RNS Number:2621J
Amlin PLC
27 March 2003
AMLIN plc
PRELIMINARY RESULTS FOR THE YEAR ENDED
31 DECEMBER 2002 (UNAUDITED)
AMLIN DELIVERS #55.4 MILLION PRE TAX PROFIT
Substantial turnaround in profitability
* Combined ratio improved 5% to 95% (1)
* Profit before tax improved by #73.0 million to #55.4 million (1)
* Earnings per share improvement of 21.3p to 14.1p (1)
* After tax return on equity of 20.1%
Growth in income and capacity (2)
* 2002 gross premium written up 22% to #717.1 million
* Owned capacity up 49% to #862 million for 2003
* Syndicate 2001 capacity of #1.1 billion for 2003
* 100% ownership of capacity achieved
Balance sheet stronger
* #123 million of new equity raised
* Net assets per share up 19.6% to 81.1p
* Net tangible assets per share up 8.3% to 65.4p
Dividend resumed
* 1.25p final dividend proposed
* 2.0p total dividend for year
(1) Comparison with 2001 is after excluding from 2001 the effects of the 11
September 2001 losses as this reflects a truer comparison of our underlying
trading performance. The impact of the 11 September 2001 loss was #63.9 million
before tax. The loss per share including 11 September 2001 losses for the 2001
financial statements was 33.3p per share.
(2) Income is expressed gross of brokerage, while capacity is net of brokerage
Commenting on the results, Charles Philipps, CEO, stated:
"The results provide strong evidence of the tremendous improvement in our
underwriting business over the past several years. With our growth in owned
capacity and a very well positioned business we are confident in the outlook for
our earnings in the short term. In the medium to longer term our strategy is
designed to sustain outperformance."
FINANCIAL HIGHLIGHTS
2002 2001 2000 1999
#m #m #m #m
Gross premiums written 717.1 587.4 363.3 252.8
Net premiums written 573.0 486.5 284.1 195.5
Earned premium 494.1 342.9 231.1 175.1
Operating profit (loss) before WTC*
(based on longer term investment 47.1 2.2 (5.9) 12.5
returns)
Operating profit (loss) before tax
(based on longer term investment 45.6 (61.7) (5.9) 12.5
returns)
Profit (loss) on ordinary activities 55.4 (81.5) (26.4) 18.3
before tax
Per share amounts
Operating profit (loss) before WTC* 18.2p (8.7)p (9.7)p 7.1p
Earnings 14.1p (33.3)p (9.6)p 5.9p
Net assets 81.1p 67.8p 102.0p 110.0p
Net tangible assets 65.4p 60.4p 93.9p 103.9p
Dividend 2.0p - 4.0p 3.8p
Operating ratios
Claims ratio * 63% 70% 84% 71%
Expense ratio * 32% 30% 27% 37%
Combined ratio * 95% 100% 111% 108%
Combined ratio including 11 September 2001 95% 117% 111% 108%
* 2001 operating ratios exclude the impact of 11 September 2001 terrorist attacks.
Enquiries:
Charles Philipps, Amlin plc 0207 746 1000
Richard Hextall, Amlin plc 0207 746 1000
David Haggie, Haggie Financial Limited 0207 417 8989 / 07768 332486
Peter Rigby, Haggie Financial Limited 0207 417 8989 / 07803 851426
CHAIRMAN'S STATEMENT
2002 was a watershed year for Amlin. The work of the past three years to deliver
strong performance has started to be recognised in our financial results. In
2001, the benefits were beginning to come through but we were thwarted by the
enormity of the 11 September terrorist atrocities. Amlin's strategy, combined
with its stronger market position, exceptional underwriting skills, and the
commitment of the management team, places us in an excellent position to
thrive in current conditions. Moreover, our strategy is designed to deliver
sustained out-performance going forward.
Our profit before tax for the year was #55.4 million (2001 loss: #81.5 million)
and, after tax, resulted in earnings per share of 14.1p (2001 loss: 33.3p). A
truer comparison of our underlying trading performance is provided by excluding
the effect of the 11 September terrorist attacks from the 2001 result - the 2001
loss before tax on this basis was #17.6 million and the loss per share was 8.7p.
The improved result came from both our underwriting and asset management
disciplines. Underwriting performance was significantly improved with the
overall combined ratio 5 points better than in 2001 (excluding the 11 September
losses) at 95%. Investment returns exceeded our long term assumed rate of return
with an average of 7.5% being earned on our bond portfolio. Our decision to
divest our equity portfolio in September 2001 also had a material impact on the
improved performance.
With the underlying profitability of the business starting to be recognised, we
resumed the payment of dividends with our interim results. The Company has
pursued a policy of leveraging the balance sheet in good market conditions, so
as to enhance future returns on equity, and this means that the Company needs to
retain capital to support the leveraged underwriting position. Additionally,
free cash flow from current profitable underwriting is restricted by Lloyd's
three year settlement system. Taking this into account, the Board is proposing
a final dividend of 1.25p per share, payable on 6 June 2003 to shareholders on
the register at the close of business on 11 April 2003, which together with the
interim dividend of 0.75p per share brings the total dividend for 2002 to 2.0p
per share (2001: nil). A scrip dividend alternative is being offered in
respect of the proposed final dividend.
Strategically, Amlin has significantly strengthened its position during 2002.
Our offer to acquire the third party capacity, which was successfully completed,
secured 100% ownership of our syndicate from 2004 and provides us with the
flexibility, going forward, to manage our business to build shareholder value
without the ongoing complications of having to account to third parties on an
annual joint-venture basis.
Amlin's position in the London market has continued to strengthen. With a 7%
share of Lloyd's capacity, we are now the largest independent underwriting
business in Lloyd's. Our stature in the market has helped a strong showing of
new business, allowing our underwriting teams to maintain a good level of risk
selection aimed at continually improving the overall quality of our underwriting
book.
Lloyd's has come through the traumas of the last eighteen months with its
security rating maintained at the 'A-' level that is so important for a large
proportion of our business. Compared with a year ago, we consider Lloyd's
position in the global non-life market to be materially improved. Lloyd's
Chairman's Strategy Group proposals, which were approved at Lloyd's
Extraordinary General Meeting in September last year, should contribute to a far
healthier market in the medium to longer term. It is important to Amlin that
Lloyd's follows through with its intentions, so that the risk is minimised of
Amlin subsidising poorly managed businesses through market levies.
To grow our dedicated capacity from #400 million in 2001 to #862 million in 2003
has required significant financial support, especially in the aftermath of 11
September. We are grateful to our shareholders, to State Farm and to our
bankers, for demonstrating the confidence in our business to enable this
material growth into an exceptionally good underwriting climate.
The outlook for attractive returns on equity remains good notwithstanding an
expectation that rates will peak in 2003. We expect several years of good,
profitable underwriting before competitive forces reduce margins to less
acceptable levels. In as much as we have spent the last three years positioning
Amlin for the current climate, we are now turning our attentions to ensuring
that we are positioned to manage the down cycle when it arrives.
Finally, I would like, on behalf of the Board, to congratulate the executive
team and all our employees on achieving the 2002 result and on working
diligently to attain the position we now hold in the market.
Roger Taylor Chairman
CHIEF EXECUTIVE'S REVIEW
In 2002, the underwriting profitability of which we were confident twelve months
ago has started to be recognised in our reported results. Amlin is now in a
strong position to deliver high returns on equity in the current year and next.
We remain optimistic beyond this, although profitability will be affected by the
competitive environment in our specialist lines of business.
We have continued to build upon our core strengths and make progress towards our
Vision of becoming the leading insurance business in the London Market.
Strategically, we successfully completed the acquisition of third party
capacity, and I am confident that over the next two years
we will be able to demonstrate clearly the operational and financial logic of
that acquisition.
With #862 million of dedicated Lloyd's capacity for 2003, we are the largest
independent business in the Lloyd's market. However, our goal to become the
leading insurance business in the London Market is not based on size - our
building blocks are centred on bottom line profitability and growth in net asset
value per share. To achieve sustainable superior performance in these areas we
are focused on becoming the most astute leader of risks, on "being the place to
go" as a first choice for leading risks, on reading and adjusting our business
to the insurance cycle and on optimising our financial strategy.
Group financial performance
The strong underwriting performance, before investment return, contributed #32.0
million to the consolidated result, compared with a loss of #8.9 million in
2001, after stripping out the effect of the 11 September losses on that year.
Investments contributed a healthy #41.5 million to the consolidated profit for
the year, compared with #5.1 million in 2001. Good investment returns were
achieved from a defensive stance with our bond portfolios exceeding our long
term anticipated return by 2%. This positive return has also been aided by the
growth in our technical funds with strong cash flow and action taken to reduce
the terms of trade and to tighten credit controls.
Earnings per share of 14.1p were enhanced by our capital strategy of gearing the
balance sheet in hard market conditions. Our return on equity was 20.1%. Net
assets per share increased by 19.6% to 81.1p, and net tangible asset value per
share increased by 8.3% to 65.4p as #46.0 million was spent acquiring the
outstanding third party capacity on Syndicate 2001. We expect the pay back from
this to be rapid.
Underwriting performance
Gross premiums written were up 22% over 2002 as we sought to maximise our
recovery from the financial consequences of 11 September 2001 and capitalising
on the significantly improved underwriting markets which followed. This growth
was achieved through a combination of increased rates on renewal business,
attracting good new business and increased ownership of Syndicate 2001's
capacity.
With our stronger position in the London Market we have seen an increased
showing of good new business and this has enabled our underwriters to maintain a
satisfactory level of selectivity aimed at maintaining and building upon our
high quality book of business.
In line with our policy of capacity optimisation, we increased our income
weighting mostly in energy insurance, large commercial property insurance and
property reinsurance; areas that witnessed major improvements in terms and
conditions. We also maintained major positions in airline and commercial motor
insurance, which had previously reached levels where good returns were being
generated.
Our focus on gross underwriting meant that we were again able to place an
effective reinsurance programme with good security at an acceptable cost.
Reinsurance spend, excluding our qualifying quota share reinsurance, as a
percentage of premium written in the 2002 underwriting year was 14% compared
with 17% in 2001.
There was a low level of major losses during 2002 which is evidenced by
Syndicate 2001's 2002 underwriting year gross incurred loss ratio at 31 December
2002 of 19.3%, its lowest level for nine years. The European floods in August
were our largest single loss event for which we estimate our net losses at #8.6
million. The marine market suffered a number of major incidents during the year,
including the loss of the tanker Prestige and the sinking of the cargo vessel
Tricolor. However, our involvement in these events was small.
Performance in each of our divisions continued to improve so that,
notwithstanding the strengthening of reserves for prior years' US casualty
business, which added 5% to our combined ratio, at the 100% managed syndicate
level our combined ratio improved by 5% to 95%. This is analysed below.
Divisional analysis
The following divisional analysis provides comparison as if we owned 100% of the
business. This provides an analysis which is therefore not distorted by our
changing levels of syndicate ownership. Divisional performance is measured
against 2001 without the 11 September losses as this provides a truer comparison
of underlying change.
Harvey Bowring improved its combined ratio to 92% from 104%. The division was a
beneficiary of significant rate improvements in its reinsurance and property
accounts on which it has experienced low levels of losses.
Amlin Aviation delivered an impressive combined ratio of 85% compared with 84%
in 2001. The division benefited from strong price increases in the main airline
renewal season in the fourth quarter of 2001. Much of this premium has been
earned in 2002. Except for the events of 11 September 2001, the level of loss
incidence during 2001 and 2002 has been extremely low, enhancing returns in both
years.
Coles has continued to produce strong results despite the transfer of the highly
profitable excess of loss reinsurance account into Harvey Bowring in 2001, and
only slowly improving marine market conditions. The combined ratio of the
division was 88% compared with 84% in 2001.
The division has expanded its underwriting during 2002 with premium written
increasing to #152.6 million (2001: #118.8 million). Much of the expansion was
in the energy account, which was the first marine account to attract good price
increases, and the war account which saw dramatic increases following the 11
September losses.
Amlin Insurance Services' combined ratio improved to 94% from 95%. This level of
ratio has been sustained as a result of strong rate improvements witnessed in
the last three years in its commercial motor account and good performance from
the UK liability accounts, which were expanded during 2002. A cautious approach
to reserving has been adopted for the professional indemnity and employers'
liability accounts but developments to date have been encouraging.
Investment performance
The decision to sell our equity holdings in September 2001 has proven to be
beneficial. Our overall investment return for 2002 of 7.2% (2001: 1.3%) was a
welcome contributor to profit, in what have proven to be difficult investment
markets during the year. By comparison the FTSE 100 index fell 24.5% during
2002.
Our share of the syndicate investment portfolio grew again to #535.3 million
(2001: #304.8 million) resulting from strong cash flow and increased syndicate
ownership. Syndicate funds are mainly invested in bonds with an average
benchmark duration of two to three years. These produced an above average return
of 7.3%. Due to the anticipated volatility and uncertain cash flows relating to
the 11 September losses, an average $164 million of syndicate funds were
invested against a cash benchmark. These yielded a much lower return of 1.7%.
Our corporate assets, which totaled #227 million at the year end, were invested
in bonds and cash funds. The bond portfolio was a longer duration portfolio than
in the syndicate, with an average duration of seven years and produced a return
of 8.2%. Cash funds yielded 4.0%. Our cash holdings, of #102.4 million at the
year end, have been greater than we would normally expect reflecting a defensive
asset allocation. This is driven by the high opportunity cost of investment
losses, measured by the potential underwriting return achievable off the capital
base.
In reviewing asset allocation we have remained concerned over valuations and
volatility in investment markets. We chose during 2002 not to re-invest in
equities as stock markets continued to be volatile, with increasing economic and
political uncertainty. Equally, with bond yields approaching levels not seen in
decades and monetary policy already appearing relatively lax in the UK, our
expectations of bond returns were closely matched by cash returns.
At some point, respective valuations of bonds and equities will support a shift
back towards equity investments. With our focus on maximising underwriting
returns from the current strong insurance market, we favour a policy of
gradually increasing the equity content of our corporate portfolio. Equity
exposure will remain modest and we are mindful of the current uncertainties
associated with war and global economic conditions.
Expenses (excluding brokerage)
Expenses have increased by #17.6 million during the year, comprising a #9.0
million increase in Amlin's share of syndicate operating expenses to #41.1
million and an #8.6 million increase in other corporate charges to #16.1
million.
At syndicate level this is due largely to the increase in Lloyd's costs which
are based on capacity. Additionally, as we explained last year Lloyd's increased
the Central Fund premium levy for 2002 and 2003 by an extra 2%. This added an
extra #12.3 million to the syndicate cost base in 2002, which equates to #8.7
million to Amlin plc. This will be repeated in 2003 but it is expected that it
will be removed next year.
#3.8 million of the increase in corporate expenses relates to accrued incentive
and bonus plan payments, of which #2.5 million relates to the capital builder
plan which is based on underwriting returns exceeding 5 year performance
targets. #4.2 million of the increase is financing costs in respect of
additional borrowing facilities taken on in 2002 to support our underwriting.
Balance sheet
The balance sheet has been strengthened by the issue of #123 million of share
capital, retained profit of #36.6 million and increases to our prior period
claims reserves of #20 million. The level of uncertainty relating to 11
September losses has also reduced during the year. Overall, after exchange
adjustments, the impact in 2002 of changes to our loss estimates has been small.
Our estimate peaked in the first half of 2002 and is now beginning to reduce as
losses begin to settle.
The share capital increase was through two separate issues. In January 2002 we
completed a 2 for 7 rights issue with proceeds of #43 million being utilised to
support our 2002 underwriting. In July 2002 we raised a further #80 million
through a share placing and open offer. The proceeds of this issue were used to
finance the acquisition of our syndicate capacity and to help support our
enlarged capacity for 2003. The consideration for our capacity acquisition
comprised shares to the value of #13 million and cash of #32.2 million. This is
represented in increased intangible assets of #46 million.
Syndicate cash flow has been strong. The increase in total syndicate cash and
investments amounted to #200 million for the year to 31 December 2002,
reflecting strong premium flow and low claims incidence. Efforts have been made
to collect our premium faster over the last two years with terms of trade being
tightened and the level of overdue debt substantially reduced due to more
effective credit control.
We have made good progress in collecting reinsurance receivables, a significant
part of which relate to 11 September losses. During the year we collected over
#150 million in reinsurance debtors in respect of this loss, much of it in
advance of, or simultaneously with, the claims settlement. Of the remaining
debt in respect of this loss, 92% is with 'A' rated security or better, even
after the downgrades to credit ratings in 2002.
In the hard insurance markets into which we have grown, we have increased
financial leverage to support our growth in capacity. We believe that, in
current market conditions, the benefit of a leveraged return outweighs its risk.
Debt and letter of credit finance at 31 December 2002 amounted to #161.6
million, which is 52.2% of net assets.
Discontinued operations
The Group's direct holdings in non-aligned syndicates were sold in 1999 and the
indirect holdings through its investment in Stace Barr Angerstein PLC ("SBA")
ceased after the 2000 year of account. The discontinued result comprises losses
of #1.6 million on the direct holdings and an estimated #1 million loss for SBA.
In view of the deterioration from these participations an increased provision
of #1.9 million has been carried forward at 31 December 2002 to cater for future
deterioration on syndicates that remain in run off.
Outlook for underwriting conditions
We expect good underwriting conditions to remain with us for some time. In some
areas rates continue to rise, while in others there are signs of renewal rates
coming under pressure. This is to be expected having experienced dramatic rate
increases over the past two years. Overall, trading conditions in 2002 were
their strongest for many years.
Those classes of business where rates appear to have peaked include property
reinsurance, large commercial property insurance and airline insurance. These
are areas which were most impacted by the events of 11 September 2001 and in
which we achieved some of the most significant rate increases in late 2001 and
2002. For example, renewal rates for large commercial property risks increased
by an average of 75% in 2002 having increased by some 25% in 2001. Per risk
property reinsurance renewal rates increased by 62% in 2002 on top of an average
increase of 24% in 2001. We anticipate a modest softening of rates in these
areas as the year develops but we expect good levels of return to continue to be
achievable.
In other areas rate increases continue to be achieved, especially where there
have been poor loss experiences such as in space and UK liability business where
we are now increasing our capacity allocation. Our large UK commercial motor
business continues to achieve rate increases in excess of claims inflation,
thereby sustaining its margin potential.
It is inevitable that rates in all areas will peak at some point. Market
dynamics however, could result in good underwriting returns being achievable for
some time. While 2002 was an excellent underwriting year, the non-life insurance
industry has failed to emerge stronger.
Many companies suffered from the resurgence of legacy claims issues, most
notably an acceleration in asbestos claims settlements and adverse claims
development in US casualty classes on business underwritten between 1997 and
2000. Additionally, the significant fall in equity values has impaired the
balance sheets of those insurers with meaningful equity portfolios.
The result is that the security ratings of many companies have been downgraded
and net industry capital has declined for the third successive year. In this
environment, companies with exposures to legacy claims need to maintain
acceptable underwriting returns to stand still, especially as investment returns
are unlikely to compensate for poor underwriting. Companies, such as the
recently incorporated Bermudians, who do not have these exposures have some
ability to be more competitive but, on the whole, we anticipate that such
capacity will be more disciplined in drawing a line at an acceptable
underwriting margin. Amlin's exposure to legacy claims issues is limited, our
market position has grown in significance, and we are increasingly seen as a
market of choice by brokers and clients. With this we are excellently placed to
benefit from the current trading environment. However, we will reduce our
exposures if and when underwriting margins become questionable.
Risk to future underwriting profitability
We continuously evaluate the threats to our future underwriting profitability to
minimise or even eliminate their potential impact on the Group. With current
industry dynamics we have been mainly focused on the following three threats:
reinsurance security and debtors; adequacy of US casualty reserving; and risks
arising from the 11 September 2001 terrorist attacks.
Our reinsurance receivables continue to comprise high quality security, for the
most part, and where security has been downgraded over the past year, we have
been active in collecting due debts.
We consistently attempt to identify adverse claims trends early to help ensure
that our reserves reflect potential claims development. US casualty claims for
risks underwritten in the years 1997 to 2000 witnessed unprecedented development
during 2002 and we have adjusted reserves accordingly. Having materially reduced
our exposure to US casualty business in late 2000, the impact of potential
future claims development reduces as the years become more mature.
We have maintained an extremely close watch on claims issues arising from the 11
September 2001 terrorist events. Our estimate of the ultimate loss has
stabilised and we are beginning to experience claims settlements within the
reserves we have set. There remains uncertainty as to whether the destruction of
the World Trade Center itself is judged to be one or two insured occurrences.
We believe the attacks were one occurrence and have legal guidance that supports
this view. In the event that the losses were judged to be two occurrences and
two total losses to the layers we underwrite, we estimate that the adverse
financial impact could be up to around #22 million for Amlin. Given our legal
advice, and the high excess layer that we insured, we believe this outcome to be
unlikely.
Outlook
Underwriting conditions remain strong, even though those classes which
experienced significant increases after 11 September 2001 are showing signs of
having peaked.
Amlin's growth into the hard market and financial leverage, together with the
manner in which we earn profitable premium, should provide strong earnings
momentum over the next several years.
In the longer term, the high quality of our underwriting skill base and our
focus on managing the insurance cycle will help Amlin to deliver sustained,
superior returns.
Charles Philipps
Chief Executive
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the year ended 31 December 2002
Continuing Discontinued 2002 2001
operations operations Total Total
Technical Account Notes #m #m #m #m
Gross premiums written 712.8 4.3 717.1 587.4
Outward reinsurance premiums (142.9) (1.2) (144.1) (100.9)
Net premiums written 569.9 3.1 573.0 486.5
Change in the provision for unearned premiums:
- gross amount (99.9) - (99.9) (147.6)
- reinsurers' share 21.0 - 21.0 4.0
Earned premiums, net of reinsurance 491.0 3.1 494.1 342.9
Allocated investment return transferred
from the non-technical account 4 30.1 1.0 31.1 27.9
Claims paid:
- gross amount (336.0) (12.6) (348.6) (293.2)
- reinsurers' share 94.9 6.8 101.7 71.5
Claims paid, net of reinsurance (241.1) (5.8) (246.9) (221.7)
Change in the provision for claims:
- gross amount (3.8) 11.6 7.8 (386.0)
- reinsurers' share (59.5) (9.9) (69.4) 295.4
Claims incurred, net of reinsurance (304.4) (4.1) (308.5) (312.3)
Net operating expenses 6 (154.6) (4.0) (158.6) (114.5)
Balance on the technical account
for general business 62.1 (4.0) 58.1 (56.0)
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the year ended 31 December 2002
Continuing Discontinued 2002 2001
operations operations Total Total
Non -technical Account Notes #m #m #m #m
Balance on the technical account
for general business 62.1 (4.0) 58.1 (56.0)
Investment income 4 39.5 1.0 40.5 11.7
Unrealised gains losses on investments 4 3.2 - 3.2 (2.2)
Investment expenses and charges 4 (1.2) - (1.2) (1.1)
Allocated investment return
transferred to the technical account 4 (30.1) (1.0) (31.1) (27.9)
73.5 (4.0) 69.5 (75.5)
Other income 7 2.0 - 2.0 1.5
Other charges 8 (16.1) - (16.1) (7.5)
Operating profit ( loss) 59.4 (4.0) 55.4 (81.5)
Comprising:
Operating profit (loss) based on
longer term investment return 49.6 (4.0) 45.6 (61.7)
Short term fluctuations in investment return 9.8 - 9.8 (19.8)
Profit (loss) on ordinary activities
before taxation 10 59.4 (4.0) 55.4 (81.5)
Taxation on profit (loss) on ordinary 11 (11.2) 14.5
activities
Profit (loss) on ordinary activities
after taxation 44.2 (67.0)
Equity dividends 12 (7.6) -
Retained profit (loss) for the financial 19 36.6 (67.0)
year
Earnings per ordinary share 13
Basic 14.1p (33.3)p
Diluted 14.1p (33.3)p
Statement of total recognised gains and losses
There were no recognised gains or losses in the current or proceeding year other
than those included in the profit and loss account and therefore no statement of
total recognised gains and losses has been presented.
CONSOLIDATED BALANCE SHEET
as at 31 December 2002
2002 2001
ASSETS Notes #m #m
Intangible assets 14 60.1 15.0
Investments
Other financial investments 15 773.9 510.4
Reinsurers' share of technical provisions
Provision for unearned premiums 21 34.0 14.4
Claims outstanding 21 337.4 443.3
371.4 457.7
Debtors
Debtors arising out of direct insurance operations 235.2 108.8
Debtors arising out or reinsurance operations 113.5 206.8
Other debtors 71.3 97.5
Deferred tax asset 22 18.4 30.6
438.4 443.7
Other assets
Tangible assets 17 9.0 12.6
Cash at bank and in hand 31.6 23.2
Own shares 2.8 2.8
43.4 38.6
Prepayments and accrued income
Deferred acquisition costs 69.6 52.4
Other prepayments and accrued income 12.7 6.9
82.3 59.3
Total assets 1,769.5 1,524.7
CONSOLIDATED BALANCE SHEET
as at 31 December 2002
2002 2001
LIABILITIES Notes #m #m
Capital and reserves
Called up share capital 18 97.1 52.1
Shares to be issued 19 - 0.4
Share premium account 19 148.2 57.0
Merger reserve 19 41.9 41.9
Capital redemption reserve 19 2.7 2.7
Profit and loss account 19 19.7 (16.9)
Equity shareholders' funds 20 309.6 137.2
Technical provisions
Provision for unearned premiums 21 354.8 271.1
Claims outstanding 21 957.4 1,003.5
1,312.2 1,274.6
Provisions for other risks and charges 22 2.9 1.0
Creditors
Creditors arising out of direct insurance operations 5.6 27.0
Creditors arising out of reinsurance operations 109.4 45.6
Other creditors including taxation and social security 23 20.4 32.5
135.4 105.1
Creditors: amounts falling due after more than one 24 3.8 1.6
year
Accruals and deferred income 5.6 5.2
Total liabilities 1,769.5 1,524.7
Net assets per ordinary share 13 81.1p 67.8p
Net tangible assets per ordinary share 13 65.4p 60.4p
PARENT COMPANY BALANCE SHEET
as at 31 December 2002
2002 2001
Notes #m #m
Fixed assets
Tangible fixed assets 17 1.8 12.3
Other investments 16 205.4 209.3
207.2 221.6
Current assets
Amounts owed by subsidiary undertakings 186.9 51.3
Other debtors 5.9 0.9
Investments 3.5 8.6
Prepayments and accrued income 0.1 0.3
Cash at bank and in hand 1.1 2.9
197.5 64.0
Creditors: amounts falling due within one year
Amounts owed to subsidiary undertakings (19.4) (24.7)
Other creditors - (3.9)
Proposed dividend 12 4.7 -
(24.1) (28.6)
Net current assets 173.4 35.4
Net assets 380.6 257.0
Capital and reserves
Called up share capital 18 97.1 52.1
Shares to be issued 19 - 0.4
Share premium account 19 148.2 57.0
Capital redemption reserve 19 2.7 2.7
Profit and loss account 19 132.6 144.8
Equity shareholders' funds 20 380.6 257.0
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2002
2002 2001
Notes #m #m
Net cash inflow 25 209.1 116.8
Servicing of finance
Interest paid on loan capital (0.5) (0.7)
Net cash outflow from servicing of finance (0.5) (0.7)
Taxation
Corporation tax received 0.9 3.7
Capital expenditure
Purchase of tangible assets (0.9) (6.7)
Purchase of intangible assets (46.0) -
Net purchases of tangible and intangible assets (46.9) (6.7)
Equity dividends paid (2.9) (4.1)
Financing
Issue of new shares net of issue costs 135.8 1.2
Repayment of borrowings 26 (1.1) (0.9)
Net cash inflow from financing activities 134.7 0.3
Net cash flows 26 294.4 109.3
Cash flows were invested as follows:
Increase in cash holdings 7.7 16.1
Increase (decrease) increase in deposits 2.4 (11.7)
10.1 4.4
Net portfolio investment
Purchase of investments 457.3 305.4
Sale of investments (173.0) (200.5)
Net purchases of investments 284.3 104.9
Net investment of cash flows 294.4 109.3
Cash flows relating to non-aligned participations are included only to the
extent that cash is transferred between the Premium Trust Funds and the Group.
1. ACCOUNTING POLICIES
Basis of preparation and consolidation
The consolidated financial statements have been prepared in accordance with
applicable accounting standards and under the historical cost accounting rules,
modified to include the revaluation of investments, in accordance with the
provisions of Section 255A, Schedule 9A and other requirements of the Companies
Act 1985. The Group has also adopted the recommendations of the Statement of
Recommended Practice on Accounting for Insurance Business, issued by the
Association of British Insurers ('ABI SORP').
The balance sheet of the parent company has been prepared in accordance with the
provisions of Section 230 of, and Schedule 4 to, the Companies Act 1985. In
accordance with the exemption permitted under this section, the profit and loss
account of the parent company is not presented as part of these accounts.
The financial statements consolidate the accounts of the Company, its wholly
owned subsidiary undertakings, its Employee Share Ownership Trust and the
Group's underwriting through participation on Lloyd's syndicates. The accounting
information in respect of non-aligned syndicate participations has been provided
by the managing agents of those syndicates through an information exchange
facility operated by Lloyd's and has been audited by the respective syndicates'
auditors.
Goodwill arising on consolidation on acquisitions prior to 31 May 1998,
representing the excess of the fair value of the consideration over the fair
value of the assets acquired, has been written off against reserves.
Aligned syndicate participations
The Group's aligned syndicate participations are presented on an annual
accounting basis.
Premiums
Written premiums comprise premiums on contracts incepting during the financial
year. Premiums are disclosed gross of brokerage and exclude taxes and duties
levied on them. Estimates are included for 'pipeline' premiums, representing
amounts due to the Group but not yet notified, as well as adjustments made in
the year to premiums written in prior accounting periods.
Outward reinsurance premiums are accounted for in the same accounting period as
the related direct insurance or inwards reinsurance business.
Unearned premiums
A provision for unearned premiums represents that part of premiums written, and
reinsurers' share of premiums written, which is estimated to be earned in
following financial years. It is calculated separately for each insurance
contract on the 24ths or 365ths basis, where the incidence of risk is the same
throughout the contract. Where the incidence of risk varies during the term of
the contract, the provision is based on the estimated risk profile of business
written.
1. ACCOUNTING POLICIES (continued)
Acquisition costs
Acquisition costs comprise brokerage incurred on insurance contracts written
during the financial year. They are spread over an equivalent period to that
which the premiums on the underlying business are earned. Deferred acquisition
costs represent the proportion of acquisition costs incurred in respect of
unearned premiums at the balance sheet date.
Claims
Claims incurred comprise claims and claims handling expenses paid during the
financial year together with the movement in the provision for claims
outstanding and settlement expenses, including claims incurred but not reported
(IBNR).
Outward reinsurance recoveries are accounted for in the same accounting period
as the associated incurred claims.
Claims outstanding comprise provisions for the estimated cost of settling all
claims incurred but unpaid at the balance sheet date whether reported or not,
and include the related internal and external claims handling expenses.
Provisions for claims outstanding are based on information available to the
directors and the eventual outcome may vary from the original assessment.
Provisions for IBNR are finalised through a review process. The claims reserves
are proposed, on a gross and net of reinsurance basis, based on the historical
trends of claims development and taking account of underwriting conditions.
These are independently reviewed, including assessment of an actuarial best
estimate reserve for each class. Provisions for doubtful debt associated with
reinsurance receivables are made after a review of the financial strength and
trading position of reinsurers.
Unexpired risks provision
Provision is made for unexpired risks where, at the balance sheet date, the
costs of outstanding claims and related deferred acquisition costs are expected
to exceed the unearned premium provision. The unexpired risks provision is
included within technical provisions in the balance sheet.
Non-aligned syndicate participations
The Group's non-aligned syndicate participations, which are presented as a
discontinued operation, consist entirely of run-off syndicate years of account.
These participations are reported on an extension to the three year accounting
basis, whereby movements in the calendar year a reported.
Premiums
Written premiums comprise premiums on contracts incepting during the financial
year. Premiums are disclosed gross of brokerage payable and exclude taxes and
duties levied on them. Estimates are made for 'pipeline' premiums, representing
accounts due to the Group but not yet notified, as well as adjustments made in
the year to premiums written in prior accounting periods.
Outward reinsurance premiums are accounted for in the same accounting period as
the related direct insurance or inwards reinsurance business.
1. ACCOUNTING POLICIES (continued)
Claims
Claims incurred comprise claims and claims handling expenses paid during the
financial year together with the movement in the provision for claims
outstanding and settlement expenses, including claims incurred but not reported.
Loss provisions on open years
Provision is also made for losses on each open year of account when it is
considered that profits in corporate member subsidiaries maybe insufficient to
meet these losses. In addition, provision is made for the estimated future
deterioration of years of account in run-off. While the directors make every
effort to ensure that adequate provision is made for losses on open years of
account, their view of the ultimate loss may vary in later periods as a result
of subsequent information and events. This in turn may require adjustment of the
original provisions. These adjustments are reflected in the financial
statements for the period in which the related adjustments are made.
Other accounting policies
Exchange rates
Income and expenditure in US dollars, Euros and Canadian dollars is translated
at average rates of exchange for the period. Underwriting transactions
denominated in other foreign currencies are included at their historical rates.
Syndicate assets and liabilities, expressed in US dollars, Euros and Canadian
dollars are translated into sterling at the rates of exchange at the balance
sheet date. Differences arising on translation of foreign currency amounts in
syndicates are included in the technical account. Other assets, liabilities,
income and expenditure expressed in foreign currencies have been translated at
the rates of exchange at the balance sheet date unless contracts to sell
currency for sterling have been entered into prior to the year end, in which
case the contracted rates have been used. Differences arising on translation of
foreign currency amounts on such items are included in the non-technical
account.
Investments
Listed investments are stated at market value at the close of business on the
balance sheet date. Unlisted investments are valued by the directors on a
prudent basis with regard to their likely realisable value.
In the Company's accounts, investments in Group undertakings are stated at cost
less provisions for impairment.
Syndicate investments and investment income
Syndicate investments and cash are held on a pooled basis, the return from which
is allocated to underwriting years of account proportionately to the funds
contributed by the year of account.
Investment return
All dividends and any related tax credits are recognised as income on the date
the related listed investments are marked ex-dividend. Other investment income,
interest receivable, expenses and interest payable are recognised on an accruals
basis.
1. ACCOUNTING POLICIES (continued)
Realised gains or losses are calculated as the difference between the net sales
proceeds and their purchase price in the financial year or their valuation at
the commencement of the year. Unrealised gains and losses are calculated as the
difference between the valuation of investments at the balance sheet date and
their purchase price in the financial year or valuation at the commencement of
the year.
In the Company's accounts, realised gains and losses on investments are included
in the profit and loss account and unrealised gains and losses are taken
directly to capital reserve-unrealised.
Allocation of investment return
All of the investment return arising in the year is reported initially in the
non-technical account. A transfer is made from the non-technical account to the
technical account representing:
* for the aligned syndicate participations, the longer term investment
return on investments supporting the technical provisions and related
shareholders' funds. The longer term investment return is an estimate of the
expected return over time for each relevant category of investments having
regard to past performance, current trends and future expectations; and
* for the non-aligned syndicate participations, the actual return on
investments supporting the technical provisions and related shareholders'
funds.
Intangible fixed assets
The cost of syndicate participations which have been purchased in the Lloyd's
capacity auctions is capitalised and amortised on a straight line basis over its
estimated useful economic life of twenty years beginning in the underwriting
year in which the purchased syndicate participation commences.
Other income and charges
Agency fees are recognised on an accruals basis. Profit commission receivable is
accrued in direct relation to underwriting income earned and is subject to the
normal managing agents terms.
Tangible fixed assets
The cost of other fixed assets is depreciated over their expected useful lives
on a straight line basis.
Depreciation rates are within the following ranges:
Leasehold land and buildings Over period of lease
Motor vehicles 25 - 33% per annum
Computer hardware and software 33 - 50% per annum
Furniture and office equipment 20 - 50% per annum
Internal property improvements 20 - 33% per annum
1. ACCOUNTING POLICIES (continued)
Pensions
Pension contributions to defined benefit schemes are charged to the profit and
loss account so as to spread the cost of pensions over employees' working lives
with the Group, based on actuarial triennial valuations. Pension contributions
to employees' money purchase schemes are charged to the profit and loss account
when due.
Deferred tax
Deferred taxation is provided in full on timing differences that result in an
obligation at the balance sheet date to pay more tax, or a right to pay less
tax, at a future date, at rates expected to apply when they crystallise based on
current tax rates and law. Timing differences arise from the inclusion of items
of income and expenditure in taxation computations in periods different from
those in which they are included in financial statements. Deferred tax assets
are recognised to the extent that it is regarded as more likely than not that
they will be recovered. Deferred tax assets and liabilities are not discounted.
Leased assets
Assets held under finance leases and hire purchase transactions are capitalised
in the balance sheet and depreciated over their useful lives. The outstanding
instalments are included in creditors and the interest element is charged
against profits over the period of the contract.
Payments made under operating leases are charged to the profit and loss account
evenly over the period of the lease. Where there are rent free periods in
property leases, the cost of the lease is spread evenly up to the period of the
first rent review.
2. ANALYSIS OF CONTINUING AND DISCONTINUED OPERATIONS
Continuing operations
The events of 11 September 2001 had a significant impact on the Group's 2001
results. As such, the continuing operations in the technical account have been
split between 11 September related and underlying items.
Discontinued operations
During 1999, the Group disposed of its remaining participations on non-aligned
syndicates. The results deriving from this activity are disclosed as
discontinued operations.
2. ANALYSIS OF CONTINUING AND DISCONTINUED OPERATIONS (continued)
Continuing operations Discontinued
Underlying 11 Sept Sub-total operations Total
2002 Technical Account #m #m #m #m #m
Gross premiums written 712.8 - 712.8 4.3 717.1
Outward reinsurance premiums (142.9) - (142.9) (1.2) (144.1)
Net premiums written 569.9 - 569.9 3.1 573.0
Change in the provision for unearned premiums:
- gross amount (99.9) - (99.9) - (99.9)
- reinsurers' share 21.0 - 21.0 - 21.0
Earned premiums, net of reinsurance 491.0 - 491.0 3.1 494.1
Allocated investment return transferred 30.1 - 30.1 1.0 31.1
from the non-technical account
Claims paid:
- gross amount (252.5) (83.5) (336.0) (12.6) (348.6)
- reinsurers' share 52.9 42.0 94.9 6.8 101.7
Claims paid, net of reinsurance (199.6) (41.5) (241.1) (5.8) (246.9)
Change in the provision for claims:
- gross amount (120.4) 116.6 (3.8) 11.6 7.8
- reinsurers' share 21.5 (81.0) (59.5) (9.9) (69.4)
Claims incurred, net of reinsurance (298.5) (5.9) (304.4) (4.1) (308.5)
Net operating expenses (159.0) 4.4 (154.6) (4.0) (158.6)
Balance on the technical account for 63.6 (1.5) 62.1 (4.0) 58.1
general business
Non-technical account
Balance on the technical account for 63.6 (1.5) 62.1 (4.0) 58.1
general business
Investment income 39.5 - 39.5 1.0 40.5
Unrealised losses on investments 3.2 - 3.2 - 3.2
Investment expenses and charges (1.2) - (1.2) - (1.2)
Allocated investment return transferred to (30.1) - (30.1) (1.0) (31.1)
the technical account
75.0 (1.5) 73.5 (4.0) 69.5
Other income 2.0 - 2.0 - 2.0
Other charges (16.1) - (16.1) - (16.1)
Operating loss 60.9 (1.5) 59.4 (4.0) 55.4
Comprising:
Operating profit (loss) based on longer 51.1 (1.5) 49.6 (4.0) 45.6
term investment return
Short term fluctuations in investment 9.8 - 9.8 - 9.8
return
2. ANALYSIS OF CONTINUING AND DISCONTINUED OPERATIONS (continued)
Continuing operations Discontinued
Underlying 11 Sept Sub-total operations Total
2001 Technical Account #m #m #m #m #m
Gross premiums written 585.0 - 585.0 2.4 587.4
Outward reinsurance premiums (99.9) - (99.9) (1.0) (100.9)
Net premiums written 485.1 - 485.1 1.4 486.5
Change in the provision for unearned premiums:
- gross amount (147.6) - (147.6) - (147.6)
- reinsurers' share 4.0 - 4.0 - 4.0
Earned premiums, net of reinsurance 341.5 - 341.5 1.4 342.9
Allocated investment return transferred
from the non-technical account 24.6 - 24.6 3.3 27.9
Claims paid:
- gross amount (243.0) (9.4) (252.4) (40.8) (293.2)
- reinsurers' share 53.3 0.9 54.2 17.3 71.5
Claims paid, net of reinsurance (189.7) (8.5) (198.2) (23.5) (221.7)
Change in the provision for claims:
- gross amount (122.1) (285.2) (407.3) 21.3 (386.0)
- reinsurers' share 74.0 229.8 303.8 (8.4) 295.4
Claims incurred, net of reinsurance (237.8) (63.9) (301.7) (10.6) (312.3)
Net operating expenses (112.6) - (112.6) (1.9) (114.5)
Balance on the technical account for
general business 15.7 (63.9) (48.2) (7.8) (56.0)
Non-technical account
Balance on the technical account for
general business 15.7 (63.9) (48.2) (7.8) (56.0)
Investment income 8.4 - 8.4 3.3 11.7
Unrealised losses on investments (2.2) - (2.2) - (2.2)
Investment expenses and charges (1.1) - (1.1) - (1.1)
Allocated investment return transferred to
the technical account (24.6) - (24.6) (3.3) (27.9)
(3.8) (63.9) (67.7) (7.8) (75.5)
Other income 1.5 - 1.5 - 1.5
Other charges (7.5) - (7.5) - (7.5)
Operating loss (9.8) (63.9) (73.7) (7.8) (81.5)
Comprising:
Operating profit (loss) based on longer
term investment return 10.0 (63.9) (53.9) (7.8) (61.7)
Short term fluctuations in investment (19.8) - (19.8) - (19.8)
return
3. IMPACT OF TERRORIST ATTACKS OF 11 SEPTEMBER 2001
The terrorist attacks of 11 September 2001 resulted in material losses for the
Group's managed syndicates for the year ended 31 December 2001. Development of
these losses during the year has been broadly in line with expectations and the
incurred loss position has stabilised. Settlements of property losses have begun
to be made and there is now greater certainty over these losses. The gross loss
estimate by class of business, and the net loss estimates by year of account,
compared with the estimated positions at 31 December 2001, are summarised below:
2002 2001
Class of business US$m US$m
Direct and facultative property 72.4 94.6
Property reinsurance and risk excess of loss 303.7 273.3
Direct airline operators and other aviation risks 179.5 253.0
Reinsurance of aviation risks 26.3 30.8
Other 29.8 15.6
Total gross loss 611.7 667.3
Reinsurance recoveries (454.3) (527.8)
Total net loss 157.4 139.5
Allocated by year of account:
2000 year of account 32.0 27.7
2001 year of account 125.4 111.8
157.4 139.5
Amlin Group share 105.6 93.3
The overall improvement in our gross loss estimate is due to a reduction in our
estimate for aviation losses following an internal review of the legal position.
This has been partially offset by an increase in notifications from reinsured
clients on our property reinsurance account. The increased loss net of
reinsurance is due to these higher property reinsurance claims, which are not
recoverable from reinsurers, while most of the benefit of the improvement in the
estimated aviation loss falls to the syndicates' reinsurers. In terms of timing
most of the changes were experienced in the first half of 2002 with a relatively
stable position in the second half.
3. IMPACT OF TERRORIST ATTACKS OF 11 SEPTEMBER 2001 (continued)
Key assumptions made in estimating the losses from 11 September 2001 include:
* the terrorist attacks leading to the collapse of the World Trade Center
towers in New York were one occurrence;
* the Washington and Pittsburgh losses were two further distinct
occurrences;
* there will be no material failures of reinsurance security;
* all reinsurers will reinstate reinsurance cover in accordance with the
relevant contract provision;
* there will be no material contractual disputes with any reinsurers;
* there will be no subrogation recoveries or financial support from third
parties, including the US government or associated agencies;
* war exclusions on policies do not apply and all of the occurrences were
caused by terrorist action; and
* recoveries under a number of reinsurance contracts are triggered by the
overall market property insured loss reaching certain levels. The property
market loss assumed is US$25 billion or greater.
#63.9 million of the estimated loss was charged to the technical account in 2001
and the balance of #1.5m (at 31 December 2002 exchange rates) has been charged
to the technical account in 2002.
The estimates, and the assumptions and methodology from which they are derived,
do not, and may not be taken to constitute an admission that the Group is liable
either in respect of a particular class of business or under a particular
contract of insurance or reinsurance.
A number of insurance companies and Lloyd's syndicates, including syndicate
2001, are currently in dispute with the leaseholder of the World Trade Center,
Silverstein Holdings, as to whether the terrorist attack and destruction of the
buildings constitutes one or two insured occurrences. We believe the attacks on
the World Trade Center are one occurrence. We have legal guidance that supports
this belief. However there is potential for additional loss. In the event that
the World Trade Center losses were judged to be two occurrences and two total
losses to the excess layers underwritten, it is estimated that the Group's loss
could increase by up to approximately #22 million. However, given our legal
advice and the high excess point of the layer which we insured, we believe that
this is unlikely.
3. IMPACT OF TERRORIST ATTACKS OF 11 SEPTEMBER 2001 (continued)
The remaining reinsurance recoveries of the syndicates have been analysed by
grade of reinsurer, as rated by Standard & Poor's in March 2003, as follows:
Grade of reinsurer % US$m
AAA 15.7 47.4
AA 33.6 101.3
A 20.6 62.2
Lloyd's 21.8 65.8
Other 8.3 25.1
100.0 301.8
Amlin Group Share 210.1
Provisions of US$7.2 million have been made for bad debts. Letters of credit
amounting to $34.9 million (Amlin Group Share: $24.3 million) have been received
from reinsurers securing future recoveries due on 11 September 2001 losses.
Last year we disclosed that the syndicates were owed an estimated US$125 million
from companies which underwrote through Fortress Re Inc, and that this agency
had ceased to trade. At 31 December 2002, US$29.5 million of the debt remained
outstanding. During January 2003, a letter of credit was received to reduce the
debt to US$7.8 million.
4. INVESTMENT RETURN
Investment income and expenditure reported in the non-technical account is as
follows:
2002 2001
#m #m
Income from investments 40.2 28.9
Gains (Losses) on realisation of 0.3 (17.2)
investments
40.5 11.7
Unrealised gains (losses) on investments 3.2 (2.2)
Investment management fees (0.4) (0.4)
Interest on loan stock and bank loans (0.8) (0.7)
(1.2) (1.1)
Total investment return 42.5 8.4
In respect of equity investments and fixed interest securities the longer term
rate of return has been determined by having regard to the Group's historical
and expected returns and current portfolio strategy. The rates of return are:
4. INVESTMENT RETURN (continued)
2002 2001
UK equities 7.0% 7.0%
Fixed interest securities 5.5% 5.5%
These returns are applied to the average, over the year, of the investments
attributable to the shareholders and insurance technical provisions of the
aligned syndicate participations. The attributable shareholders' funds are based
on the Funds at Lloyd's which represent the estimated risk based capital
supporting the insurance business. The rate for equities was utilised until the
date of disposal of the portfolio.
The actual return on investments since 1 January 1997, compared with the
aggregate longer term return over the same period, is set out below. All figures
are gross of expenses.
1 Jan 1997 to 31 Dec 1 June 1996 to
2002 31 Dec 2001
#m #m
Actual return attributable to the technical account 117.8 87.2
Longer term return attributable to the technical account 136.2 115.3
Effect of short term fluctuations over the period (18.4) (28.1)
5. PRIOR PERIODS' CLAIMS PROVISIONS
Material (under)/over provisions for claims at the beginning of the year as
compared with net payments and provisions at the end of the year in respect of
prior years' claims for continuing business are as follows:
2002 2001
#m #m
Syndicate 2001 (7.0) 4.4
Syndicate 902 0.2 (2.3)
Syndicate 1141 (13.5) (5.6)
Movement in reserves (20.3) (3.5)
The increase to the provisions for Syndicate 2001 predominantly relates to the
11 September losses (Note 3). The adjustment to the provisions for Syndicate
1141 relates to the strengthening of reserves for US Casualty business.
6. NET OPERATING EXPENSES
2002 2001
#m #m
Acquisition costs 137.9 111.5
Changes in deferred acquisition costs (20.4) (29.1)
Administrative expenses 35.8 30.7
Underwriting exchange losses 5.3 1.4
158.6 114.5
7. OTHER INCOME
2002 2001
#m #m
Managing agent's fee income 1.3 1.5
Managing agent's profit commission 0.5 -
Other income 0.2 -
2.0 1.5
8. OTHER CHARGES
2002 2001
#m #m
Managing agent's expenses 4.1 3.1
Amortisation of purchased syndicate participations 0.9 0.8
Financing charges 5.6 1.4
Central, management and other expenses 5.5 2.2
16.1 7.5
Included in the above is #4.2m accrued to cover payments under the Group's bonus
and incentive schemes (2001: #0.4m)
9. PENSIONS
The Group participates in a number of pension schemes, including defined
benefit, defined contribution and personal pension schemes.
The total pension cost for the Group in the year was #4.7 million (2001: #2.5
million) of which #3.4 million (2001: #1.3 million) related to the defined
benefit schemes and #1.3 million (2001: #1.2 million) related to the defined
contribution and personal pension schemes.
a) The Amlin plc funded defined benefit scheme
The scheme is a multi-employer scheme, operated by the Lloyd's Superannuation
fund, which maintains separate notional funds for the active members from each
employer. However, the deferred and pensioner members' funds are held in a
combined fund irrespective of their
9. PENSIONS (continued)
previous employer. For this reason, it is not possible to identify the assets
and liabilities of the Amlin Group members, and the scheme is treated as a
multi-employer scheme for the purposes of Financial Reporting Standard No.17
(FRS 17) - Retirement benefits. The Group is in discussion with the operators of
the scheme with a view to 'sectionalising' the assets between ongoing employers
of the scheme and 'orphaned' deferred members where the former employer has
ceased to trade. This process will, if pursued, lead to a segregated,
independent Amlin scheme, but would require the consent of Court. It is not yet
possible to say what the outcome may be.
This scheme is valued 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 scheme. The recommended rates reflect an
adjustment to amortise any small surplus or deficit over the average remaining
lifetimes of the current active membership.
The latest actuarial assessment of the scheme, at 31 March 2001, used the
projected unit actuarial method and was based on the principal assumption that
long-term returns on investments would be, on average, 1.8% higher than
increases in earnings. The valuation showed that the assets of the active
members of the scheme were #18.8 million, being #5.1 million less than the
members' accrued liabilities, resulting in a deficit of 21%. To rectify this
deficit, and the subsequent further deteriorations on the stock markets, a
payment of #2 million was made in 2002. Additionally, a further payment of #2
million was made in January 2003 and an estimated #2.3 million will be paid in
2004.
In 2002, funding rates and charges to the profit and loss account were as
recommended by the 2001 valuation and ranged between 18.3% and 39.3% of
pensionable salaries, and totaled #1.2 million, which in combination with the
additional payment noted above, gives a total charge to the profit and loss
account of #3.2 million. Funding rates remain unchanged in 2003.
b) The Angerstein Underwriting Ltd funded defined benefit scheme
SSAP 24 disclosures
The scheme consists of a closed funded defined benefit scheme for past employees
of Angerstein Underwriting Limited. Contributions to the scheme are determined
by an independent qualified actuary, based upon triennial valuations, using the
attained age actuarial method.
The most recent valuation was at 1 July 2001, when the market value of the
scheme assets was #1.4 million representing 89% of the benefits accrued to the
members, allowing for future earnings increases.
Group contributions made to this scheme in respect of the year ended 31 December
2002 were #0.2 million (2001: #0.3 million), and the agreed contribution rate
for future years is 22.5% of pensionable salaries. A 1.5% per annum differential
between investment returns and salary increases is assumed.
FRS 17 disclosures
During the year the full implementation of FRS 17 was delayed indefinitely.
Although the Group has continued to account for pensions in accordance with SSAP
24, the following transitional disclosures are still required. The 1 July 2001
valuation has been reviewed and updated to 31 December 2002.
9. PENSIONS (continued)
The members of this scheme are all employed for the benefit of the managed
syndicates.
The FRS 17 disclosures are based upon the following annual financial
assumptions:
2002 2001
Inflation 2.25% 2.50%
Increase in salaries 4.25% 4.50%
Increase in pensions payment 2.25% 2.50%
Discount rate for scheme liabilities 5.50% 6.00%
Return on equities 6.50% 7.00%
2002 2001
#m #m
Assets
Equities 0.8 1.9
Liabilities
Present value of scheme liabilities (1.8) (2.2)
Scheme deficit (1.0) (0.3)
Scheme deficit attributable to the Group (0.9) (0.2)
Related deferred tax asset 0.3 0.1
Net scheme deficit (0.6) (0.1)
The members of the scheme are, or were, employed for the benefit of Syndicate
2001 or its predecessors. Because of the varying ownership of the years of
account to which the contributions are charged, the following amounts which
would have been recognised in the performance statements for the year ended 31
December 2002 under FRS 17, are shown both as a scheme total and amounts
attributable to the Group, on the assumption that any charges would be taken to
the 2003 year of account:
9. PENSIONS (continued)
2002
Scheme Group
#m #m
Operating profit:
Current service cost 0.1 0.1
Other finance income:
Expected return on pension scheme assets 0.1 0.1
Interest on pension scheme liabilities (0.1) (0.1)
Net return - -
Statement of total recognised gains and losses (STRGL):
Actual return less expected return on
assets (1.3) (1.1)
Experience gains and losses on liabilities 0.6 0.5
Changes in assumptions (0.1) (0.1)
Actuarial loss recognised in STRGL (0.8) (0.7)
Movement in deficit during the year:
Deficit in scheme at 1 January (0.3) (0.3)
Current service cost (0.1) (0.1)
Contribution made 0.2 0.2
Actuarial loss (0.8) (0.7)
Deficit in scheme at 31 December (1.0) (0.9)
c) The defined contribution scheme
With effect from 1 February 1997 new employees have been invited to join this
scheme. Contributions made by the Group vary by age and by the level of
contribution that employees voluntarily make to the scheme. Contributions range
from 4% to 26% and are fully expensed to the profit and loss account when due
and payable. Amounts charged to the profit and loss account for the year ended
31 December 2002 were #l.1 million (2001: #1.0 million). Outstanding
contributions at 31 December 2002 were #0.1 million (2001: #0.1 million).
d) Other arrangements
Other pension arrangements include a small self-administered scheme, an
occupational money purchase scheme and personal pension arrangements. Regular
contributions, expressed as a percentage of employees' earnings, are paid into
these schemes and are allocated to accounts in the names of the individual
members which are independent of the Group's finances. The contributions are
charged against profits in the period in which they are payable. There were no
outstanding contributions at 31 December 2002 (2001:#nil).
10. PROFIT (LOSS) ON ORDINARY ACTIVITIES BEFORE TAXATION
Profit (loss) on ordinary activities before taxation is stated after charging:
2002 2001
#m #m
Depreciation
- owned assets 4.3 3.1
- leased assets 0.1 0.1
Operating lease charges 2.2 2.4
Amortisation of intangible assets 0.9 0.8
Auditors' remuneration
Group audit fees 0.4 0.2
Taxation advice and other services 0.1 0.6
Actuarial consultancy - 0.1
Company audit fees amounted to #50,000 (2001: #28,875). Group audit fees
include fees paid in relation to the audit of managed syndicates. A further
#0.4 million of costs were paid to the auditors for their work relating to the
share issues in 2002 which have been charged to the share premium account.
11. TAXATION ON PROFIT (LOSS) ON ORDINARY ACTIVITIES
2002 2001
a) Analysis of tax charge (credit) for the year #m #m
Current taxation
UK Corporation tax at 30% (2001: 30%) - 0.9
Under provision in prior periods 3.0 0.1
Corporation tax 3.0 1.0
Write off irrecoverable ACT - 0.2
Write off irrecoverable overseas taxation 0.1 (0.3)
Total current tax (see note 11(b)) 3.1 0.9
Deferred taxation
Origination and reversal of timing differences 17.0 (14.9)
Over provision in prior periods (8.9) (0.5)
Total deferred taxation (see note 21b) 8.1 (15.4)
Taxation on profit (loss) on ordinary activities 11.2 (14.5)
b) Factors affecting current period tax charge
The UK standard rate of corporation tax is 30% (2001: 30%), whereas the current
tax assessed for the year ended 31 December 2002 as a percentage of profit
(loss) before tax is 5.6% (2001: (1.1%)). The reasons for this difference are
explained below:
11. TAXATION ON PROFIT (LOSS) ON ORDINARY ACTIVITIES (continued)
2002 2002 2001 2001
#m % #m %
Profit (loss) on ordinary activities before 55.4 (81.5)
taxation
Current taxation on profit (loss) on
ordinary activities calculated at the UK
standard rate of corporation tax 16.6 30.0% (24.4) 30.0%
Expenses not deductible for tax purposes 0.7 1.2% 0.1 (0.1%)
Timing differences unprovided for (0.3) (0.5%) 10.7 (13.2%)
Depreciation in excess of capital 0.3 0.5% 0.5 (0.6%)
allowances
Difference between the technical result
for accounting purposes and the technical
result for taxation purposes (19.1) (34.4%) 9.4 (11.5%)
Deferred tax on loss provisions 0.5 0.9% (1.6) 1.9%
Unrelieved trading losses carried forward 0.5 0.8% 6.1 (7.5%)
Other timing differences 0.8 1.5% 0.1 (0.1%)
Under provision for prior periods 3.0 5.4% 0.1 (0.1%)
UK Corporation tax for the year 3.0 5.4% 1.0 (1.2%)
Write off irrecoverable overseas tax and 0.1 0.2% (0.1) 0.1%
ACT
Current taxation charge for the year (see note 3.1 5.6% 0.9 (1.1%)
11(a))
c) Factors which may affect future tax charges
Deferred tax is provided on the annually accounted technical result with
reference to the forecast ultimate result of each of the years of account
included in the annually accounted technical result. Where the forecast ultimate
result for a year of account is a taxable profit, deferred tax is provided in
full on the movement on that year of account included in this period's annually
accounted technical result. Where the forecast ultimate result for a year of
account is a loss, deferred tax is only provided for on the movement on that
year of account included in this period's annually accounted technical result to
the extent that forecasts show that the taxable loss will be utilised in the
foreseeable future. Deferred tax has been provided on the annually accounted
technical result for this accounting period of #57.7m. In addition, deferred
tax has been provided, in this accounting period, on #16.6m of the 2001 annual
accounting result that was not provided for in that accounting period, as
forecasts now show that losses represented by this amount will be utilised in
the foreseeable future.
Deferred tax is provided for on actual taxable underwriting results. Where the
taxable underwriting result is a loss then deferred tax is provided for on the
taxable underwriting loss to the extent that forecasts show that the taxable
underwriting losses will be utilised in the foreseeable future.
Deferred tax assets on non-aligned technical loss provisions are only provided
for to the extent that forecasts show that it is more likely than not that the
ultimate taxable underwriting losses represented by these provisions will be
utilised within the foreseeable future. Deferred tax
has been provided in full on non-aligned loss provisions of #1.5m (in 2001 no
deferred tax was provided on non-aligned loss provisions of #1m).
11. TAXATION ON PROFIT (LOSS) ON ORDINARY ACTIVITIES (continued)
The Inland Revenue has introduced final regulations to give effect to the
General Insurance Reserves provisions contained in the Finance Act 2000. The
Group's corporate vehicles fall within the remit of these regulations by virtue
of their greater than 4% participation on aligned and
non-aligned syndicates. The corporation tax charge for this period contains an
estimated adjustment in respect of a notional taxable charge as calculated under
regulations of #(0.4)m (2001: nil).
A deferred tax asset of #0.1m (2001: #nil) has been taken on existing capital
losses to match against deferred tax provisions of #0.1m on unrealised capital
gains arising within the Group during this accounting period. Deferred tax has
not been provided on capital losses of #46.6m (2001: #46.7m).
The Group expects to continue to suffer depreciation in excess of capital
allowances in future periods albeit at a diminishing rate.
The Group has suffered US tax on its share of syndicate deemed US underwriting
profits. This US tax is recoverable against UK tax on the taxable syndicate
profits for the appropriate years of account. Some US tax suffered will be
irrecoverable due to the difference between UK
and US tax rates and the difference between the timing of US and UK syndicate
profits for tax purposes. During the period #0.1m of US tax has been written off
(2001: #0.3m of US tax was written back as recoverable).
12. EQUITY DIVIDENDS
2002 2001
#m #m
Interim dividend of 0.75 pence (2001: nil) per ordinary share 2.9 -
Proposed final dividend of 1.25 pence (2001: nil) per ordinary share 4.7 -
7.6 -
13. EARNINGS AND NET ASSETS PER ORDINARY SHARE
Earnings per share is based on the profit attributable to shareholders for the
year ended 31 December 2002 of #44.2 million (2001: loss of #67.0 million) and
the weighted average number of shares in issue during the period. Shares held by
the Employee Share Ownership Trust ('ESOT') are excluded from the weighted
average number of shares.
13. EARNINGS AND NET ASSETS PER ORDINARY SHARE (continued)
Basic and diluted earnings per share are as follows:
Basic and diluted earnings per share are as follows: 2002 2001
Profit (loss) for the financial year #44.2m (67.0m)
Weighted average number of shares in issue 312.4m 201.3m
Dilutive shares 1.3m -
Adjusted average number of shares in issue 313.7m 201.3m
Basic earnings per share 14.1p (33.3p)
Diluted earnings per share 14.1p (33.3p)
Basic and tangible net assets per share are as follows:
Net assets at 31 December #309.6m #137.2m
Adjustment for intangible assets (#60.1m) (#15.0m)
Tangible net assets at 31 December #249.5m #122.2m
Number of shares in issue at 31 December 388.3m 208.5m
Adjustment for ESOT shares (6.1m) (6.1m)
Basic number of shares after ESOT adjustment 382.2m 202.4m
Net assets per share 81.1p 67.8p
Tangible net assets per share 65.4p 60.4p
14. INTANGIBLE ASSETS
Purchased syndicate
participations
#m
Cost
At 1 January 2002 17.2
Additions (see note 18) 46.0
At 31 December 2002 63.2
Amortisation
At 1 January 2002 2.2
Charge for the year 0.9
At 31 December 2002 3.1
Net book value
At 31 December 2002 60.1
At 1 January 2002 15.0
15. OTHER FINANCIAL INVESTMENTS
At At At At
valuation valuation cost cost
2002 2001 2002 2001
Group #m #m #m #m
Shares and other variable yield securities 0.7 0.5 0.6 0.6
Debt securities and other fixed income 559.8 391.9 552.0 390.7
securities
Participation in investment pools 134.3 81.1 134.0 81.0
Deposits with credit institutions 49.0 1.7 48.9 1.7
Overseas deposits 26.2 23.9 26.2 23.9
Other 3.9 11.3 3.9 9.7
773.9 510.4 765.6 507.6
In Group owned companies 227.0 169.5 224.8 170.8
In aligned syndicates 535.3 304.8 529.6 303.9
In non-aligned syndicates 11.6 36.1 11.2 32.9
773.9 510.4 765.6 507.6
Listed investments included in Group owned total are as
follows:
Shares and other variable yield securities 0.7 0.5 0.6 0.6
Debt securities and other fixed income 124.1 87.2 122.3 88.2
securities
124.8 87.7 122.9 88.8
16. OTHER INVESTMENTS
Subsidiary Other
undertakings investments Total
#m #m #m
At 1 January 205.4 3.9 209.3
Movements during the year - (3.9) (3.9)
At 31 December 205.4 - 205.4
16. OTHER INVESTMENTS (continued)
The principal undertakings of Amlin plc at 31 December 2002 which are
consolidated in these financial statements, all of which operate in the UK and
are registered in England and Wales, are listed below:
Subsidiary undertakings
Principal activity
Amlin Underwriting Limited Lloyd's managing agency
Amlin Investments Limited Investment company
Amlin Corporate Services Limited Group service company
Amlin Corporate Member Limited Corporate member at Lloyd's
AUT (No 2) Limited Corporate member at Lloyd's
AUT (No 6) Limited Corporate member at Lloyd's
AUT (No 7) Limited Corporate member at Lloyd's
AUT (No 8) Limited Corporate member at Lloyd's
Delian Beta Limited Corporate member at Lloyd's
Delian Delta Limited Corporate member at Lloyd's
All subsidiary undertakings are wholly owned.
17. TANGIBLE ASSETS
Fixtures,
fittings and
Leasehold leasehold
land and Motor Computer improvements
buildings vehicles equipment Total
Group #m #m #m #m #m
Cost
At 1 January 2002 1.9 0.4 9.1 5.5 16.9
Additions - 0.1 0.8 - 0.9
Disposals - (0.2) - - (0.2)
At 31 December 2002 1.9 0.3 9.9 5.5 17.6
Accumulated depreciation
At 1 January 2002 - 0.2 3.1 1.0 4.3
Charge for the year 0.1 - 3.2 1.1 4.4
Disposals - (0.1) - - (0.1)
At 31 December 2002 0.1 0.1 6.3 2.1 8.6
Net book value
At 31 December 2002 1.8 0.2 3.6 3.4 9.0
At 1 January 2002 1.9 0.2 6.0 4.5 12.6
The net book value in respect of assets held under finance leases and hire
purchase contracts is #0.2 million (2001: #0.2 million).
17. TANGIBLE ASSETS (continued)
Fixtures,
fittings and
Leasehold leasehold
land and Computer improvements
buildings equipment Total
Company #m #m #m #m
Cost
At 1 January 2002 1.9 8.6 5.5 16.0
Transfer to subsidiary undertaking - (8.6) (5.5) (14.1)
At 31 December 2002 1.9 - - 1.9
Accumulated depreciation
At 1 January 2002 - 2.7 1.0 3.7
Transfer to a subsidiary - (2.7) (1.0) (3.7)
undertaking
Charge for the year 0.1 - - 0.1
At 31 December 2002 0.1 - - 0.1
Net book value
At 31 December 2002 1.8 - - 1.8
At 1 January 2002 1.9 5.9 4.5 12.3
18. ORDINARY SHARE CAPITAL
Authorised ordinary shares of 25p each Number #m
At 1 January 2002 300,000,000 75.0
Increase on 15 January 2002 65,000,000 16.3
Increase on 5 July 2002 140,000,000 35.0
Increase on 30 August 2002 57,000,000 14.2
At 31 December 2002 562,000,000 140.5
Allotted, called up and fully paid Number #m
At 1 January 2002 208,540,106 52.1
Rights issue 59,582,887 14.9
Share placings 104,047,728 26.0
Shares issued as consideration for the purchase of capacity on Syndicate 2001 15,508,545 3.9
Share options exercised 195,853 0.1
Shares issued as deferred consideration re. acquisition of J E Mumford 448,132 0.1
(Holdings) Limited
At 31 December 2002 388,323,251 97.1
18. ORDINARY SHARE CAPITAL (continued)
At an extraordinary general meeting held on 14 January 2002 resolutions were
passed conditionally to increase the authorised share capital to 365 million
ordinary shares of 25p each and to issue via a rights issue 59,582,887 new
shares. The rights issue closed on 4 February 2002 and the new shares were
issued on the following day. The 2 for 7 issue raised #45.9 million gross, and
#43.2 million net of expenses. The balance of the capital raised not included in
share capital, #28.3 million, is included in the share premium reserve, analysed
as gross #31.0 million and expenses of #2.7 million.
At an Extraordinary General Meeting held on 4 July 2002, resolutions were passed
conditionally to increase the authorised share capital to 505 million ordinary
shares of 25p each and to issue, via a Firm Placing and a Placing and Open
Offer, 104,047,728 new shares. These new shares were issued on 5 July 2002, at a
price of 81p per share. This raised #80.0 million net of expenses of #4.3
million.
At an Extraordinary General Meeting held on 21 August 2002, resolutions were
passed conditionally to increase the authorised share capital to 562 million
ordinary shares of 25p each and to approve the issue, for the purposes of an
offer for capacity on Syndicate 2001 (Capacity Offer), of up to 56,708,346 new
shares.
The terms of the Capacity Offer allowed members to accept 20 pence per #1 of
capacity held, 0.2558 shares per #1 of capacity held or a combination of the
two. The offer became unconditional on 14 October 2002 following the receipt of
acceptances on behalf of 91.8% of the minority held capacity. In total, #32.2m
was paid to members in cash and 15,508,545 new shares were issued. The expenses
of the offer, totalling #1.4m, were allocated #0.8m to the cost of capacity
acquired and #0.6m to the cost of the share issue. In total, the cost of the
capacity purchased of #46.0m was split as #32.2m cash consideration, #13.0m
share consideration and #0.8m expenses. The expenses
allocated to the share consideration of #0.7m are charged to the share premium
reserve.
19. RESERVES
Share premium Capital Profit and
account Merger redemption loss
#m reserve reserve account
#m #m #m
Group
At 1 January 2002 57.0 41.9 2.7 (16.9)
Issue of shares on Rights Issue (see note 17) 31.0 - - -
Issue of share on Share Placing (see note 17) 58.3 - - -
Issue of shares capacity offer (see note 17) 9.2 - - -
Issue of share on exercise of options 0.1 - - -
Issue of shares in respect of deferred 0.3 - - -
consideration
Expenses incurred on issue of shares (7.7)
Retained profit for the financial year - - - 36.6
At 31 December 2002 148.2 41.9 2.7 19.7
19. RESERVES (continued)
The cumulative amount of goodwill written off to reserves is #45.7 million
(2001: #45.7 million).
Share Capital Profit and
premium redemption loss
account reserve account
#m #m #m
Company
At 1 January 2002 57.0 2.7 144.8
Issue of shares 98.9 - -
Expenses incurred on issue of shares (7.7)
Retained loss for the financial year - - (12.2)
At 31 December 2002 148.2 2.7 132.6
20. RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS
Group Group Company Company
2002 2001 2002 2001
#m #m #m #m
Profit (loss) attributable to shareholders 44.2 (67.0) (4.6) (2.1)
Less dividends (7.6) - (7.6) -
Retained profit (loss) for the financial 36.6 (67.0) (12.2) (2.1)
year
Issue of share capital 136.2 2.6 136.2 2.6
Shares to be issued (0.4) (0.5) (0.4) (0.5)
Unrealised capital loss - - - (0.1)
Net increase (reduction) to shareholders' 172.4 (64.9) 123.6 (0.1)
funds
Equity shareholders' funds at 1 January 137.2 202.1 257.0 257.1
Equity shareholders' funds at 31 December 309.6 137.2 380.6 257.0
21. TECHNICAL PROVISIONS
Provision for
unearned Claims
premiums outstanding Total
#m #m #m
Gross
At 1 January 2002 271.1 1,003.5 1,274.6
Exchange adjustments (5.8) (12.9) (18.7)
Movement in the provisions 89.5 (33.2) 56.3
At 31 December 2002 354.8 957.4 1,312.2
Reinsurance amount
At 1 January 2002 (14.4) (443.3) (457.7)
Exchange adjustments (0.1) (3.0) (3.1)
Movement in the provisions (19.5) 108.9 89.4
At 31 December 2002 (34.0) (337.4) (371.4)
Net
At 31 December 2002 320.8 620.0 940.8
At 1 January 2002 256.7 560.2 816.9
22. PROVISIONS FOR OTHER RISKS, CHARGES AND DEFERRED TAX
a) Non-aligned syndicate portfolio and other provisions
Provisions for
spread
underwriting
losses
At 1 January 2002 1.0
Movement in the provisions 1.9
At 31 December 2002 2.9
Included in the provision above is #1.0m as the estimated loss attributable to
the Group in respect of its underwriting through Stace Barr Angerstein PLC and
its subsidiary, SBA Underwriting Limited, the accounts of which are not yet
available.
22. PROVISIONS FOR OTHER RISKS, CHARGES AND DEFERRED TAX (continued)
b) The deferred tax asset is attributable to timing differences arising on the
following:
Unrelieved
Underwriting Provisions trading losses Other timing
results for losses carried forward differences Total
#m #m #m #m #m
At 1 January 2002 24.1 0.0 6.0 0.5 30.6
Trading losses brought forward - (4.1) - (4.1)
utilized as group relief
Deferred tax charge for the year (19.0) 0.5 9.3 1.1 (8.1)
At 31 December 2002 5.1 0.5 11.2 1.6 18.4
23. OTHER CREDITORS INCLUDING TAXATION AND SOCIAL SECURITY
2002 2001
#m #m
Bank loan 0.5 -
Corporation tax 0.1 1.0
Proposed dividend (see note 12) 4.7 -
Finance lease creditors (see note 24) 0.1 0.1
Loan stock 9.8 10.0
Other creditors 5.2 21.4
20.4 32.5
A subsidiary, Amlin Underwriting Group plc ('AUG'), had #9.8 million of
unsecured loan stock outstanding at 31 December 2001 (2000: #10.0 million).
Interest on the loan stock is based on the Lloyds TSB Bank plc base rate and is
payable twice yearly on 1 April and 1 October. The final redemption date of the
loan stock is 30 April 2004. The loan stock holder may require AUG to redeem all
or part (in multiples of #100) of the loan stock on 1 April 2003, 1 October 2003
and 1 April 2004 by sending a redemption notice to AUG not less than 60 days
before the due date of redemption. Loan stock is redeemable at par.
24. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
2002 2001
#m #m
Bank loan 0.6 1.5
Finance lease creditors 0.1 0.1
Performance related incentive schemes 3.1 -
3.8 1.6
Obligations due under finance leases and hire purchase contracts are payable as
follows:
2002 2001
#m #m
Within one year 0.1 0.1
Within two to five years 0.1 0.1
0.2 0.2
The Group's Employee Share Ownership Trust (ESOT), had a loan from Lloyds TSB
Bank plc at the year end of #1.1 million (2001: #1.5 million) secured by a fixed
charge over a proportion of the Company's shares held in the ESOT. It is
anticipated that this loan will be repaid from the proceeds of subscriptions by
employees for Amlin plc ordinary shares held in the ESOT. Under the current
terms of the loan, the balance must be reduced to #0.6m at 20 November 2003 and
then fully repaid on 20 November 2004.
25. RECONCILATION OF PROFIT BEFORE TAXATION TO NET CASH INFLOW FROM
OPERATING ACTIVITIES
2002 2001
#m #m
Profit (loss) on ordinary activities before taxation 55.4 (81.5)
Net movement on Premium Trust Funds for non-aligned participations 3.7 (23.4)
Depreciation charge 4.4 3.2
Syndicate capacity amortisation charge 0.9 0.8
Realised gains less losses on investments (0.3) 17.2
Unrealised (gains) losses on investments (7.6) 1.3
Decrease (increase) in debtors 15.7 (12.5)
(Increase) decrease in prepayments and accrued income (4.1) 1.2
Decrease (increase) in insurance debtors, prepayments and accrued (57.3) (219.4)
income
Increase in technical provisions 98.4 639.5
Increase in reinsurers' share of technical provisions 54.1 (249.3)
Increase in provisions for other risks and charges 1.9 6.9
Increase in insurance creditors, accruals and deferred income 45.5 32.6
Decrease in other creditors relating to operating activities (5.4) (0.7)
Increase in accruals and deferred income 3.3 0.2
Interest expense 0.5 0.7
Net cash inflow 209.1 116.8
Cash flows relating to non-aligned participations are included only to the
extent that cash is transferred between the Premium Trust Funds and the Group.
26. MOVEMENTS IN CASH, PORTFOLIO INVESTMENTS AND FINANCING
Changes to
market value
and At 31
At 31 December currencies December
2001 Cash flow 2002
#m #m #m #m
Cash at bank and in hand 18.4 10.1 - 28.5
Shares and other variable yield securities 7.1 (6.6) 0.2 0.7
Debt and other fixed income securities 446.5 235.7 0.5 682.7
Deposits with credit institutions 23.6 55.2 - 78.8
495.6 294.4 0.7 790.7
Loans due within one year (10.0) 0.2 - (9.8)
Loans due after one year (1.5) 0.9 - (0.6)
(11.5) 1.1 - (10.4)
484.1 295.5 0.7 780.3
27. GROUP OWNED NET ASSETS
The assets and liabilities attributable to Group owned companies as opposed to
the Group's syndicate participations, are summarised below:
2002 2001
In Group 2002 In Group 2001
owned In 2002 owned In 2001
companies syndicates Total companies syndicates Total
#m #m #m #m #m #m
Investments
Other financial investments 227.0 546.9 773.9 169.5 340.9 510.4
Debtors
Other debtors 8.5 62.8 71.3 5.7 91.8 97.5
Other assets
Deferred tax asset 18.4 - 18.4 30.6 - 30.6
Intangible assets 60.1 - 60.1 15.0 - 15.0
Tangible assets 9.0 - 9.0 12.6 - 12.6
Cash at bank and in hand 3.6 28.0 31.6 2.9 20.3 23.2
Own shares 2.8 - 2.8 2.8 - 2.8
Prepayments and accrued income 4.0 8.7 12.7 2.8 4.1 6.9
Other syndicate assets - 789.7 789.7 - 825.7 825.7
Total assets 333.4 1,436.1 1,769.5 241.9 1,282.8 1,524.7
Provisions for other risks and
charges (2.9) - (2.9) (1.0) - (1.0)
Creditors
Amounts due within one year (12.9) (7.5) (20.4) (19.0) (13.5) (32.5)
Amounts due after more than one
year (3.8) - (3.8) (1.6) - (1.6)
Accruals and deferred income (5.2) (0.4) (5.6) (4.0) (1.2) (5.2)
(21.9) (7.9) (29.8) (24.6) (14.7) (39.3)
Other syndicate liabilities - (1,427.2) (1,427.2) - (1,347.2) (1,347.2)
Consolidated shareholders' funds
at 31 December 308.6 1.0 309.6 216.3 (79.1) 137.2
28. CONTINGENT LIABILITIES
a) Funds at Lloyd's - Deeds of Covenant and Letters of Credit
The Group has entered into various deeds of covenant in respect of certain
corporate member subsidiaries to meet each such subsidiary's obligations to
Lloyd's. At 31 December 2002, the total guarantee given by the Group under these
deeds of covenant (subject to limited exceptions) amounted to approximately
#222.8 million (2001: #162.0 million). The obligations under the deeds of
covenant are secured by a fixed charge of the same amount over investments, and
a floating charge over the investments and other assets of the Group, in favour
of Lloyd's. Lloyd's has the right to retain the income on the charged
investments, although it is not expected to exercise this right unless it
considers there to be a risk that one or more of the covenants might need to be
called and, if called, might not be honoured in full.
As liability under each deed of covenant is limited to a fixed monetary amount,
the enforcement by Lloyd's of any deed of covenant in the event of a default by
a corporate member, where the total value of investments has fallen below the
total of all amounts covenanted, may result in the appropriation of a share of
the Group's Funds at Lloyd's that is greater than the proportion which that
subsidiary's overall premium limit bears to the total overall premium limit of
the Group.
The Group has also entered into Lloyd's deposit trust deeds for Funds at Lloyd's
by which letters of credit ('LOCs') for total amounts of #70.0 million and
US$130 million have been deposited. Of these LOCs, all of the US$ denominated
LOCs were procured in 2001 by agreement with the Company's 12.7% shareholder
State Farm Mutual Automobile Insurance Company, and the sterling LOCs were
deposited at Lloyd's for the first time in late 2002, replacing previous LOCs
totaling #39.3 million. The rise was to support increased underwriting for the
2003 year of account.
b) Reinsurance to close on spread portfolio
A reinsurance to close (RITC) is a particular type of reinsurance contract
entered into by Lloyd's syndicates whereby the members of a syndicate for a
particular year of account (the closing year) agree with the members of that or
another syndicate for a later year of account (the reinsuring members) that the
reinsuring members will indemnify, discharge or procure the discharge of all the
known and unknown liabilities of the closing year arising out of insurance
business underwritten by the syndicate in the closing year of account.
In the event that a corporate member resigns from a syndicate or reduces its
participation relative to the other members of the syndicate, it will make a net
payment of a RITC premium. The payment of the RITC premium does not release
members from ultimate responsibility for
claims payable on risks they have written and in the event that the reinsuring
members were unable to pay and the other elements in the Lloyd's chain of
security fail, the members would remain liable for the payment of any
outstanding claims. Payment of a RITC premium is conventionally treated as
settling a member's outstanding claims for the closing year and this convention
has been adopted in these accounts.
28. CONTINGENT LIABILITIES (continued)
There is no mechanism for the Group to account for the gross claims payments and
recoveries made from the reinsuring members or to quantify the ongoing exposure
in respect of closed years of account. The directors consider that the
possibility of the corporate members having to assume these liabilities is
remote.
c) Loan stock
The Company has given a guarantee to Lloyds TSB Bank plc for the principal sum
of #9.8 million to secure the obligations of its subsidiary, Amlin Underwriting
Group plc, in respect of the issue of loan stock as detailed in note 23.
29. RELATED PARTY TRANSACTIONS
During the period under review Mr B D Carpenter, a director, was a member of
Syndicate 2001 managed by the Group as set out below. During the year the
Company, on behalf of Amlin Corporate Member Limited, made an offer to acquire
the entire ongoing capacity of Syndicate 2001 (See note 18). This offer was
accepted by Mr Carpenter, who accepted 32,718 shares (valued at #35,543) and
#29,100 cash. Under the terms of the offer all external members received the
right to participate in the 2003 year of account only for 50% of their 2002
capacity and profit commission was waived. Mr Carpenter exercised that right.
Year of account
2000 2001 2002 2003
#000 #000 #000 #000
B D Carpenter 305 240 291 182
The aggregate of fees and profit commission paid by the directors was #1,635
(2001: #2,885), of which none was outstanding at 31December 2002 (2001: nil).
In addition, SBA Underwriting Limited, in which Mr J L Stace has a minority
interest, had participations on Syndicates 902 and 2001 for the 2000 year of
account of #502,048 and #3,387,665 respectively. SBA Underwriting Limited is not
underwriting for the 2001 or subsequent years of account.
As detailed in note 28, State Farm Mutual Automobile Insurance Company, a major
shareholder, provide the Group with an unsecured $130 million letter of credit.
This facility is provided at a rate of 5% and during the year #4.4 million was
paid to State Farm under this arrangement.
30. 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 2001 or 2002, but is derived
from those accounts. Statutory accounts for 2001 have been delivered to the
Registrar of Companies and those for 2002 will be delivered following the
Company's Annual General Meeting. The auditors have reported on those accounts;
their reports were unqualified and did not contain statements under Section 237
(2) or (3) of the Companies Act 1985.
The audited Annual Report and Accounts for 2002 are expected to be posted to
shareholders by no later than 17 April 2003. Copies of the Report may be
obtained from that date by writing to the Company Secretary, Amlin plc, St.
Helen's, 1 Undershaft, London, EC3A 8ND. The Annual General Meeting of the
Company will be held at the same address at noon on Thursday 22 May 2003.
The Preliminary Results were approved by the Board on 26 March 2003.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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