Directors report and financial statements Year ended 31 December 2003 Registered number 293822
Directors report and financial statements Contents Page Directors and other information 1-2 Directors report 3-4 Statement of directors responsibilities 5 Report of the Reporting Actuary 6 Independent auditors report 7-8 Statement of accounting policies 9-11 Profit and loss account 12-13 Balance sheet 14-15 Notes to the financial statements 16-23
Directors and other information Directors A. Bates M. Ceccobelli (Italian) F. MacHugh E. Marsiglia (Italian) D. Rouse (British) G. Santucci (Italian) Registered office Grand Canal House 1 Upper Grand Canal Street Dublin 4 Ireland Secretary Tudor Trust Limited 1 Upper Grand Canal Street Dublin 4 Ireland Appointed Actuary Jim Murphy Life Strategies Limited Third Floor Verschoyle House 28-30 Lower Mount Street Dublin 2 Ireland Auditors KPMG 1 Harbourmaster Place IFSC Dublin 1 Ireland Bankers Allied Irish Banks plc 7/12 Dame Street Dublin 2 Ireland Banca Monte dei Paschi di Siena Member of MPS Banking Group 23100 Siena Italy 1
Directors and other information (continued) Solicitors Dillon Eustace Grand Canal House 1 Upper Grand Canal Street Dublin 4 Ireland Service Provider Irish Progressive Services International Limited 96-102 Lower Mount Street Dublin 2 Ireland Investment Managers S.p.A. JP Morgan Fleming Asset Management (Europe) S.a.r.l. - Monte dei Paschi Asset Management SGR - MPS Finance Banca Mobilare S.p.A. - MPS Asset Management Ireland Limited Merrill Lynch Investment Managers Luxembourg S.A. Morgan Stanley Dean Witter Investment Management Limited Goldman Sachs International Limited Janus International Limited Deutsche Bank (London) Limited Fidelity Investments Luxembourg S.A. HSBC Asset Management (Europe) S.A. Mellon Global Investments Limited 2
Directors report The directors present their annual report and the audited financial statements for the year ended 31 December 2003. Principal activities, business review and future developments The principal activity of the company is, as authorised by the Minister for Enterprise, Trade and Employment, to transact cross-border life assurance business in the European Union under the Third Life Directive as introduced into domestic Irish legislation by the European Communities (Life Assurance) Framework Regulations, 1994. The directors are satisfied with the company s performance for the year under review and the company continues to develop in a satisfactory manner. The directors wish to thank all those who contributed to the successful year of the company - the management and staff of the company, our Service Provider, our broker Willis Italia and all our advisors, and in particular the branch networks of Banca Monte dei Paschi di Siena S.p.A., Banca Toscana, Banca Monte Parma S.p.A., Banca Popolare di Spoleto S.p.A., Banca 121 PF and Banca Steinhauslin who, by introducing our products to their customers, contributed so much to the great results recorded here. We look forward to building on this success in 2004. Change of name The name of the company was changed from Grow Life Limited to Montepaschi Life (Ireland) Limited on 3 February 2004. Results for the year and state of affairs at 31 December 2003 The results for the year are set out on pages 12 and 13. The company s balance sheet is set out on pages 14 and 15. Dividends An interim dividend of 5.5 million was paid during the year (2002: 4.5 million) and the directors are recommending the payment of a final dividend of 7.5 million (2002: 15.5 million). Directors Mr G. Guano retired as a director of the company on 19 June 2003. The directors are not required to retire by rotation. 3
Directors report (continued) Accounting records The directors believe that they have complied with the requirements of Section 202 of the Companies Act, 1990 with regard to books of account by employing a service provider and personnel with appropriate expertise and by providing adequate resources to the financial function. The books of account of the company are maintained at the premises of its service provider Irish Progressive Services International Limited. Directors and secretary and their interests The directors and secretary who held office at 31 December 2003 had no interests other than shown below in the shares in, or debentures or loan stock of, the company or group companies. Interest at Beginning of Name of company Interest at year or date Name of director and description of instrument end of year of appointment G. Santucci Banca Monte dei Paschi di Siena S.p.A. shares of 51.6 cents 1,221 1,100 Post balance sheet events There have been no significant events affecting the company since the year end. Health and safety of employees The well being of the company s employees is safeguarded through the strict adherence to health and safety standards. The Safety, Health and Welfare at Work Act, 1989 imposes certain requirements on employers and the company has taken the necessary actions to ensure compliance with the Act, including the adoption of a safety statement. Auditors In accordance with Section 160, (2) of the Companies Act 1963 the auditors, KPMG, Chartered Accountants, have indicated their willingness to continue in office. On behalf of the board E. Marsiglia A. Bates 2 March 2004 Director Director 4
Statement of directors responsibilities Company law requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that year. In preparing those financial statements, the directors are required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. The directors are responsible for keeping proper books of account which disclose with reasonable accuracy at any time the financial position of the company and which enable them to ensure that the financial statements comply with the provisions of the Companies Acts, 1963 to 2001 and all Regulations to be construed as one with those Acts. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the company and to prevent and detect fraud and other irregularities. On behalf of the board E. Marsiglia A. Bates Director Director 5
Report of the Reporting Actuary to the directors I certify that at 31 December 2003 (i) (ii) (iii) in my opinion, proper records have been kept by Montepaschi Life (Ireland) Limited, adequate for the purposes of the valuation of the liabilities of its life assurance business; the computation of the Long Term Business Provision has been made on the basis of recognised actuarial methods and with due regard to the actuarial principles laid down in Council Directive 92/96/EEC; and the Long Term Business Provision is sufficient to enable the company to meet any liabilities arising out of insurance contracts as far as can reasonably be foreseen. Jim Murphy 2 March 2004 Fellow Member of the Society of Actuaries in Ireland Reporting Actuary of Montepaschi Life (Ireland) Limited 6
Independent auditors report to the members of Montepaschi Life (Ireland) Limited We have audited the financial statements on pages 9 to 23. This report is made solely to the company s members, as a body, in accordance with section 193 of the Companies Act 1990. Our audit work has been undertaken so that we might state to the company s members those matters we are required to state to them in an auditors report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors The directors are responsible for preparing the directors report and, as described on page 5, the financial statements in accordance with applicable Irish law and accounting standards. Our responsibilities, as independent auditors, are established in Ireland by statute, the Auditing Practices Board and by our profession s ethical guidance. We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies Acts. As also required by the Acts, we state whether we have obtained all the information and explanations we require for our audit, whether the financial statements agree with the books of account and report to you our opinion as to whether: the company has kept proper books of account; the directors report is consistent with the financial statements; at the balance sheet date a financial situation existed that may require the company to hold an extraordinary general meeting, on the grounds that the net assets of the company, as shown in the financial statements, are less than half of its share capital. We also report to you if, in our opinion, information specified by law regarding directors remuneration and transactions with the group is not disclosed. Basis of opinion We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the company s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. 7
Independent auditors report to the members of Montepaschi Life (Ireland) Limited (continued) Opinion In our opinion, the financial statements give a true and fair view of the state of affairs of the company at 31 December 2003 and of its profit for the year then ended, and have been properly prepared in accordance with the Companies Acts, 1963 to 2001 and all Regulations to be construed as one with those Acts. We have obtained all the information and explanations we considered necessary for the purposes of our audit. In our opinion, proper books of account have been kept by the company. The financial statements are in agreement with the books of account. In our opinion, the information given in the directors report on pages 3 and 4 is consistent with the financial statements. The net assets of the company, as stated in the balance sheet on page 15, are more than half of the amount of its called up share capital and, in our opinion, on that basis there did not exist at 31 December 2003 a financial situation which, under Section 40(1) of the Companies (Amendment) Act, 1983, would require the convening of an extraordinary general meeting of the company. KPMG 2 March 2004 Chartered Accountants Registered Auditors 1 Harbourmaster Place IFSC Dublin 1 8
Statement of accounting policies for the year ended 31 December 2003 The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the company s financial statements. Basis of preparation The financial statements have been prepared in accordance with the provision of the Companies Act 1963 to 2001, as amended by the European Communities (Insurance Undertakings: Accounts) Regulations 1996. The financial statements are prepared on the going concern basis and in accordance with generally accepted accounting principles under the historical cost convention, as modified by the revaluation of investments. They have also been prepared in accordance with the Statement of Recommended Practice (SORP) on Accounting for Insurance Business issued by the Assocation of British Insurers. The financial statements are expressed in euro. Premium income Premiums fall due when payment is received, in accordance with the terms and conditions of policies issued by the company. Reinsurance premiums are accounted for when the related premium income is received. Premiums are shown net of any insurance taxes. Claims and surrenders Death claims and surrenders are recorded on the basis of notifications received and the value of such claims then ceases to be included within the technical provisions for life assurance policies. Claims payable include claims handling costs. Reinsurance recoveries are accounted for in the same period as the related claim. Investments and investment return (i) Investment valuations Listed investments are included in the balance sheet at mid-market value, and unlisted investments at directors valuation. (ii) Investment income and investment expenses and charges Investment income, which includes dividends, interest, gains and losses on the realisation of investments and related transaction expenses, is accounted for on an accruals basis. (iii) Investment gains and losses Both realised and unrealised gains and losses are taken to the technical and non-technical account. 9
Statement of accounting policies (continued) for the year ended 31 December 2003 Commission Acquisition commissions are included in acquisition costs in the technical account as incurred. Life assurance provision The life assurance (long term business) provision is determined by the company s Reporting Actuary following his annual investigation of the life assurance business. The technical provisions are calculated in accordance with the valuation of liability regulations of the European Communities (Insurance Undertakings; Accounts) Regulations, 1996. Tangible fixed assets Fixed assets are stated at cost less accumulated depreciation. Depreciation is provided for at the following rates: Fixtures and fittings, other equipment Computer equipment & software 20% per annum 20% per annum Acquisition costs Acquisition costs comprise direct costs of obtaining and processing new business and include acquisition commission. Certain costs are deferred as an explicit deferred acquisition cost asset gross of tax. This asset is amortised against annual management charges levied on the related policies. The deferred acquisition cost asset is reviewed for recoverability at the end of each accounting period against future margins expected to arise from the related policies. Taxation Corporation tax is assessed on the results for the period. In accordance with FRS 19 Deferred Tax, except where otherwise required by accounting standards, full provision without discounting is made for all timing differences which have arisen but not reversed at the balance sheet date. Deferred tax balances are provided at rates of taxation expected to prevail at the time of reversal. A deferred tax asset is recorded where it is more likely than not recoverable. The recoverability of the deferred tax asset is assessed annually by the directors. 10
Statement of accounting policies (continued) for the year ended 31 December 2003 Foreign currencies Monetary assets and liabilities denominated in foreign currencies are translated into euro at the exchange rate ruling at the balance sheet date and revenues, costs and non monetary assets at the exchange rates ruling at the dates of the transactions. Profits and losses arising from foreign currency translations and on settlement of amounts receivable and payable in foreign currency are dealt with through the profit and loss account. Pensions The pension entitlements of employees are secured by contributions from the company to a separately administered defined contribution pension fund. Contributions to the fund are charged to the technical account in the same period as the salaries to which they apply. 11
Profit and loss account for the year ended 31 December 2003 Technical account - life assurance business 2003 2002 Note Earned premiums (net of reinsurance) Gross premiums written 1 802,881 1,280,579 Outward reinsurance premiums (139) (159) 802,742 1,280,420 Investment income 2 23,109 69,452 Unrealised gains on investments 205,166 83,826 Other technical income, net of reinsurance 11,896 9,812 Total technical income 1,042,913 1,443,510 Claims incurred (net of reinsurance) Claims paid Gross amount (197,314) (187,388) Reinsurer s share 38 58 Change in provision Gross amount Reinsurer s share (197,276) (187,330) - - - - (197,276) (187,330) Change in other technical provisions (net of reinsurance) Life assurance provision Gross amount 13 (1,934) (6,511) Reinsurer s share - - Net of reinsurance (1,934) (6,511) Technical provisions for life assurance 13 (657,844) (816,569) Net operating expenses 4 (35,884) (51,344) Investment expenses and charges 3 (124,253) (201,149) Unrealised losses on investments (9,515) (153,126) Total technical charges (1,026,706) (1,416,029) Balance on the technical account - life assurance business 16,207 27,481 12
Profit and loss account for the year ended 31 December 2003 2003 2002 Note Balance on the technical account - life assurance business 16,207 27,481 Investment income Income from other investments 1,388 1,165 Unrealised gains on investments 950 236 Unrealised losses on investments (334) (1,361) Profit on ordinary activities before taxation 5 18,211 27,521 Tax on profit on ordinary activities 6 (2,296) (2,756) Profit for the financial year 12 15,915 24,765 Dividend equity shares 7 (13,000) (20,000) Retained profit for the financial year 2,915 4,765 There were no recognised gains or losses other than those dealt with in the profit and loss account of the financial year and preceeding financial year. All activities arose from continuing operations. On behalf of the board E. Marsiglia A. Bates Director Director 13
Balance sheet As at 31 December 2003 Assets 2003 2002 Note Investments Other financial investments 8 52,811 47,346 Investments for the benefit of life assurance policyholders who bear the investment risk 9 3,121,647 2,463,803 3,174,458 2,511,149 Debtors Amounts falling due within one year: Debtors arising out of direct insurance operations 38 1,626 Other debtors 6,680 9,138 Other assets Tangible fixed assets 10 352 426 Cash at bank and in hand 259 1,259 Prepayments and accrued income Accrued interest and rent 266 292 Deferred acquisition costs 2,884 1,365 Total assets 3,184,937 2,525,255 14
Balance sheet (continued) As at 31 December 2003 Liabilities 2003 2002 Note Capital and reserves Called up share capital 11 635 635 Profit brought forward 12 23,482 18,717 Profit for financial year 2,915 4,765 Other reserves 4,444 4,444 Shareholders funds - equity interests 12 31,476 28,561 Technical provisions Life assurance provision 13 10,540 8,606 Technical provisions for life assurance policies where the investment risk is borne by the policyholders 13 3,121,647 2,463,803 Provisions for other risks and charges 14 24 44 Creditors Creditors arising out of direct insurance operations 15 11,055 5,679 Creditors arising out of reinsurance operations 139 95 Other creditors including taxation and social welfare 16 10,056 18,467 Total liabilities 3,184,937 2,525,255 On behalf of the board E. Marsiglia A. Bates Director Director 15
Notes forming part of the financial statements 1 Gross premiums written - Linked 2003 2002 Single premiums 793,425 1,270,127 Regular premiums 9,456 10,452 Total 802,881 1,280,579 The company transacts cross-border life assurance business in the European Union under the Third Life Directive as introduced into domestic Irish legislation by the European Communities (Life Assurance) Framework Regulations, 1994. All new premiums during the year were written in Italy. 2 Investment income 2003 2002 Technical account - Life assurance business Income from other investments 410 1,259 Gains on the realisation of investments 22,699 68,193 23,109 69,452 3 Investment expenses and charges 2003 2002 Technical account - Life assurance business Losses on realisation of investments 116,125 198,966 Investment management expenses, including interest 8,128 2,183 124,253 201,149 16
Notes (continued) 4 Net operating expenses 2003 2002 Technical account - life assurance business Acquisition costs 20,124 39,602 Administrative expenses 17,279 13,107 Change in deferred acquisition costs (1,519) (1,365) 35,884 51,344 Gross acquisition costs in 2003 include total commissions for direct insurance of 16.0 million. (2002: 35.0 million) 5 Statutory and other information 2003 2002 Directors emoluments For services as directors 71 71 Auditors remuneration 60 50 Depreciation 255 217 Staff costs Wages and salaries 497 400 Staff pension fund 49 30 Social welfare costs 47 46 593 476 The average number of employees during the period was as follows: Administration 5 5 Finance 1 1 17
Notes (continued) 6 Taxation 2003 2002 Non-technical account Corporation tax 2,316 2,744 Deferred tax (20) 12 2,296 2,756 The company held a certificate under Section 446 of the Taxes Consolidation Acts, 1997. Under the terms of this certificate the company s trading income from qualifying activities is taxable at an effective rate of 10%. This certificate expired in 2003 and the company s trading income is now subject to tax at an effective rate of 12.5%. The tax assessed for the period is higher than the standard rate of corporation tax. The differences are explained below. 2003 2002 Profit on ordinary activities before taxation 18,211 27,521 Current tax at 12.5% (2002: 16%) 2,276 4,403 Effects of Items not deductible for tax purposes 6 10 Section 446, TCA 1997 relief - (1,648) Capital allowances for period in excess of depreciation 29 (21) Adjustments to tax charge in respect of previous periods 5 - Total current tax charge at 12.5% (2002: 10%) 2,316 2,744 18
Notes (continued) 7 Dividends 2003 2002 Non technical account Interim dividend paid 8.663 (2002: 7.088) per share 5,500 4,500 Proposed final dividend 11.813 (2002: 24.414) per share 7,500 15,500 Total dividend for the year 13,000 20,000 8 Other financial investments Market value Market value Cost Cost 2003 2002 2003 2002 Units in unit trusts and index linked securities 21,652 12,798 23,043 15,009 Debt securities and other fixed income securities 9,623 10,205 8,939 10,053 Deposits with credit institutions 21,536 24,343 21,537 24,343 52,811 47,346 53,519 49,405 9 Investments for the benefit of life assurance policyholders who bear the investment risk Market value Market value Cost Cost 2003 2002 2003 2002 At 31 December 3,121,647 2,463,803 3,051,298 2,608,475 19
Notes (continued) 10 Tangible fixed assets Computer equipment and Other software equipment Total 000 Cost At 31 December 2002 1,037 112 1,149 Additions 175 7 182 At 31 December 2003 1,212 119 1,331 Accumulated depreciation At 31 December 2002 630 93 723 Charge for year 243 13 256 At 31 December 2003 873 106 979 Net book value At 31 December 2003 339 13 352 At 31 December 2002 407 19 426 11 Share capital - equity 2003 2002 Authorised: 5,078,953 ordinary shares of 1 each 5,079 5,079 Allotted, called up and fully paid: 634,870 ordinary shares of 1 each 635 635 20
Notes (continued) 12 Movement in shareholders funds Share Other Profit & Capital Reserves Loss account Total Balance at 31 December 2002 635 4,444 23,482 28,561 Profit for the financial year - - 15,915 15,915 Dividend paid - - (5,500) (5,500) Dividend proposed - - (7,500) (7,500) Balance at 31 December 2003 635 4,444 26,397 31,476 In 1999, the shareholders, Montepaschi Vita S.p.A. and Banca Monte dei Paschi di Siena S.p.A., companies incorporated in Italy, made an irrevocable contribution of 4,444,083 to the capital of the company. This contribution is distributable, after all accumulated losses have been taken into account. 13 Technical provisions Life assurance business provision Life assurance Technical provision for business provision linked liabilities Opening balance at 31 December 2002 8,606 2,463,803 Movement in technical provisions during the year 1,934 657,844 Balance at 31 December 2003 10,540 3,121,647 The life assurance business provision was calculated by the company s Reporting Actuary, Mr. Jim Murphy FSAI FIA, Director of Life Strategies Limited. Mr. Murphy is a Fellow Member of the Society of Actuaries in Ireland. The computation was made on the basis of recognised actuarial methods and with due regard to the principles laid down in Council Directive 92/96/EEC. Total technical provisions shown in the financial statements should be sufficient to cover accrued liabilities arising out of life assurance contracts, as far as can reasonably be foreseen. The life assurance business provision was calculated using modern tables of mortality. Expense assumptions used in the computation were based on the company s recent experience. 21
Notes (continued) 14 Provisions for other risks and charges 2003 2002 Deferred tax: Balance at beginning of year 44 32 Arising during the year: Non-technical account (10) 12 Balance at end of year 34 44 Deferred tax arises on timing differences due to accelerated capital allowances in respect of tangible fixed assets. 15 Creditors arising out of direct insurance operations 2003 2002 Other insurance creditors 10,750 4,826 Amounts due to group companies 305 85 All amounts fall due within one year 11,055 5,679 16 Other creditors including tax and social welfare 2003 2002 Amounts falling due within one year Proposed dividend 7,500 15,500 Corporation tax 1,411 2,292 Social welfare 133 118 Other creditors 1,012 557 10,056 18,467 22
Notes (continued) 17 Group membership The company is ultimately a 100% subsidiary of Banca Monte dei Paschi di Siena S.p.A.. The parent undertaking of the smallest group of undertakings for which group financial statements are drawn up, and in which the company s financial statements are included, is Monte Paschi Vita S.p.A., a company incorporated in Italy. The parent undertaking of the largest group of undertakings for which group financial statements are drawn up is Banca Monte dei Paschi di Siena S.p.A.which is incorporated in Italy and this company is considered by the directors to be the ultimate parent undertaking. The consolidated financial statements of Banca Monte dei Paschi di Siena S.p.A. are available from the Company Secretary, Banca Monte dei Paschi di Siena S.p.A., Piazza Salimbeni 3, 58100 Siena, Italy. The financial statements of Montepaschi Life (Ireland) Limited are available from the Company Secretary at Grand Canal House, 1 Upper Grand Canal Street, Dublin 4. 18 Related party transactions The company is availing of the exemption under Financial Reporting Standards No. 8 Related Party Disclosures not to disclose details of transactions with group companies as the company is ultimately a wholly owned subsidiary of Banca Monte dei Paschi di Siena S.p.A. 19 Cash flow statement The company is availing of the exemption under Financial Reporting Standard No. 1 (Revised) Cash Flow Statements not to prepare a cash flow statement as the company is a subsidiary of Banca Monte dei Paschi di Siena S.p.A. which prepares a consolidated cash flow statement. 20 Post balance sheet events There have been no significant events affecting the company since the year end. 21 Approval of financial statements The board of directors approved these financial statements on 2 March 2004. 23