Establishing Insurance Companies in Malta
Since Malta joined the European Union (EU) in May 2004, it has become an attractive domicile for establishing an insurance company or an affiliated insurance company.
A Maltese insurance undertaking is defined as a company authorised in terms of the Insurance Business Act, whose head office is in Malta, and is entitled to carry on business of insurance in a member/EEA state in exercise of a European Right.
Malta has an established regulatory framework that operates to EU standards and which accommodates insurance companies. Thus, Malta is worth considering as the location for a captive where the ability to issue policies directly into the EU/EEA may provide significant savings on fronting and collateral costs. This offers cost saving advantages to:
• Multinationals with operations in EU locations;
• UK corporations paying significant Employers’ Liability and Motor Third Party premiums;
• Companies using captives to provide insurance to their customer base, e.g. travel, warranty, credit protection, room cancellation insurance.
The benefits of setting up an insurance company in Malta
1. Ability to write policies directly into the EU and European Economic Area – Full EU membership enables Maltese captives to dispense with the need for fronting companies into the EU/European Economic Area (EEA).
2. Effective and responsive regulation – Regulation is to EU standards while being flexible and responsive for which the most successful established captive domiciles are favoured.
3. Established financial centre – Insurance, legal and accounting expertise is all available within Malta’s highly trained professional workforce.
4. Tax efficiency – The standard rate of corporate tax in Malta is 35%, but an insurance company insuring risks outside Malta could benefit from the Malta tax refund system.
5. In addition, Malta has double taxation treaties with 60 countries.
6. Protected cell companies – PCC legislation enables a PCC to be formed in Malta whereby each cell’s assets and liabilities are legally separated.
7. Migration from other jurisdictions – The Continuation of Insurance Companies Regulations 2003 enables captives to be easily relocated from other jurisdictions which have similar legislation.
The benefits of using an Affiliated Insurance Company in Malta
1. Solution to market limitations: Captives can provide cover for risks that is not available or affordable in the traditional insurance market.
2. Improved and flexible risk management: Policies are custom-designed and specially tailored to the needs of the insured.
3. Reduced risk financing expenses: Lower transaction costs and administration expenses compared to traditional insurance programmes. Companies can also retain underwriting profit and investment income earned on loss reserves.
4. Better cash flow management: Companies have control over the payment or premiums and the timing and the payment of claims. They can direct the flow of funds to and from the captive according to their own investment strategy. This leads to a more efficient use of capital.
5. Direct access to reinsurers: Companies can buy excess loss protection on a wholesale basis rather than on a retail basis (traditional insurance policy). They benefit from better conditions and the opportunity of negotiating price and contract terms directly.
6. Coordinated risk management: Multinational companies can use a captive to manage risks at group level and centralize their insurance programmes. This translates into improved risk awareness and cost-transparency.
7. Protection from price fluctuations: Pricing swings occur periodically in the traditional marketplace. Companies using a captive can negotiate a premium established on the basis of their own loss experience. Other market factors and loss experiences of other insured parties have no effect.
8. Potential tax advantages for Captives: Malta tax refund system that could be beneficial to foreign investors.
Furthermore, the growth of the insurance sector, has attracted a significant increase in the number of insurance managers in Malta. Most insurance managers offer a full range of products and services which encompass every aspect of alternative risk management, from initial consulting, to program structuring and formation, to ongoing administration and regulatory compliance for insurance companies.