Can Malta become the ‘Bermuda of the Mediterranean’?

This article was amended on 22 February 2016.

Malta, with its respectable number of insurance companies, is pushing ahead to attract quality not quantity, but of course the numbers are important and no effort is to be spared to expand the internal market. And it goes without saying that a number of jurisdictions are active to pursue Captive owners and reinsurance companies, to re-domicile. So, one may ask in the context of Malta, what can be done to overcome the challenges ahead to attract more investors?

ArgoGlobal SE, which opened an office in Malta two years ago, was the first property/casualty insurance company to obtain a Societas Europaea licence from the Malta Financial Services Authority. Something that could act as a trailblazer, encouraging others to seek the same.

ArgoGlobal previously stated that it picked Malta after evaluating a number of jurisdictions, it has an English-speaking population and fits the bill. The Maltese branch operates in Europe, mostly Germany, Austria, France, the UK and the non-EU Switzerland, which required a licence from Swiss regulators.

ArgoGlobal takes in millions of euros in premiums and specialises in professional liability coverage. This is another success story and one hopes it paves the way for others to follow. It is encouraging to note how Finance Malta, as a private / public partnership is geared to promote the sector, mindful that it faces tough competition fielded by established jurisdictions, including tax havens, yet it is focused in its efforts to attract international companies seeking an alternative EU jurisdiction, traditionally offered by tried and tested places such as Bermuda, Cayman, Dublin and Guernsey.

As an EU member state and EIOPA member, Malta is fully Solvency II compliant and its expertise has grown thanks to the open dialogue enjoyed by PCCs, ICCs, the insurance linked securities entities and international insurance management companies with the local one-stop-shop authority (MFSA).

The MFSA is an efficient, effective and openly accessible regulator which goes the extra mile to assist the growth of the insurance business community. To start with, this year it has sponsored the local managers association in their quest to organize a sectional meeting of FERMA and to this end it has paid generously to help this cause.

Such generous contribution goes a long way to cement a healthy relationship with the nascent insurance community and MFSA continues with its policy to keep regulatory fees competitive. It encourages practitioners and associations of organised insurance groups to venture forth and fly the flag in international conferences. Encouraged by the support that both MFSA and Finance Malta give to the sector, particularly now, having the full implementation of the Solvency II regulations, PKF decided it would promote Malta for a day of world-class networking in New York on 29th March, 2016.

The venue is the prestigious New York Bar Association building, where the influential Captive Review is engaged to attract a respectable section of US Captive owners. The discussion at New York will cover many aspects, including advantages in the Solvency II legislation, which empowers policy holders with more transparency and good governance. Such international events can be instrumental to help the island become a beacon of excellence in the insurance market.

At present, with 62 insurance companies and a number of cells, there is every scope to expand the network and improve on the chances to attract more gravitas as a welcome testimonial to the well laid legislation that is EU compliant.

A unique feature is the competitive tax regime combined with the advantages of re-domiciliation of insurance companies. These can proceed seamlessly without the target company having to be wound up or reincorporated. Malta is the only EU country which offers the possibility of setting up Protected Cell Companies and Incorporated Cell Companies apart from Special Purpose Vehicles which are very popular in North America and allows for segregating and protecting the assets of a cell from those of another cell and also from the company core (non-cellular part) of the PCC or ICC.

It is common knowledge that an insurance vehicle domiciled in an EU member state can provide cover for risks across the entire EU, subject to local regulatory requirements and thanks to this facility, most captives take advantage of the EEA freedom of passporting, to write insurance directly without the use of a fronter. One may well ask, with so much competition what can Malta offer in this sector which sets it apart from other offshore centres such as the Isle of Man, Channel Islands, Gibraltar and of course Caribbean stalwarts with zero tax regimes such as Bermuda, Barbados and Cayman Islands?

The answer is: flexible and fair regulation, a competitive fiscal regime, over 70 double tax agreements and all the financial services support available at a high professional level. It goes without saying that a number of jurisdictions are active to pursue Captive owners and reinsurance companies to re-domicile, so one may ask in the context of Malta, what can be done to attract more investors.

Finance Malta, with support of PKF Malta, are organizing the conference, mindful that Malta faces tough competition fielded by established jurisdictions, yet it succeeds to attract international companies seeking an alternative EU jurisdiction traditionally offered by tried and tested places such as Dublin, Luxembourg and Guernsey.

As an EU member state and EIOPA member, Malta has continually contributed to the development of Solvency II. Non-European insurers can easily set up their insurance vehicles, including by way of cells to act as their fronter in Malta in order to reduce their EEA fronting costs. But now, can US captives with European risks domiciled in Caribbean tax havens, while enjoying zero tax, ever benefit from advantages of Malta’s credentials as an EU jurisdiction?

Typically, such Caribbean islands are not Solvency II compliant since captives and Special Purpose Insurers (SPIs) remain out of scope of the Solvency II equivalence radar. This would mean that a US captive owner wanting to set up an insurance vehicle to insure its European risks or enter the insurance linked securities market, will find that it is mandatory to set up in Europe.

Typically a Bermudian or Cayman Captive, PCC’s or re-insurer would use a licensed insurance company as the fronter, to write business in the EU and the captive would then reinsure the fronter. However, this requires collateral commonly described as trapped money, which may not be utilised elsewhere, so many do find that the cost of setting up a Cell in an EU domicile would be more competitive, whilst having full control on its vehicle.

Captives in a soft market need to assess which structures can reduce the amount of collateral that become trapped and the ongoing costs of fronting arrangements. Usually it is common to expect that the demand for collateral would be driven by the fronter’s. This is where Malta needs to tap into, as it has established itself as one of the domiciles of choice within Europe for captive insurance and reinsurance companies, where the average cost base for the running of these companies is reputed on average to be 60% less compared to other EU jurisdictions. Can Malta succeed to become the Bermuda of the Mediterranean?

Let us all meet at the New York Captive Conference on 29 March, 2016. For a copy of the programme or to learn about our services please contact: Danielle Hermansen ACII Chartered Insurance Risk Manager, Mgt (Maastricht), Director, PKF Malta, 35, Mannarino Road, Birkirkara BKR9080 Malta (+3562 1484 373, +3562 1493 041) or by email to dhermansen @pkfmalta.com 

www.pkfmalta.com