'Sound' set of Middlesea first half results

Mario C. Grech, chairman of the Middlesea Group, last week announced that the Middlesea Group as at June 30, 2003 generated a profit after taxation (and minority interests) of Lm696,614. This represented an increase of 19% over the corresponding period of 2002.

In a market that increasingly looks for quality and financial strength, Middlesea's strong, resilient capital position was fundamental to its business. Though group companies achieved a good performance at the operational level and contributed positively to the group's profit, the increased cost of reinsurance protection and the persistent negative results in the motor class of business contributed to the holding company's depressed result.

Losses on motor business continued to generate a net underwriting loss, outweighing the positive performance registered in the other classes of business. The support derived from the beneficial impact of a strengthened and improved capital market performance also helped to mitigate the technical loss.

Mr Grech referred to the core operations of Middlesea Insurance plc and the continued hardening of the international reinsurance market that impacted on these operations. While it was encouraging to note that the gross underwriting result of the company before reinsurance costs (39% over 2002) improved by 2.8% over 2002, the net underwriting result after reinsurance costs, investment income and expenditure allocated to the general business technical account had deteriorated over 2002. Middlesea Insurance continued to attach great importance to the quality of its reinsurers.

The operations of the subsidiary company in Italy, Progress Assicurazioni SpA, positively affected the technical results of the group and contributed to the group's surplus on general business account of Lm244,979 (June 2002 - Lm396,083) which equated to 32% of the profit before taxation and minority interests.

This company registered an 18% increase in premiums to Lm10.5 million, representing 61% of the group's total turnover from annual business, thereby highlighting the importance of this subsidiary. This company's strategy to achieve a better mix of business between motor and non-motor business, territorial spread together with pricing adjustments contributed to the positive result, despite the higher reinsurance costs which also affected this operation.

The group's share of the six-month surplus registered by Middlesea Valletta Life Assurance Co. Ltd (MSV) amounted to Lm566,532 as compared to the surplus of Lm139,127 last year. This equated to 81% of the group's overall profit.

MSV registered a 44% increase in the total premium written of Lm12.1 million, while the company's Life Fund strengthened by 11.8% to Lm106.6 million. The company's balance sheet showed total assets of Lm128.6 million (December 31, 2002 - Lm115.3 million) while the value of in-force business, representing the discounted value of projected future profits (embedded value) increased from Lm10.8 million at December 31, 2002, to Lm11.8 million as at June 2003.

In accordance with the accounting policies of the Middlesea Group, the increment in this value is not reflected in the profit figure but is transferred to a reserve in the group's balance sheet.

While the group registered a decrease of 23% in the realised investment income credited to its profit and loss account, a significant improvement in the net unrealised capital gain was registered with the movement from unrealised capital losses of Lm659,807 at June 2002 to an unrealised gain of Lm214,209 at June 2003.

Movements in unrealised capital gains/losses were transferred directly into the balance sheet as a revaluation reserve and directly impacted upon the net asset value per share. The group's balance sheet was further strengthened in the first half-year when total assets increased by 8% over December 2002 and reached Lm87.4 million. NAV per share increased by 7c to Lm1.77.

Commenting on the results, Mr Grech said: "Overall these are a sound set of results, when set against the backdrop of a difficult operating environment. Although a degree of stability has returned to investment markets, we anticipate that conditions will remain challenging in the second half of 2003 as investor confidence in equity markets slowly returns.

"We continue to see the benefits from our distribution channels, especially as they develop in Italy. We will continue to monitor developments closely in the capital markets as well as implementing corrective measures in our core underwriting operation.

"On a note of prudence, it was pertinent to point out that Middlesea Insurance plc's reinsurance programme is expected to absorb the major part of the September 2003 storm event losses in Malta; however, this was still likely to adversely affect the year-end technical result.

"Our emphasis remains on developing our distribution network, ensuring strict cost and capital management in parallel to the implementation of underwriting disciplines across our businesses. We believe that these measures, combined with our resilient business model, will give us the platform to succeed in our chosen markets."

The board of directors did not propose to pay an interim dividend for the first six months of operations, as they did last year.