The Executive Chairman, Mr Mario C. Grech said that ‘the consolidated Group Results for the six months to 30 June 2009 have been materially impacted by the negative results registered by the Italian subsidiary Progress Assicurazioni SpA. This was reported in the Chairman’s review given during the last Annual General Meeting held in June 2009 and subsequent Company announcements issued on the 15 May and 19 August 2009. The local business operations of Middlesea Insurance plc. (MSI) Middlesea Valletta Life Assurance (MSV) and International Insurance Management Services (IIMS) continued to achieve favourable results. However the positive contribution from these domestic operations have been outweighed by the loss registered by Progress Assicurazioni. The severe challenges of the Italian market have persisted during the first six months of 2009. As a consequence the Group on a consolidated basis registered a loss before taxation of €17.7 million for the half year ended 30 June 2009’.
 
The Chairman stated that domestic insurance operations had performed well, with total income from the operations in Malta and Gibraltar after allocation of investment income amounting to €1.53 million. This was a marked improvement from the loss of €0.14 million registered as at June 2008. The significant improvement on the company’s investment income, together with the positive technical performance yielded a total profit from operations (excluding any Group dividend income) of €1.28 million, as compared to a loss of €1.54 million as at June 2008.

Middlesea Valletta Life Assurance (MSV) registered a profit before taxation of €0.5 million. However, the results for the period have been impacted by a disproportionately high taxation charge of €1.1 million, arising from the somewhat anomalous taxation treatment of capital gains and losses. ‘Following a difficult first quarter, the period since March has seen a marked improvement in sentiment in the investment markets, which improvement has benefited the MSV portfolio,’ remarked the Chairman, noting that this improvement mainly impacts the policyholders’ funds rather than the emerging profits to shareholders.  The improvement of such performance in favour of policy holders resulted in an increase in the long term technical business provision of €34 million, whilst the technical provisions for linked liabilities also increased by €1.28. Total shareholders’ funds of MSV stood at €90 million at end June 2009, and shareholders have already committed to subscribe to a further capital increase of €2.5 million by the end of August 2009 to further strengthen the capital base of the company in order to accommodate the continuing growth of its operations.

Turning to the operations of the Italian subsidiary, Progress Assicurazioni SpA (Progress), the Chairman stated that these had persisted in the negative territory, and contributed a loss of €19.4 million to the Group results for the half year. The further strengthening of technical reserves resulted in an unfavourable movement on prior year’s claims of €16.6 million, and this had contributed to 86% of the consolidated loss for the period. ‘As reported during the Annual General Meeting held in June 2009, the whole Italian motor liability market is going through a negative cycle’ observed Mr Grech, stating that this was partly due to the impact of the introduction of the Convenzione tra Assicuratori per Risarcimento Diretto (CARD), but also due to increased claims costs and frequency, and increased moral risk. Progress, which is predominantly a motor liability insurer, along with the rest of the Italian market, is suffering from these negative trends.

Mr Grech stated that during 2008 and 2009, a number of actions directed at improving the situation of Progress have been undertaken, and that these included, a management restructuring at Progress, curtailment of certain classes of business, implementation of premium rate increases, termination of poorly performing agencies and the engagement of external claims handling experts. Furthermore, the reinsurance programmes of Progress continued to be evaluated, and these have been further strengthened with the purchase of additional cover for losses occurring during 2009.

The Chairman remarked that the Board of Directors have determined that the level of business undertaken by Progress should be significantly curtailed, and the company is in discussion with the relevant Regulatory authorities in this regard. As he had reported during the Annual General Meeting, given the nature of the insurance business, the impact of the corrective measures undertaken do not have a direct and immediate impact on results; ‘however the Board of Directors remains totally focused on the continuous implementation of the necessary corrective measures, and these efforts will be on-going” said Mr Grech.

The loss registered by Progress during the first six months of 2009 has also negatively impacted the level of shareholders’ funds of the company, and in accordance with the prevailing regulatory requirements, an injection of €4.9m of capital will take place following an Extraordinary General Meeting of Progress, scheduled for the beginning of September 2009.

The Group’s subsidiary providing insurance management services to the Group and international clients, International Insurance Management Services (IIMS), has registered positive results. Fee income increased from €0.77 million last year to €0.98 million this year, and the company contributed €0.24 million to the pre-tax results of the Group compared to the €0.17 million contributed last year. IIMS’s international client base now contributes 23% of its revenue. The subsidiary actively pursues insurance/reinsurance companies and captives that favourably consider setting up and operating from Malta.

Mr Grech noted that the improved sentiment in the world capital markets witnessed during the second half of the period under review, together with the cautious implementation of the revised investment strategy, had resulted in a net positive investment income for the Group of €2.77 million, a marked improvement from the net loss of €3 million registered in 2008.

The total assets of the Group increased by 2.1% during the period, with total assets now amounting to €322.5 million. The reported Group loss for the period has however, resulted in a decrease in shareholders’ funds which reduced by 27% to €45.2 million.

The Chairman stated that ‘the Board of Directors believes that given the losses incurred in 2008 and the first half of 2009, it would be appropriate to strengthen the Group balance sheet through the raising of additional capital.  Discussions are ongoing with major shareholders and Regulators in this regard, and further information will be provided to all shareholders via a Company Announcement and a Special Meeting immediately there are more specific developments to report.’

The Executive Chairman, Mr Mario C Grech explained that the core operations of Middlesea’s local insurance businesses continued to register positive results during the first six months of 2009.  The stability in insurance premiums underwritten by the local operations, together with a positive technical result, present a satisfactory result overall. The consistent strategy of Middlesea Insurance plc to adopt a strict underwriting policy and strength in its reserving policy and thus focusing on the underwriting results rather than turnover remain the important elements of how the company continues to do business.  The associate company Middlesea Valletta remains wholly committed to delivering on its commitments to the policyholders through a prudent investment strategy. Shareholders’ equity in MSV amounted to €90 million as at the 30 June 2009

The Chairman remarked that operations of the Italian subsidiary remain the biggest challenge for the Group during the remainder of 2009. The implementation of the detailed measures in curtailing the operations are vital and are directed at contributing to the future stabilization of the results of the operation. The Board of Directors continues to monitor this subsidiary closely, and is committed to implement further measures as deemed appropriate following discussions with the relevant Regulators. Mr Grech stated that the Board is also actively reviewing the balance sheet position of the Group, in order to continue to maintain, as has always been the case, the strength of its shareholders’ funds, which provide it with the necessary capital to sustain the growth of its local operations, and provide stability for its Italian subsidiary. ‘The remainder of financial year 2009 is expected to continue to present a challenge for the Middlesea Group results, since the companies forming the Group follow the fortunes of the countries in which they operate.  The Italian market is the dominant factor which has outweighed the positive contributions of the other Group companies operating in Malta. The prospect of a return to profitability together with the enhancement of the Group balance sheet, remain the priority tasks of the Board over the immediate future,’ concluded Mr Grech.

The Board of Directors do not propose to pay an interim dividend for the half year ended 30 June 2009 (2008 – nil)

The Middlesea Group is composed of Middlesea Insurance p.l.c. (C-5553), International Insurance Management Services Ltd. (C-23610) and Progress Assicurazioni SpA.

Middlesea Valletta Life Assurance Co. Ltd (MSV) (C-15722) is an associate company of Middlesea Insurance p.l.c. Growth Investments Ltd. (C-21821) is a subsidiary of MSV.

All the Companies are authorised by the respective regulatory authorities in Malta and Italy. 

Euro Globe Holdings Ltd. (C-30503), Church Wharf Properties Ltd. (C-25653) and EuroMed Risk Solutions Ltd. (C-37185) also form part of the Middlesea Group.

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