Malta continues to attract rising levels of captive business to its shores, as Dr Matthew Bianchi explains.
Malta is an independent democratic state with a history of political stability and parliamentary consensus to promote the country as an international financial centre. The country has been a member of the European Union since May 1, 2004.
Malta offers a sophisticated, comprehensive and robust regulatory system based on EU regulations. The workforce is highly skilled and multilingual, being fluent in at least two languages, with English and Italian featuring prominently.
The country also offers competitive cost structures when compared to other jurisdictions, which translates into lower operational and set-up costs for companies wishing to establish themselves on the island. The country is located in the Central European time zone and is easily accessible from Europe’s capitals (with daily flights to Malta’s international airport).
FinanceMalta was established by the government, the regulatory authorities and industry practitioners in 2007 with a mission to promote Malta as a leading international financial centre. FinanceMalta supports the efforts of the Malta Financial Services Authority (MFSA) and is an important player in the creation of Malta’s fast-developing financial services landscape.
Setting itself apart from other domiciles
Malta has an established financial services centre of international repute with highly skilled and experienced professional expertise. The MFSA is the single regulator of financial services in Malta. The MFSA’s approach is reputed to be ‘firm but flexible’—encouraging informal discussion at all levels with insurance company stakeholders, sponsors, managers, applicants and other interested parties.
Malta’s EU membership also means that insurance companies authorised in Malta are able to avail themselves of the EU single passport and thus provide their services across the 27 member state bloc (plus the three European Economic Area countries) on the strength of their authorisation in Malta.
Malta is also the only EU member state to offer the option of setting up a protected cell company (PCC) structure to underwrite insurance business. A PCC is a regular trading company constituted as a cell company which can create one or more cells for the purpose of segregating and protecting the cellular assets from every other cell and from the assets of the company. This enables promoters to come together within the PCC framework and to share overhead costs while being protected from each other’s liabilities.
Captive insurance companies that are already authorised in another jurisdiction may be authorised by the MFSA to be registered as continuing in Malta; this process is known as redomiciliation. Legislation in Malta allows for companies to continue their corporate existence despite moving from one jurisdiction to another.
Malta’s tax and regulatory environment and the impact of changing standards are described below.
An insurance company has to apply for an insurance business licence with the MFSA. If the company is to be incorporated as a PCC, each individual cell also requires MFSA authorisation.
Insurance and reinsurance companies registered in Malta are regulated by the Insurance Business Act, 1998 (Chapter 403 of the Laws of Malta) and the various regulations and MFSA rules issued thereunder.
As a full EU member state, Maltese insurance legislation incorporates the relevant prudential supervision EU directives. Adherence with these EU directives means that insurance supervision (in particular as regards own funds and solvency margins) in Malta is far more stringent than that in traditional offshore domiciles.
Maltese companies engaged in international trading and/or holding activities are taxable, onshore limited liability companies registered in Malta under the terms of the Companies Act, 1995. These limited liability companies can be used for domestic, international or mixed business activities. Under Maltese law all companies are considered limited liability companies and are subject to a tax rate of 35 percent.
As Malta has a full imputation system of taxation, the shareholders of a Maltese company are entitled at law to a tax credit for the tax paid in Malta by the Maltese company.
In the case of profits derived from the business and distributed by way of dividend, shareholders are generally entitled to a refund of 6/7ths of the tax paid by the Maltese company at the rate of 35 percent. After this 6/7ths relief is given, there is a net tax leakage in Malta of 5 percent.
Captives and the insurance sector in Malta
The Maltese insurance sector comprises the full range of insurance entities. These include insurance and reinsurance companies, and the various forms of insurance intermediaries. The latter include insurance managers, insurance agents, insurance brokers and tied intermediaries.
The total number of insurance companies operating in Malta is 50. There are 10 PCCs that undertake insurance activities through their cells. These include an insurance manager PCC and the first insurance broker PCC in Europe. Additionally, 10 affiliated insurance companies or captives underwrite various classes of insurance, including motor vehicle liability and general liability.
There are also 14 licensed insurance managers, including most of the international insurance management companies. All licensed insurance managers are members of the Malta Insurance Management Association (MIMA).
Solvency II and the new regulations
MFSA and MIMA are working closely with the industry to ensure a smooth transition to the new regime and it is hoped that the application of Solvency II in Malta will ensure that it remains at the forefront of the insurance industry.
"Insurance companies authorised in Malta are able to avail themselves to the eu single passport and thus provide their services across the 27 member state bloc (plus the three European economic area countries)."
The MFSA has issued several guidance papers in order to inform insurance companies in Malta of the compliance requirements they will have to meet following implementation of Solvency II. The MFSA and MIMA have also encouraged insurers to submit Quantitative Impact Study 5 (QIS5) reports in order to ensure a comprehensive industrywide analysis. Following the preparation of the quantitative requirements under Pillar 1, the focus has now shifted to the corporate governance and disclosure requirements and the shift towards a risk management culture in the boardrooms of insurers.
Taking advantage of Solvency II
Although compliance with the Solvency II rules may result in more costs in the short term, it is intended to ensure better management in the long term with a consequent improvement to the industry as a whole. Good corporate governance and better risk management systems should eventually lead to a lower risk profile, thus lowering capital requirements and resulting in lower premiums for policyholders and added capital return for investors. It remains to be seen how the application of the principle of proportionality within the Solvency II directive will affect the Maltese industry.
Ongoing expansion and consolidation across the sector have continued to deliver sustained levels of growth in the industry. Figures released by the MFSA have confirmed that total premiums written by Malta-based insurance companies in 2010 increased by 45 percent from €1.04 billion in 2009 to €1.51 billion in 2010.
In the non-life insurance sector gross written premiums (GWP) for 2010 grew 43 percent over the previous year by companies with head offices in Malta, with levels of premium increasing from €716 million in 2009 to €1026 million in 2010. For long term business GWP increased by 48 percent, from €327 million in 2009 to €485 million in 2010. Premiums were mainly written in respect of life and annuity business, which made up 87 percent of total GWP.
GWP in relation to risks situated in Malta increased from €96 million in 2009 to €104 million in 2010 (an 8 percent increase), while GWP in relation to risks situated outside Malta increased from €621 million in 2009 to €923 million in 2010 (a 49 percent increase).
Dr Matthew Bianchi is the secretary general of the Malta Insurance Management Association. He can be contacted at: email@example.com
Malta, EMEA, domicile report, captive, insurance