Alea Group Holdings (Bermuda) Ltd.

London (OTS) - Interest on bank borrowings under the Term "A" loan
and the Revolving
Credit Facility is charged at a rate per annum according to
applicable currency LIBOR rates designated as the British Bankers
Association interest settlement rate plus a margin of ) 0.625% (2002
0.625%). The margin charged on the Term "B" loan
is 3.25% (2002 3.25%). The interest expense in 2003 amounted to $4.7
million (2002 $6.5 million). The estimated increase in interest
expense in the event of a 100 basis point increase in applicable
rates is $1.7 million.

At 31 December 2003 the Group also had collateralised bank letters of
credit and loan facilities available from a variety of sources to
support the need to collateralise commitments made in the normal
course of business outlined above, including $100 million and $10
million uncommitted letter of credit facilities entered into by Alea
(Bermuda) Ltd with the Royal Bank of Scotland and The Bank of N.
Butterfield respectively, $97 million uncommitted letter of credit
facility entered into by Alea Europe Ltd. with UBS and a $15 million
working capital facility extended to Alea Europe Ltd. by UBS.
Additionally Alea London has access to letters of credit through
collateral arrangements with Citibank.

Interest cover

Operating Interest cover improved in 2003. This was a combination of
the increase in profits coupled with the reduction in interest costs
following reductions in applicable LIBOR rates compared to 2002.

2003 2002
$ million $ million

Operating profit before interest
and taxation 85.5 28.2
Interest 4.7 6.5

Interest cover based on operating profit 18.1x 4.3x

Capitalisation

The capital structure of the Group was simplified in 2003. The $50
million subordinated preferred shares were purchased from a third
party shareholder from the proceeds of the offering for $42.5 million
creating a $7.5 million profit in the second half of 2003 and
removing a contingent liability in respect of the cumulative
accretion of subordinated preferred return dividends of $13.6 million
as at 30 June 2003.

CHF 16 million was repaid under the Term A loan facility which was
offset by a draw down of CHF 16 million under the revolver facility
to create new USD debt of $0.5 million. The increases in debt shown
on the balance sheet reflects the retranslation of the CHF facility
into USD as the Swiss franc appreciated against the United States
Dollar to CHF1.24:1 from CHF 1.4 to 1.

The debt to total capitalisation ratio reduced from 26.8% in 2002 to
19.7% in 2003 following the initial public offering. Alea intends to
augment group liquidity and operating subsidiary capital through the
continued use of down-streamed holding company level debt - to the
extent such debt does not detrimentally affect debt ratings and
bank/capital market access. To this end, Alea will consider
refinancing elements of the existing bank facilities during 2004.

As at 31 As at 31
December 2003 December 2002
$ million $ million

Debt 178.4 168.5
Subordinated preferred shares - 50.0
Equity 725.4 410,5
--------------------- ----------- -----------
Total capitalisation 903.8 629.1
--------------------- ----------- -----------

Debt 19.7% 26.8%
Subordinated preferred shares 0.0% 7.9%
Equity 80.3% 65.3%
----------- -----------
Total capitalisation 100.0% 100.0%
----------- -----------

Capital expenditure

The Group invested $10.2 million (2002: $9.3 million) in capital
expenditure principally computer equipment and software, including
capitalised costs from the continued internal development of the
software supporting the Group's operations and received $7.3 million
from the proceeds of the disposal of fixed assets at profit on
disposal of $1.6 million.

Liquidity and cash flow

Total proceeds from the issue of common share capital during 2003
were $291.9 million including the proceeds of the Group's offering on
the London Stock Exchange which raised GBP168.9 million ($287.5
million). The balance being raised from the issues of shares to
employees under the Group's share and options scheme.

The expenses of raising capital were $23.7 million. In addition the
Group used $42.5 million of the proceeds to purchase subordinated
preferred shares with a face value of $ 50 million creating a gain on
redemption of $7.5 million. The remaining proceeds of the IPO were
employed as capital to support profitable growth within the operating
subsidiaries rather than to support specific cash flow needs. The
Group met its liquidity requirements primarily from funds provided by
operations.

Cash provided by operating activities primarily consists of premiums
collected, investment income and collected reinsurance recoverable
balances, less paid claims, retrocession payments, operating expenses
and tax payments. Net cash flow from operating activities was $250.9
million (2002: $99.4 million).

The $250.9 million cash inflow in 2003 is after payment of $68.9
million (2002: $62.0 million) in respect of the Max Re aggregate
excess contract. On a like-for-like basis after adjusting for the Max
Re aggregate excess contract, cash flow was $319.8 million (2002:
$161.4 million). Thus underlying cash flow has improved by $158.4
million year-on-year, reflecting the growth in the business coupled
with the reduction in settlements related to reducing run-off
portfolios in Alea Europe and the Imperial book of business that was
acquired in 2000. The Max Re aggregate excess contract covered
underwriting years 2001- 2003 and has not been replaced in 2004, thus
amounts paid to this contract will reduce further in 2004 compared to
2003.

Cash flows from operating activities were used to pay interest in
bank loans of $4.7 million (2002: $6.5 million) and to pay taxes $1.7
million (2002: tax refunds $1.2 million) and capital expenditures
described above.

Total net cash flows were $466.4 million (2002: $121.8 million) which
was primarily used to invest in debt securities and other fixed
income instruments. The total investments including cash balances
increased 41% from $1,732.3 million (2002: $1,227.8 million).

Intra-group arrangements

Whilst recognising the separate legal status of each entity, business
processes are standardised and managed consistently. The Group
continues to view each of its insurance operating entities as core to
the whole. Mindful of local market conditions, regulatory
requirements and the capital adequacy requirements of the rating
agencies, the Group ensures that each balance sheet retains risk
commensurate with its capital base.

The primary means of achieving this is by arranging capacity through
internal quota shares primarily with Alea (Bermuda) Ltd which now has
the majority of the Group's operating capital of $435.2 million. For
2002 and 2003 underwriting years we have put into effect a 70% quota
share to Alea (Bermuda) Ltd of Alea North America's insurance and
reinsurance business. This will be particularly important for Alea
North America during its growth phase.

In addition the Group makes public its view of the interdependence of
each subsidiary with the issue of intra-group cross guarantees that,
whilst inevitably affected by local regulatory requirements, make
clear that it is management's intention to view each subsidiary as
part of the whole. Through consultation with A.M. Best and Standard &
Poor's, a form of wording for the guarantees has been developed that
is acceptable to both agencies. Group guarantors may only terminate
these guarantees after giving one month's notice to these agencies.
Any contract written whilst the guarantees are in force remains
guaranteed should the guarantee be cancelled.

In the third quarter of 2002, in recognition of its new status as the
ultimate holding company of the Group, Alea Group Holdings (Bermuda)
Ltd entered into a top down guarantee with each of the seven rated
insurance operating entities. These guarantees are in addition to the
pre-existing cross company guarantees already in place between the
various subsidiaries of the Group. Details of these guarantees have
been made available to the rating agencies and broker security
committees.

Alea (Bermuda) Ltd also entered into an aggregate stop loss
arrangement designed to protect the balance sheet of Alea Europe Ltd
in both 2003 and 2002.

Rating Agencies

On a Group basis, Standard & Poor's and A.M. Best provided financial
strength ratings of all of the Group's operating subsidiaries of ''A-
(Strong)'' and ''A- (Excellent)'' respectively. These ratings were
issued on 2 June 2002 and 2 July 2003 respectively. In each case, the
ratings are expressed to have stable outlooks. Other agencies may
rate the Group or one or more of the Group's subsidiaries on an
unsolicited basis.

Standard & Poor's has assigned a ''BBB-'' counterparty credit rating
to AGHAG and a ''BBB-'' senior debt rating to the $75 million term
loan supplement to the Credit Agreement. In each case, the ratings
are expressed to have stable outlooks. The ''BBB-'' rating is one
full rating category below the Group's claims paying ability rating
because the senior debt is subordinated to the obligations of the
Group's operating subsidiaries.

Lumbermens (LMC)

The Group has a significant reinsurance relationship with LMC which
arose in connection with the Group's acquisition of the Equus Re
reinsurance division of LMC on 3 December 1999, Alea Bermuda and LMC
entered into a 100% quota share reinsurance of the LMC business
written by Equus Re through 30 September 1999 (namely, business
written by Equus Re prior to the Group's acquisition of its
operations). In turn, LMC provides stop loss reinsurance to Alea
Bermuda for losses in excess of a 75% paid loss ratio on the same
business ("Protected Business"). In addition to the Protected
Business, LMC also authorised the Group to write new and renewal
business on behalf of LMC (as reinsurer) through 31 December 2001,
which business is ceded by a 100% quota share reinsurance to Alea
Bermuda ("Fronted Business"). As is required for credit for
reinsurance purposes when cessions are made to non-U.S. licensed
reinsurers such as Alea Bermuda, the Group collateralises its
obligations to LMC. Pursuant to contract, the required collateral is
equal to 120% of the estimated loss reserves. Concurrent with these
arrangements, LMC retained Alea North America Company (ANAC) as its
agent to adjust and pay claims and collect premiums for both the
Protected Business and the Fronted Business. The respective
obligations of Alea Bermuda and LMC noted above are subject to
contractual mutual offset provisions under the reinsurance agreements
and as permitted under Illinois law. Further, in respect of the
Protected Business, LMC is contractually required to fund (and has
been funding) losses on its own behalf now that the 75% paid loss
ratio has been met.

LMC's financial strength ratings were downgraded and then withdrawn
by A.M. Best and by Standard & Poor's, at LMC's request, following
LMC's announcement in 2002 that it would cease writing new business.
LMC announced that at 31 December 2003, it had remaining audited
statutory surplus of $202.4 million. LMC risk based capital level
allows the Illinois Department of Insurance to assume control of LMC
at its discretion. As noted above, in light of the mutual offset
provisions under the reinsurance agreements and as permitted under
applicable Illinois law, the Directors believe that the Group should
not be exposed to material credit risk resulting from its
arrangements with LMC.

Management of Financial Risks

The Group recognises the critical importance of efficient and
effective risk management systems. Close attention is paid to asset
and liability management.

Asset and liability management

The Group's general practice is to invest in assets that match the
currency in which it expects related liabilities to be paid.
Shareholders' equity held in local insurance units is primarily kept
in local currencies to the extent that shareholders' equity is
required to satisfy regulatory and self-imposed capital
requirements. This facilitates the Group's efforts to ensure that
capital held in local insurance units will be able to support the
local insurance business irrespective of currency movements.

Derivatives

Derivative instruments are only used to a limited extent within
guidelines established by the Board. Derivatives may be used for
efficient portfolio management, hedging debt and the outcome of
corporate transactions. Speculative activity is prohibited and all
derivative transactions should be covered fully, either by cash or by
corresponding assets and liabilities. The only hedging
transaction undertaken in 2003 was the sale of 20 million Canadian
Dollars into United States Dollars representing Canadian assets held
in excess of the Group's requirements as a result of regulatory
requirements in Canada.

Foreign exchange management

The Group publishes its financial statements in United States
Dollars. Therefore, fluctuations in exchange rates used to translate
other currencies, particularly European currencies including the
Euro, British Pound and Swiss Franc, into United States Dollars will
impact its reported financial condition,
results of operations and cash flows from year to year.

As a result of the international diversity of its operations,
approximately 18% (2002: 19%) of the Group's premium income arises in
currencies other than United States Dollars. Similarly, its net
assets are denominated in a variety of currencies, with approximately
22% (2002: 21%) of invested assets and cash being
non-United States Dollar investments.

In managing the Group's foreign currency exposures we do not hedge
revenues as these are substantially retained locally to support the
growth of our business and to meet local regulatory and market
requirements. The Group's net assets and, to a more limited extent
its solvency, are exposed to movements in exchange rates.

Total Group exchange losses were $1.9 million based on total gross
assets of $3,477 million compared to $0.4 million in 2002 based on
total gross assets of $2,713 million in 2002 reflecting the
essentially matched nature of the Group's assets and liabilities
despite the significant exchange devaluation of the United States
Dollar, particularly compared to the Euro, British Pound and Swiss
Franc, that occurred during the year.

Reinsurance security management

Reinsurance is a key tool in managing our catastrophe exposure. In
designing our reinsurance programmes we take account of our risk
assessment, the financial strength of reinsurance counterparties, the
benefits to shareholders of capital efficiency and reduced
volatility, and the cost of reinsurance protection.

The Group purchases retrocessional reinsurance to improve the extent
to which it can manage risk exposures, protect against catastrophic
losses, access additional underwriting capacity and stabilise
financial ratios.

As a general rule, the Group's aggregate net line with respect to
risks assumed under contracts written will not exceed $10 million or
its equivalent in foreign currencies. In addition, where considered
appropriate, the Group purchases reinsurance protections that provide
coverage against accumulations of risk. The Group selects its
reinsurers and retrocessionaires primarily based upon credit quality
and monitors them closely over time. It also seeks to diversify its
business among reinsurers and retrocessionaires and requires
collateral where deemed prudent to do so.

Accounting Policies

Prior Year Adjustments (see note 4)

In 2003, in accordance with the recommendations of the ABI SORP for
companies listed on the LSE, the Group included allocated investment
income using a longer term rate of 4.5% selected by the Group in both
2002 and 2003 technical accounts. Use of this longer term rate gave
rise to operating profits in 2003 of $80.8 million compared to $21.6
million in 2002.

As part of the Listing process the Group determined that it would be
appropriate to record in the accounts of the Group the $1.7 million
adjustment net of taxation in respect of the Claims Equalisation
Provisions established by Alea London Ltd.

The Group also reviewed the application of the deficit payback and
commutation provisions of each of the Inter-Ocean contract and the
OPL contract and determined that the financial statements did not
fully reflect the consequences of the deficit payback and
commutation/ termination provisions of the contracts
This had an adverse impact to the Group of $43.2 million for the
Inter-Ocean contract and a positive impact of $13.2 million for the
OPL contract. Accordingly reinsurance recoverables were reduced by
$24 million in respect of the 2000 annual financial result and $6
million in respect of the 2001 annual financial result. These amounts
have been accounted as a prior year adjustment in the financial
statements.

International Financial Reporting Standards

Alea Group Holdings (Bermuda) Ltd, as a publicly listed company, is
required to prepare its accounts under International Financial
Reporting Standards (IFRS) from 1 January 2005.

An evaluation of the impact of IFRS on the Group has been completed
which suggests that the current IFRS endorsed by the Accounting
Regulatory committee of the European Commission which excludes, in
particular, the accounting for insurance contracts exposure draft,
will have little impact on the net asset position of the Group
compared to that produced under current United Kingdom accounting
standards. However, there will be significant increases in disclosure
particularly with regard to business risk and management.

The changes in accounting resulting from adoption of the insurance
exposure draft may lead to significant changes in the future as it
proposes a fundamentally different basis for recognition of profit on
insurance contracts. However, it is not expected that these proposals
will be formal requirements within the next three reporting periods
and the proposals may change materially
before they are finalised.

Unaudited
Consolidated profit and loss account
Restated
Technical account Year ended Year ended
- general business Notes 31 Dec 03 31 Dec 02
$'000 $'000

Gross premiums written 2 1,300,182 931,631
Outward reinsurance premiums 2 (271,471) (223,399)
--------- ---------
Net premiums written 2 1,028,711 708,232
--------- ---------
Change in the provision for unearned
premiums
- gross amount (185,907) (257,603)
- reinsurers' share 15,677 67,422
--------- ---------
Change in the net provision for unearned
premiums (170,230) (190,181)

Earned premiums, net of reinsurance 858,481 518,051

Allocated investment return
transferred from
the non-technical account 57,811 46,952
Other technical income, net of reinsurance 2,364 5,671
--------- ---------
Total technical income 918,656 570,674
--------- ---------
Claims paid
- gross amount 468,537 397,422
- reinsurers' share (114,987) (77,663)
--------- ---------
Net claims paid 353,550 319,759
Change in the provision for claims
- gross amount 249,743 8,491
- reinsurers' share (74,643) (6,396)
--------- ---------
Change in the net provision for claims 175,100 2,095

Claims incurred, net of reinsurance 528,650 321,854
Change in other technical provisions,
net of reinsurance
Net operating expenses 285,499 203,981
Other technical charges, net of
reinsurance 19,004 16,678
--------- ---------
Total technical charges 833,153 542,513

Balance on the technical account for
general business before claims
equalisation provision 85,503 28,161
Change in claims equalisation provision 4 (3,771) (2,368)
--------- ---------
Balance on the technical account for
general business 81,732 25,793
========= =========

This preliminary announcement was approved by the Board on 12 March
2004. The results constitute unaudited non-statutory accounts.

Unaudited
Consolidated profit and loss account
Restated
Year ended Year ended
Non-technical account Notes 31 Dec 03 31 Dec 02
$'000 $'000
Balance on the general business
technical account 81,732 25,793

Gross investment income 56,337 49,170
Net realised gains on investments 12,146 8,477
Net unrealised (losses)/gains on (29,173) 25,388
investments
Other investment expenses (3,975) (2,761)
-------- ---------
35,335 80,274
Allocated investment return
transferred to the
technical account - general business (57,811) (46,952)
Debt interest (4,718) (6,530)

Profit on ordinary activities before
tax -------- ---------
-continuing operations 54,538 52,585
-------- ---------
Comprising:
------------------------------ -------- -------- ---------

Operating profit 80,786 21,631
Short-term fluctuations in investment (22,477) 33,322
return
Movement in claims equalisation
provision 4 (3,771) (2,368)
------------------------------------------------------------------
54,538 52,585
-------- --------

Tax (charge)/credit on profit on
ordinary activities (13,528) 1,994
-------- --------
Profit on ordinary activities after tax 41,010 54,579

Minority interest - gain on purchase
subordinated preferred shares issued by
subsidiaries 7,500 -
-------- ---------
Profit for the financial year
attributable to equity shareholders 3 48,510 54,579
======== =========

The results in each of the financial years are derived from the
Group's continuing activities.

Unaudited earnings per share attributable to equity shareholders
Operating profit is based on long term investment returns excluding
movements in claims equalisation provision and the gain on purchase
of subordinated preferred shares issued by subsidiaries.

Earnings per share - basic ($) 3 0.42 0.52
======== ========
Earnings per share - fully diluted ($) 3 0.42 0.51
======== ========
Operating earnings per share - basic ($)3 0.55 0.24
======== ========
Operating earnings per share - fully
diluted ($) 3 0.54 0.24
======== ========

Unaudited consolidated statement of total recognised gains and losses

Year ended Year ended
31 Dec 03 31 Dec 02
$'000 $'000
Profit for the financial year
attributable to equity shareholders 48,510 -
Profit for the financial year
attributable to equity shareholders
as previously reported - 56,238
Exchange differences (1,893) (445)
--------- --------
Total gains and losses recognised for
the financial year 46,617 55,793
========
Prior year adjustments (see note 4) 4 (31,659)
---------
Total recognised gains and losses
since last annual report and accounts 14,958
=========

Unaudited
Consolidated balance sheet
Restated
Year ended Year ended
Notes 31 Dec 03 31 Dec 02
$'000 $'000

ASSETS

Intangible assets
Licences 9,968 9,968
-------- --------
9,968 9,968
Investments
Other financial investments 1,582,357 1,106,739
Deposits with ceding undertakings 105,513 92,106
-------- --------
1,687,870 1,198,845
Reinsurers' share of
technical provisions
Provision for unearned premiums 123,606 101,312
Claims outstanding
- Aggregate excess reinsurance 473,569 400,175
Claims outstanding
- Other reinsurance 252,992 238,625
-------- --------
Claims outstanding 726,561 638,800
-------- --------
850,167 740,112
Debtors
Debtors arising out of
insurance operations 66,931 111,489
Debtors arising out of
reinsurance operations 531,635 377,654
Amounts due from reinsurance
operations not
transferring significant
insurance risk 44,385 50,429
Other debtors 55,693 66,227
-------- --------
698,644 605,799
Other assets
Tangible assets 12,212 13,130
Cash at bank and in hand 44,307 28,989
-------- --------
56,519 42,119
Prepayments and accrued income
Accrued interest and rent 14,968 10,545
Deferred acquisition costs 153,243 97,449
Other prepayments and
accrued income 5,680 8,708
-------- --------
173,891 116,702
-------- --------
TOTAL ASSETS 3,477,059 2,713,545
======== ========

Unaudited
Consolidated balance sheet
Restated
Notes 31 Dec 03 31 Dec 02
$'000 $'000
LIABILITIES
Capital and reserves
Called up share capital 1,747 53
Share premium account 633,053 361,407
Profit and loss account 14,958 (50,287)
Capital reserve 75,644 99,367
-------- --------
Shareholders' funds
attributable to equity
interests 725,402 410,540
Minority interests
subordinated preferred
shares issued by
subsidiaries 50,000
-------- --------
TOTAL CAPITAL EMPLOYED 725,402 460,540

Technical provisions
Provision for unearned premiums 686,935 477,121
Claims outstanding 1,398,551 1,126,949
Claims equalisation provision 4 6,408 2,368
-------- --------
2,091,894 1,606,438

Deposits received from
reinsurers 199,903 225,144

Creditors
Creditors arising out of
insurance and
reinsurance operations 196,371 158,770
Liabilities from reinsurance
operations not
transferring significant
insurance risk 44,319 53,130
Amounts owed to credit
institutions 178,375 168,536
Other creditors including
taxation and social security 2,995 4,629
-------- --------
621,963 610,209
Accruals and deferred income 37,800 36,358
-------- --------
TOTAL LIABILITIES 3,477,059 2,713,545
======== ========
Part 5 follows

Rückfragehinweis:
Alea +44 20 7621 3333
Dennis Purkiss,
Chief Executive +41 41 767 0401
Amanda Atkins,
Finance Director

Financial Dynamics
Robert Bailhache +44 20 7269 7200
Charles Armitstead +44 20 7269 7182

OTS-ORIGINALTEXT UNTER AUSSCHLIESSLICHER INHALTLICHER VERANTWORTUNG DES AUSSENDERS | EUN

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