Mapfre Middlesea plc - Interim Results

Middlesea Insurance plc published its 2007 Half-Year Results following a Board of Directors’ meeting held on 17 August 2007. Similar to last year, no interim dividend was declared.

Total gross premiums written by the Middlesea Group during the first six months of 2007 increased by 20.8% to Lm22.6 million mainly as a result of a 31% (Lm3.4 million) rise in Italy, which now accounts for 64% of total gross premium income.  Progress Assicurazioni Spa continued to pursue its strategy of expanding its distribution network in the first six months of the year and increased the number of agencies by 30 to 155 as at 30 June 2007. Gross premiums written in Malta during the first half of the year amounted to Lm7.4 million, an increase of 6.8% (Lm0.47 million) from the level registered during the first six months last year. There was also a marginal increase registered in the premium income generated from the Gibraltar office.

The balance on the Group’s technical accounts showed a strong improvement during the period under review rising from Lm0.78 million in 2006 to Lm1.8 million helped by a net positive run-off of Lm0.7 million. Meanwhile, the share of profits from the Group’s investment in Middlesea Valletta Life Assurance Co. Ltd. decreased by 26% to Lm0.39 million (2006: Lm0.53 million) despite the increase in premium income from Lm26.6 million in the first half of 2006 to Lm29.2 million during the period under review. The contribution from the Group’s long-term business specialist company was hit by the higher incidence of tax whereas in 2006 it was favourably impacted by a non-recurrent credit tax adjustment of Lm0.2 million.

Total income from insurance activities during the first half of 2007 amounted to Lm2.25 million, representing a 56% increase from the comparative period last year. The Directors reported that the combined operational ratio for general business improved from 98.1% in 2006 to 95.7% during the period under review. The combined ratio measures claims and costs as a percentage of premiums (a figure below 100% denotes an underwriting profit).

Despite the negative capital returns from local equities and bonds as well as foreign bonds, net investment income climbed from Lm0.74 million in 2006 to Lm1.28 million in the first half of this year. Although gross investment income declined from Lm1.86 million to Lm1.64 million, investment expenses and charges including fair value losses only amounted to Lm0.36 million in the first six months of 2007 compared to Lm1.1 million last year. The Directors noted that the increase in net investment income was attributable to the strong returns registered in the foreign equity markets, mainly through Progress Assicurazioni in Italy.

Other income generated by the Group was marginally lower at Lm0.33 million with a 3% rise in administrative expenses to Lm0.79 million.

The Middlesea Group registered a pre-tax profit of Lm1.9 million in the first half of 2007, representing a 55% rise from the comparative period last year. The segmental information provided with the Half-Yearly Report reveals that just over half of the Group’s pre-tax profit was generated in Italy with a contribution of Lm1 million in the first half of 2007. The balance was from Malta (Lm0.86 million) while the remaining small balance emanates from the Gibraltar operation.

The Group provided for a tax charge of Lm0.71 million while in the first half of 2006 it recognised a tax credit of Lm0.31 million. The Directors of Middlesea attributed the increase in the tax provision mainly to the improved technical performance as well as the non-recurrent credit adjustment taken in June 2006. After accounting for the profit attributable to minority interests, the Middlesea Group registered a profit of Lm1.16 million in the first half of the year (2006: Lm1.55 million). Likewise, Group earnings per share dropped to 4c7 from 6c2 in June 2006.

The Group’s balance sheet shows total assets increasing to Lm126.3 million as at 30 June 2007 with shareholders’ funds (including minority interests) of Lm34.9 million giving a net asset value per share of Lm1.40. The Group’s total gross technical reserves increased by a further Lm5.8 million since the start of the year to Lm71.2 million as at 30 June 2007 and the ratio of net technical reserves to annualised net premium written remained strong at 158%.

In their Review of Results, the Directors commented on the current high volatility in the international capital markets. Despite this, the Directors of Middlesea expect that the improvement in the results registered in the first six months of 2007 will be maintained barring a natural catastrophic event, or an unexpected increase in the frequency of claims and/or a deterioration in investment returns.

In the 2006 Annual Report published two months ago, Middlesea’s Chairman and CEO Mr Mario C Grech explained that the strategy of the Middlesea Group is to continue moving towards achieving a greater territorial spread, having a better mix of business and varied distribution channels, as well as to diversify into non-risk insurance operations. Mr Grech noted in the Annual Report that the Group plans to expand further in the Italian market via Middlesea Valletta Life Assurance Co. Ltd. Meanwhile, the Group has also applied for the required licenses to operate in southern Spain. Middlesea is reportedly also looking at the potential of entering other markets in the Euro-Mediterranean region such as Greece and Morocco via joint-ventures with local partners in the respective jurisdictions.

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