FinanceMalta: Malta as a captive domicile

Dr Malcolm Falzon, a partner at Camilleri Preziosi and member of FinanceMalta, talks about the benefits of choosing Malta as a captive domicile.

 

Evolving and emerging risks, such as those brought on by pandemics, war and cybersecurity threats, continue to harden the insurance market and render it more unpredictable.

It is therefore no surprise that the insurance captive market continues to grow and gain traction globally as market players increasingly recognise the cost efficiencies this solution brings, as well as the benefits that may be reaped from the adaptability and personalisation that the structure offers.

This, especially so, owing to the agile response to risk coverage and policyholder and/or asset protection, which captives offer, in a world where the fast-evolving nature of risk becomes increasingly difficult to track and react to.

Identifying the right jurisdiction which may provide for a stable legal, regulatory and supervisory framework which, although robust, allows captives the flexibility to function and adapt effectively, is key. In this regard, Malta is firmly established as a key player in the global (re)insurance industry, featuring:

  • A well-established ecosystem of prominent stakeholders, giving access to highly skilled, multilingual human resources and service providers including global audit firms, insurance managers, investment services providers and law firms.
  • A proactive and approachable regulator (the Malta Financial Services Authority) which is mindful of business needs.
  • A regulatory framework which is not only Solvency II-compliant but also allows for the use of innovative cell structures and access to the European market through passporting rights.
  • A resilient economy which has enabled it to withstand the effects of global financial crises and tackle the impacts of the Covid-19 pandemic and the war in Ukraine.
  • Leading IT, digital and telecommunications infrastructure.

Additionally, the authorisation process is efficient as the regulator is bound by statutory response timeframes and, throughout the process, maintains an open channel of communication with applicants.

A unique feature of the Maltese regulatory framework is the availability of cell structures in the form of protected cell companies (PCCs) and incorporated cell companies (ICCs), with the cells of both being available to captives.

The cell company concept is interesting as it lends flexibility to the structuring of various types of activities and products, and has already been successfully used in the insurance sector since the introduction of PCC legislation. A cell structure is efficient and cost-effective.

Individual cells within PCCs can be managed by licensed insurance managers and do not require their own board of directors, as it is the board of the PCC itself that has responsibility for the PCC and its cells, as well as for legal and regulatory compliance and corporate governance requirements.

A cell structure also ensures a strong degree of asset protection since a cell’s assets are ring-fenced from the rest of the cells within the PCC.

Cells may provide the business of insurance through the PCC’s licence. All of the aforesaid may be achieved by renting a cell within a PCC.

While it is possible to set up similar cell structures in other jurisdictions, Malta is the only one providing direct access to the single market (to date) and Malta is the only EU Member State to have introduced PCC and ICC legislation for the undertaking of (re)insurance activities.

Malta is also at the forefront in the fintech space, having made significant progress in the establishment and maintenance of a regulatory framework to guide businesses in modifying their processes in light of tech-driven innovations and further bolster the industry towards success.

As a result, traditional insurers have been looking into options that would enable them to leverage existing data to generate deeper risk insights, as well as having greater visibility of behavioural analytics, with the aim of improving loss ratios and developing more tailored products at a low cost and higher profit margins.

Malta’s well-established cell structure regime has indeed served as an attractive proposition for insurtech, particularly to address emerging risks such as cyber and environmental.

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