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PCC

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Malta: The EU Domicile Allowing a Protected Cell Company Structure

1024 683 Jatco Insurance

Corporate

Malta is one of the very few domiciles which allow a Protected Cell Company (PCC) structure in the insurance sector. A protected cell in Malta allows a cell owner to insure directly own risk in the EEA and sell insurance to third parties in the EEA. The PCC structure can be applied to both insurance companies and insurance broker companies.

Operating model of a Protected Cell Company

A PCC operates in two parts; the company core and the cells. The core part comprises all non-cellular assets including the company’s core share capital, investments and liabilities. The core share capital may be the minimum required by law or larger depending on its activities. The core does not need to take any of the cell’s risk itself but must be solvent at all times, based on the business written by the whole company, including the cells. Once established, a PCC can form cells for third parties.

A PCC can create within its structure one or more “cells” for the purpose of segregating and protecting the cellular assets of the company from those of other cells or the assets of the core itself. The cells are independent from each other and from a legislative point of view are protected from each other. A cell is formed by the creation and issue of a class of cell shares within the cell company in respect of each individual cell. The core and its cells are to be treated as one legal entity, as the cells do not have separate legal personality. The cell is only treated as a separate entity for tax purposes. Cells contract through the PCC which acts on behalf of the cell.

The cell company and its cells may conduct business of insurance and reinsurance as principals, captives, in respect of general and long-term business and also as insurance brokers.

The Companies Act (Cell Companies Carrying on Business of Insurance) Regulations, 2004 allow a licensed Affiliated Insurance Company to be registered as or convert to a protected cell company (PCC). Transfer of cellular assets is possible subject to approval of the MFSA. However, a cell company does not require cell transfer approval in order to invest, change investment of cellular assets or make payments or transfers from cellular assets in the ordinary course of the company’s business.

Cell Management

The PCC has a single board of directors which takes responsibility for the transactions within the core and cells, and for the statutory and regulatory compliance and corporate governance requirements of the company as a whole. Although the board may delegate the management and administration of a cell, or parts thereof, to a cell committee which may include representatives of the cell owner, it is ultimately the board of directors of the PCC which is responsible for all cells and cellular assets.

The assets of any one particular cell are only available to the shareholders and creditors of that cell; creditors of another cell have no recourse against them. However, in the event that the cellular assets of one cell have been exhausted, the company’s core assets may be secondarily liable to satisfy any cellular liability of one of its cells.

The PCC Structure

pcc

The Benefits of the PCC

The PCC provides a number of advantages when compared to a stand-alone company. One of the key elements is that an insurance broker or insurance company can conduct business through the ownership of a cell using the core’s capital. Lower capital requirement means that each cell is only obliged to hold capital needed to protect its risks, while the own funds requirements apply to the PCC as a whole. Cells also benefit from lower running costs compared to stand-alone companies since there is no need to set up a separate company. Owners benefit from simpler administration and shared overhead costs.

Cells face lower risk since the risks within each cell will be legally segregated from other cells. Furthermore, PCCs and their cells in Malta can directly access EU markets through a single-passport route, thus avoiding fronting arrangements. Cells can also benefit from Malta’s favorable tax imputation system through which foreign shareholders can benefit from a tax refund after that year end taxation has been paid by the cell.

The authorisation process for cells is usually faster and less demanding since the management of the PCC is already known to the regulator. Entities that have not had a great deal of exposure to the business of insurance can benefit from the experience of the PCC in regulatory issues, as well as the day-to-day running of an insurance company or insurance brokerage company.

Financial Services Malta

Choosing Malta as a Financial Services Domicile

1024 683 Jatco Insurance

financial services

Malta, as a small island in the heart of the Mediterranean, has become one of Europe’s most attractive domiciles for companies established in the financial services industry.

Malta became a Member State of the European Union in 2004 and a member of the European Monetary Union in 2008 when it adopted the Euro as its currency. The Maltese economy is based on tourism, manufacturing and financial services, which is becoming one of the main pillars of the economy. Malta has been a member of Commonwealth since 1964 and is also a member of the Council of Europe, Organization for Security and Co-operation in Europe, United Nations and World Trade Organization.

The Malta Financial Services Authority is the sole financial services regulator, responsible for the supervision and enforcement of regulations.

The Maltese regulatory framework is a secure and stable framework for prudential and conduct supervision, consumer protection, market surveillance and prevention of money laundering. The financial services sector in Malta is regulated by a regime which incorporates all EU financial services legislation and consequently operators benefit from the single market passporting rights under freedom of services and freedom of establishment.

valletta

As an EU Member State, Malta transposes and implements all the Directives of the European Union, European regulations are directly applicable in Malta, whereas Guidelines or Technical Standards issued by the European Supervisory Authorities are transposed within the national legislation. In Malta, English is the language of financial services business and hence all financial services legislation is in English.

Malta is very pro-active in the EU financial services sector and has always maintained timely implementation of internal market rules for financial services.

The key to Malta’s success in the insurance sector lies in its EU membership, which allows licensed companies in Malta to write business directly into any of the EU and EEA member states. However, Malta’s success in the financial services sector is also widespread in the gaming, trusts, investment services and pension transfers industries.

Malta’s sophisticated finance infrastructure enables a variety of insurance structures including Affiliated Insurance Companies (Captives), Protected Cell Companies and Incorporated Cell Companies. Malta has a solid legal foundation, an approachable regulator and competitive regulatory fees.

Malta can be considered an ideal outsourcing destination, mainly as a result of an efficient infrastructure and a multi-lingual workforce; a high educational system and a wealth of insurance, legal and accounting professionals. Moreover, it offers a varied advisory network, including the global big four accountancy firms. Malta is a hub, in the middle of the Mediterranean, with easy flight connections to the EU mainland and Eastern European countries with major airlines, making it easier for foreign investors to choose Malta.

Malta also allows the migration from other jurisdictions. The Continuation of Insurance Companies Regulations 2003 enables captives to be easily relocated from other jurisdictions which have similar legislation.

When Malta joined the EU in May 2004, it had already taken steps to implement an effective and responsive regulatory framework that operated to EU standards and could accommodate insurance companies. 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 and also Companies using captives to provide insurance to their customer base, for instance travel, warranty, credit protection, room cancellation insurance.

Malta is also one of the very few domiciles which allow a Protected Cell Company (PCC) structure in the insurance sector. A protected cell in Malta allows a cell owner to insure directly own risk in the EEA and sell insurance to third parties in the EEA. The PCC structure can be applied to both insurance companies and insurance broker companies.

The latest form of insurance legislation which has been issued by the MFSA and which could be highly interesting to companies considering setting up an insurance vehicle in Malta, would be the new legislation regarding Reinsurance Special Purpose Vehicles and Insurance Linked Securities, which include the ways of securing capital for insurance entities.

These benefits characterise Malta as an attractive domicile for insurance companies and brokers.