Foreword

Insurers are grappling with the tough new business, regulatory, and investment environments that are emerging from the financial crisis. The insurance industry also faces broader challenges – demographic shifts, the rise in power of the emerging markets, and changing customer behaviour." (A quote from PwC's publication Insurance 2020 – Turning Change into Opportunity).

Against this backdrop, Malta continues to witness an increasing number of foreign players registering as insurance licencees, together with an ongoing stream of enquiries on potential new applications. This growth is consistent with Malta's development as a reputable financial services centre, which has accelerated since membership of the European Union in 2004. In the Competitiveness Index 2012- 2013, recently published by the World Economic Forum, Malta ranked 15th out of 144 world economies surveyed in the financial market development sub-index.

The insurance industry is an important pillar of the Maltese economy, taking advantage of a number of key attributes that Malta offers – including a highly-skilled workforce, excellent service, the appropriate corporate infrastructure and robust legislative and regulatory frameworks, including tax efficiency and innovative structures such as PCCs and ICCs.

PwC Malta is the leading and largest professional services organisation on the island, with 19 partners and around four hundred and fifty staff. We provide a range of assurance, tax, and advisory services to a large and varied client base, including leading companies involved in all the spheres of the insurance industry – insurance principals, intermediaries, protected cell companies, captives and insurance managers. This publication is one of an increasing number of initiatives, including surveys and newsletters, which are designed to share our knowledge with the industry. It presents an overview of how we perceive a steadily growing industry, and the services we are geared to provide.

Whilst all reasonable care has been taken in preparing this publication, there is of course no substitute for specific advice. Should readers require further information, we shall be glad to assist and encourage you to contact one of the members of our insurance team. We look forward to being of service to you.

Kevin Valenzia
Territory Senior Partner

1. Malta as a strategic location for doing business

Malta's strategic geographical location at the centre of the Mediterranean has played a decisive role in its history and continues to play a very important part in its economical, political and cultural development and prosperity today.

Malta was a British colony until 1964. Today it is an independent Republic, a member of the British Commonwealth, the Council of Europe, and the United Nations and became a member of the European Union (EU) on 1 May 2004.

Over the past two decades, Malta has completed a programme of reforming all its finance sector legislation in line with best practices observed in Organisation for Economic, Co-operation and Development (OECD) countries. It is also actively involved with the OECD, the EU and the Commonwealth in modelling global regulatory policy.

The government is democratically elected and all sides of the political spectrum have agreed to Malta's economic development strategy. This strategy is designed to continue to develop Malta as a manufacturing base, as a quality tourist resort, and as a provider of a growing range of services, particularly financial services.

Malta has an excellent business infrastructure with good telecommunications, extremely well equipped ports and Freeport, a well-developed manufacturing infrastructure and a sophisticated European business environment.

The labour force is skilled, multi-lingual, flexible and adaptable. The official languages are Maltese and English; most Maltese citizens speak the latter fluently. Business correspondence is conducted mainly in English and all laws are published in both languages. A large proportion of the population is also fluent in Italian.

2. The insurance industry in Malta

Malta is considered to be an attractive location in the EU for the establishment of captive and other insurance and reinsurance businesses. The island continues to offer stability to potential investors.

Since the early 1990's, Malta has established itself as a renowned and stable financial services sector. The insurance industry is one of the pillars of this development, with the Malta Financial Services Authority (the "MFSA") working to create a stable, yet innovative, jurisdiction aimed at encouraging the growth of insurance and reinsurance business, including captive insurance companies, Protected Cell companies (PCCs) and Incorporated Cell companies (ICCs), passporting their services throughout the European Union.

The insurance industry in Malta boasts a mature domestic market constituted of life and non-life insurers, as well as a thriving international sector, including captives and direct underwriters and reinsurers. The number of insurance intermediaries and service providers also continues to increase. As per Malta Insurance Management Association ("MIMA") 2013 Annual market survey, Malta's insurance sector collectively hit the €1.7 billion mark in terms of annual gross premiums in 2013, representing an increase of over 439% since 2008. Other indicators, such as the number of insurance undertakings and assets held by these undertakings, also registered exponential growth in the last five years.

With its favourable tax system, low-cost location and efficient regulatory environment that accelerates the set-up of new companies, Malta continues to be an attractive destination for insurance companies, PCCs and, more recently, ICCs.

3. Why carry on insurance business in Malta?

There are a number of benefits associated with setting up insurance business in Malta. A main advantage, of particular appeal to companies intending to write business across EU is that insurance companies incorporated in Malta can passport directly, either through freedom of establishment or services, to all other member states. Significant advantages lie in having a knowledgeable and accessible regulator, the MFSA, coupled with a very experienced professional workforce. Malta's tax regime is stable. As governments across the world move to tighten tax rules, Malta's tax rate of 35%, based on a full imputation tax system that results in tax refunds to shareholders, is seen as tax-efficient and acceptable. Moreover, Malta has a network of Double Tax Treaties with over 60 countries, including most EU countries and the US.

From an operational perspective, Malta has a comparatively lower cost base when compared to other EU domiciles. The country has an excellent business infrastructure with good telecommunications and a sophisticated European business environment.

Malta's legislative framework is also innovative in that it caters for insurance set-up options considered to be relatively new and alternative in the context of the rest of the EU, such as the creation of PCCs, and more recently, ICCs. Malta is the only EU member state to have this legislation in place. The local legal framework further includes migration legislation that facilitates movement into and out of Malta.

The table below summarises what we perceive to be the main benefits of setting up insurance business in Malta.

Reasons that make Malta an attractive location for setting up an insurance business
EU membership/passporting rights Insurance companies that incorporate in Malta are effectively an EU-domiciled insurer with the opportunity to benefit from passporting rights which facilitate the underwriting of insurance business anywhere in the EU without the need for costly fronting arrangements.
EU compliant legislation As a member of the EU, insurance businesses incorporated in Malta can benefit from harmonised EU legislation and regulation. Of particular relevance, at this point in time is the alignment with the rest of the EU in preparation for the advent of the Solvency II regime.
An advanced and innovative legal system Regulations specific to PCCs and to ICCs are examples of pieces of legislation aimed at establishing an innovative legal framework to govern insurance business, whilst promoting such business in Malta. Refer to further detail in section 4 of this publication.
Efficient tax environment, for companies and individuals The main advantages of Malta's tax system are :
  • An extensive double treaty network presently covering over 60 countries, (including all EU member states, the US, as well as many emerging economies). The Maltese government follows an aggressive policy of expansion in this respect;
  • The availability of substantial refunds of the tax paid by the company in the hands of the shareholder upon distribution of dividends as a result of a full imputation tax system;
  • The absence of withholding taxes upon repatriation of dividends, interest and royalties to non-Maltese residents, subject to certain statutory conditions;
  • Beneficial, reduced personal tax rates for qualified expatriates are available through the recently enacted " Highly Qualified Persons Rules, 2011
Further details of the fiscal framework applicable to insurance companies in Malta is provided in Appendix C of this publication.
Re-domiciliation Malta's legislative framework, specifically the Continuation of Insurance Business Companies Regulations, allows established insurance businesses to seamlessly transfer their seat to Malta, without any break in the company's corporate existence or the need to re-execute any reinsurance treaties or other contracts.
An accessible and efficient regulator, the MFSA MFSA's consistent regulatory approach has ensured the growth of the insurance industry on the island. The MFSA is approachable, encouraging regular consultation, on an individual company basis, to ensure that both the interests of the business and compliance with all regulatory standards are met. Refer to further detail in Section 3.1.
Swift application process The insurance application process is an efficient, non-bureaucratic process. The MFSA is required to respond to an application within a prescribed timeframe.
Availability of insurance management Services A significant number of licensed insurance management companies operate in Malta, varying from international names to local establishments. Insurance managers are adequately equipped to assist in the initial set-up stages as well as the ongoing operations of a captive insurance business or a direct underwriter. The vast majority of insurance managers are members of the Malta Insurance Management Association (MIMA).
Availability of quality, personalised professional services Malta has a skilled, multi-lingual, flexible and adaptable labour force including, inter alia, accounting, audit, investment management and legal services.
Malta has a skilled, multi-lingual, flexible and adaptable labour force including, inter alia, accounting, audit, investment management and legal services. Malta adopted International Financial Reporting Standards (IFRS) for all companies in 1995. A consistent accounting framework within the EU facilitates the consolidation process at an EU level.
The use of English as Malta's business Language English, together with Maltese, are the primary languages of Malta, with English being considered the business language country-wide.

3.1 The competent regulatory authority

The competent regulatory authority is the MFSA, which is a fully autonomous public institution that reports to Parliament and was established by law on 23 July 2002. The MFSA is the single regulator for all financial services, which includes banking, insurance, investment services, trustee services, pensions, collective investment schemes and their providers. The functions of the Registry of Companies, the International Tax Unit of the Inland Revenue, and the Listing Authority, are all housed within the MFSA.

Creating the MFSA as a single regulator was part of Malta's long-term strategy to create a mainstream finance centre in the country. Financial services have benefited from a reduction in bureaucracy, streamlined procedures, lower fees and compliance costs, and a more consistent implementation of standards.

The organisational structure of the MFSA ensures that the regulatory and operational functions of the Authority are exercised within strict legal demarcations. The Board of Governors, presided by the Chairman, sets out policy and general direction and is assisted by the Legal and International Affairs Unit. The Director of this Unit is also the Secretary to the Board of Governors. The Supervisory Council, headed by the Director General, is exclusively responsible for licensing, supervision and regulation and is composed of the Directors responsible for Authorisation, Banking Supervision, Securities and Markets Supervision, Insurance and Pensions Supervision, and Regulatory Development. Operations are the responsibility of the Board of Management and Resources composed of the Directors responsible for Communications, Human Resource Development, Information Technology and Administration chaired by the Chief Operations Officer. Co-ordination between these three organs is ensured at Co-ordination Committee level. The MFSA is also responsible for consumer education and consumer protection in the financial services sector. This function is vested in the Consumer Complaints Manager.

The MFSA has a staff of over 212 people, consisting of specialist regulators, lawyers, accountants and support staff facilitating the formulation of policy, decision making and support for both licence holders and consumers.

The Authorisation Unit of the MFSA is the department responsible for the licensing of insurance principals, intermediaries, PCCs, ICCs, captives and insurance managers, and may be contacted as follows:

The Director
Authorisations Unit
Malta Financial Services Authority
Notabile Road,
Attard, BKR 3000
Telephone (+356) 2144 1155
Fax (+356) 2144 9308
Email: au@mfsa.com.mt
Website: www.mfsa.com.mt

Source: MFSA website, updated as at September 2013.

4. Insurance business set-up options and the relevant Maltese legislation

Malta's company law and fiscal legislation is based on tried and tested legal principles and implements all applicable European Union legislation. Insurance-specific pieces of legislation offer a variety of set-up options, together with the governing framework within which they can operate. Further details of the legislative framework are included in Appendix B to this publication. The following is a summary of the possible set-up options:

4.1 Insurance (and reinsurance) principal companies

Insurance (and reinsurance) companies in Malta are mainly regulated by the Insurance Business Act, 1998 ("the Act"). The Act provides for the authorisation and supervision of insurance companies and the MFSA is the Competent Authority for the purposes of the Act. Insurance Business Regulations ("Regulations") constitute subsidiary legislation to the Act, whereas Insurance Rules ("Rules") may be issued by the MFSA under the Act as may be required for carrying into effect any of the provisions of the Act. The Act, Regulations and Rules together constitute the legislative framework for insurers in Malta. Refer also to Appendix B for details on the regulatory framework.

The Malta Insurance Association (MIA) is a non profit-making organisation that represents the views and common interests of all insurance companies in Malta. MIA provides its members with the opportunity to exchange and analyse external developments and issues relevant to their industry's well being. Indeed, part of the MIA's mission is to offer training initiatives and events targeting general and specialised lines of insurance business.

As at September 2013, the number of insurance and reinsurance principals in Malta stood at 39, including 31 primarily underwriting risks outside Malta.

4.2 Insurance intermediaries

An insurance intermediary is defined as a person(s) or a company who brings together prospective clients and insurance companies for the purpose of issuing an insurance policy. All intermediaries, except for introducers, are licensed by the MFSA and are regulated under the Insurance Intermediaries Act, 2006.

The Insurance Business Act, 1998 and the Insurance Intermediaries Act, 2006 are two separate but complementary pieces of legislation that establish the legal and prudential framework for the regulation of insurance business and insurance intermediaries' activities in Malta. As at September 2013, there were 17 insurance agents and 29 insurance brokers registered in Malta as per the MFSA's list of licence holders.

4.3 Captives

Under the Maltese legislative framework, captives are termed "Affiliated Insurance Companies" ("AICs"). These are defined as companies that insure risks originating from:

  • parent companies;
  • associated or group companies;
  • individuals or other entities having a majority ownership or controlling interest in the AIC, and
  • members of trade, industry or profession associations insuring risks related to the particular trade, industry or profession.

The legal and regulatory framework governing captive insurance in Malta is the same that applies to all insurance companies. There are however a number of features which recognise the particular characteristics of captives and cater for their needs. Subsidiary Legislation 403.11, Insurance business (companies carrying on business of affiliated insurance), Regulations and Insurance Rule 21 of 2007 (Business of Affiliated Insurance) regulate those aspects specific to captives. Detail on the setting up of captives is provided in Appendix B5 to this document.

Currently, there are 11 companies authorised by the MFSA as AICs.

4.4 Insurance management companies

The Act defines an insurance manager as a person enrolled to carry out activities that consist of accepting an appointment from an insurance company to manage any part of its business, or to exercise managerial functions therein, or to be responsible for maintaining accounts or other records of such company. Management functions may include the authority to enter into contracts of insurance on behalf of such company under the terms of appointment. A local company authorised under the Insurance Intermediaries Act, 2006 as an insurance intermediary and carrying on business as an insurance broker, restricted to contracts of insurance relating to risks situated outside Malta, may appoint an insurance manager authorised under the Act to manage such business. An affiliated insurance company or an affiliated reinsurance company may also, with the approval of the Authority given in writing, appoint an insurance manager.

The Malta Insurance Managers Association (MIMA), established in Malta in 2007, represents the interests of all authorised insurance managers and managed insurance companies in Malta. MIMA has succeeded in and continues to strive towards the establishment and growth of the international insurance industry in Malta, as well as the development of management expertise.

As at September 2013, there were 15 insurance managers registered in Malta, the vast majority of which are members of MIMA.

4.5 Protected cell companies (PCCs)

With the introduction of Subsidiary Legislation 386.10 of 2004, Companies Act (Cell Companies Carrying on Business of Insurance) Regulations, Malta became the only EU member state to incorporate PCC legislation in its financial legal framework.

The PCC is a risk management tool, enabling different owners with varying interests to participate in one insurance company through the establishment of cells.

As at September 2013, there were 8 PCCs domiciled in Malta (8 insurers and 1 insurance broker), operating 19 cells between them and offering potential investors the opportunity to set up an insurance operation in Malta, with reduced capital requirements compared to a stand-alone insurance set-up, as well as other advantages.

4.6 Incorporated cell companies (ICCs)

Taking account of international developments in the area of cell legislation, the Companies Act (Incorporated Cell Companies Carrying on Business of Insurance) Regulations, 2010 have also been enacted, introducing another innovative type of vehicle in Malta. This legislation builds on the cellular concept under the PCC legislation introduced in 2004, and detailed in section 4.5 above. The most significant difference between the two concepts is that in an ICC, its core and cells are individually separate legal entities.

Refer to Appendix B6 for more on PCCs and CCs.

4.7 Draft regulations for Reinsurance SPVs

In May 2013, the MFSA published for consultation draft Reinsurance Special Purpose Vehicles (RSPV) Regulations. The main objective of the proposed RSPV Regulations is to provide a regulatory framework for the establishment of RSPVs in Malta, consistent with the provisions of the Reinsurance Directive. The latter provides that where member states decide to allow the establishment of SPVs within their territory, they shall require prior official authorisation thereof and shall lay down the conditions under which the activities of such vehicles are to be carried out. In substance, the draft Regulations, that are expected to become effective in the beginning of 2014, anticipate Solvency II Directive's requirements in the area of insurance SPVs. The Solvency II Directive requires all member states to permit the establishment of Solvency II SPVs in their jurisdictions (optional under the Reinsurance Directive), whilst Level 2 implementation guidance expands upon the Directive's text and lays down the principles and features of the Solvency II SPV regime.

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