Final Results

Amlin PLC 10 March 2004 AMLIN plc PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2003 (UNAUDITED) HIGHLIGHTS 2003 Performance â€¢ Return on equity of 27.0% (2002: 20.1%) â€¢ Excellent combined ratio of 83% (2002: 95%) â€¢ Gross premiums written up by 31% to Â£937.4m (2002: Â£717m) â€¢ Profit before tax up 117% to Â£120.3m (2002: Â£55.4m) â€¢ Earnings per share up by over 50% to 21.6p (2002: 14.1p) â€¢ Dividend increased 25% to 2.5p per share (2002: 2.0p) Outlook â€¢ Excellent short-term outlook â€¢ Unearned net premiums written of Â£400m (2002: Â£321m) â€¢ Encouraging renewal season with discipline evident â€¢ Â£332m premium written by 28 February 2004 with a reduction in average renewal rate of 2% â€¢ Industry dynamics support encouraging medium term outlook â€¢ 30% dividend payout ratio for 2004 to 2006 Commenting on the results, Charles Philipps, CEO, stated: 'These results are a clear demonstration of Amlin's potential to deliver excellent returns for shareholders. I am very pleased with the progress we have made and the contributions from all our teams. With each year's progress we look forward with increasing confidence'. FINANCIAL HIGHLIGHTS 2003 2002 2001 2000 Â£m Â£m Â£m Â£m ----------------------------------- -------- ------- ------- -------- Gross premiums written 937.4 717.1 587.4 363.3 Net premiums written 787.6 573.0 486.5 284.1 Earned premiums 684.7 494.1 342.9 231.1 ----------------------------------- -------- ------- ------- -------- Operating profit (loss) before tax (based on longer term investment returns) 124.4 45.6 (61.7) (5.9) Profit (loss) on ordinary activities before tax 120.3 55.4 (81.5) (26.4) ----------------------------------- -------- ------- ------- -------- Per share amounts Operating profit (loss) 30.9p 17.7p (40.5)p (9.7)p Earnings 21.6p 14.1p (33.3)p (9.6)p Net assets 99.3p 80.3p 66.4p 100.1p Net tangible assets 84.6p 64.5p 59.0p 92.1p Dividend 2.5p 2.0p - 4.0p ---------------------------------- -------- ------- ------- -------- Operating ratios Claims ratio 51% 63% 87% 84% Expense ratio 32% 32% 30% 27% Combined ratio 83% 95% 117% 111% --------------------------------- -------- ------- ------- -------- Enquiries: Charles Philipps, Chief Executive, Amlin plc 0207 746 1000 Richard Hextall, Finance Director, Amlin plc 0207 746 1000 Hannah Bale, Head of Communication, Amlin plc 0207 746 1118 David Haggie, Haggie Financial Limited 0207 417 8989/07768 332486 Peter Rigby, Haggie Financial Limited 0207 417 8989/07803 851426 CHAIRMAN'S STATEMENT Over the past three years we have been developing and implementing our strategy but delivery is ultimately what counts, and I am delighted that the results for 2003 confirm Amlin's ability to generate an excellent return on the capital you have invested in the business. Excellent results in 2003 By any measure 2003 was an outstanding year for Amlin. The momentum established during 2001 and 2002 flowed through into 2003 and, with 31% growth in gross written premium and a relatively low incidence of major incurred loss events, our profit before tax more than doubled to Â£120.3 million (2002: Â£55.4 million) and resulted in earnings per share of 21.6p (2002: 14.1p). Dividend The Board proposes a final dividend of 1.65p per share (2002: 1.25p) making a total dividend for 2003 of 2.5p (2002: 2.0p). While the Company recorded excellent profits in both 2002 and 2003, the 2003 dividend reflects the application of Lloyd's three year accounting whereby the profits from the 2002 and 2003 years of account will not be received as cash by the Company until April 2005 and 2006 respectively. The Board recognises the importance to shareholders of providing cash returns and a clear dividend policy. Accordingly, in respect of the years 2004, 2005 and 2006 the Board intends, in the absence of unusual circumstances, to pay a minimum dividend of 30% of distributable earnings in the relevant year. The 2003 final dividend, in respect of which a scrip dividend alternative is being offered, is to be paid (subject to shareholder approval) on 25 May 2004 to shareholders on the register on 26 March 2004. Capital and our return on equity (ROE) focus Since our equity capital issuance in 2002, one of our goals has been to achieve an average annual after tax return on equity over a full cycle, of in excess of 15%. Our 2002 and 2003 return on equity, of 20% and 27% respectively, together with a continued positive outlook places us in a good position to achieve this. Our focus on ROE has involved gearing the balance sheet with the use of letters of credit. Our diversity and risk management have enabled us to do this without over-exposing the business to significant loss. The healthy returns now being earned, which will result in strong free cash flow from 2005, are expected to more than extinguish the need for LOC finance by the time industry margins become questionable. Additionally, it will support the dividend policy and allow retention of sufficient funds to invest in the business. Capacity and long term growth Amlin is now a fully integrated Lloyd's business, underwriting 100% of Syndicate 2001's capacity for 2004. The take-up of the remaining third party capacity by Amlin for 2004 results in a 16% increase in our headline owned capacity; further good growth at a time when margins are exceptionally strong. We have maintained Syndicate 2001's capacity at Â£1 billion for 2004 but we have not renewed the quota share reinsurance arrangement we had in place for 2002 and 2003 for up to Â£100 million. This reflects our desire, with insurance rates generally reaching a peak, to focus on maintaining margins rather than chasing volumes. We regularly review the current and long term business case for each of our classes of business. During 2003 we continued to grow those areas where rates had reached excellent levels in 2002, such as catastrophe reinsurance and direct property insurance. In addition, we also grew classes which were still attracting good rate rises including liability, and some marine classes such as hull and yacht insurance. We also decided to reposition our bloodstock account so that it became more diverse and attritional in nature, and recruited a new underwriter to help achieve this. Outlook remains positive Underwriting conditions over the past two years have been exceptional, as reflected in our results, and underpin our expectations for a further strong result for 2004. The reaction of the world's insurance markets to the terrorist atrocities in September 2001 meant that it was inevitable that rates would stabilise and, in those classes that experienced the greatest rises, come off their peak. Even though this has happened, with a normal level of losses, we continue to expect 2004 to be another very good underwriting year and, if past cycles are repeated, for 2005 also to be good. On this basis we can see prospects for good returns on capital as far ahead as 2006. However, there are reasons for optimism beyond this. The continuing industry dynamics of adverse loss reserve development, particularly arising from accelerated asbestos settlements to which Amlin is thankfully not exposed, a subdued outlook for bond returns and an increased scarcity of good quality security reinforces our belief in the positive medium term outlook as it will make it more difficult for many in the industry to grow their balance sheets and increase capacity. Focussing on our clients In a year where security downgrades became an industry norm, we have seen a flight to quality as brokers and clients have become increasingly concerned with the financial strength of their insurers. I was delighted when A M Best graded Syndicate 2001's security rating as A (Excellent) - a sound endorsement at a time when high quality security has become scarcer, particularly for major reinsurance risks. During 2003 we commenced a number of initiatives with the aim of improving the effectiveness and efficiency of our client service. Customers rightly expect certainty of service standards in policy issuance and claims settlement, areas where the London market has been notoriously poor. In the medium to longer term these initiatives will help reinforce our client proposition and strengthen our market position. Future strategic direction The shape and potential of the business today is very different to the period before 2000 when the Board approved management's five year strategic plans to 2005. In October 2003 the Board carried out a detailed review of progress made and concluded that, in very many respects, we had already reached the goals we had set for 2005. With 100% of our Syndicate's capacity under our belt, a business which is a true leader in Lloyd's by many measures, and financial targets on track for being met or exceeded, we are now developing a strategic plan for the next period of the Company's development. We do not envisage that this will result in dramatic change to the core attributes that have contributed to our success. Rather it will build upon our strengths, ensuring that we are well positioned to trade profitably through the next down cycle and able to repeat the significant growth achieved in the current hard market. In this we intend to explore and challenge how best we continue to build shareholder value. A non-Lloyd's business Over the past two years we have kept under review potential options for extending our activities beyond Lloyd's. Lloyd's now enjoys a considerably strengthened position in the global insurance market and we are major supporters of its Franchise regime. In the long term, however, our growth may result in Amlin exceeding limitations set by Lloyd's for any one of its franchisees and scale benefits may outweigh the costs associated with Lloyd's mutuality. We have looked and will continue to look for acquisitions which could help our strategic ambition but we tread cautiously, fully aware of the pitfalls which have damaged shareholder value for so many acquirers in our industry, particularly as a result of reserving deficiencies. Over the next few years, however, we expect to generate significant positive cash flow which will give us the option of investing surpluses in a new non-Lloyd's entity. Board retirements I would like, on behalf of the Board, to express our thanks to John Kennedy and John Sanders who will be retiring as Directors at this year's Annual General Meeting. Both Johns joined the Board in 1993 on the creation of the Company as a then investment trust, and have provided tremendous input and support through the challenges and changes faced over the past 10 years. I would also like, on behalf of the Board, to acknowledge the contribution and enthusiasm to Amlin provided by John Stace who is also retiring as a Director at this year's Annual General Meeting. John was the Company's first Chief Executive and was integral to the merger of Angerstein with Murray Lawrence. I wish all our retiring Directors well for the future and am pleased that they have seen the success of the strategy put in place in 2000, to which they contributed. The Board intends to recruit one new independent non-executive director. A team committed to delivery With each year that has passed, it is pleasing to see the senior management team working better and better together in an effort to build a sustainable winning business. Objectives have and are being met, spurred on by a tremendous sense of commitment to deliver. We owe the team, led so ably by Charles Philipps, and all employees our thanks and congratulations on achieving, yet again, an impressive result and a Company in excellent shape for the future. Roger Taylor Chairman OPERATING AND FINANCIAL REVIEW 2003, with a return on equity of 27.0%, marks the second year of strong earnings and balance growth sheet as we aim to establish Amlin as a company that delivers superior earnings over the insurance cycle. PERFORMANCE Underwriting performance The record Â£83.3 million of after tax profits achieved in 2003 is attributable to the strong earnings momentum established in 2002, continued growth in income with prices remaining at excellent levels, and a relatively low frequency of major claims. The growth in gross premium written of 31% reflects increased market share arising from a combination of targeted growth, a flight to quality as brokers and insureds sought out stability and security, and the increase in our share of Syndicate 2001's underwriting. Net premiums written increased by 37% to Â£788 million, with the Company maintaining the broad structure of its reinsurance protection while increasing the retained risk to reflect growth in the size of the business. 16% of gross income was ceded compared to 20% in 2002. Net earned premiums were up 39% to Â£684.7 million, with 4%, 43% and 53% of it written in respectively the 2001, 2002 and 2003 underwriting years, a similar pattern to prior years. The overall combined ratio improved 12 points to 83% reflecting a combination of excellent pricing, tighter terms and a low incidence of large claims. Claims experience on premiums earned in prior years was better than anticipated at the last year end, reflecting our conservative approach to reserving, and the improvement contributed Â£24.5 million to the result. The following divisional analysis provides comparison as if we owned 100% of the business. This means that comparative performance is not distorted by changing levels of Amlin's ownership of Syndicate 2001. Non UK 2003 Total marine Marine Aviation Commercial Gross premium written (Â£m) 1097.5 580.3 188.1 106.7 222.4 Net premium written (Â£m) 922.0 482.6 167.1 69.5 202.8 Net earned premium (Â£m) 867.8 452.4 146.9 77.7 190.8 Claims ratio (%) 51 46 46 51 66 Expense ratio (%) 32 32 36 41 26 ------- ------- ------- ------- -------- Combined ratio (%) 83 78 82 92 92 ------- ------- ------- ------- -------- 2002 Combined ratio 95 92 88 85 94 Non-marine The business written is a blend of classes exposed to catastrophic or large loss events, which by their nature are volatile, and attritional property and casualty classes which are more predictable. The division remains US focussed although the international exposure of risks written has been increasing particularly in the property and property reinsurance classes. During 2003 rating increases in most property related classes levelled off following the sharp increases achieved in 2002. For casualty business rate improvements averaging 23% on renewals were achieved as this area of the market continued to re-appraise rating requirements following five years of poor performance. In this environment the division continued to expand increasing net written premiums by 12%. Against this backdrop, the anticipated margins were expected to be strong, and this coupled with another year of very low claims incidence from catastrophes, has produced an excellent combined ratio of 78%. Marine Our marine business is also a blend of volatile classes, such as energy and war, combined with more attritional classes, such as cargo and yacht. During 2003 the rate increases for the marine division averaged 8%. Overall net premiums written increased by 26%. Growth in the last couple of years has been focussed on the more volatile energy and war classes, as these areas returned to acceptable margins. More recently, rates have improved in other more attritional classes. Accordingly growth has been targeted in cargo, hull and yacht, and a new bloodstock joint venture with a specialist broker has been established. The combined ratio for the division is once again excellent, as it has been for a number of years. Low loss incidence in the war, liability and energy classes has influenced this but the contribution from the other accounts is also strong. Aviation Following the extremely material uplift in rates that occurred in the aftermath of the 11 September 2001 terrorist losses, and the two subsequent years without any major airline loss, increased competition brought about rate reductions in 2003. With this Amlin declined a number of renewals, focussing on margin rather than volume. Other aviation classes have continued to experience renewal rate increases, although growth in these has not offset the reduction in airline income. With lower premiums, the cost of reinsurance has been a greater proportion of income and this, combined with a change in mix towards classes that pay higher brokerage commissions, has led to the increase in the expense ratio. However, overall the combined ratio remains satisfactory. UK Commercial The growth of 28% in this division's gross premiums written reflects targeted growth in employers' liability and professional indemnity classes which have experienced significant improvements in margins. These classes represented 38% of the division's written premium in 2003 compared with 26% in 2002, when the business was more dominated by its commercial motor account. Following four years of double digit rating increases and growth in the motor account, the division maintained its motor premiums at around 2002 levels as sporadic signs of increased competition resulted in renewal rate increases matching, and, in the latter part of the year, falling just below our estimate of claims inflation. The combined ratio improved a further 2 points to 92%, notwithstanding a 6% increase in the expense ratio owing to the higher levels of acquisition commissions attributable to the liability classes than commercial motor and to the change in mix of business. Given the attritional nature of risk in this division, this is an excellent performance. 11 September 2001 losses The overall ultimate estimate of Syndicate 2001's losses, net of reinsurance, from the 11 September terrorist attacks has increased by US$1.6 million during the year. Amlin's share was an increase of US$1.1 million or Â£0.6 million. The Syndicate figure now includes a general IBNR of US$9 million to provide for remaining uncertainties relating to outstanding claims. Therefore the underlying position has improved by US$7.4 million. Whilst the movement in ultimate loss cost is small, the amount of activity relating to this loss has been substantial. Â£61 million of WTC related reinsurance and direct property claims were paid in 2003. As property losses settle this reduces potential future volatility. Equally we have recovered Â£149.5 million from our reinsurers in respect of losses paid to date, materially reducing our overall reinsurance credit exposures. Investment performance Funds under management grew by 26% (Group and 100% Syndicate) during the year as a result of strong cash flow with overall 2003 investment return contributing Â£32.0 million to Group profit. With the appointment of our new Chief Investment Officer and Investment Advisory Panel, Amlin has benefited from good asset allocation decisions and exceeded its asset class benchmark returns. Investments are managed in two distinct pools, the first consisting of our solvency funds and the second our technical insurance funds. For each pool we outsource fund management but retain asset allocation and review functions in-house. Solvency funds During 2003, with the strength of insurance markets and the consequential high opportunity cost to capital depreciation our solvency funds, which support Amlin's underwriting, were managed with a low appetite for risk. Using our model developed in conjunction with WM Company, at a confidence level of 99%, we set a maximum value at risk, equivalent to 8% of solvency funds at 1 January 2003 of Â£223.0 million. With US federal funds and UK base rates at lows of 1% and 3.5% respectively and with signs of economic recovery post the Iraq war, 2003 was a year which looked as if it would be difficult for bond returns and which could favour equities. Against this background, we changed our strategic benchmark in March 2003, from 50% long duration bonds and 50% cash to 5% long duration bonds, 70% cash and short term deposits and 25% equities. The sale of the long bond portfolio in March and July, together with the switch into equities and cash proved beneficial as bond returns generally fell short of the long term assumed rate of return while equities exceeded it. Taube Hodson Stonex Partners (THS) were appointed as equity managers and in the second half of the year we invested Â£50 million in a portfolio of global equities. They adopt a pragmatic style rather than one which is wedded to value or growth, as different approaches will prosper in different market conditions. Over the period in which it was invested in 2003, the equity portfolio exceeded the FTSE All World Index benchmark return by 4.3%. Technical insurance funds Amlin's technical insurance funds represent monies reserved to pay claims and profits held in Lloyd's premium trust funds until they are released following closure of a year of account. For these funds we adopt a policy of matching asset and liability durations. The liability durations are actuarially calculated for each of our trading currencies and strategic benchmarks are set from these. Given the low absolute level of bond yields and an expectation of rising yields, tactical benchmarks shorter than the duration of the liabilities were given to the fund managers in the early part of 2003. All benchmarks, with the exception of US dollar funds, were taken back to neutral during October, after bond yields had risen. In addition cash was allowed to build up periodically and was subsequently invested as markets weakened. Currency management Approximately 65% of our premium income is written in Euros, US and Canadian dollars. Currency assets are matched with currency liabilities. However foreign exchange risk exists on profits made in each currency. This is mitigated through a policy of converting these currency profits to sterling as insurance risk expires. Given the inherent volatility in some of our business, a cautious approach is adopted on the speed and level of sales but we seek to extinguish all currency risk on earned profit during the second year after the commencement of any underwriting year. The main currency exposure comes from the US dollar assets. During 2003 the trading range of the US dollar against sterling was 1.55 to 1.79, with a significant weakening of the US dollar in the last quarter. The application of our foreign exchange management policy meant that US$186 million of anticipated profits for the 2001 and 2002 years of account were sold during the year at an average exchange rate of US$1.62. However, as we do not sell foreign currency until business materially comes off risk, we had not sold any 2003 year of account dollar profits at 31 December 2003. The cost of the US dollar weakening in the last quarter to the 2003 pre-tax profit was Â£4.3 million. Expenses (excluding brokerage) Expenses increased by Â£37.4 million during the year, comprising a Â£18.3 million increase in our share of Syndicate operating expenses to Â£59.4 million and a Â£19.1 million increase in other charges to Â£35.2 million. Â£7.1 million of the increase in Syndicate expenses was Lloyd's costs, mainly the Central Fund levy which ceased at the end of 2003. A further Â£6.8 million, of which the Company share was Â£4.7 million, related to an additional contribution made to the main defined benefit pension scheme, further details of which are provided in note 7 to the accounts. Other charges increased mainly owing to employee incentives, most of which are profit related. During the year we have accrued, or paid, an additional Â£15.5 million for the profit related bonuses for the 2002 and 2003 underwriting years. In addition a further Â£3.4 million has been accrued under the capital builder plan, which is based on underwriting returns exceeding 5 year performance targets, with the total accrual under this scheme now amounting to Â£5.9 million. Cash flow The growth of the business in a highly profitable environment has resulted in very healthy positive Syndicate cash flow with investable funds increasing by Â£259 million during 2003 to Â£1.26 billion at 31 December 2003. Amlin's share of this has grown with the increase in its Syndicate ownership. At a company level, free cash flow is driven by Lloyd's three year accounting system. Accordingly, Amlin anticipates strong free cash flow commencing in 2005 as profits from the 2002 and subsequent years are released by Lloyd's. Lloyd's has indicated its intention to change its method of accounting with effect from 1 January 2005 and this may result in earlier releases of cash from underwriting years. International financial reporting standards (IFRS) Amlin is required to prepare its accounts under IFRS from 1 January 2005. A full evaluation of the impact of IFRS on the Company was completed during 2003 which suggested that the current IFRS proposals, excluding the accounting for insurance contracts exposure draft, will have little impact on the net asset position compared to that produced under current UK accounting standards. However there will be significant increases in disclosure particularly with regard to business risk and management. The accounting for insurance exposure draft may lead to significant change in the future as it proposes a fundamentally different basis for recognition of profit on insurance contracts. However this is not expected to take effect until 2007 at the earliest. FINANCIAL STRENGTH In 2003 net assets grew by 25% to Â£383.3 million. Notwithstanding the increased Funds at Lloyd's requirement of Â£432.6 million, to support the Â£138 million increase in our aligned underwriting for 2004, gearing (including off balance sheet letter of credit finance) remained stable at 50% of shareholder equity. A key feature of our capital management has been the use of debt finance to support our underwriting. The diversity of our business and its profitability at, current rating levels, makes employment of Letters of Credit, or debt finance, to support our underwriting an attractive alternative. Simply it should enhance return on equity without overly exposing equity capital to inordinate risk. Moreover, with our strategy of increasing or decreasing capacity according to margin potential, it provides a flexibility which helps enhance return on equity over the cycle. The level of gearing should be considered taking account of Lloyd's three year accounting that limits the release of profits that can be used as solvency capital until closure of a year of account. Were Amlin able to use the earned proportion of 2001 to 2003 Lloyd's year of account profits in place of debt finance, as would a typical insurance company, its gearing level would be reduced to 28.5% at 31 December 2003. The capital regime is about to change. From 1 January 2005 we expect to be operating under a new FSA risk based capital regime. This is currently under consultation. The risk based capital regime that Lloyd's operates will still be a part of the regulatory landscape. However, we expect in future to be able to recognise for regulatory purposes all of our recognised profit, on an annually accounted basis. At present only limited credit is given for this undistributed profit from years that have not 'closed' at Lloyd's. Reinsurance security The purchase of reinsurance protection is an essential part of our risk management, through the containment of exposure against our capital from single claims and the aggregation of claims from catastrophic events. We place our reinsurance with companies that we believe are financially and operationally strong. Our evaluation considers financial strength, trading record, outlook and organisational structures. Our information is drawn from a number of sources: public information produced by the company, our own experience with the reinsurer and our knowledge of their behaviour in the market place, analysis from a reinsurance consultant and rating agency commentary and gradings. Reserving During the last few years we have witnessed significant deterioration of reserves for many companies in the industry. This clearly illustrates that the financial strength of an insurance company is as much about the quality of its balance sheet as the quantity of reported assets. At Amlin we attempt to limit the risk of adverse development in two ways. First, we have concentrated our underwriting on short tail classes of business, reducing the inherent uncertainty of reserving over the medium term. Second, we adopt what we believe to be a prudent reserving stance. We aim to set our reserves so that there is a greater prospect of a surplus reserves which can be released in the future. This is illustrated by the Â£24.5 million release in 2003. OUTLOOK The short term outlook is excellent and we anticipate another year of strong performance with a good return on capital. At 31 December 2003 we had a pipeline unearned net premium of Â£400 million (2002: Â£321 million) which will be largely earned in 2004. This is mainly business written in 2003 at very good margins. While premium rates in a number of classes have come off the exceptionally high levels experienced over the last two years, the margin potential in most classes remains very good. By 28 February 2004, we had written 34% of our budgeted income for the year, with a reduction in average renewal rate of 2%. Other factors which will contribute to a favourable underwriting outlook in the short term include the increase in our owned underwriting capacity by 16% for 2004 and lower Lloyd's charges. Against this a continued low level of loss experience should not be taken for granted and a continued weakness of US dollar will mean that US dollar profits will translate into less sterling. We believe that the current year is capable of delivering acceptable investment returns on our combined solvency and technical funds which grew by 26% in 2003. While in the United States there is a short term expectation that interest rates will rise from 45 year lows and will put pressure on bond capital values, we expect the US economy will lose momentum towards the year end as the impact of fiscal and monetary stimuli recede. Equally the ability of the major European economies to gain momentum is being impeded by the strength of their currency. We do not expect inflation to become a major global problem in the foreseeable future. This suggests that relatively low interest rates will prevail in Western economies and returns on our fixed income investments will be modest by the standards of the last few years. Accordingly, we have reduced our long term investment return assumption for bonds to 4.5% from 5.5%. In the medium term, our planning assumption is that the industry will remain cyclical with the principal driver of the cycle continuing to be the availability of capital. If the last cycle were to be repeated, we believe that the 2004 and 2005 underwriting years will be years where good margins can be made. In reporting terms this means good prospects for 2006. However the dynamics of the industry are such that this view may prove to be pessimistic. Many companies still face ongoing adverse reserve development from asbestos and other casualty risks. For them it will be important to maintain current margins to offset these losses. To illustrate the scale of this issue, Moody's recently estimated the industry was US$30 billion under-reserved. Much of the non-life insurance industry invests heavily in fixed income securities. With these portfolios, during the 1990s the industry benefited from falling interest rates. It is unlikely to see this repeated, adding to the pressure to write for good underwriting margins. Additionally, greater discipline is evident in parts of the industry. Increasingly advanced modelling techniques are being employed, encouraging more disciplined underwriting and increasing demand for high level reinsurance protection. Closer to home, at Lloyd's, we have seen the introduction of Franchise management that is expected to increase performance within the market. The impact of this is already being seen with a more rigorous approach to Lloyd's oversight of franchisees business planning and the control of 'quota share capacity'. Amlin's business is now better structured than during the last cycle with a reorganised underwriting operation, built around underwriters who have performed well through the cycle. A shared underwriting philosophy now exists among management and underwriters, focussing on gross underwriting discipline, achieving an acceptable technical price for risks and downscaling activity if acceptable terms cannot be achieved. This, and the improvements we continue to make in building the business, and in analysing risk and performance enables us to look forward with confidence. CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 31 December 2003 2003 2002 Total Total ------------------------------------------------------------------------------- Technical Account Notes Â£m Â£m ------------------------------------------------------------------------------- Gross premiums 1 937.4 717.1 written Outward reinsurance (149.8) (144.1) premiums ------------------------------------------------------------------------------- Net premiums written 787.6 573.0 Change in the provision for unearned premiums: - gross amount (100.0) (99.9) - reinsurers' share (2.9) 21.0 ------------------------------------------------------------------------------- Earned premiums, net of 684.7 494.1 reinsurance ------------------------------------------------------------------------------- Allocated investment 36.1 31.1 return transferred from the non-technical account ------------------------------------------------------------------------------- Claims paid: - gross amount (327.2) (348.6) - reinsurers' share 114.3 101.7 ------------------------------------------------------------------------------- Claims paid, net of (212.9) (246.9) reinsurance Change in the provision for claims: - gross amount (86.2) 7.8 - reinsurers' share (54.0) (69.4) ------------------------------------------------------------------------------- Claims incurred, net of (353.1) (308.5) reinsurance ------------------------------------------------------------------------------- Net operating 4 (212.2) (158.6) expenses ------------------------------------------------------------------------------- Balance on the technical account for general 155.5 58.1 business ------------------------------------------------------------------------------- CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 31 December 2003 2003 2002 Total Total --------------------------------------------------------------------------------- Non -technical Account Notes Â£m Â£m --------------------------------------------------------------------------------- Balance on the technical account for general business 155.5 58.1 Investment income 2 36.6 40.5 Unrealised losses (gains) 2 (3.1) 3.2 on investments Investment expenses and 2 (1.5) (1.2) charges Allocated investment return transferred to the technical account 2 (36.1) (31.1) --------------------------------------------------------------------------------- 151.4 69.5 Other income 5 4.1 2.0 Other charges 6 (35.2) (16.1) --------------------------------------------------------------------------------- Operating profit 120.3 55.4 --------------------------------------------------------------------------------- Comprising: Operating profit based on longer term investment 124.4 45.6 return Short term fluctuations in investment (4.1) 9.8 return --------------------------------------------------------------------------------- Profit on ordinary activities before taxation 8 120.3 55.4 Tax on profit on ordinary 9 (37.0) (11.2) activities --------------------------------------------------------------------------------- Profit on ordinary activities After taxation 83.3 44.2 Equity dividends 10 (9.7) (7.6) --------------------------------------------------------------------------------- Retained profit for the 18 73.6 36.6 financial year --------------------------------------------------------------------------------- Earnings per ordinary 11 share Basic 21.6p 14.1p Diluted 21.4p 14.1p --------------------------------------------------------------------------------- All of the operations of the Group are continuing. Statement of total recognised gains and losses There were no recognised gains or losses in the current or preceding year other than those included in the profit and loss account and therefore no statement of total recognised gains and losses has been presented. CONSOLIDATED BALANCE SHEET as at 31 December 2003 --------------------------------------------------------------------------------- ASSETS Notes Restated 2003 2002 Â£m Â£m --------------------------------------------------------------------------------- Intangible assets 12 57.0 60.1 --------------------------------------------------------------------------------- Investments Other financial investments 13 1,048.4 773.9 --------------------------------------------------------------------------------- Reinsurers' share of technical provisions Provision for unearned 20 29.3 34.0 premiums Claims outstanding 20 265.4 337.4 --------------------------------------------------------------------------------- 294.7 371.4 --------------------------------------------------------------------------------- Debtors Debtors arising out of direct insurance 134.1 235.2 operations Debtors arising out of reinsurance 223.9 113.5 operations Other debtors 52.6 71.3 Deferred tax asset 21 - 18.4 --------------------------------------------------------------------------------- 410.6 438.4 --------------------------------------------------------------------------------- Other assets Tangible assets 15 6.4 9.0 Cash at bank and in hand 26.5 31.6 --------------------------------------------------------------------------------- 32.9 40.6 --------------------------------------------------------------------------------- Prepayments and accrued income Deferred acquisition 88.8 69.6 costs Other prepayments and accrued 19.0 12.7 income --------------------------------------------------------------------------------- 107.8 82.3 --------------------------------------------------------------------------------- Total assets 1,951.4 1,766.7 --------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEET as at 31 December 2003 2003 2002 LIABILITIES Notes Â£m Â£m --------------------------------------------------------------------------------- Capital and reserves Called up share capital 16 97.7 97.1 Share premium account 18 150.2 148.2 Own shares 18 (2.4) (2.8) Merger reserve 18 41.9 41.9 Capital redemption 18 2.7 2.7 reserve Profit and loss account 18 93.2 19.7 --------------------------------------------------------------------------------- Equity shareholders' funds 19 383.3 306.8 --------------------------------------------------------------------------------- Technical provisions Provision for unearned premiums 20 429.6 354.8 Claims outstanding 20 999.5 957.4 --------------------------------------------------------------------------------- 1,429.1 1,312.2 --------------------------------------------------------------------------------- Provisions for other risks and 21 19.9 2.9 charges --------------------------------------------------------------------------------- Creditors Creditors arising out of direct insurance 15.5 5.6 operations Creditors arising out of reinsurance 39.8 109.4 operations Other creditors including taxation and 22 32.1 20.4 social security --------------------------------------------------------------------------------- 87.4 135.4 --------------------------------------------------------------------------------- Creditors: amounts falling due after more 23 19.8 3.8 than one year --------------------------------------------------------------------------------- Accruals and deferred 11.9 5.6 income --------------------------------------------------------------------------------- Total liabilities 1,951.4 1,766.7 --------------------------------------------------------------------------------- Net assets per ordinary 11 99.3p 80.3p share Net tangible assets per ordinary 11 84.6p 64.5p share --------------------------------------------------------------------------------- PARENT COMPANY BALANCE SHEET as at 31 December 2003 Restated 2003 2002 Notes Â£m Â£m ------------------------------------------------------------------------------ Fixed assets Tangible fixed assets 15 1.8 1.8 Other investments 14 205.4 205.4 ------------------------------------------------------------------------------ 207.2 207.2 ------------------------------------------------------------------------------ Current assets Amounts owed by subsidiary undertakings 177.8 184.6 Other debtors 4.1 5.9 Investments 13 12.2 3.5 Prepayments and accrued income - 0.1 Cash at bank and in hand 0.4 1.2 ------------------------------------------------------------------------------ 194.5 195.3 ------------------------------------------------------------------------------ Creditors: amounts falling due within one year Amounts owed to subsidiary undertakings (28.2) (19.4) Other creditors (0.4) (0.6) Accruals and deferred income (0.5) - Proposed dividend 10 (6.4) (4.7) ------------------------------------------------------------------------------ (35.5) (24.7) ------------------------------------------------------------------------------ Net current assets 159.0 170.6 ------------------------------------------------------------------------------ Total assets less current liabilities 366.2 377.8 ------------------------------------------------------------------------------ Creditors: amounts falling due after more than (3.0) (0.6) one year ------------------------------------------------------------------------------ Net assets 363.2 377.2 ------------------------------------------------------------------------------ Capital and reserves Called up share capital 16 97.7 97.1 Share premium account 18 150.2 148.2 Own shares 18 (2.4) (2.8) Capital redemption reserve 18 2.7 2.7 Profit and loss account 18 115.0 132.0 ------------------------------------------------------------------------------ Equity shareholders' funds 19 363.2 377.2 ------------------------------------------------------------------------------ CONSOLIDATED CASH FLOW STATEMENT For the year ended 31 December 2003 2003 2002 Notes Â£m Â£m ------------------------------------------------------------------------------ Net cash inflow from operating activities 25 289.2 214.2 ------------------------------------------------------------------------------ Servicing of finance Interest paid on loan capital (0.4) (0.5) Letter of credit charges (6.2) (5.1) ------------------------------------------------------------------------------ (6.6) (5.6) ------------------------------------------------------------------------------ Taxation Corporation tax received - 0.9 ------------------------------------------------------------------------------ Capital expenditure Purchase of tangible assets (1.5) (0.9) Purchase of intangible assets - (46.0) ------------------------------------------------------------------------------ Net purchases of tangible and intangible assets (1.5) (46.9) ------------------------------------------------------------------------------ Equity dividends paid (6.3) (2.9) ------------------------------------------------------------------------------ Financing Issue of new shares net of issue costs 1.2 135.8 New loan 3.4 - Repayment of borrowings 26 (0.1) (1.1) ------------------------------------------------------------------------------ Net cash inflow from financing activities 1.1 134.7 ------------------------------------------------------------------------------ Net cash flows 26 275.9 294.4 ------------------------------------------------------------------------------ Cash flows were invested as follows: (Decrease)/Increase in cash holdings (5.2) 7.7 Increase in deposits 0.1 2.4 ------------------------------------------------------------------------------ (5.1) 10.1 ------------------------------------------------------------------------------ Net portfolio investment Purchase of investments 2,015.5 457.3 Sale of investments (1,734.5) (173.0) ------------------------------------------------------------------------------ Net purchases of investments 281.0 284.3 ------------------------------------------------------------------------------ Net investment of cash flows 275.9 294.4 ------------------------------------------------------------------------------ Cash flows relating to non-aligned syndicate participations are included only to the extent that cash is transferred between the Premium Trust Funds and the Group. 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) issued in December 1998. 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 Company is not presented as part of these accounts. The financial statements consolidate the accounts of the Company, its 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. The actual information in respect of these non-aligned participations is included to the extent that it is available or, where this is not the case, provisions are made for the expected impact. Goodwill arising on consolidation of 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 Urgent Issues Task Force (UITF) of the Accounting Standards Board issued UITF 38 - Accounting for ESOP trusts - in December 2003 which, in conjunction with changes to the Companies Act, requires that shares held by Employee Share Ownership Trusts should be treated as Treasury shares and shown as a part of a company's equity rather than as an asset on the balance sheet. The Group has adopted the recommendation and the balance sheet for 2002 has been restated to reflect the change. In addition, UITF 38 requires that the gain or loss on issue of shares to option holders should not be recognised in the Group profit and loss account or statement of total recognised gains and losses. This policy has also been adopted. The restatement of the 2002 comparative does not impact the previously stated figures. The UITF also re-issued UITF 17 - Employee share schemes - in December 2003. This requires companies to recognise a charge for its share option schemes, with the exception of 'save as you earn' type schemes such as the Amlin Sharesave scheme. The charge that is required to be recognised is based on the difference between the option price and the share price on the date of grant of the option. Amlin has adopted UITF 17 in respect of its share options during the year. There is no impact on the Group results in either the current or preceding year as Amlin does not grant executive options at a discounted price. Except as noted above, the following principal accounting policies have been applied consistently in both the current and preceding year. 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. 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 paid Claims paid comprise claims and claims handling expenses paid during the financial year. Claims provisions The change in the provision for claims represents the movement in the provision for claims outstanding, including claims incurred but not reported ('IBNR') and internal and external claims settlement expenses allocated to those transactions. The gross provision for claims outstanding is included as a liability on the balance sheet. The technical claims provision represents management's estimate of the cost of settling all claims incurred but unpaid at the balance sheet date, whether reported or not. The reinsurers' share of these anticipated future claims is calculated by applying the gross provisions against the Group's reinsurance protection and is net of any provision for bad debt based on an assessment of the underlying security of the reinsurers on the policies. The reinsurers' share of technical provisions is included as an asset on the balance sheet. Basis of calculation of technical claims provision Provisions for claims outstanding comprise notified claims and IBNR. Notified claims are estimates of future claims payments in respect of reported claims based on the latest information available including advices from claims assessors and lawyers. The IBNR element is calculated initially by each of the Company's divisions using statistical analysis of historical trends, balanced with interpretation of current underwriting trends and market and case loss information, in order to calculate the ultimate loss projection of the business on risk. Where Amlin leads business it has control over the agreement of claims and where it does not lead it relies on the lead underwriter to keep it informed of the latest developments. These claims provisions are reviewed to ensure judgements made are reasonable and supportable. This review process includes comparison of technical claims provisions, on an underwriting year basis, with independent actuarial projections produced on a best estimate basis by our in-house actuarial team. The underwriting year loss ratios are then adjusted to remove assumed future major losses. This process is repeated each quarter with the actuarial assessment reviewed at the end of the financial year by an external, independent actuary. Although the claims provision is considered to be reasonable, having regard to previous claims experience, the statistical projections and case reviews of notified losses, the ultimate liabilities will vary as a result of subsequent developments and events. These adjustments are reflected in the financial statements for the period in which the related adjustments are made. 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 consist entirely of run-off syndicate years of account. These participations are reported on an extension to the three year accounting basis, not on an annual accounting basis, whereby movements in the calendar year are reported. 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 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. 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 IBNR. Loss provisions on open years 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, Euros and 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, Euros and Canadian dollars are translated into sterling at the rates of exchange at the balance sheet date. Differences arising on translation of foreign currency amounts on insurance transactions 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. Where contracts to sell currency for sterling have been entered into prior to the year end, the contracted rates have been used. Differences arising on translation of foreign currency amounts on such items are included in the non-technical account. 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 are 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. 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 non-technical account to the technical account representing: â€¢ 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 â€¢ for the non-aligned syndicate participations, the actual return on investments supporting the technical provisions and related shareholders' funds. Intangible fixed assets 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 accrued in direct relation to underwriting income earned and is subject to the normal managing agent's terms. 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 equipment 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, based on actuarial triennial valuations. Pension contributions to employees' money purchase schemes are charged to the profit and loss account when due. Amlin contributes to a defined benefit scheme, that is for the purposes of both Statement of Standard Accounting Practice 24 and Financial Reporting Standard 17, considered to be a multi-employer scheme. Consequently, contributions to this scheme 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. Deferred tax assets and liabilities are not discounted. 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 evenly over the period of the lease. Where there are rent free periods in property leases, the cost of the lease is spread evenly up to the period of the first rent review. 1. SEGMENTAL INFORMATION The segmental analysis of the Group's share of the underwriting activities is reported using the divisional structure of the Group as this is how performance is monitored by management. --------------------------------------------------------------------------------------- 2003 Non- Marine Aviation UK Other Total Marine Â£m Â£m Commercial Technical Â£m Â£m Â£m Â£m --------------------------------------------------------------------------------------- Gross premium 499.3 160.4 90.2 187.5 - 937.4 written --------------------------------------------------------------------------------------- Gross premium 445.0 133.4 91.2 167.8 - 837.4 earned Gross claims (169.3) (65.3) (45.5) (131.8) (1.5) (413.4) incurred Reinsurance (82.0) (7.3) (17.3) 14.2 - (92.4) balance Gross operating (114.0) (41.7) (20.5) (38.1) 2.1 (212.2) expenses --------------------------------------------------------------------------------------- Balance on the technical account excluding allocated 79.7 19.1 7.9 12.1 0.6 119.4 investment income Investment return 32.0 Net non-technical (31.1) expenses Profit before tax 120.3 --------------------------------------------------------------------------------------- Segmental net 61.6 21.9 24.3 28.2 - 136.0 assets --------------------------------------------------------------------------------------- Net assets not attributed to a business segment 247.3 --------------------------------------------------------------------------------------- Net assets 383.3 --------------------------------------------------------------------------------------- 2002 Non- Marine Aviation UK Other Total Marine Â£m Â£m Commercial Technical Â£m Â£m Â£m Â£m --------------------------------------------------------------------------------------- Gross premium 385.1 110.5 91.2 126.0 4.3 717.1 written --------------------------------------------------------------------------------------- Gross premium 330.2 84.4 87.5 110.8 4.3 617.2 earned Gross claims (192.2) (53.5) (19.7) (74.4) (1.0) (340.8) incurred Reinsurance (36.4) 2.6 (42.7) (10.0) (4.3) (90.8) balance Gross operating (93.4) (25.3) (13.5) (18.6) (7.8) (158.6) expenses --------------------------------------------------------------------------------------- Balance on the technical account excluding allocated 8.2 8.2 11.6 7.8 (8.8) 27.0 investment income Investment return 42.5 Net non-technical (14.1) expenses Profit before tax 55.4 --------------------------------------------------------------------------------------- Segmental net (45.6) 2.7 8.3 20.7 - (13.9) assets --------------------------------------------------------------------------------------- Net assets not attributed to a business segment 320.7 --------------------------------------------------------------------------------------- Net assets 306.8 --------------------------------------------------------------------------------------- Gross premium written analysed by location of risk 2003 2002 Â£m Â£m UK 277.5 197.8 USA 349.4 300.2 Europe 87.1 51.3 Canada, Central and South America 62.8 52.9 Asia 62.6 46.3 Other locations 42.6 24.4 Worldwide 55.4 44.2 ------------------------------------------------------------------------------ Total 937.4 717.1 ------------------------------------------------------------------------------ 2. INVESTMENT RETURN Investment income and expenditure reported in the non-technical account is as follows: 2003 2002 Â£m Â£m ------------------------------------------------------------------------------- Income from investments 40.0 40.2 (Losses) gains on realisation of investments (3.4) 0.3 ------------------------------------------------------------------------------- 36.6 40.5 ------------------------------------------------------------------------------- Unrealised (losses) gains on investments (3.1) 3.2 ------------------------------------------------------------------------------- Investment management fees (1.1) (0.4) Interest on loan stock and bank loans (0.4) (0.8) ------------------------------------------------------------------------------- (1.5) (1.2) ------------------------------------------------------------------------------- Total investment return 32.0 42.5 ------------------------------------------------------------------------------- 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: 2003 2002 ------------------------------------------------------------------------------- UK equities 7.0% 7.0% Fixed interest securities 4.5% 5.5% ------------------------------------------------------------------------------- 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 expected longer term rate of return has been reduced to 4.5% for 2003, as long term inflation and, consequently, interest rates are expected to remain at low levels. The actual return on investments since 1 January 1998, compared with the aggregate longer term return over the same period, is set out below. All figures are gross of expenses. -------------------------------------------------------------------------------- 1 Jan 1999 to 1 Jan 1998 to 31 Dec 2003 31 Dec 2002 Â£m Â£m -------------------------------------------------------------------------------- Actual return attributable to the technical 119.4 117.8 account Longer term return attributable to the technical 140.2 136.2 account -------------------------------------------------------------------------------- Effect of short term fluctuations over the (20.8) (18.4) period -------------------------------------------------------------------------------- 3. PRIOR PERIODS' CLAIMS PROVISIONS Material over (under) provisions for claims at the beginning of the year as compared with net payments and provisions at the end of the year in respect of prior periods' claims for continuing business are as follows: -------------------------------------------------------------------------------- 2003 2002 Â£m Â£m -------------------------------------------------------------------------------- Movement in reserves 24.5 (20.3) -------------------------------------------------------------------------------- 4. NET OPERATING EXPENSES -------------------------------------------------------------------------------- 2003 2002 Â£m Â£m -------------------------------------------------------------------------------- Acquisition costs 177.2 137.9 Changes in deferred acquisition costs (24.4) (20.4) Administrative expenses 56.8 35.8 Syndicate exchange losses 2.6 5.3 -------------------------------------------------------------------------------- 212.2 158.6 -------------------------------------------------------------------------------- 5. OTHER INCOME -------------------------------------------------------------------------------- 2003 2002 Â£m Â£m -------------------------------------------------------------------------------- Managing agent's fee income 0.8 1.3 Managing agent's profit commission 3.3 0.5 Other income - 0.2 -------------------------------------------------------------------------------- 4.1 2.0 -------------------------------------------------------------------------------- 6. OTHER CHARGES -------------------------------------------------------------------------------- 2003 2002 Â£m Â£m -------------------------------------------------------------------------------- Central, management and other 6.6 5.4 expenses Amortisation of purchased syndicate 3.1 0.9 participations Financing charges 6.6 5.6 Employee incentives 18.9 4.2 -------------------------------------------------------------------------------- 35.2 16.1 -------------------------------------------------------------------------------- 7. PENSIONS The Group participates in a number of pension schemes, including defined benefit, defined contribution and personal pension schemes. The total pension cost for the schemes operated by the Group in the year was Â£12.3 million (2002: Â£4.7 million) of which Â£10.8 million (2002: Â£3.4 million), related to the defined benefit schemes and Â£1.5 million (2002: Â£1.3 million) related to the defined contribution and personal pension schemes. The charge to the Group profit and loss account, after accounting for the Group's share of the charges to the managed syndicate was Â£9.1 million (2002: Â£3.2 million). a) The Amlin plc funded defined benefit scheme The scheme is operated by the Lloyd's Superannuation Fund. Historically the scheme has catered for a number of employers in the Lloyd's market. Because of the consolidation in the market, employers closing final salary schemes and some companies failing, there are now only 10 employers with active members in the scheme. The scheme has mutuality of liability between the active employers in the scheme. During the year the structure of the scheme has been altered. The active employers, including Amlin, contributing to the scheme now have individual notional funds comprising the allocated assets in respect of their active employees, their deferred pensioners and pensioners. A separate notional fund is maintained for members whose former employers no longer exist ('Orphan schemes'). Amlin has previously only provided information about its active members. This change has now enabled Amlin to more clearly identify the liabilities associated with its current and former employees. However, the asset allocation is notional and at the discretion of the Trustees, therefore it is not possible for Amlin to be certain of its overall surplus or deficit position at any time. For this reason, the scheme is classified as a multi-employer scheme for the purposes of Financial Reporting Standard No. 17 (FRS 17) - Retirement benefits. It should be noted that all of the actuarial amounts quoted are at the Group and 100% Syndicate level. The profit and loss account charge in the Group accounts varies depending upon the year of account for which the charge is incurred. Amounts incurred by Syndicate 2001 will be reflected in the Group accounts to the extent that the Group owns the year of account charged. This varies between 69.65% for the 2001 year of account and 86.14% for the 2003 year of account. This scheme is valued every three years by an independent qualified actuary. Contributions are made at the funding rates recommended by the actuary, which historically varied across different sections of the scheme. The recommended rates reflect an adjustment to amortise any small surplus or deficit over the average remaining lifetimes of the current active membership. The latest actuarial assessment of the scheme, at 31 March 2001, used the projected unit actuarial method and was based on the principal assumption that long-term returns on investments would be, on average, 1.8% higher than increases in earnings. The valuation showed that the assets of the active members of the scheme were Â£18.8 million, being Â£5.1 million less than the members' accrued liabilities, resulting in a deficit of 21%. To rectify this deficit, and the subsequent further deteriorations on the stock markets, payments of Â£2.0 million were made in 2002 and January 2003. Additionally, a further payment of Â£2.0 million was made in January 2004. Following the restructuring of the scheme, the Trustees provided an interim valuation as at 31 December 2002, which indicated that the Amlin part of the scheme had between a Â£5.0 million deficit and Â£3.0 million surplus using real investment returns of between 3.6% and 4.0%. The Â£2.0 million payment in 2004 noted above will reduce the potential deficit. In addition to its liabilities on its own scheme, Amlin is also liable for a proportion of the orphan scheme liabilities. The interim valuations, as at 31 December 2002, carried out as a result of the restructuring have identified that the orphan scheme currently has net liabilities of between Â£29.0 million and Â£16.0 million based upon real investment returns of between 2.5% and 3.0%. The Group and Syndicate's share of this is currently estimated to be between Â£21.8 million and Â£12.0 million respectively. On 30 December 2003, a payment of Â£6.8 million was made in order to reduce this deficit. Further payments over the next four years are likely to be required following a full actuarial review at 31 March 2004. In 2003, funding rates and charges to the profit and loss account were as recommended by the 2001 valuation and ranged between 18.3% and 39.3% of pensionable salaries, and totalled Â£1.4 million (2002: Â£1.2 million), which in combination with the additional payments noted above, gives a total charge for the scheme of Â£10.2 million (2002: Â£3.2 million). The Group's share of the contributions charged to the profit and loss account was Â£7.5 million (2002: Â£2.2 million). Funding rates have been adjusted to 30.2% for all sections of the scheme in 2004. b) The Angerstein Underwriting Ltd funded defined benefit scheme SSAP 24 disclosures The scheme consists of a closed funded defined benefit scheme for certain past employees of Angerstein Underwriting Limited. Contributions to the scheme are determined by an independent qualified actuary, based upon triennial valuations, using the attained age actuarial method. The most recent valuation was at 1 July 2001, when the market value of the scheme assets was Â£1.4 million representing 89% of the benefits accrued to the members, allowing for future earnings increases. Group contributions made to this scheme in respect of the year ended 31 December 2003 were Â£0.1 million (2002: Â£0.2 million), and the agreed contribution rate for future years is 22.5% of pensionable salaries. In addition, an accrual of Â£0.5 million, included to partially rectify the deficit described below, was made at 31 December 2003. A 1.5% per annum differential between investment returns and salary increases is assumed. The Group's share of the actual and accrued contributions, charged to the profit and loss account was Â£0.4 million (2002: Â£0.1 million) FRS 17 disclosures - Angerstein Underwriting Ltd defined benefit scheme For the purposes of the FRS 17 disclosures, the 1 July 2001 valuation has been reviewed and updated to 31 December 2003. The disclosures are based upon the following annual financial assumptions: 2003 2002 2001 -------------------------------------------------------------------------------- Inflation 2.80% 2.25% 2.50% Increase in salaries 4.80% 4.25% 4.50% Increase in pensions in payment 2.70% 2.25% 2.50% Increase in pensions in deferment 2.80% 2.25% 2.50% Discount rate for scheme liabilities 5.40% 5.50% 6.00% Return on equities 6.80% 6.50% 7.00% -------------------------------------------------------------------------------- Under these assumptions the valuation of the scheme at 31 December would have been: -------------------------------------------------------------------------------- 2003 2002 2001 Â£m Â£m Â£m -------------------------------------------------------------------------------- Assets Equities 1.1 0.8 1.9 Liabilities Present value of scheme liabilities (2.3) (1.8) (2.2) -------------------------------------------------------------------------------- Scheme deficit (1.2) (1.0) (0.3) -------------------------------------------------------------------------------- Scheme deficit attributable to the Group (1.2) (0.9) (0.2) Related deferred tax asset 0.4 0.3 0.1 -------------------------------------------------------------------------------- Net scheme deficit (0.8) (0.6) (0.1) -------------------------------------------------------------------------------- The members of the scheme are, or were, employed for the benefit of Syndicate 2001 or its predecessors. Because of the varying ownership of the years of account to which the contributions are charged, the following amounts which would have been recognised in the performance statements for the year ended 31 December 2003 under FRS 17, are shown on the assumption that any charges would be taken to the 2004 year of account, when Amlin owns all of the capacity and therefore would receive all charges (2002: 2003 year of account, where the Amlin share was 86.16%). ------------------------------------------------------------------ 2003 2002 Â£m Â£m ------------------------------------------------------------------ Operating profit: Current service cost 0.1 0.1 Other finance income: Expected return on 0.1 0.1 pension scheme assets Interest on pension (0.1) (0.1) scheme liabilities ------------------------------------------------------------------ Net return - - ------------------------------------------------------------------ Statement of total recognised gains and losses (STRGL): Actual return less 0.1 (1.3) expected return on assets Experience gains on 0.1 0.6 liabilities Changes in (0.3) (0.1) assumptions ------------------------------------------------------------------ Actuarial loss (0.1) (0.8) recognised in STRGL ------------------------------------------------------------------ Movement in deficit during the year: Deficit in scheme at 1 (1.0) (0.3) January Current service cost (0.1) (0.1) Contributions made 0.1 0.2 Other finance costs (0.1) Actuarial loss (0.1) (0.8) ------------------------------------------------------------------ Deficit in scheme at (1.2) (1.0) 31 December ------------------------------------------------------------------ 2003 2002 ------------------------------------------------------------------------------- History of experience gains and losses Difference between the expected and actual return on scheme assets Amount (Â£ million) 0.1 (0.6) Percentage of scheme assets 12% (88%) Experience gains on scheme assets Amount (Â£ million) 0.1 0.1 Percentage of scheme assets 3% 3% Total amount recognised in the STRGL Amount (Â£ million) (0.1) (0.7) Percentage of scheme assets (5%) (43%) ------------------------------------------------------------------------------- c) The defined contribution scheme With effect from 1 February 1997 all new employees have been invited to join this scheme. Contributions made by the Group vary by age and by the level of contribution that employees voluntarily make to the scheme. Contributions range from 4% to 26% and are fully expensed to the profit and loss account when due and payable. Total contributions for the year ended 31 December 2003 were Â£1.4 million (2002: Â£1.1 million). The Group's share of the contributions charged to the profit and loss account was Â£1.2 million (2002: Â£0.9 million). Outstanding contributions at 31 December 2003 were Â£0.1 million (2002: Â£0.1 million). d) Other arrangements Other pension arrangements include a small self-administered scheme, an occupational money purchase scheme and personal pension arrangements. Regular contributions, expressed as a percentage of employees' earnings, are paid into these schemes and are allocated to accounts in the names of the individual members, which are independent of the Group's finances. The contributions are charged against profits in the period in which they are payable. There were no outstanding contributions at 31 December 2003 (2002: nil). 8. PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION Profit on ordinary activities before taxation is stated after charging: ------------------------------------------------------------------------------- 2003 2002 Â£m Â£m ------------------------------------------------------------------------------- Depreciation - owned assets 4.0 4.3 - leased assets 0.1 0.1 Operating lease charges 1.9 1.8 Amortisation of intangible assets 3.1 0.9 Auditors' remuneration - Group audit fees 0.3 0.4 - Other services 0.1 0.1 ------------------------------------------------------------------------------- Company audit fees amounted to Â£42,000 (2002: Â£50,000). Group audit fees include Â£131,819 (2002: Â£198,553) representing the Group's share of fees paid in relation to the audit of the managed syndicates. Other services comprise Taxation advice fees totalling Â£38,905 (2002: Â£34,957), advice on capital issues Â£20,000 (2002: Â£nil) Internal audit and controls advice Â£16,000 (2002: Â£19,000), systems testing Â£14,250 (2002: Â£nil), liquidation advice Â£nil (2002: Â£11,859) and other fees of Â£945 (2002: Â£670). A further Â£367,727 of costs were paid to the auditors for their work relating to the share issues in 2002, which were charged to the share premium account in that year. 9. TAXATION ON PROFIT ON ORDINARY ACTIVITIES ---------------------------------------------------------------- 2003 2002 a) Analysis of tax charge for the Â£m Â£m year ---------------------------------------------------------------- Current taxation UK Corporation tax at - - 30% (2002: 30%) Under provision in 0.3 3.0 prior periods ---------------------------------------------------------------- Corporation tax 0.3 3.0 Overseas taxation (10.0) - recoverable Overseas taxation 11.4 0.1 suffered ---------------------------------------------------------------- Total current tax (see note 9(b)) 1.7 3.1 ---------------------------------------------------------------- Deferred taxation Origination and reversal of timing 35.2 17.0 differences Under (over) provision in prior 0.1 (8.9) years ---------------------------------------------------------------- Total deferred 35.3 8.1 taxation (see note 22) ---------------------------------------------------------------- Taxation on profit on ordinary 37.0 11.2 activities ---------------------------------------------------------------- b) Factors affecting current period tax charge The UK standard rate of corporation tax is 30% (2002: 30%), whereas the current tax assessed for the year ended 31 December 2003 as a percentage of profit before tax is 1.4% (2002: 5.6%). The reasons for this difference are explained below: -------------------------------------------------------------------------------- 2003 2003 2002 2002 Â£m % Â£m % -------------------------------------------------------------------------------- Profit on ordinary activities before 120.3 55.4 taxation -------------------------------------------------------------------------------- Current taxation on profit on 36.1 30.0% 16.6 30.0% ordinary activities calculated at the standard rate of corporation tax in the UK Expenses not deductible for tax 0.4 0.3% 0.7 1.2% purposes Timing differences unprovided (1.3) (1.1%) (0.3) (0.5%) for Depreciation in excess of capital 0.3 0.3% 0.3 0.5% allowances Difference between the technical (41.7) (34.7%) (19.1) (34.4%) result for accounting purposes and the technical result for taxation purposes Deferred tax on loss provisions 0.5 0.4% 0.5 0.9% Unrelieved trading losses carried - - 0.5 0.8% forward Other timing differences 5.7 4.7% 0.8 1.5% Under provision for prior 0.3 0.3% 3.0 5.4% periods -------------------------------------------------------------------------------- UK Corporation tax for the year 0.3 0.2% 3.0 5.4% Net overseas taxation suffered 1.4 1.2% 0.1 0.2% -------------------------------------------------------------------------------- Current taxation charge for the year (see 1.7 1.4% 3.1 5.6% note 9(a)) -------------------------------------------------------------------------------- c) Factors which may affect future tax charges Deferred tax is provided on the annually accounted technical result with reference to the forecast ultimate result of each of the years of account included in the annually accounted technical result. Where the forecast ultimate result for a year of account is a taxable profit, deferred tax is provided in full on the movement on that year of account included in this period's annually accounted technical result. Where the forecast ultimate result for a year of account is a loss, deferred tax is only provided for on the movement on that year of account included in this period's annually accounted technical result to the extent that forecasts show that the taxable loss will be utilised in the foreseeable future. Deferred tax has been provided on the annually accounted technical result for this accounting period of Â£110.3million (2002: Â£57.7 million). Deferred tax is provided for on actual taxable underwriting results. Where the taxable underwriting result is a loss then deferred tax is provided for on the taxable underwriting loss to the extent that forecasts show that the taxable underwriting losses will be utilised in the foreseeable future. Deferred tax assets on non-aligned technical loss provisions are only provided for to the extent that forecasts show that it is more likely than not that the ultimate taxable underwriting losses represented by these provisions will be utilised within the foreseeable future. Deferred tax has been provided in full on non-aligned loss provisions of Â£3.0 million (2002: Â£1.5 million). The Inland Revenue has introduced final regulations to give effect to the General Insurance Reserves provisions contained in the Finance Act 2000. The Group's Lloyd's corporate members fall within the remit of these regulations by virtue of their greater than 4% participation on aligned and non-aligned syndicates. The corporation tax charge for this period contains an estimated adjustment in respect of a notional taxable charge as calculated under these regulations of Â£0.7million (2002: credit Â£0.4 million). A deferred tax asset of Â£1.1 million (2002: Â£0.1 million) has been taken on existing capital losses to match against deferred tax provisions of Â£1.1 million (2002: Â£0.1 million) on unrealised capital gains arising within the Group during this accounting period. Deferred tax has not been provided on capital losses of Â£43.6 million (2002: Â£46.6 million). The Group expects to continue to suffer depreciation in excess of capital allowances in future periods albeit at a diminishing rate. The Group has suffered US tax on its share of syndicate deemed US underwriting profits. This US tax is recoverable against UK tax on the taxable syndicate profits for the appropriate years of account. Some US tax suffered will be irrecoverable due to the difference between UK and US tax rates and the difference between the timing of US and UK syndicate profits for tax purposes. During the period Â£1.4 million (2002: Â£0.1 million) of US tax has been written off. 10. EQUITY DIVIDENDS -------------------------------------------------------------------------------- 2003 2002 Â£m Â£m -------------------------------------------------------------------------------- Interim dividend of 0.85 pence (2002: 0.75 pence) per 3.3 2.9 ordinary share Proposed final dividend of 1.65 pence (2002: 1.25 pence) 6.4 4.7 per ordinary share -------------------------------------------------------------------------------- 9.7 7.6 -------------------------------------------------------------------------------- 11. EARNINGS AND NET ASSETS PER ORDINARY SHARE Earnings per share is based on the profit attributable to shareholders for the year ended 31 December 2003 of Â£83.3 million (2002: Â£44.2 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: Basic and diluted earnings per share are as follows: 2003 2002 -------------------------------------------------------------------------------- Profit for the financial year Â£83.3m Â£44.2m Weighted average number of shares in issue 384.6m 312.4m Dilutive shares 4.9m 1.3m -------------------------------------------------------------------------------- Adjusted average number of shares in issue 389.5m 313.7m -------------------------------------------------------------------------------- Basic earnings per share 21.6p 14.1p Diluted earnings per share 21.4p 14.1p -------------------------------------------------------------------------------- Basic net assets per share are as follows: -------------------------------------------------------------------------------- Net assets at 31 December Â£383.3m Â£306.8m Adjustment for intangible assets (Â£57.0m) (Â£60.1m) -------------------------------------------------------------------------------- Tangible net assets at 31 December Â£326.3m Â£246.7m -------------------------------------------------------------------------------- Number of shares in issue at 31 December 390.9m 388.3m Adjustment for ESOT shares (5.2m) (6.1m) -------------------------------------------------------------------------------- Basic number of shares after ESOT adjustment 385.7m 382.2m -------------------------------------------------------------------------------- Net assets per share 99.3p 80.3p Tangible net assets per share 84.6p 64.5p -------------------------------------------------------------------------------- 12. INTANGIBLE ASSETS -------------------------------------------------------------------------------- Purchased syndicate participations Â£m -------------------------------------------------------------------------------- Cost At 1 January and 31 December 2003 63.2 -------------------------------------------------------------------------------- Amortisation At 1 January 2003 3.1 Charge for the year 3.1 -------------------------------------------------------------------------------- At 31 December 2003 6.2 -------------------------------------------------------------------------------- Net book value At 31 December 2003 57.0 -------------------------------------------------------------------------------- At 1 January 2003 60.1 -------------------------------------------------------------------------------- 13. OTHER FINANCIAL INVESTMENTS At At At At valuation valuation cost cost 2003 2002 2003 2002 Group Â£m Â£m Â£m Â£m -------------------------------------------------------------------------------- Shares and other variable 50.6 0.7 46.7 0.6 yield securities Debt and other fixed income 750.3 559.8 755.0 552.0 securities Participation in investment 128.3 134.3 128.6 134.0 pools Deposits with credit 80.7 49.0 80.6 48.9 institutions Overseas deposits 34.5 26.2 34.5 26.2 Other 4.0 3.9 4.0 3.9 -------------------------------------------------------------------------------- 1,048.4 773.9 1,049.4 765.6 -------------------------------------------------------------------------------- In Group owned companies 235.7 227.0 232.1 224.8 In aligned syndicates 801.1 535.3 806.1 529.6 In non-aligned syndicates 11.6 11.6 11.2 11.2 -------------------------------------------------------------------------------- 1,048.4 773.9 1,049.4 765.6 -------------------------------------------------------------------------------- Listed investments included in Group owned total are as follows: Shares and other variable 50.6 0.7 46.7 0.6 yield securities Debt and other fixed income 92.5 124.1 92.8 122.3 securities -------------------------------------------------------------------------------- 143.1 124.8 139.5 122.9 -------------------------------------------------------------------------------- As explained in note 28, some of the Group investments are charged to Lloyd's to support the Group's underwriting activities. The table below sets out, by currency, the duration of the Group's share of the managed syndicate debt securities together with the Group's own debt portfolio, at 31 December: -------------------------------------------------------------------------------- Balance Duration Balance Duration 2003 2003 2002 2002 Â£m Years Â£m Years -------------------------------------------------------------------------------- Syndicates Sterling 212.1 2.7 124.3 1.5 US dollar 377.3 2.5 280.5 1.7 Canadian dollar 18.7 2.2 11.8 2.6 Euro 38.4 3.1 7.7 1.4 -------------------------------------------------------------------------------- 646.5 2.6 424.3 1.7 -------------------------------------------------------------------------------- Corporate Sterling 92.5 0.3 124.1 4.8 -------------------------------------------------------------------------------- An indication of the potential impact on these funds of changes in the yield curve due to unexpected changes in underlying interest rates is given below: Syndicate Corporate Net (reduction) Shift in yield Sterling US$ CAN$ Euro Sterling increase in value (basis points) % % % % % Â£m ------------------------------------------------------------------------------------- 100 (2.4%) (3.3%) (2.2%) (3.0%) (0.3%) (19.4) 75 (1.8%) (1.9%) (1.6%) (2.2%) (0.2%) (12.2) 50 (1.2%) (1.2%) (1.1%) (1.5%) (0.2%) (8.2) 25 (0.6%) (0.6%) (0.5%) (0.7%) (0.1%) (4.1) -25 0.6% 0.6% 0.5% 0.7% 0.1% 4.2 -50 1.2% 1.3% 1.1% 1.5% 0.2% 8.5 -75 1.8% 1.9% 1.6% 2.2% 0.2% 12.5 -100 2.5% 2.6% 2.2% 3.0% 0.3% 17.0 ------------------------------------------------------------------------------------- Using Standard & Poor's and Moody's as rating sources the credit rating's of the Group's share of the debt and other fixed income securities is set out below: ------------------------------------------------------------------------------ 2003 2002 Â£m Â£m ------------------------------------------------------------------------------ Government/Government Agency 481.0 319.4 AAA/Aaa 100.3 110.8 AA/Aa 60.5 52.3 A 88.4 56.4 BBB/Baa 8.8 9.6 ------------------------------------------------------------------------------ 739.0 548.5 ------------------------------------------------------------------------------ In non-aligned syndicates 11.3 11.3 ------------------------------------------------------------------------------ 750.3 559.8 ------------------------------------------------------------------------------ At At At At valuation valuation cost cost 2003 2002 2003 2002 Company Â£m Â£m Â£m Â£m ------------------------------------------------------------------------------ Participations in investment 12.2 3.5 12.2 3.5 pools 14. OTHER INVESTMENTS Subsidiary undertakings Â£m ------------------------------------------------------------------------------ At 1 January and 31 December 2003 205.4 ------------------------------------------------------------------------------ The principal undertakings of Amlin plc at 31 December 2003 which are consolidated in these financial statements, all of which operate in the UK and are registered in England and Wales, are listed below: Subsidiary undertakings Principal activity Amlin Underwriting Limited Lloyd's managing agency Amlin Investments Limited Investment company Amlin Corporate Services Limited Group service company Amlin Corporate Member Limited Corporate member at Lloyd's AUT (No 2) Limited Corporate member at Lloyd's AUT (No 6) Limited Corporate member at Lloyd's AUT (No 7) Limited Corporate member at Lloyd's AUT (No 8) Limited Corporate member at Lloyd's Delian Beta Limited Corporate member at Lloyd's Delian Delta Limited Corporate member at Lloyd's All principal subsidiary undertakings are wholly owned. 15. TANGIBLE ASSETS Fixtures, fittings and Leasehold land Motor Computer leasehold and buildings vehicles equipment improvements Total Group Â£m Â£m Â£m Â£m Â£m ---------------------------------------------------------------------------------------- Cost At 1 January 1.9 0.3 9.9 5.5 17.6 2003 Additions - 0.1 1.4 - 1.5 Disposals - (0.1) - - (0.1) ---------------------------------------------------------------------------------------- At 31 December 1.9 0.3 11.3 5.5 19.0 2003 ---------------------------------------------------------------------------------------- Accumulated depreciation At 1 January 0.1 0.1 6.3 2.1 8.6 2003 Charge for the - 0.1 2.9 1.1 4.1 year Disposals - (0.1) - - (0.1) ---------------------------------------------------------------------------------------- At 31 December 0.1 0.1 9.2 3.2 12.6 2003 ---------------------------------------------------------------------------------------- Net book value At 31 December 1.8 0.2 2.1 2.3 6.4 2003 ---------------------------------------------------------------------------------------- At 1 January 1.8 0.2 3.6 3.4 9.0 2003 ---------------------------------------------------------------------------------------- ------------------ The assets held under finance leases and hire purchase contracts included in the above had no net book value, in either the current or previous year. Leasehold land and buildings Company Â£m -------------------------------------------------------------------------------- Cost At 1 January and December 2003 1.9 -------------------------------------------------------------------------------- Accumulated depreciation At 1 January 2003 0.1 Charge for the year - -------------------------------------------------------------------------------- At 31 December 2003 0.1 -------------------------------------------------------------------------------- Net book value At 31 December 2003 1.8 -------------------------------------------------------------------------------- At 1 January 2003 1.8 -------------------------------------------------------------------------------- 16. ORDINARY SHARE CAPITAL Authorised ordinary shares of 25p each Number Â£m -------------------------------------------------------------------------------- At 1 January and 31 562,000,000 140.5 December 2003 -------------------------------------------------------------------------------- Allotted, called up and fully paid: -------------------------------------------------------------------------------- At 1 January 2003 388,323,251 97.1 Scrip dividend 1,461,247 0.4 alternative shares issued Share options 1,087,418 0.2 exercised -------------------------------------------------------------------------------- At 31 December 2003 390,871,916 97.7 -------------------------------------------------------------------------------- The script dividend shares were issued at a reference share price of 112.2 pence per share for the final 2002 dividend, at which 1,018,449 shares were issued, and 137.5 pence per share for the interim 2003 dividend, at which 442,798 shares were issued. The share options were issued for a total consideration of Â£884,282 at an average of 81.3 pence per share. 17. SHARE OPTIONS At 31 December 2003 the following 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 under Amlin Executive Share Option Schemes: -------------------------------------------------------------------------------- Usual first month of exercise Option price Number per share of shares -------------------------------------------------------------------------------- June 2003 77.7p 845,476 November 2002 81.0p 135,552 May 2005 81.3p 3,272,404 October 2002 85.4p 1,011,413 May 2000 112.2p 1,032,888 May 2004 115.1p 1,235,521 September 2001 115.6p 593,586 April 2006 118.0p 2,451,000 -------------------------------------------------------------------------------- 10,577,840 -------------------------------------------------------------------------------- The following changes in new shares under option pursuant to these executive schemes took place during the year: Number of shares -------------------------------------------------------------------------------- At 1 January 2003 9,077,946 Granted on 23 April 2003 (2002: 3,326,700) 2,456,000 Exercised during the year (2002: 52,134) (797,506) Lapsed during the year (2002: 81,507) (158,600) -------------------------------------------------------------------------------- At 31 December 2003 10,577,840 -------------------------------------------------------------------------------- In addition to the above executive options, the following employee Sharesave options over new shares were outstanding at 31 December 2003: Savings period Usual first Option price Number of month of per share shares exercise -------------------------------------------------------------------------------- 5 years December 2004 82.5p 316,274 3 years July 2004 97.8p 305,130 5 years July 2006 97.8p 64,833 3 years December 2005 84.0p 589,500 5 years December 2007 84.0p 192,786 -------------------------------------------------------------------------------- 1,468,523 -------------------------------------------------------------------------------- The following changes in new shares under option pursuant to the Sharesave scheme took place during the year: Number of shares -------------------------------------------------------------------------------- At 1 January 2003 1,840,333 Exercised during the year (2002: 143,719) (289,912) Lapsed during the year (2002: 216,121) (81,898) -------------------------------------------------------------------------------- At 31 December 2003 1,468,523 -------------------------------------------------------------------------------- The trustee of the Group's Employee Share Ownership Trust (ESOT) held 5,209,922 Amlin ordinary shares as at 31 December 2003 (2002: 6,098,302), of which 5,132,686 shares (2002: 6,095,275) were reserved to meet potential future exercises of executive options, in addition to the options over new shares detailed above. The ESOT shares are valued at the lower of cost and net realisable value. The market value of Amlin plc ordinary shares at 31 December 2003 was 128.0p per share (2002: 119.0p). The assets, liabilities, income and costs of the ESOT are incorporated into the consolidated financial statements. The ESOT waives the right to dividends in excess of 0.01p per share per interim or final dividend in respect of its total shareholding. 18. RESERVES ------------------------------------------------------------------------------------ Share Own Merger Capital Profit and premium Shares Reserve redemption loss account account Â£m Â£m Reserve Â£m Â£m Â£m Group ------------------------------------------------------------------------------------ At 1 January 2003 148.2 (2.8) 41.9 2.7 19.7 Issues of share capital 1.4 - - - - for scrip dividend Issue of share capital 0.6 - - - - on exercise of options over new shares Exercise of options over - 0.4 - - (0.1) shares held by ESOT Retained profit for the - - - - 73.6 financial year ------------------------------------------------------------------------------------ At 31 December 2003 150.2 (2.4) 41.9 2.7 93.2 ------------------------------------------------------------------------------------ The cumulative amount of goodwill written off to reserves is Â£45.7 million (2002: Â£45.7 million). ------------------------------------------------------------------------------------ Share Own Capital Profit and premium Shares redemption loss account account Â£m Reserve Â£m Â£m Â£m Company ------------------------------------------------------------------------------------ At 1 January 2003(Restated) 148.2 (2.8) 2.7 132.0 Issues of share capital for 1.4 - - - scrip dividend Issue of share capital on 0.6 - - - exercise of options over new shares Exercise of options over - 0.4 - (0.1) shares held by ESOT Retained profit for the - - - (16.9) financial year ------------------------------------------------------------------------------------ At 31 December 2003 150.2 (2.4) 2.7 115.0 ------------------------------------------------------------------------------------ 19. RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS Restated Restated Group Group Company Company 2003 2002 2003 2002 Â£m Â£m Â£m Â£m ------------------------------------------------------------------------------- Profit (loss) attributable to 83.3 44.2 (7.2) (4.6) shareholders Less dividends (9.7) (7.6) (9.7) (7.6) ------------------------------------------------------------------------------- Retained profit (loss) for the 73.6 36.6 (16.9) (12.2) financial year Issue of share capital 2.6 136.2 2.6 136.2 Movement in shares held by 0.4 - 0.4 - ESOT Realised loss on disposal of (0.1) - (0.1) - shares by ESOT Shares to be issued - (0.4) - (0.4) ------------------------------------------------------------------------------- Net increase (decrease) to 76.5 172.4 (14.0) 123.6 shareholders' funds ------------------------------------------------------------------------------- Equity shareholders' funds at 1 309.6 137.2 380.6 257.0 January 2003 (as reported) Adjustment for shares held by (2.8) (2.8) (2.8) (2.8) ESOT Adjustment for ESOT reserves - - (0.6) (0.6) ------------------------------------------------------------------------------- Equity shareholders' funds at 1 306.8 134.4 377.2 253.6 January 2003 (as restated) ------------------------------------------------------------------------------- Equity shareholders' funds at 383.3 306.8 363.2 377.2 31 December 2003 ------------------------------------------------------------------------------- 20. TECHNICAL PROVISIONS -------------------------------------------------------------------------------- Provision for unearned Claims premiums outstanding Total Â£m Â£m Â£m -------------------------------------------------------------------------------- Gross At 1 January 2003 354.8 957.4 1,312.2 Exchange adjustments (22.3) (56.0) (78.3) Movement in the provisions 97.1 98.1 195.2 -------------------------------------------------------------------------------- At 31 December 2003 429.6 999.5 1,429.1 -------------------------------------------------------------------------------- Reinsurance amount At 1 January 2003 (34.0) (337.4) (371.4) Exchange adjustments 2.1 21.4 23.5 Movement in the provisions 2.6 50.6 53.2 -------------------------------------------------------------------------------- At 31 December 2003 (29.3) (265.4) (294.7) -------------------------------------------------------------------------------- Net At 31 December 2003 400.3 734.1 1,134.4 -------------------------------------------------------------------------------- At 1 January 2003 320.8 620.0 940.8 -------------------------------------------------------------------------------- The claims outstanding balance is further analysed between notified outstanding claims and incurred but not reported claims (IBNR) below: -------------------------------------------------------------------------------- 2003 2002 Â£m Â£m -------------------------------------------------------------------------------- Notified outstanding claims 618.0 619.2 Claims incurred but not reported 381.5 338.2 -------------------------------------------------------------------------------- Claims outstanding 999.5 957.4 -------------------------------------------------------------------------------- Included in the balances above are balances that remain outstanding as a result of the terrorist attacks of 11 September 2001. The gross loss estimate by class of business, and the net loss estimates, compared with the estimated positions at 31 December 2002, are summarised below: Ultimate Ultimate Paid Outstanding IBNR 2003 2002 Movement Class of business US$m US$m US$m US$m US$m US$m ------------------------------------------------------------------------------------- Direct and 66.0 4.2 - 70.2 72.4 (2.2) facultative property Property 225.9 66.7 3.0 295.6 303.7 (8.1) reinsurance and risk excess of loss Direct airline 3.4 97.0 78.8 179.2 179.5 (0.3) operators and other aviation risks Reinsurance of 0.7 23.3 4.4 28.4 26.3 2.1 aviation risks Other 13.0 15.5 0.2 28.7 29.8 (1.1) ------------------------------------------------------------------------------------- Total gross loss 309.0 206.7 86.4 602.1 611.7 (9.6) Reinsurance (267.0) (124.5) (60.6) (452.1) (454.3) 2.2 recoveries ------------------------------------------------------------------------------------- Total net loss 42.0 82.2 25.8 150.0 157.4 (7.4) ------------------------------------------------------------------------------------- Amlin Group share 100.4 105.6 (5.2) ------------------------------------------------------------------------------------- In addition to the IBNR noted above, a further US$9.0 million of general IBNR is included in the ultimate reserves. Amlin's Group share of the general IBNR is US$6.3 million. The improvement in the gross and net loss positions during the year is principally due to the settlement of one large property risk excess of loss programme. Reserves for other classes impacted are reasonably stable. Key assumptions made in estimating the losses from 11 September 2001 include: â€¢ the terrorist attacks leading to the collapse of the World Trade Center towers in New York were one occurrence; â€¢ the Washington and Pittsburgh losses were two further distinct occurrences; â€¢ there will be no material failures of reinsurance security; â€¢ all reinsurers will reinstate reinsurance cover in accordance with the relevant contract provision; â€¢ there will be no material contractual disputes with any reinsurers; â€¢ there will be no subrogation recoveries or financial support from third parties, including the US government or associated agencies; and â€¢ war exclusions on policies do not apply and all of the occurrences were caused by terrorist action. 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. A number of insurance companies and Lloyd's syndicates, including Syndicate 2001, are currently in dispute with the leaseholder of the World Trade Center, Silverstein Holdings, as to whether the terrorist attack and destruction of the buildings constitutes one or two insured occurrences. Based on legal advice received, Amlin believes the attacks on the World Trade Center are one occurrence. However, this matter is subject to court proceedings which have commenced in the United States and there is, therefore, potential for additional loss. In the event that the World Trade Center losses were judged to be two occurrences and two total losses to the excess layers underwritten, it is estimated that the Group's loss could increase by up to approximately Â£22 million. However, given our legal advice and the high excess point of the layer which we insured, we believe that this is unlikely. 21. PROVISIONS FOR OTHER RISKS, CHARGES AND DEFERRED TAX a) Spread portfolio and other provisions -------------------------------------------------------------------------------- Provisions for spread underwriting losses Â£m -------------------------------------------------------------------------------- At 1 January 2003 2.9 Utilised during the year (1.7) Additions 1.8 -------------------------------------------------------------------------------- At 31 December 2003 3.0 -------------------------------------------------------------------------------- Included in the provision above is Â£0.4 million (2002: Â£1.0 million) as the estimated loss attributable to the Group in respect of its underwriting through Stace Barr Angerstein PLC and its subsidiary, SBA Underwriting Limited, the accounts of which are not yet available. b) The deferred tax (liability) asset is attributable to timing differences arising on the following: --------------------------------------------------------------------------------------- Unrelieved Underwriting Provisions trading losses Other timing results for losses carried forward differences Total Â£m Â£m Â£m Â£m Â£m --------------------------------------------------------------------------------------- At 1 January 2003 5.1 0.5 11.2 1.6 18.4 Deferred tax charge (45.8) 0.5 4.0 6.0 (35.3) for the year --------------------------------------------------------------------------------------- At 31 December (40.7) 1.0 15.2 7.6 (16.9) 2003 --------------------------------------------------------------------------------------- 22. OTHER CREDITORS INCLUDING TAXATION AND SOCIAL SECURITY -------------------------------------------------------------------------------- 2003 2002 Â£m Â£m -------------------------------------------------------------------------------- Bank loan 0.4 0.5 Corporation tax 11.9 0.1 Proposed dividend (see note 10 6.4 4.7 Finance lease creditors (see note 23) 0.1 0.1 Loan stock 6.9 9.8 Other creditors 6.4 5.2 -------------------------------------------------------------------------------- 32.1 20.4 -------------------------------------------------------------------------------- A subsidiary, Amlin Underwriting Group plc (AUG), had Â£6.9 million of unsecured loan stock outstanding at 31 December 2003 (2002: Â£9.8 million). Interest on the loan stock is based on the Lloyds TSB Bank plc base rate and is payable twice yearly on 1 April and 1 October. The loan stock holder may require AUG to redeem all or part (in multiples of Â£100) of the loan stock on 1 April 2004 by sending a redemption notice to AUG not less than 60 days before the due date of redemption. Loan stock not redeemed on 1 April 2004 will be redeemed on 30 April 2004. Loan stock is redeemable at par. 23. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR -------------------------------------------------------------------------------- 2003 2002 Â£m Â£m -------------------------------------------------------------------------------- Bank loan 3.0 0.6 Finance lease creditors 0.1 0.1 Performance related incentive schemes 14.4 2.6 Other creditors 2.3 0.5 -------------------------------------------------------------------------------- 19.8 3.8 -------------------------------------------------------------------------------- Obligations due under finance leases and hire purchase contracts are payable as follows: -------------------------------------------------------------------------------- 2003 2002 Â£m Â£m -------------------------------------------------------------------------------- Within one year 0.1 0.1 Within two to five years 0.1 0.1 -------------------------------------------------------------------------------- 0.2 0.2 -------------------------------------------------------------------------------- The Group's Employee Share Ownership Trust (ESOT) had a loan from Lloyds TSB Bank plc at the year end of Â£3.4 million (2002: Â£1.1 million) secured by a fixed charge over a proportion of the Company's shares held by the ESOT. This loan is pursuant to a new facility agreed in September 2003 which replaced the ESOT's previous such facility and also enabled the repayment by the ESOT of a loan from the Company of Â£2.3 million. The new loan is repayable over ten years and is guaranteed by the Company. It is anticipated that it will be repaid from the proceeds of exercises of options over Amlin plc ordinary shares held by the ESOT. 24. COMMITMENTS There were no capital commitments or authorised but uncontracted capital commitments at the end of the financial year. The Group leases certain land and buildings on short-term operating leases, under which the minimum annual commitments were Â£2.3 million (2002: Â£2.2 million), expiring in over five years. 25. RECONCILATION OF PROFIT BEFORE TAXATION TO NET CASH INFLOW FROM OPERATING ACTIVITIES 2003 2002 Â£m Â£m --------------------------------------------------------------------- Profit on ordinary activities 120.3 55.4 before taxation Net movement on Premium Trust Funds for non-aligned - 3.7 participations Depreciation charge 4.1 4.4 Syndicate capacity amortisation 3.1 0.9 charge Realised losses (gains) on 3.4 (0.3) investments Unrealised losses (gains) on 3.1 (7.6) investments Decrease in debtors 3.7 15.7 Increase in prepayments and accrued (28.4) (4.1) income Increase in insurance debtors, (8.1) (57.3) prepayments and accrued income Increase in technical provisions 116.9 98.4 Decrease in reinsurers' share of 76.7 54.1 technical provisions Increase in provisions for other 17.0 1.9 risks and charges (Decrease) increase in insurance (73.9) 45.5 creditors, accruals and deferred income Increase (decrease) in other 27.7 (5.4) creditors relating to operating activities Increase in accruals and deferred 17.0 3.3 income Interest expense 0.4 0.5 Letter of credit charges 6.2 5.1 --------------------------------------------------------------------- Net cash inflow 289.2 214.2 --------------------------------------------------------------------- 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. 26. MOVEMENTS IN CASH, PORTFOLIO INVESTMENTS AND FINANCING ------------------------------------------------------------------------------------- At 31 Changes to At 31 December market value December 2002 Cash flow and currencies 2003 Â£m Â£m Â£m Â£m ------------------------------------------------------------------------------------- Cash at bank and in 28.5 (5.1) (0.2) 23.2 hand Shares and other 0.7 46.0 3.9 50.6 variable yield securities Debt and other fixed 682.7 194.9 (10.3) 867.3 income securities Deposits with credit 78.8 40.1 - 118.9 institutions ------------------------------------------------------------------------------------- 790.7 275.9 (6.6) 1,060.0 ------------------------------------------------------------------------------------- Loans due within one (9.8) 2.5 - (7.3) year Loans due after one (0.6) (2.4) - (3.0) year ------------------------------------------------------------------------------------- (10.4) 0.1 - (10.3) ------------------------------------------------------------------------------------- 780.3 276.0 (6.6) 1,049.7 ------------------------------------------------------------------------------------- 27. GROUP OWNED NET ASSETS The assets and liabilities attributable to Group owned companies as opposed to the Group's syndicate participations, are summarised below: In Group In Group owned In owned In companies syndicates Total companies syndicates Total 2003 2003 2003 2002 2002 2002 Â£m Â£m Â£m Â£m Â£m Â£m ---------------------------------------------------------------------------------------------- Investments Other financial 235.7 812.7 1,048.4 227.0 546.9 773.9 investments Debtors Other debtors 12.6 40.0 52.6 8.5 62.8 71.3 Other assets Deferred tax asset - - - 18.4 - 18.4 Intangible assets 57.0 - 57.0 60.1 - 60.1 Tangible assets 6.4 - 6.4 9.0 - 9.0 Cash at bank and in 3.5 23.0 26.5 3.6 28.0 31.6 hand Prepayments and 9.8 9.2 19.0 4.0 8.7 12.7 accrued income Other syndicate - 741.5 741.5 - 789.7 789.7 assets ---------------------------------------------------------------------------------------------- Total assets 325.0 1,626.4 1,951.4 330.6 1,436.1 1,766.7 ---------------------------------------------------------------------------------------------- Provisions for other (19.9) - (19.9) (2.9) - (2.9) risks and charges ---------------------------------------------------------------------------------------------- Creditors Amounts due within (14.3) (17.8) (32.1) (12.9) (7.5) (20.4) one year Amounts due after (19.8) - (19.8) (3.8) - (3.8) more than one year Accruals and (11.8) (0.1) (11.9) (5.2) (0.4) (5.6) deferred income ---------------------------------------------------------------------------------------------- (45.9) (17.9) (63.8) (21.9) (7.9) (29.8) ---------------------------------------------------------------------------------------------- Other syndicate - (1,484.4) (1,484.4) - (1,427.2) (1,427.2) liabilities ---------------------------------------------------------------------------------------------- Consolidated shareholders' funds at 31 December 259.2 124.1 383.3 305.8 1.0 306.8 ---------------------------------------------------------------------------------------------- The assets of the syndicates included above are only available to pay syndicate related expenditure. 28. CONTINGENT LIABILITIES a) Funds at Lloyd's - Deeds of Covenant and Letters of Credit The Group has entered into various deeds of covenant in respect of certain corporate member subsidiaries to meet each such subsidiary's obligations to Lloyd's. At 31 December 2003, the total guarantee given by the Group under these deeds of covenant (subject to limited exceptions) amounted to approximately Â£209.5 million (2002: Â£222.8 million). The obligations under the deeds of covenant are secured by a fixed charge of the same amount over investments, and a floating charge over the investments and other assets of the Group, in favour of Lloyd's. Lloyd's has the right to retain the income on the charged investments, although it is not expected to exercise this right unless it considers there to be a risk that one or more of the covenants might need to be called and, if called, might not be honoured in full. As liability under each deed of covenant is limited to a fixed monetary amount, the enforcement by Lloyd's of any deed of covenant in the event of a default by a corporate member, where the total value of investments has fallen below the total of all amounts covenanted, may result in the appropriation of a share of the Group's Funds at Lloyd's that is greater than the proportion which that subsidiary's overall premium limit bears to the total overall premium limit of the Group. The Group has also entered into Lloyd's deposit trust deeds for Funds at Lloyd's by which letters of credit (LOCs) for total amounts of Â£130.0 million and US$90.0 million have been deposited. The US$ denominated LOCs were procured in 2001 by agreement with the Company's 10.1% shareholder State Farm Mutual Automobile Insurance Company and were agreed in November 2003 to be reduced from their original aggregate value of US$130.0 million, with effect from 1 January 2004. The sterling LOCs were deposited at Lloyd's for the first time in November 2003 pursuant to a bank LOC facility agreed in September 2003 which has replaced the previous such facility under which LOCs totalling Â£70.0 million had been provided. The net increase in LOCs was to support increased underwriting for the 2004 year of account. b) Reinsurance to close on spread portfolio A reinsurance to close (RITC) is a particular type of reinsurance contract entered into by Lloyd's syndicates whereby the members of a syndicate for a particular year of account (the closing year) agree with the members of that or another syndicate for a later year of account (the reinsuring members) that the reinsuring members will indemnify, discharge or procure the discharge of all the known and unknown liabilities of the closing year arising out of insurance business underwritten by the syndicate in the closing year of account. In the event that a corporate member resigns from a syndicate or reduces its participation relative to the other members of the syndicate, it will make a net payment of a RITC premium. The payment of the RITC premium does not release members from ultimate responsibility for claims payable on risks they have written and in the event that the reinsuring members were unable to pay and the other elements in the Lloyd's chain of security fail, the members would remain liable for the payment of any outstanding claims. Payment of a RITC premium is conventionally treated as settling a member's outstanding claims for the closing year and this convention has been adopted in these accounts. There is no mechanism for the Group to account for the gross claims payments and recoveries made from the reinsuring members or to quantify the ongoing exposure in respect of closed years of account. The directors consider that the possibility of the corporate members having to assume these liabilities is remote. c) Loan stock Amlin plc has given a guarantee to Lloyds TSB Bank plc for the principal sum of Â£6.9 million to secure the obligations of its subsidiary, Amlin Underwriting Group plc, in respect of the issue of loan stock as detailed in note 22. 29. RELATED PARTY TRANSACTIONS During the period under review Mr B D Carpenter, a director, was a member of Syndicate 2001 managed by the Group as set out below. Under the terms of an offer made in 2002 to all external members he exercised the right to participate in the 2003 year of account for 50% of his 2002 capacity and all profit commission payable to the Group was waived. As a result of the offer, Mr Carpenter does not participate in the Syndicate for the 2004 year of account. Capacity underwritten -------------------------------------------------------------------------------- Year of account 2001 2002 2003 2004 Â£000 Â£000 Â£000 Â£000 -------------------------------------------------------------------------------- B D Carpenter 240 291 182 - -------------------------------------------------------------------------------- The aggregate of fees and profit commission paid by Mr Carpenter was Â£1,527 (2002: Â£1,635), of which none was outstanding at 31 December 2003 (2002: nil). As detailed in note 28, State Farm Mutual Automobile Insurance Company, a major shareholder, procured for the Group unsecured letters of credit totalling US$90.0 million (US$130.0 million until 1 January 2004). This facility is provided at a rate of 5% and Â£4.0 million (2002: Â£4.4 million) was paid to State Farm in respect of the year under this arrangement. 30. PRINCIPAL EXCHANGE RATES The principal exchange rates used in translating foreign currency assets, liabilities, income and expenditure in the production of these accounts were: Average rate Year end rate 2003 2002 2003 2002 -------------------------------------------------------------------------------- US dollar 1.64 1.51 1.79 1.61 Canadian dollar 2.29 2.36 2.31 2.54 Euro 1.45 1.59 1.42 1.53 -------------------------------------------------------------------------------- The table below sets out the Group's share of the currency exposures of the Syndicate by currency at 31 December: -------------------------------------------------------------------------------- Assets Liabilities Net Net Â£m Â£m 2003 2002 Â£m Â£m -------------------------------------------------------------------------------- US dollar 921.5 836.9 84.6 29.4 Canadian dollar 42.9 32.9 10.0 7.6 Euro 61.6 56.3 5.3 2.8 -------------------------------------------------------------------------------- 1,026.0 926.1 99.9 39.8 31. FINANCIAL INFORMATION AND POSTING OF ACCOUNTS The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 December 2002 or 2003, but is derived from those accounts. Statutory accounts for 2002 have been delivered to the Registrar of Companies and those for 2003 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 2003 are expected to be posted to shareholders by no later than 2 April 2004. Copies of the Report may be obtained from that date by writing to the Company Secretary, Amlin plc, St. Helen's, 1 Undershaft, London, EC3A 8ND. The Annual General Meeting of the Company will be held at the same address at noon on Wednesday 19 May 2004. The Preliminary Results were approved by the Board on 9 March 2004. This information is provided by RNS The company news service from the London Stock Exchange

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