Operating & Financial Review
Chief Executive’s statement
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We had an excellent year in 2006, with all parts of the organisation working hard to move Amlin forward.
We had high expectations for the year financially with strong underwriting conditions in most areas and prospects for a significant hardening of catastrophe exposed lines. Having raised equity at the end of 2005 it was important that Amlin Bermuda had a successful start and, more importantly, created a sound foundation on which to build. We also had to address a major change in catastrophe exposures when we decided not to renew the retrocessional reinsurance protecting Syndicate 2001.
We have continued to invest in systems and process change, leading the Lloyd’s market in a number of projects aimed at improving our competitiveness and attraction to brokers and clients.
Financial results
In 2006 we increased gross premium by 12.1% to £1.1 billion. This reflected good growth, particularly through Amlin Bermuda, in catastrophe exposed business where prices strengthened through the year up to the important 1 July renewal season when a large proportion of US wind exposures were renewed.
For more details please see Underwriting – focused on risk and return.
The profit before tax of £342.7 million, up 83.6% over 2005, was well ahead of initial expectations and was partly the result of negligible catastrophe events in a year when prices had reacted so strongly to the extraordinary hurricane activity of 2004 and 2005. Good performance was nevertheless achieved in most lines and very acceptable combined ratios recorded in areas such as our UK commercial division where conditions have been under increasing pressure for the last two years.
For more details please see Outstanding financial performance.
Return on equity, our most important internal performance metric, was 34%, the fourth successive year in excess of 20%, bringing our weighted average ROE since, and including, 2001 to 22.7%. We set a goal in 2001 to achieve a cross cycle average ROE of at least 15% in the belief that, by managing Amlin well we could achieve it, and that, being ahead of our theoretical cost of equity, we would create shareholder value.