Announcing financial statements for the year ended 31 December 2009, the Middlesea Group yesterday turned over a new leaf and put all the losses it made from its unfortunate venture in southern Italy, Progress Assicurazioni Spa, behind it.

Whereas the domestic operations of the group reported a more than satisfactory profit of €8.7 million, representing a significant improvement over previous year losses of €2.98 million, the full write off of €63 million taken on the investment in Progress Assicurazioni, means that the overall group loss for the year amounts to €55 million.

Thus the cumulative losses registered by Progress, adding last year’s €46 million loss, have now been capped at €92 million.

Joseph FX Zahra, the newly appointed chairman of Middlesea Insurance told a press conference yesterday that “the extraordinary efforts made and sustained during 2009 to reverse the negative performance of our Italian subsidiary were not enough to change the disappointing results that hit Progress Assicurazioni. The positive performance and better than expected results of our Malta operations did not compensate for the large losses which were incurred in Italy.”

A confluence of a number of material negative factors, particularly an abnormal spike in claims, late reported claims, an extraordinary deteriorating performance of agents in the southern regions of Italy (especially in the Campania area), and the challenges of the down cycle in the motor car insurance market which was experienced by the whole Italian industry, impacted the company with harsh and critical adverse force. In addition, the company was also negatively affected by the regulatory changes in the systems for claims settlement and no claims discount rating, introduced in the Italian market in 2007 at a time when Progress was seeking to expand its operations.

A series of aggressive, radical corrective actions were taken to remedy the position. Mr Zahra stated that “with the help of expert professional consultants that were engaged to assist us, and through our close contact and collaboration with our regulators throughout the year, we had expected to be able to turn the position. However, with regret this objective was not achieved”.

In this regard, in early February the company had requested the Italian Regulator ISVAP to put in train the processes for the orderly winding up of the company. As was reported in a company announcement issued earlier by the company, on 30 March ISVAP placed Progress in Compulsory Administrative Liquidation.

The write-off of Progress implies that it would not be prudent for the board of directors to declare a dividend. This is only the second time that Middlesea Insurance had to pass on declaring a dividend following a positive 25-year history of year on year dividend payouts. “That is the bad news. The good news is that Middlesea has put Progress and its losses behind it, and the write off of the investment in that company that we have taken in the FY 2009 accounts should represent the end of this very unfortunate saga” Mr Zahra emphasised.

Despite the write off of the Italian operation, the fundamental strengths of the core operations and the balance sheet of Middlesea Insurance remain intact, Mr Zahra insisted. Notwithstanding the difficulties that were encountered in Italy, healthy profits were registered from local operations and Middlesea remains a financially strong company. Indeed the group balance sheet shows that the shareholders’ equity as at 31 December 2009 stood at over €48 million (from €62.1 million last year, to which one must add the additional capital put in by the share offer last year).

This makes Middlesea the highest capitalised insurance company in Malta by far. The second-best one is capitalised at under €20 million

“We are confident on the way forward for the company”, stated Mr Zahra. “We are confident that through hard and dedicated work of our people, product innovation and improved client focus, we will not only create value to our customers but also drive the earnings power to achieve attractive returns in the medium and long term”.

“Over the course of my first few months as chairman, I have been impressed by the strength of the company’s business capacity and the respect and reputation carried by the Middlesea brand”, continued Mr Zahra. “But nothing has impressed me more than observing first hand the skilled and dedicated people base of this company. It is only because of their hard work, experience and depth of knowledge that we have succeeded in stabilising our business and setting the strategies for moving forward.”

Mr Zahra stated that “the vision and strategies of Middlesea are geared to maintain Middlesea’s leadership status in the local market. Looking forward, our underwriting performance and discipline, our ability to innovate, focus on our clients, our people and our capacity to conduct large transactions are the strengths on which we will enhance our competitive advantage, build long term sustainable success and achieve our strategic objectives”.

In conclusion, Mr Zahra thanked the shareholders for their trust and loyalty. In particular he expressed his gratitude for the technical, financial and professional support offered by the three institutional shareholders, Bank of Valletta, Mapfre Internacional and Munich Re referring to them as excellent partners and significant assets.

Mr Zahra also thanked the wide and loyal customer base of Middlesea which he said was evidenced by the level of premiums written and the extent of year on year renewals.

Middlesea Valletta registered a profit of €6.2 million after tax and the main group, Middlesea Insurance registered a profit of €5.5 million on revenues of €32 million.

As a result of the refocusing of the group’s activities back to Malta, MSV will get a boost in its identity as a life insurer.

Middlesea’s third subsidiary, IIMS will face change as its workforce will be trimmed and it will be re-geared to focus on attracting insurance business from abroad and back office work.

At the end, Mr Zahra expressed moderate optimism on the group’s future after this traumatic period. There is further space for growth in insurance business in Malta and the company will be issuing new and innovative products.