Italian subsidiary outweighs Middlesea’s profitable local operations

Consolidated Middlesea Group Results for the six months to June 30 have been materially impacted by the negative results registered by the Italian subsidiary Progress Assicurazioni SpA, executive chairman Mario C. Grech said in his review at the group’s general meeting..

The local business operations of Middlesea Insurance plc. (MSI) Middlesea Valletta Life Assurance (MSV) and International Insurance Management Services (IIMS) continued to achieve favourable results. But their positive contribution from was outweighed by the loss registered by Progress Assicurazioni. The severe challenges of the Italian market persisted in the first six months of the year and as a consequence, the group registered a loss before taxation of €17.7 million.

Total income from the operations in Malta and Gibraltar after allocation of investment income amounted to €1.53 million. This was a marked improvement from the €0.14 million loss registered in June last year. The significant improvement on the company’s investment income, together with the positive technical performance yielded a total profit from operations (excluding any Group dividend income) of €1.28 million, as compared to a loss of €1.54 million as at June 2008.

Middlesea Valletta Life Assurance (MSV) registered a profit before taxation of €0.5 million. However, the results for the period were impacted by a disproportionately high taxation charge of €1.1 million, arising from the somewhat anomalous taxation treatment of capital gains and losses.

“Following a difficult first quarter, the period since March has seen a marked improvement in sentiment in the investment markets, which improvement has benefited the MSV portfolio,” remarked Mr Galea remarked.

He noted that this improvement mainly impacts the policyholders’ funds rather than the emerging profits to shareholders.

The improvement of such performance in favour of policy holders resulted in an increase in the long term technical business provision of €34 million, while the technical provisions for linked liabilities also increased by €1.28.

Total shareholders’ funds of MSV stood at €90 million at end June 2009, and shareholders committed to subscribe to a further capital increase of €2.5 million by the end of August to further strengthen the capital base of the company in order to accommodate the continuing growth of its operations.

Turning to the operations of the Italian subsidiary, Progress Assicurazioni SpA (Progress), the chairman said that these had persisted in the negative territory, and contributed a loss of €19.4 million to the Group results for the half year.

The further strengthening of technical reserves resulted in an unfavourable movement on prior year’s claims of €16.6 million, and this had contributed to 86 percent of the consolidated loss for the period.

‘As reported during the annual general meeting held in June, the whole Italian motor liability market is going through a negative cycle’ observed Mr Grech, stating that this was partly due to the impact of the introduction of the Convenzione tra Assicuratori per Risarcimento Diretto, but also due to increased claims costs and frequency, and increased moral risk.

Progress, which is predominantly a motor liability insurer, along with the rest of the Italian market, is suffering from these negative trends.

Mr Grech stated that during 2008 and 2009, a number of actions directed at improving the situation of Progress were undertaken.

These included a management restructuring at Progress, curtailment of certain classes of business, implementation of premium rate increases, termination of poorly performing agencies and the engagement of external claims handling experts.

The reinsurance programmes of Progress continued to be evaluated, and these have been further strengthened with the purchase of additional cover for losses occurring during 2009.

The chairman remarked that the board of directors decided that the level of business undertaken by Progress should be significantly curtailed, and the company was in discussion with the relevant regulatory authorities in this regard.

The loss registered by Progress during the first six months of 2009 also negatively impacted the level of shareholders’ funds of the company, and in accordance with the prevailing regulatory requirements, an injection of €4.9m of capital would take place following an extraordinary general meeting next month.

The group’s subsidiary providing insurance management services to the Group and international clients, International Insurance Management Services (IIMS), registered positive results. Fee income increased from €0.77 million last year to €0.98 million this year, and the company contributed €0.24 million to the pre-tax results of the Group compared to the €0.17 million contributed last year.

The group’s total assets increased by 2.1 percent during the period, with total assets now amounting to €322.5 million. The reported Group loss for the period has however, resulted in a decrease in shareholders’ funds which reduced by 27 percent to €45.2 million.