Alea Group Holdings (Bermuda) Ltd.

Alea Group Holdings (Bermuda) Ltd: Preliminary Results for the Year Ended 31 December 2004

    Bermuda (ots/PRNewswire) -

    - Alea Comprehensive Reserve Study Completed In-Line With Expectations

    Reserve study

    - Comprehensive reserve study completed in-line with guidance of 5-7 point second half increase in combined ratio (H1 2004: 95.7%)

    - Reserve increases of $72.5 million in the second half (H1 2004: $21.2 million; 2003: $19.2 million) add 6.1 points to combined ratio

    Financial performance

    - Combined ratio(1) of 104.2% (2003: 96.8%) in-line with guidance of 103-105%

    - Underlying combined ratio(2) of 93.9% (2003: 94.5%) reflecting strong performance from core business

    - Net asset value of $4.05 per share (GBP2.10 at 31 December 2004 exchange rate of $1.93 = GBP1)

    - Second half storm losses of $51.4 million, lower than $55 million forecast originally

    - Gross premiums up 22% to $1,583 million (2003: $1,300 million)

    - Profit before tax of $10.9 million (2003: $54.5 million), including unrealised investment losses of $7.1 million (2003: $29.2 million)

    - Tax charge of $16.6 million (2003: $13.5 million) reflecting limited tax relief on reserve additions and one-off US withholding tax charge of $4 million

    - Fully diluted after tax loss per share of $0.03 (2003: profit of $0.42) - fully diluted operating EPS $0.06 (2003: $0.54)

    - Annualised operating return on equity(3) of 2%

    - Final 2004 dividend of $0.07 per share recommended, to give total dividend of $0.10 per share

    Outlook and prospects

    - Growing insurance portfolio with a combined ratio of 89.1% (2003: 104.1%): reinsurance combined ratio of 110.9% (2003: 93.5%).

    - Strong underwriting conditions continue: rate increases equal to claims inflation. Profitability consistent with target RoE

    - Net unearned premium reserve increased 17% to $660 million(4) (2003:  $563 million) representing tangible future revenue

    - Pre-tax loss estimate from Windstorm Erwin in January 2005 of between $20 million and $25 million.

    Management

    - Kirk H. Lusk (44) becomes interim Group Chief Financial Officer, effective 15 March, upon the departure of Amanda J. Atkins, who has resigned, on agreed terms, from her post as Group Chief Financial Officer and as a Director and will leave Alea on 5 April. A search for a London - or Continental European-based replacement has been initiated.

    Comments of Mark L. Ricciardelli, Group Chief Executive:

    "We have completed our rigorous global reserve review, which led to a second half reserve increase of $73 million, in-line with our previous guidance. This action, combined with the unusually high natural catastrophe losses experienced brought our combined ratio to 104.2%. We believe we have a rigorous approach to reserving, and that prospectively our risks and opportunities are balanced. We are particularly pleased with our growing insurance portfolio which has contributed to our underlying combined ratio(2) of 93.9%, reinforcing our belief in Alea's core strategy of focussing on small and mid-size clients and low to medium volatility risks.

    2004 was a year of significant and positive change for Alea. We strengthened our management team, realigned our US operations, instituted more rigorous strategic planning processes, including a metrics-driven operating culture, and implemented a new leadership team structure. In addition, we continued to grow our business, principally on the insurance side, bringing that segment into closer balance with our reinsurance portfolio.

    We remain committed to our long-term goal of a 12-15% cross-cycle return on equity(5). I believe this underlying performance, along with our reserve actions, place us in a stronger position as we move towards this goal in 2005."

    Notes

    (1) Combined ratio is the aggregate of the expense and loss ratio. Expense ratio is the aggregate of acquisition and administrative expenses and includes other technical charges net of reinsurance, less technical income as a percentage of net earned premiums. The loss ratio is claims incurred net of reinsurance as a percentage of net earned premiums.

    (2) Underlying combined ratio is reported ratio excluding storm losses and prior year reserve additions. It is not a reflection of Alea's long-term forecast combined ratio.

    (3) Operating profit after tax as a percentage of average equity shareholders' funds.

    (4) Excludes $57 million of unearned premiums relating to Bristol West.

    (5) On a post-tax operating basis

    Summarised Profit and Loss Account

@@start.t1@@                                                                                                 Year ended
                                                                                          31 Dec 04 31 Dec 03
                                                                                                      $m            $m
      Gross premiums written                                                    1,582.6    1,300.2
      Net premiums written                                                        1,338.1    1,028.7
      Earned premiums, net of reinsurance                                1,182.1        858.5
      Claims incurred, net of reinsurance                                (832.6)    (528.7)
      Net operating expenses                                                    (386.5)    (285.5)
      Other technical income, net of reinsurance                          4.2          2.4
      Other technical charges, net of reinsurance                    (16.8)      (19.0)
      Underwriting result before longer term rate of return    (49.6)         27.7
      Longer term rate of return allocated to the technical
      account                                                                                 87.8         57.8
      Underwriting result                                                              38.2         85.5
      Movement in claims equalisation provision                            0.6        (3.8)
      Balance on the technical account - general business          38.8         81.7
      Gross investment income                                                        76.4         56.3
      Net realised gains on investments                                         2.6         12.1
      Net unrealised losses on investments                                 (7.1)      (29.2)
      Other investment expenses                                                  (4.7)        (4.0)
      Actual investment return                                                      67.2         35.3
      Allocated investment return transferred to the                (87.8)      (57.8)
      technical account - general business
      Debt interest                                                                      (5.1)        (4.7)
      Amortisation of capitalised loan expenses                         (2.2)              -
      Profit on ordinary activities before tax                            10.9         54.5
      Comprising:
      Operating profit                                                                  30.9         80.8
      Short-term fluctuations in investment return                  (20.6)      (22.5)
      Movement in claims equalisation provision                            0.6        (3.8)
                                                                                                  10.9         54.5
      Tax charge on profit on ordinary activities                    (16.6)      (13.5)
      (Loss)/profit on ordinary activities after tax                 (5.7)         41.0
      Minority interest - gain on subordinated preferred
      shares issued by subsidiaries
                                                                                                        -          7.5
      Dividends payable                                                              (17.4)              -
      Retained (loss) profit for the period                              (23.1)         48.5@@end@@

    Senior management will brief analysts at 10.00 am GMT at the London Underwriting Centre. The presentation will be available by webcast at www.aleagroup.com.

    CHAIRMAN'S STATEMENT

    The past year was notable for the strong financial and operational steps taken both by the Board and by the management, including the injection of new management talent and a thorough evaluation of claim reserves leading to a substantial increase of such reserves. We believe these actions advance the Group on a path towards fulfilling the inherent promise of the Alea business strategy.

    Market environment

    From an operating standpoint, 2004 was a challenging year for the industry and for the Group. Storms in the Caribbean, South Eastern US and the Pacific combined to produce record catastrophe losses for the industry estimated at between $35 billion and $40 billion. In addition, the industry continued to recognise claims development in US casualty business written between 1997 and 2002. Alea was not immune to either of these trends. In addition, the industry is faced with the reality of a low US interest rate environment, with its consequential effects on returns on assets held, which further emphasises the importance of underwriting profitability.

    As a partial offset, continued advances in technology have led to improved risk selection and risk management. Taken together, these market environment factors - storms, adverse development, low interest rates and improved technology - are producing a moderation in the anticipated decline in rates as we move through the underwriting cycle.

    Outlook for 2005

    Alea continues to benefit from the current rate environment, although we expect to see some pressure on terms and conditions. Underwriting conditions in our target markets continue to provide opportunities for returns above our hurdle rates. I believe this rate environment, combined with the actions taken by management in 2004, leaves Alea well placed to deliver a solid performance for shareholders in 2005 and beyond.

    Dividend

    I am pleased to report that Alea is recommending a final dividend of $0.07 per share which, when added to the interim dividend of $0.03 per share will bring the total dividend for 2004 to $0.10 per share, or $17.4 million in aggregate. This dividend policy is indicative of the Board's belief in Alea's long-term ability to generate significant returns for shareholders. Subject to shareholder approval, this dividend will be paid on 10 June 2005 to those shareholders on the share register at close of business on 13 May 2005.

    Board changes

    In June of 2004, Mark L. Ricciardelli succeeded Dennis Purkiss as Group CEO. I would like to thank Dennis for his contribution to Alea. Mark, who was appointed Group CEO in June of last year, is an industry veteran of 29 years and has made significant progress in his first six months.

    Kirk Lusk was appointed interim Group Chief Financial Officer to fill the post vacated by Amanda Atkins who resigned from this position and from the Board on agreed terms, with effect from 15 March, and will leave Alea on 5 April.

    In informing the Board of her decision, Amanda noted that Alea has successfully established itself as a competitor in the global marketplace, and she now feels comfortable in moving on to seek other professional challenges.

    Amanda has played a key role at Alea since joining the Group in 1999. On behalf of the Board of Directors, we wish to thank her for her service and to wish her well in her future endeavours.

    Mr. Lusk, currently Alea's Chief Administrative Officer, is a seasoned veteran of the insurance industry, has extensive experience in corporate finance, including both GAAP and statutory reporting, and has served as CFO for US and Bermuda based businesses. His finance experience includes responsibility for capital allocation and investment management. Mr. Lusk's background also includes underwriting and business planning and development. Prior to joining Alea, he was Manager of Finance for Global Casualty, of GE's Employers Reinsurance Corporation. He holds a Bachelors degree in Economics from The Colorado College and a Masters of Business Administration from the University of Connecticut.

    Alea has begun a search for a Group Chief Financial Officer who is expected to be based in London or Continental Europe.

    In September 2004, Edward B. Jobe was appointed to the Board as an independent director and member of the Audit Committee. Ed brings a wealth of market experience and relationships to Alea, having served as Chairman and CEO of American Re until he retired in 1996.

    Finally, I wish to thank my fellow directors, management and staff for their commitment and effort during a difficult year. This, combined with the support of brokers, customers and shareholders, has allowed the Group to achieve notable progress in 2004. I am confident that Alea is well positioned to build value in the year ahead.

    CHIEF EXECUTIVE OFFICER'S REPORT

    I am pleased to report that our comprehensive global reserve review is complete. We are confident we have taken the necessary steps to ensure our reserving approach is sufficiently rigorous. Although this exercise has impacted 2004 financial performance, I believe it enables us to focus on our core strategy and enhance shareholder value.

    2004 initiatives

    During 2004 the business has implemented a number of initiatives to strengthen Alea and position the Group for profitable growth:

    Management

    - recruiting management talent to strengthen strategic planning, marketing communications, investor relations, and actuarial pricing and reserving.

    - supplementing our technical skill base adding underwriting and actuarial talent in the growth areas of our business.

    - realigning our North American operations to streamline decision-making, improve productivity and provide greater resources to our growing insurance portfolio.

    Operations

    - developing and implementing an advanced metrics-driven performance management system that allows us to monitor and respond to our business proactively.

    - enhancing the planning processes bringing greater transparency to our global business.

    - enhancing controls and operating infrastructure across enabling functions.

    Business review

    - conducting an in-depth product line review and initiating a process of portfolio segmentation to facilitate cycle management

    - identifying $97 million of strategic exits, primarily in US casualty reinsurance.

    - initiating a comprehensive review of our expense base to improve productivity.

    - completing a global, in-depth reserve study in cooperation with claims staff and legal counsel.

    Alea has experienced significant change and progress in 2004. We will continue to improve and strengthen Alea in 2005.

    Reserve review

    The review has resulted in an increase in reserves during the second half of the year of $72.5 million, in line with the January 2005 estimate of $60 million to $80 million. This increase was the result of higher claims activity, an in-depth evaluation of actual and expected claims, which included site visits at a number of ceding companies, and the global application of actuarial processes, procedures and policies.

    In aggregate the Group recorded net post discount prior year total reserve additions of $93.7 million in 2004, producing a 104.2% combined ratio. Of the $93.7 million, 98% is attributable to US and European reinsurance business and includes first half adverse reserve development of $21.2 million.

    US casualty reinsurance accounted for $58.8 million of the reserve development, and of this, approximately two-thirds was attributable to five reinsurance contracts written between 1999 and 2002. These contracts have subsequently not been renewed.

    European reinsurance accounted for $33.2 million of the adverse reserve development, relating to accounts written by Rhine Re in 2000 and prior. Reserve increases in Alea Europe reflect a decision to apply more conservative estimates of long-term development to the overall paid claims projections. This gives greater weight to outstanding claims data than in previous years. Actual cash flows on this business remain largely within expectations.

    This review reinforced our belief in Alea's business model as our core insurance and reinsurance portfolios continue to perform in line with expectations. Our growing insurance business generated a combined ratio for 2004 of 89.1%, which contributed to our strong underlying combined ratio of 93.9%. The review also reaffirmed our belief in the high quality of our underwriting and reserving systems.

    Storms

    Our previously announced initial estimate of ultimate pre-tax net loss for the third quarter hurricanes was $55 million, based on our extensive database and internal modelling capabilities as well as on-site evaluations. We are now lowering our loss estimate to $51.4 million, including $41.9 million relating to the hurricanes. On 26 December 2004, the South Asian earthquake and tsunami resulted in a significant loss of life and destruction; however, the Group's exposure to this disaster is minimal.

    Windstorm Erwin hit northern Europe and Scandinavia in early January 2005 and was one of the most severe storms to have affected the region in the past 15 years. Industry estimates place total losses between $1.3 billion and $1.7 billion. Alea's preliminary pre-tax estimate of losses from this windstorm is between $20 million and $25 million reflecting losses from five major programmes in Denmark and Sweden.

    Management

    Alea continues to mature and is evolving into an increasingly sophisticated global portfolio of businesses. A critical aspect of this evolution is the need to transition from a transaction-orientated management style to one that is more strategically driven. To assist us in making this transition, we have added to our intellectual capital by recruiting a number of talented and experienced insurance industry professionals.

    Renewals

    The first quarter renewal season is important for Alea Europe, although a significant proportion of our business renews in later quarters. In 2005 the Group has declined renewals representing approximately 18% of the portfolio due for renewal in the first quarter. These strategic exits, representing $97 million of business, were primarily in US casualty reinsurance. This business was not renewed because it fell below our profitability hurdles, had deterioration in terms and conditions, or was outside our core strategy. In addition the 2001-2003 Bristol West contract was commuted with effect from 1 January 2005. This contract performed in line with our expectations.

    On our core portfolio, rate increases are approximately equal to claims inflation and consequently we expect the strong underwriting conditions experienced in 2004 to continue. We have also seen a 6% increase in new business and a 5% increase in our line share reflecting the strength and increased recognition of our marketing efforts.

    Prospects

    We continue to see selective growth opportunities in our insurance and reinsurance businesses, with relatively higher growth expected from insurance. Our primary focus remains small to medium size businesses and low to medium volatility risks.

    Looking ahead our renewals experience to date together with our claims and expense initiatives leads us to anticipate steady growth at acceptable rates and terms. We remain committed to our long-term goal of a 12% to 15% post tax operating profit return on equity.

    OPERATING REVIEW

    The Group has experienced sound performance for the 2003 and 2004 underwriting years. This demonstrates the success of our core strategy of providing insurance and reinsurance coverage for small to mid market clients or divisions of larger companies in the US, Europe and the UK.

@@start.t2@@                                  Gross premiums written            Net premiums earned
                                        Year ended                            Year ended
                                 31 Dec 04 31 Dec 03  Growth 31 Dec 04 31 Dec 03  Growth
                                            $m            $m          %            $m            $m          %
      Alea Alternative        445.6        261.1         71        234.1         97.9        139
      Risk
      Alea London(1)          581.8        566.1          3        496.6        407.7         22
      Alea Europe                238.5        190.1         25        216.1        163.6         32
      Alea North America    316.7        282.9         12        235.3        189.3         24
      Total(2)                 1,582.6    1,300.2         22    1,182.1        858.5         38@@end@@

    (1) Including Bristol West. (2) Excluding Bristol West, gross premiums written are $1,433.2 (2003: $1,141.7 million).

    Insurance and reinsurance portfolios

    The prospects for our growing insurance portfolio are promising. In 2004 insurance represented 41% of the Group's gross written premium, rising to 46% when amounts relating to the Bristol West contract are excluded. The majority of this growth is from Alea Alternative Risk, which distributes unbundled products in the US through risk sharing partners. We expect our insurance business to continue to grow faster than reinsurance, albeit at a slower pace than in 2004.

@@start.t3@@                              Year ended 31 December 2004  Year ended 31 December 2003
      Gross premiums                    $m                 %                    $m                    %
      written
      Insurance                          653.7                41                432.4                  33
      Reinsurance                        928.9                59                867.8                  67
      Total(1)                         1,582.6              100            1,300.2                 100@@end@@

    (1) Excluding Bristol West, 2004 GPW: 46% insurance (2003: 38%)

    We commenced writing significant volumes of insurance business in 2001, with $56 million of gross written premiums in that year. Consequently we have avoided most of the industry problems arising from underwriting years 1997 to 2001. Insurance reserves continue to develop in line with expectations, with the strong 2004 and 2003 underwriting years delivering a combined ratio of 89.1% (2003: 104.1%). Reinsurance business accounted for 98% of our adverse reserve development and is reflected in the 110.9% combined ratio (2003: 93.5%).

@@start.t4@@      Combined ratio  Year ended 31 December 2004 Year ended 31 December 2003
      Insurance                            89.1%                                  104.1%
      Reinsurance                        110.9%                                    93.5%@@end@@

    Lines of business

    We seek to write a balanced portfolio of property and casualty business. The mix between property and casualty in 2004 was similar to 2003 and we are not expecting significant changes in 2005. 74% of insurance business is casualty (2003: 78%), falling to 72% for our reinsurance business (2003: 67%).

@@start.t5@@                                 Year ended 31 December 2004  Year ended 31 December 2003
      Gross premiums                        $m                 %                    $m                    %
      written
      Casualty                         1,156.0                73                923.8                  71
      Property                            399.6                25                324.4                  25
      Other                                  27.0                 2                 52.0                    4
      Total(1)                         1,582.6              100            1,300.2                 100@@end@@

    (1) Excluding Bristol West: 2004, GPW: 70% casualty (2003: 68%)

    Excluding the Bristol West motor reinsurance contract our casualty portfolio in 2004 was 35% general liability, 28% motor, 22% workers' compensation, 14% professional liability, and 1% other.

    Alea Alternative Risk (AAR) - Insurance

    Results

    AAR is the Group's fastest growing segment, with growth due to a high renewal rate (90% renewal retention ratio in 2004), an increased number of opportunities in the sector and underlying growth within existing programmes. Substantial premium volume is shared with partners. The ratio of net earned to gross earned premiums is 58% (2003: 48%) which is the result of an effort to retain a more significant risk position. AAR's gross premiums written earns over three financial years with approximately 25% being earned in year one, 65% in year two and 10% in year three. In 2004 the benefits of the growth in 2003 flowed into 2004 earnings.

    The improvement in the loss ratio is due to price increases, minimal adverse reserve development on prior years and an improving mix of business. The 4.5 point improvement in the expense ratio reflects increasing absorption of necessary infrastructure costs as the business achieves scale.

@@start.t6@@                                                                              Year ended
                                                                        31 Dec 04 31 Dec 03    Change
                                                                                  $m            $m
      Gross premiums written                                    445.6        261.1        +71%
      Net premiums earned                                         234.1         97.9      +139%
      Underwriting result after allocated                 55.6          4.4    +1164%
      investment return
      Expense ratio                                                  31.8%        36.3%  +4.5pts
      Loss ratio                                                        53.7%        72.1% +18.4pts
      Combined ratio                                                 85.5%      108.4%    +23pts
      Net reserves                                                    146.8         74.6        +97%@@end@@

    AAR provides commercial programme insurance solutions to middle market and small accounts within the US market. All programmes include unbundled services and risk sharing by the client. AAR partners with underwriting managers, typically Managing General Agents (MGAs) or Managing General Underwriters (MGUs) third party administrators and other service providers to deliver an unbundled insurance product. All clients assume a risk position irrespective of whether the programme is managed through a captive, rent-a-captive or a structured loss-sharing mechanism. This ensures their interests are aligned with ours.

    AAR focuses on workers' compensation (49% of 2004 gross premiums written), general liability (24%), auto liability (20%) and property (7%) lines of business. Within these lines, AAR's preferred market segments are retail, wholesale, service operations, artisan contracting, light manufacturing, residential and automobile businesses.

    The business model includes a multi-disciplined approach to underwriting, reflecting high transaction volumes and comprehensive review and monitoring of the business. Nearly 200 compliance, claims, loss control, finance, and underwriting audits were completed during 2004. In addition, AAR closely monitors the credit risk and collateral posted on its behalf. By creating a strong control environment, AAR can properly monitor its business partners and products. Insurance processes are inherently more expensive than reinsurance and, consequently, given AAR's relative growth rate we anticipate this segment will increase the Group's 2005 expense ratio.

    Outlook

    Although the book is relatively young, AAR's underwriting team has an average of 20 years experience in the insurance market, with business first being written in 2001. Claims experience to date has been in line with expectations. Management is confident of being able to continue to grow the book profitably.

    For business renewing in January 2005 rates were relatively flat with US general liability and automobile business providing rate increases of up to 3% and workers' compensation declining by up to 2%. Although deductions are also relatively flat, there is pressure on terms and conditions.

    Although the specialist insurance market will not grow as rapidly as it has over the last few years, management are confident of being able to grow the AAR book profitably as substantial opportunities remain.

    Alea London - Insurance and reinsurance

    Results

    Alea London is a non-syndicated London market operation, managing an international book of business sourced through the London broker market. Insurance business represented 53% of total gross premiums written (excluding Bristol West) in 2004 (2003: 47%). Alea London's insurance business is expected to grow faster than reinsurance, albeit at a slower rate than previously noted. Its reinsurance portfolio is expected to grow selectively in 2005.

    Alea London writes the majority of the Group's property catastrophe portfolio outside of continental Europe, and consequently its 2004 operating performance was impacted by the second half storms. Alea London also wrote 22% of the Group's US casualty business in 2002 and earlier, including one of the five large professional liability contracts which together contributed two-thirds of the Group's US casualty development. The contract was subsequently not renewed.

    The storms and reserve development impacted Alea London's and the Group's loss ratios by 13.9% and 5.8% respectively. Claims experience on Alea London's insurance portfolio and on its non-US casualty reinsurance lines of business are in line with expectations. The expense ratio is 0.9 points lower than 2003 due to foreign exchange effects and the inclusion of some non-repeating expenses.

@@start.t7@@                                                                              Year ended
                                                                        31 Dec 04 31 Dec 03    Change
                                                                                  $m            $m
      Gross premiums written(1)                                581.8        566.0         +3%
      Net premiums earned                                         496.6        407.7        +22%
      Underwriting result after allocated                  4.3         68.1        -94%
      investment return
      Expense ratio                                                  32.4%        31.5%  -0.9pts
      Loss ratio                                                        71.0%        55.2% -15.8pts
      Combined ratio                                                103.4%        86.7% -16.7pts
      Underlying combined ratio(2)                          89.5%        86.1%  -3.4pts
      Net reserves                                                    330.9        198.5        +67%@@end@@

    (1) Including Bristol West premiums of $149.4 million (2003: $158.5 million)

    (2) Combined ratio excluding storm losses and prior year reserve additions

    The growth in net premiums earned reflects the impact of the increase in gross premium volumes in 2003 and 2004. Alea London's gross premiums written earn approximately 55% in year one, 35% in year two and 10% in year three.

    Gross premiums written through the Bristol West contract were $149.4 million (2003: $158.5 million). $56.5 million of unearned premiums is carried forward into 2005; however as this contract was commuted with effect from 1 January 2005 these premiums will be recorded as a reduction to gross written premium in the 2005 financial statements with no impact on net earned premium or profit. The contract performed in line with expectations generating $4.5 million of underwriting profit in 2004 (2003: $3.8 million).

    In 2004 both the insurance and reinsurance portfolios (excluding Bristol West) were approximately 60% casualty and 40% property. Alea London writes a range of insurance business through strategic relationships with MGAs and MGUs including general liability, property and motor, including the previously announced partnerships with Endsleigh Insurance Services and Kinetic Underwriting Concepts to write specialist UK motor insurance. Over 50% of the casualty book is general liability, with professional liability accounting for less than 7%. A significant proportion of Alea London's insurance activity is excess and surplus lines business. This is showing growth in a favourable rate environment.

    Outlook

    2005 insurance rates have shown improvements of up to 5% and are mainly flat net of claims inflation. Reinsurance casualty classes are experiencing rate increases of up to 5% with the exception of non-US general liability which is forecast to reduce by up to 5%. Property catastrophe rates outside the US are down by between 5% to 10%, excepting areas affected by the third quarter hurricanes where increases are being seen. US property catastrophe pricing is flat. Terms and conditions remain stable.

    In the first quarter renewal season Alea London recorded an 84% renewal retention ratio reflecting strategic exits in US casualty. Overall pricing for Alea London continues to be attractive and should continue to be so through 2005.

    Alea Europe - Reinsurance

    Results

    Alea Europe primarily reinsures property and casualty treaty business, which represents 92% of total gross premiums written in 2004 (2003: 87%), of which property represents 57% and casualty 34%. Within the casualty portfolio 62% is motor, 16% is professional liability and 10% general liability. Typical customers are mutual insurance companies with less than $500 million of capital.

@@start.t8@@                                                                              Year ended
                                                                        31 Dec 04 31 Dec 03    Change
                                                                                  $m            $m
      Gross premiums written                                    238.5        190.1        +25%
      Net premiums earned                                         216.1        163.6        +32%
      Underwriting result after allocated                  1.3         11.1        -88%
      investment return
      Expense ratio                                                  33.4%        37.6%  +4.2pts
      Loss ratio                                                        75.3%        63.0% -12.3pts
      Combined ratio                                                108.7%      100.6%  -8.1pts
      Underlying combined ratio(1)                          93.4%      100.6%  +7.2pts
      Net reserves                                                    340.6        208.5        +63%@@end@@

    (1) Combined ratio excluding storm losses and prior year reserve additions.

    The increase in gross premiums written and net premiums earned is primarily due to strong business retention, as a result of excellent client relationships, and a significant amount of new business. The majority of Alea Europe's business renews in the first quarter. The renewal retention ratio in 2004 was 73%. This relatively low renewal rate reflects Alea Europe's reduction in marine business at the end of 2003. The renewal retention rate increased to 85% in 2005. Approximately 90% of Alea Europe's business earns in year one.

    The majority of the adverse development of $33.2 million related to credit, (a business from which Alea Europe withdrew in 2002), marine (materially withdrew in 2000, further withdrew in 2003) and aviation (withdrew in 2001) written by Rhine Re in underwriting years 2000 and prior. The development taken is different in nature to our US casualty development as it relates to a large number of small accounts rather than any large single contracts. Driven by our visits to primary companies we now anticipate claims will be paid over a longer period than previously estimated. The reserve changes are not being driven by new large claims. Instead we anticipate further modest development as the claims are settled. The impact of the development on Alea Europe's and the Group's loss ratio is 15.3 points and 2.8 points respectively.

    Alea Europe's expense ratio has improved by 4.2 points. Administrative expenses have increased by only $2 million in 2004 while net premiums earned have increased by over $50 million, reflecting the focused expense management in place.

    Key markets are Germany, France, Austria and Spain, which together account for 68% of 2004 gross premiums written. Since 2001 focus has been placed on increasing the number of contracts where a lead position is taken, thereby providing greater control over terms and conditions together with a deeper understanding of the customer base. In order to develop a stronger relationship with cedants we have been increasingly managing relationships directly rather than through brokers. In 2004 59% of premium volume was direct (2003: 45%).

    Outlook

    For 2005, casualty rates across target European countries and lines are mainly flat, or have improved by up to 5%. Deductions and other terms and conditions are also relatively unchanged. European property catastrophe rates are down by 5-10%. Alea Europe expects to record selective growth in 2005.

    Alea North America (ANA) - Reinsurance

    Results

    ANA is the Group's main access point to the North American reinsurance treaty market. ANA focuses on traditional reinsurance solutions for small and mid-size insurance companies, specialty insurers and specialty divisions of larger companies that provide coverage to small and medium sized insurance companies. In 2004 ANA's business was split between motor (38%), general liability (30%), professional liability (20%), workers' compensation (6%) and property (6%). ANA's strategy is to reduce earnings volatility by focussing on working-layer business which is typically characterised by a shorter duration and lower volatility than higher layer excess business. A typical risk would be professional cover for suburban book-keepers, or general cover for family-owned construction companies.

@@start.t9@@                                                                              Year ended
                                                                        31 Dec 04 31 Dec 03    Change
                                                                                  $m            $m
      Gross premiums written                                    316.7        282.9        +12%
      Net premiums earned                                         235.3        189.3        +24%
      Underwriting result after allocated              (18.7)          5.0      -474%
      investment return
      Expense ratio                                                  37.1%        38.7%  +1.6pts
      Loss ratio                                                        81.4%        68.7% -12.7pts
      Combined ratio                                                118.5%      107.4% -11.1pts
      Underlying combined ratio(1)                         101.2%        95.8%  -5.4pts
      Net reserves                                                    289.4        190.4        +52%@@end@@

    (1) Combined ratio excluding storm losses and prior year reserve additions.

    The significantly higher growth in net earned over gross written premiums is due to the volume of business written in the second half of 2003 which predominantly earned in 2004. ANA's business earns approximately 35% in year one, 60% in year two and 5% in year three.

    For presentation purposes, ANA's operating result includes the majority of Alea Bermuda's operating result (the remainder is in AAR). In 2001 and earlier, when the Group did not have US licenses, reinsurance business was written in Alea Bermuda. As these years include the majority of the adverse development recorded in 2004, a significant proportion of the loss has been recorded in Alea Bermuda.

    Between 1999 and 2002 ANA, and Alea Bermuda wrote 78% of the Group's US casualty portfolio. ANA's result includes the majority of the Group's US casualty development of $58.8 million as it wrote four of the five contracts which together accounted for approximately two-thirds of the Group's aggregate reserve development for this line of business. These accounts were cancelled between 1999 and 2002. The main lines of business in ANA affected by the adverse development are professional liability (primarily Errors and Omissions and Directors' and Officers) and umbrella general liability. The development impacts ANA and the Group's loss ratio by 17.3 points and 3.4 points respectively. Excluding the results of Alea Bermuda and the 2001 and 2002 underwriting years the ANA combined ratio was 94.5% (2003: 92.3%).

    ANA differentiates itself by focusing on service. A recent independent survey ranked ANA as first amongst its target brokers for strength of underwriting relationships, responsive service and timely claims payments. ANA's renewal retention ratio for 2004 was 83%.

    Outlook

    2005 underwriting conditions in US casualty business remain strong, with rates either flat or slightly increasing. Prospectively ANA intends to focus on managing its existing portfolio and consequently is not expected to grow as fast as the rest of the Group.

    FINANCIAL REVIEW

    Combined ratio

    The combined ratio for 2004, calculated on a net earned basis, was 104.2% (2003: 96.8%). The 7.4 point negative movement over 2003 includes a negative 8.8 point movement in the loss ratio to 70.4% (2003: 61.6%) partially offset by a 1.4 point positive movement on the expense ratio to 33.8% (2003: 35.2%) due to a reduction in technical charges. The 2004 combined ratio can be analysed as below:

                                                                 Year ended 31 December
                                                                            2004            2003
                                                                                 %                 %
      Reported combined ratio                                104.2            96.8
      Catastrophes(1)                                            (2.4)                 -
      Combined ratio net of catastrophes              101.8            96.8
      Reserve increases
      US casualty reinsurance                                (5.0)          (2.8)
      European casualty reinsurance                      (2.8)              0.8
      Other                                                            (0.1)          (0.3)
      Underlying combined ratio                              93.9            94.5

    (1) Includes impact of catastrophes on loss reserves and impact of reinstatement premiums and net earned premiums.

    Overall loss development for the 2003 and 2004 underwriting years across our insurance and reinsurance portfolio remains in line with expectations and has contributed to the underlying combined ratio of 93.9%. The underlying combined ratio is not indicative of long-term reported performance.

    Reserves and claims

    2004 catastrophe activity

    Alea's original reported estimate for net catastrophe losses was $55 million, which it has subsequently revised to $51.4 million. The Group's planned catastrophe provision was $21.3 million. Losses per event net of reinsurance and after reinstatement provisions are below.

      Event                                            Pre tax loss
                                                                        ($m)
      Caribbean and US hurricanes
      Charley                                                        4.9
      Frances                                                      12.2
      Ivan                                                          20.6
      Jeanne                                                         4.2
      Total hurricanes                                        41.9
      Typhoon Songda                                            9.5
      Total catastrophe losses                          51.4

BERMUDA, March 16 /PRNewswire/ --

    The Group's Caribbean exposures were focused in Grand Cayman and the Bahamas due to their superior building codes and strong pricing. These areas suffered a Category 5 storm in September 2004 with consequential disproportionate catastrophe losses.

    Reserves

    Total gross reserves before discount and claims handling provisions at the end of 2004 are $1,971.3 million an increase of 35% over 2003 ($1,463.7 million). On a net basis after reinsurance and discount, this reduces to $1,114.7 million, (2003: $672.0 million).

    During 2004, the Group increased its estimated reserves for prior year business by $93.7 million, of which $72.5 million was added in the second half of the year. Of the $93.7 million, $92.0 million related to reinsurance business, with $58.8 million relating to US casualty reinsurance underwritten during the 1999 through 2002 underwriting years and $33.2 million related to European reinsurance underwritten in 2000 and prior underwriting years.

    The below table analyses Alea's gross reserves between incurred but not reported (IBNR) and case at 31 December 2004. The insurance and reinsurance splits are in line with Alea's typical business tail and the relative maturity of the respective books.

                      Insurance Reinsurance Total
      Case         34%          59%              53%
      IBNR         66%          41%              47%

    Unpaid losses and loss expenses

    When the Group earns premium for the underwriting risks it assumes, it also establishes a corresponding estimate of the expected ultimate losses. Loss reserves or unpaid losses and loss expenses are established due to the significant periods of time that may lapse between the occurrence, reporting and settlement of a loss. To recognise liabilities for unpaid losses and loss expenses, the Group estimates future amounts needed to pay claims and related expenses with respect to insured events.

    The process of establishing reserves for claims can be complex and is subject to considerable variability as it requires the use of informed estimates and judgements. These estimates and judgements are based on numerous factors, and may be revised as additional experience and other data become available. They are also reviewed as new or improved methodologies are developed or as current laws change. The Group's reserving practices and the establishment of any particular reserve reflect management's judgement concerning sound financial practice and does not represent any admission of liability with respect to any claim.

    The nature of certain portions of the Group's business can result in loss payments that are both irregular and significant. These portions include property catastrophe and casualty excess of loss insurance and reinsurance. Similarly, adjustments to reserves for individual years can be irregular and significant. Such adjustments are part of the normal course of business for the Group. Conditions and trends that have affected development of liabilities in the past may not necessarily occur in the future. Accordingly, it is inappropriate to extrapolate future redundancies or deficiencies based upon historical experience.

    The table below presents the aggregate prior year development for unpaid loss and loss expense reserves net of reinsurance protection in 2004, before and after application of the discount.

      $'million                Pre discount    Post discount
      1999 and prior                    17.4                  18.5
      2000                                    43.6                  34.9
      2001                                    49.3                  40.1
      2002                                      1.8                    0.2
      2003                                  (0.0)                 (0.0)
      Total                                 112.1                  93.7

    Under UK GAAP, categories of claims provision where the expected average interval between the date of settlement and the balance sheet date is in excess of four years may be discounted at a rate which is not exceeding that expected to be earned by assets covering the provisions. The application of the discount reduces the 2004 net total prior year development by $18.4 million.

    Basis for establishing loss reserves

    The basis for establishing loss reserves for reinsurance business is based on claims data reported to the Group by ceding companies supplemented with relevant industry benchmark loss development patterns used to project the ultimate incurred loss. Ultimate incurred loss indications are calculated by the Group's actuaries using several standard actuarial methodologies including paid and incurred loss development and the Bornhuetter-Ferguson incurred and paid loss methods.

    The Group's actuaries utilise several assumptions in applying each methodology, including loss development factors, expected loss ratios based on pricing analysis, and actual reported claim frequency and severity. These reviews and documentation are completed in accordance with professional actuarial standards appropriate to the jurisdictions where the business is written. The selected assumptions reflect the actuaries judgement based on historical data and experience combined with information concerning current underwriting, economic, judicial, regulatory and other influences on ultimate claim settlements.

    Based on the actuarial indications, the Group selects and records a single point estimate separately for each line of business for each underwriting year. The single point reserve estimate is management's best estimate which the Group considers to be one that has an equal likelihood of developing a redundancy or deficiency as the loss experience matures. On a quarterly basis the Group analyses and records its loss reserve estimates across over 400 detailed lines of business which reflect class of business, geographic location, insurance versus reinsurance, proportional versus non-proportional, and treaty versus facultative exposures. In addition, a limited number of the Group's largest contracts are reviewed individually.

    During the loss settlement period, additional facts regarding claims are reported. As this occurs it may be necessary to increase or decrease the unpaid losses and loss expense reserves. The actual final liability may be significantly different than prior estimates. The Group reviews additional reported claim information on a monthly basis. Actual claim experience is compared to that expected from the most recent actuarial reserve review to highlight significant variances. A complete actuarial analysis by detailed line of business including selection of single point estimates is completed quarterly and is reviewed by the Group's management.

    Reinsurance reserves

    The Group's adverse reserve deterioration during 2004 arose primarily from its reinsurance business. Reinsurance operations by their nature add further complications to the reserving process particularly for casualty business, in that there is an inherent lag in the timing and reporting of a loss event from an insured or ceding company to the reinsurer. This reporting lag creates an even longer period of time between the policy inception and when a claim is finally settled. As a result, more judgement is required to establish reserves for ultimate claims in the Group's reinsurance operations.

    The following table presents the 2004 adverse/(favourable) prior year loss development of the Group's loss and loss expense reserves net of reinsurance protection before discount for each of the years indicated. Alea's growing insurance book has not experienced any significant reserve development. Of the 2004 reserve additions 98% relates to our reinsurance portfolio. Our insurance portfolio continues to develop in line with expectations. Further, 83% relates to underwriting years 2000 and 2001, years which have caused problems across the industry.

      $'million          Insurance Reinsurance          Total
      1999 and prior            0.0            17.4            17.4
      2000                         (0.2)            43.8            43.6
      2001                            2.9            46.4            49.3
      2002                            0.0              1.8              1.8
      2003                            0.0          (0.0)          (0.0)
      Total                          2.7          109.4          112.1

    Casualty reinsurance business involves reserving methods that generally include historical aggregated claim information as reported by ceding companies, combined with the results of claims and underwriting reviews of a sample of the ceding company's claims and underwriting files. Therefore, the Group does not ordinarily receive detailed claim information for this line of business.

    The following table presents the prior year loss development of the Group's gross reinsurance loss and loss expense reserves by major product line, before reinsurance protection and discount:

      Line of business                                      %
      Professional lines                                 43
      General liability including                  33
      credit
      Motor                                                      14
      Marine, aviation and                              10
      transport
      Workers' compensation                              6
      Property                                                (6)
      Total                                                    100

    Professional lines are the largest single cause of the development and include four of the five large contracts which caused two-thirds of the US casualty reserve additions. The other contract was excess umbrella general liability.

    The following table presents the Group's booked gross loss and loss expense reserves as of December 31, 2004 for the same classes of business.

@@start.t10@@      $ million            General Motor Workers' Professional Property    MAT Total
                                 liability
                                                              Comp.
      1999 and prior          137      63          39                  2          43      97    381
      2000                            51      16          20                 33          16      29    165
      2001                            49      22          34                 34          16      17    172
      2002                            49      47          15                 67          19        9    206
      2003                            54    116          11                 47          28      10    266
      2004                            42    142            8                 43          99        1    335
      Total                         382    406         127                226         221    163 1,525
      reinsurance
      reserves
      Insurance                  153      59         168                 32          34        0    446
      reserves
      Total reserves          535    465         295                258         255    163 1,971@@end@@

    In aggregate the reinsurance reserve development of $109.4 million adds 8% to closing 2004 gross reinsurance reserves before discount and claims handling provisions. Professional lines reinsurance reserves have increased by 26% due to the development. The majority of Alea's reinsurance growth has been in lines other than professional liability, which accounts for only 12% of the total Group US casualty premiums between 1999 and 2004. In aggregate the 2004 reserve additions add 21% to closing 2004 reinsurance IBNR.

    Ultimate loss ratio (ULR)

    The ULR is an actuarial estimate of total claims to the point of final settlement as a percentage of gross ultimate premiums. It excludes expenses. The table below shows the ULR at the end of 2004 for proportional and non-proportional US casualty reinsurance, gross of reinsurance and prior to discounting The Group's US casualty ULR is the total of Alea North America, Alea London and Alea Bermuda. The table also shows aggregate ULR for Alea Europe.

@@start.t11@@      Underwriting      US casualty proportional                    US casualty    Europe
      year                                                                      non-proportional
                                                                    %                                    %            %
      1995                                                        -                                    -        61.4
      1996                                                        -                                    -        72.7
      1997                                                        -                                    -        88.7
      1998                                                        -                                    -        94.9
      1999                                                 148.2                              105.1      104.8
      2000                                                 112.1                              160.6        86.9
      2001                                                  77.1                              103.0        73.2
      2002                                                  67.3                                92.6        52.4
      2003                                                  67.3                                70.0        54.1
      2004                                                  65.5                                67.5        59.1@@end@@

    The majority of the US casualty adverse development occurred in 1999 to 2001 and is reflected in the relatively higher ULR. The 2002 relatively high non-proportional ULR is claim-specific and relates to one of the five large contracts which together caused two-thirds of the US casualty adverse development.

    In total these five contracts have an aggregate ULR for the relevant years of 149% ranging from a high of 182% in 2000 to a low of 118% in 2002. All of these contracts have been non-renewed with only one extending beyond 2002.

    The majority of the higher ULR for Alea Europe are in 1999 and prior years reflecting the years suffering the adverse development.

    US casualty reinsurance claims

    The Group's expected loss development is actuarially determined based on historical claims analysis and projected trends. Actual reported losses may vary from expected loss development from quarter to quarter. Generally, as an underwriting year matures, the level of newly reported claims decreases. In the second half of 2004, the Group, in line with the rest of the industry, received a significant increase in US casualty reported claims, which were in excess of expected claims development.

    This adverse development was due to several factors - competitive market pressures on pricing during the 1999 to 2002 underwriting years caused premium rates for casualty business to decline industry-wide; an increase in the number and size of claims reported in recent years as a result of increases in court filings, corporate scandals, rising tort costs and settlement awards; and a material slowing in the time required to reach final settlements due to the nature of the claims as well as associated uncertainty with regard to insurance policy coverage defences.

    The Group has determined that its adverse development primarily arose from a limited number of lines of business (specifically Directors and Officers (D&O), Errors and Omissions, and excess umbrella liability) and from a limited number of larger contracts. In particular, the exposures for D&O legal activities relating to capital market activities are a leading example of the current claims environment for policies written during 1999 to 2002. In order to obtain information to more accurately determine an estimate of the ultimate loss reserves for this book of business, the Group conducted a series of comprehensive claim audits for major contracts of ceding companies which reflected potential future adverse development. Ceding company information is limited for these types of claims due to the need to resolve many coverage issues with the underlying policyholders. Following the Group's claims audits the reserves were increased to reflect its own detailed evaluation of the claim settlement potential.

    The claims audits included both internal and external claims and legal resources, a review of open claims both reported and unreported to the Group, and a review of loss ratios and reserve analysis procedures. Additional potential loss exposures were identified during the audits and upon completion of the fourth quarter actuarial review in January 2005, the Group increased its loss reserves for prior underwriting years.

    European reinsurance

    Adverse development in Alea Europe affected several lines of business including credit, marine and aviation, and other multi-peril business for underwriting years 2000 and prior written by Rhine Re. 20% related to 1997 and earlier, 14% to 1998, 47% to 1999 and 19% to 2000.

    For these lines of business, the Group's historical development patterns generally indicated that decreases in reported loss reserves could be expected for these relatively mature underwriting years. Decreases in loss reserves can result from several causes including salvage recoveries, subrogation, and historically conservative establishment of case basis claim reserves exhibited in some European markets.

    During 2004, the Group noted that actual versus expected claim development was exhibiting an adverse result for some lines. In order to obtain information to more accurately determine an estimate of the ultimate loss reserves for these lines, the Group scheduled a series of claim audits for major ceding companies with larger amounts of outstanding reported loss reserves. As a result of the information obtained in the claim audits, the Group increased its loss reserves to reflect the ultimate settlement values determined by its analysis of the samples of claims reviewed.

    Profit and loss account

    Gross and net earned premiums

    Gross premiums written increased 22% to $1,582.6 million reflecting growth in all operations. Excluding the Bristol West contract in Alea London which was commuted with effect from 1 January 2005, gross premiums written were $1,433.2 million, 26% higher than 2003.

    The level of net earned premiums increased by 38% to $1,182.1 million (2003: $858.5 million) reflecting the earning patterns of the Group and the impact of relative premium growth in 2003 and 2004 and, to a lesser extent, 2002.

    Premiums written generally take three years to earn through the profit and loss account. These patterns differ by business class and operational unit and are indicated in the Operating review. Overall, they currently approximate to 55% in the first year, 30% in the second and 15% in the third. The strong underwriting conditions in 2003 and 2004 will continue to be recognised in the 2005 and 2006 profit and loss accounts. Going forward we are expecting some growth opportunities across all our operations, however we do not expect the growth rate to be as high as in the recent past.

    Our net unearned premium reserve has increased 17% to $660 million (2003: $563 million) and reflects a significant tangible future income. The net unearned premium reserve excludes $56.5 million relating to the Bristol West contract which was commuted with effect from 1 January 2005.

    Expenses

    The 1.4% improvement in the Group expense ratio to 33.8% primarily reflects the impact of increases in other technical income and reductions in other technical charges on the expense ratio. Other technical charges represent the interest charged on collateral posted by Overseas Partners Limited and Inter-Ocean on aggregate excess reinsurance contracts and is attributable to them. As claims are paid against these contracts the collateral balance reduces and consequently so do the technical charges.

    Excluding other technical income and charges the expense ratio is 32.7% (2003: 33.3%). In 2005, Alea is continuing to invest in infrastructure development and risk management. This will be primarily in AAR and is essential to achieve controlled growth and prospectively, a stable loss ratio.

    While average headcount increased year on year from 367 to 392, this primarily reflected the low starting point in 2003. Year end headcount increased by only four from 390 to 394. Growth was focused in compliance, claims and technical accounting reflecting the growth in AAR's business.

    In 2005, Alea has initiated a review of its cost base with a goal of improving efficiency and productivity. Savings identified to date include the closure of the Manhattan office, as well as increasing utilisation of the Group's global purchasing capabilities in relation to expenses such as travel. Other scale efficiencies are anticipated to emerge as the Group matures.

    Underwriting profit

    Underwriting loss before allocated investment return was $49.0 million in 2004 (2003: profit of $23.9 million). The reduction reflects the net impact of catastrophes and prior year reserve increases. Excluding these items the underlying underwriting profit was $74.8 million, 74% higher than the $43.1 million recorded in 2003. This reflects the continued growth in earned premiums and the favourable underwriting conditions experienced in 2004 and 2003.

    Underwriting profit after allocated investment return of $38.8 million (2003: $81.7 million) was 52% lower than 2003. Allocated investment return was $87.8 million (2003: $57.8 million) with the 36% growth experienced reflecting invested asset growth. The Group has complied with the ABI SORP for UK listed companies to allocate investment return to the technical account based on the longer-term rate of return, which the Group has calculated as 4.5%. The longer-term rate of return is an estimate of long-term investment performance. Actual average investment return for the five years ended 31 December 2004 was 5.3%.

    Operating profit

    Operating profit, defined as underwriting profit after allocated investment return and debt interest but before changes to the claims equalisation provision ('CEP'), decreased by 62% to $30.9 million for 2004 (2003: $80.8 million) due to the lower underwriting profit. Debt interest was $5.1 million (2003: $4.7 million). The write off of previously capitalised loan expenses amortisation cost $2.1 million (2003: nil) and relates to the refinancing of the Group's bank loans.

    The CEP has been established in accordance with UK law for the purposes of mitigating exceptionally high loss ratios in future years. The amounts provided are not liabilities as they are in addition to the provisions required to meet the anticipated ultimate cost of settlement of outstanding claims at the balance sheet date. The release from the provision in 2004 was $0.6 million, compared to an increase in 2003 of $3.8 million. The balance on the provision at 31 December 2004 was $6.2 million.

    Profit before tax

    Profit before tax for 2004 was $10.9 million (2003: $54.5 million). The decrease reflects the reduction in operating profit partially offset by a favourable $31.9 million movement in the actual investment return. The actual investment return includes gross investment income, net realised gains and losses and unrealised gains and losses as well as investment expenses. Gross investment income in 2004 grew by 36% to $76.4 million (2003: $56.3 million) reflecting the Group's strong positive cash flows.

    The investment return also includes net unrealised losses of $7.1 million (2003: $29.2 million) and net realised gains of $2.6 million (2003: $12.1 million). Unrealised investment gains and losses represent the difference between the mark-to-market valuation of the investments at the balance sheet date and their purchase price. The movement in unrealised gains and losses comprises the net increase or decrease in the period in the value of investments held at the balance sheet date together with the reversal of previously recognised unrealised gains and losses on investments sold during the period. All unrealised gains and losses are included in the profit and loss account. As at the end of February 2005 unrealised losses were $14 million. Realised investment gains and losses are calculated as the difference between net proceeds on disposal of investment and their purchase price.

    Over the duration of the portfolio investment income is expected to increase to offset losses recorded from movement in yields. The Group matches assets and liabilities for currency and duration and is expected to have strong future cash inflows and thus overall increases in interest rates are expected to have a positive impact on the income statement in due course. There were no investment write-downs during 2003 or 2004.

    Taxation

    The effective tax rate is 151.8% compared to 24.8% recorded for 2003. The ratio is not meaningful given the extent of the underwriting losses for 2001 and prior which were recorded primarily in Alea Bermuda where they do not receive tax relief. The tax charge was $16.6 million, (2003: $13.5 million) and also included a one-time US withholding tax charge of $4 million associated with repatriating $90 million of capital from US to Bermuda.

    The Group's tax, regulatory and investment strategies are designed to maximise investors' long term return. This is enhanced by accumulating assets in Bermuda and by utilising Bermudian capacity to support our other insurance entities. The tax charge in any one period is dependent upon the geographic incidence of profits in the Group's operations.

    The table below analyses the tax rate by type of exposure for 2004 and 2003 and illustrates the relatively low tax rates achieved on the Group's invested asset base as a result of this strategy. In both 2004 and 2003 this positive benefit was offset by the adverse loss development which was primarily in our Bermudian entity. US business was underwritten 100% in Bermuda in 2001 and prior. For 2002 to 2004 approximately 70% of North America's business was reinsured to Bermuda via intra group quota shares and in 2005 consideration will be given to reducing this percentage to 50% along with other alternatives.

@@start.t12@@                                                  2004      Tax Effective    2003      Tax Effective
                                                                              rate                                rate
                                                    $'m      $'m              %      $'m      $'m              %
      Underwriting profit(1)      (49.0)      1.5              3    23.9  (5.3)            22
      Investment income less         71.7 (14.9)            21    52.4 (10.8)            21
      expenses
      Debt interest and                (7.3)      0.0              0  (4.7)      0.0              0
      amortisation of loan
      expenses
      Realised and unrealised      (4.5)      0.8            19 (17.1)      2.6            16
      gains and losses
      Subtotal                                10.9 (12.6)          115    54.5 (13.5)            25
      US withholding tax charge(2)    -  (4.0)              -         -         -              -
      Profit before tax                 10.9 (16.6)          152    54.5 (13.5)            25@@end@@

    (1) Excluding allocated investment return and after CEP

    (2) Exceptional tax charge relating to $100 million issue of trust preferred securities in 2004

    Excluding the adverse reserve development and US withholding tax charge the effective tax rate was 23% (2003: 18%).

    Earnings per share

    Fully diluted operating EPS was $0.06 per share (2003: $0.54). Fully diluted loss per share was $0.03 (2003 earnings of $0.42) reflecting the adverse loss development and storm losses recorded.

    Dividend

    The Board is recommending a final dividend of $0.07 per share to be paid on 10 June 2005 to those shareholders on the share register at close of business on 13 May 2005. This dividend together with the interim dividend of $0.03 per share paid on 19 November 2004 brings the total expected dividend for 2004 to $0.10 per share or $17.4 million. The company declares dividends in US Dollars but shareholders have the option to receive their dividend in US Dollars, Swiss Francs, or British Pounds.

    Balance sheet

    Total assets

    Total assets as at 31 December 2004 increased by 20% to $4,158 million from $3,477 million at 31 December 2003.

    Net assets

    Net assets (shareholders' funds attributable to equity interests) at 31 December 2004 were $706.4 million. Net assets per share are $4.05 (2003: $4.15). At the 31 December 2004 exchange rate of US$1.93 = GBP1 net assets per share are GBP2.10.

    Invested assets

    The Group's investment strategy emphasises a high quality diversified portfolio of liquid investment grade fixed income securities as a method of preserving equity capital and prompt claim payment capability. The investment portfolio does not currently consist of equity or real estate investments, but the Group may invest in the future in additional asset classes on a modest basis as part of a continuing conservative investment strategy. The Group utilises recognised external expert investment managers to invest its assets. The Group's Investment Committee establishes investment policies and creates guidelines for external investment managers. These guidelines specify criteria on the overall credit quality and liquidity characteristics of the portfolio and include limitations on the size of certain holdings as well as restrictions on purchasing certain types of securities.

    At 31 December 2004, fixed income securities and deposits at credit institutions comprised $2,147.6 million, an increase of 36% since 31 December 2003 ($1,582.4 million). The increase primarily reflects positive operating cashflow after financing of $552.6 million, which has increased by 19% (2003: $466.0 million). Of total invested assets $1,986.4 million is managed by third-party fund managers with the asset mix shown below. The remaining invested assets of $161.2 million include deposits with credit institutions and mutual funds invested in fixed income securities.

@@start.t13@@      Asset class                                              31 December 2004        31 December
                                                                                                                  2003
                                                                                              %                        %
      US government                                                                 27                      41
      US mortgage                                                                    18                      17
      EU & Switzerland government and                                    16                      14
      corporate
      US corporate                                                                  11                      11
      US municipalities                                                          10                        2
      Asset backed securities                                                  6                        6
      Canadian government and provinces                                  3                        4
      Cash and other                                                                 9                        5
                                                                                          100                    100@@end@@

    All of the Group's fixed income portfolio was rated A or better and 98.4% was rated AA or better by either Standard & Poor's or Moody's. The portfolio had a weighted average rating of AAA based on ratings assigned by Standard & Poor's or Moody's. Other than with respect to US, Canadian and European Union government and agency securities, the Group's investment guidelines limit its aggregate exposure to any single issuer to 5% of its portfolio. All securities must be rated A or better at the time of purchase and the weighted average rating requirement of the Group's portfolio is AAA. There were no investment write-offs in either 2003 or 2004.

    Depending upon the duration of the liabilities supported by a particular portfolio, the Group's portfolio investment duration targets may range from three to five years. The duration of an investment is based on the maturity of the security and also reflects the payment of interest and the possibility of early principal payment of such security. The Group seeks to utilise investment benchmarks that reflect this duration target. The Investment Committee periodically revises the Group's investment benchmarks based on business and economic factors including the average duration of the Group's potential liabilities. At 31 December 2004, the Group's investment portfolio had an effective duration of 3.1 years, which approximates the duration of its liabilities.

    The Group's invested assets are subject to interest rate risk. The Group's interest rate risk is concentrated in the US and Europe and is sensitive to many factors, including governmental monetary polices and domestic and international economic and political conditions. Based on invested assets of $2,147.6 million as at 31 December 2004, a 100 basis point increase/decrease in interest rates across the yield curve would result in an approximate $65 million unrealised loss/profit respectively.

    In 2004 the Group achieved a total gross return on the investment portfolio of 3.6% (2003: 3.0%). The investment return comprised 3.9% investment income (2003: 4.4%), 0.1% realised gains (2003: 0.9%) and 0.4% unrealised losses (2003: 2.3%) on average invested assets of $1,951 million (2003: $1,294 million). The total return for an investment portfolio is a combination of price and income return. Price return is affected by movements in interest rates whereas income return is affected by the level of interest rates. The higher total return year-on-year was a result of lower negative price returns due to lower increases in US long term interest rates for 2004 compared to 2003 on a portfolio weighted basis and a lower income return due to reinvestment of maturities and investment of significant new cash flows at lower levels of interest rates during 2004 compared to rates available in prior years.

    In 2004 in conformity with the ABI SORP, the Group has allocated an assumed longer-term investment return rate to the underwriting result in respect of both 2004 and 2003. The return rate chosen is 4.5% (2003: 4.5%). The average investment return for the five years ending 31 December 2004 was 5.3%.

    Re-financing

    The Group has negotiated a new unsecured $250 million revolver/term loan facility. This facility, which does not include operating subsidiary guarantees, closed in September 2004 and was used primarily to refinance the previous secured bank agreements, under which a total of $176.9 million was outstanding as at 30 June 2004. The new non-amortising loan facility includes certain covenants and matures after three years. As at year-end 2004 $200 million had been drawn under this new banking facility primarily to replace the bank agreements cancelled in September.

    The more favourable terms of this new facility are expected to result in annual interest savings of at least $1.5 million based on the existing amount borrowed. However, the replacement of the old facility has crystallised a one-off charge of capitalised expenses of $2.1 million which has been taken as an expense in 2004. The interest margin under the new facility is tied to a credit ratings grid, but will remain at a minimum level of 90 basis points over LIBOR until 1 June 2005 and is further subject to a minimum of 57.5 basis points over LIBOR thereafter.

    Subsequent to the revolver/term loan facility noted above the Group raised $100 million of hybrid capital in December and a further $20 million in early January 2005. This capital is in the form of 30-year pooled trust preferred securities priced at LIBOR plus 285 basis points. We have committed to AM Best that we will not exercise our call rights, which begin after the fifth year, unless such redemption would not negatively affect our AM Best ratings or the outlook thereon. The transaction triggers a one-time tax charge of $4.0 million in 2004 and has a net positive impact on the Group's tax position over time.

    As of the end of February, 2005, the term loan has been reduced by $50 million, which was funded out of the $50 million unused revolver. This repayment was agreed to as part of an amendment to the facility.

    Capital management

    Liquidity and cashflow

    Cash inflows from operating activities primarily consists of premiums collected, investment income and collected reinsurance recoverable balances, less paid claims, retrocession payments, operating expenses and tax payments. Net cash flow from operating activities was $461.9 million (2003: $251.0 million) with the growth reflecting the growth in the business.

    Total net cashflows were $552.6 million (2003: $466.0). The 2004 net cashflow is after cash inflows of $113.8 million from financing activities. The 2003 net cashflow is after $268.4 million of inflows from the November 2003 Initial Public Offering and $42.5 million of contemporaneous outflows relating to its purchase of subordinated debt from subsidiaries.

    Of the $552.6 million of net inflows $516.7 million (2003: $453.1 million) was invested in debt securities and other fixed income securities with the remaining $35.9 million (2003: $12.9 million) was invested in deposits with credit institutions, or invested in listed unit trusts and cash.

    Legal and regulatory developments

    US broker and agent compensation arrangements

    In November 2004, Alea North America Insurance Company ("ANAIC") received a subpoena from the Attorney General of New York and, together with Alea North America Specialty Insurance Company ("ANASIC"), received inquiries from certain U.S. state insurance departments (which inquiries were only for information purposes). The subpoena and inquiries relate to the on-going industry-wide investigations into U.S. producer compensation practices and arrangements. No allegations of wrongdoing have been made against ANAIC, ANASIC nor any of their employees, nor do we have reason to believe any of them are specific targets of any investigation.

    ANAIC and ANASIC have cooperated fully with these inquiries. After concluding their internal investigations in connection with these matters, the companies have reported to these regulatory authorities that they have identified no transactions or information causing concern, nor are they are aware of any improper conduct.

    International Financial Reporting Standards

    Alea is preparing to produce its accounts under International Financial Reporting Standards ("IFRS") from 1 January 2005.

    The Group has worked to ensure that its accounting systems are able to produce accounting statements under IFRS as well as maintaining the ability to report under the local Generally Accepted Accounting Principles (GAAP) and Statutory Accounting Principles (SAP) of the Group's subsidiaries. In addition, the Group has completed the work of revising its accounting policy documents to make specific reference to IFRS requirements and of establishing its training and communication programme to ensure key personnel are conversant with the implications of the new accounting regime.

    The Group made reference to its early evaluation of the impact of IFRS in the 2003 annual report and reported that the change was expected to have little impact on the net asset position of the Group compared to that produced under current UK GAAP. With the exception of IFRS 2 Share-based payment, this continues to be the Board's view following the publication of, the new and revised standards that now form the more stable platform of Accounting Standards that has been established throughout 2004, in particular IFRS 4 Insurance contracts. The Board has also determined that the requirements of the Standards IAS32 and IAS39, in their current guise, do not affect the net asset valuation of the Group. The effect of IFRS2, and its UK GAAP equivalent FRS 20, on the Group's various employee share option schemes has not yet been fully quantified pending the agreement of the valuation model and the assumptions to be used

    The Board is proposing to publish the quantitative effects of the move to IFRS later in the year once the audit of the restated current year financial statements is complete.

    The Board also continues to review the developments of Phase II of the IASB's Insurance Contracts project and welcomes moves that work towards advancing the accounting for Insurance and Reinsurance so as to reflect the economics and management of the business. Although the outcome of Phase II is inherently uncertain, as Alea already manages its insurance and reinsurance contracts on a true economic basis it does not expect the impact to be material.

    Dividend currency election

    Dividends are declared in US Dollars but shareholders have the option to receive their dividends in US Dollars, British Pounds or Swiss Francs. Shareholders may make currency elections by returning a currency election form to the paying agent, Capita IRG plc, by 13 May 2005. A currency election form can be obtained from Capita IRG plc. If no election is made, shareholders will receive their dividend in US Dollars. If a shareholder submitted a currency election form in connection with the payment of the interim dividend, they will continue to be paid in accordance with that election unless they submit a new form to Capita IRG plc prior to 13 May 2005. The British Pound or Swiss Franc equivalent of the final dividend will be calculated by reference to an exchange rate prevailing on 20 May 2005.

    2005 Financial Calendar

    11 May: Ex-dividend date for final ordinary dividend

    13 May: Record date for final ordinary dividend

    2 June: Annual General Meeting

    10 June: Dividend payment date

    8 July: Pre-close trading statement(+)

    8 September: Interim results for 6 months ending 30 June 2004(+)

    (+) Provisional

    Notes to editors:

    1. Alea is a global specialty insurance and reinsurance company with expertise in a wide range of property and casualty products and services. For more information on Alea, see www.aleagroup.com.

    2. The trust preferred securities will not be registered under the United States Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from such registration requirements.

    3. Exchange rate at 31 December 2004: US$1.93 = GBP1. Average exchange rate in 2004: US$1.83 = GBP1

    Certain statements made in this press release that are not based on current or historical facts are forward-looking in nature including, without limitation, statements containing words "believes," "anticipates," "plans," "projects," "intends," "expects," "estimates," "predicts," and words of similar import. All statements other than statements of historical facts including, without limitation, those regarding the Group's financial position, business strategy, plans and objectives of management for future operations (including development plans and objectives relating to the Group's products and services) are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of the Group to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. In particular, forecasting of reserves for future losses is based on historical experience and future assumptions. As a result they are inherently subjective and may fluctuate based on actual future experience and changes to current or future trends in the legal, social or economic environment. Such forward-looking statements are based on numerous assumptions regarding the Group's present and future business strategies and the environment in which the Group will operate in the future. These forward-looking statements speak only as at the date of this press release or other information concerned. Alea Group Holdings (Bermuda) Ltd expressly disclaims any obligations or undertaking (other than reporting obligations imposed on us in relation to our listing on the London Stock Exchange) to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any changes in the Group's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. References in this paragraph to the Group are to Alea Group Holdings (Bermuda) Ltd. and its subsidiaries from time to time.

@@start.t14@@      Alea Group Holdings (Bermuda) Ltd
      Consolidated Profit and Loss Account
      Year ended 31 December 2004
                                                                                                    2004         2003
      Technical Account - General Business                  Notes        $'000        $'000
      Gross premiums written                                            2,3 1,582,640 1,300,182
      Outward reinsurance premiums                                      3 (244,491) (271,471)
      Net premiums written                                                  3 1,338,149 1,028,711
      Change in provision for unearned premiums -                 (114,046) (185,907)
      gross amount
      Change in provision for unearned premiums -
      reinsurers' share                                                            (41,994)      15,677
      Change in the net provision for unearned                      (156,040) (170,230)
      premiums
      Net premiums earned                                                    3 1,182,109    858,481
      Allocated investment return transferred from the      7
      Non-Technical Account                                                         87,792      57,811
      Other technical income, net of reinsurance                         4,203        2,364
      Total technical income                                                  1,274,104    918,656
      Claims paid - gross amount                                                616,542    468,537
      Claims paid - reinsurers' share                                    (195,148) (114,987)
      Net claims paid                                                                 421,394    353,550
      Change in the provision for claims - gross                      407,615    249,743
      amount
      Change in the provision for claims - reinsurers'                3,558  (74,643)
      share
      Change in the net provision for claims                            411,173    175,100
      Claims incurred, net of reinsurance                          4    832,567    528,650
      Net operating expenses                                                5    386,508    285,499
      Other technical charges, net of reinsurance                      16,829      19,004
      Total technical charges                                                 1,235,904    833,153
      Balance on the Technical Account - General
      Business before claims equalisation provision          3      38,200      85,503
      Change in claims equalisation provision                  19          617    (3,771)
      Balance on Technical Account - General Business                38,817      81,732@@end@@

@@start.t15@@      Consolidated Profit and Loss Account
      Year ended 31 December 2004
                                                                                2004                          2003
      Non-Technical Account                         Notes    $'000                         $'000
      Balance on Technical Account
        - General Business                                        38,817                        81,732
      Gross investment income                         7      76,415                        56,337
      Net realised gains on investments         7        2,573                        12,146
      Net unrealised losses on investments    7      (7,082)                    (29,173)
      Other investment expenses                      7      (4,730)                      (3,975)
      Actual investment return                        7      67,176                        35,335
      Allocated investment return transferred to the
      Technical Account - General Business    7    (87,792)                    (57,811)
      Debt interest                                        23      (5,127)                      (4,718)
      Amortisation of capitalised loan
      expenses                                                23      (2,145)                                -
      Profit on ordinary activities before
      tax                                                      2, 6    10,929                        54,538
      Comprising:
      Operating profit                                            30,928                        80,785
      Short-term fluctuations in investment
      return                                                    7    (20,616)                    (22,476)
      Change in claims equalisation provision            617                      (3,771)
                                                                            10,929                        54,538
      Tax charge on profit on ordinary
      activities                                              9    (16,593)                    (13,528)
      (Loss)/profit on ordinary activities
      after tax                                                        (5,664)                        41,010
      Minority interest - gain on purchased
      subordinated preferred shares issued
      by                                                         12              -                         7,500
      (Loss)/profit for the financial year
      attributable to equity shareholders    10      (5,664)                        48,510
      Dividends                                              18    (17,440)                                -
      Retained (loss)/profit transferred
      (from)/to
      reserves                                                17    (23,104)                        48,510
      The results in each of the financial years are derived from the Group's
      continuing activities.@@end@@

    Earnings per Share Attributable to Shareholders

    Year ended 31 December 2004

    Operating profit is based on longer-term investment returns excluding changes in claims equalisation provision and gain on purchase of subordinated preferred shares issued by subsidiaries.

@@start.t16@@                                                                                                  2004         2003
                                                                Notes                  Per share Per share
      (Loss)/earnings - basic ($)              10                        (0.03)         0.42
      (Loss)/earnings - fully diluted ($) 10                        (0.03)         0.42
      Operating earnings - basic ($)         10                          0.06         0.55
      Operating earnings - fully
        diluted ($)                                      10                          0.06         0.54
      Consolidated Statement of Total Recognised Gains and Losses
      Year ended 31 December 2004
                                                                                                  2004         2003
                                                                 Notes                         $'000        $'000
      (Loss)/profit for the financial year
      attributable to equity shareholders                                 (5,664)      48,510
      Exchange differences                          15,17                         5,917    (1,893)
      Total recognised gains and losses
      arising in the year                                                                 253      46,617@@end@@

@@start.t17@@      Consolidated Balance Sheet
      As at 31 December 2004
                                                                                                    2004         2003
      Assets                                                                  Notes        $'000        $'000
      Intangible assets
      Licences                                                                    11        9,778        9,968
                                                                                                  9,778        9,968
      Investments
      Other financial investments                                      12 2,147,646 1,582,357
      Deposits with ceding undertakings                            12    143,687    105,513
                                                                                            2,291,333 1,687,870
      Reinsurers' share of technical provisions
      Provision for unearned premiums                                         91,809    123,606
      Claims outstanding - aggregate excess
      reinsurance                                                                19    428,707    473,569
      Claims outstanding - other reinsurance                    19    308,496    252,992
      Claims outstanding                                                    19    737,203    726,561
                                                                                                829,012    850,167
      Debtors
      Debtors arising out of insurance operations            13    117,947      66,931
      Debtors arising out of reinsurance operations         13    520,419    531,635
      Amounts due from reinsurance operations not
      transferring significant insurance risk                            40,842      44,385
      Other debtors                                                            15      50,010      55,693
                                                                                                729,218    698,644
      Other assets
      Tangible assets                                                         14      13,603      12,212
      Cash at bank and in hand                                                    61,633      44,307
                                                                                                 75,236      56,519
      Prepayments and accrued income
      Accrued interest and rent                                                  20,504      14,968
      Deferred acquisition costs                                                197,307    153,243
      Other prepayments and accrued income                                  5,915        5,680
                                                                                                223,726    173,891
      Total Assets                                                                  4,158,303 3,477,059@@end@@

@@start.t18@@      Consolidated Balance Sheet
      As at 31 December 2004
                                                                                                    2004         2003
      Liabilities                                                          Notes        $'000        $'000
      Capital and reserves
      Called up share capital                                        16,17        1,744        1,747
      Share premium account                                                17    631,522    633,053
      Profit and loss account                                            17    (2,229)      14,958
      Capital reserve                                                         17      75,381      75,644
      Shareholders' funds attributable to
      equity interests                                                                706,418    725,402
      Technical provisions
      Provision for unearned premiums                                        808,907    686,935
      Claims outstanding                                                    19 1,851,893 1,398,551
      Claims equalisation provision                                  19        6,242        6,408
                                                                                            2,667,042 2,091,894
      Deposits received from reinsurers                            19    123,743    199,903
      Creditors
      Creditors arising out of insurance and
      reinsurance operations                                              22    278,373    196,371
      Liabilities from reinsurance operations
      not transferring significant insurance
      risk                                                                                    34,858      44,319
      Amounts owed to credit institutions                         23    198,438    178,375
      Trust preferred securities                                        24      97,953              -
      Other creditors including taxation and
      social security                                                         25      20,339        2,995
                                                                                                629,961    422,060
      Accruals and deferred income                                    26      31,139      37,800
      Total Liabilities                                                          4,158,303 3,477,059
      Approved by the Board of Directors on 15 March 2005 and signed on its
      behalf
      by:
      Amanda J Atkins
      Group Chief Financial Officer@@end@@

@@start.t19@@      Company Balance Sheet
      As at 31 December 2004
                                                                                                            Restated
                                                                                                          (Note 20)
                                                                                                  2004         2003
                                                                      Notes                  $'000        $'000
      Fixed assets
      Tangible assets                                                                        21              -
      Investments in Group undertakings                12                916,126    808,514
                                                                                              916,147    808,514
      Current assets
      Amounts due from Group undertakings                                 39,235        7,402
      Cash at bank and in hand                                                        287      17,932
      Other prepayments and accrued income                                      30          274
                                                                                                39,552      25,608
      Creditors: Amounts falling due within one year
      Amounts due to Group undertaking                                    (2,929)        (325)
      Dividend payable                                          18              (12,202)              -
      Accruals and deferred income                                          (1,513)    (8,395)
                                                                                            (16,644)    (8,720)
      Net current assets                                                            22,908      16,888
      Total assets less current liabilities                            939,055    825,402
      Creditors: Amounts falling due after more
      than one year
      Demand note payable to Group undertakings  22              (34,199) (100,000)
      Amounts owed to credit institutions                            (198,438)              -
                                                                                          (232,637) (100,000)
      Net assets                                                                        706,418    725,402
      Capital and reserves
      Called up share capital                         16, 17                  1,744        1,747
      Share premium account                                  17                631,522    633,053
      Capital reserve                                            17                 16,098      16,361
      Revaluation reserve                                      17              (21,236)      74,241
      Profit and loss account                                17                 78,290              -
      Shareholders' funds attributable to
      equity interests                                                              706,418    725,402
      Approved by the Board of Directors on 15 March 2005 and signed on its
      behalf
      by:
      Amanda J Atkins - Group Chief Financial Officer@@end@@

    .

@@start.t20@@      Consolidated Cash Flow Statement
      Year ended 31 December 2004
                                                                                                      2004        2003
                                                                                    Notes        $'000      $'000
      Net cash inflow from operating activities            33(a)    461,904  250,977
      Servicing of finance
      Interest paid                                                                      (5,127)  (4,718)
      Net amounts outstanding for securities                                 1,687            -
      Taxation
      Taxation paid                                                                      (7,191)  (1,672)
      Capital expenditure
      Purchase of tangible assets                                                (7,226) (10,266)
      Proceeds on disposal of tangible assets                                    20      5,977
      Equity dividends paid
      Dividends paid                                                                    (5,238)            -
      Financing
      (Repurchase)/issue of common share capital                        (1,534)  291,968
      Purchase of subordinated preferred shares issued
      by subsidiaries                                                                            - (42,500)
      Capital raising expenses                                                        (263) (23,723)
      Repayment of previous bank facility                                (180,788)            -
      Raising of new bank facility                                              200,000            -
      Raising expenses of new bank facility                                (1,562)            -
      Issue of trust preferred securities                                  100,000            -
      Raising expenses of trust preferred securities                 (2,047)            -
                                                                                                 552,635  466,043
      Cash flows were invested as follows:
      Increase in cash holdings                                      33(b)      15,837    13,752
      Net portfolio investments
      Shares and other variable yield securities          33(d)              -      (331)
      Debt securities - unit trusts - listed                 33(d)        7,585      6,973
      Debt securities and other fixed income
      securities                                                              33(d)    516,682  453,123
      Deposits with credit institutions                         33(d)      12,531  (7,474)
                                                                                                 536,798  452,291
      Net investment of cash flows                                              552,635  466,043@@end@@

    1 Accounting policies

    Basis of preparation

    The financial information is prepared in accordance with applicable United Kingdom accounting standards and under the historical cost accounting rules as modified by the revaluation of investments. The principal accounting policies, which have all been applied consistently throughout the periods covered by this report, with the exception of the policy for the valuation in the Company's balance sheet of investments in Group undertakings explained below, and which comply with the recommendations of the United Kingdom Statement of Recommended Practice on Accounting for Insurance Business issued by the Association of British Insurers in November 2003 (the ''ABI SORP'') are set out below.

    The Company is a registered Bermuda company. As such it is obliged to prepare its financial information in accordance with the Bermuda Companies Act 1981, which permits the Company to prepare its financial information under generally accepted accounting principles of the United Kingdom (''UK GAAP''). Accordingly, the financial information has been prepared in accordance with Bermuda Law.

    Basis of consolidation

    The consolidated financial statements incorporate the financial statements of the Company and all of its subsidiary undertakings.

    Reporting currency

    The financial information is prepared in United States Dollars ($).

    Basis of accounting

    The annual basis of accounting is applied to all classes of business.

    Reinsurance arrangements which do not involve significant transfer of insurance risk are accounted for to reflect their economic substance. Premiums and claims relating to such arrangements are not recognised in the technical account but are accounted for as deposits due from, or liabilities due to, reinsurers or cedants.

    Premiums

    Written premiums comprise the total premiums receivable for the whole period of cover under contracts incepting during the financial year, together with adjustments arising in the financial year to premiums receivable in respect of business written in previous financial years. Written premiums include estimates of pipeline premiums due but not yet notified to the Group.

    All premiums are shown gross of commission payable to intermediaries and are exclusive of taxes and duties levied thereon. The amount of taxes and duties due but not yet paid is included in ''Other creditors including taxation and social security'' in the balance sheet. Commissions incurred are included within net operating expenses.

    Other technical income and charges

    Other technical income and charges represent income arising on finite risk reinsurance and insurance contracts without significant transfer of insurance risk and expense related to deposits received from reinsurers.

    Investment income and expenses

    Investment return, comprising investment income and realised and unrealised investment gains and losses, and investment expenses are included within the Non-Technical Account. Dividends (exclusive of tax credits) are included as investment income. Rents and interest income are recognised on an accruals basis, as are investment expenses.

    Realised investment gains and losses are calculated as the difference between net proceeds on disposal of investments and their purchase price.

    Unrealised investment gains and losses represent the difference between the valuation at the balance sheet date and their purchase price. The movement in unrealised investment gains and losses therefore comprises the increase or decrease in the year in the value of investments held at the balance sheet date together with the reversal of previously recognised unrealised gains and losses of investments disposed of in the current year. Unrealised investment gains and losses are recognised in the profit and loss account. The only exception is with regard to the Company's investments in Group undertakings explained below and stated in notes 12 and 20.

    Longer-term rate of return

    The Group complies with the ABI SORP's recommendation for United Kingdom listed companies of allocating investment return to the technical account based on the longer-term rate of return, which the Group has selected as 4.5% (2003: 4.5%).

    Investment return on all investments is reported in the Non-Technical Account. An allocation of net investment return is made from the Non-Technical Account to the Technical Account - General Business and is based on the longer-term rate of return applied to managed funds and invested capital supporting the underwriting business. The longer-term rate of return is an estimate of the long-term trend of investment performance taking into account the Group's past and current performance along with relevant trends in the financial markets.

    Investments

    Investments, consisting of listed investments, units in authorised listed unit trusts and deposits with credit institutions, are stated at their market values at the balance sheet date.

    Investments in Group undertakings

    Investments in Group undertakings are reported at net asset value with any movement taken to the Company's revaluation reserve. This is a change in acounting policy as explained below and stated in notes 12 and 20.

    Licences

    Capitalised licences represent the cost of licences acquired to conduct business in the United States. The Directors believe these licences have indefinite useful lives. Licences are granted for an indefinite period and are essential to carry on business. An impairment review is completed annually and any impairment is recorded as appropriate following this review.

    Taxation

    Current tax, including United Kingdom corporation tax and foreign tax, is provided at amounts expected to be paid or recovered using the tax rates and laws that have been enacted or substantively enacted at the balance sheet date, and takes into account timing differences.

    Deferred taxation is provided in full on all 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 rates and law. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different to those in which they are included in the financial statements. 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.

    Deferred taxation 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 where there is no commitment to remit those earnings.

    Unearned premiums provision

    Written premiums are recognised as earned income over the period of the policy on a time apportionment basis, having regard, where appropriate, to the incidence of risk. The provision for unearned premiums is calculated on a daily pro rata basis.

    Claims

    Claims incurred comprise the estimated cost of all claims occurring prior to the balance sheet date, whether reported or not, and include related internal and external direct and indirect claims handling costs and adjustments to claims outstanding from previous years.

    The provision for claims outstanding is made on an individual case basis and is based on the estimated ultimate cost of all claims notified but not settled by the balance sheet date, together with the provision for related claims handling costs and net of salvage and subrogation recoveries. The provision also includes the estimated cost of claims incurred but not reported at the balance sheet date based on statistical methods.

    The Directors consider that the gross technical provision for claims and the related recoveries are fairly stated on the basis of the information currently available to them. Estimates of technical provisions inevitably contain significant inherent uncertainties because significant periods of time may elapse between the occurrence of an insured loss, the claim triggering the insurance, the reporting of that claim to the Group and the Group's payment of the claim and the receipt of reinsurance recoveries. Accordingly the ultimate cost of such claims cannot be known with certainty at the balance sheet date. Subsequent information and events may result in the ultimate liability being less than, or greater than, the amount provided. Adjustments to the amount of the provisions are reflected in the financial statements for the period in which the adjustments are made. The methods used, and the estimates made, are reviewed regularly.

    Certain categories of claims provisions, where the expected average interval between the date of claim settlement and the balance sheet date is in excess of four years, have been identified by management to be discounted at a rate of 4.5% which reflects a rate not exceeding that expected to be earned by assets covering the provisions in accordance with the statutory regulations of the European Union.

    The gross discount is established based on the mean term of the gross liabilities exceeding four years as determined at the reserving group level based on the underlying claims settlement pattern. This discount is reduced on a net basis to reflect the change in duration which results from the application of the reinsurance contracts.

    Previously the Group used 5% for loss reserves attributable to 31 December 2001 and prior and 4% for subsequent periods. As at 31 December 2004, the newly applied rate increased the amount of discount compared to the previous estimate by $6.0 million of which $ 3.9 million is estimated to relate to the current financial year. Certain reserves arising from the provisions of the Inter-Ocean reinsurance contract will continue to be discounted at 6%.

    Outward reinsurance recoveries

    Outward reinsurance recoveries are accounted for in the same accounting period as the claims for the related inward insurance and reinsurance business being covered. Provision is made for potentially non-collectable reinsurance recoveries.

    Deferred acquisition costs

    Acquisition costs comprise all direct and indirect costs arising from the acquisition of new insurance and reinsurance contracts. Deferred acquisition costs represent the proportion of acquisition costs incurred to the extent that they are attributable to premiums unearned at the balance sheet date.

    Unexpired risks

    Provision is made where the cost of claims and expenses arising after the end of the financial year from contracts concluded before that date is expected to exceed the provision for unearned premiums net of deferred acquisition costs and premiums receivable. The assessment of whether a provision is necessary is made on the basis of information available as at the balance sheet date, after offsetting surpluses and deficits arising on products which are managed together. Investment income is taken into account in calculating the provision.

    Tangible fixed assets

    Expenditure on computer equipment, computer software, fixtures and fittings, office equipment and other tangible fixed assets is capitalised and depreciated over the estimated useful economic lives of the assets on a straight line basis to their estimated residual values.

    The periods used are as follows:

      Computer equipment                                                          3 years
      Computer software                                                            5 years
      Other assets                                                                    8 years
      Fixtures, fittings and office equipment                        10 years

BERMUDA, March 16 /PRNewswire/ --

    Depreciation is charged to the Technical Account - General Business, and is included in administrative expenses.

    Pension costs

    The Group only operates defined contribution pension arrangements. Contributions are charged to the profit and loss account as they become payable in accordance with the rules of each scheme.

    Operating leases

    Rental costs are recognised in the profit and loss account in equal annual amounts over the periods of the leases.

    Foreign currencies

    The profit and loss account includes transactions denominated in foreign currencies which are translated into US Dollars at the average rate for the year. At the balance sheet date monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at that date. Retranslation exchange differences are taken directly to reserves.

    Foreign currency rates used as follows:

                                 2004      2004      2003      2003
                            Average Closing Average Closing
      British Pound  0.5472  0.5191  0.6101  0.5613
      Swiss Franc      1.2404  1.1316  1.3437  1.2378
      Euro                 0.8032  0.7337  0.8866  0.7946

BERMUDA, March 16 /PRNewswire/ --

    Claims equalisation provision

    An equalisation provision has been established for the UK subsidiary in accordance with UK Company Law for the purposes of mitigating exceptionally high loss ratios in future years as required by Schedule 9A. The amounts provided 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.

    Employee share schemes

    The cost of awards to employees that take the form of shares or rights to shares is charged to the profit and loss account on a straight line basis over the period to which the employee's performance relates. The charge is based on intrinsic value, being the fair value of the shares at the date of grant, reduced by any consideration payable by the employee, and a reasonable expectation of the extent to which performance criteria will be met.

    Change in accounting policies

    The Company has determined that it is appropriate to value investments in Group undertakings at net asset value. In 2003 these investments were valued at historical cost. This is a change in accounting policy and the effect thereof on the accounts of the Company is shown in note 20. This change has no effect on the consolidated financial statements.

@@start.t21@@      2 Segmental information - geographical analysis
                                                                                              2004                2003
      Geographical analysis of gross premiums written by
      location of insured                                                        $'000              $'000
      Europe                                                                         295,495          258,650
      Africa                                                                                806              1,203
      Near and Middle East                                                      8,489            10,249
      Far East                                                                         8,989              9,375
      Australia and Oceania                                                    6,122              4,279
      North America                                                          1,240,755          988,238
      Latin America                                                                21,984            28,188
                                                                                      1,582,640        1,300,182
                                                                              Gross                Profit/(loss)
                                                                      premiums written         before tax
                                                                      2004         2003      2004         2003
      Geographical analysis by location of
      legal entity                                          $'000        $'000    $'000        $'000
      Bermuda                                                  3,777    (4,477) (40,472) (32,559)
      Jersey                                                        166          745         948         716
      United Kingdom                                    581,448    564,220  (6,058)    36,657
      United States                                      758,522    548,539    21,462  (6,240)
      Switzerland                                         238,727    191,155    35,049    55,964
                                                              1,582,640 1,300,182    10,929    54,538@@end@@

    Gross premiums written are analysed on a legal entity basis and therefore reflect London contact office business in Switzerland of $0.2 million in the year ended 31 December 2004 (2003: $1.1 million).

@@start.t22@@                                                                                                    2004         2003
      Operating equity and shareholders' equity interests          $'000        $'000
      Alea Europe Ltd                                                                 180,103    153,525
      Alea (Bermuda) Ltd (1)                                                      499,801    453,768
      Alea US                                                                              261,579    245,477
      Amounts held in Holding Companies                                      30,760      27,868
      Amounts held in non-insurance subsidiaries                         3,566        6,139
      Capital provided by Alea London Limited to Alea US        (10,000)  (20,000)
      Note provided by Alea Group Holdings AG to Alea US          20,000      20,000
      Note provided by Alea Europe Ltd to Alea US                      17,000      17,000
                                                                                            1,002,809    903,777
      Amounts owed to credit institutions                              (198,438) (178,375)
      Trust preferred securities                                              (97,953)              -
      Shareholders' funds attributable to equity interests      706,418    725,402
      (1) The entities wholly owned by Alea (Bermuda) Ltd have net assets as
      follows:
                                                                                                    2004         2003
                                                                                                  $'000        $'000
      Alea London Ltd                                                                 180,158    195,009
      Alea Global Risk Ltd                                                          10,130      11,984
      Alea Jersey Ltd                                                                    2,056        4,512@@end@@

    3 Segmental information

    Underwriting results by operating segment before intra-group quota share arrangements

    The Group's business is composed of four operating segments, consisting of Alea London, Alea Alternative Risk, Alea North America and Alea Europe.

    The following tables summarise the underwriting results for the Group's business segments. All data is presented for the years ended 31 December 2004 and 31 December 2003 prior to intra-group quota share arrangements. The impact of quota share arrangements on these pre-quota segmental results is presented separately.

    The newly created non-allocated column represents stewardship expenses incurred in Alea Group Holdings (Bermuda) Ltd. In 2003 the Group had included these non-allocated administrative expenses within Alea North America since it also absorbs an immaterial amount of business underwritten in Bermuda. This allocation method has been revised in order to present more accurate disclosure for Alea North America. The 2003 comparative has been restated accordingly.

@@start.t23@@                              Alea            Alea         Alea         Alea         Non-
                                         Alternative        North
                              London            Risk    America      Europe allocated        Total
      2004                  $'000          $'000        $'000        $'000        $'000        $'000
      Gross premiums
      written          581,817        445,581    316,719    238,523              - 1,582,640
      Outward
      reinsurance
      premiums        (46,693)    (174,715)    (5,578)  (17,505)              - (244,491)
      Net premiums
      written          535,124        270,866    311,141    221,018              - 1,338,149
      Gross premiums
      earned            574,388        401,751    256,193    236,261              - 1,468,593
      Net premiums
      earned            496,619        234,148    235,291    216,051              - 1,182,109
      Allocated
      investment
      return              21,098         21,613      24,826      20,255              -      87,792
      Claims
      incurred, net
      of re-
      insurance    (352,551)    (125,706) (191,566) (162,744)              - (832,567)
      Total net
      expenses
      comprise:
      Acquisition
      costs          (122,280)      (49,092)  (63,745)  (39,687)              - (274,804)
      Administrative
      expenses        (35,685)      (24,543)  (24,069)  (23,154)    (4,253) (111,704)
      Fee income         2,824          (801)          935        1,245              -        4,203
      Other
      technical
      charges          (5,718)            (44)        (420)  (10,647)              -  (16,829)
      Total net
      expenses      (160,859)      (74,480)  (87,299)  (72,243)    (4,253) (399,134)
      Underwriting
      result (1)         4,307         55,575  (18,748)        1,319    (4,253)      38,200@@end@@

@@start.t24@@                          Alea            Alea          Alea            Alea    Non-
                                        Alternative
                          London         Risk        North America Europe allocated    Total
      2003
      (Restated)      $'000        $'000         $'000            $'000  $'000          $'000
      Gross premiums
      written        566,042    261,141      282,921         190,078          -  1,300,182
      Outward
      reinsurance
      premiums    (78,198) (129,172)    (33,222)        (30,879)          -  (271,471)
      Net premiums
      written        487,844    131,969      249,699         159,199                1,028,711
      Gross premiums
      earned         482,701    205,062      228,361         198,151          -  1,114,275
      Net premiums
      earned         407,656      97,856      189,324         163,645          -      858,481
      Allocated
      investment
      return          13,995      12,681        19,022          12,113          -        57,811
      Claims
      incurred, net
      of re-
      insurance (224,988)  (70,556)  (130,024)      (103,082)          -  (528,650)
      Total net
      expenses
      comprise:
      Acquisition
      costs         (92,521)  (19,654)    (55,268)        (27,958)          -  (195,401)
      Administrative
      expenses    (32,122)  (15,880)    (17,917)        (21,112) (3,067)    (90,098)
      Fee income      1,654              -            545                165          -         2,364
      Other
      technical
      charges        (5,611)         (24)         (700)        (12,669)          -    (19,004)
      Total net
      expenses  (128,600)  (35,558)    (73,340)        (61,574) (3,067)  (302,139)
      Underwriting
      result (1)    68,063        4,423         4,982          11,102 (3,067)        85,503
      (1) Balance on the Technical Account - General Business before claims
      equalisation provision@@end@@

    Intra-group quota share arrangements

    For the years ended 31 December 2004 and 31 December 2003 intra-group quota share arrangements comprised: a 35% quota share of Alea London business to Alea Europe, a 50% quota share of certain 2000 and prior underwriting year business from Alea Europe to Alea Bermuda, a 70% quota share of Alea North America to Alea Bermuda and an intra-group aggregate excess contract from Alea Europe to Alea Bermuda. The aggregate effect of these arrangements are detailed below:

@@start.t25@@                                                      Alea      Alea         Alea      Alea
                                                      London  Bermuda    US         Europe        Total
      2004                                         $'000    $'000        $'000    $'000         $'000
      Net premiums earned              496,619      5,353    464,086 216,051 1,182,109
      Intercompany reinsurance  (173,447)  326,153 (323,533) 170,827              -
      Net premiums earned after
      intercompany reinsurance      323,172  331,506    140,553 386,878 1,182,109
      Underwriting result
      Before intercompany
      reinsurance                              4,307 (47,227)      79,801    1,319      38,200
      After intercompany
      reinsurance                              7,923 (18,648)      30,439  18,486      38,200
                                                        Alea  Alea         Alea      Alea
                                                    London  Bermuda    US         Europe        Total
      2003                                         $'000      $'000    $'000    $'000         $'000
      Net premiums earned              407,656      2,520    284,660 163,645    858,481
      Intercompany reinsurance  (142,397)  203,005 (197,151) 136,543              -
      Net premiums earned after
      intercompany reinsurance      265,259  205,525      87,509 300,188    858,481
      Underwriting result
      Before intercompany
      reinsurance                            68,063 (10,841)      17,180  11,101      85,503
      After intercompany
      reinsurance                            45,468  (5,046)    (1,168)  46,249      85,503@@end@@

    Underwriting results by product group before intra-group quota share arrangements

    The Group's business is also composed of two primary product lines, consisting of reinsurance and insurance.

@@start.t26@@                                                                                            Non-
                                                      Reinsurance Insurance allocated        Total
      2004                                                  $'000        $'000        $'000        $'000
      Gross premiums written                  928,949    653,691        -        1,582,640
      Outward reinsurance premiums        (52,694) (191,797)        -        (244,491)
      Net premiums written                      876,255    461,894        -        1,338,149
      Gross premiums earned                    886,118    582,475        -        1,468,593
      Net premiums earned                        798,257    383,852        -        1,182,109
      Allocated investment return            59,285      28,507        -            87,792
      Claims incurred, net of              (624,973) (207,594)        -        (832,567)
      reinsurance
      Total net expenses comprise:
      Acquisition costs                        (178,956)  (95,848)        -        (274,804)
      Administrative expenses                (69,616)  (37,835)    (4,253) (111,704)
      Fee income                                         4,665        (462)        -              4,203
      Other technical charges                (16,785)         (44)        -         (16,829)
      Total net expenses                      (260,692) (134,189)    (4,253) (399,134)
      Underwriting result (1)                (28,123)      70,576    (4,253)      38,200@@end@@

@@start.t27@@                                                                                                 Non-
                    Reinsurance            Insurance            allocated                  Total
      2003                 $'000                  $'000                  $'000                  $'000
      Gross premiums
      written         867,781                432,401                         -            1,300,182
      Outward
      reinsurance
      premiums    (161,441)            (110,030)                         -            (271,471)
      Net premiums
      written         706,340                322,371                         -            1,028,711
      Gross premiums
      earned          787,315                326,960                         -            1,114,275
      Net premiums
      earned          627,464                231,017                         -                858,481
      Allocated
      investment
      return            42,254                 15,557                         -                 57,811
      Claims incurred,
      net of
      reinsurance(389,667)            (138,983)                         -            (528,650)
      Total net
      expenses
      comprise:
      Acquisition
      costs         (125,880)              (69,521)                         -            (195,401)
      Administrative
      expenses      (54,850)              (32,181)                (3,067)              (90,098)
      Fee income        2,374                    (10)                         -                  2,364
      Other technical
      charges        (19,200)                      196                         -              (19,004)
      Total net
      expenses    (197,556)            (101,516)                (3,067)            (302,139)
      Underwriting
      result (1)      82,494                  6,076                (3,067)                 85,503
      (1) Balance on the Technical Account - General Business before claims
      equalisation provision@@end@@

                                                                         2004         2003
      Gross premiums written                              $'000        $'000
      Insurance
      Casualty                                                 484,075    339,342
      Property                                                 167,681      92,226
      Marine, aviation & transport                    1,935            88
      Other                                                                -          745
      Total insurance                                      653,691    432,401
      Reinsurance
      Casualty                                                 671,992    584,463
      Property                                                 231,925    232,198
      Marine, aviation & transport                    4,382      32,414
      Other                                                        20,650      18,706
      Total reinsurance                                  928,949    867,781
      Total                                                  1,582,640 1,300,182
                                                                         2004         2003
      Gross premiums earned                                $'000        $'000
      Insurance
      Casualty                                                 451,718    243,787
      Property                                                 130,757      82,466
      Marine, aviation & transport                          -            88
      Other                                                                -          619
      Total insurance                                      582,475    326,960
      Reinsurance
      Casualty                                                 624,144    481,901
      Property                                                 236,289    250,377
      Marine, aviation & transport                    8,879      40,176
      Other                                                        16,806      14,861
      Total reinsurance                                  886,118    787,315
      Total                                                  1,468,593 1,114,275
                                                                         2004         2003
      Net premiums written                                 $'000        $'000
      Insurance
      Casualty                                                 324,206    239,077
      Property                                                 137,688      82,557
      Marine, aviation & transport                          -            88
      Other                                                                -          649
      Total insurance                                      461,894    322,371
      Reinsurance
      Casualty                                                 660,508    482,394
      Property                                                 195,632    188,541
      Marine, aviation & transport                    (328)      16,242
      Other                                                        20,443      19,163
      Total reinsurance                                  876,255    706,340
      Total                                                  1,338,149 1,028,711
                                                                         2004         2003
      Net premiums earned                                  $'000        $'000
      Insurance
      Casualty                                                 269,116    152,211
      Property                                                 114,736      78,195
      Marine, aviation & transport                          -            88
      Other                                                                -          523
      Total insurance                                      383,852    231,017
      Reinsurance
      Casualty                                                 586,161    383,498
      Property                                                 194,769    204,064
      Marine, aviation & transport                        729      24,600
      Other                                                        16,598      15,302
      Total reinsurance                                  798,257    627,464
      Total                                                  1,182,109    858,481

    4 Movement in prior year provision for claims outstanding net of reinsurance

    The table below presents amounts included in incurred claims arising from the movement in the prior year provision for claims outstanding net of reinsurance. An increase is an adverse run-off deviation and a decrease is a positive run-off deviation to the provision for claims outstanding, net of reinsurance held at the previous balance sheet date.

                                                                                      2004        2003
      Increase/(decrease) in claims outstanding net
      of reinsurance before discount                              $'000      $'000
      Underwriting years 1999 and prior                        17,395    19,998
      Underwriting year 2000                                         43,647    18,170
      Underwriting year 2001                                         49,351  (7,374)
      Underwriting year 2002                                          1,789      (684)
      Underwriting year 2003                                            (42)            -
                                                                                 112,140    30,110
      Claims outstanding net of reinsurance at
      prior period end before discount                        716,482  514,141
      Discount                                                            (44,492) (25,992)
                                                                                 671,990  488,149

    5 Net operating expenses

                                                                                      2004        2003
                                                                                    $'000      $'000
      Acquisition costs                                                355,028  301,292
      Changes in deferred acquisition costs              (21,432) (40,823)
      Administrative expenses                                      111,704    90,098
                                                                                 445,300  350,567
      Reinsurance commissions and profit
      participation                                                    (58,792) (65,068)
      Net operating expenses                                        386,508  285,499

    6 Profit on ordinary activities before taxation

    The profit on ordinary activities before taxation is stated after charging :

                                                                    2004  2003
                                                                  $'000 $'000
      Depreciation
      Owned assets                                         6,158 5,868
      Rentals under operating leases
      Land and buildings                                5,021 4,438
      Other                                                        150    224
      Auditors' remuneration
      Audit fees                                            2,085 1,860
      Tax advice                                                396    210
      Actuarial and other consulting                408    378

    In 2003, $7.0 million of remuneration was also paid to the auditors in relation to the Company's IPO. This amount was charged directly to reserves.

    7 Investment return

@@start.t28@@                                                                                              2004        2003
                                                                                            $'000      $'000
      Investment income
      Income from other financial investments                      76,415    56,337
      Net realised gains on investments                                 2,573    12,146
                                                                                          78,988    68,483
      Investment expenses
      Other investment expenses                                          (4,730)  (3,975)
      Unrealised investment losses
      Movement during the year                                            (7,082) (29,173)
      Actual investment return                                              67,176    35,335
      Longer-term investment return                                      87,792    57,811
      Actual investment return excluding gain on
      subordinated preferreds                                            (67,176) (35,335)
      Effect of short-term fluctuations over the year         20,616    22,476@@end@@

    The longer-term investment return is calculated for each business segment and based on the average invested assets and the expected longer-term rate of return on those assets having regard to the relevant economic and market forecasts. The Group has selected an overall rate of 4.5% (2003: 4.5 %). The average investment return for the five years to 31 December 2004 was 5.3% (2003: 5.5%).

    8 Employee information

                                                                                            2004    2003
                                                                                          $'000  $'000
      Wages and salaries                                                      51,147 49,925
      Social security costs                                                  5,373  4,098
      Other pension costs                                                      4,206  3,552
                                                                                         60,726 57,575
      The average number of employees during the year
      was as follows:
                                                                                            2004    2003
                                                                                         Number Number
      Underwriting                                                                    122      120
      Finance                                                                              64        75
      Information Technology                                                      41        41
      Claims                                                                                38        30
      Technical Accounts                                                            41        30
      Management and Administration                                          86        71
                                                                                              392      367

BERMUDA, March 16 /PRNewswire/ --

    9 Taxation

@@start.t29@@      The charge for taxation comprises:
                                                                                                  2004        2003
                                                                                                 $'000      $'000
      Current taxation                                                              (9,367)  (1,890)
      Deferred taxation                                                            (7,226) (11,638)
                                                                                            (16,593) (13,528)
      The credit/(charge) for taxation can be analysed as follows:
                                                                                                  2004        2003
                                                                                                 $'000      $'000
      Tax on operating profit                                                 (21,094) (17,778)
      Tax on short-term fluctuations in investment return         4,686      3,119
      Tax on change in claims equalisation provision                 (185)      1,131
                                                                                            (16,593) (13,528)@@end@@

    The tax charge for the year ended 31 December 2003 included a $9.0 million credit for deferred tax not previously recognised in respect of tax losses.

      The tax for the periods presented varied from
      the stated rate of UK corporation tax as
      explained below:
                                                                                      2004        2003
                                                                                    $'000      $'000
      Profit on ordinary activities before taxation    10,929    54,538
      Profit on ordinary activities multiplied by
      the standard rate of UK corporation tax at
      30% (2003: 30%)                                                  (3,279) (16,361)
      Factors affecting tax charge:
      Adjustment in respect of foreign tax rates      (11,038)  (6,331)
      Adjustment in respect of prior periods                 1,330          31
      Overseas and other taxes                                        (380)      (367)
      Withholding tax on dividend                                (3,986)            -
      Movement in tax losses                                          1,457    18,473
      Other permanent items                                                389      (102)
      Other timing differences                                        9,054      2,767
      Current tax charge                                              (9,367)  (1,890)

    The tax for the period presented can be analysed by juristiction as explained below:

@@start.t30@@                                                      United  United
                                                      Kingdom  States
                                        Bermuda  Jersey                            Switzerland    Total
      2004                              $'000  $'000        $'000    $'000          $'000    $'000
      Profit/(loss) on
      ordinary activities
      before taxation         (40,472)      948 (6,058)  21,462         35,049    10,929
      Profit/(loss) on
      ordinary activities
      multiplied by
      the standard rate of UK
        corporation tax at 30%
      (2003: 30%)                  12,141  (284)    1,817 (6,438)      (10,515)  (3,279)
      Factors affecting tax charge:
      Adjustment in respect of
      foreign tax rates      (12,141)      284          - (1,073)          1,892 (11,038)
      Adjustment in
      respect of prior
      periods                                 -         -        974        356                 -      1,330
      Overseas and other
      taxes                                    -  (289)      (29)      (62)                 -      (380)
      Withholding tax on
      dividend                                -         -          - (3,986)                 -  (3,986)
      Movement in tax losses         -         - (2,010)          -              553  (1,457)
      Other permanent items          -         -    (137)        526                 -         389
      Other timing differences      -         -    (326)    1,310          8,070      9,054
      Current tax (charge)/credit -  (289)        289 (9,367)                 -  (9,367)@@end@@

    10 Earnings per ordinary share

    Basic earnings per ordinary share is based on the profits after tax and the weighted average ordinary shares in issue as follows:

@@start.t31@@                                                                                         2004            2003
                                                                                      Number         Number
      Weighted average ordinary shares in issue      174,606,795 114,269,807
      Fully diluted number of shares                        176,239,769 116,266,620@@end@@

                                                                                      2004         2003
                                                                              Per share Per share
      (Loss)/earnings - basic ($)                                 (0.03)         0.42
      (Loss)/earnings- fully diluted ($)                      (0.03)         0.42
      Operating earnings - basic ($)                                0.06         0.55
      Operating earnings - fully diluted ($)                  0.06         0.54

BERMUDA, March 16 /PRNewswire/ --

    Operating earnings per ordinary share based on the longer-term investment return is considered to be a more appropriate measure of operating performance than earnings per share including short-term fluctuations in investment return. Transfers to or from claims equalisation provisions are transfers to or from a statutory reserve and not a deduction or credit in arriving at operating profit. The gain made in 2003 on the purchase of subordinated preferred shares issued by subsidiaries has also been excluded in calculating operating profit.

    The reconciliation between earnings per ordinary share and operating earnings per ordinary share is as follows:

@@start.t32@@                                                                                                        2004      2003
                                                                                                      $'000    $'000
      (Loss)/profit for the financial year attributable to
      equity shareholders                                                              (5,664)  48,510
      Add
                            Gain on purchase of subordinated preferred            - (7,500)
                            shares issued by subsidiaries
                            Short-term fluctuations in investment return 20,616  22,476
                            Change in claims equalisation provision          (617)    3,771
                                                                                                    19,999  18,747
                            Tax thereon                                                    (4,500) (4,250)
                                                                                                    15,499  14,497
      Operating profit after tax                                                      9,835  63,007@@end@@

    11 Intangible assets

    The net book value of intangible assets comprises capitalised expenses of $1.4 million in obtaining United States licences together with insurance licences for the United States market, with a fair value of $8.4 million which were acquired as a result of the purchase of Seven Hills Insurance Company. Based on their annual impairment review, the Directors believe that no impairment exists and therefore, as at 31 December 2004, the intangible assets are stated at $9.8 million (31 December 2003: $10.0 million).

    12 Investments

@@start.t33@@      Group - investments                          Current Value                 Historic Cost
                                                        2004                2003         2004                2003
      Other financial
      investments                              $'000              $'000        $'000              $'000
      Shares and other variable
      yield securities - listed          947                 836          904                 826
      Debt securities - unit
      trusts - listed                      45,801            34,061      44,077            33,152
      Debt securities and other
      fixed income securities -
      listed                                1,968,903        1,432,032 1,967,969        1,421,894
      Deposits with credit
      institutions                         131,995          115,428    131,995          115,428
      Total debt securities and
      other fixed income
      securities                         2,100,898        1,547,460 2,099,964        1,537,322
      Total other financial
      investments                        2,147,646        1,582,357 2,144,945        1,571,300
      Deposits with ceding
      undertakings                         143,687          105,513    143,687          105,513
      Total investments              2,291,333        1,687,870 2,288,632        1,676,813@@end@@

    Included within investments as at 31 December 2004, the Group held $53.9 million (31 December 2003: $19.8 million) as statutory deposits with local regulators. A further $872.6 million (31 December 2003: $540.5 million) is held in trust for the benefit of holders of North American policies. Included within investments at 31 December 2004 is $432.1 million (31 December 2003: $185.4 million) that Alea (Bermuda) Ltd has placed in trust on behalf of Alea North America Insurance Company due to quota share arrangements between these companies.

    There are pledges over certain investments for the issuance of letters of credit in the normal course of business. As at 31 December 2004, the pledges covered assets of $247.6 million (31 December 2003: $227.6 million).

    Included within ''Debt securities - unit trusts - listed'' as at 31 December 2004 the group held Societe d'Investissement a Capital Variable ("SICAV") of $45.8 million (31 December 2003: $34.1 million) pledged for the benefit of French and Belgian Cedents. These SICAVs are mutual funds invested in European fixed income securities with average credit quality of AAA and duration of approximately 5.5 years.

@@start.t34@@      Summary by rating - Debt securities and
      other fixed income securities                                    2004                    2003
                                                                            $'000         %        $'000         %
      AAA/US Govt or equivalent                        1,824,115    86.8 1,344,644    86.9
      AA                                                                248,283    11.8    178,668    11.5
      A                                                                  28,500      1.4      24,148      1.6
      BBB                                                                        -         -              -         -
      NR                                                                         -         -              -         -
                                                                      2,100,898  100.0 1,547,460  100.0
      Summary by maturity - Debt securities
      and other fixed income securities                              2004                    2003
                                                                            $'000         %        $'000         %
      Less than 1 year                                         435,408    20.7    272,667    17.6
      1 year up to 3 years                                  447,490    21.3    417,423    27.0
      3 years up to 5 years                                 416,730    19.8    279,490    18.1
      5 years up to 10 years                                312,480    14.9    217,140    14.0
      More than 10 years                                      488,790    23.3    360,740    23.3
                                                                      2,100,898  100.0 1,547,460  100.0@@end@@

    Included within fixed income securities with a maturity of more than 10 years are mortgage backed securities issued by United States Government Agencies with a market value of $264.0 million (31 December 2003: $168.7 million) and nominal weighted average life of 3.7 years (31 December 2003: 3.5 years).

@@start.t35@@                                                                                                          Restated
                                                                                                         (Note 20)
                                                                                                    2004         2003
      Company - investments in Group undertakings                        $'000        $'000
      As at 1 January                                                                 808,514    479,130
      Acquisitions during the year                                            253,089    255,143
      Disposals during the year                                                (50,000)              -
      Revaluation during the year                                            (95,477)      74,241
      As at 31 December                                                              916,126    808,514@@end@@

    As at 31 December 2003, the investments were presented at historical cost. With effect from 1 January 2004, the Company has valued its investments in Group undertakings at net asset value in accordance with the accounting policy stated in note 1.The 2003 comparatives have been restated accordingly as stated in note 20.

    The following transactions were executed in 2003 subsequent to the initial public offering on the London Stock Exchange on 19 November 2003:

    The Company acquired 10,912,066 shares of common stock in Alea (Bermuda) Ltd valued at $44.2 million. This represented a 8.84% holding bringing the holding in Alea (Bermuda) Ltd to 67.34%.

    The Company acquired 432.18 shares of common stock in Alea Holdings US Company valued at $28.5 million. This represented a 25.01% holding making Alea Holdings US Company a direct 100% subsidiary of the Company.

    The Company purchased from Bankers Trust Corporation and certain of its affiliates $50.0 million of subordinated preferred shares issued by subsidiaries of the Alea Group for a total consideration of $42.5 million. This comprised 30,000,000 shares of preferred stock in Alea (Bermuda) Ltd valued at $25.5 million and 200,000 shares of preferred stock in Alea Holdings Guernsey Ltd valued at $17.0 million.

    At 31 December 2003, the Company had a direct holding of 67.34% of the common shares of Alea (Bermuda) Ltd, with the balance of 32.66% held indirectly through Alea Group Holdings AG. On 17 December 2004, the Company acquired the remaining 32.66% of the common shares of Alea (Bermuda) Ltd from Alea Group Holdings AG valued at $118.1 million resulting in 100% direct ownership of Alea (Bermuda) Ltd.

    On 20 December 2004, the $50.0 million of subordinated preferred shares described above were redeemed by Alea (Bermuda) Ltd and Alea Guernsey Limited in accordance with their terms of issue for $39.0 million and $26.0 million, respectively. The aggregate proceeds of $65.0 million were donated by the Company to Alea (Bermuda) Ltd as contributed surplus.

    On 28 December 2004, Alea Holding US Company paid a dividend of $90.0 million to the Company. This is the main cause for the negative revaluation movement noted during the year. The Company donated $70.0 million to Alea (Bermuda) Ltd as contributed surplus and retained $20.0 million for general corporate purposes.

    13 Debtors arising out of insurance and reinsurance operations

                                                                                         2004      2003
                                                                                        $'000    $'000
      Pipeline premiums in respect of inwards
      insurance not yet due                                              87,521  39,419
      Other debtors arising out of insurance
      operations                                                                30,426  27,512
      Debtors arising out of insurance operations         117,947  66,931
      Pipeline premiums in respect of inwards
      reinsurance not yet due                                         328,705 359,193
      Other debtors arising out of reinsurance
      operations                                                              191,714 172,442
      Debtors arising out of reinsurance operations      520,419 531,635

BERMUDA, March 16 /PRNewswire/ --

    All insurance debtors arise from transactions with intermediaries.

    14 Tangible assets

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

                                                                 Fixtures
                                                 Computer          and
                                                equipment      office
                                          and software equipment    Other      Total
      Cost                                         $'000        $'000    $'000      $'000
      As at 1 January 2004              23,727        6,104    2,472    32,303
      Exchange movement                    1,620          234        229      2,083
      Additions                                 5,335        1,874         17      7,226
      Disposals                                 (520)         (14)          -      (534)
      As at 31 December 2004          30,162        8,198    2,718    41,078
      Depreciation
      As at 1 January 2004          (14,801)    (3,427) (1,863) (20,091)
      Exchange movement                 (1,412)        (200)    (126)  (1,738)
      Charge for the period          (4,963)        (909)    (286)  (6,158)
      Disposals                                    502            10          -         512
      As at 31 December 2004        (20,674)    (4,526) (2,275) (27,475)
      Net Book Value
      As at 31 December 2003            8,926        2,677        609    12,212
      As at 31 December 2004            9,488        3,672        443    13,603

    15 Other debtors

                                                                  2004    2003
                                                                 $'000  $'000
      Deferred taxation                              30,632 33,767
      Tax recoverable                                  2,593  3,181
      Sundry debtors                                  16,785 18,745
                                                                50,010 55,693

BERMUDA, March 16 /PRNewswire/ --

    The deferred tax asset comprises:

@@start.t36@@                                                                                            2004        2003
                                                                                          $'000      $'000
      Tax losses and disclaimed technical reserves            27,979    29,152
      Other timing differences                                              2,653      4,615
                                                                                         30,632    33,767
      Balance as at 1 January                                              33,767    46,657
      Charge for the year                                                  (7,226) (11,638)
      Credit allocated to exchange movement for the year    2,770            -
      Exchange movement                                                         1,321  (1,252)
      Balance as at 31 December                                          30,632    33,767@@end@@

    The Group's net deferred tax asset at 31 December 2004 was $30.6 million (31 December 2003: $33.8 million). The balance included a deferred tax asset of $17.1 million (31 December 2003: $14.9 million) in respect of the United Kingdom, $1.3 million (31 December 2003: $3.0 million) in respect of Alea North America and $12.2 million (31 December 2003: $15.9 million) in respect of Switzerland.

    The deferred tax asset has been recognised in respect of losses carried forward to the extent that, based upon detailed budgets, the Group anticipates taxable profits to arise within the foreseeable future. There were no unrecognised deferred tax assets as at 31 December 2004 (31 December 2003: nil).

    In 2004 the exchange differences are disclosed net of tax. For the financial year 2004 there was a tax credit which increased the exchange gain by $2.8 million.

    16 Share capital

@@start.t37@@                                                                          2004    2004          2003    2003
                                                                        Number                  Number
                                                                         '000s  $'000         '000s  $'000
      Authorised:
      Common shares of $0.01                         1,000,000 10,000  1,000,000 10,000
      Total authorised                                  1,000,000 10,000  1,000,000 10,000
      Allotted, called up and fully paid:
      Common shares of $0.01                            174,422  1,744      174,707  1,747
      Total allotted, called up share
      capital and fully paid                            174,422  1,744      174,707  1,747@@end@@

    Stock options and restricted shares

    Bermuda Plan

    Alea Group Holdings AG had in place a stock purchase and option plan for key employees and advisors known as the 1998 Amended and Restated Stock Option Plan for Key Employees and Subsidiaries (the ''Swiss Plan''). The Company adopted a 2002 Stock Purchase and Option Plan for Key Employees of the Company and its Subsidiaries, as amended in connection with IPO (the ''Bermuda Plan''), in connection with the redomiciling of the ultimate parent company of the Group to Bermuda and all awards under the Swiss Plan are now governed by the terms of the Bermuda Plan. The terms of the Bermuda Plan are substantially similar to the terms of the Swiss Plan. All Alea Group Holdings AG non-voting participation shares and options were exchanged for common shares and options in connection with an equity exchange offer that was completed on 3 April 2002. In total, 15,000,000 common shares are authorised for use under the Bermuda Plan.

    The exercise price of the options will be the fair market value of the common shares on the grant date. Generally, the options vest rateably over a five-year period except in the case of performance options where vesting is affected by attainment of certain pre-approved financial targets. The exercisability of the options accelerates upon a change of control of the Group. Options expire and are no longer exercisable on the tenth anniversary or in certain circumstances at the end of the three month period following such tenth anniversary of the grant date. The expiration of the options can accelerate due to termination of employment. Certain options granted contain shortened expiration and vesting periods.

    The terms of the Company's common shares and the exercise price of the options to acquire company common shares on the purchase/grant date were determined by the Remuneration Committee in accordance with the terms of the Bermuda Plan. The Bermuda Plan was terminated as to future grants with effect from 19 November 2003.

    Executive Plan

    The Company's shareholders have adopted the Alea Executive Option and Stock Plan and the Alea Sharesave Plan ("Executive Plan"). The Executive Plan provides for the grant of time and performance options, restricted stock units and share savings for employees. The exercise price of options granted shall not be less than the middle market quotation for the Company's shares on the dealing day preceding the date of grant. The number of common shares granted in any period under all of the Company's employee share schemes (excluding shares issuable on exercise of options granted prior to 19 November 2003) may not exceed 10% of the Company's issued ordinary share capital. Generally, the vesting period of an option granted under the Executive Plan is subject to the discretion of the Board (or a committee thereof) provided that vesting for certain tax qualified options may not be earlier than 3 years or more than 10 years after the date of grant and unless any relevant performance conditions have been satisfied.

    To date the options granted under the Executive Plan vest rateably over a five-year period. No performance options have been granted under this plan. At the discretion of the Board the exercisability of the options accelerates upon a change of control of the Group. Options expire and are no longer exercisable on the tenth anniversary or in certain circumstances at the end of the three month period following such tenth anniversary of the grant date. The expiration of the options can accelerate due to termination of employment.

    Share Purchase Arrangements

    In order to align closely the interests of employees with those of its shareholders the Company has made available share purchase facilities for those employees given the opportunity to purchase shares and receive an option multiple under the Bermuda Plan and the Executive Plan. An employee may borrow up to 50% of the employee's purchase price of the shares which are then pledged toward repayment. Such loans carry interest at full market rates established at the time the loan is taken out and are repayable in five equal annual payments of 20% of the principal amount thereof. The total amount outstanding under these arrangements in respect of all officers and employees as at 31 December 2004 was $2,726,327 (31 December 2003: $3,225,832).

    The Remuneration Committee may defer mandatory amortisation of loans for employees at its discretion and has determined to do so in respect of instalments due in 2005 as a consequence of the decision to eliminate plan achievement based bonuses payable in respect of the 2004 period. As a result, for employees of the Group, loan amortisation payments due in 2005 will be deferred to 2006, but loans will continue to bear interest during the deferral period. For officers of the Group, loan interest repayments may be deferred only if that officer is not in receipt of a merit award or guaranteed bonus payable in respect of the 2004 period. Executive Directors will not be permitted to defer scheduled payments of principal or interest on any loan outstanding. Further details of loans made to officers of the Group are stated in note 31. Officers of the Group include those officers who are on the Leadership Team.

    Other

    The Company has issued to Fisher Capital Corp. LLC certain options to acquire common shares, which are fully vested and are exercisable within 15 years of the date of grant. In connection with a consulting agreement, the company has issued restricted shares which are fully vested to Richard Delaney, a former Director. These shares and options were not granted pursuant to either Plan.

    Transactions involving common share options and share participation certificate options are as follows:

@@start.t38@@                                                                            2004                         2003
                                                                      Weighted                  Weighted
                                                                        average                    average
                                                      Number          price        Number      price
      Options outstanding                                            $                              $
      As at 1 January                 11,229,400            3.59  9,577,660        3.41
      Granted                                2,694,720            4.53  2,229,780        4.30
      Forfeited                         (2,011,480)            3.84  (578,040)        3.39
      As at 31 December              11,912,640            3.76 11,229,400        3.59@@end@@

BERMUDA, March 16 /PRNewswire/ --

    Forfeited options include options reacquired from employees and Directors and subsequently cancelled.

    17 Group - movement in consolidated shareholders' funds

@@start.t39@@                                                                                                  Profit
                                                          Share      Share Capital and loss
                                                        capital  premium reserve  account      Total
                                                          $'000      $'000    $'000      $'000      $'000
      As at 1 January 2004                    1,747  633,053  75,644    14,958  725,402
      Share issues                                        -         117          -            -         117
      Capital raising expenses                    -            -    (263)            -      (263)
      Share repurchase and
      cancellation                                    (3)  (1,731)          -            -  (1,734)
      Share based payments                          -          83          -            -          83
      Retained loss transferred
      to reserves                                         -            -          - (23,104) (23,104)
      Exchange differences                          -            -          -      5,917      5,917
      As at 31 December 2004                 1,744  631,522  75,381  (2,229)  706,418@@end@@

BERMUDA, March 16 /PRNewswire/ --

    Company - movement in shareholders' funds

@@start.t40@@                                                                                                  Profit
                                                                                                        and
                                          Share    Share Capital Revaluation      loss
                                        capital premium reserve        reserve account      Total
                                          $'000    $'000    $'000          $'000    $'000      $'000
      As at 1 January 2004
      (restated note 20)        1,747 633,053  16,361         74,241          -  725,402
      Share issues                        -        117          -                 -          -         117
      Capital raising
      expenses                              -          -    (263)                 -          -      (263)
      Share repurchase and
      cancellation                    (3) (1,731)          -                 -          -  (1,734)
      Share based payments          -         83          -                 -          -          83
      Unrealised losses
      (note 12)                            -          -          -      (95,477)          - (95,477)
      Retained profit for
      the financial period          -          -          -                 -  78,290    78,290
      As at 31 December
      2004                              1,744 631,522  16,098      (21,236)  78,290  706,418@@end@@

    The Company movement in shareholders' funds has taken into account the change in accounting policy with regards to the valuation method used for investments in Group undertakings as stated in notes 1, 12 and 20.

    Share based payments - Group and Company

    The credit to reserves for share based payments relates to the profit and loss account charge recorded under the requirements of UITF 17.

    18 Dividend

    Ordinary dividends comprise:

@@start.t41@@                                                                                                 2004  2003
                                                                                                $'000 $'000
      Interim dividend paid - $0.03 per share (2003: nil)        5,238        -
      Final declared - $0.07 per share (2003: nil)                 12,202        -
      Ordinary dividend                                                            17,440        -@@end@@

    The Board has recommended a final dividend of seven cents per Common Share payable on 10 June 2005 to shareholders on the register of members at the close of business (Bermuda time) on 13 May 2005. Dividends are declared and paid gross.

    Dividends are declared in U.S Dollars but may be paid in U.S. Dollars, British Pounds or Swiss Francs. The British Pound or Swiss Franc equivalent of dividends declared in US Dollars will be calculated by reference to an exchange rate prevailing on 20 May 2005.

    19 Claims outstanding

@@start.t42@@                                                                                            2004         2003
                                                                                          $'000        $'000
      Gross
      Provision for claims outstanding, reported and
      not reported                                                          1,971,265 1,463,702
      Discount                                                                 (140,534)  (80,020)
                                                                                    1,830,731 1,383,682
      Claims handling provisions                                         21,162      14,869
                                                                                    1,851,893 1,398,551
      Aggregate excess reinsurance
      Provision for claims outstanding, reported and
      not reported                                                          (465,722) (508,924)
      Discount                                                                      36,985      35,355
      Net aggregate excess reinsurance                          (428,737) (473,569)
      Other reinsurance
      Provision for claims outstanding, reported and
      not reported                                                          (315,528) (253,165)
      Discount                                                                        7,062          173
      Net other reinsurance                                            (308,466) (252,992)
      Total reinsurance
      Provision for claims outstanding, reported and
      not reported                                                          (781,250) (762,089)
      Discount                                                                      44,047      35,528
      Total reinsurers share of claims outstanding        (737,203) (726,561)
      Claims outstanding, net of reinsurance
      Before discount                                                      1,211,177    716,482
      Discount                                                                  (96,487)  (44,492)
      Claims outstanding net of reinsurance                  1,114,690    671,990
                                                                                            2004         2003
      Security held for aggregate excess reinsurance          $'000        $'000
      Deposits received from reinsurers                            123,743    199,903
      Trust fund and LOC collateral available against
      aggregate excess contracts                                        277,297    228,415
      Total collateral available against aggregate
      excess reinsurance recoverable                                 401,040    428,318
      Collateral held in respect of unearned premiums         2,713      11,241
      Total collateral held                                                403,753    439,559@@end@@

BERMUDA, March 16 /PRNewswire/ --

    Where appropriate, reserves are discounted in accordance with statutory regulations of the European Union. Discount rates are based on the expected future cash flow derived from assets established for the payment of reserves. The Group discounts loss reserves for certain business with a mean term to ultimate claims settlement in excess of four years. The majority of such discount applies to casualty business. All data is presented for the years ended 31 December 2004 and 31 December 2003 prior to intra-group quota share arrangements.

    The amount of discount and the average gross mean term can be analysed as follows:

@@start.t43@@                                                                                                                  2004
                                                         Gross Reinsurance      Net Gross mean term
                                                         $'000          $'000  $'000                 Years
      London                                        22,070        (5,866) 16,204                    4.3
      United States                            33,552      (18,103) 15,449                    5.5
      Bermuda (1)                                23,605        (5,999) 17,606                    3.9
      Europe                                        61,307      (14,079) 47,228                    5.9
      Total                                        140,534      (44,047) 96,487                    5.0@@end@@

@@start.t44@@                                                                                                                  2003
                                                                                                         Gross mean
                                                          Gross Reinsurance      Net                 term
                                                          $'000          $'000  $'000                Years
      London                                          8,662        (4,541)  4,121                  5.0
      United States                              12,727        (9,354)  3,373                  5.1
      Bermuda                                        14,284        (7,117)  7,167                  4.1
      Europe                                         44,347      (14,516) 29,831                  4.5
      Total                                          80,020      (35,528) 44,492                  4.7@@end@@

    The total average discount rate has been established at a rate below the average investment return for the five years to 31 December 2004 which was 5.3% (2003: 5.6%).

    (1) After application of the reinsurance contracts, all business areas have a mean term of more than four years in accordance with the Company's policies.

                                                                              2004          2003
      Claims equalisation provision                        $'000         $'000
      As at 1 January                                              6,408         2,368
      Currency revaluation                                         451            269
      Change in claims equalisation provision        (617)         3,771
      As at 31 December                                          6,242         6,408

BERMUDA, March 16 /PRNewswire/ --

    The claims equalisation provision is in respect of the UK subsidiary. The reserve is established for the purpose of mitigating exceptionally high loss ratios. In 2004, there was a small release from the provision as a result of claims incurred due to hurricane and typhoon activity.

    20 Prior year adjustment

    The Company reports investments in Group undertakings at net asset value. In prior years, investments were reported by the Company at historical cost. This has no impact on the Group accounts.

    The impact of the change in accounting policy is as follows:

@@start.t45@@                                                                                                          2003
                                                                                                         $'000
      Investments in group undertakings under the old policy         734,273
      Revaluation reserve                                                                  74,241
      Investments in group undertakings under the new policy         808,514
      Revaluation reserve in capital reserve under the old policy          -
      Revalution reserve                                                                    74,241
      Revaluation reserve in capital reserve under the new policy  74,241@@end@@

    21 Other technical provisions

    As at 31 December 2004, the Directors determined that an unexpired risk provision, in excess of the unearned premium reserve, to recognise the cost of claims and expenses arising after the end of the financial year from contracts concluded before that date need not be established (31 December 2003: nil).

    22 Group creditors

@@start.t46@@                                                                                                 2004      2003
      Creditors arising out of insurance and reinsurance         $'000    $'000
      operations
      Insurance balances payable                                              66,909  62,744
      Reinsurance balances payable                                         211,464 133,627
                                                                                            278,373 196,371@@end@@

    Company creditors - demand note payable to Group undertakings

    In consideration of the Company's acquisition of 32.66% of the common shares of Alea (Bermuda) Ltd from Alea Group Holdings AG in December 2004, the Company issued a demand note in the amount of $34.2 million to Alea Group Holdings AG bearing interest at 4.5%. All other demand notes of the Company to Group undertakings outstanding at 31 December 2003 were repaid during 2004.

    23 Amounts owed to credit institutions

    The three year bank term loan of $200.0 million and the $50.0 million revolver currently carry an interest margin of 90 basis points, which is adjustable based upon the Standard and Poor's debt ratings for Alea. The $50.0 million revolver facility is additionally subject to a commitment fee of 40% of the applicable margin. The term loan was used to repay the pre-existing financing facilities with the balance being used for general corporate expenses. The revolver facility was unutilised during 2004.

    In February 2005, the $50.0 million revolver was fully drawn and the funds were used to make a voluntary prepayment of $50.0 million under the $200.0 million term loan. This prepayment was accompanied by an amendment which increased the financial flexibilty of Alea under this financing.

    The loan imposes restrictive covenants including limitations on the granting of liens, other dispositions of assets, increased indebtedness and distribution of assets.

    Total loan repayments under the above facilities fall due as follows:

                                                                                2004      2003
                                                                              $'000    $'000
      2004                                                                        -  12,926
      2005                                                                        -  92,862
      2006                                                                        -          -
      2007                                                              200,000  75,000
      Total before debt raising expenses              200,000 180,788
      Capitalised debt raising expenses                (1,562) (2,413)
      Total                                                            198,438 178,375

BERMUDA, March 16 /PRNewswire/ --

    The interest expense for the year ended 31 December 2004 amounted to $5.1 million (2003: $4.7 million). Debt raising expenses are capitalised and are amortised over the period of the loan. Capital assets relating to the previous loan arrangements of $ 2.1 million have been written off in 2004.

    24 Trust preferred securities

    In December 2004, the Group issued $100.0 million of trust preferred securities and had in place a commitment for an additional $20.0 million of trust preferred securities issued in January 2005. These securities (issued from three Delaware trusts established by Alea Holdings US Company, of which one trust was established in January 2005) provide for a preferred dividend at a rate of three month LIBOR plus 285 basis points. These securities allow for the postponement of preferred dividends under certain circumstances for up to five years. These securities carry no financial covenants and no cross default covenants, have a fixed maturity of 30 years, and are callable after five years. The Group has committed to AM Best not to exercise the call rights if such action would negatively affect the Group's AM Best ratings or ratings outlook thereupon. AM Best currently treats these "hybrid" securities as equity in its capital assessment model.

    Total trust preferred securities fall due as follows:

@@start.t47@@                                                                                                      2004  2003
                                                                                                    $'000 $'000
      2034                                                                                    100,000    -
      Total before trust preferred securities raising expenses 100,000    -
      Capitalised trust preferred securities raising expenses  (2,047)    -
      Total                                                                                    97,953    -@@end@@

BERMUDA, March 16 /PRNewswire/ --

    Trust preferred securities expenses are capitalised and are amortised over the period of the trust preferred securities.

    25 Other creditors including taxation and social security

@@start.t48@@                                                                                                  2004  2003
                                                                                                 $'000 $'000
      Corporation tax                                                                  4,621 2,331
      Other creditors including other taxes and social
      security costs                                                                  15,718    664
                                                                                                20,339 2,995@@end@@

BERMUDA, March 16 /PRNewswire/ --

    26 Accruals and deferred income

                                                                                2004    2003
                                                                              $'000  $'000
      Deferred reinsurance commissions                    3,459      665
      Other accruals and deferred income                27,680 37,135
                                                                            31,139 37,800

    27 Capital commitments

    At 31 December 2004 there were capital commitments of $1.1 million (31 December 2003:$1.1 million) relating to software, leasehold improvements and fixtures.

    28 Operating leases

    Annual commitments under operating leases expire:

                                                                        2004                  2003
                                                        Land and            Land and
                                                      buildings Other buildings Other
                                                            $'000 $'000        $'000 $'000
      - within one year                              180        -              -      14
      - between two and five years         1,869      35          459      21
      - over five years                          3,005        -        3,091        -
                                                            5,054      35        3,550      35

    29 Pension commitments

    The employees of the Group are covered by defined contribution schemes the costs of which are charged to the profit and loss account when incurred. The total cost of retirement benefits for the Group in the year ended 31 December 2004 was $4.2 million (2003: $3.6 million).

    30 Contingent liabilities

    Litigation - settlement

    In December 2004, a settlement was reached in the 2003 lawsuit commenced by PXRE Reinsurance Company ("PXRE") against Lumbermens, which in turn had joined Alea North America Company (''ANAC'') in August 2003 as a third party defendant. The lawsuit sought rescission (amongst other claims) of a retrocession arrangement in which PXRE reinsured Lumbermens excess of a 75% paid loss ratio, for a maximum liability of $50 million. Under the settlement, PXRE reassumed its liability under the retrocession arrangement. ANAC paid $250,000 as its contribution towards this settlement which was expensed in 2004

    Structured settlements

    The Group, through the Canadian branch of Alea Europe Ltd, has assumed ownership of certain structured settlements and has purchased annuities from life assurers to provide fixed and recurring payments to those underlying claimants. As a result of these arrangements, the Group is exposed to a credit risk to the extent that any of these insurers are unable to meet their obligations under the structured settlements. This risk is viewed by the Directors as being remote as the annuities are fully funded and the Group has only purchased annuities from Canadian insurers with a financial stability of AA or higher (Standard & Poors). The Canadian branch is in run-off and the branch discontinued accepting assignments of annuities in August 2001. In the event of all the relevant life insurers being unable to meet their obligations under the structured settlements, the total exposure, net of amounts that may be recoverable from the Compensation Corporation of Canada (a Canadian industry-backed compensation scheme), is estimated to be 39 million Canadian Dollars ($32 million) and the maximum in relation to any one insurer 17 million Canadian Dollars ($14 million).

    Litigation

    In January 2003, a claim was made against the Group and its indirect subsidiary ANAC by a former employee of ANAC alleging, inter alia, discrimination, harassment and retaliation for damages totalling $3.5 million. At this stage it is not possible to estimate the amount of any potential liability that may arise for the Group. The Group believes the allegations are unfounded and is vigorously defending itself against the claim. The Group's Motion for Summary Judgment was fully briefed as of April 22, 2004, and is presently pending. No provision has been made in the accounts for this matter.

    Subpoena

    In November 2004, Alea North America Insurance Company ("ANAIC") received a subpoena from the Attorney General of New York and, together with Alea North America Specialty Insurance Company ("ANASIC"), received inquiries from certain U.S. state insurance departments (which inquiries were only for informational purposes). The subpoena and inquiries relate to the on-going industry-wide investigations into U.S. producer compensation practices and arrangements. No allegations of wrongdoing have been made against ANAIC and ANASIC, nor any of their employees, nor do we have reason to believe any of them are specific targets of any investigation.

    ANAIC and ANASIC have co-operated fully with these inquiries. After concluding their internal investigations in connection with these matters, the companies have reported to these regulatory authorities that they have identified no transactions or information causing concern, nor are they aware of any improper conduct.

    Company contingent obligations

    In the third quarter of 2002 the Company entered into a top down guarantee with each of the Group's rated insurance operating entities. These guarantees are in addition to the pre-existing cross company guarantees already in place between the various subsidiaries of the Group. Subject to applicable corporate and regulatory requirements, the top down guarantees require that the Company make funds available to the insurance operating entities to allow the entities to fulfill their insurance or reinsurance obligations to the client/customer incurred while the guarantee remains in effect.

    31 Related party transactions

    Kohlberg Kravis Roberts & Co.

    The Group pays annual advisory fees of $750,000 to Kohlberg Kravis Roberts & Co., L.P., an affiliate of KKR 1996 Fund (Overseas), Limited Partnership, a shareholder and KKR Partners (International), Limited Partnership, also a shareholder and $350,000 to Fisher Capital Corp. LLC, also a shareholder. As at 31 December 2004 the balance due under these arrangements was nil (31 December 2003:nil).

    Loans to officers

    Loans to officers are offered in connection with their purchase of Company shares and are interest bearing and except as described below, are full recourse and made on consistent terms as those to other employees. Mr M. Ricciardelli received a loan of $375,000 in connection with his purchase of pledged shares at a cost of $750,000 in March 2004 that bears interest at 1 year LIBOR set on the funding date and reset annually on each anniversary thereof. Upon termination of employment Mr M Ricciardelli is not personally liable for any amounts in excess of the value of the shares pledged plus any accrued but unpaid bonus contractually payable to him. Consistent with other borrowers, Mr M. Ricciardelli's loan is repayable in five equal annual instalments of 20% of the principal amount thereof. The unpaid interest as at 31 December 2004 was $3,818.

    As at 31 December 2004 the Group had loans to officers, including the amount set out above in respect of Mr M. Ricciardelli, of $1,074,819 (31 December 2003: $648,140). The number of officers that had outstanding loans at 31 December 2004 was 11 (31 December 2003: 8). Officers are defined as members of the Leadership Team or its predecessor, the Executive Committee during the respective periods.

    Bristol West Insurance Group

    During 2003 and 2004, Alea London Ltd underwrote a 40% share of an inwards reinsurance contract with Bristol West Insurance Group (Bristol West), a public company traded on the New York Stock Exchange. Affiliates of a Kohlberg Kravis Roberts & Co. fund other than KKR 1996 Fund (Overseas), Limited Partnership, held an interest in 38.5% of the outstanding shares of Bristol West at 15 February 2005.

    Mr J Fisher, a Director of the Company, is Chairman of the Board and Chief Executive Officer of Bristol West and as of 3 March 2005 may be deemed to have beneficial interests in some or all of 1,053,485 shares or options to acquire shares of Bristol West representing approximately 3.0% of the outstanding shares and may also be deemed to to have an interest in some or all of the shares in Bristol West owned by a KKR affiliate representing 2% of the outstanding shares.

    Messrs. T Fisher, P Golkin and S Nuttall, Directors of the Company, are also directors of Bristol West and may be deemed to have beneficial interests in some or all of the shares in Bristol West controlled by affiliates of Kohlberg Kravis Roberts & Co. and representing 38.5% of the outstanding shares at 15 February 2005.

    The contract was priced and terms and conditions established on an arm's length basis by an unrelated lead underwriter and found to be acceptable by the Company using the Company's normal actuarial practices. The co-participating reinsurers on the contract are companies unrelated to either the Company, Bristol West, KKR or Mr J Fisher.

    Gross premiums written in 2004 include $56.5 million in respect of unearned premiums anticipated to be earned in 2005. Effective 1 January 2005, Bristol West exercised its rights to terminate and commute its quota share agreement. All cash balances due to Bristol West of $78.7 million were settled in for full in January 2005. The remaining unearned premium of $56.5 million has been reversed such that 2005 financial statements will show a reduction in gross premiums written of $56.5 million representing the unearned premium balances previously carried forward. There will be no profit and loss impact in 2005 with regards to this contract. The contract has not been renewed in 2005.

    The contract had the following impact on the profit and loss account, balance sheet and cash flows of the Group:

                                                                                  2004         2003
      General Business - Technical Account                 $'000        $'000
      Net premiums written                                        149,431    158,500
      Net premiums earned                                         148,089    126,341
      Net incurred losses                                      (118,442) (101,072)
      Net acquisition expenses                                (25,177)  (21,479)
      Balance on technical account                              4,470        3,790
                                                                                  2004         2003
      Balance Sheet                                                      $'000        $'000
      Cash received                                                    88,197      55,464
      Reinsurance debtors                                          66,302      64,228
      Deferred acquisition costs                                 9,600        9,372
      Total Assets                                                    164,099    129,064
      Claims incurred                                                 98,106      68,883
      Unearned premium reserves                                 56,473      55,130
      Retained profit                                                  9,520        5,051
      Total Liabilities                                            164,099    129,064
                                                                                  2004         2003
      Cash Flows                                                          $'000        $'000
      Premium received                                              243,243    121,277
      Claims paid                                                  (155,046)  (65,813)

BERMUDA, March 16 /PRNewswire/ --

    No amounts have been written off in respect of debts due to or from Bristol West.

    Conseco Inc.

    Mr R Hilliard, a Director of the Company, is the Executive Chairman of the Board of Conseco Inc.. A subsidiary of the Company was an insurer on Conseco Inc.'s Directors and Officers insurance policy, for which Conseco paid to the Company a net premium of $364,595 with respect to the 2003 underwriting year. The terms of this agreement were made on an arm's length basis without any involvement of Mr Hilliard.

    Willis Group Holdings

    Willis Group Holdings Limited and its subsidiaries ("Willis") conduct insurance and reinsurance intermediary activities.

    As at 31 December 2004, KKR 1996 Fund (Overseas), Limited Partnership owned 5.6% (31 December 2003: 23.3%) of the outstanding common equity of Willis Group Holdings Limited.

    The Group has entered into multiple business arrangements with Willis for the years ended 31 December 2004 and 31 December 2003. These transactions involved the production and procurement of insurance and reinsurance relationships and contracts, in many cases for a commission or fee, the transmission of premium and other related transactions.

    While most of these relationships and contracts individually have involved less than 0.5% of the assets of the Group, some of the transactions have involved premium flows or other cash flows through Willis in excess of such amounts. In aggregate the total gross premiums written by the Group produced through Willis for the year ended 31 December 2004 was $69.5 million (31 December 2003: $74.6 million).

    Messrs. P Golkin and S Nuttall are directors and shareholders of Willis and may also be deemed to be beneficially interested in some or all of the shares in Willis owned by KKR 1996 Fund (Overseas), Limited Partnership and KKR Partners (International), Limited Partnership. Mr J Fisher is a director and shareholder of Willis and may also be deemed to be beneficially interested in some or all of the options to acquire shares in Willis held by Fisher Capital Corp. LLC and the shares in Willis owned by KKR Partners (International), Limited Partnership.

    The Group's dealings with intermediaries, including Willis, are on arm's length normal commercial terms.

    32 Credit risk - exposure to Lumbermens

    In connection with the Group's acquisition of the Equus Re reinsurance division of Lumbermens on 3 December 1999, Alea (Bermuda) Ltd and Lumbermens entered into a 100% quota share reinsurance of the Lumbermens business written by Equus Re through 30 September 1999 (namely, business written by Equus Re prior to the Group's acquisition of the Equus Re operations). Lumbermens, in turn, provides stop loss reinsurance to Alea (Bermuda) Ltd for losses in excess of a 75% paid loss ratio on the same business (the "Protected Business"). In addition to the Protected Business, the parties agreed that the Group would write new and renewal business on behalf of Lumbermens (as the reinsurer) up to 31 December 2001, which business is ceded by a 100% quota share reinsurance to Alea (Bermuda) Ltd (the " Fronted Business"). Concurrent with these arrangements, Lumbermens retained ANAC as its agent to adjust and pay claims and collect premiums for both the Protected Business and the Fronted Business.

    The respective obligations of Alea (Bermuda) Ltd and Lumbermens noted above are subject to contractual mutual offset provisions under the reinsurance agreements and as permitted under Illinois law. Further, in respect of the Protected Business, Lumbermens is contractually required to fund losses on its own behalf once the 75% paid loss ratio is met. The Group's balance sheet therefore, records (i) no net balance due from Lumbermens under the Protected Business, as the 75% paid loss ratio was met in late December 2003 (specifically, $158.2 million is due to and from Lumbermens), and (ii) as at 31 December 2004, a balance due to Lumbermens under the Fronted Business of $123.8 million

    As is required for credit for reinsurance purposes when cessions are made to non-US licensed reinsurers, Alea (Bermuda) Ltd must collateralise its obligations to Lumbermens. Pursuant to contract, the amount of posted collateral is required to equal 120% of the estimated loss reserves, which based on the above year-end balance due from Alea Bermuda Ltd would be approximately $148.6 million. If, as was the case in 2004, Alea (Bermuda) Ltd (as reinsurer) and Lumbermens cannot agree upon the calculation of the amount to be collateralised, the contract provides that the matter is to be resolved by referral to a neutral and disinterested Fellow of the Casualty Actuary Society for determination ("Independent Actuary"). Based on a determination of the estimated loss reserves by the Independent Actuary measured as at 30 September 2004 the amount Alea (Bermuda) Ltd posted as collateral at year-end pursuant to the contract was $186.6 million.

    The Independent Actuary's estimate is utilized strictly to enable the parties to settle on the collateral posting. The determination of collateral posted is subject to recalculation quarterly in arrears, and both parties retain the right to request a further determination in the future by an Independent Actuary if the parties cannot agree such calculation.

    Lumbermens risk based capital level allows the Illinois Department of Insurance to assume control of Lumbermens at its discretion. The mutual obligations of Alea (Bermuda) Ltd and Lumbermens described above are subject to contractual mutual offset provisions under the agreements and as permitted under Illinois law. The Directors believe that the Group should not be exposed to material credit risk resulting from these arrangements with Lumbermens.

    33 Notes to the statement of cash flows

@@start.t49@@      (a) Reconciliation of profit on ordinary activities
      before tax to net cash inflow from operating
      activities                                                                              2004         2003
                                                                                                  $'000        $'000
      Profit on ordinary activities before tax                          10,929      54,538
      Depreciation of tangible assets                                          6,158        5,868
      Profit on disposal of tangible assets                                 (343)        (289)
      Changes to market value and currencies on investments  (29,980)  (24,893)
      Losses on foreign exchange                                                  2,277        9,095
      Change in debtors arising out of re/insurance
      operations                                                                        (39,800) (109,423)
      Change in amounts due from reinsurance operations not
      transferring significant insurance risk                              3,543        6,044
      Change in other assets                                                         2,150    (1,475)
      Change in prepayments and accrued income                         (5,771)    (1,395)
      Change in technical provisions                                         575,314    481,416
      Change in claims equalisation provision                              (617)        3,771
      Change in reinsurers' share of technical provisions      (22,909) (165,849)
      Change in deposits with ceding undertakings                  (38,174)  (13,407)
      Change in reinsurance deposits and creditors                      5,842      12,360
      Change in liabilities from reinsurance operations not
      transferring significant insurance risk                          (9,461)    (8,811)
      Change in other creditors                                                    5,967    (2,733)
      Change in accruals and deferred income                            (8,348)        1,442
      Debt interest expense                                                          5,127        4,718
      Net cash inflow from operating activities                        461,904    250,977@@end@@

@@start.t50@@                                                                                                    2004         2003
      (b) Movement in opening and closing portfolio
      investments net of financing                                                $'000        $'000
      Net cash inflow for the year                                              15,837      13,752
      Cash flow - portfolio investments net of financing         516,735    452,291
      Movement arising from cash flows                                      532,572    466,043
      Changes in market value and exchange rates                        29,980      15,054
      Total movement in portfolio investments net of
      financing                                                                          562,552    481,097
      Portfolio at 1 January                                                  1,448,289    967,192
      Portfolio at 31 December                                                2,010,841 1,448,289@@end@@

    (c) Movement in cash and portfolio investments

@@start.t51@@                                                                                Changes
                                                                    As at                 to market      As at
                                                                                                                        31
                                                            1 January        Cash  value and  December
                                                                    2004        flow currencies         2004
      2004                                                      $'000      $'000         $'000        $'000
      Cash at bank and in hand                    44,307    15,837         1,489      61,633
      Shares and other variable yield
      securities                                                836            -            111          947
      Debt securities - unit trusts -
      listed                                                 34,061      7,585         4,155      45,801
      Debt securities and other fixed
      income securities                          1,432,032  516,682        20,189 1,968,903
      Deposits with credit institutions    115,428    12,531         4,036    131,995
                                                            1,626,664  552,635        29,980 2,209,279
      Amount owed to credit institutions(178,375) (20,063)                - (198,438)
                                                            1,448,289  532,572        29,980 2,010,841
                                                                                                          Changes
                                                                  As at                 to market        As at
                                                                                                                        31
                                                            1 January        Cash  value and  December
                                                                    2003        flow currencies         2003
      2003                                                      $'000      $'000         $'000        $'000
      Cash at bank and in hand                    28,989    13,752         1,566      44,307
      Shares and other variable yield
      securities                                                949      (331)            218          836
      Debt securities - unit trusts -
      listed                                                 21,745      6,973         5,343      34,061
      Debt securities and other fixed
      income securities                              963,880  453,123        15,029 1,432,032
      Deposits with credit institutions    120,165  (7,474)         2,737    115,428
                                                            1,135,728  466,043        24,893 1,626,664
      Amounts owed to credit
      institutions                                  (168,536)            -      (9,839) (178,375)
                                                                967,192  466,043        15,054 1,448,289@@end@@

    (d) Net cash outflow on portfolio investments

@@start.t52@@                                                                                                              Net
                                                                 Purchases          Sales cash flow
      2004                                                          $'000          $'000        $'000
      Shares and other variable yield                      -                 -              -
      securities
      Debt securities - unit trusts -              14,304        (6,719)        7,585
      listed
      Debt securities and other fixed
      income securities                                2,852,160 (2,335,478)    516,682
                                                                 2,866,464 (2,342,197)    524,267
      Deposits with credit institutions                                              12,531
      Net cash outflow on portfolio
      investments                                                                                536,798@@end@@

@@start.t53@@                                                                                                              Net
                                                                 Purchases          Sales cash flow
      2003                                                          $'000          $'000        $'000
      Shares and other variable yield                      -          (331)        (331)
      securities
      Debt securities - unit trusts -                9,278        (2,305)        6,973
      listed
      Debt securities and other fixed
      income securities                                2,737,986 (2,284,863)    453,123
                                                                 2,747,264 (2,287,499)    459,765
      Deposits with credit institutions                                            (7,474)
      Net cash outflow on portfolio
      investments                                                                                452,291@@end@@

BERMUDA, March 16 /PRNewswire/ --

    34 Group companies

    The consolidated financial information presents the financial record of the Group for the years ended 31 December 2004 and 31 December 2003. The following are the parent company and the subsidiary undertakings that have been included in the consolidated financial information.

@@start.t54@@                                                                                                          Country of
                                                                                                    incorporation/
      Name                                    Nature of business                         registration
      Alea Group Holdings
      (Bermuda) Ltd                      Ultimate holding company                Bermuda
      Alea Group Holdings AG        Intermediate holding company         Switzerland
      Alea Europe Ltd                  Reinsurance carrier                        Switzerland
      Alea (Bermuda) Ltd              Reinsurance carrier                        Bermuda
      Alea Holdings US Company    Intermediate holding company         USA
      Alea North America
      Insurance Company                Insurance and reinsurance carrier USA
      Alea North America
      Specialty Insurance
      Company                                Insurance and reinsurance carrier USA
      Alea North America Company Reinsurance intermediary                USA
      Alea Holdings UK Limited    Intermediate holding company         England &
                                                                                                         Wales
      Alea London Limited            Insurance and reinsurance carrier England &
                                                                                                         Wales
      Alea Services UK Limited    Services company                            England &
                                                                                                         Wales
      Alea Financial UK Limited  Risk intermediary                          England &
                                                                                                         Wales
      Alea Technology Limited      Software and Systems                      England &
                                                                                                         Wales
      IRM International
      Reinsurance Management Ltd.Services company                            Switzerland
      Alea Jersey Limited            Insurance and reinsurance carrier Jersey
      Alea Global Risk Limited    Insurance and reinsurance carrier Jersey
      Alea Holdings Guernsey
      Limited                                Special purpose entity                  Guernsey
      AHUSCO Statutory Trust I    Special purpose entity                  USA
      AHUSCO Statutory Trust II  Special purpose entity                  USA@@end@@

    All companies listed above are wholly owned subsidiaries of the Group.

    35 Financial information and posting of accounts

    The financial information set out above does not constitute the Company's statutory accounts from the year ended 31 December 2003 or 2004, but is derived from those accounts. The auditor's have reported on the accounts for the year ended 31 December 2004; their opinion was unqualified.

ots Originaltext: Alea Group Holdings (Bermuda) Ltd.
Im Internet recherchierbar: http://www.presseportal.ch

Contact:
Media: Keith Anderson, Tel: +44-20-7621-3202, Analysts & Investors
Peter Brown, Tel: +44-20-7621-3383 or Financial Dynamics, Robert
Bailhache, Tel: +44-20-7269-7200



Weitere Meldungen: Alea Group Holdings (Bermuda) Ltd.

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