The crisis in the world financial markets and the performance of the Italian subsidiary were the factors which broke the 27 year history of positive financial results for the Middlesea Group.  The Group registered a loss after taxation of €20.6m for the financial year ended 31^st December 2008 as compared to a profit of €6.9m in 2007.

Mario C. Grech, Executive Chairman of the Middlesea Insurance plc., said that the Group’s focus on the strength of the Balance Sheet over the years had helped it to absorb this loss in 2008, whilst at the same time retaining a strong balance sheet.  All the regulated companies within the Group adequately satisfied the statutory and regulatory solvency margins – with Middlesea Insurance plc holding a 250% solvency cover.

The Executive Chairman observed that the words of caution expressed in his address to the shareholders during the AGM in June 2008, in particular, the potential negative impact on the 2008 results arising from the turbulent international financial markets and the introduction of the CARD system (Convenzione tra Assicuratori per Risarcimento Diretto) in Italy had regrettably, translated into real losses during the financial year. Mr Grech reported that the Group’s investment strategy of preserving capital security whilst maintaining liquidity and maximizing returns, continued to apply throughout the Group.  This strategy had contributed towards the containment of fair value losses incurred during the year.  However, the Group followed the fortunes of the financial sector, and, due to the unprecedented downturn of the local and international investments in equity markets, the Group registered capital losses of €14.7m during the year. These losses were partly offset by capital gains on the portfolio of fixed income securities of €2.6m. He reiterated that none of the companies within the Group held any exposures to those toxic assets which were one of the root causes of the current financial crisis.  Furthermore, the Italian subsidiary Progress Assicurazioni SpA, registered a post tax loss of €19.1m. Whilst these two sources of revenue produced disappointing results in 2008, Mr Grech said that Middlesea Insurance plc, the holding company, had maintained a satisfactory positive technical result of €1.78m from its insurance operations in Malta and Gibraltar.  The associated company Middlesea Valletta Life Assurance Co Ltd and the subsidiary International Insurance Management Services Ltd both contributed positive results to the Group during 2008.

The Board of Directors that met on Monday 27^th April 2009 considered the importance of the Company’s dividend policy, which focused on Balance Sheet strength, together with the equitable distribution of generated profits to Shareholders. However, the Board concluded with regret that, as a result of the loss incurred for the financial year 2008, the Board will not be recommending the payment of a final dividend to shareholders at the forthcoming Annual General Meeting.

The Group registered an overall increase in turnover from its insurance operations in Italy, Malta and Gibraltar of 15% with Gross Premiums Written increasing from €104.2 million in 2007 to €120 million in 2008.  Income generated from insurance management services also increased by 39% from €1.31 million to €1.82 million.  Premium increases arose principally from the Italian operations where an increase of 20% was recorded with premiums reaching €86 million.  Middlesea Insurance plc also registered an increase of 4% in turnover, with total premium underwritten in both general and group life business increasing to €34million.

The holding company, Middlesea Insurance plc (MSI), registered a loss after taxation of €3.6m as compared to a profit of €5.3m in 2007. The company registered an overall positive technical result, which was however outweighed by the capital losses reported on Investments (in local and foreign markets) totalling €7.4m. Additionally MSI booked an impairment provision of €2.5m on its investment in the Italian subsidiary, Progress Assicurazioni SpA.  In accordance with the company’s policy the net technical provisions were strengthened by 6% to €37.1m.

Middlesea Valletta Life Assurance Co. Ltd (MSV), the specialised life company of the Group, registered a profit after tax of €1.92 million during 2008.  Business written decreased by 19% to €110 million (the first slow down registered in 7 years) whilst the company’s total assets increased marginally to €843 million at the end of 2008. The investment return of MSV decreased from an income of €26.5m in 2007 to a loss of €31.8m in 2008, after taking into account fair value mark downs on its investment portfolio, which was valued at €777 million at the end of the year.  The direct impact of the financial crisis on MSV was contained due to a prudent investment policy, whereby the company holds a defensively positioned and widely diversified investment portfolio of quality assets, locally and overseas.

During 2008 the Italian subsidiary of the Group, Progress Assicurazioni S.p.A (Progress), registered a loss after taxation as consolidated in the Group results of €19.1 million The introduction of CARD the mandatory Direct Indemnification system  in Italy during the early part of 2007 has negatively impacted the 2008 technical results. This new system of claims settlement exposed the company to indemnification of its own insured’s loss with a recovery from the tortfeasor’s insurers being inferior to the actual loss settled by the company with the insured. During 2008, Progress Assicurazioni SpA also undertook a further strengthening of its technical provisions which, together with the unfavourable impact of the CARD system, and the increased claims costs in personal injuries and fatalities, impacted negatively on the results.  Progress strengthened its technical provisions during the year by 28% to €160m. The solvency margin of the company remained strong with a solvency cover of 153% after an additional injection in capital of €1.96m, as recommended by the Board of Directors meeting held on the 6^th April 2009.

The Group is undertaking a management restructuring at Progress in key areas (including Underwriting, Claims and Management of Intermediaries), in order to secure the further reinforcement of all resources, with the ultimate objective to successfully meet the new challenges prevailing within the Italian market.  The strategy of the company is also being actively re-visited, to reflect the current and future market business cycle. Pruning of the agency/intermediary portfolio, and a focus on geographical and business mix are high priorities for the company, as is ensuring an adequate pricing tariff that is commensurate with the risks being underwritten. Premium rate increases have also been initiated, but these are subject to regulatory provisions, which affect the timely implementation of such revisions.

The Group’s subsidiary providing insurance management services to the Group and International clients, International Insurance Management Services Ltd (IIMS) further strengthened its international client base during the year.  The financial performance of this company contributed a positive result to the Group of €0.98m as compared to €0.67m in 2007.

Mr Mario C Grech said:  “The Middlesea Group will continue to focus on future challenges that arise continually from market forces and increased statutory and regulatory requirements.” He reiterated “the importance of revisiting the Group re-structuring for the purpose of enhancing clarity and segregation for regulatory, risk and capital rationalisation. These planned changes, once approved by the shareholders, will facilitate the achievement of the Middlesea Group’s long term strategy.”

Mr Grech concluded “The prospect of an immediate return to profits becomes even more challenging when considering the current economic environment and the prevailing uncertainties in the financial markets. The companies forming the Group follow the fortunes of the countries in which they operate which in turn are showing signs of soft market conditions and cut-throat competition. Nonetheless, our collective determination is to overcome these mammoth tasks, and this remains the major objective for 2009.”

Middlesea Insurance p.l.c. is authorised by the Malta Financial Services Authority to carry on both Long Term and General Business under the Insurance Business Act, 1998. COM270409150