Interim Results part 1

Amlin PLC
04 September 2006


AMLIN PLC

PRESS RELEASE

For immediate release

4 September 2006



AMLIN DELIVERS ANOTHER STRONG RESULT


Annualised first half return on equity, at 24.2%, above 20% for fourth
consecutive year.


Profit before tax of £120.1 million, down 13.2% owing to lower investment
returns and IFRS currency translation

   •First half yield on average funds invested of only 1.5%, compared to 2.9%
    in H1 2005
   •£45.5 million adverse effect of foreign exchange translation on net
    non-monetary liabilities relative to 2005


Underlying underwriting performance stronger

   •Gross premiums written up 25% to £846.2 million (H1 2005: £675.8 million)
   •London underwriting profit up 7.5% at £101.5 million (H1 2005: £94.4
    million)
   •Solid start to Amlin Bermuda with underwriting profit of £23.6 million
   •Catastrophe exposures successfully reshaped


Interim dividend increased 5% to 4.2p per share (H1 2005: 4p per share)


Balance sheet materially strengthened with £230 million subordinated debt issue


Positive outlook for full year and 2007

   •Earned premiums expected to be skewed to second half more than in recent
    years
   •Net unearned premium reserve at 30 June 2006 up 19% to £779 million (at
    30 June 2005: £653 million)
   •Average renewal rate increase to 31 July of 8.6% for London operation



Charles Philipps, Chief Executive, commented as follows:

'This has been a busy and productive first half for Amlin. The six month result
again demonstrates the strength of our business. While the profit is a touch
down on last year, owing to exchange rate fluctuations, our annualised return on
equity is still a very healthy 24%. With Amlin Bermuda building its potential
and our reinsurance exposures repositioned to address changes in the market we
are well placed going forward.'



Enquiries:
Charles Philipps, Chief Executive, Amlin plc      0207 746 1000
Richard Hextall, Finance Director, Amlin plc      0207 746 1000
Hannah Bale, Head of Communications, Amlin plc    0207 746 1118
David Haggie, Haggie Financial Limited            0207 417 8989 / 07768 332486
Peter Rigby, Haggie Financial Limited             0207 417 8989 / 07803 851426










Financial highlights                                     Six months      Six months 2005   12 months 2005
                                                               2006           (restated)       (restated)
                                                                 £m                  £m                £m
---------------------------------------------------------------------------------------------------------
Gross premiums written (1)                                    846.2               675.8             993.5
Net premiums written (1)                                      766.5               556.5             829.3
Earned premiums                                               481.8               395.5             822.1
---------------------------------------------------------------------------------------------------------
Profit before tax                                             120.1               138.4             186.7
---------------------------------------------------------------------------------------------------------
Per share amounts
Operating profit                                              22.3p               34.4p             44.9p
Earnings                                                      17.9p               25.2p             34.3p
Net assets                                                   153.5p              135.2p            148.7p
Net tangible assets                                          141.1p              118.7p            136.2p
---------------------------------------------------------------------------------------------------------
Group operating ratios (2)
Claims ratio                                                    49%                 44%               57%
Expense ratio                                                   30%                 25%               25%
Combined ratio                                                  79%                 69%               82%

Amlin Bermuda Ltd combined ratio                                 49%                  -                 -
Syndicate 2001 combined ratio                                   84%                 69%               82%
---------------------------------------------------------------------------------------------------------

(1) excluding premiums associated with the reinsurance to close of our increased
share of capacity

(2) the combined ratios include Syndicate 2001 as if the Group owned 100% of
capacity in all years


INTERIM RESULTS STATEMENT


We have had yet another excellent first half. In addition to delivering a very
solid set of results, our exposures to catastrophe risk have been successfully
repositioned to take account of the significant changes to risk appraisal and
reinsurance markets following last year's hurricane season. With this, and a
very promising start for Amlin Bermuda, we believe that we remain well placed to
continue to deliver strong returns for our shareholders.


Our first half pre-tax profit of £120.1 million (H1 2005 as restated: £138.4
million) is pleasing when taking account of an adverse £45.5 million change in
the foreign exchange translation of net non-monetary liabilities relative to
2005(1). Six month return on equity was 12.1% increasing our weighted average
annual return on equity since 2001 to 19.7%.


Amlin Bermuda, in its first trading period, made a strong contribution recording
a profit before tax of £36.8 million.


The underlying result is analysed as follows:


Table 1: Analysis of result

                                 Profit before tax          Underwriting 
                                                            contribution
                                 H1 2006    H1 2005       H1 2006       H1 2005
                                      £m         £m            £m            £m
As reported                        120.1      138.4         101.8         116.6
IFRS translation adjustment         23.3      (22.2)         23.3         (22.2)
                               -------------------------------------------------
Underlying result                  143.4      116.2         125.1          94.4
                               =================================================


The underlying underwriting contribution was strong with our London operations
delivering a return of £101.5 million and Amlin Bermuda a return of £23.6
million. This results from a healthy increase in premium income earned, coupled
with a benign period for catastrophe events.


Aggregate premium income written grew by 25%. Gross earned premium growth was
lower at 13% reflecting the natural lag in recognition of earned premium as the
portfolio grows. Net premium earned increased by 22% (excluding the premium for
reinsurance to close the remainder of Syndicate 2001 from third parties). This
reflects our strategy of purchasing less reinsurance protection for our own
London reinsurance account and currently writing Amlin Bermuda's business
without any reinsurance protection.


The contribution from investments was marginally down at £37.7 million (H1 2005:
£41.3 million). Average investment balances increased to £2.3 billion for the
period (H1 2005: £1.6 billion) but weak bond markets and a lower, albeit
satisfactory, return from our equity portfolio led to the reduction.


Whilst earnings per share, at 17.9p (H1 2005 restated: 25.2p) were lower than in
the first half of 2005, we expect earned premium to be more weighted to the
second half than in prior years owing to the start up of Amlin Bermuda and the
other factors highlighted under Outlook below.


Dividend

The Board has declared an interim dividend of 4.2 pence per share (H1 2005: 4.0
pence per share). This will be paid on 20 October 2006 to shareholders on the
register at the close of business on 29 September 2006. A dividend reinvestment
plan, details of which may be obtained from the Company's registrar or from the
Company's website, is available to shareholders in respect of this dividend.



Trading conditions

For the first time for a number of years trading conditions by class have
diverged. During the first half of 2006 catastrophe exposed classes have
experienced a pricing reappraisal with rate rises being most significant where
available reinsurance capacity is scarce. However, in less catastrophe exposed
lines, for example UK commercial classes and airlines, we have seen continued
pricing pressure as good profits in recent years have led to more intense
competition. Our rating indices (Table 2) illustrates this divergence whilst
confirming the continued acceptable level of rates in most areas.


Table 2: Rating indices for major classes (based on renewal)
Class                                               2000     2001     2002     2003     2004     2005     2006
--------------------------------------------------------------------------------------------------------------
US catastrophe reinsurance                           100      115      146      150      143      144      195
Non US catastrophe reinsurance                       100      120      157      162      146      131      139
US large property insurance                          100      125      180      166      143      136      176
Fleet motor                                          100      121      136      142      140      136      136
Per risk property reinsurance                        100      122      190      192      171      145      163
Energy                                               100      140      172      189      170      176      282
US casualty                                          100      123      172      215      232      237      235
Professional indemnity                               100      110      149      178      180      164      146
Marine hull                                          100      115      148      171      183      188      190
War                                                  100      250      288      244      220      206      195
Airline hull and liabilities                         100      296      278      234      215      191      163
Employers' liability                                 100      115      144      158      159      144      136
--------------------------------------------------------------------------------------------------------------

Overall the renewal rate increase to the end of July for Syndicate 2001 was 8.6%
with 79% of the 2005 account being retained. Given that both Amlin Bermuda's and
Syndicate 2001's new business has been concentrated in areas where rate
increases have been the strongest, our expected underwriting margins will have
grown by more than the renewal rate increase.


The reappraisal of catastrophe exposed risk, whether through revised models used
by reinsurers to assess possible claims costs from catastrophe events or through
changes to business strategy driven by increased capital needed to support an
'A' financial strength rating, has had a far reaching effect on catastrophe
lines and the speed of change has accelerated through the year. The level of
re-pricing at the 1 January renewal season for property catastrophe reinsurance
and property insurance was modest, especially so for non-US risk. However, when
it became clear that the retrocessional reinsurance market (reinsurance of
reinsurance) had shrunk, or was demanding huge rate increases, the pricing
climate hardened. The effect on pricing has been pronounced in the United States
where demand has outstripped available capacity. International catastrophe risk
has seen lower rate rises but upward pressure on rates is increasing.


We are positioned well to take advantage of these market conditions. With Amlin
Bermuda commencing trading on 1 December 2005, property reinsurance is expected
to make up 39% of our portfolio for 2006 (2005: 34%). Importantly, this growth
has been controlled with risk management continuing to be a key area of focus
for the business and reflecting our desire to maintain a well diversified
exposure to underwriting risk.



Underwriting performance

Underwriting contribution, after removing the effect of exchange translation
differences on non monetary liabilities, increased by £30.7 million to £125.1
million. The contributions of Syndicate 2001 and Amlin Bermuda were respectively
£101.5 million and £23.6 million. The combined ratio, on a similar basis, was
75% (H1 2005: 74%). Net earned premium (excluding the premiums associated with
the reinsurance to close of our increased share of capacity) rose by 22% to
£481.8 million (H1 2005: £395.5 million). This growth is attributable to both an
increase in business written by the Group and lower reinsurance expenditure.


Premium income

Gross premium written increased by 25% to £846.2 million with growth
concentrated in the property, energy and reinsurance accounts in London, and the
successful start up of Amlin Bermuda. Gross premium written reduced most in our
UK commercial account as retention rates fell in the face of more intense
pricing competition.


In its first six months of trading, Amlin Bermuda wrote £161.8 million of
business, of which £78.1million was new to the Group. We are pleased with the
quality of business being written by Amlin Bermuda and while income to date is
somewhat lower than the original plan, it still represents an excellent start
for the company. Most of the shortfall arose at the beginning of the year, as
the company received its financial strength ratings a little too late to take
full advantage of the 1 January renewal season. Additionally, competition for
international catastrophe business early in the year made it initially more
difficult to satisfactorily build that part of the account. As explained below,
Amlin Bermuda's risk appetite was also reduced to help compensate for greater
catastrophe risk being carried by Syndicate 2001.



Outwards reinsurance

Reinsurance expenditure as a proportion of gross written premium has fallen to
9.4% from 17.7% for the same period last year. This reflects Amlin Bermuda
writing business without reinsurance protection and reduced expenditure for the
London business.



Claims

The claims environment over the last six months has been favourable with no
major natural catastrophes impacting the Group. However, we have experienced a
higher frequency of larger risk losses on the marine, property and aviation
accounts in this period, underscoring in part the exceptionally low level of
losses that we have seen in recent years.


The prior year run off profit in the period was £26 million (H1 2005: £30
million). Looking forward, our reserving policy remains unchanged and we would
expect to continue seeing a positive contribution from our prior period reserves
if normal development is experienced.


We have continued to receive notifications and updates from our clients relating
to last year's hurricanes. We have been able to make a small release from our
overall reserves and still consider that the reserves held are robust.


Overall, the claims ratio was again very creditable, at 49% (2005 H1: 44%).



Expenses

Business acquisition costs were similar to the same period in 2005, at
approximately 18% of gross earned premium.


The increase in other operating expenses is attributable to the movement in
exchange rates on the value of net non monetary liabilities. We have made
savings in Lloyd's and some other costs which have offset the additional
expenses of Amlin Bermuda.



Segmental commentary

The following commentary and Table 3 is provided on the basis that Amlin owned
all of Syndicate 2001's capacity for all relevant underwriting years so that
changes in ownership do not distort the performance. In addition, the commentary
is after removing the effect of the foreign exchange translation of non monetary
liabilities to allow focus on the business trends.

Table 3: Divisional combined ratios

                                                    Non-                     UK                   Amlin     Total
                                                  marine   Marine    commercial  Aviation       Bermuda
-----------------------------------------------------------------------------------------------------------------
Net premiums earned (£m)                           246.7     83.5          79.0      29.8          45.9     484.9

Combined ratios before removing the effect of foreign exchange translation of non monetary liabilities
Claims ratio                                         40%      57%           63%       84%           37%       49%
Expense ratio                                        33%      40%           24%       42%           12%       30%
-----------------------------------------------------------------------------------------------------------------
Combined ratio H1 2006                               73%      97%           87%      126%           49%       79%
Combined ratio H1 2005                               62%      68%           79%       80%            -        69%
-----------------------------------------------------------------------------------------------------------------

Combined ratios after removing the effect of foreign exchange translation of non monetary liabilities
Claims ratio                                         39%      56%           62%       81%           37%       48%
Expense ratio                                        28%      35%           24%       35%           12%       27%
-----------------------------------------------------------------------------------------------------------------
Combined ratio H1 2006                               67%      91%           86%      116%           49%       75%
Combined ratio H1 2005                               69%      73%           79%       90%            -        74%
-----------------------------------------------------------------------------------------------------------------


Non- marine (51% of net earned premium in period)

Our London non-marine combined ratio at 67% (H1 2005: 69%) is another excellent
first half result. Net earned premium has increased by 15% reflecting growth in
the property and property reinsurance accounts into strengthening market
conditions.


The claims ratio reflects the benign environment for catastrophe losses in the
first half. The fall in the expense ratio largely reflects a shift towards
reinsurance which carries lower brokerage costs.


Amlin Bermuda (10% of net earned premium in period)

Amlin Bermuda's combined ratio of 49% is a very solid start. With 97% of its
direct/non-group income being derived from property reinsurance it is not
surprising that it has benefited from the benign claims environment noted above.


The company has made excellent strides towards its strategic aim of building a
diverse reinsurance portfolio similar to the high quality account of Syndicate
2001.


Marine (17% of net earned premium in period)

The marine division's combined ratio has increased to 91% (H1 2005: 73%). The
claims ratio has increased to 56% from 42% reflecting higher than average specie
claims during the period.


Gross premium written has increased by 33%, with growth concentrated in the
energy account where income has been increased by 91% in the first six months
while exposures to modelled losses have successfully been reduced. Net earned
premium has increased by only 20%, however, as higher reinsurance costs have
been expensed faster than this new premium is earned. This effect will unwind
over time.


The expense ratio has also increased due to growth in classes that carry higher
brokerage costs including energy and yacht.


UK commercial (16% of net earned premium in period)

The UK commercial combined ratio of 86% (H1 2005: 79%) is another good result.
The claims ratio remains healthy at 62% despite increasingly competitive market
conditions in commercial motor and liability classes and has been helped by a
continuing good run off of prior years.


The expense ratio increase reflects lower levels of gross written and net earned
premium, down 8.7% and 3.2% respectively, and a change in mix of business away
from motor to liability business which has higher brokerage rates.


Aviation (6% of net earned premium in period)

The aviation result is disappointing with a combined ratio of 116% (H1 2005:
90%). Written and earned income are relatively stable but well down from the
highs in 2001 and 2002. The airline account continues to be under pressure but
the other aviation classes continue to attract rate increases.


The swing in the result reflects the continued shrinkage of the higher margin
but more volatile airline account in the face of increased competition coupled
with a series of small to medium sized airline losses. On a small income base
where pricing has become less attractive, frequency of claims can quickly turn a
good combined ratio to negative. However, we continue to believe that our
strategy of reducing exposures and becoming more selective is correct in these
conditions.



Reinsurance and exposure management strategy

A major focus during the period, as a consequence of the enormously changing
reinsurance markets, has been our decision to reshape our exposures to help
ensure that we continue to generate acceptable returns while managing
appropriately the downside risk of major catastrophes.


Historically Amlin has bought significant levels of reinsurance to reduce the
volatility of the underwriting result, and to manage the risk of severe events
weakening the Group's financial strength.


We were able to renew our reinsurance programmes for direct insurance accounts
(for example property, marine, aviation and UK commercial) in a similar manner
to the previous year, albeit at an increased total cost. However, we considered
the pricing and levels at which we were offered both retrocessional cover, (to
protect our Syndicate reinsurance account), and umbrella cover, (a whole account
protection that has sat above all of our insurance and reinsurance protections),
to be uneconomic. We have therefore bought significantly less of these types of
reinsurance and decided to reduce our gross catastrophe exposures in Syndicate
2001. By managing down these exposures we believe that the risk return equation
is better for Amlin, particularly taking account of the significantly improved
pricing for inwards catastrophe business.


In Syndicate 2001, much of this reduction in exposure has focused on the
reinsurance account by reducing or non renewing lines. Also, in the early part
of the year Amlin Bermuda, which initially had little exposure of its own, was
able to offer Syndicate 2001 retrocessional cover so as to contain the net
exposure of the London business to acceptable levels. The cost of this
protection was $12 million and has all expired without loss - effectively
delivering a cost saving to the Group as a whole.


With no umbrella protection, we have also actively managed down our property and
energy exposures. To illustrate this: by 1 July 2006 the gross loss for our
modelled Gulf of Mexico Syndicate realistic disaster scenario had been reduced
by 27% and 40% for our direct property insurance and energy portfolios
respectively when compared to scenarios as at 1 January 2006.


Recognising the additional volatility being borne by Syndicate 2001, and with
Amlin Bermuda writing a quota share of the syndicate, Amlin Bermuda also reduced
its risk appetite by $50 million to $200 million for a single zone and $250
million for multi zone perils.


Having implemented the above changes, we believe we have satisfactorily reduced
the Group's gross exposures such that the Group is within its risk appetite for
the US windstorm season. All of our current modelled single zone event scenario
net losses are under £225 million, with the highest modelled event loss being a
potential Japanese earthquake. For multi zone scenarios our highest modelled
event loss, being a $65billion US northeast windstorm, has been successfully
managed down to approximately £330 million. Set against this we have saved
approximately $70 million of reinsurance cost compared to 2005.


Finally, maintaining our underwriting diversity, by class and within classes,
continues to provide a cushion to the catastrophe exposure.



Investment return


Table 4: H1 2006 investment mix and returns

                                          Average balances in H1
                                    Syndicate  Corporate      Total      Total   Investment return
                                           £m         £m         £m          %                   %
--------------------------------------------------------------------------------------------------
Property                                   5.9         -        5.9        0.2%              -1.3%
Equities                                     -      129.3      129.3        5.7%              6.4%
Debt securities                        1,144.7      103.0    1,247.7       54.7%              0.5%
Cash and cash equivalents                133.7      764.9      898.6       39.4%              2.3%
--------------------------------------------------------------------------------------------------
                                       1,284.3      997.2    2,281.5      100.0%              1.5%


Investments contributed £37.7 million to the first half result (H1 2005: £41.3
million). Overall the investment base rose with average investments amounting to
£2.3 billion for the first half compared to £1.6 billion in the same period last
year. However, the reduction in return reflects lower contributions from the
bond and equity portfolios compared to 2005.


Much of the increase in the investment base arises out of the capitalisation of
Amlin Bermuda late last year through new equity and debt issues. The Bermuda
assets amount to $1 billion and are invested against US dollar benchmarks. In
the first six months these assets were invested in cash funds and returned 2.3%,
a good return when compared to US dollar bonds.


The Syndicate's policyholders' funds, amounting to average funds of £1.3 billion
for the period (H1 2005: £1.2 billion), were invested in short dated bonds.
However, the continued increases in interest rates by the Federal Reserve in the
United States as well as concerns over inflation and nervousness over rate rises
in the United Kingdom, resulted in a poor period for bonds with our sterling
return amounting to only 0.8% (H1 2005: 3.4%) and US dollar returns of only 0.3%
(H1 2005: 1.2%).


The London corporate funds have continued to be invested in equities and cash
for much of the first half although part of the cash balance has now been
invested in short dated sterling bonds. The cash funds returned 2.3% (H1 2005:
2.4%).


The equity portfolio produced a good return of 6.4% (H1 2005: 10.3%) in more
challenging markets, with our equity manager outperforming their benchmark by
7.4%. Performance through the first half year in equity markets was volatile,
with a stronger than expected first quarter and disappointing second quarter. We
took advantage of better first quarter performance to purchase an equity put
option, which expires on 29 December 2006, for approximately 20% of the
portfolio at its then value.



Taxation

The effective rate of tax for the period is 21.0% (H1 2005: 27.7%). The low
effective rate is due to a combination of factors.


First, Amlin Bermuda operates locally with no corporation tax. As we believe the
company meets the requirements to be exempt from controlled foreign company
status in the UK, no current tax is provided. Deferred tax has been provided to
take account of tax that will become due on distribution of profits from
Bermuda. Secondly we have again utilised brought forward unprovided capital
losses to offset capital gains from the equity portfolio.


Balance sheet strength and flexibility

The Group's balance sheet has continued to be strengthened.


Cash flow within the Group has been healthy and we were pleased to see the
release of £196 million from our Syndicate trust funds through the new quicker
Lloyd's distribution system.


In April, Amlin issued its first public debt placement raising £230 million of
subordinated debt in the UK market and opening up access to another source of
long term capital. The subordinated debt provides the Group with better quality
debt capital. It is long term, repayable after 20 years with a call date after
10 years. Historically we have had to renegotiate our bank facilities at least
every two years. Additionally, it is unsecured, contains no financial covenants
which could lead to early repayment and is eligible as capital under FSA rules.


The purpose of the debt issue was to refinance part of the short term debt of
£243 million that was raised in November 2005 to initially finance Amlin
Bermuda. This has all now been repaid out of free cash flow or the proceeds of
our long term debt issue.


The changes to the debt structure are reflected in the increase in financing
costs from £3.5 million to £12.4 million for the first half. Historically Amlin
has used letters of credit to finance part of its Lloyd's capital. Only the
commission charges were recognised as finance costs because no cash was received
by Amlin. With the subordinated debt, Amlin's cash and investments are increased
and we benefit from the investment return on the monies raised.


Our internal modelling confirms the strength of our current capital position
with the total debt to capital ratio now standing at 26% (31 December 2005:
36%), an acceptable position at this point in the cycle. We would expect that
this ratio will decline as we move through the cycle such that the financial
risk is reduced when margins on the underwriting business are lower.


Another area of focus in the first six months has been the effective management
of the Group's reinsurance assets, which were materially increased following the
hurricane events of last year. To date we have collected $265 million from
reinsurers out of $306 million that has fallen due in respect of last year's
hurricanes. This leaves a further $330 million to collect once we have paid the
underlying claims. The quality of the overall outstanding reinsurance recoveries
remains good with 97% from reinsurers with an Insurance Financial Strength
Rating of A- or better.


During the period we recorded an exchange loss of £42 million through
consolidated reserves on the retranslation of Amlin's Bermudian companies. With
Amlin Bermuda writing predominantly dollar denominated risk and it being the
Company's start-up year, we have not hedged its balance sheet.



Operational improvements

We set out in our 2005 annual report a number of initiatives for 2006 that would
move us closer to our vision of Amlin in 2009. A number of these initiatives
were focused on effecting operational change within the business. They included
increasing our electronic trading capability and claims services to ensure that
Amlin's team are operating with the best systems and Amlin's clients are
receiving top quality service.


During 2006 to date we have made big strides in delivering these ambitions. This
has included a range of projects where we have worked with a number of other
Lloyd's agents, collectively known in the market as 'G6', to act as a catalyst
for change. This recognises that, as we operate as part of a subscription
market, only solutions that work for the majority will benefit our clients.


We are now in a position where we can trade and transfer information
electronically with two of our main broking partners and expect that other
brokers will quickly follow. This should help to increase speed of placement,
enhance service to our clients and make the whole process more efficient.


We have continued to enhance our London Market claims offering through enhancing
skills and systems. Again, this will improve our service and will make the
claims process more efficient for us and brokers.



Outlook

Our outlook for the full year remains good. We recognise that the windstorm
seasons in the Atlantic and Pacific are still to pass but rating conditions have
adjusted to reflect an increased frequency and severity of storms.


We expect net earned premium to be more skewed to the second half of 2006 than
in recent years. This is due to the growth in gross premium written generated in
the first six months, with rate increases accelerating through the period.
Therefore, as we earn premium income through the whole policy period, the impact
of this growth in the period on earned premium is more muted than for written
premium. This effect will unwind through the year, particularly as the renewal
dates for the classes of business in which we are growing most are concentrated
in the first half of the year. Also, with less reinsurance purchased in London
and none in Bermuda, the growth in gross earned premium will feed more directly
into the results.


Indeed, net unearned premium at 30 June 2006 has increased to £779 million; a
£126 million or 19% increase on that at the same date last year. As has become a
feature of our results we expect to continue to generate run-off profits from
our prudently set reserves as long as we experience normal, or better than
normal, claims development.


We would normally expect that the investment side of the business should
generate a bigger contribution than we have reported in the first half of 2006.
As noted above the bond market was particularly testing in the period but we
began the second half of the year with higher yields. In addition, our cash and
investment balances remain strong and are 2.8 times the size of our equity
shareholders' funds.


In line with our strategy we have grown income most in lines where conditions
have been strongest, such as catastrophe reinsurance and energy insurance, and
have contracted where weakening conditions are resulting in more questionable
margins, such as our UK commercial classes and airlines. While our growth in
income this year has been in some of our more volatile accounts, our overall
exposures have been managed to contain our downside catastrophe risk within
acceptable limits. We also expect to grow the attritional content of our
catastrophe exposed accounts when conditions are supportive of growth.


We anticipate that catastrophe exposed risk will remain well priced into 2007,
and most probably beyond. The extent of severe events and fresh capital into
this part of the industry going forward will be major determinants of actual
conditions. In other areas we anticipate that there will be a gradual softening
of rates but are hopeful that there will not be a slide and that some areas,
such as UK commercial motor insurance, may take a positive turn before too long.


With market conditions diverging between business lines, we expect the value of
our diversity to be realised once again through our ability to allocate capital
between lines with a view to optimising the relationship between our risk and
expected return. We continue to look to the future confident of our ability to
deliver our target returns.












(1) The exchange difference on net non-monetary liabilities arises through
translation of unearned premium reserves, deferred reinsurance expenditure and
deferred acquisition costs at average historical rates, whereas all other
related monetary balance sheet items are translated at the closing rate of
exchange.




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