Middlesea Insurance’s 27-year history of positive financial results hit a hurdle put up by the economic crisis over 2008 and registered losses after tax of e20.6 million compared with profits of e9.3 million in 2007.

Addressing shareholders at the company’s recent annual general meeting, Middlesea chairman Mario C. Grech recalled how he had reported at the 2007 AGM that the inherent uncertain nature of insurance business was reflected in cyclical movements both in the capital and technical operations.

In fact, he pointed out, over 2008 the group’s operations were adversely affected by world financial market crisis on the one hand and a considerable technical loss by its Italian subsidiary Progress Assicurazioni.

These two factors combined to break the group’s 27-year positive earnings spell.

Mr Grech then explained that Middlesea Insurance has paid out a total of e38.5 million in gross dividends to shareholders, but that in the interest of prudence the board had decided not to recommend a 2008 dividend payment considering the losses incurred in 2008.

Reviewing the group’s operations over 2008, Mr Grech observed that in 2009’s first quarter, the deterioration in the Italian operations’ technical performance coupled with the continued volatility in the capital financial markets had persisted.

The group’s Gross Premiums Written in general business increased by 15 per cent over the preceding year and reached e118 million. Middlesea Insurance registered a four per cent increase in turnover with total premiums underwritten in both general and group life business increasing to e34 million.

The holding company, Middlesea Insurance, produced an overall positive technical result, which was however outweighed by the capital losses reported on local and foreign investments that amounted to e7.4 million.

The company registered a loss after tax of e3.6 million during 2008. The Italian subsidiary company, Progress Assicurazioni SpA, generated gross premiums written of e86 million – a 20 per cent increase over 2007. Progress’ pre-tax contribution to the group’s results resulted, however, in a gross loss of e26.8 million – a considerably marked deterioration from 2007’s positive e3.1 million return.

The introduction in Italy of the Convenzione tra Assicuratori per Risarcimento Diretto, (CARD), the mandatory Direct Indemnification system in February 2007, as expected, created uncertainties and negatively impacted the 2008 technical results. During 2008, Progress undertook a further strengthening of its technical provisions, which, together with the unfavourable impact of the CARD system and the increased reserves in personal injuries and fatalities, impacted negatively on the results. An overall increase in the frequency of motor liability claims, late reported claims and a concentration in the challenging Campania region also contributed to the deterioration of the RCA results.

International Insurance Management Services, the group’s subsidiary company that provides management services to international clients as well as to the group companies, further strengthened its international client base during the year. The company registered a positive financial result and its post-tax profit contribution to the group amounted to e0.99 million. IIMS increased its international client base, which now contributes 21 per cent of its revenue.

In 2008, Middlesea’s associate, Middlesea Valletta Life Assurance, the group’s specialised life assurance company, registered e1.92 million in profits after tax.

Business written decreased by 19 per cent to e110 million, while the company’s total assets increased marginally to e843 million as at the end of the year. The investment return of MSV decreased from an income of e26.5 million in 2007 to a loss of e31.8 million in 2008, after taking into account fair value mark downs on the investment portfolio. The direct impact of the financial crisis on MSV was somewhat mitigated due to its prudent investment policy, whereby the company holds a defensively positioned and widely diversified investment portfolio of quality assets, locally and overseas.

Middlesea Group’s investment strategy of aiming to preserve capital value while maintaining liquidity and maximising returns, continued to apply throughout the group, Mr Grech added, contributing towards the containment of fair value losses incurred during the year.

However, the group could not but follow the fortunes of the financial sector, he stressed.

“The considerable loss incurred by Progress in 2008 together with the immediate future challenges emerging in the Italian market have necessitated the taking of important decisions on future direction. These decisions will need to be made by the Board of Directors before the end of this current year.

“During 2008 the Middlesea Group continued to focus on future challenges that arose continually from market forces and increased statutory and regulatory requirements. The future direction of our subsidiary, Progress, together with the group restructuring will be our priority in 2009.

“The prospect of an early return to profitability becomes even more challenging when considering the current grey economic environment and the continuing uncertainties in the financial markets. The companies forming the group follow the fortunes of the countries in which they operate, which in turn are showing signs of soft market conditions and cutthroat competition. Nonetheless, our collective determination is to strive without remittance to overcome these huge tasks.”

The Middlesea’s Board is also examining the group’s structure and the process of proposing restructuring to the shareholders for their consideration had commenced. The envisaged change, which would first require various regulatory approvals, would not impact in any way the interests of shareholders, shareholders heard, but it would however, enhance its management, focus and business flexibility.