Notes to the accounts

For the year ended 31 December 2006

11 Profit before tax

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

	2006 £m	2005 (restated) £m

Depreciation
– owned assets	3.1	2.4
Operating lease charges	3.1	2.3
Auditors’ remuneration
– Group audit	0.1	0.1
– subsidiary company audits	0.4	0.3
– tax and related services	–	0.1
Foreign exchange losses/(gains)	26.9	(31.9)

Subsidiary companies audit fees amounted to £353,517 (2005: £249,165) including first time audit of Bermuda subsidiaries. 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.

Disclosure of auditor remuneration has been amended in accordance with the requirements of the Companies (Disclosure of Auditor Remuneration) Regulations 2005 (Statutory Instrument 2005/2417). The main impact of this on the disclosure above is the reallocation of syndicate audit fees of £211,730 (2005: £173,230) from Group audit to subsidiary companies audit.

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

	2006 £m	2005 £m

Amounts charged to the income statement
Taxation advice	28,100	12,400
Consultation on remuneration policy	7,350	30,000
IFRS opening balance sheet related audit	–	47,000
Systems testing	–	14,300
Other	5,750	9,240

	41,200	112,940

Amounts capitalised on the balance sheet
Rights issue related services	–	77,250
Potential acquisition due diligence services	–	111,758

	–	189,008

	41,200	301,948

12 Tax

	2006 £m	2005 (restated) £m

Current tax
UK corporation tax	57.0	34.3
Foreign tax	(0.1)	(1.6)

	56.9	32.7

Deferred tax – current year
Movement in assets	4.8	4.1
Movement in liabilities	13.2	9.7

	18.0	13.8

Taxes on income	74.9	46.5

In addition to the above, deferred tax £1.3 million (2005: £1.7 million credit) has been credited directly to equity.

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

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 this 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 this 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 £218.4 million (2005: £143.3 million).

Deferred tax assets on loss provisions in respect of non-aligned syndicate participations (see note 16) 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 £3.8 million (2005: £4.5 million).

Reconciliation of tax expense

The UK standard rate of corporation tax is 30% (2005: 30%), whereas the current tax assessed for the year ended 31 December 2006 as a percentage of profit before tax is 21.9% (2005 (restated): 24.9%). The reasons for this difference are explained below:

	2006 £m	2006 %	2005 (restated) £m	2005 (restated) %

Profit before tax	342.7		186.7

Taxation on profit on ordinary activities calculated at the standard rate of corporation tax in the UK	102.8	30.0	56.0	30.0
Non-deductible or non-taxable items	4.5	1.3	(0.2)	(0.1)
Utilisation of unprovided for capital losses	(3.8)	(1.1)	(7.1)	(3.8)
Tax rate differences on overseas subsidiaries	(29.3)	(8.5)	–	–
Under/(over) provision in respect of prior periods	0.8	0.2	(0.6)	(0.3)
Irrecoverable overseas tax	(0.1)	–	(1.6)	(0.9)

Taxes on income	74.9	21.9	46.5	24.9

The Group’s tax provision for 2006 and 2005 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% (2005: 0%).

A deferred tax liability of £8.9 million (2005: £nil) 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 £69.1 million (2005: £2.4 million) as the parent company has determined not to distribute these profits in the foreseeable future.

A deferred tax asset of £5.4 million (2005: £5.7 million) has been taken on existing capital losses to match against deferred tax provisions of £6.4 million (2005: £5.7 million) on unrealised capital gains arising within the Group during this accounting period. As all capital losses have now been provided for the Group will not in future periods enjoy the reduction in its effective tax rate arising from the utilisation or provision of previously unprovided capital losses as in previous years.

The Group is subject to US tax on US underwriting profits. No provision has been made in respect of such tax arising in 2006 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:

	Provisions for losses £m	Other provisions £m	Capital losses £m	Pension provisions £m	Other timing differences£m	Total £m

At 1 January 2006 (restated)	1.2	7.8	5.7	3.3	6.4	24.4
Movements in the year	(0.1)	(2.1)	(0.3)	(1.3)	(1.0)	(4.8)
Movement through equity in the year	–	–	–	–	1.3	1.3

At 31 December 2006	1.1	5.7	5.4	2.0	6.7	20.9

Included within the opening balance for deferred tax under “Pension provisions” is an increase of £3.3 million representing the deferred tax element on

the change in accounting for pension liabilities as detailed on page 111. The deferred tax liability is attributable to temporary differences arising on the following:

	Underwriting results £m	Unrealised capital gains £m	Syndicate capacity £m	Other timing differences£m	Total £m

At 1 January 2006	73.5	5.7	3.0	–	82.2
Movements in the year	2.5	0.7	1.1	8.9	13.2

At 31 December 2006	76.0	6.4	4.1	8.9	95.4

Deferred tax assets have been provided for on all capital losses carried forward of £18 million (2005: capital losses unprovided for £12.7 million).

Deferred tax assets have not been provided on US net operating losses of £31.0 million (2005: £43.3 million) carried forward due to uncertainty over their future use.

13 Net foreign exchange (losses)/gains

The Group’s incurred foreign exchange losses of £26.9 million (2005: £31.9 million gain) 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 incurred foreign exchange losses on translating non-monetary assets and liabilities at historic average rates amounted to £27.9 million (2005: £26.2 million gain).

Foreign exchange gains/(losses) on investments in overseas subsidiaries are taken directly to reserves in accordance with IAS21, The Effects of Changes in Foreign Exchanges. Amlin Bermuda Ltd and Amlin Bermuda Holdings Limited report in US dollars. The loss taken to reserves for the year ended 31 December 2006 was £77.1 million (2005: £3.8 million gain). This reflects the Group’s investment of $1 billion of capital in Amlin Bermuda Ltd at the movement in the dollar rate from 1.72 at the start of the year to 1.96 at the balance sheet date.

14 Cash and cash equivalents

	2006 £m	2005 £m

Cash at bank and in hand	16.5	65.2
Short-term bank deposits	–	0.4

	16.5	65.6

Short-term bank deposits can be recalled within 24 hours.

15 Financial investments

	At valuation 2006 £m	At valuation 2005 £m	At Cost 2006 £m	At Cost 2005 £m

Shares and other variable yield securities	291.4	116.2	260.8	96.2
Debt and other fixed income securities	1,599.6	1,142.1	1,599.8	1,149.5
Participation in investment pools	126.6	703.8	111.7	688.7
Deposits with credit institutions	294.2	62.3	268.0	62.3
Overseas deposits	55.9	51.9	55.9	51.9
Other	–	1.9	–	1.9

	2,367.7	2,078.2	2,296.2	2,050.5

In Group owned companies	1,105.0	920.7	1,140.3	885.8
In Syndicate 2001	1,257.1	1,151.7	1,150.3	1,158.9
In non-aligned syndicates participations (see note 16)	5.6	5.8	5.6	5.8

	2,367.7	2,078.2	2,296.2	2,050.5

Listed investments included in Group:

Shares and other variable yield securities	291.4	116.2	230.7	96.2
Debt and other fixed income securities	1,596.7	104.1	1,599.6	103.3

	1,888.1	220.3	1,830.3	199.5

As explained in the investment risk disclosure on page 92 and note 29, £382.1 million (2005: £276.7 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.

	2006 £m	2005 £m

At 1 January	2,078.2	1,302.5
Exchange adjustments	(68.5)	46.0
Net purchases	341.6	710.0
Realised gains on disposals	7.1	6.2
Unrealised investment gains	9.3	13.5

At 31 December	2,367.7	2,078.2

16 Insurance contracts and reinsurance assets

Insurance liabilities
	Claims reserves £m	Unearned premium reserves £m	Other insurance assets and liabilities £m	Total £m

At 1 January 2005	1,103.3	517.3	46.0	1,666.6
Movement in the year	525.5	6.5	65.6	597.6
Exchange adjustments	75.5	–	3.2	78.7

At 31 December 2005	1,704.3	523.8	114.8	2,342.9
Movement in the year	(156.8)	27.7	(36.1)	(165.2)
Exchange adjustments	(130.0)	(6.0)	(10.1)	(146.1)

At 31 December 2006	1,417.5	545.5	68.6	2,031.6

Reinsurance assets
At 1 January 2005	318.6	24.9	261.3	604.8
Movement in the year	262.0	(0.7)	106.8	368.1
Exchange adjustments	24.0	–	19.2	43.2

At 31 December 2005	604.6	24.2	387.3	1,016.1
Movement in the year	(198.7)	13.5	(54.5)	(239.7)
Exchange adjustment	(48.9)	–	(32.2)	(81.1)

At 31 December 2006	357.0	37.7	300.6	695.3

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 section, on page 81.

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

	2006 £m	2005 £m

Notified outstanding claims	843.4	1,121.8
Claims incurred but not reported	574.1	582.5

Insurance contracts claims reserve	1,417.5	1,704.3

It is estimated, using historical settlement trends, that £564.2 million (2005: £497.4 million) of the claims reserves included in the above analysis, as at 31 December 2006, 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 £4.2 million (2005: £4.5 million). Syndicates that remain open at 31 December 2006 are set out in the table below.

Syndicate capacity

Motor
Managing agent	Non-aligned syndicate	1999 £m	1998 £m	1997 £m

Non-marine
Jago Managing Agency Ltd	205	2.25	–	–
A E Grant (Underwriting Agencies) Ltd	991	2.93	2.35	–
Duncanson & Holt Syndicate Management Ltd	1101	–	2.50	2.50

Total non-marine	5.18	4.85	2.50

Ockham Personal Insurance Agency Ltd	37	4.64	–	–

Aviation
Duncanson & Holt Syndicate Management Ltd	957	–	3.00	3.00

Total capacity
Capacity remaining open at 31 December 2006	9.82	7.85	5.50

17 Loans and receivables, including insurance receivables

The reconciliation of opening and closing deferred acquisition costs is as follows:
	2006 £m	2005 £m

Receivables arising from insurance contracts	98.0	103.9
Deferred acquisition costs	118.3	110.4

Insurance receivables	216.3	214.3

Other debtors	22.6	116.4
Prepayments and other accrued income	29.0	16.5

Loans and receivables	51.6	132.9


	2006 £m	2005 £m

Current portion	267.1	347.2
Non-current portion	0.8	–

	267.9	347.2


	2006 £m	2005 £m

At 1 January	110.4	107.2
Exchange adjustments	(0.1)	–
Movements in the year	8.0	3.2

At 31 December	118.3	110.4

18 Property and equipment

	Leasehold land and buildings £m	Motor vehicles £m	Computer equipment £m	Fixtures, fittings and Leasehold improvements £m	Total £m

Cost
At 1 January 2006	1.9	0.3	15.6	5.7	23.5
Additions	–	–	2.9	0.6	3.5
Exchange adjustments	–	–	(0.1)	(0.1)	(0.2)

At 31 December 2006	1.9	0.3	18.4	6.2	26.8

Accumulated depreciation
At 1 January 2006	0.1	0.1	12.2	5.1	17.5
Charge for the year	–	0.1	2.5	0.6	3.2
Exchange adjustments	–	–	(0.1)	–	(0.1)

At 31 December 2006	0.1	0.2	14.6	5.7	20.6

Net book value
At 31 December 2006	1.8	0.1	3.8	0.5	6.2

At 1 January 2006	1.8	0.2	3.4	0.6	6.0

The assets held under finance leases and hire purchase contracts included in the above had no net book value in either the current or previous year.

19 Intangible assets Syndicate participations

Cost and carrying amount
	Syndicate participations £m	Goodwill £m	Total £m

At 1 January 2006 and 31 December 2006	63.2	2.8	66.0

Syndicate participations represent the ongoing rights, acquired in Lloyd’s auctions, to trade on Syndicate 2001 within the Lloyd’s insurance market. Amlin subsidiaries have supported all of the ongoing capacity of Syndicate 2001 since 1 January 2004. All remaining liabilities of the Syndicate underwritten by third party capital prior to this date was taken on by Amlin subsidiaries at 1 January 2004 (see note 2).

20 Share capital

Authorised ordinary shares of 25p each	2006 Number	2006 £m	2005 Number	2005 £m

At 31 December	800,000,000	200.0	562,000,000	140.5


Allotted, called up and fully paid	2006 Number	2006 £m	2005 Number	2005 £m

At 1 January	530,113,127	132.5	395,089,608	98.8
Scrip dividend alternative shares issued	–	–	3,070,054	0.8
Shares issued on exercise of options	3,893,593	1.0	4,148,392	1.0
Rights issue	–	–	127,805,073	31.9

At 31 December	534,006,720	133.5	530,113,127	132.5

The shares issued on exercise of options were issued for a total consideration of £3.7 million at an average price of 98.00 pence per share (2005: £3.5 million, average price 86.48 pence).

The scrip dividend shares were issued on 24 May 2005 in respect of the 2004 final dividend at a reference share price of 165.92 pence per share. Subsequent dividends did not offer a scrip dividend alternative.

127,805,073 new shares were issued via a 7 for 22 rights issue which closed on the 25 November 2005 with the new shares being issued on the following trading day, 28 November 2005. The rights issue raised £223.7 million gross, and £214.7 million net of expenses. The balance of the capital raised not including the share capital, £182.8 million, is included in the share premium reserve, analysed as gross £191.8 million and expenses of £9.0 million.