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DEAR FELLOW INVESTOR
“2004 was a year of contrasts. Continued
excellent trading conditions and in the first six
months a lower than normal level of claims
activity. In the second half there was an almost
unprecedented amount of windstorm activity with
each of the hurricanes hitting Florida estimated
to be among the ten most costly natural
catastrophes ever recorded in the United States.
Our achievement of a return on equity of 22.3%,
the third year in succession in excess of 20%,
after these events, is a demonstration of the
present strength of the business.”
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Our profit before tax for the year was £121.6
million, modestly up on 2003 (£120.3
million), and an excellent result after the
windstorm costs of £74 million. After tax, this
yielded earnings per share of 22.1p (2003:
21.6p). All areas of the Group performed well.
The combined ratio was an excellent 82%,
investment returns were strong and expenses
were well controlled.
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| DIVIDEND |
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The Board proposes a final dividend of
5.0 pence per share making total dividends
for 2004 of 8.0 pence per share (2003:
2.5 pence) which represent 36% of 2004
earnings. This exceeds our commitment made
last year to distribute at least 30% of our
earnings, and for 2005 and 2006 we aim,
in the absence of unusual circumstances,
to distribute dividends equivalent to at least
the higher of 8.0 pence, adjusted for inflation,
and 30% of earnings.
The Board will keep under review the
Company’s ongoing capital requirements,
taking account of medium term needs, our
underwriting strategy of managing exposures
over the insurance cycle and our cross cycle
target return on equity of 15%. We expect to
consider further possibilities for returning
capital to shareholders over and above the
anticipated dividends referred to above.
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| STRATEGY |
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The successful growth of the business into an
excellent market for the last three years has
resulted in a far stronger market position and
reputation for Amlin and has also delivered a
shareholder return ahead of most of our peers.
In October 2004 the Board reviewed and
endorsed management’s plans for the next
phase of the insurance cycle and for ensuring
that Amlin continues to build upon its strengths
and long term potential. As discussed in the
Operating and Financial Review, Amlin intends
to become the “global reference point for quality”
in its markets and is currently putting in place
a number of strategies to achieve this goal.
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| OUTLOOK |
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With the increased momentum for change
in insurance markets, as Lloyd’s, the FSA and
others seek to enforce higher standards of
efficiency, service and transparency, there is
huge scope for strong and well organised
businesses, such as Amlin, to extend their
leadership position.
Even though we are past the peak of this
insurance pricing cycle, conditions remain
favourable and there is every prospect of 2005
being another good underwriting year. At this
stage in the cycle, however, we are not seeking
to grow our top line, focusing on retention of
margin and return on equity.
There are signs of increased discipline in the
Lloyd’s market, although sadly this is not
universal. However, Amlin had a good January
renewal season and renewal terms have to date
remained relatively robust.
Much of the 2005 underwriting result will be
earned from business written in 2004 and, at
1 January 2005, we carried forward a record
unearned premium reserve of £501 million,
up 17% over the reserve brought forward at
1 January 2004. Similarly, a significant
proportion of business written in 2005 will
be earned in 2006.
Our asset base has grown dramatically over the
past four years. We are establishing a track
record for managing these assets astutely to
complement our underwriting returns and, with
continued success in this area, we expect a
greater return from this source.
Amlin has made tremendous progress
developing its underwriting skills. New risk
management techniques and information
systems are enabling our underwriters to better
price risk as well as producing higher quality
and more timely management information.
This places Amlin in a strong position to
manage well in a tougher market environment.
In the meantime, rates remain at a healthy
level and we believe the outlook for 2005
and 2006 is good.
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| BOARD |
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The past 12 months has seen the size of the
Board reduced to ten, including five non-executive
directors and myself. The Board has
been working well, and we are presently in
the process of recruiting an additional non-executive
director to address the Higgs
requirement for there to be at least parity
between independent non-executives and
others (excluding the chairman) on the Board.
Nigel Buchanan joined the Board in March
2004 and brings with him experience of the
financial services sector and an excellent
understanding of regulation.
I reiterate our thanks to those who retired
in 2004, John Kennedy, John Sanders,
and John Stace for their contributions going
back to the formation of the Company in 1993.
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| THE AMLIN TEAM |
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Well done again to our management team, so
ably led by Charles Philipps, and all employees
at Amlin for turning in yet another excellent
set of results. Very good progress continues to
be made in building a solid business with
great potential and this is not achieved without
real effort and commitment for which we owe
our thanks.
ROGER TAYLOR
CHAIRMAN
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