Amlin Underwriting Limited Syndicate 2001 - Lloyd's of...

Amlin Underwriting Limited Syndicate 2001

2012 Annual Report

1Amlin Underwriting Limited Syndicate 2001 Annual Report 2012 www.amlin.com

Contents 2 Five year financial highlights 3 Directors and administration 4 Report of the directors of the managing agent 6 Statement of managing agent’s responsibilities 7 Report of the independent auditors 8 Profit and loss account 9 Balance sheet 10 Cashflow statement 11 Notes to the financial statements 23 Advisers

2

Five year financial highlights

Year ended 31 December 2012

£m2011

£m2010

£m 2009

£m 2008

£m

Syndicate allocated capacity 1,175.0 1,035.0 1,050.0 825.0 825.0

Gross written premiums 1,470.1 1,302.7 1,212.2 1,075.5 842.5Net written premiums 1,069.3 965.2 907.9 755.9 628.0Net earned premiums 1,010.1 929.1 844.0 698.5 649.5Net claims incurred (542.1) (630.8) (410.8) (237.9) (327.2)Expenses (414.9) (347.1) (318.7) (295.6) (177.8)Investment return 41.8 17.8 76.5 85.9 53.2

Profit/(loss) for the financial year 94.9 (31.0) 191.0 250.9 197.7

Claims ratio 54% 68% 49% 34% 50%Expense ratio 38% 35% 35% 39% 24%

Combined ratio 92% 103% 84% 73% 74%

The Syndicate performance data shown in the table above is presented on an annual accounting basis and in accordance with Generally Accepted Accounting Principles in the United Kingdom (UK GAAP).

In calculating the expense and combined ratios, personal expenses payable to the managing agency have been excluded.


Directors and administration

Managing agent Amlin Underwriting Limited

Directors

K Allchorne

S C W Beale Non-executive

G A M Bonvarlet Independent non-executive

T A Bowles

N J C Buchanan Independent chairman

B D Carpenter

A J Golding Finance Director

J le T Illingworth Non-executive

S R McMurray Non-executive

D F Overall

A P Springett Chief Executive Officer

Company Secretary Z M Kubiak

Managing agent’s registered office St. Helen’s 1 Undershaft London EC3A 8ND

Managing agent’s registered number 2323018

4

Report of the directors of the managing agent

The directors of the managing agent (“the Company”) present their report for Syndicate 2001 for the year ended 31 December 2012.

The annual report is prepared using the annual basis of accounting as required by Statutory Instrument No. 1950 of 2008, the Insurance Accounts Directive (Lloyd’s Syndicate and Aggregate Accounts) Regulations 2008 (“the 2008 Regulations”).

Principal activity and review of the business The principal activity of Syndicate 2001 remains the transaction of general insurance and reinsurance business in the United Kingdom.

The total premium income capacity of the Syndicate for each of the years of account open during 2012 was as follows:

£m

2010 year of account 1,050.02011 year of account 1,035.02012 year of account 1,175.0

The result for calendar year 2012 is a profit of £94.9 million (2011: loss of £31.0 million).

Underwriting contributed a profit of £53.1 million (balance on the technical account less allocated investment return) (2011: loss of £48.8 million) with the overall combined ratio decreasing to 92% (2011: 103%).

2012 was a recovery from the major losses in 2011, which is reflected in the lower loss ratio percentage in comparison to previous years.

Net earned premiums increased by 8.7% to £1,010.1 million (2011: £929.1 million) as a result of growth in gross written premiums.

The underwriting profit includes releases from reserves established in prior years of £50.3 million (2011: £72.2 million).

Operating expenses include a foreign exchange loss of £9.4 million in 2012 (2011: £3.7 million gain) arising through the translation of foreign currency net positions at closing rates of exchange.

Investments (net of expenses) contributed returns of £41.8 million (2011: £17.8 million). Syndicate underlying assets, held principally in bonds and cash, generated £28.8 million at a return of 2.9% (2011: £22.4 million and 1.7%). Corporate member capital contributed with a return of £13.0 million (2011: £4.6 million negative returns).

Higher returns are reflective of a more positive economic backdrop for the global economy, especially related to improving fundamentals in the US economy.

Underwriting performance

2012

£m 2011

£m

Gross written premiums 1,470.1 1,302.7Net written premiums 1,069.3 965.2Net earned premiums 1,010.1 929.1

Claims ratio % 54 68Expense ratio % 38 35Combined ratio % 92 103

Gross written premiums increased to £1,470.1 million (2011: £1,302.7 million), assisted by an average rate increase of 4.3% (2011: 1.9% increase).

Amlin London generated £1,066.1 million of written income, an increase of £111.2 million on the prior year (2011: £954.9 million). Amlin UK contributed premium growth of £58.4 million and Amlin France premiums decreased by £2.2 million. From 1 January 2013, in line with the Group’s strategy for Europe, all future Amlin France business previously written through Syndicate 2001 will be underwritten by Amlin Europe N.V.

Net earned premiums increased by 8.7%, driven by increased gross written premiums on the 2012 and 2011 underwriting years.

The Syndicate’s claims ratio improved to 54% (2011: 68%), reflecting the lower volume and value of large claims incurred in comparison to 2011. 2012 was dominated by Superstorm Sandy (£75.2m), which occurred in October. In comparison, 2011 incurred substantial international catastrophe claims such as the February (£104.6m) and June (£11.8m) NZ earthquakes and March Japanese earthquake and tsunami (£58.2m).

The expense ratio increased to 38% (2011: 35%) as we invest in new business opportunities and operational infrastructure along with adverse foreign exchange.

In calculating the expense and combined ratios, personal expenses payable to the managing agency have been excluded.

Divisional performance Syndicate 2001 business is organised into three divisions which broadly reflect the markets and the nature of business in which the Syndicate trades.

Amlin London 2012

£m 2011

£m

Gross written premiums 1,066.1 954.9Net written premiums 739.4 675.3Net earned premiums 716.4 669.5


The trading environment for Amlin London showed an improvement in 2012, with an average rate increase of 4.3% for the year (2011: increase of 1.0 %), driven by improved catastrophe reinsurance pricing following 2011 events.

Gross written premiums increased by 11.6% over 2012 to £1,066.1 million (2011: £954.9 million). Growth was mainly driven by the Reinsurance and Property and Casualty business units (with average rate increases of 8.3% and 3.7% respectively, supported by the adoption of the new RMS rating model).

The combined ratio improved to 91% from 102% in 2011. The claims ratio decreased to 53% (2011: 67%) reflecting the lower level of catastrophe loss activity. Prior period reserve releases were £31.4 million (2011: £68.4 million). The expense ratio was 38% (2011: 35%) with increased gross written premium resulting in higher operating expenses and a proportion of this premium yet to earn.

Amlin UK 2012

£m 2011

£m

Gross written premiums 370.8 312.4Net written premiums 302.0 261.4Net earned premiums 265.9 231.2



Gross written premiums were £370.8 million, an increase of 18.7% on the prior period (2011: £312.4 million). Growth for Amlin UK was supported by the classes written with Manchester Underwriting Management and average rate increases remained stable at 5.0% (2011: 5.0%) supported by Fleet (+9.7%) and Other Motor (+7.5%). Net earned premiums increased by 15.0% to £265.9 million, reflecting premium growth on the 2012 and 2011 underwriting years.

The combined ratio decreased to 94% (2011: 103%). The claims ratio decreased to 56% (2011: 69%) reflecting a significant attritional improvement on the mid and new underwriting years, and increased releases from reserves established in prior years of £20.2 million (2011: £11.1 million). The increased expense ratio of 38% (2011: 34%) reflects increased investment in operational infrastructure.

Amlin France 2012

£m2011

£m

Gross written premiums 33.2 35.4Net written premiums 27.9 28.5Net earned premiums 27.8 28.4


Amlin France contributed £33.2 million of gross written premiums in 2012, a marginal decrease of 6.2% on the prior year (2011: £35.4 million).

The combined ratio decreased to 102% (2011: 108%). The claims ratio improved to 49% (2011: 69%) following relatively benign claims activity in the year. The expense ratio increased to 53% (2011: 39%) driven by additional French levies.

Investment performance The Syndicate produced an investment return of £41.8 million in the year (2011: £17.8 million). Syndicate underlying assets, predominantly bonds and overseas deposits, generated £28.8 million at a return of 2.9% (2011: £22.4 million and 1.7%). Corporate member capital returned a gain of £13.0 million (2011: £4.6 million loss).

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

Higher equity returns seen during 2012 were driven in part by the removal of key downside risks by central bank action (particularly, the risk of a generalised euro area break-up and a double-dip recession in the US), the impact of which is fading. With bond yields at such low levels there is little scope for further capital appreciation and our expectation is that yields will rise gradually during 2013.

At 31 December 2012, investments amounted to £1,503.4 million (2011: £1,449.3 million). Short-dated bonds accounted for 35.0% of the portfolio with the residual held mostly in investment pools and collective investment schemes. The bond portfolio remains of a high quality with 47.2% of the portfolio government and government agency backed, 32.5% AAA-rated and 18.8% AA or A-rated. Only 0.1% (2011: 0.1%) of the investment portfolio is exposed to sovereign debt issued by the so-called PIIGS nations.

Future developments Syndicate 2001’s underwriting capacity for 2013 is £1,400 million (2012: £1,175 million). The Syndicate will continue to transact predominantly the current classes of general insurance and reinsurance business except that Amlin France business is being underwritten through Amlin Europe N.V. from 1 January 2013.

Directors Each director at the date of the approval of this report confirms that:

• so far as the director is aware, there is no relevant audit information of which the Syndicate’s auditors are unaware, and

• the director has taken all the steps that he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the Syndicate’s auditors are aware of that information.

The current directors of the managing agent are shown on page 3. Since 1 January 2012, the following changes to the Board of Directors have occurred:

Name Date of appointment

R H Davey 17 May 2012 A J Golding 11 June 2012 K Allchorne 1 October 2012 T A Bowles 1 October 2012 D F Overall 1 October 2012 G A M Bonvarlet 18 January 2013 Name Date of resignation

R J Taylor 17 May 2012 D V Dunning 31 July 2012 C E L Philipps 1 October 2012 R A Hextall 1 October 2012 M D Feinstein 17 January 2013 R H Davey 17 January 2013

The principal risks and uncertainties of the business are addressed within the notes to the financial statements on pages 12 to 15. The Syndicate has considerable financial resources to meet its financial needs and manages a mature portfolio of insurance risk through an experienced and stable team. The directors believe that the Syndicate is well positioned to manage its business risks successfully in the current economic environment.

After making enquiries, the directors have a reasonable expectation that the Syndicate has 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.

Independent auditors The managing agent intends to reappoint PricewaterhouseCoopers LLP as the Syndicate’s auditors.

By order of the Board

A P Springett Chief Executive Officer

26 February 2013

6

Statement of managing agent’s responsibilities

The managing agent is responsible for preparing the Syndicate annual report and annual accounts in accordance with applicable law and regulations.

The Insurance Accounts Directive (Lloyd’s Syndicate and Aggregate Accounts) Regulations 2008 (“the 2008 Regulations”) require the managing agent to prepare Syndicate annual accounts at 31 December each year in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). The annual accounts are required by law to give a true and fair view of the state of affairs of the Syndicate as at that date and of its profit or loss for that year.

In preparing the Syndicate annual accounts, Amlin Underwriting Limited is required to:

• select suitable accounting policies which are applied consistently;

• make judgements and estimates that are reasonable and prudent;

• prepare the financial statements on the basis that the Syndicate will continue to write future business unless it is inappropriate to presume that the Syndicate will do so; and

• follow applicable UK accounting standards, subject to any material departures disclosed and explained in the annual report.

Amlin Underwriting Limited is responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Syndicate and enable it to ensure that the Syndicate annual accounts comply with the 2008 Regulations. It is also responsible for the system of internal control, for safeguarding the assets of the Syndicate and hence for taking reasonable steps for prevention and detection of fraud and other irregularities.


Report of the independent auditors to the member of Syndicate 2001

We have audited the Syndicate annual accounts for the year ended 31 December 2012 which comprise the Profit and loss account, the Balance sheet, the Cashflow statement and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

Respective responsibilities of the managing agent and the auditors As explained more fully in the Statement of managing agent’s Responsibilities set out on page 6, the managing agent is responsible for the preparation of Syndicate annual accounts which give a true and fair view. Our responsibility is to audit and express an opinion on the Syndicate annual accounts in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the Syndicate’s members as a body in accordance with section 10 of part 2 of The Insurance Accounts Directive (Lloyd’s Syndicate and Aggregate Accounts) Regulations 2008 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of the audit of the Syndicate annual accounts An audit involves obtaining evidence about the amounts and disclosures in the Syndicate annual accounts sufficient to give reasonable assurance that the Syndicate annual accounts are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Syndicate’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the managing agent; and the overall presentation of the Syndicate annual accounts. In addition, we read all the financial and non-financial information in the Syndicate annual report to identify material inconsistencies with the audited Syndicate annual accounts. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on Syndicate annual accounts In our opinion the Syndicate annual accounts:

• give a true and fair view of the state of the Syndicate’s affairs as at 31 December 2012 and of its profit and cash flows for the year then ended;

• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

• have been prepared in accordance with the requirements of The Insurance Accounts Directive (Lloyd’s Syndicate and Aggregate Accounts) Regulations 2008.

Opinion on other matter prescribed by The Insurance Accounts Directive (Lloyd’s Syndicate and Aggregate Accounts) Regulations 2008 In our opinion the information given in the managing agent’s Report for the financial year for which the Syndicate annual accounts are prepared is consistent with the Syndicate annual accounts.

Matters on which we are required to report by exception We have nothing to report in respect of the following matters where The Insurance Accounts Directive (Lloyd’s Syndicate and Aggregate Accounts) Regulations 2008 requires us to report to you, if in our opinion:

• the managing agent in respect of the Syndicate has not kept adequate accounting records; or

• the Syndicate annual accounts are not in agreement with the accounting records; or

• we have not received all the information and explanations we require for our audit.

Nick Wilks Senior Statutory Auditor For and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London

27 February 2013

8

Profit and loss account For the year ended 31 December 2012

Technical account – general business Notes 2012

£m 2011

£m

Earned premiums, net of reinsurance Gross written premiums 3 1,470.1 1,302.7Outward reinsurance premiums (400.8) (337.5)

Net written premiums 1,069.3 965.2Change in the provision for unearned premiums

Gross amount (75.5) (49.5)Reinsurers’ share 16.3 13.4

Change in the net provision for unearned premiums (59.2) (36.1)

Earned premiums, net of reinsurance 1,010.1 929.1Allocated investment return transferred from the non-technical account 28.8 22.4Claims incurred, net of reinsurance Claims paid

Gross amount (720.9) (689.6)Reinsurers’ share 219.0 158.7

Net claims paid (501.9) (530.9)Change in the provision for claims

Gross amount 11.0 (290.5)Reinsurers’ share (51.2) 190.6

Change in the net provision for claims (40.2) (99.9)

Claims incurred, net of reinsurance (542.1) (630.8)Net operating expenses 5 (414.9) (347.1)

Balance on the technical account for general business 81.9 (26.4)

All operations of the Syndicate are continuing.

Non-technical account – general business Notes 2012

£m 2011

£m

Balance on the general business technical account 81.9 (26.4)Investment income 8 20.3 20.9Realised gain on investments 8 13.7 13.0Unrealised gain/(loss) on investments 8 9.8 (13.8)Investment expenses and charges 8 (2.0) (2.3)Allocated investment return transferred to general business technical account (28.8) (22.4)

Profit/(loss) for the financial year 94.9 (31.0)

There were no recognised gains or losses during the current or preceding year other than those included in the profit and loss account. Therefore no statement of total recognised gains and losses has been presented.


Balance sheet At 31 December 2012

Notes 2012

£m2011

£m

Investments Financial investments 9 1,503.4 1,449.3 Reinsurers’ share of technical provisions Provision for unearned premiums 145.8 129.5Claims outstanding 469.4 573.7

615.2 703.2Debtors Debtors arising out of direct insurance operations 10 96.4 66.9Debtors arising out of reinsurance operations 552.7 512.7Other debtors 379.7 282.7

1,028.8 862.3Other assets Cash at bank and in hand 24.1 31.0Overseas deposits 11 171.9 146.6

196.0 177.6Prepayments and accrued income Deferred acquisition costs 173.2 151.2Other prepayments and accrued income 22.7 20.6

195.9 171.8

Total assets 3,539.3 3,364.2

Capital and reserves Member’s balances 12 569.0 529.7 Technical provisions Provision for unearned premiums 718.9 643.3Claims outstanding 1,646.9 1,723.2

2,365.8 2,366.5Creditors Creditors arising out of direct insurance operations 3.6 4.8Creditors arising out of reinsurance operations 265.8 237.4Other creditors 335.1 225.8

604.5 468.0

Total liabilities 3,539.3 3,364.2

The financial statements on pages 8 to 22 were approved and authorised for issue by the Board of Directors of Amlin Underwriting Limited and signed on its behalf by:

A J Golding Finance Director

26 February 2013

10

Cashflow statement For the year ended 31 December 2012

Notes 2012

£m 2011

£m

Net cash inflow from operating activities 13 90.6 227.9

Transfer to member in respect of underwriting participations 12 3.9 (170.8)

94.5 57.1

Cashflows were invested as follows: (Decrease)/increase in cash holdings 14 (7.1) 24.3Increase in overseas deposits 14 26.6 64.2Net portfolio investment – Purchase of investments 15 881.7 1,186.9– Sale of investments 15 (806.7) (1,218.3)

Net application of cashflows 94.5 57.1


Notes to the financial statements For the year ended 31 December 2012

1. Basis of preparation These financial statements have been prepared on a going concern basis using the annual basis of accounting as required by the Insurance Accounts Directive (Lloyd’s Syndicate and Aggregate Accounts) Regulations 2008 (“the Regulations”) and applicable Accounting Standards in the United Kingdom. The recommendations of the Statement of Recommended Practice on Accounting for Insurance Business issued in December 2006 by the Association of British Insurers have been adopted, except that exchange differences are dealt with in the technical account and gross written premiums are stated net of profit commission.

Accounting policies The principal accounting policies are summarised below. They have been applied consistently throughout the current and prior years.

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

Premiums are earned over the policy contract period. Where the incidence of risk is the same throughout the contract, the earned element is calculated separately for each contract on a 365ths basis. For premiums written under facilities, such as binding authorities, the earned element is calculated on a 24ths basis.

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

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

Insurance contracts liabilities: claims Claims paid are defined as those claims transactions settled up to the balance sheet date including the internal and external claims settlement expenses allocated to those transactions. The reinsurers’ share represents recoveries received from reinsurance protections in the period plus recoveries receivable against claims paid that have not been received at the balance sheet date, net of any provision for bad debt. Where applicable, deductions are made for salvage and other recoveries.

Claims reserves are estimated on an undiscounted basis. Provisions are subject to a detailed quarterly review where forecast future cashflows 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 so there is a reasonable chance of release from one underwriting year to the next.

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.

The claims provision also includes, 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 premiums provision. In determining the need for an unexpired risk provision the underwriting divisions within the Syndicate have been regarded as groups of business that are managed together.

Although the claims provision is considered to be reasonable, having regard to previous claims experience (including the use of certain statistically based projections) and case by case reviews of notified losses, on the basis of information available at the date of determining the provision, the ultimate liabilities will vary as a result of subsequent information and events. These adjustments are reflected in the financial statements for the period in which the related adjustments are made.

Investments Listed investments are stated at market value, based on a bid price, at the close of business on the balance sheet date. The cost of Syndicate investments held at the balance sheet date is deemed to be the aggregate of the value of investments held at the opening balance sheet date, plus the cost of any new investments acquired, less any sales made, during the year. Unlisted variable yield securities are valued using internal models, based principally upon management’s assumptions, or upon valuations provided by the fund manager. The value of participation in investment pools is based upon adjusted, quoted and executable prices provided by the fund manager.

Overseas deposits Overseas deposits are stated at the market value, based on a bid price, ruling at the balance sheet date.

Derivative financial instruments Derivatives are initially recognised at fair value on the date on which a derivative contract is entered into. Fair values for over-the-counter derivatives are supplied by the relevant counterparty. Changes in the fair value of derivative instruments are recognised immediately in the income statement.

Investment return The investment return comprises investment income, investment gains less losses, and is net of investment expenses and charges.

Realised gains or losses are calculated as the difference between the net sales proceeds and their purchase price in the financial year or their valuation at the commencement of the year. Unrealised gains and losses are calculated as the difference between the valuation of investments at the balance sheet date and their purchase price in the financial year or their valuation at the commencement of the year.

All of the investment return arising in the year is reported initially in the non-technical account. A transfer is then made from the non-technical account to the technical account.

12

Notes to the financial statements continued For the year ended 31 December 2012

Taxation No provision has been made in respect of UK income tax on trading income. It is the responsibility of the member to settle their tax liabilities.

Overseas taxation comprises US Federal Income tax and Canadian Federal Income tax. The amounts charged to the member are collected centrally through Lloyd’s Members’ Services Unit as part of the member’s distribution process. The ultimate tax liability is the responsibility of the underwriting member.

Foreign currencies The Syndicate maintains seven separate currency funds, namely Sterling, US dollars, Euros, Canadian dollars, New Zealand dollars, Australian dollars and Japanese yen.

Transactions denominated in foreign currencies are translated using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities, expressed in US dollars, Euros, Canadian dollars, New Zealand dollars, Australian dollars and Japanese yen are translated into Sterling at the rates of exchange at the balance sheet date. Non-monetary assets and liabilities are translated at the average rate prevailing in the period in which the asset or liability first arose.

Assets and liabilities expressed in other foreign currencies have been translated at the rates of exchange at the balance sheet date. Where contracts to sell currency for Sterling have been entered into prior to the year end, the contracted rates have been used.

Differences arising on translation of foreign currency amounts in the Syndicate are included in other operating expenses.

Insurance debtors and creditors In the normal course of business, for the majority of contracts, settlement is required to be made with Lloyd’s Central Accounting, the market settlement bureau, on the basis of the net balance due to or from insurance brokers in total rather than the amounts due to or from the individual parties which they represent. The legal status of this practice of net settlement is uncertain and in the event of an insolvency it is generally abandoned. Accordingly, insurance debtors and creditors, as presented, in respect of both Lloyd’s Central Accounting settled business and business that is settled direct with brokers and service companies, comprise respectively the totals of all the Syndicate’s individual outstanding debit and credit transactions before any offset. The resultant totals give no indication of future net cashflows.

Syndicate operating expenses Costs incurred by the managing agent exclusively for the Syndicate are charged to the Syndicate on an accruals basis.

Expenses incurred jointly by the managing agent and the Syndicate are charged through an annual management charge. The charge reflects the expected costs of services to be provided to the Syndicate and does not include any profit element.

Retirement benefit costs Pension contributions are charged to the income statement when due.

2. Principal risks and uncertainties Underwriting risk The Syndicate accepts underwriting risk in a range of classes of business through three distinct underwriting divisions. The bias of the portfolio is towards short-tail property and accident risk but liability coverage is also underwritten.

In underwriting insurance or reinsurance policies the Syndicate’s underwriters use their skill, knowledge and data on past claims experience to evaluate the likely claims cost and therefore the premiums 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 premiums charged will be sufficient to cover claims costs. This shortfall may originate either from insufficient premiums being calculated and charged or result from an unexpected, or unprecedented, high level of claims.

A number of controls are deployed to limit the amount of insurance exposure underwritten. Each year a business plan is prepared and agreed which is used to monitor the amount of premium income, and exposure, to be written in total and for each class of business. Progress against this plan is monitored during the year. The Syndicate also operates under a line guide which determines the maximum liability per policy which can be written for each class and for each underwriter. These can be exceeded in exceptional circumstances but only with the approval of senior management. Apart from the UK, and some of the international, comprehensive motor liability portfolio, which has unlimited liability, all policies have a per loss limit which caps the size of any individual claims. For larger sum insured risks reinsurance coverage may be purchased. The Syndicate 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. These reinsurance arrangements are described in the reinsurance arrangements section below.

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

The insurance liabilities underwritten by the Syndicate are reviewed on an individual risk, or contract, basis and through review of portfolio performance. All claims arising are reserved upon notification. Each quarter the entire portfolio of business is subject to a reserving process whereby levels of paid and outstanding (advised but not paid) claims are reviewed. Potential future claims are assessed with a provision for incurred but not reported (IBNR) claims being made. This provision is subject to review by senior executives and an independent internal actuarial assessment is carried out by the in-house actuarial team to determine the adequacy of the provision. Whilst a detailed and disciplined exercise is carried out to provide for claims notified, it is possible that known claims could develop and exceed the reserves carried. Furthermore, there is increased uncertainty in establishing an accurate provision for IBNR claims and there is a possibility that claims may arise which, in aggregate, exceed the reserve provision established. This is partly mitigated by the reserving policy adopted by the Syndicate which is that provisions are established above an actuarial best estimate, reflecting a risk premium relating to the uncertainty on the actual level of claims incurred. There is therefore a reasonable chance of release of reserves from one underwriting year to the next.

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


Reinsurance arrangements The Syndicate purchases proportional reinsurance to supplement line size and to reduce exposure on individual risks. A part of the premiums ceded under such facilities is placed with Amlin Bermuda and Amlin Europe N.V. under variable quota share agreements. Additionally, a 17.5% quota share arrangement of Syndicate 2001 is written by Amlin Bermuda. The Syndicate 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.

For the 2012 underwriting year, Syndicate 2001 has ceded 9.9% (2009 and 2010 underwriting years: 15.0%, 2011 underwriting year: 12.9%) of certain excess of loss aviation, marine, property catastrophe, property per risk and terrorism accounts to special purpose Syndicate 6106.

Realistic Disaster Scenario (RDS) analysis The Syndicate has a defined event risk tolerance, which determines the maximum net loss that the Syndicate intends to limit its exposure to, from major catastrophe event scenarios. At 31 December 2012 the maximum was £158 million for the Syndicate (2011: £180 million).

These maximum losses are expected only to be incurred in extreme events – with an estimated occurrence probability for the elemental losses of less than 1 in 100 years for each relevant natural peril region. The Syndicate 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 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 the event risk tolerance. The following assumptions and procedures are used in the process:

• The data used reflects the information supplied to the Syndicate by insureds and ceding companies. This may prove to be 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 analysed but may prove to be inadequate.

• 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.

Claims reserves Claims 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 of a 1% variation in the total net claims reserves would be £11.8 million (2011: £11.5 million).

Large loss case reserves are determined through careful analysis of the individual claim, often with the advice of legal advisers. Liability claims arising from events such as the 11 September 2001 terrorist attacks in the US and, more recently, the 2010 and 2011 New Zealand earthquakes, are examples of cases where there continues to be some uncertainty over the eventual value of claims.

Property catastrophe claims such as earthquake, hurricane or flood 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 Syndicate. There may be uncertainty over the adequacy of information and modelling of major losses for a period of several months or years 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 provision has to be established, represent the most difficult classes to reserve because claims are notified and settled several years after the expiry of the policy concerned. This is particularly the case for US liability business.

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

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

Credit risk Credit risk is the risk that the Syndicate becomes exposed to loss if a counterparty fails to perform its contractual obligations, including failure to perform them in a timely manner. Credit risk could therefore have an impact upon the Syndicate’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. Syndicate 2001 is exposed to credit risk in its investment portfolio and with its premium and reinsurance debtors.

As well as actual failure of a counterparty to perform its contractual obligations, the price of corporate bond holdings will be affected by investors’ perception of a borrower’s ability to perform these duties in a timely manner. Credit risk within the investment funds is managed through the credit research carried out by the investment managers. The Syndicate’s investment guidelines are designed to mitigate credit risk by ensuring diversification of the holdings. For each portfolio there are limits to the exposure to single issuers and to the total amount that can be held in each credit quality rating category, as determined by reference to credit rating agencies. At 31 December 2012, investments amounted to £1,503.4 million (2011: £1,449.3 million). Directly held short-dated bonds accounted for 35.0% of the portfolio (2011: 37.6 %). The residual of the portfolio was held mostly in investment pools and collective investment schemes. The bond portfolio remains high quality, as illustrated by the asset allocation table shown below, and has very low exposure to sovereign debt issued by the so-called PIIGS nations (0.1% of financial investments; 2011: 0.1%). The credit ratings on debt securities are State Street composite ratings based on Standard & Poor’s, Moody’s and Fitch.

14


2012

£m 2012

% 2011

£m 2011

%

Government/ Government Agency 248.3 47.2 291.3 53.5AAA/Aaa 171.0 32.5 149.3 27.4AA/Aa 18.1 3.4 25.9 4.8A 81.0 15.4 67.5 12.4BBB/Baa or below 7.9 1.5 10.4 1.9

526.3 100.0 544.4 100.0

The credit risk in respect of reinsurance debtors is primarily managed by review and approval of reinsurance security, by the Syndicate’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 rating agency review and the Syndicate’s own ratings for each reinsurer. 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.

Credit risk in respect of premium debt is overseen by the Syndicate’s Broker Committee. The key controls include broker approval, annual financial review and internal rating of brokers and regular monitoring of premium settlement performance.

Valuation risk The Syndicate’s earnings are directly affected by changes in the valuations of the investments held in the portfolios. These valuations vary according to the movements in the underlying markets. The Syndicate’s assets are marked to market at bid price. Prices are supplied by the custodians, whose pricing processes are covered by their published annual audits. In accordance with their pricing 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. Property funds are based on the most recent price available, which in some instances may be a quarter in arrears. Where a property transaction has taken place the transaction price is used if it is the most recent price available.

Interest rate risk Investors’ expectations for interest rates will impact bond yields. The value of the Syndicate’s bond holdings is therefore subject to fluctuation as bond yields rise and fall. If the yield falls the capital value will rise, and vice versa. The sensitivity of the price of a bond is indicated by its duration. The greater the duration of a security the greater its price volatility. Typically the longer the maturity of a bond the greater its duration.

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

Shift in yield (basis points)

Sterling %

US$ %

CAN$ %

Euro %

NZD %

JPY%

Capital Sterling

%

100 (0.9) (2.2) (1.5) (1.5) 0.4 0.3 (0.6)75 (0.7) (1.7) (1.1) (1.2) 0.3 0.2 (0.4)50 (0.5) (1.2) (0.7) (0.8) 0.2 0.1 (0.3)25 (0.2) (0.6) (0.4) (0.4) 0.1 0.1 (0.1)–25 0.2 0.5 0.4 0.4 (0.1) (0.1) 0.1–50 0.5 1.0 0.8 0.8 (0.2) (0.1) 0.2–75 0.7 1.2 1.2 1.2 (0.3) (0.2) 0.3–100 0.9 1.3 1.5 1.5 (0.4) (0.3) 0.3

Foreign exchange risk Policyholders’ assets are held in the base currencies of Sterling, Euros, US dollars and Canadian dollars, and additional currencies of New Zealand dollars, Japanese yen and Australian dollars, which represent the majority of the Syndicate’s liabilities by currency. This limits the underlying foreign exchange risk.

Foreign exchange exposure also arises when business is written in non-base currencies. These transactions are converted into Sterling at the prevailing spot rate once the premiums are received. Consequently there is exposure to currency movements between the exposure being written and the premiums being converted. Payments in non-base currencies are converted back into the underlying currency at the time a claim is to be settled; therefore the Syndicate is exposed to exchange rate risk between the claim being made and the settlement being paid.

Foreign exchange risk arises until non-Sterling profits are converted into Sterling. It is Amlin Underwriting Limited’s policy to mitigate foreign exchange risk by systematically converting non-Sterling profits into Sterling. Given the inherent volatility in some of our business a cautious approach is adopted on the speed and level of sales, but we seek to extinguish all currency risk on earned profit during the second year after the commencement of any underwriting year. The intention is to time the currency transactions in order to optimise the conversion rates. This approach is part of risk management strategy as it avoids the inherent dangers of lumpier sales. It is not the intention to take speculative currency positions in order to make currency gains.

The Syndicate will occasionally transact currencies on a forward basis. These are carried out with a selection of well-rated banks, so as to limit the counterparty risk. The transactions are not designed as specific hedges and therefore realised and unrealised gains and losses are recorded in the profit and loss account of the period in which they occur. The investment managers held forward foreign exchange contracts in their portfolios at the year end in order to hedge non-base currency investments. These are marked to market in their valuations.

Liquidity risk It is important to ensure that claims are paid as they fall due. Levels of cash are therefore managed on a daily basis. Buffers of liquid assets are also held in excess of the immediate requirements to avoid us having to be forced sellers of any of our assets, which may result in prices below fair value being realised, especially in periods of below normal investment market activity. The policy of limiting the extent of duration divergence between the policyholders’ assets and the liabilities helps to reduce the risk of a cashflow mismatch.

Liquidity in the event of a major disaster is tested regularly using internal cashflow forecasts and realistic disaster scenarios. In addition, the policyholders’ funds investment guidelines require at least 25% of the funds to be held in government bonds and/or cash equivalents, which are highly liquid. If a major insurance event occurs the investment strategy is reviewed to ensure that sufficient liquidity is also available in the corporate funds.

Regulatory risk Regulatory risk is the risk that the Syndicate fails to meet the regulatory requirements of the Financial Services Authority and Lloyd’s. Lloyd’s requirements include those imposed on the Lloyd’s market by overseas regulators, particularly in respect of US situs business. Amlin Underwriting Limited, the managing agency, has a Compliance Officer who monitors regulatory developments and assesses the impact on agency policy.


Operational risk Operational risk is the risk that failure of people, systems or processes leads to losses to the Syndicate. The Syndicate manages these risks through internal compliance monitoring and the use of detailed procedure manuals. In addition, the Amlin Group has both a Corporate Centre Risk department and an Internal Audit department which assist Amlin Underwriting Limited to meet the strategic and operational objectives of the Syndicate through the provision of independent appraisal of the adequacy and effectiveness of internal controls in operation and to provide reasonable assurance as to the adequacy of systems and procedures to enable compliance with all relevant regulatory and legal requirements.

16


3. Segmental analysis An analysis of the underwriting result before investment return and net technical provisions is set out below:

2012

Gross written

premiums £m

Gross earned

premiums£m

Gross claims

incurred£m

Net operating expenses

£m

Reinsurance balance

£mTotal

£m

Net technical

provisions £m

Commissions on gross

premiums earned

£m

Direct insurance Accident and health 28.9 30.7 (21.8) (6.8) (1.0) 1.1 38.6 (5.9)Motor (third party liability) 43.0 29.0 (18.0) (8.6) (0.4) 2.0 36.9 (6.7)Motor (other classes) 183.6 175.0 (102.9) (52.2) (8.5) 11.4 225.0 (40.3)Marine, aviation and transport 172.8 190.5 (101.1) (43.3) (24.9) 21.2 216.3 (36.8)Fire and other damage to property 286.2 269.8 (146.5) (84.7) (41.4) (2.8) 310.9 (57.2)Third party liability 106.5 100.6 (37.7) (38.3) (18.3) 6.3 119.4 (22.2)Miscellaneous 92.7 84.2 (32.1) (23.6) (17.5) 11.0 89.9 (16.2) 913.7 879.8 (460.1) (257.5) (112.0) 50.2 1,037.0 (185.3)Reinsurance 556.4 514.8 (249.8) (157.4) (104.7) 2.9 540.4 (98.7)Total 1,470.1 1,394.6 (709.9) (414.9) (216.7) 53.1 1,577.4 (284.0)

2011

Gross written

premiums £m

Gross earned

premiums£m

Gross claims

incurred£m

Net operating expenses

£m

Reinsurance balance

£mTotal

£m

Net technical

provisions £m

Commissions on gross

premiums earned

£m

Direct insurance Accident and health 7.7 7.0 (3.0) (7.1) (2.0) (5.1) 6.2 (5.2)Motor (third party liability) 5.8 3.7 (0.9) (1.3) (0.3) 1.2 4.9 (0.9)Motor (other classes) 195.3 177.4 (152.8) (53.1) 6.3 (22.2) 241.3 (36.7)Marine, aviation and transport 195.5 189.0 (83.6) (62.6) (24.3) 18.5 214.9 (41.9)Fire and other damage to property 219.3 216.8 (114.2) (73.0) (20.4) 9.2 261.7 (50.8)Third party liability 101.3 95.1 (34.0) (32.3) (12.3) 16.5 119.8 (23.0)Miscellaneous 88.3 80.9 (41.7) (22.2) (7.0) 10.0 96.0 (15.7)

813.2 769.9 (430.2) (251.6) (60.0) 28.1 944.8 (174.2)Reinsurance 489.5 483.3 (549.9) (95.5) 85.2 (76.9) 567.3 (70.4)

Total 1,302.7 1,253.2 (980.1) (347.1) 25.2 (48.8) 1,512.1 (244.6)

All premiums are concluded in the UK.

The geographical analysis of premiums by location of client, as a proxy for risk location, is as follows:

2012

£m 2011

£m

UK 485.1 434.4Other EU countries 141.0 131.7USA 599.7 552.8Other 244.3 183.8

Total 1,470.1 1,302.7


4. Prior periods’ claims provisions The movement in the net provision for claims includes a release of £50.3 million (2011: £72.2 million) in respect of claims outstanding at the previous year end.

5. Net operating expenses

2012

£m2011

£m

Acquisition costs 306.0 258.7Change in deferred acquisition costs (22.0) (14.1)Administrative expenses 84.3 69.7Managing agent’s fees 27.3 26.2Lloyd’s charges 9.9 10.3Foreign exchange gains/(losses) 9.4 (3.7)

414.9 347.1

Administrative expenses include: Fees payable to the Syndicate’s auditor for: – Audit of the Syndicate’s annual report 0.3 0.3

6. Staff numbers and costs All staff are employed by Amlin Corporate Services Limited, a wholly owned subsidiary of Amlin plc and the immediate parent company of the managing agency. The following amounts were recharged to the Syndicate in respect of salary costs:

2012

£m2011

£m

Wages and salaries 33.3 27.8Social security costs 4.1 3.2Other pension costs 3.6 3.0

41.0 34.0

The average number of employees employed by Amlin Corporate Services Limited but working for the Syndicate during the year was as follows:

2012

Number2011

Number

Underwriting divisions Underwriting, claims and reinsurance 475 429Administration and support 317 272Central functions Operations 188 164Finance and administration 43 40Internal audit and compliance 15 14

1,038 919

7. Directors’ emoluments The directors of Amlin Underwriting Limited received the following aggregate remuneration charged to the Syndicate and included within net operating expenses:

2012£’000

2011£’000

Executive and non-executive directors’ emoluments 1,578 1,447Accrued defined benefit scheme pension 61 43Defined contribution scheme 88 113Fees to non-executive directors 36 26

1,763 1,629

Payments were made to five directors (2011: three) in respect of defined benefit pension schemes and to eleven directors (2011: nine) in respect of defined contribution schemes. Three directors exercised share options during the year (2011: seven) and eleven directors were members of long-term incentive schemes (2011: ten).

18


7. Directors’ emoluments continued The highest paid director of Amlin Underwriting Limited received the following aggregate remuneration charged to the Syndicate and included within net operating expenses:

2012 £’000

2011£’000

Executive directors’ emoluments 390 371Accrued defined benefit scheme pension 22 21Defined contribution scheme 1 8

413 400

The highest paid director has not (2011: has not) exercised share options during the year and amounts under long-term incentive schemes were (2011: were) receivable.

The two (2011: two) active underwriters received the following remuneration charged as a Syndicate expense:

2012 £’000

2011£’000

Executive directors’ emoluments 662 698Accrued defined benefit scheme pension 38 42Defined contribution scheme 27 31

727 771

8. Investment return

2012

£m 2011

£m

Investment income 18.5 19.7Cash and cash equivalents interest income 1.8 1.2

20.3 20.9Net realised gains on financial assets 13.7 13.0Net unrealised gains/(losses) on financial assets 9.8 (13.8)Investment expenses and charges (2.0) (2.3)

41.8 17.8

The above figures include investment return of £13.0 million (2011: negative return of £4.6 million) on cash, bonds, equity and property investments deposited by Amlin Corporate Member Limited (see note 12) into the Syndicate’s Premium Trust Fund since 2007.

Calendar year investment yield

2012

£m 2011

£m

Average Syndicate funds available for investment during the year Sterling 177.3 291.4Euro 123.3 119.3US dollars 568.6 508.0Canadian dollars 85.5 66.3Australian dollars 110.2 7.1New Zealand dollars 105.2 64.6Japanese yen 21.2 20.5

Combined 1,191.3 1,077.2

Aggregate gross investment return on Syndicate investments for the year (excludes expenses and charges) 29.7 23.2

Gross calendar year investment yield: Sterling 2.2% 3.6%Euro 1.9% 2.7%US dollars 1.8% 1.3%Canadian dollars 1.1% 4.2%Australian dollars 1.4% 6.5% New Zealand dollars 9.4% –Japanese yen 3.1% -2.0%

Combined 2.5% 2.0%


The average amount of Syndicate funds available for investment has been calculated as the monthly average balance of investments and overseas deposits. The yield percentages exclude immaterial sources of income.

9. Financial investments Market value Cost

2012 £m

2011

£m 2012

£m2011

£m

Debt securities and other fixed income securities 526.3 544.4 522.3 532.7Shares and other variable yield securities 170.1 117.2 170.3 114.9Participation in investment pools 496.5 544.7 496.5 544.7Holdings in collective investment schemes 308.8 241.5 295.3 240.6Derivative financial instruments 1.1 0.4 – 1.2Other investments 0.6 1.1 0.6 1.1

1,503.4 1,449.3 1,485.0 1,435.2Listed investments included above: Shares and other variable yield securities 126.8 80.9 121.6 80.0Debt securities and other fixed income securities 526.3 544.4 522.3 532.7 Derivative financial instruments (1.2) 1.0 – 1.2

Policyholders funds are matched by bonds, investment pools, collective investment schemes and cash. Other more volatile assets, including equities, represent capital. Included above are amounts of £509.1 million (2011: £555.6 million) owed to Amlin Corporate Member Limited (see notes 12 and 16).

10. Debtors arising out of direct insurance operations

2012

£m2011

£m

Due from policyholders 0.2 –Due from intermediaries 96.2 66.9

96.4 66.9

11. Overseas deposits Overseas deposits represent balances held with overseas regulators to permit underwriting in certain territories. These assets are managed by Lloyd’s on a pooled basis and are predominantly invested in debt and other fixed income securities.

12. Member’s balances

2012

£m2011

£m

At 1 January (25.9) 171.3Profit/(loss) for the financial year 81.9 (26.4)Amounts received from/( paid to) the personal reserve funds of Amlin Corporate Member Limited 3.9 (170.8)

At 31 December 59.9 (25.9) Funds deposited by Amlin Corporate Member Limited

At 1 January 555.6 408.8Profit/(loss) for the financial year 13.0 (4.6)Funds (withdrawn)/deposited in financial year (59.5) 151.4

Amounts owed to Amlin Corporate Member Limited (note 16) 509.1 555.6

At 31 December 569.0 529.7

Members participate on Syndicates by reference to years of account and their ultimate result. Assets and liabilities are assessed with reference to policies incepting in that year of account in respect of their membership of a particular year. Amlin Corporate Member Limited is a wholly owned subsidiary of Amlin plc.

20


13. Reconciliation of technical account balance to net cash inflow from operating activities

2012

£m 2011

£m

Technical account balance for the financial year 81.9 (26.4)Increase in net technical provisions 87.3 170.7Increase in debtors, prepayments and accrued income (190.6) (140.6)Increase in creditors and funds deposited by Amlin Corporate Member Limited 90.0 208.5Changes to market value and exchange rates 22.0 15.7

Net cash inflow from operating activities 90.6 227.9

14. Movement in opening and closing portfolio investments net of financing

2012

£m 2011

£m

Net cash (outflow)/inflow for the year (7.1) 24.3Cashflow

– Increase in overseas deposits 26.6 64.2– Increase/(decrease) in portfolio investments 75.0 (31.4)

Movement arising from cashflows 94.5 57.1Changes in market value and exchange rates (22.0) (15.7)

Total movement in portfolio investments 72.5 41.4Portfolio at 1 January 1,626.9 1,585.5

Portfolio at 31 December 1,699.4 1,626.9

Movement in cash, portfolio investments and financing

At 1 January

2012£m

Cashflow £m

Changes to market value and exchange

rates £m

At 31 December

2012£m

Cash at bank and in hand 31.0 (7.1) 0.2 24.1Overseas deposits 146.6 26.6 (1.3) 171.9Portfolio investments:

– Debt securities and other fixed income securities 544.4 2.3 (20.4) 526.3– Shares and other variable yield securities 117.2 55.8 (2.9) 170.1– Participations in investment pools 544.7 (41.6) (6.6) 496.5– Holdings in collective investment schemes 241.5 58.3 9.0 308.8– Derivative financial instruments 0.4 0.7 – 1.1– Other investments 1.1 (0.5) – 0.6

Total cash, portfolio investments and financing 1,626.9 94.5 (22.0) 1,699.4

15. Net cashflow on portfolio investments

2012

£m 2011

£m

Purchase of debt securities and other fixed income securities (719.5) (847.8)Purchase of shares and other variable yield securities (97.0) (83.5)Sale of debt securities and other fixed income securities 717.2 901.6Sale of shares and other variable yield securities 47.9 122.6Net (purchase)/sale of holdings in collective investment schemes (58.3) 191.0Decrease/(Increase) in participation in investment pools 41.6 (255.6)(Increase)/decrease in derivative financial instruments (0.7) 0.6(Increase)/decrease in other investments (6.2) 2.5

Net cash (inflow)/outflow on portfolio investments (75.0) 31.4


16. Related parties The largest and the smallest group of undertakings for which Group accounts are prepared and the results of the Syndicate are included, is Amlin plc, a company incorporated in Great Britain and registered in England and Wales. Amlin plc is the ultimate parent company and controlling party of Amlin Underwriting Limited (the managing agency). A copy of the consolidated accounts is available from the Registered Office of Amlin plc at St. Helen’s, 1 Undershaft, London EC3A 8ND.

Amlin Corporate Member Limited From October 2007 Amlin Corporate Member Limited has satisfied Lloyd’s capital requirements by holding investments within the Syndicate as Funds in Syndicate (FIS). During 2012, £59.5 million was withdrawn by Amlin Corporate Member Limited as its capital requirements changed (2011: additional funding provided £151.4 million). The investments realised a profit of £13.0 million for the period to 31 December 2012 (2011: loss of £4.6 million). The balance of £509.1 million (2011: £555.6 million) is included within capital and reserves on the Syndicate balance sheet and is owed exclusively to Amlin Corporate Member Limited.

Amounts totalling £3.9 million were received from the member’s personal reserve funds during the year (2011: distribution of profit £170.8 million).

Amlin Underwriting Limited Managing agent’s fees of £27.3 million (2011: £26.2 million) were paid by the Syndicate to Amlin Underwriting Limited during the year.

There have been no transactions entered into or carried out during the year by the managing agency on behalf of the Syndicate in which it or any of its executives had directly or indirectly a material interest other than by way of their shareholding in Amlin plc or participation in Syndicate 2001.

Amlin Corporate Services Limited Amlin Corporate Services Limited was paid £98.0 million during the year (2011: £88.9 million) for expenses incurred directly and indirectly on behalf of the Syndicate. This included a management charge of £37.1 million (2011: £35.1 million) for central costs of the Amlin Group that are attributable to the Syndicate. There is no profit element in the amounts paid to Amlin Corporate Services Limited.

Amlin Bermuda Syndicate 2001 placed nine (2011: nine) proportional treaty reinsurance contracts and 24 (2011: 38) excess of loss reinsurance contracts with Amlin Bermuda (AB) for a variety of classes of business. The Syndicate also placed a whole account quota share reinsurance contract of 17.5% with AB for the 2012 year of account (17.5% for 2011 (10% for the Reinsurance business unit)).

During 2012 the Syndicate was reinsured by AB as a following market, through 8 (2011: 15) programmes protecting a variety classes of business. In addition, AB placed one (2011: one) facultative excess of loss reinsurance contract with Syndicate 2001. With effect from 1 January 2012 there is also a 36 month Weighted Industry Loss reinsurance agreement between Syndicate 2001 and Amlin Bermuda providing cover for US Hurricane, US Earthquake and European Windstorm. In order to make a recovery under this contract the Tramline Re catastrophe bond must be triggered.

All reinsurance contracts are agreed on an arm’s length basis with terms that are consistent with those negotiated with third parties. The total premiums (less commissions retained) payable to AB in respect of 2012 were £198.4 million (2011: £171.2 million), of which £86.8 million (2011: £89.0 million) were outstanding as at 31 December 2012. Premiums receivable from AB in respect of 2012 were £0.4 million (2011: £0.4 million), of which £nil (2011: £nil) were outstanding as at 31 December 2012.

Amlin Europe N.V. Amlin Europe N.V. (AE) expanded its involvement in the Syndicate’s variable quota share arrangements in 2012 to include all classes written by the Syndicate’s Marine business unit. AE also provided a variable quota share for the Syndicate’s special risks / nuclear portfolio and renewed its participation on the prior submit direct and facultative property facility. Total premiums (less commissions retained) payable to AE in respect of 2012 were £24.2 million (2011: £2.4 million). Premiums receivable from AE in respect of 2012 were £1.1 million (2011: £0.3 million) of which £0.8 million (2011: £nil) were outstanding as at 31 December 2012.

Amlin Insurance UK Limited With effect from 1 July 2012, Syndicate 2001 entered into a reinsurance contract whereby Amlin Insurance UK Limited cedes a 75% quota share of its whole account to Syndicate 2001. Total premiums receivable from AIUKL in respect of 2012 were £0.6 million of which £0.3 million is outstanding as at 31 December 2012.

Special Purpose Syndicate 6106 Amlin Underwriting Limited also acts as managing agent for Special Purpose Syndicate 6106 (Syndicate 6106). Syndicate 6106 began operating from 1 January 2009 to write a 15% proportional treaty reinsurance contract covering the marine XL, aviation XL, property catastrophe, property per risk and terrorism excess of loss accounts for the 2009 underwriting year of account. For the 2012 underwriting year of account the ceded percentage reduced to 9.9%. Syndicate 2001 retains a 5% overriding commission on premiums ceded to Syndicate 6106 and is entitled to 20% profit commission on the settlement of the contract, subject to a two-year deficit clause. During 2012 the Syndicate earned overriding commission of £1.8 million (2011: £2.0 million) with £nil profit commission accrued (2011: £1.1 million decrease).

Until the contract is concluded the premiums and other income of the business, less the claims and other liabilities related to the contract, will be retained within Syndicate 2001’s trust funds. At 31 December 2012 the amount due from Syndicate 6106 retained in Syndicate 2001 under the terms of the contract was £7.6 million (31 December 2011: £2.8 million due to Syndicate 6106).

Service companies and brokers Amlin Underwriting Limited has a number of subsidiaries which introduce business to, or provide specialist services on behalf of, Syndicate 2001. In addition, Amlin plc indirectly owns Amlin Underwriting Services Limited which also introduces business to Syndicate 2001.

22


The service companies and brokers and the income received and expenses incurred by the Syndicate are summarised below.

Service company Insurance class of business introduced

2012 Gross written

premiums £m

2011Gross written

premiums£m

2012Commission/

brokerage paid£m

2011Commission/

brokerage paid£m

2012Profit

commission paid£m

2011 Profit

commission paid £m

2012 Management charge paid

£m

2011Management charge paid/

(received)£m

Amlin Plus Limited Equine insurance 13.8 14.0 1.6 1.4 – 0.3 0.2 0.4Amlin Underwriting Services Limited

Dinghy, yacht and livestock insurance 18.1 19.8 2.8 2.9 0.3 0.2 1.2 0.8

Amlin Singapore Pte Limited

General insurance and reinsurance 8.6 9.6 – – – – 2.1 1.7

Amlin Labuan Limited General insurance and reinsurance 1.2 0.4 – – – – 0.1 –

JR Clare Underwriting Agencies Limited

UK household and commercial insurance 11.5 35.1 0.4 2.1 – – – –

Lead Yacht Underwriters Limited Super-yacht insurance 7.0 5.8 0.5 0.3 0.3 0.1 – –AUA Insolvency Risk Services Limited

Insolvency practitioners’ insurance 10.7 13.5 2.9 3.8 – – – (0.2)

70.9 98.2 8.2 10.5 0.6 0.6 3.6 2.7

Service company Service provided

2012 Fees paid

£m

2011Fees paid

£m

Serviceline (UK) Limited Motor and legal expenses 0.2 0.2Amlin UK Limited Claims adjusting and administration 4.6 4.5

4.8 4.7

The entire share capital of these companies, with the exception of Amlin Plus Limited, is held by Amlin plc and its subsidiaries. Amlin Underwriting Limited and Lycetts Holdings Limited (the owners of Lycett, Browne-Swinburne and Douglass Limited) own 60% and 40% respectively of the share capital of Amlin Plus Limited. The business of Amlin Plus Limited is written under a binding authority agreement with Syndicate 2001, some of which is sourced through Lycett, Browne-Swinburne and Douglass Limited.

All transactions between Amlin Plus Limited and Syndicate 2001 are conducted on an arm’s length basis.

No fees are paid by these companies to any of the directors of Amlin Underwriting Limited.

Transactions with directors Certain directors of the managing agent are also directors of other companies, which may, and in some cases do, conduct business with Syndicate 2001 and with companies in the Amlin Group. GeoVera Insurance Ltd (of which M D Feinstein is a non-executive director) purchased reinsurance from Syndicate 2001 and Butterfield Bank (UK) Ltd (of which N J C Buchanan is a non-executive director) purchased insurance from Syndicate 2001. In all cases transactions between the Syndicate and with the Amlin Group and such other companies are carried out on normal arm’s length commercial terms without any involvement by the director concerned on either side of the transaction.


Advisers Independent syndicate auditor Syndicate, Amlin plc and subsidiaries PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors 7 More London Riverside London SE1 2RT

Corporate solicitors Linklaters 1 Silk Street London EC2Y 8HQ

Amlin Underwriting Limited Syndicate 2001 - Lloyd's of...

Documents

Transcript of Amlin Underwriting Limited Syndicate 2001 - Lloyd's of...