Corporate Governance - Statement of Compliance

In accordance with the Rule 8.25 of the Malta Financial Services Authority Listing Rules, listed companies should endeavour to adopt the Code of Principles of Good Corporate Governance (the “Principles”) included in the said Listing Rules. Listed companies are required to include a Statement of Compliance in their Annual Report providing an explanation of the extent to which they have adopted the Principles (Listing Rule 8.26). They are also required to state the effective measures taken to ensure compliance with the Principles (Listing Rule 8.27). The Auditors, in the Annual Report, are to include a report on the Statement of Compliance. Middlesea Insurance plc (the “Company”) adopted the Principles on their introduction and continues to view them as being consistent with its own views. In certain areas, the governance procedures applied within the Company have been amended to implement the recommendations included in the Principles. Having regard also to other recognised models of corporate governance, the Company has in places retained or adopted alternative measures. 

Responsibilities of the Board

The Board acknowledges its statutory mandate to conduct the administration and management of Company.  The Board, in fulfilling this mandate and discharging its duty of stewardship of the Company, assumes responsibility for the following:

(a) Setting business objectives, goals and the general strategic direction for management with a view to maximise value

(b) Reviewing and approving the business plans and targets that are submitted by management and working with management in the implementation of these plans;

(c) Identifying the principal business risks of the Company and overseeing the implementation and monitoring of appropriate risk management systems;

(d) Ensuring that effective internal control and management information systems for the Company are in place;

(e) Participating in the appointment of the Company’s executive officers and assessing their performance including monitoring the establishment of appropriate systems for succession planning and for approving the compensation levels of such executive officers; and

(f) Ensuring that the Company has in place a policy to enable it to communicate effectively with shareholders, other stakeholders and the public generally.

The Board delegates authority and vests accountability for the Company’s day to day business with a management team led by the Chairman and Chief Executive Officer (CEO)

Co-ordination of management activities is ensured through the operation of a Corporate Management Committee that is led by the Chairman and CEO.  It brings together the General Managers of the Company and of its subsidiaries and principal associated company, including Middlesea Valletta Life Assurance Company Limited, Progress Assicurazioni SpA and International Insurance Management Services Limited, together with one non-executive Director from each company.

Composition of the Board

As regulated by the Company’s Articles of Association and consistent with generally accepted practices in Malta, the appointment of directors to the Board is reserved exclusively to the Company’s shareholders.  A shareholder holding not less than 7% of voting rights of the issued share capital or a number of shareholders, who between them hold not less than 7%, shall appoint one Director for every such 7% holding by letter addressed to the Company; eight members of the Board were appointed in 2003 in terms of this rule.  All shares not utilised to make appointments in terms of the above shall be entitled to vote at the Annual General Meeting, leading in 2004 to the election of a further six directors.  All the directors so appointed or elected serve on the Board in a non-executive capacity.

Pursuant to the Company’s Articles of Association, Mr. Mario C. Grech, as a person holding a senior managerial position in the Company, was appointed at the Annual General Meeting through a separate election open to all shareholders. Mr M. C. Grech holds the position of Chairman of the Board and CEO of the Company. Middlesea is satisfied that the Company is nevertheless compliant with paragraph 2.3 of the Principles since it has put in place a balanced management structure comprising, inter alia, the Corporate Management Committee and various Board Committees.  

Regulatory requirements require that, prior to being appointed or elected directors, nominees undergo a screening process by the Malta Financial Services Authority.

Remuneration of directors

The Chairman has declined receiving a fee together with two other directors in accordance with the established policy of the shareholders companies with which they are employed and which appointed them. Fees payable to non-executive directors in respect of 2004 have therefore amounted to Lm37, 500. Contracted emoluments paid to the executive director amounted to Lm38, 669, as disclosed in note 9 to the financial statements. The Company has paid insurance premium of Lm 5976 during the year in respect of insurance cover in favour of its directors Furthermore, provisions of Lm 32,768 have been made in respect of contracted pension obligations.

Board Committees

The activities of the Board and of the Company’s senior management team are supported by standing committees designed to assist in specialist activities and in governance issues. 

Group Investments Committee

The Group Investment Committee meets monthly and constitutes Mr. Mario C Grech,  Mr Roderick Chalmers, Mr Tonio Depasquale and Mr. Frank Xerri de Caro directors, together with Mr. Emanuel Ellul, Dr. Reno Borg, Mr Luigi Lubelli, directors from Group Companies, and five members of management  The Committee oversees the investment activities of the Group, setting overall policies and guidelines, scrutinising and approving material transactions and monitoring results.  Any investment exceeding Lm500, 000 requires Board approval.

The Audit Committee

The Audit Committee meets at least eight times a year. It is composed of Mr Lino Spiteri (Chairman), Mr Hugh Attard Montalto, Mr. Domingo Sugranyes Bickel and. Mr Roderick Chalmers.  Its terms of reference, as approved by the Board of Directors, are modelled mainly on the recommendations of the Cadbury Report and its Principles.  They include, inter alia, the responsibility of reviewing the financial reporting process, the system of internal control and management of financial risks, the audit process, and the Company’s process for monitoring compliance with laws and regulations and its own core of business conduct.  The Internal Auditor attends the meetings of the Committee.  The external auditors are invited to attend specific meetings of the Audit Committee and are entitled to convene a meeting of the committee if they consider that it is necessary.

The Remuneration Committee

A Remuneration Committee composed of Dr. John C Grech, Dr. Michael Sparberg, Mr. Frank Xerri de Caro and Mr Victor Galea Salomone was established by the Board.  This committee concentrates on establishing Directors’ fees and monitoring and ensuring the fair compensation of members of the Group’s senior management team.  The Remuneration Committee meets at least four times a year.

The Compliance Committee

The Compliance Committee meets at least four times a year. It is chaired by Dr. Robert A Staines and also comprises the Company Secretary, who serves as Compliance officer for all companies within the Group in Malta, and by the General Managers of the Group companies. Sapiano and Associates act as legal advisors to the Committee. The committee, in conjunction with the group Compliance Unit that reports to it, is concerned with establishing procedures to ensure compliance with all applicable laws and regulations, and with the prevention, detection and/or resolution of compliance problems.

The Compliance Committee has approved a document entitled “Code of Dealing” addressed to its directors and senior officers as well as the directors and senior officers of its subsidiaries. The aim behind this code is to ensure compliance with the Principles and the dealing rules contained in Listing Rules 8.34 to8.44. The Company has in place a system for recording all advance notices received in connection with permitted dealings by directors and senior officers and acknowledgements of such advance notices. Furthermore, the Company will be requesting all directors and senior officers for a confirmation with the Code of Dealing on a yearly basis.

In the case of Progress Assicurazioni SpA, a company incorporated in Italy, the Collegio Sindacale is appointed, in terms of applicable Italian law, to act as the Compliance Committee.

Corporate Management Committee

The Corporate Management Committee meets at least four times a year. It is delegated by the Group Companies’ Boards of Directors responsibility for the overall coordination and supervision of the performance of the individual companies and the group as a whole in operative and administrative matters; for the implementation of strategic plans and objectives and for the adoption of decisions within the faculties that may be determined by the Boards. Mr M. C. Grech, CEO, chairs the Corporate Management Committee and its members include the General Managers, Dr Evelyn Caruana Demajo, Mr Tonio Depasquale and Mr Luigi Lubelli.

Risk Management Committee

The Risk Management Committee meets quarterly, Mr George Bonnici, Mr Gaston Debono Grech together with the General Managers of the Group companies constitute the Committee. It is responsible for creating the environment and the structures for risk management to operate effectively.

The exercise of the role of the Board

The activities of the Board are exercised in a manner designed to ensure that it can function independently of management and effectively supervise the operations of the Company. 

In connection with each Board Meeting, the directors are served with a report by management.  This report sets out the Company’s management accounts since the date of the previous Board Meeting; includes a management commentary on the results and on relevant events and decisions; and sets out background information on any matter requiring the approval of the Board.

Apart from setting the strategy and direction of the Company, the Board is actively involved in monitoring progress against plans, in approving material or significant transactions. 

The Board also monitors closely the key risk management policies and processes employed by the Middlesea Group, and which are central to the nature of its operations.  These policies and processes deal, inter alia, with issues such as:

(a) the reinsurance programme maintained by the Group, ensuring the right balance between risk and reward and ensuring that the level of risk retention, particularly in the event of catastrophe, is consistent with the Company’s resources

(b) the quality and creditworthiness of the reinsurance counterparties dealt with, to ensure the effectiveness of the reinsurance programme

(c) assessing pricing strategies in relation to the level of risk assumed and to market conditions generally

(d) the measures adopted to manage foreign currency risks both in relation to assets and to liabilities

(e) the measures adopted to ensure a balanced mix of investments

(f) the internal controls and other disciplines maintained, both within Group companies and within agents and other intermediaries, to ensure the proper conduct in good faith of all operations; and

(g) the level of capital resources supporting each business activity, to ensure adequate solvency both from a regulatory and business perspective.

The Board has direct access to the external auditors of the Company, who attend at Board meetings at which the Company’s financial statements are approved.  Moreover, in ensuring compliance with statutory requirements and with continuing listing obligations, and in addition to the input of the Compliance Committee, the Board is advised directly, as appropriate, by its appointed broker, legal advisor and external auditors.

Directors are entitled to seek independent professional advice at any time on any aspect of their duties and responsibilities, at the Company’s expense.

It is the practice of the Board that when a potential conflict of interest arises in connection with any transaction or other matter, the conflict of interest is declared and the individual concerned refrains from taking part in proceedings relating to the matter or decision.  The Board minutes include a record of such declaration and of the action taken by the individual director concerned.  In all other circumstances, the directors play a full and constructive role in the Company’s affairs.

During the 2004 financial year, the Board held five meetings.

Communications with Shareholders

Pursuant to the Company’s statutory obligations in terms of the Companies Act and the MFSA Listing Rules, the Annual Report and Financial Statements, the declaration of a dividend, the election of directors, the appointment of the auditors and the authorisation of the directors to set the auditors' fees, and other special business, are proposed and approved at the Company’s Annual General Meeting.  The Board of Directors is responsible for developing the agenda for the General Meeting and sending it to the shareholders.

The Company communicates with its shareholders by way of the Annual Report and Financial Statements, by publishing its results on a six-monthly basis during the year, and through periodical Company announcements to the market in general.  The level of disclosure adopted in the Annual Report is designed to go beyond statutory obligations, to serve as an effective means of communication and information on the Company’s business.  It is further amplified upon in the presentations given to shareholders in the course of the Annual General Meeting.

Going Concern

The directors are satisfied that, having taken into account the strength of the Group’s balance sheet, solvency margins and Group profitability, it is reasonable to assume that the Company and Group have adequate resources to continue operating for the foreseeable future. For this reason, the Directors have adopted the going concern basis in preparing the financial statements.