The outlook for 2006 is again strong, although the final outturn will be influenced by the extent of major catastrophe events.

Strong opening position
Like 2005, 2006 will benefit from a strong opening position with an unearned premium reserve of £523.6 million, broadly at the same level as last year. With renewal rates having held up well during 2005, recording an average decline of only 4%, this unearned reserve is expected to yield a healthy margin in 2006.

Additionally, unless we experience abnormally adverse claims development on prior year underwriting risks, we would expect further reserve releases in 2006. 2005 experienced exceptionally good claims development on prior year reserving and the Syndicate result benefited from a release of £90.3 million (2004: £62.7 million), after the consistent application of our reserving policy.

Stronger pricing environment
The US hurricane losses of 2004 and 2005 have led to a reappraisal of risk and claims costs for affected portfolios. This is having a marked effect on pricing of catastrophe exposed risks, particularly in the United States. Further, it is leading to greater stability than we would have otherwise expected in certain other classes.

Margins across the business remain strong in most classes as illustrated by the chart below with much of the business priced at 2001/2 levels and above.

For our US catastrophe reinsurance renewals we have achieved 15% increases at 1 January and, for the reasons set out in the Market overview, we expect a continued strengthening as the year progresses. Gulf of Mexico and Florida risks, which renew in the middle of the year are expected to see very material increases in price .

Competition for international catastrophe premium is greater and whilst we expect that prices will rise, increases are expected to be more modest. This is partly due to the behaviour of large European reinsurers who are seeking to aggressively grow market share and partly as other reinsurers seek greater diversity to balance their portfolios away from US catastrophe risk.

Rating strengths in key classes

Class 2000 2001 2002 2003 2004 2005 Airline hull and liabilities 100 296 278 234 215 191 Marine hull 100 115 148 171 183 188 Employers' liability 100 115 144 158 160 145 Energy 100 140 172 189 165 171 Professional indemnity 100 110 149 178 180 164 US large property insurance 100 125 180 166 143 139 Non US catastrophe reinsurance 100 120 157 162 146 131 US catastrophe reinsurance 100 115 146 150 143 146 US casualty 100 125 170 211 230 237 War 100 250 288 244 220 206 Fleet motor 100 121 136 142 140 136

For our January international catastrophe reinsurance renewals we achieved average rate rises
of 5%.

Property insurance rates remain competitive internationally, but are beginning to see greater rate increases in the United States. Offshore energy insurance pricing also continues to be very firm.We also expect that higher marine reinsurance costs should lead to increases in marine pricing beyond
off shore energy.

The two areas which remain subject to downward pricing pressure are airlines and UK commercial business. For the latter we believe that some of our competitors' performance is now poor enough to require a positive pricing response, although for airlines we expect that it may take a major loss to turn the market. If this is the case we will continue to increase selectivity, declining risks which we believe are under priced.

Growth
We have increased the capacity of Syndicate 2001 by 17.6% to £1 billion for 2006 and have started Amlin Bermuda which has a 2006 target of new premium income to the Group of US$350 million, including an estimated US$70 million of new business which is expected to be ceded to it by Syndicate 2001.

Growth in premium income is expected to be greatest in those areas where rating is strongest, so that our exposures increase by less than the growth in income. Indeed, in some areas exposure will be reduced.

Reinsurance, US property and energy insurance are expected to increase proportionately their share of overall income whilst the two areas under pressure, airlines and UK commercial, are budgeted to reduce.

We believe that our excellent broker relations, combined with the superior service for which we are becoming known, will help us achieve the growth we desire for 2006. Additionally, the award to Amlin Bermuda of an ÔA' rating from Standard & Poor's differentiates us from the other start ups in 2005 and should help that business gain access to the international risks which are part of its plan. Growth in net premiums may be more noticeable than growth in gross premiums if, as we have done to date in 2006, we continue to run the business with less reinsurance protection. In this event we will seek to reduce peak catastrophe exposures and this may result in reduced gross premiums as well as a reduction in our outward reinsurance spend.

Good start to 2006
We have written £337 million of gross premium income across the Group in the first two months of
the year, which is 26% more than in the first two months of 2005. £263 million of this was renewal business for Syndicate 2001 and the average rate increase was 4.5%.

Amlin Bermuda has written US$73 million of new business.

Improving investment return potential
The Group's cash and investments now total £2.1 billion. Whilst we do not expect to match last year's equity returns, we believe good returns overall should be possible in 2006. Importantly US bond yields have risen over the last two years and sterling bonds and cash yields remain adequate.

Increased catastrophe risk
The largest threat to our performance in 2006 is another year of high catastrophe incidence. With Amlin Bermuda focused on reinsurance, writing an unprotected account, and with Syndicate 2001's retrocessional cover currently provided by Amlin Bermuda, we are running greater catastrophe downside risk as a percentage of net assets than in 2005, although until the commencement of the
US and Japanese wind seasons, our main exposure is limited to earthquake risk. We intend to manage the Group's overall exposures so that they are within a maximum risk appetite of £320 million for events with a probability of less than 1 in 100 years. This will be achieved by either purchasing more reinsurance for Syndicate 2001, if the pricing of cover becomes more acceptable, or by reducing our peak exposures in relevant zones.