Middlesea’s Group operations were last year adversely affected by the crisis in the world financial markets and a considerable technical loss by the Italian subsidiary, Progress Assicurazioni, the company’s annual general meeting heard today.
These two factors broke the 27 year history of positive financial results for the grou, executive chairman Mario C. Grech said.
This produced an overall group result of a loss after tax of €20.6 million, compared to a profit of €9.3 million in 2008.
Mr Grech said that that since its establishment Middlesea Insurance paid its shareholders total gross dividends amounting to €38.5 million but for prudence’s the payment of a dividend for 2008 was not being recommended.
He said that in the first quarter of 2009, the deterioration in the technical performance of the Italian operation together with the continued volatility in the capital financial markets persisted.
The group’s gross premiums written in general business increased by 15 percent over the preceding year reaching €118 million.
Middlesea Insurance registered an increase of 4 percent in turnover, with total premium underwritten in both general and group life business increasing to €34 million.
The holding company, Middlesea Insurance, produced an overall positive technical result which was, however, outweighed by the capital losses reported on local and foreign investments that amounted to €7.4 million. The company registered a loss after tax of €3.6 million during 2008.
Progress Assicurazioni SpA, generated gross premiums written of €86 million, an increase of 20 percent on 2007. The pre-tax contribution of Progress to the group’s results, however, was a gross loss of €26.8 million, a very marked deterioration from the positive return of €3.10 million in 2007.
The introduction in Italy of the Convenzione tra Assicuratori per Risarcimento Diretto, (CARD), the mandatory Direct Indemnification system in February 2007 as expected created uncertainties and negatively impacted the 2008 technical results.
During 2008, Progress undertook a further strengthening of its technical provisions which, together with the unfavourable impact of the CARD system, and the increased reserves in personal injuries and fatalities, impacted negatively on the results. An overall increase in the frequency of motor liability claims, late reported claims and a concentration in the challenging Campania region also contributed to the deterioration of the RCA results.
International Insurance Management Services, the group’s subsidiary company that provides management services to international clients as well as to the group companies, further strengthened its international client base.
The company registered a positive financial result and its post-tax profit contribution to the group amounted to €0.99 million. IIMS increased its international client base which now contributes 21 percent of its revenue.
Middlesea’s associate, Middlesea Valletta Life Assurance, the group’s specialised life company, registered a profit after tax of €1.92 million. Business written decreased by 19 percent to €110 million, while the company’s total assets increased marginally to €843 million as at the end of the year.
The investment return of MSV decreased from an income of €26.5 million in 2007 to a loss of €31.8 million in 2008, after taking into account fair value mark downs on the investment portfolio. The direct impact of the financial crisis on MSV was somewhat mitigated due to its prudent investment policy, whereby the company holds a defensively positioned and widely diversified investment portfolio of quality assets, locally and overseas.
Middlesea Group’s investment strategy of aiming to preserve capital value whilst maintaining liquidity and maximising returns, continued to apply throughout the group, Mr Grech said. This strategy contributed towards the containment of fair value losses incurred during the year. However, the Group could not but follow the fortunes of the financial sector.
“The considerable loss incurred by Progress in 2008, together with the immediate future challenges emerging in the Italian market have necessitated taking important decisions on the future direction. These decisions will need to be made by the Board of Directors before the end of this current year,” Mr Grech said.
The board of Middlesea Insurance plc was currently examining the structure of the group, looking ahead at the long term needs of the business.
Middlesea Insurance plc was now both an insurance company operating principally in the Maltese market and a holding company of a group with interests in Italy, a large investment in Middlesea Valletta Life Assurance Co., in partnership with Bank of Valletta, an insurance management services arm (IIMS) and some property holding companies.
This structure was not designed in this manner when Middlesea Insurance plc was founded but, it evolved in this manner over time.
Consequently, the process to propose restructuring to the shareholders for their consideration commenced. The envisaged change, which would first require various regulatory approvals, would not impact in any way the interests of shareholders. It would however enhance management focus and business flexibility.
Mr Grech said that the future direction of Progress, together with the group’s restructuring were this year’s priorities.
The prospect of an early return to profitability was even more challenging considering the current economic environment and the continuing uncertainties in the financial markets.