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Captive Insurance in Malta


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Chetcuti Cauchi Advocates, Malta Law Firm: this presentation provides an outline of the law governing insurance captives in Malta.

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Captive Insurance in Malta

  1. 1. MaltaA European Captive Insurance HubDr Charles CassarSenior Associate 1 © 2011 -
  2. 2. 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? 2 © 2011 -
  3. 3. 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 © 2011 -
  4. 4. About the FirmMulti-disciplinary  Accountants Legal Tax  Tax Advisors  Lawyers  Mgt Consultants  IT Advisors CorporateOffices  Valletta, Malta  Nicosia, Cyprus  London, UK Fiduciary 4 © 2011 -
  5. 5. 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?Malta Jurisdiction Overview 5 © 2011 -
  6. 6. Malta Population: Multi-Cultural 413,609 History Multi-LingualCommonwealth Independent EU Member Member since: 1964 since 2004 OECD and Onshore FATF Jurisdiction Compliant 6 © 2011 -
  7. 7. An Established Domicile 7 © 2011 -
  8. 8. Business Environment 8 © 2011 -
  9. 9. About the Firm Malta: An Overview Captive Insurance The Licensing Process Legal Structures: PCCs v. ICCs Management and Control Why set up a captive? Why Malta?Captive Insurance: An Overview 9 © 2011 -
  10. 10. 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 10 © 2011 -
  11. 11. 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. 11 © 2011 -
  12. 12. 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 12 © 2011 -
  13. 13. 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. 13 © 2011 -
  14. 14. Regulatory Framework Insurance Business Act Subsidiary Legislation Insurance Rules Companies EU Insurance carrying on Directives as Business oftransposed into Affiliated Maltese Law Insurance Regulations Captives 14 © 2011 -
  15. 15. 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. 15 © 2011 -
  16. 16. About the Firm Malta: An Overview Captive Insurance The Licensing Process Legal Structures: PCCs v. ICCs Management and Control Why set up a captive? Why Malta?The Licencing Process 16 © 2011 -
  17. 17. MFSA: The Regulator Single Professional FlexibleRegulator Approachable Responsive 17 © 2011 -
  18. 18. 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. 18 © 2011 -
  19. 19. Overview of the Licensing ProcessApplication submission and regulatory review Queries / In Principle approval License 19 © 2011 -
  20. 20. 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 20 © 2011 -
  21. 21. Own Fund Requirements Type of Insurance Business Value Applicable ScopeGeneral 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 EuroBusiness 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 ofReinsurance 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 thresholdsLong term business and 3,500,000 Euroreinsurance 21 © 2011 -
  22. 22. 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. 22 © 2011 -
  23. 23. Regulatory Fees FEE Amount DescriptionApplication 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. 23 © 2011 -
  24. 24. About the Firm Malta: An Overview Captive Insurance The Licensing Process PCCs v. ICCs Management and Control Why set up a captive? Why Malta?Legal Structures: PCCs vs ICCs 24 © 2011 -
  25. 25. Protected Cell CompaniesInnovative & Flexible Legal Framework Key Benefits Ring fencing of assets and liabilitiesMalta is the only EU member state with PCClegislation. Core capital can be used to meet the own fund requirementsRegulated by the Cell Companies Carrying onBusiness of Insurance Regulations, the Potential cost savings: costs are shared amongCompanies Act and the Insurance Business the various Cells and the CoreAct. PCCs Tax Treatment Regulatory FeesEach individual cells of a PCC and the PCC Application fee: €2500“core” are treated as separate taxable entities. Acceptance of Application fee: € 2500Corporate tax rate is 35%- upon distribution ofdividends, up to 6/7ths of the tax paid can be Application fee for the creation of cells:recovered by non-resident shareholders of € 1000Net effective tax rate of 5%. Acceptance of Application fee re cells: € 1000 25 © 2011 -
  26. 26. 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. 26 © 2011 -
  27. 27. Incorporated Cell CompaniesInnovative & Flexible Legal Framework Key BenefitsMalta is the only EU member state with ICC True segregation of assets due to the separatelegislation. legal personality of the incorporated cellsRegulated by the Incorporated Cell Companies Incorporated cells can buy and sell assets to oneCarrying on Business of Insurance another, provide guarantees and borrow and lendRegulations, the Companies Act and the from one another.Insurance Business Act. ICCs Tax Treatment Regulatory Fees The payment of authorisation and continuanceThe incorporated cells and the ICC are of authorisation fees depend on the type ofseparate companies insurance business pursued.Corporate tax rate is 35%- upon distribution of Re Captive Insurance- The already mentioneddividends, up to 6/7ths of the tax paid can be regulatory fees which are applicable to captiverecovered by non-resident shareholders of companies apply.Net effective tax rate of 5%. 27 © 2011 -
  28. 28. 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 28 © 2011 -
  29. 29. About the Firm Malta: An Overview Captive Insurance The Licensing Process Legal Structures: PCCs v. ICCs Management and Control Why set up a captive? Why Malta?Management and Control 29 © 2011 -
  30. 30. 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 30 © 2011 -
  31. 31. 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 31 © 2011 -
  32. 32. About the Firm Malta: An Overview Captive Insurance The Licensing Process Legal Structures: PCCs v. ICCs Management and Control Why set up a captive? Why Malta?Why set up a captive? 32 © 2011 -
  33. 33. 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 33 © 2011 -
  34. 34. 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) 34 © 2011 -
  35. 35. About the Firm Malta: An Overview Captive Insurance The Licensing Process Legal Structures: PCCs v. ICCs Management and Control Why set up a captive? Why Malta?Why Malta ? 35 © 2011 -
  36. 36. Malta: Jurisdiction of Choice Cost EffectiveSkilled and multi- EU lingual Jurisdictionworkforce MALTA Reputable Ideal Financial geographical Services location and Jurisdiction climate 36 © 2011 -
  37. 37. 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 37 © 2011 -
  38. 38. info@cclex.comThank You 38 © 2011 -