AMLIN PLC | ANNUAL REPORT 2004

CORPORATE GOVERNANCE / DIRECTORS' REMUNERATION REPORT

Purpose and overview
The purpose of the Remuneration Committee is to ensure that the levels and structures of the remuneration of executive directors, the Chairman and senior executives are appropriate to attract, retain and incentivise the high calibre talent that the Company and shareholders require in a demanding and complex business, and to reward them fairly. Senior executive remuneration needs to be consistent with remuneration policies for staff generally, which the Committee therefore oversees, and is designed to optimise the alignment of interests between executive management and shareholders.

As illustrated below, a significant proportion of executive directors’ remuneration is performance related. The bar chart below shows the applicable proportions of fixed, annual performance related and longer term performance related remuneration for each executive director in 2004.

Further details of each element of the above components of remuneration are set out in the ‘Remuneration policies’ section of this report and details of individual directors’ remuneration in the relevant later sections.

Status and shareholder approval of report
This report has been prepared in accordance with the Directors’ Remuneration Report Regulations 2002 and the Listing Rules of the Financial Services Authority. As required by those regulations, the sections entitled ‘Remuneration received’, ‘Executive directors’ pensions’, ‘Executive directors’ Performance Share Plan participations’, ‘Executive directors’ Capital Builder Plan participations’ and ‘Executive directors’ share options’ have been audited by Deloitte & Touche LLP. The remainder of this report is unaudited.

The Notice of Annual General Meeting of the Company, to be held at noon on Wednesday 18 May 2005, which was delivered to shareholders with the printed Annual Report, contains notice of the intention of the directors to move an ordinary resolution at that meeting approving this report for the year ended 31 December 2004.

Remuneration committee membership, advisers and terms of reference
The following have served on the Remuneration Committee (the Committee) in 2004 and in 2005 to date, between the dates as indicated:

Committee member	Dates

N J C Buchanan	20 May 2004 to date
K T Kemp	Until 28 January 2004
R W Mylvaganam	1 May 2004 to date
J M Kennedy	Until 19 May 2004
J R Sanders	Until 19 May 2004
Lord Stewartby	1 January 2004 to date

Mr Kennedy served as Chairman of the Committee until 19 May 2004 and Mr Mylvaganam since that date. All members of the Committee during and since the year under review were non-executive directors and classified by the Board as independent throughout their periods of service on the Committee. Mr Kemp left the Committee when the Board decided that he should no longer be classified as independent. The Committee has appointed New Bridge Street Consultants LLP (NBS) to advise it on senior remuneration policy. In particular, NBS has advised the Committee since 1999 regarding its policies on the grants of executive share options and, more recently, on the design and implementation of long term incentive plans and a Group Bonus Scheme. NBS also advises executive management from time to time on other remuneration matters which may not be within the direct purview of the Committee; and advises the Board as a whole on matters relating to the remuneration and terms of appointment of non-executive directors of the Company. A statement regarding the Company’s relationship with NBS is published on the Company’s website and is available on request from the Secretary.

Linklaters also advised the Committee during the year on specific legal matters. Linklaters is not engaged directly by the Committee as their work is usually a by-product of their appointment as solicitors to companies in the Group on a range of matters.

The Committee is assisted by the Group’s head of human resources and by advice and recommendations from the Chief Executive, who is usually invited to attend its meetings other than when items specific to him are being considered. The Chairman of the Company is also invited to attend meetings for specific agenda items. The Company Secretary acts as secretary to the Committee and advises it on certain specialist matters such as aspects of share options.

The Committee’s terms of reference, which are available on the Company’s website, may be summarised as being to determine the terms and conditions of employment of each executive director of the Company and the remuneration of the Chairman, the Company Secretary and certain other senior employees (in each case including exit terms), and to recommend to the Board the policies of the Group in relation to senior executive remuneration generally. The Committee seeks to act in accordance with the Principles of Good Governance and Code of Best Practice and its terms of reference reflect the new Combined Code on Corporate Governance (the Combined Code), which applied to the Company from 1 January 2004. Details of the Group’s compliance with the Combined Code, including more details of the independence of members of the Committee, are contained in the Board corporate governance statement.

Remuneration committee meetings
The Committee met ten times during the year, of which three meetings were to formalise grants of incentive awards or options in line with previously agreed policies and one was to review the Chairman’s remuneration. The numbers of meetings taking place whilst each director was a Committee member, and each of their attendance, were as follows:

Remuneration Committee attendance 2004

Committee member	Number of meetings when a Committee member	Number of meetings attended

N J C Buchanan	4	4
K T Kemp	1	1
R W Mylvaganam	5	5
J M Kennedy	6	5
J R Sanders	6	6
Lord Stewartby	10	9

Average % attendance		94%

Excluding the meetings to formalise options grants which had been agreed in principle at earlier meetings of the Committee, attendance was 100%.

Remuneration policies
Overall remuneration levels
In determining the remuneration of individuals in the context of the Committee’s purpose stated at the start of this report, the Group has regard to their performance in the role, job evaluation of the role and remuneration statistics for the non-life insurance sector in which the Group operates and, where applicable for certain roles, wider remuneration statistics. Salaries are generally reviewed annually, in April each year.

Certain aspects of remuneration are influenced by the Lloyd’s sector in which the Group operates and competes for staff. Lloyd’s managing agencies tend to relate a significant proportion of potential rewards, particularly those of underwriters, to the profitability of the relevant underwriting unit. Market practice in the sector, a significant proportion of which remains outside the quoted company arena, is that such ‘profit commission’ schemes are on an uncapped basis in money terms but they are capped as a percentage of the relevant profit pool which in turn is capped by the overall regulatory capacity of the syndicate. Amlin follows such Lloyd’s market practice for staff for whom such market influenced remuneration structures are appropriate as not to do so would put it at a competitive disadvantage in competing for staff. Across all categories of staff the Group’s policy is to have regard to market median salaries in the sector, with the potential for top quartile remuneration if top quartile performance is achieved. This policy aims to encourage and reward superior rather than merely average performance. There are no remuneration factors specific to the Group beyond the ones described above relating to the Lloyd’s insurance sector.

Structure of directors’ and employees’ remuneration
As illustrated in the bar chart at the start of this report, the remuneration of the executive directors consists of three principle elements: (1) base salary, benefits and pension contributions; (2) shorter term performance rewards; and (3) longer term performance rewards. In 2004 an estimated average of around 69% of executive directors’ remuneration was performance related (either shorter or longer term), although the actual percentages will vary year by year according to both Company and personal performance. The Committee believes that the balance between fixed and performance rewards is appropriate, noting that the underwriters’ performance rewards in 2004 were exceptional owing to the large component reflecting the exceptionally profitable 2002 and 2003 Lloyd’s years of account. The same structure is operated for senior directors below main Board level but usually with lower, although still significant, proportions of total remuneration being performance related. The remuneration structure and policies outlined in this section applied in 2004 and currently. There are no current specific plans for significant changes to remuneration policies or structures although the Committee has recently commenced a review of such policies and structures in order to ensure that they continue to support the strategic objectives of the Company.

Non performance-related rewards: benefits
Non performance-related benefits to which executive directors and other employees are generally entitled are private health insurance, cover for death in service and disability and a choice of another benefit from options including subsidised gym membership, private dental costs and private general practitioner medical care. Senior staff, including executive directors, also receive a car allowance. Company cars, other than those required for substantial business use, are not provided.

Non performance-related rewards: employer pension contributions
The Company pays a percentage of base salary into either a Group occupational or personal pension plan. Executive directors serving during the year participate in the relevant group pension plans on the same basis as other senior employees who are not directors. Pensionable salary is base salary only and the arrangements include dependants’ pensions and death in service cover. The Group has both defined contribution and defined benefit schemes. The Group’s policy is not to enter into new defined benefit pension commitments and thus the relevant sections of all such schemes have been closed to new entrants since 1998. In respect of defined contributions, the Group contributes a percentage of base salary depending on seniority, age and the percentage of salary (if any) that the employee chooses to contribute. The maximum total defined contribution employer contributions for an executive director in 2004 was 20.9% of base salary. In respect of those with defined benefits, the Group contributes at rates which vary according to actuarial advice in order to achieve the required level of pension in relation to final salary and years of service. From April 2004 the Committee implemented a standardised employee contribution rate of 5% for the defined benefit schemes, replacing previous employee contributions ranging from nil to 4%.

In the case of those higher paid employees, including directors, in respect of whom the Group is currently unable to contribute a significant proportion of the full operative percentages of base salary into the relevant group pension scheme as a result of the Inland Revenue earnings cap, the Group makes extra contributions through a Funded Unapproved Retirement Benefit Scheme set up for each such employee. In cases of less significant constriction, a cash allowance may be paid in lieu. Following the changes in the pension regime from April 2006, these arrangements are unlikely to be necessary. Although the Committee is yet to decide its detailed response to those changes, it does not expect that any increase in the overall costs of the Group’s pension provision will be necessary as a result of the new regime.

Shorter term performance rewards: annual bonus scheme for non-underwriting directors and employees (Group Bonus Scheme)
The Group’s shorter term performance incentives consist, in the case of those executive directors and other employees who are not directly involved in underwriting or claims settlement, of a cash Group Bonus Scheme. The section of the scheme applicable to relevant executive directors and other senior employees is designed to reward and incentivise them against a mixture of business performance, measured by reference to the Group’s return on equity (ROE) compared with target returns set by the Committee each year, and the individual’s performance against agreed stretching personal objectives. The mix of business and individual bonus elements varies by seniority, with 70% of the potential target reward at the most senior level, including participating executive directors, being rewarded on Group business performance and 30% on personal performance. The total on-target and maximum bonus levels also vary by seniority, up to a maximum of 100% of base salary for participating executive directors.

Shorter term performance rewards: profit share for underwriting directors and employees (Profit Commission Scheme)
Shorter term incentives for underwriters and certain other underwriting division staff (whether or not they are executive directors of Amlin plc) consist principally of a cash profit share relating to syndicate profits in respect of each Lloyd’s year of account. The scheme divides rewards between those related to the performance of the relevant participant’s division and those related to the performance of the whole of the Group’s managed syndicate (Syndicate 2001). Rewards are also divided between those which are purely calculated as a percentage of underwriting profit and those which are also related to personal underwriting performance relative to external peers and/or service standards. The maximum percentage of each division’s underwriting profit which may be paid out under the scheme in respect of each Lloyd’s year of account from 2004 onwards is 4.5% (5.0% for the 2003 year of account and earlier) unless the division has achieved a superior result for its Lloyd’s sector of business in which case a slightly higher percentage may apply. The percentage reduced from 2004 as a result of a number of the previous participants in the scheme who are less directly responsible for underwriting results having been transferred to the Group Bonus Scheme. Rewards are payable at the end of 36 months when the particular Lloyd’s year of account closes but, at the Committee’s discretion, payments on account of up to 30% of the forecast reward may be made a year earlier. Such early payment was agreed by the Committee to be paid in March 2004 in respect of the 2002 year of account and has been agreed again in respect of an early payment in March 2005 in respect of the 2003 account. As payments are based on Lloyd’s years of account, rather than reported GAAP figures, and can be paid at variable times after each year of account starts, they do not reflect the profitability of the Group in the year in which they are paid or reported.

Whilst the precise structure and payment basis of the Profit Commission Scheme therefore varies from year to year, the underlying policy is to reward those involved in underwriting, on a year of account basis, according to the performance of both their own division and the syndicate as a whole.

Longer term performance rewards: long term incentive plan for non-underwriting directors and other senior management (Performance Share Plan)
The Amlin Performance Share Plan (PSP) was adopted at the Annual General Meeting in 2004 as an aid to the recruitment, retention, motivation and reward of a small number of key senior executives who are not underwriters, including relevant executive directors. Levels of award are based on the extent of the executive’s responsibilities when the award is made, with the extent to which awards vest depending on the Company’s long term financial performance over the ensuing five years. Awards may either be in the form of conditional allocations over shares or as nil cost share options, so that in either case the eventual benefit will depend also on share price appreciation over the five years. Awards may be made each year at the discretion of the Committee, with no individual receiving awards over shares having a market value on grant in excess of 100% of annual base salary. When aggregated with executive share options granted in the same year (as described under ‘Details of share option schemes’ below), the limit is 200% of salary. At the first awards made on the PSP’s adoption, which were in the form of nil cost options, the Committee’s policy was that only the Chief Executive was made a PSP award close to 100% of salary, with other participants receiving lesser awards. Grants were made to a total of 15 participants over an aggregate of 508,902 shares. The Committee’s policy is for similar values of grants relative to salary to be made in 2005 and subsequent years, although the constituency of those to be granted participations may be refined each year.

The performance condition of the PSP is based on the average annual post tax return on the Group’s equity (ROE) over the five years commencing in the year of grant, i.e. in the case of the May 2004 grant on the years 2004–08 inclusive. The Committee determined that such an ROE measure would be the most appropriate and would most closely align participants’ and shareholders’ interests. The ROE used for each year is the profit on ordinary activities after taxation divided by the consolidated net assets of the Group at the start of the year, as disclosed in the published accounts. The average is calculated after five years, with no re-testing, and determines the proportion of awards that vest on a sliding scale. The targets and scales may vary with each grant at the discretion of the Committee. The scale for the 2004 grant, and for the planned 2005 grant, is as follows:

Average ROE per annum	Percentage of shares awarded that will vest

Less than 10%	Nil

10%	20%

Between 10% and 15%	Straight line basis between 20% and 80%

15%	80%

Between 15% and 20%	Straight line basis between 80% and 100%

20%	100%

Once the vesting level is determined after five years, and provided the relevant participant is still employed by the Group, an award is normally capable of exercise for the following six months. The ROE may be adjusted after grant to take account of exceptional items including share issues and redemptions if such adjustment is, in the opinion of the Committee, both fair and reasonable. There is also provision for the Committee to make adjustments to take account of variations in capital, including special dividends or similar events, technical events and changes in the Group’s regulatory capital requirements, to help ensure that the rewards remain fair and reasonable and that the incentive remains aligned with shareholders’ interests. In the event of the Company being subject to a takeover or similar event before the normal vesting date, vesting will take place early to the extent that the Committee is satisfied that the performance condition has been satisfied up to that date, with the proportion of the award which vests also depending on the time that has elapsed since the award was made.

It is intended that shares required to satisfy PSP options will be met from shares purchased in the market by the Group’s Employee Share Ownership Trust (ESOT). In the event of any awards being satisfied with new shares, such issues would be aggregated with share option grants over new shares for the purposes of the limits referred to in the section entitled ‘Details of share options schemes’ below.

Details of the participations of the two non-underwriting executive directors of the Company, Messrs Hextall and Philipps, are set out in the section later in this report entitled ‘Executive directors’ Performance Share Plan participations’.

Longer term performance rewards: long term incentive plan for underwriting directors and other senior underwriters (Capital Builder Plan)
The Amlin Capital Builder Long Term Incentive Plan (Plan) was adopted at the Annual General Meeting in 2001 to reward senior underwriters if they exceed long term target underwriting returns. The basis of the Plan is that participants will benefit to the extent that, in their particular class of business (or, in some cases, a blend of classes of business), target returns on capital are exceeded over a specified performance period, which is usually five years. Participants will share, at a class of business level, in up to 6% of the underwriting profits (gross premiums less net claims and reinsurance costs) which are in excess of the relevant target return over the duration of the performance period. Up to around a further 4% of such excess profits may be allocated at a divisional or whole syndicate level to the heads of each underwriting division. Underwriting profits as defined in the Plan’s rules are reduced in respect of the years of account up to 2003 to take account of the Group not owning 100% of Syndicate 2001’s capacity until 2004. Rewards under the Plan may be paid, at the Company’s discretion in either cash or shares, in three annual tranches following the end of the performance period but with payments only being made so long as the participant remains in service.

The first five year measurement period under the Plan began on 1 January 2001 and, other than for new joiners or promotions, it is not anticipated that further participations will be offered until this five year period has expired. To date one recruit has joined the Plan part way through the five years (from 2003) and, of the original 25 participants, two have given up their participations. The benchmarks for each relevant class of business, set for the first measurement period on an aggregated basis and after allowing for estimated expenses and syndicate investment income but before tax, are estimated to correspond to an overall benchmark return on allocated capital of at least 15% per annum over a full insurance cycle.

The Committee believes that the Plan is acting as a significant reward, retention and recruitment tool for those underwriters who are likely to be most significant in determining the Group’s future underwriting profitability and development.

Later in 2005 the Committee will review whether a second grant under the Plan for a performance period of 2006 to 2010 is appropriate and, if so, on what basis.

Details of the participations of the two underwriters who are directors of the Company, Messrs Carpenter and Holt, including a current estimate of their rewards in respect of the 2001 to 2004 years of account, are set out in the section later in this report entitled ‘Executive directors’ Capital Builder Plan participations’. As stated there, such estimated rewards are not current entitlements and will only be paid if the estimated performance to date is sustained over the final year of the measurement period.

Longer term performance rewards: executive share options (Option Schemes)
Executive share options are provided as a longer term reward to executive directors and other employees above a certain level of seniority. Any grant of executive share options is at the discretion of the Committee. The levels of options granted to directors and the minority of other grantees who are also participants in either the Performance Share Plan or the Capital Builder Plan take into account the total award to the executive concerned of both executive options and other long-term incentives in order to ensure that the overall long term incentive package for the level and responsibility of the person involved is appropriate.

At the most senior level, the present policy is that grants are made each year, subject to applicable overall limits, over shares valued at up to around one times salary. At less senior levels, annual grants are over shares representing lesser multiples of salary. Levels of grant to executives who also participate in either the Performance Share Plan or Capital Builder Plan are decided by the Committee taking the potential rewards from such grants into account so that the overall long term incentive package is appropriate for the seniority or importance to the Company of each participant.

All grants under the currently operated schemes are subject to performance conditions which are set by the Committee. Details of these are set out in the section entitled ‘Details of share options schemes’ below and have varied from grant to grant. From 1999 onwards the primary condition has been related to total shareholder return (TSR). In order to align option holders’ and shareholders’ interests, the intent has always been to ensure that options may not be exercised (except in special circumstances such as redundancy) unless the performance of the Company over the measurement period has exceeded (up to the 2003 grants) the median of that of comparable companies and, in addition, the Company has returned a satisfactory overall financial performance. These conditions were tightened for the March 2004 grants. First, to the extent that an individual’s annual grant in 2004 was over shares valued at over 50% of salary it may only be exercised in full if the Company is an upper quartile performer against the group of comparable companies. Options over shares valued at up to 50% of salary are exercisable on above median performance. Second, the re-testing provisions were significantly tightened. Instead of the previous rolling three year measurement periods with unlimited re-testing during the life of the option, performance on re-testing is to be measured from the date of grant. If the conditions are not satisfied over the initial three years, any unsatisfied condition will be re-tested only once, after a further two years. The Committee considered that continuation of this limited degree of re-testing was justified and fair in view of the potentially volatile nature of the non-life insurance sector in which the Company operates and the relatively modest values of shares over which options are granted. However, following a further review in early 2005, the Committee has decided that the options expected to be granted in March 2005, and any subsequent grants, will not continue with any retesting provisions whatsoever and will thus be subject just to one three year measurement period.

Directors’ remuneration received

	Executive directors’ salaries £000	Non- executive directors’ fees £000	Bonuses and/or profit commission £000	Benefits in kind/ allowances £000	Total year to 31 Dec 2004 £000	Total year to 31 Dec 2003 £000

N J C Buchanan*	-	31.2	-	-	31.2	n/a
B D Carpenter	211.3	-	735.4	14.1	960.8	745.3
R A Hextall	218.8	-	185.0	17.3	421.1	386.0
A W Holt	259.4	-	824.3	14.8	1,098.5	475.9
K T Kemp	-	35.5	-	-	35.5	32.6
J M Kennedy**	-	18.8	-	-	18.8	39.2
R Mylvaganam	-	60.3	-	-	60.3	49.4
C E L Philipps	303.1	-	252.8	14.2	570.1	558.2
J R Sanders**	-	13.5	-	-	13.5	32.3
J L Stace**	-	17.5	-	-	17.5	158.6
Lord Stewartby	-	55.8	-	-	55.8	48.2
R J Taylor	-	125.0	-	-	125.0	106.6
R S Joslin	-	35.5	-	-	35.5	32.6

	992.6	393.1	1,997.5	60.4	3,443.6	2,664.9

* joined the Board on 22 March 2004
** left the Board at the Annual General Meeting on 19 May 2004

The fulfilment of TSR performance conditions is independently calculated by NBS, and confirmed by the Committee, at the end of each relevant measurement period.

Service agreements and their termination
The general policy of the Group is not to offer service agreements with notice periods in excess of six months, except in the case of executive directors of the Company and the most senior level of management when up to a 12 month period of notice may be offered. All of the current executive directors of the Company have contracts requiring 12 months’ notice of termination on either side. The Company is mindful of the need to balance the contractual advantages to the Group in some circumstances of longer periods of notice against the potential cost arising from such contracts in the event of termination of employment at the Group’s initiative.

In cases of early termination by the Group, the Company seeks to observe the guidance on best practice issued in December 2002 by the Association of British Insurers and the National Association of Pension Funds. In such circumstances, the Group seeks to reduce, where practicable, the compensation payable by taking account of the duty of the employee to mitigate his or her loss. In particular, consideration is given to structuring termination payments on a phased payment basis pending the executive finding new employment. The need to take a robust view in settling cases involving poor performance is also recognised.

Details of each executive director’s service contract applicable during the year are set out in the section entitled ‘Executive directors’ service contracts’ below.

Outside appointments
The Company allows executive directors and other appropriate senior employees to accept a maximum of one substantive non-Amlin related outside non-executive appointment, subject to permission being obtained in each case and to acceptable procedures for managing any potential conflicts of interest, recognising that such appointments can be in both the Company’s and the wider public interest. Suitable outside appointments relating to Amlin’s business, such as to Lloyd’s bodies, are encouraged on the basis that such appointments are often directly in the Company’s interest. Except for anyone with other than full time employment contracts, fees from outside appointments are generally payable to the Company rather than retained by the employee concerned.

Executive directors’ service contracts
The dates of the current service or employment contracts with the Company (and/or a wholly owned subsidiary) of each current executive director, all of whom served throughout the year, are as follows:

	Date of current service or employment contract

B D Carpenter	17 February 1997
R A Hextall	26 November 1999
A W Holt	11 December 2001
C E L Philipps	20 February 1997

In each case salaries have been periodically increased since the original contract date.

All of the executive directors’ service or employment contracts are on a full time basis, provide for 12 months’ notice of termination on either side and automatically terminate on the director’s sixtieth birthday. There are no special provisions for compensation on termination other than that the Company has the right to pay salary (and in the case of Mr Holt also an amount equal to other contractual benefits) in lieu of any required period of notice.

Executive directors’ service or employment contracts are available for inspection at the Company’s registered office. Details of non-executive directors’ contracts for services are set out in the final section of this report.

Remuneration received
The remuneration received in respect of the year ended 31 December 2004 by each of the directors, excluding pension contributions, was as shown in the table at the top of this page.

Directors’ pension details

	Defined contributions

Defined contributions	Contributions for director for the year ended 31 December 2004 £000	Contributions for director for the year ended 31 December 2003 £000

R A Hextall	23.2	22.7
C E L Philipps	63.2	56.5
J L Stace	-	19.4

	Defined benefit

Defined benefit	Increase in accrued pension during year ended 31 December 2004 £000	Total accrued pension at 31 December 2004 £000	Transfer value of accrued pension at 31 December 2003 £000	Transfer value of accrued pension at 31 December 2004 £000	Transfer value of the increase in accrued pension during year £000	Change in transfer value during year after subtraction of contributions made by director £000

B D Carpenter	2.3	37.6	298.6	350.0	16.1	35.9
A W Holt	8.1	189.1	2,254.2	2,636.8	99.6	290.7

The fees of Mr Mylvaganam in 2003 and 2004 include fees of £16,800 and £18,100 respectively paid to him by a subsidiary of the Company, Amlin Underwriting Limited, of which he is also a non-executive director. The total remuneration of Mr Stace in 2003 was as a part time executive director until 31 December 2003 whilst in 2004 he received non-executive fees until his retirement from the Board, including a fee of £2,917 paid to him by Stace Barr Angerstein PLC (‘SBA’), a company in which the Group has an investment and of which he was a director appointed by the Group until July 2004. Lord Stewartby’s fees in 2003 include a fee of £2,500 paid to him by SBA, of which he was an alternate non-executive director appointed by the Group until May 2003. Mr Sanders waived £3,209 of his non-executive fee in respect of 1 January 2004 to 19 May 2004 when he left the Board (2003: £2,600). The fees stated above do not include the waived element.

The bonuses and/or profit commission amounts are those paid or payable in respect of the year. Messrs Hextall and Philipps received performance bonuses under the Group Bonus Scheme, which is described under ‘Remuneration policies’ above. For 2004 the scheme’s business performance target ROE was 19.5%, the ‘stretch’ target was 22.5% and the level at which the maximum business performance related payment would have been made was 28%. The ROE as calculated under the rules of the scheme, and reflected in Messrs Hextall’s and Philipps’s payments above, was 22.4%, i.e. just below the ‘stretch’ target level.

Mr Carpenter’s and Mr Holt’s bonuses and/or profit commission (PC) were made up as follows:

	B D Carpenter £000	A W Holt £000

First instalment of 2003 year of account PC:	179.0	296.6
Second instalment of 2002 year of account PC:	555.4	526.7
Long service award payable to the value of:	1.0	1.0

Totals	735.4	824.3

In both cases their PC payments related to both their own underwriting divisions and the managed syndicate as a whole. The first instalment in respect of 2003 is 30% of the estimated final payment for the year of account. The second instalment in respect of 2002 is the balance, after the first instalment, of the total PC for that year of account, excluding any uplift for superior performance which cannot be calculated until all peer group syndicate results are known. Long service awards were introduced on a staff-wide basis during the year and both Messrs Carpenter and Holt qualified for their level of awards as employees of between 15 and 25 years’ standing.

Benefits in kind/allowances principally comprised cash car allowances, private medical and permanent health insurance and, where applicable, cash in lieu of pensions contributions.

No payments were made during the year in respect of any director leaving the Board or ceasing to be employed by the Group.

Executive directors’ pensions
The pension details for either defined contribution (including personal pension) schemes or defined benefit schemes, as applicable for each executive director (non-executives not being eligible), all of whom served as executive directors throughout the year, are shown in the table above. Increases in accrued pensions during the year, exclude those due to inflation. The transfer values of increases during the year, and changes in total transfer values during the year, are shown before the effects of inflation and after deduction of the directors’ own contributions during the year. Transfer values as at 31 December 2003 and 2004 are calculated in accordance with guidance published by the Institute of Actuaries and the Faculty of Actuaries dated 4 August 2003.

Directors’ Performance Share Plan options held

	Shares under option	Date of grant	Share price on date of grant	Value of shares (£) as at date of grant	Performance period	Dates exercisable*	Potential value/profit (£) on 31 December 2004*

R A Hextall	79,877	19 May 2004	161.00p	128,602	Jan 2004-Dec 2008	May-Nov 2009	113,026

C E L Philipps	178,187	19 May 2004	161.00p	286,881	Jan 2004-Dec 2008	May-Nov 2009	252,135

* These options are only exercisable to the extent that the demanding performance conditions set out in the earlier section within ‘Remuneration policies’ are met. For this reason, and because the year end is only a small way through the performance period, the potential profit at the year end, which is the full market value of 141.5p per share at that date of the shares over which options are outstanding, is hypothetical. Similarly, it is presently much too early to make any estimate of the eventual level of vesting, and hence rewards, after the full five year measurement period. For an estimated theoretical value on grant, see table below.

Executive directors’ Performance Share Plan participations
An outline of the Performance Share Plan, and of the basis of the participations granted following the adoption of the Plan at the 2004 Annual General Meeting, is set out in the ‘Remuneration policies’ section earlier in this report. The options granted to the directors of the Company participating in this Plan are shown in the table above.

Executive directors’ Capital Builder Plan participations
An outline of the terms of the Capital Builder Plan is set out in the ‘Remuneration policies’ section earlier in this report. The applicable classes and divisions of the business which will determine the rewards payable to each of the directors of the Company participating in this Plan are as follows:

	Class of business/division

B D Carpenter	Fleet AIS division Whole of Syndicate 2001

A W Holt	Catastrophe Risk Excess of Loss Marine Excess of Loss Total of Excess of Loss accounts Reinsurance & non-marine division Whole of Syndicate 2001

At this stage it is too early to estimate accurately important elements affecting the rewards that any director might receive from the Plan in one to three years’ time in respect of the total measurement period to 31 December 2005. However, on the basis of the current estimated returns in respect of the 2001 to 2004 Lloyd’s years of account only, the rewards of each of the directors in respect of those four years are currently estimated as shown in the table below.

Directors’ estimated Capital Builder Plan rewards

	Class/division	Estimated reward for 2001 to 2004 as at 31 December 2004 £000	Estimated reward for 2001 and 2005 as at 31 December 2003 £000

B D Carpenter	Class	609.6	326.6
	AIS division	460.8	217.7
	Syndicate2001	105.6	61.4

	Total	1,176.0	605.7

A W Holt	Classes	665.0	402.3
	Non-marine division	799.9	496.6
	Syndicate 2001	263.8	153.4

	Total	1,728.7	1,052.3

No payments have yet been made pursuant to the Plan and none of the above prospective rewards are payable until early 2006. It is emphasised that the prospective rewards set out in the above table could be reduced, as well as increased, by changes to the projected performances of the 2003 and 2004 years of account and by underwriting performance over the final year of account of the five year measurement period.

Details of share option schemes
Introduction
The Group has a number of share option schemes relating to the Company’s shares, in which executive directors and other senior employees participate, and a Sharesave scheme in which all eligible employees, including executive directors, may participate. Where relevant, such schemes have been approved by shareholders. An overview of each scheme in which directors participate, each of their performance conditions and, where applicable, the current position regarding the fulfilment of performance conditions, is set out later in this section. The schemes set up by the former Murray Lawrence group prior to its merger with the Company in 1998 involved options over existing shares held by the Group’s Employee Share Ownership Trust (ESOT) rather than over new shares in the Company to be issued in the future. Options granted in 1997 and 1998 under the Amlin Executive Share Option Schemes were made entirely over new shares to be issued in the future. In the cases of grants from 1999 to 2002, some of the options granted each year were on the basis that they would, when exercised, be satisfied out of shares held by the ESOT. The grants made in 2003 and 2004 were over new shares only but use of the ESOT for a proportion of future grants is likely to resume in the future.

The rules of the Amlin Executive Share Option Schemes and the Sharesave Scheme each include limits on the overall number of unissued shares over which options may be granted. These are the Company’s only option schemes under which new shares are committed to be issued. Grants over new shares under the executive schemes, after deducting any such options which have lapsed, are limited to 5% of the issued share capital in any 10 year period. Grants over new shares under any scheme are also limited to 5% over five years and to 10% over 10 years. At 31 December 2004, the numbers of shares, and percentages of the year end shares in issue, together with the equivalent percentage a year earlier, relating to each of these limits were as follows:

	Number of shares utilised 31 Dec 2004	Percentage of shares in issue utilised 31 Dec 2004	Percentage of shares in issue utilised 31 Dec 2003

Executive 5% limit over 10 years	15,328,787	3.88%	3.23%
All schemes 5% limit over 5 years	12,871,315	3.26%	3.12%
All schemes 10% limit over 10 years	17,718,756	4.48%	3.72%

None of the schemes with any options currently outstanding require the payment of any consideration for the grant of options. Adjustments to both numbers of shares under option and exercise prices were made in 2002 to the options under all schemes which were then outstanding to take account of share issues made that year.

Performance Conditions of the Amlin Executive Share Option Schemes (the Amlin Schemes)
The Amlin Schemes are the only schemes operated by the Group under which options continue to be granted to executive directors (other than under the Performance Share Plan, which uses the ESOT, and the Sharesave scheme). The Amlin Schemes comprise both an Inland Revenue approved and an unapproved executive share option scheme. Both were approved by the Company’s shareholders in 1997 and options have been granted in that and each subsequent year. In March 2004, options were granted at an exercise price of 162.75p per share over a total of 2,864,566 new shares (2003: 2,456,000 new shares at 118.0p).

The options granted in 1997 and 1998 may only be exercised if the total shareholder return of the Company, over a three year period, exceeds that of the FTSE 100 index. Additionally, there are secondary targets based on achievement of levels of financial performance. These depend on the role of the executive concerned and are only relevant if the primary condition is fulfilled. For directors of the Company, these targets relate to average returns on capital employed.

The options granted in 1999 to 2003 inclusive may only be exercised if (a) the total shareholder return of the Company, over a three year period, exceeds that of the median member of a comparator group of insurance companies and (b) the Remuneration Committee is satisfied that the underlying financial performance of the Company has been satisfactory. The 2004 grants had the same conditions except that full vesting can only take place on upper quartile total shareholder return, as set out in more detail in ‘Remuneration policies’ above. The comparator groups of companies is agreed by the Committee at the time of each of the grants. In respect of the grants made in 2004 the comparator group, in addition to Amlin, was: Atrium Underwriting, Beazley, BRIT Insurance Holdings, Chaucer Holdings, Cox Insurance Holdings, Domestic & General Group, GoshawK Insurance Holdings, Hardy Underwriting Group, Highway Insurance Holdings, Hiscox, Kiln, Royal & Sun Alliance Insurance Group, SVB Holdings and Wellington Underwriting.

The changes in performance conditions set under these schemes have been made to reflect the Company’s development. In 1997 and 1998 the Company was an investment trust with an investment portfolio designed to track the FTSE 100 Share Index, with the purpose of enhancing such equity returns through Lloyd’s underwriting. By 1999 the Company was no longer structured as an investment trust and was suitable to be measured against its peers in the insurance sector. All of the secondary performance conditions are intended to provide a measure of absolute financial performance alongside the relative performance measures of the primary conditions.

Measurement of performance conditions of the Amlin Schemes to date
Performance is first measured against the relevant conditions three years after grant and, for all option grants prior to 2004, if the conditions are not fulfilled may be re-measured over subsequent rolling three year periods. As outlined earlier in this report, the 2004 option grants were subject to stricter re-testing provisions and those from 2005 onwards will not be subject to any re-testing.

With regard to the options granted in May 1997 and September 1998, the Company’s total shareholder return exceeded that of the FTSE 100 index over the three years to May 2002 and September 2002 respectively and accordingly all of such options have met their primary performance conditions.

The secondary condition in respect of the 1997 and 1998 grants for holding company executives, including two directors of the Company serving during 2004, Messrs Philipps and Stace, was related to returns on capital employed, adjusted for certain factors relevant to the then structure of the Group. As a result of his early retirement by agreement with the Company, under the Rules of the schemes the performance conditions of all of Mr Stace’s executive options no longer applied after he left the Board in May 2004. In respect of both the 1997 and 1998 options of Mr Philipps and other continuing holding company executives, the Committee has subsequently determined that this condition has now been fully satisfied on the basis of the returns over the three years to 31 December 2004.

The performance against the primary conditions of those grants from 1999 onwards which have reached the end of their first three measurement periods have been as follows, in each case after the first three year measurement period and as calculated by NBS:

Grant	First normal exercise date	Total shareholder return after three years	Ranking against return performance

1999 grants	Oct 2002	16%	4th out of 18
2000 grants	Jun 2003	47%	2nd out of 12
2001 grants	May 2004	36%	3rd out of 14
2002 grants	May 2005	77%	3rd out of 14

Accordingly, the Committee has confirmed that the primary conditions of each of the above grants of options have been satisfied. Although the conditions of all of these only required median performance, it can be seen that top quartile performance was achieved in all cases over the initial measurement period.

The Committee concluded during 2004 in respect of the 2001 grants that the underlying financial performance of the Company had been sufficiently satisfactory over the three years to 31 December 2003 for the secondary condition to have been fulfilled as at that date. It also concluded in March 2005 that the similar secondary condition in respect of the 2002 grant, measured over the three year period to 31 December 2004, had been similarly satisfied on first testing. The latter options will therefore be exercisable from their third anniversary of grant, 2 May 2005. In reaching these conclusions the Committee had regard, amongst other factors, to the underlying earnings, returns on equity, and increases in net tangible assets per share, over the relevant periods.

The Murray Lawrence 1998 Scheme
The Murray Lawrence Discretionary Share Option Scheme 1998 (‘ML 1998 Scheme’) is not an Inland Revenue approved scheme. Options were granted to selected employees and directors of the Murray Lawrence group in 1998 prior to the merger of the Company with ML (Bermuda) Limited that year. The options became options over the Company’s shares following the merger and expire in August 2008. No further options will be granted under the scheme.

Measurement of performance conditions of the ML 1998 Scheme to date
Exercise is conditional on Amlin’s share price attaining specified prices per share. The prices required for the first half of each holder’s option have been attained, but not the target prices for the second half. Such unattained target price for the only director with these options, Mr Carpenter, is 201.3p per share,

Amlin Savings-Related Share Option Scheme 1998 (Sharesave scheme)
A Sharesave option scheme was adopted by the Company in September 1998 and four offers and grants of options under this scheme have been made to date, in each case entirely over new shares to be issued in the future. In March 2004 options were granted over 546,791 shares at an exercise price of 142.80p per share. This scheme is open to all Group employees, including executive directors, who have been employed for more than a number of months which is specified at each grant. Exercises of options under the Sharesave scheme are not subject to any performance condition. Further offers are likely to be made periodically in the future.

Total shareholder return performance
As background to the position regarding options performance conditions, the graphs below illustrate the total shareholder return performance of the Company’s ordinary shares relative to two indices of which Amlin’s shares are a constituent, the FTSE 350 index and the FTSE All Share Insurance index, over the five years to 31 December 2004. Comparisons are shown with both these indices (as they were in previous years’ reports) as the performance of Amlin’s shares is affected both by the general UK stock market in companies of its size and by its insurance sector.

The graphs show the values, at each year end from 2000 to 2004 inclusive, of £100 invested in the Company’s shares on 31 December 1999 compared with the values of £100 invested in the relevant index on the same date. To produce a ‘fair value’, each point on the graphs is the average of the relevant return index over the 30 days preceding the relevant year end.

Executive directors’ share options
Options held over shares in the Company as at 31 December 2004 by executive directors serving at the year end or, in the case of Mr Stace, a former executive director who served as a non-executive director during part of the year, the date on which he left the Board (those serving only as non-executive directors not being eligible), and changes during the year, are set out in the following two tables:

Options held

	Scheme (see descriptions above)	Over new or ESOT shares	Shares under option on 1 January 2004	Grants during the year	Shares under option on 31 December 2004 (or on leaving Board)	Exercise price per share	Dates options exercisable (if performance conditions met)	Potential profit (£) on 31 December 2004 (or on leaving Board)

B D Carpenter	ML 1998	ESOT	37,716	-	37,716	96.03p	Aug 2001 – Aug 2008	17,149*
		ESOT	37,715	-	37,715	96.03p	Aug 2003 – Aug 2008	17,149
	Amlin	ESOT	156,406	-	156,406	85.35p	Oct 2002 – Oct 2009	87,822*
		ESOT	125,123	-	125,123	77.68p	Jun 2003 – Jun 2010	79,854*
		New	72,989	-	72,989	115.09p	May 2004 – May 2011	19,276*
		New	89,888	-	89,888	81.28p	May 2005 – May 2012	54,131
		New	50,000	-	50,000	118.00p	Apr 2006 – Apr 2013	11,750
		New	-	(Tranche 1) 63,288	63,288	162.75p	Mar 2007 – Mar 2014	-
		New	-	(Tranche 2) 25,314	25,314	162.75p	Mar 2007 – Mar 2014	-
	Sharesave	New	20,459	-	-	82.48p	Dec 2004 – Jun 2005	n/a

	Total		590,296	88,602	658,439			287,131

R A Hextall	Amlin	New	135,552	-	135,552	81.04p	Nov 2002 – Nov 2009	81,955*
		ESOT	125,123	-	86,505	77.68p	Jun 2003 – Jun 2010	55,207*
		ESOT	72,989	-	72,989	115.09p	May 2004 – May 2011	19,276*
		New	179,777	-	179,777	81.28p	May 2005 – May 2012	108,262
		New	100,000	-	100,000	118.00p	Apr 2006 – Apr 2013	23,500
		New	-	(Tranche 1) 61,444	61,444	162.75p	Mar 2007 – Mar 2014	-
		New	-	(Tranche 2) 24,578	24,578	162.75p	Mar 2007 – Mar 2014	-
	Sharesave	New	9,902	-	-	97.82p	Jul 2004 – Jan 2005	n/a
		New	-	6,600	6,600	142.80p	Jul 2007 – Jan 2008	-

	Total		623,343	92,622	667,445			288,200

A W Holt	Amlin	ESOT	182,474	-	182,474	85.35p	Oct 2002 – Oct 2009	102,459*
		ESOT	125,123	-	86,505	77.68p	Jun 2003 – Jun 2010	55,208*
		New	72,989	-	72,989	115.09p	May 2004 – May 2011	19,276*
		New	89,888	-	89,888	81.28p	May 2005 – May 2012	54,131
		New	50,000	-	50,000	118.00p	Apr 2006 – Apr 2013	11,750
		New	-	(Tranche 1) 76,805	76,805	162.75p	Mar 2007 – Mar 2014	-
		New	-	(Tranche 2) 30,722	30,722	162.75p	Mar 2007 – Mar 2014	-
	Sharesave	New	20,459	-	-	82.48p	Dec 2004 – Jun 2005	n/a

	Total		540,933	107,527	589,383			242,824

C E L Philipps	Amlin	New	222,799	-	222,799	112.21p	May 2000 – May 2007	65,258
		New	69,823	-	69,823	115.57p	Sep 2001 – Sep 2008	18,105
		ESOT	218,968	-	218,968	85.35p	Oct 2002 – Oct 2009	122,951*
		ESOT	229,396	-	229,396	77.68p	Jun 2003 – Jun 2010	146,400*
		ESOT	72,989	-	72,989	115.09p	May 2004 – May 2011	19,276*
		ESOT	256,825	-	256,825	81.28p	May 2005 – May 2012	154,660
		New	100,000		100,000	118.00p	Apr 2006 – Apr 2013	23,500
		New	-	(Tranche 1) 89,094	89,094	162.75p	Mar 2007 – Mar 2014	-
		New	-	(Tranche 2) 35,637	35,637	162.75p	Mar 2007 – Mar 2014	-
	Sharesave	New	11,250	-	11,250	84.00p	Dec 2005 – Jun 2006	6,469

	Total		1,182,050	124,731	1,306,781			556,619

J L Stace	Amlin	New	311,919	-	311,919	112.21p	May 2000 – May 2007	152,185*
		New	97,753	-	97,753	115.57p	Sep 2001 – Sep 2008	44,409*
		ESOT	198,114	-	-	85.35p	Oct 2002 – Oct 2009	n/a
		ESOT	125,125	-	-	77.68p	Jun 2003 – Jun 2010	n/a
		ESOT	72,989	-	72,989	115.09p	May 2004 – May 2011	33,509*

	Total		805,900		482,661			230,103

*Only these potential profits are on options fully exercisable at 31 December 2004 or, in the case of Mr Stace, immediately upon him leaving the Board. In addition to these fully exercisable options, 50% of each of Mr Philipps’s options shown as exercisable (if conditions had been met) from May 2000 and September 2001 were exercisable at 31 December 2004.

Options exercised during 2004

	Scheme	Over new or ESOT shares	Shares exercised	Exercise Price per share	Date of exercise	Share price on exercise	Profit (£) on exercise

B D Carpenter	Sharesave	New	20,459	82.48p	1 Dec 2004	154.50p	14,735

	Total		20,459				14,735

R A Hextall	Amlin	ESOT	38,618	77.68p	1 Apr 2004	168.00p	34,880
	Sharesave	New	9,902	97.82p	1 Jul 2004	151.00p	5,266

	Total		48,520				40,146

A W Holt	Amlin	ESOT	38,618	77.68p	16 Mar 2004	156.50p	30,439
	Sharesave	New	20,459	82.48p	1 Dec 2004	154.50p	14,735

	Total		59,077				45,174

J L Stace	Amlin	ESOT	198,114	85.35p	10 Mar 2004	163.75p	155,321
(whilst a director)		ESOT	125,125	77.68p	10 Mar 2004	163.75p	107,695
(whilst no longer a director)	Amlin	New	26,735	112.21p	7 Sep 2004	155.50p	11,574
		New	97,753	115.57p	7 Sep 2004	155.50p	39,033
		ESOT	72,989	115.09p	8 Sep 2004	154.05p	28,437
		New	285,184	112.21p	9 Sep 2004	154.00p	119,178

	Total		805,900				461,238

The calculations in the table on the previous page of potential profit on exercise as at 31 December 2004 or, in the case of Mr Stace, the date he left the Board (19 May 2004) are based on year end or 19 May 2004 share prices of 141.5p (2003: 128p) and 161p respectively. The high and low during the year were 174.75p and 128p respectively. These calculations are before tax and are theoretical as in many cases the relevant options were not exercisable at the relevant date, either because they had not reached the relevant earliest exercise date or because performance conditions had not been fully met. The performance conditions applying to each grant of options, and more details of their current status, are summarised above in ‘Details of share option schemes’.

Other than grants of options, the other directors’ changes during the year resulted from the exercises of options set out in above. No directors’ options lapsed during the year.

Valuation of options and Performance Share Plan awards granted in 2004
The unrealised profits and the profits on exercise shown in the two previous tables are heavily dependent on share price changes over the years and on the director’s decisions on when to exercise. In terms of the decisions made by the Committee during the year regarding individual directors’ remuneration, the most important measure relating to options is the value, at the date of grant, of the executive options granted to each director during the year. Using the Black Scholes valuation method in conjunction with an illustrative assumption regarding the performance conditions that relative TSR performance is mid-way between median and the threshold of the top quartile (and also assuming directors’ continuing employment), the theoretical values of the executive options granted are estimated as follows:

Theoretical values of executive options granted in 2004

	Number of shares over which options granted in 2004	Exercise price per share	Theoretical value on date of grant £000

B D Carpenter	88,602	162.75p	28.4

R A Hextall	86,022	162.75p	27.6

A W Holt	107,527	162.75p	34.5

C E L Philipps	124,731	162.75p	40.0

Theoretical values at the date of the awards of the two participating directors’ Performance Share Plan awards made in 2004, details of which are set out above, have been calculated on the assumptions of directors’ continuing employment and that a 15% average ROE is achieved over the five year performance period. Such demanding ROE assumption is illustrative and not a forecast. Such estimates are as follows:

Theoretical values of PSP awards made in 2004

	Number of shares over which options granted in 2004	Exercise price per share	Theoretical value on date of grant £000

R A Hextall	79,877	161.00p	91.0

C E L Philipps	178,187	161.00p	203.00

Non-executive directors’ fees, appointment and removal
In line with the recommendations of the Combined Code, the fees paid to non-executive directors of the Company, other than the Chairman, are determined by the full Board. The Board receives recommendations in this respect from a special committee chaired by the Chairman, with the Chief Executive and two other directors (one executive and one non-executive, each of which changes each year) as the other members. Recommendations and decisions are made taking account of professional advice and other information on the level of such fees paid by comparable companies for comparable services.

The Chairman’s remuneration is determined by similar criteria, but by the Remuneration Committee. The minimum time commitments given by each director, as detailed in the Board corporate governance statement, are also taken into account. During the review of non-executive directors’ fees as at 1 July 2004, the special committee recommended, and the Board agreed, that the non-executive fees within its responsibility should be set by reference to the upper quartile of such fees paid by companies of similar size on account of the well above average complexity and regulatory responsibilities involved.

Each non-executive director is paid a basic fee and may be paid further for additional services, including for acting as Deputy Chairman of the Company, or serving as chairman of a committee or as members of more than one committee or of certain subsidiary boards. Non-executive directors have contracts for services rather than employment contracts. Their terms of appointment are formalised in letters of appointment which are updated from time to time. The latest letters of appointment of the Chairman and the other non-executive directors are dated 8 September 2004. Non-executive directors, as is the case with executive directors, are appointed on the recommendation of the Nomination Committee, usually for a three year term. Non-executive directors may be removed, or not nominated for re-election at the end of their term, in each case in accordance with the Articles of Association of the Company. All of the non-executive directors are currently serving three year terms. The commencement and expected year of expiry of each of the nonexecutive directors’ current terms are as follows:

	Current term commenced	Date of expiry of current term

N J C Buchanan	19 May 2004	AGM in 2007
R S Joslin	12 June 2002	18 May 2005
K T Kemp	12 June 2002	18 May 2005
R W Mylvaganam	12 June 2002	18 May 2005
Lord Stewartby	12 June 2002	18 May 2005
R J Taylor	12 June 2002	18 May 2005

Details of nominations of directors at the Annual General Meeting on 18 May 2005, where applicable, are contained in the circular including the notice of the meeting, which is being circulated to shareholders with this report.

If a non-executive director is not nominated or re-elected at the end of a term of office, the director is not entitled to any extra payment on termination. In other circumstances three months’ notice of termination may be given by either side.

Copies of the letters of appointment of non-executive directors are available for inspection at the Company’s registered office.

By Order of the Board, on the recommendation of its Remuneration Committee

C C T Pender Secretary
7 March 2005