Preliminary Results

Beazley Group PLC
07 March 2007


Beazley Group plc


Plantation Place South
60 Great Tower Street
London EC3R 5AD

Tel: [phone]
Fax: [phone]
www.beazley.com


Press Release



20th year of profits


Beazley Group plc, results for the year ended 31st December 2006
London, UK, March 7, 2007


• Profit before tax of £86.8m (2005: £16.1m)

• Profit before tax and foreign exchange on non-monetary items £96.2m
  (2005: £7.9m)

• Return on equity increased to 20% (2005: 4%)

• Increased final dividend to 3.2p (2005: 2.5p)


Growth across the business

• Gross premiums written up 34% at £745.1m (2005: £558.0m)

• Overall increase of 6% on rates on renewal business

• Premiums from the US increased to US$68.9m (2005: US$15.4m)

• Investment return of 4.9% (2005: 4.2%)


Healthy financial position

• Successful Tier 2 subordinated debt issue raised £150m

• Claims reserve releases against our medium tail specialty lines
  account of £18m




                                                         2006       2005     Change

                                                           £m         £m          %
Gross premiums written                                  745.1      558.0         34
Net premiums written                                    574.3      425.8         35
Net earned premiums                                     509.6      372.3         37


Profit before tax and foreign exchange                   96.2        7.9      1,118
adjustments on

non-monetary items
Profit before tax                                        86.8       16.1        439


Claims ratio                                              53%        73%          -
Expense ratio                                             33%        32%          -
Combined ratio                                            86%       105%          -


Earnings per share (p)                                   16.8        3.1          -
Dividends per share (p)                                   4.8        4.0          -
Net assets per share (p)                                 88.5       77.8          -


Cash and investments                                  1,167.8      884.5         32




Andrew Beazley, Chief Executive of Beazley, said:


'The company delivered a strong performance in its 20th year and I am pleased to
announce an increase in the full year dividend to 4.8p per share. With the right
people in the right places, we saw growth across the business and took advantage
of the opportunities presented by profitable underwriting conditions. We
continue to work hard retaining and recruiting the best talent to move the
business forward in line with our strategic objectives. We enter the new year
with a positive outlook.'



ENDS


For further information, please contact:


Beazley Group plc

Andrew Beazley

T: [phone]

Andrew Horton

T: [phone]


Finsbury

Simon Moyse / Amanda Lee

T: [phone]





Note to Editors:

Beazley Group, plc (BEZ.L) based in London, is the parent company of global,
specialist insurance businesses with operations in the UK, US, France, Singapore
and Hong Kong. Beazley manages two Lloyd's syndicates (Syndicate 2623 and
Syndicate 623) with aggregate underwriting capacity in 2007 of £860m (US$1.7bn).
Both syndicates are rated A by A.M. Best. In the US, Beazley's underwriters
focus on writing specialist insurance products in the admitted market, backed by
Beazley Insurance Company, Inc., an admitted carrier in all 50 states; and
surplus lines risks, backed by the Beazley syndicates at Lloyd's. Beazley
Insurance Company is rated A- by A.M. Best.


Beazley is a market leader in many of its chosen lines including professional
indemnity, commercial property, marine, reinsurance, and personal lines. For
more information please go to: www.beazley.com




CHAIRMAN'S STATEMENT


Our 20th anniversary year of business has been an exciting and challenging time.
We achieved record profits before tax of £86.8m in strong underwriting
conditions.


Overall


The board is pleased to announce record profits before tax of £86.8m (2005:
£16.1m). As we predicted in our previous annual report, we have benefited from
strong underwriting conditions following last year's hurricane losses, combined
with strong returns from our investment balances. We were well placed to make
the most of the opportunities presented, maintaining our strategy of controlled
risk taking. We are very proud of this result which comes during the 20th
anniversary of Beazley Furlonge Limited as a managing agency at Lloyd's.


Underwriting performance


In 2006 we wrote gross premiums of £745.1m (2005: £558.0m) - a 34% increase year
on year. This was driven by both our increased ownership of the combined premium
capacity of syndicates 623 and 2623 - we owned 78% in 2006 (2005: 70%) - and an
increase in the combined premium capacity to £830m in 2006 (2005: £742m).
Premium capacity increased largely due to the rise in insurance rates which we
were expecting following the catastrophic events of 2005. We also took a larger
share of the risks which we know well - our average line size is now 21.3%
(2005: 20.2%).


Our combined ratio reduced to 86% (2005: 105%). The reduction is mainly due to
the claims ratio which fell to 53% (2005: 73%). Investors will recall that the
2005 loss ratio was impacted by the hurricane losses (estimated impact 18%) and
we have also been able to make claims reserve releases from our medium tail
specialty lines business which have developed better than originally expected.
Although it is too early to make any further releases at this stage, we hope
that 2007 should see further favourable claims development.


Our investment performance has also been strong. We have achieved investment
income of £48.3m (2005: £31.6m), a return of 4.9% (2005: 4.2%). This has been
driven through higher US dollar and sterling interest rates throughout the
period. The bond portfolio remains relatively short in duration, with an average
duration of 11 months, enabling us to make the most of interest rate increases.


In our business review, Andrew Beazley describes in detail the strong progress
which we are making in becoming a premier risk-taking business. Our strategy of
recruiting high-calibre underwriting, claims and support personnel, combined
with creating improved opportunities to access insurance business, have all
contributed to this achievement. During the year we have recruited 39
underwriters and 11 claims professionals, and established offices in Hong Kong,
Singapore, Paris, Chicago, San Francisco and New York, as well as a number of
satellite offices throughout the UK.


US business


The US business has made good progress in 2006. This business, which commenced
trading in early 2005, operates its own managing general agent (MGA), which
writes insurance business both through Lloyd's and through its own admitted US
insurance company. The US businesses are completely integrated within the
relevant lines of business in London. The US initiative aims to improve our
access to customers who would not traditionally use Lloyd's as an insurance
carrier. The key to this initiative is getting the right people who will
maintain our levels of commitment and professionalism in developing the business
and whose underwriting approach is consistent with ours. During 2006 we wrote
US$68.9m (2005: US$15.4m) through the MGA, of which US$35.9m was written through
the admitted insurance company and US$33.0m on behalf of our Lloyd's syndicates.
The business gathered momentum during the year and we are now seeing
consistently improving premium volumes month on month.




Capital


During the period we strengthened our capital position through a lower tier 2
debt issue which raised £150m at an interest rate of 7.25%. The issue was
underwritten by JP Morgan Cazenove and Royal Bank of Scotland, and was five
times oversubscribed, demonstrating the confidence which the financial markets
have in Beazley.


The funds will be used to support both our underwriting at Lloyd's, replacing
the existing £72m subordinated loan, and for providing further funds to support
the ongoing development of our US business. To add further support to our future
plans we have also retained £50m of the syndicated letter of credit facility
(currently undrawn) led by Lloyds TSB.


Dividend


The board propose an increased final dividend of 3.2p (2005: 2.5p), bringing the
full year dividend to 4.8p (2005: 4.0p), an increase of 20%. The final dividend
will be paid on 10 May 2007 to shareholders registered on 13 April 2007.


Board changes


During the year Marty Becker, Dan Jones and Gordon Hamilton joined the Beazley
Group board as non-executive directors. Marty has more than 28 years' of
experience in the insurance industry where he is currently serving as chairman
and chief executive officer at both Max Re and LaSalle Holdings Re. Dan joined
us with over 20 years' of experience in insurance broking, most recently with
Marsh Inc.. Gordon, who joined in September, has over 30 years' experience as an
audit partner at Deloitte & Touche LLP and its predecessor practices,
specialising in UK listed company audits, with extensive experience of board and
audit committees.


Joe Sargent, who chaired the group during the IPO in 2002, and Tom Sullivan, who
served as a non-executive director on our audit and remuneration committees for
a number of years, both retired from the group in 2006. I'd like to extend my
thanks on behalf of the group to both Joe and Tom for their considerable
contribution and guidance to the group.


Conclusion


2006 was a good year for Beazley following the turbulent times arising from the
hurricane losses in 2005. We have strong positions in our chosen market areas
from which to take advantage of favourable underwriting conditions. The group
continues to search out new opportunities to create value for shareholders in a
dynamic and creative way.





BUSINESS REVIEW


In our 20th year as a managing agent at Lloyd's we are pleased to announce a
group profit before tax of £86.8m. Rates remain firm and our business is
prospering in such strong underwriting conditions.


2006 was a good year both for the group and the insurance industry. With the
right people in the right places, we saw growth across the business and took
advantage of the opportunities presented by profitable underwriting conditions.
Throughout the year we continued to deliver our strategic initiatives in line
with our vision and are focused on what we're good at; risk taking and claims
management.


Strategy


We continue in our vision to build a premier risk-taking business measured by
results and reputation. The four main strategic themes are:


• Diversification - maintaining a well balanced and diversified book of
  business;

• Cycle management - delivering profit at all points of the insurance
  cycle;

• Distribution - target markets must be broker-led markets with
  sustainable profitability; and

• Talent - we must be able to leverage the depth and experience of our
  staff.


The enablers which will help us achieve this are:


• Access to our business worldwide.

Developing new ways of providing our customers with access to our insurance
products will help us grow our products profitably.


• Proactively managed claims.

A proactive claims management capability can be a source of competitive
advantage for the group. Consequently we are making significant investment in
this area.


• Informed underwriting decisions.

The knowledge and expertise of our underwriters is central to our ability to
develop the classes of business we write. We have attracted and hired staff with
complimentary skills to help our underwriters in making their business
decisions.


Access to our business worldwide

US business development


Our US business continued to make progress in its first full year of operation.
The business writes insurance through a managing general agent (MGA), which
writes business both for our syndicates at Lloyd's and our admitted insurance
company, Beazley Insurance Company Inc. In 2006 we wrote US$68.9m (2005:
US$15.4m) of premiums through the US, with US$35.9m coming from the admitted
insurance company.


Of the teams that write this business, specialty lines is the largest, having
written US$22.7m on behalf of the syndicates and an additional US$34.6m through
the insurance company in 2006. The US specialty lines team writes a variety of
professional indemnity and directors' and officers' liability insurance,
focusing on small to mid-sized customers, who traditionally may not have
accessed insurance through Lloyd's. Our second largest US team is the property
group, which writes high-value homeowners business in the Carolinas, Florida and
Georgia, and wrote premiums of US$10.3m in 2006. The remaining premiums of
US$1.3m were written by our US cargo team.


As the company is still in a start-up phase the costs of the operation are
disproportionate to its ultimate steady state position. These costs include
recruitment, marketing, IT development and legal fees along with the
infrastructure costs allowing us to offer admitted market policies in addition
to our Lloyd's surplus lines products. Headcount increased from 44 to 100 by the
end of December. We do not anticipate that the benefits of this increase will
start to be realised until 2008.


We are pleased with progress made to date, having made a number of key hires and
proved our ability to attract the level of talent to compliment our London
skills. We have also established broker contacts through a strong marketing
campaign which will aid us in executing this important initiative.


Commercial property initiative


During 2006 we developed a commercial property insurance service for the
mid-sized market segment through our admitted US insurance company. This will
complement our existing US commercial property business written through Lloyd's.
We recruited Mark Bernacki, formerly of Liberty Mutual Group, to lead the
initiative. The service embodies the flexibility and breadth of coverage valued
by brokers and their clients. A new and comprehensive tool has been developed on
our BeazleyTrade IT platform to facilitate efficient underwriting. In developing
product pricing, we employed actuarial techniques and drew on our underwriting
experience, whilst allowing for competitive and market considerations. The
initiative was formally launched in February 2007.


Extended coverage through branch network


During the year we have strengthened our position and opened branch offices
across a number of locations.


We completed the purchase of the Asia Pacific Underwriting Agency (APUA), in
January 2006, a managing agent operating through Hong Kong and renamed the
company Beazley Limited (Hong Kong). We previously owned 79.8% of this business.
The acquisition provides access to the local market and is primarily focused on
professional indemnity insurance. In 2006 it wrote £2.2m of premiums on behalf
of the two syndicates. We also set up a small operation in Paris in September to
write similar business.


In November, we established a presence in Singapore for our engineering team,
which forms part of the property group. This team will write specialist
engineering risks and will be managed from the UK. Given the nature of the Asian
market, in which business tends to be placed almost entirely within the region,
Singapore provides the perfect hub to access this type of business.


To build our UK cargo business line, and to gain access to the local UK markets,
we established offices in Manchester and Leeds during 2006, adding to our
existing offices in Birmingham and Colchester.



Proactively managed claims


Unlocking the value in claims


During 2006, we continued to invest in developing our claims service. Improved
underwriting and pricing capabilities, maintenance of our high client retention
rates, lowered cost of the claims, and improved confidence in our results and
reserving, all result in a significant improvement to the service we provide our
clients.


70% of our claims managers in specialty lines are sourced from partner and
senior associate roles in top law firms. Most managers have over 10 years'
experience and expertise in specialist areas, such as insurance of architects
and engineers, medical malpractice and employment practices. In the US, we
established claims operations that are responsible for managing claims emanating
out of both our Lloyd's business and our US carrier. With the right people in
place, we focused our efforts in three areas. We integrated our claims managers
and underwriters by product line to give the managers a thorough and detailed
understanding of the clients and their claims, enhancing our credibility,
essential in third party claims. We adopted a team-based approach to complex
claims, and developed analytical tools. We also refined our approach in the
selection of counsel and worked closely with them to improve management
practices.


In the property group our claims managers each have at least 14 years'
experience and are successful in managing some of the most complex property
claims negotiations on behalf of the market. In the marine division, we hired a
chief engineer of ships to work closely with us evaluating the claims, finding
alternate solutions to mitigating our clients' exposures and our own exposure.


We are confident that the energy invested in this important area will benefit
both our clients and shareholders.



Informed underwriting decisions


Rating Environment

Renewal rate movement based on 2001 prevailing rates.

                        2001      2002      2003      2004      2005      2006

                           %         %         %         %         %         %

Specialty lines          100       135       160       167       166       165
Property                 100       126       131       125       123       138
Reinsurance              100       143       149       148       149       190
Marine                   100       118       129       128       131       143


Total                    100       131       145       145       146       155



During 2006, trading conditions were robust across all lines of business. The
market is proving to be dynamic and responsive, with rate increases across all
classes averaging 6%. This is particularly true in our catastrophe accounts;
reinsurance, open market property and offshore energy. These were heavily
impacted by the 2005 hurricane season. Hurricanes Katrina, Rita and Wilma
accounted for estimated worldwide losses of around US$80bn, of which Beazley's
share was originally estimated at £60m net of reinsurance.


We have since adjusted the way we price our risks. For instance, in our
reinsurance account our premium rates increased by over 28% in 2006. Likewise,
open market property rates increased by 26%, whilst offshore energy rates saw
some of the highest increases (over 35%). To ensure our prices were correctly
calibrated, we bought and refined a number of risk management products which we
use to monitor pricing and our aggregate exposures in certain geographic
regions.


Rates across specialty lines, which accounts for around 50% of the premiums we
write, maintained their competitive position (small decrease of 1%) despite
increasing pressure on rates during the second half of the year. Premiums
written by this team increased significantly over the past year to £361.0m (a
33% increase). Through this growth we continued to seek out the most attractive
risks while adhering to rigorous management principles.


Growth


Our managed premium capacity increased to £830m (2005: £742m) in 2006. This
increase was driven by the forecast increase in insurance rates following the
2005 hurricane season, together with continued growth in our specialty lines
business. In 2007, we plan to write combined premium capacity of £860m, an
increase of 4%.


We increased our share of managed premium capacity to 78% (2005:70%) in 2006
which has risen to 81% for 2007. This increases the amount the group can
underwrite at Lloyd's to £697m (2006: £647m). Part of the expansion in capacity
(£19m) came from our acquisition of Santam Corporate Ltd in December 2006.

Our managed syndicates' (both 2623/623) capacity has grown by 30% since the
flotation of Beazley group in 2002. The group's share of the premiums we manage
has increased even more dramatically by 111%, from £330m in 2003 to £697m in
2007.



Outlook


As the US business becomes more established, we are optimistic about realising
greater returns in 2007. We have key individuals in place and have seen strong
premiums growth in recent months. The addition of the commercial property team
in the spring of 2007 will strengthen this further.


We actively monitor the position of our business in relation to the insurance
cycle. The chart below is an indicative guide to our main opportunities and
threats in 2007 and illustrates where our efforts will be focused. It and the
statements below represent our current view based on information up to the end
of February, and any comparisons at later dates should be viewed in this
context.


Across the business, we are expecting 2007 to be a positive year both in terms
of premiums written and ratings. Our current projection is that both premiums
and ratings will increase up to 5%. Our largest anticipated growth areas are in
our political and contingency group within specialty lines and large commercial
risks within the property group.  Specialty lines will account for over 50% of
the business's premiums, and we expect it to grow despite minor rate decreases.
Careful management of the insurance cycle through active price monitoring and
claims management holds the key to our long-term success. We believe that
underwriting conditions in 2007 will lead to continued profitability for the
group.


                         2007 premium movement           2007 premium

                  US       UK      Rest of   Overall  Rate     Share %
                                   world              change

Political         ++       ++      ++        ++       -        8
contingency group
Management        +        +       +         +        -        5
liability
Professional      +        -       0         0        -        38
indemnity
SPECIALTY LINES   +        +       +         +        -        51


Jewellers and     +        +       +         +        +        7
homeowners
Large commercial  ++       0       0         ++       ++       19
risks
PROPERTY          ++       0       0         ++       ++       26


REINSURANCE       +        +       +         +        ++       8


Hull and Cargo    0        0       0         0        -        7
Energy            0        0       0         0        -        5
Marine Misc       0        0       0         0        -        3
MARINE            0        0       0         0        -        15


TOTAL             +        0       0         +        0        100


++     Growth of more than 5%                                     
+      Growth of between 0% and 5%                                
0      No change                                                  
-      Reduction of between 0% and 5%                             
- -    Reduction of more than 5%  





20th anniversary


2006 marked the 20th year of Beazley Furlonge Limited as a managing agency at
Lloyd's.


We began trading in 1986 with capacity to underwrite £12m of premiums. Our aim
has been to create and build a premier risk taking business partly through
nurturing a working environment that attracts and retains highly skilled
individuals. Twenty years later we have the capacity to underwrite £860m with a
team of 419 people around the globe. Our growth has been organic and timed to
coincide with positive market conditions. We believe that patience and picking
the right people has been core to our success.


Over the years, numerous world events have tested our skills and ability to both
underwrite high quality risks and manage them. The business has never made a
loss and we continue to grow confidently and purposefully.


We have recruited and retained talented individuals - underwriters, claims
managers and support staff who have made Beazley the professional, well
regarded, premier risk taking business we are today. I'd like to take this
opportunity to thank all those who have contributed to making our early vision a
reality.


The insurance industry will continue to undergo changes and face challenges
brought about by expected and unexpected events. One can be certain that the
future holds as much opportunity as we have experienced so far in our journey.
The journey is far from over.


Andrew Beazley
Chief Executive




Specialty lines


Profile


Led by Johnny Rowell since 1992, the specialty lines division is a market leader
in most business segments and underwrites around half the group's premium
income. The team is organised by major product group - management liability,
professional liability, and political and contingency and by size of risk-
small, mid-market and large. This structure was designed to bring together
similar disciplines and interests in product line and style of underwriting.
These groups do not work in isolation and by sharing experiences, team members
transfer best practices across portfolios, working together to improve quality.


We have integrated the specialty lines team across the different territories in
which we operate. Specialty lines now have a presence in London, Paris, Hong
Kong and in eight offices in the US. By establishing experienced, empowered
underwriters in local markets we have significantly improved our access to
business that we would not otherwise have, and we will continue to pursue this
strategy. Our premium income for 2006 was £361.0m (2005: £270.9m).


Market overview


The rating environment in 2006 was, overall, better than expected. Across the
team, rates fell by 1%. There is variation across different portfolios, with
rate increases still achievable in some lines and competition intensifying in
others. We expect competition to increase slightly in 2007. The team's approach
to managing this is multi-tiered, including close monitoring of rate changes and
rates achieved, increased segmentation of individual books of business, robust
auditing of internal underwriting teams, delegated authority and treaty business
and targeted reviews of both high performing and under-performing areas.


Current performance


2006 was the first complete trading year for our US-based operation. Our local
presence in the US market has been well received and the growth rate in income
achieved to date is very satisfactory.


On both sides of the Atlantic we made significant investment in talent,
strengthening our claims service as well as our underwriting capabilities. We
see significant opportunities to differentiate ourselves through the calibre of
our claims managers and the quality of service they provide. This has not always
been an area of focus for insurers in our markets.


Our sources of business remained stable in 2006 with the top five brokers
producing 54% of our premium income, against 53% in 2005 and 52% in 2004.
Geographically the book remains predominantly US domiciled with 65% of premiums
emanating from that region compared with 62% in 2005 and 63% in 2004.


The way we write the business has changed little from previous years.
Facultative business accounted for 67% of our premium in 2006 compared with 68%
in 2005 and 73% in 2004, while binding authority income was 21% for 2006 against
24% in 2005 and 20% in 2004.


Outlook


Our goal in 2007 is to ensure that our mix of products and segments (business by
size and method of placement) evolves to maximise opportunities in the
marketplace. In a changing environment we will need to react quickly to both
opportunities and threats.


Overall, we expect premiums to remain stable in 2007, although their
distribution may change slightly. Our US, French and Hong Kong operations will
grow and we will continue to invest in a number of our London teams. We
recognise the value that clients and brokers place on the provision of stable
coverage and will work to deliver this, consistent with the demands of
profitability.


With a successful year of high-calibre recruitment behind us, our focus in 2007
will be on retaining and developing employees. Responsive service - both in
underwriting and claims - will remain at the heart of our business, supported by
financial, operations and project management expertise. Our commitment to
service excellence, in-depth risk analysis and understanding and delivering
products that meet broker and client needs will continue to underpin sustainable
long-term profitability.






Property


Profile


Led by Jonathan Gray since 1992, the specialist underwriting teams in the
property group lead the programmes of Fortune 1000 clients and insure some of
the world's largest construction projects. The division insures large corporate
clients, engineering and construction projects, high-value homeowners,
jewellers' risks and smaller property clients, representing almost a quarter of
the group's gross premiums written.


With expansion in the US, we will also be able to provide medium-sized US
clients with property coverage through our admitted insurance company. The
diverse nature of our clients and class types and increasingly diverse
distribution platform enable us to provide the group with a well-balanced
portfolio.


Market overview


Rates in catastrophe exposed areas in the US continued to harden during the
course of 2006 with hurricane prices reaching an all-time peak during the
hurricane season. Earthquake rates in California also increased during the
latter part of the year as increased reinsurance costs filtered down to the
primary market. However, non-US rating levels were disappointing with
competitive conditions a consistent theme throughout the year. There was little
or no pricing reaction in the non-US markets to the hurricane losses of 2004 and
2005.


2006 saw a benign hurricane season and the absence of major catastrophes in
comparison with recent years. In addition, the underlying trend of claims
incidences also showed a decrease.


Current performance


The amount of business led by the property group increased during 2006 from 66%
of the business written in 2005 to 70% in 2006 with the biggest increase being
in the open market account, where we now lead 53% of the business written.


Rate increases averaged 13% across all lines in the property group during 2006
compared with 2005, with open market experiencing the largest increase at 27%.


Our managing general agent (MGA) in Florida had a successful year with premium
written increasing from US$6.2m in 2005 to US$10.3m in 2006.


The engineering team had another excellent year in 2006, growing its business
profitably and consolidating its lead market position in its target areas. To
widen the distribution network and access business directly from Asia, we set up
an office in Singapore attracting employees already well known to the London
team.


The UK homeowner market is experiencing increasing competition. To improve our
results, we have completely reviewed and updated our UK homeowners rating tables
using the latest peril modelling techniques and postcode data available, which
will enhance our risk selection criteria.


Our reputation as property insurance specialists, combined with a claims
performance acknowledged by the market as superior, gave us access to
significant reinsurance capacity. However, the cost of this reinsurance was
higher than previous years and retention levels increased.


Outlook


The US continues to present great opportunity for our business in London though
we anticipate that non-US risks will be more of a challenge. Our high-value
homeowner operation in Florida will build on its increasing reputation to grow
its portfolio and the launch of our admitted market products will provide access
to medium-sized commercial property clients thus enhancing the long term balance
of our portfolio.


We believe that high rating levels for catastrophe business will be maintained
in the coming year, providing our group with strong business opportunities for
US-based risks. Non-catastrophe rates will experience further pressure.



Reinsurance


Profile


Led by Neil Maidment since 1996, the reinsurance division is a recognised leader
providing capacity to a significant proportion of the world's leading general
insurers, some of which have been clients for over 20 years. Specialising in
property catastrophe, property risk excess, casualty catastrophe, aggregate
excess of loss and pro-rata business, the team's main exposures outside the US
are in the UK, Europe, Japan, Canada and Australasia. Results from the
reinsurance division represent 8% of the group's 2006 gross premiums written.


Market overview


Following the losses incurred in the 2005 hurricane season, the reinsurance
market hardened considerably in 2006 with rates in the property treaty market
increasing 47% on average in the US. Outside the US, the effect was less
dramatic but nevertheless rates increased 7% on average.


Despite predictions of another catastrophic hurricane season in the North
Atlantic, 2006 proved to be a particularly benign year for hurricane activity.
Experts cite two possible exceptional meteorological reasons for this; dust
particles blown from the Sahara to the area where hurricanes normally develop,
and the El Nino phenomenon in the Pacific. While the insurance market benefited
overall, demand also increased at a faster rate than supply in peak zones of
exposure. Prices increased and reinsurance capacity decreased.


Current performance


The impact of predicted increases in near term frequency and severity of future
losses and the consequent increase in capital required to manage these exposures
has been felt by both buyers and sellers of reinsurance. The cost of hedging
these risks increased to uncommercial levels in the retrocessional market.
Therefore, we reduced our gross exposures to fit within our risk appetite which
remained unchanged.


We successfully adjusted the portfolio to manage these challenges while
improving the risk-reward balance. In addition, we retained our commitment to
our long-term clients, while continuing to diversify our portfolio in target
markets, such as western Europe.


We benefited directly from the quiet hurricane season, seeing very low claims
activity and consequently a greatly reduced loss ratio.


Our estimate for losses incurred as a result of the 2005 hurricane season were
well within our reserve limits, hence we are able to release some of the
reserves earlier than expected.


Outlook


Experts continue to predict Atlantic hurricane activity above the long term
average and because of the trend for the US population to move towards the
coast, we expect to see an increase in the cost to the insurance and reinsurance
industry.


Following last year's significant price increases in the US, we expect that
rates in key catastrophe exposed areas will be maintained at or around their
current levels. The recent changes in Florida legislation designed to relieve
pressure on buyers in that state are not expected to have a significant direct
effect on our portfolio.


Outside the US, we anticipate some pressure on rates, particularly in smaller
markets, however they will remain at levels that are capable of substantial
profits. It is anticipated that the impact of windstorm Kyrill will encourage
greater discipline in the UK and continental European markets.


Our team will continue to advance its long-term objective of developing a well
diversified and efficient portfolio focusing on larger non-life insurance
markets.





Marine


Profile


Led by Clive Washbourn since 1998, 2006 was a rewarding year for our marine
division with record levels of gross premiums (at £137.9m). We are established
market leaders in all the major classes we write, which include marine hull,
cargo and war. Our energy portfolio has also been expanded to benefit from
optimum underwriting conditions in that sector.


We are able to attract the highest quality business through our market
leadership position and in-depth knowledge of the segment. As our portfolio has
grown, we have continued to strengthen our underwriting and claims team.


Market overview


Underwriting conditions were favourable for most of our classes during 2006,
with healthy premium rates, appropriate levels of deductible and coverage. We
saw strong, profitable premium growth, with our marine hull and energy accounts
performing particularly well.


Our 2005 hurricane losses have developed in line with projections and compare
favourably with our market peers. We are confident that the majority of our
gross loss will be collectable from reinsurers.



Current performance


In the wake of a record 2005 hurricane season, underwriting conditions in our
energy account were excellent, with rating conditions for Gulf of Mexico risks
at the highest levels for many decades. During 2006 the energy class achieved
the highest composite rate change of all Beazley classes, which supported the
near doubling of gross premium income year on year. Although there is some
indication of competitors expanding their capacity as confidence returns to the
sector, we expect rating conditions to be stable.


Our hull account has benefited from a period of relatively benign loss frequency
coupled with robust trading conditions for our insureds. In areas such as marine
builders risks, the hull account was able to optimise capacity in a tight market
for risks that have natural peril exposure. We continue to be the leader in
London for voyage and tow insurances and this class has performed extremely well
during the last 12 months.


Our war account, which covers insurance against terrorism and war like acts on
ships and aeroplanes, continues to perform well. Competition for this portfolio
has increased although our position as a lead market within London will allow us
to respond quickly if rates rise at any stage.


Our cargo portfolio has enjoyed a consistent level of gross premium. Loss
frequency reduced during the last 12 months, which has benefited profitability.
We continue to develop our modest UK cargo agency underwriting operation.
Profitability to date has been excellent, premium levels are projected to double
during the next 12 months and there is good long-term opportunity to develop a
valuable portfolio and diversify our account.


The group purchased a whole account excess of loss reinsurance programme in
2006, as in previous years, but opted to purchase less low-level specific
protection and run this risk against our capital. This decision to purchase less
reinsurance proved particularly judicious in the light of the low claims
frequency across classes during 2006.


Outlook


We look forward to 2007 as a period in which we can further consolidate our
position. We are pleased with the quality of our account and anticipate
relatively stable underwriting conditions in the majority of our classes. We
fully expect to meet our target profitability and to continue to grow income
where opportunity allows.


We are delighted that we have reached a long term agreement to be sole
underwriters of the renewal rights for the Charterers Club, which significantly
enhances our marine liability portfolio. The marine liability class has
historically enjoyed good profitability and since this class typically does not
correlate with our other marine classes, it further diversifies our portfolio.


We will continue to focus upon those risks that are well known to the
underwriting and claims team. The relationships with the insured often set us
apart from our competitors and this, we believe, will help insulate the division
from the effects of increased competition in the worldwide market that we
believe are likely to develop in future years.






FINANCIAL REVIEW

                                         2006            2005       Movement

                                           £m              £m              %


Gross premiums written                  745.1           558.0             34
Net premiums written                    574.3           425.8             35

Net earned premiums                     509.6           372.3             37

Net investment income                    48.3            31.6             53
Other income                              7.1             6.9              3

Revenue                                 565.0           410.8             38

Net insurance claims                    270.7           273.0            (1)
Acquisition and administrative          168.4           118.5             42
expenses
Other expenses                           33.5             1.4          2,293

Expenses                                472.6           392.9             20

Finance costs                             5.6             1.8            211

Profit before tax                        86.8            16.1            439

Claims ratio                              53%             73%              -
Expense ratio                             33%             32%              -
Combined ratio                            86%            105%              -

Rate increase                              6%               -              -
Investment return                        4.9%            4.2%              -



Gross premiums written


During 2006, our gross premiums written increased by 34% to £745.1m and net
earned premiums increased by 37% to £509.6m. Growth came from both the rise in
underlying premium capacity for syndicates 623 and 2623 and a higher group share
of combined premiums written. In 2006 syndicates 2623 and 623 had capacity to
write £830m (2005: £742m) of premiums net of brokerage, and we increased our
share of the combined capacity to 78% in 2006 (2005: 70%).


Our business is derived from a variety of risk types, classes of business and
geographical locations. Diversity is one of the key parts of our strategy.
Achieving a balanced portfolio enables us to control our risk profile and reduce
the capital we are required to hold. It should protect us from the impact of
one-off events and balance our results. This was demonstrated in 2005 when our
losses from the US hurricanes of around 21% of shareholders funds were amongst
the lowest in our sector.


We continued to write approximately 43% of our risks, in medium tail accounts,
mainly through our specialty lines team. Medium tail insurance is defined as
insurance business where claims are determined and settled three to five years
after the period of insurance has expired. We write a significant amount of this
type of insurance as we believe it is a source of competitive advantage, based
on the correct pricing disciplines and underwriting experience.


Reinsurance


Reinsurance is purchased for a number of reasons: to mitigate the impact of
catastrophes such as those experienced during the 2005 hurricanes; provide lead
line capabilities to our underwriters; and as a way of managing the group's
capital.


Our reinsurance spend increased by 29% in 2006 to £170.8m. However, as a
percentage of gross premiums written, reinsurance spend reduced during the year
to 23% of gross premiums written (2005: 24%). The reduction in percentage cover
is partly explained by a lack of supply from the reinsurance market, at
competitive prices, in the first six months of the year. This was particularly
true in our hurricane-impacted classes from 2005. We managed our aggregate
exposures carefully and were prepared to reject business if reinsurance cover
was not available at the correct prices or if its addition would exceed our risk
appetite.


Combined ratio


The group's combined ratio has reduced from 105% in 2005 to 86% in 2006. The
2005 ratio was heavily impacted by the US hurricane losses of £60m. This alone
is estimated to have added 18% to the 2005 ratio. 2006 has been more stable in
terms of claims, but has seen increased costs partly through the expansion of
the US. The expense ratio increased by 1% as a result of the expansion to 33%.


Claims


Our claims ratio decreased to 53% in 2006 (2005: 73%). This has arisen due to
two principal factors:


-         2005 was heavily impacted by hurricane losses, which added an
estimated 18% to our claims ratio; and

-         Increased releases of specialty lines reserves in 2006 reduced the
claims ratio by 3.5% (2005: 0.2%).


2005 hurricane losses update


At the end of 2005, we set up claims reserves for the 2005 US hurricanes at US
$104m (£60m). During 2006, we saw positive development in terms of these costs,
which enabled us to release US$11m (£6.0m) of our claims reserve. The table
below shows our latest estimate of the total hurricane losses.



                                             2006                     2005

                                             US$m                     US$m

Gross loss                                    371                      370
Reinsurance recovery                          273                      260
Sub total                                      98                      110
Reinstatement premiums                         21                       20
Net loss                                      119                      130
Catastrophe margin                             26                       26
released
Total hurricane losses                         93                      104



Specialty lines claims reserve releases

In 2006 we released around £18.0m of prior year specialty lines reserves. This
is a reflection of our view that claims for medium tail class of businesses are
developing better than initially thought. This is partly attributed to better
management of our pricing for these risks at the time of inception, together
with strong claims management discipline. This is also due to an improvement in
the frequency and severity of claims falling under policies issued during these
years.



Reserving approach

We have consistently adopted a prudent approach towards our medium tail
specialty lines account reserving. The nature of this type of business is that
for the majority of classes of business the corridor of uncertainty surrounding
potential claims is wide in the first three years of development following the
underwriting year. As we gain more certainty in years four and five, we have a
better view as to where claims are likely to settle and we can adjust our
reserves accordingly.





Expenses


Our expense ratio has increased by 1% to 33% in 2006. This is due to the US,
which was in its first full year of operation. This business expanded
considerably with employee numbers rising from 44 to 100 by year end. As the
business is in a start-up phase it bore one-off costs such as recruitment,
marketing and legal fees, incurred in advance of the ultimate premiums potential
being delivered.


We also established offices in a number of locations: Paris, Singapore, Hong
Kong and throughout the US. Facilitating better access to business is an
important part of our strategy.



Employee numbers


During 2006, our permanent employee numbers grew from 282 to 419 as we continued
our recruitment in both the UK and in the US. In the UK, we strengthened our
specialty lines underwriting, claims teams and support functions - in particular
we insourced the accounts processing function during the year. In the US, we
recruited additional personnel in all areas of the business as we built up
operations in our Florida and Connecticut offices and set up a number of small
regional offices. We also set up offices in Hong Kong, Singapore and Paris
during the year. Having talented individuals is key to achieving our strategy of
becoming a premier risk-taking business.

                                                        2006          2005

Employee numbers


Specialty lines                                          172           101
Property                                                  55            41
Reinsurance                                                9             7
Marine                                                    28            20

Finance (including actuarial, compliance and              55            36
internal audit)
IT                                                        43            38
Ceded reinsurance                                         15            11
Talent management                                         11             8
General management and other support                      31            20

Total                                                    419           282

UK                                                       309           238
US                                                       100            44
Other (Hong Kong, Singapore, and Paris)                   10             -




Investment performance


In 2006, despite a difficult environment for fixed income investments, our total
investment income grew to £48.3m (2005: £31.6m), providing a return of 4.9%
(2005: 4.2%).

During the first half of 2006, the US Federal Reserve continued its programme of
raising interest rates in order to slow the rate of growth and contain
inflation. The Bank of England also reacted to increasing inflation by raising
the base rate twice in the second half of the year. However, for the group, the
short duration of our portfolios for most of the year largely insulated our
returns from the capital erosion effects of higher interest rates and the
portfolios benefited from increasing yields as rates rose.


Our continuing investments in alternative assets and a new stand alone
investment in equities added significantly to our investment returns. Our
alternative investments achieved a return of 9.0%. These investments represent a
mixture of longer-term debt securities, equities, hedge funds, high yield debt
and short-term deposits. Meanwhile, our stand alone equity investment achieved a
return of 4.8% since it was initiated in October.


For regulatory and legal reasons, certain trust funds and deposits are required
to be managed centrally by Lloyd's on behalf of the syndicates. These funds are
invested in high-grade, fixed income securities and their performance is
detailed separately in the table below.


The group maintains funds in cash for various operational purposes. The majority
of these cash balances are invested in money market funds managed by Scottish
Widows Investment Partnership, AIM Global and Bank of America.



The table below highlights the returns received by currency and by investment
type.



                                   2006       2006      2005       2005
                                Average Annualised   Average Annualised
                                     £m     return        £m     return
                                                 %                    %
Fixed interest securities

£m                                383.0        4.5     390.0        4.0
US $                              425.7        4.4     209.5        3.7
Lloyd's managed and other          56.6        3.9      30.7        3.7

Hedge funds                        45.3       11.1      30.1        9.8

Equities                           22.5       11.9       3.2       15.5

Cash and money market funds        57.5        3.7      97.0        3.7

TOTAL                             990.6        4.9     760.5        4.2



Investment income has also increased as a result of larger cash balances being
managed by the group. The group's cash and investment balance grew during 2006
mainly due to:

• additional underwriting of syndicate 2623 in 2006; and

• the receipt of funds raised as part of the debt issue in the final
  quarter (£150m).


As a large proportion of our insurance liabilities are medium tail, i.e. the
claims are paid several years after premiums are received, we expect the
investment balance will increase further into 2007.



Other expenses


Other expenses consist of non-underwriting related group expenses of £6.2m
(2005: £9.9m), profit related bonus provisions of £5.0m (2005: £3.3m), and a
foreign exchange loss of £22.3m (2005: a credit of £11.8m). The majority of the
increase in 2006 is explained by the foreign exchange loss, of which £17.6m
(2005: a credit of £11.3m) relates to foreign exchange differences on
non-monetary items (refer note 3).



Foreign exchange differences arising on non-monetary items


In 2006, the impact of foreign exchange on non-monetary items has added a £9.4m
charge (2005: a profit of £8.2m) to our profit before tax. Non-monetary items
include unearned premium reserve, reinsurers' share of unearned premium reserve
and deferred acquisition costs. Under International Financial Reporting
Standards (IFRSs) these balances are carried at historic exchange rates, whilst
monetary items are translated at closing rates. This imbalance creates
volatility in our accounts which cannot be hedged as the mismatch is not
monetary in nature.


Within our 2006 portfolio, around 67% of premiums were generated through US
dollar transactions. As the US dollar weakened significantly during 2006,
falling from an opening position of £1=US$1.72 to £1=US$1.96 (a 12% devaluation)
there was a negative effect on our profits and net assets.



BALANCE SHEET MANAGEMENT

Summary balance sheet                    2006            2005       Movement
                                           £m              £m              %

Intangible assets                        21.9            18.2             20
Investments and cash                  1,167.8           884.5             32
Insurance receivables                   244.0           158.9             54
Reinsurance assets                      345.3           394.5           (12)
Other assets                            105.2            87.3             21

Total assets                          1,884.2         1,543.4             22

Insurance liabilities                 1,225.6         1,096.4             12
Borrowings                              154.9            29.1            432
Other liabilities                       184.2           137.5             34
Total liabilities                     1,564.7         1,263.0             24

Net assets                              319.5           280.4             14

Net assets per share                    88.5p           77.8p             14



Intangible assets


Intangible assets are made up of two main elements:


-        previously acquired goodwill or purchased capacity; and

-        capitalised IT projects.


During 2006, we acquired an additional 3% of capacity in syndicate 2623 for
£0.5m. Of this 2% was acquired through the purchase of Santam Corporate Limited
in December 2006. The remaining 1% was acquired during the Lloyd's auction
process where we paid on average 2.7p per £1 of capacity.


We began capitalising IT projects during 2005 (£3.6m), as the company increased
its emphasis on building IT systems supporting our non-Lloyd's initiatives such
as the US. During 2006, this policy continued and after an annual review we
capitalised a further £3.7m, bringing the net book value to £5.0m at 31 December
2006. Our policy is to depreciate these items over their useful economic life (3
years).


Investments and cash


Our portfolio remains mainly invested in high quality, short duration bonds. We
invest 11.8% (2005: 7.6%) in alternative investments and equities. To enhance
returns and further diversify risks associated with investing solely in bonds,
we increased the proportion of equities by 3.7% in October 2006 through a stand
alone investment in a global equity fund managed by AllianceBernstein


During the year we diversified the fixed income assets by investing a proportion
of our US fixed income portfolios with two new investment managers; Conning
Asset Management and Wellington Management. This also gives us access to
different investment styles and skill sets.



Manager                   Investment Type             2006     2006

                                                        £m        %
AllianceBernstein        US $, £, Euro €, CAD $      700.9     60.0
                         Fixed income, equity
Conning Asset Management US fixed income             125.2     10.7
Wellington Management    US fixed income              86.8      7.4
Union Bancaire Privee    Alternative investments     102.6      8.8
                         including hedge funds
Lloyd's Corporation      Fixed income                 73.5      6.3
Scottish Widows          Money market funds           22.3      1.9
Investment Partnership
AIM Global               Money market funds            7.8      0.7
Bank of America          Money market funds           17.0      1.5
Other cash balances      Current account and          31.7      2.7
                         deposits

TOTAL                                              1,167.8        -



The performance of the managers and the structure of the investment portfolio is
monitored by our chief investment officer who reports to the investment
committee, which holds delegated responsibility from the board for all
investment matters.


Insurance receivables


Insurance receivables represent broker balances receivable in respect of
premiums we have written. During 2006, broker balances increased by 54% to
£244.0m, due to increased premiums written by syndicate 2623. We outsource the
collection of our premium broker balances to JMD Specialist Insurance Services
Limited, which operates within the Lloyd's market as specialist credit
controllers.


Reinsurance assets


Reinsurance assets, which mainly represent recoveries from our reinsurers in
respect of claims, form 18% or £345.3m of our total assets at the end of 2006
(2005: 26% or £394.5m). Of this balance, £166.8m represents our estimate of
recoveries in respect of claims incurred but not yet reported.


These assets are managed through:


-        Minimising risk through selection of reinsurers who meet strict
financial criteria (e.g. minimum net assets, minimum 'A' rating by A.M. Best
when initially selected). These criteria are varied by type of business (short
vs. medium tail);

-        Timely calculation and issuance of reinsurance collection notes from
our ceded reinsurance team; and

-        Regular monitoring of outstanding debtor position by our reinsurance
security committee.


In addition we provide against reinsurance recoveries that are impaired. At the
end of 2006 we had provided £4.8m (2005: £5.2m) in respect of our reinsurance
recoveries.


Insurance liabilities


Insurance liabilities of £1,225.6m consist of two main elements; unearned
premiums reserve ('UPR'), and gross insurance claims.


-        Our unearned premiums reserve (UPR) has increased by 34% in 2006 to
£359.6m, mainly due to increased premiums written. The bulk of the UPR relates
to the 2006 year which has been written at favourable rates. This business will
earn through to our income statement in 2007.

-        Gross insurance claims are made up of claims which have been notified
to us but not yet paid and an estimate of incurred but not yet reported claims
(IBNR). These are estimated by both the underwriter and the syndicate actuary
through the quarterly peer review process, a description of which is included in
note 23. Gross insurance claims increased by 4% in 2006 to £866.0m mainly due to
the increase in business written.






Borrowings


Historically we have relied on short-term banking facilities to support our
underwriting at Lloyd's and the US operation. This was typically issued in the
form of letters of credit, although we could draw down physical cash if required
to pre-defined limits. As a condition of this type of debt, we also had to
comply with certain banking covenants; minimum levels of net assets, realistic
disaster scenario events and profitability. The facility was also renegotiated
every two years.


To provide us with greater flexibility over our capital, we issued longer-term
debt in October 2006. We raised £150m of lower tier 2 long-term subordinated
debt through a fixed rate debenture. The proceeds will be used to replace the
existing short-term facilities and to support opportunities to grow the business
as they arise. The issue is callable on 17 October 2016 and bears an initial
interest rate of 7.25% payable in arrears. We retained £50m of the short-term
debt in the form of a letter of credit facility, led by Lloyds TSB, to provide
additional capital should the requirement arise.


At the time of the issue we entered into a derivative transaction, whereby we
better matched our investment and currency risk by swapping the sterling fixed
rate loan into the equivalent of:


-        £107m of floating rate sterling loans; and

-        US$80m of floating rate US dollar loans.


These items have been accounted for using hedge accounting for both the floating
rate and currency elements of the transaction.

Currency profit hedging


Our policy is to minimise our largest foreign exchange currency risk-exposure,
which is to the US dollar. This is managed by estimating our US dollar profits
each year and selling a proportion each month. We also sell our year-end
unhedged profits for our second largest currency exposure, Euros, once a year.
In 2006, the group sold US$108.5m at an average exchange rate of 1.88 (2005:
1.87).


CAPITAL POSITION


The group has two requirements for capital:

1.       To support underwriting at Lloyd's through syndicate 2623, this is
based on the group's own individual capital adequacy. This may be provided in
the form of either the group's cash and investments or debt facilities; and

2.       To support underwriting in Beazley Insurance Company, Inc. in the US.


Our funding comes from a variety of sources:

1.       £319.6m comes from our shareholders own funds (i.e. net assets). Of
this balance, £81m is unavailable to the group at present because it relates to
fixed assets or undistributable syndicate profits.

2.       £150m was raised in 2006 through a tier 2 subordinated debt issue;

3.       An undrawn banking facility of £50m (2005: £150m) provided by a
syndicate of banks led by Lloyds TSB; and

4.       The final source of funds comes from our US$18m subordinated long term
debt with a maturity in 2034.

                                             2006           2005

                                               £m             £m

Sources of funds

Shareholders funds                          319.5          280.4
Tier 2 subordinated debt                    150.0              -
Long term subordinated debt                   9.7           10.5
(US$18m)
Bank facility (drawn)                           -           70.0
                                            479.3          360.9

Uses of funds

Lloyd's underwriting                        292.0          301.7
Capital for US insurance company             30.6           32.6
                                            322.6          334.3

Surplus                                     156.7           26.6
Unavailable surplus                        (81.0)         (19.7)
Available surplus                            75.7            6.9






Individual capital assessment


Historically our capital requirements were set using Lloyd's risk based capital
(RBC) model. The RBC model assessed the risk posed by the proposed business plan
based on historical market average data. The capital regime changed in 2005, so
that syndicates make their own assessment of risk in their ICA. 2006 was the
first full year where our capital requirements were determined by its ICA.


In order to determine its ICA, we made significant investment in both models and
process:

• we use sophisticated mathematical models that reflect the key risks in
the business allowing for probability of occurrence, impact if they do occur,
and interaction between risk types. A key focus of these models is to understand
the risk posed by individual teams, and to the business as a whole, of a
possible deterioration in the underwriting cycle; and

• The ICA process is embedded so that the teams can see the direct and
objective link between underwriting decisions and the capital allocated to that
team. This gives a consistent and comprehensive picture of the risk reward
profile of the business and allows teams to focus on strategies that improve
return on capital.


This robust ICA process demonstrates that the business is well diversified and
stable. This is reflected in our capital requirement of 42% of premium capacity,
a reduction from 47% of premium capacity in 2006. This equates to a capital
requirement of £292m.



CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2006


                                           Notes               2006             2005
                                                                 £m               £m

Gross premiums written                       3                745.1            558.0
Written premiums ceded to reinsurers                        (170.8)          (132.2)

Net premiums written                         3                574.3            425.8

Change in gross provision for unearned                       (84.9)           (73.7)
premiums
Reinsurer's share of change in the                             20.2             20.2
provision for unearned premiums
Change in net provision for unearned                         (64.7)           (53.5)
premiums

Net earned premiums                          3                509.6            372.3

Net investment income                        4                 48.3             31.6
Other income                                 5                  7.1              6.9

                                                               55.4             38.5

Revenue                                                       565.0            410.8

Insurance claims                                              357.0            463.7
Insurance claims recoverable from                            (86.3)          (190.7)
reinsurers
Net insurance claims                         3                270.7            273.0

Expenses for the acquisition of              3                129.6             95.5
insurance contracts
Administrative expenses                      6                 38.8             23.0
Other expenses                               6                 33.5              1.4
Operating expenses                                            201.9            119.9

Expenses                                     3                472.6            392.9

Results of operating activities                                92.4             17.9

Finance costs                                8                (5.6)            (1.8)

Profit before tax                                              86.8             16.1

Comprises:

Profit before tax and foreign exchange                         96.2              7.9
adjustments on non-monetary items
Foreign exchange on non-monetary items                        (9.4)              8.2


Income tax expense                           9               (26.9)            (5.0)

Profit after tax                                               59.9             11.1

Earnings per share (pence per share):
Basic                                       10                 16.8              3.1
Diluted                                     10                 16.7              3.1





BALANCE SHEET
AS AT 31 DECEMBER 2006

                                            2006                       2005
                         Notes           Group     Company           Group    Company
                                            £m          £m              £m         £m
Assets

Intangible assets          12             21.9           -            18.2          -
Plant and equipment        13              7.0           -             2.5          -
Investment in                                -        65.1               -       31.7
subsidiaries
Investment in associates   14              1.3           -             1.3          -
Deferred acquisition       15             78.9           -            52.7          -
costs
Financial investments      16            958.4       340.0           771.9      221.9
Insurance receivables      17            244.0           -           158.9          -
Deferred income tax        26              3.5           -             2.4          -
Reinsurance assets       18,23           345.3           -           394.5          -
Current income tax                           -         0.7               -          -
Other receivables                         14.5        25.4            28.4       48.4
Cash and cash              19            209.4        29.8           112.6        6.7
equivalents

Total assets                           1,884.2       461.0         1,543.4      308.7



Equity

Share capital              20             18.1        18.1            18.0       18.0
Reserves                 21,22           225.8       230.9           232.1      229.4
Retained earnings                         75.6        14.9            30.3       16.1
Total equity                             319.5       263.9           280.4      263.5



Liabilities

Insurance liabilities      23          1,225.6           -         1,096.4          -
Borrowings                 24            154.9       157.0            29.1       10.5
Derivative financial       25              2.4         2.4               -          -
instruments
Deferred income tax        26             11.6           -             6.0          -
Current income tax                        15.6           -             4.5        1.3
liabilities
Other payables             27            152.7        37.7           124.1       33.4
Retirement benefit         28              1.9           -             2.9          -
obligations

Total liabilities                      1,564.7       197.1         1,263.0       45.2


Total equity and                       1,884.2       461.0         1,543.4      308.7
liabilities







STATEMENT OF MOVEMENTS IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2006

Group                        Notes         Share      Reserves     Retained        Total
                                         capital                   earnings
                                              £m            £m           £m           £m

Balance at 1 January 2005                   18.0         232.5         27.1        277.6

Retained profits for the                       -             -         11.1         11.1
year
Foreign exchange translation                   -           0.8            -          0.8
differences
Dividends paid                 11              -             -        (7.9)        (7.9)
Increase in employee share     21              -           0.4            -          0.4
options
Acquisition of own shares in   21              -         (1.6)            -        (1.6)
trust

Balance at 31 December 2005                 18.0         232.1         30.3        280.4

Retained profits for the                       -             -         59.9         59.9
year
Change in net investment                       -         (0.6)            -        (0.6)
hedge
Foreign exchange translation                   -         (2.8)            -        (2.8)
differences
Dividends paid                 11              -             -       (14.6)       (14.6)
Issue of shares                20            0.1           0.3            -          0.4
Increase in employee share     21              -           0.8            -          0.8
options
Acquisition of own shares in   21              -         (4.0)            -        (4.0)
trust

Balance at 31 December 2006                 18.1         225.8         75.6        319.5




Company                      Notes         Share      Reserves     Retained        Total
                                         capital                   earnings
                                              £m            £m           £m           £m


Balance at 1 January 2005                   18.0         230.5          2.1        250.6

Retained profits for the                       -             -         21.9         21.9
year
Foreign exchange translation                   -         (1.1)            -        (1.1)
differences
Dividends paid                 11              -             -        (7.9)        (7.9)
Balance at 31 December 2005                 18.0         229.4         16.1        263.5

Retained profits for the                       -             -         13.4         13.4
year
Foreign exchange translation                   -           1.3            -          1.3
differences
Dividends paid                 11              -             -       (14.6)       (14.6)
Issue of shares              20,21           0.1           0.2            -          0.3

Balance at 31 December 2006                 18.1         230.9         14.9        263.9



CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2006

                                                2006                      2005
                              Notes          Group     Company         Group    Company
                                                £m          £m            £m         £m

Cash flow from operating
activities
Profit before tax                             86.8        14.4          16.1       23.6
Adjustments for non-cash
items
Amortisation of intangibles                    1.4           -           0.3          -
Equity settled share based                     0.8           -           0.4          -
compensation
Foreign exchange translation                 (4.6)           -           1.9          -
of foreign subsidiary
Net fair value losses/(gains)                (8.8)         0.8         (3.0)        0.7
on financial assets
Depreciation of plant &                        1.2           -             -          -
equipment

Changes in operating assets
and liabilities
Increase in insurance                        129.2           -         635.9          -
liabilities
Increase in insurance                       (85.1)           -        (69.9)          -
receivables
Decrease/(Increase) in other                  13.9        22.9         (3.0)     (21.8)
receivables
Increase in deferred                        (26.2)           -        (14.4)          -
acquisition costs
Decrease/(Increase) in                        49.2           -       (296.2)          -
reinsurance assets
Increase in other payables                    37.6         6.5          69.0       32.7
Income tax paid                             (11.5)       (3.1)         (5.8)      (1.1)
Contribution to pension fund                 (1.0)           -         (1.0)          -
Acquisition of own shares in    21           (4.0)           -         (1.6)          -
trust

Net cash from operating                      178.9        41.5         328.7       34.1
activities

Cash flow from investing
activities
Purchase of plant and           13           (5.7)           -         (2.5)          -
equipment
Purchase of syndicate           12           (0.2)           -         (1.6)          -
capacity
Acquisition of subsidiary                    (2.2)           -             -          -
(net of cash acquired)
Purchase of licences            12               -           -         (5.1)          -
Purchase of investments                  (2,125.1)     (412.4)     (1,419.3)      211.1
Purchase of software            12           (3.1)           -         (3.6)          -
development
Proceeds from sale of                      1,947.2       293.5       1,120.2    (205.7)
investments
Capital injection in                             -      (33.4)             -     (26.6)
subsidiary

Net cash used in investing                 (189.1)     (152.3)       (311.9)     (21.2)
activities



Cash flow from financing
activities

Proceeds from issue of shares                  0.4         0.4             -          -

Repayment of syndicated loan                (18.6)           -             -          -

Proceeds from Tier 2                         148.1       148.1          18.6          -
subordinated debt

Dividends paid                  11          (14.6)      (14.6)         (7.9)      (7.9)

Net cash used in financing                   115.3       133.9          10.7      (7.9)
activities

Net increase in cash and cash                105.1        23.1          27.5        5.0
equivalents
Cash and cash equivalents at                 112.6         6.7          81.5        1.7
beginning of year
Effect of exchange rate                      (8.3)           -           3.6          -
changes on cash and cash
equivalents
Cash and cash equivalents at    19           209.4        29.8         112.6        6.7
end of year






                      This information is provided by RNS
            The company news service from the London Stock Exchange

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