Interim Management Statement for the period to 16 May 2012

17 May 2012

The trading environment for the period from 1 January has been considerably more encouraging, with strong rate improvements evident in key classes underwritten by the Group. Catastrophe loss activity has also been limited in the first quarter of the year.

More than 75% of our portfolio has achieved rate increases in the period to 30 April. As expected, the rating environment for catastrophe reinsurance has developed strongly, with margins at or close to peak levels.  Within insurance markets, we continue to see improvement in our UK commercial business, particularly for UK motor. Rate increases for US commercial property have continued to improve, building on the modest increases experienced at 1 January, while US liability business has begun to show signs of improvement.

Investment markets, however, clearly remain volatile and we continue to hold a cautious position.

Amlin is in a strong financial position and is well capitalised to support growth as conditions continue to improve and opportunities present themselves. The underlying profitability of our London and Bermuda businesses is strong, profitability is improving in our UK business and there are signs that the action taken at ACI is having a positive effect.  Profit focused underwriting remains at the core of our strategy which, in a challenging investment environment, should allow the business to prosper.

Underwriting environment

The Group's gross written premium for the four months ended 30 April 2012 was up 10.5% at £1,440.9 million (30 April 2011: £1,304.0 million). At constant rates of exchange, written premium increased by 11.6% (30 April 2011: £1,291.5 million).

The average renewal rate increase for the Group during the four months was 4.3% (30 April 2011: decrease of 0.4%). The renewal retention ratio for the same period was 86.1% (30 April 2011: 84.6%).

The underlying increase in gross written premium of £104.0 million, after taking account of foreign exchange and renewal rate movements, was attributable to growth in Amlin London, Amlin UK, Amlin Bermuda and Amlin Re Europe.  ACI's premium income decreased with further portfolio adjustments in its marine business continuing into the start of 2012.

We believe that the major changes to ACI's marine portfolio are very largely complete and that, with increased profit focus and direction, it is now in a position to grow income when market conditions in the Benelux improve.

Performance by division is analysed in the table below.

	Gross written premium to 30 April 2012 £ million	Percentage written of full year business plan %	Renewal rate change  to 30 April 2012 %	Renewal retention ratio to 30 April 2012 %	Gross written premium to 30 April 2011 £ million	Renewal rate change to 30 April 2011 %
Amlin London	571.8	52.9	6.5	85.7	512.1	(0.4)
Amlin UK	172.1	42.7	5.0	82.4	116.3	3.2
Amlin Corporate Insurance (Direct and incl. Amlin France)	368.5	73.3	(0.1)	86.9	442.6	n/a
Amlin Bermuda (Direct)	173.8	50.3	9.9	86.3	154.3	(3.6)
Amlin Re Europe	154.7	96.7	2.1	88.7	78.7	n/a
Total/average	1,440.9	58.1	4.3	86.1	1,304.0	(0.4)

As anticipated, following the extraordinary catastrophe loss activity of 2011, the four month period witnessed a notable increase in catastrophe rates. US catastrophe reinsurance renewal rates improved by an average of 13.7%, while renewal rates for our international business increased by an average of 16.7%. For the international book, rate increases have been more marked in loss affected territories, such as New Zealand and Japan.  Margins across our catastrophe reinsurance business are strong and our US and international books are trading at near peak levels. In the four months to 30 April catastrophe reinsurance gross written premium amounted to £307.3 million, a 20.3% increase relative to the same period in 2011. Elsewhere, following recent flood losses in Thailand, our international risk excess account achieved an average renewal rate increase of 16.6%.

We are seeing a welcome improvement in US Property and Casualty rates and recorded an average renewal rate increase of 3.3% to 30 April with the rate of increase strengthening through the period, particularly for direct and facultative property risks on which average renewal rate increases of 7.7% have been achieved.  New business opportunities added £18.6 million of income.

Our London Marine business achieved an average renewal rate increase of 0.7% for the period to 30 April with some variation across classes.  Liability and yacht business had average rate increases of 3.8% and 2.4% respectively. 

The trading environment for Amlin UK has continued to improve in the first four months with an average renewal rate increase of 5.0%.  Increases to fleet motor rates averaged 9.4%.  Elsewhere, property rates increased by 1.7% and rates for some liability classes are beginning to show signs of improvement.  Recent investments in new distribution channels and the addition of a new high net worth underwriting team, contributed more than £40 million of new business.

Continental European insurance markets remain competitive although rating levels are holding steady. We have continued to take action to improve the profitability of ACI's marine business, including the non-renewal of approximately €32.1 million of marine business in the four month period. Importantly, there are signs that re-underwriting over the last two years is having a positive impact on the underlying performance of this business. ACI's non-marine business continues to perform satisfactorily in competitive trading conditions.

Amlin Re Europe has continued to make positive progress, building on a strong first year of trading.  In the four month period to 30 April, it wrote €186.0 million of gross written premium, up 96.6% on the same period in 2011, with an average rate increase of 2.1%. The business now supports a broad client base, with approximately 300 clients from 34 different markets.  With costs continuing to be incurred ahead of the development of earned premium in 2012, we do not expect the business to make a material contribution to the Group in the current year, however, we are confident of its long term prospects.

Outwards reinsurance

Amlin expects to increase outwards reinsurance expenditure in 2012. This not only reflects the increased costs of retrocessional programmes since the losses of 2011, but also the strengthened risk reward position for Amlin in comparison to 2011 as a result of greater cover purchased for Amlin Bermuda and the purchase of a catastrophe bond. The increased expenditure is expected to be more than offset by increased income, particularly from catastrophe reinsurance accounts.

Claims and reserves

In contrast to 2011, the period to 30 April represented a relatively benign period for catastrophe losses.  There were also few large risk losses in the period. 

The largest catastrophe event was the tornado activity impacting the mid-western and southern US states during late February and early March. The market loss estimate for this event is between $1 billion and $2 billion (1). Amlin's estimated exposure is contained within our attritional loss expectations.

Net claims from 2010 and 2011 catastrophe events, including the New Zealand 'Christchurch' earthquake in February, the Japanese earthquake in March and the Thailand flooding in the second half of the year remain materially unchanged from those disclosed in our 2011 Annual Report. 

For ACI, there were no new large claims above €5.0 million in the first quarter and attritional loss experience has shown some improvement.

In the quarter to 31 March 2012, following the normal quarterly review of claims reserves, £17.6 million was released from reserves across the Group (31 March 2011: £25.0 million).

Investment returns

The Group's investment return for the four month period to 30 April is estimated to be 2.0%, with average funds under management of £4.2 billion (2). During this period bonds returned 1.9%, cash and cash equivalents 0.2%, absolute return funds 2.5%, equities 8.7% and property 2.1%.

The asset allocation (based on allocations to sub-advisors) at 30 April was 51% bonds, 19% absolute return funds, 21% cash and cash equivalents, 6% equities and 3% property.

While acknowledging the strong start to the year for the investment return, we remain acutely aware of the challenges facing economies and markets, not least the debt crisis in Europe, and we will adjust our portfolios as appropriate.

Capital

The Group continues to enjoy a strong capital position which supports growth in the improving market conditions being experienced.

Other developments

We have continued to strengthen the management team at ACI. On 24 April we announced the appointment of Bert Nelen as European Vice President Marine. He joins from ACE European Group.
The platform replacement programme for ACI has made good progress in the period and is on track to  formally cut across to the new system infrastructure by the end of May.

Since the start of 2012 Leadenhall Capital Partners has continued to produce good results. The top quartile performance of the insurance linked investment funds run by Leadenhall has been recognised by external investors, with over $80 million subscribed in the Leadenhall Diversified and Value funds since the beginning of 2012. The net asset value of the combined funds at 30 April was $330 million, meaning Amlin's shareholding in the funds has reduced to under 40%. Additionally, at the beginning of 2012 Leadenhall won a mandate to make insurance linked investments on behalf of a major UK pension scheme, which at the beginning of May took the total assets under management of the firm to over $650 million. The funds have continued their strong performance in the period since 1 January, posting positive results every month to date and therefore demonstrating the strength of Leadenhall's capabilities and the diversifying, low correlation benefits of the insurance linked securities strategy.

As reported in our 2011 Annual Report, Roger Taylor has decided to retire as Chairman following the 2012 AGM. Richard Davey will succeed him.

Charles Philipps, Amlin's Chief Executive, commented "Amlin has had a good start to 2012 and the trading environment continues to improve, with more than 75% of our portfolio achieving rate increases in the period to 30 April. Amlin is in a sound financial position and well capitalised to support profitable growth into more favourable market conditions. The transition of ACI onto Amlin's systems will be a significant step forward, which should further improve operating performance in the medium term. We remain well positioned to return to a good level of profitability during 2012."

(1) Eqecat press release, 5 March 2012.
(2) Excluding investments held in Leadenhall funds.

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