Notes to accounts

31 Contingent liabilities

The Group has entered into various deeds of covenant in respect of certain corporate member subsidiaries to meet each such subsidiary’s obligations to Lloyd's. At 31 December 2007, the total guarantee given by the Group under these deeds of covenant (subject to limited exceptions) amounted to £16.7 million (2006: £382.1 million). The obligations under the deeds of covenant are secured by a fixed charge over investments of the same value at the relevant valuation date and a floating charge over all the investments and other assets of Amlin Investments Limited, in favour of Lloyd's. Lloyd’s has the right to retain the income on the charged investments, although it is not expected to exercise this right unless it considers there to be a risk that one or more of the covenants might need to be called and, if called, might not be honoured in full. In October 2007, the Group transferred £397.5 million of assets from Amlin Investments Limited to Syndicate 2001 Premium Trust Fund. The charges in favour of Lloyd’s over these investments were released at that time. The transfer to Syndicate 2001 Premium Trust Fund was made by way of sale from Amlin Investments Limited to Amlin Corporate Member Limited (both wholly owned subsidiaries of the Group) in its capacity as the corporate member of the Syndicate.

As liability under each deed of covenant is limited to a fixed monetary amount, the enforcement by Lloyd’s of any deed of covenant in the event of a default by a corporate member, where the total value of investments has fallen below the total of all amounts covenanted, may result in the appropriation of a share of the Group’s Funds at Lloyd’s that is greater than the proportion which that subsidiary’s overall premium limit bears to the total overall premium limit of the Group’s Lloyd’s underwriting.

32 Commitments

There were no capital commitments at the end of the financial year (2006: £nil).

Throughout the year the Group leased certain land and buildings on short-term operating leases, under which the minimum annual commitments were £2.8 million (2006: £2.3 million). The leases relating to £2.2 million expire in over five years.

33 Cash generated from operations

34 Related party transactions

Amlin plc is a publicly owned company listed on the London Stock Exchange. Major shareholders are presented in the Directors' report.

The following transactions were carried out with related parties:

Key management compensation

Key management personnel are those directors and senior managers responsible for planning and control of the activities of the Group. Key management comprises nine executive directors and employees and seven non-executive directors (2006: nine and seven respectively). Compensation paid during the year to key management personnel is analysed below:

Reinsurance contracts between Syndicate 2001 and Amlin Bermuda Ltd

Syndicate 2001 placed a number of reinsurance contracts with Amlin Bermuda Ltd (ABL), a wholly owned subsidiary of the Group, during 2006 and 2007.

The reinsurance contracts placed with ABL are:

• eight proportional treaty reinsurance contracts for marine, direct property, special risks, specie, war, excess of loss treaty and miscellaneous classes of business;
• a whole account quota share; and
• an excess of loss reinsurance contract in 2006 only.

ABL also placed one excess of loss reinsurance contract with Syndicate 2001 during 2007.

All reinsurance contracts were agreed on an arms length basis with terms that are consistent with those negotiated with third parties. These reinsurance contracts are eliminated on consolidation of the Group’s results and the effects on the income statements of such eliminations can be seen in note 4, segmental reporting under the column “intra group”.

The amount of gross written premium ceded to ABL during the period ended 31 December 2007 was £90.3 million (31 December 2006: £100.8 million) being £35.7 million (31 December 2006: £28.6 million) of specific variable cessions and £54.6 million (31 December 2006: £65.4 million) of Syndicate 2001 whole account quota share. ABL recorded a profit of £32.3 million on these reinsurance contracts for the same period (31 December 2006: £25.5 million).

At 31 December balances included within ABL with respect to Syndicate 2001 reinsurance contracts include:

In addition, cash amounting to £71.2 million (2006: £56.5 million) was paid by Syndicate 2001to ABL in respect of these contracts.

Sale of goods and services

The Group, through its wholly owned subsidiary Amlin Corporate Services Limited, purchases goods and services on behalf of all Group companies and Syndicate 2001. In addition, Amlin plc, the ultimate parent company of the Group, procures certain services.

Amlin plc charges SBA Underwriting Limited £15,000 per annum for accounting and administration services which is collected on a quarterly basis throughout the year. AUT Holdings Limited, a subsidiary of Amlin plc, holds a 30% interest in the parent company and underwriting of SBA Underwriting Limited.

In October 2007, Amlin plc sold a portfolio of international equities at mid market price to ABL, a wholly owned subsidiary in exchange for cash. The total value of the transaction was £89.2 million.

Purchases of goods and services

Amlin plc, the ultimate parent company within the Group, purchased goods and services from fellow Group companies. The values of these are disclosed below. All goods and services were purchased at cost with the exception of Amlin Bermuda Ltd.

In October 2007, Amlin plc purchased a portfolio of international equities at mid market price from Amlin Investments Limited, a wholly owned subsidiary. The total value of the transaction was £88.9 million.

Other Group companies

Amlin Underwriting Limited and Lycetts Holdings Limited, the owners of Lycett, Browne-Swinburne and Douglass 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 Douglass Limited which took over the business of Lycetts Hamilton Limited on 1 May 2007. Prior to that date, the business was sourced through Lycetts Hamilton Limited. Syndicate 2001 is managed by Amlin Underwriting Limited. The capacity on Syndicate 2001 is underwritten by fellow subsidiaries 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 £17.2 million (2006: £14.6 million) of premium under the binding authority agreement, of which £6.8 million (2006: £6.9 million) was produced by Lycett, Browne-Swinburne and Douglass Limited and its predecessor earning brokerage commission of £1.1 million (2006: £1.2 million) on this business.

At the year end, Syndicate 2001 was owed £4.8 million (2006: £5.3 million) by Amlin Plus and Lycett, Browne-Swinburne and Douglass Limited owed £1.4 million (2006: £1.7 million) to Amlin Plus.

Amlin Underwriting Limited and Lycetts Hamilton Limited provided Amlin Plus with start-up loans of £90,000 and £60,000 respectively. On 26 June 2004 the Amlin Underwriting Limited loan of £90,000 was transferred to Amlin Corporate Services Limited. Interest of £6,123 (2006: £7,124) and £940 (2006: £4,070) has been recognised during the calendar year. These loans were repaid in April 2007.

During the period, a wholly owned subsidiary Amlin Singapore Pte Limited was incorporated in Singapore with authorised capital of one Singapore dollar and an initial capital contribution by Amlin plc of 300,000 Singapore dollars.

Year end balance with related parties

Cash resources are held centrally within the Group. This eliminates the need for many of the Group’s subsidiary companies to maintain bank accounts and optimises the management of cash resources. As a result of this practise many transactions within the Group are accounted for through intercompany accounts.

The following table shows the balances outstanding at the year end between Amlin plc and its related parties. The balances are all unsecured and no provisions are required for bad or doubtful debts.

All of the above intra-group debt is repayable on demand and corporation tax provisions reflect arms-length prices for the transactions between the Company and its subsidiaries.

* Excludes balances on intra-group reinsurances detailed above

35 Acquisition of subsidiary

On 2 July 2007, the Group acquired 100% of the share capital and voting rights in Allied Cedar Insurance Group Limited, the holding company of Allied Underwriting Agencies Limited and Cedar Insurance Company Limited. The Allied Cedar Insurance Group Limited is a general insurance underwriting operation specialising in UK property personal lines business.

The assets and liabilities arising from the acquisition are as follows:

Intangible assets relate to the costs of acquiring rights to customer contractual relationships (see note 21).

The acquiree’s carrying amount shown represents the balance sheet of Allied Cedar Insurance Group Limited as at 30 June 2007 prepared in accordance with UK GAAP.

Allied Cedar Insurance Group Limited contributed £1.6 million gross earned premium and £0.2 million to the Group’s profit before tax for the period between 2 July 2007 and 31 December 2007.

If the acquisition of Allied Cedar Insurance Group Limited had been completed on the first day of the financial year, group gross earned premium for the period would have been £1,089.5 million and group profit attributable to equity holders of the parent would have been £352.8 million.

36 Group owned net assets

The assets and liabilities attributable to Group owned companies, as opposed to the Group’s syndicate participations, are summarised below:

Group owned net assets

Accounting policies

Basis of Preparation

Amlin plc (the Company), domiciled in the United Kingdom, is the ultimate parent company for the Amlin Group.

The separate financial statements of the Company are prepared as required by the Companies Act 1985. The balance sheet of the parent company has also been prepared in accordance with IFRS. In accordance with the extension permitted under section 230 of the Companies Act 1985, the income statement of the parent company is not presented as part of these accounts. The profit after taxation for the year of the parent company was £85.4 million (2006: £171.0 million).

The financial statements have been prepared on the historical cost basis except for financial investments, loans and receivables, share options and pension assets and liabilities which are measured at their fair value.

The accounting policies that are used in preparation of these statements are consistent with the accounting policies used in the preparation of the consolidated financial statements of the Group as set out in those financial statements.

The additional accounting policies that are specific to the separate financial statements of the Company are set out below.

Investment in subsidiaries

Other financial investments in Group undertakings are stated at cost and are reviewed for impairment when events, or changes in circumstances, indicate the carrying value may be impaired.

Dividend income

Dividend income from investments in subsidiaries is recognised when the right to receive payment is established.

37 Cash and cash equivalents

38 Financial investments

The cost and valuation of the Company’s investments are as follows:

39 Loans and receivables

40 Investments in subsidiary undertakings

Company

During the period, a wholly owned subsidiary Amlin Singapore Pte Limited was incorporated in Singapore with authorised capital of one Singapore dollar and an initial capital contribution by Amlin plc of 300,000 Singapore dollars.

On 2 July 2007, the Group acquired 100% of the share capital and voting rights in Allied Cedar Insurance Group Limited, the holding company of Allied Underwriting Agencies Limited and Cedar Insurance Company Limited. The Allied Cedar Insurance Group Limited is a general insurance underwriting operation specialising in UK property personal lines business. Details of the acquisition are included in note 35 of the consolidated financial statements.

During the year, ownership of Amlin Corporate Services Limited was transferred from Amlin Underwriting Group Limited to the Company and the Company’s investments in Amlin Underwriting Group Limited and Angerstein Underwriting Limited were liquidated.

The principal undertakings of Amlin plc at 31 December 2007 which are consolidated in these financial statements, all of which are wholly owned, operate in the UK, Bermuda and Singapore:

* 60% owned by the Group

© Copyright Amlin 2007