INSIDE R&SA CANADA. About Us

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INSIDE R&SA CANADA

About Us

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INSIDE R&SA CANADA

At a Glance

• Operating in Canada since 1851

• Canada's 4th largest P&C insurance group • A ssets exceeding $4b

• Employing over 2,600 people

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INSIDE R&SA CANADA

Locations

HEAD OFFICES

Royal & Sun Alliance Insurance Company of Canada 10 Wellington Street East

Toronto, Ontario M5E 1L5

Tel: (416) 366-7511 1 800 268-8406 Fax: (416) 367-9869

Agilerus Investment Management Limited 48 Yonge Street, Suite 1200

Toronto, Ontario M5E 1Y4

Tel: (416) 362-3933 Fax: (416) 362-4989 Agilon Financial Inc. 48 Yonge Street, Suite 200 Toronto, Ontario

M5E 1G6

Tel: (416) 815-0101 Fax: (416) 362-1257 Ascentus Insurance Ltd. 10 Wellington Street East Toronto, Ontario

M5E 1L5

Tel: (416) 367-5020 1 800 806-1038 Fax: (416) 362-6140 Coast Underwriters Limited #502 - 543 Granville Street Vancouver, British Columbia V6C 1X8

Tel: (604) 683-5631 Fax: (604) 683-8561 The Johnson Corporation 95 Elizabeth Avenue St. John's, Newfoundland A1B 1R7 Tel: (709) 737-1500 Fax: (709) 737-1580 ALBERTA

Royal & Sun Alliance Insurance Company of Canada Calgary

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Commercial/Personal/Claims Tel: (403) 233-6000 1 800 661-9292 Edmonton District Office Tel: (780) 426-2332 BRITISH COLUMBIA

Royal & Sun Alliance Insurance Company of Canada Vancouver District Office Tel: (604) 684-8111 (within B.C. 1 800 663-1272) MANITOBA

Royal & Sun Alliance Insurance Company of Canada Winnipeg

District Office Tel: (204) 989-7460

NOVA SCOTIA

Royal & Sun Alliance Insurance Company of Canada Dartmouth

Atlantic Regional Centres Commercial/Personal/Claims Tel: (902) 493-1500

1 800 565-7651

ONTARIO

Royal & Sun Alliance Insurance Company of Canada Mississauga

Ontario Regional Centre Commercial Insurance Tel: (905) 403-2333 1 800 263-9280

Southern Ontario Claims Centre Tel: (905) 403-2333

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Agilon Financial Inc. Mississauga Customer Centre Tel: (905) 822-6002 1 800 575-6507

Western Assurance Company Ajax

Tel: (905) 686-8326 1 800 263-4442

QUEBEC

Royal & Sun Alliance Insurance Company of Canada Montreal Quebec Regions Commercial/Personal/Claims Tel: (514) 844-1116 1 800 361-2766 Quebec Service Office Tel: (418) 622-2040 1 800 463-2836

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YEAR IN REVIEW

Key Financial Highlights

Reporting an improvement in financial performance, Royal & SunAlliance Canada effectively achieved the goals that had been set out for 2003. While the industry in general grew by almost 20 per cent, driven by a significant rate realignment, Royal & SunAlliance concentrated on reducing and reshaping its underwriting portfolio in favour of niche and specialty business and enhancing processing capabilities within its underwriting and claims activities.

Gross written premiums of $1,533m declined by 6 per cent in 2003 reflecting extensive distribution

management efforts within the intermediated portfolio. Royal & SunAlliance realigned itself with brokers that shared and supported the corporate strategy. Partially offsetting the reduction in intermediated business were increases in premium achieved through some pricing gains and significant growth in the The Johnson Corporation and Agilon. Johnson's premiums increased by 43 per cent through strong organic growth in its traditional markets of Ontario and the Atlantic Provinces and a second acquisition in Western Canada where it is building market presence.

Underwriting results improved substantially over 2002 with the underwriting ratio improving from 114.8 per cent in 2002 to 104.8 per cent in 2003. A significant reduction in the level of adverse claims development and pricing adequacy across most classes of business were the main reasons for the improved performance with operational enhancements and expense management efforts also contributing. Particularly strong results occurred throughout the group with underwriting profits being achieved in Johnsons, the personal lines Ontario Region and the commercial Specialty Risks Solutions.

Although significantly improved over 2002, the 2003 underwriting results were weighed down by a moderate amount of adverse claims development on prior year claims and by the performance of the non standard automobile pool, the Facility Association. The Facility Association grew by over 200 per cent and reported an operating loss in excess of $500m. This loss was passed on to all insurers writing automobile in the markets where the Facility Association operates. Royal & SunAlliance's share of the loss was approximately 8 per cent, although this was partially offset by the fees it receives for servicing Facility business.

2003 was a year of strong achievements for Royal & SunAlliance with significant progress being made by the company in repositioning its business model to deliver superior financial performance over the long term. In 2004, from a considerably strengthened financial position, Royal & SunAlliance will make a significant investment in technology and operational enhancements that will allow it to profitably grow in the market segments that it has chosen.

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YEAR IN REVIEW

Letter from the CEO

The Canadian insurance industry's profitability showed significant improvement in 2003. Industry results stabilized and the outlook for the market improved. Uncertainties over automobile with unprecedented levels of government

intervention and capital concerns resulted in little merger and acquisition activity in the Property & Casualty industry. Royal & SunAlliance business was repositioned during 2003, and by year end was beginning to show strong underlying

improvement in results.

We reshaped our Commercial Insurance portfolio, exiting volatile lines and moving from a generalist to a multi-niche/multi-specialist. In 2003, we established a vigorous underwriting training program, and developed high-calibre underwriting skills. We began an aggressive growth strategy to rebuild the business platform, in a focused and controlled manner.

Despite industry challenges, Personal Insurance delivered a $84m improvement over its 2002 underwriting result and our auto segment performed relatively well compared to the industry average. We also made great strides in working towards our web business goals.

We embarked on another Executive Roadshow - a series of cross-country presentations designed to deliver our strategy face-to-face with our broker partners and our employees. Over a period of six weeks, a team of executives travelled to nine cities delivering 23 presentations to these key stakeholders.

This year's Review highlights 2003 as a transitional year for our business. Our operation turned the corner and we anticipate the hard work of the past few years will deliver targeted results in 2004. The executive team is profiled in the Review as is our commitment to the community through our Corporate Citizenship program.

In September, former President & CEO Larry Simmons announced his plans to retire and return to the United States. I accepted the position of President & CEO and look forward to positioning our operating model for the future.

I would like to take this opportunity to thank our Board of Directors, executive, employees and brokers for their continued support.

Sincerely,

Rowan Saunders

President and Chief Executive Officer Royal & SunAlliance Canada

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YEAR IN REVIEW

Leadership Team

Rowan Saunders, B.A., FCIP, CRM

President & Chief Executive Officer

Previously Vice President, Personal Insurance, Vice President Western Assurance and President Agilon Financial Inc. Prior positions during Mr. Saunders' 16 years with the Company include Regional Manager Central Region, Underwriting and Marketing Manager Western Canada, and Corporate Financial Planning Manager. He holds a Fellowship from the Insurance Institute of Canada, and a Canadian Risk Management designation, and is a member of the Insurance Bureau of Canada (IBC) CEO Steering Committee for Alberta, Atlantic Region and the IBC Ontario Committee. He is also on the Board of Directors of the Facility Association.

Irene Bianchi, B.A., L.L.B.

Vice President, Claims

Appointed to her current position in May, 2002. Past positions include National Litigation Counsel; Leader, Major Case Unit and Chief Litigation Counsel. Member of the Law Society of Upper Canada, the Canadian Bar Association and the Defence Research Institute.

Ron Burbridge, B.A., M.B.A.

Vice President, Human Resource Services

Appointed to his current position in 2001. Mr. Burbridge has over 29 years experience in Human Resources in the energy industry and financial services. Prior to joining Royal & SunAlliance Canada, he was Vice President, Human Resources Effectiveness, and Director, Executive Succession Planning for a major Canadian bank.

Ed Sikorski, CIP

Vice President, Marketing

With more than 25 years with the Company, Mr. Sikorski is currently responsible for the strategic management of our distribution network. Previously Regional Leader, Commercial Insurance, Western Region; Regional Leader, Underwriting Leader and Marketing Leader in Central Region.

Steve Hammond, F.C.I.I.

Vice President, Underwriting & Reinsurance

Appointed to his present position in 2002, Mr. Hammond's previous positions include Director,

Underwriting & Reinsurance and Vice President, Commercial Lines for Sun Alliance. He is Chair of the Nuclear Insurance Association of Canada.

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Michael Jakeman, B.Sc. (Eng.), A.C.G.I., F.C.I.I., F.C.I.P., A.C.I.I. Vice President, Commercial Insurance

Served in a number of positions in the UK and across Canada during 28 years with the Company. Most recently seconded to be a Director of Commercial Insurance in London, England. Prior to that he was Vice President, Specialty Lines; Regional Manager, Commercial Insurance in Ottawa and later in Toronto.

Winsome Leong, B.Sc., F.C.I.A., F.C.A.S.

Vice President & Actuary

With 25 years experience with the Company, Ms. Leong is the appointed Actuary for Royal & Sun Alliance Insurance Company of Canada, Quebec Assurance Company, Western Assurance Company and Ascentus Insurance Ltd. Fellow of the Canadian Institute of Actuaries and the Casualty Actuarial Society.

Shawn DeSantis, B.A., F.C.I.P.

Vice President, Personal Insurance

Appointed to his position in January 2004. Prior to joining Royal & SunAlliance, he was Vice President of Commercial Insurance for ING Canada. He has also held other senior roles in the insurance industry. Earlier in his career, he spent a number of years at Royal & SunAlliance in Calgary, Vancouver and Hamilton working in underwriting, claims and marketing.

Grace Webster, B. MATH, F.C.I.P.

Vice President, Business Solutions

Responsible for all technology areas including eBusiness. Served in a number of capacities during 20 years with the Company including Planning and Underwriting Personal Insurance Leadership in the Atlantic and Ontario Regions. Member of the Worldwide Business & Technology Team, the Insurance Bureau of Canada Business & Technology Team and the CSIO Management Committee.

Philip Wilson, B.Comm., C.A.

Vice President, Finance

Director of Johnson Incorporated and other affiliates. Previously Vice President Finance and Administration of the Canadian subsidiary of a major international bank. Member of the Canadian Institute of Chartered Accountants, the Canadian Insurance Accountants' Association and the Financial Affairs Committee of the Insurance Bureau of Canada.

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YEAR IN REVIEW

Board of Directors*

Marcel Bundock ** President & C.E.O.,

HACO Handling Systems Ltd. Dian Cohen

President,

DC Productions Limited Kenneth Copeland Chair,

Kemerer Group International George Harvey

Past President, Business Services Group, AT&T Canada Long Distance Services Derek Oland

Chairman & C.E.O.,

Moosehead Breweries Limited Rowan Saunders

President & C.E.O.,

Royal & Sun Alliance Insurance Company of Canada

* Directors

(Roins Financial Services Limited, Royal & Sun Alliance Insurance Company of Canada, Western Assurance Company, Quebec Assurance Company and Ascentus Insurance Ltd.)

** Chairman of the Board of Directors

(Roins Financial Services Limited, Royal & Sun Alliance Insurance Company of Canada, Western Assurance Company, Quebec Assurance Company, Ascentus Insurance Ltd.)

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FOCUS, DISCIPLINE AND PERFORMANCE

Overview

Building upon the foundation of decisive actions made in 2002, the year 2003 saw a solid turnaround in many of our lines of business.

We allocated capital to high-performing and high potential business and territories and continued our emphasis on technical pricing. Internally, we emphasized disciplined expense management and externally we strengthened relations with our broker partners by delivering a focused strategy geared towards targeted business.

In 2003, we made significant technical advances and began the rollout of our Personal Insurance WebBusiness initiative to our broker force to enable greater efficiencies in processing and improved service levels. We heavily invested in training our people to ensure the consistent application of new and more stringent underwriting rules and guidelines and augmented this investment by the development of automated filters in our underwriting processes.

Success in 2004 will be defined by strong broker relationships, increasing business in our chosen segments, effective consumer education, consistent communication and efficient product delivery and service. Our goals for the year include reducing loss ratios and delivering an improved Combined Operating Ratio.

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FOCUS, DISCIPLINE AND PERFORMANCE

Business Progress

The market continued to be challenging through 2003. Consumers were faced with significant auto rate increases as insurers adjusted their rating strategies to reflect rising claims costs. Brokers faced frustrated clients as market availability and rising premiums became a significant issue in some areas. Low interest rates and modest investment returns for the industry continued the need to strive for underwriting profitability. Despite these challenges, Royal & SunAlliance achieved improved performance in our business, laying the foundation for solid returns going forward.

Lack of market availability and rising premiums pushed auto insurance into the political forefront in 2003. Subsequent product reforms helped to control costs and Royal & SunAlliance moved quickly to respond to the changes. As governments continue to make reforms in this area, our response will be to lead the industry, proactively influencing legislation so it is fair to both consumers and insurers and quickly shifting our strategy, pricing and products in response to the evolving situation.

During the past year, we put greater emphasis on improving our underwriting and claims processes. The introduction of automated filters on the online broker tool WebBusiness tightened our underwriting discipline. Our move towards technical pricing also improved as we made strides to strengthen our core underwriting expertise. Refined claims processes and procedures reduced leakage.

In Commercial Insurance, the year began with an aggressive shift from a generalist to a multi-niche/multi-specialist insurer. Now the strategy has been communicated, focus will begin on rebuilding the business platform and profitability of our commercial book. In January, we relaunched Small Business Solutions with a new team and new products created from broker input. Going forward, this area will look to broaden our market appetite and continue development of superior service. Our middle-market book was repositioned as Custom Risk Solutions to focus on specific National and Regional segments. Small Business Solutions was realigned to better serve small business needs. Specialty Solutions continued its solid contribution to the Commercial division.

We repositioned our Personal Insurance business for improved performance of our portfolio. Despite industry challenges, our auto segment performed relatively well compared to the industry average. Adherence to strict underwriting rules and guidelines supported by strong Corporate Office controls contributed to better than planned results.

Personal Insurance began its rollout of WebBusiness in 2003. This online broker tool delivers real-time transaction processing using the Internet. This reduces delivery costs and increases the effectiveness and efficiency of the broker channel. By the end of 2004, Royal & SunAlliance will have 70 per cent of our Personal Insurance business transacted utilizing WebBusiness.

Significant weather-related claims had an impact on the loss ratio of the industry. For Royal & SunAlliance, the British Columbia forest fires in late summer accounted for a comparatively small loss of $6m and Nova Scotia's Hurricane Juan resulted in claims of $13m. In both cases, while there were significant

environmental challenges, Royal & SunAlliance adjusters were on scene immediately and worked around the clock offering advance payments for living expenses and making sure our insureds received the highest level of attention and support.

Once again The Johnson Corporation out-performed the industry and provided good underwriting returns. This affiliate is a continued source of profit for the group overall. The Johnson Corporation saw continued growth in 2003 in a market that provided an opportunity to write business that is adequately priced. Strong expense management and a significantly wider geographic distribution of business across Canada will have further positive impact on results in 2004.

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Western Assurance continues to focus on its core business as a preferred risk carrier, offering value-added service and a superior broker value proposition.

Agilon Financial continued its strategic advantage as a specialty products provider. The company maintained its position as the leading provider of credit card inclusion products in 2003 and solidified its

number two position in the market as a travel insurance provider.

In 2003, Royal & SunAlliance continued to demonstrate its commitment to the broker channel. The executive roadshow involved presentations in all major cities across Canada to explain the Royal & SunAlliance strategy.

Our employees continue to be the core strength of the Company. Going forward there will be a renewed emphasis on a high performance culture to ensure our people are given the tools and knowledge they require to deliver the high-quality expertise an industry-leading organization demands.

Royal & SunAlliance is committed to building a winning platform for sustained profitability. We are strategically positioned to take advantage of the right business opportunities and growth prospects, significantly outperforming the industry.

We have also focused on core underwriting skills, emphasizing the need to generate profits from our insurance business, especially in the absence of stable and robust investment returns. We have developed tools and training materials to support these messages and instituted a portfolio review processes to ensure disciplined execution and monitor progress against our plans.

To restore profitability in 2003, Royal & SunAlliance Canada has accelerated its strategy of focusing on segments and territories with the best prospects for profitability and achieving much needed rate increases. A number of activities were undertaken in 2002 to emphasize those areas where profits are being achieved and to allocate resources to those segments and territories with the best prospects for the future.

To support this business repositioning, we have focused on broker relationships that have proven to be profitable and align with our strategy going forward. Royal & SunAlliance Canada took a proactive role in communicating its strategy to brokers and employees through cross-country discussions in the fall. We are proactively working with brokers to help consumers understand the reasons behind rising premiums. Our executive team also provides valuable leadership in industry discussions with regard to regulatory reform.

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CORPORATE CITIZENSHIP

Royal & SunAlliance has a long and proud tradition of giving back to the communities in which we live and work. The support we offer comes from our Corporate Citizenship Program, as well as a significant amount of volunteer time and donations given generously by our employees, particularly to the United Way. In 2003, Royal & SunAlliance continued its focus on supporting organizations that address safety. In addition to being a good strategic fit with the nature of our business, our investments in this area help protect Canadians from injuries and hardship.

Some of the organizations we helped support in 2003 are: • Red Cross

• SMARTRISK

• Safe Kids - Hospital for Sick Children

We also continue to support our Matching Dollars Program, encouraging employees to donate to the charity of their choice. Donations made by employees that follow the program's criteria are matched by the

Company.

In Canada and around the world, Royal & SunAlliance recognizes our responsibility to give back to our communities, and will continue to provide financial support, resources and expertise. We are pleased that our employees continue to generously give their time and energy to a great many causes.

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INSURANCE OPERATIONS SUMMARY

Financial Statements

SUMMARY CONSOLIDATED FINANCIAL STATEMENTS

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(MILLIONS OF DOLLARS)

Figure

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References

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