Interim Results
Amlin PLC
06 September 2004
Press Release
For Immediate Release
6 September 2004
Amlin plc
Interim Results for the six months ended 30 June 2004
AMLIN DELIVERS ANOTHER STRONG RESULT
Excellent results
• Pre-tax profit up 17.2% to £74.2 million
• Gross premiums written up 6.7% to £709.7 million
• Combined ratio improvement of 10 points to 73%
• Earnings per share up 14.8% to 13.2p
• Six month return on equity of 13.3% (annualised 26.6%)
Dividend payout increased substantially
• Interim dividend up 253% to 3.0p per share (H1 2003: 0.85p)
Outlook strong
• Net unearned premium up 20.5% to £639.5 million
• Renewal rates modestly lower by 2.5% in first half
• Continuing strong platform for good returns on equity
Security rating upgraded
• Moody's insurance financial strength rating upgraded to A1
• Lloyd's AM Best rating upgraded to A
Charles Philipps, Chief Executive of Amlin, said: 'The first half of the year
has been excellent for Amlin. The Company continues to go from strength to
strength and we are now able to reflect this in our dividend payments. The
trading outlook remains strong, providing us with sound prospects of being able
to continue to deliver good returns on equity'.
Restated
Six months Six months 12 months
2004 2003 2003
FINANCIAL HIGHLIGHTS £m £m £m
Gross premiums written 709.7 664.9 937.4
Net premiums written 570.4 541.5 787.6
Earned premiums 327.9 326.5 684.7
Operating profit before tax
(based on longer term investment returns) 81.8 64.8 124.4
Profit on ordinary activities before tax 74.2 63.3 120.3
Per share amounts
Operating profit 18.9p 16.5p 30.9p
Earnings 13.2p 11.5p 21.6p
Dividend 3.0p 0.85p 2.5p
Net assets 109.6p 90.9p 99.3p
Net tangible assets 94.5p 75.7p 84.6p
Syndicate 2001 operating ratios
Claims ratio 44% 51% 51%
Expense ratio 29% 32% 32%
Combined ratio 73% 83% 83%
Enquiries:
Charles Philipps, Chief Executive, Amlin plc 0207 746 1000
Richard Hextall, Finance Director, Amlin plc 0207 746 1000
Hannah Bale, Head of Communications, 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
INTERIM RESULTS STATEMENT
This has been a highly productive six months for Amlin, with excellent financial
results and continued significant progress in building a stronger business.
Return on equity in the first six months was 13.3% (annualised 26.6%),
continuing the high performance of 2002 and 2003.
The Group's interim profit before tax of £74.2 million (H1 2003: £63.3million)
was 17.2% up on the same period last year. The contribution from underwriting
increased 32.5% to £74.2 million (H1 2003: £56.0 million) with our increased
ownership of Syndicate 2001 and all divisions continuing to record strong
margins. However, the investment return was lower at £13.9 million (H1 2003:
£18.3 million) reflecting a difficult investment environment, particularly for
bonds. Earnings per share increased by 14.8% to 13.2p (H1 2003: 11.5p).
Dividend
The Board has declared an interim dividend of 3.0p per share (H1 2003: 0.85p),
an increase of 253%. This will be paid on 1 November 2004 to shareholders on the
register at the close of business on Friday 17 September 2004. Given the
demand shown for previous scrip dividends, we are again offering that
alternative to shareholders. In line with the dividend policy outlined in our
2003 Annual Report, the Board intends to propose a final dividend which, when
added to the interim dividend, will result in a full year pay-out ratio of at
least 30% of distributable earnings.
Trading conditions and written premium
While rates in general peaked towards the end of 2003, they are by no means in
free fall as some commentators have suggested and we are continuing to
experience good trading conditions. Renewal rates for the first half across our
whole portfolio showed a modest average reduction from the high levels of 2003
of only 2.5%. As shown in table 1, rate changes varied by class but margins in
all core classes remain good. Rate reductions were in those classes, which
experienced the strongest rate increases in 2001 and 2002, such as airline and
property insurance and reinsurance. For these classes risk selection is
increasing in importance. Better pricing is still being achieved in some other
classes, such as airline products, airports and marine hull.
Table 1: Rating indices for major classes
Class 2000 2001 2002 2003 2004
Airline hull and liabilities 100 244 233 195 166
Marine hull 100 115 148 170 181
Employers' liability 100 115 144 158 158
Energy 100 140 172 189 160
Professional indemnity 100 110 148 180 180
US property insurance 100 125 171 163 137
Non US catastrophe reinsurance 100 120 157 162 145
US catastrophe reinsurance 100 115 146 150 143
US Casualty 100 125 170 211 236
War 100 250 288 244 208
Fleet motor 100 121 135 142 135
Amlin's gross premium written increased by 6.8% to £709.7 million, despite a £50
million adverse effect arising from foreign exchange movements. This effect was
more than offset by the increased ownership of Syndicate 2001's capacity to 100%
for 2004 from 86% in the previous year.
Syndicate 2001 wrote £708.1 million of premium (H1 2003: £777.0 million), with
all but 2% of the reduction being due to exchange rate movements. The average
renewal retention ratio for the period was 82.8%. With our focus on gross
underwriting profit and a desire to maintain margins we declined renewals where
we considered rate reductions were too aggressive. New business written (net of
brokerage) in the period amounted to £100.1 million, compared with £147.9
million in the same period last year, the reduction reflecting our pricing
discipline as rates have come off their peak.
Underwriting performance
The underwriting performance for the period has been extremely strong.
Underwriting contributed £74.2 million to the Group's pre-tax result, an
increase of 32.5% over the same period in 2003. At the 100% managed syndicate
level the underwriting contribution was £100.5 million, up 35.4%, with a ten
point improvement in the combined ratio, from 83% to 73%. This is analysed by
division in table 2.
Table 2: Divisional combined ratios Non-marine Marine Aviation UK Commercial Total
Net premium earned £191.2m £64.6m £31.6m £79.0m £366.3m
Claims ratio 35% 62% 51% 51% 44%
Expense ratio 28% 32% 53% 23% 29%
Combined ratio 63% 94% 104% 74% 73%
Combined ratio H1 2003 75% 87% 170% 88% 83%
Net earned premium for the six month period was £327.9 million, a modest
increase over the same period last year. Exchange rate movements, the timing of
reinsurance purchases and changes in business mix dampened the amount recognised
in the first half. However, even allowing for exchange rate movements, the
balance of net unearned premium carried forward to be earned in the future has
increased by 59.7% to £639.5 million since the 2003 year end.
We continued to experience a relatively benign claims environment and our claims
incurred ratios for the 2002, 2003 and 2004 underwriting years are trending
considerably better than any previous year of Syndicate 2001. This, and the
prudent approach we adopt for reserving, allowed a release of reserves for prior
underwriting years that added £31.0 million (H1 2003: £13.8 million release) to
the underwriting result. While this is material, our policy is to reserve above
the actuarial best estimate and this is consistently applied. We therefore
expect, with normal loss development, our results to be enhanced by reserve
releases. On 29 April 2004 the Silverstein trial, relating to the World Trade
Center loss, was concluded with a favourable verdict confirming our position
that the New York terrorist attack was a single event. With the exception of
aviation related claims, Amlin's losses from this tragic event are now well
developed and uncertainty surrounding the losses has diminished.
The expense ratio fell by 3% for Syndicate 2001 in the period. Half of this was
due to the cessation of the premium levy raised by Lloyd's during 2002 and 2003
in order to boost the Lloyd's Central Fund. The remaining fall was principally
due to lower contributions made to cover the shortfall in the main group defined
benefit pension scheme.
The Non-marine Division's combined ratio of 63% is another excellent result.
The division succeeded in 2002 and 2003 in expanding rapidly into a strong
rating environment but with rates having peaked in a number of its classes in
2004 it has adopted a less expansionary stance. Written income is down by
10.2%, largely reflecting the effect of foreign exchange movements. However,
margins remain excellent and loss incidence has been low. This is particularly
true of property insurance and reinsurance classes where the level of natural
catastrophes was around half the level normally expected in the first half of a
calendar year.
The Marine Division's combined ratio is up 7% to 94% compared with 2003 at the
same stage. Modest growth in income in original currencies was achieved with
rate movements for most of the division's classes being favourable. This helped
to offset the exchange rate effect on income. However, the division experienced
a number of large hull and bloodstock losses which, together with smaller
reserve releases, contributed to a worse claims ratio. The overall ratio
remains satisfactory.
As usual, the Aviation Division's renewal income is heavily weighted towards the
second half of the year but its expenses are spread more evenly through the
year. This means that the first half combined ratio, which was 104%, is not
reflective of performance as the expense ratio is heavily distorted. The claims
ratio remained at a good level reflecting continued low loss incidence for the
airline account. The non-airline classes, for example general aviation,
airport, product liability and space, which represent approximately 60% of the
expected income for 2004, have continued to attract rate increases during 2004.
In particular, a tough line has been taken on the products account, which had
not performed as well as expected, and average rate increases of 16% were
achieved in the period.
Our UK Commercial Division's performance has again been very strong with an
exceptionally low combined ratio of 74% for the period. Again, reserve releases
have contributed to this performance. Income in the motor account has reduced as
competition in the commercial motor sector has increased. Rates on motor
business which has been renewed have remained broadly constant for the period
but, as competition has increased, the level of new business has reduced and the
retention ratio has started to decrease. The liability accounts, which have
been areas of good growth and significant rate increases over the last two
years, have seen rates start to stabilise.
Investment return
The half year investment return reduced by 24% to £13.9 million (H1 2003: £18.3
million) reflecting a tough environment particularly for bonds and the US
dollar, with just under 60% of our bonds being US dollar denominated. Sterling
bonds returned 1.4% during the period and the dollar bonds 0.1%. Our equity
portfolio returned 4.5%. While bond returns were below our long-term expected
rate of return, we managed to compensate in part by holding significant sterling
cash balances on which a return of 2.1% was achieved.
During the period, as the interest rate cycle turned and investors priced in
interest rate increases, returns from bonds were low or even negative. The
benchmarks given to the managers of these funds were kept in line with the
duration of the liabilities, apart from the US dollar benchmark, where we
maintained a position shorter than the liabilities. Investment in US dollar
bonds was actively managed, with cash being raised from bonds on a short-term
basis in January and March, when the market was considered to be particularly
vulnerable to capital losses. This protected the funds from some of the market
weakness during the first half of the year. Additionally, we have continued to
convert into sterling our US dollar underwriting profits as they are earned.
This has allowed us to reinvest low yielding US dollar assets into higher
yielding sterling bonds, or cash, as well as managing our currency exposures.
Our investment mix at 30 June 2004 is set out in table 3.
Table 3: Half year 2004 investment mix Syndicate* Corporate Total Total
£m £m £m %
Equities - 53 53 4
Debt securities 845 89 934 72
Cash and other cash equivalents 245 72 317 24
Total 1,090 214 1,304 100
*Syndicate investment relates to 100% Syndicate 2001 data
Looking forward we believe that investment returns will remain muted for the
rest of the year. Global economic growth is forecast to slow during the second
half of this year and next. Bond yields are at low levels and, despite a more
favourable backdrop, are unlikely to match our long term expectations across the
whole portfolio. Nevertheless, after the increases in yields we have already
witnessed, we believe the outlook for bonds should be better than in the first
six months.
Capital management
The diversity and strength of Syndicate 2001 has allowed Amlin to successfully
leverage its balance sheet to help accommodate the growth in underwriting over
the past three years. At 30 June 2004, letter of credit and other debt finance
amounted to £180 million, equivalent to 43.1% of net assets, compared with 50.8%
at 31 December 2003. With Lloyd's existing basis of accounting we are presently
unable to use a large proportion of our earned profits as solvency capital to
support our underwriting. This is set to change from 2005 when earned profits
will qualify for Lloyd's solvency capital. Were we able to use these assets as
solvency capital today, our letter of credit and debt finance requirement would
fall to £13.6 million, equivalent to only 3.2% of 30 June 2004 net assets.
Amlin expects to generate significant amounts of free cash flow over the next
several years as profits are released by Lloyd's from the 2002 and subsequent
years of account. Additionally, with Lloyd's changing to an annual accounting
basis from three year fund accounting with effect from 2005, we expect increased
flexibility in our ability to manage the Group's balance sheet. Consistent with
our aim of optimising our risk weighted return on equity we will regularly
review whether to increase the amount of cash we return to shareholders, above
the minimum 30% payout ratio announced at the time of our 2003 results, if
capital requirements fall as we reduce our underwriting capacity.
In April the Financial Services Authority published CP04/07, its consultation
paper on capital requirements for Lloyd's and Lloyd's insurers. Amlin is well
advanced in preparing to meet the requirements which will apply from 2005 and,
based on our detailed modelling to date, we do not envisage any material effect
on our future capital requirements.
Becoming a stronger business
Given our strategic focus on retaining and motivating our talented staff, we
were pleased with the results of a MORI survey, which was completed by 74% of
all our employees, and indicated very high scores against MORI's norms for job
satisfaction. It also highlighted areas where we can improve further to
strengthen our position as 'the place to work' in the industry.
In May, Moody's upgraded the financial strength rating of Syndicate 2001 from A2
to A1 (stable), citing 'the significant out-performance by Syndicate 2001 for
the 2000 and 2001 years of account, the very positive and improving earnings
outlook from the 2002 year of account and the significant improvement in the
financial profile of Amlin'. Similarly, in August, AM Best upgraded Lloyd's
rating from A- to A reflecting 'Lloyd's improving prospective capitalisation,
strong operating performance, its global reach and improvements in risk
management.' In the global environment where there have been very few upgrades
and many downgrades in security ratings over the past two or so years, both
Lloyd's and Amlin should benefit from this.
In an independent London Market broker survey conducted in February/March 2004,
Amlin was top ranked for usage, with 33% of interviewed brokers having placed
business with us over the past twelve months, and ranked second overall for
brand awareness. The survey also showed that Amlin was perceived to be the
market leader in terms of financial strength. The superior growth in net
tangible assets which we are presently achieving should serve to reinforce this
position.
Good progress has also been achieved on our important projects to improve our
attractiveness to clients and brokers by delivering superior service and
increasing our long-term underwriting potential.
Outlook and 2005 underwriting
Net unearned premium at 30 June 2004, which has been written at excellent rates,
increased to £639.5 million. This underpins a strong outlook for underwriting
returns for the remainder of 2004 and 2005. As usual when reporting our interim
results, we are in the midst of the windstorm season. Until Hurricane Charley,
we had not experienced a major natural catastrophe for over two years. The net
loss to Amlin from Hurricane Charley is estimated at between $30 million and $40
million, within our normal business planning assumptions. Preliminary
information received on Hurricane Francis, which struck Florida at the weekend,
suggests that total insured losses may be less than for Hurricane Charley.
While we expect investment returns in the second half to be below our longer
term expected rate of return, we anticipate a higher return than in the first
half. Beyond 2004, the continued significant growth in our technical funds,
which have increased by some £650 million over the past three years, should
result in greater potential investment contributions to Amlin's overall results.
Trading conditions remain favourable and this bodes well for another good
underwriting year in 2005. While competitive forces are likely to put some
further pressure on rates we are hopeful that the increased discipline in
Lloyd's, which is being reinforced by its franchise regime, will also be evident
in other markets. Lloyd's has indicated an intention to manage overall market
capacity down as rates come under pressure. We welcome this and urge Lloyd's to
enforce its intention, as the effect should reduce the scope for ill-disciplined
underwriting by those who might otherwise chase new business by cutting rates to
unhealthy levels. Recent announcements of share buy-backs by some of the
Bermudian reinsurers is also a good sign of intentions to maintain discipline.
We currently intend to reduce Syndicate 2001's capacity for 2005 by £150 million
to £850 million. Approximately £65 million of this reduction is due to exchange
rates. This gives us scope to increase risk selectivity, concentrating on good
margin business, while aiming for high levels of capacity utilisation.
This approach, combined with our highly experienced underwriting teams and their
application of our gross underwriting philosophy, means we are confident of
Amlin's ability to continue to generate good underwriting returns over the
coming period.
Approved by the Board of Directors
5 September 2004
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the six months ended 30 June 2004
Six months Six months 12 months
2004 2003 2003
(unaudited) (unaudited) (audited)
Notes £m £m £m
Gross premiums written 709.7 664.9 937.4
Net premiums written 570.4 541.5 787.6
Earned premiums, net of reinsurance 327.9 326.5 684.7
Allocated investment return transferred from
the non-technical account 21.8 19.7 36.1
Claims incurred, net of reinsurance (151.0) (168.8) (353.1)
Net operating expenses (102.7) (101.7) (212.2)
Balance on the technical account 96.0 75.7 155.5
Investment return 3 13.9 18.3 32.0
Allocated investment return included within
the technical account (21.8) (19.7) (36.1)
88.1 74.3 151.4
Other income 1.6 2.7 4.1
Other charges (15.5) (13.7) (35.2)
Operating profit 74.2 63.3 120.3
Comprising:
Operating profit based
upon longer term investment return 81.8 64.8 124.4
Short term fluctuations in investment return (7.6) (1.5) (4.1)
Profit on ordinary activities before taxation 1 74.2 63.3 120.3
Taxation on profit on ordinary activities 4 (23.1) (19.3) (37.0)
Profit on ordinary activities after taxation 51.1 44.0 83.3
Equity dividends 5 (11.7) (3.3) (9.7)
Retained profit for the period 39.4 40.7 73.6
Earnings per ordinary share
- basic 6 13.2p 11.5p 21.6p
- diluted 6 13.0p 11.4p 21.4p
Dividend per ordinary share 5 3.0p 0.85p 2.5p
All of the operations are continuing.
Statement of total recognised gains and losses
There are no other recognised gains or losses other than those included in the
profit and loss account and therefore no statement of recognised gains or losses
has been presented.
CONSOLIDATED BALANCE SHEET
At 30 June 2004
Restated
30 June 2004 30 June 2003 31 Dec 2003
(unaudited) (unaudited) (audited)
Assets Notes £m £m £m
Intangible assets 7 58.5 58.6 57.0
Investments 8 1,159.4 893.6 1,048.4
Reinsurers' share of technical provisions
Provision for unearned premiums 11 77.7 83.7 29.3
Claims outstanding 11 277.2 297.1 265.4
Debtors 537.3 529.7 410.6
Other assets
Cash at bank and in hand 24.0 48.9 26.5
Tangible assets 6.1 7.3 6.4
Prepayments and accrued income 206.5 144.3 107.8
Total assets 2,346.7 2,063.2 1,951.4
Restated
30 June 2004 30 June 2003 31 Dec 2003
(unaudited) (unaudited) (audited)
Liabilities Notes £m £m £m
Equity shareholders' funds 10 425.2 349.2 383.3
Technical provisions
Provision for unearned premiums 11 717.2 614.4 429.6
Claims outstanding 11 1,034.3 963.3 999.5
Provisions for other risks and charges 12 42.3 2.5 19.9
Creditors 89.3 117.1 87.4
Creditors: amounts falling due after more than one year 18.4 0.7 19.8
Accruals and deferred income 20.0 16.0 11.9
Total liabilities 2,346.7 2,063.2 1,951.4
Net assets per ordinary share
- basic 6 109.6p 90.9p 99.3p
- tangible 6 94.5p 75.7p 84.6p
CONSOLIDATED CASH FLOW STATEMENT
For the six months ended 30 June 2004
Six months Six months 12 months
2004 2003 2003
(unaudited) (unaudited) (audited)
Notes £m £m £m
Net cash inflow from operating activities 13 135.1 143.3 289.2
Net cash outflow from servicing of finance (2.5) (2.6) (6.6)
Net overseas taxation paid (0.8) - -
Net purchases of tangible and intangible assets (1.0) (0.3) (1.5)
Acquisitions (2.5) - -
Equity dividends paid (5.5) (3.6) (6.3)
Net cash (outflow) inflow from financing activities (5.5) (0.3) 1.1
Net cash flows 14 117.3 136.5 275.9
Cash flows were invested as follows:
(Decrease) increase in cash holdings (8.4) 14.3 (5.2)
Increase in deposits 6.3 2.7 0.1
(2.1) 17.0 (5.1)
Net purchases of investments 119.4 119.5 281.0
Net investment of cash flows 117.3 136.5 275.9
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 of Interim Financial Statements
Accounting policies
The unaudited interim financial statements have been prepared in accordance with
the accounting policies set out in the consolidated financial statements for the
year ended 31 December 2003.
At 31 December 2003, Amlin adopted a policy whereby information in respect of
non-aligned syndicate participations is included to the extent that information
has been made available. This policy has been extended to these interim
financial statements and the comparative figures for 30 June 2003 have been
restated on the same basis.
The following additional accounting policy has come into effect:
Goodwill
The goodwill of the acquisition of St Margaret's Insurance Services Limited has
been capitalised and is being amortised on a straight line basis over its
estimated useful life of five years.
Status of the interim financial statements
The statements for the two interim periods are unaudited but have been reviewed
by the Company's auditors, Deloitte & Touche LLP, and their report for the six
months ended 30 June 2004 is included with this report. The interim financial
statements do not constitute statutory accounts as defined in section 240 of the
Companies Act 1985 ('the Act').
The results for the year ended 31 December 2003 are based on the statutory Group
accounts, that received an unqualified audit opinion and did not contain a
statement under section 237(2) or (3) of the Act. The 31 December 2003 accounts
have been filed with the Registrar of Companies.
1 Segmental information
The results and attributable net assets of the Group's principal business
segments are as follows:
Restated
Six months Six months Twelve months
2004 2003 2003
(unaudited) (unaudited) (audited)
£m £m £m
Profit before taxation
Underwriting and investment 80.4 66.5 137.3
Managing agencies (6.2) (3.2) (17.0)
Total 74.2 63.3 120.3
Net assets
Underwriting and investment 441.4 345.3 393.4
Managing agencies (16.2) 3.9 (10.1)
Total 425.2 349.2 383.3
In the profit and loss account, the income and costs of the managing agency are
reported within 'other income' and 'other charges'. All business is transacted
through the Lloyd's of London market in the United Kingdom.
2 Managed syndicate's results
The table below summarises the performance of the Group's managed syndicate. The
Group has owned 100% of the syndicate from the 2004 account, though its
participation on the syndicate during the prior years of account is distorted by
the changes in participation by year of account. Therefore, to make more
meaningful comparisons, the figures represent the results of the syndicate in
total rather than Amlin's share of the results.
Six months Six months 12 months
2004 2003 2003
(unaudited) (unaudited) (audited)
£m £m £m
Gross premiums written 708.1 777.0 1,097.5
Net premiums written 564.2 633.3 922.0
Earned premiums, net of reinsurance 366.3 431.8 867.8
Claims incurred, net of reinsurance (162.8) (220.8) (442.8)
Claims ratio 44% 51% 51%
Brokerage (137.4) (158.0) (208.5)
Expenses (20.7) (38.7) (85.9)
Increase in deferred acquisition costs 55.1 59.9 14.4
Net operating expenses (103.0) (136.8) (280.0)
Underwriting contribution (before investment return) 100.5 74.2 145.0
Expense ratio 29% 32% 32%
Combined ratio 73% 83% 83%
3 Investment return
Six months Six months 12 months
2004 2003 2003
(unaudited) (unaudited) (audited)
£m £m £m
Income from investments 23.5 18.8 40.0
Gains/(losses) on realisation of investments 0.9 2.0 (3.4)
24.4 20.8 36.6
Unrealised losses on investments (9.7) (1.8) (3.1)
Investment management fees (0.6) (0.5) (1.1)
Interest on loan stock and bank loans (0.2) (0.2) (0.4)
(0.8) (0.7) (1.5)
Total investment return 13.9 18.3 32.0
In respect of equity investments and fixed interest securities the longer term
rates of return have been determined by having regard to the Group's historical
and expected returns and current portfolio strategy. The rates of return are:
Six months Six months 12 months
2004 2003 2003
(unaudited) (unaudited) (audited)
UK equities 7.0% 7.0% 7.0%
Fixed interest securities 4.5% 5.5% 4.5%
These returns are applied to the average of the investments attributable to the
shareholders and insurance technical provisions of the aligned syndicate
participations, over the period. The attributable shareholders' funds are based
on the Funds at Lloyd's which represent the estimated risk based capital
supporting the insurance business.
The actual return on investments since 1 July 1999, compared with the aggregate
longer term return over the same period, is set out below. All figures are
gross of expenses.
1 Jul 1999 to 1 Jul 1998 to 1 Jan 1999 to
30 June 2004 30 June 2003 31 Dec 2003
(unaudited) (unaudited) (audited)
£m £m £m
Actual return attributable to the technical account 119.7 124.5 119.4
Longer term return attributable to the technical account 150.0 144.4 140.2
Effect of short term fluctuations over the period (30.3) (19.9) (20.8)
4 Taxation on profit on ordinary activities
Six months Six months 12 months
2004 2003 2003
(unaudited) (unaudited) (audited)
£m £m £m
UK corporation tax - - 0.3
Overseas taxation - - 1.4
Deferred taxation 23.1 19.3 35.3
23.1 19.3 37.0
5 Equity dividends
Six months Six months 12 months
2004 2003 2003
(unaudited) (unaudited) (audited)
£m £m £m
Interim dividend 3.0p (2003: 0.85 pence) per share 11.7 3.3 3.3
Final dividend - (2003: 1.65 pence) per share - - 6.4
Total dividends 11.7 3.3 9.7
6 Earnings and net assets per ordinary share
Earnings per share is based on the profit attributable to shareholders for the
six months ended 30 June 2004 of £51.1 million (six months ended 30 June 2003:
£44.0 million; twelve months ended 31 December 2003: £83.3 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.
Six months Six months 12 months
2004 2003 2003
Basic and diluted earnings per share are as follows: (unaudited) (unaudited) (audited)
Profit for the period £51.1m £44.0m £83.3m
Weighted average number of shares in issue 387.2m 383.0m 384.6m
Dilutive shares 6.3m 4.6m 4.9m
Adjusted average number of shares in issue 393.5m 387.6m 389.5m
Basic earnings per share 13.2p 11.5p 21.6p
Diluted earnings per share 13.0p 11.4p 21.4p
6 Earnings and net assets per ordinary share (continued)
Restated
30 June 2004 30 June 2003 31 Dec 2003
Basic and tangible net assets per share are as follows: (unaudited) (unaudited) (audited)
Net assets £425.2m £349.2m £383.3m
Adjustment for intangible assets £(58.5m) £(58.6m) £(57.0m)
Tangible net assets £366.7m £290.6m £326.3m
Number of shares in issue at end of period 392.5m 389.7m 390.9m
Adjustment for ESOT shares (4.5m) (5.6m) (5.2m)
Basic number of shares after ESOT adjustment 388.0m 384.1m 385.7m
Net assets per share 109.6p 90.9p 99.3p
Tangible net assets per share 94.5p 75.7p 84.6p
7 Intangible assets
Purchased
syndicate
participations Goodwill Total
£m £m £m
Cost
At 1 January 2004 63.2 - 63.2
Additions - 3.2 3.2
At 30 June 2004 63.2 3.2 66.4
Amortisation
At 1 January 2004 6.2 - 6.2
Charge for the period 1.6 0.1 1.7
At 30 June 2004 7.8 0.1 7.9
Net book value
At 30 June 2004 55.4 3.1 58.5
At 30 June 2003 58.6 - 58.6
At 31 December 2003 57.0 - 57.0
Acquisition of St Margaret's Insurance Services Limited
On 13 May 2004, the Group purchased the entire share capital of St Margaret's
Insurance Services Limited (formerly SM Marine Holdings Limited) and its
subsidiary Amlin Underwriting Services Limited (formerly St. Margarets
Insurances Limited) (together, 'St Margaret's') by payment of a cash
consideration. St Margaret's principal activity is broking and managing
insurance for UK yacht owners.
7 Intangible assets (continued)
The goodwill arising in respect of the acquisition of St Margaret's:
£m
Fair value of consideration 3.2
Costs 0.3
Costs of acquisition 3.5
Less : Fair value of net assets acquired (0.3)
Goodwill 3.2
The net assets of St Margaret's on 13 May 2004 were as follows:
Book value and
fair value
at acquisition
£m
Tangible assets -
Debtors 0.1
Cash at bank and in hand 0.7
Creditors: amounts falling due within one year (0.5)
0.3
There are no fair value adjustments to the net assets of the St Margaret's at
the date of acquisition. The summarised profit and loss accounts for St
Margaret's from 1 October 2003 (the beginning of its accounting period) to 13
May 2004 (the date of acquisition) and for the year ended 30 September 2003
(being its previous accounting period) were as follows:
Period Period
1 Oct 2003 to 1 Oct 2002 to
13 May 2004 30 Sept 2003
£m £m
Turnover 0.7 1.2
Administration expenses (0.5) (0.9)
Profit on ordinary activities before taxation 0.2 0.3
Tax (0.1) (0.1)
Retained profit for period 0.1 0.2
The profit and loss accounts of St Margaret's relate to the insurance activity
of the company and excludes the profits for underwriting portfolios that it
manages. Amlin will receive this profit through underwriting the yacht
portfolios as well as the net income of St Margaret's.
8 Other financial investments
At valuation
Restated
30 June 2004 30 June 2003 31 Dec 2003
(unaudited) (unaudited) (audited)
£m £m £m
Shares and other variable yield securities 53.0 10.4 50.6
Debt securities and other fixed income securities 761.7 651.4 750.3
Participation in investment pools 173.1 120.0 128.3
Deposits with credit institutions 125.2 74.3 80.7
Overseas deposits 41.0 32.2 34.5
Other 5.4 5.3 4.0
1,159.4 893.6 1,048.4
In Group owned companies 260.7 229.6 235.7
In aligned syndicates 886.8 652.7 801.1
In non-aligned syndicates 11.9 11.3 11.6
1,159.4 893.6 1,048.4
Listed investments included in Group owned total are as follows:
Shares and other variable yield securities 53.0 10.4 50.6
Debt securities and other fixed income securities 86.2 110.0 92.5
139.2 120.4 143.1
Using Standard & Poor's and Moody's as rating sources, the credit ratings of the
Group's share of the debt and other fixed income securities is set out below:
30 June 2004 30 June 2003 31 Dec 2003
(unaudited) (unaudited) (audited)
£m £m £m
Government / Government Agency 457.1 375.7 481.0
AAA/Aaa 89.1 106.2 100.3
AA/Aa 76.6 68.4 60.5
A 121.7 77.4 88.4
BBB/Baa 6.5 12.4 8.8
751.0 640.1 739.0
In non-aligned syndicates 10.7 11.3 11.3
761.7 651.4 750.3
9 Ordinary share capital
Authorised ordinary shares of 25p each Number £m
At 1 January 2004 and 30 June 2004 562,000,000 140.5
Allotted, called up and fully paid: Number £m
At 1 January 2004 390,871,916 97.7
Share options exercised 1,035,195 0.3
Scrip dividend shares issued 553,703 0.1
At 30 June 2004 392,460,814 98.1
The shares issued in respect of exercises of options were issued on various
dates at an average price of 92.08p per share. The scrip dividend shares were
issued on 25 May 2004 at 163.58p per share.
10 Reconciliation of movements in equity shareholders' funds
Restated
Six months Six months 12 months
2004 2003 2003
(unaudited) (unaudited) (audited)
£m £m £m
Profit attributable to shareholders 51.1 44.0 83.3
Less: dividends (11.7) (3.3) (9.7)
Retained profit for the period 39.4 40.7 73.6
Issue of share capital 1.9 1.5 2.6
Movement in shares held by ESOT 0.4 0.3 0.4
Realised profit/(loss) on disposal of shares by ESOT 0.2 (0.1) (0.1)
Net increase to equity shareholders' funds 41.9 42.4 76.5
Equity shareholders' funds at 1 January (as reported) 383.3 309.6 309.6
Adjustment for shares held by ESOT - (2.8) (2.8)
Equity shareholders' funds at 1 January (as restated) 383.3 306.8 306.8
Equity shareholders' funds at 30 June/31 December 425.2 349.2 383.3
11 Technical provisions
Provision for
unearned Claims
premiums outstanding Total
£m £m £m
Gross
At 1 January 2004 (audited) 429.6 999.5 1,429.1
Exchange adjustments (4.2) (8.4) (12.6)
Movement in provisions 291.8 43.2 335.0
At 30 June 2004 (unaudited) 717.2 1,034.3 1,751.5
Reinsurance amount
At 1 January 2004 (audited) (29.3) (265.4) (294.7)
Exchange adjustments 0.3 2.2 2.5
Movement in provisions (48.7) (14.0) (62.7)
At 30 June 2004 (unaudited) (77.7) (277.2) (354.9)
Net
At 30 June 2004 (unaudited) 639.5 757.1 1,396.6
At 31 January 2004 (audited) 400.3 734.1 1,134.4
At 30 June 2003 restated (unaudited) 530.7 666.2 1,196.9
The claims outstanding balance is further analysed between notified outstanding
claims and incurred but not reported claims (IBNR) below:
Restated
Six months Six months 12 months
2004 2003 2003
(unaudited) (unaudited) (audited)
£m £m £m
Notified outstanding claims 585.2 591.0 618.0
Claims incurred but not reported 449.1 372.3 381.5
Claims outstanding 1,034.3 963.3 999.5
Included in the balances above are balances that remain outstanding as a result
of the terrorist attacks of 11 September 2001. There has been no change in our
key assumptions made in estimating the respective losses. 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.
11 Technical provisions (continued)
The gross loss estimate by class of business, and the net loss estimates,
compared with the estimated positions at 31 December 2003, are summarised below:
Ultimate Ultimate
at June at December
Paid Outstanding IBNR 2004 2003 Movement
Class of business US$m US$m US$m US$m US$m US$m
Direct and facultative property 66.7 3.7 - 70.4 70.2 0.2
Property reinsurance and risk excess of loss 239.2 47.4 2.4 289.0 295.6 (6.6)
Direct airline operators and other aviation 4.0 96.7 73.3 174.0 179.2 (5.2)
risks
Reinsurance of aviation risks - 22.9 3.8 26.7 28.4 (1.7)
Other 12.4 18.0 0.2 30.6 28.7 1.9
Total gross loss 322.3 188.7 79.7 590.7 602.1 (11.4)
Reinsurance recoveries (281.0) (113.4) (50.1) (444.5) (452.1) 7.6
Total net loss 41.3 75.3 29.6 146.2 150.0 (3.8)
Amlin Group share 97.7 100.4 (2.7)
In addition to the IBNR noted above, a further US$5 million (Dec 2003 US$9
million) of general IBNR is included in the claims reserve. Amlin Group's share
of the general IBNR is US$3.4 million (Dec 2003 US$6.3 million).
The improvement in the gross and net loss position during the period is
principally due to the reduction in the loss advices for aviation operators and
property risk excess of loss programmes and a reduction in IBNR held for
property reinsurance losses. Reserves for other classes impacted are reasonably
stable.
A number of insurance companies and Lloyd's syndicates, including Syndicate
2001, have been in dispute with the leaseholder of the World Trade Center,
Silverstein Holdings. Following a jury verdict on 29 April 2004, finding in
favour of London insurers in the Silverstein trial the position as it stands
means London insurers have fulfilled their policy obligations in full. It is
possible that there will be an appeal by Silverstein. However, our legal
advisers are confident that the original jury verdict will be upheld.
12 Provisions for other risks, charges and deferred tax
a) Spread portfolio and other provisions
Provisions
for spread
underwriting losses
£m
At 1 January 2004 (audited) (3.0)
Utilised during the year 2.1
Additions (1.4)
At 30 June 2004 (unaudited) (2.3)
At 30 June 2003 (unaudited) (1.6)
b) The deferred tax liability is attributable to timing differences arising on
the following:
Unrelieved
trading losses Other
Underwriting Provisions carried timing
results for losses forward differences Total
£m £m £m £m £m
At 1 January 2004 (audited) (40.7) 1.0 15.2 7.6 (16.9)
Movements in the period (21.3) (0.4) (4.5) 3.1 (23.1)
At 30 June 2004 (unaudited) (62.0) 0.6 10.7 10.7 (40.0)
At 30 June 2003 (unaudited) (21.8) 0.8 16.6 3.5 (0.9)
13 Reconciliation of profit before taxation to net cash inflow from operating
activities
Six months Six months 12 months
2004 2003 2004
(unaudited) (unaudited) (audited)
£m £m £m
Profit on ordinary activities before taxation 74.2 63.3 120.3
Net movement on Premium Trust Funds for
non-aligned participations (3.0) 1.1 -
Depreciation charge 1.3 2.0 4.1
Syndicate capacity amortisation charge 1.6 1.5 3.1
Goodwill amortisation 0.1 - -
Realised gains less (losses) on investments (0.9) (2.0) 3.4
Unrealised gains on investments 9.7 1.8 3.1
(Increase) decrease in debtors (9.5) 30.4 3.7
Increase in prepayments and accrued income (29.2) (2.2) (28.4)
Increase in insurance debtors, prepayments and
accrued income (210.2) (198.6) (8.1)
Increase in technical provisions 341.5 265.4 116.9
(Increase) decrease in reinsurers' share of technical
provisions (70.5) (9.5) 76.7
Increase (Decrease) in provisions for other risks and 28.6 (0.4) 17.0
charges
Decrease in insurance creditors, accruals
and deferred income (13.6) (19.5) (73.9)
(Decrease) increase in other creditors relating to
operating activities (8.7) 0.1 27.7
Increase in accruals and deferred income 21.1 7.3 17.0
Interest expense 0.2 0.2 0.4
Letter of credit charge 2.4 2.4 6.2
Net cash inflow 135.1 143.3 289.2
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.
14 Movements in cash, portfolio investments and financing
At 1 Changes to market At 30 June
January value
2004 Cash flow and currencies 2004
(audited) (unaudited) (unaudited) (unaudited)
£m £m £m £m
Cash at bank and in hand 23.2 (2.1) (0.1) 21.0
Shares and other variable yield securities 50.6 (0.4) 2.8 53.0
Debt and other fixed income securities 867.3 68.2 (11.4) 924.1
Deposits with credit institutions 118.9 51.6 - 170.5
1,060.0 117.3 (8.7) 1,168.6
Loans due within one year (7.3) 7.0 - (0.3)
Loans due after one year (3.0) - - (3.0)
(10.3) 7.0 - (3.3)
Total 1,049.7 124.3 (8.7) 1,165.3
15 Principal exchange rates
The principal exchange rates used in translating foreign currency assets,
liabilities, income and expenditure in the production of these accounts were:
Six months 2004 Six months 2003 12 months 2003
Period Period Period Period Period Period
average rate end average end average end
rate rate rate rate rate
US dollar 1.82 1.81 1.61 1.65 1.64 1.79
Euro 1.49 1.49 1.46 1.44 1.45 1.42
Canadian dollar 2.44 2.43 2.34 2.24 2.29 2.31
The table below sets out the Group's share of the currency exposures of the
managed syndicate by currency at 30 June:
Net Net Net
Assets Liabilities June 2004 June 2003 Dec 2003
£m £m £m £m £m
US dollar 1,057.1 988.2 68.9 81.5 84.6
Canadian dollar 46.4 44.7 1.7 9.6 10.0
Euro 88.4 79.2 9.2 7.9 5.3
1,191.9 1,112.1 79.8 99.0 99.9
The Interim Report will be despatched to all registered holders of ordinary
shares in the Company. Copies of this statement may be obtained from the
Secretary at the Registered Office of the Company, St. Helen's, 1 Undershaft,
London, EC3A 8ND.
INDEPENDENT REVIEW REPORT TO AMLIN PLC
For the six months ended 30 June 2004
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 June 2004 which comprises the consolidated profit and
loss account, the consolidated balance sheet, the consolidated cash flow
statement, the statement of accounting policies and related notes 1 to 15. We
have read the other information contained in the interim financial statements
and considered whether it contains any apparent misstatements or material
inconsistencies with the financial information.
This report is made solely to the company in accordance with Bulletin 1999/4
issued by the Auditing Practices Board. Our work has been undertaken so that we
might state to the company those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than
the company, for our review work, for this report, or for the conclusions we
have formed.
Directors' responsibilities
The interim financial statements, including the financial information contained
therein, is the responsibility of, and has been approved by, the directors. The
directors are responsible for preparing the interim financial statements in
accordance with the Listing Rules of the Financial Services Authority which
require that the accounting policies and presentation applied to the interim
figures are consistent with those applied in preparing the preceding annual
accounts except where any changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with United Kingdom auditing standards and therefore
provides a lower level of assurance than an audit. Accordingly, we do not
express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2004.
Deloitte & Touche LLP
Chartered Accountants
London
5 September 2004
This information is provided by RNS
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