Preliminary Results

RNS Number : 1439C

Amlin PLC

02 March 2011

 



AMLIN PLC

2 March 2011

 

 

Preliminary Results for the year ended
31 December 2010

ROBUST RESULT FROM A WELL DIVERSIFIED BUSINESS

PERFORMANCE HIGHLIGHTS

·  Profit before tax of £259.2 million (2009: £509.1 million), after £203.6 million of losses from Chile and New Zealand earthquakes

·  Return on equity of 13.9% (2009: 37.0%), above our current estimated cost of capital of 8%

·  Strong investment return of £175.0 million (2009: £207.5 million), equivalent to 4.0% on average invested assets (2009: 5.9%)

·  Robust combined ratio of 88% (2009: 72%) reflects increased catastrophe and major losses

·  Reserve releases of £156.5 million (2009: £174.1 million)

·  Dividend (paid and proposed/declared) increased by 15.0% to 23.0 pence per share (2009: 20.0 pence per share)

·  Net tangible assets per share increased 8.1% to 313.2 pence (2009: 289.6 pence)

·  Strong capital position maintained to support future profitable growth

Charles Philipps, Chief Executive, commented as follows:

"Our 2010 results demonstrate, once again, the quality of Amlin's core businesses. With significant natural catastrophe claims and a more challenging trading environment, we have delivered a highly creditable return on equity. We remain confident of being able to trade successfully through the trough of the insurance trading cycle and to continue to generate attractive returns for our shareholders".

Enquiries:
Charles Philipps, Chief Executive, Amlin plc	0207 746 1000
Richard Hextall, Finance Director, Amlin plc	0207 746 1000
Analysts and Investors
Julianne Jessup, Head of Investor Relations, Amlin plc	0207 746 1961
Ed Gascoigne-Pees, Financial Dynamics	0207 269 7132
Nick Henderson, Financial Dynamics	0207 269 7114
Media
Hannah Bale, Head of Communications, Amlin plc	0207 746 1118
Ed Gascoigne-Pees, Financial Dynamics	0207 269 7132
Nick Henderson, Financial Dynamics	0207 269 7114

Amlin plc

Registered office

St Helen's, 1 Undershaft

London EC3A 8ND
Registered in England

No. 2854310

FINANCIAL HIGHLIGHTS

	2010 £m	2009 £m	2008 £m	2007 £m	2006 £m
Gross written premium	2,172.5	1,543.9	1,034.0	1,044.7	1,113.8
Net written premium	1,910.3	1,322.6	915.7	938.3	1,013.5*
Net earned premium	1,748.1	1,317.3	913.5	972.3	973.9*
Underwriting contribution	202.1	365.8	222.2	355.0	267.9
Investment contribution	175.0	207.5	18.0	157.0	115.1
Other costs	117.9	64.2	118.6	67.0	40.3
Profit before tax	259.2	509.1	121.6	445.0	342.7
Return on equity	13.9%	37.0%	7.8%	37.8%	34.0%
Net assets	1,729.9	1,593.1	1,216.1	1,052.3	936.4
Net tangible assets	1,545.4	1,430.3	1,105.9	983.3	870.4
Per share amounts (in pence)
Earnings	45.0	94.1	17.1	66.3	50.4
Net assets	350.6	322.6	259.5	220.7	175.6
Net tangible assets	313.2	289.6	236.0	206.2	163.2
Dividend under IFRS**	20.7	17.5	16.0	20.8***	10.4
Dividends (paid and proposed/declared) for the calendar year**	23.0	20.0	17.0	15.0	20.0***
Capital return via B shares	-	-	-	22.4	-
Group operating ratios
Claims ratio	60%	43%	55%	36%	41%
Expense ratio	28%	29%	21%	27%	31%
Combined ratio	88%	72%	76%	63%	72%
Syndicate 2001 combined ratio	84%	74%	73%	69%	76%
Amlin AG combined ratio	83%	56%	83%	46%	48%
Amlin Corporate Insurance combined ratio	104%	96%	-	-	-

*        Excluding premiums associated with the reinsurance to close of our increased share of capacity in Syndicate 2001.

**       All per share dividends are the actual dividends for each share in issue at the time.

***     Includes special dividend of 8.0 pence per share.

Claims ratio is net claims incurred divided by net earned premium for the year. Expense ratio is underwriting expense incurred divided by net earned premium. The expense ratio does not include expenses that have not been attributed to underwriting, including employee incentive costs, or finance costs. Combined ratio is the total of the claims and expense ratios.

CHAIRMAN'S STATEMENT

During 2010 we continued to expand the scope of our business, both organically and through acquisition. We also further strengthened our operational capability in order to position the Group for future growth when market conditions allow.

 

Results and dividend

2010 was a year with both substantial catastrophe claims and a high incidence of large risk losses. Pre-tax profits of £259.2 million, with a return on equity of 13.9%, were as a consequence lower than in 2009. Earthquakes in Chile and New Zealand accounted for just over £200 million of catastrophe claims, while storms in Europe and floods in Australia, together with the Deepwater Horizon oil spill added to the incremental level of claims.

Protecting and serving our policyholders is our business. We also strive to manage the business in a manner that produces excellent cross cycle returns for shareholders. Two features stand out in the 2010 result. Firstly, the underlying performance of most of Amlin's portfolios was satisfactory. Secondly, the diversity of our reinsurance portfolio meant that the reinsurance account as a whole was profitable in 2010, despite the international earthquake claims.

The Board is proposing a final dividend of 15.8 pence per share (2009: second interim dividend 13.5p), making total dividends declared for the year of 23.0 pence per share, a 15.0% increase over 2009. The final dividend will be paid on 19 May 2011, subject to shareholder approval, to shareholders on the register on 25 March 2011.

Steadily growing the dividend, as illustrated again this year, remains our goal. However, we also remain committed to the active management of our capital and the Board has authorised up to £75 million of share buy backs.

Strategic progress

During 2010 we continued to focus on the delivery of our strategic vision through the expansion of the platforms from which Amlin operates, which we believe will support significant growth once trading conditions are favourable.

Amlin Corporate Insurance (ACI) was the subject of concentrated attention in every aspect of its activities and, while the 2010 performance was disappointing, we remain confident that it is on course to meet our performance targets.

During 2010 we established a reinsurance business in Switzerland by re-domiciling Amlin Bermuda to Zurich and recruiting a team of reinsurance specialists to create a new division which trades as Amlin Re Europe. We were pleased to welcome our new colleagues in Amlin Re Europe and delighted that they exceeded their challenging budget for business attaching on 1 January 2011. Our team in Bermuda collaborated in this restructuring but remain based in Hamilton where they continue to run a very successful division for Amlin.

In addition to these developments, our two UK-based operations, Amlin London and Amlin UK, maintained their focus on business development with real success, strengthening links with brokers, bringing in new teams and acquiring additional portfolios. Enhancing the performance of our established platforms is as important as developing new opportunities.

In terms of supporting our strategy, we have remained focused on enhanced reporting of risk across the organisation, to enable us to make progress towards meeting Solvency II requirements. This is a major project for the Group which continues to have the full support and engagement of the Board.

As we prepare for future growth, the value of the Amlin brand is becoming more apparent. It is a key asset to the business, founded on our core values, the quality of our people and our consistent performance. The strength of our brand is reflected in the competitive advantage Anglo French Underwriters (now Amlin France), ACI and other recent smaller acquisitions have derived from becoming part of the Amlin Group. Similarly, our brand was an important factor for the management team of Amlin Re Europe in the positive response received from brokers and prospective clients.

Outlook

As anticipated, we experienced increased competition across most markets, which were unaffected by major losses in 2010. Amlin's selective approach to underwriting enabled us to maintain satisfactory margins across much of the portfolio. In some market sectors, most notably the UK fleet motor market, we saw an improving trend. Following the severe winter weather and consequent claims impact on major UK insurers, a more widespread upturn in the UK commercial market may be drawing closer. Amlin UK is extremely well positioned to take advantage of this upturn when it arises.

Amlin's long term performance has been built on underwriting discipline when trading conditions offer limited returns, combined with opportunism when there is scope for profitable growth. With established operations in the UK, Bermuda and Continental Europe, together with the newly created Swiss business, Amlin now has more platforms from which to grow than ever before. There is a real momentum throughout Amlin to develop and enhance our business and a strong capital base to support rapid expansion when market conditions are favourable.

As always the level of catastrophe claims activity will influence financial performance.  Tragically, 2011 has started with another major New Zealand earthquake, which this time has led to significant loss of life.  Following so quickly after the September 2010 event, it will take a period of time before the full financial effect of the Christchurch damage can be assessed.    

Governance and the Board

Amlin continues to strive for excellence in corporate governance. We have a strong culture of accountability, which is reflected throughout the organisation in the serious way that we operate executive processes and subsidiary boards. The Board has focused, not only on the increasingly complex regulatory environment and on challenging and encouraging executive management, but also on strategy development and the integration of recent acquisitions. Alongside the work on Solvency II, the Board's consideration of risk and solvency has progressively deepened over the last couple of years, with a board-level Risk and Solvency Committee, separating out some of the Audit Committee's responsibilities, having been established with effect from 1 January of this year. I am pleased that Richard Davey, an independent non-executive, has agreed to chair the new committee.

The Board was active in the debate leading up to the adoption of the new UK Corporate Governance Code, with which we intend fully to comply in 2011, including the annual re-election of Directors from the AGM this May. I am confident in recommending to shareholders, following individual as well as collective evaluation, that the Board possesses the necessary skills and diversity of experience that a complex insurer such as Amlin requires.

All of the Directors are standing for re-election at the AGM other than Tony Holt, a non-executive since his retirement as Underwriting Director in 2008. I pay tribute to Tony's major contribution to Amlin's success since its formation in 1998. His continued Board involvement over the last two years, including at two key subsidiaries, has helped complete the transition of underwriting leadership to the next generation. For that reason it is particularly fitting that Simon Beale, the Underwriting Director of Amlin London, is being proposed to be elected as a Director at the forthcoming AGM in May.

The Amlin team

Amlin's Vision is to be the global reference point for quality in each of our markets, and our people are crucial to attaining this goal. A pleasing recognition of Amlin's long term investment in training and development and of the professionalism of our people was the granting to Amlin of Chartered Insurer status during 2010, the first time this recognition has been awarded to a London Market insurer. The range of skills and expertise required to deliver a first class service to clients is wider than ever before and we remain committed to ensuring that our people are well equipped to meet client needs wherever we operate.

Rod Dampier, Head of Aviation for Amlin London and a director of Amlin Underwriting Limited, who has been with Amlin since 1997, will be retiring in 2011 after more than 42 years in the London market.  I would like to thank him for his contribution to establishing Amlin as one of the most respected aviation markets in the sector. Rod has been supported by a high quality and experienced team and I am confident that his successor, Miles Taffs, and the team will maintain Amlin's excellent underwriting record and considerable reputation in this class.

It has been a demanding year for Amlin, with challenging trading conditions, heightened claims activity and a rigorous focus on regulatory matters. We have continued to make real progress due to the positive leadership of Charles Philipps and his management colleagues, and the ready response of our employees. I would like to thank them all for their energy and commitment.

Roger Taylor

Chairman

FINANCIAL PERFORMANCE

	2010 £m	2009 £m	2008 £m	2007 £m	2006 £m
Gross written premium	2,172.5	1,543.9	1,034.0	1,044.7	1,113.8
Net written premium	1,910.3	1,322.6	915.7	938.3	1,013.5
Net earned premium	1,748.1	1,317.3	913.5	972.3	973.9
Underwriting contribution	202.1	365.8	222.2	355.0	267.9
Investment contribution	175.0	207.5	18.0	157.0	115.1
Other costs	117.9	64.2	118.6	67.0	40.3
Profit before tax	259.2	509.1	121.6	445.0	342.7
Return on equity	13.9%	37.0%	7.8%	37.8%	34.0%

With significant catastrophe claims, downward rating pressures and volatile investment markets, 2010 contrasted sharply with the relatively benign trading environment of 2009. Despite the challenging backdrop, Amlin delivered a robust performance.

Profit before tax was down 49.1% at £259.2 million (2009: £509.1 million), reflecting a significant increase in loss activity in the year, most notably from the Chilean and New Zealand earthquakes, which generated combined losses of just in excess of £200 million. The return on equity was 13.9% (2009: 37.0%). Over the longer term, the Group's performance has been excellent, with a weighted average return on equity since 2006 of 24.7%. This continues to materially exceed our cross cycle target of 15% and our estimated cost of capital over that period of around 10%.

For 2010 underwriting contributed £202.1 million (2009: £365.8 million) to the pre tax result. The key drivers were Amlin London and Amlin Bermuda contributing £125.6 million and £72.5 million respectively (2009: £155.0 million and £161.8 million). Amlin UK and Amlin France delivered lower returns of £9.4 million and £2.5 million respectively (2009: £27.5 million and £2.5 million), whilst ACI made a loss of £19.6 million (2009: profit £11.2 million). As noted above, underwriting conditions were much less benign than in 2009, with increased loss activity and downward pressure on rates. Given the notable increase in claims activity, the overall underwriting contribution represents a good result.

Across the Group, claims development continued to be positive. Releases from reserves amounted to £156.5 million (2009: £174.1 million), of which ACI contributed £43.4 million. For 2010, our reserving methodology for Syndicate 2001 has been adjusted such that for 2003 and prior underwriting years, booked reserves have been taken as the actuarial best estimate, except where justified otherwise. This change in approach added £20.0 million to reserve releases at the year end. Releases in 2009 were boosted by a change of approach to UK commercial claims, which generated an additional release of £16.0 million.

Financial markets continued to be volatile. The contribution from investments was £175.0 million (2009: £207.5 million), reflecting an investment return of 4.0% (2009: 5.9%) on increased average funds under management of £4.2 billion (2009: £3.4 billion). The natural weighting of the investment portfolios towards bonds, which generated low yields compared to 2009, held the overall return down, despite a strong equity performance.

Net foreign exchange losses in the income statement amounted to £12.3 million (2009: net gain of £5.4 million). In addition, a net gain of £13.4 million on our subsidiary net assets' exposures was taken to reserves (2009: net loss of £63.5 million).

Underwriting performance

In the context of significant catastrophe claims for our international reinsurance account and downward pressure on rates persisting in many lines of business, the combined ratio of 88% is a sound result (2009: 72%); 12% was added to the claims ratio from the Chilean and New Zealand earthquakes alone.

Gross written premium was £2,172.5 million, an increase of 40.7% on the prior year (2009: £1,543.9 million). ACI, which was acquired on 22 July 2009, added £656.6 million of written premium (2009: £225.2 million). Gross written premium for Amlin UK binder business was uplifted by £42.3 million following improvements in estimates of business written under binding authorities. This change primarily relates to the timing of income recognition and does not materially impact profit in the period.

The underlying increase in written premium, excluding ACI, was £197.2 million, from the addition of new business across Amlin London, Amlin UK and Amlin Bermuda, offset by an average rate decrease of 1.8% across the portfolio (2009: increase 4.4%). The retention ratio was 86% (2009: 90%).

Amlin London wrote gross premium of £889.4 million (2009: £855.7 million), with growth achieved within the Aviation, Marine and Property and Casualty business units. Amlin UK's gross written premium increased to £291.9 million (2009: £190.9 million). The uplift includes the aforementioned adjustment of £42.3 million, reflecting improvements to estimated premium for binder business, which is an increasing component of the property account. Underlying growth was supported by an average rate increase of 1.5%, but also net new business generated largely in fleet, other motor and package lines.

Amlin Bermuda contributed £439.0 million of income, an increase of 9.7% (2009: £400.2 million). This included direct income of £282.9 million (2009: £243.1 million). The retention ratio was a healthy 90%. Selective new business success and a favourable foreign exchange movement also contributed to growth.

For 2010, reinsurance expenditure was £262.2 million, representing 12.1% of gross written premium (2009: £221.3 million and 14.3%). The inclusion of ACI accounted for £98.3 million of the overall expenditure. The core reinsurance programmes, covering our insurance businesses, were renewed with structures largely unchanged from 2009. The retrocessional programme in London was restructured in the period, following a review of the value offered by the previous programme. Greater retention of the first major catastrophe loss is now borne by the Group, but cover was purchased which responds in the event of a series of medium sized catastrophes. Amlin Bermuda also purchased similar cover.

Growth in gross premium over 2009 and 2010 and favourable exchange movements drove net earned premium 32.7% higher to £1,748.1 million (2009: £1,317.3 million).

The Group claims ratio for the year increased to 60% (2009: 43%), reflecting Chilean and New Zealand earthquake claims (adding 6% each), a number of individual large risk losses and the inclusion of ACI. Natural catastrophe activity was higher in the year, with overall insured market losses estimated at $37 billion¹ compared to $22 billion for 2009.

The Chilean earthquake, which occurred on 27 February 2010, was the largest insured event in the year, with an estimated loss of $8 billion¹. Amlin's exposures are mainly within the international catastrophe account, where our current estimated claims have been reduced modestly from $132.3 million disclosed in our interim results to $127.5 million, following receipt of further information from reinsured clients. Claims from our other classes are more limited at an estimated $28.0 million.

The New Zealand earthquake, which occurred on 3 September 2010, has an estimated insured loss of $3.3 billion¹. Amlin's estimated net claims are $160.0 million, again predominantly within the international catastrophe account.

The scale and damage arising from both these events continues to be uncertain but, given the size of the earthquakes, our current loss estimates are intended to be conservative. Also, given the caps for exposed policies, there is scope for only limited deterioration to our estimates.

Exposure to Australian flood losses is currently uncertain and depends on how losses develop and the availability of reinsurance and retrocession cover. This is dependent on the ultimate scale of claims, whether the three identified flood losses are considered a single or multiple events, and which underwriting year or policy losses are declared upon. The net loss estimate for the 2010 result is £16.0 million.

There were several large risk losses in the year, in particular the loss of the Deepwater Horizon oil rig in April. While there are a number of complex and unresolved issues regarding liability, coverage and quantum, we continue to estimate that our net exposure resulting from the loss is approximately $15 million.

ACI incurred approximately €13 million of claims from natural catastrophe activity, with €6.3 million of marine claims caused by the Chilean earthquake, largely from damage to shipbuilding yards, and €6.6 million of large losses from flooding affecting the Belgian property book.

¹Munich Re, Jan 2011

Divisional performance

 

Income and expenses by business segment Year ended 31 December 2010	Amlin London £m	Amlin UK £m	Amlin France £m	Amlin Bermuda(4) £m	Amlin Corporate Insurance £m	Other corporate companies £m	Intra group  items £m	Total £m
Analysed by geographic segment
UK	137.3	261.7	-	189.6	-	(0.1)	(152.9)	435.6
US	489.7	7.0	-	177.0	-	-	-	673.7
Europe	93.4	18.9	48.6	26.7	289.5	-	-	477.1
Worldwide	12.5	0.7	-	-	367.1	-	-	380.3
Other	156.5	3.6	-	45.7	-	-	-	205.8
Gross written premium	889.4	291.9	48.6	439.0	656.6	(0.1)	(152.9)	2,172.5
Net written premium	641.1	240.2	39.5	419.9	558.3	(3.6)	14.9	1,910.3
Gross earned premium	882.6	232.3	46.0	429.4	567.5	0.2	(155.6)	2,002.4
Reinsurance premium ceded	(254.7)	(42.1)	(8.9)	(14.5)	(88.3)	(3.5)	157.7	(254.3)
Net earned premium	627.9	190.2	37.1	414.9	479.2	(3.3)	2.1	1,748.1
Insurance claims and claims settlement expenses	(427.0)	(148.8)	(25.6)	(267.0)	(410.0)	4.4	105.4	(1,168.6)
Reinsurance recoveries	152.1	26.9	3.8	--	46.6	(0.6)	(119.3)	109.5
Expenses for the acquisition of insurance contracts	(173.8)	(42.6)	(9.3)	(56.0)	(78.7)	(0.1)	21.4	(339.1)
Underwriting expenses	(53.6)	(16.3)	(3.5)	(19.4)	(56.7)	(2.2)	3.9	(147.8)
Profit/(loss) attributable to underwriting	125.6	9.4	2.5	72.5	(19.6)	(1.8)	13.5	202.1
Investment return	36.7	18.5	--	41.4	54.0	101.5	(77.1)	175.0
Other operating income(1)	0.5	0.1	0.5	0.2	1.3	36.7	(33.6)	5.7
Agency expenses (2)	(18.5)	(4.1)	(0.7)	-	-	-	23.3	--
Other non-underwriting expenses	(1.0)	(0.4)	(0.4)	(10.7)	(19.1)	(93.0)	28.4	(96.2)
Finance costs (3)								(27.4)
Profit before taxation								259.2
Combined ratio	80%	95%	93%	83%	104%			88%

Included within the gross written premium of Amlin Bermuda is premium ceded from Amlin London, Amlin UK and Amlin France amounting to £153.4 million on reinsurance contracts undertaken at commercial rates (2009: £157.1 million).

(1) Other operating income is mainly commission receivable by service companies;

(2)  Agency expenses allocated to segments represent fees and commission payable to Amlin Underwriting Limited;

(3) Finance costs are incurred in support of the entire business of the Group and have not been allocated to particular segments;

(4)  Amlin Re Europe was established in October 2010 to write Continental European non-life reinsurance business. The business written by Amlin Re Europe in 2010 was not material to the Group and is reported within the Amlin Bermuda segment. Amlin Re Europe generated gross written premium of £2.7 million and incurred expenses of £3.7 million in 2010.

Amlin London

Gross written premium increased by 3.9% to £889.4 million (2009: £855.7 million). Much of the increase was due to net new business generated within the Aviation, Marine and Property and Casualty business units, following investment in underwriting teams and a focus on opportunities where rating conditions proved more attractive. Net earned premium was up by 16.8%, reflecting an increase in net written premium in 2009 and 2010 and the earning of 2009 premium at more favourable exchange rates.

The average renewal rate decrease was 3.1%, driven by average reductions on reinsurance business of 4.7%. Average reductions of 2.2% and 5.0% were also evident for the Property and Casualty and Aviation business units respectively. Marine rates were broadly stable.

The division achieved a combined ratio of 80% (2009: 71%). The claims ratio at 44% (2009: 28%) increased by 15% due to the Chile and New Zealand earthquakes. Prior period reserve movements were £80.8 million (2009: £95.1 million). Across the division, reserves for 2003 and prior years, which are well developed, have now been set at close to the actuarial best estimates, releasing £20.0 million at year end. This change has been made to avoid consistent increases in the reserving strength of the division.

The expense ratio was 36% (2009: 43%). The decrease reflects a positive foreign exchange swing, with a weaker US dollar in 2009 relative to 2010.

Amlin UK

Gross written premium was £291.9 million (2009: £190.9 million). The increase includes an adjustment of £42.3 million following improvements to estimated premium for binder business. Underlying growth in the account was £58.7 million, largely generated in fleet, package and other motor lines. Net earned premium has increased by 34.5%, reflecting net written premium growth in 2009 and 2010.

The average rate increase for the division was 1.5%, with fleet business achieving an average increase of 3.1%.

The combined ratio was 95% (2009: 81%), with a claims ratio of 64% (2009: 53%). The increase in the claims ratio partly reflects lower reserves releases of £17.1 million, compared to £38.7 million last year. Releases in 2009 included £16.0 million from a change in reserving approach on fleet and liability business. Importantly, the underlying claims ratio improved 7% year on year as the division increased its property underwriting and grew its motor business in an improving environment.

The expense ratio was 31% (2009: 28%), reflecting investment in resource and business infrastructure required to support growth plans.

Amlin Bermuda

Gross written premium was $676.4 million (2009: $628.3 million), of which $438.6 million was directly generated business (2009: $381.6 million). Growth was aided by a healthy retention ratio (90%), new business successes, favourable exchange rate movements and reinstatement premiums. The average rate movement for the year was a reduction of 4.5%, with US catastrophe business experiencing a reduction of 6.3% and international catastrophe business a reduction of 1.0%. Development on the direct account was partially offset by reduced inter-company quota shares for 2010.

The combined ratio was 82% (2009: 56%). The claims ratio was 64% (2009: 37%), including a 26% impact from the Chile and New Zealand earthquakes. Prior period reserve movements were $19.8 million (2009: $37.6 million). The expense ratio was stable at 18% (2009: 19%).

Amlin Corporate Insurance

Gross written premium was €768.2 million (2009 from acquisition: €236.1 million). On a like for like basis, the underlying reduction in gross written premium was €37.7 million.  The reduction reflects the non-renewal of approximately €71 million of business, predominantly in marine classes, in line with the identified re-underwriting strategy. This fall was partially offset by €43.5 million of income from the Raets Marine agency account, which was regained at the end of 2009 following Amlin's acquisition of ACI.

Rate movements were broadly flat relative to 2009. The retention ratio was 84%.

The combined ratio was 104% (2009 from acquisition: 96%). The claims ratio of 76% (2009 from acquisition: 72%) is disappointing given the effort that has been deployed to improve performance. However, ACI incurred approximately €13 million of claims from natural catastrophe activity, with €6.3 million of marine claims caused by the Chilean earthquake, largely from damage to shipbuilding yards, and €6.6 million of large losses from weather related events affecting the Belgian property book. The Antwerp account also performed poorly with a number of large claims incurred in the last quarter. Prior period reserve releases were €49.6 million (2009 from acquisition: €19.0 million).

The expense ratio was 28% (2009: 24%) reflecting the increase in costs associated with operating outside the Fortis Group and strengthening the risk, finance and operations functions.

Amlin France

Amlin France generated gross written premium of €56.9 million (2009: €31.4 million²). The increase includes €19.4 million of premium attributable to ACI France. Despite competitive market conditions, underlying growth was delivered by increasing the share of business underwritten by Syndicate 2001.

The combined ratio was 93% (2009: 87%²). The claims ratio deteriorated to 59% (2009: 50%²) reflecting the inclusion of relatively higher claims for ACI France. It also reflects the impact of natural losses in 2010 including Winter Storm Xynthia and the European storm in the summer of 2010. The expense ratio improved to 34% (2009: 37%²), due to the inclusion of ACI France, which has a relatively lower cost base.

 

Investment performance

The Group investment return for the year was 4.0% and, with average funds under management of £4.2 billion, investments contributed £175.0 million to the 2010 result (2009: 5.9%, £3.4 billion and £207.5 million respectively). The table below shows the breakdown of asset allocation and returns.

²Excludes ACI France

 

Investment mix and returns

	2010		2009
	Average asset allocation £m	Return £m	Average asset allocation £m	Return £m
Bonds	3,328	143	2,558	200
Other liquid	460	2	610	3
Equities	296	33	168	23
Property	105	(3)	96	(19)
Total	4,189	175	3,432	207
Bonds	79%	3.9%	74%	7.3%
Other liquid	11%	0.3%	18%	0.6%
Equities	7%	9.9%	5%	23.5%
Property	3%	(0.8%)	3%	(16.8%)
Total	100%	4.0%	100%	5.9%

Note: Investment return percentages exclude the impact of currency fluctuation

Investors' risk appetite varied during the year. In the first half, a number of negative factors, including the European sovereign debt crisis, Chinese policy action aimed at economic slow down and the reversal of global leading economic indicators, led to investor concerns regarding the possibility of a return to recession. Safe haven assets out performed risk assets as investors made the flight to quality. Lower yields were evident for US, UK and core European government bonds.

From the summer, anticipation of further quantitative easing (QE) boosted demand for US and UK bonds. In the US, this proved to be a classic case of 'buy the rumour, sell the fact' and bond yields rose once QE started. In the UK, stronger than expected third quarter GDP data meant that QE was off the agenda, but gilt yields rose.

In the first part of the year we continued our strategy of allocating more Group assets to LIBOR plus funds, so as to widen the opportunity set available to managers and to give them scope to produce positive returns when bond yields increase. However, mid year, key personnel departures at one of our managers meant that we moved some of these funds into cash as we searched for alternatives. Post August we have looked to reduce the level of interest rate risk in our bond portfolios. The average bond weighting during the year was 80%.

Risk assets produced solid returns during 2010. The average equity weighting was 7% although market returns and increased allocations took the weighting to 8% at the end of the year.

The insurance linked securities portfolio continues to be managed by Leadenhall Capital Partners in the form of two standalone investment funds. The risk profile remained constant over the year, with Amlin's investment increased to $111.9 million across both funds. The return on $109.9 million of average funds under management was $11.4 million or 10.4% (2009: $68.8 million, $8.3 million and 12.4%).

Expenses

Total expenses, including underwriting and non-underwriting costs, increased to £610.5 million from £461.6 million in the prior year. Underwriting expenses, excluding foreign exchange movements, amounted to £481.1 million (2009: £360.0 million). Non-underwriting expenses, excluding foreign exchange movements and finance costs, were £89.7 million (2009: £84.0 million).

Underwriting costs represent costs relating to the acquisition and administration of insurance business and claims payments. Non-underwriting expenses include employee incentives, investment management fees, ACI separation and integration costs and corporate expenses not directly attached to underwriting businesses.

Within underwriting costs, acquisition costs accounted for £71.7 million of the increase, due to growth in income. Acquisition costs have remained reasonably stable at 16.9% of gross earned premium (2009: 17.3%). The remaining variance is largely driven by the addition of £32.4 million of expense from a full year of ACI.

ACI separation and integration costs, amounting to £16.6 million, included within non-underwriting expenses are not considered ongoing costs of the business. In addition to items expensed in the period, ACI expenditure on a replacement IT platform of £17.4 million has been capitalised at 31 December 2010. It is anticipated that further expenses of up to £10 million will be incurred in completion of ACI separation and integration.

Non-underwriting expenses (excluding foreign exchange and finance costs)

Non-underwriting expenses	2010 £m	2009 £m
Employee expenses, excluding employee incentives	21.7	16.4
Employee incentives	27.7	36.6
Asset management fees	6.2	4.7
Other administrative expenses	17.5	15.1
ACI integration costs	16.6	11.2
Total	89.7	84.0

 

Taxation

The effective rate of tax for the period is 14.4% (2009: 10.7%). It is below the UK rate of corporation tax primarily due to Amlin Bermuda, which operates locally with no corporation tax. The increase in the effective rate compared to 2009 is due to the lower relative profit generated by Amlin Bermuda, which was impacted by the Chilean and New Zealand earthquakes and lower investment returns. We continue to believe that Amlin Bermuda is exempt from the Controlled Foreign Corporation tax provisions of the UK tax regime. The table below illustrates the source of Group profits with associated effective tax rates.

Taxation breakdown

Profit source	2010 Profit before tax £m	2010 Effective tax rate %	2009 Profit before tax £m	2009 Effective tax rate %
UK	142	25.4	206	19.8
Bermuda	106	-	249	-
Continental Europe	11	9.6	54	24.9
Group	259	14.4	509	10.7

BALANCE SHEET

Determining our capital requirement

Understanding the level of capital required to operate is fundamental to our business. That understanding and its enunciation to stakeholders is important in providing our clients with confidence in our ability to pay their claims, to our regulators in allowing us to trade, to our financing partners in lending to us and to our shareholders in investing in the business. It also informs business planning and consequently affects our strategic direction.

The basic capital requirements are formed around the level of capital required in the business to contain the risk of insolvency to no greater than a probability of 0.5%. This is then uplifted to give a level of economic capital that the Group requires, or in the case of Syndicate 2001 that Lloyd's requires, to support its financial strength rating and strategic needs. For example, we believe that the Group should retain a level of capital sufficient to permit material growth in the aftermath of a major insurance disaster and to be able to respond to other opportunities to enhance long term growth, including through acquisition.

The first table below sets out our assessed capital requirement by operating platform. The second table analyses our capital position at 31 December 2010.

Amlin assessed capital

	VAR 200* £m	Assessed capital** £m	Variance
Syndicate 2001	425.5	476.1	50.6
Amlin AG***	229.0	641.0	412.0
ACI	254.0	295.6	41.6
Group	746.0	1,417.5	671.5

 

Amlin capital analysis

	As at 31 Dec 2010	As at 31 Dec 2009
Net tangible assets	1,545.4	1,430.3
Subordinated debt	318.0	316.4
Bank facilities****	250.0	250.0
Available capital	2,113.4	1,996.7
Assessed capital**	1,417.5	1,341.2
	695.9	655.5

*     Value at risk for a 1 in 200 year event. The Group benefits from credit for diversification.

**    Assessed capital is management's estimate of capital required for current trading purposes.

***  For Amlin AG, we continue to believe that $1.0 billion is the minimum amount of capital required to trade with our preferred client base.

****           Bank facilities are subject to a number of covenants.

Managing equity capital for shareholders

Our financial performance management is centred on delivering a cross cycle return on equity of at least 15%. Given the Group's cyclical underwriting approach, at certain points this will lead to the Group holding surplus equity capital. In order to enhance our return on equity, as actual levels of capital exceed our forecast capital requirements, we will look to return capital to shareholders.

The commitment to return of capital has been clearly demonstrated over recent years and we have employed a number of different mechanisms to do so, so as to appeal across the shareholder base. With the capital strength shown above we have allocated up to £75 million of cash for share buybacks over the coming year.

We have also continued to grow the dividend to our shareholders. We intend to increase our dividend per share consistently over the next few years. Our current capital strength should allow us to pursue this policy even if we suffer a major catastrophe loss.

After deducting the final dividend payment of £78.0 million and our share buyback authority of £75 million, the core capital need largely matches the equity capital of the business. Our long term debt and banking facilities provide the scope for growth when the market turns.

Estimating outstanding claims reserves

Estimation of claims reserves is a key aspect of financial management in that not only does it impact on overall profitability, but it also impacts investment mix as different approaches are taken for capital and policyholders' funds. At 31 December 2010 net claims reserves totalled £2,248.8 million (2009: £2,010.3 million).

Insurance is an inherently uncertain business and much of Amlin's business is large commercial insurance or reinsurance, which can be volatile and difficult to estimate ultimate claims levels for. The subjectivities which must be considered when assessing the level of outstanding liabilities include the risk profile of an insurance policy, class of business, timeliness of notification of claims, validity of claims made against a policy and validity of the quantum of the claim. At any time there are a range of possible outcomes at which the claims reserves could ultimately settle, however, as time passes the uncertainty surrounding likely claims settlement reduces.

Given this uncertainty we follow a prudent approach to the assessment of liabilities. Our underwriting teams, in the UK and Bermuda, are responsible for proposing the level of reserves to be set in their business units. We believe that this ensures that they are accountable for the evaluation and uses their detailed knowledge of the underlying exposures underwritten, particularly as these change through time. Proposed reserves are compared with actuarial 'best estimates' set by the in-house actuarial team. Any required adjustments to the underwriters' proposed reserves are then made and these are the accounted reserves. Consistency of reserving strength is our overall goal.

For ACI, the local actuarial team produces full data on an accident year basis for review by the Group Actuarial team. This review involves production of an independent best estimate by class of business for comparison with the proposed carried reserve. This process is more in line with our future Target Operating Model under Solvency II, although we envisage that the underwriting teams would present a benchmark reserve as well.

The only significant change in approach during 2010 has been to the reserves carried for the 2003 and prior underwriting years for Syndicate 2001, which are now mature in their development patterns. We have moved to carrying the actuarial best estimate, except for a small number of exceptions,  to ensure that an inappropriate level of excess reserves do not build up over time.  This has led to a release of £20.0 million through 2010.

We estimate that the Group as a whole holds reserves on an accident year basis of at least £175 million in excess of a strict 50:50 actuarial best estimate (2009: at least £200 million). However, it should be noted that the actuarial best estimate has largely followed underwriters' estimates for major claims, including the Chile and New Zealand earthquakes.

Net tangible assets

In addition to the £221.9 million profit after tax recognised through the consolidated income statement the Group has also recognised an £85.1 million decrease in net assets, bringing total equity and reserves to £1,729.9 million (2009: £1,593.1 million). The key movements are:

·        Dividends totalling £102.5 million (2009: £83.8 million).

·        £17.6 million of gains from the currency retranslation of overseas operations (2009: loss £92.8 million) offset by £4.2 million of losses recognising the revaluation of associated hedge instruments (2008: gain £29.3 million) in accordance with hedge accounting rules of IAS39 "financial instruments, recognition and measurement".

·        Actuarial gains of £5.9 million (2009: loss of £23.7 million) on Group defined benefit pension schemes.

Intangibles have increased by £21.7 million to £184.5 million (2009: £162.8 million) following the acquisition of AUA Insolvency Risk Services Limited and capitalisation of costs associated with the ACI IT platform replacement programme.

As a result, net tangible assets have risen by 8.0% to £1,545.4 million at 31 December 2010, (2009: £1,430.3 million).

BUSINESS DEVELOPMENT

Amlin Corporate Insurance

There was concerted action throughout 2010 to continue re-underwriting ACI's marine portfolio. This is resulting in improved trends in its hull claims ratios, but in its smaller cargo account softening market conditions have held back progress. In Antwerp the commodities cargo book was also re-priced during the second half of the year and into the 1 January 2011 renewals, with the high level of client retention reflecting the value clients place on ACI's specialist expertise and service capability in this sector.

Re-underwriting activity has resulted in the non-renewal of approximately €71 million of marine business where pricing was considered inadequate and historic claims ratios unacceptable. Much of the remaining portfolio has better historic performance and more acceptable pricing.

ACI's underwriting practices, incentive arrangements, risk management and reserving were brought more into line with Amlin and we strengthened management resource with the recruitment of a Chief Risk Officer and a Chief Operating Officer, both of whom are making a positive impact. ACI has also successfully completed the transition of services such as motor fleet claims and reinsurance processing away from Fortis, leaving only the migration of its systems to Amlin's platform, which is scheduled for completion in mid-2011. All of this has required a major commitment both by ACI's management and staff and Amlin's teams working alongside them, and we expect to realise the benefits of these actions in future performance.

Amlin Re Europe

Amlin AG was established in 2010 as an independently capitalised, full service reinsurance operation with the objective of providing European reinsurance buyers, especially small and mid-sized companies, with a meaningful alternative for high quality reinsurance capacity. After a decade of consolidation in the European reinsurance market and recent turbulence in global financial markets, reinsurance buyers are increasingly looking to diversify their insurance risk and to spread their counterparty risk.

Solvency II is further expected to increase demand for reinsurance as it is the most accessible source of extra capital for small and mid-sized insurers who may need to source additional capital. Also, it is expected to reinforce the desire to spread counterparty risk. This presents an attractive opportunity for a new and strongly capitalised entrant to offer improved choice to existing European cedants.

In October 2010 Amlin Bermuda Limited was redomiciled from Bermuda to Switzerland and a new Zurich-based Swiss company named Amlin AG was created. The existing operations of Amlin Bermuda now trade as a Bermuda-based branch of Amlin AG and the Zurich-based underwriting unit trades as Amlin Re Europe.

Capitalised at US$1.4 billion and with excellent ratings, Amlin AG will be a leading reinsurer in the European market in terms of financial strength, and will also benefit from Amlin's existing broker relationships and reputation as a leading international reinsurer.

Amlin Re Europe commenced underwriting in October 2010, having received approvals from the Swiss Financial Market Authority and the Bermuda Monetary Authority. As much European reinsurance business is renewed at 1 January, little business was written in the latter part of 2010. The new business started 2011 well with approximately 150 clients, around 256 programmes, and €65.6m of gross written premium. This was ahead of expectation and represents a well diversified initial portfolio.

The Amlin Re Europe team is headed by Philippe Regazzoni, Chief Executive Officer of Amlin AG, and formerly CEO of Swiss Re UK. At the end of 2010 the team comprised a staff of 23, including 10 underwriters mainly recruited from other major European reinsurers. These underwriters have long-standing experience of the European market and the skills to underwrite all major non-life reinsurance classes and products.

Amlin Re Europe will focus on non-life treaty reinsurance for European insurance companies. A key objective is to be a preferred reinsurance partner for brokers, although in line with market practice in Continental Europe, the Zurich operation will conduct both brokered and direct business. Over a four to five year timescale the objective is to acquire around a 1% share of the overall European reinsurance market, equating to approximately €400m of gross written premium. The progress towards this goal will to a degree depend on market conditions.

The business mix is expected to comprise proportional and non-proportional reinsurance business, with the majority in property and casualty and some special lines business, mainly marine and engineering. The portfolio will include some catastrophe exposures as part of an overall client and market approach.

We believe that continuity in client relationships and a clear and transparent underwriting approach offer an excellent value proposition for clients in this segment. A key feature of Amlin Re Europe's approach will be a focus on developing close relationships with clients, as well as delivering Amlin's first-class service standards.

OUTLOOK

Rating environment

The rating environment that our businesses are operating in remain varied which, given the diversity of our business across classes and platforms, provides us with the opportunity to continue to allocate capacity where margins are most attractive.

This is illustrated at 1 January 2011 renewals.  The overall Amlin portfolio saw a decline in rates of 1.3% on renewal.  Underlying, the reinsurance accounts of London and Bermuda saw an average renewal rate reduction of 3.7% but the UK fleet motor account had a rate increase of 7.4%.  However, rate movements do not provide the whole picture. For example, our reinsurance accounts are under pricing pressure but continue to offer strong margin potential.  We are therefore likely to seek to hold our position.  By contrast, the UK fleet motor account rate increase is from the bottom of the pricing cycle and after a period of retrenchment, we expect to materially increase our underwriting if the upward pricing trend continues. 

It is therefore important to consider the various business units separately in order to get a complete picture of our trading outlook.

Reinsurance pricing overall is softening under the weight of surplus capacity following two benign years for US catastrophe claims. The major earthquakes of 2010 caused an immediate uplift to regional pricing in the loss affected areas, but we do not anticipate any broader market impact in 2011.  While newsworthy, the impact of the Australian floods at the end of 2010 and at the start of 2011 look likely to be modest events for reinsurers.  However, as we have observed before, the reinsurance market has been disciplined in recent years and this was evidenced in 2010 by nearly US$12 billion³ of capital returned to shareholders through share buybacks and dividends across the industry, a trend we expect to see continued in 2011. 

Amlin's 1 January reinsurance renewals, which account for approximately 40.6% of reinsurance business expected to be written for the year, showed reinsurance rates down by 3.2% for Amlin London and 4.4% for Amlin Bermuda.  Margins after these modest reductions remain attractive, particularly for US catastrophe business, and Amlin again retained strong support from brokers on more competitive placements.

For the US property and casualty and aviation sectors the return potential remains unattractive despite poor market returns.  Property and casualty business in Continental Europe also remains competitive with both local and multinational insurers competing fiercely for market share in the sectors where ACI and Amlin France operate.  Competition has been heightened by lower demand in many classes as a result of the economic slowdown. Given the abundance of capacity in these markets, an upturn in pricing seems unlikely in the short term.  However, ACI's property and casualty performance remains solid and a disciplined approach will through time provide a different trend to a market that has lost discipline.  In these sectors, this discipline is often the factor that ensures survival and prosperity through the trough of the cycle.

The marine market offers better prospects for selective underwriting. Rates for our London business were relatively stable and ACI at the 1 January renewals achieved a 2.5% rate increase.  The re-underwriting process for Rotterdam and Antwerp continued, which should also lead to an improvement in performance.  While it is disappointing to report that a significant amount of business that was deemed to be unsatisfactorily priced by the team in Rotterdam was ultimately lost, the historical performance of the business renewed was significantly better.  Following the Deepwater Horizon oil spill, there are good opportunities to expand our energy underwriting.

In the UK, we saw an improving rating trend for fleet motor at the end of 2010 following a more competitive market than expected earlier in the year. This was reflected in an overall rate increase of 7.4% for fleet motor in January.  In motor fleet, as elsewhere in the UK commercial market there is increasing evidence of financial distress as competitors withdraw or reduce capacity on unprofitable business. With similar trends in the personal lines market exacerbated by the impact of the severe winter weather in 2010, we expect to see improvement in pricing for UK commercial lines in 2011. 

³Source: Guy Carpenter: Global Reinsurance Outlook, 10 Jan 2011

Loss activity

As always the level of natural catastrophe activity in the year will influence our financial performance and the future rating environment. The beginning of 2011 has continued with the active pattern that we saw last year.  Australia was battered by cyclone activity bringing heavy flooding to Southern Queensland and cyclone Yasi followed in February.  These events are likely to fall within our normal expectations for natural catastrophe activity.  The Christchurch earthquake in February 2011 is a major catastrophe loss with current insured loss estimates ranging from NZ$5 billion to NZ$11.5 billion⁴.  At this stage it is difficult to quantify the potential claims arising from this earthquake, which is exacerbated by its occurrence in the same city as the 2010 event.  While we would expect a material level of claims, it is important to recognise that they will not necessarily be proportionate to the claims incurred for the September earthquake.  This is partly due to damage overlapping and also due to the non-proportional nature of reinsurance contracts and their finite financial limits.

⁴AIR, Feb 2011

Benefiting from diversity, investments and new initiatives

The trading environment in 2011 is likely to be unsupportive for general organic growth.  However, we will find attractive opportunities where pricing has reacted to loss experience, such as in energy and fleet motor.

In addition, we can achieve growth by disciplined and selective underwriting, particularly where we have made investment in new people or through acquisitions. For example, the expansion in the UK property book achieved in 2010 resulted from previous investments in the underwriting and claims teams, enhanced marketing and small acquisitions which have positioned the Group well.  We expect to continue to take advantage of niche acquisition opportunities such as J R Clare and Lead Yacht, acquired respectively in January and February 2011. 

Amlin Re Europe got off to a very strong start at 1 January renewals, writing €65.6 million of gross premium.  This confirmed client and broker support for their proposition as a high quality long term business partner in the European reinsurance market and augers well for the future development of this new venture. The successful launch was assisted by Amlin's higher profile in Europe following the acquisition of ACI and the continued development of Amlin France.   We are mindful of the weak rating environment in this market and do not expect to record a substantial contribution to profit in the current year.  However, the longer term growth prospects offered by this business and the build up of a modest footprint gives us great flexibility to pursue opportunities as this market improves through time.

Investment markets

Our investment performance has in recent years been a differentiator against our peers.  Our approach has been risk focused and flexible.  In volatile markets this has allowed us to continue to make a strong absolute contribution to the business.  The economic background to 2011 appears to be more positive than we have seen in recent years.  While there may be some further volatility, for example from the European debt crisis, the outlook for economic growth in the US and much of Europe as well as in the developing world, appears good.  This should prove beneficial for equities and we increased our equity weighting to 8% in December 2010.

However, we expect that our overall return for 2011 will be held back by low yields on our bond portfolios and low interest rates which limit the returns on cash and cash equivalents.  In addition, if interest rates rise faster than the market expects this will further subdue the investment returns from bonds in 2011, although this will also naturally lead to better prospects into the medium term.

We will review our risk appetite against returns on offer but do not believe that we will be able to substantially improve returns without taking undue risk.

Summary

In a more challenging underwriting environment Amlin's underwriting discipline and broad portfolio should ensure that we continue to generate healthy underwriting returns. We expect to remain in a lower investment return environment but our proactive approach to investments will seek to optimise that return for the risk taken. We are confident of being able to trade successfully through this stage of the pricing cycle and are in a strong position to grow when conditions are more appropriate.

Consolidated Income Statement

For the year ended 31 December 2010

	Note	2010 £m	2009 £m
Gross earned premium	4,5	2,002.4	1,541.6
Reinsurance premium ceded	4,5	(254.3)	(224.3)
Net earned premium revenue	4,5	1,748.1	1,317.3
Investment return	4,6	175.0	207.5
Other operating income	4	5.7	10.1
Total income		1,928.8	1,534.9
Insurance claims and claims settlement expenses	4,7	(1,168.6)	(565.1)
Insurance claims and claims settlement expenses recoverable from reinsurers	4,7	109.5	0.9
Net insurance claims	7	(1,059.1)	(564.2)
Expenses for the acquisition of insurance contracts	4,8	(339.1)	(267.4)
Other operating expenses	9	(244.0)	(171.2)
Total expenses		(583.1)	(438.6)
Results of operating activities		286.6	532.1
Finance costs	4,12	(27.4)	(23.0)
Profit before tax	4,13	259.2	509.1
Tax	14	(37.3)	(54.3)
Profit for the year		221.9	454.8
Attributable to:
Equity holders of the Parent Company		221.8	454.7
Non-controlling interests		0.1	0.1
		221.9	454.8
Earnings per share from continuing operations attributable to equity holders of the Parent Company
Basic	29	45.0p	94.1p
Diluted	29	44.4p	92.9p

The attached notes form an integral part of these consolidated financial statements.

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2010

	Note	2010 £m	2009 £m
Profit for the year		221.9	454.8
(Losses)/gains on revaluation of hedge instruments	15	(4.2)	29.3
Foreign exchange gains/(losses) on translation of overseas operations	15	20.5	(91.2)
Foreign exchange losses on translation of intangibles arising from investments in overseas operations	15	(2.9)	(1.6)
Defined benefit pension fund actuarial gains/(losses)	28	5.9	(23.7)
Tax relating to components of other comprehensive income	14	4.6	15.0
Other comprehensive income/(expense) for the year, net of tax		23.9	(72.2)
Total comprehensive income for the year		245.8	382.6
Attributable to:
Equity holders of the Parent Company		245.7	382.5
Non-controlling interests		0.1	0.1
		245.8	382.6

The attached notes form an integral part of these consolidated financial statements.

Consolidated Statement of Changes in Equity

For the year ended 31 December 2010

		Attributable to owners of the Parent Company
For the year ended 31 December 2010	Note	Share capital £m	Share premium £m	Other reserves £m	Treasury shares £m	Retained earnings £m	Total £m	Non-controlling interests £m	Total £m
At 1 January 2010		141.2	300.1	201.7	(21.4)	971.1	1,592.7	0.4	1,593.1
Profit for the year		-	-	-	-	221.8	221.8	0.1	221.9
Losses on revaluation of hedge instruments	15	-	-	(4.2)	-	-	(4.2)	-	(4.2)
Foreign exchange gains on translation of overseas operations	15	-	-	20.5	-	-	20.5	-	20.5
Foreign exchange losses on translation of intangibles arising from investments in overseas operations	15	-	-	(2.9)	-	-	(2.9)	-	(2.9)
Defined benefit pension fund actuarial gains	28	-	-	5.9	-	-	5.9	-	5.9
Tax relating to components of other comprehensive income	14	-	-	4.6	-	-	4.6	-	4.6
Other comprehensive income for the year		-	-	23.9	-	-	23.9	-	23.9
Total comprehensive income for the year		-	-	23.9	-	221.8	245.7	0.1	245.8
Employee share option schemes:
- share based payment reserve		-	-	(1.1)	(8.1)	-	(9.2)	-	(9.2)
- proceeds from shares issued	23	-	0.2	-	3.3	(0.6)	2.9	-	2.9
Dividends paid	30	-	-	-	-	(102.4)	(102.4)	(0.1)	(102.5)
Obligation to acquire non-controlling interests		-	-	(1.2)	-	-	(1.2)	-	(1.2)
Disposal of non-controlling interests		-	-	-	-	-	-	1.4	1.4
Tax relating to share option schemes	14	-	-	(0.4)	-	-	(0.4)	-	(0.4)
Transactions with the owners of the Group for the year		-	0.2	(2.7)	(4.8)	(103.0)	(110.3)	1.3	(109.0)
At 31 December 2010		141.2	300.3	222.9	(26.2)	1,089.9	1,728.1	1.8	1,729.9

Other reserves is comprised of £45.7 million (2009: £45.7 million) being the cumulative amount of goodwill written off to reserves on acquisitions prior to January 1999, a capital redemption reserve, charges for share options issued, deferred tax and current tax (see note 14), cumulative foreign exchange gains of £104.0 million (2009: £86.4 million) on investments in overseas operations and £49.6 million (2009: £45.4 million) cumulative losses on hedges of investments in overseas operations.

The attached notes form an integral part of these consolidated financial statements.

Consolidated Statement of Changes in Equity

For the year ended 31 December 2010

		Attributable loses to owners of the Parent Company
For the year ended 31 December 2009	Note	Share capital £m	Share premium £m	Other  reserves £m	Treasury shares £m	Retained earnings £m	Total £m	Non-controlling interests £m	Total £m
At 1 January 2009		134.6	231.5	272.4	(25.1)	602.4	1,215.8	0.3	1,216.1
Profit for the year		-	-	-	-	454.7	454.7	0.1	454.8
Gains on revaluation of hedge instruments	15	-	-	29.3	-	-	29.3	-	29.3
Foreign exchange losses on translation of overseas operations	15	-	-	(91.2)	-	-	(91.2)	-	(91.2)
Foreign exchange losses on translation of intangibles arising from investments in overseas operations	15	-	-	(1.6)	-	-	(1.6)	-	(1.6)
Defined benefit pension fund actuarial losses	28	-	-	(23.7)	-	-	(23.7)	-	(23.7)
Tax relating to components of other comprehensive income	14	-	-	15.0	-	-	15.0	-	15.0
Other comprehensive expense for the year		-	-	(72.2)		-	(72.2)	-	(72.2)
Total comprehensive (expense)/income for the year		-	-	(72.2)	-	454.7	382.5	0.1	382.6
Employee share option schemes:
- share based payment reserve		-	-	0.8	(0.4)	-	0.4	-	0.4
- proceeds from shares issued	23	-	0.2	-	4.1	(1.0)	3.3	-	3.3
Shares issued to fund ACI acquisition:
- proceeds		6.6	69.8	-	-	-	76.4	-	76.4
- transaction costs		-	(1.4)	-	-	-	(1.4)	-	(1.4)
Dividends paid	30	-	-	-	-	(83.8)	(83.8)	-	(83.8)
Return of capital	23	-	-	1.2	-	(1.2)	-	-	-
Tax relating to share option schemes	14	-	-	(0.5)	-	-	(0.5)	-	(0.5)
Transactions with the owners of the Group for the year		6.6	68.6	1.5	3.7	(86.0)	(5.6)	-	(5.6)
At 31 December 2009		141.2	300.1	201.7	(21.4)	971.1	1,592.7	0.4	1,593.1

The attached notes form an integral part of these consolidated financial statements.

Consolidated Balance Sheet

At 31 December 2010

Assets	Note	2010 £m	2009 £m
Cash and cash equivalents	16	81.5	70.3
Financial assets	17	4,310.1	3,977.9
Reinsurance assets
- reinsurers' share of outstanding claims	18	383.1	421.1
- reinsurers' share of unearned premium	18	55.3	52.8
Loans and receivables, including insurance and reinsurance receivables
- insurance and reinsurance receivables	19	795.6	665.9
- other loans and receivables	19	88.1	64.3
Deferred acquisition costs	20	185.8	145.8
Current income tax assets		1.2	7.2
Deferred tax assets	14	14.7	29.1
Property and equipment	21	12.5	9.9
Intangible assets	22	184.5	162.8
Investment in associate and jointly owned entity	36	2.2	1.7
Assets of operation classified as held for sale	36	-	64.2
Total assets		6,114.6	5,673.0
Equity and reserves
Share capital	23	141.2	141.2
Share premium		300.3	300.1
Other reserves		222.9	201.7
Treasury shares		(26.2)	(21.4)
Retained earnings		1,089.9	971.1
Equity attributable to equity holders of the Parent Company		1,728.1	1,592.7
Non-controlling interests		1.8	0.4
Total equity and reserves		1,729.9	1,593.1
Liabilities
Insurance liabilities
- outstanding claims	18	2,631.9	2,431.4
- unearned premium	18	914.4	744.8
Other payables, including insurance and reinsurance payables
- insurance and reinsurance payables	26	245.9	243.7
- other payables	26	139.7	143.8
Financial liabilities	17	9.7	12.9
Current income tax liabilities		22.0	36.9
Borrowings	27	318.0	316.4
Retirement benefit obligations	28	15.3	24.5
Deferred tax liabilities	14	87.8	125.0
Liabilities of operation classified as held for sale	36	--	0.5
Total liabilities		4,384.7	4,079.9
Total equity, reserves and liabilities		6,114.6	5,673.0

The attached notes form an integral part of these consolidated financial statements.

The financial statements were approved by the Board of Directors and authorised for issue on 1 March 2011. They were signed on its behalf by:

Roger Taylor Chairman

Richard Hextall Group Finance Director

Consolidated Statement of Cash Flows

For the year ended 31 December 2010

	Note	2010 £m	2009 £m
Cash generated from operations	34	183.6	324.5
Income taxes paid		(57.0)	(45.0)
Net cash flows from operations		126.6	279.5
Cash flows from investing activities
Interest received		54.5	62.2
Dividends received		5.8	5.2
Acquisition through business combination, net of cash acquired		(13.0)	(252.7)
Deferred payment for acquired subsidiary		(0.1)	(0.3)
Investment in associate and jointly owned entity	36	(0.5)	(0.5)
Purchase and disposal of property and equipment	21	(6.1)	(6.0)
Purchase and development of intangible assets	22	(17.4)	-
Net cash inflows/(outflows) from investing activities		23.2	(192.1)
Cash flows used in financing activities
Net proceeds from issue of ordinary shares, including treasury shares		2.9	78.1
Dividends paid to shareholders	30	(102.4)	(83.8)
Dividends paid to non-controlling interests	30	(0.1)	-
Interest paid		(27.4)	(23.4)
Purchase of ESOT and treasury shares		(12.7)	(0.7)
Return of capital	23	-	(1.2)
Net cash outflows used in financing activities		(139.7)	(31.0)
Net increase in cash and cash equivalents		10.1	56.4
Cash and cash equivalents at beginning of year		70.3	14.1
Effect of exchange rate changes on cash and cash equivalents		1.1	(0.2)
Cash and cash equivalents at end of year	16	81.5	70.3

The attached notes form an integral part of these consolidated financial statements.

The Group classifies cash flows from purchase and disposal of financial assets in its operating cash flows as these transactions are generated by the cash flows associated with the origination and settlement of insurance contract liabilities or capital requirements to support underwriting. Cash of £214.1 million from net purchases of financial investments was utilised in operations during the year (2009: £13.1 million from net purchases).

Notes to the Accounts

For the year ended 31 December 2010

1. Summary of significant accounting policies and critical accounting judgements and estimates

Amlin plc (the company) is a public limited company registered in England and Wales. The address of the registered office is St Helen's, 1 Undershaft, London EC3A 8ND.

The basis of preparation, basis of consolidation and significant accounting policies adopted in the preparation of Amlin plc and subsidiaries' (the Group) consolidated financial statements are set out below.

Basis of preparation

These consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted for use in the European Union (EU). The consolidated financial statements comply with Article 4 of the EU IAS regulation and Companies Act 2006.

The consolidated financial statements have been prepared on the historical cost basis except for cash and cash equivalents, financial assets and liabilities, share options, and pension assets which are measured at their fair value.

Except where otherwise stated, all figures included in the consolidated financial statements are presented in millions of British Pounds Sterling (sterling) shown as £m rounded to the nearest £100,000.

The accounting policies adopted in preparing these financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2009, unless otherwise stated.

In accordance with IFRS 4, the Group has applied existing accounting practices for insurance contracts, modified as appropriate, to comply with the IFRS framework and applicable standards.

Basis of consolidation

The financial statements consolidate the accounts of the Company and subsidiary undertakings, including the Group's underwriting through participation on Lloyd's syndicates. Subsidiaries are those entities in which the Group, directly or indirectly, has the power to govern the operating and financial policies in order to gain economic benefits and includes the Company's employee benefit trusts. The financial statements of all subsidiaries are prepared for the same reporting year as the parent company. Consolidation adjustments are made to convert subsidiary accounts prepared under different accounting standards into IFRS so as to remove the effects of any different accounting policies that may exist. Subsidiaries are consolidated from the date that control is transferred to the Group and cease to be consolidated from the date that control is transferred out.

All inter-company balances, profits and transactions are eliminated.

Details of material subsidiaries included within the consolidated financial statements can be found in note 35.

As part of our process to improve the presentation of the Group's Consolidated Financial Statements, certain changes have been made to the presentation of Financial assets and Financial liabilities, Insurance liabilities and reinsurance assets, Other payables, and Loans and receivables in order to better reflect the nature of underlying transactions. In addition, changes have also been made to the presentation of the effects of tax in the Consolidated Statement of Comprehensive Income and in the Consolidated Statement of Changes in Equity. These changes in presentation have no effect on the previously reported net income, shareholders' equity or net assets. Comparative information has been amended to reflect this change.

Adoption of new and revised Standards

(a) Standards, amendments to published standards and interpretations effective on or after 1 January 2010

The accounting policies adopted are consistent with those of the previous financial year, except for the following new and amended IFRS and IFRIC interpretations effective as of 1 January 2010:

·  IFRS 3 (revised), 'Business combinations';

·  IAS 27 (amended), 'Consolidated and separate financial statements';

·  Amendment to IAS 39, 'Financial instruments: recognition and measurement - eligible hedged items';

·  Amendment to IFRS 2, 'Group cash-settled share-based payment transactions';

·  IFRIC 18, 'Transfers of assets from customers';

·  IFRIC 17, 'Distribution of non-cash assets to owners'; and

·  Annual improvements to IFRSs 2008-2009.

Adoption of these revised standards and interpretations did not have any material effect on the financial performance or position of the Group.

The effects of these changes are as follows:

IFRS 3 (revised), 'Business combinations' and IAS 27 (amended), 'Consolidated and separate financial statements'

IFRS 3 (revised) introduces significant changes in the accounting for business combinations occurring after 1 January 2010. Changes affect the valuation of non-controlling interests, the accounting for transaction costs, the initial recognition and subsequent measurement of contingent consideration and business combinations achieved in stages. These changes will impact the amount of goodwill recognised, the reported results in the period that an acquisition occurs and future reported results.

IAS 27 (amended) requires that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as a transaction with owners in their capacity as owners. Therefore, such transactions will no longer give rise to goodwill, nor will it give rise to a gain or loss. Furthermore, the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. The changes by IFRS 3 (revised) and IAS 27 (amended) will affect future acquisitions or loss of control of subsidiaries and transactions with non-controlling interests. The changes were applied prospectively and had no material impact.

IAS 39 (amended), 'Financial instruments: recognition and measurement - eligible hedged items'

The amendment was issued in July 2008. It provides guidance on certain hedged items. On the designation of a one-sided risk in a hedged item, IAS 39 concludes that a purchased option designated in its entirety as the hedging instrument of a one-sided risk will not be perfectly effective. Additionally, the designation of inflation as a hedged risk or portion is not permitted unless in particular situations. There is no material impact on the Group or Company's financial statements.

IFRS 2 (amended), 'Group cash-settled share-based payment transactions'

The IASB issued an amendment to IFRS 2 that clarified the scope and the accounting for group cash-settled share-based payment transactions. The Group adopted this amendment as of 1 January 2010. There is no material impact on the Group or Company's financial statements.

IFRIC 17, 'Distribution of non-cash assets to owners'

The interpretation provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to shareholders either as a distribution of reserves or as dividends. IFRS 5 'Non-current Assets Held For Sale and Discontinued Operations' has also been amended to require that assets are classified as held for distribution only when they are available for distribution in their present condition and the distribution is highly probable. This interpretation does not have a material impact on the Group or Company's financial statements.

IFRIC 18, 'Transfers of assets from customers'

This interpretation was issued in January 2009. It clarifies how to account for transfers of items of property, plant and equipment by entities that receive such transfers from their customers. The interpretation also applies to agreements in which an entity receives cash from a customer when that amount of cash must be used only to construct or acquire an item of property, plant and equipment and the entity must then use that item to provide the customer with ongoing access to supply of goods and/or services. The Group is not impacted by the adoption of IFRIC 18.

Annual improvements to IFRSs 2008-2009

In April 2008 and 2009, the IASB issued its annual amendments to International Financial Reporting Standards (IFRSs) and the related Bases for Conclusions and guidance made. The IASB uses the annual improvements process to make necessary, but non-urgent, amendments to IFRSs that will not be included as part of a major project. The amendments primarily remove inconsistencies and clarify wording. The Group has adopted the amendments to standards as they come into effect for the reporting period beginning on 1 January 2010. However, these amendments have no material impact on the Group or Company's financial statements.

(b) Standards, amendments to published standards and interpretations early adopted by the Group

In 2010, the Group did not early adopt any new, revised or amended standards.

(c) Standards, amendments to published standards and interpretations that are not yet effective and have not been early adopted by the Group

Standards issued but not yet effective up to the date of issuance of the Group's financial statements are listed below. The Group intends to adopt these standards when they become effective.

IAS 24 (amended), 'Related Party Disclosures'

The amended standard is effective for annual periods beginning on or after 1 January 2011. It clarified the definition of a related party to simplify the identification of such relationships and to eliminate inconsistencies in its application. The revised standard introduced a partial exemption of disclosure requirements for government-related entities. The Group does not expect any impact on its financial position or performance.

IAS 32 (amended), 'Financial instruments: Presentation - classification of rights issues'

The amendment to IAS 32 is effective for annual periods beginning on or after 1 February 2010 and amended the definition of a financial liability in order to classify rights issues (and certain options or warrants) as equity instruments in cases where such rights are given pro rata to all of the existing owners of the same class of an entity's non-derivative equity instruments, or to acquire a fixed number of the entity's own equity instruments for a fixed amount in any currency.

This amendment will have no impact on the Group after initial application.

IFRS 9, 'Financial instruments: Classification and measurement'

IFRS 9 as issued reflects the first phase of the Board's work on the replacement of IAS 39 and applies to the classification and measurement of financial assets as defined in IAS 39. The standard is effective for annual periods beginning on or after 1 January 2013. In subsequent phases, the Board will address hedge accounting and derecognition. The completion of this project is expected in early 2011. The adoption of IFRS 9 will have an effect on the classification and measurement of the Group's financial assets. However, the Group determined that the effect shall be quantified in conjunction with the other phases when issued to present a comprehensive picture.

IFRS 9 amendments to incorporate financial liabilities

The amendments to IFRS 9 issued in October 2010 incorporate the classification and measurement of financial liabilities and are mandatory for annual periods beginning on or after 1 January 2013. The amendments only affect the measurement of financial liabilities designated at fair value through profit or loss using the Fair Value Option (FVO). All other requirements in IAS 39 in respect of liabilities are carried forward into IFRS 9.

For FVO liabilities, the amount of change in the fair value of a liability that is attributable to changes in credit risk must be presented in other comprehensive income (OCI). The remainder of the change in fair value is presented in profit or loss, unless presentation of the fair value change in respect of the liability's credit risk in OCI would create or enlarge an accounting mismatch in profit or loss. The amendments are deemed to have no impact on the financial statements of the Group.

IFRIC 14 (amended), 'Prepayments of a minimum funding requirement'

The amendment to IFRIC 14 is effective for annual periods beginning on or after 1 January 2011 with retrospective application. The amendment provides guidance on assessing the recoverable amount of a net pension asset. The amendment permits an entity to treat the prepayment of a minimum funding requirement as an asset. The amendment is deemed to have no impact on the financial statements of the Group.

IFRIC 19, 'Extinguishing financial liabilities with equity instruments'

IFRIC 19 is effective for annual periods beginning on or after 1 July 2010. The interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability qualify as consideration paid.

The equity instruments issued are measured at their fair value. In case this cannot be reliably measured, they are measured at the fair value of the liability extinguished. Any gain or loss is recognised immediately in profit or loss. The adoption of this interpretation will have no effect on the financial statements of the Group.

Annual improvements to IFRSs 2009-2010

The IASB issued Improvements to IFRSs, an omnibus of amendments to its IFRS standards. The amendments have not been adopted as they become effective for annual periods on or after either 1 July 2010 or 1 January 2011.

The Group however, expects no significant impact from the adoption of the amendments on its financial position or performance.

IFRS 7 (amended), 'Financial instruments: Disclosures - Transfers of financial assets'

The amendment to IFRS 7 is effective for annual periods beginning on or after 1 July 2011 and comparative disclosures are not required for early adoption. The amendment will introduce more extensive quantitative and qualitative disclosures about the transfer of financial assets to assist users in understanding the implications of transfers of financial assets and the potential risks that may remain with the transferor. The amendment is deemed to have no material impact on the Group or Company's financial statements.

Critical accounting judgements and key sources of estimation uncertainty

The preparation of financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities. Although these estimates are based on management's best knowledge of current events and actions, actual results may ultimately differ from those estimates.

Insurance contract liabilities

The most significant estimate made in the financial statements relates to unpaid insurance claim reserves and related loss adjustment expenses of the Group.

The estimated provision for the total level of claims incurred changes as more information becomes known about the actual losses for which the initial provisions were set up. The change in claims costs for prior period insurance claims represents the claims development of earlier reported years incurred in the current accounting period. In 2010, there has been a net positive development of £156.5 million (2009: £174.1 million) for the Group, reflecting favourable experience in the 2009 and prior reported years. Note 3 provides further details of the method the Group applies in estimating insurance contract liabilities.

Financial investments

The methods and assumptions used by the Group and Company in estimating the fair value of financial assets are described in note 3.

Intangible assets

Intangible assets are recognised on the acquisition of a subsidiary, on the purchase of specific rights to renew a particular underwriting portfolio and on computer software.

The value of such intangibles arising from the acquisition of a subsidiary or specific renewal rights is largely based on the expected cash flows of the business acquired and contractual rights on that business. Certain key assumptions are used to assess the value of the intangible such as past underwriting performance and past renewal values of underwriting business. These are the subject of specific uncertainty and a reduction in underwriting profitability or renewal patterns of business acquired may result in the value of the intangible being impaired and written off in the current accounting period. Note 22 provides details of any current impairments.

Goodwill impairment

The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the recoverable amount of the cash-generating unit to which goodwill is allocated. Details of the key assumptions used in the estimation of the recoverable amounts are contained in note 22.

The Group has allocated the goodwill to three single cash generating units equivalent to three operating segments of the Group. Note 22 provides further details. The carrying value at the reporting date of goodwill is £61.8 million (2009: £63.9 million).

Taxation

Uncertainties exist with respect to the interpretation of complex tax regulations and the amount and timing of future taxable income. The wide range of international business relationships and the long-term nature and complexity of existing contractual agreements, could necessitate future adjustments to tax income and expense already recorded. The Group establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities of the respective countries in which it operates. The amount of such provisions is based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority. Such differences of interpretation may arise on a wide variety of issues depending on the conditions prevailing in the respective Group company's domicile.

Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits together with future tax planning strategies.

The carrying value at the reporting date of the deferred tax asset is £14.7 million (2009: £29.1 million), and of the deferred tax liability is £87.8 million (2009: £125.0 million).

Staff incentive plans

The Group recognises a liability and expense for staff incentive plans based on a formula that takes into consideration the underwriting profit after certain adjustments. Underwriting profit is estimated based on current expectation of premiums and claims and will change as more information is known or future events occur. Where estimates change, related staff incentive plan liabilities may also change.

Retirement benefit obligations

The Group participates in the Lloyd's Superannuation Fund defined benefit scheme and also operates defined benefit schemes in the Netherlands and Belgium.

The amounts included in these financial statements are sensitive to changes in the assumptions used to derive the value of the scheme assets and liabilities.

A gain of £5.9 million (2009: £23.7 million loss) has been recognised in the Statement of Comprehensive Income and a debit of £1.9 million (2009: £2.3 million) has been recognised in the Income Statement. Note 28 provides further details on the Group's retirement benefit obligations.

Significant accounting policies

Foreign currency translation

The Group and Company present their accounts in sterling since it is subject to regulation in the United Kingdom and the net assets, liabilities and income of the Group and Company are currently weighted towards sterling. US dollar and euro revenues are significant but the sterling revenue stream is also currently material. All Group entities are incorporated in the United Kingdom with the exception of Amlin Bermuda Holdings Ltd (incorporated in Bermuda), Amlin AG (Switzerland), Amlin France Holdings SAS (formerly known as Amlin France SAS), Amlin France SAS (formerly known as Anglo French Underwriters SAS) (both France), Amlin Corporate Insurance N.V. (the Netherlands) and Amlin Singapore Pte Limited (Singapore). All Group entities conduct business in a range of economic environments, although these are primarily the United Kingdom, United States of America and Continental Europe. Due to the regulatory environment and the fact that the Group trades through the Lloyd's market, all Group companies incorporated in the United Kingdom have adopted sterling as their functional currency, although Amlin (Overseas Holdings) Limited's Netherlands branch has adopted the euro as its functional currency. The Group company incorporated in Bermuda and Amlin AG's Bermudian branch (Amlin Bermuda) have adopted the US dollar as their functional currency. Amlin Singapore Pte Limited has adopted the Singaporean dollar as its functional currency. The Group companies incorporated in France and the Netherlands and Amlin AG's Swiss operation (Amlin Re Europe) have adopted the euro as their functional currency.

Transactions denominated in foreign currencies are translated using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities are translated at the rates of exchange at the balance sheet date. Non-monetary assets and liabilities are translated at the rate prevailing in the period in which the asset or liability first arose. Exchange differences are recognised within other operating expenses.

The results and financial position of those Group entities whose functional currency is not sterling are translated into sterling as follows:

·  Assets and liabilities for each balance sheet presented are translated at the closing exchange rate at the date of the balance sheet;

·  Income and expenses for each income statement are translated at average exchange rates during the period (as an approximation to the exchange rates at the dates of each transaction); and

·  On consolidation all resulting exchange differences are recognised as a component of equity.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

Where contracts to sell currency have been entered into prior to the year end, the contracted rates have been used. Differences arising on the translation of foreign currency amounts on such items are included in other operating expenses.

Product classification

Insurance contracts are defined as those containing significant insurance risk if, and only if, an insured event could cause an insurer to make significant additional payments in any scenario, excluding scenarios that lack commercial substance, at the inception of the contract.

The significance of insurance risk is dependent on both the probability of an insured event and the magnitude of its potential effect. Any contracts not considered to be insurance contracts under IFRS are classified as investment contracts.

Based on the current assessment, all of the products sold by the Group's insurance entities are insurance contracts within the scope of IFRS 4.

Insurance contracts premium

Gross written premium comprise premium on insurance contracts incepting during the financial year together with adjustments to premiums written in previous accounting periods. The estimated premium income in respect of facility contracts, for example binding authorities and lineslips, is deemed to be written in full at the inception of the contract. Premium is disclosed before the deduction of brokerage and taxes or duties levied on them.

The proportion of gross written premium, gross of commission payable, attributable to periods after the balance sheet date is deferred as a provision for unearned premium. The change in this provision is taken to the income statement in order that revenue is recognised over the period of the risk.

Premium is earned over the policy contract period. The earned element is calculated separately for each contract on a 365ths basis where the premium is apportioned over the period of risk. For premium written under facilities the earned element is calculated based on the estimated inception date and coverage period of the underlying contracts

Acquisition costs

Acquisition costs comprise brokerage incurred on insurance contracts written during the financial year. They are incurred on the same basis as the earned proportions of the premium they relate to. Deferred acquisition costs are amortised over the period in which the related revenues are earned. Deferred acquisition costs are reviewed at the end of each reporting period and are written off where they are no longer considered to be recoverable.

Reinsurance premium ceded

Reinsurance premium ceded comprise the cost of reinsurance arrangements placed and are accounted for in the same accounting period as the related insurance contracts. The provision for reinsurers' share of unearned premium represents that part of reinsurance written premium which is estimated to be earned in following financial years.

Insurance contracts liabilities

Claims paid are defined as those claims transactions settled up to the balance sheet date including internal and external claims settlement expenses allocated to those transactions.

Unpaid claims reserves are made for known or anticipated liabilities under insurance contracts which have not been settled up to the balance sheet date. Included within the provision is an allowance for the future costs of settling those claims. This is estimated based on past experience and current expectations of future cost levels.

Unpaid claims reserves are estimated on an undiscounted basis. Unpaid claims reserves acquired through a business combination are measured at fair value, using an applicable risk-free discount rate and having regard to the expected settlement dates of the claims. Provisions are subject to a detailed quarterly review where forecast future cash flows and existing amounts provided are reviewed and reassessed. Any changes to the amounts held are adjusted through the income statement. Provisions are established above an actuarial best estimate, reflecting a risk premium relating to the uncertainty of the actual level of claims incurred. There is therefore a reasonable chance of release of reserves from one underwriting year to the next.

The unpaid claims reserves also include, where necessary, a reserve for unexpired risks where, at the balance sheet date, the estimated costs of future claims and related deferred acquisition costs are expected to exceed the unearned premium provision.

Reinsurance contracts held

Contracts entered into by the Group with reinsurers under which the Group is compensated for losses on contracts issued by the Group and that meet the classification requirements for insurance contracts are classified as reinsurance contracts held. Insurance contracts entered into by the Group under which the contract holder is another insurer (inwards reinsurance) are included within insurance contracts.

The benefits to which the Group is entitled under its reinsurance contracts held are recognised as reinsurance assets. These assets consist of short-term balances due from reinsurers, as well as longer term receivables that are dependent on the expected claims and benefits arising under the related reinsured insurance contracts. Amounts recoverable from or due to reinsurers are measured consistently with the amounts associated with the reinsured insurance contracts and in accordance with the terms of each reinsurance contract.

Where there is objective evidence that a reinsurance asset is impaired, the Group reduces the carrying amount of the reinsurance asset to its recoverable amount and recognises that impairment loss in the income statement.

Salvage and subrogation reimbursements

Some insurance contracts permit the Group to sell (usually damaged) property acquired in settling a claim (for example, salvage). The Group may also have the right to pursue third parties for payment of some or all costs (for example, subrogation).

Estimates of salvage recoveries are included as an allowance in the measurement of the insurance liability for claims, and salvage property is recognised in other insurance assets when the liability is settled. The allowance is the amount that can reasonably be recovered from the disposal of the property.

Subrogation reimbursements are also considered as an allowance in the measurement of the insurance liability for claims and are recognised in other assets when the liability is settled. The allowance is the assessment of the amount that can be recovered from the action against the liable third party.

Net investment income

Dividends and any related tax credits are recognised as income on the date that the related listed investments are marked ex-dividend. Other investment income, interest receivable, expenses and interest payable are recognised on an accruals basis.

Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, which is responsible for allocating resources and assessing the performance of the operating segments, has been identified as the Board of Directors of the Company.

Business combinations

i. Business combinations before 1 January 2010

The acquisitions of subsidiaries are accounted for using the purchase method. The cost of acquisition is measured as the fair value of assets given, liabilities incurred or assumed, and equity instruments issued by the Group at the date of exchange, plus any costs directly attributable to the business combination. Identifiable assets acquired and liabilities and contingent liabilities assumed, meeting the conditions for recognition under IFRS 3, are recognised at their fair value at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill.

ii. Business combination after 1 January 2010

The Group policy is to apply IFRS 3 (revised) to all acquisitions which take place on or after 1 January 2010. Business combinations are accounted for using the acquisition method.

The cost of acquisition is measured as the fair value of assets given, liabilities incurred or assumed, and equity instruments issued by the Group at the date of exchange. Under IFRS 3 (revised), with the exception of the costs of registering and issuing debt and securities that are recognised in accordance with IAS 32 and IAS 39 (i.e. as a reduction in proceeds), all other acquisition-related costs are to be expensed as incurred.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions at the acquisition date. Identifiable assets acquired and liabilities and contingent liabilities assumed, meeting the conditions for recognition under IFRS 3, are recognised at their fair value at the acquisition date, irrespective of the extent of any minority interest. The excess of the fair value of consideration transferred over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill.

For each business combination, the Group measures any non-controlling interests in the acquiree at the non-controlling interest's proportionate share of the acquiree's identifiable net assets.

Interests in associate entities

Investments in associates are accounted for using the equity method.

Associates are all entities over which the Group has significant influence but no control, generally accompanying a shareholding of between 20% and 50% of the voting rights. The Group's share of its associates' post-acquisition profits and losses after tax is recognised in the income statement each period, and its share of the movement in associates' net assets is reflected in the investments' carrying values in the balance sheet.

Interests in jointly owned entities

Investments in jointly owned entities are accounted for using the equity method.

Operations held for sale

Assets and liabilities held for disposal as part of operations which are held for sale are shown separately in the consolidated balance sheet. The relevant assets are recorded at the lower of their carrying amount and their fair value, less the estimated selling costs. Operations held for sale are being actively marketed to external investors. After one year of where in excess of 50% of the operation is held by the Group, the assets and liabilities are consolidated unless the delay in attracting sufficient external investment is due to circumstances beyond the Group's control and previously considered unlikely. When the Group ceases to hold a 50% interest in the assets and liabilities, it shall be re-designated as fair value through profit and loss.

Intangible assets

i. Syndicate capacity

The cost of Lloyd's syndicate participations that have been purchased in the Lloyd's capacity auctions is capitalised at cost. Syndicate capacity is considered to have an indefinite life as it will provide benefits over an indefinite future period and is therefore not subject to an annual amortisation charge. The continuing value of the capacity is reviewed for impairment annually by reference to the expected future profit streams to be earned from Syndicate 2001, with any impairment in value being charged to the income statement.

ii. Goodwill

Goodwill arising on acquisitions prior to 1 January 1999 was written off to reserves. Goodwill recognised between 1 January 1999 and the date of transition to IFRS (1 January 2004) was capitalised and amortised on a straight line basis over its estimated useful life. Following the transition to IFRS this goodwill is stated at net book value at 1 January 2004. Goodwill that was recognised subsequent to 1 January 2004 is capitalised. Goodwill is tested for impairment annually, or when events or changes in circumstance indicate that it might be impaired, by comparing the net present value of the future earnings stream from the acquired subsidiary, against the carrying value of the goodwill and the carrying value of the related net assets.

iii. Other intangible assets

Other intangible assets comprise costs directly attributable to securing the intangible rights to broker, customer relationships and costs directly attributable to internally-developed software. Costs are recognised as intangible assets where they can be identified separately and measured reliably and it is probable that they will be recovered by directly related future profits. Other intangible assets are reviewed for impairment losses annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Other intangible assets are carried at cost less accumulated amortisation and impairment losses. Amortisation is calculated on a straight-line basis based on the estimated useful economic life of the assets, which is estimated to be between five and fifteen years.

Property and equipment

Property and equipment are stated at historical cost less accumulated depreciation and provision for impairment where appropriate. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. Depreciation is calculated on the straight line method to write down the cost of such assets to their residual values over their estimated useful lives as follows:

Leasehold land and buildings	Over period of lease
Freehold buildings	5% per annum
Motor vehicles	33% per annum
Computer equipment	33% per annum
Furniture, fixtures and leasehold improvements	20% per annum

The carrying values of property and equipment are reviewed for impairment when events or changes in circumstance indicate that the carrying value may be impaired. If any such condition exists, the recoverable amount of the asset is estimated in order to determine the extent of impairment and the difference is charged to the income statement.

Gains and losses on disposal of property and equipment are determined by reference to their carrying amount and are taken to the income statement. Repairs and renewals are charged to the income statement when the expenditure is incurred. The freehold land is not depreciated.

Financial assets

The Group classifies its financial assets at fair value through profit and loss (FV) or available for sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.

Other than investments in certain unlisted insurance intermediaries (see below), the Group classifies its financial investments as FV. This classification requires all fair value changes to be recognised immediately within the investment return line in the income statement. Within the FV category, fixed maturity and equity securities are classified as 'trading' as the Group buys with the intention to resell. All other securities are classified as 'other than trading' within the FV category.

The Group has investments in certain unlisted insurance intermediaries which are treated as available-for-sale and are measured at fair value. Changes in fair value of investments are included in Other Comprehensive Income in the period in which they arise. They are tested for impairment annually, or when events or changes in circumstances indicate that impairment might have occurred. When securities classified as available for sale are sold or impaired, the accumulated fair value adjustments recognised in equity are included in the income statement as 'gains and losses from investment securities'.

Purchases and sales of investments are recognised on the trade date, which is the date the Group commits to purchase or sell the assets. These are initially recognised at fair value, and are subsequently re-measured at fair value based on quoted bid prices. Transaction costs are recognised directly in the income statement when incurred. Changes in the fair value of investments are included in the income statement in the period in which they arise. The uncertainty around bond valuation is discussed further in note 3.

Derivative financial instruments

Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into. Fair values for over the counter derivatives are supplied by the custodian and checked to the relevant counterparty and Bloomberg. Changes in the fair value of derivative instruments are recognised immediately in the income statement unless the derivative is designated as a hedging instrument. As defined by IAS 39 'Financial Instruments: Recognition and Measurement', the Group designates certain foreign currency derivatives as hedges of net investments in foreign operations. The Group documents at the inception of each hedging transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values of hedged items.

Any gain or loss on the hedging instrument related to the effective portion is recognised in the Consolidated Statement of Comprehensive Income. The fair values of derivative instruments used for hedging purposes are disclosed in note 17. Gains and losses accumulated in equity are included in the income statement when the foreign operation is partially disposed of or sold.

Loans and receivables

Loans and receivables are measured at amortised cost using an effective interest rate. Appropriate allowances for estimated irrecoverable amounts are recognised in the income statement when there is evidence that the asset is impaired. These are reversed when the triggering event that caused the impairment is reversed.

Borrowings

Borrowings are stated initially at the consideration received net of transaction costs incurred. Borrowings are subsequently stated at amortised cost using the effective interest method. Any difference between amortised cost and the redemption value is recognised in the income statement over the period of the borrowings. Transaction costs on borrowings are charged through the income statement over the period of the borrowings.

Borrowing costs

Borrowing costs mainly comprise interest payable on subordinated loans and commissions charged for the utilisation of letters of credit. These costs are charged to the income statement as finance costs, as incurred. In addition, fees paid for the arrangement of debt and letter of credit facilities are charged to finance costs over the life of the facility.

Cash and cash equivalents

Cash and cash equivalents are carried in the balance sheet at fair value. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held on call with banks and other short-term, highly liquid investments which are believed to be subject to insignificant risk of change in fair value.

Treasury shares

Treasury shares are deducted from equity. No gain or loss is recognised on the purchase, sale, issue or cancellation of the treasury shares. Any consideration paid or received is recognised directly in equity.

Leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards to the Group. All other leases are classified as operating leases.

Rentals payable under operating leases are charged to income in the period in which they become payable in accordance with the terms of the lease.

Employee benefits

i. Pension obligations

The Group participates in a number of pension schemes, including several defined benefit schemes, defined contribution schemes and personal pension schemes.

The Lloyd's Superannuation Fund scheme is a multi-employer defined benefit scheme. Amlin Corporate Insurance N.V. (ACI) participates in two defined benefit schemes.

The defined benefit obligation and associated pension costs are calculated annually by independent actuaries using the projected unit credit method. This method sees each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final liability. The cost of providing these benefits is charged to the income statement to spread the pension cost over the service lives of employees. Actuarial gains and losses arising from the recognition and funding of the Group's pension obligations are recognised in the Statement of Comprehensive Income during the period in which they arise.

The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the fair value of plan assets less the defined benefit obligation at the balance sheet date, together with adjustments for unrecognised past-service costs and for restrictions on the recognition of a defined benefit asset due to an asset ceiling. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high quality corporate bonds, and that have terms to maturity approximating to the terms of the related pension liability.   In respect of ACI's defined benefit scheme in the Netherlands, the fair value of the plan assets reflects the benefits that accrue to ACI under the insurance policy taken out to meet its obligations.

Pension contributions to defined contribution plans are charged to the income statement when due.

ii. Equity compensation plans (equity-settled)

The Company operates a number of executive and employee share schemes. Options issued after 7 November 2002 are accounted for using the fair value method where the cost for providing equity compensation is based on the fair value of the share option or award at the date of the grant. The fair value is calculated using an option pricing model and the corresponding expense is recognised in the income statement over the vesting period. The accrual for this charge is recognised in equity shareholders' funds. When the options are exercised, the proceeds received net of any transaction costs are credited to share capital for the par value and the surplus to share premium.

iii. Equity compensation plans (cash-settled)

The Group operates the Amlin Capital Builder Plan which is deemed a cash-settled share-based payment arrangement. The cost of cash-settled transactions is measured initially at fair value at the grant date. Further details are given in note 24. The fair value is expensed over the period until the vesting date with recognition of a corresponding liability. The liability is remeasured at each reporting date up to and including the settlement date with changes in fair value recognised in profit or loss.

iv. Other benefits

Other employee incentive schemes and long-term service awards, including sabbatical leave, are recognised when they accrue to employees. A provision is made for the estimated liability for long-service leave as a result of services rendered by employees up to the balance sheet date.

Other income

Fee income from providing information services is recognised on an earned basis.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years or that are never taxable or deductible. The Group's and Company's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group and Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered, or to the extent that it has been utilised.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited to profit or loss, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax is recognised on the profits of overseas subsidiaries where it is reasonably foreseeable that distribution of the profit back to the UK will take place and the UK dividend exemption is not expected to apply.

Dividend distribution

Dividend distribution to the Company's shareholders is recognised as a liability in the Group's and Company's financial statements in the period in which the dividends are approved by the Company's shareholders.

Other payables

Other payables are those incurred in the normal course of business and measured at amortised cost. They represent liabilities to pay for goods or services that have been received or supplied, and have been invoiced by the supplier before the period end, but payment has not yet been made.

2. Capital

The capital structure of the Group consists of equity attributable to equity holders of the Company, comprising issued capital, reserves and retained earnings as disclosed in the Consolidated Statement of Changes in Equity and note 23, and subordinated debt as disclosed in note 27. For business planning purposes, account is also taken of the Group's undrawn debt facilities as disclosed in note 27.

The Amlin corporate member, which supports Syndicate 2001, is required to hold regulatory capital in compliance with the rules issued by the UK's Financial Services Authority (FSA). In addition, being a Lloyd's operation it is also subject to Lloyd's capital requirements. Under FSA rules, the corporate member must hold capital in excess of the higher of two amounts. The first is the Pillar 1 requirement, as prescribed by EU directives, calculated by applying fixed percentages to premiums and claims. The second, Pillar 2, is an Individual Capital Assessment (ICA) calculated internally by the firm. The ICA is defined as the level of capital that is required to contain the probability of insolvency, over a one year timeframe, to no greater than 0.5%. The ICA calculation basis is generally considered to be broadly equivalent to a BBB insurance financial strength rating. The ICA calculation considers all ultimate losses incurred over a one year business planning horizon, and any prior year reserve movements.

For the purposes of setting Lloyd's capital requirements, Lloyd's currently uplifts all ICAs by 35% (2009: 35%) to bring the capital to a level to support a higher financial strength rating. The final capital requirement is then subject to a minimum of 40% (2009: 40%) of the syndicate's agreed regulatory premium capacity limit.

The Syndicate also benefits from mutualised capital within the Lloyd's Central Fund, for which a variable annual levy, for 2010 of 0.5% (2009: 0.5%) of Syndicate gross premium, is payable.

The ICA is reviewed annually by Lloyd's and periodically by the FSA. The FSA expect management to apply their rules continuously. If a firm breaches its Pillar 1 capital it must cease trading; if Pillar 2 capital is breached steps must be taken urgently to restore capital to the required level. Due to the nature of the Lloyd's capital setting process, Funds at Lloyd's requirements are formally assessed and funded twice yearly at discrete periods and must be met for the Syndicate to continue underwriting.

At 31 December 2010 the level of capital held on behalf of the Amlin corporate member was more than £250 million (2009: £200 million) in excess of the Pillar 1 requirement and more than £25 million (2009: £20 million) in excess of the Pillar 2 requirement.

The Group does not seek to retain any assets in excess of the Lloyd's capital requirement within the Lloyd's framework and any surplus is paid to the corporate entities in the Group.

Amlin AG is supervised by the Swiss Financial Market Supervisory Authority (FINMA) and the Bermuda Monetary Authority (BMA).

The FINMA supervision is composed of various qualitative assessments, governance requirements and minimum solvency levels. Amlin AG provides regulatory solvency reporting to FINMA under the rules of Solvency I and the Swiss Solvency Test (SST). Solvency I is based on the Swiss statutory financial statements and required capital is calculated as a fixed percentage of premiums, claims reserves and/or net amount at risk. The SST is based on an economic view and required capital is derived from an internal Dynamic Financial Analysis (DFA) model.

The internal model as well as the 2011 SST is still subject to approval by the FINMA. We calculate available and required capital under the SST using the aforementioned model. The minimum ratio for Solvency I as well as for the SST is set at 100% (the SST minimum ratio will become legally binding in 2011). For both ratios Amlin AG exceeds the 100% minimum ratio.

Under BMA regulations, Amlin AG is licensed as a Class IV insurer and the minimum solvency margin is the greater of US$100 million, 50% of net premiums written in the current financial year, 15% of claims reserves and the Enhanced Capital Requirement (ECR). The ECR is calculated on an annual basis through either the Bermuda Solvency Capital Requirement (BSCR) model or an approved internal model. In addition, as a Class IV insurer, the company is required to maintain a minimum liquidity ratio such that the value of "relevant assets" is not less than 75% of its "relevant liabilities". Amlin AG met this requirement at 31 December 2010.

For trading purposes, Amlin AG believes that it is necessary to hold at least US$1 billion of capital, which is currently in excess of the minimum required by the BMA and FINMA.

Amlin Corporate Insurance N.V. (ACI) is required to hold regulatory capital in compliance with the rules issued by its regulator and as prescribed by EU directives.

Regulatory capital is calculated by applying fixed percentages to premiums and claims. At 31 December 2010, ACI's available regulatory capital was €341.9 million (2009: €308.0 million) compared to a minimum requirement of €112.4 million (2009: €111.0 million). For wider commercial reasons, ACI's capital is managed so as to support its financial strength ratings.

The method by which the Group manages its capital base is described on page 46 of the Performance section under Financial Management.

In addition to regulatory capital requirements, the Group believes that it should retain a level of capital within the Group to allow it to grow its exposures materially in the aftermath of a major insurance disaster, but also to respond to other opportunities to enhance long term growth, for example through acquisition. The overall capital held by the Group is driven by the business mix, nature and objectives of each business unit and its context within the wider Group.

3. Risk disclosures

3.1 Underwriting risk

The Group accepts underwriting risk in a range of classes of business through Lloyd's Syndicate 2001, Amlin Corporate Insurance N.V. (ACI) and Amlin AG (including the latter's branch operation, Amlin Bermuda). Syndicate 2001's portfolio is underwritten by Amlin London, Amlin UK and through the Group's wholly owned French coverholder, Amlin France (formerly known as Anglo French Underwriters SAS). Amlin France also writes business on behalf of ACI. The bias of the Group's portfolio is towards short-tail property and accident risk but liability coverage is also underwritten.

In underwriting insurance or reinsurance policies the Group's underwriters use their skill, knowledge and data on past claims experience to evaluate the likely claims cost and therefore the premium that should be sufficient (across a portfolio of risks) to cover claims costs, expenses and to produce an acceptable profit. However, due to the nature of insurance risk there is no guarantee that the premium charged will be sufficient to cover claims costs. This shortfall may originate either from insufficient premium being calculated and charged or may result from an unexpected, or unprecedented, high level of claims.

A number of controls are deployed to limit the amount of insurance exposure underwritten. Each year a business plan is prepared and agreed which is used to monitor the amount of premium income, and exposure, to be written in total and for each class of business. Progress against this plan is monitored during the year. The Group also operates under a line guide that determines the maximum liability per policy that can be written for each class (on a gross or net of facultative reinsurance basis) and for each underwriter. These limits can be exceeded in exceptional circumstances but only with the approval of senior management. Apart from the UK and international comprehensive motor liability portfolios, which have unlimited liability, all policies have a per loss limit which caps the size of any individual claim. For larger sum insured risks facultative reinsurance coverage may be purchased. The Group is also exposed to catastrophe losses which may impact many risks in a single event and again reinsurance is purchased to limit the impact of loss aggregation from such events. These reinsurance arrangements are described in the reinsurance arrangements section on page 109.

Insurance liabilities are written through individual risk acceptances, reinsurance treaties or through facilities whereby Amlin is bound by other underwriting entities. Facility arrangements delegate underwriting authority to other underwriters, or to agents acting as coverholders, that use their judgement to write risks on our behalf under clear authority levels.

The insurance liabilities underwritten by the Group are reviewed on an individual risk, or contract, basis and through review of portfolio performance. Claims arising are reserved upon notification. Each quarter the entire portfolio of business is subject to a reserving process whereby levels of paid and outstanding (advised but not paid) claims are reviewed. Potential future claims are assessed with a provision for incurred but not reported (IBNR) claims being made. This provision is subject to review by senior executives and an independent internal actuarial assessment is usually carried out by the in-house actuarial team to determine the adequacy of the provision. Whilst a detailed and disciplined exercise is carried out to provide for claims notified, it is possible that known claims could develop and exceed the reserves carried.

Furthermore, there is increased uncertainty in establishing an accurate provision for IBNR claims and there is a possibility that claims may arise which in aggregate exceed the reserve provision established. This is partly mitigated by the reserving policy adopted by the Group which is to carry reserves in excess of the actuarial best estimate.

The review of claims arising may result in underwriters adjusting pricing levels to cater for an unexpectedly higher trend of claims advices or payments. However, this may not be possible in a competitive market and underwriters may respond either by accepting business with lower expected profit margins or declining to renew policies and thus reducing income. Also, there is a portfolio of risk already underwritten which cannot be re-priced until renewal at the end of the policy period.

The Group is exposed to the impact of large catastrophe events such as windstorms, earthquakes or terrorist incidents. Exposure to such events is controlled and measured through loss modelling, but the accuracy of this exposure analysis is limited by the quality of data and the effectiveness of the modelling. The Group's broad risk appetite guidelines are set out on page 38. It is possible that a catastrophe event exceeds the maximum expected event loss. This is particularly the case for the direct property proportion of the loss exposure where models are used to calculate a damage factor representing the amount of damage expected to exposed aggregate insured values from a particular scenario. Errors, or incorrect assumptions, in the damage factor calculation can result in incurred catastrophe event claims higher, or lower, than predicted due to unforeseen circumstances or inadequacies in the models used. As explained on page 109 reinsurance is purchased to protect against the impact of any individual or series of severe catastrophes. However, the price and availability of such cover is variable and the amount of loss retained by the Group may therefore also increase or reduce. The Group will alter its insurance and reinsurance exposures to take account of the change in reinsurance availability in order to remain within the risk appetite guidelines.

Sections A to E below describe the business and the risks of Amlin London, Amlin UK, Amlin France, Amlin AG, Amlin Re Europe, Amlin Bermuda and Amlin Corporate Insurance.

A. Amlin London

A. (i) Property reinsurance risks

Reinsurance property classes

	2010 Gross premium £m	Current maximum line size £m	2010 Average line size £m
Catastrophe reinsurance (per programme)	232	62	5.0
Per risk property reinsurance (per programme)	76	25	2.2
Proportional reinsurance	48	5	1.2

Notes:

(1) Limits are set in US dollars converted to sterling at a rate of exchange of £1 = US$1.5 and therefore currency rate of exchange changes may increase or reduce the sterling limits.

(2) Maximum line size is after business written and ceded by specific proportional treaties to Amlin Bermuda.

(3) Premium is stated gross of acquisition costs.

Catastrophe reinsurance protects insurance companies against catastrophic losses, such as windstorm or earthquake, which may impact more than one risk written by the client.

This portfolio is a key part of the insurance risk written by the Group. Programmes are placed on a layered or excess of loss basis. Territorial exposures, from a number of programmes, are much higher, but are carefully recorded and analysed through loss simulations or realistic disaster scenarios.

Per risk property reinsurance is also written on an excess of loss basis but covers loss or damage to any single risk within the reinsured's portfolio. This portfolio protects insureds against large individual property losses and will also be affected by large catastrophes.

Proportional reinsurance covers a proportional share of a reinsureds portfolio of business subject to payment of commission and/or profit commission. Almost all proportional reinsurance written by the Group in this class is property business and risk exposure is limited to US$7.5 million for any one risk.

The portfolio of reinsurance business is written with the aim of achieving territorial diversification. However, a severe catastrophe to a major economic zone in Europe, Japan, Australasia or the USA is likely to result in an overall loss to the portfolio prior to retrocessional reinsurance. Amlin London operates to a maximum loss limit applicable to refined scenarios which is an allocation of a total Group tolerance.

A. (ii) Other reinsurance risks

The Group also writes other reinsurance classes which contribute diversified exposure to the portfolio. The main classes with the maximum sum insured lines are shown below:

Aviation, marine and special risks reinsurance classes

	2010 Gross premium £m	Current maximum line size £m	2010 Average line size £m
Aviation reinsurance (per programme)	1	33	3.3
Marine reinsurance (per programme)	17	81	2.3
Special risks	14	17	5.3

Notes:

(1) Limits are set in US dollars converted to sterling at a rate of exchange of  £1=US$1.5 and therefore currency rate of exchange changes may increase or reduce the sterling limits.

(2) Maximum line size is after business written and ceded by specific proportional treaties to Amlin Bermuda.

(3) Premium are stated gross of acquisition costs.

The business writes a portfolio of aviation and marine reinsurance risk which protects insurers against losses to their direct portfolios of business. This is written on an excess of loss basis.

The special risks account is mostly terrorism excess of loss reinsurance emanating from all parts of the world and written without excess of loss reinsurance protection.

A. (iii) Property insurance risks

Property classes

	2010 Gross premium £m	Current maximum line size £m	2010 Average line size £m
Direct and facultative property	82	21	3.1
Binding authorities	36	2	0.3

Notes:

(1) Limits are set in US dollars converted to sterling at a rate of exchange of £1=US$1.5 and therefore currency rate of exchange changes may increase or reduce the sterling limits.

(2) Maximum line size is after business written and ceded by specific proportional treaties to Amlin Bermuda.

(3) Premium are stated gross of acquisition costs.

Property cover is provided to large commercial enterprises with high value locations and/or many locations, and also for small commercial property. The perils covered include fire, flood, wind and earthquake damage. Business interruption cover is also provided for loss of earnings sustained due to the perils and properties covered but may also be extended to connected enterprises. Terrorism cover is given on a limited basis particularly where required by local regulation, but nuclear and bio-chemical coverage is excluded in most territories.

Direct and facultative property insurance is written for the full value of the risk, on a primary or excess of loss basis, through individual placements, or by way of delegated underwriting facilities given to coverholders ('binding authorities'). Binding authority arrangements delegate the day to day underwriting to underwriting agents working on our behalf and therefore, for these contracts we are reliant on coverholders exercising underwriting judgement on our behalf. Coverholders must have local regulatory approval, be Lloyd's registered and also approved by the Amlin Binding Authority Committee. For all binding authorities facilities we receive a monthly or quarterly bordereau which is checked by our underwriting staff. We control the underwriting by setting clear authority levels for coverholders stipulated within the binding authority agreement, regularly monitoring performance and periodically carrying out underwriting visits and/or commissioning third party audits. The coverholder is incentivised to produce an underwriting profit through the payment of profit commission. However, with the day to day underwriting not controlled by the Group, there is a risk that coverholder underwriting or claim decisions are made which would not have been made by Amlin underwriters or claims staff. The maximum value insured under the Binders class is currently limited to US$3 million at any one location.

The property portfolio is also exposed to an above average frequency of individual fire, explosion or weather related claims. The premium charged for the coverage given may not be sufficient to cover all claims made in any year, particularly in a year in which there is an abnormal frequency of claims. This account is mainly situated in the USA and is therefore exposed to large catastrophe events such as California earthquake and hurricane losses.

A. (iv) US casualty risks

The US casualty portfolio of business provides insurance and reinsurance cover to individuals, or companies, in order to indemnify them against legal liability arising from their activities and actions or for incidents occurring on their property. The account is currently written to a maximum liability of US$6 million on any one claim but average lines are US$0.8 million on any one claim. 2010 gross premium was £47 million.

The portfolio is made up of specialist general casualty, professional indemnity, medical malpractice and errors and omissions cover. Small amounts of directors' and officers' liability and auto liability are also written. The class is mostly written on a claims notified basis (responding to all claims made during a defined period) except for small amounts of general liability business which may be written on a losses occurring basis (the policy responds to losses which occur during the period even if reported after the policy has expired).

Claims from this class emanate from professional error, negligence or an accident which causes injury, damage or financial loss. The account is vulnerable to a high frequency of claims, but not individual large losses as the cost to the Group of any individual claim is small. Claims frequency may be impacted by a generic claim type which impacts many individuals and (re)insurance policies such as poor housing design or bad medical practice. The size of many individual claims is subject to the decisions arising from the US court system which can be higher than anticipated. There is also the potential for US courts to impose a 'bad faith' judgement on insurers if it is deemed that the insurer has acted improperly in trying to avoid contractual obligations. Such awards can, in exceptional circumstances, be much higher than the value of the insurance claim.

A. (v) Accident and health, auto and special risks

Syndicate 2001 also writes other property and casualty classes which contribute diversified exposure to the portfolio.

The main classes with the maximum sum insured lines are shown below:

Property and casualty other classes

	2010 Gross premium £m	Current maximum line size £m	2010 Average line size £m
Accident & health	31	3	0.3
Auto	26	3	0.4

Notes:

(1) Limits are set in US dollars converted to sterling at a rate of exchange of £1=US$1.5 and therefore currency rate of exchange changes may increase or reduce the sterling limits.

(2) Maximum line size is after business written and ceded by specific proportional treaties to Amlin Bermuda.

(3) Premium are stated gross of acquisition costs.

The accident and health class is written through medical expense schemes in the USA and direct personal accident cover, or personal accident reinsurance, worldwide. Medical expense cover is subject to a high frequency of claim and significant medical cost inflation. Personal accident insurance and reinsurance could be impacted by a single or series of accidents to high value insured individuals or from a multiple death and injury event such as an air crash or natural catastrophe.

The auto class covers property damage only (fire, theft and collision) in the USA and property damage and third party motor liability combined cover in other international territories. This class could be impacted by unexpected claim frequency, a multi vehicle event such as a severe flood and also large bodily injury award claims emanating from an accident.

A. (vi) Marine risks

Syndicate 2001 writes a broad account of marine risks with maximum lines as follows:

Marine classes

	2010 Gross premium £m	Current maximum line size £m	2010 Average line size £m
Hull	28	10	2.0
Cargo	26	17	3.0
Energy	57	25	4.4
War and terrorism	35	50	8.3
Specie	10	24	2.5
Bloodstock/livestock	13	4	0.5
Yacht (hull and liability)	31	5	1.2
Liability	28	57	5.1

Notes:

(1) Limits are set in US dollars converted at a rate of exchange of £1 = US$1.5 and therefore currency rate of exchange changes may increase or reduce the sterling limits.

(2) Maximum line size is after business written and ceded by specific proportional treaties to Amlin Bermuda.

(3) Premium are stated gross of acquisition costs.

The hull and cargo account is worldwide, covering property damage to ships and loss, or damage, to a large variety of cargo or goods in transit. The hull account can include machinery breakdown and the account written has historically been targeted towards lower value tonnage, smaller "brownwater" vessels and fishing boats. However, as anticipated following the employment of a new leading class underwriter in December 2009, larger "blue water" ocean hull risks such as cruise liners, tankers and bulk carriers have also been written. These accounts can be impacted by attritional claims of a small size as well as a single individual large claim. The cargo account in particular could also be involved in a major natural catastrophe loss. In an economic recession, it is expected that premium income will fall from these areas as trade reduces and hull values are impacted by reduced freight rates. This trend has occurred in 2010 with reductions in the quantity and value of cargo shipments. It is also possible that claims frequency could increase due to increased economic pressures affecting fraud and theft claims.

The energy portfolio is mainly offshore rig and construction policies which may be impacted by large individual claims from construction fault or property damage such as fire or explosion, but is also exposed to severe catastrophe losses in the North Sea and Gulf of Mexico. The account includes control of well to limit loss of oil and avoid pollution and also some business interruption cover which indemnifies companies for loss of production.

War business includes aviation, marine and on land terrorism coverage. The account is exposed to single incidents or a series of losses arising from concerted action. Political risk, confiscation and contract frustration business is also written.

Specie business consists of the insurance against damage or theft to fine art, the contents of vaults and other high value goods including jewellers' block and cash in transit. The fine art may be shown at exhibitions which have very high aggregate values at risk. The class is therefore exposed to the potential for a frequency of small claims and also large individual losses. Some specie is written in catastrophe zones e.g. California.

The bloodstock account provides coverage for death, illness or injury to horses mainly in the UK. Business from the USA, Australia and South Africa is also written. This covers racing or eventing horses and breeding studs. The average value insured is below £1 million but there is the potential for an aggregate loss, such as a stable fire, which could cause multiple claims.

Crowe Livestock, a leading Lloyd's coverholder for the insurance of livestock, was acquired in November 2009. This agency writes a broad portfolio of protection for livestock and specialist products such as zoo animals, with a maximum line of any one policy of US$10 million. The company also writes employers' liability cover for livestock business up to a limit of £10 million. Again, an event affecting several animals across many policies such as disease could result in a loss significantly higher than this.

Yacht business covers property damage and third party injury for small leisure boats and craft. The bulk of the account is smaller value yachts in the UK and Europe, although there are a number of binders written by coverholders elsewhere, such as Scandinavia, Canada and Australia. There is an expectation of a large number of small claims, as average values are low in comparison to other claims written in the Group. Third party liability yacht claims arise from injury or damage caused by one of our policyholders to third parties. There is also the potential for a large catastrophe loss such as a UK windstorm where there are large aggregate sums insured in coastal regions such as southern England.

The marine liability portfolio is written to protect ship-owners, harbours, charterers and energy companies against damage or injury to third parties. This includes the potential for pollution damage and clean up claims. The account could suffer a large catastrophe incident from a collision causing death of crew and passengers or an oil, or chemical, spill which could incur large clean up costs.

A. (vii) Aviation risks

The Group, through Syndicate 2001, underwrites direct and facultative aviation business domiciled in most parts of the world. Maximum lines are as follows:

Aviation classes

	2010 Gross premium £m	Current maximum line size £m	2010 Average line size £m
Airline (hull & liability)	25	84	34.0
General aviation (hull & liability)	15	57	18.5
Risk Excess (hull & liability)	10	57	11.0
Airports liability	10	57	28.9
Products	6	50	21.7
Space (hull & liability)	4	46	9.1

Notes:

(1) Limits are set in US dollars converted at a rate of exchange of £1 = US$1.5 and therefore currency rate of exchange changes may increase or reduce the sterling limits.

(2) Maximum line size is after business written and ceded by specific proportional treaties to Amlin Bermuda.

(3) Premium is stated gross of acquisition costs.

The airline account is exposed to large claims arising from property damage, death or injury arising from aircraft accidents. The domicile of the airline and passengers has a notable influence on the cost of claims, for example US court awards are generally higher.

The general aviation account covers smaller aircraft or cargo and covers owners or operators, against loss or damage and third party injury. The risk excess account is a book of general aviation reinsurance business written to protect a small number of insurers against large general aviation claims.

Airport liability insurance covers airport operators, refuellers and air traffic controllers against losses arising from injury caused by their activities or occurring on their premises. Product liability covers manufacturers against accidents arising from faulty parts or equipment, or poor servicing of aircraft. Both airport and product liability coverage is written on a losses occurring basis meaning that claims advices can be made after the policy has expired. Space insurance covers property and liability during launch and the operation of satellites whilst in orbit for a limited period, normally of one year.

The Aviation account is subject to both small and large claims. Claims involving loss of life or serious injury to high earning passengers or third parties are subject to the ongoing inflation of court awards particularly in the US. Large accidents involving the potential death of 500 or more passengers are feasible and could potentially result in a gross claim to the business of more than the vertical reinsurance programme if, for example, two large aircraft were to collide. Space losses are generally large single claim amounts caused by launch failure or operational failure in orbit. The principal Aviation accounts are protected by a reinsurance programme on both a risk sharing (proportional) and excess of loss basis. The Group reinsurance arrangements are discussed on page 109. The space account is written with risks shared with Amlin Bermuda but is not protected by excess of loss reinsurance.

B. Amlin UK

B. (i) Non motor risks

Non motor classes

	2010 Gross premium £m	Current maximum line size £m	2010 Average line size £m
Employers' liability	21	27	10.0
Public/products liability	22	12	3.8
Professional indemnity	25	7	1.6
UK commercial property/package	88	52	0.5
Financial institutions fidelity and liability	6	6	1.9

Notes:

(1) Premium is stated gross of acquisition costs.

Amlin UK writes three classes of UK liability. The vast majority of the business emanates from the UK with the balance mainly from Ireland and Canada.

Employers' liability insurance protects employers against accident or injury to employees. This is written on a losses occurring basis (covering events that occurred in the policy period even if they are not notified until after expiry) for limits up to £27 million per employer.

Public liability insurance provides coverage, often written in conjunction with employers' liability, for accident or injury occurring to clients, customers or another third party as a result of contact with the insured's personnel, property or products. This is written on a losses occurring basis currently, for limits up to £12 million per assured.

Professional indemnity covers liability which may arise from services provided by the assured, for example as a result of negligence or error which may lead to financial or physical loss. This includes, but is not limited to, services from architects, engineers, surveyors, advertising firms, medical professionals and financial advisors and is written on a claims made basis (covering losses notified in the policy period).

Amlin UK package policies combine one or more of the liability coverages mainly employers' and public liability with motor and/or property damage protection. Stand alone property protection is also written within this class, mainly on a 100% basis for small and medium commercial and household properties. The property owners account has continued to develop since the recruitment of a specialist underwriting team in June 2009.

Through AUA Insolvency Risk Services Ltd, an FSA registered broker, Amlin UK writes a portfolio of UK insolvency practitioners which provides protection against fraud or negligence committed by the practitioners and also protects the property assets under their management..

The Group also writes a small account of financial institutions policies covering fidelity, professional indemnity and directors' and officers' liability for companies providing financial services. The current maximum line is £6 million. Approximately half of the income is from Western European financial institutions with the balance spread broadly by territory. Coverage is given on a claims made basis.

The expected claims costs from these lines of business may be impacted by larger than anticipated damage awards to injured parties as well as due to an unforeseen increase in generic claims such as industrial disease or other health hazards. It is expected that claims frequency will increase during an economic downturn as unemployment leads to an increase in action against employers and people are more likely to seek redress for third party advice or behaviour which may have led to financial loss or injury. It is also possible that many claims could arise under many policies from a common cause such as financial advice or generic building defect. The financial institutions account could be affected by a major fraud or a series of related liability claims arising from banking, investment activity, stockbroking or other practices. The property portfolio could sustain a large loss from the effects of a UK windstorm or flood event.

B. (ii) UK motor insurance risks

Syndicate 2001's motor insurance risk is predominantly UK business covering fire, theft, collision and third party property and bodily injury liability. 2010 gross premium was £126 million. Under the requirements of UK law third party liability coverage is unlimited, but matching reinsurance is purchased. The account is biased towards commercial clients such as coach operators, haulage companies, commercial vehicle fleets and company executive fleets. The Syndicate leads two facilities for fleets involved in the transportation of hazardous waste. A small UK agriculture and a specialist private car account is also written.

Claims frequency has improved in recent years due to car and road safety measures but can fluctuate due to factors such as weather conditions. UK inflation is a key factor in determining the size of motor claims. Car values affect the size of theft claims and for physical damage claims size is linked to repair costs. Inflationary pressure on court awards within the UK and Irish legal systems impacts liability claim values. Government intervention such as liability award limit changes or expense recoveries for government bodies, including the National Health Service, will also impact claim size. For the motor account, severe bodily injury and catastrophe damage claims (e.g. UK flood) are limited through the purchase of a reinsurance programme, the highest layer of which is unlimited.

Motor insurance is a highly competitive area of insurance and pricing levels fluctuate. Whilst underwriters accept business subject to sufficient rates per vehicle, in a year where there is an unexpectedly high level of claims the total premium may not be sufficient to cover all the claims. There is also a risk that legal changes impact bodily injury payments and result in a requirement to increase reserves for outstanding claims.

C. Amlin France

In May 2010 Anglo French Underwriters SAS (AFU) and the French operations of ACI were merged to form Amlin France. Prior to the merger AFU was the foremost managing general agent serving Lloyd's in France and ACI had started to build a property and liability co-insurance business in France. The merger has created a business with increased critical mass with greater recognition in the French market.

Drawing business from a large network of brokers across France, Amlin France is able to offer a wide range of direct and facultative insurance products designed to respond to the needs of both individuals and corporate clients. Amlin France's business is situated predominantly in France.

Amlin France writes a diverse book of business on behalf of Syndicate 2001 including property, cargo, professional liability and specie through a network of more than 1,350 independent retail brokers. Although the vast majority of these risks have been written on behalf of Syndicate 2001, there continue to be a limited number of policies which do not involve the Group. The portfolio consists of the following classes with maximum and average line sizes:

Amlin France classes

	2010 Gross Premium €m	Current Maximum line size €m	2010 Average Line Size €m
Property
- Synd 2001	25	20	27
- ACI	18	50	1.0
Marine
- Synd 2001	4	10	1.8
Specie
- Synd 2001	3	3	0.3
Professional indemnity
- Synd 2001	5	5	0.7
Liability
- ACI	2	13	2.1

Notes:

(1) Premium are stated gross of acquisition costs.

(2) Maximum line size is shown after facultative reinsurance.

In respect of property, Amlin France acts as both a leading underwriter and co-insurer for industrial high hazard risks providing material damage insurance for the industrial and commercial premises of small and medium sized enterprises. Amlin France also provides a comprehensive package, including liability cover for discotheques, bowling alleys, restaurants, bars and casinos. Perils offered include fire, lightning and associated risks, electrical damage, water damage, storm, tempest, hail, snow and glass breakage. Optional coverages include business interruption, indirect losses, theft from individuals and theft from break-ins. Building insurance is also offered for owners who are not occupiers.

In the marine field, Amlin France provides yacht insurance which includes cover for damage, theft and liability as well as for the costs of marine assistance and marine personal accident. World-wide stock and transit insurance is also provided with All Risks coverage granted on a start to finish basis from the point of supplier to the point of delivery. Transit cover includes all periods when the goods are stocked, in whatever location and without any break in coverage.

Jeweller's block cover is provided for high value contents. All risks coverage is given for stock within the premises, including for break-in, hold-up, fire and water damage. Cover is also given for commercial retail premises such as gunsmiths, perfume and clothing shops and art galleries, including damage caused to art while on show at exhibitions and damage to art kept in private residences. A comprehensive multi-risk product is provided for retailers which includes an extension for fire and water damage within the premises, liability coverage and the preservation of goodwill or business interruption following a loss.

Professional indemnity and financial guarantee insurance is provided to insurance and banking intermediaries as well as financial advisers, real estate agents and financial and investment consultants. This is a multi-layered package which responds to the particular needs of several regulated professions which may require differing types of cover.

Amlin France also offers insurance for events, including cancellation cover, organisers' liability, all risks exhibition cover and all risks coverage on equipment belonging to, hired by or installed by the assured. Amlin France also provides personal accident insurance for professions involving risk and the practice of sporting activities which are deemed hazardous.

For ACI, Amlin France writes a portfolio of large property and liability risks. The property book is mostly written on a co-insurance basis for commercial or industrial premises. The liability account provides general liability coverage for French industrial and commercial enterprises.

D. Amlin AG

In October 2010 the Group re-domiciled its wholly-owned subsidiary, Amlin Bermuda Ltd, from Bermuda to Switzerland following approval from the Swiss Financial Market Authority and the Bermuda Monetary Authority. The new Zurich-based underwriting business (trading as Amlin Re Europe) writes all major non-life reinsurance classes.

Amlin Bermuda Ltd, which was established in December 2005, has become a Bermuda-based branch of Amlin AG.

D. (i). Amlin Re Europe

Amlin Re Europe underwrites property catastrophe, property risk, marine, liability and motor business on a proportional and non-proportional basis. The maximum line for all classes is €20m (20% for unlimited motor policies). Business is sourced from Europe and Israel. By January 2011 Amlin Re Europe had written €3.1m of income attaching to the 2010 underwriting year and a further €66m in respect of 2011.

D (ii). Amlin Bermuda

Amlin Bermuda has continued to write a portfolio of reinsurance business on a direct basis and to reinsure part of the Syndicate 2001 portfolio. The direct written portfolio consists of the following classes with maximum line sizes and split by territory:

Amlin Bermuda direct business risks

	2010 Gross Premium US$m	Current Maximum  line size US$m	2010 Average Line Size US$m
Catastrophe reinsurance (per programme)	266	75	7.2
Proportional reinsurance	67	19	1.4
Per risk property reinsurance (per programme)	70	15	2.8
Special risks	26	32	5.5
Marine reinsurance	6	55	8.1
Accident & health	3	7	3.4
Bloodstock	<1	1	1.1
Casualty	1	5	2.4

Notes:

(1) Premium are stated gross of acquisition costs.

Amlin Bermuda's direct business has strong similarities to the portfolio of the Reinsurance business unit of Syndicate 2001. All of the business written emanates from London broker markets and is frequently seasoned business already underwritten by Syndicate 2001. Risk balance is provided by a whole account quota share of Syndicate 2001. This is further supplemented by a number of specific variable quota share treaties on short tail classes such as property and energy.

Property reinsurance is written through treaty arrangements on a proportional, individual risk excess of loss, or catastrophe excess of loss basis. The catastrophe reinsurance portfolio is the largest class of insurance risk written by Amlin Bermuda. Exposures to each programme are currently limited to US$12.5 million per risk and US$75 million any one catastrophe programme. Overall catastrophe loss limits are applied in relation to specific scenarios as an allocation of total Group tolerances. The current highest modelled loss is US$239 million at 1 January 2011.

The special risks account includes small premium classes mostly relating to terrorism reinsurance but also includes nuclear, short-term trade credit and contingency which is written in all parts of the world.

The accident and health class is written through medical expense schemes in the USA and provides personal accident reinsurance worldwide. Personal accident reinsurance could be impacted by a single or series of accidents to high value insured individuals or from a multiple death and injury event such as an air crash or natural catastrophe.

To date Amlin Bermuda has written risks with limited reinsurance protection and therefore it has higher net retained exposures to individual risk losses or catastrophe than the Syndicate currently bears.

E. Amlin Corporate Insurance

In July 2009 Amlin acquired Fortis Corporate Insurance N.V., subsequently renamed Amlin Corporate Insurance N.V. (ACI), a leading commercial insurer operating in the Benelux. As described in Section C, ACI's French operation was merged with Amlin France in May 2010.

ACI writes four main classes of business; motor, liability, property and marine, mainly for commercial clients locally. Exposures are predominantly in Belgium, the Netherlands and France apart from marine transportation risks or where an insured has exposures overseas.

ACI classes

	2010 Gross Premium €m	Current Maximum line size €m	2010 Average Line Size €m
Property and engineering	141	50	3.9
Hull	173	25	0.8
Cargo	180	25	0.9
Builders risks	76	50	3.8
Liability	111	13	2.1
Fleet Motor	59	unlimited	unlimited

Notes:

(1) This analysis excludes captive companies where there is little or minimum retention of risks.

(2) Maximum linesize is shown after facultative reinsurance.

(3) Premium is stated gross of acquisition costs.

ACI's property account is mainly large schedules of properties (e.g. for municipalities) written on a coinsurance basis in the Netherlands and larger commercial industrial clients in Belgium and France. The company is a leader in both territories. Overseas exposure is written mainly from the large commercial industrial portfolio where there are client operations overseas. The engineering book includes contractors all risks, machinery breakdown and some computer equipment.

The marine portfolio covers general cargo, a large commodities book for Belgian trading corporations, hull, land equipment, builders' risk (where ACI are a recognised market leader), inland hull and large yachts. This portfolio is being re-underwritten due to high loss ratios in some sub-classes and the mix of business is therefore likely to change.

ACI also underwrites a range of marine products via an agency agreement with Raets Marine including marine liability, cargo and hull.

The non-marine liability portfolio in the Netherlands is professional indemnity and general liability written on a claims-made basis, particularly for property related professions and miscellaneous professions such as travel operators. In Belgium, ACI are a recognised leader in medical liability and general liability is written on a losses occurring form.

Across the portfolio maximum and average line sizes are higher for ACI than those written in Amlin London. This reflects the leading position of the company in the local industrial, commercial and marine markets. Furthermore, there is limited aggregation between this portfolio and catastrophe reinsurance business written elsewhere in the Group and all of ACI's book is protected by reinsurance on a per risk and catastrophe excess of loss basis.

The commercial motor account is comprised of domestic company fleets including a large leasing and rental fleet written in the Netherlands and a smaller portfolio in Belgium. Over 70% of the book is cars, vans or commercial vehicles. There is a large underwriting agency book in the Netherlands.

Captive business is written in Belgium as fronting for captive reinsurers of large industrial companies. ACI retain small amounts of these risks but receive a fronting fee. Analysis is carried out on captives to manage potential credit risk.

Reinsurance arrangements

Syndicate 2001 purchases proportional reinsurance to supplement line size and to reduce exposure on individual risks, notably for aviation and large property risks. A part of the premium ceded under such facilities is placed with Amlin Bermuda and for risks incepting during 2009, a separate proportional facility is placed for the excess of loss reinsurance portfolio through a Special Purpose Syndicate at Lloyd's, Syndicate 6106. Syndicate 2001 also purchases a number of excess of loss reinsurances to protect itself from severe frequency or size of losses. The structure of the programme and type of protection bought will vary from year to year depending on the availability and price of cover.

On large risks, individual facultative reinsurance may be bought which protects against a loss to that specific risk.

Specific risk excess of loss reinsurance is purchased for each class of business. The amount of cover bought depends upon the line size written for each class. The deductibles or amounts borne prior to recovery vary from class to class as do the amounts of co-reinsurance or unplaced protection. Specific programmes are purchased to deal with large individual risk losses, such as fire or large energy losses, and these programmes may be combined at a higher level into a general programme for larger losses.

UK and French direct property business is now protected by a European wind programme which also protects ACI's Dutch and French exposures.

The combined claims to Syndicate 2001 from several losses which aggregate in a single catastrophe event are protected by catastrophe cover. A separate excess of loss on excess of loss programme is purchased to protect the excess of loss reinsurance portfolio against such losses. Since 2006, the amount of excess of loss reinsurance purchased is lower and for the first loss only responds to losses in excess of US$135 million. However, in 2010 combined aggregate and catastrophe protection was also purchased to provide some lower level cover in the event of multiple losses to the portfolio.

Amlin Bermuda purchased combined aggregate and catastrophe excess of loss protection in 2010 to protect its non-proportional and proportional treaty portfolio in excess of US$175 million for the first loss, although aggregate cover is also provided at a lower level for the third and additional loss excess of US$100 million retention.

ACI buys a comprehensive programme for each class of business. Specific cover is placed for engineering, personal accident, motor, liability, energy and builders' risks. A general programme is placed for the remaining marine exposures and the property account is protected by both per risk and catastrophe excess of loss, which is now combined with the Group's other UK and French exposures.

There is no guarantee that reinsurance coverage will be available to meet all potential loss circumstances as, for very severe catastrophe losses, it is possible that the full extent of the cover bought is not sufficient. Any loss amount which exceeds the programme would be retained by the Group. It is also possible that a dispute could arise with a reinsurer which reduces the recovery made. The reinsurance programme is bought to cover the expected claims arising on the original portfolio. However, it is possible for there to be a mismatch, or a gap in cover, which would result in a higher than expected retained loss.

Many parts of the programme also have limited reinstatements and therefore the number of claims which may be recovered from second or subsequent major losses is limited. It is possible for the programme to be exhausted by a series of losses in one annual period and it may not be possible to purchase additional reinsurance at all or for an acceptable price. This would result in the Group bearing higher losses from further events occurring. It should also be noted that the renewal date of the reinsurance programmes does not necessarily correspond to that of the business written. Where business is not protected by risk attaching reinsurance (which provides coverage for the duration of all the policies written) this reinsurance protection could expire resulting in an increase in possible loss retained by Syndicate 2001 if renewal of the programme is not achieved.

Amlin Bermuda purchased combined aggregate and catastrophe excess of loss protection in 2010 to protect its non-proportional and proportional treaty portfolio.

ACI buys a comprehensive programme for each class of business. Specific cover is placed for engineering, personal accident, motor, liability, energy and builders' risks. A general programme is placed for the remaining marine exposures and the property account is protected by both per risk and catastrophe excess of loss.

Realistic Disaster Scenario (RDS) analysis

The Group has a defined event risk appetite which determines the maximum net loss that the Group intends to limit its exposure with respect to major modelled catastrophe event scenarios. Currently these are a maximum of £165 million for Syndicate 2001 and US$330 million for Amlin Bermuda any one zone or £180 million for Syndicate 2001 and US$360 million for a multi-zonal loss. ACI operates with a maximum event limit of €30 million for the modelled European storm event and Amlin AG has a potential maximum of €100 million for a European windstorm. The Group Catastrophe risk team are responsible for aggregating potential scenarios and as at 1 January 2011 levels of exposure are significantly below the potential maximum tolerances, loss from European windstorm scenario being £286 million for the Group. At present the Group is not utilising the full extent of its risk appetite.

These scenarios are extraordinary events - with an estimated occurrence probability of less than 1 in 100 years estimated for the natural peril or elemental losses. The Group also adopts risk appetite maximum net limits for a number of other non-elemental scenarios, including aviation collision and North Sea rig loss.

The risk appetite policy recognises that there may be circumstances in which the net event limit could be exceeded. Such circumstances include changes in rates of exchange, non renewal or delay in renewal of reinsurance protection, reinsurance security failure, or regulatory and legal requirements.

A detailed analysis of catastrophe exposures is carried out every quarter and measured against risk appetite. The following assumptions and procedures are used in the process:

·  The data used reflects the information supplied to the Group by insureds and ceding companies. This may prove to be incomplete, inaccurate or could develop during the policy period;

·  The exposures are modelled using a mixture of stochastic models and underwriter input to arrive at 'damage factors' - these factors are then applied to the assumed aggregate exposure to produce gross loss estimates. The damage factors may prove to be inadequate;

·  The reinsurance programme as purchased is applied - a provision for reinsurer counterparty failure is included in the analysis but may prove to be inadequate; and

·  Reinstatement premiums both payable and receivable are included.

There is no guarantee that the assumptions and techniques deployed in calculating these event loss estimate figures are accurate.

Furthermore, there could also be a loss which exceeds these figures. The likelihood of such a catastrophe is considered to be remote, but the most severe scenarios modelled are simulated events and these simulations could prove to be unreliable.

Insurance liabilities and reinsurance assets: Calculation of incurred but not reported (IBNR) and claims development

Amlin adopts a rigorous process in the calculation of an adequate provision for insurance claim liabilities. The overriding aim is to establish reserves which are expected to be at least adequate and that there is consistency from year to year. Therefore, the level of reserves are set at a level above the actuarial 'best estimate' position. However, there is a risk that, due to unforeseen circumstances, the reserves carried are not sufficient to meet insurance claim liabilities reported in future years on policy periods which have expired.

Process and methodology

The reserving process commences with the proper recording and reporting of claims information which consists of paid and notified or outstanding claims. For the London market business information is received through Xchanging (the London market bureau) and, in the case of Amlin UK business, service companies, ACI and Amlin Bermuda, directly from brokers and policyholders. Claims records are maintained for each class by the underwriting year to which the policy incepts. For notified or outstanding claims, a case reserve is established based on the views of underwriting management and claims managers, using external legal or expert advice where appropriate. This reserve is expected to be sufficient to meet the claim payment when it is finally determined. For some classes of business, particularly liability business, settlement may be several years after the initial notification of the claim, as it may be subject to complexities or court action. For claims received from Xchanging, the market reserve is generally set by the lead underwriter, but there are circumstances on larger claims where Amlin will post higher reserves than those notified.

To establish a provision for IBNR claims, the underwriting and claims teams in the UK, Bermuda and France use their experience and knowledge of the class of business to estimate the potential future development of each class for every underwriting year. ACI adopt a different approach with Group Actuarial producing a set of best estimate reserves to which local management add additional prudence based on their knowledge of the business. Statistics are used in all cases to fully recognise the different potential development of each class of business. The development period varies by class, by method of acceptance and is also determined by the deductible of each policy written. For casualty business, the policy form will determine whether claims can be made on a claims made (as advised) or as a losses occurring (determined by date of loss) basis. This has a significant impact on the reporting period in which claims can be notified. In setting the IBNR provision estimates are made for the ultimate premium and ultimate gross claims value for each underwriting year. Allowance is then made for anticipated reinsurance recoveries to reach a net claim position.

Reinsurance recoveries are calculated for outstanding and IBNR claims, sometimes through the use of historical recovery rates or statistical projections, and provisions are made as appropriate for bad debt or possible disputes. The component of ultimate IBNR provision estimates and reinsurance recoveries that relates to future events occurring to the existing portfolio is removed in order to reflect GAAP accounting practice.

To assist with the process of determining the reserves, triangulation statistics for each class are produced which show the historical development of premium, as well as paid and incurred losses, for each underwriting year, from inception to the date of review. ACI has similar statistics based on the date of premium receipt and claim advice rather than policy inception. Each class triangulation is also independently analysed by the internal actuarial team using actuarial software as appropriate. The aim of the actuarial exercise is to produce 'best estimate' ultimate premium and claims amounts which can be compared to, or used to produce, the figures proposed by divisional management. Amlin London, Amlin UK, Amlin France and ACI meetings are held in which executive management, actuarial staff and business management discuss claims issues and analyse the proposed and independently generated reserves to conclude the provision to be carried.

For Amlin Bermuda, which commenced underwriting in 2005, historical statistics for Syndicate 2001's relevant classes of business have been used as a guide for actuarial review in addition to Amlin Bermuda's own data and the review discussion is conducted in conference or by email correspondence.

Final reserve submissions are provided for the approval of Boards, as required.

Areas of uncertainty

The reserves established can be more or less than adequate to meet eventual claims arising. The level of uncertainty varies significantly from class to class but can arise from inadequate case reserves for known large losses and catastrophes or from inadequate provision for IBNR. The impact on profit before tax of a +/- 1% variation in the total net claims reserves would be +/- £22.5 million (2009: £20.1 million).

Large loss case reserves are determined through careful analysis of the individual claim, often with the advice of legal advisers. Liability claims arising from events such as the 11 September 2001 terrorist attacks in the US are examples of cases where there continues to be some uncertainty over the eventual value of claims.

Property catastrophe claims, such as earthquake or hurricane losses, can take several months, or years, to develop as adjusters visit damaged property and agree claim valuations. Until all the claims are settled it requires an analysis of the area damaged, contracts exposed and the use of models to simulate the loss against the portfolio of exposure in order to arrive at an estimate of ultimate loss to the Group. There is uncertainty over the adequacy of information and modelling of major losses for a period of several months after a catastrophe loss. Account should also be taken of factors which may influence the size of claims such as increased inflation or a change in law.

The long tail liability classes, for which a large IBNR has to be established, represent the most difficult classes to reserve because claims are notified and settled several years after the expiry of the policy concerned. This is particularly the case for US liability written on a losses occurring basis.

The use of historical development data, adjusted for known changes to wordings or the claims environment, is fundamental to reserving these classes. It is used in conjunction with the advice of lawyers and third party claims adjusters on material single claims.

The allocation of IBNR to the reinsurance programme is an uncertain exercise as there is limited knowledge of the size or number of future claims advices. The assumption over future reinsurance recoveries may be incorrect and unforeseen disputes could arise which would reduce recoveries made.

Dynamic financial analysis (DFA) modelling of risk

To improve our risk management capability, and our assessment of capital requirements, Amlin has developed a stochastic model covering all entities of the Group. This enables standalone modelling for each entity as well as a consolidated Group total position. Amlin is now currently working to incorporate Amlin Re Europe into this model. The output from the model includes a distribution of outcomes from reserves for prior written liabilities, investment performance, and new business underwriting performance. The result is a combined view of the expected best estimate mean profitability and the range of possibilities around it.

The model requires the input of a large number of explicit parameters. Those inputs are based on many different sources of information including detailed historical data on premium and claims, forecast income and exposures, estimated rating levels and catastrophe loss data from proprietary models applied to Amlin's portfolio. It enables projection of an estimated mean ultimate loss ratio and the distribution of results around it. The model explicitly recognises diversification credit, since class results are not all strongly correlated and thus individual classes are unlikely to all produce losses (or profits) in the same year. Due to the inherent uncertainty of predicting the key drivers of business performance, including in particular claims levels, any individual simulation of the model viewed in isolation cannot be relied upon as an accurate forecast. However, the output from many thousands of simulated results can provide a picture of the possible distribution of insurance business results. This output is useful in developing an understanding of the losses which may be borne by the business at varying levels of probability.

There are a large number of uncertainties and difficulties in achieving accurate results from the model. Some of the key issues are:

·  The model is based on a best estimate view of business volumes and rate expectations, which may not be borne out in practice;

·  A significant change in the portfolio of business could result in the past not being a reliable guide to the future;

·  Changing external environmental factors may not be assessed accurately;

·  Model risk may be significant in such a complex and developing discipline;

·  Key assumptions over levels of correlation between classes may over time prove to be incorrect; and

·  Catastrophe model inputs, which estimate the severity and frequency of large catastrophes on the portfolio, may be incorrect.

The result reproduced in the table below represents the modelled loss sustained by the business from a single 1 in 200 bad year i.e. at the 0.5 percentile. This probability is the calculation benchmark required by the FSA and Lloyd's. However, it does not represent the level of capital required for Amlin to support current and expected business levels, which should be considered over a longer period of modelling. Furthermore, Amlin is required to carry higher levels of capital which are sufficient in the eyes of rating agencies and clients. This analysis includes our modelling of the Group, including the ACI portfolio of assets and liabilities. The parameterisation of the ACI portfolio is at a relatively immature stage and therefore the contribution of this element may develop as our understanding improves. For the new European reinsurance portfolio written by Amlin Re Europe, modelling is at an early stage and will develop significantly over the next five years.

2011 forecast	£m
Underwriting risk	(367)
Reserving risk	(283)
Credit (reinsurance counterparty risk)	(53)
Investment (market risk)	13
Liquidity risk	(3)
Operational risk	(61)
Discounting credit	54
Diversified result	(700)

Notes:

(1) All figures are based on business plan forecasts which are currently under review for changes in the trading environment, interest rate outlook and movements in rates of exchange.

(2) These figures are derived from Amlin's Group DFA model and based on data as at the end of Q4 2010.

(3) No dividend or tax is considered.

(4) Investment (market) risk now includes explicit modelling of currency risk.

(5) Non-sterling amounts have been converted at market rates of exchange as at Q4 2010 (US$1.56: C$1.55: €1.17).

(6) Figures include an allowance for investment returns generated on assets backing the insurance liabilities (i.e. discounting). The discounting credit shown represents the release from the balance sheet by discounting the mean best estimate reserves.

(7) Investment income includes Group corporate (surplus) assets. Investment risk after diversification remains positive since at around the 1 in 200 level total investment income (on both surplus and technical assets) exceeds the investment income implicitly assumed via discounting on the technical assets alone.

(8) No credit has been taken for carried reserve margins.

Claims development

The tables below illustrate the development of the estimates of ultimate cumulative claims for the consolidated Group (excluding ACI), Amlin London, Amlin UK, Amlin France (excluding ACI France) and Amlin Bermuda after the end of the underwriting year, illustrating how amounts estimated have changed from the first estimates made. Tables for ACI, which include ACI France, have been constructed on an accident year basis. All tables are prepared excluding the effect of intra-group reinsurance arrangements and are prepared on an undiscounted basis. Non-sterling balances have been converted using 2010 exchange rates to aid comparability.

Group (excluding ACI) Gross basis Underwriting year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m	2010 £m
Current ultimate gross written premium	1,108.8	1,103.5	1,112.5	1,270.2	1,214.4	1,189.9	1,381.3	1,478.6
Current gross earned premium	1,108.8	1,103.5	1,112.5	1,270.2	1,214.4	1,189.9	1,322.6	798.8
Estimate of cumulative claims
at end of underwriting year	633.1	729.4	1,015.4	610.7	643.1	897.7	704.1	910.3
One year later	503.8	720.9	1,053.9	505.3	566.3	758.4	672.0
Two years later	428.5	681.3	1,017.3	481.8	516.8	728.1
Three years later	407.6	653.6	981.8	456.2	502.3
Four years later	401.4	638.6	964.3	445.2
Five years later	392.4	634.2	943.9
Six years later	380.7	631.7
Seven years later	371.5
Cumulative payments	341.6	589.6	878.0	366.5	365.3	505.8	266.7	87.5
Estimated balance to pay	29.9	42.1	65.9	78.7	137.0	222.3	405.3	822.8

Net basis Underwriting year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m	2010 £m
Estimate of cumulative claims
at end of underwriting year	529.6	586.6	624.4	544.8	565.8	721.8	618.3	805.5
One year later	419.6	533.6	612.1	442.2	495.8	598.3	576.2
Two years later	357.9	491.8	590.5	432.0	451.8	570.3
Three years later	338.6	471.1	561.6	408.7	441.6
Four years later	330.3	453.9	548.6	398.9
Five years later	322.5	448.4	528.2
Six years later	312.9	441.8
Seven years later	303.1
Cumulative payments	279.8	406.3	471.2	327.7	323.9	391.5	236.5	84.0
Estimated balance to pay	23.3	35.5	57.0	71.2	117.7	178.8	339.7	721.5

The Group's net aggregate reserve releases from all prior years amounted to £156.5 million (2009: £174.1 million). In part, this arises from the Group's reserving philosophy which aims to make the most recent years, with the greatest uncertainty of result, prudently reserved leaving a potential for subsequent release.

This differs from the £126.9 million stated in the claims development table above as the table above is on an underwriting year basis and the surpluses in this narrative are on an annually accounted basis. The table above excludes any net aggregate reserve releases from 2002 and prior years. Also the table above excludes ACI, which is accounted for on an accident year basis and for which net reserve releases are £43.4 million (2009: £16.4 million). The ACI table also excludes any net aggregate reserve releases from 2002 and prior years.

Further details on these reserve releases and other aspects of the underwriting performance are included in the Performance Section of this Annual Report

Amlin London Gross basis Underwriting year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m	2010 £m
Current ultimate gross written premium	899.8	910.1	939.0	972.8	891.9	807.9	892.7	907.9
Current gross earned premium	899.8	910.1	939.0	972.8	891.9	807.9	857.6	483.9
Estimate of cumulative claims
at end of underwriting year	487.2	602.3	899.3	463.8	468.7	624.2	454.2	536.2
One year later	373.0	607.7	941.1	373.0	407.7	516.5	424.0
Two years later	325.2	575.7	913.0	349.6	366.6	474.6
Three years later	310.0	561.1	891.2	334.5	352.8
Four years later	303.5	550.6	873.7	326.2
Five years later	304.0	546.2	862.9
Six years later	299.9	541.6
Seven years later	290.6
Cumulative payments	268.3	513.5	813.7	280.4	278.8	359.9	160.4	31.4
Estimated balance to pay	22.3	28.1	49.2	45.8	74.0	114.7	263.6	504.8

Net basis Underwriting year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m	2010 £m
Estimate of cumulative claims
at end of underwriting year	402.9	475.0	519.5	406.1	398.2	462.2	375.4	439.6
One year later	309.1	430.8	509.9	318.3	347.8	370.1	337.4
Two years later	264.9	397.5	492.2	306.2	312.7	331.3
Three years later	249.7	382.2	472.5	292.4	301.0
Four years later	241.2	369.3	459.5	282.9
Five years later	241.2	363.8	448.7
Six years later	237.7	358.6
Seven years later	228.6
Cumulative payments	211.7	335.6	406.9	243.4	237.9	247.2	131.2	27.9
Estimated balance to pay	16.9	23.0	41.8	39.5	63.1	84.1	206.2	411.7

Amlin UK Gross basis Underwriting year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m	2010 £m
Current ultimate gross written premium	209.0	193.4	172.3	152.2	148.1	160.3	215.4	248.6
Current gross earned premium	209.0	193.4	172.3	152.2	148.1	160.3	200.8	106.0
Estimate of cumulative claims
at end of underwriting year	145.9	127.1	116.1	103.6	102.4	118.7	138.1	169.0
One year later	130.8	113.2	112.0	107.6	103.8	125.1	152.0
Two years later	103.3	105.6	103.9	103.0	103.2	127.7
Three years later	97.6	92.5	90.3	95.6	105.3
Four years later	97.9	88.0	90.3	93.6
Five years later	88.4	88.0	80.7
Six years later	80.8	90.1
Seven years later	80.9
Cumulative payments	73.3	76.1	64.0	62.9	52.3	52.1	54.0	16.6
Estimated balance to pay	7.6	14.0	16.7	30.7	53.0	75.6	98.0	152.4

Net basis Underwriting year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m	2010 £m
Estimate of cumulative claims
at end of underwriting year	126.7	111.6	104.9	95.4	95.6	104.8	131.1	160.8
One year later	110.5	102.8	101.4	99.2	93.2	111.4	142.8
Two years later	93.0	94.3	97.9	96.6	92.1	113.2
Three years later	88.9	88.9	88.8	90.2	96.4
Four years later	89.1	84.6	88.8	90.6
Five years later	81.3	84.6	79.2
Six years later	75.2	83.2
Seven years later	74.5
Cumulative payments	68.1	70.7	64.0	61.1	51.8	50.5	53.0	16.6
Estimated balance to pay	6.4	12.5	15.2	29.5	44.6	62.7	89.8	144.2

Amlin France Gross basis Underwriting year	2008 £m	2009 £m	2010 £m
Current ultimate gross written premium	2.1	25.0	31.3
Current gross earned premium	2.1	25.0	23.2
Estimate of cumulative claims
at end of underwriting year	0.0	13.6	21.9
One year later	0.4	15.4
Two years later	0.4
Cumulative payments	0.4	14.3	5.1
Estimated balance to pay	0.0	1.1	16.8

Net basis Underwriting year	2008 £m	2009 £m	2010 £m
Estimate of cumulative claims
at end of underwriting year	0.0	13.6	21.9
One year later	0.4	15.4
Two years later	0.4
Cumulative payments	0.4	14.3	5.1
Estimated balance to pay	0.0	1.1	16.8

Business written prior to the acquisition of Amlin France in 2008, ceded to Syndicate 2001, is included in the Amlin London table.

Amlin Bermuda Gross basis Underwriting year	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m	2010 £m
Current ultimate gross written premium	1.2	145.2	174.4	219.6	248.2	290.8
Current gross earned premium	1.2	145.2	174.4	219.6	239.2	185.7
Estimate of cumulative claims
at end of underwriting year	0.0	43.3	72.0	154.8	98.2	183.2
One year later	0.8	24.7	54.8	116.4	80.6
Two years later	0.4	29.2	47.0	125.4
Three years later	0.3	26.1	44.2
Four years later	0.3	25.4
Five years later	0.3
Cumulative payments	0.3	23.2	34.2	93.4	38.0	34.4
Estimated balance to pay	0.0	2.2	10.0	32.0	42.6	148.8

Net basis Underwriting year	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m	2010 £m
Estimate of cumulative claims
at end of underwriting year	0.0	43.3	72.0	154.8	98.2	183.2
One year later	0.8	24.7	54.8	116.4	80.6
Two years later	0.4	29.2	47.0	125.4
Three years later	0.3	26.1	44.2
Four years later	0.3	25.4
Five years later	0.3
Cumulative payments	0.3	23.2	34.2	93.4	38.0	34.4
Estimated balance to pay	0.0	2.2	10.0	32.0	42.6	148.8

Amlin Corporate Insurance Gross basis Accident year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m	2010 £m
Current ultimate gross written premium	442.7	480.9	500.3	513.7	564.4	659.2	621.2	678.0
Current gross earned premium	437.4	471.5	499.9	509.1	543.3	639.2	649.5	587.2
Estimate of cumulative claims
at end of accident year	222.7	241.7	266.7	303.4	337.2	542.6	432.1	429.5
One year later	252.7	277.1	368.9	317.6	351.1	532.9	443.2
Two years later	238.8	257.4	354.0	318.1	376.5	522.9
Three years later	234.9	252.5	337.1	304.7	365.5
Four years later	227.0	243.7	328.2	301.9
Five years later	224.8	218.5	320.8
Six years later	223.9	216.6
Seven years later	222.7
Cumulative payments	196.0	186.9	288.8	248.9	288.8	376.3	226.5	95.8
Estimated balance to pay	26.7	29.7	32.0	53.0	76.7	146.6	216.7	333.7

Net basis Accident year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m	2010 £m
Estimate of cumulative claims
at end of accident year	187.3	180.6	216.9	248.0	297.1	417.0	402.1	394.6
One year later	200.3	209.5	233.5	262.6	296.9	414.2	416.0
Two years later	189.6	194.2	216.4	256.4	308.0	408.5
Three years later	185.8	189.6	202.3	251.1	291.8
Four years later	173.7	178.7	199.4	244.2
Five years later	171.7	175.7	190.2
Six years later	170.8	180.1
Seven years later	161.9
Cumulative payments	140.5	154.3	169.4	202.3	227.9	276.9	182.8	93.0
Estimated balance to pay	21.4	25.8	20.8	41.9	63.9	131.6	233.2	301.6

3.2 Financial investment risk

Market risk

Risk management

The following section describes the Group's investment risk management from a quantitative and qualitative perspective.

The Group has two main categories of assets:

Underwriting assets. These are premiums received and held to meet future insurance claims.

Capital assets. These are the capital required by the regulators to support the underwriting business plus working capital and surplus funds. Apart from the outstanding borrowings, these assets do not have specific current liabilities attached to them.

Investment governance

The Group manages its investments in accordance with investment frameworks that are set by the Boards of Amlin plc and its subsidiaries. These frameworks determine investment governance and the investment risk tolerance. They are reviewed on a regular basis to ensure that the Boards' fiduciary and regulatory responsibilities are being met. Day to day management of the investments is delegated to the Investment Management Executive or members of the relevant subsidiary's executive, who are advised by the Chief Investment Officer.

The Investment Management Executive comprises the Chief Executive, Group Finance Director and Chief Investment Officer, and meets at least quarterly to consider whether the strategic asset allocation and tactical asset allocation ranges are appropriate to optimise investment returns within the risk tolerances set by the Boards. Group Investments, led by the Chief Investment Officer, is responsible for tactical asset allocation and the appointment of external investment managers and custodians.

The Investment Advisory Panel, which consists of external investment professionals as well as members of the Investment Management Executive, meets quarterly. The Panel provides challenge to the Group's view of future economic activity and asset class performance. In addition, Group Compliance and external lawyers provide advice on investment regulations.

Risk tolerance

Investment risk tolerances are set by the Board of Amlin Plc and its subsidiaries. The investment process is driven from the risk tolerance which is determined by reference to factors such as the underwriting cycle and the requirements of the capital providers. In a hard underwriting market capital preservation is paramount in order to support the insurance business and, therefore, the risk tolerance for the capital assets will be low. Conversely, the risk tolerance for the underwriting assets under these circumstances will be relatively high due to the strong cash flow. In a soft underwriting market the opposite applies.

Investment risk is independently monitored by the Risk Assessment and Monitoring department using a bespoke investment risk model. The Head of Investment Risk reports regularly to the Investment Management Executive and to the Group Risk Committee.

Strategic asset allocation

Each of the Group's principal subsidiaries has its own strategic asset allocations which are set according to its risk tolerance and liabilities.

The strategic asset allocation for capital assets are set by using a Value at Risk (VaR⁽¹⁾) model, to determine the optimum asset allocation for the current risk tolerance which ensures that appropriate solvency levels are maintained.

The expected timescale for future cash flows in each currency is calculated by the Group Actuarial team. The average durations are the neutral position for the strategic asset allocation for the policyholders' funds.

Tactical ranges around these strategic asset allocations provide flexibility to ensure that an appropriate risk/reward balance is maintained in changing investment markets.

Investment management

The investments are run on a multi-asset, multi-manager basis. Exposure to the asset classes is achieved using physical or derivative instruments and may be managed by Group Investments or by outsourced managers, on a segregated, pooled or commingled basis⁽²⁾. The manager selection is based on a range of criteria that leads to the expectation that they will add value to the funds over the medium to long-term. The managers have discretion to manage the funds on a day-to-day basis within investment guidelines or prospectuses applicable to their funds that ensure that they comply with the investment frameworks. The managers performance, compliance and risk is monitored on an ongoing basis.

The managers as at 31 December 2010 were as follows:

Manager	Asset class
Segregated funds
Aberdeen Fund Management Ltd	US Dollar bonds
ING Real Estate Investment Management (UK Funds) Ltd	Property manager of managers
Insight Investment Management (Global) Ltd	Sterling and Euro bonds
Taube Hodson Stonex Partners LLP	Global equities
Townsend Group Europe Ltd	Global property
Veritas Asset Management (UK) Ltd	Active global equity
Wellington Management International Ltd	US and Canadian Dollar bonds
Pooled vehicles
BlackRock Inc.	Sterling, Euro and US Dollar liquidity funds
BlueBay Asset Management Ltd	Euro bonds
BNP Paribas Investment Partners	Sterling, Euro and US Dollar liquidity funds
Goldman Sachs Asset Management International	Sterling, Euro and US Dollar liquidity funds and LIBOR plus fund
HSBC Asset Management	US Dollar liquidity funds
Insight Investment Management (Global) Ltd	Sterling liquidity fund
JP Morgan Asset Management	US Dollar liquidity funds
Leadenhall Capital Partners LLP	Insurance linked securities
PIMCO	Sterling and US Dollar bonds
Western Asset Management	US Dollar liquidity fund
Commingled funds
Corporation of Lloyd's Treasury Services	US Dollar, Canadian Dollar, Australian Dollar, South African and Japanese bonds
Union Bank of Switzerland	Canadian and US Dollar liquid funds

The funds under management with each manager are shown below:

	Aberdeen £m	AG Insurance £m	Black rock £m	BlueBay £m	BNP Paribas £m	CAAM £m	Corporation of Lloyd's £m	Goldman Sachs £m	HSBC £m	ING £m	Insight £m	JP Morgan  £m	Leadenhall Capital £m	PIMCO  £m	THS  £m	Townsend £m	UBS £m	Veritas £m	Wellington £m	Western £m	Total £m
Total as at 31 December 2010	253.6	-	119.5	337.5	130.4	-	84.3	734.0	241.7	43.9	776.6	54.1	74.9	605.6	244.9	30.7	27.3	130.0	390.4	20.8	4,300.2
%	5.9	-	2.8	7.8	3.0	-	2.0	17.1	5.6	1.0	18.1	1.3	1.7	14.1	5.7	0.7	0.6	3.0	9.1	0.5	100.0
Total as at 31 December 2009	356.3	432.9	35.1	108.4	24.1	61.9	70.9	516.8	91.8	74.2	974.4	41.9	67.5	569.3	184.3	-	28.0	-	423.1	11.2	4,072.1
%	8.7	10.6	0.9	2.7	0.6	1.5	1.7	12.7	2.3	1.8	23.9	1.0	1.7	14.0	4.5	-	0.7	-	10.4	0.3	100.0

Note: The table above excludes the Group's directly held securities of £25.4 million (comprising index linked bonds £20.3 million, insurance linked securities £3.3 million and other liquid investments £1.8 million).

(1)       VaR is a statistical measure, which calculates the possible loss over a year, in normal market conditions. As VaR estimates are based on historical market data this should not be viewed as an absolute gauge of the level of risk to the investments

 

Asset allocation

The analysis in this section covers the investments for which the Group investment team has management responsibility. The total value of investments in the following tables is reconciled to note 17 financial assets and liabilities as follows:

	2010 £m	2009 £m
Net financial investments per note 17	4,300.4	3,965.0
Assets shown separately in the notes to the accounts:
Accrued income	14.8	31.1
Net unsettled payables for investments sold	(5.1)	(5.2)
Net assets of operations classified as held for sale	-	63.7
Deposits with credit institutions	35.7	55.0
Assets not analysed in the investment risk tables that follow:
Liquid investments	(10.3)	(12.8)
Unlisted equities	(9.0)	(8.9)
Spread syndicates	-	(4.3)
Derivative hedging instruments	(0.9)	(11.5)
Total investments in asset allocation tables	4,325.6	4,072.1

The asset allocation of the Group's investments is set out below.

	31 December 2010				31 December 2009
	Underwriting assets £m	Capital £m	Total £m	Total %	Underwriting assets £m	Capital £m	Total £m	Total %
Global equities	-	347.1	347.1	8.0	-	167.3	167.3	4.1
Bonds
Government securities	513.6	211.3	724.9	16.8	775.5	412.9	1,188.4	29.2
Government index-linked securities	-	20.4	20.4	0.5	16.5	-	16.5	0.4
Government agencies/guaranteed	91.7	9.3	101.0	2.3	168.2	3.3	171.5	4.2
Supranational	41.6	-	41.6	1.0	58.1	-	58.1	1.5
Asset backed securities - Home equity	-	6.0	6.0	0.1	-	8.8	8.8	0.2
Asset backed securities - Autos	32.1	8.3	40.4	0.9	34.0	17.1	51.1	1.3
Asset backed securities - Cards	7.0	11.9	18.9	0.4	12.6	-	12.6	0.3
Asset backed securities - Other	6.1	1.0	7.1	0.2	3.5	-	3.5	0.1
Mortgage backed securities - Prime	105.5	42.9	148.4	3.4	99.2	35.2	134.4	3.3
Mortgage backed securities - Alt A	-	0.8	0.8	-	-	1.8	1.8	-
Corporate bonds - Basic resources/materials	-	3.7	3.7	0.1	-	-	-	-
Corporate bonds - Consumer goods	4.0	0.9	4.9	0.1	10.7	1.5	12.2	0.3
Corporate bonds - Consumer services	7.3	6.5	13.8	0.3	-	6.8	6.8	0.2
Corporate bonds - Financials	84.8	22.4	107.2	2.5	298.5	43.9	342.4	8.4
Corporate bonds - Healthcare	3.6	1.9	5.5	0.1	9.4	2.0	11.4	0.3
Corporate bonds - Industrials	9.0	6.4	15.4	0.4	16.8	12.1	28.9	0.7
Corporate bonds - Miscellaneous	0.7	-	0.7	-	0.3	-	0.3	-
Corporate bonds - Oil & Gas	7.8	7.4	15.2	0.3	4.2	1.4	5.6	0.1
Corporate bonds - Technology	6.0	0.9	6.9	0.2	5.1	-	5.1	0.1
Corporate bonds - Telecoms	3.7	3.2	6.9	0.2	5.6	3.8	9.4	0.2
Corporate bonds - Utilities	4.5	6.9	11.4	0.3	5.0	5.2	10.2	0.3
Pooled vehicles	943.7	579.8	1,523.5	35.2	536.0	540.1	1,076.1	26.4
Insurance linked securities	3.3	52.2	55.5	1.3	3.0	63.7	66.7	1.6
	1,876.0	1,004.1	2,880.1	66.6	2,062.2	1,159.6	3,221.8	79.1
Property funds	-	60.2	60.2	1.4	-	125.7	125.7	3.1
Other liquid investments
Liquidity funds and other liquid investments	747.0	291.2	1,038.2	24.0	478.6	78.7	557.3	13.7
	2,623.0	1,702.6	4,325.6	100.0	2,540.8	1,531.3	4,072.1	100.0

Government agencies/guaranteed bonds at 31 December 2010 include £42.2 million of corporate bonds (2009: £102.9 million) and £4.2 million of mortgage backed securities (2009: £12.2 million).

Pooled vehicles held at 31 December 2010 are bond funds of which 31.8% were government/agency bonds, 36.0% were corporate bonds, 20.0% were mortgage backed and asset backed securities and the remaining 12.2% was held in cash.

The industry and geographical splits were as follows:

	31 December 2010			31 December 2009
Industry	Corporate bonds %	Global equities %	Total %	Corporate bonds %	Global equities %	Total %
Oil & Gas	6.4	13.3	10.5	1.0	13.6	4.0
Basic materials	1.6	3.0	2.4	-	2.1	0.5
Industrials	6.5	10.0	8.6	5.4	10.9	6.7
Consumer goods and services	7.9	23.0	16.9	3.5	28.3	9.5
Healthcare	2.3	11.3	7.7	2.1	6.7	3.2
Miscellaneous	0.3	-	0.1	0.1	-	-
Government guaranteed	17.7	-	7.2	0.5	-	0.4
Mortgage backed securities	0.1	-	0.1	0.2	-	0.1
Telecommunications	2.9	15.3	10.2	1.8	12.4	4.3
Utilities	4.8	1.8	3.0	1.9	2.4	2.0
Financials	46.6	17.4	29.2	82.5	20.9	67.9
Technology	2.9	4.9	4.1	1.0	2.7	1.4
	100.0	100.0	100.0	100.0	100.0	100.0

Note: The table above excludes government bonds but includes £42.2 million (2009: £102.9 million) of corporate bonds with government guarantees and £4.2 million of mortgage backed securities (2009: £12.2 million).

	31 December 2010			31 December 2009
Region	Bonds %	Global equities %	Total %	Bonds %	Global equities %	Total %
United Kingdom	7.0	18.7	13.6	9.9	20.8	10.7
USA and Canada	54.2	32.4	44.4	43.0	23.9	41.6
Europe (excluding United Kingdom)	35.7	33.3	32.0	45.0	43.8	44.9
Far East	2.2	10.4	8.6	1.4	11.5	2.1
Emerging markets	0.9	5.2	1.4	0.7	-	0.7
	100.0	100.0	100.0	100.0	100.0	100.0

Note: The table above includes all bond and equity investments.

 

Valuation risk

The Group's earnings are directly affected by changes in the valuations of the investments held in the portfolios. These valuations vary according to the movements in underlying markets. Factors affecting markets include changes in the economic and political environment, risk appetites, liquidity, interest rates and exchange rates. These factors have an impact on the Group's investments and are taken into consideration when setting strategic and tactical asset allocations. The price of holdings can also vary due to specific risks, such as the corporate strategy and companies' balance sheet structure, which may impact the value of individual equity and corporate bond holdings. This is mitigated by holding diversified portfolios.

Group assets are marked to market at bid price. Prices are supplied by the global custodian whose pricing processes are covered by their published annual audits. In accordance with their pricing policy, prices are sourced from three market recognised pricing vendor sources including: FT Interactive, Bloomberg and Reuters. These pricing sources use closing trades, or where more appropriate in illiquid markets, pricing models. These prices are reconciled to the fund managers' records to check for reasonableness. Mark to market valuations for over the counter derivatives are supplied by the custodian and checked to the relevant counterparty and Bloomberg. Property funds are based on the most recent price available, which in some instances may be a quarter in arrears. Where a property transaction has taken place the transaction price is used if it is the most recent price available.

As an additional check, where available, prices as at 31 December 2010 have been verified by the Group using available quoted prices on Bloomberg to verify that the prices used are a good estimation for fair value. A month to month price check was completed to ensure that any stale prices, defined as prices which are one month old or more, are identified and investigated. As at 31 December 2010 no stale prices were identified. Further details on the fair value measurement of financial assets and financial liabilities are included in note 3.3.

Interest rate risk

Investors' expectations for interest rates will impact bond yields⁽³⁾.  Therefore, the value of the Group's bond holdings is subject to fluctuation as bond yields rise and fall. If yields fall the capital value will rise, and visa versa. The sensitivity of the price of a bond is indicated by its duration⁽⁴⁾. The greater the duration of a security, the greater its possible price volatility. Typically, the longer the maturity of a bond the greater its duration. The maturity bands of the Group's bond holdings at year end are shown below.

	31 December 2010			31 December 2009
	Underwriting assets £m	Capital £m	Total £m	Underwriting assets £m	Capital £m	Total £m
Less than 1 year	84.5	52.8	137.3	106.4	53.2	159.6
1-2 years	166.4	69.4	235.8	162.9	150.2	313.1
2-3 years	174.1	81.6	255.7	262.0	131.0	393.0
3-4 years	195.5	26.0	221.5	373.2	83.5	456.7
4-5 years	166.3	52.8	219.1	254.5	51.7	306.2
Over 5 years	145.5	89.5	235.0	367.2	86.2	453.4
	932.3	372.1	1,304.4	1,526.2	555.8	2,082.0

Note: The table above excludes pooled investments of £1,523.5 million (2009: £1,076.1 million) and £52.2 million (2009: £63.7 million) of insurance linked securities managed by Leadenhall Capital Partners LLP.

The duration of underwriting assets is set with reference to the duration of the underlying liabilities. It should be noted that the liabilities are not currently discounted and therefore their value is not impacted by interest rate movements. Cash is raised, or the duration of the portfolio reduced, if it is believed that yields may rise and therefore capital values will fall.

The average durations of the bond and cash portfolios for the underwriting assets and associated insurance liabilities of Syndicate 2001, Amlin AG and ACI at year end were as follows:

	31 December 2010		31 December 2009
Underwriting assets	Assets Years	Liabilities Years	Assets Years	Liabilities Years
Sterling	1.4	3.9	2.4	3.2
US Dollars	0.9	1.9	2.0	3.2
Euro	1.9	4.7	3.1	3.1
Canadian Dollars	2.5	3.8	2.2	3.8

Note: The table above includes pooled investments.

The asset durations above are calculated by the custodian. Some differences occur between custodian durations and those reported by the fund managers due to the use of different prepayment assumptions. Using fund manager calculations for 31 December 2010, the following asset year durations would result: sterling 0.2; US dollars 0.4; euro 1.6; and, Canadian dollars 2.5. As an additional check, where available, durations as at 31 December 2010 have been verified by the Group using Bloomberg data. In all instances, the duration differences are within the ranges permitted by the investment guidelines. Liabilities durations are calculated by the Group actuarial team.

Sensitivity analysis

An indication of the potential sensitivity of the value of the bond and cash funds to changes in yield is shown below.

	Syndicate 2001					Amlin AG		ACI		Net (reduction)/ increase in value £m
Shift in yield (basis points)	U/wtg Sterling %	U/wtg US$ %	U/wtg CAN$ %	U/wtg Euro %	Capital Sterling %	U/wtg %	Capital %	U/wtg %	Capital %
100	(0.5)	(2.5)	(2.3)	(1.7)	(2.9)	(0.9)	(1.9)	(3.8)	(1.2)	(85)
75	(0.3)	(1.9)	(1.7)	(1.3)	(2.2)	(0.7)	(1.4)	(2.8)	(0.9)	(64)
50	(0.2)	(1.3)	(1.2)	(0.9)	(1.5)	(0.5)	(1.0)	(1.9)	(0.6)	(43)
25	(0.1)	(0.6)	(0.6)	(0.4)	(0.7)	(0.2)	(0.5)	(1.0)	(0.3)	(22)
- 25	0.1	0.6	0.6	0.4	0.7	0.2	0.4	0.9	0.3	20
- 50	0.2	1.2	1.2	0.9	1.3	0.4	0.8	1.9	0.6	40
- 75	0.3	1.8	1.8	1.3	2.0	0.6	1.1	2.9	0.9	60
- 100	0.4	2.3	2.4	1.7	2.7	0.8	1.5	3.8	1.2	80

(3) The yield is the rate of return paid if a security is held to maturity. The calculation is based on the coupon rate, length of time to maturity and the market price. It assumes coupon interest paid over the life of the security is reinvested at the same rate.

(4) The duration is the weighted average maturity of the security's cash flows, where the present values of the cash flows serve as the weights.

 

Foreign exchange risk

Underwriting assets are held in the base currencies of sterling, euros, US dollars and Canadian dollars, which represent the majority of the Group's liabilities by currency, thus limiting the underwriting foreign exchange rate risk. However, foreign exchange exposure does arise when business is written in non-base currencies. These transactions are converted into sterling, euro, US dollars and Canadian dollars (depending where the business is written) at the prevailing spot rate once the premium is received. Consequently, there is exposure to currency movements between the exposure being written and the premium being converted. Payments in non-base currencies are converted back into the policy currency at the time a claim is to be settled, therefore, the Group is exposed to exchange rate risk between the claim being made and the settlement being paid. If a liability in a currency not listed above is considered to be sufficiently large following a major event, for example such as the 2010 New Zealand earthquake, that currency will be bought and held to cover the potential liability.

Further foreign exchange risk arises until non-sterling profits or losses are converted into sterling. Foreign exchange risk is mitigated by converting the subsidiaries' non-base currency profits into the base currency. Given the inherent volatility in some business classes, a cautious approach is adopted on the speed and level of sales, but the Group seeks to extinguish all currency risk on earned profit during the second year after the commencement of each underwriting year. This approach avoids the inherent dangers of 'lumpier' sales. It is not the intention to take speculative currency positions in order to make currency gains.

The Group's assets and liabilities by currency are presented in the table below.

	31 December 2010				31 December 2009
Currency risk	Sterling	US$	CAN$	Euro	Sterling	US$	CAN$	Euro
Cash and cash equivalents	23.4	59.1	-	23.7	13.2	10.7	-	45.1
Financial assets	1,011.9	3,060.2	115.0	1,471.6	1,104.0	2,580.5	123.3	1,405.2
Reinsurance assets	(79.4)	513.2	15.4	207.8	38.8	961.5	39.4	217.7
Loans and receivables	178.7	897.0	28.1	346.6	(39.4)	611.8	18.9	171.8
Current income tax assets	(10.4)	14.8	1.5	1.4	(1.6)	6.7	0.5	4.9
Deferred tax assets	(0.5)	-	-	17.4	16.8	-	-	13.3
Property and equipment	8.3	0.4	-	4.6	8.8	0.8	-	0.1
Intangibles	170.7	-	-	16.1	80.1	-	-	90.7
Investment in jointly owned entity	2.2	-	-	-	1.7	-	-	-
Assets of operation classified as held for sale	-	-	-	-	64.2	-	-	-
Total assets	1,304.9	4,544.7	160.0	2,089.2	1,286.6	4,172.0	182.1	1,948.8
Insurance liabilities	589.1	2,552.0	91.7	1,468.5	498.6	2,654.7	126.5	1,340.3
Other payables	(4.0)	339.0	18.3	186.9	(23.7)	192.3	0.3	54.7
Financial liabilities	8.3	2.3	-	-	12.9	-	-	-
Current income tax liabilities	17.7	6.6	-	0.1	-	-	-	-
Borrowings	228.3	99.7	-	30.0	228.0	101.5	-	28.9
Retirement benefit obligations	-	-	-	17.7	20.0	-	-	4.9
Deferred tax liabilities	71.4	-	-	19.2	102.1	-	-	25.0
Liabilities of operation classified as held for sale	-	-	-	-	0.5	-	-	-
Total liabilities	910.8	2,999.6	110.0	1,722.4	838.4	2,948.5	126.8	1,453.8
Net assets	394.1	1,545.1	50.0	366.8	448.2	1,223.5	55.3	495.0

At 31 December 2010 the investment managers held some forward foreign exchange contracts in their portfolios to hedge non-base currency investments. These were transacted with banks with a short term rating of at least A1 and are marked to market in investment valuations.

The Group is subject to foreign exchange risk as a result of the translation into sterling of Group companies balance sheets that have a non-sterling functional currency. At 31 December 2010 the material balance sheets that have a non-sterling functional currency were Amlin AG's Bermuda branch with net assets of US$1,573.9 million and Amlin Corporate Insurance with net assets of €320.5 million (2009: US$1,580.6 million and €316.6 million). Foreign exchange gains and losses on investments in overseas subsidiaries are taken directly to reserves in accordance with IAS 21 'The Effects of Changes in Foreign Exchange Rates'. The gain taken to reserves for the year ended 31 December 2010 was £17.6 million (2009: £92.8 million loss). This reflects the movement in the US dollar rate from 1.61 at the start of the year to 1.56 at the balance sheet date and the movement in the euro rate from 1.13 at the start of the year to 1.17 at the balance sheet date.

In order to mitigate the impact of these currency fluctuations, the Group adopts a policy of hedging up to 50% of the net currency exposure resulting from these subsidiaries using options that were accounted for as hedges of net investment in overseas subsidiaries in line with the hedge accounting rules of IAS 39 'Financial Instruments: Recognition and Measurement'. Consequently all realised and unrealised fair value gains and losses on the hedging instruments are taken to reserves to match the underlying movement in the valuation of the net investment in overseas subsidiaries, which includes applicable fair value adjustments and goodwill. At the year end, hedges were in place for US$729.0 million and €204.0 million. These were in the form of long sterling calls/US dollar puts funded by short sterling puts/US dollar calls and long sterling calls/euro puts funded by short sterling puts/euro calls. The net valuation of these trades was a £1.4 million asset (2009: £7.0 million asset) at the year end. The net realised and unrealised loss from hedging options recognised in reserves was £4.2 million (2009: £29.3 million gain) at the year end.

If the USD/GBP exchange rate were to deteriorate/improve by 10%, the movement in the net underwriting assets and liabilities and borrowings of the Group, excluding overseas subsidiaries, would result in a £13.7 million foreign exchange gain or, £12.5 million loss in the Group income statement at 31 December 2010. If the EUR/GBP exchange rate were to deteriorate/improve by 10%, the movement in the net underwriting assets and liabilities and borrowings of the Group, excluding overseas subsidiaries, would result in a £3.9 million foreign exchange gain or, £3.5 million loss in the Group income statement at 31 December 2010.

In relation to translation of overseas subsidiaries, the same exchange rate improvement would result in a decrease of £127.3 million in exchange gain through consolidated reserves. This decrease would be offset by a valuation gain of £36.0 million on the hedges in place. The same exchange rate deterioration would result in an additional £128.2 million exchange gain through consolidated reserves. This gain would be offset by a valuation loss of £34.4 million on the hedges in place.  

Liquidity risk

It is important that the Group's companies can pay their obligations as they fall due. Levels of cash are therefore managed on a daily basis and buffers of liquid assets are held in excess of the immediate requirements. This is to reduce the risk of being forced sellers of any of the Group's assets, which may result in realising prices below fair value, especially in periods of below normal investment market liquidity.

The Group funds its insurance liabilities with a portfolio of cash and debt securities exposed to market risk. The following table indicates the contractual timing of cash flows arising from assets and liabilities for management of insurance contracts as of 31 December 2010:

		Contractual cash flows (undiscounted)
31 December 2010 Financial assets	No stated maturity	0-1 yr	1-3 yrs	3-5 yrs	>5 yrs	Carrying amount
	£m	£m	£m	£m	£m	£m
Shares and other variable yield securities	346.5	0.6	-	-	-	347.1
Debt and other fixed income securities	1,575.8	231.4	580.3	439.7	139.2	2,880.1
Property funds	60.2	-	-	-	-	60.2
Liquidity funds and other liquid investments	1,033.6	(0.1)	-	-	-	1,033.5
Derivative financial instruments, net	4.7	-	-	-	-	4.7
Total	3,020.8	231.9	580.3	439.7	139.2	4,325.6

		Expected cash flows (undiscounted)
Insurance liabilities	No stated maturity	0-1 yr	1-3 yrs	3-5 yrs	>5 yrs	Carrying amount
	£m	£m	£m	£m	£m	£m
Insurance contracts	-	671.1	557.4	198.4	137.7	1,564.6
Less assets arising from reinsurance contracts held	-	(87.9)	(82.2)	(38.6)	(29.9)	(238.6)
Total	-	58..2	475.2	159.8	107.8	1,326.0
Difference in contractual cash flows	3,020.8	(351.3)	105.1	279.9	31.4	2,999.6

The expected cash flows and carrying amount for the ACI insurance liabilities have not been included in the table above. The carrying amount of these liabilities is £922.8 million.

		Contractual cash flows (undiscounted)
31 December 2009 Financial assets	No stated maturity	0-1 yr	1-3 yrs	3-5 yrs	>5 yrs	Carrying amount
	£m	£m	£m	£m	£m	£m
Shares and other variable yield securities	153.1	14.2	-	-	-	167.3
Debt and other fixed income securities	1,139.8	310.4	711.5	771.6	523.1	3,221.8
Property funds	118.8	6.9	-	-	-	125.7
Liquidity funds and other liquid investments	555.9	1.4	-	-	-	557.3
Derivative financial instruments, net	11.5	-	-	-	-	11.5
Total	1,979.1	332.9	711.5	771.6	523.1	4,083.6

		Expected cash flows (undiscounted)
Insurance liabilities	No stated maturity	0-1 yr	1-3 yrs	3-5 yrs	>5 yrs	Carrying amount
	£m	£m	£m	£m	£m	£m
Insurance contracts	-	945.2	862.3	300.5	362.7	2,431.4
Less assets arising from reinsurance contracts held	-	(159.6)	(139.5)	(58.0)	(70.3)	(421.1)
Total	-	785.6	722.8	242.5	292.4	2,010.3
Difference in contractual cash flows	1,979.1	(452.7)	(11.3)	529.1	230.7	2,073.3

Liquidity, in the event of a major disaster, is tested regularly using internal cash flow forecasts and realistic disaster scenarios. In addition pre-arranged revolving credit facilities are available from bank facilities (note 27). If a major insurance event occurs the investment strategy is reviewed to ensure that sufficient liquidity is also available in the assets.

Credit risk

Credit risk is the risk that the Group becomes exposed to loss if a specific counterparty fails to perform its contractual obligations in a timely manner impacting the Group's ability to meet its claims as they fall due. Credit risk can also arise from underlying causes that have an impact upon the creditworthiness of all counterparties of a particular description or geographical location. The Group is exposed to credit risk in its investment portfolio and with its premium and reinsurance receivables. The table below shows the breakdown at 31 December 2010 of the exposure of the bond portfolio and reinsurance receivables by credit quality ⁽⁵⁾.

31 December 2010	Debt securities £m	%	Liquidity funds £m	%	Insurance and reinsurance premium receivables £m	%	Reinsurance receivables £m	%
AAA	1,060.8	36.8	988.3	100.0	-	-	1.1	0.3
AA	1,398.8	48.7	-	-	-	-	84.3	21.0
A	333.7	11.5	-	-	-	-	249.5	62.1
BBB	26.7	0.9	-	-	-	-	0.2	-
Other	60.1	2.1	-	-	777.0	100.0	66.6	16.6
	2,880.1	100.0	988.3	100.0	777.0	100.0	401.7	100.0

31 December 2009	Debt securities £m	%	Liquidity funds £m	%	Insurance and reinsurance premium receivables £m	%	Reinsurance receivables £m	%
AAA	1,394.7	43.3	494.7	100.0	-	-	7.6	1.7
AA	1,427.9	44.3	-	-	-	-	131.6	29.3
A	205.3	6.4	-	-	-	-	243.1	54.1
BBB	41.2	1.3	-	-	-	-	0.4	0.1
Other	152.7	4.7	-	-	637.8	100.0	66.5	14.8
	3,221.8	100.0	494.7	100.0	637.8	100.0	449.2	100.0

 

Insurance and reinsurance

The table also shows the total value of premium receivables, representing amounts due from policyholders. The quality of these receivables is not graded, but based on historical experience there is limited default risk relating to these amounts. Premium credit risk is managed through a number of controls that include broker approval, annual financial review and internal rating of brokers and regular monitoring of premium settlement performance.

The reinsurance receivables represent the amounts due at 31 December 2010 as well as amounts expected to be recovered on unpaid outstanding claims (including IBNR) in respect of earned and unearned risks. Reinsurance receivables are stated net of provisions for bad and doubtful debts. The credit risk in respect of reinsurance receivables is primarily managed by review and approval of reinsurance security by the Group's Reinsurance Security Committee, prior to the purchase of the reinsurance contract. Guidelines are set, and monitored, that restrict the purchase of reinsurance security based on the Group's own ratings for each reinsurer and Standard & Poor's ratings. The Group holds collateral from certain reinsurers including those that are non-rated. At 31 December 2010 the Group held collateral of £124.5 million as security against potential default by reinsurance counterparties (2009: £75.8 million). Provisions are made against the amounts due from certain reinsurers, depending on the age of the debt and the current rating assigned to the reinsurer. The impact on profit before tax of a 1% variation in the total reinsurance receivables would be £4.4 million (2009: £4.7 million). The details of overdue reinsurance assets and insurance receivables are provided in notes 18 and 19.

Investments

As well as failure of a counterparty to perform its contractual obligations, the price of corporate bond holdings will be affected by investors' perception of a borrower's creditworthiness. Credit risk within the investment funds is managed through: restrictions on the exposures by credit rating, as determined by the rating agencies, the credit research carried out by the investment managers and by holding diversified portfolios. £2.5 million of bonds held at 31 December 2010 were subject to downgrades during the year (2009: £26.5 million).

The Group's largest non government counterparty as at 31 December 2010, excluding liquidity funds, was valued at £46.8 million.

The table below shows the credit rating of the Group's non-government bonds.

Non-government bonds 31 December 2010	Total £m	AAA	AA	A	BBB	Other
Corporate - Financials	107.2	8.9%	41.8%	48.9%	0.4%	-
Corporate - Other	84.4	-	17.9%	58.2%	23.9%	-
Mortgage backed securities	153.4	90.3%	4.2%	0.4%	-	5.1%
Asset backed securities	72.4	82.3%	10.4%	3.4%	1.0%	2.9%
Insurance linked securities	55.5	-	-	-	-	100.0%

Non-government bonds 31 December 2009	Total £m	AAA	AA	A	BBB	Other
Corporate - Financials	342.4	20.8%	30.5%	42.3%	4.1%	2.3%
Corporate - Other	89.9	-	29.3%	47.3%	23.4%	-
Mortgage backed securities	148.4	89.8%	2.1%	1.2%	0.7%	6.2%
Asset backed securities	76.0	85.9%	1.7%	4.1%	6.5%	1.8%
Insurance linked securities	66.7	-	-	-	-	100.0%

The table excludes £42.2 million (2009: £102.9 million) of corporate bonds with explicit government guarantees. The table includes £4.2 million (2009: £12.2 million) of government agency mortgage backed securities.

3.3 Fair value methodology

For financial instruments carried at fair value we have categorised the measurement basis into a fair value hierarchy as follows:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities. An active market is one in which transactions for the asset occur with sufficient frequency and volume to provide readily and regularly available quoted prices.

Level 2 - Inputs to a valuation model other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Level 3 - Inputs to a valuation model for the asset or liability that are not based on observable market data (unobservable inputs) and are significant to the overall fair value measurement. Unobservable inputs may have been used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date (or market information for the inputs to any valuation models). As such, unobservable inputs reflect the assumptions it is considered that market participants would use in pricing the asset.

Shares and other variable yield securities

Listed equities traded on a primary exchange are classified as Level 1. Unlisted equities are valued using internal models, based principally upon management's assumptions, and are classified as Level 3.

Debt and other fixed income securities

The fair value is based upon quotes from pricing services where available. These pricing services derive prices based on an average of quotes provided by brokers. Where multiple quotes are not available, the fair value is based upon evaluated pricing services, which typically use proprietary cash flow models and incorporate observable market inputs, such as credit spreads, benchmark quotes and other trade data. If such services do not provide coverage of the asset, then fair value is determined manually using indicative broker quotes, which are corroborated by recent market transactions in similar or identical assets.

Where there is an active market for these assets and their fair value is the unadjusted quoted market price, these are classified as Level 1. This is typically the case for government bonds. Level 1 also includes exchange-traded bond funds, where fair value is based upon quoted market prices and the funds are actively traded. Where the market is inactive or the price is adjusted, but significant market observable inputs have been used by the pricing sources, then these are considered to be Level 2 inputs. This is typically the case for government agency debt, corporate debt, mortgage and asset backed securities and catastrophe bonds. Certain assets, for which prices or other market inputs are unobservable, are classified as Level 3.

Property funds

The fair value is based upon valuations provided by the fund manager. The inputs into that valuation are primarily unobservable and, as such, these assets are classified as Level 3.

Participation in investment pools

These are investment funds and the value is based upon unadjusted, quoted and executable prices provided by the fund manager. These are classified as Level 1, except where there is evidence these are not being actively traded at the fund manager's price.

Derivatives

Listed derivative contracts, such as futures, that are actively traded are valued using quoted prices from the relevant exchange and are classified as Level 1. Over-the-counter currency options are valued by the counterparty using quantitative models with multiple market inputs. The market inputs are observable and the valuation can be validated through external sources. These are classified as Level 2. Certain derivatives for which prices or other market inputs are unobservable, are classified as level 3. This is typically the case for catastrophe swaps.

	Fair Value Hierarchy			Total 2010 £m	Fair Value Hierarchy			Total 2009 £m
	Level 1 £m	Level 2 £m	Level 3 £m		Level 1 £m	Level 2 £m	Level 3 £m
Assets
Financial assets held for trading at fair value through income
Shares and other variable yield securities	347.2	-	-	347.2	167.3	-	-	167.3
Debt and other fixed income securities	2,268.1	597.4	20.5	2,886.0	2,236.4	923.0	6.2	3,165.6
Property funds	-	-	60.2	60.2	-	-	125.7	125.7
Other financial assets at fair value through income
Participation in investment pools	987.4	-	-	987.4	500.6	-	-	500.6
Deposits with credit institutions	18.3	-	-	18.3	6.7	-	-	6.7
Derivative instruments	0.5	9.7	-	10.2	0.2	24.2	-	24.4
Other	-	0.9	5.7	6.6	-	1.3	8.5	9.8
Available for sale financial assets
Unlisted equities	-	-	9.0	9.0	-	-	8.9	8.9
Total assets	3,621.5	608.0	95.4	4,324.9	2,911.2	948.5	149.3	4,009.0
Liabilities
Derivative instruments	(0.4)	(8.1)	(1.2)	(9.7)	(0.3)	(12.6)	-	(12.9)
Total liabilities	(0.4)	(8.1)	(1.2)	(9.7)	(0.3)	(12.6)	-	(12.9)
Net financial assets	3,621.1	599.9	94.2	4,315.2	2,910.9	935.9	149.3	3,996.1
Assets shown separately in the notes to the accounts
Accrued income				(14.8)				(31.1)
Net financial investments (note 17)				4,300.4				3,965.0

The presentation of the fair value hierarchy in 2009 has been improved to enhance comparability with 2010. This has resulted in a gross up of debt and other fixed income securities in the fair value hierarchy by £5.2 million for net unsettled payables for investments sold and purchased, which are already shown separately in the notes to the accounts. This change in presentation has no impact on the primary financial statements.

The table below analyses the movements in assets and liabilities classified as Level 3 investments during 2010 calendar year:

	Debt and other fixed income securities £m	Property funds £m	Derivative instruments £m	Other £m	Unlisted equities £m	Total £m
At 1 January 2010	6.2	125.7	-	8.5	8.9	149.3
Total net losses recognised in investment return in the income statement	(0.1)	(2.2)	-	-	-	(2.3)
Sales	(5.3)	(93.7)	-	(2.7)	-	(101.7)
Purchases	-	33.8	-	0.2	0.1	34.1
Assets of operation previously classified as held for sale	20.5	-	(1.2)	-	-	19.3
Transfers out of Level 3	(0.6)	-	-	-	-	(0.6)
Foreign exchange losses	(0.2)	(3.4)	-	(0.3)	-	(3.9)
At 31 December 2010	20.5	60.2	(1.2)	5.7	9.0	94.2
Total losses for the period included in income for assets and liabilities held at the end of the reporting period						(0.5)

There were no significant transfers between level 1 and level 2 during the year. There were no significant transfers into or out of level 3 during the year.

The table below analyses the movements in assets and liabilities classified as Level 3 investments during 2009 calendar year:

	Debt and other fixed income securities £m	Property  funds £m	Other £m	Unlisted equities £m	Total £m
At 1 January 2009	0.2	83.5	-	8.6	92.3
Total net gains/(losses) recognised in investment return in the income statement	0.5	(17.5)	-	-	(17.0)
Sales	(0.4)	(6.5)	-	-	(6.9)
Purchases	0.7	8.1	-	0.3	9.1
Acquisitions through business combination	5.1	60.1	8.5	-	73.7
Foreign exchange gains/(losses)	0.1	(2.0)	-	-	(1.9)
At 31 December 2009	6.2	125.7	8.5	8.9	149.3
Total losses for the period included in income for assets and liabilities held at the end of the reporting period					(16.9)

The majority of the Group's investments are valued based on quoted market information or other observable market data. The Group holds 2.2% (2009: 3.7%) of its assets at a fair value based on estimates and recorded as Level 3 investments. Where estimates are used, these are based on a combination of independent third party evidence and internally developed models, calibrated to market observable data where possible. While such valuations are sensitive to estimates, it is believed that changing one or more of the assumptions to reasonably possible alternative assumptions would not change the fair value significantly.

4. Segmental reporting

Management has determined the Group's operating segments based on the management information reviewed by the Board of Directors of the Company that are used to make strategic decisions. All operating segments used by management meet the definition of a reportable segment under International Financial Reporting Standard 8 'Operating Segments' (IFRS 8).

The Group is organised into six operating segments. Segments represent the distinct units through which the Group is organised and managed. These segments are as follows:

·  Amlin London, consisting of the Reinsurance, Property & Casualty, Marine and Aviation business units, underwritten via Syndicate 2001;

·  Amlin UK, underwriting commercial insurance in the UK domestic market, also via Syndicate 2001;

·  Amlin France, which writes a diverse book of specialty business in France, via Syndicate 2001 and Amlin Corporate Insurance;

·  Amlin Bermuda, which writes predominantly property reinsurance business, including reinsurance ceded by Syndicate 2001.

·  Amlin Corporate Insurance, a leading provider of corporate property and casualty insurance in the Netherlands and Belgium; and

·  Other corporate companies, comprising all other entities of the Group including holding companies.

Transactions between segments are carried out at arm's length. The revenue from external parties reported to the Board of Directors is measured in a manner consistent with that in the income statement. Revenues are allocated based on the country in which the insurance contracts are issued. Management considers its external customers to be the individual policyholders, and as such the Group is not reliant on any individual customer.

Segmental information provided to the Board of Directors of the Company for the reportable segments of the Group is as follows:

Income and expenses by business segment Year ended 31 December 2010	Amlin London £m	Amlin UK £m	Amlin France £m	Amlin Bermuda (4) £m	Amlin Corporate Insurance £m	Other corporate companies £m	Intra group  items £m	Total £m
Analysed by geographic segment
UK	137.3	261.7	-	189.6	-	(0.1)	(152.9)	435.6
US	489.7	7.0	-	177.0	-	-	-	673.7
Europe	93.4	18.9	48.6	26.7	289.5	-	-	477.1
Worldwide	12.5	0.7	-	-	367.1	-	-	380.3
Other	156.5	3.6	-	45.7	-	-	-	205.8
Gross written premium	889.4	291.9	48.6	439.0	656.6	(0.1)	(152.9)	2,172.5
Net written premium	641.1	240.2	39.5	419.9	558.3	(3.6)	14.9	1,910.3
Gross earned premium	882.6	232.3	46.0	429.4	567.5	0.2	(155.6)	2,002.4
Reinsurance premium ceded	(254.7)	(42.1)	(8.9)	(14.5)	(88.3)	(3.5)	157.7	(254.3)
Net earned premium	627.9	190.2	37.1	414.9	479.2	(3.3)	2.1	1,748.1
Insurance claims and claims settlement expenses	(427.0)	(148.8)	(25.6)	(267.0)	(410.0)	4.4	105.4	(1,168.6)
Reinsurance recoveries	152.1	26.9	3.8	--	46.6	(0.6)	(119.3)	109.5
Expenses for the acquisition of insurance contracts	(173.8)	(42.6)	(9.3)	(56.0)	(78.7)	(0.1)	21.4	(339.1)
Underwriting expenses	(53.6)	(16.3)	(3.5)	(19.4)	(56.7)	(2.2)	3.9	(147.8)
Profit/(loss) attributable to underwriting	125.6	9.4	2.5	72.5	(19.6)	(1.8)	13.5	202.1
Investment return	36.7	18.5	--	41.4	54.0	101.5	(77.1)	175.0
Other operating income(1)	0.5	0.1	0.5	0.2	1.3	36.7	(33.6)	5.7
Agency expenses (2)	(18.5)	(4.1)	(0.7)	-	-	-	23.3	--
Other non-underwriting expenses	(1.0)	(0.4)	(0.4)	(10.7)	(19.1)	(93.0)	28.4	(96.2)
Finance costs (3)								(27.4)
Profit before taxation								259.2
Combined ratio	80%	95%	93%	83%	104%			88%

Included within the gross written premium of Amlin Bermuda is premium ceded from Amlin London, Amlin UK and Amlin France amounting to £153.4 million on reinsurance contracts undertaken at commercial rates (2009: £157.1 million).

(1) Other operating income is mainly commission receivable by service companies;

(2)  Agency expenses allocated to segments represent fees and commission payable to Amlin Underwriting Limited;

(3) Finance costs are incurred in support of the entire business of the Group and have not been allocated to particular segments;

(4)  Amlin Re Europe was established in October 2010 to write Continental European non-life reinsurance business. The business written by Amlin Re Europe in 2010 was not material to the Group and is reported within the Amlin Bermuda segment. Amlin Re Europe generated gross written premium of £2.7 million and incurred expenses of £3.7 million  in 2010.

Assets and liabilities by business segment At 31 December 2010	Amlin London £m	Amlin UK £m	Amlin France £m	Amlin Bermuda £m	Amlin Corporate Insurance £m	Other corporate companies £m	Intra group  items £m	Total £m
Assets	1,821.3	495.5	37.4	1,681.6	1,720.3	3,526.0	(3,167.5)	6,114.6
Liabilities	1,591.9	493.1	36.6	604.3	1,440.7	2,096.6	(1,878.5)	4,384.7
Total net assets	229.4	2.4	0.8	1,077.3	279.6	1,429.4	(1,289.0)	1,729.9

Included in assets are the following:

At 31 December 2010	Amlin London £m	Amlin UK £m	Amlin France £m	Amlin Bermuda £m	Amlin Corporate Insurance £m	Other corporate companies £m	Intra group items £m	Total £m
Investments in joint venture	-	-	-	-	-	2.2	-	2.2
Additions to non-current assets	-	-	-	0.2	9.8	13.5	-	23.5

The net assets of Amlin Bermuda are located in Bermuda, the US and Continental Europe. The majority of the other assets of the Group are located in the UK, the US, Continental Europe and Canada. The corresponding liabilities are also concentrated in these countries, but given the nature of the Group's business some of the liabilities will be located elsewhere in the world.

The Group's total non-current assets are £199.2 million of which £184.1 million is located in the UK and £15.1 million is located in foreign countries such as Bermuda, the US, Continental Europe and Canada.

Depreciation has been charged on property and equipment for the year amounting to £3.5 million (2009: £4.8 million) of which £0.8 million (2009: £1.3 million) has been charged to Amlin London, £0.8 million (2009: £0.8 million) to Amlin UK, £nil to Amlin France (2009: £0.2 million), £0.3 million to Amlin Bermuda (2009: £0.5 million), £0.9 million to Amlin Corporate Insurance (2009: £2.0 million) and £0.7 million to Other corporate companies.

No impairment losses in respect of intangible assets have been recognised during the year.

Income and expenses by business segment Year ended 31 December 2009	Amlin London £m	Amlin UK £m	Amlin France £m	Amlin Bermuda £m	Amlin Corporate Insurance £m	Other corporate companies £m	Intra group items £m	Total £m
Analysed by geographic segment
UK	120.9	164.5	-	185.6	-	-	(157.1)	313.9
US	434.7	0.1	-	161.7	-	-	-	596.5
Europe	88.8	7.4	28.9	19.9	83.8	-	-	228.8
Worldwide	63.5	15.5	-	-	141.4	-	-	220.4
Other	147.8	3.4	-	33.0	-	0.1	-	184.3
Gross written premium	855.7	190.9	28.9	400.2	225.2	0.1	(157.1)	1,543.9
Net written premium	567.7	157.8	25.2	396.4	187.8	-	(12.3)	1,322.6
Gross earned premium	788.7	167.6	22.6	374.7	321.8	0.6	(134.4)	1,541.6
Reinsurance premium ceded	(251.2)	(26.2)	(3.0)	(3.5)	(55.5)	-	115.1	(224.3)
Net earned premium	537.5	141.4	19.6	371.2	266.3	0.6	(19.3)	1,317.3
Insurance claims and claims settlement expenses	(234.7)	(94.2)	(11.9)	(138.5)	(173.0)	1.6	85.6	(565.1)
Reinsurance recoveries	81.4	19.5	2.1	0.1	(17.9)	0.2	(84.5)	0.9
Expenses for the acquisition of insurance contracts	(156.9)	(27.6)	(5.4)	(58.7)	(41.0)	(0.3)	22.5	(267.4)
Underwriting expenses	(72.3)	(11.6)	(1.9)	(12.3)	(23.2)	5.7	(4.3)	(119.9)
Profit attributable to underwriting	155.0	27.5	2.5	161.8	11.2	7.8	-	365.8
Investment return	40.6	22.9	0.4	72.3	53.8	17.5	-	207.5
Other operating income(1)	0.1	0.1	-	1.9	0.8	7.2	-	10.1
Agency expenses(2)	(16.5)	(3.8)	(0.4)	-	-	-	20.7	-
Other non-underwriting expenses	(1.7)	(0.3)	-	13.6	(11.4)	(51.5)	-	(51.3)
Finance costs(3)								(23.0)
Profit before taxation								509.1
Combined ratio	71%	81%	87%	56%	96%			72%

(1) Other operating income is mainly commission receivable by service companies;

(2)  Agency expenses allocated to segments represent fees and commission payable to Amlin Underwriting Limited;

(3) Finance costs are incurred in support of the entire business of the Group and have not been allocated to particular segments.

Assets and liabilities by business segment At 31 December 2009	Amlin London £m	Amlin UK £m	Amlin France £m	Amlin Bermuda £m	Amlin Corporate Insurance £m	Other corporate companies £m	Intra group items £m	Total £m
Assets	1,917.3	771.0	17.3	1,430.0	1,592.0	3,588.5	(3,643.1)	5,673.0
Liabilities	1,694.4	723.3	13.9	448.3	1,311.8	1,802.1	(1,913.9)	4,079.9
Total net assets	222.9	47.7	3.4	981.7	280.2	1,786.4	(1,729.2)	1,593.1

Included in assets are the following:

At 31 December 2009	Amlin London £m	Amlin UK £m	Amlin France £m	Amlin Bermuda £m	Amlin Corporate Insurance £m	Other corporate companies £m	Intra group items £m	Total £m
Investments in joint venture	-	-	-	-	-	1.7	-	1.7
Additions to non-current assets	1.9	1.1	0.3	10.3	56.1	5.4	-	75.1

5. Net earned premium

	2010 £m	2009 £m
Insurance contracts premium
Gross written premium	2,172.5	1,543.9
Change in unearned premium provision	(170.1)	(2.3)
Gross earned premium	2,002.4	1,541.6
Reinsurance premium
Reinsurance premium payable	(262.2)	(221.3)
Change in unearned reinsurance premium provision	7.9	(3.0)
Reinsurance earned premium	(254.3)	(224.3)
Net earned premium	1,748.1	1,317.3

6. Investment return

	2010 £m	2009 £m
Investment income
- dividend income	5.8	5.2
- interest income	54.0	84.7
- cash and cash equivalents interest income	0.5	3.4
	60.3	93.3
Net realised gains/(losses)
on assets held for trading
- equity securities	(13.8)	(86.4)
- debt securities	64.0	72.8
- property funds	(22.9)	(6.0)
on assets classified as other than trading
- derivative instruments	3.7	(37.9)
	31.0	(57.5)
Net unrealised gains/(losses)
on assets held for trading
- equity securities	40.6	115.5
- debt securities	18.4	39.3
- property funds	20.1	(10.9)
on assets classified as other than trading
- derivative instruments	(2.0)	26.2
- assets of operations previously classified as held for sale	6.1	1.6
- liability to purchase non-controlling interest in Amlin France Holdings SAS	0.5	-
	83.7	171.7
	175.0	207.5

Improvements have been made to the disclosure of 2009 comparative values to unrealised gains recorded on assets of operations previously classified as held for sale.

7. Insurance claims and loss adjustment expenses

	2010 £m	2009 £m
Gross claims and loss adjustment expenses
Current year insurance claims and loss adjustment expenses	1,313.6	781.6
Reduced costs for prior period insurance claims	(145.0)	(216.5)
	1,168.6	565.1
Reinsurance claims
Current year insurance claims and loss adjustment expenses recoverable from reinsurers	(98.0)	(43.3)
(Additional)/reduced costs for prior period claims recoverable from reinsurers	(11.5)	42.4
	(109.5)	(0.9)
Total net insurance claims and loss adjustment expenses	1,059.1	564.2

8. Expenses for the acquisition of insurance contracts

	2010 £m	2009 £m
Expenses for the acquisition of insurance contracts	378.7	276.6
Changes in deferred expenses for the acquisition of insurance contracts	(39.6)	(9.2)
	339.1	267.4

9. Other operating expenses

	2010 £m	2009 £m
Expenses relating to underwriting
Employee expenses, excluding employee incentives	77.5	44.7
Lloyd's expenses	17.7	13.6
Other administrative expenses	46.8	34.3
Underwriting exchange losses (note 15)	5.8	27.3
	147.8	119.9
Other expenses
Employee expenses, excluding employee incentives	21.7	16.4
Employee incentives	27.7	36.6
Asset management fees	6.2	4.7
Other administrative expenses	17.5	15.1
ACI integration costs	16.6	11.2
Non-underwriting exchange losses/(gains) (note 15)	6.5	(32.7)
	96.2	51.3
	244.0	171.2

Employee and other administrative expenses not relating to underwriting represent costs associated with the corporate activities of the Group.

10. Directors' remuneration

The aggregate remuneration of the directors of the Company, including amounts received from subsidiaries, was:

	2010 £m	2009 £m
Emoluments of executive directors (including payments made under long term incentive plans)	4.1	5.0
Fees to non-executive directors	0.6	0.5
	4.7	5.5
Pension contributions	0.2	0.2
	4.9	5.7

Details of directors' remuneration and pension benefits, including those of the highest paid director, are included in the Remuneration Report in the Governance section of the Annual Report. Payments were made to both a defined benefit pension scheme and stakeholder defined contribution scheme for one (2009: one) executive director and to stakeholder defined contribution schemes for two (2009: two) other executive directors.

11. Employee benefit expenses

The average number of persons employed by the Group, including individuals on fixed term contracts and directors, were:

	2010	2009
Underwriting divisions
Underwriting, claims and reinsurance	657	659
Administration and support	294	215
Central functions
Operations	171	115
Finance	115	105
Internal audit and compliance	12	13
	1,249	1,107

	2010	2009
By location
UK	791	681
Bermuda	33	28
Continental Europe (excluding UK)	417	391
Singapore	7	5
US	1	2
	1,249	1,107

The aggregate payroll costs incurred by Group companies are analysed as follows:

	2010 £m	2009 £m
Wages and salaries	93.6	58.8
Employee incentive and related social security costs	28.3	36.6
Share options granted to directors and employees (note 24)	3.1	2.4
Social security costs	11.1	7.4
Pension costs - defined contribution schemes (note 28)	5.4	4.1
Pension costs - defined benefit schemes (note 28)	1.9	2.3
	143.4	111.6

12. Finance costs

	2010 £m	2009 £m
Letter of credit commission	2.1	1.5
Subordinated bond interest	21.7	20.7
Other similar charges	3.6	0.8
	27.4	23.0

13. Profit before tax

Profit before tax is stated after charging/(crediting) the following amounts:

	2010 £m	2009 £m
Depreciation
- owned assets (note 21)	3.5	4.9
Amortisation (note 22)	5.5	4.3
Operating lease expenditure (note 33)	9.7	5.5
Foreign exchange losses/(gains) (note 15)	12.3	(5.4)

Fees paid to the Group's auditors during the period of their appointment as auditors are set out below:

	2010 £'000	2009 £'000
		PwC	Deloitte
Amounts charged to the income statement
Audit of the Group's annual accounts	266.5	120.4	32.9
Audit of subsidiary companies	730.7	626.9	14.6
Taxation advice	108.8	165.6	-
US market research	268.7	-	-
ACI acquisition advisory fees	-	-	1,346.5
Other non-statutory fees	100.4	16.5	-
	1,475.1	929.4	1,394.0

14. Tax

	2010 £m	2009 £m
Current tax - current year
Corporation tax	81.0	94.8
Foreign tax suffered	3.6	(0.6)
Double tax relief	(3.0)	-
	81.6	94.2
Current tax - adjustments in respect of previous years
Corporation tax	(10.9)	(1.0)
Deferred tax - current year
Movement for the year	(38.8)	(38.2)
Deferred tax - adjustments in respect of previous years
Movement for the year	7.9	(0.7)
Effect of reduced tax rate on opening net liability	(2.5)	-
Taxes on income	37.3	54.3

In addition to the above, tax of £4.6 million credit (2009: £15.0 million) on taxable items taken through other comprehensive income and deferred tax of £0.4 million charge (2009: £0.5 million) on taxable items taken through equity have been taken directly to reserves as follows:

	2010 £m	2009 £m
Current tax on losses on revaluation of hedge instruments	(5.3)	(12.7)
Current tax on foreign exchange (losses)/gains on translation of overseas operations	(2.1)	3.1
Current tax on taxable foreign exchange gains on translation of intangibles arising from investments in overseas operations	-	0.4
Deferred tax on defined benefit pension fund actuarial gains/(losses)	2.8	(5.8)
Taxes credited to other comprehensive income	(4.6)	(15.0)
Deferred tax on employee share option scheme	0.4	0.5
Taxes charged to equity	0.4	0.5

Underwriting profits and losses are recognised in the technical account on an annual accounting basis, recognising the results in the period in which they are earned. UK corporation tax on Syndicate 2001's underwriting result is charged in the period in which the underwriting profits are actually paid by the Syndicate to the corporate member subsidiary.

Deferred tax is provided on the underwriting result with reference to the forecast ultimate result of each of the years of account. Where this is a taxable loss, deferred tax is only provided on the movement on that year of account to the extent that forecasts show that the taxable loss will be utilised in the foreseeable future. Deferred tax (before netting off) has been provided on the underwriting result for this accounting period of £68.9 million (2009: £96.5 million).

Reconciliation of tax expense

The UK standard rate of corporation tax is 28.0% (2009: 28.0%), whereas the tax charged for the year ended 31 December 2010 as a percentage of profit before tax is 14.4% (2009: 10.7%). The reasons for this difference are explained below:

	2010 £m	2010 %	2009 £m	2009 %
Profit before tax	259.2		509.1
Taxation on profit on ordinary activities at the standard rate of corporation tax in the UK	72.6	28.0	142.5	28.0
Non-deductible or non-taxable items	(0.7)	(0.2)	(2.4)	(0.5)
Tax rate differences on overseas subsidiaries	(29.7)	(11.5)	(69.7)	(13.7)
Over provision in respect of prior periods	(3.0)	(1.2)	-	-
Irrecoverable overseas tax	0.6	0.3	-	-
Release of deferred tax provision on prior year Bermudian profits	-	-	(16.1)	(3.1)
Deferred tax rate change	(2.5)	(1.0)	-	-
Taxes on income	37.3	14.4	54.3	10.7

The Group's Bermudian reinsurance subsidiary, Amlin Bermuda Ltd, was re-domiciled to Switzerland during the year. The company was subsequently re-named Amlin AG, with a new division, Amlin Re Europe, operating in Switzerland and the Bermuda business operating as a Bermudian branch. The Group's tax provision for 2010 has been prepared on the basis that both Amlin AG and Amlin Bermuda Holdings Ltd are non-UK resident for UK corporation tax purposes and are exempt from the UK controlled foreign company regime. The corporation tax rate for profits earned by Amlin Bermuda Holdings Ltd and the Bermudian branch of Amlin AG is currently nil% (2009: nil%). The combined rate which is applicable to profits arising for the Zurich operation only, of Swiss cantonal and federal taxes is 21.2%.

Deferred tax has been provided for at the local tax rate in force when the temporary differences are expected to reverse. The tax rates used are:

·  UK - 27% (2009: 28%), with the exception of temporary differences expected to reverse in 2011 for which a tax rate of 27.25% has been applied;

·  Netherlands - 25.0% (2009: 25.5%);

·  Bermuda - nil% (2009: nil%); and

·  Switzerland - 21.2% (2009: n/a).

The UK tax rate applied for deferred tax purposes (27.0%) was enacted in July 2010. Further reductions in the UK corporation tax rate have been announced, which will ultimately reduce the corporation tax rate to 24.0% on 1 April 2014. However, these subsequent reductions have not yet been enacted or substantively enacted and therefore the rate at which deferred tax is provided remains 27.0%. An estimate of the impact of the future reduction in the UK corporation tax rate can be found in note 39 Subsequent events.

The Group is subject to US tax on US underwriting profits. No provision has been made in respect of such tax arising in 2010 (2009: £nil) as any net provision is likely to be immaterial.

Deferred tax

The deferred tax asset is attributable to temporary differences arising on the following:

	Provisions for losses £m	Other provisions £m	Pension provisions £m	Other timing differences £m	Total £m
At 1 January 2009	1.0	4.7	1.8	3.6	11.1
Opening balance in acquisition	-	-	-	17.1	17.1
Movements in the year	(0.8)	1.0	4.7	(4.0)	0.9
At 31 December 2009	0.2	5.7	6.5	16.7	29.1
Movements in the year	13.6	(4.8)	(6.5)	(16.7)	(14.4)
At 31 December 2010	13.8	0.9	-	-	14.7

The deferred tax liability is attributable to temporary differences arising on the following:

	Underwriting results £m	Unrealised capital gains £m	Syndicate capacity £m	Overseas earnings £m	Other timing differences £m	Intangibles £m	Total £m
At 1 January 2009	122.9	-	5.3	16.1	0.3	-	144.6
Opening balances on acquisition	-	4.4	-	-	2.0	16.6	23.0
Movements in the year	(26.4)	-	0.8	(16.1)	(1.6)	0.7	(42.6)
At 31 December 2009	96.5	4.4	6.1	-	0.7	17.3	125.0
Movements in the year	(53.0)	9.3	0.8	-	8.3	(2.6)	(37.2)
At 31 December 2010	43.5	13.7	6.9	-	9.0	14.7	87.8

Deferred tax of £26.6 million (2009: £20.9 million) is expected to be settled after more than 12 months from the balance sheet date.

15. Net foreign exchange (losses)/gains

The Group recognised net foreign exchange losses of £12.3 million (2009: £5.4 million net gain) in the income statement during the year.

The Group writes business in many currencies and although a large proportion of the Group's balance sheet assets and liabilities are matched, minimising the effect of movements in foreign exchange rates on the Group's result, it is not possible, or practical, to match exactly all assets and liabilities in currency. Accounting standards also require that certain classes of assets and liabilities be translated at different rates (see foreign currency translation accounting policy).

Included within the Group's foreign exchange (losses)/gains in the income statement are:

	2010 £m	2009 £m
Net (losses)/gains on underwriting transactions and translation of underwriting assets and liabilities at closing rates	(3.2)	1.7
Losses arising from the treatment of net non-monetary assets and liabilities at historical average rates	(2.6)	(29.0)
Underwriting exchange losses	(5.8)	(27.3)
(Losses)/gains on long-term US dollar borrowings	(2.0)	6.4
Gains on sterling capital assets held in Amlin Bermuda	-	25.2
Net (losses)/gains on non-underwriting transactions and translation of non-underwriting assets and liabilities at closing rates	(4.5)	1.1
Non-underwriting exchange (losses)/gains	(6.5)	32.7
	(12.3)	5.4

In addition, the following exchange movements have been charged directly to other comprehensive income:

	2010 £m	2009 £m
Gains/(losses) on translation of overseas subsidiaries:
- Amlin Bermuda	27.8	(98.5)
- Amlin Singapore	0.2	-
- Amlin France	0.2	-
- Amlin Corporate Insurance N.V.	(7.7)	7.3
	20.5	(91.2)
(Losses)/gains on derivative instruments that hedge investments in overseas operations	(4.2)	29.3
Losses on translation of intangibles arising from investments in overseas operations	(2.9)	(1.6)
	13.4	(63.5)

16. Cash and cash equivalents

	2010 £m	2009 £m
Cash and cash in hand	66.9	68.9
Short-term deposits	14.6	1.4
	81.5	70.3

Cash and cash equivalents represent cash at bank and in hand and short-term bank deposits which can be recalled within 24 hours.

17. Financial assets and financial liabilities

	At valuation 2010 £m	At valuation 2009 £m	At cost 2010 £m	At cost 2009 £m
Assets
Financial assets held for trading at fair value through income
Shares and other variable yield securities	347.1	167.3	306.5	161.8
Debt and other fixed income securities	2,876.9	3,127.7	2,811.2	3,162.7
Property funds	60.2	125.7	64.7	147.2
Other financial assets at fair value through income
Participation in investment pools	984.7	508.2	976.0	499.1
Deposits with credit institutions	9.8	6.4	9.5	6.4
Derivative instruments	14.4	24.4	5.2	4.5
Other	8.0	9.3	7.9	9.2
Available for sale financial assets
Unlisted equities	9.0	8.9	9.0	8.9
Total financial assets	4,310.1	3,977.9	4,190.0	3,999.8
Liabilities
Derivative instruments	(9.7)	(12.9)	(1.3)	-
Total financial liabilities	(9.7)	(12.9)	(1.3)	-
Net financial assets	4,300.4	3,965.0	4,188.7	3,999.8
Listed investments included above are as follows:
Shares and other variable yield securities	347.1	167.3	306.5	161.8
Debt and other fixed income securities	2,824.5	3,127.7	2,758.9	3,162.7
	3,171.6	3,295.0	3,065.4	3,324.5

Debt and other fixed income securities include pooled exchange-traded funds, investing in bonds. The valuation of these funds is £1,523.5 million (2009: £1,076.1 million). Participation in investment pools includes units held in money market funds.

The reconciliation of opening and closing financial investments is as follows:

	2010 £m	2009 £m
At 1 January	3,965.0	2,868.1
Exchange losses	(47.0)	(128.0)
Net purchases	214.1	13.1
Realised gains/(losses) on disposals	31.0	(57.5)
Unrealised investment gains	77.1	170.1
Acquisitions through business combination	-	1,069.9
Assets of operation previously classified as held for sale	64.4	-
(Losses)/gains on derivative hedging instruments realised and unrealised taken through other comprehensive income	(4.2)	29.3
At 31 December	4,300.4	3,965.0

Improvements have been made to the disclosure of 2009 comparative values for unrealised gains recorded on assets of operation previously classified as held for sale.

18. Insurance liabilities and reinsurance assets

Claims reserves	2010			2009
	Insurance contract liabilities £m	Reinsurance share £m	Net liabilities £m	Insurance contract liabilities £m	Reinsurance share £m	Net liabilities £m
At 1 January	2,431.4	421.1	2,010.3	1,692.8	360.8	1,332.0
Claims incurred during the current year	1,313.6	98.0	1,215.6	781.6	43.3	738.3
Movements arising from prior year claims	(145.0)	11.5	(156.5)	(216.5)	(42.4)	(174.1)
Claims paid during the year	(977.3)	(147.0)	(830.3)	(664.1)	(56.7)	(607.4)
Acquisitions through business combination	-	-	-	943.6	160.0	783.6
Novation of liability	(2.0)	(0.4)	(1.6)	(42.1)	(42.1)	-
Accretion of fair value adjustment	4.0	0.7	3.3	0.7	0.1	0.6
Other movements	-	3.2	(3.2)	-	-	-
Exchange adjustments	7.2	(4.0)	11.2	(64.6)	(1.9)	(62.7)
At 31 December	2,631.9	383.1	2,248.8	2,431.4	421.1	2,010.3

Further information on the calculation of claims reserves and the risks associated with them is provided in the risk disclosures in note 3. Claims reserves are further analysed between notified outstanding claims and incurred but not reported claims below:

	2010 £m	2009 £m
Notified outstanding claims	1,892.4	1,722.7
Claims incurred but not reported	739.5	708.7
Insurance contracts claims reserve	2,631.9	2,431.4

The current and non-current portions for claims reserves are expected to be as follows:

	2010			2009
Claims reserves	Insurance contract liabilities £m	Reinsurance share £m	Net liabilities £m	Insurance contract liabilities £m	Reinsurance share £m	Net liabilities £m
Current portion	1,047.2	129.6	917.6	857.6	151.7	705.9
Non-current portion	1,584.7	253.5	1,331.2	1,573.8	269.4	1,304.4
	2,631.9	383.1	2,248.8	2,431.4	421.1	2,010.3

Unearned premium reserves	2010			2009
	Insurance contract liabilities £m	Reinsurance share £m	Net liabilities £m	Insurance contract liabilities £m	Reinsurance share £m	Net liabilities £m
At 1 January	744.8	52.8	692.0	549.4	31.0	518.4
Premiums written during the year	2,172.5	262.2	1,910.3	1,543.9	221.3	1,322.6
Premiums earned during the year	(2,002.4)	(254.3)	(1,748.1)	(1,541.6)	(224.3)	(1,317.3)
Acquisition through business combinations	-	-	-	203.1	28.5	174.6
Other movements	-	(4.0)	4.0	-	-	-
Exchange adjustments	(0.5)	(1.4)	0.9	(10.0)	(3.7)	(6.3)
At 31 December	914.4	55.3	859.1	744.8	52.8	692.0

The current and non-current portions for unearned premium reserves are expected to be as follows:

	2010			2009
Unearned premium reserves	Insurance contract liabilities £m	Reinsurance share £m	Net liabilities £m	Insurance contract liabilities £m	Reinsurance share £m	Net liabilities £m
Current portion	865.3	45.5	819.8	717.4	43.2	674.2
Non-current portion	49.1	9.8	39.3	27.4	9.6	17.8
	914.4	55.3	859.1	744.8	52.8	692.0

In connection with the purchase accounting for the acquisition of ACI, the Group adjusted claims reserves and related reinsurance recoveries to fair value on acquisition. The reduction to the original carrying value of £39.1 million and £6.4 million to claims reserves and reinsurance recoveries respectively is being recognised through a charge to the income statement over the period the claims are settled. This net charge is £3.3 million in 2010 (2009: net charge £0.6 million).

The fair value was based on the present value of the expected cash flows with consideration for the uncertainty inherent in both the timing of, and the ultimate amount of, future payments for losses and receipts of amounts recoverable from reinsurers. The nominal amounts were discounted to their present value using an applicable risk-free discount rate.

The total reinsurers' share of claims reserves and unearned premium reserves is set out in the table below:

	2010 £m	2009 £m
Reinsurers' share of insurance liabilities	454.4	481.5
Less provision for impairment of receivables from reinsurers	(16.0)	(7.6)
Reinsurance assets	438.4	473.9

The Group assesses its reinsurance assets for impairment on a quarterly basis by reviewing counterparty payment history and credit grades provided by rating agencies. The credit ratings of the Group's reinsurance assets are shown in note 3.2. As at 31 December 2010 reinsurance assets at a nominal value of £4.0 million (2009: £3.1 million) were greater than 3 months overdue and provided for to the value of £4.0 million (2009: £3.1 million). The Group holds collateral of £124.5 million (2009: £75.8 million) in relation to reinsurance assets.

The Group has recognised a total impairment loss of £20.0 million (2009: £25.6 million) on reinsurance assets and insurance receivables.

The carrying amounts disclosed are reasonably approximate to the fair value at the reporting date.

19. Loans and receivables, including insurance and reinsurance receivables

	2010 £m	2009 £m
Receivables arising from insurance and reinsurance contracts	820.1	687.4
Less provision for impairment of receivables from contract holders and agents	(24.5)	(21.5)
Insurance and reinsurance receivables	795.6	665.9
Other receivables	39.4	45.4
Prepayments and other accrued income	48.7	18.9
Other loans and receivables	88.1	64.3
	883.7	730.2

The current and non-current portions are expected to be as follows:

	2010 £m	2009 £m
Current portion	868.6	703.5
Non-current portion	15.1	26.7
	883.7	730.2

Receivables arising from reinsurance contracts are comprised principally of amounts recoverable from reinsurers in respect of paid claims and premium receivables on inward reinsurance business, including reinstatement premium.

The Group assesses its insurance and reinsurance receivables for impairment on a quarterly basis by reviewing counterparty payment history. As of 31 December 2010 insurance and reinsurance receivables at a nominal value of £117.2 million (2009: £108.5 million) were greater than 3 months overdue and provided for on the basis of credit rating to the value of £24.2 million (2009: £5.5 million).

The carrying amounts disclosed above are reasonably approximate to the fair value at the reporting date.

The ageing analysis of insurance and reinsurance receivables overdue, before impairment provision, is as follows:

	2010 £m	2009 £m
3 to 6 months	18.9	22.0
6 to 9 months	14.0	3.6
Greater than 9 months	84.3	82.9
	117.2	108.5

Amlin Corporate Insurance N.V Netherlands business does not currently produce an ageing report for insurance receivables due to the interaction of local market practice and the office's internal systems. The total level of insurance receivables in the Netherlands is £68.1 million (2009: £65.0 million).

Other receivables comprise principally of amounts receivable from investment managers for financial investments sold, input VAT and other sundry debtors.

20. Deferred acquisition costs

The reconciliation of opening and closing deferred acquisition costs is as follows:

	£m
At 1 January 2009	114.0
Expense deferred	180.7
Amortisation	(171.5)
Acquisition through business combination	21.6
Exchange adjustment	1.0
At 31 December 2009	145.8
Expense deferred	274.5
Amortisation	(234.9)
Exchange adjustment	0.4
At 31 December 2010	185.8

The current and non-current portions are expected to be as follows:

	2010 £m	2009 £m
Current portion	176.0	136.2
Non-current portion	9.8	9.6
	185.8	145.8

21. Property and equipment

	Freehold land and buildings £m	Motor vehicles £m	Computer equipment £m	Fixtures, fittings and leasehold improvements £m	Total £m
Cost
At 1 January 2010	4.1	0.2	26.8	9.9	41.0
Foreign exchange losses	-	-	(0.2)	-	(0.2)
Additions	-	-	4.7	1.5	6.2
Disposals	-	-	(0.4)	(0.1)	(0.5)
At 31 December 2010	4.1	0.2	30.9	11.3	46.5
Accumulated depreciation
At 1 January 2010	0.3	0.1	22.7	8.0	31.1
Foreign exchange gains	-	-	(0.2)	-	(0.2)
Charge for the year	-	-	2.8	0.7	3.5
Disposals	-	-	(0.4)	-	(0.4)
At 31 December 2010	0.3	0.1	24.9	8.7	34.0
Net book value
At 31 December 2010	3.8	0.1	6.0	2.6	12.5
At 1 January 2010	3.8	0.1	4.1	1.9	9.9

	Freehold land and buildings £m	Motor vehicles £m	Computer equipment £m	Fixtures, fittings and leasehold improvements £m	Total £m
Cost
At 1 January 2009	4.1	0.2	23.6	6.8	34.7
Foreign exchange losses	-	-	-	(0.1)	(0.1)
Additions	-	-	2.9	3.1	6.0
Acquisitions through business combination	-	-	0.3	0.1	0.4
At 31 December 2009	4.1	0.2	26.8	9.9	41.0
Accumulated depreciation
At 1 January 2009	0.2	0.1	19.8	6.2	26.3
Foreign exchange gains	-	-	(0.1)	-	(0.1)
Charge for the year	0.1	-	3.0	1.8	4.9
At 31 December 2009	0.3	0.1	22.7	8.0	31.1
Net book value
At 31 December 2009	3.8	0.1	4.1	1.9	9.9
At 1 January 2009	3.9	0.1	3.8	0.6	8.4

There were no assets held under finance lease and hire purchase contracts at 31 December 2010 (2009: £nil).

22. Intangible assets

	Goodwill £m	Syndicate participations £m	Broker and customer relationships £m	Computer software £m	Other intangibles £m	Total £m
Cost
At 1 January 2010	64.3	63.2	39.3	-	2.5	169.3
Additions	-	-	-	17.4	-	17.4
Acquisition through business combination	-	-	13.0	-	-	13.0
Adjustments to prior acquisitions	(0.4)	-	-	-	-	(0.4)
Foreign exchange losses	(1.7)	-	(1.2)	-	-	(2.9)
At 31 December 2010	62.2	63.2	51.1	17.4	2.5	196.4
Accumulated amortisation
At 1 January 2010	0.4	-	5.4	-	0.7	6.5
Charge for the year	-	-	5.0	-	0.5	5.5
Foreign exchange gains	-	-	(0.1)	-	-	(0.1)
At 31 December 2010	0.4	-	10.3	-	1.2	11.9
Net book value At 31 December 2010	61.8	63.2	40.8	17.4	1.3	184.5
At 1 January 2010	63.9	63.2	33.9	-	1.8	162.8

	Goodwill £m	Syndicate participations £m	Broker and customer relationships £m	Computer software £m	Other intangibles £m	Total £m
Cost
At 1 January 2009	34.3	63.2	12.4	-	2.5	112.4
Acquisition through business combination	32.6	-	26.8	-	-	59.4
Adjustments to prior acquisitions	(0.9)	-	-	-	-	(0.9)
Foreign exchange losses	(1.7)	-	0.1	-	-	(1.6)
At 31 December 2009	64.3	63.2	39.3	-	2.5	169.3
Accumulated amortisation
At 1 January 2009	0.4	-	1.6	-	0.2	2.2
Charge for the year	-	-	3.8	-	0.5	4.3
At 31 December 2009	0.4	-	5.4	-	0.7	6.5
Net book value At 31 December 2009	63.9	63.2	33.9	-	1.8	162.8
At 1 January 2009	33.9	63.2	10.8	-	2.3	110.2

Syndicate participations represent the ongoing rights to trade on Syndicate 2001 within the Lloyd's insurance market.

Goodwill and the asset in relation to syndicate participations are considered to have an indefinite life. As such, they are tested for impairment annually.

For the purpose of impairment testing, goodwill is allocated to the Group's cash generating units (CGUs) identified according to country of operation and business segment. The intangible asset relating to the syndicate participations supports the underwriting in Amlin London, Amlin UK and Amlin France. Given the nature of the participation rights, it is not practical to split this asset between the three CGUs. Accordingly, impairment testing has been performed based on aggregate Syndicate 2001 profit forecasts.

The analysis of goodwill and indefinite life intangible assets by CGU is shown below:

	2010 £m				2009 £m
	Amlin London	Amlin France	Amlin Corporate Insurance	Total	Amlin London	Amlin France	Amlin Corporate Insurance	Total
Goodwill	7.6	25.0	29.2	61.8	8.2	28.1	27.6	63.9
Syndicate participations	-	-	-	63.2	-	-	-	63.2
Total	7.6	25.0	29.2	125.0	8.2	28.1	27.6	127.1

When testing for impairment, the recoverable amount of a CGU is determined based on value in use calculations. Value in use is calculated for each CGU using a discounted cash flow projection based on business plans and growth assumptions approved by management and discounted at an appropriate discount rate.

Key assumptions used in the calculation are:

·  Budgeted operating profit for an initial 5 year period for Amlin London and a 4 year period for Amlin France and Amlin Corporate Insurance represents the operating profit in the business plans. As such this reflects the best estimate of future profits based on historical trends and expected growth rates. The most significant assumptions used to derive the operating profit include our assessment of the market cycle, retention rates, claims inflation, outwards reinsurance expenditure and long-term investment return.

·  In order to extrapolate future cash flows beyond the business plan period, a long term average growth rate of 2.5% has been assumed for all CGUs.

·  A risk adjusted post-tax discount rate of 8.0%, has been applied to each CGU's cash flow projection.

The results of this exercise indicate that the recoverable amount exceeds in each case the intangible's carrying value and would not be sensitive to reasonable possible changes in assumptions.

Computer software represents the costs that the Group has incurred on internally developed software relating to a new underwriting platform for Amlin Corporate Insurance N.V. This software will be amortised over ten years from the date that it is completed.

The Group acquired the trade and assets of a United Kingdom insolvency practitioners' insurance business from Lockton, Inc during the year and capitalised the existing customer relationships of the business (see note 38). This intangible is being amortised over 13 years. Broker and customer relationship intangibles also include those acquired in relation to Amlin Corporate Insurance N.V. and Amlin France Holdings SAS, the net book value being £24.0 million (2009: £26.8 million) and £4.7 million (2009: £6.4 million) respectively.

23. Share capital

Authorised share capital

	2010 Number	2010 £m	2009 Number	2009 £m
Allotted, called up and fully paid ordinary shares
At 1 January issued ordinary shares of 28.125p each (2009: 28.125p)	502,076,006	141.2	478,573,439	134.6
Shares issued to fund the acquisition of Amlin Corporate Insurance N.V.	-	-	23,502,567	6.6
At 31 December issued ordinary shares of 28.125p each (2009: 28.125p)	502,076,006	141.2	502,076,006	141.2
Issued redeemable non-cumulative preference shares (B shares)
At 1 January issued B shares of 22.4p each	-	-	5,335,475	1.2
B shares redemption	-	-	(5,335,475)	(1.2)
At 31 December issued B shares of 22.4p each	-	-	-	-

The Company transferred 1,288,723 shares out of treasury shares at a cost of £3.3 million (2009: 1,599,228 shares at a cost of £4.1 million). The shares have been transferred to meet exercises of employee share options, leaving 5,875,701 shares in Treasury at 31 December 2010 (2009: 7,164,424 shares).

On 3 June 2009, the Group placed 23,502,567 new Ordinary Shares with institutional investors representing approximately 5% of Amlin's issued Ordinary Share capital, in order to finance part of the consideration for acquiring ACI. The placing proceeds were £75.0 million net of expenses.

The B shares detailed above were issued on 17 December 2007 to existing shareholders on the basis of one B share for each ordinary share held on 14 December 2007. Each such B share was redeemable by the shareholder at 22.4 pence per share at various dates up to August 2009 (at which time the balance was then mandatorily redeemed).

24. Share options and share-based incentive awards

During the year ended 31 December 2010 the Group operated a number of long-term employee incentive schemes. The total cost recognised in the income statement under International Financial Reporting Standard 2 'Share-based payments' (IFRS 2) for the Group's share-based payment arrangements is shown below:

	2010 £m	2009 £m
Equity settled schemes	3.1	2.4
Cash settled scheme (Capital Builder Plan)	-	5.9
Total expense arising from share-based payments	3.1	8.3

i) Equity settled schemes

Details of Amlin's Executive Share Option Schemes (ESOS), Long Term Incentive Plan (LTIP), Performance Share Plan (PSP), Share Incentive Plan (SIP) and Sharesave plans are set out in the Directors' Remuneration Report in the Governance section. At 31 December 2010 the total options over new or treasury shares outstanding, or committed to be met by the Group's Employee Share Ownership Trust (ESOT), under these schemes are summarised below:

a) Amlin Executive Share Option Schemes (ESOS)

ESOS options are potentially exercisable for seven years following their initial vesting date. The changes to new or treasury shares under option pursuant to the ESOS during the year were as follows:

	Number of shares 2010	Weighted average exercise price per share (pence)	Number of shares 2009	Weighted average exercise price per share (pence)
At 1 January	2,090,148	234.62	3,544,973	224.94
Exercised during the year	(918,746)	229.08	(1,425,455)	212.14
Lapsed during the year	(16,959)	293.00	(29,370)	139.51
Total shares outstanding and exercisable at 31 December	1,154,443	238.18	2,090,148	234.62

Details of the outstanding ESOS options are as follows:

	Number of outstanding shares under option 2010	Exercise price per share (pence) 2010	Weighted average remaining contractual life (years)	Number of outstanding shares under option 2009	Exercise price per share (pence) 2009	Weighted average remaining contractual life (years)
2001 Executive grant	7,770	108.99	0.30	7,770	108.09	1.30
2002 Executive grant	38,455	76.33	1.30	54,155	76.33	2.30
2003 Executive grant	43,463	110.82	2.30	79,994	110.82	3.30
2004 Executive grant	149,117	152.85	3.25	211,252	152.85	4.25
2005 Executive grant	188,230	161.77	4.25	492,747	161.77	5.25
2006 Executive grant	727,408	293.00	5.25	1,244,230	293.00	6.25

The weighted average share price at date of exercise during the year was 413.82 pence.

The weighted average remaining contractual life of the ESOS options outstanding at 31 December 2010 was 4.6 years (2009: 5.6 years).

b) Long Term Incentive Plan (LTIP)

The LTIP awards are subject to an arrangement whereby the Employee Share Ownership Trust (ESOT) was committed at the year end to provide up to 2,582,748 shares pursuant to options, normally exercisable from three years after grant. During 2010, the period for options exercise following such three years was extended from 6 to 30 months. In addition, conditional share awards have been made over 142,064 and 87,055 shares to participants in the Netherlands and Belgium, and France, respectively. Such awards may vest from three years after the award date. The following reconciliation shows the changes made to the LTIP options and share awards during the year:

	Number of shares under option or conditional award 2010	Number of shares under option or conditional award 2009
At 1 January	2,125,719	1,605,360
Granted/awarded during the year	1,274,498	747,533
Exercised during the year	(481,944)	(77,970)
Lapsed during the year	(30,296)	(149,204)
Total outstanding shares at 31 December	2,887,977	2,125,719
Total exercisable shares at 31 December	-	-

The exercise price for each option exercise is £1 in total per exercise and the cost of acquiring shares through a conditional share award vesting is nil.

Details of the outstanding LTIP options and share awards are as follows:

	Number of shares under option or conditional award 2010	Weighted average remaining contractual life (years)	Number of shares under option or conditional award 2009	Weighted average remaining contractual life (years)
2007 LTIP grant	-	-	474,525	0.80
2008 LTIP grant	857,065	2.80	881,930	1.80
2009 LTIP grant	683,625	3.80	693,154	2.80
2010 LTIP grant	1,042,058	4.80	-	-
2008 French LTIP grant	54,608	0.90	54,608	1.90
2009 French LTIP grant	21,502	1.20	21,502	2.20
2010 French LTIP grant	87,055	2.20	-	-
2010 ACI LTIP grant	142,064	2.20	-	-

The weighted average share price at date of exercise during the year was 417.88 pence.

The weighted average fair value (i.e. share price) at date of grant for awards granted during 2010 was 413.60 pence.

The weighted average remaining contractual life of the LTIP options/awards outstanding at 31 December 2010 was 3.63 years (2009: 1.91 years), the material increase being due to the extension of exercise periods mentioned above.

c) Performance Share Plan (PSP)

The PSP awards are subject to an arrangement whereby the ESOT was committed at the year end to provide up to 1,966,608 shares pursuant to options, normally exercisable from five years after grant. During 2010, the period of exercise following such five years was extended from 6 to 30 months. In addition, conditional share awards have been made over 101,152 and 46,515 shares to participants in the Netherlands and Belgium, and in France, respectively. Such awards may vest from five years after the award date. The following reconciliation shows the changes made to the PSP options and share awards during the year:

	Number of shares under option or conditional award 2010	Number of share under option or conditional award 2009
At 1 January	2,053,682	2,154,676
Granted/awarded during the year	661,558	435,181
Exercised during the year	(498,300)	(499,366)
Lapsed during the year	-	(36,809)
Total outstanding shares at 31 December	2,216,940	2,053,682
Total exercisable shares at 31 December	-	-

The exercise price for each option exercise is £1 in total per exercise and the cost of acquiring shares through a conditional share vesting is nil.

Details of the outstanding PSP options and share awards are as follows:

	Number of shares under or conditional award option 2010	Weighted average remaining contractual life (years)	Number of shares under or conditional award option 2009	Weighted average remaining contractual life (years)
2005 PSP grant	-	-	488,918	0.80
2006 PSP grant	316,997	2.80	322,649	1.80
2007 PSP grant	350,256	3.80	353,986	2.80
2008 PSP grant	462,988	4.80	462,988	3.80
2009 PSP grant	322,476	5.80	322,476	4.80
2010 PSP grant	513,891	6.80	-	-
2009 French PSP grant	26,969	3.50	26,969	4.50
2010 French PSP grant	46,515	4.20	-	-
2009 ACI PSP grant	75,696	3.66	75,696	4.66
2010 ACI PSP grant	101,152	4.20	-	-

The weighted average share price at date of exercise during the year was 398.78 pence.

The weighted average fair value (i.e. share price) at date of grant for awards granted during 2010 was 413.60 pence.

The weighted average remaining contractual life of the PSP options/awards outstanding at 31 December 2010 was 4.87 years (2009: 2.80 years), the material increase being due to the extension of exercise periods mentioned above.

d) Share Incentive Plan (SIP)

SIP shares are awards made on an all employee basis, including to employees in France, the Netherlands and Belgium. Under the main SIP, the shares are held in trust by Yorkshire Building Society and usually sourced from market purchases. For continental European staff, awards were made under appropriately adapted local versions of the SIP involving shares being provided on vesting from new or treasury shares. The following reconciliation sets out the changes impacting the shares issued under the SIP during the year:

	Number of shares 2010	Number of shares 2009
At 1 January	1,407,867	1,129,334
Awarded during the year	823,753	278,533
Transferred to participants during the year	(110,561)	-
Forfeited during the year	(59,822)	-
Total outstanding shares at 31 December	2,061,237	1,407,867
Total shares transferable to participants at 31 December	-433,564	-

A summary of the outstanding awards is presented below:

	Number of outstanding awards 2010	Number of outstanding awards 2009
2007 SIP grant	433,564	533,940
2008 SIP grant	560,873	595,394
2009 SIP grant	162,355	173,511
2010 SIP grant	506,063	-
2009 French SIP grant	10,792	10,792
2010 French SIP grant	36,284	-
2009 ACI SIP grant	94,230	94,230
2010 ACI SIP grant	257,076	-

The weighted average fair value (i.e. share price) at date of grant for awards granted during 2010 was 388.60 pence.

e) Sharesave

Sharesave options are usually exercisable for six months starting on the first month of exercise after the three or five year savings period. The changes during the year to new or treasury shares under option pursuant to the Sharesave plans were as follows:

	Number of shares under option 2010	Weighted average exercise price (pence)	Number of shares under option 2009	Weighted average exercise price (pence)
At 1 January	1,318,122	258.66	1,326,393	228.22
Granted/awarded during the year	448,975	334.00	271,719	329.00
Exercised during the year	(369,977)	224.18	(168,773)	148.38
Lapsed during the year	(82,000)	275.01	(111,217)	234.79
Total outstanding shares at 31 December	1,315,120	293.06	1,318,122	258.66
Total exercisable shares at 31 December	16,259	181.99	2,438	134.11

Details of the outstanding Sharesave options are as follows:

	Number of outstanding shares under option 2010	Exercise price per share (pence) 2010	Weighted average remaining contractual life (years)	Number of outstanding shares under option 2009	Exercise price per share (pence) 2009	Weighted average remaining contractual life (years)
2004 Sharesave 5 years grant	-	-	-	2,438	134.11	-
2005 Sharesave 5 years grant	11,429	146.49	0.50	138,250	146.49	1.50
2007 Sharesave 3 years grant	4,830	266.00	-	250,179	266.00	1.00
2007 Sharesave 5 years grant	146,053	266.00	2.00	166,981	266.00	3.00
2008 Sharesave 3 years grant	270,342	246.00	1.50	289,377	246.00	2.50
2008 Sharesave 5 years grant	186,248	246.00	3.50	201,225	246.00	4.50
2009 Sharesave 3 years grant	153,328	329.00	2.50	167,831	329.00	3.50
2009 Sharesave 5 years grant	96,170	329.00	4.50	101,841	329.00	5.50
2010 Sharesave 3 years grant	252,382	334.00	3.50	-	-	-
2010 Sharesave 5 years grant	194,338	334.00	5.50	-	-	-

The weighted average remaining contractual life of the Sharesave options outstanding at 31 December 2010 was 2.17 years (2009: 2.8 years).

The weighted average share price at date of exercise during the year was 391.83 pence.

The weighted average fair value (i.e. share price) at date of grant for awards granted during 2010 was 333.38 pence.

In addition to the executive options and awards and to the SIP, a charge has been made to the income statement for options granted after 7 November 2002 pursuant to the 1998 Sharesave option schemes, or (from the 2007 grants) the 2007 Sharesave option plan.

f) Options from the ESOT

The trustee of the ESOT held 2,811,679 ordinary shares as at 31 December 2010 (2009: 1,056,440 ordinary shares) to meet potential future exercises of executive options and long term incentive plans. 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 2010 was 408.9 pence per share (2009: 358.7 pence per share).

In addition to the options and awards included above, the following options have been committed to be met from shares held by the ESOT:

	Number of shares under option 2010	Weighted average remaining contractual life (years)	Number of shares under option 2009	Weighted average remaining contractual life (years)
2008 Amlin Special Tranche 1	23,595	0.75	23,595	1.75
2008 Amlin Special Tranche 2	13,694	1.66	13,694	2.66
2010 Amlin Special	23,595	2.42	-	-
2010 Amlin Special	586	2.75	-	-

The assets, liabilities, income and costs of the ESOT are incorporated into the consolidated financial statements. The ESOT waives the right to dividends on ordinary shares in excess of 0.01 pence per each share ranking for an interim or final dividend.

Assumptions

The weighted average share price of Amlin plc throughout the year was 397.59 pence per share (2009: 358.15 pence per share).

The "Black Scholes" option pricing model has been used to determine the fair value of the option grants and share awards listed above. The assumptions used in the model are as follows:

	2010	2009
Weighted average share price on grant (pence)	249.63	227.19
Weighted average exercise price (pence)	194.21	189.09
Expected volatility	30.00%	30.00%
Expected life (years)	3.00 - 7.50	3.00 - 7.50
Risk free rate of return	2.00% - 5.00%	2.00% - 5.00%
Expected dividend yield	2.00% - 7.00%	2.00% - 7.00%

Volatility

The volatility of the Amlin share price is calculated as a normalised standard deviation of the log of the daily return on the share price. In estimating 30% volatility, the volatility of return for six months, one year and three year intervals are considered. As a guide to the reasonableness of the volatility estimate similar calculations are performed on a selection of Amlin's peer group.

Interest rate

The risk free interest rate is consistent with government bond yields.

Dividend yield

The assumptions are consistent with the information given in the report and accounts for each relevant valuation year.

Staff turnover

The option pricing calculations are split by staffing grades as staff turnover is higher for more junior grades. Furthermore historical evidence suggests that senior employees tend to hold their options for longer whereas more junior levels within the organisation appear to exercise earlier. In addition, senior employees hold a larger proportion of the options but represent a smaller group of individuals.

Market conditions

The Group issues options that include targets for the Group's performance against a number of market and non-market conditions. Failure to meet these targets can reduce the number of options exercisable. In some circumstances no options may be exercised. Assumptions are made about the likelihood of meeting the market and non-market conditions based on the outlook at the time of each option grant.

ii) Cash settled scheme

The Group rewards senior underwriters through payments under the Capital Builder Plan (the Plan) if they achieve performance below the target loss ratio for their class(es) of business or business area over the five year period of each award under the Plan. Under the scheme rules, the Group has the option to settle the awarded bonus in the shares of the Company as an alternative to cash payment. In accordance with IFRS2 Share-based Payment, the Plan is deemed to be a cash-settled share-based payment arrangement.

Provision for payments of an award under the Plan is calculated every year where actual profits exceed the target profit on a cumulative basis over the performance period to date under the Plan. The rate of accrual for each five year performance period is determined at the start of the period reflecting the share of the excess return payable and committed under the terms of the Plan.

Under this approach, the services received and the related liability are recognised as the services are rendered, in that the liability at any point in time for the Plan reflects the level of actual performance by underwriters in relation to the target.

The carrying amount and the intrinsic value of the liability under this Plan at the end of 2010 is £8.7 million (2009: £8.9 million) and included in note 26 for other payables.

25. Restricted assets

At 31 December 2010, Syndicate 2001 holds gross assets of £2,821.0 million (2009: £2,705.6 million) which are held within individual trust funds and the Group cannot obtain or use them until such time as each Syndicate underwriting year is closed and profits are distributed, or an advance profit release is made.

At 31 December 2010, US$181.7 million (2009: US$145.1 million) of Amlin Bermuda's assets are restricted for use by the Group. These assets are collateral for the LOC facility drawn at the end of the year. Details are included in note 27 for borrowings.

At 31 December 2010, Leadenhall Value Insurance Linked Investments Funds Plc and Leadenhall Diversified Insurance Linked Investment Funds Plc, hold a combined €5.0 million in money market funds. These assets are held as collateral for insurance-linked securities. The Leadenhall funds hold an encumbered cash balance of US$14.4 million as collateral for FX forward contracts and insurance-linked securities held.

The market values at 31 December 2010 for the insurance-linked securities are a debit of US$49.2 million and a credit of €1.6 million. The market values at 31 December 2010 for FX forward contracts are a debit of US$36.8 million and a credit of €27.5 million.

26. Other payables, including insurance and reinsurance payables and deferred income

	2010 £m	2009 £m
Insurance and reinsurance payables	245.9	243.7
Trade payables	53.9	51.9
Accrued expenses	79.3	87.0
Social security and other tax payables	6.5	4.9
Other payables	139.7	143.8
	385.6	387.5

The current and non-current portions are expected to be as follows:

	2010 £m	2009 £m
Current portion	360.5	352.6
Non-current portion	25.1	34.9
	385.6	387.5

The carrying amounts disclosed above are reasonably approximate to the fair value at the reporting date.

Insurance payables are comprised principally of premium payable for reinsurance, including reinstatement premium.

27. Borrowings

	2010 £m	2009 £m
Subordinated debt	318.0	316.4

The borrowings in the above table are all non-current.

The Group's borrowings comprise four issues of subordinated debt. Details of the subordinated debt issues are as follows:

Issue date	Principal amount	Reset date	Maturity date	Interest rate to reset date %	Interest rate from reset date to maturity date %
23 November 2004(1)	US$50m	November 2014	November 2019	7.11	LIBOR + 3.48
15 March 2005(1)	US$50m	March 2015	March 2020	7.28	LIBOR + 3.32
25 April 2006(1)	£230m	December 2016	December 2026	6.50	LIBOR + 2.66
15 October 2003(2)	€30m	N/A	October 2018	6.50	N/A

(1) Debt issued by Amlin plc

(2) Debt issued by Amlin Corporate Insurance N.V.

The subordinated debt will be redeemed on the maturity dates at the principal amounts, together with any outstanding accrued interest. For the US dollar and sterling bonds, the Group has the option to redeem the bonds in whole, subject to certain requirements, on the reset dates or any interest payment date thereafter at the principal amount plus any outstanding accrued interest. The euro bond was acquired by the Group as part of the acquisition of Amlin Corporate Insurance N.V. (ACI).

The directors' estimation of the fair value of the Group's borrowings is £384.6 million (2009: £380.2 million). The aggregate fair values of borrowings are based on a discounted cash flow model. This model uses a current yield curve appropriate for the remaining terms to maturity. The discount rate used was 2.80% (2009: 3.41%).

On 3 September 2008 the Company and certain of its subsidiaries entered into a renegotiated debt facility with its banks which is available for five years from the date of signing and provides an unsecured £250 million multicurrency revolving credit facility available by way of cash advances and a secured US$200 million LOC. The facility is guaranteed by the Company's subsidiaries Amlin Corporate Services Limited and Amlin (Overseas Holdings) Limited. The secured LOC is secured by a fixed charge over a portfolio of assets managed by Insight Investment Management (Global) Limited with State Street Bank and Trust Company as custodian. As at 31 December 2010 the facility was undrawn (2009: undrawn).

Amlin AG has a secured US$200 million LOC facility with Lloyds TSB Bank plc and the Royal Bank of Scotland plc as lead arrangers. The facility is secured by a registered charge over a portfolio of assets managed by Aberdeen Asset Management Inc with State Street Bank and Trust Company as custodian. As at 31 December 2010, US$174.6 million of LOC were issued (2009: US$124.9 million). The total value of restricted assets as at 31 December 2010 was US$181.7 million (2009: US$145.1 million).

In June 2009, ACI entered into a credit facility with Fortis Bank Nederland N.V. as arranger. The facility provides a guarantee to a third party of up to €10.0 million and a guarantee/standby LOC for up to £22.5 million. As at 31 December 2010, €28.7 million of guarantees were issued (2009: €26.7 million). There are no restricted assets to secure the facility. However, in the situation of default, the general credit conditions will apply.

28. Retirement benefit obligations

The Group participates in a number of pension schemes, including defined benefit, defined contribution and personal pension schemes. The total charge to the income statement for these schemes is shown in the table below:

	2010 £m	2009 £m
Defined contribution schemes	5.4	4.1
Defined benefit schemes:
- Lloyd's Superannuation Fund	(0.2)	1.0
- ACI defined benefit schemes	2.1	1.3
	7.3	6.4

a) Defined benefit schemes

i) The Lloyd's Superannuation Fund funded defined benefit scheme

Scheme description

The scheme is operated as part of the Lloyd's Superannuation Fund (the Fund).

Historically the Fund has catered for a number of employers in the Lloyd's market. As a consequence of the consolidation in the market, employers closing final salary schemes and some companies failing, there are now only 3 (2009: 3) employers with active members in the Fund. A large proportion of the liability of the Fund relates to employers no longer participating in the Fund. The assets of the Fund are pooled and the current active employers are responsible collectively for the funding of the Fund as a whole.

For the purposes of determining contributions to be paid, the Trustee has split the Fund into a number of notional sections. This is a notional split and has no legal force. Previously this notional split allowed for separate sections in respect of each employer's active members and one combined section for non-employed members of all current and former employers.

With effect from 31 December 2002, the Trustee altered this notional split so that, from that date, the active employers contributing to the Fund, including the Amlin Group, have individual notional sections comprising the notionally allocated assets in respect of their active employees, deferred pensioners and pensioners, and their corresponding liabilities. A separate notional fund is maintained for members whose former employers no longer contribute to the Fund (Orphan Schemes). The Group is also liable for a proportion of the Orphan Schemes' liabilities.

Since this alteration and the exit of other employers the Group has been able to more clearly identify its expected contribution requirement to the Fund and able to ascertain its share of the assets and liabilities with sufficient certainty to account for the pension as a defined benefit scheme and bring the assets and liabilities of the scheme onto the balance sheet of the Group.

Fund contributions

No additional contribution was made in 2010 (2009: £5.0 million) to reduce the size of the deficit in the scheme.

Contributions are paid to provide for the cost of benefit accrual. The rate of contribution agreed with the Trustee is 19% (2009: 19%) paid by the employer plus 5% (2009: 5%) member contributions, in each case of pensionable earnings, and totalled £0.9 million (2009: £0.9 million).

The expected contribution to the fund for the year ending 31 December 2011 is £0.7 million by the Group and £0.2 million by plan participants.

The total amounts paid in respect of the Fund are analysed in the table below:

	2010 £m	2009 £m
Contributions relating to:
One off top up payment - Amlin scheme	-	5.0
Ongoing funding	0.7	0.7
Group share of total payment	0.7	5.7

Funding assessment assumptions

The funding position of the Fund is assessed every three years by an independent qualified actuary. Contributions are made at the funding rates recommended by the actuary, which vary across different sections of the Fund reflecting the notional sections then adopted, and typically include adjustments to amortise any funding surplus or shortfall over a period. Amounts paid under the scheme are charged to Syndicate 2001 or other Group companies. Actuarial amounts quoted below are for the Group's notional share of the scheme.

The last completed formal valuation of the Fund was as at 31 March 2007 and was carried out by Mr N Wharmby, Fellow of the Institute of Actuaries, and used the projected unit credit actuarial method. The formal valuation at 31 March 2010 will be completed in 2011. For the purpose of providing disclosure in accordance with International Accounting Standard 19 'Employee Benefits' (IAS 19), the Group has requested the actuary to update the 2007 valuation to 31 December 2010 using appropriate techniques and the following assumptions:

	2010 % pa	2009 % pa
Price inflation	3.6	3.7
Rate of increase in pensions payment:
- LPI (maximum 5% pa)	3.5	3.5
- LPI (minimum 3% pa, maximum 5% pa)	3.8	3.9
- LPI (maximum 3% pa)	2.6	2.7
Rate of increase of statutory revaluation on deferred pension	2.9	3.7
Discount rate	5.4	5.6

During 2005 the Group reviewed its remaining defined benefit arrangements and made a number of changes to the schemes' operations, which were implemented during 2006. In particular, in order to remove much of the risk associated with salary inflation, the scheme was changed to allow members to continue accruing additional years' service under the schemes, but these accruals would be generally based on March 2006 pensionable salaries. Future salary increases are pensionable through the defined contribution schemes. Therefore the salary inflation assumption used for the ongoing valuation is now nil% (2009: nil%).

In 2010 the UK Government announced that inflation measured by the Consumer Price Index (CPI) rather than the Retail Price Index (RPI) would be used as the measure for minimum increases to occupational pensions. In accordance with the Fund's revaluation rules, CPI has been used as an assumption in valuing the defined benefit obligation at 31 December 2010.

The mortality assumptions used in the latest valuation included the following life expectancies:

	31 December 2010		31 December 2009
Life expectancy (years) at age 60 for a member currently:	Male	Female	Male	Female
Aged 60	25.5	28.5	25.4	28.4
Aged 45	26.8	29.6	26.7	29.5

The table below shows the impact on the defined benefit obligation that a change in certain key assumptions would have:

Assumption change	Defined benefit obligation impact £m
(Increase)/decrease in discount rate by 0.25%	(11)/13
(Decrease)/Increase in inflation rate by 0.25%	(6)/6
Increase in floor mortality improvements for males of 1.5% and females of 1.0% per annum	6

ii) ACI defined benefit plans

Scheme description

ACI operates defined benefit pension plans covering the majority of its employees. These plans are funded partly by means of employee contributions. Under these plans, benefits are based on years of service and level of salary. Pension obligations are determined based on mortality, employee turnover, wage increases and economic assumptions such as inflation, value of plan assets and discount rate. The discount rate is set on the basis of the yield (on the valuation date) of debt securities issued by blue-chip companies.

In addition to pension charges, costs of defined benefit plans also include other post-employment benefits such as reimbursement of part of the health insurance premiums and favourable conditions on financial products (e.g. mortgage loans), which continue to be granted to employees after retirement.

The assets and liabilities of the Netherlands pension plan were acquired as part of the ACI acquisition. Prior to acquisition, employees of the Belgian office were employed by another company within the Fortis group. Immediately following the acquisition, 109 ACI Belgian employees (from a total of 130) transferred their employment to ACI. Consequently the net pension obligation with respect to these employees was recognised by the Group immediately after the completion of the acquisition.

Funding assessment assumptions

The table below shows the actuarial assumptions used:

	The Netherlands 2010 %	Belgium 2010 %
Discount rate for pension benefits	5.15	4.7
Discount rate for Jubilee benefits	4.0	3.8
Discount rate for farewell premium	-	4.4
Discount rate for post retirement medical	-	5.1
Expected return on plan assets	5.15	4.0
Expected wage increases - general	2.0	2.0
Expected wage increases - merit	0-6.75	1.5
Inflation	2.0	2.0
Indexation for active employees	2.0	-
Indexation for formerly active employees	2.0	-
Medical trend rate	-	4.0

The mortality assumptions used in the latest valuation included the following life expectancies:

	The Netherlands		Belgium
Life expectancy (years) at age 60 for a member currently:	Male	Female	Male	Female
Aged 60	24.5	27.4	22.1	25.9
Aged 45	26.6	28.4	22.1	25.9

The table below shows the impact on the defined benefit obligation that a change in certain key assumptions would have:

Assumption change	Defined benefit obligation impact £m
(Increase)/decrease in discount rate by 0.25%	(2.7)/2.9
(Decrease)/increase in inflation rate by 0.25%	(3.0)/2.7
Increase in floor mortality improvements for males of 1.5% and females of 1.0% per annum	0.2

Fund contributions

The expected contribution to the funds by the Group during 2011 is £3.1 million (2010: £3.6 million).

iii) Amounts recognised in the Group's financial statements for defined benefit schemes

Amounts recognised in income statement in respect of the defined benefit schemes are as follows:

	2010 £m	2009 £m
Current service cost	2.5	1.2
Interest cost	19.7	17.0
Expected return on scheme assets	(18.8)	(15.9)
Reversal of provision for additional pension payments	(1.5)	-
Total debited to income statement (included in staff costs)	1.9	2.3

Amounts recognised in the Consolidated Statement of Comprehensive Income are as follows:

	2010 £m	2009 £m
Recognition of net (gains)/losses	(11.9)	23.7
Ceiling limit on asset gains	6.0	-
(Gains)/losses recognised in the Consolidated Statement of Comprehensive Income	(5.9)	23.7

The amount included in the balance sheet arising from the Group's obligations in respect of its defined benefit retirement benefit schemes is as follows:

	2010 £m	2009 £m
Present value of defined benefit obligations	364.9	359.0
Fair value of scheme assets	355.6	334.5
Deficit in schemes	(9.3)	(24.5)
Restriction to defined benefit asset due to asset ceiling	(6.0)	-
Liability recognised in the balance sheet	(15.3)	(24.5)

The Lloyd's Superannuation Fund is in surplus at 31 December 2010. The Fund's rules do not allow the Group to receive a refund of contributions in any circumstances. As such, the recognition of the defined benefit asset is restricted and the surplus is reduced to £nil. Of the total liability of £15.3 million, £0.8 million is expected to be settled within 12 months from the balance sheet date.

Movements in the present value of defined benefit obligations during the year is as follows:

	2010 £m	2009 £m
At 1 January	359.0	260.0
Employer service cost	2.5	1.2
Interest cost	19.7	17.0
Contributions from scheme members	0.7	0.4
Actuarial (gains)/losses	(2.1)	53.6
Benefits paid from plan assets	(13.4)	(13.2)
Acquisition through business combination	-	32.6
Transfer of ACI Belgium scheme liabilities post-acquisition	-	6.6
Foreign exchange	(1.5)	0.8
At 31 December	364.9	359.0

The expected total benefit payments to plan participants during 2011 is £12.5 million for the Lloyd's Superannuation Fund (LSF) and £1.2 million for the ACI defined benefit schemes (2010: LSF £12.7 million and ACI schemes £0.8 million).

Movements in the fair value of scheme assets during the year is as follows:

	2010 £m	2009 £m
At 1 January	334.5	256.0
Expected return on scheme assets	18.8	15.9
Difference between expected and actual return	19.3	30.1
Employer contributions	5.4	6.8
Plan participant contributions	0.7	0.4
Benefits paid	(13.4)	(13.2)
Administrative expenses	-	(0.2)
Acquisition through business combination	-	35.3
Transfer of ACI Belgium scheme assets post-acquisition	-	2.4
Foreign exchange (losses)/gains	(1.3)	1.0
Other movements	(8.4)	-
At 31 December	355.6	334.5

Other movements include a decrease of £8.4 million in the fair value of plan assets in respect of the ACI Netherlands defined benefit pension scheme. The fair value of the plan assets reflects a more prudent assessment of the assumed benefits that accrue to ACI under the insurance policy taken out to meet its obligations. This is in line with a market-wide reassessment of assumptions. This movement is included in the actuarial loss in the Consolidated Statement of Comprehensive Income for the year.

The analysis of the plan assets and the expected rate of return at the balance sheet date are as follows:

	Asset Mix		Long term rate of return
	31 December 2010	31 December 2009	31 December 2010		31 December 2009
	LSF	LSF	LSF	ACI Fund (Belgium)	LSF	ACI Fund (Belgium)
Equities	28.0%	30.0%	8.1%	4.0%	8.2%	-
Bonds	64.0%	70.0%	4.9%	4.0%	5.0%	4.0%
Property	8.0%	-	7.5%	-	-	-

The long term rates of return are estimated by the Directors based upon current expectations of future investment performance.

The five-year history of experience adjustments is as follows:

LSF	2010 £m	2009 £m	2008 £m	2007 £m	2006 £m
Asset experience
Fair value of scheme asset	320.0	295.0	256.0	318.0	315.0
Asset (gain)/loss during period	(18.7)	(30.3)	71.5	9.0	-
Asset (gain)/loss as percentage of plan assets	(5.8%)	(10.3%)	27.9%	3.0%	-
Liability experience
Present value of defined benefit obligations	(314.0)	315.0	260.0	295.0	304.0
Liability loss/(gain) during period	(0.5)	-	6.7	(5.0)	-
Liability (gain)/loss as percentage of plan assets	(0.2%)	-	(2.6%)	(2.0%)	-
Liability assumptions
Liability (gain)/loss over period	(6.0)	51.0	(47.0)	(15.0)	2.0
Liability (gain)/loss as percentage of defined benefit obligations	(1.9%)	16.2%	(18.1%)	(5.0%)	1.0%

ACI	2010 £m	2009 £m
Asset experience
Fair value of scheme asset	35.6	39.5
Asset loss during period	7.8	0.2
Asset loss as percentage of plan assets	21.8%	1.0%
Liability experience
Present value of defined benefit obligations	50.9	44.0
Liability loss during period	0.2	-
Liability loss as percentage of plan assets	0.3%	-
Liability assumptions
Liability loss over period	4.2	2.6
Liability loss as percentage of defined benefit obligations	8.2%	5.9%

The cumulative amount of actuarial losses recognised in other comprehensive income for all defined benefit schemes is £21.9 million (of which £5.5 million relates to the acquisition of ACI).

b) The stakeholder defined contribution scheme

The defined contribution scheme operated by the Group is a stakeholder arrangement. The total contributions for the year ended 31 December 2010 to the scheme were £5.4 million (2009: £4.1 million).

The estimated amounts of contributions to the Group's defined contribution pension scheme for the year ending 31 December 2011 are approximately £5.7 million (2010: £4.0 million).

c) Amlin AG's pension scheme

In accordance with Swiss legislation, Amlin AG provides for occupational pension insurance, the regulations of which, as may be amended from time to time, apply to both Amlin AG and the employee. The insured salary is based on the agreed compensation exclusive of bonus and/or other benefits granted by Amlin AG. The employees carry the portion of the premiums determined in the applicable pension fund regulations.

During 2010 Amlin AG commenced hiring employees based in Switzerland. Swiss employees are provided with a pension fund which meets the classification of a defined benefit plan under IAS 19. Due to the fact that the contributions were not material for 2010 Amlin AG has accounted for the plans as defined contribution plans. Once the amounts are material the appropriate accounting and disclosures will be made. The total contributions for the year ended 31 December 2010 to the scheme were £0.2 million.

The estimated amounts of contributions to the scheme for the year ending 31 December 2011 are approximately £0.8 million.

d) Other arrangements

Other pension arrangements include an occupational money purchase scheme which provides Death In Service protection for all employees. Regular contributions, expressed as a percentage of employees' earnings, are paid into this scheme and are allocated to accounts in the names of the individual members, which are independent of the Group's finances. There were no outstanding contributions at 31 December 2010 (2009: £nil).

29. Earnings and net assets per share

Earnings per share are based on the profit attributable to shareholders and the weighted average number of shares in issue during the period. Shares held by the Employee Share Ownership Trust (ESOT) and treasury shares are excluded from the weighted average number of shares.

Basic

Basic earnings per share are calculated by dividing profit after tax by the weighted average number of issued shares during the year.

Diluted

Diluted earnings per share are calculated by dividing profit after tax by the adjusted average number of shares in issue. The adjusted average number of shares assumes conversion of dilutive potential ordinary shares, being shares from the Executive Share Option Scheme (ESOS), Long Term Incentive Plan (LTIP), Performance Share Plan (PSP), Share Incentive Plan (SIP) and the Sharesave scheme.

Basic and diluted earnings per share are as follows:

	2010	2009
Profit attributable to equity holders of the Parent Company	£221.8m	£454.7m
Weighted average number of shares in issue	493.0m	483.1m
Dilutive shares	6.6m	6.2m
Adjusted average number of shares in issue	499.6m	489.3m
Basic earnings per share	45.0p	94.1p
Diluted earnings per share	44.4p	92.9p

Net assets and tangible net assets per share are as follows:

	2010	2009
Net assets	£1,729.9m	£1,593.1m
Adjustments for intangible assets	(£184.5m)	(£162.8m)
Tangible net assets	£1,545.4m	£1,430.3m
Number of shares in issue at end of the year	502.1m	502.1m
Adjustment for ESOT and treasury shares	(8.7m)	(8.2m)
Basic number of shares after ESOT and treasury shares adjustment	493.4m	493.9m
Basic net assets per share	350.6p	322.6p
Basic tangible net assets per share	313.2p	289.6p

30. Dividends

The amounts recognised as distributions to equity holders are as follows:

Group	2010 £m	2009 £m
Final dividend for the year ended:
- 31 December 2009 of Amlin Plus Limited to minority shareholders	0.1	-
- 31 December 2008 of Amlin Plus Limited to minority shareholders	-	0.1
- 31 December 2008 of 11.0 pence per ordinary share	-	51.6
Interim dividend for the year ended:
- 31 December 2010 of 7.2 pence per ordinary share	35.6	-
- 31 December 2009 of 6.5 pence per ordinary share	-	32.1
Second interim dividend for the year ended:
- 31 December 2009 of 13.5 pence per ordinary share	66.8	-
	102.5	83.8

The final ordinary dividend of 15.8 pence per ordinary share for 2010, amounting to £78.0 million, payable in cash, was agreed by the Board on 1 March 2011, subject to shareholder approval, and has not been included as a liability as at 31 December 2010.

31. Principal exchange rates

The principal exchange rates used in translating foreign currency assets, liabilities, income and expenditure in the production of these financial statements were:

	Average rate		Year end rate
	2010	2009	2010	2009
US dollar	1.55	1.57	1.56	1.61
Canadian dollar	1.59	1.78	1.55	1.69
Euro	1.17	1.12	1.17	1.13

32. Contingent liabilities

The Group has no contingent liabilities at 31 December 2010 (31 December 2009: £nil).

33. Commitments

a) Capital commitments

There were no capital commitments at the end of the financial year except the commitments made to Leadenhall Capital Partners LLP as described in note 36.

b) Operating lease commitments - where Group companies are the lessees

The Group leases various offices under cancellable operating lease agreements. The Group is required to give various notice for the termination of these agreements. The lease expenditure charged to the income statement during the year is disclosed in note 13.

The future aggregate minimum lease payments under non-cancellable operating leases are as follows. The comparative numbers have been amended to reflect revised information, resulting in an increase in future aggregate minimum lease payments of £13.5 million. This has no impact on reported profit before tax.

	2010 £m	2009 £m
No later than 1 year	7.4	7.2
Later than 1 year and no later than 5 years	16.8	19.8
Later than 5 years	6.4	10.6
Total	30.6	37.6

34. Cash generated from operations

	Notes	2010 £m	2009 £m
Profit on ordinary activities before taxation		259.2	509.1
Adjustments:
Depreciation charge	13	3.5	4.9
Amortisation charge	13	5.5	4.3
Finance costs	12	27.4	23.0
Interest received	6	(54.5)	(88.1)
Dividends received	6	(5.8)	(5.2)
Gains on investments realised and unrealised	6	(114.7)	(114.2)
Movement in operating assets and liabilities:
Net purchases of financial investments	17	(214.1)	(11.5)
Exchange losses on investments	17	47.0	128.0
Assets of operations previously classified as held for sale	17	(64.4)	-
Decrease/(increase) in assets of operation classified as held for sale		63.7	(63.7)
(Decrease)/increase in loans and receivables		(63.8)	69.0
(Decrease)/increase in reinsurance contract assets		(94.2)	52.8
Increase/(decrease) in insurance contract liabilities		353.7	(98.5)
Increase in other payables		7.2	10.0
Decrease in retirement benefits		-	(6.8)
Increase in investments in jointly owned entities		-	0.5
Exchange losses/(gains) on long term borrowings		1.1	(5.7)
Exchange losses/(gains) on other non-operating assets and liabilities		20.2	(91.2)
Other non-cash movements		6.6	7.8
Cash generated from operations		183.6	324.5

35. Principal subsidiary companies

The principal subsidiary undertakings at 31 December 2010 which are consolidated in these financial statements, all of which are wholly owned unless otherwise stated, operate in the UK, Belgium, Bermuda, France, the Netherlands, Singapore and Switzerland:

Subsidiary undertakings	Principal activity	Registered in
Amlin Underwriting Limited	Lloyd's managing agency	England and Wales
Amlin Corporate Services Limited	Group service, employing and intermediate holding company	England and Wales
Allied Cedar Insurance Group Limited	Intermediate holding company	England and Wales
Amlin Underwriting Services Limited	Lloyd's service company	England and Wales
Amlin Plus Limited*	Lloyd's service company	England and Wales
Amlin Corporate Member Limited	Corporate member at Lloyd's	England and Wales
Amlin (Overseas Holdings) Limited	Intermediate holding company	England and Wales
AUA Insolvency Risk Services Limited	Regulated broker	England and Wales
Amlin AG**	Reinsurance company	Switzerland
Amlin Singapore Pte Limited	Lloyd's service company	Singapore
Amlin Corporate Insurance N.V.	Insurance company	Netherlands
Amlin France Holdings SAS***	Intermediate holding company	France
Amlin France SAS***	Lloyd's coverholder	France
Crowe Livestock Underwriting Limited	Lloyd's coverholder	England and Wales
Leadenhall Diversified Insurance Linked Investments Fund PLC	Fund management	Ireland
Leadenhall Value Insurance Linked Investments Fund PLC****	Fund management	Ireland

Some subsidiaries have been omitted from this statement to avoid providing particulars of excessive length but none materially affects the results or assets of the Group.

*  60% owned by the Group

**  Amlin AG was re-domiciled from Bermuda during the year and renamed from Amlin Bermuda Ltd, after which it operated both in Switzerland and through a branch in Bermuda.

*** 96.5% owned by the Group

**** 96.3% owned by the Group

36. Other Group companies

Jointly owned entity

Amlin Corporate Services Limited has an investment of £1.7 million in a jointly owned entity, Leadenhall Capital Partners LLP (LCP). LCP was established as a new asset management company focused on insurance linked investments. LCP is incorporated in England and Wales. The Group holds 50% of the voting rights. The Group has committed to pay up to a further US$4 million to support the operations of the agency as part of the joint venture agreement. The Group's share of LCP's profit for the current and prior years is £nil.

Summary financial information for LCP is as follows:

	2010 £m	2010 £m
Assets	4.8	2.6
Liabilities	1.9	1.8
Revenues	2.6	1.7
Profit for the year	0.6	0.4

All of LCP's assets and liabilities are classified as current.

During the year, LCP charged the Group management fees of £2.6 million (2009: £1.6 million). The Group charged LCP £0.4 million (2009: £0.2 million) under the terms of the service agreement. At 31 December 2010, the Group held a debtor of £1.2 million due from LCP. No amounts were provided for doubtful recovery of this debtor and no expense was recognised during the year in respect of bad or doubtful debts from LCP.

Associates

During 2010, Amlin Corporate Services Limited, invested £0.5 million to acquire a 25% of the voting rights in Manchester Underwriting Management Limited (MUM). MUM was established as a managing general agent and is initially underwriting professional indemnity insurance. The majority of the business written by MUM is underwritten by Amlin UK.

Operations held for sale

At 31 December 2009, the Group classified its controlling interest in Leadenhall Capital Partners' two insurance-linked funds, the Leadenhall Diversified Insurance Linked Investments Funds and the Leadenhall Value Insurance Linked Investments Fund, totalling £63.7 million, as held for sale. The Group retained this controlling interest at 31 December 2010. Whilst the management of Leadenhall Capital Partners remains optimistic of attracting external investment to the funds over the next twelve months, there is insufficient evidence to demonstrate that it is highly probable the Group will dispose of its controlling interest by way of dilution in that time frame. As such, the Group's investment in the Leadenhall funds was reclassified from operation classified as held for sale on 31 December 2010 and subsequently fully consolidated. The carrying value of the assets and liabilities of the funds at 31 December 2010 is £73.1 million.

37. Related party transactions

i) Transactions and balances with related parties

Amlin Plus

Amlin Underwriting Limited and Lycetts Holdings Limited, the owners of Lycett, Browne-Swinburne and Douglas Limited and Lycetts Hamilton Limited, own 60% and 40% respectively of the share capital of Amlin Plus Limited (Amlin Plus). The business of Amlin Plus (bloodstock insurance) is written under a binding authority agreement with Syndicate 2001, some of which is sourced through a single broker, Lycett, Browne-Swinburne and Douglas Limited. Syndicate 2001 is managed by Amlin Underwriting Limited. The capacity on Syndicate 2001 is underwritten by a fellow subsidiary in the Amlin Group. All transactions between Amlin Plus and its related parties are conducted on an arm's length basis.

During the year Amlin Plus wrote £12.3 million (2009: £12.8 million) of premium under the binding authority agreement, of which £5.8 million (2009: £6.7 million) was produced by Lycett, Browne-Swinburne and Douglas Limited earning brokerage commission of £1.0 million (2009: £1.1 million) on this business. At the year end, Syndicate 2001 was owed £2.8 million (2009: £3.3 million) by Amlin Plus and Lycett Browne-Swinburne and Douglas Limited owed £1.6 million (2009: £1.5 million) to Amlin Plus.

Leadenhall Capital Partners LLP

At 31 December 2010, the Group had a balance receivable from Leadenhall Capital Partners LLP of £1.2 million (2009: £1.0 million). The Group enters into transactions with its joint venture in the normal course of business. The sales to and purchases from related parties are made at normal market prices. Details of the Group's joint venture are given in note 36.

Syndicate 6106

For the 2009 underwriting year of account, the Group commenced operating a Special Purpose Syndicate (S) 6106 to write a 15% quota share contract of the excess of loss reinsurance account of Syndicate 2001. The transactions provide external members' capital to support 2009 underwriting, enabling Syndicate 2001 to take advantage of strong opportunities in peak zones in the US, Japan and Europe. Brian Carpenter, a director of the Company, held a 0.07% share of capacity as a Name on S6106 for the 2009 year of account (2010 year of account: nil%). All transactions with S6106 are undertaken on an arm's length basis.

ii) Compensation of key management personnel

Key management personnel are those directors and senior managers responsible for planning and control of the activities of the Group. Key management comprises eleven executive directors and employees and seven non-executive directors (2009: nine and seven respectively). Compensation during the year to key management personnel is analysed below:

	2010 £m	2009 £m
Short term employee benefits	8.5	7.7
Post-employment benefits	0.5	0.4
Equity-settled share-based payments	1.0	0.7
Cash-settled share-based payments	-	1.2
	10.0	10.0

Cash settled share-based payments have been included in the above table, including the addition to 2009, to better reflect the total compensation paid to key management personnel.

iii) Transactions with directors

Certain directors of the Company are also directors of other companies, as described in the directors' biographical details on page 74 of the Annual Report. Such other companies (and/or their subsidiaries) may, and in some cases do, conduct business with companies in the Amlin Group, including GeoVera Insurance Holdings Ltd (of which Mr Feinstein is a non-executive director) and TrygVesta A/S (of which Mrs Bosse was Chief Executive Officer until 31 January 2011), which both purchase reinsurance (or whose subsidiaries purchase reinsurance) from the Amlin Group. In all cases transactions between the Amlin Group and such other companies are carried out on normal arm's length commercial terms.

iv) Internal reinsurance arrangements

During the current and prior year, there were a number of reinsurance arrangements entered into in the normal course of trade between various group companies, i.e. the reinsurance contract between Syndicate 2001 and Amlin Bermuda, and that between Syndicate 2001 and Amlin Corporate Insurance N.V.

The related results of these transactions have been eliminated on consolidation.

38. Business Combinations

i) Amlin Corporate Insurance N.V.

Adjustments to the provisional fair values of the assets and liabilities of Amlin Corporate Insurance N.V. acquired on 22 July 2009 total £2.3 million (net of tax), resulting in an increase in goodwill. The adjustments have been made to adjust the recoverable amount of reinsurance assets and loans and receivables.

ii) AUA Insolvency Risk Services Limited

On 22 January 2010, the Group acquired the trade and assets of a United Kingdom insolvency practitioners' insurance business from Lockton, Inc. The purchase consideration was £13.0 million cash. AUA Insolvency Risk Services Limited introduces insurance business to the Group.

The fair value of the tangible net assets acquired was £nil and the fair value of intangible assets acquired was £13.0 million, resulting in the recognition of no goodwill on acquisition. The intangible asset acquired related to the existing customer relationships of the business (see note 22).

This acquisition has had no material impact on the revenue or profit or loss of the Group for the period.

39. Subsequent events

i) Corporation tax rate

The Emergency Budget in June 2010 announced a change in the main rate of UK corporation tax. A new rate of 27.0% will apply from 1 April 2011, with the rate falling to 24.0% by 1 April 2014. The rate of 27.0% was enacted in July 2010. Subsequent reductions of the rate from 26.0% to 24.0% have not yet been enacted or substantively enacted. The impact of the reduction from 27.0% to 24.0% will be a reduction in the net deferred tax liability of £2.6 million.

ii) Business Combinations

The Group has completed the acquisition of two subsidiaries subsequent to the balance sheet date but prior to the issue of the Annual Report.

On 25 January 2011 Amlin Corporate Services Ltd acquired the entire share capital and voting rights of J R Clare Holding Company Limited and its subsidiary undertaking J R Clare Underwriting Agencies Limited, which is a managing general agent of UK household and commercial insurance. The purchase consideration was an initial £1.1 million with two further amounts of £1.0 million payable 24 months and 36 months after the acquisition date. The fair value of the assets and liabilities acquired was £2.1 million net liability and the fair value of the consideration was £2.8 million, resulting in the recognition of £4.9 million of goodwill on acquisition. The goodwill arose from the premium paid for acquiring a new book of household and commercial insurance business.

On 3 February 2011 Amlin Corporate Services Ltd acquired the entire share capital and voting rights of Lead Yacht Underwriters Limited, an underwriting agency of yacht insurance. The total consideration was £16.0 million, consisting of an initial £10.0 million paid on completion and a further £6.0 million payable between 2012 and 2016, subject to the financial performance of Lead Yacht Underwriters Limited. The fair value of the net assets acquired was £4.2 million and the fair value of the consideration was £14.6 million, resulting in the recognition of £10.4 million of goodwill on acquisition. The goodwill arose from the premium paid for acquiring a platform to further develop the Group's existing yacht business and diversify its underwriting portfolio.

The consideration and net assets are stated at their provisional fair values and may be amended in 2011 when further evidence of the appropriate fair values is expected to be received.

iii) Insurance claims

The start of 2011 was marked by heavy flooding and tropical cyclone Yasi in Queensland, Australia, and the earthquake in Christchurch, New Zealand. The Group is still in the process of estimating the impact of these events.  Initial estimates indicate that the losses in Australia are within the Group's expected claims levels for 2011. However, it is too early to be able to make a definitive statement concerning the event in New Zealand, given the timing and uncertainly of the losses arising. These are non-adjusting events and therefore are not reflected in the financial statements for the year ended 31 December 2010.

Independent Auditors' Report

To the members of Amlin plc

We have audited the parent company financial statements of Amlin plc for the year ended 31 December 2010 which comprises the Parent Company Balance Sheet, the Parent Company Statement of Comprehensive Income, the Parent Company Statement of Cash Flows, the Parent Company Statement of Changes in Equity, the accounting policies and the related notes 40 to 51. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Respective responsibilities of directors and auditors

As explained more fully in the Statement of Directors' responsibilities set out on page 88, the directors are responsible for the preparation of the parent company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the parent company financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the company's members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose.  We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the parent company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements.

Opinion on financial statements

In our opinion the parent company financial statements:

·  give a true and fair view of the state of the company's affairs as at 31 December 2010 and of its cash flows for the year then ended;

·  have been properly prepared in accordance with IFRSs as adopted by the European Union; and

·  have been prepared in accordance with the requirements of the Companies Act 2006. 

Opinion on other matters prescribed by the Companies Act 2006

In our opinion:

·  the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and

·  the information given in the Directors' Report for the financial year for which the parent company financial statements are prepared is consistent with the parent company financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

·  adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

·  the parent company financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns; or

·  certain disclosures of directors' remuneration specified by law are not made; or

·  we have not received all the information and explanations we require for our audit.

Other matter

We have reported separately on the group financial statements of Amlin plc for the year ended 31 December 2010.

Andrew Kail (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors

London
1 March 2011

Parent Company Balance Sheet

At 31 December 2010

Assets	Notes	2010 £m	2009 £m
Cash and cash equivalents	41	0.1	0.5
Financial assets	42	66.7	75.3
Loans and receivables	43	1.6	0.4
Amounts due from subsidiary undertakings	43	518.2	432.6
Current income tax asset		55.7	95.9
Deferred tax asset		3.5	--
Investments in subsidiary undertakings	44	960.7	877.2
Property and equipment	45	3.8	3.8
Total assets		1,610.3	1,485.7
Equity
Share capital	23	141.2	141.2
Share premium account		300.3	300.1
Other reserves		128.2	129.4
Treasury shares		(26.2)	(21.4)
Retained earnings		559.7	346.4
Total shareholders' equity		1,103.2	895.7
Liabilities
Financial liabilities	42	8.3	12.7
Current income tax liabilities		3.4	3.4
Other payables	46	4.6	2.0
Amounts due to subsidiary undertakings	46	198.5	282.0
Borrowings	47	292.3	289.9
Total liabilities		507.1	590.0
Total liabilities and shareholders' equity		1,610.3	1,485.7

The attached notes form an integral part of these financial statements.

The financial statements were approved by the Board of Directors and authorised for issue on 1 March 2011. They were signed on its behalf by:

Roger Taylor Chairman

Richard Hextall Group Finance Director

Parent Company Statement of Comprehensive Income

For the year ended 31 December 2010

	2010 £m	2009 £m
Profit for the year	316.3	336.7
Total comprehensive income for the year	316.3	336.7
Attributable to:
Equity holders of the Parent Company	316.3	336.7
	316.3	336.7

Parent Company Statement of Changes in Equity

For the year ended 31 December 2010

For the year ended 31 December 2010	Share capital £m	Share premium £m	Other reserves £m	Treasury shares £m	Retained earnings £m	Total £m
Balance at 1 January 2010	141.2	300.1	129.4	(21.4)	346.4	895.7
Profit for the year	-	-	-	-	316.3	316.3
Total comprehensive income for the year	-	-	-	-	316.3	316.3
Employee share option schemes:
- share based payment reserve	-	-	0.6	(8.1)	-	(7.5)
- proceeds from shares issued	-	0.2	-	3.3	(0.6)	2.9
Net purchase of employee share ownership trust	-	-	(1.8)	-	-	(1.8)
Dividends paid	-	-	-	-	(102.4)	(102.4)
Transactions with the owners of the Company for the year	-	0.2	(1.2)	(4.8)	(103.0)	(108.8)
At 31 December 2010	141.2	300.3	128.2	(26.2)	559.7	1,103.2

For the year ended 31 December 2009	Share capital £m	Share premium £m	Other reserves £m	Treasury shares £m	Retained earnings £m	Total £m
Balance at 1 January 2009 (as published)	134.6	231.5	52.6	(25.1)	149.0	542.6
Prior period adjustment	-	-	74.7	-	(53.4)	21.3
At 1 January 2009 (restated)	134.6	231.5	127.3	(25.1)	95.6	563.9
Profit for the financial year	-	-	-	-	336.7	336.7
Total comprehensive income for the year	-	-	-	-	336.7	336.7

Parent Company Statement of Cash Flows

For the year ended 31 December 2010

	Notes	2010 £m	2009 £m
Cash generated from operations	49	187.9	74.1
Income tax paid		(56.1)	(45.0)
Net cash flows from operations		131.8	29.1
Cash flows from investing activities
Interest received		0.1	0.4
Dividend received		0.1	0.2
Realised gains on financial investments		1.1	-
Deferred payment for acquired subsidiary		(0.1)	(0.3)
Net cash flows from investing activities		1.2	0.3
Cash flows used in financing activities
Net proceeds from issue of ordinary shares		2.9	78.1
Dividends paid to shareholders	48	(102.4)	(83.7)
Interest paid		(20.8)	(21.2)
Purchase of ESOT and treasury shares		(12.7)	(0.7)
Return of capital		-	(1.2)
Net cash flows used in financing activities		(133.0)	(28.7)
Net increase in cash and cash equivalents		-	0.7
Cash and cash equivalents at beginning of year		0.1	0.5
Effect of exchange rate changes on cash and cash equivalent		-	(0.7)
Cash and cash equivalents at end of year	41	0.1	0.5

Notes to the Accounts

For the year ended 31 December 2010

Accounting policies

Basis of preparation

Amlin plc (the Company), domiciled in the United Kingdom, is the ultimate parent company for the Amlin Group.

The separate financial statements of the Company are prepared as required by the Companies Act 2006. The balance sheet of the parent company has also been prepared in accordance with IFRS as adopted for use in the European Union (EU). In accordance with the extension permitted under section 408 of the Companies Act 2006, the income statement of the parent company is not presented as part of these accounts. The profit after taxation for the year of the parent company was £316.3 million (2009 £336.7 million). The financial statements have been prepared on the historical cost basis except for financial assets and liabilities, share options and cash and cash equivalents, which are measured at their fair value.

The accounting policies that are used in preparation of these statements are consistent with the accounting policies used in the preparation of the consolidated financial statements of the Group as set out in those financial statements.

The additional accounting policies that are specific to the separate financial statements of the Company are set out below.

Investment in subsidiaries

Other financial investments in Group undertakings are stated at cost and are reviewed for impairment when events, or changes in circumstances, indicate the carrying value may be impaired.

Dividend income

Dividend income from investments in subsidiaries is recognised when the right to receive payment is established.

40. Employees and directors

All Amlin employees within the UK are employed by the Group service company Amlin Corporate Services Limited, and overseas employees are employed by the relevant overseas entities. Therefore the persons employed by the Company are nil (2009: nil).

The details of the Company's directors' remuneration are in note 10 to the Group accounts.

41. Cash and cash equivalents

	2010 £m	2009 £m
Cash and cash in hand	0.1	0.1
Short-term deposits	-	0.4
	0.1	0.5

Cash and cash equivalent's represents cash at bank and in hand and short-term bank deposits which can be recalled within 24 hours.

42. Financial assets and financial liabilities

The cost and valuation of the Company's investments are as follows:

	At valuation 2010 £m	At valuation 2009 £m	At cost 2010 £m	At cost 2009 £m
Assets
Financial assets at fair value through income
Debt and other fixed income securities	43.0	39.9	39.0	39.2
Participation in investment pools	10.1	7.2	10.1	7.2
Derivatives	9.6	24.2	(0.1)	4.5
Available for sale financial assets
Unlisted equities	4.0	4.0	4.0	4.0
Total assets	66.7	75.3	53.0	54.9
Liabilities
Financial liabilities at fair value through income
Derivatives	(8.3)	(12.7)	-	-
Total liabilities	(8.3)	(12.7)	-	-
Net assets	58.4	62.6	53.0	54.9

43. Loans and other receivables

	2010 £m	2009 £m
Loans and receivables	1.6	0.4
Amounts due from subsidiary undertakings	518.2	432.6
Total	519.8	433.0

	2010 £m	2009 £m
Current portion	285.8	202.3
Non-current portion	234.0	230.7
	519.8	433.0

44. Investments in subsidiary undertakings

Company	2010 £m	2009 £m
At 1 January	877.2	802.5
Additions during the year	662.2	77.4
Write off of investments in subsidiaries	(578.0)	-
Impairment of investment in subsidiary	(0.7)	(2.7)
At 31 December	960.7	877.2

The Company wrote down its £577.3 million investment in Amlin Bermuda Holdings Limited (ABHL) after ABHL's investment in Amlin Bermuda Ltd was transferred to the Company by way of in specie dividend at a value of £659.0 million.  Amlin Bermuda Ltd was also re-domiciled from Bermuda and renamed Amlin AG, after which it operated both in Switzerland and through a branch in Bermuda. 

The Company increased investments in the following subsidiaries by a total of £3.2 million to account for costs in providing share based payments to employees:

·  Amlin Corporate Services Limited;

·  Amlin AG;

·  Amlin France SAS;

·  Amlin Singapore Pte Ltd; and

·  Amlin Corporate Insurance N.V.

The Company has also written down the £0.7 million investment in Amlin Underwriting Group Limited following the liquidation of this entity.

Impairment losses of £0.7 million have been recognised in the profit for the year (2009: £2.7 million loss). This relates to the Company's investment in Allied Cedar Insurance Group Limited, the holding company of Cedar Insurance Company Limited and Allied Underwriting Agencies Limited, the business of which is in run-off.

Further details on investments in principal subsidiary undertakings refer to note 35 in the notes to the Group accounts.

45. Property and equipment

	Freehold land and buildings £m	Total £m
Cost
At 1 January 2010 and 31 December 2009	4.1	4.1
Accumulated depreciation
At 1 January 2010	0.3	0.3
Charge for the year	-	-
At 31 December 2010	0.3	0.3
Net book value
At 31 December 2010	3.8	3.8
At 31 December 2009	3.8	3.8

 

46. Other payables

	2010 £m	2009 £m
Trade payables and accrued expenses	4.6	2.0
Amounts due to subsidiary undertakings	198.5	282.0
	203.1	284.0

The other payables in the above table are all current.

The carrying amounts disclosed above are reasonably approximate to the fair value at the reporting date.

47. Borrowings

	2010 £m	2009 £m
Subordinated debt	292.3	289.9

The borrowings in the above table are all non-current.

For details of the Company borrowings refer to note 27 in the notes to the Group accounts.

48. Dividends

The amounts recognised as distributions to equity holders are as follows:

	2010 £m	2009 £m
Final dividend for the year ended:
- 31 December 2008 of 11.0 pence per ordinary share	-	51.6
Interim dividend for the year ended:
- 31 December 2010 of 7.2 pence per ordinary share	35.6	-
- 31 December 2009 of 6.5 pence per ordinary share	-	32.1
Second interim dividend for the year ended:
- 31 December 2009 of 13.5 pence per ordinary share	66.8	-
	102.4	83.7

A final ordinary dividend of 15.8 pence per ordinary share for 2010, amounting to £78.0 million, payable in cash, was agreed by the Board on 1 March 2011, subject to shareholder approval, and has not been included as a liability as at 31 December 2010.

49. Cash generated from operations

	2010 £m	2009 £m
Profit on ordinary activities before taxation	299.7	341.3
Adjustments for:
Depreciation charge	-	0.1
Write down and impairment of investments in subsidiaries	578.7	2.7
Finance costs	20.9	20.9
Interest income	(0.1)	(0.3)
Unrealised losses/(gains) on investments	30.1	(30.1)
Foreign exchange losses/(gains) on revaluation	1.8	(6.0)
Dividends received	(929.1)	(340.8)
Net purchase of financial investments	(26.4)	(18.5)
(Increase)/decrease in loans and receivables	(1.2)	0.1
Decrease in intercompany receivables	293.8	121.9
Decrease in intercompany creditors	(83.4)	(18.3)
Increase in other payables	2.6	0.1
Other non-cash movements	0.5	1.0
Cash generated from operations	187.9	74.1

50. Related party disclosure

Purchases of goods and services

The Company has purchased goods and services from fellow Group company Amlin Corporate Services Limited. All goods and services were purchased at cost and the values of these are disclosed below.

	2010 £m	2009 £m
Purchases of goods and services:
- Amlin Corporate Services Limited	14.9	15.9

The Company also charged SBA Underwriting Limited £11,250 for accounting and administration services up until 30 September 2010. During this period, AUT Holdings Limited, a subsidiary of the Company, held a 30% interest in the parent company and underwriting of SBA Underwriting Limited. On 5 November 2010 AUT Holdings Limited acquired the remaining 70% of the business and consequently the charges ceased as SBA Underwriting Limited moved in line with all other wholly owned subsidiaries.

Year end balance with related parties

Cash resources are held centrally within the Group. This eliminates the need for many of the Group's subsidiary companies to maintain bank accounts and optimises the management of cash resources. As a result of this practice many transactions within the Group are accounted for through intercompany accounts.

The following table shows the balances outstanding at the year end between the Company and its related parties. The balances are all unsecured and no provisions are required for bad or doubtful debts.

	2010 £m	2009 £m
Balances outstanding at the year end:
- Syndicate 2001	(19.7)	(1.2)
- Amlin Investments Limited	(150.1)	(149.4)
- St Margaret's Insurance Services Limited	1.3	1.3
- Amlin Corporate Services Limited	252.0	152.2
- Amlin Corporate Member Limited	(5.6)	(4.2)
- AUT (1 - 10) Limited companies	(15.6)	(26.1)
- Delian (A - L) Limited companies	0.9	1.0
- Amlin (Overseas Holdings) Limited	255.4	270.4
- Amlin Underwriting Services Limited	2.4	2.4
- Amlin Underwriting Limited	0.3	0.1
- Allied Cedar Insurance Group Limited	0.3	0.3
- Amlin Plus Limited	0.4	0.3
- Amlin France SAS	0.3	-
- Amlin Credit Limited	(2.8)	(2.8)
- Leadenhall Capital Partners LLP	(0.1)	-
- Amlin AG	0.3	(98.3)
- Amlin (Firebreak No. 1) Limited	-	4.6
	319.7	150.6

With the exception of specific loans which have a fixed repayment date all of the above intra-group debt is repayable on demand and corporation tax provisions reflect arm's length prices for the transactions between the Company and its subsidiaries.

51. Parent Company risk disclosures

The business of the Company is managing its investments in subsidiaries. Its risks are considered to be the same as those in the operations of the Group itself and full details of the risk management policies are given in note 3.

Its investments in subsidiaries are measured at cost in accordance with International Accounting Standard 27 'Consolidated and Separate Financial Statements' (IAS 27) and are tested for impairment annually. Details of impairments are given in note 44.

Financial investments are measured at fair value, details of which are given in notes 3 and 42.

Financial assets, other than investments in subsidiaries and financial investments, largely consist of amounts due from subsidiaries. As at the balance sheet date, these receivable amounts were neither past due nor impaired.

Financial liabilities owed by the Company are largely in respect of long-term borrowings (details of which are provided in note 27) and amounts due to subsidiaries. Amounts due to subsidiaries were within agreed credit terms as at the balance sheet date.

Interest rate risk

Loans to and from subsidiaries are at floating rates of interest. The Company is therefore exposed to fluctuations in these rates.

Currency risk

The Company has entered into derivative contracts on behalf of the Group to hedge the net currency exposure, which results from the translation of the net assets of Amlin Bermuda and Amlin Corporate Insurance N.V. These derivative contracts in the form of options have been accounted for as hedges of net investments in overseas subsidiaries by the Group, under which fair value gains and losses are taken to reserves to match the underlying movement in the valuation of the net investment in the overseas subsidiaries. In the Company these gains and losses are taken to profit or loss.

The Company's amounts due from subsidiaries include a loan of €272.6 million (2009: €260.1 million) which forms part of the net investment in Amlin Corporate Insurance N.V. referred to above and hedged at a Group level. The Company is exposed to gains and losses on this loan in its profit or loss.

The Company faces exposure to foreign currency risk through its borrowings. At 31 December 2010, the Company had two subordinated debts of US$50.0 million each. The resulting foreign exchange loss in the Company and the Group for the year was £2.0 million.

52. 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 2009 or 2010, but is derived from those accounts. Statutory accounts for 2009 have been delivered to the Registrar of Companies and those for 2010 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 498(2) or (3) of the Companies Act 2006.

The audited Annual Report and Accounts for 2010 are expected to be posted to shareholders by no later than 25 March 2011. It will also be posted by that date on the Company's website. Copies of the Report may be obtained, once it is published, 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 Thursday 12 May 2011.

The preliminary Results were approved by the Board on 1 March 2011.

 

END

 

 

FR UGUUAWUPGPUG