The assets, liabilities, income and costs of the ESOT are incorporated into the consolidated financial statements. The ESOT waives the right to dividends on ordinary shares in excess of 0.01 pence per each share ranking for an interim or final dividend.
v) Fair value of options and awards
At 31 December 2013, the weighted average fair values of options and awards granted during the year were 60.57 pence per option and 157.51 pence per award respectively (2012: 58.14 pence and 131.94 pence).
The Black-Scholes option pricing model has been used to determine the fair value of the option grants and share awards listed above. The assumptions used in the model are as follows:
2013 2012
Weighted average share price on grant (pence) 377.10 361.83
Weighted average exercise price (pence) 282.61 281.79
Expected volatility 30.00% 30.00%
Expected life (years) 3.00 – 5.25 3.00 – 5.25
Risk free rate of return 1.00% – 4.50% 1.00% – 5.00%
Expected dividend yield 5.00% – 7.00% 4.50% – 7.00%
Volatility
The volatility of Amlin plc’s share price is calculated as a normalised standard deviation of the log of the daily return on the share price. In estimating 30% volatility, the volatility of return for six months, one year and three year intervals are considered. As a guide to the reasonableness of the volatility estimate, similar calculations are performed on a selection of Amlin’s peer group.
Interest rate
The risk free interest rate is consistent with government bond yields. Dividend yield
The assumptions are consistent with the information given in the financial statements for each relevant valuation year. Staff turnover
The option pricing calculations are split by staffing grades as staff turnover is higher for more junior grades. Furthermore, historical evidence suggests that senior employees tend to hold their options for longer whereas more junior levels within the organisation appear to exercise earlier. In addition, senior employees hold a larger proportion of the options but represent a smaller group of individuals.
Market conditions
The Group issues options that include targets for the Group’s performance against a number of market and non-market conditions. Failure to meet these targets can reduce the number of options exercisable. In some circumstances, no options may be exercised. Assumptions are made about the likelihood of meeting the market and non-market conditions based on the outlook at the time of each option grant.
b) Capital Builder Plan
The Group rewards senior underwriters through payments under the Capital Builder Plan (the Plan) if they achieve performance below the target loss ratio for their class(es) of business or business area over the five-year period of each award under the Plan. Under the scheme rules, the Group has the option to settle the awarded bonus in the shares of the Company or as a cash payment.
Provision for payments of an award under the Plan is calculated every year where actual profits exceed the target profit on a cumulative basis over the performance period to date under the Plan. The rate of accrual for each five-year performance period is determined at the start of the period, reflecting the share of the excess return payable and committed under the terms of the Plan.
Under this approach, the services received and the related liability are recognised as the services are rendered, in that the liability at any point in time for the Plan reflects the level of actual performance by underwriters in relation to the target.
N ANCE FIN AN CIA L ST AT EM EN TS
on derivative financial instruments and collateral received from reinsurance counterparties. Trust funds
Syndicate 2001 holds gross assets of £3,100.5 million (2012: £3,086.9 million), matched by gross liabilities of £2,557.0 million (2012: £2,656.0 million), which are held within individual trust funds. The Group cannot obtain or use these assets until such time as each Syndicate underwriting year is closed and profits are distributed, or an advance profit release is made. Furthermore, £15.4 million (2012: £16.0 million) of Amlin Singapore Pte Limited’s and Amlin Labuan Limited’s assets are held within trust funds and restricted from use within the working capital of the Group until settlement has been made to Syndicate 2001.
LOC facilities
At 31 December 2013, £173.1 million (2012: £176.5 million) of Amlin Bermuda’s assets are restricted for use by the Group. These assets are collateral for the LOC facility drawn at the end of the year. Details are included in note 31. At 31 December 2013, Syndicate 2001 recognised £0.7 million (2012: £0.8 million) of cash drawn down from LOC facilities as a liability on the consolidated statement of financial position. This has been received from reinsurance counterparties as a guarantee for business written and is included within total funds held by Syndicate 2001. Derivative margins and collateral
Derivative instruments traded across the Group give rise to collateral being placed with, or received from, external counterparties. At 31 December 2013, included in other receivables and other payables are £4.7 million (2012: £5.8 million) margins and collaterals pledged and £16.4 million (2012: £2.0 million) margins and collaterals held respectively in relation to listed futures margins and over-the-counter options. Collaterals received under reverse repurchase agreements
Collateral assets received under reverse repurchase agreements amounted to £26.6 million (2012: £nil). These collateral assets have been included in other receivables in note 20.
Reinsurance collateral received
Collateral of £259.8 million (2012: £241.8 million) is held in third party trust funds to guarantee Syndicate 2001 against reinsurance counterparties. Furthermore, collateral of £137.6 million (2012: £184.5 million) and £38.6 million (2012: £32.8 million) is held in third party trust funds as a guarantee against reinsurance counterparties to Amlin Bermuda and Amlin Re Europe respectively. Collateral held in third party trust funds is not recognised as assets pertaining to the Group but is available for immediate drawdown in the event of a default. At 31 December 2013, £3.5 million (2012: £25.6 million) of the funds placed in trust by counterparties of Amlin Bermuda related to specific reinsurance assets. Insurance collateral placed
Syndicate 2001 holds £374.6 million (2012: £342.9 million) of collateral in a US trust fund to meet US regulatory requirements. The Group cannot obtain or use these funds for any other purpose and they are recognised as an asset to the Group. Amlin Europe N.V. has £20.9 million (2012: £22.1 million) of bank guarantees in place to cover insurance counterparties.
Funds withheld as premium/claim deposits
At 31 December 2013, the Group had net funds of £46.3 million (2012: £29.1 million) placed as claim deposits and net £nil (2012: £3.7 million) premium deposits placed with/receivable from external brokers. Amlin Re Europe and Amlin Bermuda have placed a further £16.3 million (2012: £4.4 million) and £2.1 million (2012: £nil) respectively into pledge accounts to collateralise against losses due to reinsurance cedants.
Funds in escrow
At 31 December 2013, the Group holds £14.1 million (2012: £10.0 million) of funds in an escrow account to meet any potential funding requirements of the Lloyd’s Superannuation Fund. Further details are provided in note 3.4.
FINANCIAL S
TA