The Malta Insurance Business Act (Chapter 403, Laws of Malta) was brought into effect back in 1998, followed a few years later by the Malta Insurance Intermediaries Act (Chapter 487, Laws of Malta). Then an emerging sector, insurance has evolved along the years, receiving a favourable boost with Malta’s accession to the European Union and the alignment of Maltese Law with EU Regulation. The Maltese regulatory framework ensures a stable environment for the insured as well as the insurance companies, while the latter can also benefit from Malta’s beneficial tax regimes.
Insurance businesses may only be carried on in or from Malta by a person who is duly authorised to do so by the Malta Financial Services Authority (‘MFSA’), unless that person is an authorised European insurance undertaking and or European reinsurance undertaking establishing a branch or providing services in Malta in exercise of a European right. Likewise, any person holding an authorisation issued by the MFSA whose head office is in Malta is entitled to ‘passport’, that authorisation to carry on business of insurance in an EU Member State or EEA State, without the need of obtaining an additional authorisation.
The set-up options available for the operation of an insurance business in Malta are the following:
- Insurance and Reinsurance Principal Companies
These are companies which carry on the business of insurance directly with third parties. They are regulated through a framework comprising the Insurance Business Act, various subsidiary pieces of legislation and the Insurance Rules issued by the MFSA. Article 5 of Insurance Business classifies insurance business into two classes:
- Long term business, which includes a number of classes of insurance such as life annuity, marriage and birth, permanent health, collective insurance (provided for in the Second Schedule of the Act); and
- General business, which includes a number of classes of insurance such as land vehicles, aircraft, ships, fire and natural forces (provided for in the Third Schedule of the Act).
- Insurance Intermediaries
An insurance intermediary is a person or company who carries out activities of introducing, proposing or carrying out work other in preparation for the conclusion of contracts of insurance, or of concluding such contracts, or of assisting in the administration and performance of such contracts. This includes insurance brokers, insurance agents, and insurance managers and tied insurance intermediaries. Intermediaries are regulated mainly under the Insurance Intermediaries Act.
- Captives or “Affiliated Insurance Companies” (“AICs”)
These are companies which provide reinsurance cover exclusively for the risks of the undertaking or undertakings to which it belongs or of an undertaking or undertakings of the group of which it is a member. While they are subject to the same regulatory framework as other insurance companies, captives also regulated additionally through the Insurance Business (Captive Insurance Undertakings and Captive Reinsurance Undertakings) Regulations (Chapter 403.11, Laws of Malta).
- Insurance Management Companies
Insurance management relates to the management of any part of an insurer’s business, or the exercise of managerial functions in such business or the maintenance of accounts or other records of such company.
- Protected Cell Companies (PCCs) & Incorporated Cell Companies (ICCs)
A protected cell company is a corporate structure in which a single legal entity is comprised of a core and several cells that have separate assets and liabilities. An incorporated cell company is similar to a protected cell company, however its core and cells are individually separate legal entities. Such entities can be established in Malta to allow various owners to participate in one insurance company with reduced capital requirements. They are regulated through the Companies Act (Cell Companies Carrying on Business of Insurance) Regulations (Chapter 386.10, Laws of Malta) and the Companies Act (Incorporated Cell Companies Carrying on Business of Insurance) Regulations (Chapter 386.13, Laws of Malta).
Authorisation from the MFSA is issued on the basis of the fulfilment of a number of requirements, namely:
- the submission of a completion of a duly completed application form;
- requested information with regard to persons undertaking proprietary, financial or other interest is disclosed;
- requested information with regard to the identity of the shareholders (direct, indirect, natural or legal), who will have qualifying holdings is disclosed, along with details of the percentage of holding;
- following the necessary due diligence investigations, the MFSA is satisfied that any person involved in the directing or managing of the business, is fit and proper;
- if the intention is to carry on business beyond that of reinsurance, the undertaking’s objects are to be limited to the business of insurance and to any operations arising from such business;
- if the intention is to carry on business restricted to reinsurance, the undertaking’s objects are to be limited to the business of reinsurance and related operations;
- the applicant has enough funds to cover the minimum capital requirement and the solvency capital requirement as detailed in the relevant legislation;
- the applicant will be in a position to comply with a system of governance, thus ensuring sound and prudent management; and
- a scheme of operations is submitted (this consists of an investment strategy, a marketing plan, a group structure and a number of reports including the auditor’s report, financial projections and the questionnaires to be filled in by the individuals in control of the management).
A properly completed application for insurance is to be reviewed and determined within 6 months, and for reinsurance within 3 months. If refused, reasons are to be given in writing. The MFSA has the discretion to accept or refuse an application on the basis of information that it receives but it cannot determine an application according to the economic needs of the market. As mentioned above, if authorization is acquired, an undertaking whose head office is in Malta will be entitled to carry on a business of insurance in any EU or EEA Member State.