Middlesea Insurance held its 24th annual general meeting at the Hilton Conference Centre last week.

Consequent to the robust results generated in 2004, the meeting approved a dividend distribution of Lm750,000. This dividend will again be paid from the company’s untaxed account and will therefore be subject to a final withholding tax of 15 per cent on distribution. This was the 21st consecutive year that a dividend was declared and distributed.

Middlesea’s chairman Mario C. Grech made reference to the formidable challenges faced by the insurance sector since the year 2000. During these years, the company revisited important decisions and retained its consistent strategy which continued to be focused on providing a broad range of products through multi-channel distribution, applying technically correct pricing, ensuring adequate reserving with a rigorous policy of improving cost efficiency.

Middlesea continued to employ an efficient capital structure through the deployment of shareholders’ equity across the Middlesea Group. The ultimate aim was to maximise potential for profitable growth. Middlesea’s professional discipline helped to achieve operational projections for 2004 in highly competitive markets.

It was most encouraging that the operations of Middlesea Insurance plc, Middlesea Valletta Life Assurance Co. Ltd, Progress Assicurazioni SpA and International Insurance Management Services Ltd all contributed positively to the overall result.

The gross premiums written by the group amounted to just under Lm36 million. Middlesea persevered with a process of market share consolidation by focusing on the restructuring of the underlying portfolio in Malta, Gibraltar and Italy. Net technical reserves increased by 13 per cent to Lm47.2 million and the ratio of net technical reserves to net premiums written was 160 per cent at the end of the year. Shareholders’ funds grew by 10 per cent to Lm24.07 million. The net asset value per share was Lm1.93 and the earnings per share increased by 49 per cent to 12c7. Total Group assets increased by almost seven per cent to Lm100.2 million. “These positive results helped to enhance the balance sheet on which the company strives for future growth, produce acceptable returns to shareholders and deliver our commitments to customers,” Mr Grech stated.

While 2003 was not a year of strong operational performance for Middlesea Insurance, this cannot be said for 2004. The gross premiums of written Middlesea Insurance, increased to Lm14.3 million (including Group Life). Motor insurance remained the major contributor of general insurance retail business. Though personal lines business in Malta was highly competitive and sensitive to price movements, Middlesea will

continue to pursue a policy of adequate pricing commensurate with the underlying risk.

This disciplined approach enabled Middlesea to register a considerable improvement in the overall Net Underwriting Result, which registered a surplus of Lm700,000 compared to the Lm560,000 loss in 2003. The current market pricing on property business remained inadequate, particularly when considering the high catastrophe reinsurance costs for the year. The liability class registered a loss mainly as a result of higher court awards and it was important to note that injury awards needed to reflect economic reality and sustainability otherwise, national competitivity will suffer.

Middlesea’s majority interest in its Italian subsidiary Progress Assicurazioni SpA continued to be an important contributor to the overall operations. Gross premiums written were approximately €50 million. The business was generated through a network of agents operating in southern Italy and Sicily. The Italian subsidiary continued to pursue its policy of adequate pricing and reserving with a territorial spread and portfolio mix. It was encouraging that this subsidiary company registered a total profit in its accounts of €2.5 million, resulting in a contribution before tax of €700,000 to the Group. A decision by shareholders to increase the capital base saw an increase in the capital to €15 million by the end of 2004.

Agreement was reached with Corporación Mapfre for Middlesea to acquire the remaining 38.97 per cent of their shareholding, which transaction will be concluded in 2005. The financing of this specific investment was attained through a long-term arrangement at competitive terms with a leading local financial institution.

In the medium term, it was expected that the Italian market will offer considerable challenges as a result of increased competition. With this in mind the objective remained in creating a balance between the generation of a feasible and balanced portfolio both in volume and mix.

Besides the technical results, investment returns to any insurer were of significant importance to the overall result in any financial year. This applied to both general and long-term operations. Indeed, the importance of the result from the underlying investments to a life assurer directly impinged on the ability to declare bonuses from year to year to policyholders. In the case of a general insurer, the investment return contributed to the overall result, which ultimately had an effect on the decision to pay dividends to shareholders.

The Group’s total investments, excluding its share in Middlesea Valletta Life Assurance Co. Ltd, amounted to Lm58.06 million. Global equity markets delivered relatively good overall performance in 2004 despite the slackening economy and sharp rise in energy prices which dampened earnings prospects. Returns were stronger in Asia and in Europe than in the US. Global bond yields and their prices fluctuated in 2004 due to a changing assessment of the growth and inflation outlook. Corporate bonds enjoyed further yield spread tightening. The local equity market realised an impressive performance with the Malta Stock Exchange index appreciating by 44.37 per cent, local bond yields mostly appreciated or ended the year at similar levels to the start of the year thus producing marginal price depreciation. The net asset value of the Group was positively affected by the overall portfolio’s investment income.

Middlesea Valletta Life Assurance Company Ltd, in its 10th year of operation, also contributed positively to the Group’s overall result with a total profit after tax increasing to Lm1.52 million. The demand for life assurance increased significantly and MSV registered an improvement in sales, especially from the bancassurance distribution reflecting increased customer confidence. Gross premiums written increased by 60 per cent to Lm34.9 million and the Life Fund improved by 32 per cent to Lm159.1 million. The benefit of this investment was also reflected in the increase of the discounted value of projected future profits on secured business to Lm12.9 million. The Board of Directors of MSV favourably considered an increase in the share capital of the company to Lm8.6 million to sustain its projected growth. Development of MSV’s product range for the provision of life, pensions and other financial products to the local and eventually the Italian markets will be another milestone in the continuing evolution of MSV.

The improvement of corporate processes and overall Group efficiency continued through the rationalisation of organisational structures, in particular the outsourcing of mainly non-technical operations to the subsidiary International Insurance Management Services Ltd. The successful contribution of the back-office activities provided by this company to the Group contributed to lower overall costs, improved efficiency and gradually improved service levels for its customers. This company continued with its endeavours to focus on the generation of third party business in the field of management of captive insurance and reinsurance companies operating from Malta. This specialist company, besides offering back-office services, will continue to focus on the generation of ‘non-risk’ income, now even more so, with the increased international interest in Malta’s financial centre.

Mr Grech informed the meeting that IIMS was in the process of signing the first of such contracts shortly.

Adoption of corporate governance principles remained high on the agenda through the various Group committees whose duties are set out clearly in formal terms of reference, which would continue to be reviewed in accordance with future required changes. The board of directors was actively pursuing changes to the Group’s accounting policies in accordance with updates in the International Financial Reporting Standards (IFRSs) which became effective on 1 January 2005. While full compliance with the International Accounting Standards (IASs) has been adhered to since 1995, the introduction of a new IFRS, for insurance accounting and the updates of IASs, is expected to have a positive impact on 2004 comparative information in next year’s report.

Mr Grech concluded: “Middlesea has been through various experiences and the dynamism of the insurance sector both locally and internationally will continue to present challenges. We have come through unscathed as a result of the high professional level of staff together with the directors who bring a varied and wide experience in finance, commerce and professional disciplines. This team offers the necessary requisites in our pursuance of creating real added value to our policyholders, shareholders and other stakeholders.

“Middlesea’s future direction is clearly based on its strategy of business mix, geographical spread, varied distribution and absolute resolve to succeed. This encourages us all to do our best to achieve further improved results, while remaining constantly on our guard to deal as best as we can with a continually changing scenario and its imponderables.”

The following members were appointed to the Board of Directors until the 25th annual general meeting: Mr R. E. D. Chalmers, Mr T. Depasquale, Mr V. Galea Salomone, Dr J. C. Grech, Mr A. Jimenez Herradon, Dr M. Sparberg, Mr D. Sugranyes Bickel, Mr F. Xerri de Caro and Mr J. F. X. Zahra.

Pursuant to the Articles of Association, as there were as many nominations as there were vacancies, the following nominees were automatically appointed directors, namely Mr G. Bonnici, Dr E. Caruana Demajo, Mr A. Corsi, Mr G. Debono Grech and Mr L. Spiteri.

Mario C. Grech, was re-elected director of the company until the conclusion of the 25th annual general meeting pursuant to the company’s Articles of Association.

The general meeting passed an Extraordinary Resolution authorising the company to buy back its own shares. The Extraordinary Resolution is intended to permit the company to avail itself of the added flexibility already provided for in the company’s Articles of Association and the Companies’ Act, permitting it to participate in the market when circumstances so dictate.

Immediately after the general meeting, the Board of Directors appointed Mr Grech as chairman and Mr Chalmers as deputy chairman.