Insurance Business

Insurance Business

Captive Insurance

Captive Insurance or ‘Affiliated Insurance’, as it is referred to in Maltese Law has rapidly become one of the mainstays of the insurance industry in Malta. No doubt the speed with which this product has been adopted by some of the major players within the world insurance sector include the robust and reputable regulatory framework which at the same time is highly flexible and reactive to the dynamism in the market, the availability of highly skilled insurance and support professionals,
Malta’s inherent cost effectiveness and an efficient, OECD-recognized tax environment. A measure of this success is the quality and prestige of the global insurance organisations that have established a permanent presence in Malta. These include Marsh, AON, Munich Re and Heath Lambert.

Captives may insure risks originating from a wide range of persons including:

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

Choice of Business Models – Insurers, Brokers & Managers

The Maltese jurisdiction offers insurance companies flexible arrangements under which to structure its operations. The Companies Act Regulations allow a licensed insurance company, insurance manager or an insurance broker to be registered as, or convert to, a protected cell company. A captive therefore may choose to be incorporated as either a traditional company, a PCC, or may even opt to form a protected cell within an established PCC. Malta is the only full EU Member State to offer PCC legislation. This allows companies to establish ‘cells’ within a PCC and write risk through these cells, with the assets and liabilities of each cell being held completely segregated and protected from those of other cells. It also allows the start-up and on going maintenance of the company to be shared amongst the owners of the various cells of the PCC. This factor opens up the captive insurance market to small and medium sized corporate groups wishing to establish their own
insurance vehicle. PCC’s also offer insurers or captive re-insurers, the possibility of segregating high-risk lines of business from other less risky ones.

Malta is the only jurisdiction worldwide to legislate on the concept of a PCC Manager. This is a unique alternative to establishing a regular management company by offering other managers the possibility of providing insurance management services, at lower cost, through one of its cells.

Taxation of Captives

A company registered in Malta under the Company’s Act, 1995 will be subject to tax at the corporate rate of 35%. Since Malta operates the full imputation system of taxation, shareholders are entitled by law to a tax credit equivalent to any tax paid in Malta by the Maltese company. Furthermore, provided that ultimate beneficial ownership of the Maltese company is held by individuals who are not normally resident in Malta, a further tax credit equivalent to 6/7ths of the tax paid in Malta on
the value of the dividend distributed is generally available. This results in a potential tax leakage in Malta of 5%.

Solvency Rules

As an EU Member State Malta, must abide by harmonised regulatory rules in force throughout the Union. However, having successfully negotiated certain derogations and shorter application times, Malta offers captive reinsurers a preferential regulatory regime. This includes reduced ‘Own Funds’ requirements yet remain fully aligned with the EU Reinsurance Directive. Coupled with the benefits of passporting business throughout the EEA, the Malta proposition takes on a completely new dimension.

Redomiciliation

The Insurance Business (Continuance of Companies Carrying on Business of Insurance) Regulations 2003, empower the MFSA to authorise any insurance company, insurance management company or insurance broker licensed in another jurisdiction to be registered as continuing in Malta. Apart from the MFSA’s authorisation, the procedures for continuation of these regulated companies are similar to those applicable to continuation of companies. This allows for the seamless transition of a
corporate body from one jurisdiction to Malta without the costs that would normally be associated with constituting a new entity and transferring existing business.

Prevention of Money Laundering

AIC’s and insurance management companies must comply with the requirements of the Prevention of Money Laundering Act, 1994 and the corresponding guidelines provided by the MFSA.