A number of winds came to blow together in Middlesea's sails recently, but not accidentally since most required some long-range planning and a lot of stick-to-itiveness.
This year's results were very good, with total income from insurance activity for the year ended December 31, 2004 coming in at Lm2.5 million (2003: Lm1.5 million) and profit after tax and minority interests up by Lm0.5 million to Lm1.6 million with earnings per share at 12c7. The shares are trading at around Lm3.17, at a price earnings multiple of 25.
The insurance business itself, in general and around the world, for a long number of years, was tough and required a lot of perseverance but is now much firmer with 9/11 and a number of natural calamities making insurers and their clients accept a shockingly wider view of risk and the associated probabilities.
This made premiums go up. The property market in Malta, Middlesea maintains, still faces inadequate insurance pricing especially in view of the high catastrophe reinsurance costs faced by the company.
Expectations are on the rise, too, especially those involving loss of life and severe injury. For a long time, life and injury were valued cheaply but recently court awards in such cases came out much higher, prompting the industry to ask for and be granted capping, in order not to face escalating liabilities which would have forced insurers to demand higher premiums.
Middlesea Valletta (MSV), the operation which Middlesea Insurance has with the Bank of Valletta Group, 2004 being its 10th year, contributed strongly with MSV reporting Lm0.82 million (2003: Lm 0.68 million) in profit before tax. MSV's products have a high acceptance and penetration in the market and, in future, the company is likely to benefit from pension and other products.
Some time ago, Middlesea Insurance had stopped its unprofitable London operations and has recently invested in operations in Italy and Gibraltar. So far, these investments seem to be doing well and the premiums written in Italy were nearly double those written in Malta, albeit the profit before tax earned in Italy, perhaps because it is early days, was one-third that earned locally.
The premiums written in Gibraltar, at Lm1.6 million, is much more modest than that written in Italy (amounting to Lm22 million) and resulted in a small loss of Lm45,712 this year, versus a similar figure but of profit in 2003.
Last month, Middlesea acquired most of the remaining shares in Progress Assicurazioni Spa from Corporacion Mapfre SA for €8.6 million. Middlesea's recent purchase of 38.97 per cent of the shares means that it now owns 89.97 per cent of Progress. The balance is held by MSV (10 per cent) and by individuals.
Middlesea has been through a number of extensions and transformations since it was set up. It has variously been the local re-insurance company with a small number of products for the local market, then a fully-fledged local insurance company with less emphasis on reinsurance but involved with BoV in the highly successful MSV, and now a major local insurer with a substantial (relative to its size) Italian operation. These recent developments, particularly its ventures abroad, are likely to be the most significant in the long term, propelling the company strongly, if successful.
In recent years, management has been following a much more focused and consistent strategy and Mario C. Grech, group chairman, who has led the company or played a leading role therein since its formation, succinctly expressed Middlesea's aims as follows: "Our consistent strategy will continue to be focused on providing a broad range of products through multi-channel distribution, applying technically correct pricing, ensuring adequate reserving and pursuing growth with a territorial spread and portfolio mix."
Mr Azzopardi is managing director of Azzopardi Investment Management Limited (www.azzopardi.com) which is licensed by the MFSA to provide investment services, including stockbroking. Mr Azzopardi or related parties, including the company, and their clients, have an interest in securities mentioned. This article is only meant to provide information, which the writer believes to be accurate at the time of writing, and is not intended to give investment advice and its contents should not be construed as such. The value of securities and the currencies in which they are denominated may go down as well as up. Readers are requested to seek professional financial advice tailored to their own personal circumstances.
pvazzopardi@usa.net