Sharper focus at Middlesea Insurance

Middlesea Insurance plc chairman Mario C. Grech led an in-depth briefing for stockbrokers, analysts and the media earlier this month at Middle Sea House, Floriana.

After 25 years of operation, Middlesea felt it was time to refocus the group's attention on its mission statement and business philosophy to ensure the group was more streamlined for the future.

The group organisation structure was revisited, with appointments to the key group companies and functions to enable the lean structure to cater for future requirements.

Other key concerns were addressed, including adequate capital, pricing, positive cashflow and the return on capital employed. Group assets have reached almost $1 billion.

The group's investment strategy was revisited, to ensure more secure capital and the liquidity needed from time to time by the various companies.

The Middlesea Group has engaged international consultants in asset liability management on the eve of Solvency II requirements. Three consultants were considered: Mercers, Tillinghast and Watson Wyatt, with the latter appointed.

A full time risk manager and an actuary have been employed, and a comprehensive risk management exercise is under way, starting with Progress Assicurazioni SpA, the Italian subsidiary. Risk models are being built internally in preparation for Solvency II in 2009-2010.

The group's results were "mixed" with after-tax profit of Lm3.2 million last year, down from Lm4.9 million in 2005. Earnings per share were down to 12c7 (19c3) but the dividend is being increased to 4c5 per share (up from 3c5 - excluding a special 1c5 dividend declared during 2005 because of the 25th anniversary).

Among the reasons for the dip in results Mr Grech gave, were lower investment income as a result of the decline in the capital market and also the company's exposure to the insurance cycle both in Malta and abroad.

2005 had been an exceptional year, with a rising index, the release of Lm1 million from reserves and a one-time non-recurring profit on the transfer of 1% of its shareholding in Middlesea Valletta Life (MSV) to Bank of Valletta to bring the two groups with an equal shareholding of 50%.

"We are very satisfied with the partnership (with Bank of Valletta), which continues to work in favour of our stakeholders, including our policyholders," Mr Grech said.

Return on capital employed was an "acceptable" 13% - the projection was between 10% and 15%, compared to 21% in 2005 and 14% in 2004. Premium income was Lm12 million for Middlesea Insurance's local business (Lm14 million including group life and its Gibraltar business); Progress Assicurazioni's premium income was €54 million (up from €47 in 2005) and MSV's exceeded Lm50 million (+28%). The reserves had been increased "by a considerable margin".

The medium term strategy is to generate increased growth by all group companies. MSI is to focus on continued consolidation of its market share of 25%, while both Progress Assicurazioni and MSV have received capital increases.

On December 29, 2006, Progress announced an increase in its authorised and issued share capital from €17.6 million to €21.6 million. On April 30, following the capitalisation of dividend, a bonus issue was announced and thus the authorised and issued share capital further increased to €22.14 million.

On April 24, 2006, following the capitalisation of dividend, a bonus issue of Lm1.4 million was declared. Concurrently, there was a further issue of Lm1 million, with the issued share capital increased from Lm8.6 million to Lm11 million.

A further issue of Lm2 million took place on December 15, 2006, whereupon the issued share capital increased to Lm13 million. On April 23, following another capitalisation of dividend, the issued share capital was further increased to Lm15 million following a bonus issue of Lm2 million.

"When an insurance company grows, capital has to grow (since) insurance is a very capital hungry sector," Mr Grech said.

MSV is soft launching its services in Italy. Middlesea Group has also applied for the required licenses to operate in southern Spain with special products and there is also the potential to enter the southern Mediterranean market of Morocco.

It is also in talks with potential partners in Greece. Other medium term goals include working to prepare for Solvency II, having a balanced portfolio of motor liability and other classes of business, strengthening the long-term business platform of MSV, having the territorial spread and distribution network and working through intermediaries and technology to continue to grow the business to achieve a rate of return on capital employed of 10%-15%.

Detailed presentations were then made by Beppe Rizzo, chief operations officer of Middlesea Insurance, Stephen Gauci, CEO of Progress Assicurazioni, David G. Curmi, CEO of MSV, Anne Marie Tabone, group chief financial officer, who also heads the subsidiary International Insurance Management Services (IIMS), Marzena Formosa, chief officer (Group Investments) and Elizabeth Carbonaro, chief officer (Group Finance).

Ms Tabone announced that last year IIMS had secured a contract to supply its services to its first third-party client - the subsidiary provides all the back offices services for Middlesea Group companies. Its medium term target is to offer its services to five companies, with a long-term goal of 10-15 companies.

In reply to questions, Mr Grech said MSI had a proactive approach to pensions in the absence of the necessary new regulatory framework. Apart from recruiting a UK pensions specialist, it will be launching regular pension savings products later this year.

"We aim to be in the market before the reform comes about," he said.

On the Italian market, the company is working to ensure its products are suitable. It has the advantage of taking an English culture and building on what it already has.