Final Results

5th Mar 2007 07:01

Amlin PLC05 March 2007 AMLIN PLC PRESS RELEASE For immediate release 5th March 2007 PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2006 (UNAUDITED) AMLIN DELIVERS OUTSTANDING 2006 RESULTS Record results • Gross written premium up 12% to £1,113.8 million (2005: £993.5 million). • Best ever combined ratio of 72% (2005: 82%). • Record profit before tax up 84% at £342.7 million (2005: £186.7 million). • 47% increase in earnings per share to 50.4p (2005: 34.3p). • Record return on equity of 34% (2005: 29.6%) increasing five year average ROE to 27.9%. Dividend and capital management • Basic dividends per share increased 17.5% to 12.0p (2005: 10.2p). • Special dividend of 8p per share increasing total dividends to 20p, equivalent to 40% of 2006 earnings. • Active capital management policy. • £230 million long term debt issue increases capital flexibility. Positive outlook for 2007 • Continuing healthy environment in many classes. • Amlin Bermuda growing. • Continually well reserved balance sheet. • Healthy net unearned premium reserve of £507.8 million. • Improving prospects for investment returns. Enquiries: Charles Philipps, Amlin plc 0207 746 1000Richard Hextall, Amlin plc 0207 746 1000Hannah Bale, Head of Communications, Amlin plc 0207 746 1118David Haggie, Haggie Financial 0207 417 8989/07768 332486Peter Rigby, Haggie Financial 0207 417 8989/07803 851426 FINANCIAL HIGHLIGHTS 2006 *2005 *2004 2003 2002 £m £m £m £m £m-------------------- -------- -------- -------- -------- --------Gross premium written (1) 1,113.8 993.5 945.6 937.4 717.1Net premium written (1) 1,013.5 829.3 790.2 787.6 573.0Net earned premium 973.9 822.1 722.4 701.1 493.3-------------------- -------- -------- -------- -------- --------Profit before tax 342.7 186.7 119.7 117.8 44.8Return on equity 34.0% 29.6% 21.0% 26.6% 16.7%-------------------- -------- -------- -------- -------- --------Per share amounts (in pence)Earnings 50.4 34.3 20.7 21.0 11.8Net assets 175.6 148.7 113.7 98.7 80.3Net tangible assets 163.2 136.2 97.0 82.3 63.7Dividends under IFRS 10.4 9.0 4.7 2.1 0.8Dividends (paid and proposedfinal) in respect of the calendar year 20.0 10.2 8.0 2.5 2.0-------------------- -------- -------- -------- -------- --------Syndicate 2001 operatingratiosClaims ratio 42% 57% 50% 50% 63%Expense ratio 34% 25% 32% 36% 33%Combined ratio 76% 82% 82% 86% 96%-------------------- -------- -------- -------- -------- --------Amlin Bermuda Ltd operatingratiosClaims ratio 36% - - - -Expense ratio 12% - - - -Combined ratio 48% - - - --------------------- -------- -------- -------- -------- -------- (1) Excluding premium associated with the reinsurance to close of our increasedshare in capacity. * The indicated columns above are restated for prior period adjustment asdetailed in the accounting policies note on page 77 of the statutory report andaccounts. Claims ratio is net claims incurred divided by net earned premium for the year. Expense ratio is underwriting expense incurred divided by net earned premium.The expense ratio does not include expenses that have not been attributed tounderwriting or finance costs. Combined ratio is the total of the claims and expense ratio CHAIRMAN'S STATEMENT Amlin delivered an outstanding financial performance in 2006 with pre-taxprofits up 83.6% at £342.7 million and earnings per share up 46.9% at 50.4p. This result is influenced by the low level of natural catastrophes in 2006 whichwas in stark contrast to the previous two years. However, we were well placed,having formed Amlin Bermuda, to grow our catastrophe income into very buoyantmarket conditions. This was achieved while managing our downside risk throughfundamental changes in the reinsurance markets. Return on equity ("ROE") is a key measure for our business and I am particularlypleased that our 2006 ROE of 34.0% was a record for Amlin and increases our fiveyear weighted average ROE to 27.9%. Total shareholder return for 2006 was 35.7%, and over the last five years hasbeen 378%, one of the highest returns of a non-life insurer worldwide over thatperiod. Dividend and balance sheet management The Board proposes a final ordinary dividend of 7.8p per share and an additionalspecial dividend of 8.0p per share. This makes ordinary dividends for 2006,including the interim dividend already paid, of 12.0p per share (2005: 10.2p pershare) and total dividends for 2006 of 20.0p per share. These paymentsmaterially exceed our commitment to pay at least 30% of earnings for 2006. Both the final and special dividends are to be paid on 30 May 2007, subject toshareholder approval at the Annual General Meeting to be held on 24 May 2007, inrespect of shares on the register on 30 March 2007. The Company's dividendreinvestment plan is available to shareholders in respect of both dividends. We will keep under review the appropriate level of capital for the future needsof the Group, mindful of the Company's potential to enhance long termshareholder returns through active balance sheet management. The strong cashgeneration of the business, together with the cyclical nature of the non-lifeinsurance industry, means that Amlin may return significant capital toshareholders over the coming years. The amount will depend on major event lossexperience and strategic considerations. Current trading and prospects Trading conditions remain good in most of our business areas, although weanticipate increasing competition and, in our UK commercial and airlineinsurance areas, conditions have already become very competitive. There has been an increased divergence between our classes of business in theircyclical patterns in 2006. This could well enhance our cross cycle fortunes as,with Amlin's excellent diversity of risk, there is an increased ability toallocate capital between classes according to market conditions. With a record net earned premium reserve of £507.8 million and still buoyantconditions in many classes of business, 2007 holds out prospects of beinganother excellent year. Governance The Board of Amlin is committed to the highest standards of corporategovernance. It also seeks to ensure that the Company is managed within riskguidelines established by the Board and that the strategy as proposed by theExecutive is appropriate for the continued delivery of growth in shareholdervalue. In a climate where governance arrangements are under increased scrutiny, Amlinhas adopted a transparent approach to its reporting which both increasesaccountability and, we intend, will result in increased confidence in theCompany. I was pleased that in 2006 we won our second Building Public TrustAward for "telling it how it is" in our Annual Report, this time for our Peoplereporting. Following the closure of the 2003 Lloyd's year of account in 2006, which was thelast year of account on which independent capital participated on Syndicate2001, we decided to increase the alignment of membership of the Amlin plc andAmlin Underwriting Limited boards. This has resulted in greater efficiency aswell as providing the Board with another level of depth of reporting on itsprincipal trading business. Board The Board welcomed Sir Mark Wrightson as a new non-executive Director in March2006. Lord Stewartby, my former Deputy Chairman and the Senior non-executive Director,retired from Amlin at our AGM in May 2006. He first became involved with ourbusiness through a subsidiary in 1993 and became Deputy Chairman of Amlin fromits formation in 1998. We have benefited enormously from his contributionthroughout this period and thank him for his service to the Company. Nigel Buchanan has taken on his responsibility as the Senior non-executiveDirector. At our AGM in May 2007 one of our directors, Tom Kemp, will be retiring. Tom wasoriginally a director of Murray Lawrence and has served this Company since itsformation in 1998. The Company has consistently received valuable insights toits trading, particularly in the United States, from where 49% of our premiumoriginates, and we owe a great deal to him for his contribution. The Amlin team 2006 has been a very successful year as we produced another set of recordresults and completed the first year of trading in our new company in Bermuda. Iwould like to thank Charles Philipps, his executive team and all our employeesfor their skill, effort and teamwork. Roger Taylor Chairman FINANCIAL PERFORMANCE 2002 2003 2004 2005 2006 £m £m £m £m £m--------------------------- ------- ------- ------- ------- -------Gross written premium 717.1 937.4 945.6 993.5 1,113.8--------------------------- ------- ------- ------- ------- -------Net written premium 573.0 787.6 790.2 829.3 1,013.5--------------------------- ------- ------- ------- ------- -------Net earned premium 493.3 701.1 722.4 822.1 973.9--------------------------- ------- ------- ------- ------- -------Underwriting contribution 17.1 117.1 106.6 137.1 267.9--------------------------- ------- ------- ------- ------- -------Investment contribution 43.7 33.5 52.1 90.9 115.1--------------------------- ------- ------- ------- ------- -------Other costs 16.0 32.8 39.0 41.3 40.3--------------------------- ------- ------- ------- ------- -------Profit before tax 44.8 117.8 119.7 186.7 342.7--------------------------- ------- ------- ------- ------- -------Return on equity 16.7% 26.6% 21.0% 29.6% 34.0%--------------------------- ------- ------- ------- ------- ------- Overview The Group has delivered another excellent financial performance in 2006 with arecord profit before tax of £342.7 million (2005: £186.7 million) and a returnon equity of 34%. This is the fifth consecutive year that we have exceeded ourcross cycle return on equity target of 15%. The weighted average return onequity since 2001 now stands at 22.7% which is well in excess of our estimatedcost of equity of 8.5%. Underwriting contributed £267.9 million to profit before tax in the year (2005:£137.1 million). The increase of 95.4% was driven by our decisions to grow ourreinsurance account, in London and with our new operation in Bermuda, and toreduce our purchase of retrocessional reinsurance due to the lack of costeffective cover. Consequently with catastrophe claims experience in 2006 at lowlevels, a stark contrast to 2005 when the insurance industry experienced recordlosses, the underwriting contribution has grown significantly. The underwriting figures include exchange losses which arise through translationof non monetary assets and liabilities at historic exchange rates compared toall monetary items at closing rates. The impact of this in the year is to reduceprofit by £27.9 million (2005: increase profit by £26.2 million). In order toaid comparison the combined ratios for the business have been given before andafter these exchange differences. Investments produced a return of £115.1 million (2005: £90.9 million). Theaverage return for Group assets was down to 4.8% (2005: 5.4%) as the equityportfolio made good but lower returns than in 2005 and the bond portfoliogenerated poor absolute returns as interest rate expectations rose in the UK andUnited States. However average investment balances increased by £0.8 billion to£2.3 billion, leading to an overall increase in returns. Prior period adjustment The comparative results have been adjusted to take account of a change to theaccounting treatment of multi-employer pension schemes under InternationalAccounting Standards. The change is modest and is set out in more detail in theaccompanying accounting policies. Trading conditions The combined strengths of Amlin's diversity and experienced underwriting teamsagain allowed us to flex the business taking account of market conditions with aview to optimising the risk return relationship. Against the background of the diverging cyclical pricing patterns, Amlinincreased premium income significantly in US catastrophe exposed lines, whilereducing it in those areas where prices had fallen to levels where it wasbecoming more difficult to achieve a satisfactory return for the risk, such asairline and UK commercial insurance. We maintained income in many classes whereprices were stable or starting to soften as they continued to offer goodmargins. We renewed 77% of 2005 business and underwrote £258 million (net of acquisitioncosts) of new business. In the Non-marine and reinsurance division, property reinsurance and directproperty accounted for £331.3 million. While £68 million of new business was added in these classes acombined retention ratio was only 77%, reflecting the active repositioning andreduction of peak catastrophe exposures. The balance of our non-marine portfoliohad an average retention ratio of 89% over the year, although it weakenedmarginally in the latter months with increased competition for some lines. Offshore energy within our Marine division generated £24.9 million of newbusiness, but with only 59% of 2005 business retained. The account wasrepositioned to take advantage of significant price increases for Gulf of Mexicorisks while bringing modelled potential catastrophe losses down. Although ratesfor war and terrorism risks have seen continued erosion in 2006, it remains anattractive class and we strengthened our team in this area in the early part ofthe year which helped to grow the account, adding £4.3 million of new business. We declined approximately 40% of airline renewals as market premium returned tolevels close to historic average claims cost. Our policy for this sector will beto maintain our involvement in a select portfolio and buy an extensivereinsurance programme to protect ourselves against large losses. In otherclasses, such as airport liability, general aviation and aviation products,where conditions continued to be good, we maintained healthy levels of retentionwhilst selectively adding new business. The UK commercial portfolio continued to contract as competition for fleetmotor, professional indemnity and property package meant we lost business andthere were a reduced number of opportunities to write profitable new accounts. Underwriting performance Underwriting made a very strong contribution to profit. Whilst good performanceis to be expected when catastrophe incidence is very low, an overall combinedratio of 72% is excellent given the diverse nature of the Group's portfolios. Reserve releases were again material, contributing £68.8 million (2005: £79.7million) to profit. Our reserves are set at a level above an actuarial bestestimate of possible outcomes. We believe that this is appropriate because ofthe inherently uncertain nature of insurance business. With this approach, if'normal' claims development is experienced, releases will be made from reservesover time. We monitor the level of estimated reserves for consistent strengthand adjust expectations of future development if consistent new trends emerge.For example, in 2006 we have revised the reserving approach on the marinebusiness to take account of improvements in claims settlement patterns in recentyears. During 2006 trading conditions for a number of classes of business underwrittenhave diverged. Overall the annual renewal rate increase was 6.25%. Gross written premium increased by 12.1% during 2006. Our new Bermudianoperation was the major source of growth writing US$279.8 million of new premiumfor the Group (including additional lines written for Bermuda on per classreinsurance treaties) in its first full year of trading. The London operation'sgross written premium was largely unchanged with growth in property, energy andreinsurance classes balanced out by contraction in our UK commercial classes andin aviation. Reinsurance expenditure as a proportion of gross written premium fell to 9% from16.5%. This reflects reduced reinsurance expenditure in London and Amlin Bermudawriting without reinsurance protection. The former results largely from thedecision to purchase less retrocessional reinsurance which saved approximately £42 million in the year. As a consequence of the increase in gross written premium and the reduction inreinsurance, net premium written grew by 22% in the year. Net earned premium was up by 18% to £973.9 million (excluding the premiumsassociated with the reinsurance to close). The slower rate of growth in earnedpremium reflects the acceleration of the level of underwriting through 2006 asconditions in catastrophe exposed lines improved through to the middle of theyear. Net unearned premiums now stand at a record £507.8 million. Divisional performance The following commentary is provided for the Syndicate operations across allyears of account irrespective of the identity of underlying capital support.This removes any distortion on performance which is attributable to changinglevels of ownership of Syndicate 2001. Combined ratios: 100% Syndicate and Amlin Bermuda 2002 2003 2004 2005 2006 £m £m £m £m £m------------------------- ------ ------ ------ ------ ------Gross premium 988.3 1,097.5 942.2 992.9 1,113.8------------------------- ------ ------ ------ ------ ------Net earned premium 699.4 890.6 782.0 827.4 973.9------------------------- ------ ------- ------ ------ -------Claims ratio % 63 50 50 57 41------------------------- ------ ------- ------ ------ -------Expense ratio % 33 36 32 25 31------------------------- ------ ------- ------ ------ -------Combined ratio % 96 86 82 82 72------------------------- ------ ------- ------ ------ -------Combined ratio % (excluding theexchange difference onnon-monetary assets andliabilities) 95 84 80 85 70------------------------- ------ ------- ------ ------ -------Underwriting contribution 31.7 134.2 139.3 152.0 267.9------------------------- ------ ------- ------ ------ ------- The combined ratios quoted in the following segmental analysis are afterremoving the exchange differences on the translation of non monetary assets andliabilities. Non marine The Non-marine division remains the Group's largest single business segment. Thebusiness written is a blend of classes which are exposed to catastrophic loss(eg catastrophe reinsurance), large claim events (eg aviation reinsurance) andattritional claims (auto and casualty). Gross written premium was virtually unchanged at £554.6 million (2005: £558.0million). Overall renewal rates increased by 11.5% but the underlying ratemovement picture diverged markedly. There was little change to rates or smallreductions in most attritional classes but increases of 28% in US catastrophereinsurance as the market responded to the 2005 events. Net written premium, before reinsurance to Amlin Bermuda is deducted, increasedby 8.4% to £492.4 million with less retrocessional reinsurance purchased. The division's combined ratio was 66% excluding MMA (2005: 97%). The improvementreflects the lack of catastrophic losses on a relatively higher net premiumbase. Reserve releases amounted to £21.9 million (2005: £23.7 million). Bermuda Amlin Bermuda commenced underwriting on 1 December 2005 and 2006 was the firstfull year of trading. The business was targeted towards writing a catastrophereinsurance and property reinsurance account similar to the style that iswritten in London. The Bermuda business can underwrite reinsurance in most areas of the world butdoes not have the ability to write insurance in most territories because it hasno insurance licences. In order to gain access to a wider insurance exposure,reinsurances were granted to Syndicate 2001 for specific classes of business. Inthe first few months of operation, Amlin Bermuda reinsured Syndicate 2001'sreinsurance account to make early use of its capital. In addition, in order to provide more overall balance to the Bermuda portfolio,a 10% whole account quota share reinsurance of Syndicate 2001 was also written.No reinsurance was purchased for the Bermudian operation. In all, Amlin Bermuda has written US$411.4 million of gross premium for 2006. Ofthis US$225.8 million was written directly into the Bermudian operation andUS$53 million was written under the per class reinsurance arrangements. US$12.3million was written for the retrocessional treaty for Syndicate 2001 andUS$119.2 million under the whole account reinsurance arrangement. The level of direct business written by Bermuda was less than originallyplanned. This was due to a reduction in event risk appetite at the start of theyear when it became apparent that Syndicate 2001 would be ceding more risk thananticipated as less reinsurance had been purchased, a slow start due to theassignment of Insurance Financial Strength Ratings towards the end of December2005 and disappointing rate increases at the 1 January 2006 renewals. Howeverrate increases accelerated through 2006 and a lack of global capacity in thereinsurance market allowed the company to keep largely to plan through 1 Aprilrenewals onwards. The combined ratio for Amlin Bermuda is 48%. This is the result of excellentperformance on the direct portfolio, helped by the low level of catastrophelosses in 2006 and a record start for the portfolio ceded from London. Inaddition the expense ratio for Bermuda is low compared to the London operations,due to the high operational gearing of the reinsurance business written inBermuda. Marine The Marine division writes a mixture of volatile classes like energy, specie andwar and more attritional classes like hull, cargo and yacht. The business iswritten worldwide, reflecting the nature of marine risk. However the yacht andbloodstock accounts have a greater UK concentration. Written premium in 2006 increased by 22% to £210.8 million. Renewal rateincreases were 4.5% overall. Pricing was stable in most classes except energyand war. Energy renewal rates increased by 48% as the market reacted to theheavy losses for energy insurance emanating from the 2005 hurricanes. Renewalrates for the war account reduced by 6.4% as a lack of loss activity encouragedcontinued competition. The combined ratio was again strong at 81% (2005:66%). Reserve releases totalled£19.1 million (2005: £29.5 million) as claims development was better thanexpected in most areas. This release is net of £5.9 million of deterioration onour 2005 hurricane related energy losses which arose from a number of lateclaims advices. The claims ratio has also been increased by 8% by one large riskclaim of £13 million. This is an extraordinary circumstance which we would notexpect to see repeated frequently. Aviation The Aviation division writes a mixture of classes including airline, generalaviation, airport and product liabilities and satellite insurance. Each class isexposed to large loss events and potentially to catastrophic losses. The linesize required to write in this area is also large and a comprehensivereinsurance programme is fundamental to writing this business. The airline portfolio has reduced again in 2006 with continued intensecompetition forcing rating declines. Average renewal rate reductions in 2006were 19%. The lack of major airline losses is the principal driver behind thefalls in rating but we do not believe that the falls are warranted given therisk exposures that we underwrite. Consequently we have continued to reduce ourexposures. The airline account represented only 24.6% of total aviation premiumwritten. The other aviation related classes remained relatively stable in 2006, althoughclaims inflation in the liability classes reduces expected profit margins. Given this background the combined ratio was strong at 84% (2005: 75%) with abusy large loss environment in the first half of the year evened out by arelatively benign second half. Reserve releases amounted to £8.0 million (2005:£9.4 million) UK commercial The UK commercial division underwrites insurance for mainly UK based clients andthe majority of risks are not written in the subscription market but are assumedentirely by the division. The division writes a balanced portfolio of motor and liability business,combined with a small property account. The UK commercial market has seen increasing competition over recent years andthis continued in 2006. Overall renewal rates reduced by 2.7% but claimsinflation is estimated to have reduced margins by a further 6%. The motoraccount renewal rates reduced by 1% and liability by 5.5%. In the face of thiscompetition the division reduced its underwriting activity with retention ratesfalling to 68% (2005: 78%). In this environment the combined ratio of 84% (2005: 73%) is again commendable.Reserve releases were again healthy at £19.8 million (2005: £27.8 million)reflecting the continued steady release of case reserves as claims are settled.The expense ratio has risen by 3% in the year as lower levels of premium areearned against a fixed expense base. Investment performance The investment contribution during 2006 was £115.1 million (2005: £90.9million). The return on average cash and investment balance of £2.3 billion(2005: £1.7 billion) was 4.8% (2005: 4.7%). The increase in cash and investmentswas driven by strong organic cash flows from profitable trading, the increase incapital following the £200 million of new equity to support the Bermudianbusiness and the replacement of letters of credit with subordinated debt. The breakdown of returns in London and Bermuda by asset class is provided below. Asset class returns in London and Bermuda 2005 2006 £m £mGlobal equities 26.9 36.6Cash and equivalents 2.4 29.9Bonds 61.6 49.2Property 0.0 (0.6)------------------- ----------- ----------Investment return 90.9 115.1------------------- ----------- ----------Investment balance at 1 January 1,350.1 2,143.8Investment balance at 31 December 2,143.8 2,384.2 The equity portfolio produced a good return of 15.1% (2005: 26.6%). Globaleconomic growth was steady during 2006 which was supportive of equities withglobal corporate earnings growth at around 15%. Equity pricing was also buoyedby mergers and acquisitions activity. In June advantage was taken of the secondquarter equity market correction to start to build up the Group's equityexposure, which had been diluted by the additional capital for Bermuda. By comparison the performance of our bond portfolios was weak with a return onshort dated sterling bonds of 2.5% (2005: 5.3%) and 3.8% (2005: 1.6%) on shortdated US dollar bonds. Rising oil prices in the first part of the year andgenerally solid economic growth increased inflationary pressures during 2006keeping most central banks on a monetary tightening bias. The US Federal Reservecontinued to raise interest rates until August, the European Central Bankincreased interest rates throughout the year and the Monetary Policy Committeein the UK surprised the markets by tightening policy in August, a move theyconsolidated by a further rise in November. This background was not positive forthe short end of bond markets, as it caused yields to rise, and therefore pricesto fall. Due to rising interest rates cash returns have been relatively attractive. Tobalance the equity volatility in our capital assets cash has been an asset classof choice for us in recent years. In addition, in its start up phase AmlinBermuda held significant levels of cash. Cash returned 4.7% for the period(2005: 4.8%). Expenses Total expenses, including underwriting, non-underwriting and finance costs,increased by 37% during the year to £345.9 million. Expenses include thetranslation differences of non monetary assets and liabilities. The impact ofthis in the year was to increase expenses by £27.9 million (2005: reduceexpenses by £26.2 million). After removing these exchange differences the netincrease in expenses was £39.8 million. £25.2 million was an increase inacquisition costs, reflecting the growth in premium earned in the year. Much ofthe balance relates to the operational expenses of the Bermuda business, with£4.1 million incurred in the year. Taxation The effective tax rate of the Group for the year was 21.9% (2005: 24.9%). Themain reason for the low rate in 2006 is that the Amlin Bermuda result is notsubject to current UK tax. This alone reduces the effective tax rate by 8.5%. Webelieve that Amlin Bermuda is exempt from the Controlled Foreign Corporation taxprovisions of the UK tax regime. On this basis the Group will pay tax to the UKtax authorities only when distributions are made back to its UK holdingcompanies. Recognition of this future tax charge has been made by setting up adeferred tax provision for 9% of Amlin Bermuda's profits. The other factor reducing the effective tax rate is continued use of unprovidedcapital losses which have been offset against equity gains. This pushes down theeffective tax rate by 1.1% (2005: 3.8%). This effect will not repeat in thefuture as all capital losses brought forward have now been utilised. Foreign exchange Foreign exchange risk is currently managed at entity level depending on thelocal functional currency. The Group reports in sterling but manages a sterlingbusiness in the UK and a US dollar business in Bermuda. For the UK operations wesell trading currency profits into sterling to mitigate the impact offluctuating exchange rates. Amlin Bermuda manages its US dollar trading position and holds its balance sheetin US dollars reflecting its global underwriting profile. At Group level we have currently chosen not to hedge the net dollar assetexposure of Bermuda. Our balance sheet is spread between sterling and US dollars- a natural hedge for our two main markets. During 2006 this lead to £77.3million of exchange translation losses, which are recognised through reserves.However over time we would expect a more balanced position to emerge. ROE FOCUSED CAPITAL MANAGEMENT The successful issue of £230 million of 20 year subordinated debt in April 2006further increased our financial strength as well as providing greater scope forbalance sheet management over the coming years, if, as we expect, we will havecapital surplus to our requirements. It provides Amlin with more flexibility toreturn equity to shareholders while maintaining sufficient regulatory capital towithstand major catastrophes and to be able to respond quickly to event drivencyclical strengthening. The special dividend announced with our results is a clear demonstration of ourintention to manage our balance sheet to enhance shareholder returns and value. OUTLOOK FOR 2007 The outlook for 2007 financial performance is again very healthy, albeit thatthe final outturn will be influenced by the extent of major catastrophe events.While the pricing environment is coming under increasing pressure, Amlin was ina very strong position entering the New Year and rates in a number of classesare coming off what have been exceptional levels. A continuing healthy rating environment in many areas The table below illustrates the rating of a number of key classes for Amlin. Rating indicesClass 2000 2001 2002 2003 2004 2005 2006 US catastrophe reinsurance 100 115 146 150 143 144 185Non US catastrophereinsurance 100 120 157 161 145 131 134Risk XL 100 122 190 192 171 145 164US large propertyinsurance 100 125 171 163 143 136 165Airline hull andliabilities 100 301 283 235 216 201 163Marine hull 100 115 148 171 183 189 191Employers' liability 100 115 144 158 159 144 133Energy 100 140 172 189 170 176 256Professional indemnity 100 110 149 178 181 165 151US casualty 100 123 172 215 232 237 232War 100 250 288 244 220 206 195Fleet motor 100 121 136 143 141 137 134 Over our portfolio as a whole, rates were flat in our January 2007 renewals witha retention ratio of 83%. However, the divergence of fortunes by business areaseen in 2006 continued into the New Year. US catastrophe reinsurance remains very strong and rate rises have been achievedon 2007 renewals to date, although pricing levels are lower than those achievedin the pre-windstorm July 2006 renewals. With industry catastrophe models nowfactoring in the probability of increased frequency and severity of weatherrelated losses, we expect US catastrophe business to remain stable, even thoughthe decision by the State of Florida to materially increase the FloridaHurricane Catastrophe Fund (FHCF) will reduce demand for industry cover in thatstate and is likely to increase competition in other areas. Internationalcatastrophe rates remain reasonably priced although a number of less welldiversified competitors are seeking greater access to this business and this mayresult in increased pressure on rates. For US exposed direct property business, US based insurers who materiallyreduced their exposures or even exited the market in 2006 are re-entering andthis is resulting in some of the large increases achieved in 2006 being given upto retain business. Nevertheless, it is still acceptably priced. However, innon-catastrophe exposed zones, rates are coming under more pressure. In our marine account, energy risks in the Gulf of Mexico are reasonably firmand in other areas weakening modestly. Many areas are currently stable. Hullrates have recently come under more pressure and war and terrorism ratescontinue to decline. Even where rates are weakening, we remain confident ofbeing able to deliver good margins. Most airlines renew in the fourth quarter of the year, but currently there is nosign of a change in direction of rates as competitors chase market share basedon historic profitability rather than taking account of exposures. Thankfully,other aviation classes are reasonably stable and these now represent 67% of ourAviation division's planned premium for 2007. Commercial motor and UK liability business remains under pressure and we willcontinue to decline business where we do not consider it adequately priced. Wewill view with interest the results of competitors whom we believe must bemaking underwriting losses. At some point we would expect their management totake corrective action, and we expect that pressure will build through 2007. While rates and margins may be eroded, it is important to remember the level ofmargins which have been possible in recent years for much of our attritional aswell as our natural catastrophe exposed classes. Premium growth in Bermuda £274 million of premiums were written across the Group by the end of January2007. Of this, £232 million was written by Syndicate 2001, 5% less than at thesame stage in 2006 at constant exchange rates and the balance of £42 million waswritten by Amlin Bermuda, 57% more than in 2006. We are pleased that AmlinBermuda was able to get access to a good balance of both US and non US businessso that it continued to build the diversity of its account. The current strength of sterling, if it persists for the year as a whole, willdampen premiums reported in sterling. On 25 January, the Governor of Florida signed new legislation seeking to reducethe cost of homeowners' insurance in the State. Essentially, the State isbearing hugely increased hurricane risk on behalf of its citizens which willresult in less demand for reinsurance from the market. We estimate that thiswill reduce our reinsurance premiums for Florida risk by around US$40 million. For the year as a whole we expect growth in premiums to come from Bermuda,recognising our policy of purposely not seeking to grow income in lines whereprices are softening. We have maintained our Lloyd's capacity at its 2006 levelof £1 billion. Volatility The Group remains subject to greater volatility of performance than prior to2006, having purchased significantly less retrocessional reinsurance. We haverecently been offered and purchased cover at more attractive terms than wereavailable in 2006 and will continue to explore options for reducing ourincreased volatility. We continue to believe that the relationship between riskand the reward of operating with less protection is a good one. Growth in unearned premium reserve With the growth in the business in 2006, we have a record unearned premiumreserve of £545.5 million as at 31 December 2006. A large share of this is reinsurance income, which was writtenat very strong rates and on which we earn premium on a straight line basis, thebalance of which will be earned in the first half of this year. Continually well reserved balance sheet Amlin's policy of reserving for claims above the actuarial best estimate oftheir likely development has resulted in material prior year run-off profits inrecent years and assuming run-off which is no worse than normal expectations,our continued and consistent policy should deliver further run-off profits. Investment outlook improving We consider the outlook for our bond and liquid investments, which represent 69%of the Group's current portfolios, to be better than in 2006. Base rates for USdollars and sterling are both 0.75% higher than at the start of 2006 and thereis less risk of rises adversely affecting bond values. The outlook for equitiesremains sound although we do not expect to repeat the excellent 15% returnachieved in 2006. LONGER TERM OUTLOOK The healthy trading environment will affect 2008 as well as 2007 results owingto the manner in which premiums are earned. The increased divergence in the rating cycle that we have recently experiencedcould well help Amlin's medium term performance. Conditions for our UKcommercial business should start to improve in 2008, if not before. If this isthe case, improving performance in this area will help offset the softening ofconditions in our Marine and Non marine areas which appear to have peaked. Inthese circumstances, the value of Amlin's diversity will be increased throughits ability to allocate capital between classes according to market conditions. Consolidated Income Statement For the year ended 31 December 2006 2005 2006 (restated) Notes £m £m --------- --------- ----------Gross premium earned 1,2 1,087.3 986.7Insurance premium revenue from the receipt ofreinsurance to close 2 78.8 78.6Reinsurance premium ceded 1,2 (113.4) (164.6) --------- --------- ----------Net earned premium revenue 2 1,052.7 900.7 --------- --------- ---------- Investment return 1,3 115.1 90.9Other operating income 1.8 1.4 --------- --------- ----------Total income 1,169.6 993.0 --------- --------- ----------Insurance claims and claims settlement expenses 1,4 (460.7) (912.1)Insurance claims and claims settlement expenses relatingto the receipt of reinsurance to close 4 (78.8) (78.6)Insurance claims and claims settlement expensesrecoverable from reinsurers 1,4 58.5 436.4 --------- --------- ----------Net insurance claims 4 (481.0) (554.3) --------- --------- ---------- Expenses for the acquisition of insurance contracts 5 (195.4) (170.2)Other operating expenses 6 (126.7) (71.4) --------- --------- ----------Total expense (322.1) (241.6) --------- --------- ---------- --------- --------- ----------Results of operating activities 366.5 197.1 --------- --------- ----------Finance costs (23.8) (10.4) --------- --------- ----------Profit before tax 342.7 186.7Tax 7 (74.9) (46.5) --------- --------- ----------Total recognised profit for the year 267.8 140.2 --------- --------- ---------- Attributable to: --------- --------- ----------Equity holders of the Parent Company 267.5 140.2Minority interests 0.3 - --------- --------- ---------- 267.8 140.2 --------- --------- ----------Earnings per share from continuing operations attributable to equity holders of the Parent CompanyBasic 14 50.4p 34.3pDiluted 14 49.8p 33.7p Consolidated Statement of Changes in Equity For the year ended 31 December 2006 ----------------------------- ------ ---------- ---------- ---------- ---------- ---------- ---------- Notes Share capital Share Other Minority Retained Total £m premium reserves interest earnings £m £m £m £m £m ----------------------------- ------ ---------- ---------- ---------- ---------- ---------- ----------At 1 January 2006 aspreviously stated 132.5 344.0 51.0 - 265.1 792.6IAS19 Employee benefits priorperiod adjustment - - - - (7.8) (7.8)----------------------------- ------ ---------- ---------- ---------- ---------- ---------- ----------At 1 January 2006 restated 132.5 344.0 51.0 - 257.3 784.8Gains on revaluation ofemployee share ownershiptrust recognised directly inequity - - 1.3 - - 1.3Currency translation differences on overseas operations - - (77.1) - - (77.1)Deferred tax - - 1.3 - - 1.3Profit for the financial year - - - 0.3 267.5 267.8----------------------------- ------ ---------- ---------- ---------- ---------- ---------- ----------Total recognised income for theyear - - (74.5) 0.3 267.5 193.3Employee share option scheme:- share based payment reserve - - 1.1 - - 1.1- proceeds from shares issued 1.0 3.6 - - - 4.6Dividends paid 15 - - - - (47.4) (47.4)----------------------------- ------ ---------- ---------- ---------- ---------- ---------- ---------- 1.0 3.6 1.1 - (47.4) (41.7)----------------------------- ------ ---------- ---------- ---------- ---------- ---------- ----------At 31 December 2006 133.5 347.6 (22.4) 0.3 477.4 936.4----------------------------- ------ ---------- ---------- ---------- ---------- ---------- ---------- Consolidated Statement of Changes in Equity (continued) For the year ended 31 December 2006 ----------------------------- ------- ---------- ---------- ---------- ---------- ---------- --------- Notes Share capital Share premium Other reserves Minority Retained Total interest earnings £m £m £m £m £m £m----------------------------- ------- ---------- ---------- ---------- ---------- ---------- --------- At 1 January 2005 aspreviously stated 98.8 154.2 43.5 - 163.3 459.8IAS19 Employee benefits priorperiod adjustment - - - - (10.6) (10.6)----------------------------- ------- ---------- ---------- ---------- ---------- ---------- ---------At 1 January 2005 restated 98.8 154.2 43.5 - 152.7 449.2----------------------------- ------- ---------- ---------- ---------- ---------- ---------- ---------Gains on revaluation of employee share ownership trust recogniseddirectly in equity - - 1.3 - - 1.3Currency translation differences on overseas operations - - 3.8 - - 3.8Deferred tax - - 1.7 - - 1.7Profit for the financial year(restated) - - - - 140.2 140.2----------------------------- ------- ---------- ---------- ---------- ---------- ---------- --------Total recognised income for the year - - 6.8 - 140.2 147.0Rights issue proceeds, netof issue costs 12 31.9 182.8 - - - 214.7Employee share option scheme: - share based payment reserve - - 0.7 - - 0.7 - proceeds from shares issued 1.8 7.0 - - - 8.8Dividends paid 15 - - - - (35.6) (35.6)----------------------------- ------- ---------- ---------- ---------- ---------- ---------- --------- 33.7 189.8 0.7 - (35.6) 188.6----------------------------- ------- ---------- ---------- ---------- ---------- ---------- ---------At 31 December 2005 (restated) 132.5 344.0 51.0 - 257.3 784.8----------------------------- ------- ---------- ---------- ---------- ---------- ---------- --------- Consolidated Balance Sheet At 31 December 2006 2006 2005 (restated)ASSETS Notes £m £m------------------------------- ------ ---------- ----------Cash and cash equivalents 16.5 65.6Financial investments at fair value through income 9 2,367.7 2,078.2Reinsurance assets 10 - reinsurers share of outstanding claims 357.0 604.6 - reinsurers share of unearned premium 37.7 24.2 - debtors arising from reinsurance operations 300.6 387.3Loans and receivables, including insurance receivables - insurance receivables 11 216.3 214.3 - loans and receivables 11 51.6 132.9Current income tax assets 6.3 3.7Deferred tax assets 7 20.9 24.4Property and equipment 6.2 6.0Intangible assets 66.0 66.0------------------------------- ------ ---------- ----------Total assets 3,446.8 3,607.2------------------------------- ------ ---------- ---------- EQUITYShare capital 133.5 132.5Share premium account 347.6 344.0Other reserves (23.4) 51.3Treasury shares 1.0 (0.3)Retained earnings 477.4 257.3------------------------------ ------ ---------- ----------Equity attributable to equity holders of the parent 936.1 784.8------------------------------ ------ ---------- ----------Minority interest 0.3 ------------------------------- ------ ---------- ----------Total equity and reserves 936.4 784.8------------------------------ ------ ---------- ---------- LIABILITIESInsurance contracts 10 - outstanding claims 1,417.5 1,704.3 - unearned premium 545.5 523.8 - creditors arising from insurance operations 68.6 114.8Trade and other payables 68.4 67.1Current income tax liabilities 28.7 19.6Borrowings 13 278.8 298.2Retirement benefit obligations 7.5 12.4Deferred tax liabilities 7 95.4 82.2------------------------------ ------ ---------- ----------Total liabilities 2,510.4 2,822.4------------------------------ ------ ---------- ---------- Total equity, reserves and liabilities 3,446.8 3,607.2------------------------------ ------ ---------- ---------- Consolidated Cash Flow Statement For the year ended 31 December 2006---------------------------------- ------- --------- --------- Notes 2006 2005 £m £m---------------------------------- ------- --------- ---------Cash generated from operations 18 (20.2) (447.4)Income taxes paid (50.4) (17.6)---------------------------------- ------- --------- ---------Net cash flows from operations (70.6) (465.0)---------------------------------- ------- --------- --------- Cash flows from investing activitiesInterest received 97.5 65.3Dividends received 4.5 2.0Acquisition of subsidiary, net of cash acquired - (0.2)Purchase of property and equipment (3.6) (1.9)---------------------------------- --------- ---------Net cash used in investing activities 98.4 65.2---------------------------------- --------- ---------Cash flows from financing activitiesProceeds from issue of ordinary shares 4.6 223.5Proceeds from borrowings 227.7 266.1Repayment of borrowings (238.0) (32.0)Dividends paid to shareholders (47.4) (30.6)Interest paid (24.1) (9.2)---------------------------------- --------- ---------Net cash flows from financing activities (77.2) 417.8---------------------------------- --------- --------- Net (decrease)/increase in cash and cash equivalents (49.4) 18.0Cash and cash equivalents at beginning of year 65.6 47.6Effect of rate changes on cash and cash equivalents 0.3 ----------------------------------- --------- ---------Cash and cash equivalents at end of year 16.5 65.6---------------------------------- --------- --------- The Group classifies the cash flows for the purchase and disposal of financialassets in its operating cash flows, as the purchases are funded from the cashflows associated with the origination of insurance contracts or the capitalrequired to support underwriting, net of £271.8 million (2005: £756.3 million)being cash generated in the period that has been used to purchase financialinvestments. Cash flows relating to participations on syndicates not managed by the Group areincluded only to the extent that cash is transferred between the Premium TrustFunds and the Group. Summary of significant accounting policies The basis of preparation, basis of consolidation principles and significantaccounting policies adopted in the preparation of Amlin plc's (the Group's)financial statements are set out below. Basis of preparation Whilst the financial information included in this preliminary announcement hasbeen computed in accordance with International Financial Reporting Standards(IFRSs), this announcement does not itself contain sufficient information tocomply with IFRSs. The Company published full financial statements that complywith IFRSs in March 2007. Basis of consolidation The financial statements consolidate the accounts of the Company, its subsidiaryundertakings, including the Group's underwriting through participation onLloyd's syndicates. Subsidiaries are those entities in which the Group directlyor indirectly has the power to govern the operating and financial policies inorder to gain economic benefits and includes the Group's Employee BenefitTrusts. The financial statements of subsidiaries are prepared for the samereporting year as the parent company. Consolidation adjustments are made toconvert subsidiary accounts prepared under UK GAAP into IFRS so as to remove anydifferent accounting policies that may exist. Subsidiaries are consolidated fromthe date control is transferred to the Group and cease to be consolidated fromthe date control is transferred out. All inter-company balances, profits andtransactions are eliminated. IAS19, Employee Benefits: change in accounting policy and prior periodadjustment The Group participates in a number of pension schemes. One of the schemes inwhich the Group participates, the Lloyd's Superannuation Fund (the Fund), is adefined benefit scheme which is classified as a multi-employer scheme under thecriteria set out in IAS19. As such, the Group recognises its pension costs forthis scheme as if it were a defined contribution scheme. Historically, theimplication of this has been that the Group did not report the assets andliabilities of the Fund in its own balance sheet, but did charge contributionsmade to the Fund in the period in which they were made. In December 2004 an amendment was introduced to IAS19 that requires fullprovision to be made for the net present value of any future contractualcontributions into a multi-employer pension scheme. This amendment is nowmandatory and has been fully adopted by the Group. In 2004, Amlin agreed withthe Fund's trustee a schedule of annual payments into the Fund commencing in2004 and concluding in 2009. Previously, these payments were being expensed asthey were paid and were not provided for in advance. However, in accordance withthe requirements of the amendment to IAS19, a prior period adjustment has beenmade to the net assets at 1 January 2005 and 31 December 2005 and the reportedprofit for the year ended 31 December 2005. Summary of significant accounting policies (continued) The effects of the change in accounting policy on the consolidated incomestatement and balance sheet are: ---------------------------- ------- ------------ ------------ 12 months 12 months 2006 2005 £m £m---------------------------- ------- ------------ ------------Reported profit for the period underprevious 264.2 137.4accounting policy after taxPayments made included within otheroperating 4.6 4.6expensesMovement in discount on present value offuture 0.3 (0.5)paymentsMovement in deferred tax (1.3) (1.3)---------------------------- ------- ------------ ------------Restated profit for the period under newaccounting policy after tax 267.8 140.2---------------------------- ------- ------------ ------------ Notes 31 December 2005 £m---------------------------- ------- ------------ ------------Net assets as reported 792.6Increase in retirement benefit liabilities (11.1)Increase in associated deferred tax asset 7 3.3---------------------------- ------- ------------ ------------Restated net assets 784.8---------------------------- ------- ------------ ------------ The cumulative effect of the change in accounting policy on the net assets ofthe Group on accounting periods to 31 December 2004 is a reduction of £10.6m intotal shareholders' equity. The impact of the change in accounting policy as detailed on earnings anddiluted earnings per share are as follows: 2006 2005------------------------------------- ---------- ----------Basic earnings per share under previous accounting policies 49.7p 33.6p------------------------------------- ---------- ----------Basic earnings per share 50.4p 34.3pDiluted earnings per share under previous accounting policies 49.1p 33.1p------------------------------------- ---------- ----------Diluted earnings per share 49.8p 33.7p------------------------------------- ---------- ---------- Summary of significant accounting policies (continued) International Financial Reporting Standards At the date of authorisation of these financial statements a number of standardshad been published by the IASB but were not yet effective. These include: - IFRS 7, Financial Instruments Disclosures; and - IFRS 8, Operating Segments Other interpretations issued by the IASB at the date of authorisation include: - IFRIC 8, which clarifies IFRS 2, Share-Based Payments; - IFRIC 9, Reassessment of Embedded Derivatives; - IFRIC 10, Interim Financial Reporting and Impairment; - IFRIC 11, IFRS 2 - Group and Treasury Share Transactions; and - IFRIC 12, Service Concession Arrangements. The directors anticipate that the adoption of IFRS7 and IFRS8 in future periodsand the interpretations IFRIC 8 to 12 will have no material impact on thefinancial statements except for additional disclosures. In accordance with the standard for insurance contracts (IFRS4), the Group hasapplied existing accounting practices for insurance contracts, modified, asappropriate, to comply with the IFRS framework and applicable standards. Use of estimates The preparation of financial statements requires the use of estimates andassumptions that affect the reported amounts of assets and liabilities, and thedisclosure of contingent assets and liabilities. Although these estimates arebased on management's best knowledge of current events and actions, actualresults may ultimately differ from those estimates. Foreign currency translation The Group presents its accounts in sterling since it is subject to regulation inthe United Kingdom and the net assets, liabilities and income of the Group arecurrently weighted towards sterling. US dollar revenue is significant but thesterling revenue stream is also currently material. All group entities areincorporated in the United Kingdom with the exception of Amlin Bermuda HoldingsLimited and Amlin Bermuda Ltd which are incorporated in Bermuda. All Groupentities conduct business in a range of economic environments, primarily theUnited Kingdom, United States of America and Europe. Due to the regulatoryenvironment and the fact that the Group trades through the Lloyd's market, allGroup companies incorporated in the United Kingdom have adopted sterling astheir functional currency. The Group companies incorporated in Bermuda haveadopted the US dollar as their functional currency. Income and expenditure in US dollars, Euros and Canadian dollars is translatedat average rates of exchange for the period. Transactions denominated in otherforeign currencies are translated using the exchange rates prevailing at thedates of the transactions. Monetary assets and liabilities are translated intosterling at the rates of exchange at the balance sheet date. Non-monetary assetsand liabilities are translated at the average rate prevailing in the period inwhich the asset or liability first arose. Exchange differences arising from the conversion of overseas operations areaccounted for through reserves. Where contracts to sell currency have been entered into prior to the year end,the contracted rates have been used. Differences arising on the translation offoreign currency amounts on such items are included in other operating expenses. Summary of significant accounting policies (continued) Insurance contracts premium Gross written premium comprise premium on insurance contracts incepting duringthe financial year. The estimated premium income in respect of facilitycontracts is deemed to be written in full at the inception of the contract.Premium is disclosed before the deduction of brokerage and taxes or dutieslevied on them. Estimates are included for premium receivable after the periodend but not yet notified, as well as adjustments made in the year to premiumwritten in prior accounting periods. Premium is earned over the policy contract period. Where the incidence of riskis the same throughout the contract, the earned element is calculated separatelyfor each contract on a 365ths basis. For premium written under facilities, suchas under binding authorities, the earned element is calculated based on theestimated risk profile of the individual contracts involved. The proportion of written premium, gross of commission payable, attributable toperiods after the balance sheet date is deferred as a provision for unearnedpremium. The change in this provision is taken to the income statement in orderthat revenue is recognised over the period of the risk. Acquisition costs comprise brokerage incurred on insurance contracts writtenduring the financial year. They are incurred on the same basis as the earnedproportions of the premium they relate to. Deferred acquisition costs areamortised over the period in which the related revenues are earned. Deferredacquisition costs are reviewed at the end of each reporting period and arewritten off where they are no longer considered to be recoverable. Reinsurance premium ceded Reinsurance premium ceded comprise the cost of reinsurance arrangements placedand are accounted for in the same accounting period as the related insurancecontracts. The provision for reinsurers' share of unearned premium representsthat part of reinsurance premium written which is estimated to be earned infollowing financial years. Insurance contracts liabilities: claims Claims paid are defined as those claims transactions settled up to the balancesheet date including the internal and external claims settlement expensesallocated to those transactions. The reinsurers' share represents recoveriesreceived from reinsurance protections in the period plus recoveries receivableagainst claims paid that have not been received at the balance sheet date, netof any provision for bad debt. Claims reserves are estimated on an undiscounted basis. Provisions are subjectto a detailed quarterly review where forecast future cash flows and existingamounts provided are reviewed and reassessed. Any changes to the amounts heldare adjusted through the income statement. Provisions are established above anactuarial best estimate and so that there is a reasonable chance of release ofreserves from one underwriting year to the next. Claims reserves are made for known or anticipated liabilities under insurancecontracts which have not been settled up to the balance sheet date. Includedwithin the provision is an allowance for the future costs of settling thoseclaims. This is estimated based on past experience and current expectations offuture cost levels. The claims provision also includes, where necessary, a reserve for unexpiredrisks where, at the balance sheet date, the estimated costs of future claims andrelated deferred acquisition costs are expected to exceed the unearned premiumprovision. In determining the need for an unexpired risk provision theunderwriting divisions within the Group have been regarded as groups of businessthat are managed together. Although the claims provision is considered to be reasonable, having regard toprevious claims experience (including the use of certain statistically basedprojections) and case by case reviews of notified losses, on the basis ofinformation available at the date of determining the provision, the ultimateliabilities will vary as a result of subsequent information and events. Summary of significant accounting policies (continued) Net investment income Dividends and any related tax credits are recognised as income on the date therelated listed investments are marked ex-dividend. Other investment income,interest receivable, expenses and interest payable are recognised on an accrualsbasis. Intangible assets i. Syndicate capacity The cost of syndicate participations which have been purchased in the Lloyd'scapacity auctions is capitalised at cost. Syndicate capacity is considered tohave an indefinite life and is not subject to an annual amortisation charge. Thecontinuing value of the capacity is reviewed for impairment annually byreference to the expected future profit streams to be earned from Syndicate2001, with any impairment in value being charged to the income statement. ii. Goodwill Goodwill arising on acquisitions prior to 1 January 1999 was written off toreserves. Goodwill recognised between 1 January 1999 and the date of transitionto IFRS (1 January 2004) was capitalised and amortised on a straight line basisover its estimated useful life. Following the transition to IFRS this goodwillis stated at net book value at 1 January 2004. Goodwill that was recognisedsubsequent to 1 January 2004, representing the excess of the purchaseconsideration over fair value of net assets acquired, is capitalised. Goodwillis tested for impairment annually or when events or changes in circumstanceindicate that it might be impaired by comparing the net present value of thefuture earnings stream from the acquired subsidiary, for the next five years,against the carrying value of the goodwill and the carrying value of the relatednet assets. Property and equipment Property and equipment are stated at historical cost less accumulateddepreciation and provision for impairment where appropriate. Depreciation iscalculated on the straight line method to write down the cost of such assets totheir residual values over their estimated useful lives as follows: Leasehold land and buildings over period of lease Motor vehicles 33% per annum Computer equipment 33% per annum Furniture, fixtures and leasehold improvements 20% per annum The carrying values of property and equipment are reviewed for impairment whenevents or changes in circumstance indicate that the carrying value may beimpaired. If any such condition exists, the recoverable amount of the asset isestimated in order to determine the extent of impairment and the difference ischarged to the income statement. Gains and losses on disposal of property and equipment are determined byreference to their carrying amount and are taken to the income statement.Repairs and renewals are charged to the income statement when the expenditure isincurred. Summary of significant accounting policies (continued) Financial investments The Group has classified its financial investments as "fair value throughincome" (FV) to the extent that they are not reported as cash and cashequivalents. This classification has been determined by management based on thedecision at the time of acquisition. Within the FV category, fixed maturity andequity securities are classified as trading as the Group buys with the intentionto resell. All other securities are classified as other than trading within theFV category. Purchases and sales of investments are recognised on the trade date, which isthe date the Group commits to purchase or sell the assets. These are initiallyrecognised at fair value, and subsequently re-measured at fair value based onquoted bid prices. Changes in the fair value of investments are included in theincome statement in the period in which they arise. In the Company's accounts, other financial investments in Group undertakings arestated at cost and are reviewed for impairment annually or when events orchanges in circumstances indicate the carrying value may be impaired. Loans and receivables Loans and receivables are measured at fair value. Appropriate allowances forestimated irrecoverable amounts are recognised in the income statement whenthere is evidence that the asset is impaired. These are reversed when payment isreceived. Borrowings Borrowings are recognised initially at fair value, net of transaction costsincurred. Borrowings are subsequently stated at amortised cost using theeffective interest method. Any difference between amortised cost and theredemption value is recognised in the income statement over the period of theborrowings. Transaction costs on borrowings are charged through the incomestatement over the period of the borrowings. Borrowing costs Borrowing costs comprise interest payable on loans and bank overdrafts andcommissions charged for the utilisation of letters of credit. These costs arecharged to the income statement as financing costs, as incurred. In additionfees paid for the arrangement of debt and letter of credit facilities arecharged to borrowing costs over the life of the facility. Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at fair value. Forthe purposes of the cash flow statement, cash and cash equivalents comprise cashon hand, deposits held on call with banks and other short-term, highly liquidinvestments which are subject to insignificant risk of change in fair value. Treasury shares Treasury shares are deducted from equity. No gain or loss is recognised on thepurchase, sale, issue or cancellation of the treasury shares. Any considerationpaid or received is recognised directly in equity. Summary of significant accounting policies (continued) Leases Leases are classified as finance leases whenever the terms of the lease transfersubstantially all the risks and rewards to the Group. All other leases areclassified as operating leases. Assets held under finance leases and hire purchase transactions are capitalisedin the balance sheet and depreciated over their useful lives. The initialcapital value is the lower of the fair value of the leased asset and the presentvalue of the minimum lease payments. Payments under finance leases areapportioned between finance charges and the reduction of the lease obligation soas to achieve a consistent rate of interest on the remaining balance of thelease liability. Rentals payable under operating leases are charged to income in the period inwhich they become payable in accordance with the terms of the lease. Employee benefits i. Pension obligations The Group participates in a number of pension schemes, including two definedbenefit schemes, defined contribution schemes and personal pension schemes. The liability in respect of the J E Mumford (Underwriting Agencies) Limiteddefined benefit scheme is calculated as the present value of the defined benefitobligation at the balance sheet date minus the fair value of plan assets. Thedefined benefit obligation is calculated annually by independent actuaries usingthe projected unit credit method. The present value of the defined benefitobligation is determined by the estimated future cash outflows using interestrates of government securities which have terms to maturity approximating theterms of the related liability. The resulting pension scheme surplus or deficitappears as an asset or liability in the consolidated balance sheet. Actuarialgains and losses arising from revaluations are recognised in full in the incomestatement, as they arise. The Lloyd's Superannuation Scheme is treated as a multi-employer scheme whereinsufficient information is available to account as a defined benefit scheme.For this scheme, where contractual obligations have been agreed, the net presentvalue of these payments is recognised as a liability on the balance sheet. Pension contributions to schemes that are accounted for as defined contributionplans are charged to the income statement when due. ii. Equity compensation plans The Group operates a number of executive and employee share schemes. Optionsissued after 7 November 2002 are accounted for using the fair value method wherethe cost for providing equity compensation is based on the fair value of theshare option or award at the date of the grant. The fair value is calculatedusing an option pricing model and the corresponding expense is recognised in theincome statement over the vesting period. The accrual for this charge isrecognised in equity shareholders' funds. When the options are exercised, theproceeds received net of any transaction costs are credited to share capital forthe par value and the surplus to share premium. iii. Other benefits Other employee incentive schemes and long-term service awards, includingsabbatical leave, are recognised when they accrue to employees. A provision ismade for the estimated liability for long-service leave as a result of servicesrendered by employees up to the balance sheet date. Other income Information fee income is recognised on an earned basis Taxation Income tax expense represents the sum of the tax currently payable and deferredtax. The tax currently payable is based on taxable profit for the year. Taxableprofit differs from net profit as reported in the income statement because itexcludes items of income or expense that are taxable or deductible in otheryears or that are never taxable or deductible. The Group's liability for currenttax is calculated using tax rates that have been enacted or substantivelyenacted by the balance sheet date. Deferred tax is recognised on differences between the carrying amounts of assetsand liabilities in the financial statements and the corresponding tax bases usedin the computation of taxable profit, and is accounted for using the balancesheet liability method. Deferred tax liabilities are generally recognised forall taxable temporary differences and deferred tax assets are recognised to theextent that it is probable that taxable profits will be available against whichdeductible temporary differences can be utilised. Such assets and liabilitiesare not recognised if the temporary difference arises from goodwill or from theinitial recognition (other than in a business combination) of other assets andliabilities in a transaction that affects neither the tax profit nor theaccounting profit. Deferred tax liabilities are recognised for taxable temporary differencesarising on investments in subsidiaries and associates, and interests in jointventures, except where the Group is able to control the reversal of thetemporary difference and it is probable that the temporary difference will notreverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheetdate and reduced to the extent that it is no longer probable that sufficienttaxable profits will be available to allow all or part of the asset to berecovered, or to the extent that it has been utilised. Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability is settled or the asset is realised. Deferred tax ischarged or credited to profit or loss, except when it relates to items chargedor credited directly to equity, in which case the deferred tax is also dealtwith in equity. Deferred tax assets and liabilities are offset when there is a legallyenforceable right to set off current tax assets against current tax liabilitiesand when they relate to income taxes levied by the same taxation authority andthe Group intends to settle its current tax assets and liabilities on a netbasis. Deferred tax and liabilities have not been discounted. Deferred tax is provided for on the profits of overseas subsidiaries where it isreasonably foreseeable that distribution of the profit back to the UK will takeplace. 1 Segmental reporting by business group The tables below show segmental information by business segment. Businesssegments are primary segments and represent the way in which the business ismanaged. Each segment underwrites sub-classes of business which fall within thebroad classes of aviation, marine, non-marine and UK commercial business. Thesegments are discussed in more detail in the operating and financial review. Thenon-marine business group is large and comprises direct and reinsurance books ofbusiness. The segmental disclosure excludes insurance premium income and claims expensesfrom the receipt of reinsurance to close as detailed in note 2 as these have noimpact on profit for the year. 1 Segmental reporting by business group Income and expenses bybusiness segment Total Amlin Intra Year ended 31 Non- UK UK Bermuda group Other December 2006 Aviation marine Marine commercial divisions Ltd items technical Total £m £m £m £m £m £m £m £m £m---------------- ------- ------- ------- ------- ------- ------- ------- ------- -------Gross premiumwritten 75.7 554.6 210.9 150.0 991.2 223.5 (100.8) (0.1) 1,113.8---------------- ------- ------- ------- ------- ------- ------- ------- ------- -------Analysed by geographicsegmentUK 12.7 49.5 53.1 133.7 249.0 110.3 (100.8) - 258.5US 29.5 344.2 51.6 0.3 425.6 88.8 - - 514.4Europe 14.1 37.9 39.5 5.8 97.3 3.7 - - 101.0Worldwide 0.4 15.8 19.2 1.6 37.0 1.8 - - 38.8Other 19.0 107.2 47.5 8.6 182.3 18.9 - (0.1) 201.1---------------- ------- ------- ------- ------- ------- ------- ------- ------- -------Total 75.7 554.6 210.9 150.0 991.2 223.5 (100.8) (0.1) 1,113.8---------------- ------- ------- ------- ------- ------- ------- ------- ------- -------Gross premiumearned 88.8 569.5 192.7 163.2 1,014.2 132.5 (59.3) (0.1) 1,087.3Reinsurancepremium ceded (29.2) (87.3) (31.8) (21.4) (169.7) - 56.3 - (113.4)---------------- ------- ------- ------- ------- ------- ------- ------- ------- -------Net premiumearned 59.6 482.2 160.9 141.8 844.5 132.5 (3.0) (0.1) 973.9Insuranceclaims andclaimssettlementexpenses (48.9) (179.8) (111.0) (103.0) (442.7) (47.5) 29.8 (0.3) (460.7)Reinsurancerecoveries 19.6 7.7 41.2 20.6 89.1 - (30.8) 0.2 58.5Underwritingexpenses (24.0) (162.4) (67.6) (37.8) (291.8) (16.0) 4.0 - (303.8)---------------- ------- ------- ------- ------- ------- ------- ------- ------- -------Profitattributabletounderwriting 6.3 147.7 23.5 21.6 199.1 69.0 - (0.2) 267.9---------------- ------- ------- ------- ------- ------- ------- ------- ------- -------Investmentreturn 83.1 32.0 115.1Agencyexpenses (1) (2.6) (14.3) (3.3) (4.5) (24.7) - - 24.7 -Othernon-underwriting expenses(2) (16.5)Finance costs(2) (23.8)---------------- ------- ------- ------- ------- ------- ------- ------- ------- -------Profit beforetax 342.7---------------- ------- ------- ------- ------- ------- ------- ------- ------- -------Combined ratio 89% 69% 85% 85% 76% 48% 72%---------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Included within the UK gross written premium of Amlin Bermuda Ltd is premiumfrom Syndicate 2001 amounting to £100.8 million (2005: £0.3 million) onreinsurance contracts undertaken at commercial rates. 1 Segmental reporting by business group (continued) Assets and liabilities by business Non- Total Amlin Intrasegment marine UK UK Bermuda group OtherAt 31 December Aviation direct Marine commercial divisions Ltd items technical Total 2006 £m £m £m £m £m £m £m £m £m ---------------- ------- ------- ------- ------- ------- ------- ------- ------- -------AssetsAssetsattributableto businesssegments 268.1 1,012.8 417.4 546.0 2,244.3 739.4 (99.6) 13.5 2,897.6Assetsallocatedbetween theUK and Bermuda 549.2 - 549.2---------------- ------- ------- ------- ------- ------- ------- ------- ------- -------Total assets 3,446.8---------------- ------- ------- ------- ------- ------- ------- ------- ------- -------LiabilitiesLiabilitiesattributableto businesssegments 255.4 873.2 374.0 492.4 1,995.0 135.7 (99.6) 11.7 2,042.8Liabilitiesallocatedbetween theUK and Bermuda 467.6 - 467.6---------------- ------- ------- ------- ------- ------- ------- ------- ------- -------Totalliabilities 2,510.4---------------- ------- ------- ------- ------- ------- ------- ------- ------- -------Total netassets 936.4---------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- The net assets of Amlin Bermuda Ltd are located in Bermuda and the USA. Themajority of the other assets of the Group are located in the UK, the US andCanada. The corresponding liabilities are also concentrated in these countries,but given the nature of the Group's business some of the liabilities will belocated elsewhere in the world. During the year, Amlin Bermuda Ltd purchased £1.9 million of fixed assets. Otherassets purchased by Amlin Corporate Services Limited during the year totalled£1.7 million. These cannot be allocated to a specific segment. Depreciation hasbeen charged on property and equipment for the year amounting to £3.1 million ofwhich £0.3 million has been charged to aviation, £1.4 million to non-marine,£0.5 million to marine, £0.2 million to UK commercial, £0.4 million to AmlinBermuda Ltd with the remainder not being allocated to a specific segment. (1) Agency expenses allocated to segments represent fees and commissionpayable to Amlin Underwriting Limited; (2) Other non-underwriting expenses and finance costs are incurred insupport of the entire business of the Group and have not been allocated toparticular segments. 1 Segmental reporting by business group (continued) Income and expenses bybusiness segment Non- Total Amlin Intra Year ended 31 marine UK UK Bermuda group Other December 2005 Aviation direct Marine commercial divisions Ltd items technical Total(restated) £m £m £m £m £m £m £m £m £m---------------- ------- ------- ------- ------- ------- ------- ------- ------- -------Gross premiumwritten 83.0 558.0 172.8 175.5 989.3 2.9 (0.3) 1.6 993.5---------------- ------- ------- ------- ------- ------- ------- ------- ------- -------Analysed bygeographicsegmentUK 11.4 55.5 43.1 159.1 269.1 0.8 (0.1) 0.5 270.3US 32.6 330.5 30.2 0.3 393.6 1.1 (0.1) 0.7 395.3Europe 15.8 40.0 32.4 7.2 95.4 0.3 - 0.1 95.8Worldwide 0.2 17.9 25.7 2.2 46.0 0.1 - 0.1 46.2Other 23.0 114.1 41.4 6.7 185.2 0.6 (0.1) 0.2 185.9---------------- ------- ------- ------- ------- ------- ------- ------- ------- -------Total 83.0 558.0 172.8 175.5 989.3 2.9 (0.3) 1.6 993.5---------------- ------- ------- ------- ------- ------- ------- ------- ------- -------Gross premiumearned 93.0 546.6 164.7 181.1 985.4 0.1 (0.3) 1.5 986.7Reinsurancepremium ceded (23.6) (100.6) (25.9) (14.2) (164.3) - - (0.3) (164.6)---------------- ------- ------- ------- ------- ------- ------- ------- ------- -------Net premiumearned 69.4 446.0 138.8 166.9 821.1 0.1 (0.3) 1.2 822.1Insuranceclaims andclaimssettlementexpenses (50.1) (651.2) (105.7) (105.0) (912.0) - (2.7) 2.6 (912.1)Reinsurancerecoveries 15.1 347.0 55.3 19.1 436.5 - - (0.1) 436.4Underwritingexpenses (14.4) (113.6) (40.8) (37.6) (206.4) (0.1) (1.0) (1.8) (209.3)---------------- ------- ------- ------- ------- ------- ------- ------- ------- -------Profitattributabletounderwriting 20.0 28.2 47.6 43.4 139.2 - (4.0) 1.9 137.1---------------- ------- ------- ------- ------- ------- ------- ------- ------- -------Investmentreturn 90.9 90.9Agencyexpenses (1) (3.9) (24.9) (4.2) (5.0) (38.0) - 38.0 - -Othernon-underwriting expenses(2) (30.9)Financingcosts (2) (10.4)---------------- ------- ------- ------- ------- ------- ------- ------- ------- -------Profit beforetax 186.7---------------- ------- ------- ------- ------- ------- ------- ------- ------- -------Combined ratio(3) 70% 93% 63% 72% 82% - 82%---------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- 1 Segmental reporting by business group (continued) Assets and liabilities Total Amlin Intra by business segment Non- UK UK Bermuda group Other At 31 December Aviation marine Marine commercial divisions Ltd items technical Total 2005 (restated) £m £m £m £m £m £m £m £m £m ---------------- ------- ------- ------- ------- ------- ------- ------- ------- -------AssetsAssetsattributableto businesssegments 321.9 1,273.4 415.8 589.6 2,600.7 589.3 - 14.3 3,204.3Assetsallocatedbetween the UKand Bermuda 402.9 - 402.9---------------- ------- ------- ------- ------- ------- ------- ------- ------- -------Total assets 3,607.2---------------- ------- ------- ------- ------- ------- ------- ------- ------- -------LiabilitiesLiabilitiesattributableto businesssegments 300.1 1,157.8 357.5 508.2 2,323.6 4.9 - 14.5 2,343.0Liabilitiesallocatedbetween the UKand Bermuda 479.4 - 479.4---------------- ------- ------- ------- ------- ------- ------- ------- ------- -------Totalliabilities 2,822.4---------------- ------- ------- ------- ------- ------- ------- ------- ------- -------Total net assets 784.8---------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- (1) Agency expenses allocated to segments represent fees and commissionpayable to Amlin Underwriting Limited; (2) Other non-underwriting expenses and finance costs are incurred insupport of the entire business of the Group and have not been allocated toparticular segments; (3) The combined ratios are calculated assuming a constant 100% ownershipover the period from which premium has been earned. 2 Net earned premium --------------------------------------- ---------- -------- 2006 2005 £m (restated) £m--------------------------------------- ---------- --------Insurance contracts premiumGross premium written 1,113.8 993.5Change in unearned premium provision (26.5) (6.8)--------------------------------------- ---------- --------Gross premium earned 1,087.3 986.7Insurance premium revenue from the receipt ofreinsurance to 78.8 78.6closeReinsurance premium cededReinsurance premium payable (100.3) (164.2)Change in unearned reinsurance premium provision (13.1) (0.4)--------------------------------------- ---------- -------- (113.4) (164.6)--------------------------------------- ---------- --------Net earned premium 1,052.7 900.7--------------------------------------- ---------- -------- The insurance premium revenue from the receipt of reinsurance to closerepresents the premium received from the third party syndicate members on the2003 year of account (2005: 2002 year of account) who sold their capacity toAmlin, for use by Amlin's corporate members for the following year of account ofSyndicate 2001. An identical amount is recorded as a movement in claims,representing the additional liabilities taken on by Amlin from the third partymembers. Overall these transactions have no impact on profit for the year. Forthe 2004 year of account and onwards 100% of Syndicate 2001 capacity is owned bythe Group. 3 Investment return----------------------- ----------------------- ----------------- --------- --------- 2006 2005 £m £m----------------------- ----------------------- ----------------- --------- ---------Investment income- dividend income 4.5 2.1- interest income 67.7 66.7Cash and cash equivalents interest income 26.5 2.4----------------------- ----------------------- ----------------- --------- --------- 98.7 71.2----------------------- ----------------------- ----------------- --------- ---------Net realised gains/(losses) on financial assets- equity securities 7.4 12.2- debt securities (0.3) (6.0)----------------------- ----------------------- ----------------- --------- --------- 7.1 6.2----------------------- ----------------------- ----------------- --------- ---------Net fair value gains on assets at fair value through income statement- equity securities 10.3 12.5- debt securities (1.0) 1.0----------------------- ----------------------- ----------------- --------- --------- 9.3 13.5----------------------- ----------------------- ----------------- --------- --------- 115.1 90.9----------------------- ----------------------- ----------------- --------- --------- 4 Insurance claims and loss adjustment expenses------------------------------------------ --------- --------- 2006 2005 £m (restated) £m------------------------------------------ --------- ---------GrossCurrent year insurance claims and loss adjustment 515.7 991.6expensesReduced costs for prior period insurance claims (55.0) (79.5)------------------------------------------ --------- --------- 460.7 912.1Insurance claims and loss adjustment expenses relating tothe receipt of reinsurance to close (note 2) 78.8 78.6ReinsuranceCurrent year insurance claims and loss adjustmentexpenses (44.7) (436.2)recoverable from reinsurersAdditional costs for prior period claims recoverable fromreinsurers (13.8) (0.2)------------------------------------------ --------- --------- (58.5) (436.4)------------------------------------------ --------- ---------Total net insurance claims and loss adjustment expenses 481.0 554.3------------------------------------------ --------- --------- 5 Expenses for the acquisition of insurance contracts------------------------------------------ --------- --------- 2006 2005 £m £m------------------------------------------ --------- ---------Expenses for the acquisition of insurance contracts 203.4 173.4Changes in deferred expenses for the acquisition ofinsurance contracts (8.0) (3.2)------------------------------------------ --------- --------- 195.4 170.2------------------------------------------ --------- --------- 6 Other operating expenses ------------------------------------------ -------- --------Expenses related to underwriting 2006 2005 £m (restated) £m------------------------------------------ -------- --------Administrative expenses 71.9 64.8Underwriting exchange losses/(gains) 36.5 (25.7)------------------------------------------ -------- -------- 108.4 39.1------------------------------------------ -------- --------Other expenses------------------------------------------ -------- --------Central management and other expenses 7.2 2.8Asset management fees 1.3 2.3Marketing and administration 0.5 0.6Depreciation 0.3 2.4Employee incentives 18.6 24.2Group company exchange gains (9.6) ------------------------------------------- -------- -------- 18.3 32.3------------------------------------------ -------- --------Total 126.7 71.4------------------------------------------ -------- -------- 7 Tax ------------------------------------------ -------- -------- 2006 2005 £m (restated) £m------------------------------------------ -------- --------Current taxUK corporation tax 57.0 34.3Foreign tax (0.1) (1.6)------------------------------------------ -------- -------- 56.9 32.7------------------------------------------ -------- --------Deferred tax - current yearMovement in assets 4.8 4.1Movement in liabilities 13.2 9.7------------------------------------------ -------- -------- 18.0 13.8------------------------------------------ -------- --------Taxes on income 74.9 46.5------------------------------------------ -------- -------- In addition to the above, deferred tax £1.3 million (2005: £1.7 million credit)has been credited directly to equity. Underwriting profits and losses are recognised in the technical account on anannual accounting basis, recognising the results in the period in which they areearned. Corporation tax is charged in the period in which the underwritingprofits are actually paid by the Syndicate to the corporate names. Deferred tax is provided on the annually accounted underwriting result withreference to the forecast ultimate result of each of the years of accountincluded in the annually accounted underwriting. Where the forecast ultimateresult for a year of account is a taxable profit, deferred tax is provided infull on the movement on that year of account included in this period's annuallyaccounted underwriting result. Where the forecast ultimate result for a year ofaccount is a loss, deferred tax is only provided for on the movement on thatyear of account included in this period's annually accounted Syndicateunderwriting result to the extent that forecasts show that the taxable loss willbe utilised in the foreseeable future. Deferred tax has been provided on theannually accounted underwriting result for this accounting period of £218.4million (2005: £143.3 million). Deferred tax assets on loss provisions in respect of non-aligned syndicateparticipations (see note 10) are only provided for, to the extent that forecastsshow that it is more likely than not that the ultimate taxable underwritinglosses represented by these provisions will be utilised within the foreseeablefuture. Deferred tax has been provided in full on non-aligned syndicate lossparticipation provisions of £3.8 million (2005: £4.5 million). 7 Tax (continued) Reconciliation of tax expense The UK standard rate of corporation tax is 30% (2005: 30%), whereas the currenttax assessed for the year ended 31 December 2006 as a percentage of profitbefore tax is 21.9% (2005 (restated): 24.9%). The reasons for this differenceare explained below:------------------------------- -------- -------- -------- -------- 2006 2006 2005 2005 £m % (restated) (restated) £m %------------------------------- -------- -------- -------- --------Profit before tax 342.7 186.7------------------------------- -------- -------- -------- --------Taxation on profit on ordinaryactivitiescalculated at the standard rate of corporation tax in the UK 102.8 30.0 56.0 30.0Non-deductible or non-taxable items 4.5 1.3 (0.2) (0.1)Utilisation of unprovided forcapital losses (3.8) (1.1) (7.1) (3.8)Tax rate differences on overseassubsidiaries (29.3) (8.5) - -Under/(over) provision in respect ofprior periods 0.8 0.2 (0.6) (0.3)Irrecoverable overseas tax (0.1) - (1.6) (0.9)------------------------------ -------- -------- -------- --------Taxes on income 74.9 21.9 46.5 24.9------------------------------ -------- -------- -------- -------- The Group's tax provision for 2006 and 2005 has been prepared on the basis thatthe Group's Bermudian subsidiaries are non-UK resident for UK corporation taxpurposes. The corporation tax rate for Bermudian companies is currently 0%(2005: 0%). A deferred tax liability of £8.9million (2005:£nil) has been provided for onprofits of the Group's overseas subsidiaries expected to be distributed in theforeseeable future. A deferred tax liability has not been provided on theundistributed profits of the overseas subsidiaries of £69.1 million (2005: £2.4million) as the parent company has determined not to distribute these profits inthe foreseeable future. A deferred tax asset of £5.4 million (2005: £5.7 million) has been taken onexisting capital losses to match against deferred tax provisions of £6.4 million(2005: £5.7 million) on unrealised capital gains arising within the Group duringthis accounting period. As all capital losses have now been provided for theGroup will not in future periods enjoy the reduction in its effective tax ratearising from the utilisation or provision of previously unprovided capitallosses as in previous years. The Group is subject to US tax on US underwriting profits. No provision has beenmade in respect of such tax arising in 2006 as any net provision is likely to beimmaterial and would be offset by brought forward US tax losses in the Group. 7 Tax (continued) Deferred income tax The deferred tax asset is attributable to temporary differences arising on thefollowing: ------------------ -------- -------- -------- -------- -------- -------- Provisions Other Capital Pension Other Total for losses provisions losses provisions timing differences £m £m £m £m £m £m------------------ -------- -------- --------- -------- -------- --------At 1 January 2006(restated) 1.2 7.8 5.7 3.3 6.4 24.4Movements inthe year (0.1) (2.1) (0.3) (1.3) (1.0) (4.8)Movement through equity in the year - - - - 1.3 1.3----------------- -------- -------- --------- -------- -------- --------At 31 December 2006 1.1 5.7 5.4 2.0 6.7 20.9----------------- -------- -------- --------- -------- -------- -------- Included within the opening balance for deferred tax under "Pension provisions"is an increase of £3.3m representing the deferred tax element on the change inaccounting for pension liabilities. The deferred tax liability is attributable to temporary differences arising onthe following: ------------------ --------- --------- --------- --------- --------- Underwriting Unrealised Syndicate Other Total results capital gains capacity timing differences £m £m £m £m £m------------------ --------- --------- --------- --------- ---------At 1 January2006 73.5 5.7 3.0 - 82.2Movements inthe year 2.5 0.7 1.1 8.9 13.2------------------ --------- --------- --------- --------- ---------At 31 December2006 76.0 6.4 4.1 8.9 95.4------------------ --------- --------- --------- --------- --------- Deferred tax assets have been provided for on all capital losses carried forwardof £18 million (2005: capital losses unprovided for £12.7 million) Deferred tax assets have not been provided on US net operating losses of £31.0million (2005:£43.3 million) carried forward due to uncertainty over theirfuture use. 8 Net foreign exchange (losses)/gains The Group's incurred foreign exchange losses of £26.9 million (2005: £31.9million gain) during the year. The Group writes business in many currencies and although a large amount of theGroup's balance sheet assets and liabilities are matched, minimising the effectof movements in foreign exchange rates on the Group's result, it is not possibleor practical to match exactly all assets and liabilities in currency andaccounting standards dictate that certain classes of assets and liabilities betranslated at different rates (see Foreign currency translation accountingpolicy). Included within the Group's incurred foreign exchange losses on translatingnon-monetary assets and liabilities at historic average rates amounted to £27.9million (2005: £26.2 million gain). Foreign exchange gains/(losses) on investments in overseas subsidiaries aretaken directly to reserves in accordance with IAS21, The Effects of Changes inForeign Exchanges. Amlin Bermuda Ltd and Amlin Bermuda Holdings Limited reportin US dollars. The loss taken to reserves for the year ended 31 December 2006was £77.1 million (2005: £3.8 million gain). This reflects the Group'sinvestment of $1 billion of capital in Amlin Bermuda Ltd at the movement in thedollar rate from 1.72 at the start of the year to 1.96 at the balance sheetdate. 9 Financial investments --------------------------------- ------- ------- ------- ------- At valuation At valuation At cost At cost 2006 2005 2006 2005 £m £m £m £m --------------------------------- ------- ------- ------- -------Shares and other variableyield securities 291.4 116.2 260.8 96.2Debt and other fixed incomesecurities 1,599.6 1,142.1 1,599.8 1,149.5Participation in investmentpools 126.6 703.8 111.7 688.7Deposits with creditinstitutions 294.2 62.3 268.0 62.3Overseas deposits 55.9 51.9 55.9 51.9Other - 1.9 - 1.9--------------------------------- ------- ------- ------- ------- 2,367.7 2,078.2 2,296.2 2,050.5 --------------------------------- ------- ------- ------- -------In Group owned companies 1,105.0 920.7 1,140.3 885.8In Syndicate 2001 1,257.1 1,151.7 1,150.3 1,158.9In non-aligned syndicatesparticipations 5.6 5.8 5.6 5.8--------------------------------- ------- ------- ------- ------- 2,367.7 2,078.2 2,296.2 2,050.5 --------------------------------- ------- ------- ------- -------Listed investments included inGroup: --------------------------------- ------- ------- ------- -------Shares and other variableyield securities 291.4 116.2 230.7 96.2Debt and other fixed incomesecurities 1,596.7 104.1 1,599.6 103.3--------------------------------- ------- ------- ------- ------- 1,888.1 220.3 1,830.3 199.5--------------------------------- ------- ------- ------- ------- £382.1 million (2005: £276.7 million) of the Group's investments are charged toLloyd's to support the Group's underwriting activities. Overseas deposits represent balances held with overseas regulators to permitunderwriting in certain territories. The assets are managed by Lloyd's on a pooled basis. 9 Financial investments (continued) ------------------------------------------ -------- -------- 2006 2005 £m £m------------------------------------------ -------- --------At 1 January 2,078.2 1,302.5Exchange adjustments (68.5) 46.0Net purchases 341.6 710.0Realised gains on disposals 7.1 6.2Unrealised investment gains 9.3 13.5------------------------------------------ -------- --------At 31 December 2,367.7 2,078.2------------------------------------------ -------- -------- 10 Insurance contracts and reinsurance assets ------------------------- --------- --------- --------- --------- Unearned Other insurance Claims premium assets and reserves reserves liabilities Total £m £m £m £m------------------------- --------- --------- ---------- ---------Insurance liabilitiesAt 1 January 2005 1,103.3 517.3 46.0 1,666.6Movement in the year 525.5 6.5 65.6 597.6Exchange adjustments 75.5 - 3.2 78.7------------------------ --------- --------- ---------- ---------At 31 December 2005 1,704.3 523.8 114.8 2,342.9Movement in the year (156.8) 27.7 (36.1) (165.2)Exchange adjustments (130.0) (6.0) (10.1) (146.1)------------------------ --------- --------- ---------- ---------At 31 December 2006 1,417.5 545.5 68.6 2,031.6------------------------ --------- --------- ---------- --------- Reinsurance assetsAt 1 January 2005 318.6 24.9 261.3 604.8Movement in the year 262.0 (0.7) 106.8 368.1Exchange adjustments 24.0 - 19.2 43.2------------------------ --------- --------- ---------- ---------At 31 December 2005 604.6 24.2 387.3 1,016.1Movement in the year (198.7) 13.5 (54.5) (239.7)Exchange adjustment (48.9) - (32.2) (81.1)------------------------ --------- --------- ---------- ---------At 31 December 2006 357.0 37.7 300.6 695.3------------------------ --------- --------- ---------- --------- Other insurance liabilities are comprised principally of premium payable forreinsurance, including reinstatement premium. Other insurance assets arecomprised principally of amounts recoverable from reinsurers in respect of paidclaims and premium receivable on inward reinsurance business, includingreinstatement premium. 10 Insurance contracts and reinsurance assets (continued) The claims reserves are further analysed between notified outstanding claims andincurred but not reported claims below:--------------------------------------- --------- --------- 2006 2005 £m £m--------------------------------------- --------- ---------Notified outstanding claims 843.4 1,121.8Claims incurred but not reported 574.1 582.5--------------------------------------- --------- ---------Insurance contracts claims reserve 1,417.5 1,704.3--------------------------------------- --------- --------- It is estimated, using historical settlement trends, that £564.2 million (2005:£497.4 million) of the claims reserves included in the above analysis, as at 31December 2006, will settle in the next twelve months. From 1994 to 1999 the Group participated on a number of Lloyd's syndicates otherthan those managed by the Group. From 2000 the Group ceased to underwritedirectly on non-aligned syndicates. However, a number of syndicates remain"open" and Amlin's final liabilities are still to be finalised. Provisions aremade for potential future insurance claims. Included within the claimsprovisions in the table above are provisions in respect of "non-alignedsyndicate participations" of £4.2 million (2005:£4.5 million). Syndicates thatremain open at 31 December 2006 are set out in the table below. Syndicate capacity-------------------- ---------- ---------- ---------- ----------Managing agent Non-aligned 1999 1998 1997 syndicate £m £m £m-------------------- ---------- ---------- ---------- ----------Non-marineJago Managing Agency Ltd 205 2.25 - -A E Grant (UnderwritingAgencies) Ltd 991 2.93 2.35 -Duncanson & Holt SyndicateManagement Ltd 1101 - 2.50 2.50--------------------- ---------- ---------- ---------- ---------Total non-marine 5.18 4.85 2.50-------------------- ---------- ---------- ---------- ----------MotorOckham Personal Insurance AgencyLtd 37 4.64 - --------------------- ---------- ---------- ---------- ----------AviationDuncanson & Holt SyndicateManagement Ltd 957 - 3.00 3.00-------------------- ---------- ---------- ---------- ----------Total capacityCapacity remaining open at 31December 2006 9.82 7.85 5.50-------------------- ---------- ---------- ---------- ---------- 11 Loans and receivables, including insurance receivables ------------------------------------------ -------- -------- 2006 2005 £m £m------------------------------------------ -------- --------Receivables arising from insurance contracts 98.0 103.9Deferred acquisition costs 118.3 110.4------------------------------------------ -------- --------Insurance receivables 216.3 214.3------------------------------------------ -------- --------Other debtors 22.6 116.4Prepayments and other accrued income 29.0 16.5------------------------------------------ -------- --------Loans and receivables 51.6 132.9------------------------------------------ -------- -------- 2006 2005 £m £m------------------------------------------ -------- --------Current portion 267.1 347.2Non-current portion 0.8 ------------------------------------------- -------- -------- 267.9 347.2------------------------------------------ -------- --------The reconciliation of opening and closing deferredacquisition costs is as follows: -------- -------------------------------------------------- 2006 2005 £m £m------------------------------------------ -------- --------At 1 January 110.4 107.2Exchange adjustments (0.1) -Movements in the year 8.0 3.2------------------------------------------ -------- --------At 31 December 118.3 110.4------------------------------------------ -------- -------- 12 Share capital --------------------- ----------- -------- ----------- --------Authorised ordinary shares of25p 2006 2006 2005 2005each Number £m Number £m--------------------- ----------- -------- ----------- --------At 31 December 800,000,000 200.0 562,000,000 140.5--------------------- ----------- -------- ----------- -------- Allotted, called up and fully 2006 2006 2005 2005paid Number £m Number £m--------------------- ----------- -------- ----------- --------At 1 January 530,113,127 132.5 395,089,608 98.8Scrip dividend alternativeshares issued - - 3,070,054 0.8Shares issued on exercise ofoptions 3,893,593 1.0 4,148,392 1.0Rights issue - - 127,805,073 31.9--------------------- ----------- -------- ----------- --------At 31 December 534,006,720 133.5 530,113,127 132.5--------------------- ----------- -------- ----------- -------- The shares issued on exercise of options were issued for a total considerationof £3.7 million at an average price of 98.00 pence per share (2005: £3.5million, average price 86.48 pence). The scrip dividend shares were issued on 24 May 2005 in respect of the 2004final dividend at a reference share price of 165.92 pence per share. Subsequentdividends did not offer a scrip dividend alternative. 127,805,073 new shares were issued via a 7 for 22 rights issue which closed onthe 25 November 2005 with the new shares being issued on the following tradingday, 28 November 2005. The rights issue raised £223.7 million gross, and £214.7million net of expenses. The balance of the capital raised not including theshare capital, £182.8 million, is included in the share premium reserve,analysed as gross £191.8 million and expenses of £9.0 million. 13 Borrowings ----------------------------------------- -------- -------- 2006 2005 £m £m----------------------------------------- -------- --------Bank loans 0.9 241.0Finance lease creditors - 0.1Subordinated debt 277.9 57.1----------------------------------------- -------- -------- 278.8 298.2----------------------------------------- -------- -------- ----------------------------------------- -------- -------- 2006 2005 £m £m----------------------------------------- -------- -------- Current portion 0.9 148.8Non-current portion 277.9 149.4----------------------------------------- -------- -------- 278.8 298.2----------------------------------------- -------- -------- The directors' estimation of the fair value of the Group's borrowings is £306.3million (2005: £299.1 million). The Group's borrowings comprise three issues of subordinated debt. Details of the subordinated debt issues are as follows: Issue date Principal Reset date Maturity date Interest rate Interest rate amount to reset date from reset date to maturity date % % ------------ ---------- ----------- ----------- --------- ----------- 23 November 2004 $50m Nov 2014 Nov 2019 7.11 LIBOR + 3.4815 March 2005 $50m Mar 2015 Mar 2020 7.28 LIBOR + 3.3220 April 2006 £230m Apr 2016 Apr 2026 6.50 LIBOR + 3.48 The bonds will be redeemed on the maturity dates at the principal amounts,together with accrued interest. The Company has the option to redeem the bondsin whole, subject to certain requirements, on the reset dates or any interestpayment date thereafter at the principal amount plus accrued interest. 13 Borrowings (continued) The old debt facility, entered into in November 2005, consisted of the followingarrangements: • A £170 million term loan bridge facility. The rate of interest was LIBOR plus 0.75% up to 30 June 2006 and LIBOR plus 1.0% thereafter. Only £150 million of the facility has been utilised to date and of this £100 million was repaid in June 2006, £36 million in July 2006 and the balance of £14 million was repaid in August 2006. • A £20 million term loan. The rate of interest is LIBOR plus 1.5%, plus mandatory costs. The loan was repaid in full in April 2006. • A $125 million revolving credit facility. The rate of interest is LIBOR plus 1.5%, plus mandatory costs. $105 million of the loan was repaid in April 2006 and the balance of $20 million was repaid in June 2006. • A £150 million letter of credit (LOC) facility. This was deposited with Lloyd's in November 2005 as part of the Group's Funds at Lloyd's (FAL) required to support underwriting on Syndicate 2001. The LOC was replaced with part of the proceeds from the issue of the subordinated debt in April 2006. Currently the facility is not being utilised but is being retained to provide additional financial strength and flexibility. On 13 November 2006 the Company entered into a new debt facility with its banks,which replaced the 2005 facility. The new facility is available for three yearsfrom the signing date and provides an unsecured £200 million multicurrencyrevolving credit facility available by way of cash advances or sterling LOC. Thefacility is guaranteed by the Company's subsidiaries Amlin Corporate ServicesLimited and Amlin Investments Limited. In December 2006 Amlin Bermuda Ltd entered into a $300 million LOC and RevolvingCredit Facility. The facility comprised a secured LOC facility for $200 millionfor a three year term and an unsecured revolving credit facility for $100million for a term of 364 days, twice renewable. The secured LOC facility issecured by a registered charge over a portfolio of assets managed by AberdeenAsset Management Limited with State Street Bank and Trust Company as custodian.As at 31 December 2006 $1.7 million LOCs were issued with an additional $8.8million LOCs issued in January 2007 Obligations due under finance leases and hire purchase contracts are payable asfollows:------------------------------------------ --------- ------ 2006 2005 £m £m------------------------------------------ --------- ------Within one year 0.1 0.1Within two to five years - 0.1------------------------------------------ --------- ------ 0.1 0.2------------------------------------------ --------- ------ 14 Earnings and net assets per share Earnings per share are based on the profit attributable to shareholders and theweighted average number of shares in issue during the period. Shares held by theEmployee Share Ownership Trust (ESOT) are excluded from the weighted averagenumber of shares. ------------------------------------- ----------- ---------Basic and diluted earnings per share are as follows: 2006 2005 (restated)------------------------------------- ----------- ---------Profit attributable to equity holders of the Parent £267.5m £140.2mCompany ------------------------------------- ----------- ---------Weighted average number of shares in issue 531.8m 408.8mDilutive shares 6.4m 6.6m------------------------------------- ----------- ---------Adjusted average number of shares in issue 538.2m 415.4m------------------------------------- ----------- ---------Basic earnings per share 50.4p 34.3pDiluted earnings per share 49.8p 33.7p------------------------------------- ----------- --------- ------------------------------------- ----------- ----------Basic and tangible net assets per share are as follows: 2006 2005 (restated)------------------------------------- ----------- ----------Net assets £936.4m £784.8mAdjustments for intangible assets (£66.0m) (£66.0m)------------------------------------- ----------- ----------Tangible net assets £870.4m £718.8m------------------------------------- ----------- ----------Number of shares in issue at end of period 534.0m 530.1mAdjustment for ESOT shares (0.8m) (2.2m)------------------------------------- ----------- ----------Basic number of shares after ESOT adjustment 533.2m 527.9m------------------------------------- ----------- ----------Net assets per share 175.6p 148.7p------------------------------------- ----------- ----------Tangible net assets per share 163.2p 136.2p------------------------------------- ----------- ---------- 15 Dividends The amounts recognised as distributions to equity holders are as follows: ------------------------------------ ----------- ---------Group 2006 2005 £m £m------------------------------------ ----------- ---------Final dividend for the year ended: - 31 December 2004 of 5.0 pence per ordinary share - 19.7 - 31 December 2005 of 6.2 pence per ordinary share 25.0 -Interim dividend for the year ended: - 31 December 2005 of 4.0 pence per ordinary share - 15.9 - 31 December 2006 of 4.2 pence per ordinary share 22.4 ------------------------------------- ----------- --------- 47.4 35.6------------------------------------ ----------- --------- The dividends for 2004 and 2005 were paid in a combination of cash and scripdividend shares. The 2006 interim dividend was paid solely in cash. The amountspaid in cash and scrip dividend shares were as follows:------------------------------------ ----------- --------- 2006 2005 £m £m------------------------------------ ----------- ---------Cash 22.4 30.5Scrip dividend - 5.1------------------------------------ ----------- --------- 22.4 35.6------------------------------------ ----------- --------- The final ordinary dividend of 7.8 pence per ordinary share for 2006, amountingto £41.7 million, payable in cash, and a special dividend of 8.0 pence perordinary share, amounting to £42.7 million, payable in cash, were approved bythe Board on 2 March 2007 and have not been included as a liability as at 31December 2006. 16 Principal exchange rates The principal exchange rates used in translating foreign currency assets,liabilities, income and expenditure in the production of these financialstatements were: ------------------------------------ ----------- --------- Average rate Year end rate 2006 2005 2006 2005------------------------------------ ----------- ---------US dollar 1.84 1.82 1.96 1.72Canadian dollar 2.09 2.21 2.28 2.01Euro 1.47 1.46 1.48 1.46------------------------- --------- --------- --------- --------- 17 Contingent liabilities The Group has entered into various deeds of covenant in respect of certaincorporate member subsidiaries to meet each such subsidiary's obligations toLloyd's. At 31 December 2006, the total guarantee given by the Group under thesedeeds of covenant (subject to limited exceptions) amounted to £382.1 million(2005: £276.7 million). The obligations under the deeds of covenant are securedby a fixed charge over investments of the same value at the relevant valuationdate and a floating charge over all the investments and other assets of AmlinInvestments Limited, in favour of Lloyd's. A floating charge granted to Lloyd'sby the Company was also outstanding at the year end but has since been releasedby Lloyd's in January 2007. Lloyd's has the right to retain the income on thecharged investments, although it is not expected to exercise this right unlessit considers there to be a risk that one or more of the covenants might need tobe called and, if called, might not be honoured in full. As liability under each deed of covenant is limited to a fixed monetary amount,the enforcement by Lloyd's of any deed of covenant in the event of a default bya corporate member, where the total value of investments has fallen below thetotal of all amounts covenanted, may result in the appropriation of a share ofthe Group's Funds at Lloyd's that is greater than the proportion which thatsubsidiary's overall premium limit bears to the total overall premium limit ofthe Group's Lloyd's underwriting. £150 million of LOCs deposited with Lloyd's in November 2005 pursuant to theLloyd's deposit trust deeds for Funds at Lloyd's were replaced with £150 millionof assets on 3 May 2006. The new debt facility is guaranteed by the Company's subsidiaries AmlinCorporate Services Limited and Amlin Investments Limited. The new debt facility for Amlin Bermuda Ltd is secured by a registered chargeover a portfolio of assets managed by Aberdeen Asset Management Limited withState Street Bank and Trust Company as custodian (see note 13). As at 31December 2006 $1.7 million LOCs were issued with an additional $8.8 million ofLOCs issued in January 2007 18 Cash generated from operations ---------------------------------- ------- --------- ---------Group cash generated from operations Notes 2006 2005 £m (restated) £m---------------------------------- ------- --------- ---------Profit before tax 342.7 186.7Net movement on Premium Trust Funds fornon-aligned - (2.9)participationsDepreciation charge 3.2 2.1Interest paid 24.1 9.2Interest received (97.5) (65.3)Dividends received (4.5) (2.0)Realised/unrealised losses/(gains) on (16.4) (13.5)investmentsNet purchases of financial investments (349.4) (752.4)Decrease/(increase) in loans and receivables 79.3 (64.9)Decrease/(increase) in reinsurance contract 320.8 (411.5)assets(Decrease)/increase in insurance contract (311.1) 679.2liabilitiesIncrease/(decrease) in trade and other payables 1.3 (2.7)Increase in retirement benefits (4.9) (4.1)Exchange (gains)/losses on long term borrowings (11.6) (5.3)Other non-cash movements 3.8 ----------------------------------- ------- --------- ---------Cash generated from operations (20.2) (447.4)---------------------------------- ------- --------- --------- 19 Group owned net assets The assets and liabilities attributable to Group owned companies, as opposed tothe Group's syndicate participations, are summarised below: ------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- In Group In In Total In Group In In Total owned syndicates Amlin Bermuda 2006 owned syndicates Amlin Bermuda 2005 Ltd Ltd companies 2006 2006 £m companies 2005 2005 £m 2006 £m £m 2005 £m £m £m £m ------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------InvestmentsFinancialinvestments 468.2 1,257.4 642.1 2,367.7 337.3 1,157.5 583.4 2,078.2Other assetsIntangibleassets 66.0 - - 66.0 66.0 - - 66.0Property andequipment 4.6 - 1.6 6.2 5.8 - 0.2 6.0Cash and cashequivalents 14.4 (0.2) 2.3 16.5 12.6 52.4 0.6 65.6Loans andreceivables -insuranceassets (32.5) 159.3 89.5 216.3 (2.8) 214.2 2.9 214.3Loans andreceivables -other (10.6) 59.3 2.9 51.6 38.2 94.5 0.2 132.9Deferredincome tax 20.9 - - 20.9 24.4 - - 24.4Current incometax 2.0 4.3 - 6.3 3.7 - - 3.7Reinsuranceassets (56.0) 751.3 - 695.3 - 1,016.1 - 1,016.1------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------Total assets 477.0 2,231.4 738.4 3,446.8 485.2 2,534.7 587.3 3,607.2------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 19 Group owned net assets (continued) In Group In In Total In Group In Group owned syndicates Amlin Bermuda 2006 owned owned LtdCurrentliabilities companies 2006 2006 £m companies companies 2006 £m £m 2005 2006 £m £m £mTrade andother payables (35.9) (20.5) (1.5) (57.9) (52.0) (3.4) (1.0) (56.4)Current incometaxliabilities (28.7) - - (28.7) (19.6) - - (19.6)Borrowings - (0.9) - (0.9) (148.8) - - (148.8)------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- (64.6) (21.4) (1.5) (87.5) (220.4) (3.4) (1.0) (224.8)------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Non-currentliabilitiesTrade andother payables (10.5) - - (10.5) (10.6) (0.1) - (10.7)Borrowings (277.9) - - (277.9) (149.4) - - (149.4)Retirementbenefitobligations (7.5) - - (7.5) (12.4) - - (12.4)Deferred taxliabilities (95.4) - - (95.4) (82.2) - - (82.2)------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- (391.3) - - (391.3) (254.6) (0.1) - (254.7)------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- (455.9) (21.4) (1.5) (478.8) (475.0) (3.5) (1.0) (479.5)Insurancecontracts 84.0 (1,981.8) (133.8) (2,031.6) (4.5) (2,335.5) (2.9) (2,342.9)------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------Consolidatedshareholders'funds at 31December 105.1 228.2 603.1 936.4 5.7 195.7 583.4 784.8------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- The assets of the Syndicate included above are held in regulated trust funds andare only available to pay syndicate related expenditure. 19 Group owned net assets (continued) The table below sets out the Group's share of the Syndicate assets andliabilities by currency at 31 December: Amlin Bermuda Ltd Syndicate 2001----------------------------- ------------------ ------------------- ---------- ----------- Assets Liabilities Assets Liabilities Net Net £m £m £m £m 2006 2005 £m £m----------------------------- ---------- ---------- ---------- ----------- ---------- -----------Sterling - - 772.1 (685.9) 86.2 196.1US dollar 738.4 (135.3) 1,262.0 (1,146.0) 719.1 553.0Can dollar - - 66.8 (49.3) 17.5 17.7Euro - - 130.5 (122.0) 8.5 12.3----------------------------- ---------- ---------- ---------- ----------- ---------- ----------- 738.4 (135.3) 2,231.4 (2,003.2) 831.3 779.1----------------------------- ---------- ---------- ---------- ----------- ---------- ----------- 20 Financial information and posting of accounts The financial information set out above does not constitute the Company'sstatutory accounts for the year ended 31 December 2005 or 2006, but is derivedfrom those accounts. Statutory accounts for 2005 have been delivered to theRegistrar of Companies and those for 2006 will be delivered following theCompany's Annual General Meeting. The auditors have reported on those accounts;their reports were unqualified and did not contain statements under Section 237(2) or (3) of the Companies Act 1985. The audited Annual Report and Accounts for 2006 are expected to be posted toshareholders by no later than 6 April 2007. Copies of the Report may be obtainedfrom that date by writing to the Company Secretary, Amlin plc., St Helen's, 1Undershaft, London, EC3A 8ND. The Annual General Meeting of the Company will beheld at the same address at noon on Thursday, 24 May 2007. The preliminary Results were approved by the Board on 2 March 2007. This information is provided by RNS The company news service from the London Stock Exchange

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