Preliminary Results

RNS Number : 6421Y

Amlin PLC

05 March 2012

AMLIN PLC

PRESS RELEASE

For immediate release

5 March 2012

Preliminary results for the year ended

31 December 2011

WELL POSITIONED FOR IMPROVING MARKETS

Highlights

· Loss before tax of £193.8 million (2010: profit before tax of £259.2 million)

· Net catastrophe losses of £500.8 million, relative to expected catastrophe losses of £170 million

· Negative return on equity of 8.6% (2010: positive 13.9%), with five year weighted average return of 14.7% (2010: 24.7%)

· Investment return of £40.5 million, equivalent to 0.9% (2010: £175.0 million, 4.0%)

· Combined ratio of 108% (2010: 89%), includes 27% generated by major catastrophe losses

· Reserve releases of £112.6 million (2010: £156.5 million)

· Dividend (paid and proposed/declared) maintained at 23.0 pence per share

· Net tangible assets per share decreased 22.4% to 243.0 pence (2010: 313.2 pence)

· Capital £402.7 million above assessed capital requirement at 31 December 2011 (2010: £695.9 million)

· Roger Taylor has decided to retire as Chairman following the 2012 AGM - Richard Davey will succeed him

Charles Philipps, Chief Executive, commented as follows:

"2011 was an exceptionally challenging year for Amlin in which the quality and professionalism of our service to clients was amply demonstrated. While catastrophe claims were a primary focus during the year, importantly, we continued to make strategic progress. Our strong balance sheet and leading market position means that we are already benefiting from the improving trading environment and are well placed to resume the delivery of good returns for Shareholders.

"Overall, with the underlying profitability of our core business in London in 2011, an improving rating environment in reinsurance and UK motor in particular, the expectation of better performance at ACI and the capital to support our planned growth in premiums, we expect to return to a good level of profitability in 2012."

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
Ed Berry, Vice-President, FTI Consulting	0207 269 7297
Media
Hannah Bale, Head of Communications, Amlin plc	0207 746 1118
Ed Gascoigne-Pees, Managing Director, FTI Consulting	0207 269 7132

Financial highlights

	2011 £m	2010 £m	2009 £m	2008 £m	2007 £m
Gross written premium	2,304.1	2,172.5	1,543.9	1,034.0	1,044.7
Net written premium	2,013.2	1,910.3	1,322.6	915.7	938.3
Net earned premium	1,927.4	1,748.1	1,317.3	913.5	972.3
Underwriting contribution	(146.0)	185.6*	355.2*	211.4*	343.0*
Investment contribution	40.5	175.0	207.5	18.0	157.0
Other costs	(88.3)	(101.4)*	(53.6)*	(107.8)*	(55.0)*
(Loss)/profit before tax	(193.8)	259.2	509.1	121.6	445.0
Return on equity	(8.6)%	13.9%	37.0%	7.8%	37.8%
Net assets	1,420.4	1,729.9	1,593.1	1,216.1	1,052.3
Net tangible assets	1,201.5	1,545.4	1,430.3	1,105.9	983.3
Per share amounts (in pence)
Earnings	(30.3)	45.0	94.1	17.1	66.3
Net assets	287.2	350.6	322.6	259.5	220.7
Net tangible assets	243.0	313.2	289.6	236.0	206.2
Dividend under IFRS¹	23.0	20.7	17.5	16.0	20.8²
Dividends (paid and proposed/declared) for the calendar year¹	23.0	23.0	20.0	17.0	5.0
Capital return via B shares	-	-	-	-	22.4
Group operating ratios**
Claims ratio	78%	60%	43%	55%	36%
Expense ratio	30%	29%*	30%*	22%*	28%*
Combined ratio	108%	89%*	73%*	77%*	64%*

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

2 Includes special dividend of 8.0 pence per share.

* To ensure continued consistency with the management information provided to the Board of Directors, each operating segment now includes the insurance intermediary and service entities, which generate income and expenses directly related to that respective segment, and certain operating expenses have been reclassified as underwriting expenses. Accordingly, the information in the table above has been restated to reflect these changes.

** 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

"In a difficult year, the strength of our balance sheet and the quality of our people enabled us to rise to the challenge of multiple catastrophe events and demonstrate our commitment to our clients. We are well positioned to benefit from improving markets."

Roger Taylor, Chairman

Results and dividend

2011 was an exceptional year for catastrophe losses, both in terms of scale and location. For the first time we encountered record natural catastrophe losses mainly from outside the US, including in what were viewed as non-peak zones for catastrophe exposures. In total, earthquakes in New Zealand and Japan and severe weather related events, including US tornadoes and floods in Australia, Denmark and Thailand, cost Amlin £500.8 million on a net basis. In addition to this wide ranging loss activity, we were also managing assets in a difficult and volatile environment, with historically low interest rates, which adversely affected the investment return achieved. Overall, we were disappointed to report a pre-tax loss of £193.8 million and a negative return on equity of 8.6%. It is our business to pay claims and prompt settlement following catastrophes is the most practical way of helping our clients and the communities they serve to recover from such events. It is a testimony to the quality of our organisation that we have been delivering a high level of service to clients in this regard, so maintaining our strong market reputation.

In years when catastrophe activity is low or average, the margins available to us on the catastrophe account, combined with the profitability of the rest of the portfolio, are reflected in high returns. Despite the negative return on equity for 2011, our five year average return on equity of 14.7% is only slightly below our cross-cycle target of 15% and over a ten year cycle since 2002, which includes previous severe catastrophe losses in 2005 and 2008, it remains well above target at 18.0%.

We remain focused on managing the business to produce excellent cross cycle returns for shareholders. The strength of our balance sheet has allowed us to meet our obligations to policyholders quickly and fairly and move forward with ample capital into an improving trading environment. Our confidence in the outlook for the business is reflected in the decision of the Board to propose a final dividend of 15.8 pence per share (2010:15.8p), thus maintaining the total dividend declared at the same level as 2010, despite being uncovered by earnings. The final dividend will be paid on 24 May 2012, subject to shareholder approval, to shareholders on the register on 10 April 2012. In the longer term, our goal remains to steadily grow the dividend.

It has been part of our long term strategy to underwrite a balanced portfolio of US and international catastrophe reinsurance. As a result, in 2011 we incurred disproportionately greater losses than some of our more US-focused peers. However, this international catastrophe portfolio has generated a good return over the longer term and provided a valuable counterbalance to our US exposures. We are confident it will continue to do so in the future.

Our major catastrophe claims in 2011 were mainly the result of earthquakes. A feature of earthquake claims is that it is very difficult to crystallise initial loss estimates and these were no exception, causing us to revise estimates during the year. We have taken the opportunity in our 2012 plans to modify risk appetite by purchasing more outwards reinsurance, particularly for Amlin Bermuda.

While catastrophe claims loomed large, it was also not an easy year for large risk losses. ACI, in particular, experienced an unusual concentration of large losses in the first half of the year, which adversely affected its full year result.

Strategic progress

Despite the challenges posed by catastrophe events and financial market upheaval during 2011, management continued to focus on the development of the business and the delivery of our strategic vision for profitable long term growth.

Amlin Re Europe, which started underwriting in October 2010, got off to an excellent start and has the potential to develop into an important longer term earnings stream for the Group. We also continued to make targeted small acquisitions, with J R Clare and Lead Yacht further broadening the scope of business written by Amlin UK and Amlin London respectively. The underwriting ratios obtained by Amlin London in their principal lines of business, other than catastrophe reinsurance, were similar to the previous year, a particularly good performance in difficult market conditions. Amlin UK continued to grow its motor and property accounts as pricing improved, benefiting from previous investment in underwriting and distribution.

ACI remained a key focus during the year. Its disappointing result for 2011 does not reflect the sustained effort and substantial resource being applied both within ACI and the wider Group to integrate and improve this business. Step by step progress towards sustainable profitability is being made and we remain confident of ACI's strategic value to Amlin over the longer term.

Elsewhere, excellent progress was made in a number of key areas, notably our preparations for Solvency II. The tangible benefits to the business realised so far from implementing our Target Operating Model already outweigh our investment in its development. Over the longer term, we anticipate significant further advantage, particularly in risk management and capital efficiency. This programme has required the co-operation of colleagues from a range of disciplines and locations across the Group and its success is an excellent example of the teamwork which is one of our core values. Actuaries, risk modellers, accountants, IT specialists and other professionals throughout the business play important roles in supporting our underwriters. We continue to invest in high calibre people across these disciplines to ensure that we are resourced to support a larger and more diverse business.

Governance and the Board

The Board believes that high standards of Corporate Governance are intrinsic to Amlin's culture and values. We have further developed our strong culture of accountability through a review of our executive processes and the subsequent interaction throughout the organisation and with our subsidiary boards.

Through the work of the Audit Committee chaired by Nigel Buchanan, our Senior Independent Director, and the Risk and Solvency Committee, led by Richard Davey, the Board has been updated on pertinent matters in what is an increasingly complex regulatory environment, allowing the Board to focus on challenging and encouraging executive management and on the strategy for the Group as a whole.

During 2010, the Board, upon the recommendation of the Nomination Committee, identified the need to recruit an additional member, which culminated in the appointment of Sir Alan Collins as a non-executive director on 14 November 2011. Sir Alan, who has had a distinguished career in HM Diplomatic Service, brings a wide experience of promoting international business activity, which will broaden the diversity of skills on the Board.

At the AGM in May, all of the directors are standing for re-election (as we announced last year), other than Sir Alan Collins who is standing for election and myself. I am confident in recommending to shareholders, following individual as well as collective evaluation, that the Board possess the necessary skills and diversity of experience that a complex insurer like Amlin requires.

I was elected as a director and appointed Chairman of Amlin on its formation from the merger of Angerstein and Murray Lawrence in 1998 and it is my intention to retire at the AGM in May. Succession planning, led by Nigel Buchanan in his capacity as Senior Independent Director, resulted in the Board inviting Richard Davey to serve as Chairman immediately following the AGM on 17 May 2012. Richard Davey is an outstanding financier and very capable director, who I have every confidence will be an excellent Chairman of Amlin.

Outlook

Many of the investments made in recent years in new teams, niche acquisitions and better operational capabilities have been against a backdrop of softening market conditions, with a view to positioning the business to grow as and when the trading environment improves. Now that we are seeing an upward trend in pricing in much of Amlin's portfolio, albeit not a hardening market across all lines, we are well placed. The broader scope of the business, with three well capitalised underwriting platforms, gives us greater flexibility to manage exposures and the cycle, as well as creating more opportunities for profitable growth.

The Amlin team

As Chairman of Amlin I have witnessed many aspects of the Group's remarkable development. However, a key to our success has been our ability to retain, recruit and develop talented individuals in all aspects of our business, from front line underwriting to the key support services. I have personally taken great pleasure seeing people flourish in their careers at Amlin, but also welcomed many excellent new staff who have joined our various operations as they have developed, both in the UK and internationally. I can assure shareholders that Amlin has a stronger team today than ever before and I take pride in them all.

2011 was a challenging year, with major losses following one after the other, yet the staff remained motivated, delivering on their plans for the year and ensuring that Amlin was positioned to seize opportunities as markets reacted to events.

A great team needs good leadership and in an unexpectedly tough year, Charles Philipps and his colleagues have responded admirably. We are in good heart and I would like to thank Charles, his management colleagues and all our employees for their hard work and resourcefulness.

It has been a privilege to serve the shareholders as Chairman of Amlin, but it has also been a pleasure to work with a first class team of insurance industry professionals.

Roger Taylor

Chairman

CHIEF EXECUTIVE'S REVIEW

The combination of an extreme frequency and severity of natural catastrophes at a low point in the insurance cycle, a difficult climate for investments and poor performance from ACI, resulted in 2011 being the worst year on record for Amlin since 2001. However, our strong strategic and financial positioning, together with actions taken to address the poor performance at ACI, leaves us well placed to grow in the healthier underwriting environment which is emerging.

Amlin has continued to make considerable progress in enhancing operational and risk management practices so that it is well prepared for the introduction of Solvency II. Through active claims management associated with 2011's catastrophes, we have also reinforced our exceptionally strong reputation among brokers and clients.

Financial result

The main driver of the pre-tax loss of £193.8 million, were seven significant catastrophes, including major earthquakes in New Zealand and Japan and extreme flooding in Thailand. These events are estimated to be three of the ten costliest insured loss events in global history. The US also witnessed two of its largest ever tornadoes. Amlin's net catastrophe losses in 2011 totalled £500.8 million, with £255.2 million expected to be recovered from outwards reinsurance and reinstatement premiums.

Catastrophe losses to Amlin in 2011

Catastrophe loss	Event date	Market insured loss estimate $m	Amlin London estimated net loss £m	Amlin Bermuda estimated net loss £m	Amlin Group estimated net loss £m
New Zealand earthquake ¹	22 February	13,000	116.7	95.9	215.2
Japanese eathquake ¹	11 March	35-40,000	67.3	69.1	137.7
US tornado Tuscaloosa ¹	27 April	7,300	6.3	8.7	15.0
US tornado Joplin ²	22-28 May	6,900	3.5	9.5	13.0
New Zealand earthquake ³	13 June	1,800	13.2	11.0	24.1
Danish cloudburst ³	2 July	1,090	1.4	14.0	15.7
Thai floods ¹	August to November	10,000	38.9	36.2	80.1
Total			247.3	244.4	500.8

The Group's total estimated net catastrophe losses include £9.1m of losses incurred within other Amlin divisions.

1 Munich Re, 4 January 2012

2 PCS estimate

3 Aon Impact Forecasting 2012

Amlin is one of the leading reinsurers in Lloyd's and the London Market, as well as in Bermuda. As was the case in 2010, catastrophe activity was weighted towards international rather than US accounts, where Amlin has a more developed book of business than many of our competitors. The broad geographic spread of our catastrophe exposures has resulted in robust performance over many years, with £662.8 million of profit generated over the past 10 years, including 2011. However, in years such as 2011, where our models suggest the frequency and severity of activity should occur less than once in every thirty years, we will incur significant claims.

Performance of Amlin catastrophe book over past 10 years (by underwriting year)

Net loss ratio % by underwriting year	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010	2011
US catastrophe	128	24	25	111	140	15	9	115	17	28	55
International catastrophe	35	37	1	51	48	5	19	8	63	399*	113
Total catastrophe	76	31	11	76	95	12	13	74	35	175	80

* The 2010 underwriting year is impacted by major catastrophes in the 2010 and 2011 calendar years, notably the Chilean, New Zealand and Japanese earthquakes, plus Australian floods. Loss ratios are expressed as a percentage of premium after deduction of brokerage costs.

Amlin London's underwriting result of a £13.9 million loss with a combined ratio of 102%, after £247.3 million of catastrophe losses, net of reinsurance recoveries and reinstatement premiums, demonstrates the solid underlying performance of its diverse account where 33.6% of its premium income is catastrophe and property reinsurance. Amlin Bermuda's loss of £58.1 million and a combined ratio of 112% largely reflects the fact that since its start up in 2005, it has purchased less retrocessional reinsurance protection than Amlin London, but it is also a more catastrophe orientated business.

Amlin UK continued to grow its income, assisted by the acquisition of J R Clare whose accounts performed well. Its full year underwriting loss of £7.9 million and combined ratio of 103% was better than in the first half of the year, helped by improving margins on its fleet motor account and the prudent reaction to unusual prior year claims development on its property and motor accounts at the half year proving to be over cautious.

ACI and Amlin France performed poorly with underwriting losses and combined ratios of £56.0 million and £10.6 million and 112% and 124% respectively. Amlin France was affected by exposure to overseas French property interests which suffered losses from the February New Zealand and March Japanese earthquakes and the Thai floods, without which performance would have been satisfactory. ACI's marine business performed considerably worse than expected, while its non-marine businesses delivered respectable results given the competitive nature of their markets. With the considerable changes and corrective action taken at ACI's marine business over the previous two years, we started 2011 with the expectation of seeing an improvement on 2010's performance. It was materially adversely affected, however, by three principal factors. There were an exceptional level of large claims, claims on long term contracts, particularly in the commodities cargo account, which expire in 2012, and the need to strengthen reserves on its long tail shipbuilding account, where it became evident that ACI had taken more profit than it should have done in 2007 and 2008.

Amlin Re Europe, our new Zurich based European reinsurer, was well received by brokers and clients and wrote £107.4 million of premium income in its first full year, 81.6% of the Group's overall growth in premiums. However, with only £50.9 million of its net premium income having been earned in 2011 and a full year of operating expenses, it contributed an underwriting loss of £2.6 million and a combined ratio of 105%, a respectable result for a start up year.

The combination of low interest rates and, in the latter part of the year, the growing Eurozone crisis, made the generation of an investment return difficult, whilst managing our portfolios against a risk of a reversal in long term interest rate trends and a banking crisis. In this environment we were pleased to end the year in positive territory.

Strategically we have focused over the years in maintaining a strong balance sheet which has the propensity to fund a dividend in the event of a year such as 2011. Accordingly, the dividend has been maintained at 23.0p per share and, if we return to a more normal year in terms of major loss events, we expect to return to our policy of steadily increasing the dividend in 2012.

Amlin's five and 10 year average returns on equity, of 14.7% and 18.0% respectively, remain near to and above our cross cycle target of 15%, despite the loss incurred in 2011.

Positioning for 2012

Whilst we do not expect the circumstances of 2011 to be repeated frequently, it is important that we learn and adjust to improve the balance of risk and reward for the future. As 2011 unfolded, we focused our attention on two critical areas: firstly, what we could have done differently or better in our catastrophe exposure management; and secondly, what further action we could take at ACI to ensure that it meets our required return on equity of 15%.

Amlin's largest 2011 catastrophe loss was the February earthquake in New Zealand. This was an extraordinary event in terms of its damage to Christchurch and in an area where the modelling of events is less well developed. While the Group's loss from this event was within our risk tolerance and New Zealand modelled loss scenarios, our market share of the loss was higher than we consider appropriate given market conditions. We have reviewed all market shares globally and have decided to downsize in a limited number of areas where we are overweight, unless the pricing of risk is sufficiently strong to justify an above average position. However, we remain as focussed as ever on our strategy of maintaining a diverse and balanced book of risk.

Amlin London's retrocessional reinsurance programme responded well to the frequency of events in 2011, but Amlin Bermuda, which has operated since its creation in 2005 with less protection, suffered from the combination of frequency and severity of events in 2011. For 2012, the protection purchased for Amlin Bermuda is much more in line with that for Amlin London, and we have reduced the first loss retention for Amlin London. We have also issued our first catastrophe insurance bond in the capital markets, which provides an additional $150 million of protection against extreme severity and/or frequency of events in the US and Europe in a calendar year. The bond has a three year duration.

The purchase of this new catastrophe reinsurance programme has reduced our expected loss from a modelled 1 in 50 and 1 in 100 year event from £293 million and £344 million respectively to £240 million and £288 million respectively.

While reinsurance expenditure as a proportion of premium income is expected to increase from 12.6% to 15.3% in 2012, inwards rates have reacted to last years' events and we expect full year inwards premium income to more than compensate for the additional cost, leaving Amlin in a better risk reward position than in 2011. Amlin London and Amlin Bermuda's combined reinsurance income was up 18.4% at the end of January compared to the same period in 2011.

Action continued to be taken to strengthen ACI, particularly its marine division which has been the source of its underwriting losses since acquisition. A further €192.0 million of poorly performing business has been non renewed in 2011 and 2012 to date across the division, principally in its cargo accounts. This included one material multi year cargo liability contract from which ACI had been unable to withdraw previously and which had incurred an average loss ratio of 155% over the five years prior to cancellation.

Further reviews were undertaken of ACI's portfolios and new line guides were put in place with a view to reducing volatility. Also, increased co-operation was achieved between our London marine underwriters and those at ACI. This was further enhanced in the latter part of the year with the appointment of David Harris, International Development Director and the former Managing Director of Amlin Underwriting Limited, to head up ACI marine on an interim basis. During November and December, in preparation for the 1 January 2012 renewals, leading class underwriters from London provided guidance and review of ACI marine hull and cargo risks, with a focus on quality of selection, adequacy of pricing and coverage provided.

Management was further strengthened in June with the appointment of a new CEO at ACI, Kim Hvirgel who had previously been CEO of Codan, Royal and Sun Alliance's subsidiary in Denmark, and with a new CFO, Reijer Groenveld, previously at ABN Amro, in December. Kim has made a noticeable impact since joining, improving accountability, transparency and controls, as well as ACI's overall alignment with Amlin's objectives.

There remains a risk that ACI will continue to suffer from claims on policies written prior to its acquisition in 2009 and from some multi year contracts which it has been unable to re-underwrite or cancel. However, most of the poorly performing multi year contracts will expire in 2012 and reserves have been increased to help address the risk of further adverse claims development on prior years. With the action taken, ACI's 2012 combined ratio is expected to move towards 100%.

Capital

While net tangible assets reduced 22.3% to £1,201.5 million in 2011, after deducting £42.0 million spent on goodwill and intangibles associated with acquisitions and dividends paid of £113.6 million, the Group's capital position remains strong and capable of supporting further growth as market conditions improve. Capital and available resources at 31 December 2011, before the proposed final dividend in respect of 2011, were £402.7 million in excess of the Group's assessed capital requirements.

Looking forward, assuming our internal model approval is obtained, the Group remains well capitalised against its anticipated Solvency II requirements.

With our 2010 results we announced that we had allocated up to £75 million for share buy-backs. However, following the major earthquakes in Japan and New Zealand, we decided to retain this capital with a view to sustaining our ability to pay a dividend and grow.

Strategy and business development

A key focus of management has been on turning around ACI's performance and helping to bring its risk management and controls up to our desired standards. Until this is completed and we are able to demonstrate a marked improvement in its results we do not intend to pursue further major acquisitions.

However, we remain on the look out for smaller bolt on acquisitions in niches which can augment our strategy of balancing catastrophe exposure with more attritional risk. In January 2011, Amlin UK acquired the agency of J R Clare which increased its UK property account by £35.1 million and in February 2011, Amlin London acquired Lead Yacht, the leading specialist super-yacht underwriting agency outside the US. Amlin UK also supported the acquisition of R L Davison by Miles Smith, a broker in which it has a minority investment. With this acquisition, Miles Smith is now one of the UK's largest wholesale brokers and a growing source of business for Amlin UK.

Amlin Re Europe, which started trading in October 2010, has successfully built up its team in Zurich to comprise 37 employees, including 16 senior underwriters. A further 13 hires are planned in 2012. Having written approximately £100 million of new business in 2011, its January 2012 income was up 32.3% on full year 2011 to £136.0 million. We believe that this business has the potential to grow to some £300 million of premium income over the next three years as it continues to build its reputation and penetration of its target European client base.

Organic growth has also been augmented through attracting further experienced underwriting talent, particularly in Amlin London and Amlin UK, which were joined by eight senior underwriters during 2011.

We have strengthened resources in our Corporate Centre to increase our ability to manage a larger and broader group, and to address the increasing requirements of regulation, in particular for Solvency II. This has included the creation of a Group Underwriting function, whose role is to monitor the quality of underwriting and adherence to Amlin's underwriting policies and standards across the Group, and to enforce improvement where it is necessary. ACI has clearly been the focus of most of its attention to date and this function will provide us with a better ability to ensure that future acquisitions quickly adopt Amlin's standards.

Our major change programme in preparation for Solvency II was largely completed in 2011, so that enhanced risk management and reporting will become business as usual in 2012. We are working with regulators to gain approval of our capital models and starting to realise benefits from the investment made over the last two years. For example, our modelling capability now better informs decisions on outwards reinsurance and the allocation of risk appetite between our operating divisions.

Given our Vision of becoming the "global reference point for quality" in insurance, we were pleased that the work done by our claims team in London was clearly recognised in the most recent survey of brokers carried out by Gracechurch.

Outlook

In contrast to the start of 2011, when downward pressure on pricing was increasing, we are now seeing signs of a better rating environment emerging. This was reflected in average renewal rate increases to 31 January 2012 of 4.0% compared to average reductions of 1.3% in January 2011.

Responding to last year's losses, catastrophe reinsurance rates have continued to strengthen both in the United States and internationally, with 1 January renewal rate rises of 14.5% and 15.9% respectively. As expected, loss affected areas have increased the most and we expect the April Japanese renewals to see significant rises.

Amlin UK is continuing to achieve rate rises on its motor business and following average renewal rate increases in 2011 of 7.4% is expecting a double digit average increase in the current year. UK property rates are also starting to show signs of positive movement and we expect liability rates to start to improve during 2012.

Within the US property and casualty market, 1 January renewal rates increased 4.3% for our US property account with casualty renewal rates flat. We expect a gradual improvement in rates through 2012. In most other accounts renewal rates are flat.

While pricing in some areas where renewal rates are flat already have acceptable margins, such as in our London marine business, other areas, such as the European insurance accounts, remain highly competitive, although we expect increasing financial distress and lower investment returns to result in a positive turn, at some stage.

With the steps taken to enhance our underwriting teams in Amlin UK and Amlin London in particular, and with our strong capital position, we are well placed to grow income in classes of business where margins are becoming more attractive. We also anticipate growth in Amlin Re Europe as it builds on its successful start in 2011.

As the upward turn in the insurance cycle broadens to more of our less catastrophe exposed classes of business, including in Europe, this will again allow us to increase appetite for catastrophe risk, providing the prospect of the high returns on capital which we have historically delivered.

While investment returns in the year to date have been good, with 1.8% achieved to the end of February, the economic and political environment is far from stable and interest rates are expected to remain low for the foreseeable future. We will therefore continue to adopt a cautious approach and do not expect returns to recover to the levels that were the norm only a few years ago.

Overall, with the underlying profitability of our core business in London in 2011, increasing rates in reinsurance and UK motor in particular, the expectation of better performance at ACI and the capital to support our planned growth in premiums in 2012, we expect to return to a good level of profitability in 2012.

People

2011 was a tough year for many of our employees, in particular those involved in managing claims from the catastrophes and associated underwriting adjustments, the changes implemented in preparation for Solvency II and at ACI, where work on their systems replacement overlaid actions to improve processes and controls as well as improve performance. The staff turnover of 5.8%, combined with progress achieved, demonstrates a resilience and loyalty as well as the ambition of our employees to make Amlin the "global reference point for quality in each of our markets". I thank them for their achievements.

As indicated in his Chairman's statement, Roger Taylor has decided to retire as Chairman, having served in that capacity since the merger of Angerstein and Murray Lawrence to create Amlin in 1998. Roger has been a constant source of helpful guidance and support to me and to my senior management colleagues and we owe him our sincere gratitude for helping us build Amlin to what it is today. He will be succeeded by Richard Davey, who has been on our Board since 2005 and I look forward to working closely with him over the coming years.

FINANCIAL PERFORMANCE

	2011 £m	2010 £m	2009 £m	2008 £m	2007 £m
Gross written premium	2,304.1	2,172.5	1,543.9	1,034.0	1,044.7
Net written premium	2,013.2	1,910.3	1,322.6	915.7	938.3
Net earned premium	1,927.4	1,748.1	1,317.3	913.5	972.3
Underwriting contribution	(146.0)	185.6*	355.2*	211.4*	343.0*
Investment contribution	40.5	175.0	207.5	18.0	157.0
Other costs	(88.3)	(101.4)*	(53.6)*	(107.8)*	(55.0)*
(Loss)/profit before tax	(193.8)	259.2	509.1	121.6	445.0
Return on equity	(8.6)%	13.9%	37.0%	7.8%	37.8%

With record catastrophe claims, a competitive rating environment in insurance lines and continued volatility in investment markets, 2011 was a challenging year.

The Group recorded a loss before tax of £193.8 million (2010: profit before tax of £259.2 million). Total gross catastrophe losses amounted to £756.0 million or £500.8 million on a net basis. Net losses from the New Zealand and Japanese earthquakes in February and March respectively, and the Thai floods in late 2011, amounted to £433.0 million alone. ACI performed poorly, producing an underwriting loss of £56.0 million. Investment returns fell by £134.5 million, as risk assets such as equities and corporate bonds, performed poorly in the face of slowing global growth and the Eurozone debt crisis. The return on equity was a negative 8.6% (2010: positive 13.9%).

Despite a difficult 2011, over the longer term the Group's performance has been robust, with a weighted average return on equity since 2002 of 18.0% and since 2007 of 14.7%. This compares with our cross cycle target of 15% and exceeds our estimated cost of capital over that period of around 8.5%.

For 2011, underwriting contributed a loss of £146.0 million (2010: profit of £185.6 million) to the pre-tax result. The scale of catastrophe losses impacted Amlin London and Amlin Bermuda in particular; these divisions generated respective underwriting losses of £13.9 million and £58.1 million (2010: profits of £123.6 million and £74.6 million). However, the underlying underwriting result for Amlin London was robust, with the property and casualty, marine and aviation business units performing well. London also benefited from a more substantial retrocessional reinsurance programme than Bermuda. Disappointingly, ACI made an underwriting loss of £56.0 million (2010: loss £19.6 million), impacted by a high frequency of large claims across the marine and property books in the first half of 2011 and lower reserve releases due to the need to strengthen ship building and cargo reserves. Amlin UK, Amlin France and Amlin Re Europe, the latter in its first full year of trading, made small losses.

Across the Group, claims development continued to be better than expected. Releases from reserves amounted to £112.6 million (2010: £156.5 million), generated primarily from within Amlin London and Amlin Bermuda. ACI reserve releases reduced by €42.0 million year on year.

Investment markets continued to be volatile, particularly equity markets, corporate bonds and the European government bond market. The investment return was 0.9% (2010: 4.0%) on average funds under management of £4.2 billion (2010: £4.2 billion). The contribution from investments was £40.5 million.

Net foreign exchange losses in the income statement amounted to £10.2 million (2010: loss £12.3 million). In addition, net losses of £36.5 million on our subsidiary net assets exposures were taken to reserves (2010: gain £13.4 million). This includes a loss of £30.5 million arising on the consolidation of an externally managed investment fund.

Underwriting performance

Income and expenses by business segment Year ended 31 December 2011	Amlin London £m	Amlin UK £m	Amlin France £m	Amlin Bermuda £m	Amlin Re Europe £m	Amlin Corporate Insurance £m	Other corporate companies £m	Intra group items £m	Total £m
Analysed by geographic segment
UK	151.2	283.2	-	220.0	9.0	-	-	(185.2)	478.2
North America	544.5	8.3	-	201.8	2.2	-	-	(0.7)	756.1
Europe	81.4	14.9	59.6	25.8	90.3	249.5	-	(0.9)	520.6
Worldwide	17.1	0.7	-	0.1	-	279.6	-	-	297.5
Other	160.7	5.3	-	79.8	5.9	-	-	-	251.7
Gross written premium	954.9	312.4	59.6	527.5	107.4	529.1	-	(186.8)	2,304.1
Net written premium	675.3	261.3	43.8	503.8	98.3	436.3	-	(5.6)	2,013.2
Gross earned premium	938.2	280.3	58.3	499.8	58.3	561.9	-	(173.6)	2,223.2
Reinsurance premium ceded	(268.7)	(49.1)	(14.7)	(21.2)	(7.4)	(105.7)	-	171.0	(295.8)
Net earned premium	669.5	231.2	43.6	478.6	50.9	456.2	-	(2.6)	1,927.4
Insurance claims and claims settlement expenses	(751.2)	(205.7)	(45.5)	(504.7)	(38.3)	(452.4)	-	128.2	(1,869.6)
Reinsurance recoveries	300.3	45.3	7.6	54.5	1.8	92.0	-	(131.3)	370.2
Expenses for the acquisition of insurance contracts	(172.1)	(52.8)	(6.9)	(66.5)	(7.6)	(85.0)	-	10.7	(380.2)
Underwriting expenses	(60.4)	(25.9)	(9.4)	(20.0)	(9.4)	(66.8)	-	(1.9)	(193.8)
Loss attributable to underwriting	(13.9)	(7.9)	(10.6)	(58.1)	(2.6)	(56.0)	-	3.1	(146.0)
Investment return	17.5	5.0	0.3	4.5	0.1	(15.4)	29.0	(0.5)	40.5
Other operating income¹	24.8	6.4	1.5	0.6	-	0.4	11.2	(36.1)	8.8
Agency expenses²	(20.2)	(5.3)	(0.7)	-	-	-	-	26.2	-
Other non-underwriting expenses	(0.6)	(0.2)	(0.3)	(4.4)	(1.9)	(25.9)	(49.0)	13.1	(69.2)
Result of operating activities	7.6	(2.0)	(9.8)	(57.4)	(4.4)	(96.9)	(8.8)	5.8	(165.9)
Finance costs³									(27.8)
Share of loss after tax of associates and joint venture									(0.1)
Loss before taxation									(193.8)
Combined ratio	102%	103%	124%	112%	105%	112%			108%

1 Other operating income is mainly agency fees payable by Syndicate 2001 to Amlin Underwriting Limited and external commission income earned by service companies;

2 Agency expenses allocated to segments represent fees and commission payable to Amlin Underwriting Limited;

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

The underwriting environment in 2011 was extremely difficult, with heavy catastrophe claims activity and competitive rating conditions across many of our lines of business. In addition, ACI suffered a higher than normal level of frequency of large loss in the first half of the year and whilst performance improved in the second half, overall it produced a disappointing financial return.

Gross written premium increased by 6.1% to £2,304.1 million (2010: £2,172.5 million). At constant rates of exchange, written premium increased by 8.0%.

The average renewal rate increase for the Group was 1.1% (2010: decrease 1.8%). However, the pattern of rate movements was affected by catastrophe events in the period, with an average rate decrease of 1.0% in the first quarter offset by an average increase of 3.3% between 1 July and 31 December. The renewal retention ratio was a solid 82% (2010: 86%), despite the non-renewal of poorly performing business within ACI.

The underlying increase in gross written premium was £46.5 million. Amlin Re Europe, our new Continental European reinsurance platform, performed ahead of expectation, generating £107.4 million of income in its first full year of trading. Amlin London, Amlin UK, Amlin France and Amlin Bermuda also added new business, though this was offset by a reduction from ACI due to the re-underwriting programme.

Amlin London generated gross written premium of £954.9 million (2010: £889.4 million). Growth was delivered within the property and casualty and marine business units. The reinsurance business also generated increased income within the US and international catastrophe accounts, both of which benefited from reinstatement premiums and new business opportunities in the aftermath of major catastrophe loss activity.

Amlin UK contributed gross written premium of £312.4 million, an increase of 7.1% on the prior year (2010: £291.8 million) as the division started to grow into a strengthening market, with an average rate increase of 5.0% across all classes. New business was generated largely in fleet, other motor and package lines and aided by recent strategic investments, including the acquisition of JR Clare in January 2011.

Amlin Bermuda produced written income of $847.8 million (2010: $676.4 million), an increase of 25.3%. Direct income was $553.2 million (2010: $438.6 million). The retention ratio remained strong at 90% (2010: 90%). New business generated within trade credit, political risk, terrorism and casualty classes contributed to growth.

ACI delivered gross written premium of €609.8 million (2010: €768.2 million). During the year we took further action to improve the underwriting performance of ACI's marine business, including the non-renewal of approximately €107.0 million of marine business, where pricing was considered inadequate or where historic claims ratios were unacceptable. Performance within the marine account has been below expectation, but ACI's non marine business continues to perform satisfactorily in challenging trading conditions.

Outwards reinsurance expenditure was £290.9 million, representing 12.6% of gross written premium (2010: £262.2 million and 12.1% respectively). The proportional increase is mainly due to reinstatement premiums, additional cover for Amlin Bermuda and the impact of a reduction in ACI's gross written premium not tracked by reductions in excess of loss cover.

Net earned premium was £1,927.4 million (2010: £1,748.1 million), an increase of 10.3% driven by growth in gross written premium in 2010 and 2011.

The Group claims ratio for the year was 78% (2010: 60%). Natural catastrophe activity reached record levels in 2011, with insured losses estimated at $105 billion¹. The Group incurred net catastrophe claims of £500.8 million, with the New Zealand and Japanese earthquakes in February and March respectively, and flooding in Thailand in late 2011 generating a combined loss of £433.0 million. This compares to normal expected catastrophe losses of around £170 million in the year.

The Japanese earthquake was the largest insured event in the period, with an estimated insured market loss of $35-$40 billion¹. We have assumed a total loss for our major client exposure, with other exposures based on client loss estimates, together with an additional load to cater for possible further deterioration.

The Christchurch earthquake, which occurred in February 2011 has an estimated insured loss of $13 billion¹. Amlin's most significant exposures are to residential properties in our international catastrophe reinsurance account. Our estimated gross and net claims for this event are $427.6 million and $334.5 million respectively. Recoveries were greater for Amlin London due to its more comprehensive retrocessional programme. Within these estimates, Amlin's exposure to the New Zealand Earthquake Commission is reserved as a total loss, leaving limited scope for further deterioration.

The scale of insured damage arising from the flooding in Thailand in late 2011 remains uncertain, with current insured loss estimates ranging between $8 billion and $20 billion. Amlin's exposures to the Thai floods lie mainly in its international property reinsurance account, with only limited catastrophe account involvement. There is further exposure within the insurance and other reinsurance accounts. However, claims arising from these accounts are expected to be largely covered within normal loss development. Amlin estimates that the property and catastrophe reinsurance account claims will be between £50 million and £70 million, net of reinsurance recoveries. These estimates are based on a review of client exposures in the region rather than individual loss advices. While the quality and scope of information remains limited, claims have been reserved towards the top end of the range.

The net claims to Amlin from the New Zealand Sumner earthquake in June are currently $37.5 million, based on client estimates. Net claims estimates from the severe US tornado season amounted to $43.5 million. Elsewhere, claims due to the cloudburst in the Copenhagen area in July amounted to $24.3 million.

For each of these events, whilst claims within Amlin London have been well contained by recoveries from its retrocessional reinsurance programme, Amlin Bermuda has not benefited to the same extent from recoveries under its programme.

Net claims from the Chilean and New Zealand 'Darfield' earthquakes in 2010 and the Australian floods in December 2010 and January 2011 have generated small releases in the year.

1 Munich Re, 4 January 2012

ACI experienced unusually high claims frequency, especially in the first half of the year, with €32.9 million of claims over €5.0 million in 2011 (2010: €nil). However, the claims ratio improved in the second half of the year to 71% relative to the first half of 87%. We consider the frequency of large claims experienced during 2011 to be abnormal and inconsistent with ACI's previous history, particularly given that there has been no material increase in the risk profile of these accounts. Reserve releases were also €42.0 million lower at €7.6 million after reserving for late claims advices on the shipbuilding account and poor run off on cargo.

We continue to hold a prudent reserving position for our property, fleet and private motor accounts within Amlin UK. As previously disclosed, reserves were strengthened at the half year in light of loss experience and slower development on the 2009 underwriting year. The second half generated reserve releases of £8.5 million.

Investment performance

The Group investment return for the year was 0.9%, with average funds under management of £4.2 billion (2010: 4.0% and £4.2 billion). Overall, investments contributed £40.5 million to the 2011 result (2010: £175.0 million).

We began the year with a cautious view of the global economic outlook but with the expectation that central banks would look to move their policies slowly away from the emergency levels of accommodation adopted in 2008 and 2009.

During the first quarter, two major unforeseeable events undermined global economic growth, namely the spike up in the oil price due to Middle East unrest and the disruption to global supply chains due to the earthquake and subsequent tsunami in Japan. Although the impact of these events was temporary, investors became concerned that the global recovery was losing traction, resurrecting "double dip" recession fears. With the growth outlook for peripheral Europe already looking poor due to austerity measures aimed at addressing high public debt levels, such growth fears had a heightened effect on the bond markets of those countries, exacerbated by fears of a deficit in the case of Greek sovereign debt. Consequently, Italian and Spanish sovereign bond yields started to rise to levels where Greece, Ireland and Portugal had previously sought bailouts. Given the scale of the Italian and Spanish economies, this caused the European debt crisis to intensify, with a sharp sell-off of equities and other risk assets during August. This shift was further heightened by political wrangling around the US debt ceiling, which culminated in the US losing its Standard and Poor's AAA credit rating. These events generated a negative feedback loop into confidence and economic growth, particularly in Europe.

Towards the end of the year the European Central Bank cut rates, but more importantly provided much needed liquidity to the banking system, with the introduction of three year longer-term refinancing operations. This helped to stabilise investor sentiment, by dampening the negative feedback loop between sovereign risk and bank funding.

These events made 2011 an extremely challenging year for most assets, other than the so called 'safe haven' sovereign bond markets, such as Germany, the UK and US, where yields fell to historically low levels.

With yields at such low levels, we maintained a defensive stance towards interest rate risk whilst believing that credit was attractive relative to generally expensive government bonds. The asset allocation to equities was trimmed at the end of April and reduced more substantially during the third quarter. As discussed above, exposures beyond cash and 'safe-haven' bonds were negatively impacted by the events that unfolded during the year. The exception was property, which produced a good return. Combined with additional investment, this meant that exposure to property rose during the year.

The insurance linked securities portfolio continues to be managed by Leadenhall Capital Partners, in the form of two standalone investment funds. The risk profile remained constant over the year, with Amlin's investment increased to $117.2 million across both funds. The return on $112.0 million of average funds under management was $5.2 million or 4.7% (2010: $109.9 million, $11.4 million and 10.4%).

Expenses

Total expenses, including underwriting and non-underwriting costs, increased to £671.0 million, from £610.5 million in the prior year.

Underwriting expenses, excluding foreign exchange movements, amounted to £568.1 million (2010: £497.6 million). This expenditure represents costs relating to the acquisition and administration of insurance business and claims payments. Within underwriting costs, acquisition costs accounted for £41.1 million of the increase due to growth in income. Acquisition costs have, however, remained reasonably stable at 17.1% of gross earned premium (2010: 16.9%). The remaining variance in underwriting expenses includes inflationary increases and growth in operational costs for Amlin Re Europe and ACI of £7.3 million and £10.1 million respectively. Increased operating costs at ACI were generated by temporary staff costs and expenses in relation to the delay in implementing Amlin's IT programme.

Non-underwriting expenses, excluding foreign exchange movements, were £92.7 million (2010: £100.6 million). These expenses include employee incentives, investment management fees, ACI separation and integration costs and corporate expenses not directly attached to underwriting businesses. Employee incentives are down by £18.2 million due to poor 2011 performance, impacting annual bonuses and long term incentive accruals. ACI separation and integration costs amount to £16.8 million (2010: £16.6 million) and are not considered ongoing costs of the business. It is anticipated that further expenses of £9.8 million will be incurred in completion of ACI separation and integration during 2012. In addition to items expensed in the period, expenditure on the replacement IT platform of £25.7 million has been capitalised during the period (2010: £17.4 million).

Taxation

The effective rate of tax for the period is 22.9% (2010: 14.4%). It is below the UK rate of corporation tax primarily due to Amlin AG's Bermudian branch which operates in Bermuda with no local corporation tax. Profits arising on operations in Switzerland are taxed at a combined federal and cantonal rate of 21.2% (2010: 21.2%). We continue to believe that Amlin AG is exempt from the UK Controlled Foreign Company regime. The table below illustrates the source of Group profits with associated effective tax rate.

	2011	2011	2010	2010
	(loss) before tax	effective tax rate	profit before tax	effective tax rate
Profit source	£m	%	£m	%
UK & other	(53)	33.6	142	25.4
Bermuda	(59)	-	106	-
Continental Europe	(82)	32.3	11	9.6
Group	(194)	22.9	259	14.4

Dividends

The Board proposes a final ordinary dividend of 15.8 pence per share. Taken together with the interim dividend of 7.2 pence per share, this provides total dividends of 23.0 pence per share (2010: 23.0 pence per share).

Net tangible assets

In addition to the loss after tax of £149.5 million recognised through the consolidated income statement, the Group has also recognised a further £160.0 million decrease in net assets bringing total equity and reserves to £1,420.4 million (2010: £1,729.9 million). The key movements are:

· Dividends totalling £113.6 million (2010: £102.5 million)

· £38.9 million of losses from the currency retranslation of overseas operations (2010: gain £17.6 million) offset by £2.4 million of gains recognised as the revaluation of associated hedge instruments (2010: loss £4.2 million) in accordance with hedge accounting rules of IAS 39 "Financial instruments: Recognition and measurement"

· Pensions actuarial loss of £18.3 million (2010: gain of £5.9 million)

Intangibles have increased by £34.4 million to £218.9 million (2010: £184.5 million), following the acquisitions of JR Clare Underwriting Agencies Limited and Lead Yacht Underwriters Limited and capitalisation of costs associated with the ACI IT platform replacement programme.

As a result, net tangible assets have decreased by 22.3% from £1,545.4 million at 31 December 2010 to £1,201.5 million at 31 December 2011.

FINANCIAL MANAGEMENT

An emphasis on active financial management has allowed us to enhance the returns delivered to shareholders over a number of years. It also positions us strongly to meet the future requirements of Solvency II.

Determining our capital requirement

Amlin uses Dynamic Financial Analysis (DFA) to model its capital. Our approach to using DFA is detailed in note 2 to the financial statements, addressing capital.

The table below analyses our capital position as at 31 December 2011.

Amlin capital analysis
	As at 31 December 2011 £m	As at 31 December 2010 £m
Net tangible assets	1,201.5	1,545.4
Subordinated debt	292.8	318.0
Bank facilities*	250.0	250.0
Available capital	1,744.3	2,113.4
Assessed capital	1,341.6	1,417.5
	402.7	695.9

* Bank facilities are subject to a number of covenants

Assessed capital is management's estimate of capital required for current trading purposes and is built up from subsidiary requirements as follows.

For Syndicate 2001, assessed capital is the Syndicate's Funds at Lloyd's, which at 31 December 2011 amounted to £497.0 million (2010: £476.1 million).

We continue to believe that $1.0 billion is the minimum amount of capital required by Amlin AG to trade with its preferred client base, an amount which exceeds the local regulatory capital requirement. At 31 December 2011, Amlin AG had net assets of $1.4 billion (2010: $1.6 billion).

At the end of the year, ACI held net assets of €226.1 million, relative to the local regulatory capital requirement of €117.0 million. Management consider that the current level of capital is in line with that which ACI economically requires.

We believe that the Group should retain a level of capital sufficient to allow material growth in the business in the aftermath of a major insurance disaster and also to respond to other opportunities to enhance long term profitable growth. At 31 December 2011, available capital was £402.7 million greater than the Group's assessed capital requirement.

Assessed capital does not include any credit for the recently acquired catastrophe bond coverage for US hurricane, US earthquake and European windstorm perils of up to $150 million. As this reinsurance is intended to cover remote capital impairing events it should lead to a fall in capital requirements.

Adjusting the capital employed to entrance returns

Our capital management approach is flexible. When underwriting margins are sufficient to limit the impact of a large catastrophe loss to equity, debt capital will form a greater proportion of the overall capital deployed. When margins weaken, the level of debt capital used to support our underwriting will be reduced.

At 31 December 2011 we had £292.8 million of subordinated debt in issue (2010: £318.0 million). The debt is regulatory compliant, longer-term, unsecured and contains no financial covenants that could lead to early forced repayment. It is also recognised as capital by a number of the rating agencies.

In addition, we have a £250 million unsecured revolving credit facility available. This facility expires in September 2013. At 31 December 2011 the facility was undrawn (2010: nil).

Managing equity capital for shareholders

Our financial performance management is centred on delivering a cross cycle return on equity of at least 15%. Given the Group's cyclical underwriting approach, 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 some of this capital to shareholders.

The Group has demonstrated clearly its commitment to return capital to shareholders in recent years. Since 1 January 2007, through a combination of progressive dividend strategy and 'B' share issue, we have returned cash of £606.9 million to our shareholders. We have also repurchased £27.6 million of capital through share buy backs.

Despite extraordinary catastrophe claims in 2011, our balance sheet strength has allowed the Group to maintain a dividend to shareholders at 23.0 pence per share in 2011. In the absence of significant catastrophe losses, we intend to increase our dividend per share consistently over the next few years.

Enhancing cash flow

At 31 December 2011, the Group's cash and investments were £4,325.8 million, a decrease of £56.1 million on the prior year (2010: £4,381.9 million). Cash and investments are a multiple of 3.0x shareholders' equity (2010: 2.5x).

The strength and liquidity of the balance sheet is critical to our proposition as an insurer of choice, providing us with the ability to respond quickly to claims in the event of a large catastrophic loss. We use bank facilities to supplement the working capital strength of the Group. A US$200 million secured LOC facility is available to Syndicate 2001 to fund its US regulatory requirements and this reduces any potential funding pressures at times of catastrophic loss in the US. If drawn, security is provided by a fixed charge over a portfolio of assets. Similarly, Amlin AG has a $250 million facility secured over three years in order to provide collateral to US cedents for their regulatory needs. At 31 December 2011 Amlin AG has issued LOCs amounting to $194.7 million.

Effective currency management

The Group reports in sterling but manages a sterling business in the UK, a US dollar business in Bermuda and Euro businesses in Continental Europe. Amlin AG, which consists of Amlin Re Europe and Amlin Bermuda, reports in US dollars.

For our UK operations, we sell trading currency underwriting year profits into sterling as they crystallise, once we are largely through the Atlantic windstorm season. Amlin AG manages its US dollar trading position and holds its balance sheet mainly in US dollars reflecting its global underwriting profile. Similarly, ACI manages its Euro trading position and holds its balance sheet in Euros reflecting its European underwriting profile. At a Group level, we implement a policy to hedge up to 50% of the net US dollar / Euro exposure of the Group to Amlin AG and ACI respectively. The Group's hedges are achieved through the use of forward sales and other derivative contracts.

In the year to 31 December 2011, movements in the US dollar produced foreign exchange losses, before hedging, of £0.2 million on the dollar capital investment in Amlin Bermuda. The hedges deployed produced a gain of £2.8 million. For ACI, the weakening in the Euro produced foreign exchange losses before hedging of £6.4 million. Hedges increased this loss by £0.4 million.

In addition, foreign exchange losses of £30.5 million arising on the consolidation of an externally managed investment fund were recognised in reserves. A corresponding gain of £24.4 million was recognised as investment income within the Group's income statement.

Estimating outstanding claims reserves

Estimation of claims reserves is a key aspect of financial management. Not only does it impact on overall profitability, but it also impacts investment mix, as different approaches are taken for capital and policyholders' funds.

Insurance business is inherently uncertain and much of Amlin's business is large commercial insurance or reinsurance, which can be volatile, making it difficult to estimate ultimate claims levels. The factors that 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. However, as time passes the uncertainty surrounding likely claims settlement reduces.

Given this uncertainty, we adopt a prudent approach to the assessment of liabilities, however, consistency of reserving strength is our overall goal.

We estimate that the Group as a whole holds reserves on an accident year basis of at least £170 million in excess of an actuarial best estimate (2010: at least £175 million). Whilst overall net claim reserves have increased to £2.7 billion (2010: £2.2 billion), £473.7 million relates to catastrophe claims which have been well reserved, with material exposures at policy limit.

OUTLOOK

Underwriting environment

The diversity of our business by class and platform means that trading conditions vary across the portfolio. Overall, however, we are seeing a more favourable rating environment than twelve months ago. At 1 January 2011 renewals, the overall Amlin portfolio saw a fall in rates of 1.3% and approximately 75% of the portfolio was experiencing pricing that was flat or falling. However, the trading environment improved markedly during the year, with an average rate increase of 3.3% from 1 July to 31 December. In January 2012, with approximately 37% of the Group's 2012 business renewing, the renewal rate increase was 4.0%. This reflects further substantial rate increases on catastrophe reinsurance and continued momentum in UK fleet motor, but we are also seeing a modest uplift in other insurance lines.

Rate increases for catastrophe reinsurance renewals in January, which accounts for approximately 49% of the catastrophe business expected to be written for the year, were up for Amlin London and for Amlin Bermuda. US catastrophe rates were back to the peak levels. Loss affected businesses witnessed substantial increases in rates. This trend is expected to continue for the 1 April Japanese renewals and peak rating levels are expected to be held into the US windstorm renewals in the middle of the year.

The marine markets in London and on the Continent were stable at the start of the year. Some further increases are expected in the energy portfolio in 2012 and the recent Costa Concordia vessel loss is expected to exert upward pressure on marine rates. The ACI marine account was reduced modestly again at 1 January, with the retention ratio at 84%.

The US property and casualty sector is starting to see a change in its rating environment, with large US insurers reporting price increases across sections of their business. In the London market, some rate correction was evident in the property market in the second half of 2011 and we expect to see this trend continued through 2012.

In the UK, we continue to see an improving rating trend for fleet motor, with the withdrawal of capacity by some competitors creating opportunities to grow our market share significantly. UK property rates are also strengthening gradually, creating a more favourable environment to leverage the investments made to position Amlin UK to grow in this market.

Amlin France and ACI continue to experience highly competitive property and casualty markets, although amid deteriorating results in the Continental European insurance sector, there is some evidence of financial distress, which combined with lower investment returns, may encourage a more realistic approach to pricing. The low interest rate environment is likely to have a more widespread impact on insurance pricing in most markets, particularly in casualty lines.

Amlin Re Europe's business proposition has been powerfully endorsed by clients and brokers and it continues to make good progress, with January 2012 premium of €163.6 million, up 32.3% in 2011. The business was able to broaden out its footprint with good support from brokers, an increased number of submissions and an expanded client base. The business has been underwritten in line with expected profitability targets.

In the past five years we have added to the quality and diversity of our core businesses through investment in niche acquisitions, start-ups in Singapore and Zurich and an increase in senior underwriters, with the objective of broadening the range of growth opportunities for the Group. As well as already benefiting from higher rates on renewal business in 2012, we are better positioned than ever before to grow wherever the stronger pricing environment creates opportunities.

Capital and risk management

Amlin has emerged from the exceptional losses of 2011 with a strong balance sheet, excellent ratings and our franchise further enhanced by the excellent claims service we delivered to clients in the wake of the year's multiple catastrophe events.

Consequently, Amlin is very well positioned to benefit from higher catastrophe margins as a market leader in catastrophe underwriting. However, every major loss event requires a reassessment of previous assumptions, and the severity of last year's events, together with their unusual frequency, have naturally led to a careful review of our catastrophe risk appetite. Exposures on the international catastrophe account have been reviewed and cut where prices have not responded adequately to the events of 2011. However, through rate improvements and selective additions to exposures, January income for the London and Bermuda catastrophe reinsurance businesses is 10.8% higher than in 2011 at £209.8 million.

The structure of our reinsurance programmes for London and Bermuda has been revisited with a view to providing deeper reinsurance protection across the Group. The London programme worked well in 2011 and broadly the structure has been renewed, but with lower retentions for the first event. The Bermuda team have largely replicated that structure, which provides much greater protection for 2012 than was previously the case. In addition, an insurance linked catastrophe bond of $150 million has been placed into the capital markets, which covers US perils and European windstorm events above a pre-set scale and in the aggregate. This provides greater protection against severity and frequency of catastrophe events. Reinsurance expenditure as a proportion of income is expected to increase to 15.3%.

Investment markets

Investment markets rallied in the fourth quarter of 2011 as action was taken in Continental Europe to address the Eurozone debt crisis. The possibility of policy error in the management of the crisis remains significant and has the ability to worry markets. However, confidence around the pace and sustainability of the US economic recovery appears to be growing and this, along with evidence of improving prospects for global growth, has seen a strong start to 2012 for our investment portfolios.

We continue to believe that short dated 'safe haven' government bond yields remain too low from a medium term perspective and we have continued to control our exposures to these assets. Higher yields and strong corporate balance sheets make non-government bonds more attractive and we retain our equity weighting, albeit at reduced levels from the first half of 2011.

However it is important to recognise that, with low interest rates in developed economies, our expectations for investment returns have been lowered compared to what we have seen in the past.

Summary

We expect that 2012 will bring a return to stronger profitability for the Group. Much of our business is seeing improved premium rating and we will naturally benefit if catastrophe activity returns to more normal levels. The underlying profitability of our London and Bermuda business is strong and with Amlin UK moving into a better trading environment, these divisions should see strong growth in 2012. Amlin Re Europe's success in attracting new business, without compromising its profit targets, should also provide a better trend, as the underwriting profits will be better able to absorb its start up expenses.

In our Continental European insurance businesses we also anticipate an improvement in performance, even without an improvement in the underlying trading environment. Amlin France was affected heavily on its modest income base by the international catastrophes of 2011 and in 2012 should revert to its underlying satisfactory trading position. With the action taken at ACI over the last two years to remove badly underwritten marine business, we expect that ACI will also achieve a better performance. Its non-marine businesses are performing satisfactorily and on much of its core marine account, while profitability is still not at acceptable levels, there is an evident improving trend.

Investment markets are expected to remain challenging, but we expect that we should fare better in 2012 than last year. Amlin's focus on underwriting profit should ensure that the lower interest rate environment is one where we can trade successfully. For insurers that have been reliant on investment return to generate profit it will not be as easy. With a strong capital position we expect to grow into improving market conditions when they emerge.

Consolidated Income Statement

For the year ended 31 December 2011

	Note	2011 £m	2010 £m
Gross earned premium	4,5	2,223.2	2,002.4
Reinsurance premium ceded	4,5	(295.8)	(254.3)
Net earned premium	4,5	1,927.4	1,748.1
Investment return	4,6	40.5	175.0
Other operating income	4	8.8	5.7
Total income		1,976.7	1,928.8
Insurance claims and claims settlement expenses	4,7	(1,869.6)	(1,168.6)
Insurance claims and claims settlement expenses recoverable from reinsurers	4,7	370.2	109.5
Net insurance claims	7	(1,499.4)	(1,059.1)
Expenses for the acquisition of insurance contracts	4,8	(380.2)	(339.1)
Other operating expenses	9	(263.0)	(244.0)
Total expenses		(643.2)	(583.1)
Results of operating activities		(165.9)	286.6
Finance costs	4,12	(27.8)	(27.4)
Share of loss after tax of associates and joint venture	23	(0.1)	-
(Loss)/profit before tax	4,13	(193.8)	259.2
Tax	14	44.3	(37.3)
(Loss)/profit for the year		(149.5)	221.9
Attributable to:
Equity holders of the Parent Company		(149.9)	221.8
Non-controlling interests		0.4	0.1
		(149.5)	221.9
Earnings per share from continuing operations attributable to equity holders of the Parent Company
Basic	25	(30.3p)	45.0p
Diluted	25	(30.3p)	44.4p

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

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2011

	Note	2011 £m	2010 £m
(Loss)/profit for the year		(149.5)	221.9
Gains/(losses) on revaluation of derivative instruments in designated hedge accounting relationships	15,17	2.4	(4.2)
Foreign exchange (losses)/gains on translation of overseas operations	15	(36.7)	20.5
Foreign exchange losses on translation of intangibles arising from investments in overseas operations	15	(2.2)	(2.9)
Defined benefit pension fund actuarial (losses)/gains	32	(18.3)	5.9
Unrealised gains on investments designated as available for sale	17	0.2	-
Tax relating to components of other comprehensive (expense)/income	14	6.4	4.6
Other comprehensive (expense)/income for the year, net of tax		(48.2)	23.9
Total comprehensive (expense)/income for the year		(197.7)	245.8
Attributable to:
Equity holders of the Parent Company		(198.1)	245.7
Non-controlling interests		0.4	0.1
		(197.7)	245.8

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

Consolidated Statement of Changes in Equity

For the year ended 31 December 2011

		Attributable to owners of the Parent Company
For the year ended 31 December 2011	Note	Share capital £m	Share premium £m	Other reserves £m	Treasury shares £m	Retained earnings £m	Total £m	Non-controlling interests £m	Total £m
At 1 January 2011		141.2	300.3	222.9	(26.2)	1,089.9	1,728.1	1.8	1,729.9
Total comprehensive expense for the year		-	-	(48.2)	-	(149.9)	(198.1)	0.4	(197.7)
Employee share option schemes:
- share based payment reserve		-	-	0.8	2.5	-	3.3	-	3.3
- proceeds from shares issued	24	-	-	-	1.2	(0.2)	1.0	-	1.0
Dividends paid	27	-	-	-	-	(113.6)	(113.6)	-	(113.6)
Movements in non-controlling interests		-	-	-	-	-	-	(1.5)	(1.5)
Tax relating to share option schemes	14	-	-	(1.0)	-	-	(1.0)	-	(1.0)
Transactions with the owners of the Group for the year		-	-	(0.2)	3.7	(113.8)	(110.3)	(1.5)	(111.8)
At 31 December 2011		141.2	300.3	174.5	(22.5)	826.2	1,419.7	0.7	1,420.4

		Attributable to owners of the Parent Company
For the year ended 31 December 2010	Note	Share capital £m	Share premium £m	Other reserves £m	Treasury shares £m	Retained earnings £m	Total £m	Non-controlling interests £m	Total £m
At 1 January 2010		141.2	300.1	201.7	(21.4)	971.1	1,592.7	0.4	1,593.1
Total comprehensive income for the year		-	-	23.9	-	221.8	245.7	0.1	245.8
Employee share option schemes:
- share based payment reserve		-	-	(1.1)	(8.1)	-	(9.2)	-	(9.2)
- proceeds from shares issued	24	-	0.2	-	3.3	(0.6)	2.9	-	2.9
Dividends paid	27	-	-	-	-	(102.4)	(102.4)	(0.1)	(102.5)
Obligation to acquire non-controlling interests		-	-	(1.2)	-	-	(1.2)	-	(1.2)
Disposal of non-controlling interests		-	-	-	-	-	-	1.4	1.4
Tax relating to share option schemes	14	-	-	(0.4)	-	-	(0.4)	-	(0.4)
Transactions with the owners of the Group for the year		-	0.2	(2.7)	(4.8)	(103.0)	(110.3)	1.3	(109.0)
At 31 December 2010		141.2	300.3	222.9	(26.2)	1,089.9	1,728.1	1.8	1,729.9

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

Consolidated Balance Sheet

At 31 December 2011

Assets	Note	2011 £m	2010 £m
Cash and cash equivalents	16	256.4	81.5
Financial assets	17	4,080.4	4,310.1
Reinsurance assets
- reinsurers' share of outstanding claims	18	617.0	383.1
- reinsurers' share of unearned premium	18	50.4	55.3
Loans and receivables, including insurance and reinsurance receivables
- insurance and reinsurance receivables	19	933.5	795.6
- other loans and receivables	19	69.0	88.1
Deferred acquisition costs	20	207.7	185.8
Current income tax assets		13.7	1.2
Deferred tax assets	14	26.9	14.7
Property and equipment	21	19.9	12.5
Intangible assets	22	218.9	184.5
Investment in associates and joint venture	23	8.3	2.2
Total assets		6,502.1	6,114.6
Equity and reserves
Share capital	24	141.2	141.2
Share premium		300.3	300.3
Other reserves		174.5	222.9
Treasury shares		(22.5)	(26.2)
Retained earnings		826.2	1,089.9
Equity attributable to equity holders of the Parent Company		1,419.7	1,728.1
Non-controlling interests		0.7	1.8
Total equity and reserves		1,420.4	1,729.9
Liabilities
Insurance liabilities
- outstanding claims	18	3,273.6	2,631.9
- unearned premium	18	998.0	914.4
Other payables, including insurance and reinsurance payables
- insurance and reinsurance payables	30	218.8	245.9
- other payables	30	118.5	139.7
Financial liabilities	17	11.0	9.7
Current income tax liabilities		0.1	22.0
Borrowings	31	388.5	318.0
Retirement benefit obligations	32	30.8	15.3
Deferred tax liabilities	14	42.4	87.8
Total liabilities		5,081.7	4,384.7
Total equity, reserves and liabilities		6,502.1	6,114.6

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 2 March 2012. 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 2011

	Note	2011 £m	2010 £m
Cash generated from operating activities	36	271.1	183.6
Income taxes paid		(38.6)	(57.0)
Net cash inflows from operating activities		232.5	126.6
Cash flows from investing activities
Interest received		47.6	54.5
Dividends received		12.2	5.8
Acquisition through business combination, net of cash acquired		(11.4)	(13.0)
Deferred payment for acquired subsidiary		(0.1)	(0.1)
Investment in associates and joint venture	23	(1.6)	(0.5)
Purchase and disposal of property and equipment	21	(12.7)	(6.1)
Purchase and development of intangible assets	22	(25.7)	(17.4)
Net cash inflows from investing activities		8.3	23.2
Cash flows used in financing activities
Net proceeds from issue of ordinary shares, including treasury shares		1.0	2.9
Dividends paid to shareholders	27	(113.6)	(102.4)
Dividends paid to non-controlling interests	27	-	(0.1)
Interest paid		(22.7)	(27.4)
Purchase of ESOT and treasury shares		(0.5)	(12.7)
Proceeds from issue of catastrophe linked instrument		96.5	-
Repayment of borrowings	31	(26.7)	-
Net cash outflows used in financing activities		(66.0)	(139.7)
Net increase in cash and cash equivalents		174.8	10.1
Cash and cash equivalents at beginning of year		81.5	70.3
Effect of exchange rate changes on cash and cash equivalents		0.1	1.1
Cash and cash equivalents at end of year	16	256.4	81.5

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 £215.9 million from net sales of financial investments was utilised in operations during the year (2010: £214.1 million from net purchases).

Notes to the accounts

For the year ended 31 December 2011

1. Summary of significant accounting policies and critical accounting judgements and estimates

Amlin plc (the Company) is a public limited company registered in England and Wales. The address of the registered office is
St Helen's, 1 Undershaft, London EC3A 8ND.

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 and Companies Act 2006.

The consolidated financial statements have been prepared on the historical cost basis except for cash and cash equivalents, financial assets and liabilities, 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 2010, 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.

As a result of Amlin Re Europe's inclusion as a separate reportable segment and minor modifications to the internal reporting to the chief operating decision maker, the comparative segmental reporting information for the year ended 31 December 2010 has been restated. Further details are provided in note 4.

As part of the process to improve the presentation of the Group's consolidated financial statements, certain changes have been made to the presentation of underwriting and non-underwriting expenses in note 9, derivative financial instruments in note 3.3 (fair value hierarchy) and note 17, loans and receivables in note 19, deferred acquisition costs in note 20 and other payables in note 30, to better reflect the nature of underlying transactions. Improvements have also been made in the presentation relating to the average number of employees in note 11, amounts receivable by directors and key management personnel under long term incentive schemes in note 10 and note 38, and share options and awards in note 28. These changes in presentation have no effect on the previously reported net income, shareholders' equity or net assets. Comparative information has been amended to reflect these changes.

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 or are, in substance, controlled by the Group 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 principal subsidiaries included within the consolidated financial statements can be found in note 37.

Adoption of new and revised Standards

(a) Standards, amendments to published standards and interpretations effective on or after 1 January 2011

The accounting policies adopted are consistent with those of the previous financial year, except for the following new and amended IFRS and IFRIC interpretations effective as of 1 January 2011:

• IAS 24 (revised), 'Related party disclosures'

• IAS 32 (amended), 'Financial instruments: Presentation - Classification of rights issues'

• IFRIC 14 (amended), 'Prepayments of a minimum funding requirement'

• IFRIC 19, 'Extinguishing financial liabilities with equity instruments'

• Annual improvements to IFRSs.

Adoption of these revised standards and interpretations did not have any material effect on the financial performance or position of the Group.

The effects of these changes are as follows:

IAS 24 (revised), 'Related party disclosures'

IAS 24 (revised) clarifies the definition of a related party to simplify the identification of such relationships and to eliminate inconsistencies in its application. The revised standard introduces a partial exemption of disclosure requirements for government-related entities. There is no material impact on the Group or Company's financial statements.

IAS 32 (amended), 'Financial instruments: Presentation - Classification of rights issues'

IAS 32 (amended) amends the definition of a financial liability in order to classify rights issues (and certain options or warrants) as equity instruments in cases where such rights are given pro rata to all of the existing owners of the same class of an entity's non-derivative equity instruments, or to acquire a fixed number of the entity's own equity instruments for a fixed amount in any currency. There is no impact on the Group or Company's financial statements.

IFRIC 14 (amended), 'Prepayments of a minimum funding requirement'

The amendment to IFRIC 14 provides guidance on assessing the recoverable amount of a net pension asset. The amendment permits an entity to treat the prepayment of a minimum funding requirement as an asset. The amendment does not have an impact on the financial statements of the Group or Company.

IFRIC 19, 'Extinguishing financial liabilities with equity instruments'

The interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability qualify as consideration paid.

The equity instruments issued are measured at their fair value. In case this cannot be reliably measured, they are measured at the fair value of the liability extinguished. Any gain or loss is recognised immediately in profit or loss. The adoption of this interpretation has no effect on the financial statements of the Group or Company.

Annual improvements to IFRSs 2009-2010

In May 2010, the International Accounting Standards Board (IASB) issued its annual amendments to IFRSs and the related Bases for Conclusions and guidance made. The IASB uses the annual improvements process to make necessary, but non-urgent, amendments to IFRSs that will not be included as part of a major project. The amendments primarily remove inconsistencies and clarify wording. The Group has adopted the amendments to standards as they come into effect for the reporting period beginning on 1 January 2011. However, these amendments have no material impact on the Group or Company's financial statements.

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

In 2011, the Group did not early adopt any new, revised or amended standards.

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

Standards issued but not yet effective up to the date of issuance of the Group's financial statements are listed below. The Group intends to adopt these standards when they become effective.

IFRS 7 (amended), 'Financial instruments: Disclosures - Transfers of financial assets'

The amendment to IFRS 7 is effective for annual periods beginning on or after 1 July 2011. The amendment introduces more extensive quantitative and qualitative disclosures about the transfer of financial assets to assist users in understanding the implications of transfers of financial assets and the potential risks that may remain with the transferor. The amendment is deemed to have no material impact on the Group or Company's financial statements.

IFRS 9, 'Financial instruments: Classification and measurement'

IFRS 9 as issued reflects the first phase of the Board's work on the replacement of IAS 39 and applies to the classification and measurement of financial assets as defined in IAS 39, 'Financial instruments: Recognition and measurement'. The standard is proposed to be effective for annual periods beginning on or after 1 January 2015¹. In subsequent phases, the Board will address hedge accounting and derecognition. The adoption of IFRS 9 will have an effect on the classification and measurement of the Group's financial assets.

However, the Group has determined that the effect shall be quantified in conjunction with the other phases when issued to present a comprehensive picture.

IFRS 9 amendments to incorporate financial liabilities

The amendments to IFRS 9 issued in October 2010 incorporate the classification and measurement of financial liabilities and are proposed to be effective for annual periods beginning on or after 1 January 2015¹. The amendments only affect the measurement of financial liabilities designated at fair value through profit or loss using the Fair Value Option (FVO). All other requirements in IAS 39 in respect of liabilities are carried forward into IFRS 9.

For FVO liabilities, the amount of change in the fair value of a liability that is attributable to changes in own credit risk must be presented in other comprehensive income (OCI). The remainder of the change in fair value is presented in profit or loss, unless presentation of the fair value change in respect of the liability's credit risk in OCI would create or enlarge an accounting mismatch in profit or loss. The amendments are deemed to have no impact on the financial statements of the Group.

1 Subject to EU endorsement

IFRS 7 (amended), 'Financial instruments: Disclosures - Offsetting financial assets and financial liabilities'
The amendment to IFRS 7 is effective for annual reporting periods beginning on or after 1 January 2013⁽¹⁾. The amendment introduces new disclosure requirements intended to allow investors to better compare the different offsetting of financial assets and financial liabilities under IFRS and US GAAP. The amendment is likely to have an impact on the disclosures made by the Group in respect of its financial assets and financial liabilities.

IAS 32 (amended), 'Financial instruments: Presentation - Offsetting financial assets and financial liabilities'
The amendments to IAS 32 clarify the requirements for offsetting financial instruments and are applicable for accounting periods beginning on or after 1 January 2014⁽¹⁾. The amendments are not expected to have a material impact on the financial statements of the Group on adoption.

IAS 12 (amended), 'Income taxes - Deferred tax: Recovery of underlying assets'

The amendments to IAS 12 relate to the measurement of deferred tax on investment properties. They are effective for annual periods beginning on or after 1 January 2012⁽¹⁾ and will have no impact on the financial statements of the Group or Company on adoption.

IFRS 10, 'Consolidated financial statements'

IFRS 10 is effective for annual periods beginning 1 January 2013¹, with retrospective application. It replaces the portion of IAS 27, 'Consolidated and separate financial statements' that addresses the accounting for consolidated financial statements. IFRS revises the definition of 'control', the key factor in determining whether an entity is consolidated. The adoption of IFRS 10 may have an impact on which entities the Group consolidates within its financial statements.

IFRS 11, 'Joint arrangements'

IFRS 11 is effective for annual periods beginning 1 January 20131, with retrospective application. It replaces IAS 31, 'Interests in joint ventures' and SIC-13, 'Jointly-controlled entities - non-monetary contributions by venturers'. The standard clarifies the definition of a joint arrangement and uses the principle of control in IFRS 10 to define joint control. The standard also removes the option to account for jointly-controlled entities using the proportional consolidation method. The standard is not expected to have a significant impact on the financial statements of the Group.

IFRS 12, 'Disclosure of interests in other entities'

IFRS 12 is effective for annual periods beginning 1 January 2013¹, with retrospective application. It includes all of the disclosures that were previously included in IAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously included in IAS 31 and IAS 28, 'Investment in associates'. A number of new disclosures are also required, including the judgements made by management in determining whether it controls an entity. The standard will impact the disclosures made by the Group in respect of its interests in subsidiaries, joint arrangements and associates on adoption.

IAS 27, 'Separate financial statements' and IAS 28, 'Investments in associates and joint ventures'

As a result of the issuance of IFRS 10, IFRS 11 and IFRS 12, consequential amendments have been made to IAS 27 and IAS 28. IAS 27 now contains requirements only relating to separate financial statements, while the amendments to IAS 28 incorporate the accounting for joint ventures. Both standards have been renamed as a result of these amendments, and are effective for annual periods beginning on or after 1 January 2013¹.

IFRS 13, 'Fair value measurement'

IFRS 13 is effective for annual periods beginning 1 January 2013¹ and is to be applied prospectively. The standard establishes a single source of guidance under IFRS for fair value measurement and introduces new disclosures to help users to better assess the valuation techniques and inputs used to measure fair value. The standard will impact the disclosures made by the Group in respect of fair value measurement on adoption.

IAS 1 (amended), 'Presentation of financial statements'

The amendment to IAS 1 is effective for annual periods beginning 1 July 2012¹. The amendment will require companies to group together items within other comprehensive income that may be reclassified to the profit or loss section of the income statement. The amendments reaffirm existing requirements that items in other comprehensive income and profit or loss should be presented as either a single statement or two consecutive statements. Upon adoption, the amendment will result in changes to the presentation of the Group's other comprehensive income.

IAS 19 (amended), 'Employee benefits'

The amendment to IAS 19 is effective for annual periods beginning 1 January 2013¹ and is to be applied retrospectively. The amendment eliminates the option to defer the recognition of gains and losses resulting from defined benefit plans (referred to as the 'corridor' approach), removes the options for the presentation of gains and losses relating to those plans and improves the disclosure requirements in respect of defined benefit plans and the risks arising on those plans. The amendment will impact the presentation of gains and losses and disclosures in respect of the Group's defined benefit plans.

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.

1 Subject to EU endorsement

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. The carrying value of the Group's net outstanding claims reserves at 31 December 2011 is £2,656.6 million (2010: £2,248.8 million). In 2011, there has been a net positive development of £112.6 million (2010: £156.5 million) for the Group, reflecting favourable experience in the 2010 and prior reported years. Note 3 provides further details of the method the Group applies in estimating insurance contract liabilities.

Financial assets and financial liabilities

The methods and assumptions used by the Group and Company in estimating the fair value of financial assets and financial liabilities are described in note 3. The carrying values of the Group's financial assets and financial liabilities at 31 December 2011 are £4,080.4 million (2010: £4,310.1 million) and £11.0 million (2010: £9.7 million) respectively.

Intangible assets

Intangible assets are recognised on the acquisition of a subsidiary, on the purchase of specific rights to renew a particular underwriting portfolio and on internally developed computer software.

The value of such intangibles arising from the acquisition of a subsidiary or specific renewal rights 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.

The value of computer software comprises all costs directly attributable to its development.

The carrying value of the Group's intangible assets (excluding goodwill) at 31 December 2011 is £142.3 million (2010: £122.7 million). Note 22 provides details of any current impairments of intangible assets.

Goodwill impairment

The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the recoverable amount of the cash-generating unit to which goodwill is allocated. Details of the key assumptions used in the estimation of the recoverable amounts are contained in note 22.

The Group has allocated goodwill to cash generating units based on a number of factors, which include how the entity's operations are monitored. Note 22 provides further details. The carrying value at the reporting date of goodwill is £76.6 million (2010: £61.8 million).

Taxation

Uncertainties exist with respect to the interpretation of complex tax regulations and the amount and timing of future taxable income. The wide range of international business relationships and the long-term nature and complexity of existing contractual agreements could necessitate future adjustments to tax income and expense already recorded. The Group establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities of the respective countries in which it operates. The amount of such provisions is based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority. Such differences of interpretation may arise on a wide variety of issues depending on the conditions prevailing in the country of the respective Group company's domicile.

Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profits will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits, together with future tax planning strategies.

The carrying value at the reporting date of the deferred tax asset is £26.9 million (2010: £14.7 million), and of the deferred tax liability is £42.4 million (2010: £87.8 million).

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.

The carrying value at the reporting date of the liability for the staff incentive plans is £31.1 million (2010: £48.6 million).

Retirement benefit obligations

The Group participates in the Lloyd's Superannuation Fund defined benefit scheme and also operates defined benefit schemes in the Netherlands, Belgium and Switzerland.

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.

A loss of £18.3 million (2010: £5.9 million gain) has been recognised in the Statement of Comprehensive Income and a debit of £4.2 million (2010: £1.9 million) has been recognised in the Income Statement. Note 32 provides further details on the Group's retirement benefit obligations. At 31 December 2011, the Group recognised a balance sheet liability of £30.8 million (2010: £15.3 million) in respect of its defined benefit plans.

Significant accounting policies

Foreign currency translation

The Group and Company present 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 conduct business in a range of economic environments, although these are primarily the United Kingdom, United States of America and Continental Europe.

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 the exchange rates at the date of each transaction, or a practical approximation to these rates; and

• On consolidation all resulting exchange differences are recognised in other comprehensive income.

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.

Details of the principal exchange rates used are included in note 33.

Product classification

Insurance contracts are defined as those containing significant insurance risk if, and only if, an insured event could cause an insurer to make significant additional payments in any scenario, excluding scenarios that lack commercial substance, at the inception of the contract.

The significance of insurance risk is dependent on both the probability of an insured event and the magnitude of its potential effect. Any contracts not considered to be insurance contracts under IFRS are classified as investment contracts.

Based on the current assessment, all of the products underwritten by the Group's insurance entities are insurance contracts within the scope of IFRS 4, 'Insurance contracts'.

Insurance contracts premium

Gross written premium comprise premium on insurance contracts incepting during the financial year together with adjustments to premiums written in previous accounting periods. 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.

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 recognised as earned over the policy contract period. The earned element is calculated separately for each contract on a 365ths basis where the premium is apportioned over the period of risk. For premium written under facilities the earned element is calculated based on the estimated inception date and coverage period of the underlying contracts.

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 premium on reinsurance arrangements bought which incept during the financial year, together with adjustments to premiums ceded in previous accounting periods. The proportion of reinsurance premium ceded attributable to periods after the balance sheet date is deferred as reinsurers' share of unearned premium. Reinsurance premium ceded is earned over the policy contract period on a basis consistent with the related insurance contracts.

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 of the actual level of claims incurred. There is therefore a reasonable chance of release of reserves from one 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 underwritten 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

i. Business combinations before 1 January 2010

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, 'Business combinations', 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.

ii. Business combination after 1 January 2010

The Group policy is to apply IFRS 3 (revised) to all acquisitions taking place on or after 1 January 2010. Business combinations are accounted for using the acquisition 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. Under IFRS 3 (revised), with the exception of the costs of registering and issuing debt and securities that are recognised in accordance with IAS 32 and IAS 39 (i.e. as a reduction in proceeds), all other acquisition-related costs are to be expensed as incurred.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions at the acquisition date. 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 fair value of consideration transferred over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill.

For each business combination, the Group measures any non-controlling interests in the acquiree at the non-controlling interest's proportionate share of the acquiree's identifiable net assets.

Interests in associate entities

Investments in associates are accounted for using the equity method.

Associates are all entities over which the Group has significant influence but no control, generally accompanying a shareholding of between 20% and 50% of the voting rights. The Group's share of its associates' post-acquisition profits and losses after tax is recognised in the income statement each period, and its share of the movement in associates' net assets is reflected in the investments' carrying values in the balance sheet.

Interests in joint ventures

Investments in joint ventures 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.

Intangible assets

i. Syndicate capacity

Lloyd's syndicate participations that have been purchased in the Lloyd's capacity auctions are 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 the cash-generating units to which the intangible asset is allocated, 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 of the cash-generating unit to which goodwill has been allocated, 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, customer relationships and costs directly attributable to internally-developed software. 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 at each reporting date 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 assets, which is estimated to be between five and fifteen years, and is charged to other operating expenses in the income statement.

Property and equipment

Property and equipment are stated at historical cost less accumulated depreciation and provision for impairment where appropriate. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. 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	20% to 33% per annum
Furniture, fixtures and leasehold improvements	20% per annum

The carrying values of property and equipment are reviewed for impairment 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. The freehold land is not depreciated.

Financial assets

The Group classifies its financial assets at fair value through profit and loss (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 classifies its financial investments as FV. 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 buys with the intention to resell. All other securities are classified as 'other than trading' within the FV category.

The Group has investments in certain unlisted insurance intermediaries which are treated as available-for-sale and are measured at fair value, unless their fair value cannot be reliably measured, in which case they are valued at cost less impairment. 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 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'.

Purchases and sales of investments are recognised on the trade date, which is the date the Group 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. Transaction costs are recognised directly in the income statement when incurred. Changes in the fair value of investments are included in the income statement in the period in which they arise. The uncertainty around valuation is discussed further in note 3.

Derivative financial instruments

Derivative financial instruments primarily include currency swaps, currency and interest rate futures, currency options, catastrophe linked instruments and other financial instruments that derive their value mainly from underlying interest rates, foreign exchange rates or catastrophe risk. Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into. They are subsequently measured at fair value, with their fair values obtained from quoted market prices or, where these are not available, by using valuation techniques such as discounted cash flow models or option pricing models. 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 other 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.

Embedded derivatives with risks and characteristics which are not closely related to the host contract, and where the combined instrument is not measured at fair value with changes in fair value recognised in profit or loss, are separated from the host contract and measured at fair value.

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.

Finance costs

Finance costs mainly comprise interest payable on subordinated loans and commissions charged for the utilisation of letters of credit. These costs are charged to the income statement as finance costs, as incurred. Fees paid for the arrangement of debt and letter of credit facilities are charged to finance costs over the life of the facility. In addition, transaction costs and interest payable in respect of the issue of catastrophe linked instruments are charged to finance costs over the life of the contract. Gains or losses on any derivative component of catastrophe linked instruments are included in investment return.

Cash and cash equivalents

Cash and cash equivalents are carried in the balance sheet at fair value. For the purposes of the statement of cash flows, cash and cash equivalents comprise cash in 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.

Earnings 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 earnings per share are calculated by dividing profit after tax by the weighted average number of issued shares during the year.

Diluted earnings per share are calculated by dividing profit after tax by the adjusted average number of shares in issue. The adjusted average number of shares assumes conversion of dilutive potential ordinary shares, being shares from the Executive Share Option Scheme (ESOT), Long Term Incentive Plan (LTIP) , Performance Share Plan (PSP), Share Incentive Plan (SIP) and the Sharesave scheme.

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.

Rentals payable under operating leases are charged to the income statement 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. (ACI) participates in two defined benefit schemes. Amlin Re Europe's (ARE) pension scheme is classified as a defined benefit scheme in accordance with IAS 19, 'Employee benefits'.

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 other 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 and for restrictions on the recognition of a defined benefit asset due to an asset ceiling. 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. In respect of ACI's defined benefit scheme in the Netherlands, the fair value of the plan assets reflects the benefits that accrue to ACI under the insurance policy taken out to meet its obligations. This is also the case for ARE's defined benefit scheme.

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

ii. Equity compensation plans (equity-settled)

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. Equity compensation plans (cash-settled)

The Group operates the Amlin Capital Builder Plan which is deemed a cash-settled share-based payment arrangement. The cost of cash-settled transactions is measured initially at fair value at the grant date. Further details are given in note 28. The fair value is expensed over the period until the vesting date with recognition of a corresponding liability. The liability is remeasured at each reporting date up to and including the settlement date with changes in fair value recognised in profit or loss.

iv. 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 in respect of 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.

Deferred tax is calculated at the substantively enacted 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 other comprehensive income or equity, in which case the deferred tax is also charged or credited directly to other comprehensive income or equity respectively.

Deferred tax is recognised 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.

Other payables

Other payables are measured at amortised cost. They represent liabilities to pay for goods or services that have been received or supplied in the normal course of business, invoiced by the supplier before the period end, but for which payment has not yet been made.

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 26, and subordinated debt as disclosed in note 31. For business planning purposes, account is also taken of the Group's debt facilities as disclosed in note 31.

Amlin Corporate Member Limited, which supports Syndicate 2001, is required to hold regulatory capital in compliance with the rules issued by the UK's Financial Services Authority (FSA) and 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% (2010: 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% (2010: 40%) of the syndicate's agreed regulatory premium capacity limit. At 31 December 2011 the agreed Economic Capital Assessment (ECA) as a percentage of the proposed underwriting capacity for the following year of account is 42.3% (2010: 46.0%).

The Syndicate also benefits from mutualised capital within the Lloyd's Central Fund, for which a variable annual levy, for 2011 of 0.5% (2010: 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 2011 Amlin Corporate Member Limited funded the agreed FAL requirement of £497.0 million (2010: £476.1 million) to support underwriting for the following year of account.

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 AG is supervised by the Swiss Financial Market Supervisory Authority (FINMA) and the Bermuda Monetary Authority (BMA).

FINMA supervision is composed of various qualitative assessments, governance requirements and minimum solvency levels. Amlin AG provides regulatory solvency reporting to FINMA, under the rules of Solvency I and the Swiss Solvency Test (SST). Solvency I is based on the Swiss statutory financial statements and required capital is calculated as a fixed percentage of premiums, claims reserves and/or net amount at risk. The SST is based on an economic view and required capital is derived from an internal capital model.

The internal model as well as the 2011 SST is still subject to approval by FINMA. Amlin AG calculates available and required capital under the SST using the aforementioned model. The minimum ratio for Solvency I as well as for the SST is set at 100% (the SST minimum ratio became legally binding in 2011). For both ratios Amlin AG exceeds the 100% minimum ratio.

Under BMA regulations, Amlin AG is licensed as a Class IV insurer and the minimum solvency margin is the greater of US$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. In addition, as a Class IV insurer, the company is required to maintain a minimum liquidity ratio such that the value of 'relevant assets' is not less than 75% of its 'relevant liabilities'. Amlin AG met this requirement at 31 December 2011.

For trading purposes, Amlin AG believes that it is necessary to hold at least US$1 billion of capital, which is currently in excess of the minimum required by the BMA and FINMA.

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 2011, ACI's available regulatory capital was €240.7 million (2010: €341.9 million), compared to a minimum requirement of €117.0 million (2010: €117.0 million). For wider commercial reasons, ACI's capital is managed so as to support its financial strength ratings.

The method by which the Group manages its capital base is described in the Performance section.

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 Corporate Insurance N.V. (ACI) and Amlin AG (including the latter's branch operation, Amlin Bermuda). Syndicate 2001's portfolio is underwritten by Amlin London, Amlin UK and through the Group's wholly owned French coverholder, Amlin France SAS. Amlin France also writes business on behalf of ACI. 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 and knowledge to assess each risk and they use exposure information 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 limits can be exceeded in exceptional circumstances with the approval of senior management. Apart from the UK and international comprehensive motor liability portfolios, which have unlimited liability, all policies have a per loss limit which caps the size of any individual claim. 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 the Group 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 the Group's 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 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 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 risks 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 from a particular scenario. 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 data or 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 changes in reinsurance availability, capital levels and profitability in order to remain within the risk appetite guidelines.

The Group has recently acquired coverage for US hurricane, US earthquake and European windstorm perils of up to $150 million from a Bermudian special purpose insurer, Tramline Re Ltd, which in turn has placed a catastrophe bond into the capital markets.

This transaction provides the Group with fully collateralised protection over a three year period from 1 January 2012 and is in addition to the protection the Group purchases through the traditional reinsurance marketplace.

The bond provides significant protection against a remote aggregation of catastrophe events for the Group. Through the use of an aggregate trigger it protects against both severity and frequency of losses.

Sections A to E below describe the business and the risks of Amlin London, Amlin UK, Amlin France, Amlin AG, which includes Amlin Re Europe and Amlin Bermuda, and Amlin Corporate Insurance.

A. Amlin London

A. (i) Property reinsurance risks

Reinsurance property classes

	2011 Gross premium £m	Current maximum line size £m	2011 Average line size £m
Catastrophe reinsurance (per programme)	257	62	4.9
Per risk property reinsurance (per programme)	69	25	2.3
Proportional reinsurance	41	5	1.6

Notes:

1 Limits are set in US dollars converted to sterling 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.

3 Premium is stated gross of acquisition costs and excludes adjustments in respect of prior periods.

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 any 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. Proportional reinsurance is normally written with an occurrence limit.

The portfolio of reinsurance business is written with the aim of achieving territorial diversification. However, as experienced in 2011, a severe catastrophe to a major economic zone in Europe, Japan, Australasia or the US is likely to result in an overall loss to the portfolio prior to retrocessional reinsurance. Amlin London operates to a maximum loss limit applicable to refined scenarios which is an allocation of a total Group tolerance.

A. (ii) Other reinsurance risks

Amlin London 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

	2011 Gross premium £m	Current maximumline size £m	2011 Average line size £m
Aviation reinsurance (per programme)	2	33	2.2
Marine reinsurance (per programme)	20	81	2.4
Special risks	20	41	4.2

Notes:

1 Limits are set in US dollars converted to sterling 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.

3 Premium is stated gross of acquisition costs and excludes adjustments in respect of prior periods.

The reinsurance team also write 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 and nuclear reinsurance emanating from all parts of the world and written without excess of loss reinsurance protection.

A. (iii) Property insurance risks

Property classes

	2011 Gross premium £m	Current maximum line size £m	2011 Average line size £m
Direct and facultative property	84	23	2.8
Binding authorities	28	2	0.4

Notes:

1 Limits are set in US dollars converted to sterling 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.

3 Premium is stated gross of acquisition costs and excludes adjustments in respect of prior periods.

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 from standard property cover 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 and therefore, for these contracts we are reliant on coverholders exercising underwriting judgement on our behalf. Coverholders must 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. The underwriting is controlled 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 payment of profit commission. However, with the day to day underwriting not controlled by the Group, 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 US 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. 2011 gross premium was £53 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. In 2011 the professional lines liability portfolio has increased following the appointment of a dedicated underwriter. This class includes professional indemnity cover given to US lawyers, accountants, architects and engineers. It is written to a maximum liability of US$10 million on any one claim.

The casualty portfolio 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 the Group 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

Amlin London also writes other property and casualty classes which contribute diversified exposure to the portfolio.

The main classes with the maximum sum insured lines are shown below:

Property and casualty other classes

	2011 Gross premium £m	Current maximum line size £m	2011 Average line size £m
Accident & health	28	3	1.2
Auto	27	3	0.5
Special risks	5	67	5.7

Notes:

1 Limits are set in US dollars converted to sterling 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.

3 Premium is stated gross of acquisition costs and excludes adjustments in respect of prior periods.

The accident and health class is written through medical expense schemes in the US 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 US 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.

The special risks class is made up of insurance of nuclear installations, contingency business and film finance risk.

A. (vi) Marine risks

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

Marine classes

	2011 Gross premium £m	Current maximum line size £m	2011 Average line size £m
Hull	37	10	2.0
Cargo	29	17	4.6
Energy	64	25	4.6
War and terrorism	36	50	10.2
Specie	12	24	6.4
Bloodstock/livestock	27	4	1.0
Yacht (hull and liability)	32	5	1.3
Liability	33	57	6.3

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.

3 Premium is stated gross of acquisition costs and excludes adjustments in respect of prior periods.

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 portfolio written includes lower value tonnage, smaller 'brownwater' vessels and fishing boats as well as larger 'blue water' ocean hull risks such as cruise liners, tankers and bulk carriers. 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 as trade reduces and hull values are impacted by reduced freight rates. It is also possible that claims frequency could increase 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, for example 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. The account is exposed to single incidents or a series of losses arising from concerted action. Political risk, confiscation and contract frustration business is also 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 provides coverage for death, illness or injury to horses mainly in the UK. Business from the US, 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 writes a broad portfolio of protection for livestock and specialist products such as zoo animals, with a maximum line of any one policy of US$10 million. The company also writes employers' liability cover for 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. Following the acquisition of Lead Yacht in January 2011, the Group also writes a lead share of a portfolio of large private yachts.

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.

A. (vii) Aviation risks

The Group, through Syndicate 2001, underwrites direct and facultative aviation business domiciled in most parts of the world. Maximum lines are as follows:

Aviation classes

	2011 Gross premium £m	Current maximum line size £m	2011 Average line size £m
Airline (hull & liability)	21	84	31.2
General aviation (hull & liability)	13	57	17.5
Risk excess (hull & liability)	6	57	11.8
Airports liability	9	57	28.8
Products	6	50	22.4
Space (hull & liability)	5	46	8.8

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.

3 Premium is stated gross of acquisition costs and excludes adjustments in respect of prior periods.

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

	2011 Gross premium £m	Current maximum line size £m	2011 Average line size £m
Employers' liability	14	27	9.9
Public/products liability	19	12	3.8
Professional indemnity	24	7	2.0
UK commercial property/package	115	52	0.5
Financial institutions fidelity and liability	5	6	1.9

Note:

1 Premium is stated gross of acquisition costs and excludes adjustments in respect of prior periods.

Amlin UK writes three classes of UK liability business. 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). A proportion of this income is generated by a single coverholder, Manchester Underwriting Management, which is also developing a portfolio of product recall business which indemnifies producers against the costs of replacement production for specific goods.

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 written within this class, mainly on a 100% basis for small and medium commercial and household properties.

In January 2011 the Group acquired JR Clare Underwriting Agencies Limited, a managing general agent specialising in UK household and commercial property insurance.

The property owners account has continued to develop since the recruitment of an underwriting team in June 2009 and through the hiring of a specialist high value homes underwriting team in December 2011. This portfolio is exposed to eastern European weather conditions whereby a large windstorm, flood or winter freeze could result in a large number of small claims.

Through AUA Insolvency Risk Services Ltd, an FSA registered broker, Amlin UK writes a portfolio of UK insolvency practitioners which provides protection against fraud or negligence committed by the practitioners and also protects the property assets under their management.

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 European 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 Division's motor insurance risk is predominantly UK business covering fire, theft, collision and third party property and bodily injury liability. 2011 gross premium was £127 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 Division leads facilities for fleets involved in the transportation of hazardous waste. A small UK agriculture facility, a taxi book and a specialist private car account are also 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. Amlin France

In May 2010 Anglo French Underwriters SAS (AFU) and the French operations of Amlin Corporate Insurance N.V. (ACI) were merged to form Amlin France. Prior to the merger AFU was the foremost managing general agent serving Lloyd's in France and ACI had started to build a property and liability co-insurance business in France. The merger has created a business with increased critical mass with greater recognition in the French market.

Drawing business from a large network of brokers across France, Amlin France is able to offer a wide range of direct and facultative insurance products designed to respond to the needs of both individuals and corporate clients. Amlin France's business is situated predominantly in France.

Amlin France writes a diverse book of business on behalf of Syndicate 2001 including property, cargo, professional liability and specie through a network of more than 1,350 independent retail brokers. Although the vast majority of these risks have been written on behalf of Syndicate 2001 or ACI, there continue to be a limited number of policies which do not involve the Group. The portfolio consists of the following classes with maximum and average line sizes:

Amlin France classes

	2011 Gross Premium €m	Current Maximum line size €m	2011 Average Line Size €m
Property
- Synd 2001	28	20	3.5
- ACI	28	50	19.8
Marine
- Synd 2001	5	10	2.5
Specie
- Synd 2001	4	3	0.2
Professional indemnity
- Synd 2001	3	7	1.5
Liability
- Synd 2001	<1	10	0.8
- ACI	3	25	10.0

Notes:

1 Premium is stated gross of acquisition costs and excludes adjustments in respect of prior periods.

2 Maximum line size is shown after facultative reinsurance.

In respect of property, Amlin France 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. Amlin France 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 class, Amlin France provides yacht insurance which includes cover for damage, theft and liability as well as for the costs of marine assistance and marine personal accident. Worldwide 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.

Amlin France 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. Amlin France also provides personal accident insurance for professions involving risk and the practice of sporting activities which are deemed hazardous.

For ACI, Amlin France writes a portfolio of large property and liability risks. The property book is mostly written on a co-insurance basis for commercial or industrial premises. The liability account provides general liability coverage for French industrial and commercial enterprises.

D. Amlin AG

In October 2010 the Group re-domiciled its wholly-owned subsidiary, Amlin Bermuda Ltd, from Bermuda to Switzerland following approval from the Swiss Financial Market Authority and the Bermuda Monetary Authority. The Zurich-based underwriting business (trading as Amlin Re Europe) writes all major non-life reinsurance classes. Amlin Bermuda Ltd, which was established in December 2005, has become a Bermuda-based branch of Amlin AG.

D. (i). Amlin Re Europe

	2011 Gross premium €m	Current maximum line size €m	2011 Average line size €m
Property	42	20	2.2
Engineering	14	20	1.5
Liability	27	20	1.2
Marine	3	20	0.9
Motor (limited)	36	20	6.7
Personal accident	2	20	1.5
Terrorism	1	20	5.3
Credit	<1	5	1.5

Notes:

1 Premium is stated gross of acquisition costs and excludes adjustments in respect of prior periods.

2 Lines are per programme.

The Zurich portfolio consists of both direct and intermediary produced business from Europe, Israel and a few other countries in Africa and the Middle East.

The book of business is predominantly treaty reinsurance with an emphasis on liability classes.

The motor portfolio is written on a proportional and excess of loss basis and is at risk from increases in frequency or severity of motor accident claims, bodily injury or third party property claims payments which may take several years to settle. Unlimited and limited motor business is written. Whilst the original premium and the investment income generated are expected to be more than sufficient to meet such claims, there is no guarantee that this will be the case, particularly due to inflation or super imposed inflation from changes to court awards. The aim is to diversify the portfolio across several territories in order to reduce the impact of a single legal jurisdiction changing claims policy.

The general third party liability book is mainly excess of loss reinsurance and protects companies against significant public or products liability claims. The liability account also includes some professional liability reinsurance. Again this business is long-tail in nature.

The Zurich office also writes both property risk and catastrophe excess of loss business and a book of property proportional treaties. This portfolio is subject to European windstorm and flood events as well as earthquakes in zones such as Israel, Turkey, Italy and Portugal. A retrocessional reinsurance programme is purchased.

In 2011, through the appointment of a specialist underwriter, the construction and engineering portfolio was expanded. This provides property and liability reinsurance cover for construction projects which may be of several years' duration.

Amlin Re Europe has written a marine excess of loss account which includes maritime exposures across the world. There is also a book of personal accident reinsurance and smaller portfolios of terrorism and credit business.

D (ii). Amlin Bermuda

Amlin Bermuda has continued to write a 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:

Amlin Bermuda direct business risks

	2011 Gross Premium US$m	Current Maximum line size US$m	2011 Average Line Size US$m
Catastrophe reinsurance (per programme)	328	75	7.9
Proportional reinsurance	89	13	1.6
Per risk property reinsurance (per programme)	72	13	3.2
Special risks	47	40	4.4
Marine reinsurance	4	75	10.6
Accident & health	2	10	3.7
Casualty	12	5	1.3

Note:

1 Premium is stated gross of acquisition costs and excludes adjustments in respect of prior periods.

Amlin Bermuda's direct business has strong similarities to the portfolio of the Reinsurance business unit of Amlin London. 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. Overall catastrophe loss limits are applied in relation to specific scenarios as an allocation of total Group tolerances. The current highest modelled loss is US$239 million at 1 January 2011.

Since 2011 Amlin Bermuda has bought a more significant reinsurance programme.

The special risks account includes small premium classes mostly relating to terrorism reinsurance but also includes nuclear, short-term trade credit and contingency which is written in all parts of the world. In 2010 the portfolio of special risks was expanded to include Trade Credit reinsurance which covers companies against the non-payment of monies due as goods or services from trade partners locally or overseas.

The accident and health class is written through medical expense schemes in the US 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.

The growth in the casualty class during 2011 reflects the appointment of a dedicated underwriter writing US casualty business, similar to the portfolio written by Syndicate 2001.

E. Amlin Corporate Insurance

In July 2009 Amlin acquired Fortis Corporate Insurance N.V., subsequently renamed Amlin Corporate Insurance N.V. (ACI), a leading commercial insurer operating in the Benelux. As described in Section C, ACI's French operation was merged with Amlin France in May 2010.

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

	2011 Gross Premium €m	Current Maximum line size €m	2011 Average Line Size €m
Property	81	50	4.5
Engineering	30	25	4.1
Hull	130	25	2.6
Cargo	136	25	1.3
P&I	62	50	18.9
Liability	95	13	2.3
Fleet Motor	46	unlimited	unlimited

Notes:

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

2 Maximum line size is shown after facultative reinsurance.

3 Maximum line size for Builders risks and Yachts (both written in Hull) is €50 million.

4 Premium excludes adjustments in respect of prior periods

ACI's property account is mainly large schedules of properties (e.g. for municipalities) written on a co-insurance 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 includes contractors all risks, machinery breakdown and some computer equipment.

The marine portfolio covers general cargo, a large commodities book for Belgian and French trading corporations, hull, land equipment, shipbuilders' 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.

ACI also underwrites a range of marine products via an agency agreement with RaetsMarine including marine liability, cargo and hull.

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.

Across the portfolio maximum and average line sizes are higher for ACI than those written in Amlin London. This reflects the leading position of the company in the local industrial, commercial and marine markets. Furthermore, there is limited aggregation between this portfolio and catastrophe reinsurance business written elsewhere in the Group and ACI's book is protected by reinsurance on a per risk and catastrophe excess of loss basis.

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

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. Analysis is carried out on captives to manage 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 a separate proportional facility protects 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.

UK and French direct property business is protected by a European wind programme which also protects ACI's Dutch and French exposures.

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 programme is 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 in 2011 first loss cover responded to losses exceeding US$135 million. The 2012 programme has been restructured to provide first loss protection in excess of US$60 million for international catastrophe losses. In addition, the combined aggregate and catastrophe protection has been renewed to provide lower level cover in the event of multiple losses to the portfolio.

For 2012 the excess of loss programme purchased by Amlin Bermuda has also been restructured to provide first event cover for international losses at a similar level to the London placement (deductibles vary slightly by territory and peril). Enhanced first event cover for US losses and additional vertical protection has also been purchased. In addition the combined aggregate and catastrophe excess of loss protection has been renewed.

Amlin Re Europe places quota share and catastrophe excess of loss reinsurance to protect the property portfolio. Motor excess of loss protection is also purchased.

ACI buys a comprehensive programme for each class of business. Specific cover is placed for engineering, personal accident, motor, liability and energy. A general programme protects the remaining marine exposures. The property account is protected by both per risk and catastrophe excess of loss programmes with the latter additionally protecting European property business written by Amlin UK and Amlin France.

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 the Group if renewal of the programme is not achieved.

Realistic Disaster Scenario (RDS) analysis

The Group has a defined event risk tolerance which determines the maximum net loss that the Group intends to limit its exposure with respect to major modelled catastrophe event scenarios. Currently this is a maximum of £350 million for Group. The Group Catastrophe Risk team are responsible for aggregating potential scenarios and as at 1 January 2012 levels of exposure are significantly below the potential maximum tolerance, the largest, the Japanese Earthquake scenario being £314 million for the Group. At present the Group is not utilising the full extent of its risk tolerance.

These scenarios are extraordinary events - with an occurrence probability of less than 1 in 100 years estimated for the natural peril or elemental losses. The Group also adopts risk tolerance maximum net limits for a number of other non-elemental scenarios, including aviation collision and North Sea rig loss.

The risk tolerance 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 tolerance. 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 in the analysis 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 a 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

The Group 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 the London market business information is received through Xchanging (the London market bureau) and, in the case of Amlin UK business, service companies, ACI, Amlin Bermuda and Amlin Re Europe, directly from brokers and policyholders. Claims records are maintained for each policy and class. 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 the Group will post higher reserves than those notified.

To establish a provision for IBNR claims, the underwriting and claims teams in the UK, Bermuda, France and Switzerland use their experience and knowledge of the class of business to estimate the potential future development of each class for every underwriting year. ACI adopt a different approach with Group Actuarial producing a set of best estimate reserves to which local management add additional prudence based on their knowledge of the business. Statistics are used in all cases to fully recognise the different potential development of each class of business. 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.

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 the internal actuarial team 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, or used to produce, the figures proposed by divisional management. Amlin London, Amlin UK, Amlin France and ACI 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 in addition to Amlin Bermuda's own data and the review discussion is conducted in conference or by email correspondence. The review process for Amlin Re Europe is conducted in a similar manner.

Final reserve submissions are provided for the approval of Boards, as required.

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% improvement/deterioration in the total net claims reserves would be £26.6 million gain/loss (2010: £22.5 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.

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 and may turn out to be more or less then initially estimated.

Internal capital modelling of risk

To improve the Group's risk management capability, and assessment of capital requirements, Amlin has developed a stochastic model covering all entities of the Group. This enables standalone modelling for each entity as well as a consolidated Group total position. The output from the model includes a distribution of outcomes of all material risks, giving distributions for: reserves for prior written liabilities, investment performance, and new business underwriting performance. The result is a combined view of the expected best estimate mean profitability 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 the Group'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 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 in the table 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 the Group to support current and expected business levels, which should be considered over a longer period of modelling. Furthermore, the Group is required to carry higher levels of capital which are sufficient in the eyes of rating agencies and clients. This analysis includes the modelling of the Group.

2012 forecast	£m
Underwriting risk	(436)
Reserving risk	(240)
Credit (reinsurance counterparty risk)	(50)
Investment (market risk)	(20)
Liquidity risk	(3)
Operational risk	(28)
Currency risk	(43)
Diversified result	(820)

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 the Group DFA model and based on data as at the end of Q4 2011.

3 Capital has been allocated to risk categories using the Percentile Layer Capital Allocation approach. It should be recognised that allocating capital has a number of limitations and different allocations can be obtained by using alternative allocation approaches.

4 No dividend or tax is considered.

5 Investment (market) risk includes explicit modelling of currency risk.

6 Non-sterling amounts have been converted at market rates of exchange as at Q4 2011 (US$1.55: CAN$1.59: €1.20).

7 Figures include an allowance for investment returns generated on assets backing the insurance liabilities (i.e. discounting).

8 Investment income includes Group corporate (surplus) assets.

9 No credit has been taken for carried reserve margins.

Claims development

The following tables illustrate the development of the estimates of ultimate cumulative claims for the consolidated Group (excluding ACI), Amlin London, Amlin UK, Amlin France (excluding ACI France), Amlin Bermuda and Amlin Re Europe after the end of the underwriting year, illustrating how amounts estimated have changed from the first estimates made. Tables for ACI, which include ACI France, 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 2011 exchange rates to aid comparability.

Group (excluding ACI) Gross basis Underwriting year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m	2010 £m	2011 £m
Current ultimate gross written premium	1,108.5	1,102.1	1,111.1	1,269.7	1,214.0	1,191.3	1,390.4	1,490.7	1,807.8
Current gross earned premium	1,108.5	1,102.1	1,111.1	1,269.7	1,214.0	1,191.3	1,390.4	1,432.3	974.7
Estimate of cumulative claims
at end of underwriting year	632.3	729.3	1,016.3	610.5	642.9	898.4	703.5	912.1	1,204.0
One year later	503.3	721.1	1,054.0	504.8	566.1	758.9	671.6	1,263.7
Two years later	428.3	681.8	1,017.9	481.5	516.4	728.6	645.2
Three years later	407.4	654.2	982.8	455.8	501.9	726.4
Four years later	401.1	639.2	965.5	444.7	495.6
Five years later	392.1	634.8	945.0	442.8
Six years later	380.5	632.2	944.0
Seven years later	371.3	626.1
Eight years later	363.8
Cumulative payments	347.3	604.7	898.8	386.7	400.3	587.1	402.6	488.6	143.5
Estimated balance to pay	16.5	21.4	45.2	56.1	95.3	139.3	242.6	775.1	1,060.5

Net basis Underwriting year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m	2010 £m	2011 £m
Estimate of cumulative claims
at end of underwriting year	528.9	586.3	624.4	554.8	575.7	738.8	633.9	820.3	1,025.2
One year later	419.2	533.4	611.6	451.1	511.7	632.2	601.5	1,075.7
Two years later	357.6	491.7	590.4	438.2	466.7	598.6	579.5
Three years later	338.3	471.0	561.6	415.1	453.8	599.2
Four years later	330.0	453.9	548.6	403.9	446.9
Five years later	322.1	448.4	528.3	401.8
Six years later	312.7	441.8	525.8
Seven years later	302.8	435.9
Eight years later	297.9
Cumulative payments	285.2	411.9	484.1	342.8	348.4	461.2	363.6	458.8	132.3
Estimated balance to pay	12.7	24.0	41.7	59.0	98.5	138.0	215.9	616.9	892.9

The Group's net aggregate reserve releases from all prior years amounted to £112.6 million (2010: £156.5 million). In part, this arises from the Group's reserving philosophy which aims to make the most recent years, with the greatest uncertainty of result, prudently reserved leaving a potential for subsequent release.

This differs from the £211.7 million increase in reserves stated in the claims development table above as the table above is on an underwriting year basis and the surpluses in this narrative are on an annually accounted basis. The table above excludes any net aggregate reserve releases from 2002 and prior years. Also the table above excludes ACI, which is accounted for on an accident year basis and for which net reserve releases are £6.6 million (2010: £43.4 million). The ACI table also excludes any net aggregate reserve releases from 2002 and prior years.

Amlin London Gross basis Underwriting year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m	2010 £m	2011 £m
Current ultimate gross written premium	899.8	909.1	937.9	972.2	891.6	807.9	904.9	897.3	1,005.0
Current gross earned premium	899.8	909.1	937.9	972.2	891.6	807.9	904.9	868.3	534.6
Estimate of cumulative claims
at end of underwriting year	486.6	602.4	900.4	463.6	468.5	624.8	453.9	536.4	658.8
One year later	372.7	608.1	941.5	372.7	407.6	517.2	423.9	730.6
Two years later	325.1	576.4	913.8	349.3	366.4	475.2	388.7
Three years later	309.9	561.8	892.4	334.2	352.7	476.2
Four years later	303.4	551.3	875.1	325.9	347.8
Five years later	303.9	546.9	864.2	321.6
Six years later	299.8	542.3	859.9
Seven years later	290.5	536.7
Eight years later	285.0
Cumulative payments	272.2	517.6	824.4	289.3	296.7	410.4	250.8	275.7	88.9
Estimated balance to pay	12.8	19.1	35.5	32.3	51.1	65.8	137.9	454.9	569.9

Net basis Underwriting year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m	2010 £m	2011 £m
Estimate of cumulative claims
at end of underwriting year	402.4	474.9	519.7	416.1	408.1	479.1	391.3	452.9	512.3
One year later	308.8	430.8	509.7	327.3	363.8	405.1	363.0	582.2
Two years later	264.7	397.6	492.2	312.4	327.8	359.7	331.5
Three years later	249.5	382.3	472.7	299.0	313.4	361.2
Four years later	241.0	369.5	459.7	288.1	308.8
Five years later	241.0	364.0	449.0	284.2
Six years later	237.6	358.8	445.9
Seven years later	228.4	353.4
Eight years later	225.5
Cumulative payments	215.8	338.8	414.8	251.9	252.6	285.6	213.6	245.9	77.8
Estimated balance to pay	9.7	14.6	31.1	32.3	56.2	75.6	117.9	336.3	434.5

Note: In the tables above, the increase on claims in the 2010 underwriting year is due to catastrophe losses incurred during 2011.

Amlin UK Gross basis Underwriting year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m	2010 £m	2011 £m
Current ultimate gross written premium	208.7	193.0	172.0	151.8	147.5	160.0	210.9	259.4	316.2
Current gross earned premium	208.7	193.0	172.0	151.8	147.5	160.0	210.9	241.3	134.3
Estimate of cumulative claims
at end of underwriting year	145.7	126.9	115.9	103.4	102.2	118.4	137.8	168.7	199.4
One year later	130.6	113.0	111.8	107.3	103.5	124.7	151.8	178.0
Two years later	103.2	105.4	103.7	102.8	103.9	127.3	157.2
Three years later	97.5	92.4	90.1	95.4	104.9	127.0
Four years later	97.7	87.9	90.1	93.3	104.8
Five years later	88.2	87.9	80.5	95.8
Six years later	80.7	89.9	83.8
Seven years later	80.8	89.4
Eight years later	78.8
Cumulative payments	75.1	87.1	74.1	73.2	67.8	64.9	82.3	69.0	18.6
Estimated balance to pay	3.7	2.3	9.7	22.6	37.0	62.1	74.9	109.0	180.8

Net basis Underwriting year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m	2010 £m	2011 £m
Estimate of cumulative claims
at end of underwriting year	126.5	111.4	104.7	95.2	95.4	104.5	130.8	160.4	192.5
One year later	110.4	102.6	101.2	99.0	92.9	111.1	142.6	169.8
Two years later	92.9	94.1	97.8	96.4	91.8	112.8	149.5
Three years later	88.8	88.7	88.6	89.9	96.1	114.8
Four years later	89.0	84.4	88.6	90.3	95.1
Five years later	81.1	84.4	79.0	92.2
Six years later	75.1	83.0	79.6
Seven years later	74.4	82.5
Eight years later	72.4
Cumulative payments	69.4	73.1	69.0	66.7	60.0	63.8	80.5	69.0	18.6
Estimated balance to pay	3.0	9.4	10.6	25.5	35.1	51.0	69.0	100.8	173.9

Note: In the tables above, on the 2010 underwriting year, the ultimate gross written premium recognised on the binder business was increased during 2011. This also resulted in an increase in associated claims.

Amlin France (excluding ACI France) Gross basis Underwriting year	2008 £m	2009 £m	2010 £m	2011 £m
Current ultimate gross written premium	2.1	24.3	32.1	33.8
Current gross earned premium	2.1	24.3	32.4	26.4
Estimate of cumulative claims
at end of underwriting year	0.0	13.3	21.4	22.1
One year later	0.4	15.0	19.0
Two years later	0.4	14.8
Three years later	0.4
Cumulative payments	0.3	13.4	13.0	2.7
Estimated balance to pay	0.1	1.4	6.0	19.4

Net basis Underwriting year	2008 £m	2009 £m	2010 £m	2011 £m
Estimate of cumulative claims
at end of underwriting year	0.0	13.3	21.4	22.1
One year later	0.4	15.0	19.0
Two years later	0.4	14.8
Three years later	0.4
Cumulative payments	0.3	13.4	13.0	2.7
Estimated balance to pay	0.1	1.4	6.0	19.4

Note: In the tables above, business written prior to the acquisition of Amlin France 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	2010 £m	2011 £m
Current ultimate gross written premium	1.2	145.7	174.9	221.3	250.3	299.2	350.1
Current gross earned premium	1.2	145.7	174.9	221.3	250.3	287.9	224.9
Estimate of cumulative claims
at end of underwriting year	0.0	43.5	72.2	155.2	98.5	183.5	253.5
One year later	0.7	24.8	55.0	116.6	80.9	333.9
Two years later	0.4	29.4	47.1	125.7	84.5
Three years later	0.3	26.2	44.3	122.8
Four years later	0.3	25.5	43.0
Five years later	0.3	25.4
Six years later	0.3
Cumulative payments	0.3	24.2	35.8	111.5	56.1	130.4	31.6
Estimated balance to pay	0.0	1.2	7.2	11.3	28.4	203.5	221.9

Net basis Underwriting year	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m	2010 £m	2011 £m
Estimate of cumulative claims
at end of underwriting year	0.0	43.5	72.2	155.2	98.5	183.5	230.2
One year later	0.7	24.8	55.0	116.6	80.9	302.5
Two years later	0.4	29.4	47.1	125.7	83.7
Three years later	0.3	26.2	44.3	122.8
Four years later	0.3	25.5	43.0
Five years later	0.3	25.4
Six years later	0.3
Cumulative payments	0.3	24.2	35.8	111.5	56.1	130.4	31.6
Estimated balance to pay	0.0	1.2	7.2	11.3	27.6	172.1	198.6

Note: In the tables above, the increase in claims on the 2010 underwriting year is due to catastrophe losses incurred during 2011.

Amlin Re Europe Gross basis Underwriting year	2010 £m	2011 £m
Current ultimate gross written premium	2.7	102.7
Current gross earned premium	2.4	54.5
Estimate of cumulative claims
at end of underwriting year	2.1	70.2
One year later	2.2
Cumulative payments	0.5	1.7
Estimated balance to pay	1.7	68.5

Net basis Underwriting year	2010 £m	2011 £m
Estimate of cumulative claims
at end of underwriting year	2.1	68.1
One year later	2.2
Cumulative payments	0.5	1.6
Estimated balance to pay	1.7	66.5

Amlin Corporate Insurance (including ACI France) Gross basis Accident year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m	2010 £m	2011 £m
Current ultimate gross written premium	429.1	466.0	484.8	497.8	547.0	635.5	590.3	657.4	531.4
Current gross earned premium	423.9	457.0	484.4	493.3	526.5	617.1	618.9	569.0	562.3
Estimate of cumulative claims
at end of accident year	215.8	234.2	258.4	294.0	326.8	525.8	418.7	416.3	418.1
One year later	244.8	268.5	357.5	307.7	340.2	516.3	429.6	490.1
Two years later	231.5	249.4	343.0	308.3	364.9	507.4	430.1
Three years later	227.6	244.7	326.7	295.3	354.2	508.2
Four years later	220.0	236.1	318.0	292.5	343.4
Five years later	217.8	211.8	310.9	290.4
Six years later	217.0	210.1	309.0
Seven years later	215.8	206.7
Eight years later	213.4
Cumulative payments	192.4	183.5	283.1	250.0	290.7	395.2	278.2	239.4	76.7
Estimated balance to pay	21.0	23.2	25.9	40.4	52.7	113.0	151.9	250.7	341.4

Net basis Accident year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m	2010 £m	2011 £m
Estimate of cumulative claims
at end of accident year	181.5	175.0	210.2	240.3	287.9	404.1	389.6	382.1	372.6
One year later	194.1	203.0	226.2	254.5	287.7	401.4	401.7	428.8
Two years later	183.8	188.2	209.7	248.4	298.5	392.5	407.1
Three years later	180.0	183.7	196.0	243.3	279.9	380.7
Four years later	168.4	173.2	193.2	236.6	263.3
Five years later	166.4	170.3	184.3	233.5
Six years later	165.5	174.5	180.4
Seven years later	156.9	170.4
Eight years later	154.8
Cumulative payments	138.5	151.3	160.5	203.4	231.2	300.1	250.6	225.3	67.7
Estimated balance to pay	16.3	19.1	19.9	30.1	32.1	80.6	156.5	203.5	304.9

3.2 Financial investment risk

Market risk

Risk management

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

The Group has two main categories of assets:

Underwriting assets. These are 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

The Group manages its investments in accordance with investment frameworks that are set by the Boards of Amlin plc and its subsidiaries. These frameworks determine investment governance and the investment risk tolerance. They are reviewed on a regular basis to ensure that the Boards' fiduciary and regulatory responsibilities are being met. Day to day management of the investments is delegated to the Investment Management Executive or members of the relevant subsidiary's executive, who are advised by the Chief Investment Officer.

The Investment Management Executive comprises the Chief Executive, Group Finance Director and Chief Investment Officer, and meets at least quarterly to consider whether the strategic asset allocation and tactical asset allocation ranges are appropriate to optimise investment returns within the risk tolerances set by the Boards. Group Investments, led by the Chief Investment Officer, is responsible for tactical asset allocation and the appointment of external investment managers and custodians.

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

Investment risk tolerances are set by the Board of Amlin plc and its subsidiaries. The investment process is driven 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 flow. In a soft underwriting market the opposite applies.

Investment risk is independently monitored by the Risk Assessment and Monitoring department using a bespoke investment risk model. The Head of Investment Risk reports regularly to the Investment Management Executive and to the Group Risk Committee.

Strategic asset allocation

Each of the Group's principal subsidiaries has its own strategic asset allocations which are set according to its risk tolerance and liabilities.

The strategic asset allocation for capital assets are set by using a Value at Risk (VaR¹) model, to determine the optimum asset allocation for the current risk tolerance which ensures that appropriate solvency levels are maintained.

The expected timescale for future cash flows in each currency is calculated by the Group Actuarial team. The average durations are the neutral position for the strategic asset allocation for the policyholders' funds.

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

Investment management

The investments are run on a multi-asset, multi-manager basis. Exposure to the asset classes is achieved using physical or derivative instruments and may be managed by Group Investments or by outsourced managers, on a segregated, pooled or commingled basis⁽²⁾. The manager selection is based on a range of criteria that leads to the expectation that they will add value to the funds over the medium to long-term. The managers have discretion to manage the funds on a day to day basis within investment guidelines or prospectuses applicable to their funds that ensure that they comply with the investment frameworks. The managers performance, compliance and risk is monitored on an ongoing basis.

¹ VaR is a statistical measure, which calculates the possible loss over a year, in normal market conditions. As VaR estimates are based on historical market data this should not be viewed as an absolute gauge of the level of risk to the investments.

² Segregated funds are managed separately for the Group. Pooled funds are collective investment vehicles in which the Group and other investors purchase units. Commingled funds combine the assets of several clients.

The managers as at 31 December 2011 were as follows:

Manager	Asset class
Segregated funds
Aberdeen Fund Management Ltd	US Dollar bonds
Artemis Investment Management LLP	Global equities
CB Richard Ellis Collective Investors Limited	Global property
Insight Investment Management (Global) Ltd	Sterling and Euro bonds
Townsend Group Europe Ltd	Global property
Veritas Asset Management (UK) Ltd	Active global equity
Wellington Management International Ltd	US and Canadian Dollar bonds
Pooled vehicles
BlackRock Inc.	Sterling, Euro and US Dollar liquidity funds
BlueBay Asset Management Ltd	Euro bonds
BNP Paribas Investment Partners	Sterling, Euro and US Dollar liquidity funds
Citibank	NZD and AUD cash management
Goldman Sachs Asset Management International	Sterling, Euro and US Dollar liquidity funds and LIBOR plus fund
HSBC Asset Management	US Dollar and Euro liquidity funds; NZD and AUD cash management
H20 AM LLP	LIBOR plus funds
Insight Investment Management (Global) Ltd	Sterling liquidity fund
JP Morgan Asset Management	US Dollar liquidity funds
Leadenhall Capital Partners LLP	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 liquidity funds

The funds under management with each manager are shown below:

	Aberdeen £m	Artemis £m	Black rock £m	BlueBay £m	BNP Paribas £m	CBRE £m	Citibank £m	Corporation of Lloyd's £m	Goldman Sachs £m	H20 £m	HSBC £m	ING £m
Total as at 31 December 2011	259.2	46.4	355.7	315.9	1.2	43.5	24.9	146.7	661.0	195.6	46.4	-
%	6.3	1.1	8.6	7.6	-	1.1	0.6	3.5	16.0	4.7	1.1	-
Total as at 31 December 2010	253.6	-	119.5	337.5	130.4	-	-	84.3	734.0	-	241.7	43.9
%	5.9	-	2.8	7.8	3.0	-	-	2.0	17.1	-	5.6	1.0
		Insight £m	JP Morgan £m	Leadenhall Capital £m	PIMCO £m	Townsend £m	THS £m	UBS £m	Veritas £m	Wellington £m	Western £m	Total £m
Total as at 31 December 2011		672.5	190.4	75.4	417.7	85.7	-	47.8	169.5	353.9	25.1	4,134.5
%		16.3	4.6	1.8	10.1	2.1	-	1.2	4.1	8.6	0.6	100.0
Total as at 31 December 2010		776.6	54.1	74.9	605.6	30.7	244.9	27.3	130.0	390.4	20.8	4,300.2
%		18.1	1.3	1.7	14.1	0.7	5.7	0.6	3.0	9.1	0.5	100.0

Note: The table above excludes the Group's directly held securities of £44.5 million (2010: £25.4 million) comprising index linked bonds £24.7 million (2010: £20.3 million), insurance linked securities £7.5 million (2010: £3.3 million), unlisted equities £4.0 million (2010: £nil) and other liquid investments £8.3 million (2010: £1.8 million).

Asset allocation

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

	2011 £m	2010 £m
Net financial investments per note 17	4,069.4	4,300.4
Assets/(liabilities) shown separately in the notes to the accounts:
Accrued income	11.2	14.8
Net unsettled payables for investments purchased	(5.1)	(5.1)
Cash funds held by financial institutions	112.0	35.7
Assets not analysed in the investment asset allocation tables:
Liquid investments	0.6	(10.3)
Unlisted equities	(0.2)	(9.0)
Margin and collateral relating to derivative instruments	(8.9)	(0.9)
Total investments in asset allocation tables below	4,179.0	4,325.6

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

	31 December 2011				31 December 2010
	Underwriting assets £m	Capital assets £m	Total assets £m	Total %	Underwriting assets £m	Capital assets £m	Total assets £m	Total %
Global equities	-	208.0	208.0	5.0	-	347.1	347.1	8.0
Bonds
Government securities	543.8	215.4	759.2	18.2	513.6	211.3	724.9	16.8
Government index-linked securities	-	24.7	24.7	0.6	-	20.4	20.4	0.5
Government agencies/guaranteed	92.5	17.7	110.2	2.6	91.7	9.3	101.0	2.3
Supranational	13.8	3.5	17.3	0.4	41.6	-	41.6	1.0
Asset backed securities - Home equity	-	2.4	2.4	0.1	-	6.0	6.0	0.1
Asset backed securities - Autos	16.6	5.8	22.4	0.5	32.1	8.3	40.4	0.9
Asset backed securities - Cards	1.6	6.7	8.3	0.2	7.0	11.9	18.9	0.4
Asset backed securities - Other	10.8	6.2	17.0	0.4	6.1	1.0	7.1	0.2
Mortgage backed securities - Prime	58.9	101.3	160.2	3.8	105.5	42.9	148.4	3.4
Mortgage backed securities - Alt A	-	0.8	0.8	-	-	0.8	0.8	-
Corporate bonds - Asset backed	0.4	-	0.4	-	-	-	-	-
Corporate bonds - Basic resources/materials	-	3.0	3.0	0.1	-	3.7	3.7	0.1
Corporate bonds - Consumer goods	8.2	6.4	14.6	0.4	4.0	0.9	4.9	0.1
Corporate bonds - Consumer services	9.2	4.7	13.9	0.3	7.3	6.5	13.8	0.3
Corporate bonds - Financials	90.7	64.4	155.1	3.7	84.8	22.4	107.2	2.5
Corporate bonds - Healthcare	3.4	5.2	8.6	0.2	3.6	1.9	5.5	0.1
Corporate bonds - Industrials	9.5	7.6	17.1	0.4	9.0	6.4	15.4	0.4
Corporate bonds - Miscellaneous	0.9	0.8	1.7	-	0.7	-	0.7	-
Corporate bonds - Oil & Gas	9.6	10.3	19.9	0.5	7.8	7.4	15.2	0.3
Corporate bonds - Technology	5.0	1.4	6.4	0.2	6.0	0.9	6.9	0.2
Corporate bonds - Telecoms	4.9	4.3	9.2	0.2	3.7	3.2	6.9	0.2
Corporate bonds - Utilities	4.4	6.0	10.4	0.2	4.5	6.9	11.4	0.3
Pooled vehicles	940.0	408.7	1,348.7	32.3	943.7	579.8	1,523.5	35.2
Insurance linked securities	7.5	-	7.5	0.2	3.3	52.2	55.5	1.3
	1,831.7	907.3	2,739.0	65.5	1,876.0	1,004.1	2,880.1	66.6
Property funds	-	117.3	117.3	2.8	-	60.2	60.2	1.4
Other liquid investments
Liquidity funds and other liquid investments	595.7	519.0	1,114.7	26.7	747.0	291.2	1,038.2	24.0
	2,427.4	1,751.6	4,179.0	100.0	2,623.0	1,702.6	4,325.6	100.0

Government agencies/guaranteed bonds at 31 December 2011 include £48.1 million of corporate bonds (2010: £42.2 million) and £1.3 million of mortgage backed securities (2010: £4.2 million).

Pooled vehicles held are represented by 24.6% government/agency bonds (2010: 31.8%), 24.0% corporate bonds (2010: 36.0%), 26.2% mortgage backed and asset backed securities (2010: 20.0%), 5.6% insurance linked securities (2010: nil) and 19.6% other liquid investments (2010: 12.2%).

The industry and geographical splits were as follows:

	31 December 2011			31 December 2010
Industry	Corporate bonds %	Global equities %	Total %	Corporate bonds %	Global equities %	Total %
Asset backed securities	0.1	-	0.1	-	-	-
Oil & Gas	6.4	14.6	9.7	6.4	13.3	10.5
Basic materials	0.9	1.2	1.0	1.6	3.0	2.4
Industrials	5.4	8.3	6.5	6.5	10.0	8.6
Consumer goods and services	9.0	18.2	12.7	7.9	23.0	16.9
Healthcare	2.7	15.7	8.0	2.3	11.3	7.7
Miscellaneous	0.5	0.4	0.5	0.3	-	0.1
Government guaranteed	15.2	-	9.1	17.7	-	7.2
Mortgage backed securities	-	-	-	0.1	-	0.1
Telecommunications	3.0	15.2	7.9	2.9	15.3	10.2
Utilities	3.3	0.4	2.1	4.8	1.8	3.0
Financials	51.5	15.2	36.8	46.6	17.4	29.2
Technology	2.0	10.8	5.6	2.9	4.9	4.1
	100.0	100.0	100.0	100.0	100.0	100.0

Note: The table above excludes government bonds but includes £48.1 million (2010: £42.2 million) of corporate bonds with government guarantees and £1.3 million (2010: £4.2 million) of mortgage backed securities.

	31 December 2011			31 December 2010
Region	Bonds %	Global equities %	Total %	Bonds %	Global equities %	Total %
United Kingdom	7.5	20.9	9.3	7.0	18.7	13.6
US and Canada	48.3	34.0	46.5	54.2	32.4	44.4
Europe (excluding United Kingdom)	36.7	21.7	34.7	35.7	33.3	32.0
Far East	6.6	14.7	7.7	2.2	10.4	8.6
Emerging markets	0.9	8.7	1.8	0.9	5.2	1.4
	100.0	100.0	100.0	100.0	100.0	100.0

Note: The table above includes all bond and equity investments.

Valuation risk

The Group'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 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 the Group's investments and are taken into consideration when setting strategic and tactical asset allocations. 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.

Group assets are marked to market at bid price. Prices are supplied by the Group's custodians whose pricing processes are covered by their published annual audits. In accordance with their pricing policies, prices are sourced from market recognised pricing vendor sources.. 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 2011 have been verified by the Group using available quoted prices on Bloomberg to verify that the prices used are a good estimation for fair value. As at 31 December 2011, a limited number of stale prices were identified, the overall value of which are considered immaterial. Further details on the fair value measurement of financial assets and financial liabilities are included in note 3.3.

The valuation of investments is sensitive to equity risk. The impact on profit before tax of a 1% improvement/deterioration in the total market value of shares and other variable yield securities would be a £2.0 million gain/loss (2010: £3.5 million). Sensitivities in relation to other risks are considered in the remainder of note 3.2.

Interest rate risk

Investors' expectations for interest rates will impact bond yields³. Therefore, the value of the Group's bond holdings is 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 duration⁴. The greater the duration of a security, the greater its possible 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 2011			31 December 2010
	Underwriting assets £m	Capital assets £m	Total £m	Underwriting assets £m	Capital assets £m	Total £m
Less than 1 year	197.7	73.6	271.3	84.5	52.8	137.3
1-2 years	102.5	101.8	204.3	166.4	69.4	235.8
2-3 years	172.8	94.2	267.0	174.1	81.6	255.7
3-4 years	141.5	16.9	158.4	195.5	26.0	221.5
4-5 years	129.8	32.5	162.3	166.3	52.8	219.1
Over 5 years	147.3	179.7	327.0	145.5	89.5	235.0
	891.6	498.7	1,390.3	932.3	372.1	1,304.4

Note: The table above excludes pooled investments of £1,348.7 million (2010: £1,523.5 million).

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 will fall.

The average durations of the bond and cash portfolios for the underwriting assets and associated insurance liabilities of Syndicate 2001, Amlin AG and Amlin Corporate Insurance N.V. (ACI) at year end were as follows:

	31 December 2011		31 December 2010
Underwriting assets	Assets Years	Liabilities Years	Assets Years	Liabilities Years
Sterling	0.4	3.5	1.4	3.9
US dollars	1.2	2.7	0.9	1.9
Euro	0.9	3.2	1.9	4.7
Canadian dollars	1.7	3.8	2.5	3.8

Note: The table above includes pooled investments.

The average duration of assets and liabilities in Japanese yen and New Zealand dollars are currently not separately modelled.

The asset durations above are calculated by the custodian. Some differences occur between custodian durations and those reported by the fund managers due to the use of different prepayment assumptions. Using fund manager calculations for 31 December 2011, the following asset year durations would result: sterling 0.4; US dollars 1.0; euro 0.9; and Canadian dollars 1.7. As an additional check, where available, durations as at 31 December 2011 have been verified by the Group using Bloomberg data. In all instances, the duration differences are within the ranges permitted by the investment guidelines. Liabilities durations are calculated by the Group actuarial team.

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

	Syndicate 2001							Amlin AG		ACI		Net (reduction)/ increase in value £m
Shift in yield (basis points)	U/wtg Sterling %	U/wtg US$ %	U/wtg CAN$ %	U/wtg Euro %	U/wtg NZD %	U/wtg JPY %	Capital Sterling %	U/wtg %	Capital %	U/wtg %	Capital %	Net (reduction)/ increase in value £m
100	(1.4)	(3.1)	(2.0)	(1.2)	0.5	0.2	(0.7)	0.2	(1.9)	(2.2)	(1.0)	(58)
75	(1.0)	(2.3)	(1.5)	(0.5)	0.4	0.1	(0.5)	0.1	(1.5)	(1.7)	(0.7)	(41)
50	(0.7)	(1.6)	(1.0)	(0.3)	0.3	0.1	(0.3)	0.0	(1.0)	(1.2)	(0.5)	(28)
25	(0.3)	(0.8)	(0.5)	(0.2)	0.1	0.0	(0.2)	0.0	(0.5)	(0.7)	(0.3)	(15)
- 25	0.3	0.8	0.5	0.2	(0.1)	(0.1)	0.2	(0.0)	0.5	0.7	0.3	15
- 50	0.6	1.6	1.1	0.3	(0.3)	(0.3)	0.4	(0.0)	0.7	1.2	0.5	27
- 75	1.0	2.3	1.6	0.5	(0.4)	(0.4)	0.6	(0.1)	1.0	1.6	0.7	38
- 100	1.3	3.1	2.2	0.6	(0.5)	(0.5)	0.8	(0.2)	1.2	2.1	0.9	49

3 The yield is the rate of return paid if a security is held to maturity. The calculation is based on the coupon rate, length of time to maturity and the market price. It assumes coupon interest paid over the life of the security is reinvested at the same rate.

4 The duration is the weighted average maturity of the security's cash flows, where the present values of the cash flows serve as the weights.

Foreign exchange risk

The exposure to translation, revaluation and asset liability currency matching risk, combine to form the Group's overall exposure to foreign exchange risk. The Group's reporting currency is sterling and significant subsidiary functional currencies are sterling, euro and US dollar. The Group holds assets and liability balances in base currencies of sterling, euro, US dollar, Canadian dollars, New Zealand dollars and Japanese yen.

Translation risk

Foreign exchange translation risk exposure arises when business is written in non-functional currencies. These transactions are translated into the functional currency of the relevant Group entity 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-functional currencies are converted back into the policy currency at the time a claim is to be settled, therefore, the Group is exposed to exchange rate risk between the claim being made and the settlement being paid.

Revaluation risk

The Group is subject to revaluation risk as a result of the translation into the Group's sterling reporting currency of the balance sheets of the Group companies that have a non-sterling functional currency. At 31 December 2011 the material balance sheets that have a non-sterling functional currency were Amlin AG's Bermuda branch with net assets of US$1,360.9 million, Amlin Corporate Insurance with net assets of €226.1 million and the Solo Absolute Bonds and Currency Fund with net assets of €234.8 million (2010: US$1,573.9 million, €320.5 million and €nil respectively). Foreign exchange gains and losses on investments in overseas subsidiaries are recognised in other comprehensive income in accordance with IAS 21 'The effects of changes in foreign exchange rates'. The loss recognised in other comprehensive income for the year ended 31 December 2011 was £38.9 million (2010: £17.6 million gain). This reflects the movement in the US dollar rate from 1.56 at the start of the year to 1.55 at the balance sheet date and the movement in the euro rate from 1.17 at the start of the year to 1.20 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 the net investments in these subsidiaries. For this purpose, the Group uses options that are accounted for as hedges of net investments in overseas subsidiaries, in accordance with the hedge accounting requirements of IAS 39. Consequently 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, which includes applicable fair value adjustments and goodwill. At the year end, hedges were in place for US$589.0 million (2010: US$729.0 million) and €164.0 million (2010: €204.0 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 a £0.8 million liability (2010: £1.4 million asset) at the year end. The net realised and unrealised gain from hedging options recognised in reserves at the year end was £2.4 million (2010: £4.2 million loss).

In relation to revaluation of overseas subsidiaries, if the USD/GBP exchange rates were to improve by 10%, this would result in a decrease of £97.7 million in exchange loss recognised in other comprehensive income. This decrease would be offset by a valuation loss of £22.7 million on the designated portion of the hedging instruments. The same exchange rate deterioration would result in an additional £79.3 million exchange loss through consolidated reserves. This loss would be offset by a valuation gain of £14.0 million on the designated portion of the hedging instruments.

If the EUR/GBP exchange rate were to improve by 10%, this would result in a decrease of £84.0 million in exchange loss recognised in other comprehensive income. This decrease would be offset by a valuation loss of £6.4 million on the designated portion of the hedging instruments. The same exchange rate deterioration would result in an additional £3.9 million exchange loss through consolidated reserves. This loss would be offset by a valuation gain of £10.2 million on the designated portion of the hedging instruments.

Asset liability matching by currency risk

If a liability in a currency, other then the functional currencies of sterling, euro and US dollars, is considered to be sufficiently large following a major event, for example such as the 2010 and 2011 New Zealand earthquakes, that currency will be bought and held as a base currency to cover the potential liability.

Underwriting assets are held in the base currencies of sterling, euros, US dollars, Canadian dollars, New Zealand dollars and Japanese yen, which represent the majority of the Group's liabilities by currency, thus limiting the underwriting asset liability matching currency risk.

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

	31 December 2011						31 December 2010
Currency risk	Sterling	US$	CAN$	Euro	NZ$	JPY	Sterling	US$	CAN$	Euro
Cash and cash equivalents	27.4	56.6	-	136.7	148.9	508.1	23.4	59.1	-	23.7
Financial assets	719.9	2,720.3	117.1	1,551.0	368.0	6,695.6	1,011.9	3,060.2	115.0	1,471.6
Reinsurance assets	(102.0)	899.3	17.8	198.8	35.0	104.2	(79.4)	513.2	15.4	207.8
Loans and receivables and deferred acquisition costs	208.7	972.8	37.5	374.0	55.8	744.6	178.7	897.0	28.1	346.6
Current income tax assets	1.2	15.5	2.5	1.2	-	-	(10.4)	14.8	1.5	1.4
Deferred tax assets	1.2	-	-	39.2	-	-	(0.5)	-	-	17.4
Property and equipment	13.7	2.7	-	5.4	-	-	8.3	0.4	-	4.6
Intangibles	130.3	-	-	106.0	-	-	170.7	-	-	16.1
Investment in associates and joint venture	8.3	-	-	-	-	-	2.2	-	-	-
Total assets	1,008.7	4,667.2	174.9	2,412.3	607.7	8,052.5	1,304.9	4,544.7	160.0	2,089.2

Insurance liabilities	724.6	2,797.1	103.0	1,489.2	655.1	13,478.7	589.1	2,552.0	91.7	1,468.5
Other payables	(24.7)	374.5	25.1	123.7	-	89.5	(4.0)	339.0	18.3	186.9
Financial liabilities	3.0	0.8	-	9.0	-	-	8.3	2.3	-	-
Current income tax liabilities	(4.3)	6.6	-	0.2	-	-	17.7	6.6	-	0.1
Borrowings	228.6	248.5	-	-	-	-	228.3	99.7	-	30.0
Retirement benefit obligations	10.2	-	-	24.8	-	-	-	-	-	17.7
Deferred tax liabilities	30.1	-	-	14.7	-	-	71.4	-	-	19.2
Total liabilities	967.5	3,427.5	128.1	1,661.6	655.1	13,568.2	910.8	2,999.6	110.0	1,722.4
Net assets/(liabilities)	41.2	1,239.7	46.8	750.7	(47.4)	(5,515.7)	394.1	1,545.1	50.0	366.8

Note: The table above includes New Zealand dollars and Japanese yen to reflect the increased liabilities denominated in these currencies in 2011.

If the base currencies were to deteriorate/improve by 10%, the movement in the monetary net underwriting assets and liabilities and borrowings of the Group, excluding overseas subsidiaries, would result in the following gains/(losses) in the Group income statement at 31 December 2011:

	31 December 2011		31 December 2010
Currency	10% Deterioration £m	10% Improvement £m	10% Deterioration £m	10% Improvement £m
US dollars	5.3	(3.3)	13.7	(12.5)
Canadian dollars	5.3	(4.3)	1.0	(0.8)
Euro	10.1	(8.3)	3.9	(3.5)
New Zealand dollars	17.8	(14.5)	-	-
Japanese yen	3.2	(2.6)	-	-
	41.7	(33.0)	18.6	(16.8)

Further foreign exchange risk arises until non-sterling profits or losses are converted into sterling. Foreign exchange risk is mitigated by converting the subsidiaries' functional currency profits into the Groups reporting currency. Given the inherent volatility in some business classes, a cautious approach is adopted on the speed and level of sales, but the Group seeks 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.

At 31 December 2011 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.

Liquidity risk

It is important that the Group's companies can pay their obligations as they fall due. Levels of cash are therefore managed on a daily basis and buffers of liquid assets are held in excess of the immediate requirements. This is to reduce the risk of being forced sellers of any of the Group's assets, which may result in realising prices below fair value, 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. The following table indicates the contractual timing of cash flows arising from assets and liabilities for management of insurance contracts as of 31 December 2011:

		Contractual cash flows (undiscounted)
31 December 2011 Financial assets	No stated maturity £m	0-1 yr £m	1-3 yrs £m	3-5 yrs £m	>5 yrs £m	Carrying amount £m
Shares and other variable yield securities	207.5	0.5	-	-	-	208.0
Debt and other fixed income securities	1,348.7	286.6	633.3	360.7	150.1	2,739.0
Property funds	117.3	-	-	-	-	117.3
Liquidity funds and other liquid investments	1,112.1	6.1	-	-	-	1,118.2
Derivative financial instruments, net	(2.9)	-	(0.6)	-	-	(3.5)
Total	2,782.7	293.2	632.7	360.7	150.1	4,179.0

		Expected cash flows (undiscounted)
Insurance liabilities	No stated maturity £m	0-1 yr £m	1-3 yrs £m	3-5 yrs £m	>5 yrs £m	Carrying amount £m
Insurance contracts	-	1,208.7	1,044.4	644.8	382.5	3,273.6
Less assets arising from reinsurance contracts held	-	(350.3)	(313.7)	(212.9)	(134.7)	(617.0)
Total	-	858.4	730.7	431.9	247.8	2,656.6
Difference in contractual cash flows	2,782.7	(565.2)	(98.0)	(71.2)	(97.7)	1,522.4

		Contractual cash flows (undiscounted)
31 December 2010 Financial assets	No stated maturity £m	0-1 yr £m	1-3 yrs £m	3-5 yrs £m	>5 yrs £m	Carrying amount £m
Shares and other variable yield securities	346.5	0.6	-	-	-	347.1
Debt and other fixed income securities	1,575.8	231.4	580.3	439.7	139.2	2,880.1
Property funds	60.2	-	-	-	-	60.2
Liquidity funds and other liquid investments	1,033.6	(0.1)	-	-	-	1,033.5
Derivative financial instruments, net	4.7	-	-	-	-	4.7
Total	3,020.8	231.9	580.3	439.7	139.2	4,325.6

		Expected cash flows (undiscounted)
Insurance liabilities	No stated maturity £m	0-1 yr £m	1-3 yrs £m	3-5 yrs £m	>5 yrs £m	Carrying amount £m
Insurance contracts	-	671.1	557.4	198.4	137.7	1,564.6
Less assets arising from reinsurance contracts held	-	(87.9)	(82.2)	(38.6)	(29.9)	(238.6)
Total	-	583.2	475.2	159.8	107.8	1,326.0
Difference in contractual cash flows	3,020.8	(351.3)	105.1	279.9	31.4	2,999.6

The expected cash flows and carrying amount for the ACI insurance liabilities, in respect of 2010, was not available and have not been included in the table above. The carrying amount of these liabilities was £922.8 million.

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. If a major insurance event occurs the investment strategy is reviewed to ensure that sufficient liquidity is also available in the assets.

Credit risk

Credit risk is the risk that the Group becomes exposed to loss if a specific counterparty fails to perform its contractual obligations in a timely manner impacting 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. The Group is exposed to credit risk in its investment portfolio and with its premium and reinsurance receivables. The table below shows the breakdown at 31 December 2011 of the exposure of the bond portfolio and insurance and reinsurance receivables by credit quality⁵.

31 December 2011	Debt securities £m	%	Liquidity funds £m	%	Insurance and reinsurance receivables £m	%	Reinsurers' share of outstanding claims £m	%
AAA	987.9	36.1	989.2	100.0	1.2	0.1	40.1	6.5
AA	1,104.8	40.3	-	-	11.7	1.3	190.7	30.9
A	516.9	18.9	-	-	82.2	8.8	324.9	52.7
BBB	31.3	1.1	-	-	0.2	-	0.5	-
Other	98.1	3.6	-	-	838.2	89.8	60.8	9.9
	2,739.0	100.0	989.2	100.0	933.5	100.0	617.0	100.0

Note: Other relates to non-rated and rated lower than BBB.

31 December 2010	Debt securities £m	%	Liquidity funds £m	%	Insurance and reinsurance receivables £m	%	Reinsurers' share of outstanding claims £m	%
AAA	1,060.8	36.8	988.3	100.0	-	-	1.1	0.3
AA	1,398.8	48.7	-	-	-	-	84.3	21.0
A	333.7	11.5	-	-	-	-	249.5	62.1
BBB	26.7	0.9	-	-	-	-	0.2	-
Other	60.1	2.1	-	-	777.0	100.0	66.6	16.6
	2,880.1	100.0	988.3	100.0	777.0	100.0	401.7	100.0

Insurance and reinsurance

The table includes premium receivables, representing amounts due from policyholders. The quality of these receivables is not graded, but based on historical experience there is limited default risk relating to these amounts. Premium credit risk is managed through a number of controls that include broker approval, annual financial review and internal rating of brokers and regular monitoring of premium settlement performance.

Also included are reinsurance receivables, which represent the amounts due at 31 December 2011, as well as amounts expected to be recovered on unpaid outstanding claims (including IBNR) in respect of earned risks. These are stated net of provisions for bad and doubtful debts. The credit risk in respect of reinsurance receivables including reinsurers' share of outstanding claims 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. At 31 December 2011 the Group held collateral of £226.5 million (2010: £124.5 million) as security against potential default by reinsurance counterparties. 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 reinsurance assets would be £6.7 million (2010: £4.4 million). The details of overdue reinsurance assets and insurance receivables are provided in notes 18 and 19.

Investments

As well as failure of a counterparty to perform its contractual obligations, the price of government and corporate bond holdings will be affected by investors' perception of a borrower's creditworthiness. Credit risk within the investment funds is managed through: restrictions on the exposures by credit rating, as determined by the rating agencies, the credit research carried out by the investment managers and by holding diversified portfolios. £21.0 million of bonds held at 31 December 2011 were subject to downgrades during the year (2010: £2.5 million).

The Group's largest non-government counterparty as at 31 December 2011, excluding liquidity funds, has an AA rating and is valued at £63.7 million (2010: £46.8 million). The investment comprises cash of £53.8 million (2010: £24.1 million), corporate bonds of £9.4 million (2010: £7.4 million), asset backed securities of £0.5 million (2010: £nil) and £nil mortgage backed securities (2010: £15.3 million).

5 Credit ratings on debt securities are State Street composite ratings based on Standard & Poor's, Moody's and Fitch, depending on which agency/agencies rate each bond.

The tables below show the credit rating of the Group's non-government bonds and the Group's exposure to sovereign debt.

Non-government bonds 31 December 2011	Total £m	AAA	AA	A	BBB	Other
Corporate - Financials	155.1	16.4%	39.3%	41.7%	2.6%	-
Corporate - Other	105.2	-	14.7%	60.8%	22.5%	2.0%
Mortgage backed securities	162.3	90.7%	4.8%	0.6%	0.1%	3.8%
Asset backed securities	50.1	83.8%	12.2%	1.0%	-	3.0%
Insurance linked securities	7.5	-	-	-	-	100.0%

Non-government bonds 31 December 2010	Total £m	AAA	AA	A	BBB	Other
Corporate - Financials	107.2	8.9%	41.8%	48.9%	0.4%	-
Corporate - Other	84.4	-	17.9%	58.2%	23.9%	-
Mortgage backed securities	153.4	90.3%	4.2%	0.4%	-	5.1%
Asset backed securities	72.4	82.3%	10.4%	3.4%	1.0%	2.9%
Insurance linked securities	55.5	-	-	-	-	100.0%

The table excludes £48.1 million (2010: £42.2 million) of corporate bonds with explicit government guarantees. The table includes £1.3 million (2010: £4.2 million) of government agency mortgage backed securities.

A breakdown of the Group's exposure to sovereign debt is set out below:

	2011 £m	2010 £m
Investments in sovereign debt
US	433.7	507.3
Germany	316.0	314.5
Canada	60.8	-
Australia	45.6	-
UK	-	83.1
Netherlands	-	71.7
Other	191.1	283.7
Investments in sovereign debt issued by Italy, Republic of Ireland, Portugal, Spain and Greece
Italy	62.7	13.6
Ireland	-	8.3
Portugal	-	2.0
Spain	52.6	1.8
Greece	-	2.9
	1,162.5	1,288.9

Sovereign debt is included in the asset allocation table under government securities, government index-linked securities, government agencies/guaranteed assets, supranational bonds and within the underlying holdings of pooled vehicles.

3.3 Fair value methodology

For financial instruments carried at fair value the Group has categorised the measurement basis into a fair value hierarchy as follows:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities. 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 or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

Level 3 - Inputs to a valuation model for the asset or liability 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 or liability 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 pricing services where available. These 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 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, mortgage and asset backed securities and catastrophe bonds. 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 investment funds and the value is based upon unadjusted, quoted and executable prices provided by the fund manager. These are classified as Level 1, except where there is evidence these are not being actively traded at the fund manager's price.

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. Margin or collateral relating to derivatives 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. Certain derivatives for which prices or other market inputs are unobservable, are classified as Level 3. This is typically the case for catastrophe linked instruments.

	Fair Value Hierarchy			Total 2011 £m	Restated Fair Value Hierarchy			Total 2010 £m
	Level 1 £m	Level 2 £m	Level 3 £m	Total 2011 £m	Level 1 £m	Level 2 £m	Level 3 £m	Total 2010 £m
Assets
Financial assets held for trading at fair value through income
Shares and other variable yield securities	204.0	-	-	204.0	347.2	-	-	347.2
Debt and other fixed income securities	2,122.2	615.8	0.6	2,738.6	2,268.1	597.4	20.5	2,886.0
Property funds	-	-	117.3	117.3	-	-	60.2	60.2
Derivative instruments	6.3	13.1	-	19.4	0.5	0.1	-	0.6
Other financial assets at fair value through income
Participation in investment pools	1,000.2	-	-	1,000.2	987.4	-	-	987.4
Deposits with credit institutions	-	-	-	-	18.3	-	-	18.3
Other	1.1	-	1.6	2.7	-	0.9	5.7	6.6
Available for sale financial assets
Unlisted equities	-	-	4.2	4.2	-	-	9.0	9.0
Other
Derivative instruments in designated hedge accounting relationships	3.5	1.7	-	5.2	-	9.6	-	9.6
Total assets	3,337.3	630.6	123.7	4,091.6	3,621.5	608.0	95.4	4,324.9
Liabilities
Financial liabilities held for trading at fair value through income
Derivative instruments	(1.5)	(7.0)	-	(8.5)	(0.2)	-	(1.2)	(1.4)
Other
Derivative instruments in designated hedge accounting relationships	-	(2.5)	-	(2.5)	-	(8.3)	-	(8.3)
Total liabilities	(1.5)	(9.5)	-	(11.0)	(0.2)	(8.3)	(1.2)	(9.7)
Net financial assets	3,335.8	621.1	123.7	4,080.6	3,621.3	599.7	94.2	4,315.2
Assets shown separately in the notes to the accounts
Accrued income				(11.2)				(14.8)
Net financial investments (note 17)				4,069.4				4,300.4

Improvements have been made to the disclosure of 2010 comparative values for derivative financial instruments, previously included within other financial assets at fair value through income, in order to better reflect their classification under IFRS. There is no impact on the total value of derivative financial instruments and net financial assets at fair value at 31 December 2010.

The table below analyses the movements in assets and liabilities classified as Level 3 investments during 2011 calendar year:

	Debt and other fixed income securities £m	Property funds £m	Derivative instruments £m	Other £m	Unlisted equities £m	Total £m
At 1 January 2011	20.5	60.2	(1.2)	5.7	9.0	94.2
Total net gains/(losses) recognised in investment return in the income statement	-	4.5	-	-	(0.2)	4.3
Sales	-	(36.7)	-	(3.9)	-	(40.6)
Purchases	0.6	89.8	-	-	-	90.4
Assets of operation subject to deemed disposal	(20.6)	-	1.2	-	-	(19.4)
Investments recognised as associates	-	-	-	-	(4.6)	(4.6)
Foreign exchange gains/(losses)	0.1	(0.5)	-	(0.2)	-	(0.6)
At 31 December 2011	0.6	117.3	-	1.6	4.2	123.7
Total gains for the period included in income for assets and liabilities held at the end of the reporting period						4.3

A transfer of £26.0 million from Level 2 to Level 1 was made during the year relating to an investment fund within debt and other fixed income securities, as quoted prices became available. There were no significant transfers into or out of Level 3 during the year.

The table below analyses the movements in assets and liabilities classified as Level 3 investments during 2010 calendar year:

	Debt and other fixed income securities £m	Property funds £m	Derivative instruments £m	Other £m	Unlisted equities £m	Total £m
At 1 January 2010	6.2	125.7	-	8.5	8.9	149.3
Total net losses recognised in investment return in the income statement	(0.1)	(2.2)	-	-	-	(2.3)
Sales	(5.3)	(93.7)	-	(2.7)	-	(101.7)
Purchases	-	33.8	-	0.2	0.1	34.1
Assets of operation previously classified as held for sale	20.5	-	(1.2)	-	-	19.3
Transfers out of Level 3	(0.6)	-	-	-	-	(0.6)
Foreign exchange losses	(0.2)	(3.4)	-	(0.3)	-	(3.9)
At 31 December 2010	20.5	60.2	(1.2)	5.7	9.0	94.2
Total losses for the period included in income for assets and liabilities held at the end of the reporting period						(0.5)

The majority of the Group's investments are valued based on quoted market information or other observable market data. The Group holds 3.0% (2010: 2.2%) of its assets at a fair value 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, 'Operating segments'.

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

• Amlin London, consisting of the Reinsurance, Property & Casualty, Marine and Aviation business units, underwritten via Syndicate 2001;

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

• Amlin France, which writes a diverse book of specialty business in France, via Syndicate 2001 and Amlin Corporate Insurance N.V.;

• Amlin Bermuda, which writes predominantly property reinsurance business, via Amlin AG, including reinsurance ceded by Syndicate 2001;

• Amlin Re Europe, which writes continental European non-life reinsurance business, via Amlin AG;

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

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

Included within the intra group items column are consolidation adjustments.

Amlin Re Europe was established in October 2010 to write Continental European non-life reinsurance business. The business written by Amlin Re Europe in 2010 was not material to the Group and was reported within the Amlin Bermuda segment in the annual financial statements. As a result of its increased contribution to the Group's financial position and performance in the current period, Amlin Re Europe has been identified as a separate reportable segment in accordance with IFRS 8. Additionally, to ensure continued consistency with the management information provided to the Board of Directors, each operating segment now includes the insurance intermediary and service entities, which generate income and expenses directly related to that respective segment, and intra-group commission income and certain operating expenses have been reclassified as acquisition costs and underwriting expenses respectively. Accordingly, the information for the year ended 31 December 2010 has been restated to reflect these changes.

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 and revenues are allocated based on the country in which the insurance risk is located. Management considers its external customers to be the individual policyholders, and as such the Group is not reliant on any individual customer.

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 2011	Amlin London £m	Amlin UK £m	Amlin France £m	Amlin Bermuda £m	Amlin Re Europe £m	Amlin Corporate Insurance £m	Other corporate companies £m	Intra group items £m	Total £m
Analysed by geographic segment
UK	151.2	283.2	-	220.0	9.0	-	-	(185.2)	478.2
North America	544.5	8.3	-	201.8	2.2	-	-	(0.7)	756.1
Europe	81.4	14.9	59.6	25.8	90.3	249.5	-	(0.9)	520.6
Worldwide	17.1	0.7	-	0.1	-	279.6	-	-	297.5
Other	160.7	5.3	-	79.8	5.9	-	-	-	251.7
Gross written premium	954.9	312.4	59.6	527.5	107.4	529.1	-	(186.8)	2,304.1
Net written premium	675.3	261.3	43.8	503.8	98.3	436.3	-	(5.6)	2,013.2
Gross earned premium	938.2	280.3	58.3	499.8	58.3	561.9	-	(173.6)	2,223.2
Reinsurance premium ceded	(268.7)	(49.1)	(14.7)	(21.2)	(7.4)	(105.7)	-	171.0	(295.8)
Net earned premium	669.5	231.2	43.6	478.6	50.9	456.2	-	(2.6)	1,927.4
Insurance claims and claims settlement expenses	(751.2)	(205.7)	(45.5)	(504.7)	(38.3)	(452.4)	-	128.2	(1,869.6)
Reinsurance recoveries	300.3	45.3	7.6	54.5	1.8	92.0	-	(131.3)	370.2
Expenses for the acquisition of insurance contracts	(172.1)	(52.8)	(6.9)	(66.5)	(7.6)	(85.0)	-	10.7	(380.2)
Underwriting expenses	(60.4)	(25.9)	(9.4)	(20.0)	(9.4)	(66.8)	-	(1.9)	(193.8)
Loss attributable to underwriting	(13.9)	(7.9)	(10.6)	(58.1)	(2.6)	(56.0)	-	3.1	(146.0)
Investment return	17.5	5.0	0.3	4.5	0.1	(15.4)	29.0	(0.5)	40.5
Other operating income¹	24.8	6.4	1.5	0.6	-	0.4	11.2	(36.1)	8.8
Agency expenses²	(20.2)	(5.3)	(0.7)	-	-	-	-	26.2	-
Other non-underwriting expenses	(0.6)	(0.2)	(0.3)	(4.4)	(1.9)	(25.9)	(49.0)	13.1	(69.2)
Result of operating activities	7.6	(2.0)	(9.8)	(57.4)	(4.4)	(96.9)	(8.8)	5.8	(165.9)
Finance costs³									(27.8)
Share of loss after tax of associates and joint venture									(0.1)
Loss before taxation									(193.8)
Combined ratio	102%	103%	124%	112%	105%	112%			108%

Included within the gross written premium of Amlin Bermuda is premium ceded from Amlin London, Amlin UK and Amlin France amounting to £182.8 million on reinsurance contracts undertaken at commercial rates (2010: £153.4 million).

Investment return in other corporate companies includes £3.2 million loss (2010: £23.4 million gain) generated from investments in Funds at Lloyd's that support the business reported in the Amlin London, Amlin UK and Amlin France segments.

1 Other operating income is mainly agency fees payable by Syndicate 2001 to Amlin Underwriting Limited and external commission income earned by service companies;

2 Agency expenses allocated to segments represent fees and commission payable to Amlin Underwriting Limited;

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

Assets and liabilities by business segment At 31 December 2011	Amlin London £m	Amlin UK £m	Amlin France £m	Amlin Bermuda £m	Amlin Re Europe £m	Amlin Corporate Insurance £m	Other corporate companies £m	Intra group items £m	Total £m
Assets	2,160.3	476.0	85.4	1,846.8	101.8	1,583.9	3,519.6	(3,271.7)	6,502.1
Liabilities	(2,136.8)	(476.0)	(97.8)	(971.1)	(108.6)	(1,383.3)	(1,744.6)	1,836.5	(5,081.7)
Total net assets	23.5	-	(12.4)	875.7	(6.8)	200.6	1,775.0	(1,435.2)	1,420.4

Amlin AG consists of a Bermudian branch and a Zurich based underwriting unit, which are reported as Amlin Bermuda and Amlin Re Europe segments respectively, therefore the net assets for Amlin Bermuda and Amlin Re Europe should be analysed on a combined basis.

Other corporate companies' segmental assets include £563.1 million (2010: £416.3 million) of investments in Funds at Lloyd's that support the business reported in the Amlin London, Amlin UK and Amlin France segments.

Included in assets are the following:

At 31 December 2011	Amlin London £m	Amlin UK £m	Amlin France £m	Amlin Bermuda £m	Amlin Re Europe £m	Amlin Corporate Insurance £m	Other corporate companies £m	Intra group items £m	Total £m
Investments in associates and joint venture	-	-	-	-	-	-	8.3	-	8.3
Additions to non-current assets	-	-	0.2	1.8	1.3	8.0	27.6	16.4	55.3

The Group's non-current assets, consisting of property and equipment and intangible assets, are £238.8 million (2010: £197.0 million) of which £214.7 million (2010: £181.9 million) is located in the UK and £24.1 million (2010: £15.1 million) is located in foreign countries such as Bermuda, the US, Continental Europe and Canada.

Depreciation has been charged on property and equipment for the year amounting to £5.3 million (2010: £3.5 million) of which £1.1 million (2010: £0.8 million) has been charged to Amlin London, £1.2 million (2010: £0.8 million) to Amlin UK, £0.1 to Amlin France (2010: £nil), £0.4 million to Amlin Bermuda (2010: £0.3 million), £0.3 million to Amlin Re Europe (2010: £nil), £1.7 million to Amlin Corporate Insurance (2010: £0.9 million) and £0.5 million to Other corporate companies (2010: £0.7 million).

No impairment losses in respect of intangible assets have been recognised during the year (2010: £nil)

Restated Income and expenses by business segment Year ended 31 December 2010	Amlin London £m	Amlin UK £m	Amlin France £m	Amlin Bermuda £m	Amlin Re Europe £m	Amlin Corporate Insurance £m	Other corporate companies £m	Intra group items £m	Total £m
Analysed by geographic segment
UK	137.3	261.6	-	188.9	0.7	-	-	(152.9)	435.6
North America	489.7	7.0	-	177.0	-	-	-	-	673.7
Europe	93.4	18.9	48.6	24.7	2.0	289.5	-	-	477.1
Worldwide	12.5	0.7	-	-	-	367.1	-	-	380.3
Other	156.5	3.6	-	45.7	-	-	-	-	205.8
Gross written premium	889.4	291.8	48.6	436.3	2.7	656.6	-	(152.9)	2,172.5
Net written premium	641.1	240.2	39.5	417.2	2.7	558.3	(3.6)	14.9	1,910.3
Gross earned premium	882.6	232.5	46.0	428.9	0.5	567.5	-	(155.6)	2,002.4
Reinsurance premium ceded	(254.7)	(42.1)	(8.9)	(14.5)	-	(88.3)	(3.5)	157.7	(254.3)
Net earned premium	627.9	190.4	37.1	414.4	0.5	479.2	(3.5)	2.1	1,748.1
Insurance claims and claims settlement expenses	(427.0)	(148.8)	(25.7)	(266.6)	(0.4)	(410.0)	4.5	105.4	(1,168.6)
Reinsurance recoveries	152.1	26.9	3.8	--	-	46.6	(0.6)	(119.3)	109.5
Expenses for the acquisition of insurance contracts	(170.6)	(42.7)	(3.8)	(55.9)	(0.1)	(78.7)	-	12.7	(339.1)
Underwriting expenses	(58.8)	(20.2)	(10.9)	(17.3)	(2.1)	(56.7)	(2.2)	3.9	(164.3)
Profit attributable to underwriting	123.6	5.6	0.5	74.6	(2.1)	(19.6)	(1.8)	4.8	185.6
Investment return	36.8	18.5	--	41.4	-	54.0	101.4	(77.1)	175.0
Other operating income¹	21.6	8.8	3.2	0.2	-	1.3	(4.5)	(24.9)	5.7
Agency expenses²	(18.5)	(4.1)	(0.7)	-	-	-	-	23.3	--
Other non-underwriting expenses	(1.0)	(0.4)	(0.4)	(9.1)	(1.6)	(19.1)	(76.5)	28.4	(79.7)
Result of operating activities	162.5	28.4	2.6	107.1	(3.7)	16.6	18.6	(45.5)	286.6
Finance costs³									(27.4)
Profit before taxation									259.2
Combined ratio	80%	97%	99%	82%	520%	104%			89%

1 Other operating income is mainly agency fees payable by Syndicate 2001 to Amlin Underwriting Limited and external commission income earned by service companies

2 Agency expenses allocated to segments represent fees and commission payable to Amlin Underwriting Limited

3 Finance costs are incurred in support of the entire business of the Group and have not been allocated to particular segments

Restated Assets and liabilities by business segment At 31 December 2010	Amlin London £m	Amlin UK £m	Amlin France £m	Amlin Bermuda £m	Amlin Re Europe £m	Amlin Corporate Insurance £m	Other corporate companies £m	Intra group items £m	Total £m
Assets	1,859.9	522.1	54.4	1,675.4	6.2	1,720.3	3,443.8	(3,167.5)	6,114.6
Liabilities	(1,626.4)	(502.7)	(53.4)	(595.1)	(9.2)	(1,440.7)	(2,035.7)	1,878.5	(4,384.7)
Total net assets	233.5	19.4	1.0	1,080.3	(3.0)	279.6	1,408.1	(1,289.0)	1,729.9

Included in assets are the following:

At 31 December 2010	Amlin London £m	Amlin UK £m	Amlin France £m	Amlin Bermuda £m	Amlin Re Europe £m	Amlin Corporate Insurance £m	Other corporate companies £m	Intra group items £m	Total £m
Investments in associate and joint venture	-	-	-	-	-	-	2.2	-	2.2
Additions to non-current assets	-	-	-	0.2	-	9.8	13.5	-	23.5

5. Net earned premium

	2011 £m	2010 £m
Gross earned premium
Gross written premium	2,304.1	2,172.5
Change in unearned premium provision	(80.9)	(170.1)
	2,223.2	2,002.4
Reinsurance premium ceded
Reinsurance premium payable	(290.9)	(262.2)
Change in unearned reinsurance premium provision	(4.9)	7.9
	(295.8)	(254.3)
Net earned premium	1,927.4	1,748.1

6. Investment return

	2011 £m	2010 £m
Investment income
- dividend income	12.2	5.8
- interest income	42.8	54.0
- cash and cash equivalents interest income	5.7	0.5
	60.7	60.3
Net realised gains/(losses)
on assets held for trading
- equity securities	12.8	(13.8)
- debt securities	29.2	64.0
- property funds	2.6	(22.9)
- derivative instruments	(8.7)	3.7
on assets classified as other than trading
- participation in investment pools	2.4	-
	38.3	31.0
Net unrealised gains/(losses)
on assets held for trading
- equity securities	(29.4)	40.6
- debt securities	(35.1)	18.4
- property funds	1.7	20.1
- derivative instruments	4.1	(2.0)
on assets classified as other than trading
- participation in investment pools	0.2	-
- assets of operations previously classified as held for sale	-	6.1
- liability to purchase non-controlling interest in Amlin France Holdings SAS	-	0.5
	(58.5)	83.7
	40.5	175.0

7. Net insurance claims

	2011 £m	2010 £m
Insurance claims and claims settlement expenses
Current year insurance claims and claims settlement expenses	1,948.1	1,313.6
Reduced costs for prior period insurance claims	(78.5)	(145.0)
	1,869.6	1,168.6
Insurance claims and claims settlement expenses recoverable from reinsurers
Current year insurance claims and claims settlement expenses recoverable from reinsurers	(336.1)	(98.0)
Additional costs for prior period claims recoverable from reinsurers	(34.1)	(11.5)
	(370.2)	(109.5)
Net insurance claims	1,499.4	1,059.1

8. Expenses for the acquisition of insurance contracts

	2011 £m	2010 £m
Expenses for the acquisition of insurance contracts	401.7	378.7
Changes in deferred expenses for the acquisition of insurance contracts	(21.5)	(39.6)
	380.2	339.1

9. Other operating expenses

	2011 £m	Restated 2010 £m
Expenses relating to underwriting
Employee expenses, excluding employee incentives	95.1	88.7
Lloyd's expenses	18.3	17.7
Other administrative expenses	74.5	52.1
Underwriting exchange losses (note 15)	5.9	5.8
	193.8	164.3
Other expenses
Employee expenses, excluding employee incentives	15.7	10.5
Employee incentives	9.5	27.7
Asset management fees	6.8	6.2
Other administrative expenses	16.1	12.2
ACI integration costs	16.8	16.6
Non-underwriting exchange losses (note 15)	4.3	6.5
	69.2	79.7
	263.0	244.0

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

As a result of changes to the Group's segmental information in note 4, comparative information has been restated to reflect the reclassification of insurance intermediary and service entities' employee and other administrative expenses, totalling £16.5 million, from non-underwriting to underwriting expenses. There is no impact on the total value of operating expenses in 2010.

10. Directors' remuneration

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

	2011 £m	Restated 2010 £m
Remuneration of executive directors	2.5	2.7
Remuneration of non-executive directors	0.6	0.6
Amounts (excluding equity settled share options and awards) receivable under long term incentive schemes	1.1	2.9
	4.2	6.2
Pension contributions	0.2	0.2
	4.4	6.4

Amendments have been made to the comparative information in respects of remuneration receivable by directors for their participation in the Group's long term incentive schemes in 2010.

Details of directors' remuneration and pension benefits, including those of the highest paid director, are included in the Remuneration Report in the Governance section of the Annual Report. Payments were made to both a defined benefit pension scheme and stakeholder defined contribution scheme for two (2010: one) executive directors and to stakeholder defined contribution schemes for two (2010: two) other executive directors.

11. Employee benefit expenses

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

	2011	Restated 2010
Underwriting divisions
Underwriting, claims and reinsurance	672	631
Administration and support	371	336
Central functions
Operations	258	193
Finance	152	117
Internal audit and compliance	16	12
	1,469	1,289

	2011	Restated 2010
By location
UK	909	791
Bermuda	40	33
Continental Europe (excluding UK)	510	457
Singapore	10	7
US	-	1
	1,469	1,289

Comparative information for 2010 has been restated to reflect the use of average headcount figures instead of average full-time equivalents for Amlin Corporate Insurance N.V., to ensure consistency with the information reported by the rest of the Group.

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

	2011 £m	2010 £m
Wages and salaries	114.6	93.6
Employee incentive and related social security costs	9.5	28.3
Equity settled share options and awards granted to directors and employees (note 28)	3.8	3.1
Social security costs	13.8	11.1
Pension costs - defined contribution schemes (note 32)	6.4	5.4
Pension costs - defined benefit schemes (note 32)	4.2	1.9
	152.3	143.4

12. Finance costs

	2011 £m	2010 £m
Letter of credit commission	2.2	2.1
Subordinated bond interest	20.3	21.7
Other similar charges	5.3	3.6
	27.8	27.4

13. Loss/profit before tax

Loss/profit before tax is stated after charging the following amounts:

	2011 £m	2010 £m
Depreciation
- owned assets (note 21)	5.3	3.5
Amortisation (note 22)	4.9	5.5
Operating lease expenditure (note 35)	9.0	9.7
Foreign exchange losses (note 15)	10.2	12.3

Fees paid to the Group's auditors during the year are set out below:

	2011 £'000	2010 £'000
Amounts charged to the income statement
Audit of the Group's annual accounts	255.5	266.5
Audit of subsidiary companies	1,081.6	730.7
Taxation advice	151.8	108.8
Market research	-	268.7
Other non-statutory fees	217.7	100.4
	1,706.6	1,475.1

14. Tax

	2011 £m	2010 £m
Current tax - current year
Corporation tax	25.5	81.0
Foreign tax	4.8	3.6
Double tax relief	(3.2)	(3.0)
	27.1	81.6
Current tax - adjustments in respect of previous years
Corporation tax	(15.9)	(10.9)
Deferred tax - current year
Movement for the year	(61.9)	(38.8)
Deferred tax - adjustments in respect of previous years
Movement for the year	10.4	7.9
Effect of reduced tax rate on opening net liability	(4.0)	(2.5)
	6.4	5.4
Taxes on income	(44.3)	37.3

In addition to the above, tax of £6.4 million (2010: £4.6 million) has been credited directly to other comprehensive income as follows:

	2011 £m	2010 £m
Current tax on gains/(losses) on revaluation of hedge instruments	0.1	(5.3)
Current tax on foreign exchange losses on translation of overseas operations	(2.0)	(2.1)
Deferred tax on defined benefit pension fund actuarial (losses)/gains	(4.5)	2.8
Taxes credited to other comprehensive income	(6.4)	(4.6)

In addition to the above, tax of £1.0 million (2010: £0.4 million) has been charged directly to reserves as follows:

	2011 £m	2010 £m
Deferred tax on employee share option scheme	1.0	0.4
Taxes charged to reserves	1.0	0.4

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 Syndicate 2001's underwriting result is charged in the period in which the underwriting profits are actually paid by the Syndicate to the corporate member subsidiary. This creates a deferred tax position.

Deferred tax is provided on the underwriting result with reference to the forecast ultimate result of each of the years of account. Where this is a taxable loss, deferred tax is only provided on the movement on that year of account to the extent that forecasts show that the taxable loss will be utilised in the foreseeable future. Deferred tax (before netting off) has been provided on the underwriting result for this accounting period of £10.5 million (2010: £68.9 million).

Reconciliation of tax expense

The UK standard rate of corporation tax is 26.5% (2010: 28.0%), whereas the tax charged for the year ended 31 December 2011 as a percentage of loss before tax is 22.9% (2010: 14.4%). The reasons for this difference are explained below:

	2011 £m	2011 %	2010 £m	2010 %
(Loss)/profit before tax	(193.8)		259.2
Taxation on (loss)/profit on ordinary activities at the standard rate of corporation tax in the UK	(51.4)	26.5	72.6	28.0
Non-deductible or non-taxable items	4.1	(2.1)	(0.7)	(0.2)
Tax rate differences on overseas subsidiaries	10.9	(5.6)	(29.7)	(11.5)
Over provision in respect of prior periods	(5.5)	2.8	(3.0)	(1.2)
Irrecoverable overseas tax	1.6	(0.8)	0.6	0.3
Deferred tax rate change	(4.0)	2.1	(2.5)	(1.0)
Taxes on income	(44.3)	22.9	37.3	14.4

The Group's reinsurance subsidiary, Amlin Bermuda Ltd, was re-domiciled from Bermuda to Switzerland during 2010 and renamed Amlin AG. The company now operates in Switzerland as Amlin Re Europe, with the Bermudian business operating as a branch. The Group's tax provision for 2011 has been prepared on the basis that Amlin AG is non-UK resident for UK corporation tax purposes and is exempt from the UK controlled foreign company regime. The corporation tax rate for profits earned by the Bermudian branch of Amlin AG is currently nil% (2010: nil%). The combined rate which is applicable to profits arising for the Swiss operation only, of Swiss cantonal and federal taxes is 21.2% (2010: 21.2%)

Deferred tax has been provided for at the local tax rate in force when the temporary differences are expected to reverse. The tax rates used are:

• UK - 25.0% (2010: 27.0%);

• Netherlands - 25.0% (2010: 25.0%);

• Bermuda - nil% (2010: nil%); and

• Switzerland - 21.2% (2010: 21.2%).

The Budgets in June 2010 and March 2011 announced a change in the main rate of UK corporation tax. The UK tax rate applied for deferred tax purposes (25.0%) was enacted in July 2011. Further reductions in the UK corporation tax rate have been announced, which will ultimately reduce the corporation tax rate to 23.0%. These subsequent reductions have not yet been enacted or substantively enacted and therefore the rate at which deferred tax is provided remains 25.0% in accordance with IAS 12. The estimated impact of the reduction from 25.0% to 23.0% will be a reduction in the net deferred tax liability of £4.2 million (2010: £2.6 million).

The Group is subject to US tax on US underwriting profits. No provision has been made in respect of such tax arising in 2011 (2010: £nil) as any net provision is likely to be immaterial.

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 2010	0.2	5.7	6.5	16.7	29.1
Movements in the year	13.6	(4.8)	(6.5)	(16.7)	(14.4)
At 31 December 2010	13.8	0.9	-	-	14.7
Movement in the year	24.6	4.2	8.0	(24.6)	12.2
At 31 December 2011	38.4	5.1	8.0	(24.6)	26.9

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

	Underwriting results £m	Unrealised capital gains £m	Syndicate capacity £m	Other timing differences £m	Intangibles £m	Total £m
At 1 January 2010	96.5	4.4	6.1	0.7	17.3	125.0
Movements in the year	(53.0)	9.3	0.8	8.3	(2.6)	(37.2)
At 31 December 2010	43.5	13.7	6.9	9.0	14.7	87.8
Movement in the year	(33.0)	(6.2)	(0.2)	(2.7)	(3.3)	(45.4)
At 31 December 2011	10.5	7.5	6.7	6.3	11.4	42.4

A deferred tax asset of £23.9 million (2010: £26.6 million liability settled) is expected to be recovered after more than 12 months from the balance sheet date.

15. Net foreign exchange losses

The Group recognised net foreign exchange losses of £10.2 million (2010: £12.3 million) 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 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 losses in the income statement are:

	2011 £m	2010 £m
Net losses on underwriting transactions and translation of underwriting assets and liabilities at closing rates	(5.9)	(5.8)
Underwriting exchange losses	(5.9)	(5.8)
Losses on long-term US dollar borrowings	(0.2)	(2.0)
Net losses on non-underwriting transactions and translation of non-underwriting assets and liabilities at closing rates	(4.1)	(4.5)
Non-underwriting exchange losses	(4.3)	(6.5)
	(10.2)	(12.3)

The above excludes foreign exchange gains/(losses) in relation to financial instruments measured at fair value through profit or loss.

In addition, the following exchange movements have been charged directly to other comprehensive income:

	2011 £m	2010 £m
(Losses)/gains on translation of overseas operations:
- Amlin Bermuda	(0.2)	27.8
- Amlin Singapore	(0.3)	0.2
- Amlin France	0.1	0.2
- Amlin Corporate Insurance N.V.	(6.4)	(7.7)
- Amlin Re Europe	0.6	-
- Solo Absolute Bonds & Currency Fund	(30.5)	-
	(36.7)	20.5
Gains/(losses) on derivative instruments that hedge investments in overseas operations	2.4	(4.2)
Losses on translation of intangibles arising from investments in overseas operations	(2.2)	(2.9)
	(36.5)	13.4

16. Cash and cash equivalents

	2011 £m	2010 £m
Cash and cash in hand	132.9	66.9
Short-term deposits	123.5	14.6
	256.4	81.5

Cash and cash equivalents represent cash at bank and in hand, short-term bank deposits and other short-term highly liquid investments that are subject to insignificant risk of changes in fair value.

17. Financial assets and financial liabilities

	At valuation 2011 £m	Restated At valuation 2010 £m	At cost 2011 £m	At cost 2010 £m
Assets
Financial assets held for trading at fair value through income
Shares and other variable yield securities	203.3	347.1	194.1	306.5
Debt and other fixed income securities	2,728.1	2,876.9	2,896.2	2,811.2
Property funds	117.3	60.2	120.0	64.7
Derivative instruments	19.4	4.8	4.9	5.2
Other financial assets at fair value through income
Participation in investment pools	1,000.2	984.7	1,000.3	976.0
Deposits with credit institutions	-	9.8	-	9.5
Other	2.7	8.0	2.7	7.9
Available for sale financial assets
Unlisted equities	4.2	9.0	4.0	9.0
Other
Derivative instruments in designated hedge accounting relationships	5.2	9.6	-	-
Total financial assets	4,080.4	4,310.1	4,222.2	4,190.0
Liabilities
Financial liability held for trading as fair value through income
Derivative instruments	(8.5)	(1.4)	-	(1.3)
Other
Derivative instruments in designated hedge accounting relationships	(2.5)	(8.3)	-	-
Total financial liabilities	(11.0)	(9.7)	-	(1.3)
Net financial assets	4,069.4	4,300.4	4,222.2	4,188.7

Debt and other fixed income securities include pooled funds, and other fixed income securities. The valuation of these funds is £1,348.7 million (2010: £1,523.5 million). Included in these funds at 31 December 2011 is £75.4 million (2010: £nil) in respect of the Leadenhall Value Insurance Linked Investments Fund and the Leadenhall Diversified Insurance Linked Investments Fund. The Group ceased to consolidate these funds with effect from 1 June 2011 and 2 August 2011 respectively, with additional external investment resulting in the disposal of the Group's controlling interests by way of dilution.

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

The Group holds hedged and non-hedged derivatives. Hedged derivatives are designated at inception and qualify for hedge accounting under IAS 39. Non-hedged derivatives either do not qualify for hedge accounting or the option to hedge account has not been taken. Improvements have been made to the disclosure of 2010 comparative values for derivative financial instruments, previously included within other financial assets at fair value through income, in order to better reflect their classification under IFRS. There is no impact on the total value of derivative financial instruments and net financial assets at 31 December 2010.

Derivative instruments include margins and collateral of £10.9 million (2010: £1.2 million). Details are included in note 29.

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

	2011 £m	2010 £m
At 1 January	4,300.4	3,965.0
Exchange gains/(losses)	7.1	(47.0)
Net (sales)/purchases	(215.9)	214.1
Net realised gains on assets held for trading or other than trading	38.3	31.0
Net unrealised (losses)/gains on assets held for trading or other than trading	(58.5)	77.1
Net unrealised gains on assets designated as available for sale	0.2	-
Assets of operation previously classified as held for sale	-	64.4
Asset recognised as associate	(4.6)	-
Net realised and unrealised gains/(losses) on derivative instruments in designated hedge accounting relationships	2.4	(4.2)
At 31 December	4,069.4	4,300.4

18. Insurance liabilities and reinsurance assets

Claims reserves	2011				2010
Claims reserves	Insurance contract liabilities £m	Reinsurance share £m	Net liabilities £m	Insurance contract liabilities £m		Reinsurance share £m	Net liabilities £m
At 1 January	2,631.9	383.1	2,248.8	2,431.4		421.1	2,010.3
Claims incurred during the current year	1,948.1	336.1	1,612.0	1,313.6		98.0	1,215.6
Movements arising from prior year claims	(78.5)	34.1	(112.6)	(145.0)		11.5	(156.5)
Claims paid during the year	(1,234.1)	(119.3)	(1,114.8)	(977.3)		(147.0)	(830.3)
Novation of liability	-	-	-	(2.0)		(0.4)	(1.6)
Accretion of fair value adjustment	4.8	0.8	4.0	4.0		0.7	3.3
Other movements	9.4	(10.5)	19.9	-		3.2	(3.2)
Exchange adjustments	(8.0)	(7.3)	(0.7)	7.2		(4.0)	11.2
At 31 December	3,273.6	617.0	2,656.6	2,631.9		383.1	2,248.8

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:

Claims reserves	2011				2010
Claims reserves	Insurance contract liabilities £m	Reinsurance share £m	Net liabilities £m	Insurance contract liabilities £m		Reinsurance share £m	Net liabilities £m
Notified outstanding claims	2,288.4	385.8	1,902.6	1,892.4		271.0	1,621.4
Claims incurred but not reported	985.2	231.2	754.0	739.5		112.1	627.4
Insurance contracts claims reserve	3,273.6	617.0	2,656.6	2,631.9		383.1	2,248.8

The current and non-current portions for claims reserves are expected to be as follows:

		2011				2010
Claims reserves	Insurance contract liabilities £m		Reinsurance share £m	Net liabilities £m	Insurance contract liabilities £m		Reinsurance share £m	Net liabilities £m
Current portion	1,175.0		189.6	985.4	1,047.2		129.6	917.6
Non-current portion	2,098.6		427.4	1,671.2	1,584.7		253.5	1,331.2
	3,273.6		617.0	2,656.6	2,631.9		383.1	2,248.8

Unearned premium reserves	2011				2010
Unearned premium reserves	Insurance contract liabilities £m	Reinsurance share £m	Net liabilities £m	Insurance contract liabilities £m		Reinsurance share £m	Net liabilities £m
At 1 January	914.4	55.3	859.1	744.8		52.8	692.0
Premiums written during the year	2,304.1	290.9	2,013.2	2,172.5		262.2	1,910.3
Premiums earned during the year	(2,223.2)	(295.8)	(1,927.4)	(2,002.4)		(254.3)	(1,748.1)
Other movements	(0.5)	0.1	(0.6)	-		(4.0)	4.0
Exchange adjustments	3.2	(0.1)	3.3	(0.5)		(1.4)	0.9
At 31 December	998.0	50.4	947.6	914.4		55.3	859.1

The current and non-current portions for unearned premium reserves are expected to be as follows:

		2011				2010
Unearned premium reserves	Insurance contract liabilities £m		Reinsurance share £m	Net liabilities £m	Insurance contract liabilities £m		Reinsurance share £m	Net liabilities £m
Current portion	870.2		39.0	831.2	865.3		45.5	819.8
Non-current portion	127.8		11.4	116.4	49.1		9.8	39.3
	998.0		50.4	947.6	914.4		55.3	859.1

In connection with the purchase accounting for the acquisition of Amlin Corporate Insurance N.V., 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 £4.0 million in 2011 (2010: net charge £3.3 million).

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.

The total reinsurers' share of claims reserves and unearned premium reserves is set out in the table below:

	2011 £m	2010 £m
Reinsurers' share of insurance liabilities	686.8	454.4
Less provision for impairment of receivables from reinsurers	(19.4)	(16.0)
Reinsurance assets	667.4	438.4

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 2011 there were no reinsurance assets greater than 3 months overdue (2010: £4.0 million, which were fully provided for). The Group holds collateral of £226.5 million (2010: £124.5 million) in relation to reinsurance assets. Details are included in note 29.

The Group has recognised a total net impairment loss of £0.1 million (2010: £11.4 million) on reinsurance assets and insurance and reinsurance receivables.

The carrying amounts disclosed are reasonably approximate to the fair value at the reporting date.

19. Loans and receivables, including insurance and reinsurance receivables

	2011 £m	2010 £m
Receivables arising from insurance and reinsurance contracts	953.5	820.1
Less provision for impairment of receivables from contract holders and agents	(20.0)	(24.5)
Insurance and reinsurance receivables	933.5	795.6
Other receivables	51.6	39.4
Prepayments and other accrued income	17.4	48.7
Other loans and receivables	69.0	88.1
	1,002.5	883.7

The current and non-current portions are expected to be as follows:

	2011 £m	Restated 2010 £m
Current portion	932.5	857.1
Non-current portion	70.0	26.6
	1,002.5	883.7

Comparative information for 2010 has been restated to reflect the correct classification of certain non-current reinsurance receivables, which were incorrectly disclosed within the current portion of loans and receivables in the prior period. There is no impact on the total value of loans and receivables at 31 December 2010.

Receivables arising from reinsurance contracts are comprised principally of amounts recoverable from reinsurers in respect of paid claims and premium receivables on inward reinsurance business, including reinstatement premium.

The Group assesses its insurance and reinsurance receivables for impairment on a quarterly basis by reviewing counterparty payment history and for circumstances which may give rise to a dispute or default. As of 31 December 2011 insurance and reinsurance receivables at a nominal value of £50.5 million (2010: £117.2 million) were greater than 3 months overdue and provided for on the basis of credit rating to the value of £11.3 million (2010: £24.2 million).

The carrying amounts disclosed above are reasonably approximate to the fair value at the reporting date.

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

	2011 £m	2010 £m
3 to 6 months	10.9	18.9
6 to 9 months	14.6	14.0
Greater than 9 months	25.0	84.3
	50.5	117.2

The Netherlands and Belgium business of Amlin Corporate Insurance N.V. 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 and Belgium is £88.4 million (2010: £90.3 million). The provision for non-recovery is £5.0 million (2010: £3.2 million).

Other receivables comprise principally of amounts receivable from investment managers for financial investments sold, input VAT and other sundry receivables.

20. Deferred acquisition costs

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

	Restated £m
At 1 January 2010	145.8
Expense deferred	378.7
Amortisation	(339.1)
Exchange adjustment	0.4
At 31 December 2010	185.8
Expense deferred	401.7
Amortisation	(380.2)
Exchange adjustment	0.4
At 31 December 2011	207.7

The current and non-current portions are expected to be as follows:

	2011 £m	2010 £m
Current portion	182.1	176.0
Non-current portion	25.6	9.8
	207.7	185.8

The comparative information for 2010 in respect of expenses deferred and amortisation has been restated to more appropriately reflect the pattern of deferral and amortisation of acquisition costs. There is no impact on the total value of deferred acquisition costs at 31 December 2010.

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 2011	4.1	0.2	30.9	11.3	46.5
Foreign exchange losses	-	-	(0.3)	(0.1)	(0.4)
Additions	2.7	0.1	6.3	3.6	12.7
Acquisition through business combination	-	-	0.1	0.2	0.3
Disposals	-	(0.2)	(0.1)	(0.6)	(0.9)
At 31 December 2011	6.8	0.1	36.9	14.4	58.2
Accumulated depreciation
At 1 January 2011	0.3	0.1	24.9	8.7	34.0
Foreign exchange gains	-	-	-	(0.2)	(0.2)
Charge for the year	-	-	4.0	1.3	5.3
Disposals	-	(0.1)	(0.1)	(0.6)	(0.8)
At 31 December 2011	0.3	-	28.8	9.2	38.3
Net book value
At 31 December 2011	6.5	0.1	8.1	5.2	19.9
At 1 January 2011	3.8	0.1	6.0	2.6	12.5

	Freehold land and buildings £m	Motor vehicles £m	Computer equipment £m	Fixtures, fittings and leasehold improvements £m	Total £m
Cost
At 1 January 2010	4.1	0.2	26.8	9.9	41.0
Foreign exchange losses	-	-	(0.2)	-	(0.2)
Additions	-	-	4.7	1.5	6.2
Disposals	-	-	(0.4)	(0.1)	(0.5)
At 31 December 2010	4.1	0.2	30.9	11.3	46.5
Accumulated depreciation
At 1 January 2010	0.3	0.1	22.7	8.0	31.1
Foreign exchange gains	-	-	(0.2)	-	(0.2)
Charge for the year	-	-	2.8	0.7	3.5
Disposals	-	-	(0.4)	-	(0.4)
At 31 December 2010	0.3	0.1	24.9	8.7	34.0
Net book value
At 31 December 2010	3.8	0.1	6.0	2.6	12.5
At 1 January 2010	3.8	0.1	4.1	1.9	9.9

There were no assets held under finance lease and hire purchase contracts at 31 December 2011 (2010: £nil).

22. Intangible assets

	Goodwill £m	Syndicate participations £m	Broker and customer relationships £m	Computer software £m	Other intangibles £m	Total £m
Cost
At 1 January 2011	62.2	63.2	51.1	17.4	2.5	196.4
Additions	-	-	-	25.7	-	25.7
Acquisition through business combination	16.3	-	-	-	-	16.3
Adjustments to prior acquisitions	(0.5)	-	-	-	-	(0.5)
Foreign exchange losses	(1.0)	-	(0.8)	(0.5)	-	(2.3)
At 31 December 2011	77.0	63.2	50.3	42.6	2.5	235.6
Accumulated amortisation
At 1 January 2011	0.4	-	10.3	-	1.2	11.9
Charge for the year	-	-	4.4	-	0.5	4.9
Foreign exchange gains	-	-	(0.1)	-	-	(0.1)
At 31 December 2011	0.4	-	14.6	-	1.7	16.7
Net book value
At 31 December 2011	76.6	63.2	35.7	42.6	0.8	218.9
At 1 January 2011	61.8	63.2	40.8	17.4	1.3	184.5

	Goodwill £m	Syndicate participations £m	Broker and customer relationships £m	Computer software £m	Other intangibles £m	Total £m
Cost
At 1 January 2010	64.3	63.2	39.3	-	2.5	169.3
Additions	-	-	-	17.4	-	17.4
Acquisition through business combination	-	-	13.0	-	-	13.0
Adjustments to prior acquisitions	(0.4)	-	-	-	-	(0.4)
Foreign exchange losses	(1.7)	-	(1.2)	-	-	(2.9)
At 31 December 2010	62.2	63.2	51.1	17.4	2.5	196.4
Accumulated amortisation
At 1 January 2010	0.4	-	5.4	-	0.7	6.5
Charge for the year	-	-	5.0	-	0.5	5.5
Foreign exchange gain	-	-	(0.1)	-	-	(0.1)
At 31 December 2010	0.4	-	10.3	-	1.2	11.9
Net book value
At 31 December 2010	61.8	63.2	40.8	17.4	1.3	184.5
At 1 January 2010	63.9	63.2	33.9	-	1.8	162.8

Additions to goodwill during the year of £16.3 million relate to the acquisitions of J R Clare Underwriting Agencies Limited (£4.8 million) and Lead Yacht Underwriters Limited (£11.5 million). Further details on these acquisitions are provided in note 39.

Syndicate participations represent the ongoing rights to trade on Syndicate 2001 within the Lloyd's insurance market.

Broker and customer relationship intangibles include those acquired in relation to AUA Insolvency Risk Services Limited, Amlin Corporate Insurance N.V. (ACI) and Amlin France Holdings SAS, the net book value being £11.0 million (2010: £12.1 million), £21.7 million (2010: £24.0 million) and £3.0 million (2010: £4.7 million) respectively. These intangibles are being amortised over a period of 13, 15 and 5 years respectively, and their remaining amortisation life is 12, 13 and 2 years respectively.

Computer software represents the costs that the Group has incurred on internally developed software relating to a new underwriting platform for ACI. It is expected that this software will be amortised over ten years from the date that it is completed.

Goodwill and the intangible asset in relation to syndicate participations are considered to have an indefinite life. As such, they are tested for impairment annually. Computer software is also tested for impairment annually on the basis that it is not yet ready for use. All other intangible assets are tested for impairment only if an indication exists that the asset may be impaired at the reporting date.

For the purpose of impairment testing, intangible assets are allocated to the Group's cash-generating units (CGUs), identified according to the way in which management operates and monitors the business. The intangible asset relating to the syndicate participations supports the underwriting in Amlin London, Amlin UK and Amlin France. In 2010 this intangible asset was not allocated to these three CGUs and the impairment testing was performed based on aggregate Syndicate 2001 profit forecasts. In 2011, following improvements to the Group's impairment testing methodology, the syndicate participations intangible asset has been allocated to the three CGUs on the basis of the benefit expected to be derived from the asset.

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

	2011 £m					2010 £m
	Amlin London⁽¹⁾	Amlin UK	Amlin France	Amlin Corporate Insurance	Total	Amlin London	Amlin France	Amlin Corporate Insurance	Total
Goodwill	19.2	4.8	24.0	28.6	76.6	7.6	25.0	29.2	61.8
Syndicate participations	51.7	10.7	0.8	-	63.2	-	-	-	63.2
	70.9	15.5	24.8	28.6	139.8	7.6	25.0	29.2	125.0

(1) The Amlin London goodwill balance comprises the goodwill from three cash-generating units. The largest individual balance is the goodwill from the acquisition of Lead Yacht Underwriters Limited totalling £11.5 million (2010: £nil).

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 as follows:

• Cash flow projections are based on the budgeted operating profit for each CGU contained within the most recent business plans approved by management, and adjusted for non-cash items such as depreciation. As such, these forecasts reflect the best estimate of future cash flows based on historical trends and expected growth rates. The period covered by the projections is 5 years. The most significant assumptions used to derive the operating profit include an 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 long term average growth rate of 2.5% has been assumed for all CGUs, based on historical growth rates and management's estimates of future growth.

• A risk adjusted pre-tax discount rate of 8.5%, has been applied to each CGU's cash flow projection, which reflects a combination of factors including the Group's expected return on equity and costs of borrowing.

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

23. Associates and joint venture

a) Associates

i) Miles Smith Holding Limited (MS Holding)

During 2011, Amlin Corporate Services Limited's (ACS) investment in Miles Smith Limited (MS Limited) of 19.9% was transferred to MS Holding, via a share swap agreement. At the same time MS Holding acquired the entire share capital of MS Limited. MS Holding subsequently increased its share capital through a rights issue in which ACS acquired an additional 12,552 of voting and non-voting shares for £1.1 million, thereby increasing its shareholding to 25.8% of the voting shares and the total value of the investment to £5.6 million. MS Limited is an insurance broker, and MS Holding operates as a holding entity.

Summary consolidated financial information for MS Holding at 31 December 2011 is as follows:

	2011 £m
Assets	27.0
Liabilities	(23.7)
Revenues	4.6
Loss for the year	(0.3)
Group's share of loss	(0.1)
Group's carrying value of investment	5.6
GWP sourced by entity on behalf of Syndicate 2001	24.1
Group's net insurance receivables from the associate	0.6
Group's loans to the associate	0.5
Loan stock issued to the Group by the associate	0.7

The loan to MS Holding is repayable in three instalments, with the final instalment due on 31 December 2014. Interest is charged at 4.0% over the 3 month LIBOR. The £0.7 million loan stock was issued by the associate during 2011 in place of an existing £0.7 million loan. The conversion date is 31 December 2015. Interest is accrued at 5% over 5 year gilts.

No amounts were provided for doubtful recovery of these receivables and no expense was recognised during the year in respect of bad or doubtful debts from MS Holding.

ii) Manchester Underwriting Management Limited (MUM)

During 2010 Amlin Corporate Services Limited invested £0.5 million to acquire a 25.0% share of the voting rights in MUM. MUM was established as a managing general agent and is initially underwriting professional indemnity insurance. The majority of the business written by MUM is underwritten by Amlin UK.

Summary financial information for MUM at 31 December is as follows:

	2011 £m	2010 £m
Assets	0.4	0.5
Liabilities	(0.4)	(0.1)
Revenues	0.6	0.2
Loss for the year	(0.5)	(0.6)
Group's share of loss	(0.1)	-
Group's carrying value of investment	0.5	0.5
GWP sourced by entity on behalf of Syndicate 2001	3.2	1.1
Group's net insurance receivables from the associate	-	0.2
Group's loans to the associate	0.2	-

The loan to MUM is repayable in full on 31 December 2014. Interest is charged at 5.1% above the Bank of England base rate. No amounts were provided for doubtful recovery of this receivable and no expense was recognised during the year in respect of bad or doubtful debts from MUM.

b) Joint venture

Amlin Corporate Services Limited has an investment of £2.2 million (2010: £1.7 million) in a joint venture, Leadenhall Capital Partners LLP (LCP). LCP was established in 2008 as a new asset management company focused on insurance linked investments. LCP is incorporated in England and Wales. The Group holds 50.0% of the voting rights. The Group has a contractual commitment to pay up to US$7.0 million to support the operations of the agency. At 31 December 2011 £2.5 million (2010: £2.0 million) has been drawn.

Summary financial information for LCP at 31 December is as follows:

	2011 £m	2010 £m
Assets	5.3	4.8
Liabilities	(2.2)	(1.9)
Revenues	2.9	2.6
Profit for the year	0.7	0.6
Group's share of profit	0.1	-
Group's carrying value of investment	2.2	1.7
Group's funds under management of LCP	75.4	74.9
Management fees charged to Group	2.3	2.6
Service agreement charged by Group	0.5	0.4
Group's receivables from LCP	1.6	1.2

All of LCP's assets and liabilities are classified as current.

No amounts were provided for doubtful recovery of the receivable from LCP and no expense was recognised during the year in respect of bad or doubtful debts from LCP.

24. Share capital

Authorised share capital

	2011 Number	2011 £m	2010 Number	2010 £m
Allotted, called up and fully paid ordinary shares
At 1 January issued ordinary shares of 28.125p each (2010: 28.125p)	502,076,006	141.2	502,076,006	141.2
At 31 December issued ordinary shares of 28.125p each (2010: 28.125p)	502,076,006	141.2	502,076,006	141.2

The Company transferred 488,309 shares out of treasury at a cost of £1.2 million (2010: 1,228,723 shares at a cost of £3.3 million). The shares have been transferred to meet exercises of employee share options, leaving 5,387,392 shares in Treasury at 31 December 2011 (2010: 5,875,701 shares).

25. Earnings and net assets per share

Basic and diluted earnings per share are as follows:

	2011	2010
(Loss)/profit attributable to equity holders of the Parent Company	(£149.9m)	£221.8m
Weighted average number of shares in issue	494.1m	493.0m
Dilutive shares¹	-	6.6m
Adjusted average number of shares in issue	494.1m	499.6m
Basic earnings per share	(30.3p)	45.0p
Diluted earnings per share	(30.3p)	44.4p

1 5.8 million potential ordinary shares have not been treated as dilutive as their conversion to ordinary shares would decrease the loss per share.

Net assets and tangible net assets per share are as follows:

	2011	2010
Net assets	£1,420.4m	£1,729.9m
Adjustments for intangible assets	(£218.9m)	(£184.5m)
Tangible net assets	£1,201.5m	£1,545.4m
Number of shares in issue at end of the year	502.1m	502.1m
Adjustment for ESOT and treasury shares	(7.6m)	(8.7m)
Basic number of shares after ESOT and treasury shares adjustment	494.5m	493.4m
Basic net assets per share	287.2p	350.6p
Basic tangible net assets per share	243.0p	313.2p

26. Other comprehensive income

All items of other comprehensive income in 2011 and 2010 are charged to 'Other reserves'.

Other reserves are comprised of £45.7 million (2010: £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 £65.1 million (2010: £104.0 million) on investments in overseas operations and £47.2 million (2010: £49.6 million) cumulative losses on hedges of investments in overseas operations.

27. Dividends

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

Group	2011 £m	2010 £m
Final dividend for the year ended:
- 31 December 2010 of 15.8 pence per ordinary share	78.0	-
- 31 December 2009 of Amlin Plus Limited to minority shareholders	-	0.1
Interim dividend for the year ended:
- 31 December 2011 of 7.2 pence per ordinary share	35.6	-
- 31 December 2010 of 7.2 pence per ordinary share	-	35.6
Second interim dividend for the year ended:
- 31 December 2009 of 13.5 pence per ordinary share	-	66.8
	113.6	102.5

The final ordinary dividend of 15.8 pence per ordinary share for 2011, amounting to £78.1 million, payable in cash, was agreed by the Board on 2 March 2012, subject to shareholder approval at the AGM 17 May 2012, and has not been included as a liability as at 31 December 2011.

28. Share options and share-based incentive awards

During the year ended 31 December 2011 the Group operated a number of long-term employee incentive schemes. The total cost recognised in the income statement under IFRS 2: 'Share-based payment' for the Group's share-based payment arrangements is shown below:

	2011 £m	2010 £m
Equity settled schemes	3.8	3.1
Cash settled scheme (Capital Builder Plan)	(6.2)	-
Total (income)/expense arising from share-based payments	(2.4)	3.1

a) Equity settled schemes

i) Share options

Details of the Group's executive and all employee share option schemes are set out in the Directors' Remuneration Report.

A summary of the status and the changes to new or treasury shares under option during the year were as follows:

	Number of shares 2011	Weighted average exercise price per share (pence)	Restated number of shares 2010	Restated weighted average exercise price per share (pence)
Outstanding at 1 January	2,463,133	267.00	3,384,274	244.00
Granted during the year	1,108,929	247.00	448,975	334.00
Exercised during the year	(488,309)	227.00	(1,288,723)	228.00
Expired during the year	(7,770)	108.00	(16,959)	293.00
Forfeited during the year	(403,177)	318.00	(64,434)	280.00
Total shares outstanding at 31 December	2,672,806	258.00	2,463,133	267.00
Total shares exercisable at 31 December	940,818	246.00	1,184,572	238.00

The weighted average share price at the date of exercise for share options exercised during the year was 360.00 pence (2010: 407.00 pence).

The following table summarises information about options outstanding at the end of the year:

Range of exercise prices	Number of outstanding shares under option 2011	Weighted average remaining contractual life (years)	Restated number of outstanding shares under option 2010	Restated weighted average remaining contractual life (years)
£0.76 - £1.11	29,096	0.90	89,688	1.70
£1.12 - £1.62	268,038	2.80	348,776	3.70
£1.63 - £2.46	216,455	1.60	457,682	2.20
£2.47 - £2.93	1,817,551	4.00	872,135	4.70
£2.94 - £3.34	341,666	2.80	694,852	3.90

Corrections have been made to the comparative information in respect of the total shares outstanding and exercisable in 2010, which have been restated by 6,430 and 13,870 shares respectively. The comparative information for 2010 in respect of the numbers of shares under option and the weighted average remaining contractual life has also been restated accordingly.

ii) Share awards

Details of the Group's share awards are set out in the Directors' Remuneration Report in the Governance section.

At 31 December 2011, the total awards over new or treasury shares outstanding, or committed to be met by the Group's Employee Share Ownership Trust (ESOT), or shares held in Trust under these schemes are summarised below:

	Number of shares under conditional award 2011	Vesting period	Number of shares under conditional award 2010	Vesting period
LTIP grants	3,592,717	2011 to 2014	2,887,977	2011 to 2013
PSP grants	2,549,456	2011 to 2016	2,216,940	2011 to 2015
SIP grants	1,899,117	2010 to 2014	1,803,998	2010 to 2013
Amlin Special	74,167	2012 to 2014	61,470	2011 to 2013

The comparative information on SIP grants have been restated by 257,239 shares.

iii) Modifications to share-based payment arrangements

LTIP and PSP awards are normally exercisable from three and five years after grant respectively. During 2010, the period for awards exercise following these vesting periods was extended from 6 to 30 months. The effect of these modifications on the fair value of awards granted was not material. There have been no modifications to share-based payment arrangements in 2011.

iv) Options from the ESOT

The trustee of the ESOT held 2,179,168 ordinary shares as at 31 December 2011 (2010: 2,811,679 ordinary shares) to meet potential future exercises of executive awards and long term incentive plans. The ESOT shares are valued at the lower of cost and net realisable value. The market value of Amlin plc ordinary shares on the last trading day of the year being 30 December 2011 was 313.9 pence per share (2010: 408.9 pence per share).

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 0.01 pence per each share ranking for an interim or final dividend.

v) Fair value of options and awards

At 31 December 2011, the weighted average fair values of options and awards granted during the year were 29.49 pence per option and 163.22 pence per award respectively (2010: 56.17 pence and 189.02 pence).

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

	2011	2010
Weighted average share price on grant (pence)	346.66	249.63
Weighted average exercise price (pence)	271.86	194.21
Expected volatility	30.00%	30.00%
Expected life (years)	3.00 - 7.50	3.00 - 7.50
Risk free rate of return	1.50% - 5.00%	2.00% - 5.00%
Expected dividend yield	2.00% - 7.00%	2.00% - 7.00%

Volatility

The volatility of Amlin plc's share price is calculated as a normalised standard deviation of the log of the daily return on the share price. In estimating 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.

Market conditions

The Group 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.

b) Cash settled scheme

The Group rewards senior underwriters through payments under the Capital Builder Plan (the Plan) if they achieve performance below the target loss ratio for their class(es) of business or business area over the five year period of each award under the Plan. Under the scheme rules, the Group has the option to settle the awarded bonus in the shares of the Company as an alternative to cash payment. In accordance with IFRS 2, the Plan is deemed to be a cash-settled share-based payment arrangement.

Provision for payments of an award under the Plan is calculated every year where actual profits exceed the target profit on a cumulative basis over the performance period to date under the Plan. The rate of accrual for each five year performance period is determined at the start of the period reflecting the share of the excess return payable and committed under the terms of the Plan.

Under this approach, the services received and the related liability are recognised as the services are rendered, in that the liability at any point in time for the Plan reflects the level of actual performance by underwriters in relation to the target.

The carrying amount and the intrinsic value of the liability under this Plan at the end of 2011 are £3.4 million (2010: £8.7 million) and included in note 30 for other payables.

The income in the year arising from the cash settled scheme reflects the movement in the provision for payments under the Capital Builder Plan, following performance below the Plan's target.

29. Restricted funds held/placed by the Group

At 31 December 2011, the Group holds restricted funds in the form of trust fund investments, letter of credit (LOC) collaterals, initial margin calls on derivative financial instruments and collateral received from reinsurance counterparties.

Trust funds

Syndicate 2001 holds gross assets of £3,131.2 million (2010: £2,839.8 million), matched by gross liabilities of £2,642.7 million (2010: £2,240.3 million), which are held within individual trust funds. The Group cannot obtain or use these assets until such time as each Syndicate underwriting year is closed and profits are distributed, or an advance profit release is made. Furthermore, £11.5 million (2010: £6.6 million) of Amlin Singapore and Amlin Labuan's assets are held within trust funds and restricted from use within the working capital of the Group until settlement has been made to Syndicate 2001.

Money market funds

At 31 December 2011 Amlin AG recognises US$150.0 million (2010: US$nil) of money market funds in relation to the sale of catastrophe linked instruments. The use by the Group of the funds is restricted. Details of the corresponding liability are included in note 31.

LOC facilities

At 31 December 2011, US$211.8 million (2010: US$181.7 million) of Amlin Bermuda's assets are restricted for use by the Group. These assets are collateral for the LOC facility drawn at the end of the year. Details are included in note 31.

Financial assets and liabilities

Derivative instruments traded across the Group give rise to collateral being placed with, or received from, external counterparties. At 31 December 2011 the Group placed £3.4 million (2010: £0.1 million held) of collateral in relation to over the counter options and £7.5 million (2010: £1.3 million) in relation to listed futures.

Insurance and reinsurance collateral received

At 31 December 2011 Syndicate 2001 recognised £0.9 million (2010: £1.9 million) of cash drawn down from LOC facilities as a liability on the balance sheet. This has been received from reinsurance counterparties as a guarantee for business written and is included within total funds held by Syndicate 2001. Collateral of £161.4 million (2010: £228.1 million) and £162.0 million (2010: £120.2 million) is held in third party trust funds to guarantee Syndicate 2001 against insurance and reinsurance counterparties respectively. Furthermore, collateral of £45.7 million (2010: £37.2 million) and £17.1 million (2010: £nil) is held in third party trust funds as a guarantee against reinsurance counterparties to Amlin Bermuda and Amlin Re Europe respectively. Collateral held in third party trust funds is not recognised as assets pertaining to the Group but is available for immediate drawdown in the event of a default.

Funds withheld as premium/claim deposits

At 31 December 2011 the Group had placed funds totalling £3.5 million (2010: £15.5 million) as premium deposits and £2.5 million (2010: £1.2 million) as claim deposits. These funds are held by external brokers.

Funds in escrow

At 31 December 2011 the Group holds £5.0 million (2010: £nil) of funds in an escrow account to meet any potential funding requirements of the Lloyd's Superannuation Fund. Further details are provided in note 32.

30. Other payables, including insurance and reinsurance payables and deferred income

	2011 £m	2010 £m
Insurance and reinsurance payables	218.8	245.9
Trade payables	48.3	53.9
Accrued expenses	62.3	79.3
Social security and other tax payables	7.9	6.5
Other payables	118.5	139.7
	337.3	385.6

The current and non-current portions are expected to be as follows:

	2011 £m	Restated 2010 £m
Current portion	239.3	280.0
Non-current portion	98.0	105.6
	337.3	385.6

Comparative information for 2010 has been restated to reflect the correct classification of certain non-current payables, which were incorrectly disclosed within the current portion of other payables in the prior period. There is no impact on the total value of other payables at 31 December 2010.

The carrying amounts disclosed above are reasonably approximate to the fair value at the reporting date.

Insurance payables are comprised principally of premium payable for reinsurance, including reinstatement premium.

31. Borrowings

	2011 £m	2010 £m
Subordinated debt	292.8	318.0
Catastrophe linked instrument	95.7	-
	388.5	318.0

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

a) Subordinated debt and credit facilities

Details of the Group's three issues of subordinated debt 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 2004¹	US$50m	November 2014	November 2019	7.11	LIBOR + 3.48
15 March 2005¹	US$50m	March 2015	March 2020	7.28	LIBOR + 3.32
25 April 2006¹	£230m	December 2016	December 2026	6.50	LIBOR + 2.66

1 Debt issued by Amlin plc

The subordinated debt will be redeemed on the maturity dates at the principal amounts, together with any outstanding accrued interest. The Group 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. In March 2011, Amlin plc purchased the rights and obligations in respect of the €30 million subordinated debt issued by Amlin Corporate Insurance N.V. (ACI).

The directors' estimation of the fair value of the Group's subordinated debt is £368.3 million (2010: £384.6 million). The aggregate fair values 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 1.05% (2010: 2.80%).

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 and a secured US$200 million letter of credit (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 2011 the facility was undrawn (2010: undrawn).

Amlin AG has a secured US$250 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 with State Street Bank and Trust Company as custodian. As at 31 December 2011, US$194.7 million of LOC were issued (2010: US$174.6 million). The total value of restricted assets as at 31 December 2011 was US$211.8 million (2010: US$181.7 million).

In June 2009, ACI entered into a credit facility with Fortis Bank Nederland N.V. as arranger. The facility provides a guarantee to a third party of up to €10.0 million and a guarantee/standby LOC for up to £22.5 million. As at 31 December 2011, €28.5 million of guarantees were issued (2010: €28.7 million). There are no restricted assets to secure the facility.

b) Catastrophe linked instrument

In December 2011 the Group issued a catastrophe linked instrument, which provides it with $150 million fully collateralised protection against severity and/or frequency of US perils and European windstorm events above a pre-set scale and in the aggregate in a calendar year. The instrument has a duration of three year and will be redeemed on 31 December 2014. The carrying amount disclosed above is reasonably approximate to the fair value at 31 December 2011.

32. Retirement benefit obligations

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

	2011 £m	2010 £m
Defined contribution schemes	6.4	5.4
Defined benefit schemes:
- Lloyd's Superannuation Fund	(1.1)	(0.2)
- Amlin Corporate Insurance N.V. (ACI) defined benefit schemes	4.5	2.1
- Amlin Re Europe (ARE) defined benefit schemes	0.8	-
	4.2	1.9
	10.6	7.3

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 two (2010: three) 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). The Group is also liable for a proportion of the Orphan Schemes' liabilities.

Since this alteration and the exit of other employers the Group has been able to more clearly identify its expected contribution requirement to the Fund and 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.

During the year the number of active employers participating in the Fund was reduced to two. It is uncertain how the Trustee will allocate the revised Orphan Schemes' liabilities between the two remaining employers. However, the Group's share of the assets and liabilities of the Fund will increase and an actuarial estimate of the allocation has been included at 31 December 2011. This has resulted in an increase in the defined benefit obligations of £34.0 million and an increase in the plan assets of £34.2 million, which are included in actuarial (gains)/losses recognised in the Consolidated Statement of Comprehensive Income.

Fund contributions

Contributions are paid to provide for the cost of benefit accrual. The rate of contribution agreed with the Trustee is 16% (2010: 19%) paid by the employer plus 5% (2010: 5%) member contributions, in each case of pensionable earnings, and totalled £2.8 million (2010: £0.9 million).

The expected contribution to the fund for the year ending 31 December 2012 is £2.6 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:

	2011 £m	2010 £m
Contributions relating to:
Annual top up payment	2.0	-
Ongoing funding	0.6	0.7
Group share of total payment	2.6	0.7

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 2010 and was completed in June 2011 by Mr R N Wharmby, Fellow of the Institute of Actuaries, and used the projected unit credit actuarial method.

On 30 June 2011, the Group agreed a schedule of contributions with the Trustee. The schedule requires seven separate payments of £2.0 million to the Fund over a period of seven years. The first payment was made in July 2011, with six further annual payments commencing on 31 March 2012. The present value of the future payments has been recognised as a liability at 31 December 2011, to the extent that the contributions will not be available after they are paid into the Fund, as the Fund's rules do not allow the Group to receive a refund of contributions in any circumstances.

The Group has also entered into an agreement with the Trustee to hold certain funds within an escrow account. These funds would be transferred to the Trustee in full for the purpose of defined benefit funding if any one of a number of enforcement events within the agreement were to occur. The Group made a payment of £5.0 million to the escrow account in July 2011. Two further payments to the escrow account of £5.0 million and £4.0 million will be made in June 2012 and June 2013 respectively. The Group considers it unlikely that any one of the enforcement events defined within the agreement will occur. In both cases, the additional defined benefit funding is in respect of the Group's notional section of the notionally allocated assets and liabilities of the Fund.

For the purpose of providing disclosure in accordance with IAS 19, the Group has requested the actuary to update the 2010 valuation to 31 December 2011 using appropriate techniques and the following assumptions:

	2011 % pa	2010 % pa
Price inflation	3.2	3.6
Rate of increase in pensions payment:
- LPI (maximum 5% pa)	3.1	3.5
- LPI (minimum 3% pa, maximum 5% pa)	3.3	3.8
- LPI (maximum 3% pa)	2.5	2.6
Rate of increase of statutory revaluation on deferred pension	2.2	2.9
Discount rate	4.8	5.4

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% (2010: nil%).

In 2010 the UK Government announced that inflation measured by the Consumer Price Index (CPI) rather than the Retail Price Index (RPI) would be used as the measure for minimum increases to occupational pensions. In accordance with the Fund's revaluation rules, CPI has been used as an assumption in valuing the defined benefit obligation at 31 December 2011.

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

	31 December 2011		31 December 2010
Life expectancy (years) at age 60 for a member currently:	Male	Female	Male	Female
Aged 60	27.7	29.2	25.5	28.5
Aged 45	29.7	30.8	26.8	29.6

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%	(14)/16
(Decrease)/increase in inflation rate by 0.25%	(7)/7
Increase in floor mortality improvements for males of 1.5% and females of 1.25% per annum	4

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.

Funding assessment assumptions

The table below shows the actuarial assumptions used:

	The Netherlands 2011 %	Belgium 2011 %	The Netherlands 2010 %	Belgium 2010 %
Discount rate for pension benefits	4.5	3.9	5.15	4.7
Discount rate for Jubilee benefits	3.8	3.4	4.0	3.8
Discount rate for farewell premium	-	3.6	-	4.4
Discount rate for post retirement medical	-	4.8	-	5.1
Expected return on plan assets	4.5	4.0	5.15	4.0
Expected wage increases - general	2.0	2.0	2.0	2.0
Expected wage increases - merit	0-6.75	1.5	0-6.75	1.5
Inflation	2.0	2.0	2.0	2.0
Indexation for active employees	2.0	-	2.0	-
Indexation for formerly active employees	2.0	-	2.0	-
Medical trend rate	-	4.0	-	4.0

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

	31 December 2011				31 December 2010
	The Netherlands		Belgium		The Netherlands		Belgium
Life expectancy (years) at age 60 for a member currently:	Male	Female	Male	Female	Male	Female	Male	Female
Aged 60	24.5	27.4	22.1	25.9	24.5	27.4	22.1	25.9
Aged 45	26.6	28.4	22.1	25.9	26.6	28.4	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%	(2.7)/2.9
(Decrease)/increase in inflation rate by 0.25%	(2.4)/1.9
Increase in floor mortality improvements for males of 1.5% and females of 1.0% per annum	0.2

Fund contributions

The expected contribution to the funds during 2012 is £3.1 million (2011: £3.1 million) by the Group, and £0.6 million (2011: £0.5 million) by the plan participants.

iii) ARE defined benefit plans

Scheme description

In Switzerland, ARE operates a pension scheme which meets the classification of a defined benefit plan under IAS 19. In accordance with Swiss legislation, ARE provides for occupational pension insurance, the regulations of which, as may be amended from time to time, apply to both ARE and the employee. The insured salary is based on the agreed compensation exclusive of bonus and/or other benefits granted by ARE. The employees pay a portion of the premiums determined in the applicable pension fund regulations.

Funding assessment assumptions

The table below shows the actuarial assumptions used:

	2011 % pa
Price inflation	1.5
Expected return on plan assets	2.5
Expected wage increases	2.5
Discount rate	2.5

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

	31 December 2011
Life expectancy (years) at age 60 for a member currently:	Male	Female
Aged 60	26.0	28.7
Aged 45	27.5	30.1

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%	(0.2)/0.2
(Decrease)/increase in inflation rate by 0.25%	(0.1)/0.1

Fund contributions

The expected contribution to the funds during 2012 is £0.6 million by the Group, and £0.2 million by the plan participants.

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

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

	2011 £m	2010 £m
Current service cost	3.7	2.5
Interest cost	19.4	19.7
Expected return on scheme assets	(19.0)	(18.8)
Reversal of provision for additional pension payments	-	(1.5)
Other	0.1	-
Total debited to income statement (included in staff costs)	4.2	1.9

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

	2011 £m	2010 £m
Recognition of net losses/(gains)	18.1	(11.9)
Ceiling limit on asset gains	0.2	6.0
Losses/(gains) recognised in the Consolidated Statement of Comprehensive Income	18.3	(5.9)

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:

	2011 £m	2010 £m
Present value of defined benefit obligations	446.0	364.9
Fair value of scheme assets	421.4	355.6
Deficit in schemes	(24.6)	(9.3)
Restriction to defined benefit asset due to asset ceiling	(6.2)	(6.0)
Liability recognised in the balance sheet	(30.8)	(15.3)

A schedule of contributions has been agreed with the Trustee of the Lloyd's Superannuation Fund, as explained above. The Fund's rules do not allow the Group to receive a refund of contributions in any circumstances. As such, a liability has been recognised to the extent that asset gains arising from the contributions will not be available after they are paid into the Fund. At 31 December 2010 the ceiling limit on asset gains is attributable to the Fund being in surplus at that date.

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

	2011 £m	2010 £m
At 1 January	364.9	359.0
Employer service cost	3.7	2.5
Interest cost	19.4	19.7
Contributions from scheme members	1.0	0.7
Actuarial losses/(gains)	72.5	(2.1)
Benefits paid from plan assets	(16.4)	(13.4)
Other movements	3.2	-
Foreign exchange gains	(2.3)	(1.5)
At 31 December	446.0	364.9

The expected total benefit payments to plan participants during 2012 is £14.8 million for the Lloyd's Superannuation Fund (LSF), £1.7 million for the ACI defined benefit schemes (2011: LSF £12.5 million and ACI schemes £1.2 million) and £0.4 million for the ARE defined benefit scheme.

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

	2011 £m	2010 £m
At 1 January	355.6	334.5
Expected return on scheme assets	19.0	18.8
Difference between expected and actual return	21.0	19.3
Other actuarial gains	34.2	-
Employer contributions	6.3	5.4
Plan participant contributions	1.0	0.7
Benefits paid	(16.4)	(13.4)
Administrative expenses	(0.5)	-
Foreign exchange losses	(1.3)	(1.3)
Other movements	2.5	(8.4)
At 31 December	421.4	355.6

Other movements for the year ended 31 December 2011 include an increase of £2.5 million in scheme assets and an increase of £3.0 million in defined benefit obligations in respect of the ARE defined benefit scheme for the year ended 31 December 2010, during which the scheme was accounted for as a defined contribution scheme due to materiality.

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 2011	31 December 2010	31 December 2011	31 December 2010
	LSF	LSF	LSF	LSF
Equities	12.0%	28.0%	7.3%	8.1%
Bonds	68.0%	64.0%	3.7%	4.9%
Property	8.0%	8.0%	6.8%	7.5%
Diversified growth funds	12.0%	-	7.3%	-

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

The analysis of the plan assets and the expected rate of return by asset class are not provided for the ACI or ARE defined benefit schemes as the investment decisions are at the discretion of the third parties to whom ACI and ARE have ceded investment risk under the insurance policies taken out to meet their obligations.

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

LSF	2011 £m	2010 £m	2009 £m	2008 £m	2007 £m
Asset experience
Fair value of scheme asset	374.0	320.0	295.0	256.0	318.0
Asset gain/(loss) during period	50.9	18.7	30.3	(71.5)	(9.0)
Asset gain/(loss) as percentage of plan assets	13.6%	5.8%	10.3%	(27.9%)	(3.0%)
Liability experience
Present value of defined benefit obligations	(378.0)	(314.0)	(315.0)	(260.0)	(295.0)
Liability (loss)/gain during period	(34.0)	0.5	-	(6.7)	5.0
Liability loss/(gain) as percentage of defined benefit obligations	9.0%	(0.2%)	-	2.6%	(2.0%)
Liability assumptions
Liability (loss)/gain over period	(30.6)	6.0	(51.0)	47.0	15.0
Liability loss/(gain) as percentage of defined benefit obligations	8.1%	(1.9%)	16.2%	(18.1%)	(5.0%)

ACI	2011 £m	2010 £m	2009 £m
Asset experience
Fair value of scheme asset	41.4	35.6	39.5
Asset gain/(loss) during period	3.7	(7.8)	0.2
Asset gain/(loss) as percentage of plan assets	8.8%	(21.8%)	1.0%
Liability experience
Present value of defined benefit obligations	(60.8)	(50.9)	(44.0)
Liability gain during period	0.2	0.2	-
Liability gain as percentage of defined benefit obligations	(0.4%)	(0.3%)	-
Liability assumptions
Liability (loss)/gain over period	(7.2)	(4.2)	2.6
Liability loss as percentage of defined benefit obligations	11.9%	8.2%	5.9%
ARE			2011 £m
Asset experience
Fair value of scheme asset			6.0
Asset loss during period			0.0
Asset loss as percentage of plan assets			0.0%
Liability experience
Present value of defined benefit obligations			(7.2)
Liability loss during period			(0.5)
Liability loss as percentage of defined benefit obligations			7.1%
Liability assumptions
Liability loss over period			(0.2)
Liability loss as percentage of defined benefit obligations			2.5%

The cumulative amount of actuarial losses recognised in other comprehensive income for all defined benefit schemes is £49.7 million (of which £5.5 million relates to the acquisition of ACI).

b) The stakeholder defined contribution scheme

The defined contribution schemes operated by the Group are stakeholder arrangements. The total contributions for the year ended 31 December 2011 to the schemes were £6.4 million (2010: £5.4 million).

The estimated amounts of contributions to the Group's defined contribution pension schemes for the year ending 31 December 2012 are approximately £7.6 million (2011: £5.7 million).

c) 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 2011 (2010: £nil).

33. 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
	2011	2010	2011	2010
US dollar	1.60	1.55	1.55	1.56
Canadian dollar	1.59	1.59	1.59	1.55
Euro	1.15	1.17	1.20	1.17
New Zealand dollar	2.03	2.14	2.00	2.00
Japanese yen	127.88	135.46	119.54	126.69

34. Contingent liabilities

Aside from the escrow account entered into with the Trustee of the Lloyd's Superannuation Fund defined benefit pension scheme, the Group has no contingent liabilities at 31 December 2011 (2010: £nil). Further details are provided in note 32.

35. 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 23.

b) Operating lease commitments - where 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:

	2011 £m	2010 £m
No later than 1 year	7.1	7.4
Later than 1 year and no later than 5 years	22.5	16.8
Later than 5 years	3.3	6.4
	32.9	30.6

36. Cash generated from operating activities

	Notes	2011 £m	2010 £m
(Loss)/profit on ordinary activities before taxation		(193.8)	259.2
Adjustments:
Depreciation charge	13	5.3	3.5
Amortisation charge	13	4.9	5.5
Finance costs	12	27.8	27.4
Interest income	6	(48.5)	(54.5)
Dividends income	6	(12.2)	(5.8)
Losses/(gains) on investments realised and unrealised	6	20.2	(114.7)
Other non-cash movements		2.8	6.6
Movement in operating assets and liabilities:
Net sales/(purchases) of financial investments	17	215.9	(214.1)
Exchange (gains)/losses on investments	17	(7.1)	47.0
Assets of operations previously classified as held for sale	17	-	(64.4)
Decrease in assets of operation classified as held for sale		-	63.7
Decrease/(increase) in loans and receivables		3.1	(63.8)
Increase in insurance and reinsurance contract assets		(366.8)	(94.2)
Increase in insurance contract liabilities		698.2	353.7
(Decrease)/increase in other payables		(40.7)	7.2
Decrease in retirement benefits		(2.7)	-
Exchange losses on long term borrowings		1.1	1.1
Exchange (gains)/losses on other non-operating assets and liabilities		(36.4)	20.2
Cash generated from operating activities		271.1	183.6

37. Principal subsidiary companies

The principal subsidiary undertakings at 31 December 2011 which are consolidated in these financial statements, all of which are wholly owned unless otherwise stated, operate in the UK, Belgium, Bermuda, France, the Netherlands, Singapore and Switzerland:

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
Allied Cedar Insurance Group Limited	Intermediate holding company		England and Wales
Amlin Underwriting Services Limited	Lloyd's coverholder		England and Wales
Amlin Plus Limited*	Lloyd's coverholder		England and Wales
Amlin Corporate Member Limited	Corporate member at Lloyd's		England and Wales
Amlin (Overseas Holdings) Limited	Intermediate holding company		England and Wales
AUA Insolvency Risk Services Limited	Regulated broker		England and Wales
Amlin AG	Reinsurance company		Switzerland
Amlin Singapore Pte Limited	Lloyd's service company		Singapore
Amlin Corporate Insurance N.V.	Insurance company		Netherlands
Amlin France Holdings SAS**	Intermediate holding company		France
Amlin France SAS**	Lloyd's coverholder		France
Crowe Livestock Underwriting Limited	Lloyd's coverholder		England and Wales
JR Clare Underwriting Agencies Limited	Lloyd's coverholder		England and Wales
Lead Yacht Underwriting Limited	Lloyd's coverholder		England and Wales
Solo Absolute Bonds & Currency Fund	Investment fund		France

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

* 60.0% owned by the Group

** 96.5% owned by the Group

38. Related party transactions

a) Transactions and balances with related parties

i) Amlin Plus

Amlin Underwriting Limited and Lycetts Holdings Limited, the owners of Lycett, Browne-Swinburne and Douglas 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 £14.0 million (2010: £12.3 million) of premium under the binding authority agreement, of which £5.1 million (2010: £5.8 million) was produced by Lycett, Browne-Swinburne and Douglas Limited earning brokerage commission of £0.8 million (2010: £1.0 million) on this business. At the year end, Syndicate 2001 was owed £2.6 million (2010: £2.8 million) by Amlin Plus and Lycett Browne-Swinburne and Douglas Limited owed £1.1 million (2010: £1.6 million) to Amlin Plus.

ii) Leadenhall Capital Partners LLP

At 31 December 2011, the Group had a balance receivable from Leadenhall Capital Partners LLP of £1.6 million (2010: £1.2 million). The Group enters into transactions with its joint venture in the normal course of business. The sales to and purchases from related parties are made at normal market prices. Details of the Group's joint venture are given in note 23.

iii) Miles Smith Holding Ltd (MS Holding) and Manchester Underwriting Management Ltd (MUM)

At 31 December 2011, the Group had a net receivable from MS Holdings of £0.6 million and a net receivable from MUM of £nil (2010: £0.2 million). The Group enters into transactions with its associates in the normal course of business. The sales to and purchases from related parties are made at normal market prices. Details of the Group's associates are given in note 23.

iv) Syndicate 6106

For the 2011 underwriting year of account the Special Purpose Syndicate (S6106), managed by Amlin Underwriting Limited, wrote a 12.9% (2010: 15.0%) quota share contract of the excess of loss reinsurance account of Syndicate 2001. The transactions provide external members' capital to support 2011 underwriting, enabling Syndicate 2001 to take advantage of strong opportunities in peak zones in the US, Japan and Europe. All transactions with S6106 are undertaken on an arm's length basis.

b) Compensation of key management personnel

Key management personnel are those directors and Group Management Committee members responsible for planning and control of the activities of the Group. Key management comprises twelve executive directors and employees and seven non-executive directors (2010: eleven and seven respectively). Compensation during the year to key management personnel is analysed below:

	2011 £m	Restated 2010 £m
Short term employee benefits	6.4	6.1
Long term employee benefits	1.8	4.0
Post-employment benefits	0.3	0.5
Equity-settled share-based payments	1.2	1.0
Cash-settled share-based payments	0.3	-
	10.0	11.6

Amendments have been made to the comparative information in respect of remuneration receivable by directors for their participation in the Group's long term incentive schemes in 2010.

c) Transactions with directors

Certain directors of the Company are also directors of other companies,. 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 was Chief Executive Officer until 31 January 2011), which both purchase reinsurance (or whose 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.

d) Internal reinsurance arrangements

During the current and prior year, there were a number of reinsurance arrangements entered into in the normal course of trade between various group companies, i.e. the reinsurance contracts between Syndicate 2001 and Amlin Bermuda, Syndicate 2001 and Amlin Corporate Insurance N.V. (ACI), Amlin Re Europe and ACI and between Amlin Bermuda and ACI.

The related results of these transactions have been eliminated on consolidation.

39. Business Combinations

a) JR Clare Underwriting Agencies Limited

On 25 January 2011 Amlin Corporate Services Limited acquired the entire share capital and voting rights of JR Clare Holding Company Limited and its subsidiary undertaking JR Clare Underwriting Agencies Limited, which is a managing general agent of UK household and commercial insurance.

The fair values of the assets acquired and liabilities assumed, the consideration paid and the resulting goodwill have been revised from those disclosed in the subsequent events note of the Annual Report 2010, following the completion of the acquisition accounting for the business combination.

The revised purchase consideration is an initial £1.3 million with two further amounts of £1.0 million payable 24 months and 36 months after the acquisition date. The revised fair value of the assets and liabilities acquired is £1.8 million net liability and the fair value of the consideration is £3.0 million, resulting in the recognition of £4.8 million of goodwill on acquisition. The goodwill arose from the premium paid for acquiring a new book of household and commercial insurance business. JR Clare Holding Company Limited was placed into voluntary liquidation in September 2011, with Amlin Corporate Services Limited becoming the new immediate parent company of JR Clare Underwriting Agencies Limited.

b) Lead Yacht Underwriters Limited

On 3 February 2011 Amlin Corporate Services Limited acquired the entire share capital and voting rights of Lead Yacht Underwriters Limited, an underwriting agency of yacht insurance.

The total revised consideration is £16.1 million, consisting of an initial £10.1 million paid on completion and a further £6.0 million payable between 2012 and 2016, subject to the financial performance of Lead Yacht Underwriters Limited. The revised fair value of the net assets acquired is £3.2 million and the fair value of the consideration is £14.7 million, resulting in the recognition of £11.5 million of goodwill on acquisition. The goodwill arose from the premium paid for acquiring a platform to further develop the Group's existing yacht business and diversify its underwriting portfolio.

40. Subsequent events

No subsequent events have been identified between the balance sheet date and the date on which the financial statements were authorised.

41. 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 2010 or 2011, but is derived from those accounts. Statutory accounts for 2010 have been delivered to the Registrar of Companies and those for 2011 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 498(2) or (3) of the Companies Act 2006.

The audited Annual Report and Accounts for 2011 are expected to be posted to shareholders by no later than 5 April 2012. 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 Thursday 17 May 2012.

The preliminary Results were approved by the Board on 2 March 2012.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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