Final Results

Amlin PLC 27 March 2003 AMLIN plc PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2002 (UNAUDITED) AMLIN DELIVERS Â£55.4 MILLION PRE TAX PROFIT Substantial turnaround in profitability â€¢ Combined ratio improved 5% to 95% (1) â€¢ Profit before tax improved by Â£73.0 million to Â£55.4 million (1) â€¢ Earnings per share improvement of 21.3p to 14.1p (1) â€¢ After tax return on equity of 20.1% Growth in income and capacity (2) â€¢ 2002 gross premium written up 22% to Â£717.1 million â€¢ Owned capacity up 49% to Â£862 million for 2003 â€¢ Syndicate 2001 capacity of Â£1.1 billion for 2003 â€¢ 100% ownership of capacity achieved Balance sheet stronger â€¢ Â£123 million of new equity raised â€¢ Net assets per share up 19.6% to 81.1p â€¢ Net tangible assets per share up 8.3% to 65.4p Dividend resumed â€¢ 1.25p final dividend proposed â€¢ 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 Â£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 Â£m Â£m Â£m Â£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 Â£55.4 million (2001 loss: Â£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 Â£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 Â£400 million in 2001 to Â£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 Â£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 Â£32.0 million to the consolidated result, compared with a loss of Â£8.9 million in 2001, after stripping out the effect of the 11 September losses on that year. Investments contributed a healthy Â£41.5 million to the consolidated profit for the year, compared with Â£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 Â£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 Â£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 Â£152.6 million (2001: Â£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 Â£535.3 million (2001: Â£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 Â£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 Â£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 Â£17.6 million during the year, comprising a Â£9.0 million increase in Amlin's share of syndicate operating expenses to Â£41.1 million and an Â£8.6 million increase in other corporate charges to Â£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 Â£12.3 million to the syndicate cost base in 2002, which equates to Â£8.7 million to Amlin plc. This will be repeated in 2003 but it is expected that it will be removed next year. Â£3.8 million of the increase in corporate expenses relates to accrued incentive and bonus plan payments, of which Â£2.5 million relates to the capital builder plan which is based on underwriting returns exceeding 5 year performance targets. Â£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 Â£123 million of share capital, retained profit of Â£36.6 million and increases to our prior period claims reserves of Â£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 Â£43 million being utilised to support our 2002 underwriting. In July 2002 we raised a further Â£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 Â£13 million and cash of Â£32.2 million. This is represented in increased intangible assets of Â£46 million. Syndicate cash flow has been strong. The increase in total syndicate cash and investments amounted to Â£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 Â£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 Â£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 Â£1.6 million on the direct holdings and an estimated Â£1 million loss for SBA. In view of the deterioration from these participations an increased provision of Â£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 Â£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 Â£m Â£m Â£m Â£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 Â£m Â£m Â£m Â£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 Â£m Â£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 Â£m Â£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 Â£m Â£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 Â£m Â£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: â€¢ 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 â€¢ 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 Â£m Â£m Â£m Â£m Â£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 Â£m Â£m Â£m Â£m Â£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: â€¢ the terrorist attacks leading to the collapse of the World Trade Center towers in New York were one occurrence; â€¢ the Washington and Pittsburgh losses were two further distinct occurrences; â€¢ there will be no material failures of reinsurance security; â€¢ all reinsurers will reinstate reinsurance cover in accordance with the relevant contract provision; â€¢ there will be no material contractual disputes with any reinsurers; â€¢ there will be no subrogation recoveries or financial support from third parties, including the US government or associated agencies; â€¢ war exclusions on policies do not apply and all of the occurrences were caused by terrorist action; and â€¢ 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$25 billion or greater. Â£63.9 million of the estimated loss was charged to the technical account in 2001 and the balance of Â£1.5m (at 31 December 2002 exchange rates) has been charged to the technical account in 2002. The estimates, and the assumptions and methodology from which they are derived, do not, and may not be taken to constitute an admission that the Group is liable either in respect of a particular class of business or under a particular contract of insurance or reinsurance. A number of insurance companies and Lloyd's syndicates, including syndicate 2001, are currently in dispute with the leaseholder of the World Trade Center, Silverstein Holdings, as to whether the terrorist attack and destruction of the buildings constitutes one or two insured occurrences. We believe the attacks on the World Trade Center are one occurrence. We have legal guidance that supports this belief. However there is potential for additional loss. In the event that the World Trade Center losses were judged to be two occurrences and two total losses to the excess layers underwritten, it is estimated that the Group's loss could increase by up to approximately Â£22 million. However, given our legal advice and the high excess point of the layer which we insured, we believe that this is unlikely. 3. IMPACT OF TERRORIST ATTACKS OF 11 SEPTEMBER 2001 (continued) The remaining reinsurance recoveries of the syndicates have been analysed by grade of reinsurer, as rated by Standard & Poor's in March 2003, as follows: Grade of reinsurer % US$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 Â£m Â£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 Â£m Â£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 Â£m Â£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 Â£m Â£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 Â£m Â£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 Â£m Â£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 Â£4.2m accrued to cover payments under the Group's bonus and incentive schemes (2001: Â£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 Â£4.7 million (2001: Â£2.5 million) of which Â£3.4 million (2001: Â£1.3 million) related to the defined benefit schemes and Â£1.3 million (2001: Â£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 Â£18.8 million, being Â£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 Â£2 million was made in 2002. Additionally, a further payment of Â£2 million was made in January 2003 and an estimated Â£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 Â£1.2 million, which in combination with the additional payment noted above, gives a total charge to the profit and loss account of Â£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 Â£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 Â£0.2 million (2001: Â£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 Â£m Â£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 Â£m Â£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 Â£l.1 million (2001: Â£1.0 million). Outstanding contributions at 31 December 2002 were Â£0.1 million (2001: Â£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:Â£nil). 10. PROFIT (LOSS) ON ORDINARY ACTIVITIES BEFORE TAXATION Profit (loss) on ordinary activities before taxation is stated after charging: 2002 2001 Â£m Â£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 Â£50,000 (2001: Â£28,875). Group audit fees include fees paid in relation to the audit of managed syndicates. A further Â£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 Â£m Â£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 Â£m % Â£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 Â£57.7m. In addition, deferred tax has been provided, in this accounting period, on Â£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 Â£1.5m (in 2001 no deferred tax was provided on non-aligned loss provisions of Â£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 Â£(0.4)m (2001: nil). A deferred tax asset of Â£0.1m (2001: Â£nil) has been taken on existing capital losses to match against deferred tax provisions of Â£0.1m on unrealised capital gains arising within the Group during this accounting period. Deferred tax has not been provided on capital losses of Â£46.6m (2001: Â£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 Â£0.1m of US tax has been written off (2001: Â£0.3m of US tax was written back as recoverable). 12. EQUITY DIVIDENDS 2002 2001 Â£m Â£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 Â£44.2 million (2001: loss of Â£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 Â£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 Â£309.6m Â£137.2m Adjustment for intangible assets (Â£60.1m) (Â£15.0m) Tangible net assets at 31 December Â£249.5m Â£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 Â£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 Â£m Â£m Â£m Â£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 Â£m Â£m Â£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 Â£m Â£m Â£m Â£m Â£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 Â£0.2 million (2001: Â£0.2 million). 17. TANGIBLE ASSETS (continued) Fixtures, fittings and Leasehold leasehold land and Computer improvements buildings equipment Total Company Â£m Â£m Â£m Â£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 Â£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 Â£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 Â£45.9 million gross, and Â£43.2 million net of expenses. The balance of the capital raised not included in share capital, Â£28.3 million, is included in the share premium reserve, analysed as gross Â£31.0 million and expenses of Â£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 Â£80.0 million net of expenses of Â£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 Â£1 of capacity held, 0.2558 shares per Â£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, Â£32.2m was paid to members in cash and 15,508,545 new shares were issued. The expenses of the offer, totalling Â£1.4m, were allocated Â£0.8m to the cost of capacity acquired and Â£0.6m to the cost of the share issue. In total, the cost of the capacity purchased of Â£46.0m was split as Â£32.2m cash consideration, Â£13.0m share consideration and Â£0.8m expenses. The expenses allocated to the share consideration of Â£0.7m are charged to the share premium reserve. 19. RESERVES Share premium Capital Profit and account Merger redemption loss Â£m reserve reserve account Â£m Â£m Â£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 Â£45.7 million (2001: Â£45.7 million). Share Capital Profit and premium redemption loss account reserve account Â£m Â£m Â£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 Â£m Â£m Â£m Â£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 Â£m Â£m Â£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 Â£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 Â£m Â£m Â£m Â£m Â£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 Â£m Â£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 Â£9.8 million of unsecured loan stock outstanding at 31 December 2001 (2000: Â£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 Â£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 Â£m Â£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 Â£m Â£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 Â£1.1 million (2001: Â£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 Â£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 Â£m Â£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 Â£m Â£m Â£m Â£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 Â£m Â£m Â£m Â£m Â£m Â£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 Â£222.8 million (2001: Â£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 Â£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 Â£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 Â£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 Â£35,543) and Â£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 Â£000 Â£000 Â£000 Â£000 B D Carpenter 305 240 291 182 The aggregate of fees and profit commission paid by the directors was Â£1,635 (2001: Â£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 Â£502,048 and Â£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 Â£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

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