Interim Results
AMLIN PLC
17 September 1999
INTERIM RESULTS
(6 months ended 30 June 1999)
* Solid financial performance
- increased profits after strengthening of reserves
- interim dividend of 1.3 pence per share
* Considerable progress towards achieving a high quality, integrated
insurance company
- Amlin has bought £72.5 million of its managed capacity this year at
an average price of 6.8 p per £
- Amlin now owns 52% of its managed capacity, up from 38% at 31
December 1998
* Forecasts for 1997 and 1998 year of account results are better than
market average for both managed syndicates and 'spread' capacity.
* Amlin is concentrating on its core business
- sale of Whittington
- sale of capacity on non-aligned syndicates
* The future: an integrated insurer targeting growth in
- London market
- UK insurance
- e-commerce
6 Months to 6 months to
30 June 1999 30 November 1998
Profit/(loss) on ordinary activities £10.9m £(7.4)m
Earnings/(loss) per share 4.2p (1.6)p
Dividend per share 1.3p -
Net assets per share (2) 114.7p 112.1 p
(1) The Company changed its year end to 31 December in 1998
(2) Comparative net assets per share are as at 31 December 1998
Enquiries:
Charles Philipps, Chief Executive, Amlin plc 0171 860 8600
David Haggie, Haggie Financial Limited 0171 417 8989
JOINT STATEMENT FROM THE CHAIRMAN AND THE CHIEF EXECUTIVE
'We have made considerable progress over the past few months building a high
quality, focused, and integrated insurance company. We have successfully
acquired £72.5 million of capacity on our managed Lloyd's syndicates at
economic prices. We are selling the Whittington Group and will sell the
remainder of our 'spread' capacity during 1999, in each case to allow our
management team the scope to concentrate on the Group's core underwriting
businesses and their specific growth areas.'
Ownership of managed capacity
In the four auctions held so far this year we have paid an average price of
6.8p per £ of capacity for the £72.5 million which we have acquired. We will
continue to buy in the two remaining 1999 capacity auctions only if the
capacity is available at the right price. With purchases to date we currently
own £278.1 million of our capacity which represents 52% of capacity for the
2000 year of account.
Divestment of spread capacity
To date this year we have sold £64.1 million of capacity on 21 non-aligned
syndicates realising £4.8 million. This leaves some £9.4 million of directly
owned non-aligned capacity to be sold in the remaining 1999 auctions.
Selling capacity on syndicates which we do not manage will free up capital to
support our managed syndicates. This means we can be more responsive to
improvements in rates and market conditions. It also simplifies the Group and
removes the costs of maintaining a 'spread' portfolio of syndicate
participations.
Divestment of Whittington
We have entered into an agreement to sell the Whittington Group (including the
managing agency business of Amlin Capital Management subject to Lloyd's
approval) at a premium to its net assets. Total consideration receivable is
£3.0 million (net of intra-group debt), to be satisfied in cash plus potential
deferred consideration to a maximum of £0.5 million. The sale is subject to
the approval of Lloyd's.
The business of Whittington is a non core activity for Amlin and would absorb
unjustifiable management time and financial resource to develop it. The sale
of Whittington is consistent with our strategy of focusing on our core
business and of developing Amlin into a specialist Lloyd's insurance company.
Development of core businesses
Following an intensive review the new management team has identified that
future growth in the underwriting businesses will be derived from:
* Our main London market business. This has significant market positions in
a number of classes which we are confident will continue to provide good
returns over an insurance cycle. These include property and casualty
insurance, specialist marine insurance and property reinsurance including
catastrophe. We have a strong franchise with which to attract new
underwriting talent in targeted areas.
* Our UK motor business. We will diversify in a measured way from our
existing core strength in commercial clients, into a broader UK commercial
insurer, focusing on clients and classes of business where we assume 100%
of the risk rather than underwriting on a subscription basis.
* e-commerce. We have successfully established the leading UK on-line
credit insurance product and are founder participants in the Lloyd's
Artinsure.com joint-venture. It is an area we cannot afford to ignore in
the long term and we will develop other lines of business which can be
distributed over the 'net'. We will play to our strengths in this area,
where appropriate working with brokers to reinforce our business
connections.
1997 and 1998 year of account forecasts
Overall, our most recent forecasts for the 1997 and 1998 open year results of
our managed syndicates are better than the average forecasts for the Lloyd's
market.
In these years of account we owned respectively £67.2 million (10.5%) and
£158.2 million (24.6%) of our managed capacity and, based on the mid-points of
our forecast range, our managed syndicates would contribute a profit of £0.7
million to the Group from the 1997 year of account and a loss of £4.8 million
from the 1998 year of account.
Putting these forecasts in context, 1997 and 1998 were dreadful years for
international insurers arising from an excess of insurance capacity in the
hands of underwriters prepared to under-price risk. The results of syndicate
2001 were significantly impacted by the poor performance of the former
syndicate 919, which underwrote general liability and professional indemnity
business which has since been discontinued. The extreme competition in the
motor insurance market resulted in losses in both the 1997 and 1998 years of
account for Summit. Our main marine and non-marine businesses have performed
satisfactorily and syndicate 902's 1997 forecast profit of between 7% and 12%
of capacity places it among the top ten Lloyd's syndicates for that year.
The Group had £181.9 million and £145.7 million of spread capacity on the 1997
and 1998 years of account respectively and, as with our managed capacity,
results are expected to be above the Lloyd's average for these years of
account. Based on the mid-point of the most recent managing agent's forecasts,
we would achieve a profit, after all corporate member expenses, of £0.7
million on the 1997 year of account, and would incur a loss of £1.4 million
from the 1998 year of account.
We are deliberately cautious in provisioning for potential underwriting losses
using the worst case estimates of third party managing agents. Accordingly,
we believe we have adequately provided for net underwriting losses from the
1998 year of account.
Outlook and current trading
While it is early days for the 1999 year of account, we believe that our
action taken in respect of the former syndicate 919 and the increases in rates
being achieved on the motor book are encouraging for the results of Amlin's
managed syndicates for the 1999 year of account.
In the marine, aviation and non-marine areas of our underwriting the first
half of 1999 showed little evidence of the changes in business terms we would
like to have seen. Therefore, our underwriting teams continued to focus on
minimising loss making accounts while retaining relationships that will offer
good profit potential in better conditions.
More recently, we have started to see signs of a hardening in rates, in
particular in property reinsurance. A number of companies, such as GIO
Australia, have withdrawn from this market and the financial pain caused by
underwriting at uneconomic rates is being felt by many insurers and
reinsurers. Amlin is in a strong position to benefit from these better
conditions as and when they materialise.
INTERIM RESULTS AND DIVIDEND
The interim results, which are for the six month period ended 30 June 1999,
exclude underwriting results and profit commission income which will be
included in the full year results to 31 December 1999. The comparative
period, which preceded the change in year-end to 31 December, is the six
months ended 30 November 1998.
The Group made a profit on ordinary activities of £10.9 million (1998: loss of
£7.4 million) after making additional provision for anticipated syndicate
losses on open years of account of £7.2 million (1998: £6.1 million).
Realised and unrealised investment gains contributed a net £12.4 million
(1998: loss of £1.6 million), with our FTSE 100 index tracker providing most
of these gains. Fee income in both our managing and members' agencies was in
excess of expenses as planned.
The largest movement in provision for open year losses was caused by worse
than expected forecasts by managing agents of our non-aligned capacity for the
1998 year of account. The Group's balance sheet now includes £16 million of
provisions for open year losses which, based on currently available
information, would almost cover 1997 and 1998 results of the Group's managed
and non-aligned participations if they were all at the worst end of agents'
expectations.
The Board has declared an interim dividend of 1.3p (1998: nil) per share which
will be paid on 3 November 1999 to shareholders on the register at the close
of business on 1 October 1999.
UNAUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the six months ended 30 June 1999
Audited
6 Months to 6 Months to 7 Months to
Notes 30 June 30 Nov 31 Dec
1999 1998 1998
£m £m £m
Balance on underwriting account 2 (7.2) (6.1) 5.7
Investment income 5.6 4.6 5.7
Realised (losses)/gains on (0.8) 0.7 1.5
investments
Unrealised gains/(losses) on 13.2 (2.3) 0.3
investments
Other income 4 14.7 16.1 31.1
Other charges 5 (14.6) (20.4) (27.0)
-------- -------- --------
Profit/(loss) on ordinary 10.9 (7.4) 17.3
activities
Of which:
(Loss)/profit excluding (1.5) (5.8) 15.5
(losses)/gains on investments
Gains/(losses) on investments 12.4 (1.6) 1.8
Profit on sale of syndicate - 8.7 8.7
participations
Merger costs - (3.9) (3.9)
-------- -------- --------
Profit/(loss) on ordinary 10.9 (2.6) 22.1
activities before tax
Tax on profit/(loss) on ordinary 6 (2.2) (0.7) (7.5)
activities -------- -------- --------
Profit/(loss) for the period 8.7 (3.3) 14.6
Dividends 7 (2.7) - (7.2)
-------- -------- --------
Retained profit/(loss) 6.0 (3.3) 7.4
-------- -------- --------
Earnings/(loss) per share 8
- basic 4.2p (1.6)p 7.1p
- diluted 4.1p (1.5)p 6.6p
Earnings/(loss) per share
excluding net gains/(losses)
on investments - (0.8)p 6.5p
UNAUDITED CONSOLIDATED BALANCE SHEET
Audited
As at As at
30 June 31 December
Notes 1999 1998
£m £m
Investments 9 264.4 249.8
Debtors
Due from syndicates in respect - 11.4
of closed years
Other debtors 6.1 3.5
Other assets
Purchased syndicate participations 10 4.7 5.3
Tangible assets 3.1 3.5
Cash at bank and in hand 23.8 16.4
Own shares 2.8 2.4
Prepayments and accrued income 3.6 15.3
-------- --------
Total assets 308.5 307.6
Provisions for other risks and charges 11 (17.7) (12.2)
Creditors
Creditors due within one year (29.1) (36.0)
Creditors due after more than one year (14.6) (14.8)
Accruals and deferred income (10.0) (13.5)
-------- --------
Consolidated net assets 237.1 231.1
===== =====
Called up share capital 53.9 53.9
Share premium account 54.2 54.2
Shares to be issued 1.8 1.8
Merger reserve 19.1 19.1
Other reserve 23.0 23.0
Warrant reserve 2.8 2.8
Profit and loss account 82.3 76.3
-------- --------
237.1 231.1
===== =====
Consolidated net assets per share
- basic 114.7p 112.1p
- diluted 111.1p 106.5p
NOTES
1. Basis of preparation of interim accounts
The unaudited interim financial statements for the six months ended 30
June 1999 have been prepared in accordance with accounting policies set
out in the consolidated financial statements for the seven months to 31
December 1998, except as stated below.
The consolidated financial statements for the seven months to 31 December
1998 were presented in accordance with the provisions of Section 255A and
of Schedule 9A to the Companies Act 1985 and included the Group's share of
the transactions, assets and liabilities of the syndicates on which the
Group participated through its corporate member subsidiaries. The
relevant syndicate information is not available for the purposes of these
interim financial statements. Accordingly, for comparative purposes, the
consolidated balance sheet as at 31 December 1998 has been restated to
exclude syndicate data.
The unaudited interim statements, the comparative figures for the period
ended 31 December 1998 and the financial information contained in these
interim results do not constitute statutory accounts of the Group within
the meaning of Section 240 of the Companies Act 1985.
Statutory accounts for the year ended 31 December 1998 have been delivered
to the Registrar of Companies. The auditors have reported on these
accounts, their reports were not qualified and did not contain a statement
under Section 237(2) or (3) of the Companies Act 1985.
2. Balance on underwriting account
The balance on underwriting account for the year ended 31 December 1998
includes the Group's underwriting profits in respect of the 1996 Lloyd's
year of account. In the six months to 30 June 1999 and 30 November 1998
it includes only movements in provisions for possible open year losses of
the Group's corporate members. The Group's accounting policy is to
include underwriting profits from a year of account only when that year of
account has closed.
Provision is made for losses on each open year of account, for each
corporate member subsidiary, when it is considered that profits in that
same corporate member may be insufficient to meet these losses. Where
corporate members have any aligned capacity (where syndicates are managed
by the Group), provision is made for losses when it is considered that a
business area will record a loss in respect of any open year of account.
Provision is also made for any estimated future deterioration of any year
of account of any syndicate that has gone into run-off. Movements in
provisions for open year losses are shown in note 11.
3. Year 2000
The directors are aware of the Year 2000 ('Y2K') issues encountered by the
business and have in place a Group-wide programme for operational
compliance. Critical business systems testing and remedial work have been
carried out and, where relevant, such systems have been certified as
compliant in accordance with the Lloyd's Market Year 2000 Programme.
Further compliance testing has also been conducted across the Lloyd's
market and important external suppliers have been approached in order to
ascertain confidence in their readiness to manage Y2K related issues.
In view of the increasing dependence upon computers and microprocessors,
it is impossible to be certain that there will be no disruption at the
time of the millennium or shortly thereafter due to electronic date
recognition issues beyond our direct control. Further contingency plans
are currently being developed and tested in order to minimise any
potential disruption due to such circumstances.
Total costs of approximately £0.2 million have been incurred during the
six months ended 30 June 1999 and it is anticipated that a further £0.2
million will be incurred in connection with the Group's on-going Y2K
compliance testing and contingency planning.
Substantially all of these costs have been, or will be, recharged to
Lloyd's syndicates which are managed by the Group. Y2K related work is co-
ordinated centrally and closely supervised by senior management. Progress
is reported at regular intervals to the Board and, based on progress to
date, the directors consider that an acceptable state of readiness is
currently being achieved.
Y2K related failures may also impact on the Group's performance through
underwriting exposure giving rise to Y2K related claims. The Group has
recognised the importance of managing the exposure to potential Y2K claims
for a considerable period, but underwriting exposures to the issue remain
broad and complex. In accordance with Lloyd's guidelines, Y2K related
exposures for all ongoing risks are specifically reviewed by underwriters
to ensure that potential Y2K exposures are mitigated where possible.
Changes in policy form are difficult to obtain in all instances and not
appropriate to every class of business. However, a range of specific
electronic date recognition clauses have been introduced into policy
terms, along with letters of intent and Y2K questionnaires. Risks have
been declined in some instances where satisfactory terms cannot be reached
or sufficient underwriting information has not been provided.
During 1999 the Group is continuing to monitor closely both its
underwriting exposures and any potential Y2K losses as the issue develops.
4. Other income
6 Months to 6 Months to 7 Months to
30 June 30 Nov 31 Dec
1999 1998 1998
£m £m £m
Managing agents' income 1.1 1.3 10.4
Members agents' income 3.6 3.5 7.4
Other insurance services income 10.0 11.3 13.3
-------- -------- --------
14.7 16.1 31.1
-------- -------- --------
5. Other charges
6 Months to 6 Months to 7 Months to
30 June 30 Nov 31 Dec
1999 1998 1998
£m £m £m
Managing agents' expenses 0.7 0.9 4.7
Members agents' expenses 3.3 4.3 4.9
Other insurance services 7.9 11.2 13.3
expenses
Amortisation of purchased 0.6 0.2 0.3
syndicate participations
Central and management expenses 2.1 2.0 2.0
Exceptional item: management - 1.8 1.8
incentive scheme
-------- -------- --------
14.6 20.4 27.0
-------- -------- --------
6. Taxation
6 Months to 6 Months to 7 Months to
30 June 1999 30 Nov 31 Dec
1998 1998
£m
£m £m
UK corporation tax at 30.5% 3.5 3.2 8.1
Deferred taxation (1.6) (2.9) (1.2)
Overseas taxation - - 0.3
Tax attributable to franked 0.3 0.4 0.3
investment income
-------- -------- --------
2.2 0.7 7.5
-------- -------- --------
7. Dividends
An interim dividend in respect of the six months to 30 June 1999 of 1.3p
per ordinary share has been declared, to be paid on 3 November 1999 to
shareholders on the register at the close of business on 1 October 1999.
In respect of the seven month period to 31 December 1998 a total dividend
of 3.5p per share was paid.
8. Earnings and net assets per share
The earnings per share has been calculated by apportioning the profit
attributable to shareholders for the six months ended 30 June 1999 of £8.7
million over the weighted average number of shares in issue during the
period, except that shares held by the Employee Share Ownership Trust
('ESOT') are excluded in accordance with FRS 14.
Diluted earnings per share have been calculated, as required by FRS 14, as
set out below:
6 Months to 6 Months to 7 Months to
30 June 30 Nov 31 Dec
1999 1998 1998
£m £m £m
Profit/(loss) for the period 8.7 (3.3) 14.6
Average number of shares in issue 206.7 205.2 205.5
Dilutive shares to be issued 8.0 12.8 14.2
Adjusted average number of shares in 214.7 218.0 219.7
issue
Diluted earnings/(loss) per share 4.1p (1.5)p 6.6p
Dilutive shares to be issued represents an adjustment in respect of shares
which may be issued to satisfy deferred consideration, the exercise of
warrants and options.
Earnings/(loss) per share excluding net gains and losses on investments have
been calculated as follows:
6 Months to 6 Months to 7 Months to
30 June 30 Nov 31 Dec
1999 1998 1998
£m £m £m
Profit/(loss) for the period 8.7 (3.3) 14.6
Less net gains/(losses) on 8.6 (1.6) 1.3
investments
-------- -------- --------
0.1 (1.7) 13.3
-------- -------- --------
Earnings/(loss) per share 0.0p (0.8)p 6.5p
-------- -------- --------
Consolidated net assets per share are calculated on the number of shares in
issue, as set out below.
At At
30 June 31 Dec
1999 1998
£m £m
Number of shares in issue 215.9 215.9
Adjustment for ESOT shares (9.1) (9.7)
-------- --------
Basic number of shares after ESOT 206.8 206.2
adjustment
Dilutive shares to be issued 6.7 10.7
-------- --------
Adjusted number of shares 213.5 216.9
-------- --------
9. Investments
At 30 June At 31 Dec
1998 1998
£m £m
Listed shares 161.3 151.9
Unlisted shares 0.3 0.4
Debt securities 85.5 82.4
Deposits 17.3 15.1
-------- --------
264.4 249.8
-------- --------
As at 30 June 1999, £160 million of listed shares were invested in a portfolio
of UK equity securities designed to replicate the constituents of the FTSE 100
Index. The FTSE 100 Index closed at 6318.53 on 30 June 1999.
10.Purchased syndicate participations
£m
Cost at 1 January 1999 5.9
Amortisation (0.6)
--------
Book value at 1 January 1999 5.3
Movement in period
Purchases -
Amortisation (0.6)
--------
Book value at 30 June 1999 4.7
--------
11.Provisions for other risks and charges
Provision for Other Total
syndicate provisions
losses
£m £m £m
At 1 January 1999 8.8 3.4 12.2
Movement 7.2 (1.7) 5.5
-------- -------- --------
At 30 June 1999 16.0 1.7 17.7
-------- -------- --------
12.Contingencies and guarantees
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. The total guarantee given by the Group under these deeds of
covenant (subject to limited exceptions) amounts to £109.5 million. The
obligations under the deeds of covenant are secured by a fixed charge of
£109.5 million over investments and a floating charge over 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 the 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 on terms
pursuant to which it has deposited with Lloyd's funds at Lloyd's ('FAL')
as security in respect of its underwriting business. The deposited assets
and their income may be applied in discharging the Group's obligations at
Lloyd's. The deposited FAL assets were valued at £64.6 million at 30 June
1999.
The Group's deposited FAL includes a letter of credit ('LOC') from The
Chase Manhattan Bank for £5 million, secured by a reinsurance contract.
In the event of the LOC being drawn down by Lloyd's to meet the Group's
obligations, the reinsurers would have recourse to the future profits of
the Group.
The Company has entered into a deed of guarantee in respect of Amlin
Private Capital Limited to enable that subsidiary to maintain its minimum
capital requirement for Lloyd's. Liability under the guarantee is limited
to £1.5 million and to limited circumstances related to the winding up,
insolvency or receivership of Amlin Private Capital Limited.
13.Interim Report
Copies of the Interim Report are available from the Registered Office of
the Company, One Whittington Avenue, London, EC3V IPH.
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