Joanne Alamango, of South Risk, details the possibilities which exist within Malta's Insurance sector.
THE OPTIMAL INSURANCE STRUCTURE – ACCESS TO MALTA’S LEGAL INSURANCE FRAMEWORK PROVIDES A VARIETY OF STRUCTURES THAT CAN BE USED TO SET UP AN EFFICIENT AND FLEXIBLE SOLUTION TO OPTIMISE ONE’S INSURANCE BUSINESS.
One often comes across articles portraying Malta and its captive insurance sector. Many are well aware of what the island can offer to the sector in terms of its general advantages - location, English native language, passporting rights into EU countries, accessibility of regulator, skilled workforce, to name but a few.
Less is published on the various structures the regulatory framework set out in the legislation, and how one can adapt these to their insurance business, both in the short-term and as their business evolves over time.
Malta’s insurance legislation provides Captive (affiliated) Insurance companies and Insurance Companies writing third party business, life or non-life. These can be set up by way of an insurance company or group of companies, by owning a cell in an existing Protected Cell Company (PCC), or by incorporating a PCC. The same applies in the case of reinsurance, i.e. the law allows for a Reinsurance captive, Reinsurance Company or Reinsurance PCC. Post Brexit, in the resultant scenario that Gibraltar leaves the EU, Malta will be the only EU jurisdiction able to domicile and regulate PCC structures
These structures can also be utilised for Insurance Intermediaries. In the current environment where there is excess insurance and reinsurance capacity, we find a growing number of insurance intermediaries having delegated authority. This has been particularly noteable in the UK insurance market.
Malta’s insurance intermediary legislation, the Insurance Intermediaries Act, provides for the establishment of brokers , agents and insurance mangers. These can be incorporated as licensed insurance brokers or licensed insurance agents The PCC structure is an ideal vehicle to use if the intermediary wants to segregate classes of business, agreements, territories.
Malta’s intermediary infrastructure can also be utilised for the Insure-tech broker or agent, and serves as an ideal domicile for insuretech for the following reasons:
· Malta’s IT infrastructure is very well de veloped with Malta hosting a number of IT development companies and other tech firms for this very reason
· Insure tech firms can gain easy access to markets outside their home country. Malta’s passporting legislation into the EU serves as an ideal domicile from which to access other markets, namely EI countries. This is especially so In the potential scenario of a post -Brexit era
· Successive Maltese governments have sought to conclude double tax treaties with important trading partners as well as with emerging countries. To date, treaties are in force with over 70 countries and this policy is expected to continue in the future. Most of Malta’s double tax treaties are based on the OECD model. Once concluded, a tax treaty becomes law by Ministerial order and overrides any provisions to the contrary under Maltese domestic tax legislation. Double taxation relief is available in the terms of the relative tax treaty.
Finally, and worth of note is the most recent legislation relating to Insurance Structures, allowing for the incorporation of RSPVs – Reinsurance Special Purpose Vehicles.
Reinsurance special purpose vehicle (RSPV) refers to an undertaking, other than an existing insurance or reinsurance undertaking, which assumes risks from a ceding undertaking. The RSPV would fully fund its exposure to such risks using the proceeds of a debt issuance or some other financing mechanism.
Ceding undertaking’ means an insurance or reinsurance undertaking which has transferred risk to a reinsurance special purpose vehicle.
RSPVs can be used for the transfer of a single risk of an event occurring, and are commonly used for Insurance Linked Securities (ILSs) or other risk transfer transaction form a single cedant. The contract must be one of reinsurance or similar arrangement.
All of the above structures have common eligibility criteria for authorisation, these being:
· An application to the MFSA
· A Scheme of Operations as required by the regulator for the specific type of structure
· Fitness and properness of the management and shareholding
· Capital and ‘own funds’ requirements
The extent of requirements varies form structure to structure but a through assessment of and advice on, the authorisation and ongoing requirements , is recommended in order to decide on the optimal structure for your insurance business and objectives.
Published in Captive Review | Malta Report 2018