Performance

A softening market but off historic peaks

Rating movement by UK divisions

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In 2007, the average renewal rate across our portfolio was a reduction of 5%, with a retention rate of 77%. The graph above illustrates the ratings experienced by each of our divisions over a 15 year period (excluding Amlin Bermuda).

1 January is a major renewal date for a number of key classes. Amlin has written total income (before deduction of brokerage) to 31 January 2008 of £324 million. This is a 5% reduction on the previous year. Overall renewal rates for Amlin have declined by 8% with a retention ratio of 86%. We believe that at these rating levels we continue to write business which will produce an acceptable return. Amlin Bermuda increased gross premium written by 25% to US$142 million (2007: US$114 million).

Amlin’s objective is to deliver a market leading return on equity. Through the soft part of the underwriting cycle we seek to achieve this via disciplined underwriting, with a sustained focus on the acceptability of underwriting margin, rather than seeking growth in increasingly competitive markets.

In recent years, we have established a track record of outperformance against many of our competitors, but historically the outperformance of the core syndicate has grown as market conditions soften. This has resulted from disciplined underwriting, with exposures reducing as rates fall. We intend to stick to our core successful underwriting principles in the coming period.

In 2008 we believe that our underwriting performance will be supported by healthy rates in reinsurance, areas of our property account and the Marine division. Rates in these classes have been near historic peaks through 2007 and our portfolio will remain capable of generating a satisfactory margin over the next twelve months.

Two of our divisions continue to experience significant pressure from poor pricing – Aviation and UK Commercial.

Most airlines renew in the fourth quarter, and in December 2007, there was still no sign of a change in direction of rates as competitors chase market share based on historic profitability.

Average combined ratio 3003 - 2006

Gross ultimate loss ratios (GULR) for Amlin vs Lloyd's

The UK commercial market is trading at low profit margins and, while we anticipate market conditions may remain competitive in 2008, we expect to see some signs of improvement towards the end of 2008 and into 2009.

Since Hurricane Katrina in 2005 we have experienced increased divergence in the cyclical patterns between our classes. It is very possible that we will experience an upturn in the UK commercial market as deterioration in marine, property and reinsurance markets takes place. If this occurs, it will provide the potential for better returns than previously envisaged during the next low in the London market insurance cycle.

On the whole, the financial outlook for 2008 is good, subject to the extent of major catastrophe activity in the year. We are well placed to perform in what will inevitably be a more challenging year.

© Copyright Amlin 2007