What does Malta offer the insurance industry?

Malta is home to a significant number of Fortune 100 multinationals’ insurance undertakings, reinsurance companies, intermediaries, and cells.

They are attracted by its robust regulatory framework, competitive operating costs, and innovative structures, particularly Protected and Incorporated Cell Companies.

Cells allow firms, insurance managers, and brokers to write risks through cells within a core company and provide businesses with a cost-effective ring-fencing mechanism as an alternative to setting up a stand-alone insurance company.

The Maltese licence allows companies to write business in any other EU country, making insurance a dynamic growth industry within the wider financial services sector, with most companies selling insurance to clients outside of Malta.

Authorities’ recognition of the growing importance of insurance-linked securities and catastrophe bonds, and the convergence of reinsurance and capital markets, ensures it will continue to make significant strides in the international insurance market.

Insurance companies in Malta provide all types of cover, ranging from personal, health, property, motor, and travel to liability and employee protection, and investors can find a number of insurance management companies handling cover for large corporations and providing reinsurance solutions, ranging from well-known international names to boutique establishments offering operational and managerial support to third parties.

The industry boasts a workforce of over 1,200 people, backed by specialised practitioners within audit, advisory, and legal services providers, and public investment is ongoing to keep Malta at the forefront of the global sector through the development of a vibrant InsurTech cluster where insurers and tech companies can utilise Malta’s cell company framework to test and implement blockchain solutions, smart contracts, artificial intelligence, and machine learning.

The country’s insurance framework provides for three types of insurance companies. These are the standalone insurance or reinsurance (captive) company, cells within Protected Cell Companies, and cells within Incorporated Cell Companies.

Cell Company Legislation

Malta has been at the forefront of the introduction of cell companies in the European Union, and to date remains the only member state providing for the set-up of the innovative structures.

The initial Protected Cell Company (PCC) legislation was further developed over time, as Malta brought to market the Incorporated Cell Company (ICC) structure, further diversifying its product offering.

Cell companies proffer a number of distinct advantages, being highly cost-effective, quick to set up, and extraordinarily flexible.

Effectively, insurance undertakings utilising these structures can have one corporate vehicle with numerous cells, with the assets and liabilities of each cell being segregated from the core company and other cells.

In a PCC, the core assets are exposed to the liabilities of the underlying cells, whereas the core assets of an ICC structure are shielded from such claims.

In both cases, only one licence is required, allowing the core to take on the responsibility of the management of the overall entity, including compliance, with the attendant cost benefits, thus enabling the transfer of insurance risk to institutional investors and providing corporations with the flexibility to develop new risk financing solutions.

They also allow for the sharing of resources between the core and the different cells, such as human resources, making their economies of scale ideal for a number of uses.

These may include start-ups lacking the financial requirements to set up their own insurance business, non-insurance corporations seeking an efficient way to tap into the insurance expertise of the dedicated professionals managing the core, or large insurance groups looking to consolidate various operations while maintaining strict segregation between different parts of their portfolio.

Although both PCCs and ICCs can be cost-effective alternatives to setting up a stand-alone captive insurance company, users will find particular advantages in both.

PCCs are structured as a single legal entity, whereas each cell in an ICC is a separate registered company with complete autonomy. Thus, while a PCC structure enables the pooling of resources to meet capital and solvency legal requirements, each cell in an ICC needs to meet all such requirements by itself.

As financial stakeholders of all kinds become increasingly aware of the advantages offered by cell structures, the sector is poised to continue its rapid expansion – with Malta leading the way.

Reinsurance, CAT Bonds and the ILS Market

In recognition of the growing importance of insurance-linked securities (ILS) and the convergence of reinsurance and capital markets, Malta has also enacted legislation providing for the formation of Reinsurance Special Purpose Vehicles (RSPVs) and Securitisation Cell Companies (SCCs).

RSPVs can be used by an insurance or reinsurance undertaking to cede risk by funding its potential liabilities through the capital markets, while SCCs involve the establishment of a segregated cell for the purpose.

Such set-ups are popular for catastrophe bond issues (CAT) and longevity risk transfer transactions, for example, with the main benefits emerging from their application as cost-effective programme or platform structures if repeat transactions are envisaged.

This feature was first carried in the Malta Invest 2023 edition. Malta Invest is the first-ever comprehensive international investment guide focusing on Malta as a destination. It is produced by Content House Group.