Strong results and the approval of a two-for-one share split were the main outcomes of Middlesea Insurance plc's 25th annual general meeting last Friday at the Hilton Conference Centre, Portomaso.
In line with Middlesea's dividend policy to enhance its balance sheet and ensure future sustainability, the meeting approved distribution of a final dividend of 7c per share, amounting to Lm875,000, an increase of 17% over last year.
To mark Middlesea's 25th anniversary, the meeting also approved the payment of a special commemorative dividend of 3c per share, amounting to Lm375,000. This will again be paid from the company's untaxed account, which is subject to a final withholding tax of 15% on distribution. This was the 22nd consecutive year that a dividend was declared and distributed.
The resolution approved the split of each share with a nominal value 50c into two shares of 25c each. The process for the share split will be undertaken in accordance with the Bye-Laws of the Malta Stock Exchange. An extraordinary resolution on the option for the company to buy back shares was withdrawn.
Middlesea Insurance chairman Mario C. Grech referred to the development of Middlesea, identifying the milestones that brought the group to its 25th Anniversary. On June 29, 1981, Middlesea Insurance plc was established as the first public insurance company on the island.
Its early beginnings saw it operating as a reinsurer with the role of recipient of the reinsurance legal cession. It became obvious that long-term growth could only be achieved overseas, so the company immediately set up a London contact office. In 1987 it was upgraded to a branch office operating in the international reinsurance market.
The abrogation of the compulsory reinsurance legal cession created an opportunity for the company to refocus its underwriting activities. These consisted mainly of direct underwriting in both general and long-term business (local and overseas) and management services to international companies.
In 1994 two major events occurred: Middlesea, along with Bank of Valletta plc and Münchener Rückversicherungs-Gesellschaft (Munich RE) set up a pioneering bancassurance operation, Middlesea Valletta Life Assurance Co. Ltd; and Middlesea Insurance plc was listed on the Malta Stock Exchange, while the shareholding was restructured in an orderly manner.
Initially, the company's shareholders were primarily parastatal companies. As the company evolved into an indigenous composite insurer, the shareholder base was restructured over time to reflect changes in strategy.
In June 2000, in line with Middlesea's development strategy, the company obtained a licence from the Gibraltarian Financial Services Commission to operate a branch. That same year, Middlesea purchased 51% of the share capital of the Italian insurance company Mapfre Progress SpA. The company was later renamed Progress Assicurazioni SpA.
Last year, Middlesea bought Corporación Mapfre's holding, increasing its own to 89.98%. Middlesea Valletta Life holds 10%, with the balance held by individuals.
International Insurance Management Services Ltd (IIMS) was established in 1991 to act as an insurance manager specialising in captive formation, risk management, and offering administrative and other management services to insurance, reinsurance and affiliated insurance companies operating in and from Malta.
In 2005, Munich RE acquired the remaining shares held by the Government of Malta, increasing its shareholding to 19.9%. Corporación Mapfre consolidated its position by increasing its shareholding to 21%. So, the shareholding today includes prestigious international names in financial services, together with Middlesea's local strategic partner Bank of Valletta.
Today, 25 years on, Middlesea has grown into a group of general, long-term insurance and insurance management companies with emphasis on primary insurance markets locally and overseas. The operations of all group companies contributed positively to the overall result, and it was appropriate that on the 25th anniversary an operating profit before tax of Lm6.51m was registered for the year ended December 31, 2005 - an increase of 79% over 2004.
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 (IFRSes) and the company's focus on improving cost efficiency.
Last year the group companies continued to apply strict underwriting guidelines and maintained a continuous drive to achieve a desirable business mix in the overall portfolio. This was sustained by the group's strategic direction, based on consolidation for the short to medium term in a highly challenging competitive scenario, both in the local and overseas markets.
The gross written premiums of the holding company, Middlesea Insurance plc, were Lm13.90 million. The technical result was impacted favourably by a net claims run-off of Lm0.98 million. Middlesea's uniquely balanced distribution range covering agents, brokers, sub-agents and direct sales meant that there was less dependence on any one product or distribution channel.
Progress Assicurazioni SpA consolidated its position and, through its pursuance of a strict pricing policy in 2005, booked a gross premium of Lm19.9 million. Furthermore, it continued to assess its agency network performance criteria in prevailing soft market conditions.
Through the application of these policies, the management continued in its work to curb the shortfall in business, as well as to create further growth in identified market segments and products. In the short to medium term, the market is expected to remain highly competitive with a likely adverse effect on its profit margin.
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 European Union has triggered considerable interest from international companies in the Maltese financial centre, which, over the years, has established itself as an attractive jurisdiction in the EuroMed region.
Middlesea Valletta Life Assurance Company (MSV) continued with its success story, increasing 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.
The board believed that good corporate governance, and an understanding of the impact of operations locally and overseas, were important aspects of the way business was conducted. The adoption of corporate governance principles remained high on the agenda through the various group committees whose duties were set out clearly in formal terms of reference, which would continue to be reviewed in accordance with future required changes.
As new challenges continued to emerge, Middlesea Group operated to high standards of ethics and corporate governance and had a demanding programme of corporate social responsibility. Mr Grech emphasised that correct pricing was of fundamental importance, and rates had been adjusted to reflect the new risk dimensions.
The risk management of cash flow was continually monitored. Underpinning this was the drive to ensure adequacy of capital. Solvency II, the EU-initiated concept, which aims to create a more risk-related solvency model, was a key priority and was likely to have an impact on future capital requirements of the companies within the group. In this context, the group continued to review its planned growth.
The implementation of revised accounting standards, together with the inherently uncertain nature of insurance business, meant that the reported results of insurance companies were exposed to considerable volatility. Both capital markets and the insurance market were prone to cyclical movements.
With this in mind, it became imperative that the companies within the group ensured the application of fundamentals. This would enable Middlesea to manage the level of business, achieve a balance between value creation and capital adequacy, and continue to strive to be a low-cost producer, quality service provider and insurer of choice.
Future expectations needed to be based on a prudent analytical appreciation, so it remained fundamental to approach the future imponderables with prudence but with an absolute resolve to succeed.
Mr Grech concluded: "Middlesea's future direction is based on its clear strategy of providing a broad range of products through multi-channel distribution, applying technically correct pricing, ensuring adequate reserving, pursuing growth with a territorial spread and portfolio mix, together with an absolute resolve to succeed.
"We will continue to employ an efficient capital structure across the Middlesea Group through the allocation of our shareholder equity with the ultimate aim of maximising our potential for profitable growth. 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.
"Underlying this is our awareness of our size. It is our belief that there is scope for a medium sized company specialising in niche areas and operating in an international market. We can provide a professional personal service of high quality and a strong financial base.
As I have always maintained, we have to be realistic in our approach and keep in mind that our objective of seeking growth overseas is a continuous uphill task in its own right. Now, more than ever, insight into tomorrow is the difference between success and failure.
"The past should only be looked at as a platform for learning purposes, focusing our attention on the expected changes in the international market. We should adopt a positive outlook by focusing our endeavours to maximise on positive opportunities, which will continue to present themselves through the continuous process of 'change'."
Roderick E. Chalmers, Tonio Depasquale, Dr John C. Grech, Andres Jimenez Herradon, Dr Michael Sparberg, Domingo Sugranyes Bickel, Frank Xerri de Caro and Joe F.X. Zahra have been appointed to the board of directors.
Since there were as many nominations as there were vacancies, the following were automatically appointed directors: George Bonnici, Dr Evelyn Caruana Demajo, Alessandro Corsi, Gaston Debono Grech, Victor Galea Salomone and Lino Spiteri.
Mr Grech was re-elected director of the company until the end of the 26th AGM. Immediately after the meeting, the board appointed Mr Grech chairman and Mr Chalmers as deputy chairman.