Accountability

Remuneration policies

Overall remuneration levels and factors specific to the non-life insurance underwriting sector

In determining individuals' remuneration, 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. Across all categories of staff the Group’s policy is to have regard to market median salaries for the role, with the potential for top quartile remuneration for top quartile performance. This policy aims to encourage and reward superior rather than merely average performance. Salaries are generally reviewed as at 1 April each year, with executive directors’ salaries being considered according to the same criteria as of those executives generally.

Remuneration is strongly influenced by the Lloyd’s sector in which the Group’s UK employees operate. Lloyd’s underwriting businesses tend to relate a significant proportion of the potential rewards of underwriters to the absolute profitability of the relevant underwriting unit. Typically such profit share schemes operate on an uncapped basis in money terms although they are capped as a percentage of the relevant profit pool which in turn is capped by the overall regulatory capacity and/or capital of the syndicate and the Group. Amlin follows this practice for staff for whom such market influenced remuneration structures are appropriate as the Committee believes that not to do so would put the Group at a competitive disadvantage. Similar remuneration structures and policies have been adopted for staff in Amlin Bermuda Ltd, taking account of local conditions and specific circumstances.

Structure of directors’ and employees' remuneration

The remuneration of the executive directors consists of three principal elements: (1) base salary, benefits and pension contributions; (2) shorter term performance rewards (on an annual or underwriting year basis); and (3) longer term performance rewards (on three or five year performance periods). The elements of performance rewards for senior executives differ between underwriters and nonunderwriters, as illustrated in the chart above. None of the performance reward plans require any initial payment from participants in order for them to be granted awards.

In 2007 an average of 64% (2006: 63%) of executive directors’ annual remuneration was performance related (including annual bonus or profit commission, but excluding long term incentive plans). The Committee believes that the balance between fixed and performance rewards is appropriate.The same remuneration structures are operated for senior executives below main Board level but usually with lower, although still significant, proportions of total remuneration being performance related.

Shareholding targets

An objective was set when a new long term incentive plan was introduced in 2006 that executive directors would retain or build up shareholdings in the Company to the value of at least 125% of their base salaries and other members of the Executive Management Group (currently the next five most senior executives) to the value of at least 50%. Where not already reached, these targets are intended to be met as current share plans vest. The shareholdings of all the executive directors were above the target throughout the year, mostly by a substantial margin. Of the five other members of the Executive Management Group, two already hold the target value of shares and three are expected to build up such shareholdings as incentive plans vest. The Committee believes that the combination of these shareholdings and the structure of performance incentives is ensuring that the interests of management and shareholders in the success of the Company are closely aligned.

All-employee share plans

The Company operates an HM Revenue and Customs approved Sharesave option scheme which was adopted in 1998 with a ten year life for new grants. The final offer under this scheme was made in March 2007. Each offer was open to all Group employees, including executive directors, who had been employed for more than a specified number of months at each grant. Exercises are not subject to any performance condition. As the Committee considers that the scheme has been successful in encouraging staff at all levels to build up interests, and subsequently shareholdings, in the Company at an acceptable accounting and administrative cost, the Board is proposing to the 2008 AGM that shareholders adopt a replacement Sharesave scheme, with annual offers intended from September 2008 onwards. Details of the new scheme, which has broadly the same terms as the one it replaces, are set out in the circular containing the notice of AGM.

In 2006 shareholders approved an HM Revenue and Customs approved all employee Share Incentive Plan (SIP). The SIP rules allow offers of Free Shares at no cost to employees. In 2006 the Committee adopted a policy of making an award of Free Shares each year, on an equal basis to all executive directors and staff (subject to a pro rata adjustment for part time employees and to an employment qualification period of approximately nine months), subject to the annual results. The quantum, between nil and the annual maximum level of £3,000 worth of shares per employee, is decided in the light of the ROE achieved in the previous year. As 2006 had achieved an excellent ROE of 34%, in March 2007 the Committee made an offer at the maximum level of £3,000. This was taken up by 97% of eligible employees. With 2007 having also produced an excellent ROE (37.8%), the Committee has decided to make another offer of £3,000 worth of Free Shares in March 2008.

The SIP also allows offers of Partnership Shares whereby employees may buy shares on a tax deductible basis. A special one-off offer of just £250 worth of Partnership Shares was made in December 2007. This was to enable staff to reinvest the B Share dividend paid out on their SIP Free Shares in January 2008. 164 of the 534 eligible employees and executive directors took up this offer.

Service agreements and their termination

The Group does not 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 notice period may apply. 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 potential contractual advantages of longer notice periods against the potential cost in the event of termination 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 a proportion of 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’s policy is to allow executive directors and other appropriate senior employees to accept one substantive non-Amlin related outside nonexecutive appointment, subject to permission being obtained in each case and to acceptable procedures for managing any potential conflicts of interest. Such appointments are in the public interest and can often provide useful experience for the executive concerned. Suitable outside appointments, including limited term secondments, relating to Amlin’s business, such as to Lloyd’s bodies, are encouraged on the additional ground that such appointments are often directly in the Company’s interest. Fees from outside appointments related to Amlin’s business are generally payable to the Group rather than retained by the employee concerned. In other cases, the Committee adopted a policy in December 2007 that the first £25,000 per annum of such fees earned would be retained by the employee, with any balance above that level being shared equally between the director, or employee, and the Group.

© Copyright Amlin 2007