Preliminary Results 2012

RNS Number : 0912Z

Amlin PLC

04 March 2013

 



AMLIN PLC

PRESS RELEASE

For immediate release

4 March 2013

Preliminary results for the year ended

31 December 2012

A strong financial performance

Highlights

· Profit before tax of £264.2 million (2011: loss before tax £193.8 million), after £141.6 million of claims attributable to Hurricane Sandy (2011: £500.8 million total net catastrophe claims)

· Return on equity of 17.4% (2011: negative 8.6%), above our estimated cost of equity of 8.5%

· Combined ratio of 89% (2011: 108%), with positive trends in all divisions

· Excellent investment return of £165.3 million, equivalent to 4.1% on average invested assets (2011: £40.5 million, 0.9%)

· Dividend declared increased by 4.3% to 24.0 pence per share (2011: 23.0 pence per share)

· Net tangible assets per share of 258.5 pence (2011: 243.0 pence)

Charles Philipps, Chief Executive, commented as follows:

"In 2012, Amlin returned to robust profitability and generated a strong return on equity. Recent growth is building earnings momentum and with profits from our non-catastrophe businesses improving, we are well positioned to continue to expand into more favourable market conditions."

Enquiries:
Charles Philipps, Chief Executive, Amlin plc	0207 746 1000
Richard Hextall, Group Finance & Operations Director, Amlin plc	0207 746 1000
Analysts and Investors
Julianne Jessup, Head of Investor Relations, Amlin plc	0207 746 1961
Media
Ed Berry, FTI Consulting	0207 269 7297

Financial highlights⁽¹⁾

	2012 £m	2011 £m	2010 £m	2009 £m	2008 £m
Gross written premium	2,405.6	2,304.1	2,172.5	1,543.9	1,034.0
Net written premium	2,058.6	2,013.2	1,910.3	1,322.6	915.7
Net earned premium	1,970.5	1,927.4	1,748.1	1,317.3	913.5
Profit attributable to underwriting	207.1	(146.0)	185.6	355.2	211.4
Investment return	165.3	40.5	175.0	207.5	18.0
Other costs2	(108.2)	(88.3)	(101.4)	(53.6)	(107.8)
Result before tax	264.2	(193.8)	259.2	509.1	121.6
Return on equity	17.4%	(8.6)%	13.9%	37.0%	7.8%
Net assets	1,491.4	1,420.4	1,729.9	1,593.1	1,216.1
Net tangible assets	1,280.0	1,201.5	1,545.4	1,430.3	1,105.9
Per share amounts (in pence)
Earnings	50.0	(30.3)	45.0	94.1	17.1
Net assets	301.2	287.2	350.6	322.6	259.5
Net tangible assets	258.5	243.0	313.2	289.6	236.0
Dividend under IFRS3	23.3	23.0	20.7	17.5	16.0
Dividends declared for the calendar year3	24.0	23.0	23.0	20.0	17.0
Group operating ratios4
Claims ratio	57%	78%	60%	43%	55%
Expense ratio	32%	30%	29%	30%	22%
Combined ratio	89%	108%	89%	73%	77%

Note:

1. The financial highlights are presented on the basis of management information provided to the Group Management Committee. The reconciliation between this information and the IFRS consolidated income statement is included in note 5c to the consolidated financial statements.

2. Other costs comprise other non-underwriting expenses, finance costs, other operating income and share of profit after tax of associates.

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

4. 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.

Note regarding Amlin Corporate Insurance and Amlin France:

In August 2012 it was announced that, in line with the Group's growth strategy for Europe, Amlin France was being integrated with Amlin Corporate Insurance. In Amlin's 2012 Interim Report and Q3 Interim Management Statement the combined results of Amlin France and Amlin Corporate Insurance were reported under the heading Amlin European Insurance. On 19 December 2012 Amlin Corporate Insurance N.V. officially changed its name to Amlin Europe N.V. In this release the combined businesses formerly named Amlin France and Amlin Corporate Insurance are referred to throughout as Amlin Europe.

Chairman's statement

In 2012 we experienced a more favourable trading environment in which Amlin achieved a strong financial performance. We also made further progress towards becoming an integrated international business, capable of delivering consistently high standards of performance across the Group.

Results and dividend

Last year was a less extreme year for Amlin in terms of catastrophe claims, with a generally more favourable trading environment. In contrast to 2010 and 2011, catastrophe claims were concentrated in the US, with Hurricane Sandy proving the worst storm to hit the North-eastern United States in more than seventy years, causing estimated insured losses of US$25 billion for the market as a whole. Amlin's share of this loss is estimated at £141.6 million, part of large catastrophe claims for the year of £152.3 million, net of reinsurance, compared to £500.8 million in 2011.

Amlin's result for the year benefited from a strong overall underwriting result, helped by improving trading conditions in key lines of business, notably catastrophe reinsurance and UK fleet motor and the achievement for the first time of modest full year underwriting profits at Amlin Europe and Amlin Re Europe, which continued to develop satisfactorily. The overall result was enhanced by a very creditable investment return in current market conditions of 4.1%.

Pre-tax profits of £264.2 million, with a return on equity of 17.4%, have encouraged the Board to resume our progressive dividend policy with a proposed increase of 4.4% in the final dividend to 16.5 pence per share (2011: 15.8p). The final dividend will be paid on 23 May 2013, subject to shareholder approval, to shareholders on the register on 12 April 2013.

Strategic progress

During 2012, the business made significant progress in further developing a management structure and systems appropriate to the broader geography and business mix which Amlin has developed in recent years. The creation of the Underwriting Practice Boards, the migration of Amlin Europe's Benelux businesses onto Amlin's business platform and further embedding of enterprise risk management practices across the Group, are all aspects of this process, which will contribute to better communication and co-operation between businesses, as well as enhanced efficiency across the Group.

The benefit of a co-ordinated approach across divisions was evident in the re-underwriting of Amlin Europe's marine account, which was assisted by Amlin London's marine underwriters. Amlin Europe's achievement of an underwriting profit in 2012 is a reflection of this teamwork, as well as the commitment and hard work of Amlin Europe's management and employees. The combination of Amlin Corporate Insurance and Amlin France to create Amlin Europe gives Amlin a substantial platform from which to further develop our Continental European insurance presence in the future.

Amlin London and Amlin Bermuda put in strong performances, with reinsurance overall remaining profitable despite the impact of Hurricane Sandy claims. In a generally improved trading environment, most of Amlin London's diverse insurance portfolio also performed well. Once again Amlin's superior claims service was recognised, with global broker Willis citing Amlin as one of the top five performing UK insurers in respect of claims handling for Hurricane Sandy.

Amlin Re Europe, which started underwriting in October 2010, had another successful year, generating a combined ratio of 99%, having reached €206.5 million of gross written premium in 2012. We continue to expect that Amlin Re Europe will become an important longer term earnings stream for the Group.

Amlin UK continued to benefit from improving market conditions and increased gross written premium by 19.3% to £372.6 million in 2012, contributing £14.1 million to Group underwriting profits.

Amlin UK, Amlin Europe and Amlin Re Europe businesses, with their relatively low exposure to catastrophe risk and consequent lower volatility earnings, are important elements in Amlin's diversified business mix. Increased earnings from these areas will further enhance capital efficiency across the Group, as well as creating scope to further increase our appetite for catastrophe risk.

Amid continued uncertainty in financial markets, the Group's security as a counterparty is paramount to our clients. While the Group's capital position remained strong, despite the extraordinary claims of 2011, it has been further enhanced by the return to profit in 2012, with available capital of £1.75 billion. This is £372.5 million in excess of management's view of the capital required to operate our underwriting businesses, and will support expected growth of more than 10% in 2013.

Effective risk management is also important, and the Group's continued commitment to a market leading risk management capability was recognised externally during the year with Standard & Poor's upgrade of Amlin's Enterprise Risk Management rating to 'Strong'. Our investment in this area continues to generate tangible benefits which considerably outweigh the cost. We also continue to invest in high calibre people across a range of disciplines to ensure that we are resourced to support a larger and more diverse business.

Outlook

As market conditions improve for much of Amlin's portfolio, we are benefiting from investing in new teams, niche acquisitions and better operational capabilities made in recent years. We continue to focus on optimising Amlin's capabilities, while maintaining strong cross-cycle performance and building for the future. The diversity of the business, with three well capitalised underwriting platforms operating across a range of business lines and markets, gives us valuable flexibility to manage exposures and the cycle, as well as creating more opportunities for profitable growth.

Governance and the Board

The Board's performance was reviewed externally during the year and the results of this review were broadly positive. I welcome Shonaid Jemmett-Page and Julie Chakraverty as Non-Executive Directors, who will bring us fresh talent and expertise.

I should thank Nigel Buchanan for his nine years of exceptional service to the Group, both generally and also in his particular role as Senior Independent Director and Chairman of the Audit Committee. We have all appreciated his sage counsel and he has made a valued contribution to the Group's development. I am delighted that he has agreed to stay with us as Chairman of Amlin Underwriting Limited, where his profound knowledge of the Group will be invaluable.

Finally, I pay tribute to Roger Taylor, my predecessor. Roger became Chairman in 1998, and has seen the Company grow from its origins in Lloyd's to the successful international Group you see today. An investment of £100 in Amlin when Roger became Chairman would now have a value of £526, outstripping the FTSE250 over the same period by 55 per cent. The creation of shareholder value over this period is a remarkable achievement, given some of the severe events, such as 9/11 and Hurricane Katrina, during this time. Roger should be thanked by all shareholders for his commitment and dedication. I am honoured to succeed him and am thriving on working with Charles Philipps and his talented and stimulating executive team.

I look forward to the current year and future of your company with confidence.

Richard Davey

Chairman

Chief Executive's review

In 2012, the Group delivered a strong financial performance despite the losses incurred from Hurricane Sandy and a challenging economic environment. Good progress was made across the Group and, importantly, Amlin Europe delivered a substantially improved result. Return on equity, at 17.4%, was above our cross cycle target of 15%.

Our weighting to classes of business where rating is either strong, has improved or is improving, together with the expectation of continued progress at Amlin Europe, is encouraging for 2013's underwriting returns. While the investment return outlook is not as bright, we believe that 2013 offers the opportunity for another return on equity near to our cross cycle target.

Much has also been achieved in 2012 to increase the scalability of the Group and to prepare for future growth.

Financial results

Gross written premium was up by 4.4% to £2,405.6 million (2011: £2,304.1 million) with a 3.7% renewal rate improvement, a retention ratio of 84% and approximately £386.0 million, net of brokerage, of new business generated. Good growth of 19.3% and 11.6% was achieved in Amlin UK and Amlin London respectively, in classes where rating conditions improved, and in Amlin Re Europe as it continued to gain traction in continental reinsurance markets. The overall increase was depressed by the 19.1% reduction in Amlin Europe's premium as it continued to address its profitability.

The lower increase in net written premium, of 2.3% to £2,058.6 million (2011: £2,013.2 million), reflects a decision to reduce risk appetite in 2012 following the severity of overall losses in 2011 and a desire to protect Amlin's ability to at least maintain its dividend. Outwards reinsurance expenditure increased by £56.1 million.

The profit attributable to underwriting, at £207.1 million (2011: loss of £146.0 million), resulted from improved performance in each business.

Amlin London and Amlin Bermuda recorded significantly improved combined ratios of 91% and 74% respectively (2011: 102% and 112%), with significantly lower claims ratios of 53% and 56% respectively (2011: 67% and 94%). This was despite claims incurred from Hurricane Sandy. The combined reinsurance accounts in London and Bermuda benefited from average rate increases of 7.5% and delivered an underwriting profit of £130.5 million, more than compensating for reinsurance losses incurred in 2011 and demonstrating the strength of Amlin's franchise in this area.

Amlin London's marine business again delivered a strong result with broadly flat pricing and its property & casualty result improved, benefiting from an average 3.7% rate increase. Its aviation result was again marginal, with market conditions continuing to be difficult.

Amlin UK benefited from the stronger pricing in its fleet motor account achieved over the last two years and good results from investments made to grow its property account. It delivered a highly creditable combined ratio of 95% (2011: 103%). The claims ratio reduced 12 points to 57% (2011: 69%), while the expense ratio increased four points to 38%, reflecting higher commissions associated with increased business sourced from managing general agencies.

Amlin Europe's much improved combined ratio of 98% (2011: 113%) reflects action taken since the acquisition of Fortis Corporate Insurance to improve performance, particularly in its marine business, and a lower level of large losses than in 2011. Amlin France, which is now part of Amlin Europe, had an excellent year with a combined ratio of 87%. Excluding this, Amlin Europe's combined ratio was 100%. Amlin Europe's claims ratio, at 59% (2011: 80%) has returned to a respectable level, given the competitive environment in the Benelux. However, the effect of its re-underwriting on net written premium increased the expense ratio to 39% (2011: 33%) which is too high and is being addressed.

Amlin Re Europe, in only its second full year, delivered a better than planned combined ratio of 99% (2011: 105%). The improvement was driven by a reduction in its expense ratio as its success in penetrating the continental reinsurance market increased net earned premium by 154.1%.

Investment returns, of £165.3 million, equivalent to 4.1% of average invested funds, were significantly ahead of initial expectations, despite the challenging economic backdrop. Given the low yields on government bonds, and the medium term downside interest rate risk, we both shortened the duration of the portfolio and increased our weighting to risk assets, which paid off.

The Group's pre-tax profit was £264.2 million and, with an effective tax rate of only 6.2%, helped by the strength of Amlin Bermuda's performance, earnings were £247.7 million.

Net tangible assets increased 6.5% to £1,280.0 million at 31 December 2012, after the payment of £115.4 million of dividends, equivalent to 9.6% of opening net tangible assets. A final dividend of 16.5 pence per share is proposed bringing total dividends in respect of 2012 to 24.0 pence per share (2011: 23.0), an increase of 4.3%. This reflects our desire to return to our policy of steadily increasing the dividend while maintaining a strong balance sheet which is capable of supporting meaningful growth.

Outlook for 2013

2013 has started well. Gross written premium to 31 January is up 7.3% and we have recorded an average renewal rate increase of 1.2% with an overall retention ratio of 90%. Nearly £30 million of savings have been achieved in our outwards reinsurance and the investment return has been strong at £23.0 million or 0.5% of invested funds in the first month.

We also recorded an average 3.7% renewal rate increase during 2012 which will positively affect earned premiums in 2013.

Approximately 21% of Amlin's business is catastrophe reinsurance. Following Hurricane Sandy, US catastrophe renewal rates in January were up 4.2%, with more significant increases in loss affected accounts. Non US catastrophe reinsurance renewal rates, having experienced significant rises following 2011's events, were flat. We consider catastrophe reinsurance pricing to be strong.

Amlin UK, which improved its combined ratio from 103% in 2011 to 95% in 2012, experienced an average 5.0% rate increase in 2012 with its £112.1 million fleet motor account achieving an average rate increase of 9.7%. We expect continued upward momentum in 2013 given the increased signs of stress amongst competitors. The average combined ratio for UK commercial motor in 2011 was 106%¹. Given the low volatility associated with Amlin UK's business, its improving performance is important in offsetting the volatility of our catastrophe exposures.

In most other areas our renewal rates are broadly flat. Aviation business, which represented only 2% of Amlin's gross written premium in 2012, however, continues to suffer from excessive, and possibly naïve, competition which is resulting in continued downward pressure on rates. Conversely, US property business is continuing to strengthen following average renewal rate increases of 7.6% in 2012.

We expect further earnings momentum from continued improvement in Amlin Europe's underwriting performance, as the benefits of its re-underwriting over the last three years come through, and continued progress at Amlin Re Europe.

Having reduced our risk tolerances for major catastrophes during 2012, the strong performance in the year has allowed us to increase tolerances for 2013. We have therefore reduced outwards reinsurance expenditure for 2013 by nearly £30 million and this has coincided with an opportunity to reduce retentions for catastrophe reinsurance events within our excess of loss accounts, resulting in a significantly better risk - reward equation for 2013 than has been possible in recent years. This places us in a good position to grow income if suitable opportunities arise.

While we have had a better than expected start to the year for investment returns, the extremely low yields on cash and bonds will make it difficult to achieve a similar investment return to 2012. However, the reality of a lower return environment is becoming increasingly realised in the insurance industry, and we believe it should only be a matter of time before this is compensated for by efforts to improve underwriting margins.

Strategy

Business development

A strategic priority for 2012 was to improve Amlin Europe's performance and to continue to bring its business practices and risk management more in line with the rest of the Group. Significant progress was made. In addition to continued re-underwriting, Amlin Europe successfully transitioned onto its new systems in May 2012; it enhanced its underwriting controls in many areas; and successfully embedded Amlin's risk management framework, significantly closing the gap in its adoption of many of Amlin's policies and standards that have been a cornerstone of good risk control and performance.

Amlin Europe's management team was also further enhanced during 2012 by the transfer of Andreas Luberichs from London to lead its non-marine underwriting, and the hire of Bert Nelen, from ACE, to lead its marine underwriting.

(1) Towers Watson UK Motor Industry Report 2012

Amlin Europe is now a fundamentally stronger business than when acquired, and with this we decided that the time is right for Amlin France to be integrated with Amlin Europe so that we have a single Continental European insurance platform. We believe this will result in revenue synergies as a number of Amlin France's niche products are suitable for the Benelux market. Amlin Europe also developed its strategy during 2012 so that, with the many operational improvements made over the last three years, it is now able to more actively target growth in selected areas.

While a particular focus was Amlin Europe, the remainder of the Group continued to develop its capability through hires of high quality people and selective investment. Amlin Re Europe, still in its infancy, increased its team by nine while Amlin London added expertise in international casualty underwriting and set up Amlin Reinsurance Managers Inc. based in New Jersey. Led by Paul Brauner, a highly experienced underwriter formerly of Harbor Point / Alterra, this agency will target US casualty business on behalf of Amlin London. It will remain highly cautious until casualty pricing improves sufficiently, but will be capable of significant growth when market conditions are right.

Amlin UK continued to support its distribution partners in which it has invested over the past five years, in particular increasing its support for the Manchester Underwriting Agency which was a start-up in 2010 and which in 2012 sourced £11.6 million of Amlin UK's business.

Organisation

Another strategic priority for 2012 was to continue to enhance our ability to manage a larger, more geographically diverse Group and to ensure that we are better able to integrate future acquisitions. In 2011 we established a Group Underwriting function to monitor the quality of underwriting and adherence to Amlin's underwriting policies and standards across the Group. In 2012 we took this a step further with the appointment of Simon Beale to the role of Group Chief Underwriting Officer and the creation of four Underwriting Practice Boards, one for each of Reinsurance, Marine & Aviation, International Property & Casualty, and Commercial and Domestic lines. These Boards, which are chaired by Simon, comprise the leading underwriters from each regulated entity which is relevant to the particular Practice Area. Their aim is to have a shared underwriting strategy, to leverage knowledge and broker relationships, and to help drive best underwriting practice across all relevant parts of the Group. The focus during 2012 was on the Marine & Aviation and Reinsurance Practice Boards, where benefits are already being realised, with increased co-ordination of marine underwriting between London and the Benelux, and more joined up marketing and pricing of reinsurance between London, Bermuda and Zurich. We believe that this organisational structure and the development of the Group Underwriting function will reinforce high performance across a larger Group and will enable stronger underwriting oversight and integration of future acquisitions.

 

Vision

We also continued to make good progress towards our Vision of becoming the "reference point for quality" in each of our markets.

· Our reputation for excellent client service, Amlin London having been top ranked for its claims service by the 2011 Gracechurch survey, was further boosted when Haven Knox-Johnston, our UK yacht insurer, was awarded the "Outstanding Service Award¹" from the motor boat industry and their clients, and when Amlin Europe was also top ranked in the Netherlands for claims handling by global broker Willis² in November 2012.

· We have continued to invest in effective risk management which helps optimise returns for the risks we take. We are increasingly realising benefits from investment in our internal model. Examples include savings in outwards reinsurance costs and the ability to write more business in certain lines where we have better risk information. Our progress in risk management was recognised by Standard & Poor's which, in December 2012, upgraded their assessment of our enterprise risk management to "Strong".

· In line with our aim to be "the place to work" in the industry, we conducted a further employee survey and substantially increased our talent management work in 2012. These are commented on further below.

As the Group has expanded through acquisitions and new business start-ups, it is important that our new businesses share our Vision and align their objectives with it. Both Amlin Europe and Amlin Re Europe have become increasingly aligned with our Vision and Values during 2012.

(1) Motor Boat of the Year Awards 2013 ² The Willis Quality index Report November 2012

 

Employees

It is the talent, experience and dedication of our employees that provides the potential for Amlin to deliver excellent performance and to manage a larger and more international Group. In 2012 we made it a strategic priority to grow our general management capabilities and to materially enhance our talent management efforts. We established a Talent Board to provide greater governance to, and impetus behind, employee development. This has focused to date on employees who we believe demonstrate high potential, including as prospective members at Group Management Committee level, and whose development therefore warrants a particular focus. A number of initiatives for this group are underway ranging from detailed assessment and one-on-one coaching to business school attendance.

We also conducted a further employee survey in 2012. 88% of employees across the Group participated in the survey, which is well above the UK norm of such surveys and provides high levels of confidence in the accuracy of the results. There were high scores for job satisfaction and pride in the Company relative to both the financial services and insurance industry norms, albeit that these scores were not as high as they had been in our previous survey in 2009. The amount of change, some of which was associated with Solvency II and at Amlin Europe, affected the results. Importantly, the survey has provided management with helpful indicators of where we need to focus further to ensure that we are, in each of our entities, the "place to work" in the industry, and action is being taken to improve our employee engagement.

 

Priorities for 2013

Our resolve to deliver both good returns to shareholders and our Vision means that we are always seeking to improve what we do and to find means of enhancing our returns and potential. Among our priorities for 2013, over and above the delivery of our business plan, are the following:

· We will remain focused on ensuring that Amlin Europe continues to deliver improved underwriting performance and that it is making the progress we expect in its strategic development.

· Embedding the organisational changes referred to above so that we maximise the potential of each Practice Area. This will include the development of Practice Area strategies for Marine & Aviation and Reinsurance in particular, given that similar business, much of which is international, is written in more than one company.

· With the increasing interest of pension funds in the catastrophe reinsurance market, we intend to explore how we can use the strength of our reinsurance franchise and Leadenhall Capital, our specialist fund management joint venture which invests in insurance linked securities, to enhance our return potential. Leadenhall Capital now has approximately $800 million under management and has built an excellent performance track record over the last three years.

· We will explore opportunities for increasing our Asian business using our Singapore platform as well as opportunities for growth from Latin America.

· Achieving the planned milestones on a major change programme, called Nexus, which is aimed at making key financial and risk processes more efficient and materially reducing reporting timescales.

· We will continue our focus on talent management with a view to reinforcing our capabilities to successfully manage a growing and more international company, as well as ensuring that Amlin's future leaders are properly equipped.

· We will respond to the findings of the 2012 employee survey and seek to make material improvements to our employee engagement.

People

Amlin has been through significant organisational change in 2012. This placed an additional burden on many employees and required a number of people to step into larger roles.

Simon Beale has ably taken on the role of Group Chief Underwriting Officer and Kevin Allchorne has assumed the leadership role in Amlin London in his place, with Mark Clements becoming Head of its Property & Casualty business.

Richard Hextall has taken on responsibility for Operations and Actuarial as well as Finance to increase co-ordination between these three functions and this has meant larger roles for his direct reports.

A review of the governance of Amlin Underwriting Ltd, which manages Syndicate 2001, resulted in changes to its Executive with additional responsibilities for some. Also, the integration of Amlin France with Amlin Europe has increased the managerial scope for some of the Amlin Europe management team.

I have been pleased with the manner in which employees have stepped up when requested. It is also pleasing that we have the strength and depth of talent to be able to fill important roles and to be developing the careers of high calibre individuals so that their talents are more fully used.

I am also pleased with the amount that was achieved by our employees in 2012 and thank them for their resourcefulness and hard work. They continue to make Amlin an ever stronger Group and we look forward to 2013 with confidence.

Charles Philipps

Chief Executive Officer

Financial performance

	2012 £m	2011 £m	2010 £m	2009 £m	2008 £m
Gross written premium	2,405.6	2,304.1	2,172.5	1,543.9	1,034.0
Net written premium	2,058.6	2,013.2	1,910.3	1,322.6	915.7
Net earned premium	1,970.5	1,927.4	1,748.1	1,317.3	913.5
Profit attributable to underwriting	207.1	(146.0)	185.6	355.2	211.4
Investment return	165.3	40.5	175.0	207.5	18.0
Other costs	(108.2)	(88.3)	(101.4)	(53.6)	(107.8)
Result before tax	264.2	(193.8)	259.2	509.1	121.6
Return on equity	17.4%	(8.6)%	13.9%	37.0%	7.8%

Amlin's financial performance in 2012 was strong, with a profit before tax of £264.2 million (2011: loss before tax of £193.8 million) and a return on equity of 17.4% (2011: negative 8.6%). The underwriting return was healthy through growth in premium, reduced catastrophe activity and a turnaround in Amlin Europe's profitability. The investment return was excellent at 4.1%.

Amlin's performance over the longer term has been solid. Despite significant catastrophe activity in recent years and difficult investment markets, the Group has recorded a weighted average return on equity since 2002 of 18.0% and since 2007 of 12.2%. This compares with our cross cycle target of 15% and exceeds our estimated cost of equity of 8.5%.

For 2012, underwriting contributed a profit of £207.1 million (2011: loss of £146.0 million). Net large catastrophe claims amounted to £152.3 million, in contrast to the extraordinary events of the previous year (2011: £500.8 million). The most significant catastrophe event in the period was Hurricane Sandy, which is estimated to be the second most costly storm ever to make landfall in the US and with estimated claims of £141.6 million for Amlin. Despite the impact of this event, Amlin London and Amlin Bermuda generated impressive underwriting profits of £64.8 million and £122.4 million respectively (2011: losses of £13.9 million and £58.1 million respectively). The Bermuda result includes an underwriting contribution of £25.7 million generated by the whole account quota share of Syndicate 2001.

Amlin UK recorded an underwriting profit of £14.1 million, (2011: loss of £7.9 million) reflecting improving market conditions and recent strategic investment.

Pleasingly, Amlin Europe made an underwriting profit of £6.7 million (2011: loss of £66.6 million). There are clear signs that the underlying performance of the portfolio is improving. Amlin Re Europe also returned a small underwriting profit, in only its second full year of trading.

Across the Group, claims development continued to be better than expected. Releases from reserves amounted to £94.2 million (2011: £112.6 million). Net claims from 2010 and 2011 catastrophe events, including the New Zealand 'Christchurch' earthquake in February, the Japanese earthquake in March and the Thailand flooding in the second half of 2011, remain materially unchanged from those disclosed in our 2011 Annual Report.

With interest rates remaining at low levels across much of the developed world, the investment environment continued to prove challenging. However, with strong performance from our corporate bond and equity portfolios, the investment return was an excellent 4.1% (2011: 0.9%) giving a contribution from investments of £165.3 million (2011: £40.5 million).

Net foreign exchange losses in the income statement amounted to £2.7 million (2011: loss £10.2 million). A net loss of £53.4 million on the revaluation of net investments in foreign operations, after hedging, was taken to reserves (2011: loss £36.5 million), as sterling strengthened against the US dollar during 2012.

 

Underwriting performance

Income and expenses by business segment Year ended 31 December 2012	Amlin London £m	Amlin UK £m	Amlin Bermuda £m	Amlin Re Europe £m	Amlin  Europe £m	Other corporate companies £m	Intra group  items £m	Total £m
Analysed by geographic segment:
UK	170.3	316.7	244.2	17.6	24.2	-	(223.0)	550.0
North America	589.4	10.3	184.3	1.9	-	-	-	785.9
Europe	85.6	22.2	30.9	141.7	282.1	-	(2.0)	560.5
Worldwide	15.9	17.0	-	-	169.9	-	-	202.8
Other	204.9	6.4	84.6	10.5	-	-	-	306.4
Gross written premium	1,066.1	372.6	544.0	171.7	476.2	-	(225.0)	2,405.6
Net written premium	739.4	303.3	488.3	138.5	394.0	-	(4.9)	2,058.6
Gross earned premium	1,037.7	323.6	537.2	154.9	471.4	-	(205.8)	2,319.0
Reinsurance premium ceded	(321.3)	(57.6)	(61.5)	(28.5)	(80.6)	-	201.0	(348.5)
Net earned premium	716.4	266.0	475.7	126.4	390.8	-	(4.8)	1,970.5
Insurance claims and claims settlement expenses	(508.0)	(185.7)	(259.8)	(103.1)	(273.9)	-	133.2	(1,197.3)
Reinsurance recoveries	129.6	35.6	(5.0)	11.0	42.7	-	(141.2)	72.7
Expenses for the acquisition of insurance contracts	(193.5)	(72.8)	(71.8)	(20.2)	(74.3)	-	10.1	(422.5)
Underwriting expenses	(79.7)	(29.0)	(16.7)	(12.7)	(78.6)	-	0.4	(216.3)
Profit attributable to underwriting	64.8	14.1	122.4	1.4	6.7	-	(2.3)	207.1
Investment return	22.0	6.6	60.9	2.3	60.5	20.2	(7.2)	165.3
Other operating income1	23.5	7.7	1.4	-	1.9	8.4	(37.3)	5.6
Agency expenses2	(20.1)	(6.5)	-	-	(0.7)	-	27.3	-
Other non-underwriting expenses	(0.8)	(0.1)	(4.4)	(2.5)	(24.8)	(61.7)	7.6	(86.7)
Result of operating activities	89.4	21.8	180.3	1.2	43.6	(33.1)	(11.9)	291.3
Finance costs3								(27.6)
Share of profit after tax of associates								0.5
Profit before taxation								264.2
Claims ratio	53%	57%	56%	73%	59%			57%
Expense ratio	38%	38%	18%	26%	39%			32%
Combined ratio	91%	95%	74%	99%	98%			89%

Included within the gross written premium of Amlin Bermuda is premium ceded from Amlin London, Amlin UK and Amlin Europe amounting to £207.4 million on reinsurance contracts undertaken at commercial rates (2011: £183.4 million).

Investment return in other corporate companies includes a £14.2 million gain (2011: £3.2 million loss) generated from investments in Funds at Lloyd's that support the business reported in the Amlin London, Amlin UK and Amlin Europe segments.

Note:

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.

Gross written premium was £2,405.6 million, an increase of 4.4% (2011: £2,304.1 million). At constant rates of exchange, written premium increased by 7.1%.

The average renewal rate increase for the Group was 3.7% (2011: increase 1.1%), with rate improvements achieved for more than 75% of the portfolio. Pricing for catastrophe reinsurance reacted strongly to the extraordinary loss activity of 2011. In our insurance markets, rates for US commercial property have steadily improved and we continued to achieve improvement in our UK commercial business.

Outwards reinsurance expenditure was £347.0 million, an increase of 19.3%, representing 14.4% of gross written premium (2011: £290.9 million and 12.6%). The increase follows the Group's strategy to modify its risk appetite in 2012, following the major catastrophe claims in 2011, including the purchase of additional protection for Amlin Bermuda and Syndicate 2001, together with the issue of a catastrophe bond. The uplift also reflects the increased cost of outwards reinsurance. The additional expenditure has been more than offset by increased premium in the year.

Net earned premium was £1,970.5 million (2011: £1,927.4 million), an increase of 2.2%, supported by growth in gross written premium in 2012 and 2011, but impacted by greater levels of reinsurance purchased as described above.

The Group claims ratio was 57% (2011: 78%). Net catastrophe claims totalled £152.3 million, much reduced from the prior year (2011: £500.8 million). Hurricane Sandy, made landfall in the North-East of the United States on 29 October 2012. Sandy was one of the largest storms to ever impact the United States and coincided with a high leap tide, which generated significant storm surge through coastal regions from New Jersey to Connecticut and caused major flooding in lower Manhattan. Amlin's estimate of its losses from Sandy, net of estimated reinsurance recoveries and inward reinstatement premiums, is £141.6 million. Approximately 80% of this loss estimate is derived from reinsurance classes, where the upper end of all known cedants' estimates of their recoveries under catastrophe reinsurance treaties has been assumed.

Amlin London

Amlin London performed strongly, delivering a combined ratio of 91% (2011: 102%).

Gross written premium increased by 11.6% to £1,066.1 million (2011: £954.9 million), with an average renewal rate increase of 4.3% (2011: increase of 1.0%). Much of the underlying growth was attributable to the Reinsurance business unit, which achieved average rate increases of 9.9% and 15.4% for US and international catastrophe lines respectively. Additional growth came from Property & Casualty business, which benefited from a combination of new business opportunities and recent strategic investment, including the hire of additional underwriters. Net earned premium amounted to £716.4 million (2011: £669.5 million).

The claims ratio of 53% includes a 12% impact from catastrophe events, most significantly Hurricane Sandy (2011: 67% and 33% respectively). Reserve releases were £31.3 million (2011: £68.4 million) with continued positive claims development on old years, improving the combined ratio by 4% (2011: 10%).

The expense ratio was up at 38% (2011: 35%), due to foreign exchange losses reflecting the weakening of the US dollar in 2012.

Amlin UK

Amlin UK produced a combined ratio of 95%, as the division benefited from the impact of recent strategic investment and an improving market (2011: 103%).

Gross written premium was £372.6 million, an increase of 19.3% (2011: £312.4 million). The average rate increase for the division was 5.0%. Notably, fleet motor rates continued to climb steadily, achieving an average increase of 9.7% for the year (2011: 7.4%). Net new business amounted to £76.7 million, generated largely in fleet, other motor and package lines. Amlin UK's portfolio is now better balanced, with more than a third of all premium attributable to property business. Net earned premium amounted to £266.0 million (2011: £231.2 million), following growth in net written premium in 2011 and 2012.

The claims ratio was 57% (2011: 69%). Overall reserve releases were £21.0 million, benefiting the combined ratio by 8% (2011: £5.3 million and 2% respectively).

The expense ratio increased to 38% (2011: 34%). The uplift reflects growth in property binder business within the portfolio, which attracts higher acquisition costs.

Amlin Bermuda

Amlin Bermuda's combined ratio of 74% (2011: 112%) is an excellent result, benefiting from much reduced catastrophe losses.

Gross written premium amounted to $871.1 million (2011: $847.8 million). Direct income was $542.9 million (2011: $553.2 million), supported by an average rate increase of 6.2%. The largest rate increases were achieved for US and international catastrophe classes, at 5.5% and 14.3% respectively. Elsewhere, new business of $56.6 million was generated, notably within US catastrophe, pro-rata and special risk classes. The retention ratio decreased to 87%, reflecting the loss of a proportional treaty account due to client programme restructuring, but it remains strong, reflecting the strength of client relationships and first class service (2010: 90%). Net earned premium was $777.2 million (2011: $760.4 million).

The claims ratio was 56%, including a 16% impact from catastrophe claims, notably Hurricane Sandy (2011: 94% and 60% respectively). Reserve releases reduced to $17.9 million (2011: $55.3 million). The expense ratio remained stable at 18% (2011: 18%).

Amlin Re Europe

Amlin Re Europe delivered a combined ratio of 99% (2011: 105%), a good performance in only its second full year of trading.

Gross written premium was €206.5 million, an increase of 66.9% (2011: €123.7 million). The business has made a strong start since it was launched in October 2010, achieving significant growth in its client base. Net earned premium grew by 154.1% to €149.9 million (2011: €59.0 million).

The claims ratio was broadly stable at 73% (2011: 72%), despite Italian earthquake net claims of €4.9 million. There were no individual claims above €5 million. The expense ratio improved to 26%, from 33% in the prior year, largely due to growth in net earned premium as the business becomes more established. The targeted long-term expense ratio is expected to be around 20%, with a planned income base of approximately €400 million.

Amlin Europe

Amlin Europe produced a much improved combined ratio of 98% (2011: 113%). Excluding business attributable to Amlin France, the combined ratio was 100% (2011: 112%).

Gross written premium was down at €587.2 million (2011: €678.5 million), reflecting the impact of re-underwriting initiatives. Renewal rates were broadly flat for the third consecutive year, with a challenging rating environment in Continental Europe. The retention rate improved to 84% (2011: 73%). Given the impact of recent re-underwriting, net earned premium was reduced at €481.9 million (2011: €576.0 million).

The claims ratio improved to 59% (2011: 80%). In contrast to 2011, there were no net claims in excess of €5 million in the year (2011: €32.9 million) and attritional claims experience continued to show improvement. Catastrophe losses were minimal (2011: €9.1 million). Reserve releases were up at €39.7 million (2011: €5.8 million), reflecting positive development on prior year claims reserves across the portfolio. In 2011 releases were reduced due to the need to strengthen ship building and cargo accounts. During 2012, the reserve margin for the business increased by €8.3 million.

The expense ratio increased to 39% (2011: 33%), reflecting the reduction in net earned premium, but also continued costs incurred in developing operational capability. With the re-underwriting programme now concluded and the implementation of new systems having completed during the year, focus will be given to reducing the expense ratio in 2013. The addition of profitable income, reduced reinsurance and the removal of expense inefficiencies all offer potential opportunity.

Looking forward, the majority of changes to Amlin Europe's marine portfolio are now largely complete and with increased profit focus and direction, the business is well positioned to grow income when market conditions in the Benelux improve.

Investment performance

The Group investment return for the year was 4.1%, with average funds under management of £4.2 billion (2011: 0.9% and £4.2 billion). Overall, investments contributed £165.3 million to the 2012 result (2011: £40.5 million).

2012 was another challenging year for investment markets, with policy action remaining a primary determinant of economic and market performance. Policy became more effective and clearer as the year progressed, reducing some of the uncertainty that has beleaguered markets in recent years.

Our investment process has continued to be led by our risk appetite; that is aiming to identify the best risk adjusted investment opportunities globally to deliver the best return for the risk we are taking. With yields at such low levels, we maintained a defensive stance towards interest rate risk whilst believing that corporate bonds and asset/mortgage-backed securities were attractive relative to generally expensive government bonds. The asset allocation to equities was increased during the second half of the year.

The insurance linked securities portfolio continues to be managed by Leadenhall Capital Partners, in the form of two standalone investment funds. The return on $116.5 million of average funds under management was $7.1 million or 6.0% (2011: $112.0 million, $5.2 million and 4.7%).

Expenses

Total expenses, including underwriting and non-underwriting costs, increased to £753.1 million, from £671.0 million in the prior year.

Underwriting expenses, excluding foreign exchange movements, amounted to £628.4 million (2011: £568.1 million). These are costs relating to the acquisition and administration of insurance business and claims payments. Within underwriting costs, acquisition costs accounted for £42.3 million of the increase, largely driven by growth in income. Acquisition costs increased to 18.2% of gross earned premium (2011: 17.1%), reflecting a higher proportion of binder business within the portfolio, mostly from within Amlin UK. The remaining variance in underwriting expenses is driven by inflationary and operational increases.

Non-underwriting expenses, excluding foreign exchange movements and finance costs, were £94.5 million (2011: £65.3 million). These expenses include employee incentives, investment management fees, Amlin Europe disentanglement and integration costs and corporate expenses not directly attached to underwriting businesses. Employee incentives increased by £25.3 million due to improved 2012 performance, impacting annual bonuses and long-term incentive accruals. Amlin Europe disentanglement and integration costs amounted to £20.6 million (2011: £16.8 million) and are not ongoing costs of the business. In addition to integration costs expensed in the period, expenditure on a replacement IT platform of £1.9 million has been capitalised during 2012 (2011: £25.7 million).

 

Taxation

The effective rate of tax for the period is 6.2% (2011: 22.9%). 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% (2011: 21.2%). We continue to believe that Amlin AG is exempt from the UK Controlled Foreign Companies regime.

 

Dividends

The Board proposes a final ordinary dividend of 16.5 pence per share. Taken together with the interim dividend of 7.5 pence per share, this provides total dividends of 24.0 pence per share (2011: 23.0 pence per share).

Financial Management

 

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 at 31 December 2012.

Amlin capital analysis

At 31 December	2012	2011
Net tangible assets	1,280.0	1,201.5
Subordinated debt	290.4	292.8
Undrawn bank facilities1	180.0	250.0
Available capital	1,750.4	1,744.3
Assessed capital	1,377.9	1,341.6
	372.5	402.7

1. Bank facilities are subject to a number of covenants.

Assessed capital is management's estimate of capital required for current trading purposes. It is built up as follows.

· For Syndicate 2001, assessed capital is the Syndicate's Funds at Lloyd's, calculated on a Lloyd's Capital Return basis, net of credit for the reserve margin. At 31 December it was £542.7 million (2011: £497.0 million). This supports expected growth of more than 10% for the 2013 underwriting year.

· 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. This is in excess of the minimum capital required by the Swiss Financial Market Supervisory Authority (FINMA) and the Bermuda Monetary Authority (BMA). At the year end, Amlin AG had net assets of $1.6 billion (2011: $1.4 billion).

· At 31 December 2012, Amlin Europe N.V. held net assets of €286.6 million, relative to the local regulatory requirement of €105.3 million. Management believes that the current level of capital is in line with that which Amlin Europe N.V. economically requires.

Available capital is £372.5 million above the assessed capital requirement (2011: £402.7 million). The reduction reflects an increase in the overall level of assessed capital required to support expected growth in premium of more than 10% in 2013.

We plan to maintain a level of capital sufficient to allow material growth in the business in the aftermath of a major insurance disaster or to respond to other opportunities to enhance long term profitable growth.

 

Managing equity capital for shareholders

Amlin's financial performance management is focused 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 excess capital to shareholders.

The Group's commitment to return capital to shareholders has been clearly demonstrated in recent years and we have employed a number of different mechanisms to do so, so as to appeal across the shareholder base. Since 1 January 2008, we have returned £611.5 million to our shareholders. We have also repurchased £27.6 million of capital through share buy backs. Importantly, despite extraordinary catastrophe claims in 2011, balance sheet strength allowed the Group to maintain a dividend to shareholders. In the absence of significant catastrophe losses, we intend to increase our dividend per share consistently over the next few years.

Estimating outstanding claims reserves

Estimation of claims reserves is a key aspect of financial management in that not only does it impact on overall profitability, but it also impacts investment mix as different approaches are taken for capital and policyholders' funds. At 31 December 2012, net claims reserves totalled £2.6 billion (2011: £2.7 billion).

Insurance business is inherently uncertain and much of Amlin's business is large commercial insurance or reinsurance, which can be volatile and difficult to estimate ultimate claims levels for. The subjectivities 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 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 £160 million in excess of an actuarial best estimate (2011: at least £170 million).

Net tangible assets

The Group's net assets increased by 5.0% to £1.5 billion (2011: £1.4 billion). Other than profit through the income statement the key movements are:

· Dividends totalling £115.4 million (2011: £113.6 million).

· £57.1 million of losses from the currency retranslation of foreign operations (2011: loss £38.9 million) offset by £3.7 million of gains recognising the revaluation of associated hedge instruments (2011: gain £2.4 million) in accordance with hedge accounting rules of IAS 39 "Financial instruments: Recognition and measurement". Currency losses reflect strengthening of sterling against the dollar and euro during 2012. This has reversed during 2013 to date.

· Defined benefit pension fund losses of £17.5 million (2011: loss of £18.3 million).

Intangibles decreased by £7.5 million to £211.4 million (2011: £218.9 million) reflecting amortisation charges for the year, offset by £1.9 million of capitalised computer software costs relating to the new underwriting platform for Amlin Europe. As a result, net tangible assets have increased by 6.5% from £1,201.5 million at 31 December 2011 to £1,280.0 million at 31 December 2012.

Outlook

 

Underwriting environment

In January 2013, approximately 39% of the Group's expected business for the year renewed. The average rate increase was 1.2% compared to 4.0% at the start of 2012. The slowdown reflects the non-recurrence of the substantial catastrophe reinsurance rate rises seen at the start of 2012, after the multiple catastrophe losses of 2011. Nevertheless, the impact of Hurricane Sandy maintained the strength in US catastrophe reinsurance pricing, which for Amlin's portfolio increased by 4.2% in January. International catastrophe rates also largely remained at the higher levels established in 2012.

An influx of capital into the retrocession market during 2012 drove rates down and enabled us to renew our retrocession programme at lower premium with significantly lower retentions. This will further benefit strong reinsurance margins.

Hurricane Sandy has given additional impetus to the modest upturn in US direct property insurance pricing seen during 2012, particularly for large (direct and facultative) property lines, which were significantly impacted by Hurricane Sandy claims. We have already seen an increase in surplus lines business volumes into the London market, and we expect this to continue, creating new business opportunities for Amlin London's Property & Casualty team as loss-affected business renews and brokers seek to access more London capacity. US casualty pricing is also showing gradual improvement, which should be sustained given the mounting pressure of lower investment returns on margins for longer tail business.

We anticipate further increases in UK motor fleet pricing, as competitors continue to withdraw capacity in response to poor results. The improvement in commercial property rates has been less marked, but consistent. As the market offers more growth opportunities, Amlin UK is benefiting from previous investment in this area. Liability lines are also moving upward. With higher income, better margins and the momentum provided by growth in previous years, Amlin UK is well positioned to deliver a stronger performance in 2013.

In Continental Europe, insurance pricing is broadly flat, with some signs of less intense competition in the Benelux marine market. The re-underwriting of Amlin Europe's marine portfolio is now complete and this is reflected in a more stable and lower claims ratio. For 2013, a more efficient reinsurance structure for Amlin Europe was developed, yielding savings which will benefit margins. Improving Amlin Europe's expense ratio will be a major focus in 2013, although the effect of actions taken may take some time to come through to results. However, the material integration costs, latterly relating to systems integration, will not be repeated in 2013 (2012: £20.6 million).

Amlin Re Europe now has a substantial and well diversified portfolio, with a high quality client base. While the rate of premium growth is slowing as the business consolidates its initial growth phase, profitability should continue to improve in 2013 as more premium is earned.

Overall, we anticipate more than 10% growth in gross written premium for the Group in 2013.

Capital and risk management

The stronger earnings of 2012 have further strengthened Amlin's balance sheet and the Group is well positioned to support business expansion and our progressive dividend policy.

With constant changes in the reinsurance and particularly the retrocessional markets, we continue to adjust our reinsurance purchases according to appetite and availability. We carry out a variety of analyses of our portfolios and past loss experience to ensure that we purchase cost effective reinsurances, providing protection to balance sheet and income statements at both Group and entity levels. Given the recent growth of Amlin, a division or business unit may require reinsurance cover which is beyond that required by the Group. This has been facilitated by the use of Amber Re (a part of Amlin Bermuda) which takes coinsurance of programmes for the Amlin Group.

The Group also continues to benefit from the insurance linked catastrophe bond of $150 million, placed into the capital markets at the end of 2011. This helps provide greater protection against severity and frequency of catastrophe events.

Investment markets

Whilst structural issues remain a headwind to global economic growth, we believe that growth is more sustainable in 2013 than in the past few years. In the US, the housing market is starting to recover, which will have a positive impact on job creation and household wealth and, therefore, consumer spending. This should help to cushion the impact of fiscal tightening. The economic outlook for Europe and China also looks to be improving, albeit European growth is likely to be only marginally positive this year. This background should be supportive for equities. We remain concerned about the prospect for bond yields to rise and retain a defensive duration position.

Summary

Investment markets remain challenging and we do not see this as an opportune time to add risk in pursuit of higher returns. Amlin's long-standing focus on underwriting profit without reliance on investment returns stands us in good stead, but in this lower margin environment we are nevertheless focused on enhancing efficiency across the Group and expense control remains a priority.

The Group is benefiting from recent investments in areas where stronger pricing is enabling profitable growth, particularly in Amlin UK. The upward trend in US property and casualty rates will create further opportunities for which our Amlin London Property & Casualty team is well placed to develop.

In 2013, we anticipate further improvement in the performance of Amlin Europe and Amlin Re Europe. Increased earnings from these businesses, with their relatively low exposure to catastrophe risk, will further enhance capital efficiency across the Group, as well as creating scope to increase the Group's appetite for catastrophe risk.

With a strong balance sheet and excellent broker franchise, Amlin is very well positioned to take advantage of higher catastrophe margins as a market leader in catastrophe underwriting.

Consolidated Statement Income

For the year ended 31 December 2012

	Note	2012 £m	Restated 2011 £m
Gross earned premium	5,6	2,319.0	2,223.2
Reinsurance premium ceded	5,6	(332.6)	(295.8)
Net earned premium	5,6	1,986.4	1,927.4
Investment return	5,7	149.4	40.5
Other operating income	5	5.6	8.8
Total income		2,141.4	1,976.7
Insurance claims and claims settlement expenses	5,8	(1,197.3)	(1,869.6)
Insurance claims and claims settlement expenses recoverable from reinsurers	5,8	72.7	370.2
Net insurance claims	8	(1,124.6)	(1,499.4)
Expenses for the acquisition of insurance contracts	5,9	(422.5)	(380.2)
Other operating expenses	10	(303.0)	(263.4)
Total expenses		(725.5)	(643.6)
Results of operating activities		291.3	(166.3)
Finance costs	5,13	(27.6)	(27.4)
Share of profit/(loss) after tax of associates	4,5	0.5	(0.1)
Profit/(loss) before tax	5,14	264.2	(193.8)
Tax	15	(16.5)	44.3
Profit/(loss) for the year		247.7	(149.5)
Attributable to:
Equity holders of the Parent Company		247.7	(149.9)
Non-controlling interests		-	0.4
		247.7	(149.5)
Earnings per share attributable to equity holders of the Parent Company
Basic	25	50.0p	(30.3p)
Diluted	25	49.4p	(30.3p)

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

Consolidated statement of comprehensive income

For the year ended 31 December 2012

	Note	2012 £m	2011 £m
Profit/(loss) for the year		247.7	(149.5)
Gains on revaluation of financial instruments in designated hedge accounting relationships	16	3.7	2.4
Foreign exchange losses on translation of foreign operations	16	(55.2)	(36.7)
Foreign exchange losses on translation of intangibles arising from investments in foreign operations	16	(1.9)	(2.2)
Defined benefit pension fund losses	32	(17.5)	(18.3)
Unrealised gains on investments designated as available-for-sale	18	0.5	0.2
Tax relating to components of other comprehensive income	15	3.7	6.4
Other comprehensive expense for the year, net of tax		(66.7)	(48.2)
Total comprehensive income/(expense) for the year		181.0	(197.7)
Attributable to:
Equity holders of the Parent Company		181.0	(198.1)
Non-controlling interests		-	0.4
		181.0	(197.7)

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

Consolidated statement of changes in equity

For the year ended 31 December 2012

		Attributable to owners of the Parent Company
For the year ended 31 December 2012	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 2012		141.2	300.3	174.5	(22.5)	826.2	1,419.7	0.7	1,420.4
Total comprehensive income for the year		-	-	(66.7)	-	247.7	181.0	-	181.0
Employee share option schemes:
- share based payment reserve		-	-	3.8	0.6	-	4.4	-	4.4
- proceeds from shares issued	24	-	0.1	-	1.1	(0.3)	0.9	-	0.9
Dividends paid	27	-	-	-	-	(115.3)	(115.3)	(0.1)	(115.4)
Acquisition of non-controlling interests		-	-	1.2	-	(1.2)	-	-	-
Tax relating to share option schemes	15	-	-	0.1	-	-	0.1	-	0.1
Transactions with the owners of the Group for the year		-	0.1	5.1	1.7	(116.8)	(109.9)	(0.1)	(110.0)
At 31 December 2012		141.2	300.4	112.9	(20.8)	957.1	1,490.8	0.6	1,491.4

		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	15	-	-	(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

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

Consolidated Balance Sheet

At 31 December 2012

Assets	Note	2012 £m	Restated 2011 £m
Cash and cash equivalents	17	190.6	256.3
Financial assets	18	4,205.0	3,983.9
Reinsurance assets
- reinsurers' share of outstanding claims	19	478.6	617.0
- reinsurers' share of unearned premium	19	46.8	50.4
Loans and receivables, including insurance and reinsurance receivables
- insurance and reinsurance receivables	20	1,003.2	933.5
- other loans and receivables	20	82.2	69.0
Deferred acquisition costs	21	239.3	207.7
Current income tax assets		12.3	13.7
Deferred tax assets	15	17.5	26.9
Property and equipment	22	20.4	19.9
Intangible assets	23	211.4	218.9
Investments in associates	4	9.3	8.3
Total assets		6,516.6	6,405.5
Equity and reserves
Share capital	24	141.2	141.2
Share premium		300.4	300.3
Other reserves		112.9	174.5
Treasury shares		(20.8)	(22.5)
Retained earnings		957.1	826.2
Equity attributable to equity holders of the Parent Company		1,490.8	1,419.7
Non-controlling interests		0.6	0.7
Total equity and reserves		1,491.4	1,420.4
Liabilities
Insurance liabilities
- outstanding claims	19	3,083.5	3,273.6
- unearned premium	19	1,054.8	998.0
Other payables, including insurance and reinsurance payables
- insurance and reinsurance payables	30	275.0	218.8
- other payables	30	118.6	117.6
Financial liabilities	18	5.7	11.0
Current income tax liabilities		0.4	0.1
Borrowings	31	410.4	292.8
Retirement benefit obligations	32	48.9	30.8
Deferred tax liabilities	15	27.9	42.4
Total liabilities		5,025.2	4,985.1
Total equity, reserves and liabilities		6,516.6	6,405.5

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 1 March 2013. They were signed on its behalf by:

Charles Philipps Group Chief Executive

Richard Hextall Group Finance & Operations Director

Consolidated statement of cash flows

For the year ended 31 December2012

	Note	2012 £m	Restated 2011 £m
Cash flows from operating activities
Cash (utilised in)/generated from operations	36	(74.2)	367.5
Interest received		37.2	47.6
Dividends received		11.3	12.2
Income taxes paid		(12.1)	(38.6)
Net cash (outflows)/inflows from operating activities		(37.8)	388.7
Cash flows from investing activities
Acquisition through business combination, net of cash acquired		-	(11.4)
Deferred payment for acquired subsidiary		(0.1)	(0.1)
Investments in associates	4	(0.5)	(1.6)
Purchase of property and equipment		(6.5)	(12.7)
Purchase and development of intangible assets		(2.2)	(25.7)
Net cash outflows from investing activities		(9.3)	(51.5)
Cash flows from financing activities
Net proceeds from issue of ordinary shares, including treasury shares		0.9	1.0
Dividends paid to shareholders	27	(115.3)	(113.6)
Dividends paid to non-controlling interests	27	(0.1)	-
Interest paid		(21.9)	(22.7)
Purchase of ESOT and treasury shares		-	(0.5)
Drawdown of revolving credit facility		122.8	-
Repayments of subordinated debt	31	-	(26.7)
Net cash outflows from financing activities		(13.6)	(162.5)
Net (decrease)/increase in cash and cash equivalents		(60.7)	174.7
Cash and cash equivalents at beginning of year		256.3	81.5
Effect of exchange rate changes on cash and cash equivalents		(5.0)	0.1
Cash and cash equivalents at end of year	17	190.6	256.3

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

Notes to the accounts

For the year ended 31 December 2012

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 2011, unless otherwise stated.

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

The Group has early adopted the accounting and disclosure requirements of IFRS 10, 'Consolidated financial statements', IFRS 11, 'Joint arrangements' and IFRS 12, 'Disclosure of interests in other entities'. Further details are provided below and in note 4.

Following the Group's announcement that Amlin France will be integrated with the Amlin Europe division, the two businesses are now reported together within the 'Amlin Europe' column in the segmental information. Comparative information for the year ended 31 December 2011 has been restated accordingly. Further details are provided in note 5.

Improvements have also been made to the presentation of interest received and dividends received in the consolidated statement of cash flows, to reflect that such cash flows are considered cash flows from operating activities rather than cash flows from investing activities. These improvements have had no impact on the previously reported net change in cash and cash equivalents.

Basis of consolidation

The financial statements consolidate the accounts of the Company and subsidiaries, including the Group's underwriting through participation on Lloyd's syndicates. Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. 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 4.

Going concern

The Group's business, risk and finance management, performance and position, together with factors that are likely to affect future development, are described in the Performance Review of the Annual Report. Capital management strategy, which covers how regulatory and economic capital needs are measured and how capital is deployed, is described under Financial Management. The financial position of the Group, including commentary on cash and investment levels, currency management, insurance liability management, liquidity and borrowings, is also covered in that section. In addition note 2 describes capital management needs and policies and note 3 covers underwriting, market, liquidity and credit risk which may affect the financial position of the Group.

The Group has considerable financial resources to meet its financial needs and, in much of the Group, manages a mature portfolio of insurance risk through an experienced and stable team. The directors believe that the Group is well positioned to manage its business risk successfully in the current uncertain economic environment.

After making enquiries, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and accounts.

Adoption of new and revised Standards

(a) Standards, amendments to published standards and interpretations effective on or after 1 January 2012

The Group has adopted the following amended IFRS effective as of 1 January 2012:

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

The effect of this change is as follows:

IFRS 7 (amended), 'Financial instruments: Disclosures - Transfers of financial assets'
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 instruments and the potential risks that may remain with the transferor. There is no material impact on the Group or Company's financial statements.

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

The Group has early adopted the following standards and consequential amendments to other IFRSs for the financial year ended 31 December 2012. Comparative information has been restated accordingly. The Group has not presented a balance sheet for the beginning of the earliest comparative period as required by IAS 1, 'Presentation of financial statements', as the impact is not material.

IFRS 10, 'Consolidated financial statements'

IFRS 10 replaces the portion of IAS 27, 'Consolidated and separate financial statements' that addressed the accounting for consolidated financial statements and SIC-12, 'Consolidation - Special purpose entities'. IFRS 10 revises the definition of 'control', the key factor in determining whether an entity is consolidated.

The Group has assessed whether the consolidation conclusion under IFRS 10 differs from IAS 27/SIC-12 as at 1 January 2012. If the consolidation conclusion differs as at this date, the comparative period has been restated to be consistent with the accounting conclusion under IFRS 10. Any difference between the carrying amounts under IFRS 10 and the carrying amounts under IAS 27/SIC-12 is adjusted to equity. Where the consolidation conclusion is the same under IFRS 10 and IAS 27/SIC-12, no adjustment to previous accounting has been made.

The adoption of IFRS 10 resulted in a change in the control conclusion for Tramline Re Ltd, which is no longer consolidated by the Group. The effect of adoption of IFRS 10 is discussed in further detail in note 4.

IFRS 11, 'Joint arrangements'

IFRS 11 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 Group holds 50.0% of the voting rights in Leadenhall Capital Partners LLP, which was previously accounted for as a joint venture using the equity method. Upon adoption of the new standards, the Group's interest is now accounted for as an investment in associate using the equity method. The contractual terms of the Group's interest in Leadenhall Capital Partners LLP have not changed and the impact is one of disclosure only.

IFRS 12, 'Disclosure of interests in other entities'

IFRS 12 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, 'Investments in associates'. A number of new disclosures are also required, including the judgements made by management in determining whether it controls an entity and information about interests in unconsolidated structured entities. The disclosure requirements of the standard have been applied in this set of financial statements.

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 were 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. The amendments to both standards have been applied in conjunction with the above 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 9, 'Financial instruments: Classification and measurement'

IFRS 9 as issued reflects the first phase of the International Accounting Standards Board's (IASB) work on the replacement of IAS 39 'Financial instruments: Recognition and measurement' and applies to the classification of financial instruments. IFRS 9 as originally issued had a mandatory effective date of 1 January 2013. Subsequent amendments to the standard, 'Mandatory effective date and transition disclosures', have deferred the mandatory effective date to 1 January 2015¹. The IASB is currently considering limited modifications to IFRS 9. In other phases, the IASB is addressing impairment of financial assets and hedge accounting.

The adoption of IFRS 9 will have an effect on the classification and measurement of the Group's financial instruments. The Group is currently undertaking a review to determine the impact of the standard on adoption.

However, the Group has determined that the effect shall be quantified in conjunction with the other phases when issued. Consideration will also be given to the emerging requirements and expected timetable of the IASB's insurance contracts project in addressing the Group's classification and measurement approach.

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 expected to have no impact on the financial statements of the Group.

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. 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.

(1) Subject to EU endorsement

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. The amendments are not expected to have a material impact on the financial statements of the Group on adoption.

IAS 12 (amended), 'Deferred Taxes: Recovery of underlying assets'

The amendments to IAS 12 relate to the measurement of deferred tax on investment properties. The Group is required to apply the amendments from 1 January 2013 which will have no impact on the financial statements of the Group or Company on adoption.

IFRS 13, 'Fair value measurement'

IFRS 13 is effective for annual periods beginning 1 January 2013 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 require the Group to provide more disclosures about judgements made and inputs used in fair value measurements and sensitivity of those measurements.

IAS 1 (amended),'Presentation of financial statements' - Presentation of items of other comprehensive income'

The amendment to IAS 1 is effective for annual periods beginning 1 July 2012. 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 (revised), 'Employee benefits'

The amendment to IAS 19 is effective for annual periods beginning on or after 1 January 2013 and is to be applied retrospectively. The amendment principally affects the accounting for and disclosure of defined benefit plans. It eliminates the option to defer the recognition of actuarial gains and losses under the 'corridor' approach, applies a single rate to the net defined asset or liability to calculate the net interest income or expense, removes the options for the presentation of gains and losses and enhances disclosure requirements in respect of defined benefit plans and the risks arising on those plans. The amendment will impact the calculation of the net interest income or expense, the presentation of gains and losses and will require further disclosures relating to the characteristics and risks of the Group's defined benefit pension plans. The Group is currently undertaking an assessment of the impact on adoption. At this stage the amendment is not expected to have a material impact on the Group.

IFRS 10, IFRS 11 and IFRS 12 (amended), 'Transition guidance'

Subsequent to the release of the new suite of consolidation standards, the IASB published amendments to clarify the transition guidance in IFRS 10 in June 2012. The amendments also provide additional transition relief in IFRS 10, IFRS 11 and IFRS 12, limiting the requirement to provide adjusted comparative information to only the preceding comparative period. The amendments to the standards are effective for annual periods beginning on or after 1 January 2013¹.

The Group has adopted the requirements of IFRS 10, IFRS 11 and IFRS 12 in the current period but is unable to apply the transition guidance amendments as they were released in 2012 and have not yet been endorsed by the EU. These amendments will not impact the Group on adoption.

IFRS 10, IFRS 12 and IAS 27 (amended), 'Investment entities'

The IASB issued amendments to IFRS 10, IFRS 12 and IAS 27 in October 2012 to address the accounting for investments controlled by investment entities. The amendments define an investment entity and require an investment entity to measure its subsidiaries at fair value through profit or loss. The amendments do not permit the 'roll-up' of fair value accounting in the consolidated financial statements of a non-investment entity parent. The amendments are applicable for annual periods beginning on or after 1 January 2014¹ and will not have an impact on the financial statements of the Group on adoption.

Annual improvements to IFRSs 2009-2011 cycle

In May 2012, the 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 amendments are effective for annual periods beginning 1 January 20131 and will have no material impact on the Group or Company's financial statements on adoption.

Critical accounting judgements and key sources of estimation uncertainty

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

Insurance contract liabilities

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

The estimated provision for the total level of claims incurred changes as more information becomes known about the actual losses for which the initial provisions were set up. The change in claims costs for prior period insurance claims represents the claims development of earlier reported years incurred in the current accounting period. The carrying value of the Group's net outstanding claims reserves at 31 December 2012 is £2,604.9 million (2011: £2,656.6 million). In 2012, there has been a net positive development of £94.2 million (2011: £112.6 million) for the Group, reflecting favourable experience in the 2011 and prior reported years. Note 3.1 provides further details of the method the Group applies in estimating insurance contract liabilities.

Financial assets and financial liabilities

The Group uses pricing vendor sources in determining the fair value of financial assets and financial liabilities. Depending on the methods and assumptions used (for example, in the fair valuation of Level 2 and Level 3 financial assets), the fair valuation of financial assets and financial liabilities can be subject to estimation uncertainty. Details of these methods and assumptions are described in note 3.2. The carrying values of the Group's financial assets and financial liabilities at 31 December 2012 are £4,205.0 million (2011 restated: £3,983.9 million) and £5.7 million (2011: £11.0 million) respectively. 

(1) Subject to EU endorsement

Intangible assets

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

The value of intangible assets arising from the acquisition of a subsidiary, syndicate capacity or on the purchase of renewal rights is largely based on the expected cash flows of the business acquired and contractual rights on that business.

The internally developed computer software principally relates to cost directly attributable to the development of a new underwriting platform for Amlin Europe N.V.

The assumptions made by management in performing impairment tests of intangible assets are subject to estimation uncertainty. The results of the impairment test may result in the value of the intangible being impaired in the current period. Note 23 provides further details on these assumptions.

The carrying value of the Group's intangible assets (excluding goodwill) at 31 December 2012 is £136.3 million (2011: £142.3 million).

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 23.

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 23 provides further details. The carrying value at the reporting date of goodwill is £75.1 million (2011: £76.6 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 £17.5 million (2011: £26.9 million), and of the deferred tax liability is £27.9 million (2011: £42.4 million).

Staff incentive plans

The Group recognises a liability and expense for certain 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 £39.8 million (2011: £31.1 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 £17.5 million (2011: £18.3 million) has been recognised in the statement of comprehensive income and an expense of £6.4 million (2011: £4.2 million) has been recognised in the income statement. Note 32 provides further details on the Group's retirement benefit obligations. At 31 December 2012, the Group recognised a balance sheet liability of £48.9 million (2011: £30.8 million) in respect of its defined benefit plans.

Determining control of entities

The significant judgements and assumptions made by the Group in reaching controls and consolidates conclusions for certain investments held by the Group are outlined in note 4b.

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 currently material. 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 or, where such items are revalued, at the latest valuation date. Exchange differences are recognised within other operating expenses.

The results and financial position of those Group entities whose functional currency is not sterling ('foreign operations') 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 operation are treated as assets and liabilities of the foreign operation 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.

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 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 4 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. Certain risk transfer contracts held by the Group, for example catastrophe linked instruments, do not meet the definition of an insurance contract and are therefore accounted for as financial instruments in accordance with IAS 39.

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 in accordance with the terms of the reinsurance contract.

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. Although it is possible that claims could develop and exceed the reserves carried, 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 recoveries

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 Group Management Committee.

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 combinations 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 non-controlling interests. 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.

Investments in associates

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.

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 and 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 recorded in profit or loss. 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 at 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 income securities, equity securities, property funds and certain derivatives are classified as 'trading' as the Group buys with the intention to resell. All other assets at FV are classified as 'other than trading' within the FV category as they are managed and their performance is evaluated on a FV basis.

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 18. 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 initially recognised at fair value and subsequently 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.

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. The Group holds no finance leases. 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, which is representative of the time pattern of the Group's benefit.

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 Europe N.V. participates in two defined benefit schemes. Amlin Re Europe's 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 discount rates set on the basis of the yield of high quality debt instruments (AA rated or equivalent) issued by blue chip companies, with maturities consistent with those of the defined benefit obligations. In respect of the defined benefit scheme in the Netherlands for Amlin Europe N.V., the fair value of the plan assets reflects the benefits that accrue to Amlin Europe N.V. under the insurance policy taken out to meet its obligations. This is also the case for Amlin Re Europe'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. Other benefits

Other employee incentive schemes and long-term service awards, including the Amlin Capital Builder Plan and 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 operating income

Fee income received on insurance-related services is recognised as the benefits of the services are provided.

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, 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 foreign 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 initially recognised at fair value and subsequently 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.

During the current and prior periods, the Group complied with all externally imposed capital requirements to which it is subject.

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 business 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 division and its context within the wider Group.

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 Minimum Capital Requirement (MCR), as prescribed by EU directives, calculated by applying fixed percentages to premium and claims and allowing for historic reinsurance recoveries. The second is an Individual Capital Assessment (ICA) calculated internally by the firm under the Individual Capital Adequacy Standards (ICAS) regime. 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 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 capital requirements for the 2013 year of account, Lloyd's introduced the Lloyd's capital return (LCR) (replacing the ICA), including the calculation of an ultimate solvency capital requirement (uSCR), and a balance sheet to be prepared under Solvency II principles. Lloyd's consider that the LCR submission provides protection to policyholders equivalent to the FSA's ICAS regime. Lloyd's has previously uplifted all ICAs by 35% to bring the capital to a level to support a higher financial strength rating but, as a one-off transitional arrangement across the market (since Solvency II is not yet live), Lloyd's uplifted the 2013 capital requirement by the same amount as the 2012 uplift since the business written was materially unchanged. The final capital requirement, the Economic Capital Assessment (ECA), is then subject to a minimum of 40% (2011: 40%) of the Syndicate's agreed premium capacity limit.

At 31 December 2012, the agreed ECA as a percentage of the proposed underwriting capacity for the following year of account was 44.3% (2011: 42.3%).

The Syndicate also benefits from mutualised capital within the Lloyd's Central Fund, for which a variable annual levy, for 2012 of 0.5% (2011: 0.5%) of Syndicate gross premium, is payable.

The LCR is expected to be reviewed annually by Lloyd's (as was the ICA previously) and periodically by the FSA. The FSA expects management to apply their rules continuously. If a firm's capital falls below its ECA, steps must be taken to restore capital adequacy. Due to the nature of the Lloyd's capital setting process, Funds at Lloyd's (FAL) requirements are formally assessed and funded twice yearly at discrete periods and must be met for the Syndicate to continue underwriting.

At 31 December 2012, Amlin Corporate Member Limited funded the agreed FAL requirement of £620.2 million (2011: £497.0 million) to support underwriting for the 2013 year of account.

The increase of £123.2 million is largely driven by the change in basis of the ICA to the LCR calculations offsetting this increase, on a Solvency II basis, the balance sheet capital resources have increased by £77.5 million (a net effective increase of £45.7 million).

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 Amlin Bermuda branch is supervised by 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 the required capital is calculated as a fixed percentage of premiums, claims incurred and/or net amounts at risk. The SST is based on an economic view and required capital is derived from an internal capital model.

Whilst the internal model is still subject to final approval by FINMA, it has been temporarily approved by FINMA until 31 December 2015. 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 2012.

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 Europe N.V. is required to hold regulatory capital in compliance with the rules issued by its regulator De Nederlandsche Bank (DNB), and as prescribed by EU directives. DNB supervision comprises of various qualitative assessments, governance requirements and minimum solvency levels. Amlin Europe N.V. provides regulatory solvency reporting to DNB, under the rules of Solvency I.

At 31 December 2012, the minimum required capital for Amlin Europe N.V. amounted to €105.3 million (2011: €117.0 million). The minimum capital requirement is calculated by applying fixed percentages to premiums and claims.

At 31 December 2012, Amlin Europe N.V. complies with external capital requirements. For trading purposes, Amlin Europe N.V. holds capital in excess of the minimum required by the DNB.

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 Europe N.V., Amlin AG (including its branch operation, Amlin Bermuda) and Amlin Insurance (UK) Ltd. Syndicate 2001's portfolio is underwritten by Amlin London and Amlin UK. Prior to 1 January 2013, Syndicate 2001 also accepted business through the Group's wholly owned French coverholder, Amlin France SAS. The latter now writes exclusively on behalf of Amlin Europe N.V. 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. Exposure information and data on past claims experience is used 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 by the boards of Amlin plc and its subsidiaries 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 line guides that determine the maximum liability per policy that can be written for each class (on a gross or net of facultative reinsurance basis) by each underwriter. These limits can be exceeded in exceptional circumstances with the approval of senior management. Apart from the UK, European 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 policies 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 policies 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. 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 could exceed 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 and cost, capital levels and profitability in order to remain within the risk appetite guidelines.

Sections A and B below describe the insurance and reinsurance portfolios written by the Group and the associated risks of such business. Section C summarises the business written by each operating division.

A. Direct insurance and facultative reinsurance

A. (i) Property - direct and facultative

Property cover is provided to large commercial enterprises with high value single 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.

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 and therefore, for these contracts the Group is reliant on coverholders exercising underwriting judgement on its behalf. Coverholders must have local regulatory approval, be Lloyd's registered where relevant and also be approved by the Local Binding Authority Committees. For all binding authority facilities, the Group receives monthly or quarterly bordereaux which are checked by 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.

As well as natural catastrophes, 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. The US account is particularly exposed to large catastrophe events, such as California earthquake, tornado and hurricane losses.

In the UK stand alone property protection is written mainly on a 100% basis for small and medium commercial and household properties. Package policies combine one or more liability coverages (mainly employers' and public liability) with motor and/or property damage protection.

The UK property owners account has continued to develop throughout 2012.

This portfolio is exposed to European weather conditions whereby a large windstorm, flood or winter freeze could result in a large number of small claims.

The European property account mainly comprises 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. Overseas exposure is written mainly from the large commercial industrial portfolio where there are client or other incidental operations overseas. The engineering book includes contractors all risks, machinery breakdown and some computer equipment.

A. (ii) Casualty - direct insurance

The US casualty insurance account provides insurance 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 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. Professional lines liability cover is written by a dedicated underwriting team. This class includes professional indemnity cover given to US lawyers, accountants, architects and engineers.

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 due to line size. 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.

The Group's international liability portfolio predominantly protects insured's domiciled in the UK, Ireland, France, Belgium and the Netherlands. There is also some Canadian business. A new international casualty team has recently been established to develop business in other territories including Australia. A portfolio of professional indemnity and general liability business is written in the Netherlands, on a claims made basis with a particular focus on property related professions and miscellaneous professions such as travel operators. In Belgium, medical liability and general liability are written on a losses occurring basis.

UK employers' liability insurance protects employers against accident or injury to employees. This is written on a losses occurring basis.

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.

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.

Since 2012, Syndicate 2001 has written a product recall account though a single coverholder. Product recall cover indemnifies producers against the costs of replacement production for specific goods.

Through AUA Insolvency Risk Services Ltd, an FSA registered broker, the Group writes a portfolio of UK insolvency practitioners business providing protection against fraud or negligence committed by the practitioners. Such cover 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 multiple claims could arise under multiple policies from a common cause such as financial advice or generic building defects. 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.

A. (iii) Motor - direct insurance

The Group's UK motor insurance account provides protection for fire, theft, collision and third party property and bodily injury liability. 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. A small UK agriculture facility, a taxi book and a specialist private car account are also written.

The Benelux 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. Cars, vans or commercial vehicles account for over 70% of the book.

Claims frequency has improved in recent years due to car and road safety measures, but can fluctuate due to factors such as weather conditions. 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 European legal systems impacts liability claim values. This issue is evidenced in the UK through the provision for Periodic Payment Orders (PPOs) which spread insurers' payment liabilities for bodily injury claims over future years. Government intervention such as liability award limit changes or expense recoveries for government bodies, for example the UK 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.

Auto business is also written covering 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.

A. (iv) Personal accident - direct insurance

The accident and health class is written through medical expense schemes in the US and direct personal accident cover on a world wide basis. Medical expense cover is subject to a high frequency of claim and significant medical cost inflation. Personal accident insurance 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.

A. (v) Marine and aviation - direct insurance and facultative reinsurance

The hull and cargo account is world wide, 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 'brown water' 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 Benelux portfolio includes a commodities book for Belgian and French trading corporations, in addition to hull, land equipment, shipbuilders' risk, inland hull and large yachts.

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 marine, aviation 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.

Yacht business covers property damage and third party injury for small leisure boats and craft. The UK domestic 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. Amlin Europe and the wholly owned coverholder Lead Yacht write shares 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 crew or 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.

Specie, bloodstock and livestock business are also written within the Marine and Aviation Business Unit of Syndicate 2001.

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 and may be exposed to terrorist events.

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.

The aviation 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 liability insurance covers launch and 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. The principal aviation accounts are protected by a reinsurance programme on both a risk sharing (proportional) and excess of loss basis.

A. (vi) Special risks - direct insurance

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

Transmission and distribution business is also written. This account is generally written without reinsurance protection.

There is a small portfolio of captive business written in Belgium as fronting for captive reinsurers of large industrial companies. Captives are subject to detailed financial analysis to manage potential credit risk.

B. Treaty reinsurance

B. (i) Property-reinsurance

Catastrophe reinsurance protects insurance companies against catastrophic losses, such as windstorm or earthquake, which may impact more than one risk written by the client. The catastrophe excess of loss portfolio is a key part of the reinsurance risk written by the Group.

These programmes are placed on a layered or excess of loss basis. Territorial exposures, from a number of programmes, are carefully recorded and analysed through loss simulations or realistic disaster scenarios but represent significant loss exposure to natural or man-made catastrophes.

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 catastrophe losses.

Proportional property reinsurance covers a proportionate share of a reinsured's portfolio of business subject to payment of commission and/or profit commission. Proportional property business is normally written with an occurrence limit.

The Group's portfolio of property reinsurance business is written with the aim of achieving territorial diversification. However, as experienced in 2011, a single or series of severe catastrophes to major economic zones in Europe, Japan, Australasia or the US is likely to result in a loss to the portfolio prior to retrocessional reinsurance. For each operating division, overall catastrophe loss limits are applied in relation to specific scenarios as an allocation of total Group tolerances.

B. (ii) Casualty-reinsurance

The US casualty reinsurance account provides cover for reinsureds in respect of legal liability arising from insureds' activities and actions or for incidents occurring on insureds' properties. The portfolio is written on both an excess of loss and proportional basis but most underlying policies are on a claims notified basis (responding to all claims made during a defined period). The portfolio includes 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.

US Workers Compensation Act /casualty clash excess of loss business may be impacted by large catastrophic events such as earthquake.

International liability reinsurance business is mainly general third party liability protecting companies against significant public or products liability claims, written on a proportional or excess of loss basis. The liability account also includes some professional liability reinsurance.

The construction and engineering portfolio provides liability and property reinsurance cover for construction projects which may be of several years' duration.

B. (iii) Motor-reinsurance

Motor reinsurance is written on a proportional and excess of loss basis. This portfolio 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 superimposed inflation resulting 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 revising its claims policy.

B. (iv) Personal accident-reinsurance

Personal accident reinsurance is written on a world wide basis. Such business 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.

B. (v) Marine and aviation-reinsurance

The Group's portfolio of aviation and marine excess of loss reinsurance protects insurers against losses to their direct portfolios of business on a world wide basis. This will include offshore energy business, specie and other static risks written in reinsured companies' marine portfolios. The marine account, in particular, is exposed to catastrophe losses as well as large individual risk losses.

B. (vi) Special risks-reinsurance

The special risks reinsurance account is predominantly made up of terrorism excess of loss and nuclear reinsurance emanating from all parts of the world and written without excess of loss reinsurance protection. The portfolio also includes short-term trade credit and contingency business as well as trade credit reinsurance which protects reinsureds against the non-payment of monies or goods or services due from trade partners locally or overseas. Satellite physical damage cover is also written in the special risks account.

C. Business written and maximum risk limit by operating divisions

Direct insurance and facultative reinsurance

At 31 December 2012	Amlin London Gross written premium £m	Amlin UK Gross written premium £m	Amlin Europe Gross written premium €m	Amlin London Max  line size £m	Amlin UK Max line size £m	Amlin Europe Max line size €m	Amlin London Average line size £m	Amlin UK Average line size £m	Amlin Europe Average line size €m
(i) Property - direct and facultative
Direct and facultative property	112	-	-	23	-	-	3	-	-
Binding authorities	33	-	-	2	-	-	<1	-	-
UK/Europe property/package	-	140	135	-	52	50	-	1	5
(ii) Casualty - direct insurance
International casualty	3	-	-	17	-	-	6	-	-
Casualty	19	-	-	3	-	-	<1	-	-
Professional lines	6	-	-	7	-	-	1	-	-
Employers' liability	-	22	-	-	27	-	-	10	-
Liability	-	-	98	-	-	13	-	-	2
Public/products liability	-	24	-	-	12	-	-	4	-
Financial institutions fidelity and liability	-	7	-	-	6	6	-	2	2
Professional indemnity	-	38	-	-	16	-	-	2	-
Engineering	-	-	27	-	-	25	-	-	4
(iii) Motor - direct insurance
US/International auto	28	-	-	1	-	-	1	-	-
UK/Europe motor	-	132	45	-	Unlimited	Unlimited	-	Unlimited	Unlimited
(iv) Personal accident-direct insurance
Accident and health	30	-	-	3	-	-	1	-	-
(v) Marine and aviation - direct insurance and facultative reinsurance
Hull	40	-	81	13	-	25	2	-	3
Cargo	31	-	73	20	-	25	5	-	1
Energy	67	-	-	25	-	-	4	-	-
War and terrorism	34	-	-	50	-	-	10	-	-
Specie	15	-	-	24	-	-	6	-	-
Bloodstock/livestock	27	-	-	4	-	-	1	-	-
Yacht (hull & liability)	30	-	-	5	-	-	2	-	-
Liability	36	-	-	57	-	-	6	-	-
Protection and indemnity	-	-	74	-	-	50	-	-	20
Airline (hull & liability)	19	-	-	84	-	-	26	-	-
General aviation (hull & liability)	8	-	-	57	-	-	15	-	-
Risk excess	5	-	-	57	-	-	8	-	-
Airports liability	8	-	-	57	-	-	27	-	-
Products	5	-	-	50	-	-	20	-	-
Space (liability)	2	-	-	40	-	-	14	-	-
(vi) Special risks - direct insurance
Special risks	6	-	23	97	-	25	8	-	5
Total direct insurance and facultative reinsurance	564	363	556

Note:

1. Amlin London 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. Amlin London maximum line size is after business written and ceded by specific proportional treaties to Amlin Bermuda and Amlin Europe.

3. Gross written premium is stated gross of acquisition costs and excludes adjustments in respect of prior periods.

4. Amlin London and Amlin underwriting gross written premiums are converted to sterling using the average rate of exchange for the month in which they are written.

C. Business written and maximum risk limit by operating divisions

Direct insurance and facultative reinsurance

At 31 December 2011	Amlin London Gross written premium £m	Amlin UK Gross written premium £m	Amlin Europe Gross written premium €m	Amlin London Max line size £m	Amlin UK Max line size £m	Amlin Europe Max line size €m	Amlin London Average line size £m	Amlin UK Average  line size £m	Amlin Europe Average  line size €m
(i) Property - direct and facultative
Direct and facultative property	84	-	-	23	-	-	3	-	-
Binding authorities	28	-	-	2	-	-	<1	-	-
UK/Europe property/package	-	115	81	-	52	50	-	1	5
(ii) Casualty - direct insurance
International casualty	-	-	-	-	-	-	-	-	-
Casualty	19	-	-	3	-	-	1	-	-
Professional lines	-	-	-	-	-	-	-	-	-
Employers' liability	-	14	-	-	27	-	-	10	-
Liability	-	-	95	-	-	13	-	-	2
Public/products liability	-	19	-	-	12	-	-	4	-
Financial institutions fidelity and liability	-	5	-	-	6	-	-	2	-
Professional indemnity	-	24	-	-	7	-	-	2	-
Engineering	-	-	30	-	-	25	-	-	4
(iii) Motor - direct insurance
US/International auto	27	-	-	3	-	-	1	-	-
UK/Europe motor	-	127	46	-	Unlimited	Unlimited	-	Unlimited	Unlimited
(iv) Personal accident
Accident and health	28	-	-	3	-	-	1	-	-
(v) Marine and aviation - direct insurance and facultative reinsurance
Hull	37	-	130	10	-	25	2	-	3
Cargo	29	-	136	17	-	25	5	-	1
Energy	64	-	-	25	-	-	5	-	-
War and terrorism	36	-	-	50	-	-	10	-	-
Specie	12	-	-	24	-	-	6	-	-
Bloodstock/livestock	27	-	-	4	-	-	1	-	-
Yacht (hull & liability)	32	-	-	5	-	-	1	-	-
Liability	33	-	-	57	-	-	6	-	-
Protection and indemnity	-	-	62	-	-	50	-	-	19
Airline (hull & liability)	21	-	-	84	-	-	31	-	-
General aviation (hull & liability)	13	-	-	57	-	-	18	-	-
Risk excess	6	-	-	57	-	-	12	-	-
Airports liability	9	-	-	57	-	-	29	-	-
Products	6	-	-	50	-	-	22	-	-
Space (liability)	5	-	-	46	-	-	9	-	-
(vi) Special risks - direct insurance
Special risks	5	-	-	67	-	-	-	-	-
Total direct insurance and facultative reinsurance	521	304	580

Note:

1. Amlin London 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. Amlin London maximum line size is after business written and ceded by specific proportional treaties to Amlin Bermuda.

3. Gross written premium is stated gross of acquisition costs and excludes adjustments in respect of prior periods.

4. Amlin London and Amlin underwriting gross written premiums are converted to sterling using the average rate of exchange for the month in which they are written.

C. Business written and maximum risk limit by operating divisions

Treaty reinsurance

At 31 December 2012	Amlin London Gross written premium £m	Amlin Bermuda Gross written premium US$m	Amlin Re Europe Gross written premium €m	Amlin London Max line size £m	Amlin Bermuda Max line size US$m	Amlin Re Europe Max line size €m	Amlin London Average line size £m	Amlin Bermuda Average line size US$m	Amlin Re Europe Average line size €m
(i) Property - reinsurance
Catastrophe reinsurance (per programme)	274	310	26	57	75	20	4	7	4
Per risk property reinsurance (per programme)	71	60	14	23	13	20	2	3	3
Proportional reinsurance	42	77	30	5	13	20	2	1	1
Engineering	-	-	15	-	-	20	-	-	2
(ii) Casualty - reinsurance
International casualty	1	-	-	17	-	-	4	-	-
Casualty	36	9	-	3	5	-	<1	1	-
Liability	-	-	9	-	-	20	-	-	1
(iii) Motor - reinsurance
Motor (limited)	-	-	29	-	-	20	-	-	2
(vi) Personal accident - reinsurance
Personal accident	-	4	2	-	10	20	-	5	1
(v) Marine and aviation - reinsurance
Marine reinsurance (per programme)	25	3	5	76	75	20	2	13	1
Aviation reinsurance (per programme)	4	-	-	31	-	-	2	-	-
(vi) Special risks - reinsurance
Special risks	27	67	4	38	40	20	3	5	2
Surety	-	-	1	-	-	5	-	-	1
Total treaty reinsurance	480	530	135

Note:

1. Amlin London 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. Amlin London maximum line size is after business written and ceded by specific proportional treaties to Amlin Bermuda and Amlin Europe.

3. Gross written premium is stated gross of acquisition costs and excludes adjustments in respect of prior periods.

4. Amlin London and Amlin underwriting gross written premiums are converted to sterling using the average rate of exchange for the month in which they are written.

C. Business written and maximum risk limit by operating divisions continued

Treaty reinsurance

At 31 December 2011	Amlin London Gross written premium £m	Amlin Bermuda Gross written premium US$m	Amlin Re Europe Gross written premium €m	Amlin London Max line size £m	Amlin Bermuda Max line size US$m	Amlin Re Europe Max line size €m	Amlin London Average line size £m	Amlin Bermuda Average line size US$m	Amlin Re Europe Average line size €m
(i) Property - reinsurance
Catastrophe reinsurance (per programme)	257	328	-	62	75	20	5	8	-
Per risk property reinsurance (per programme)	69	72	42	25	13	20	2	3	2
Proportional reinsurance	41	89	-	-	13	20	2	2	-
Engineering	-	-	14	-	-	20	-	-	2
(ii) Casualty - reinsurance
International casualty	-	-	-	-	-	-	-	-	-
Casualty	34	12	-	3	5	-	1	1	-
Liability	-	-	27	-	-	20	-	-	1
(iii) Motor - reinsurance
Motor (limited)	-	-	36	-	-	20	-	-	7
(vi) Personal accident - reinsurance
Personal accident	-	2	2	-	10	20	-	4	2
(v) Marine and aviation - reinsurance
Marine reinsurance (per programme)	20	4	3	81	75	20	2	11	1
Aviation reinsurance (per programme)	2	-	-	33	-	-	2	-	-
(vi) Special risks - reinsurance
Special risks	20	47	1	41	40	20	4	4	5
Surety	-	-	<1	-	-	5	-	-	2
Total treaty reinsurance	443	554	125

Note:

1. Amlin London 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. Amlin London maximum line size is after business written and ceded by specific proportional treaties to Amlin Bermuda.

3. Gross written premium is stated gross of acquisition costs and excludes adjustments in respect of prior periods.

4. Amlin London and Amlin underwriting gross written premiums are converted to sterling using the average rate of exchange for the month in which they are written.

Reinsurance and other risk mitigation arrangements

In December 2011, the Group acquired coverage for US hurricane, US earthquake and European windstorm perils of up to US$150 million from a Bermudian special purpose insurer, Tramline Re Ltd, which in turn 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.

Syndicate 2001 purchases proportional reinsurance to supplement line size and to reduce exposure on individual risks, notably for aviation and large property risks. Part of the premium ceded under such facilities is placed with Amlin Bermuda and Amlin Europe N.V. 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 direct property business is protected by a European wind programme which also protects Amlin Europe N.V.

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.

However, in 2012 the programme was restructured to provide first loss protection in excess of US$60 million for international catastrophe losses. With effect from 1 January 2013 first lost protection for US catastrophe losses is available in excess of US$95 million (for Florida windstorm with lower deductibles applicable depending on state and peril). 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.

In 2012 the excess of loss programme purchased by Amlin Bermuda was also restructured to provide first event cover for international losses at a similar level to the Amlin London placement with enhanced first event cover for US losses and additional vertical protection. With effect from 1 January 2013 first loss cover for US catastrophe losses is available in excess of US$75 million (for Florida windstorm with lower deductibles apply for other states and perils). In addition the combined aggregate and catastrophe excess of loss protection was 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.

Amlin Europe N.V. purchases a comprehensive programme for each class of business. Specific cover is placed for engineering, personal accident, motor, liability and 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.

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 the Group . The Group Catastrophe Risk team are responsible for aggregating potential scenarios and at 1 January 2013, levels of exposure were significantly below the potential maximum tolerance, one of the largest being the North-East US windstorm scenario at £268 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, Amlin Europe, 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 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 year of account (using either accident year or underwriting year cohorts). In all cases, the different potential development of each class of business is fully recognised. 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.

Amlin London, Amlin UK and Amlin Bermuda

To establish a provision for IBNR claims, the underwriting and claims teams in the UK and Bermuda use their experience and knowledge of the class of business to estimate the potential future development of each class for every underwriting year. 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 generally accepted accounting practice.

The actuarial team independently produce ultimate premium and claims projections on a strict best estimate basis utilising the same data as the underwriting and claims teams. Meetings are held for each Division in which executive management, actuarial staff and business management discuss claims issues and the estimates produced by the underwriting and claim teams are compared against the actuarial estimates. Any unexpected differences are discussed and investigated further if necessary. Best estimate IBNR is adjusted in a similar manner to the proposed IBNR in order to remove the element that relates to future events and is once more compared with the proposed IBNR. All of this is undertaken for inwards business gross of reinsurance and for outwards reinsurance separately.

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

Amlin Europe and Amlin Re Europe

For Amlin Europe and Amlin Re Europe the process is similar to that for Amlin London, Amlin UK and Amlin Bermuda except for the following differences. The underwriting and actuarial teams together produce a proposed best estimate onto which an appropriate margin is added and there is therefore only one set of numbers for discussion. The intention is to move all entities to a consistent reserving process along these lines. For Amlin Europe, given that data is readily available in this format, triangles with accident year cohorts are used together with earned premiums to estimate the IBNR required on a GAAP basis directly. Triangles on an underwriting year basis are available for Amlin Europe marine business and projections based on those triangles also feed into the reserving discussions.

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 £26.0 million gain/loss (2011: £26.6 million).

Large loss case reserves are determined through careful analysis of the individual claim, often with the advice of legal advisers. 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 liability business written on a losses occurring basis.

The use of historical development data 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. Known changes to wordings or the claims environment are also considered.

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 but actual premium may exceed or fail to meet initial estimates. The magnitude of claims arising from such facilities may differ from estimates as a result of differences between estimated and actual premium.

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.

2013 forecast (unaudited)	£m
Underwriting risk	329
Reserving risk	244
Credit (reinsurance counterparty risk)	24
Investment (market risk)	45
Liquidity risk	3
Operational risk	38
Currency risk	54
Diversified result	737

Note:

1. All figures are based on business plan forecasts which are subject to regular review to take account of changes in the trading environment, interest rate outlook and movements in rates of exchange.

2. These figures are derived from the Group Internal Model and based on data as at 31 December 2012.

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 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 31 December 2012 (US$1.62: CAN$1.61: €1.23).

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 tables below illustrate the development of the estimates of ultimate cumulative claims for the consolidated Group (excluding Amlin Europe), Amlin London, Amlin UK, 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 Amlin Europe 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 2012 exchange rates to aid comparability.

Group (excluding Amlin Europe) Gross basis Underwriting year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m	2010 £m	2011 £m	2012 £m
Current ultimate gross written premium	1,078.5	1,071.7	1,079.4	1,230.5	1,176.2	1,153.1	1,325.6	1,421.6	1,693.3	1,897.7
Current gross earned premium	1,078.5	1,071.7	1,079.4	1,230.5	1,176.2	1,153.1	1,325.6	1,421.6	1,637.1	1,065.9
Estimate of cumulative claims
at end of underwriting year	616.3	709.0	982.4	592.8	624.1	869.4	670.3	867.7	1,136.2	1,066.6
One year later	490.7	699.7	1,018.6	491.0	550.6	734.0	638.7	1,212.1	1,060.2
Two years later	417.1	661.3	983.1	468.6	502.7	704.7	600.6	1,193.4
Three years later	396.8	634.2	948.6	443.4	488.6	697.9	594.0
Four years later	390.9	619.6	931.7	432.6	478.6	694.0
Five years later	382.0	615.3	911.6	427.4	472.1
Six years later	370.6	612.9	907.5	422.2
Seven years later	361.7	605.1	890.7
Eight years later	353.9	600.8
Nine years later	355.1
Cumulative payments	342.5	581.6	866.8	384.8	401.9	601.8	433.2	731.4	471.7	98.5
Estimated balance to pay	12.6	19.2	23.9	37.4	70.2	92.2	160.8	462.0	588.5	968.1
Net basis Underwriting year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m	2010 £m	2011 £m	2012 £m
Estimate of cumulative claims
at end of underwriting year	515.8	570.4	605.9	539.1	559.3	715.9	603.1	778.9	964.0	964.2
One year later	408.7	518.7	594.0	439.1	498.2	613.1	571.1	1,027.5	915.4
Two years later	348.5	478.1	573.0	426.6	454.2	579.5	541.1	1,018.5
Three years later	329.8	457.9	544.9	404.1	441.7	576.1	532.6
Four years later	321.9	441.3	532.2	392.9	432.9	569.6
Five years later	314.1	436.0	512.3	388.1	423.8
Six years later	304.8	429.5	508.1	383.8
Seven years later	295.3	421.9	497.7
Eight years later	290.1	418.2
Nine years later	290.2
Cumulative payments	281.4	402.7	471.9	344.4	354.7	470.0	384.5	587.2	348.2	98.3
Estimated balance to pay	8.8	15.5	25.8	39.4	69.1	99.6	148.1	431.3	567.2	865.9

The Group's net aggregate reserve releases from all prior years amounted to £94.2 million (2011: £112.6 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 £100.0 million release 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 Amlin Europe, which is disclosed on an accident year basis and for which net reserve releases are £32.2 million (2011: £6.6 million). The Amlin Europe table also excludes any net aggregate reserve releases from 2002 and prior years.

Further details on these reserve releases and other aspects of the underwriting performance are included in the Performance section of this Annual Report.

Amlin London Gross basis Underwriting year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m	2010 £m	2011 £m	2012 £m
Current ultimate gross written premium	870.2	879.2	906.7	939.3	861.2	780.5	873.8	870.6	968.6	1,049.4
Current gross earned premium	870.2	879.2	906.7	939.3	861.2	780.5	873.8	870.6	942.6	583.0
Estimate of cumulative claims
at end of underwriting year	470.9	582.3	866.8	447.9	452.9	602.2	438.1	520.9	633.6	587.6
One year later	360.4	587.0	906.2	360.1	394.5	497.7	409.4	714.5	586.6
Two years later	314.2	556.1	879.2	337.8	354.8	457.1	362.4	684.7
Three years later	299.5	542.0	858.4	323.2	341.5	453.3	357.6
Four years later	293.4	531.9	841.5	315.1	333.7	450.8
Five years later	293.9	527.7	831.1	308.8	330.9
Six years later	290.0	523.3	823.6	304.7
Seven years later	281.0	516.5	811.5
Eight years later	275.2	516.0
Nine years later	275.2
Cumulative payments	266.2	501.3	793.4	287.1	294.0	410.7	265.5	432.2	272.4	60.8
Estimated balance to pay	9.0	14.7	18.1	17.6	36.9	40.1	92.1	252.5	314.2	526.8

Net basis Underwriting year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m	2010 £m	2011 £m	2012 £m
Estimate of cumulative claims
at end of underwriting year	389.5	459.2	501.3	402.4	394.8	462.7	377.9	440.3	492.6	509.3
One year later	298.6	416.3	492.2	316.5	352.7	390.4	351.0	568.1	471.6
Two years later	255.8	384.1	475.1	302.2	317.4	346.5	311.3	542.1
Three years later	241.2	369.4	456.1	289.3	303.4	343.9	306.1
Four years later	233.0	357.1	443.4	278.5	297.7	338.4
Five years later	233.1	351.8	433.3	273.0	292.8
Six years later	229.8	346.8	428.5	269.7
Seven years later	221.0	340.2	421.4
Eight years later	217.8	339.3
Nine years later	217.8
Cumulative payments	211.4	328.3	400.8	248.6	250.0	280.4	218.6	309.8	171.3	60.6
Estimated balance to pay	6.4	11.0	20.6	21.1	42.8	58.0	87.5	232.3	300.3	448.7

Amlin UK Gross basis Underwriting year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m	2010 £m	2011 £m	2012 £m
Current ultimate gross written premium	208.3	192.6	171.6	151.4	147.1	159.7	210.3	260.2	291.8	353.4
Current gross earned premium	208.3	192.6	171.6	151.4	147.1	159.7	210.3	260.2	288.1	150.4
Estimate of cumulative claims
at end of underwriting year	145.4	126.7	115.6	103.1	101.9	118.1	137.5	168.3	199.1	210.6
One year later	130.3	112.7	111.6	107.0	103.3	124.3	151.5	177.7	192.0
Two years later	103.0	105.2	103.5	102.6	102.6	126.8	156.9	174.5
Three years later	97.3	92.2	89.9	95.1	104.5	126.6	155.2
Four years later	97.5	87.7	89.9	93.0	103.6	124.7
Five years later	88.1	87.7	80.2	94.2	101.2
Six years later	80.5	89.6	83.5	93.5
Seven years later	80.7	88.6	78.9
Eight years later	78.7	84.8
Nine years later	79.8
Cumulative payments	76.3	80.3	73.1	74.1	72.9	77.5	100.6	101.1	78.1	18.8
Estimated balance to pay	3.5	4.5	5.8	19.4	28.3	47.2	54.6	73.4	113.9	191.8
Net basis Underwriting year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m	2010 £m	2011 £m	2012 £m
Estimate of cumulative claims
at end of underwriting year	126.3	111.2	104.6	94.9	95.1	104.2	130.5	160.1	192.3	200.7
One year later	110.1	102.4	101.1	98.7	92.7	110.7	142.3	169.5	185.1
Two years later	92.7	93.9	97.6	96.2	91.5	112.3	149.2	169.2
Three years later	88.7	88.6	88.4	89.6	95.7	114.3	145.9
Four years later	88.8	84.2	88.4	89.9	93.9	112.7
Five years later	81.0	84.2	78.7	90.7	90.9
Six years later	74.9	82.7	79.3	90.1
Seven years later	74.3	81.7	76.0
Eight years later	72.2	78.9
Nine years later	72.4
Cumulative payments	70.0	74.4	70.8	72.3	69.7	76.1	99.0	84.5	68.4	18.4
Estimated balance to pay	2.4	4.5	5.2	17.8	21.2	36.6	46.9	84.7	116.7	182.3

Amlin Bermuda Gross basis Underwriting year	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m	2010 £m	2011 £m	2012 £m
Current ultimate gross written premium	1.2	139.8	167.9	212.8	241.5	287.8	332.7	328.7
Current gross earned premium	1.2	139.8	167.9	212.8	241.5	287.8	322.7	215.1
Estimate of cumulative claims
at end of underwriting year	0.0	41.8	69.3	149.0	94.7	176.4	235.4	157.6
One year later	0.7	23.8	52.8	112.0	77.7	317.8	212.9
Two years later	0.3	28.2	45.3	120.8	81.2	332.2
Three years later	0.3	25.1	42.6	117.9	81.2
Four years later	0.3	24.5	41.3	118.5
Five years later	0.3	24.4	40.1
Six years later	0.3	24.0
Seven years later	0.3
Cumulative payments	0.3	23.5	35.0	113.5	67.1	197.3	103.6	16.2
Estimated balance to pay	0.0	0.5	5.1	5.0	14.1	134.9	109.3	141.4

Net basis Underwriting year	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m	2010 £m	2011 £m	2012 £m
Estimate of cumulative claims
at end of underwriting year	0.0	41.8	69.3	149.0	94.7	176.4	213.1	157.6
One year later	0.7	23.8	52.8	112.0	77.7	287.8	191.5
Two years later	0.3	28.2	45.3	120.8	80.6	305.4
Three years later	0.3	25.1	42.6	117.9	80.6
Four years later	0.3	24.5	41.3	118.5
Five years later	0.3	24.4	40.1
Six years later	0.3	24.0
Seven years later	0.3
Cumulative payments	0.3	23.5	35.0	113.5	66.9	192.2	91.4	16.2
Estimated balance to pay	0.0	0.5	5.1	5.0	13.7	113.2	100.1	141.4

Amlin Re Europe Gross basis Underwriting year	2010 £m	2011 £m	2012 £m
Current ultimate gross written premium	3.0	100.2	166.2
Current gross earned premium	3.0	83.7	117.5
Estimate of cumulative claims
at end of underwriting year	2.1	68.0	110.8
One year later	2.1	68.7
Two years later	1.9
Cumulative payments	0.7	17.6	2.7
Estimated balance to pay	1.2	51.1	108.1

Net basis Underwriting year	2010 £m	2011 £m	2012 £m
Estimate of cumulative claims
at end of underwriting year	2.1	66.0	96.5
One year later	2.1	67.1
Two years later	1.9
Cumulative payments	0.7	17.0	3.2
Estimated balance to pay	1.2	50.1	93.3

Amlin Europe Gross basis Accident year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m	2010 £m	2011 £m	2012 £m
Current ultimate gross written premium	418.1	454.1	472.4	485.1	533.0	619.2	598.8	671.2	548.4	463.2
Current gross earned premium	413.0	445.3	472.1	480.7	513.1	601.3	626.7	585.1	581.8	457.9
Estimate of cumulative claims
at end of accident year	210.3	228.2	251.9	286.5	318.4	512.3	418.8	428.4	434.4	293.3
One year later	238.6	261.7	348.4	299.9	331.5	503.2	429.3	501.3	446.7
Two years later	225.5	243.1	334.3	300.4	355.6	494.5	429.5	459.8
Three years later	221.8	238.5	318.3	287.7	345.1	495.2	446.6
Four years later	214.4	230.1	309.9	285.0	334.6	477.4
Five years later	212.3	206.4	303.0	283.0	332.8
Six years later	211.5	204.7	301.2	280.6
Seven years later	210.3	201.4	300.5
Eight years later	208.0	201.0
Nine years later	207.4
Cumulative payments	190.0	182.1	278.4	250.6	290.6	408.3	311.5	328.9	223.1	69.5
Estimated balance to pay	17.4	18.9	22.1	30.0	42.2	69.1	135.1	130.9	223.6	223.8

Net basis Accident year	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	2009 £m	2010 £m	2011 £m	2012 £m
Estimate of cumulative claims
at end of accident year	176.9	170.5	204.8	234.2	280.6	393.8	390.4	395.2	390.0	271.8
One year later	189.2	197.9	220.5	248.0	280.3	391.2	402.1	441.5	409.2
Two years later	179.1	183.4	204.3	242.1	290.9	382.5	407.0	402.3
Three years later	175.4	179.0	191.0	237.1	272.7	371.0	389.4
Four years later	164.1	168.8	188.3	230.5	256.6	354.9
Five years later	162.2	165.9	179.6	227.5	267.1
Six years later	161.3	170.1	175.8	223.6
Seven years later	152.8	166.0	177.0
Eight years later	150.9	165.6
Nine years later	149.1
Cumulative payments	136.9	149.7	158.7	204.5	232.0	312.4	281.6	310.9	209.1	69.7
Estimated balance to pay	12.2	15.9	18.3	19.1	35.1	42.5	107.8	91.4	200.1	202.1

3.2 Financial 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 - premium received and held to meet future insurance claims.

· Capital assets - 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 (the Boards). 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 & Operations Director and Chief Investment Officer, and meets 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.

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 Corporate Centre Risk 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 basis². 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.

Note:

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 2012 were as follows:

Manager	Asset class
Segregated funds
Aberdeen Fund Management Ltd	US dollar bonds
Artemis Investment Management LLP	Global equities
Barclays Bank plc	New Zealand dollar and US dollar money market deposits
CB Richard Ellis Collective Investors Ltd	Global property
Insight Investment Management (Global) Ltd	Sterling and Euro bonds
Lloyds Bank plc	New Zealand dollar money market deposits
Townsend Group Europe Ltd	Global property
Veritas Asset Management (UK) Ltd	Active global equity
Wellington Management International Ltd	US dollar and Canadian dollar bonds
Pooled vehicles - liquidity funds
BlackRock Inc.	Sterling, Euro and US dollar liquidity funds
Citibank	New Zealand dollar and Australian dollar cash management
Goldman Sachs Asset Management International	Sterling, Euro and US dollar liquidity funds
HSBC Asset Management	US dollar and Euro liquidity funds; New Zealand dollar and Australian dollar cash management
Insight Investment Management (Global) Ltd	Sterling liquidity fund
JP Morgan Asset Management	Euro, Japanese yen and US dollar liquidity funds
Royal Bank of Scotland	Sterling liquidity fund
Western Asset Management	US dollar liquidity fund
Pooled vehicles - bonds and LIBOR plus funds
BlueBay Asset Management Ltd	Euro bonds
Goldman Sachs Asset Management International	LIBOR plus funds
H20 AM LLP	LIBOR plus funds
PIMCO	Sterling and US dollar bonds
Wellington Management International Ltd	LIBOR plus funds
Pooled vehicles - insurance linked securities
Leadenhall Capital Partners LLP	Insurance linked securities
Commingled funds
Corporation of Lloyd's Treasury Services	US dollar, Canadian dollar, Australian dollar, South African rand and Japanese yen bonds
Union Bank of Switzerland	Canadian dollar and US dollar liquidity funds

The funds under management with each manager are shown below:

	Aberdeen £m	Artemis £m	Barclays Bank £m	BlackRock £m	BlueBay £m	BNP Paribas £m	CBRE £m	Citibank £m	Corporation of Lloyd's £m
Total as at 31 December 2012	248.4	111.6	46.2	217.4	379.2	-	73.3	3.4	171.9
%	5.9	2.6	1.1	5.1	8.9	-	1.7	0.1	4.1
Restated total as at 31 December 2011	259.2	46.4	-	355.7	315.9	1.2	43.5	24.9	146.7
%	6.4	1.2	-	8.8	7.8	-	1.1	0.6	3.6

	Goldman Sachs £m	H2O £m	HSBC £m	Insight - segregated funds £m	Insight - pooled vehicles £m	JP Morgan £m	Leadenhall Capital £m	Lloyds Bank £m	PIMCO £m
Total as at 31 December 2012	530.0	192.0	184.7	571.9	69.2	146.7	59.4	15.2	379.5
%	12.5	4.5	4.4	13.5	1.6	3.5	1.4	0.4	9.0
Restated total as at 31 December 2011	564.5	195.6	46.4	614.4	58.1	190.4	75.4	-	417.7
%	14.0	4.9	1.2	15.2	1.4	4.7	1.9	-	10.3

	Royal Bank  of Scotland £m	Townsend £m	UBS £m	Veritas £m	Wellington -segregated funds £m	Wellington -  pooled vehicle £m	Western £m	Total £m
Total as at 31 December 2012	33.5	86.6	60.5	181.1	372.5	33.4	70.2	4,237.8
%	0.8	2.0	1.4	4.3	8.8	0.8	1.6	100.0
Restated total as at 31 December 2011	-	85.7	47.8	169.5	353.9	-	25.1	4,038.0
%	-	2.1	1.2	4.2	8.8	-	0.6	100.0

Note: The table above excludes the Group's directly held securities of £9.4 million (2011: £44.5 million) comprising index linked bonds £nil (2011: £24.7 million), insurance linked securities £4.6 million (2011: £7.5 million), unlisted equities £4.0 million (2011: £4.0 million) and other liquid investments £0.8 million (2011: £8.3 million). The table also excludes £2.4 million (2011: £nil) unrealised gains accruing to a series of foreign exchange contracts placed on behalf of the Group to hedge portfolio currency exposures.

Asset allocation

The total value of investments in the following tables is reconciled to note 18, financial assets and financial liabilities, as follows:

	2012 £m	Restated 2011 £m
Net financial investments per note 18	4,199.3	3,972.9
Assets/(liabilities) shown separately in the notes to the accounts:
Accrued income	7.6	11.2
Net unsettled payables for investments purchased	(15.9)	(5.1)
Cash funds held by financial institutions	59.7	112.0
Assets not analysed in the investment asset allocation tables:
Liquid investments	(0.8)	0.6
Unlisted equities	(0.7)	(0.2)
Margin and collateral relating to derivative instruments	0.4	(8.9)
Total investments in asset allocation tables below	4,249.6	4,082.5

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

	31 December 2012				Restated 31 December 2011
	Underwriting assets £m	Capital assets £m	Total assets £m	Total %	Underwriting assets £m	Capital assets £m	Total  assets £m	Total %
Global equities	-	283.6	283.6	6.7	-	208.0	208.0	5.1
Bonds
Government securities	497.4	206.1	703.5	16.6	543.8	215.4	759.2	18.6
Government index-linked securities	-	-	-	-	-	24.7	24.7	0.6
Government agencies/guaranteed	88.9	5.9	94.8	2.2	92.5	17.7	110.2	2.7
Supranational	8.3	3.4	11.7	0.3	13.8	3.5	17.3	0.4
Asset backed securities - Home equity	-	0.2	0.2	-	-	2.4	2.4	0.1
Asset backed securities - Autos	21.4	3.4	24.8	0.6	16.6	5.8	22.4	0.6
Asset backed securities - Cards	5.3	1.3	6.6	0.2	1.6	6.7	8.3	0.2
Asset backed securities - Other	18.2	5.3	23.5	0.5	10.8	6.2	17.0	0.4
Mortgage backed securities - Prime	80.9	97.4	178.3	4.2	58.9	101.3	160.2	3.9
Mortgage backed securities - Alt A	-	-	-	-	-	0.8	0.8	-
Corporate bonds	150.0	100.8	250.8	5.9	146.2	114.1	260.3	6.4
Pooled vehicles	965.9	398.9	1,364.8	32.1	940.0	408.7	1,348.7	33.0
Insurance linked securities	4.6	-	4.6	0.1	7.5	-	7.5	0.2
	1,840.9	822.7	2,663.6	62.7	1,831.7	907.3	2,739.0	67.1
Property funds	-	153.6	153.6	3.6	-	117.3	117.3	2.9
Other liquid investments
Liquidity funds and other liquid investments	861.3	287.5	1,148.8	27.0	595.7	422.5	1,018.2	24.9
	2,702.2	1,547.4	4,249.6	100.0	2,427.4	1,655.1	4,082.5	100.0

 

Government agencies/guaranteed bonds at 31 December 2012 include £11.2 million of corporate bonds (2011: £48.1 million) and £1.6 million of mortgage backed securities (2011: £1.3 million).

Pooled vehicles held are represented by 16.3% government/agency bonds (2011: 24.6%), 28.4% corporate bonds (2011: 24.0%), 31.7% mortgage backed and asset backed securities (2011: 26.2%), 4.3% insurance linked securities (2011: 5.6%) and 19.3% other liquid investments (2011: 19.6%).

The industry and geographical splits were as follows:

	31 December 2012			31 December 2011
Industry	Corporate bonds %	Global equities %	Total %	Corporate bonds %	Global equities %	Total %
Asset backed securities	-	-	-	0.1	-	0.1
Oil & gas	8.1	12.7	10.4	6.4	14.6	9.7
Basic materials	0.2	2.5	1.4	0.9	1.2	1.0
Industrials	6.4	9.7	8.1	5.4	8.3	6.5
Consumer goods & services	10.9	19.6	15.4	9.0	18.2	12.7
Healthcare	4.0	16.1	10.2	2.7	15.7	8.0
Miscellaneous	1.8	1.2	1.5	0.5	0.4	0.5
Government guaranteed	4.2	-	2.0	15.2	-	9.1
Telecommunications	4.6	13.0	9.0	3.0	15.2	7.9
Utilities	2.0	0.6	1.3	3.3	0.4	2.1
Financials	54.8	14.5	34.0	51.5	15.2	36.8
Technology	3.0	10.1	6.7	2.0	10.8	5.6
	100.0	100.0	100.0	100.0	100.0	100.0

Note: The table above excludes government bonds but includes £11.2 million (2011: £48.1 million) of corporate bonds with government guarantees and pooled vehicles of £1,364.8 million (2011: £1,348.7 million).

	31 December 2012			31 December 2011
Region	Bonds %	Global equities %	Total %	Bonds %	Global equities %	Total %
UK	7.0	15.7	8.5	7.5	20.9	9.3
US and Canada	52.6	40.8	50.7	48.3	34.0	46.5
Europe (excluding UK)	30.4	19.6	28.6	36.7	21.7	34.7
Far East	8.7	14.3	9.8	6.6	14.7	7.7
Emerging markets	0.8	9.6	2.4	0.9	8.7	1.8
South America	0.5	-	-	-	-	-
	100.0	100.0	100.0	100.0	100.0	100.0

Note: The table above includes all bond and equity investments, but excludes pooled vehicles.

Market risk

Valuation risk

Where possible 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 controls reports. 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 models typically use broker quotes or other independent valuation techniques such as discounted cash flow models using observable or unobservable market inputs. 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.

The Group's property fund portfolios are valued using the most recent net asset value provided by the fund managers which may be a quarter in arrears. In such cases, adjustments may be made to bring the net asset value to a more current valuation. Where an investment is made into a new property fund the transaction price is considered to be the fair value if it is the most recent price available.

As an additional level of governance over pricing, the Group validates the prices provided by pricing vendor sources against information obtained from Bloomberg where available, and conducts a review of stale prices at 31 December 2012, the impact of stale prices on the Group's investment valuation is 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 £2.8 million gain/loss (2011: £2.0 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 vice 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 as at 31 December 2012 are shown below.

	31 December 2012			31 December 2011
	Underwriting assets £m	Capital assets £m	Total £m	Underwriting assets £m	Capital assets £m	Total £m
Less than 1 year	293.8	75.5	369.3	197.7	73.6	271.3
1-2 years	38.9	27.3	66.2	102.5	101.8	204.3
2-3 years	152.8	67.1	219.9	172.8	94.2	267.0
3-4 years	154.4	15.1	169.5	141.5	16.9	158.4
4-5 years	114.6	29.0	143.6	129.8	32.5	162.3
Over 5 years	120.4	209.9	330.3	147.3	179.7	327.0
	874.9	423.9	1,298.8	891.6	498.7	1,390.3

Note: The table above excludes pooled vehicles of £1,364.8 million (2011: £1,348.7 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 as at 31 December 2012 were as follows:

	31 December 2012		31 December 2011
Underwriting assets	Assets Years	Liabilities Years	Assets Years	Liabilities Years
Sterling	0.1	2.2	0.4	3.5
US dollars	0.7	2.2	1.2	2.7
Euro	1.5	3.4	0.9	3.2
Canadian dollars	1.5	3.7	1.7	3.8

Note: The table above includes pooled vehicles.

The asset durations above are calculated by the custodian and are checked against those reported by the fund managers. 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		Amlin Europe N.V.		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  NZ$ %	U/wtg JPY %	Capital Sterling  %	U/wtg %	Capital  %	U/wtg %	Capital %
100	(0.9)	(2.2)	(1.5)	(1.5)	0.4	0.3	(0.6)	(0.3)	(2.3)	(2.9)	(1.2)	(62)
75	(0.7)	(1.7)	(1.1)	(1.2)	0.3	0.2	(0.4)	(0.2)	(1.7)	(2.2)	(0.9)	(43)
50	(0.5)	(1.2)	(0.7)	(0.8)	0.2	0.1	(0.3)	(0.2)	(1.2)	(1.5)	(0.7)	(30)
25	(0.2)	(0.6)	(0.4)	(0.4)	0.1	0.1	(0.1)	(0.1)	(0.6)	(0.9)	(0.4)	(16)
- 25	0.2	0.5	0.4	0.4	(0.1)	(0.1)	0.1	0.1	0.5	0.8	0.4	15
- 50	0.5	1.0	0.8	0.8	(0.2)	(0.1)	0.2	0.2	0.9	1.5	0.7	27
- 75	0.7	1.2	1.2	1.2	(0.3)	(0.2)	0.3	0.2	1.2	2.2	0.9	37
- 100	0.9	1.3	1.5	1.5	(0.4)	(0.3)	0.3	0.2	1.5	2.9	1.2	47

Note: The table above includes pooled investments.

Note:

1. 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.

2. 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 asset and liability balances in base currencies of sterling, euro, US dollars, 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 entities that have a non-sterling functional currency. At 31 December 2012, the Group was exposed to net investments in foreign operations balances totalling US$1,330.8 million (2011: US$1,061.6 million) and €499.0 million (2011: €445.4 million). 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 2012 was £57.1 million (2011: £38.9 million loss). This reflects the movement in the US dollar rate from 1.55 at the start of the year to 1.62 at the balance sheet date and the movement in the euro rate from 1.20 at the start of the year to 1.23 at the balance sheet date. In order to mitigate the impact of these currency fluctuations, the Group adopts a policy of hedging approximately 50% of the net currency exposure resulting from the net investments in foreign operations. For this purpose, the Group uses a combination of subordinated debt, drawdowns on the revolving credit facility and options that are accounted for as hedges of net investments in foreign operations, in accordance with the hedge accounting requirements of IAS 39. The effective portion of all unrealised and realised gains and losses on the designated portion of the hedging instruments are taken to reserves to match the underlying movement in the valuation of the net investment in foreign operations, with the ineffective portion recognised in profit or loss. At the year end, hedges were in place for US$628.0 million (2011: US$589.0 million) and €257.0 million (2011: €164.0 million). The net realised and unrealised gain from hedging recognised in other comprehensive income during the year was £3.7 million (2011: £2.4 million gain).

In relation to revaluation of the net investment in foreign operations, if the US$/GBP exchange rates were to improve by 10%, this would result in an additional exchange gain of £141.0 million recognised in other comprehensive income. This gain would be offset by a valuation loss of £23.9 million on the designated portion of the hedging instruments. The same exchange rate deterioration would result in an additional £42.5 million exchange loss through other comprehensive income. This loss would be offset by a valuation gain of £40.4 million on the designated portion of the hedging instruments.

If the EUR/GBP exchange rate were to improve by 10%, this would result in an additional exchange gain of £43.8 million recognised in other comprehensive income. This gain would be offset by a valuation loss of £14.3 million on the designated portion of the hedging instruments. The same exchange rate deterioration would result in an additional £34.1 million exchange loss through other comprehensive income. This loss would be offset by a valuation gain of £8.2 million on the designated portion of the hedging instruments.

Asset liability matching by currency risk

If a liability in a currency other than 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 table below presents the Group's assets and liabilities by currency. In a change from previous presentation, the amounts are stated in the sterling equivalent of the local currency, in order that the amounts can be reconciled to the Group's balance sheet. The local currency amounts have been converted into sterling using the exchange rates as disclosed in note 33. Prior period information has been updated to reflect this change in presentation.

	31 December 2012
Currency risk	Sterling £m	US$ £m	CAN$ £m	Euro £m	NZ$ £m	JPY £m	Total £m
Cash and cash equivalents	25.6	31.3	0.1	77.6	33.3	22.7	190.6
Financial assets	735.9	1,871.8	84.4	1,294.0	179.0	39.9	4,205.0
Reinsurance assets	(147.4)	466.4	10.8	181.0	13.1	1.5	525.4
Loans and receivables and deferred acquisition costs	224.1	683.0	18.1	364.5	30.4	4.6	1,324.7
Current income tax assets	3.7	5.9	1.5	1.2	-	-	12.3
Deferred tax assets	1.4	-	-	16.1	-	-	17.5
Property and equipment	14.4	1.7	-	4.3	-	-	20.4
Intangible assets	131.8	-	-	79.6	-	-	211.4
Investments in associates	9.3	-	-	-	-	-	9.3
Total assets	998.8	3,060.1	114.9	2,018.3	255.8	68.7	6,516.6
Insurance liabilities	697.8	1,828.8	66.3	1,277.0	213.1	55.3	4,138.3
Other payables, insurance and reinsurance payables	(26.4)	270.6	10.2	138.6	-	0.6	393.6
Financial liabilities	2.0	2.1	-	1.6	-	-	5.7
Current income tax liabilities	(1.4)	1.4	-	0.4	-	-	0.4
Borrowings	228.9	181.5	-	-	-	-	410.4
Retirement benefit obligations	17.0	-	-	31.9	-	-	48.9
Deferred tax liabilities	18.4	-	-	9.5	-	-	27.9
Total liabilities	936.3	2,284.4	76.5	1,459.0	213.1	55.9	5,025.2
Net assets	62.5	775.7	38.4	559.3	42.7	12.8	1,491.4

	Restated 31 December 2011
Currency risk	Sterling £m	US$ £m	CAN$ £m	Euro £m	NZ$ £m	JPY £m	Total £m
Cash and cash equivalents	27.4	36.3	-	113.8	74.5	4.3	256.3
Financial assets	719.9	1,655.2	73.8	1,295.0	184.0	56.0	3,983.9
Reinsurance assets	(102.0)	575.0	11.2	164.8	17.5	0.9	667.4
Loans and receivables and deferred acquisition costs	208.7	629.8	23.6	314.0	27.9	6.2	1,210.2
Current income tax assets	1.2	9.9	1.6	1.0	-	-	13.7
Deferred tax assets	1.2	-	-	25.7	-	-	26.9
Property and equipment	13.7	1.7	-	4.5	-	-	19.9
Intangible assets	130.3	-	-	88.6	-	-	218.9
Investments in associates	8.3	-	-	-	-	-	8.3
Total assets	1,008.7	2,907.9	110.2	2,007.4	303.9	67.4	6,405.5
Insurance liabilities	724.6	1,799.4	64.9	1,242.3	327.6	112.8	4,271.6
Other payables, including insurance and reinsurance payables	(24.7)	241.0	15.8	103.6	-	0.7	336.4
Financial liabilities	3.0	0.5	-	7.5	-	-	11.0
Current income tax liabilities	(4.3)	4.2	-	0.2	-	-	0.1
Borrowings	228.6	64.2	-	-	-	-	292.8
Retirement benefit obligations	10.2	-	-	20.6	-	-	30.8
Deferred tax liabilities	30.1	-	-	12.3	-	-	42.4
Total liabilities	967.5	2,109.3	80.7	1,386.5	327.6	113.5	4,985.1
Net assets/(liabilities)	41.2	798.6	29.5	620.9	(23.7)	(46.1)	1,420.4

If the base currencies were to improve/deteriorate by 10%, the movement in the monetary net underwriting assets and liabilities and borrowings of the Group, excluding foreign operations, would result in the following gains/(losses) in the consolidated income statement at 31 December 2012:

	31 December 2012
Currency	10% improvement £m	10% deterioration £m
US dollars	(5.5)	4.5
Canadian dollars	6.4	(5.2)
Euro	(0.9)	0.8
New Zealand dollars	14.7	(12.1)
Japanese yen	3.4	(2.8)
	18.1	(14.8)

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 Group's 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 2012 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 entities 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 at 31 December 2012:

	Contractual cash flows (undiscounted)
31 December 2012 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	283.3	0.3	-	-	-	283.6
Debt and other fixed income securities5	1,364.8	285.5	523.3	373.9	125.0	2,663.6
Property funds	153.6	-	-	-	-	153.6
Liquidity funds and other liquid investments	1,145.5	1.9	-	-	-	1,147.4
Derivative financial instruments, net	1.4	-	-	-	-	1.4
Total	2,948.6	287.7	523.3	373.9	125.0	4,249.6

	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
Outstanding claims	-	1,126.4	1,103.9	427.2	472.5	3,083.5
Less reinsurers' share of outstanding claims	-	(190.3)	(172.5)	(59.4)	(64.0)	(478.6)
Total	-	936.1	931.4	367.8	408.5	2,604.9
Difference in contractual cash flows	2,948.6	(648.4)	(408.1)	6.1	(283.5)	1,644.7

Note:

5. Debt and other fixed income securities include pooled vehicles of £1,364.8 million (2011: £1,348.7 million) which have no stated maturity.

	Contractual cash flows (undiscounted)
Restated 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	1,015.6	6.1	-	-	-	1,021.7
Derivative financial instruments, net	(2.9)	-	(0.6)	-	-	(3.5)
Total	2,686.2	293.2	632.7	360.7	150.1	4,082.5

	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
Outstanding claims	-	1,208.7	1,044.4	644.8	382.5	3,273.6
Less reinsurers' share of outstanding claims	-	(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	2,686.2	(565.2)	(98.0)	(71.2)	(97.7)	1,425.9

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 (note 31). 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's credit risk is mitigated by the collateral received from counterparties, details of which are given in note 29. 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 2012 of the exposure of the bond portfolio, liquidity funds and insurance and reinsurance receivables by credit quality⁶.

31 December 2012	Debt securities7 £m	%	Liquidity funds £m	%	Insurance and reinsurance receivables8 £m	%	Reinsurers' share of outstanding claims £m	%
AAA	950.1	35.7	974.9	100.0	-	-	25.2	5.3
AA	927.6	34.8	-	-	13.0	1.3	148.1	30.9
A	494.9	18.6	-	-	116.5	11.6	250.5	52.4
BBB	153.0	5.7	-	-	0.6	0.1	4.0	0.8
Other	138.0	5.2	-	-	873.1	87.0	50.8	10.6
	2,663.6	100.0	974.9	100.0	1,003.2	100.0	478.6	100.0

Restated 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	892.7	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	892.7	100.0	933.5	100.0	617.0	100.0

Note:

6. 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.

7. Other relates to non-rated and rated lower than BBB, which includes insurance linked securities of £59.4 million (2011: £75.4 million) and Spain sovereign bonds of £64.1 million (2011: £45.5 million included in AA).

8. Other includes £577.6 million (2011: £557.2 million) of premium receivable from policyholders and £295.5 million (2011: £281.0 million) of premium receivable from intermediaries that are not rated.

 

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 2012, 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 impairment. 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 as security against potential default. The details of reinsurance collaterals held and placed with third party trust funds are provided in note 29. At 31 December 2012 the Group held collateral of £300.2 million (2011: £226.5 million). 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 £5.3 million (2011: £6.7 million). The details of overdue reinsurance assets and insurance receivables are provided in notes 19 and 20.

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, and by holding diversified portfolios. £30.3 million of bonds held at 31 December 2012 were subject to downgrades during the year (2011: £21.0 million).

The Group's largest non-government counterparty as at 31 December 2012, excluding liquidity funds, has an AA rating and is valued at £56.5 million (2011: £63.7 million). The investment comprises cash of £53.4 million (2011: £53.8 million), corporate bonds of £2.3 million (2011: £9.4 million), asset backed securities of £nil (2011: £0.5 million) and mortgage backed securities of £0.8 million (2011: £nil). 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 2012	Total £m	AAA	AA	A	BBB	Other
Corporate - Financials	141.4	14.5%	30.2%	54.1%	1.2%	-
Corporate - Other	109.4	-	11.5%	57.8%	30.7%	-
Mortgage backed securities	179.9	91.3%	4.7%	0.4%	0.2%	3.4%
Asset backed securities	55.1	95.8%	1.7%	2.1%	-	0.4%
Insurance linked securities	4.6	-	-	-	-	100%

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%

The table excludes pooled investments and £11.2 million (2011: £48.1 million) of corporate bonds with explicit government guarantees but includes £1.6 million (2011: £1.3 million) of government agency mortgage backed securities.

 

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

	2012 £m	2011 £m
Investments in sovereign debt
France	-	20.8
US	342.1	433.7
Germany	300.0	316.0
The Netherlands	12.1	-
Canada	51.6	60.8
Australia	74.2	45.6
Italy	50.3	62.7
Spain	75.6	52.6
Other	94.2	170.3
Total sovereign debt	1,000.1	1,162.5

Note:The Group's investments in sovereign debt issued by Portugal, Republic of Ireland and Greece were £nil (2011: £nil).

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.

Included in the investments in sovereign debt of Italy and Spain disclosed above are investments in short-duration treasury bills of £36.9 million and £57.5 million respectively (2011: £49.8 million and £41.6 million respectively). The Group continues to monitor developments in the Eurozone and take action to manage its exposure as required. The impact of a number of different scenarios has been considered, with appropriate contingency plans determined.

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 in an active market 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 bond funds, where fair value is based upon quoted prices. 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 and these are classified as Level 1.

Derivatives

Listed derivative contracts, such as futures, that are actively traded are valued using quoted prices from the relevant exchange and are classified as Level 1. Over the counter currency options are valued by the counterparty using quantitative models with multiple market inputs. The market inputs are observable and the valuation can be validated through external sources. These are classified as Level 2. Certain derivatives for which prices or other market inputs are unobservable are classified as Level 3. This is typically the case for certain catastrophe linked instruments.

	Fair value hierarchy				Restated Fair value hierarchy
	Level 1 £m	Level 2 £m	Level 3 £m	Total 2012 £m	Level 1 £m	Level 2 £m	Level 3 £m	Total 2011 £m
Assets
Financial assets held for trading at fair value through profit or loss
Shares and other variable yield securities	279.6	-	-	279.6	204.0	-	-	204.0
Debt and other fixed income securities	2,089.7	622.8	12.2	2,724.7	2,122.2	615.8	0.6	2,738.6
Property funds	-	-	153.6	153.6	-	-	117.3	117.3
Derivative instruments	-	6.8	-	6.8	6.3	13.1	-	19.4
Other financial assets at fair value through profit or loss
Participation in investment pools	997.1	-	-	997.1	903.7	-	-	903.7
Deposits with credit institutions	42.9	-	-	42.9	-	-	-	-
Other	0.6	-	0.6	1.2	1.1	-	1.6	2.7
Available-for-sale financial assets
Unlisted equities	-	-	4.7	4.7	-	-	4.2	4.2
Other
Derivative instruments in designated hedge accounting relationships	-	2.0	-	2.0	3.5	1.7	-	5.2
Total assets	3,409.9	631.6	171.1	4,212.6	3,240.8	630.6	123.7	3,995.1
Liabilities
Financial liabilities held for trading at fair value through profit or loss
Derivative instruments	-	(5.0)	-	(5.0)	(1.5)	(7.0)	-	(8.5)
Other
Derivative instruments in designated hedge accounting relationships	-	(0.7)	-	(0.7)	-	(2.5)	-	(2.5)
Total liabilities	-	(5.7)	-	(5.7)	(1.5)	(9.5)	-	(11.0)
Net financial assets	3,409.9	625.9	171.1	4,206.9	3,239.3	621.1	123.7	3,984.1
Assets shown separately in the notes to the accounts
Accrued income				(7.6)				(11.2)
Net financial investments (note 18)				4,199.3				3,972.9

There has been no significant transfer between the different levels during the year.

The table below analyses the movements in assets and liabilities classified as Level 3 investments during 2012:

	Debt and other fixed income securities £m	Property funds £m	Derivative instruments £m	Other £m	Unlisted equities £m	Total £m
At 1 January 2012	0.6	117.3	-	1.6	4.2	123.7
Total net gains/(losses) recognised in investment return in profit or loss	0.1	(2.0)	-	-	-	(1.9)
Sales	(0.5)	(4.5)	-	(1.0)	-	(6.0)
Purchases	12.6	47.1	-	-	-	59.7
Unrealised gains on investments designated as available-for-sale	-	-	-	-	0.5	0.5
Transfer out of Level 3	(0.6)	-	-	-	-	(0.6)
Foreign exchange losses	-	(4.3)	-	-	-	(4.3)
At 31 December 2012	12.2	153.6	-	0.6	4.7	171.1
Total losses for the period included in profit or loss for assets and liabilities held at the end of the reporting period						(1.4)

	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 profit or loss	-	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 profit or loss for assets and liabilities held at the end of the reporting period						4.3

The majority of the Group's investments are valued based on quoted market information or other observable market data. The Group holds 4.1% (2011 restated: 3.1%) of its net financial investments 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. Subsidiaries and associates

a) Adoption of IFRS 10, 'Consolidated financial statements', IFRS 11, 'Joint arrangements' and IFRS 12, 'Disclosure of interests in other entities'

As stated in note 1, the Group has early adopted the accounting requirements of IFRS 10 and IFRS 11 and the disclosure requirements of IFRS 12 in this set of financial statements. In accordance with these standards, the changes in accounting policy have been applied retrospectively and the comparative financial information has been restated accordingly. The Group has not presented a balance sheet for the beginning of the earliest comparative period as required by IAS 1 because the impact is not material.

The amount of the adjustment for each financial statement line item affected is presented below:

Consolidated income statement	As reported  2011 £m	Restatement £m	Restated 2011 £m
Other operating expenses	(263.0)	(0.4)	(263.4)
Total expenses	(643.2)	(0.4)	(643.6)
Results of operating activities	(165.9)	(0.4)	(166.3)
Finance costs	(27.8)	0.4	(27.4)
Loss before tax	(193.8)	-	(193.8)

Consolidated balance sheet	As reported  2011 £m	Restatement £m	Restated 2011 £m
Cash and cash equivalents	256.4	(0.1)	256.3
Financial assets	4,080.4	(96.5)	3,983.9
Total assets	6,502.1	(96.6)	6,405.5
Other payables, including insurance and reinsurance payables:
- other payables	118.5	(0.9)	117.6
Borrowings	388.5	(95.7)	292.8
Total liabilities	5,081.7	(96.6)	4,985.1
Total equity, reserves and liabilities	6,502.1	(96.6)	6,405.5

Consequential amendments have also been made to the consolidated statement of cash flows and related notes to the accounts.
The impact of the restatement has had no effect on the previously reported amounts of basic and diluted earnings per share.

b) Significant judgements in determining control

The Group has made significant judgements and assumptions in reaching its control conclusions for the following entities:

i. Investment funds

The Group holds financial investments in a number of pooled vehicles, which are typically sub-funds of umbrella structures. In certain instances the Group holds a majority of the voting rights in particular sub-funds. The Group has determined that it neither controls nor significantly influences these sub-funds despite owning a majority of the voting rights on the basis that direction of the relevant activities of the sub-funds is by the umbrella vehicle, over which the Group has no significant rights. Such entities are accounted for as financial investments in accordance with IAS 39.

ii. Leadenhall Capital Partners LLP (LCP)

The Group holds 50.0% of the voting rights in LCP. Owing to the Group's contractual commitments to LCP, as detailed below, and its interests in the funds managed by LCP, the Group has assessed whether it has de facto control over the entity. The Group has determined that it does not have controlling power over LCP as significant decision making requires the consent of more than one party to the arrangement and LCP is therefore collectively controlled. However, such significant decisions do not require the unanimous consent of all the controlling parties and therefore LCP does not meet the definition of a joint arrangement under IFRS 11. The Group is therefore considered to have significant influence over LCP and its interest is accounted for as an investment in associate using the equity method accordingly. LCP was previously accounted for as a joint venture using the equity method. The contractual terms of the Group's interest in LCP have not changed and the impact is one of disclosure only.

c) Principal subsidiaries

The principal subsidiaries at 31 December 2012 which are consolidated in these financial statements are detailed below. Unless otherwise stated, the Group owns 100% of ordinary share capital and voting rights in these entities:

Subsidiaries	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 Insurance (UK) Limited (formerly Cedar Insurance Company Limited)	Insurance 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 Europe N.V. (formerly Amlin Corporate Insurance N.V.)	Insurance company	The Netherlands
Amlin France Holdings SAS**	Intermediate holding company	France
Amlin France SAS**	Lloyd's coverholder	France
JR Clare Underwriting Agencies Limited	Lloyd's coverholder	England and Wales
Lead Yacht Underwriters Limited	Lloyd's coverholder	England and Wales
Amlin Bermuda Holdings Limited	Finance company	Bermuda
Solo Absolute Bonds & Currency Fund	Investment fund	France

Notes:

* 60.0% owned by the Group

** 100.0% owned by the Group (2011: 96.5%)

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.

d) Investments in associates

The Group owns interests in three associates: Miles Smith Holdings Limited, Manchester Underwriting Management Limited and Leadenhall Capital Partners LLP. The aggregate amount of the Group's share of returns from these investments during the year is as follows:

	2012 £m	2011 £m
Profit/(loss) from continuing operations	0.5	(0.1)
Total comprehensive income/(expense)	0.5	(0.1)

At 31 December 2012, the Group had an aggregate balance receivable from associates, excluding loans as detailed below, of £9.9 million (2011: £2.2 million). No amounts were provided for doubtful recovery of outstanding balances and no expense was recognised during the year in respect of bad or doubtful debts due from associates.

The Group has a loan to Miles Smith Holdings Limited of £0.3 million (2011: £0.5 million). The loan 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. Convertible loan stock of £0.7 million (2011: £0.7 million) has been issued by the associate to the Group. The conversion date is 31 December 2015. Interest is accrued at 5.0% over 5 year gilts.

The Group has a loan to Manchester Underwriting Management Limited of £1.0 million (2011: £0.2 million). The loan is repayable in full on 31 December 2014. Interest is charged at 5.1% above the Bank of England base rate.

The Group had a contractual commitment to pay up to US$7.0 million to support the operations of Leadenhall Capital Partners LLP which expired on 31 December 2012. At 31 December 2012, £2.5 million (2011: £2.5 million) was drawn on this agreement which is included within the Group's investment in associate balance.

e) Interests in unconsolidated structured entities

As noted above, the Group holds financial investments in certain pooled vehicles which are typically sub-funds of umbrella structures. These sub-funds meet the definition of structured entities under IFRS 10 as voting and similar rights are not the dominant factor in determining who controls the entity. Decision-making at the sub-fund level is typically restricted to administrative tasks only, and instead it is the voting rights at the umbrella level which determines the control of the sub-funds.

The investments which meet the definition of structured entities are the Group's investments in pooled vehicles - liquidity funds and pooled vehicles - bonds and LIBOR plus funds, as listed in note 3.2. The funds under management with each of the fund managers in these pooled vehicles are also included within the same note. These amounts are recorded within financial assets on the Group's balance sheet.

The maximum exposure to loss from the Group's interests in unconsolidated structured entity is 100% of the funds invested in those entities, should the fair value of the assets held deteriorate to nil.

The Group has provided no financial or other support to any unconsolidated structured entities in the period outside of transactions in the ordinary course of investment management, and has no current intentions to do so.

5. Segmental reporting

a) Basis of segmentation

Management has determined the Group's operating segments based on the management information reviewed by the chief operating decision maker that is 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 six 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 and Marine & Aviation business units, underwritten via Syndicate 2001;

· Amlin UK, underwriting commercial insurance in the UK domestic market, via Syndicate 2001 and Amlin Insurance (UK) Limited;

· 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 Europe, including Amlin Europe N.V., a leading provider of marine, corporate property and casualty insurance in the Netherlands and Belgium and specialty business in France; and

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

Included within the intra-group items column are consolidation adjustments.

Following the Group's announcement in May 2012 that Amlin France will be integrated with Amlin Corporate Insurance, the two businesses now meet the definition of one reportable segment in accordance with IFRS 8 and have therefore been reported together within the 'Amlin Europe' column in the segmental information. Comparative information for the year ended 31 December 2011 has been restated accordingly.

Transactions between segments are carried out at arm's length. The revenue from external parties reported to the chief operating decision maker 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.

b) Segmental information

Segmental information for the reportable segments of the Group is provided below.
A reconciliation between this information and the consolidated income statement is provided in note 5(c).

Income and expenses by business segment Year ended 31 December 2012	Amlin London £m	Amlin UK £m	Amlin Bermuda £m	Amlin Re Europe £m	Amlin  Europe £m	Other corporate companies £m	Intra group  items £m	Total £m
Analysed by geographic segment:
UK	170.3	316.7	244.2	17.6	24.2	-	(223.0)	550.0
North America	589.4	10.3	184.3	1.9	-	-	-	785.9
Europe	85.6	22.2	30.9	141.7	282.1	-	(2.0)	560.5
Worldwide	15.9	17.0	-	-	169.9	-	-	202.8
Other	204.9	6.4	84.6	10.5	-	-	-	306.4
Gross written premium	1,066.1	372.6	544.0	171.7	476.2	-	(225.0)	2,405.6
Net written premium	739.4	303.3	488.3	138.5	394.0	-	(4.9)	2,058.6
Gross earned premium	1,037.7	323.6	537.2	154.9	471.4	-	(205.8)	2,319.0
Reinsurance premium ceded	(321.3)	(57.6)	(61.5)	(28.5)	(80.6)	-	201.0	(348.5)
Net earned premium	716.4	266.0	475.7	126.4	390.8	-	(4.8)	1,970.5
Insurance claims and claims settlement expenses	(508.0)	(185.7)	(259.8)	(103.1)	(273.9)	-	133.2	(1,197.3)
Reinsurance recoveries	129.6	35.6	(5.0)	11.0	42.7	-	(141.2)	72.7
Expenses for the acquisition of insurance contracts	(193.5)	(72.8)	(71.8)	(20.2)	(74.3)	-	10.1	(422.5)
Underwriting expenses	(79.7)	(29.0)	(16.7)	(12.7)	(78.6)	-	0.4	(216.3)
Profit attributable to underwriting	64.8	14.1	122.4	1.4	6.7	-	(2.3)	207.1
Investment return	22.0	6.6	60.9	2.3	60.5	20.2	(7.2)	165.3
Other operating income1	23.5	7.7	1.4	-	1.9	8.4	(37.3)	5.6
Agency expenses2	(20.1)	(6.5)	-	-	(0.7)	-	27.3	-
Other non-underwriting expenses	(0.8)	(0.1)	(4.4)	(2.5)	(24.8)	(61.7)	7.6	(86.7)
Result of operating activities	89.4	21.8	180.3	1.2	43.6	(33.1)	(11.9)	291.3
Finance costs3								(27.6)
Share of profit after tax of associates								0.5
Profit before taxation								264.2
Claims ratio	53%	57%	56%	73%	59%			57%
Expense ratio	38%	38%	18%	26%	39%			32%
Combined ratio	91%	95%	74%	99%	98%			89%

Note:

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.

Included within the gross written premium of Amlin Bermuda is premium ceded from Amlin London, Amlin UK and Amlin Europe amounting to £207.4 million on reinsurance contracts undertaken at commercial rates (2011: £183.4 million).

Investment return in other corporate companies includes a £14.2 million gain (2011: £3.2 million loss) generated from investments in Funds at Lloyd's that support the business reported in the Amlin London, Amlin UK and Amlin Europe segments.

Assets and liabilities by business segment At 31 December 2012	Amlin London £m	Amlin UK £m	Amlin Bermuda £m	Amlin Re Europe £m	Amlin  Europe £m	Other corporate companies £m	Intra group  items £m	Total £m
Assets	2,188.9	774.1	1,815.5	220.9	1,588.6	3,582.1	(3,653.5)	6,516.6
Liabilities	(2,216.5)	(768.0)	(808.8)	(227.3)	(1,355.2)	(1,562.6)	1,913.2	(5,025.2)
Total net assets	(27.6)	6.1	1,006.7	(6.4)	233.4	2,019.5	(1,740.3)	1,491.4

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 £508.4 million (2011: £563.1 million) of capital assets that support the business written by Syndicate 2001 which is reported within the Amlin London, Amlin UK and Amlin Europe segments.

Included in assets are the following:

At 31 December 2012	Amlin London £m	Amlin UK £m	Amlin Bermuda £m	Amlin Re Europe £m	Amlin  Europe £m	Other corporate companies £m	Intra group items £m	Total £m
Investments in associates	-	-	-	-	-	9.3	-	9.3
Additions to non-current assets	0.3	-	0.2	0.1	3.5	5.0	0.1	9.2

The Group's non-current assets, consisting of property and equipment and intangible assets, are £231.8 million (2011: £238.8 million) of which £207.5 million (2011: £214.7 million) is located in the UK and £24.3 million (2011: £24.1 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 £6.2 million (2011: £5.3 million) of which £0.9 million (2011: £1.1 million) has been charged to Amlin London, £1.7 million (2011: £1.2 million) to Amlin UK, £0.7 million to Amlin Bermuda (2011: £0.4 million), £0.5 million to Amlin Re Europe (2011: £0.3 million), £2.1 million to Amlin Europe (2011: £1.8 million) and £0.3 million to Other corporate companies (2011: £0.5 million).

No impairment losses in respect of intangible assets have been recognised during the year (2011: £nil).

Restated Income and expenses by business segment Year ended 31 December 2011	Amlin London £m	Amlin UK £m	Amlin Bermuda £m	Amlin Re Europe £m	Amlin Europe £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	25.8	90.3	309.1	-	(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	527.5	107.4	588.7	-	(186.8)	2,304.1
Net written premium	675.3	261.3	503.8	98.3	480.1	-	(5.6)	2,013.2
Gross earned premium	938.2	280.3	499.8	58.3	620.2	-	(173.6)	2,223.2
Reinsurance premium ceded	(268.7)	(49.1)	(21.2)	(7.4)	(120.4)	-	171.0	(295.8)
Net earned premium	669.5	231.2	478.6	50.9	499.8	-	(2.6)	1,927.4
Insurance claims and claims settlement expenses	(751.2)	(205.7)	(504.7)	(38.3)	(497.9)	-	128.2	(1,869.6)
Reinsurance recoveries	300.3	45.3	54.5	1.8	99.6	-	(131.3)	370.2
Expenses for the acquisition of insurance contracts	(172.1)	(52.8)	(66.5)	(7.6)	(91.9)	-	10.7	(380.2)
Underwriting expenses	(60.4)	(25.9)	(20.0)	(9.4)	(76.2)	-	(1.9)	(193.8)
Loss attributable to underwriting	(13.9)	(7.9)	(58.1)	(2.6)	(66.6)	-	3.1	(146.0)
Investment return	17.5	5.0	4.5	0.1	(15.1)	29.0	(0.5)	40.5
Other operating income1	24.8	6.4	0.2	-	1.9	11.2	(35.7)	8.8
Agency expenses2	(20.2)	(5.3)	-	-	(0.7)	-	26.2	-
Other non-underwriting expenses	(0.6)	(0.2)	(4.4)	(1.9)	(26.2)	(49.0)	12.7	(69.6)
Result of operating activities	7.6	(2.0)	(57.8)	(4.4)	(106.7)	(8.8)	5.8	(166.3)
Finance costs3								(27.4)
Share of loss after tax of associates								(0.1)
Loss before taxation								(193.8)
Claims ratio	67%	69%	94%	72%	80%			78%
Expenses ratio	35%	34%	18%	33%	33%			30%
Combined ratio	102%	103%	112%	105%	113%			108%

Note:

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 2011	Amlin London £m	Amlin UK £m	Amlin Bermuda £m	Amlin Re Europe £m	Amlin  Europe £m	Other corporate companies £m	Intra group items £m	Total £m
Assets	2,160.3	476.0	1,750.0	101.8	1,669.3	3,519.6	(3,271.5)	6,405.5
Liabilities	(2,136.8)	(476.0)	(874.3)	(108.6)	(1,481.1)	(1,744.6)	1,836.3	(4,985.1)
Total net assets	23.5	-	875.7	(6.8)	188.2	1,775.0	(1,435.2)	1,420.4

Included in assets are the following:

Restated At 31 December 2011	Amlin London £m	Amlin UK £m	Amlin Bermuda £m	Amlin Re Europe £m	Amlin  Europe £m	Other corporate companies £m	Intra group items £m	Total £m
Investments in associates	-	-	-	-	-	8.3	-	8.3
Additions to non-current assets	-	-	1.8	1.3	8.2	27.6	16.4	55.3

c) Reconciliation between management information and the consolidated income statement

The table below shows the reconciliation between the management information provided to the chief operating decision maker and the consolidated income statement.

Year ended 31 December 2012	Management information £m	Reconciling  items £m	IFRS  Income statement £m
Gross written premium	2,405.6	-	2,405.6
Net written premium	2,058.6	15.9	2,074.5
Gross earned premium	2,319.0	-	2,319.0
Reinsurance premium ceded	(348.5)	15.9	(332.6)
Net earned premium	1,970.5	15.9	1,986.4
Insurance claims and claims settlement expenses	(1,197.3)	-	(1,197.3)
Reinsurance recoveries	72.7	-	72.7
Expenses for the acquisition of insurance contracts	(422.5)	-	(422.5)
Underwriting expenses	(216.3)	-	(216.3)
Profit attributable to underwriting	207.1	15.9	223.0
Investment return	165.3	(15.9)	149.4
Other operating income	5.6	-	5.6
Other non-underwriting expenses	(86.7)	-	(86.7)
Result of operating activities	291.3	-	291.3
Finance costs	(27.6)	-	(27.6)
Share of profit after tax of associates	0.5	-	0.5
Profit before taxation	264.2	-	264.2

The reconciling items disclosed in the table above relate to items of income and expense under the Group's risk transfer contract with Tramline Re Ltd, the risk period of which incepted on 1 January 2012. From a management information perspective, the instrument is insurance linked and therefore these balances are included within the Group's profit attributable to underwriting in the segmental information. Under IAS 39, the instrument is classified as a derivative and therefore such items of income and expense are reported through investment return in the Group's consolidated income statement.

6. Net earned premium

	2012 £m	2011 £m
Gross earned premium
Gross written premium	2,405.6	2,304.1
Change in unearned premium	(86.6)	(80.9)
	2,319.0	2,223.2
Reinsurance premium ceded
Reinsurance premium payable	(331.1)	(290.9)
Change in reinsurers' share of unearned premium	(1.5)	(4.9)
	(332.6)	(295.8)
	1,986.4	1,927.4

7. Investment return

	2012 £m	2011 £m
Investment income
- dividend income	11.3	12.2
- interest income	31.1	42.8
- cash and cash equivalents interest income	5.6	5.7
	48.0	60.7
Net realised gains/(losses) on assets held for trading
- equity securities	7.0	12.8
- debt securities	28.4	29.2
- property funds	(0.1)	2.6
- derivative instruments	(22.8)	(8.7)
on assets classified as other than trading
- participation in investment pools	3.3	2.4
	15.8	38.3
Net unrealised gains/(losses) on assets held for trading
- equity securities	11.5	(29.4)
- debt securities	77.7	(35.1)
- property funds	(2.7)	1.7
- derivative instruments	(0.9)	4.1
on assets classified as other than trading
- participation in investment pools	-	0.2
	85.6	(58.5)
	149.4	40.5

8. Net insurance claims

	2012 £m	2011 £m
Insurance claims and claims settlement expenses
Current year insurance claims and claims settlement expenses	1,291.6	1,948.1
Reduced costs for prior period insurance claims	(94.3)	(78.5)
	1,197.3	1,869.6
Insurance claims and claims settlement expenses recoverable from reinsurers
Current year reinsurers' share of insurance claims and claims settlement expenses	(72.8)	(336.1)
Reduced/(additional) costs for reinsurers' share of prior period insurance claims	0.1	(34.1)
	(72.7)	(370.2)
	1,124.6	1,499.4

9. Expenses for the acquisition of insurance contracts

	2012 £m	2011 £m
Expenses for the acquisition of insurance contracts	454.8	401.7
Changes in deferred expenses for the acquisition of insurance contracts	(32.3)	(21.5)
	422.5	380.2

10. Other operating expenses

Note	2012 £m	Restated 2011 £m
Expenses relating to underwriting
Employee expenses, excluding employee incentives	115.3	95.1
Lloyd's expenses	19.3	18.3
Other administrative expenses	71.2	74.5
Underwriting exchange losses  16	10.5	5.9
	216.3	193.8
Other expenses
Employee expenses, excluding employee incentives	13.9	15.7
Employee incentive and related social security costs	34.8	9.5
Asset management fees	6.4	6.8
Other administrative expenses	18.8	16.5
Amlin Europe N.V. disentanglement and integration costs	20.6	16.8
Non-underwriting exchange (gains)/losses 16	(7.8)	4.3
	86.7	69.6
	303.0	263.4

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

Amlin Europe N.V. disentanglement and integration costs include expenditure incurred on the systems replacement programme which completed in 2012.

11. Directors' remuneration

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

	2012 £m	2011 £m
Remuneration of executive directors	3.0	2.5
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	1.1
	4.7	4.2
Pension contributions	0.1	0.2
	4.8	4.4

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 (2011: two) executive directors and to stakeholder defined contribution schemes for two (2011: two) other executive directors.

12. Employee benefit expenses

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

	2012	2011
Underwriting divisions
Underwriting, claims and reinsurance	787	721
Administration and support	595	530
Corporate Centre functions
Operations	188	164
Finance	43	40
Internal audit and compliance	15	14
	1,628	1,469

The presentation of the allocation of headcount has been amended to align with management's view of the business and provide consistency with the classification of employees and administrative expenses disclosed in note 10. The presentation of the comparative information for 2011 also reflects this change.

	2012	2011
By location
UK	1,038	909
Continental Europe	530	510
Bermuda	46	40
Singapore	13	10
US	1	-
	1,628	1,469

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

Note	2012 £m	2011 £m
Wages and salaries	111.8	114.6
Employee incentive and related social security costs	34.8	9.5
Equity settled share options and awards granted to directors and employees 28	4.4	3.8
Social security costs	14.4	13.8
Pension costs - defined contribution schemes 32	6.6	6.4
Pension costs - defined benefit schemes 32	6.4	4.2
	178.4	152.3

13. Finance costs

	2012 £m	Restated 2011 £m
Letter of credit commission	1.1	2.2
Revolving credit facility	1.8	-
Subordinated bond interest	20.2	20.3
Other similar charges	4.5	4.9
	27.6	27.4

14. Profit/(loss) before tax

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

Note	2012 £m	2011 £m
Depreciation  22	6.2	5.3
Amortisation  23	7.3	4.9
Operating lease expenditure  35	9.7	9.0
Foreign exchange losses  16	2.7	10.2

Fees paid to the Group's auditors in respect of the financial year are set out below:

	2012 £'000	2011 £'000
Audit
Audit of the Group's and Company's annual financial statements	161.3	127.7
Audit of subsidiaries	1,106.1	1,048.2
	1,267.4	1,175.9
Assurance services
Audit-related assurance services	308.6	161.2
Other assurance services	23.3	10.5
	331.9	171.7
Services relating to taxation
Tax advisory services	84.7	149.0
	84.7	149.0
Other non-audit services
Internal audit services	20.0	-
Services related to corporate finance transactions	100.3	166.9
Other non-audit services1	617.8	43.1
	738.1	210.0
Total fees	2,422.1	1,706.6

Note:

1. Other non-audit services include £562,000 in 2012 relating to advisory work to assess the Group's financial reporting systems and scope a finance transformation project. For more detailed explanation of the process for authorisation see the Audit Committee report.

The disclosure of fees paid to the Group's auditor has been provided in accordance with The Companies (Disclosure of Auditor Remuneration and Liability Limitation Agreements) (Amendment) Regulations 2011 which is effective for financial years beginning on or after 1 October 2011. The presentation of the comparative information for 2011 also reflects these changes.

15. Tax 

	2012 £m	2011 £m
Current tax - current year
Corporate income tax	23.3	25.5
Foreign tax	6.4	4.8
Double tax relief	(3.8)	(3.2)
	25.9	27.1
Current tax - adjustments in respect of previous years
Corporate income tax	(7.2)	(15.9)
Deferred tax - current year
Origination and reversal of temporary differences	(1.3)	(61.9)
Deferred tax - adjustments in respect of previous years
Movements for the year	1.5	10.4
Impact of change in UK tax rate	(2.4)	(4.0)
	(0.9)	6.4
Taxes on income	16.5	(44.3)

In addition to the above, tax of £3.7 million (2011: £6.4 million) has been credited directly to other comprehensive income as follows:

	2012 £m	2011 £m
Current tax on gains on revaluation of hedge instruments	0.9	0.1
Current tax on foreign exchange losses on translation of foreign operations	(1.9)	(2.0)
Current tax charged on other items within other comprehensive income	0.7	-
Deferred tax on defined benefit pension fund actuarial losses	(3.4)	(4.5)
Taxes credited to other comprehensive income	(3.7)	(6.4)

In addition to the above, tax of £0.1 million (2011: £1.0 million charged) has been credited directly to reserves as follows:

	2012 £m	2011 £m
Deferred tax on employee share option scheme	(0.1)	1.0
Taxes (credited)/charged to reserves	(0.1)	1.0

Reconciliation of tax expense

The UK standard rate of corporation tax is 24.5% (2011: 26.5%), whereas the tax charged for the year ended 31 December 2012 as a percentage of profit (2011: loss) before tax is 6.2% (2011: 22.9%). The reasons for this difference are explained below:

	2012 £m	2012 %	2011 £m	2011 %
Profit/(loss) before tax	264.2		(193.8)
Taxation on profit/(loss) on ordinary activities at the standard rate of corporation tax in the UK	64.8	24.5	(51.4)	26.5
Non-deductible or non-taxable items	0.1	-	4.1	(2.1)
Tax rate differences on foreign subsidiaries	(42.9)	(16.2)	10.9	(5.6)
Over provision in respect of previous years	(5.7)	(2.1)	(5.5)	2.8
Irrecoverable foreign tax	2.6	0.9	1.6	(0.8)
Deferred tax rate change	(2.4)	(0.9)	(4.0)	2.1
Taxes on income	16.5	6.2	(44.3)	22.9

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 2011	13.8	0.9	-	-	14.7
Movements 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
Movements in the year	(10.2)	(3.6)	2.0	(7.9)	(19.7)
Amounts netted off against deferred tax liabilities	-	-	-	10.3	10.3
At 31 December 2012	28.2	1.5	10.0	(22.2)	17.5

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

	Underwriting results £m	Unrealised capital gains £m	Syndicate capacity £m	Intangibles £m	Other timing differences £m	Total £m
At 1 January 2011	43.5	13.7	6.9	14.7	9.0	87.8
Movements in the year	(33.0)	(6.2)	(0.2)	(3.3)	(2.7)	(45.4)
At 31 December 2011	10.5	7.5	6.7	11.4	6.3	42.4
Movements in the year	(17.7)	5.7	0.1	(1.7)	(11.8)	(25.4)
Amounts netted off against deferred tax assets	-	-	-	-	10.3	10.3
Other movements	-	-	-	-	0.6	0.6
At 31 December 2012	(7.2)	13.2	6.8	9.7	5.4	27.9

A deferred tax asset of £8.8 million (2011: £23.9 million) is expected to be recovered after more than 12 months from the balance sheet date.

UK tax rate

The UK Budget in March 2012 announced a change in the main rate of UK corporation tax. The new rate of 24.0% was substantively enacted on 26 March 2012 and applied from 1 April 2012.

Underwriting profits

Underwriting profits and losses are recognised in the income statement 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. A deferred tax asset (before netting off) has been recognised on the underwriting result for this accounting period of £7.2 million (2011: £10.5 million liability).

The Group is subject to US tax on US underwriting profits. No provision has been made in respect of such tax arising in 2012 (2011: £nil) as any net provision is likely to be immaterial.

Controlled Foreign Companies legislation

The Group's reinsurance subsidiary, Amlin Bermuda Ltd, was re-domiciled from Bermuda to Switzerland during 2010 and renamed Amlin AG. The company has since operated in Switzerland as Amlin Re Europe, with the Bermudian business operating as a branch. The Group's tax provision for 2012 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% (2011: nil%). The combined rate of Swiss cantonal and federal taxes, applicable to profits arising from the Swiss operation only, is 21.2% (2011: 21.2%).

Deferred tax rate

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 - 23.0% (2011: 25.0%);

· The Netherlands - 25.0% (2011: 25.0%);

· Bermuda - nil% (2011: nil%); and

· Switzerland - 21.2% (2011: 21.2%).

The UK tax rate applied for deferred tax purposes (23.0%) was enacted in July 2012. Further reductions in the UK corporation tax rate have been announced, which will reduce the corporation tax rate to 21.0%. These subsequent reductions have not yet been enacted or substantively enacted and therefore the rate at which deferred tax is provided remains 23.0% in accordance with IAS 12. The estimated impact of the reduction from 23.0% to 21.0% will be a reduction in the net deferred tax liability of £0.3 million (2011: £4.2 million).

16. Net foreign exchange losses

The Group recognised net foreign exchange losses of £2.7 million (2011: £10.2 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:

	2012 £m	2011 £m
Underwriting exchange losses
Net losses on underwriting transactions and translation of underwriting assets and liabilities at closing rates	(10.5)	(5.9)
	(10.5)	(5.9)
Non-underwriting exchange gains/(losses)
Gains/(losses) on long-term US dollar borrowings	2.8	(0.2)
Net gains/(losses) on non-underwriting transactions and translation of non-underwriting assets and liabilities at closing rates	5.0	(4.1)
	7.8	(4.3)
Total net foreign exchange losses	(2.7)	(10.2)

The above excludes foreign exchange gains and 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:

	2012 £m	2011 £m
Gains/(losses) on translation of foreign operations:
- Amlin Bermuda	(51.6)	(0.2)
- Amlin Singapore Pte Limited	-	(0.3)
- Amlin France SAS	0.1	0.1
- Amlin Europe N.V.	3.3	(6.4)
- Amlin Re Europe	0.2	0.6
- Solo Absolute Bonds & Currency Fund	(7.2)	(30.5)
	(55.2)	(36.7)
Gains on financial instruments that hedge investments in foreign operations	3.7	2.4
Losses on translation of intangibles arising from investments in foreign operations	(1.9)	(2.2)
	(53.4)	(36.5)

17. Cash and cash equivalents

	2012 £m	Restated 2011 £m
Cash and cash in hand	153.3	132.8
Short-term deposits	37.3	123.5
	190.6	256.3

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.

18. Financial assets and financial liabilities

Net financial investments	At valuation 2012 £m	Restated At valuation 2011 £m	At cost 2012 £m	Restated At cost 2011 £m
Assets
Financial assets held for trading at fair value through profit or loss
Shares and other variable yield securities	279.3	203.3	259.7	194.1
Debt and other fixed income securities	2,717.4	2,728.1	2,797.6	2,896.2
Property funds	153.6	117.3	158.8	120.0
Derivative instruments	6.8	19.4	-	4.9
Other financial assets at fair value through profit or loss
Participation in investment pools	997.1	903.7	997.1	903.8
Deposits with credit institutions	42.9	-	42.9	-
Other	1.2	2.7	1.2	2.7
Available-for-sale financial assets
Unlisted equities	4.7	4.2	4.7	4.0
Other
Derivative instruments in designated hedge accounting relationships	2.0	5.2	-	-
Total financial assets	4,205.0	3,983.9	4,262.0	4,125.7
Liabilities
Financial liabilities held for trading at fair value through profit or loss
Derivative instruments	(5.0)	(8.5)	-	-
Other
Derivative instruments in designated hedge accounting relationships	(0.7)	(2.5)	-	-
Total financial liabilities	(5.7)	(11.0)	-	-
Net financial assets	4,199.3	3,972.9	4,262.0	4,125.7

Debt and other fixed income securities include pooled funds, investing in bonds and other fixed income securities. The valuation of these funds is £1,364.8 million (2011: £1,348.7 million).

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

The Group holds hedging and non-hedging derivatives. Hedging derivatives are designated at inception and qualify for hedge accounting under IAS 39. Non-hedging derivatives either do not qualify for hedge accounting or the option to hedge account has not been taken.

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

	2012 £m	Restated 2011 £m
At 1 January	3,972.9	4,300.4
Exchange (losses)/gains	(109.6)	7.1
Net purchases/(sales)	234.1	(312.4)
Net realised gains on assets held for trading or other than trading	15.8	38.3
Net unrealised gains/(losses) on assets held for trading or other than trading	85.6	(58.5)
Net unrealised gains on assets designated as available-for-sale	0.5	0.2
Asset recognised as associate	-	(4.6)
Net realised and unrealised gains on derivative instruments in designated hedge accounting relationships	-	2.4
At 31 December	4,199.3	3,972.9

19. Insurance liabilities and reinsurance assets

Outstanding claims	2012			2011
	Insurance liabilities £m	Reinsurers' share £m	Net liabilities £m	Insurance liabilities £m	Reinsurers' share £m	Net liabilities £m
At 1 January	3,273.6	617.0	2,656.6	2,631.9	383.1	2,248.8
Claims incurred during the current year	1,291.6	72.8	1,218.8	1,948.1	336.1	1,612.0
Movements arising from prior year claims	(94.3)	(0.1)	(94.2)	(78.5)	34.1	(112.6)
Claims paid during the year	(1,295.6)	(195.5)	(1,100.1)	(1,234.1)	(119.3)	(1,114.8)
Accretion of fair value adjustment	4.7	0.8	3.9	4.8	0.8	4.0
Other movements	-	(1.9)	1.9	9.4	(10.5)	19.9
Exchange adjustments	(96.5)	(14.5)	(82.0)	(8.0)	(7.3)	(0.7)
At 31 December	3,083.5	478.6	2,604.9	3,273.6	617.0	2,656.6

In connection with the purchase accounting for the acquisition of Amlin Europe N.V., the Group adjusted outstanding claims and related reinsurers' share of outstanding claims to fair value on acquisition. The reduction to the original carrying value of £39.1 million and £6.4 million to outstanding claims and reinsurers' share of outstanding claims respectively is being recognised through a charge to the income statement over the period the claims are settled. This net charge is £3.9 million in 2012 (2011: £4.0 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.

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

Outstanding claims	2012			2011
	Insurance liabilities £m	Reinsurers' share £m	Net liabilities £m	Insurance liabilities £m	Reinsurers' share £m	Net liabilities £m
Notified outstanding claims	2,200.6	394.2	1,806.4	2,288.4	385.8	1,902.6
Claims incurred but not reported	882.9	84.4	798.5	985.2	231.2	754.0
	3,083.5	478.6	2,604.9	3,273.6	617.0	2,656.6

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

	2012			2011
Outstanding claims	Insurance liabilities £m	Reinsurers' share £m	Net liabilities £m	Insurance liabilities £m	Reinsurers' share £m	Net liabilities £m
Current portion	1,126.4	190.3	936.1	1,175.0	189.6	985.4
Non-current portion	1,957.1	288.3	1,668.8	2,098.6	427.4	1,671.2
	3,083.5	478.6	2,604.9	3,273.6	617.0	2,656.6

Unearned premium	2012			2011
	Insurance liabilities £m	Reinsurers' share £m	Net liabilities £m	Insurance liabilities £m	Reinsurers' share £m	Net liabilities £m
At 1 January	998.0	50.4	947.6	914.4	55.3	859.1
Premiums written during the year	2,405.6	331.1	2,074.5	2,304.1	290.9	2,013.2
Premiums earned during the year	(2,319.0)	(332.6)	(1,986.4)	(2,223.2)	(295.8)	(1,927.4)
Other movements	-	-	-	(0.5)	0.1	(0.6)
Exchange adjustments	(29.8)	(2.1)	(27.7)	3.2	(0.1)	3.3
At 31 December	1,054.8	46.8	1,008.0	998.0	50.4	947.6

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

	2012			2011
Unearned premium	Insurance liabilities £m	Reinsurers' share £m	Net liabilities £m	Insurance liabilities £m	Reinsurers' share £m	Net liabilities £m
Current portion	926.1	28.6	897.5	870.2	39.0	831.2
Non-current portion	128.7	18.2	110.5	127.8	11.4	116.4
	1,054.8	46.8	1,008.0	998.0	50.4	947.6

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

	2012 £m	2011 £m
Reinsurers' share of insurance liabilities	541.6	686.8
Less provision for impairment of receivables from reinsurers	(16.2)	(19.4)
Reinsurance assets	525.4	667.4

The Group assesses its reinsurers' share of outstanding claims 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 reinsurers' share of outstanding claims are shown in note 3.2. As at 31 December 2012 there were £1.2 million (2011: £nil) reinsurance assets greater than 3 months overdue. The Group holds collateral of £300.2 million (2011: £226.5 million) in relation to reinsurers' share of outstanding claims. Details are included in note 29.

The Group has recognised a total net impairment loss of £nil (2011: £0.1 million) on reinsurance assets and insurance and reinsurance receivables.

20. Loans and receivables, including insurance and reinsurance receivables

	2012 £m	2011 £m
Receivables arising from insurance and reinsurance contracts	1,021.6	953.5
Less provision for impairment of receivables from contract holders and agents	(18.4)	(20.0)
Insurance and reinsurance receivables	1,003.2	933.5
Other receivables	56.4	51.6
Prepayments and other accrued income	25.8	17.4
Other loans and receivables	82.2	69.0
	1,085.4	1,002.5

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

	2012 £m	2011 £m
Current portion	1,037.2	932.5
Non-current portion	48.2	70.0
	1,085.4	1,002.5

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. At 31 December 2012 insurance and reinsurance receivables at a nominal value of £16.8 million (2011: £50.5 million) were greater than 3 months overdue and provided for on the basis of credit rating to the value of £9.0 million (2011: £11.3 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:

	2012 £m	2011 £m
3 to 6 months	6.2	10.9
6 to 9 months	3.7	14.6
Greater than 9 months	6.9	25.0
	16.8	50.5

The Netherlands and Belgium business of Amlin Europe 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 £82.4 million (2011: £88.4 million). The provision for non-recovery is £4.8 million (2011: £5.0 million).

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

21. Deferred acquisition costs

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

	£m
At 1 January 2011	185.8
Expense deferred	401.7
Amortisation	(380.2)
Other movements	0.4
At 31 December 2011	207.7
Expense deferred	454.8
Amortisation	(422.5)
Other movements	(0.7)
At 31 December 2012	239.3

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

	2012 £m	2011 £m
Current portion	209.9	182.1
Non-current portion	29.4	25.6
	239.3	207.7

22. 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 2012	6.8	0.1	36.9	14.4	58.2
Additions	0.4	-	4.4	2.1	6.9
Disposals	-	-	(0.3)	(1.5)	(1.8)
Foreign exchange losses	-	-	(0.2)	(0.1)	(0.3)
At 31 December 2012	7.2	0.1	40.8	14.9	63.0
Accumulated depreciation
At 1 January 2012	0.3	-	28.8	9.2	38.3
Charge for the year	0.1	-	4.6	1.5	6.2
Disposals	-	-	(0.2)	(1.5)	(1.7)
Foreign exchange gains	-	-	(0.1)	(0.1)	(0.2)
At 31 December 2012	0.4	-	33.1	9.1	42.6
Net book value
At 31 December 2012	6.8	0.1	7.7	5.8	20.4
At 1 January 2012	6.5	0.1	8.1	5.2	19.9

	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
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)
Foreign exchange losses	-	-	(0.3)	(0.1)	(0.4)
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
Charge for the year	-	-	4.0	1.3	5.3
Disposals	-	(0.1)	(0.1)	(0.6)	(0.8)
Foreign exchange gains	-	-	-	(0.2)	(0.2)
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

23. Intangible assets

	Goodwill £m	Syndicate participations £m	Broker and customer relationships £m	Computer software £m	Other intangibles £m	Total £m
Cost
At 1 January 2012	77.0	63.2	50.3	42.6	2.5	235.6
Additions	-	-	-	1.9	0.4	2.3
Adjustments to prior acquisitions	(0.2)	-	-	-	-	(0.2)
Foreign exchange losses	(1.3)	-	(0.9)	(0.3)	-	(2.5)
At 31 December 2012	75.5	63.2	49.4	44.2	2.9	235.2
Accumulated amortisation
At 1 January 2012	0.4	-	14.6	-	1.7	16.7
Charge for the year	-	-	4.2	2.6	0.5	7.3
Foreign exchange gains	-	-	(0.2)	-	-	(0.2)
At 31 December 2012	0.4	-	18.6	2.6	2.2	23.8
Net book value
At 31 December 2012	75.1	63.2	30.8	41.6	0.7	211.4
At 1 January 2012	76.6	63.2	35.7	42.6	0.8	218.9

	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

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

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. All other intangible assets are tested for impairment only if an indication exists that the asset may be impaired at the reporting date.

Broker and customer relationship intangibles include those acquired in relation to AUA Insolvency Risk Services Limited, Amlin Europe N.V. and Amlin France Holdings SAS, the net book value being £10.0 million (2011: £11.0 million), £19.4 million (2011: £21.7 million) and £1.4 million (2011: £3.0 million) respectively. These intangibles are being amortised over a period of 13, 15 and 5 years respectively, and their remaining amortisation life is 11, 12 and 1 years respectively.

Computer software represents the costs that the Group has incurred on internally developed software relating to a new underwriting platform for Amlin Europe N.V. This software was completed in the period and is being amortised over 10 years on a straight-line basis.

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 and Amlin UK.

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

	2012				2011
	Amlin London £m	Amlin UK £m	Amlin Europe £m	Total £m	Amlin  London £m	Amlin UK £m	Amlin France £m	Amlin Corporate Insurance £m	Total £m
Goodwill	18.8	4.8	51.5	75.1	19.2	4.8	24.0	28.6	76.6
Syndicate participations	53.6	9.6	-	63.2	51.7	10.7	0.8	-	63.2
	72.4	14.4	51.5	138.3	70.9	15.5	24.8	28.6	139.8

Note: The Amlin London goodwill balance comprises the goodwill from three CGUs. The largest individual balance is the goodwill from the acquisition of Lead Yacht Underwriters Limited totalling £11.5 million (2011: £11.5 million).

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 profit before tax 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% (2011: 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% (2011: 8.5%), has been applied to each CGU's cash flow projection, which reflects a combination of factors including the Group's expected cost of equity and cost 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.

24. Share capital

	2012 Number	2012 £m	2011 Number	2011 £m
Allotted, called up and fully paid ordinary shares
At 1 January issued ordinary shares of 28.125p each (2011: 28.125p)	502,076,006	141.2	502,076,006	141.2
At 31 December issued ordinary shares of 28.125p each (2011: 28.125p)	502,076,006	141.2	502,076,006	141.2

The Company transferred 418,721 shares out of treasury at a cost of £1.1 million (2011: 488,309 shares at a cost of £1.2 million). The shares have been transferred to meet exercises of employee share options, leaving 4,968,671 shares in treasury at 31 December 2012 (2011: 5,387,392 shares).

25. Earnings and net assets per share

Basic and diluted earnings per share are as follows:

	2012	2011
Profit/(loss) attributable to equity holders of the Parent Company	£247.7m	(£149.9m)
Weighted average number of shares in issue	494.8m	494.1m
Dilutive shares	6.0m	-
Adjusted average number of shares in issue	500.8m	494.1m
Basic earnings per share	50.0p	(30.3p)
Diluted earnings per share	49.4p	(30.3p)

Note: In 2011, 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:

	2012	2011
Net assets	£1,491.4m	£1,420.4m
Adjustments for intangible assets	(£211.4m)	(£218.9m)
Tangible net assets	£1,280.0m	£1,201.5m
Number of shares in issue at end of the year	502.1m	502.1m
Adjustment for ESOT and treasury shares	(7.0m)	(7.6m)
Basic number of shares after ESOT and treasury shares adjustment	495.1m	494.5m
Basic net assets per share	301.2p	287.2p
Basic tangible net assets per share	258.5p	243.0p

26. Other comprehensive income

All items of other comprehensive income in 2012 and 2011 are charged to 'Other reserves'.

Other reserves comprise a merger reserve of £87.7 million (2011: £87.7 million), a capital redemption reserve of £123.1 million (2011: £123.1 million), gains on the issue of employee share option schemes of £9.8 million (2011: £6.0 million), tax relating to components of other reserves of £33.9 million (2011: £30.1 million), foreign exchange gains on translation of investments in foreign operations of £6.9 million (2011: £65.1 million) and other items of £1.0 million (2011: £1.8 million charge). This is offset by a charge for goodwill written off to reserves on acquisitions prior to 1 January 1999 of £45.7 million (2011: £45.7 million), losses on revaluation of financial instruments in designated hedge accounting relationships of £43.5 million (2011: £47.2 million) and defined benefit pension fund balances of £60.3 million (2011: £42.8 million).

27. Dividends

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

Group	2012 £m	2011 £m
Final dividend for the year ended:
- 31 December 2011 of 15.8 pence per ordinary share	78.2	-
- 31 December 2011 of Amlin Plus Limited to non-controlling interests	0.1	-
- 31 December 2010 of 15.8 pence per ordinary share	-	78.0
Interim dividend for the year ended:
- 31 December 2012 of 7.5 pence per ordinary share	37.1	-
- 31 December 2011 of 7.2 pence per ordinary share	-	35.6
	115.4	113.6

The final ordinary dividend of 16.5 pence per ordinary share for 2012, amounting to £81.7 million, payable in cash, was agreed by the Board on 1 March 2013, subject to shareholder approval at the AGM 16 May 2013, and has not been included as a liability as at 31 December 2012.

28. Long-term employee incentive schemes

During the year ended 31 December 2012 the Group operated a number of long-term employee incentive schemes. The total cost recognised in the income statement for these schemes is shown below:

	2012 £m	2011 £m
Equity settled schemes	4.4	3.8
Capital Builder Plan	3.1	(6.2)
Total expense/(income) arising from long-term employee incentive schemes	7.5	(2.4)

a) Equity settled share-based payment 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 2012	Weighted average exercise price per share (pence)	Number of shares 2011	Weighted average exercise price per share (pence)
Outstanding at 1 January	2,672,806	258	2,463,133	267
Granted during the year	431,700	311	1,108,929	247
Exercised during the year	(320,733)	263	(488,309)	227
Expired during the year	--	-	(7,770)	108
Forfeited during the year	(107,425)	270	(403,177)	318
Total shares outstanding at 31 December	2,676,348	266	2,672,806	258
Total shares exercisable at 31 December	828,189	251	940,818	246

The weighted average share price at the date of exercise for share options exercised during the year was 363 pence (2011: 360 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 2012	Weighted average remaining contractual life (years)	Number of outstanding shares under option 2011	Weighted average remaining contractual life (years)
£0.76 - £1.11	10,647	0.33	29,096	0.90
£1.12 - £1.62	248,753	1.85	268,038	2.80
£1.63 - £2.46	165,146	1.42	216,455	1.60
£2.47 - £2.93	1,579,962	3.28	1,817,551	4.00
£2.94 - £3.34	671,840	3.48	341,666	2.80

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 2012, 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 2012	Vesting period	Number of shares under conditional award 2011	Vesting period
LTIP grants	4,857,704	2011 to 2015	3,592,717	2011 to 2014
PSP grants	3,183,555	2011 to 2017	2,549,456	2011 to 2016
SIP grants	1,545,266	2010 to 2014	1,899,117	2010 to 2014
Amlin Special	209,961	2013 to 2015	74,167	2012 to 2014

LTIP and PSP awards are normally exercisable from three and five years after grant respectively.

iii) Modifications to share-based payment arrangements

There have been no modifications to share-based payment arrangements in 2012.

iv) Options from the ESOT

The trustee of the ESOT held 2,023,644 ordinary shares as at 31 December 2012 (2011: 2,179,168 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 31 December 2012 was 379.0 pence per share (2011: 313.9 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 2012, the weighted average fair values of options and awards granted during the year were 58.14 pence per option and 131.94 pence per award respectively (2011: 29.49 pence and 163.22 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:

	2012	2011
Weighted average share price on grant (pence)	361.83	346.66
Weighted average exercise price (pence)	281.79	271.86
Expected volatility	30.00%	30.00%
Expected life (years)	3.00 - 5.25	3.00 - 7.50
Risk free rate of return	1.00% - 5.00%	1.50% - 5.00%
Expected dividend yield	4.50% - 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) Capital Builder Plan

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 or as a cash payment.

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 of the liability under the Plan at 31 December 2012 is £4.1 million (2011: £3.4 million) and is recorded in other payables.

29. Restricted funds held/placed by the Group

At 31 December 2012, 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 £3,086.9 million (2011: £3,131.2 million), matched by gross liabilities of £2,656.0 million (2011: £2,642.7 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, £16.0 million (2011: £11.5 million) of Amlin Singapore Pte Limited and Amlin Labuan Limited'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.

LOC facilities

At 31 December 2012, £176.5 million (2011: £136.3 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. At 31 December 2012, Syndicate 2001 recognised £0.8 million (2011: £0.9 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.

Derivative margins and collateral

Derivative instruments traded across the Group give rise to collateral being placed with, or received from, external counterparties. At 31 December 2012, included in other receivables and other payables are £5.8 million (2011: £10.9 million) margins and collaterals pledged and £2.0 million (2011: £nil) margins and collaterals held respectively in relation to listed futures margins and over the counter options.

Reinsurance collateral received

Collateral of £241.8 million (2011: £162.0 million) is held in third party trust funds to guarantee Syndicate 2001 against reinsurance counterparties. Furthermore, collateral of £184.5 million (2011: £76.4 million) and £32.8 million (2011: £17.1 million) 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. At 31 December 2012 £25.6 million (2011: £45.7 million) of the funds placed in trust by counterparties of Amlin Bermuda related to specific reinsurance assets.

Insurance collateral placed

Syndicate 2001 holds £342.9 million (2011: £323.4 million) of collateral in a US trust fund to meet US regulatory requirements. The Group cannot obtain or use these funds for any other purpose and they are recognised as an asset to the Group. Amlin Europe N.V. has £22.1 million (2011: £24.4 million) of bank guarantees in place to cover insurance counterparties.

Funds withheld as premium/claim deposits

At 31 December 2012 the Group had placed funds totalling £29.1 million (2011: £3.5 million) as premium deposits and £3.7 million (2011: £2.5 million) as claim deposits with external brokers. Amlin Re Europe has also placed a further £4.4 million (2011: £1.3 million) into pledge accounts to collateralise against losses due to reinsurance cedants.

Funds in escrow

At 31 December 2012 the Group holds £10.0 million (2011: £5.0 million) 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

	2012 £m	Restated 2011 £m
Insurance and reinsurance payables	275.0	218.8
Trade payables	39.3	48.5
Accrued expenses	71.6	61.2
Social security and other tax payables	7.7	7.9
Other payables	118.6	117.6
	393.6	336.4

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

	2012 £m	Restated 2011 £m
Current portion	307.6	239.5
Non-current portion	86.0	96.9
	393.6	336.4

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

	2012 £m	Restated 2011 £m
Subordinated debt	290.4	292.8
Revolving credit facility	120.0	-
	410.4	292.8

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

	2012 £m	Restated 2011 £m
Current portion	-	-
Non-current portion	410.4	292.8
	410.4	292.8

Details of the Group's three subordinated debts issued by Amlin plc are as follows:

Issue date	Principal amount	Reset date	Maturity date	Interest rate to reset date %	Interest rate from reset date to maturity date %
23 November 2004	US$50m	November 2014	November 2019	7.11	LIBOR + 3.48
15 March 2005	US$50m	March 2015	March 2020	7.28	LIBOR + 3.32
25 April 2006	£230m	December 2016	December 2026	6.50	LIBOR + 2.66

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.

The directors' estimation of the fair value of the Group's subordinated debt is £352.0 million (2011: £368.3 million) and £122.0 million for the revolving credit facility. 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 0.86% (2011: 1.05%).

On 17 August 2012 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 £300.0 million multicurrency revolving credit facility available by way of cash advances and a secured US$200.0 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 2012 the revolving credit facility was drawn down by £120.0 million (2011: undrawn).

Amlin AG has increased the LOC facility with Lloyds TSB Bank plc and the Royal Bank of Scotland plc as lead arrangers by US$30.0 million to US$280.0 million (2011: US$250.0 million). 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. During the year three further LOCs were arranged (Barclays Bank plc: US$20.0 million and NZ$30.0 million, and Lloyd's TSB NZ$28.5 million) and are secured by time deposits. As at 31 December 2012, US$244.4 million of LOC were issued (2011: US$194.7 million). The total value of restricted assets as at 31 December 2012 was US$286.8 million (2011: US$211.8 million).

In June 2009, Amlin Europe N.V. entered into a credit facility with Fortis Bank Nederland N.V. as arranger. The facility provides a daily revocable overdraft of up to £5.0 million, a guarantee facility to a third party of up to €10.0 million and a guarantee/standby LOC for up to £22.5 million. At 31 December 2012, €27.3 million of guarantees were issued (2011: €29.4 million); €4.3 million (2011: €7.7 million) from the guarantee facility and €23.0 million (2011: €21.7 million) from the guarantee/standby LOC. There are no restricted assets to secure the facility.

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:

	2012 £m	2011 £m
Defined contribution schemes	6.6	6.4
Defined benefit schemes:
- Lloyd's Superannuation Fund	0.7	(1.1)
- Amlin Europe N.V. defined benefit schemes	5.0	4.5
- Amlin Re Europe defined benefit schemes	0.7	0.8
	6.4	4.2
	13.0	10.6

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 consolidation in the market, employers closing final salary schemes and some companies failing, during 2012 there were only two (2011: two) 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. 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.

At 31 December 2011, the Trustees allocated the Orphan Scheme liabilities between the two remaining employers. An actuarial estimate of the allocation of the Group's share was recognised which resulted in an increase in the defined benefit obligations of £34.0 million and an increase in the plan assets of £34.2 million, included in actuarial gains and losses recognised in the consolidated statement of comprehensive income. At 31 December 2012, there were two employers with active members in the Fund to which the remaining Orphan Schemes' liabilities were allocated.

In 2013, it is likely that the Group will become the sole employer with active members in the Fund.

Fund contributions

Contributions are paid to provide for the cost of benefit accrual. The rate of contribution agreed with the Trustee is 16% (2011: 16%) paid by the employer plus 5% (2011: 5%) member contributions, in each case of pensionable earnings, and totalled £2.8 million (2011: £2.8 million).

The expected contribution to the fund for the year ending 31 December 2013 is £2.6 million (2012: £2.6 million) by the Group and £0.2 million (2012: £0.2 million) by plan participants.

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

	2012 £m	2011 £m
Contributions relating to:
Annual top up payment	2.0	2.0
Ongoing funding	0.6	0.6
Group share of total payment	2.6	2.6

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. All actuarial amounts quoted below are for the Group's notional share of the scheme liabilities.

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 annual separate payments of £2.0 million to the Fund over a period of seven years.

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 two payments of £5.0 million each to the escrow account in July 2011 and June 2012. A further payment to the escrow account of £4.0 million will be made in June 2013. The Group considers it unlikely that any one of the enforcement events defined within the agreement will occur.

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 2012 using appropriate techniques and the following assumptions

	2012 % pa	2011 % pa
Discount rate	4.4	4.8
Expected return on plan assets:
- Equities	7.0	7.3
- Bonds	3.6	3.7
- Property	6.9	6.8
- Diversified growth funds	7.0	7.3
Price inflation	3.0	3.2
Rate of increase in pensions payment:
- LPI (maximum 5% pa)	2.8	3.1
- LPI (minimum 3% pa, maximum 5% pa)	3.3	3.3
- LPI (maximum 3% pa)	2.1	2.5
Rate of increase of statutory revaluation on deferred pension	2.0	2.2

The scheme allows members to continue accruing additional years' service under the schemes, but these accruals are 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% (2011: nil%).

The expected rate of return is based on market expectations for returns for each category of assets over the entire life of the related obligation.

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

	31 December 2012		31 December 2011
Life expectancy (years) at age 60 for a member currently:	Male	Female	Male	Female
Aged 60	27.9	29.3	27.7	29.2
Aged 45	29.9	30.9	29.7	30.8

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%	(14.0)/16.0
(Decrease)/increase in inflation rate by 0.25%	(8.0)/8.0
Increase in floor mortality improvements for males of 1.5% and females of 1.25% per annum	5.0

ii) Amlin Europe N.V. defined benefit plans

Scheme description

Amlin Europe N.V. operates defined benefit pension plans covering the majority of its employees. These plans are insured and are funded partly by means of employee contributions. Under these plans, benefits are based on years of service and level of salary. 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.

Fund contributions

The expected contribution to the funds during 2013 is £3.4 million (2012: £3.1 million) by the Group, and £0.6 million (2012: £0.6 million) by the plan participants.

Funding assessment assumptions

The table below shows the actuarial assumptions used:

	The Netherlands 2012 %	Belgium 2012 %	The Netherlands 2011 %	Belgium 2011 %
Discount rate for pension benefits	3.2	2.5	4.5	3.9
Discount rate for Jubilee benefits	3.8	2.0	3.8	3.4
Discount rate for farewell premium	-	2.2	-	3.6
Discount rate for post retirement medical	-	3.4	-	4.8
Expected return on plan assets	3.2	4.0	4.5	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 expected rate of return for these schemes is based on the accrued value of the insured benefits.

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

	31 December 2012				31 December 2011
	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	26.5	27.9	22.1	25.9	24.5	27.4	22.1	25.9
Aged 45	27.9	28.8	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%	(4.3)/4.4
(Decrease)/increase in inflation rate by 0.25%	(4.3)/4.6
Increase in floor mortality improvements for males of 1.5% and females of 1.0% per annum	0.3

iii) Amlin Re Europe defined benefit plans

Scheme description

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

Fund contributions

The expected contribution to the funds during 2013 is £0.7 million (2012: £0.6 million) by the Group, and £0.3 million (2012: £0.2 million) by the plan participants.

Funding assessment assumptions

The table below shows the actuarial assumptions used:

	2012 % pa	2011 % pa
Discount rate	1.8	2.5
Expected return on plan assets	1.8	2.5
Expected wage increases	2.5	2.5
Price inflation	1.5	1.5

The expected rate of return is set equal to the discount rate as the plan's assets are fully insured.

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

	31 December 2012		31 December 2011
Life expectancy (years) at age 60 for a member currently:	Male	Female	Male	Female
Aged 60	26.1	28.8	26.0	28.7
Aged 45	27.6	30.2	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%	(0.3)/0.3
(Decrease)/increase in inflation rate by 0.25%	(0.1)/0.1

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:

	2012 £m	2011 £m
Current service cost	4.0	3.7
Interest cost	20.6	19.4
Expected return on scheme assets	(18.2)	(19.0)
Other	-	0.1
Total debited to income statement (included in staff costs)	6.4	4.2

Amounts recognised in the consolidated statement of comprehensive income are as follows:

	2012 £m	2011 £m
Recognition of net losses	23.7	18.1
Movement in ceiling limit on asset (gains)/losses	(6.2)	0.2
Losses recognised in the consolidated statement of comprehensive income	17.5	18.3

The cumulative amount of net actuarial losses recognised in other comprehensive income for all defined benefit schemes is £73.5 million (2011: £49.7 million).

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:

	2012 £m	2011 £m
Present value of defined benefit obligations	485.5	446.0
Fair value of scheme assets	436.6	421.4
Deficit in schemes	(48.9)	(24.6)
Restriction to defined benefit asset due to asset ceiling	-	(6.2)
Liability recognised in the balance sheet	(48.9)	(30.8)

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 was recognised at 31 December 2011 to the extent that asset gains arising from the contributions will not be available after they are paid into the Fund. As at 31 December 2012, no such liability has been recognised because the deficit on the Fund exceeds the asset gains arising from the schedule of future contributions.

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

	2012 £m	2011 £m
At 1 January	446.0	364.9
Employer service cost	4.0	3.7
Interest cost	20.6	19.4
Contributions from scheme members	1.1	1.0
Actuarial losses	31.3	72.5
Benefits paid from plan assets	(15.8)	(16.4)
Foreign exchange gains	(1.7)	(2.3)
Other movements	-	3.2
At 31 December	485.5	446.0

The expected total benefit payments to plan participants during 2013 is £15.1 million for the Lloyd's Superannuation Fund (LSF) (2012: £14.8 million), £1.5 million for the Amlin Europe N.V. defined benefit schemes (2012: £1.7 million) and £0.4 million for the Amlin Re Europe defined benefit scheme (2012: £0.4 million).

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

	2012 £m	2011 £m
At 1 January	421.4	355.6
Expected return on scheme assets	18.2	19.0
Difference between expected and actual return	7.6	21.0
Other actuarial gains	-	34.2
Employer contributions	5.3	6.3
Contributions from scheme members	1.1	1.0
Benefits paid from plan assets	(15.8)	(16.4)
Administrative expenses	-	(0.5)
Foreign exchange losses	(1.2)	(1.3)
Other movements	-	2.5
At 31 December	436.6	421.4

The analysis of the plan assets for the Lloyd's Superannuation Fund at the balance sheet date are as follows:

Asset Mix	31 December 2012 %	31 December 2011 %
Equities	13.0	12.0
Bonds	66.0	68.8
Property	8.0	8.0
Diversified growth funds	13.0	12.0

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

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

Lloyd's Superannuation Fund	2012 £m	2011 £m	2010 £m	2009 £m	2008 £m
Asset experience
Fair value of scheme asset	377.0	374.0	320.0	295.0	256.0
Asset (loss)/gain during period	(2.7)	50.9	18.7	30.3	(71.5)
Asset (loss)/gain as percentage of plan assets	(0.7%)	13.6%	5.8%	10.3%	(27.9%)
Liability experience
Present value of defined benefit obligations	(394.0)	(378.0)	(314.0)	(315.0)	(260.0)
Liability (loss)/gain during period	-	(34.0)	0.5	-	(6.7)
Liability loss/(gain) as percentage of defined benefit obligations	-	9.0%	(0.2%)	-	2.6%
Liability assumptions
Liability (loss)/gain over period	(12.2)	(30.6)	6.0	(51.0)	47.0
Liability loss/(gain) as percentage of defined benefit obligations	3.1%	8.1%	(1.9%)	16.2%	(18.1%)
Surplus/ (deficit)
(Deficit)/surplus in the plan	(17.0)	(4.0)	6.0	(20.0)	(4.0)

Amlin Europe N.V.	2012 £m	2011 £m	2010 £m		2009 £m
Asset experience
Fair value of scheme asset	52.1	41.4	35.6		39.5
Asset (loss)/gain during period	(10.4)	3.7	(7.8)		0.2
Asset (loss)/gain) as percentage of plan assets	(20.0%)	8.8%	(21.8%)		1.0%
Liability experience
Present value of defined benefit obligations	(81.5)	(60.8)	(50.9)		(44.0)
Liability gain during period	1.6	0.2	0.2		-
Liability gain as percentage of defined benefit obligations	(2.0%)	(0.4%)	(0.3%)		-
Liability assumptions
Liability (loss)/gain over period	(19.3)	(7.2)	(4.2)		2.6
Liability loss /(gain) as percentage of defined benefit obligations	23.7%	11.9%	8.2%		(5.9%)
Surplus/(deficit)
Deficit in the plan	(29.4)	(19.4)	(15.3)		(4.5)
Amlin Re Europe				2012 £m		2011 £m
Asset experience
Fair value of scheme asset				7.5		6.0
Asset loss during period				(0.0)		(0.0)
Asset loss as percentage of plan assets				(0.0%)		(0.0%)
Liability experience
Present value of defined benefit obligations				(10.0)		(7.2)
Liability loss during period				(0.2)		(0.5)
Liability loss as percentage of defined benefit obligations				2.0%		7.1%
Liability assumptions
Liability loss over period				(1.0)		(0.2)
Liability loss as percentage of defined benefit obligations				10.0%		2.5%
Surplus/(deficit)
Deficit in the plan				(2.5)		(1.2)

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 2012 to the schemes were £6.6 million (2011: £6.4 million).

The estimated amounts of contributions to the Group's defined contribution pension schemes for the year ending 31 December 2013 are £7.4 million (2012: £7.6 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 2012 (2011: £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
	2012	2011	2012	2011
US dollar	1.59	1.60	1.62	1.55
Canadian dollar	1.58	1.59	1.61	1.59
Euro	1.23	1.15	1.23	1.20
New Zealand dollar	1.96	2.03	1.97	2.00
Japanese yen	126.55	127.88	140.78	119.54

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 material contingent liabilities at 31 December 2012 (2011: £nil). Further details are provided in note 32.

35. Commitments

a) Capital commitments

In addition to the commitments made to Leadenhall Capital Partners LLP as described in note 4, the Group also made commitments to subscribe to property funds at 31 December 2012 of £19.2 million (2011: £10.8 million).

b) Operating lease commitments

The Group leases various offices under 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 £9.7 million (2011: £9.0 million), as disclosed in note 14.

The future aggregate minimum lease payments under the non-cancellable portion of the Group's operating leases are as follows:

	2012 £m	2011 £m
No later than 1 year	8.2	7.1
Later than 1 year and no later than 5 years	25.2	22.5
Later than 5 years	2.3	3.3
	35.7	32.9

36. Cash flows from operations

	Note	2012 £m	Restated 2011 £m
Profit/(loss) on ordinary activities before taxation		264.2	(193.8)
Adjustments:
Depreciation charge	14	6.2	5.3
Amortisation charge	14	7.3	4.9
Finance costs	13	27.6	27.4
Interest income	7	(36.7)	(48.5)
Dividend income	7	(11.3)	(12.2)
(Gains)/losses on investments realised and unrealised	7	(101.4)	20.2
Other non-cash movements		4.5	3.2
Movement in operating assets and liabilities:
Net (purchases)/sales of financial investments	18	(234.1)	312.4
Exchange losses/(gains) on investments	18	109.6	(7.1)
(Increase)/decrease in loans and receivables		(45.3)	3.1
Decrease/(increase) in insurance and reinsurance contract assets		72.2	(366.8)
(Decrease)/increase in insurance contract liabilities		(77.1)	698.2
Decrease in other payables		(8.8)	(40.8)
Increase/(decrease) in retirement benefits		0.6	(2.7)
Exchange (gains)/losses on long term borrowings		(1.9)	1.1
Exchange gains on other non-operating assets and liabilities		(49.8)	(36.4)
Cash (utilised in)/generated from operations		(74.2)	367.5

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 £234.1 million from net purchases of financial investments was utilised in operations during the year (2011 restated: £312.4 million from net sales).

37. 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 £13.8 million (2011: £14.0 million) of premium under the binding authority agreement, of which £5.6 million (2011: £5.1 million) was produced by Lycett, Browne-Swinburne and Douglas Limited earning brokerage commission of £0.8 million (2011: £0.8 million) on this business. At 31 December 2012, Syndicate 2001 had a receivable of £2.4 million (2011: £2.6 million) from Amlin Plus and Lycett Browne-Swinburne and Douglas Limited had a payable of £0.9 million (2011: £1.1 million) to Amlin Plus.

ii) Associates

The Group enters into transactions with its associates in the normal course of business. The sales to and purchases from associates are made at normal market prices. Details of the Group's associates are given in note 4.

iii) Syndicate 6106

For the 2012 underwriting year of account Special Purpose Syndicate (S6106), managed by Amlin Underwriting Limited, wrote a 10.0% (2011: 12.9%) quota share contract of the excess of loss reinsurance account of Syndicate 2001. The transactions provide external members' capital to support 2012 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 Plc Board 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 six non-executive directors (2011: twelve and seven respectively). During the year, Ms Bosse and Mr Taylor ceased their roles as non-executive directors with Ms Jemmett-Page joining the Board. It was also announced that Ms Chakraverty will be joining as a non-executive director with effect from 1 January 2013.

Compensation during the year to key management personnel is analysed below:

	2012 £m	2011 £m
Short-term employee benefits	8.5	6.4
Long-term employee benefits	1.9	1.8
Post-employment benefits	0.4	0.3
Equity-settled share-based payments	1.2	1.2
Cash-settled share-based payments	0.4	0.3
	12.4	10.0

c) Transactions with directors

Certain directors of the Company are also directors of other companies, as described in the directors' biographical details of the Annual Report. Such other companies (and/or their subsidiaries) may, and in some cases do, conduct business with companies in the Amlin Group, including GeoVera Insurance Holdings Ltd (of which Mr Feinstein is a non-executive director). 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 Europe, Amlin Re Europe and Amlin Europe and between Amlin Bermuda and Amlin Europe.

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

38. Subsequent events

Acquisition of subsidiary - RaetsMarine Insurance B.V. ('RaetsMarine')

On 1 March 2013, the Group entered into an agreement to acquire 100% of the share capital and voting rights in RaetsMarine and its subsidiaries. RaetsMarine is an insurance underwriting agency, specialising in professional and indemnity and marine insurance.

The initial consideration is US $50 million (£34.0 million), plus an earn out arrangement of up to US $15.0 million. The earn out is payable 24 months after completion, with the final amount payable based on RaetsMarine's hull and cargo performance for the three underwriting years up to and including 2012. A management incentive plan has also been entered into which will be accounted for as a separate transaction.

The Group will complete the initial accounting for the business combination under IFRS 3, 'Business combinations' in 2013 following the closing of the transaction.

39. 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 2011 or 2012, but is derived from those accounts. Statutory accounts for 2011 have been delivered to the Registrar of Companies and those for 2012 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 2012 are expected to be posted to shareholders by no later than 5 April 2013. 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 16 May 2013.

The preliminary Results were approved by the Board on 1 March 2013.

 

END

 

 

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