The Middlesea Group registered an operating profit on ordinary activities before tax of Lm2.21 million for the year ended 31 December 2004 (Lm1.38 million in 2003). After several years of difficult market conditions, particularly the results in underlying assets, which were adversely affected by depressed international capital markets, Middlesea’s rigorous policy of improving cost efficiency and the result from effective technical operations enabled the delivery of a strong performance across the entire group.

In view of this strong performance, and consonant with Middlesea’ dividend policy, the board of directors is recommending the payment of a final dividend of six cents per share, totalling Lm750,000, an increase of 20 per cent over last year.

Gross premiums written in 2004 amounted to Lm35.94 million. Shareholders’ funds (including MSI’s share of the embedded value in Middlesea Valletta Life) grew to Lm24.07 million. The net asset value per share was Lm1.93and the earnings per share increased by 49 per cent to 12c7. Total group assets increased by almost seven per cent to Lml00.2 million.

The current market pricing on property business remains inadequate, particularly when considering the high catastrophe reinsurance costs which were reflected in the negative result obtained. The liability class also registered a loss as a result of higher court awards. It is important to note that through the intervention of The Malta Insurance Association, capping was introduced in both the Civil Code and the Motor Vehicles Insurance (Third Party Risks) Ordinance. These changes together with the EU fourth and fifth Motor Directives were expected to impinge on the expected future results for the overall liability class of business in Malta. Injury awards need to reflect economic reality and sustainability; otherwise national competitivity will suffer.

In Italy, Progress Assicurazioni SpA continued to pursue a policy of adequate pricing and reserving within a territorial spread and portfolio mix between motor and non-motor business In line with its consolidation policy, gross premium written, generated through a network of agents operating in Southern Italy and Sicily, amounted to Lm21.66 million. After consolidation adjustments and adoption of MSI’s accounting policies, a contribution before tax of Lm0.31 was made to the Middlesea Group.

Middlesea chairman Mario C Grech announced that Middlesea Insurance plc, which held 51 per cent shareholding in Progress since 2000, reached agreement with Corporacion Mapfre to acquire their 38.97 per cent holding in Progress Assicurazioni SpA, which transaction would be concluded in 2005 The financing of this specific investment would be attained through a long term arrangement at

competitive terms with a leading local financial

institution.

In its 10th year of operation. Middlesea Valletta Life Assurance Company Ltd (MSV) contributed positively to the group’s overall result with the total profit after tax increasing from Lml.3 million to Lml.5 million (€3.5m) The demand for fife assurance increased significantly, reflecting enhanced customer confidence and loyally, MSV registered further expansion in sales, especially from the bancassurance distribution, whereby gross premiums written increased id Lm34.9 million (€80.3m). The Life Fund improved by 32 per cent to Lm159.1 million (€366.2111). The benefit of this Investment was also reflected in the increase of the discounted value of projected future profits on secured business (embedded value) to Lm12.90 million (€29.7m)

International Insurance Management Services Ltd (IIMS) continued with its endeavours to focus on the generation of third party ‘non-risk’ income in the field of management of captive insurance and reinsurance companies operating from Malta, now even more so with the increased international interest in Malta’s financial centre. The successful contribution of the back office activities provided by this company to the group contributed to lower overall costs, higher efficiency and gradually improved service levels for customers. Continued attention was given to the development of the group’s human resources, the cornerstone of Middlesea Group.