Mario C. Grech, Chairman of the Middlesea Group, has announced that Middlesea registered an operating profit on ordinary activities before tax of Lm2.21 million for the year ended 31 December 2004 (Lm1.38 million in 2003).

After several years of difficult market conditions, particularly the results in underlying assets which were adversely affected by depressed international capital markets, Middlesea’s rigorous policy of improving cost efficiency and the result from effective technical operations enabled the delivery of a strong performance across the entire Group.

In view of this strong performance, consonant with Middlesea’s dividend policy, the board of directors is recommending the payment of a final dividend of 6 cents per share, totalling Lm750,000; an increase of 20% over last year.

Gross premiums written in 2004 amounted to Lm35.94 million (€82.7m).  Shareholders’ funds (including MSI’s share of the embedded value in Middlesea Valletta Life) grew to Lm24.07 million (€55.4m).  The net asset value per share was Lm1.93 and the earnings per share increased by 49% to 12c7.  Total Group assets increased by almost 7% to Lm100.2 million (€230.6m).

Though ‘personal lines’ business in Malta is highly competitive and sensitive to price movements, prudence in the application of adequate pricing, commensurate with the underlying risk, produced a considerable improvement in the net underwriting result particularly in the motor class of business.  The current market pricing on property business remains inadequate, particularly when considering the high catastrophe reinsurance costs which were reflected in the negative result obtained.  The liability class also registered a loss as a result of higher court awards.  It is important to note that through the intervention of the Malta Insurance Association, capping was introduced in both the Civil Code and the Motor Vehicles Insurance (Third Party Risks) Ordinance.  These changes together with the EU 4th and 5th Motor Directives were expected to impinge on the expected future results for the overall liability class of business in Malta.  Injury awards need to reflect economic reality and sustainability; otherwise national competitivity will suffer.

In Italy, Progress Assicurazioni SpA continued to pursue a policy of adequate pricing and reserving within a territorial spread and portfolio mix between motor and non-motor business.  In line with its consolidation policy, gross premium written, generated through a network of agents operating in Southern Italy and Sicily, amounted to Lm21.66 million (€49.8m).  After consolidation adjustments and adoption of MSI’s accounting policies, a contribution before tax of Lm0.31 million (€0.7m) was made to the Middlesea Group. 

Mr Grech announced that Middlesea Insurance plc, which held 51% shareholding in Progress since 2000, reached agreement with Corporación Mapfre to acquire their 38.97% holding in Progress Assicurazioni S.p.A., which transaction would be concluded in 2005.  The financing of this specific investment would be attained through a long term arrangement at competitive terms with a leading local financial institution.

In its 10th year of operation, Middlesea Valletta Life Assurance Company Ltd (MSV) contributed positively to the Group’s overall result with the total profit after tax increasing from Lm1.3 million to Lm1.5 million (€3.5m).  The demand for life assurance increased significantly, reflecting enhanced customer confidence and loyalty, MSV registered further expansion in sales, especially from the bancassurance distribution, whereby gross premiums written increased to Lm34.9 million (€80.3m).  The Life Fund improved by 32% to Lm159.1 million (€366.2m).  The benefit of this investment was also reflected in the increase of the discounted value of projected future profits on secured business (embedded value) to Lm12.90 million (€29.7m). 

The Group’s total investments, excluding its share in MSV, amounted to Lm58.06 million (€133.6m) and investment income (excluding unrealised capital gains and share of MSV’s profits) after investment expenses and charges amounted to Lm1.5 million (€3.5m).  In addition to this income, the portfolio recorded an unrealised capital appreciation originating both from the local and foreign markets and this had a positive effect on the reserves of the Group.

International Insurance Management Services Ltd (IIMS) continued with its endeavours to focus on the generation of third party ‘non-risk’ income in the field of management of captive insurance and reinsurance companies operating from Malta, now even more so with the increased international interest in Malta’s financial centre.  The successful contribution of the back office activities provided by this company to the Group contributed to lower overall costs, higher efficiency and gradually improved service levels for our customers.  Continued attention was given to the development of the Group’s human resources, the cornerstone of Middlesea Group.

Adherence to corporate governance principles was demonstrated by the various Group committees who observe clear and formal terms of reference.  Mr Grech highlighted that the board of directors was actively pursuing changes to the Group’s accounting policies in accordance with updates in the International Financial Reporting Standards (IFRSs) which became effective on 1 January 2005.  Full compliance with the International Accounting Standards (IASs) has been adhered to since 1992.  The introduction of a new IFRS for insurance accounting and the updates of IASs therefore was not expected to materially impact upon the results of the Group. 

Mr Grech concluded:

“Over recent years, the insurance sector has experienced a phenomenon whereby limited opportunities precluded insurers from obtaining acceptable results.  Our professional discipline has helped us to achieve our operational projections for the year, in highly competitive markets.  Our consistent strategy will continue to be focussed on providing a broad range of products through multi-channel distribution, applying technically correct pricing, ensuring adequate reserving and pursuing growth with a territorial spread and portfolio mix.  We will continue to employ an efficient capital structure through the allocation of our shareholder equity across the Middlesea Group with the ultimate aim of maximising our potential for profitable growth.

The dynamism of the insurance sector both locally and internationally will continue to present challenges.  Middlesea’s clear future direction through its strategy, enhanced balance sheet and absolute resolve to succeed, encourages us all to do our utmost to continue to achieve positive results, whilst remaining constantly on our guard to deal as best as we can with a continually changing scenario and its imponderables.”

Middlesea Group is composed of Middlesea Insurance p.l.c., Middlesea Valletta Life Assurance Co. Ltd, International Insurance Management Services Ltd, Growth Investments Ltd, Malta International Training Centre Ltd and Progress Assicurazioni S.p.A, all of which are licensed and regulated by their respective Authorities. 

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