insured risks, we have established a provision for claims in respect of outstanding errors and omission

claims that we believe to be adequate in the light of current information and legal advice and we adjust such

provision from time to time according to developments. If our insurance coverage proves inadequate or

unavailable or there is an increase in liabilities for which we self-insure.

We issue insurance policies on behalf of insurance companies pursuant to delegated authority agreements,

and, if we issue policies or handle claims beyond the scope of our delegated authority, we may incur liability

in respect of insurance claims.

Our underwriting agencies assess risk and issue policies to customers on behalf of insurance companies. In

writing an insurance policy, we agree to a set of underwriting criteria with an insurance company and write the

policy under delegated authority from the insurance company. If we underwrite a greater risk than agreed by

the insurance company, handle a claim in excess of any cap without referring such claim to the insurance

company, issue policies that are outside of the applicable eligible business criteria, use staff who are not

authorised under the relevant delegated authority agreement to handle claims or otherwise act beyond the

scope of our delegated authority, the insurance company may refuse to provide the funds in respect of the

insurance claim in question. As a result, we would incur the liability for such claims.

Interruption or loss of our information processing systems or failure to maintain secure information

systems could have a material adverse effect on our business.

Our business depends on the ability of our employees to process transactions using secure information

systems. Our capacity to service our customers depends on storing, retrieving, processing and managing

information. Interruption or loss of our information processing capabilities through loss of stored data, the

failure of computer equipment or software systems, a telecommunications failure or other disruption could

have a material adverse effect on our business, results of operations and financial condition. A disruption in the

infrastructure that supports our business and the communities where we are located, for example, would

adversely affect our ability to operate our business.

Our computer systems also store information about our customers, some of which is sensitive personal data.

Database privacy, identity theft and related computer and internet issues are matters of growing public concern

and are subject to changes in rules and regulations. Our failure to adhere to or successfully implement

processes in response to changing regulatory requirements in this area could result in legal liability or harm to

our reputation. Although we have taken reasonable and appropriate security measures to prevent unauthorised

access to information stored in our database and to ensure that our processing of personal data complies with

the relevant data protection regulations, our technology may fail to adequately secure the private information

we maintain in our databases and protect it from theft or inadvertent loss.

The loss of a number of our senior management or a significant number of our underwriters, account

executives, sales personnel or other client-facing employees could have a material adverse effect on our

business. The inability to attract and retain qualified personnel could also have a material adverse effect on

our business.

Our success depends to a substantial extent on the ability and experience of members of our senior

management and on the individual underwriters, account executives, sales personnel and teams that service our

customers and maintain customer relationships. The loss of a number of our senior management or a

significant number of our underwriters, account executives, sales personnel or other client-facing employees

could have a material adverse effect on our business. We believe that our future success will depend in part on

our ability to attract and retain additional highly skilled and qualified personnel and to expand, train and

manage our employee base. In the past, the insurance broking industry has experienced intense competition for

the services of leading individual account executives and broking teams and we have lost account executives

and teams to competitors.

31

If we are unable to apply technology effectively in driving value for our clients through technology-based

solutions or gain internal efficiencies and effective internal controls through the application of technology

and related tools, our client relationships, growth strategy, compliance programs and operating results

could be adversely affected.

Our future success depends, in part, on our ability to develop and implement technology solutions that

anticipate and keep pace with rapid and continuing changes in technology, industry standards, client

preferences and internal control standards. We may not be successful in anticipating or responding to these

developments on a timely and cost-effective basis and our ideas may not be accepted in the marketplace.

Additionally, the effort to gain technological expertise and develop new technologies in our business requires

us to incur significant expenses. If we cannot offer new technologies as quickly as our competitors, or if our

competitors develop more cost-effective technologies, we could experience a material adverse effect on our

client relationships, growth strategy, compliance programs and operating results.

Interest rate changes may have a material adverse effect on our business, result of operations and financial

condition.

As of 2 April 2015, on a pro forma basis after giving effect to the Refinancing, we would have had an

aggregate principal amount of £500 million of debt. The interest is LIBOR plus 7.5% with a floor on LIBOR

of 1%. Three month Libor has been stable and tracking at or slightly below 0.6% for over 12 months. Because

there has been little risk of LIBOR 1% floor then there are no interest rate hedges currently in place. We have

considered events that could give rise to interest rate movement, notably the possible exit of the UK from the

European Union following the referendum in June 2016. Whilst an exit could give rise to interest rate

increases, we do not anticipate this to be of such significance that it would breach the 1% LIBOR floor. In

such an unlikely event we would hedge by interest rate swaps or explore further refinancing with our

shareholder.

Our substantial debt could limit our flexibility, adversely affect our financial health.

In addition to the aggregate principal amount of £500 million of debt, as of 2 April 2015 we also have £85.0

million available for borrowing under the Credit Facility Basket.

Our substantial debt could impact business, results of operations and financial condition, for example:

Requires us to dedicate a substantial portion of our cash flow from operations to making payments on our

debt, thereby limiting the availability of funds for working capital, acquisitions, business opportunities

and other general corporate purposes;

Potentially increases our vulnerability to adverse general economic or industry conditions;

Limits our flexibility in reacting adequately to changes in our business or the industry in which we

operate; and

Places us at a competitive disadvantage compared to those of our competitors that have less debt than we

do; and limits our ability to borrow additional funds and increase the costs of any such additional

borrowings.

But as well as supporting operations, proceeds from debt financing are used to fund the acceleration of

strategic investments. This will support future generation of cash for reinvestment and to continue paying

down debt. In addition, our shareholder remains supportive to investing in the business turnaround and growth.

32

Management

Board of Directors of Finco andTopco

The Directors of Finco and Topco at 31 December 2015 were:

John Tiner Non-executive Chairman

Philip Moore Non-executive director

Teresa Robson-Capps Non-executive director

Oliver Feix Non-executive director

Scot French Non-executive director

Dev Gopalan Non-executive director

Mark Mugge Group Chief Financial Officer

John Tiner CBE (Non-executive Chairman): John is an independent non-executive member of the Board of

Credit Suisse Group, where he is also Chairman of the Audit Committee and a member of both the Risk

Committee and the Chairman’s Governance Committee. For 25 years up to June 2001, he worked for

accountants Arthur Andersen, in 1997 becoming head of their global financial services practice. There he led

the team which produced the official report investigating the 1995 collapse of Barings Bank for the Bank of

England’s Board of Banking Supervision. In June 2001, he joined the FSA to become managing director of the

consumer, investment and insurance directorate. In September 2003, he was appointed Chief Executive of the

FSA. In this role, he led the Tiner Review which reformed the regulation of both the life and general insurance

industries and initiated and led a programme to improve consumers' understanding of personal finance.

Philip Moore (Non-executive director): Philip has over 30 years insurance industry experience. He is Group

Finance Director of LV=, having joined from Pensions Insurance Corporation where he was both Group

Finance Partner and Chief Risk Officer. Prior to this he was Group Finance Director and latterly Group Chief

Executive at Friends Provident, where he was a non-executive director of F&C Asset Management. He has

previously held roles at AMP, NPI and PricewaterhouseCoopers in both London and Hong Kong.

Teresa Robson-Capps (Non-executive director): Teresa has spent over 20 years in a variety of senior

executive operational board positions in the retail, mobile telecoms, insurance and banking industries. Teresa

was Deputy Head of HSBC UK Direct Bank from June 2009 to September 2011. During this time she

developed and implemented a substantial change programme, integrating sales and service with increased

conversion rates whilst improving both customer and employee satisfaction. Prior to this Teresa was Head of

Contact Centres for HSBC, a role covering 11 million UK customers. Teresa was an Associate Partner at

Accenture from 2003 to 2006 and prior to that was managing director of The Customer Division at Reality, a

division of GUS.

Oliver Feix (Non-executive director): Oliver is a Managing Director at Highbridge. Prior to joining

Highbridge in 2008, he was a Vice President at Morgan Stanley and a member of the Leveraged and

Acquisition Finance team where he focused on originating, executing and distributing leveraged loans and

special situation financings across industries. He also worked at Deutsche Bank in London sourcing and

executing multi-asset portfolio trades as a member of the Transition Management team within the Global

Markets division. Oliver holds an MSc in Economics from the University of Konstanz.

Scot French (Non-executive director): Scot is a Partner and founding member of Highbridge and is the

Portfolio Manager for the Highbridge Mezzanine fund. Prior to joining Highbridge in 2007, he spent three

years at Citigroup as a Managing Director and Head of Private Investments for Citigroup Global Special

Situations, a credit focused, on-balance sheet proprietary investment fund managing over $8 billion globally.

Within Citigroup Global Special Situations, Scot managed a $1.5 billion portfolio of private mezzanine and

private equity investments in North America, Europe and Latin America. Prior to joining Citigroup, he worked

for Goldman Sachs and focused on mergers and acquisitions as well as high-yield capital markets. Previously

Scot worked in high-yield capital markets and mergers and acquisitions at Saloman Brothers Inc and for Price

Waterhouse. Scot graduated from the University of Illinois.

33

Dev Gopalan (Non-executive director): Dev is a Director in KKR Credit and serves as head of U.S.Private

Credit. Prior to joining KKR in 2010, he worked at the Canada Pension Plan Investment board as a principal in

private investments and private debt. Prior the that he worked for Barclays Capital, Goldman Sachs and

JPMorgan Chase in high yield capital markets as well as high yield/leverage loan research covering a variety

of sectors. Dev also sits on the boards of LCI Helicopters Limited, Battery Point Trust LLC, DCAL Aviation

Finance Limited and serves on the limited partner advisory committee of Star Mountain Multi-Manager Credit

Platform, LP. He is also on the board of Rebound Hounds, a non-profit organisation. Dev has a M.A. in

International Finance from Brandeis University and a B.S. from Georgetown University. Dev left the Group on

8 March 2016 and will be replaced by Daniel Pietrzak.

Mark Mugge (Group Chief Financial Officer): Mark held various senior finance and audit positions at

AmerUs Group Co, Grinnell Mutual Reinsurance Company and GuideOne insurance before joining Arthur J

Gallagher in 2006 where he was Group Controller until 2010. He then served as the CFO of the international

division at Arthur J Gallagher’s from 2011-2015. Mark earned his CPA at KPMG LLP and served in the

United States Marine Corps.

Directors of the ultimate parent company

The Directors of Sentry Holdings Limited, the ultimate parent company of the Group, at 31 December 2015

were:

Oliver Feix Non-executive director

Scot French Non-executive director

Dev Gopalan Non-executive director

Brad Palmer Non-executive director

The following is biographical information for each of the members of the board of Sentry Holdings Limited

who do not serve on the board of Directors of Finco orTopco.

Brad Palmer (Non-executive director): Brad joined Sankaty Advisors in 2013. He is a Managing Director

based in Sankaty’s London office in the Portfolio Group responsible for driving operating improvement

initiatives across Sankaty’s investments. Previously, he held a number of roles as a Senior Executive in private

equity backed businesses. Specific experience includes FMCG manufacturing management, as well as Finance

Director roles. Brad received a B.Sc. in Chemical Engineering from the University of Natal.

Senior management

Towergate’s senior management as at 31 December 2015 were:

John Tiner Non-Executive Chairman

David Ross Chief Executive Officer

Mark Mugge Group Chief Financial Officer

Adrian Brown Chief Operating Officer and Chief Executive Officer - Underwriting

Janice Deakin Chief Executive Officer – Insurance Broking

Steve Wood Chief Executive Officer - Paymentshield

Andy Fairchild Chief Executive Officer – Broker Network

James Tugendhat Chief Commercial Officer

Jennifer Owens General Counsel and Company Secretary

Catherine Lynch Group HR Director

Sarah Dalgarno Group Chief Risk Officer

Gordon Walters Group Chief Information Officer

The following is biographical information for each of the members of the senior management team as at 31

December 2015 who do not serve on the Board of Topco or Finco.

David Ross (Chief Executive Officer): David had a 25 year career at Arthur J Gallagher having started there

as a trainee. He was appointed Managing Director of the North American Division in 1997 then CEO of

Global Wholesale & Retail in 2003. In 2005 David was appointed CEO of the International Division where the

company underwent a defining period of growth and expansion. An Insead Alumnus, David has spent his

entire career on the front line of Broking and Intermediary work in the Insurance industry.

Adrian Brown (Chief Operating Officer and Chief Executive Officer – Underwriting): Adrian is a

qualified management accountant with extensive industry expertise having spent 25 years at RSA. He was a

main board director and CEO of the UK and Western Europe for six years. Previously he was UK COO and

established, and led, the successful direct business MORE TH>N. More recently he was executive chairman of

underwriting and distribution at Arthur J Gallagher.

34

Janice Deakin (Chief Executive Officer – Insurance Broking): Janice had a 13 year career at AVIVA,

leading the broker business as intermediary and partnerships director from December 2009 until 2013 and

prior to that, corporate sales director. Janice then served as the CEO of UK Retail for Arthur J Gallagher,

leading a combined business of over 2,000 people, placing in excess of £1billion of gross written premiums on

behalf of more than 200,000 commercial insurance customers.

Steve Wood (Chief Executive Officer – Paymentshield): Steve has worked in the insurance industry for over

30 years, including a range of senior executive roles. Before joining Towergate he was UK Managing Director

at Ecclesiastical Insurance Group, where he spent eight years, strengthening its core market positions and

broker relationships. Prior to Ecclesiastical, Steve led the MBO of Royal SunAlliance’s healthcare division. He

started his career at Royal Insurance.

Andy Fairchild (Chief Executive Officer - Broker Network): Andy joined the Group in December 2013. He

has a wide range of market experience including time on the UK Board of AXA, latterly as Chief Operating

Officer. He held various business development roles with both Royal Insurance and Commercial Union before

establishing the Insurance & Customer Service proposition at First Direct.

James Tugendhat (Chief Commercial Officer): James joined the Group in February 2014 from BUPA

where he spent six years in a variety of roles including Commercial Director of its market leading International

Health Insurance business and most recently as Chief Executive Officer of Health Dialog, BUPA’s US health

service business. Prior to BUPA James ran a successful consumer products start up and spent several years at

Diageo in a number of senior strategy, sales and marketing and general management roles. James held the

position Chief Executive Officer – Retail from February 2014 to October 2015. James will be leaving the

Group on 1 April 2016 and will be replaced by John Kitson on an interim basis.

Jennifer Owens (General Counsel and Company Secretary): Jennifer joined the Group in November 2013.

She joined from William Hill plc where she was Deputy General Counsel. Prior to William Hill plc, Jennifer

held several executive positions including General Counsel at Espirito Santo/Execution Noble and Legal and

Compliance Director at GE Money, after her time in private practice with Herbert Smith. Jennifer left the

Group on 29 February 2016 and was replaced by Geoff Gouriet on 31 March 2016.

Catherine Lynch (Group HR Director): Catherine joined Towergate from BGL Group, where she was HR

& Communications Director since January 2013. Prior to this, she was Head of HR at Barclaycard from June

2011 to December 2012 having held the role of HR Director at Santander UK for six years from June 2004.

Earlier in her career, Catherine held commercial positions at Sainsbury’s, House of Fraser and Tesco.

Sarah Dalgarno (Strategic Risk Officer): Sarah has more than 25 years’ industry experience and joined the

Group from Arthur J Gallagher International, where she spent nine years, latterly as CRO, responsible for all

regulatory, compliance risk management and governance matters of the UK regulated entities and international

operations. Prior to Arthur J Gallagher, Sarah worked at the FSA for six years.

Gordon Walters (Group Chief Information Officer): Gordon joined the Group in August 2015 as interim

Chief Information Officer and was confirmed as permanent CIO from the end of January 2016. Prior to this,

Gordon was a partner at Deloitte UK for over three years. Earlier in his career Gordon was COO, Corporate

banking at Lloyds banking group for over six years and a Partner at Accenture for 15 years. Gordon has a PhD

in Chemistry which he was awarded at the University of Edinburgh.

Compensation of directors and senior management

The aggregate salary and fees, performance-related remuneration and bonuses, pension contributions and other

benefits paid to the directors and senior management listed above in 2015 was £8.1m.

Committees of TIG Topco Limited

The committees in operation for the Group as part of Topco board of directors are set out below.

Audit Committee

The role of the audit committee is to monitor and review the group’s internal financial controls, and audit

function, approve the annual audited accounts and any other announcement incorporating material financial

information, monitor and review external auditor independence and objectivity and the effectiveness of the

external auditor review process. The audit committee will also develop and implement policy on the

engagement of, and make recommendations to the Group board in relation to the appointment or removal of,

external auditors.

35

Remuneration Committee

The responsibilities of the remuneration committee include determining the remuneration and performance

targets for senior executives, the remuneration of the members of the Group board, the award of rights under

long term incentive plans (including, potentially, through shares in Topco or other Group companies) and the

approval of new bonus and incentivisation schemes.

Nomination Committee

The responsibilities of the nomination committee include the recommendation to the Group b oard of the

appointment of senior executives and directors.

Group Risk Committee

The risk committee is responsible for all matters relating to regulatory compliance and risk management,

including reviewing, monitoring and implementing Group compliance and risk policies, the Risk

Management Framework, making recommendations regarding the risk appetite and monitoring the

effectiveness of the risk and compliance function.

Investment Committee

The investment committee is responsible for all matters relating to the acquisition program, including the

formulation, monitoring, review and implementation of the strategy regarding acquisitions, approval of

material acquisition proposals, review of the resources available to undertake acquisitions and review of

the effectiveness of the integration of acquired businesses.

36

Principal shareholders

Finco is a 100% owned subsidiary of TIG Midco Limited, which in turn is a 100% owned subsidiary of Topco.

Topco is directly and/or indirectly majority-owned through certain investment vehicles by Highbridge, KKR,

and Sankaty.

Highbridge was established in 2007 by Highbridge Capital Management, LLC as a credit and private

investment platform. Highbridge’s platform offers a full spectrum of strategies including loans, high yield,

mezzanine debt, distressed credit and private equity. Highbridge relies on fundamental research carried out by a

team of more than 85 experienced investment and senior professionals to invest approximately $24 billion of

equity capital and $27 billion of total capital including leverage across core credit strategies.

KKR is a leading global investment firm with a long history of investing in Europe. Founded in 1976 and led

by Henry Kravis and George Roberts, KKR has $119.5 billion in assets under management as of 31 December

2015. KKR holds its interest in the Group through funds and accounts managed or advised by KKR Credit

Advisors (U.S.) LLC. KKR Credit Advisors (U.S.) LLC is an SEC-registered investment adviser, which,

together with KKR Credit Advisors (Ireland) and KKR Credit Advisors (UK) LLP, conducts KKR’s credit

business (“KKR Credit”). With over 85 investment professionals globally, KKR Credit invests across the

corporate credit spectrum, including in leveraged credit strategies, such as leveraged loans and high yield

bonds, and alternative credit strategies, such as direct senior lending, subordinated private credit, special

situations and long/short credit.

Sankaty Advisors, an independently managed affiliate of Bain Capital, is a leading global credit specialist with

approximately $27.8 billion in assets under management as of 1 October 2015. They invest across the full

spectrum of credit strategies, including leveraged loans, high-yield bonds, distressed debt, private lending,

structured products, non-performing loans (NPLs) and equities.

Related party transactions

Related party transactions as of 31 December 2015 are disclosed in note 28 to the consolidated financial

statements of Topco and note 28 of Finco for the year ended 31 December 2015 which can be found in

Appendix 3.

Description of share capital

The share capital of Topco is £3,600,100 comprising 360,000,100 ordinary shares of £0.01 each. As at 31

December 2015 359,999,907 ordinary shares were in issue.

The shares are issued only in fully paid form in one series and have uniform rights, rank pari passu with each

other, have equal and proportionate rights in all distributions and participation in exit events, carry one vote per

share and are not divisible into fractional parts.

The share capital of Finco is £299,999,999 comprising 299,999,999 ordinary shares of £1.00 each. As at 31

December 2015 all 299,999,999 shares were in issue.

37

Appendices

Table of contents Page

1. Detailed unaudited pro forma financial information and other pro forma data

1.1 Pro forma consolidated statement of comprehensive income and other pro forma data for the year

ended 31 December 2015 39

1.2 Pro forma consolidated statement of comprehensive income and other pro forma data for the year

ended 31 December 2014 41

1.3 Pro forma consolidated statement of financial position as at 31 December 2015 43

1.4 Pro forma consolidated statement of financial position as at 31 December 2014 44

2. Summary consolidated statutory information 45

3. Consolidated financial statements 48

2.1 TIG Finco Plc

2.2 TIG Topco Limited

38

1. Detailed unaudited pro forma financial information and other data

39

1.1 Pro forma consolidated statement of comprehensive income and other pro forma data for the

year ended 31 December 2015

Finco(1)

Pre-acquisition

period for

TIL(2)

Pro forma adjustments

for

disposals(3) Pro forma

Finco

Additional

costs in

Topco(4) Pro forma

Topco

£000 £000 £000 £000 £000 £000

Year ended 31 December 2015

Commission and fees 267,236 85,331 (729)(a) 351,838 - 351,838 Investment income 262 89 - 351 - 351 Salaries and associated expenses (132,912) (50,487) - (183,399) (1,353) (184,752) Other operating costs (172,042) (40,949) 12,408(b) (200,583) (9,573) (210,156) Depreciation and amortisation charges (33,444) (5,303) (5,979)(c) (44,726) - (44,726) Impairment of goodwill (86,400) - - (86,400) - (86,400)

Group operating (loss) / profit (157,300) (11,319) 5,700 (162,919) (10,926) (173,845) Analysed as:

Group operating profit before exceptional items 11,250 7,348 (6,723) 11,875 (1,669) 10,206 Increase in value of contingent consideration 1,456 - - 1,456 - 1,456 Loss on disposal of businesses and investments - (340) - (340) - (340) Acquisition and financing costs (41,212) (12,423) 12,423 (41,212) - (41,212) Group reorganisation costs (14,995) (4,853) 790 (19,058) (9,257) (28,315) Regulatory costs (27,399) (1,051) (790) (29,240) - (29,240) Impairment of goodwill (86,400) - - (86,400) - (86,400)

Group operating (loss) / profit (157,300) (11,319) 5,700 (162,919) (10,926) (173,845) Finance costs(5) (34,527) (238) (11,036)(d)

(45,801) -

(45,801) Finance income(6) 405 93 - 498 - 498

Loss before taxation (191,422) (11,464) (5,336) (208,222) (10,926) (219,148) Income tax credit / (expense) (7) 6,958 (224) -(e) 6,734 - 6,734

Loss on continuing operations (184,464) (11,688) (5,336) (201,488) (10,926) (212,414)

(Loss) / profit for the period from discontinued

operations, net of tax

- (366) 366(f) - - -

Total comprehensive loss for the period (184,464) (12,054) (4,970) (201,488) (10,926) (212,414)

(1) The information in this column has been derived from the audited consolidated financial statements for Finco as of and for the year ended 31 December 2015

included elsewhere in this annual report. Finco commenced trading on 2 April 2015.

(2) The pre-acquisition period for TIL represents the trading period 1 January 2015 to 1 April 2015 derived from the unaudited interim condensed consolidated

financial statements for TIL as of and for the quarter ended 31 March 2015. These figures have been previously reported in the Towergate Insurance Limited annual

report issued on 26 June 2015 for the quarter ended 31 March 2015.

(3) The pro forma adjustments for TIL, disposal of TF and debt costs represents (a) (i) 2014 audit adjustments made after the group accounts had been signed and (ii)

a timing adjustment in the recognition of a profit share (b) the reversal of group restructuring costs previously included in TIL but subsequently accounted for in

Finco (c) amortisation of intangibles for the three months to 31 March 2015 based on Finco intangible balances (£10.2m) offset by the reversal of the three months

amortisation of intangibles to 31 March 2015 already in TIL (£4.2m) (d) three months interest cost on the £425.0m 8.75% senior secured notes (£9.3m) (ii) three

months interest on the £75.0m floating rate super senior secured notes (£1.7m) (iii) three months amortisation on capitalised debt costs of £3.7m over a period of 5

years (£0.2m) offset by (iv) the reversal of interest charged in TIL on the £20.0m bridging loan (£0.2m) (e) tax effect of pro forma adjustments (a), (b), (c) and (d) and

(f) represents the removal of the aggregated results of the trading period 1 January 2015 to 16 March 2015 for TF which was classed as discontinued operations in

the TIL consolidated financial statements and is compiled from information in the respective management accounts of TF.

(4) Topco includes additional costs associated with the Group board, primarily directors’ fees and the settlement paid with regards to the litigation by Arthur J.

Gallagher.

(5) Finance costs are comprised of interest payable on bank loans, directors’ loans, the Notes, finance charges payable in respect of finance leases and hire purchase

contracts and certain other charges.

(6) Finance income represents the interest receivable on own funds.

(7) The Group will not incur a corporation tax charge for 2015.The income tax credit relates to the movement in deferred tax.

40

1.1 Pro forma consolidated statement of comprehensive income and other pro forma data for the

year ended 31 December 2015

Finco

Pre-acquisition

period for

TIL

Pro forma adjustments

for TIL,

disposals Pro forma

Finco

Additional

costs in

Topco Pro forma

Topco

£000 £000 £000 £000 £000 £000

Year ended 31 December 2015

Available cash(1) 57,148 - - 57,148 - 57,148 EBITDA (37,051) (5,923) 11,679 (31,295) (10,926) (42,221) Adjusted EBITDA 45,728 13,077 (744) 58,061 (1,669) 56,392 Adjusted EBITDA margin - - - 16.50% - 16.03% Capital expenditure 5,827 1,664 (1) 7,490 - 7,490 Adjusted net senior secured borrowings(2) - - - 442,852 - 442,852 Adjusted net total borrowings(2) - - - 447,304 - 447,304 Adjusted net interest expense(3) - - - 44,580 - 44,580 Ratio of Adjusted net senior secured borrowings to Adjusted

EBITDA(2)

- - - 7.63x - 7.85x

Ratio of Adjusted net total borrowings to Adjusted EBITDA(2) - - - 7.70x - 7.93x

Ratio of Adjusted EBITDA to Adjusted net interest expense(3) - - - 1.30x - 1.26x

Turnover by division Advisory 98,962 32,530 26 131,518 - 131,518 Retail 64,542 19,792 - 84,334 - 84,334 Underwriting 55,520 18,822 - 74,342 - 74,342 Paymentshield 38,478 11,107 (755) 48,830 - 48,830 Broker Network 9,944 3,067 - 13,011 - 13,011 Other(4) (210) 13 - (197) - (197) Adjusted EBITDA by division Advisory 13,739 4,525 11 18,275 - 18,275 Retail 18,229 4,883 - 23,112 - 23,112 Underwriting 16,691 4,699 - 21,390 - 21,390 Paymentshield 26,397 7,532 (755) 33,174 - 33,174 Broker Network 2,954 986 - 3,940 - 3,940 Other(4) (32,282) (9,548) - (41,830) (1,669) (43,499)

(1) Available cash of £57.1m excludes restricted cash of £148.7m. Restricted cash consists of client money in respect of insurance premiums due to insurance companies

and insurance company money in respect of claims payments due to policyholder; cash deposits kept for the purposes of solvency, capital adequacy and any other

requirements imposed by the FCA; cash deposits held for settlement of claims in relation to the disposal of the TF business as imposed by the FCA; and rent deposits.

(2) For the purposes of calculating Adjusted net senior secured borrowings deferred consideration and redemption liability on non-controlling interest put options have

been excluded. Adjusted net senior secured borrowings and Adjusted net total borrowings have been adjusted for the pro forma available cash of £57.1m. The ratios of

Adjusted net senior secured borrowings to Adjusted EBITDA and Adjusted net total borrowings to Adjusted EBITDA are calculated by reference to the pro forma

Adjusted EBITDA.

(3) Adjusted net interest expense represents net interest expense on pro forma Adjusted total borrowings. The ratios of Adjusted EBITDA to Adjusted net interest expense

is calculated by reference to the pro forma Adjusted EBITDA for the year ended 31 December 2015 of £58.1m for Finco and £56.4m for Topco.

(4) Other primarily comprises non allocated central support costs.

41

1.2 Pro forma consolidated statement of comprehensive income and other pro forma data for the year

ended 31 December 2014

TIL(1)

Pro forma adjustments

for disposals(2)

Pro forma adjustments

for debt costs(3)

Pro forma

TIL

£000 £000 £000 £000

Year ended 31 December 2014

Commission and fees 375,923 (2)(a) - 375,921 Investment income 480 - - 480 Salaries and associated expenses (193,220) - - (193,220) Other operating costs (331,423) 1,649 - (329,774) Depreciation and amortisation charges (22,504) - - (22,504) Impairment of goodwill (552,861) - - (552,861)

Group operating (loss) / profit (723,605) 1,647 - (721,958)

Analysed as:

Group operating profit before exceptional items 72,489 25(b) - 72,514 Related party bad debt provision (190,534) - - (190,534) Increase in value of contingent consideration 9,127 - - 9,127 (Loss) / gain on disposal of businesses (1,547) 1,622(c) - 75 Acquisition and financing costs (10,289) - - (10,289) Group reorganisation costs (37,390) - - (37,390) Finance legacy review (3,702) - - (3,702) Regulatory costs (8,898) - - (8,898) Impairment of goodwill (552,861) - - (552,861)

Group operating (loss ) / profit (723,605) 1,647 - (721,958)

Finance costs(4) (11) - (44,902)(a) (44,913)

Finance income(5) 336 - - 336

(Loss) / profit before taxation (723,280) 1,647 (44,902) (766,535)

Income tax credit (6) 883 (5)(d) -(b) 878

(Loss) / profit on continuing operations (722,397) 1,642 (44,902) (765,657)

Profit / (loss) for the period from discontinued

operations, net of income tax(7)

(23,283) 23,283(e) - -

Total comprehensive (loss) / profit for the period (745,680) 24,925 (44,902) (765,657)

(1) The information in this column has been derived from the TIL audited consolidated financial statements for the year ended 31 December 2014.

(2) The pro forma and removal of trading period adjustments for the disposal of Hayward Aviation on 23 December 2014, FICL on 29 August 2014 and TF on

16 March 2015, give effect to the following adjustments:(a) and (b) represents the trading period 1 January 2014 to 29 August 2014 for FICL and is compiled

from information in their respective management accounts (c) represents the reversal of the consolidated loss on the disposal of FICL (d) represents the tax

effect of pro forma adjustments (a), (b) and (c); (e) represents the removal of the aggregated results of the trading period 1 January 2014 to 23 December

2014 for Hayward Aviation and 1 January 2014 to 31 December 2014 for TF which are classed as discontinued operations in the TIL consolidated financial

statements.

(3) The pro forma adjustments for debt costs incurred during the year ended 31 December 2014 represent (a) (i) 12 months interest cost on the £425.0m

8.75% senior secured notes (£37.2m) (ii) 12 months interest on the £75.0m floating rate super senior secured notes (£7.0m) (iii) 12 months amortisation of

capitalised debt costs of £3.7m over a period of five years (£0.7m) and (b) represents the tax effect of pro forma adjustment (a).

(4) Finance costs are comprised of interest payable on bank loans, directors’ loans, the Notes finance charges payable in respect of finance leases and hire

purchase contracts and certain other charges.

(5) Finance income represents the interest receivable on own funds.

(6) The Group did not incur a corporation tax charge for 2014; any profits were group relieved with losses from companies outside of the restricted group.

(7) On 23 December 2014 the Group disposed of Hayward Aviation and on 16 March 2015 disposed of its TF business. The results of both businesses have

been classed as discontinued operations in the statutory accounts for the year ended 31 December 2014. The consolidated statement of comprehensive income

for the year ended 31 December 2014 has been restated to show TF and Hayward Aviation as discontinued operations.

42

1.2 Pro forma consolidated statement of comprehensive income and other pro forma data for the

year ended 31 December 2014

TIL

Pro forma

adjustments for disposals

Pro forma

adjustments for debt costs

Pro forma

TIL

£000 £000 £000 £000

Year ended 31 December 2014

Available cash(1) 36,374 (1,415) - 34,959 EBITDA (147,904) 1,647 - (146,257) Adjusted EBITDA 96,076 25 - 96,101 Adjusted EBITDA margin - - - 25.56% Capital expenditure 19,961 209 - 20,170 Adjusted net senior secured borrowings(2) - - - 452,912 Adjusted net total borrowings(2) - - - 484,536 Adjusted net interest expense(3) - - - 44,902

Ratio of Adjusted net senior secured borrowings to Adjusted EBITDA(2)

- - - 4.71x

Ratio of Adjusted net total borrowings to Adjusted EBITDA(2) - - - 5.04x

Ratio of Adjusted EBITDA to Adjusted net interest expense(3) - - - 2.14x

Turnover by division Advisory 130,683 - - 130,683 Retail 90,942 - - 90,942 Underwriting 81,195 - - 81,195 Paymentshield 58,873 - - 58,873 Broker Network 13,652 - - 13,652 Other(4) 578 (2) - 576

Adjusted EBITDA by division Advisory 13,139 - - 13,139 Retail 37,434 - - 37,434 Underwriting 27,437 - - 27,437 Paymentshield 44,365 - - 44,365 Broker Network 5,023 - - 5,023 Other(4) (31,322) 25 - (31,297)

(1) Available cash of £35.0m excludes restricted cash of £164.1m. Restricted cash consists of client money in respect of insurance premiums due to insurance

companies and insurance company money in respect of claims payments due to policyholder; cash deposits kept for the purposes of solvency, capital adequacy and

any other requirements imposed by the FCA; cash deposits held for settlement of claims in relation to the disposal of the TF business as imposed by the FCA; and

rent deposits.

(2) The pro forma borrowings incurred by Finco have been used in calculating Adjusted borrowings. For the purposes of calculating Adjusted net senior secured

borrowings, total pro forma Finco debt excludes deferred consideration and redemption liability on non-controlling interest put options and has been adjusted for

the pro forma available cash of £35.0m. The ratios of Adjusted net senior secured borrowings to Adjusted EBITDA and Adjusted net total borrowings to Adjusted

EBITDA are calculated by reference to the pro forma Adjusted EBITDA for the year ended 31 December 2014 of £96.1m.

(3) Adjusted net interest expense represents net interest expense on pro forma Adjusted total borrowings. The ratios of Adjusted EBITDA to Adjusted net interest

expense is calculated by reference to the pro forma Adjusted EBITDA for the year ended 31 December 2014 of £96.1m.

(4) Other primarily comprises non allocated central support costs.

43

1.3 Pro forma consolidated statement of financial position as at 31 December 2015

As at 31 December 2015

Finco(2)

Additional costs

in Topco(3) Topco(4)

£000 £000 £000

Non-current assets Intangible assets 700,293 - 700,293 Property, plant and equipment 9,310 - 9,310 Available for sale financial assets 152 - 152 Deferred tax assets 12,985 - 12,985

722,740 - 722,740 Current assets Trade and other receivables 55,718 (5,486) 50,232 Cash and cash equivalents 205,888 - 205,888

261,606 (5,486) 256,120 Current liabilities Borrowings (86) - (86) Trade and other payables (190,077) (5,440) (195,517) Current tax liabilities (1) (219) - (219) Provision for liabilities and charges (51,845) - (51,845)

(242,227) (5,440) (247,667)

Net current assets 19,379 (10,926) 8,453 Non-current liabilities Borrowings (494,399) - (494,399) Trade and other payables (11,254) - (11,254) Provision for liabilities and charges (8,837) - (8,837) Deferred tax liability (51,975) - (51,975)

(566,465) - (566,465)

Net assets 175,654 (10,926) 164,728

(1) Current tax liabilities have arisen where companies within a group are not able to utilise losses held by other group companies.

(2) The information in this column has been derived from the audited consolidated financial statements for Finco as of and for the year ended 31 December

2015 included elsewhere in this annual report.

(3) The intercompany balance in relation to Topco includes additional costs of £5.5m which is eliminated in the Topco statement of financial position.

(4) Topco includes an additional provision of £4m and £1.2m accrued settlement and legal fees in the statement of financial position.

44

1.4 Pro forma consolidated statement of financial position as at 31 December 2014

As at 31 December 2014

TIL(2)

Pro forma

adjustments for debt (3)

Pro forma

adjustments for disposals(4)

Pro forma

TIL

£000 £000 £000 £000

Non-current assets Intangible assets 823,561 - - 823,561 Property, plant and equipment 11,993 - - 11,993 Available for sale financial assets 140 - - 140 Deferred tax assets 11,056 - - 11,056

846,750 - - 846,750 Current assets Trade and other receivables 70,808 - - 70,808

Cash and cash equivalents 199,018 - - 199,018

Assets held for sale 7,333 - (7,333) -

277,159 - (7,333) 269,826

Current liabilities

Borrowings (80) - - (80)

Trade and other payables (280,712) - - (280,712) Liabilities held for sale (2,476) 2,476 - Current tax liabilities (1) (2,494) - - (2,494) Provision for liabilities and charges (2,607) - - (2,607)

(288,369) - 2,476 (285,893)

Net current liabilities (11,210) - (4,857) (16,067)

Non-current liabilities Borrowings (165) (493,303) - (493,468) Trade and other payables (5,170) - - (5,170) Provision for liabilities and charges (4,666) - - (4,666)

(10,001) (493,303) - (503,304)

Net assets 825,539 (493,303) (4,857) 327,379

(1) Current tax liabilities have arisen where companies within a group are not able to utilise losses held by other group companies.

(2) The information in this column has been derived from the TIL audited consolidated financial statements as of and for the quarter ended 31 December 2014.

(3) The pro forma adjustments for debt represent the £425m 8.75% senior secured notes and the £75m floating rate super senior secured notes at their discounted

value at the time of issue of £72m offset by a debit balance of £3.7m in respect of costs capitalised in relation to the debt.

(4) The pro forma adjustments for the disposal of TF on 16 March 2015 represent the assets and liabilities at 31 December 2014 contained within the TIL

consolidated statement of financial position at this date.

45

2. Summary consolidated statutory information

46

Consolidated statement of comprehensive income

Finco Topco(1) TIL TIL

Period ended

31 December

Period ended

31 December

Year ended 31

December

Year ended 31

December

2015 2015 2014 2013

£000 £000 £000 £000

Commission and fees 267,236 267,236 375,923 411,930

Investment income 262 262 480 858

Salaries and associated expenses (132,912) (134,265) (193,220) (173,269)

Other operating costs (172,042) (181,615) (331,423) (147,115)

Depreciation and amortisation charges (33,444) (33,444) (22,504) (19,123)

Impairment of goodwill (86,400) (86,400) (552,861) (35,874)

Group operating (loss) / profit (157,300) (168,226) (723,605) 37,407

Finance costs (34,527) (34,527) (11) (5,062)

Finance income 405 405 336 135

Impairment of associates - - - (902)

(Loss) / profit before taxation (191,422) (202,348) (723,280) 31,578

Income tax credit / (expense) 6,958 6,958 883 (18,916)

Loss / (profit) on ordinary activities after

taxation (184,464) (195,390) (722,397) 12,662

Consolidated statement of financial position

Finco Topco TIL TIL

2015 2015 2014 2013

£000 £000 £000 £000

As at 31 December

Intangible assets 700,293 700,293 823,561 1,411,008

Property, plant and equipment 9,310 9,310 11,993 11,878

Other non-current assets 13,137 13,137 11,196 7,817

Trade and other receivables (2)55,718 50,232 70,808 215,326

Cash and cash equivalents 205,888 205,888 206,351 208,557

Current liabilities (242,227) (3)(247,667) (288,369) (265,390)

Non-current liabilities (566,465) (566,465) (10,001) (29,453)

Net assets 175,654 164,728 825,539 1,559,743

(1) Topco includes additional costs associated with the Group board, primarily directors’ fees and the settlement with regards to the litigation by Arthur J. Gallagher.

(2) The Finco balance includes additional costs in relation to Topco of £5.5m which is eliminated in the Topco statement of financial position.

(3) Topco includes an additional provision of £4m and £1.2m accrued settlement and legal fees in the statement of financial position.

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Consolidated cash flow

Finco Topco TIL TIL

Period ended

31 December

Period ended

31 December

Year ended 31

December

Year ended 31

December

2015 2015 2014 2013

£000 £000 £000 £000

Period ending 31 December(1)

Cash flows from operating activities

Net cash inflow from operations 47,960 51,989 52,348 105,058

Exceptional items(2) (81,651) (85,680) (45,001) (24,996)

(Decrease) / increase in net insurance broking

creditors (10,181) (10,181) (3,135) 4,001

Net interest (paid) / received and investment

income 654 654 841 (305)

Taxation(3) (47) (47) (1) (675)

Net cash (outflow) / inflow from operating

activities (43,265) (43,265) 5,052 83,083

Cash flows from investing activities

Acquisitions and disposals (63,634) (63,634) 2,223 (16,156)

Purchase of software and commission buy outs (4,441) (4,441) (14,873) (14,064)

Purchase of property, plant and equipment (1,386) (1,386) (5,701) (3,063)

Net cash outflow from investing activities (69,461) (69,461) (18,351) (33,283)

Cash flows from financing activities

Issue of share capital 300,000 300,000 - -

Debt financing 18,614 18,614 5,175 (46,572)

Net cash inflow from financing activities 318,614 318,614 5,175 (46,572)

Increase / (decrease) in net cash 205,888 205,888 (8,124) 3,228

(1) The cash flows for Finco and Topco are for the statutory period from 5 February for Finco and 4 February for Topco to 31 December 2015. The

comparative TIL cash flow is for the statutory period from 1 January 2014 to 31 December 2014.

(2) Exceptional items include acquisition and financing costs, group reorganisation costs and regulatory costs as described on page 25.

(3) The taxation paid relates to corporation tax on profits arising in companies before being acquired by Towergate.

48

3. Consolidated financial statements

Full audited financial statements for Towergate Insurance Limited for the year ended 31 December 2014 can be found on

our website www.towergateinsurance.co.uk