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DIRECTORS' REMUNERATION REPORT
Status and shareholder approval of report
This report has been prepared in accordance with the Directors’
Remuneration Report Regulations 2002 and the Listing Rules of
the Financial Services Authority. As required by those regulations,
the sections entitled ‘Remuneration received’, ‘Executive directors’
pensions’, ‘Executive directors’ Capital Builder Plan participations’
and ‘Executive directors’ share options’ have been audited by Deloitte
& Touche LLP. The remainder of this report is unaudited.
The Notice of Annual General Meeting of the Company, to be held
at noon on Wednesday 19 May 2004, which is being delivered to
shareholders with this Annual Report, contains notice of the intention
of the directors to move an ordinary resolution at that meeting
approving this report for the year ended 31 December 2003.
Remuneration committee membership, advisers and terms of reference
The Remuneration Committee (the Committee) in 2003 comprised
of four non-executive directors: Mr Kennedy (the Committee’s
Chairman), Mr Kemp, Mr Sanders and Mr Taylor. On 1 January 2004
Mr Taylor, who is Chairman of the Company, was replaced on the
Committee by the non-executive Deputy Chairman, Lord Stewartby.
Mr Kemp also left the Committee in January 2004. All members of
the Committee during and since the year under review were classified
by the Board as independent throughout their periods of service on
the Committee.
The Committee has appointed New Bridge Street Consultants LLP
(NBS) to advise it generally on senior remuneration policy. In
particular, NBS has advised the Committee since 1999 regarding its
policies on the grants of executive share options and, more recently,
on the design and implementation of long term incentive plans and
a Group Bonus Scheme. NBS also advises executive management
from time to time on other remuneration matters which may not be
within the direct purview of the Committee; and advises the Board
as a whole on matters relating to the remuneration and terms of
appointment of non-executive Directors of the Company.
A statement regarding the Company's relationship with NBS can be found in the corporate governance section of the Amlin website
as published in December 2003 and is also available on request from the Secretary on request.
Two firms of lawyers, Linklaters and Dechert, advise the Committee
from time to time on specific matters. Such firms have not been
appointed directly by the Committee as their work is usually a byproduct
of their appointments as solicitors to companies in the Group
on a range of matters.
The Committee is assisted by the Group’s head of Human Resources
and by advice and recommendations from the Group Chief Executive,
who is usually invited to attend its meetings other than when items
specific to himself are being considered. Since the year end, the
Chairman of the Company has also continued to assist the Committee
on certain matters. The Company Secretary acts as secretary to the
Committee and advises it on certain specialist matters such as
aspects of share options.
The Committee’s terms of reference, which are available on the
Company’s website, may be summarised as being to determine the terms
and conditions of employment of each executive director of the Company
and the remuneration of certain other senior employees (in each case
including exit terms), and to recommend to the Board the policies of the
Group in relation to senior executive remuneration generally. Since
November 2003 the terms of reference have also included determining
the Chairman’s remuneration. The Committee seeks to act in accordance
with the Principles of Good Governance and Code of Best Practice (the
Combined Code) and, to that end, new terms of reference for the
Committee reflecting the new Combined Code on Corporate Governance,
which was published in July 2003 and applies to the Company from 1
January 2004, were adopted by the Board in November 2003. These
did not alter the fundamental role of the Committee but have refined
and extended its duties in some areas. Details of the Group’s compliance
with the Combined Code, including more details of the independence of
members of the Committee, are contained in the Statements on
corporate governance.
Remuneration committee meetings
The Committee met six times during the year, when attendance by
Committee members was as follows:
Remuneration Committee attendance 2003
| Committee member |
Number of Committee
meetings attended |
|
| K T Kemp |
5 |
| J M Kennedy |
6 |
| J R Sanders |
5 |
| R J Taylor |
6 |
|
| Average % attendance |
91% |
|
Five of the meetings were substantive meetings and one was
to formalise a particular approval. Excluding the latter meeting,
attendance was 100%.
Remuneration policies
Overall remuneration levels
The Group’s policy is to offer appropriate remuneration packages
to attract, retain and motivate directors and other Group employees
having the experience and quality required by the Group. In
determining such remuneration, the Group has regard to the
performance of the individual in the role and to remuneration
statistics for the non-life insurance sector in which the Group
operates and, where applicable for certain roles, wider remuneration
statistics. A formal job evaluation process has also been used in the
salary review process from 2003 onwards.
Certain aspects of remuneration are influenced by the Lloyd’s sector
in which the Group operates and competes for staff. Lloyd’s managing
agencies tend to relate a significant proportion of potential rewards,
particularly those of underwriters, to the profitability of the relevant
underwriting unit. Market practice is that such ‘profit commission’
schemes are on an uncapped basis in money terms but they are
capped as a percentage of the relevant profit pool which in turn is
capped by the overall regulatory capacity of the syndicate. Amlin
follows such Lloyd’s market practice for staff for whom such market
influenced remuneration structures are appropriate. Across all
categories of staff the Group’s policy is to have regard to market
median salaries, but with the potential for top quartile performance
related remuneration if top quartile performance is achieved. This
policy aims to encourage and reward superior rather than merely
average performance. There are no remuneration factors specific to
the Group beyond the ones described above relating to the Lloyd’s
insurance sector.
Back to top
Structure of Directors’ and Employees’ Remuneration
Remuneration of the executive directors and other senior employees
consists of three principal elements: (1) base salary, benefits and
pensions; (2) shorter term performance rewards; and (3) longer term
performance rewards. A significant proportion of executive directors’
and senior employees’ remuneration is performance related. At
present there are no significant changes to remuneration policy or
structure currently planned in respect of (1) or (2). Material potential
changes to longer term performance rewards for non-underwriters are
referred to in the relevant section below.
Base salary, benefits and pensions
In addition to base salary, executive directors and other employees
are generally entitled to private health insurance, cover for death in
service and disability, and membership of a pension scheme. Senior
staff, including executive directors, also receive a car allowance.
Company cars, other than those required for substantial business use,
are no longer provided.
The Company pays a percentage of base salary into either a Group
occupational or personal pension plan. Executive directors participate in
the relevant group pension plans on the same basis as other senior
employees who are not directors, with the exception of Mr Stace whose
pension arrangements from prior to the acquisition by the Group of his
own company were maintained until his retirement from executive
office on 31 December 2003. In all cases, pensionable salary is base
salary only and the arrangements include dependants’ pensions and
death in service cover. The Group has both defined contribution and
defined benefit schemes. The Group’s policy is not to enter into new
defined benefit pension commitments and thus the relevant sections of
all such schemes have been closed to new entrants since 1998.
In respect of defined contributions, the Group contributes a percentage
of base salary depending on seniority, age and the percentage of salary
(if any) that the employee chooses to contribute. In respect of those
with defined benefits, the Group contributes at rates which vary
according to actuarial advice in order to achieve the required level of
pension in relation to final salary and years of service. All but one
closed scheme, in which no current director participates, involved an
element of employee contribution during the year. The Committee
agreed during the year that employee contribution rates would be
standardised at 5% with effect from April 2004.
In the case of those higher paid employees, including directors, in
respect of whom the Group is unable to contribute the full operative
percentages of base salary into the relevant group pension scheme as
a result of the Inland Revenue earnings cap, the Group makes extra
contributions through a Funded Unapproved Retirement Benefit
Scheme set up for each such employee.
The Group’s pension arrangements are currently being reviewed
in order to decide what changes might be needed to take account
of the Government’s recent pension reform proposals.
Shorter term performance rewards: annual bonus scheme
for non-underwriting directors and employees (Group
Bonus Scheme)
The Group’s shorter term performance incentives consist, in the case
of those executive directors and other employees who are not part
of an underwriting division, of a Group Bonus Scheme, which was
introduced in its present form from 2002. The bonus payments
to Messrs Hextall and Philipps reported below are pursuant to this
scheme. The section of the scheme applicable to these executive
directors and other participating senior employees is designed
to reward and incentivise them against a mixture of business
performance, measured by reference to the Group’s return on equity
compared with target returns set by the Committee each year, and
the individual’s performance against agreed and stretching personal
objectives. The mix of business and individual bonus elements varies
by seniority, with 70% of the potential target reward at the most
senior level, including participating executive directors, being
rewarded on Group business performance and 30% on personal
performance. The total on-target and maximum bonus levels also
vary by seniority, up to a maximum of 100% of base salary for
participating executive directors.
The scheme does not apply to anyone with an agreed leaving date.
Mr Stace, an executive director during the year with an agreed
retirement date from executive office of 31 December 2003,
therefore did not participate in the scheme.
Shorter term performance rewards: profit share for
underwriters (Profit Commission Scheme)
Shorter term incentives for underwriters and certain other underwriting
division staff (whether or not they are executive directors of Amlin plc)
consist principally of a profit share relating to syndicate profits in
respect of each Lloyd’s year of account. The current executive directors
who participate in this are Messrs Carpenter and Holt. The scheme
divides rewards between those related to the performance of the
relevant participant’s division and those related to the performance
of the whole of the Group’s managed syndicate (Syndicate 2001).
Rewards are also divided between those which are purely calculated
as a percentage of underwriting profit and those relating to personal
performance and/or service standards. The maximum percentage of
each division’s underwriting profit which may be paid out under the
scheme in respect of each Lloyd’s year of account up to 2003 is 5.0%
(4.5% from 2004) unless the division has achieved a superior result for
its Lloyd’s sector of business in which case a slightly higher percentage
may apply. The percentage has reduced from 2004 as a result of a
number of the previous participants in the scheme who are less directly
responsible for underwriting results having been transferred to the
Group Bonus Scheme, relating their rewards to overall Group and their
own personal performance.
Generally rewards are paid at the end of 36 months when the
particular Lloyd’s year of account closes but the Company may flex
this from time to time to take account of market conditions. In the
past, rewards were phased over a period of years after the 36 months,
which could act as a retention tool, but in certain profitable
underwriting conditions, as at present, an element of earlier payment
before the expiry of 36 months may be justified and will be a closer
reflection of the Group’s published results. Such early payment,
representing 30% of the total payment based on current forecasts,
has been agreed by the Committee in respect of the 2002 year of
account. Such variations in the timings of payments mean that
reported payments in respect of any particular calendar year, as
included for Messrs Carpenter and Holt later in this report, do not
reflect profitability in that particular year relative to others.
Whilst the precise structure and payment basis of the Profit
Commission Scheme therefore varies from year to year, the underlying
policy is to reward those involved in underwriting, on a year of
account basis, according to the performance of both their own
division and the syndicate as a whole.
Longer term performance rewards: Long Term Incentive Plan
for senior underwriters (Capital Builder Plan)
The Amlin Capital Builder Long Term Incentive Plan (Plan) was adopted
at the Annual General Meeting in 2001 to reward senior underwriters if
they exceed long term target underwriting returns. The basis of the Plan
is that participants will benefit to the extent that, in their particular
class of business (or, in some cases, a blend of classes of business),
target returns on capital are exceeded over a specified performance
period, which is usually five years. Participants will share, at a class
of business level, in up to 6% of the underwriting profits (gross
premiums less net claims and reinsurance costs) which are in excess of
the relevant target return over the duration of the performance period.
Up to around a further 4% of such excess profits may be allocated at
a divisional or whole syndicate level to the heads of each underwriting
division. Underwriting profits as defined in the Plan’s rules are reduced
in respect of the years of account up to 2003 to take account of the
Group not owning 100% of Syndicate 2001’s capacity until 2004.
Rewards under the Plan may be paid, at the Company’s discretion,
in either cash or shares in three annual tranches following the end
of the performance period.
The first five year measurement period under the Plan began on
1 January 2001 and, other than for new joiners or promotions,
it is not anticipated that further participations will be offered until
this five year period has expired. To date one recruit has joined
the Plan part way through the five years (from 2003) but this has
been accommodated by an existing participant giving up part of his
participation. The benchmarks for each relevant class of business
set for the first measurement period on an aggregated basis and after
allowing for estimated expenses and syndicate investment income
but before tax, are estimated to correspond to an overall benchmark
return on allocated capital of at least 15% per annum over a full
insurance cycle.
The Committee believes that the Plan will act increasingly as a
significant reward, retention and recruitment tool for those underwriters
who are likely to be most significant in determining the Group’s future
underwriting profitability and development. A total of 25 underwriters
participate in the Plan.
Details of the participations by the two underwriters who are directors
of the Company, Messrs Carpenter and Holt, including a current
estimate of their rewards in respect of the 2001 to 2003 years of
account, are set out later in this report. As stated there, these
estimated rewards are not current entitlements and will only be paid
if the estimated performance to date is sustained over the final two
years of the measurement period.
Longer term performance rewards: proposed Long Term
Incentive Plan for senior non-underwriting management
(Performance Share Plan)
In late 2003 the Committee initiated consideration of the possible
introduction of a long term incentive plan for a small number of
members of senior non-underwriting management, including the nonunderwriting
executive directors. This would play the equivalent role
in such persons’ overall remuneration packages as the Capital Builder
Plan described above provides for senior underwriters. Such plan
would take the form of a Performance Share Plan whereby participants
each year would be awarded shares (or options), vesting (or
exercisable) after five years if the Company exceeds demanding
financial targets over that period.
The Committee is being advised by NBS and, at the date of this
report, is nearing completion of consideration of the details of the
Performance Share Plan, which would be subject to shareholders’
approval in General Meeting. Further details of the proposal will be
included in the letter to shareholders accompanying the relevant
Notice of Meeting.
Longer term performance rewards: share options
(Option Schemes)
Executive share options are provided as a longer term reward
to executive directors and other employees above a certain level of
seniority. Any grant of executive share options is at the discretion of
the Committee. The senior underwriters, including executive directors
who are underwriters, who participate in the Capital Builder Plan
described above are also eligible to be granted options. It has been
the Committee’s policy to date to grant options to such underwriters
over fewer shares than would be the case if they did not participate in
the Capital Builder Plan. In the event that a Performance Share Plan
for senior non-underwriting management has been proposed with a
view to its first measurement period commencing from 2004, this will
also be taken into account in the levels of option grants to such
persons from 2004’s grant onwards.
Generally a grant of options is made each year within a 42 day time
limit after the preliminary results announcement. At the most senior
level, the present policy is that grants are made each year, subject to
applicable overall limits, over shares valued at up to around one times
salary. At less senior levels, annual grants are over shares representing
lesser multiples of salary. This general pattern is likely to be followed
again in 2004, except that participants in any new Performance Share
Plan will be granted options over fewer shares than would otherwise
have been the case.
All grants under the currently operated schemes are subject to
performance conditions which are set by the Committee. Details
of these are set out in the section entitled ‘Details of share options
schemes’ below and have varied from grant to grant, but the intent
has been to ensure that options may not be exercised (except in
special circumstances such as redundancy) unless the performance of
the Company over the measurement period has exceeded the median
of that of comparable companies and, in addition, the Company has
returned a satisfactory overall financial performance. These conditions
are being tightened from the forthcoming 2004 grant onwards. First,
to the extent that an individual’s annual grant is over shares valued
at over 50% of salary it may only be exercised if the Company is an
upper quartile performer against the group of comparable companies.
Second, the re-testing provisions are being significantly tightened.
Instead of the previous rolling three year measurement periods with
unlimited re-testing during the life of the option, all performance will
be measured from the date of grant. If the conditions are not satisfied
over the initial three years, any unsatisfied condition will only be
re-tested once, after a further two years. If the conditions are not met
after re-testing, the options will lapse. The Committee considers that
continuation of this limited degree of re-testing is justified and fair in
view of the potentially volatile nature of the sector in which the
Company operates, non-life insurance underwriting, and the relatively
modest values of shares over which options are granted.
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Service agreements and their termination
The general policy of the Group is not to 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 twelve month period of notice may be
offered. All of the current executive directors of the Company have
contracts requiring twelve months’ notice of termination on either
side. The Company is mindful of the need to balance the contractual
advantages to the Group in some circumstances of longer periods
of notice against the potential cost arising from such contracts in the
event of termination of employment 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 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, including the
arrangements regarding the retirement from executive office of Mr
Stace, are set out in the section entitled ‘Executive directors’ service
contracts’ below.
Table 1: Directors’ remuneration received
|
Executive
directors’
salaries
£000 |
Non-
executive
directors’
fees
£000 |
Bonuses
and/or profit
commission
£000 |
Benefits
in kind/
allowances
£000 |
Total year
to 31 Dec
2003
£000 |
Total year
to 31 Dec
2002
£000 |
|
| B D Carpenter |
204.5 |
- |
526.8 |
14.0 |
745.3 |
555.9 |
| R A Hextall |
188.7 |
- |
183.1 |
14.2 |
386.0 |
286.7 |
| A W Holt |
247.0 |
- |
214.9 |
14.0 |
475.9 |
353.9 |
| K T Kemp |
- |
32.6 |
- |
- |
32.6 |
28.8 |
| J M Kennedy |
- |
39.2 |
- |
- |
39.2 |
34.5 |
| R Mylvaganam |
- |
49.4 |
- |
- |
49.4 |
44.8 |
| C E L Philipps |
278.7 |
- |
265.5 |
14.0 |
558.2 |
456.0 |
| J R Sanders |
- |
32.3 |
- |
- |
32.3 |
30.8 |
| J L Stace |
97.0 |
- |
50.0 |
11.6 |
158.6 |
251.2 |
| Lord Stewartby |
- |
48.2 |
- |
- |
48.2 |
45.3 |
| R J Taylor |
- |
106.6 |
- |
- |
106.6 |
94.0 |
| R S Joslin |
- |
32.6 |
- |
- |
32.6 |
28.8 |
|
|
1,015.9 |
340.9 |
1,240.3 |
67.8 |
2,664.9 |
2,210.7 |
|
Outside appointments
The Company allows executive directors and other appropriate senior
employees to accept a maximum of one substantive non-Amlin
related outside non-executive appointment, subject to permission
being obtained in each case and to acceptable procedures for
managing any potential conflicts of interest, recognising that such
appointments can be in both the Company’s and the wider public
interest. Suitable outside appointments relating to Amlin’s business,
such as to Lloyd’s bodies, are encouraged on the basis that such
appointments are often directly in the Company’s interest. Except for
those with other than full time employment contracts, fees from
outside appointments are generally payable to the Company rather
than retained by the employee concerned.
Executive directors’ service contracts
The dates of the current service or employment contracts with the
Company (and/or a wholly owned subsidiary) of each current executive
director, all of whom served throughout the year, are as follows:
|
Date of current service
or employment contract |
|
| B D Carpenter |
17 February 1997 |
| R A Hextall |
26 November 1999 |
| A W Holt |
11 December 2001 |
| C E L Philipps |
20 February 1997 |
|
In each case salaries have been periodically increased since the
original contract date.
In addition to the current executive directors, Mr Stace was employed
throughout the year pursuant to a service contract dated 24 January
1997, as amended by a supplemental agreement dated 23 November
2001. From 1 November 2001 to 31 December 2002 Mr Stace was
required to commit an average of three days per week to his duties
rather than committing on the previous full time basis. This
commitment was reduced to two days per week from 1 January 2003
until his voluntary termination date, agreed in 2001, of 31 December
2003. Mr Stace’s base salary during 2003 was reduced to £97,000
per annum. His annual car allowance was also reduced on 1 January
2003 to £6,800. In November 2003 Mr Stace accepted the Board’s
invitation to remain on the Board as non-executive Vice Chairman
until the Annual General Meeting to be held on 19 May 2004, when
he will leave the Board.
All of the continuing executive directors’ service or employment
contracts are on a full time basis, provide for 12 months’ notice of
termination on either side and automatically terminate on the
director’s sixtieth birthday. There are no special provisions for
compensation on termination other than that the Company has the
right to pay salary (and in the case of Mr Holt also an amount equal
to other contractual benefits) in lieu of any required period of notice.
Executive directors’ service or employment contracts in force during the
year are available for inspection at the Company’s registered office, in
Mr Stace’s case until he leaves the Board on 19 May 2004
Remuneration received
The remuneration received in respect of the year ended 31 December
2003 by each of the directors, excluding pension contributions, all of
whom served throughout the year, was as shown in table 1 above.
The fees of Mr Mylvaganam in 2002 and 2003 include fees of
£16,000 and £16,800 respectively paid to him by a subsidiary of
the Company, Amlin Underwriting Limited, of which he is also a
non-executive director. The fees of Lord Stewartby in 2002 and 2003
include fees of £5,000 and £2,500 respectively paid to him by Stace
Barr Angerstein PLC, a company in which the Group has an
investment and of which he was a non-executive director appointed by
the Group until July 2001 and, until May 2003, an alternate director.
The bonuses and/or profit commission amounts are those paid or
payable in respect of the year. Messrs Hextall and Philipps received
performance bonuses under the Group Bonus Scheme described above.
Mr Stace received a discretionary bonus based on the Committee’s
assessment of his contribution to the Group during the year. Mr Holt’s
profit commission comprised a final instalment of Profit Commission
Scheme payments in relation to his former Coles division in respect of
the 1999 year of account, his total Profit Commission Scheme payment
in relation to Syndicate 2001 as a whole in respect of the 2001 year of
account (his Reinsurance & non-marine participation for that year not
yielding a payment) and a first instalment on his 2002 year of account
Profit Commission. Mr Carpenter’s profit commission comprised his
total payment in relation to his Amlin Insurance Services division and
Syndicate 2001 as a whole in respect of the 2001 year of account, and
a first instalment of the same in respect of the 2002 year of account.
Mr Sanders waived £2,600 of his non-executive fee in respect of
2003 (2002: nil). The fee stated above does not include the waived
element. He has waived future such fees of £3,200 in respect of the
period from 1 January 2004 to 19 May 2004.
No payments were made during the year in respect of any director
leaving the Board or ceasing to be employed by the Group.
Table 2: Directors’ pension details
|
|
Defined contributions |
|
|
|
| Defined contributions |
Contributions
for director
for the year
ended 31
December
2003
£000 |
Contributions
for director
for the year
ended 31
December
2002
£000 |
|
| R A Hextall |
22.7 |
18.4 |
| C E L Philipps |
56.5 |
50.8 |
| J L Stace |
19.4 |
36.2 |
|
|
|
Defined benefit |
|
|
|
| Defined benefit |
Increase in
accrued
pension
during year
ended 31
December
2003
£000 |
Total
accrued
pension at
31 December
2003
£000 |
Transfer
value of
accrued
pension at
31 December
2002
£000 |
Transfer
value of
accrued
pension at
31 December
2003
£000 |
Transfer value
of the
increased
in accrued
pension
during
year
£000 |
Change
in transfer
value during
year after
subtraction of
contributions
made by
director
£000 |
|
| B D Carpenter |
2.1 |
34.1 |
225.4 |
298.6 |
18.4 |
68.3 |
| A W Holt |
8.2 |
174.9 |
1,577.5 |
2,254.2 |
105.7 |
664.4 |
|
Executive directors’ pensions
The pension details for either defined contribution (including personal
pension) schemes or defined benefit schemes, as applicable for each
executive director (non-executives not being eligible), all of whom
served as executive directors throughout the year, are shown in table
2 above. Increases in accrued pensions during the year exclude those
due to inflation. The transfer values of increases during the year are
the transfer values of such pre-inflation increases. Transfer values as
at 31 December 2002 and 2003 are calculated in accordance with
guidance published by the Institute of Actuaries and the Faculty of
Actuaries dated 6 April 2001 and 4 August 2003 respectively. The
material increases in transfer values during the year, which followed
decreases the previous year, not only result from increases in accrued
pensions year on year, but also from revisions to mortality, inflation
and equity yield assumptions during the year.
Executive directors’ Capital Builder Plan participations
An outline of the terms of the Capital Builder Plan is set out in the
‘Remuneration policies’ section earlier in this report. The applicable
classes and divisions of the business which will determine the
rewards payable to each of the directors of the Company participating
in the Plan are as follows:
|
Class of business/division |
|
| B D Carpenter |
Fleet
AIS division
Whole of Syndicate 2001
|
|
| A W Holt |
Catastrophe
Risk Excess of Loss
Marine Excess of Loss
Total of Excess of Loss accounts
Reinsurance & non-marine division
Whole of Syndicate 2001
|
|
At this stage it is still too early to estimate with any degree of
accuracy the rewards that any director might receive from the Plan in
two to four years’ time in respect of the total measurement period to
31 December 2005. However, on the basis of the current estimated
returns in respect of the 2001 to 2003 Lloyd’s years of account only,
the rewards of each of the directors in respect of those three years
are estimated as shown in table 3 below.
No payments have yet been made pursuant to the Plan and none
of the above prospective rewards are payable until early 2006. It is
emphasised that the prospective rewards set out in the above table
could be reduced, as well as increased, by changes to the projected
performance of the 2002 and 2003 years of account and by
underwriting performance over the final two years of account of
the five year measurement period.
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Details of share option schemes
Introduction
The Group has a number of share option schemes relating to the
Company’s shares, in which executive directors and other senior
employees participate, and a Sharesave scheme in which all eligible
employees, including executive directors, may participate. Where
relevant, such schemes have been approved by shareholders. An
overview of each scheme in which directors participate, each of their
performance conditions and, where applicable, the current position
regarding the fulfillment of performance conditions, is set out below.
Table 3: Directors’ estimated Capital Builder Plan rewards
|
Class/division |
Estimated reward
for 2001 to 2003
as at 31
December
2003
£000 |
Estimated reward
for 2001 and 2002
as at 31
December
2002
£000 |
|
| B D Carpenter |
Class |
326.6 |
164.8 |
|
AIS division |
217.7 |
112.6 |
|
Syndicate |
61.4 |
38.5 |
|
|
Total |
605.7 |
315.9 |
|
| A W Holt |
Classes |
402.3 |
125.2 |
|
Reinsurance & non-marine division |
496.6 |
277.7 |
|
Syndicate 2001 |
153.4 |
96.3 |
|
|
Total |
1,052.3 |
499.2 |
|
The schemes set up by the former Murray Lawrence group prior to
its merger with the Company in 1998 involve options over existing
shares held by the Group’s Employee Share Ownership Trust (ESOT)
rather than over new shares in the Company to be issued in the
future. Options granted in 1997 and 1998 under the Amlin Executive
Share Option Schemes (which were set up by the Company) were
made entirely over new shares to be issued in the future. In the cases
of grants from 1999 to 2002, some of the options granted each year
were on the basis that they would, when exercised, be satisfied out
of shares held by the ESOT. The grant made in 2003 was over new
shares only but use of the ESOT for future grants is likely to resume
in due course.
The rules of the Amlin Executive Share Option Schemes and the
Sharesave Scheme each include limits on the overall number of
unissued shares over which options may be granted. These are the
Company’s only option schemes under which new shares may be
issued. Grants over new shares under the executive schemes, after
deducting any such options which have lapsed, are limited to 5%
of the issued share capital in any ten year period. Grants over new
shares under any scheme are also limited to 5% over five years
and to 10% over ten years. At 31 December 2003, the numbers
of shares, and percentages of the year end shares in issue of
390,871,916 shares, relating to each of these limits were as follows:
|
Proportion of
Shares utilised |
Shares in issue |
|
| Executive 5% limit over 10 yrs |
12,608,807 |
3.23% |
| All schemes 5% limit over 5 yrs |
12,193,360 |
3.12% |
| All schemes 10% limit over 10 yrs |
14,552,801 |
3.72% |
|
None of the schemes require the payment of any consideration for the
grant of options other than the Murray Lawrence 1997 scheme when
a nominal consideration of £1 per grant of option was paid.
Adjustments to both numbers of shares under option and exercise
prices were made in 2002 to the options under all schemes which
were then outstanding, to take account of share issues made that year.
Performance Conditions of the Amlin Executive Share Option
Schemes (the Amlin Schemes)
The Amlin Schemes are the only schemes operated by the Group
(other than the Sharesave scheme) under which options continue to
be granted to executive directors. The Amlin Schemes comprise both
an Inland Revenue approved and an unapproved executive share
option scheme. Both were approved by the Company’s shareholders
in 1997 and options have been granted in that and each subsequent
year. In April 2003, options were granted at an exercise price of
118.0p per share over a total of 2,456,000 new shares. No options
were granted in 2003 out of the ESOT.
The options granted in 1997 and 1998 may only be exercised if the
total shareholder return of the Company, over a three year period,
exceeds that of the FTSE 100 index. Additionally, there are secondary
targets based on achievement of levels of financial performance.
These depend on the role of the executive concerned and are only
relevant if the primary condition is fulfilled. For directors of the
Company, these targets relate to average returns on capital employed.
The options granted in 1999 to 2003 inclusive may only be exercised
if (a) the total shareholder return of the Company, over a three year
period, exceeds that of the median member of a comparator group
of insurance companies and (b) the Remuneration Committee is
satisfied that the underlying financial performance of the Company
has been satisfactory. The comparator groups of companies agreed by
the Committee at the time of the grants in each of these years were,
in addition to Amlin, as indicated by the stars in table 4 below.
The changes in performance conditions set under these schemes have
been made to reflect the Company’s development. In 1997 and 1998
the Company was an investment trust with an investment portfolio
designed to track the FTSE 100 Share Index, with the purpose of
enhancing such equity returns through Lloyd’s underwriting. By 1999
the Company was no longer structured as an investment trust and was
suitable to be measured against its peers in the insurance sector. The
criteria for inclusion in the comparator groups of companies has been
refined each year since 1999, principally to exclude the shares of
less comparable companies.
All of the secondary performance conditions are intended to provide
a measure of absolute financial performance alongside the relative
performance measures of the primary conditions.
Measurement of performance conditions of the Amlin
Schemes to date
Performance is first measured against the relevant conditions three
years after grant and, for all existing option grants, if the conditions
are not fulfilled, may be re-measured over subsequent rolling three
year periods. As outlined earlier in this report, future option grants
will be subject to stricter re-testing provisions.
Table 4: Comparator companies for options performance conditions
|
1999 |
2000 |
2001 |
2002 |
2002 |
|
| Allied Zurich |
* |
* |
|
|
|
| Atrium Underwriting |
* |
|
* |
* |
* |
| Beazley |
|
|
|
|
* |
| BRIT Insurance Holdings |
* |
* |
* |
* |
* |
| CGU/CGNU/Aviva |
* |
|
|
|
|
| Chaucer Holdings |
|
|
* |
* |
* |
| CLM Insurance Fund |
* |
|
|
|
|
| Cox Insurance Holdings |
* |
* |
* |
* |
* |
| Domestic & General Group |
* |
* |
* |
* |
* |
| GoshawK Insurance Holdings |
* |
|
* |
* |
* |
| Hardy Underwriting Group |
|
|
|
* |
* |
| Highway Insurance Holdings |
|
* |
* |
* |
* |
| Hiscox |
* |
* |
* |
* |
* |
| Independent Insurance Group |
* |
* |
* |
|
|
| Jardine Lloyd Thompson |
* |
* |
|
|
|
| Kiln |
* |
|
* |
* |
* |
| Lambert Fenchurch Group |
* |
|
|
|
|
| LIMIT |
* |
* |
|
|
|
| Royal & Sun Alliance Insurance Group |
* |
* |
* |
* |
* |
| SVB Holdings |
* |
* |
* |
* |
* |
| Wellington Underwriting |
* |
|
* |
* |
* |
|
With regard to the options granted in May 1997 and September
1998, the Company’s total shareholder return exceeded that of the
FTSE 100 index over the three years to May 2002 and September
2002 respectively and accordingly all of such options have met their
primary performance conditions.
The secondary condition in respect of the 1997 and 1998 grants for
holding company executives, including two directors of the Company,
Messrs Philipps and Stace, was related to returns on capital employed,
adjusted for certain factors relevant to the then structure of the Group.
To date the Committee has determined that this condition has not
been satisfied and therefore the options granted to holding company
executives under the Amlin Schemes in 1997 or 1998 are not yet
ordinarily exercisable. The secondary performance conditions in
respect of these options will be considered again by the Committee
after the relevant anniversaries later in 2004.
The performance against the primary conditions of those grants from
1999 which have reached the end of their first three measurement
periods, have been as follows:
|
Total shareholder
return after 3 years |
Ranking against
performance |
|
| 1999 grants |
16% |
4th out of 18 |
| 2000 grants |
47% |
2nd out of 12 |
| 2001 grants |
36% |
3rd out of 14 |
|
Accordingly, the Committee has confirmed that the primary conditions
of each of the 1999, 2000 and 2001 grants of options have been
satisfied.
The Committee concluded during 2002 in respect of the 1999 grants
that the underlying financial performance of the Company had not
been sufficiently satisfactory over the three years to 30 June 2002
for the secondary condition to have been fulfilled at that date. The
Committee considered this condition again shortly after 30 June
2003 and concluded that it had been satisfied on second testing.
It also concluded that the similar secondary condition in respect of
the 2000 grant, measured over the three year period to 31 December
2002, had been satisfied on first testing.
The secondary condition of the 2001 grant was assessed immediately
prior to the publication of the Company’s results to the end of the
performance period, 31 December 2003, and the Committee concluded
that the secondary condition of satisfactory financial performance had
also been satisfied for that grant. These options will therefore be
exercisable from the third anniversary of grant on 4 May 2004.
The Murray Lawrence Discretionary Share Option Scheme
1997 (ML 1997 scheme)
The ML 1997 scheme is not an Inland Revenue approved scheme.
Options were granted to selected employees and directors of the
Murray Lawrence group in 1997. The options became options over
the Company’s shares following the merger of the Company with ML
(Bermuda) Limited in September 1998. No further options will be
granted under the scheme. The grant was divided into three equal
tranches, of which the first was exercisable from 2000, the second
from 2001 and the third from 2002.
Measurement of performance conditions of the ML 1997
Scheme to date
Except in permitted cases of early exercise, the exercise of each
tranche of an option is conditional on Amlin’s share price attaining
a specified price per share. The target prices of the first and second
tranches, of 69.11p and 103.67p respectively, had already been
attained by the relevant first exercise dates in 2000 and 2001.
Following each of the two share issues in 2002, the target price
for the third tranche was adjusted by the same percentage as the
exercise prices and is now 132.56p. This price was attained during
2003, and hence the final tranche is now also exercisable. The final
expiry date for exercise of outstanding options under this scheme is
17 April 2004.
The Murray Lawrence Discretionary Share Option Scheme
1998 (ML 1998 scheme)
The details of the structure of the ML 1998 scheme are almost
identical to those described above for the ML 1997 scheme except,
in this case, options were granted in 1998 (but prior to the merger
with the Company).
Measurement of performance conditions of the ML 1998
Scheme to date
Exercise is, as with the ML 1997 scheme, conditional on Amlin’s
share price attaining specified prices per share. Such prices were
adjusted during 2002, on the same basis as the ML 1997 scheme,
to take account of each of the two share issues. For those
participants who had also been granted options under the ML 1997
scheme the target prices are now 169.44p for half of the grant and
201.30p for the other half. In the case of those who had not been
granted options under the 1997 scheme, such prices are now
155.44p and 184.68p respectively. None of these target prices
had been attained by the end of the year and accordingly in usual
circumstances none of the ML 1998 options were then exercisable.
These options have until 2008 to meet their performance conditions.
Since the year end the 155.44p per share target has been attained
and accordingly certain participants, none of whom are directors of
the Company, may now exercise half their ML 1998 options.
Amlin Savings-Related Share Option Scheme 1998
(Sharesave scheme)
A Sharesave option scheme was adopted by the Company in
September 1998 and grants of options under this scheme, in each
case entirely over new shares to be issued in the future, were made
in October 1999, June 2001 and October 2002. This scheme is
open to all Group employees, including executive directors, who have
been employed for more than a number of months which is specified
at each grant. Exercises of options under the Sharesave scheme are
not subject to any performance condition. No offer under this scheme
was made in 2003 but further offers are likely to be made
periodically in the future.
Total shareholder return performance
As background to the position regarding options performance conditions,
and in accordance with legal requirements, graphs 1 and 2 opposite
illustrate the total shareholder return performance of the Company’s
ordinary shares relative to two indices of which Amlin’s shares are a
constituent, the FTSE 350 index and the FTSE All Share Insurance
index, over the five years to 31 December 2003. Comparisons are
shown with both these indices (as they were in last year’s report) as the
performance of Amlin’s shares is affected both by the general UK stock
market in companies of its size and by its insurance sector.
The graphs show the values, at each year end from 1999 to 2003
inclusive, of £100 invested in the Company’s shares on 31 December
1998 compared with the values of £100 invested in the relevant
index on the same date. To produce a ‘fair value’, each point on the
graphs is the average of the relevant return index over the 30 days
preceding the relevant year end.
Back to top
Executive directors’ share options
Options held over shares in the Company as at 31 December 2003 by executive directors serving at the year end (non-executive directors not
being eligible), and changes during the year, are set out in the following two tables:
Table 5: Options held
|
Scheme
(see
descriptions
above) |
Over new
or ESOT
shares |
Shares under
option on
1 January
2003 |
Grants
during
the year |
Shares
under option
on 31
December
2003
£000 |
Exercise
price
per share |
Dates
options exercisable
(if performance
conditions met) |
Potential
profit
(£) on 31
December
2003 |
|
|
| B D Carpenter |
ML 1997 |
ESOT |
56,234 |
- |
- |
19.10p |
May 2000 – May 2004 |
n/a |
|
|
|
ESOT |
56,234 |
- |
- |
19.10p |
May 2001 – May 2004 |
n/a |
|
|
|
ESOT |
40,921 |
- |
- |
19.10p |
May 2002 – May 2004 |
n/a |
|
|
|
ESOT |
15,312 |
- |
- |
39.77p |
May 2002 – May 2004 |
n/a |
|
|
ML 1998 |
ESOT |
37,716 |
- |
37,716 |
96.03p |
Aug 2001 – Aug 2008 |
12,058 |
|
|
|
ESOT |
37,715 |
- |
37,715 |
96.03p |
Aug 2003 – Aug 2008 |
12,058 |
|
|
Amlin |
ESOT |
156,406 |
- |
156,406 |
85.35p |
Oct 2002 – Oct 2009 |
66,707 |
* |
|
|
ESOT |
125,123 |
- |
125,123 |
77.68p |
Jun 2003 – Jun 2010 |
62,962 |
* |
|
|
New |
72,989 |
- |
72,989 |
115.09p |
May 2004 – May 2011 |
9,423 |
|
|
|
New |
89,888 |
- |
89,888 |
81.28p |
May 2005 – May 2012 |
41,996 |
|
|
|
New |
- |
50,000 |
50,000 |
118.00p |
Apr 2006 – Apr 2013 |
5,000 |
|
|
Sharesave |
New |
20,459 |
- |
20,459 |
82.48p |
Dec 2004 – Jun 2005 |
9,313 |
|
|
|
Total |
|
708,997 |
|
590,296 |
|
|
219,517 |
|
|
| R A Hextall |
Amlin |
New |
135,552 |
- |
135,552 |
81.04p |
Nov 2002 – Nov 2009 |
63,655 |
* |
|
|
ESOT |
125,123 |
- |
125,123 |
77.68p |
Jun 2003 – Jun 2010 |
62,962 |
* |
|
|
ESOT |
72,989 |
- |
72,989 |
115.09p |
May 2004 – May 2011 |
9,423 |
|
|
|
New |
179,777 |
- |
179,777 |
81.28p |
May 2005 – May 2012 |
83,992 |
|
|
|
New |
- |
100,000 |
100,000 |
118.00p |
Apr 2006 – Apr 2013 |
10,000 |
|
|
|
New |
9,902 |
- |
9,902 |
97.82p |
Jul 2004 – Jan 2005 |
2,988 |
|
|
|
Total |
|
523,343 |
|
623,343 |
|
|
233,020 |
|
|
| A W Holt |
ML 1997 |
ESOT |
112,054 |
- |
- |
19.10p |
May 2002 – May 2004 |
n/a |
|
|
|
ESOT |
41,978 |
- |
- |
39.77p |
May 2002 – May 2004 |
n/a |
|
|
Amlin |
ESOT |
182,474 |
- |
182,474 |
85.35p |
Oct 2002 – Oct 2009 |
77,825 |
* |
|
|
ESOT |
125,123 |
- |
125,123 |
77.68p |
Jun 2003 – Jun 2010 |
62,962 |
* |
|
|
New |
72,989 |
- |
72,989 |
115.09p |
May 2004 – May 2011 |
9,423 |
|
|
|
New |
89,888 |
- |
89,888 |
81.28p |
May 2005 – May 2012 |
41,996 |
|
|
|
New |
- |
50,000 |
50,000 |
118.00p |
Apr 2006 – Apr 2013 |
5,000 |
|
|
|
New |
20,459 |
- |
20,459 |
82.48p |
Dec 2004 – Jun 2005 |
9,313 |
|
|
|
Total |
|
644,965 |
|
540,933 |
|
|
206,519 |
|
|
| C E L Philipps |
Amlin |
New |
222,799 |
- |
222,799 |
112.21p |
May 2000 – May 2007 |
35,180 |
|
|
|
New |
69,823 |
- |
69,823 |
115.57p |
Sep 2001 – Sep 2008 |
8,679 |
|
|
|
ESOT |
218,968 |
- |
218,968 |
85.35p |
Oct 2002 – Oct 2009 |
93,390 |
* |
|
|
ESOT |
229,396 |
- |
229,396 |
77.68p |
Jun 2003 – Jun 2010 |
115,432 |
* |
|
|
ESOT |
72,989 |
- |
72,989 |
115.09p |
May 2004 – May 2011 |
9,423 |
|
|
|
ESOT |
256,825 |
- |
256,825 |
81.28p |
May 2005 – May 2012 |
119,989 |
|
|
|
New |
- |
100,000 |
100,000 |
118.00p |
Apr 2006 – Apr 2013 |
10,000 |
|
|
Sharesave |
New |
11,250 |
- |
11,250 |
84.00p |
Dec 2005 – Jun 2006 |
4,950 |
|
|
|
Total |
|
1,082,050 |
|
1,182,050 |
|
|
397,043 |
|
|
| J L Stace |
Amlin |
New |
311,919 |
- |
311,919 |
112.21p |
May 2000 – May 2007 |
49,252 |
|
|
|
New |
97,753 |
- |
97,753 |
115.57p |
Sep 2001 – Sep 2008 |
12,151 |
|
|
|
ESOT |
198,114 |
- |
198,114 |
85.35p |
Oct 2002 – Oct 2009 |
84,496 |
* |
|
|
ESOT |
125,125 |
- |
125,125 |
77.68p |
Jun 2003 – Jun 2010 |
62,963 |
* |
|
|
ESOT |
72,989 |
- |
72,989 |
115.09p |
May 2004 – May 2011 |
9,423 |
|
|
Sharesave |
New |
11,744 |
- |
- |
82.48p |
Dec 2002 – Jun 2003 |
n/a |
|
|
|
Total |
|
817,644 |
|
805,900 |
|
|
218,285 |
|
|
*Only these potential profits are on options exercisable at 31 December 2003.
Table 6: Options exercised during 2003
|
Scheme
|
Shares
exercised |
Exercise
price
per share |
Date of
exercise |
Share
price on
exercise |
Profit (£)
on exercise |
|
| B D Carpenter |
ML 1997 |
112,468 |
19.10p |
27 Mar 2003 |
116.5p |
109,544 |
|
ML 1997 |
40,921 |
19.10p |
25 Jun 2003 |
132.0p |
46,200 |
|
ML 1997 |
15,312 |
39.77p |
25 Jun 2003 |
132.5p |
14,199 |
|
| A W Holt |
ML 1997 |
112,054 |
19.10p |
2 Jul 2003 |
126.0p |
119,786 |
|
ML 1997 |
41,978 |
39.77p |
2 Jul 2003 |
126.0p |
36,198 |
|
| J L Stace |
Sharesave |
11,744 |
82.48p |
27 May 2003 |
131.5p |
5,757 |
|
The calculations in table 5 of potential profit on exercise as at
31 December 2003 are based on the year end share price of 128p
(2002: 119p). The high and low during the year were 147p and 109p
respectively. These calculations are before tax and are theoretical as in
many cases the relevant options were not exercisable at that date,
either because they had not reached the relevant earliest exercise date
or because performance conditions had not yet been fully met. The
performance conditions applying to each grant of options, and more
details of their current status, are summarised above in ‘Details of
share option schemes’.
Other than grants of options, the other directors’ changes during
the year reflected in table 5 resulted from the exercises of options
set out in table 6. No directors’ options lapsed during the year.
Non-executive directors’ fees, appointment and removal
In line with the recommendations of the Combined Code, the fees
paid to non-executive directors of the Company, other than the
Chairman since November 2003, are determined by the full Board.
The Board receives recommendations in this respect from a special
committee of the Chairman, the Chief Executive and two other
directors (one executive and one non-executive). Recommendations
and decisions are made taking account of professional advice and
other information on the level of such fees paid by comparable
companies for comparable services. The Chairman’s remuneration
is determined by similar criteria, but since November 2003 by the
Committee. The minimum time commitments given by each director,
as detailed in the Board corporate governance statement,
have also been taken into account since such commitments
have been made in respect of 2004.
Each non-executive director is paid a basic fee and may be paid
further for additional services, including for acting as Deputy Chairman
of the Company, or serving as chairman of a committee or as members
of more than one committee or of certain subsidiary boards.
Non-executive directors have contracts for services rather than
employment contracts. Their terms of appointment are formalised
in letters of appointment which are updated from time to time.
The latest letters of appointment of the Chairman and the other nonexecutive
directors who served during the year, and of Mr Stace who
became non-executive from 1 January 2004, are dated 11 February
2004. Non-executive directors, as is the case with executive
directors, are appointed on the recommendation of the Nomination
Committee, usually for a three year term. Non-executive directors may
be removed, or not nominated for re-election at the end of their term,
in each case in accordance with the Articles of Association of the
Company. All of the non-executive Directors are currently serving
three year terms except for Mr Stace, who was re-elected at the 2003
Annual General Meeting for one year only. The commencement and
expected year of expiry of each of the non-executive directors’ current
terms are as follows:
|
Current term
commenced |
Date of expiry
of current term |
|
| R S Joslin |
12 June 2002 |
AGM in 2005 |
| K T Kemp |
12 June 2002 |
AGM in 2005 |
| J M Kennedy |
13 June 2001 |
19 May 2004 |
| R W Mylvaganam |
12 June 2002 |
AGM in 2005 |
| J R Sanders |
13 June 2001 |
19 May 2004 |
| J L Stace |
22 May 2003 |
19 May 2004 |
| Lord Stewartby |
12 June 2002 |
AGM in 2005 |
| R J Taylor |
12 June 2002 |
AGM in 2005 |
|
If a non-executive director is not nominated or re-elected at the end
of a term of office, the director is not entitled to any extra payment
on termination. In other circumstances three months’ notice of
termination may be given by either side.
Mr Stace is serving as non-executive Vice Chairman from 1 January
2004 to 19 May 2004 on the same contract for services basis as the
other non-executive directors.
Copies of the letters of appointment of non-executive directors are
available for inspection at the Company’s registered office.
By Order of the Board, on the recommendation of its Remuneration
Committee
C C T Pender Secretary
9 March 2004
|
|
|
|
|
|
|
