Trading environment in 2005
"Even though we are past the peak of this insurance pricing cycle, conditions remain favourable
and there is every prospect of 2005 being another good underwriting year"
(Source: Amlin 2004 Chairman's statement).

2005 will be remembered for the frequency of some of the most powerful hurricanes to have made landfall in the United States, causing massive destruction, in particular in and around New Orleans. While the frequency of these major storms over the past two years suggests that the pricing of property risk in coastal wind affected zones was inadequate, conditions in most classes did indeed remain favourable through 2005 and in some classes reacted positively to the hurricanes.

By the end of 2004, the US property casualty industry was again operating with peak levels of capacity, the UK industry capital was back to 1998 levels and Bermuda continued to grow its capital base. The scope for increasing levels of competition in our markets was becoming evident. With the assistance of the Lloyd's Franchise Performance Management team, the Lloyd's market, in contrast, reduced its capacity by 9.49% in recognition of the likelihood of softer market conditions. Within Lloyd's, Amlin had planned to reduce its gross premiums relative to 2004 by 15%.

US Capital & Surplus
UK Capital & Surplus
Bermuda Capital & Surplus

Amlin's own renewal rate experience was better overall in 2005 than had been anticipated.
Renewals, which amounted to £652.3 million, recorded an average rate reduction of 3.71% compared to a business plan assumed reduction of 5%.

Better reinsurance rates in US zones exposed to the Atlantic windstorms helped to offset a weakening in international reinsurance rates and in per property reinsurance.

Non-marine direct property insurance was generally softer but most other classes were stable.
With the lack of major renewals for reinsurance and major property programmes in the last quarter,
the effect on pricing of the 2005 hurricane season was not seen until the 2006 renewal season started.

Amlin 2005 data

Business area 2005 renewal gross premium £m Actual renewal rate reduction % Business plan rate reduction % Non-marine and reinsurance 371.2 4.68 7.00 Marine 103.9 0.37 4.30 Aviation 58.7 1.73 0.30 UK commercial 118.5 4.60 1.10

With the exception of political and terrorism risk which continued to experience price softening,
most other marine classes remained reasonably stable with some, especially offshore energy
insurance, responding to the Gulf of Mexico hurricane losses with material price rises, including a restructuring of the cover provided going forward, particularly for business interruption.

Despite continued softening of airline rates, levels are still above pre-WTC levels and are mostly offset by continued strengthening of our other aviation classes, in particular airport and aviation products liability insurance. With airline rates declining to questionable levels we declined to renew more than 10% of our airline portfolio.

UK commercial witnessed continued softening of both motor and liability rates.

As can be seen from the Lloyd's premium rating index, the rate of decline slowed down in 2005 in each major area other than motor, and even in this class rates remained above levels seen in 2000, a year for which our motor incurred claims ratio (claims/premiums, net of brokerage) today is a healthy 79.1%.