Notes to the accounts

31 Cash generated from operations

Group cash generated from operations	Notes	2006 £m	2005 (restated) £m
Profit before tax		342.7	186.7
Net movement on Premium Trust Funds for non-aligned participations		–	(2.9)
Depreciation charge		3.2	2.1
Interest paid		24.1	9.2
Interest received		(97.5)	(65.3)
Dividends received		(4.5)	(2.0)
Realised/unrealised losses/(gains) on investments		(16.4)	(13.5)
Net purchases of financial investments		(349.4)	(752.4)
Decrease/(increase) in loans and receivables		79.3	(64.9)
Decrease/(increase) in reinsurance contract assets		320.8	(411.5)
(Decrease)/increase in insurance contract liabilities		(311.1)	679.2
Increase/(decrease) in trade and other payables		1.3	(2.7)
Increase in retirement benefits		(4.9)	(4.1)
Exchange (gains)/losses on long term borrowings		(11.6)	(5.3)
Other non-cash movements		3.8	–
Cash generated from operations		(20.2)	(447.4)

32 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 (2005: 10 and seven respectively).

Compensation paid during the year to key management personnel is analysed below:

Group cash generated from operations	2006 £m	2005 £m
Short term employee benefits	9.9	8.3
Post-employment benefits	0.4	0.5
Share-based payments	0.6	0.3
	10.9	9.1

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 2005 and 2006.

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.

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 1 segmental reporting under the column “intra group’’.

The amount of net income transferred to ABL during 2006 under these contracts was £25.5 million (2005: £nil) and the amount of gross written premium ceded totalled £100.8 million (2005: £0.3 million).

At 31 December 2006 balances included within ABL with respect to Syndicate 2001 reinsurance contracts include:

Group cash generated from operations	2006 £m
Insurance receivables	37.0
Insurance contracts
– outstanding claims	(24.7)
– unearned premiums	(39.0)
– creditors arising from insurance operations	(4.4)

In addition, cash amounting to £56.5 million was paid by Syndicate 2001 to 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.

The value of the services provided during the year by Amlin plc to fellow Group companies is shown below, together with the value of goods and services provided to related parties by other Group companies, to the extent that they are not eliminated on consolidation.

	2006 £	2005 £	2006 £	2005 £
Sale of goods and services:
– Amlin Bermuda Holdings Limited	–	0.3	–	–
	–	0.3	–	–

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.

Purchases of goods and sales

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.

	2006 £	2005 £
Purchases of goods and services:
– Syndicate 2001	–	0.1
– Amlin Corporate Services Limited	6.3	5.2
	6.3	5.3

Other Group companies

Amlin Underwriting Limited, a subsidiary company, and Hydra House Limited, the owners of Lycetts Hamilton Limited (formerly Hamilton & Partners Limited), own 60% and 40% respectively of the share capital of Amlin Plus Limited. The business of the Company is written under a binding authority agreement with Syndicate 2001 much of which is sourced through a single broker, 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. In addition, Mr Ashby, a director of Amlin Plus Limited and the underwriter responsible for bloodstock underwriting within Syndicate 2001, is married to a director of Lycetts Hamilton Limited.

All transactions between Amlin Plus Limited and its related parties are conducted on an “arm’s length” basis.

During the year, Amlin Plus Limited wrote £14,608,746 (2005: £12,099,035) of premium under the binding authority agreement, of which £6,926,822 (2005: £5,741,318) was produced by Lycetts Hamilton Limited. Lycetts Hamilton Limited earned brokerage commission of £1,172,281 (2005: £944,720) on this business of which £816,984 (2005: £604,014) has been deducted by them in the year from payments made to the company. During the year profit commission of £283,898 (2005: £174,621) was paid to Lycetts Hamilton Limited. At the year end, Syndicate 2001 was owed £5,292,517 (2005: £5,252,431) by the Company and Lycetts Hamilton Limited owed £1,729,643 (2005: £951,263) to the Company.

As part of the Amlin Group, Amlin Plus Limited benefited from the services of Amlin Corporate Services Limited, an intermediate holding company, which operates the Group’s purchase ledger and therefore incurs the majority of the Group’s expenses. Amlin Corporate Services Limited incurred £970,681 (2005: £902,713) in relation to expenses borne on behalf of the Company, which have been fully repaid at the year end. Of the debt owed to Syndicate 2001, £340,030 (2005: £320,743) relates to a loan taken out to enable the Company to pay Amlin Corporate Services Limited for its services. Interest is charged on this loan at a rate of 1.25% above the Bank of England base rate.

Amlin Underwriting Limited and Lycetts Hamilton Limited provided Amlin Plus Limited 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 is charged on both loans at a rate of 2% above the Bank of England base rate. Interest of £7,124 (2005: £6,636) and £4,070 (2005: £3,884) has been recognised during the calendar year. Included in the 2005 balance are share issue costs of £14,400 and £9,600 on the issue of 14,400 A ordinary and 9,600 B ordinary shares respectively (which have been netted off against the loan balance). The year end balances due are £97,669 (2005: £90,545) and £64,032 (2005: £59,962) respectively. It is intended to repay all the loans in the first quarter of 2007.

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 practice 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.

	Highest £	Lowest £	2006 £	2005 £
Balances outstanding at the year end:
– Syndicate 2001*	20.0	(30.0)	(18.1)	(3.1)
– Amlin Bermuda Ltd*	1.0	(0.7)	0.6	–
– Amlin Underwriting Group Limited	5.8	(36.2)	10.4	40.1
– AUT Holdings Limited	44.9	8.8	41.3	(12.4)
– Amlin Investments Limited	148.8	(44.2)	185.8	93.3
– St Margaret’s Insurance Services Limited	0.8	0.5	1.3	–
– Angerstein Underwriting Limited	0.1	–	(0.5)	(0.5)
– Amlin Corporate Services Limited	12.6	(0.6)	15.5	(5.7)
– Amlin Dedicated plc	–	0.1	–	(0.1)
– Amlin Corporate Member Limited	81.1	(65.2)	(19.4)	(24.0)
– AUT (1 – 10) Limited companies	12.9	(52.1)	(42.3)	(2.8)
– Delian A – L Limited companies	2.0	(8.3)	(5.0)	1.6
– Amlin Overseas Holdings Limited	–	(0.9)	–	1.0
– Amlin Underwriting Services Limited	–	(0.5)	(0.5)	–
			169.1	87.4

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.

33 Group owned net assets

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

The assets and liabilities attributable to Group owned companies

The table below sets both Syndicate 2001 and Amlin Bermuda Ltd assets and liabilities by currency at 31 December:

	Assets £	Liabilities £	Assets £	Liabilities £	2006 £	2005 £
Sterling	–	–	772.1	(685.9)	86.2	196.1
US dollar	738.4	(135.3)	1,262.0	(1,146.0)	719.1	553.0
Can dollar	–	–	66.8	(49.3)	17.5	17.7
Euro	–	–	130.5	(122.0)	8.5	12.3
	738.4	(135.3)	2,231.4	(2,003.2)	831.3	779.1

Accounting policies

Basis of Preparation

Amlin plc, domiciled in the United Kingdom, is the ultimate Parent Company (the 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 £171.0 million (2005: £66.1 million).

The financial statements have been prepared on the historical cost basis except for financial investments, 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.

34 Cash and cash equivalent

	2006 £m	2005 £m
Cash at bank and in hand	2.2	0.7

35 Financial investments

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

	At valuation 2006 £m	At valuation 2005 £m	At cost 2006 £m	At cost 2005 £m
Participations in investment pools	22.9	15.1	22.9	15.1

36 Loans and receivables

	2006 £m	2005 £m
Amounts due from subsidiary undertakings	254.3	136.8
	2006 £m	2005 £m
Current portion	254.3	136.8

37 Investments in subsidiary undertakings

Company	Subsidiary undertakings £m
At 1 January 2006	787.4
Adjustments during the year	(1.2)
At 31 December 2006	786.2

The principal undertakings of Amlin plc at 31 December 2006 which are consolidated in these financial statements, all of which are wholly owned, operate in the UK or Bermuda:

Subsidiary undertakings	Principal activity	Registered in
Amlin Bermuda Ltd	Reinsurance company	Bermuda
Amlin Corporate Services Limited	Group service, employing and
	intermediate holding company	England and Wales
Amlin Investments Limited	Investment company	England and Wales
Amlin Plus Limited*	Lloyd’s service company	England and Wales
Amlin Underwriting Limited	Lloyd’s managing agency	England and Wales
AUT Holdings Limited	Intermediate holding company	England and Wales
Amlin Corporate Member Limited	Corporate member at Lloyd’s	England and Wales
AUT (No 2) Limited	Corporate member at Lloyd’s	England and Wales
AUT (No 6) Limited	Corporate member at Lloyd’s	England and Wales
AUT (No 7) Limited	Corporate member at Lloyd’s	England and Wales
AUT (No 8) Limited	Corporate member at Lloyd’s	England and Wales
Delian Beta Limited	Corporate member at Lloyd’s	England and Wales
Delian Delta Limited	Corporate member at Lloyd’s	England and Wales

* 60% owned by the Group

38 Property and equipment

	Leasehold land and buildings £m
Cost
At 1 January and 31 December 2006	1.9
Accumulated depreciation
At 1 January 2006	0.1
Charge for the year	0.1
At 31 December 2006	0.2
Net book value
At 31 December 2006	1.7
At 1 January 2006	1.8

39 Borrowings

Group cash generated from operations	2006 £m	2005 £m
Bank loans	–	241.0
Finance lease creditors	–	0.1
Subordinated debt	277.9	57.1
	277.9	298.2
Group cash generated from operations	2006 £m	2005 £m
Current portion	–	148.8
Non-current portion	277.9	149.4
	277.9	298.2

For details of the Company borrowings refer to note 24 in the notes to the Group accounts.

40 Dividends

The amounts recognised as distributions to equity holders are as follows:

	2006 £m	2005 £m
Final dividend for the year ended:
– 31 December 2004 of 5.0 pence per ordinary share	–	19.7
– 31 December 2005 of 6.2 pence per ordinary share	25.0	–
Interim dividend for the year ended:
– 31 December 2005 of 4.0 pence per ordinary share	–	15.9
– 31 December 2006 of 4.2 pence per ordinary share	22.4	–
	47.4	35.6

The dividends for 2005 were paid in a combination of cash and scrip dividend shares. The 2006 interim dividend was paid solely in cash. The amounts paid in cash and scrip dividend shares were as follows:

	2006 £m	2005 £m
Cash	47.4	30.5
Scrip dividend	–	5.1
	47.4	35.6

The final ordinary dividend of 7.8 pence per ordinary share for 2006, amounting to £41.7 million, payable in cash and a special dividend of 8.0 pence per ordinary share, amounting to £42.7 million, payable in cash, were approved by the Board on 2 March 2007 and have not been included as a liability as at 31 December 2006.

41 Cash generated from operations

	2006 £m	2005 £m
Pro fit before tax	167.1	63.1
Depreciation charge	0.1	–
Interest paid	24.7	9.2
Unrealised gains on investments	(0.3)	(2.0)
Net purchases of financial investments	(7.5)	(0.5)
Foreign exchange (gain)/loss	(10.0)	5.3
(Increase)/decrease in loans and receivables	(117.5)	68.2
Increase in trade and other payables	34.5	34.6
Other non-cash movements	2.2	(3.0)
Cash generated from operations	93.3	174.9

42 Related party disclosure

Full details of related party transactions are provided in note 32 to the consolidated financial statements.

43 Share based payments

Full details of share based payment plans are provided in note 21 to the consolidated financial statements.

© Copyright Amlin 2006