5th Sep 2005 07:02
Amlin PLC05 September 2005 AMLIN PLC PRESS RELEASEFor immediate release5 September 2005 Interim Results for the six months ended 30 June 2005 AMLIN DELIVERS ANOTHER STRONG RESULT Record half year profit before tax of £134.1 million • Up 56% over first half of 2004 • Higher than full year 2004 Excellent contributions from both underwriting and investments • First half combined ratio of 69% (H1 2004: 72%) • Underwriting contribution up 38% to £116.6 million (H1 2004: £84.4 million) • Investment return up 185% to £41.3 million (H1 2004: £14.5 million) Half year earnings per share up 60% to 24.5p Interim dividend up 33% to 4p per share £25 million buy back programme announced Hurricane Katrina net losses provisionally estimated at $110 million Good full year return on equity still anticipated • Renewal rates in first half better than expected • Record unearned premium reserve of £653 million Charles Philipps, Chief Executive of Amlin, said: "This has been anexceptionally profitable first half for Amlin. Our performance over the lastfew years has placed us in a strong financial position so that we are now ableto return capital to shareholders, reinforcing our focus on return on equity". FINANCIAL HIGHLIGHTS Six months Six months 12 months 2005 2004 2004 £m £m £mGross premiums written (1) 675.8 709.7 945.6Net premiums written (1) 556.5 570.4 790.2Net earned premiums (1) 395.5 345.6 722.4Profit before tax 134.1 86.0 128.9Per share amountsProfit before tax 33.3p 21.9p 30.8pEarnings 24.5p 15.3p 23.4pNet assets 137.1p 112.3p 117.6pNet tangible assets 120.6p 95.2p 100.7pSyndicate 2001 operating ratiosClaims ratio 44% 42% 50%Expense ratio 25% 30% 32%Combined ratio 69% 72% 82% (1) excluding premiums associated with the reinsurance to close of our increasedshare of capacity. Enquiries: Charles Philipps, Chief Executive, Amlin plc 0207 746 1000Richard Hextall, Finance Director, Amlin plc 0207 746 1000Hannah Bale, Head of Communications, Amlin plc 0207 746 1118David Haggie, Haggie Financial Limited 0207 471 8989 / 07768 332486Peter Rigby, Haggie Financial Limited 0207 471 8989 / 07803 851426 Overview This has been an exceptionally profitable first half for Amlin. Whilst our riskexposure is heavily weighted towards the second half of the year, as so clearlydemonstrated by Hurricane Katrina, this provides a strong base from which weexpect to achieve another good full year return. Even though we anticipate thatrating conditions will continue to soften generally, we expect that the tradingenvironment will be satisfactory in 2006. Amlin's very strong performance overthe last few years leaves us well placed both to develop the Group strategicallyand to return capital to shareholders. We intend to initiate a share buy backprogramme and, subject to there being no unexpected developments, to buy back upto £25 million worth of shares. We will review the potential to return furthercapital taking account of the final out turn for 2005 and our strategic needs,and with a view to reinforcing our potential to continue to deliver superiorreturns on equity. Our financial results for the first half of the year, which we are reportingunder the new International Financial Reporting Standards for the first time,are ahead of our expectations with a six month return on equity of 21.2%, ourhighest six month return to date. The Group's interim profit before tax increased by 56% to £134.1 million (H12004: £86.0 million) with both underwriting and investments making very goodcontributions. Underwriting contributed £116.6 million (H1 2004: £84.4million), a 38% increase over the same period last year and more than in thewhole of 2004. This resulted from a 14% increase in net earned premiums, lowlevels of claims in the period and further releases from our technical reservesof £30.0 million. With our investment portfolios delivering better returnsacross all asset classes the contribution from investments was 185% higher at£41.3 million (H1 2004: £14.5 million). Earnings per share increased by 60% to 24.5p (H1 2004: 15.3p). Dividend In our 2004 Annual Report, we explained that the Board intended to distributedividends for 2005 equivalent to at least the higher of 8.0 pence per share(adjusted for inflation) and 30% of earnings. The Board has declared an interim dividend of 4.0p per share (H1 2004: 3.0p pershare). This will be paid on 7 October 2005 to shareholders on the register atthe close of business on 23 September 2005. Given the strong financial positionof the Company and our desire to return capital to shareholders, we have decidednot to offer a scrip dividend alternative. Trading conditions and written premium Trading conditions in the year to date have been better than our originalexpectations with rates holding up well in most classes and rate increases beingachieved in those areas affected by major losses in 2004, such as Floridawindstorm and Gulf of Mexico energy risks. Renewal rate reductions across the business, weighted by premium income, were amodest 4% in the first half with as much as 83% of 2004 first half businessbeing retained. This follows an average renewal rate reduction from the peaksachieved in 2003 of only 4% in 2004, so we continue to trade in an environmentwhere good margins are possible. Our rating indices (Table 1) illustrate therenewal rate change by major class. Table 1: Rating indices for major classes Class 2000 2001 2002 2003 2004 2005Airline hull and liabilities 100 242 232 194 175 136Marine hull 100 115 148 170 183 183Employers' liability 100 115 144 158 155 150Energy 100 140 172 189 165 173UK professional indemnity 100 110 149 178 180 162US property insurance 100 125 171 163 143 123Non US catastrophe reinsurance 100 120 157 162 146 131US catastrophe reinsurance 100 115 146 150 143 146US casualty 100 125 170 211 230 241War 100 250 288 244 220 198UK Fleet motor 100 121 136 142 139 133Risk XL 100 122 190 192 171 139 During 2005 to date rating levels on US property catastrophe reinsurancebusiness, which represents approximately 9% of our total portfolio, have beenmaintained on average at last year's levels. This reflects good marketdiscipline following the hurricane losses of 2004 and increased demand forreinsurance, caused in part by changes to industry catastrophe models. Rateincreases on the marine energy risks concentrated in the Gulf of Mexico,together with increased construction activity by oil producers, has helped us toachieve stable energy renewal rates after taking account of weaker pricing fornon-Gulf exposures. Major loss events to date, including a Canadian oilplatform loss, and severe damage to a major oil platform in the Indian Ocean, inwhich Amlin has little involvement, added to the upward pressure on ratingtrends in energy insurance. The marine account, excluding the energy account, was stable in most classesapart from the war account where rates fell on average by 6%. However, for warand other marine classes conditions were either in line with our planningassumptions or better. Overall the aviation account also achieved stable rates in the period to 30 June2005. Renewal activity was centred on the general aviation, airport liability,product liability and space accounts where rating was in line with our planningassumptions. Positive rate movements in these classes offset reductions in theairline account in the first six months of the year. Major classes where rates came under pressure included the property insurance,property reinsurance and international catastrophe reinsurance accounts whichhad average renewal rate reductions of 7%, 14% and 10% respectively. Theproperty insurance account was better than expected although the reinsuranceaccounts yielded bigger reductions than anticipated. Given this rating backdrop our £675.8 million (H1 2004: £709.7 million) of grosswritten premiums (excluding premiums associated with the reinsurance to close ofour increased share of capacity) in the first six months was only 5% less thanin the same period last year. Net written premiums in the first half (excluding premiums associated with thereinsurance to close of our increased share of capacity) of £556.5 million (H12004: £570.4 million) was only 2.4% lower, mainly reflecting lower reinsurancepremiums associated with our 2005 reinsurance programme placement. Underwriting performance Our increased underwriting contribution of £116.6 million (H1 2004: £84.4million) resulted from a combined ratio which was three points better than inthe same period in 2004, at 69%, on net earned premium (excluding premiumsassociated with the reinsurance to close of our increased share of capacity)which was up 14% at £395.5 million (H1 2004: £345.6 million). Gross earned premium (excluding premiums associated with the reinsurance toclose of our increased share of capacity) increased by £33.9 million, or 8%, asa result of Amlin's increased ownership of Syndicate 2001 from 86% in 2003 to100% in 2004, more than offsetting Syndicate 2001's lower gross premiums writtenin 2005 relative to 2004 and 2004 compared to 2003. The greater increase in netpremiums earned was due mainly to reduction in cost of the 2005 reinsuranceprogramme and the cessation for 2004 of a whole account quota share reinsurancecontract to which £50 million of premium was ceded in 2003. The claims environment for the first six months was benign. The largest naturalcatastrophe impacting the Group was European Windstorm Erwin in January, with anestimated net cost to Amlin of £10.5 million. The trend of our incurred lossratios for prior accident years has continued to be better than previouslyexpected, resulting in reserve releases from prior periods of £30 million (H12004: £31 million). The result was a claims ratio of 44%, 2 points worse thanin the same period in 2004, which with an expense ratio 5% better than the firsthalf of 2004 at 25%, resulted in a combined ratio of 69% (H1 2004: 72%). The following divisional commentary is for Syndicate 2001 assuming a constant100% ownership over the periods from which premiums have been earned. Table 2: Divisional combined ratios UK Non-marine Marine Commercial Aviation TotalNet premium earned £209.3m £72.3m £87.3m £30.8m £399.7mClaims ratio 37% 41% 58% 55% 44%Expense ratio 25% 27% 21% 25% 25%Combined ratio H1 2005 62% 68% 79% 80% 69%Combined ratio H1 2004 63% 95% 74% 75% 72% Non marine Our non-marine combined ratio at 62% (H1 2004: 63%) is another excellent result. Net earned premium was modestly up by 4.6% compared to the same period in 2004reflecting the peak trading years of 2003 and 2004 and the reductions inreinsurance premium noted above. The non-marine division's business carries much of the Group's naturalcatastrophe exposure and therefore the results benefited from the benignenvironment for natural catastrophes. Whilst modest adverse movements in theGroup's net claims from last year's hurricane and typhoon events cost theSyndicate some £10 million, overall reserve releases for the division amountedto £13.9 million, equivalent to a 7% reduction in the claims ratio. Thiscompares to a £24 million reserve release in 2004, equivalent to a 12% reductionto the 2004 claims ratio. Marine The marine division's combined ratio improved materially to 68% from 95% at thesame stage in 2004. The improvement resulted from a combination of a modest increase in net earnedpremiums, a lower level of large losses experienced than in the first half of2004, and significantly larger reserve releases of £9.1 million. The latterrepresents 13% of the combined ratio, and compares to reserve additions in thefirst half of 2004 of £0.5 million. Aviation The aviation division produced a combined ratio of 80% compared to 75% for thefirst half of 2004. Net earned premiums were at a similar level to the firstsix months of 2004, and the claims ratio was again good at 55% (H1 2004: 46%)with no major airline losses during the first half of the year. However, ahigher level of small hull losses on the general aviation account was a factorbehind the small increase in the claims ratio for the period. Reserve releasesamounted to £2.0 million (H1 2004: £2.7 million). UK commercial The UK commercial division's performance has again been excellent with acombined ratio of 79% compared to 74% for the first half of last year. While netearned premium increased by some 10%, the claims ratio increased 7 points to 58%reflecting claims inflation estimated at 3%, the modest reduction in rates in2004 and reserve releases of £9.8 million, lower than in the first half of 2004(H1 2004: £14.9 million). The reserve releases reflect claims continuing tosettle within case reserves on the motor account and the liability accountsdeveloping well within expectations. Investment return Investments contributed £41.3 million to the half year result (H1 2004: £14.5million). This 185% increase in contribution reflects improved performance across allasset classes and the substantial growth in the overall cash and investment basefrom £1.1 billion at 31 December 2003 to £1.6 billion at 30 June 2005. Ananalysis of the returns achieved by major asset class is shown in Table 3. Table 3: Half year 2005 investment mix and returns Investment Syndicate1 Corporate Total Total return £m £m £m % %Equities - 89.0 89.0 5 10.3Debt securities 762.5 - 762.5 46 2.4Cash and cash equivalents2 439.9 379.1 819.0 49 2.4Total 1,202.4 468.1 1,670.5 100 1 Syndicate investments relates to 100% Syndicate 2001 data2 Cash and cash equivalents include short dated debt instruments Sterling cash returns, at 2.4% for the first half, were attractive relative tobonds through much of the period and high levels of cash have been maintained.For the corporate portfolios cash has also acted as a counterbalance to the riskfrom our increased weighting towards equities. Sterling bonds returned 3.4% (H1 2004: 1.4%) for the period. Sterling bondyields started from good levels, but fell during the period as the marketstarted to factor in possible interest rate changes. The overall returnbenefited from tactical bond divestment and reinvestment that proved to be welltimed. US dollar bonds have again underperformed sterling with a half year return of1.2% (H1 2004: 0.1%) reflecting continued interest rate increases in the US. Tocombat this we have actively converted US dollar profits into sterling, reducingour exchange risk and benefiting from improved yields on sterling cash andbonds. Our global equity portfolio produced a good 10.3% (H1 2004: 4.5%) returnreflecting strong equity market performance generally combined with furtheroutperformance from our managers. Steadily rising bond yields in the US have made the US bond market moreattractive in terms of future expected returns, with three year bonds nowyielding around 4%. Whilst in the short term we are at risk of negativesurprises, the higher yield provides more assurance of an acceptable annualisedreturn. Economic growth remains stronger than we had anticipated last year, although ourconcerns that this will slow down in the future remain and we are therefore notfully invested against our benchmark for equities. International Financial Reporting Standards ('IFRS') These interim accounts reflect the first set of results produced under IFRS.The impact of the changes on opening net assets at 1 January 2004 was a modestreduction of £2.8 million. Full details of the adjustments, including UK GAAPto IFRS reconciliations of the Group balance sheets at 1 January and 31 December2004 and the income statement for the year ended 31 December 2004 have beenprovided in a separate press release which is available on our website,www.amlin.com. Note 16 to these financial statements includes UK GAAP to IFRSreconciliations of the balance sheet at 30 June 2004 and the income statementfor the six months to 30 June 2004. All figures presented in these financialstatements, including performance measures, have been restated to reflect theseaccounting changes. The most material aspect of the accounting changes introduced through adoptionof IFRS in this six month period is the treatment of foreign exchangetranslation for non monetary balance sheet items. Principally this affectsunearned premium reserves, deferred reinsurance expenditure and deferredacquisition costs. These balances are carried on the balance sheet at thehistoric rate at which the transactions arose, unlike other balances which aretranslated at the closing rate of exchange. In the following period, as thesebalances are recognised in the income statement, they are accounted for at thehistoric rate again rather than the average rate for the period. Thisintroduces new, and potentially significant, volatility into the incomestatement. This is particularly the case at this interim stage because theunearned premium and related balances have been higher at this stage than at theend of 2004. Compared to the previous accounting treatment, the impact on theGroup's income statement for the six months to 30 June 2005 was to increaseprofit by £22.2 million (H1 2004: £11.3 million). Cash flow and capital management The Lloyd's settlement system has delayed the release of cash profits into freefunds until this year. However we have now released £109 million of profitsfrom Lloyd's trust funds, and based on our current syndicate forecasts andLloyd's new capital regime, we would expect to release over £200 million in2006. Additionally, the introduction of the FSA's Individual Capital Assessment ('ICA') regime has contributed to a reduction in our risk based capital ratio, asprovisionally advised by Lloyd's, to 41.5% for 2006 from the 45.5% that it wouldhave been under Lloyd's previous risk based capital regime. The consequences of the various changes to Lloyd's capital regime are that Amlinwill reduce its solvency capital by approximately £60 million this year. Our net gearing is now nil. To provide greater longer term stability and to enhance our ability to activelymanage the balance sheet for shareholder returns, we have continued torestructure our debt financing. In March 2005 a further $50 million long termsubordinated bond was issued, bringing to $100 million our long termsubordinated debt. We have now repaid the £30 million short term loan facilitywhich was drawn at the end of 2004 and we are renegotiating our letter of creditfacilities so that they will reduce shortly from £130 million to £100 million.Letter of credit financing has continued to be employed in the short term toprovide greater strategic flexibility, although we envisage their continued useuntil only 2007 based on plans for our existing business and with our new longerterm debt. We have assessed our ongoing capital needs, looking at both our strategic aimsand our future growth plans into the next cycle and concluded that, with theabove finance in place, we are in a sufficiently strong position to initiate ashare buyback programme and, subject to there being no unexpected developments,to buy back up to £25 million worth of shares. With the strong anticipated freecash flow referred to above, we will continue to assess the potential to returnfurther capital to shareholders taking account of the levels of profitabilityand our strategic needs. Strategy and operations Solid progress has been made in two areas which are crucial to our strategy ofbuilding a reputation for the quality of our service to clients: policy issuanceand claims capability. In each we have revisited our plans, established cleargoals and started to implement operational change. Our ability to broaden theuse, through development with our technology partner, of the workflow tools wehave already introduced to allow faster turnaround at key stages of theunderwriting process is proving very helpful and we are well advanced with plansto connect electronically with a number of insurance brokers to permit quickerand more reliable flows of data to assist with both policy issuance and claims. In 2003 we indicated our long term strategic goal to have a non-Lloyd's platformto complement our Lloyd's business. With high levels of free cash flow becomingavailable we expect in 2006 to have sufficient resources to start a credibleplatform. Therefore, over the next year we intend to explore this actively. Outlook 2005 Our outlook for the full year is good, even with a provisional net loss estimateof $110 million from Hurricane Katrina and the risk of major loss events beinggreater in the second half owing to the windstorm season. Net unearned premium at 30 June 2005 of £653 million (H1 2004: £648 million) ismarginally higher than at the same stage last year and was written at rateswhich were only modestly lower than in the previous year. We have released £30 million of reserves in the first half of the year whilstmaintaining our reserving policy - these reserves are set above an actuarialbest estimate and therefore, if we experience normal claims development, ourfuture results will benefit from that strength. The current rating environment remains satisfactory. We have written 80% of our2005 plan by the end of August 2005 with premium rating at levels better than weexpected. Also, as indicated above, we believe that investment returns shouldbe reasonable in the second half. The industry has already witnessed a number of larger claims events since 30June, most notably Hurricane Katrina. Other major loss events have includedfour airline losses, the ONGC oil platform in the Indian Ocean valued at some$400 million, Hurricane Dennis and the Mumbai floods. Other than HurricaneKatrina, we either have no or a limited exposure to these events. Our provisional loss assessment of $110 million from Hurricane Katrina is stillat an early stage especially given the extensive flood damage in and around NewOrleans which makes the assessment of loss much more complex than for previouswindstorms. Whilst we still have much of the windstorm season ahead of us, thiscompares with our total net hurricane and typhoon losses included in our 2004results of approximately $130 million. Amlin's profile of gross written premiums over the last three years, whichpeaked in 2004 at £945.6 million, suggests that 2005 is likely to be the peakyear for underwriting profit from our existing businesses in the currentinsurance pricing cycle. The ultimate outturn for the year will, however, beinfluenced by the extent of any further major loss events. 2006 and beyond Amlin is well placed to continue to deliver a good return on equity in 2006.Continued favourable trading conditions in 2005 to date, with discipline beingmore evident than in previous cyclical downturns, is encouraging for the 2006underwriting year. We expect rates to continue to soften generally but considera steep decline to be unlikely. Moreover, the extent of industry loss arisingfrom Hurricane Katrina is likely to help sustain or even improve pricing,particularly for large property and reinsurance risks in areas exposed towindstorm. However, as balance sheets in the industry are repaired with profitsfrom the last few underwriting years accumulating and as the risk of prior yearreserving deficiencies recedes, the temptation among industry participants tocompete for new business will grow and, along with it, the need for high levelsof discipline. At Lloyd's it is encouraging to see that some of our largestpeers have announced material cuts in capacity and we expect that the FranchisePerformance Directorate will ensure that professionalism in the market continuesto improve. While we had been expecting to reduce our exposures and premium in 2006, in linewith our strategy of adjusting our business plans according to the competitivestate of insurance markets and with our focus on gross underwritingprofitability, we may well not now do so. As we own 100% of our capacity, wehave greater flexibility in being able to adjust our Lloyd's capacity and we aimto review the effects on the industry of Hurricane Katrina and any otherhurricane activity before firming up our intentions. The significant growth of our investment portfolios and our cautious approach toreserving should provide some counterbalance to lower underwriting profits fromfuture underwriting years, until the state of the market is such that we seek toactively grow Syndicate 2001 again. With a highly experienced team who excel in these market conditions we areconfident that Amlin will continue to produce good returns on capital relativeto the industry. INTERIM RESULTS STATEMENT CONSOLIDATED INCOME STATEMENT For the six months ended 30 June 2005 Notes Six months Six months 12 months 2005 2004 2004 £m £m £mGross premiums earned 1 471.2Insurance premium revenue from the receipt of 78.6 £m £mreinsurance to close (RITC)Reinsurance premiums (75.7) (91.7) (161.3)Net earned premiums 474.1 360.9 737.7 Insurance claims and loss adjustment expenses (231.0) (209.6) (542.2)Insurance claims and loss adjustment expenses (78.6) (15.3) (15.3)relating to the receipt of reinsurance toclose (RITC)Insurance claims and loss adjustment expenses 54.5 58.7 163.0recovered from reinsurers (255.1) (166.2) (394.5) Expenses for the acquisition of insurance contracts (83.6) (74.1) (161.7)Other underwriting expenses (18.8) (36.2) (74.9) (357.5) (276.5) (631.1)Profit attributable to underwriting 1 116.6 84.4 106.6 Investment return 3 41.3 14.5 52.1 Fee income - insurance contracts - 0.6 3.7Other operating income 1.1 1.3 3.7Expenses for marketing and administration (1.3) (0.1) (0.4)Expenses for asset management services (1.0) (0.8) (1.3)renderedOther operating expenses (19.1) (11.6) (30.7) 21.0 3.9 27.1Results of operating activities 137.6 88.3 133.7Finance costs (3.5) (2.3) (4.8)Profit before tax 134.1 86.0 128.9Tax 4 (37.2) (26.9) (37.9)Profit for the period attributable to equity 96.9 59.1 91.0holders of the Company EPS Basic 6 24.5p 15.3p 23.4pEPS Diluted 6 24.1p 15.0p 23.1p CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the six months ended 30 June 2005 Six months Six months 12 months 2005 2004 2004 Note £m £m £m At 1 January 459.8 380.5 380.5 Gains on revaluation of investments recognised 1.2 0.5 0.8directly in equityProfit for the period 96.9 59.1 91.0Total recognised income for the period 98.1 59.6 91.8 Employee share option scheme: - value of employee services 0.3 0.2 0.4 - proceeds from shares issued 7.4 1.9 5.1Dividends paid 5 (19.7) (6.4) (18.0) (12.0) (4.3) (12.5) At 30 June and 31 December 545.9 435.8 459.8 CONSOLIDATED BALANCE SHEET At 30 June 2005 30 June 2005 30 June 2004 31 December 2004ASSETS Notes £m £m £mProperty, plant and equipment 5.5 6.0 6.2Intangible assets 7 66.0 66.3 66.0Financial investments 8 1,526.7 1,167.3 1,302.5Loans and receivables, including insurance receivables 387.1 428.8 287.1Deferred tax assets 9 17.7 23.0 22.0Reinsurance assets 10 696.1 666.9 604.8Cash and cash equivalents 35.7 28.4 47.6Total assets 2,734.8 2,386.7 2,336.2 EQUITYCapital and reserves attributable to the Company's equity shareholdersShare capital 13 100.2 98.1 98.8Share premium account 160.2 151.6 154.2Other reserves 46.3 44.9 45.1Treasury shares (1.3) (1.8) (1.6)Retained earnings 240.5 143.0 163.3Total shareholders' equity 545.9 435.8 459.8 LIABILITIESInsurance contracts 10 1,948.3 1,804.8 1,662.0Financial liabilities:- Borrowings 11 67.6 3.4 58.7Provisions for other liabilities and charges 12 4.2 2.4 4.6Trade and other payables 55.4 64.1 71.6Deferred tax liabilities 9 98.3 62.6 72.5Retirement benefit obligations 1.5 1.2 1.5Current income tax liabilities 13.6 12.4 5.5Total liabilities 2,188.9 1,950.9 1,876.4 Total liabilities and shareholders' equity 2,734.8 2,386.7 2,336.2 CONSOLIDATED CASH FLOW STATEMENT For the six months ended 30 June 2005 Six months Six months 12 months 2005 2004 2004 Notes £m £m £mCash generated from operations 14 (5.7) 12.4 (14.4) Cash flows from investing activitiesAcquisition of subsidiary, net of cash acquired - (2.5) (2.5)Purchase of property, plant and equipment (0.5) (1.0) (2.4)Net cash used in investing activities (0.5) (3.5) (4.9) Cash flows from financing activitiesProceeds from issue of ordinary shares 2.3 1.5 3.2Proceeds from borrowings - - 30.0Proceeds from issue of debt 26.2 - 25.6Repayment of borrowings (20.8) (7.1) (7.3)Dividends paid to shareholders (14.6) (5.5) (15.3)Net cash from financing activities (6.9) (11.1) 36.2 Net increase in cash and cash equivalents (13.1) (2.2) 16.9Cash and cash equivalents at beginning of period 47.6 30.7 30.7Effects of exchange rate changes 1.2 (0.1) -Cash and cash equivalents at end of period 35.7 28.4 47.6 Cash flows relating to non-aligned syndicate participations are included only tothe extent that cash is transferred between the Premium Trust Funds and theGroup. Notes to the Interim Financial Statements For the six months ended 30 June 2005 Basis of preparation of Interim Financial StatementsAccounting policies The interim financial report, as required by the Listing Rules of the UnitedKingdom's Financial Services Authority (FSA), has been prepared on the basis ofIFRS recognition and measurement principles which are expected to be applicableat year end 2005 but as permitted under IFRS and by the Committee of EuropeanSecurities Regulators (CESR), IAS 34 "Interim Financial Reporting" has not beenapplied early and, consequently, the full requirements of that standard have notbeen applied. These interim consolidated financial statements have been prepared in accordancewith the accounting policies that are anticipated to be used in preparation ofthe annual financial statements for the year ending 31 December 2005. Theseaccounting policies were published on the Company's website (www.Amlin.com) on10 August 2005. A summary of the key differences between IFRS and UK GAAP ispresented in Note 16. There is a possibility that the directors may determinethat some changes are necessary when preparing the full annual financialstatements for the first time in accordance with the accounting standardsapplicable at 31 December 2005. The IFRS standards and IFRIC interpretationsthat will be applicable and adopted for use at 31 December 2005 are not knownwith certainty at the time of preparing this interim financial information. Status of interim financial statements The statements for the two interim periods are unaudited but have been reviewedby the Company's auditors, Deloitte & Touche LLP, and their report for the sixmonths ended 30 June 2005 is included with this report. The interim financialstatements do not constitute statutory accounts as defined in section 240 of theCompanies Act 1985 (the Act). The results for the year ended 31 December 2004 do not constitute statutoryaccounts as defined in section 240 of the Companies Act 1985. These results havebeen restated for the adoption by the Group of IFRS and as such differ from theresults reported in the Group's previously published statutory accounts. Thoseaccounts received an unqualified audit opinion and did not contain a statementunder section 237(2) or (3) of the Act and have been filed with the Registrar ofCompanies. 1 Segmental reporting Amlin plc is organised on a divisional basis with each division underwritingsub-classes falling under four main classes of business: aviation, marine,non-marine and UK commercial motor and retail business. Six months 2005 Aviation Non -marine Marine UK Commercial Other Total technical £m £m £m £m £m £m Gross premiums written 42.4 413.4 120.7 98.4 0.9 675.8Gross premiums earned 44.1 259.6 76.7 89.9 0.9 471.2Insurance claims and lossadjusting expenses (19.8) (121.5) (34.1) (55.7) 0.1 (231.0)Reinsurance balance (8.4) (10.8) (2.3) 0.6 (0.3) (21.2)Underwriting expenses (7.6) (55.2) (20.8) (17.9) (0.9) (102.4)Profit attributable tounderwriting 8.3 72.1 19.5 16.9 (0.2) 116.6 Six months 2004 Aviation Non -marine Marine UK Commercial Other Total technical £m £m £m £m £m £m Gross premiums written 42.5 427.0 134.8 106.4 (1.0) 709.7Gross premiums earned 44.0 238.2 70.8 85.3 (1.0) 437.3Insurance claims and (17.7) (86.1) (43.8) (67.6) 5.6 (209.6)loss adjusting expensesReinsurance balance (10.1) (30.0) (1.5) 15.5 (6.9) (33.0)Underwriting expenses (9.9) (57.9) (22.2) (17.4) (2.9) (110.3)Profit attributable tounderwriting 6.3 64.2 3.3 15.8 (5.2) 84.4 12 months 2004 Aviation Non -marine Marine UK Commercial Other Total technical £m £m £m £m £m £m Gross premiums written 90.8 525.0 160.2 170.6 (1.0) 945.6Gross premium earned 88.0 489.9 147.8 159.0 (1.0) 883.7Insurance claims andloss adjusting expenses (48.0) (302.7) (79.0) (117.0) 4.5 (542.2)Reinsurance balance (9.5) 7.8 (4.7) 15.0 (6.9) 1.7Underwriting expenses (21.8) (127.6) (48.5) (36.0) (2.7) (236.6)Profit attributable tounderwriting 8.7 67.4 15.6 21.0 (6.1) 106.6 2 Changes in prior period claims reserves Material over provisions for claims at the beginning of the year as comparedwith net payments and provisions at the end of the period in respect of priorperiods' claims have been as follows: Six months Six months 12 months 2005 2004 2004 £m £m £mMovement in reserves 30.0 31.0 49.7 3 Investment return Six months Six months 12 months 2005 2004 2004 £m £m £mInvestment income- dividend income 1.5 0.7 1.1- interest income 23.7 19.6 42.2Cash and cash equivalents interest income 7.3 3.3 9.2 32.5 23.6 52.5Net realised gains (losses) on financial assets- equity securities 6.0 2.9 4.2- debt securities (1.3) (2.0) (4.5) 4.7 0.9 (0.3)Net fair value gains (losses) on assets at fair value through income statement- equity securities 1.6 (1.3) 3.8- debt securities 2.5 (8.7) (3.9) 4.1 (10.0) (0.1)Total 41.3 14.5 52.1 4 Tax Six months Six months 12 months 2005 2004 2004 £m £m £m Current tax- UK corporation tax 6.8 - (0.3)- Foreign tax 0.2 - 0.4 7.0 - 0.1 Deferred tax - current year- movement in asset 4.4 2.1 3.1- movement in liability 25.8 24.8 34.7 30.2 26.9 37.8 37.2 26.9 37.9 5 Dividends The amounts recognised as distributions to equity holders are as follows: Six months Six months 12 months 2005 2004 2004 £m £m £mFinal dividend for the year ended:- 31 December 2004 of 5.0 pence per ordinary share 19.7 - -- 31 December 2003 of 1.65 pence per ordinary share - 6.4 6.4Interim dividend for the year ended:- 31 December 2004 of 3.0 pence per ordinary share - - 11.6 19.7 6.4 18.0 The dividends for 2003 and 2004 were paid in a combination of cash and scripdividend shares. The amounts paid in cash and scrip dividend shares are asfollows: £m £m £m Cash 14.6 5.5 15.3Scrip dividend 5.1 0.9 2.7 19.7 6.4 18.0 The interim dividend of 4 pence per ordinary share for 2005, amounting to £15.9million, was approved by the Board on 2 September 2005 and has not been includedas a liability as at 30 June 2005. 6 Earnings and net assets per ordinary share Earnings per share is 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: Six months Six months 12 months 2005 2004 2004Profit for the period £96.9m £59.1m £91.0mWeighted average number of shares in issue 396.3m 387.2m 388.4mDilutive shares 6.0m 6.3m 6.0mAdjusted average number of shares in issue 402.3m 393.5m 394.4mBasic earnings per share 24.5p 15.3p 23.4pDiluted earnings per share 24.1p 15.0p 23.1p Basic and tangible net assets per share are as follows: Six months Six months 12 months 2005 2004 2004Net assets £545.9m £435.8m £459.8mAdjustments for intangible assets £(66.0m) £(66.3m) £(66.0m)Tangible net assets £479.9m £369.5m £393.8mNumber of shares in issue at end of period 400.6m 392.5m 395.1mAdjustment for ESOT shares (2.5m) (4.5m) (4.2m)Basic number of shares after ESOT adjustment 398.1m 388.0m 390.9mNet assets per share 137.1p 112.3p 117.6pTangible net assets per share 120.6p 95.2p 100.7p 7 Intangible assets Purchased Goodwill Total syndicate participations £m £m £mNet book valueAt 30 June 2005 and 31 December 2004 63.2 2.8 66.0At 30 June 2004 63.2 3.1 66.3 8 Financial investments At valuation 30 June 30 June 31 December 2005 2005 2004 £m £m £mShares and other variable yield securities 89.0 52.5 90.1Debt securities and other fixed income securities 799.4 761.7 718.6Participation in investment pools 429.5 181.5 307.5Deposits with credit institutions 157.2 125.2 140.9Overseas deposits 48.3 41.0 42.5Other 3.3 5.4 2.9 1,526.7 1,167.3 1,302.5In Group owned companies 453.8 268.6 310.9In aligned syndicates 1,066.7 886.8 979.7In non-aligned syndicates 6.2 11.9 11.9 1,526.7 1,167.3 1,302.5Listed investments included in Group owned total are as follows:Shares and other variable yield securities 89.0 52.5 90.1Debt securities and other fixed income securities 109.8 86.3 83.5 198.8 138.8 173.6 All financial investments are classified as fair value through income. Withinthis category fixed maturity and equity securities are classified as tradingassets as the Group buys with the intention to resell. All other securities areclassified as other than trading assets within the fair value through incomecategory. Using Standard & Poor's and Moody's as rating sources, the credit ratings of theGroup's share of the debt and other fixed income securities is set out below: 30 June 30 June 31 December 2005 2005 2004 £m £m £mGovernment / Government Agency 429.0 457.1 363.5AAA/Aaa 70.7 89.1 91.3AA/Aa 129.2 76.6 90.6A 142.7 121.7 137.3BBB/Baa 22.4 6.5 25.2 794.0 751.0 707.9In non-aligned syndicates 5.4 10.7 10.7 799.4 761.7 718.6 9 Deferred tax The deferred tax asset is attributable to timing differences arising on thefollowing: Provisions Other Unrelieved Capital Other Total for losses provisions trading losses losses timing carried forward differences £m £m £m £m £m £mAt 1 January 2005 1.3 6.2 8.8 1.9 3.8 22.0Movements in the period - 0.8 (8.8) 3.7 (0.1) (4.4)Movement through equity in - - - - 0.1 0.1the periodAt 30 June 2005 1.3 7.0 - 5.6 3.8 17.7At 30 June 2004 0.6 5.9 10.7 0.4 5.4 23.0 The deferred tax liability is attributable to timing differences arising on thefollowing: Underwriting Unrealised Syndicate Total results capital capacity gains £m £m £m £m At 1 January 2005 68.2 1.9 2.4 72.5Movements in the period 21.9 3.7 0.2 25.8At 30 June 2005 90.1 5.6 2.6 98.3At 30 June 2004 60.5 0.4 1.7 62.6 10 Insurance contracts and reinsurance assets Claims reserves Unearned Other insurance Total premium assets and reserves liabilities £m £m £m £mInsurance liabilitiesAt 1 January 2004 985.1 453.7 55.4 1,494.2Movement in period 57.6 273.1 (11.1) 319.6Exchange adjustments (8.4) - (0.6) (9.0)At 30 June 2004 1,034.3 726.8 43.7 1,804.8Movement in period 93.2 (209.5) 3.3 (113.0)Exchange adjustments (28.8) - (1.0) (29.8)At 31 December 2004 1,098.7 517.3 46.0 1,662.0Movement in period 50.4 204.5 (15.3) 239.6Exchange adjustments 44.9 - 1.8 46.7At 30 June 2005 1,194.0 721.8 32.5 1,948.3 Reinsurance assetsAt 1 January 2004 265.4 30.9 223.8 520.1Related Shares:
Aston Martin Lagonda