Having attracted all the major names in the global insurance industry, Malta has become an international insurance hub on the back of its strong specialisation in captive insurance. Premiums for all lines combined have reached €4.7billion in 2018, and Malta today has the third largest insurance sector in the EU in relation to the size of its economy, after Liechtenstein and Luxembourg. EU passporting rights and competitive operating costs are key attractions to locating to Malta. The country also championed the introduction of innovative cell company structures. Today, Malta is a strong contestant for insurtech dominance in the region, and the island’s unique and tested cell company legislation could prove a key attraction to insurers and tech companies seeking to utilise blockchain solutions, smart contracts, artificial intelligence and machine learning.
A Sophisticated Sector
There are 68 insurance companies based in Malta, including professional reinsurers, captive insurers and protected cell companies. Except for eight domestic insurers, most of these companies sell insurance to clients outside of Malta, mainly in other EU countries. During the past two years, the insurance sector has seen a number of small and medium-sized UK insurers opening offices on the island to continue catering to EU markets post Brexit.
The insurance management community, consisting of 11 insurance managers, has greatly helped the sector to grow and develop. Global corporations such as BMW, Peugeot, Citröen, Nissan, Liberty Global, Volkswagen, Vodafone and RWE have set up insurance companies or captives in Malta, while reinsurance providers Munich Re, Axeria Re and Argo Global, as well as international insurance managers such as AON, Marsh, Willis, JLT, Artex Risk Solutions and USA Risk Group have established operations on the island.
Cell Company Legislation
Malta has been a frontrunner in Protected and Incorporated Cell Companies. Both structures allow firms to write risks through cells within a core company and provide businesses with a cost- effective alternative to setting up a stand-alone insurance company. Companies such as Swarovski, Amplifon, Travelodge, Ocado and TUI have set up insurance cells in Malta. The cell model is also applicable to insurance managers and brokers, and is seen as the ideal structure for start-ups, which otherwise might struggle to comply with today’s strict Capital and Solvency requirements.
Malta has also recognised the growing importance of insurance-linked securities (ILS) and catastrophe bonds, as well as the convergence of reinsurance and capital markets. The island has enacted legislation allowing for the formation of reinsurance special purpose vehicles (RSPVs) and securitisation cell companies (SCCs). These regulations strengthened Malta’s role as an alternative risk transfer domicile as they link the insurance industry with the capital markets.
The Local Dimension
Malta’s domestic insurance companies provide a range of different insurance cover types, from car to boat insurance, and from home to business insurance. Many insurers are also offering innovative and creative policies addressing niche-market demands of financial services companies operating from the island. Companies that are primarily active on the local market include MAPFRE Middlesea Insurance, Atlas Insurance, GasanMamo Insurance, Citadel Insurance, Elmo Insurance and HSBC Life Assurance.
Discussions at EU level about changing the way how third-party liabilities will be funded in the case of insolvent insurers are currently creating unease among Malta’s domestic insurers. It is suggested that the home country picks up the bill for outstanding, third-party liabilities of an insolvent insurer, even if the insurer is writing insurance in another country by exercising EU passporting rights. Although Malta has long maintained an insolvency fund specifically catering for the eventuality of a local insolvency, according to local professionals, this fund was never intended or funded to cater for foreign insolvencies and such a change in legislation could have a significant impact on the industry.
What Lies Ahead
Both international and domestic insurers are seeking to take advantage of technological innovation to become leaner, more agile and more efficient in their service offerings. They point to emerging opportunities from blockchain technologies, artificial intelligence and machine learning. From wearable tech that tracks users’ healthcare needs to automated claims processing, technological advancement is already transforming the sector. New entrants to Malta’s insurance sector will most likely be technology-led companies, attracted by the island’s drive to position itself as a hub for digital finance that is willing to play host to disruptive players from different insurance verticals. Insurers offering or developing innovative solutions could use a cell in a PCC to test and deliver new applications, either by setting up their own PCC structure or by working with an established insurance company renting out cells.
Future growth is also expected to be driven by securitisation, either through the use of RSPVs or SCCs. An SCC is a single legal entity that can establish one or more segregated cells for the purpose of entering into securitisation transactions, including insurance-linked securities transactions such as catastrophe bond issuances, longevity risk transfer transactions, collateralised reinsurance transactions and cell sidecars. The main benefit of SCCs lies in their application as programme or platform structures, for instance if repeat transactions are envisaged, offering lower costs and quicker set-up time for each transaction.
With its innovative legislation and operational advantages, Malta is possibly top of the list for companies that seek to relocate to another jurisdiction and require vehicles for specific needs, such as third-party business, solutions to reinsurance issues or wanting to tap into capital markets. Malta’s re-domiciliation legislation allows for a seamless transfer of structures in and out of the island, without the need to wind up operations. The regulator, the Malta Financial Services Authority, has gained a very solid reputation among its peers. It distinguishes itself as being an approachable regulator, which is willing to listen to the requirements of business promoters.
Insurance companies in Malta can rely on a wide support network, including the Malta Insurance Association (MIA), the Malta Insurance Management Association (MIMA), and the Association of Insurance Brokers (AIB), as well as the Malta Association of Risk Management (MARM). The sector is also backed by a large number of legal firms, as well as accounting and auditing practitioners that range from local practices to the global ‘Big Four’. Furthermore, over the past years, Malta’s lawyers and accountants acquired the specialist insurance knowledge needed for more complex services, like the re- domiciliation of captives from another jurisdiction to Malta.
The outlook for the industry remains favourable. Malta is expected to remain a hotspot for EU and non-EU direct insurers seeking a cost-effective location. It will be a magnet, too, for multinationals looking for reinsurance solutions and service providers with an international client base eager to enter the EU insurance market. As the insurance industry is racing up to digitise its operations to meet evolving customer expectations and to reduce operational costs, Malta also comes into sharp focus as emerging insurtech hub, where tech talent is available, operating costs are lower, access to the European Single Market is guaranteed and the regulator is fully embracing technological innovation.