middlesea-2022-12-31-en

MAPFRE MIDDLESEA p.l.c.

Annual Report

31 December 2022

Company Registration Number: C 5553

Contents


	Page		Page
Chairman's Statement	i.	4. Management of risk
President & CEO Statement	vii.	4.1 Insurance risk	100
Directors’ report	1	4.2 Financial risk	105
Corporate Governance Statement	16	4.3 Fair values	124
Remuneration Statement and Report of the Remuneration Committee to the Shareholders	36	5. Capital management	128
		6. Segment information	129
		7. Net operating expenses	135
Statement of profit or loss		8. Investment return	136
Technical account – general business	46	9. Other income	138
Technical account – long term business	47	10. Profit before tax	138
Non-technical account	48	11. Employee compensation	139
Statement of comprehensive income	49	12. Tax expense	140
Statement of financial position	50	13. Directors’ emoluments	140
Statement of changes in equity	51	14. Earnings per share	141
Statement of cash flows	55	15. Dividends	141
Notes to the financial statements		16. Intangible assets	142
1. Basis of preparation	56	17. Leases	146
2. Accounting policies	75	18. Property, plant and equipment	150
2.1 Consolidation	75	19. Investment property	155
2.2 Segment reporting	77	20. Investment in subsidiary undertakings	163
2.3 Foreign currency translation	77	21. Investment in associated undertakings	166
2.4 Intangible assets	78	22. Other investments	168
2.5 Property, plant and equipment	79	23. Deferred income tax	172
2.6 Investment property	80	24. Insurance liabilities and reinsurance assets	175
2.7 Investments in subsidiary undertakings	80	25. Deferred acquisition costs – short term insurance contracts	185
2.8 Investments in associated undertakings	81	26. Insurance and other receivables	185
2.9 Financial assets	81	27. Cash and cash equivalents	186
2.10 Impairment of assets	83	28. Share capital	186
2.11 Offsetting financial instruments	85	29. Other reserves	187
2.12 Cash and cash equivalents	85	30. Provision for other liabilities and charges	188
2.13 Share capital	85	31. Insurance and other payables	190
2.14 Insurance and investment contracts	85	32. Cash generated from operations	191
2.15 Financial liabilities	91	33. Commitments	192
2.16 Current and deferred income tax	92	34. Contingencies	192
2.17 Provisions for pension obligations	93	35. Related party transactions	193
2.18 Revenue recognition	93	36. Events during the period	198
2.19 Investment return	94	37. Statutory information	198
2.20 Leases	95	Independent Auditors’ report
2.21 Dividend Distribution	97	Independent Assurance Report
3. Use of accounting estimates and judgements in applying accounting policies	98

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Chairman’s Statement

With the passing of the pandemic, we were hoping for a return to normality. Indeed, in my

report last year I said that we were looking to the future with some optimism that the worst

may be over, and that we may again be able to return to normality after more than two years.

However, it seems that crises seems to be the new norm. 2022 saw global supply chain

issues, the war in Ukraine and subsequent sanctions on Russia, which contributed to further

uncertainty and worldwide inflation. The reaction by Governments and Central Banks to

combat this, including the slowdown and halting of quantitative easing and increasing the

interest rates, played havoc with the markets, resulting in another year of turbulence.

Towards the beginning of the year markets fell drastically, partially recovered and fell again

towards the end of the year. Whilst equities fell, the increase in interest rates caused a

corresponding fall in bond prices. As I write this report, the markets remain depressed and it

is difficult to predict whether these large fluctuations will continue or whether the world can

return to a more stable pattern of growth.

Other geopolitical turmoil may aggravate this state of uncertainty. Tragically, the war in

Ukraine does not seem to be moving towards any sort of resolution. On the wider stage, the

United States and China seem to be moving towards political confrontation. Refugees fleeing

war zones or oppressive governments or even the effects of climate change, contribute to this

instability as Europe struggles to have a coherent, yet humanitarian approach to this issue.

The local market was to an extent shielded from this and therefore the results of MAPFRE

Middlesea p.l.c. (“MAPFRE Middlesea”, “MMS” or “Company”), which deals in general

insurance, reflected this with profitability largely on track. On the other hand, MAPFRE

MSV Life p.l.c. (“MAPFRE MSV Life”), the life company which has a substantial

investment fund, was greatly affected by the performance of the markets which, even if this

has not significantly affected profitability, has impacted the performance of the fund as well

as putting pressure on solvency.

All in all, a complex situation which I shall endeavour to explain further.

Results

The consolidated results show a profit before tax and minority interests of €22.2 million.

MAPFRE Middlesea made a profit of €6.0 million (compared to €4.1 million in 2021) whilst

MAPFRE MSV Life made a profit of €17.2 million (compared to a profit of €16.7 million in

2021). This is before tax and minority interests. The seeming excellent results belie the

complex effects brought about by the markets, principally on the life company.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Chairman’s Statement - continued

Results - continued

MAPFRE Middlesea’s results reflect the Company’s ability to retain its market share of the

underwriting market in General Business. Turnover increased from €80.1 million to €87.1

million and the market share dropped marginally to 32.57%. 46.7% of this turnover remains

in motor where the net combined ratio was 99.8%. This is a far cry from the ratio of 89.3%

enjoyed during the height of Covid and to an extent the increase was not unexpected as use of

vehicles returned to normal levels. However, the ratio is deemed high and the Company is

taking steps to correct this not least through increasing policy rates to sustainable levels and

through de-risking the motor portfolio. It should be noted that the value of claims is

increasing and the safety standards on our roads is far from satisfactory, as witnessed by the

record number of mortal accidents in 2022. We join the Malta Insurance Association in its

appeal to Government to take firm steps to reduce the number and extent of accidents on our

roads.

We are pleased to report the increasing level of health and home policies. Health and Home

business is important to allow the spread of risk and ensures we maintain a balanced

profitable portfolio.

MAPFRE MSV Life returned a record profit this year. However, this belies the complexity of

the result. The share of term business, which represents the life protection segment accounted

for 32% of these profits. The major part of the result however, some 65% is from With-

Profits Fund, which is underpinned by single and regular premium business. The With-Profit

Fund’s flagship product unique characteristics are to provide policyholders with smoothen

returns over the term of the policy and a capital guarantee on the invested amount and any

declared bonuses, upon death or policy maturity.

MAPFRE MSV Life applies an Annual Management Charge (AMC) on the With Profit

fund’s assets under management (AUM) and consequently the returns depend on the size of

the fund rather than the investment return generated by the fund. As at the year-end the With

Profits Fund’s assets under management stood at €1.89 billion (2021 €2.25 billion).

The With-Profits Fund’s investment portfolio is broadly diversified across asset classes,

namely equities, bonds and property, and geographies. Notwithstanding, the unusual

concurrent fall in equity markets and bonds, as interest rates moved significantly higher, led

to a negative return of 13.1%, which obviously impacted the With Profits Fund adversely.

From a solvency perspective, this affects the solvency capital requirements and hence the

reported solvency ratio of the company. At the end of 2021, the company’s solvency ratio

stood at 226.1% whilst as at year-end 2022 the solvency ratio is estimated to remain above

the regulatory solvency capital requirements but not within the desirable range as articulated

within the risk appetite of the company. The company will continue to monitor its risk profile

in the context of the prevailing market situation and outlook and act accordingly. I am sure,

you will appreciate the company’s cautious outlook particularly at this time of uncertainty.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Chairman’s Statement - continued

Results - continued

The bonus payout has been set at 0.90%-1.00% compared to 1.90%-2.00% last year which

again was affected by the poor performance of the markets. This must be seen in the light of

those who invested in the capital markets where investors suffered capital losses as both

equity and bonds experienced falling prices but without the benefits enjoyed by With-Profits

policyholders. We believe the With Profits Fund will continue, over the long term, to meet

policyholders’ reasonable return expectations through smoothed returns and peace of mind

given through the capital guarantee as outlined in the terms and conditions of the product.

On the other hand, the company continues to make progress in sale of unit linked products as

well as making inroads in the pensions market. With regards to the latter, it is important for

people to understand the importance of having a pension plan which helps them achieve the

desired standard of living after retirement. I am pleased to report that over 36 companies have

chosen MAPFRE MSV Life p.l.c.’s WorkSave Pension Scheme for their Voluntary

Occupation Pension Scheme (VOPS) for the benefit of their employees apart from around

14,000 individual pension policies. The company sees this as an important growth area which

is slowly gathering traction.

Dividends

MAPFRE Middlesea is declaring a net dividend in respect of the profit earned in 2022 of

€3.5 million, which translates into a net dividend per share of €0.038043. This compares to

the dividend declared last year of €2.4 million.

Whilst a dividend of €1.0 million has been received from MAPFRE MSV Life during 2022,

which is being distributed as part of the dividend above, the life subsidiary will not declare

any dividend for the financial year ended 31 December 2022 given the diminishing solvency

ratio expected to be published in the coming weeks. MAPFRE MSV Life’s priority is to

ensure that its equity remains at a level that can guarantee an adequate solvency level in these

most uncertain economic times whilst being able to develop its strategy for the future.

Solvency

In these difficult times, the Company has been focusing on its solvency requirements. Under

Solvency II, through the standard formula, the Company forecasts the solvency requirements,

that is, the ability of the group companies to continue to function at the same level of

business even in the event of a 1 in 200 year event. These calculations are further stressed to

withstand a more frequent 1 in 10 year event (such as large fluctuations in share prices,

severe claims and general deterioration in loss ratios).

As at year-end the solvency ratio for MAPFRE Middlesea is expected to close below the

257.9% of 2021 after deducting the dividend that is being proposed. As noted, the board

closely monitors solvency in these uncertain times and takes appropriate actions to ensure

that we remain well within our risk appetite.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

iii

Chairman’s Statement - continued

Regulation

The burden of regulation continues unabated. As a Group, which remains systemic to the

Maltese economy, we remain under the spotlight of the Malta Financial Services Authority

("MFSA"). Nonetheless we remain committed to best practice and ensuring that our

regulatory departments remain well-resourced and manned by highly skilled employees.

In 2022, we focused on the impending implementation of IFRS 17. This is a seismic shift in

the way profit, as well as insurance assets and liabilities, are measured and reported in

insurance undertakings, especially in long-term business. IFRS 17 comes into play in 2023

and the first results under this regime which will be reported to you will be the interim 2023

results. At this stage, I am unable to give you exactly what the impact on profitability and

balance sheet values will be, both for the Company and the Group. This is entirely due to the

way assets and liabilities as well as profit will be calculated and presented under the new

standard, and not due to any change in the business.

Operational developments

Both companies in the Malta group have spent considerable energy and resources

implementing core IT systems. I am pleased to say that finally we are at an advanced stage.

We should have the majority of the business of both companies on the new IT systems by the

middle of the year. With MAPFRE Middlesea this has been a very long journey, I would say

too long, but the benefits we will reap having systems which allow us to manipulate data to

assist our actuaries in their calculations, helping to properly calculate reserving, and ensuring

correct pricing, are immense. The front end will also allow for better client experience and

faster onboarding. It will also allow us to nuance our pricing based on risks to a much greater

extent than previously, making the Company more agile as well as more competitive.

On the motor side, we are analysing data from different sources to ensure correct pricing as

well as the reduction of risk to bring the combined ratio to more profitable levels. Of course,

we are in the business of taking on the risks of our clients and therefore, whilst predictions

are fraught, the more scientific we are, the probability of achievement of this goal increases.

MAPFRE MSV Life is also in the process of migrating to a new core IT system which will

enhance its operational capability. This process will be largely completed this year.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Chairman’s Statement - continued

Distribution

MAPFRE Middlesea has some 6 agents, over 60 tied insurance intermediaries and we also do

business through 23 brokers. Only 10% of our business is written directly by us. Our agents

and Intermediaries are often the face of our business and we are grateful for their efforts in

helping us grow the business, whilst maintaining the professional image of the Group. The

insurance industry has become more technical, and considerably more regulated. This means

there is more training on compliance, and anti-financial crime, which combined with the roll

out of the new IT systems, next year will continue to burden our distributers. I should like to

place the great thanks of the Board and staff of the Company to our distributers for their

loyalty, professionalism and dedication to their work. It is teamwork and I promise we will

continue to improve our products, as well as our systems and procedures, to provide the

support that is required.

With MAPFRE MSV Life, Bank of Valletta p.l.c. (“Bank”) remains by far the single largest

producer for the company, both in terms of term assurance as well as Single premium

products. The Bank has proved to be an excellent partner, as well as shareholder in the group.

I cannot emphasise the importance of the Bank to the Malta group, which has in no small

way contributed to the results of the group. This is a partnership which has stood the test of

time and has delivered results for customers and shareholders alike.

MAPFRE S.A.

MAPFRE Middlesea is a subsidiary of MAPFRE Internacional S.A. who in turn is a fully

owned subsidiary of MAPFRE S.A.. Since 2011, when the Company became a MAPFRE

Group company, it would be difficult to describe the transformation it has gone through.

They have brought a new level of expertise in the increasingly complex business of

insurance, which has allowed us to maintain our lead in the market.

Corporate Social Responsibility

During 2022, MAPFRE Malta once again met its CSR objectives collaborating with a

number of different entities to organise various activities ranging from food and blood

donations, environmental activities and various donations to various charitable organisations

and NGOs such as Malta Community Chest Fund, Malta Trust Foundation, Majjistral Park,

Malta Red Cross Foundation, Fondazzjoni Patrimonju Malti and Down Syndrome

Association, to mention a few.

Fundación MAPFRE allocated over €160,000 for projects in Malta across different areas

(road safety, health, and social actions). The Foundation has once again collaborated with

Inspire and Equal Partners Foundation, funding the provision of specialised services to

children and adults with disabilities (€53,000 to cover the running costs of Inspire’s

therapeutic facilities Multi-Sensory Rooms and over €30,000 to Equal Partners Foundation to

support their efforts to enable children who suffer from a disability to lead a more

independent life).

MAPFRE Malta also joined the fight against breast cancer with a variety of awareness-

raising activities through their #ThinkPink campaign, as well as by collaborating with the

Action for Breast Cancer Foundation as per previous years.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Chairman’s Statement - continued

Shareholders

MAPFRE Middlesea p.l.c. is a listed entity regulated by the MFSA. It is a subsidiary of

MAPFRE Internacional S.A.. Being part of one of the largest insurance companies in the

world allows us to access technical knowhow which is at the cutting edge of the industry. In

2022 MAPFRE Internacional S.A. has a shareholding of 55.83% in the Company.

Bank of Valletta p.l.c. is the other major corporate shareholder with 31.08% of the

shareholding and is a 50% co-shareholder in MAPFRE MSV Life p.l.c.. The Bank has

proved to be a steady partner throughout the years, providing not only input and insight at

board level but is the main generator of turnover in MMSV. The commercial relationship

between the Bank and the company remains very strong which is critical to the evolution of

the company.

13.09% of the shareholding in MAPFRE Middlesea is held by the so-called smaller

shareholders, of which we have some 3,720.

I have the privilege to work with a board which is professional in its dealings and technically

competent. Jose Ramon Alegre, Jose Luis Jimenez, Etienne Sciberras and Jose Maria del

Pozo were appointed by MAPFRE Internacional S.A. whilst Gordon Cordina and Robert

Suban were appointed by Bank of Valletta. The smaller shareholders elected Antoinette

Caruana and Paul Testaferrata Moroni Viani. I am grateful to them for their focused insight

in helping to resolve the many issues which arose during the year and in providing direction

and perspective to management. I need to pay tribute to Joseph F.X. Zahra who retired at the

last Annual General Meeting. Mr Zahra has been a director of the Company for many years

and indeed was a past Chairman, in the more difficult times. The Company owes him a great

debt. I am pleased to inform you that he has been appointed a director of MAPFRE MSV

Life where we have been able to retain his considerable knowledge and acumen. Taddeo

Scerri and John Cassar White also retired last year and I thank them for their support and

contribution during their tenure.

2021 saw the appointment of new CEOs Javier Moreno at MAPFRE Middlesea and Etienne

Scibberas at MAPFRE MSV Life. They joined at a time of uncertainty and change and have

done an excellent job in guiding the company in unchartered waters throughout 2022.

It is also fitting to record our thanks to James Mallia our CFO who was acting CEO for a

period when Javier Moreno was indisposed. He was a steady hand on the tiller bringing his

vast experience and calm to the fore when needed. The Company is ably supported by the

whole team of Chief Officers and staff who have ensured the Group’s continued progress in

these unprecedented times. I join my fellow directors in thanking them for the hard work and

commitment during the past year.

Signed by Martin Galea (Chairman) on the 22 March 2023

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

President & Chief Executive Officer’s Statement

MAPFRE Middlesea Group highlights

A year ago I remember that I began my annual report by stating that 2021 had been a

complex year in our lives. At that time we were not yet aware of the new and unexpected

circumstances that were going to turn 2022 into another turbulent year: we have faced very

significant geopolitical instability with a more direct impact on Europe, very volatile

financial markets, high interest rates, inflation with increases not seen in the last 40 years, all

circumstances that have a direct impact on our insurance activity.

On the positive side, the situation regarding the Pandemic, although not over, has stabilised in

most of the world, turning towards a chronic situation that does not limit work and

commercial and social activity.

As always, our objectives as MAPFRE Malta Group (“MAPFRE Malta”, “Group”) have

been focused on offering the best service to all our clients, intermediaries, strategic partners

and other stakeholders, while maintaining the best possible performance in this complex

environment, rigorously executing our commitment to profitable development. All this

without ever forgetting our care for all our employees, undoubtedly one of the great strengths

of our Group in Malta.

In the times we live in, rigid strategies are no longer appropriate and therefore adaptation and

flexibility become strategic values in their own right. In MAPFRE Malta, we have combined

in an adequate way the development of reactive measures to mitigate the different impacts

generated by the difficult global situation.

Our financial performance has been very positive and even more so in the current

circumstances, maintaining our position as the insurance leader in general insurance as well

as in life and pension insurance. This has only been possible thanks to the efforts and

commitment of all our employees, strategic partners, intermediaries and suppliers.

Premiums written amounted to €335.9 million, with a different evolution based on the type of

business, clear growth in Non-Life in almost all products and selective growth in Life, with a

focus on regular premiums, pensions and protection in contrast to some slowdown in the

single Premium line. Details of these activities are provided below.

Importantly, the consolidated result before tax was excellent at € 22.2 million and very

positive in both companies. We have exceeded the 2021 result and even the internal targets

we set ourselves for this year.

In the Non-Life business, we should point out that commercial activity has been very strong,

and we have been able to contrast the recovery of the travel business as well as greater

mobility, despite the fact that this has brought about additional stress in the Motor line, due to

an increase in the frequency of accidents.

Thus, the Premium written figures for MAPFRE Middlesea p.l.c. (“MAPFRE Middlesea”,

“MMS”, “Company”) including group life reached a total of €87.1 million at the end of 2022,

generating an increase of 8.7% over 2021, undoubtedly a relevant growth in an uncertain

year. The result was also remarkable, with a profit before tax of €6.0 million, clearly better

than the €4.1 million obtained in 2021, even if one had to exclude the €0.5 million reversal of

impairment in relation to Progress Assicurazioni S.p.A..

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

vii

President & Chief Executive Officer’s Statement - continued

MAPFRE Middlesea Group highlights - continued

In any case, technical performance remained resilient, with a Net Combined Ratio ("COR")

for non-life business of 92.6%, slightly higher than in 2021 but robust especially if we

consider the aforementioned circumstances of higher claims frequency and cost increases due

to inflation. Once again, our diversification strategy has contributed to generate a good

technical result, with some lines of business performing better than others do but with an

adequate mix.

Regarding the long-term business, volatility was even higher than in 2021, with very

challenging international and local financial markets and asset depreciation that led us to take

decisions aimed at protecting both current policyholders and the solvency of the Life

Company, MAPFRE MSV Life p.l.c. ("MAPFRE MSV Life”, “MMSV”). These are

discussed in more detail later in this report.

On balance, this year has been very positive in terms of results and adequate in terms of the

growth of the business lines that contribute most to the future sustainability of the group in

Malta and consistent with our strategy of sustainable and profitable development.

We have once again experienced challenging circumstances, which we have been able to

manage appropriately. The great assets of our Group have once again proved to be the key to

our clients' trust and we continue to maintain and reinforce a leading position in the insurance

industry in Malta.

We again reassert our commitment to strong, sustainable development and value creation for

our shareholders.

Finally, it is important to note that despite the difficult labour market, we have managed to

maintain great stability in our management teams, as well as in our governing bodies.

Undoubtedly a key support for the achievement of our objectives.

General Business

Premiums in 2022 reached €84.4 million, representing an increase of 8.8% over 2021; we

have made a constant effort to keep on the growth that we have enjoyed in 2021.

Preliminary figures show that, although maintaining the market leadership in the non-life

business, our growth rate was slightly lower than that of the market, leading to a marginal

reduction in our market share from 33.24% to 32.57%, remaining well balanced across the

major lines of business.

We have achieved clear growth in premiums written in all business lines except Marine Hull

and Engineering, the first case due to restricted underwriting and the second because of the

reduction of major new projects in this activity in comparison with 2021. Motor and travel,

still affected in 2021 due to Pandemic, showed a good recovery in premium volumes this

year. Of note was the magnificent and recurrent result in health, and the consistency of the

rest of the personal and commercial lines.

With just over 127,000 customers and more than 224,000 policies, we remain as the major

player in the market. These figures are undoubtedly one of the most important for MAPFRE

as they show that we continue to have the support and trust of our clients.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

viii

President & Chief Executive Officer’s Statement - continued

General Business - continued

Commercial activity has been even more intense than in 2021 and 67,419 new policies have

been issued, a significant figure that has been possible thanks to our large distribution

network and the attractive value proposition that the Company offers to its clients. It is worth

mentioning that the growth in the number of policies and policyholders in Health and Travel

have been particularly significant.

Our policy retention ratio is 79% and our client’s retention ratio, above 85%, remain in a high

standard in general terms although not enough for us as we see some clients leaving the

Company. Our ambition and business culture must drive us to consistently keep our

customers satisfied, loyal and open to placing greater trust in us with more insurance

products.

Regarding our product offering, MMS has continued working in adapting concrete solutions

for real life, examples are the upgrade of travel, commercial home, business combined

solutions and specific promotions on home, health, SMEs and motor. We reiterate MMS has

the widest coverage of insurance solutions that allow our intermediaries and sales force to

meet the needs of each family, company or organisation.

Regarding our distribution, we had the opportunity to be even closer to our intermediaries as

the face-to-face relationships came back, acting with all of them in a very proactive approach

to better fit real client’s needs. Our partners, brokers, agents and TIIs have demonstrated once

again that a relationship based on mutual trust and commitment is the basis for excellent

service to our clients, offering agile and personalised attention.

On top of this, as part of our value proposition, clients who bundle their insurance

requirements with MMS will not only get a cost saving but also enjoy additional benefits.

Our agents have developed a formidable year, showing that this model generates profitable

and sustainable growth. They have increased premium by 10.9%, a remarkable figure, and a

significant contribution to the diversification that is always part of our strategy.

MMS has always maintained an excellent professional relationship with brokers and this year

has been no exception as the strong figures show. Considering Commercial lines,

Reinsurance restrictions and higher costs are generating more complexity as this type of

business requires more protection capacity to meet concrete customer´s needs.

Our direct business, consisting of our regional offices and TIIs, has also performed very

positively. As a Company, we want to continue to promote this channel further as we still see

more potential to be opened up. MMS continues to develop this channel and during 2022 we

have been reviewing the current model to gain efficiency and working with actual partners to

establish the right plans with them for delivering higher sales figures in the coming years.

Important to note the excellent satisfaction level reported by our clients when they are

serviced by our offices, 6.5 out of 7 is the score we got here.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

President & Chief Executive Officer’s Statement - continued

General Business - continued

Motor business evolution this year was extremely complicated by two factors: higher

frequency of claims due to major mobility of the population, and a strong increase in the

average cost of claims associated with inflation. The net COR reached 99.8%, slightly better

than the one got in 2021. Management has defined a specific motor plan during the year that

we will continue to action and monitor closely its development during 2023. Analytical

capabilities have been improved during this year through enhanced data extraction.

Health business performed very well with net COR holding at a very positive 74.9%, even

better than in 2021 and becoming strategic for the Company.

The rest of the business lines had a net COR of 90.8%, with a small deterioration from last

year mainly due to several large claims on the liability products, partly offset by an excellent

behavior of Marine Hull business.

With Motor business weighting 48% of the non-life portfolio, the diversification of

businesses ensures greater stability in our technical performance.

Special mention should be made of the high control of management expenses, although we

had to deal with a significant pressure coming from staff costs and IT projects.

With a headcount at the end of 2022 of 177 employees, MMS has suffered a variation of

2.3%, with a turnover of 10.4%, a very good outcome when we compare with the market for

financial institutions that is close to 30%. The commitment to our employees and society

remains unchanged and embedded in our corporate culture and this is a strategic pillar for the

coming years as we face a difficult labour market, with very low levels of unemployment,

rising wage pressure and high mobility in the market.

The solvency of MMS, as provisionally determined by Management, continues to be very

high, and although expected to be lower than that for 2021 will remain more than double the

minimum legal requirement. On top of this, the reinsurance protection offered to the

Company by MAPFRE Re, the MAPFRE Group reinsurance company, ensures an adequate

cover for significant losses that ensures that our Solvency is not negatively impacted by such

occurrences. Taking advantage of the MAPFRE Group purchasing power ensures that such

cover is obtained at an optimal cost for the Company, especially when the reinsurance market

is on a hard side due to big losses happening worldwide.

Investment return, at a negative €0.2 million excluding Group dividends of €1.3 million, is

conditioned by the negative adjustment of the valuation of our main real estate investment,

Development House, marginally offset by the rentals from tenants. The performance of our

financial investments in a negative environment did not help.

On a different note, we received a final amount of € 0.54 million from the liquidation of our

old Italian subsidiary Progress Assicurazioni S.p.A..

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

President & Chief Executive Officer’s Statement - continued

Long Term Business

MMSV offers a wide range of protection, savings, investments and retirement solutions

addressing the diverse needs of individual clients, companies as well as other organisations.

Undoubtedly, 2022 shall be remembered for the war in Ukraine and the surge in inflation to

levels last seen decades ago. Global Central Banks responded through an aggressive

monetary tightening policy to try and bring runaway inflation under control. Economic

forecast started to project a recessionary environment while capital markets became

increasingly more volatile. For the first time in many years, mainstream asset classes, equities

and fixed income securities, did not provide the traditional diversification benefits. In

general, balanced investment portfolios saw negative double-digit returns.

Against the backdrop of negative consumer sentiment and low investors’ confidence,

MMSV’s gross written premium saw a drop of 23.5% when compared to 2021, which was a

record year in terms of premium. In 2022, MMSV’s gross written premium was of €248.8

million compared to the €325.1 million registered in 2021.

The reduction in premium was mainly driven by the With-Profits single premium business

which saw a lower demand due to the current uncertain environment, measures taken to

protect the With Profits fund and ensure fairness across its policyholders. With the rise in

interest rates, the competitive landscape for investment solutions continued to intensify.

Compared to 2021, both With-Profits and Unit Linked regular savings premiums increased

on positive and encouraging demand for pension products. Protection premium was broadly

in line with expectations.

Funds under management decreased to €1,895 million, a decrease of 16% over 2021, driven

by With-Profit's maturities and a negative investment return of €270.4 million, representing a

negative gross investment return of 13.1%.

Operating expenses were 3.9% below 2021. This was mainly due to the lower acquisition

expenses from new business which compensated for the increase in internal expenses.

The lower contribution towards profitability from With-Profits business due to lower Assets

Under Management was partly offset by the protection business delivering an excellent

technical result, strongly supported by an improvement in interest rates, mortality experience

and improved reinsurance terms.

As a consequence of the above, MMSV's profit before tax reached €17.17M, exceeding the

2021 corresponding figure and contributing decisively to Group consolidated results of over

€22.2 million.

The fall in asset values together with a change in the tax treatment in the Solvency balance

sheet contributed to the deterioration in the reported solvency ratio. The solvency ratio, as

provisionally determined by Management, is expected to drop significantly remaining above

the regulatory requirements. The company continues to closely monitor and consider options

to strengthen its solvency position in line with its risk appetite.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

President & Chief Executive Officer’s Statement - continued

Consolidated Results

In 2022, the group registered a profit before tax of €22.2 million, 8.9% higher compared to

the previous year. After tax, the Group generated a profit of €14.7 million or 13.5% higher

than the previous year. The tax expense of 2022 is less than the 35% corporate rates closing

at 33.9% compared to 36.6% in the previous year due to a lower impact of Property gains that

are taxed at 10%. Earnings per share attributable to shareholders have increased to 9c6. The

profit attributable to shareholders increased both from a better technical result from MMS

and MMSV and from a one-time amount recovered from the liquidation of Progress

Assicurazioni S.p.A.. MMS is committed to returning value to its shareholders and will

continue to dedicate an important part of its profit to remunerate the shareholder.

Whilst still maintaining a prudent policy in line with discussions with our regulator, MMS

will propose to the board of directors to pay a net dividend of €0.038043 per share. The

Company's payout will be 92.37% of this year’s profit after tax of the Company.

In parallel, we continue to increase the value through both companies’ capitalisation to

manage stressed scenarios as we still face complex years with significant levels of

uncertainty.

Statements of Financial Position

The group's total assets reduced by 12.8% and totalled €2.47 billion. More than 91.5% of

them are return-seeking assets (investments and cash and cash equivalents) mostly within

MMSV’s funds under management that suffered a sharp drop in 2022. These funds are

invested in diversified securities (local and foreign), and are managed in-house or externally

by highly reputable entities. The Group also has a portfolio of rented property investments

and property-related shares.

On the liabilities side, 96.2% of the balance pertains to technical provisions. Life technical

provisions shrank as a result of negative investment returns and outflows exceeding inflows

into the Fund, whilst non-life business saw an increase both in unearned premium provision

from increased sales and in claims outstanding provision from higher claim frequency and

severity.

Total equity increased by €3.3 million or 1.5% including the minority with the profit for the

year mostly outweighed by the drop in the value of the in-force business and the dividends

paid.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

xii

President & Chief Executive Officer’s Statement - continued

Review of operations

During 2022 MAPFRE Malta has continued to drive forward its omni channel approach,

introducing improvements across the board. At MAPFRE, we want to accompany clients and

engage with them based on their preferences. This is a reality as we provide attention and

services through our website, contact center, direct offices, TIIs, agents and brokers.

Starting with the website, www.mapfre.com.mt, after the integration we did last year, we saw

an intense traffic of clients going through. This provides the customer with a global vision of

the solutions and services that our Group offers in both Life and Non-Life, undoubtedly the

widest insurance offer in the country. We continue to promote direct services to

policyholders to make regular processes, such as quotations, renewals, and notification of

claims, easier and simpler.

Our customer portal ‘My Insurance’ gives, among other services, access to the excellent

offers of MAPFRE’s Insure&Save (https://www.mapfre.com.mt/insure-and-save/), the

loyalty program created solely for the benefit of our clients, definitively delivers additional

value for money when you decide to be part of the MAPFRE community.

The MAPFRE contact center performed through our associate company MAPFRE Middlesea

Assist Limited, has been already fully digitalised and it´s our flagship service on behalf of the

customers to deliver all kind of services related to their policies, as the roadside assistance or

the home assistance.

The experience of our customers is always key for us, that is why we have turned to our NPS

(Net Promoter Score) survey where, despite the good results obtained, we have analysed

those points that obtained a lower score in order to implement specific action plans to

improve.

We constantly strive for greater operational efficiencies, which is why more operational

processes have been optimised this year with 2 additional Robotic Process Automation

technology.

In 2022, we continued executing organisational adjustments recruiting specific new joiners

with special skills to strengthen the technical functions and those that are shared between

MMS and MMSV. It is important to mention the creation of a data office to help MAPFRE

Malta to be a totally data driven insurer. Other areas with additional reinforcement have been

Anti Financial Crime, IT and Business development.

Regarding digital transformation, progress in the implementation of the new core systems of

both companies has been rolled out to the Tied Insurance Intermediaries and Brokers.

Currently, the main products of both companies can now be issued through the new

platforms, providing underwriting and operational improvements and a solid pillar on which

to build the digital ecosystem of the companies. Customer experience remains in the center of

all our technological projects.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

xiii

President & Chief Executive Officer’s Statement - continued

Subsidiaries and Associates

BEE Insurance Management Limited

BEE Insurance Management Limited (("BEE") and Euromed Risk Solutions Limited, our

subsidiaries dedicated to the provision of insurance services to third-party companies, have

managed to maintain business with their existing clients, with a good progress in terms of

new potential clients which unfortunately requires time to onboard them as final clients.

Due to these circumstances and the pressure coming from staff costs, the company is not

registering the profitability that one would expect on the third-party business. Nevertheless,

we continue to explore new opportunities that will allow us to maintain the sustainable

development of this activity within MAPFRE Malta.

Apart from third-party business, BEE also started providing IT services to the MAPFRE

Malta Group insurance companies during 2022, gaining more efficiencies as a unique

qualified team.

Middlesea Assist Limited

MAPFRE Middlesea Assist Ltd, our joint venture between MMS and MAPFRE Asistencia,

generated a profit of €0.19 million, an increase of 6.3% compared to 2021.

Its principal role is to be MAPFRE Malta's arm in developing services for our clients. As a

leader in roadside and home assistance services, it is perfectly aligned with our service ethos:

we prefer to solve our clients' problems rather than pursue a compensation process. Once

again this year, the evaluation of these services has been highly rated by our customers and

we have finalised the digitalisation of services with the MIA (MAPFRE Intelligence

Assistance) Drive project, which allows smartphone access to the assistance service.

Middlesea Assist continues to develop its telephone customer care services, also using

WhatsApp. But our bet for technology and automation for the benefits of our clients is fully

committed.

When people come first

We are by your side, accompanying you so that you can progress calmly, contributing to the

development of a more sustainable and caring society. We take care of what matters to you.

Because our reason for being is to work every day giving the best of ourselves, always being

close to our clients. Prepared to support them and offer what they need today and what is to

come tomorrow, as we have been doing for many years. Because, in an uncertain world, we

are defined by the capacity of all our employees, collaborators and suppliers providing the

best service, innovating, adapting to customer needs and being there when they need us.

Because for us, trust is the basis of the relationship with our customers and other

stakeholders. At MAPFRE, we want to give people confidence so that they have security,

strength and the ability to meet their goals and objectives. We will be by your side, providing

the necessary peace of mind so that no unforeseen event can stop us. We put all our

knowledge, experience, innovation and capacity at the service of our clients, so that they can

move forward and enjoy their lives to the fullest.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

xiv

President & Chief Executive Officer’s Statement - continued

When people come first - continued

Also, our way of doing things is different. Our values and our commitment translate into a

permanent concern for the development of the communities where we operate. The ultimate

mission of our Company is to generate shared value with society. In short, carrying out our

activity based on a commitment to our environment and to people, with a long-term vision,

working for the improvement of society as a whole. We cannot carry out our business activity

without working in parallel for a more sustainable and caring world.

We are actors of social commitment through Fundación MAPFRE activities. We continue

supporting different organisations in Malta to help people in need. Providing training for the

young generation is key for us and we want to play a main role in road safety, whether they

are pedestrians, cyclists, drivers or passengers, because every person using the road plays an

important role on it. Following the success of the Street smart campaigns in schools,

Fundación MAPFRE partnered with Malta Public Transport (MPT), the Ministry for

Education and the Road Safety Council and introduced a new project in all schools via

interactive videos on road safety using real-life situations.

Fundación MAPFRE has also continued the very successful campaign called Logging Off.

The campaign is aimed at raising awareness about internet addiction among school children.

The campaign is composed of workshops streamed live into a classroom via interactive

whiteboard technology. This way students receive a fun and interactive lesson on healthy

interaction with the online world.

During 2022, Fundacion MAPFRE has also continued its support to Inspire Foundation,

through a generous donation that allowed specialised services for children and adults with a

disability by covering the running costs of one of Inspire’s therapeutic facilities – the Multi-

Sensory Rooms (MSR).

Our volunteers have been involved in activities that have benefited many people with a

helping hand whenever possible. Also taking care of the environment by planting thousands

of trees at Majjistral Park.

MAPFRE Malta also collaborated with a number of different entities to organise various

activities ranging from food and blood donations, environmental activities and various

donations to various charitable organisations and NGOs, such as Malta Community Chest

Fund, Malta Trust Foundation, Malta Red Cross Foundation, Fondazzjoni Patrimonju Malti

and Down Syndrome Association, to mention a few.

MAPFRE is a committed Company that is concerned about its social print and fosters

economic and social development in the countries in which it operates. MAPFRE believes

that business development also entails a demanding social, environmental and governance

commitment to protect the legacy handed down to our future generations.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

President & Chief Executive Officer’s Statement - continued

When people come first - continued

ESG is high on everyone’s agenda, and means using Environmental, Social and Governance

factors to evaluate companies on how far advanced they are with sustainability. At MAPFRE

Malta this is already deeply embedded in our strategy and in our commitment to society here

at MAPFRE Malta. We take specific action on environmental sustainability, in society and

governance. We are not starting from scratch, these activities were already part of our

corporate DNA and were already present in our daily business, but now we will promote

them more directly and visibly.

Managing the social and environmental impact of companies and people is closely linked to

our activity. Sustainability is strategic for us because each pillar of our plan allows us to

continue moving forward and fulfilling our purpose. At MAPFRE Malta we take care of what

matters to you, and our Sustainability Strategy allows us to continue doing so.

This plan goes hand in hand with our strategy in a fully integrated manner in the business,

especially in the development of products and services, and it determines the responsible

management of our assets and investments. It also produces transformative effects, both in

relation to the environment and in the Group's corporate governance; but what makes us

different lies in the “S” for Social, because it is part of our way of understanding business.

We are expanding MAPFRE's ambition and commitment to advance in the decarbonisation

of the economy and in reducing all kinds of gaps, as well as helping our clients make a fair

transition for the generation of people that now depends on less sustainable activities.

We are aligned with MAPFRE Group’s sustainability plans on emissions neutrality by 2030,

inclusive labour policies for people with disabilities making up at least 3.5% of the

workforce, working towards having 100% sustainable providers, and not investing in, or

insuring, coal, gas or oil companies that do not have an energy transition plan in place.

We continually review and increase our transparency and ESG requirements based on what

others expect of us, and on what we believe ourselves to be capable of doing to contribute on

social and environmental matters. At MAPFRE Malta, we are aligning our services and

products with these aims. We achieve this through sustainable products, sustainable

investment, and sustainable underwriting. In 2022, MAPFRE Middlesea launched the first

electric vehicle insurance policy on the island and MAPFRE MSV Life was the first

company to launch ESG funds linked to their investment portfolio.

In July 2022 we joined MESGA, Malta ESG Alliance, to become an active player in

conjunction with other relevant companies in the country and fostering initiatives from the

private sector that may accelerate the sustainability of Malta. At MAPFRE Middlesea we will

be investing in solar panels to reduce our carbon footprint and we have implemented many

initiatives to optimise waste management.

At MAPFRE Malta we are fully committed to the 2030 Agenda and we believe that we are

playing a key role in transforming the present to ensure a fairer, more egalitarian, and safer

world for all.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

xvi

President & Chief Executive Officer’s Statement - continued

Looking forward

MAPFRE has a long history of being an innovative Company. Innovation is in our DNA and

is one of our main drivers in boosting organic growth and executing our strategies. This

permanently generates differentiating value propositions for clients, with a transversal and

integral vision that means we can respond to business challenges.

We are living through a time of historic change. We are in the Decade of Action, a context of

urgency in which we have the unique opportunity to collaborate in order to tackle social and

environmental challenges. At MAPFRE we know that our response to these global challenges

can only be collective. We believe that small actions add up to create big changes, which is

why we aim to contribute to this process through demanding and unequivocal commitments.

Through this vision, we are working to make quality employment, inclusion, financial

education, accessibility to insurance, and the sustainability of our value chain the drivers of

transformation.

In 2023 we will continue to work on our employer’s brand, to show that we are a different

Company, with a clear purpose, and an excellent place to work, a place “where your time

becomes meaningful”.

MAPFRE’s Strategic Plan 2022-2024 deepens the transformation process that began several

years ago, so we can continue adapting to the complex macroeconomic environment we

operate in, improving our client value proposition and adapting to their new preferences,

being more accessible, different and scalable.

Our change agenda is based on sustainable, balanced and profitable growth; on the

continuous improvement of internal efficiency; and further accelerating the transformation

already underway.

Our values are constant and comprise the hallmarks of our group: Solvency, Innovation,

Service, Integrity, and a Multicultural and diverse team. All of this makes up the new

roadmap that will allow us to achieve our commitments and objectives.

Last year we defined a new strategic plan for MAPFRE Malta 2022-2024, with specific

developments for each company generating important synergies.

We said we had three major areas in our new strategy based on the Group Pillars:

Customer focus. The value proposition must serve this great principle and promote a holistic

view of the customer, differentiating individuals and families from corporate customers.

Distribution and diversification. We remain committed to a multi-channel distribution

model, adapted to the needs of our customers and we must continue to strengthen the direct

relationship with our customers when they require it, either in person or digitally. We shall

continue to offer the widest range of insurance products, diversifying towards those insurance

solutions that best suit our customers and which are also aligned from a technical and capital

management point of view.

Gaining efficiency. Offering the best solutions and services is all well and good, but we also

have to do it at an affordable price, driving towards simplicity and agility. This means

transforming many processes and being more technological, and we are taking on the

challenge determined to achieve this ambitious goal.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

xvii

President & Chief Executive Officer’s Statement - continued

Looking forward - continued

One year later, we keep all our commitments and we confirm we are working intensively in

all areas, client focus, distribution and diversification, technical performance and efficiency

to achieve our goal: developing a balanced, profitable and sustainable growth.

We cannot and must not forget that the regulatory environment will continue to be very

intense in the coming years and as MAPFRE Malta we welcome all these changes. We will

maintain the same fluid, transparent and cooperative relationship with the different bodies

that regulate our activity, mainly the Malta Financial Services Authority. We always aim to

strike the balance between proper control and business development on behalf of our

intermediaries, providers and other stakeholders. We must all cooperate to achieve full

regulatory compliance without affecting commercial and competitive activity.

A special mention to IFRS17, the new accounting standard we will be adopting in 2023 that

will change the way we account for the insurance business, with significant modifications in

comparison with IFRS 4, mainly for the long term business. We will not modify the

performance of the companies but we will report in a different manner.

Any business strategy requires a favorable and predictable environment to be successful and

we must defend Malta's excellent prospects. Together, we must continue to work towards

making our country increasingly transparent in financial practices and this year we are glad to

see Malta being removed from the grey listing. We must also find solutions to the growing

shortage of qualified professionals in a market of full employment.

As an insurance Group, we reiterate our total commitment to collaborating with other

institutions in the promotion of road safety. We do it with Fundación MAPFRE. As a society,

we cannot accept that serious avoidable accidents continue to occur. Last year was a terrible

one in terms of severe accidents and it seems that 2023 started in a similar condition. We

must raise awareness of the risks of alcohol and drug consumption, the use of mobile phones

and inappropriate speed. We must act holistically in all relevant areas as education,

legislation, scoring of irresponsible drivers, ensuring compliance with the law, improving

infrastructures and black points and vehicle fleets to rise to the challenge of Zero Fatalities on

the roads. All the stakeholders need to act in a coordinated manner to change this situation

and MAPFRE will be there.

As we said last year, we are an insurance Group committed to our shareholders, customers,

distributors, employees and Maltese society and we will continue to work hard every day to

be Your Trustworthy Company.

Signed by Javier Moreno Gonzalez (President & CEO) on 22 March 2023

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

xviii

Directors’ report

The Directors present their annual report for the year ended 31 December 2022.

Principal activities

The principal activities of the Group consist of the business of insurance. The Group is

licensed to carry on general and long-term business. The Group is also authorised to provide

insurance management services.

Review of business

The Company

MAPFRE Middlesea p.l.c. (the ‘Company’) registered a profit before tax of €6.0 million

during the financial year ended 31 December 2022 (“FY 2022”) compared to €4.1 million

registered in the previous financial year (“FY 2021”) with post-tax profits of €3.8 million,

compared to €2.6 million in FY 2021. Technical performance in the non-life business

remained level with previous year although claim levels returned to pre-pandemic level

particularly in Motor. On the other hand group life business returned an even stronger result

than the comparative year. Negative fair value movements, particularly in investment

property, continued on previous year trends particularly resulting from the general increase in

interest rates. During the year a net €1.0 million dividend was received from the subsidiary

MAPFRE MSV Life p.l.c., which improved the financial contribution from investments to

the profits of the Company. Company results also include a €0.5 million recovery from the

liquidation of Progress Assicurazioni S.p.A. equivalent to 6.35% of a subordinated loan that

the Group had given to the then Italian group undertaking.

Premiums written by the Company reached €87.1 million (2021: €80.1 million), an 8.7%

increase with growth in all main classes of business, including Group Life. MAPFRE

Middlesea p.l.c. remained the leader of the non-life market although the Company’s market

share reduced marginally from the previous year following the receipt of provisional market

data as the market registered a growth above that of the Company's.

Technical results for general business dropped to €4.8 million from the €5.3 million of FY

2021, a 9.4% reduction. Premium growth was encouraging particularly in Health and Travel

business, that picked up as outbound tourism outperformed sector estimates. Claims

frequency, which was in part of 2021 still impacted by restrictive measures, increased over

2021 almost reaching pre-pandemic levels. An increase in average claim cost in Motor was

again experienced due to inflation and rising motor parts shipping costs. The impact of large

losses was lower in Motor compared to 2021 which together with favourable run-offs

mitigated most of the higher frequency and higher cost impact. The net combined ratio in

Motor improved marginally to 99.8% from the 100.3% registered in FY 2021, however it still

closed above set targets. The whole non-life portfolio closed with a net combined ratio of

92.6% up from the 91.8% registered the previous year as a number of large losses in the

Liability class of business edged up the total large loss impact for the year. Group Life

produced another strong result contributing €1.3 million, above the €0.9 million in FY 2021

mainly due to a reduction in claims incurred.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Directors’ report - continued

Review of business - continued

The Company - continued

As the economy continued to recover from the effects of the pandemic, the impacts of the

Ukrainian war on the world economy, spiralling inflation worldwide, and increased interest

rates, all had an impact on asset values and Company expenses. Margins continue to be

squeezed and in particular in non-life business the rising claim costs has required close

monitoring of each line of business, ensuring pricing adequacy whilst introducing changes in

the products offered, taking on risk that is within the Company’s risk appetite to maximise

profit.

Business and client retention remains a major challenge as clients seek insurance cover that

suits their needs at the right price. The Company remains focused on offering its clients a

better service directly or through its numerous intermediaries, even if remotely. The

Company continues to roll-out its implementation of its new insurance IT system, both in

terms of products, with the first Motor products launched, and also in term of distribution,

with the system rolled out to all Tied Insurance Intermediaries and Brokers. This together

with upgrading its technological platforms will bring the Company closer to its clients. As

progress is made in rolling further products onto the new system, the Company is aware of

the inherent risks that an overhaul of the core IT system brings about both to resources and

operations and Management plans to ensure transition is done in a way to mitigate such risks.

The Company’s net investment return amounted to €1.1 million compared to the €0.4 million

in FY 2021. During 2022 MAPFRE MSV Life p.l.c. paid a contained dividend to its

shareholders after an absence of two years of which the Company received a net €1.0 million.

Due consideration is taken of the Solvency position of MAPFRE MSV Life p.l.c. in

determining the level of dividend to be paid. The current economic environment and the

significant fair value losses put a strain on the Solvency of the life company and management

continues to take all necessary actions to maintain the Solvency position in an adequate level

in line with its risk appetite. Revaluation of investment property held by the Company

rendered a loss of €0.6 million for 2022 compared to a loss of €0.5 million the previous year.

The Shareholder’s Funds of the Company at €77.1 million saw an increase of 0.9% during

FY 2022 resulting from the profit for the year exceeding the payment of dividend for FY2021

and negative investment value movements in equity. Net Asset Value per share as at 31

December 2022 amounted to €0.84.

MAPFRE Middlesea p.l.c.’s solvency position remained strong with net assets remaining

adequately above the capital requirements under Solvency II with the cover being reported in

the Solvency and Financial Condition Report (SFCR) to be published by the Company later

in the year.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Directors’ report - continued

Review of business - continued

MAPFRE MSV Life p.l.c.

MAPFRE MSV Life p.l.c. (“MAPFRE MSV Life” and “MAPFRE MSV Group”) registered a

profit before tax of €17.2 million for FY 2022, up 3.0% on the previous year when a €16.7

million profit before tax was generated. Profit after tax is recorded at €11.7 million, up 10.4%

on the €10.6 million in the previous year.

Operating results benefited from a better than expected performance from the Life protection

book of business. Apart from the positive underwriting result, this line of business benefited

significantly from the increase in interest rates experienced during 2022. However, the

difficult and complex economic and financial market environment has weighed heavily and

negatively, in terms of With-Profits gross written premium, with a marked reduction over the

previous year.

During the year, Central Banks shifted from an accommodative to a restrictive monetary

policy to stem the surge in inflation, which was initially fuelled by supply chain challenges,

economies opening up following improvement in COVID-19 situation and then further

compounded with the war in Ukraine. The global economic outlook deteriorated with

consensus forecasts pointing towards a recession with estimates ranging from a mild to a

more severe recession. This backdrop was conducive to a risk off sentiment for the most part

of the year resulting in a selloff in the equity markets while negative yields turned positive,

effectively ending a decade long of low and negative yields environment. The unusual

simultaneous losses in equities and bonds were even more extraordinary given that both asset

classes' losses were significant, in double-digit figures.

Gross premiums written for FY 2022 totalled €248.8 million, a decrease of 23.5% over the

prior year €325.1 million, driven mainly by a lower demand from single premium With-

Profits business. The uncertain economic environment, increased market volatility and

increased debt issuance at higher coupon rates were the main factors behind the decrease in

demand for MAPFRE MSV Life’s flagship product, the With Profits Single Premium Plan.

Regular premium business was more resilient with premiums growing at a satisfactory rate

over previous year. In terms of regular business, it is noteworthy to mention that personal

pension plans continued to experience sustained demand while interest in Voluntary

Occupational Pension Schemes (VOPS) improved and encouraging results registered in this

segment. In line with our strategy of risk, product and income diversification, increasing

focus on unit-linked single and regular-premium business together with personal and

corporate pensions business will drive new business to support our flagship with-profits

products.

Net claims incurred decreased to €295.0 million through the year compared to a prior year

€305.0 million largely as a result of a decline in maturing medium-term single premium

contracts. A large proportion of maturing contracts were subsequently re-invested in new

medium to long-term contracts.

In aggregate, the balance on the long term business technical account decreased to €17.2

million from a prior year €18.1 million as a result of the lower demand for single premium

With Profit product.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Directors’ report - continued

Review of business - continued

MAPFRE MSV Life p.l.c. - continued

The MAPFRE MSV Group’s total assets decreased by 13.4% from €2,721.4 million at the

end of 2021 to €2,357.0 million at the end of 2022, whilst net technical provisions (including

investment contracts without DPF) decreased by 15.3% from €2,437.6 million in 2021 to

€2,063.8 million in 2022.

The value of in-force business, which projects future transfers to shareholders arising from

policies in force at the end of the year, decreased by 8.4%, from an €87.1 million value in

2021 to €79.8 million in 2022. This is attributable to the impact of increased interest rates and

lower asset market values.

Total shareholders’ funds at the close of 2022 amounted to €224.3 million (2021: €221.9

million), an increase of 1.1% over the previous year and well ahead of minimum solvency

guidelines. The end of year Solvency Capital Requirement ratio is expected to be lower than

the corresponding 2021 figure. The Company will continue to monitor the business and

financial markets developments and consider measures in line with its risk management

framework to maintain the solvency ratio within its articulated risk appetite.

The shareholders of MAPFRE MSV Life are wholly committed in ensuring that the company

remains adequately capitalised at all times to sustain business growth and to meet Solvency

Capital Requirements in line with the Solvency II framework.

The MAPFRE MSV Life With Profits Fund stood at €1.89 billion at 31 December 2022

(2021: €2.25 billion). The fall in the fund value was driven by the lower re-pricing of assets

following the financial markets downturn and the negative operational cashflows arising from

maturity outflows and decrease in gross written premiums.

As mentioned above, the breadth and depth of the financial markets turmoil was such that

even well diversified investment portfolios closed the year with a negative performance,

notwithstanding the market recovery from the year's low, during the last quarter. Historically,

whenever equities experienced increased volatility, bonds provided the main diversification

benefits within investment portfolios. However, in 2022, this was not the case given that even

investment grade credit and government bonds registered double-digit losses. Locally, the 10-

year Malta Government Stock saw a price reduction of over 20%. In 2022, bond markets

suffered the worse loss in more than a century.

The investment strategy of the MAPFRE MSV Life's With Profits Fund is to hold a

diversified range of quality assets, spread across different geographies and currencies to

mitigate market and concentration risk. This asset diversification together with the robust

investment management process, the expertise of the asset managers engaged, and the

company’s strong track record of investment management continue to be fundamental in

managing policyholders' assets in a challenging and even more volatile investments market

environment.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Directors’ report - continued

Review of business - continued

MAPFRE MSV Life p.l.c. - continued

Notwithstanding the active management of the Fund, which resulted in a number of tactical

positions being taken during the year, the total investment losses of the With Profits Fund

amounted to €270.4 million generating a negative return of 13.1%. This performance was

comparable to what are generally referred to as “balanced” investment funds. The With

Profits Fund’s investment strategy, which is subject to regular review, remains well

positioned to benefit from the eventual economic and capital markets recovery and the

medium to long-term opportunities that this new environment presents.

In March 2023, the Board of Directors of MAPFRE MSV Group approved a resolution

whereby differential rates of Regular Bonuses were declared in respect of With Profits plans

held with MAPFRE MSV Life for the year ended 31 December 2022. These amounted to

0.90% for the Comprehensive Life Plan (regular and single premium policies), 1.00% in

respect of the Comprehensive Flexi Plan (regular and single premium policies), 1.00% under

the Single Premium Plan and 1.00% under the With-Profits options of the Investment Bond,

Retirement Plan and of the Personal Pension Plan. On the ‘Old Series’ Endowment and

Whole Life policies, a Regular Bonus of 1.00% of the basic sum assured plus bonuses was

declared.

In addition, the Board also announced the declaration of a Final Bonus in respect of

Comprehensive Life Plans (single and regular premium), Comprehensive Flexi Plans (single

and regular premium) and Single Premium Plans that have been in force for more than 10

years. For Regular Premium policies, the Final Bonus is expressed as a flat percentage plus a

percentage for every year in force after the 25th year of the policy whilst, for the Final Bonus

on Single Premium policies is being expressed as a combination of a flat percentage plus an

additional percentage for every year in force after the 10th year of the policy. Final Bonuses

will be paid on the value of the Policy Account as at the date of death or maturity between 1

May 2023 and the next bonus declaration in accordance with the following table:


Product	Final Bonus Flat Rate %	Rate per Year in Force	After Years in Force
Comprehensive Life Plan ( Regular Premium)	5.00%	1.50%	25
Comprehensive Flexi Plan (Regular Premium)	Nil	Nil	N/A
Single Premium Plan	5.00%	0.75%	10
Comprehensive Life Plan (Single Premium)	Nil	3.00%	10
Comprehensive Flexi Plan (Single Premium)	7.50%	Nil	N/A

The Board of MAPFRE MSV Life also approved a Regular Bonus of 0.90% on those Secure

Growth policies which formed part of the portfolio of business transferred to MAPFRE MSV

Life from Assicurazioni Generali S.p.A. during 2000. Finally the Board also approved a

Regular Bonus of 1.00% on the ALICO 78 policies and a Regular Bonus of 1.00% on the

ALICO 66 polices which formed part of the portfolio of business transferred to MAPFRE

MSV Life in 2011 from American Life Insurance Company (“ALICO”).

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Directors’ report - continued

Review of business - continued

MAPFRE MSV Life p.l.c. - continued

Notwithstanding the prudent investment policy adopted by MAPFRE MSV Life, past

performance is no guarantee for the future. Although MAPFRE MSV Life’s With Profits

investments have generally provided policyholders with stable and satisfactory returns when

compared with other similar investment products, in the light of the current uncertainty in the

capital markets, investment returns could fluctuate further. Fair value movements and

investment returns impinge directly on the rates of bonuses declared by the company. Regular

Bonuses are therefore expected to vary over the lifetime of the policy whilst Final Bonuses

are likely to be highly volatile and very dependent on the investment performance of the

company.

In 2022, the life insurance market in Malta saw a contraction as inflation surged and the

economic and financial markets outlook deteriorated. The 2022 regular bonus rates represent

a maximum reduction of 1.00% from the 2021 declaration. The policy holders are benefiting

from the application of the smoothing with the With Profits fund, in light of the negative

investment performance experienced in 2022.

Following MAPFRE MSV Life’s Board of Directors’ approval of the 2022-2024 Strategic

Plan, the unfolding economic and capital market developments during 2022 were

significantly and unfavourably different to the assumption made at plan definition stage.

Notwithstanding, the company remains resolute in the 2022-2024 Strategic Plan execution.

Good progress along the three main strategic pillars of; revenue streams diversification; data

and digital transformation and excellence in customer service has been made.

Revenue streams diversification is one of the main pillars over this strategic period. Product

innovation and distribution channel enhancement initiatives are the main drivers

underpinning this strategic objective. The company remains focused on growing the regular

savings business and in further developing the Unit Linked business segment. The company

remains committed in contributing towards a solution to the country’s challenge of pension

system sustainability. The company continues to invest in products and systems to enable it to

offer financial solutions to better support policyholders’ financial goals and aspirations during

their retirement years.

In the second half of the year, we saw a more subdued demand for single premium contracts.

In the last quarter of the year, with investor sentiment and consumer confidence at low levels,

the drop in demand was more accentuated. The shift away from low and negative interest

rates is expected to continue to affect negatively on short-term demand as economies

transition to a higher interest environment.

The demand for new retirement savings products continues to be encouraging and the

company saw improved turnover in regular savings contracts. The company continued to be

very active in the Personal Pension segment and the Voluntary Occupational Pension Scheme

product, WorkSave, saw increased demand with the on boarding of a number of companies.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Directors’ report - continued

Review of business - continued

MAPFRE MSV Life p.l.c. - continued

The life protection line of business demand was in line with expectations. Locally, demand

for life protection continues to be strongly correlated with the demand for home loans. The

need to have life protection as a basic element of financial planning remains

underappreciated. The company feels that promoting the importance of having adequate

levels of insurance is also part of its responsibilities to build more financially secure and

resilient communities.

There were no significant insurance or financial risks impacting the portfolios of business,

during the year, and mortality assumptions used in the valuation of policyholder obligations

remained appropriate.

Other subsidiaries

The other subsidiaries within the Group, though not significant to the size of the Group, had a

mixed contribution to the results of the year.

BEE Insurance Management Limited (‘BEE’) and its subsidiary Euro Med Risk Solutions

Limited which offer Insurance and Non-Insurance management services saw a drop in third-

party revenue due to fee adjustments. During FY2022 BEE commenced servicing the

Group’s insurance entitities in the Information Technology sphere. A combined profit of €0.2

million was registered compared to a loss of €0.1 million in the comparative period.

Church Wharf Properties Limited holds a property within the Regeneration of the Grand

Harbour Area. A negligible gain was recorded in the year compared to loss of €0.4 million

was registered at the end of 2021 which had resulted from a change in methodology applied

for the valuation of property. The directors continue to monitor the evolution of this project

which gives a potential future increase in value of this investment.

The Group

The Group registered a profit before tax of €22.2 million in FY 2022 compared to €20.4

million achieved in FY 2021. Profit after tax for FY 2022 closed at €14.6 million a 13.3%

increase from the €12.9 million achieved in FY 2021. Group premiums written reaching

€335.9 million saw a drop of 17.1% against that registered in FY 2021, with both insurance

companies remaining leaders in their respective markets.

MAPFRE Middlesea’s Group capital and reserves attributable to shareholders at 31

December 2022 amounted to €113.1 million (2021: €111.0 million) on a consolidated basis

with a net asset value per share of €1.23 as at 31 December 2022 mainly as the result for the

year outweighed the decrease in the value of in-force business and the payment of dividend

by both MAPFRE Middlesea and MAPFRE MSV Life.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Directors’ report - continued

Review of business - continued

The Group - continued

Whilst as a Group we have an important role to provide our customers with prosperity and

peace of mind, we acknowledge that we have a wider commitment to society by also

supporting those who are not our customers. Over the years we have developed a Corporate

Social Responsibility (CSR) policy framework which encompasses shareholders, the

environment, people, communities and customers. Through our CSR programme we

cooperate with and assist a number of public and private institutions, NGOs, museums,

foundations and associations who share similar goals and values as us.

Sustainability is also very high in our agenda. In line with the MAPFRE Group's

Sustainability Plan, the Group is committed to be carbon neutral by end 2030. To this effect a

number of initiatives are being implemented and more will be formulated as we move

towards this important goal. Good progress is also being registered in terms of the

environment, social and governance (ESG) dimensions.

As a financial institution, we are aware of our responsibility and contribution towards

sustainability and that this will primarily depend on how the Group allocates capital through

its investing decisions. To this effect, our initial focus revolved on updating the Investment

Policy and processes at MAPFRE MSV Life p.lc. through the endorsement of the Principles

for Responsible Investing. In terms of the Sustainable Financial Disclosure Requirements

(SFDR), our With-Profits Fund, is currently classified as Article 6. The intention is to

transition this Fund to an Article 8 classification. An article 8 Fund has greater disclosure

requirements and must also promote environmental or social characteristics. Segregated

Investment management’s mandates have been updated to include sustainability factors and

financial exposures via pooled funds are being monitored and assessed depending on in their

sustainability objectives. In 2022, our Product Oversight Governance (POG) policy at both

MAPFRE Middlesea and MAPFRE MSV Life were updated to include sustainability factors

considerations. We believe that by promoting and providing pension products we are also

contributing to the social dimension.

Other initiatives like remote working, files digitilisation, electronic communication and

promotion of hybrid and electric vehicles, and the upcoming installation of photovoltaic

panels on the roofs of both Head Offices, lower our carbon footprint and move us closer to

our goal of becoming carbon neutral. The Group can also boast to have a diverse

multinational workforce with high levels of female participation in senior management

positions. We are also proud to have achieved the target set in terms of the gender pay gap

metric. During 2022 the Company has also joined the MESGA, the Malta ESG Alliance that

brings together the main private companies on the island that foster ESG initiative and can

accelerate the sustainability of Malta.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Directors’ report - continued

Review of business - continued

The Group - continued

Training and development of our people continued to feature high on our agenda during

2022. We value our people and seek to help them achieve their full potential by providing

them with internal and external training opportunities in Malta as well as overseas. In order to

ensure the well-being and ongoing development of our people, we are continuously reviewing

and updating our HR policies and implementing new policies and employment practices.

During the year, both MAPFRE Middlesea p.l.c and MAPFRE MSV Life p.l.c. were awarded

the HR Quality Mark by the Foundation for Human Resources Development.

The Board expresses its gratitude and appreciation to the management and staff of all the

Group companies for their commitment and contribution to another satisfactory year, to

intermediaries for their continued support and to the many loyal customers for placing their

trust in MAPFRE Middlesea p.l.c. and MAPFRE MSV Life p.l.c..

Going forward we will maintain strong focus on our customers by continuously assessing our

business processes and operations in order to provide good value and excellent service. To

this end, we will continue to invest and innovate in information technology. During 2022 we

progressed on our major IT programmes in both insurance companies. MAPFRE Middlesea,

whilst still suffering some delays, achieved a number of goals in its plan for the year,

including the launch of Motor product and the roll-out to Tied Insurance Intermediaries and

Brokers, and is heading for critical milestones in its roll-out in the coming months. MAPFRE

MSV Life achieved a number of important milestones with the main highlight being a

successful migration of the savings book of business to the new Policy Administration System.

This was only possible thanks to our employees’ professionalism and commitment together

with our supplier’s expertise. Over the next year, the Group looks forward to consolidate on

these achievements and to further deliver in terms of the customer journey experience and its

digital transformation.

We consider our distribution footprint in Malta to be one of our key strengths. We are going

to persist on the multichannel approach, we want the client to receive the same price from the

Company whatever channel he chooses to approach the Company: Direct, Agents, Tied

Insurance Intermediaries or Brokers. In MAPFRE MSV Life, whilst bancassurance remains

the most important distribution channel, to ensure that we provide our customers with greater

accessibility and a better service, we are continuously seeking to strengthen all other

distribution channels.

The Group continues to seek growth in its core business lines and believes that its increasing

integration with MAPFRE Group strategies will further strengthen and consolidate business

prospects.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Directors’ report - continued

Review of business - continued

Outlook

The outlook of the Board of Directors for 2023 remains one of cautious optimism. The local

economy is expected to remain resilient in the context of a more challenging environment as

inflationary pressures continue to push the cost of living higher. Global capital markets

outlook remains one of volatility, at least, as long as inflation concerns persist and the interest

rate path remains unclear with continued geopolitical risks in the background. With inflation

running at levels not seen in decades, global central banks will continue to play a crucial role

through monetary policy and their actions and forward guidance having a significant bearing

of the investors sentiment and capital markets performance. Taming inflation while avoiding

a hard landing will remain the key tough priority of global central banks. Geopolitical risks

will also continue to bear on the global economic recovery and capital markets volatility. The

war in Ukraine not only continues to exacerbate the supply chain bottlenecks and inflationary

pressures but further potential escalations could serve as a catalyst for markets to sell off.

Within this context, inflation will have an impact on all the services that the Group receives

both in running its operations and also from a claims perspective. Correct pricing will be key

to ensure that the demand for general business products grows sustainably yielding an

adequate return. Demand for the regular protection and savings business are expected to

remain strong but the more challenging conditions present in the last quarter of 2022,

particularly for lump sum single premium business, are expected to persist in 2023. In the

medium to the long term, the structural shift from negative to positive interest rates is

considered favourably for MAPFRE MSV’s business model. However, in the short term, this

acts as a headwind for our traditional lump sum investment and savings products as

competition intensifies.

Changing customer behaviours, dramatic technological developments, product innovation

and the disruption that is taking place in the insurance industry will require insurance

companies to adapt to be in a position to exploit the many opportunities that will certainly

arise.

From a regulatory point of view, in terms of prudential and conduct regulation, we are

looking at developments in a number of important reviews in the context of Packaged Retail

and Insurance - Based Investment Products (PRIIPS), the Insurance Distribution Directive

and Solvency II. Increased regulation in the form of sustainability-related disclosures

emanating from the Sustainable Finance Disclosure Regulation (SFDR) and the new

Corporate Sustainability Reporting Directive (CSRD) is also expected. Of particular

relevance will be the developments in the European Commission’s Retail Investment

Strategy. The prevailing Anti-Money Laundering Directives will also feature prominently in

the evolving regulatory landscape as well as the newly enacted Digital Operational Resilience

Act (DORA), with requirements emanating thereunder seeking to achieve a high common

level of digital operational resilience. Over the past year, we have made significant

investments to strengthen our compliance and risk management framework, particularly in

terms of the Prevention of Money Laundering and Funding of Terrorism (PMLFT).

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Directors’ report - continued

Review of business - continued

Outlook - continued

MMS and MMSV will apply IFRS 17 and IFRS 9 for the first time on 1 January 2023. Both

companies have an ongoing implementation programme to implement such standards, which

are responsible for forming accounting policies and developing methodologies, establishing

appropriate processes and controls and implementing actuarial and accounting system

changes. The Board is monitoring the progress of the implementation plan to ensure that the

necessary priority is given to the implementation of IFRS 17.

Principal Risks and Uncertainties

The Group’s principal risks and uncertainties are further disclosed in Note 4 dealing with

management of risk as supplemented by Note 3 relating to the use of accounting estimates

and judgements in applying accounting policies, Note 16 on intangible assets covering details

on the Group’s value of in-force business, Note 19 on investment property discussing

significant unobservable inputs used, and Note 24 discussing the assumptions underlying the

technical provisions.

Growth Investments Limited

During 2022, Growth Investments Limed, the subsidiary of MAPFRE MSV Life p.l.c.,

surrendered its license and resolved to liquidate effective 31 August 2022, as per Note 36 in

the below financial statements. The appointed external auditor is currently auditing the

subsidiary’s winding up accounts and scheme of distribution.

Results and dividends

The consolidated profit or loss account is set out on page 48. A gross dividend in respect of

year ended 31 December 2022 of €0.054617 per share amounting to a total dividend of

€5,024,817 is to be proposed by the Directors at the forthcoming annual general meeting.

This is equivalent to a net dividend of €0.038043per share amounting to a total net dividend

of €3,500,000 (2021: €2,400,000).

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Directors’ report - continued

Directors

The Directors of the Company who held office during the period under review were:

Martin Galea

Jose Ramon Alegre

Antoinette Caruana

John Cassar White (appointed until 29 April 2022)

Gordon Cordina (appointed as from 29 April 2022)

Jose Maria del Pozo

Jose-Luis Jimenez

Taddeo Scerri (appointed until 29 April 2022)

Etienne Sciberras (appointed as from 29 April 2022)

Robert Suban (appointed as from 29 April 2022)

Paul Testaferrata Moroni Viani

Joseph F.X. Zahra (appointed until 29 April 2022)

In accordance with the Articles of Association of the Company, all Directors retire from

office at the Annual General Meeting and are eligible for re-election or re-appointment.

Further information is given in the Statement of Corporate Governance.

Statement of Directors’ responsibilities for the financial statements

The Directors are required by the Insurance Business Act, 1998 and the Companies Act, 1995

to prepare financial statements which give a true and fair view of the state of affairs of the

Group and the Company as at the end of each reporting period and of the profit or loss for

that period.

In preparing the financial statements, the Directors are responsible for:

•ensuring that the financial statements have been drawn up in accordance with

International Financial Reporting Standards as adopted by the EU;

•selecting and applying appropriate accounting policies;

•making accounting estimates that are reasonable in the circumstances;

•ensuring that the financial statements are prepared on the going concern basis unless it

is inappropriate to presume that the Group and the Company will continue in business

as a going concern

The Directors are also responsible for designing, implementing and maintaining internal

control as the Directors determine is necessary to enable the preparation of financial

statements that are free from material misstatement, whether due to fraud or error, and that

comply with the Insurance Business Act, 1998 and the Companies Act, 1995. They are also

responsible for safeguarding the assets of the Group and the parent Company and hence for

taking reasonable steps for the prevention and detection of fraud and other irregularities.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Directors’ report - continued

Statement of Directors’ responsibilities for the financial statements - continued

The financial statements of MAPFRE Middlesea p.l.c. for the year ended 31 December 2022

are included in the Annual Report 2022, which is published in hard-copy printed form and

also made available on the Company’s website. The Directors are responsible for the

maintenance and integrity of the Annual Report on the website in view of their responsibility

for the controls over, and the security of, the website. Access to information published on the

Company’s website is available in other countries and jurisdictions, where legislation

governing the preparation and dissemination of financial statements may differ from

requirements or practice in Malta.

The directors confirm that, to the best of their knowledge:

•the financial statements give a true and fair view of the financial position of the Group

and Company as at 31 December 2022, and of its financial performance and its cash

flows for the year then ended in accordance with International Financial Reporting

Standards as adopted by the European Union on the basis explained in Note 1 to the

financial statements; and

•the Annual Report includes a fair review of the development and performance of the

business and the position of the Group and Company, together with additional

information of the principal risks and uncertainties that the Group and Company face.

Information pursuant to Capital Markets Rule 5.64

The Company has an authorised share capital of €31,500,000 divided into 150,000,000

ordinary shares with a nominal value of €0.21 each.

The issued share capital of the Company is €19,320,000 divided into 92,000,000 ordinary

shares of €0.21 each. The issued shares of the Company consist of one class of ordinary

shares with equal voting rights attached.

The directors confirm that as at 31 December 2022, only MAPFRE Internacional (55.83%)

and Bank of Valletta p.l.c. (31.08%) held a shareholding in excess of 5% of the total issued

share capital.

Pursuant to the Company’s Articles of Association, the appointment of Directors to the Board

is reserved exclusively to the Company’s shareholders (in line also with general and

commonly accepted practice in Malta). Shareholders with 11% or more of the shares in issue

are entitled to appoint one director for every 11% holding, whilst the other shareholders are

entitled to appoint the remaining Board members at the Annual General Meeting in

accordance with the provisions of the Articles of Association. The Chairman shall be

appointed by the Board of Directors.

The rules governing the appointment and replacement of the Company’s directors are

contained in Articles 93 to 102 of the Company’s Articles of Association.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Directors’ report - continued

Information pursuant to Capital Markets Rule 5.64 - continued

The Directors can only issue shares following an extraordinary resolution passed in the

General Meeting. This and other powers vested in the Company’s Directors are contained in

Articles 84 to 90 of the Company’s Articles of Association.

The Memorandum and Articles of the Company may be amended by means of an

extraordinary resolution of the Company during general meetings.

There are no agreements between the Company and the Directors on the Company’s Board or

employees providing for compensation on termination or cessation of their office for any

reason whatsoever.

It is hereby declared that as at 31 December 2022, information required under Capital

Markets Rules 5.64.2, 5.64.4, 5.64.5, 5.64.6, 5.64.7 and 5.64.10 is not applicable to the

Company.

Going concern

The Directors, as required by Capital Markets Rule 5.62 have considered the Group’s and

Company’s operational performance, the statements of financial position as at year end as

well as the business plans for the coming year, and declare that they have a reasonable

expectation that the Group and the Company have adequate resources to continue in

operational existence for the foreseeable future. For this reason, in preparing the financial

statements, the Group and Company are in a position to continue operating as a going

concern for the foreseeable future.

Auditors

The auditors, KPMG, have indicated their willingness to continue in office and a resolution

for their re-appointment will be proposed at the Annual General Meeting.

Information pursuant to Capital Markets Rule 5.70

There were no material contracts in relation to which a Director of the Company was directly

or indirectly interested.

Information pursuant to Capital Markets Rule 5.70.2

The Company Secretary is Dr Daphne Sims Dodebier and the registered office is Middle Sea

House, Floriana, Malta.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Directors’ report - continued

Information pursuant to Capital Markets Rule 5.68

We, the undersigned, declare that to the best of our knowledge, the financial statements

prepared in accordance with the requirements of International Financial Reporting Standards

as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and

profit or loss of the Company and its subsidiaries and that this report includes a fair review of

the development and performance of the business and the position of the Company and its

subsidiaries, included in the consolidation taken as a whole, together with a description of the

principal risks and uncertainties that they face.

Signed on behalf of the Company’s Board of Directors on 22 March 2023 by Martin Galea

(Chairman) and Gordon Cordina (Director) as per the Directors Declaration on ESEF

Annual Financial Report submitted in conjunction with the Annual Report and Accounts

2022.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Corporate Governance Statement

1.Introduction

In accordance with Rule 5.94 of the Capital Markets Rules, an issuer whose securities are

admitted to trading on the Malta Stock Exchange should endeavour to adopt the principles as

promulgated within Appendix 5.1 of the Capital Markets Rules entitled The Code of

Principles of Good Corporate Governance (‘the Code’) and is, moreover, obliged to prepare

a report disclosing both compliance and non-compliance with the said principles. In addition,

the Company’s auditors are to include a report on the Corporate Governance Statement in the

Annual Financial Report of the Company.

The Board of Directors (‘the Board’) of MAPFRE Middlesea plc (the ‘Company’ or ‘MMS’)

acknowledges that compliance with the said Code is not mandatory, however notes that the

principles are designed to serve as a guide for the Board and the Company’s Management in

their pursuit of objectives in the interests of both the Company and its shareholders. The

Board, therefore, firmly upholds the principles therein contained as guaranteeing the required

standards of accountability and transparency and strives, to adhere to the Code as well as to

maintain the highest standards of disclosure insofar as both compliance and explaining the

rationale behind the instances of non-compliance.

As evidenced by the information set out in this Statement and that contained in the

Remuneration Statement and Report of the Remuneration Committee to the Shareholders, the

Company believes that it has, save as indicated herein in the section entitled Non-Compliance

with Code, applied the principles and complied with the provisions of the Code throughout

the accounting period under review. In the Non-Compliance Section, the Board outlines and

explains the instances where there has been a departure from, or non-application of, the

principles as contained within the Code, in accordance with the same Code.

2.Compliance with the Code

Principle 1 – The Board

The Board’s role and responsibility is to lead the Company, to discuss and approve strategy

and to exercise good oversight, challenging the Management and Control Functions where

necessary to this end.

As at 31 December 2022 the Board was composed of a non-executive Chairman and eight

non-executive Directors. The Directors, appointed in terms of the Memorandum and Articles

of Association of the Company, are all competent, honest and solvent individuals and thus fit

and proper to direct the business of the Company. The maximum number of Directors

pursuant to the Memorandum and Articles of Association is ten. Martin Galea was re-

appointed as a non-executive Chairman during the Board meeting held on the 29 April 2022,

which followed the Annual General Meeting (AGM) held on the same day.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Corporate Governance Statement - continued

2.Compliance with the Code - continued

Principle 1 – The Board - continued

During the said AGM the two institutional shareholders re-appointed the retiring Directors

Jose Ramon Alegre, Martin Galea, Jose-Luis Jimenez and Jose Maria del Pozo, while the

other shareholders re-appointed the retiring Directors Antoinette Caruana and Paul

Testaferrata Moroni Viani during the election for directors. Gordon Cordina and Robert

Suban were newly appointed by the shareholder Bank of Valletta p.l.c and Etienne Sciberras

was newly appointed by MAPFRE Internacional S.A. in order to bring the total number of

Directors to nine.

All of the Directors of the Company are approved by the Regulator as being fit and proper to

direct the business of the Company and are deemed to conduct themselves with honesty,

competence and integrity. Both on an individual level and collectively, the Members of the

Board are deemed to possess the necessary skills and experience to make effective

contribution to the leadership and decision-making processes of the Company as reflected

within the Company’s strategy and policies. The Board moreover exercises prudent and

effective controls in order to achieve both short and long-term sustainability of the business

and assesses the compatibility of the MAPFRE Group policies with local legal and regulatory

requirements, adapting them where appropriate.

The Board liaises closely with the President & Chief Executive Officer (‘CEO’) of the

Company at all times in order to ensure that the Board receives timely and complete

information in relation to the business of the Company and management performance. This

enables the Board to contribute effectively to the decision-making process and to exercise the

aforementioned controls. Javier Moreno, appointed CEO on the 31 March 2021, continued to

hold the position of CEO throughout 2022.

As is customary, during the year the Board delegated specific responsibilities to a number of

Board Committees, namely the Audit Committee, the Risk and Compliance Committee, the

Investments Committee and the Remuneration Committee, each of which operated under

their respective formal terms of reference approved by the Board.

Further detail in relation to the Committees and the responsibilities of the Board is provided

under Principles 4 and 5 of this Statement.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Corporate Governance Statement - continued

2.Compliance with the Code - continued

Principle 2 – Chairman and CEO

The positions of Chairman and CEO are occupied by different individuals with a clear

demarcation between the leading of the Board and the CEO’s management of the business of

the Company, despite the strong cooperation between the two.

The Chairman is independent and is responsible for leadership of the Board and for the

setting of its agenda. He ensures that the Board’s discussions on any issue put before it are

addressed with adequate depth, that the opinions of all the Directors are taken into account,

and that all the Board’s decisions are supported by comprehensive and timely information.

He encourages active engagement by all the members of the Board with constructive

challenging of the Management where necessary and generally promotes and ensures the

effective functioning of the Board.

The CEO advises and makes recommendations to the Board while leading the Senior

Management team, with the main role and responsibility of managing the Company’s

business in line with its Strategy. Indeed, 2022 was the first year of the new three-year

Strategic Plan as developed by Management in cooperation with the Chairman and approved

by the Board.

The CEO develops and drives performance within the Strategy approved by the Board and

makes decisions on all matters affecting the operations, performance and strategy of the

business save for those matters specifically reserved to the Board or its delegated

Committees. The Company also has Technical Committees composed of senior members of

the relative technical areas that hold regular meetings and a Management Committee,

bringing together the Chief Officers within MMS under the Chairmanship of the CEO on a

monthly basis.

The positions of the Chairman of the Board and CEO are distinguished accordingly within

the Terms of Reference of the Board of Directors. In practice, there is a clear division of

responsibility between the overseeing of the Board and the CEO’s responsibility in managing

the business of the Company rendering these positions completely independent from one

another to avoid concentration of authority and power within a single individual and to

differentiate leadership from the running of the business.

Principle 3 – Composition of the Board

The Board considers and experience has shown, that the number of Members as stipulated in

the Memorandum and Articles of the Company are appropriate relative to the size of the

Company and its operations.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Corporate Governance Statement - continued

2.Compliance with the Code - continued

Principle 3 – Composition of the Board - continued

The combined and varied knowledge, experience and skills of the Board members, including

a broad knowledge of the business of the Company and awareness of statutory and regulatory

requirements, provide a balance of competences, as required, and add value both to the

functioning of the Board and to the direction given to the Company. In this regard the

Company remains committed to non-discrimination, not least in its Boardroom, promoting a

diverse and inclusive culture where Directors’ views are heard, concerns are attended to and

the environment does not tolerate bias, discrimination or harassment of any kind.

The Company’s Articles of Association determine the composition of the Board. The

appointment of Directors to the Board is accordingly reserved exclusively to the Company’s

shareholders, except in so far as an appointment may be made to fill a casual vacancy. All

Directors, as well as some key officials, are required to fulfil the fit and proper regime

prescribed by the Malta Financial Services Authority (‘MFSA’) in line with standard

regulatory due diligence procedures. Moreover, all Directors apply the necessary time and

attention to their duties and required to limit the number of directorships held in other

companies thereby also ensuring the proper performance of their functions.

The Board is composed exclusively of non-executive Directors, of which eight are male and

one is female. Although not a Director of MMS, the CEO is invited to attend Board meetings

with a view to ensuring a full understanding and appreciation of the Board’s policies and

strategy and to provide direct input to the Board’s deliberations. In addition, certain members

of Senior Management are invited to report to the Board as and when required thereby

securing effective information flows as well as fostering a culture of continuous dialogue

between the Board and the Company’s Management.

As at the date of this review, the Board consists of six independent Directors (including the

Chairman), and three non-independent Directors (as indicated on page 21 of the Annual

Report) as defined by the Code.

In determining the independence or otherwise of its Directors, the Board considers, amongst

others, the principles relating to independence of directors contained in the Code, the

Company’s own policies as well as general principles of good corporate governance.

In relation to Code Provision 3.2.5 specifically the Code requires that the Board states its

reasons if it determines that a director is independent notwithstanding inter alia if the

director: “has served on the board for more than twelve consecutive years”.

It is noted in this regard that as from April 2022 Paul Testaferrata Moroni Viani has served

on the Board for a period of more than twelve consecutive years, however, the Company was

and remians of the opinion that Paul Testaferrata Moroni Viani has sufficient experience and

maturity to remain independent of character and objective in judgment at all times

notwithstanding the lapse of the recommended twelve years.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Corporate Governance Statement - continued

2.Compliance with the Code - continued

Principle 3 – Composition of the Board - continued

In terms of Code provision 3.4 each non-executive director has moreover submitted his / her

confirmation in writing that he / she undertakes:

i.to maintain in all circumstances his independence of analysis, decision and action;

ii.not to seek or accept any unreasonable advantages that could be considered as

compromising his / her independence; and

iii.to clearly express his / her opposition in the event that he /she finds that a decision of

the Board may harm the Company.

Principle 4 – The Responsibilities of the Board

The Board acknowledges its statutory mandate to set policy and to provide direction as well

as to monitor the implementation thereof. The Board fulfills this mandate and discharges its

responsibilities through the execution of the four basic principles of corporate governance

namely, accountability, monitoring, strategy formulation and policy development.

The Board continually and consistently reviews all the different aspects of the Company

within the parameters of the relevant laws, regulations and codes of best practice, applies

high ethical standards whilst taking into account stakeholders’ interests, maintains an

effective dialogue with all stakeholders, monitors the application of management policies and

motivates Company Management.

Principle 5 – Board Meetings

The Board of Directors sets and supervises the strategy and the policies of the Company, both

of which are discussed on a regular basis, and the business of the Board as well as its agenda

are managed in such a way so as to ensure effective supervision of the Company’s operations

in accordance therewith.

The Board meets as often as required to discharge its duties effectively. Specific members of

the Management team are invited to update and provide the Directors with a direct report at

each Board Meeting depending on the items on the agenda, however, a detailed review of the

Company's Management Accounts and Key Performance Indicators (as promulgated by the

MAPFRE Group in line with industry norms) is carried out at every Board Meeting. The

Board is also updated at every meeting in terms of Management’s comments on the results

and on relevant events and decisions and background information on various subjects

including any matter requiring the approval of the Board.

Apart from setting the strategy and direction of the Company, the Board is actively involved

in monitoring progress against Budget and Strategy and in approving material or significant

transactions.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Corporate Governance Statement - continued

2.Compliance with the Code - continued

Principle 5 – Board Meetings - continued

The Chairman in conjunction with the Company Secretary ensures that all relevant issues are

on the agenda and are supported by all available information. The agenda for each meeting

seeks to strike a balance between long-term strategic objectives and shorter-term performance

matters. Notice of the dates of forthcoming Board meetings together with all relevant

documentation are circulated in advance to all Directors in order to give them opportunity to

consider the information and prepare well in advance of each Board meeting.

During Board meetings members of Management are often invited to present on the subject

matter being discussed while the Chairman facilitates discussion and ensures that all

Directors are given ample opportunity to discuss issues set on the board agenda and convey

their opinions thereon.Minutes are taken of each and every Board meeting faithfully

recording attendance, matters discussed, action points and resolutions. These minutes are

subsequently circulated for review to all Directors prior to sign off by the Chairman.

Decisions of the Board are taken by majority of those present subject to the Chairman’s

casting vote in the case of parity.

During financial year 2022, the Board of Directors of the Company held eight Board

Meetings with attendance as follows:

Martin Galea (Chairman) (NED, I)8

Jose Ramon Alegre (NED)8

Antoinette Caruana (NED, I)8

John Cassar White (NED - appointed until 29 April 2022)2

Godon Cordina (NED -appointed on 29 April 2022)15

Jose Maria del Pozo (NED)8

Jose-Luis Jimenez (NED)6

Taddeo Scerri (NED, I - appointed until 29 April 2022)2

Etienne Sciberras (NED - appointed on 29 April 2022)25

Robert Suban (NED, I - appointed on 29 April 2022)36

Paul Testaferrata Moroni Viani (NED, I)8

Joseph F.X. Zahra (NED, I - appointed until 29 April 2022)2

NED – Non-executive Director

I – Independent

1 With regulatory approval as from 20 September 2022;

2 With regulatory approval as from 12 August 2022;

3 With regulatory approval as from 12 September 2022.

The MMS CEO attended all the Board meetings by invitation.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Corporate Governance Statement - continued

2.Compliance with the Code - continued

Principle 5 – Board Meetings - continued

Moreover, during 2022 two Board Briefings were also held in order to provide the Directors

with more detailed information on the subject matter identified as well as to allow

opportunity for deeper discussions of pertinent issues. The focal point of the Directors’

Briefing in June was to review the draft Own Risk and Solvency Assessment prior to

submission to the Regulator including the appropriateness of the Standard Formula approach,

the extent of the Company's solvency, the Own View solvency calculations and the outcome

of the Stress Tests. The second part of the June Briefing was an Induction Briefing for the

newly appointed Directors, delivered by the Chief Officers of the Company according to their

Area, as will be further detailed below.

During the second Briefing held in December the Board carried out an in-depth review of the

strategic developments during 2022, being the first year of the three-year Strategic Plan

including the proposed amendments as to the way forward in 2023 and 2024. In addition, a

presentation was also delivered by PwC, engaged by the Company to oversee and guide the

implementation of IFRS 17. This detailed presentation included, amongst others, an

introduction to the changes that would be brought about by IFRS 17, reporting timelines and

the technical implications relative to the current IFRS 4 comparative.

Notices of meeting dates were circulated well in advance of the relative meetings and

meeting packs containing all relevant information, including the minutes of the previous

Board Meeting, were circulated to the Directors ahead of each meeting by the Company

Secretary. Each communication allowed ample opportunity for the Directors to review the

information and prepare for the next scheduled Board or Committee meeting.

Principle 6 – Information and Professional Development

A formal and structured induction programme consisting in a series of presentations and

meetings with members of the Management team of the Company is conducted for newly

appointed Directors to enable new incumbents to familiarise themselves with the Company’s

strategy, risk appetite and operations. Directors also receive a MAPFRE Corporate

comprehensive guide which includes, amongst others, Directors’ duties and responsibilities.

This Induction Briefing was delivered in the first week of June as aforementioned further to

the appointment of the new Directors at the AGM held on 29 April 2022. Seven of the

Company's Chief Officers, including the CEO, were present at the Briefing to deliver

presentations on their respective Areas and take questions from the Directors.

The Directors also continued to benefit from the MAPFRE Group structured Board training

and development programme including a full on-line training schedule available for

subscription covering twelve sections with a range of topics including Operational, Technical

and AML matters. The key objective of the programme being to contribute to the continued

professional development of the Directors and the Board’s collective awareness of corporate

governance, solvency, insurance finance, strategy and operations.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Corporate Governance Statement - continued

2.Compliance with the Code - continued

Principle 6 – Information and Professional Development - continued

Moreover, Directors are at liberty to take independent professional advice on any matter at

the Company’s expense where they deem it necessary in order to better discharge their duties

as Directors and they have open access to the advice and services of the Office of the

Company Secretary. The Company Secretary remains mindful at all times of the

responsibility of ensuring adherence to Company policies, Board procedures as well as the

facilitation of continual and consistent information flow within the Board and its Committees.

The CEO is appointed by and enjoys the full confidence of the Board and ensures that

systems are in place to cater for, amongst others, the on-going monitoring of Management,

the development and training of both Senior Management and Directors, as well as

succession planning, as required by the provisions of clause 6.4 of Appendix 5.1 of the

Capital Markets Rules. The CEO, although responsible for the recruitment and selection of

senior management, consults with the Remuneration Committee and with the Board on the

appointment of, and on the succession plan, for Senior Management. Training (both internal

and external) of management and employees is prioritised and is implemented through the

Human Resources Department. Several training sessions, both on-line and live, were also

held on various topics during the course of 2022 including on Leadership, Operational Risk,

Change Management, the Digital Environment and Data and challenges within the Insurance

Market.

Principle 7 – Evaluation of the Board’s Performance

During the year under review, the Board once again undertook an evaluation of its own

performance, the Chairman’s performance and that of its Committees. The evaluation was

not conducted externally, but rather, the evaluation exercise was conducted through a Board

Effectiveness Questionnaire prepared by the Compliance Function in cooperation with the

Company Secretary and the Chairman. The outcome of the exercise was summarised into a

Report based on the replies of each individual Director that was then submitted to the

Chairman before being circulated amongst all Board members. The outcome was discussed

during an informal off-site meeting.

No requirement for material changes in the governance structure or processes resulted from

this evaluation exercise, however, the emerging action points and recommendations were

implemented within 2022 as co-ordinated by the Company Secretary and overseen by the

Chairman.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Corporate Governance Statement - continued

2.Compliance with the Code - continued

Principle 8 – Committees

The activities of the Board and of the Company’s Senior Management team are additionally

supported by the Company’s Board Committees structured in such a way so as to assist in the

guiding and monitoring of particular business processes and specific governance issues. The

said Board Committees are the Audit Committee, the Risk and Compliance Committee, the

Investments Committee and the Remuneration Committee. The Terms of Reference of all the

Board Committees have been approved by the Board of Directors and by the MFSA.

Audit Committee

The Audit Committee’s terms of reference are modelled on the recommendations of statutory

directives, the Capital Markets Rules and the principles of Corporate Governance, whilst also

reflecting the provisions of the relevant MAPFRE Group principles. The responsibilities of

the Audit Committee include the following:

•monitoring of the financial reporting process

•monitoring of the independence and effectiveness of the Company’s internal control,

internal audit and risk management systems

•monitoring of the audit of the annual and consolidated accounts

•maintenance of communication on such matters between the Board, management, the

external Auditors and the internal Auditors

•making of recommendations to the Board in relation to the appointment of the

external Auditor and the approval of the remuneration and terms of engagement of the

external Auditor following appointment by the Shareholders in general meeting

•monitoring and reviewing of the external Auditor’s independence and in particular the

provision of additional services

•development and implementation of a policy on the engagement of the external

Auditor to supply non-audit services

•reviewing of actuarial reports

•management of financial risks

•analysis and endorsement of the Annual Internal Audit Plan

•arm’s length nature of related party transactions and

•the audit process.

The Committee generally protects the interests of the shareholders and assists Directors in

ensuring the accuracy of the Company’s financial results and reporting. It ensures that the

Company’s accounting and finance function are robust, advises the Board on financial

reporting in terms of both the financial statements and announcements relative to

performance and also has oversight of the Internal Audit Function to ensure adequate

resources, independence and follow up on any pertinent audit recommendations.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Corporate Governance Statement - continued

2.Compliance with the Code - continued

Principle 8 – Committees - continued

Audit Committee - continued

In regard to the latter, Internal Audit is an independent appraisal function established to

examine and evaluate the activities of the Company and its subsidiaries. The Internal Auditor

reports to the Audit Committee and attends its meetings. The Internal Auditor is charged by

the Audit Committee with the conducting of business process risk-based audits aimed at

assessing the adequacy of controls and business process efficiency. The Internal Audit Area

also liaises closely with the MAPFRE Group Internal Audit Area to this end.

The Audit Committee moreover ensures co-operation between the internal and external

auditors of the Company.

Furthermore, although no such instances arose within 2022, the Audit Committee also

reviews related party transactions, considering their nature and materiality and approves them

if it deems fit, as well as overseeing the implementation of the Company’s Whistleblower

Policy.

The composition of the Company’s Audit Committee is regulated by the Capital Markets

Rules and the Malta Financial Services Authority is kept informed as to any changes in its

composition. In terms of Capital Markets Rule 5.117.3, Jose Maria del Pozo and Martin

Galea are the members of the Audit Committee with the necessary qualifications, experience

and knowledge to render them competent in accounting and auditing. Jose Maria del Pozo

has held the position of Chief Financial Officer of the Eurasia Region of the MAPFRE Group

since 2018 and is also a consultant professor for accounting and financial analysis, while

Martin Galea is qualified in accounting and auditing with years of experience in company

management.

Gordon Cordina was appointed Chairman of the Audit Committee by the Board of Directors

in accordance with Capital Markets Rule 5.117.4 as of 29 April 2022, taking over from

Martin Galea. Of the four Directors making up the Audit Committee, three are considered

Independent Directors in accordance with the criteria set out in Capital Markets Rule 5.119.

The Audit Committee held seven meetings during 2022. In accordance with Capital Markets

Rule 5.117.2, three out of four members are considered independent in line with the criteria

set out in Capital Markets Rule 5.119. These are Gordon Cordina (replacing Taddeo Scerri as

of 29 April 2022), Antoinette Caruana and Martin Galea. The Audit Committee members and

relative attendance at meetings is listed below.

Martin Galea (Chairman until 29 April 2022)7

Antoinette Caruana6

Gordon Cordina (Chairman as from 29 April 2022)4

Jose Maria del Pozo 7

Taddeo Scerri (until 29 April 2022)3

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Corporate Governance Statement - continued

2.Compliance with the Code - continued

Principle 8 – Committees - continued

Audit Committee - continued

In accordance with Capital Markets Rule 5.118, the Board considers the four Audit

Committee members as having the required competence individually and jointly as a

Committee, due to their professional background and experience in the financial sector, as

well as in other sectors, including the insurance sector, at both national and international

level.

The CEO, the Chief Financial Officer, and the Internal Auditor, amongst other members of

Management, attend the Audit Committee meetings by invitation. The Whistleblower

Reporting Officer reports to the Audit Committee as and when required. The external

auditors are invited to attend meetings of the Audit Committee and are entitled to convene a

meeting of the Committee if they consider that it is necessary. The Company Secretary also

acts as Secretary to the Audit Committee.

The Chairperson of the Audit Committee reports to the Board at every Board meeting thus

ensuring good communication and continuity between the said Board Committee and the

other members of the Board.

Risk and Compliance Committee

This Committee has a two-fold function: it assists the Board in overseeing the Company’s

compliance with the obligations imposed by legislation, codes, rules and regulations, relevant

to the Company and its business; and it maintains oversight for review and proper

implementation of the Company’s Risk policies and assessing and advising the Board on

high-level risk-related matters, including the different types of Risk which the Company and

its subsidiaries may be exposed to from both a financial and non-financial perspective.

To this end the Committee ensures that the Company’s strategy and risk appetite are aligned

and monitors the stress testing framework, governance and internal control structures.

Furthermore, the Committee approves the annual plan for the Compliance Function and is

updated at every meeting on progress in relation to plan and other matters referring to

regulatory compliance risk and the relationship with the Company’s Regulator.

The Money Laundering Reporting Officer, the Complaints Officer and the Anti-Fraud

Officer report directly to this Committee. The Compliance Officer of the subsidiary

companies Bee Insurance Management Ltd. and EuroMed Risk Solutions Ltd. also report to

this Committee at every meeting.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Corporate Governance Statement - continued

2.Compliance with the Code - continued

Principle 8 – Committees - continued

Risk and Compliance Committee - continued

The Risk and Compliance Committee held five meetings during 2022. The Committee

members and relative attendance to meetings is listed below.

Martin Galea (Chairman)5

Diane Bugeja 2

Jose Maria del Pozo3

Etienne Sciberras (as from 29 April 2022)3

Joseph F X Zahra (until 29 April 2022)2

The CEO, the Chief Financial Officer, the Chief Compliance Officer and the Chief Risk

Officer, amongst others as may be required, attend the Committee meetings by invitation.

The Company Secretary also acts as Secretary to the Committee.

The Chairperson of the Risk and Compliance Committee reports to the Board at every Board

meeting thus ensuring good communication and continuity between the said Board

Committee and the other members of the Board.

Investment Committee

The Investment Committee is a joint Committee composed of Directors of the Company and

Directors of its subsidiary MAPFRE MSV Life p.l.c.. The Investment Committee oversees

the investment activities of the Company and its subsidiaries, executes its policies and

guidelines, scrutinises and approves material transactions and monitors results.

Although the Investment Committee meets on a monthly basis the business of the Company

was discussed at three meetings during 2022. The Committee members and relative

attendance to meetings is listed below.

Simon Azzopardi3

Romeo Cutajar (Chairman)3

Jose-Luis Jimenez3

Jose Maria del Pozo3

Javier Moreno 3

Patrick Spiteri Swain3

Paul Testaferrata Moroni Viani3

The CEO of the subsidiary MAPFRE MSV Life p.l.c., the Chief Financial Officer both of the

Company and of its subsidiary MAPFRE MSV Life p.l.c., the MAPFRE Regional Chief

Financial Officer, amongst others as may be required, attend the Committee meetings by

invitation. The Company Secretary of the subsidiary MAPFRE MSV Life p.l.c. acts as

Secretary to the Committee.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Corporate Governance Statement - continued

2.Compliance with the Code - continued

Principle 8 – Committees - continued

Remuneration Committee

The Board of Directors approves the remuneration of Directors and Chief Officers on the

recommendation of the Remuneration Committee. The maximum aggregate directors’

emoluments are established and approved by the shareholders during General Meetings as

and when required.

Further detail on the various aspects of how the Company remunerates its employees, the

workings of this Committee and information relative to its meetings in 2022 are considered in

the Remuneration Statement and Report to the Shareholders.

The Remuneration Committee held two meetings during the period under review and the

attendance was as follows:

Jose Ramon Alegre (Chairman)2

Antoinette Caruana2

John Cassar White (until 29 April 2022)1

Robert Suban (as from 29 April 2022)1

The CEO for MAPFRE Middlesea p.l.c., the CEO for MAPFRE MSV Life p.l.c., the Chief

Officer, Human Resources for MAPFRE Middlesea p.l.c., amongst others as may be

required, attend the Remuneration Committee meetings by invitation. The Company

Secretary also acts as Secretary to the Committee.

The 2022 Annual Report includes a separate Remuneration Statement in terms of Code

Provisions 8.A.3 and 8.A.4 and Remuneration Report in terms of Code Provision 12.26K.

Principle 9 – Relations with Shareholders and with the Market

The Company recognises the importance of maintaining a dialogue with its shareholders and

of keeping the market informed to ensure that its strategies, as well as performance, are well

understood. The Board is of the view that during the period under review the Company has

communicated effectively with the market through a number of company announcements and

press releases.

The Company also communicates with its shareholders through the Company’s Annual

General Meeting (‘AGM’) concerning which further detail is provided under the section

entitled General Meetings. The Chairman ensures that all relevant individuals including the

Chairpersons of the Board Committees are present at the AGM to answer any questions as

may arise.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Corporate Governance Statement - continued

2.Compliance with the Code - continued

Principle 9 – Relations with Shareholders and with the Market - continued

Apart from the AGM, the Company communicates with its shareholders through the

Company’s Annual Report, as available for review and downloading from the Company’s

website. The Company’s website (www.mapfre.com.mt) also contains information about the

Company and its business, including the six-monthly financial statements and all issued

company announcements together with a section entirely dedicated to investor relations for

the benefit of all Shareholders and the general public.

Furthermore, the Chairman ensures that constant and consistent communication is maintained

with the major shareholders particularly to discuss matters of significant importance or to

address particular issues or concerns. In addition, the Chairman, CEO and Company

Secretary hold an annual meeting with representatives of the Malta Association of Small

Shareholders to discuss various matters in the interests of the minority shareholders.

Individual shareholders can raise matters relating to their shareholding and the business of the

Company at any time throughout the year via the Office of the Company Secretary.

Shareholders are also given the opportunity to ask questions at the AGM or submit written

questions in advance and the Company recognises their statutory right to request the

convening of an extraordinary general meeting in accordance with Article 52 of the Articles

of Association of the Company and Article 129 of the Companies Act (Cap. 386 of the Laws

of Malta).

Principle 10 – Institutional Shareholders

The Company’s institutional shareholders keep the market updated on issues related to their

respective companies through company announcements and press releases. During the year

under review, the Company issued various press releases related to the controlling

shareholder, namely MAPFRE Internacional S.A. in connection with the latter’s operations

abroad. The other institutional shareholder, namely Bank of Valletta p.l.c., is a listed

company on the Malta Stock Exchange and consequently a steady flow of information is

maintained through company announcements and press releases. In addition, the six monthly

and annual results include a section on the insurance interests of institutional shareholders.

Principle 11 – Conflicts of Interest

The Directors are strongly aware of their responsibility to act in the interest of the Company

and its shareholders as a whole at all times, irrespective of whom appointed them to the

Board, and of their obligation to avoid conflicts of interest. During the period under review,

the Board maintained its practice that in the event of a real or potential conflict of interest

arising in respect of a Director in connection with any transaction or other matter, the interest

is to be declared and the individual concerned shall refrain from taking part in proceedings or

decisions relating to the matter. The Board minutes would include a record of such

declarations and of the action taken by the individual director concerned as and when

required.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Corporate Governance Statement - continued

2.Compliance with the Code - continued

Principle 11 – Conflicts of Interest - continued

In accordance with the MAPFRE Corporate Governance Policy and the Policy for Managing

Conflicts of Interest, a Director is to avoid situations in which he could have a conflict of

interest, whether direct or indirect, actual or potential, with the interest of the Company and

shall ensure that personal interests of any nature do not take precedence over the interests of

the Company and its shareholders.

The Company also has an Internal Code of Conduct Relating to Listed Securities addressed

to all directors and selected officers of the Company and its Subsidiary undertakings. The

aim behind this Code is to ensure compliance with the Prevention of Market Abuse

Regulatory Framework as well as the recommendations and principles contained in the

Capital Markets Rules. The Company keeps a record of all advance notices received in

connection with permitted dealings by directors and selected officers and acknowledgements

of such advance notices. The Company reminds all Directors and senior officers of their

obligation to conform to the Code on an annual basis.

As required by clause 11.3 of Appendix 5.1 of the Capital Markets Rules a Directors’

beneficial interest in the share capital of the Company as at 31 December 2022 has been

declared by Paul Testaferrata Moroni Viani stemming from his indirect shareholding in the

Company’s shares through his shareholding in family businesses.

Principle 12 – Corporate Social Responsibility

During 2022, MAPFRE Malta once again met its CSR objectives collaborating with a

number of different entities to organize various activities ranging from food and blood

donations, environmental activities and various donations to various charitable organisations

and NGOs such as Malta Community Chest Fund, Malta Trust Foundation, Majistral Park,

Malta Red Cross Foundation, John’s Rescue Corp, Fondazzjoni Patrimonju Malti and Down

Syndrome Association to mention a few.

Fundación MAPFRE allocated over €160,000 for projects in Malta across different areas

including road safety awareness, health campaigns and social actions. Moreover, the

Foundation has once again collaborated with Inspire and Equal Partners Foundation, funding

the provision of specialized services to children and adults with disabilities (€53,000 to cover

the running costs of Inspire’s therapeutic facilities Multi-Sensory Rooms and over €30,000 to

Equal Partners Foundation to support their efforts to enable children who suffer from a

disability to lead a more independent life).

MAPFRE Malta also joined the fight against breast cancer with a variety of awareness-

raising activities through their #ThinkPink campaign, as well as by collaborating with the

Action for Breast Cancer Foundation as per previous years.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Corporate Governance Statement - continued

3.Non-compliance with the code

Principle 3 – Composition of the Board

The Code recommends that the Board of Directors be composed of executive and non-

executive Directors, including independent non-executives. The Company’s Board, as

explained in Section 2 – Principle 3 of this Statement, is composed exclusively of non-

executive Directors. The appointment of Directors to the Board is a matter reserved

exclusively to the Company shareholders (except in the case of the filling of a casual

vacancy) and each Director retires from office at the AGM. Therefore, the composition of the

Board of Directors is determined by the shareholders during the AGM. Moreover the CEO of

the Company attends and reports during all meetings of the Board and various Senior

Managers attend by invitation to report on salient matters thereby ensuring a constant and

effective flow of information between the Company’s Management and Board of Directors.

Principle 4 – The Responsibilities of the Board

Code Provision 4.2.7 recommends: “the development of a succession policy for the future

composition of the Board of Directors and particularly the executive component thereof, for

which the Chairman should hold key responsibility”.

Regard being had to the non-executive role of the Company’s Directors and in view of the

facts explained above, particularly that the appointment of Directors is a matter reserved

exclusively to the Company’s shareholders and that every director retires from office at the

Annual General Meeting, the Company has opted not to formalise a succession policy for the

Board of Directors. That said, the Company and its Board remain mindful of the

recommendation as contained within the Capital Markets Rules and frequently reviews the

current position.

Principle 7 – Evaluation of the Board’s Performance

Code Provision 7.1 recommends: “the Board should appoint a committee chaired by a non-

executive Director in order to carry out a performance evaluation of its role”.

As explained above the Board has not appointed a specific committee to carry out a

performance evaluation but has rather opted to have an annual performance evaluation

exercise carried out under the auspices of the internal Compliance Area through the

compilation of a Board Effectiveness Questionnaire by each individual Director.

The questionnaire is particularly robust and is structured into eight sections with a total of 63

statements covering several aspects of Board membership including the understanding of the

workings of the Board and its Committees, the Company’s products and services, distribution

channels, strategy and risk, as well as governance, training requirements, subsidiaries and

contingent liabilities. Directors are also invited to elaborate further on any of the statements

at the end of the questionnaire.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Corporate Governance Statement - continued

3.Non-compliance with the code - continued

Principle 7 – Evaluation of the Board’s Performance - continued

An objective and independent report as to the overall outcome of the findings is then drawn

up by the Compliance Area and shared with the Chairman to co-ordinate further individual or

group discussion with the Directors based on the replies. In 2022 a group discussion was

facilitated by a specific off-site meeting presided over by the Chairman.

For these reasons the process is deemed to be comprehensive and sufficient to meet the

intended aims.

Principle 8A – Remuneration Committee: Code Provision 8.A.1

Code Provision 8.A.1 recommends that the Board of Directors “should establish a

Remuneration Committee composed of non-executive Directors with no personal financial

interest other than as shareholders in the Company, one of whom shall be independent and

shall chair the Committee”.

The Remuneration Committee is made up of Jose Ramon Alegre (Chairman), Antoinette

Caruana and Robert Suban. The composition has seen a reshuffle relative to the previous year

to continue to foster open dialogue and to ensure that all shareholders are represented

contributing to independence and objectivity in the functioning of the Committee. Decisions

are reached on the basis of the consensus of all members present.

The fact that decisions are taken by the unanimous agreement of all members present also

implies that the final outcome of discussions and decisions taken by the Remuneration

Committee are not affected by the director holding the Chair even though the Committee is

not chaired by an independent non-executive Director. Committee document packs are also

circulated to all Members well in advance of the meeting allowing all Members ample

opportunity to informally discuss any matters in anticipation of the Meeting and / or to

represent their views.

Principle 8B – Nomination Committee

Pursuant to the Company’s Articles of Association and as aforementioned the appointment of

Directors to the Board is reserved exclusively to the Company’s shareholders, in line with the

general commercial practice in Malta. Shareholders holding 11% or more of the issued

shares are entitled to appoint one director for every 11% holding, whilst the other

shareholders are entitled to appoint the remaining Board members at the Annual General

Meeting in accordance with the provisions of the Articles of Association. Thus the Company

considers that the procedure is already sufficiently defined and the requirements of

transparency are also well-met without the need for the establishment of a formal

Nomination Committee at this stage.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Corporate Governance Statement - continued

3.Non-compliance with the code - continued

Principle 9 – Relations with Shareholders and with the Market

Code Provision 9.3 recommends the Company to have a mechanism in place to resolve

conflicts between minority shareholders and controlling shareholders.

The balance between the interests of all shareholders is a matter that is kept under continuous

review by the Board and is consistently evaluated in the interest of all shareholders.

Therefore, although the Company does not have a specific mechanism in place there is open

dialogue between Management and all the non-Executive Directors of the Company to this

end. The Company also has a good relationship with the Malta Association for Small

Shareholders and the Board maintains an open door policy with them, as well as with any

individual shareholders who may be interested in making direct submissions to the Company,

at all times through the Office of the Company Secretary.

In light of this, and as the Company is mindful of the protection granted to minority

shareholders in terms of the Companies Act (Cap. 386 of the Laws of Malta) by which it

would necessarily be bound to abide, the Company is of the opinion that no formal

procedures to resolve conflict between minority and controlling shareholders are necessary at

this stage.

Internal Control and Risk Management System

This information is being provided in terms of Capital Markets Rule 5.97.4.

While authority to manage the daily business of the Company is delegated to the CEO within

the limits set by the Board, the Board is ultimately responsible for the Company’s internal

control systems and for ensuring their effectiveness. Such systems are designed to manage,

rather than eliminate, the risks associated with achieving business objectives and can only

provide reasonable (as opposed to absolute) assurance against material misstatement or loss.

The Company manages its internal risk through the ‘three lines of defence’ approach,

ensuring achievement of commercial aims while continuing to meet all legal and regulator

requirements. These then feed into the Board through the Audit Committee and the Risk and

Compliance Committee in order for the Board to maintain oversight of the processes and

procedures ensuring the effectiveness of the systems of internal control.

The key features of the Company’s systems of internal control are as follows:

Organisation - The Company has clear reporting lines from the Boards of Directors of

subsidiary and associated companies. The MMS Chairman is also kept informed as to the

operations of the subsidiary companies either by sitting directly on the respective Boards or

through the other Company Directors and Senior Management who sit on the Company and

subsidiary boards, Management and Operational Committees.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Corporate Governance Statement - continued

Internal Control and Risk Management System - continued

Risk Identification - The respective Management of each of the Group companies is

responsible for the identification and evaluation of key risks applicable to their areas of

business. The Board reviews its Risk Management policies and strategies and oversees their

implementation to ensure that identified key risks are properly assessed and managed. The

risk based nature of the Solvency II regime requires the company to have an effective risk

management system in place to identify, measure, manage, monitor and report on the main

risks which could impact the entity. This process is embodied in the annual ORSA (Own

Risk and Solvency Assessment) process. Expert judgements, stress testing and sensitivity

analysis are important elements in the company’s risk identification framework embedded in

the ORSA process. The ORSA report is submitted to the competent Authority on an annual

basis after approval of the Risk and Compliance Committee and ultimately of the Board of

Directors.

Reporting - Functional, operating and financial reporting standards are applicable to all

entities of the Group. Systems and procedures are in place to identify, control and report on

the major risks. The Board receives periodic management information giving comprehensive

analysis of financial and business performance including variances against budgets.

General Meetings

This information is being provided in terms of Capital Markets Rule 5.97.6.

The General Meeting is the Company’s most supreme decision-making organ and its

functions are governed by, and conducted in accordance with, the Company’s Articles of

Association. The General Meeting is called with not less than twenty-one days' notice in

writing. In addition to any matters which would be deemed to constitute “special business”,

the annual general meeting deals with matters of a recurring nature namely, the declaration of

a dividend, the consideration of the accounts, statements of financial position and reports of

the directors and auditors, the election of directors, the appointment of the auditors and the

authorisation of the directors to set their remuneration. The Memorandum and Articles of the

Company may be amended by means of an extraordinary resolution (as defined in the

Articles) of the Company during general meetings.

The Board of Directors is responsible for developing the agenda for the AGM and sending it

to the shareholders.

Shareholders’ rights can be exercised in accordance with the Articles of the Company, the

Companies Act and the Capital Markets Rules. Accordingly, all shareholders registered in the

Shareholders’ Register on the Record Date as defined in the Capital Markets Rules, have the

right to attend, participate and vote in the general meeting. A shareholder or shareholders

holding not less than 5% of the nominal value of all the shares entitled to vote at the General

Meeting may request the Company to include items on the agenda of a General Meeting and /

or table draft resolutions for items included in the agenda of a general meeting. Such requests

are to be received by the Company at least forty-six days before the date set for the relative

General Meeting.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Corporate Governance Statement - continued

General Meetings - continued

A shareholder who cannot participate in the General Meeting can appoint a proxy by written

or electronic notification to the Company. Every shareholder represented in person or by

proxy is entitled to ask questions which are pertinent and related to items on the agenda of the

General Meeting and to have such questions answered by the Directors or such persons as the

Directors may delegate for that purpose.

In view of the pandemic environment in the first half of 2022, particularly bearing in mind

health and safety aspects and the restrictions in place, the AGM was held remotely on 29

April 2022 in accordance with Legal Notice 288 of 2020 and live streamed. It however

remains the intention of the Company to revert to the holding of a physical AGM henceforth

to enable active participation by all those having an interest in doing so and to allow the

shareholders proper opportunity to engage with the Company Directors and members of

Management.

Signed by Martin Galea (Chairman) and Antoinette Caruana (Director) on the 22 March

2023

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Remuneration Statement and Report of the Remuneration Committee to

the Shareholders

1.Terms of Reference and Membership

In accordance with Section 8A of The Code of Principles of Good Corporate Governance

(Appendix 5.1 of the Capital Markets Rules under Chapter 5 on Continuing obligations), the

Remuneration Committee ("'the Committee") of MAPFRE Middlesea p.l.c.("MMS" or "the

Company") hereby submits the Remuneration Statement and Report to the shareholders of

MMS.

The Committee’s main task is to ensure that the MMS Remuneration Policy is implemented

and to propose appropriate remuneration packages for Directors and Chief Officers in

accordance therewith. The Remuneration Committee also monitors the level and structure of

the remuneration packages for Directors and Chief Officers based on the information

presented by Management from time to time.

As at 1 January 2022 the Committee Members were Jose Ramon Alegre (Chairman), John

Cassar White and Antoinette Caruana. John Cassar White did not submit his nomination to

the Board of Directors for re-election at the Company's Annual General Meeting ("AGM")

held on the 29 April 2022, and thus, at the Board meeting held directly after the AGM, Jose

Ramon Alegre, Antoinette Caruana and Robert Suban were appointed as the members of the

Remuneration Committee. Jose Ramon Alegre was once again appointed Chairman.

All the Committee Members are non-Executive Directors of MMS with no personal financial

interest as recommended by Code provision 8.A.1. The MMS President & CEO, Javier

Moreno, the MAPFRE MSV Life p.l.c (MMSV) CEO, Etienne Sciberras and other members

of senior management were invited to attend Committee meetings as and when required. The

Company Secretary, Dr Daphne Sims Dodebier, acted as the Secretary to the Committee.

Code provision 8.A.1 recommends that an independent non-Executive Director chairs the

Committee. The Committee takes decisions by the unanimous agreement of its Members.

Therefore, even though the Committee is not chaired by an independent non-Executive

Director, the Director chairing the Committee is non-Executive and his vote does not sway

the outcome of discussions and decisions taken by the Committee.

2.Meetings

The Remuneration Committee held two meetings during the period under review and the

attendance was as follows:

MemberAttended

Jose Ramon Alegre (Chairman) 2

Antoinette Caruana 2

John Cassar White (Member until 29 April 2022) 1

Robert Suban (Member from 29 April 2022) 1

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Remuneration Statement and Report of the Remuneration Committee to

the Shareholders - continued

2.Meetings - continued

The Committee determined and/or discussed the following matters:

•New & Temporary Senior Management Appointments:

•HR Reports;

•Proposed MAPFRE Malta Employee Pension Scheme:

•Remuneration for Directors, CEO and Senior Management for 2022;

•2022 Variable remuneration framework;

•Collective Agreement Amendments:

•Remuneration Statement for the Annual Report

3. Remuneration Statement

a.Remuneration Policy - Senior Management

The MMS Remuneration Policy framework is set by the Board of Directors acting through

the Remuneration Committee and is based on the guidelines and principles contained within

the MAPFRE Group Compensation (Remuneration) Policy which was approved by the

majority of shareholders during the Annual General Meeting held on 27 October 2020.

The Committee reviews and approves the individual remuneration arrangements for Senior

Management, namely, the President & CEO, the Chief Financial Officer, the Company

Secretary, the Chief Officers and the Internal Auditor.

The Committee has access to both internal and independent external advice on remuneration

matters as and when required.

The Committee deems the current Senior Management remuneration packages to be in line

with the local market equivalents and holds them to be fair, reasonable and commensurate to

the responsibilities involved. The Committee also believes that the remuneration packages

are such as to enable the Company to attract, retain and motivate employees having the

appropriate skills and qualities to ensure the proper management of the organisation.

There have been no significant changes to the Company’s Remuneration Policy for Senior

Management during the financial year under review save for the introduction of the

MAPFRE Malta Employees WorkSave Pension Scheme (the "Pension Scheme"), during the

second half of the financial year.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Remuneration Statement and Report of the Remuneration Committee to

the Shareholders - continued

3.Remuneration Statement - continued

a.Remuneration Policy – Senior Management - continued

The Pension Scheme is voluntary and intended to provide employees with an opportunity to

build up on their retirement savings during their employment. All employees of the

Company, including Senior Management, but excluding Directors, are eligible to be enrolled

in Pension Scheme, provided that they have been in employment with the Company for at

least two years. Those employees who opt to participate in the Pension Scheme, determine

their own monthly contribution between the minimum and the maximum amounts established

by the Pension Scheme's Terms and Conditions. In return, the Company makes contributions

into the accounts of these employees who would have opted to participate in the Pension

Scheme and shall contribute twice the amount contributed by the employee subject to a

maximum based on duration of service, which is also established in the Pension Scheme's

Terms and Conditions. Please refer to Note 11 in the Financial Statements below, for further

information with regard to the contributions made by the Company in this regard.

On the other hand, the performance appraisal system underpinning the Company’s

remuneration structure was implemented in 2013 and the performance bonus scheme

implemented in 2014. The latter is reviewed and further enhanced as necessary on an annual

basis. Both the appraisal system and the bonus scheme remain applicable in 2022. The said

performance bonus scheme is still based on the achievement of Group, Company and

Departmental objectives and was further enhanced in 2019 to give some weight to the

adherence to Corporate Values. In Financial Year 2020 the performance appraisal system was

upgraded to a new tool which allows for the generation of 360 degree feedback between

peers and internal clients and continuous communication between employees and their direct

managers throughout the year making the performance evaluation a lot more holistic.

The terms and conditions of employment for Senior Management are set out in their

respective contracts of employment. In principle, these contracts do not contain provisions

for termination payments or other amounts linked to early termination nor have there been

any cases of early termination in practice. Share options, pension benefits, save for that

herein provided in relation to the Pension Scheme, and profit sharing are not part of the MMS

Remuneration Policy for Senior Management. Indeed, Senior Management is not entitled to

any compensation of a variable nature except the performance bonus set out hereunder.

The MMS President & CEO is eligible for an annual bonus entitlement calculated with

reference to the attainment of pre-established objectives and targets as recommended by the

Remuneration Committee and approved by the Board of Directors.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Remuneration Statement and Report of the Remuneration Committee to

the Shareholders - continued

3.Remuneration Statement - continued

a.Remuneration Policy – Senior Management - continued

Senior Management are eligible for a performance bonus calculated in accordance with the

percentage achievement of the Group and Departmental objectives as per the performance

bonus scheme aforementioned which is inter alia approved by the Remuneration Committee

and determined in accordance with the performance appraisal process. Save for that herein

provided in relation to the Pension Scheme, no supplementary pension or other pension

benefits are payable to Senior Management. Additionally, in 2022, a right of clawback has

been introduced for Key Staff where, if the relevant Variable Remuneration attains one of

two quantitative criteria, 30% of the said Variable Remuneration would be deferred.

Both in the case of the MMS President & CEO, and for Senior Management, the

Remuneration Committee is of the view that the proportion of fixed remuneration to

performance bonus is also reasonable and appropriate.

Non-cash benefits to which Senior Management are entitled include the use of a company car

and health insurance. The death-in-service benefit also forms part of the non-cash benefits

and the same terms are applicable to all other Company employees.

Total emoluments received by Senior Management during Financial Year 2022 are deemed

to be of a commercially sensitive nature and are thus not being disclosed in this Report in line

with Code Provision 8.A.6.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Remuneration Statement and Report of the Remuneration Committee to

the shareholders - continued

3.Remuneration Statement - continued

b.Remuneration Policy – Directors

As at 31 December 2022, the Board of Directors of MAPFRE Middlesea p.l.c. was composed

of nine non-Executive directors. Three Directors, namely Jose Ramon Alegre, Jose-Luis

Jimenez and Jose Maria del Pozo, did not receive a fee in accordance with the established

policy of the MAPFRE Group with which they are employed and which appointed them.

Etienne Sciberras, appointed as from the AGM held on 29 April 2022, also did not receive a

fee since during Financial Year 2022 he occupied the position of Chief Executive Officer of

MAPFRE MSV Life p.l.c. (a subsidiary of MMS)

Based on the recommendations of the Committee, the current Directors’ fees, for each

Director as applicable, and as approved by the Board are as follows:

Directors’ Fees including Board Committees as applicable

Chairman€60,000 per annum (2021: €60,000)

Other Directors (per Director)€40,000 per annum (2021: €40,000)

Audit Committee Fees

Chairman€7,000 per annum (2021: €5,000)

Member (per member)€5,000 per annum (2021: €3,000)

Subsidiary Fees

Chairman€7,000 per annum (2021: €5,000)

Member (per member)€5,000 per annum (2021: €3,000)

None of the Company’s Directors had any service contracts with either the Company or any

of its subsidiaries as at the end of the Financial Year.

Directors’ emoluments are established to reflect the responsibility and time committed by

Directors to the affairs of the Company, including the Board Committees of which a Director

may be a member save for the Audit Committee that is additionally remunerated as detailed

above. None of the Directors, in their capacity as Director of the Company and/or Committee

members, are entitled to profit sharing, share options, pension benefits, participation in the

Employee Pension Scheme or any other remuneration.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Remuneration Statement and Report of the Remuneration Committee to

the Shareholders - continued

3.Remuneration Statement - continued

c.Code Provision 8.A.5

Directors' Emoluments 2022


Fixed Remuneration	Variable Remuneration	Share Options	Others
€307,350	None	None	None

Fees payable to directors in respect of 2022 amounted in total to €307,350 (2021: €288,500).

The emoluments of Senior Management are not being disclosed in line with Code Provision

8.A.6 since these are deemed to be of a commercially sensitive nature. This decision will

continue to be reviewed on an annual basis.

d.Code Provision 12.26K

In addition to the information provided above and with reference to Appendix 12.1 of the

Capital Markets Rules it is noted that the maximum annual aggregate emoluments that may

be paid to the Directors are approved by the shareholders in the General Meeting in terms of

Article 81 of the Company’s Articles of Association. This amount was established by the

Board of Directors after consultation with the MAPFRE Group and based on the guidelines

as set forth in the Compensation Policy relative to the fixing of compensation for the non-

Executive members of the governance bodies having regard to the Company’s financial

situation, profitability and sustainability. The maximum annual aggregate amount was then

confirmed in the total sum of €350,000 per annum at the forty-first Annual General Meeting

held on the 29 April 2022, which has remained consistent since 2018.

The amount paid to each Director by the Company for attendance at meetings of the Board or

of the Board Committees, when due as explained above, is not tied to the Company’s

performance or other performance criteria but is a pre-determined, fixed annual amount as

indicated below:

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Remuneration Statement and Report of the Remuneration Committee to

the Shareholders - continued

3.Remuneration Statement - continued

d.Code Provision 12.26K - continued


Director	2022 Fees €	2021 Fees €	Percentage Annual Change of Remuneration %
			2021-2022	2020-2021
Jose Ramon Alegre (NED)	nil	nil	n/a	n/a
Alfred Attard (NED until 30 April 2021)1	nil	15,000	n/a	0.00
Antoinette Caruana (NED)	45,000	43,000	4.65	0.00
John Cassar White (NED until 29 April 2022)2	13,333	39,167	(55.56)	n/a
Gordon Cordina (NED from 29 April 2022)3	54,683	nil	n/a	n/a
Jose Maria del Pozo (NED)	nil	nil	n/a	n/a
Martin Galea (NED)4	68,000	69,333	4.81	1.96
Jose Luis Jimenez (NED)	nil	nil	n/a	n/a
Taddeo Scerri (NED until 29 April 2022)	15,000	42,000	4.65	5.00
Etienne Sciberras (NED from 29 April 2022)5	nil	nil	n/a	n/a
Robert Suban (NED from 29 April 2022)	26,667	nil	n/a	n/a
Paul Testaferrata Moroni Viani (NED)	40,000	40,000	0.00	(6.98)
Joseph F.X. Zahra (NED until 29 April 2022)6	44,667	40,000	17.50	0.00
Total	307,350	288,500

1 In the case of Mr Alfred Attard €7,917 of the amount for 2021 was paid to Bank of Valletta

p.l.c. as Mr Attard’s employer based on a separate agreement for services rendered.

2The amount includes €12,500 paid to John Cassar White for his position as Chairman of the

subsidiary Board till 31 March 2021, with €5,000 of the amount paid to Bank of Valletta

p.l.c. as Mr Cassar White’s employer based on a separate agreement for services rendered.

3The amount includes €50,000 paid to Dr Gordon Cordina as Chairman of the subsidiary

Board. From the whole amount €22,349 was paid to Bank of Valletta p.l.c. as Dr Cordina’s

employer based on a separate agreement for services rendered.

4The amount includes €5,000 paid to Martin Galea in 2021 for the position as Chairman of

the subsidiary’s Audit Committee.

5Total emoluments for 2022 paid to Mr Etienne Scbiberras as CEO of MAPFRE MSV Life

amounted to €211,444.

6The amount includes €31,333 paid to Joseph F X Zahra for the position as Director of the

subsidiary's Board and Chairman of the subsidiary's Audit Commitee as from 30 April 2022.

* Percentage annual change of remuneration (2021-2022) was based on annualised

remuneration for 2022 and/or 2021 to allow for a meaningful comparison.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Remuneration Statement and Report of the Remuneration Committee to

the Shareholders - continued

3.Remuneration Statement - continued

d.Code Provision 12.26K - continued

Remuneration paid to Directors as shown in the above table are all fixed in nature and thus

the ratio of fixed and variable remuneration was 100%-0% for both years being reported. The

changes in the total remuneration of Non-Executive Directors is to be considered with the

information included in the table, further down in this report, showing a comparison between

the percentage annual change of remuneration of President & CEO against company

performance metrics and percentage annual change of the Company’s employees’ average

remuneration employed on a full-time basis equivalent.

None of the Directors and Members of the Board Committees held any service contracts with

the Company or any of its subsidiary undertakings and no Director is entitled to share

options, profit sharing, pension benefits or any other type of emoluments save for the

provision of cover under a Group Life scheme. It is also confirmed that no other fees were

payable or paid to any of the Directors or Committee Members during the financial year

under review.

By reference to Capital Markets Rule 12.2A no other person is deemed to be in charge of the

operations or the activities of the Company, and thus fall within the definition of director,

beyond the members of the Board and the Chief Executive Officer.

In this respect and relative to Appendix 12.1 the total emoluments paid by the Company to

the Chief Executive Officer in office during Financial Year 2022 were as follows:


	Financial Year
	2022	2021
	€	€
President & CEO
Javier Moreno Gonzalez

Fixed Salary	184,500	135,000
Defined pension contribution	41,985	30,375
Other fringe benefits	106,644	84,262


Total Fixed remuneration	333,129	249,637

Variable remuneration	116,320	97,817


Total remuneration	449,449	347,454


Fixed Variable Proportion	74%-26%	72%-28%

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Remuneration Statement and Report of the Remuneration Committee to

the Shareholders - continued

3.Remuneration Statement - continued

d.Code Provision 12.26K - continued

In respect of Variable Remuneration, deferred or otherwise, paid or pending payment, a

partial or total reduction is possible if particular circumstances arise including in the event of

a restatement of annual accounts other than resulting from a change in legislation and in the

event of fraud. No such occurrence took place in 2022.

Variable remuneration for the President & CEO is based on Global, Regional and Country

results together with Country premium written targets, with the highest weighting given to

the Country results and premiums respectively. The main objective of the Group is profitable

Growth and the targets are aligned with such objectives. As part of a Global Group it is

expected that as a Country we contribute towards the profitability of both the Region and the

Global Group results and accordingly part of the variable remuneration is attached to the

achievement of the higher Group results. The achievement percentage follows a set scale

going from complete non-achievement, to pro-rata if not fully achieved, to accelerated

achievement if targets are exceeded. These scales are in line with the Remuneration Policy

and approved accordingly by the Remuneration Committee. In terms of the requirements

within Appendix 12.1 of the Capital Markets Rules, the following table presents the annual

change of remuneration of the President & CEO, of the Company’s performance, and of

average remuneration on a full-time equivalent basis of the Company’s employees over the

two most recent financial years:


Performance indicators	% Difference FY2022-FY2021	% Difference FY2021-FY2020

Company's profit after tax	45.3%*	(36.64)%
Company's gross premium written	8.75%	6.64%
Remuneration of Company's President & CEO	(2.98)%**	1.90%
Company's employees' average remuneration on full time equivalent	3.39%	6.44%
Group's employees' average remuneration on full time equivalent	3.01%	5.54%

* The increase arose from 2022 being favourably impacted by the receipt of a net 1.00

million in dividend from MAPFRE MSV Life p.l.c. and a 0.54 million recovery of an amount

previously impaired in relation to an amount due from Progress Assicurazioni S.p.A..

** For comparison purpose, since Javier Moreno Gonzalez's appointment began on 1 April

2021, his 2021 remuneration has been annualised.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Remuneration Statement and Report of the Remuneration Committee to

the Shareholders - continued

3.Remuneration Statement - continued

d.Code Provision 12.26K - continued

In terms of the requirements within Appendix 12.1 (f) there has been no deviation from the

procedure for the implementation of the remuneration policy as defined in Chapter 12 of the

Capital Markets Rules.

As required by provision 12.26N of the Capital Markets Rules the Company’s auditors have

verified that the information that needs to be included in the Remuneration Report as per

Chapter 12 and Appendix 12.1 of the Capital Markets Rules, has been included.

Signed by Antoinette Caruana (Director and Remuneration Committee Member) on 22

March 2023

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Statement of profit or loss

Technical account - general business


		Year ended 31 December


		Group and Company
		2022	2021
	Notes	€’000	€’000

Earned premiums, net of reinsurance
Gross premiums written	6	84,439	77,613
Outward reinsurance premium		(15,166)	(15,350)


Net premiums written		69,273	62,263


Change in gross provision for unearned premiums		(2,679)	(2,979)
Change in the provision for unearned premiums, reinsurers' share		(54)	1,434


		(2,733)	(1,545)


Earned premiums, net of reinsurance		66,540	60,718
Allocated investment return transferred from the non-technical account	8	(171)	307


Total technical income		66,369	61,025



Claims incurred, net of reinsurance
Claims paid
- gross amount		42,336	37,134
- reinsurers' share		(7,011)	(5,524)


		35,325	31,610


Change in the provision for claims
- gross amount		400	2,964
- reinsurers' share		3,014	313


		3,414	3,277


Claims incurred, net of reinsurance		38,739	34,887

Net operating expenses	7	22,867	20,878


Total technical charges		61,606	55,765



Balance on the technical account for general business		4,763	5,260

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Statement of profit or loss - continued

Technical account - long term business


		Year ended 31 December


		Group		Company
		2022	2021	2022	2021
	Notes	€’000	€’000	€’000	€’000
Earned premiums net of reinsurance
Gross premiums written	6	251,439	327,632	2,680	2,497
Outwards reinsurance premiums		(3,558)	(3,390)	(225)	(211)


Earned premiums net of reinsurance		247,881	324,242	2,455	2,286

Investment return
Return from investments	8	(286,614)	97,458	(49)	(11)

Other technical income, net of reinsurance	9	743	788	—	—


Total technical income		(37,990)	422,488	2,406	2,275


Claims incurred, net of reinsurance
Claims paid
- gross amount		295,532	305,907	839	1,250
- reinsurers' share		(1,507)	(1,859)	—	(122)


		294,025	304,048	839	1,128


Change in the provision for claims
- gross amount		1,079	2,339	(243)	(143)
- reinsurers' share		457	(319)	—	113


		1,536	2,020	(243)	(30)


Claims incurred, net of reinsurance		295,561	306,068	596	1,098


Change in other technical provisions, net of reinsurance
Long term business provision, net of reinsurance
- gross amount		(104,057)	(24,367)	68	(67)

Investments contracts with DPF - gross		(266,314)	103,203	—	—


		(370,371)	78,836	68	(67)

Net operating expenses	7	18,251	18,572	421	328


Total technical charges		(56,559)	403,476	1,085	1,359



Balance on the technical account for long term business		18,569	19,012	1,321	916

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Statement of profit or loss - continued

Non-technical account


		Year ended 31 December


		Group		Company

		2022	2021	2022	2021
	Notes	€’000	€’000	€’000	€’000

Balances on technical accounts
General business		4,763	5,260	4,763	5,260
Long term business		18,569	19,012	1,321	916


Total income from insurance activities		23,332	24,272	6,084	6,176

Other investment income	8	1,084	956	2,182	1,107
Investment expenses and charges	8	(1,251)	(675)	(1,040)	(659)
Allocated investment return transferred
to the general business technical account	8	171	(307)	171	(307)
Revaluation loss on freehold land and buildings	18	—	(1,521)	—	—
Other income	9	1,135	1,438	—	—
Administrative expenses	7	(2,829)	(3,773)	(1,946)	(2,254)
Reversal of impairment in group undertaking		540	—	540	—


Profit for the financial year before tax		22,182	20,390	5,991	4,063

Tax expense	12	(7,539)	(7,467)	(2,201)	(1,455)


Profit for the financial year		14,643	12,923	3,790	2,608


Attributable to:
- owners of the Company		8,794	7,643	3,790	2,608
- non-controlling interests		5,849	5,280	—	—


		14,643	12,923	3,790	2,608



Earnings per share attributable to owners of the Company	14	€0.096	€0.083

The Notes on pages 56 to 198 are an integral part of these financial statements.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022


Statement of comprehensive income
		Year ended 31 December
		Group		Company
		2022	2021	2022	2021
	Notes	€’000	€’000	€’000	€’000

Profit for the financial year		14,643	12,923	3,790	2,608

Other comprehensive income:
Items that are or may be reclassified subsequently to profit or loss
Change in fair value of available-for-sale investments	29	(770)	53	(764)	51
Available-for-sale investments reclassified to profit or loss	29	—	(102)	—	(102)
Revaluation gain on freehold land and buildings	18	—	1,081	—	—

Items that will not be reclassified to profit or loss
Re-measurement actuarial gain on provision for other liabilities and charges		57	2	57	2
(Decrease)/increase in value of in-force business	16	(7,266)	9,912	—	—


Total other comprehensive income, net of tax		(7,979)	10,946	(707)	(49)





Total comprehensive income for the year		6,664	23,869	3,083	2,559



Attributable to:
- owners of the Company		4,448	13,633
- non-controlling interests		2,216	10,236



Total comprehensive income for the year		6,664	23,869

Items disclosed in the statement above are disclosed net of tax.

The Notes on pages 56 to 198 are an integral part of these financial statements.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Statement of financial position


		At 31 December


	Notes	Group		Company
		2022	2021	2022	2021
		€’000	€’000	€’000	€’000
ASSETS
Intangible assets	16	107,987	109,729	9,967	9,146
Property, plant and equipment	18	17,626	17,657	4,480	4,542
Right-of-use assets	17	1,461	1,802	1,378	1,685
Investment property	19	108,278	110,016	13,404	13,529
Investment in subsidiary undertakings	20	—	—	77,214	77,214
Investment in associated undertakings	21	23,027	22,831	389	383
Other investments	22	1,992,902	2,421,911	12,097	8,382
Deferred income tax	23	8,750	2,313	1,292	1,268
Reinsurers' share of technical provisions	24	29,722	33,247	29,246	32,314
Deferred acquisition costs	25	9,367	8,427	9,367	8,427
Insurance and other receivables	26	33,740	32,069	20,099	19,222
Income tax receivables		42	308	—	—
Cash and cash equivalents	27	137,286	71,443	11,130	11,575


Total assets		2,470,188	2,831,753	190,063	187,687


EQUITY
Capital and reserves attributable to owners of the company
Share capital	28	19,320	19,320	19,320	19,320
Share premium account		688	688	688	688
Other reserves	29	40,189	44,817	34,171	34,935
Retained earnings		52,887	46,211	22,915	21,468


		113,084	111,036	77,094	76,411
Non-Controlling Interest		112,148	110,932	—	—


Total equity		225,232	221,968	77,094	76,411



LIABILITIES
Deferred income tax	23	11,822	42,599	2,295	1,989
Provision for other liabilities and charges	30	854	997	854	997
Technical provisions
- Insurance contracts and investment contracts with DPF	24	2,104,455	2,470,668	95,909	93,005
- investment contracts without DPF	24	55,713	60,869	—	—
Derivative financial instruments	22	—	775	—	—
Lease Liabilities		1,530	1,866	1,449	1,745
Insurance and other payables	31	28,012	31,173	12,379	13,401
Income tax payable		42,570	838	83	139


Total Liabilities		2,244,956	2,609,785	112,969	111,276


Total equity and liabilities		2,470,188	2,831,753	190,063	187,687

The Notes are an integral part of these financial statements.

These financial statements on pages 46 to 198 were approved by the Board of Directors and

authorised for issue on 22 March 2023 and signed on its behalf by Martin Galea (Chairman)

and Gordon Cordina (Director) as per the Directors' Declaration on ESEF Annual Financial

report submitted in conjunction with the Annual Report 2022.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Statement of changes in equity


Group
		Attributable to owners of the Company


			Share				Non-
		Share	premium	Other	Retained		controlling	Total
		capital	account	reserves	earnings	Total	interests	equity
	Notes	€’000	€’000	€’000	€’000	€’000	€’000	€’000

Balance as at 1 January 2021		19,320	688	38,829	41,766	100,603	80,696	181,299


Comprehensive income
Profit for the financial year		—	—	—	7,643	7,643	5,280	12,923

Other comprehensive income:
Change in available-for- sale investment's fair value	29	—	—	53	—	53	—	53
Available-for-sale investments re-classified to profit or loss	29	—	—	(102)	—	(102)	—	(102)
Revaluation gain on freehold land and buildings	18	—	—	1,081	—	1,081	—	1,081
Re-measurement actuarial gain on provision for other liabilities and charges		—	—	—	2	2	—	2
Increase in value of in- force business	16	—	—	4,956	—	4,956	4,956	9,912


Total other comprehensive income, net of tax		—	—	5,988	2	5,990	4,956	10,946


Total comprehensive income		—	—	5,988	7,645	13,633	10,236	23,869


Transactions with owners

Increase in share capital of group undertaking		—	—	—	—	—	20,000	20,000
Dividends for 2020		—	—	—	(3,200)	(3,200)	—	(3,200)


Total transactions with owners		—	—	—	(3,200)	(3,200)	20,000	16,800


Balance at 31 December 2021		19,320	688	44,817	46,211	111,036	110,932	221,968

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Statement of changes in equity - continued


Group - continued
		Attributable to owners of the Company


			Share				Non-
		Share	premium	Other	Retained		controlling	Total
		capital	account	reserve s	earnings	Total	interests	equity
	Notes	€’000	€’000	€’000	€’000	€’000	€’000	€’000

Balance at 1 January 2022		19,320	688	44,817	46,211	111,036	110,932	221,968


Comprehensive income
Profit for the financial year		—	—	—	8,794	8,794	5,849	14,643

Other comprehensive income:
Change in available-for- sale investments' fair value	29	—	—	(770)	—	(770)	—	(770)
Revaluation gain on freehold land and buildings reclassified to retained earnings		—	—	(225)	225	—	—	—
Re-measurement actuarial gain on provision for other liabilities and charges		—	—	—	57	57	—	57
Decrease in value of in- force business	16	—	—	(3,633)	—	(3,633)	(3,633)	(7,266)


Total other comprehensive income, net of tax		—	—	(4,628)	282	(4,346)	(3,633)	(7,979)


Total comprehensive income		—	—	(4,628)	9,076	4,448	2,216	6,664


Transactions with owners
Dividend for 2021		—	—	—	(2,400)	(2,400)	(1,000)	(3,400)


Total transactions with owners		—	—	—	(2,400)	(2,400)	(1,000)	(3,400)


Balance at 31 December 2022		19,320	688	40,189	52,887	113,084	112,148	225,232

The Notes on pages 56 to 198 are an integral part of these financial statements.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Statement of changes in equity - continued


Company
			Share
		Share	premium	Other	Retained
		capital	account	reserves	earnings	Total
	Notes	€’000	€’000	€’000	€’000	€’000

Balance at 1 January 2021		19,320	688	34,986	22,058	77,052



Comprehensive income
Profit for the financial year		—	—	—	2,608	2,608

Other comprehensive income:
Change in available-for-sale investments' fair value		—	—	51	—	51
Available-for-sale investments- reclassified to profit or loss	29	—	—	(102)	—	(102)
Re-measurement actuarial gain on provision for other liabilities and charges	29	—	—	—	2	2


Total other comprehensive income, net of tax		—	—	(51)	2	(49)


Total comprehensive income		—	—	(51)	2,610	2,559



Transactions with owners
Dividends for 2020		—	—	—	(3,200)	(3,200)


Total transactions with owners of the Company		—	—	—	(3,200)	(3,200)


Balance at 31 December 2021		19,320	688	34,935	21,468	76,411

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Statement of changes in equity - continued


Company - continued
			Share
		Share	premium	Other	Retained
		capital	account	reserves	earnings	Total
	Notes	€’000	€’000	€’000	€’000	€’000


Balance at 1 January 2022		19,320	688	34,935	21,468	76,411



Comprehensive income
Profit for the financial year		—	—	—	3,790	3,790

Other comprehensive income:
Change in available-for-sale investments' fair value	29	—	—	(764)	—	(764)
Re-measurement actuarial gain on provision for other liabilities and charges		—	—	—	57	57


Total other comprehensive income, net of tax		—	—	(764)	57	(707)


Total comprehensive income		—	—	(764)	3,847	3,083


Transactions with owners
Dividend for 2021		—	—	—	(2,400)	(2,400)


Total transactions with owners of the Company		—	—	—	(2,400)	(2,400)


Balance as at 31 December 2022		19,320	688	34,171	22,915	77,094

The Notes on pages 56 to 198 are an integral part of these financial statements.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Statement of cash flows


		Year ended 31 December


		Group		Company
		2022	2021	2022	2021
	Notes	€’000	€’000	€’000	€’000

Cash flows from operating activities
Cash (used in)/generated from operations	32	(64,364)	9,360	11,262	12,414
Dividends received		10,519	9,572	1,347	168
Interest received		17,729	21,296	97	96
Interest paid		(27)	(66)	(27)	(66)
Income tax paid		(2,770)	(2,501)	(1,944)	(2,742)


Net cash (used in)/generated from operating activities		(38,913)	37,661	10,735	9,870



Cashflow from investing activities
Purchase of investment property	19	(936)	(1,627)	(76)	(4)
Disposal of investment property		113	16	9	16
Increase in investment in group undertaking		—	—	—	(20,000)
Purchase of financial investments		(1,319,341)	(1,382,857)	(5,135)	(5,131)
Disposal of financial investments		1,437,912	1,312,522	183	2,116
Purchase of property, plant and equipment and intangible assets		(9,592)	(8,227)	(3,761)	(3,524)
Disposal of property, plant and equipment and intangibles assets		—	95	—	—


Net cash (used in)/ generated from investing activities		108,156	(80,078)	(8,780)	(26,527)



Cash flows from financing activities
Increase in share capital of group undertaking		—	20,000	—	—
Dividends paid to owners of the Company		(2,400)	(3,200)	(2,400)	(3,200)
Dividends paid to minority interests		(1,000)	—	—	—


Cash used in from financing activities		(3,400)	16,800	(2,400)	(3,200)



Net movement in cash and cash equivalents		65,843	(25,617)	(445)	(19,857)

Movement in cash and cash equivalents
Cash and cash equivalents at beginning of year		71,443	97,060	11,575	31,432


Cash and cash equivalents at end of year	27	137,286	71,443	11,130	11,575

The Notes on pages 56 to 198 are an integral part of these financial statements.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

Notes to the financial statements

1.Basis of preparation

The financial statements of MAPFRE Middlesea p.l.c. are prepared in accordance with

International Financial Reporting Standards as adopted for use in the European Union

and the Companies Act, 1995. The financial statements of the Group to which the

Company is parent are prepared in accordance with article 4 of Regulation 1606/2002/

EC (the “Regulation”) which requires that, for each financial period starting on or after

1 January 2005, companies governed by the law of an EU Member State shall prepare

their consolidated financial statements in conformity with IFRS as adopted by the EU

if, at their reporting date, their securities are admitted to trading on a regulated market

of any EU Member State. The Regulation prevails over the provisions of the Companies

Act, 1995 to the extent that the said provisions of the Companies Act, 1995 are

incompatible with the provisions of the Regulation. Both sets of financial statements as

referred to in the Annual Report relate to both those of the Company and the Group and

have also been prepared in accordance with the Insurance Business Act, 1998.

The financial statements are prepared under the historical cost convention as modified

by the measurement at fair value of: investment property, financial assets and financial

liabilities (including derivatives) at fair value through profit or loss, and available-for-

sale investments. Investment in associated undertaking is measured using equity

method, that is, cost plus or minus net income or loss of associate.

As permitted by IFRS 4 'Insurance Contracts' the Group continues to apply existing

accounting practices for value of in-force business, insurance and participating

investment contracts, modified as appropriate to comply with the IFRS framework and

applicable standards. Further details are given in the respective accounting policies.

The preparation of financial statements in conformity with the above reporting

framework requires the use of certain accounting estimates. It also requires

management to exercise its judgement in the process of applying the Group’s

accounting policies. The areas involving a higher degree of judgement or complexity,

or areas where assumptions and estimates are significant to the consolidated financial

statements, are disclosed in Note 3.

The statements of financial position are organised in increasing order of liquidity, with

additional disclosures on the maturity analysis of the Group’s assets and liabilities

provided within the Notes to the financial statements. All amounts in the Notes are

shown in thousands of euro, rounded to the nearest thousand, unless otherwise stated.

Certain corresponding information in the disclosures have been reclassified or enhanced

to conform with the current year's presentation.

Standards, interpretations and amendments to published standards effective in 2022

In 2022, the Group adopted new standards, amendments and interpretations to existing

standards that are mandatory for the Group’s accounting period beginning on 1 January

2022. The adoption of these revisions to the requirements of IFRSs as adopted by the

EU did not result in substantial changes to the Group’s accounting policies.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

1.Basis of preparation - continued

Standards, interpretations and amendments to published standards effective before

2022 for which the Group elected for the temporary exemption

a. IFRS 9 Financial Instruments

IFRS 9 ‘Financial Instruments’ is effective for annual periods beginning on or after 1

January 2018, with early adoption permitted. However, the Group has met the relevant

criteria and has applied the temporary exemption from IFRS 9 for annual periods before

1 January 2023. Consequently, the Group will apply IFRS 9 for the first time on 1

January 2023.

IFRS 9, ‘Financial instruments’, addresses the classification, measurement and

recognition of financial assets and financial liabilities. It replaces the guidance in IAS

39 that relates to the classification and measurement of financial instruments. IFRS 9

retains but simplifies the mixed measurement model and establishes three primary

measurement categories for financial assets: amortised cost, fair value through other

comprehensive income and fair value through profit or loss. The basis of classification

depends on the entity’s business model and the contractual cash flow characteristics of

the financial asset. Investments in equity instruments are required to be measured at fair

value through profit or loss with the irrevocable option at inception to present changes

in fair value in OCI not recycling.

The new expected credit losses model replaces the incurred loss impairment model used

in IAS 39. For financial liabilities there were no changes to classification and

measurement except for the recognition of changes in own credit risk in other

comprehensive income, for liabilities designated at fair value through profit or loss. The

Group is considering the implications of the standard and its impact on the financial

results and position once adopted.

IFRS 9 became effective for years beginning on or after 1 January 2018. However, in

September 2016, the International Accounting Standards Board issued amendments to

IFRS 4 which provide optional relief to eligible insurers in respect of IFRS 9.

The option permits entities whose predominant activity is issuing insurance contracts

within the scope of IFRS 4, a temporary exemption to defer the implementation of IFRS

Entities that apply the optional temporary relief were initially required to adopt IFRS 9

on annual periods beginning on or after 1 January 2021. However, on 14 November

2018 and subsequently on 17 March 2020 the IASB deferred both the effective date of

IFRS 17, ‘Insurance Contracts’, and the expiry date for the optional relief in respect of

IFRS 9 to 1 January 2022 and subsequently by another year. Therefore, entities that

apply the optional temporary relief will be required to adopt IFRS 9 on 1 January 2023

which aligns with the new effective date of IFRS 17.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

1.Basis of preparation - continued

Standards, interpretations and amendments to published standards effective before

2022 for which the Group elected for the temporary exemption - continued

a. IFRS 9 Financial Instruments - continued

The Group evaluated its liabilities at 31 December 2015, the prescribed date of

assessment under the optional temporary relief provisions and concluded that all of the

liabilities were predominantly connected with insurance. More than 90% of the Group’s

liabilities at 31 December 2015 were liabilities arising from contracts within the scope

of IFRS 4. The Group’s predominant activities were and still are insurance related as

evidenced through revenues reported in this Annual Report.

Further to the above, the Group has not previously applied IFRS 9. Therefore, the

Group is an eligible insurer that qualifies for optional relief from the application of

IFRS 9. As at 1 January 2018, the Group has elected to apply the optional temporary

relief under IFRS 4 that permits the deferral of the adoption of IFRS 9 for eligible

insurers. The Group will continue to apply IAS 39 until the financial reporting period

ending 31 December 2022. However, the subsidiaries and associates of the Group, not

having their activities predominantly in insurance, have applied IFRS 9 from 1 January

2018. The subsidiaries disclose references to IFRS 9 information that is not provided in

the consolidated financial statements but is publicly available for the relevant period in

the individual financial statements of the subsidiaries or associates.

i. Financial assets and liabilities – Classification

The classification of financial assets under IFRS 9 is generally based on the business

model in which a financial asset is managed and its contractual cash flow

characteristics. IFRS 9 includes three principal measurement categories for financial

assets – measured at amortised cost, fair value through other comprehensive income

(FVOCI) and fair value through profit or loss (FVTPL) – and eliminates the previous

IAS 39 categories of held-to-maturity investments, loans and receivables, and available-

for-sale financial assets.

A financial asset is measured at amortised cost if it meets both of the following

conditions and is not designated as measured at FVTPL:

•it is held within a business model whose objective is to hold assets to collect

contractual cash flows; and

•its contractual terms give rise on specified dates to cash flows that are solely

payments of principal and interest on the principal amount outstanding.

A financial asset is measured at FVOCI if it meets both of the following conditions and

is not designated as measured at FVTPL:

•it is held within a business model whose objective is achieved by both collecting

contractual cash flows and selling financial assets; and

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

1.Basis of preparation - continued

Standards, interpretations and amendments to published standards effective before

2022 for which the Group elected for the temporary exemption - continued

a. IFRS 9 Financial Instruments - continued

i. Financial assets and liabilities – Classification - continued

•its contractual terms give rise on specified dates to cash flows that are solely

payments of principal and interest on the principal amount outstanding.

All financial assets not classified as measured at amortised cost or FVOCI as described

above are measured at FVTPL. In addition, on initial recognition the Group may

irrevocably designate a financial asset that otherwise meets the requirements to be

measured at amortised cost or at FVOCI as measured at FVTPL if doing so eliminates

or significantly reduces an accounting mismatch that would otherwise arise.

Nevertheless, on initial recognition of an equity investment that is not held for trading,

the Group may irrevocably elect to present subsequent changes in fair value in OCI.

IFRS 9 largely retains the requirements in IAS 39 for the classification and

measurement of financial liabilities. However, under IAS 39 all fair value changes of

financial liabilities designated as at FVTPL are recognised in profit or loss, whereas

under IFRS 9 these fair value changes will generally be presented as follows.

•The amount of the change in the fair value that is attributable to changes in the

credit risk of the liability will be presented in OCI.

•The remaining amount of the change in the fair value will be presented in profit or

loss.

ii. Business model assessment

The Group determines its business model at the level that best reflects how it manages

groups of financial assets to achieve its business objective.

The Group deems its current investment holdings to be held within a business model

whose objective is achieved by both collecting contractual cash flows and selling

financial assets. On the other hand the Company holds financial assets to generate

returns and provide a capital base to provide for settlement of claims as they arise.

iii. Financial assets – Impairment

IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with a forward-looking ‘expected

credit loss’ model. This will require considerable judgement about how changes in

economic factors affect ECL, which will be determined on a probability-weighted basis.

The new impairment model will apply to the Group’s financial assets measured at

amortised cost, debt investments at FVOCI and lease and other receivables.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

1.Basis of preparation - continued

Standards, interpretations and amendments to published standards effective before

2022 for which the Group elected for the temporary exemption - continued

a. IFRS 9 Financial Instruments - continued

iii. Financial assets - Impairment - continued

IFRS 9 requires a loss allowance to be recognised at an amount equal to either 12-

month ECL or lifetime ECL. Lifetime ECL are the ECL that result from all possible

default events over the expected life of the financial instrument; 12-month ECL are the

portion of lifetime ECL that result from default events on a financial instrument that are

possible within the 12 months after the reporting date.

The Group is still assessing the most relevant impairment methods available for its

financial assets.

When determining whether the credit risk on a financial instrument has increased

significantly since initial recognition, the Group will consider reasonable and

supportable information that is relevant and available without undue cost or effort. This

will include both qualitative and quantitative information and analysis based on the

Group’s experience, expert credit assessment and forward-looking information. As a

backstop, the Group will consider that a significant increase in credit risk occurs no

later than when an asset is more than 90 days past due.

iv. Measurement of Expected Credit Losses (ECL)

ECL are a probability-weighted estimate of credit losses. Credit losses are measured as

the present value of all cash shortfalls (i.e. the difference between the cash flows due to

the Group in accordance with the contract and the cash flows that the Group expects to

receive).

For each exposure subject to impairment, an expected credit loss shall be calculated for

this purpose.

v. Transition

The general principle in IFRS 9 is for retrospective application in accordance with IAS

8 Accounting Policies, Changes in Accounting Estimates and Errors. The transition

requirements refer to the date of initial application (DIA), which is the beginning of the

reporting period in which an insurer first applies IFRS 9. IFRS 9 contains certain

exemptions from full retrospective application. These include an exemption from the

requirement to restate comparative information about classification and measurement,

including impairment. If an insurer does not restate prior periods, then opening retained

earnings (or other components of equity, as appropriate) for the annual reporting period

that includes the DIA is adjusted for any difference between the carrying amounts of

financial instruments before adoption of IFRS 9 and the new carrying amounts.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

1.Basis of preparation - continued

Standards, interpretations and amendments to published standards effective before

2022 for which the Group elected for the temporary exemption - continued

a. IFRS 9 Financial Instruments - continued

v. Transition - continued

The Group is considering the implications of the standard on transition and its impact

on the financial results and position. The Group is not illustrating quantitative figures as

assessments are ongoing thereby resulting in limited use of such information.

Standards, interpretations and amendments to published standards that are not yet

effective

A number of new standards are effective for annual periods beginning after 1 January

2023 and earlier application is permitted. However, the Group has not early adopted the

new standards in preparing these consolidated financial statements.

The Group will apply IFRS 17 Insurance Contracts and IFRS 9 Financial Instruments

for the first time on 1 January 2023. These standards will bring significant changes to

the accounting for insurance and reinsurance contracts and financial instruments and

are expected to have a material impact on the Group’s consolidated financial statements

in the period of initial application.

IFRS 17, published on 18 May 2017, and amended on 25 June 2020, supersedes IFRS 4

Insurance Contracts and is applicable for annual periods beginning on or after 1 January

2023, with early adoption permitted. IFRS 17 was adopted by the European Union

(‘EU’) on 19 November 2021, with an exemption regarding the annual cohort

requirement. The current standard on insurance contracts, IFRS 4, has been amended

accordingly, extending to 2023 the temporary exemption for qualifying insurers to

apply IFRS 9. The Group has not early adopted IFRS 17.

a. Estimated impact of the adoption of IFRS 17 and IFRS 9

The Group is not in a position to disclose known or reasonably estimable information

relevant to assessing the possible financial impact that the application of IFRS 17 and

IFRS 9 will have on its financial statements in the period of initial application when the

2022 financial statements were authorised for issue.

b. IFRS 17 Insurance Contracts

The nature of the changes in accounting policies, to the extent that the Group has

assessed so far, are summarised below.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

1.Basis of preparation - continued

Standards, interpretations and amendments to published standards that are not yet

effective - continued

b. IFRS 17 Insurance Contracts - continued

i. Identifying contracts in the scope of IFRS 17

IFRS 17 establishes principles for the recognition, measurement, presentation and

disclosure of insurance contracts, reinsurance contracts and to investment contracts

with discretionary participation features (‘DPF’).

When identifying contracts in the scope of IFRS 17, the Group will have to assess

whether a set or series of contracts needs to be treated as a single contract and whether

goods and services components, embedded derivatives and investment components

within particular contracts must be separated and accounted for under another standard.

The Group is assessing the impact of the scope changes arising from the application of

these requirements as compared to IFRS 4.

ii. Level of aggregation

Under IFRS 17, insurance contracts and investment contracts with DPF are aggregated

into groups for measurement purposes. Groups of contracts are determined by first

identifying portfolios of contracts, each comprising contracts subject to similar risks

and managed together. Contracts in different product lines or issued by different Group

entities are expected to be in different portfolios. Each portfolio is then divided into

annual cohorts (i.e., by year of inception) and each annual cohort into three groups:

•any contracts that are onerous on initial recognition.

•any contracts that, on initial recognition, have no significant possibility of becoming

onerous subsequently; and

•any remaining contracts in the annual cohort.

The Group is assessing the possibility to align annual cohorts with its financial year

(i.e. calendar year), and is presently in the process of formulating the methodology for

allocating contracts to profitability groups.

IFRS 17 as adopted by the EU provides an optional exemption from applying this

annual cohort requirement to a) groups of insurance contracts with direct participation

features and groups of investment contracts with DPF with cash flows that affect or are

affected by cash flows to policyholders; as well as b) groups of insurance contracts that

are managed across generations of contracts and meet specific conditions for the

application of the matching adjustment. This exemption will be reviewed by the EU by

the end of 2027, taking into account the outcome of the IASB’s post-implementation

review of IFRS 17. The Group intends to apply the exemption from annual cohorts to

its with-profits portfolio.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

1.Basis of preparation - continued

Standards, interpretations and amendments to published standards that are not yet

effective - continued

b. IFRS 17 Insurance Contracts - continue

ii. Level of aggregation - continued

Contracts within a portfolio that would fall into different groups only because law or

regulation specifically constrains the Group’s practical ability to set a different price or

level of benefits for policyholders with different characteristics are included in the same

group. The Group will consider this for contracts issued by the Group that are required

by EU regulation to be priced on a gender-neutral basis.When a contract is recognised,

it is added to an existing group of contracts or, if the contract does not qualify for

inclusion in an existing group, it forms a new group to which future contracts may be

added. Groups of reinsurance contracts will also need to be established and the Group

intends to establish these such that each group comprises a single reinsurance contract.

The level of aggregation requirements of IFRS 17 limit the offsetting of gains on

groups of profitable contracts, which for general business insurance contracts are

generally released over the duration of the contract, against losses on groups of onerous

contracts, which are recognised immediately. Additionally, for life contracts these are

generally deferred over time via a Contractual Service Margin (‘CSM’) under the

General Measurement Model (‘GMM’) or Variable Fee Approach (‘VFA’), against

losses on groups of onerous contracts, which are recognised immediately.

iii. Contract boundaries

Under IFRS 17, the measurement of a group of contracts includes all of the future cash

flows within the boundary of each contract in the group. Compared with the current

accounting, the Group does not expect the IFRS 17 contract boundary requirements to

significantly change the scope of cash flows to be included in the measurement of

existing and future recognised contracts. The period covered by the premiums within

the contract boundary is the ‘coverage period’, which is relevant when applying a

number of requirements in IFRS 17.

Insurance contracts

For insurance contracts cash flows are within the contract boundary if they arise from

substantive rights and obligations that exist during the reporting period in which the

group can compel the policyholder to pay premiums or has a substantive obligation to

provide services (including insurance coverage). A substantive obligation to provide

services ends when:

•the Group has the practical ability to reassess the risks of the particular

policyholder and can set a price or level of benefits that fully reflects those

reassessed risks; or

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

1.Basis of preparation - continued

Standards, interpretations and amendments to published standards that are not yet

effective - continued

b. IFRS 17 Insurance Contracts - continued

iii. Contract boundaries - continued

Insurance contracts - continued

•the Group has the practical ability to reassess the risks of the portfolio that

contains the contract and can set a price or level of benefits that fully reflects the

risks of that portfolio, and the pricing of the premiums up to the reassessment date

does not take into account risks that relate to periods after the reassessment date.

Investment contracts with DPF

For investment contracts with DPF, the cash flows are within the contract boundary if

they result from a substantive obligation of the Group to deliver cash at a present or

future date. The Group has no substantive obligation to deliver cash if it has the

practical ability to set a price for the promise to deliver the cash that fully reflects the

amount of cash promised and related risks.

Reinsurance contracts

For reinsurance contracts, cash flows are within the contract boundary if they arise from

substantive rights and obligations that exist during the reporting period in which the

Group is compelled to pay amounts to the reinsurer or has a substantive right to receive

services from the reinsurer. A substantive right to receive services from the reinsurer

ends when the reinsurer:

•has the practical ability to reassess the risks transferred to it and can set a price or

level of benefits that fully reflects those reassessed risks; or

•has a substantive right to terminate the coverage.

Reinsurance contracts - Non-Life Insurance contracts

Under IFRS 17, cash flows arising from underlying contracts expected to be issued and

ceded after the measurement date, in addition to those arising from underlying contracts

already ceded, may be within the boundaries of the reinsurance contracts and may have

to be considered and estimated in their measurement.

Reinsurance contracts - Life Insurance contracts

Reinsurance contracts cover protection contracts underwritten within the annual term of

the reinsurance contract on a risk-attaching basis. Given the contract boundary of the

underlying term contracts is equal to the lifetime of the policy, the contract boundary of

the reinsurance contract will end once the underlying protection contracts end.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

1.Basis of preparation - continued

Standards, interpretations and amendments to published standards that are not yet

effective - continued

b. IFRS 17 Insurance Contracts - continued

iv. Measurement Overview

IFRS 17 introduces a measurement model based on the estimates of the present value of

future cash flows that are expected to arise as the Group fulfills the contracts, an

explicit risk adjustment for non-financial risk and a Contractual Service Margin (CSM).

Within IFRS 17 there are three possible measurement models: the General

Measurement Model (GMM), the Premium Allocation Approach (PAA) and the

Variable Fee Approach (VFA). The GMM is the “default” measurement model for

insurance contracts. For contracts with a coverage period shorter or equal to one year,

there is the option to choose PAA as a simplified measurement model. For contracts

with direct participation features it is mandatory to use VFA. For contracts that do not

classify as direct participation, it is not allowed to use VFA.

v. Measurement – Non-Life Contracts

The Company is currently assessing whether its contracts are PAA eligible, and it is

expected that it will apply the PAA to most insurance and reinsurance contracts held

because the following criteria are expected to be met at inception:

•Insurance contracts and loss-occurring reinsurance contracts: The coverage period

of each contract in the group is one year or less.

•Risk-attaching reinsurance contracts: The Company is currently testing if the

resulting measurement of the asset for remaining coverage would differ materially

from the result of applying the accounting policies described above.

The measurement principles of the PAA differ from the ‘earned premium approach’

used by the Company under current IFRS 4 in the following key areas:

•The liability for remaining coverage reflects premiums received less deferred

insurance acquisition cash flows and less amounts recognised in revenue for

insurance services provided. The word ‘received’ is interpreted literally, rather than

interpreted to mean amounts due. Under IFRS 4, the unearned premium provision

would have often been set up based on premiums receivable, with a separate asset

recorded for the premium receivable in the balance sheet.

•Measurement of the liability for remaining coverage includes an adjustment for the

time value of money and the effect of financial risk where the premium due date

and the related period of services are more than 12 months apart.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

1.Basis of preparation - continued

Standards, interpretations and amendments to published standards that are not yet

effective - continued

b. IFRS 17 Insurance Contracts - continued

v. Measurement – Non-Life Contracts - continued

•Measurement of the liability for remaining coverage involves an explicit evaluation

of risk adjustment for non-financial risk when a group of contracts is onerous in

order to calculate a loss component (previously these may have formed part of the

unexpired risk reserve provision)

•Measurement of the liability for incurred claims (previously claims outstanding and

incurred-but-not- reported (IBNR) claims) is determined on a discounted

probability-weighted expected value basis and includes an explicit risk adjustment

for non-financial risk. The liability includes the Company’s obligation to pay other

incurred insurance expenses.

•In the statement of financial position, deferred acquisition cost (DAC) and

insurance-related receivables will no longer be presented separately, but as part of

the insurance liabilities. This will lead to a reduction in total assets, offset by a

reduction in total liabilities, with only limited impact on equity.

Liability for remaining coverage on initial recognition and subsequent measurement

On initial recognition of each group of Non-life insurance contracts, the carrying

amount of the liability for remaining coverage is measured at the premiums received on

initial recognition less any insurance acquisition cash flows at that date.

Subsequently, the carrying amount of the liability for remaining coverage is increased

by any further premiums received and decreased by the amount recognised as insurance

revenue for services provided. The Company expects that the time between providing

each part of the services and the related premium due date will be no more than a year.

Accordingly, as permitted under IFRS 17, the Company will not adjust the liability for

remaining coverage to reflect the time value of money and the effect of financial risk.

If at any time before and during the coverage period, facts and circumstances indicate

that a group of contracts is onerous, then the Company will recognise a loss in profit or

loss and increase the liability for remaining coverage to the extent that the current

estimates of the fulfillment cash flows that relate to remaining coverage exceed the

carrying amount of the liability for remaining coverage.

The Company will recognise the liability for incurred claims of a group of contracts at

the amount of the fulfillment cash flows relating to incurred claims. The future cash

flows will be discounted (at current rates).

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

1.Basis of preparation - continued

Standards, interpretations and amendments to published standards that are not yet

effective - continued

b. IFRS 17 Insurance Contracts - continued

v. Measurement – Non-Life Contracts - continued

Significant judgement and estimates

Estimates of future cash flows

In estimating future cash flows, the Company will incorporate, in an unbiased way, all

reasonable and supportable information that is available without undue cost or effort at

the reporting date. This information includes both internal and external historical data

about claims and other experience, updated to reflect current expectations of future

events.

The estimates of future cash flows will reflect the Company’s view of current

conditions at the reporting date, as long as the estimates of any relevant market

variables are consistent with observable market prices.

Cash flows within the boundary of a contract are those that relate directly to the

fulfilment of the contract, including those for which the Company has discretion over

the amount or timing. These include payments to (or on behalf of) policyholders,

insurance acquisition cash flows and other costs that are incurred in fulfilling contracts.

Insurance acquisition cash flows and other costs that are incurred in fulfilling contracts

comprise both direct costs and an allocation of fixed and variable overheads.

Discount rates

Due to the low duration of non-life portfolios held by the Company, the Euro risk-free

rate (RFR) as published monthly by EIOPA are likely to be applied without considering

any type of additional differential.

Risk adjustment for non-financial risk

Risk adjustments for non-financial risk will be determined to reflect the compensation

that the Company would require for bearing non-financial risk and its degree of risk

aversion. They will be allocated to groups of contracts based on an analysis of the

respective risk profiles. Applying a confidence level technique, the Company will

estimate the probability distribution of the expected present value of the future cash

flows from the contracts at each reporting date and calculate the risk adjustment for

non-financial risk as the excess of the value at risk at the target confidence level over

the expected present value of the future cash flows allowing for the associated risks

over all future years.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

1.Basis of preparation - continued

Standards, interpretations and amendments to published standards that are not yet

effective - continued

b. IFRS 17 Insurance Contracts - continued

vi. Measurement – Life Contracts

IFRS 17 introduces a default measurement model, known as the GMM. The GMM is

based on the estimate of future cash flows that are expected to arise as the Group fulfills

the in scope contracts, including an explicit risk adjustment for non-financial risk, and

the resultant CSM. In arriving at its future cash flows, the Group will need to estimate

the expected value (i.e. the probability-weighted mean) of the full range of possible

outcomes. The CSM of a group of contracts represents the unearned profit that the

Group will recognise as it provides services under those contracts. The CSM for issued

contracts cannot be negative (at inception or subsequently), with any negative amount

(known as an onerous ‘loss component’) recorded in profit or loss immediately. The

Group is looking into the relevant measurement models for its protection and

reinsurance contracts held.

Contracts with direct participating features are subject to certain different requirements.

These contracts are substantially investment-related service contracts under which the

Group promises an investment return based on underlying items. They are contracts for

which, at inception:

•the contractual terms specify that the policyholder participates in a share of a clearly

identified pool of underlying items;

•the Group expects to pay to the policyholder an amount equal to a substantial share

of the fair value returns on the underlying items; and

•the Group expects a substantial proportion of any change in the amounts to be paid

to the policyholder to vary with the change in fair value of the underlying items.

The Group issues with profits and unit linked contracts that meet the above criteria and

is looking into the possibility of measuring these contracts using the VFA.

The Premium Allocation Approach (‘PAA’) is an optional simplified measurement

model in IFRS 17 that is available for insurance and reinsurance contracts that meet the

eligibility criteria (i.e., if the measurement of the liability for remaining coverage

provides a measurement that is not materially different from the GMM) or if the

coverage period is one year or less.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

1.Basis of preparation - continued

Standards, interpretations and amendments to published standards that are not yet

effective - continued

b. IFRS 17 Insurance Contracts - continued

vi. Measurement – Life Contracts - continued

i) Estimate of future cash flows

In estimating future cash flows, the Group will incorporate, in an unbiased way, all

reasonable and supportable information that is available without undue cost or effort at

the reporting date. This information includes both internal and external historical data

about claims and other experience, updated to reflect current expectations of future

events.

The estimates of future cash flows will reflect the Group’s view of current conditions at

the reporting date, as long as the estimates of any relevant market variables are

consistent with observable market prices.

When estimating future cash flows, the Group will take into account current

expectations of future events that might affect those cash flows. However, expectations

of future changes in legislation that would change or discharge a present obligation or

create new obligations under existing contracts will not be taken into account until the

change in legislation is substantively enacted.

Cash flows within the boundary of a contract are those that relate directly to the

fulfillment of the contract, including those for which the Group has discretion over the

amount or timing. These include payments to (or on behalf of) policyholders, insurance

acquisition cash flows and other costs that are incurred in fulfilling contracts. Insurance

acquisition cash flows and other costs that are incurred in fulfilling contracts comprise

both direct costs and an allocation of fixed and variable overheads.

Cash flows will be attributed to acquisition activities, other fulfillment activities and

other activities at local entity level using allocation techniques depending on the nature

of the expense. Cash flows attributable to acquisition and other fulfillment activities

will be allocated to groups of contracts using methods that are systematic and rational

and will be consistently applied to all costs that have similar characteristics.

Management is performing an analysis on all the expenses to determine which expenses

are to be considered directly attributable and thus would impact the CSM, and those not

directly attributable which are to be expensed directly to P&L.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

1.Basis of preparation - continued

Standards, interpretations and amendments to published standards that are not yet

effective - continued

b. IFRS 17 Insurance Contracts - continued

vi. Measurement – Life Contracts - continued

ii) Discount rates

The requirement to measure liabilities for insurance contracts and investment contracts

with DPF using current discount rates will differ slightly from the Group’s current

practice. The Group will be using the EIOPA risk free rates as the base of the Risk Free

Rate curve. The Group is considering the use of the illiquidity premium to discount the

illiquid liabilities, as applicable.

iii) Risk adjustment for non-financial risk

The risk adjustments for non-financial risk reflects the compensation that the Group

would require for bearing non-financial risk and will align to its risk appetite. The

Group is considering to use value at risk (‘VaR’) methodology to derive the risk

adjustment for its business. In the future, the financial statements will disclose the

entity’s confidence level.

iv) CSM

The CSM is a component of the carrying amount of the asset or liability for a group of

insurance contracts representing the unearned profit that the entity will recognise as it

provides insurance contract services under the insurance contracts in the group. The

Group will recognise the CSM for a group of insurance contracts in its profit or loss, to

reflect insurance contract services transferred to policyholders during the period based

on coverage units.

vii. Presentation and disclosure

IFRS 17 will significantly change how insurance contracts, reinsurance contracts and

investment contracts with DPF are presented and disclosed in the Group’s consolidated

financial statements.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

1.Basis of preparation - continued

Standards, interpretations and amendments to published standards that are not yet

effective - continued

b. IFRS 17 Insurance Contracts - continued

vii. Presentation and disclosure - continued

Under IFRS 17, portfolios of insurance contracts and investment contracts with DPF

that are assets and those that are liabilities, and portfolios of reinsurance contracts that

are assets and those that are liabilities, are presented separately in the statement of

financial position. All rights and obligations arising from a portfolio of contracts will be

presented on a net basis for the Company and on an aggregate basis for the Group;

therefore, balances such as insurance receivables and payables will no longer be

presented separately. Any assets or liabilities recognised for cash flows arising before

the recognition of the related group of contracts (including any assets for insurance

acquisition cash flows) will also be presented in the same line item as the related

portfolios of contracts.

Under IFRS 17, amounts recognised in the statements of profit or loss and statements of

comprehensive income are disaggregated into:

(a) an insurance service result, comprising insurance revenue and insurance service

expenses; and

(b) insurance finance income or expenses.

Amounts from reinsurance contracts will be presented separately.

There will also be additional notes to the financial statements, including detailed

reconciliations. The separate presentation of underwriting and financial results under

IFRS 17 will provide added transparency about the sources of profits and quality of

earnings backed up by additional notes and reconciliations.

Disclosure

IFRS 17 requires extensive new disclosures about amounts recognised in the financial

statements, including detailed reconciliations of contracts, effects of newly recognised

contracts and information on the expected CSM emergence pattern, as well as

disclosures about significant judgements made when applying IFRS 17. There will also

be expanded disclosures about the nature and extent of risks from insurance contracts,

reinsurance contracts and investment contracts with DPF. Disclosures will generally be

made at a more granular level than under IFRS 4, providing more transparent

information for assessing the effects of contracts on the financial statements.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

1.Basis of preparation - continued

Standards, interpretations and amendments to published standards that are not yet

effective - continued

b. IFRS 17 Insurance Contracts - continued

viii. Transition

IFRS 17 must be applied retrospectively and consequently the Group will need to

restate the opening Statement of financial position (i.e. at 1 January 2022) as well as the

Statement of profit or loss for 2022 and Statement of financial position as at 31

December 2022. The standard must be applied using a fully retrospective approach

(‘FRA’), unless impracticable, in which case two options are possible:

•the modified retrospective approach (‘MRA’): this approach is based on

maximising the Group’s use of reasonable and supportable information available

without undue cost and effort to the entity, with certain modifications permitted to

the extent that FRA is not possible. The MRA has the objective to achieve the

closest outcome to the FRA as possible; or

•the fair value approach (‘FVA’): the CSM is determined as the positive difference

between the fair value determined in accordance with IFRS 13 ‘Fair Value

Measurement' and the fulfillment cash flows at the transition date.

Life Contracts

At the transition date (i.e. 1 January 2022), the Group will:

•identify, recognise and measure each group of insurance contracts, reinsurance

contracts and investment contracts with DPF as if IFRS 17 had always been applied;

•identify, recognise and measure any assets for insurance acquisition cash flows as if

IFRS 17 had always been applied, except that they will not be tested for

recoverability before 1 January 2022;

•derecognise previously reported balance that would not have existed if IFRS 17 had

always been applied; and

•recognise in equity, on a net basis, any differences between amounts recognised

under IFRS 4 and other applicable standards and IFRS 17.

Given the long term nature of life contracts, it is not practicable for the fully

retrospective approach to be adopted for all cohorts.Similarly, investment contracts with

DPF are generally long-term in nature and it may not be practicable to apply the fully

retrospective approach for all cohorts. Management is currently exploring the other

transition options.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

1.Basis of preparation - continued

Standards, interpretations and amendments to published standards that are not yet

effective - continued

b. IFRS 17 Insurance Contracts - continued

viii. Transition - continued

Life Contracts - continued

As explained above, IFRS 17 differs from IFRS 4 in a number of ways. The Group

expects that two of the largest differences will pertain to the value of in-force business

and the measurement of its in-scope contracts in accordance with the requirements of

IFRS 17. The value of in-force business will be derecognised upon transition to IFRS

17 leading to a reduction in equity (undistributable reserves). On the other hand, the

impact of the measurement of in-scope contracts in accordance with IFRS 17 is still to

be determined.

Non-Life Contracts

Changes in accounting policies resulting from the adoption of IFRS 17 are likely to be

applied using a full retrospective approach to the extent practicable.

This implies that:

•Each group of contracts must be identified, recognized, and measured as if IFRS 17

had always applied.

•Balances that would not exist had IFRS 17 always applied shall be derecognised

from the financial statements, and

•Any net difference shall be recorded in equity.

c. IFRS 17 and IFRS 9 implementation program

In conjunction to the qualitative impacts described above, the Group is currently

assessing the quantitative impact of the application of IFRS 17 and IFRS 9. The final

figures will also depend on the application of key systems being provided by third party

service providers and guidance by MAPFRE SA.

Although IFRS 17 and IFRS 9 implementation projects have made significant progress,

as of the date of the publication of these financial statements, it is not practicable to

reliably quantify the effects on the financial statement mainly because;

•The assessments made by the Group on key IFRS 17 and IFRS 9 topics are not

finalised and therefore may be subject to adjustment.

•Implementing the new standard will require the Group to revise certain accounting

processes and internal controls and these changes are not yet complete.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

1.Basis of preparation - continued

Standards, interpretations and amendments to published standards that are not yet

effective - continued

c. IFRS 17 and IFRS 9 implementation program - continued

Transformation risk is a material risk for the group, with a number of significant change

programmes under way which if not delivered to defined timelines, scope and cost may

negatively impact its operational capability, control environment, reputation, and ability

to deliver its strategy and maintain market competitiveness.

The Group’s current portfolio of transformation and significant change programmes

include the continued implementation of a core transactional system; the expansion of

the Group’s digital capabilities and use of technology, platforms and analytics; and

improvement of operational processes leading to business efficiencies.

The Group therefore aims to ensure that, for both transformation and strategic

initiatives, strong programme governance is in place with adequate support from third

party service providers to ensure that the set targets for implementation are met both in

terms of timelines and budgeted costs.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

2.Accounting policies

The principal accounting policies adopted in the preparation of these financial

statements are set out below. These policies have been consistently applied to all the

years presented, unless otherwise stated.

2.1Consolidation

(a)Subsidiary undertakings

The consolidated financial statements incorporate the assets, liabilities and results of

the Company and its subsidiary (or group) undertakings drawn up to 31 December each

year. Subsidiary undertakings are those companies over which the Group has control,

either by way of majority shareholding, through contractual agreements with the other

vote holders of the investee or rights arising from other contractual agreements, giving

it the power to govern the financial and operating policies of the investee. Specifically,

the Group controls an investee if and only if the Group has:

•Power over the investee (i.e. existing rights that give it the current ability to direct

the relevant activities of the investee);

•Exposure, or rights, to variable returns from its involvement with the investee; and

•The ability to use its power over the investee to affect its returns.

The Group re-assesses whether or not it controls an investee if facts and circumstances

indicate that there are changes to one or more of the three elements of control.

Consolidation of a subsidiary begins when the Group obtains control over the

subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities,

income and expenses of a subsidiary acquired or disposed of during the year are

included in the statement of financial position and the statement of comprehensive

income from the date the Group gains control until the date the Group ceases to control

the subsidiary.

The Group applies the acquisition method to account for business combinations. The

consideration transferred for the acquisition of a subsidiary is the fair value of the assets

transferred, the liabilities incurred to the former owners of the acquiree and the equity

interests issued by the Group. The consideration transferred includes the fair value of

any asset or liability resulting from a contingent consideration arrangement. Identifiable

assets acquired and liabilities and contingent liabilities assumed in a business

combination are measured initially at their fair values at the acquisition date. The Group

recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition

basis, either at fair value or at the non-controlling interest’s proportionate share of the

recognised amounts of acquiree’s identifiable net assets.

Acquisition-related costs are expensed as incurred.

If the business combination is achieved in stages, the acquisition date fair value of the

acquirer’s previously held equity interest in the acquiree is re-measured to fair value at

the acquisition date through profit or loss.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

2.Accounting policies - continued

2.1Consolidation - continued

(a)Subsidiary undertakings - continued

Goodwill is initially measured as the excess of the aggregate of the consideration

transferred and the fair value of non-controlling interest over the net identifiable assets

acquired and liabilities assumed. If this consideration is lower than the fair value of the

net assets of the subsidiary acquired, the difference is recognised in profit or loss.

Profit or loss and each component of other comprehensive income are attributed to the

equity holders of the parent of the Group and to the non-controlling interests, even if

this results in the non-controlling interests having a deficit balance. When necessary,

adjustments are made to the financial statements of subsidiaries to bring their

accounting policies in line with the Group’s accounting policies. All intra-group assets

and liabilities, equity, income, expenses and cash flows relating to transactions between

members of the Group are eliminated in full on consolidation. A list of the Group’s

subsidiaries is set out in Note 20.

(b)Associated undertakings

An associate is an entity over which the Group has significant influence. Significant

influence is the power to participate in the financial and operating policy decisions of

the investee, but is not control or joint control over those policies. The considerations

made in determining significant influence are similar to those necessary to determine

control over subsidiaries. Except for investment-linked insurance funds, interests in

associated undertakings are accounted for by the equity method of accounting and are

initially recognised at cost and the carrying amount is increased or decreased to

recognise the investor’s share of profit or loss of the investee after the date of

acquisition.

The Group’s investment in associates includes goodwill (net of any accumulated

impairment loss) identified on acquisition. Equity accounting involves recognising in

the profit or loss the share of the associated undertaking’s post-acquisition profits or

losses. The interest in the associated undertaking is carried in the statements of

financial position at an amount that reflects the share of the net assets of the associated

undertaking. When the Group’s share of losses in an associate equals or exceeds its

interest in the associate, including any other unsecured receivables, the Group does not

recognise further losses, unless it has incurred obligations or made payments on behalf

of the associate.

Intra-group gains on transactions between the Group and its associates are eliminated to

the extent of the Group’s interest in the associates. Intra-group losses are also

eliminated unless the transaction provides evidence of an impairment of the asset

transferred. Accounting policies for associated undertakings are changed where

necessary to ensure consistency with the policies adopted by the Group. A list of the

Group’s associated undertakings is set out in Note 21.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

2. Accounting policies - continued

2.1Consolidation - continued

(b)Associated undertakings - continued

Interests in associated undertakings that are allocated to the insurance fund are

designated as financial assets at fair value through profit or loss. They are accounted

for in accordance with the recognition and measurement principles described in Note

2.9.

2.2Segment reporting

Operating segments are reported in a manner consistent with the internal reporting

provided to the chief operating decision-maker. The chief operating decision-maker,

responsible for allocating resources and assessing performance of the operating

segments, has been identified as the executive management which implements the

strategic decisions taken by the Board. In identifying the Group’s business segments,

the chief operating decision-maker is also guided by the Regulations under the

Insurance Business Act, 1998 (“Insurance Regulations”) on the disclosure requirements

relevant to specified insurance classes of business.

2.3Foreign currency translation

Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured

using the currency of the primary economic environment in which the entity operates

(the ‘functional currency’). The euro is the Group’s and Company’s functional and

presentation currency.

Transactions and balances

Transactions in foreign currencies have been converted into the functional currency at

the rates of exchange ruling on the date of the transaction or valuation where items are

re-measured. Foreign exchange gains and losses resulting from the settlement of such

transactions and from the translation at year-end exchange rates of monetary assets and

liabilities denominated in foreign currencies are recognised in the profit or loss account.

All foreign exchange gains and losses that relate to net claims incurred are presented in

the technical profit or loss account within ‘claims incurred’. All other foreign exchange

gains and losses are presented in the profit or loss account within ‘investment income’

or ‘investment expense’.

Translation differences on non-monetary items held at fair value through profit or loss,

are reported as part of the fair value gain or loss in the profit or loss. Translation

differences on non-monetary financial assets, such as equities classified as other

available-for-sale financial assets, are included in the fair value reserve in other

comprehensive income.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

2.Accounting policies - continued

2.4Intangible assets

Value of in-force business

The value of in-force business is determined by the directors after considering the

advice of the Group’s Approved Actuary. The valuation represents the discounted value

of projected future transfers to shareholders from contracts in force at the year end, after

making a provision for taxation. In determining this valuation, assumptions relating to

future mortality, persistence and levels of expenses are based on experience of the type

of business concerned.

Gross investment returns and asset allocations assumed vary depending upon the mix of

investments held by the Group and expected market conditions. Annual movements in

the value of the in-force business are credited or debited to other comprehensive

income. Note 16 contains further information in relation to this asset.

Computer software

Acquired computer software licences are measured at cost less any accumulated

amortization and any accumulated impairment losses. Acquired computer software

licenses are capitalised on the basis of the costs incurred to acquire and bring to use the

specific software. These costs are amortised using the straight-line method over their

useful lives, not exceeding a period of ten years. All costs associated with maintaining

computer software programmes are recognised as an expense as incurred.

Deferred policy acquisition costs – long term contracts

Incremental costs that are incurred in acquiring new investment contracts without DPF

are capitalised as deferred acquisition costs (‘DAC’). The DAC is subsequently

amortised over the life of the contracts as follows:

- For long term investment contracts with a fixed maturity date, DAC is amortised

over the life of the contract.

- For long term investment contracts with no fixed date of maturity, DAC is amortised

over the estimated useful life of the contract. This basis is reviewed periodically with

reference to the historical experience of surrenders for these contracts.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

2.Accounting policies - continued

2.5Property, plant and equipment

All property, plant and equipment is initially recorded at historical cost. Freehold land

and buildings are subsequently shown at fair value based on periodic valuations by

external independent valuers, less subsequent depreciation for buildings. Valuations are

carried out on a regular basis such that the carrying amount of property does not differ

materially from that which would be determined using fair values at the end of the

reporting period. Any accumulated depreciation at the date of revaluation is eliminated

against the gross carrying amount of the asset, and the net amount is restated to the re-

valued amount of the asset. All other property, plant and equipment is stated at

historical cost less depreciation and impairment losses. Historical cost includes

expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate

asset, as appropriate, only when it is probable that future economic benefits associated

with the item will flow to the Group and the cost of the item can be measured reliably.

The carrying amount of the replaced part is derecognised. All other repairs and

maintenance costs are charged to the profit or loss account during the financial period

in which they are incurred.

Increases in the carrying amount arising on revaluation of land and buildings are

credited to other comprehensive income as other reserves in shareholders’ equity.

Decreases that offset previous increases of the same asset are charged against other

comprehensive income as other reserves directly in equity; all other decreases are

charged to the profit or loss account. Each year the difference between depreciation

based on the revalued carrying amount of the asset charged to the profit or loss account

and depreciation based on the asset’s original cost is transferred from ‘other reserves’ to

‘retained earnings’.

Freehold land is not depreciated as it is deemed to have an indefinite life. Depreciation

on other assets is calculated using the straight-line method to allocate their cost or

revalued amounts to their residual values over their estimated useful lives as follows:


	Buildings	100 years
	Leasehold improvements	10 - 40 years
	Motor vehicles	5 years
	Furniture, fittings and equipment	3 - 10 years

The assets’ residual values and useful lives are reviewed at the end of each reporting

period and adjusted if appropriate.

An asset’s carrying amount is written down immediately to its recoverable amount if

the asset’s carrying amount is greater than its estimated recoverable amount (accounting

policy 2.10).

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

2.Accounting policies - continued

2.5Property, plant and equipment - continued

Gains and losses on disposals are determined by comparing proceeds with carrying

amounts and are included in the profit or loss account. When revalued assets are sold,

the amounts included in other reserves relating to the assets are transferred to retained

earnings.

2.6Investment property

Freehold and leasehold properties treated as investment property principally comprise

office and other commercial buildings that are held for long term rental yields and that

are not occupied by the Group or Company respectively. Investment property is initially

measured at cost and subsequently carried at fair value. Fair value is based on active

market prices, adjusted, if necessary for any difference in the nature, location or

condition of the specific asset. If this information is not available, the Group uses

alternative valuation methods such as discounted cash flow projections or recent prices

in less active markets. These valuations are prepared annually by a qualified valuation

expert. Investment property that is being redeveloped for continuing use as investment

property, or for which the market has become less active, continues to be measured at

fair value. Changes in fair values are reported in the profit or loss account.

If an investment property becomes owner-occupied, it is reclassified as property, plant

and equipment, and its fair value at the date of reclassification becomes its cost for

subsequent accounting purposes.

2.7Investments in subsidiary undertakings

In the Company’s financial statements, investments in subsidiary undertakings are

accounted for by the cost method of accounting less impairment.

Provisions are recorded where, in the opinion of the directors, at the end of a reporting

period, there is an impairment in value. Where there has been an impairment in the

value of an investment, it is recognised as an expense in the period in which the

impairment is identified or has occurred. If in a subsequent period, the amount of the

impairment loss decreases and the decrease can be related objectively to an event

occurring after the impairment was recognised, the previously recognised impairment

loss is reversed by adjusting the allowance account. The amount of the reversal is

recognised in the profit or loss account.

The dividend income from such investments is included in the profit or loss account in

the accounting year in which the Company’s rights to receive payment of any dividend

is established.

On disposal of an investment, the difference between the net disposal proceeds and the

carrying amount is charged or credited to the profit or loss account and included within

investment expense or income.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

2.Accounting policies - continued

2.8Investments in associated undertakings

In the Company’s financial statements, investments in associated undertakings are

accounted using the equity method. They are initially recognised at cost which includes

transaction costs. Subsequent to initial recognition the carrying amount is increased or

decreased to recognise the investor’s share of profit or loss. Distributions received from

an investee reduce the carrying amount of the investment. The changes in the investee’s

proportionate interest arising from changes in the investee’s other comprehensive

income, such as those arising from revaluation of property, plant and equipment and

from exchange translation differences are recognised in the other comprehensive

income.

2.9Financial assets

The Group classifies its financial assets (other than its investment in subsidiaries) into

the following categories: financial assets at fair value through profit or loss, other

available-for-sale investments and loans and receivables. The directors determine the

appropriate classification of financial assets at the time of purchase and re-evaluate such

designation at every reporting date.

Classification

▪Financial assets at fair value through profit or loss are part of a group of

investments that is managed on a portfolio basis and whose performance is

evaluated and reported internally on a fair value basis to the Board and relevant

key management personnel in accordance with a documented investment strategy.

Assets that are part of these portfolios are designated upon initial recognition at fair

value through profit or loss. Financial assets that are held to match insurance and

investment contracts liabilities are also designated at inception as fair value

through profit or loss to eliminate or significantly reduce the accounting mismatch

that would otherwise arise from measuring insurance assets or liabilities, or

recognising the gains and losses on them on different basis. Derivatives are also

classified at fair value through profit or loss.

▪Loans and receivables are non-derivative financial assets with fixed or

determinable payments that are not quoted in an active market, other than those

that the Group has designated at fair value through profit or loss. They include,

inter alia, reinsurers’ share of technical provisions, insurance and other

receivables, cash and cash equivalents in the statements of financial positions as

well as other financial investments (comprising deposits with credit institutions,

and loans) classified as loans and receivables within Note 22.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

2. Accounting policies - continued

2.9Financial assets - continued

Classification - continued

•Available-for-sale investments are those non-derivative financial assets that are

designated as available-for-sale or are not classified as (a) loans and receivables,

(b) held-to-maturity or (c) financial assets at fair value through profit or loss.

Recognition and measurement

All purchases and sales of investments are recognised on the trade date, which is the

date that the Group commits to purchase or sell the assets. All investments are initially

recognised at fair value plus, in the case of all financial assets not carried at fair value

through profit or loss, transaction costs that are directly attributable to their acquisition.

Financial assets are de-recognised when the rights to receive cash flows from them

have expired or where they have been transferred and the Group has also transferred

substantially all risks and rewards of ownership.

Financial assets at fair value through profit or loss and other available-for-sale

investments are subsequently re-measured at fair value. Loans and receivables are

carried at amortised cost using the effective interest method, less any provision for

impairment.

Realised and unrealised gains and losses arising from changes in the value of the

‘financial assets at fair value through profit or loss’ category are presented in the profit

or loss account in the period in which they arise.

Changes in the fair value of monetary and non-monetary securities classified as

available-for-sale are recognised in other comprehensive income. When securities

classified as available-for-sale are sold or impaired, the accumulated fair value

adjustments recognised in other comprehensive income are included in the profit or loss

account within investment income.

For financial instruments traded in active markets, the determination of fair values of

financial assets and financial liabilities is based on quoted market prices or dealer price

quotations. This includes listed equity securities and quoted debt instruments on major

exchanges. The quoted market price used for financial assets held by the Group is the

current bid price or closing price as appropriate. A financial instrument is regarded as

quoted in an active market if quoted prices are readily and regularly available from an

exchange, dealer, broker, industry group, pricing service or regulatory agency, and

those prices represent actual and regularly occurring market transactions on an arm’s

length basis. If the market for a financial asset is not active, the Group establishes fair

value by using valuation techniques. These include the use of recent arm’s length

transactions, reference to other instruments that are substantially the same or valued by

reference to the net assets of the underlying investment.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

2.Accounting policies - continued

2.9Financial assets - continued

Recognition and measurement - continued

Derivatives are recognised at fair value on the date on which a derivative contract is

entered into and are subsequently re-measured at their fair value. Fair values are

obtained from quoted market prices in active markets and other valuation techniques, as

appropriate. Subsequent changes in the fair value of any derivative instruments are

recognised immediately in the profit or loss account. All derivatives are carried as

assets when fair value is positive, and as liabilities when fair value is negative.

The Group enters into currency forward contracts to hedge the foreign exchange risk

arising on its investments denominated in a foreign currency. These transactions

provide effective economic hedges under the Group’s risk management policies.

However, hedge accounting under the specific rules in IAS 39 is not required because

the change in the value of the hedged financial instrument is recognised in the profit or

loss account.

2.10Impairment of assets

(a)Impairment of financial assets at amortised cost

The Group assesses at the end of each reporting period whether there is objective

evidence that a financial asset or group of financial assets is impaired. A financial asset

or group of financial assets is impaired and impairment losses are incurred only if there

is objective evidence of impairment as a result of one or more events that have occurred

after the initial recognition of the asset (“a loss event”) and that loss event (or events)

has an impact on the estimated future cash flows of the financial asset or group of

financial assets that can be reliably estimated.

Objective evidence that a financial asset or group of assets is impaired includes

observable data that comes to the attention of the Group about the following events:

i.significant financial difficulty of the issuer or debtor;

ii.a breach of contract, such as a default or delinquency in payments;

iii.it becoming probable that the issuer or debtor will enter bankruptcy or other

financial reorganisation;

iv.the disappearance of an active market for that financial asset because of

financial difficulties; or

v.observable data indicating that there is a measurable decrease in the estimated

future cash flow from a group of financial assets since the initial recognition

of those assets, although the decrease cannot yet be identified with the

individual financial assets in the Group.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

2. Accounting policies - continued

2.10Impairment of assets - continued

(a)Impairment of financial assets at amortised cost - continued

The Group first assesses whether objective evidence of impairment exists individually

for financial assets that are individually significant. If the Group determines that no

objective evidence of impairment exists for an individually assessed financial asset,

whether significant or not, it includes the asset in a group of financial assets with

similar credit risk characteristics and collectively assesses them for impairment. Assets

that are individually assessed for impairment and for which an impairment loss is or

continues to be recognised are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss has been incurred on loans and

receivables carried at amortised cost, the amount of the loss is measured as the

difference between the asset’s carrying amount and the present value of estimated

future cash flows discounted at the financial asset’s original effective interest rate. The

carrying amount of the asset is reduced through the use of an allowance account and the

amount of the loss is recognised in the profit or loss account.

If in a subsequent period, the amount of the impairment loss decreases and the decrease

can be related objectively to an event occurring after the impairment was recognised

(such as improved credit rating), the previously recognised impairment loss is reversed

by adjusting the allowance account. The amount of the reversal is recognised in the

profit or loss account.

(b)Assets classified as investments in associated undertakings/other available-for-sale

investments

The Group assesses at end of the reporting period whether there is objective evidence

that an available-for-sale financial asset is impaired, including in the case of equity

investments classified as available-for-sale, a significant or prolonged decline in the fair

value of the security below its cost. ‘Significant’ is evaluated against the original cost

of the investment and ‘prolonged’ against the period in which the fair value has been

below its original cost. If any such evidence exists for available-for-sale financial

assets, the cumulative loss – measured as the difference between the acquisition cost

and current fair value, less any impairment loss on the financial asset previously

recognised in the profit or loss – is removed from equity and recognised in the profit or

loss account. Impairment losses recognised in the profit or loss account on equity

instruments are not subsequently reversed through the profit or loss account but through

other comprehensive income as other reserves.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

2.Accounting policies - continued

2.10Impairment of assets - continued

(c)Impairment of non-financial assets

Assets that have an indefinite useful life and are not subject to amortisation and/or

assets not yet available for use are tested annually for impairment. Assets that are

subject to amortisation or depreciation are reviewed for impairment whenever events or

changes in circumstances indicate that the carrying amount may not be recoverable. An

impairment loss is recognised for the amount by which the asset’s carrying amount

exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair

value less costs to sell and value in use. For the purposes of assessing impairment,

assets are grouped at the lowest levels for which there are separately identifiable and

independent cash flows (cash-generating units).

2.11Offsetting financial instruments

Financial assets and liabilities are offset and the net amount is reported in the

statements of financial position only when there is a current legally enforceable right to

offset the recognised amounts and there is an intention to settle on a net basis, or to

realise the asset and settle the liability simultaneously.

2.12Cash and cash equivalents

Cash and cash equivalents are carried in the statements of financial position at face

value. In the cash flow statement, cash and cash equivalents include cash in hand and

deposits held at call with banks, which are held for operational purposes.

2.13Share capital

Shares are classified as equity when there is no obligation to transfer cash or other

assets. Incremental costs directly attributable to the issue of new shares are shown in

equity as a deduction from the proceeds net of tax.

2.14Insurance and investment contracts

The Group issues contracts that transfer insurance risk or financial risk or both.

(a)Classification

Insurance contracts are those contracts that transfer significant insurance risk. Such

contracts may also transfer financial risk. As a general guideline, the Group defines as

significant insurance risk the probability of having to pay benefits on the occurrence of

an insured event that are at least 10% more than the benefits payable if the insured

event did not occur.

Investment contracts are those contracts that transfer financial risk with no significant

insurance risk.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

2.Accounting policies - continued

2.14Insurance and investment contracts - continued

(a)Classification - continued

A number of insurance and investment contracts contain a discretionary participation

feature (‘DPF’). This feature entitles the holder to receive, as a supplement to

guaranteed benefits, additional benefits or bonuses:

–that are likely to be a significant portion of the total contractual benefits;

–whose amount or timing is contractually at the discretion of the Group; and

–that are based on realised and/or unrealised investment returns on underlying assets

held by the Group.

Local statutory regulations and the terms and conditions of these contracts set out the

basis for the determination of the amounts on which the additional discretionary

benefits are based (the DPF eligible surplus), and within which the Group may exercise

its discretion as to the quantum and timing of their payment to contract holders, also

considering the advice of the Approved Actuary.

(b)Recognition and measurement

Insurance contracts and investment contracts with DPF are classified into five main

categories depending on the duration of risk and whether or not the terms and

conditions are fixed.

(i) Short-term insurance contracts - General business

The results for general business are determined on an annual basis whereby the incurred

cost of claims, commission and related expenses are charged against the earned

proportion of premiums, net of reinsurance as follows:

•Premiums written comprise all amounts due during the financial year in respect of

contracts of insurance entered into regardless of the fact that such amounts may relate

in whole or in part to a later financial year and includes any differences between the

booked premiums for prior years and those previously accrued, less cancellations.

•Unearned premiums represent the proportion of premiums written in the year that

relate to unexpired terms of policies in force at the statement of financial position

date, calculated on a time apportionment basis.

•Commissions and other acquisition costs that vary with, and are related to, securing

new contracts and renewing existing contracts are deferred over the period in which

the related premiums are earned. These are capitalised and shown as deferred

acquisition costs (‘DAC’) in the statement of financial position. DAC is amortised

over the term of the policies as the premium is earned. All other costs are recognised

as expenses when incurred.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

2.Accounting policies - continued

2.14Insurance and investment contracts - continued

(b)Recognition and measurement - continued

(i) Short-term insurance contracts - General business - continued

•Claims incurred comprise claims and related expenses paid in the year and changes in

the provisions for outstanding claims and related expenses, together with any other

adjustments to claims from previous years. Where applicable, deductions are made for

salvage and other recoveries.

•Provision is made at the year-end for the estimated cost of claims incurred but not settled

at the statement of financial position date, including the estimated cost of claims incurred

but not yet reported to the Group. The estimated cost of claims includes expenses to be

incurred in settling claims. The Group takes all reasonable steps to ensure that it has

appropriate information regarding its claims exposures. The Group does not discount its

liabilities for unpaid claims. Liabilities for unpaid claims are estimated using the input of

assessments for individual cases reported to the Group including those that may be

affected by external factors (such as court decisions). Statistical analysis by the in-house

actuary are carried out on certain portfolios to determine ultimate cost of claims reported

and those incurred but not yet reported.

•Provision in the form of an unexpired risk provision, is made on the basis of claims

and administrative expenses likely to arise after the end of the financial year from

contracts concluded before the reporting date, in so far as their estimated value

exceeds the provision for unearned premiums and any premiums receivable under

those contracts.

(ii) Group Life insurance contracts

Group life business (classified as long-term insurance business under the Insurance

Business Act, 1998) consists of annual policies that cover the lives of a group of

customers’ employees for the year under cover. Premiums, including reinsurance

premiums, and claims are accounted for when due for payment. Reinsurance recoveries

are accounted for in the same period as the related claim. The long-term business

provision is based on the net “unearned premiums” method as adjusted to take into

account the premium written. The valuation is carried out in conjunction with the

Company’s appointed actuary. Profits, which accrue as a result of actuarial valuations,

are released to the non-technical profit or loss account. Any shortfall between actuarial

valuations and the balance on the long-term business provision is appropriated from the

non-technical profit or loss account.

(iii)Long term insurance contracts – individual life

These contracts insure events associated with human life (for example death or

survival) over a long and fixed duration. The guaranteed and fixed element for these

contracts relates to the sum assured, i.e. the benefit payable on death or maturity.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

2.Accounting policies - continued

2.14Insurance and investment contracts - continued

(b)Recognition and measurement - continued

(iii)Long term insurance contracts – individual life - continued

Premiums are recognised as revenue when they become payable by the contract holder.

Premiums are shown before deduction of commission and are inclusive of policy fees

receivable. A liability for contractual benefits that are expected to be incurred in the

future is recorded when the premiums are recognised.

Maturity claims are charged to income as incurred when due for payment, at which date

they cease to be included within the calculation of the liability. Surrenders are

accounted for as incurred when paid or, if earlier, on the date when the policy ceases to

be included within the calculation of the liability. Death claims are accounted for when

notified. Claims payable include related claims handling costs.

(iv)Long term insurance contracts with DPF – individual life

For traditional life insurance contracts, the liability is calculated on the basis of a

prudent prospective actuarial method, using assumptions regarding mortality,

maintenance expenses and investment income, and includes a margin for adverse

deviations. Additionally, liabilities under unit-linked life insurance contracts reflect the

value of assets held within unitised investment pools. The liability is recalculated at

each reporting date. It is determined by the Group’s Approved Actuary following his

annual investigation of the financial condition of the Group’s long term business as

required under the Insurance Business Act, 1998. The above method of calculation

satisfies the minimum liability adequacy test required by IFRS 4.

These contracts further combine a DPF that entitles the holder to receive a bonus as

declared by the Group from the DPF eligible surplus.

Premiums are recognised as revenue when they become payable by the contract holder.

Premiums are shown before deduction of commission, and are inclusive of policy fees

receivable.

Maturity claims are charged to profit or loss as incurred when due for payment, at

which date they cease to be included within the calculation of the liability. Surrenders

are accounted for as incurred when paid or, if earlier, on the date when the policy ceases

to be included within the calculation of the liability. Death claims are accounted for

when notified. Claims payable include related claims handling costs.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

2.Accounting policies - continued

2.14Insurance and investment contracts - continued

(b) Recognition and measurement - continued

(iv)Long term insurance contracts with DPF – individual life - continued

Bonuses charged to the long term business technical account in a given year comprise:

(i)new reversionary bonuses declared in respect of that year, which are provided

within the calculation of the respective liability;

(ii)terminal bonuses paid out to policyholders on maturity and included within claims

paid; and

(iii)terminal bonuses declared at the Group’s discretion and included within the

respective liability.

A liability for contractual benefits that are expected to be incurred in the future is

recorded when the premiums are recognised. The liability is determined as the sum of

the expected discounted value of the future cash flows based on bonuses consistent with

the bonus policy and prudent rates of future investment return, expenses and mortality,

and includes margins for adverse deviations. The liability is recalculated at each

reporting date. The liability is determined by the Group’s Approved Actuary following

his annual investigation of the financial condition of the Group’s long term business as

required under the Insurance Business Act, 1998. The above method of calculation

satisfies the liability adequacy test required by IFRS 4.

(v)Investment contracts with DPF

These contracts do not expose the Group to significant insurance risk. They contain a

DPF that entitles the holder to receive a bonus as declared by the Group from the DPF

eligible surplus.

Recognition and measurement principles are the same as for insurance contracts with

DPF as described above. Additionally, liabilities under unit-linked investment contracts

reflect the value of assets held within unitised investment pools.

(c)Reinsurance contracts held

Contracts entered into by the Group with reinsurers under which the Group is

compensated for losses on one or more contracts issued by the Group and that meet the

classification requirements for insurance contracts are classified as reinsurance

contracts held. Insurance contracts entered into by the Group under which the contract

holder is another insurer (inwards reinsurance) are included with insurance contracts.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

2.Accounting policies - continued

2.14Insurance and investment contracts - continued

(c)Reinsurance contracts held - continued

The benefits to which the Group is entitled under its reinsurance contracts held are

recognised as reinsurance assets. These assets consist of short-term balances due from

reinsurers (classified within receivables), unless netted off against amounts payable to

reinsurers, as well as longer term receivables (classified within reinsurers’ share of

technical provisions) that are dependent on the expected claims and benefits arising

under the related reinsured insurance contracts. Amounts recoverable from or due to

reinsurers are measured consistently with the amounts associated with the reinsured

insurance contracts and in accordance with the terms of each reinsurance contract.

Reinsurance liabilities are primarily premiums payable for reinsurance contracts and are

recognised as an expense when due.

The Group assesses its reinsurance assets for impairment on a regular basis. If there is

objective evidence that the reinsurance asset is impaired, the Group reduces the

carrying amount of the reinsurance asset to its recoverable amount and recognises that

impairment loss in the profit or loss account. The Group gathers the objective evidence

that a reinsurance asset is impaired using the same process adopted for financial assets

held at amortised cost. The impairment loss is also calculated following the same

method used for these financial assets. These processes are described in accounting

policy 2.10.

(d)Receivables and payables related to insurance contracts

Receivables and payables are recognised when due. These include amounts due to and

from agents, brokers, tied insurance intermediaries, third party insurers by way of

recoveries on claims and insurance contract holders.

If there is objective evidence that an insurance receivable is impaired, the Group

reduces the carrying amount of the insurance receivable accordingly and recognises

that impairment loss in the profit or loss account. The Group gathers objective evidence

that an insurance receivable is impaired using the same process adopted for financial

assets held at amortised cost.

The impairment loss is calculated following the same method used for these financial

assets. These processes are described in accounting policy 2.10.

(e) Liability adequacy test

The Company reserves for unexpired risks for those lines of general business where the

expected loss ratio exceeds 100% of the earned premium less acquisition cost.

Additional reserves for unexpired risks are calculated as a product of unearned

premiums less deferred acquisition cost and the difference between the value of the loss

ratio and 100%.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

2.Accounting policies - continued

2.14Insurance and investment contracts - continued

(e) Liability adequacy test - continued

Additional tests are performed to check the adequacy of the unearned premiums and

unexpired risk reserves. The amounts of future gross claims and gross claim handling

costs are applied in these tests and compared with the amount of established provisions

for unearned premiums reduced by deferred insurance acquisition costs.

(f) Investment contracts without DPF

The Group issues investment contracts without DPF.

Premium arising on these contracts is classified as a financial liability – investment

contracts without DPF. The fair value of these contracts is dependent on the fair value

of underlying financial assets. These are designated at inception as fair value through

profit or loss. The fair value of a unit linked financial liability is determined using the

current unit values that reflect the fair values of the financial assets linked to the

financial liability. This is multiplied by the number of units attributed to the contract

holder at the reporting date.

If the investment contract is subject to a surrender option, the fair value of the financial

liability is never less than the amount payable on surrender, where applicable. Other

benefits payable are also accrued as appropriate.

2.15Financial liabilities

Financial liabilities are initially recognised on the trade date, which is the date the

Company becomes a party to the contractual provisions of the instruments and

derecognises a financial liability when its contractual obligations are discharged,

cancelled or expire.

Borrowings are recognised initially at their fair value, net of incremental direct

transaction costs incurred. Borrowings are subsequently stated at amortised cost; any

difference between the proceeds (net of incremental direct transaction costs) and the

redemption value is recognised in the profit or loss account over the period of the

borrowings using the effective interest method. Borrowings are classified as current

liabilities unless the Group has an unconditional right to defer settlement of the liability

for at least 12 months after the end of the reporting year.

Fees paid on the establishment of loan facilities are recognised as transaction cost of the

loan to the extent that it is probable that some or all of the facility will be drawn down.

In this case, the fee is deferred until the draw-down occurs. To the extent there is no

evidence that it is probable that some or all of the facility will be drawn down, the fee is

capitalised as a pre-payment for liquidity services and amortised over the period of the

facility to which it relates.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

2.Accounting policies - continued

2.16Current and deferred income tax

The tax expense for the period comprises current and deferred tax. Tax is recognised in

the profit or loss account, except to the extent that it relates to items recognised in other

comprehensive income or directly in equity. The amount of current tax payable or

receivable is the best estimate of the tax amount expected to be paid or received that

reflects uncertainty related to income taxes, if any.

The current income tax charge is calculated on the basis of the tax laws enacted or

substantively enacted at the statements of financial position date in the countries where

the Company’s subsidiaries and associates operate and generate taxable income.

Management periodically evaluates positions taken in tax returns with respect to

situations in which applicable tax regulation is subject to interpretation and establishes

provision where appropriate.

Deferred income tax is recognised in respect of temporary differences arising between

the tax bases of assets and liabilities and their carrying values for financial reporting

purposes. However, if the deferred income tax arises from initial recognition of an

asset or liability in a transaction other than a business combination that at the time of

the transaction affects neither accounting nor taxable profit or loss, it is not accounted

for. Deferred income tax is measured at the tax rates that are expected to be applied to

temporary differences when they reverse, using tax rates (and laws) that have been

enacted or substantively enacted at the reporting date and reflect uncertainty relating to

income taxes, if any. Deferred tax is expected to apply when the related deferred tax

asset is realised or the deferred tax liability is settled.

Deferred tax assets are recognised only to the extent that future taxable profit or taxable

capital gains will be available such that realisation of the related tax benefit is probable.

Deferred income tax is provided on temporary differences arising on investments in

subsidiaries and associates, except where the Group controls the timing of the reversal

of the temporary difference and it is probable that the temporary difference will not

reverse in the foreseeable future

If the amount of taxable temporary differences is insufficient to recognise a deferred

tax asset in full, then future taxable profits, adjusted for reversals of existing temporary

differences are considered. Deferred tax assets are reviewed at each reporting date and

are reduced to the extent that it is no longer probable that the related tax benefit will be

realised; such reductions are reversed when the probability of future taxable profit

improves.

Deferred income tax assets and liabilities are offset when there is a legally enforceable

right to offset current tax assets against current tax liabilities and when the deferred

income tax assets and liabilities relate to income taxes levied by the same taxation

authority on either the same taxable entity or different taxable entities where there is an

intention to settle the balance on a net basis.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

2.Accounting policies - continued

2.16Current and deferred income tax - continued

Deferred tax related to fair value re-measurements charged or credited directly in other

comprehensive income or to equity, is also credited or charged directly to equity and

subsequently recognised in the profit or loss account together with the deferred gain or loss.

2.17Provisions for pension obligations

Provisions are recognised when the Group has a present legal or constructive obligation as

a result of past events, it is probable that an outflow of resources will be required to settle

the obligation, and a reliable estimate of the amount can be made.

A defined benefit plan defines an amount of pension that an employee will receive on

retirement. In the Group’s case, this amount is dependent upon an employee’s final

compensation upon retirement.

The liability recognised in the statement of financial position is the present value of the

defined benefit obligation at the end of the reporting period. The present value of a defined

benefit obligation is determined by discounting the estimated future cash outflows using

interest rate yields of government or high-quality corporate bonds that are denominated in

the currency in which the benefits will be paid, and that have terms to maturity

approximating to the terms of the related pension liability.

Actuarial gains and losses arising from experience adjustments and changes in assumptions

are charged or credited to other comprehensive income in the period in which they arise.

2.18 Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of

services in the ordinary course of the Group’s activities. The Group recognises revenue

when the amount of revenue can be reliably measured, it is probable that future economic

benefits will flow to the entity and when specific criteria have been met as described

below.

Rendering of services

Premium recognition is described in Note 2.14 dealing with insurance contracts and

investment contracts with DPF.

Revenue arising from the issue of investment contracts without DPF and other related

services offered by the Group, is recognised in the accounting period in which the services

are rendered.

Fees include investment management fees arising from services rendered in conjunction

with the issue and management of investment contracts where the Group actively manages

the consideration received from its customers to fund a return that is based on the

investment profile that the customer selected on origination of the instrument. The Group

recognises these fees on a straight-line basis over the estimated life of the contract.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

2.Accounting policies - continued

2.18 Revenue recognition - continued

Rendering of services - continued

The Group charges its customers for management and other related services using the

following different approaches:

–Front-end fees are charged to the client on inception. The consideration received is

deferred as a liability and recognised over the life of the contract on a straight-line

basis.

–Regular fees are charged to the customer periodically (monthly, quarterly, half

yearly or annually) either directly or by making a deduction from invested funds.

Regular charges billed in advance are recognised on a straight-line basis over the

billing period.

Other revenue receivable by the Group mainly comprises commission or trailer fees

receivable on account of investment or other services provided in an intermediary

capacity which is accounted for on an accruals basis.

2.19Investment return

Investment return includes dividend income, gains on financial assets at fair value

through profit or loss (including interest income from financial assets classified as fair

value through profit or loss), other net fair value movements, interest income from

financial assets not classified as fair value through profit or loss, rental income

receivable, share of associated undertaking’s result, and is net of investment expenses,

charges and interest payable.

(a) Dividend income

Dividend income is recognised in the profit or loss account as part of investment

income when the right to receive payment is established.

(b) Other net fair value gains/(losses) from financial assets at fair value through profit or

loss

Other gains or losses arising from changes in the fair value of the ‘Financial assets at

fair value through profit or loss’ category are presented in the profit or loss account

within ‘other investment income’ or ‘investment expenses and charges’ in the period in

which they arise.

Interest income from financial assets not classified as fair value through profit or loss is

recognised using the effective interest method.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

2.Accounting policies - continued

2.19Investment return - continued

(d) Rental income

Rental income from investment property is accounted for on an accruals basis in

accordance with the substance of the relevant lease agreements.

Investment return is initially recorded in the non-technical account, except for income

attributed to long term business which is recognised immediately in the long term

business technical account. A transfer is made from the non-technical account to the

general business technical account of the actual investment return on investments

supporting the insurance technical provisions. With respect to the Group's long-term

business the investment return is apportioned between the technical and non-technical

profit or loss accounts on a basis which takes into account that technical provisions are

fully backed by investments and that intangible assets, property, plant and equipment,

and working capital are financed in their entirety from shareholders’ funds.

2.20Leases

At inception of a contract, the Group assess whether a contract is, or contains, a lease.

A contract is or contains a lease if the contract conveys the right to control the use of an

identified asset for a period of time in exchange for consideration. To assess whether a

contract conveys the right to control the use of an identified asset, the Group uses the

definition of a lease in IFRS 16.

At commencement or on modification of a contract that contains a lease component, the

Group allocates the consideration in the contract to each lease component on the basis

of its relative stand-alone price.

(a) As a lessor

When the Group acts as a lessor, it determines at lease inception whether each lease is a

finance lease or an operating lease.

To classify each lease, the Group makes an overall assessment of whether the lease

transfers substantially all of the risks and rewards incidental to ownership of the

underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an

operating lease. As part of this assessment, the Group considers certain indicators such

as whether the lease is for the major part of the economic life of the asset.

The Group recognises lease payments received under operating leases as income on a

straight line basis over the lease term as part of ‘other income’ – Note 9.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

2.Accounting policies - continued

2.20Leases - continued

(b) As a lessee

A lessee recognises a right-of-use asset representing its right to use the underlying asset

and a lease liability representing its obligation to make lease payments. As described

later in this note there are recognition exemptions for short-term leases and leases of

low-value items.

The Group recognises a right-of-use asset and a lease liability at the lease

commencement date. The right-of-use asset is initially measured at cost, which

comprises the initial amount of the lease liability adjusted for any lease payments made

at or before the commencement date, plus any initial direct costs incurred and an

estimate of costs to dismantle and remove the underlying asset or to restore the

underlying asset or the site on which it is located, less any lease incentives received.

The right-of-use asset is subsequently depreciated using the straight-line method from

the commencement date to the end of the lease term, unless the lease transfers

ownership of the underlying asset of the Group by the end of the lease term or the cost

of the right-of-use asset reflects that the Group will exercise a purchase option. In that

case the right-of-use asset will be depreciated over the useful life of the underlying

asset, which is determined on the same basis as those of property and equipment. In

addition, the right-of-use asset is periodically reduced by impairment losses, if any, and

adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that

are not paid at the commencement date, discounted using the interest rate implicit in the

lease or, if that rate cannot be readily determined, the Group’s incremental borrowing

rate. Generally, the Group uses its incremental borrowing rate as the discount rate.

The Group determines its incremental borrowing rate by using interest rate curves by

country and termination dates, coordinated in a centralized manner, in which the

interest rate calculation is obtained by adding the differential related to the asset’s

nature. Interest rate curves are reviewed twice a year.

Lease payments included in the measurement of the lease liability comprise the

following:

–fixed payments (including payments which are essentially fixed), minus any

incentive to lease to be paid;

–the price for exercising a purchase option which the lessee is reasonably certain to

exercise; and

–payments for early cancellation.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

2.Accounting policies - continued

2.20Leases - continued

(b) As a lessee - continued

The lease liability is measured at amortised cost using the effective interest method. It is

remeasured when there is a change in future lease payments arising from a change in

rate, if there is a change in the Group’s estimate of the amount expected to be payable

under a residual value guarantee, if the Group changes its assessment of whether it will

exercise a purchase, extension or termination option or if there is a revised in-substance

fixed lease payment.

When the lease liability is remeasured in this way, a corresponding adjustment is made

to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the

carrying amount of the right-of-use asset has been reduced to zero.

The Group presents right-of-use asset that do not meet the definition of investment

property in ‘Right-of-use assets’.

The Group has elected not to recognise right-of-use assets and lease liabilities for leases

of low-value assets and short-term leases. The Group recognises the lease payments

associated with these leases as an expense on a straight-line basis over the lease term.

A lease modification is defined as a change in the scope of a lease, or the consideration

for a lease, that was not part of the original terms and conditions of the lease. A lease

modification includes adding or terminating the right to use one or more underlying

assets, or extending or shortening the contractual lease term.

A lease modification is accounted for in one of two ways;

•It is treated as a separate lease; or

•It is not treated as a separate lease.

A modification will only be treated as a separate lease if it involves the addition of one

or more underlying assets at a price that is commensurate with the standalone price of

the increase in scope. All other modifications are not treated as a separate lease.

Modifications, taken place during 2021 include changes in lease consideration and

extension of lease term all of which do not constitute a separate lease.

2.21Dividend distribution

Dividend distribution to the Company’s shareholders is recognised as a liability in the

period in which an obligation to pay a dividend is established.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

3.Use of accounting estimates and judgements in applying accounting policies

The Group makes estimates and assumptions concerning the future. Estimates and

judgements are continually evaluated and are based on historical experience and other

factors, including expectations of future events that are believed to be reasonable under

the circumstances.

Information about judgements made in applying accounting policies that have the most

significant effects on the amounts recognised in the financial statements is included in

the following notes, which also include information about assumptions and

uncertainties at 31 December 2022 that have a significant risk of resulting in a material

adjustment in the carrying amounts of assets and liabilities in the next financial year.

- Value of in-force business

The Group’s value of in-force business is a projection of future shareholders’ cash

flows expected from contracts in force at the year end, appropriately adjusted for

taxation and discounted by a risk adjusted discount rate. In assessing the projected cash

flows, the directors assume a long term view of a maintainable level of investment

return and fund size. This valuation requires the use of a number of assumptions

relating to future mortality, persistency, levels of expenses, investment returns and asset

allocations over the longer term. This valuation is inherently uncertain and assumptions

are reviewed on an annual basis as experience and the reliability of the estimation

process develop.

Details of key assumptions, and sensitivity of this intangible asset are provided in Note

16. The impact of a change to key assumptions supporting the value of in-force

business as at 31 December 2022 is disclosed in Note 16 to the accounts.

- Insurance and investment contracts liabilities

(a)General business insurance contract liabilities

For general business insurance contracts, estimates have to be made both for the

expected ultimate cost of claims reported and those incurred but not yet reported at the

reporting date. The ultimate cost of claims is derived by using a standard actuarial

claims projection technique, the Chain Ladder method. The key assumption underlying

this technique is that past claims development experience can be used to project future

claims development and hence ultimate claims costs. Historical claims development is

mainly analyzed by accident years, as well as by specific business lines.

Claims reserves which are not adjusted for the ultimate cost, particularly those

involving fatalities and/or serious bodily injuries, are reserved at the case-by-case

reserve estimate. The measurement of claim payments due by the Company involves

the assessment of future settlements and is therefore dependent on assumptions around

determining such reserves based on, among others, legal precedent and current trends in

compensation awards. The assumptions considered to be key in this regard are

determining (i) the inputs to the compensation awarded for loss of future income; and

(ii) whether certain claims will be settled out of court or otherwise, which would have a

significant impact on the determination of legal costs.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

3.Use of accounting estimates and judgements in applying accounting policies -

continued

- Insurance and investment contracts liabilities - continued

(a)General business insurance contract liabilities - continued

Due to the degree of estimation uncertainty underlying the key assumptions outlined

above, the amounts recognised in the financial statements may result to be different

from the actual amounts and these differences may be material.

(b)Insurance and participating investment contract liabilities

The technical provisions in respect of long term contracts and linked long term

contracts are subject to an annual statutory valuation using generally accepted actuarial

practice.

Different principles and valuation methodologies are adopted depending on the type

and generation of products. Further key assumptions used in determining the technical

provisions in respect of insurance contracts and investment contracts with DPF are

described in Note 24 to the financial statements.

- Investment property

The fair value of investment properties which involves judgement and estimation

uncertainty, is determined by qualified valuers. The assumptions used are reviewed on

an annual basis.

The key assumptions used in determining the value of investment property is described

in Note 19 to the financial statements.

- Consolidation of entities in which the Group holds less than majority of voting rights

The Group considers that it controls MAPFRE MSV Life p.l.c. (‘MMSV’) even though

it does not own more than 50% of the voting rights. This is because strategic, operating

and financing policies of MMSV are directed by means of shareholders’ agreement

which provides MAPFRE Middlesea p.l.c. with the right to select, appoint and remove

the key management personnel of MMSV and approve its business plan and capital

expenditure.

For all the financial years up to 31 December 2010, MMSV was considered to be an

associate and was accounted for using the equity method. Following the shareholders’

agreement, on 29 July 2011, MAPFRE Middlesea p.l.c. acquired control over MMSV

based on the factors explained in this note and started consolidating MMSV as from

that date.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

4.Management of risk

The Group is a party to contracts that transfer insurance risk and/or financial risk. This

section summarises these risks and the way that the Group manages them.

4.1Insurance risk

The risk under any one insurance contract is the possibility that the insured event occurs

and the uncertainty of the amount of the resulting claim. By the very nature of an

insurance contract, this risk is fortuitous.

For a portfolio of insurance contracts where the theory of probability is applied to

pricing and provisioning, the principal risk that the Group faces under its insurance

contracts is that the actual claims and benefit payments are significantly different to the

amounts included within technical provisions. This could occur because the frequency

or severity of claims and benefits are greater or lower than estimated. Insurance events

are fortuitous and the actual number and amount of claims and benefits may vary from

year to year from the estimate established using statistical and actuarial techniques.

Experience shows that the larger the portfolio of similar insurance contracts, the smaller

the relative variability about the expected outcome will be. In addition, a more

diversified portfolio is less likely to be affected across the board by a change in any

subset of the portfolio. The Group has developed its insurance underwriting strategy to

diversify the type of insurance risk accepted and within each of these categories to

achieve a sufficiently large population of risks to reduce the potential variability of the

expected outcome.

Factors that aggravate insurance risk include lack of risk diversification in terms of type

and amount of risk and geographical location. The Group is largely exposed to

insurance risk in one geographical area, Malta.

(a) Short term business insurance contracts – general insurance

Frequency and severity of claims

The terms and conditions of the contracts set out the bases for the determination of the

Group’s liability should the insured event occur. The risks underwritten include

accident and health, motor (including third party liability), marine and transport, fire

and other damage to property, liability and group life. Details of gross premiums

written as well as the insurance liabilities analysed by class are provided in the

“Segment information” (Note 6).

The frequency and severity of claims can be affected by several factors. The following

are considered by the Group to be the most significant:

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

100

4.Management of risk - continued

4.1Insurance risk - continued

(a) Short term business insurance contracts - general insurance - continued

Frequency and severity of claims - continued

-The increasing levels of court awards in cases where damages are suffered as a

result of injuries, the divergence of awards that is dependent on the territory of the

claim and the jurisdiction of the court, the effect of inflation due to the prolonged

period typically required to settle such cases; and

- The risk of a single event that can extensively affect a multiple of individual risks

to which the Group is exposed.

The Group manages these risks through its underwriting strategy, adequate reinsurance

arrangements and proactive claims handling.

The underwriting strategy ensures that the risks underwritten are well diversified in

terms of type and amount of risk. The Group follows strict underwriting guidelines and

sets limits on the overall retention of risk that it carries. Any risk in excess of this limit

is either reinsured under a facultative cover note or is declined. Underwriting limits are

in place to enforce appropriate risk selection criteria. In certain circumstances, certain

exclusions to risks are included within these guidelines. For example, the Group does

not insure US risks unless they are incidental. The Group can impose deductibles to

help manage its costs. It also uses its experience and expertise to mitigate the risk of

fraudulent claims. Insurance contracts also entitle the Group to pursue third parties for

payment of some or all of the costs (i.e. subrogation). A significant portion of the

Group’s business is underwritten through an agency distribution network.

Underwriting authority limits are set for individual agencies or branches, and any

contracts through which the Group is committed to cover risks in excess of these

authority limits require head office approval.

The Group has reinsurance protection in place for all classes of business. The type of

reinsurance cover, and the level of retention, is based on the Group’s internal risk

management assessment which takes into account the risk being covered, the sums

assured and the geographical location of the risk. The Board approves each reinsurance

programme on an annual basis. The reinsurance arrangements include a mix of

proportional, facultative and non-proportional covers, which limit the liability of the

Group to any one individual claim or event. Generally the Group’s policy is to place

reinsurance with listed multinational reinsurance companies whose credit rating is not

less than BBB. No rating limitation shall apply to treaty placements with MAPFRE Re

or any MAPFRE Group company designated to write any or all of the MAPFRE Group

Reinsurance treaties. At 31 December 2022, MAPFRE Re’s rating stood at A. The

Board will monitor the security rating of MAPFRE on a periodic basis.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

101

4.Management of risk - continued

4.1Insurance risk - continued

(a)Short term business insurance contracts - general insurance - continued

Frequency and severity of claims - continued

The Group has specialised claims units dealing with the mitigation of risks surrounding

known claims. These units investigate and adjust claims as appropriate. Claims are

individually reviewed regularly, and are adjusted to reflect the latest information on the

underlying facts, current law, jurisdiction, contractual terms and conditions and other

factors. The Group actively manages and pursues early settlement of claims to reduce

its exposure to unpredictable developments. Authority limits are set for the settlement

of claims through the individual agents. Any claims incurred above these limits are

referred to head office for handling. In addition, all claims involving bodily injury are

referred to head office irrespective of their amount.

Concentration of insurance risk

Up until 31 December 2022, 100% of the Group’s business was written in Malta (2021:

100%). The portfolio is diversified in terms of type of business written, with motor

comprehensive business comprising 24% (2021: 23%) and accident and health

comprising 22% (2021: 20%) of the total portfolio (including Group Life business).

Other significant insurance business classes include motor liability business at 23%

(2021: 24%) and fire and other damage to property at 17% (2021: 18%). The

remaining 14% (2021: 15%) of premium written is generated across a spread of classes

including marine, other non-motor liability business and long term business. Further

information on premiums written, and claims incurred by insurance business class is

provided in Note 6 to these financial statements.

Sources of uncertainty in the estimation of future claim developments and payments

Claims on contracts are accounted for on a claims-occurrence basis. The Group is

liable for all insured events that occurred during the term of the contract, even if the

loss is discovered after the end of the contract term. Certain classes of business, most

notably those exposed to liability, can take several years to develop and are therefore

subject to a greater degree of uncertainty than other classes of business which are

typically settled in a shorter period of time.

The estimated cost of claims includes direct expenses to be incurred in settling claims,

net of the expected subrogation value and recoveries. The Group takes all reasonable

steps to ensure that it has appropriate information regarding its claims exposures.

However, given the uncertainty in establishing claims provisions, it is possible that the

final outcome will prove to be different from the original liability established.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

102

4.Management of risk - continued

4.1Insurance risk - continued

(a)Short term business insurance contracts - general insurance - continued

Sources of uncertainty in the estimation of future claim developments and payments -

continued

In calculating the estimated cost of unpaid claims, the Group considers the results of

estimation techniques that are based partly on known information at year-end and partly

on statistical analysis of historical experience. In the case of the main classes of

business, motor and health, the Company makes use of Development Factor Models

(DFM) through Chains Ladder techniques to project the ultimate cost of the claims

reported and those incurred but not yet reported (IBNR). Ultimate cost averages applied

are based on claim averages acquired from historical data. In other classes of business

validation techniques are used to ensure the sufficiency of case reserves which could

lead to an IBNR provision being made. Allowance is made, however, for changes or

uncertainties which may create distortions in the underlying statistics or which might

cause the cost of unsettled claims to increase or reduce when compared with the cost of

previously settled claims.

Note 24 presents the development of the estimate of ultimate claim cost for claims

notified in a given year.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

103

4.Management of risk - continued

4.1Insurance risk - continued

(b) Long term business insurance contracts

Frequency and severity of claims

For contracts where death is the insured risk, the most significant factor that could

increase the overall frequency of claims are epidemics or wide spread changes in

lifestyle resulting in earlier or more claims than expected.

At present these risks do not vary significantly in relation to the location of the risk

insured by the Group. However, undue concentration by amounts could have an impact

on the severity of benefit payments on a portfolio basis.

For contracts with fixed and guaranteed benefits and fixed future premiums, there are

no mitigating terms and conditions that reduce the insurance risk accepted. For

contracts with DPF, the participating nature of the contracts results in a portion of the

insurance risk being reduced over the term of policy. Investment contracts with DPF

carry negligible insurance risk.

The Group manages these risks through its underwriting strategy and reinsurance

arrangements. The underwriting strategy is intended to ensure that the risks

underwritten are well diversified in terms of type of risk and level of insured benefits.

Medical selection is also included in the Group’s underwriting procedures with

premiums varied to reflect the health condition and life expectancy of the applicants.

The Group has reinsurance protection in place to cover death claims. The type of

reinsurance cover and the level of retention for each risk are based on the Group’s

internal risk management assessment, which takes account of the nature of the risk

covered and the sum assured. The reinsurance programme is approved by the Board

annually. The reinsurance arrangements in place include a mix of quota share,

facultative, excess of loss and catastrophe protection, which limits the liability of the

Group to any one individual life or event. The Group’s reinsurance is placed with

listed multinational reinsurance companies whose rating is not less than A.

Sources of uncertainty in the estimation of future benefit payments and premium

receipts

Uncertainty in the estimation of future benefit payments and premium receipts for long

term insurance contracts arises from the unpredictability of long term changes in

overall levels of mortality, and the variability in contract holder behaviour. The Group

uses appropriate base tables of standard mortality according to the type of contract

being written. The Group does not take credit for future lapses in determining the

liability for long term contracts.

Further detail on the process of estimation is provided in Note 24 to these financial

statements.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

104

4.Management of risk - continued

4.2 Financial risk

The Group is exposed to financial risks through its financial assets, financial liabilities

and insurance and reinsurance assets and liabilities. In particular, the key risk is that in

the long term, the proceeds from its financial assets are not sufficient to fund the

obligations arising from its insurance and investment contracts. The components of

financial risks for the Group are market risk (including cash flow and fair value interest

rate risk, equity price risk and currency risk), credit risk and liquidity risk. These risks

arise from open positions in interest rate, currency and equity products, all of which are

exposed to general and specific market movements. The risks that the Group primarily

faces due to the nature of its assets and liabilities are interest rate risk and equity price

risk.

The Group has developed its Asset/Liability management framework to further support

the manner in which these risk positions are managed. It actively manages its assets to

achieve a competitive rate of return within risk objectives delineated by asset liquidity

measures, duration targets and credit quality parameters. The respective Investment

Committees review and approve investment strategies on a periodic basis ensuring that

assets are managed efficiently and within approved risk mandates.

(a) Market risk

i) Cash flow and fair value interest rate risk

Short term insurance and other liabilities are not directly sensitive to the level of market

interest rates, as they are not discounted. In those instances where interest is payable

(e.g. in the case of damages awarded by the Courts), interest is included in the claims

cost whilst the investment income earned until the claim is settled is credited to the

profit or loss account as it accrues.

Insurance and investment contracts with DPF at Group level have benefit payments that

are fixed and guaranteed at the inception of the contract (for example, sum assured), or

as annual discretionary bonuses are declared. The Group’s primary financial risk on

these contracts is the risk that interest income and capital redemptions from the financial

assets backing the liabilities are insufficient to fund the guaranteed benefits payable.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

105

4. Management of risk - continued

4.2 Financial risk - continued

(a) Market risk - continued

i) Cash flow and fair value interest rate risk - continued

The Group does not guarantee a positive fixed rate of return to its long-term contract

policyholders at the inception of a contract. The declaration of discretionary bonuses is

guided by the bonus philosophy of the Board of Directors. Once a reversionary bonus is

declared, it is guaranteed to be paid in full at maturity or on the prior death of the life

assured. Also policyholders have the option to withdraw their current year’s bonus

without any charges following the date the bonus is declared.

The bonus philosophy considers historic and current rates of return generated by the

Group’s investment portfolio as well as the Group’s expectations for future investment

returns. The impact of interest rate risk is mitigated by the presence of the DPF. These

guaranteed benefits increase as discretionary benefits are declared and allocated to

contract holders.

All insurance and investment contracts with a DPF feature can be surrendered before

maturity for a cash surrender value that is always less than the actual contract liability.

Cash surrender values are determined at the discretion of the Group, and can be varied

from time to time.

The primary factor affecting the level of cash surrender value is the investment return

earned on the assets of the Group. In addition, the cash surrender value is affected by

the expenses, tax and the cost of risk benefits (such as life cover) borne by the Group,

deductions to provide a return to shareholders, as well as profits and losses arising on

other contracts. The expenses include payment of commission, medical report expenses,

office administration costs and other expenses incurred in the setting up and

maintenance of the contract. At most, the cash surrender value will be the amount of the

actual liability reduced by the surrender charge (where applicable).

Furthermore, in respect of all contracts with DPF (with the exception of some contracts

that have been in force more than a certain number of years), the Group reserves the

right to increase the level of the surrender charge and, if necessary, to apply a Market

Value Reduction (‘MVR’). A MVR is a deduction which the Group may make on

surrender of a contract with DPF. For example, if the underlying investment return, after

allowing for expenses, tax, risk benefits, shareholder returns and adjustment for profits

or losses on other contracts is less than the return already provided for in the form of

reversionary bonuses, the Group may decide to apply a MVR.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

106

4. Management of risk - continued

4.2 Financial risk - continued

(a) Market risk - continued

i) Cash flow and fair value interest rate risk - continued

The MVR serves to protect the interests of remaining investors and the Group, who

would otherwise have to subsidise the amount paid on surrendering contracts. The

Group does not apply a standard percentage deduction on all contracts but determines

the deduction to apply to each individual surrender at the time the surrender is made.

The amount depends on a number of factors including the length of time the contract

has been in force and the underlying investment return over the same time period. There

will be no MVR at maturity or on death. This means that at maturity or on death the

payment of the actual contract liability is guaranteed.

The cash surrender value may also be less than the total amount of premiums paid up to

the date of surrender. The Group is not required to, and does not, measure the effect of

the above embedded derivative at fair value.

The Group matches its insurance liabilities with a diversified portfolio of assets which

includes equity, debt securities and property. The return from debt and cash based

securities is subject to interest rate risk.

In general, the Group is exposed to risk associated with the effects of fluctuations in the

prevailing levels of market interest rates. Assets/liabilities issued at variable rates

generally expose the Group to cash flow interest risk. Assets/liabilities issued at fixed

rates generally expose the Group to fair value interest rate risk. Group investment

parameters exist to limit exposure to any one particular issuer and any one particular

security. Periodic reports are prepared at portfolio, legal entity and asset class level that

are circulated to the Group’s key management personnel.

Assets and liabilities exposed to interest rate risk and their maturities are analysed

below:

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

107

4. Management of risk - continued

4.2 Financial risk - continued

(a) Market risk - continued

i) Cash flow and fair value interest rate risk - continued


		2022


Group
	Notes	Within 1 year	between 1 - 2 years	between 2 - 5 years	over 5 years	Total
		€’000	€’000	€’000	€’000	€’000
Assets
Debt securities	22	58,337	77,605	201,915	449,735	787,592
Collective investment schemes		243,126	—	—	—	243,126
Loans and receivables:
- Deposits with banks and credit institutions	22	96,091	20,637	—	—	116,728
- Loans secured on policies	22	9,132	—	—	—	9,132
- Cash and cash equivalents	27	137,286	—	—	—	137,286


Total interest bearing assets		543,972	98,242	201,915	449,735	1,293,864


Liabilities
Long-term insurance contracts		—	—	—	1,912,983	1,912,983


Total interest bearing liabilities		—	—	—	1,912,983	1,912,983

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

108

4. Management of risk - continued

4.2 Financial risk - continued

(a) Market risk - continued

i) Cash flow and fair value interest rate risk - continued


		2021


Group
	Notes	Within	Between	Between	Over
		1 year	1 - 2 years	2 - 5 years	5 years	Total
		€’000	€’000	€’000	€’000	€’000

Assets
Debt securities	22	33,601	68,426	237,667	671,791	1,011,485
Collective investment schemes		197,691	—	—	—	197,691
Loans and receivables:
- Deposits with banks and credit institutions	22	144,550	60,338	—	—	204,888
- Loans secured on policies	22	8,035	—	—	—	8,035
- Cash and cash equivalents	27	71,443	—	—	—	71,443


Total interest bearing assets		455,320	128,764	237,667	671,791	1,493,542


Liabilities
Long-term insurance contracts		—	—	—	2,276,558	2,276,558


Total interest bearing liabilities		—	—	—	2,276,558	2,276,558


		2022


Company
	Notes	Within	Between	Between	Over
		1 year	1 - 2 years	2 - 5 years	5 years	Total
		€’000	€’000	€’000	€’000	€’000
Assets
Debt securities	22	—	854	6,962	2,525	10,341
Loans and receivables:
- Cash and cash equivalents	27	11,130	—	—	—	11,130


Total interest bearing assets		11,130	854	6,962	2,525	21,471

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

109

4. Management of risk - continued

4.2 Financial risk - continued

(a) Market risk - continued

i) Cash flow and fair value interest rate risk - continued


		2021


Company
	Notes	Within	Between	Between	Over
		1 year	1 - 2 years	2 - 5 years	5 years	Total
		€’000	€’000	€’000	€’000	€’000
Assets
Debt securities	22	101	—	2,747	3,489	6,337
Loans and receivables:						—
- Cash and cash equivalents	27	11,575	—	—	—	11,575


Total Interest bearing assets		11,676	—	2,747	3,489	17,912

The Company had no interest bearing liabilities as at 31 December 2022 and 2021.

Assets and liabilities issued at variable rates expose the Group to cash flow interest rate

risk whilst assets and liabilities issued at fixed rates expose the Group to fair value

interest rate risk. The overall exposure to these two risks is as follows:


	Group
	2022	2021
	€’000	€’000

Assets held at variables rates

Debt securities	67,608	72,637
Cash and cash equivalents	928	8,207

	68,536	80,844



Liabilities issued at variable rates

Net long term insurance contracts	1,912,983	2,276,558


	1,912,983	2,276,558

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

110

4. Management of risk - continued

4.2 Financial risk - continued

(a) Market risk - continued

i) Cash flow and fair value interest rate risk - continued

Interest rate risk in relation to linked liabilities for contracts that also combine a

discretionary feature amounting to €48.17 million (2021: €55.03 million) has been

excluded as the directors consider the exposure to be insignificant.


	Group		Company
	2022	2021	2022	2021
	€’000	€’000	€’000	€’000
Assets held at fixed rates

Debt securities	719,984	938,848	10,341	6,337
Loans secured on policies	9,132	8,035	—	—
Deposits with banks and credit institutions	116,728	204,888	—	—
A component of equity securities and units in unit trusts	243,126	197,691	—	—


	1,088,970	1,349,462	10,341	6,337

In managing its portfolio, during the year ended 31 December 2022, the Group entered

into fixed income security futures contracts. Accordingly, it is exposed to movements

in interest rates in the respective markets of the underlying, which comprise short,

medium and long-term sovereign debt. The notional amount of futures contracts

outstanding at 31 December is shown below:


	Group
	2022	2021
	€’000	€’000

Long positions
- Federal Republic of Germany	69,704	109,748
- United States Government	—	1,040


	69,704	110,788



Short positions
- Federal Republic of Germany	76,362	129,257
- United States Government	2,730	2,416


	79,092	131,673

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

111

4. Management of risk - continued

4.2 Financial risk - continued

(a) Market risk - continued

i) Cash flow and fair value interest rate risk - continued

Up to the statements of financial position date the Group did not have any hedging

policy with respect to interest rate risk other than as described in note 2.9.

Sensitivity Analysis – interest rate risk

The sensitivity analysis for interest rate risk illustrates how changes in the fair value of

future cash flows of a financial instrument will fluctuate because of changes in market

interest rates at the reporting date.

At 31 December 2022, had interest rates been 100 basis points (2021: 100 basis points)

lower with all other variables held constant, the Group and Company pre-tax results for

the year would have been higher by €0.29 million (2021: higher by €0.74 million) and

higher by €0.04 million (2021: €0.04 million) respectively. An increase of 100 basis

points (2021: 100 basis points), with all other variables held constant, would have

resulted in the Group’s and Company’s pre-tax results for the year being lower by

€0.97 million (2021: lower by €2.23 million) and lower by €0.04 million (2021: €0.05)

respectively.

Managing interest rate benchmark reform

A fundamental reform of major interest rate benchmarks is being undertaken globally,

including the replacement of some interbank offered rates (IBORs) with alternative

nearly risk- free rates (referred to as ‘IBOR reform’). Currently the Group has no

exposures to IBORs on its financial instruments.

ii) Equity price risks

The Group’s financial assets are susceptible to the risk of decreases in value due to

changes in the prices of equities. The directors manage this risk of price volatility by

entering into a diverse range of investments including equities and collective

investment schemes. In addition, the Group’s investments are spread geographically in

a diverse number of different countries. The Group has active Investment Committees

that have established a set of investment guidelines that are also approved by the Board

of Directors. Investments over prescribed limits are directly approved by the respective

Boards. These guidelines provide parameters for investment management, including

contracts with external portfolio managers. They include, inter alia, reference to an

optimal spread of the investment portfolio, assessment of equity issuers and maximum

exposures by the Group to any one issuer and its connected parties (with the exception

of investments in Government paper). These parameters also consider solvency

restrictions imposed by the Regulator.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

112

4. Management of risk - continued

4.2 Financial risk - continued

(a) Market risk - continued

ii) Equity price risks - continued

Management structures are in place to monitor all the Group’s overall market positions

on a frequent basis. Reports are prepared at portfolio, legal entity and asset and liability

class level that are circulated to the Group’s relevant key management personnel. These

are also reviewed by the respective Investment Committees and Boards.

The total assets subject to equity price risk are the following:


	Group		Company
	2022	2021	2022	2021
	€’000	€’000	€’000	€’000

Assets subject to equity price risk	753,882	908,624	1,756	2,045


The above includes:
Component of investments in associated
undertakings (Note 21)*	22,512	22,321	—	—
Component of equity securities and units
in unit trusts (Note 22)	731,370	886,303	1,756	2,045


	753,882	908,624	1,756	2,045

*Investments in associates (Note 21) amounting to €0.39 million (2021:€0.38 million)

for the Group and €0.39 million (2021: €0.38 million) for the Company have been

excluded from equity price risk since they are accounted for under the equity method.

In the case of assets held to cover unit-linked liabilities the exposure is carried by the

contract holder. In the case of capital guaranteed products any shortfalls guaranteed

upon maturity are mitigated by a back to back guarantee with international financial

service providers as further referred in 4.2 (a) (i).

The sensitivity for equity price risk illustrates how changes in the fair value of equity

securities (excluding investments in associated undertakings) will fluctuate because of

changes in market prices, whether those changes are caused by factors specific to the

individual equity issuer, or factors affecting all similar equity traded in the market.

Given the investment strategy of the Group and Company, a 10% positive or negative

movement in equity prices is considered to be an appropriate benchmark for sensitivity

purposes. An increase and a decrease of 10% in equity prices, with all other variables

held constant, would result in a positive impact of €0.33 million (2021: €0.39 million)

and a negative impact of €0.33 million (2021: €0.39 million) on the Group’s pre-tax

profit and a positive or negative impact of €0.12 million on the Company’s pre-tax

results (2021: €0.14 million).

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

113

4. Management of risk - continued

4.2 Financial risk - continued

(a) Market risk - continued

iii) Currency risk

The Group and Company have assets and liabilities denominated in major foreign

currencies other than euro. The Group and Company are therefore exposed to currency

risk, as the value of assets and liabilities denominated in other currencies will fluctuate

due to changes in exchange rates. The Group hedges its foreign currency denominated

debt securities using forward exchange contracts in order to mitigate the risk that

principal cash flows for these investments fluctuate as a result of changes in foreign

exchange rates. The Group is also exposed to foreign currency risk arising from its

equity securities denominated in major foreign currencies. At 31 December 2022

foreign currency exposure amounted to €263.00 million (2021: €334.61 million).

The Group’s and Company’s exposure to exchange risk is limited through the

establishment of guidelines for investing in foreign currency and hedging currency risk

through forward exchange contracts were considered necessary. These guidelines are

approved by the respective Boards and a manageable exposure to currency risk is

thereby permitted.

The table below summarises the Group’s exposure to foreign currencies other than

euro.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

114

4. Management of risk - continued

4.2 Financial risk - continued

(a) Market risk - continued

iii) Currency risk - continued

Group

31 December 2022


		Notional
	Net exposure	amount of
	before	currency	Net exposure
	hedging	derivatives	after hedging
	€’000	€’000	€’000

Currency of exposure:
USD	194,131	2,325	191,806
CHF	19,762	—	19,762
GBP	6,679	901	5,778
SEK	11,932	—	11,932
DKK	13,378	—	13,378
HKD	7,454	—	7,454
Others	19,687	6,801	12,886


	273,023	10,027	262,996

Group

31 December 2021


		Notional
	Net exposure	amount of
	before	currency	Net exposure
	hedging	derivatives	after hedging
	€’000	€’000	€’000

Currency of exposure:
USD	295,887	65,317	230,570
CHF	29,450	—	29,450
GBP	18,566	9,752	8,814
SEK	15,122	—	15,122
DKK	19,277	—	19,277
Others	72,873	41,500	31,373


	451,175	116,569	334,606

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

115

4. Management of risk - continued

4.2 Financial risk - continued

(a) Market risk - continued

iii) Currency risk - continued

Within the table above, €238.20 million of the unhedged exposure relates to equity

investments (2021: €324.31 million). Due to an increasingly globalised economy, the

Group’s equity investments are diversified across various currencies. The directors

consider that the exposure to currency risk is appropriately captured in the equity price

risk sensitivity (Note 4.2(a)(ii)). Any residual currency exposure relating to non-equity

investments is not considered to be significant.

The table below summarises the Company’s exposure to foreign currencies other than

euro.

Company

31 December 2022


		Notional
	Net exposure	amount of
	before	currency	Net exposure
	hedging	derivatives	after hedging
	€’000	€’000	€’000

Currency of exposure:
USD	(155)	—	(155)
GBP	(33)	—	(33)
Other	2	—	2


	(186)	—	(186)

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

116

4. Management of risk - continued

4.2 Financial risk - continued

(a) Market risk - continued

iii) Currency risk - continued

Company

31 December 2021


		Notional
	Net exposure	amount of
	before	currency	Net exposure
	hedging	derivatives	after hedging
	€’000	€’000	€’000

Currency of exposure:
USD	(72)	—	(72)
GBP	108	—	108
Others	2	—	2


	38	—	38

The Company’s foreign exposure relates to foreign operations now in run-off.

(b) Credit risk

Credit risk is the risk of decreases in value when counterparties are not capable of

fulfilling their obligations or when a change in their credit status takes place. The

Group has exposure to credit risk, which is the risk that a counterparty will be unable

to pay amounts in full when due. Key areas where the Group is exposed to credit risk

are:

•Investments and cash and cash equivalents

•Reinsurers’ share of technical provisions

•Amounts due from reinsurers in respect of claims already paid

•Amounts due from insurance contract holders

•Amounts due from insurance intermediaries

•Counterparty risk with respect to forward foreign exchange contracts

The Group places limits on the level of credit risk undertaken from the main categories

of financial instruments. These limits also take due consideration of the solvency

restrictions imposed by the relevant Insurance Regulations. The investment strategy of

the Group considers the credit standing of the counterparty and control structures are in

place to assess and monitor these risk thresholds.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

117

4. Management of risk - continued

4.2 Financial risk - continued

(b) Credit risk - continued

The Group structures the levels of credit risk it accepts by limiting as far as possible its

exposure to a single counterparty or groups of counterparties. The Group has in place

internal control structures to assess and monitor credit exposures and risk thresholds.

The Group’s cash is placed with a number of core domestic credit institutions and

investment grade international banks, thereby reducing the concentration of

counterparty credit risk to an acceptable level.

Reinsurance is used to manage insurance risk. This does not, however, discharge the

Group’s liability as primary insurer. If a reinsurer fails to pay a claim for any reason,

the Group remains liable for the payment to the policyholder. The creditworthiness of

reinsurers is monitored on a quarterly basis by reviewing credit grades provided by

rating agencies and other publicly available financial information, thereby ensuring the

continuous financial strength of the reinsurer. At the same time as the Board approves

the overall reinsurance protection of the Group, it ensures that the reinsurers’ credit

rating (either Standard & Poor’s or equivalent) is within the parameters set by it.

The Group is exposed to contract holders and intermediaries for insurance premium.

Credit agreements are in place in all cases where credit is granted, and in the case of

certain larger risks, premium payment warranties are in place. This limits the liability

of the Group towards the insured or any third party if the premium remains unsettled

after the credit period granted and allows the Group to cancel the policy ab initio, if

considered necessary. Records are kept of the payment history for significant contract

holders and intermediaries with whom regular business is conducted. Credit is not

granted to contract holders or intermediaries whose payment history is not satisfactory.

Credit risk with respect to debtors is further limited due to the large number of

customers comprising the Group’s debtor base.

The exposure to individual counterparties is also managed by other mechanisms, such

as the right to offset where counterparties are both debtors and creditors of the Group.

Management information reported to the Group includes details of provisions for

impairment on loans and receivables and subsequent write-offs. The Company

performs risk-based reviews to assess the degree of compliance with the Group’s

procedures on credit and take action accordingly.

The Group does not trade in derivative contracts, with the exception of forward

contracts and exchange traded futures. All derivative contracts are placed with quality

financial institutions within the parameters of a hedging policy approved by the Board.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

118

4. Management of risk - continued

4.2 Financial risk - continued

(b) Credit risk - continued

The total assets bearing credit risk are the following:


	Group		Company
	2022	2021	2022	2021
	€'000	€'000	€'000	€'000

Debt securities	787,592	1,011,485	10,341	6,337
Other financial assets (including deposits with banks and other loans)	116,728	204,888	—	—
Forward foreign exchange contracts	2,698	—	—	—
Reinsurers share of technical provisions	22,352	25,823	21,876	24,890
Insurance and other receivables	27,029	29,333	18,402	17,416
Cash and cash equivalents	137,286	71,443	11,130	11,575


Total	1,093,685	1,342,972	61,749	60,218

The carrying amounts disclosed above represent the maximum exposure to credit risk.

These assets are analysed in the table below using Standard & Poor’s rating (or

equivalent).


	Group		Company
	2022	2021	2022	2021
	€'000	€'000	€'000	€'000

AAA	115,968	159,144	1,976	—
AA	179,400	239,071	2,642	2,834
A	273,745	327,557	23,990	25,676
BBB	386,998	465,102	9,542	9,761
Below BBB or not rated	137,574	152,098	23,599	21,947


	1,093,685	1,342,972	61,749	60,218

Debt securities, loans and receivables and cash and cash equivalents that are not rated

are primarily held with highly reputable financial institutions.

The Company does not hold any collateral as security to its credit risk.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

119

4. Management of risk - continued

4.2 Financial risk - continued

(b) Credit risk - continued

Financial assets that are past due but not impaired

The following insurance and other receivables are classified as past due but not

impaired:


	Group and Company
	2022	2021
	€’000	€’000

Within credit terms	9,906	9,272
Not more than three months	3,450	3,263
Within three to twelve months	2,211	1,926
Over twelve months	441	716


	16,008	15,177

IFRS 7 defines a financial asset as being past due when the counterparty has failed to

make a payment when contractually due. It goes further to stipulate that full disclosure

must be made of all balances due from this particular counterparty, including those,

which are still within credit terms and therefore not contractually due.

The overall exposure of the Group and Company in terms of IFRS 7 is €16.01 million

(2021: €15.18 million), of which €9.91 million (2021: €9.27 million) is not

contractually due. It is the view of the directors that no impairment charge is necessary,

due to the following reasons:

1.Settlements after year-end.

2.In cases where the amount has not been settled, agreement for settlement has

been reached or is being negotiated.

Trade receivables at 31 December 2022 did not comprise any amounts (2021: nil)

whose terms had been renegotiated from the original terms and which were classified

as fully performing.

Financial assets that are impaired

Within insurance and other receivables are the following receivables that are classified

as impaired against which a provision for impairment has been provided as per Note

26:


	Group and Company
	2022	2021
	€	€

Over twelve months	440	387

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

120

4. Management of risk - continued

4.2 Financial risk - continued

(b) Credit risk - continued

A decision to impair an asset is based on the following information that comes to the

attention of the Group:

•Significant financial difficulty of the debtor.

•It becoming probable that the debtor will enter bankruptcy or other financial

reorganisation.

•A breach of contract, such as protracted default in payments

•The debtor has been referred to the in-house legal office.

The Group is exposed to daily calls on its available cash resources mainly from claims

and benefits arising from insurance contracts. Liquidity risk is the risk that cash may not

be available to pay obligations when due at a reasonable cost. The Group manages its

funds in such a manner as to ensure an adequate portion of available funds to meet such

calls. With respect to life insurance contracts this is principally managed through limits

set by the Board of MMSV on the minimum proportion of maturing funds available to

meet such calls. Furthermore, the Group invests a majority of its assets in listed

investments that can be readily disposed of.

The following table indicates the expected timing of cash flows arising from the maturity

or settlement of Group’s liabilities. The expected cash flows do not consider the impact of

early surrenders on life insurance contracts.


	Group expected cash flows (€ millions) 2022
	0-1 yr	1-2 yrs	2-3 yrs	3-4 yrs	4-5 yrs	>5 yrs	Total

Technical provisions - Life insurance contracts and investment contracts with DPF	296.9	212.7	176.5	155.8	122.1	1,044.5	2,008.5
Technical provisions - claims outstanding	15.3	6.0	3.6	2.5	1.2	25.6	54.2
Lease liabilities	0.4	0.4	0.3	0.2	0.2	0.2	1.7
Insurance and other payables (contractual)	28.0	—	—	—	—	—	28.0

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

121

4. Management of risk - continued

4.2 Financial risk - continued


	Group expected cash flows (€ millions) 2021
	0-1 yr	1-2 yrs	2-3 yrs	3-4 yrs	4-5 yrs	>5 yrs	Total

Technical provisions - Life insurance contracts and investment contracts with DPF	338.9	264.6	219.8	191.5	163.2	1,199.7	2,377.7
Technical provisions - claims outstanding	14.6	5.8	3.2	2.5	1.1	26.6	53.8
Lease Liabilities	0.4	0.4	0.3	0.3	0.2	0.4	2.0
Insurance and other payables (contractual)	31.2	—	—	—	—	—	31.2

Expected cash flows on unit linked liabilities have not been included as the directors

consider that there is limited exposure to liquidity risk given that these are principally

backed by unit linked assets.


	Company expected cash flows (€ millions) 2022
	0-1 yr	1-2 yrs	2-3 yrs	3-4 yrs	4-5 yrs	>5 yrs	Total

Technical provisions - claims outstanding	15.3	6.0	3.6	2.5	1.2	25.6	54.2
Lease liabilities	0.4	0.3	0.3	0.2	0.2	0.2	1.6
Insurance and other payables (contractual)	12.6	—	—	—	—	—	12.6


	Company expected cash flows (€ millions) 2021
	0-1 yr	1-2 yrs	2-3 yrs	3-4 yrs	4-5 yrs	>5 yrs	Total

Technical provisions - claims outstanding	14.6	5.8	3.2	2.5	1.1	26.6	53.8
Lease Liabilities	0.4	0.3	0.3	0.3	0.2	0.40	1.9
Insurance and other payables (contractual)	13.4	—	—	—	—	—	13.4

The above cash flows are undiscounted other than those for Technical provisions –

Life insurance contracts and investment contracts with DPF, which liability is

determined as the sum of the expected discounted value of future cash flows.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

122

4. Management of risk - continued

4.2 Financial risk - continued

The table below analyses the Group’s derivative financial instruments that will be

settled on a gross basis. The amounts disclosed in the table are the contractual

undiscounted cash flows. Balances due within 12 months equal their carrying balances,

as the impact of discounting is not significant.


	Group
	2022	2021
	€’000	€’000
At 31 December
Foreign exchange contracts
- outflow	(97,744)	(128,215)
- inflow	100,443	127,440

At 31 December 2022 and 2021, the above derivatives were due to be settled within

three months after year end.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

123

4.Management of risk - continued

4.3Fair values

The following table presents the assets measured in the statements of financial

position at fair value by level of the following fair value measurement hierarchy at 31

December 2022:

•Quoted prices (unadjusted) in active markets for identical assets or liabilities

(Level 1);

•Inputs other than quoted prices included within Level 1 that are observable for

the asset or liability, either directly (that is, as prices) or indirectly (that is,

derived from prices) (Level 2); and

•Inputs for the asset or liability that are not based on observable market data

(that is, unobservable inputs) (Level 3).

The Group recognises transfers between levels of the fair value hierarchy at the end of

the reporting period during which the change has occurred.

The following tables present the assets measured at fair value at 31 December 2022.


Group
	Level 1	Level 2	Level 3	Total
	€'000	€'000	€'000	€'000
Assets
Financial assets at fair value through profit or loss
- Equity Securities, units in unit trusts and
collective investment schemes	973,661	40,912	61,609	1,076,182
- Debt Securities	529,741	248,113	—	777,854
Other available-for-sale investments	5,605	4,703	—	10,308
Derivative financial instruments	—	2,698	—	2,698
Investment in associated undertakings	—	22,647	—	22,647


Total assets	1,509,007	319,073	61,609	1,889,689


Liabilities
Unit linked financial liabilities	—	102,256	—	102,256


Total liabilities	—	102,256	—	102,256

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

124

4.Management of risk - continued

4.3Fair values - continued


Company
	Level 1	Level 2	Total
	€'000	€'000	€'000

Assets
Financial assets at fair value through profit and loss
- Equity Securities, units in unit trusts and collective investment schemes	—	1,186	1,186
- Debt Securities	603	—	603
Other available-for-sale investments	5,605	4,703	10,308


Total assets	6,208	5,889	12,097

The following table presents the changes in Level 3 instruments for the year ended 31

December:

The following tables present the assets measured at fair value at 31 December 2021.


Group
	Level 1	Level 2	Level 3	Total
	€'000	€'000	€'000	€'000
Assets
Financial assets at fair value through profit or loss
- Equity Securities, units in unit trusts and collective investment schemes	1,129,261	48,834	18,756	1,196,851
- Debt Securities	691,704	314,202	—	1,005,906
Other available-for-sale investments	4,265	1,965	—	6,230
Investment in associated undertakings	—	22,449	—	22,449


Total assets	1,825,230	387,450	18,756	2,231,436


Liabilities
Unit linked financial liabilities	—	113,509	—	113,509
Derivative financial instruments	—	775	—	775


Total liabilities	—	114,284	—	114,284

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

125

4.Management of risk - continued

4.3Fair values - continued


Company
	Level 1	Level 2	Total
	€'000	€'000	€'000

Assets
Financial assets at fair value through profit or loss
- Equity Securities, units in unit trusts and collective investment schemes	—	1,393	1,393
- Debt Securities	758	—	758
Other available-for-sale investments	4,265	1,965	6,230

Total assets	5,023	3,358	8,381

Fair value measurements classified as Level 1 include government debt securities, units

in unit trusts and collective investments schemes and foreign listed equities.

Corporate debt securities are classified as Level 2 in view of their trading

characteristics. The financial liabilities for unit linked contracts were classified as Level

2. The fair value of these contracts is determined using the current unit values that

reflect the fair values of the financial assets (classified as Level 1) linked to the

financial liability. Derivative foreign exchange forward contracts have been classified

as Level 2. The fair value of these instruments is determined by reference to market

observable forward currency rates and interest rates. Domestic equities are classified as

Level 2 in view of their trading characteristics.

At 31 December 2022, 3.3% (2021:0.9%) of the financial assets measured at fair value

on a recurring basis were classified as Level 3. They constitute investment in unlisted

equities. The Group has €61.6m (2021:€18.8m) assets classified as Level 3, the

valuation of which has been determined by reference to the net assets of the underlying

investment.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

126

4.Management of risk - continued

4.3Fair values - continued


	Group

	2021
		Equity securities
		€'000
	Opening balance	—
	Additions	18,558
	Total gains recognised in profit or loss	198


	Closing balance	18,756



	2022

	Opening balance	18,756
	Additions	38,363
	Total gains recognised in profit or loss	4,490


	Closing balance	61,609

The analysis of investment property is included within Note 19.

At 31 December 2022 and 2021, the carrying amount of the Group’s and Company’s

other financial assets and liabilities approximated their fair values with the exception of

the subsidiary’s financial liabilities emanating from investment contracts with DPF. It

is impractical to determine the fair value of these contracts due to the lack of a reliable

basis to measure the future discretionary return that is a material feature of these

contracts.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

127

5.Capital management

The Group’s policy is to maintain a strong capital base to support its business growth

plans and comply with all regulatory requirements on an ongoing basis whilst assessing

the impact of shareholder returns on its capital employed. The Group defines capital as

shareholders’ equity.

The Group’s objectives when managing capital are to:

•comply with the obligations to hold Eligible Own Funds to cover the Solvency

Capital Requirement and Minimum Capital Requirement in terms of the Insurance

Business Act, 1998, (Chapter 403, Laws of Malta) and the applicable Insurance

Rules issued under the Insurance Business Act (‘Insurance Rules’) by the Malta

Financial Services Authority (‘MFSA’);

•provide for the capital requirements of the companies within the Group;

•safeguard the Group’s and individual component companies’ ability to continue as a

going concern and provide returns for shareholders and benefits for other

stakeholders; and

•to provide an adequate return to shareholders by pricing insurance contracts

commensurate with the level of risk.

The individual insurance Group companies are required to hold regulatory capital for

their non-life and life assurance business in compliance with the Insurance Rules issued

by the MFSA. The minimum capital requirements must be maintained at all times

throughout the period. The individual Group companies monitor the level of their own

funds on a regular basis. Any transactions that may potentially affect the individual

company’s own funds and solvency position are immediately reported to their

respective directors and shareholders for resolution.

The Company’s Minimum Capital Requirement Absolute Floor stands at €8,000,000,

up from the €7,400,000 in the previous year, as per paragraph 5.6.4 of Chapter 5

(‘Valuation of assets and liabilities, technical provisions, own funds, Solvency Capital

Requirement, Minimum Capital Requirement and investment rules’) of Part B of the

Insurance Rules.

Based on management calculations to date, the Company is sufficiently capitalised and

was compliant at all times with the regulatory capital requirements as stipulated by the

MFSA which are in line with the Solvency II requirements. All other companies within

the Group were also compliant with the respective minimum regulatory requirements

throughout the financial period as per management calculations to date.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

128

6.Segment information

Management has determined the operating segments based on the reports reviewed by

the Executive Management team that are used to make strategic decisions. In

identifying the Group’s business segments, the chief operating decision-maker is also

guided by the Regulations under the Insurance Business Act, 1998 on the disclosure

requirements relevant to specified insurance classes of business.

The Group operates in two main business segments, general business, that is further

sub-divided into various insurance business classes, and long-term business. The

segment results for the years ended 31 December 2022 and 2021 are indicated below.

General business

Gross premiums written and gross premiums earned by class of business


	Group and Company
	Gross premiums written		Gross premiums earned
	2022	2021	2022	2021
	€’000	€’000	€’000	€’000
Direct insurance
Motor (third party liability)	19,852	19,131	19,097	18,843
Motor (other classes)	20,875	18,615	20,082	18,334
Fire and other damage to property	15,089	14,550	14,619	13,554
Accident & Health	18,986	16,093	18,098	15,358
Other classes	9,637	9,224	9,864	8,545


	84,439	77,613	81,760	74,634

100% (2021: 100%) of consolidated gross premiums written for direct general

insurance business emanate from contracts concluded in or from Malta. All premiums

emanate from external customers and there is no business transacted between segments

other than as disclosed in Note 35.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

129

6. Segment information - continued

General business - continued

Gross claims incurred, gross operating expenses and reinsurance balance by class of business


	Group and Company

	Gross claims incurred		Gross operating expenses		Reinsurance balance
	2022	2021	2022	2021	2022	2021
	€'000	€'000	€'000	€'000	€'000	€'000
Direct insurance
Motor (third party liability)	18,707	21,820	6,210	6,243	(902)	(1,984)
Motor (other classes)	8,390	5,474	6,530	5,552	152	160
Fire and other damage to property	4,281	3,703	4,865	4,534	4,822	4,710
Accident & Health	8,781	6,883	6,009	5,192	190	232
Other classes	2,577	2,218	4,086	3,464	2,128	1,481


	42,736	40,098	27,700	24,985	6,390	4,599

The reinsurance balance represents the charge/(credit) to the technical account arising

from the aggregate of all items relating to reinsurance outwards.

Long term business

(i)Gross premium written


	Group		Company
	2022	2021	2022	2021
	€'000	€'000	€'000	€'000

Gross premiums written
Direct insurance	251,439	327,632	2,680	2,497

The long-term business is mainly written through its subsidiary undertaking MAPFRE

MSV Life p.l.c. (‘MSV’).

Group direct insurance is further analysed between:

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

130

6. Segment information - continued

Long term business - continued

(i)Gross premium written - continued


	Periodic premiums		Single premiums
	2022	2021	2022	2021
	€'000	€'000	€'000	€'000

Non-participating	17,599	17,107	—	—
Participating	44,203	42,186	184,696	264,353
Linked	1,858	1,967	3,083	2,019


	63,660	61,260	187,779	266,372

In addition to the above, premium credited to liabilities in Note 24 in relation to linked

products classified as investment contracts without DPF was as follows:


	Periodic premiums		Single premiums
	2022	2021	2022	2021
	€'000	€'000	€'000	€'000

Investment contracts	3,777	2,603	2,373	1,456

Gross premiums written by way of direct business of insurance relate to individual

business and group contracts. All long term contracts of insurance are concluded in or

from Malta.

(ii)Reinsurance balance

The reinsurance balance, which represents the aggregate of all items relating to

reinsurance outwards mainly attributable to insurance contracts included in the long-

term business technical account are as follows:


	Group		Company
	2022	2021	2022	2021
	€'000	€'000	€'000	€'000

Charge for reinsurance outwards	2,476	1,049	225	202

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

131

6. Segment information - continued

Long term business - continued

(iii)Analysis between insurance and investment contracts


	Group		Company
	2022	2021	2022	2021
	€'000	€'000	€'000	€'000

Gross premium written
Insurance contracts	32,047	33,245	2,680	2,497
Investment contracts with DPF	219,392	294,387	—	—


	251,439	327,632	2,680	2,497



Claims incurred, net of reinsurance
Insurance contracts	51,945	56,877	596	1,098
Investment contracts with DPF	243,616	249,191	—	—


	295,561	306,068	596	1,098

Reconciliation of reportable segment profit to profit or loss for the financial year

before tax


	Group
	2022	2021
	€	€

Profit on general business	4,763	5,260
Profit on long term business	18,569	19,012
Net investment income not allocated to technical accounts	4	(26)
Revaluation loss on freehold land and buildings	—	(1,521)
Other income	1,135	1,438
Administrative expenses	(2,829)	(3,773)
Recovery of impairment in group undertaking	540	—


Profit for the financial year before tax	22,182	20,390

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

132

6.Segment information - continued

Reconciliation of reportable segment profit to profit or loss for the financial year

before tax - continued


	Company
	2022	2021
	€	€

Profit on general business	4,763	5,260
Profit on long term business	1,321	916
Net investment income	1,313	141
Administrative expenses	(1,946)	(2,254)
Recovery of impairment in group undertaking	540	—


Profit for the financial year before tax	5,991	4,063

Geographical information

The segment results for the years ended 31 December 2022 and 2021 by geographical

area are indicated below:


	Group Gross premiums written		Company Gross premiums written
	2022	2021	2022	2021
	€'000	€'000	€'000	€'000
Continuing operations
Malta	335,878	405,245	87,119	80,110

Group segment assets and liabilities

The Group operates a business model which does not allocate either assets or liabilities

of the operating segments in its internal reporting. Segment assets below consist

principally of investments backing up the net technical provisions.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

133

6.Segment information - continued

Group segment assets and liabilities - continued



	Motor third Party	Motor other	Fire and other damage to property	Accident and health	Other classes	Long- term business	Unallocated	Total
	€'000	€'000	€'000	€'000	€'000	€'000	€'000	€'000
At 31 December 2022
Assets allocated to business segments	45,253	15,638	15,380	12,121	15,773	2,065,369	17,422	2,186,956
Assets allocated to shareholders	—	—	—	—	—	—	283,232	283,232


Total assets	45,253	15,638	15,380	12,121	15,773	2,065,369	300,654	2,470,188



At 31 December 2021
Assets allocated to business segments	43,786	14,887	14,929	10,802	15,742	2,439,816	16,562	2,556,524
Assets allocated to shareholders	—	—	—	—	—	—	275,229	275,229


Total assets	43,786	14,887	14,929	10,802	15,742	2,439,816	291,791	2,831,753

The total of non-current assets, other than financial instruments, deferred tax assets and

risks arising under insurance contracts of €235.35 million (2021: €239.20 million) are

all located in Malta.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

134

7.Net operating expenses


	Group		Company
	2022	2021	2022	2021
	€	€	€	€

Acquisition costs	35,964	34,695	24,177	21,709
Change in deferred acquisition costs, net of reinsurance	(845)	212	(845)	212
Administrative expenses	13,789	13,143	6,830	6,204
Reinsurance commissions and profit participation	(4,961)	(4,827)	(4,928)	(4,665)


	43,947	43,223	25,234	23,460


Allocated to:
General business	22,867	20,878	22,867	20,878
Long term business	18,251	18,572	421	328
Non-technical account (administrative expenses)	2,829	3,773	1,946	2,254


	43,947	43,223	25,234	23,460

Total commissions for direct business accounted for in the financial year amounted to

€23.11 million (2021: €23.51 million) in the Group’s technical result and €16.51

million (2021: €15.36 million) in the Company’s technical result. €6.03 million (2021:

€7.45 million) of the Group charge arose on investment contracts. Administrative

expenses mainly comprise employee benefit expenses which are analysed in Note 11.

Further detail relating to administrative expenses is included in Note 10.

Non-technical account

Administrative expenses in the non-technical profit or loss account represent

expenditure after appropriate apportionments are made to the general and long term

business technical accounts. They include staff costs, premises costs, depreciation

charge, directors’ fees, auditors’ remuneration, professional fees, marketing and

promotional costs, and other general office expenditure.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

135

8.Investment return


	Group		Company
	2022	2021	2022	2021
	€	€	€	€

Investment income
Dividend income from group undertakings	—	—	1,313	141
Share of profit of other associated undertaking, net of tax	95	89	—	—
Rent receivable from investment property	6,196	5,835	776	717
Interest receivable from loans and receivables
- other financial assets not at fair value	1,427	1,893	—	—
Income from financial assets at
- dividend income	10,780	9,572	33	7
- net fair value gains and interest on bonds	—	90,006	—	—
Income from available-for-sale assets
- dividend income	—	26	—	26
- net fair value gains and interest on bonds	55	187	55	187
Net fair value gains on investment property	—	—	—	—
Other investment income	996	595	5	—
Exchange differences	2	17	2	17


	19,551	108,220	2,184	1,095

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

136

8.Investment return - continued


	Group		Company
	2022	2021	2022	2021
	€’000	€’000	€’000	€’000
Investment expenses and charges
Direct operating expenses arising from investment property that generated rental income	342	385	13	15
Interest expense on loans and receivables	27	66	27	66
Interest expense for financial liabilities that are not at fair value through profit or loss	7	3	7	3
Expense on financial assets at fair value through profit or loss
- net fair value losses and interest on bonds	296,097	51	333	51
Net fair value losses on investment property	3,011	3,113	642	473
Other investments expenses	6,797	6,815	18	2
Interest on lease liabilities	51	48	51	48


	306,332	10,481	1,091	658


Net investment return	(286,781)	97,739	1,093	437



Analysed between:
Allocated investment return transferred to the general business technical account	(171)	307	(171)	307
Investment return included in the long term business technical account	(286,614)	97,458	(49)	(11)
Other investment income included in the non-technical account	4	(26)	1,313	141


	(286,781)	97,739	1,093	437

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

137

9. Other income


	Group
	2022	2021
	€'000	€'000
Other technical income, net of reinsurance
Investment management fees	688	724
Other	55	64


	743	788


Other income - non technical
Management fees	603	655
Other income	532	783


	1,135	1,438

10.Profit before tax

The profit before tax is stated after charging/(crediting):


	Group		Company
	2022	2021	2022	2021
	€’000	€’000	€’000	€’000

Employee compensation (Note 11)	13,709	12,649	7,553	7,784
Depreciation/amortisation:
- intangible assets (Note 16)	2,575	2,207	1,973	1,523
- property, plant and equipment (Note 18)	1,071	855	579	518
Release of provision for impairment on receivables (Note 26)	(135)	(106)	(135)	(106)
Impairment of receivables	29	9	29	9
Increase in provision for impairment on receivables (Note 26)	188	160	188	160

The financial statements include fees, exclusive of VAT, charged by the Company's

auditors for services rendered during the financial years ended 31 December 2022 and

2021, relating to entities that are included in the consolidation amounting to:

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

138

10.Profit before tax - continued


	Group		Company
	2022	2021	2022	2021
	€’000	€’000	€’000	€’000

Annual statutory audit	599	310	271	149
Solvency II audit	105	103	45	44
Non-audit services	2	1	—	—


Paid during the year:
for financial year 2022	296	—	136	—
for financial year 2021	276	143	127	70
for financial year 2020	—	319	—	160

11. Employee compensation


	Group		Company
	2022	2021	2022	2021
	€'000	€'000	€'000	€'000

Salaries	12,908	12,001	7,098	7,366
Social security costs	667	648	395	418
Contributions to Employee Voluntary Occupational Pension Scheme	134	—	60	—


	13,709	12,649	7,553	7,784

The average number of persons employed during the year was:



	Group		Company
	2022	2021	2022	2021
	€'000	€'000	€'000	€'000

Key management personnel	27	26	14	14
Managerial	41	42	19	20
Technical	213	208	139	148
Administrative	9	9	5	5


	290	285	177	187

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

139

12. Tax expense


	Group		Company
	2022	2021	2022	2021
	€'000	€'000	€'000	€'000

Current tax expense	44,722	2,311	1,888	1,645
Deferred tax expense (Note 23)	(37,183)	5,156	313	(190)


Income tax expense	7,539	7,467	2,201	1,455

The tax on the Group’s and Company’s profit before tax differs from the theoretical

amount that would arise using the basic tax rate as follows:


	Group		Company
	2022	2021	2022	2021
	€’000	€’000	€’000	€’000

Profit before tax	22,182	20,390	5,991	4,063



Tax at 35%	7,764	7,137	2,097	1,422
Adjusted for tax effect of :
Net exempt income and disallowed expenses	(17)	49	306	47
Property withholding tax at 8% or10%	(97)	476	170	115
Other	(111)	(195)	(372)	(129)

Income tax expense	7,539	7,467	2,201	1,455

13. Directors’ emoluments


	Group		Company
	2022	2021	2022	2021
	€'000	€'000	€'000	€'000

Directors' fees	307	289	224	271

Group Directors’ fees include fees payable to the Company’s directors both from the

Company and from other Group Companies where applicable.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

140

14.Earnings per share

Earnings per share are based on the net profit for the year divided by the weighted

average number of ordinary shares in issue during the year.


	Group
	2022	2021
	€'000	€'000

Profit attributable to owners of the Company	8,794	7,643



Number of ordinary shares
in issue (Note 28)	92,000	92,000

Basic and diluted earnings per share attributable to owners of the Company (€)	0.096	0.083

15.Dividends

A final gross dividend in respect of year ended 31 December 2022 of €0.054617

(2021: €0.030401) per share amounting to a total dividend of €5,024,817 (2021:

€2,796,910) is to be proposed by the directors at the forthcoming annual general

meeting. This is equivalent to a net dividend of €0.038043 (2021: €0.026087) per

share amounting to a total net dividend of €3,500,000 (2021: €2,400,000).

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

141

16.Intangible assets



Group
	Valuation in-force business (i)	Computer Software	Deferred Acquisition cost (ii)	Total
	€'000's	€'000's	€'000's	€'000's
At 1 January 2021
Cost or valuation	77,192	36,694	3,642	117,528
Accumulated amortisation and impairment	—	(19,311)	(3,381)	(22,692)


Net book amount	77,192	17,383	261	94,836


Year ended 31 December 2021
Opening net book amount	77,192	17,383	261	94,836
Increase in value of in force business credited to reserves	9,912	—	—	9,912
Additions	—	7,111	77	7,188
Amortisation charge	—	(2,034)	(173)	(2,207)


Closing net book amount	87,104	22,460	165	109,729


At 31 December 2021
Cost or valuation	87,104	43,805	3,719	134,628
Accumulated amortisation and impairment	—	(21,345)	(3,554)	(24,899)


Net book amount	87,104	22,460	165	109,729


Year ended 31 December 2022
Opening net book amount	87,104	22,460	165	109,729
Decrease in value of in-force business debited to reserves	(7,266)	—	—	(7,266)
Additions	—	7,946	155	8,101
Disposals	—	(2)	—	(2)
Amortisation charge	—	(2,563)	(12)	(2,575)


Closing net book amount	79,838	27,841	308	107,987


At 31 December 2022
Cost or valuation	79,838	51,749	3,874	135,461
Accumulated amortisation and impairment	—	(23,908)	(3,566)	(27,474)


Net book amount	79,838	27,841	308	107,987

(i) Value of in-force business - assumptions, changes in assumptions and sensitivity

(ii) This intangible asset relates to investment contracts without DPF only.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

142

16.Intangible assets - continued

Amortisation of €0.24 million (2021: €0.38 million) is included in acquisition costs and

€2.34 million (2021: €1.83 million) is included in administrative expenses.

The after tax value of in-force business is determined by the directors on an annual

basis. The embedded value and expected future profits of each line of business is

assessed.

The value of in-force business is calculated using a large number of assumptions about

future experience. These assumptions concern both future economic and demographic

experience. Forecasting future experience is inherently difficult.

The Group seeks to set assumptions that are consistent with the actual experience of the

business. As a result, the assumptions used in the assessment are revised, at least

annually, to be up to date. The process by which assumptions are changed is described

in more detail below.

The value of with-profits business is most sensitive to the size of the with-profits fund.

A 1% increase in the size of the fund value will increase the embedded value reported

by €0.58 million. A 1% fall in the size of the fund value will reduce the embedded

value reported by €0.61 million.

Similarly, the value of unit-linked business is most sensitive to the size of the unit-

linked fund. A 1% increase in the size of the fund value will increase the embedded

value by €0.14 million. A 1% fall in the size of the fund value will reduce the

embedded value by €0.15 million.

Term assurance business is particularly sensitive to the rates assumed for future

mortality. A 1 percentage point increase in the rates will reduce the embedded value by

€0.29 million, while a 1 percentage point decrease in the rate will increase the

embedded value by €0.29 million.

The economic assumptions used in the calculation have been set to be internally

consistent as well as reflecting the directors’ view of economic conditions in the longer

term. For the current year, short term (2023-2025) inflation assumptions have been

adjusted in line with the Central Bank of Malta outlook. The valuation assumed a long

term real return of 1.4% pa (2021: 1.0% pa) for with-profits business with a risk

discount rate of 4.5% pa (2021: 4.0% pa). For term assurance business the valuation

assumed a real return of 0.15% (2021: -0.5% pa) with a risk discount rate of 5.25% pa

(2021: 4.5% pa). For unit-linked business the valuation assumed a real return of -0.35%

(2021: -1% pa) with a risk discount rate of 5.25% pa (2021: 4.5% pa). Expenses are

assumed to inflate at 2.1% pa (2021: 2.0% pa).

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

143

16.Intangible assets - continued

As noted, economic assumptions are set to be internally consistent and reflect the real

long-term returns anticipated and the risk appetite of the Directors. To maintain this

internal consistency, any changes to the economic assumptions are considered as a

whole. We consider that any changes to the assumptions that do not change the internal

consistency will not significantly change the value of the in-force business.

Demographic assumptions are reviewed on an annual basis to reflect the development

of experience and to improve on the reliability of the estimation process. This year the

prudent rates of expected future mortality have been revised across all product lines.

Future mortality assumptions continue to be set with reference to standard mortality

tables and vary with the age of the policyholder.

Future lapse/surrender assumptions continue to be set as a function of the product type,

the premium frequency, and the duration a policy has been in force. Assumptions

about the servicing costs of in-force policies are also made in line with the current,

aggregate renewal costs as reflected in profit or loss.

Lapse and policy assumptions were also updated in line with past experience and future

expectations.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

144

16.Intangible assets - continued


	Company	Computer Software
		€'000
	At 1 January 2021
	Cost	15,331
	Accumulated amortisation	(7,569)


	Net book amount	7,762



	Year ended 31 December 2021
	Opening net book amount	7,762
	Additions	2,907
	Amortisation charge	(1,523)


	Closing net book amount	9,146



	At 31 December 2021
	Cost	18,238
	Accumulated amortisation	(9,092)


	Net book amount	9,146


	Year ended 31 December 2022
	Opening net book amount	9,146
	Additions	2,794
	Amortisation charge	(1,973)


	Closing net book amount	9,967



	At 31 December 2022
	Cost	21,032
	Accumulated amortisation	(11,065)


	Net book amount	9,967

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

145

16.Intangible assets - continued

No amortisation (2021: nil) is included in acquisition costs and €1.97 million (2021:

€1.52 million) is included in administrative expenses.

Computer software mainly represents amounts capitalised relating to the development

of the Group and Company’s IT system by related companies forming part of the

MAPFRE S.A. Group.

17. Leases

(a)Leases as the lessee

The Group leases property and motor vehicles. Property leases generally run for a

period of five to seven years without the option to renew, whilst motor vehicle leases

typically run for a period of seven years. Lease payments are subsequently renegotiated

to reflect market rates.

i.Right-of-use assets

Right-of-use assets related to leased motor vehicles and properties that do not meet the

definition of investment property are presented as a separate line item on the face of the

Statement of Financial Position.


2021	Group


	Property	Motor vehicles	Total
	€’000	€’000	€’000

Balance on 01 January	341	590	931
Additions	1,036	208	1,244
Derecognition of right-of-use assets	—	(45)	(45)
Depreciation charge for the year	(173)	(155)	(328)


Balance on 31 December	1,204	598	1,802


2022	Group


	Property	Motor vehicles	Total
	€’000	€’000	€’000

Balance on 01 January	1,204	598	1,802
Additions	—	—	—
Derecognition of right-of-use assets	—	(46)	(46)
Depreciation charge for the year	(212)	(129)	(341)
Depreciation released on derecognition	—	46	46


Balance on 31 December	992	469	1,461

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

146

17. Leases - continued

(a)Leases as the lessee - continued

i.Right-of-use assets - continued


2021	Company


	Property	Motor vehicles	Total
	€’000	€’000	€’000

Balance on 01 January	341	425	766
Additions	1,036	153	1,189
Depreciation charge for the year	(173)	(97)	(270)


Balance on 31 December	1,204	481	1,685


2022	Company


	Property	Motor vehicles	Total
	€’000	€’000	€’000

Balance on 01 January	1,204	481	1,685
Depreciation charge for the year	(212)	(95)	(307)


Balance on 31 December	992	386	1,378

ii.Amounts recognised in profit or loss


2021	Group


	Property	Motor vehicles	Total
	€’000	€’000	€’000

Depreciation of right-of-use assets	173	155	328
Interest expense on lease liabilities	21	35	56

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

147

17. Leases - continued

(a)Leases as the lessee - continued

ii.Amounts recognised in profit or loss - continued


2022	Group


	Property	Motor vehicles	Total
	€’000	€’000	€’000

Depreciation of right-of-use assets	212	129	341
Interest expense on lease liabilities	27	28	55


2021	Company


	Property	Motor vehicles	Total
	€’000	€’000	€’000

Depreciation of right-of-use assets	173	97	270
Interest expense on lease liabilities	21	27	48


2022	Company


	Property	Motor vehicles	Total
	€’000	€’000	€’000

Depreciation of right-of-use assets	212	95	307
Interest expense on lease liabilities	27	24	51

In 2022, the Company recognised €28,119 (2021: €36,658), relating to short term

leases, as lease expense in the statement of profit or loss and other comprehensive

income.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

148

17. Leases - continued

(b) Leases as the lessor

The Group and the Company lease out certain property. Note 19 sets out information

about investment property. The Group has classified these leases as operating leases

because they do not transfer substantially all the risks and rewards incidental to the

ownership of the assets.

The following table sets out a maturity analysis of lease payments receivable, showing

the undiscounted lease payments to be received after the reporting date.

Operating leases


	Group		Company
	2022	2021	2022	2021
	€’000	€’000	€’000	€’000

Less than one year	5,530	4,969	654	541
One to two years	4,309	3,388	510	295
Two to three years	3,229	2,676	314	236
Three to four years	1,578	2,268	274	225
Four to five years	1,217	858	38	232
More than five years	3,726	2,434	—	38


Total	19,589	16,593	1,790	1,567

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

149

18.Property, plant and equipment

Group


	Freehold		Furniture
	land and	Leasehold	fittings and
	buildings	improvements	equipment	Total
	€’000	€’000	€’000	€'000
At 1 January 2021
Cost	14,423	3,373	7,837	25,633
Accumulated depreciation	(147)	(1,933)	(5,640)	(7,720)


Closing net book amount	14,276	1,440	2,197	17,913


Year ended 31 December 2021
Opening net book amount	14,276	1,440	2,197	17,913
Additions	218	270	551	1,039
Revaluation gain to other comprehensive income	1,081	—	—	1,081
Revaluation loss to profit or loss	(1,521)	—	—	(1,521)
Depreciation charge	(24)	(219)	(612)	(855)


Closing net book amount	14,030	1,491	2,136	17,657


At 31 December 2021
Cost	14,201	3,643	8,388	26,232
Accumulated depreciation	(171)	(2,152)	(6,252)	(8,575)


Net book amount	14,030	1,491	2,136	17,657

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

150

18.Property, plant and equipment - continued

Group - continued


	Freehold		Furniture
	land and	Leasehold	fittings and
	buildings	improvements	equipment	Total
	€’000	€’000	€’000	€’000
Year ended 31 December 2022
Opening net book amount	14,030	1,491	2,136	17,657
Additions	156	580	754	1,490
Amount transferred to investment property (Note 19)	(457)	—	—	(457)
Depreciation charge	(89)	(238)	(744)	(1,071)
Depreciation on amount transferred to investment property (Note 19)	7	—	—	7


Closing net book amount	13,647	1,833	2,146	17,626



At 31 December 2022
Cost	13,900	4,223	9,142	27,265
Accumulated depreciation	(253)	(2,390)	(6,996)	(9,639)


Net book amount	13,647	1,833	2,146	17,626

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

151

18.Property, plant and equipment - continued

Company


	Freehold		Furniture
	land and	Leasehold	fittings and
	buildings	improvements	equipment	Total
	€'000	€'000	€'000	€'000
At 1 January 2021
Cost	—	2,787	2,999	5,786
Accumulated depreciation	—	(1,410)	(2,124)	(3,534)


Net book amount	—	1,377	875	2,252


Year ended 31 December 2021
Opening net book amount	—	1,377	875	2,252
Transfer from investment property (Note 19)	2,191	—	—	2,191
Additions	—	269	348	617
Depreciation charge	(18)	(187)	(313)	(518)


Closing net book amount	2,173	1,459	910	4,542


At 31 December 2021
Cost	2,191	3,056	3,347	8,594
Accumulated depreciation	(18)	(1,597)	(2,437)	(4,052)


Net book amount	2,173	1,459	910	4,542

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

152

18.Property, plant and equipment - continued


Company - continued

	Freehold		Furniture
	land and	Leasehold	fittings and
	buildings	improvements	equipment	Total
	€’000	€’000	€’000	€’000
Year ended 31 December 2022
Opening net book amount	2,173	1,459	910	4,542
Transfer to investment property (Note 19)	(457)	—	—	(457)
Additions	—	579	388	967
Depreciation charge	(21)	(212)	(346)	(579)
Depreciation released on transfer to investment property (Note 19)	7	—	—	7


Closing net book amount	1,702	1,826	952	4,480



At 31 December 2022
Cost or valuation	1,734	3,635	3,735	9,104
Accumulated depreciation	(32)	(1,809)	(2,783)	(4,624)


Net book amount	1,702	1,826	952	4,480

Freehold land and buildings transferred from investment property are transferred at the

fair value at the point of transfer and are subsequently depreciated. Transfers to

investment property are made at the depreciated value at the point of transfer. If the fair

value of the freehold land and buildings is significantly different as compared to its

carrying amount then a revaluation adjustment is recorded.

Depreciation charge has been included in administrative expenses.

The Group’s and Company’s Land and buildings are shown at fair value (level 3).

A valuation of land and buildings was carried out by external qualified valuers during

2021. The fair value movements were debited to profit or loss. The carrying amount of

land and buildings that would have been included in the financial statements had these

assets been carried at cost less accumulated depreciation for the Group is €12.2 million

(2021: €13.7 million) and for the Company €0.8 million (2021: €1.1 million).

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

153

18. Property, plant and equipment - continued

Valuation processes

Periodically, the Group engages qualified valuers to determine the fair value of the

Group’s land and buildings. As at 31 December 2021, the fair value of the land and

buildings has been determined by PwC Malta. The Company’s land and buildings was

also revalued by PwC Malta in 2022 with no significant change to the carrying amount.

No valuation has been performed in 2022 on the land and building of the subsidiary.

Whenever a valuation is carried out the finance department:

•verifies all major inputs to the valuation report prepared by the qualified valuer;

•assesses property valuation movements when compared to the prior valuation

report; and

•holds discussions with the qualified valuer.

Valuation techniques

The fair value of the Group’s and the Company’s land and buildings, with a total

carrying amount of €13.6 million and €1.7 million respectively (2021: €14.0 million

and €2.2 million respectively), was determined by capitalizing future net income

streams based on significant unobservable inputs. These inputs include:


Valuation technique	Significant unobservable inputs for 2021	Inter-relationship between key unobservable inputs and fair value measurement
Discounted cash flows: The valuation model considers the present value of net cash flows potentially generated from the property, taking into account the expected rental growth rate, void periods and costs not paid for by the tenants. The expected net cash flows are discounted using the risk-adjusted discount rates. Among other factors, the discount rate estimation considers the quality of a building and its location (prime vs secondary), lease terms, property risk premium and inflation.	–Risk-adjusted discount rate varying between 6.2% & 6.8%. –The valuation provides for a void factor varying between 2.5% & 6.7% on rental income. –A benchmark lease market rate was applied once current lease terms expired. –Expected market rental growth rate of 1.6% in line with the implied inflation rate IRR (Internal Rate of Return).	The estimated fair value would increase/(decrease) if: –The risk-adjusted discount rate were lower/(higher); –Void factor were lower/(higher) –The market rate were higher/(lower); –Expected market rental growth were higher/(lower).

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

154

18. Property, plant and equipment - continued

Valuation techniques - continued

Although the properties are currently being used by MMS as its Floriana Regional

Office and MMSV as its head office, for the purpose of the valuation, it was assumed

that the property’s highest and best use would be rental to a third party, assuming same

use. Although the Market Approach was considered, its applicability is limited, due to

the illiquidity of the commercial property market in Malta and therefore, the limited

number of transactions available. Moreover, it is inherently difficult to find

transactions including office blocks that are directly comparable to the property.

19.Investment property


	Group	Company
	€’000	€’000
At 1 January 2021
Cost	63,301	8,047
Accumulated fair value gains	48,217	8,158


Net book amount	111,518	16,205


Year ended 31 December 2021
Opening net book amount	111,518	16,205
Transfer to property, plant & equipment (Note 18)	—	(2,191)
Additions	1,627	4
Disposals	(16)	(16)
Net fair value losses	(3,113)	(473)


Net book amount	110,016	13,529


At 31 December 2021
Cost	65,116	7,022
Accumulated fair value gains	44,900	6,507


Net book amount	110,016	13,529

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

155

19.Investment property - continued


	Group	Company
	€’000	€’000
Year ended 31 December 2022
Opening net book amount	110,016	13,529
Transfer from property, plant & equipment (Note 18)	450	450
Additions	936	76
Disposals	(90)	(7)
Net fair value losses	(3,034)	(644)


Net book amount	108,278	13,404


At 31 December 2022
Cost	66,412	7,541
Accumulated fair value gains	41,866	5,863


Net book amount	108,278	13,404

Transfers to or from property, plant & equipment and disposals are inclusive of

accumulated fair value gains at the point of transfer.

Fair value of land and buildings

A valuation of the Group’s and Company’s land and buildings was performed by

external qualified valuers to determine the fair value of the land and buildings as at 31

December 2022 and 2021. The fair value movements were credited to profit or loss and

are presented within ‘investment return’ (Note 8).

The Group’s and the Company’s investment property, comprising mainly office

buildings, have been determined to fall within level 3 of the fair valuation hierarchy.

The different levels in the fair value hierarchy have been defined in Note 4.3.

The Group’s and the Company’s policy is to recognise transfers into and out of fair

value hierarchy levels as of the date of the event or change in circumstances that caused

the transfer. There were no transfers between levels during the year.

Valuation processes

On an annual basis, the Group and Company engage external, independent property

valuers, having appropriate recognized professional qualifications and recent

experience in the location and category of the properties being valued to determine the

fair value of the land and buildings. As at 31 December 2022, the fair values of the land

and buildings have been determined by PwC Malta and DHI Periti.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

156

19.Investment property - continued

Valuation processes - continued

At each financial year end the investments department:

•verifies all major inputs to the valuation report prepared by the qualified valuer;

•assesses property valuation movements when compared to the prior year valuation

report; and

•holds discussions with the qualified valuer.

The valuation techniques used for investment properties were the discounted cash flow

valuation and comparative methods so as to provide accuracy and consistency in

arriving at a fair value that reflects a price that would be reasonably expected to be

received in an orderly transaction between market participants at the measurement date.

Valuation technique - Discounted cash flow

The following tables shows the valuation technique used in measuring the fair value of

investment property using the discounted cash flow technique, as well as the significant

unobservable inputs used. These inputs include:

Group


Valuation technique	Significant unobservable inputs	Inter-relationship between key unobservable inputs and fair value measurement
Discounted cash flows: The valuation model considers the present value of net cash flows generated from the property, taking into account the expected rental growth rate, void periods and costs not paid for by the tenants. The expected net cash flows are discounted using the risk- adjusted discount rates. Among other factors, the discount rate estimation considers the quality of a building and its location (prime vs secondary), lease terms, property risk premium and inflation.	–Risk-adjusted discount rate varying between 5.7% and 8.1% (2021: 4.9% and 8.0% %). –A void factor varying between 1.5% to 6.5% (2021: 1.9% and 6.7%) on rental income. –Lease market rate was applied once current lease terms expired. –Expected market rental growth rate of 2.0% (2021: 1.6%) in line with the general inflation rate –Construction costs for undeveloped airspace and re-developable land varying between €656/sqm and €1,535/sqm (2021: €725/ sqm and €1,349/sqm)	The estimated fair value would increase/(decrease) if: –The risk-adjusted discount rate were lower/ (higher); –Void factor were lower/ (higher); –The market rate were higher/(lower); –Expected market rental growth were higher/ (lower). –Constructions costs were lower/(higher).

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

157

19. Investment property - continued

Valuation technique - Discounted cash flow - continued

Company


Valuation technique	Significant unobservable inputs	Inter-relationship between key unobservable inputs and fair value measurement
Discounted cash flows: The valuation model considers the present value of net cash flows generated from the property, taking into account the expected rental growth rate, void periods and costs not paid for by the tenants. The expected net cash flows are discounted using the risk- adjusted discount rates. Among other factors, the discount rate estimation considers the quality of a building and its location (prime vs secondary), lease terms, property risk premium and inflation.	–Risk-adjusted discount rate varying between 7.1% and 7.9% (2021: 6.2%). –A void factor of 4.5% (2021: 6.7%) on rental income. –Lease market rate was applied once current lease terms expired. –Expected market rental growth rate of 2.0% (2021: 1.6%) in line with general inflation rate.	The estimated fair value would increase/(decrease) if: –The risk-adjusted discount rate were lower/(higher); –Void factor were lower/ (higher); –The market rate were higher/(lower); –Expected market rental growth were higher/ (lower).

The fair value of investment property determined by external, qualified property

valuers on the basis of the discounted cash flow method amounted to €103.64 million

(2021: €105.68 million) for the Group and €12.13 million (2021: €12.51 million) for

the Company.

In 2021 the Company transferred a portion of Investment Property having a value of

€2.19 million to Property, plant and equipment for own use. During 2022 the Company

transferred back Property, plant and equipment having a value of €0.45 million to

Investment Property.

Valuation technique – Residual value

One property held by the Group situated within the Grand Harbour Local Plan has been

valued using the Residual Method, a technique typically applied in valuations of

development properties and existing properties that have a potential to be redeveloped.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

158

19. Investment property - continued

Valuation technique – Residual value - continued


Valuation technique	Significant unobservable inputs	Inter-relationship between key unobservable inputs and fair value measurement
Residual method: The valuation model comprises: (a) the estimation of the gross development value of the property in a redeveloped form by applying the investment method (income approach), on the basis of potential developed area on completion and a market rent (net of non-recoverable expenses) per square metre (sq.m.), capitalised using an equivalent yield; and deducting (b) estimated development costs incurred in relation to the demolition of existing buildings, design costs, infrastructure works, construction costs, professional fees and costs of letting and sale; and (c) a ‘developer’s profit’ representing an allowance for the risk of undertaking the development.	– Offices net internal area on completion 7,130 sq.m. –Annual net rental rate per sq.m. of office space €141 (2021: €137) –Number of car spaces on completion 159 (2021:149) –Annual net rental rate per car space €816 (2021:€813) –Capitalisation rate 6.4% (2021: 6.8%) –Net development costs €10.0m (2021: €8.9m) –Developer’s profit 15% (2021:15%) –Planning uncertainty discount 10% (2021:10%)	The estimated fair value would increase/(decrease) if: –Offices net internal area on completion were higher/ (lower); –Annual net rental rate per sqm of office space were higher/(lower); –Number of car spaces on completion were higher/ (lower); –Net rental rate per car space were higher/(lower); –Capitalisation rate were lower/ (higher); –Net development costs were lower/(higher); –Developer’s profit were lower/(higher); and –Planning uncertainty discount were lower/ (higher).

The fair value of investment property determined by external, qualified property

valuers on the basis of residual method amounted to €2.67 million (2021: €2.62

million) for the Group.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

159

19. Investment property - continued

Valuation technique - Comparative transactions method

The fair value of the Group’s investment properties determined on the basis of the

market comparison method amounted to €0.7 million in 2022 and 2021. The

comparative method is based on an expected sales value per square metre based on an

average/ median of values derived from observable market transactions for comparable

properties.

Valuation technique - Income Capitalisation Method

The valuation for all other investment property with a total carrying amount of €1.27

million (2021: €1.0 million) for the Group and Company, was determined by

capitalising future net income streams based on significant unobservable inputs. These

inputs include:


	Future rental cash inflows	based on the actual location, type and quality of the properties and supported by the terms of any existing lease, other contracts or external evidence such as current market rents for similar properties;

	Capitalisation rates	based on actual location, size and quality of the properties and taking into account market data at the valuation date.

Information about fair value measurements using significant unobservable inputs (level

Group & Company


			Significant unobservable
	Fair value at 31 December		Inputs
	2022	Valuation	Rental	Capitalisation
	€	technique	value	rate
Description			€	%

Office buildings	1.27m	Capitalisation of	0.05m	3.50 – 5.00
		future net income
		streams

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

160

19.Investment property - continued

Information about fair value measurements using significant unobservable inputs (level

3) - continued

Group & Company


			Significant unobservable
	Fair value at 31 December		Inputs
	2021	Valuation	Rental	Capitalisation
	€	technique	value	rate
Description			€	%

Office buildings	1.00m	Capitalisation of	0.04m	4.25 – 5.00
		future net income
		streams

For each valuation for which rental value and capitalisation rate have been determined

to be the significant unobservable inputs, the higher the rental value and the lower the

capitalisation rate, the higher the fair value. Conversely, the lower the rental value and

the higher the capitalisation rate, the lower the fair value.

In the absence of future rental cash inflows, fair value is based on active market prices,

adjusted, if necessary for any difference in the nature, location or condition of the

specific asset.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

161

19.Investment property - continued

Sensitivity analysis

Sensitivity analysis was carried out to assess the impact of changing the risk-adjusted

discount rate (0.5 percentage point increase/decrease), or the market rental rate growth

(5.0 percentage point increase/decrease) in the case of the discounted cash flow or

residual method, and the capitalisation rate for the income capitalisation method. The

tables below show the changes in the valuation arising from such changes:

Group


	2022	2022	2021	2021
	-0.5%	+0.5%	-0.5%	+0.5%
	€ million	€ million	€ million	€ million
Discount rates	9.3	(8.0)	9.6	(8.2)

	2022	2022	2021	2021
	-5%	+5%	-5%	+5%
	€ million	€ million	€ million	€ million
Market rates	(5.4)	5.3	(6.0)	6.0

Company


	2022	2022	2021	2021
	-0.5%	+0.5%	-0.5%	+0.5%
	€ million	€ million	€ million	€ million
Discount rates	1.1	(0.9)	1.0	(0.9)

	2022	2022	2021	2021
	-5%	+5%	-5%	+5%
	€ million	€ million	€ million	€ million
Market rates	(0.5)	0.5	(0.5)	0.5

The impact on profit or loss would be a maximum increase of €1.1 million (2021: €1.1

million) or a maximum decrease of €1.1 million (2021: €1.1 million) for the Group and

a maximum increase of €1.1 million (2021: €1.0 million) or a maximum decrease of

€0.9 million (2021: €0.9 million) for the Company.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

162

20.Investment in subsidiary undertakings


		Company
		€’000

	Year ended 31 December 2022
	Opening and closing net book amount	77,214


	Closing net book amount	77,214


	Year ended 31 December 2021
	Opening net book amount	57,214
	Additions	20,000


	Closing net book amount	77,214

The subsidiary undertakings at 31 December are shown below:


Subsidiary undertakings	Registered office	Class of shares held	Percentage of shares held
			2022	2021
Euro Globe Holdings Limited (Company in liquidation)	Middle Sea House Floriana	Ordinary shares	100%	100%

Euromed Risk Solutions Limited	Development House Floriana	Ordinary shares	100%	100%

Bee Insurance Management Limited	Development House Floriana	Ordinary shares	100%	100%

MAPFRE MSV Life plc	Level 7 The Mall Floriana	Ordinary shares	50%	50%

Church Wharf Properties Limited	Middle Sea House Floriana	Ordinary shares	75%	75%

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

163

20.Investment in subsidiary undertakings - continued

The Group’s aggregated assets and liabilities and the results of its subsidiary

undertakings that have non-controlling interest, before elimination entries, are as

follows:


2022	% Held by non- controlling interests	Assets	Liabilities	Revenues	Profit before tax	Net cash
		€’000	€’000	€’000	€’000	€’000

MAPFRE MSV Life p.l.c.
(consolidated results)	50%	2,357,045	2,132,748	254,910	17,166	65,934

Church Wharf
Properties Limited	25%	2,674	333	—	8	(1)


2021	% Held by non- controlling interests	Assets	Liabilities	Revenues	Profit before tax	Net cash
		€’000	€’000	€’000	€’000	€’000

MAPFRE MSV Life p.l.c.
(consolidated results)	50%	2,721,437	2,499,570	329,195	16,685	(5,637)

Church Wharf
Properties Limited	25%	2,623	284	—	(414)	—

The amount of dividends that can be distributed in cash by MAPFRE MSV Life p.l.c. is

restricted by the solvency requirements imposed by the MFSA Regulations.

In addition to the subsidiary undertakings above, MAPFRE MSV Life p.l.c. also held

the following investments in subsidiary undertakings:


Subsidiary undertakings	Registered office	Class of shares held	Percentage of shares held
			2022	2021
Growth Investment Limited (Company in liquidation) (held indirectly by MAPFRE MSV Life p.l.c.)	Pjazza Papa Giovanni XXIII Floriana	Ordinary shares	50%	50%

Note 36 explains the Transfer of Business Agreement entered into during the year with

respect to Growth Investments Limited.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

164

20.Investment in subsidiary undertakings - continued

During 2011, the Company acquired control of MAPFRE MSV Life p.l.c. following a

shareholders’ agreement. MAPFRE MSV Life p.l.c. had previously been accounted for

as an associated undertaking.

As a result of this business combination, Church Wharf Properties Limited, which was

previously classified as an associated undertaking, also became a subsidiary in view of

the fact that the remaining interest in this company is held by MAPFRE MSV Life

p.l.c.

As disclosed in prior years’ financial statements, the Company’s 100% holding in

Progress Assicurazioni S.p.A. (‘Progress’) was derecognised in 2009. This was due to

Progress being put into compulsory administrative liquidation. Subsequent bankruptcy

procedures were also initiated and accordingly, the investment was fully written off in

previous years. A subordinated loan receivable from Progress by a Group company

amounting to €8.50 million has also been fully provided for in previous years. A

scheme of distribution was communicated by the liquidator in 2021 which was

executed during 2022. A final payment of 6.35% of the subordinated loan receivable

was received by MAPFRE Middlesea p.l.c. amounting to €0.54 million. The Directors

are not aware of any developments that could have an impact on the Company’s

obligations attached to this investment.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

165

21. Investment in associated undertakings


	Group	Company
	€’000	€’000
At 1 January 2021
Cost	14,480	294
Accumulated share of associated undertaking's equity	91	91
Accumulated fair value movements	10,603	—


Net book amount	25,174	385


Year ended 31 December 2021
Opening net book amount	25,174	385
Share of associated undertaking's movement in equity	(2)	(2)
Fair value movement	(2,341)	—


Closing net book amount	22,831	383


At 31 December 2021
Cost	14,480	294
Accumulated share of associated undertaking's equity	89	89
Accumulated fair value movements	8,262	—


Net book amount	22,831	383


Year ended 31 December 2022
Opening net book amount	22,831	383
Share of associated undertaking's movement in equity	6	6
Fair value movement	190	—


Closing net book amount	23,027	389


At 31 December 2022
Cost	14,480	294
Accumulated share of associated undertaking's equity	95	95
Accumulated fair value movements	8,452	—


Net book amount	23,027	389

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

166

21. Investment in associated undertakings - continued

The Group’s aggregated assets and liabilities and the share of the results of its

associated undertaking, which is unlisted is as follows:


2022	Registered office	Assets	Liabilities	Revenues	Profit after tax	Percentage of shares held
		€’000	€’000	€’000	€’000


Middlesea Assist Limited	Europa Centre Floriana	1,456	662	2,863	195	49%


2021	Registered office	Assets	Liabilities	Revenues	Profit after tax	Percentage of shares held
		€’000	€’000	€’000	€’000


Middlesea Assist Limited	Europa Centre Floriana	1,556	775	2,622	181	49%

In addition to the associated undertakings above, MAPFRE MSV Life p.l.c. also held

the following investments in associated undertakings:


Associated undertakings	Registered office	Class of shares held	Percentage of shares held
			MSV		Group
			2022	2021	2022	2021

Plaza Centres p.l.c.	The Plaza Commercial Centre
	Bisazza Street Sliema	Ordinary shares	31.42%	31.42%	31.42%	31.42%

Tigne Mall	The PointShoppi ng Mall
	Tigne Point Sliema	Ordinary shares	35.46%	35.46%	35.46%	35.46%

Plaza Centres p.l.c. and Tigne Mall p.l.c. are listed on the Malta Stock Exchange and

their share price as at 31 December 2022 was €0.73 and €0.84 respectively (31

December 2021: €0.93 and €0.75 respectively).

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

167

22. Other investments

The investments are summarised by measurement category in the table below.


	Group		Company
	2022	2021	2022	2021
	€’000	€’000	€’000	€’000

Fair value through profit and loss	1,856,734	2,202,757	1,789	2,151
Other available-for-sale	10,308	6,231	10,308	6,231
Loans and receivables	125,860	212,923	—	—


	1,992,902	2,421,911	12,097	8,382

(a)Investments at fair value through profit or loss

Analysed by type of investment as follows:


	Group		Company
	2022	2021	2022	2021
	€’000	€’000	€’000	€’000

Equity securities, and units in unit trusts	973,927	1,083,341	1,186	1,393
Debt securities	777,854	1,005,906	603	758
Assets held to cover linked liabilities -
collective investment schemes	102,255	113,510	—	—
Forward foreign exchange contracts	2,698	—	—	—


Total investments at fair value through profit or loss	1,856,734	2,202,757	1,789	2,151

Technical provisions for linked liabilities amounted to €103.00 million as at 31

December 2022 (2021: €114.80 million). Linked liabilities are included in technical

provisions for insurance contracts, investments contracts with DPF and investment

contracts without DPF.

At 31 December 2022, the Group had €66.1 million financial commitments in respect

of uncalled capital (2021: €34.5 million).

Equity securities and collective investment schemes other than those at Company level

are substantially non-current assets in nature.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

168

22.Other investments - continued

(a)Investments at fair value through profit or loss - continued

The movements for the year are summarised as follows:


	Group	Company
	€’000	€’000
Group
Year ended 31 December 2021
Opening net book amount	2,031,590	2,934
Additions	1,376,549	—
Disposals	(1,284,046)	(704)
Net fair value gains/(losses)	77,889	(79)

Closing net book amount	2,201,982	2,151


Year ended 31 December 2022
Opening net book amount	2,201,982	2,151
Additions	1,312,024	—
Disposals	(1,452,223)	—
Net fair value losses	(205,049)	(362)


Closing net book amount	1,856,734	1,789

There are no derivative financial liabilities in 2022. Derivative financial liabilities

amounting to €0.78 million in 2021, included in the table above, are classified within

liabilities in the statement of financial position.

(b)Other available-for-sale financial assets


	Group & Company
	2022	2021
	€'000	€'000

Listed debt securities	9,738	5,579
Listed shares	570	652


	10,308	6,231

Listed debt securities have contractual terms that give rise on specified dates to cash

flows that are solely payments of principal and interest on the principal amount

outstanding. Their credit rating, using Standard & Poors rating is as below:

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

169

22.Other investments - continued

(b)Other available-for-sale financial assets - continued


	Group & Company
	2022	2021
	€’000	€’000

AAA	1,964	—
AA	665	—
A	3,141	2,484
BBB	3,871	2,980
BB or lower	97	115


	9,738	5,579

The movements for the year are summarised as follows:

Listed debt securities


	Group & Company
	2022	2021
	€’000	€’000

Year ended 31 December
Opening net book amount	5,579	1,528
Additions	5,135	4,531
Disposals	(203)	(398)
Net fair value losses	(773)	(82)


Closing net book amount	9,738	5,579

Listed shares


	Group & Company
	2022	2021
	€’000	€’000

Year ended 31 December
Opening net book amount	652	892
Additions	—	600
Disposals	—	(882)
Net fair value (losses)/gains	(82)	42


Closing net book amount	570	652

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

170

22.Other investments - continued

(c)Loans and receivables

Analysed by type of investment as follows:


	Group
	2022	2021
	€’000	€’000

Deposits with banks or credit institutions	116,728	204,888
Loans secured on policies	9,132	8,035


	125,860	212,923

Maturity of deposits with bank or credit institutions:


	Group
	2022	2021
	€’000	€’000

Within 3 months	19,564	25,955
Within 1 year but exceeding 3 months	76,527	118,594
Between 1 and 5 years	20,637	60,339


	116,728	204,888

The above deposits earn interest as follows:


	Group
	2022	2021
	€’000	€’000

At fixed rates	116,728	204,888


	116,728	204,888

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

171

22. Other investments - continued

(c)Loans and receivables - continued

The movements for the year (excluding deposits) are summarised as follows:


	Group
		Loans
		secured on
		policies
		€’000

	Year ended 31 December 2021
	Opening net book amount	8,214
	Additions	1,178
	Disposal (sale and redemptions)	(1,357)


	Closing net book amount	8,035




	Year ended 31 December 2022
	Opening net book amount	8,035
	Additions	2,182
	Disposal (sale and redemptions)	(1,085)


	Closing net book amount	9,132

The above loans earn interest at fixed rates.

23. Deferred income tax


	Group		Company
	2022	2021	2022	2021
	€’000	€’000	€’000	€’000

Balance at 1 January	40,286	35,117	721	898
Movements during the year:
Profit or loss account (Note 12)	(37,183)	5,156	313	(190)
Other comprehensive income	(31)	13	(31)	13


Balance at 31 December - net	3,072	40,286	1,003	721

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

172

23.Deferred income tax - continued

Deferred income taxes are calculated on all temporary differences using a principal tax

rate of 35% (2021: 35%) with the exception of investment property and freehold and

other property, for which deferred income taxes may be calculated using a principal tax

rate of 8% or 10% of the carrying amount (2021: 8% or 10%), if appropriate. The

analysis of deferred tax (assets)/liabilities is as follows:


	Group		Company
	2022	2021	2022	2021
	€’000	€’000	€’000	€’000

Temporary differences on property, plant and equipment	4,365	2,608	991	607
Temporary differences attributable to investment property, unrealised capital losses and fair value adjustments on financial assets	752	81,496	1,082	1,218
Temporary differences attributable to unabsorbed tax losses and allowances carried forward	(1,908)	(43,646)	(932)	(932)
Temporary differences attributable to other provisions	(137)	(172)	(138)	(172)


Balance at 31 December - net	3,072	40,286	1,003	721

Deferred income tax assets and liabilities are offset when there is a legally enforceable

right to set off a current tax asset against a current tax liability. The following amounts

determined after appropriate offsetting are shown in the statements of financial

position:


	Group		Company
	2022	2021	2022	2021
	€’000	€’000	€’000	€’000

Deferred tax asset	(8,750)	(2,313)	(1,292)	(1,268)
Deferred tax liability	11,822	42,599	2,295	1,989


	3,072	40,286	1,003	721

The tax effect of temporary differences attributable to the value of in-force business

amounts to €3.91 million (2021: €5.34 million).

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

173

23.Deferred income tax - continued

The deferred income tax assets and liabilities are, principally, recoverable after more

than 12 months.

Deferred income tax assets are recognised for tax loss carry-forwards to the extent that

the realisation of the related tax benefit through future taxable profits is probable.

The Group and Company have unutilised capital gains of €9.05 million (2021: €6.53

million), which give rise to a deferred tax liability of €3.17 million (2021: €2.28

million) that has not been recognised in these financial statements. The Group also has

unutilised trading losses of €2.48 million (2021: €2.40 million) giving rise to a deferred

tax asset of €0.87 million (2021: €0.84 million) which has not been recognised in these

financial statements.

The Group’s and Company’s deferred tax asset and liability were established on the

basis of tax rates that were substantively enacted as at the financial year end.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

174

24.Insurance liabilities and reinsurance assets

Technical provisions – insurance contracts and investment contracts with DPF, including

reinsurers’ share of technical provisions


	Group		Company
	2022	2021	2022	2021
	€’000	€’000	€’000	€’000
Gross
Short term insurance contracts-general business
- claims outstanding	54,167	53,767	54,167	53,767
- provision for unearned premiums	40,632	37,953	40,632	37,953
Group life insurance contracts
- claims outstanding	316	559	316	559
- long term business provision	794	726	794	726
Long term contracts
- individual life insurance contracts	400,172	506,666	—	—
- investment contracts with DPF	1,608,374	1,870,997	—	—


Total technical provisions, gross	2,104,455	2,470,668	95,909	93,005


Recoverable from reinsurers
Short-term insurance contracts
- claims outstanding	21,876	24,890	21,876	24,890
- provision for unearned premiums	7,370	7,424	7,370	7,424
Long term contracts
- individual life insurance contracts	476	933	—	—


Total reinsurers' share of technical provisions	29,722	33,247	29,246	32,314


Net
Short-term insurance contracts
- claims outstanding	32,291	28,877	32,291	28,877
- provision for unearned premiums	33,262	30,529	33,262	30,529
Group life insurance contracts
- claims outstanding	316	559	316	559
- long term business provision	794	726	794	726
Long term contracts
- individual life insurance contracts	399,696	505,733	—	—
- investment contracts with DPF	1,608,374	1,870,997	—	—


Total technical provisions, net	2,074,733	2,437,421	66,663	60,691

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

175

24.Insurance liabilities and reinsurance assets - continued

Technical provisions in relation to short term insurance contracts are classified as

current liabilities, in that, claims outstanding represent events that happened and which

would normally be settled within the normal operating cycle. The timing of payment

can be dependent on factors, like court cases, that could defer such payment to beyond

a year from the reporting date. Technical provisions in relation to long term business

are substantially non-current.

(a)Short-term insurance contracts – claims outstanding

The gross claims reported are net of expected recoveries from salvage and subrogation.

The technical provisions are largely based on case-by-case estimates adjusted for in

those instances where the ultimate cost determined by estimation techniques differs.

This is further supplemented with additional provisions for IBNR.

Motor claims occurring between 2018 and 2022 have been determined on an ultimate

cost basis having regard to estimation techniques establishing the average ultimate cost

per claim, which average was applied to the number of reported claims and the

estimated number of incurred but not yet reported claims. Motor large losses, in the

main involving fatalities or serious bodily injury, are still reserved at the case-by-case

reserve estimate rather than the established ultimate cost average.

The development tables in this note give an indication of the time it takes to settle

certain claims. This is attributable to certain classes of business taking several years to

develop and is also due to the length of time it takes for the respective cases to be

resolved in court.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

176

24. Insurance liabilities and reinsurance assets - continued

(a)Short term insurance contracts – claims outstanding - continued

The top half of the table below illustrates how the Company’s estimate of total claims incurred for each accident year has changed at successive year-

ends on a net basis. The bottom half of the table reconciles the cumulative claims to the amount appearing in the statement of financial position on a

net basis. The accident-year basis is considered to be the most appropriate for the general business written by the Company.


Company

Accident year	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021	2022	Total
	€’000	€’000	€’000	€’000	€’000	€’000	€’000	€’000	€’000	€’000	€’000	€’000
Estimate of ultimate claims cost:
- at end of accident year	15,756	16,104	17,775	23,216	30,078	33,106	33,539	33,848	28,126	34,703	39,744	—
- one year later	14,183	14,205	16,060	23,350	30,320	33,952	33,645	35,714	28,373	34,148	—	—
- two years later	12,932	13,465	15,565	22,442	29,171	33,638	33,846	36,717	28,529	—	—	—
- three years later	12,543	13,288	15,608	22,786	28,863	33,325	33,248	37,196	—	—	—	—
- four years later	12,586	13,178	15,611	22,551	29,038	33,158	32,623	—	—	—	—	—
- five years later	12,144	13,044	15,420	22,489	29,030	32,970	—	—	—	—	—	—
- six years later	12,311	13,016	15,247	22,656	28,807	—	—	—	—	—	—	—
- seven years later	12,094	13,233	15,222	22,764	—	—	—	—	—	—	—	—
- eight years later	11,981	13,247	15,452	—	—	—	—	—	—	—	—	—
- nine years later	11,965	13,245	—	—	—	—	—	—	—	—	—	—
- ten years later	11,962	—	—	—	—	—	—	—	—	—	—	—
Current estimate of cumulative claims	11,962	13,245	15,452	22,764	28,807	32,970	32,623	37,196	28,529	34,148	39,744	297,440
Cumulative payments to date	(11,599)	(13,026)	(14,973)	(21,833)	(28,173)	(31,711)	(31,609)	(35,367)	(26,317)	(28,775)	(22,637)	(266,020)


Liability recognised in the statement of financial position	363	219	479	931	634	1,259	1,014	1,829	2,212	5,373	17,107	31,420
Liability in respect of prior years												871


Total reserve included in the statement of financial position												32,291

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

177

24.Insurance liabilities and reinsurance assets - continued

(a)Short-term insurance contracts – claims outstanding - continued

The Company benefits from reinsurance programmes that were purchased in the current

and prior years which include proportional cover supplemented by excess of loss

reinsurance cover. The reinsurers’ share of claims liabilities is estimated net of the

provision for known and expected incidents of insolvency of reinsurers.

Movements in claims and loss adjustment expenses:


	Group and Company
	Year ended 2021


	Gross	Reinsurance	Net
	€’000	€’000	€’000

Total at beginning of year	50,803	(25,203)	25,600
Claims settled during the year	(37,134)	5,524	(31,610)
Increase/(decrease) in liabilities
- arising from current year claims	38,348	(3,644)	34,704
- arising from prior year claims	1,750	(1,567)	183


At end of year	53,767	(24,890)	28,877


	Group and Company
	Year ended 2022


	Gross	Reinsurance	Net
	€’000	€’000	€’000

Total at beginning of year	53,767	(24,890)	28,877
Claims settled during the year	(42,336)	7,011	(35,325)
Increase/(decrease) in liabilities
- arising from current year claims	43,241	(3,496)	39,745
- arising from prior year claims	(505)	(501)	(1,006)


At end of year	54,167	(21,876)	32,291

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

178

24.Insurance liabilities and reinsurance assets - continued

(a)Short-term insurance contracts – claims outstanding - continued

Movements in claims and loss adjustments expenses - continued

The Group continuously monitors closely the development in insurance liabilities in

order to ascertain the adequacy of its claims reserves. Movements in reserves in respect

of claims occurring in previous years arise when these claims are actually settled and/or

when reserves are revised to reflect new information that emerges.

The Company registered a gross favourable run-off of €0.50 million (2021:

unfavourable €1.75 million). After the effect of reinsurance, this amounts to a

favourable €1.01 million (2021: unfavourable €0.18 million). This net run-off arose

principally from a favourable development on claims in the health and motor class of

direct general business of insurance.

(b)Short-term insurance contracts - provision for unearned premiums and unexpired risks

The movements for the year are summarised as follows:


	Group and Company
	Year ended 2021


	Gross	Reinsurance	Net
	€’000	€’000	€’000

At beginning of year	34,974	(5,990)	28,984
Net charge/(credit) to profit or loss	2,979	(1,434)	1,545


At end of year	37,953	(7,424)	30,529


	Group and Company
	Year ended 2022


	Gross	Reinsurance	Net
	€’000	€’000	€’000

At beginning of year	37,953	(7,424)	30,529
Net charge to profit or loss	2,679	54	2,733


At end of year	40,632	(7,370)	33,262

No provision for unexpired risks was recognised as at 31 December 2022 (€0.08

million in 2021).

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

179

24.Insurance liabilities and reinsurance assets - continued

(c)Group Life insurance contracts

Claims outstanding

Movement in claims outstanding is summarised as follows:


	Group and Company
	Year ended 2021


	Gross	Reinsurance	Net
	€’000	€’000	€’000

At beginning of year	702	(113)	589
Claims settled during the year	(1,250)	122	(1,128)
Increase in net liabilities	1,107	(9)	1,098


At end of year	559	—	559


	Group and Company
	Year ended 2022


	Gross	Reinsurance	Net
	€’000	€’000	€’000

At beginning of year	559	—	559
Claims settled during the year	(839)	—	(839)
Increase in net liabilities	596	—	596


At end of year	316	—	316

Long term business provision

The balance on the long term business provision has been assessed by the Company’s

appointed actuary as being sufficient to meet liabilities as at 31 December 2022. The

net assets representing this long term business provision, which are included under the

respective headings in the Group’s overall statement of financial position, are as

follows:


	2022	2021
	€’000	€’000

Other investments	1,234	1,396
Insurance and other receivables	244	361
Cash and cash equivalents	634	862
Net claims outstanding	(316)	(559)
Insurance and other payables	(1,002)	(1,334)


Long term business provision, net of reinsurance	794	726

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

180

24. Insurance liabilities and reinsurance assets - continued

(d)Long term business – Individual Insurance life contracts and investment contracts with

DPF

Individual life insurance contracts


	Group
	2022	2021
	€’000	€’000
Gross technical provisions
- claims outstanding	6,760	9,129
- long term business provision	393,412	497,537


	400,172	506,666



Reinsurers’ share of technical provisions
- claims outstanding	476	933


	476	933



Net technical provisions
- claims outstanding	6,284	8,196
- long term business provision	393,412	497,537


	399,696	505,733

The movements for the year are summarised as follows:


	Group
	Year ended 2021


	Gross	Reinsurance	Net
	€’000	€’000	€’000

At beginning of year	529,554	(501)	529,053
Charge to the profit or loss account	(22,888)	(432)	(23,320)


At end of year	506,666	(933)	505,733

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

181

24. Insurance liabilities and reinsurance assets - continued

(d) Long term business – Individual Insurance life contracts and investment contracts with

DPF - continued

Individual life insurance contracts - continued


	Group
	Year ended 2022


	Gross	Reinsurance	Net
	€’000	€’000	€’000

At beginning of year	506,666	(933)	505,733
(Credit)/charge to the profit and loss account	(106,494)	457	(106,037)


At end of year	400,172	(476)	399,696

The above liabilities are substantially non-current in nature.


	Group
	2022	2021
	€’000	€’000
Investment contracts with DPF (gross and net)
- claims outstanding	40,635	36,944
- long term business provision	1,567,739	1,834,053


	1,608,374	1,870,997

The movements for the year are summarised as follows:


	2022	2021
	€’000	€’000
Year ended 31 December
At beginning of year	1,870,997	1,766,724
(Credit)/charge to the profit and loss account	(262,623)	104,273


At end of year	1,608,374	1,870,997

The above liabilities are substantially non-current in nature.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

182

24. Insurance liabilities and reinsurance assets - continued

(d) Long term business – Individual Insurance life contracts and investment contracts with

DPF - continued

Long term contracts – assumptions, changes in assumptions and sensitivity

(i)Assumptions

Rate of future investment return

The rate of future investment return (valuation interest rate) is calculated in accordance

with the Insurance Regulations. In accordance with these rules the calculation of the

rate of future investment return is based on a prudent assessment of the yields generated

by the long term business assets. This assessment does not include any allowance for

capital growth on assets other than bonds. On bonds the allowance must be consistent

with the yield to maturity of the instrument in the market. This could be interpreted as

setting the rate of future investment return in line with the weighted average portfolio

yield taking into account certain risk adjustments.

Bonus rates

The current rates of reversionary and terminal bonuses are determined by the Board in

consultation with the Approved Actuary. Different bonus rates are declared on different

generations of contracts depending on the type of product, cost structure, past

investment performance and premium rates. Different bonuses are declared to maintain

equity between different generations of contract holders and products with different

characteristics. Future bonus rates are not guaranteed and the assumptions are set to

allow for a fair and orderly run-off of the fund.

The levels of reversionary bonus rates are affected by measures taken to provide

resilience to market conditions, and to provide for future payments of terminal bonuses.

These measures are not intended, over the long term, to be a source of profit or loss.

Policy maintenance expenses

The per policy maintenance expense has been determined by reference to the Group’s

cost base.

Minimum reserve

With profits policy reserves are equal to the underlying asset share as aggregated at the

homogeneous product cohort level.

The minimum reserve for unit linked contracts is determined on a policy by policy basis

where appropriate and is set equal to the current surrender value or zero whichever is

greater.

The minimum reserve for protection contracts is also determined on a policy by policy

basis and is set equal to the policy reserve or zero, whichever is higher.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

183

24.Insurance liabilities and reinsurance assets - continued

(d)Long term business – Individual Insurance life contracts and investment contracts with

DPF - continued

Long term contracts – assumptions, changes in assumptions and sensitivity - continued

(i)Assumptions - continued

Mortality

The Group makes reference to the AMC00 (2021: AMC00) standard mortality table.

Mortality experience is reviewed annually and assumptions are set separately for

protection and savings and investment contracts having regard to past experience and

trends. A margin for adverse deviation is applied to best estimate mortality rates when

determining the prudent valuation assumption.

(ii) Changes in assumptions

In accordance with normal practice, investment return assumptions were reviewed to

reflect market movements over the year. Similarly, surrender and policy expense

expectations were also updated. The combined impact of these changes in assumptions

was charged against the technical result for the year.

(iii) Sensitivity analysis

The directors have considered the sensitivity of the key variables underlying the

liability for long term contracts. The most sensitive assumption is the rate of future

investment return that will be driven by market forces. Sensitivity analysis for interest

rate risk and equity price risk has been disclosed in Note 4. The Insurance Regulations

ensure a consistent and prudent derivation of this key estimate as described above. The

Group’s bonus policy is also influenced by market conditions. The Group’s reserving

policy considers market conditions over the longer term through prudent assumptions of

future investment returns combined with a consistent view of future bonuses. This acts

to mitigate the impact of market movements and profit or loss is not affected by

changes in the rate of regular bonus.


	2022	2021
	€’000	€’000

Long term business provision	54,870	59,784
Claims outstanding	843	1,085


	55,713	60,869

The above liability is considered to be substantially non-current in nature.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

184

25.Deferred acquisition costs – short term insurance contracts


	Group & Company
	2022	2021
	€’000	€’000
Year ended 31 December
Opening net book amount	8,427	8,080
Net amount charged to profit or loss	940	347


Closing net book amount	9,367	8,427

Deferred acquisition costs are all classified as current assets.

26. Insurance and other receivables


	Group		Company
	2022	2021	2022	2021
	€’000	€’000	€’000	€’000
Receivables arising from direct insurance operations:
- due from policyholders	920	272	920	272
- due from agents, brokers and intermediaries	16,635	16,297	16,635	16,297
- due from reinsurers	291	363	291	363

Receivables arising from reinsurance operations:
- due from reinsurers	16	16	16	16

Other loans and receivables:
- prepayments	5,476	4,669	1,697	1,806
- accrued interest and rent	10,593	10,507	377	173
- receivables from group undertakings	—	—	420	470
- receivables from associated undertaking	183	212	183	212
- other receivables	66	120	—	—

Provision for impairment of receivables	(440)	(387)	(440)	(387)


	33,740	32,069	20,099	19,222



Current portion	33,740	32,069	20,099	19,222

Balances due from group undertakings, associated undertaking and other receivables

are unsecured and non-interest bearing.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

185

26.Insurance and other receivables - continued

Movements in the provision for impairment of receivables are as follows:


	Group and Company
	2022	2021
	€’000	€’000

Balance as at 1 January	387	333
Increase in provision for impairment	188	160
Release of provision for impairment during the year	(135)	(106)


Balance as at 31 December	440	387

27.Cash and cash equivalents

For the purpose of the statements of cash flows, the year-end cash and cash equivalents

comprise the following:


	Group		Company
	2022	2021	2022	2021
	€’000	€’000	€’000	€’000

Cash at bank and in hand	137,286	71,443	11,130	11,575

As at 31 December 2022 an amount of €2.16 million (2021: €3.14 million) within

deposits with banks or credit institutions, was held in a margin account as collateral

against exchange traded futures.

28.Share capital


	Group and Company
	2022	2021
	€’000	€’000
Authorised
150 million ordinary shares of €0.21 each	31,500	31,500


Issued and fully paid
92 million ordinary shares of €0.21 each	19,320	19,320

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

186

29.Other reserves

Group


	Value of	Freehold	Available-	Total
	in-force	land and	for-sale
	business	buildings	investments
	€'000	€'000	€'000	€'000

Balance at 1 January 2021	38,597	—	232	38,829

Fair value movements -gross	—	—	117	117
Fair value movements -tax	—	—	(64)	(64)
Available-for-sale investments - reclassified to profit or loss
- gross	—	—	(155)	(155)
- related tax	—	—	53	53
Revaluation gain on freehold land and buildings	—	1,081	—	1,081
Share of increase in value of in-force business of subsidiary undertaking	4,956	—	—	4,956


Balance at 31 December 2021	43,553	1,081	183	44,817



Balance at 1 January 2022	43,553	1,081	183	44,817
Fair value movements -gross	—	—	(831)	(831)
Fair value movements -tax	—	—	61	61
Revaluation gain on freehold land and buildings reclassified to retained earning	—	(225)	—	(225)
Share of decrease in value of in-force business of subsidiary company	(3,633)	—	—	(3,633)


Balance at 31 December 2022	39,920	856	(587)	40,189

The above reserves are not distributable reserves.

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

187

29.Other reserves - continued

Company


	Investment	Investment	Available-
	in subsidiary	in associated	for-sale
	undertakings	undertakings	investments	Total
	€’000	€’000	€’000	€’000

Balance at 1 January 2021	34,663	91	232	34,986
Fair value movements -gross	—	—	117	117
Fair value movements -tax	—	—	(64)	(64)
Available-for-sale investment reclassified to profit or loss
- gross	—	—	(155)	(155)
- related tax	—	—	53	53
Other	—	(2)	—	(2)


Balance at 31 December 2021	34,663	89	183	34,935



Balance at 1 January 2022	34,663	89	183	34,935
Fair value movements -gross	—	—	(831)	(831)
Fair value movements -tax	—	—	61	61
Other	—	6	—	6


Balance at 31 December 2022	34,663	95	(587)	34,171

The above reserves are not distributable reserves.

30. Provision for other liabilities and charges

The Group and Company operate a defined benefit plan in favour of a former Executive

Chairman. The pension plan defines an amount of pension benefit that he receives on

retirement. The liability recognised in the statements of financial position is the present

value of the obligation determined by discounting estimated future cash outflows.

The following table shows the changes in the present value of the pension obligation

and amounts shown in the profit or loss and other comprehensive income:

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

188

30. Provision for other liabilities and charges - continued


	Group and Company
	2022	2021
	€’000	€’000

At 1 January	997	1,057
Interest expense - profit or loss	7	3
Settlements	(62)	(61)
Re-measurement actuarial loss - other comprehensive income	(88)	(2)


At 31 December	854	997

The following payments as expected in the future years:


	Group and Company
	2022	2021
	€’000	€’000

Within one year	65	61
After more than one year	789	936


	854	997

The significant assumptions used in determining the pension obligation are shown

below:



	Group and Company
	2022	2021

Mortality	AMC00	AMC00
Discount rate	3.8%	0.7%
Inflation rate	2.1%	1.2%

A quantitative analysis of the impact on the pension obligation for the significant

assumptions is shown below:


	Group and Company
	2022	2021
	€000	€000

Discount Rate - 1% point increase	(64)	(87)
Discount Rate - 1% point decrease	72	100
Inflation Rate - 1% point increase	68	93
Inflation Rate - 1% point decrease	(61)	(82)

MAPFRE MIDDLESEA p.l.c.

Annual Report - 31 December 2022

189


Current	27,797	30,974	12,379	13,401
Non-current	215	199	—	—


	28,012	31,173	12,379	13,401


Authorised and contracted for
- property, plant and equipment	132	903	110	684
- intangible assets	1,984	1,668	1,386	1,480
- investment property	1,427	3,834	—	—
- other investments	47,937	—	—	—