BRIT INSURANCE HOLDINGS PLC -- Record 2003 Results (Part 2)


LONDON, March 2, 2004 (PRIMEZONE) -- FINANCIAL REVIEW

Highlight

-Profit before tax of GBP77.6m (2002:GBP10.0m)

-88.5% combined ratio

-53.3% increase in gross written premium

-67.6% increase in net unearned premium reserve to GBP466.7m

-41.7% increase in net tangible assets

-Acquisition of Professional Risks Insurance Limited ("PRI") now renamed Brit Insurance (UK) Limited ("BIL(UK)")

-100% ownership of syndicate 2987

-Dividend policy

-Brit Insurance Limited "A" rating from Fitch and A M Best

Summary of Results

Total operating profit was GBP75.4m (2002: GBP11.4m). Operating profit at the long-term rate of investment return was GBP91.2m (2002: GBP25.0m).

The long term rates of return have been adopted as below:

Equities 7%

Cash and bonds 5%

Syndicate funds 5%

Total operating profit by business division:



        Underwriting    Underwriting
             Lloyd's       Companies  Total   Other    Total    Total
                2003            2003   2003    2003     2003     2002
                GBPm            GBPm   GBPm    GBPm     GBPm     GBPm

 Technical
 result         63.5            36.8  100.3       -    100.3     52.0

 Investment
 return *       31.4            22.7   54.1     9.0     63.1     26.3

 Investment
 income       (32.1)          (11.9) (44.0)      -    (44.0)   (27.4)
 transferred to
 technical account

 Interest
 payable       (0.1)              -   (0.1)  (4.5)     (4.6)    (5.1)

 Fees and
 commission      2.3              -     2.3    6.3       8.6     16.0

 Other income      -            0.1     0.1    1.4       1.5      1.0

 Other expenses    -              -       -  (25.4)   (25.4)   (31.5)

 Amortisation  (1.9)              -   (1.9)   (6.5)    (8.4)    (6.3)

 Operating
 profit at long-term
 rate of return 63.1           47.7   110.8  (19.7)     91.1     25.0

 Short-term    (7.6)          (8.1)  (15.7)       -    (15.7)  (13.6)
 fluctuations in
 investment return

 Operating      55.5           39.6    95.1  (19.7)      75.4    11.4
 profit

* At the long term rate of return where applicable

Underwriting operations

The Group writes insurance business through Brit Insurance Ltd ("BIL") and at Lloyd's. The net assets of BIL totalled GBP178.8m at 1 January 2003 and increased to GBP334.2m by 31 December 2003, following the Group reorganisation and integration of PRI. Capacity at Lloyd's for the 2003 underwriting year was GBP513.8m (2002:GBP454.2m). All Lloyd's business written by the Group for 2004 will be in Syndicate 2987. The Life Syndicate 389 was put into run off with effect from 31 December 2003.

Underwriting at Lloyd's is supported by Funds at Lloyd's ("FAL") which totalled GBP308.0m at 31 December 2003 (2002: GBP271.9m). For 2004, the FAL supports GBP500.0m (2003: GBP500.0m) of capacity on Syndicate 2987 and the run-off requirements of Syndicate 389 and remaining non-managed syndicates. In addition, the Qualifying Quota Shares ("QQSs") have been utilised to increase Syndicate 2987's capacity.

Overall Lloyd's capacity by underwriting year:



               2004            2003          2002            2001
 Syndicate  100%   Brit  100%     Brit  100%     Brit   100%     Brit
           share  share  share    share share    share  share    share
            GBPm   GBPm   GBPm     GBPm  GBPm     GBPm   GBPm     GBPm

 250           -      -      -        -     -        -   99.9     46.0

 389           -      -   15.0     13.8  14.0     12.7    7.6      7.6

 735           -      -      -        -     -        -   75.0     70.0

 800           -      -      -        -     -        -   62.6     34.3

 1202          -      -      -        -     -        -   69.9     53.7


 2040          -      -   14.0        -  14.0        -   14.0        -

 2400          -      -      -        -  30.0      1.5   30.0      1.5

 2987      500.0  500.0  500.0    500.0 450.0    440.0      -        -

 TOTAL     500.0  500.0  529.0    513.8 508.0    454.2  359.0    213.1

 Group QQSs 50.0   50.0  100.0    100.0  75.0     73.3      -        -

 3rd party     -      -   22.0     22.0  53.3     52.1      -        -
 QQSs

 TOTAL     550.0  550.0  651.0    635.8 636.3    579.6  359.0    213.1
 after QQSs

Net written premium income for the year has grown to GBP850.8m (2002: GBP522.2m). Net earned premium income for the year has grown to GBP671.4m (2002: GBP325.3m). The difference between net written premium and net earned premium of GBP179.4m is counterbalanced by the increase in the net unearned premium reserve (which totalled GBP466.7m at 31 December (2002: GBP278.5m), an increase of GBP188.2m). The 31 December 2003 net unearned premium reserve represents premium that has been written predominantly at 2003 rates but has yet to be earned in the technical account. 48.8% of income written in 2003 was earned during the calendar year. The remaining 51.2% will be earned in future years and is carried forward as an unearned premium reserve on the balance sheet.

The technical account for the year is analysed below to demonstrate the recognition of earned premium income from the 2003 and 2002 underwriting years, which represents most of the business in force during the 2003 calendar year. The analysis also shows the effect of movements in the calendar year 2003 arising from business incepting in 2001 and prior years.

Technical Account for the year ended 31 December 2003



 Calendar Year  2003        2003        2003          2003      2002
            Business    Business    Business
           incepting   incepting   incepting
                2003        2002       2001 and
                                          prior       TOTAL      TOTAL
                GBPm        GBPm           GBPm        GBPm       GBPm

 Earned premium
 net of        414.2       248.5            8.7       671.4      325.3
 reinsurance

 Claims incurred
 net of      (257.6)     (132.5)         (10.4)     (400.5)    (205.1)
 reinsurance

 Change in
 equalisation  (3.9)         0.7              -       (3.2)      (2.5)
 provision

 Change in
 other technical
 provisions    (0.7)           -              -       (0.7)       0.5

 Net operating
 expenses    (139.1)      (72.1)            0.4      (210.8)    (93.7)

 Technical
 result before  12.9        44.6          (1.3)         56.2      24.5
 investment return

    Claims ratio                                       59.7%     62.9%

    Expense ratio                                      28.8%     25.7%

    Combined ratio                                     88.5%     88.6%

The 2000 underwriting year was the final year that Brit participated on externally managed syndicates. In the ordinary course of events these participations should have closed at 31 December 2002. There are twelve syndicates with Brit involvement in run off at 31 December 2003. Total Brit capacity on these syndicates is GBP39.3m and they have been reserved at the mid-point of managing agent's forecasts. The total net reserve on these run off syndicates is GBP2.4m.

Investments

Group assets under management totalled GBP1,434.9m at 31 December 2003 (2002: GBP1,036.4m). GBP871.9m was managed by EPIC Asset Management Ltd ("EPAM"), a 70 per cent subsidiary of The Equity Partnership Ltd ("EPL"), an associated company of the Group.

As of 1 March 2004, the boards of BIL and Brit Syndicates Limited ("BSL") transferred the management of fixed interest portfolios totalling around GBP300.0m to EPAM.

In addition at 31 December 2003 GBP42.3m (2002: nil) of the Group's equity portfolio was also managed by Epic Specialist Investments Limited.

The Group has a direct holding of 34.1% in EPL, the holding company of EPAM and GBP14.6m invested in shares of EPIC PLC, a company listed on the London Stock Exchange. EPL is treated as an associated company and the Group equity accounted a profit arising from this activity of GBP0.2m (2002: GBP0.1m) for the year. EPAM had funds under management of GBP1,134.6m at 31 December 2003 (2002: GBP809.5m).

Investment Return

2003 investment returns were in excess of benchmarks for the equity portfolios and in line with benchmarks for the cash and bond portfolios. Current benchmarks for the cash and bond portfolios range from seven day LIBID to a one to five year gilt index.

Total assets under Group management at 31 December 2003 (including 100% of syndicate assets) were invested as below:



                31 December     2003           31 December        2002
                       2003   Return                  2002      Return
                       GBPm     GBPm                  GBPm        GBPm

 Equities             154.0     17.4                  91.1      (16.5)

 Bonds                793.7     23.3                 500.3        24.5

 Cash and deposits    487.2     10.9                 445.0        12.5

 Total              1,434.9     51.6               1,036.4        20.5

 The currency mix of the investment portfolio was:

                     31 December                    31 December
                        2003                           2002
                          %                             %
 Sterling                61.8                          83.6

 US$                     30.9                          14.5

 Euros                    5.7                           1.4

 Other                    1.6                           0.5

 Total                  100.0                         100.0

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



 Equity Investments
                 31 December      Return    31 December      Return
                        2003     for year          2002    for year
                                     2003                      2002
                        GBPm         GBPm          GBPm        GBPm

 Lloyd's listed         13.7          2.8          15.2       (1.6)
 investments
 Listed investments      0.9          0.7           1.9         0.2

 Non listed investments  1.1        (0.2)           2.4       (1.7)

 Managed portfolios    116.0         13.5          41.0       (9.9)

 Protected funds         1.4            -           9.7         0.1

 Ebix Inc                6.3          4.9           1.5       (3.8)

 EPIC PLC - Capital      9.9        (5.1)          15.0       (0.3)
            shares

 EPIC PLC - Income       4.7          0.8           4.4         0.5
            shares

 Total                 154.0         17.4          91.1      (16.5)

The duration of the total bond portfolio was 1.27 years at 31 December 2003 (2002: 1.60 years). The bond portfolios were invested as below:



                            2003              2002
 Rating                     GBPm              GBPm

 Government                425.5             280.1

 AAA                       164.2             117.2

 AA                        133.9              30.0

 A                          64.4              66.5

 BBB                         4.4               4.1

 Other                       1.3               2.4

 Total                     793.7             500.3

Governments include UK, US, Italian, Canadian, German, Spanish and Swiss Government Bonds (2002: UK, US, Canadian, Swiss and German).

Non-underwriting operations

Peoples Choice, the Group's telesales broking operation was sold for GBP7.2m (before expenses) on 31 July 2003. This has produced a profit on disposal of GBP2.1m. The result for the period to 31 July 2003 was a loss of GBP3.7m (2002: GBP4.6m).

The Group has a 77.2% investment in Ri3K Ltd ("Ri3K"), a web based business to business infrastructure for the reinsurance industry. Ri3K became a subsidiary on 31 December 2002. The Group results for the year include a net loss of GBP3.9m arising from Ri3K (2002: equity accounted loss of GBP0.9m).

Expenses



                                           2003              2002
                                           GBPm              GBPm

 Commissions charged to technical account 132.1              63.2

 Other acquisition costs                   33.5               9.4

 Administrative expenses                   45.2              21.1

 Total technical account expenses         210.8              93.7

 Non-technical account net operating
 expenses                                  33.8              37.7

 Total technical account expenses         244.6             131.4

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



                                           2003              2002
                                           GBPm              GBPm

 Payroll costs before profit related pay   28.9              16.7

 Profit related pay                         6.7               1.9

 Accommodation costs                        4.3               2.2

 Legal & professional charges               4.1               2.7

 IT costs                                   5.6               2.8

 Marketing & communications                 1.0               0.4

 Amortisation                               8.5               6.3

 Exchange movements                         7.9               5.2

 VAT irrecoverable                          1.8               1.0

 Lloyd's charges                           16.9               7.2

 Other syndicate expenses                   6.1               5.2

 Other                                      6.1               0.9

                                           97.9              52.5

 Peoples Choice                            10.6              15.7

 Ri3K                                       4.0                -

 TOTAL                                    112.5              68.2

Result after tax

The result after tax and minority interests was a profit of GBP57.5m (2002:GBP5.4m). The effective tax rate was 26.3 per cent (2002: 23.7 per cent).

Earnings per Share

Basic earnings per share were 6.58p (2002: 1.11p). Details of the calculation are given in Note 12 to the financial statements.

Key Ratios



                                                  2003     2002

 Net written premium / Gross written premium     83.8%    78.8%

 Net written premium growth                      62.9%   113.0%

 Net written premium / Weighted average
 shareholders' funds                            139.9%   163.9%

 Technical result / Net earned premium           14.9%    16.0%

 Claims ratio                                    59.7%    62.9%

 Expense ratio                                   28.8%    25.7%

 Combined ratio                                  88.5%    88.6%

 Gross technical provisions / Gross
 written premium                                140.0%   156.0%

 Net technical provisions / NWP                 128.9%   136.9%

 Shareholders' funds / Net technical provisions  64.0%    66.7%

 Insurance debtors / Shareholders' funds         57.5%    76.4%

 Insurance debtors / Total assets                17.3%    20.3%

Dividend per Share

The Directors are not in a position to recommend the payment of a dividend due to losses in previous years which have resulted in a lack of distributable reserves. The negative balance on the Company's profit and loss account at 31 December 2003 was GBP25.7m (2002: negative balance of GBP27.1m), but this included a profit of GBP39.8m arising on the intra-group sale of BIL. This profit is non-distributable. The Company's negative distributable reserves at 31 December 2003 were GBP65.6m (2002: GBP27.1m). The Company intends to recommence payment of dividends as soon as it is possible to do so, via the proposed capital reorganisation.

Brit Underwriting Group Limited (formerly PRI Group PLC)

On 22 May 2003, the Group completed the acquisition of Brit Underwriting Group Limited. This acquisition created goodwill of GBP51.2m. Further details of this transaction can be seen in Note 18 to the financial statements.

Reinsurance Recoverable

Total recoveries from reinsurers at 31 December were:



                                             2003              2002
                                             GBPm              GBPm

 Amounts due at 31 December                  37.8              25.4

 Recoveries in respect of outstanding claims222.9             233.3

 Total                                      260.7             258.7


 Credit Quality                              2003              2002
                                                %                 %

 AAA                                          1.5               9.5

 AA                                          19.9              20.4

 A                                           66.5              61.6

 BBB                                          5.1               4.1

 Unrated                                      7.0               4.4

 Total                                      100.0             100.0

Gearing and Liquidity

Total Group debt at 31 December 2003 was GBP58.9m (2002: GBP64.6m). This comprised GBP15.0m (2002: GBP21.0m) of bank borrowings and GBP43.9m (2002: GBP43.6m) of 8.5% Convertible Unsecured Subordinated Loan Stock 2008. The final date for conversion of the loan stock is 31 October 2005. The bank borrowings are the remaining part of an GBP80m variable rate facility taken out in February 2000. The facility has been repaid from the proceeds of sale of listed Lloyd's investments. The final repayment under the facility is due on 3 February 2005.

Total gearing is 8.4 per cent (2002: 13.6 per cent) of Shareholders' funds. The Group has previously commented that it will investigate additional facilities in order to have these available should the need arise.

Interest payments during the year totalled GBP4.6m (2002: GBP5.1m). Interest cover was 18.0 times (2002: 2.5 times).

Liquidity throughout the Group is strong and at 31 December 2003, GBP41.1m (2002: GBP67.9m) of cash and liquid securities was held at holding company level. This gives the Group flexibility to expand both the insurance company and the Lloyd's operation during 2004 in addition to providing working capital. It is anticipated that some of these funds will be required to meet increasing Funds at Lloyd's requirements as the regulatory demands for capital increase.

The Group has also renewed a US$80m standby credit facility which can be drawn to supplement any gross liability funding requirements of the Lloyd's trust funds in the United States.

It is important to maintain sufficient liquidity at holding company level because funds held in the regulated insurance operations are not available to other group companies. Assets within BIL are segregated from the rest of the Group and dividend payments from BIL require FSA consent. Funds generated from Lloyd's syndicate activities are held within a range of Lloyd's trust funds and are released on closure in line with Lloyd's three year accounting. Some intra syndicate funding is permitted provided that proper terms and conditions are established on an arms length basis. The closures of the four syndicates that merged to form composite Syndicate 2987 and 100% Brit ownership from 2003 will simplify this process.

Lloyd's has announced its intention to permit wholly owned aligned syndicates to distribute profits after only one year. This change is due to come into effect in 2005. The amount and terms relating to such distributions are still under review by Lloyd's.

Treasury Policy

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

Investment Managers are chosen and appointed by the Directors of the individual operating companies. Monitoring the performance of investment managers is delegated by the regulated companies to the Investment Committee.

Investments are managed according to specific guidelines and benchmarks for different types of fund. There are four main sets of such guidelines which apply respectively to:

-Corporate funds

-Syndicate funds

-Insurance company funds

-Funds at Lloyd's

The differences in the guidelines reflect the various regulatory obligations pertinent to each fund.

Overall asset mix varies from time to time but it is not anticipated that more than 30 per cent of total Group net tangible assets would be invested in equities (excluding assets supporting pension scheme liabilities).

The Group writes a substantial amount of its business in foreign currencies, especially US dollars and Euros. The Investment Committee reviews exposures arising from retained profits and losses arising in foreign currencies and enters into currency transactions as appropriate.

The Group's gross written premium is shown below by currency:



                                     Gross Written Premium
                                      GBPm                 %
 GBP Sterling *                      477.8              47.0

 US Dollars                          450.9              44.4

 Can Dollars                          19.1               1.9

 Euros                                67.9               6.7

                                   1,015.7             100.0

* Sterling includes other miscellaneous currencies

Overall foreign exchange policy is reviewed monthly. Current policy is to make regular monthly sales of US$10m.

On 24 December 2003 a US$100m option transaction involving both the purchase and sale of options was entered into to hedge US dollar profits.

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

Capital Adequacy and Financial Strength

The Group retains high solvency margins in its overall insurance operations.

Projected gross premium for 2004 is GBP1.3bn which is 205.7 per cent of net tangible assets. The Group is therefore projecting to write insurance business at a ratio to overall net tangible assets of just over 2:1.

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

Solvency requirements are becoming progressively more stringent and the calculations more risk based. In July 2003 the FSA released CP 190, which sets out the proposals for the new Enhanced Capital Requirement ("ECR"). The ECR will be greater than the current Minimum Capital Requirement ("MCR") as set out in CP 181. Additionally, insurers will have to do their own capital modelling based on stress and scenario testing in order to derive an Individual Capital Adequacy Standard ("ICAS"). Finally the FSA will conduct its own assessment of the insurer's capital adequacy to produce Individual Capital Guidance ("ICG").

The capital requirement for UK insurers is likely to be the highest of the MCR, ECR, ICAS or ICG. There could also be an expectation of an adequate buffer above this level.

Groups that include a regulated UK insurer have to file a Parent Undertaking Solvency Calculation with the FSA. Under current procedures the filing is for information purposes only and a negative result is accepted. This situation is expected to change for the 2005 financial year and Groups will have to demonstrate an overall surplus. In determining the Group solvency requirement, it is necessary to add up the solo requirements of the individual underwriting entities. The Group must maintain sufficient capital to exceed the sum of the solo requirements. For the purposes of defining total Group capital, goodwill and short term debt are excluded from the calculation.

Current projections indicate that the Group has adequate capital to support planned future growth at both Group and solo level based upon the new solvency regime.

Group Pension Schemes

The Group operates three main pension schemes:

- A money purchase scheme based on the stakeholder legislation.

- A final salary scheme. This scheme was closed to new members during 2001.

- A Funded Unapproved Retirement Benefit scheme for employees earning more than the statutory earnings cap.

Total scheme assets at 31 December 2003 were GBP56.7m. Asset allocation was 86.4% equities and the remaining 13.6% in cash and bonds. The Group has not adopted FRS 17 in respect of the final salary scheme. Details of the effect of accounting under FRS 17 have been included in Note 35 to the accounts. The scheme at 31 December 2003 would have had a liability net of deferred tax under FRS 17 rules of GBP10.9m (2002: GBP7.3m).

Asset Value per Share

At 31 December 2003 net assets totalled GBP701.5m (2002: GBP476.3m) equivalent to 72.0p per share (2002: 63.7p). Net tangible assets totalled GBP631.5m (2002: 445.6m) equivalent to 64.8p per share (2002: 59.6p).

International Financial Reporting Standards

The Group is aware of the requirement for EU listed companies to adopt International Financial Reporting Standards ("IFRS") for accounting periods beginning on or after 1 January 2005. The Group is taking steps to meet this timetable.

The Group has initiated a project to facilitate a smooth and successful conversion to IFRS. Its scope includes monitoring the ongoing developments in IFRS, assessing the financial and non-financial impact and implications for the Group, and determining courses of action and implementing strategies.

Outlook for 2004

- Target 2004 gross premium written of GBP1.3bn

- Continuing strong rating environment

- Expansion of UK regional presence

- Internalisation of investment management

- Capital reorganisation

- Continuing systems investment

Matthew Scales Group Finance Director



 Consolidated Profit and Loss Account - Technical Account - General
 Business for the year ended 31 December 2003


                                              Year          Year
                                              ended         ended
                                               31             31
                                             December       December
                                               2003          2002
                                 Notes      GBP'000         GBP'000

 Earned premiums, net of
 reinsurance:

 Gross premiums written                   1,015,727         662,715
 Outward reinsurance premiums              (164,962)       (140,555)
                                          --------------------------

 Net premiums written                       850,765          522,160
                                          --------------------------


 Change in the provision for
 unearned premiums                         (181,388)      (218,445)
 Change in the provision for
 unearned premiums,
 reinsurers' share                            2,059         21,569
                                          --------------------------

 Net change in the provision
 for unearned
 premiums                                  (179,329)      (196,876)
                                          --------------------------

 Earned premiums, net of
 reinsurance                                671,436        325,284
 Allocated investment return
 transferred from                            43,985         27,405
 the non-technical account
                                          --------------------------

 Total technical income                     715,421        352,689
                                          --------------------------

 Claims incurred, net of reinsurance:

 Claims paid:
 Gross amount                              (228,667)      (171,559)
 Reinsurers' share                           89,490         69,170
                                          --------------------------
 Net claims paid                           (139,177)      (102,389)
                                          --------------------------

 Change in the provision for claims:
 Gross amount                              (224,234)       (84,194)
 Reinsurers' share                          (37,039)       (18,496)
                                           --------------------------
 Net change in the provision
 for claims                                (261,273)      (102,690)
                                           --------------------------

 Claims incurred, net of
 reinsurance                      2        (400,450)      (205,079)

 Change in other technical
 provisions                                    (673)           513

 Net operating expenses           3        (210,840)       (93,684)

 Change in the equalisation
 provision                                   (3,186)        (2,483)
                                           --------------------------

 Total technical charges                   (615,149)      (300,733)
                                           --------------------------
                                           --------------------------

 Balance transferred to the
 non-technical account                      100,272         51,956
                                          ==========================




 Consolidated Profit and Loss Account - Non-Technical Account
 for the year ended 31 December 2003

                                               Year           Year
                                               ended          ended
                                                31             31
                                             December        December
                                               2003           2002
                                   Notes     GBP'000        GBP'000

 Balance on technical account
 for general business                        100,272         51,956
 Net investment return              4         42,699          7,561
 Allocated investment return
 transferred to the technical
 account for general business                (43,985)       (27,405)
 Fees and commissions               5          8,653         15,981
 Other income                       6          1,540            992
 Other expenses                     7        (33,761)       (37,708)
                                          --------------------------

 Operating profit                             75,418         11,377

 Profit on disposal of subsidiary  19          1,920              -
 undertakings
 Share of operating profit/(loss)  16            219         (1,395)
 in associated undertakings
                                           --------------------------

 Profit on ordinary activities
 before tax                                   77,557          9,982

 Tax charge on profit on ordinary
 activities                        11        (20,385)        (2,363)
                                           --------------------------

 Profit on ordinary activities
 after tax                                    57,172          7,619

 Equity minority interests         30            312         (2,258)
                                           --------------------------

 Profit attributable to members
 of the parent company                        57,484          5,361
                                           ==========================



 Operating profit based on the
 long-term rate                               91,158         25,022
 of investment return
 Short-term fluctuations in
 investment return                           (15,740)       (13,645)
                                           --------------------------

 Operating profit                             75,418         11,377
                                           ==========================


 Basic earnings per share
 (pence per share)                 12          6.58p          1.11p
                                           ==========================


 Diluted earnings per share
 (pence per share)                 12          6.50p          1.11p
                                           ==========================

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

All results arise from continuing operations.

Statement of Total Recognised Gains and Losses for the year ended 31 December 2003



                                             Year ended   Year ended
                                                 31            31
                                              December     December
                                                2003         2002
                                              GBP'000        GBP'000
 Profit attributable to members of
 the parent company                            57,484         5,361

 Acquisition of Ri3K Limited                     -            1,428
                                          --------------------------

 Total recognised gains and losses
 relating to the year                          57,484         6,789
                                          ==========================



 Consolidated Balance Sheet
 as at 31 December 2003

 Assets                                       As at         As at
                                           31 December    31 December
                                               2003           2002
                                   Notes     GBP'000         GBP'000

 Intangible assets:
 Syndicate participations                       2,236         4,155
 Goodwill                                      67,732        26,607
                                         --------------------------

                                    13         69,968        30,762
                                          --------------------------


 Investments:
 Financial investments              14      1,164,122       781,172
 Investments in associated
 undertakings                       16            253           116
                                          --------------------------

                                            1,164,375       781,288
                                          --------------------------


 Reinsurers' share of technical provisions:

 Provision for unearned premiums              103,072        85,794
 Claims outstanding                           222,863       233,334
                                           --------------------------

                                              325,935       319,128
                                           --------------------------



 Debtors:
 Arising out of direct insurance              147,917       108,040
 operations
 Arising out of reinsurance operations        255,305       255,701
 Other debtors                        20       31,976        47,155
                                           --------------------------

                                              435,198       410,896
                                           --------------------------


 Other Assets:
 Tangible assets                      21        4,779         4,867
 Cash at bank and in hand                     183,993       130,914
 Own shares                           22        3,975         1,211
 Other assets                                  15,069         6,289
                                           --------------------------

                                              207,816       143,281
                                           --------------------------


 Prepayments and accrued income:
 Deferred tax asset                   23       18,922        38,395
 Deferred acquisition costs                   100,481        61,159
 Other prepayments and accrued income 24       11,409         9,082
                                           --------------------------

                                              130,812       108,636
                                           --------------------------
                                           --------------------------

 Total assets                               2,334,104     1,793,991
                                           ==========================




 Liabilities                                    As at         As at
                                            31 December   31 December
                                                2003          2002
                                    Notes     GBP'000        GBP'000

 Capital and reserves:
 Called up share capital             27        243,513       186,867
 Share premium account               28        481,135       370,107
 Capital redemption reserve          28            586           586
 Profit and loss account             28        (23,735)      (81,219)
                                           --------------------------

 Equity Shareholders' funds          29        701,499       476,341
                                           --------------------------


 Equity minority interests           30          9,398          (371)
                                           --------------------------


 Technical provisions:
 Provision for unearned premiums               569,764       364,287
 Claims outstanding - gross                    852,340       673,480
 Equalisation provision                          5,670         2,483
 Other technical provisions                     (5,254)       (6,462)
                                           --------------------------

                                             1,422,520     1,033,788
                                           --------------------------


 Provisions for other risks and
 charges:                            26            801         1,129

 Creditors: Amounts falling due
 within one year
 Arising out of direct insurance                23,969        18,888
 operations
 Arising out of reinsurance
 operations                                     71,862       162,401
 Other creditors                     25         31,195        32,999
                                          --------------------------

                                               127,026       214,288
                                          --------------------------


 Creditors: Amounts falling due
 after more than one year
 Other creditors including
 convertible debt                   25          58,872        64,625


 Accruals and deferred income                   13,988         4,191
                                           --------------------------

 Total liabilities                           2,334,104     1,793,991
                                           ==========================





 Balance Sheet of the Company                    As at         As at
                                                    31            31
                                              December      December
 as at 31 December 2003                           2003          2002
                                    Notes      GBP'000       GBP'000
 Fixed asset investments:
 Investments in subsidiary
 undertakings                       15         506,854       293,497
 Investments in associated
 undertakings                       16              62            62
 Other investments                  14          63,005        84,621
 Own shares                         22             445           920
                                           --------------------------

                                               570,366       379,100
                                           --------------------------


 Current assets:
 Debtors                            20         187,539      206,842
 Deferred tax asset                 23             295          295
 Prepayments and accrued income     24              19           60
 Cash at bank and in hand                        4,066       10,129
                                           --------------------------

                                               191,919       217,326
                                           --------------------------


 Creditors: Amounts falling due within one
 year
 Other creditors                     25              -           (95)
 Accruals and deferred income                     (3,923)     (1,293)
                                           --------------------------

                                                  (3,923)     (1,388)
                                           --------------------------

                                           --------------------------

 Net current assets                               187,996     215,938
                                           --------------------------

                                           --------------------------

 Total assets less current
 liabilities                                      758,362     595,038
                                           --------------------------


 Creditors: Amounts falling due
 after more than one year
 Other creditors including
 convertible debt                    25           (58,872)    (64,625)
                                            --------------------------

 Net assets                                       699,490     530,413
                                            ==========================


 Capital and reserves:
 Called up share capital             27           243,513     186,867
 Share premium account               28           481,135     370,107
 Capital redemption reserve          28               586         586
 Profit and loss account             28           (25,744)    (27,147)
                                           --------------------------

 Equity Shareholders' funds                       699,490     530,413
                                           ==========================



 The financial statements were approved by the Board of Directors on
 1 March 2004 and were signed on its behalf by


 Clive Coates, Chairman
 Matthew Scales, Finance Director




 Consolidated Cash Flow Statement
 for the year ended 31 December 2003

                                    Notes           Year        Year
                                                   ended       ended
                                                     31          31
                                                December     December
                                                   2003         2002
                                                 GBP'000      GBP'000

 Net cash inflow/(outflow) from
 operating activities               33   (ii)    226,416        (460)


 Returns on investment and
 servicing of finance:
 Interest paid                                    (4,600)     (5,072)
                                           --------------------------


 Taxation:
 Corporation tax (paid)/recovered                   (973)      3,423
                                           --------------------------


 Capital expenditure:
 Purchase of syndicate capacity                      -        (1,506)
 Purchase of tangible fixed assets                (1,931)     (2,187)
 Proceeds from disposal of
 tangible fixed assets                                 6          43
                                           --------------------------

                                                  (1,925)     (3,650)
                                           --------------------------

 Acquisitions and disposals:
 Acquisition of subsidiary
 undertakings                                     50,037         316
 Disposal of subsidiary undertakings               4,881          -
 Acquisition of own shares for the                (3,559)         -
 Performance Share Plan
 Disposal of associated undertaking                  -           400
 Loan to associated undertaking                      -        (2,750)
                                            --------------------------

                                                  51,359      (2,034)
                                            --------------------------


 Financing:
 Decrease in bank loans                           (7,037)     (7,812)
 Net proceeds from placing and
 open offer                                          -       194,150
                                           --------------------------

                                                  (7,037)    186,338
                                           --------------------------

                                           --------------------------

 Increase in cash in the year                     263,240     178,545
                                           ==========================


 Cash flows were invested as
 follows:
 Increase/(decrease) in cash
 holdings                           33   (iii)     41,819     (36,484)

 Net portfolio investments:
 Deposits with credit
 institutions                       33   (iv)      26,589     (90,284)
 Fixed income investments           33   (iv)     128,176     313,966
 Variable income investments        33   (iv)      18,517      (3,086)
 Protected funds                    33   (iv)      (8,336)     (2,055)
 Equities                           33   (iv)      56,475      (3,512)
                                            -------------------------

 Increase in cash in the year                     263,240     178,545
                                            =========================

The consolidated cashflow statement excludes syndicate cashflows and cash held within Lloyd's premium trust funds on behalf of the Group's underwriting subsidiaries.

I Basis of preparation of financial statements

Basis of preparation

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

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

The balance sheet of the Company has been prepared in accordance with Schedule 4 to the Companies Act 1985. No profit and loss account is presented for the Company as permitted by Section 230 of the Companies Act. The profit dealt with in the accounts of the parent company was GBP1,403,000 (2002: loss of GBP17,119,000).

Basis of consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries, together with the Group's participation in the Lloyd's syndicates' assets, liabilities, revenues and expenses for the year ended 31 December 2003. In the Group accounts, associated undertakings are accounted for on the equity basis from the date the Directors deem that the Group exercises a significant influence over the Company. Subsidiaries are consolidated from the date control is gained.

II Accounting Policies

1 Underwriting activities

(a) Managed syndicates and the insurance companies

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

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

(ii) Unearned premiums represent the proportion of premiums written in the year that relate to unexpired terms of policies in force at the balance sheet date.

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

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

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

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

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

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

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

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

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

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

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

(b) Non-managed syndicates

The Group's non-managed syndicate participations consist entirely of run-off syndicate years of account, with the last year being 2000. These participations are accounted for on a three year funded basis.

(i) Premiums

Written premiums comprise adjustments made in the year to premiums written in prior accounting periods. Outward reinsurance premiums are accounted for in the same accounting period as the related direct insurance or inwards reinsurance business.

(ii) Claims

Claims incurred comprise claims and claims handling expenses paid during the financial year together with the movement in the provision for claims outstanding and settlement expenses, including claims incurred but not reported.

(iii) Loss provisions on run-off years

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

2 Other accounting policies

(a) Investments

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



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

(ii) Investment return

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

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

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

(b) Goodwill

Goodwill arising on the acquisition of companies or businesses is capitalised and amortised on a straight line basis over the period which, in the Directors' opinion, is its useful economic life. For all acquisitions up to 31 December 2002, the Directors' estimate of the useful economic life of the goodwill arising is ten years.

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

(c) Syndicate participation rights

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

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

(d) Taxation

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

The Group is taxed on its share of the underwriting results declared by syndicates and for tax purposes these are deemed to accrue evenly over the calendar year in which they are declared. The non-managed syndicate results included in these financial statements (excluding any additional provisions made by Directors) relate to the 2000 and prior Years of Account and will be declared for tax purposes in the calendar year 2003. The managed syndicate results included in these financial statements relate to the annually accounted result for the 2003 calendar year. These will be declared for tax purposes in the years following the closure of the relevant Years of Account contributing to the annually accounted result.

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

(e) Deferred taxation

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

(f) Tangible fixed assets

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



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

(g) Own shares

Own shares held as assets are stated at the lower of cost and market valuation.

(h) Agency fees

Agency fees are recognised in the period to which the fee relates.

(i) Expenses

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

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

(j) Pension costs

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

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

(k) Leased assets

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

(l) Foreign currencies

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

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

(m) Convertible Unsecured Subordinated Loan Stock 2008 ("CULS")

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

(n) Performance Share Plans

A provision is set up for an amount equivalent to the amortised portion of the period end market value of shares which have been awarded to participants of the Group's performance share plans. Such amortisation is calculated on a straight-line basis over the lives of the related Schemes. Where shares are acquired by, or issued to, the Brit Insurance Holdings PLC Employee Share Participation Trust, such shares are included in own shares at the market value of the company's shares on the date those shares were acquired and the investment is amortised against profits on a straight-line basis over the life of the scheme.



 1  Segmental information

 (i) Underwriting result before investment return

                                 Year ended 31 December 2003
                          Gross       Gross        Gross
                       premiums    premiums       claims    Operating
                        written      earned     incurred     expenses
                        GBP'000     GBP'000      GBP'000      GBP'000
  Direct
  Business:
  Accident and          17,459       8,678       (4,735)      (3,293)
  Health
  Motor                113,087      96,646      (63,923)     (23,093)
  Marine,               78,930      84,973      (46,218)     (17,915)
  Aviation and
  Transport
  Property             160,227     114,274      (58,656)     (37,130)
  Third Party          224,535     179,029     (138,732)     (40,072)
  Liability
  Life                  14,016      13,809       (6,986)      (8,221)
  Miscellaneous         66,018      38,827      (15,777)     (20,761)
  and Pecuniary
  Loss
  Total direct         674,272     536,236     (335,027)    (150,485)
  Reinsurance
  business:
  Reinsurance          341,455     298,103     (117,874)     (60,355)
  acceptances
  Total              1,015,727     834,339     (452,901)    (210,840)



                                     Year ended 31 December 2003

                                               Change in
                           Reinsurance    other technical
                               balance         provisions      Result
                               GBP'000            GBP'000     GBP'000
  Direct Business:
  Accident and Health            (710)                  -        (60)
  Motor                        (2,483)                  -      7,147
  Marine, Aviation and        (16,219)                  -      4,621
  Transport
  Property                    (13,366)                  -      5,122
  Third Party Liability       (10,634)                  -    (10,409)
  Life                         (1,806)                  -     (3,204)
  Miscellaneous and            (2,125)                  -        164
  Pecuniary Loss
  Total direct                (47,343)                  -      3,381
  Reinsurance business:
  Reinsurance                 (63,109)              (673)     56,092
  acceptances
  Total                      (110,452)              (673)     59,473


                                           Year ended 31 December 2002

                              Gross      Gross       Gross
                           Premiums   premiums      claims   Operating
                            written     earned    incurred    expenses
                            GBP'000    GBP'000     GBP'000     GBP'000
  Direct business:
  Accident and Health           514        306       (213)        (64)
  Motor                      76,356     36,066    (23,363)     (8,344)
  Marine, Aviation and       65,812     52,255    (35,864)     (9,962)
  Transport
  Property                   54,105     30,857    (18,543)     (7,202)
  Third Party Liability      94,213     50,232    (41,396)    (11,309)
  Life                       13,498      9,127     (4,909)     (3,164)
  Miscellaneous and          22,666      5,100    (11,329)     (2,655)
  Pecuniary Loss
  Total direct              327,164    183,943   (135,617)    (42,700)
  Reinsurance business:
  Reinsurance               335,551    260,327   (120,136)    (54,073)
  acceptances
  Total                     662,715    444,270   (255,753)    (96,773)


                                      Year ended 31 December 2002

                                                   Change in
                               Reinsurance   Other technical
                                   balance        provisions    Result
                                   GBP'000           GBP'000   GBP'000
  Direct business:
  Accident and Health                 (43)                 -      (14)
  Motor                            (1,032)                 -     3,327
  Marine, Aviation and             (6,527)                 -      (98)
  Transport
  Property                         (2,613)                 -     2,499
  Third Party Liability              4,445                 -     1,972
  Life                               (934)                 -       120
  Miscellaneous and                  7,607                 -   (1,277)
  Pecuniary Loss
  Total direct                         903                 -     6,529
  Reinsurance business:
  Reinsurance acceptances         (66,126)               513    20,505
  Total                           (65,223)               513    27,034


  (ii) Gross premium written by geographical segment

                                         Year ended 31 December 2003
                        United     Other EU     Outside
                       Kingdom        member         EU         Total
                                     states
                       GBP'000      GBP'000     GBP'000       GBP'000
  Direct
  Business:
  Accident and          5,561             -     11,898        17,459
  Health
  Motor               106,908        6,179            -      113,087
  Marine,               2,198        7,174      69,558        78,930
  Aviation and
  Transport
  Property             56,974        8,868      94,385       160,227
  Third Party         125,814       19,872      78,849       224,535
  Liability
  Life                 14,016             -           -       14,016
  Miscellaneous        48,995          691      16,332        66,018
  and Pecuniary
  Loss
  Total direct        360,466       42,784     271,022       674,272
  Reinsurance
  business:
  Reinsurance          42,927       26,323     272,205       341,455
  acceptances
  Total               403,393       69,107     543,227     1,015,727




                                           Year ended 31 December 2002
                              United      Other EU   Outside
                             Kingdom        member        EU     Total
                                            states
                             GBP'000       GBP'000   GBP'000   GBP'000
  Direct Business:
  Accident and Health            202             7       305       514
  Motor                       76,286             3        67    76,356
  Marine, Aviation                20        13,129    52,663    65,812
  and Transport
  Property                    15,186           625    38,294    54,105
  Third Party                 27,655         6,379    60,179    94,213
  Liability
  Life                         7,957         1,837     3,704    13,498
  Miscellaneous and           17,788           591     4,287    22,666
  Pecuniary Loss
  Total direct               145,094        22,571   159,499   327,164
  Reinsurance
  business:
  Reinsurance                 35,943        38,483   261,125   335,551
  acceptances
  Total                      181,037        61,054   420,624   662,715



 (iii)  Technical account

                                       Year ended 31 December 2003
                                   Syndicate     Insurance
                                 participations  companies     Total
                                    GBP'000      GBP'000      GBP'000

 Gross premiums written             610,942      404,785    1,015,727

 Net premiums written               495,348      355,417      850,765

 Net premiums earned                431,406      240,030      671,436

 Net investment return on technical
 funds and underwriting capital at the
 long-term rate                      32,080       11,905       43,985

 Net claims incurred               (250,573)   (149,877)    (400,450)

 Changes in other technical
 provisions,
 net of reinsurance                    -           (673)        (673)

 Net operating expenses            (149,374)    (61,466)    (210,840)

 Change in equalisation provision        -       (3,186)      (3,186)

 Technical profit                    63,539      36,733      100,272

 Claims ratio (%)                      58.1        62.7         59.7
 Expense ratio  (%)                    33.4        22.3         28.8
 Combined ratio (%)                    91.5        85.0         88.5




                                       Year ended 31 December 2002
                                    Syndicate     Insurance
                                  participations  companies     Total
                                      GBP'000     GBP'000     GBP'000
 Gross premiums written               526,302     136,413     662,715

 Net premiums written                 413,435     108,725     522,160

 Net premiums earned                  267,862      57,422     325,284

 Net investment return on technical
 funds and underwriting capital at
 the long-term rate                    24,128       3,277      27,405

 Net claims incurred                 (169,169)    (35,910)  (205,079)

 Changes in other technical
 provisions,
 net of reinsurance                     -             513         513

 Net operating expenses              (87,132)     (6,552)    (93,684)

 Change in equalisation provision      -          (2,483)     (2,483)

 Technical profit                     35,689      16,267      51,956

 Claims ratio (%)                       63.2        61.6        62.9
 Expense ratio  (%)                     29.8        10.3        25.7
 Combined ratio (%)                     93.0        71.9        88.6


 The figures for the syndicate participations for both years are after
 adjustments to eliminate the business transferred to the Group's
 insurance companies by way of quota share reinsurances.


 (iv)  Corporate
                                        Year ended 31 December 2003

                          Underwriting      Underwriting       Peoples
                            (Lloyd's)       (companies)        Choice
                              GBP'000           GBP'000       (Europe)
                                                              Limited
                                                              GBP'000
  Technical result
  at the long-term            63,539            36,733              -
  rate of return
  Other investment              (766)           10,869            61
  return
  Interest payable               (68)                 -         (704)
  Fees and                     2,271                  -        6,251
  commissions
  Other income                    56                90         1,257
  Other expenses                    -                 -      (10,453)
                              65,032            47,692        (3,588)
  Amortisation of
  goodwill and                (1,919)                 -         (153)
  syndicate
  participations
  Operating
  profit/(loss)               63,113            47,692        (3,741)
  based on
  long-term rate of
  investment return
  Short-term
  fluctuations in             (7,614)           (8,126)             -
  investment return
  Operating                   55,499            39,566        (3,741)
  profit/(loss)
  Profit on
  disposal of                       -                 -             -
  subsidiary
  undertakings
  Share of
  operating profit                  -                 -             -
  in associated
  undertakings
  Profit/(loss)               55,499            39,566        (3,741)
  before taxation
  Net assets                  293,959           382,427             -
  Net tangible                280,086           334,362             -
  assets


                                          Year ended 31 December 2003

                                 Ri3K Limited
                                      GBP'000       Other       Total
                                                  GBP'000     GBP'000
  Technical result at the
  long-term                                 -           -    100,272
  rate of return
  Other investment return                  9       8,878      19,051
  Interest payable                        (5)     (3,820)     (4,597)
  Fees and commissions                   131            -      8,653
  Other income                              -        137       1,540
  Other expenses                      (3,989)    (10,912)    (25,354)
                                      (3,854)     (5,717)     99,565
  Amortisation of goodwill
  and                                       -     (6,335)     (8,407)
  syndicate participations
  Operating profit/(loss)
  based on long-term rate of          (3,854)    (12,052)     91,158
  investment return
  Short-term fluctuations in
  investment return                         -           -    (15,740)
  Operating profit/(loss)             (3,854)    (12,052)     75,418
  Profit on disposal of
  subsidiary undertakings                   -      1,920       1,920
  Share of operating profit
  in associated undertakings                -        219         219
  Profit/(loss) before                (3,854)     (9,913)     77,557
  taxation
  Net assets                            8,492      16,621     701,499
  Net tangible assets                   1,116      15,967     631,531


                                          Year ended 31 December 2002

                       Underwriting   Underwriting     Peoples Choice
                          (Lloyd's)      (company)   (Europe) Limited
                           GBP'000        GBP'000            GBP'000


  Technical result at the long-term        35,689    16,267          -
  rate of return
  Other investment return                   (442)     3,605        119
  Interest payable                           (10)         -      (425)
  Fees and commissions                      5,318         -     10,663
  Other income                                 42       238        768
  Other expenses                          (8,366)         -   (15,427)
                                           32,231    20,110    (4,302)
  Impairment of goodwill                        -         -          -
  Amortisation of goodwill and
  syndicate participations                (2,604)         -      (262)
  Operating profit/(loss) based on
  long-term rate of investment return      29,627    20,110    (4,564)
  Short-term fluctuations in
  investment return                      (12,056)   (1,589)          -
  Operating profit/(loss)                  17,571    18,521    (4,564)
  Share of operating loss in                                         -
  associated undertakings                       -         -
  Profit/(loss) before taxation            17,571    18,521    (4,564)
  Net assets                              251,622   178,759      5,000
  Net tangible assets                     233,747   178,759        545


                                           Year ended 31 December 2002

                                            Ri3K
                                         Limited      Other      Total
                                         GBP'000    GBP'000    GBP'000
  Technical result at the long-term            -          -     51,956
  rate of return
  Other investment return                      -    (4,396)    (1,114)
  Interest payable                             -    (4,650)    (5,085)
  Fees and commissions                         -          -     15,981
  Other income                                 -       (56)        992
  Other expenses                               -    (7,692)   (31,485)
                                               -   (16,794)     31,245
  Impairment of goodwill                       -    (1,570)    (1,570)
  Amortisation of goodwill and
  syndicate participations                     -    (1,787)    (4,653)
  Operating profit/(loss) based on
  long-term rate of investment return          -   (20,151)     25,022
  Short-term fluctuations in                              -
  investment return                            -              (13,645)
  Operating profit/(loss)                      -   (20,151)     11,377
  Share of operating loss in                   -
  associated undertakings                           (1,395)    (1,395)
  Profit/(loss) before taxation                -   (21,546)        982
  Net assets                               9,196     31,764    476,341
  Net tangible assets                        764     31,764    445,579



 2  Claims incurred, net of reinsurance


                                      Year ended 31 December 2003
                                   Syndicate      Insurance
                                 participations   companies    Total
                                     GBP'000      GBP'000    GBP'000
 Gross amount:

 2001 and prior underwriting years    13,157       (1,087)    12,070
 2002 underwriting year              122,215       36,941    159,156
 2003 underwriting year              159,214      122,461    281,675
                                   ---------------------------------
                                     294,586      158,315    452,901
                                   ---------------------------------


 Reinsurers' share:

 2001 and prior underwriting years     (3,113)       1,408     (1,705)
 2002 underwriting year               (24,930)      (1,720)   (26,650)
 2003 underwriting year               (15,969)      (8,127)   (24,096)
                                     ---------------------------------
                                      (44,012)      (8,439)   (52,451)
                                     ---------------------------------


 Claims incurred, net of reinsurance:

 2001 and prior underwriting years      10,044          321     10,365
 2002 underwriting year                 97,285       35,221    132,506
 2003 underwriting year                143,245      114,334    257,579
                                     ---------------------------------
                                       250,574      149,876    400,450
                                     ---------------------------------


                                          Year ended 31 December 2002
                                     Syndicate       Insurance
                                   participations    company     Total
                                        GBP'000      GBP'000   GBP'000
 Gross amount:

 2000 and prior underwriting years      26,337          966     27,303
 2001 underwriting year                 67,126        3,514     70,640
 2002 underwriting year                122,658       35,152    157,810
                                    ----------------------------------
                                       216,121       39,632    255,753
                                    ----------------------------------


 Reinsurers' share:

 2000 and prior underwriting years    (10,352)      (1,241)   (11,593)
 2001 underwriting year               (13,062)        (204)   (13,266)
 2002 underwriting year               (23,538)      (2,277)   (25,815)
                                    ----------------------------------
                                      (46,952)      (3,722)   (50,674)
                                    ----------------------------------


 Claims incurred, net of reinsurance:

 2000 and prior underwriting years      15,985         (275)    15,710
 2001 underwriting year                 54,064        3,310     57,374
 2002 underwriting year                 99,120       32,875    131,995
                                    ----------------------------------
                                       169,169       35,910    205,079
                                    ----------------------------------




 3  Net operating expenses
                                          31 December      31 December
                                                 2003             2002
                                              GBP'000          GBP'000

 Acquisition costs                           199,594           113,258
 Movement in deferred acquisition costs     (33,946)          (40,640)
 Administrative expenses                      37,566            15,838
 Loss on exchange translation                  7,626             5,228
                                          ----------------------------
                                             210,840            93,684
                                          ============================


 4  Investment return

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

                                            31 December    31 December
                                                   2003           2002
                                                GBP'000        GBP'000
  Investment return on Funds at Lloyd's
  and other corporate funds:

  Investment income                                20,638       14,345
  Realised losses on investments                   (6,244)    (10,816)
  Unrealised gains/(losses) on investments         15,282      (7,547)
  Investment management expenses                   (1,692)       (937)
  Interest payable on bank loans                     (764)     (1,264)
  Interest payable on convertible unsecured        (3,836)     (3,821)
  loan stock
                                                   23,384     (10,040)
  Investment return on syndicate funds:
  Investment income                                13,562       11,184
  Realised (losses)/gains on investments           (6,128)       1,352
  Investment management expenses                   (1,289)       (228)
                                                    6,145       12,308
  Investment return on insurance company
  funds:
  Investment income                                17,908        5,578
  Realised (losses)/gains on investments           (2,339)          63
  Unrealised losses on investments                 (1,795)       (152)
  Investment management expenses                     (604)       (196)
                                                   13,170        5,293
  Total investment return
  Investment income                                52,108       31,107
  Realised losses on investments                  (14,711)     (9,401)
  Unrealised gains/(losses) on investments         13,487      (7,699)
  Investment management expenses                   (3,585)     (1,361)
  Interest payable on bank loans                     (764)     (1,264)
  Interest payable on convertible unsecured        (3,836)     (3,821)
  loan stock
                                                   42,699        7,561


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

The transfer to the technical account represents the estimated long-term rate of return applied to the Group's share of investment assets supporting the insurance business of the insurance companies and Lloyd's syndicates, together with Funds at Lloyd's.

The long-term rates of return were based on the historical asset performance, current and prospective bond yields and the estimated risk premium for holding equity investments. For the investment assets of the insurance companies and the Funds at Lloyd's, separate rates were established and applied to the average bond and equity components of the underwriting investment assets. For the syndicate investments, a single weighted rate was applied to all categories of investment.

The long-term rates of return used were:



                                            31 December    31 December
                                                   2003           2002
                                                      %              %
  Insurance companies and Funds at Lloyd's
  Equities - capital return                         5.0            5.0
  Equities - income                                 2.0            2.0
  Bonds and cash                                    5.0            5.0
  Syndicate investments                             5.0            5.0

  Comparison of long-term investment return with actual return

                                                   1999           1999
                                                     to             to
                                                   2003           2002
                                                GBP'000        GBP'000
  Actual return attributable to
  Shareholders:
  Funds at Lloyd's                              27,684           9,362
  Syndicate funds                               41,627          35,483
  Insurance company funds                        9,555           5,777
                                                78,866          50,622
  Long-term return credited to technical
  account:
  Funds at Lloyd's                              50,755          35,775
  Syndicate funds                               47,630          30,530
  Insurance company funds                       19,234           7,330
                                               117,619          73,635
  Excess of the long-term investment            38,753          23,013
  return over actual returns



  5  Fees and commissions
                                            31 December    31 December
                                                   2003           2002
                                                GBP'000        GBP'000
  Managing agent's fees                          1,644           1,624
  Sale and administration of private             6,251          10,663
  motor and household insurance
  (Peoples Choice (Europe) Limited)
  Marham Consortium Management Limited             465           2,597
  fees and profit commission
  Broking commission earned                        162           1,097
  Reinsurance industry electronic                  131               -
  infrastructure design and development
  (Ri3K Limited)
                                                 8,653          15,981




  6  Other income
                                            31 December    31 December
                                                   2003           2002
                                                GBP'000        GBP'000
  Rental and other income                        1,540             992



  7  Other expenses
                                            31 December    31 December
                                                   2003           2002
                                                GBP'000        GBP'000
  The following items have been
  charged/(credited) in operating profit:

  Amortisation of goodwill                       6,488           2,502
  Impairment of goodwill                              -          1,570
  Amortisation of syndicate capacity             1,919           2,150
  Depreciation of tangible fixed assets          2,169           1,925
  Loss/(profit) on sale of fixed assets            844            (27)
  Operating lease rentals - land and             2,522           2,140
  buildings
  Consortium result                               (271)          1,328
  Details of Auditors' remuneration are
  given in Note 10.



  8  Staff costs
                                            31 December    31 December
                                                   2003           2002
                                                GBP'000        GBP'000
  Wages and salaries (including profit          36,617          24,604
  related pay)
  Social security costs                          3,098           2,202
  Other pension costs                            3,583           1,860
                                                43,298          28,666

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

                                            31 December    31 December
                                                   2003           2002
                                                 Number         Number
  Management                                        33              42
  Administration                                   307             413
  Underwriting                                     327             284
                                                   667             739

9 Directors' emoluments

The following table gives the disclosures required by the Directors' Remuneration Report Regulations 2002 in respect of the Directors who participated during the year in the Group defined benefit pension plan:



             Increase    Accrued   Transfer   Transfer     Increase in
                   in    pension   value of   value of        transfer
              accrued   benefits    accrued    accrued    value in the
              pension         at   benefits   benefits            year
               during     12 May      at 12         at           after
             the year       2003   May 2003         31   contributions
             GBP p.a.   GBP p.a.        GBP   December             GBP
                                                  2002
                                                   GBP

  Andrew         200     13,900   137,900      126,800          11,100
  Holland

Andrew Holland left the defined benefit plan on 1 February 2003 and transferred the cash equivalent transfer value of his rights on 12 May 2003.

The transfer value has been calculated on the basis of actuarial advice in accordance with the actuarial guidance note, GN 11.

The disclosures given above are those required by the Directors' Remuneration Report Regulations 2002.

Disclosures in relation to Directors' pensions continue to also be required under the Listing Rules until those Rules are revised to take account of the Directors' Remuneration Report Regulations 2002. The Listing Rules disclosures, the figures for which are calculated after excluding the effects of inflation, are as follows:



                 Increase in
                     accrued
                     pension       Accrued        Accrued     Increase
                      during       pension        pension  in transfer
                 the year in   benefits at    benefits at        value
                      excess   12 May 2003    31 December       during
                of inflation      GBP p.a.           2002     the year
                    GBP p.a.                     GBP p.a.          GBP

  Andrew                 100        13,900         13,700       11,100
  Holland

Neil Eckert is a member of the Brit Insurance Limited defined contribution scheme.

Matthew Scales is a member of the FURBS scheme and the Brit Insurance Limited defined contribution scheme.

Dane Douetil is a member of the FURBS scheme and the defined contribution Brit Group Services Limited stakeholder scheme.

Andrew Holland joined the FURBS scheme and defined contribution Brit Group Services Limited stakeholder scheme on 1 February 2003 and was a member until leaving the Company on 31 December 2003.

The Non-Executive Directors do not have any pension entitlements.

Further details of the pension schemes are given in Note 35.



  10  Auditors' remuneration
                                   31 December 2003   31 December 2002
                                     Mazars    Other   Mazars    Other
                                            auditors          auditors

                                    GBP'000  GBP'000  GBP'000  GBP'000

  Audit services:
  Statutory audit         Corporate   235        9        296        -
                          Syndicate    64      293         75      311

  Audit-related regulatory
  reporting :
  Corporate regulatory reports         25         -         3        -
  Interim review                       40         -        30        -
  Further Assurance Services:
  Acquisition *                       170         -         -        -
  Disposals                            21         -         -        -
  Capital raising                        -        -       257        -
  Tax services:
  Compliance services                 105       15        103        4
  Advisory services                    38         -        35        -
  Other services:
  Printing services                    162        -         -        -
  Other advisory                       37        3         14      180
                                      897      320        813      495

Of the above charges, GBP520,000 (2002: GBP481,000) has been charged to the non-technical account.

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

11 Taxation



  (i) Analysis of charge in year
                                            31 December    31 December
                                                   2003           2002
                                                GBP'000        GBP'000
  Current taxation:
  UK corporation tax on profits of the                -            (2)
  year
  Adjustments in respect of prior years           (145)          2,282
  Overseas tax                                    (250)           (38)
  Share of associates' tax                         (82)            346
                                                  (477)          2,588
  Deferred tax:
  Origination and reversal of timing           (19,908)        (4,951)
  differences
                                               (19,908)        (4,951)
  Tax charge on profit on ordinary             (20,385)        (2,363)
  activities


  (ii) Factors affecting tax charge for
  year
                                            31 December    31 December
                                                   2003           2002
                                                GBP'000        GBP'000

  Profit on ordinary activities before          77,557           9,982
  tax
  Profit on ordinary activities                (23,267)        (2,995)
  multiplied by standard rate of
  corporation tax in the UK
  of 30% (2002: 30%)
  Effects of:
  Expenses not deductible for tax               (4,100)        (1,960)
  purposes and other permanent
  differences

  Investment gains/(losses) for which no         4,429         (6,709)
  tax relief is available in future
  periods
  Equity dividends not subject to                  646             604
  corporation tax

  Short-term timing differences:
                         Syndicate              20,874          11,648
                         results
                         Realised and              139             835
                         unrealised
                         investment
                         losses
                         Other timing            1,197         (1,079)
                         differences

  Overseas taxation not recoverable               (250)           (38)
  Adjustments to tax charge in respect            (145)          2,282
  of prior years

  Current tax (charge)/credit for the             (477)          2,588
  year (per Note 11(i))


  (iii) Factors that may affect future tax charges

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

12 Earnings per share

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



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

  Profit attributable to members of          57,484            5,361
  the parent company
  Dilutive post tax effect on profits:
  Convertible Unsecured Subordinated           2,685              -
  Loan Stock
  Diluted profit attributable to              60,169           5,361
  members of the parent company

                                         31 December      31 December
                                                2003            2002
                                              Number          Number

  Basic weighted average number of       874,056,697      481,174,679
  shares
  Dilutive potential ordinary shares:
  Convertible Unsecured Subordinated      51,276,076              -
  Loan Stock
  Employee share options                     698,381           81,611
  Diluted weighted average number of     926,031,154      481,256,290
  shares

In accordance with Financial Reporting Standard 14, Convertible Unsecured Subordinated Loan Stock and employee share options are only treated as dilutive when their conversion to ordinary shares would decrease net profit per share or increase net loss from continuing operations.



  13  Intangible assets
                                        Syndicate
                                   participations   Goodwill     Total
                                          GBP'000    GBP'000   GBP'000
  Cost:
  At 1 January 2003 *                       9,025     36,527    45,552
  Acquired with Brit                            -        771       771
  Underwriting Group Limited
  Additions                                     -     51,358    51,358
  Disposals                                     -    (8,248)   (8,248)
  At 31 December 2003                       9,025    80,408     89,433
  Amortisation:
  At 1 January 2003 *                       4,870      9,920    14,790
  Acquired with Brit                            -         35        35
  Underwriting Group Limited
  Disposals                                     -    (3,767)   (3,767)
  Charge for the year                       1,919      6,488     8,407
  At 31 December 2003                       6,789     12,676    19,465
  Net book value:
  At 31 December 2003                       2,236     67,732    69,968
  At 31 December 2002                       4,155     26,607    30,762

In accordance with the provisions of Financial Reporting Standard 10 "Goodwill and Intangible Assets", the goodwill arising on the acquisition of Ri3K Limited has been subject to an impairment review being the first full financial year after its acquisition. The Directors believe that following this impairment review, the carrying value of Ri3K Limited does not exceed its recoverable amount.

* An impairment charge of GBP1,570,000 made in the year ended 31 December 2002 has been reallocated from cost to amortisation for fairer presentation purposes.



  14  Investments Group :

                                 31 December 2003     31 December 2002
                                  Market              Market
                                  value      Cost      value      Cost
                                GBP'000   GBP'000    GBP'000   GBP'000
  Investments - corporate
  Shares and other
  variable-yield
  securities and units in
  unit trusts :

  Listed                         215,936   220,268    84,937   111,137
  Unlisted                         1,115     7,440     5,372    10,760

 Debt securities and other
  fixed income securities :

  Listed                         474,477   478,420   329,392   328,862
  Unlisted                       125,960   125,677    93,196    93,229

  Deposits with credit            60,047    60,047    33,458    33,458
  institutions
  Total investments -            877,535   891,852   546,355   577,446
  corporate


  Investments - syndicate
  participations
  Shares and other
  variable-yield
  securities and
  units in unit
  trusts :
  Listed                         9,188    10,278       4,736     4,801
  Debt securities and
  other fixed
  income securities :
  Listed                       211,443   231,984     153,563   155,839
  Participation in              65,956    68,661      29,184    29,184
  investment pools
  Deposits with                   -             -     45,561    45,561
  credit institutions
  Other                           -             -      1,773     1,773
  Total investments -          286,587   310,923     234,817   237,158
  syndicate
  participations
  Total investments          1,164,122 1,202,775     781,172   814,604


  Company :
                             31 December 2003         31 December 2002
                             Market      Cost   Market value      Cost
                             value
                           GBP'000    GBP'000        GBP'000   GBP'000
  Investments -
  corporate
  Shares and other
  variable-yield
  securities and
  units in unit
  trusts :
  Listed                   23,935     29,603          23,440    37,596
  Unlisted                  1,115      7,440           2,373     7,761
  Debt securities
  and other fixed
  income securities :
  Listed                   23,967     23,920          58,808    58,798
  Unlisted                       -          -              -         -
  Deposits with            13,988     13,988               -         -
  credit institutions
  Total investments        63,005     74,951          84,621   104,155
  - corporate

If the investments held at 31 December 2003 had been sold at that date, there would have been no liability to tax.

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



                                         31 December    31 December
                                                2003           2002
                                             GBP'000        GBP'000
     Market value at 1 January               84,621          41,829
     Purchases                              186,504         292,053
     Sales                                 (213,081)      (241,720)
     Sales - realised losses on sales          (345)        (9,192)
     Increase in unrealised gains             5,306           1,651
     Market value at 31 December             63,005          84,621


 15  Investments in subsidiary undertakings

 Company:                                              GBP'000

 Cost at 1 January 2003                                306,903

 Opening provision for permanent diminution in value  (13,406)

 Value at 1 January 2003                               293,497

 Movements in the year

 Purchases:

 (i) Purchase of Brit Underwriting Group Limited      173,514

 (ii)Purchase of new Brit Underwriting Group Limited
     share capital                                    195,202

 Disposals:

   (i) Peoples Choice (Europe) Limited
       Cost                                          (10,973)

       Provision for permanent diminution in value     10,973

 (ii) Brit Insurance Limited

       Cost                                         (156,691)

       Balance arising on settlement of contingent
       share capital                                    1,332

 Value at 31 December 2003                            506,854

 Cost at 31 December 2003                             507,955

 Closing provision for permanent diminution in value  (1,101)

 Value at 31 December 2003                            506,854

Further details relating to the acquisition of Brit Underwriting Group Limited are provided in Note 18.

Further details relating to the disposal of Peoples Choice (Europe) Limited are provided in Note 19.

Brit Insurance Limited was sold to Brit Underwriting Group Limited on 4 December 2003.

Brit Underwriting Group Limited issued new share capital on 4 December 2003.



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

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

 Underwriting companies

 Brit Insurance
 Limited        Insurance company                              100

 Brit Insurance
 (UK) Limited * Insurance company                              100

 Brit Syndicates
 Limited        Lloyd's managing agent                         100

 Brit UW
 Limited        Lloyd's corporate member                       100

 Wren Insurance
 Services
 Limited        Lloyd's syndicate support company              100

 Marham Consortium
 Management     Lloyd's syndicate support company              100
 Limited

 Investment company

 Masthead
 Insurance
 Underwriting   Intermediate holding company      100
 Limited

 Distribution companies

 Ri3K Limited   E-commerce solutions company     77.2

 Ri3K Asia Pte
 Limited        E-commerce solutions company                  83.5

 Group services companies

 Brit Group
 Services
 Limited        Group services company                         100

 PRI Management
 Limited        Group services company                         100

 Intermediate holding companies

 Wren Limited   Intermediate holding company      100

 Wren Holdings
 Group PLC      Intermediate holding company                   100

 HCG Holdings
 Limited        Intermediate holding company      100

 Finsbury
 Underwriting
 Limited        Intermediate holding company                   100

 Brit Underwriting
 Group
 Limited *      Intermediate holding company      100

 Open ended investment company

 CF Epic
 Investment
 Funds          Open ended investment company                 81.6

 Lloyd's corporate members (last year of account
 1999)

 HCG Alpha
 Limited        Lloyd's corporate                               100
                member

 HCG Bravo
 Limited        Lloyd's corporate                               100
                member

 HCG Charlie
 Limited        Lloyd's corporate                               100
                member

 HCG Delta
 Limited        Lloyd's corporate                               100
                member

 HCG Echo
 Limited        Lloyd's corporate                               100
                member

 HCG Foxtrot
 Limited        Lloyd's corporate                               100
                member

 FUIT One
 Limited        Lloyd's corporate                               100
                member

 FUIT Two
 Limited        Lloyd's corporate                               100
                member

 FUIT Three
 Limited        Lloyd's corporate                               100
                member

 FUIT Four
 Limited        Lloyd's corporate                               100
                member

 FUIT Five
 Limited        Lloyd's corporate                               100
                member

 Masthead A
 Limited        Lloyd's corporate                               100
                member

 Masthead B
 Limited        Lloyd's corporate                               100
                member

 Masthead C
 Limited        Lloyd's corporate                               100
                member

 Masthead D
 Limited        Lloyd's corporate                               100
                member

 Masthead E
 Limited        Lloyd's corporate                               100
                member

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

* On 22 May 2003, the Company purchased Brit Underwriting Group Limited (formally PRI Group plc). See Note 18 for further information.

Brit Insurance (UK) Limited (formally Professional Risks Insurance Limited) ceased to accept business from third parties from 1 July 2003.

All subsidiaries are included in the Group consolidated financial statements.

16 Investments in associated undertakings



 Group :

                                                    The Equity
                                                   Partnership
                                                       Limited
                                                       GBP'000

 Profit and loss accounts, Group share:

          Turnover                                       1,340

          Profit on ordinary activities before             219
          tax

          Tax charge on profit                            (82)

          Profit on ordinary activities after              137
          tax

 Balance sheet, Group share:

          Fixed assets                                       4

          Current Assets                                   763

          Current                                        (514)
          Liabilities

          Net assets                                       253

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

                                                    The Equity
                                                   Partnership
                                                       Limited
                                                       GBP'000

 Balance at 1 January 2003                                 116

 Share of profit after tax arising in the year             137

 Balance at 31 December 2003                               253

The carrying value of The Equity Partnership Limited in the Group balance sheet represents the Group's share in its net assets.

The carrying value of The Equity Partnership Limited in the Company balance sheet represents it's cost of GBP62,000 (2002: GBP62,000)

The Equity Partnership Limited

The Company owns 34.1% of the ordinary share capital of The Equity Partnership Limited ("EPL").

As at the balance sheet date, EPL had issued GBP850,000 of preference shares to a third party. These preference shares do not have dividend rights but EPL is prevented from paying a dividend on the ordinary shares until the preference shares have been repaid in full.

The company's principal activity is that of an investment manager.

The company's accounting reference date is 31 December. It is registered and operates in England.

17 Significant interests in other companies

At 31 December 2003, the Company/Group had holdings in the companies listed below which exceeded 20% of any class of equity share capital.

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



           Country        Percen  Percen  Latest  Aggreg  Profit/
                of          tage    tage  availa     ate (loss) after
         Incorpora  Class     of      of     ble capital     tax for
  Name    tion and         class   class accounts    and    the year
  of  registration     of   held    held        reserves     GBP'000
  Underta          capital    by      by
  king                   Company   Group         GBP'000

  Insurance      USA  Ordi   23.2%   23.2%      31  (1,632)     (626)
  Broadcast           nary                     Dec
  Systems           shares                    2001
  Inc

  Ebix           USA  Comm   40.1%   40.1%      31   2,953       314
  Inc                   on                     Dec
                     stock                    2002

  The
  Equity     Isle of  Capi   14.4%   34.7%      31  34,696     2,802
  Partner        Man   tal                     Jul
  ship              shares                    2003
  Investment Company
  PLC

  The
  Equity     Isle of Income    0.0%    4.8%      31  34,696     2,802
  Partner       Man  shares                     Jul
  ship                                         2003
  Investment Company
  PLC

The investment in Insurance Broadcast Systems Inc was written down to nil in the books of the Company during 2002.

18 Acquisitions

(i) Brit Underwriting Group Limited

On 22 May 2003, the Group purchased the entire share capital of Brit Underwriting Group Limited (formally PRI Group plc) by issuing new ordinary Brit Insurance Holdings PLC shares in exchange for the Brit Underwriting Group Limited shares not already owned by Brit. Prior to this date, Brit held 811,215 shares in Brit Underwriting Group Limited as a trade investment being a holding of 0.6%. Brit issued 1.703 new ordinary shares, valued at 74 pence each, for each remaining Brit Underwriting Group Limited share. This transaction has been accounted for as an acquisition.

Goodwill:

The provisional goodwill arising in respect of the acquisition of Brit Underwriting Group Limited is as follows:



                                                      GBP'000
 Fair value of consideration and costs

 Cost of existing holding                                 893

 Issue of 226,583,744 new Brit Insurance Holdings PLC
 ordinary shares                                      167,672

 Costs of acquisition                                   4,949

                                                      173,514

 Fair value of net assets acquired                  (122,306)

 Goodwill capitalised                                  51,208

 Less goodwill amortised as at 31 December
 2003                                                 (3,143)

 Goodwill carried forward                              48,065

The Brit Underwriting Group Limited acquisition balance sheet contains technical provisions whose value will not be known until premiums written up to the date of acquisition have been fully earned and their related claims reported. Consequently, the goodwill at this stage is classed as provisional.



 The net assets of Brit Underwriting Group Limited on 22 May 2003
 were as follows:

                                                      Book value
                                                             and
                                                      fair value
                                                              at
                                                     acquisition
                                                         GBP'000

 Intangible assets                                           736

 Investments                                             107,886

 Reinsurers' share of technical provisions                 5,859

 Debtors                                                  14,164

 Other assets                                             33,910

 Prepayments and accrued income                            6,174

 Technical provisions                                   (40,355)

 Creditors                                               (6,068)

                                                         122,306

There are no fair value adjustments to the net assets of Brit Underwriting Group Limited at the date of acquisition.

The summarised profit and loss account for Brit Underwriting Group Limited from 1 January 2003 (the beginning of its accounting period) to 22 May 2003 (the date of acquisition) and for the period commencing 21 February 2002 (the date of its incorporation) and ended 31 December 2002 (being its previous accounting period) was as follows:



                          Period                 Period
                       1 January 2003        21 February 2002
                        to 22 May 2003      to 31 December 2002
                          GBP'000                  GBP'000

 Gross premiums            29,100                18,507
 written

 Loss before tax          (6,082)               (1,450)

 Tax                        1,825                   435

 Loss after tax           (4,257)               (1,015)

(ii) CF Epic Investment Funds

CF Epic Investment Funds is an open ended investment company ("OEIC") which managed two funds at 31 December 2003 being the Insurance and General Fund and the UK Equity Fund.

On 14 October 2003, the Group acquired an 81.5% interest in the Insurance and General Fund for GBP35,000,000 and an 81.9% interest in the UK Equity Fund for GBP10,000,000. CF Epic Investment Funds had not traded prior to this date.

This transaction resulted in the Group having an overall interest in CF Epic Investment Funds of 81.6% and has been accounted for as an acquisition. The cash consideration of GBP45,000,000 was equal to the value of the net assets acquired and hence no goodwill arose on acquisition. The assets of CF Epic Investment Funds at acquisition consisted of cash and investments in listed companies.

19 Disposals

(i) Peoples Choice (Europe) Limited

Between 11 July and 30 July 2003, the Group purchased the remaining 17.7% minority interest in Peoples Choice (Europe) Limited for a cash consideration of GBP149,350. On 31 July 2003, the Group disposed of Peoples Choice (Europe) Limited, retaining no further ownership interest.

The loss before tax of Peoples Choice (Europe) Limited for the period up to the date of disposal was GBP3,741,000, and for the year ending 31 December 2002 was a loss of GBP4,564,000.



 Net assets disposed of and the related sales proceeds were as
 follows:

                                                              GBP'000

 Fixed assets                                                     545

 Current assets                                                 5,686

 Creditors                                                    (5,772)

 Net assets                                                       459

 Related goodwill                                               4,244

 Profit on disposal                                             2,069

 Net sale proceeds                                              6,772

(ii) Ri3K Limited

On 7 February 2003, Ri3K Limited, a subsidiary company issued new share capital to third parties.

As a consequence, the Group's holding in Ri3K Limited reduced from 80.0% to 77.2%.

The transaction has been treated as a deemed disposal.

Net liabilities disposed of and the related sales proceeds were as follows:



                                                            GBP'000

 Fixed assets                                                     7

 Current assets                                                  16

 Creditors                                                     (83)

 Share of net liabilities                                      (60)

 Related goodwill                                               237

 Loss on disposal                                             (149)

 Net sale proceeds                                               28

 20   Debtors

                        Group                   Company
 Amounts due within
 one year:                 31          31            31           31
                     December    December      December     December
                         2003        2002          2003         2002
                      GBP'000     GBP'000       GBP'000      GBP'000

 Trade debtors          6,078      15,644             -            -

 Amounts owed by
 managed                1,347       4,394         550           750
 syndicates

 Amounts owed by Group      -           -     186,550       205,837
 undertakings

 Tax recoverable          227         231           -             -

 Other debtors          6,177       1,827         439           255

 Share of syndicates'
 other                 18,147      25,059           -             -
 debtor balances

                       31,976      47,155     187,539       206,842


 21  Tangible assets

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

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

 Cost:

 At 1 January
 2003             509          2,321       11,796         76    14,702

 Additions          -            613        1,318          -     1,931

 Acquisitions       -              -        1,824          -     1,824

 Disposals          -             (3)      (3,600)         -   (3,603)

 Exchange           -               -         (18)         -      (18)
 adjustments

 At 31 December   509           2,931       11,320         76   14,836
 2003

 Depreciation:

 At 1 January
 2003             320          1,056        8,410         49    9,835

 Charge for the     7            492        1,657         13    2,169
 period

 Acquisitions       -              -          263          -      263

 Disposals          -            (3)      (2,199)          -  (2,202)

 Exchange           -              -           (8)         -      (8)
 adjustments

 At 31 December   327          1,545        8,123         62   10,057
 2003

 Net book value:

 At 31 December   182          1,386        3,197         14   4,779
 2003

 At 31 December   189          1,265        3,386         27   4,867
 2002

22 Own shares

In December 1999, May 2000 and December 2001 the trustees of the Brit Long-Term Incentive Plan ("the LTIP") acquired Brit Insurance Holdings PLC shares on behalf of certain employees, in accordance with the terms of that plan. Following the vesting of some of these shares during 2003 the number of shares held at 31 December 2003 was 588,268 (2002:1,182,680). Details of the LTIP are given in Note 36.

In November 2003 the trustees of the Brit Performance Share Plan 2003 ("the PSP") acquired Brit Insurance Holdings PLC shares on behalf of certain employees, in accordance with the terms of that plan. The number of shares held at 31 December 2003 was 4,659,895 (2002: nil). Details of the PSP are given in Note 36.

As at 31 December 2003 Brit Insurance Limited held 265,623 (2002: 265,623) ordinary 25p shares of Brit Insurance Holdings PLC.



                            Group                 Company
                               31        31          31         31
                         December  December    December   December
                             2003      2002        2003       2002
                          GBP'000   GBP'000     GBP'000    GBP'000

 Brit Insurance Holdings PLC  445        920        445        920
 shares - Long-Term Incentive
 Plan

 Brit Insurance Holdings
 PLC                        3,337          -          -          -
 shares - Performance Share
 Plan

 Brit Insurance Holdings PLC  193        202          -          -
 shares - Held by Brit Insurance
 Limited

 Peoples Choice (Europe ) Ltd Shares
 and loan stock - Held by Peoples
 Choice (Europe)
 Trustees Ltd                   -         89          -          -

                           3,975      1,211        445        920

In October 2001, the Brit All Employee Share Ownership Plan ("the (ESOP") commenced purchasing shares to be held in trust for the benefit of employees of the Group. Ongoing purchases of shares are made on a monthly basis. Details of the ESOP including the market value of its shares are given in Note 36.



 23  Deferred tax              Group                 Company
                                  31         31         31         31
                             December   December   December   December
                                 2003       2002       2003       2002
                              GBP'000    GBP'000    GBP'000    GBP'000

 Declared underwriting losses   7,989     35,037          -         -

 Provision for future
 underwriting losses              100      2,386          -         -

 Unrealised losses on
 investments                      625        764        295       295

 Other timing differences         208        208          -         -

                               18,922     38,395        295       295

 Undiscounted provision for    38,395     43,346        295       926
 deferred taxation at the
 start of the year

 Acquired with Brit Underwriting  435          -          -         -
 Group Limited

 Deferred tax charge in profit
 and loss account for year
 (Note 11(i))                (19,908)    (4,951)         -      (631)

 Provision at the end of the
 year                          18,922     38,395        295       295

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

It has been assumed that the Group will make profits in the foreseeable future sufficient to recover the deferred tax asset.

There are unrealised equity losses of GBP1,717,000 (2002: GBP12,356,000) on which deferred tax has not been provided because of uncertainty as to the timing of their utilisation. If these losses were included at 31 December 2003, the deferred tax asset would be increased by GBP515,000 (2002: GBP3,707,000).

In addition the Group has unclaimed capital allowances on which deferred tax has not been provided because of the uncertainty as to the timing of their utilisation. If the capital allowances were included at 31 December 2003, the deferred tax asset would be increased by GBP1,149,000 (2002: GBP900,000).



 24  Prepayments and accrued income

                                Group                 Company
                               31         31         31         31
                             December   December   December   December
                                 2003       2002       2003       2002
                              GBP'000    GBP'000    GBP'000    GBP'000

 Accrued income:

 - underwriting                 7,870      1,003          -          -

 - investment income              417      4,832         19         48

 - other                            -        284          -         12

 Prepayments                      812      1,249          -          -

 Share of syndicates'
 prepayments                    2,310      1,714          -          -
 and accrued income

                               11,409      9,082         19         60


 25 Other creditors

 Amounts payable within one year: Group                 Company
                                  31         31         31         31
                             December   December   December   December
                                 2003       2002       2003       2002
                              GBP'000    GBP'000    GBP'000    GBP'000

 Bank loans and overdrafts           -      1,037          -         -

 Trade creditors                58,473     93,216          -         -

 Amounts due to managed syndicates -        737          -           -

 Other taxes and social security 1,639      1,470          -         -
 costs

 Other creditors                 5,110      1,338          -        95

 Share of syndicates' other   (34,027)   (64,799)         -         -
 creditor balances

                               31,195     32,999          -        95


                                Group                 Company
                                31         31         31         31
                             December   December   December   December
                                2003       2002       2003       2002
                              GBP'000   GBP'000    GBP'000    GBP'000

 Amounts payable between two and five years:

 -  Bank borrowings             15,000     21,000     15,000    21,000

 -  Convertible Unsecured       43,872     43,625     43,872    43,625

 Subordinated Loan Stock 2008
                               58,872     64,625     58,872     64,625

On 3 February 2000, the Group entered into a GBP80,000,000 facility with Barclays Bank PLC and National Westminster Bank PLC. The interest rate payable on the loan is equal to LIBOR plus 1.0%. GBP15,000,000 remains outstanding as at 31 December 2003 and falls due for repayment on 3 February 2005.

Under the terms of this facility, the lenders have a fixed and floating charge over certain investments owned by the Company.

The convertible unsecured subordinated loan stock attracts interest at 8.5%. The holders have the right, which expires on 31 October 2005, to convert each GBP100 of loan stock into GBP28.41 nominal of ordinary share capital. Issue costs are being amortised over the term of the loan stock.



 26  Provisions for other  risks and charges

           Provision     Provision       Provision for
           For lease   for rent-free   pension and similar     Group
           shortfall     period          obligations           Total
             GBP'000         GBP'000         GBP'000         GBP'000

 At 1 January
 2003            606           462               61             1,129

 Utilised during
 the year       (36)         (231)             (61)             (328)

 At 31 December
 2003            570           231                -               801

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

The provision for rent-free period relates to a lease agreement entered into in July 1999 which provides an 18 month rent-free period. The lease is being charged evenly to the profit and loss account up to the date of the first rent review, being five years after the lease agreement commenced.

The provision for pensions and similar obligations relates to the defined contribution scheme in operation for employees of Brit Insurance Limited.



 27  Share capital

                                31         31          31          31
                          December   December    December    December
                              2003       2002        2003        2002
                                                   Number      Number
                           GBP'000    GBP'000        '000        '000

 Authorised:

 Ordinary shares of 25p
 each                       350,000    280,000   1,400,000  1,120,000

 Allotted, issued and fully paid:

 Ordinary shares of 25p
 each                       243,513     186,867     974,054   747,466

 Number of 25p ordinary shares allotted, issued
 and fully paid:                           2003           2002
                                         Number         Number

 At 1 January                       747,466,314    421,593,793

 Exercised share options                     25             25

 Converted unsecured loan stock           3,564         52,406

 Acquisition of Brit Underwriting
 Group Limited                      226,583,744              -

 Settling contingent share capital            -      5,737,705

 Placing and open offer                       -    319,109,052

 Terminating Brit Insurance Limited phantom   -        973,333
 share option scheme

 At 31 December                     974,053,647    747,466,314

On 22 May 2003 the Company issued 25 ordinary shares in relation to exercised share options.

During the May and October 2003 conversion periods, the Company issued 3,106 and 458 shares respectively to converting holders of the Convertible Unsecured Loan Stock 2008 issued on 18 December 2001.

During the period May 2003 to August 2003 the Company issued 226,583,744 shares to Brit Underwriting Group Limited shareholders in return for shares in that company. Details of this acquisition are given in Note 18.

On 18 June 2003, the Company's authorised share capital was increased from 1,120,000,000 to 1,400,000,000 25p ordinary shares.



 28   Reserves

 Group:             Share       Capital            Profit
                  premium    redemption               and
                  account       reserve       loss account     Total
                  GBP'000      GBP'000           GBP'000    GBP'000

 Balance at 1
 January 2003     370,107          586           (81,219)   289,474

 Issue of shares  111,028            -                 -    111,028

 Profit for the year    -            -            57,484     57,484


 At 31 December
 2003             481,135          586           (23,735)   457,986


 Company:           Share       Capital            Profit
                  premium    redemption               and
                  account       reserve       loss account      Total
                  GBP'000       GBP'000            GBP'000    GBP'000

 Balance at 1
 January 2003       370,107          586            (27,147)  343,546

 Issue of shares    111,028            -                  -   111,028

 Profit for the year      -            -              1,403     1,403

 At 31 December
 2003               481,135          586            (25,744)  455,977

The Company had negative distributable reserves of GBP65,587,000 at 31 December 2003 (2002: GBP27,147,000).



 29   Reconciliation of Equity Shareholders' funds

                              Group                 Company
                    31 December  31 December  31 December 31 December
                           2003         2002         2003        2002
                        GBP'000      GBP'000      GBP'000     GBP'000

 Total recognised gains/
 (losses) for             57,484        6,789       1,403   (17,119)
 the year

 Issue of shares         167,674      208,840     167,674   208,840

 Issue costs charged to
 the share                     -     (10,081)          -   (10,081)
 premium account

 Settlement of Brit
 Insurance                     -      (5,291)          -    (5,291)

 Limited contingent purchase consideration

 Total movements during
 the year                225,158    200,257     169,077    176,349


 Opening Equity
 Shareholders'           476,341    276,084     530,413    354,064
 funds

 Closing Equity
 Shareholders'           701,499    476,341     699,490    530,413
 funds


 30   Equity minority interests
                                                      31         31
                                                December   December
                                                    2003       2002
                                                 GBP'000     GBP'000

 At 1 January                                         (371)  (2,258)

 Equity minority interest at date of acquisition    10,134         -

 - CF Epic Investment Funds

 Equity minority interest at date of acquisition         -     (371)

 - Ri3K Limited

 Deemed disposal of Ri3K Limited                       (53)       -

 Loss on ordinary activities after tax                (312)       -

 Write down of equity minority interests                 -    2,258

 - Peoples Choice (Europe) Limited

 At 31 December                                       9,398   (371)

The equity minority interest in Ri3K Limited represents holdings of 22.8% of the ordinary shares.

The holders of these equity minority interest shares have no rights against any other group company.



 31   Capital commitments
                                             31          31
                                       December    December
                                           2003        2002
                                        GBP'000     GBP'000

 Capital expenditure contracted
 but not provided                           580        57
 for in the financial statements

32 Operating leases

At 31 December 2003, the Group was committed to making the following payments under non-cancellable operating leases in the year to 31 December 2004:



                                  Land & buildings            Other
                                   31         31        31         31
                            December   December    December   December
                                2003        2002       2003       2002
                             GBP'000     GBP'000    GBP'000    GBP'000

 Annual commitments under operating leases
 which expire:

 - within one year                280          73        126       93

 - between two to five years       47         235         84      115

 - after five years             1,802       2,042          -        -

                                2,129       2,350        210      208

33 Consolidated cash flow statement notes

(i) Scope of the consolidated cash flow statement

The consolidated cashflow statement excludes syndicate cashflows and cash held within Lloyd's premium trust funds on behalf of the Group's underwriting subsidiaries.



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

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

 Profit before tax on ordinary                     77,557       9,982
 activities

 Loss/(profit) on sale of fixed assets                844        (18)

 (Profit)/loss on disposal of subsidiary           (1,920)         -
 undertakings

 (Profit)/loss on disposal of associated                -        212
 undertaking

 Depreciation of fixed assets and exchange          2,179      1,925
 adjustments

 Amortisation of goodwill                           6,488      2,502

 Impairment of goodwill                                 -      1,570

 Charges in respect of employee share                 221        603
 schemes

 Amortisation loan stock issue costs                  250        252

 Amortisation of syndicate capacity                 1,919      2,150

 Increase in debtors                              (72,838)  (94,599)

 Decrease in creditors                            (13,303)  (13,518)

 Increase in provisions                           223,395     63,492

 Realised and unrealised investment                (2,767)    18,732
 (gains)/losses

 Unrealised losses on own shares                       10          -

 Share of result of associated                       (219)     1,183
 undertakings

 Interest payable                                   4,600      5,072

 Net cash inflow/(outflow) from operating         226,416      (460)
 activities

  (iii)           Movement in opening and closing portfolio
                  investments net of financing

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

  Net cash inflow/(outflow) for the year           41,819    (36,484)

  Cash flow - portfolio investments               221,421     215,029

  Movement arising from cashflows                 263,240     178,545

  Changes in market value and currencies            2,767    (18,732)

  Other changes                                   106,992           -

  Total movement in portfolio investments net     372,999     159,813
  of financing

  Portfolio at 1 January                          580,381     420,568

  Portfolio at 31 December                        953,380     580,381

 (iv) Movement in cash and portfolio investments

                            At            Changes               At
                             1    Cash         to   Other        31
                       January    Flow     Market changes  December
                          2003 GBP'000      value GBP'000      2003
                       GBP'000               and            GBP'000
                                      currencies
                                         GBP'000

 Cash at bank and in     34,026  41,819         -       -    75,845
 hand

 Deposits with credit    33,458  26,589         -       -    60,047
 institutions

 Total cash              67,484  68,408         -           135,892

 Fixed income           422,588 128,176  (11,509)  61,182   600,437
 investments

 Variable income          6,063  18,517     (363)  46,703    70,920
 investments

 Protected funds          9,747 (8,336)      (28)       -     1,383

 Equities                74,499  56,475    14,667   (893)   144,748

 Total portfolio        512,897 194,832     2,767 106,992   817,488
 investments

 Total cash and         580,381 263,240     2,767 106,992   953,380
 portfolio investments

 Borrowings            (22,037)   7,037         -       -  (15,000)


 Total cash and         558,344 270,277     2,767 106,992   938,380
 portfolio investments,
 net of debt

 (v) Net cash outflow on portfolio investments

      Year ended 31 December 2003         Year ended 31 December 2002
                            Net cash                         Net cash
         Purchases   Sales      flow     Purchases    Sales      flow
           GBP'000  GBP'000  GBP'000       GBP'000  GBP'000   GBP'000

 Deposits
 with        26,589        -   26,589        3,216   93,500   (90,284)
 credit institutions

 Fixed
 income   1,619,256 1,491,080 128,176    1,254,048  940,082   313,966
 investments

 Variable
 income      25,547     7,030  18,517        5,072    8,158    (3,086)
 investments

 Protected
 funds            -     8,336 (8,336)            -    2,055    (2,055)

 Equities    90,880    34,405  56,475       46,407   49,919    (3,512)


          1,762,272 1,540,851 221,421    1,308,743 1,093,714  215,029

34 Purchase of subsidiaries

During the period, the Group acquired Brit Underwriting Group Limited. The assets of Brit Underwriting Group Limited on the date of acquisition included cash of GBP32,351,000.

Full details of these acquisitions and the assets acquired are given in Note 18.

35 Pensions

The Group has the following pension schemes in operation:

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

For Brit Group Services Limited employees, the Group operates a funded pension scheme providing benefits for its employees based on final pensionable emoluments. The assets of the Scheme are held in a separate trustee administered fund. The most recent completed actuarial valuation of the Scheme was carried out as at 31 July 2000 by a professionally qualified actuary using the projected unit method. The actuarial assumptions made for the valuation were that the investment returns would be 7.5% per annum, salary increases would average 5% per annum and that present and future pensions for members retiring from the Scheme would increase at the rate of 3% per annum. For the Minimum Funding Requirement (MFR), the Scheme's assets at 31 July 2000 taken at a value of GBP66.4 million, exceed 120% of the amount of liabilities of the Scheme as at that date.

Due to the significant fall in equity markets since the valuation date the position has worsened. However, at 31 December 2003 the value of assets was above 100% of the amount of liabilities on the MFR basis. The employer has been making contributions at the rate of 24.8% of pensionable salaries since 1 January 2003.

The pension cost charge represents contributions payable by the Group to the fund and amounted to GBP1,690,730 (2002: GBP1,305,154).

At 31 December 2003 no contributions were payable to the fund (2002: GBPnil).

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

While the Group continues to account for pension costs in accordance with Statement of Standard Accounting Practice 24 "Accounting for Pension Costs", under Financial Reporting Standard 17 "Retirement Benefits" transitional disclosures are required as at 31 December 2003 using the different measurement basis prescribed by the Standard. None of the information set out in a) to g) below is reflected in the primary statements of the Group for the year ended 31 December 2003.

a) Composition of the scheme

The provisional results of the formal actuarial valuation as at 31 July 2003 were updated to the accounting date by an independent qualified actuary in accordance with the transitional arrangements of FRS 17. As required by FRS 17, the value of the defined benefit liabilities has been measured using the projected unit method.

The following table sets out the key FRS 17 assumptions used for the scheme. The table also sets out as at the accounting date the fair value of assets, a breakdown of the assets into the main asset classes, the present value of the FRS 17 liabilities and the deficit of assets below the FRS 17 liabilities (which equals the Gross pension liability).



                    31 December       31 December       31 December
                           2003              2002              2001
                              %                 %                 %

 Retail Price Index
 inflation                  2.80              2.30             2.50

 Discount rate              5.40              5.60             6.00

 Pension increases in
 payment                    2.60              2.30             2.50

 General salary increases   4.80              4.30             4.50


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

        31 December 2003      31 December 2002    31 December 2001
         Expected              Expected             Expected
           return     Value      return     Value     return Value
                %    GBP'000          %     GBP'000     %     GBP'000

 Equities      7.70     48,741       7.40      37,906  8.00   46,957

 Bonds         5.40      4,316       5.60       5,537  6.00    6,020

 Gilts         4.80      2,411       4.40       2,733  4.90    3,712

 Cash          4.60      1,187       4.00       1,862  5.10    3,138

 Total market
 value of
 assets                 56,655                 48,038         59,827

 Present value of     (72,171)               (58,401)       (53,434)
 liability

 (Deficit)/surplus in (15,516)               (10,363)          6,393
 the scheme

 Gross pension
 (liability)/asset    (15,516)               (10,363)          6,393

 Related deferred
 tax asset/              4,655                  3,109        (1,918)
 (liability) at 30%

 Net pension          (10,861)                (7,254)         4,475
 (liability)/asset

Under FRS 17, the scheme would be represented on the balance sheet at 31 December 2003 as a liability of GBP15,516,000 (2002: GBP10,363,000), which amounts to GBP10,861,000 net of deferred tax (2002: GBP7,254,000).



 Notes:

 (1)  Figures have been estimated, where necessary.

 (2)  Contributions were paid at the rate of 15.0% of pensionable
      salaries until 31 December 2002, thereafter they have been paid
      at the rate of 24.8% of pensionable salaries.

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

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

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

 Employer's part of current service cost    2,059               2,144

 Vested past service cost                     125                 118

 Curtailment                                (306)                   0

 Total operating charge                     1,878               2,262


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

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

 Expected return on pension scheme assets           3,273     4,418

 Interest on pension scheme liabilities           (3,249)   (3,199)

 Net return - credit                                   24     1,219

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

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

 Actual return less expected return on pension
 scheme assets                                      6,428   (15,155)

 Experience (losses) and gains arising on the
 scheme liabilities                               (2,499)        190

 Changes in assumptions underlying the present
 value of scheme liabilities                      (8,965)    (2,093)

 Actuarial loss recognised in the Statement of
 Total Recognised Gains and Losses                (5,036)   (17,058)


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

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

 (Deficit)/surplus in scheme at beginning of the  (10,363)       6,393
 year

 Movement in year:

        Current service cost (total)              (2,059)      (2,143)

        Aggregate contributions                     1,737        1,344

        Past service costs (vested and              (125)        (118)
        non-vested)

        Curtailment                                   306            -

        Other finance income                           24        1,219

        Actuarial loss recognised in the Statement of
        Total Recognised Gains and Losses         (5,036)     (17,058)

 Deficit in scheme at end of the year            (15,516)     (10,363)


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

                                           31 December   31 December
                                                  2003          2002

                                               GBP'000        GBP'000


 Difference between expected and actual return on scheme assets:

        Amount - gain /                          6,428      (15,155)
        (loss)

        Percentage of scheme assets                11%         (32%)

 Experience gains and losses on scheme liabilities

        Amount - (loss) /                      (2,499)         190
        gain

        Percentage of the present value of the
        scheme                                    (3%)          0%
        liabilities

 Total amount recognised in the Statement of Total
 Recognised Gains and Losses

        Amount - (loss)                        (5,036)     (17,058)

        Percentage of the present value of the
        scheme                                    (7%)        (29%)
        liabilities

 g)  Reserves note (for illustrative purposes only)

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

 Profit and loss reserve excluding pension   (23,735)      (81,219)
 liability

 Pension reserve                             (10,861)       (7,254)

 Profit and loss reserve                     (34,596)      (88,473)

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

From 5 October 2001, Brit Group Services Limited has operated a defined contribution stakeholder pension scheme. The assets of the scheme are held separately from those of the Company in an independently administered fund.

The pension cost charge represents contributions payable by the Group to the fund and amounted to GBP1,034,710 (2002: GBP458,506).

At 31 December 2003 no contributions were payable to the fund (2002: GBPnil).

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

Brit Group Services Limited also operates a defined contribution FURBS, into which additional contributions are paid in respect of certain employees. The assets of the scheme are held separately from those of the Company in an independently administered fund.

The pension cost charge represents contributions payable by the Company to the fund and amounted to GBP72,000 (2002: GBP161,968).

At 31 December 2003, contributions amounting to GBP72,000 (2002: GBP88,898) were payable to the fund and are included in creditors.

(iv) Brit Insurance Limited

For Brit Insurance Limited employees, the Group operates a defined contribution pension scheme. The assets of the scheme are held separately from those of the Company in an independently administered fund. The pension cost charge represents contributions payable by the Company to the fund and amounted to GBP63,044 (2002: GBP110,589). At 31 December 2003, no contributions were payable to the fund (2002: GBP95,040).

(v) PRI Management Limited

PRI Management Limited operates a defined contribution pension scheme. The assets of the scheme are held separately from those of the Company in an independently administered fund. The pension cost charge represents contributions payable by the Company to the fund and amounted to GBP172,519 for the period since acquisition. At 31 December 2003, contributions amounting to GBP9,153 were payable to the fund and are included in creditors.

36 Long-Term incentive schemes

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

Active Schemes

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

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

An aggregate of 158,500 free shares were awarded on 19 October 2003 to 317 members of staff, including certain executive Directors, (each of whom were awarded 500 shares each) at a cost per share of 71p each. Since the launch of the ESOP, all participating employees have had the opportunity to subscribe for partnership shares on a monthly basis and to be awarded matching shares. All shares are held in trust for a three year qualifying period.

As at 31 December 2003, the Trust held 375,000 free shares, 243,285 matching shares and 488,824 partnership shares with a total nominal value of GBP276,777 and a market value, based on mid-market value of the Company's shares at close of business on 31 December 2003, as shown in the Official List of the London Stock Exchange of GBP805,422. This equates to 0.11% of the Company's issued share capital as at 31 December 2003.

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

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

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

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



 Date of   Number of   Number of   Subscription price   Date
 grant     employees  shares under        per 25p       from   Expiry
           including        option          share      which     date
           Directors                      (pence) exercisable

 3 Nov 03         79     8,004,738          76.92   3 Nov 06  2 Nov 13

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

The PSP was approved by shareholders on 18 June 2003.

Awards will be satisfied by the transfer of shares from the Company's employee benefit trust which may acquire shares for this purpose either by subscribing for new shares or by buying shares in the market. The trustees have waived their entitlement to dividends on any shares acquired. As at 31 December 2003, the employee benefit trust held 5,248,163 ordinary 25p shares which represented 0.54% of the issued share capital of the Company as at 31 December 2003.

Awards have been made under the PSP as follows:



 Date of    Number of   Number of    Value of shares  Latest vesting
 date       employees      shares         at date of
 grant      including                          grant
            Directors
                                                 GBP

 3 Nov 03           54    4,659,894         3,459,971         2 May 07

Closed Schemes

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

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

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



    Date    Number of    Number   Subscription      Date from   Expiry
      of    employees        of      price per          which    date
  grant     including    shares      25p share   exercisable
           Directors      under       (pence)
                        option

   6 Dec            4   118,379          80.25       6 Dec 02    5 Dec
      99                                                            09

   8 Jun            1    38,710          77.50       8 Jun 03    7 Jun
      00                                                            10

  20                9   162,164          74.00      20 Nov 03   19 Nov
  Nov 00                                                            10

   7 Jun           24   361,241         113.50       7 Jun 04    6 Jun
      01                                                            11

  27                1    28,368          70.50      27 May 05   26 May
  May 02                                                            12

   6 Feb           11   130,118          75.50       6 Feb 06    5 Feb
      03                                                            13

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

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

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



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

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

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

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



    Date   Number of     Number   Subscription      Date from   Expiry
      of   employees         of      price per          which    date
  grant    including     shares      25p share   exercisable
          Directors       under       (pence)
                        option
  10               2    799,999         142.50      10 Sep 01    9 Sep
  Sep 98                                                            08

   6 Dec           7  1,875,000          80.25       6 Dec 02    5 Dec
      99                                                            09

  24               2    550,000          66.00      24 May 03   23 May
  May 00                                                            10

  20               5    715,000          74.00      20 Nov 03   19 Nov
  Nov 00                                                            10

   7 Jun           1    125,000         113.50       7 Jun 04    6 Jun
      01                                                            11

  31              37  2,497,550          70.50      31 May 05   30 May
  May 02                                                            12

  31               8  2,460,000          70.83      31 May 05   30 May
  May 02                                                            12

   5 Jun          10    635,500          70.50       5 Jun 05    4 Jun
      02                                                            12

  23               3  1,353,913          62.50      23 Oct 05   22 Oct
  Oct 02                                                            12

   4 Nov           2    839,844          64.00       4 Nov 05    3 Nov
      02                                                            12

  15               1    240,000          78.00      15 Jan 06   14 Jan
  Jan 03                                                            13

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

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

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



    Date    Number of    Number   Subscription      Date from   Expiry
      of    employees        of      price per          which    date
  grant     including    shares      25p share   exercisable
           Directors      under       (pence)
                        option
  18                2   542,920         119.00      22 Dec 00   17 May
  May 98                                                            08

  14                1   117,500         130.50      14 Aug 01   13 Aug
  Aug 98                                                            08

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

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

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

Outstanding awards made under the LTIP are as follows:



  Date of           Number of     Number of      Value of       Latest
  grant             employees       shares      shares at      vesting
                    including                     date of        date
                  Directors                        grant
  24 May 00                 3       266,500       181,220    31 Dec 03

  18 Dec 01                 1        67,030        50,000    31 Dec 04

37 Related party transactions

(i) Directors' interests in share capital

The interests of the Directors who held office as at 31 December 2003 and their families in the ordinary shares of 25p each of the Company are as follows:



         Held at 31 December 2003            Held at 31 December 2002
           Shares     Options     PSP/LTIP Shares   Options  PSP/LTIP

 Dane
 Douetil  820,483  1,806,744     462,613    770,483 1,449,224  102,500

 Neil
 Eckert 5,822,335  1,601,993     491,055  1,561,588 1,114,473  187,708

 Matthew
 Scales   107,185  1,230,166     496,780     82,185   872,646  136,667

 Clive
 Coates   100,000          -           -     20,000         -        -

 Glyn
 MacAulay  40,000          -           -     40,000         -        -

 Don
 McCrickard 40,000         -           -          -         -        -

 Anthony
 Townsend  352,538         -           -    352,538         -        -

 Jo
 Welman    208,874   510,526           -    128,500   510,526   93,855

All Directors' interests in the ordinary shares of the Company are beneficial. Neil Eckert, Anthony Townsend and Jo Welman are also interested in 456,761, 47,543 and nil units of 8.5% Convertible Unsecured Subordinated Loan Stock 2008 respectively (2002: 456,761, 47,543 and 40,077 respectively). No other Director held any interest in the 8.5% Convertible Unsecured Subordinated Loan Stock 2008 as at 31 December 2003 and no Director held any interest in any other group company.

As at 27 February 2004, the Employee Share Ownership Trust was interested in 1,153,291 ordinary 25p shares in which the directors who are employees are deemed to be interested by virtue of section 324 of the Companies Act 1985 (see note 36 of the financial statements).

As at 27 February 2004, the employee benefit trust held 5,248,163 ordinary 25p shares in which the directors who are employees are deemed to be interested by virtue of section 324 of the Companies Act 1985 (see note 36 of the financial statements).

(ii) Directors' interests in transactions

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

(ii) Loans

As at the balance sheet date, Brit Insurance Holdings PLC had a loan of GBP5,700,000 outstanding made to Ri3K Limited, a 77.2% owned subsidiary. This amount has been fully provided for in the books of the Company. With effect from 1 January 2004, interest will be charged on outstanding balances at an annual rate of 1% above the prevailing LIBOR rate.

(iv) Trading

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

During the year, the Group traded with The Equity Partnership Limited ("EPL"), an associated undertaking 34.1% owned by Brit Insurance Holdings PLC and with EPIC Asset Management Limited ("EPAM") and EPIC Special Investments Limited ("ESI"), subsidiaries of EPL. Jo Welman, a Non-Executive Director of Brit Insurance Holdings PLC is also a Director of EPL. Brit Insurance Holdings PLC charges EPL GBP8,500 per annum per EPL employee in respect of operational office costs.

EPL, EPAM and ESI also have an agreement with Brit Group Services Limited ("BGS"), a 100% subsidiary of Brit Insurance Holdings PLC, whereby BGS pays certain expenses on behalf of these companies which it then recovers in full. The total of all of these costs amounted to GBP2,863,222 (2002: GBP2,032,782), of which GBP782,267 (2002: GBP260,634) was outstanding at the balance sheet date.

EPL also traded during the year with The Equity Partnership Investment Company PLC ("EPIC"), a company with a 29.9% holding in EPL. Brit Insurance Holdings PLC owns 34.7% of the ordinary share capital of EPIC. EPIC purchased investment management services from EPL amounting to GBP698,836 (2002: GBP712,876). As at the balance sheet date the amounts owed in relation to these services amounted to GBP114,000 (2002: GBP105,000).

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

EPAM



                              Fund  Fee charged outstanding per annum
                             Value
                             As at                  As at       As at
                                31                     31         31
              Commenced   December               December   December
                              2003                   2003        2002
                                            GBP       GBP         GBP

  Investment Management:

  Brit              2001                100,000                8,400
  Insurance
  Holdings PLC

                               GBPm            %       GBP         GBP
  Investment Advisory:

  Brit                2001      514          0.18   89,400      68,800
  Syndicates
  Limited

  Brit                2002       23          0.15    3,300       7,300
  Insurance
  Holdings PLC

  Masthead            2002      142          0.15   19,800      13,000
  Insurance
  Underwriting
  Limited

  Brit                2002      160          0.15   31,300       8,400
  Insurance
  Limited


  ESI
                            Fund           Fee charged outstanding per
                            Value                               annum
                              As at                  As at       As at
                                  31                     31         31
                Commenced   December               December   December
                                                      2003        2002
                               2003
                               GBPm            %       GBP         GBP

                      2001                100,000                8,400

  Investment Advisory:

  Brit                2003        5           1.5    6,820           -
  Syndicates
  Limited

  Brit                2003       13             1   10,946           -
  Syndicates
  Limited

  Brit                2003        1             1    1,873           -
  Insurance
  Holdings PLC

  Masthead            2003        5             1    4,580           -
  Insurance
  Underwriting
  Limited

  Brit                2003        3           1.5   11,569           -
  Insurance
  Limited

  Brit                2003       26             1   26,718           -
  Insurance
  Limited

  Brit                2003        8             1    6,567           -
  Insurance
  (UK) Limited

Ebix Inc

The Group entered into various software and service agreements with Ebix Inc, a company in which Brit Insurance Holdings PLC owns 40.1% of the common stock. The cost of these contracts in 2003 was GBP1,100,551 (2002: GBP1,292,799). GBP29,268 (2002: GBP413,298) was outstanding at the year end.

Brit Insurance Limited / managed syndicate

During the year a syndicate managed by Brit Syndicates Limited paid a gross quota share premium to Brit Insurance Limited amounting to GBP103,889,790.

38 Contingent liabilities

(i) Fixed and floating charges

(a) Company

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

Brit Insurance Holdings PLC has given a guarantee in respect of a leasing contract entered into by a subsidiary company. The value of this guarantee did not exceed GBP30,000 at 31 December 2003.

(b) Group

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

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

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

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

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

(i) all underwriting at Lloyd's is now conducted through one corporate member subsidiary; and

(ii) all investments and assets supporting the underwriting at Lloyd's are held in one subsidiary, being Masthead Insurance Underwriting Limited ("Masthead").

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

A deed of charge was entered into by Masthead with Lloyd's to support the underwriting activities of all corporate member subsidiaries within the Brit Insurance Holdings PLC Group. Masthead entered into deeds of covenant with Lloyd's to cover the run-off liabilities of these corporate members. It also entered into guarantees with respect to interavailable funds of GBP118,738,728. As at 31 December 2003 the value of these funds was GBP86,807,120 (2002: GBP88,126,983).

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

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

(ii) Bank borrowings

As detailed in Note 25, Brit Insurance Holdings PLC had a Term Facility Agreement with National Westminster Bank PLC and Barclays Bank PLC at 31 December 2003.

Under the terms of this facility, the lenders have a fixed and floating charge over certain investments owned by the Company. The lenders have priority over the charges held by Lloyd's.

39 Financial information and posting of accounts

The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 December 2002 or 2003, but is derived from those accounts. Statutory accounts for 2002 have been delivered to the Registrar of Companies and those for 2003 will be delivered in due course. The auditors have reported on those accounts; their reports were unqualified and did not contain statements under Section 237 (2) or (3) of the Companies Act 1985. The audited Annual Report and Accounts for 2003 are expected to be posted to shareholders by no later than 31 March 2004. Copies of the Report may be obtained from that date by writing to the Company Secretary, Brit Insurance Holdings PLC, 55 Bishopsgate, London, EC2N 3AS. The Annual General Meeting of the Company will be held at the same address at 10am on 27 May 2004. The Preliminary Results were approved by the Board on 1 March 2004.

This information is provided by RNS The company news service from the London Stock Exchange



            

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