Interim Management Statement

Interim Management Statement

Amlin Plc

INTERIM MANAGEMENT STATEMENT FOR THE PERIOD TO 18 NOVEMBER 2008

Trading outlook

The outlook for the trading environment is now in marked contrast to three months ago. Overall our expectation is that the rating environment will improve for many classes of business although the speed and extent of change will vary.

In the last quarter the reinsurance market has incurred material claims from Hurricanes Gustav and Ike. The total insured loss for the two events is expected to be between $20 billion to $25 billion. Hurricane Ike is expected to be the third worst insured disaster in history. On their own we would have expected that these events would have stabilised US catastrophe reinsurance rates.

However, dislocation in financial markets has added to the pressure on both reinsurers and their clients. Recent investment market turbulence has a number of effects on the industry. The most direct effect is that there is less capital available and access to fresh capital may be limited with the associated cost significantly higher. Consequently, it is expected that the risk appetite of reinsurers will be constrained. In addition, the availability of retrocessional reinsurance has become limited as ‘capital market’ activity in this area declines.

These financial market effects will ripple through parts of the industry. For example, we expect the demand for reinsurance to rise as insurers are able to retain less of their exposures, reversing a trend of recent years.

Consequently, we believe that the reinsurance market will see a strong rise in rating levels.

The movement in insurance rates is less clear at this stage. Many insurance markets, such as the US and UK property and casualty industries, were already towards the bottom of their cycles. The difficulties experienced by a number of major participants should provide an impetus for rating improvement. We believe that reinsurance market trends will also add pressure for positive rate adjustments.

In some areas where rating increases were already required, we are already seeing some improvement. For example, recent airline renewals have reversed the trend of the last few years, with modest rate rises being achieved ahead of the main renewal season in the last quarter of the year. In other areas affected directly by hurricane activity, such as energy insurance, we expect to see sharp rate increases.

The UK Commercial account remains mixed, with commercial motor now achieving modest rate increases although liability classes continue to see rate reductions.

Premium written

The Group’s gross written premium (before deduction of brokerage) incepting in the ten month period to 31 October 2008 is £904.1 million (2007: £977.2 million at October 2008 rates of exchange), a decrease of 7.5% compared with the same period in 2007. The average renewal rate reduction for the Group for the first ten months was 7.8% with renewal retention of 84.5%.

Syndicate 2001 contributed £751.4 million, a fall of 11.3%. Most of this decrease results from our Property and Casualty and Reinsurance businesses. Of this income, £38.4 million (2007: £20.2 million) was specifically written to be ceded to Amlin Bermuda with up to a further 12.5% ceded through the renewal of a whole account quota share reinsurance contract.

Amlin Bermuda has written US$293.2 million of direct income in the ten month period, in addition to the reinsurances of Syndicate 2001 noted above. This represents an increase of 17.2% on the prior year.

60.0% of gross written premium in the period to 31 October was US dollar premium translated at an average exchange rate of $1.92:£1. If the same US dollar premium had been translated at an exchange rate of $1.50 :£1, total gross written premium would have increased to £1,056 million.

Claims and reserves

The three month period to 31 October 2008 witnessed significant loss activity. Of particular note, were Hurricanes Ike and Gustav for which the Group’s estimated claims are $285 million, net of reinsurance and reinstatement premiums. The figure is comprised of $137 million for Syndicate 2001 and $148 million for Amlin Bermuda. There is still uncertainty surrounding the precise level of loss, not least due to the storm causing damage through the US mid-west, and consequently leading to additional losses outside the Gulf of Mexico region.

As previously reported, the first half of 2008 witnessed a number of large property losses. Amlin’s estimated exposure to these events is modest, reflecting our relatively small line size.

At 30 September 2008, following the normal quarterly review of outstanding liabilities, £29.2 million of run off profits were released from reserves. Cumulative releases for the year to 30 September 2008 now amount to £89.1 million (30 September 2007: £70.2 million) with claims development again better than expected. Our reserving policy remains unchanged.

Investment returns and position

Despite being defensively positioned the Group’s investment return for October was a loss of 1.5% as equity markets fell sharply and credit spreads widened on non-government bonds. The cumulative return for the ten month period to 31 October 2008 was a loss of 1.2% on average funds under management of £2.6 billion.

The investment allocation at 31 October 2008 was 60.3% bonds, 30.4% cash and cash equivalents, 6.3% global equities and 3.0% global property. The allocations within the bond portfolio remain reasonably consistent with the position at 30 June 2008 and the credit quality remains high. The table below shows the credit quality of non-government bonds, as at 31 October 2008.

AAA	Â	65%
AA		16%
A		10%
BBB		7%
<BBB (Insurance Linked Securities)		2%

The yield to maturity for the bond portfolio at 31 October 2008 was 5.0%.

Capital management

As communicated in our Interim Report, we have had a share buy-back programme in place and, in the period from 1 January 2008 to the date of this statement, we have purchased 10.765 million shares at an average price of 256.09p per share. Whilst the buy-back authority from the Board remains, we do not expect to make further purchases in the short term given the opportunities available to expand our underwriting activity.

On 3 September 2008 Amlin plc entered into an amended debt facility with its banks, which is available for five years from the date of signing. The new facility provides an unsecured £250 million multicurrency revolving credit facility available by way of cash advances or letter of credit (LOC). At the same time, Amlin Bermuda cancelled its existing unsecured revolving credit facility for $100 million.

Also on the same date, Amlin Underwriting Limited entered into a secured $200 million LOC which is also available for five years from the date of signing. The facility allows Amlin Underwriting Limited to fund its US regulatory requirements by way of LOC rather than investments and therefore reduces funding pressures at the time of a major catastrophe loss. If drawn, security is provided by a fixed charge over a portfolio of assets. The facility is currently undrawn.

On 23 October 2008 Amlin Bermuda extended its existing secured $200 million LOC facility to 31 December 2009. The facility is secured by a fixed charge over a portfolio of assets. As at 18 November $30.8 million LOCs had been issued.

The significant strengthening of the US dollar against sterling has been a positive for the Group’s financial position. As noted above, much of our trading is carried out in US dollars and the rate change is beneficial to our expected margins. In addition, with our investment in Amlin Bermuda the Group has a material underlying dollar capital position which at the end of 2007 amounted to $1.5 billion. At a Group level, we implement a policy to hedge up to 50% of this position.

In the period to 31 October 2008, the dollar strengthening produced foreign exchange gains, before hedging, of £169.7 million on the dollar capital investment in Amlin Bermuda. This gain is accounted for through the Consolidated Statement of Changes in Equity. The hedges deployed reduce this gain. The Group’s hedges are effected through the use of derivative contracts and partially through sterling investments held by Amlin Bermuda. With effect from 7 March 2008, the Group applied the hedge accounting rules of IAS 39 Financial Instruments: Recognition and Measurement such that all fair value gains and losses on derivatives were taken through the Consolidated Statement of Changes in Equity to match the underlying movement in the valuation of the net investment in Bermuda. At 31 October 2008 a loss of £44.1 million had been taken to reserves in respect of these hedges.

For Amlin Bermuda, which reports in US dollars, sterling assets of £199.6 million were held at 31 October 2008. These produced a foreign exchange loss of £36.8 million in the ten month period and this will be recognised through the Group income statement. This loss is more than offset by other foreign exchange gains including gains relating to the foreign exchange translation of net non-monetary liabilities.

Business development

In October we announced that a wholly owned subsidiary of Amlin plc had entered into an agreement to acquire Financiere Europe Assurance, the holding company of Anglo French Underwriters SAS (AFU). The acquisition received FSA and Lloyd’s approval in November and is expected to complete within the next few days.

AFU is the largest Lloyd’s approved coverholder in France, focusing on SME specialty business. It writes a diverse book of business including property, cargo, professional liability and specie and, in the current financial year, expects to handle approximately €40 million of gross written premium.

Entry into the French market demonstrates Amlin’s focus on improving its distribution capabilities and will enable Amlin to balance the growth in its catastrophe book with the acquisition of additional non-catastrophe exposed business.

On 5 November 2008, Leadenhall Capital Partners LLP, our investment management joint venture which will manage funds focused on traded insurance risk, received FSA authorisation. Amlin will provide up to $75 million of seed capital and Leadenhall will seek further external capital before officially launching the funds in 2009.

Board

In October we announced the appointment of Stine Bosse as an independent non-executive Director, taking effect from 1 November 2008. The Board also announced in October that Tony Holt, an executive Director who is Group Underwriting Director, will retire from executive responsibilities on 31 December 2008. Following his retirement, he will be re-appointed to the Board as a non-independent non-executive Director.

Charles Philipps said, “The strength of Amlin’s franchise and financial position means that it is well placed to benefit from better underwriting conditions that are expected to materialise during 1 January renewals and thereafter.”

Enquiries:
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Charles Philipps		020 7746 1000
Chief Executive, Amlin plc
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Richard Hextall		020 7746 1000
Finance Director, Amlin plc
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Hannah Bale		020 7746 1118
Group Communications, Amlin plc
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David Haggie/Peter Rigby		020 7417 8989
Haggie Financial Limited

Notes to Editors:

Amlin plc is a recognised leader in the London insurance and reinsurance market, providing a global client base with risk management solutions. Amlin has five business areas: Aviation; Marine; UK commercial; International property and casualty; and reinsurance. A FTSE-250 quoted company Amlin owns 100% of its £825m Lloyd’s capacity for 2008, which is written through Syndicate 2001. Syndicate 2001 is rated ‘A+’ (Excellent) by AM Best and ‘A1’ (Stable) by Moody’s.

In 2005, the company established Amlin Bermuda Ltd as a reinsurance business capitalised at US$1 billion. In 2007 Amlin Bermuda had net earned premium of US$216 million and is now rated A (Excellent) by A.M. Best and A by Standard & Poor’s. Amlin has also set up operations in Singapore and in Illinois, USA, in 2007 and 2008 respectively, to service regional and local clients.