Final Results

RNS Number : 8042H

Amlin PLC

01 March 2010

 



AMLIN PLC

PRESS RELEASE

For immediate release

1 March 2010

Preliminary Results for the year ended

31 December 2009

Record performance and strategic growth

Highlights

Ø Record profit before tax of £509.1 million (2008: £121.6 million)

Ø Return on equity of 37.0% (2008: 7.8%)

Ø Amlin Corporate Insurance return on investment of 12.8% since acquisition

Ø Excellent combined ratio of 72% (2008: 76%)

Ø Reserve releases of £174.1 million (2008: £114.7 million)

Ø Record investment contribution of £207.5 million (2008: £18.0 million) with returns of 5.9% (2008: 0.6%)

Ø Dividend (paid and declared) increased by 17.6% to 20.0 pence per share (2008: 17.0 pence)

Ø Gross assets increased 35.8% to £5,673.0 million (2008: £4,176.3 million)

Ø Net tangible assets per share increased 22.7% to 289.6 pence (2008: 236.0 pence)

Ø Strong capital position to develop the business

Charles Philipps, Chief Executive, commented as follows:

"Once again, the Group's financial performance in 2009 was excellent, reflecting the quality of our underwriting businesses and a recovery in investment markets. We also made significant progress strategically, most notably with the acquisition of the Fortis Group's commercial insurance operations in the Benelux countries, which now trade as Amlin Corporate Insurance."

Enquiries:
Charles Philipps, Chief Executive, Amlin plc	0207 746 1000
Richard Hextall, Finance Director, Amlin plc	0207 746 1000
Analysts and Investors
Julianne Jessup, Head of Investor Relations, Amlin plc	0207 746 1961
Rob Bailhache, Financial Dynamics	0207 269 7200
Nick Henderson, Financial Dynamics	0207 269 7114
Media
Hannah Bale, Head of Communications, Amlin plc	0207 746 1118
Peter Rigby, Haggie Financial LLP	0207 417 8989 / 07803 851426
Juliet Tilley, Haggie Financial LLP	0207 417 8989

Financial Highlights	2009        £m	2008        £m	2007        £m	2006 £m	2005 £m
Gross written premium	1,543.9	1,034.0	1,044.7	1,113.8	993.5
Net written premium	1,322.6	915.7	938.3	1,013.5*	829.3*
Net earned premium	1,317.3	913.5	972.3	973.9*	822.1*
Underwriting contribution	365.8	222.2	355.0	267.9	137.1
Investment contribution	207.5	18.0	157.0	115.1	90.9
Other costs	64.2	118.6†	67.0	40.3	41.3
Profit before tax	509.1	121.6	445.0	342.7	186.7
Return on equity	37.0%	7.8%	37.8%	34.0%	29.6%
Net assets	1,593.1	1,216.1	1,052.3	936.4	784.8
Net tangible assets	1,430.3	1,105.9	983.3	870.4	718.8
Per share amounts (in pence)
Earnings	94.1	17.1	66.3	50.4	34.3
Net assets	322.6	259.5	220.7	175.6	148.7
Net tangible assets	289.6	236.0	206.2	163.2	136.2
Dividend under IFRS**	17.5	16.0	20.8***	10.4	9.0
Dividends (paid and proposed) in respect of calendar year**	20.0	17.0	15.0	20.0***	10.2
Capital return via B shares	-	-	22.4	-	-
Group operating ratios
Claims ratio	43%	55%	36%	41%	57%
Expense ratio	29%	21%	27%	31%	25%
Combined ratio	72%	76%	63%	72%	82%
Syndicate 2001 combined ratio	74%	73%	69%	76%	82%
Amlin Bermuda Ltd combined ratio	56%	83%	46%	48%	-
Amlin Corporate Insurance combined ratio	96%	-	-	-	-

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

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

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

†           Includes non-underwriting foreign exchange losses of £56.6 million.

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

CHAIRMAN'S STATEMENT

2009 was a landmark year in the development of Amlin. With our capital strength, the diversity of our businesses and the quality of our people, we are well positioned for the future.

Results and dividend

2009 was a record year for Amlin, as well as one of significant strategic progress. Pre-tax profits of £509.1 million and a return on equity of 37.0% sustained our long term outperformance, as demonstrated by our weighted average return on equity of 29.1% since 2005. The 2009 results clearly benefited from a more favourable trading environment compared with the dual headwinds of major catastrophe losses and financial market turmoil of 2008, but they also reflect the continuing strength and diversity of Amlin's business.

The Board has decided to pay a second interim dividend, in lieu of a final dividend, of 13.5 pence per share making total dividends declared for the year of 20.0 pence per share, a 17.6% increase over 2008. The second interim dividend will be paid on 31 March 2010 to shareholders on the register at 19 March 2010. The Dividend Reinvestment Plan is not being offered in respect of this dividend as a result of the tight payment timetable.

Our goal remains to steadily grow the dividend. We also maintain the authority to buy back shares although we did not make any purchases in 2009.

Strategic progress

Amlin's consistent record of performance is testament to the successful implementation of the Amlin Vision and investment in the five year strategy put in place in 2004. We believe we have achieved our principal goal of delivering long term value to our shareholders, with a cross-cycle return on equity which is one of the strongest in the global non-life industry. Our consistently high level of client retention across the business shows that we have also remained focused on providing high standards of service and expertise to our global client base.

Amlin's business has grown and diversified significantly since the Vision was first articulated, but the strength of our corporate culture and the stability of our team has meant that our core values have continued to underpin and drive our business. We have extended our management infrastructure and governance to facilitate the further growth envisaged in the next phase of our strategic plan and ensuring that we can sustain our culture and values into the future remains a key priority.

During 2009 we reached a milestone in the development of one of our most important strategic investments. Amlin Bermuda, a 2005 start up, paid its first dividend of $200 million to the Group in October 2009, followed by a further dividend of $169 million in February 2010. Amlin Bermuda was our first major foray away from the Lloyd's market and is now a substantial and successful reinsurer in its own right.

We also embarked on a major new strategic initiative with the acquisition of Fortis Corporate Insurance (now Amlin Corporate Insurance or ACI), which gives us a substantial underwriting platform in Continental Europe from which to further develop our European presence alongside Anglo French Underwriters, which we acquired in 2008. We were pleased to welcome our new colleagues in ACI, who are already contributing their considerable experience and expertise to the task of integrating ACI into the Group and developing new business opportunities for the combined entity.

We continued to invest in opportunities for profitable growth through further strengthening our existing underwriting teams and smaller acquisitions and investments focused on developing our distribution channels.

Outlook

Following excellent results in 2009 we are anticipating increased competition in the short term. However, the performance of our different classes of business will vary and Amlin's excellent diversity of risk will continue to work to our advantage.

We remain alert to continuing uncertainty in the wider economy and consequences such as changing regulatory regimes. Our response to a wide range of operational issues, including Solvency II, demonstrates that Amlin is more than ever focused on forward thinking and a willingness to embrace change.

With our capital strength, well-established underwriting platforms in three major global markets, our strong relationships with brokers and clients and a wealth of talent and experience in the Amlin team, we are well positioned for the future.

Governance and the Board

As Amlin has developed from an exclusively Lloyd's-based business prior to 2005 to the multi-platform Group that it is today, both our Board and executive governance structures have developed in order to maintain across a wider canvas the high standards of accountability and transparency to which we aspire. We believe that good governance reduces risk and adds value.

We actively participated in the debate about the role of boards through submissions and discussion with the Financial Reporting Council in its review of the Combined Code (now to be the UK Corporate Governance Code). We await the final outcome of this review later in 2010. In response both to this, and to our own changing circumstances, we have already made some refinements to our approach, for example in the governance relationships between operating subsidiaries and the Group (both Board and executive) and in the area of risk governance.

Ram Mylvaganam retired from the Board at the 2009 AGM, having given Amlin long and valued service which started at Murray Lawrence before the creation of Amlin. Ram was a loyal and supportive colleague over the years, not only to me but to many others within the Amlin organisation, and we are grateful to him. At the start of 2009, Tony Holt was welcomed back to the Board as a non-executive, following his retirement as Underwriting Director at the end of 2008. It is a tribute to the underwriting team and culture that Tony built and sustained that his colleagues have filled his executive shoes so effectively, and a great benefit to the Group that his advice, counsel and challenge remain available in his new role.

The Amlin team

2009 saw many valued additions to the Amlin team as we continue to position the business for future growth. As well as welcoming Patrick Coene and his team at ACI, we also broadened the executive team in areas such as Operations, Risk and Compliance as well as making senior appointments in Amlin London, Amlin UK and Amlin Bermuda. The quality of our people continues to be a core strength and I am delighted that we have further enhanced our capabilities in so many parts of the business.

Our result this year is excellent. This is due to the outstanding performance of Charles Philipps, his management colleagues and all the employees who have been building the business of Amlin year by year. I would like to thank them all for their skill and hard work.

Roger Taylor
Chairman

FINANCIAL PERFORMANCE

	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m
Gross written premium	993.5	1,113.8	1,044.7	1,034.0	1,543.9
Net written premium	829.3	1,013.5	938.3	915.7	1,322.6
Net earned premium	822.1	973.9	972.3	913.5	1,317.3
Underwriting contribution	137.1	267.9	355.0	222.2	365.8
Investment contribution	90.9	115.1	157.0	18.0	207.5
Other costs	41.3	40.3	67.0	118.6	64.2
Profit before tax	186.7	342.7	445.0	121.6	509.1
Return on equity	29.6%	34.0%	37.8%	7.8%	37.0%

In 2009, the financial performance of the Group was exceptional with a profit before tax of £509.1 million and a return on equity of 37.0% (2008: £121.6 million and 7.8%). Profitability was enhanced by low natural catastrophe claims, releases from reserves and a strong investment performance. Gross written premium increased by 49.3% to £1.5 billion. The financial performance of ACI, following its acquisition in July, further enhanced performance.

Over the longer term the Group's performance has been excellent, with a weighted average return on equity since 2005 of 29.1%. This continues to materially exceed our cross cycle target of at least 15% and our estimated cost of capital over that period of between 8% and 10%.

For 2009 underwriting contributed £365.8 million (2008: £222.2 million) to the pre-tax result. Syndicate 2001 and Amlin Bermuda delivered £185.0 million (2008: £176.0 million) and £161.8 million (2008: £46.2 million) respectively, with a smaller return from ACI of £11.2 million. The result reflects good margins for our reinsurance underwriting, underwriting discipline in the core insurance lines, where we have maintained a profit margin in most classes despite tough trading conditions, and a relatively benign claims environment for catastrophes in 2009.

The underwriting contribution also includes reserve releases of £174.1 million (2008: £114.7 million). This is the largest release that we have made. The release reflects several different factors:

Ø We have finalised a number of large single claims settlements and claims subrogations which have realised savings compared to reserves.

Ø We have reviewed the reserving approach to UK commercial claims, where it has become evident that our claims case reserves in aggregate have been more robust than previously estimated and a trend of steady improvement has been established. Accordingly, we have adjusted our approach to fleet motor and liability classes, which has led to a release of £16.0 million.

Ø ACI generated reserve releases of €19.0 million.

Ø Generally, claims development has been better than expected.

For 2009, the investment return was £207.5 million (2008: £18.0 million) on average funds under management of £3.4 billion. The return includes €59.1 million generated by ACI in the period since acquisition, on average funds under management of €1.4 billion.  Good returns were delivered across asset classes with the additional risk assets that were added to the portfolio in early 2009 enhancing performance.

With much of the Group's trading conducted in US dollars, significant fluctuations in the US dollar to Sterling rate of exchange again had a major impact on the results.  The income statement reflects foreign exchange gains of £5.4 million after a loss of £29.0 million due to the treatment of net non-monetary liabilities.

In addition, Amlin Bermuda, which reports in US dollars, held Sterling assets during the year as part of the hedging strategy of the overall Group foreign exchange exposure. These produced a foreign exchange gain of £25.2 million (2008: loss of £41.3 million). The gain is recorded in Amlin Bermuda's income statement which is consolidated in the Group income statement with an offsetting foreign exchange loss (2008: gain) recognised in the Consolidated Statement of Comprehensive Income. At 31 December 2009 Amlin Bermuda held no Sterling assets.

Underwriting performance

With a low level of catastrophe incidence in the year, a good underwriting result is to be expected but the Group's overall combined ratio of 72% was excellent (2008: 76%).

Gross written premium was £1.5 billion, an increase of 49.3% on the prior year (2008: £1.0 billion). The increase was partly caused by the appreciation of the US dollar relative to Sterling.  At constant rates of exchange written premium increased by 34.0%. 

ACI added €236.1 million of written premium in the period since acquisition on 22 July 2009. Anglo French Underwriters, which was acquired in November 2008, contributed written premium of €31.4 million.

The underlying increase in written premium reflects the overall improvement in the general rating environment and the addition of new business to our existing portfolios. Overall, the renewal rate of increase was 4.4%, with a renewal retention ratio of 90% (2008: reduction of 6.8% and 84% respectively).

Amlin London's gross written premium was £855.7 million (2008: £689.7 million) with growth supported by a stronger dollar and both rate and volume increases. Amlin UK's gross written premium increased to £190.9 million (2008: £152.8 million), largely due to new business written in the fleet motor account.

Amlin Bermuda wrote $628.3 million of income, an increase of 14.3% over the prior year (2008: $549.5 million). This included direct income of $381.6 million (2008: $353.3 million).

For 2009, reinsurance expenditure as a proportion of gross written premium was 14.3% (2008: 11.4%). The increase is partly attributable to Special Purpose Syndicate 6106 (S6106) supported by third party capital, which was established in November 2008 to write a 15% quota share of Syndicate 2001's excess of loss accounts. This provides an alternative risk transfer mechanism to retrocessional cover and has given us scope to grow our London reinsurance income despite the scarcity of traditional retrocessional capacity. At 31 December 2009, written premium ceded to S6106 was £44.4 million. ACI has also contributed to the growth in reinsurance. Since acquisition, its reinsurance expenditure as a proportion of gross written premium is 16.6%.

Net earned premium was 44.2% higher at £1,317.3 million (2008: £913.5 million). Growth in net earned premium was held back by the impact of prior year non-monetary gains amounting to £39.9 million (2008: £19.2 million reduction). The Group claims ratio for the year decreased to 43% (2008: 55%). Natural catastrophe activity was relatively low for 2009 and our largest catastrophe claims were incurred for the L'Aquila earthquake totalling $18.7 million (2008: Hurricane Ike $239.7 million). Estimated losses for Hurricanes Gustav and Ike remain materially unchanged at $292 million (31 December 2008: $302 million).

There were several large risk losses in the year, in particular within the aviation market such as the Air France, Yemenia and Hudson River crashes. Having been selective in the face of poor pricing, our Aviation business has limited exposure to these.

We have been mindful of the potential impact of the economic recession on claims patterns. There is some increased activity in areas such as fleet motor, marine hull and cargo, but to date the effect has not been dramatic. The UK professional indemnity market has seen increased claims related to the downturn in the property market and to the credit crunch. These trends have had a limited impact on Amlin due to our underwriting strategy which avoids exposure to large financial institutions or banks with material US activities. We have also pro-actively reduced our exposure to the property surveyors sector since 2007.

Elsewhere, in November 2008 we announced the closure of our trade credit insurance business. This decision reflected our risk appetite, the prevailing economic climate and our medium to long term view of the profitability of the business. The business has run off in line with our expectations during 2009.

Divisional performance

Income and expenses by business segment Year ended 31 December 2009	Amlin London £m	Amlin UK £m	Anglo  French Underwriters £m	Amlin Bermuda £m	Amlin Corporate Insurance £m	Other corporate companies £m	Intra group  items £m	Total £m
Analysed by geographic segment
UK	120.9	164.5	-	185.6	-	-	(157.1)	313.9
US	434.7	0.1	-	161.7	-	-	-	596.5
Europe	88.8	7.4	28.9	19.9	83.8	-	-	228.8
Worldwide	63.5	15.5	-	-	141.4	-	-	220.4
Other	147.8	3.4	-	33.0	-	0.1	-	184.3
Gross written premium	855.7	190.9	28.9	400.2	225.2	0.1	(157.1)	1,543.9
Gross earned premium	788.7	167.6	22.6	374.7	321.8	0.6	(134.4)	1,541.6
Reinsurance premium ceded	(251.2)	(26.2)	(3.0)	(3.5)	(55.5)	-	115.1	(224.3)
Net earned premium	537.5	141.4	19.6	371.2	266.3	0.6	(19.3)	1,317.3
Insurance claims and claims settlement expenses	(234.7)	(94.2)	(11.9)	(138.5)	(173.0)	1.6	85.6	(565.1)
Reinsurance recoveries	81.4	19.5	2.1	0.1	(17.9)	0.2	(84.5)	0.9
Underwriting expenses	(229.2)	(39.2)	(7.3)	(71.0)	(64.2)	5.4	18.2	(387.3)
Profit attributable to underwriting	155.0	27.5	2.5	161.8	11.2	7.8	-	365.8
Investment return	40.6	22.9	0.4	72.3	53.8	17.5	-	207.5
Other operating income	0.1	0.1	-	1.9	0.8	7.2	-	10.1
Agency expenses	(16.5)	(3.8)	(0.4)	-	-	-	20.7	-
Other non-underwriting expenses	(1.7)	(0.3)	-	13.6	(11.4)	(51.5)	-	(51.3)
Finance costs								(23.0)
Profit before taxation								509.1
Combined ratio	71%	81%	87%	56%	96%			72%

In the analysis of divisional performance below, combined ratios are after removing the exchange differences on the translation of non-monetary assets and liabilities.

Amlin London

In 2009 Amlin London's gross written premium increased by 24.1% over 2008 to £855.7 million (2008: £689.7 million). Premium growth was driven by a stronger dollar, rate increases and the addition of new business within Reinsurance and Property and Casualty.

More than half of the year on year growth was generated within our Reinsurance business, which wrote £389.6 million in 2009 (2008: £275.0 million). This was achieved whilst maintaining net catastrophe exposures within risk tolerances by ceding business to S6106 which was set up in 2009. As we increase our risk appetite in the future we will be able to grow our net premiums by ceding less of this business.

The contribution from Property and Casualty increased to £204.0 million (2008: £168.6 million), Marine accounted for £203.9 million (2008: £189.5 million) and Aviation £58.2 million (2008: £56.6 million).

Amlin London's combined ratio, excluding non-monetary exchange differences, improved to 68% from 81% in 2008. The claims ratio was 27% compared to 49% last year, reflecting the low level of catastrophe losses in 2009 and additional prior period reserve releases totalling £95.1 million (2008: £58.6 million).

The expense ratio was 41% compared to 32% in 2008. The majority of the difference is due to an adverse swing in foreign exchange.

Amlin UK

Amlin UK generated gross written premium of £190.9 million in 2009, an increase of 25% on the prior year (2008: £152.8 million). Average renewal rate increases were 2.0%.  Fleet motor business contributed £82.8 million to gross written premium (2008: £60.1 million). This includes £7.0 million of premium generated from the renewal rights to the commercial motor account of HCC. 

The combined ratio of 81% is a good result given the continued tough trading conditions (2008: 79%). The claims ratio was 53% (2008: 48%), with releases from reserves amounting to £38.7 million (2008: £34.4 million). As mentioned above, we have reviewed our reserving approach to UK commercial claims, which has generated a release of £16.0 million. The expense ratio of 28% (2008: 31%) reflects the spread of core overheads across a greater premium base.

Anglo French Underwriters

In its first full year as part of the Group, AFU contributed €31.4 million to gross written premium. The major contribution came from property SME which generated premium of €17.8 million in the year.

Given challenging market conditions, the combined ratio of 87% is a good result. The claims ratio is 50%, reflecting two large net losses for summer fire damage to French properties, each around €2 million, and a net exposure (for Syndicate 2001) to winter storm Klaus of €0.9 million. The expense ratio was 37%, below that of the Syndicate as a whole.

Amlin Bermuda

Amlin Bermuda wrote gross premium of $628.3 million in 2009, an increase of 14.3% on 2008 (2008: $549.5 million). The direct amount totalled $381.6 million, an increase of 8.0% on 2008 (2008: $353.3 million). The growth in direct business was helped by healthy retention rates, new business and rate increases averaging 5.1% in 2009 (2008: rate reductions of 6.6%).  In the absence of any major insured catastrophe events and with good rating levels in core lines, results were exceptional and Amlin Bermuda achieved a combined ratio of 56% (2008: 83%). The claims ratio of 37% (2008: 65%) benefited from reserve releases of $37.6 million (2008: $40.1 million).  The expense ratio was 19% (2008: 18%).

Amlin Corporate Insurance

ACI generated €708.4 million of gross written premium in 2009, a decrease of 7.1% relative to the prior year. The reduction reflects the impact of lower economic activity on premium volumes as well as the deliberate non-renewal of some marine business as part of the re-underwriting process. €236.1 million of gross written premium was written in the period since acquisition.

The contribution to Group underwriting profit in 2009 was £11.2 million. ACI delivered a combined ratio of 102% for the full year (2008: 102%) and 96% since acquisition. The result post acquisition is improved by 4.5% through the reversal of an unexpired risk provision held at acquisition for the loss making marine business. The claims ratio of 72% reflects a good underwriting performance for property and liability offset by poor marine performance. Reserve releases since acquisition totalled €19.0 million reflecting releases of risk margins through time.

The company's expense ratio is 27% for the full year (2008: 24%) and 24% in the period since acquisition. These ratios exclude costs relating to ACI disentanglement costs and investment management fees.

Investment performance

The Group investment return for the year was 5.9%, and with average funds under management of £3.4 billion, investments contributed £207.5 million (2008: 0.6%, £2.6 billion and £18.0 million respectively). The return includes a return of 4.7% generated by ACI in the period since acquisition, on average funds under management of €1.4 billion.

Global economies and markets started the year in crisis mode, with policymakers scrambling to come up with solutions to shore up financial systems. Risk asset prices continued their freefall from 2008 as investors made the flight to quality by buying government bonds. This trend continued until governments' policies gained traction and investors started to turn their attention to the 'second derivative'; that is the slowing downward momentum of economic data.

We started the year with the defensive investment stance which had stood us in good stead in 2008. By January the lack of liquidity in fixed income markets had produced very attractively priced securities, particularly to long-term investors. Consequently, we increased our credit exposure, especially to senior financial debt.  Credit spreads have since narrowed sharply and this investment has added in excess of £30 million to our investment return for 2009. By autumn, spreads had declined to more normal levels for the point in the economic cycle and in our core portfolios we scaled-back our exposure to corporate credit, while remaining invested in the asset class on a selective basis. The average bond weighting in the year was 75%.

In July, the acquisition of ACI added a further €1.3 billion to our funds under management. 33% was invested in corporate bonds and had suffered heavy impairment to par value at acquisition. These assets also benefited from spread tightening during 2009, particularly in the third quarter. Towards the end of the year the ACI funds began to be migrated to new investment managers. These measures will provide greater asset and manager diversification and bring ACI's investment strategy in line with that of the rest of the Group.

Although we added risk to the portfolio, our stance has remained relatively cautious due to high asset volatility and because of our scepticism regarding prospects for a sustained recovery in the global economy. The average cash balance was 16%, down from 31% at 31 December 2008. After the strong equity rally, and with the addition of the corporate bond portfolio of ACI, we reduced our equity position in May. Subsequent lower volatility permitted a higher equity weighting within our risk tolerance and our equity holding was increased during the last two months of the year. The average equity weighting was 5% which produced a return of 23.5%.

During 2009, the insurance linked securities portfolio run by Leadenhall Capital Partners switched from being a managed account to a stand alone investment in two listed funds. The risk profile did not change and the investment was increased to $100 million across both funds. The return on $68 million of average funds was $8.3 million (12.4%).

Investment mix and returns

		2009				2008
		Average				Average
		Asset Allocation		Return		Asset Allocation	Return
		£m		£m		£m	£m
Bonds		2,558		200		1,539	87
Other liquid	610		3		818		31
Equities		168		23		206	(91)
Property		96		(19)		80	(9)
Total		3,432		207		2,643	18
Bonds		74%		7.3%		58%	3.5%
Other liquid		18%		0.6%		31%	4.0%
Equities		5%		23.5%		8%	(26.5%)
Property		3%		(16.8)%		3%	(6.3%)
Total		100%		5.9%		100%	0.6%

Note: Investment return percentages exclude the impact of currency fluctuation.

Expenses

Total expenses, including underwriting and non-underwriting costs, increased to £461.6 million from £311.9 million in the prior year. Underwriting expenses, excluding foreign exchange movements, amount to £360.0 million in 2009 (2008: £266.1 million).  Non-underwriting expenses, excluding foreign exchange movements, were £84.0 million (2008: £43.5 million).

Underwriting costs include costs relating to the acquisition and administration of insurance business and claims payments. Non-underwriting costs include head office costs and employee incentives. They also include investment fees, non-underwriting foreign exchange gains or losses and, this year, ACI disentanglement and integration expenses.

Operating expenses, contained within underwriting and non-underwriting expenses, increased by £73.5 million to £171.2 million, of which £34.5 million was attributable to ACI. Total staff costs increased by £37.9 million to £97.7 million (ACI cost: £13.9 million). Staff incentive plans accounted for £36.6 million (2008: £21.5 million), with increases due to higher levels of profitability. ACI disentanglement costs of €12.5 million are included in non-underwriting expenses to take out one-off integration costs from core combined ratios.

Taxation

The effective rate of tax for the period is 10.7% (2008: 33.9%). The effective rate is below the UK rate of corporation tax primarily due to Amlin Bermuda, which operates locally with no corporation tax. We continue to believe that Amlin Bermuda is exempt from the Controlled Foreign Corporation tax provisions of the UK tax regime. The table below illustrates the source of Group profits with associated effective tax rates.

Taxation breakdown

Profit source	2009 Profit before tax £m	2009 Effective tax rate %	2008 Profit before tax £m	2008 Effective tax rate %
UK	206	19.8	171	24.1
Bermuda	249	-	(48)	-
Continental Europe	54	24.9	(1)	(0.4)
Group	509	10.7	122	33.9

.

At 31 December 2008 a deferred tax provision of £16.1 million was held in respect of UK tax payable on potential future Amlin Bermuda dividends. With legislation enacted on 1 July 2009 to exempt foreign dividends from subsidiaries from UK tax, the deferred tax provision has been released.

BALANCE SHEET

Capital strength

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

Amlin uses Dynamic Financial Analysis (DFA) to model its capital needs. The model forecasts a range of potential financial outcomes for each area of our business, incorporating underwriting and investments, running thousands of simulations through a stochastic model, which is derived from historic and expected variability in claims. We have developed models for Syndicate 2001, Amlin Bermuda and the Group, and are currently developing a model for ACI.

For Syndicate 2001, Amlin uses the modelling to submit an Individual Capital Assessment (ICA) to Lloyd's. The ICA, a UK regulatory requirement, sets out the level of capital required in the business to contain the risk of insolvency to no greater than a probability of 0.5%. Lloyd's reviews the submissions for all syndicates in the market with the intent of bringing all ICAs to an equivalent level. At that point the ICA figure is uplifted by 35% to support its financial strength rating.

For Syndicate 2001, our uplifted ICA for the 2010 underwriting year is below the minimum ratio of 40% of premium income (2009: 47%) that Lloyd's requires and so our capital ratio defaults to that minimum. This is a decrease on the prior year reflecting an increase in the credit provided for the level of reserve margin held.

Amlin Bermuda has net assets of US$1.6 billion. We continue to believe that US$1.0 billion is the minimum amount of capital required to trade with our preferred client base, an amount which exceeds the local regulatory capital requirement of US$424.6 million. The local regulatory requirement is formula based.  However, on an equivalent basis to our Lloyd's business, including the 35% uplift, the required capital would increase to $514.0 million.

At the end of the year, ACI held net assets of €316.6 million and long term debt of €30.0 million relative to the local regulatory capital requirement of €111.4 million.  We believe that the current level of capital is in line with what economically the company requires.

In addition to regulatory capital requirements, we believe that the Group should retain a level of capital sufficient to allow material growth in the aftermath of a major insurance disaster and also to respond to other opportunities to enhance long term growth, including through acquisition. The table below sets out our capital position at 31 December 2009.

	At 31 December 2009 £m	At 31 December 2008 £m
Net tangible assets	1,430.3	1,105.9
Subordinated debt	316.4	295.9
Bank facilities *	250.0	250.0
Available capital	1,996.7	1,651.8
Assessed capital**	1,341.2	1,059.1
Surplus	655.5	592.7

*   Bank facilities are subject to a number of covenants.

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

Managing equity capital for shareholders

We focus our financial management on delivering a cross cycle return on equity in excess of 15% and achieving profitable trading through the insurance cycle. Given the Group's cyclical underwriting approach, we recognise that at certain points this will lead to the Group holding surplus equity capital. In order to enhance our return on equity, as actual levels of capital exceed our forecast capital requirements, we will look to return excess capital to shareholders in the absence of appropriate ways to enhance our long term potential.

Our commitment to return capital has been clearly demonstrated over recent years and we have employed a number of different mechanisms to do so, so as to appeal across the shareholder base. In the near term and against the backdrop of Solvency II we expect to hold additional capital to support our medium and longer term growth ambition, in line with our stated strategy.  We will also look to buy back shares if we believe it is in our shareholders' interest to do so.

Importantly, we have also been able to continue to grow the dividend to our shareholders. We intend to grow our dividend per share consistently over the next few years.  Our current capital strength should allow us to pursue this policy even if earnings are affected by significant catastrophe losses.

Estimation of outstanding claims reserves

The estimation of the Group's outstanding claims reserves is another important feature of successful financial management. Not only does it have an impact on overall profitability, but it also impacts investment mix as different approaches are taken for capital and policyholders' funds. At 31 December 2009 net claims reserves totalled £2,010.3 million (2008: £1,332.0 million).

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

Given this uncertainty we adopt a prudent approach to the assessment of liabilities. Our underwriting teams, in the UK and Bermuda, are responsible for proposing the level of reserves to be set in their business units. We believe that this ensures that they are accountable for the evaluation and uses their detailed knowledge of the underlying exposures underwritten, particularly as these change through time. These proposed reserves are compared with an actuarial 'best estimate' set by the in-house actuarial team. Any required adjustments to the underwriters proposed reserves are then made and these are the accounted reserves. Consistency of reserving strength is our overall goal. On an underwriting year basis, including unexpired risks, and before adjustments for further major losses which are required for annual accounting purposes, net reserves for the UK and Bermudian business remain at least £200 million above the actuarial best estimate (2008: at least £200 million).

For ACI, the local actuarial team produces full data on an accident year basis for independent external review. Proposed reserves are generated by local management according to a set formulaic process for the earning of premiums and release of IBNR. The independent external review involves production of an independent best estimate by class of business for comparison with the proposed carried reserve. The full reserving submission, including the external report, is reviewed separately by the Group Actuarial team.

We estimate that the Group  as a whole holds  reserves on an accident year basis of at least £200 million in excess of a strict 50:50 actuarial best estimate.

Net assets

Net assets have increased by £377.0 million over 2008 to £1,593.1 million. The main movements outside of income statement items are:

Ø A share placement amounting to £75.0 million, used to part fund the acquisition of ACI.

Ø Currency translation losses on our Bermudian and European overseas operations of £61.9 million, net of currency hedges (2008: gains of £181.4 million).

Ø Actuarial losses of £23.7 million on Group defined benefit schemes.

Intangibles have increased by £52.6 million to £162.8 million following the acquisitions of ACI and Crowe Livestock Underwriting Limited.

As a result, net tangible assets have risen by 29.3% from £1,105.9 million at 31 December 2008 to £1,430.3 million at 31 December 2009.

BUSINESS DEVELOPMENT

Amlin Corporate Insurance

The acquisition of ACI, for consideration of €350 million, was completed in July, providing us with an excellent entry to the Benelux markets where it is the leading commercial lines insurer. Following the growth of our catastrophe income and exposures over recent years, resulting largely from the success of Amlin Bermuda which we started in 2005, ACI added £225.2 million of diversified income to the Group in 2009, so bringing greater balance to overall risk exposures and scope to further grow our reinsurance business in the future.

While the Benelux market has been competitive over the last two years and performance was affected by the company's nationalisation by the Dutch state in October 2008, ACI has a good longer term track record and we are confident that it is capable of delivering a long term return in line with Amlin's cross cycle return target of at least 15%.

The acquisition by Amlin resulted in an immediate improvement in ACI's security ratings which reflects the benefit of becoming part of the Amlin Group.

Work on integrating the company has proceeded at pace with the intention, over the next two years, of replacing those services which have historically been provided by other parts of the Fortis Group and ensuring that Amlin's standards of risk management are applied to this business.

The management of ACI's investment portfolio was integrated into the Group portfolio shortly after the year end. The merger of its French business with Anglo French Underwriters, which we acquired in 2008, is on track for completion in April. This will create a business with increased market penetration and efficiencies as it grows from a combined premium income of €54.4 million.

A key component of integration will be the transition, by June 2011, to Amlin's underwriting systems. This will improve controls and provide materially better and more timely management information on both performance and risk. We believe that this, and our considerable experience in ACI's business classes, will result in increased performance potential and a better platform for further growth in continental Europe.

Post acquisition, approximately 64% of ACI's business was marine insurance, bringing marine to approximately 14% of Amlin's overall business in 2009. We anticipate this will grow further in 2010. This reinforces our relevance to brokers and insureds in this area and places us amongst the leading marine underwriters in the world.

As recognised at the time of acquisition, the ocean hull and marine cargo parts of ACI's account required corrective action which had commenced before acquisition. This is resulting in a contraction of income in these classes as ACI declines risks where it cannot achieve satisfactory pricing. The company has also reorganised the management structure of its marine underwriting in Rotterdam, bringing it more into line with Amlin's focus on the accountability of line underwriters and underwriting profitability.

It was a sign of confidence in ACI following its acquisition by Amlin that Räets Marine, a significant Dutch marine agency, renewed its association with ACI at the end of 2009 having moved its business to a competitor following nationalisation in October 2008. Räets sources approximately €60 million of good and profitable marine hull and liability business.

ACI contributed £53.7 million to the Group's profit before tax and a return on the investment, since the acquisition on 22 July 2009, of 13.5%. Having financed the acquisition mostly with cash, it has enhanced earnings per share and return on equity in 2009.

Generating returns from acquisitions

In addition to ACI, we have invested some £59 million in acquisitions since the beginning of 2008. In 2008 we acquired the renewal rights to HCC's fleet motor account, acquired minority investments in two UK brokers, and bought Anglo French Underwriters. We also set up Leadenhall Capital Partners in partnership with its management. In November 2009, we purchased Crowe Livestock Underwriting Ltd and in January 2010, we completed the transfer of Lockton's UK insolvency practitioners' insurance business.

These investments have enhanced the balance of the Group's overall underwriting portfolio, have added experienced professionals to the Group who we believe fit well with Amlin's culture, and importantly are already delivering incremental return to shareholders.

2009 return on investment from recent acquisitions and investments

Acquisition of HCC fleet motor account	61%
Investments in Miles Smith and TL Dallas	14%
Acquisition of Anglo French Underwriters	9%
Investment in Leadenhall Capital Partners and funds	9%
Acquisition of Amlin Corporate Insurance	13%

Where relevant, the above returns include the profit generated from additional premiums sourced as a result of the acquisitions and investments. The return shown for ACI is the five month return since acquisition.

Business improvement

The changes made to our organisational structure in 2008, involving the creation of Amlin London and Amlin UK, allowing Group management to focus more on strategy, have bedded down well. We have also increased resources capable of managing change across the Group with the aim of achieving consistently high standards of process and risk management, and in particular integrating ACI and ensuring that we are ready for Solvency II, the EU legislation which takes effect from 2012.

Proper preparation for Solvency II is critical to maintaining the Group's ability to deliver superior levels of return on equity, as a failure to meet the standards expected by regulators could result in the need to carry significantly more regulatory capital. We consider it an excellent opportunity to take our risk management practices up a level and believe that this could create further competitive advantage, for example through the prospect of improving our financial security ratings. Moreover, we believe that there are likely to be good opportunities to take advantage of situations where weaker companies fail to meet the required standards or need substantial additional capital and, for example, are forced to shed business.

OUTLOOK

It will be difficult for us to repeat the heights of last year in 2010. However, the continuance of satisfactory market conditions for many areas of the Group puts us in a strong position, we believe, to again exceed our target 15% cross cycle return on equity. Our trading volumes will also be helped by a full year of ACI's premium income.

A developing rating environment

As we have commented upon previously, the rating cycles of different parts of our business have become dislocated over the last five years.  Due to the diversity of our business classes and platforms, this provides us with the opportunity to allocate capacity where margins are most appealing. 

The reinsurance business, of Amlin London and Bermuda, remains an area where we expect good performance in 2010. A benign year for catastrophes in 2009, and the additional capacity that this creates in the reinsurance market, will mean more pressure is seen to reduce rates. However, the reinsurance market has been very disciplined in its approach over the last nine years, reflecting the concentration of risk that reinsurance companies bear and the focus that many companies now have on delivering a sensible cross cycle return for that risk. 

The retrocessional market has shown little sign of resurgence to provide risk transfer opportunities for reinsurance companies and with capital markets more risk averse than three years ago, there is limited evidence of investment banking activity reigniting the alternative risk transfer market.

This discipline was evident at the 1 January renewal season for our catastrophe reinsurance business.  For our London and Bermuda reinsurance accounts, this is a key renewal season, with 27.7% of the business expected to be written for the year renewed at this point.  It also sets the tone for the April and mid year reinsurance renewal seasons.  For US catastrophe risks, rate reductions averaged 4.4%, lower than the market averages announced by the major reinsurance brokers.  This leaves prices above the level at the start of 2008. For our international catastrophe account rates were broadly flat, with rate increases achieved in a number of zones. Margin potential in these areas remains good and for 2010 we have increased our catastrophe risk appetite by £40 million. Importantly we retained strong support from brokers for risks that were oversubscribed.

The rating environment in a number of specialty classes also remains good or is showing signs of improving.  At the end of 2009 the main airline insurance renewal season saw rate increases of 8.2% achieved, with individual accounts experiencing increases of between 15% to 25%. In our view this is still not fully sufficient to adequately compensate for the risk borne in this class but we began to selectively engage. Similarly, our marine teams were able to hold rates relatively steady at 1 January with Amlin London's marine business achieving a rate increase of 0.5%. ACI continued to reunderwrite its marine portfolio in order to return the account to acceptable margins.  This has meant pushing for strong rate improvements on underperforming business and allowing such business to be lost if this is not achieved. We are fully supportive of this approach and it is clear that real progress is being made.

The picture in more mainstream commercial insurance markets is mixed.  We do not believe that many competitors are making good profits in the UK, US or Continental insurance markets in the motor, liability and property markets in which we compete.  Many commentators believe that the reserve releases that have flattered results in recent times are running out.  That factor, taken with lower investment return potential than we have seen for many years, must be focusing the minds of management on improvement.  We also believe that lagged recessionary pressures will make the claims environment a more challenging one. 

In the UK we expect that we will continue to see steady improvement through 2010 and acceleration into 2011 as poor underwriting strategies of the last few years catch up and competitors are forced to take remedial action.  Signs of distress became apparent in 2009 in fleet motor in particular where we have experienced improved quote and conversion rates, suggesting that competition was becoming less fierce. Amlin UK has taken a number of steps to enhance its growth prospects when pricing improves to the right levels and is ready to seize opportunities that are expected to arise. 

In Continental Europe, both for ACI and Anglo French Underwriters (AFU), the rating environment remains challenging.  There is little evidence yet that rate improvements are imminent.  However, the combined ratios of ACI's property and liability accounts, and AFU across the portfolio, are good for this point in the cycle and these businesses will not be pushed to pursue growth strategies until a better environment returns. 

In the US, there appears to remain ample capacity for property and casualty business although rates continue to be relatively stable.  This market has been impacted by the fall out of the financial crisis of 2008 - not in the way that would have been expected with a return to better rates for the transfer of risk but rather increased competition as major competitors fought to retain market share.  We still expect improvements, however, predicting when this will come and what will be the catalyst is proving difficult. 

Momentum from acquisition, unearned premium and reserves

While the environment may be difficult to predict, we are confident that the momentum built up in 2009 will carry us forward in 2010.  The acquisition of ACI was completed on 22 July 2009 and so 2010 will benefit from a full year's trading.  The fruits of the re-underwriting in marine since the beginning of 2009 should begin to be seen in better margins even if volumes are reduced.  Similarly, some of the effects on the marine account from the sudden drop in trade in late 2008, both in terms of premium values and claims, should abate.  However, we do not expect ACI will generate materially better underwriting returns until 2011 because of the delayed effect of re-underwriting which impacts the expense ratio first through lower premiums and the claims ratio more slowly as the premium written at better margins takes time to earn through. 

The net unearned premium at 31 December 2009 stands at £692.0 million (2008: £518.4 million), with much of the premium written at good margins.  This provides a solid foundation for the year. 

The reserving position of Amlin remains robust.  Despite record reserve releases in 2009, we have applied our reserving policy consistently.  We reserve above a 50:50 actuarial best estimate, which means that we would expect to see reserve surpluses arising if claims development is in line with expectations.  Our track record is strong and while we do not anticipate a repeat of some of the factors that increased releases in 2008 and 2009, we do expect releases to be robust. 

Investment markets

Looking forward, we hope that investment markets lose some of the volatility that has been evident in the last two years.  However, if this happens, what is clear to us is that the return potential is not going to be strong.  Bond markets, particularly short dated bonds, with low interest rates in developed economies and credit spreads for corporate bonds back to more normal levels, do not offer the return potential of 2009.  Economic activity remains subdued and the headwinds against any pick up are heavy.  This suggests that we will not see rapidly rising interest rates, but a steady return to more normal levels over the next few years should be expected.  We see little material upside in yields and so have been diversifying our portfolios away from gilts and treasuries that we have used in recent years.  We have invested more with managers that have less exposure to interest rate risk, such as LIBOR plus funds, or have the ability to short the bond market.  The latter increases the opportunity to make an acceptable return.

Many companies appear to have weathered the recession well, with strong balance sheets, good performance in 2009 from strong control of costs, and are seeing improvements in revenues as economic activity improves.  Consequently we have removed the hedges that we had in place during the second half of 2009, which were used to control the overall risk of the equity portfolio.  Although economic activity is likely to be constrained we believe that there is a reasonable chance of acceptable returns from our equity portfolio in 2010. 

Summary

Overall, we anticipate a more challenging environment for 2010 but one where Amlin remains capable of delivering above target returns.  Our underwriting discipline and good margins in areas towards which we are weighted, such as reinsurance, marine and a rising UK commercial insurance market, should ensure that we continue to see healthy underwriting returns.  The investment market will likely deliver lower returns but is still capable of generating a material contribution if we remain agile and risk aware.  Our capital position remains strong which will be attractive to clients looking for robust partners and also provides us with the ability to continue to develop the business.

 Consolidated Income Statement

For the year ended 31 December 2009

	Notes	2009 £m	2008 £m
Gross earned premium	4,5	1,541.6	1,027.8
Reinsurance premium ceded	4,5	(224.3)	(114.3)
Net earned premium revenue	4,5	1,317.3	913.5
Investment return	4,6	207.5	18.0
Other operating income	4	10.1	2.7
Total income		1,534.9	934.2
Insurance claims and claims settlement expenses	4,7	(565.1)	(627.8)
Insurance claims and claims settlement expenses recoverable from reinsurers	4,7	0.9	127.1
Net insurance claims	7	(564.2)	(500.7)
Expenses for the acquisition of insurance contracts	8	(267.4)	(193.0)
Other operating expenses	9	(171.2)	(97.7)
Total expense		(438.6)	(290.7)
Results of operating activities		532.1	142.8
Finance costs	4,12	(23.0)	(21.2)
Profit before tax	4,13	509.1	121.6
Tax	14	(54.3)	(41.2)
Total recognised profit for the year		454.8	80.4
Attributable to:
Equity holders of the Parent Company		454.7	80.3
Minority interests		0.1	0.1
		454.8	80.4
Earnings per share from continuing operations attributable to equity holders of the Parent Company
Basic	29	94.1p	17.1p
Diluted	29	92.9p	16.9p

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

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2009

	Notes	2009 £m	2008 £m
Profit for the year		454.8	80.4
Gains/(losses) on revaluation of hedge instruments	15	29.3	(74.7)
Currency translation (losses)/gains on overseas operations	15	(91.2)	256.1
Foreign exchange (losses)/gains on translation of intangibles arising from investments in overseas operations	15	(1.6)	4.7
Defined benefit pension fund actuarial losses	28	(23.7)	(5.9)
Tax relating to components of other comprehensive income	14	14.5	2.8
Other comprehensive income for the year		(72.7)	183.0
Total comprehensive income for the year		382.1	263.4
Attributable to:
Equity holders of the Parent Company		382.0	263.3
Minority interests		0.1	0.1
		382.1	263.4

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

Consolidated Statement of Changes in Equity

For the year ended 31 December 2009

For the year ended 31 December 2009	Notes	Share capital £m	Share premium £m	Other reserves £m	Treasury shares £m	Minority interest £m	Retained earnings £m	Total £m
At 1 January 2009		134.6	231.5	272.4	(25.1)	0.3	602.4	1,216.1
Gains on revaluation of hedge instruments	15	-	-	29.3	-	-	-	29.3
Currency translation differences on overseas operations	15	-	-	(91.2)	-	-	-	(91.2)
Foreign exchange losses on translation of intangibles arising from investments in overseas operations	15	-	-	(1.6)	-	-	-	(1.6)
Defined benefit pension fund actuarial losses	28	-	-	(23.7)	-	-	-	(23.7)
Tax	14	-	-	14.5	-	-	-	14.5
Profit for the financial year		-	-	-	-	0.1	454.7	454.8
Total comprehensive income for the year		-	-	(72.7)	-	0.1	454.7	382.1
Employee share option scheme:
- share based payment reserve		-	-	1.1	(0.4)	-	-	0.7
- proceeds from shares issued	23	-	0.2	-	4.1	-	(1.0)	3.3
Net purchase of employee share ownership trust shares		-	-	(0.3)	-	-	-	(0.3)
Shares issued to fund ACI acquisition
- proceeds	23	6.6	69.8	-	-	-	-	76.4
- transaction costs	23	-	(1.4)	-	-	-	-	(1.4)
Dividends paid	30	-	-	-	-	-	(83.8)	(83.8)
Return of capital	23	-	-	1.2	-	-	(1.2)	-
		6.6	68.6	2.0	3.7	-	(86.0)	(5.1)
At 31 December 2009		141.2	300.1	201.7	(21.4)	0.4	971.1	1,593.1

Other reserves is comprised of £45.7 million (2008: £45.7 million) being the cumulative amount of goodwill written off to reserves on acquisitions prior to January 1999, a capital redemption reserve, charges for share options issued, deferred tax and current tax (see note 14), cumulative foreign exchange gains of £108.7 million (2008: £201.5 million gain) on investments in overseas operations and £45.4 million (2008: £74.7 million) cumulative losses on hedges of investments in overseas operations.

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

For the year ended 31 December 2008	Notes	Share capital £m	Share premium £m	Other reserves £m	Treasury shares £m	Minority interest £m	Retained earnings £m	Total £m
At 1 January 2008		134.4	230.8	(30.2)	(2.1)	0.4	719.0	1,052.3
Losses on revaluation of hedge instruments	15	-	-	(74.7)	-	-	-	(74.7)
Currency translation differences on overseas operations	15	-	-	256.1	-	-	-	256.1
Foreign exchange gains on translation of intangibles arising from investments in overseas operations	15	-	-	4.7	-	-	-	4.7
Defined benefit pension fund actuarial losses	28	-	-	(5.9)	-	-	-	(5.9)
Deferred tax	14	-	-	2.8	-	-	-	2.8
Profit for the financial year		-	-	-	-	0.1	80.3	80.4
Total comprehensive income for the year		-	-	183.0	-	0.1	80.3	263.4
Employee share option scheme:
- share based payment reserve		-	-	0.4	-	-	-	0.4
- proceeds from shares issued	23	0.2	0.7	-	5.0	-	(2.1)	3.8
Purchase of treasury shares		-	-	-	(28.0)	-	-	(28.0)
Dividends paid	30	-	-	-	-	(0.2)	(75.6)	(75.8)
Return of capital	23	-	-	119.2	-	-	(119.2)	-
		0.2	0.7	119.6	(23.0)	(0.2)	(196.9)	(99.6)
At 31 December 2008		134.6	231.5	272.4	(25.1)	0.3	602.4	1,216.1

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

Consolidated Balance Sheet

At 31 December 2009

Assets	Notes	2009 £m	2008 £m
Cash and cash equivalents	16	70.3	14.1
Financial assets	17	3,977.9	2,926.6
Reinsurance assets
- reinsurers' share of outstanding claims	18	421.1	360.8
- reinsurers' share of unearned premium	18	52.8	31.0
- debtors arising from reinsurance operations	18	373.7	325.1
Loans and receivables, including insurance receivables
- insurance receivables	19	292.2	191.5
- loans and receivables	19	64.3	68.7
Deferred acquisition costs	20	145.8	114.0
Current income tax assets		7.2	13.3
Deferred tax assets	14	29.1	11.1
Property and equipment	21	9.9	8.4
Intangible assets	22	162.8	110.2
Investment in jointly owned entity	36	1.7	1.5
Assets of operation classified as held for sale	36	64.2	-
Total assets		5,673.0	4,176.3
Equity and reserves
Share capital	23	141.2	134.6
Share premium		300.1	231.5
Other reserves		201.7	272.4
Treasury shares		(21.4)	(25.1)
Retained earnings		971.1	602.4
Equity attributable to equity holders of the Parent Company		1,592.7	1,215.8
Minority interests		0.4	0.3
Total equity and reserves		1,593.1	1,216.1
Liabilities
Insurance contracts
- outstanding claims	18	2,431.4	1,692.8
- unearned premium	18	744.8	549.4
- creditors arising from insurance operations	18	243.7	84.9
Trade and other payables	26	143.8	123.2
Financial liabilities	17	12.9	58.5
Current income tax liabilities		36.9	6.9
Borrowings	27	316.4	295.9
Retirement benefit obligations	28	24.5	4.0
Deferred tax liabilities	14	125.0	144.6
Liabilities of operation classified as held for sale	36	0.5	-
Total liabilities		4,079.9	2,960.2
Total equity, reserves and liabilities		5,673.0	4,176.3

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

The financial statements were approved by the Board of Directors and authorised for issue on 26 February 2010. They were signed on its behalf by:

Roger Taylor Chairman

Richard Hextall Group Finance Director

Consolidated Statement of Cash Flows

For the year ended 31 December 2009

	Notes	2009 £m	2008 £m
Cash generated from operations	34	324.5	222.4
Income taxes paid		(45.0)	(47.6)
Net cash flows from operations		279.5	174.8
Cash flows from investing activities
Interest received		62.2	97.5
Dividends received		5.2	11.9
Acquisition of subsidiary, net of cash acquired	38	(252.7)	(31.6)
Deferred payment for acquired subsidiary		(0.3)	(2.1)
Investment in jointly owned entity	36	(0.5)	(1.5)
Purchase of property and equipment	21	(6.0)	(5.9)
Purchase of intangible assets	22	-	(2.5)
Net cash flows from investing activities		(192.1)	65.8
Cash flows used in financing activities
Net proceeds from issue of ordinary shares, incl. treasury shares		78.1	3.8
Dividends paid to shareholders	30	(83.8)	(75.6)
Dividends paid to minority interest		-	(0.2)
Interest paid		(23.4)	(20.0)
Purchase of treasury shares		(0.7)	(28.0)
Return of capital	23	(1.2)	(119.2)
Net cash flows used in financing activities		(31.0)	(239.2)
Net increase in cash and cash equivalents		56.4	1.4
Cash and cash equivalents at beginning of year		14.1	11.6
Effect of exchange rate changes on cash and cash equivalents		(0.2)	1.1
Cash and cash equivalents at end of year	16	70.3	14.1

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

The Group classifies cash flows from purchase and disposal of financial assets in its operating cash flows as these transactions are generated by the cash flows associated with the origination and settlement of insurance contract liabilities or capital requirements to support underwriting. Cash of £11.5 million (2008: £155.4 million) from net purchases of financial investments was utilised in operations during the period.

Cash flows relating to participations on syndicates not managed by the Group are included only to the extent that cash is transferred between the Premium Trust Funds and the Group.

Notes to the Accounts

For the year ended 31 December 2009

1.   Summary of significant accounting policies

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

Basis of preparation

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

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

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

The accounting policies adopted in preparing these financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2008, unless otherwise stated.

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

Basis of consolidation

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

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

Adoption of new and revised Standards

(a) Standards, amendments to published standards and interpretations effective on or after 1 January 2009

IAS 39 and IFRS 7, 'Reclassification of financial assets' (amendment), permits an entity to reclassify non-derivative financial assets (other than those designated at fair value through income by the entity upon initial recognition) out of the fair value through income category in particular circumstances. The amendment also permits an entity to transfer from the available-for-sale category to the loans and receivables category, a financial asset that would have met the definition of loans and receivables (if the financial asset had not been designated as available for sale), if the entity has the intention and ability to hold that financial asset for the foreseeable future. The Group did not elect to reclassify any financial assets following adoption of these standards.

IFRS 2 (amendment), 'Share-based payment', deals with vesting conditions and cancellations. It clarifies that vesting conditions are service conditions and performance conditions only. Other features of a share-based payment are not vesting conditions. These features would need to be included in the grant date fair value for transactions with employees and others providing similar services; they would not impact the number of awards expected to vest or valuation thereof subsequent to grant date. All cancellations, whether by the entity or by other parties, should receive the same accounting treatment. The Group and Company has adopted IFRS 2 (amendment) from 1 January 2009. The amendment does not have a material impact on the Group or Company's financial statements.

IFRS 7, 'Financial instruments - Disclosures' (amendment), requires enhanced disclosures about fair value measurement and liquidity risk. The Group adopted the amendment to IFRS 7 with effect from 1 January 2009. This requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:

·  Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);

·  Inputs to a valuation model other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2); and

·  Inputs to a valuation model for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).

The adoption of the amendment results in additional disclosures but there is no impact on the Group's earnings per share. Please see note 3 for further details.

IFRS 8, 'Operating segments', replaces IAS 14, 'Segment reporting', with its requirement to determine primary and secondary reporting segments. Under the requirements of the new standard, the Group's external segment reporting will be based on the internal reporting to the Board of Directors of the Company (in its function as the chief operating decision-maker), which makes decisions on the allocation of resources and assesses the performance of the reportable segments. The application of IFRS 8 does not have any material effects for the Group but has an impact on segment disclosure. The segment results have been amended accordingly.

IAS 1 (revised), 'Presentation of financial statements', which was effective from 1 January 2009, prohibits the presentation of items of income and expenses (that is, 'non-owner changes in equity') in the statement of changes in equity. It therefore requires 'non-owner changes in equity' to be presented separately from owner changes in equity in a statement of comprehensive income. As a result, the Group presents in the consolidated statement of changes in equity all owner changes in equity, whereas all non-owner changes in equity are presented in the consolidated statement of comprehensive income. Comparative information has been re-presented so that it also conforms with the revised standard. As the change in accounting policy only impacts presentation aspects, there is no impact on earnings per share.

IFRIC 16, 'Hedges of a net investment in a foreign operation', clarifies the accounting treatment in respect of net investment hedging. This includes the fact that net investment hedging relates to differences in functional currency not presentation currency, and hedging instruments may be held anywhere in the Group. The requirements of IAS 21, 'The effects of changes in foreign exchange rates', do apply to the hedged item. This interpretation does not have a material impact on the Group's financial statements.

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

In 2009, the Group did not early adopt any new, revised or amended standards.

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

IAS 1 (amendment), 'Presentation of financial statements'. The amendment is part of the IASB's annual improvements project published in April 2009. The amendment provides clarification that the potential settlement of a liability by the issue of equity is not relevant to its classification as current or non current. By amending the definition of current liability, the amendment permits a liability to be classified as non-current (provided that the entity has an unconditional right to defer settlement by transfer of cash or other assets for at least 12 months after the accounting period) notwithstanding the fact that the entity could be required by the counterparty to settle in shares at any time. The Group and Company will apply IAS 1 (amendment) from 1 January 2010. It is not expected to have a material impact on the Group or Company's financial statements.

IAS 24 (amendment), 'Related party disclosures'. The amendment relaxes the disclosures of transactions between government-related entities and clarifies related-party definition. The amendment is not expected to have an impact on the Group or Company's financial statements.

IAS 27 (revised), 'Consolidated and separate financial statements'. The revised standard requires the effects of all transactions with minority interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is re-measured to fair value, and a gain or loss is recognised in profit or loss. The Group will apply IAS 27 (revised) prospectively to transactions with minority interests from 1 January 2010.

IAS 32 (amendment), 'Classification of rights issues'. The amended standard allows rights issues to be classified as equity when the price is denominated in a currency other than the entity's functional currency. The amendment is effective for annual periods beginning on or after 1 February 2010 and should be applied retrospectively. The amendment is not expected to have an impact on the Group or Company's financial statements.

IAS 38 (amendment), 'Intangible assets'. The amendment is part of the IASB's annual improvements project published in April 2009. The amendment clarifies guidance in measuring the fair value of an intangible asset acquired in a business combination and it permits the grouping of intangible assets as a single asset if each asset has similar useful economic lives. The Group and Company will apply IAS 38 (amendment) from 1 January 2010. The amendment will not result in a material impact on the Group or Company's financial statements.

IAS 39 (amendment), 'Financial instruments: Recognition and measurement - eligible hedged items'. The amendment was issued in July 2008. It provides guidance in two situations: on the designation of a one-sided risk in a hedged item, IAS 39 concludes that a purchased option designated in its entirety as the hedging instrument of a one-sided risk will not be perfectly effective. The designation of inflation as a hedged risk or portion is not permitted unless in particular situations. It is not expected to have a material impact on the Group or Company's financial statements.

IFRS 3 (revised), 'Business combinations'. The revised standard continues to apply the acquisition method to business combinations, with some significant changes. For example, all payments to purchase a business are to be recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through the income statement. There is a choice on an acquisition-by-acquisition basis to measure the minority interest in the acquiree either at fair value or at the minority interest's proportionate share of the acquiree's net assets. All acquisition-related costs should be expensed. The Group will apply IFRS 3 (revised) prospectively to all business combinations from 1 January 2010.

IFRS 5 (amendment), 'Measurement of non-current assets (or disposal groups) classified as held for sale'. The amendment is part of the IASB's annual improvements project published in April 2009. The amendment provides clarification that IFRS 5, 'Non-current assets held for sale and discontinued operations', specifies the disclosures required in respect of non-current assets (or disposal groups) classified as held for sale or discontinued operations. It also clarifies that the general requirements of IAS 1 still apply, particularly IAS 1 paragraph 15 (to achieve a fair presentation) and paragraph 125 (sources of estimation uncertainty). The Group and Company will apply IFRS 5 (amendment) from 1 January 2010. It is not expected to have a material impact on the Group or Company's financial statements.

IFRS 9, 'Financial instruments'. IFRS 9 addresses classification and measurement of financial assets and is available for early adoption once endorsed by the EU. IFRS 9 replaces the multiple classification and measurement models in IAS 39 with a single model that has only two classification categories: amortised cost and fair value. IFRS 9 represents the first milestone in the IASB's planned replacement of IAS 39. The effect of adopting IFRS 9 on the Group and Company's financial statements is currently being evaluated.

IFRIC 17, 'Distribution of non-cash assets to owners'. The interpretation is part of the IASB's annual improvements project published in April 2009. It provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to shareholders either as a distribution of reserves or as dividends. IFRS 5 has also been amended to require that assets are classified as held for distribution only when they are available for distribution in their present condition and the distribution is highly probable. The Group and Company will apply IFRIC 17 from 1 January 2010. It is not expected to have a material impact on the Group or Company's financial statements.

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

Critical accounting judgements and key sources of estimation uncertainty

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

Insurance contract liabilities

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

The estimated provision for the total level of claims incurred changes as more information becomes known about the actual losses for which the initial provisions were set up. The change in claims costs for prior period insurance claims represents the claims development of earlier reported years incurred in the current accounting period. In 2009, there has been a net positive development of £174.1 million (2008: £114.7 million) for the Group, reflecting favourable experience in the 2008 and prior reported years. Note 3 provides further details of the method the Group applies in estimating insurance contract liabilities.

Financial investments

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

Intangible assets

Intangible assets are recognised on the acquisition of a subsidiary or the purchase of specific rights to renew a particular underwriting portfolio.

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

Staff incentive plans

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

Retirement benefit obligations

Following the departure of other key remaining employers in the scheme during 2008 the Group is now able to value reliably its proportionate share of the defined benefit obligation, plan assets and post-employment costs associated with its participation in the Lloyd's Superannuation Fund defined benefit scheme. Since the acquisition of Amlin Corporate Insurance N.V., the Group also now operates defined benefit schemes in the Netherlands and Belgium.

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

An expense of £23.7 million (2008: £5.9 million) has been recognised in the Statement of Comprehensive Income and a debit of £2.3 million (2008: £2.6 million credit) has been recognised in the Income Statement. Note 28 provides further details on the Group's retirement benefit obligations.

Foreign currency translation

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

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

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

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

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

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

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

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

Insurance contracts premium

Gross written premium comprise premium on insurance contracts incepting during the financial year. The estimated premium income in respect of facility contracts, for example binding authorities and lineslips, is deemed to be written in full at the inception of the contract. Premium is disclosed before the deduction of brokerage and taxes or duties levied on them. Estimates are included for premium receivable after the period end but not yet notified, as well as adjustments made in the year to premium written in prior accounting periods.

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

Premium is earned over the policy contract period. The earned element is calculated separately for each contract on a 365ths basis. For premium written under facilities the earned element is calculated based on the estimated risk profile of the portfolio of contracts involved.

Acquisition costs

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

Reinsurance premium ceded

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

Insurance contracts liabilities

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

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

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

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

Reinsurance contracts held

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

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

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

Salvage and subrogation reimbursements

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

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

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

Net investment income

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

Segment reporting

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

Business combinations

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

Interests in jointly owned entities

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

Operations held for sale

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

Intangible assets

i. Syndicate capacity

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

ii. Goodwill

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

iii. Other intangible assets

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

Property and equipment

Property and equipment are stated at historical cost less accumulated depreciation and provision for impairment where appropriate. Depreciation is calculated on the straight line method to write down the cost of such assets to their residual values over their estimated useful lives as follows:

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

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

Gains and losses on disposal of property and equipment are determined by reference to their carrying amount and are taken to the income statement. Repairs and renewals are charged to the income statement when the expenditure is incurred.

Financial assets and liabilities

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

Other than investments in certain unlisted insurance intermediaries (see below), the Group and Company classifies its financial investments as FV to the extent that they are not reported as cash and cash equivalents. This classification requires all fair value changes to be recognised immediately within the investment return line in the income statement. Within the FV category, fixed maturity and equity securities are classified as 'trading' as the Group and Company buys with the intention to resell. All other securities are classified as 'other than trading' within the FV category.

The Group and Company has investments in certain unlisted insurance intermediaries which are treated as available-for-sale and are measured at fair value. Changes in fair value of investments are included in Other Comprehensive Income in the period in which they arise. They are tested for impairment annually, or when events or changes in circumstances indicate that an impairment might have occurred. When securities classified as available for sale are sold or impaired, the accumulated fair value adjustments recognised in equity are included in the income statement as 'gains and losses from investment securities'. If in a subsequent period the fair value of an investment classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in the income statement, the impairment loss is reversed through the income statement.

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

Derivative financial instruments

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

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

Loans and receivables

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

Borrowings

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

Borrowing costs

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

Cash and cash equivalents

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

Treasury shares

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

Leases

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

Assets held under finance leases and hire purchase transactions are capitalised in the balance sheet and depreciated over their useful lives. The initial capital value is the lower of the fair value of the leased asset and the present value of the minimum lease payments. Payments under finance leases are apportioned between finance charges and the reduction of the lease obligation so as to achieve a consistent rate of interest on the remaining balance of the lease liability.

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

Employee benefits

i. Pension obligations

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

The Lloyd's Superannuation Fund scheme is a multi-employer defined benefit scheme. Amlin Corporate Insurance N.V., which was acquired by the Group in the year, participates in two defined benefit schemes.

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

The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the fair value of plan assets less the defined benefit obligation at the balance sheet date, together with adjustments for unrecognised past-service costs. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high quality corporate bonds, and that have terms to maturity approximating to the terms of the related pension liability.

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

ii. Equity compensation plans

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

iii. Other benefits

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

Other income

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

Taxation

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

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

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

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

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

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

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

Dividend distribution

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

2.   Capital

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

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

For the purposes of setting Lloyd's capital requirements, Lloyd's currently uplifts all ICAs by 35% (2008: 35%) to bring the capital to a level to support a higher financial strength rating. The final capital requirement is then subject to a minimum of 40% (2008: 40%) of the syndicate's agreed regulatory premium capacity limit.

The syndicate also benefits from mutualised capital within the Lloyd's Central Fund, for which a variable annual levy, for 2009 of 0.5% (2008: 0.5%) of syndicate gross premium is payable.

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

At 31 December 2009 the level of capital held on behalf of the Amlin corporate member was more than £200 million (2008: £200 million) in excess of the Pillar 1 requirement and more than £20 million (2008: £45 million) in excess of the Pillar 2 requirement.

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

Amlin Bermuda's minimum capital requirements are determined by the rules laid down by the Bermuda Monetary Authority (BMA) regulations. It is classified as a Class IV reinsurer and the minimum solvency margin is the greatest of $100 million, 50% of net premiums written in the current financial year, 15% of claims reserves and the Enhanced Capital Requirement (ECR). The ECR is calculated on an annual basis through either the Bermuda Solvency Capital Requirement (BSCR) model or an approved internal model. As at 31 December 2009, the ECR was the largest of the four criteria at approximately $424.6 million (2008: $379.4 million). In addition, as a Class IV reinsurer it is required to maintain minimum liquidity ratio such that the value of "relevant assets" is not less than 75% of its "relevant liabilities". Amlin Bermuda met this requirement at 31 December 2009. For trading purposes management believes that it is necessary to hold at least $1 billion of capital, which is currently in excess of the required minimum.

Amlin Corporate Insurance N.V. (ACI) is required to hold regulatory capital in compliance with the rules issued by its regulator and as prescribed by EU directives. Regulatory capital is calculated by applying fixed percentages to premiums and claims. At 31 December 2009, ACI's available regulatory capital was €308.0 million compared to a minimum requirement of €111.0 million. For wider commercial reasons, ACI's capital is managed so as to support its financial strength ratings.

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

3.   Risk disclosures

3.1           Underwriting risk

The Group accepts underwriting risk in a range of classes of business through Lloyd's Syndicate 2001, Amlin Bermuda and Amlin Corporate Insurance. Syndicate 2001's portfolio is underwritten by Amlin London, Amlin UK and through it's wholly owned coverholder in France, Anglo French Underwriters SAS (AFU). The bias of the Group's portfolio is towards short-tail property and accident risk but liability coverage is also underwritten.

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

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

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

The insurance liabilities underwritten by the Group are reviewed on an individual risk, or contract, basis and through review of portfolio performance. Claims arising are reserved upon notification. Each quarter the entire portfolio of business is subject to a reserving process whereby levels of paid and outstanding (advised but not paid) claims are reviewed. Potential future claims are assessed with a provision for incurred but not reported (IBNR) claims being made. This provision is subject to review by senior executives and an independent internal actuarial assessment is usually carried out by external actuaries or the in-house actuarial team to determine the adequacy of the provision. Whilst a detailed and disciplined exercise is carried out to provide for claims notified, it is possible that known claims could develop and exceed the reserves carried. Furthermore, there is increased uncertainty in establishing an accurate provision for IBNR claims and there is a possibility that claims may arise which in aggregate exceed the reserve provision established. This is partly mitigated by the reserving policy adopted by the Group which is to carry reserves with a margin in excess of the actuarial best estimate.

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

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

Sections A to E below describe the business and the risks of Amlin London, Amlin UK, Anglo French Underwriters, Amlin Bermuda, and Amlin Corporate Insurance.

A. Amlin London

Gross premium by geography	2009 %
Africa	2
Asia	6
Caribbean	4
Europe	10
North America	55
Oceania	3
South & Central America	2
UK	14
Other	4

 

A. (i) Property reinsurance risks

Reinsurance property classes

	2009 Gross premium £m	Current maximum line size £m	2009 Average line size £m
Catastrophe reinsurance (per programme)	233	62	5.0
Per risk property reinsurance (per programme)	79	25	2.1
Proportional reinsurance	46	5	1.0

Notes:

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

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

(3)            Premium is stated gross of acquisition costs.

3.   Risk disclosures continued

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

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

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

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

The portfolio of Reinsurance business is written with the aim of achieving territorial diversification. However, a severe catastrophe to a major economic zone in Europe, Japan, Australasia or the USA is likely to result in an overall loss to the portfolio prior to retrocessional reinsurance.

A. (ii) Other reinsurance risks

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

Aviation, marine and special risks reinsurance classes

	2009 Gross premium £m	Current maximum line size £m	2009 Average line size £m
Aviation reinsurance (per programme)	1	33	3.6
Marine reinsurance (per programme)	19	81	2.2
Special risks	11	17	5.4

Notes:

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

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

(3)            Premium are stated gross of acquisition costs.

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

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

A. (iii) Property insurance risks

Property classes

	2009 Gross premium £m	Current maximum line size £m	2009 Average line size £m
Direct and facultative property	98	21	2.8
Binding authorities	37	2	0.3

Notes:

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

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

(3)            Premium are stated gross of acquisition costs.

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

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

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

A. (iv) US casualty risks

The US casualty portfolio of business provides insurance and reinsurance cover to individuals, or companies, in order to indemnify them against legal liability arising from their activities and actions or for incidents occurring on their property. The account is currently written to a maximum liability of US$6 million on any one claim but average lines are US$0.8 million on any one claim. 2009 gross premium was £38 million.

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

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

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

The Group also writes other property and casualty classes which contribute diversified exposure to the portfolio.

Property and casualty other classes

	2009 Gross premium £m	Current maximum line size £m	2009 Average line size £m
Accident & health	32	3	1.2
Auto	30	3	0.4

Notes:

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

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

(3)            Premium are stated gross of acquisition costs.

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

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

A. (vi) Marine risks

The Group writes a broad account of marine risks with maximum lines as follows:

Marine classes

	2009 Gross premium £m	Current maximum line size £m	2009 Average line size £m
Hull	22	10	1.6
Cargo	33	17	4.1
Energy	52	20	3.6
War and terrorism	28	17	7.8
Specie	9	24	6.3
Bloodstock/ livestock	24	4	0.5
Yacht (hull and liability)	29	5	1.0
Liability	27	57	4.1

Notes:

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

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

(3)            Premium are stated gross of acquisition costs.

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

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

War business includes aviation, marine and on land terrorism coverage and is exposed to single incidents or a series of losses arising from concerted action. A small amount of political risk, confiscation and contract frustration is written.

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

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

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

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

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

3.   Risk disclosures continued

A. (vii) Aviation risks

The Group underwrites a direct and facultative reinsurance account domiciled in most parts of the world. The portfolio is made up of the following classes with maximum lines.

Aviation classes

	2009 Gross premium £m	Current maximum line size £m	2009 Average line size £m
Airline (hull & liability)	22	84	32.7
General aviation (hull & liability)	3	57	18.3
Risk Excess (hull & liability)	8	57	11.6
Airports liability	11	57	28.6
Products	7	50	20.2
Space (hull & liability)	5	46	13.3

Notes:

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

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

(3)            Premium is stated gross of acquisition costs.

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

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

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

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

B. Amlin UK

B. (i) Non motor risks

Non motor classes

	2009 Gross premium £m	Current maximum line size £m	2009 Average line size £m
Employers' liability	13	27	10.0
Public/products liability	9	12	4.2
Professional indemnity	24	7	1.5
UK commercial property/package	31	52	0.5
Financial institutions fidelity and liability	4	6	1.3

Notes:

(1)            Premium is stated gross of acquisition costs.

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

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

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

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

Amlin UK package policies combine one or more of the liability coverages mainly employers' and public liability with motor and/or property damage protection. Stand alone property protection is also within this class, mainly on a 100% basis for small commercial and household properties. The gross line size was increased from £27 million to £52 million in June 2009 reflecting the recruitment of a new underwriting team specialising in property owners business.

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

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

B. (ii) UK motor insurance risks

The Group's motor insurance risk is predominantly UK business covering fire, theft, collision and third party property and bodily injury liability. 2009 gross premium was £81 million. Under the requirements of UK law third party liability coverage is unlimited, but matching reinsurance is purchased. The account is biased towards commercial clients such as coach operators, haulage companies, commercial vehicle fleets and company executive fleets. The Syndicate leads two facilities for fleets involved in the transportation of hazardous waste. There is also a UK agriculture and a specialist private car account written.

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

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

C. Anglo French Underwriters

Syndicate 2001 also writes risks in France through Anglo French Underwriters SAS (AFU). Drawing its business from a large network of brokers across France, AFU is able to offer a wide range of insurance products designed to respond to the needs of both individuals and small to medium-sized corporate clients. Whilst AFU's business is situated predominantly in France it also includes some exposure in Spain. It writes a diverse book of business including property, cargo, professional liability and specie through a network of more than 1,350 independent retail brokers. As anticipated the vast majority of risks bound by AFU have been written on behalf of Syndicate 2001 in 2009 although there continue to be a limited number of policies which do not involve Amlin. The portfolio consists of the following classes with maximum and average line sizes.

AFU classes

	2009 Gross Premium €m	Current Maximum line size €m	2009 Average Line Size €m
Property	23	55	2.6
Marine	2	11	1.8
Specie	3	4	0.3
Professional indemnity	3	3	0.7

Notes:

(1)            Premium are stated gross of acquisition costs.

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

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

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

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

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

D. Amlin Bermuda

Gross premium by geography	2009 %
Africa	1
Asia	6
Caribbean	4
Europe	8
North America	66
Oceania	3
South & Central America	<1
UK	12
Other	<1

Amlin Bermuda was formed in December 2005 to write a short-tail portfolio of reinsurance business on a direct basis and to reinsure part of the Syndicate 2001 portfolio. The direct written portfolio consists of the following classes with maximum line sizes and split by territory.

3.   Risk disclosures continued

Amlin Bermuda direct business risks

	2009 Gross Premium US$m	Current Maximum line size US$m	2009 Average Line Size US$m
Catastrophe reinsurance (per programme)	231	75	8.1
Proportional reinsurance	62	13	1.3
Per risk property reinsurance (per programme)	70	13	3.2
Special risks	11	40	3.4
Marine reinsurance	4	20	5.2
Accident & health	2	10	1.6
Bloodstock	-	10	1.1
Casualty	1	10	2.0

Notes:

(1)            Premium are stated gross of acquisition costs.

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

Property reinsurance is written through treaty arrangements on a proportional, individual risk excess of loss, or catastrophe excess of loss basis. The catastrophe reinsurance portfolio is the largest class of insurance risk written by Amlin Bermuda. Exposures to each programme are currently limited to US$12.5 million per risk and US$75 million any one catastrophe programme, with modelled maximum event limits of US$330 million any one zone and US$360 million for losses affecting more than one zone.

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

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

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

E. Amlin Corporate Insurance

In July 2009 Amlin acquired Fortis Corporate Insurance N.V., subsequently renamed Amlin Corporate Insurance (ACI), a leading commercial insurer operating in the Benelux.

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

ACI classes

	2009 Gross Premium €m	Current Maximum line size €m	2009 Average Line Size €m
Property and engineering	35	50	7.2
Marine	151	25	1.6
Liability	21	25	0.6
Fleet Motor	20	unlimited	unlimited

Notes:

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

(2) Maximum linesize is shown after facultative reinsurance.

(3) Gross premium represents business written since acquisition only

 (4)           Premium is stated gross of acquisition costs.

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

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

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

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

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

Reinsurance arrangements

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

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

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

The combined claims to Syndicate 2001 from several losses which aggregate in a single catastrophe event are protected by catastrophe cover. A separate excess of loss on excess of loss programme may be purchased to protect the excess of loss reinsurance portfolio against such losses. Since 2006, the amount of excess of loss reinsurance purchased is lower and only responds to losses in excess of US$60 million.

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

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

Amlin Bermuda purchased a limited amount of catastrophe excess of loss protection in 2009.

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

Realistic Disaster Scenario (RDS) analysis

The Group has a defined event risk appetite which determines the maximum net loss that the Group intends to limit its exposure with respect to major modelled catastrophe event scenarios. Currently these are a maximum of £180 million for Syndicate 2001 and US$330 million for any one zone or US$360 million for a multi-zonal loss for Amlin Bermuda. ACI operates with a maximum event limit of €30 million for the modelled European storm event.

These maximum losses are expected only to be incurred in extreme events - with an estimated occurrence probability of less than 1 in 50 years estimated for the natural peril or elemental losses. The Group also adopts risk appetite maximum net limits for a number of other non-elemental scenarios, including aviation collision and North Sea rig loss.

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

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

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

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

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

·  Reinstatement premiums both payable and receivable are included.

There is no guarantee that the assumptions and techniques deployed in calculating these event loss estimate figures are accurate. Furthermore, there could also be an unmodelled loss which exceeds these figures. The likelihood of such a catastrophe is considered to be remote, but the most severe scenarios modelled are simulated events and these simulations could prove to be unreliable.

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

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

Process and methodology

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

To establish a provision for IBNR claims, the underwriting and claims teams use their experience and knowledge of the class of business to estimate the potential future development of each class for every underwriting year. The development period varies by class, by method of acceptance and is also determined by the deductible of each policy written. For casualty business, the policy form will determine whether claims can be made on a claims made (as advised) or as a losses occurring (determined by date of loss) basis. This has a significant impact on the reporting period in which claims can be notified. In setting the IBNR provision estimates are made for the ultimate premium and ultimate gross claims value for each underwriting year. Allowance is then made for anticipated reinsurance recoveries to reach a net claim position. Reinsurance recoveries are calculated for outstanding and IBNR claims, sometimes through the use of historical recovery rates or statistical projections, and provisions are made as appropriate for bad debt or possible disputes. The component of ultimate IBNR provision estimates and reinsurance recoveries that relates to future events occurring to the existing portfolio is removed in order to reflect GAAP accounting practice.

3.   Risk disclosures continued

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

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

The process for determining ACI reserves differs slightly in that the ACI actuarial team produce full data on an accident year basis for independent review by external actuaries. The external actuaries produce an independent best estimate by class of business and generate a comparison with ACI's proposed carried reserves. Proposed reserves are generated according to a set formulaic process for the earning of premiums and release of IBNR. These proposed reserves are reviewed by management.

The full reserving submission, including the external actuarial report, is reviewed separately by the Group actuarial team and carried reserves are agreed by the ACI Board.

Areas of uncertainty

The reserves established can be more or less than adequate to meet eventual claims arising. The level of uncertainty varies significantly from class to class but can arise from inadequate case reserves for known large losses and catastrophes or from inadequate provision for IBNR. The impact on profit before tax of a +/- 1% variation in the total net claims reserves would be +/- £20.1 million (2008: £13.3 million).

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

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

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

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

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

Dynamic financial analysis (DFA) modelling of risk

To improve our risk management capability, and our assessment of capital requirements, Amlin has developed a stochastic model to analyse the potential performance of the underwriting businesses. A specific model is currently being developed for ACI. The output from the model includes a distribution of outcomes from reserves for prior written liabilities, investment performance, and new business underwriting performance. The result is a combined view of the expected best estimate mean result and the range of possibilities around it.

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

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

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

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

·  Changing external environmental factors may not be assessed accurately;

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

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

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

The result reproduced below represents the modelled loss sustained by the business from a single 1 in 200 bad year i.e. at the 0.5 percentile. This probability is the calculation benchmark required by the FSA and Lloyd's. However, it does not represent the level of capital required for Amlin to support current and expected business levels, which should be considered over a longer period of modelling. Furthermore, Amlin is required to carry (higher) levels of capital which are sufficient in the eyes of rating agencies and clients. This analysis includes our initial modelling of the Group including the ACI portfolio of assets and liabilities. The paramatisation of the ACI portfolio is at an early stage and therefore this figure will develop as our understanding improves.

2010 forecast	£m
Underwriting risk	(559)
Reserving risk	(113)
Credit (reinsurance counterparty risk)	(42)
Investment (market risk)	26
Liquidity risk	(6)
Discounting credit	33
Diversified result	(661)

Notes:

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

(2)            These figures are derived from Amlin's Group DFA model and based on data as at the end of Q4 2009.

(3)            Excluding any additional capital provision for operational risk.

(4)            No dividend or tax is considered.

(5)            Currency risk is not modelled explicitly.

(6)            Non-sterling amounts have been converted at market rates of exchange as at 2009 Q4 (US$1.61: C$1.69: €1.13)

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

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

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

3. Risk disclosures continued

Premium development

The tables below illustrate the development of the estimate of gross written premium for the consolidated Group (excluding ACI), Amlin London, Amlin UK, Anglo French Underwriters and Amlin Bermuda after the end of the underwriting year, illustrating how amounts estimated have changed from the first estimate made. Tables for Amlin Corporate Insurance have been constructed on an accident year basis. All tables are prepared excluding the effect of intra-group reinsurance arrangements. Non-sterling balances have been converted using 2009 closing exchange rates to aid comparability. 

Group (excluding Amlin Corporate Insurance) Gross written premium Underwriting year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m
At end of underwriting year	1,078.6	1,057.4	1,079.9	1,230.3	1,199.3	1,162.9	1,326.2
One year later	1,080.2	1,069.1	1,080.5	1,252.0	1,198.0	1,165.9
Two years later	1,085.5	1,078.8	1,090.4	1,243.9	1,188.3
Three years later	1,087.2	1,083.2	1,091.5	1,244.9
Four years later	1,087.9	1,083.2	1,091.8
Five years later	1,088.4	1,084.1
Six years later	1,089.0
Current ultimate gross written premium	1,089.0	1,084.1	1,091.8	1,244.9	1,188.3	1,170.1	1,365.8

Gross earned premium Underwriting year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m
At end of underwriting year	575.0	536.5	557.1	665.5	661.7	641.9	743.8
One year later	1,027.6	1,014.9	1,032.0	1,200.3	1,150.5	1,114.9
Two years later	1,085.5	1,078.8	1,090.4	1,243.9	1,188.3
Three years later	1,087.2	1,083.2	1,091.5	1,244.9
Four years later	1,087.9	1,083.2	1,091.8
Five years later	1,088.4	1,084.1
Six years later	1,089.0

Amlin London Gross written premium Underwriting year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m
At end of underwriting year	880.3	885.8	920.4	950.4	890.9	807.1	874.4
One year later	882.8	884.4	913.7	958.3	879.1	794.6
Two years later	877.2	885.5	916.1	950.6	869.7
Three years later	878.4	889.9	918.1	950.7
Four years later	879.1	889.9	918.5
Five years later	879.6	890.8
Six years later	879.9
Current ultimate gross written premium	879.9	890.8	918.5	950.7	869.7	796.7	898.0

Gross earned premium Underwriting year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m
At end of underwriting year	462.1	446.5	476.5	510.0	483.1	439.7	476.4
One year later	837.5	837.4	871.5	918.2	846.4	763.2
Two years later	877.2	885.5	916.1	950.6	869.7
Three years later	878.4	889.9	918.1	950.7
Four years later	879.1	889.9	918.5
Five years later	879.6	890.8
Six years later	879.9

Amlin UK Gross written premium Underwriting year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m
At end of underwriting year	198.3	171.6	156.5	135.9	130.4	137.0	176.8
One year later	197.4	184.7	164.8	151.7	146.9	155.5
Two years later	208.3	193.3	172.3	152.3	147.6
Three years later	208.8	193.3	172.4	152.2
Four years later	208.8	193.3	172.3
Five years later	208.8	193.3
Six years later	209.1
Current ultimate gross written premium	209.1	193.3	172.3	152.2	147.6	157.6	192.8

Gross earned premium Underwriting year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m
At end of underwriting year	112.9	90.0	80.6	72.5	67.6	68.4	87.6
One year later	190.1	177.5	158.5	147.1	140.1	146.9
Two years later	208.3	193.3	172.3	152.3	147.6
Three years later	208.8	193.3	172.4	152.2
Four years later	208.8	193.3	172.3
Five years later	208.8	193.3
Six years later	209.1

Anglo French Underwriters Gross written premium Underwriting year	2008 £m	2009 £m
At end of underwriting year	0.8	27.0
One year later	0.8
Current ultimate gross written premium	0.8	27.0

Gross earned premium Underwriting year	2008 £m	2009 £m
At end of underwriting year	0.8	20.8
One year later	0.8

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

Amlin Bermuda Gross written premium Underwriting year	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m
At end of underwriting year	3.0	144.0	178.0	218.0	248.0
One year later	2.0	142.0	172.0	215.0
Two years later	2.0	141.0	171.0
Three years later	1.0	142.0
Four years later	1.0
Current ultimate gross written premium	1.0	142.0	171.0	215.0	248.0

Gross earned premium Underwriting year	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m
At end of underwriting year	0.0	83.0	111.0	133.0	159.0
One year later	2.0	135.0	164.0	204.0
Two years later	2.0	141.0	171.0
Three years later	1.0	142.0
Four years later	1.0

3.   Risk disclosures continued

Amlin Corporate Insurance Gross written premium Accident year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m
At end of accident year	459.6	499.3	519.4	533.3	586.0	680.8	632.5
One year later	459.6	499.3	519.4	533.3	586.0	680.8
Two years later	459.6	499.3	519.4	533.3	586.0
Three years later	459.6	499.3	519.4	533.3
Four years later	459.6	499.3	519.4
Five years later	459.6	499.3
Six years later	459.6
Current ultimate gross written premium	459.6	499.3	519.4	533.3	586.0	680.8	632.5

Gross earned premium Accident year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m
At end of accident year	454.1	489.6	519.0	528.6	564.1	660.9	663.0
One year later	454.1	489.6	519.0	528.6	564.1	660.9
Two years later	454.1	489.6	519.0	528.6	564.1
Three years later	454.1	489.6	519.0	528.6
Four years later	454.1	489.6	519.0
Five years later	454.1	489.6
Six years later	454.1

Claims development

The tables below illustrate the development of the estimates of ultimate cumulative claims for the consolidated Group (excluding ACI), Amlin London, Amlin UK, Anglo French Underwriters and Amlin Bermuda after the end of the underwriting year, illustrating how amounts estimated have changed from the first estimates made. Tables for Amlin Corporate Insurance have been constructed on an accident year basis. All tables are prepared excluding the effect of intra-group reinsurance arrangements and are prepared on an undiscounted basis. Non-sterling balances have been converted using 2009 exchange rates to aid comparability.

Group (excluding Amlin Corporate Insurance) Gross basis Underwriting year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m
Current ultimate gross written premium	1,089.0	1,084.1	1,091.8	1,244.9	1,188.3	1,170.1	1,365.8
Estimate of cumulative claims
at end of underwriting year	657.6	761.8	1,069.3	636.5	667.4	931.6	729.3
One year later	522.8	755.0	1,113.8	528.0	586.1	787.9
Two years later	445.9	713.8	1,073.9	500.6	534.5
Three years later	423.8	685.1	1,036.7	475.0
Four years later	416.9	669.3	1,018.0
Five years later	407.9	664.6
Six years later	395.9
Cumulative payments	351.1	607.0	917.7	376.7	329.9	375.0	63.0
Estimated balance to pay	44.8	57.6	100.3	98.3	204.6	412.9	666.3

Net basis Underwriting year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m
Estimate of cumulative claims
at end of underwriting year	549.8	612.0	654.1	567.4	585.6	746.1	638.9
One year later	435.8	557.2	641.7	461.2	512.5	618.3
Two years later	372.1	513.5	618.1	448.1	466.8
Three years later	351.7	491.7	588.0	424.4
Four years later	342.6	473.7	574.4
Five years later	334.8	467.8
Six years later	324.8
Cumulative payments	287.2	418.1	487.6	333.6	311.2	302.5	57.9
Estimated balance to pay	37.6	49.7	86.8	90.8	155.6	315.8	581.0

Amlin London Gross basis Underwriting year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m
Current ultimate gross written premium	879.9	890.8	918.5	950.7	869.7	796.7	898.0
Estimate of cumulative claims
at end of underwriting year	511.0	634.3	953.0	488.6	494.0	660.1	479.1
One year later	391.5	641.5	1,000.6	394.0	428.3	547.7
Two years later	342.3	607.9	969.6	368.4	385.0
Three years later	326.1	592.3	945.9	352.5
Four years later	319.0	581.0	927.2
Five years later	319.4	576.3
Six years later	315.0
Cumulative payments	280.2	535.7	850.9	308.3	263.9	267.0	38.1
Estimated balance to pay	34.8	40.6	76.3	44.2	121.1	280.7	441.0

Net basis Underwriting year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m
Estimate of cumulative claims
at end of underwriting year	422.5	500.0	548.9	427.6	419.0	488.4	395.7
One year later	324.7	454.1	539.1	335.5	365.2	391.7
Two years later	278.7	418.9	519.7	322.3	328.4
Three years later	262.6	402.6	498.7	307.4
Four years later	253.4	388.8	485.1
Five years later	253.4	382.9
Six years later	249.5
Cumulative payments	221.0	348.3	420.8	265.8	245.5	194.7	33.0
Estimated balance to pay	28.5	34.6	64.3	41.6	82.9	197.0	362.7

3.   Risk disclosures continued

Amlin UK Gross basis Underwriting year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m
Current ultimate gross written premium	209.1	193.3	172.3	152.2	147.6	157.6	192.8
Estimate of cumulative claims
at end of underwriting year	146.6	127.5	116.3	103.9	102.4	119.1	138.0
One year later	131.3	113.5	112.2	108.0	103.8	125.8
Two years later	103.6	105.9	104.3	103.2	103.5
Three years later	97.7	92.8	90.8	96.5
Four years later	97.9	88.3	90.8
Five years later	88.5	88.3
Six years later	80.9
Cumulative payments	70.9	71.3	66.8	48.4	42.0	36.6	12.9
Estimated balance to pay	10.0	17.0	24.0	48.1	61.5	89.2	125.1

Net basis Underwriting year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m
Estimate of cumulative claims
at end of underwriting year	127.3	112.0	105.2	95.8	95.6	105.3	131.0
One year later	111.1	103.1	101.6	99.7	93.3	112.2
Two years later	93.4	94.6	98.4	96.8	92.4
Three years later	89.1	89.1	89.3	91.0
Four years later	89.2	84.9	89.3
Five years later	81.4	84.9
Six years later	75.3
Cumulative payments	66.2	69.8	66.8	47.8	41.7	36.4	12.9
Estimated balance to pay	9.1	15.1	22.5	43.2	50.7	75.8	118.1

Anglo French Underwriters Gross basis Underwriting year	2008 £m	2009 £m
Current ultimate gross written premium	0.8	27.0
Estimate of cumulative claims
at end of underwriting year	0.4	15.2
One year later	0.4
Cumulative payments	0.4	4.0
Estimated balance to pay	0.0	11.2

Net basis Underwriting year	2008 £m	2009 £m
Estimate of cumulative claims
at end of underwriting year	0.4	15.2
One year later	0.4
Cumulative payments	0.4	4.0
Estimated balance to pay	0.0	11.2

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

Amlin Bermuda Gross basis Underwriting year	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m
Current ultimate gross written premium	1.0	142.0	171.0	215.0	248.0
Estimate of cumulative claims
at end of underwriting year	0.0	44.0	71.0	152.0	97.0
One year later	1.0	26.0	54.0	114.0
Two years later	0.0	29.0	46.0
Three years later	0.0	26.0
Four years later	0.0
Cumulative payments	0.0	20.0	24.0	71.0	8.0
Estimated balance to pay	0.0	6.0	22.0	43.0	89.0

Net basis Underwriting year	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m
Estimate of cumulative claims
at end of underwriting year	0.0	44.0	71.0	152.0	97.0
One year later	1.0	26.0	54.0	114.0
Two years later	0.0	29.0	46.0
Three years later	0.0	26.0
Four years later	0.0
Cumulative payments	0.0	20.0	24.0	71.0	8.0
Estimated balance to pay	0.0	6.0	22.0	43.0	89.0

Amlin Corporate Insurance Gross basis Accident year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m
Current ultimate gross written premium	459.6	499.3	519.4	533.3	586.0	680.8	632.5
Estimate of cumulative claims
at end of accident year	231.3	250.9	276.9	315.0	350.1	562.6	445.2
One year later	262.3	287.7	383.0	329.7	364.5	552.4
Two years later	247.9	267.2	367.5	330.3	390.9
Three years later	243.8	262.1	350.0	316.3
Four years later	235.7	253.0	340.7
Five years later	233.4	226.2
Six years later	232.5
Cumulative payments	200.2	189.7	295.1	247.4	281.2	333.1	94.1
Estimated balance to pay	32.3	36.5	45.6	68.9	109.7	219.3	351.1

Net basis Accident year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m
Estimate of cumulative claims
at end of accident year	194.5	187.5	225.2	257.5	308.5	432.8	415.2
One year later	207.9	217.5	242.4	272.7	308.2	429.7
Two years later	196.9	201.6	224.6	266.2	319.7
Three years later	192.9	196.9	210.0	260.7
Four years later	180.4	186.1	207.4
Five years later	178.6	184.6
Six years later	178.8
Cumulative payments	150.8	152.1	165.9	201.1	222.1	243.4	85.3
Estimated balance to pay	28.0	32.5	41.5	59.6	97.6	186.3	329.9

3.   Risk disclosures continued

3.2           Financial investment risk disclosures

Market risk

Risk management

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

The Group has two main categories of assets:

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

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

Investment governance

Amlin manages its investments in accordance with investment frameworks that are set by the Boards of Amlin plc and its subsidiaries. These frameworks determine investment policy and the management of investment risk. They are reviewed on a regular basis to ensure that the Boards' fiduciary and regulatory responsibilities are being met. The Boards delegate responsibility for the day to day management of the investments to the Investment Management Executive.

The Investment Management Executive comprises the Chief Executive, Group Finance Director and Chief Investment Officer. They meet at least monthly to determine investment tactics, to ensure that asset allocation is appropriate for current market conditions and is in accordance with the investment frameworks. The Investment Management Executive appoints and monitors the external investment managers and the custodians that are responsible for the safekeeping of the assets.

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

Risk tolerance

The investment process is formulated from the risk tolerance which is determined by reference to factors such as the underwriting cycle and the requirements of the capital providers. In a hard underwriting market capital preservation is paramount in order to support the insurance business and, therefore, the risk tolerance for the capital assets will be low. Conversely, the risk tolerance for the underwriting assets under these circumstances will be relatively high due to the strong cash flows. In a soft underwriting market the opposite applies. However, the investment risk tolerance will never be set to such a level to undermine the Group's credit ratings.

During 2009 a bespoke investment risk model has been developed. Investment risk is now independently monitored, using this model, by the Risk Assessment and Monitoring department. The Head of Investment Risk reports regularly to the Investment Management Executive and to the Risk Committee.

Strategic benchmarks

Strategic benchmarks are set for the neutral asset allocation taking account of the risk tolerance.

The expected timescale for future cash flows in each currency is calculated by our Group Actuarial team. These durations form the basis for the strategic benchmarks for the underwriting assets against which the assets are invested. Due to the short tail nature of the Bermudian operations the underwriting assets are currently held in AAA rated stable net asset value liquidity funds.

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

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

Investment management

Specialist external investment managers are used to manage each asset class on a segregated, pooled or commingled basis⁽²⁾. For regulatory reasons, the Corporation of Lloyd's manages overseas regulatory deposits in commingled funds. Otherwise, manager selection is based on a range of criteria that leads to the expectation that the managers will add value to the funds over the medium to long-term. Investment guidelines are set for each manager to ensure that they comply with the investment frameworks. The managers have discretion to manage the funds on a day-to-day basis within these guidelines. The managers are monitored on an ongoing basis.

The managers as at 31 December 2009 were as follows:

Manager	Asset class
Segregated funds
Aberdeen Asset Management	US dollar bonds
AG Insurance	Euro bonds and property funds
ING Real Estate	Global property manager of managers
Insight Investment Management	Sterling and Euro bonds
THS Partners	Global equities
Wellington Management International Ltd	US and Canadian dollar bonds
Pooled vehicles
BlackRock Inc.	Sterling, Euro and US dollar liquidity funds
BlueBay Asset Management	Euro bonds
Crédit Agricole Asset Management	Euro bonds
Fortis Investments Netherlands N.V.	Sterling, Euro and US dollar liquidity funds
Goldman Sachs Asset Management	Sterling, Euro and US dollar liquidity funds and LIBOR plus fund
HSBC Asset Management	US dollar liquidity funds
Insight Investment Management	Sterling liquidity fund
JP Morgan Asset Management	US dollar liquidity funds
Leadenhall Capital Partners	Insurance linked securities
PIMCO	Sterling and US dollar bonds
Western Asset Management	US dollar liquidity fund
Commingled funds
Corporation of Lloyd's Treasury Services	US dollar, Canadian dollar, Australian dollar, South African and Japanese bonds
Union Bank of Switzerland	Canadian and US dollar liquid funds

The funds under management with each manager is shown below:

	Aberdeen £m	AEGON £m	AG Insurance £m	BGI £m	BlueBay £m	CAAM £m	Corporation of Lloyd's £m	Fortis £m	Goldman Sachs £m	HSBC £m	ING £m	Insight £m	JPMorgan £m	Leadenhall Capital £m	PIMCO £m	THS £m	UBS £m	Wellington £m	Western £m	Total £m
Total as at 31 December 2009	356.3	-	432.9	35.1	108.4	61.9	70.9	24.1	516.8	91.8	74.2	974.4	41.9	67.5	569.3	184.3	28.0	423.1	11.2	4,072.1
%	8.7	-	10.6	0.9	2.7	1.5	1.7	0.6	12.7	2.3	1.8	23.9	1.0	1.7	14.0	4.5	0.7	10.4	0.3	100.0
Total as at 31 December 2008	405.4	113.6	-	87.6	-	-	71.2	-	370.7	105.2	94.7	438.7	210.5	23.9	93.7	228.2	24.2	430.5	187.1	2,885.2
%	14.1	3.9	-	3.0	-	-	2.5	-	12.9	3.6	3.3	15.2	7.3	0.8	3.2	7.9	0.8	15.0	6.5	100.0

3.   Risk disclosures continued

Asset allocation

The analysis in this section covers the investments for which Amlin has direct responsibility together with £70.9 million (2008: £71.2 million) of overseas regulatory deposits managed by the Corporation of Lloyd's on Amlin's behalf in commingled funds.

The total value of investments in the following tables is reconciled to note 17 financial investments as follows:

	2009 £m	2008 £m
Net financial investments per note 17	3,965.0	2,868.1
Assets shown separately in the notes to the accounts:
Accrued income	31.1	16.1
Net unsettled payables for investments sold	(5.2)	(15.9)
Net assets of operations classified as held for sale	63.7	-
Deposits with credit institutions	55.0	-
Assets not analysed in the investment risk tables that follow:
Liquid investments	(12.8)	(10.7)
Unlisted equities	(8.9)	(8.6)
Spread syndicates	(4.3)	(3.8)
Derivative hedging instruments	(11.5)	40.0
Total investments in asset allocation tables	4,072.1	2,885.2

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

	31 December 2009			31 December 2008
	Underwriting assets £m	Capital £m	Total £m	Underwriting assets £m	Capital £m	Total £m
Global equities	-	167.3	167.3	-	190.8	190.8
Bonds
Government securities	775.5	412.9	1,188.4	550.7	331.7	882.4
Government index-linked securities	16.5	-	16.5	11.7	-	11.7
Government agencies/guaranteed	168.2	3.3	171.5	163.5	8.7	172.2
Supranational	58.1	-	58.1	33.7	-	33.7
Asset backed securities - Home Equity	-	8.8	8.8	3.5	18.4	21.9
Asset backed securities - Autos	34.0	17.1	51.1	36.7	60.1	96.8
Asset backed securities - Cards	12.6	-	12.6	4.5	-	4.5
Asset backed securities - Other	3.5	-	3.5	5.3	7.5	12.8
Mortgage backed securities - Prime	99.2	35.2	134.4	65.9	40.7	106.6
Mortgage backed securities - Alt A	-	1.8	1.8	2.8	2.6	5.4
Mortgage backed securities - Subprime	-	-	-	-	0.8	0.8
Corporate bonds - Basic Resources/Materials	-	-	-	1.6	-	1.6
Corporate bonds - Consumer Goods	10.7	1.5	12.2	1.4	0.8	2.2
Corporate bonds - Consumer Services	-	6.8	6.8	16.5	14.0	30.5
Corporate bonds - Financials	298.5	43.9	342.4	114.6	23.8	138.4
Corporate bonds - Healthcare	9.4	2.0	11.4	1.2	-	1.2
Corporate bonds - Industrials	16.8	12.1	28.9	6.7	10.4	17.1
Corporate bonds - Miscellaneous	0.3	-	0.3	-	-	-
Corporate bonds - Oil & Gas	4.2	1.4	5.6	4.1	4.4	8.5
Corporate bonds - Technology	5.1	-	5.1	0.5	6.9	7.4
Corporate bonds - Telecoms	5.6	3.8	9.4	5.1	7.1	12.2
Corporate bonds - Utilities	5.0	5.2	10.2	2.0	-	2.0
Pooled vehicles	536.0	540.1	1,076.1	100.5	127.7	228.2
Insurance linked securities	3.0	63.7	66.7	-	22.9	22.9
	2,062.2	1,159.6	3,221.8	1,132.5	688.5	1,821.0
Property funds	-	125.7	125.7	-	83.5	83.5
Other liquid investments
Liquidity funds and other liquid investments	478.6	78.7	557.3	262.9	527.0	789.9
	2,540.8	1,531.3	4,072.1	1,395.4	1489.8	2,885.2

Government agencies/guaranteed bonds at 31 December 2009 include £102.9 million of corporate bonds (2008: £81.3 million) and £12.2 million of mortgage backed securities (2008: £49.1 million).

Pooled vehicles held at 31 December 2009 are bond funds of which 51.5% were government/agency bonds, 20.5% were corporate bonds, 9.7% were mortgage backed and asset backed securities and the remaining 18.3% was held in cash.

3.   Risk disclosures continued

	31 December 2009			31 December 2008
	Underwriting assets %	Capital %	Total %	Underwriting assets %	Capital %	Total %
Global equities	-	10.9	4.1	-	12.8	6.6
Bonds
Government securities	30.5	27.0	29.2	39.5	22.3	30.6
Government index-linked securities	0.7	-	0.4	0.8	-	0.4
Government agencies/guaranteed	6.6	0.2	4.2	11.7	0.6	6.0
Supranational	2.3	-	1.5	2.5	-	1.2
Asset backed securities - Home Equity	-	0.6	0.2	0.3	1.2	0.8
Asset backed securities - Autos	1.3	1.1	1.3	2.6	4.0	3.3
Asset backed securities - Cards	0.6	-	0.3	0.3	-	0.1
Asset backed securities - Other	0.1	-	0.1	0.4	0.5	0.4
Mortgage backed securities - Prime	3.9	2.3	3.3	4.7	2.7	3.7
Mortgage backed securities - Alt A	-	0.1	-	0.2	0.2	0.2
Mortgage backed securities - Subprime	-	-	-	-	0.1	-
Corporate bonds - Basic Resources/Materials	-	-	-	0.1	-	-
Corporate bonds - Consumer Goods	0.4	0.1	0.3	0.1	0.1	0.1
Corporate bonds - Consumer Services	-	0.5	0.2	1.2	0.9	1.1
Corporate bonds - Financials	11.7	2.9	8.4	8.2	1.6	4.8
Corporate bonds - Healthcare	0.4	0.1	0.3	0.1	-	-
Corporate bonds - Industrials	0.7	0.8	0.7	0.5	0.7	0.6
Corporate bonds - Oil & Gas	0.2	0.1	0.1	0.3	0.3	0.3
Corporate bonds - Technology	0.2	-	0.1	-	0.5	0.3
Corporate bonds - Telecoms	0.2	0.2	0.2	0.4	0.5	0.4
Corporate bonds - Utilities	0.2	0.3	0.3	0.1	-	0.1
Pooled vehicles	21.1	35.3	26.4	7.2	8.6	7.9
Insurance linked securities	0.1	4.2	1.6	-	1.5	0.8
	81.2	75.8	79.1	81.2	46.3	63.1
Property funds	-	8.2	3.1	-	5.6	2.9
Other liquid investments
Liquidity funds and other liquid investments	18.8	5.1	13.7	18.8	35.3	27.4
	100.0	100.0	100.0	100.0	100.0	100.0

The industry and geographical splits were as follows:

Global equities

Industry	31 December 2009 Total %	31 December 2008 Total %		Region	31 December 2009 Total %	31 December 2008 Total %
Oil & Gas	13.6	12.5		United Kingdom	20.8	12.0
Basic Materials	2.1	5.0		USA and Canada	23.9	17.1
Industrials	10.9	9.5		Europe (excluding United Kingdom)	43.8	46.7
Consumer Goods and Services	28.3	29.1		Far East	11.5	22.9
Health Care	6.7	5.5		Emerging markets	-	1.3
Telecommunications	12.4	15.2
Utilities	2.4	4.0
Financials	20.9	16.7
Technology	2.7	2.5
	100.0	100.0			100.0	100.0

Corporate bonds

Industry	31 December 2009 Total %	31 December 2008 Total %		Region	31 December 2009 Total %	31 December 2008 Total %
Oil & Gas	1.0	2.7		United Kingdom	9.4	17.7
Basic Materials	-	0.5		USA and Canada	48.1	65.6
Industrials	5.4	5.3		Europe (excluding United Kingdom)	37.8	14.9
Consumer Goods and Services	3.5	10.2		Far East	2.7	1.3
Health Care	2.1	0.4		Emerging markets	2.0	0.5
Miscellaneous	0.1	-
Government	0.5	-
Mortgage Backed Securities	0.2	-
Telecommunications	1.8	3.8
Utilities	1.9	0.6
Financials	82.5	74.2
Technology	1.0	2.3
	100.0	100.0			100.0	100.0

Note: The tables by industry and location include £102.9 million (2008: £81.3 million) of corporate bonds with government guarantees.

Valuation risk

Amlin's earnings are directly affected by changes in the valuations of the investments held in the portfolios. These valuations vary according to the movements in the underlying markets. Factors affecting markets include changes in the economic and political environment, risk appetites, liquidity, interest rates and exchange rates. These factors have an impact on Amlin's investments and are taken into consideration when setting strategic benchmarks and tactical asset allocation. The price of holdings can also vary due to specific risks, such as the corporate strategy and companies' balance sheet structure, which may impact the value of individual equity and corporate bond holdings. This is mitigated by holding diversified portfolios, as specified in the investment guidelines given to the fund managers. These guidelines limit the exposure to any one company, which also mitigates credit risk. In addition, the equity mandate limits the exposure to any one geographic region or industrial sector and the bond mandates limit the overall exposure to non-government holdings.

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

As an additional check, where available, prices as at 31 December 2009 have been verified by Amlin using available quoted prices on Bloomberg to verify that the prices used are a good estimation for fair value. A month to month price check was completed to ensure that any stale prices, defined as prices which are one month old or more, are identified and investigated. As at 31 December 2009 no stale prices were identified. Further details on the fair value measurement of financial assets and financial liabilities are included in note 3.3.

3.   Risk disclosures continued

Interest rate risk

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

	31 December 2009			31 December 2008
	Underwriting assets £m	Capital £m	Total £m	Underwriting assets £m	Capital £m	Total £m
Less than 1 year	106.4	53.2	159.6	32.9	49.9	82.8
1-2 years	162.9	150.2	313.1	144.2	181.3	325.5
2-3 years	262.0	131.0	393.0	145.2	178.4	323.6
3-4 years	373.2	83.5	456.7	232.0	60.2	292.2
4-5 years	254.5	51.7	306.2	189.4	15.7	205.1
Over 5 years	367.2	86.2	453.4	288.3	75.3	363.6
	1,526.2	555.8	2,082.0	1,032.0	560.8	1,592.8

Note: The table above excludes pooled investments of £1,076.1 million (2008: £295.4 million) and £63.7 million (2008: £nil) of insurance linked securities.

The duration of underwriting assets is set with reference to the duration of the underlying liabilities. It should be noted that the liabilities are not currently discounted and therefore their value is not impacted by interest rate movements. Cash is raised, or the duration of the portfolio reduced, if it is believed that yields may rise and therefore capital values fall. Due to the inherently short tail nature of the Bermudian reinsurance exposures, these underwriting assets are all held in liquidity funds.

The durations of the bond and cash portfolios for the underwriting assets of Syndicate 2001 and ACI at year end were as follows:

	31 December 2009		31 December 2008
Underwriting assets	Assets Years	Liabilities Years	Assets Years	Liabilities Years
Sterling	2.4	3.2	2.5	3.2
US dollars	2.0	3.2	3.4	3.1
Euro	3.1	3.1	4.0	4.6
Canadian dollars	2.2	3.8	3.0	4.0

Note: The table above includes pooled investments.

The asset durations above are calculated by the custodian. Some differences occur between custodian durations and those of fund managers due to the use of different prepayment assumptions. As an additional check, where available, durations as at 31 December 2009 have been verified by Amlin using Bloomberg data. In all instances the duration differences are within the ranges permitted by the investment guidelines.

Sensitivity analysis

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

	Syndicate 2001					Bermuda		Amlin Corporate Insurance		Net (reduction)/ increase in value £m
Shift in yield (basis points)	Sterling %	US$ %	CAN$ %	Euro %	Capital Sterling %	U/wtg %	Capital %	U/wtg %	Capital %
100	(2.0)	1.2	1.7	(3.9)	(1.5)	(0.1)	(2.0)	(2.7)	(3.7)	(60)
75	(1.5)	0.9	1.2	(2.9)	(1.1)	(0.0)	(1.5)	(2.0)	(2.8)	(45)
50	(1.0)	0.6	0.8	(1.9)	(0.8)	(0.0)	(1.0)	(1.3)	(1.9)	(30)
25	(0.5)	0.3	0.4	(1.0)	(0.4)	(0.0)	(0.5)	(0.7)	(0.9)	(15)
- 25	0.5	(0.3)	(0.4)	1.0	0.3	0.0	0.5	0.7	0.9	14
- 50	0.9	(0.7)	(0.8)	1.9	0.7	0.0	0.9	1.3	1.9	28
- 75	1.4	(1.0)	(1.2)	2.9	1.0	0.0	1.4	2.0	2.8	43
- 100	1.9	(1.3)	(1.6)	3.9	1.3	0.1	1.8	2.7	3.7	57

Foreign exchange risk

Underwriting assets are held in the base currencies of Sterling, Euros, US dollars and Canadian dollars, which represent the majority of the Group's liabilities by currency. This limits the underwriting foreign exchange rate risk. However, foreign exchange exposure does arise when business is written in non-base currencies. These transactions are converted into Sterling, Euro, or US dollars (depending where the business is written) at the prevailing spot rate once the premium is received. Consequently, there is exposure to currency movements between the exposure being written and the premium being converted. Payments in non-base currencies are converted back into the underlying currency at the time a claim is to be settled, therefore, Amlin is exposed to exchange rate risk between the claim being made and the settlement being paid.

Further foreign exchange risk arises until non-Sterling profits or losses are converted into Sterling. For Amlin's UK operations, it is policy to mitigate foreign exchange risk by systematically converting non-Sterling profits into Sterling. Given the inherent volatility in some business classes, a cautious approach is adopted on the speed and level of sales, but we seek to extinguish all currency risk on earned profit during the second year after the commencement of each underwriting year. This approach avoids the inherent dangers of 'lumpier' sales. It is not the intention to take speculative currency positions in order to make currency gains.

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

	31 December 2009				31 December 2008
Currency risk	Sterling	US$	CAN$	Euro	Sterling	US$	CAN$	Euro
Cash and cash equivalents	13.2	10.7		45.1	14.9	2.2	1.2	(3.0)
Financial assets	1,104.0	2,580.5	123.3	1,405.2	1,065.1	2,384.5	110.0	111.7
Reinsurance assets	38.8	961.5	39.4	217.7	91.2	798.0	28.2	34.0
Loans and receivables	(39.4)	611.8	18.9	171.8	44.2	449.2	21.5	28.7
Current income tax assets	(1.6)	6.7	0.5	4.9	6.9	9.0	0.3	-
Deferred tax assets	16.8	-	-	13.3	10.1	-	-	-
Property and equipment	8.8	0.8	-	0.1	9.1	-	-	-
Intangibles	80.1	-	-	90.7	76.3	-	-	39.0
Investment in jointly owned entity	1.7	-	-	-	1.5	-	-	-
Assets of operation classified as held for sale	64.2	-	-	-	-	-	-	-
Total monetary assets	1,286.6	4,172.0	182.1	1,948.8	1,319.3	3,642.9	161.2	210.4
Insurance contracts	498.6	2,654.7	126.5	1,340.3	439.5	1,711.0	84.9	117.1
Trade and other payables	(23.7)	192.3	0.3	54.7	56.8	83.6	-	7.1
Financial liabilities	12.9	-	-	-	-	-	-	-
Current income tax liabilities	23.7	6.7	-	9.8	2.4	6.6	-	-
Borrowings	228.0	101.5	-	28.9	233.3	99.5	-	-
Retirement benefit obligations	20.0	-	-	4.9	4.0	-	-	-
Deferred tax liabilities	102.1	-	-	25.0	144.6	-	-	-
Liabilities of operation classified as held for sale	0.5	-	-	-	-	-	-	-
Total monetary liabilities	862.1	2,955.2	126.8	1,463.6	880.6	1,900.7	84.9	124.2
Net monetary assets	424.5	1,216.8	55.3	485.2	438.7	1,742.2	76.3	86.2

3.   Risk disclosures continued

As at the end of December 2009 the investment managers held some forward foreign exchange contracts in their portfolios to hedge non-base currency investments. These were transacted with banks with a short term rating of at least A1 and are marked to market in investment valuations.

The Group is subject to foreign exchange risk as a result of the translation of the Group companies that have a functional currency different from the presentation currency of the Group which is Sterling. In particular, as Amlin reports its financial statements in Sterling, it is subject to foreign exchange risk due to the impact of changes in the Sterling/US dollar exchange rate on the converted Sterling value of Amlin Bermuda Ltd's US dollar net assets, and changes in the Sterling/Euro exchange rate on the converted sterling value of Amlin Corporate Insurance's Euro net assets. At 31 December 2009 these amounted to US$1,580.6 million and €316.6 million (2008: US$1,389.5 million and €nil). Foreign exchange gains and losses on investments in overseas subsidiaries are taken directly to reserves in accordance with IAS 21 'The Effects of Changes in Foreign Exchange Rates'. The loss taken to reserves for the year ended 31 December 2009 was £92.8 million (2008: £260.8 million gain). This reflects the movement in the US dollar rate from 1.46 at the start of the year to 1.61 at the balance sheet date and the movement in the Euro rate from 1.16 at acquisition of Amlin Corporate Insurance to 1.13 at the balance sheet date.

In order to mitigate the impact of these currency fluctuations, the Group adopts a policy of hedging up to 50% of the net currency exposure resulting from Amlin Bermuda Ltd and Amlin Corporate Insurance's capital assets. Hedges in the form of options were accounted for as hedges of net investment in overseas subsidiaries in line with the hedge accounting rules of IAS 39 'Financial Instruments: Recognition and Measurement' such that all realised and unrealised fair value gains and losses on the hedging instruments are taken to reserves to match the underlying movement in the valuation of the net investment in overseas subsidiaries. At the year end hedges were in place for US$706 million and €175 million. These were in the form of long Sterling calls/US dollar puts funded by short Sterling puts/US dollar calls and long Sterling calls/Euro puts funded by short Sterling puts/Euro calls. The net valuation of these trades was £7.0 million asset (2008: £54.7 million liability) as at the year end. The net accumulated realised and unrealised gain from hedging options recognised in reserves was £29.3 million (2008: £74.7 million loss) as at the year end.

The Group is also subject to foreign exchange risk as a result of a US dollar loan from Amlin Bermuda Ltd to Amlin plc for US$169 million at 31 December 2009 (31 December 2008: US$ nil). The resulting exposure to Sterling/US dollar exchange rate movements is fully hedged. The hedges are in the form of long Sterling puts/US dollar calls funded by short Sterling calls/US dollar puts. The valuation of these trades as at the year end was £1.6 million (31 December 2008: £ nil).

If the USD/GBP exchange rate were to deteriorate/(improve) by 10%, the movement in the net underwriting assets and liabilities and borrowings of the Group, excluding overseas subsidiaries, would result in a £2.7 million foreign exchange gain/£2.4 million loss in the Group income statement at 31 December 2009. If the EUR/GBP exchange rate were to deteriorate/(improve) by 10%, the movement in the net underwriting assets and liabilities and borrowings of the Group, excluding overseas subsidiaries, would result in a £4.1 million foreign exchange gain/£3.8 million loss in the Group income statement at 31 December 2009.

In relation to translation of overseas subsidiaries, the same exchange rate improvement would result in a £71.0 million decrease in exchange gains through consolidated reserves. This decrease would be offset by a valuation gain of £38.4 million on the hedges in place. The same exchange rate deterioration would result in an additional £98.0 million exchange gain through consolidated reserves. This gain would be offset by a valuation loss of £32.1 million on the hedges in place.

Liquidity risk

It is important to ensure that claims are paid as they fall due. Levels of cash are therefore managed on a daily basis. Buffers of liquid assets are also held in excess of the immediate requirements to reduce the risk of being forced sellers of any of our assets, which may result in prices below fair value being realised, especially in periods of below normal investment market liquidity.

The Group funds its insurance liabilities with a portfolio of cash and debt securities exposed to market risk and foreign exchange risk. The following table indicates the contractual timing of cash flows arising from assets and liabilities for management of insurance contracts as of 31 December 2009:

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

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

		Contractual cash flows (undiscounted)
As at 31 December 2008 Financial assets	No stated maturity	0-1 yr	1-3 yrs	3-5 yrs	>5 yrs	Carrying amount
Shares and other variable yield securities	274.3	-	-	-	-	274.3
Debt and other fixed income securities	228.1	82.9	649.2	497.3	363.5	1,821.0
Liquidity funds and other liquid investments	789.9	-	-	-	-	789.9
Total	1,292.3	82.9	649.2	497.3	363.5	2,885.2

		Expected cash flows (undiscounted)
Insurance liabilities	No stated Maturity	0-1 yr	1-3 yrs	3-5 yrs	>5 yrs	Carrying amount
Insurance contracts	-	781.8	521.7	218.9	170.4	1,692.8
Less assets arising from reinsurance contracts held	-	(145.3)	(120.8)	(45.3)	(49.4)	(360.8)
Total	-	636.5	400.9	173.6	121.0	1,332.0
Difference in contractual cash flows	1,292.3	(553.6)	248.3	323.7	242.5	1,553.2

Derivative financial instruments are included in the contractual cash flows (undiscounted) for financial assets at 31 December 2009 following the amendment to IFRS 7 'Financial Instruments - Disclosures' as noted in the accounting policies.  No retrospective application is required.

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

Credit risk

Credit risk is the risk that the Group becomes exposed to loss if a counterparty fails to perform its contractual obligations, including failure to perform them in a timely manner. Credit risk could therefore have an impact upon the Group's ability to meet its claims as they fall due. Credit risk can also arise from underlying causes that have an impact upon the creditworthiness of all counterparties of a particular description or geographical location. Amlin is exposed to credit risk in its investment portfolio and with its premium and reinsurance debtors.

As well as actual failure of a counterparty to perform its contractual obligations, the price of corporate bond holdings will be affected by investors' perception of a borrower's ability to perform these duties in a timely manner. Credit risk within the investment funds is managed through the credit research carried out by the investment managers. The investment guidelines are designed to mitigate credit risk by ensuring diversification of the holdings. For each portfolio there are limits to the exposure to single issuers and to the total amount that can be held in each credit quality rating category, as determined by reference to credit rating agencies.

£26.5 million (2008: £59.0 million) bonds held at 31 December 2009 were subject to downgrades during the year.

The table below shows the breakdown at 31 December 2009 of the exposure of the bond portfolio and reinsurance debtors by credit quality⁽⁵⁾. The table also shows the total value of premium debtors, representing amounts due from policyholders. The quality of these debtors is not graded, but based on historical experience there is limited default risk relating to these amounts. The reinsurance debtors represent the amounts due at 31 December 2009 as well as amounts expected to be recovered on unpaid outstanding claims (including IBNR) in respect of earned and unearned risks. Reinsurance debtors are stated net of provisions for bad and doubtful debts.

Credit risk is managed through the employment of key controls that include broker approval, annual financial review and internal rating of brokers and regular monitoring of premium settlement performance. The credit risk in respect of reinsurance debtors is primarily managed by review and approval of reinsurance security by the Group's Reinsurance Security Committee, prior to the purchase of the reinsurance contract. Guidelines are set, and monitored, that restrict the purchase of reinsurance security based on the Group's own ratings for each reinsurer and Standard & Poor's ratings. The Group holds collateral from certain reinsurers including those that are non-rated. Provisions are made against the amounts due from certain reinsurers, depending on the age of the debt and the current rating assigned to the reinsurer. The impact on profit before tax of a 1% variation in the total reinsurance debtors would be £4.7 million (2008: £3.9 million).

3.   Risk disclosures continued

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

At 31 December 2009 the Group held collateral of £85.2 million as security against potential default by reinsurance counterparties.

31 December 2008	Debt securities £m	%	Money Market funds and cash £m	%	Insurance and reinsurance premium debtors £m	%	Reinsurance debtors £m	%
AAA	1,406.4	77.2	779.3	100.0	-	-	8.3	2.1
AA	225.4	12.4	-	-	-	-	162.0	41.6
A	99.3	5.4	-	-	-	-	201.8	51.9
BBB	70.4	3.9	-	-	-	-	2.3	0.6
Other	19.5	1.1	-	-	467.3	100.0	14.5	3.8
	1,821.0	100.0	779.3	100.0	467.3	100.0	388.9	100.0

The table below shows the credit rating of the Group's asset and mortgage backed debt securities and corporate bonds.

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

Non-government bonds 31 December 2008	Total £m	AAA	AA	A	BBB	Other
Corporate - Financials	138.4	29.9%	21.1%	48.0%	6.0%	-
Corporate - Other	82.7	16.2%	3.6%	32.8%	47.4%	-
Mortgage backed securities	161.9	95.7%	0.2%	1.6%	2.0%	0.5%
Asset backed securities	136.0	79.3%	6.8%	1.4%	12.4%	0.1%
Insurance linked securities	22.9	-	-	7.9%	10.8%	81.3%

The table excludes £102.9 million (2008: £81.3 million) of corporate bonds with explicit government guarantees. The table includes £12.2 million (2008: £49.1 million) of government agency mortgage backed securities.

3.3 Fair value methodology

For financial instruments carried at fair value, we have categorised the measurement basis into a fair value hierarchy that prioritises the inputs to the respective valuation techniques used to measure fair value:

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

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

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

Shares and other variable yield securities

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

Debt and other fixed income securities

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

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

Property funds

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

Participation in investment pools

These are liquidity funds, which are valued using the fund manager's net asset valuation and are highly liquid.  These are classified as Level 1.

Derivatives

Listed derivative contracts, such as futures, that are actively traded are valued using quoted prices from the relevant exchange and are classified as Level 1. Over-the-counter currency options are valued by the counterparty using quantitative models with multiple market inputs. The market inputs are observable and the valuation can be validated through external sources. These are classified as Level 2.

3.   Risk disclosures continued

	Fair Value Hierarchy			Total 2009 £m
	Level 1 £m	Level 2 £m	Level 3 £m
Assets
Financial assets held for trading at fair value through income
Shares and other variable yield securities	167.3	-	-	167.3
Debt and other fixed income securities	2,231.2	923.0	6.2	3,160.4
Property funds	-	-	125.7	125.7
Other financial assets at fair value through income
Participation in investment pools	500.6	-	-	500.6
Deposits with credit institutions	6.7	-	-	6.7
Derivative instruments	0.2	24.2	-	24.4
Other	-	1.3	8.5	9.8
Available for sale financial assets
Unlisted equities	-	-	8.9	8.9
Total assets	2,906.0	948.5	149.3	4,003.8
Liabilities
Derivative instruments	(0.3)	(12.6)	-	(12.9)
Total liabilities	(0.3)	(12.6)	-	(12.9)
Net financial assets	2,905.7	935.9	149.3	3,990.9
Assets shown separately in the notes to the accounts
Accrued income				(31.1)
Net unsettled payables for investments sold				5.2
				(25.9)
Total				3,965.0

The table below shows the reconciliation of movements in Level 3 investments during the year:

	Total £m
Balance at 1 January 2009	92.3
Total net losses recognised in the income statement	(17.0)
Net purchases	2.2
Acquisitions through business combination	73.7
Foreign exchange losses	(1.9)
Balance at 31 December 2009	149.3
Total losses for the period included in income for assets and liabilities held at the end of the reporting period	(16.9)

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

4.   Segmental reporting

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

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

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

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

·  Anglo French Underwriters, which writes a diverse book of specialty business in France via Syndicate 2001;

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

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

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

Transactions between segments are carried out at arm's length. The revenue from external parties reported to the Board of Directors is measured in a manner consistent with that in the income statement. Revenues are allocated based on the country in which the insurance contracts are issued. Management considers its external customers to be the individual policyholders, as such the Group is not reliant on any individual customer. Comparative information has been restated in line with the requirements of IFRS 8.

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

Income and expenses by business segment Year ended 31 December 2009	Amlin London £m	Amlin UK £m	Anglo  French Underwriters £m	Amlin Bermuda £m	Amlin Corporate Insurance £m	Other corporate companies £m	Intra group  items £m	Total £m
Analysed by geographic segment
UK	120.9	164.5	-	185.6	-	-	(157.1)	313.9
US	434.7	0.1	-	161.7	-	-	-	596.5
Europe	88.8	7.4	28.9	19.9	83.8	-	-	228.8
Worldwide	63.5	15.5	-	-	141.4	-	-	220.4
Other	147.8	3.4	-	33.0	-	0.1	-	184.3
Gross written premium	855.7	190.9	28.9	400.2	225.2	0.1	(157.1)	1,543.9
Gross earned premium	788.7	167.6	22.6	374.7	321.8	0.6	(134.4)	1,541.6
Reinsurance premium ceded	(251.2)	(26.2)	(3.0)	(3.5)	(55.5)	-	115.1	(224.3)
Net earned premium	537.5	141.4	19.6	371.2	266.3	0.6	(19.3)	1,317.3
Insurance claims and claims settlement expenses	(234.7)	(94.2)	(11.9)	(138.5)	(173.0)	1.6	85.6	(565.1)
Reinsurance recoveries	81.4	19.5	2.1	0.1	(17.9)	0.2	(84.5)	0.9
Underwriting expenses	(229.2)	(39.2)	(7.3)	(71.0)	(64.2)	5.4	18.2	(387.3)
Profit attributable to underwriting	155.0	27.5	2.5	161.8	11.2	7.8	-	365.8
Investment return	40.6	22.9	0.4	72.3	53.8	17.5	-	207.5
Other operating income	0.1	0.1	-	1.9	0.8	7.2	-	10.1
Agency expenses (1)	(16.5)	(3.8)	(0.4)	-	-	-	20.7	-
Other non-underwriting expenses	(1.7)	(0.3)	-	13.6	(11.4)	(51.5)	-	(51.3)
Finance costs (2)								(23.0)
Profit before taxation								509.1
Combined ratio	71%	81%	87%	56%	96%			72%

Included within the gross written premium of Amlin Bermuda is premium ceded from Amlin London, Amlin UK and Anglo French Underwriters amounting to £157.1 million on reinsurance contracts undertaken at commercial rates (2008: £106.0 million).

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

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

4.   Segmental reporting continued

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

Included in assets are the following:

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

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

Depreciation has been charged on property and equipment for the year amounting to £4.8 million (2008: £3.3 million) of which £1.3 million (2008: £0.7 million) has been charged to Amlin London, £0.8 million (2008: £0.5 million) to Amlin UK, £0.2 million (2008: £nil million) to Anglo French Underwriters, £0.5 million (2008: £1.0 million) to Amlin Bermuda and £2.0 million to Amlin Corporate Insurance.

Segmental information for the year ended 31 December 2008 has been restated to be consistent with the disclosure for the year ended 31 December 2009.  The only change to the previously reported disclosures has been the aggregation of the Non-marine, Marine and Aviation divisions within Syndicate 2001 into the Amlin London segment.

Income and expenses by business segment Year ended 31 December 2008	Amlin London £m	Amlin UK £m	Amlin Bermuda £m	Other corporate companies(3) £m	Intra group items £m	Total £m
Analysed by geographic segment
UK	110.7	136.8	125.0	0.5	(106.0)	267.0
US	317.0	-	124.2	-	-	441.2
Europe	82.7	5.3	16.3	-	-	104.3
Worldwide	33.4	1.0	-	-	-	34.4
Other	145.9	9.7	31.5	-	-	187.1
Gross written premium	689.7	152.8	297.0	0.5	(106.0)	1,034.0
Gross earned premium	709.8	144.4	271.7	2.3	(100.4)	1,027.8
Reinsurance premium ceded	(182.1)	(22.6)	(0.3)	-	90.7	(114.3)
Net earned premium	527.7	121.8	271.4	2.3	(9.7)	913.5
Insurance claims and claims settlement expenses	(457.0)	(68.0)	(176.7)	0.7	73.2	(627.8)
Reinsurance recoveries	189.0	9.2	-	0.2	(71.3)	127.1
Underwriting expenses	(110.5)	(37.8)	(48.5)	(1.6)	7.8	(190.6)
Profit attributable to underwriting	149.2	25.2	46.2	1.6	-	222.2
Investment return	41.1	32.0	(48.5)	(6.6)	-	18.0
Other operating income	1.7	0.8	-	0.2	-	2.7
Agency expenses(1)	(19.2)	(3.4)	-	-	22.6	-
Other non-underwriting expenses	(7.9)	(0.2)	(45.7)	(46.3)	-	(100.1)
Finance costs(2)						(21.2)
Profit before taxation						121.6
Combined ratio	72%	79%	83%			76%

(1)            Agency expenses allocated to segments represent fees and commission payable to Amlin Underwriting Limited.

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

(3)            Anglo French Underwriters was acquired in November 2008. For the comparative year to 31 December 2008, one month's income has been included within Other corporate companies.

Assets and liabilities by business segment At 31 December 2008	Amlin London £m	Amlin UK £m	Amlin Bermuda £m	Other corporate companies £m	Intra group items £m	Total £m
Assets	1,831.9	565.6	1,367.1	3,044.8	(2,633.1)	4,176.3
Liabilities	(1,664.5)	(511.0)	(415.4)	(1,517.1)	1,147.8	(2,960.2)
Total net assets	167.4	54.6	951.7	1,527.7	(1,485.3)	1,216.1

Included in assets are the following:

At 31 December 2008	Amlin London £m	Amlin UK £m	Anglo French Underwriters £m	Amlin Bermuda £m	Other corporate companies £m	Intra group items £m	Total £m
Investments in joint venture	-	-	-	-	1.5	-	1.5
Additions to non-current assets	1.6	11.3	27.6	6.2	-	-	46.7

5.   Net earned premium

	2009 £m	2008 £m
Insurance contracts premium
Gross written premium	1,543.9	1,034.0
Change in unearned premium provision	(2.3)	(6.2)
Gross earned premium	1,541.6	1,027.8
Reinsurance premium
Reinsurance premium payable	(221.3)	(118.3)
Change in unearned reinsurance premium provision	(3.0)	4.0
Reinsurance earned premium	(224.3)	(114.3)
Net earned premium	1,317.3	913.5

6.   Investment return

	2009 £m	2008 £m
Investment income
- dividend income	5.2	11.9
- interest income	84.7	59.7
- cash and cash equivalents interest income	3.4	34.6
	93.3	106.2
Net realised gains/(losses)
on assets held for trading
- equity securities	(86.4)	(4.8)
- debt securities	72.8	16.9
- property funds	(6.0)	(1.8)
on assets classified as other than trading
- derivative instruments	(37.9)	12.0
	(57.5)	22.3
Net unrealised gains/(losses)
on assets held for trading
- equity securities	115.5	(89.0)
- debt securities	40.9	(15.3)
- property funds	(10.9)	(6.2)
on assets classified as other than trading
- derivative instruments	26.2	-
	171.7	(110.5)
	207.5	18.0

7.   Insurance claims and loss adjustment expenses

	2009 £m	2008 £m
Gross claims and loss adjustment expenses
Current year insurance claims and loss adjustment expenses	781.6	764.3
Reduced costs for prior period insurance claims	(216.5)	(136.5)
	565.1	627.8
Reinsurance claims
Current year insurance claims and loss adjustment expenses recoverable from reinsurers	(43.3)	(148.9)
Reduced costs for prior period claims recoverable from reinsurers	42.4	21.8
	(0.9)	(127.1)
Total net insurance claims and loss adjustment expenses	564.2	500.7

8.   Expenses for the acquisition of insurance contracts

	2009 £m	2008 £m
Expenses for the acquisition of insurance contracts	276.6	191.8
Changes in deferred expenses for the acquisition of insurance contracts	(9.2)	1.2
	267.4	193.0

9.   Other operating expenses

	2009 £m	2008 £m
Expenses relating to underwriting
Employee expenses, excluding employee incentives	44.7	28.8
Lloyd's expenses	13.6	17.2
Other administrative expenses	34.3	27.1
Underwriting exchange losses /(gains) (note 15)	27.3	(75.5)
	119.9	(2.4)
Other expenses
Employee expenses, excluding employee incentives	16.4	9.5
Employee incentives	36.6	21.5
Asset management fees	4.7	3.4
Other administrative expenses	15.1	9.1
ACI disentanglement costs	11.2	-
Group company exchange (gains)/losses (note 15)	(32.7)	56.6
	51.3	100.1
	171.2	97.7

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

10. Directors' remuneration

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

	2009 £m	2008 £m
Emoluments of executive directors (including payments made under long term incentive plans)	5.0	6.5
Fees to non-executive directors	0.5	0.5
	5.5	7.0
Pension contributions	0.2	0.2
	5.7	7.2

11. Employee benefit expenses

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

	2009	2008
Underwriting divisions
Underwriting, claims and reinsurance	659	365
Administration and support	215	171
Central functions
Operations	115	70
Finance	105	78
Internal audit and compliance	13	11
	1,107	695

	2009	2008
By location
UK	681	665
Bermuda	28	23
Continental Europe (excluding UK)	391	3
Singapore	5	3
US	2	1
	1,107	695

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

	2009 £m	2008 £m
Wages and salaries	58.8	38.3
Employee incentive and related social security costs	36.6	21.5
Share options granted to directors and employees (note 24)	2.4	2.1
Social security costs	7.4	5.3
Pension costs - defined contribution schemes (note 28)	4.1	3.7
Pension costs - defined benefit schemes (note 28)	2.3	(2.6)
	111.6	68.3

12. Finance costs

	2009 £m	2008 £m
Letter of credit commission	1.5	2.1
Subordinated bond interest	20.7	19.0
Bank charges	-	0.1
Other similar charges	0.8	-
	23.0	21.2

13. Profit before tax

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

	2009 £m	2008 £m
Depreciation
- owned assets (note 21)	4.8	3.3
Amortisation (note 22)	4.3	1.4
Operating lease charges	5.5	3.8
Foreign exchange gains	(5.4)	(18.9)

Following the completion of the acquisition of Amlin Corporate Insurance N.V. in July 2009, the audit of the companies in the Amlin Group was spread between three audit firms. The Board, on the recommendation of the Audit Committee, made the decision to put the Group audit out to competitive tender. PricewaterhouseCoopers LLP (PwC) was successful in that process.

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

	2009 £'000		2008 £'000
Amounts charged to the income statement	PwC	Deloitte
Audit of the Company's annual accounts	120.4	32.9	83.6
Audit of subsidiary companies	626.9	14.6	423.1
Taxation advice	165.6	-	36.0
ACI acquisition advisory fees (capitalised as part of acquisition expenses)	-	1,346.5	-
Other audit	16.5	-	26.4
	929.4	1,394.0	569.1

14. Tax

	2009 £m	2008 £m
Current tax - current year
UK corporation tax	94.8	22.9
Foreign tax suffered	(0.6)	-
	94.2	22.9
Current tax - prior year
UK corporation tax	(1.0)	(2.8)
Deferred tax - current year
Movement for the year	(38.2)	20.6
Deferred tax - prior year
Movement for the year	(0.7)	0.5
Taxes on income	54.3	41.2

14. Tax continued

In addition to the above, deferred tax of £14.5 million on taxable items taken through equity has been credited directly to equity (2008: £2.8 million credited) as follows:

	2009 £m	2008 £m
Deferred tax on actuarial (losses)/gains on defined benefit pension scheme	(5.8)	(2.3)
Deferred tax on intangible assets	0.4	-
Current tax on taxable foreign exchange (losses)/gains charged to equity	(9.6)	-
Deferred tax on share options	0.5	-
Other items	-	0.5
Taxes (credited)/charged to equity	(14.5)	(2.8)

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

Deferred tax is provided on the annually accounted underwriting result with reference to the forecast ultimate result of each of the years of account included in the annually accounted underwriting. Where the forecast ultimate result for a year of account is a taxable profit, but the result recognised in the accounts is a loss to date on annually accounted basis, deferred tax is only provided for the movement on that year of account included in the period's annually accounted Syndicate underwriting result to the extent that forecasts show that the taxable loss will be utilised in the foreseeable future. The deferred tax liability carried forward on the annually accounted underwriting result is £96.5 million (2008: £122.9 million).

Deferred tax assets on loss provisions in respect of non-aligned syndicate participations (see note 18) 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 syndicate loss participation provisions of £0.2 million (2008: £1.0 million).

Reconciliation of tax expense

The UK standard rate of corporation tax is 28.0% (2008: 28.5%), whereas the tax charged for the year ended 31 December 2009 as a percentage of profit before tax is 10.7% (2008: 33.9%). The reasons for this difference are explained below:

	2009 £m	2009 %	2008 £m	2008 %
Profit before tax	509.1		121.6
Taxation on profit on ordinary activities at the standard rate of corporation tax in the UK	142.5	28.0	34.7	28.5
Non-deductible or non-taxable items	(2.4)	(0.5)	0.2	-
Tax rate differences on overseas subsidiaries	(69.7)	(13.7)	9.7	8.0
Over provision in respect of prior periods	-	-	(2.3)	(1.8)
Reduction in future UK tax rate	-	-	(1.1)	(0.8)
Release of deferred tax provision on prior year Bermudian profits	(16.1)	(3.1)	-	-
Taxes on income	54.3	10.7	41.2	33.9

The Group's tax provision for 2009 has been prepared on the basis that the Group's Bermudian subsidiaries are non-UK resident for UK corporation tax purposes. The corporation tax rate for Bermudian companies is currently nil% (2008: nil%).

At 31 December 2008 a deferred tax liability of £16.1 million was provided for on profits of the Group's overseas subsidiaries expected to be distributed in the foreseeable future. Following the enactment of the Finance Act 2009, which exempts most overseas dividends from the UK corporation tax, the deferred tax liability provided at 31 December 2008 has been released.

Deferred tax has been provided for at the local tax rate in force when the temporary differences are expected to reverse. The tax rate used for the UK is 28.0% (2008: 28.5%).

The Group is subject to US tax on US underwriting profits. No provision has been made in respect of such tax arising in 2009 (2008: £nil) as any net provision is likely to be immaterial and would be offset by brought forward US tax losses in the Group.

14. Tax continued

Deferred tax

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

	Provisions for losses £m	Other provisions £m	Pension provisions £m	Other timing differences £m	Total £m
At 1 January 2008	1.0	5.2	0.8	6.4	13.4
Movements in the year	-	(0.5)	1.0	(2.8)	(2.3)
At 31 December 2008	1.0	4.7	1.8	3.6	11.1
Opening balances on acquisition	-	-	-	17.1	17.1
Movements in the year	(0.8)	1.0	4.7	(4.0)	0.9
At 31 December 2009	0.2	5.7	6.5	16.7	29.1

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

	Underwriting results £m	Unrealised capital gains £m	Syndicate capacity £m	Overseas earnings £m	Other timing differences £m	Intangibles £m	Total £m
At 1 January 2008	102.9	0.1	4.5	20.3	0.3	-	128.1
Movements in the year	20.0	(0.1)	0.8	(4.2)	-	-	16.5
At 31 December 2008	122.9	-	5.3	16.1	0.3	-	144.6
Opening balances on acquisition	-	4.4	-	-	2.0	16.6	23.0
Movements in the year	(26.4)	-	0.8	(16.1)	(1.6)	0.7	(42.6)
At 31 December 2009	96.5	4.4	6.1	-	0.7	17.3	125.0

No deferred tax asset has been recognised on US net operating losses of £nil million (2008: £26.5 million) carried forward due to uncertainty over their future use.

Deferred tax of £20.9 million (2008: £54.1 million) is expected to be settled after more than 12 months from the balance sheet date.

15. Net foreign exchange gains/(losses)

The Group recognised net foreign exchange gains of £5.4 million (2008: £18.9 million net gain) in the income statement during the year.

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

Included within the Group's foreign exchange gain in the income statement is:

	2009 £m	2008 £m
Net gains on underwriting transactions and translation of underwriting assets and liabilities at closing rates	1.7	17.4
(Losses)/gains arising from the treatment of net non-monetary assets and liabilities at historical average rates	(29.0)	58.1
Underwriting exchange (losses)/gains	(27.3)	75.5
Gains/(losses) on long-term US dollar borrowings	6.4	(18.1)
Gains/(losses) on Sterling capital assets held in Amlin Bermuda Ltd (note 3)	25.2	(41.3)
Net gains on non-underwriting transactions and translation of non-underwriting assets and liabilities at closing rates	1.1	2.8
Non underwriting exchange gains/(losses)	32.7	(56.6)
	5.4	18.9

15. Net foreign exchange gains/(losses) continued

In addition, the following exchange movements have been charged directly to equity:

	2009 £m	2008 £m
(Losses)/gains on translation of overseas subsidiaries
- Amlin Bermuda Ltd	(98.5)	256.5
- Anglo French Underwriters	-	(0.4)
- Amlin Corporate Insurance N.V.	7.3	-
	(91.2)	256.1
Gains/(losses) on derivative instruments hedging investments in overseas operations	29.3	(74.7)
(Losses)/gains on translation of intangibles	(1.6)	4.7
	(63.5)	186.1

Amlin Bermuda Ltd, which reports in US dollars, held Sterling assets of £nil million at 31 December 2009 (2008: £182.1 million). Sterling assets held during the year produced a foreign exchange gain of £25.2 million (2008: loss of £41.3 million) which is included within the Group's foreign exchange gains. These investments, together with certain foreign exchange hedge contracts, were held in Sterling as part of the Group's overall strategy to hedge up to 50% of its US dollar exposure in Amlin Bermuda Ltd.  They were sold in July 2009.  Note 3.2 provides further details.

16. Cash and cash equivalents

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

17. Financial assets and financial liabilities

a) Carrying amount

	At valuation 2009 £m	At valuation 2008 £m	At cost 2009 £m	At cost 2008 £m
Assets
Financial assets held for trading at fair value through income
Shares and other variable yield securities	167.3	190.7	161.8	310.4
Debt and other fixed income securities	3,127.7	1,805.3	3,162.7	1,811.5
Property funds	125.7	83.5	147.2	94.9
Other financial assets at fair value through income
Participation in investment pools	508.2	789.0	499.1	789.0
Deposits with credit institutions	6.4	29.0	6.4	29.0
Derivative instruments	24.4	18.5	4.5	14.7
Other	9.3	2.0	9.2	2.0
Available for sale financial assets
Unlisted equities	8.9	8.6	8.9	8.6
Total financial assets	3,977.9	2,926.6	3,999.8	3,060.1
Liabilities
Derivative instruments	(12.9)	(58.5)	-	-
Total financial liabilities	(12.9)	(58.5)	-	-
Net financial assets	3,965.0	2,868.1	3,999.8	3,060.1
In Group owned companies	2,410.4	1,291.2	2,431.6	1,436.0
In Syndicate 2001	1,550.3	1,573.1	1,563.9	1,620.3
In non-aligned syndicates participations (see note 18)	4.3	3.8	4.3	3.8
	3,965.0	2,868.1	3,999.8	3,060.1
Listed investments included above are as follows:
Shares and other variable yield securities	167.3	190.7	161.8	310.4
Debt and other fixed income securities	3,127.7	1,739.8	3,162.7	1,746.0
	3,295.0	1,930.5	3,324.5	2,056.4

All financial assets and liabilities are held at fair value, with all gains and losses, realised and unrealised, recorded through the income statement, except for unlisted equities which are classified as available for sale and derivative instruments providing a net investment hedge for which gains and losses are taken to equity. Fixed maturity and equity securities are classified as trading assets, as the Group buys with the intention to resell.

Debt and other fixed income securities include pooled exchange-traded funds, investing in bonds.  The valuation of these funds is £1,076.1 million (2008: £228.2 million)

Also included within debt and other fixed income securities and deposits with credit institutions are overseas deposits amounting to £71.0 million (2008: £71.1 million). Overseas deposits represent balances held with overseas regulators to permit underwriting in certain territories. These assets are managed by Lloyd's on a pooled basis and are predominantly invested in debt and other fixed income securities.

Participation in investment pools includes units held in money market funds.

Unlisted equity investments are the Group's investments of 19.9% of the shares in Miles Smith plc (£4.0 million) and TL Dallas Group Limited (£4.6 million), purchased in 2008, and Vega Insurance Agencies AS (£0.3 million) purchased on 9 December 2009. No provision has been made for the impairment of these investments as at 31 December 2009 (2008: £nil).

As part of our process to improve the presentation of the Group's Consolidated Financial Statements certain changes have been made to the presentation of financial assets and financial liabilities in order to better reflect their nature. These changes in presentation have no effect on the previously reported net income or shareholders' equity. Comparative information has been amended to reflect this change.

17. Financial assets and financial liabilities continued

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

	2009 £m	2008 £m
At 1 January	2,868.1	2,638.9
Exchange gains	(128.0)	547.5
Net purchases/(sales)	11.5	(155.4)
Realised (losses)/gains on disposals	(57.5)	22.3
Unrealised investment gains/(losses)	171.7	(110.5)
Acquisitions through business combination (note 38)	1,069.9	-
Gains/(losses) on derivative hedging instruments realised and unrealised	29.3	(74.7)
At 31 December	3,965.0	2,868.1

b) Asset allocation

	At 31 December 2009				At 31 December 2008
Policyholders' assets £m		Capital assets £m	Total assets £m	%	Total assets £m	%
Assets by region(1) (excluding pooled vehicles)
United Kingdom	239.6	104.3	343.9	11.7	452.6	17.0
USA and Canada	902.3	420.7	1,323.0	45.2	1,638.0	61.6
Europe (excluding UK)	819.8	368.5	1,188.3	40.5	487.9	18.4
Far East	28.0	33.2	61.2	2.1	68.6	2.6
Emerging markets	15.1	0.8	15.9	0.5	9.9	0.4
	2,004.8	927.5	2,932.3	100.0	2,657.0	100.0
Credit ratings of corporate bonds(2) (including government guaranteed bonds)
AAA	163.8	1.5	165.3	30.7	131.0	43.3
AA	118.0	18.9	136.9	25.5	37.1	12.3
A	151.3	38.6	189.9	35.3	86.8	28.7
BBB	17.5	17.7	35.2	6.5	47.5	15.7
Other	10.9	-	10.9	2.0	-	-
	461.5	76.7	538.2	100.0	302.4	100.0

Notes:

(1)            The regional table excludes bond pooled vehicles of £1,076.1 million and Leadenhall Capital Partners of £63.7 million.

(2)            The Credit ratings of corporate bonds table includes £102.9 million of government guaranteed corporate bonds.

18. Insurance liabilities and reinsurance assets

	Claims reserves £m	Unearned premium reserves £m	Other insurance assets and liabilities £m	Total £m
Insurance liabilities
At 1 January 2008	1,350.2	501.8	34.0	1,886.0
Movement in period	43.9	7.8	39.8	91.5
Exchange adjustments	298.7	39.8	11.1	349.6
At 31 December 2008	1,692.8	549.4	84.9	2,327.1
Movement in period	(99.0)	2.3	112.9	16.2
Acquisitions through business combination	943.6	203.1	44.6	1,191.3
Novation of liability	(42.1)	-	-	(42.1)
Accretion of fair value adjustment	0.7	-	-	0.7
Exchange adjustments	(64.6)	(10.0)	1.3	(73.3)
At 31 December 2009	2,431.4	744.8	243.7	3,419.9
Reinsurance assets
At 1 January 2008	270.2	27.5	319.2	616.9
Movement in period	22.3	3.5	(60.2)	(34.4)
Exchange adjustments	68.3	-	66.1	134.4
At 31 December 2008	360.8	31.0	325.1	716.9
Movement in period	(55.8)	(3.0)	83.3	24.5
Acquisitions through business combination	160.0	28.5	(5.1)	183.4
Novation of asset	(42.1)	-	-	(42.1)
Accretion of fair value adjustment	0.1	-	-	0.1
Exchange adjustment	(1.9)	(3.7)	(29.6)	(35.2)
At 31 December 2009	421.1	52.8	373.7	847.6

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

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

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

	2009 £m	2008 £m
Notified outstanding claims	1,722.7	1,040.9
Claims incurred but not reported	708.7	651.9
Insurance contracts claims reserve	2,431.4	1,692.8

It is estimated, using historical settlement trends that £930.9 million (2008: £781.8 million) of the claims reserves, as at 31 December 2009, will settle in the next twelve months.

	2009 £m	2008 £m
Reinsurers' share of insurance liabilities	871.2	744.0
Less provision for impairment of receivables from reinsurers	(23.6)	(27.1)
Reinsurance assets	847.6	716.9

18. Insurance liabilities and reinsurance assets continued

Other insurance liabilities are comprised principally of premium payable for reinsurance, including reinstatement premium. Other insurance assets are comprised principally of amounts recoverable from reinsurers in respect of paid claims and premium receivable on inward reinsurance business, including reinstatement premium.

The Group assesses its reinsurance assets for impairment on a quarterly basis by reviewing counterparty payment history and credit grades provided by rating agencies. The credit ratings of the Group's reinsurance assets are shown in note 3.2. As at 31 December 2009 reinsurance assets at a nominal value of £10.3 million (2008: £13.4 million) were greater than 3 months overdue and provided for to the value of £7.9 million (2008: £9.4 million). The Group holds collateral of £0.1 million (2008: £0.2 million) in relation to these assets.

The ageing analysis of reinsurance assets past due but not impaired is as follows:

	2009 £m	2008 £m
3 to 6 months	1.4	1.2
6 to 9 months	-	1.2
Greater than 9 months	1.0	1.6
	2.4	4.0

The Group recognised a total impairment loss of £2.4 million (2008: £5.5 million) on reinsurance assets and insurance receivables.

Of the total other insurance liabilities balance of £243.7 million and other reinsurance assets of £373.7 million, £9.6 million and £8.0 million respectively are expected to be settled after more than 12 months from the balance sheet date. 

From 1994 to 1999 the Group participated on a number of Lloyd's syndicates other than those managed by the Group. From 2000 the Group ceased to underwrite directly on non-aligned syndicates. 

Syndicates that still remain open at 31 December 2009 are set out in the table below.

		Syndicate capacity
Managing agent	Non-aligned syndicate	1999 £m	1998 £m	1997 £m
Non-marine
A E Grant (Underwriting Agencies) Ltd	991	2.93	2.35	-
Duncanson & Holt Syndicate Management Ltd	1101	-	2.50	2.50
Total Non-marine		2.93	4.85	2.50
Aviation
Duncanson & Holt Syndicate Management Ltd	957	-	3.00	3.00
Total Aviation		-	3.00	3.00
Total capacity remaining open at 31 December 2009		2.93	7.85	5.50

The final remaining open syndicates are expected to close at 31 December 2009 and the amounts carried reflect the potential future payments required by the indicative terms of the closures.  These provisions of £0.3 million (2008: £2.6 million) are included within the claims reserves in the table above.

Syndicates that still remain open at 31 December 2008 are set out in the table below.

		Syndicate capacity
Managing agent	Non-aligned syndicate	1999 £m	1998 £m	1997 £m
Non-marine
Jago Managing Agency Ltd	205	2.25	-	-
A E Grant (Underwriting Agencies) Ltd	991	2.93	2.35	-
Duncanson & Holt Syndicate Management Ltd	1101	-	2.50	2.50
Total Non-marine		5.18	4.85	2.50
Aviation
Duncanson & Holt Syndicate Management Ltd	957	-	3.00	3.00
Total Aviation		-	3.00	3.00
Total capacity remaining open at 31 December 2008		5.18	7.85	5.50

19. Loans and receivables, including insurance receivables

	2009 £m	2008 £m
Receivables arising from insurance contracts	297.7	192.0
Less provision for impairment of receivables from contract holders and agents	(5.5)	(0.5)
Insurance receivables	292.2	191.5
Other debtors	45.4	16.2
Prepayments and other accrued income	18.9	52.5
Other loans and receivables	64.3	68.7
	356.5	260.2

	2009 £m	2008 £m
Current portion	337.8	251.2
Non-current portion	18.7	9.0
	356.5	260.2

The Group assesses its insurance receivables for impairment on a quarterly basis by reviewing counterparty payment history. As of 31 December 2009 insurance receivables at a nominal value of £14.5 million (2008: £3.6 million) were greater than 3 months overdue and provided for on the basis of credit rating to the value of £5.5 million (2008: £0.5 million).

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

	2009 £m	2008 £m
3 to 6 months	3.6	1.0
6 to 9 months	2.0	1.4
Greater than 9 months	8.9	1.2
	14.5	3.6

ACI's Netherlands business does not currently produce an ageing report for insurance receivables due to the interaction of local market practice and the office's internal systems. The total level of insurance receivables in the Netherlands is £65.0 million.

20. Deferred acquisition costs

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

	2009 £m	2008 £m
At 1 January	114.0	108.2
Incurred during the period	9.2	(1.2)
Acquisitions through business combination	21.6	-
Exchange adjustment	1.0	7.0
At 31 December	145.8	114.0

21. Property and equipment

		Freehold land and buildings £m	Motor vehicles £m	Computer equipment £m	Fixtures, fittings and leasehold improvements £m	Total £m
Cost
At 1 January 2009		4.1	0.2	23.6	6.8	34.7
Foreign exchange differences		-	-	(0.1)	(0.1)	(0.2)
Additions		-	-	2.9	3.1	6.0
Acquisitions through business combination		-	-	0.3	0.1	0.4
At 31 December 2009		4.1	0.2	26.7	9.9	40.9
Accumulated depreciation
At 1 January 2009		0.2	0.1	19.8	6.2	26.3
Foreign exchange differences		-	-	(0.1)	-	(0.1)
Charge for the year		0.1	-	3.0	1.8	4.8
At 31 December 2009		0.3	0.1	22.7	8.0	31.0
Net book value
At 31 December 2009		3.8	0.1	4.1	1.8	9.9
At 1 January 2009		3.9	0.1	3.8	0.6	8.4

	Leasehold land and buildings £m	Freehold land and buildings £m	Motor vehicles £m	Computer equipment £m	Fixtures, fittings and leasehold improvements £m	Total £m
Cost
At 1 January 2008	1.9	-	0.1	20.9	6.4	29.3
Additions	-	4.1	0.1	2.6	0.3	7.1
Acquisitions through business combination	-	-	0.1	0.2	0.1	0.4
Disposal	(1.9)	-	(0.1)	(0.1)	-	(2.1)
At 31 December 2008	-	4.1	0.2	23.6	6.8	34.7
Accumulated depreciation
At 1 January 2008	0.2	-	0.1	17.3	5.9	23.5
Charge for the year	-	0.2	0.1	2.7	0.3	3.3
Disposal	(0.2)	-	(0.1)	(0.2)	-	(0.5)
At 31 December 2008	-	0.2	0.1	19.8	6.2	26.3
Net book value
At 31 December 2008	-	3.9	0.1	3.8	0.6	8.4
At 1 January 2008	1.7	-	-	3.6	0.5	5.8

There were no assets held under finance lease and hire purchase contracts at 31 December 2009 (2008: £nil).

22. Intangible assets

	Goodwill £m	Syndicate participations £m	Broker and customer relationships £m	Other intangibles £m	Total £m
Net book value
At 31 December 2008	33.9	63.2	10.8	2.3	110.2
Acquisitions through business combinations	32.6	-	26.8	-	59.4
Adjustments to prior year acquisitions	(0.9)	-	-	-	(0.9)
Amortisation	-	-	(3.8)	(0.5)	(4.3)
Foreign exchange (losses)/gains	(1.7)	-	0.1	-	(1.6)
At 31 December 2009	63.9	63.2	33.9	1.8	162.8

Syndicate participations represent the ongoing rights, acquired in Lloyd's auctions and by an offer to Lloyd's Names, to trade on Syndicate 2001 within the Lloyd's insurance market. Amlin subsidiaries have supported all of the ongoing capacity of Syndicate 2001 since 1 January 2004. All remaining liabilities of the Syndicate underwritten by third party capital prior to this date were taken on by Amlin subsidiaries at 1 January 2004.

Additions to goodwill of £27.2 million and broker and customer relationship intangibles relate to the acquisition of Amlin Corporate Insurance N.V. (ACI) and the addition to goodwill of £5.4 million relates to the acquisition of Crowe Livestock Underwriting Limited.  Note 38 provides further details on this acquisition. The costs of acquiring rights to ACI's broker and customer relationships are amortised using the straight line method over the estimated useful life of 15 years.

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

For the purpose of impairment testing, goodwill is allocated to the Group's cash generating units (CGUs) identified according to country of operation and business segment.

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

	2009 £m				2008 £m
	Amlin London	Anglo French Underwriters	Amlin Corporate Insurance	Total	Amlin London	Anglo  French Underwriters	Total
Goodwill	8.2	28.1	27.6	63.9	2.8	31.1	33.9
Syndicate participations	-	-	-	63.2	-	-	63.2
Total	8.2	28.1	27.6	127.1	2.8	31.1	97.1

The intangible asset relating to the syndicate participations supports the underwriting in Amlin London, Amlin UK and Anglo French Underwriters. Given the nature of the participation rights, it is not practical to split this asset between the three CGUs.  Accordingly, impairment testing has been performed based on aggregate Syndicate 2001 profit forecasts. 

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

Key assumptions used in the calculation are:

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

·  In order to extrapolate future cash flows beyond the business plan period, a nil growth rate has been assumed for all CGUs.

·  A risk adjusted discount rate of 15.0%, representing a risk-free rate and an additional prudent margin has been applied to each CGU's cash flow projection.

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

23. Share capital

	2009 Number	2009 £m	2008 Number	2008 £m
Authorised ordinary shares
At 1 January authorised ordinary shares of 28.125p each (2008: 28.125p)	711,111,104	200.0	711,111,104	200.00
Increase in shares authorised	88,888,896	25.0	-	-
At 31 December authorised ordinary shares of 28.125p each (2008: 28.125p)	800,000,000	225.0	711,111,104	200.00
Authorised redeemable non-cumulative preference shares (B shares)
At 1 January authorised B shares of 22.4p each	544,642,000	122.0	544,642,000	122.0
At 31 December authorised B shares of 22.4p each	544,642,000	122.0	544,642,000	122.0
Allotted, called up and fully paid ordinary shares
At 1 January issued ordinary shares of 28.125p each (2008: 28.125)	478,573,439	134.6	477,984,195	134.4
Shares issued to fund ACI acquisition	23,502,567	6.6	-	-
Shares issued on exercise of options	-	-	589,244	0.2
At 31 December issued ordinary shares of 28.125p each (2008: 28.125p)	502,076,006	141.2	478,573,439	134.6
Issued redeemable non-cumulative preference shares (B shares)
At 1 January issued B shares of 22.4p each	5,335,475	1.2	537,464,619	120.4
B shares redemption	(5,335,475)	(1.2)	(532,129,144)	(119.2)
At 31 December issued B shares of 22.4p each	-	-	5,335,475	1.2

The Company transferred 1,599,228 shares out of treasury shares at a cost of £4.1 million (2008: 2,001,348 shares at a cost of £5.0 million). The shares have been transferred to meet exercises of employee share options, leaving 7,164,424 ordinary shares in Treasury at 31 December 2009 (2008: 8,763,652 ordinary shares).

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

On 14 November 2007, the Group announced its intention to return approximately £120 million of capital to shareholders by way of a B share issue combined with a consolidation of Amlin's existing shares on the basis of 8 new ordinary shares for 9 existing ones. This was subsequently approved by the shareholders at an Extraordinary General Meeting held on 12 December 2007.            

B shares were issued on 17 December 2007 to existing shareholders on the basis of one B share for each ordinary share held on 14 December 2007. Each B share enabled the shareholder to redeem the share at 22.4 pence per share at various dates in the future up to August 2009 or, alternatively, to receive a B share initial dividend in January 2008 of 22.4 pence per share. Following such dividend receipt, the relevant B shares were converted into deferred shares which were themselves redeemed on 14 January 2008 for a total redemption value of one penny in all.  On the 3 August 2009 all of the then remaining outstanding B shares were redeemed by the Company.

24. Share options and share-based incentive awards

At 31 December 2009 the following options over new or treasury shares were outstanding under these executive schemes:

			2009	2008
Usual first month of exercise	Scheme	Option price per share	Number of shares	Number of shares
May 2005	ESOS	76.33p	54,155	77,281
May 2004	ESOS	108.09p	7,770	7,770
April 2006	ESOS	110.82p	79,994	156,055
March 2007	ESOS	152.85p	211,252	491,725
March 2008	ESOS	161.77p	492,747	958,128
March 2009	ESOS	293.00p	1,244,230	1,854,014
December 2011	LTIP	-	54,608	54,608
April 2012	LTIP	-	21,502	-
June 2014	PSP	-	26,969	-
August 2014	PSP	-	75,696	-
April 2012	SIP	-	10,792	-
September 2012	SIP	-	94,230	-
			2,373,945	3,599,581

ESOS options listed above are potentially exercisable for seven years starting on the usual first month of exercise specified above. LTIP awards listed above are awards made under a French schedule to the LTIP. The shares may be released to participants from three years from the date of the award. PSP awards listed above are awards made under appropriate schedules to the PSP to employees in the Group's French, Netherlands and Belgian businesses. These shares may be released to participants from five years from the date of the award. SIP shares listed above are awards made on an all employee basis, to employees in France (AFU in April 2009) and the Netherlands, Belgium and France (ACI in September 2009). In each case these awards were made under appropriate local versions of the SIP adapted to the relevant jurisdiction. In the cases of all of the LTIP, PSP and SIP awards, in some circumstances, such as redundancy, shares may be released earlier.

The following changes to new or treasury shares either under option or the subject of conditional awards pursuant to the Company's share and the long term incentive plans took place during the year:

	Number of Shares 2009	Weighted average exercise price (pence) 2009	Number of shares 2008	Weighted average exercise price (pence) 2008
At 1 January	3,599,581	221.53	5,929,763	198.57
Granted/awarded during the year	229,189	-	54,608	-
Exercised during the year	(1,425,455)	212.14	(2,124,990)	150.02
Lapsed during the year	(29,370)	139.51	(259,800)	235.74
At 31 December	2,373,945	206.78	3,599,581	221.53

The weighted average remaining contractual life of the executive options outstanding at 31 December 2009 was 5.4 years (2008: 6.5 years).

24. Share options and share-based incentive awards continued

In addition to these executive options, the following employee Sharesave options over new or treasury shares were outstanding at 31 December 2009:

Savings period	Usual first month of exercise	Option price per share	Number of shares
Five years	July 2009	134.11p	2,438
Five years	December 2010	146.49p	138,250
Three years	July 2010	266.00p	250,179
Five years	July 2012	266.00p	166,981
Three years	December 2011	246.00p	289,377
Five years	December 2013	246.00p	201,225
Three years	July 2012	329.00p	167,831
Five years	July 2014	329.00p	101,841
			1,318,122

The following changes in new or treasury shares under option pursuant to the Sharesave scheme took place during the year:

	Number of shares 2009	Weighted average exercise price (pence) 2009	Number of shares 2008	Weighted average exercise price (pence) 2008
At 1 January	1,326,393	228.22	1,364,339	187.45
Granted during the year	271,719	329.00	525,956	246.00
Exercised during the year	(168,773)	148.38	(465,602)	137.31
Lapsed during the year	(111,217)	234.79	(98,300)	188.00
At 31 December	1,318,122	258.66	1,326,393	228.22

The weighted average remaining contractual life of the Sharesave options outstanding at 31 December 2009 was 2.3 years (2008: 3.1 years).

The trustee of the Employee Share Ownership Trust (ESOT) held 1,056,440 ordinary shares as at 31 December 2009 (2008: 1,221,891 ordinary shares) to meet potential future exercises of executive options and long term incentive plans. The Company had also made arrangements as at that date whereby the ESOT will provide up to 1,951,017 Performance Share Plan (PSP) shares, normally exercisable from five years after grant on dates between 2010 and 2014, and up to 2,049,609 Long Term Incentive Plan (LTIP) shares, normally exercisable from three years after grant on dates between 2010 and 2012, and up to 37,289 shares over which options were granted in May 2008 (to a non-director employee) normally not exercisable until 2011 and 2012. The ESOT shares are valued at the lower of cost and net realisable value. The market value of Amlin plc ordinary shares at 31 December 2009 was 358.7p per share (2008: 357.5p).

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

A charge has been made to the income statement for options granted after 7 November 2002 pursuant to the executive and Sharesave option schemes, the PSP and the LTIP, details of which are as follows:

Schemes and grant	Option exercise price pence	Charge for 2009 £m	Closing reserve 31 December 2009 £m	Charge for 2008 £m	Closing reserve 31 December 2008 £m
Fully reserved schemes and grant	110.8 - 152.85	-	1.1	-	1.1
2004 PSP grant	0.00	(0.1)	0.5	0.4	0.6
2005 executive grant	161.77	(0.1)	0.4	0.1	0.5
2005 Sharesave 3 yrs grant	146.49	0.1	0.3	-	0.2
2005 Sharesave 5 yrs grant	146.49	0.1	0.1	-	-
2005 PSP grant	0.00	0.1	0.5	0.1	0.4
2006 executive grant	293.00	0.2	0.8	0.2	0.6
2006 PSP grant	0.00	0.1	0.5	0.1	0.4
2007 Sharesave 3 yrs grant	266.00	-	0.1	-	0.1
2007 Sharesave 5 yrs grant	266.00	0.1	0.1	-	-
2007 LTIP grant	0.00	0.2	0.6	0.2	0.4
2007 PSP grant	0.00	0.1	0.4	0.1	0.3
2007 SIP grant	0.00	0.3	0.9	0.3	0.6
2008 Sharesave 3 yrs grant	246.00	0.1	0.1	-	-
2008 Sharesave 5 yrs grant	246.00	-	-	-	-
2008 LTIP grant	0.00	0.3	0.5	0.2	0.2
2008 French LTIP grant	0.00	-	-	-	-
2008 PSP grant	0.00	0.2	0.3	0.1	0.1
2008 SIP grant	0.00	0.3	0.6	0.3	0.3
2009 Sharesave 3 yrs grant	329.00	-	-	-	-
2009 Sharesave 5 yrs grant	329.00	-	-	-	-
2009 LTIP grant	0.00	0.2	0.2	-	-
2009 French LTIP grant	0.00	-	-	-	-
2009 PSP grant	0.00	0.1	0.1	-	-
2009 French PSP grant	0.00	-	-	-	-
2009 ACI PSP grant	0.00	-	-	-	-
2009 SIP grant	0.00	0.1	0.1	-	-
2009 French SIP grant	0.00	-	-	-	-
2009 ACI SIP grant	0.00	-	-	-	-
		2.4	8.2	2.1	5.8

24. Share options and share-based incentive awards continued

Schemes and grant	Option exercise price	At 1 January  2009	Granted	Exercised	Lapsed	At 31 December 2009	Exercisable
2003 executive grant	110.82p	156,055	-	(73,400)	(2,661)	79,994	Apr 2006
2004 executive grant	152.85p	491,725	-	(275,763)	(4,710)	211,252	Mar 2007
2004 Sharesave 5 yrs grant	134.11p	108,007	-	(105,276)	(293)	2,438	July 2009
2004 PSP grant	0.0p*	491,577	-	(491,577)	-	-	Mar 2009
2005 executive grant	161.77p	958,128	-	(461,425)	(3,956)	492,747	Mar 2008
2005 Sharesave 3 yrs grant	146.49p	45,439	-	(35,228)	(10,211)	-	Dec 2008
2005 Sharesave 5 yrs grant	146.49p	166,824	-	(13,915)	(14,659)	138,250	Dec 2010
2005 PSP grant	0.0p*	499,996	-	(7,789)	(3,289)	488,918	Mar 2010
2006 executive grant	293.00p	1,854,014	-	(604,867)	(4,917)	1,244,230	Mar 2009
2006 PSP grant	0.0p*	326,417	-	-	(3,768)	322,649	Mar 2011
2007 Sharesave 3 yrs grant	266.00p	286,120	-	(6,612)	(29,329)	250,179	July 2010
2007 Sharesave 5 yrs grant	266.00p	195,295	-	(3,097)	(25,217)	166,981	July 2012
2007 PSP grant	0.0p*	359,581	-	-	(5,595)	353,986	Mar 2012
2007 LTIP grant	0.0p*	542,943	-	(38,793)	(29,625)	474,525	Mar 2010
2008 LTIP grant	0.0p*	1,007,809	-	(39,177)	(86,702)	881,930	Mar 2011
2008 Amlin Special Tranche 1	0.0p*	23,595	-	-	-	23,595	Mar 2011
2008 Amlin Special Tranche 2	0.0p*	13,694	-	-	-	13,694	Feb 2012
2008 PSP grant	0.0p*	477,105	-	-	(14,117)	462,988	Mar 2013
2008 Sharesave 3 yrs grant	246.00p	313,953	-	(4,605)	(19,971)	289,377	Dec 2011
2008 Sharesave 5 yrs grant	246.00p	210,755	-	(40)	(9,490)	201,225	Dec 2013
2008 French LTIP	0.0p*	54,608	-	-	-	54,608	Nov 2011
2009 PSP grant	0.0p*	-	332,516	-	(10,040)	322,476	Mar 2014
2009 LTIP grant	0.0p*	-	726,031	-	(32,877)	693,154	Mar 2012
2009 French LTIP	0.0p*	-	21,502	-	-	21,502	Mar 2012
2009 French PSP	0.0p*	-	26,969	-	-	26,969	Jun 2014
2009 ACI PSP	0.0p*	-	75,696	-	-	75,696	Aug 2014
2009 Sharesave 3 yrs grant	329.00p	-	168,933	-	(1,102)	167,831	Dec 2012
2009 Sharesave 5 yrs grant	329.00p	-	102,786	-	(945)	101,841	Dec 2014
		8,583,640	1,454,433	(2,161,564)	(313,474)	7,563,035

Schemes and grant	Option exercise price	At 1 January 2008	Granted	Exercised	Lapsed	At 31 December 2008	Exercisable
2003 executive grant	110.82p	435,062	-	(274,107)	(4,900)	156,055	Apr 2006
2004 executive grant	152.85p	1,057,018	-	(552,732)	(12,561)	491,725	Mar 2007
2004 Sharesave 3 yrs grant	134.11p	5,622	-	(5,622)	-	-	July 2007
2004 Sharesave 5 yrs grant	134.11p	134,827	-	(4,040)	(22,780)	108,007	July 2009
2004 PSP grant	0.0p*	494,146	-	-	(2,569)	491,577	Mar 2009
2005 executive grant	161.77p	2,207,065	-	(1,155,789)	(93,148)	958,128	Mar 2008
2005 Sharesave 3 yrs grant	146.49p	450,389	-	(392,928)	(12,022)	45,439	Dec 2008
2005 Sharesave 5 yrs grant	146.49p	191,002	-	-	(24,178)	166,824	Dec 2010
2005 PSP grant	0.0p*	505,189	-	-	(5,193)	499,996	Mar 2010
2006 executive grant	293.00p	2,020,164	-	(16,959)	(149,191)	1,854,014	Mar 2009
2006 PSP grant	0.0p*	326,417	-	-	-	326,417	Mar 2011
2007 Sharesave 3 yrs grant	266.00p	303,381	-	(228)	(17,033)	286,120	July 2010
2007 Sharesave 5 yrs grant	266.00p	214,993	-	(324)	(19,374)	195,295	July 2012
2007 PSP grant	0.0p*	359,581	-	-	-	359,581	Mar 2012
2007 LTIP grant	0.0p*	581,386	-	-	(38,443)	542,943	Mar 2010
2008 LTIP grant	0.0p*	-	1,026,289	-	(18,480)	1,007,809	Mar 2011
2008 Amlin Special Tranche 1	0.0p*	-	23,595	-	-	23,595	Mar 2011
2008 Amlin Special Tranche 2	0.0p*	-	13,694	-	-	13,694	Feb 2012
2008 PSP grant	0.0p*	-	498,261	-	(21,156)	477,105	Mar 2013
2008 Sharesave 3 yrs grant	246.00p	-	315,201	-	(1,248)	313,953	Dec 2011
2008 Sharesave 5 yrs grant	246.00p	-	210,755	-	-	210,755	Dec 2013
2008 French LTIP	0.0p*	-	54,608	-	-	54,608	Nov 2011
		9,286,242	2,142,403	(2,402,729)	(442,276)	8,583,640

*£1 in total per complete exercise.

The weighted average share price of Amlin plc throughout the year was 358.15 pence (2008: 290.06 pence).

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

	2009	2008
Weighted average grant price (pence)	227.19	213.34
Weighted average exercise price (pence)	189.09	186.03
Expected volatility	30.00%	30.00%
Expected life (years)	3.00 - 7.50	3.00 - 7.50
Risk free rate of return	2.00% - 5.00%	3.50% - 5.00%
Expected dividend yield	2.00% - 7.00%	2.00% - 7.00%

Volatility

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

Interest rate

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

Dividend yield

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

Staff turnover

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

24. Share options and share-based incentive awards continued

Market conditions

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

25. Restricted assets

At 31 December 2009, Syndicate 2001 holds gross assets of £2,705.6 million (2008: £2,692.6 million) which are held within individual trust funds and the Group cannot obtain or use them until such time as each Syndicate underwriting year is closed and profits are distributed, or an advance profit release is made.

26. Trade and other payables and deferred income

	2009 £m	2008 £m
Trade payables	51.9	59.9
Accrued expenses	87.0	58.8
Social security and other tax payables	4.9	3.3
Issued redeemable non-cumulative preference shares (B shares) (note 23)	-	1.2
	143.8	123.2

	2009 £m	2008 £m
Current portion	118.5	110.0
Non-current portion	25.3	13.2
	143.8	123.2

27. Borrowings

	2009 £m	2008 £m
Subordinated debt	316.4	295.9

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

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

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

(1) Debt issued by Amlin plc.

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

The bonds will be redeemed on the maturity dates at the principal amounts, together with any outstanding accrued interest. For the USD and GBP bonds, the Company has the option to redeem the bonds in whole, subject to certain requirements, on the reset dates or any interest payment date thereafter at the principal amount plus any outstanding accrued interest. The Euro bond was acquired by the Company as part of the acquisition of Amlin Corporate Insurance N.V.

The directors' estimation of the fair value of the Group's borrowings is £380.2 million (2008: £360.4 million). The aggregate fair values of borrowings are based on a discounted cash flow model. This model uses a current yield curve appropriate for the remaining terms to maturity.  The discount rate used was 3.41%.

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

In September 2009, Amlin Bermuda Ltd entered into a secured US$200 million LOC facility with Lloyds TSB Bank plc and the Royal Bank of Scotland plc as lead arrangers. The facility is secured by a registered charge over a portfolio of assets managed by Aberdeen Asset Management Inc and with State Street Bank and Trust Company as custodian. As at 31 December 2009, US$124.9 million of LOC were issued. The total value of restricted assets as at 31 December 2009 was US$145.1 million.

In February 2009, Amlin Corporate Insurance N.V. (ACI) entered into a secured US$1.5 million standby LOC facility with Fortis Bank Nederland N.V. as arranger.  The facility is secured by a registered charge over a bank account managed by Fortis Bank Nederland N.V.  As at 31 December 2009, US$1.5 million of LOC was issued.  The total value of restricted assets as at 31 December 2009 was US$1.5 million.

28. Retirement benefit obligations

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

	2009 £m	2008 £m
Defined contribution schemes	4.1	3.7
Defined benefit schemes
- Lloyd's Superannuation Fund	1.0	(2.6)
- ACI defined benefit schemes	1.3	-
	6.4	1.1

a) Defined benefit schemes

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

Scheme description

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

Historically the Fund has catered for a number of employers in the Lloyd's market. As a consequence of the consolidation in the market, employers closing final salary schemes and some companies failing, there are now only 3 (2008: 3) employers with active members in the Fund. A large proportion of the liability of the Fund relates to employers no longer participating in the Fund. The assets of the Fund are pooled and the current active employers are responsible collectively for the funding of the Fund as a whole.

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

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

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

Fund contributions

In December 2009 an additional contribution of £5.0 million was made to reduce the size of the deficit in the scheme.

Contributions will also be paid to provide for the cost of benefit accrual after the date of the valuation. The rate of contribution agreed with the Trustee is 19% (2008: 19%) paid by the employer plus 5% (2008: 5%) member contributions, in each case of pensionable earnings, and totalled £0.9 million (2008: £1.3 million).

The expected contribution to the fund for the year ending 31 December 2010 is £0.7 million by the Group and £0.2 million by plan participants.

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

	2009 £m	2008 £m
Contributions relating to:
One off top up payment - Amlin scheme	5.0	1.2
Ongoing funding	0.7	0.9
Group share of total payment	5.7	2.1

28. Retirement benefit obligations continued

Funding assessment assumptions

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

The last completed formal valuation of the Fund was as at 31 March 2007 and was carried out by Mr N Wharmby, Fellow of the Institute of Actuaries, and used the projected unit credit actuarial method. For the purpose of providing disclosure in accordance with IAS 19, the Group has requested the actuary to update the 2007 valuation to 31 December 2009 using appropriate techniques and the following assumptions:

	2009 % pa	2008 % pa
Price inflation	3.7	2.8
Rate of increase in pensions payment:
- LPI (maximum 5% pa)	3.5	2.8
- LPI (minimum 3% pa, maximum 5% pa)	3.9	3.5
- LPI (maximum 3% pa)	2.7	2.3
Rate of increase of statutory revaluation on deferred pension	3.7	2.8
Discount rate	5.6	6.3

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

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

	31 December 2009		31 December 2008
Life expectancy (years) at age 60 for a member currently:	Male	Female	Male	Female
Aged 60	25.4	28.4	25.3	28.3
Aged 45	26.7	29.5	26.6	29.5

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

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

ii) ACI defined benefit plans

Scheme description

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

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

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

 

 

Funding assessment assumptions

The table below shows the actuarial assumptions used.

	The Netherlands 2009 %	Belgium 2009 %
Discount rate for pension benefits	5.5	4.8
Discount rate for Jubilee benefits	3.9	4.0
Discount rate for farewell premium	-	4.5
Discount rate for post retirement medical	-	5.4
Expected return on plan assets	3.35	4.0
Expected wage increases - general	2.6	2.6
Expected wage increases - merit	0-6.75	1.5
Inflation	2.0	2.0
Indexation for active employees	2.6	-
Indexation for formerly active employees	2.0	-
Medical trend rate	-	4.0

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

	The Netherlands		Belgium
Life expectancy (years) at age 60 for a member currently:	Male	Female	Male	Female
Aged 60	18.9	22.8	22.1	25.9
Aged 45	20.5	24.3	22.1	25.9

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

Assumption change	Defined benefit obligation impact £m
- (Increase)/decrease in discount rate by 0.25%	(2)/2
- Increase/(decrease) in inflation rate by 0.25%	2/(2)
- Increase in floor mortality improvements for males of 1.5% and females of 1.0% per annum	-

Fund contributions

The expected contribution to the funds by the Group during 2010 is £3.6 million.

iii) Amounts recognised in the Group's financial statements for defined benefit schemes

Amounts recognised in income in respect of the defined benefit schemes are as follows:

	2009 £m	2008 £m
Current service cost	1.2	0.5
Interest cost	17.0	16.5
Expected return on scheme assets	(15.9)	(19.1)
Reversal of provision for additional pension payments	-	(0.5)
Total debited/(credited) to income (included in staff costs)	2.3	(2.6)

Amounts recognised in the Consolidated Statement of Comprehensive Income are as follows:

	2009 £m	2008 £m
Recognition of net loss	23.7	31.2
Ceiling limit on asset gains	-	(23.0)
Reversal of contractual cash obligations	-	(2.3)
	23.7	5.9

28. Retirement benefit obligations continued

The amount included in the balance sheet arising from the Group's obligations in respect of its defined benefit retirement benefit schemes is as follows:

	2009 £m	2008 £m
Present value of defined benefit obligations	359.0	260.0
Fair value of scheme assets	334.5	256.0
Deficit in schemes	(24.5)	(4.0)
Liability recognised in the balance sheet	(24.5)	(4.0)

Of the total liability of £24.5 million, £13.7 million is expected to be settled within 12 months from the balance sheet date. 

Movements in the present value of defined benefit obligations during the year is as follows:

	2009 £m	2008 £m
At 1 January	260.0	295.0
Employer service cost	1.2	0.5
Interest cost	17.0	16.5
Contributions from scheme members	0.4	0.2
Actuarial losses/(gains)	53.6	(40.3)
Benefits paid from plan assets	(13.2)	(11.9)
Acquisition through business combination	32.6	-
Transfer of ACI Belgium scheme liabilities post-acquisition	6.6	-
Foreign exchange	0.8	-
At 31 December	359.0	260.0

The expected total benefit payments to plan participants during 2010 is £12.7 million for LSF and £0.8 million for ACI scheme (2009: LSF £11.9 million).

Movements in the fair value of scheme assets during the year is as follows:

	2009 £m	2008 £m
At 1 January	256.0	318.0
Expected return on scheme assets	15.9	19.1
Difference between expected and actual return	30.1	(71.5)
Employer contributions	6.8	2.1
Plan participant contributions	0.4	0.2
Benefits paid	(13.2)	(11.9)
Administrative expenses	(0.2)	-
Acquisition through business combination	35.3
Transfer of ACI Belgium scheme assets post-acquisition	2.4	-
Foreign exchange	1.0	-
At 31 December	334.5	256.0

The analysis of the plan assets and the expected rate of return at the balance sheet date are as follows:

	Asset mix			Long term rate of return
	31 December 2009		31 December 2008	31 December 2009			31 December 2008
	LSF	ACI Fund	LSF	LSF	ACI Fund (The Netherlands)	ACI Fund (Belgium)	LSF
Equities	30%	17%	31%	8.2%	5.9%	-	7.5%
Bonds	70%	83%	69%	5.0%	2.9%	4.0%	5.6%

The long term rates of return are estimated by the Directors based upon current expectations of future investment performance.

The five-year history of experience adjustments is as follows:

LSF	2009 £m	2008 £m	2007 £m	2006 £m	2005 £m
Asset experience
Fair value of scheme asset	295.0	256.0	318.0	315.0	305.0
Asset (gain)/loss during period	(30.3)	71.5	9.0	-	(41.0)
Asset (gain)/loss as percentage of plan assets	(10.3%)	28%	3%	0%	(14%)
Liability experience
Present value of defined benefit obligations	315.0	260.0	295.0	304.0	311.0
Liability (gain)/loss during period	-	6.7	(5.0)	-	9.0
Liability (gain)/loss as percentage of plan assets	0%	3%	(2%)	0%	3%
Liability assumptions
Liability loss/(gain) over period	51.0	(47.0)	(15.0)	2.0	27.0
Liability loss/(gain) as percentage of defined benefit obligations	16.2%	(18%)	(5%)	1%	9%

ACI	2009 £m
Asset experience
Fair value of scheme asset	39.5
Asset loss during period	0.2
Asset loss as percentage of plan assets	1.0%
Liability experience
Present value of defined benefit obligations	44.0
Liability loss during period	-
Liability loss as percentage of plan assets	0%
Liability assumptions
Liability loss over period	2.6
Liability loss as percentage of defined benefit obligations	5.9%

The cumulative amount of actuarial losses recognised in other comprehensive income for all defined benefit schemes is £45.4 million (of which £5.5 million relates to the acquisition of Amlin Corporate Insurance N.V.).

c) The stakeholder defined contribution scheme

The defined contribution scheme operated by the Group is a stakeholder arrangement. The total contributions for the year ended 31 December 2009 to the scheme were £4.1 million (2008: £3.7 million).

The estimated amounts of contributions to the Group's defined contribution pension scheme for the year ending 31 December 2010 are approximately £4.0 million (2008: £3.8 million).

d) Other arrangements

Other pension arrangements include an occupational money purchase scheme which provides Death In Service protection for all employees. Regular contributions, expressed as a percentage of employees' earnings, are paid into this scheme and are allocated to accounts in the names of the individual members, which are independent of the Group's finances. There were no outstanding contributions at 31 December 2009 (2008: £nil).

29. Earnings and net assets per share

Earnings per share are based on the profit attributable to shareholders and the weighted average number of shares in issue during the period. Shares held by the Employee Share Ownership Trust (ESOT) and treasury shares are excluded from the weighted average number of shares.

Basic and diluted earnings per share are as follows:

	2009	2008
Profit attributable to equity holders of the Parent Company	£454.7m	£80.3m
Weighted average number of shares in issue	483.1m	471.2m
Dilutive shares	6.2m	5.6m
Adjusted average number of shares in issue	489.3m	476.8m
Basic earnings per share	94.1p	17.1p
Diluted earnings per share	92.9p	16.9p

Basic and diluted tangible net assets per share are as follows:

	2009	2008
Net assets	£1,593.1m	£1,216.1m
Adjustments for intangible assets	(£162.8m)	(£110.2m)
Tangible net assets	£1,430.3m	£1,105.9m
Number of shares in issue at end of period	502.1m	478.6m
Adjustment for ESOT shares and treasury shares	(8.2m)	(10.0m)
Basic number of shares after ESOT and treasury shares adjustment	493.9m	468.6m
Net assets per share	322.6p	259.5p
Tangible net assets per share	289.6p	236.0p

30. Dividends

The amounts recognised as distributions to equity holders are as follows:

Group	2009 £m	2008 £m
Final dividend for the year ended:
- 31 December 2008 of 11.0 pence per ordinary share	51.7	-
- 31 December 2007 of 10.0 pence per ordinary share	-	47.6
Interim dividend for the year ended:
- 31 December 2009 of 6.5 pence per ordinary share	32.1	-
- 31 December 2008 of 6.0 pence per ordinary share	-	28.0
	83.8	75.6

A second interim dividend, in lieu of a final ordinary dividend, of 13.5 pence per ordinary share for 2009, amounting to £66.7 million, payable in cash was declared by the Board on 26 February 2010 and has not been included as a liability as at 31 December 2009.

31. Principal exchange rates

The principal exchange rates used in translating foreign currency assets, liabilities, income and expenditure in the production of these financial statements were:

	Average rate		Year end rate
	2009	2008	2009	2008
US dollar	1.57	1.85	1.61	1.46
Canadian dollar	1.78	1.96	1.69	1.78
Euro	1.12	1.26	1.13	1.05

32. Contingent liabilities

The Group has no contingent liabilities at 31 December 2009 (31 December 2008: £nil).

33. Commitments

a) Capital commitments

There were no capital commitments at the end of the financial year except the commitments made to Leadenhall Capital Partners LLP as described in note 36.

b) Operating lease commitments - where the Group companies are the lessees

The Group leases various offices under cancellable operating lease agreements.  The Group is required to give various notice for the termination of these agreements.  The lease expenditure charged to the income statement during the year is disclosed in note 13. 

The future aggregate minimum lease payments under non-cancellable operating leases are as follows:

	2009 £m	2008 £m
No later than 1 year	3.8	0.2
Later than 1 year and no later than 5 years	12.5	0.5
Later than 5 years	7.8	2.1
Total	24.1	2.8

34. Cash generated from operations

	Notes	2009 £m	2008 £m
Profit on ordinary activities before taxation		509.1	121.6
Adjustments:
Depreciation charge	13	4.8	3.3
Amortisation charge	13	4.3	1.4
Finance costs	12	23.0	21.2
Interest received	6	(88.1)	(94.3)
Dividends received	6	(5.2)	(11.9)
(Gains)/losses on investments realised and unrealised	6	(114.2)	88.2
Movement in operating assets and liabilities:
Net (purchases)/sales of financial investments	17	(11.5)	153.9
Exchange losses/(gains) on investments	17	128.0	(547.5)
Increase in operations classified as held for sale investments		(63.7)	-
Increase/(decrease) in loans and receivables		69.0	(157.4)
Increase/(decrease) in reinsurance contract assets		52.8	(100.0)
(Decrease)/increase in insurance contract liabilities		(98.5)	441.0
Increase in trade and other payables		10.0	37.2
(Decrease)/increase in retirement benefits		(6.8)	1.2
Increase in investments in jointly owned entities		0.5	1.5
Exchange (gains)/losses on long term borrowings		(5.7)	18.1
Exchange (gains)/losses on other non-operating assets and liabilities		(91.1)	250.2
Other non-cash movements		7.8	(5.3)
Cash generated from operations		324.5	222.4

35. Principal subsidiary companies

The principal subsidiary undertakings at 31 December 2009 which are consolidated in these financial statements, all of which are wholly owned unless otherwise stated, operate in the UK, Bermuda, the US, France, Netherlands and Singapore:

Subsidiary undertakings	Principal activity	Registered in
Amlin Underwriting Limited	Lloyd's managing agency	England and Wales
Amlin Corporate Services Limited	Group service, employing and intermediate holding company	England and Wales
Amlin Investments Limited	Investment company	England and Wales
Allied Cedar Insurance Group Limited	Intermediate holding company	England and Wales
Amlin Underwriting Services Limited	Lloyd's service company	England and Wales
Amlin Plus Limited*	Lloyd's service company	England and Wales
AUT Holdings Limited	Intermediate holding company	England and Wales
Amlin Corporate Member Limited	Corporate member at Lloyd's	England and Wales
AUT (No 2) Limited	Corporate member at Lloyd's	England and Wales
AUT (No 6) Limited	Corporate member at Lloyd's	England and Wales
AUT (No 7) Limited	Corporate member at Lloyd's	England and Wales
AUT (No 8) Limited	Corporate member at Lloyd's	England and Wales
Delian Delta Limited	Corporate member at Lloyd's	England and Wales
Amlin (Overseas Holdings) Limited	Intermediate holding company	England and Wales
Amlin Bermuda Ltd	Reinsurance company	Bermuda
Amlin Singapore Pte Limited	Lloyd's service company	Singapore
Amlin Illinois, Inc.	Service company	United States of America
Amlin Corporate Insurance N.V.	Insurance company	Netherlands
Amlin France SAS**	Intermediate holding company	France
Anglo French Underwriters SAS**	Lloyd's coverholder	France
Crowe Livestock Underwriting Limited	Lloyd's coverholder	England and Wales

Some subsidiaries have been omitted from this statement to avoid providing particulars of excessive length but none materially affects the results or assets of the Group.

*               60% owned by the Group

**             96.53% owned by the Group

36. Other Group companies

Jointly owned entity

During 2008, Amlin Corporate Services Limited invested £1.5 million in a jointly owned entity, Leadenhall Capital Partners LLP (LCP). LCP was established as a new asset management company focused on insurance linked investments. LCP is incorporated in England and Wales. The Group holds 50% of the voting rights. The Group has committed to pay up to a further US$4 million to support the operations of the agency as part of the joint venture agreement. The Group's share of LCP's profit for the year is £nil million.  Summary financial information for LCP is as follows:

	2009 £m
Assets	2.6
Liabilities	1.8
Revenues	1.7
Profit for the year	0.4

£2.5 million of LCP's assets are classified as current.  £0.1 million are non-current.  All liabilities are classified as current.

During the year, LCP charged the Group management fees of £1.3 million.  The Group charged LCP £0.2 million under the terms of the service agreement.  At 31 December 2009, the Group held a debtor of £1.0 million due from LCP.  No amounts were provided for doubtful recovery of this debtor and no expense was recognised during the year in respect of bad or doubtful debts from LCP.

Operations held for sale

Amlin Bermuda has invested in the Leadenhall Value Insurance Linked Investments Fund plc and the Leadenhall Diversified Insurance Linked Investments Fund plc which were valued at £63.7 million on 31 December 2009. These funds are managed by LCP and invest in a portfolio of catastrophe bonds and other alternative investments. Amlin Bermuda Limited is currently the only investor in the two funds but significant third party investment is anticipated in 2010. There is an expectation that sufficient external investment will be made, giving rise to a deemed disposal of the Group's controlling interest in the fund.

On 21 October 2009, Amlin Bermuda transferred insurance-linked securities worth £46.6 million to the two funds.  These transfers were in partial exchange for the initial investment made by Amlin Bermuda and so no amounts were outstanding at the year-end.  No expense was recognised in the period in respect of bad or doubtful debts due from either fund. During the year, the Group recognised £7.4 million of income from its holding in the funds.

37. Related party transactions

The following transactions were carried out with related parties:

Key management compensation

Key management personnel are those directors and senior managers responsible for planning and control of the activities of the Group. Key management comprises nine executive directors and employees and seven non-executive directors (2008: sixteen and eight respectively). Compensation paid during the year to key management personnel is analysed below:

	2009 £m	2008 £m
Short term employee benefits	7.7	11.3
Post-employment benefits	0.4	0.9
Share-based payments	0.7	0.7
	8.8	12.9

Transactions with directors

Certain directors of the Company are also directors of other companies, as described in the directors' biographical details on page 74 of the Annual Report. Such other companies (and/or their subsidiaries) may, and in some cases do, conduct business with companies in the Amlin Group, including GeoVera Insurance Holdings Ltd (of which Mr Feinstein is a non-executive director) and TrygVesta A/S (of which Mrs Bosse is Group Chief Executive Officer), which both purchase reinsurance (or subsidiaries purchase reinsurance) from the Amlin Group. In all cases transactions between the Amlin Group and such other companies are carried out on normal arm's length commercial terms.

Reinsurance contracts between Syndicate 2001 and Amlin Bermuda Ltd (ABL)

Syndicate 2001 placed a number of reinsurance contracts with ABL, a wholly owned subsidiary of the Group.

The reinsurance contracts placed with ABL in the year ended 31 December 2009 are:

·  nine proportional treaty reinsurance contracts for marine, direct property, special risks, specie, war, excess of loss treaty, combined hull, cargo and liability and miscellaneous classes of business;

·  a whole account quota share for the 2009 underwriting year; and

·  one excess of loss reinsurance contract for Aviation.

In the year ended 31 December 2009 ABL placed one excess of loss reinsurance contract with Syndicate 2001.

All reinsurance contracts were agreed on an arm's length basis with terms that are consistent with those negotiated with third parties. These reinsurance contracts, are eliminated on consolidation of the Group's results and the effects on the income statements of such eliminations can be seen in note 4, segmental reporting under the column "intra group items".

The amount of gross written premium ceded to ABL during the period ended 31 December 2009 was £157.1 million (2008: £106.0 million) being £45.8 million (2008: £36.3 million) of specific variable cessions, £110.3 million (2008: £68.9 million) of Syndicate 2001 whole account quota share, £0.3 million (2008: £0.8 million) on the aviation programme and £0.7 million (2008: £nil) on the non-marine programme. ABL recorded a profit of £24.3 million on these reinsurance contracts for the same period (2008: profit £34.9 million).

At 31 December balances included within ABL with respect to Syndicate 2001 reinsurance contracts include:

	2009 £m	2008 £m
Insurance receivables	63.8	56.2
Insurance contracts
- outstanding claims	(111.3)	(102.2)
- unearned premium	(85.9)	(69.7)
- creditors arising from insurance operations	(23.8)	(18.7)

Cash amounting to £70.4 million (2008: £55.6 million) was paid by Syndicate 2001 to ABL in respect of these contracts.

Reinsurance contracts between Syndicate 2001 and Amlin Corporate Insurance N.V. (ACI)

Syndicate 2001 has an arrangement with ACI whereby it can cede reinsurance on individual facultative risk policies with prior agreement. The value of reinsurance premium ceded in 2009 was £0.2 million.

Syndicate 6106

For the 2009 underwriting year of account, the Group established a Special Purpose Syndicate (S) 6106 to write a 15% quota share contract of the excess of loss reinsurance account of Syndicate 2001. The transactions provide external members' capital to support 2009 underwriting, enabling Syndicate 2001 to take advantage of strong opportunities in peak zones in the US, Japan and Europe. Brian Carpenter, a director of the Company, held a 0.07% share of capacity as a Name on S6106. All transactions with S6106 are undertaken on an arm's length basis.

Sale of goods and services

The Group, through its wholly owned subsidiary Amlin Corporate Services Limited, purchases goods and services on behalf of all Group companies and Syndicate 2001. In addition, Amlin plc, the ultimate parent company of the Group, procures certain services.

Amlin plc charges SBA Underwriting Limited £15,000 per annum for accounting and administration services which, is collected on a quarterly basis throughout the year. AUT Holdings Limited, a subsidiary of Amlin plc, holds a 30% interest in the parent company and underwriting of SBA Underwriting Limited.

Purchases of goods and services

Amlin plc, the ultimate parent company within the Group, purchased goods and services from fellow Group companies. The values of these are disclosed below. All goods and services were purchased at cost with the exception of Amlin Bermuda Ltd.

	2009 £m	2008 £m
Purchases of goods and services:
- Amlin Corporate Services Limited	15.9	7.7

 

Amlin Plus Limited

Amlin Underwriting Limited and Lycetts Holdings Limited, the owners of Lycett, Browne-Swinburne and Douglass Limited and Lycetts Hamilton Limited, own 60% and 40% respectively of the share capital of Amlin Plus Limited (Amlin Plus). The business of Amlin Plus (bloodstock insurance) is written under a binding authority agreement with Syndicate 2001, some of which is sourced through a single broker, Lycett, Browne-Swinburne and Douglas Limited. Syndicate 2001 is managed by Amlin Underwriting Limited. The capacity on Syndicate 2001 is underwritten by a fellow subsidiary in the Amlin Group. All transactions between Amlin Plus and its related parties are conducted on an arm's length basis.

During the year Amlin Plus wrote £12.8 million (2008: £15.5 million) of premium under the binding authority agreement, of which £6.7 million (2008: £7.7 million) was produced by Lycett, Browne-Swinburne and Douglass Limited earning brokerage commission of £1.1 million (2008: £1.1 million) on this business. At the year end, Syndicate 2001 was owed £3.3 million (2008: £4.1 million) by Amlin Plus and Lycett, Browne-Swinburne and Douglass Limited owed £1.5 million (2008: £2.3 million) to Amlin Plus.

Year end balance with related parties

Cash resources are held centrally within the Group. This eliminates the need for many of the Group's subsidiary companies to maintain bank accounts and optimises the management of cash resources. As a result of this practice many transactions within the Group are accounted for through intercompany accounts.

37. Related party transactions continued

The following table shows the balances outstanding at the year end between Amlin plc and its related parties. The balances are all unsecured and no provisions are required for bad or doubtful debts.

	Balances during 2009
	Highest £m	Lowest £m	2009 £m	2008 £m
Balances outstanding at the year end:
- Syndicate 2001*	3.7	(128.7)	(1.2)	(0.2)
- AUT Holdings Limited	27.0	(4.7)	-	(4.7)
- Amlin Investments Limited	(149.4)	(149.4)	(149.4)	(149.4)
- St Margaret's Insurance Services Limited	1.3	1.3	1.3	1.3
- Amlin Corporate Services Limited	284.0	87.3	152.2	87.6
- Amlin Corporate Member Limited	81.8	(8.2)	(4.2)	81.8
- AUT (1 - 10) Limited companies	(26.0)	(83.0)	(26.1)	(60.2)
- Delian (A - L) Limited companies	1.0	(5.0)	1.0	(4.9)
- Amlin (Overseas Holdings) Limited	355.4	32.5	270.4	32.5
- Amlin Underwriting Services Limited	2.9	2.4	2.4	2.9
- Amlin Underwriting Limited	0.1	0.1	0.1	0.1
- Allied Cedar Insurance Group Limited	0.3	-	0.3	-
- Amlin Plus Limited	0.3	0.3	0.3	0.3
- Amlin Credit Limited	(2.8)	(2.8)	(2.8)	(2.8)
- Amlin Bermuda Ltd	-	(224.4)	(98.3)	-
- Amlin (Firebreak No. 1) Limited	4.6	4.6	4.6	4.6
			150.6	(11.1)

*               Excludes balances on intra-group reinsurances detailed above.

With the exception of specific loans which have a fixed repayment date all of the above intra-group debt is repayable on demand and corporation tax provisions reflect arm's length prices for the transactions between the Company and its subsidiaries.

38. Acquisition of subsidiaries

i) Amlin Corporate Insurance N.V.

On 22 July 2009, the Group acquired 100% of the share capital and voting rights in Fortis Corporate Insurance N.V., renamed Amlin Corporate Insurance N.V. (ACI), for €350.0 million (£301.7 million). ACI is a leading provider of corporate property and casualty insurance in the Netherlands and Belgium.

The purpose of the acquisition is to expand the Group's non-catastrophe portfolio, providing a Continental European underwriting platform with scope for future growth.

Purchase consideration:	£m
- Initial cash consideration	301.7
- Direct cost relating to the acquisition	5.5
Total purchase consideration	307.2
Fair value of assets acquired (see below)	280.0
Goodwill	27.2

38. Acquisition of subsidiaries continued

The assets and liabilities arising from the acquisition are as follows:

	Acquiree's carrying amount £m	Fair value and accounting policy adjustments £m	Fair value £m
Cash and cash equivalents	59.6	-	59.6
Financial assets	1,069.9	-	1,069.9
Reinsurance assets	189.8	(6.4)	183.4
Loans and receivables, including insurance receivables	173.2	-	173.2
Tax assets	21.5	-	21.5
Intangible assets	-	26.8	26.8
Property and equipment and other assets	0.4	-	0.4
Total assets	1,514.4	20.4	1,534.8
Insurance liabilities	(1,219.7)	28.4	(1,191.3)
Trade and other payables	(14.9)	-	(14.9)
Tax liabilities	(11.0)	(14.4)	(25.4)
Borrowings	(25.9)	-	(25.9)
Retirement benefit obligations	(2.4)	5.1	2.7
Total liabilities	(1,273.9)	19.1	(1,254.8)
Net assets acquired	240.5	39.5	280.0

The assets and liabilities as at the acquisition date are stated at their provisional fair values and may be amended in 2010 when further evidence of the appropriate fair values is expected to be received, in accordance with paragraph 62 of IFRS 3, Business combinations.

The goodwill shown above arose from the premium paid for strengthening the Group's market position in targeted business segments and acquiring the skilled workforce to drive future profitability in those segments. No provision for impairment of goodwill has been made at the balance sheet date.

ACI contributed £53.7 million to the Group's profit before tax for the period between 22 July 2009 and 31 December 2009. If the acquisition of ACI had been completed on the first day of the financial year the Group result for the period would have been a profit before tax of £75.8 million and the gross earned premium would have been £672.8 million.

ii) Crowe Livestock Underwriting Limited

On 30 November 2009, the Group acquired 100% of the share capital and voting rights in Crowe Livestock Underwriting Limited (Crowe), an insurance intermediary. The purchase consideration was an initial £5.6 million with further amounts of between £1.0 million and £4.0 million to be paid in 2012, 2013 and 2014. The fair value of the net assets acquired was £2.0 million and the fair value of the consideration was £7.4 million, resulting in the recognition of £5.4 million of goodwill on acquisition. The goodwill arose from the premium paid for diversifying the Group's underwriting portfolio through entry into the livestock insurance market and the opportunity to build on the current bloodstock book.  The fair value of the contingent element of the consideration is based on the forecast performance of the business over the next three years.

39. Subsequent events

On 22 January 2010 the Group acquired the United Kingdom insolvency practitioners' insurance business from Lockton for £13.0 million.

40. 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 2008 or 2009, but is derived from those accounts. Statutory accounts for 2008 have been delivered to the Registrar of Companies and those for 2009 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 2009 are expected to be posted to shareholders by no later than 31 March 2010. It will also be posted by that date on the Company's website. Copies of the Report may be obtained, once it is published, by writing to the Company Secretary, Amlin plc, St Helen's, 1 Undershaft, London, EC3A 8ND. The Annual General Meeting of the Company will be held at the same address at noon on Wednesday 13 May 2010.

The preliminary Results were approved by the Board on 25 February 2010.

 

END

 

 

FR KKADDFBKDOBB