Final Results

Amlin PLC 24 April 2002 24 April 2002 AMLIN plc PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2001 (UNAUDITED) KEY POINTS • Amlin to write £1 billion of premium in 2002 • Substantially improved underlying performance (excluding losses for 11 September 2001) • 100% combined ratio (2000: 111%) • 96% combined ratio for continuing syndicate (2000: 101%) • Strong 2001 performance in all four underwriting divisions • 11 September losses of £63.9 million broadly in line with previous estimates • Strong rate rises in year to date with tighter terms • Q1 2002 Syndicate 2001 gross written premium up 41 % to £380 million • Excellent future prospects in hardening market Commenting on the results Charles Philipps, CEO stated: 'We achieved a strong underlying improvement in our performance in 2001. This helped us to cope with the 11 September terrorist losses. Our combined ratio of 117%, including the losses, compares favourably with industry results. We are in an excellent shape. Our scale, underwriting skills and diversity of underwriting risk form a sound basis to provide highly attractive returns to shareholders in the current stage of the insurance cycle' FINANCIAL HIGHLIGHTS 2001 2001 Total Continuing Discontinued 2001 2000 1999 £m £m £m £m £m Gross premiums written 585.0 2.4 587.4 363.3 252.8 Net premiums written 485.1 1.4 486.5 284.1 195.5 Earned premiums 341.5 1.4 342.9 231.1 175.1 Operating profit (loss) before WTC* (based on longer term investment 10.0 (7.8) 2.2 (5.9) 12.5 returns) Operating (loss) profit before tax (based on longer term investment (53.9) (7.8) (61.7) (5.9) 12.5 returns) (Loss)/profit on ordinary activities before (73.7) (7.8) (81.5) (26.4) 18.3 tax Per share amounts Operating (loss) profit before WTC* (8.7)p (9.7)p 7.1p Earnings (33.3)p (9.6)p 5.9p Net assets 67.8p 102.0p 110.0p Dividend - 4.0p 3.8p Syndicate 2001 operating ratios* Claims ratio 67% 77% 73% Expense ratio 29% 24% 34% Combined ratio 96% 101% 107% * Operating loss and Syndicate 2001 ratios are shown before the effect of the losses from the terrorist attacks on 11 September 2001 as this is considered to be more representative of Amlin's underlying performance Charles Philipps, Amlin plc 0207 746 1000 Richard Hextall, Amlin plc 0207 746 1000 David Haggie, Haggie Financial Limited 0207 417 8989 / 07768 332486 CHAIRMAN'S INTRODUCTION 2001 was a year in which Amlin, like many companies with US insurance and reinsurance businesses, was seriously challenged on a number of fronts. In particular the financial loss incurred as a result of the 11 September terrorist atrocities is estimated at £63.9 million and is reserved in our 2001 technical account. The financial loss, however, bears no comparison to the human tragedy suffered by so many innocent people. Our net loss after tax for the year was £67 million (2000 loss: £19.1 million) equivalent to a loss per share of 33.3p (2000 loss: 9.6p). The operating loss of £53.9 million for continuing operations, assuming a long term investment return (2000 loss: £3.5 million), would have been an operating profit of £10.0 million but for the terrorist atrocities of 11 September. Poor Stock Market performance during 2001 once again suppressed our overall investment returns. With the high levels of return anticipated from underwriting over the next few years, we have consciously decided to limit our investment risk, to ensure that we do not place in jeopardy the assets we need to support our underwriting in a hard market. It was for this reason that we divested our remaining equity portfolio in September 2001, and reinvested the proceeds in cash. Unfortunately the discontinued spread syndicate portfolio produced a disappointing outcome in its last year, contributing a loss of £7.8 million to our overall result. Our underlying underwriting performance from our continuing operations has continued to improve, evidenced by a lower combined ratio of 100%, excluding the effects of the 11 September losses, compared to 111% in 2000. Our ongoing Syndicate 2001 combined ratio was 96% (2000: 101%). It is pleasing to see the better underlying performance in all of our business areas, which is detailed under 'Financial Performance' below. In addition to improving its performance, Syndicate 2001 has successfully strengthened its market position with a 6.6% share of Lloyd's capacity in 2002 compared to 5.1% in 2001. This is consistent with our strategy of significantly growing premium income where we consider that pricing conditions are right. Syndicate 2001 is currently expected to underwrite some £1.0 billion (gross of acquisition costs) of premium income in the current year. It has leading positions in many of its specialist areas, including US property insurance and reinsurance, international reinsurance, airline and marine insurance and UK commercial motor insurance. The strong rating conditions in which all business areas are now trading allows us to look to 2002 and beyond with optimism. The size of Syndicate 2001, combined with our underwriting talent, means we are important to our clients and, with this, we are attracting good new business. As we capitalise on this, I expect that we will attract greater investor interest. As we develop Amlin with a focus on creating shareholder value, we intend to examine opportunities for adding to the strong core which we now have with Syndicate 2001. The current year has commenced well with £380 million of income written in the first quarter on terms which are significantly better than last year. New business has also been strong. Additionally, the first quarter benefited from a low incidence of major loss events. It is important that our growth and expansion is underpinned by a strong balance sheet. We are grateful to State Farm for the support that they provided, in the form of a £90 million letter of credit, which helped us grow our capacity on Syndicate 2001 by £178 million to £578 million for the current year. Additionally, the successful rights issue has resulted in an acceptable level of net gearing of 44.0% of shareholders funds. It also provides some financial flexibility to take advantage of future opportunities. Nonetheless, we ideally require additional capital to enable us to derive maximum advantage from the hard insurance market and the return which Amlin could obtain in this environment were such capital provided. As indicated in our December rights issue document, we have decided not to pay a dividend in respect of 2001. The Board believes that retention of funds within the Company is important to maximise returns from underwriting in the current hard market. However, in the absence of any other extraordinary losses we would expect to resume the payment of dividends in respect of the current year. I am proud that the efforts of our management and employees, in driving change through the business over the past two to three years, and in responding professionally to the situation following 11 September, has meant that we could answer the challenge and remain in a strong position to trade forward. We are determined that Amlin should continue to reinforce its position as one of the leading insurance businesses in the London market. Roger Taylor Chairman FINANCIAL PERFORMANCE The financial performance is split between our continuing operations, being our managed underwriting and the assets which support it, and discontinued operations comprising former participations held on a spread of Lloyd's syndicates up to the 1999 year of account. Continuing Operations In 2001 our net underwriting result was a loss of £48.2 million, caused by the 11 September terrorist atrocities, without which it would have been a profit of £15.7 million. Our investment return was 1.3%, made up of a good return on our bond portfolio and a disappointing return on our equity portfolio which was divested in September. Expenses benefited from actions taken to reduce costs and were under budget. Net earned premium increased by 59% in 2001 owing to a combination of our strategy of increasing our ownership share of Syndicate 2001 into a strengthening market, rate increases and growth in the volume of business underwritten. The return on our net earned premium was materially affected by losses from the 11 September terrorist atrocities but, excluding these losses, the result demonstrated continued improvement in business performance. The movement in reserves relating to premiums earned in prior periods contributed a small loss. 11 September losses The terrorist atrocities of 11 September resulted in the world's largest ever insured loss and one that had not previously been contemplated by many insurers. Our estimated losses arising from the 11 September attacks are reserved in the technical account for the year ended 31 December 2001 and are described in more detail in note 3 to the accounts. The estimated loss, net of reinsurance, is £63.9 million based on our syndicate shares in the 2000 and 2001 years of account respectively. This has modestly increased from our previous estimate partly due to exchange differences. For syndicate 2001, the loss equates to 13.2% of net premium written in 2001. Our exposures to the losses are largely in our property, property reinsurance and aviation accounts. While there remains uncertainty associated with the losses, we believe that we managed to successfully assess the areas of potential impact quickly and adopted a prudent approach to our reserving estimates from an early stage. This explains why our estimate has remained close to the level we forecast last October. Underlying performance The technical result, excluding the effects of the 11 September losses, was a profit of £15.7 million in 2001, compared to a loss of £0.2 million in 2000, representing a combined ratio improvement from 111% in 2000 to 100% in 2001. Improved performance was achieved in each of our divisions but was dampened, again, by the new business strain that we have described in previous reports which results from the timing of recognition of income and expenses on capacity acquired as we increase our ownership of Syndicate 2001. This is an artificial dampening and will unwind in the medium term. Assuming 100% ownership of our underwriting operations, the combined ratio improved by 11% to 100%. Harvey Bowring, our largest division, benefited from the reorganisation effected in October 2000, with the underwriting being managed more tightly around a smaller team of underwriters with good track records through the recent soft market. It also reduced significantly the long tail liability content of its account, selecting those areas that offer the greatest prospect of good returns, and achieved efficiencies on the purchase of its 2001 reinsurance programme as a result of the amalgamation of our reinsurance businesses. All of the division's classes improved except the direct property account which was adversely affected by a number of large refinery losses. Excluding the discontinued syndicate 1141 operation, the combined ratio was 104% compared to 105% in 2000. Coles results include the run off of the excess of loss business written in this division until 2001. The excess of loss account was highly profitable and has an excellent level of reserve strength. The combined ratio of the division was a highly satisfactory 84% compared to 88% in the previous period. The direct marine account, which forms the core of the division going forward, has performed admirably over the market downturn, restricting the level of business accepted and focusing on profit rather than premium. During 2001 the marine market was the last area to respond to a loss-making environment but some improvement in terms and conditions was evident. Amlin Aviation again delivered an impressive combined ratio of 84% compared to 95% in 2000. With the rate increases achieved in the main fourth quarter 2000 renewals season, Amlin was expanding its business before 11 September 2001. Following 11 September, rate increases accelerated sharply and we increased further our allocation of capacity to this division. Premium written increased by £35 million over that initially budgeted. 79% of the income underwritten in 2001 will be earned in 2002. Amlin Insurance Services achieved the third consecutive year of over 20% rate increases in its commercial motor business. In its other areas of UK commercial property, professional indemnity and employers' liability insurance, the division successfully increased rates and volumes of business as other participants withdrew capacity or ceased, the most notable being Independent Insurance. The net effect was a combined ratio of 95%, a substantial improvement on the 2000 ratio of 108%. Investment return Our investment return in 2001 was 1.32% overall on average funds of £433.2 million. Our share of the syndicate investment portfolio grew to £304.8 million which resulted from positive syndicate cash flow and increased ownership of managed syndicates. These technical funds were invested mainly in bonds with an average benchmark duration of three years on which we earned a good return of 7.7%. This was offset by a loss of 8% from our corporate assets which comprised a 4.0% return on the bond portfolio and a disappointing 21.2% deterioration in the value of the equity portfolio which represented 50% of the corporate investment assets until they were sold in September 2001. The decision to liquidate our equity portfolio after 11 September losses was taken from the perspective of managing financial risk. At that point, our insurance underwriting portfolio was materially exposed to another terrorist loss, and we believe that equity markets, in the short term, are positively correlated with war and terrorist events. In addition, the opportunity cost of investment losses was multiplied as the insurance market hardened overnight and we wanted to reduce the risk of not being in a position to support an increase in capacity for the 2002 year of account. Discontinued operations The group's direct holdings in non-aligned syndicate participations were sold in 1999. These activities are accounted for on a fund accounted basis, and so the results for the year reflect the final out-turn of the 1999 year of account of non-aligned syndicates, and the development of syndicates in run off. Provisions for these losses were accrued last year, based on third party managing agencies' estimates of loss. The final result for the year is a net deterioration of £7.8 million. A pessimistic view of the likely out-turn of results of third party syndicates was taken last year but the deterioration in some syndicates' results have been dramatic and are very disappointing. MARKET CONDITIONS The hardening of insurance markets for most classes of business was in progress well before 11 September 2001. For many lines of business the end of the long soft market began in 2000, and for our UK commercial motor business it began in 1999. Market conditions are driven by capacity, demand and discipline, with the reinsurance market place providing an important key to capacity. Numerous catastrophes and major losses, such as the Seattle earthquake, the explosion of the Petrobras off-shore drilling platform, the Sri Lankan terrorist attacks at Colombo airport and flooding as a result of Tropical Storm Allison, contributed to a progressive hardening through the first eight months of 2001. After 11 September 2001, however, prices increased significantly across most lines of business. Although more than $20 billion of capital has been raised by the insurance industry since 11 September, property and business interruption losses from major catastrophes in 2001 (excluding the 11 September losses) are estimated by Swiss Re at between $15 billion and $16.6 billion. The total 11 September loss is estimated at between $25 billion and $52 billion. In the United States, from where approximately 41% of our premium income is sourced, the property and casualty industry has recorded its second successive year of surplus depletion and this, combined with a resurgence of asbestos claims and lower investment returns, should focus the industry on achieving an acceptable underwriting return. Participants who contributed to the long soft market by subsidising poor underwriting returns with high investment returns no longer have that option if they are to achieve returns which shareholders should expect from the business. We believe that these dynamics may well result in an extended hard market. The tightening of market conditions was apparent when purchasing our own reinsurance programme. However our excellent gross underwriting track record allowed a satisfactory programme to be bought at no increased cost relative to forecast premium income. Greater retentions have been assumed to achieve this but we do not expect our catastrophe exposures to increase as a proportion of premium income capacity. Reinsurance market conditions Renewal rate increases in the year to date have generally been stronger for international programmes, where rate rises have averaged between 30% and 75%, than those for US domestic programmes where they have averaged around 25%. This reflects the focus of a number of the new Bermudian reinsurance start-ups that, in the United States, suppressed the rate rises. Nevertheless, we believe that in all areas of the world, rates are at a good technical level, taking account of terrorism exclusions and strengthening of terms being applied to renewals since 11 September last year. In Lloyd's, business is gravitating towards the larger and stronger market participants and this is beneficial to Amlin. Property and casualty market conditions The US property casualty market, in which we have approximately 15% of our business, has seen a significant strengthening of rates in 2002 renewals to date. For example, large commercial property risks have experienced rate increases averaging over 30%. Additionally, we are seeing a good inflow of new business driven by the insolvency or withdrawal of competition such as Reliance, CNA and St. Paul from specific classes of business, and a general reduction in line size across the industry. It is in this distressed state of the market that Lloyd's businesses, which have successfully weathered the down cycle, are able to excel. Aviation market conditions The substantial rate increases witnessed in the last quarter of 2001, which is the main renewal period for airline hull and liability insurance, shows every sign of continuing in 2002. Reinsurance capacity in this market has tightened for 2002, providing an added pressure to the market to maintain a sensible level of rating for some time. Since 11 September 2001, a terrorist surcharge has had the effect of materially increasing aviation industry rates. Marine market conditions The marine insurance market, having been the slowest of all our markets to recover, is showing increasingly encouraging prospects. Our hull renewal terms have increased by in excess of 40% in the first quarter of 2002. This is a good start but is not yet sufficient to warrant a dramatic expansion in the level of our underwriting. Other parts of the marine book have improved at a faster rate, such as war and energy, where rate rises have been 135% and 125% respectively. Accordingly we have expanded our presence in these areas. UK insurance including commercial motor Having experienced 20% plus renewal rate increases for each of the last three years we had been anticipating that Amlin Insurance Services would see rates beginning to peak in early 2002. However, the increased competition which we expected to creep into this class of business has failed to materialise in any major way, and in the first quarter of 2002 we have continued to witness 17.5% renewal rate increases in our commercial motor business, which is in excess of our estimates of claims inflation. FUTURE FINANCIAL PERFORMANCE Underwriting Profitability In the absence of exceptional loss events, Amlin is set for a period of good underwriting profitability. There are three main reasons for this. First, profits will accrue in 2002 from profitable business which was written in 2001. We expect approximately 54% of the 2001 underwriting year premium income to be recognised in 2002 and the incurred loss ratios on this income are encouraging. As explained above, we have reserved in our 2001 figures for the losses arising from the terrorist attacks of 11 September 2001. Second, in all areas of our business, we are experiencing a continued strengthening of rates and terms as commented on above. We expect a strong underwriting market to endure for at least this year and next. Profits from these years will be earned mostly in 2003 and 2004. Third, over the past two years, we have built Amlin around teams of underwriters with exceptionally solid experience and track records. At the same time, we have withdrawn from those areas of business which had historically dragged down results. Our underlying claims and combined ratios have improved year on year since 1999. We are confident that 2002 will see a continuance of this trend unless we experience exceptional loss events. Prudent reserving Insurance company results can be affected by changes in provisions for claims on business written in prior years. Directors and officers insurance and certain other liability business, for example, have recently resulted in the need for additional provisions in a number of companies, adversely affecting their results. Amlin attempts to limit the risk of such adverse developments by underwriting a mainly short tail book of business and by adopting a prudent approach to reserving. We have very limited exposure to directors and officers insurance, writing premium income in this class of approximately £2 million in 2000 and £1 million 2001. Overall, long tail liability business represented only 13% of our income in 2001. We aim to set our reserves so that there is a greater prospect of surplus reserves which can be released in future. In those areas of our business, which historically did not adopt such an approach, analysis of claims developments by our actuarial team suggests that we have successfully reached such a position. Investment Return With the high levels of return anticipated from underwriting over the next few years, we have consciously decided to limit the investment risk so that we do not place in jeopardy the assets we need to support our underwriting in the current hard market. It was for this reason that we divested our remaining equity portfolio in September 2001 and reinvested the proceeds in a managed cash fund. Amlin has two investment portfolios: its corporate portfolio and its share of syndicate investments. 61% of the combined portfolio is in Government or Government agency securities and 19% in AAA rated securities. Amlin's historically stated long term rate of return on its bond portfolio has been 6%. Current interest rates, together with an expectation of long term low inflation, suggests that this rate is not sustainable and we have therefore decided to reduce our long term anticipated return to 5.5%. However, against an expectation of increasing interest rates we are currently forecasting a lower rate of return on our corporate and syndicate portfolios for 2002 of 4%. Expenses To increase the size of the Central Fund, Lloyd's has increased the premium levy for 2002 and 2003. This has added £16 million for each of the next two years to the syndicate cost base which equates to £11.5 million for Amlin plc. However, as the business grows, the overall expense base does not increase at a proportionate rate. In addition, we are reducing our acquisition costs as the market hardens. Gearing To support its growth Amlin has taken on £133 million of debt over the last two years. This is in the form of letters of credit and therefore is disclosed off balance sheet. At 31 December 2001 the level of debt to capital employed in the business stood at 50.8%. This was reduced to 44.0% following the rights issue in January 2002. In the current hard insurance market this gearing is expected to enhance the return on equity. Outlook Amlin is in excellent shape to take advantage of an exceptionally attractive insurance market. Our scale, underwriting skills and diversity of underwriting risk form a sound basis to provide highly attractive returns to shareholders in the current stage of the insurance cycle. AMLIN PLC CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 31 December 2001 Continuing operations Discontinued 2001 2000 Underlying 11 Sept Sub-total Operations Total Total Technical Account Notes £m £m £m £m £m £m Gross premiums written 585.0 - 585.0 2.4 587.4 363.3 Outward reinsurance premiums (99.9) - (99.9) (1.0) (100.9) (79.2) Net premiums written 485.1 - 485.1 1.4 486.5 284.1 Change in the provision for unearned premiums: - gross amount (147.6) - (147.6) - (147.6) (55.9) - reinsurers' share 4.0 - 4.0 - 4.0 2.9 Earned premiums, net of reinsurance 341.5 - 341.5 1.4 342.9 231.1 Allocated investment return transferred from the non-technical account 4 24.6 - 24.6 3.3 27.9 29.5 Claims paid: - gross amount (243.0) (9.4) (252.4) (40.8) (293.2) (225.8) - reinsurers' share 53.3 0.9 54.2 17.3 71.5 71.3 Claims paid, net of reinsurance (189.7) (8.5) (198.2) (23.5) (221.7) (154.5) Change in the provision for claims: - gross amount (122.1) (285.2) (407.3) 21.3 (386.0) (127.4) - reinsurers' share 74.0 229.8 303.8 (8.4) 295.4 71.5 Claims incurred, net of reinsurance (237.8) (63.9) (301.7) (10.6) (312.3) (210.4) Net operating expenses (112.6) - (112.6) (1.9) (114.5) (52.9) Balance on the technical account for general business 15.7 (63.9) (48.2) (7.8) (56.0) (2.7) AMLIN PLC CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 31 December 2001 Continuing operations Discontinued 2001 2000 Underlying 11 Sept Sub-total Operations Total Total Non -technical Account Notes £m £m £m £m £m £m Balance on the technical account for general business 15.7 (63.9) (48.2) (7.8) (56.0) (2.7) Investment income 4 8.4 - 8.4 3.3 11.7 30.3 Unrealised losses on investments 4 (2.2) - (2.2) - (2.2) (7.0) Investment expenses and charges 4 (1.1) - (1.1) - (1.1) (2.2) Allocated investment return 4 transferred to the technical account (24.6) - (24.6) (3.3) (27.9) (29.5) (3.8) (63.9) (67.7) (7.8) (75.5) (11.1) Other income 1.5 - 1.5 - 1.5 2.1 Other charges (7.5) - (7.5) - (7.5) (10.5) Operating loss (9.8) (63.9) (73.7) (7.8) (81.5) (19.5) Comprising: Operating profit (loss) based on longer term investment return 10.0 (63.9) (53.9) (7.8) (61.7) (5.9) Short term fluctuations in (19.8) - (19.8) - (19.8) (13.6) investment return Loss on sale of subsidiary - (6.9) undertakings Loss on ordinary activities before taxation (81.5) (26.4) Taxation on loss on ordinary 14.5 7.3 activities Loss on ordinary activities after taxation (67.0) (19.1) Equity dividends - (7.8) Retained loss for the financial (67.0) (26.9) year Earnings per ordinary share 5 Basic (33.3)p (9.6)p Diluted (33.3)p (9.7)p CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES For the year ended 31 December 2001 Loss for the financial year (67.0) (19.1) Lapse of warrants - 2.8 Total recognised losses for the financial year (67.0) (16.3) CONSOLIDATED BALANCE SHEET as at 31 December 2001 Unaudited 2001 2000 ASSETS Notes £m £m Intangible assets 15.0 15.8 Investments Other financial investments 6 510.4 440.5 Reinsurers' share of technical provisions Provision for unearned premiums 3/10 14.4 10.2 Claims outstanding 3/10 443.3 188.8 457.7 199.0 Debtors Debtors arising out of direct insurance operations 108.8 40.9 Debtors arising out or reinsurance operations 206.8 126.4 Other debtors 97.5 84.2 Deferred tax asset 30.6 15.2 443.7 266.7 Other assets Tangible assets 12.6 9.5 Cash at bank and in hand 23.2 30.2 Own shares 2.8 3.5 38.6 43.2 Prepayments and accrued income Deferred acquisition costs 52.4 22.8 Other prepayments and accrued income 6.9 9.2 59.3 32.0 Total assets 1,524.7 997.2 CONSOLIDATED BALANCE SHEET as at 31 December 2001 Unaudited 2001 2000 LIABILITIES Notes £m £m Capital and reserves Called up share capital 52.1 51.5 Shares to be issued 0.4 0.9 Share premium account 8 57.0 55.0 Merger reserve 8 41.9 41.9 Capital redemption reserve 8 2.7 2.7 Profit and loss account 8 (16.9) 50.1 Equity shareholders' funds 9 137.2 202.1 Technical provisions Provision for unearned premiums 3/10 271.1 120.8 Claims outstanding 3/10 1,003.5 579.2 1,274.6 700.0 Provisions for other risks and charges 1.0 9.1 Creditors Creditors arising out of direct insurance operations 27.0 34.4 Creditors arising out of reinsurance operations 45.6 5.6 Other creditors including taxation and social 32.5 31.1 security 105.1 71.1 Creditors: amounts falling due after more than one 1.6 7.4 year Accruals and deferred income 5.2 7.5 Total liabilities 1,524.7 997.2 Net assets per ordinary share 5 67.8p 102.0p PARENT COMPANY BALANCE SHEET as at 31 December 2001 2001 2000 Notes £m £m Fixed assets Tangible fixed assets 12.3 8.8 Listed investments 6 8.6 21.8 Other investments 209.3 205.8 230.2 236.4 Current assets Amounts owed by subsidiary undertakings 51.3 47.1 Other debtors 0.9 2.4 Prepayments and accrued income 0.3 0.4 Cash at bank and in hand 2.9 - 55.4 49.9 Creditors: amounts falling due within one year Amounts owed to subsidiary undertakings (24.7) (23.1) Other creditors (3.9) (0.9) Proposed dividend - (5.2) (28.6) (29.2) Net current assets 26.8 20.7 Net assets 257.0 257.1 Capital and reserves Called up share capital 52.1 51.5 Shares to be issued 0.4 0.9 Share premium account 8 57.0 55.0 Capital reserve - unrealised - 0.1 Capital redemption reserve 8 2.7 2.7 Profit and loss account 144.8 146.9 Equity shareholders' funds 9 257.0 257.1 CONSOLIDATED CASH FLOW STATEMENT For the year ended 31 December 2001 2001 2000 Notes £m £m Net cash inflow 11 116.8 105.7 Servicing of finance Interest paid on loan capital (0.7) (1.8) Interest paid on finance leases - (0.2) Net cash outflow from servicing of finance (0.7) (2.0) Taxation Corporation tax received (paid) 3.7 (7.8) Capital expenditure Purchase of tangible assets (6.7) (9.6) Purchase of intangible assets - (4.0) Net purchases of tangible and intangible assets (6.7) (13.6) Acquisitions and disposals Disposal of subsidiaries - 1.2 Equity dividends paid (4.1) (7.7) Financing Issue of new shares net of issue costs 1.2 - Repurchase of ordinary share capital - (7.4) Repayment of borrowings (0.9) (1.6) Net cash inflow (outflow) from financing activities 0.3 (9.0) Net cash flows 109.3 66.8 Cash flows were invested as follows Increase (decrease) in cash holdings 16.1 (0.2) (Decrease) increase in deposits (11.7) 10.9 4.4 (10.7) Net portfolio investment Purchase of investments 305.4 312.4 Sale of investments (200.5) (256.3) Net purchases of investments 104.9 56.1 Net investment of cash flows 109.3 66.8 Cash flows relating to non-aligned participations are included only to the extent that cash is transferred between the Premium Trust Funds and the Group. 1. ACCOUNTING POLICIES Basis of preparation and consolidation The consolidated financial statements have been prepared in accordance with applicable accounting standards and under the historical cost accounting rules, modified to include the revaluation of investments, in accordance with the provisions of Section 255A, Schedule 9A and other requirements of the Companies Act 1985. The Group has also adopted the recommendations of the Statement of Recommended Practice on Accounting for Insurance Business, issued by the Association of British Insurers ('ABI SORP'). The balance sheet of the parent company has been prepared in accordance with the provisions of Section 230 of, and Schedule 4 to, the Companies Act 1985. In accordance with the exemption permitted under this section, the profit and loss account of the parent company is not presented as part of these accounts. The financial statements consolidate the accounts of the Company, its wholly owned subsidiary undertakings, and the Group's underwriting through participation on Lloyd's syndicates. The accounting information in respect of non-aligned syndicate participations has been provided by the managing agents of those syndicates through an information exchange facility operated by Lloyd's and has been audited by the respective syndicates' auditors. Goodwill arising on consolidation on acquisitions prior to 31 May 1998, representing the excess of the fair value of the consideration over the fair value of the assets acquired, has been written off against reserves. The Group has adopted Financial Reporting Standards (FRS) 17 - Retirement benefits (Transition phase), 18 - Accounting policies and 19 - Deferred Tax. The adoption of FRS 19 has had no material effect on the comparative figures, and therefore no prior year adjustment has arisen. Aligned syndicate participations The Group's aligned syndicate participations are presented on an annual accounting basis. Premiums Written premiums comprise premiums on contracts incepting during the financial year. Premiums are disclosed gross of brokerage and exclude taxes and duties levied on them. Estimates are included for 'pipeline' premiums, representing amounts due to the Group but not yet notified, as well as adjustments made in the year to premiums written in prior accounting periods. Outward reinsurance premiums are accounted for in the same accounting period as the related direct insurance or inwards reinsurance business. Unearned premiums A provision for unearned premiums represents that part of premiums written, and reinsurers' share of premiums written, which is estimated to be earned in following financial years. It is calculated separately for each insurance contract on the 24ths or 365ths basis, where the incidence of risk is the same throughout the contract. Where the incidence of risk varies during the term of the contract, the provision is based on the estimated risk profile of business written. 1. ACCOUNTING POLICIES (continued) Acquisition costs Acquisition costs comprise brokerage incurred on insurance contracts written during the financial year. They are spread over an equivalent period to that which the premiums on the underlying business are earned. Deferred acquisition costs represent the proportion of acquisition costs incurred in respect of unearned premiums at the balance sheet date. Claims Claims incurred comprise claims and claims handling expenses paid during the financial year together with the movement in the provision for claims outstanding and settlement expenses, including claims incurred but not reported. Outward reinsurance recoveries are accounted for in the same accounting period as the associated incurred claims. Claims outstanding comprise provisions for the estimated cost of settling all claims incurred but unpaid at the balance sheet date whether reported or not, and include the related internal and external claims handling expenses. Provisions for claims outstanding are based on information available to the directors and the eventual outcome may vary from the original assessment. Unexpired risks provision Provision is made for unexpired risks where, at the balance sheet date, the costs of outstanding claims and related deferred acquisition costs are expected to exceed the unearned premium provision. The unexpired risks provision is included within technical provisions in the balance sheet. Non-aligned syndicate participations The Group's non-aligned syndicate participations, which are presented as a discontinued operation, are reported on a three year accounting basis, not an annual accounting basis, because the only reliable information is on a three year basis. Premiums Written premiums comprise premiums on contracts incepting during the financial year. Premiums are disclosed gross of brokerage payable and exclude taxes and duties levied on them. Estimates are made for 'pipeline' premiums, representing accounts due to the Group but not yet notified, as well as adjustments made in the year to premiums written in prior accounting periods. Outward reinsurance premiums are accounted for in the same accounting period as the related direct insurance or inwards reinsurance business. Claims Claims incurred comprise claims and claims handling expenses paid during the financial year together with the movement in the provision for claims outstanding and settlement expenses, including claims incurred but not reported. The excess of premiums written and syndicate investment income over the claims and syndicate expenses paid in respect of business incepting in an underwriting year, is carried forward for two years in a fund and no profit is recognised until the end of the third year following the start of each underwriting year, when the account is normally closed. The fund is included in 'claims outstanding'. 1. ACCOUNTING POLICIES (continued) Loss provisions on open years Provision is also made for losses on each open year of account when it is considered that profits in corporate member subsidiaries may be insufficient to meet these losses. In addition, provision is made for the estimated future deterioration of any year of account of any syndicate that has gone into run-off. While the directors make every effort to ensure that adequate provision is made for losses on open years of account, their view of the ultimate loss may vary in later periods as a result of subsequent information and events. This in turn may require adjustment of the original provisions. These adjustments are reflected in the financial statements for the period in which the related adjustments are made. Other accounting policies Exchange rates Income and expenditure in US dollars or Canadian dollars is translated at average rates of exchange for the period. Underwriting transactions denominated in other foreign currencies are included at their historical rates. Syndicate assets and liabilities, expressed in US dollars or Canadian dollars are translated into sterling at the rates of exchange at the balance sheet date. Differences arising on translation of foreign currency amounts in syndicates are included in the technical account. Other assets, liabilities, income and expenditure expressed in foreign currencies have been translated at the rates of exchange at the balance sheet date unless contracts to sell currency for sterling have been entered into prior to the year end, in which case the contracted rates have been used. Differences arising on translation of foreign currency amounts on such items are included in the non-technical account. Refund of special contributions Refunds of the special contributions made towards the 1996 Lloyd's market settlement are being repaid, subject to the approval of the Council of Lloyd's, broadly in instalments equal to the corporate members' contribution to the Central Fund commencing with the 1997 year of account. Where these refunds are in respect of non-trading corporate member subsidiaries, the refund was recognised in the year ended 31 December 2000. Investments Listed investments are stated at market value at the close of business on the balance sheet date. Unlisted investments are valued by the directors on a prudent basis with regard to their likely realisable value. In the Company's accounts, investments in Group undertakings are stated at cost less provisions for impairment. Syndicate investments and investment income Syndicate investments and cash are held on a pooled basis, the return from which is allocated to underwriting years of account proportionately to the funds contributed by the year of account. Investment return All dividends and any related tax credits are recognised as income on the date the related listed investments are marked ex-dividend. Other investment income, interest receivable, expenses and interest payable is recognised on an accruals basis. Realised gains or losses are calculated as the difference between the net sales proceeds and their purchase price in the financial year or their valuation at the commencement of the year. Unrealised gains and losses are calculated as the difference between the valuation of investments at the balance sheet date and their purchase price in the financial year or valuation at the commencement of the year. 1. ACCOUNTING POLICIES (continued) In the Company's accounts, realised gains and losses on investments are included in the profit and loss account and unrealised gains and losses are taken directly to capital reserve-unrealised. Allocation of investment return All of the investment return arising in the year is reported initially in the non-technical account. A transfer is made from the nontechnical account to the technical account representing: • for the aligned syndicate participations, the longer term investment return on investments supporting the technical provisions and related shareholders' funds. The longer term investment return is an estimate of the expected return over time for each relevant category of investments having regard to past performance, current trends and future expectations; and • for the non-aligned syndicate participations, the actual return on investments supporting the technical provisions and related shareholders' funds. Intangible fixed assets Goodwill on transactions completed prior to 31 May 1998 has been written off to reserves and has not been reinstated. On the subsequent disposal of the underlying investment, any goodwill not yet amortised is taken to the profit and loss account when calculating the profit or loss on disposal. The cost of syndicate participations which have been purchased in the Lloyd's capacity auctions is capitalised and amortised on a straight line basis over its estimated useful economic life of twenty years beginning in the underwriting year in which the purchased syndicate participation commences. Other income and charges Agency fees are recognised on an accruals basis. Profit commission receivable is recognised when the relevant Lloyd's underwriting year closes. Tangible fixed assets The cost of other fixed assets is depreciated over their expected useful lives on a straight line basis. Depreciation rates are within the following ranges: Leasehold land and buildings Over period of lease Motor vehicles 25 - 33% per annum Computer hardware and software 33 - 50% per annum Furniture and office equipment 20 - 50% per annum Internal property improvements 20 - 33% per annum Pensions Pension contributions to defined benefit schemes are charged to the profit and loss account so as to spread the cost of pensions over employees' working lives with the Group. Pension contributions to employees' money purchase schemes are charged to the profit and loss account when due. Deferred tax Deferred taxation is provided in full on timing differences that result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in financial statements. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered. 1. ACCOUNTING POLICIES (continued) Leased assets Assets held under finance leases and hire purchase transactions are capitalised in the balance sheet and depreciated over their useful lives. The outstanding instalments are included in creditors and the interest element is charged against profits over the period of the contract. Payments made under operating leases are charged to the profit and loss account in the period in which they become payable except when there are rent free periods in property leases for which the cost of the lease is spread evenly up to the period of the first rent review. 2. ANALYSIS OF CONTINUING AND DISCONTINUED OPERATIONS Continuing operations The events of 11 September 2001 have had a significant impact on the Group's results. As such, the continuing operations in the technical account have been split between 11 September related and underlying items. Discontinued operations The results of discontinued operations are reported separately. Technical account During 1999, the Group disposed of its remaining participations on non-aligned syndicates. The results deriving from this activity are disclosed as discontinued operations. Non-technical account The 2000 non-technical comparative figures include the results of the Group's members' agency, disposed of in that year, up until the date of disposal. 2. ANALYSIS OF CONTINUING AND DISCONTINUED OPERATIONS (continued) Continuing operations Discontinued Underlying 11 Sept Sub-total operations Total 2001 Technical Account £m £m £m £m £m Gross premiums written 585.0 - 585.0 2.4 587.4 Outward reinsurance premiums (99.9) - (99.9) (1.0) (100.9) Net premiums written 485.1 - 485.1 1.4 486.5 Change in the provision for unearned premiums: - gross amount (147.6) - (147.6) - (147.6) - reinsurers' share 4.0 - 4.0 - 4.0 Earned premiums, net of reinsurance 341.5 - 341.5 1.4 342.9 Allocated investment return transferred from the non-technical account 24.6 - 24.6 3.3 27.9 Claims paid: - gross amount (243.0) (9.4) (252.4) (40.8) (293.2) - reinsurers' share 53.3 0.9 54.2 17.3 71.5 Claims paid, net of reinsurance (189.7) (8.5) (198.2) (23.5) (221.7) Change in the provision for claims: - gross amount (122.1) (285.2) (407.3) 21.3 (386.0) - reinsurers' share 74.0 229.8 303.8 (8.4) 295.4 Claims incurred, net of reinsurance (237.8) (63.9) (301.7) (10.6) (312.3) Net operating expenses (112.6) - (112.6) (1.9) (114.5) Balance on the technical account for general business 15.7 (63.9) (48.2) (7.8) (56.0) Non-technical account Balance on the technical account for general business 15.7 (63.9) (48.2) (7.8) (56.0) Investment income 8.4 - 8.4 3.3 11.7 Unrealised gains on investments (2.2) - (2.2) - (2.2) Investment expenses and charges (1.1) - (1.1) - (1.1) Allocated investment return transferred to the technical account (24.6) - (24.6) (3.3) (27.9) (3.8) (63.9) (67.7) (7.8) (75.5) Other income 1.5 - 1.5 - 1.5 Other charges (7.5) - (7.5) - (7.5) Operating loss (9.8) (63.9) (73.7) (7.8) (81.5) Comprising: Operating profit (loss) based on longer term investment return 10.0 (63.9) (53.9) (7.8) (61.7) Short term fluctuations in investment return (19.8) - (19.8) - (19.8) Loss on ordinary activities before taxation (81.5) 2. ANALYSIS OF CONTINUING AND DISCONTINUED OPERATIONS (continued) Continuing Discontinued operations Operations Total 2000 Technical Account £m £m £m Gross premiums written 340.7 22.6 363.3 Outward reinsurance premiums (72.7) (6.5) (79.2) Net premiums written 268.0 16.1 284.1 Change in the provision for unearned premiums: - gross amount (55.9) - (55.9) - reinsurers' share 2.9 - 2.9 Earned premiums, net of reinsurance 215.0 16.1 231.1 Allocated investment return transferred from the non-technical account 23.0 6.5 29.5 Claims paid: - gross amount (144.2) (81.6) (225.8) - reinsurers' share 37.1 34.2 71.3 Claims paid, net of reinsurance (107.1) (47.4) (154.5) Change in the provision for claims: - gross amount (146.4) 19.0 (127.4) - reinsurers' share 76.0 (4.5) 71.5 Claims incurred, net of reinsurance (177.5) (32.9) (210.4) Net operating expenses (60.7) 7.8 (52.9) Balance on the technical account for general business (0.2) (2.5) (2.7) 2. ANALYSIS OF CONTINUING AND DISCONTINUED OPERATIONS (continued) Continuing Discontinued operations Operations Total Non-technical account £m £m £m Balance on the technical account for general (0.2) (2.5) (2.7) business Investment income 23.7 6.6 30.3 Unrealised gains on investments (7.0) - (7.0) Investment expenses and charges (2.1) (0.1) (2.2) Allocated investment return transferred to (23.0) (6.5) (29.5) the technical account (8.6) (2.5) (11.1) Other income 1.4 0.7 2.1 Other charges (9.9) (0.6) (10.5) Operating loss (17.1) (2.4) (19.5) Comprising: Operating loss based on longer term investment return (3.5) (2.4) (5.9) Short term fluctuations in investment (13.6) - (13.6) return Loss on sale of subsidiary undertakings (6.9) Loss on ordinary activities before taxation (26.4) 3. IMPACT OF TERRORIST ATTACKS OF 11 SEPTEMBER 2001 The terrorist attacks of 11 September 2001 have resulted in material losses for the Group's managed syndicates 2001 and 902, and a small net loss on syndicate 1141. Due to the scale of these losses and the reinsurance recoveries thereon, at this stage the estimation of the loss is highly complex. Therefore greater uncertainty exists over the loss estimates than would normally be the case. However the directors consider that the loss provisions made are a best estimate of the ultimate liability. The gross loss estimate by syndicate and class of business, and the net loss estimates by syndicate are summarised below: 3. IMPACT OF TERRORIST ATTACKS OF 11 SEPTEMBER 2001 (continued) Syndicate Syndicate Syndicate 2001 902 1141 Total US$m US$m US$m US$m Class of business Direct and facultative property 94.6 - - 94.6 Property reinsurance and risk excess of loss 271.3 - 2.0 273.3 Direct airline operators and other aviation risks 253.0 - - 253.0 Reinsurance of aviation risks 30.8 - - 30.8 Other 7.8 7.6 0.2 15.6 Total gross loss 657.5 7.6 2.2 667.3 Reinsurance recoveries (520.3) (5.6) (1.9) (527.8) Total net loss 137.2 2.0 0.3 139.5 Allocated by year of account: 2000 year of account 25.4 2.0 0.3 27.7 2001 year of account 111.8 - - 111.8 137.2 2.0 0.3 139.5 Amlin Group share 92.0 1.1 0.2 93.3 The gross loss estimates emanate from the following sources: • Direct and facultative property contracts: All direct and facultative property contracts underwritten in 2000 and 2001 have been reviewed to determine which contracts have property exposure in the vicinity of Lower Manhattan. Policy limits of relevant contracts have been assumed in the gross loss estimate unless sufficient information has been received to indicate that an amount other than the policy limit should be assumed. It is possible that syndicate 2001 could receive contingent business interruption claims from direct and facultative property contracts in respect of properties which are outside the Lower Manhattan or Pentagon vicinities but where the policyholder has suffered business interruption as a result of the events of 11 September. The directors consider the cost of such claims will not be material. • Property reinsurance contracts: The main property reinsurance contracts underwritten have been reviewed and assessed for likelihood of loss. The coverage granted under relevant contracts provides reinsurance cover for insurance companies' direct and facultative property portfolios of risks. Coverage granted is typically primary reinsurance and not retrocessional. The estimates of losses arising from such contracts are based on information obtained from the brokers who placed the contracts on behalf of the insurance companies, or directly from the relevant insurance companies. Accordingly, the estimates are reliant on the completeness and accuracy of information provided by third parties. Where notified loss information is considered to be poor or unreliable, a margin has been added for prudential purposes. 3. IMPACT OF TERRORIST ATTACKS OF 11 SEPTEMBER 2001 (continued) • Airline, airport operators and airport contractors' contracts: A number of clients may have claims under their liability insurance contracts, if, and to the extent that, they are deemed to be liable for negligence which has contributed to the loss. Such clients include airlines and airport operators and security contractors. In some cases the liability of such parties appears remote. Where the potential for a claim has been identified, albeit speculative or unlikely, an estimate has been incorporated into the overall loss estimate. In the case of exposures related to the World Trade Center, anticipated losses are based on policy limits. In the case of the Washington D.C. and Pittsburgh losses, anticipated losses are based on the management's estimates of the damage caused and the number of lives lost. The remaining loss is spread over a number of other classes, including war, specie and personal accident. The net loss is arrived at by deducting from the gross loss the estimated reinsurance recoveries, net of reinstatement premiums. Reinsurance recoveries have been estimated by mapping the estimated losses against the reinsurance cover available. The recovery estimate is based on the amount of recovery that can be made against the relevant policies. The cost of reinsurance premiums to reinstate reinsurance cover has been calculated under the terms of applicable policies and is included within the net estimate. Recoveries under a number of reinsurance contracts are triggered by the overall market property insured loss reaching certain levels. The property market loss assumed is US$25 billion or greater. It is apparent from the table that there are material reinsurance recoveries due on this loss. Approximately 98% of Amlin's estimated reinsurance recoveries due are from counter parties rated A or better by Standard & Poor's. Included in the estimated reinsurance recoveries is an amount of US$ 125 million, split US$ 19 million and US$ 106 million between the 2000 and 2001 years of account respectively, due from companies which authorised Fortress Re, Inc., a North Carolina, USA based managing general agent, to bind reinsurance in their names. The authority given to Fortress Re has been cancelled following the events of 11 September 2001 and it is possible that there will be disputes between Fortress Re and the insuring companies, namely the Nissan Fire and Marine Insurance Company, the Taisei Fire and Marine Insurance Company and Aioi Insurance Company. Syndicate 2001 did not accept security (other than an exposure limited to £200,000) from the Taisei Fire and Marine Insurance Company in its 2001 year of account reinsurance programme and it is believed that the security of the other two companies remains sufficiently strong. Other key assumptions made in estimating the losses from 11 September 2001 include: • The terrorist attacks leading to the collapse of the World Trade Center towers in New York were one occurrence; • The Washington and Pittsburgh losses were two further distinct occurrences; • There will be no material failures of reinsurance security; • All reinsurers will reinstate reinsurance cover in accordance with the relevant contract provision; • There will be no material contractual disputes with any reinsurers; • There will be no subrogation recoveries or financial support from third parties, including the US government or associated agencies; and • War exclusions on policies do not apply and all of the occurrences were caused by terrorist action. We believe the attacks on the World Trade Center were one occurrence. We have legal guidance that supports this belief. However, the leaseholder of the twin towers is claiming that the attacks were two distinct events. In the event that the World Trade Center losses are judged to be two occurrences, it is estimated that Amlin's loss would increase by up to £30 million. 3. IMPACT OF TERRORIST ATTACKS OF 11 SEPTEMBER 2001 (continued) The estimates, and the assumptions and methodology from which they are derived, do not, and may not be taken to constitute an admission that the Group is liable either in respect of a particular class of business or under a particular contract of insurance or reinsurance. 4. INVESTMENT RETURN Investment income and expenditure reported in the non-technical account is as follows: 2001 2000 £m £m Income from investments 28.9 30.3 Losses on realisation of investments (17.2) - 11.7 30.3 Unrealised losses on investments (2.2) (7.0) Investment management fees (0.4) (1.1) Interest on loan stock and bank loans (0.7) (0.7) Other finance charges - (0.4) (1.1) (2.2) Total investment return 8.4 21.1 In respect of equity investments and fixed interest securities the longer term rate of return has been determined by having regard to the Group's historical and expected returns and current portfolio strategy. The rates of return are: 2001 2000 UK equities 7.0% 8.0% Fixed interest securities 5.5% 6.0% These returns are applied to the average, over the year, of the investments attributable to the shareholders and insurance technical provisions of the aligned syndicate participations. The attributable shareholders' funds are based on the Funds at Lloyd's which represent the estimated risk based capital supporting the insurance business. The reduction in the longer term rate for fixed interest securities results from a reduction in the global outlook for these securities. The rate for equities was utilised until the date of disposal of the portfolio. 4. INVESTMENT RETURN (continued) The actual return on investments since 1 June 1996, compared with the aggregate longer term return over the same period, is set out below. All figures are gross of expenses. 1 June 1996 to 31 1 June 1995 to Dec 2001 31 Dec 2000 £m £m Actual return attributable to the technical account 87.2 89.1 Longer term return attributable to the technical account 115.3 97.4 Effect of short term fluctuations over the period (28.1) (8.3) 5. EARNINGS AND NET ASSETS PER ORDINARY SHARE Earnings per share is based on the loss attributable to shareholders for the year ended 31 December 2001 of £67.0 million (2000: £19.1 million) and the weighted average number of shares in issue during the period. Shares held by the Employee Share Ownership Trust ('ESOT') are excluded from the weighted average number of shares. Basic and diluted earnings per share are as follows: 2001 2000 Loss for the financial year (67.0m) (£19.1m) Weighted average number of shares in issue 201.3m 200.0m Dilutive shares - (5.5m) Adjusted average number of shares in issue 201.3m 194.5m Basic earnings per share (33.3p) (9.6p) Diluted earnings per share (33.3p) (9.7p) Basic net assets per share are as follows: Net assets at 31 December £137.2m £202.1m Number of shares in issue at 31 December 208.5m 206.1m Adjustment for ESOT shares (6.1m) (7.7m) Basic number of shares after ESOT adjustment 202.4m 198.4m Net assets per share 67.8p 102.0p 6. OTHER FINANCIAL INVESTMENTS At At At At valuation valuation cost cost 2001 2000 2001 2000 Group £m £m £m £m Shares and other variable yield securities 0.5 113.4 0.6 101.2 Debt securities and other fixed income 391.9 284.3 390.7 283.0 securities Participation in investment pools 81.1 25.0 81.0 25.0 Loans secured by mortgages - 0.5 - 0.7 Deposits with credit institutions 1.7 8.1 1.7 7.8 Overseas deposits 23.9 7.0 23.9 7.0 Other 11.3 2.2 9.7 2.0 510.4 440.5 507.6 426.7 In Group owned companies 169.5 221.8 170.8 214.8 In aligned syndicates 304.8 165.3 303.9 163.0 In non-aligned syndicates 36.1 53.4 32.9 48.9 510.4 440.5 507.6 426.7 Listed investments included in Group owned total are as follows: Shares and other variable yield securities 0.5 105.7 0.6 99.8 Debt securities and other fixed income 87.2 109.2 88.2 108.1 securities 87.7 214.9 88.8 207.9 Some of the Group investments are charged to Lloyd's to support the Group's underwriting activities. At At At At valuation valuation cost cost 2001 2000 2001 2000 Company £m £m £m £m Debt securities and other fixed income - 14.9 - 14.8 securities Participations in investment pools 8.6 4.0 8.6 4.0 Deposits with credit institutions - 2.9 - 2.9 8.6 21.8 8.6 21.7 7. SHARE OPTIONS At 31 December 2001, participants in the Amlin Executive Share Option Schemes held options to subscribe for 5,558,444 (2000: 5,928,333) new ordinary shares at prices ranging from 81.0p to 120.5p per share. The options over new shares, which are potentially exercisable between 3 and 10 years after grant, or earlier in special circumstances such as redundancy, were outstanding at the year end as follows: Option price per Number of shares share Usual first month of exercise June 2003 81.0p 1,280,000 November 2002 84.5p 130,000 October 2002 89.0p 1,270,000 May 2000 117.0p 1,093,158 May 2004 120.0p 1,216,000 September 2001 120.5p 569,286 5,558,444 The change during the year in the total number of new shares under option pursuant to these schemes resulted from the grant on 4 May 2001 of options over 1,258,000 new shares, the exercise of options over 1,042,961 new shares and the lapse during the year of options over a total of 584,928 new shares. In addition to the above detailed executive options, at 31 December 2001 employee Sharesave options were outstanding over a total of 1,306,247 new shares, as follows: Savings period Usual first month of Option price per Number of shares exercise share 3 years December 2002 86.0p 420,908 5 years December 2004 86.0p 464,575 3 years July 2004 102.0p 334,745 5 years July 2006 102.0p 86,019 1,306,247 7. SHARE OPTIONS (continued) The following changes in shares under option pursuant to the Sharesave scheme took place during the year: At 1 January 2001 1,067,736 Options granted in June 2001 568,973 Exercised during the year (all at 86.0p per share) (2000:nil) (40,130) Lapsed during the year (2000: 3000,837) (290,332) At 31 December 2001 1,306,247 The trustee of the Group's Employee Share Ownership Trust ('ESOT') held 6,088,521 Amlin ordinary shares as at 31 December 2001 (2000: 7,696,153). These shares are valued at the lower of cost and net realisable value. The market value of Amlin plc ordinary shares at 31 December 2001 was 86.5p per share (2000: 109.0p). All the options summarised in this note were subsequently adjusted as at 15 January 2002 to take account of the effect of the Company's rights issue. The above numbers of shares under option were increased by approximately 1.5% and the above option exercise prices were reduced by approximately the same percentage. 8. RESERVES Share Merger Capital Profit and premium reserve redemption loss account account reserve Group £m £m £m £m At 1 January 2001 55.0 41.9 2.7 50.1 Issue of shares on exercise options 0.9 - - - Issue of shares in respect of deferred 0.3 - - - consideration Issue of shares in respect of scrip 0.8 - - - dividends Retained loss for the financial year - - - (67.0) At 31 December 2001 57.0 41.9 2.7 (16.9) The cumulative amount of goodwill written off to reserves is £45.7 million (2000: £45.7 million). 9. RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS Group Group Company Company 2001 2000 2001 2000 £m £m £m £m Loss attributable to shareholders (67.0) (19.1) (2.1) (11.1) Less dividends - (7.8) - (7.8) Retained loss for the financial (67.0) (26.9) (2.1) (18.9) year Issue of share capital 2.6 0.5 2.6 0.5 Shares to be issued (0.5) (0.4) (0.5) (0.4) Share buy back - (7.4) - (7.4) Goodwill written back on disposal - 9.4 - - Unrealised capital profit (loss) - - (0.1) 0.2 Net reduction to shareholders' (64.9) (24.8) (0.1) (26.0) funds Shareholders' funds at 1 January 202.1 226.9 257.1 283.1 Shareholders' funds at 31 December 137.2 202.1 257.0 257.1 10. TECHNICAL PROVISIONS Provision for unearned Claims premiums outstanding Total £m £m £m Gross At 1 January 2001 120.8 579.2 700.0 Exchange adjustments 1.4 5.1 6.5 Movement in the provisions - Excluding 11 September 148.9 134.0 282.9 - Impact of 11 September - 285.2 285.2 At 31 December 2001 271.1 1,003.5 1,274.6 Reinsurance amount At 1 January 2001 (10.2) (188.8) (199.0) Exchange adjustments (0.1) (1.7) (1.8) Movement in the provisions - Excluding 11 September (4.1) (85.0) (89.1) - Impact of 11 September - (167.8) (167.8) At 31 December 2001 (14.4) (443.3) (457.7) Net At 31 December 2001 256.7 560.2 816.9 At 1 January 2001 110.6 390.4 501.0 11. RECONCILIATION OF PROFIT BEFORE TAXATION TO NET CASH INFLOW FROM OPERATING ACTIVITIES 2001 2000 £m £m Loss on ordinary activities before taxation (81.5) (26.4) Net movement on Premium Trust Funds for non-aligned participations (23.4) 1.0 Depreciation charge 3.2 1.1 Syndicate capacity amortisation charge 0.8 0.6 Profit on sale of subsidiary - (2.5) Goodwill previously written off on disposals - 9.4 Realised gains less losses on investments 17.2 1.5 Unrealised losses (gains) on investments 1.3 7.0 Increase in debtors (12.6) (55.9) Decrease (increase) in prepayments and accrued income 1.2 (2.3) Increase in insurance debtors, prepayments and accrued (219.4) (72.4) income Increase in technical provisions 639.5 294.1 Increase in reinsurers' share of technical provisions (249.3) (95.4) Increase (decrease) in provisions for other risks and 6.9 (2.8) charges Increase in insurance creditors, accruals and deferred 32.6 37.3 income (Decrease) increase in other creditors relating to operating (0.7) 10.9 activities Increase (decrease) in accruals and deferred income 0.2 (1.5) Interest expense 0.7 2.0 Net cash inflow 116.8 105.7 Cash flows relating to non-aligned participations are included only to the extent that cash is transferred between the Premium Trust Funds and the Group. 12. GROUP OWNED NET ASSETS The assets and liabilities attributable to Group owned companies as opposed to the Group's syndicate participations, are summarised below: 2001 2000 In Group 2001 In Group 2000 owned In 2001 owned In 2000 companies Syndicates Total companies syndicates Total £m £m £m £m £m £m Investments Other financial investments 169.5 340.9 510.4 221.8 218.7 440.5 Debtors Other debtors 5.7 91.8 97.5 9.4 74.8 84.2 Other assets Deferred tax asset 30.6 - 30.6 15.2 - 15.2 Intangible assets 15.0 - 15.0 15.8 - 15.8 Tangible assets 12.6 - 12.6 9.5 - 9.5 Cash at bank and in hand 2.9 20.3 23.2 1.3 28.9 30.2 Own shares 2.8 - 2.8 3.5 - 3.5 Prepayments and accrued income 2.8 4.1 6.9 2.9 6.3 9.2 Other syndicate assets - 825.7 825.7 - 389.1 389.1 Total assets 241.9 1,282.8 1,524.7 279.4 717.8 997.2 Provisions for other risks and (1.0) - (1.0) (9.1) - (9.1) charges Creditors Amounts due within one year (19.0) (13.5) (32.5) (15.8) (15.3) (31.1) Amounts due after more than one (1.6) - (1.6) (7.4) - (7.4) year Accruals and deferred income (4.0) (1.2) (5.2) (5.2) (2.3) (7.5) (24.6) (14.7) (39.3) (28.4) (17.6) (46.0) Other syndicate liabilities - (1,347.2) (1,347.2) - (740.0) (740.0) Consolidated shareholders' 216.3 (79.1) 137.2 241.9 (39.8) 202.1 funds at 31 December The assets of the syndicates included above are only available to pay syndicate related expenditure. 13. POST BALANCE SHEET EVENT On 20 December 2001 the Company announced a 2 for 7 rights issue of 59,582,887 new ordinary shares at 77p per share ('Rights Issue'), conditional on approvals which were obtained at an Extraordinary General Meeting held on 14 January 2002. The Rights Issue was fully underwritten (to the extent that it was not the subject of prior undertakings to subscribe) and raised approximately £43.2 million net of expenses. It closed on 4 February 2002 and the new shares were issued on the following day. The Rights Issue has no profit and loss account impact. 14. FINANCIAL INFORMATION The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2000 or 2001, but is derived from those accounts. Statutory accounts for 2000 have been delivered to the Registrar of Companies and those for 2001 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified and did not contain statements under section 237 (2) or (3) of the Companies Act 1985. The audited Annual Report and Accounts for 2001 are expected to be posted to shareholders by no later than 10 May 2002. Copies of the Report may be obtained by writing to the Company Secretary, Amlin plc, St Helen's, 1 Undershaft, London, EC3A 8ND. This information is provided by RNS The company news service from the London Stock Exchange

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