Middlesea Insurance p.l.c.(MSI) registered an operating profit before tax of Lm6.51m (€15.2m) for the year ended 31^st December 2005, an increase of 79% over 2004. Mario C. Grech, Chairman of the MSI Group stated that this was mainly the result of the strong technical performance registered across all business activities by all companies within the Middlesea Group, which included a favourable run-off in incurred claims, a strong investment return from capital markets (particularly in the domestic market), the implementation of revised International Financial Reporting Standards (IFRSs) and the Company’s focus on improving cost efficiency.

The Board of Directors, meeting on Friday, agreed that, in line with the Company’s dividend policy that ensures the enhancement of its Balance Sheet and future sustainability, they would recommend the payment of a final dividend of 7 cents per share totalling Lm875,000, an increase of 17% over last year. In addition, to mark Middlesea’s 25^th Anniversary, a special dividend of 3cents per share (totalling an additional Lm375,000) was also being recommended.

Furthermore, the Board of Directors is recommending a share split whereby each share of nominal value 50 cents share will be split into two shares of 25 cents each.

As reported in 2004, Mr Grech stated that: “Our strategic direction continued to be executed on the basis of consolidation for the short to medium term in a highly challenging competitive scenario, both in the local and overseas markets.”

The Group companies continued to apply strict underwriting guidelines and a continuous drive to achieve a desirable business mix in the overall portfolio. This resulted in a decrease of 6% in premium income to Lm33.8 million (€78.8m).

Shareholders’ funds (including MSI’s share of the embedded value in Middlesea Valletta Life) grew to Lm30.95 million (€72.1m). The net asset value per share increased to Lm2.48 and the earnings per share went up by 81% to 38c5. Total Group assets increased by almost 6% to Lm108.4million (€252.6m). The Board of Directors implemented changes to the Group’s accounting policies in accordance with updates in the IFRSs which became effective on 1 January 2005.

In 2005, the Group adopted the Fair Value Accounting option whereby movements in the fair value of investments were recognised in the Profit and Loss Statement. In line with IFRSs, the comparatives for 2004 were also restated to ensure consistency.

Mr Grech stated that the implementation of revised accounting standards, together with the inherently uncertain nature of insurance business, meant that the reported results of insurance companies are exposed to considerable volatility. “Both capital markets and the insurance market are prone to cyclical movements,” Mr Grech said, noting that Middlesea’s Financial Year 2005 results had benefited from favourable movements in both markets.

Furthermore, the Chairman stated that it was encouraging to note that the Group’s general business net operating ratio (net of reinsurance but before allocation of investment income) has improved to 95.2%. A positive claims reserve run-off has impacted favourably on this result. A return of 21.2% was registered on capital employed, and the gross technical reserves remained very robust at Lm60.3million (€140.4m). The ratio of net technical reserves to net premiums written increased to 181%.

The Italian subsidiary Progress Assicurazioni SpA consolidated its position and through its pursuance of a strict pricing policy in 2005, booked a gross premium of Lm19.9 million (€46.4m). Furthermore, it continued to assess its agency network performance criteria in somewhat prevailing soft market conditions.

The Management continued to work on a new development plan which aimed to curb the shortfall in business resulting from the application of these policies as well as to create further growth in identified market segments and products.

Through the acquisition in July 2005 of just under 40%, from Corporacion Mapfre, MSI’s current holding in Progress Assicurazioni SpA increased to 89.98% with the associate Middlesea Valletta Life Company (MSVL) holding 10% and the balance held by individuals.

In 2005 after consolidation adjustments Progress Assicurazioni SpA contributed €2.1million before tax to the MSI Group.

International Insurance Management Services (IIMS) continued to project Malta’s efforts to attract international companies including insurers and reinsurers to register and operate from Malta. These efforts were reflected in the registration of the first insurance company under the new legislative regime. Malta’s accession to the European Union has triggered considerable interest from international companies in the Maltese financial centre which has over the years established itself as an attractive jurisdiction in the EuroMed region.  

The Group’s investments (excluding its investment in MSVL) amounted to Lm 67.8 million (€157.9m), which generated an investment income (after expenses) of Lm4.6 million (€10.6m), of which fair value movements from both local and foreign markets amounted to Lm2.2million (€5.1m).

In 2005 Middlesea’s associate Middlesea Valletta Life Assurance Company (MSVL) continued with its success story. This Company increased its competitive advantage through its varied distribution network. Business generated including non-participating contracts increased to Lm39.3million (€91.5m).

The Company continued to meet customer demand for products with and/or without discretionary participation features. The Life Fund increased by 34% to Lm218.6million (€ 509.1m) whilst the total investments increased by 34% to Lm224.4million (€522.8m).

MSVL contributed positively to the Group’s overall result with a share of profit after tax of Lm1.16 million (€2.7m). Furthermore the benefit of the investment in MSVL was reflected in the increase of the total discounted value of projected future profits on secure business (embedded value) to Lm16.6 million (€38.7m) during 2005.

Mr Grech said that: “In 2005 MSI continued to strengthen its strategic alliance with Bank of Valletta plc (BOV) by registering parity in shareholding at fifty percent each in MSVL. Middlesea Valletta Life will concentrate on potential opportunities overseas with emphasis on the southern market in Italy.”

Mr Grech concluded: “Our future direction remains embedded in our consistent strategy of attaining a balanced business mix from a geographical spread through varied distribution. We are encouraged by the 2005 result which was achieved through the concurrent contribution from various segments of our operation. The Chairman cautioned that future expectations need to be based on a prudent analytical appreciation. It remains fundamental to approach the future imponderables with prudence but with an absolute resolve to succeed. With the strength of its balance sheet, MSI is in a strong position to continue on its path of growth and development both locally and overseas.”

MSI will be celebrating the 25^th Anniversary since its establishment on 29^th June 1981. Mr Grech therefore deemed it appropriate to end by thanking long-standing shareholders, including international partners Münchener Rückversicherungs Gesellschaft, Corporacion Mapfre S.A, Assicuazioni Generali SpA and local strategic partner Bank of Valletta plc, together with Directors, Management and Staff of the Group companies who together contributed to this success story.

Middlesea Group is composed of Middlesea Insurance plc, Middlesea Valletta Life Assurance Co. Ltd, International Insurance Management Services Ltd, Growth Investments Ltd, Malta International Training Centre Ltd and Progress Assicurazioni SpA., all of which are licensed and regulated by their respective Authorities. COM 280406A