Final Results

Brit Insurance Holdings N.V.

PRESS RELEASE

FOR IMMEDIATE RELEASE

25 february 2011

preliminary announcement for the year ended 31 december 2010

Financial highlights

Return on equity excluding the effect of foreign exchange on non-monetary items of 14.4% (2009: 17.4%)

Headline return on equity of 14.2% (2009: 12.2%)

Gross written premium of £1,530.2m, a reduction of 9.8% or 10.4% at constant currency. The reduction reflects active management of the underwriting portfolio and is in line with the Group's plan

Combined ratio excluding the effect of foreign exchange on non-monetary items of 97.1% (2009: 94.0%) affected by significantly higher charge for major claims during the year

Profit before tax excluding the effect of foreign exchange on non-monetary items of £119.2m (2009: £171.3m)

Profit after tax of £110.5m up 26.2% (2009: £87.5m) and earnings per share of 142.4p up 25.8% (2009: 113.2p)

Distributions of 60.5p paid during 2010 (2009: 60.0p). In light of the recommended cash offer by Achilles Netherlands Holdings B.V., no final distribution for 2010 has been recommended

Net tangible assets (NTA) per share of £11.41 represents growth of 8.5% during 2010

The calculation of adjusted NTA has been agreed with Achilles Netherlands Holdings B.V. (Achilles) as £11.21 resulting in the full 25p per share Contingent Value Payment (CVP)

Operational and strategic highlights

Successful first year with new Netherlands-based holding company

Continued active management of the underwriting portfolio throughout the business

Further talent attracted to the Group together with a number of senior appointments from within the business

Significant progress made on driving upper quartile performance throughout the Group as part of the "Average to Outperform" agenda

Dane Douetil, Chief Executive Officer of Brit Insurance Holdings N.V., commented:

"2010 was a year of solid and consistent progress for Brit insurance returning 14.4% on equity, with EPS up 25% to 142.4p and NTA growth of 8.5% to £11.41 a share. Much of the year was dominated by takeover discussions, finally culminating in October with a recommended offer for the Group by Achilles, a company majority-owned by Apollo and CVC. It is pleasing that strong year end NTA (£11.21 on an adjusted basis for the purpose of the CVP) will mean that the full 25 pence per share CVP, in addition to the £10.45 per share offered, will be paid by Achilles to accepting shareholders following successful completion of its acquisition of Brit Insurance.

"It is a testament to the dedication and hard work of everyone at Brit Insurance that in a year defined by stodgy pricing conditions and higher than average catastrophes that the Group's claims ratio improved by 1.5 percentage points to 60.7% and that the underlying attritional loss ratio improved by five percentage points. The Group was able to keep its costs broadly flat despite a more intrusive and costly regulatory environment and the significant costs for the implementation of Solvency II. The UK needs to guard carefully against becoming uncompetitive as the cocktail effect of costly regulation and the potential over-engineering of Solvency II relative to the rest of Europe pushes even more business overseas.

"Brit Insurance is in good shape with its strong franchise, recognisable brand and well diversified customer base to take advantage of the opportunities that will arise from its move to private ownership."

Financial highlights

1 Under International Financial Reporting Standards (IFRS), unearned premium and deferred acquisition costs are classified as non-monetary items and therefore translated at historic exchange rates. Corresponding monetary items are translated at closing rates. If non-monetary items were to be translated at closing rates, the 2010 result would increase by £2.8m (2009 result increase by £54.9m).

2 Excluding the effect of foreign exchange on non-monetary items.

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Notes to Editors

Brit Insurance is an international general insurance and reinsurance group specialising in commercial insurance. The Group writes a diverse portfolio of insurance and reinsurance, offering worldwide protection. The scope is wide-ranging: from sole traders to the largest multinational corporations; from manufacturers to professional services; from shops to satellites. Our distribution model is centred on brokers and intermediaries. Reflecting where our customers trade, we are organized into three strategic business units - Global Markets, UK and Reinsurance - which have access to our underwriting platforms including Brit Insurance Limited and our Lloyd's syndicate, Syndicate 2987.

www.britinsurance.com

This document does not constitute or form part of, and should not be construed as, an offer for sale or subscription of, or solicitation of any offer or invitation or advice or recommendation to subscribe for, underwrite or otherwise acquire or dispose of any securities (including share options and debt instruments) of the Company nor any other body corporate nor should it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever which may at any time be entered into by the recipient or any other person, nor does it constitute an invitation or inducement to engage in investment activity under Section 21 of the Financial Services and Markets Act 2000 (FSMA). This document does not constitute an invitation to effect any transaction with the Company or to make use of any services provided by the Company. Past performance cannot be relied on as a guide to future performance.

Chairman's statement

Result

I am pleased to announce that the Group recorded profit before tax of £119.2m and a return on equity of 14.4% (both excluding the effect of foreign exchange on non-monetary items). This is a good result given the increased major claim burden faced by the Group and the continued tough economic conditions.

Strategic progress during 2010

2010 was a quieter period in terms of headline strategic activity but underlying this a huge effort has been put in by all staff to build on the "Average to Outperform" programme established in 2009. This programme is designed to raise performance across the entire Group and develop a culture of outperformance. Major strides have been made during 2010 in terms of managing and optimising the underwriting portfolio, as can be seen in the significant improvement to Global Markets's attritional claims ratio, improving expense efficiency and the continuation of talent management through internal promotions and external recruitment. Managing the underwriting portfolio has constrained growth but has already improved its underlying quality. Much of the benefit from these initiatives will become evident over the coming years.

Recommended cash offer by Achilles Netherlands Holdings B.V.

On 26 October 2010 Brit Insurance announced that the Independent Directors of the Board were recommending a cash offer from Achilles. The per share proposal of 1045p, a Contingent Value Payment (CVP) of up to 25p and the 2010 interim distribution valued each Brit Insurance share at up to 1100p. The acquisition of the Group is expected to close during the first quarter of 2011.

Shareholder distributions

In light of the recommended cash offer from Achilles, the Board is not recommending a final distribution for 2010. Shareholders have, however, received distributions of 60.5p per share during 2010 in the form of reductions in the par value of each share.

Board of Directors

In December 2010, Matthew Scales stepped down from the Board after 15 years with the Group and the last ten years as Group Finance Director, I would like to take this opportunity to once again thank Matthew for his service over the years and his steadfast loyalty to the Group.

In the event that the acquisition of the Group by Achilles is successful, there will be a number of changes to the Board. A number of the Non-Executive Directors including me will step down and be replaced by six new Non-Executive Directors. These appointments were approved by shareholders in December 2010 and will take effect once the offer is declared unconditional. I wish to thank all the Board Directors for their service and wisdom, and wish the new Directors good luck in steering the Group through the next stage of its development.

John Barton

Chairman

24 February 2011

Financial results

In 2010 Brit Insurance produced a return on equity excluding the effect of foreign exchange on non-monetary items of 14.4% (2009: 17.4%). The lower return reflects lower premium volumes, a higher burden of major claims and lower investment returns, partially offset by a lower tax charge.

1 Excluding the effect of foreign exchange on non-monetary items

Premiums

Gross written premium (GWP) for the 12 months to 31 December 2010 fell 9.8% to £1,530.2m (2009: £1,696.4m). This reflected the Group's active management of the underwriting portfolio and the non-recurrence of prior year premium adjustments experienced in 2009. At constant exchange rates the reduction was 10.4% (2009: growth of 10.4%) and excluding the movement on the re-estimation of prior year premium, which primarily arose in the Reinsurance SBU, underlying premium fell by 3.8%.

2 Includes the run-off of historic participations including Life Syndicate 389.

Premium rate increases for the year were 1.0% (2009: 4.8%) with either flat or increasing rates in each of the Group's three SBUs. The UK experienced the highest rate increases at 3.0% aided by rate increases of over 10% in Motor. Within Global Markets, rate increases mainly fell within the -1% to +1% range, with overall rates flat. Reinsurance rates were marginally lower in Property lines and marginally higher in Casualty lines, whilst Marine XL experienced the highest rate increase at 7.6%.

During the year, the Group continued to manage actively its underwriting portfolio. Since 2008, Global Markets has non-renewed over £160m of premium as it exited lines of business that no longer produced acceptable returns. It also increased the weighting in short-tail lines in response to the economic and investment return environment. In 2010, the UK SBU continued this trend by exiting the Local Authority (Municipal) market as pricing levels did not reflect the anticipated outlook for claims. It also substantially reduced its exposure to Private Motor during the period. At the same time the UK SBU continued to expand its micro insurance product offering which maintains its strong growth profile.

Net written premium (NWP) fell by 13.1% to £1,278.4m (2009: £1,471.4m) and net earned premium (NEP) excluding the effect of foreign exchange on non-monetary items reduced by 12.2% to £1,312.7m (2009: £1,495.5m).

Underwriting

The Group combined ratio − excluding the effect of foreign exchange on non-monetary items - increased to 97.1% (2009: 94.0%) with a 1.5 percentage point reduction in the claims ratio offset by a 4.6 percentage point increase in the expense ratio. The combined ratios for Global Markets and UK were broadly stable at 97.7% and 99.8% respectively whereas the combined ratio for Reinsurance increased by 8.3 percentage points to 88.2%.

3 Includes the run-off of historic participations including Life Syndicate 389 and specific XL contracts underwritten by BIG.

The reduction in the Group claims ratio reflects a better underlying performance offset by an increase in major claims. Major claims in 2010 were £57.8m relating to the earthquakes in Chile (£29.9m) and New Zealand (£27.9m). These added 4.4 percentage points to the Group claims ratio (2009: £12m claims from Air France; 0.8 percentage points). Claims estimates for the Chilean earthquake continued to improve from initial estimates in March 2010 of £47m, subsequently revised in June 2010 to £44m.

Excluding the effect of major claims, the accident year attritional claims ratio improved by 5.0 percentage with each of the three SBUs showing an improvement. Most notable was Global Markets which saw an 8.4 percentage point improvement in its accident year attritional claims ratio, a reflection of the portfolio improvements made over the last two years.

As part of the Group's standard quarterly reserving reviews, the Group released £72.4m of claims reserves from prior years (2009: £81.2m) equivalent to 5.5 percentage points of net earned premium (2009: 5.4 percentage points of net earned premium). The Group experienced reserve releases in the majority of classes of business, particularly in Property (Global Markets and Reinsurance), Casualty Treaty Reinsurance and UK Liability.

The Group's reserving policy is to reserve at actuarial best estimate and in addition to retain a margin to allow for uncertainties.

The Group has benefited from consistent net reserve releases over the last five years as claims in the 2002 to 2004 underwriting years have settled materially below initial estimates. Modest releases have also been experienced on the 2005 and 2006 underwriting years. More recent underwriting years are at an earlier stage of development but the Group's reserving process over this period was unchanged from prior years.

The margin retained by the Group to allow for uncertainties over the actuarial best estimate is £40m, which has remained unchanged over the last three years. For many years the Group has had an external actuarial firm review the reserves annually and the internal actuarial best estimate has consistently been higher than the external best estimate, i.e. more conservative.

To aid understanding of the Group's reserving track record, the ultimate net loss ratios on an underwriting year basis are set out below. This table should be read horizontally and shows how over time the ultimate net loss ratio on each underwriting year develops from the level at which it was initially set. These figures are based on premium net of brokerage which is the basis on which the Group sets its claims reserves.

This data is based on an underwriting year approach and hence a significant amount of risk remains in force after one year. The ultimate net loss ratio after one year is therefore not necessarily a good indicator for the ultimate outcome as it can still be affected by new claim events. After two years the majority of risk has expired and consequently the movement in the ultimate net loss ratio from this point offers a better indicator of the reserving track record. For example the increase in the ultimate net loss ratio for 2009 is partially caused by claims from the Chile earthquake which, although occurring in 2010, relates to risks written in the 2009 (and to a lesser extent 2008) underwriting year.

In the 2005 to 2009 financial years the Group released cumulatively £364m from claims reserves (averaging £73m per annum) and this trend has continued in 2010 with a release of £72.4m. Taken together, the maintenance of a consistent margin and continued reserve releases demonstrates the strength of the Group's reserving position.

The expense ratio of 36.4% was 4.6 percentage points higher than 2009. The increase was due to a number of factors including higher commission levels arising from business mix and premium reductions (2.0 percentage points), the impact of lower earned premium on the direct cost ratio (1.2 percentage points) and higher regulatory levies and other direct costs including bonus accrual (1.4 percentage points).

The Group combined ratio, including the effect of foreign exchange on non-monetary items, was 97.6% (2009: 95.6%). See 'Foreign exchange' for more detail.

Other underwriting-related items

The charge relating to the Group's catastrophe swap contract with Fremantle Limited, which is accounted for as a derivative, was £1.8m in 2010 (2009: £4.8m). This contract expired in June 2010.

Investment return

The Group continued to maintain a cautious investment stance during 2010 with the majority of investments in cash and short-dated high quality bonds. Investment return was £113.4m for the period (2009: £137.4m), a return of 3.2% (2009: 4.2%). During the first nine months of 2010 the Group continued to benefit from the impact of falling yields on the mark to market of the fixed income portfolio, whilst equity markets failed to make significant headway. In the last quarter however, this reversed with strong equity markets offsetting weak bond markets as yields on government debt rose. Throughout the period specialised funds made solid returns and yields on cash holdings remained low.

The Investments section of this report contains a detailed breakdown of the investment portfolio and investment return for 2010.

Other corporate expenses

Other non-insurance related expenses, which include Group central costs as well as one-off project costs, decreased by 1.5% to £38.9m compared with 2009. The decrease arose from a lower number of one-off projects compared with 2009, but still included £2.8m in relation to the recommended cash offer by Achilles Netherlands Holdings B.V. The Group estimates that a further £8.6m of costs would be charged in 2011 if the recommended cash offer is declared wholly unconditional.

4 Excluding the effect of foreign exchange on non-monetary items.

Group headcount at 31 December 2010 was 746. Headcount has remained broadly constant since 31 December 2009 (741).

Foreign exchange

The Group experienced a total net foreign exchange benefit of £21.3m in 2010 (2009: £58.2m charge) made up of the following two elements.

The Group experienced a benefit of £24.1m in the period relating to a real gain on the revaluation of the element of the Group's capital that it holds in non-Sterling currencies. At 31 December 2010, £262.8m of the Group's net tangible assets were denominated in non-Sterling currencies.

Additionally, the Group recognised a charge of £2.8m relating to the IFRS requirement to recognise non-monetary assets and liabilities (DAC and UPR) at historic rather than closing exchange rates. At 31 December 2009, the difference between recognising non-monetary assets and liabilities at historic rather than closing exchange rates was an additional net liability of £0.9m. At 31 December 2010, the difference between recognising non-monetary assets and liabilities at historic rather than closing exchange rates was an additional £3.7m net liability. The charge in 2010 of £2.8m is the movement between the differences at 31 December 2009 and 31 December 2010.

On the basis that exchange rates remain constant, the additional net liability at 31 December 2010 of £3.7m will reverse as a gain to earnings during 2011. Figures relating to this adjustment are disclosed separately in the segmental information in the column 'Effect of foreign exchange on non-monetary items'. The Group considers this purely a timing difference in profit recognition and has therefore presented additional profit before tax and RoE figures excluding its effect.

The total foreign exchange related gain of £21.3m is made up of £29.3m 'Net foreign exchange gain' per the face of the income statement and a reclassification of part of the foreign exchange translation on non-monetary items to premium and acquisition costs. This latter adjustment can be seen in the column 'Effect of foreign exchange on non-monetary items' in Note 5 to the Financial Statements - Segmental information.

Associated undertakings

The Group's share of the result of associated undertakings was a loss of £1.8m (2009: loss of £2.3m). £0.8m of the loss relates to the Group's interest in Ri3K which was disposed of in December 2010. The loss on disposal of £0.4m is shown separately.

Profit before tax

The Group's profit before tax − excluding the effect of foreign exchange on non-monetary items − was £119.2m, a decrease of 30.4% over the prior period (2009: £171.3m). Including the effect of foreign exchange on non-monetary items, the profit before tax was stable at £116.4m (2009: £116.4m).

Tax

The Group's effective tax rate was 5.1% (2009: 24.8%) and benefited from the Group reorganisation, which was completed in late 2009, as well as favourable development relating to prior year provisions.

Net income, EPS and return on equity

Net income for the 12 months to 31 December 2010 was £110.5m compared to £87.5m in 2009. This translates into earnings per share (EPS) of 142.4p (2009: 113.2p) and return on equity of 14.2% (2009: 12.2%).

Excluding the effect of foreign exchange on non-monetary items, the annualised return on equity was 14.4% (2009: 17.4%).

Distributions

Distributions equivalent to 60.5p per share have been paid (2009: 60.0p paid) to shareholders during the year, with £41.1m being settled in cash and £5.9m in the form of new shares via the scrip option. Given the recommended cash offer by Achilles Netherlands Holdings B.V., the Board is not recommending a final distribution for the year ended 31 December 2010.

Net asset value

Net tangible asset value (NTA) of £889.8m was 9.4% higher than at 31 December 2009. This growth reflects the profit after tax for the period of £110.5m less the cash element of the 2009 final and 2010 interim distributions of £41.1m. NTA per share at 31 December 2010 was £11.41 compared with £10.52 at 31 December 2009, a growth of 8.5%.

Financing

On 9 November 2009 and as part of the Group reorganisation, the Group entered into a three-year revolving credit facility agreement for up to £175m with The Royal Bank of Scotland plc, Lloyds TSB Bank plc and Calyon. At 31 December 2010, £37.0m of the facility was drawn down (2009: £107.0m). At 24 February 2011, the facility was undrawn.

On 26 October 2010 the Group agreed to enter into a new £200m four-year revolving credit facility, effective if the acquisition of the Group by Achilles Netherlands Holdings B.V. is declared wholly unconditional, with The Royal Bank of Scotland plc, Lloyds TSB Bank Plc, Bank of America, N.A. and Citibank N.A., London Branch.

The Group gearing ratio at 31 December 2010 was 16.5% (31 December 2009: 25.1%). The Group's current appetite is to retain a gearing ratio below 30%.

Capital management

The main internal benchmark for assessing capital adequacy is management capital. This is defined as 120% of the Individual Capital Assessment (ICA), plus a capital buffer designed to deal with shock events. Management capital must at all times be covered entirely by net tangible assets and long-term debt. Throughout 2010 this condition was met.

* Subordinated borrowings which have at least five years remaining to maturity or call and are of the types which qualify as regulatory capital

The Group's capital position is currently in excess of regulatory requirements. On an Enhanced Capital Requirement (ECR) basis the Group's coverage at 31 December 2010 was estimated at 1.32 times. The ECR approach uses a common factor-based model to calculate required capital on a risk-by-risk basis and does not explicitly allow for the potential diversification within an individual company or group.

The Group's ICA requirement, however, is based on the Group's internal model and takes into account the Group's specific portfolio and recent and expected future performance. The Group's coverage of its ICA requirement is estimated at 1.49 times at 31 December 2010.

Solvency II

Following research and assessment of the potential impacts of Solvency II, the Group remains convinced that significant competitive advantage can be gained by those firms who embrace the change and use it to drive improvements within their business.

This approach has already led the Group to consider and implement key changes around its governance, risk processes and organisation, including the recent appointment of the Group Chief Risk Officer. We expect these changes to result in further improvements in how risk and reward are balanced throughout the business.

The Group also made significant progress towards Solvency II compliance including the successful completion of QIS5 for Brit Insurance Limited, Brit Syndicates Limited, Brit Insurance (Gibraltar) PCC Limited and the Brit Insurance Group.

Working closely with regulators resulted in the approval of the FSA to enter the Internal Model Approval Process (IMAP) and positive feedback from Lloyd's and the Gibraltar FSC on progress made to date. A strong dialogue with key regulators will be maintained during 2011 to gain Internal Model approval in line with the start of Solvency II.

The Solvency II framework continues to evolve, and Brit Insurance will continue its work with regulators and trade bodies to ensure a pragmatic and balanced approach continues through its implementation.

Strategic development during the year

2010 has been another key year in the development of Brit Insurance to become a leading international insurance and reinsurance group. Whilst the headlines may have been dominated by the recommended cash offer by Achilles Netherlands Holdings B.V., the real hard work of developing Brit Insurance has continued unabated. Thanks to the dedication of Brit Insurance's employees the Group ended 2010 in a far stronger position than it began the year.

Key highlights for 2010 include:

·; Developing the "Average to Outperform" programme that aims to take the Group's performance to the top quartile of its peer group

·; Continued active management of the underwriting portfolio, with underwriters supporting brokers and clients in areas where sustainable returns can be achieved − but willing to walk away where this is no longer the case

·; Managing the expense base so as to allow the flexibility to reduce top line when it is the right thing to do rather than slavishly following the market cycle

·; Further developing the talent within the organisation through a combination of promotion and advancement for key internal talent, high quality external hires and a more proactive approach to managing poor performance

Each of these developments, discussed in more detail below, is aimed at improving the sustainability and effectiveness of the operations and consequently supporting the relentless focus on improving return on equity.

Average to Outperform

In late 2009 an agenda which targeted top quartile performance across the Group was set out. This is known internally as "Average to Outperform". The focus during 2010 was on putting in place the necessary building blocks for delivering the changes required by this agenda.

Areas of focus have included enhanced external benchmarking, significantly improved underwriting analytical tools and management information, improved training for professional managers and underwriters, including a relaunched underwriters toolkit, and a series of workshops to help all Group staff understand the cultural and behavioural aspects of the change.

Whilst the framework for "Average to Outperform" is now in place, delivery will depend on how well this is translated into "business as usual", a journey that is only just beginning.

Active management of the underwriting portfolio

Faced with a competitive market, the SBUs have continued to be active in their management of the Group's underwriting portfolio. In 2008 and 2009 the most significant portfolio adjustments came within Global Markets as it reduced weighting to long-tail casualty lines of business that more heavily rely on investment income and towards short-tail property and marine classes. In 2010, this portfolio management approach delivered, with a short-tail combined ratio in Global Markets of 91.5% despite catastrophe claims equivalent to 4.2 percentage points.

For 2010, the UK SBU streamlined its product focus with a significant reduction in the private motor account and a withdrawal from Local Authority (Municipal) business. These underwriting decisions were made in response to a combination of changing distribution trends, a prediction of a deteriorating claims environment and current underwriting returns. In each case the Group concluded that it was unlikely to generate a sustainable profit stream into the future. These actions have also enabled the UK to focus on its core client base of small to mid-sized commercial enterprises with a turnover of less than £300m per annum.

Managing the expense base

The key markets in which the Group operates remain competitive and as such the Group is prepared in the short-term to walk away from inadequately priced business. In order to achieve this without a significant impact on expense ratios the Group remains focused on cost management throughout the business. In 2010 core expenses (excluding commissions, regulatory levies and offer related costs) were stable despite a new holding company in the Netherlands and the high cost of preparing for Solvency II. The Group will continue to work on managing its cost base such that it can make the required underwriting decisions without having to make short-term expense reductions.

Talent management

Employees remain the lifeblood of an insurer and managing talent appropriately will be key to the Group's success. During 2010 Brit Insurance continued to attract high quality external talent as well as developing internal talent through advancement and promotion. These trends have been experienced at all levels of the organisation. The Executive Management Committee in the UK has made three internal appointments - Ray Cox to CEO of the UK SBU, Baldeep Johal to the newly-created role of Chief Risk Officer and Lorraine Denny continuing her role as Director of Human Resources - as well as welcoming Scott Egan as Chief Financial Officer, who joined in January 2011 from Zurich Financial Services.

At the same time the Group improved its performance management system and updated its remuneration policy to ensure that it has a greater emphasis on rewarding excellent performance as well as identifying and addressing poor performance in a more proactive manner. The Group is confident these changes will drive the business forward and help raise the bar across the entire organisation.

Outlook

The backdrop of competitive market conditions and modest pressure on premium rates is expected to continue in 2011. The Global Markets SBU will continue to take a defensive position in longer-tail casualty classes of business until it sees rate increases that offset the effect of low interest rates. Within short-tail lines, results have again been good and the SBU will need to focus even more on its core underwriting skills of risk selection to steer it through this point of the underwriting cycle.

The UK market is pushing through rate increases albeit at a slower rate than the SBU believes is required. The Group remains concerned that the longer this situation continues, the greater the potential market correction will need to be; a situation that is likely to be to the detriment of the market's reputation as a whole. The SBU will continue to support its clients through its regional network of offices during this tough phase of the market.

Within Reinsurance, January 2011 renewals showed continued competitive pressure across most classes of business, most noticeably in the US Property Treaty account. However, despite this and thanks to the spread of the SBU's portfolio, rates overall on the renewal book remained broadly flat compared to 2010.

During the first quarter of 2011 above average claims activity has continued in the International Property arena with extensive flooding in Eastern Australia, Cyclone Yasi affecting Queensland, Australia and a major earthquake near Christchurch, New Zealand. Early indications suggest that neither of the Australian events should be major claims for the Group (i.e. more than £10m net to the Group) and in aggregate are estimated not to exceed £15m. The Group expects claims arising from the February 2011 New Zealand quake to be significant for the market. It is too early to assess accurately the Group's exposure to this event.

The Group's focus in 2011 will be on continuing to develop the "Average to Outperform" agenda and embedding the disciplines required to be an upper quartile performer. The current competitive market means that this journey is not an easy one. However, the strides made by the Group's staff over the last 18 months demonstrate that Brit Insurance has the ambition, skills and strategic plans to achieve this.

Global Markets SBU

Vision

Global Markets seeks to be a highly respected market leader delivering underwriting excellence based on market intelligence and innovation in its chosen fields and disciplines.

About Global Markets

Global Markets has an extensive history of providing a comprehensive range of insurance products for small to medium sized enterprises as well as large corporate customers globally. The SBU is made up of a number of niches which are expert in their respective fields and bring a broad spread to the portfolio. Business is distributed entirely through intermediaries. The SBU accesses business through leading brokers in its main operations in London as well as through delegated authorities with selected coverholders, including the Group's wholly-owned service company, who distribute products into local markets.

Global Markets's underwriting expertise and local relationships make it a market leader and it is the lead underwriter on 56% of the premium it underwrites. This offers excellent market visibility and enhances its ability to manage the underwriting portfolio through the insurance cycle. This underwriting capability is backed up by first class claims handling through specialist staff in London and in overseas claims hubs.

Portfolio

In 2010, Global Markets wrote £778.3m of gross premium across five underwriting divisions (2009: £875.3m). The portfolio is managed in two parts with a short-tail portfolio representing 66% and a long-tail portfolio representing 34%.

The short-tail portfolio consists of the Property & Space, Marine and Accident & Health divisions and underwrote £517.2m of gross premium in 2010, a reduction of 8.9% at constant currency. This reduction arose across all divisions although more than half of the reduction was the delayed effect of the withdrawal from US Medical Expenses in 2008. Property (36% of short-tail) and Marine (48% of short-tail) both saw premiums fall modestly during the year as the SBU managed competitive market conditions.

The Property portfolio consists of a broad-based book of business with particular strengths in the US through Property Financial (Lender Placed Property) and other US binding authority arrangements. Property coverage is offered on an "all risks" or named peril basis with associated extensions of coverage such as business interruption. Clients range from individual homeowners and small enterprises to Fortune 1000 companies. During the year the Direct and Facultative (D&F) property account, offering coverage for large individual risks, was extended to offer additional balance to the division.

Brit Insurance is recognised as one of the leading insurers in the Space arena and runs the leading London Market Aerospace consortium on behalf of a number of third party insurers. The Space team works closely with one of the world's largest satellite operators, Telesat, who provide valuable technical expertise. With a line size of US$40m it is a lead market globally for launch and in-orbit risks.

The Marine portfolio offers a broad array of coverages including Hull, Cargo and Energy (upstream and downstream) and Liability. Coverage is provided for both traditional (including nuclear) and renewable energy sources. During the year the SBU experienced growth in the Cargo and the Liability elements of the account, offset by reductions in Hull and Energy - upstream. Overall Hull, Energy and Cargo each account for approximately 25% of the division's premium.

Accident & Health is the smallest division in the short-tail portfolio and writes a selection of diverse classes including Bloodstock, Contingency and Personal Accident. Premium written fell by 35.9% at constant currency reflecting the delayed impact of the withdrawal from US Medical Expenses in 2008 and a significant contraction in the Bloodstock book.

The long-tail portfolio is split into two underwriting divisions - Specialty Lines (53%) and Professional Lines (47%). Since 2007 the SBU has made significant changes to the long-tail portfolio to insulate it from potential claims arising from economic uncertainty and to reflect the effect of lower investment returns on risk adjusted returns on capital.

The Specialty Lines division offers Legal Expenses coverage for adverse legal costs, Directors and Officers (D&O) coverage for individuals and corporations, as well as Financial Institutions insurance which can include crime and professional indemnity as well as D&O. Volumes across the Financial Institutions and D&O accounts reduced during the year as the SBU retained its underwriting discipline in the face of tough trading conditions. Financial Institutions and D&O now account for less than 40% of the division.

Within Professional Lines the SBU underwrites Professional Indemnity on a global basis. Professional Indemnity insurance protects a professional against liability arising from negligent advice. Particular areas of strength include law firms, architects & engineers and technology firms. Professional Lines is written in the open market and through a selected network of coverholders. During 2010 there was a material reduction in the areas of the International PI account which are no longer regarded as core.

The majority of Global Markets's business (82.2%) is written through the Group's Lloyd's Syndicate 2987 with the remainder through Brit Insurance Limited.

Brit Insurance Services USA Inc

Brit Insurance Services USA Inc (BISI) was established in Chicago in May 2009 and represents the SBU's first Group-owned overseas underwriting presence. BISI is a service company which underwrites risks on behalf of Global Markets using Syndicate 2987 as the insurance carrier. Initially, a £20m book of Public Entity and Religious package business previously underwritten in London was transferred to BISI. BISI is part of the Group's wider strategy to get closer to its underlying clients whilst continuing to recognise the importance of, and support for, London's position as a wholesale insurance market.

During 2010 the number of employees in BISI has grown from eight to 15 reflecting the build out of its infrastructure as well as additional underwriting capacity. Premium written by BISI grew by 39.5% in 2010 to US$43.4m as it expanded both the transferred book and its new Facultative Property offering.

Average to Outperform

As part of the Group's "Average to Outperform" agenda the SBU has made a number of important strides. In particular the SBU has developed and launched a new underwriting performance management portal which allows for a substantial amount of pre-underwriting ahead of renewals and significantly improves transparency around underwriting decisions.

Furthermore as a result of the decisive portfolio actions and improved focus over the last two years a number of previously underperforming classes are now showing profitable results − this includes Accident & Health following the withdrawal from US Medical Expenses.

In order to create further focus within the underwriting divisions, the Property division has been split into separate Open Market and Facilities divisions, each headed up by an internally appointed divisional director. A similar change to the Marine division is planned for 2011 and a separate Energy division will be formed. This new structure should enable more transparency within the underlying operating units within Global Markets and promote additional focus.

2010 Financial performance

Operating profit fell 19% to £34.6m as a result of lower premium volume and a higher burden from major claims.

Gross written premium fell by 11.8% at constant currency as the SBU continued its active management of the underwriting portfolio. Gross premium written fell by 36% in Accident and Health reflecting the withdrawal from US Medical Expenses. Specialty Lines premiums reduced by 10% as the Group continued its defensive stance in longer-tail casualty business. Premium reductions in the core short-tail lines of Marine (-2%) and Property (-7%) were lower, reflecting the continuation of better underwriting margins than longer tail lines.

Premium rates on renewed business were on average flat across the portfolio with most classes experiencing movements in the +1% to -1% range.

Premium Rating Index (Year 2000 as base year) 

The rate movements should be read with caution. They are based on underwriters' estimates of rate changes, including adjustments to terms and conditions. They relate to renewal business only, since this represents the business for which there is the best year-on-year data.

Global Markets's combined ratio of 97.7% deteriorated by 0.8 percentage points compared with 2009 as a result of higher major claims which offset a significant improvement in the attritional claims ratio. In particular underlying performance from the short-tail portfolio was positive. The SBU continued to reserve conservatively for the long-tail portfolio. Reserve releases of £9.6m were equivalent to 1.4 percentage points compared with £13.8m equivalent to 1.7 percentage points in 2009.

Claims experience during the year was mixed. The accident year attritional claims ratio improved by 8.4 percentage points reflecting the positive results from the portfolio actions taken by the SBU over the last two years. This was, however, partially offset by an increase in major claims arising from the earthquakes in Chile and New Zealand during 2010. Global Markets's share of the Group's major claims was £19.2m. Overall the claims ratio improved by 5.3 percentage points to 57.4%.

The SBU's focus on expense control resulted in a 13% reduction in management expenses, a reduction slightly higher than the move in gross written premium. The reported expense ratio rose to 40.3% as a result of an 18% fall in net earned premium, changes in business mix and higher regulatory levies.

Outlook

The key markets that Global Markets operates in are expected to remain competitive through 2011. In many respects this is similar to the "finely poised" message in last year's outlook. Consequently the SBU expects modest rate pressure to prevail in 2011 and in particular will continue its defensive position on longer tail casualty lines.

During 2011, the prospect for further growth within BISI will be assessed conservatively; where there are opportunities in London, the SBU will continue to manage its underwriting portfolio on a proactive basis.

Reinsurance

Vision

Reinsurance aims to build a diverse and high quality multi-class and multi-territory book of business by participating in this potentially high margin but volatile global business.

About Reinsurance

Reinsurance writes multi-class and multi-territory reinsurance with a focus on providing excess of loss reinsurance to a broad range of clients globally. The SBU transacts reinsurance business exclusively through broker intermediaries with clients ranging from small local mutual insurers to large well-known global insurance groups. It offers the capacity to quote and lead business, whilst aiming to deliver a first class all-round service to customers backed up by its specialist contractual documentation and claims handling teams.

The SBU accesses global business through its main underwriting operation in London with representative offices in Japan and Australia and a relationship office in Denmark. This structure is designed to maintain the SBU's profile overseas whilst balancing that with the needs of an efficient operating model in a cyclical market.

Portfolio

In 2010 the SBU wrote £309.6m of gross premium across its core specialist reinsurance classes of Property, Casualty and Marine.

The largest portfolio is Property Treaty which accounted for 53.1% of the account in 2010 (2009: 49.5%). This is split into two classes − North America (61%) and International (39%). Each offers reinsurance cover against catastrophe events or large individual claims arising from either man-made or natural events. The North America class is a combination of regional and nationwide business, but with a strong bias towards regionally-based clients who write specialised books of business.

The unit's second largest portfolio is Casualty Treaty which accounted for 36.1% of the SBU's premiums in 2010 (2009: 39.0%). The Casualty Treaty account combines a number of sub-classes including Personal Accident catastrophe, clash and individual per risk protection for General Liability, Professional Indemnity and Directors & Officers, as well as whole account coverage. The Casualty Treaty portfolio is almost entirely written on an excess of loss basis with approximately 40% of the book exposed to catastrophe-type events. Consequently the portfolio is less exposed to potential attrition-type claims experienced in economic downturns.

Other smaller areas of the reinsurance book include Marine and Agriculture. Both accounts generate high margins albeit with higher than average volatility. 54.1% of the SBU's business is classified as short-tail, with 16.0% medium-tail and 29.9% long-tail.

The Reinsurance SBU utilises each of the Group's insurance carriers with 64.7% written through Syndicate 2987 and 35.3% in Brit Insurance Limited (BIL). The majority of the SBU's North American business is written using Syndicate 2987, making use of the extensive licenses available whereas the majority of the International and European business is written through BIL. The use of two carriers aims to maximise returns on capital and to cater for client wishes where appropriate.

Average to Outperform

In line with the Group's "Average to Outperform" programme, the SBU has developed enhanced portfolio segmentation tools during the year. These tools have created improved transparency that allows each underwriter to segment his account on a contract by contract basis and has led to a full underwriting review on the worst performing 20% of the Reinsurance portfolio.

Furthermore the SBU has enhanced its management team by recruiting a Reinsurance Underwriting Director who reports directly to the Reinsurance SBU CEO and a new Head of Outwards Reinsurance. Both positions have attracted highly experienced individuals with backgrounds in insurance, reinsurance and broking.

2010 Financial Performance

In 2010 the Reinsurance SBU's underlying portfolio remained relatively stable. Gross written premium on a constant currency basis fell by 15.8% to £309.6m but this was almost entirely due to the non-recurrence of positive movements on the re-estimation of prior year premium for Casualty Treaty, Property Treaty North America and the Aviation XL run-off portfolio in 2009. Underlying premium growth on a constant currency basis and excluding re-estimates of prior year premium was -1.1% with modest underlying growth in Marine XL being offset by reductions in Property Treaty.

Average premium rates on renewals were up 0.4%. Movements were generally small across all classes with marginal increases on Casualty Treaty and International Property Treaty offsetting reductions in Property Treaty North America.

Premium Rating Index (Year 2000 as base year)

The rate movements should be read with caution. They are based on underwriters' estimates of rate changes, including adjustments to terms and conditions. They relate to renewal business only, since this represents the business for which there is the best year-on-year data.

Reinsurance spend was £61.2m equivalent to 19.8% of gross written premium. Net written premium fell by 19.0% with net earned premium falling by 16.1%.

The SBU's combined ratio of 88.2% was 8.3 percentage points higher than 2009 directly as a result of higher Property Treaty International claims during the year. Major claims of £36.0m contributed 14.4 percentage points to the SBU's combined ratio and arose from earthquakes in Chile and New Zealand. The major claim burden in 2009 of £12.0m arose from the Air France plane crash and contributed 4.0 percentage points to the combined ratio,

Despite the well-publicised Deepwater Horizon event the Marine XL account produced a highly credible financial result for the year with a combined ratio of 86.0%. The circumstances of the loss led to rates hardening notably in the London market segment of the portfolio. The Agriculture XL account has produced another profitable year.

The combined ratio also benefited from reserve releases of £25.0m equivalent to 10.0 percentage points of net earned premium compared with a release of £24.1m (8.1 percentage points of net earned premium) in 2009. Reserve releases arose across all classes but with the highest contribution from Casualty Treaty.

It is a sign of the diverse nature of the Group's Reinsurance portfolio that in a year of heavy claim activity in International Property, the SBU still managed a combined ratio below 90%. This demonstrates the real diversification value of writing Casualty Treaty alongside the two Property Treaty classes.

The expense ratio increased by 3.6 percentage points to 28.6% (2009: 25.0%). Commission costs were stable at 17.5% whereas the non-commission expense ratio rose to 11.1% (2009: 7.6%)

Overall operating profit was £37.2m, a reduction of 43.7% compared with 2009 but still a credible result given the major claim activity during the period.

Outlook

The outlook for 2011 is mixed. A benign US hurricane season (from an insurance perspective) will likely put downward pressure on US pricing; however, if the reinsurance industry continues to behave in a disciplined manner this should be manageable. In 2010 the International Property market has seen claims of more than US$15bn from earthquakes in Chile and New Zealand as well as floods and hailstorms in Australia; it is expected that this will stabilise pricing generally and increase rates on claim-affected business. Furthermore a new version of one of the leading catastrophe modelling software programmes launching in late February 2011 is expected to support pricing in the US Property Catastrophe arena.

The Casualty Treaty portfolio remains one of the differentiating factors for the SBU. Within this, pricing for short-tail business remains competitive but there is generally less available capacity than in the Property arena.

The SBU will continue to focus on optimising its portfolio and position the account for the opportunities that will inevitably arise.

UK

Vision

The UK SBU has established itself as a key provider to the regional UK market and aims to be a significant player in its chosen market segments. Ease of access, expertise, service and execution skills will differentiate the SBU from its peers.

About the UK SBU

The UK SBU underwrites a diverse book of UK commercial insurance through a combination of regional, national and international brokers. The SBU's target market focuses on sole traders through to corporates with turnover of up to £300m. Over the last three years the Group has been successful in developing online trading solutions for micro-SME business, underwriting commercial insurance with premium values typically less than £2,000 per policy. The UK SBU has a carefully targeted distribution strategy with 80% of its commercial business sourced through its top 75 brokers.

Portfolio

In 2010, the UK SBU underwrote £441.2m of gross premium in four main classes of business.

The UK SBU's largest class of business is Property and Commercial Packages which accounts for 47.6% of the portfolio. The SBU underwrites a wide range of property from shops and offices through to large manufacturing and warehouse risks as well as mid to high net worth home insurance. The portfolio is underwritten directly through brokers, or through specialist coverholders. During 2010 the SBU withdrew from the Local Authority (Municipal) market as pricing levels did not reflect the anticipated outlook for claims.

Liability, which accounts for 26.3% of the portfolio, is split into Employers' Liability insurance, which is a compulsory purchase in the UK, and Public/Products Liability. Within this account the SBU underwrites a specialist book focusing on a number of industries including construction. In addition the SBU has a strong presence in electronically traded covers and more broadly based risks sourced through its regional network. It also participates on a small number of International programmes.

The Motor insurance portfolio consists of commercial - fleets and haulage, as well as specialist personal motor. Motor insurance accounted for 18.5% of the portfolio in 2010, down from 25.3% in 2009. During 2010 the SBU substantially reduced its exposure to Private Motor as part of its ongoing management of the UK underwriting portfolio.

The smallest element of the portfolio relates to Professional Lines, which includes Professional Indemnity (PI) and Directors and Officers (D&O) insurance. This accounts for 7.6% of the portfolio, with the vast majority being PI sourced through both London and regional offices. The SBU has also developed a PI product especially tailored for the micro-SME market.

The UK SBU is committed to operating a regional office structure and opened its first office outside London in 2003. It now has nine offices serving the key insurance markets across the UK. The offices outside London experienced further premium growth in 2010 and on an underwriting year basis now represent 30% of the SBU's portfolio, up from 20% three years ago. These offices transact business that is placed locally and does not normally reach the London market. Without an established regional office network, the UK SBU would not be able to access this business.

Consistency in underwriting in the UK SBU is achieved through the use of a matrix approach. Each portfolio class, e.g. Property, Liability, Fleet and Financial Lines, has a Portfolio Manager who is responsible for managing the technical integrity of the portfolio. This includes setting the underwriting and pricing guidelines across each of the distribution platforms.

In 2010 the UK SBU wrote 28.8% of the Group's gross premium which was split 47.3% short-tail, 18.5% medium-tail and 34.2% long-tail. Brit Insurance Limited (BIL) is the carrier for the majority of the SBU's business (87.4%) with Syndicate 2987 (12.6%) primarily used for the international elements of the portfolio.

Micro insurance

During 2010, the SBU continued to develop its distribution edge in the small commercial and micro-SME insurance market.

Brit Lite, which focuses on providing commercial insurance to businesses typically with fewer than 10 employees and insurance spend of less than £2,000, has grown to represent 12% of the SBU's portfolio from a standing start in 2007. The success of the proposition has been built on providing a flexible offering to brokers backed up with experienced referrals support, a comprehensive product range, and rapid speed of execution. Customers can access the SBU's suite of products via carefully selected partners either through the traditional broking channel or through e-trading. The SBU's largest e-trading relationship is with Simply Business, an online insurance broker. The Group has a 38.4% shareholding in Simply Business which is owned by Xbridge Limited.

Average to Outperform

As part of the Group's "Average to Outperform" agenda, the SBU has been active in managing its UK underwriting portfolio. In particular in early 2010 the SBU exited Local Authority (Municipal) business as pricing levels did not compensate for the expectation of a more difficult claims environment arising from a squeeze on public sector budgets. Furthermore the SBU decided to reduce substantially its Private Motor portfolio to concentrate on the commercial elements of its motor portfolio. Private Motor peaked at 11% of the SBU's premiums but recent structural developments have reduced its attractiveness. It is no longer viewed as a sustainable class of business for the Group.

2010 Financial performance

Gross written premium fell by 3.1% to £441.2m. The headline decline in premium was a direct result of the withdrawal from Local Authority (Municipal) business and the substantial reduction in the Private Motor account. The Property account posted healthy growth of 21.2% as a number of contract wins from previous years started to deliver. The Liability account fell by 1.2%, reflecting the tough stance taken by the SBU's underwriters in declining business under the most pricing pressure.

Increases in premium rates on renewed business for 2010 averaged 3.0%. Within this, all lines posted positive rate movements although the Property and Liability accounts have not yet experienced a significant turn in pricing.

Premium Rating Index (Year 2000 as base year)

The rate movements should be read with caution. They are based on underwriters' estimates of rate changes, including adjustments to terms and conditions. They relate to renewal business only, since this represents the business for which there is the best year-on-year data.

Reinsurance spend was similar to 2009 and net earned premium increased by 3.8% as premium written in previous periods was earned.

The combined ratio of 99.8% was in line with 2009 (2009: 99.7%). The claims ratio improved by 2.0 percentage points as recent portfolio actions − together with modestly higher premium rates − began to have an effect. The claims ratio also benefited from a continuation of positive reserve development from prior years with £39.0m of releases during 2010 (2009: £41.2m), equivalent to 10.4 percentage points of net earned premium (2009: 11.4 percentage points). Reserve releases arose predominately from the Liability class of business.

The result includes £8.0m in relation to net claims arising from the UK freeze in December 2010 which added 2.1 percentage points to the claims ratio.

The unit's expense base remained under control with the expense ratio marginally higher at 35.1%. The increase was almost entirely due to a higher commission ratio as business non-renewed as part of the portfolio actions during the year tended to have lower acquisition costs than the ongoing portfolio.

Operating profit for the UK SBU rose by 0.7% to £14.3m.

Outlook

The UK market continues to experience premium rate rises but these remain below the level needed to restore accident year profitability to the wider market. If this situation continues there is a significant risk that, when premium rates do finally turn, the scale of the required rate increases will be detrimental to the reputation of the UK insurance sector.

During this tough phase of the market the UK SBU is determined to continue to deliver first class service and support to its clients, brokers and coverholders. In particular the SBU's regional network of offices enables it to demonstrate commitment to national and regional brokers alike.

Investments

Strategy

The Group allocates its investment holdings into one of three internal portfolios - the liability portfolio, the working capital portfolio and the capital portfolio.

The largest portfolio represents funds that are expected to be called upon to pay claims to policyholders (the liability portfolio). These liabilities are segmented by currency and legal entity, and a benchmark is chosen for each segment that matches the characteristics of the liabilities. The investment objective in the liability portfolio is safety, liquidity and return of capital. Assets are primarily allocated to high quality fixed income securities.

The remaining investments, net of cash held in treasury (the working capital portfolio), are allocated to the capital portfolio. The objective of this portfolio is to support the long-term growth of shareholders' funds by earning a competitive return on capital. The current benchmark for the capital fund is LIBOR + 3%, which was comfortably exceeded during 2010. Assets are allocated to all types of fixed income securities (including corporates, mortgages and index-linked bonds), equities and alternative assets.

The Group adheres to a detailed set of investment guidelines that have been approved by the Board. The guidelines have been constructed with the intention of allowing the Group to achieve a competitive investment return while minimising the risk of a meaningful reduction in capital arising from market volatility. All material decisions regarding the allocation of assets within the guidelines are taken by the Investment Committee.

Performance

In 2010 the Group's investments produced a total return for the year of £113.4m (3.2%), compared to a return of £137.4m (4.2%) in 2009.

The fixed income portfolio return of 3.1% was lower than last year's 4.5%. The drivers of performance during 2010 were quite different when compared to 2009. Over 2010, the US Treasury yield curve rallied by between 50 to 70 basis points for two to ten year yields, while in the UK the Gilt curve flattened as it rallied. In the UK, shorter-term two to four year yields rallied by about 20 basis points, while the longer end of the yield curve rallied by about 50 basis points. Within this context higher returns were available for longer durations in both the UK and in US.

The Group continued to hold corporate exposure at the upper end of its guideline limits throughout the year and corporate bonds generally outperformed government bonds as spreads tightened modestly. Over 2010 the Group initiated two new fixed income mandates which helped to maintain and manage its interest rate and credit exposures.

The equities and the specialised investment funds performed well during 2010. The equity portfolio provided a return of 16.5%, albeit with periods of volatility, whilst specialised investment funds produced a return of 11.8%. Illiquid equity investments were exited and replaced by high quality dividend yielding companies in the directly managed portfolios together with new long-only equity funds.

Specialised investment funds were further streamlined as a result of redemptions, takeovers and restructurings.

Asset Allocation

Brit Insurance entered the year with high cash balances and a high weighting in corporate bonds towards the top of the range established by the Group's investment guidelines. The overweight position in corporate credit was broadly maintained throughout 2010 as non-financial corporate issues were added to the portfolio. Cash balances declined during most of 2010 and were reinvested in debt securities. It is expected that cash holdings will continue to decline during the first half of 2011.

Breakdown of debt securities at 31 December 2010

* All government issue bonds are from either the US, Canada, UK or eurozone countries.

Breakdown of debt securities at 31 December 2009

* All government issue bonds are from either the US, Canada, UK or eurozone countries.

At 31 December 2010 the Group held £12.5m in debt securities relating to Italy and Spain. The Group had no direct holdings in debt securities relating to Portugal, Greece or Ireland.

During the first half of the year, additional investments were made in asset-backed securities (ABS), residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities (CMBS). Holdings at 31 December 2010 totalled £139.4m and were all rated AAA.

The Group remained conservatively positioned during 2010 with respect to asset duration although both Sterling and US dollar duration increased slightly during the year. Duration in the US dollar portfolio ended the year at 1.8 years with the duration of the Sterling portfolio also at 1.8 years. The duration of both portfolios is likely to increase further during 2011.

Outlook

The outlook for the Group's investment return remains challenging. The macro issues will continue to focus on concerns surrounding peripheral Europe, fears of overheating and inflation in the emerging markets and ultimately a normalisation of monetary policies in the developed world. In markets the search for income will remain a powerful driver and 2011 may see investors seeking it in increasingly unfamiliar places. In such an environment Brit Insurance believes a conservative approach remains appropriate, but will continue to explore new opportunities.

Consolidated Income Statement

for the year ended 31 December 2010

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2010

Consolidated Statement of Financial Position

at 31 December 2010

Consolidated Statement of Cash Flows

for the year ended 31 December 2010

Consolidated Statement of Changes in Equity

 for the year ended 31 December 2010

Consolidated Statement of Changes in Equity

for the year ended 31 December 2009