MSI to offset losses against reserves to restore dividend payout ability

After succeeding to turn its financial results around to a pre-tax profit of €8.86 million last year from a loss of €62.88 million in 2009, Middlesea Insurance plc plans to take immediate action to restore its ability to pay dividends to shareholders, chairman Joseph F.X. Zahra told The Times Business.

Despite this year’s positive result, MSI’s balance sheet is still reeling from the misadventure of the insurer’s Italian subsidiary Progress Assicurazioni SpA. The regulator and the Companies Act impede MSI from declaring dividends given the levels of accumulated losses. But in a bid to fulfil its commitment to shareholders – who have to go without a dividend for a third consecutive year – MSI is to offset the losses against the share premium account and the issued share capital.

The move, which Mr Zahra pointed out was acceptable to regulators, is now subject to approval at the annual general meeting on May 3.

“Rather than waiting for years for the balance sheet to be restored to a position where the company will be able to pay dividends, we are taking immediate action,” Mr Zahra explained. “Shareholders are assured that the balance sheet value, the net asset value of the share and our solvency position will remain unchanged.

“This measure will not affect the fundamentals. The nominal value of the share can be affected. The net asset value of the share will not.The net asset value increased from 53c in 2009 to 60c in 2010. I empathise with shareholders and the board is aware they are anxious to see a return.”

The chairman said he was markedly more confident about MSI’s outlook this year than he was 12 months ago, with the board delivering on its promise to revive Malta’s largest insurance group.

Immediately on his appointment last year, Mr Zahra publicly outlined his strategy to consolidate MSI’s business in its home market. The presentation of MSI’s results for the year ended December 31 also highlighted the decision to close a healthy but little-mentioned Gibraltar agency. After January 1, no business was underwritten in the territory where the agency was opened in 2000 at the same time the group was undertaking its Mediterranean expansion strategy.

Gibraltar contributed €1.4 million to MSI’s 2010 results but Mr Zahra said the geographical risk was something the board felt the company could do without at the present time – wrapping that business up meant one distraction less from the task at hand in Malta.

While Malta’s business community was actively looking for new opportunities to internationalise, the insurer holding a quarter of the local market was focused on firming its foothold locally.

“We had lost our self-confidence to venture internationally,” the chairman conceded. “The board was determined to focus on the market which we operate in and where we have a better understanding of risk. There was no Maltese working at our Gibraltar agency although there was an ongoing monitoring regime.

“Let us first regain our self-confidence and ensure that we will be able to build on this year’s result. I will not rule out looking at international markets again. But it will definitely not be this year or the next. In the future.”

2010 was Middlesea’s year to realign its business and this year it will continue to put its plans into action. The successful rebranding of Middlesea Valletta Life – the joint venture with Bank of Valletta – to MSV Life can now be coupled with a record year of turnover as premiums increased by 18.3 per cent to €147.49 million.

The life company now has total assets of €1.1 billion, shareholders’ equity of €108.89 million and more than 83,500 customers thanks, in the main, to the support of BoV’s network.

MSI’s former insurance management arm also rebranded last year. As Bee, it was given a brief to focus exclusively on support services to third party business and back office support. Designed as a boutique service provider, Bee is to continue to build its business by offering dedicated services to selected clients in an increasingly competitive sector.

Mr Zahra stressed the investment made in ensuring the subsidiaries had a clearer focus would give returns in the medium and longer term and their contribution to MSI’s bottom line would increase. It is now Middlesea Insurance’s turn to roll out a new identity with a sharper brand promise later in the year. The move will serve to envelope the company’s efforts to become leaner and more efficient, inject its portfolio with innovation according to customer demand, and continue to rationalise costs.

Mapfre Internacional, the only industrial shareholder in MSI (the others, Bank of Valletta and reinsurer Munich Re) was advising Middlesea’s team on product design, more efficient internal audit procedures and fine-tuning team dynamics. Mr Zahra explained how earlier this month, Middlesea House incorporated its claims and accounts units to ensure increased client convenience while quotations and claim settlements procedures have been streamlined.

This year, Middlesea will continue to tap opportunities in one of the European Union’s most under-insured markets, in a bid to offer customers with a wider choice and increased value in all classes including motor, home, health and life.

In this vein, agents have also been encouraged to submit proposals on marketable products which Middlesea could design and supply white-labelled.

But behind the products and a new image, Mr Zahra said, was an underlying culture change. The board was determined to move Middlesea away from its institutional stance so that it became “crispier” – more commercial and open-minded.

“We could make all the changes on a functional level that we like, but it would all be useless if we did not re-engineer the perception of what our business stands for,” Mr Zahra insisted. “The facelift on Middlesea House’s customer service areas is one visible example of our renewed customer centricity but we are determined to assure clients that perception is backed by true, real change.”

Outwardly, had the damage caused to Middlesea’s image by the Progress saga been repaired?

“My answer is a categorical yes,” the chairman said. “We fulfilled our promise to improve our results and our shareholders will judge us on them.”

In 2011, he said, Middlesea’s focus will be on building on the bottom line with the “right mix” of products, clients and distribution channels.