Middlesea Insurance plc's institutional shareholders have subscribed to its planned €40 million rights issue, chairman Mario C. Grech said yesterday.
Bank of Valletta, Munich Re and Mapfre Internacional, which together hold a 62.5 per cent stake in Malta's largest insurance group, will subscribe to the issue according to their shareholding.
Subject to approval at an extraordinary general meeting today, Middlesea Insurance plc will issue 67 million new ordinary shares of a nominal value of 60c each at a share issue price of 60c per share.
Under the issue, eligible shareholders will be offered 2.68 new ordinary shares for every share held as at November 12.
Bank of Valletta and Mapfre Internacional also signed a subscription agreement should shares remain after the public, collective investments or smaller institutions, which hold the remaining 37.5 per cent stake, have registered their interest, Mr Grech said.
The rights issue aims to boost Middlesea's capitalisation to meet regulatory obligations after its books came under "unprecedented strain" from the results of Italian subsidiary Progress Assicurazioni SpA.
Progress was acquired in 2000/2001 and posted a profit every year until 2006. It began to stumble in 2007 when the Italian authorities introduced a complex mandatory direct settlement system called CARD. The Bersani law, as it became known, aimed to speed up settlement and facilitate motor claims between insurers for the benefit of the insured.
The financial difficulties of Progress, which operates in Italy's southern regions and Sicily, was further compounded by the effects of the economic crisis and the recession as the frequency and severity of claims increased, Mr Grech explained. Such trends were also expected of the region's culture.
Over €40 million in re-insurance has been acquired as a safety net to cover claims since 2001 to mitigate Progress' effect on Middlesea's balance sheet.
Middlesea is not closing any doors and if the opportunity arose, it would even be willing to consider disposing of Progress, Mr Grech said.
A series of measures have also been taken to right-size the Italian operation. About 100 agencies were closed down and Progress' management has been restructured to separate functions. Premiums have been raised by 15 per cent and a further increase is expected to be introduced next year. A specialist anti-fraud agency is tasked with combating dubious claims and a claims management specialist has been appointed.
Middlesea Group registered an interim pre-tax loss of €17.7 million this year. Progress contributed a loss of €19.4 million to the group's half-year results. Last year, Progress registered a post-tax loss of €19.1 million. Mr Grech said Progress' projected result for 2009 was "not a happy one".
He pointed out the rights issue - the first boost to Middlesea Insurance's capitalisation in 14 years - was the first correcting measure taken to buoy the holding company's books. Other options could also be availed of, he added.
As at last March, Middlesea Insurance plc had just under 5,000 shareholders.