Operating & Financial Review

Chief Executive’s statement

  Charles Philipps
  Chief Executive

Our primary objective is to create shareholder value. To deliver this we:

  • Have a very strong focus on the quality and profitability of underwriting.
  • Aim to grow the business over the long term but, in recognition of the cyclicality of our markets, will reduce income if the risk return relationship is unsatisfactory.
  • Will actively manage the balance sheet with a focus on return on equity.

This requires:

  • The retention of the right skills and experience.
  • An understanding of clients’ needs so that we can offer competitive products.
  • Operational excellence to deliver efficiently high service standards to clients and high quality underwriting and management information.
  • Sound risk management, an ability to recognise changing risk and reward dynamics and to adjust our underwriting and investment portfolios accordingly.

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.