Captive Insurance in Malta

Malta
A European Captive Insurance Hub

Dr Charles Cassar
Senior Associate

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© 2011 - CCMalta.com

Overview

 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?

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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?

About the Firm

3

About the Firm

Multi-disciplinary
 Accountants
Legal Tax
 Tax Advisors
 Lawyers
 Mgt Consultants
 IT Advisors Corporate
Offices
 Valletta, Malta
 Nicosia, Cyprus
 London, UK Fiduciary

4

About the Firm
Malta: An Overview
Captive Insurance: An
Overview
ICCs
Why Malta?

Malta Jurisdiction Overview

5

Malta

Population: Multi-Cultural
413,609 History
Multi-Lingual

Commonwealth Independent EU Member
Member since: 1964 since 2004

OECD and
Onshore
FATF
Jurisdiction
Compliant

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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
ICCs
Why Malta?

Captive Insurance: An Overview

9

The Insurance Industry

 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

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The Insurance Industry: Encouraging Statistics

 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.

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The Insurance Industry: Current Market Players

Captives PCCs Insurance Managers

•AarhusKarlshamn Insurance Malta •Abbey International Insurance PCC • Abacus Risk Management
Ltd Limited Services PCC Ltd - South Risk
• Ergon Insurance Ltd • Atlas Insurance PCC Ltd Management Cell
• Falcon Insurance Ltd • Axeria Life International PCC Ltd • Alternative Risk Management
• Nautilus Indemnity (Europe) Ltd • Highdome PCC Ltd (Malta) Ltd
• Orlen Insurance Ltd • Lime Street Insurance PCC Ltd • Aon Insurance Managers (Malta)
• Ortolan Reinsurance Co Ltd • Oney Insurance (PCC) Limited Ltd
• Palatina Insurance Ltd • Oney Life (PCC) Limited • Ark Insurance Management
(Malta) Ltd
• Pembroke International Insurance • White Rock Insurance (Europe)
Company Ltd PCC Ltd • Bee Insurance Management
Limited
• Rhenas Insurance Ltd
• FirstUnited Insurance
• Shield Insurance Company Ltd Management Ltd
• Werla Insurance Company • Heritage Insurance Management
Limited (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

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Captive Insurance defined

 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.

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Regulatory Framework

Insurance
Business Act
Subsidiary
Legislation
Insurance Rules Companies
EU Insurance carrying on
Directives as Business of
transposed into Affiliated
Maltese Law Insurance
Regulations

Captives

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Re-domiciliation

 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.

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About the Firm
Malta: An Overview
Captive Insurance
ICCs
Why Malta?

The Licencing Process

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MFSA: The Regulator

Single
Professional Flexible
Regulator

Approachable Responsive

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The Licensing Requirement

 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.

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Overview of the Licensing Process

Application submission and regulatory review

Queries / In Principle approval

License

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Licencing Requirements

 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

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Own Fund Requirements
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 3,200,000 Euro Subject to the fulfilment of
Reinsurance 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 3,500,000 Euro
reinsurance
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Own Fund Requirements, Guarantee Fund & Margins of Solvency

 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.

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Regulatory Fees

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 N/A to companies carrying on Insurance companies are to pay
business statements fees the business of captive business statements fees. The
insurance amount depends on the
amount of its gross premiums
Exemption granted to receivable for that calendar
Captives year.

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About the Firm
Malta: An Overview
Captive Insurance
PCCs v. ICCs
Why Malta?

Legal Structures: PCCs vs ICCs

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Protected Cell Companies

Innovative & Flexible Legal Framework Key Benefits

Ring fencing of assets and liabilities
Malta is the only EU member state with PCC
legislation.
Core capital can be used to meet the own fund
requirements
Regulated by the Cell Companies Carrying on
Business of Insurance Regulations, the
Potential cost savings: costs are shared among
Companies Act and the Insurance Business
the various Cells and the Core
Act.
PCCs

Tax Treatment Regulatory Fees

Each individual cells of a PCC and the PCC Application fee: €2500
“core” are treated as separate taxable entities.
Acceptance of Application fee: € 2500
Corporate tax rate is 35%- upon distribution of
dividends, up to 6/7ths of the tax paid can be Application fee for the creation of cells:
recovered by non-resident shareholders of € 1000

Net effective tax rate of 5%. Acceptance of Application fee re cells:
€ 1000

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Protected Cell Companies- Distinguishing Features & Other Benefits

 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.

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Incorporated Cell Companies

Innovative & Flexible Legal Framework Key Benefits

Malta is the only EU member state with ICC True segregation of assets due to the separate
legislation. legal personality of the incorporated cells

Regulated by the Incorporated Cell Companies Incorporated cells can buy and sell assets to one
Carrying on Business of Insurance another, provide guarantees and borrow and lend
Regulations, the Companies Act and the from one another.
Insurance Business Act.
ICCs

Tax Treatment Regulatory Fees
The payment of authorisation and continuance
The incorporated cells and the ICC are of authorisation fees depend on the type of
separate companies insurance business pursued.

Corporate tax rate is 35%- upon distribution of Re Captive Insurance- The already mentioned
dividends, up to 6/7ths of the tax paid can be regulatory fees which are applicable to captive
recovered by non-resident shareholders of companies apply.

Net effective tax rate of 5%.

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Incorporated Cell Companies- Distinguishing Features & Other Benefits

 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

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About the Firm
Malta: An Overview
Captive Insurance
ICCs
Why Malta?


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Insurance Managers

 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

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Insurance Management Companies

 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

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About the Firm
Malta: An Overview
Captive Insurance
ICCs
Why Malta?


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Benefits of an EU-Based Captive

 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

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Benefits of Maltese Captives

 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)

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About the Firm
Malta: An Overview
Captive Insurance
ICCs
Why Malta?

Why Malta ?

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Malta: Jurisdiction of Choice

Cost
Effective

Skilled and
multi- EU
lingual Jurisdiction
workforce
MALTA

Reputable Ideal
Financial geographical
Services location and
Jurisdiction climate

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Why Malta?

 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

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info@cclex.com

Thank You

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Captive Insurance in Malta

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