SOURCE: BRIT Insurance Holdings PLC

March 01, 2005 15:39 ET

BRIT Insurance Holdings Plc announces Final Results

LONDON, UK -- (MARKET WIRE) -- March 1, 2005 --

For immediate release

1 March 2005 7.00 a.m.

                      BRIT INSURANCE HOLDINGS PLC

                        Record results for 2004

Brit Insurance Holdings PLC ("Brit" or the "Group"), the UK general insurance group, today announces record final results for the year ended 31 December 2004.

Highlights

- Record pre-tax profit of GBP102.5m (2003: GBP77.6m), an increase of
  32.1%

- Combined ratio 92.5% (2003: 88.5%) despite worst natural catastrophe
  year on record

- Strong investment performance of GBP77.3m (2003: GBP50.9m)

- Gross written premium GBP1,086.7m (2003: GBP1,015.7m)

- Recommended final dividend of 2p per share, bringing the total for year
  to 6p per share representing 80.6% of profits after tax, to be paid
  on 22 April 2005 to shareholders on the register on 11 March 2005

- Dane Douetil to become Chief Executive Officer at the AGM on 19 April
  2005. Neil Eckert remains an Executive Director until the year end
  and has agreed to stay as a non-executive director thereafter


Results                                 Year ended  Year ended
                                       31 December 31 December
                                              2004        2003
                                              GBPm        GBPm

Gross premiums written                     1,086.7     1,015.7
Net premiums written                         910.4       850.8
Gross premiums earned                      1,023.1       834.3
Net premiums earned                          854.5       671.4
Technical profit                             122.0       100.3
                                                              
Operating profit based on long term           97.6        91.1
rate of investment                                            
Return                                                        
Pre-tax profit                               102.5        77.6
Profit after tax and minority                 72.0        57.5
interests                                                     
Basic earnings per share                     7.45P       6.58P
                                                              
Net assets                                   710.0      697.5*
Net assets per share                         72.9P      71.6P*
                                                              
Combined ratio                               92.5%       88.5%

* Restated

Neil Eckert, Chief Executive Officer said: "Brit is in fantastic shape to take full advantage of current market conditions. 2004 was an unusual year with record natural catastrophes but we have still made record profits.

"I am delighted that Dane is taking over as CEO and look forward to a successful handover and it is my intention to retain the whole of my Brit shareholding. I look forward to continuing to contribute as part of Brit's management team."

Clive Coates, Chairman, said: "I would like to take this opportunity on behalf of all the stakeholders in our business to thank Neil for his immense contribution to the successful development of Brit from a small investment trust in 1995, to its current position as one of the largest UK based insurance and reinsurance groups. We are pleased that he has agreed to remain with the Group where we will continue to benefit from the drive, talent and enthusiasm which have been such a large influence on Brit's development."

Dane Douetil, Deputy Chief Executive Officer, said: "I am delighted to be given the opportunity to lead Brit in its next stage of development. Furthermore, I am pleased that Neil has agreed to remain with the Group which allows the continuation of the excellent partnership that he and I have developed during the seven years we have worked together."


For further information, please contact

Neil Eckert, Chief Executive Officer, Brit          020 7984 8511
Insurance Holdings PLC
David Haggie/Peter Rigby, Haggie Financial          020 7417 8989

There will be a presentation to analysts at Brit's office at 55 Bishopsgate at 9.30 a.m. today

A webcast of the analysts' presentation will be available on our website www.britinsurance.com this afternoon.

Chairman's Statement

In 2003 Brit emerged as a substantial and profitable participant in the UK insurance sector. In 2004 the Group further built on and consolidated the solid platform it has created in recent years and is again reporting record profits.

Brit's pre-tax profits have increased to GBP102.5m from GBP77.6m and we are continuing to demonstrate the robustness of the Group's reserves.

This strong result is all the more satisfactory for having been achieved in a year notable for the industry in terms of the severity and frequency of natural catastrophe losses.

Over the year Brit returned to the dividend register with two interim payments of 2p per share and I am delighted to announce a recommended final dividend of 2p per share. While our stated dividend strategy is to pay a minimum of 70% of post-tax profits, in fact we are recommending approximately 81% of post-tax profits for the year. We feel that it is appropriate to exceed the minimum threshold in a period where there were exceptional levels of catastrophe losses, but Brit was still able to achieve a record result. These actions demonstrate the Group's desire both to distribute profits to shareholders and maintain tight internal discipline on capital.

Our capital strategy and forward planning have placed Brit in a strong position as regulators implement their new rules. During 2004 the Group's insurance company, Brit Insurance Limited ("BIL") participated in the FSA's pilot on Individual Capital Adequacy Standards ("ICAS") and, Brit believes, became one of the first in the UK to have successfully completed the study.

The Board was further strengthened during the period by the appointment of two new Non-Executive Directors, Peter Hazell and Michael Smith. We have carried out a major review of Board's performance in accordance with the new Combined Code, approved a revised Group Strategy Plan and further developed a detailed succession plan. In this regard, I would like to announce the following changes.

With effect from the AGM on 19 April 2005, Dane Douetil will succeed Neil Eckert as CEO of Brit. This follows Dane's appointment as Deputy CEO 12 months ago, since when he has been working closely with Neil in anticipation of this planned succession. Neil was one of the two key founders of the Company in 1995 and has led it successfully over a 10 year period to become one of the leading companies in the UK insurance market. He will continue to work in an executive capacity supporting Dane until the end of the year, at which time he has agreed to remain on the Board in a non-executive capacity. Our succession planning preserves an experienced and successful executive team whilst embracing orderly management change that we believe is in shareholders' best interests.

Glyn MacAulay will retire from the main Board with effect from the AGM and Peter Hazell, who was formerly UK Managing Partner at PricewaterhouseCoopers, will succeed him as Chairman of the Audit Committee. Glyn has served on the main Board since 1996. He has been involved with the Group during a period of enormous change culminating in today's substantial and profitable insurance business. His experience, judgement and hard work are appreciated by all his colleagues and I wish to record my personal thanks for his outstanding contribution to Brit. We are in the process of recruiting a new Non-Executive Director and details will be announced in due course.

The Reinsurance and London Market operations continue to develop well producing healthy results. Separately, the growth of our UK business, a core element in the Group's strategy, has continued apace. Three regional offices have been established over the last twelve months and a new IT platform currently in testing will shortly be rolled out across the regions. This UK regional push was an area where Brit was exposed to operational risk and I am delighted that targets are being achieved.

Brit has acquired both teams of people and portfolios of business to join its underwriting operations during 2004 and expects further such opportunities in 2005.

This increasing scale and breadth of Brit's activities, especially in the UK regional market, and its role as a medium sized, publicly quoted company, have made it vital for Brit to raise brand awareness. This has been achieved through an integrated strategy encompassing public relations, advertising and general promotional activity as well as our portfolio of sports sponsorships. Care has been taken to measure and evaluate our activities and we are delighted to be running such a successful campaign. In particular, the Brit Insurance Oval has achieved a high profile and we look forward to the 2005 Ashes cricket series with great anticipation.

As expected, 2004 saw further reserve deterioration hit several participants in the insurance market, a trend we expect to continue during 2005. This combined with low investment returns has led to continued pricing discipline. The year end renewal season was late and was completed against a backdrop of the devastating tsunami that hit South East Asia. This is no doubt one of the most terrible human tragedies in recent memory. Our response has been to make a meaningful charitable donation.

Our investment return of GBP77.3m (2003 GBP50.9m) has exceeded our expectations. More than 86% of our invested assets are managed by our associated company, The Equity Partnership Limited, which has performed well and the relationship has proved to be successful.

Finally, I am proud of the Group culture that has been created. We have strength and depth in terms of management. We have a strong emphasis on training, career development, discipline and professionalism. Staff retention is high and Brit offers a happy and vigorous environment in which to work. I would like to thank all the Staff and my fellow Directors for their contribution to another record year for the Group and I look forward to a successful 2005.

Clive Coates
Chairman
1 March 2005

OPERATING REVIEW

Introduction

Brit has delivered another record year during 2004 despite the industry experiencing one of the most active hurricane seasons in living memory. Full year profit before tax was GBP102.5m (2003: GBP77.6m).

We are continuing to build on our operational strengths which extend way beyond our underwriting and risk management expertise into disciplines such as investment, brand, business process and IT and HR.

Both the Group's business model and its management are now established and over the last three years have delivered strong, growing profits, laying the foundations of a solid track record.

Financial Performance

Brit's financial performance in 2004 was helped by the combination of good underwriting conditions and strong investment management performance. Operating profit rose to GBP101.9m from GBP75.4m in 2003. Our underwriting performance was notable for record levels of earned premium income and an excellent combined ratio of 92.5% despite an abnormally high level of catastrophe claims contributing 10.5 percentage points to this ratio. Total invested funds and cash increased by 34.8% while the Group's post-tax return (excluding amortisation of intangibles) on weighted average net tangible assets for the year was 13.0%, up from 12.8% for 2003.

Dividends

We are delighted to recommend a final dividend of 2p per share taking the overall total for the year to 6p per share. This represents a distribution of 80.6% of profits after tax and minority interests. While our dividend strategy is to pay a minimum of 70% of post-tax profits, during this period we have chosen to exceed this amount in the light of the robust financial performance in spite of an unusually active hurricane season. Our strategy on dividends is designed to reward investors while at the same time applying a self imposed capital discipline.

Capital Allocation

Another achievement during 2004 was the Group's involvement in the FSA pilot study on Individual Capital Adequacy Standards ("ICAS"), a development which underlined the fact that capital allocation has been at the heart of Brit's underwriting business model for the last three years.

Following the FSA's review in August of the Individual Capital Adequacy submission for the Group's insurance company, Brit Insurance Limited ("BIL"), and Brit's receipt of the FSA's indicative Individual Capital Guidance for the company, Brit believes BIL became one of the first insurance companies in the UK to have successfully completed the ICAS study.

While one immediate direct benefit has been Brit's improved ability to manage its reinsurance spend, the use of the ICAS model is more widely embedded in our business as it not only looks at underwriting risk, but also at the Group's investment, liquidity, counterparty and operational risks. This has given us a greater understanding of the extent to which risks correlate under different circumstances and of what that means in terms of the potential financial impact on the Group as a whole. Accordingly, the model has enabled Brit to take a more informed view of its capital requirements both now and in the future.

As set out more fully in the Financial Review, we have sufficient, but not excessive, capital to cover our projected regulatory requirements and to maintain the strong insurer financial strength rating necessary to attract high quality business, both now and in the foreseeable future.

Brit continues to invest heavily in the ICAS model and in its understanding of different capital structures.

Underwriting Strategy

In 2004 Brit completed the restructuring of its underwriting operations into three customer facing units - the London Market, Reinsurance, and UK Underwriting Centres. All three have access to the two regulatory vehicles through which Brit underwrites: BIL and Lloyd's Syndicate 2987 which is managed by Brit Syndicates Ltd ("BSL").

Brit manages its underwriting activities as one operation regardless of regulatory vehicle or underwriting centre. This ensures effective portfolio management from both a risk and return on capital perspective, while leading to efficient reinsurance buying and common procedures, protocols and controls.

The decision on where to place the business is complex and is driven by a combination of factors including frictional costs, levies, licensing requirements, use of capital, the financial strength ratings required by clients and client preference. This has led to the majority of the London market business being written by the Lloyd's operation while most of the UK and European business is written by BIL. Reinsurance business is split 54% BIL/46% Syndicate 2987. Brit intends to continue to grow BIL while maintaining Syndicate 2987's current level of capacity.

Capital is set at class level and again at sub-class level, and is traded weekly at Brit's Underwriting Committee where underwriters ask for, or give up, capital as business conditions dictate. This process enables capital to be directed to where the best returns are likely to be achieved. During the course of 2004 115 internal trades were made in respect of GBP132.4m of capacity.

The drive to implement common standards and management across the Group's underwriting operations was further enhanced during 2004 when, following regulatory consent, we mirrored the BIL and BSL Boards to achieve common Executive and Non-Executive Directors across the two regulatory vehicles.

The Brit Brand

Over the course of 2004 Brit also built its brand both nationally and internationally, so supporting the growth plans of its underwriting centres. An integrated strategy embraced activity such as public relations, advertising and sponsorships, as well as customer and distributor development, marketing services, the production of high quality documentation and adoption of one distinct corporate identity. This strategy will continue into 2005.

Brit has used a number of sports sponsorships, each chosen to match the Group's values, stature and dynamism, to leverage mainstream press and broadcast media coverage. This approach has resulted in a significant increase in spontaneous brand awareness. In addition, the Brit Super Series Squash Finals was nominated as a finalist in the British Sports Industry Awards for "Best Sponsorship of an Event or Programme" while the decision to aggregate Brit Insurance Oval and Surrey County Cricket Club into a single title sponsorship produced results that far surpassed those of previous individual sponsors. Activation programmes involving the community won further hearts and minds. In the UK regional market the Brit Novice Hurdles series of horse races, which culminates in the prestigious Cheltenham Festival, has been selected to reflect Brit branch locations and develop Brit's local presence.

The Underwriting Centres

London Market Underwriting Centre

The London Market Underwriting Centre is the largest of Brit's 3 underwriting centres accounting for GBP431.6m of gross written premium in 2004 split GBP107.8m in BIL and GBP323.8m in Syndicate 2987.

Mike Sibthorpe, who has been with Brit since 1998 and is also Active Underwriter of Syndicate 2987, heads up the London Market Underwriting Centre. We have over 70 underwriters within the Centre writing business in the international market for larger corporates and coverholders.

The London Market underwriting performance in 2004 shows a combined ratio of 92.1% although much of the business is longer tail so in line with Brit's conservative reserving policy, claims are projected at the ultimate actuarial estimates. Actual paid and outstanding loss ratios remain at historically low levels supporting our view that the underwriting conditions remain favourable. The unprecedented catastrophe activity in 2004 impacted the US Property and Marine accounts to a degree but the quality and diversity of our underwriting meant that the overall result was first class.

Brit's London Market operation is increasingly leading the business it writes and obtaining larger lines on business it believes is better priced. This is due to a number of factors including Brit's increased brand profile in the market, strong balance sheet and ability to offer reliable capacity and the level of service it provides to brokers. Additionally many of the underwriting teams that have joined Brit in the past few years are beginning to recognise the benefits of Brit's structure and market presence and this has given them the confidence and opportunity to develop their business with encouraging results.

Reinsurance Underwriting Centre

Under the leadership of Richard Finn, the Reinsurance Underwriting Centre has continued to grow with particular progress being made over the year in developing the property division outside of the US. The property division will be further boosted in 2005 by the acquisition of a new team which is well respected for leading US and Canadian business.

Despite the unusual frequency of major loss events the Centre has achieved a creditable overall result in the circumstances, with a combined ratio of 95.1% (2003: 65.7%).

Modest growth should be achievable during 2005 as a result of the widening of the Centre's geographic reach. In addition the recent high claims activity should create more stability for renewal rates than was previously anticipated.

Separately, another feature of 2004 was Brit's growing relationship with Augsburg Re for aviation excess of loss business. Due to the sector's continuing shortage of lead underwriters and capacity, the Centre is anticipating strong growth in aviation reinsurance and retrocessional business generally during 2005.

UK Underwriting Centre

The delivery mechanisms and profile of the UK operation are distinctly different from those of Brit's other two underwriting Centres as most of the business is written on a non-subscription basis and comes through regional retail brokers. Accordingly it is crucial to build the right infrastructure which draws on modern processes while delivering first class service.

Over 2004, the Centre continued to establish its brand across the UK regions, securing a strong foothold in small to medium sized commercial business. New branch offices opened in Leeds, Birmingham and Manchester. Gross written premium rose from GBP309.4m to GBP345.4m and its combined ratio improved from 95.3% to 91.9%. The number of staff in the regional offices rose as follows:

                 31 December 2004     31 December 2003    
                                                          
Birmingham              7                     -           
Bristol                 9                     8           
Glasgow                 7                     4           
Leeds                   7                     -           
Darlington              30                   31           
Manchester              2                     -           
Ilford                 120                   118          
London                  52                   39           
Total                  234                   200          

A slowing in rate increases or in some classes decreases against 2002 and 2003, particularly in the casualty divisions, made it difficult to achieve the same rate of growth as in 2003. Motor business, the cycle for which probably peaked several years ago, came under some rating pressure and Brit has cut back its presence generally, and particularly in the area of private motor.

Business written
                             Gross Written       Gross Written
                                Premium             Premium
                                  2004                2003
Underwriting Centre           GBPm      %       GBPm       %    
                                                             
London Market                                                
Accident and Financial       123.3     11.3    114.0     11.2
Aerospace                     28.6      2.6     61.5      6.1
Casualty                     112.1     10.3    114.5     11.3
Marine                        80.0      7.4     81.3      8.0
Property                      87.6      8.1     97.0      9.5
                             431.6     39.7    468.3     46.1
                                                             
Reinsurance                                                  
Property                     133.5     12.3    102.9     10.1
Marine                         7.1      0.7      2.0      0.2
Casualty                      60.7      5.6     55.0      5.4
Aviation                      36.0      3.3     19.9      2.0
Cat Retro and Other           42.7      3.9     42.0      4.1
                             280.0     25.8    221.8     21.8
                                                             
UK                                                           
Property                      61.7      5.7     69.0      6.8
Casualty                     129.2     11.9     86.0      8.5
Motor                        105.6      9.7    113.0     11.1
Liability                     37.3      3.4     41.4      4.1
Package and Other             11.6      1.1      0.0      0.0
                             345.4     31.8    309.4     30.5
                                                             
Other                         29.7      2.7     16.2      1.6

Group Totals               1,086.7    100.0  1,015.7    100.0

The key January 2005 renewals season has been encouraging. From the Group's management accounts, gross written premium in January 2005 was GBP187.9m (January 2004: GBP152.1m), an increase of 23.5%. For various reasons, we would not expect this high rate of increase to continue through the remainder of the year.

Underwriting Rating Levels

Brit's Premium Index uses 2000 as its base year and reflects the broad trend for each underwriting centre in respect of rates, terms and conditions. The analysis is based on a set coding structure with the data being input by Brit's underwriters. It is compulsory for all open market business to be included and the data is independently audited by the compliance team on a regular basis.

The index mainly tracks renewal business as it is often hard to judge differences in rates for new business. Some caution needs to be exercised when using this table as the varying levels of claims inflation in different classes require different rating increases simply to retain the status quo. Inevitably there is also an element of subjectivity in respect of any assessment of the impact of changes in terms and conditions.

Overall, however, Brit believes that rating levels, while off the highs of recent years, are currently strong and that the market as a whole is generally maintaining discipline, particularly in the area of terms and conditions.

Premium Index (Year 2000 as base year)

                             2000   2001   2002   2003   2004    Jan
                                                                2005
Underwriting Centre

London Market
Accident & Financial          N/A    100    131    142    147    152
Aerospace                     100    158    202    237    260    271
Casualty                      100    122    207    288    303    306
Marine                        100    112    144    156    159    161
Property                      100    112    150    155    152    150

Reinsurance
Property - USA and Canada     100    110    149    154    155    159
Property - International                                  151    149
Property - Retrocessional     100    110    132    120    117    117
Marine                        100    115    171    179    183    188
Casualty                      100    115    182    215    230    231
Aviation                      100    100    167    159    139    128

UK
Property                      100    104    123    132    131    131
Casualty                      N/A    N/A    100    130    129    128
Motor                         100    108    115    120    122    121
Liability                     N/A    100    200    286    284    261

The indices are based on the underwriters' estimates of the rate movements experienced by their business. They are subjective as they are calculated using judgement to estimate the effect of changes in terms and conditions as well as changes in premium.

Split of Premium Income by Geographical Area

An analysis of gross written premium by geographical area is as follows:

                                       2004        2003    
                                       GBPm        GBPm
    
UK                                    419.7       403.4
Other EU member states                 96.6        69.1
USA                                   228.6       234.8
Other (including worldwide)           341.8       308.4
                                    1,086.7     1,015.7

Split of Premium Income by Tail

2002        Short tail                 49.6%      
            Medium tail                24.3%      
            Long tail                  26.1%      
                                                  
2003        Short tail                 44.1%      
            Medium tail                19.2%      
            Long tail                  36.7%      
                                                  
2004        Short tail                 48.0%      
            Medium tail                17.4%      
            Long tail                  34.6%      

Realistic Disaster Scenario ("RDS")

We continue to monitor over 20 types of RDS across the Group and conduct a formal review quarterly. Both the return periods used and the type of RDS events that are tested are continually assessed and have been slightly modified in 2004. The Group currently works to a return period of one in one hundred years for windstorm and one in two hundred years for earthquake. The table shows exposures prevailing in the fourth quarter of 2004.

We have managed the net loss percentages to approximately the same levels as earlier years. The increasing scale and diversity of our business written has enabled us to achieve this on a reduced percentage reinsurance spend. In summary, the Group's risk appetite in respect of exposure to a single event remains capped at the following levels:

- Gross loss not to exceed 30% of Gross Premium net of brokerage
- Net loss after reinsurance recoveries and reinstatement premiums not to
  exceed the lower of 10% of Gross Premium net of brokerage or 20% of
  capital.

RDS exposure - as percentage of Gross Premium net of brokerage

                          Gross Loss             Net Loss        
                         GBPm        %         GBPm        %
                                                            
US windstorm            207.0     23.5         55.9      6.3
California              255.2     29.0         55.5      6.3
earthquake                                                  
European windstorm      229.6     26.0         61.7      7.0
Japanese                240.3     27.3         56.9      6.5
earthquake                                                  

Catastrophe Losses

                         Gross Reinsurance            Net    Net
                          Loss  Recoveries Reinstatements   Loss
                          US$m        US$m           US$m   US$m
                                                               
Hurricane Charley       (43.0)         7.2            2.1  (33.7)
Hurricane Frances       (42.5)        10.0          (0.2)  (32.7)

Hurricane Ivan         (130.2)        93.1         (12.3)  (49.4)
Hurricane Jeanne        (27.4)        15.9            0.7  (10.8)
Total Hurricane Losses (243.1)       126.2          (9.7) (126.6)
Typhoon Songda          (20.8)         6.6            0.6  (13.6)
Asian Tsunami           (42.3)         9.1            1.7  (31.5)

                       (306.2)       141.9          (7.4) (171.7)
                       
GBPm equivalent        (159.5)        73.9          (3.8)  (89.4)

The overall level of catastrophe claims is more than twice our expectation for a normal year, and the total effect is the equivalent of approximately 10.5 percentage points on our combined ratio.

Reinsurance

One of the major benefits of the development of Brit's ICAS model has been our ability to manage better the Group's outward reinsurance buying and we have cut our reinsurance spend as a percentage from 21.2% of gross written premium income in 2002 to 16.2% in both 2003 and 2004. The figure for 2004 would have been 1.1 percentage points lower but for reinstatement premiums, which totalled GBP11.9m.

We constantly monitor our exposure to our counterparty reinsurance risk, not just on the basis of current exposure but also taking into account all the Group's outstandings and IBNRs by legal entity.

We also run a matrix which sets a cap on our exposure to any one reinsurer and is based on the entity's financial net worth and Brit's internal rating of that entity. This enables the Group to manage its relationship with a particular reinsurer from overweight to underweight as circumstances dictate. We seek to have the same open and transparent dialogue with our reinsurers as we do with all stakeholders in our business and view our relationships as long term, a strategy we expect to serve us well over time.

Claims

Our decision just over a year ago to separate underwriting and claims from the same reporting line continues to prove its worth. The focus that Bob Foster, who heads our Claims Division, has been able to achieve has enabled proactive management of our claims handling and the Group was delighted to receive external validation of its strategy in the form of the 2004 Claims Team of the Year Award from key industry publication, Insurance Day.

Immediate benefits of the restructuring include more efficient service due to a greater focus on fewer third party suppliers of claim services and, in many cases, further mitigation of claims through active management.

Brit puts claims service at the centre of its brand and strives to achieve prompt settlement. We believe this strategy benefits both our clients and Brit as it enables the Group to assess more accurately its actual cost of sales. This in turn means we are better placed to get our pricing right. Where we do not have full knowledge of a definite claim amount we actuarially assess the reserve to ultimate including claims inflation.

We are represented on the Lloyd's Claims Steering Group. The Group has proposed major changes to the Lloyd's market which Brit believes will radically reform the way claims are managed in terms of the efficiency of delivery of information and quality of the data received. Accordingly, Brit has been an early adopter of the main recommendations.

Claims Triangulation

The table shows a claims triangulation for the 2002, 2003 and 2004 underwriting years. The triangulation shows the position (paid and outstanding) for these years at different stages of development. Actual claim amounts are expressed as a percentage of the estimated ultimate Gross Premiums net of brokerage ("GNP") for each year.

                      12 months 24 months 36 months Ultimate
                                                    GNP GBPm
2002 Gross Claims Paid     4.4%     21.4%     30.0%    476.0
     Gross Outstanding    10.1%     14.5%     13.8%        
     Gross Incurred       14.5%     35.9%     43.8%        
                                                           
2003 Gross Claims Paid     3.7%     16.1%              754.4
     Gross Outstanding     6.4%     15.8%                 
     Gross Incurred       10.1%     31.9%                 
                                                           
2004 Gross Claims Paid     6.0%                        965.0
     Gross Outstanding    12.5%                          
     Gross Incurred       18.5%                          

Reserving strength is crucial for any insurer; Brit's policy of reserving fully on first notification is supported by a number of internal and external reviews and benchmarking exercises. Adjusted for the abnormal catastrophes of 2004, both 2004 and 2003 are developing more favourably at their respective stages than 2002.

Business Process

Brit continues to invest in better business process and its information technology capability.

The Group's commitment to reform of business process includes involvement in relevant market committees. In particular, Dane Douetil is a member of the Market Reform Group which consists of the major London brokers and insurance companies and representatives of Lloyd's. He also chairs the Lloyd's Market Association Market Processes Committee.

Real progress was made during 2004 and Brit is hopeful that further progress through Accounting and Settlement, Claims Loss Advice and Settlement System ("CLASS"), the contract certainty at inception programme and the London Market Principles ("LMP") slip will bear fruit during 2005. However, first it will be necessary for significant market standardisation to be achieved if the new electronic world is to be effectively utilised.

Further impetus for change is also likely to flow from the Spitzer enquiry in the US as this will create increased pressure for brokers to become more efficient in their processes. Those underwriting units that are able to take over some of the processing from brokers and to provide them with a better service are likely to be the medium term winners.

We believe Brit is ideally equipped to take advantage of this market repositioning and the Group will continue to place itself generally at the forefront of market process changes.

Strategic Investments

The Group owns 40.9% of The Equity Partnership Limited ("EPL"), an investment management group. The Group's share of EPL's pre-tax profit is GBP0.6m (2003: GBP0.2m) and it made a further significant contribution in the form of a very good investment return. Of the Group's total invested assets of GBP1,833.1m (including 100% of syndicate assets), EPL manages some GBP1,583.9m, plus some GBP603.0m of external client monies.

The Group owns 32.0% of Ebix, a Nasdaq listed US software supplier, which has recorded its best ever results in 2004. Its share price performed well rising from US$12.26 to US$15.00 during the year.

The Group owns 77.2% of Ri3k, an electronic reinsurance trading platform supplier which made a loss for the year but has been winning significant new customers. It now has the opportunity to position itself as the global reinsurance industry's preferred solution to the increasingly critical issues of contractual certainty and transparency.

Our People

Brit believes passionately that the quality of the Group's people and their associated business skills can be a true business differentiator; accordingly, it is committed to being an industry leader in terms of people development and has an ongoing programme of training and appraisal of all staff. In particular, our graduate recruitment and training drive has been an outstanding success, enabling us to secure a range of high calibre people. These programmes, together with personal development initiatives, an active social programme and an enhanced internal communications focus give Brit a unique and enjoyable, but hard working, culture.

Investor Relations

Regular communication with major investors and stakeholders is the bedrock of Brit's investor relations strategy. Shareholders are encouraged to contact the Group directly with questions or concerns which Brit seeks to deal with as swiftly as possible, subject to such obvious restraints as price sensitivity.

The investor relations section of the Group's website, www.britinsurance.com is a key element in this process. Brit was delighted when the 2004 DriverIs Corporate Website survey, which reviews the UK's top 350 quoted companies, placed Brit's site at the top of the insurance sector and equal eighth overall.

As well as the dissemination of information through various media, a programme of meetings is conducted after the release of final and interim results or any other significant announcement.

Current and Future Strategy

In the 2003 Annual Report, Brit set out its intention, having evolved from a diverse portfolio of insurance investments, to become a significant UK and international insurance Group.

The last twelve months have seen great strides towards the delivery of this strategic goal and our key area of growth has been, and will continue to be, commercial insurance business both in UK and international markets.

The UK and international commercial accounts are developing well and we have established a strong regional presence in the UK market which has grown as expected to represent an increasing share of our overall account.

The insurance market continues to experience low investment returns which together with pressure on back year reserves among a number of our competitors give us real confidence that the necessary market conditions will remain in force for good returns to be generated on our account.

Similarly, the Group's reinsurance account is prospering despite a year that saw some of the most intense and costly hurricane activity for many years. The Group's underwriting discipline is being maintained and the reinsurance account is expected to represent approximately 20% of our overall portfolio for the 2005 underwriting year.

Brit has maintained a niche presence in selected areas of personal lines business where it perceives itself to offer a competitive advantage to its customers, although it does not expect major growth in this area.

Brit sets out its stall as a strongly capitalised, well reserved and conservatively managed group. We have concentrated hard on customer service, business process, risk management and the calibre and training of our people. Our strong balance sheet is attractive to major customers and brokers and we have an outstanding and growing underwriting team.

We have continued to concentrate on the development of our fund management and investment operations, an area that will always represent a key part of any successful insurance group's activities.

Acquisitions that involve reserve risk have been avoided and we have stayed true to our word on paying a full dividend. We believe this encourages internal capital discipline and rewards those investors that hold our shares. Our financial performance has continued to improve despite 2004 being notable for its claims activity.

In short we are delivering on our strategy that was first set out in 2001. We look forward to building on this platform and delivering a strong and profitable 2005.

Neil Eckert
Group Chief Executive Officer

Financial Review

Highlights 2004

- Profit before tax of GBP102.5m (2003:GBP77.6m)              
- 28.0% expense ratio (2003:28.8%)                            
- 64.5% claims ratio (2003:59.7%)                             
- 92.5% combined ratio (2003:88.5%)                           
- 7.0% increase in gross written premium                      
- 27.3% increase in net earned premium                        
- Dividend payments resumed                                   
- Capital reorganisation                                      

Summary of Results

Total operating profit was GBP101.9m (2003: GBP75.4m). Operating profit at the long-term rate of investment return was GBP97.6m (2003: GBP91.1m).

The assumed long term rates of return remain unchanged and are as below:

Equities                                    7%
Cash and bonds                              5%
Syndicate funds                             5%

Total operating profit by company:

                         Insurance                         
                 Lloyd's companies   Other   Total   Total  
                    2004      2004    2004    2004    2003  
                    GBPm      GBPm    GBPm    GBPm    GBPm  
                                                          
Technical           56.3      65.7     0.0   122.0   100.3
result                                                    
Investment          31.4      35.1     3.7    70.2    63.1
return                                                    
nvestment         (33.0)    (28.4)     0.0  (61.4)  (44.0)
income                                                    
transferred to                                            
technical                                                 
account                                                   
Interest               -         -   (4.9)   (4.9)   (4.6)
payable                                                   
Fees and             0.9         -     1.6     2.5     8.6
commissions                                               
Other income           -         -     0.3     0.3     1.5
Other expenses       0.2     (1.2)  (20.3)  (21.3)  (25.4)
Amortisation       (1.7)         -   (8.1)   (9.8)   (8.4)
Operating           54.1      71.2  (27.7)    97.6    91.1
profit at                                                 
long-term rate                                            
of return                                                 
Short-term           0.9       3.4     0.0     4.3  (15.7)
fluctuations                                              
in investment                                             
return                                                    
Operating profit    55.0      74.6  (27.7)   101.9    75.4
                                            

Underwriting operations

As previously stated, Brit underwrites through two regulatory vehicles: UK authorised insurer, BIL, and Lloyd's Syndicate 2987 which is managed by BSL. The net assets of BIL totalled GBP334.2m at 1 January 2004 and increased to GBP369.2m at 31 December 2004.

Underwriting at Lloyd's is supported by Funds at Lloyd's ("FAL") which totalled GBP288.2m at 31 December 2004 (2003: GBP308.0m). Capacity at Lloyd's for the 2004 underwriting year was GBP500.0m (2003:GBP513.8m). All Lloyd's business written by the Group for 2004 underwriting year was through Syndicate 2987 of which Brit owns 100%. For 2005, the FAL supports GBP500.0m (2004: GBP500.0m) of capacity on Syndicate 2987 and the run-off requirements of Syndicate 389 and remaining non-managed syndicates. Due to Lloyd's market capacity management initiatives the Qualifying Quota Shares ("QQSs") utilised to increase Syndicate 2987's capacity in 2004 are not available for use in 2005.

Overall Lloyd's capacity by underwriting year:

              2005        2004        2003        2002     
Syndicate  100%  Brit  100%  Brit  100%  Brit  100%  Brit
          share share share share share share share share
           GBPm  GBPm  GBPm  GBPm  GBPm  GBPm  GBPm  GBPm
                                                         
389           -     -     -     -  15.0  13.8  14.0  12.7
2040          -     -     -     -  14.0     -  14.0     -
2400          -     -     -     -     -     -  30.0   1.5
2987      500.0 500.0 500.0 500.0 500.0 500.0 450.0 440.0
TOTAL     500.0 500.0 500.0 500.0 529.0 513.8 508.0 454.2
Group         -     -  50.0  50.0 100.0 100.0  75.0  73.3
QQSs                                                     
3rd party     -     -     -     -  22.0  22.0  53.3  52.1
QQSs                                                     
TOTAL     500.0 500.0 550.0 550.0 651.0 635.8 636.3 579.6
after                                                    
QQSs                                                     

Gross written premium for 2004 was GBP1,086.7m (2003: GBP1,015.7m). Net written premium income for 2004 was GBP910.4m (2003: GBP850.8m). Net earned premium income was GBP854.5m (2003: GBP671.4m). The rates of premium growth have been slowed by a number of factors including exchange differences, a downwards revision in estimated pipeline premiums relating to binding authorities and lineslips, and underwriting discipline in areas of unattractive market pricing.

Investment

The Investment Committee has responsibility for the overall investment policy of the Group, including cash and liquidity management. Investment policy at the date of this report is to continue holding the majority of funds in short dated, liquid investments with high credit quality.

Group invested assets totalled GBP1,833.1m (including 100% of syndicate assets) at 31 December 2004 (2003: GBP1,434.9m). Since 1 March 2004 group asset allocation and overall investment management has been delegated to EPIC Asset Management Ltd ("EPAM"), a 70 per cent subsidiary of The Equity Partnership Ltd ("EPL"), an associated company of the Group.

Overall asset mix varies from time to time. It is not anticipated that the total invested in equities will exceed 10 per cent of total invested assets.

Total invested assets at 31 December 2004 were allocated as below:

                           31 December     31 December
                                  2004            2003
                                  GBPm            GBPm
Equities                         175.7           154.0
Bonds                            711.5           793.7
Cash and deposits                945.9           487.2

Total                          1,833.1         1,434.9

The return from the main asset classes is shown below alongside various market indices.

Sterling fixed income investment performance 2004


BRIT Bonds and cash                                4.56%
1 month GBP LIBID                                  4.40%
1-3 year Gilts                                     4.64%

US$ Fixed income investment performance 2004

BRIT Bonds and cash                                1.19%
Cash                                               1.30%
1 Year US Treasury                                 0.82%

Equity Returns 2004

Brit Equity                                       18.99%
All share index                                    9.21%
FT 100                                             7.54%
Nasdaq in GBP                                      1.33%

The currency mix of the investment portfolio was:

                              31 December      31 December
                                     2004             2003
                                        %                %
Sterling                             64.6             61.8
US$                                  26.4             30.9
Euros                                 7.1              5.7
Other                                 1.9              1.6
                                                          
Total                               100.0            100.0

Equity investments include managed equity portfolios, which form part of the Group's FAL, investments in Lloyd's entities and a number of strategic investments. A breakdown is given below:

Equity Investments 31 December Return for 31 December Return for

                                     year                   year
                          2004       2004        2003       2003
                          GBPm       GBPm        GBPm       GBPm

Lloyd's listed            13.9        0.8        13.7        2.8       
investments                                                    
Other listed               1.0        0.2         0.9        0.7       
investments                                                    
Non listed                 1.1        0.1         1.1      (0.2)     
investments                                                    
Managed portfolios       133.8       20.3       116.0       13.5      
Protected funds            1.4          -         1.4          -         
Ebix Inc                   7.2        0.9         6.3        4.9       
EPIC PLC - Capital        12.0        2.0         9.9      (5.1)     
shares                                                         
EPIC PLC - Income          5.3        0.9         4.7        0.8       
shares                                                         

Total                    175.7       25.2       154.0       17.4      

The duration of the total bond portfolio was 1.65 years at 31 December 2004 (2003: 1.27 years). The bond portfolios were invested as below:

                                           2004        2003    
Rating                                     GBPm        GBPm    

Government                                352.4       425.5
AAA                                       162.4       164.2
AA                                        138.9       133.9
A                                          55.5        64.4
BBB                                         1.0         4.4
Other                                       1.3         1.3

Total                                     711.5       793.7

Ri3k Limited

The Group has continued to invest in Ri3K during the year. Ri3K placed over 1,000 contracts through its platform during the year and now has 142 customers, generating a turnover of GBP2.6m (2003: GBP0.2m). In addition the company provided consultancy services to several customers. The Group results for the year include a loss before tax of GBP2.5m in respect of Ri3K (2003: loss GBP3.9m).

Expenses
                                               2004        2003
                                               GBPm        GBPm

Commissions                                   173.9       132.1
Other acquisition costs                        38.0        33.5
Operating expenses                             32.9        45.2
Total technical account expenses              244.8       210.8
Non-technical account net operating            31.1        33.8
expenses

Total expenses                                275.9       244.6

Operating expenses and other acquisition costs incurred by the group during the year were:

                                  31 December 2004    31 December 2003
                            Technical  Non-Technical
                               GBPm         GBPm      Total      GBPm

Payroll costs before           25.2         6.8        32.0       28.9
profit related pay
Profit related pay              5.8         1.9        7.7        6.7
Accommodation costs             2.9         0.6        3.5        4.3
Legal & professional            2.9         1.1        4.0        4.1
charges
IT costs                        4.7         0.0        4.7        5.6
Marketing &                     0.0         2.6        2.6        1.0
communications
Amortisation                    0.0        10.0       10.0        8.5
Exchange movements              0.0         1.4        1.4        7.9
VAT irrecoverable               1.9         0.6        2.5        1.8
Lloyd's charges                12.2         0.0       12.2       16.9
Depreciation                    2.4         2.8        5.2        2.6
Other syndicate expenses        5.7         0.0        5.7        6.1
Other                           7.2       (1.1)        6.1        3.5
                               70.9        26.7       97.6       97.9
Peoples Choice                  0.0         0.0        0.0       10.6
Ri3K                            0.0         4.4        4.4        4.0
TOTAL                          70.9        31.1      102.0      112.5

Profit after tax

The profit after tax and minority interests was GBP72.0m (2003:GBP57.5m). The effective tax rate was 29.4% (2003: 26.3%), and is likely over time to trend upwards slightly given our predominance of US and UK business. From 2005, the Group is likely to be in a cash tax paying position, following the utilisation of almost all loss carry forwards, and elimination of associated deferred tax assets.

Earnings per Share

Basic earnings per share were 7.45p (2003: 6.58p). Details of the calculation are given in Note 11 to the financial statements.

Key Ratios
                                                2004       2003
                                                     (Restated)

Net written premium / Gross written            83.8%      83.8%
premium                                                        
Net written premium growth                      7.0%      62.9%
Net written premium / Weighted average        130.5%     146.9%
shareholders' funds                                            
Technical result / Net earned premium          14.3%      14.9%
Claims ratio                                   64.5%      59.7%
Expense ratio                                  28.0%      28.8%
Combined ratio                                 92.5%      88.5%
Gross technical provisions / Gross            170.7%     140.0%
written premium                                                
Net technical provisions / Net written        168.0%     128.9%
premium                                                        
Shareholders' funds / Net technical            46.4%      63.6%
provisions                                                     
Insurance debtors / Shareholders' funds        63.4%      57.8%
Insurance debtors / Total assets               15.8%      17.3%
Group borrowings / Shareholders' Funds          9.8%       8.4%

Dividend per Share

A final dividend for the year of 2p per share is proposed. A first interim dividend of 2p per share was paid on 28 May 2004 and a second interim dividend of 2p per share was paid on 15 October 2004. Total dividend for the year is 6p per share.

Capital Reorganisation

On 23 April 2004, the Company reorganised its share capital in order to recommence the payment of dividends. A transfer of GBP170.0m was made from the share premium account to the profit and loss account to effect the reorganisation. At 31 December 2004, the Company had distributable reserves of GBP49.1m (2003: deficit of GBP65.6m).

Technical Provisions

Net technical provisions as at 31 December totalled GBP1,529.4m (2003: GBP1,096.6m) and are analysed below.

Net Technical Provisions                              
                                       2004       2003
                                       GBPm       GBPm

Provisions for unearned premium       507.2      466.7
Notified claims outstanding           394.7      305.7
IBNR                                  623.6      323.8
Equalisation provision                  3.9        5.7
Other technical provisions                -      (5.3)
                                    1,529.4    1,096.6

Reinsurance Recoverable

Our current exposure to our reinsurers as ranked by external ratings is detailed below. Most of those reinsurers that are not rated have previously been rated but have dropped their rating on moving into solvent run-off.

                                            2004       2003
                                            GBPm       GBPm
                                                           
Amounts due at 31 December                  54.3       37.8
Recoveries in respect of outstanding       266.4      222.9
claims                                                     

Total                                      320.7      260.7


Credit Quality                              2004       2003
                                               %          %

AAA                                          1.2        1.5
AA                                          21.3       19.9
A                                           69.1       66.5
BBB and below                                0.4        5.1
Not rated                                    8.0        7.0

Total                                      100.0      100.0

Group Borrowings

Some changes have been made to the Group's gearing and liquidity facilities during the year. Remaining borrowings under the GBP80m variable rate facility taken out in February 2000 were repaid in November and a GBP40m overdraft facility was set up with Barclays Bank PLC to cover working capital requirements. Additionally a new facility of US$15.0m was established through a pool in June 2004. This debt is designed to qualify as lower tier 2 capital under the new capital adequacy rules. This facility is subordinated debt priced at 3.5% over US Dollar three month LIBOR and has a 30 year term with an option to repay after five years.

Total Group debt at 31 December 2004 was GBP69.9m (2003: GBP58.9m). This comprised GBP18.2m under the overdraft facility (2003: loan facility GBP15.0m), US$14.5m (2003: nil) under the pooled debt facility and GBP44.1m (2003: GBP43.9m) of 8.5% Convertible Unsecured Subordinated Loan Stock ("CULS") 2008. The final date for conversion of the CULS is 31 October 2005. Following the capital reorganisation in April the conversion price of this CULS was adjusted to one share per 81p nominal value of stock.

The Group will readdress its overall level of gearing when the CULS have converted. When the last date for potential conversion has passed, to the extent that any CULS do convert, the Group may consider some form of share repurchase or special dividend.

Foreign Exchange

Approximately 52.0% (2003: 53.0%) of the Group's GWP arise in foreign currencies. An analysis of gross written premium by currency is shown below. In recent times the main concerns have been focused on US dollar weakness. Current policy is to estimate earned profits arising in US dollars and to sell these profits for sterling as they arise. Earnings in Euros and Canadian dollars are sold on a less frequent basis.

Liabilities in the principal trading currencies of sterling, US dollars and Euros are substantially matched with assets held in those currencies. Other currencies are converted into sterling.

                  Gross Written Premium    Gross Written Premium
                           2004                      2003
                     GBPm           %         GBPm           %

GBP Sterling*       521.7        48.0        477.8        47.0
US Dollars          417.6        38.4        450.9        44.4
Can Dollars          31.7         2.9         19.1         1.9
Euros               115.7        10.7         67.9         6.7
                  1,086.7       100.0      1,015.7       100.0

* Sterling includes other miscellaneous currencies

Capital Management and Financial Strength

BIL has a financial strength rating of A (Excellent) with a stable outlook from A M Best and A+ (Strong) with stable outlook from Fitch Ratings.

Group net tangible assets at 31 December totalled GBP649.8m (2003: restated GBP627.6m).

In 2004, the Group wrote gross premium of GBP1,086.7m, representing a premium to net tangible asset ratio of 167.2%.

Regulatory requirements are continuing to tighten. FSA policy statement 04/24 has confirmed the implementation date for the hard requirement Parent Undertaking Solvency Calculation as 31 December 2006. From that date, insurance groups that own a UK regulated insurance company will have to hold sufficient capital at holding company level to cover the solo capital requirements of all their individual underwriting entities.

The enhanced capital requirement ("ECR") is now effective as a soft test. The methodology for assessing the ECR applies capital charges to various assets and liabilities in addition to premium income. In order to assess capital adequacy and the amount of capital needed to support a given level of underwriting it is important also to assess the projected capital requirement for the fully developed book of business. In a period of growth the immediate capital requirement lags the ultimate requirement as the technical reserves take time to reach an equilibrium level.

The following table summarises an illustrative proforma ECR calculation based on the current business mix, an assumed level of gross written premium of GBP1.3bn and a fully developed 'tail' of reserves appropriate to each of the Group's respective classes of business. It must be emphasised that this proforma table is for illustrative purposes only, and does not represent a forecast for any specific financial period. Our current ECR has not reached this level.

Pro forma                                                          
                  Business Ratio of                          Insurance
                    Mix    technical                         -related 
                    NGWP   reserves                            Risk   
                              to                              Charge  
                           written                                    
Class                      premium   Premium         Reserve              
                                      Charge          Charge              
                    GBPm               GBPm            GBPm     GBPm   

Accident and          65     0.6         4               2        6
Health                                                           
Motor                 85     1.7         9              12       21
Marine /             125     2.0        28              40       68
Aviation /                                                       
Transport                                                        
Property             250     0.9        25              20       45
Third Party          250     4.5        35             154      189
Liability                                                        
Misc and             150     2.3        37              46       83
Pecuniary Loss                                                   
Direct Total         925     2.3       138             274      412

Non-proportional     180     2.3        88              51      139
Proportional          40     2.3         8              11       19
Reinsurance          220     2.3        96              62      158
Total                                                            

Total              1,145     2.3       234             336      570

                                             Asset-related      100
                                               Risk Charge         

                                          Enhanced Capital      670
                                               Requirement         
                                                     (ECR)         

'NGWP': Gross Written Premium less reinsurance payable

The asset related risk charge is based on assumed proforma total gross assets of approximately GBP3.5bn and applying the following charges per principal category:

                                                      %
Equities                                           16.0
Tangible fixed assets                               7.5
Debtors and fixed income securities          1.5 to 4.0
Cash                                                0.0

As can be seen from the table, the Group's current net tangible assets of GBP649.8m are broadly equal to the proforma ECR. The Group is likely to have a small quantity of inadmissible assets and US$14.4m of qualifying subordinated debt at 31 December 2004.

The Group's policy is to manage its rating to a high 'A' as compared with the 'BBB' level at which ECR is set, in order to maximise quality of earnings, reduce risk to shareholders and policyholders and to attract high quality business from clients and brokers. In accordance with this policy, the Group maintains a margin of capital above its ECR. Assuming the ECR grows over time to its proforma level, the Group has the scope to raise appropriate additional capital recognised by regulators and rating agencies by way of subordinated debt and would expect to grow its net assets via a level of retained profits. The potential capacity for subordinated debt issuance without adversely impacting rating agency requirements is up to 20 per cent of our equity capital.

Group Pension Schemes

The Group operates two principal pension schemes:

- A money purchase scheme based on the stakeholder legislation.
- A final salary scheme. This scheme was closed to new members during
  2001.

Total assets backing the final salary scheme at 31 December 2004 were GBP60.7m (2003: GBP56.7m). During the year the benchmark for the proportion of assets invested in equities was revised from 85% to 70%.

The Group has not adopted FRS 17 in respect of the final salary scheme. Details of the effect of accounting under FRS 17 have been included in Note 31 to the accounts. The scheme at 31 December 2004 would have had a liability net of deferred tax under FRS 17 rules of GBP12.9m (2003: GBP10.9m). This increased deficit is primarily due to changes in the assumptions made at the year end, especially the increase in the rate of inflation and a reduction in the discount rate.

Net Asset Value per Share

At 31 December 2004 net assets totalled GBP710.0m (2003 restated: GBP697.5m) equivalent to 72.9p per share (restated 2003: 71.6p). Net tangible assets totalled GBP649.8m (2003 restated: GBP627.6m) equivalent to 66.7p per share (restated 2003: 64.4p).

Changes in accounting policy

The Group has adopted UITF 37 (Purchases and sales of own shares) and UITF 38 (Accounting for ESOP trusts). These require that consideration paid for an entity's own shares should be deducted from equity rather than being shown as an asset on the balance sheet. Further details are given in the Accounting Policies to the Financial Statements.

International Financial Reporting Standards ("IFRS")

Brit's IFRS Conversion Project is progressing well. Brit has reached an advanced stage in the conversion of its 31 December 2003 balance sheet as well as the restatement of the 2004 consolidated accounts for both 30 June and 31 December.

The standards are subject to possible amendments by the International Accounting Standards Board ("IASB") or other bodies and therefore may change prior to the publication of the Group's IFRS result. As a result, full quantification of the effects of conversion for the consolidated accounts has yet to be finalised.

The primary conclusions formed from the conversion work performed to date are as follows:

- The transition to IFRS is not expected to have a significant impact on
  the Group's shareholders' funds;
- Brit's stated dividend payout policy is not expected to be affected by
  IFRS; and
- Almost all insurance policies written by the Group fall within the IFRS
  4 (Insurance Contracts) definition of an insurance policy and therefore
  will continue to be accounted for under the Group's existing accounting
  policies.

The key changes in accounting treatment for Brit include:

- Elimination of the equalisation provision;
- Elimination of the long-term rate of investment return calculation;
- Separate recognition of an expense in the income statement for employee
  incentive schemes under IFRS 2 (Share Based Payments);
- Goodwill no longer amortised but subject to annual impairment test;
- Recognition of debt and equity portions of hybrid instruments such as
  the convertible unsubordinated loan stock;
- Investments will continue to be marked to market but will be valued at
  bid price and not at mid price as at present; and
- The incorporation of the pension scheme deficit measured under IAS 19
  (Employee Benefits).

It is our intention to present 31 December 2003 and 31 December 2004 balance sheets, together with primary statements for the year ended 31 December 2004 on an IFRS basis prior to the announcement of our next set of interim results.

Matthew Scales Group Finance Director

Consolidated Profit and Loss Account - Technical Account - General
Business

for the year ended 31 December 2004
                                         Notes  Year ended  Year ended
                                               31 December 31 December
                                                      2004        2003
                                                   GBP'000     GBP'000

Earned premiums, net of reinsurance:

Gross premiums written                           1,086,731   1,015,727
Outward reinsurance premiums                     (176,300)   (164,962)
Net premiums written                               910,431     850,765

Change in the provision for unearned              (63,599)   (181,388)
premiums
Change in the provision for unearned                 7,642       2,059
premiums, reinsurers' share
Net change in the provision for unearned          (55,957)   (179,329)
premiums

Earned premiums, net of reinsurance                854,474     671,436

Allocated investment return transferred             61,439      43,985
from the non-technical account

Total technical income                             915,913     715,421

Claims incurred, net of reinsurance:

Claims paid:
Gross amount                                     (309,077)   (228,667)
Reinsurers' share                                   57,293      89,490
Net claims paid                                  (251,784)   (139,177)

Change in the provision for claims:
Gross amount                                     (361,621)   (224,234)
Reinsurers' share                                   67,760    (37,039)
Net change in the provision for claims           (293,861)   (261,273)

Technical charges:
Claims incurred, net of reinsurance              (545,645)   (400,450)
Change in other technical provisions               (5,254)       (673)
Net operating expenses                    2      (244,779)   (210,840)
Change in the equalisation provision                 1,737     (3,186)
Total technical charges                          (793,941)   (615,149)

Balance transferred to the non-technical           121,972     100,272
account


Consolidated Profit and Loss Account - Non-Technical Account

for the year ended 31 December 2004
                                        Notes    Year ended  Year ended
                                                31 December 31 December
                                                       2004        2003
                                                    GBP'000  (restated)
                                                                GBP'000

Balance on technical account for general            121,972     100,272
business
Net investment return                     3          69,623      42,708
Allocated investment return transferred
to the
technical account for general business             (61,439)    (43,985)
Fees and commissions                      4           2,542       8,653
Other income                              5             310       1,540
Other expenses                            6        (31,116)    (33,761)

Operating profit                                    101,892      75,427

Profit on disposal of subsidiary                          -       1,920
undertakings
Share of operating profit in associated
undertakings, net of
goodwill amortisation                     15            577         219

Profit on ordinary activities before tax            102,469      77,566

Tax charge on profit on ordinary          9        (30,074)    (20,385)
activities

Profit on ordinary activities after tax              72,395      57,181

Equity minority interests                 27          (362)         312

Profit attributable to members of the                72,033      57,493
parent company

Equity dividends                          10       (58,067)           -

Profit retained for the year                         13,966      57,493


Operating profit based on the long-term              97,615      91,167
rate of investment return
Short-term fluctuations in investment                 4,277    (15,740)
return
Operating profit                                    101,892      75,427

Basic earnings per share (pence per       11          7.45p       6.58p
share)

Diluted earnings per share (pence per     11          7.30p       6.50p
share)

In accordance with the amendment to Financial Reporting Standard 3 "Reporting Financial Performance", the inclusion of unrealised gains and losses in the profit and loss account to reflect the marking to market of investments in the balance sheet is deemed not to be a departure from the unmodified historical cost basis of accounting. Accordingly a separate note of historical cost profits and losses is not given.

All results arise from continuing operations.

Consolidated Statement of Total Recognised Gains and Losses

for the year ended 31 December 2004
                                                Year ended  Year ended
                                               31 December 31 December
                                                      2004        2003
                                                            (restated)
                                                   GBP'000     GBP'000

Profit attributable to members of the               72,033      57,493
parent company
Prior year adjustment                     24           110
Total recognised gains and losses                   72,143
relating to the year



Consolidated Balance Sheet

as at 31 December 2004

Assets                                   Notes       As at        As at
                                               31 December  31 December
                                                      2004         2003
                                                             (restated)
                                                   GBP'000      GBP'000

Intangible assets:
Syndicate participations                               502        2,236
Goodwill                                            59,631       67,732
                                          12        60,133       69,968

Investments:
Financial investments                     13     1,719,684    1,164,122
Investments in associated undertakings    15         1,570          253
                                                 1,721,254    1,164,375

Reinsurers' share of technical
provisions:
Provision for unearned premiums                     59,610      103,072
Claims outstanding                                 266,438      222,863
                                                   326,048      325,935

Debtors:
Arising out of direct insurance                    183,638      147,917
operations
Arising out of reinsurance operations              266,719      255,305
Other debtors                             17        31,325       31,976
                                                   481,682      435,198

Other assets:
Tangible assets                           18        11,194        4,779
Cash at bank and in hand                            97,785      183,993
Other assets                                        29,286       15,069
                                                   138,265      203,841

Prepayments and accrued income:
Deferred taxation                         22             -       18,922
Deferred acquisition costs                         110,436      100,481
Other prepayments and accrued income      19        17,690       11,409
                                                   128,126      130,812

Total assets                                     2,855,508    2,330,129


Liabilities                             Notes        As at      As at
                                                        31         31
                                                  December   December
                                                      2004       2003
                                                           (restated)
                                                   GBP'000    GBP'000

Capital and reserves:
Called up share capital                   23       243,518    243,513
Share premium account                     24       311,145    481,135
Capital redemption reserve                24           586        586
Investment in own shares                  24 &     (5,615)    (4,085)
                                          26
Profit and loss account                   24       160,341   (23,625)
Equity Shareholders' funds                25       709,975    697,524

Equity minority interests                 27        10,238      9,398

Technical provisions:
Provision for unearned premiums                    566,801    569,764
Claims outstanding                               1,284,715    852,340
Equalisation provision                               3,933      5,670
Other technical provisions                               -    (5,254)
                                                 1,855,449  1,422,520

Provisions for other risks and charges
Deferred taxation                         21        10,837          -
Other provisions                          21           533        801
                                                    11,370        801

Creditors: Amounts falling due within
one year
Arising out of direct insurance                     15,824     23,969
operations
Arising out of reinsurance operations              126,009     71,862
Other creditors                           20        61,408     31,195
                                                   203,241    127,026

Creditors: Amounts falling due after
more than one year
Other creditors including convertible     20        51,654     58,872
debt

Accruals and deferred income                        13,581     13,988

Total liabilities                                2,855,508  2,330,129



Balance Sheet of the Company            Notes      As at      As at
                                                      31         31
as at 31 December 2004                          December   December
                                                         (restated)
                                                    2004       2003
                                                 GBP'000    GBP'000

Fixed asset investments:
Investments in subsidiary undertakings   14      506,854    506,854
Investments in associated undertakings   15        1,055         62
Other financial investments              13       28,141     63,005
                                                 536,050    569,921

Current assets:
Debtors                                  17      198,699    187,539
Deferred taxation                        22          355        295
Prepayments and accrued income           19           26         19
Cash at bank and in hand                             210      4,066
                                                 199,290    191,919

Creditors: Amounts falling due within
one year
Other creditors                          20     (37,526)          -
Accruals and deferred income                     (2,197)    (3,923)
                                                (39,723)    (3,923)

Net current assets                               159,567    187,996

Total assets less current liabilities            695,617    757,917

Creditors: Amounts falling due after
more than one year
Other creditors including convertible    20     (51,654)   (58,872)
debt

Net assets                                       643,963    699,045

Capital and reserves:
Called up share capital                  23      243,518    243,513
Share premium account                    24      311,145    481,135
Capital redemption reserve               24          586        586
Investment in own shares                24 &       (264)      (445)
                                         26
Profit and loss account                  24       88,978   (25,744)

Equity Shareholders' funds               25      643,963    699,045

The financial statements were approved by the Board of Directors on 28 February 2005 and were signed on its behalf by

Clive Coates, Chairman
Matthew Scales, Group Finance Director



Consolidated Cash Flow Statement

for the year ended 31 December 2004
                                         Notes  Year ended  Year ended
                                               31 December 31 December
                                                      2004        2003
                                                            (restated)
                                                   GBP'000     GBP'000

Net cash inflow from operating            30(ii)   269,408     226,416
activities                               

Interest:
Interest paid                                      (2,758)     (4,600)

Taxation:
Corporation tax recovered/(paid)                     1,621       (973)

Capital expenditure:
Purchase of tangible fixed assets                  (9,737)     (1,931)
Proceeds from disposal of tangible fixed               402           6
assets
                                                   (9,335)     (1,925)
Acquisitions and disposals:
Acquisition of subsidiary undertakings                   -      50,037
Disposal of subsidiary undertakings                      -       4,881
Investment in associated undertaking                 (341)           -
Loan to associated undertaking                       (652)           -
                                                     (993)      54,918
Equity dividends:
Equity dividends paid                             (38,762)           -

Financing:
Increase/(decrease) in bank loans and                3,221     (7,037)
overdrafts
Proceeds from exercised share options                    9           -
Acquisition of own shares for the                  (2,750)     (3,559)
Performance Share Plan
Net proceeds from issue of floating rate             7,984           -
notes
                                                     8,464    (10,596)

Increase in cash in the year                       227,645     263,240

Cash flows were invested as follows:
(Decrease)/increase in cash holdings      30(iii) (36,743)      41,819

Net portfolio investments:
Deposits with credit institutions         30(v)     67,391      26,589
Fixed income investments                  30(v)    213,620     128,176
Variable income investments               30(v)   (21,591)      18,517
Protected funds                           30(v)          -     (8,336)
Equities                                  30(v)      4,968      56,475

Increase in cash in the year                       227,645     263,240

The consolidated cash flow statement excludes syndicate cash flows and cash held within Lloyd's Premium Trust Funds on behalf of the Group's Lloyd's underwriting subsidiaries.

I Basis of preparation of financial statements

Basis of preparation

The financial statements of the Group and the Company have been prepared in accordance with applicable accounting standards and under the historical cost accounting rules, modified by the revaluation of investments.

The financial statements of the Group have been prepared in accordance with Section 255 of, and Schedule 9A to, the Companies Act 1985, as amended by the Companies Act 1985 (Insurance Companies Accounts) Regulations 1993. The recommendations of the Statement of Recommended Practice on Accounting for Insurance Businesses issued by the Association of British Insurers in November 2003 (the "ABI SORP") have been adopted.

The balance sheet of the Company has been prepared in accordance with Schedule 4 to the Companies Act 1985. No profit and loss account is presented for the Company as permitted by Section 230 of the Companies Act. The profit dealt with in the accounts of the parent company was GBP2,789,000 (2003: GBP1,403,000).

Changes in accounting policy

The Urgent Issues Task Force (UITF) of the Accounting Standards Board issued UITF 37: Purchases and sales of own shares in October 2003 and UITF 38: Accounting for ESOP trusts in December 2003. UITF 37 requires that consideration paid for an entity's own shares should be deducted from equity rather than being shown as an asset on the balance sheet. UITF 38 requires that a similar treatment be made in respect of own shares held within an ESOP trust.

The financial effect of adopting these UITFs for the current period balance sheet has been to decrease net assets and shareholders' funds by GBP5,521,000. The balance sheet for 31 December 2003 has been restated and the financial effect has been to decrease the comparative figures by GBP3,975,000.

Where own shares held were previously impaired, these impairments have been reversed on adoption of the new UITFs. The financial effect has been to decrease profit by GBP16,000 in the current period. The comparative profit and loss account has been restated and the financial effect has been to increase profit by GBP9,000. The effect on the current period balance sheet has been to increase the value of own shares by GBP94,000 while the comparative balance sheet has been restated to increase the value of own shares by GBP110,000 as at 31 December 2003.

Basis of consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries, together with the Group's participation in the Lloyd's syndicates' assets, liabilities, revenues and expenses for the year ended 31 December 2004. In the Group accounts, associated undertakings are accounted for on the equity basis from the date the Directors deem that the Group exercises a significant influence over the company. Subsidiaries are consolidated from the date control is gained.

II Accounting Policies

1 Underwriting activities

(a) Managed syndicates and the insurance companies

The results for all classes of business have been determined on an annual basis whereby the incurred cost of claims, commission and related expenses are charged against the earned proportion of premium, net of reinsurance as follows:

(i) Premiums written relate to business incepted during the year, together with any differences between booked premiums for prior years and those previously accrued, and include estimates of premiums due but not yet receivable or notified, less an allowance for cancellations.

(ii) Unearned premiums represent the proportion of premiums written in the year that relate to unexpired terms of policies in force at the balance sheet date, calculated on a time apportioned basis.

(iii) Acquisition costs represent commission and other expenses arising from the conclusion of insurance contracts. They are deferred over the period in which the related premiums are earned.

(iv) Claims incurred comprise claims and related expenses paid in the year and changes in the provisions for outstanding claims, including provisions for claims incurred but not reported and related expenses, together with any other adjustments to claims from prior years. Where applicable deductions are made for salvage and other recoveries.

(v) Claims outstanding represent the ultimate cost of settling all claims (including direct and indirect claims settlement costs) arising from events which have occurred up to the balance sheet date, including provision for claims incurred but not yet reported, less any amounts paid in respect of those claims. Claims outstanding are reduced by anticipated salvage and other recoveries.

The ultimate cost of outstanding claims is based on statistical techniques of estimation applied by the Group's internal actuaries and reviewed by external consulting actuaries. The primary sensitivity in these methods is the assumption that past experience is indicative of the final outcome of current business and, where past experience is insufficient that the market benchmarks are representative of the Group's own underwriting.

For the managed syndicates, claims provisions have been established on a class of business basis for each year of account. The Underwriting and Management teams of the syndicates conduct a quarterly review of each class of business for all years of account. Claims are projected to the ultimate position after 36 months and provision is made for known claims and claims incurred but not reported.

For the insurance companies, claims based estimation techniques have been used to establish claims provisions for catastrophe reinsurance, financial risks and mortgage indemnity classes of business. The relevant management teams review each contract quarterly and set the provision on a contract by contract basis. Provisions are established for all known losses and major events to the extent that management estimates that individual contracts are likely to incur a loss. Claims provisions for all other classes of business have been established on an individual class of business basis. The underwriting and management teams conduct a quarterly review of each class of business. Claims are projected to the ultimate position and provision is made for known claims and claims incurred but not reported.

Whilst the directors consider that the estimate of claims outstanding is fairly calculated on the basis of the information currently available to them, there is inherent uncertainty in relation to the ultimate liability which will vary as a result of subsequent information and events. Adjustments to the amounts of the claims provisions established in prior years are reflected in the financial statements for the period in which the adjustments are made.

(vi) Unexpired risks provision: Provision is made for any deficiencies arising when unearned premiums, net of associated acquisition costs, are insufficient to meet expected claims and expenses after taking into account future investment return on the investments supporting the unearned premiums provision and unexpired risks provision. The expected claims are calculated having regard to events that have occurred up to the balance sheet date.

Unexpired risk surpluses and deficits are offset where business classes are managed together and a provision is made if an aggregate deficit arises.

(vii) Equalisation reserves (the insurance companies): Amounts are set aside in accordance with the requirements of the Insurance Companies (Reserves) Regulations 1996 for the purpose of mitigating exceptionally high loss ratios in future years. The amounts reserved are not liabilities because they are in addition to the provisions required to meet the anticipated ultimate cost of settlement of outstanding claims at the balance sheet date. Notwithstanding this, they are required by Schedule 9A to the Companies Act 1985 to be included within technical provisions.

(viii) Net operating expenses: Operating expenses are charged in the year in which they were incurred.

(ix) The principles of the annual basis of accounting for insurance business are applied to the underwriting transactions and balances of the managed syndicates. Results under the annual basis of accounting are estimated on the basis of premiums earned in the year as a proportion of the projected ultimate premiums for each syndicate year of account, together with any adjustments in relation to prior years. Premium earnings patterns are set on the basis of the Underwriter's and internal actuary's judgement. Major claims are allocated to the year in which they occur.

(x) For each managed syndicate on which the Group participates, the Group's proportion of the syndicate's assets and liabilities has been reflected in its Consolidated Balance Sheet. Syndicate assets are held subject to trust deeds for the benefit of the Syndicate's insurance creditors.

(b) Non-managed syndicates

The Group's non-managed syndicate participations consist entirely of run-off syndicate years of account, with the last year being 2000.

Provision is made for the estimated future deterioration of years of account in run-off. External Managing Agents' published forecast information and Management's market knowledge are used to establish the loss provision for the non-managed syndicates. All available information is reviewed quarterly and the open year loss provisions are set on a syndicate by syndicate basis. While the directors make every effort to ensure that adequate provision is made for losses on open years of account, their view of the ultimate loss may vary in later periods as a result of subsequent information and events. This in turn may require adjustment of the original provisions. These adjustments are reflected in the financial statements for the period in which the related adjustments are made.

2 Other accounting policies

(a) Investments

(i) The values of financial investments are stated in the financial statements on the following basis:

- Listed investments are stated at closing middle market prices on
  recognised stock exchanges.
- Unlisted investments and subsidiary undertakings are stated at cost or
  Directors' valuation.

(ii) Investment return

Investment return comprises all investment income, realised investment gains and losses and movements in unrealised gains and losses, net of investment expenses, charges and interest.

Dividends are recorded on the date on which the shares are quoted ex-dividend. Interest and expenses are accounted for on an accrual basis.

Realised gains and losses arise from the difference between proceeds and cost. Unrealised investment gains and losses are calculated as the difference between the valuation at the balance sheet date and the valuation at the last balance sheet date or purchase price, if acquired during the year. Unrealised investment gains and losses include adjustments in respect of unrealised gains and losses recorded in prior years which have been realised during the year and are reported as realised gains and losses in the current year's profit and loss account.

The investment return is accounted for in the non-technical account. An allocation is made from the non-technical account to the general business technical account to reflect the long-term investment return on funds supporting underwriting business. The long-term investment return is an estimate of the long-term investment return for the Brit Insurance Holdings PLC Group, including the managed syndicates, having regard to past performance, current trends and future expectations.

(b) Goodwill

Goodwill arising on the acquisition of companies or businesses is capitalised and amortised on a straight line basis over the period which, in the Directors' opinion, is its useful economic life. For all acquisitions up to 31 December 2004, the Directors' estimate of the useful economic life of the goodwill arising is ten years.

Where, following a formal impairment review conducted in accordance with Financial Reporting Standard 11 "Impairment of Fixed Assets and Goodwill" ("FRS 11"), there has been, in the Directors' opinion, an impairment in the value of any goodwill being carried, this impairment is recognised in the profit and loss account.

(c) Syndicate participation rights

Where the Group has purchased the right to participate on managed syndicates, the cost is capitalised and amortised in equal annual instalments over three years. Amortisation commences from the date the underwriting results are first recognised in the technical account.

If, at any time, the Directors become aware of a permanent diminution in the value of the Group's right to participate on a syndicate, the asset will be written down accordingly. If a syndicate participation is sold any related costs are offset against the disposal proceeds and any gain or loss is taken to the non-technical profit and loss account in the same accounting period.

(d) Taxation

Items of income/gain and expenditure/loss are recognised and assessable to corporation tax in the same period, after adjustment in accordance with tax legislation, except for the following:

The Group is taxed on its share of the underwriting results declared by syndicates and for tax purposes these are deemed to accrue evenly over the calendar year in which they are declared. The managed syndicate results included in these financial statements relate to the annually accounted result for the 2004 calendar year. These will be declared for tax purposes in the years following the closure of the relevant Years of Account contributing to the annually accounted result.

The Inland Revenue determines the taxable results of individual syndicates on the basis of computations submitted by the Managing Agent. At the date of approval of these financial statements, none of the syndicate taxable results have been agreed. Any adjustments that may be necessary to the tax provisions established by the Group as a result of Inland Revenue agreement of the taxable results of individual syndicates will be reflected in the financial statements of subsequent periods.

(e) Deferred taxation

Deferred tax is provided in full on timing differences which result in an obligation at the balance sheet date to pay more tax, or a right to pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in the financial statements. Deferred tax is not provided on timing differences arising from the revaluation of fixed assets where there is no commitment to sell the asset, or on unremitted earnings of subsidiaries and associates where there is no commitment to remit those earnings. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered. Deferred tax assets and liabilities are not discounted.

(f) Tangible fixed assets

Tangible fixed assets are stated at cost. Depreciation is calculated so as to write-off the cost over their estimated useful economic lives on a straight line basis as follows:

Freehold property                     2% per annum
Office refurbishment costs, computers
(except personal computers and visual
display units),                       20% per annum
office machinery, furniture and
equipment
Motor vehicles and visual display     25% per annum
units
Personal computers                    33% per annum

(g) Own shares

The consideration paid for the acquisition of own shares has been deducted from shareholders' funds.

Where an award is made under an employee performance share plan, the difference between the fair value of the shares at the end of the award and any consideration paid for the shares is charged to the profit and loss account over the performance period.

(h) Fees and other income

Fees and other income are recognised in the period to which they relate.

(i) Expenses

All expenses are accounted for on an accruals basis. Expenses which are incidental to the acquisition or disposal of an investment are treated as part of the cost or proceeds of the investment.

Profits arising in Marham Consortium Management Limited, which are due to a Brit managed syndicate, are charged as an expense to the Group.

(j) Pension costs

The Group operates a defined contribution stakeholder pension scheme, a defined contribution funded unapproved retirement benefits scheme and several other defined contribution schemes. It also makes payments into a number of personal money purchase pension plans. Contributions in respect of these schemes are charged to the profit and loss account in the period to which they relate.

The Group also operates a defined benefit pension scheme with pension benefits funded over employee's periods of service. Contributions are based on the recommendation of the scheme actuary following the valuation of the fund and are charged to the profit and loss account so as to spread the cost of the pension over the employee's working lives with the Group. This scheme closed to new members on 4 October 2001.

(k) Leased assets

Rentals under operating leases are charged on a straight line basis over the lease term, even if the payments are not made on such a basis. Benefits received and receivable as an incentive to enter into an operating lease are similarly spread on a straight line basis over the lease term, except where the period to the review date on which the rent is first expected to be adjusted to the prevailing market rate is shorter than the full lease term, in which case the shorter period is used.

(l) Foreign currencies

Transactions in foreign currencies other than Sterling, United States dollars, Canadian dollars and Euros are translated at the rate of exchange ruling at the date the transaction is processed. Unless otherwise stated, transactions in United States dollars, Canadian dollars and Euros are translated at the average rates of exchange for the period. Assets and liabilities in currencies other than Sterling are translated at the rate of exchange ruling at 31 December of each year. Exchange differences arising on translation are dealt with in the profit and loss account.

Foreign currency options are marked to market. Any gains or losses are recognised in the profit and loss account.

(m) Convertible unsecured subordinated loan stock 2008 ("CULS ") and US dollar floating rate unsecured subordinated loan notes 2034 ("FRNS")

CULS and FRNS are initially stated at the amount of the net proceeds after deduction of issue costs. The carrying amount is increased by the finance cost in respect of the accounting period and reduced by payments made in the period. Finance costs are recognised in the profit and loss account over their term at a constant rate on the carrying value. CULS are reported as a liability unless conversion actually occurs. No gain or loss is recognised on conversion.

(n) Performance Share Plans

Where shares are acquired in respect of the Group's performance share plans including free and matching shares acquired by the Brit Insurance Holdings PLC Employee Share Participation Trust, such shares are included in own shares at cost and are amortised against profits on a straight-line basis over the life of the scheme. Own shares are deducted in arriving at shareholders' funds.

1 Segmental Information

(i) Technical account by Underwriting Centre

                                Year ended 31 December 2004
                  London  
                  Market  Reinsurance           UK       

            Underwriting Underwriting Underwriting        Other
                  Centre       Centre       Centre Underwriting     Total
                 GBP'000      GBP'000      GBP'000      GBP'000   GBP'000

Gross premiums   431,613      279,994      345,401       29,723 1,086,731
written
Net premiums     363,620      219,025      305,151       22,635   910,431
written
Earned           361,948      182,399      300,948        9,179   854,474
premiums, net
of reinsurance
Allocated         21,710       15,319       24,325           85    61,439
investment
return
transferred
from the
non-technical
account
Claims         (213,067)    (121,541)    (204,872)      (6,165) (545,645)
incurred, net
of reinsurance
Change in              -      (5,254)            -            -   (5,254)
other
technical
provisions
Change in        (2,290)        4,647        (620)            -     1,737
equalisation
provisions
Acquisition     (94,086)     (37,964)     (50,111)      (6,730) (188,891)
costs -
commissions
Acquisition     (16,574)      (6,381)      (9,931)        (845)  (33,731)
costs - other
Movement in      (3,362)        8,171        1,567        4,344    10,720
deferred
acquisition
costs
Operating       (10,054)     (11,800)     (12,542)        1,519  (32,877)
expenses
Balance on        44,225       27,596       48,764        1,387   121,972
technical
account

Claims ratio       58.9%        69.5%        68.1%        67.2%     64.5%
Expense ratio      33.2%        25.6%        23.8%        26.7%     28.0%
Combined ratio     92.1%        95.1%        91.9%        93.9%     92.5%


                               Year ended 31 December 2003

                 London  
                 Market  Reinsurance           UK        
           Underwriting Underwriting Underwriting       Other     
                 Centre       Centre       Centre Underwriting     Total
                GBP'000      GBP'000      GBP'000      GBP'000   GBP'000

Gross           468,326      221,792      309,395       16,214 1,015,727
premiums
written
Net premiums    381,323      178,468      279,454       11,520   850,765
written
Earned          285,424      150,312      221,167       14,533   671,436
premiums, net
of reinsurance
Allocated        19,350       11,179       13,451            5    43,985
investment
return
transferred
from the
non-technical
account
Claims        (177,266)     (59,230)    (157,953)      (6,001) (400,450)
incurred, net
of reinsurance
Change in             -        (673)            -            -     (673)
other
technical
provisions
Change in         (751)      (3,059)          624            -   (3,186)
equalisation
provisions
Acquisition    (91,596)     (25,152)     (42,062)      (7,994) (166,804)
costs -
commissions
Acquisition       (434)     (10,286)     (11,056)     (11,014)  (32,790)
costs - other
Movement in      15,494        9,457        5,602        3,393    33,946
deferred
acquisition
costs
Operating      (20,445)     (10,672)     (13,629)        (446)  (45,192)
expenses
Balance on       29,776       61,876       16,144      (7,524)   100,272
technical
account

Claims ratio      62.1%        39.9%        71.4%        41.3%     59.7%
Expense ratio     29.5%        25.8%        23.9%       168.9%     28.8%
Combined ratio    91.6%        65.7%        95.3%       210.2%     88.5%

(ii) Gross premiums written by geographical segment

                                 Year ended 31 December 2004

                                 Other EU                Other     
                        United     member           (including   
                       Kingdom     states       USA Worldwide)     Total
                       GBP'000    GBP'000   GBP'000    GBP'000   GBP'000

London Market          104,253     35,599   140,741    151,020   431,613
Underwriting Centre
Reinsurance             22,244     16,818    87,804    153,128   279,994
Underwriting Centre
UK Underwriting        273,871     38,070        44     33,416   345,401
Centre
Other Underwriting      19,344      6,078         -      4,301    29,723
                       419,712     96,565   228,589    341,865 1,086,731

                                Year ended 31 December 2003

                               Other EU                 Other     
                      United     member            (including   
                     Kingdom     states        USA Worldwide)     Total
                     GBP'000    GBP'000    GBP'000    GBP'000   GBP'000
London Market         81,196     31,686    171,460    183,984   468,326
Underwriting Centre
Reinsurance           31,260     16,758     63,330    110,444   221,792
Underwriting Centre
UK Underwriting      276,910     20,416         16     12,053   309,395
Centre
Other Underwriting    14,027        247          -      1,940    16,214
                     403,393     69,107    234,806    308,421 1,015,727

(iii) Corporate
                                 Year ended 31 December 2004

                                                Peoples    
                                                 Choice  
             Underwriting Underwriting    Ri3K (Europe)
                (Lloyd's)  (companies) Limited  Limited    Other    Total
                  GBP'000      GBP'000 GBP'000  GBP'000  GBP'000  GBP'000

Technical result   56,822       65,150       -        -        -  121,972
at the long-term
rate of return
Other investment  (1,627)        6,673      14        -    3,775    8,835
return
Interest payable        -         (17)       -        -  (4,911)  (4,928)
Fees and              902            -   1,640        -        -    2,542
commissions
Other income           60            -       -        -      250      310
Other expenses          -      (1,181) (4,363)        - (15,737) (21,281)
                   56,157       70,625 (2,709)        - (16,623)  107,450

Amortisation of   (1,734)            -       -        -  (8,101)  (9,835)
goodwill and
syndicate         
participations    

Operating profit   54,423       70,625 (2,709)        - (24,724)   97,615
/(loss) based on   
long-term rate
of investment
return             

Short-term            984        3,293       -        -        -    4,277
fluctuations in
investment
return

Operating profit   55,407       73,918 (2,709)        - (24,724)  101,892
/(loss)

Share of                -            -       -        -      577      577
operating profit
in associated
undertakings,
net of goodwill         
amortisation

Profit/(loss)      55,407       73,918 (2,709)        - (24,147)  102,469
before taxation

Net assets/       325,513      422,940   8,509        - (46,987)  709,975
(liabilities)

Net tangible      315,459      379,995   1,953        - (47,565)  649,842
assets/
(liabilities)


                          Year ended 31 December 2003 (restated)

                                              Peoples    
                                               Choice  
           Underwriting Underwriting    Ri3K (Europe)
              (Lloyd's)  (companies) Limited  Limited    Other    Total
                GBP'000      GBP'000 GBP'000  GBP'000  GBP'000  GBP'000

Technical        63,539       36,733       -        -        -  100,272
result at the
long-term rate
of return
Other             (766)       10,878       9       61    8,878   19,060
investment
return
Interest           (68)            -     (5)    (704)  (3,820)  (4,597)
payable
Fees and          2,271            -     131    6,251        -    8,653
commissions
Other income         56           90       -    1,257      137    1,540
Other expenses        -            - (3,989) (10,453) (10,912) (25,354)
                 65,032       47,701 (3,854)  (3,588)  (5,717)   99,574

Amortisation    (1,919)            -       -    (153)  (6,335)  (8,407)
of goodwill
and syndicate   
participations

Operating        63,113       47,701 (3,854)  (3,741) (12,052)  91,167
profit/(loss)    
based on
long-term rate
of investment
return

Short-term      (7,614)      (8,126)       -        -        - (15,740)  
fluctuations
in investment
return

Operating        55,499       39,575 (3,854)  (3,741) (12,052)   75,427
profit/(loss)

Profit on             -            -       -        -    1,920    1,920
disposal of
subsidiary
undertakings
Share of              -            -       -        -      219      219
operating
profit in
associated
undertakings,
net of                
goodwill
amortisation

Profit/(loss)    55,499       39,575 (3,854)  (3,741)  (9,913)   77,566
before
taxation

Net assets      293,959      382,234   8,492        -   12,839  697,524

Net tangible    280,086      334,169   1,116        -   12,185  627,556
assets

2 Net operating expenses
                                               31 December 31 December
                                                      2004        2003
                                                   GBP'000     GBP'000

Acquisition costs - commissions                    188,891     166,804
Acquisition costs - other                           33,731      32,790
Movement in deferred acquisition costs            (10,720)    (33,946)
                                                   211,902     165,648
Operating expenses                                  32,877      45,192
                                                   244,779     210,840

3 Investment return

(i) Investment return - the net investment return comprises:

                                             31 December 31 December
                                                    2004        2003
                                                          (restated)
                                                 GBP'000     GBP'000

Investment income                                 63,347      52,108
Realised losses on investments                  (10,258)    (14,711)
Unrealised gains on investments                   24,206      13,496
Investment management expenses                   (2,744)     (3,585)
Interest payable on convertible unsecured        (3,837)     (3,836)
subordinated loan stock
Interest payable on US Dollar floating rate        (162)           -
unsecured subordinated loan notes
Other interest payable                             (929)       (764)
                                                  69,623      42,708

(ii) Investment return - the long-term investment return

The transfer to the technical account represents the estimated long-term rate of return applied to the Group's share of investment assets supporting the insurance business of the insurance companies and Lloyd's syndicates, together with Funds at Lloyd's. The long-term rates of return, which are applied to investments held in all currencies, are based on the historical asset performance, current and prospective bond yields and the estimated risk premium for holding equity investments. The long-term rates are reviewed annually and were last revised in 2002. For the investment assets of the insurance companies and the Funds at Lloyd's, separate rates have been established and applied to the average bond and equity components of the underwriting investment assets. For the syndicate investments, a single weighted rate has been applied to all categories of investment.

The long-term rates of return used were:

                                             31 December 31 December
                                                    2004        2003
                                                       %           %
Insurance companies and Funds at Lloyd's

Equities - capital return                            5.0         5.0
Equities - income                                    2.0         2.0
Bonds and cash                                       5.0         5.0
Syndicate investments                                5.0         5.0

Comparison of long-term investment return with actual return

                                                    2000        1999
                                                      to          to
                                                    2004        2003
                                                 GBP'000     GBP'000
Actual return attributable to Shareholders:
Funds at Lloyd's                                  34,390      27,684
Syndicate funds                                   53,020      41,627
Insurance company funds                           41,147       9,555
                                                 128,557      78,866

Long-term return credited to technical
account:
Funds at Lloyd's                                  59,204      50,755
Syndicate funds                                   61,203      47,630
Insurance company funds                           47,521      19,234
                                                 167,928     117,619

Excess of the long-term investment return         39,371      38,753
over actual returns

4 Fees and commissions
                                               31 December 31 December
                                                      2004        2003
                                                   GBP'000     GBP'000

Reinsurance industry electronic infrastructure       1,640         131
design and development
(Ri3K Limited)
Sale and administration of private motor and             -       6,251
household insurance
(Peoples Choice (Europe) Limited)
Other fees and commissions                             902       2,271
                                                     2,542       8,653

5 Other income
                                             31 December   31 December
                                                    2004          2003
                                                 GBP'000       GBP'000

Rental and other income                              310         1,540

6 Other expenses
                                              31 December  31 December
                                                     2004         2003
                                                  GBP'000      GBP'000

The following items have been charged/
(credited) in operating profit :

Amortisation of goodwill                            8,101        6,488
Amortisation of syndicate capacity                  1,734        1,919
Depreciation of tangible fixed assets               3,110        2,169
(Profit)/loss on sale of fixed assets               (205)          844
Exchange losses                                     1,425            -
Operating lease rentals - land and buildings        3,040        2,522

Details of Auditors' remuneration are given in Note 8.

7 Staff costs
                                              31 December  31 December
                                                     2004         2003
                                                  GBP'000      GBP'000

Wages and salaries (including profit related       34,644       36,617
pay)
Social security costs                               2,853        3,098
Other pension costs                                 4,175        3,583

                                                   41,672       43,298

The average monthly number of employees during the year, including Executive Directors, was as follows:

                                            31 December  31 December
                                                   2004         2003
                                                 Number       Number

Management                                           29           33
Administration                                      131          307
Underwriting                                        354          327
                                                    514          667

8 Auditors' remuneration
                             31 December 2004       31 December 2003
                                           Other                  Other
                          Mazars LLP    auditors Mazars LLP    auditors
                             GBP'000     GBP'000    GBP'000     GBP'000
Audit services:
Statutory audit Corporate        309          12        235           9
Syndicate                          -         316         64         293

Audit-related regulatory
reporting :
Corporate regulatory              79           -         25           -
reports
Interim review                    43          46         40           -

Further assurance
services:
Acquisition*                       -           -        170           -
Disposals                          -           -         21           -
IFRS advisory                      -          85          -           -
Projects                           -          20          -           -
Capital reorganisation            90           -          -           -
Capital raising                   26           -          -           -

Tax services:
Compliance services               60          11        105          15
Advisory services                 36          48         38           -

Other services:
Printing services                 17           -        162           -
Other advisory                     2          16         37           3
                                 662         554        897         320

Of the above charges, GBP503,000 (2003: GBP520,000) has been charged to the non-technical account.

*Included within the capitalised acquisition costs on the purchase of Brit Underwriting Group Limited.

9 Tax charge

(i) Analysis of charge in year
                                               31 December 31 December
                                                      2004        2003
                                                   GBP'000     GBP'000
Current tax:
Adjustments in respect of prior years                  996       (145)
Overseas tax                                       (1,058)       (250)
Share of associate's tax                             (253)        (82)
                                                     (315)       (477)

Deferred tax:
Origination and reversal of timing                (29,759)    (19,908)
differences

Tax charge on profit on ordinary activities       (30,074)    (20,385)

(ii) Factors affecting tax charge for year
                                             31 December   31 December
                                                    2004          2003
                                                            (restated)
                                                 GBP'000       GBP'000

Profit on ordinary activities before tax         102,469        77,566

Profit on ordinary activities multiplied by     (30,741)      (23,270)
standard rate of corporation tax in the UK
of 30% (2003: 30%)
Effects of:
Expenses not deductible for tax purposes and     (3,063)       (4,100)
other permanent differences
Investment gains outside the scope of              2,077         4,429
corporation tax
Equity dividends not subject to corporation          735           646
tax
Short-term timing differences:
Syndicate results                                 31,987        20,874
Realised and unrealised investment losses            755           139
Other timing differences                         (2,003)         1,200
Overseas tax not recoverable                     (1,058)         (250)
Adjustments to tax charge in respect of              996         (145)
prior years
Current tax charge for the year (per Note 9        (315)         (477)
(i))

(iii) Factors that may affect future tax charges

The future tax charge for the Group is dependent on the ability of the Group to utilise tax losses as they become available.

10 Equity dividends

                                               31 December 31 December
                                                      2004        2003
                                                   GBP'000     GBP'000

First interim dividend paid - 2.0p per ordinary     19,381           -
share (2003 - nil)
Second interim dividend paid - 2.0p per             19,381           -
ordinary share (2003 - nil)
Final dividend proposed (payable 22 April 2005)     19,305           -
- 2.0p per ordinary share (2003 - nil)
                                                    58,067           -

The Trustees of the Company's employee benefit trust have waived their entitlement to dividends on shares held for the Brit Performance Share Plan 2003 ("the PSP") and the Brit Long Term Incentive Plan 1999 ("the LTIP").

The reduced amount to be paid in respect of the proposed final dividend for 2004 reflects the awards made under the PSP in October 2004.

Further details of the PSP and LTIP are given in note 32.

11 Earnings per share

The calculations of the basic and diluted earnings per share are based on the following figures :

                                             31 December   31 December
                                                    2004          2003
                                                            (restated)
                                                 GBP'000       GBP'000

Profit attributable to members of the parent      72,033        57,493
company

Dilutive post tax effect on profits:
Convertible unsecured subordinated loan            2,685         2,685
stock
Diluted profit attributable to members of         74,718        60,178
the parent company

                                             31 December   31 December
                                                    2004          2003
                                                  Number        Number
 
Basic weighted average number of shares      967,295,848   874,056,697

Dilutive potential ordinary shares:
Convertible unsecured subordinated loan       54,347,727    51,276,076
stock
Employee share options                         1,293,871       698,381
Diluted weighted average number of shares  1,022,937,446   926,031,154

In accordance with Financial Reporting Standard 14 "Earnings per Share", convertible unsecured subordinated loan stock and employee share options are only treated as dilutive when their conversion to ordinary shares would decrease net profit per share or increase net loss from continuing operations.

12 Intangible assets

                                           Syndicate   
                                      participations   Goodwill   Total 
                                             GBP'000    GBP'000 GBP'000
Cost:
At 1 January 2004                              9,025     80,408  89,433
At 31 December 2004                            9,025     80,408  89,433

Amortisation:
At 1 January 2004                              6,789     12,676  19,465
Charge for the year                            1,734      8,101   9,835
At 31 December 2004                            8,523     20,777  29,300

Net book value:
At 31 December 2004                              502     59,631  60,133
At 31 December 2003                            2,236     67,732  69,968

In accordance with the provisions of Financial Reporting Standard 10 "Goodwill and Intangible Assets", the goodwill arising on the acquisition of Brit Underwriting Group Limited has been subject to an impairment review being the first full financial year after its acquisition. The Directors believe that following this impairment review, the carrying value of Brit Underwriting Group Limited does not exceed its recoverable amount.

13 Financial Investments

                                  31 December 2004      31 December 2003
Group:                          Market                 Market       
                                 value        Cost      value       Cost
                               GBP'000     GBP'000    GBP'000    GBP'000

Shares and other
variable-yield
securities and units in
unit trusts :

Listed                         231,644     215,416    225,124    230,546
Unlisted                         3,653       9,824      1,115      7,440

Debt securities and
other fixed
income securities :

Listed                         672,964     678,148    685,920    710,404
Certificates of Deposit        399,689     397,997    125,960    125,677
Participation in               284,620     284,628     65,956     68,661
investment pools
Deposits with credit           127,114     127,114     60,047     60,047
institutions
                             1,719,684   1,713,127  1,164,122  1,202,775


                                  31 December 2004      31 December 2003
Company:                        Market                 Market       
                                 value        Cost      value       Cost
                               GBP'000     GBP'000    GBP'000    GBP'000

Shares and other
variable-yield
securities and units in
unit trusts :

Listed                          25,722     29,508     23,935     29,603
Unlisted                         1,115      7,440      1,115      7,440

Debt securities and other
fixed income securities :

Listed                           1,304        942     23,967     23,920
Deposits with credit                 -          -     13,988     13,988
institutions
                                28,141     37,890     63,005     74,951

If the investments held at 31 December 2004 had been sold at that date, there would have been no liability to tax.

The movement in the Company's financial investments during the year were as follows:

                                       31 December   31 December
                                              2004          2003
                                           GBP'000       GBP'000

Market value at 1 January                   63,005        84,621
Purchases                                   56,417       186,504
Sales                                     (93,057)     (213,081)
Sales - realised losses on sales             (421)         (345)
Increase in unrealised gains                 2,197         5,306
Market value at 31 December                 28,141        63,005

14 Investments in subsidiary undertakings

Company:
                                       31 December   31 December
                                              2004          2003
                                           GBP'000       GBP'000

Cost                                       507,955       507,955
Provision for permanent diminution         (1,101)       (1,101)
in value
                                           506,854       506,854

Details of the Company's principal subsidiaries are as follows:

                                                  Proportion Proportion
                                                          of         of
                                                    ordinary   ordinary
                                                      shares     shares
Name of company            Nature of business           held       held
                                                      by the         by
                                                   Company % subsidiary
                                                                      %

Underwriting companies
Brit Insurance Limited     Insurance company                        100
Brit Insurance (UK)        Insurance company                        100
Limited
Brit Syndicates Limited    Lloyd's managing agent                   100
Brit UW Limited            Lloyd's corporate member                 100
Wren Insurance Services    Lloyd's syndicate                        100
Limited                    support company
Marham Consortium          Lloyd's syndicate                        100
Management Limited         support company

Investment company
Masthead Insurance         Intermediate holding         100
Underwriting Limited       company

Distribution companies
Ri3K Limited               E-commerce solutions        77.2
                           company
Ri3K Asia Pte Limited      E-commerce solutions                     91
                           company
Ri3K Inc*                  E-commerce solutions                    100
                           company

Group services companies
Brit Group Services        Group services company                  100
Limited
PRI Management Limited     Group services company                  100


Intermediate holding companies
Wren Limited               Intermediate holding         100
                           company
Wren Holdings Group PLC    Intermediate holding                    100
                           company
HCG Holdings Limited       Intermediate holding         100
                           company
Finsbury Underwriting      Intermediate holding                    100
Limited                    company
Brit Underwriting Group    Intermediate holding         100
Limited                    company

Open ended investment company
CF Epic Investment Funds** Open ended investment                  80.9
                           company

Lloyd's corporate members (last year of account 1999)
HCG Alpha Limited          Lloyd's corporate member                100
HCG Bravo Limited          Lloyd's corporate member                100
HCG Charlie Limited        Lloyd's corporate member                100
HCG Delta Limited          Lloyd's corporate member                100
HCG Echo Limited           Lloyd's corporate member                100
HCG Foxtrot Limited        Lloyd's corporate member                100
FUIT One Limited           Lloyd's corporate member                100
FUIT Two Limited           Lloyd's corporate member                100
FUIT Three Limited         Lloyd's corporate member                100
FUIT Four Limited          Lloyd's corporate member                100
FUIT Five Limited          Lloyd's corporate member                100
Masthead A Limited         Lloyd's corporate member                100
Masthead B Limited         Lloyd's corporate member                100
Masthead C Limited         Lloyd's corporate member                100

Masthead D Limited         Lloyd's corporate member                100
Masthead E Limited         Lloyd's corporate member                100
                           

* Ri3K Inc was formed during the year.

** During the year, CF Epic Investment Funds issued new shares to third party investors in its funds resulting in the Brit Group holding reducing from 81.6% to 80.9%. These new shares were issued at a market value reflecting the underlying value of the investments held by the funds. As a consequence, this deemed disposal has not resulted in any gain or loss.

All companies are registered and operate in England with the exception of Ri3K Asia Pte Limited which is incorporated and operates in Singapore and Ri3K Inc which is incorporated and operates in Canada.

All subsidiaries are included in the Group consolidated financial statements.

15 Investments in associated undertakings

Group :
                                                      The Equity
                                                     Partnership
                                                         Limited
                                                         GBP'000

Profit and loss account, Group share:
Turnover                                                   2,833

Profit on ordinary activities before tax                     601
Tax charge on profit                                       (253)
Profit on ordinary activities after tax                      348

Balance sheet, Group share:
Fixed assets                                                 260
Current assets                                             2,071
Current liabilities                                      (1,407)
Long term loan                                             (267)
Net assets                                                   657

The movements in the Group's investments in associated undertakings are as
follows:

                                                      The Equity
                                                     Partnership
                                                         Limited
                                                         GBP'000

Balance at 1 January 2004                                    253
Share of profit after tax arising in the year                348
Net assets acquired on purchase                               56
                                                             657
Loans to associated undertaking                              652
Goodwill acquired on purchase                                285
Goodwill amortised during the year                          (24)
Balance at 31 December 2004                                1,570

The Group share of operating profit in associated undertakings, net of goodwill amortisation is as follows:

                                                      The Equity
                                                     Partnership
                                                         Limited
                                                         GBP'000

Group share of operating profit in associated                601
undertakings
Goodwill amortised during the year                          (24)
Group share of operating profit in associated                577
undertakings, net of goodwill amortisation

The carrying value of associated undertakings in the Group balance sheet is made up as follows:

                                                      The Equity
                                                     Partnership
                                                         Limited
                                                         GBP'000

Share of net assets                                          657
Loans to associated undertaking                              652
Goodwill arising on acquisition less amortisation            261
Balance at 31 December 2004                                1,570

The carrying value of The Equity Partnership Limited in the Company balance sheet of GBP1,055,000 (2003: GBP62,000) represents its cost of GBP403,000 (2003: GBP62,000) and loans of GBP652,000 (2003: nil)

The Equity Partnership Limited

On 5 March 2004, the Company increased its share in The Equity Partnership Limited ("EPL") by purchasing a further 6.8% of EPL's ordinary share capital bringing its total holding to 40.9%. The cost of acquisition was GBP341,000 and the net assets acquired were GBP56,000 generating goodwill of GBP285,000. As at the balance sheet date, EPL had issued GBP440,000 of preference shares to a third party. Since 10 March 2004, these preferences pay a dividend of 5% per annum. EPL is prevented from paying a dividend on the ordinary shares until the preference shares have been repaid in full. The company's principal activity is that of an investment manager. The company's accounting reference date is 31 December. It is registered and operates in England.

16 Significant interests in other companies

At 31 December 2004, the Company/Group had holdings in the companies listed below which exceeded 20% of any class of equity share capital.

The Company/Group does not exercise control over or significantly influence the activities of these companies and therefore the holdings have not been equity accounted.

Name of                 Country of        Class of    Percentage of
undertaking          incorporation         capital    class held by
                               and                          Company 
                      registration                                  
                                                                      
Ebix Inc                       USA    Common stock            32.0% 
The Equity             Isle of Man         Capital            14.4% 
Partnership                                 shares                  
Investment                                                          
Company PLC                                                         
The Equity             Isle of Man   Income shares             0.0% 
Partnership                                                         
Investment                                                          
Company PLC                                                         
                                                                      
Name of        Percentage        Latest  Aggregate   Profit/(loss)
undertaking      of class     available    capital   after tax for
                  held by      accounts        and        the year
                    Group                 reserves         GBP'000
                                           GBP'000                 
                                                                      
Ebix Inc            32.0%        31 Dec      3,738             932  
                                   2003                              
The Equity          34.7%        31 Jul     31,057         (2,186) 
Partnership                        2004                              
Investment                                                          
Company PLC                                                         
The Equity           4.8%        31 Jul     31,057         (2,186) 
Partnership                        2004                              
Investment                                                          
Company PLC                                                         

17 Other debtors
                                    Group                 Company
Amounts due within one             31         31          31         31
year:                        December   December    December   December
                                 2004       2003        2004       2003
                              GBP'000    GBP'000     GBP'000    GBP'000

Trade debtors (including       15,743     24,225           -          -
share of syndicates'
debtor balances)
Amounts owed from managed         445      1,347           -        550
syndicates
Amounts owed by Group               -          -     198,477    186,550
undertakings
Tax recoverable                     -        227           -          -
Other debtors                  15,137      6,177         222        439
                               31,325     31,976     198,699    187,539

18 Tangible assets

The net book value of tangible assets is made up as follows:


                                          Computers    
Group:                                   and office    
                                         machinery,  
                                          furniture
                  Freehold        Office        and    Motor     
                  property refurbishment  equipment vehicles     Total
                   GBP'000       GBP'000    GBP'000  GBP'000   GBP'000

Cost:
At 1 January 2004      509         2,931     11,320       76    14,836
Additions                -           276      9,467        -     9,743
Disposals            (509)             -       (49)     (76)     (634)
Exchange                 -             -        (6)        -       (6)
adjustments
At 31 December 2004      -         3,207     20,732        -    23,939

Depreciation:
At 1 January 2004      327         1,545      8,123       62    10,057
Charge for the           5           602      2,489       14     3,110
period
Disposals            (332)             -       (29)     (76)     (437)
Exchange                 -             1         14        -        15
adjustments
At 31 December 2004      -         2,148     10,597        -    12,745

Net book value:
At 31 December 2004      -         1,059     10,135        -    11,194
At 31 December 2003    182         1,386      3,197       14     4,779


19 Prepayments and accrued income

                                  Group                  Company
                        31 December 31 December         31 31 December
                               2004        2003   December        2003
                            GBP'000     GBP'000       2004     GBP'000
                                                   GBP'000
Accrued income:
- fees and commissions        3,324       7,870          -           -
- investment income          11,701       2,727         26          19
(including share of
syndicates' accrued
investment income)
Prepayments                   2,665         812          -           -
                             17,690      11,409         26          19

20 Other creditors

Amounts payable within one          Group              Company
year:
                                  31        31        31        31
                            December  December  December  December
                                2004      2003      2004      2003
                             GBP'000   GBP'000   GBP'000   GBP'000

Bank loans and overdrafts     18,221         -    18,221         -
Trade creditors (including    14,931    24,446         -         -
share of syndicates'
creditor balances)
Equity dividend proposed      19,305         -    19,305         -
Taxation due                   1,456         -         -         -
Other taxes and social         2,133     1,639         -         -
security costs
Other creditors                5,362     5,110         -         -
                              61,408    31,195    37,526         -

On 4 November 2004, the Group entered into a GBP40,000,000 overdraft facility with Barclays Bank PLC to assist with the repayment of the loan referred to below and to provide working capital.

                                       Group            Company
                                     31       31       31       31
                               December December December December
                                   2004     2003     2004     2003
                                GBP'000  GBP'000  GBP'000  GBP'000
Amounts payable between two
and five years:
- Bank borrowings                     -   15,000        -   15,000
- Convertible unsecured          44,115   43,872   44,115   43,872
subordinated loan stock 2008
- US Dollar floating rate         7,539        -    7,539        -
unsecured subordinated loan
notes 2034
                                 51,654   58,872   51,654   58,872

On 3 February 2000, the Group entered into a GBP80,000,000 loan facility with Barclays Bank PLC and National Westminster Bank PLC. The GBP15,000,000 outstanding under this facility as at 31 December 2003 was repaid on 5 November 2004. The interest rate payable on the loan up to that date was equal to LIBOR plus 1.0%.

The convertible unsecured subordinated loan stock attracts interest at 8.5%. The conversion rate of the convertible unsecured subordinated loan stock of 113.64 ordinary shares for every GBP100 nominal of loan stock converted has been adjusted with effect from 23 April 2004 to 123.46 ordinary shares for every GBP100 nominal of loan stock converted. This follows the reduction of the Company's share premium account. The conversion right expires on 31 October 2005. Issue costs are being amortised over the term of the loan stock.

On 28 June 2004, $15,000,000 of US dollar floating rate unsecured subordinated loan notes were issued providing net proceeds of GBP7,984,000 after the deduction of issue costs of GBP304,000. These issue costs are amortised over the period up to the earliest redemption date being 15 August 2009. These loan notes attract interest at US Dollar three month LIBOR plus 3.5%.

21 Provisions for other risks and charges

                                  Provision            Provision    
                        Provision       for      Total       for    
                        for lease rent-free      other  deferred    Group
                        shortfall    period provisions  taxation    Total
                          GBP'000   GBP'000    GBP'000   GBP'000  GBP'000

At 1 January 2004             570       231        801         -      801
Provisions made in the          -         -          -    10,837   10,837
year
Amounts utilised during      (37)     (231)      (268)         -    (268)
the year
At 31 December 2004           533         -        533    10,837   11,370

The provision for lease shortfalls is in respect of a property which is leased by Wren Underwriting Agencies Limited and sublet to third parties. Under the terms and conditions of the leases, the Directors anticipate a loss arising over the period of the lease which has been recognised as a provision.

The provision for rent-free period relates to a lease agreement entered into in July 1999 which provided an 18 month rent-free period. The cost of the lease has been charged evenly to the profit and loss account up to the date of the first rent review in 2004.

Further details relating to the deferred taxation provision are set out in Note 22.

22 Deferred taxation

                                       Group                Company
                                    31  31 December        31         31
                              December         2003  December   December
                                  2004      GBP'000      2004       2003
                               GBP'000                GBP'000    GBP'000

Timing differences:

Declared underwriting         (17,326)       17,989         -          -
(profits)/losses
Trading losses carried           6,476            -         -          -
forward
Provision for future                 -          100         -          -
underwriting losses
Unrealised losses on                 -          625       355        295
investments
Other                               13          208         -          -
                              (10,837)       18,922       355        295

Undiscounted deferred tax       18,922       38,395       295        295
asset at the start of the
year
Acquired with Brit                   -          435         -          -
Underwriting Group Limited
Origination and reversal of   (29,759)     (19,908)        60          -
timing differences (Note 9
(i)
Undiscounted deferred tax     (10,837)       18,922       355        295
(provision)/asset at the
end of the year

In determining the deferred tax position, it has been assumed that Group relief will be available between companies within the Group.

There are unrealised equity losses of GBP3,249,000 (2003: GBP1,717,000) on which deferred tax has not been provided because of uncertainty as to the timing of their utilisation. If these losses were included at 31 December 2004, the deferred tax liability would have been reduced by GBP975,000 (2003: GBP515,000).

In addition the Group has unclaimed capital allowances on which deferred tax has not been provided because of the uncertainty as to the timing of their utilisation. If the capital allowances were included at 31 December 2004, the deferred tax liability would have been reduced by GBP2,146,000 (2003: GBP1,149,000).

23 Share capital

                        31 December 31 December 31 December 31 December
                                 2004        2003        2004        2003
                              GBP'000     GBP'000 Number '000 Number '000

Authorised:
Ordinary shares of 25p each   350,000     350,000   1,400,000   1,400,000

Allotted, issued and fully 
paid:
Ordinary shares of 25p each   243,518     243,513     974,072     974,054


Number of ordinary shares                                2004        2003
of 25p each allotted,                                  Number      Number
issued and fully paid:
                                                    
At 1 January                                      974,053,647 747,466,314
Exercised share options                                10,000          25
Converted unsecured                                     8,215       3,564
subordinated loan stock
Acquisition of Brit                                         - 226,583,744
Underwriting Group Limited
At 31 December                                    974,071,862 974,053,647

On 21 June 2004 the Company issued 10,000 ordinary shares in relation to exercised share options.

During the May and October 2004 conversion periods, the Company issued 6,724 and 1,491 shares respectively to converting holders of the convertible unsecured subordinated loan stock 2008 issued on 18 December 2001.

24 Reserves

Group:                                                     Profit    
                             Share    Capital Investment      and  
                           premium redemption         in     loss
                           account    reserve own shares  account    Total
                           GBP'000    GBP'000    GBP'000  GBP'000  GBP'000

Balance at 1 January       481,135        586          - (23,735)  457,986
2004 as previously
reported
Prior year adjustment            -          -    (4,085)      110  (3,975)

Balance at 1 January       481,135        586    (4,085) (23,625)  454,011
2004 as restated
Issue of shares                 10          -          -        -       10
Acquisition of own               -          -    (3,368)        -  (3,368)
shares
Amortisation of own              -          -      1,657        -    1,657
shares
Disposal of own shares           -          -        181        -      181
Capital reorganisation   (170,000)          -          -  170,000        -
Profit for the year              -          -          -   72,033   72,033
Equity dividends                 -          -          - (58,067) (58,067)
At 31 December 2004        311,145        586    (5,615)  160,341  466,457

Further details relating to own shares are provided in note 26.

Company:                                                 Profit    
                           Share    Capital Investment      and  
                         premium redemption         in     loss
                         account    reserve own shares  account    Total
                         GBP'000    GBP'000    GBP'000  GBP'000  GBP'000

Balance at 1 January     481,135        586            (25,744)  455,977
2004 as previously
reported
Prior year adjustment          -          -      (445)        -    (445)

Balance at 1 January     481,135        586      (445) (25,744)  455,532
2004 as restated
Issue of shares               10          -          -        -       10
Disposal of own shares         -          -        181        -      181
Capital reorganisation (170,000)          -          -  170,000        -
Profit for the year            -          -          -    2,789    2,789
Equity dividends               -          -          - (58,067) (58,067)
At 31 December 2004      311,145        586      (264)   88,978  400,445

Full details of the prior year adjustment are set out in the section "Basis of preparation of financial statements".

Following an application to the High Court, the Company was permitted to make a transfer from the share premium account to the profit and loss account of GBP170,000,000. This capital reorganisation became effective on 23 April 2004.

The Company had distributable reserves of GBP49,135,000 at 31 December 2004 (2003: negative GBP65,587,000). The difference of GBP39,843,000 between the Company's profit and loss account balance and its distributable reserves is the profit made on the sale of Brit Insurance Limited to Brit Underwriting Group Limited on 4 December 2003. The consideration for this sale was satisfied by the issue of new ordinary shares by Brit Underwriting Group Limited.

25 Reconciliation of Equity Shareholders' funds

                                        Group                Company
                                  31 Dec     31 Dec     31 Dec     31 Dec
                                    2004       2003       2004       2003
                                         (restated)            (restated)
                                 GBP'000    GBP'000    GBP'000    GBP'000

Total recognised gains for        72,033     57,493      2,789      1,403
the year
Equity dividends                (58,067)          -   (58,067)          -
Issue of shares                       15    167,674         15    167,674
Acquisition of own shares        (3,368)    (3,559)          -          -
Amortisation of own shares         1,657        221          -          -
Disposal of own shares               181        565        181        475
Total movements during the        12,451    222,394   (55,082)    169,552
year
Opening Equity Shareholders'     701,499    476,341    699,490    530,413
funds as previously reported
Prior year adjustment            (3,975)    (1,211)      (445)      (920)
Opening Equity Shareholders'     697,524    475,130    699,045    529,493
funds as restated
Closing Equity Shareholders'     709,975    697,524    643,963    699,045
funds

26 Investment in own shares

In December 1999, May 2000 and December 2001 the trustees of the Brit Long-Term Incentive Plan ("the LTIP") acquired Brit Insurance Holdings PLC shares in accordance with the terms of that plan. Following the vesting of some of these shares during 2004 the number of shares held at 31 December 2004 was 321,765 (2003: 588,268).

In November 2003 and October 2004 the trustees of the Brit Performance Share Plan 2003 ("the PSP") acquired Brit Insurance Holdings PLC shares in accordance with the terms of that plan. The number of shares held at 31 December 2004 was 8,554,371 (2003: 4,659,894).

In October 2001, the Brit All Employee Share Ownership Plan ("the ESOP") commenced purchasing shares to be held in trust for the benefit of employees of the Group. Ongoing purchases of shares are made on a monthly basis.

Details of the LTIP, PSP and ESOP are given in note 32.

As at 31 December 2004 Brit Insurance Limited held 265,623 (2003: 265,623) ordinary 25p shares of Brit Insurance Holdings PLC.

                              Group                  Company
                     31 December 31 December 31 December  31 December
                            2004        2003        2004         2003
                                  (restated)
                         GBP'000     GBP'000     GBP'000      GBP'000

Long-Term Incentive          264         445         264          445
Plan
Performance Share          4,671       3,337           -            -
Plan
All Employee Share           377           -           -            -
Ownership Plan
Held by Brit                 303         303           -            -
Insurance Limited
                           5,615       4,085         264          445

27 Equity minority interests
                                              31 December 31 December
                                                     2004        2003
                                                  GBP'000     GBP'000

At 1 January                                        9,398       (371)
Equity minority interest at date of                     -      10,134
acquisition - CF Epic Investment Funds
Deemed disposal of CF Epic Investment Funds           478           -
Deemed disposal of Ri3K Limited                         -        (53)
Profit /(loss) on ordinary activities after           362       (312)
tax
At 31 December                                     10,238       9,398

The equity minority interest in CF Epic Investment Funds represents 19.1% of its total issued income and accumulation shares. The equity minority interest in Ri3K Limited represents 22.8% of its issued ordinary shares. The holders of these equity minority interest shares have no rights against any other group company.

28 Capital commitments

                                              31 December 31 December
                                                     2004        2003
                                                  GBP'000     GBP'000

Capital expenditure contracted but not              2,653         580
provided for in the financial statements

29 Operating leases

At 31 December 2004, the Group was committed to making the following payments under non-cancellable operating leases in the year to 31 December 2005:

                                 Land & buildings          Other
                                    31        31         31       31
                              December  December   December December
                                  2004      2003       2004     2003
                               GBP'000   GBP'000    GBP'000  GBP'000

Annual commitments under
operating leases
which expire:
- within one year                    3       280         29      126
- between two to five years        238        47         66       84
- after five years               1,734     1,802          -        -
                                 1,975     2,129         95      210

30 Consolidated cash flow statement

(i) Scope of consolidated cash flow statement

The consolidated cash flow statement excludes syndicate cash flows and cash held within Lloyd's Premium Trust Funds on behalf of some of the Group's underwriting subsidiaries.

(ii) Reconciliation of operating profit to net cash inflow from operating activities

                                           31 December      31 December
                                                  2004             2003
                                                             (restated)
                                               GBP'000          GBP'000

Profit before tax on ordinary activities       102,469           77,566
(Profit)/loss on sale of fixed assets            (205)              844
(Profit) on disposal of subsidiary                   -          (1,920)
undertakings
Depreciation of fixed assets and related         3,125            2,179
exchange adjustments
Amortisation of goodwill                         8,101            6,488
Amortisation of loan stock and loan                279              250
notes issue costs
Charges in respect of employee share             1,038              221
schemes
Amortisation of syndicate capacity               1,734            1,919
Increase in debtors                          (149,384)         (72,837)
Increase/(decrease) in creditors                 8,807         (13,303)
Increase in provisions                         307,053          223,395
Foreign exchange rate movements on               (475)                -
financing items
Realised and unrealised investment gains      (15,315)          (2,767)
Share of operating profit in associated
undertakings,
net of goodwill amortisation                     (577)            (219)
Interest payable                                 2,758            4,600
Net cash inflow from operating                 269,408          226,416
activities

(iii) Movement in opening and closing portfolio investments net of
financing
                                           31 December    31 December
                                                  2004           2003
                                               GBP'000        GBP'000

Net cash (outflow)/inflow for the year        (36,743)         41,819
Cash flow - portfolio investments              264,388        221,421
Movement arising from cashflows                227,645        263,240
Changes in market value and currencies          15,315          2,767
Other changes                                      478        106,992
Total movement in portfolio investments        243,438        372,999
net of financing
Portfolio at 1 January                         953,380        580,381
Portfolio at 31 December                     1,196,818        953,380
(iv) Movement in cash and portfolio investments

                             At     Cash Changes to   Other        At

                              1     flow     market changes        31
                        January  GBP'000      value GBP'000  December
                           2004                 and              2004
                        GBP'000          currencies           GBP'000
                                            GBP'000

Cash at bank and in      75,845 (36,743)          -       -    39,102
hand
Deposits with credit     60,047   67,391      (324)       -   127,114
institutions
Total cash              135,892   30,648      (324)           166,216
Fixed income            600,437  213,620    (7,016)       -   807,041
investments
Variable income          70,920 (21,591)       (11)       -    49,318
investments
Protected funds           1,383        -         18       -     1,401
Equities                144,748    4,968     22,648     478   172,842
Total portfolio         817,488  196,997     15,639     478 1,030,602
investments
Total cash and          953,380  227,645     15,315     478 1,196,818
portfolio investments
Bank borrowings        (15,000)  (3,221)          -       -  (18,221)
Total cash and          938,380  224,424     15,315     478 1,178,597
portfolio investments,
net of debt

(v) Net cash outflow on portfolio investments

                  Year ended 31 December 2004  Year ended 31 December 2003
                  Purchases     Sales Net cash Purchases     Sales     Net
                    GBP'000   GBP'000     flow   GBP'000   GBP'000    cash
                                       GBP'000                        flow
                                                                   GBP'000

Deposits with        81,379    13,988   67,391    26,589         -  26,589
credit               
institutions
Fixed income      1,720,608 1,506,988  213,620 1,619,256 1,491,080 128,176
investments
Variable income           -    21,591 (21,591)    25,547     7,030  18,517
investments
Protected funds           -         -        -         -     8,336 (8,336)
Equities             28,736    23,768    4,968    90,880    34,405  56,475
                  1,830,723 1,566,335  264,388 1,762,272 1,540,851 221,421

31 Pensions

The Group has the following pension schemes in operation:

(i) Brit Group Services Limited - defined benefit pension scheme

For some of the employees of Brit Group Services Limited, the Group operates a funded pension scheme providing benefits for its employees based on final pensionable emoluments. The assets of the Scheme are held in a separate trustee administered fund. The most recent completed actuarial valuation of the Scheme was carried out as at 31 July 2003 by a professionally qualified actuary using the projected unit method. At this date, the market value of the assets amounted to GBP52,500,000 which, on an ongoing funding basis, covered 86% of the benefits that had accrued to members after allowing for expected future increases in earnings. The assumptions which have the most significant effect on the results of the valuation are those relating to the rate of return on investments and the rates of increase in salaries and pension. For the purposes of Statement of Standard Accounting Practice 24 "Accounting for Pension Costs" ("SSAP 24") it was assumed that investment returns in excess of salary growth would be 3.2% pa and that investment returns in excess of present and future pension increases would be 3.1% pa. The actuarially calculated deficit is being amortised over the average remaining service of the active members with each annual deficit contribution increasing with pay. The employer has been making contributions at the rate of 24.8% of pensionable salaries from 1 January 2004 to 18 May 2004 and 24.7% thereafter to the end of the year. In addition it has been making an annual lump sum contribution of GBP390,000 since 1 January 2004. The pension cost charge represents contributions payable by the Group to the Scheme and amounted to GBP1,940,000 (2003: GBP1,691,000). At 31 December 2004 no contributions were payable to the Scheme (2003: GBPnil).

Financial Reporting Standard 17 "Retirement Benefits" ("FRS 17") disclosures

While the Group continues to account for pension costs in accordance with Statement of Standard Accounting Practice 24 "Accounting for Pension Costs", under FRS 17 transitional disclosures are required as at 31 December 2004 using the different measurement basis prescribed by the Standard. None of the information set out in a) to g) below is reflected in the primary statements of the Group for the year ended 31 December 2004.

a) Composition of the scheme

The results of the formal actuarial valuation as at 31 July 2003 were updated to the accounting date by an independent qualified actuary in accordance with the transitional arrangements of FRS 17. As required by FRS 17, the value of the defined benefit liabilities has been measured using the projected unit method. The following table sets out the key FRS 17 assumptions used for the scheme. The table also sets out as at the accounting date the fair value of assets, a breakdown of the assets into the main asset classes, the present value of the FRS 17 liabilities and the deficit of assets below the FRS 17 liabilities (which equals the Gross pension liability).

                                       31         31         31
                                 December   December   December
                                     2004       2003       2002
                                        %          %          %
Retail Price Index                   2.90       2.80       2.30
inflation
Discount rate                        5.30       5.40       5.60
Pension increases in                 2.70       2.60       2.30
payment
General salary increases             4.90       4.80       4.30

The assets in the scheme and the expected long-term rates of return were:

                   31 December 2004  31 December 2003  31 December 2002
                  Expected    Value Expected    Value Expected    Value
                    return  GBP'000   return  GBP'000   return  GBP'000
                         %                 %                 %

Equities              7.50   43,367     7.70   48,741     7.40   37,906
Bonds                 5.30    8,248     5.40    4,316     5.60    5,537
Gilts                 4.60    8,853     4.80    2,411     4.40    2,733
Cash                  4.50      278     4.60    1,187     4.00    1,862
Total market                 60,746            56,655            48,038
value of assets
Present value              (79,216)          (72,171)          (58,401)
of liability
Deficit in the             (18,470)          (15,516)          (10,363)
scheme

Gross pension              (18,470)          (15,516)          (10,363)
liability
Related                       5,541             4,655             3,109
deferred tax
asset at 30%
Net pension                (12,929)          (10,861)           (7,254)
liability

Under FRS 17, the scheme would be represented on the balance sheet at 31 December 2004 as a liability of GBP18,470,000 (2003: GBP15,516,000), which amounts to GBP12,929,000 net of deferred tax (2003: GBP10,861,000).

Notes:

(1) Figures have been estimated, where necessary.

(2) Contributions were paid at the rate of 24.8% of pensionable salaries from 1 January 2004 to 18 May 2004 and 24.7 % thereafter to the end of the year. In addition a lump sum contribution of GBP390,000 was also made to the Scheme during the year.

(3) The Scheme closed to new entrants with effect from 4 October 2001. Under the projected unit method the current service cost will increase as the members of the scheme approach retirement.

b) Analysis of the amounts to be charged to operating profit (for illustrative purposes only)

                                                      31          31 
                                                December    December   
                                                    2004        2003
                                                 GBP'000     GBP'000

Employer's part of current service cost            2,207       2,059
Vested past service cost                               -         125
Curtailment                                            -       (306)
Total operating charge                             2,207       1,878

c) Analysis of the amount to be credited to other finance income (for illustrative purposes only)

                                             31 December 31 December
                                                    2004        2003
                                                 GBP'000     GBP'000

Expected return on pension scheme assets           4,134       3,273
Interest on pension scheme liabilities           (3,888)     (3,249)
Net return - credit                                  246          24

d) Analysis of amount recognised in the Statement of Total Recognised Gains and Losses (for illustrative purposes only)

                                             31 December 31 December
                                                    2004        2003
                                                 GBP'000     GBP'000

Actual return less expected return on 
pension scheme assets                                571       6,428
Experience losses arising on the 
scheme liabilities                                 (843)     (2,499)
Changes in assumptions underlying the 
present value of scheme liabilities              (2,666)     (8,965)
Actuarial loss recognised in the 
Statement of Total                               
Recognised Gains and Losses                      (2,938)     (5,036)

e) Movement in scheme deficit during the year (for illustrative purposes only)

                                                        31        31
                                                  December  December
                                                      2004      2003
                                                   GBP'000   GBP'000

Deficit in scheme at beginning of the year        (15,516)  (10,363)
Movement in year:
Current service cost (total)                       (2,207)   (2,059)
Aggregate contributions                              1,945     1,737
Past service costs (vested and non-vested)               -     (125)
Curtailment                                              -       306
Other finance income                                   246        24
Actuarial loss recognised in the Statement of      (2,938)   (5,036)
Total Recognised Gains and Losses
Deficit in scheme at end of the year              (18,470)  (15,516)

f) History of experience gains and losses (for illustrative purposes only)

                                              31        31        31
                                        December  December  December
                                            2004      2003      2002
                                         GBP'000   GBP'000   GBP'000

Difference between expected and actual
return on scheme assets:
Amount - gain / (loss)                       571     6,428  (15,155)
Percentage of scheme assets                   1%       11%       32%
Experience gains and losses on scheme
liabilities
Amount - gain / (loss)                     (843)   (2,499)       190
Percentage of the present value of the      (1%)      (3%)        0%
scheme liabilities
Total amount recognised in the
Statement of Total Recognised Gains
and Losses
Amount - (loss)                          (2,938)   (5,036)  (17,058)
Percentage of the present value of the      (4%)      (7%)     (29%)
scheme liabilities

g) Reserves note (for illustrative purposes only)

                                                        31        31
                                                  December  December
                                                      2004      2003
                                                   GBP'000   GBP'000

Profit and loss reserve excluding pension          160,341  (23,625)
liability
Pension reserve                                   (12,929)  (10,861)
Profit and loss reserve                            147,412  (34,486)

(ii) Brit Group Services Limited - Defined Contribution Stakeholder Scheme

From 5 October 2001, Brit Group Services Limited has operated a defined contribution stakeholder pension scheme. The assets of the scheme are held separately from those of the Company in an independently administered fund. The pension cost charge represents contributions payable by the Group to the fund and amounted to GBP1,974,000 (2003: GBP1,035,000). At 31 December 2004 no contributions were payable to the fund (2003: GBPnil).

(iii) Brit Group Services Limited - Funded Unapproved Retirement Benefits Scheme ("FURBS")

Brit Group Services Limited also operates a defined contribution FURBS, into which additional contributions are paid in respect of certain employees. The assets of the scheme are held separately from those of the Company in an independently administered fund. The pension cost charge represents contributions payable by the Company to the fund and amounted to GBP52,000 (2003: GBP72,000). At 31 December 2004, contributions amounting to GBP30,000 (2003: GBP72,000) were payable to the fund and are included in creditors.

(iv) Brit Insurance Limited

For Brit Insurance Limited employees, the Group operates a defined contribution pension scheme. The assets of the scheme are held separately from those of the Company in an independently administered fund. The pension cost charge represents contributions payable by the Company to the fund and amounted to GBP16,000 (2003: GBP63,000). At 31 December 2004, no contributions were payable to the fund (2003: GBPnil).

(v) PRI Management Limited

PRI Management Limited operated a defined contribution pension scheme. During the year, all members of this scheme transferred to the Brit Group Services Limited defined contribution stakeholder scheme. The assets of the scheme are held separately from those of the Company in an independently administered fund. The pension cost charge represents contributions payable by the Company to the fund and amounted to GBP53,000 (2003 for the period following acquisition: GBP173,000). At 31 December 2004, no contributions were payable to the fund (2003: GBP9,000).

32 Long-Term incentive schemes

There are three active schemes and five closed schemes, details of which are set out below:

Active Schemes

(i) Brit All Employee Share Ownership Plan ("the ESOP")

Approved by members at the Annual General Meeting on 20 June 2001, the ESOP comprises a Trust Deed and Rules establishing an All Employee Share Ownership Scheme which was approved by the Inland Revenue, pursuant to the Finance Act 2000. All eligible employees of the Company and participating subsidiaries are entitled to participate subject to various detailed provisions. An independent Trustee holds all shares purchased under the plan and dividends are payable on shares held in the Trust. Pursuant to the ESOP, the Board may award free shares or give employees the opportunity to acquire partnership shares or make an award of matching shares to those employees who have invested in partnership shares or require or allow employees to reinvest dividends paid on their plan shares in further dividend shares.

An aggregate of 167,500 free shares were awarded on 20 October 2004 to 335 members of staff, including certain executive Directors, (each of whom were awarded 500 shares each) at a cost per share of 70.75p each. Since the launch of the ESOP, all participating employees have had the opportunity to subscribe for partnership shares on a monthly basis and to be awarded matching shares. Free shares are held in trust for a three year qualifying period and matching shares for five years.

As at 31 December 2004, the Trust held 511,500 free shares, 364,622 matching shares and 733,048 partnership shares with a total nominal value of GBP402,293 and a market value, based on mid-market value of the Company's shares at close of business on 31 December 2004, as shown in the Official List of the London Stock Exchange of GBP1,267,221. This equates to 0.17% of the Company's issued share capital as at 31 December 2004.

As at 31 December 2004, the Trust held 784,622 free and matching shares with a market value of GBP617,890 which has not yet vested unconditionally in employees. All of these shares have been conditionally gifted to employees subject to reaching the relevant qualifying period.

(ii) Brit Executive Share Option Scheme 2003 ("the ESOS")

The ESOS was approved by shareholders on 18 June 2003 and comprises of two parts, namely the 'Approved' part, which has been approved by the Inland Revenue, and the 'Unapproved' part, which is intended to be used primarily where executives have more than GBP30,000 worth of outstanding Approved options.

The price per share payable upon exercise of an option will not be less than the higher of the average of the middle-market quotations of a share on the London Stock Exchange on the three dealing days immediately prior to the grant date, provided that no such dealing day falls prior to the date on which the Company last announced its results for any period and the nominal value of a share (unless the option is expressed to relate only to existing shares).

Further details of the operation of the ESOS are disclosed in the Directors' Remuneration Report.

Outstanding options granted at nil cost under the ESOS are as follows:

Date of    Number of  Number of Subscription   Date from    Expiry
grant      employees     shares    price per       which      date
           including      under    25p share exercisable
           Directors     option      (pence)
3 Nov 03          77  7,919,215        76.92    3 Nov 06  2 Nov 13
18 Oct 04        103  5,932,105        78.50   18 Oct 07 17 Oct 14
4 Nov 04           1     22,930        78.50    4 Nov 07  3 Nov 14

(iii) Brit Performance Share Plan 2003 ("the PSP")

The PSP was approved by shareholders on 18 June 2003 and details of its operation are disclosed in the Directors' Remuneration Report.

Awards will be satisfied by the transfer of shares from the Company's employee benefit trust which may acquire shares for this purpose either by subscribing for new shares or by buying shares in the market. The trustees have waived their entitlement to dividends on any shares acquired. As at 31 December 2004, the employee benefit trust held 8,876,136 ordinary 25p shares (including shares in respect of the Brit Long Term Incentive Plan 1999 referred to in Note 32(viii)) which represented 0.91% of the issued share capital of the Company as at 31 December 2004.

Awards have been made under the PSP as follows:

Date of        Number of    Number of     Value of       Latest
grant          employees       shares    shares at vesting date
               including                   date of
               Directors                 grant GBP
3 Nov 03              54    4,659,894    3,459,971     2 May 07
18 Oct 04             57    3,894,477    2,755,343    17 Apr 08

Closed Schemes

(iv) Brit 1998 Approved Executive Share Option Scheme ("the Approved Scheme")

The Approved Scheme is a discretionary share option scheme approved by the Inland Revenue. Following shareholder approval of the ESOS in 2003, no further grants of options will be made under the Approved Scheme. Options granted under the Approved Scheme were subject to performance criteria at the discretion of the Board and are generally exercisable between three and ten years from the date of grant.

Outstanding options granted at nil cost under this scheme are as follows:

Date of    Number of  Number of Subscription   Date from    Expiry
grant      employees     shares    price per       which      date
           including      under    25p share exercisable
           Directors     option      (pence)
6 Dec 99           3     99,688        80.25    6 Dec 02  5 Dec 09
8 Jun 00           1     38,710        77.50    8 Jun 03  7 Jun 10
20 Nov 00          9    162,164        74.00   20 Nov 03 19 Nov 10
7 Jun 01          22    308,377       113.50    7 Jun 04  6 Jun 11
27 May 02          1     28,368        70.50   27 May 05 26 May 12
6 Feb 03           9    111,562        75.50    6 Feb 06  5 Feb 13

(v) Brit 1998 Approved Executive Share Option Scheme - Part B (formerly Wren Approved Share Option Scheme 1998)

This is a discretionary share option scheme approved by the Inland Revenue. Options granted under this scheme were not subject to performance criteria and are generally exercisable between three and ten years from date of grant. All option holders accepted rollover terms granting them options over shares in the Company on 21 September 1999. It is not expected that any future options will be granted under this scheme.

Outstanding options granted at nil cost under this scheme are as follows:

Date of    Number of  Number of Subscription   Date from    Expiry
grant      employees     shares    price per       which      date
           including      under    25p share exercisable
           Directors     option      (pence)
10 Sep 98         16    397,557       112.00   10 Sep 01  9 Sep 08

(vi) Brit 1998 Unapproved Executive Share Option Scheme ("The Unapproved Scheme")

The Unapproved Scheme is a discretionary share option scheme not approved by the Inland Revenue. Following shareholder approval of the ESOS in 2003, no further grants of options will be made under the Unapproved Scheme. Options granted under this scheme were subject to performance criteria determined by the Board and are generally exercisable between three and ten years from the date of grant.

Outstanding options granted at nil cost under this scheme are as follows:

Date of    Number of  Number of Subscription   Date from    Expiry
grant      employees     shares    price per       which      date
           including      under    25p share exercisable
           Directors     option      (pence)
10 Sep 98          2    799,999       142.50   10 Sep 01  9 Sep 08
6 Dec 99           6  1,575,000        80.25    6 Dec 02  5 Dec 09
24 May 00          2    550,000        66.00   24 May 03 23 May 10
20 Nov 00          4    705,000        74.00   20 Nov 03 19 Nov 10
7 Jun 01           1    125,000       113.50    7 Jun 04  6 Jun 11
31 May 02         37  2,497,550        70.50   31 May 05 30 May 12
31 May 02          8  2,460,000        70.83   31 May 05 30 May 12
5 Jun 02          10    635,500        70.50    5 Jun 05  4 Jun 12
23 Oct 02          3  1,353,913        62.50   23 Oct 05 22 Oct 12
4 Nov 02           2    839,844        64.00    4 Nov 05  3 Nov 12
15 Jan 03          1    240,000        78.00   15 Jan 06 14 Jan 13

(vii) Brit 1998 Unapproved Executive Share Option Scheme - Part B (formerly Wren Unapproved Share Option Scheme 1998)

This is a discretionary share option scheme not approved by the Inland Revenue. Options granted under this scheme were subject to performance criteria (other than those granted on 18 May 1998) determined by the board of Wren Limited. Options are generally exercisable between three and ten years from the date of grant (with the exception of those granted on 18 May 1998). All option holders accepted rollover terms granting them options over shares in the Company on 21 September 1999. It is not expected that any future options will be granted under this scheme.

Outstanding options granted at nil cost under this scheme are as follows:

Date of    Number of  Number of Subscription   Date from    Expiry
grant      employees     shares    price per       which      date
           including      under    25p share exercisable
           Directors     option      (pence)
18 May 98          1    319,365       119.00   22 Dec 00 17 May 08
14 Aug 98          1    117,500       130.50   14 Aug 01 13 Aug 08

(viii) Brit Long Term Incentive Plan 1999 ("the LTIP")

Following shareholder approval of the PSP in 2003, no further awards will be made under the LTIP.

The LTIP was controlled by the Remuneration Committee, which set performance targets in respect of all allocations. The LTIP was established under a discretionary employee benefit trust set up for the provision of benefits and assistance to employees of the Company and its subsidiaries. Further details of the trust are disclosed above.

Outstanding awards made under the LTIP are as follows:

Date of        Number of    Number of     Value of       Latest
grant          employees       shares    shares at vesting date
               including                   date of
               Directors                     grant
18 Dec 01              1       67,030       50,000    31 Dec 04

33 Related party transactions

(i) Directors' interests in share capital

The interests of the Directors who held office as at 31 December 2004 and their families in the ordinary shares of 25p each of the Company are as follows:

                Held at 31 December 2004      Held at 31 December 2003*
              Shares   Options  PSP/LTIP     Shares   Options  PSP/LTIP

Dane         934,734 2,220,767   668,301    828,875 1,806,744   462,613
Douetil
Neil       6,034,086 2,143,399   894,064  5,830,727 1,601,993   491,055
Eckert
Matthew      255,603 1,612,332   644,588    115,577 1,230,166   496,780
Scales

Clive        190,000         -         -    100,000         -         -
Coates
Peter              -         -         -          -         -         -
Hazell
Glyn          40,000         -         -     40,000         -         -
MacAulay
Don           40,000         -         -     40,000         -         -
McCrickard
Anthony      352,538         -         -    352,538         -         -
Townsend
Michael       10,000         -         -     10,000         -         -
Smith

* or date of appointment

All Directors' interests in the ordinary shares of the Company are beneficial. Neil Eckert and Anthony Townsend are also interested in 456,761 and 47,543 units of 8.5% Convertible Unsecured Subordinated Loan Stock 2008 respectively (2003: 456,761 and 47,543 respectively).

No other Director held any interest in the 8.5% Convertible Unsecured Subordinated Loan Stock 2008 as at 31 December 2004 and no Director held any interest in any other group company.

As at 25 February 2005, the Employee Share Ownership Trust was interested in 1,669,362 ordinary 25p shares in which the Directors who are employees are deemed to be interested by virtue of section 324 of the Companies Act 1985 (see Note 32 of the financial statements).

As at 25 February 2005, the employee benefit trust held 8,876,136 ordinary 25p shares in which the Directors who are employees are deemed to be interested by virtue of section 324 of the Companies Act 1985 (see Note 32 of the financial statements).

(ii) Directors' interests in transactions

Jo Welman is a shareholder in The Equity Partnership Limited ('EPL'). EPL's subsidiaries, EPIC Asset Management Limited and EPIC Special Investments Limited, have entered into certain investment management agreements with the Group and, accordingly, Jo Welman is interested in these contracts. Details of these contracts are set out in part (iv) below. Jo Welman resigned as a non-executive Director of the Group on 27 May 2004.

(iii) Loans

As at the balance sheet date, Brit Insurance Holdings PLC had a loan of GBP8,100,000 outstanding made to Ri3K Limited, a 77.2% owned subsidiary.

This amount has been fully provided for in the books of the Company.

With effect from 1 January 2005 interest will be charged on outstanding balances at an annual rate of 3% above the prevailing three month LIBOR rate.

As at the balance sheet date, Brit Insurance Holdings PLC had a loan of GBP652,000 outstanding made to The Equity Partnership Limited, a 40.9% owned associated company.

Interest is charged on outstanding balances at an annual rate of 2% above the prevailing six month LIBOR rate.

(iv) Trading

The Equity Partnership Limited, EPIC Asset Management Limited and EPIC Special Investments Limited

During the year, the Group traded with The Equity Partnership Limited ("EPL"), an associated undertaking 40.9% owned by Brit Insurance Holdings PLC and with EPIC Asset Management Limited ("EPAM") and EPIC Special Investments Limited ("ESI"), subsidiaries of EPL.

Brit Insurance Holdings PLC charged EPL GBP250,000 (2003: GBP186,000) in respect of operational office costs.

EPL, EPAM and ESI also have an agreement with Brit Group Services Limited ("BGS"), a 100% subsidiary of Brit Insurance Holdings PLC, whereby BGS pays certain expenses on behalf of these companies which it then recovers in full. The total of all of these costs amounted to GBP3,359,000 (2003: GBP2,863,000), of which GBP524,000 (2003: GBP782,000) was outstanding at the balance sheet date.

EPL also traded during the year with The Equity Partnership Investment Company PLC ("EPIC"), a company with a 29.9% holding in EPL. Brit Insurance Holdings PLC owns 34.7% of the ordinary share capital of EPIC. EPIC purchased investment management services from EPL amounting to GBP652,000 (2003: GBP699,000).

As at the balance sheet date the amounts owed in relation to these services amounted to GBP115,000 (2003: GBP114,000).

EPAM and ESI are Investment Managers regulated by the Financial Services Authority and provided the following services to Brit Insurance Holdings PLC and its subsidiaries:

EPAM
                                                    Fees outstanding
                                     Fund        
                                    value     Fees

                                    As at  charged     As at    As at
                                   31 Dec   during    31 Dec   31 Dec
                       Commenced     2004     2004      2004     2003
                                               GBP       GBP      GBP
Investment Advisory:

Brit Insurance              2001           103,548     9,775        -
Holdings PLC

                                     GBPm        %       GBP      GBP
Investment Management:

Brit Syndicates             2001      666     0.18   102,862   89,400
Limited
Brit Insurance              2002        -    0.15/         -    3,300
Holdings PLC                                0.125*
Masthead Insurance          2002      186    0.15/    19,690   19,800
Underwriting Limited                        0.125*
Brit Insurance Limited      2002      514    0.15/    54,562   31,300
                                            0.125*
Brit Insurance (UK)         2004      142    0.15/    15,073        -
Limited                                     0.125*

* On 1 October 2004, EPAM reduced its annual fee from 0.15% to 0.125%.

ESI
                                                    Fees outstanding
                                   Fund        
                                  value     Fees     
                                  As at  charged      As at     As at
                                 31 Dec   during     31 Dec    31 Dec
                       Commenced   2004     2004       2004      2003
                                             GBP        GBP       GBP
Investment Management:

Brit Syndicates             2003      5      1.5      6,218     6,820
Limited
Brit Syndicates             2003     14        1     11,921    10,946
Limited
Brit Insurance              2003      1        1        673     1,873
Holdings PLC
Masthead Insurance          2003      6        1      5,513     4,580
Underwriting Limited
Brit Insurance Limited      2003     12      1.5     15,837    11,569
Brit Insurance Limited      2003     29        1     24,383    26,718
Brit Insurance Limited      2004      1        2        996         -
Brit Insurance (UK)         2003      8        1      7,152     6,567
Limited

Ebix Inc

The Group entered into various software and service agreements with Ebix Inc, a company in which Brit Insurance Holdings PLC owns 32.0% of the common stock. The cost of these contracts in 2004 was GBP1,941,323 (2003: GBP1,100,551). GBPnil (2003: GBP29,268) was outstanding at the year end.

34 Contingent liabilities

(i) Lloyd's

(a) Company

Lloyd's has a floating guarantee over the assets of Brit Insurance Holdings PLC.

(b) Group

If any of the corporate member subsidiaries fails to meet any of its Lloyd's obligations, after having called on the Group under its guarantees, then:

(a) Lloyd's will be entitled to require the other corporate member subsidiaries to cease or reduce their underwriting; and/or

(b) having regard to the fact that the Central Fund or the New Central Fund may be applied to discharge the obligations of the defaulting corporate member subsidiary, Lloyd's will be entitled to require each of the other corporate member subsidiaries to make contributions to the New Central Fund up to the amount of their respective net profits held from time to time in Premium Trust Funds, sufficient to reimburse the Central Fund or the New Central Fund in full for any payment made on behalf of the defaulting member.

At the date of signing these financial statements the Group is not aware of any corporate member subsidiary failing to meet its Lloyd's obligations.

On 26 November 1999, there was a reorganisation of the Group such that:

(i) all underwriting at Lloyd's is now conducted through one corporate member subsidiary; and (ii) all investments and assets supporting the underwriting at Lloyd's are held in one subsidiary, being Masthead Insurance Underwriting Limited ('Masthead').

A number of agreements were entered into in order to achieve this.

A deed of charge was entered into by Masthead with Lloyd's to support the underwriting activities of all corporate member subsidiaries within the Brit Insurance Holdings PLC Group. Masthead entered into deeds of covenant with Lloyd's to cover the run-off liabilities of these corporate members. It also entered into guarantees with respect to interavailable funds of GBP118,738,728. As at 31 December 2004 the value of these funds was GBP85,250,775 (2003: GBP86,807,120).

Lloyd's has the right to retain the income on charged investments, although it is not expected to exercise this right unless it considers there to be a risk that one or more of the covenants might need to be called and, if called, might not be honoured in full.

The parent company, Brit Insurance Holdings PLC, has given an indemnity to Lloyd's, of up to GBP63,333,500, in the event that Masthead fails to meet its obligations. The directors do not consider this to be likely.

(ii) Bank borrowings

As detailed in Note 20, Brit Insurance Holdings PLC had an overdraft facility with Barclays Bank PLC at 31 December 2004.

The lender has the following security under the terms of the facility which has priority over those provided to Lloyd's:

(a) A debenture which includes a fixed charge over assets including the shares held by Brit Insurance Holding PLC in Masthead Insurance Underwriting Limited and Brit Underwriting Group Limited and a floating charge over the remaining assets of the Company.

(b) A memorandum of deposit whereby Brit Underwriting Group Limited has deposited its shares in Brit Insurance Limited.

(iii) Letters of Credit

At 31 December, 2004 Brit Insurance Limited had in place a Letter of Credit ("LOC") facility for US $100,000,000 with Barclays Bank PLC (2003: US $100,000,000).

This facility supports the underwriting of US reinsurance business. LOCs issued will be collateralised by a mixture of cash, money market funds and government securities. At 31 December 2004 the company had issued and collateralised US $4,600,000 of LOCs (2003: US $4,500,000).

35. Financial information and posting of accounts

The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 December 2003 or 2004, but is derived from those accounts. Statutory accounts for 2003 have been delivered to the Registrar of Companies and those for 2004 will be delivered in due course. The auditor has reported on those accounts; the auditor's reports were unqualified and did not contain statements under Section 237 (2) or (3) of the Companies Act 1985. The audited Annual Report and Accounts for 2004 are expected to be posted to shareholders by no later than 16 March 2005. Copies of the Report may be obtained from that date by writing to the Company Secretary, Brit Insurance Holdings PLC, 55 Bishopsgate, London, EC2N 3AS. The Annual General Meeting of the Company will be held at the same address at 10am on 19 April 2005. The Preliminary Results were approved by the Board on 28 February 2005.

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