Mapfre Middlesea plc - Interim Results Review

Middlesea Insurance plc published its interim results to 30 June 2008 following a Board of Directors’ meeting held on 7 August. Similar to last year, no interim dividend was declared.

Total gross premiums written by the Middlesea Group during the first six months of 2008 increased by 23% to €64.8 million mainly as a result of a 33% growth (€11 million) in premiums written in the Italian market through Progress Assicurazioni. This subsidiary now accounts for 69% of total gross premium income of the Middlesea Group. Gross premiums written in Malta during the first half of the year amounted to €19 million, an increase of 7% (€1.3 million) from the level registered last year, whilst premium income generated by the Gibraltar office dropped 14% to only €1.4 million.

The balance on the Group’s technical accounts before allocation of investment returns totalled €1.16 million during the period under review compared to the €1.22 million generated in the first half of 2007. The Directors reported that the combined operational ratio for general business improved from 97.94% in 2007 to 96.04% 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).

The capital market turmoil experienced in stockmarkets worldwide had a significant impact on the half year results of the Middlesea Group and as a result the positive performance from the technical accounts was offset by the very significant negative fair value movements experienced in the investments portfolio. The Group’s fair value movements in the equity and bond portfolios are being reflected in the Profit and Loss Account in line with the Group’s accounting policies (similar to the policy adopted by Bank of Valletta plc). The Directors of Middlesea explained in the half-year report that the fair value losses on the Group’s investment portfolio totalled €5.9 million compared to a marginal gain of €0.16 million recorded during the comparative period last year.

The share of profits from the Group’s investment in Middlesea Valletta Life Assurance Co. Ltd. decreased by 55% to €0.41 million (2007: €0.91 million) also as a result of the negative performance of the investment portfolio of this life assurance company. The Directors noted that turbulence in the financial markets affected investors’ risk appetite and Middlesea Valletta registered a decrease in business written due to lower sales of investment products. Premiums written by the life insurance company in the first six months of the year dropped by 11.7% to €59.7 million.

Other income generated by the Group was marginally higher at €0.77 million while administrative expenses edged 1.4% lower to €1.34 million.

The Middlesea Group registered a pre-tax loss of €2.1 million in the first half of 2008 (June 2007: profits of €4.5 million). The segmental information provided with the Half-Yearly Report reveals that the Group registered losses in all geographical markets with the exception of the Gibraltar office which generated a minimal contribution of €0.05 million. In Malta, the Group recorded a loss of €1.4 million (June 2007: profit of €2 million), while in Italy, Progress Assicurazioni generated a loss of €0.72 million compared to a €2.3 million profit in the first half of 2007.

The Group recognised a tax credit of €0.5 million while in the first half of 2007 it provided for a tax charge of €1.66 million. After accounting for the profit attributable to minority interests, the Middlesea Group registered a loss of €1.56 million in the first half of the year when compared to a profit of €2.7 million generated during the six months to 30 June 2007. Likewise, Group earnings per share dropped to a negative €0.062 from a positive €0.11 registered in June 2007.

The Group’s balance sheet shows total assets of €314 million as at 30 June 2008, an increase of 4.3% since the start of the year with shareholders’ funds (including minority interests) decreasing to €80.8 million. The net asset value per share of the Group declined to €3.21. The Directors reported that the Group’s total gross technical reserves increased by a further 7.7% to €187 million since the start of the year and the ratio of net technical reserves to annualised net premium written decreased from 4.64% in 2007 to 3.59% as at June 2008.

In their review of results, the Directors stated that the core operations of the Middlesea Group’s insurance business continued to register positive results during the first six months to June 2008 as the growth in insurance premiums underwritten by the Group, together with the positive technical result, present a satisfactory overall result. This was not however sufficient to outweigh the major impact from their investment portfolio on these results. The Middlesea Directors remain confident that the Group has the necessary measures in place to maintain the positive technical performance of its insurance portfolio but they warned that the results will remain influenced by the volatility in the financial markets.

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