An extraordinary general meeting of Middlesea Insurance p.l.c. was given details by chairman Joseph F.X. Zahra about 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, which 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,” Mr Zahra said.
The rights issue was modestly supported by the general body of shareholders, and the bulk of the issue (89 per cent) was taken up by the institutional shareholders. The final shareholding position resulted in the three major institutional shareholders holding approximately 82 per cent 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. Other desired changes to the governance of Middlesea include the separation of the position of the chairman of the board from that of the senior executive positions of the company.
The chairman 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,” Mr Zahra said, “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.”
But 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.
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 and (iii) transit IIMS to an important third party service provider to the insurance industry.
Mr Zahra said he wanted 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 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 per cent shareholding in MSV, with the balance of 50 per cent being held directly by Bank of Valletta, and the company and its policy holders 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.”