The persistent deterioration in stock markets around the world and the significant increases in the cost of reinsurance protection, resulting from the scarcity of supply and the tragedy of September 11, have had a major impact on the Middlesea Group's profit for the first six months of the year.

The consolidated profit for the half-year to June 30, 2002 was Lm586,980, equivalent to an earnings per share for the period of 4c7 (4c1 in 2001). This represents a 15% increase in the Group's overall profit after taxation and minority interest over the corresponding 2001 figure.

It is encouraging to note that the technical result of the Group's overseas involvement in annual general business improved significantly over the 2001 comparative. The Group's Italian general insurance company, Progress Assicurazioni SpA positively influenced its profit before taxation by Lm150,087, an increase of 137%.

The acquisition of Progress Assicurazioni SpA while being in line with the Group's strategy of expansion into the Euro Med region in primary markets, also contributed through the consolidation of a premium income of Lm8.9 million (Lm5.1 million in 2001) for the first half year of 2002. The branch operation in Gibraltar too made a positive contribution to the reported profit as at June 2002 through a net technical result of Lm79,442, up by 109% over the 2001 result.

Despite these increases in the net technical result of the Group's annual general business overseas operations, the combined technical result of the annual general business decreased by 41% over the comparative figure for 2001.

While the surplus on the technical account for annual general business, of the holding company before reinsurance costs improved by 84% over the June 2001 result, the net underwriting result after reinsurance costs deteriorated by 74% as a result of the increased reinsurance costs and changes to the protections purchased by the company in the difficult reinsurance market. The total annual technical operations of the Group generated a profit for the first six months of the year of Lm191,765 as compared to a profit of Lm324,409 for the comparative 2001 period.

Premium income of Lm15.6 million (Lm11.4 million in 2001) from the direct insurance operations (locally and overseas) increased by 37% during the first six months of the year when compared to the same period in 2001.

The Group's share of the six-month surplus registered by Middlesea Valletta Life Assurance Co. Ltd. amounted to Lm139,127 as compared to a deficit of Lm453,558 last year. The total premium written by the specialised life company was Lm8.4 million while the company's Life Fund increased by 7.7% to Lm83.8 million as at June 30, 2002.

While the company's balance sheet shows a total assets figure of Lm105.1 million (June 30, 2001, Lm98.3 million), the value of in-force business, representing the discounted value of projected future profits increased from Lm9.5 million to Lm9.75 million as at June 2002.

The Group registered a decrease of 36% in the investment income credited to its profit and loss account while a net unrealised capital loss of Lm675,021 was transferred to the Revaluation Reserve in the balance sheet in respect of the net capital movements for the first six months of the year on local and foreign quoted investments.

While the unrealised capital loss has had a direct impact on the net asset value of the company, it has to date not affected the reported profits of the Group. However, the continuing uncertainties facing the financial markets, coupled with the probability that the Group's asset managers will realise investment losses to attempt to reposition the portfolios under their management remain an overhang that is likely to impact on the Group's results in the second half of the year.

The Net Asset Value of the Middlesea Group has decreased from Lm1.64 per share and stood at Lm1.62 per share as at June 30, 2002, down 2c from the end-2001 level. Unrealised capital losses recorded in the revaluation reserve were the main factors behind this decrease, together with the payment of net dividends (Lm568,750) approved by shareholders during the last annual general meeting. The Group's total assets as at June 30, 2002 stood at Lm74.5 million (December 31, 2001 - Lm71.5 million).