Malta Insurance 2015 Mfsa | Introduction

SOLVENCY II Malta’s captive industry is ready for implementation NEW LEGISLATION SCC facility to bring ILS market to Malta

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4 INTRODUCTION BY MFSA 16 ON YOUR MARKS, GET SET…GO! A kaleidoscope of evolving regulation Karl Micallef of Curmi & Partners talks to Captive Review about how the implementation of Solvency II is affecting 6 SETTING THE BAR HIGHER the insurance industry Governor of FinanceMalta, Matthew Bianchi, explains to Captive Review how Malta is establishing itself as a leading 19 REAPING THE BENEFITS business jurisdiction PKF’s insurance partner, Donna Greaves, discusses captives in Malta, insurance-linked securities, cyber 9 SMOOTH SAILING AHEAD terrorism and feeling positive about Solvency II Mario Buttigieg, associate director, Financial Institutions Group, HSBC Bank Malta, talks about Malta’s growing 22 TAXING QUESTIONS reputation as a leading European jurisdiction Mike Stalley of FiscalReps discusses the tax implications of being domiciled in Malta, and how various European 12 THE BENEFITS OF FLAOR – LOOKING regulations play a part in the tax laws across the continent FORWARD TO ORSA! Captive Review catches up with Margareta Zaveri, an 24 BOUTIQUE IS BACK insurance manager with Marsh, based in Malta, to discuss Joseph Grima, insurance technical officer at Bee the introduction of Solvency II Insurance Management, speaks to Captive Review about the specialised service boutique captive insurance 14 THE EUROPEAN PCC: IMPLEMENTING managers can offer SOLVENCY II Ian-Edward Stafrace, chief risk officer of Atlas PCC, 26 SERVICE DIRECTORY explains what differentiates Malta from other PCC jurisdictions and how cells are handled under Solvency II

3 CAPTIVE REVIEW MALTA INSURANCE REPORT 2015 INTRODUCTION | MFSA

MFSA’s director, Angele Grech, introduces the Captive Review Malta Insurance Report 2015 which analysis the development of Malta as a ﬁ nancial jurisdiction over the previous year

inancial regulation is designed to (LN 452 of 2013) was established to cater for achieve key policy goals among the opportunity to maximise return on cap- which are the safety and soundness Written by ital and enable the effi cient management of Fof fi nancial institutions, the mitiga- AAnngelee Grreecch risk in a sound regulatory environment. This tion of systemic risk, the fairness and framework offers insurers and reinsurers the effi ciency of markets and the protection of the possibility to obtain access to capital resources consumer and investor. These goals, which are AAnggele Grrecch is the director of the Malta Financial as part of a drive to expand capital markets clearly essential, do not take into account an Services Authority’s Authorisation Unit and is respon- activity in Malta. additional factor that has come to be regarded sible for coordinating the processing of applications Subsequently, as a result of regular ongo- as critical in any well-functioning regulatory for regulated activities in Malta. She has over 19 ing discussions with stakeholders, the MFSA years’ experience in fi nancial services regulation and system – achieving regulatory effi ciency and previously held senior positions within the Insurance realised the potential benefi ts of fusing the cost effectiveness. Supervision Unit where she headed the on-site com- cell company concept into the RSPV regula- The current challenge faced by fi nancial pliance team and the Authorisation Unit. tory framework. This latest addition to Mal- services regulators is to establish and main- ta’s fi nancial legislation – the securitisation tain a regulatory framework of high standards of new operating models which have trans- cell company regulations (SL 386.16) allows and achieve the above mentioned policy goals, formed established markets. securitisation vehicles to set up cell struc- and to concurrently create the space for mar- This result is a kaleidoscope of evolving tures. This is a unique type of legislation ket players to innovate, adjust and fl ourish to fi nancial regulation. not available in any other jurisdiction as it meet changing consumer needs. The approach The MFSA has been reviewing insurance allows an SCC to issue fi nancial instruments is geared to positively shape a market that legislation over the recent years as part of its in separate tranches through different cells. offers consumers alternative choices, products effort to introduce innovation within the exist- Accordingly, the SCC regulatory framework which meet their needs and are delivered in a ing EU regulatory framework. Specifi c legisla- allows the issuance of multiple insurance way which blends in with their lifestyle. tion for re-domiciliation of insurance compa- linked securities without incurring any risk of Against this backdrop, the Malta Finan- nies (S.L.403.12) was introduced in 2003 and cross-contamination between different sets of cial Services Authority (MFSA) is committed this was a healthy development which has creditors or investors. These cells can transact to support regulatory innovation. The MFSA been instrumental to re/insurance companies in different currencies and the securitisation operates through a prudent, dynamic and pro- intending to move from offshore to onshore. cell company (SCC) can keep accounts in the active regulatory framework which is based The protected cell company legislation (S.L. currency of choice. Apart from RSPVs, the SCC on high standards and promotes sustainable 386.10) is a distinctive innovative feature in is also applicable for all types of securitisation and inclusive growth. The MFSA embraces a the Maltese fi nancial regulatory framework transactions. culture which values open communication and insurance and reinsurance operators have In this way, the SCC framework retains the with stakeholders and constantly reviews the been able to channel their activities through benefi ts of the Securitisation Act (Cap. 484) delivery of the regulatory framework. The these structures since its introduction in 2004. and builds on the opportunity of the RSPV MFSA is responsive to the requirements of In 2013, a Solvency II compliant frame- regulations providing increased fl exibility, existing licence holders, mindful of potential work for the authorisation and regulation of enhanced investor protection and economies new entrants joining the market and cognisant reinsurance special purpose vehicles (RSPVs) of scale. 4 CAPTIVE REVIEW MALTA INSURANCE 2015 MFSA | INTRODUCTION

Similarly to a PCC, an SCC is a single legal entity that is structured in two parts, the core and an unlimited number of cells. It is one company with one board of directors and one set of memorandum and articles of association. The key differentiating element between a cell company and the traditional non-cellular company is that the former provides a flexible corporate vehicle within which assets and liabilities can be ring-fenced, or segregated, so as to be only available to the creditors and shareholders (where present) of each particular cell. Therefore, an SCC is able to limit its liability in respect of a particular transaction to a specified pool of assets rather than expos- ing all of the assets of the SCC, as would be the case with a non-cellular company. A cell of an SCC does not have a separate legal personality, and each cell transacts through the core of the SCC. When an SCC enters in a contract, the directors must specify in the contract which capital) are comprised in the cellular of the non-cellular share capital. particular pool of assets is to be bound by the assets attributable to the cell in respect of • Annual accounts: an SCC shall draw up its obligations under the agreed contract. which the cell shares were issued. annual accounts in either the currency of An SCC can take either carry on business • No activities at the core: an SCC may not its non-cellular share capital or the base as a securitisation vehicle in compliance with carry securitisation transactions or activ- currency of one of its cells. the Securitisation Act (Cap 484) or carry on ities of an RSPV through its non-cellular • Position of creditors: a creditor of a cell business as an RSPV in line with the RSPV reg- assets. Asset-based and risk-based securi- has rights to the assets of that particular ulations. tisation transactions may therefore only be cell only and has no recourse to the assets of other cells or the non-cellular assets. Apportionments may be made out of the “Regulatory innovation is set to continue assets attributable to the individual cells throughout 2015 and beyond and this will translate towards the costs of the day-to-day administration of the SCC. into further challenges and opportunities • Winding up of individual cells: the SCC for insurers” regulations provide for the closing of individual cells separately from the SCC as a whole. The winding up proceedings Whereas these two categories of SCC vehi- carried out in respect of specific cells and prescribed under the Companies Act (Cap. cles perform different activities, they both securitisation assets have to be allocated to 386) apply mutatis mutandis to a cell as enjoy commonalities as far as their setting up a particular cell. though it were a distinct legal entity. and operation is concerned. These are: • Duties of directors: the directors of • Listing on EWSM: an SCC may list its secu- • Creation of a cell: an SCC may create cells an SCC have the obligation to keep: rities on the European Wholesale Securi- by means of a resolution of its board of (a) cellular assets separate and separately ties Market (EWSM), an EU regulated mar- directors. A new cell will be created for the identifiable from non-cellular assets; ket [www.ewsm.eu] dedicated to the needs purpose of entering into either securitisa- (b) cellular assets attributable to of arrangers and issuers of wholesale debt tion transactions or activities of an RSPV. each cell separate and separately products. Each cell of an SCC must have its own identifiable from cellular assets distinct name or designation which shall attributable to other cells; and IInnnovvatioonn include the word ‘cell’. (c) separate records, accounts, statements Regulatory innovation is set to continue • Issuance of financial instrument linked to and other documents as may be necessary throughout 2015 and beyond and this will a cell: an SCC may issue financial instru- to evidence the assets and liabilities of each translate into further challenges and oppor- ments in one or more tranches, in respect cell as distinct and separate from the assets tunities for insurers. The MFSA is committed of any of its cells, and the proceeds of the and liabilities of other cells in the same to enhance sustainability, support stronger issue are comprised in the cellular assets company, and as distinct and separate governance and promote full transparency. attributable to the cell in respect of which from the non-cellular assets and liabilities And equally, it will continue to listen and the financial instruments were issued. of the SCC. engage with stakeholders to introduce more • Cell shares: an SCC may, in respect of any • Choice of cell currency: the directors of an regulatory innovation to the benefit of market of its cells, create and issue cell shares, the SCC may choose the base currency of a cell players. The commitment to foster regulatory proceeds of the issue of which (cell share which may be different from the currency innovation is continuous.

5 CAPTIVE REVIEW MALTA INSURANCE 2015 MALTA INSURANCE | FINANCEMALTA

Governor of FinanceMalta, Matthew Bianchi, explains to Captive Review how Malta is establishing itself as a leading business jurisdiction

alta is now a recognised insur- global standard-setting European regula- ance and alternative risk tion. The MFSA is praised for its sound and transfer jurisdiction. It is now Written by sensible approach to the prudential regula- shifting its focus to strengthen Matttthheew BBiaannchi tion and conduct supervision of insurance its position and build future companies and cells it regulates. success. Chief among the state’s vision is The imminent implementation of Sol- the development Malta is offering in insur- MMattthew Biaancchi is Governor (Insurance) of Finance- vency II on 1 January 2016 will further ance linked securities (ILS). FinanceMalta Malta, a public-private initiative set up to promote enhance the legal and regulatory landscape remains committed to supporting the Malta’s business and fi nancial centre, within as well for insurance companies. Malta is well- European state’s ambitions. as outside Malta. Bianchi is also partner, Insurance equipped to offer cost-effective solutions Corporate and Regulatory at GANADO Advocates. for promoters of insurance companies TTen yyeears ooff grroowwth and intermediaries that want to target the Last year marked 10 years since Malta The insurance management community, European market. joined the European Union: providing it made up of 15 insurance managers of inter- Malta has also carved out a reputation for with access to the single market. This is national repute and local roots, certainly its innovative legal and regulatory regime: probably the single most important mile- deserves much of the credit for driving the protected cell company legislation is stone in the state’s recent history and defi - Malta’s growth in the sector. A increas- quoted by many as the reason behind the nitely a factor that boosted the growth of ing cluster of dedicated service providers country’s ability to place itself on the map. Malta in the insurance and alternative risk including highly qualifi ed professionals New regulations enacted in 2014 will transfer sectors. in the accounting, audit and legal sectors continue to enhance Malta’s reputation as Today around 60 insurance companies ensure high service standards. a jurisdiction that fully embraces innova- and 26 cells are based in Malta and the sector tion. Notable examples include the recent is growing at a healthy pace. Data released by SSouunnd annd ssennssibble reggullatioon implementation of the securitisation cell Malta Financial Services Authority (MFSA) Being part of the single market enables par- company regulation and the reinsurance for 2013 shows that gross premium written ents of insurance companies, captives and special purpose vehicle regulations. These by the insurance sector grew by 8%. third-party writers alike to benefi t from two pieces of legislation aim to position Malta as a domicile of choice for the growing insurance-linked securities market. The securitisation cell company regulations perhaps best capture Malta’s current “Solvency II will further enhance the legal and thinking: the legislator has extended the regulatory landscape for insurance companies. Malta cell company concept to securitisation transactions. Issuers of securities based is well-equipped to offer cost-effective solutions” in Malta will be able to draw upon the strength of general securitisation legislation, the fl exibility of securitisation cell 6 CAPTIVE REVIEW MALTA INSURANCE 2015 FINANCEMALTA | MALTA INSURANCE

nomic shocks relatively well. Facts are clear: Malta’s banking sector is ranked by the World Economic Forum as 10th soundest globally in the Global Com- petitiveness Index 2014-15. Further- more a recent stress test carried out by the European Banking Authority that surveyed the balance sheets of Malta’s major banks conﬁrmed that the local banking sector is in good health. * Malta’s nimble size makes it one of the more dynamic member states of the European Union. Key decision-makers are accessible and rule-making is an efﬁcient process. * Local market conditions are such that there is spare capacity to attract further inward investment. Malta’s competitive labour market is becoming increasingly vibrant boasting a talent pool that enables the jurisdiction to continue to excel. * Above all, Malta remains committed to make innovation its mantra of the future. The island’s track record speaks for itself: Malta is a European Union “Malta is the only state of the European Union with cell member state with direct access to the legislation on its statute book for issuers of insurance decision-making process at European level with protected cell company and linked securities. The legislative innovations during securitisation cell company legislation, 2014 lead the way for a promising year ahead of us” among others.

IInssurrancce llinkkeedd securrittiies One of the focus areas for the coming years companies and the availability of compet- the Foundation groups all industry associ- is the development of Malta’s capability itive suppliers based locally. ations in the financial services sector with a in the insurance linked securities sector. mission to effectively and efficiently boost Malta completed its legislative, tax and GGloobaallyy connnneccteed Malta’s international business and financial regulatory framework for ILS transac- Malta understands the virtues of connec- centre. tions during 2014. Worth mentioning are tivity on a globalised reality. Efforts con- FinanceMalta actively collaborates with two laws: the reinsurance special purpose tinue to further connect Malta to the rest of trade groups in the insurance industry in vehicle regulations and the securitisation the market. It’s double tax treaty network order to raise the visibility of Malta as a cell company regulations that form the now spans to almost 70 states. domicile. Such groups include the Malta legal and regulatory bedrock of the new The MFSA has struck a number of Memo- Insurance Management Association, the market. Malta is now the only state of the randa of Understanding and collaboration Malta Insurance Association, the Associ- European Union with cell legislation on its agreements with international supervisory ation of Insurance Brokers and the Malta statute book for issuers of insurance linked associations and regulators in other states, Association of Retirement Scheme Practi- securities. The legislative innovations dur- facilitating communication on cross-bor- tioners. ing 2014 lead the way for a promising year der matters. ahead of us. In addition, it is becoming ever easier to TThe rrooadd ahheaadd travel into Malta from all continents. Malta Malta’s agenda is to further consolidate A wwinnninng fforrmmuula ffor fuuturre succceess also boasts a state-of-the-art telecommu- its position as an innovative and dynamic Malta’s unique propositions include: a cen- nications system facilitating the establish- domicile in the insurance and alternative tral location, a penchant for innovation ment of service providers that rely heavily risk transfer market. The country is best and a sound work ethic which have been on data supply security. positioned to continue helping market proven to be successful in the first years of participants achieve new heights for the the state’s journey to become the financial FFinnannceMMalltaa’ss conttribbution following reasons: services centre of choice. The country’s FinanceMalta is proud to have supported * Malta has a proven track-record of sta- recent successes are laying ground for the growth of the market. Set up in 2007, bility, having weathered external eco- future accomplishments.

7 CAPTIVE REVIEW MALTA INSURANCE 2015 a bespoke investment service built on trust and performance

curmi & partners were established in 1978 and are one of the leading investment houses in malta. we provide our clients with independent, wealth management solutions that are customised to each client’s individual investment profile and appetite for risk.

Our approach to investment management is primarily based on discipline, structure and • Banks analysis. In risk capital terms, we fully understand the need to consistently generate positive • Family Ofﬁces real returns whilst remaining within the desired risk comfort zone. Our investment ideas • Insurance Co’s & Captives and portfolio structures, speciﬁcally developed for our clients, are the result of innovative • Occupational Pension Schemes thinking and thorough research which have successfully addressed diverse investment mandates. Our wealth management offering includes Discretionary & Advisory Services • Private Pension Schemes as well as Treasury Management. We aim to build long term relationships with our clients • High Net Worth Individuals based on trust and our discreet approach to their objectives. • Trusts

Curmi & Partners Ltd., Finance House, Princess Elizabeth Street, Ta’Xbiex – xbx 1102, Malta. Telephone: (+356) 2134 7331 Fax: (+356) 2134 7333 Email: [email protected] www.curmiandpartners.com

Curmi & Partners Ltd. is a member of the Malta Stock Exchange and is licensed to conduct investment services business by the Malta Financial Services Authority. HSBC | MALTA INSURANCE

Mario Buttigieg, associate director, Financial Institutions Group, HSBC Bank Malta, talks about Malta’s growing reputation as a leading European jurisdiction

CCapptiivve RRevvieeww (CRR): Can you give us a tailored a number of systems specifi cally background of HSBC’s service offering to to address the needs of our sophisticated fi nancial institutions? Written by clients. MMaario BBuutttiggiieg (MB): The fi nancial MMaariio BBuuttttiggiieg Global transaction banking is a key busi- institutions teams across HSBC are ness line for HSBC. Our investment in our comprised of specialised and experienced technology infrastructure ensures that senior bankers and product specialists MMarrio Butttigieg CPA, B (ACCY) is an associate fi nancial institutions can manage their chosen for their sector-specifi c expertise director of Financial Institutions Group within HSBC payments and cash management, secu- and knowledge of global fi nancial Bank Malta plc. He has 26 years’ experience in the rities, trade and FX positions via a single markets. We work closely with our clients fi nancial services sector, having occupied a number log-in. The two electronic solutions we to understand business needs, enabling of senior managerial positions in Malta and the UK. offer to our clients are HSBCnet and HSBC us to deliver integrated and customised Connect. banking propositions. As part of the global tially result in a reduction of the amount HSBCnet is our global internet banking banking & markets team, we provide a wide required for regulatory capital. platform offering a vast range of banking range of products and services to fi nancial For liquidity management, HSBC pro- facilities, including the ability to perform institutions globally, including the banking vides account and payment services, letters foreign currency transactions using live and insurance sector. of credit and credit facilities. We also offer market rates. HSBC Connect is our host- to-host solution, developed to address our clients’ recurring need to simplify the process for originating payments and making collections, thus achieving greater “Clients expect best of class technology and we have effi ciency. invested signifi cantly and tailored systems specifi cally CCRR: Do you think Malta is gaining traction to address the needs of our sophisticated clients” in attracting fi nancial institutions, particularly captives? MMBB: Malta is well represented by a number of fi nancial institutions, including large insurance managers and companies. We Clients are demanding innovative solu- electronic platforms to manage multiple continue seeing an increase in captive tions to the challenges and risks they face investments positions in various countries. business, particularly originating from in a dynamic market. Credit, FX and inter- some of the largest blue chip corporations est rates pose potential risks to business, CCRR: Can you elaborate on your online in the world seeking similar blue chip particularly fi nancial institutions and in platforms? partners in Malta. HSBC has weathered this respect we can help businesses in their MMBB: Clients expect best of class technology the storm which shook the banking sector hedging policy which could also poten- and we have invested signifi cantly and and with a strong balance sheet and credit 9 CAPTIVE REVIEW MALTA INSURANCE 2015 MALTA INSURANCE | HSBC rating, we are well positioned to continue being the ideal business partner. HSBC’s financial standing, product offering and global reach make it best-placed to service this specialised and demanding industry. Captives establishing in Malta benefit from a number of advantages, including: a politically stable environment; a robust regulatory framework; an efficient fiscal legislation; and passporting rights within the EU. An additional and unique advantage of Malta is that it is the only EU member state with the necessary legislation to enable insurers to carry on their business, including the business of insurance manager, insurance broker, reinsurance and captives through the set-up of a protected cell company (PCC).

CCRR: How does PPC legislation work in Malta and what are the advantages of using a PPC? MMBB: The PCC law caters for the formation of multiple cells forming part of a single company and the creation and issue of cells shares. It allows for the segregation “Captives establishing in Malta benefit from a and protection of cellular assets from other number of advantages, including: a politically assets of the company, the transfer of cellu- stable environment; a robust regulatory framework; lar assets and the use of non-cellular assets as a secondary financial base where cellular an efficient fiscal legislation; and passporting assets are exhausted. rights within the EU” PCC’s main advantages are that they offer insurers and reinsurers the opportunity to write business at a cell level while benefiting from the economies of scale multinationals and insurance managers. imposed by regulation than other sectors derived from its core and other cells. It is This growing internationalisation could of the insurance industry. Captive owners not necessary to satisfy the minimum guar- potentially expose multinationals are generally non-financial service groups antee fund at the cell (individual) level but to greater complexity and unless and use a captive as an efficient way of only at PCC (whole) level. Furthermore, a they are large enough to have their accessing the (re)insurance markets and PCC is taxable at a cell level and is able to own comprehensive multinational generally managing group risks. declare a dividend through its cell even if programme they can do so through one Apart from the opportunity costs, more the other cells within the PCC are not able of the specialised insurance managers regulation can mean greater staff costs to do so. entrusted with monitoring developments through increased time commitment and/ The PCC business model can take dif- and developing solutions. or increased fees to managers and advis- ferent forms. These range from non-Euro- HSBC is the leading international bank ers. More regulation may also represent pean insurers setting-up cells as fronting in Malta. We enjoy strong relationships a greater risk profile because if the cap- facilities to reduce their European fronting with the major multinational and insur- tive cannot comfortably comply with the costs to companies establishing captives ance managers on the island, both locally increased regulatory requirements, it may risk financing vehicle. and globally and we are supporting Malta’s face reputational damage and/or regula- growth as a financial centre. tory sanctions. CCRR: The risk management implications As an EU member state, the key regula- are allegedly driving European companies CCRR: How are regulatory changes affecting tory change for the Maltese captive sector is to increase their use of multinationals. Is captive managers and owners? the Solvency II implementation. Feedback this trend present in Malta? MMBB: While the landscape for captive received from clients indicates that the MMBB: On an international level, managers and owners is generally stable, impact is expected to be a contained one, multinational programmes are becoming regulatory issues and uncertainties will also due to the PCC’s unique advantages, industry standard and Malta has inevitably attract the industry’s attention. which could translate this perceived threat managed to attract large and reputable Captives are more sensitive to the burden into a material opportunity for Malta.

10 CAPTIVE REVIEW MALTA INSURANCE 2015

MALTA INSURANCE | MARSH

Captive Review catches up with Margareta Zaveri, an insurance manager with Marsh, based in Malta, to discuss the introduction of Solvency II

ith less than 12 months to panies, where this may have been a mat- go before Solvency II reg- ter of improving current documents and ulation fi nally comes into Written by fi tting their existing structure into one force, captives, insur- MMaarrggareeta Zavveerri compliant with a Solvency II: large organi- ance companies, manag- sations would most likely already have the ers, actuaries and most service providers ‘new’ required key functions in place. For within the insurance industry have spent MMarrgaarretaa ZZaaverri is an insurance manager with many smaller insurers and captives with many, many hours ensuring that they are Marsh in Malta. She has insurance and risk manage- lean structures which outsource numer- all set for the big day. Now is the time for ment qualifi cations and over 12 years of international ous functions, the implementation and the captives and insurance companies to insurance and captive experience, she has been learning curves were steep and they expe- look forward to reaping the benefi ts from heavily involved with guiding clients through their rienced many challenges in interpreting Solvency II preparation. all of their hard work. proportionality. Added to this was the continued uncertainty surrounding the SSollveencyy II in thee making involving formalisation of the corporate date for the Solvency II directive coming Several years ago the process of Solvency governance framework, reporting lines, into force, as a result of it being postponed II and its various QIS studies and standard processes and procedures throughout the numerous times. formula calculations kicked off, which organisation. Certain key functions had to In September 2013 EIOPA published its consultation on ‘the proposal for guidelines on forward looking assessment own risks’ (based on the ORSA principles). “The reality of how Solvency II would affect the whole There then followed preparatory guidelines on ORSA and the corporate govern- organisation started to dawn on directors in 2011, ance framework. Finally, there was clarity when the target start date for the new regime was set in terms of the implementation date of Pillar II and the preparatory phase was to 2014” defi ned to stretch over two years, with the Solvency II directive coming into force on 1 January 2016. involved mainly fi nance departments be in place, together with any other func- FFroomm ORRSSA too FLLAOOR, wwhatt’ss nexxtt?? and actuaries. The reality of how Sol- tions deemed critical by the company, and The guidelines on forward looking assess- vency II would affect the whole organisa- their own policies and procedures also ment of own risks (based on the ORSA/ tion started to dawn on directors in 2011, had to be documented. FLAOR principles) stipulated that all insur- when the target start date for the new At the time, some captive owners and ance undertakings (including captives) regime was set to 2014. There was pres- small insurers thought that this may all be should submit an ORSA report to their reg- sure to complete gap analyses for Pillar II, very well for larger public insurance com- ulator by 31 December 2014. It was at that 12 CAPTIVE REVIEW MALTA INSURANCE 2015 MARSH | MALTA INSURANCE time that the language changed; what had Formal risk registers at first appeared erations of how to formulate growth within been known as the ORSA became FLAOR. to be a disproportionate burden on many the new capital constraints. What was the difference? Why did the lan- captives and small insurers. However, by guage change? initiating the process of identifying, clas- SStrressss teesttss anndd sceenario annalyysiss The change was due to the request from sifying and evaluating risks and emerging Stress testing is an essential part in deter- EIOPA for local regulators to ensure that risks facing the company, efforts were mining solvency levels under various risk insurance and reinsurance undertakings focused in order to ensure that sufficient scenarios and forms an integral part of the take a forward looking view on the risks controls are in place to protect the com- ORSA. According to EIOPA, it is expected to which they are exposed, similar to what pany from major risks. that companies carry out a ‘sufficiently’ they will have to do once Solvency II comes wide range of stress test or scenario anal- into force. Through the process of the LLinnking tthe FFLAAOOR annd thhe ssttraateegic yses in order to provide an ‘adequate’ basis FLAOR, companies have been given the pplaannningg for the assessment of the overall solvency opportunity to have two dry runs before For capital rich companies with capital lev- needs. During the two-year prepara- 2016, when the legislation will require the els well above the solvency capital require- tory phase, organisations are expected to submission of an ORSA. ment (SCR) under the standard formula, develop processes and methodologies for the results of the FLAOR have sometimes carrying out such tests. TThe first dryy-rruun shown the current risk appetite to be very In this first dry-run of the FLAOR, Now that the first FLAOR process has been conservative and more risk could be taken whether the stress tests have been based on completed, regulators and companies alike to optimise the use of capital. In such historical or hypothetical scenarios, they have had a chance to reflect and analyse instances this may lead to increased reten- have given the organisation a great insight how the second FLAOR may be improved. tion levels or expanded business, perhaps into the downsides of potential strategies In particular for captives, the principle of into other classes of business or into new through reverse stress testing and other proportionality may need to be revisited. geographic territories. Business plans and techniques. Further, the board will have Other questions to be asked may relate to strategies would then need to be redefined learnt that the design of the stress tests whether the assumptions were sufficiently and approved. will require a good understanding of the substantiated and whether the board appropriately challenged the results of the assessment. Some companies have realised that they did not have the resources to “According to EIOPA, it is expected that companies carry out the ORSA going forward and have chosen to appoint an insurance manager to carry out a ‘sufficiently’ wide range of stress test or help streamline the process. scenario analyses in order to provide an ‘adequate’ As insurance managers of many captives and insurance companies, Marsh has noted basis for the assessment of the overall solvency needs” some very positive implications of Pillar II and the ORSA process. The most explicit of these is the synchronisation within the organisation that runs the insurance sub- However, in the current capital con- business and will involve a mix of expertise sidiary, with increased communication strained environment many companies from actuarial, risk management, under- between operational functions, the board have faced the issue that the SCR, under the writing, finance and other functions within and the development of a common under- standard formula, has resulted in a higher the company. standing of the purpose of the company. level of capital being required compared to At the start of the Pillar II process, the that under Solvency I. This has led captives UUncoovverrinngg of opppoortuuniities business strategy, which was often vision- to focus on how to build up their capital Without doubt FLAOR has brought an ary and may not have been challenged for with the aim of meeting the Solvency II increased awareness of risk oversight to the many years, had to be formalised and doc- requirement. board of directors and senior management. umented. The risk appetite was another Sometimes the results of their own assess- The ORSA process pulls together the risk matter to be considered in detail. Although ment of the required capital, as per the management components from the entire there were some parameters in place, it FLAOR, have also indicated a higher capital organisation. One of the most significant was not always apparent as to why specific requirement than that under current legis- changes compared to the existing solvency factors had been agreed and whether they lation. The process has thus brought some regime is the forward looking approach were optimal for the company, given the justification and an increased understand- of the ORSA. By proactively looking at the changing nature of the insurance market ing for the required level of capital under future evolution of the risks, the insurance and the risks being faced by the parent Solvency II. With increased capital require- company can better prepare for what lies companies. Discussions and workshops ment levels there is more pressure on the ahead. Controls can be put in place or be have provided great opportunities for organisation for efficient use of capital to improved and by tracking changes in the executive and non-executive directors, risk maximise their returns. This has led to an operational environment, organisations owners and insurance managers to gain a increased focus on investment, retention can ensure that profitable opportunities common understanding. and reinsurance strategies as well as consid- are not being lost.

13 CAPTIVE REVIEW MALTA INSURANCE 2015 MALTA INSURANCE | ATLAS

Ian-Edward Stafrace, chief risk offi cer of Atlas PCC, talks to Captive Review on what diff erentiates Malta from other PCC jurisdictions and how cells are handled under Solvency II

CCapptiivve RReevvieww (CCR)): Malta is the only full other cells, a cell will not have to be capital- EU member state with PCC legislation. ised to the minimum EU Directive require- How are cell structures handled in this Written by ments for standalone insurers so long as onshore jurisdiction? Iann--EEddwwardd Sttaafrrace such requirements are met by the PCC as IIann-EEdwwarrdd Staafraace ((IS)): PCCs are a whole. Maltese regulations establish that essentially segregated business structures once the cell has exhausted all its assets in in which third-parties are allowed to enter IIan--Eddwwarrd Staffraace MSc Risk Management FCII meeting its liabilities, such cell will have as cell owners with their business ring- FIRM PIOR Chartered Insurer – chief risk offi cer of perfect access (secondary recourse) to the fenced and accounted separately. Each Atlas Insurance PCC Ltd and member of its Solvency PCC core funds. This ensures that third- cell’s assets and liabilities accrue solely to II team. He also co-founded and is currently vice party policyholders or benefi ciaries of a cell the shareholders of that cell. Such cells president of the Malta Association of Risk Man- have the same level of protection required agement (MARM), a member of the Federation of could be used for multiple purposes such European Risk Management Associations (FERMA). to be in place for other EU insurers. This as captive risk fi nancing tools or writing is also recognised in EIOPA’s Solvency II third-party risks for added revenue and technical specifi cations on the treatment profi t. fronting fees but also the cost of letters of of ring-fenced funds. Non-recourse provi- Being domiciled within the EU, the Mal- credit requested as support by the fronting sions are allowable under regulations but tese PCC, on behalf of its cells, is allowed to insurer. solely for pure captive (affi liated) or reinsurance cells.

CCRR: Solvency II is going live in 2016 with interim measure requirements “A feature that differentiates Maltese PCC regulation already in place. How is Solvency II being is that it presupposes individual cells have secondary implemented for protected cells? IIS: Solvency II is an opportunity we are recourse to PCC core capital” keenly embracing. The Maltese PCC provides benefi ts on all Solvency II pillars, allowing substantial cost burden sharing and reducing own funds requirements. As an EU member state and EIOPA mem- write directly into Europe thus eliminat- CCRR: What makes Malta’s PCC regulation ber, Malta is continuously contributing to ing the need of additional fronting insur- stand out? the development of Solvency II. EIOPA, in ers. Most EU countries would otherwise IIS: A feature that differentiates Maltese its updated Solvency II technical specifi ca- require domestic risks to be insured by PCC regulation is that it presupposes tions, prescribes that cells in PCCs should a local insurance company or one based individual cells have secondary recourse be considered and treated as ring-fenced within the EU. Using a fronting insurer to PCC core capital. While absolutely pro- funds. Under the quantitative capital can be expensive and may incur not just tected from liabilities from the core or requirements of Pillar I, a cell will typically 14 CAPTIVE REVIEW MALTA INSURANCE 2015 ATLAS | MALTA INSURANCE only need to put up its own funds equivalent to the calculation of the cell’s notional solvency capital requirement (SCR), which with small undertakings often falls far below the typical absolute floor minimum capital requirement for standalone insurers of €3,700,000. A Maltese PCC may also lend its unrestricted surplus core funds to cells in order to meet their notional SCR where in deficit. A fully operational PCC will have risk management and governance requirements of Pillar II already catered for under its regulated licence with cost sharing sig- nificantly benefiting cells while at all times retaining full protection of their assets from any unforeseen financial problems of other cells or the core. This includes for example the possibility of producing a single own risk solvency assessment (ORSA) for the entire PCC. The same applies to Pil- lar III’s reporting and disclosure requirements where all procedural structures and resources will be in place to meet the new extensive quarterly and annual reporting requirements as one single legal entity. Small mono-line insurers and captives “We are reaping the benefit of years of Solvency II struggling with Solvency II requirements preparation. With certainty around its imminent could very well consider converting to cells implementation, we are seeing an increase as an alternative to consolidation or clo- sure. in engagements through leading insurance Protected cells are therefore a cost-effec- management companies” tive, extremely flexible and secure alternative to owning a standalone insurer, rein- surer or captive. Such structures can result in significant cost and capital savings for as an optional bolt-on to hotel bookings. offering our cell hosting facility to the cell owners, even more so in the EU once Another cell sells optional accidental dam- various management companies. This is Solvency II is implemented. age insurance when the cell owner leases achieved through an outsourcing agree- out property. ment with the manager in respect of the CCRR: What kind of businesses should Non-European insurers have set up cells specific cells they introduce. consider using a PCC? as fronting facilities in order to reduce Through our facility, managers do not IIS: Organisations have established cells as their EEA fronting costs. Cells can also be need to commit unnecessary capital and captive risk financing vehicles. They pro- created to handle run-off business or for high cost required had they to own their vide access to the reinsurance market with special purpose applications by facilitating own PCC. a lower cost per unit of cover versus the pri- access to specialist risk-bearers. mary insurance market. Reinsurers tend to CCRR: What do you expect from 2015? also be in a better position to underwrite CCRR: Atlas allows cells to be managed IIS: We are reaping the benefit of years of unusual risks. Atlas was the first PCC to by different insurance management Solvency II preparation. With certainty host an insured owned cell writing own companies. How is this done? around its imminent implementation, motor fleet insurance directly to the UK. IIS: Maltese regulations cater for protected we are seeing an increase in engagements The European market is a natural target cells that are managed by licensed third- through leading insurance management for business to be written by a cell licensed party managers. companies and various entities seeking in Malta enjoying the freedom to provide Atlas’s independence, together with its cost and capital savings, preferring the services in the countries forming part of active core, has given insurance management more efficient cellular route to write insur- the European Economic Area (EEA). Busi- companies the possibility of offering their cli- ance. While the majority of enquiries have nesses not typically from the insurance ents an EU onshore protected cell facility that traditionally emanated from the UK, we sector have created cells to sell insurance is also able to write third-party risks. are very pleased to see increased numbers to third-parties. Atlas hosts a cell owned When Atlas converted to a PCC in 2006, from continental Europe, where awareness by a large hotel chain which sells insurance we decided to remain independent while of onshore PCC solutions is growing.

15 CAPTIVE REVIEW MALTA INSURANCE 2015 MALTA INSURANCE | CURMI & PARTNERS

ON YOUR MARKS, GET SET…GO!

Karl Micallef, of Curmi & Partners, talks to Captive Review about how the implementation of Solvency II is aff ecting the insurance industry

SSollveencyy II capital markets – a very low interest rate Solvency II (SII) is no longer a matter of Written by environment, a prolonged period of weak ‘one day it’ll happen’ but a chapter which economic growth, new pockets of geopo- is already changing and reshaping the KKaarrll Micaalleef litical risk and, last but defi nitely not least, whole insurance industry and its players. the price of oil. This new regime seems to be on track to Bond yields have been pressured lower launch in 2016 and the next 12 months will KKarrl Micallleef is an executive director at Curmi & and lower for the past two to three years not provide much room for complacency. Partners and acts as an investment committee as investors paid higher cash prices to During the past year, good momentum has member and director for a number of Malta-based secure a semi-decent cash-fl ow from their fi nancial entities. Micallef joined Curmi & Partners been maintained with respect to legislative Ltd in 2001 working within the research and equity bond investments. Today this has created and framework development. Having said division covering local and foreign equities. a situation where insurance and captive that, insurers still lack some clarity on their companies are being forced to consider fi nal capital positions as certain fi ne details volatility management, while ultimately a class of assets which places them out- need to be agreed upon. From an invest- obtaining a positive real return. These have side their risk comfort zone – assets such ment angle the game is changing, becom- changed the investment styles which need as high-yield bonds and equities which ing more complex, yet it should be much to be adopted and implemented due to introduce increased levels of volatility and, more resilient to fi nancial crisis, such as the current backdrop resident within the specifi cally in the case of equity, throws out the one experienced in 2008. This change was already an objective of SII; the 2008 fi nancial crisis only exacerbated the need “Bond yields have been pressured lower and lower for for this new risk management structure. the past two to three years as investors paid higher Today, investment managers need to combine a plethora of parameters, apart cash prices to secure a semi-decent cash-fl ow from from risk tolerance, such as: liability their bond investments” matching, SII capital charge limits and 16 CAPTIVE REVIEW MALTA INSURANCE 2015 CURMI & PARTNERS | MALTA INSURANCE the idea of liability matching and focuses purely on total return. This situation has become the new norm which now needs to be married to the SII matrix.

DDifffferrencceess in iimmpleemeennttatiioonn This is where investment management starts being implemented differently and investment managers need to work hard to get as close as possible to the efficient frontier in order to maximise returns. Having a portfolio entirely made up of investment grade bonds accompanied by a passive strategy will probably not achieve the desired outcome. A return expectation which is primarily driven by the recent past, where such an investment style would have delivered equity-like returns. Going forward, portfolios will need to be structured differently. The first change we are seeing is reflected in the investment mandates which are no longer solely based on asset-liability matching but are more focused on total return. This allows the investment manager to have a more diversified portfolio in terms of asset mix. “The US is already showing positive signs of recovery Equity, high-yield and alternative invest- and if this growth picks up momentum in a fairly short ments need to form part of the investment strategy. They bring attributes to the port- period of time then a possible interest rate hike could folio which have become more difficult to be on the table sooner than the market is expecting” achieve solely via fixed income. 2014 was nothing short of spectacular if one had the right asset mix. Credit, high-yield and US Europe on the other hand may still be a each allowable asset class. With these in equity have all contributed immensely to few years/decades behind and the invest- hand the portfolio would need to obtain the positive non-technical results. ment strategy there needs to be played the desired balance between assets having differently. All of these realities need to be an efficient risk-reward profile together IInterest raate movvemmennts managed – failure to do so is equivalent to with those assets which provide attractive The way interest rates have moved over having an insurance company without a returns on solvency capital. the past decades has made life fairly easy risk-assessment team. Given all the various investment restric- for fixed income investors – in fact almost tions, risk tolerance levels and the overall addictively easy. As I mentioned earlier, in LLoookking foorrwaarrd capital charge the insurance and/or captive the recent past, investment grade credit We are expecting 2015 to be a transitional company is willing to face, in tandem with delivered equity-like returns – this in itself year for most industry players in more the changing investment (both at a macro changed the risk-return expectations in ways than one. Firstly, we have the tech- and micro level) landscape, the insurance the investor’s mind. But that is over now. nical side whereby each player will submit industry must achieve the right balance The US is already showing positive signs their internal model by the end of the first between return expectations and risk capi- of recovery and if this growth picks up quarter of 2015. These will be re-examined tal. Getting this wrong will be expensive in momentum in a fairly short period of time and signed off by the regulator within the terms of foregone returns and/or capital then a possible interest rate hike could following six months. There will be little losses. Having said that, SII will help limit be on the table sooner than the market is chance for substantial changes or nego- any potential damages and this is why this expecting. Depending on how interest rate tiations and, therefore, hopefully this new regulatory regime should be welcome. expectations are managed by the Federal final look through by the regulator will The higher risk, higher volatility assets Reserve, yields on the longer-dated bonds not throw out any negative surprises. Sec- have become more attractive in the recent may start to rise causing downward pres- ondly, investment managers will be using past (given the very low, almost negative, sure on their prices. This is where portfo- the early part of the year to ensure that the real returns one has come to expect from lio structure becomes very important – a investment portfolio is aligned in a way that investment grade bonds), but a cautious structure which provides the resilience all draws together the SII capital charges with approach should be the first unforgettable insurance and captive companies require. their capital market expectations within rule in this industry.

17 CAPTIVE REVIEW MALTA INSURANCE 2015 INSURANCE MANAGEMENT

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PKF’s insurance partner, Donna Greaves, discusses captives in Malta, insurance-linked securities, cyber terrorism and feeling positive about Solvency II

CCapptiivve RReevieeww (CR):: How did Malta’s fund managers, insurance managers, captive industry fare in 2014? Have there call centres, stockbrokers and wealth been any new developments? Written by managers. In addition, it is good to mention DDonnna GGreeavvees (DDGG): In 2014 Malta DDoonnnna GGrreeaavvees that there is a big cluster of overseas- continued in its efforts to attract more owned concerns in pharmaceuticals, high captives and build on its excellent regulatory technology manufacturing, commercial reputation, effi cient tax structure and DDonnnaa Greeaavees is an audit partner at PKF Malta aircraft service and repair and marine competitive operating costs. Naturally 2014 responsible of audit assignments¸ both of private electronics. was a sluggish year for insurance as global companies as well as governmental entities and factors continued to infl uence growth in NGOs. She also has extensive experience in account- CCRR: How far along is Malta in accommodating most European countries. ing and manages a portfolio of clients. insurance-linked securities (ILS)? However, in spite of the turbulence DDGG: The island is fully prepared to cater for Malta as a domicile continued targeting CCRR: What attracts captive owners to the this new phenomenon of the captive world. the insurance-linked securities legislation, island? It is targeting the ILS, catastrophe bond including catastrophe bond and, to a lesser DDGG: More than six Fortune 100 companies and reinsurance convergence sector with extent, the reinsurance sector. In 2013 have captives in Malta and a raft of a legislative effort to put in place a legal Malta opened talks with EIOPA to have the companies from across the world and in framework to allow for the formation and domicile of special purpose reinsurance vehicles (SPRV) in Malta. The Malta Financial Services Authority “The advantages of relocating to Malta are numerous (MFSA) put forward a draft version of the SPRV regulations for consultation last year. and include international banks, professional The consultation period is now closed and fund managers, insurance managers, call centres, the MFSA is in the process of considering the responses before it delivers feedback stockbrokers and wealth managers” and an updated version of the law, which will likely be passed on to parliament for implementation. legislation in place. It is good to note that numerous sectors are being well looked CCRR: Emerging risks such as cyber attacks as ILS funds utilise PCC and ICC structures after by the country’s insurance managers. and terrorism are becoming salient for to provide a low-cost, low-administration The global names can also be found US captive owners, are these gaining vehicle to access the reinsurance/retroces- assisting owners of indigenous insurance prominence in Malta as well? sion markets, this legislation could prove management companies. The advantages DDGG: Malta is geared to provide insurance to benefi cial for established PCC and ICC of relocating to Malta are numerous and the risks of cyber attacks and terrorism for companies in Malta to expand. include international banks, professional US captive owners. 19 CAPTIVE REVIEW MALTA INSURANCE 2015 MALTA INSURANCE | PKF

the end is in sight, and they and their clients have, in effect, done all the hard work. “Malta’s captive managers are remarkably positive A recent survey shows that they are well prepared to embrace Solvency II with all its about Solvency II, perhaps because the end is in increased governance requirements in part sight, and they and their clients have, in effect, because operators have been subjected to quality regulation for 10 years. They have done all the hard work” done the necessary tests and are poised for the changeover. Captive owners are conﬁdent that they have surpassed the learning curve and are now in the implementation period and shall reap the beneﬁts of their thorough preparation. The common perception is that there is now a well developed expertise in the cost-effective application of Solvency II to suit particular clients’ needs. Furthermore, the concept of risk- based supervision is spreading beyond the EU, so one hopes that offshore domiciles like Guernsey will be playing catch-up with the onshore EU domiciles.

CCRR: The risk management implications of the rising exposure to emerging markets is allegedly driving European companies to increase their use of multinationals, is this a trend present in Malta? DDGG: It is not apparent whether this trend is growing, however, using a comprehensive multinational programme is usually a better solution. Owners of captives in Malta are waking up to the realisation about incremental management implications relating to exposure to risks. For this and other reasons there is a general consensus that companies strive to achieve consistent, compliant insurance cover. Certainly in this kind of environment it is becoming more difficult to use traditional approaches such as relying on a single global policy or a patchwork of uncoordinated local arrangements. It is important to define the modus oper- propriety software system that can be andi of cyber terrorism – it holds various exploited by cyber terrorists. Cyber ter- CCRR: How does PKF work with Malta’s advantages over traditional terrorism. Pri- rorism also offers greater anonymity, as government to maintain the jurisdiction’s marily, the physical presence of the ter- security agencies can sometimes struggle competitive edge? rorist is not required and a terrorist may to identify the terrorists’ real identity. Fur- DDGG: Our partners meet with the perform the act in the comfort of his own thermore, the number of targets is unlim- MFSA on a fairly regular basis and our territory. ited, and may include governments and relationship is good. Linking our business Cyber terrorism is considered a wide public utilities, such as transport systems, relationship with a network of PKF offices ranging risk as the internet provides an without the need to overcome physical in 125 countries enables us to provide inexpensive tool for illegal acts to be com- security barriers and personnel. international solutions and this structure mitted from anywhere in the world. In helps us to give clients present and essence, due to the proliferation of low-cost CCRR: What are the looming regulatory future a better service. In the meantime technology, crime can be perpetrated using concerns for the island’s captive managers we continue to seek the best training just a good computer and sufficient hacking and owners such as Solvency II? opportunities for managers and as a firm skills to penetrate the opponent’s firewalls. DDGG: Malta’s captive managers are remarkably remain in touch with latest compliance and There are always vulnerabilities in any positive about Solvency II, perhaps because regulatory developments.

20 CAPTIVE REVIEW MALTA INSURANCE 2015 marshcaptivesolutions.com

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Mike Stalley of FiscalReps discusses the tax implications of being domiciled in Malta, and how various European regulations play a part in the tax laws across the continent

Written by “Based on what is known about the movement in MMiikkee Sttaallleeyy premium taxes from 2004 to 2015, it is possible to establish the additional tax cost borne buy corporates

MMikke Sttalleey, FCA, chief executive of FiscalReps, is one in order to insure their risks” of the leading authorities on international insurance premium tax. He has built FiscalReps into the leading independent specialist premium tax fi rm, creating a team of tax, fi nance and insurance experts who deliver by EU member states. The main reasons available, it is diffi cult to calculate the pre- premium tax solutions to a range of global clients. for these increases have been the need by cise increase in the cost of insurance that national governments to generate addi- can be attributed to rises in premium taxes. ince accession to the European tional tax revenue to balance their books, One of the most common insurance Union, Malta has become the especially since the credit crunch in 2008. coverages provided by captives insuring domicile of choice for many cor- Even into 2015 tax rises continue, with pan-European risks is General Liability. porates looking to establish a cap- France, Malta and Slovenia all implement- Based on what is known about the move- tive insurance company within ing increases to basic rates of premium tax. ment in premium taxes from 2004 to 2015, the EU-EEA zone. Being within the EU-EEA However, given the multiple taxes and it is possible to establish the additional tax allows Maltese licensed insurers to write rates that apply across territories and the cost borne by corporates in order to insure business throughout the EU under freedom raft of exemptions that are potentially their risks. of services legislation. Although this consid- erably simplifi es the regulatory burden, the At 1/1/2004 At 1/1/2009 At 1/1/2015 downside to being able to insure risks across No of countries 19 31 32 Europe without further authorisation is the necessity to account for premium taxes in Net premium €380,000 €620,000 €640,000 all territories where risks are located. Total premium taxes €32,688 €36,378 €37,398 The last few years has seen an increase in Eff ective tax rate 8.6% 5.8% 5.8% the burden of premium taxes being applied 22 CAPTIVE REVIEW MALTA INSURANCE 2015 FISCALREPS | MALTA INSURANCE

IInccreeaasee in tax coost: 2000044 to 220155 A Maltese captive purchases general liability insurance covering all EU-EEA mem- “While VAT is a tax introduced by the European ber states where coverage under freedom of services rules are applicable. For the Commission and legislated at the European level, purposes of this example net premium premium taxes are set by national governments” is €20,000 for each country within the EU-EEA zone. Over the 11-year period, based on calculations the average headline rate of IPT has where risks are focused on a smaller group AAbbolittion of preemmiuum taxes fallen to 5.8% from 8.6% across the EU-EEA of countries the effects of any rate changes Insurance has been exempt from VAT ever zones. In spite of a number of high profile may be more keenly felt. since its introduction. However, in recent rate increases in recent years, the inclusion What one can conclude is that each coun- years there have been increasing calls to of accession countries, many of whom have try does have its own approach to premium make insurance premiums VATable to low or zero rates of IPT, has led to a reduc- tax legislation; harmonisation is something provide greater consistency of taxation tion in the average rate of IPT. that hasn’t happened, and doesn’t look like across Europe. Whilst this would bring Interestingly though if you compare only happening in the realm of European pre- certain advantages, not least to the Euro- the countries in the EU-EEA before acces- mium taxes. pean Commission who would benefit from sion in May 2014, the average rate of head- the increased tax revenue, it is not simply line IPT has remained the same, at around PPreemmiium ttaaxees aand VAAT the case that VAT would reduce IPT over- 8.6%. In the 11 years from 2004 to 2015, we While VAT is a tax introduced by the night. There is a real chance that IPT would have seen rate increases in; European Commission and legislated at remain in certain countries, meaning that • Germany +3% the European level, premium taxes are premiums would be subject to a greater tax • Finland +2% set by national governments. This means burden than currently. This debate is likely • United Kingdom +1% that rates and legislation are set locally in to continue for many more years. • Netherlands +14% accordance with local political ambitions with no requirement to harmonise across TTax plannninng But also during that time Denmark, Ice- Europe; hence the great diversity of rates As a responsible corporate citizen and land and Greece have all made significant and rules across Europe. taxpayer, the position for businesses is amendments to their laws regarding pre- Historically, premium taxes have not clear – remain in full compliance with the mium taxes resulting in tax reductions. been linked to VAT but there is increasing payment of all taxes. However, planning What this analysis suggests is that, evidence to suggest that premium tax rates and analysis can ensure that the correct broadly speaking, the multitude of rate are trending towards VAT rates. The Dutch amount of tax is paid, ensuring that com- changes between 2004 and 2015 has had in 2013 increased IPT to match VAT and pliance is achieved, but with the opportu- little impact on the average effective rate the Finnish have always tied IPT to VAT. In nity to make tax savings using non-aggres- of premium tax across the EU-EEA. How- the UK there is anti-avoidance legislation sive application of the local tax rules. The ever, it is important to state that in reality which created a higher rate of IPT to match areas to consider are: many captives are not in the position of VAT in cases where tax planning opportu- • Location of risk rules allocating premiums in such a fashion, and nities may have existed. • Policy structure and wording • Remuneration of intermediaries DATA | COUNTRIES REQUIRING A • Exemptions for certain coverages FISCAL REPRESENTATIVE OOthheer isssuuees In a recent ECJ ruling, the requirement by 15 insurers operating under freedom of services to appoint a fiscal representative in Spain was found to be contrary to EU free 12 market principles. This continues a trend of relaxation of fiscal representative require- 9 ments across Europe which started in 2009 in Belgium. Although this does simplify the compliance requirements for insurers, the 6 need to file premium taxes still remains. This in itself can be a tricky business when 3 you consider that within Europe alone there are over 80 premium and parafiscal taxes that could be applicable to your premium 0 2004 2009 2014 and that within Europe there are 11 different currencies and 24 official languages.

23 CAPTIVE REVIEW MALTA INSURANCE 2015 MALTA INSURANCE | BEE INSURANCE MANAGEMENT

Joseph Grima, insurance technical offi cer at Bee Insurance Management, speaks to Captive Review about the specialised service boutique captive insurance managers can off er

A ‘bouutiiquee’ conceept of innsuurannce with whom a close relationship may be mmaanaagemennt built, and who understands the individual The French term ‘boutique’ is a fairly new Written by details of the business down to the very par- entrant to the English language. Intro- Josseephh Griimmaa ticulars of the company. The team should duced in the 1960s, the term was originally be composed of personnel who are qual- used when referring to small independent ifi ed and experienced at least in the areas and local shops that provided clients with of insurance, accounting, the legal envi- JJossepphh Grrimmaa, insurance technical offi cer at Bee tailored made-to-measure products. Insurance Management, joined the Middlesea Group ronment and the ability to offer or provide As big businesses and department stores as an underwriter in 2010 and specialised in general advice in the key Solvency II-related func- began to take over, bespoke services started insurance. He joined Bee in 2013, where he manages tions, namely risk management, internal dying a slow death. When customer behav- the technical insurance aspect of the company and audit, compliance and the actuarial science. iour started to evolve, and consumers its clients. became more discerning, a new demand ……aandd hooww loccal is ‘loocaal’?? for tailor-made services arose, resurrecting banking and investment, in a rapid and In a fi nancial world, which is becoming the boutique industry in retail, accommo- effi cient manner. increasingly multi-national both in com- dation and also fi nance. This concept is not By not being part of a larger management position and also in its regulation, it is foreign to the captive insurance industry group, the local insurance manager is able to essential that regardless of how local a where small, local insurance managers are focus solely on the requirements of the cap- fi nancial establishment is, it always keeps able to defi ne packages that cater for the tive insurance client without internal dis- abreast with international developments individual needs of every single client. tractions. Additionally, clients need not fi t and maintains access to service providers a standard, but each and every programme elsewhere in the world. GGoing locaal offered may be designed and tailored on a It is increasingly evident that no one An experienced local insurance manager is client-by-client basis. This added fl exibility jurisdiction operates in isolation. Firms generally better able to provide profi cient guarantees that the manager affords to give operating in a European jurisdiction are advice relevant to the particular domicile top priority to the requirements of the cli- required to be readily informed on the key in which it operates. Years of experience ents, remaining available around the clock developments being made on a regulatory provide the local insurance manager with in order to respond readily to new matters and legal level whilst retaining contact with an excellent working understanding of the or opportunities that may arise. key experts available to it in other areas of manner in which the authorities and local Europe. institutions operate and function, benefi t- HHow ssmaall is ‘ssmmaall’? Local insurance managers who would ting directly the companies it manages. The insurance fi rm managing your captive have been in operation for many years are When it comes to expert information insurance company is set to become more aware of the degree of globalisation that and advice, such an established local fi rm than simply a third-party service provider has occurred in the insurance market and does not need to restrict itself to services but a long-term business partner with will undoubtedly have established an inter- and knowledge available within the larger whom regular high-level discussion will national network across various European group. Through a network established need to be made. Every captive insurer jurisdictions, including British overseas with the best local and international should be provided with a dedicated team territories and crown dependencies. advisors, the local manager may reap the benefi ts of business relationships created over the years. This guarantees that the “Clients need not fi t a standard, but each and every company being managed is provided with the best guidance available in all the vari- programme offered may be designed and tailored on a ous relevant sectors spanning from com- client-by-client basis” pany and insurance law, on to taxation, 24 CAPTIVE REVIEW MALTA INSURANCE 2015 BEE INSURANCE MANAGEMENT | MALTA INSURANCE

AAre llaarge innteerrnaatioonaal ccorporatioonns andd lloccal mmanaggerrss commpaatibble?? “Local insurance managers who would have been in Starting from the very initial negotiations, operation for many years are aware of the degree of to authorisation and actual operations globalisation that has occurred in the insurance market” stage, the promoters of a captive insurance company need ready and immediate access to the expert services of an insurance man- of service is more likely to seek to make use main insurance jurisdictions. It will be ager who is anchored in the local juris- of a multinational hotel. A traveller looking able to analyse every business prospect in diction where it operates but is also ready for unique accommodation with a local a detailed manner and combine this with to spring into action immediately when appeal and flexible check-in and check-out the domestic expertise gathered along required. Moreover, the requirements of times, is more likely to look for a small bou- the years. This ensures that together with every captive insurance company when tique hotel. the tailored approach which has been choosing an insurance manager, regardless This is not dissimilar to the manner in expounded earlier, the local insurance of size, remain similar throughout. which large insurance managers differ manager will generally be better poised at The main difference therefore lies not in from local domestic insurance managers. providing an expert and personal tailored the type of services that need to be offered, By being simultaneously located in various package to its customers. but the complexities of the captive insur- jurisdictions, an international insurance ance company and it is imperative that the manager is able to provide pre-authorisa- BBee IInnsuuraannce Maanaageemmeentt in Maallta insurance manager is able to understand tion advice to a potential captive insurance Established in 1998, Bee Insurance Man- and address such complexities. company when selecting the jurisdiction in agement is Malta’s first insurance man- which to set up of the company. Moreover, agement company. With its extensive HHow do laarge insuuranccee maannaggeerrs aand an international insurance manager is able range of management and administrative bboutiqquee innsuuraannce maanaageers diffffeerr? to make use of the expertise available to it by services, Bee has built a solid reputation Recalling the original distinction drawn various personnel located worldwide, thus as a reliable, knowledgeable and efficient between boutique and international hotel reaping maximum benefit of its position. insurance manager. An extensive expe- brands, it is easy to appreciate how both In turn, the local insurance manager rience in the insurance market together types of accommodation have their own has an active interest in the promotion with a team of qualified personnel enables function and appeal in the market. A trav- of the market in which it operates, and is Bee to understand its clients’ individual eller who is comfortable with recognisable therefore better informed on the domestic requirements when tailoring a particular international brands and a standard form sphere and how it compares to the globe’s custom solution.

25 CAPTIVE REVIEW MALTA INSURANCE 2015 SERVICE DIRECTORY

ATLAS INSURANCE PCC LTD Michael Gatt, Tel: (+356) 2343 5221, email: [email protected] One of Malta’s leading insurers since the 1920s, Atlas converted to PCC in 2006, a first for Malta and the EU. Atlas gives promoters the opportunity to own their own EU insurance vehicle with less capital and cost-avoiding fronting requirements. Cells in Atlas can also write third party risks were our substantial active core provides added flexibility. We are independent, allowing promoters to subcontract cell management to authorised insurance managers. www.atlaspcc.eu

CURMI & PARTNERS LTD Karl Micallef, executive director, Tel: (+356) 2134 7331, email: [email protected] Curmi & Partners are one of the leading investment houses in Malta, providing a wide range of services based on solid investment opportunities which translate in consistent investment results across differing markets and market conditions. The investment ideas and solutions developed for our clients are the result of innovative thinking which has successfully addressed many diverse objectives. As a major player in the industry, we invest in the company’s strategic relationships with www.curmiandpartners.com top international investment houses to achieve professional work ties that achieve better quality investment solutions.

BEE INSURANCE MANAGEMENT LIMITED Simon Camilleri, General Manager, Tel: +356 2569 4455, email: [email protected] Bee can be assimilated to its namesake as a productive and creative insurance management company able to work in a team with its clients in order to reach the clients’ goals. Bee’s key strength is its highly qualified and experienced human resources, committed to deliver quality service to its clients. Bee is synonymous with professional and value-added management solutions for captive and insurance and reinsurance companies, including PCCs, ICCs and Cells. www.bee.com.mt

BUILDING BLOCK INSURANCE PCC LIMITED Edward Green, Tel: 0844 391 3371, email: [email protected] Building Block Insurance PCC Ltd, allows you to build and operate your own bespoke insurance solutions. Our service is tailored for companies and individuals who currently have existing lines of insurance business, or wish to diversify by developing new products. Working alongside ‘Building Block’ clients are able to access all the benefits of writing their own insurance risk, without the financial commitment, volume of business and resources traditionally needed to form www.buildingblockpcc.com your own insurance vehicle.

FINANCEMALTA Dr Bernice Buttigieg, head of administration, Tel: (+356) 2122 4525, email: info@ﬁnancemalta.org FinanceMalta, a non-profit public-private initiative, was set up to promote Malta’s international business and financial centre, both within as well as outside Malta. It brings together and harnesses the resources of the industry and government to ensure Malta maintains a modern and effective legal, regulatory and fiscal framework in which the financial services industry can continue to grow and prosper. www.ﬁnancemalta.org

FISCALREPS Karen Jenner, Tel: +44 (0) 207 036 8070, email: karen.jenner@ﬁscalreps.com FiscalReps is a specialist professional tax consultancy helping insurance businesses achieve global insurance premium tax compliance. As the acknowledged market leader, with a client list including many top insurers, brokers and corporate captive owners, FiscalReps offer a suite of products encompassing Outsourcing, Technology, Consulting and Training www.ﬁscalreps.com solutions.

HSBC BANK MALTA PLC Mario Buttigieg, associate director, Financial Institutions Group, Tel: (+356) 2380 3558, email: [email protected] HSBC Bank Malta plc (“HBMT”) is a member of the HSBC Group. HBMT is listed on the Malta Stock Exchange and has a network of branches and offices spread over Malta and Gozo. HBMT provides financial services to a diverse number of customer groups such as commercial banking, global banking & markets and retail banking & wealth management. www.business.hsbc.com.mt

MARSH MANAGEMENT SERVICES MALTA LIMITED William Thomas-Ferrand, head of ofﬁce, Tel: (+356) 2342 3000 F: (+356) 2342 3333, email: [email protected] Marsh Management Services Malta Limited is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), the premier global professional services firm providing advice and solutions in risk, strategy and human capital. The Malta office was formed in July 2005 and is the market leader for Malta in the formation and management of affiliated and non-affiliated insurance and reinsurance companies. Clients under the company’s management come from a wide range of industries and www.marshcaptivesolutions.com geographies from around the world.

MALTA FINANCIAL SERVICES AUTHORITY Communications Unit, Tel: (+356) 2548 5386, email: [email protected] The Malta Financial Services Authority (MFSA) is the single licensing and supervisory authority for all financial services activity. The Authority is an autonomous public institution set up by law. The sector overseen by MFSA includes credit institutions, insurance business, investment services, pensions and trust management and recognised investment exchanges, that provide a wide range of products and services on the domestic and internal markets. The MFSA is further responsible for the consum- www.mfsa.com.mt er awareness and education in the financial services sector. It also manages Malta’s Registry of Companies.

PKF MALTA George Mangion, Senior Partner, Tel: (+356) 21 484 373, email: [email protected] Forming part of the PKF International network, PKF Malta is committed to excellence, which commitment doubles up into eloquently broadening horizons incessantly and successfully, in keeping with the ever-changing pulse of the market’s needs. Our turn-key approach of customised intermediation services affords us the adequate insight and resources necessary to see www.pkfmalta.com our clients through the respective financial services process and successful attainment of the envisaged goal. www.tunemalta.com

26 CAPTIVE REVIEW MALTA INSURANCE 2015 Atlas Insurance PCC - an EU Insurance Protected Cell Company Create your own insurance vehicle

Less Cost Less Capital Maximum Benefits

Discover the advantages of our protected cell facilities

Having been a leading Maltese insurer since the 1920s, Atlas became the first EU PCC after converting in 2006 and continues to write local business through its active non-cellular core. Today Malta is the only full EU member state with PCC legislation, offering a regulatory environment that is stable, reliable and tax efficient. To start your insurance cell, all you need is enough capital to support your business plan whilst Atlas caters for minimum regulatory requirements. And, through EU Passporting, you can avoid fronting costs by writing directly to the EEA including compulsory classes. We are an Independent PCC, also giving you the option to subcontract cell management to an authorised insurance manager. We offer benefits under Solvency II. Less costs thanks to shared governance, risk management and reporting. Less capital required as Atlas core capital surplus over SII requirements provides significant support. Find out what we can do for your company. Contact us for more details or a full presentation.

t: +356 2343 5221 e: [email protected] www.atlaspcc.eu

Atlas Insurance PCC Limited is a cell company authorised by the Malta Financial Services Authority to carry on general insurance business. malta ﬂawless structure seamless opportunities

Malta is host to a myriad of captive re/insurance companies, protected cell companies and cells that have come to enjoy the domicile’s stable regulatory environment and EU membership beneﬁts. Malta offers re/insurers and cells:

European Union Membership - Malta’s status as an EU member allows companies and cells the ability to passport their services throughout the European Union and EEA states. Maltese insurance law and regulation implements all relevant EU directives.

Redomiciliation Legislation - Companies established in other countries can seamlessly transfer to Malta without any break in their corporate existence.

Protected Cell Legislation - Protected Cell Companies can be incorporated in Malta, enabling cell promoters to write insurance through a cell. The law ensures proper protection and insulation of cell assets and liabilities from those of other protected cells and the core of the protected cell company.

A Stable Regulatory Framework - The Malta Financial Services Authority (MFSA) is reputed to be “ﬁrm but ﬂexible” - encouraging discussion with promoters at all stages of an application process and also on an ongoing basis.

Extensive Double Taxation Treaty Network - Malta has around 70 tax treaties with various EU and non EU countries.

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Find us on: FinanceMalta @FinanceMalta FinanceMaltaYT FinanceMalta

FinanceMalta - Garrison Chapel, Castille Place, Valletta VLT1063 - Malta | info@ﬁnancemalta.org | tel. +356 2122 4525 | fax. +356 2144 9212

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