captive insurance in malta

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© 2011 - CCMalta.com © 2011 - CCMalta.com

Malta A European Captive Insurance Hub

Dr Charles Cassar

Senior Associate

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About the Firm Malta: A Jurisdiction Overview Captive Insurance: An Overview The Licensing Process Legal Structures: PCCs vs ICCs Management and Control Why set up a captive? Why Malta?

Overview

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About the Firm

About the Firm

Malta: An Overview

Captive Insurance: An Overview

The Licensing Process

Legal Structures: PCCs v. ICCs

Management and Control

Why set up a captive?

Why Malta?

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© 2011 - CCMalta.com

Multi-disciplinary Accountants Tax Advisors Lawyers Mgt Consultants IT Advisors

Offices Valletta, Malta Nicosia, Cyprus London, UK

About the Firm

Legal

Tax

Corporate

Fiduciary

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About the Firm

Malta Jurisdiction Overview

Malta: An Overview






Why Malta?

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Population: 413,609

Multi-Cultural History Multi-Lingual

Commonwealth Member

Independent since: 1964

EU Member since 2004

Onshore Jurisdiction

OECD and FATF

Compliant

Malta

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An Established Domicile

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Business Environment

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About the Firm


Malta: An Overview

Captive Insurance





Why Malta?

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A variety of set-ups:

Life Insurance Companies General Non-Life Insurance business companies

Major components: health and motor insurance

Re-Insurance Companies Affiliated Insurance Companies (Captives) Insurance Management Companies

The Insurance Industry

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The Maltese Insurance Industry is registering continued growth.

At present there are about 51 insurance companies: 9 Protected Cell Companies (PCCs); 11 Affiliated (captive) Insurers; 15 Insurance Management Companies;

Assets under management increased exponentially from €555 million in 2008 to €1.1 billion in 2010.

Similarly, annual gross premium written by the insurance companies and cells under management has grown 68% since 2008.

The Insurance Industry: Encouraging Statistics

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Captives

•AarhusKarlshamn Insurance Malta Ltd

• Ergon Insurance Ltd • Falcon Insurance Ltd • Nautilus Indemnity (Europe) Ltd • Orlen Insurance Ltd • Ortolan Reinsurance Co Ltd • Palatina Insurance Ltd • Pembroke International Insurance Company Ltd

• Rhenas Insurance Ltd • Shield Insurance Company Ltd • Werla Insurance Company Limited

PCCs

•Abbey International Insurance PCC Limited

• Atlas Insurance PCC Ltd • Axeria Life International PCC Ltd • Highdome PCC Ltd • Lime Street Insurance PCC Ltd • Oney Insurance (PCC) Limited • Oney Life (PCC) Limited • White Rock Insurance (Europe) PCC Ltd

Insurance Managers

• Abacus Risk Management Services PCC Ltd - South Risk Management Cell

• Alternative Risk Management (Malta) Ltd

• Aon Insurance Managers (Malta) Ltd

• Ark Insurance Management (Malta) Ltd

• Bee Insurance Management Limited

• FirstUnited Insurance Management Ltd

• Heritage Insurance Management (Malta) Ltd

• HSBC Insurance Management Services (Europe) Ltd

• Island Insurance Management Services Ltd

• JLT Insurance Management Malta Ltd

• Kane (Malta) Limited • Marsh Management Services Malta Ltd

• STM Malta Insurance Management Limited

• USA Risk Group (Malta) Ltd

The Insurance Industry: Current Market Players

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Captive Insurance is referred to as “Affiliated Insurance” under Maltese law and is defined as:

“the business of an insurance company which is registered in Malta and whose business of insurance is restricted to risks originating with shareholders or connected undertakings or entities and includes business carried on by an affiliated reinsurance company.”

Captives may insure risks with: Parent or group companies; Undertakings having common membership up to the ultimate beneficial owner

level, with the AIC, amounting to at least 51% ; Individuals or other entities having a majority ownership or controlling interest

of 51% or more in the AIC; Members of trade, profession or industry associations or organisations insuring

risks related to the particular trade, profession or industry.

Captive Insurance defined

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Captives

EU Insurance Directives as

transposed into Maltese Law

Insurance Business ActSubsidiary Legislation

Insurance Rules Companies carrying on Business of Affiliated Insurance

Regulations

Regulatory Framework

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Malta’s Continuation of Companies Regulations enable captive companies operating in other jurisdictions to carry out insurance business in Malta.

A request for re-domiciliation in Malta together with the requisite supporting documents must be submitted to the Maltese Registrar of Companies.

Redomiciliation occurs upon the issue of a provisional certificate meaning that the Company: continues to be a body corporate registered in Malta; is subject to all the obligations and capable of exercising all powers of a Maltese

company registered under the Maltese Companies Act; retains all its assets, rights, liabilities and obligations; remains subject to any legal proceedings or judgments commenced or given prior to

registration in Malta. Malta incorporated Captive insurance companies may upon obtaining the consent

of the Registrar, apply to the authority of a foreign country to be re-domiciled outside Malta.

Re-domiciliation

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About the Firm

The Licencing Process

Malta: An Overview

Captive Insurance





Why Malta?

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Single Regulator

Professional Flexible

Approachable

Responsive

MFSA: The Regulator

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Affiliated insurance as any other insurance business activity may only be conducted in/from Malta upon obtainment of a licence from the MFSA.

An application for authorisation needs to be submitted to the MFSA along other supporting documents, for review and consideration.

Upon being satisfied that the documentation is in order, the MFSA will proceed to grant its approval and issue an authorisation to carry on the business of affiliated insurance.

The Licensing Requirement

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Overview of the Licensing Process

Application submission and regulatory review

Queries / In Principle approval

License

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Disclosure of information to the MFSA regarding persons who, upon the authorisation of the company, will have any proprietary, financial or other interest in, or in connection with company;

Submission of a scheme of operations;

The applicant must demonstrate that it satifies the criteria of sound and prudent management and that the directors, controllers, senior managers and qualifying shareholders of the company fulfil the criteria of fitness and properness;

The Own funds regulatory requirements are satisfied;

Local Presence

Licencing Requirements

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Type of Insurance Business Value Applicable Scope

General Business 3,500,000 Euro or

2,300,000 Euro Provided it is restricted to any of the prescribed classes of insurance.

Long Term Business 3,500,000 Euro

Business of Reinsurance 1,100,000 Euro Provided it is restricted to the business of reinsurance.

General Business and Reinsurance

3,200,000 Euro Subject to the fulfilment of applicable thresholds

3,500,000 Euro Subject to the prescribed classes and fulfilment of applicable thresholds

2,300,000 Euro Subject to the prescribed classes and fulfilment of applicable thresholds

Long term business and reinsurance

3,500,000 Euro

Own Fund Requirements

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Own funds, Margin of Solvency and having a Minimum guarantee fund are ongoing obligations of a Licence Holder.

Own funds: must be unencumbered at all times. The initial paid up share capital must not be less than 50% of the value of the

own funds requirement; The balance may be composed of a mixture of issued and unpaid share capital,

preferential share capital and subordinated loans, retained profits and reserves;

A minimum margin of solvency is to be maintained which is to be computed by reference to the Insurance Business (Assets and Liabilities) Regulations.

A minimum guarantee fund is to be maintained in accordance with the Insurance Business (Assets and Liabilities) Regulations. One-third of the required margin of solvency constitutes the guarantee fund.

Own Fund Requirements, Guarantee Fund & Margins of Solvency

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FEE Amount Description

Application for authorisation 1800 Euro Payable upon submission of the application, irrespective of whether the application is eventually accepted or not.

Acceptance of Application 2500 Euro Payable upon acceptance of the application.

Continuance of authorization 5000 Euro Any person holding an authorisation or permit on the 31st December of each year, is to pay to the MFSA the fee relating to the continuance of authorisation on the first day of the month of January of the next following year.

Payment of submission of business statements fees

N/A to companies carrying on the business of captive

insurance

Exemption granted to Captives

Insurance companies are to pay business statements fees. The amount depends on the amount of its gross premiums receivable for that calendar year.

Regulatory Fees

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About the Firm

Legal Structures: PCCs vs ICCs

Malta: An Overview

Captive Insurance


PCCs v. ICCs



Why Malta?

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Protected Cell Companies

Malta is the only EU member state with PCC legislation.

Regulated by the Cell Companies Carrying on Business of Insurance Regulations, the Companies Act and the Insurance Business Act.

Ring fencing of assets and liabilities

Core capital can be used to meet the own fund requirements

Potential cost savings: costs are shared among the various Cells and the Core

PCCs

Innovative & Flexible Legal Framework Key Benefits

Tax Treatment

Each individual cells of a PCC and the PCC“core” are treated as separate taxable entities.

Corporate tax rate is 35%- upon distribution of dividends, up to 6/7ths of the tax paid can be recovered by non-resident shareholders of

Net effective tax rate of 5%.

Regulatory Fees

Application fee: €2500

Acceptance of Application fee: € 2500

Application fee for the creation of cells: € 1000

Acceptance of Application fee re cells: € 1000

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The PCC together with any protected cells which have been created constitute a single legal person

Modes of Constitution of a PCC- Incorporation or Conversion Setting-up a protected cell within a PCC (although still requiring a licence) is a

less demanding as the PCC would already be known to and regulated by MFSA.

Cellular assets are kept separate from non-cellular assets and from the assets attributable to all the other protected cells.

The PCC structure may serve as an alternative to setting up a standalone reinsurer or captive rent-a-captive solutions allowing for a purchase of a cell within an existing PCC to

write policies from within that specific cell Non-recourse agreements may be entered into re captive insurance

whereby creditors may not have secondary recourse to the PCC’s non-cellular assets.

Protected Cell Companies- Distinguishing Features & Other Benefits

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Incorporated Cell Companies

Malta is the only EU member state with ICC legislation.

Regulated by the Incorporated Cell Companies Carrying on Business of Insurance Regulations, the Companies Act and the Insurance Business Act.

True segregation of assets due to the separate legal personality of the incorporated cells

Incorporated cells can buy and sell assets to one another, provide guarantees and borrow and lend from one another.

ICCs

Innovative & Flexible Legal Framework Key Benefits

Tax Treatment

The incorporated cells and the ICC are separate companies

Corporate tax rate is 35%- upon distribution of dividends, up to 6/7ths of the tax paid can be recovered by non-resident shareholders of

Net effective tax rate of 5%.

Regulatory FeesThe payment of authorisation and continuance of authorisation fees depend on the type of insurance business pursued.

Re Captive Insurance- The already mentioned regulatory fees which are applicable to captive companies apply.

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A major distinction between an ICC and a PCC- in the case of an ICC, each cell is individually incorporated as a single legal person

Modes of Constitution of an ICC- Incorporation, Continuation, Conversion or Division

The assets and liabilities of the ICC are separate from the assets and liabilities of its incorporated cells and the assets and liabilities of each incorporated cell are separate from those of other incorporated cells

Claims by creditors may only be directed against the assets of the incorporated cell with which they have contracted without having any recourse to the assets of the ICC or other incorporated cells.

The ICC structure may serve as an alternative to setting up a standalone reinsurer or captive

Incorporated Cell Companies- Distinguishing Features & Other Benefits

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About the Firm


Malta: An Overview

Captive Insurance





Why Malta?

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Captives may be self-managed or administered by 'captive insurance managers' appointed by the Captive company in terms of a management contract

Captive managers must be authorised to act as insurance managers by the MFSA

In broad terms, the manager’s role is : Maintaining the captive’s books of accounts Coordinating the process of premium invoicing and collection, Timely and accurate reporting so as to enable decision making and the sound

and prudent management of the captive operation, Monitoring third-party service agreements, Facilitating captive board meetings and liaising with other stakeholders such as

the captive’s auditors, reinsurers and regulators

Insurance Managers

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An Insurance Manager may be established as a PCC- it is different to ordinary managers in that it is licensed to create cells which are themselves able to carry on insurance management functions.

This management model is unique to Malta.

A PCC hosting facility may be offered to various insurance management companies through an outsourcing agreement with the third party manager in respect of the specific cell they introduce.

All cells hosted by a PCC may be managed by different insurance management companies

Insurance Management Companies

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About the Firm


Malta: An Overview

Captive Insurance





Why Malta?

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Single EU passport – Ability to write risk throughout the EEA

“In-house” Insurance- retention of Premium within group companies and participation in the profits of the group’s captive insurance venture

Ability to “segregate a company’s own activities from those of other unknown entities

Enhanced internal risk management and the ability to source the exact cover required

Access to the reinsurance market

Benefits of an EU-Based Captive

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Maltese captives are granted exemptions from a number of provisions of the Insurance Business Act;

No Contribution needs to be made to the Protection and Compensation Fund;

No Document Duty is chargeable on contracts relating to risks outside Malta;

Captives are exempted from the requirement to publish their accounts in the press.

Captives enjoy reduced application and supervisory fees;

Captives enjoy a fast track application procedure (3 months maximum instead of 6 months)

Benefits of Maltese Captives

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About the Firm

Why Malta ?

Malta: An Overview

Captive Insurance





Why Malta?

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Cost Effective

EU Jurisdiction

Ideal geographical location and

climate

Reputable Financial Services

Jurisdiction

Skilled and multi-lingual workforce

Malta: Jurisdiction of Choice

MALTA

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Single passport (vis-à-vis non EU jurisdictions) Relative cost advantage (vis-à-vis most established EU financial centres) PCC and ICC Legislation Accessible and Flexible Regulator English speaking community A stable regulatory environment Very competitive tax regime Extensive Double Tax Treaty network Good telecommunications & IT infrastructure Professional Expertise – Legal, Accounting & Insurance Management

Why Malta?

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