Directors' Report, Corporate Governance & Remuneration Report

Notes:

1. In addition to the interests shown above, the directors indicated, in common with the employees, had a beneficial interest as at 31 December 2005 in 4,938,894 (2004 3,038,894) ordinary shares of 27.5p each held in the Royal & SunAlliance ESOP Trust No 2.

2. Noel Harwerth's shares are held in the form of 6,800 American Depositary Receipts (ADRs). One ADR represents five ordinary shares.

3. On 8 March 2006, the directors' interests remained unchanged.

Options granted following the AGM in May 2003 are potentially exercisable if, at the end of the period of three business years starting with the business year in which the options were granted, the Group has achieved a Return on Capital (ROC) of at least 6% per annum (after inflation and excluding items of an exceptional nature which in the view of the Committee do not reflect the underlying performance of the business) when averaged over the period. One retest is allowed at the end of the fourth business year, but if the performance criterion has not been met over the full four year period, the options lapse. Options granted between September 1998 and May 2003 are also subject to a performance condition that the Group must achieve a ROC of at least 6% (after inflation and excluding items of an exceptional nature which in the view of the Committee do not reflect the underlying performance of the business) when averaged over a consecutive three year period, but if the measure is not satisfied at the end of the third business year following the date of grant, the test can be repeated on an annual basis over the 10 year life of the option. Options granted between October 1996 and September 1998 were subject to a different performance condition linked to TSR. For options to be eligible for exercise, the Group's TSR has to be at or above the median of companies in the FTSE 100 index over a consecutive period of three years, between the year of grant and the completion of the 10 year life of the option. The test is conducted twice per year, at the end of March and September, by independent external specialists. Options granted prior to October 1996 were not subject to performance conditions. None of the terms or conditions of any of the existing options over shares of the Group were varied during the year. Full details of all directors' shareholdings and options to subscribe for shares are recorded in the Group's Register of Directors' Interests which is open to inspection in accordance with the provisions of the Companies Act 1985.

The official closing middle market price at its highest during the year was 126.75p per share and at its lowest was 73.50p per share; on the last dealing day of the year it was 125.75p per share.

Notes:

1. Options granted to directors on 8 April 2005, 18 August 2005 and 13 December 2005 under the ESOS scheme were granted at exercise prices of 80.0p, 93.0p and 116.0p respectively. These exercise prices were not less than the average of middle market quotations for the shares of the Group on the five business days prior to the date of grant.

2. On 13 September 2005, SAYE options were granted at an exercise price of 75.0p.

3. All of the above options were granted for nil consideration.

Notes:

1. No other directors of the Company held long term incentive scheme interests during 2005.

2. The market price of ordinary shares on 14 June 2004 and 08 June 2005, the dates on which the above long term incentive scheme interests were granted, were 79.25p and 77.62p respectively.

3. Matching Share awards are capable of vesting in respect of a maximum of three times the number of Deferred Shares awarded, subject to the achievement of TSR targets over a single two year period. TSR performance is measured relative to other companies specified by the Remuneration Committee. For awards granted in 2004 and 2005, TSR will be measured partly relative to FTSE 100 companies and partly relative to the following financial services comparator group companies: Aegon, Legal & General Group, Allianz Group, Old Mutual, AXA, Prudential, Aviva, RAS, Generali and Zurich Financial Services Group. For 50% of the Matching Share awards, where TSR is measured against the FTSE 100, full vesting will only occur at upper decile performance, vesting will occur in the ratio of shares under Matching Share awards to shares under Deferred Share awards of 2:1 at upper quartile performance and vesting in the ratio 1:1 will occur at median performance. For the other 50% of the Matching Share awards, where TSR is measured against the financial services comparator group, full vesting will occur if TSR is highest in the comparator group, vesting in the ratio 2:1 will occur at upper quartile performance and vesting in the ratio 1:1 will occur at median performance. Matching Share awards will not vest at below median performance. For awards granted in 2004, the targets will be measured over the period from 1 April 2004 to 31 March 2006. For awards granted in 2005, the targets will be measured over the period from 1 April 2005 to 31 March 2007. The relevant TSR figures will be averaged over the three months before the beginning and end of this performance period. Additionally, no Matching Shares will vest unless the Committee is satisfied that there has been a sustained improvement in the underlying performance of the Company over the performance period.