Malta is faring well as a leading European domicile. Here Dr Matthew Bianchi outlines the island’s continuing success.
Malta is an independent democratic state with a history of political stability and parliamentary consensus that has helped to promote the country as an international financial centre. The country has been a member of the European Union since May 1, 2004, and a Eurozone member since January 2008.
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, among which are English and Italian.
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 reachable from Europe’s capitals (via daily flights to Malta’s international airport).
FinanceMalta was established by the government, 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 the Maltese financial services’ fast-developing landscape.
Malta: setting itself apart
Malta has an established financial services centre of international repute, with highly skilled and experienced professional expertise. The Malta Financial Services Authority (MFSA) is the sole regulator of financial services in Malta. Its 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 SinglePassport and thus provide their services across the 27 member states (as well as to the three European Economic Area [EEA] 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 each other and from the assets of the parent company. This enables promoters to come together within the PCC framework and to share overhead costs, whilst at the same time, 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 to continue to operate in Malta—a process known as redomiciliation. Legislation in Malta allows for companies to continue their corporate existence when moving from one jurisdiction to another.
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 under the act.
As a full European Union member state, Malta incorporates the relevant prudential supervision EU directives within its insurance legislation. Adherence with these EU directives means that insurance supervision (in particular regarding 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 in terms of the Companies Act, 1995 and are the same limited liability companies that can be used for any activities, whether domestic, international or both. Malta does not have multiple types of companies that can be incorporated, but rather has one type of limited liability company that is subject to tax at the rate of 35 percent.
As Malta has a full imputation system of taxation, the shareholders of a Maltese company are entitled by 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 a rate of 35 percent. After this 6/7ths relief is given, there is a net tax leakage in Malta of 5 percent.
The scope of the sector
The Maltese insurance sector is constituted with a 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 51, of which 39 are licensed insurers and reinsurers, six of which underwrite business in Malta, with the remainder underwriting business overseas. There are four PCCs, with 12 insurance undertakings operating through their cells. 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 new regulation
The MFSA and MIMA are working closely with industry players to ensure that a smooth regulatory transition is made as quickly as possible, and it is hoped that the application of the Solvency II regime in Malta will ensure that it remains at the forefront of the insurance industry.
The MFSA has issued several guidance papers in order to inform insurance companies in Malta of the compliance requirements they would have to meet following the implementation of Solvency II. The MFSA and MIMA have also encouraged insurers to submit QIS5 reports in order to ensure a comprehensive industry-wide analysis. This appeal was very well received and it is reported that the vast majority of licensees have submitted QIS5 returns.
Although compliance with Solvency II 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 policy holders and added capital return for investors.
Ongoing expansion and consolidation across the sector have delivered sustained levels of growth in the industry. Figures released by the MFSA have confirmed that total premiums written by Malta-based insurance companies in 2009 topped €1 billion.
In the non-life insurance sector, gross premiums written for 2009 grew 10 percent over the previous year. This increase was made up of a 3 percent increase in relation to risks situated in Malta (from €93 million in 2008 to €96 million in 2009) and an 11 percent increase in relation to risks situated outside of Malta (from €557 million in 2008 to €621 million in 2009).
The most substantial increases however were registered in the life insurance sector, where gross premiums written climbed from €221 million in 2008 to €327 million in 2009—a 48 percent increase. These figures include investment contracts without discretionary participation features. Gross premium written where Malta is the country of commitment increased by 7 percent (from €182 million in 2008 to €194 million in 2009). Gross premium written where Malta is not the country of commitment increased from €39 million to €133 million, due to growth in the reinsurance sector.
Business done in Malta through branches or agencies of overseasbased companies remained at the same level as the previous year— €127 million in respect to general business and €3.5 million for longterm business.
Dr Matthew Bianchi is the Malta Insurance Managers Association’s secretary general. He can be contacted at: email@example.com
Malta, domicile report, EMEA, captive, insurance