Middlesea registers 'impressive' Lm6.5 million pre-tax profit

Middlesea Insurance plc registered a pre-tax operating profit of Lm6.51 million for the year ended December 31, 2005, an increase of 79% over 2004. Mario C. Grech, chairman of the MSI Group, said this was mainly the result of the strong technical performance registered across all business activities by all companies within the Middlesea Group, which included a favourable run-off in incurred claims, a strong investment return from capital markets (particularly in the domestic market), the implementation of revised International Financial Reporting Standards (IFRSs) and the company's focus on improving cost efficiency.

The board of directors, meeting on Friday, agreed that, in line with the company's dividend policy that ensures the enhancement of its balance sheet and future sustainability, they would recommend the payment of a final dividend of 7c per share, totalling Lm875,000, an increase of 17% over last year.

In addition, to mark Middlesea's 25th anniversary, a special dividend of 3c per share (totalling an additional Lm375,000) was also being recommended.

The board is also recommending a share split, through which each share of a nominal value of 50c will be split into two shares of 25c each.

As reported in 2004, Mr Grech stated: "Our strategic direction continued to be executed on the basis of consolidation for the short to medium term in a highly challenging, competitive scenario, both in the local and overseas markets."

The Group's companies continued to apply strict underwriting guidelines and a continuous drive to achieve a desirable business mix in the overall portfolio. This resulted in a decrease of 6% in premium income to Lm33.8 million.

Shareholders' funds (including MSI's share of the embedded value in Middlesea Valletta Life) grew to Lm30.95 million. The net asset value per share increased to Lm2.48 and the earnings per share went up by 81% to 38c5.

Total Group assets increased by almost 6% to Lm108.4 million. The board implemented changes to the Group's accounting policies in accordance with updates in the IFRSs, which became effective on January 1, 2005.

In 2005, the Group adopted the Fair Value Accounting option whereby movements in the fair value of investments were recognised in the Profit and Loss Statement. In line with IFRSs, the comparatives for 2004 were also restated to ensure consistency.

Mr Grech said the implementation of revised accounting standards, together with the inherently uncertain nature of insurance business, meant that the reported results of insurance companies are exposed to considerable volatility.

"Both capital markets and the insurance market are prone to cyclical movements," he said, noting that Middlesea's Financial Year 2005 results had benefited from favourable movements in both markets.

It was encouraging to note that the Group's general business net operating ratio (net of reinsurance but before allocation of investment income) has improved to 95.2%, Mr Grech said. A positive claims reserve run-off has impacted favourably on this result.

A return of 21.2% was registered on capital employed, and the gross technical reserves remained very robust at Lm60.3million. The ratio of net technical reserves to net premiums written increased to 181%.

The Italian subsidiary Progress Assicurazioni SpA consolidated its position and, following a strict pricing policy in 2005, booked a gross premium of Lm19.9 million. It also continued to assess its agency network performance criteria in somewhat prevailing soft market conditions.

The management continued to work on a new development plan which aimed to curb the shortfall in business resulting from the application of these policies as well as to create further growth in identified market segments and products.

Through the acquisition last July of just under 40%, from Corporacion Mapfre, MSI's current holding in Progress Assicurazioni SpA increased to 89.98% with the associate Middlesea Valletta Life Company (MSVL) holding 10% and the balance held by individuals.

In 2005 after consolidation adjustments Progress Assicurazioni SpA contributed Lm2.1million before tax to the MSI Group.

International Insurance Management Services (IIMS) continued to project Malta's efforts to attract international companies, including insurers and reinsurers, to register and operate from Malta. These efforts were reflected in the registration of the first insurance company under the new legislative regime.

Malta's accession to the EU has triggered considerable interest from international companies in the Maltese financial centre, which has over the years established itself as an attractive jurisdiction in the EuroMed region.

The Group's investments (excluding its investment in MSVL) amounted to Lm67.8 million, which generated an investment income (after expenses) of Lm4.6 million, of which fair value movements from both local and foreign markets amounted to Lm2.2 million.

In 2005 Middlesea's associate Middlesea Valletta Life Assurance Company (MSVL) continued with its success story. The company increased its competitive advantage through its varied distribution network. Business generated, including non-participating contracts, increased to Lm39.3million.

The company continued to meet customer demand for products with and/or without discretionary participation features. The life fund increased by 34% to Lm218.6 million and total investments increased by 34% to Lm224.4 million.

MSVL contributed positively to the Group's overall result, with a share of profit after tax of Lm1.16 million. The benefit of the investment in MSVL was also reflected in the increase of the total discounted value of projected future profits on secure business (embedded value) to Lm16.6 million during 2005.

Mr Grech said: "In 2005 MSI continued to strengthen its strategic alliance with Bank of Valletta plc (BoV) by registering parity in shareholding at 50% each in MSVL. Middlesea Valletta Life will concentrate on potential opportunities overseas, with emphasis on the southern market in Italy.

"Our future direction remains embedded in our consistent strategy of attaining a balanced business mix from a geographical spread through varied distribution. We are encouraged by the 2005 result, which was achieved through the concurrent contribution from various segments of our operation."

The chairman cautioned that future expectations need to be based on a prudent analytical appreciation. "It remains fundamental to approach the future imponderables with prudence but with an absolute resolve to succeed. With the strength of its balance sheet, MSI is in a strong position to continue on its path of growth and development both locally and overseas."

MSI is celebrating the 25th anniversary since its establishment on June 29, 1981. Mr Grech therefore deemed it appropriate to end by thanking long-standing shareholders, including international partners Münchener Rückversicherungs Gesellschaft (Munich RE), Corporacion Mapfre S.A, Assicurazioni Generali SpA and local strategic partner BoV, together with directors, management and staff of the Group companies who together contributed to this success story.