Review

People

Performance development reward

During the latter part of 2008, the FSA published an open letter to the chief executives of all financial services companies, setting out headline views in respect of remuneration policies. This was largely in response to widespread concern that, in many cases, the remuneration structure of firms, particularly in the areas of investment banking and capital markets, may have been inconsistent with sound risk management and may have contributed to the current problems in the financial services sector.

The purpose of the FSA letter was to encourage firms to review their remuneration policies in the light of recent market developments and to ensure that these are aligned with sound risk management systems and controls and within the firm’s stated risk appetite. Whilst the Group believes that many of the remuneration practices giving rise to the FSA’s concerns are less applicable to non-life insurers such as Amlin than other parts of the Financial Services industry, it has taken the opportunity to review its reward arrangements against the FSA’s initial view of what constitutes good and bad practice, categorised under four main headings:

Measure of performance for the calculation of bonuses.
Composition of the remuneration.
Performance adjusted deferred compensation.
Governance.

The Group last formally reviewed its remuneration arrangements in 2005 and at that time developed a set of reward principles which underpin the Group’s philosophy and approach towards remuneration.

Overall, there is good alignment between the Group’s reward arrangements and the FSA’s view on best practice. The nature of the London insurance market and particularly Amlin’s book of predominantly short-tail business creates a different risk profile to that of other sectors where there is a greater risk of short-term reward structures influencing short-term behaviour in markets which are managing medium to long-term risk.

The Group has already committed to review the Profit Commission Scheme in 2009 with the intention of implementing any changes with effect from 2010. This will provide a further opportunity to align with best practice. Conducting a review of short-term bonus arrangements within the Lloyd’s market in order to update our intelligence on current practice, trends and the likely future development of reward schemes amongst our competitors will be a key component of the Profit Commission review. Retaining our competitiveness against our immediate peer Group and against the wider insurance market is critical to the future performance and sustainability of the Group.

The Group made a further grant under the Capital Builder Long Term Incentive Plan to approximately 50 senior underwriters in 2008. The plan is designed to retain and reward the long-term commitment of key underwriters by giving them the opportunity to build personal capital over a sustained period of success, as they might have if they owned equity in a small underwriting business. This has proved to be an effective reward arrangement to drive superior performance and retain key staff with critical business skills.

Following a full review of benefits in 2007, the flexible benefit options provided to all staff were enhanced in 2008. The number of flexible options employees can choose was increased from two to five and a new Health Cash Plan option was also introduced. The number of employees who took up flexible benefits in 2008 was 76%, a 20% increase on previous years.