Purpose
The Audit Committee concentrates on the reporting, control and compliance aspects of the directors' and the Group's responsibilities, providing independent monitoring, guidance and challenge to executive management in these areas. Its aim is to ensure that high standards of corporate reporting, controls and compliance are achieved, in the belief that excellence in these areas enhances the effectiveness, and reduces the risks, of the business.

Membership
The following have been members of the Audit Committee (the Committee) during the year and up to the date of this report: Lord Stewartby (chairman until 31 August 2005), Mr Buchanan (chairman from 1 September 2005), Mr Joslin and Mr Mylvaganam. In addition, Mr Davey has been a member of the Committee since 15 December 2005 when he joined the Board.

All of the members of the Committee were at all times classified by the Board as independent. Throughout the year there have been a number of members with recent and relevant financial experience, including Mr Buchanan and Mr Joslin.

The Chairman of the Company, the Group Chief Executive, the Finance Director and the head of Audit & Compliance usually attend the Committee's meetings. At least once a year the Committee meets, both on its own and with the external auditors, without any executive management present. The Committee also meets the head of Audit & Compliance at least once a year without any other executive management present.

Terms of reference
The Committee's terms of reference enable it to take an independent view of the appropriateness of the Group's accounting policies and practices. It also considers the appointment and fees (both audit and non-audit) of the external auditors, who have unrestricted access to it, and monitors the Group's compliance, internal control and risk management procedures. The Committee's terms of reference, which take full account of the Smith Report on the role of audit committees, are available in the 'Corporate Governance' section of 'Investor Relations' on the Company's website or from the Company Secretary on request. The terms of reference apply on a Group-wide basis and thus they apply equally to the new Bermudian operations set up in December 2005 as they do to the rest of the Group.

Meetings
The Committee meets a minimum of four times a year. It met four times during 2005, when attendance by committee members was as follows:

Audit Committee attendance 2005

Committee member	Number of meetings attended
N J C Buchanan	4
R S Joslin	4
R W Mylvaganam	3
Lord Stewartby	4
Average % attendance	94%

Mr Davey joined the Committee after its final meeting of the year.

Activities
In addition to reviewing the Company's interim and preliminary results statements and its Annual Report, the Committee reviewed and reported to the Board on: the managed syndicate's Annual Report; the external auditors' engagement and service plan; the plans, work undertaken and recommendations made during the year by the Group's Audit & Compliance Department; the external auditors' independence and the extent and reasons for them providing non-audit services (a breakdown of the fees for which is set out in note 11 to the Accounts); the Group's 'whistle blowing' procedures; and other related matters. Reports were received from the external auditors in respect of each set of financial statements, highlighting the material judgemental areas, which were then discussed by the Committee with executive management and the auditors at the relevant Committee meeting.

Reports from the external auditors were also received on the opening balance sheet under International Financial Reporting Standards (IFRS), being adopted by the Company from 2005, with special attention being paid to the significant changes, judgemental areas and new accounting policies involved.

Procedures were operated throughout the year for the approval of any appointments of the external auditors (or its associated entities) to provide material non-audit services. The Committee has remained satisfied that the provision of such non-audit services by Deloitte & Touche LLP has not compromised the auditors' impartiality or independence.

Details of the Committee's role regarding internal control issues are set out in the 'Accountability and internal control' section of the Board corporate governance statement.

The Committee also monitored the Group's compliance with Financial Services Authority, Lloyd's and other regulatory requirements and recommendations. Reports to the Committee from the Group's Audit & Compliance department included summaries of the findings of internal audit reports, enabling members of the Committee to question the head of Audit & Compliance on such reports and to monitor the measures taken by management to respond to issues raised.

During the year the Committee was updated on technical accounting developments by the external auditors and by the Group Finance Director, and a self-evaluation of its composition, procedures, contribution and effectiveness was conducted by the Committee and reported to the Board in January 2006.

By Order of the Board,
on the recommendation of its Audit Committee

C C T Pender Secretary
9 March 2006