25 RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS’ FUNDS Group 2002 £m Group 2001 £m Company 2002 £m Company 2001 £m Profit (loss) attributable to shareholders 44.2 (67.0 ) (4.6 ) (2.1 ) Less dividends (7.6 ) – (7.6 ) – Retained profit (loss) for the financial year 36.6 (67.0 ) (12.2 ) (2.1 ) Issue of share capital 136.2 2.6 136.2 2.6 Shares to be issued (0.4 ) (0.5 ) (0.4 ) (0.5 ) Unrealised capital loss – – – (0.1 ) Net increase (reduction) to equity shareholders’ funds 172.4 (64.9 ) 123.6 (0.1 ) Equity shareholders’ funds at 1 January 137.2 202.1 257.0 257.1 Equity shareholders’ funds at 31 December 309.6 137.2 380.6 257.0 26 TECHNICAL PROVISIONS Provision for unearned premiums £m Claims outstanding £m Total £m Gross At 1 January 2002 271.1 1,003.5 1,274.6 Exchange adjustments (5.8 ) (12.9 ) (18.7 ) Movement in the provisions 89.5 (33.2 ) 56.3 At 31 December 2002 354.8 957.4 1,312.2 Reinsurance amount At 1 January 2002 (14.4 ) (443.3 ) (457.7 ) Exchange adjustments (0.1 ) (3.0 ) (3.1 ) Movement in the provisions (19.5 ) 108.9 89.4 At 31 December 2002 (34.0 ) (337.4 ) (371.4 ) Net At 31 December 2002 320.8 620.0 940.8 At 1 January 2002 256.7 560.2 816.9 27 PROVISIONS FOR OTHER RISKS, CHARGES AND DEFERRED TAX a) Non-aligned syndicate portfolio and other provisions Provisions for spread underwriting losses £m At 1 January 2002 1.0 Movement in the provisions 1.9 At 31 December 2002 2.9 Included in the provision above is £1.0m as the estimated loss attributable to the Group in respect of its underwriting through Stace Barr Angerstien PLC and its subsidiary, SBA Underwriting Limited, the accounts of which are not yet available. b) The deferred tax asset is attributable to timing differences arising on the following: Underwriting results £m Provisions for losses £m Unrelieved trading losses carried forward £m Other timing differences £m Total £m At 1 January 2002 24.1 – 6.0 0.5 30.6 Trading losses brought forward utilised as group relief – – (4.1 ) – (4.1 ) Deferred tax charge for the year (19.0 ) 0.5 9.3 1.1 (8.1 ) At 31 December 2002 5.1 0.5 11.2 1.6 18.4 28 OTHER CREDITORS INCLUDING TAXATION AND SOCIAL SECURITY 2002 £m 2001 £m Bank loan 0.5 – Corporation tax 0.1 1.0 Proposed dividend (see note 15) 4.7 – Finance lease creditors (see note 29) 0.1 0.1 Loan stock 9.8 10.0 Other creditors 5.2 21.4 20.4 32.5 A subsidiary, Amlin Underwriting Group plc (‘AUG’), had £9.8 million of unsecured loan stock outstanding at 31 December 2002 (2000: £10.0 million). Interest on the loan stock is based on the Lloyds TSB Bank plc base rate and is payable twice yearly on 1 April and 1 October. The final redemption date of the loan stock is 30 April 2004. The loan stock holder may require AUG to redeem all or part (in multiples of £100) of the loan stock on 1 April 2003, 1 October 2003 and 1 April 2004 by sending a redemption notice to AUG not less than 60 days before the due date of redemption. Loan stock is redeemable at par. 29 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR 2002 £m 2001 £m Bank loan 0.6 1.5 Finance lease creditors 0.1 0.1 Performance related incentive schemes 3.1 – 3.8 1.6 Obligations due under finance leases and hire purchase contracts are payable as follows: 2002 £m 2001 £m Within one year 0.1 0.1 Within two to five years 0.1 0.1 0.2 0.2 The Group’s Employee Share Ownership Trust (ESOT), had a loan from Lloyds TSB Bank plc at the year end of £1.1 million (2001: £1.5 million) secured by a fixed charge over a proportion of the Company’s shares held in the ESOT. It is anticipated that this loan will be repaid from the proceeds of subscriptions by employees for Amlin plc ordinary shares held in the ESOT. Under the current terms of the loan, the balance must be reduced to £0.6m at 20 November 2003 and then fully repaid on 20 November 2004. 30 COMMITMENTS There were no capital commitments or authorised but uncontracted capital commitments at the end of the financial year. The Group leases certain land and buildings on short-term operating leases, the minimum annual commitments under which were £2.2 million (2001: £2.4 million), expiring in over five years. 31 RECONCILIATION OF PROFIT BEFORE TAXATION TO NET CASH INFLOW FROM OPERATING ACTIVITIES 2002 £m 2001 £m Profit (loss) on ordinary activities before taxation 55.4 (81.5 ) Net movement on Premium Trust Funds for non-aligned participations 3.7 (23.4 ) Depreciation charge 4.4 3.2 Syndicate capacity amortisation charge 0.9 0.8 Realised gains less losses on investments (0.3 ) 17.2 Unrealised (gains)/losses on investments (7.6 ) 1.3 Decrease (increase) in debtors 15.7 (12.5 ) (Increase) decrease in prepayments and accrued income (4.1 ) 1.2 Increase in insurance debtors, prepayments and accrued income (57.3 ) (219.4 ) Increase in technical provisions 98.4 639.5 Decrease (increase) in reinsurers’ share of technical provisions 54.1 (249.3 ) Increase in provisions for other risks and charges 1.9 6.9 Increase in insurance creditors, accruals and deferred income 45.5 32.6 Decrease in other creditors relating to operating activities (5.4 ) (0.7 ) Increase in accruals and deferred income 3.3 0.2 Interest expense 0.5 0.7 Net cash inflow 209.1 116.8 Cash flows relating to non-aligned participations are included only to the extent that cash is transferred between the Premium Trust Funds and the Group. 32 MOVEMENTS IN CASH, PORTFOLIO INVESTMENTS AND FINANCING At 31 December 2001 £m Cash flow £m Changes to market value and currencies £m At 31 December 2002 £m Cash at bank and in hand 18.4 10.1 – 28.5 Shares and other variable yield securities 7.1 (6.6 ) 0.2 0.7 Debt and other fixed income securities 446.5 235.7 0.5 682.7 Deposits with credit institutions 23.6 55.2 – 78.8 495.6 294.4 0.7 790.7 Loans due within one year (10.0 ) 0.2 – (9.8 ) Loans due after one year (1.5 ) 0.9 – (0.6 ) (11.5 ) 1.1 – (10.4 ) 484.1 295.5 0.7 780.3 33 GROUP OWNED NET ASSETS The assets and liabilities attributable to Group owned companies as opposed to the Group’s syndicate participations, are summarised below: 2002 In Group owned companies £m 2002 In syndicates £m 2002 Total £m 2001 In Group owned companies £m 2001 In syndicates £m 2001 Total £m Investments Other financial investments 270.0 546.9 773.9 169.5 340.9 510.4 Debtors Other debtors 8.5 62.8 71.3 5.7 91.8 97.5 Other assets Deferred tax asset 18.4 – 18.4 30.6 – 30.6 Intangible assets 60.1 – 60.1 15.0 – 15.0 Tangible assets 9.0 – 9.0 12.6 – 12.6 Cash at bank and in hand 3.6 28.0 31.6 2.9 20.3 23.2 Own shares 2.8 – 2.8 2.8 – 2.8 Prepayments and accrued income 4.0 8.7 12.7 2.8 4.1 6.9 Other syndicate assets – 789.7 789.7 – 825.7 825.7 Total assets 333.4 1,436.1 1,769.5 241.9 1,282.8 1,524.7 Provisions for other risks and charges (2.9 ) – (2.9 ) (1.0 ) – (1.0 ) Creditors Amounts due within one year (12.9 ) (7.5 ) (20.4 ) (19.0 ) (13.5 ) (32.5 ) Amounts due after more than one year (3.8 ) – (3.8 ) (1.6 ) – (1.6 ) Accruals and deferred income (5.2 ) (0.4 ) (5.6 ) (4.0 ) (1.2 ) (5.2 ) (21.9 ) (7.9 ) (29.8 ) (24.6 ) (14.7 ) (39.3 ) Other syndicate liabilities - (1,427.2 ) (1,427.2 ) – (1,347.2 ) (1,347.2 ) Consolidated shareholders’ funds at 31 December 308.6 1.0 309.6 216.3 (79.1 ) 137.2 The assets of the syndicates included above are only available to pay syndicate related expenditure. 34 CONTINGENT LIABILITIES a) Funds at Lloyd’s – deeds of covenant and letters of credit The Group has entered into various deeds of covenant in respect of certain corporate member subsidiaries to meet each such subsidiary’s obligations to Lloyd’s. At 31 December 2002, the total guarantee given by the Group under these deeds of covenant (subject to limited exceptions) amounted to approximately £222.8 million (2001: £162.0 million). The obligations under the deeds of covenant are secured by a fixed charge of the same amount over investments, and a floating charge over the investments and other assets of the Group, in favour of Lloyd’s. Lloyd’s has the right to retain the income on the charged investments, although it is not expected to exercise this right unless it considers there to be a risk that one or more of the covenants might need to be called and, if called, might not be honoured in full. As liability under each deed of covenant is limited to a fixed monetary amount, the enforcement by Lloyd’s of any deed of covenant in the event of a default by a corporate member, where the total value of investments has fallen below the total of all amounts covenanted, may result in the appropriation of a share of the Group’s Funds at Lloyd’s that is greater than the proportion which that subsidiary’s overall premium limit bears to the total overall premium limit of the Group. The Group has also entered into Lloyd’s deposit trust deeds for Funds at Lloyd’s by which letters of credit (‘LOCs’) for total amounts of £70.0 million and US$130 million have been deposited. Of these LOCs, all of the US$ denominated LOCs were procured in 2001 by agreement with the Company’s 12.7% shareholder State Farm Mutual Automobile Insurance Company, and the sterling LOCs were deposited at Lloyd’s for the first time in late 2002, replacing previous LOCs totalling £39.3 million. The rise was to support increased underwriting for the 2003 year of account. b) Reinsurance to close on spread portfolio A reinsurance to close (RITC) is a particular type of reinsurance contract entered into by Lloyd’s syndicates whereby the members of a syndicate for a particular year of account (the closing year) agree with the members of that or another syndicate for a later year of account (the reinsuring members) that the reinsuring members will indemnify, discharge or procure the discharge of all the known and unknown liabilities of the closing year arising out of insurance business underwritten by the syndicate in the closing year of account. In the event that a corporate member resigns from a syndicate or reduces its participation relative to the other members of the syndicate, it will make a net payment of a RITC premium. The payment of the RITC premium does not release members from ultimate responsibility for claims payable on risks they have written and in the event that the reinsuring members were unable to pay and the other elements in the Lloyd’s chain of security fail, the members would remain liable for the payment of any outstanding claims. Payment of a RITC premium is conventionally treated as settling a member’s outstanding claims for the closing year and this convention has been adopted in these accounts. There is no mechanism for the Group to account for the gross claims payments and recoveries made from the reinsuring members or to quantify the ongoing exposure in respect of closed years of account. The directors consider that the possibility of the corporate members having to assume these liabilities is remote. c) Loan stock The Company has given a guarantee to Lloyds TSB Bank plc for the principal sum of £9.8 million to secure the obligations of its subsidiary, Amlin Underwriting Group plc, in respect of the issue of loan stock as detailed in note 28. 35 RELATED PARTY TRANSACTIONS During the period under review Mr B D Carpenter, a director, was a member of syndicate 2001 managed by the Group as set out below. During the year the Company, on behalf of Amlin Corporate Member Limited, made an offer to acquire the entire ongoing capacity of Syndicate 2001 (See note 22). This offer was accepted by Mr Carpenter, who accepted 32,718 shares (valued at £35,543) and £29,100 cash. Under the terms of the offer all external members received the right to participate in the 2003 year of account only for 50% of their 2002 capacity and profit commission was waived. Mr Carpenter excercised that right. Syndicate 2001 Year of account 2000 £000 2001 £000 2002 £000 2003 £000 B D Carpenter 305 240 291 182 The aggregate of fees and profit commission paid by the directors was £1,635 (2001: £2,885), of which none was outstanding at 31 December 2002 (2001: nil). In addition, SBA Underwriting Limited, in which Mr J L Stace has a minority interest, had participations on Syndicates 902 and 2001 for the 2000 year of account of £502,048 and £3,387,665 respectively. SBA Underwriting Limited is not underwriting for the 2001 or subsequent years of account. As detailed in note 34, State Farm Mutual Automobile Insurance Company, a major shareholder, provides the Group with an unsecured $130 million letter of credit. This facility is provided at a rate of 5% and during the year £4.4 million was paid to State Farm under this arrangement. 36 PRINCIPAL EXCHANGE RATES The principal exchange rates used in translating foreign currency assets, liabilities, income and expenditure in the production of these accounts were: Average Rate Year end rate 2002 2001 2002 2001 US dollar 1.51 1.44 1.61 1.46 Canadian dollar 2.36 2.23 2.54 2.32 Euro 1.59 1.61 1.53 1.63