On the 9 September 2016 the MFSA issued feedback to its
consultation of the 1 April 2016 in relation to intra-group
The MFSA has now launched a second consultation on this matter
which will close on the 30 September 2016. It was
noted that in response to the numerous representations made by the
market, the MFSA is proposing amendments to the original
The revised proposals of the MFSA apply to insurers and
reinsurers including captives and require the
pre-approval of any intra-group loan before it is
granted. A business case and formal agreement would need to be
submitted to the MFSA for prior approval. Permission will not be
granted if the loan leads to double gearing of the licensable
The loan agreement will be subject to the following minimum
a minimum rate of interest payable
commensurate with an arms-length transaction;
be subject to a prescribed definite
period and not be open-ended;
a clear repayment programme, either
in the form of a lump sum to be repaid at the end of the loan
period or in instalments during the life of the loan; and
for loans granted to the immediate
parent undertaking of the authorised undertaking, a clause
requiring any dividend payments to be reduced from the loan.
It is also proposed that the original required conditions in the
loan agreement that were proposed to apply to captives be replaced
by a general option applicable to all insurers, reinsurers and
captives which states that the intra-group loan agreement
may include provisions which ensure the repayment
of the loan such as by virtue of a guarantee by another group
undertaking or by a right of set-off.
It is also proposed that insurers and
reinsurers ensure that the counterparty to the intra-group
loan has a security rating of BBB or equivalent
issued by a reputable credit rating agency. This
requirement will not apply to captives. If this minimum
rating level is not met, the following tests will apply. The
must have a clean audit report;
maintain a gearing ratio of less than
maintain an interest cover of at
least 3 times; and
maintain a current ratio in excess of
The above tests would be based on the audited financial
statements of the counterparty within the preceding 12 months prior
to seeking MFSA approval to grant the loan.
The above requirements are without prejudice to the Prudent
Person Principle requirements and are proposed to be applied to
intra-group loans entered into on or after the 1 January
The original proposals to impose limits up to which intra-group
loans may be granted and specific limits and conditions for
captives are being removed. The prohibition to grant intra-group
loans within the first two years of authorisation has been retained
but is now proposed to be limited to apply to insurers only and
will therefore not apply to reinsurers and captives.
The full text of the Consultation Document of the MFSA and the
new proposed Insurance Rules can be viewed by clicking here.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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