Malta: a gateway for captives with risks in Europe

Ian Edward Stafrace of Atlas Insurance PCC, a member of FinanceMalta, highlights how Malta is quickly becoming the go-to destination for international companies seeking more efficient EU risk coverage

 

The Republic of Malta is a full member of the European Union, strategically located in the middle of the Mediterranean Sea, with English as its business language.

The rapid 40% rise in gross written premium to €7.8bn in 2021 by insurance companies, captives and protected cells domiciled in Malta for risks situated outside Malta demonstrates their success.

Malta’s cell growth continues to outpace standalone companies. In 2022, the number of cells in Malta grew by 5% to 77, while non-domestic insurance companies and captives reduced by 5% to 58.

Malta has tailored its regulation and insurance market to understand better and proportionally enable captives while adhering to European standards and requirements.

Malta is the only protected cell company domicile able to offer cells direct access to countries in the European Economic Area, reducing fronting costs and requirements.

Following Brexit, some protected cell companies like Atlas applied to establish a UK branch and provide continued access to the UK market. Fronting partners can offer added value and simplify compliance requirements.

However, they can be increasingly selective. Fronters also add costs to the programme, affecting feasibility, especially when premiums are below their rising minimums. EU direct writing cells are slightly more costly than pure reinsurance cells.

However, saving fronting fees can make them more cost-effective, more specifically where local compliance and outsourcing needs in the country of risk are limited. Cells are also often more cost-effective than owning a standalone carrier or captive.

The difference is more significant within the Eurpean Union itself, where the costs of a more robust regulation are significantly reduced when they are shared within a protected cell company structure. Stakeholders are raising the bar for captive substance.

With their shared economies of scale, Maltese protected cell companies give confidence in being onshore in the EU, yet without a standalone company’s complexities, costs and time.

Protected cell companies can help address substance requirements as cells form part of a broader single entity that provides shared board, governance, key functions and resources. Cells can also be capital-efficient, with EU Solvency II recognising cells as ringfenced funds. There is no minimum capital requirement for individual protected cells, as these apply at an overall company level.

A cell owner will generally only need to invest funds equivalent to the cell’s notional solvency capital requirement, which, with small undertakings, usually falls far below the typical standalone insurer minimums. Cell owners retain complete legal protection of their assets from liabilities of the core or other cells.

Beyond domicile

Some protected cell companies in Malta provide further solutions that were ordinarily not thought possible, mainly thanks to their unique features. Some have experience hosting cells writing direct third-party risks and consumer insurance products.

Their non-cellular cores are capitalised well beyond regulatory requirements. They are not restricted to hosting fully funded cells and take a risk-based underwriting approach to assess the cells they host.

You can find protected cell companies independent of international brokers open to managing cells directly or outsourcing the cell’s management to the cell owner’s preferred global captive manager. With its 100-year history, Atlas is a long-established contributor to Malta’s local economy, actively insuring risks in Malta through its non-cellular core. It was the first traditional insurance company in the world to convert to a protected cell company.

Its active local business can help further address any captive domicile arbitrage questions. Maltese protected cell companies with an active core can also rapidly front and incubate risks, giving more time to assess and set up a cell.

For example, a global captive manager had a client with a US captive who wished to set up a protected cell to cover its EU-based risks. As discussions progressed, it was clear in December that there would not be sufficient time to license a cell for its 1 January renewal.

As Atlas was already passported to all the countries where the risks were situated for the required classes of insurance, it underwrote the renewal through its core, reinsuring back to the US captive.

Atlas provided a quick solution within a couple of weeks during the holiday season while allowing much more time for the setup of a cell to be considered within the same protected cell company. With the pace of change continuously increasing, organisations appreciate the ability to adopt an agile, iterative approach to setting up their insurance vehicles with real options to scale and evolve.

Economic Strength

Malta has a well-diversified and resilient economy. In November 2022, Fitch affirmed the country’s A+ long-term rating with a stable outlook.

In its autumn economic forecast, the European Commission projected that Malta would have the second-highest economic growth rate in the EU in 2023 and the highest in 2024. In December 2022, the low unemployment rate stood at 3.2%.

Malta offers businesses an efficient environment with lower operational costs versus other EU domiciles, yet with a highly qualified and experienced local workforce. The Malta Financial Services Authority (MFSA) is a well-established, respected, yet approachable regulator.

The MFSA is a member of the European System of Financial Supervision, including the European Banking Authority (EBA) and the European Insurance Authority (EIOPA).

The MFSA also forms part of the Single Supervisory Mechanism within the European Central Bank. As an onshore EU domicile of choice for a growing number of insurance operators with EU and Organisation for Economic Co-operation and Development (OECD) compliant financial and tax regulations facilitated further by its over 70 double taxation treaties, Malta has a reputation as a firmly established finance centre.

Malta’s growing and stable economy with the euro as its official currency, reliable and well-developed IT infrastructure, excellent flight connections and safe and pleasant lifestyle further attract international business.

With Malta’s favourable protected cell company regulations, EU membership, and well-resourced and experienced protected cell companies and insurance management companies, the island is fast becoming the go-to destination for businesses seeking cost-effective, flexible and agile solutions to emerging captive insurance challenges.

12 August 2024
5-6 November 2025

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