Alignment with underwriting cycle
Twelve months ago we were anticipating a gradual softening in rates and terms over 2005 and subsequent years.

During the year we announced that we were in provisional talks with another smaller Lloyd's business, Chaucer, with a view to acquiring that group. Our strategic interest in acquiring Chaucer was based on a desire to retain a strong balance sheet and market position, notwithstanding an expectation that we would decline more business, in line with our core underwriting philosophy, as conditions worsened. We believed that this strategy, in declining market conditions, would enhance our total shareholder returns, in particular through increased dividends and the return of capital as warranted by our expectation of the underwriting cycle.



Ultimately, we decided not to proceed. Looking back, this was just as well as we had good reason to turn our attention and efforts to the establishment of a successful non-Lloyd's underwriting platform.

Conditions did not worsen as anticipated and the unprecedented industry hurricane losses of 2005 are resulting in a better underwriting climate than previously envisaged, particularly in our reinsurance classes which, including Amlin Bermuda, are expected to account for over 40% of our gross premiums
in 2006. Amlin has increased its underwriting capacity for 2006 by approximately 42%, with both the creation of Amlin Bermuda, which is expected to write approximately US$350 million of new business for the Group, and an increase in Syndicate 2001's capacity to £1 billion.

With the current extremely high pricing of retrocessional reinsurance, we have so far in 2006 elected to bear a greater level of major event risk against our balance sheet than in recent years. This is being kept under close review so that we maintain an acceptable risk reward equation taking account of the additional premium being generated per unit of risk, which provides greater potential profit to offset possible catastrophe losses, lower balance sheet debt leverage and a continued prudent investment position.

Click here for more detail of our 2006 risk management and underwriting strategy.