Middlesea Insurance p.l.c. held its Extraordinary General Meeting (EGM) at the Hilton Conference Centre on Tuesday 16 March 2010.

In his address Mr Joseph F.X. Zahra, Middlesea’s Chairman, explained that the EGM was convened to approve, through an extraordinary resolution, a series of proposed amendments to the Memorandum and Articles of Association of the Company, and to elect the Board of Directors.

The Chairman said that following the EGM held on 20 November 2009 regarding the grave difficulties that the Middlesea Group was facing as a result of the severe problems encountered by Progress Assicurazioni SpA (Progress), the Group’s Italian subsidiary that had caused severe damage to Middlesea’s balance sheet position. In order to re-establish the capital position of the Group and to satisfy regulatory obligations, it was necessary for Middlesea (MSI) to stage a rights issue to raise €40.2 million from its shareholders that was concluded in December 2009. This rights issue was underwritten by Bank of Valletta and Mapfre Internacional, with Munich Re undertaking to take up their proportionate share of the issue. The rights issue was modestly supported by the general body of shareholders, and the bulk of the issue (89%) was taken up by the institutional shareholders. The final shareholding position resulted in the three major institutional shareholders holding approximately 82% of the issued share capital of the company. These shareholders informed the company that they wished to reconstitute the Board of Directors to better reflect the new shareholding structure together with certain changes to the governance of Middlesea, including, in line with current practices of good corporate governance that included the separation of the position of the Chairman of the Board from that of senior executive positions of the company.

Mr Zahra continued by saying that the proposed changes included (i) the re-constitution of the Board to better reflect proportionately the quantum of the respective shareholdings in the company by increasing the holding entitlement to appoint a Director to 11% thus ensuring a smaller and more manageable Board of Directors (ii)  the empowerment to co-opt one additional Director to enable the Board to add to its ranks such specialist skills as it may consider necessary and desirable from time to time (iii) provide for the separation of the position of the Chairman of the Board from that of the senior executive positions of the company, in accordance with current practices of good corporate governance (iv) increase the authorised share capital of the company from €60 million to €90 million (v) incorporate modifications required by the Shareholders’ Directive that has been transcribed into Chapter 19 issued by the Listing Authority and (vi) update other provisions thereof together with the renumbering of the Articles as required.

The Chairman also explained the position at Progress Assicurazioni and referred to the Company Announcements made by Middlesea on 11 January and 11 February 2010 in which it was stated that (i) the preliminary unaudited data for the fourth quarter of 2009 relating to Progress had indicated a marked deterioration in claims experience during that period and (ii) that a further detailed examination of the unaudited data as at 31 December 2009 had indicated that it would not be possible for Progress to continue in business in conformity with Italian regulations without the injection of material further capital support.

After carefully considering the position, the Board of Directors of Middlesea Insurance concluded that it was not feasible at this time for MSI to provide further capital to Progress over and above the €45 million that had been injected over the past year.

In the light of this decision, Progress Assicurazioni informed the Italian Insurance Regulators (ISVAP) of the situation, and that it wished to take the necessary measures to cease writing business in Italy, and to wind up the company in accordance with procedures to be agreed with ISVAP, and on 10 February 2010, ISVAP informed the company that it had appointed Professor Avv. Andrea Gemma as Provisional Administrator (“Commissario”) of Progress Assicurazioni with immediate effect.

The Chairman said that the operations at Progress Assicurazioni  had become unsustainable  due to the confluence of a number of adverse factors – any one of which would have posed a severe challenge to the company in its own right, but the combination of which has proved to be overwhelming, notwithstanding the truly extraordinary efforts made by all concerned.

In addition, the company was also impacted negatively by the enactment of the Bersani Law and the CARD system reforms introduced in the market in 2007, both of which  had caused some market dislocation, with Progress itself having experienced material losses as a result thereof.

However, the most critical factor was that Progress had experienced a marked increase in the frequency of claims, in particular late reported claims, including a sharp deterioration in the quality of business from a number of agents from the Campania region. This was also coupled with a significant and inexplicable spike in claims being experienced following the termination of poorly performing agents – particularly in the last quarter of financial year 2009.

Mr Zahra said ‘these decisions were taken with the greatest possible sadness and regret. After acquiring Progress in 2000 and a number of years of positive and encouraging results, Middlesea was looking to Progress as the strategic platform upon which to build its business outside Malta. Unfortunately, it was not to be, and the time had come to cut losses and exit the market. The Progress affair has been a terrible experience but this must be put behind us. The events of the past two years have been a huge strain and a debilitating distraction on the management and staff of Middlesea and its subsidiary companies. I strongly believe that it is now time to return to business and to rebuild the morale and motivation of the talented and committed individuals that work within MSI, and the agents and intermediaries that support it’.

The Chairman also referred to the way forward to (i) work closely with ISVAP and the MFSA as appropriate to secure the orderly winding up of the Progress operations without unnecessary delays (ii) enter into a period of consolidation and reorganisation for Middlesea, and returning the company to the role of a customer - centric, profitable and progressive domestic (Malta based) insurer (iii) transit IIMS to an important third party service provider to the insurance industry.

Mr Zahra said ‘I want to stress that I am very optimistic about the future for Middlesea. The domestic operations have had good results for financial year 2009. We are receiving strong support from Bank of Valletta, and I am very encouraged that both Mapfre and Munich Re who have committed to providing Middlesea with formidable professional, technical and technology support. Product innovation and development will follow shortly, as will the further enhancement of the strong technical and professional management skills that already reside within the company’.

Mr Zahra added that Middlesea Valletta was a completely independent and separately capitalised company, which did not hold any shareholding in, or other connection with, Progress. Middlesea has a 50% shareholding in MSV, with the balance of 50% being held directly by the Bank of Valletta, and the company and its policyholders are completely unaffected by the recent losses registered by Progress.

Based on preliminary unaudited data, the significant improvement in investment performance achieved during the second half of 2009 coupled with a marked increase in business, MSV is poised to report a set of very strong results for 2009 and these will be published as soon as the audit has been completed.

The Chairman concluded by saying ‘I want to close my remarks by reiterating what I said a little time back – and that is that I am optimistic, very optimistic, for the future - and that going forward, we have this clear and uncomplicated vision for Middlesea. In the post Progress era, we are of the view that the complex Group structures should be dismantled and that (i) Middlesea should concentrate on becoming Malta’s leading domestic insurer (ii) IIMS should focus hard on being the provider of solutions to external third parties – and be an important player in Malta’s efforts to become a leading financial services centre, and (iii) that MSV should as a self sufficient, stand-alone company, focus on retaining its leading position in the life Assurance, long term savings and (in due course) pensions market .

Following the approval of the Memorandum and Articles of Association the Chairman informed the shareholders that the existing Board of Directors was stepping down and that the new Board was being appointed in line with the nominations. Mr Roderick E.D. Chalmers, Mr Tonio Depasquale, Mr Javier Fernàndes-Cid, Mr Andrez Jimenez Herradon, Dr Michael Sparberg, Mr Lino Spiteri and Mr Joseph F.X. Zahra were appointed on the Board of Directors, by the three shareholders holding more than 11% of the company’s shareholding until the Twenty Ninth Annual General Meeting.

Pursuant to the Articles of Association, since the number of nominations did not exceed the vacancies, there being no need for a contest, the following nominees were automatically appointed Directors, namely Mr Gaston Debono Grech and Mr Paul Testaferrata Moroni Viani.

Immediately after the General Meeting, the new Board of Directors appointed Mr Joseph F.X. Zahra as Chairman and co-opted Mr Pedro Lopez Solanes as Executive Directors in accordance with the Articles of Association.

The Middlesea Group is composed of Middlesea Insurance p.l.c. (C-5553), International Insurance Management Services Ltd. (C-23610).

Middlesea Valletta Life Assurance Co. Ltd (MSV) (C-15722) is an associate company of Middlesea Insurance p.l.c. Growth Investments Ltd. (C-21821) is a subsidiary of MSV.

All the Companies are authorised by the respective regulatory authorities in Malta and Italy.  

Euro Globe Holdings Ltd. (C-30503), Church Wharf Properties Ltd. (C-25653) and EuroMed Risk Solutions Ltd. (C-37185) also form part of the Middlesea Group. COM 120310 353