Ian-Edward Stafrace of Atlas Insurance PCC, shares how Malta is quickly becoming a gateway for captives with risks in Europe, as well as a go-to destination for international companies seeking more efficient EU risk coverage
The CICA International Conference in Palm Springs, California, provided an excellent platform for discussing the growth and potential of Malta as a European hub for captive insurance and protected cell companies (PCCs).
As a member of FinanceMalta, which sponsored and exhibited at the event, Atlas Insurance PCC (Atlas) had the opportunity to share insights about Malta’s unique advantages for captives seeking efficient EU risk coverage.
The Malta proposition
Malta’s unique combination of strategic location, EU membership, cell legislation and an English-speaking business environment positions it as an attractive option for captive insurance experts searching for efficient EU risk coverage.
Insurance companies, captives and protected cells domiciled in Malta contributed to the country’s 40 per cent rise in gross written premium in 2021 — evidence that Malta’s appeal continues to grow.
The number of cells in Malta also increased by 5 per cent to 77 in 2022, with a further 58 non-domestic insurance companies and captives.
Regulation and market adaptation
Malta’s regulatory framework, tailored to better understand and enable captives, while adhering to EU standards, has been instrumental in the sector’s growth.
As the only PCC domicile offering direct access to European Economic Area (EEA) countries, Malta reduces fronting costs and requirements, making it a cost-effective option for captives.
Following Brexit, some PCCs, such as Atlas, applied to establish a UK branch and provide continued access to the UK market.
Cost and efficiency
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, notably where local compliance and outsourcing needs in the country of risk are limited.
PCCs are often more cost-effective than standalone carriers or captives, particularly within the EU, where the costs of robust regulation are significantly reduced when shared within a PCC structure. Furthermore, EU Solvency II recognises cells as ring-fenced funds, meaning there are no minimum capital requirements for individual protected cells having recourse to the core, as these apply at an overall company level.
Substance and legal protection
Stakeholders are raising the bar for captive substance. With their shared economies of scale, PCCs can help address substance requirements as cells form part of a broader single entity that provides shared board, governance, key functions and resources.
Maltese PCCs provide confidence as an ‘onshore’ in the EU, while avoiding the complexities, costs and time associated with a standalone company. Cell owners retain complete legal protection of their assets from liabilities of the core or other cells.
Innovative solutions and flexibility
PCCs in Malta, such as Atlas, offer unique solutions for captives and insurtechs. Atlas, with its 100-year history, 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 PCC.
The conversion, back in 2006, enabled Atlas to quickly gain experience hosting cells, writing direct third-party risks and consumer insurance. Its active local business helps address domicile arbitrage questions and enables it to front and incubate risks quickly which provides additional valuable time for setting up and assessing 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 2022 that there would not be sufficient time to licence 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 during the holiday season whilst allowing more time for the setup of a cell to be considered within the same PCC.
With the pace of change continuously increasing, organisations appreciate the ability to adopt an agile, iterative approach to set up their insurance vehicles with real options to scale and evolve.
Atlas is also independent of international brokers open to managing cells directly or outsourcing the cell’s management to the cell owner’s preferred global captive manager.
Resilient economy and supportive infrastructure
Malta boasts a well-diversified and resilient economy, with the euro as its official currency.
Ratings company Fitch affirmed the country’s A+ long-term rating and a stable outlook in November 2022.
The European Commission projected Malta will have the second-highest economic growth rate in the EU in 2023 and the highest in 2024.
Malta’s low unemployment rate, well-developed IT infrastructure, highly qualified and experienced local workforce, coupled with its excellent flight connections, add to its appeal for international businesses.
The Malta Financial Services Authority (MFSA) is a well-established, respected, yet approachable regulator. MFSA is a member of the European System of Financial Supervision, including the European Banking Authority and the European Insurance Authority.
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 OECD-compliant financial and tax regulations, Malta has a reputation as an established finance centre. This understanding is facilitated further by its more than 70 double taxation treaties.
The CICA International Conference showcased Malta’s growing prominence as a European hub for captive insurance and PCCs. FinanceMalta members shared experiences with risk managers and captive insurance experts and discussed the opportunities Malta offers for captives with risks in Europe.
With its favourable regulations, EU membership and experienced PCCs and insurance management companies, Malta offers cost-effective, flexible and agile solutions for businesses seeking to address emerging captive insurance challenges.
