Insurance & Re-Insurance

In recent years, there has been a substantial drive by Malta’s Government to continuously develop Malta’s insurance market.  In fact, around sixty international insurance companies are registered in Malta, albeit with only a few operating in the local market.  The sector is regulated in an innovative and accessible manner under the auspices of the regulator, the Malta Financial Services Authority (MFSA).

Since Malta is an EU Member State, players licensed to operate their insurance or re-insurance business in Malta may benefit from the EU passporting regime wherein a company may carry on its business towards other EU member states from Malta. This goes a long way to facilitating the business of the companies in the insurance and re-insurance market and as long as the company in question is legally licensed in Malta, it can access the EU single market without the requirement of applying for any additional licences.  The reverse would also apply.  Therefore, a European insurance company seeking to operate in Malta may utilise its passporting rights as long as establishment criteria under the European Passport Rights for Insurance and Reinsurance Undertakings Regulations (S.L. 403.14 of the Laws of Malta) are satisfied.  The host state regulator (new member state in which access is sought) is notified by the home state regulator (wherein the head office of the company is situated) by way of a harmonised notification procedure.  The home state regulator must give its consent for the establishment of presence in the host state.  Furthermore, foreign insurance multinationals may open subsidiaries in Malta.

The local insurance and re-insurance sectors include various players; from the broker to the reinsurer to the insurance manager.  Therefore, the Maltese legislative structure has given the opportunity to the stakeholders involved to seek different advantageous corporate forms for their business.  The Maltese legislation is based on the Insurance Business Act (Chapter 403 of the Laws of Malta) and the Insurance Intermediaries Act (Chapter 487 of the Laws of Malta).  However, Maltese law also incorporates European Union Insurance Directives such as the Insurance Mediation Directive (Directive 2002/92/EC) and the Reinsurance Directive (2005/68/EC).

Insurance and Reinsurance

The business of insurance means the effecting and carrying out of contracts of insurance of such class or classes of long term business or class or classes or part classes of general business and may also include the affecting and carrying out of contracts of several types of bonds, or similar contracts of guarantee, capital redemption contracts, and other business which is ancillary to that of insurance.  Long term business includes classes such as life, marriage and birth, permanent health and social insurance while general business encompasses land vehicles, ships, aircraft, fire, sickness, accident, damages, and general liability amongst others.  In order to be able to carry out the business of insurance, the company must be authorised by the MFSA, as the regulator when it comes to insurance business in Malta.  The application for such an authorisation entails various requirements including disclosure of shareholders, a detailed scheme of operations and the ability to hold eligible own funds in order to be able to cover the requirements for solvency and capital.  In order to seek authorisation to extend business of insurance to other classes or risks pertaining to one class shall also be required to be submitted to the regulator in this regard.  A third country insurance company (non-EU) may also apply for an authorization in terms of the Insurance Business Act subject to the satisfaction of certain criteria.  It must be noted that the authorization may be suspended or revoked by the regulator.

Reinsurance entails the activity consisting in accepting risks ceded by an insurance undertaking or by another reinsurance undertaking.  In order to carry out business of reinsurance, the authorization must expressly extend to such business and the authorization may also be restricted to such business specifically.

The insurance business may be transferred according to the law.  This also includes the possibility of a transfer of business restricted to reinsurance.

The law also regulates the conduct of business of insurance including the ongoing requirements in order for the authorisation to be preserved.  Examples would be that of informing the MFSA of the qualifying shareholding in the undertaking once a year for a company whose head office is situated in Malta, and informing MFSA of any changes in the documentation provided to the authority.

Insurance Intermediaries

An insurance intermediary is a natural or legal person who, takes up or pursues insurance intermediaries activities or services ancillary to other business of insurance.  Insurance intermediaries’ activities include the activities of introducing, proposing or carrying out other work preparatory to the conclusion of contracts of insurance, or of concluding such contracts, or of assisting in the administration and performance of such contracts.  These persons are regulated by the Insurance Intermediaries Act (Chapter 487 of the Laws of Malta).  In order to act as an insurance agent, manager or broker, one must be registered and enrolled with the regulator.  No person may be registered unless it holds the necessary qualifications as required.  A foreign company which has a branch or a representative in Malta may be enrolled as an agent, manager or broker respectively.  Names may be suspended or struck off the lists of agents, manager or brokers by the regulator in accordance with the law.

Other Vehicles

Maltese legislation also integrates particular corporate structures in order to cater for insurance business needs that go beyond the traditional limited liability company.  Structures known as captive insurance undertakings are insurance undertakings owned by either a financial undertaking (excluding insurance related undertakings) or a non-financial undertaking, the purpose of which is to provide insurance cover exclusively for the risks of the undertaking to which it belongs or is a member of.  This structure can also relate to reinsurance undertakings.  In order to be able to carry out such affiliate insurance business as it is also titled, the undertakings must still apply for an authorisation under the Insurance Business Act (Chapter 403 of the Laws of Malta).  However, there are some exemptions from requirements in this regard in order to cater particularly to the needs of the undertakings in question.

Other innovative legal structures in the insurance sector are the Incorporated Cell Company (ICC) and the Protected Cell Company (PCC).  These flexible structures allow for the benefit of the segregation of assets and liabilities.  An incorporated cell company is an undertaking formed and registered as, continued as or transformed or divided into, an incorporated cell company wherein the assets and liabilities of the company are separate and separately identifiable from the assets and liabilities of its incorporated cells as well as the assets and liabilities of each incorporated cell separate and separately identifiable from the each other.  This structure is regulated by S.L. 386.13 of the Laws of Malta titled Companies Act (Incorporated Cell Companies Carrying on Business of Insurance) Regulations.  The protected cell company then is regulated by S.L. 386.10 of the Laws of Malta titled Companies Act (Cell Companies Carrying on Business of Insurance) Regulations.  The same concept of segregated assets and liabilities applies to this structure.  The main difference between the two is that in the case of an ICC, the company has a separate legal personality from its cells and therefore, the ICC may not transact on behalf of any of its cells.  On the other hand, the PCC and its cells constitute a single legal person.   With respect to a PCC, cellular creditors only have a claim upon the assets of the particular cell they deal with, however the creditors of the particular cell also have a right of secondary recourse to the core assets once the assets of the particular cell have been exhausted (as long as the particular cell does not carry out affiliated or reinsurance business).  This is not the case for an ICC wherein the assets of the cell are available for the creditors and there is no right of secondary recourse for the creditors.  Malta was the first EU member state to enact legislation both with regard to PCC and ICC, which demonstrates the commitment of Malta in growing the insurance sector in a productive and progressive manner.

Recently, a new structure was introduced into insurance-related legislation.  The Re-insurance Special Purpose Vehicles (RSPVs) are regulated by way of Legal Notice 130 of 2016.  Such a vehicle is defined as an undertaking which assumes risks from a ceding undertaking and which fully funds its exposure to such risks through the proceeds of a debt issuance or any other financing mechanism where the repayment right of the providers of such debt or financing mechanism are subordinated to the reinsurance obligations of such a vehicle.  In order to operate as an RSPV, an undertaking whose head office is in Malta requires an authorisation from the MFSA.  Several criteria must be satisfied in order to be eligible for the authorisation.  These include that the object and purpose of the undertaking are restricted to operating as a reinsurance special purpose vehicle, and that it satisfies the various solvency requirements in accordance with relevant EU legislation.

Clearly, the options are various and the advantages of the different structures offer great flexibility to the undertakings planning to start operating in the insurance sector.  From the structuring and planning of the ideal corporate structure to be undertaken, to the applying for and maintaining the authorisation required with the MFSA as well as general compliance requirements, GMX is there to assist and advise in a market that is progressing rapidly in Malta.