Amlin plc Interim Results - 03.08.07

Amlin released its interim results recently.  The press release is attached with extracts copied below.

Highlights

   •Annualised first half return on equity of 31.8% (H1 2006: 24.2%)

   •Profit before tax up 54.0% to £185.0 million (H1 2006: £120.1 million)

   •Strong underlying underwriting contribution up 17.2% to £146.6 million
    (H1 2006: £125.1 million)

   •Group combined ratio 71% (H1 2006: 79%)

   •Investment performance increased by 73.2% to £65.3 million (H1 2006:
    £37.7 million)

   •Interim dividend increased 19.0% to 5.0p per share (H1 2006: 4.2p per
    share)

   •Small exposure to the sub-prime market

   •Positive outlook for the full year and for 2008

Charles Philipps, Chief Executive, commented as follows:

"This is a record result driven by an exceptional underwriting performance and
strong investment returns. Our outlook for the remainder of 2007 and for 2008 is
positive."

Underwriting performance was again strong. Our London operations produced an
underwriting return of £97.7 million (H1 2006: £101.5 million) and Amlin
Bermuda's contribution more than doubled to £48.9 million (H1 2006: £23.6
million).

Gross premium written increased modestly in original currency with growth in
well priced classes such as US catastrophe reinsurance, including in Bermuda,
and further volume reductions in classes which have continued to come under
rating pressure, such as UK commercial motor. However, with 61.4% of gross
premium written in US dollars, reported gross premium written, at £805.2
million, is 4.8% less than in the prior half year (2006 H1: £846.2 million).

Gross earned premium was 7.3% higher at £572.8 million (H1 2006: £533.6 million)
reflecting the earnings lag on the growth in business written in 2006,
particularly with Amlin Bermuda in start up phase in the first half of that
year. Net premium earned increased by 6.8% (excluding the premium for
reinsurance to close the remainder of Syndicate 2001 from third parties).

The Group combined ratio was 71% (H1 2006: 79%). The improvement was due to a
reduced claims ratio of 43% (H1 2006: 49%) with relatively modest losses
estimated from the Kyrill windstorm and the June UK floods, and few new large
risk losses.

The contribution from investments was higher at £65.3 million (H1 2006: £37.7
million) with strong returns made from equities in the first part of the year.
Overall, half year bond returns improved even though they were held back by a
low sterling return.

Earnings per share increased 55.9% to 27.9p (H1 2006: 17.9p).

Underwriting conditions and premium

Gross premium written in the first half year was strongly weighted to business
where risks remain for the most part well priced: Marine, Non-marine and Amlin
Bermuda, which together represented 84.4% of gross premium written. Our Aviation
and UK Commercial businesses, which represented 15.6% of gross premium written,
continued to suffer from intensifying competition and we have therefore reduced
exposures where rating levels have fallen below our return requirements.
Overall, the renewal rate reduction across all business was 3.4%, with a number
of our larger classes continuing to trade at or near to peak pricing levels. The
renewal retention ratio for the half year was 81% (H1 2006: 79%).

Table 2: Average renewal and retention rates - see link below

Table 3: Rating indices for major classes (based on renewal) - see link below

Outwards reinsurance

The first half of 2007 has seen retrocessional reinsurance becoming more
reasonably priced, and as a consequence Syndicate 2001 has purchased more
reinsurance to protect its own reinsurance account than in 2006, when we took
the view that the price of cover had become uneconomic and operated with
significantly less retrocessional reinsurance than in previous years. Higher
levels of cover have also been purchased on the direct Marine and Non-marine
accounts.

Despite the increased cover purchased for the Syndicate, reinsurance expenditure
as a proportion of gross written premium has fallen to 9.0% from 9.4% for the
same period in the prior year. This is due to a two factors. Firstly, Amlin
Bermuda now represents an increasing part of the business relative to last year
and to date it has operated without the purchase of any reinsurance. Secondly,
more reinsurance is bought for the Syndicate dollar account than for the
sterling business. As the dollar weakens, this lowers the apparent reinsurance
expenditure.

Claims

The Group claims ratio improved on the prior half year to 43% (H1 2006: 49%).

Natural catastrophe activity in the United States was a little below long term
averages for the first six months. However, the UK and Australian floods in June
are major losses to the international insurance markets. Windstorm Kyrill, which
swept across Northern Europe in January, is also estimated to have caused a loss
of €3 - 4 billion to the insurance industry. Our exposures to these events have
been contained, in part owing to our positioning on reinsurance programmes and
risk retained by cedants, and in part due to our comparatively small exposure to
the UK direct household and small commercial sectors. Conservative estimates of
our losses from Kyrill, and the UK and Australian floods respectively are £1.5
million, £24.6 million and £8.5 million, and there is a good possibility that
they will be less.

Elsewhere, there have been only a small number of risk losses with exposure to
only one of the three major marine hull losses and our Aviation business, having
become increasingly selective in the face of poor airline risk pricing, has
managed to avoid exposure to the vast majority of airline losses incurred in the
year to date.

£40.9 million (H1 2006: £26.0 million) was released from reserves in the period,
as claims on prior underwriting years developed better than expected. Our
reserving policy remains unchanged. The margin of net claims reserves for the
2006 and prior underwriting years, that we have accounted for above the best
estimate level assessed by our internal actuarial team, was over £150 million at
30 June 2007.

Underwriting contribution

The underwriting contribution, after removing the effect of foreign exchange
translation differences on non- monetary liabilities, increased by 17.2% to
£146.6 million (H1 2006: £125.1 million). Of this, Syndicate 2001 and Amlin
Bermuda contributed £97.7 million (H1 2006: £101.5 million) and £48.9 million
(H1 2006: £23.6 million) respectively. The combined ratio, on a similar basis,
was 72% (H1 2006: 75%). Net earned premium rose by 6.8% to £514.5 million (H1
2006: £481.8 million, excluding the premiums associated with the reinsurance to
close of our increased share of capacity). This growth is attributable to the
earnings lag on increased business written in 2006.

Non-marine (45% of net earned premium in period)

US catastrophe reinsurance pricing remained strong, with rates in the early part
of the year increasing, albeit not to the same levels evident in the middle of
last year. The market remained disciplined with a sensible balance between
potential return and risk underwritten. Action by the State of Florida to
increase the State supported catastrophe fund was less disruptive than
originally feared. The increase was less than initially stated, primary insurers
purchased more cover and market behaviour was rational and pricing firm
recognising the increased hurricane threat faced.

International catastrophe pricing was disappointing, with pressure growing as
more reinsurers looked to diversify their portfolios. However, pricing in
capacity constrained zones such as Europe and the Caribbean remained adequate.

The low level of catastrophe losses incurred by the division in the first half,
aided by limited claims development on prior period reserves, resulted in a
claims ratio of 36% (H1 2006: 39%). The rise in the expense ratio is mostly
caused by a 4% reduction in net earned premiums. This reflects deterioration in
the US dollar against sterling.

Our Non-marine combined ratio of 67% (H1 2006: 67%) is another excellent result.

Amlin Bermuda (20% of net earned premium in period)

Amlin Bermuda wrote £96.4 million or $189.9 million (H1 2006: £78.1 million or
$139.8 million) of direct business in addition to quota share and other
reinsurances of Syndicate 2001 which increased its overall premium written to
£169.7 million or $334.3 million (H1 2006: £161.8 million or $289.7 million).
Growth has been constrained by many primary carriers choosing to maintain our
share of risks at last year's levels in the face of growing competition for
lines. This is more satisfactory than fierce competition on price.

Importantly the quality and diversity of business written is good and we have
not compromised our underwriting standards in order simply to meet premium
income targets. This, over the long term, should deliver out- performance. The
underwriting team has been augmented by two joiners who will help broaden Amlin
Bermuda's marketing ability.

With a full year's trading behind it, Amlin Bermuda's net earned premium has
increased by 113% to £101.5 million. The claims ratio of 40% reflects the low
level of catastrophe losses, with 95.8% of direct/non-Group income being derived
from property reinsurance. The expense ratio has remained static at 12%.

The combined ratio of 52% (H1 2006: 49%) is a pleasing result.

Marine (16% of net earned premium in period)

Rating levels for the Marine division have remained good for the first six
months of the year. The average rate reduction for the energy account was 6% and
the war account continued to become more competitive. However, the attritional
Marine classes, such as cargo, hull and yacht, experienced only modest falls in
premium rate.

Net earned premium is relatively stable year on year. The claims ratio has
increased to 59% (H1 2006 56%), largely as a result of increased prior period
reserving. The expense ratio has increased due to lower net earned premium in
2007 as reinsurance ceded has increased.

The Marine division's combined ratio has increased to 97% (H1 2006: 91%). We
would expect, in the normal course, for the Marine division's full year combined
ratio to improve from this position.

UK Commercial (14% of net earned premium in period)

Our UK Commercial division saw continued rating pressure in all classes. In this
environment our teams have retained their focus on risk selection and
underwriting profitability, as well as the delivery of high levels of service to
a core client base which has a record of continuity with the business.

The 9% reduction in net earned premium was offset by an improved claims ratio of
59% (H1 2006: 62%). The expense ratio is stable at 24% with expenses being
controlled in line with the reduction in business written.

A combined ratio of 83% (H1 2006: 86%) represents a pleasing result in the
context of highly competitive market conditions.

Aviation (5% of net earned premium in period)

Little airline business renews in the first half of the year with activity
focused on non-airline classes. These areas have come under more pressure as new
capacity in the aviation market has sought to increase market share.

Net earned premium has decreased by 20% reflecting continued challenging market
conditions with rates across classes under pressure. The claims ratio has
improved to an excellent 39% (H1 2006: 81%) as a result of negligible new
airline losses to which the account is exposed and limited claims development in
the period. The expense ratio has increased to 41% (H1 2006: 35%) largely as a
consequence of the reduction in net earned premium in the first half.

Underwriting risk

With the purchase of retrocessional and increased reinsurance cover as
previously mentioned, the Group's combined potential major event losses have
been reduced.

Our largest modelled loss at 1 July 2007, being a major Northeast US windstorm
affecting several states, indicated a potential loss of £299 million, equivalent
to 32.6% of net tangible assets at 30 June 2007. This compares with our largest
modelled loss at 1 January 2007 of £364 million, which was a European windstorm
affecting both the UK and several continental countries, which represented 41.8%
of net tangible assets at 31 December 2006. It should be recognised that each of
these are extreme events. All single zone events which we model are expected to
incur losses materially less than these, in most cases less than £220 million.

Outlook

Over the next twelve months our future underwriting performance is underpinned
by the current good margins in reinsurance, areas of our property account and
the Marine division. At 30 June 2007 net unearned premium reserves were £722.0
million, 7.4% less than at the prior year (H1 2006: £779.4 million). The
reduction is driven by lower gross written premium in 2007 coupled with higher
recent rates of exchange. The final 2007 underwriting contribution will, as
usual, be influenced by the extent of second half major event activity. As
indicated, we have brought down overall net exposures for our largest modelled
losses. We also expect losses from the July floods in the UK and from hurricane
Dean to be only modest.

Looking further out, generally we expect that rating trends as a whole will
soften over the next eighteen months. This is simply a reflection of the
cyclical nature of our business, which is driven by net capital flows into, or
out of, the industry. With the industry at large recording satisfactory profits,
and capital returns to shareholders unlikely to match these flows, this will
lead to greater competition. However, in a number of our larger classes, rates
are still at or near their historic peaks and we anticipate that, overall, our
portfolio will remain capable of generating a satisfactory margin in 2008.

Our aim, by focusing on the acceptability of underwriting margin, rather than
growth in an increasingly competitive market, is to continue to deliver
reasonable returns on equity, even through the trough of the underwriting cycle.
We expect that our diversity will contribute to our ability to consistently
deliver for our shareholders.

In recent years our out-performance of many of our competitors has been
significant but, historically, the out- performance of the core syndicate
business has grown as rating trends have softened. This has resulted from
disciplined underwriting, with exposures reducing as rates decline. We intend to
remain resolute in our core underwriting principles.

Large and unexpected claims activity, or recognition of unacceptable performance
from consistent under pricing of risk usually turns an insurance cycle at the
bottom. Two of our divisions are currently suffering from poor pricing -
Aviation and UK Commercial. In our view the wider UK commercial market is
trading with low, or non-existent profit margins, even before the impact of the
recent floods is taken into account. If the financial pain in the UK market is
sufficient, taking account of the flood losses, it may result in an improvement
in rating.

Since Hurricane Katrina in 2005 there has been increased divergence in the
cyclical patterns between our business classes. It is very possible that we will
experience improving trading conditions in the UK commercial market which will
help offset the loss of margin in the marine, property and reinsurance accounts.
If this occurs, it will help us sustain better returns than we would have
previously envisaged during the next trough of the London market insurance
cycle.

Notwithstanding the recent turmoil in financial markets, the consequential fall
in yield of government bonds in recent weeks has resulted in good overall second
half bond performance to date. The outlook for the equity content of our
portfolio will depend on the extent to which the fall out from the "sub-prime"
debacle affects the economic outlook of major economies.

The earnings outlook for both 2007 and 2008 are good with 2007 holding out
prospects, subject to second half catastrophe activity, of being a further
excellent year. With our stable team of high quality underwriters, who have a
record of stronger out-performance in softer market conditions, and a
significantly improved risk management capability since the last soft market, we
are confident of our ability to trade successfully through the more challenging times when they come".