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OPERATING AND FINANCIAL REVIEW / FINANCIAL PERFORMANCE
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| INVESTMENT PERFORMANCE |
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In 2004 investment return was £50.6 million,
up 58% on the previous year. This was
achieved through good returns from asset
classes and an increase in assets invested.
The Group’s cash and investments increased by
25% to £1.3 billion. This has arisen through:
- an increase in Amlin’s share of Syndicate
2001. Of the overall syndicate funds at 31
December 2004 Amlin owned 81% (2003:
74%). This will grow to 100% over the
next year;
- strong cash inflows for Syndicate 2001 with
cash and investments increasing to £1.0
billion (2003: £0.8 billion);
- fresh debt raised in November 2004, which
increased investments by £56 million.
TECHNICAL FUNDS
As described on the 'INVESTMENTS' page, Amlin’s technical
funds are invested in short duration investment
grade bonds and cash. Bond yields started the
year at relatively low levels with an expectation
of interest rate rises beginning to be factored
in. This accelerated in the second quarter of
the year leading to only modest returns at the
interim reporting stage. However in the third
quarter expectations of interest rate increases
moderated and this helped deliver acceptable
full year bond returns across all currencies
relative to cash yields.
High levels of cash have been held through the
year in sterling as the risk/reward trade off
between cash and short duration bonds
appeared to us to favour cash. Good returns
were achieved on our sterling portfolios.
SOLVENCY FUNDS
The strong performance of equities, particularly
in the latter part of the year, justified our
decision to increase our equity allocation to
25% in 2003. The equity portfolio, managed
by Taube Hodson Stonex Partners, produced a
return of 14.4%, exceeding the FTSE All World
Index benchmark return by 5.6%.
Through most of the year our strategic asset
allocation was 25% equities, 70% cash and
cash equivalents and 5% long duration bonds.
In November, following a reappraisal of our risk
appetite as the cycle peaked and forecast
leverage reduced, the Board approved a change
in the strategic asset allocation to 50% equities
and 50% cash. By the end of December, the
equity proportion of the solvency funds had
risen to 33%.
Cash was used to balance the potential
volatility of equities. The cash funds generated
a 4.7% return that compares with the total
return on UK government bonds of 6.6%.
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| EXPENSES |
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Operating expenses increased by £2.4 million,
or 1.1%, for the year. The increase in expenses
from our larger share of syndicate operating
expense was offset by a £15.7 million reduction
in the 2% premium levy, as it was withdrawn
by Lloyd’s. The underlying Syndicate 2001
operating expense reduced by 2%.
Other charges rose £2.2 million to £37.4
million. This includes a £17.3 million cost
(2003: £18.9 million) of incentives to staff.
We have accrued a further £4.1 million under
the capital builder plan, with the total accrual
under the scheme now amounting to
£10 million.
IFRS Summary, please click here
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