Notes to accounts

11 Employee benefit expenses

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

The aggregate payroll costs incurred by Group companies and Syndicate 2001 are analysed as follows:

12 Finance costs

13 Profit before tax

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

Fees payable to the company’s auditors for the audit of the company’s annual accounts amounted to £77,097 (2006: £98,580). The Audit Committee Chairman is required to approve any non-audit work commissioned from the auditors where any single piece of work attracts a fee over £25,000.

Fees paid to the Group’s auditors for other services comprise the following amounts:

Included in other services are subsidiary company audit fees amounting to £414,592 (2006: £353,517).

14 Tax

In addition to the above, deferred tax £1.3 million has been charged directly to equity (2006: £1.3 million credit).

Underwriting profits and losses are recognised in the technical account on an annual accounting basis, recognising the results in the period in which they are earned. UK corporation tax is charged in the period in which the underwriting profits are actually paid by the Syndicate to the corporate members.

Deferred tax is provided on the annually accounted underwriting result with reference to the forecast ultimate result of each of the years of account included in the annually accounted underwriting. Where the forecast ultimate result for a year of account is a taxable profit, deferred tax is provided in full on the movement on that year of account included in the period’s annually accounted underwriting result. Where the forecast ultimate result for a year of account is a loss, deferred tax is only provided for on the movement on that year of account included in the period’s annually accounted Syndicate underwriting result to the extent that forecasts show that the taxable loss will be utilised in the foreseeable future. Deferred tax has been provided on the annually accounted underwriting result for this accounting period of £288.5 million (2006: £218.4 million).

Deferred tax assets on loss provisions in respect of non-aligned syndicate participations (see note 18) are only provided for, to the extent that forecasts show that it is more likely than not that the ultimate taxable underwriting losses represented by these provisions will be utilised within the foreseeable future. Deferred tax has been provided in full on non-aligned syndicate loss participation provisions of £3.6 million (2006: £3.8 million).

Reconciliation of tax expense

The UK standard rate of corporation tax is 30% (2006: 30%), whereas the current tax assessed for the year ended 31 December 2007 as a percentage of profit before tax is 20.7% (2006: 21.9%). The reasons for this difference are explained below:

The Group’s tax provision for 2007 has been prepared on the basis that the Group’s Bermudian subsidiaries are non-UK resident for UK corporation tax purposes. The corporation tax rate for Bermudian companies is currently 0% (2006: 0%).

A deferred tax liability of £20.3 million (2006: £8.9 million) has been provided for on profits of the Group’s overseas subsidiaries expected to be distributed in the foreseeable future. A deferred tax liability has not been provided on the undistributed profits of the overseas subsidiaries of £169.5 million (2006: £69.1 million) because the company is not expected to distribute these profits in the foreseeable future.

No deferred tax asset has been recognised on capital losses on investments as these were all utilised by the Group during 2007 (2006: £5.4 million asset). A deferred tax provision of £0.1 million (2006: £6.4 million) has been made on unrealised capital gains arising within the Group during this accounting period.

Deferred tax has been provided for at the tax rate in force when the temporary differences are expected to reverse. The tax rates used are 28.5% for temporary differences expected to reverse in 2008 and 28% for temporary differences expected to reverse in 2009 or later.

The Group is subject to US tax on US underwriting profits. No provision has been made in respect of such tax arising in 2007 (2006: £nil) as any net provision is likely to be immaterial and would be offset by brought forward US tax losses in the Group.

Deferred income tax

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

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

No deferred tax asset has been provided for on capital losses as these were all utilised during the year (2006: £18 million)

Deferred tax assets have not been provided on US net operating losses of £30.2 million (2006: £31.0 million) carried forward due to uncertainty over their future use.

15 Net foreign exchange gains/(losses)

The Group recognised foreign exchange gains of £8.0 million (2006: £26.9 million loss) during the year.

The Group writes business in many currencies and although a large amount 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 possible, or practical, to match exactly all assets and liabilities in currency and accounting standards dictate 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 gains is £14.7 million (2006: £27.9 million loss) due to the translation of non-monetary assets and liabilities at historic average rates.

Foreign exchange gains and losses on investments in overseas subsidiaries are taken directly to reserves in accordance with IAS21, The Effects of Changes in Foreign Exchange Rates. Amlin Bermuda Holdings Ltd and Amlin Bermuda Ltd report in US dollars. Amlin Singapore Pte Limited reports in Singapore dollars. The loss taken to reserves for the year ended 31 December 2007 was £8.2 million (2007: £77.3 million). This reflects the Group’s investment of $1 billion of capital in Amlin Bermuda Ltd adjusted for the movement in the dollar rate from 1.96 at the start of the year to 1.99 at the balance sheet date.

16 Cash and cash equivalents

Cash and cash equivalents represents cash at bank and in hand and short-term bank deposits which can be recalled within 24 hours.

17 Financial Investments

As explained in note 31, £16.7 million (2006: £382.1 million) of the Group’s investments are charged to Lloyd’s to support the Group’s underwriting activities.

Overseas deposits represent balances held with overseas regulators to permit underwriting in certain territories. The assets are managed by Lloyd’s on a pooled basis.

18 Insurance contracts and reinsurance assets

Other insurance liabilities are comprised principally of premium payable for reinsurance, including reinstatement premium. Other insurance assets are comprised principally of amounts recoverable from reinsurers in respect of paid claims and premium receivable on inward reinsurance business, including reinstatement premium.

Further information on the calculation of claims reserves and the risks associated with them is provided in the risk disclosures in note 3.

Claims reserves are further analysed between notified outstanding claims and incurred but not reported claims below:

It is estimated, using historical settlement trends, that £568.4 million (2006: £564.2 million) of the claims reserves included, as at 31 December 2007, will settle in the next twelve months.

From 1994 to 1999 the Group participated on a number of Lloyd’s syndicates other than those managed by the Group. From 2000 the Group ceased to underwrite directly on non-aligned syndicates. However, a number of syndicates remain “open” and Amlin’s final liabilities are still to be finalised. Provisions are made for potential future insurance claims. Included within the claims provisions in the table above are provisions in respect of “non-aligned syndicate participations” of £3.9 million (2006: £4.2 million). Syndicates that remain open at 31 December 2007 are set out in the table below.

19 Loans and receivables, including insurance receivables

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

20 Property and equipment

There were no assets held under finance lease and hire purchase contracts at 31 December 2007 (2006: £nil).

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