Captive Insurance

OVERVIEW

Malta’s accession to the EU, the country’s flexible legislative framework combined with an efficient tax

environment and the renowned excellence of the island’s financial services regulator, the Malta Financial

Services Authority (MFSA), contribute to Malta being a recognised and sophisticated jurisdiction for

captive insurance companies.

A captive insurance company is formed by industrial, financial or commercial groups or governmental

organisations, with the purpose of underwriting all, or a selection of, the risks of that institution and its

affiliates.

Captives, referred to as ‘affiliated insurance companies’ under Maltese insurance legislation, are defined

as ‘insurance companies whose business of insurance is restricted to risks originating with shareholders

or connected undertakings or entities’.

Maltese captive companies may insure the risks originating from:

• parent companies;

• associated or group undertakings;

• individuals or other entities having a majority ownership ,or controlling interest in the captive; and

• members of trade, industry or professional associations insuring risks related to the particular

trade, industry or profession.

© 2015 Nexia International Limited. All rights reserved.

Nexia International is a leading worldwide network of independent accounting and consulting firms, providing a comprehensive portfolio of audit, accountancy, tax and advisory services. Nexia International is the trading name of Nexia International Limited, a company registered in the Isle of Man. Company registration number: 53513C. Registered office: 1st floor, Sixty Circular Road, Douglas,

Isle of Man, IM1 1SA. The trademarks NEXIA INTERNATIONAL, NEXIA and the NEXIA logo are owned by Nexia International Limited. Nexia International and its member firms are not part of a worldwide partnership. Member firms of Nexia International are independently owned and operated. Nexia International does not accept any responsibility for the commission of any act, or omission to act

by, or the liabilities of, any of its members.

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WHY LOCATE TO MALTA?

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/EEA.

Effective but responsive regulation - the regulation follows EU standards and remains flexible and

responsive being the most successful established captive domicile.

Established financial centre - insurance, legal and accounting expertise is all available within Malta’s highly

trained professional workforce.

Tax efficiency - similarly to all other Maltese companies, captive insurance companies are taxable at the

normal corporate rate of 35%. Upon a distribution of dividends by captive insurance to its shareholders, the

said shareholders would be entitled to claim a refund from the Malta Tax Authority for the tax paid by the

captive insurance on the distributed profits. In addition, Malta has concluded double taxation tax treaties

with over 70 countries.

Protected cell companies - PCC legislation enables a PCC to be formed in Malta whereby each cell’s

assets and liabilities are legally separated.

Migration from other jurisdictions - the Continuation of Insurance Companies Regulations 2003 enables

captives to be easily relocated from other jurisdictions which have similar legislation.

International Standards - application of IFRS enables companies to prepare their financial statements

in a manner that easily integrates with those of their parents.

Malta will be 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 will be worth looking at

for:

• multinationals with operations in EU locations;

• UK corporations paying significant employers’ liability and motor third party premiums; and

• companies using captives to provide insurance to their customer base, e.g. travel, credit protection,etc.

BENEFITS OF USING A CAPTIVE

• solutions to market limitations by providing cover for risks that is not available in the traditional

insurance market;

• improved and flexible risk management through custom-designed policies;

• reduced risk in financing expenses;

• better cash flow management over the payment or premiums ,and the timing and payment of claims;

• direct access to reinsurers and the opportunity of negotiating price and contract terms directly;

• coordinated risk management at group level; and

• protection from price fluctuations.

INSURANCE MANAGERS

The first two international insurance managers to establish a presence on the islands were AON and Marsh,

that collectively manage more than half the captives registered across all domiciles. From 2005, when the

first of Malta’s captive insurers had been established, the number of insurance companies domiciled in Malta

grew fast. However the majority of these have not been captive - or affiliated - insurers at all. After the first

five were established, the next 15 were all direct writers, selling insurance beyond the confines on their

parent group of companies.

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In 2014, there were 33 insurance companies being managed by 27 insurance managers. The top three

international managers - AON , Marsh and Willis - all participate in the market, along with HSBC. But a

number of mid-tier operators are also attracting their fair share of business, in partnership with Maltese

insurers and brokers. And the local operations - including International Insurance Management Services Ltd,

FirstUnited, Ark and Island Insurance are also attracting their fair share of business.

MINIMUM OWN FUNDS

Affiliated Insurance Companies are required to maintain own funds, which must remain unencumbered

at all times. Own funds consist mainly of share capital, reserves, retained profits and subordinated loans.

The own funds should amount to:

Insurance Captive:

• general business - minimum € 2.5m / € 3.7m, depending on the class of business; or

• long-term business - minimum € 3.7m.

Reinsurance Captive:

• business of reinsurance - minimum € 1.2m.

The minimum own funds requirement for combined business of insurance and reinsurance varies

between € 2.5m and € 7.4m, depending on the class of business.

The own funds consist of the paid up share capital which must not be less than 50% of the value of

the own funds requirement; and a mixture of issued and unpaid share capital, preferential share capital,

subordinated loans, retained profits and reserves. However, the MFSA usually requests that 100% of the

initial own funds requirements consists of paid up capital.

LICENSIGN REQUIREMENTS AND FEES

Affiliated Insurance Companies carrying business in, or from, Malta must be licensed by the MFSA under

the Insurance Business Act. The license authorisation is processed within a period of 3 months.

The fees applicable to affiliated insurance companies are:

• submission of application € 1,800;

• acceptance of application € 2,500; and

• continuance of authorisation € 5,000.

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www.nexiabt.com© 2015 Nexia International Limited. All rights reserved.

Nexia International is a leading worldwide network of independent accounting and consulting firms, providing a comprehensive portfolio of audit, accountancy, tax and advisory services. Nexia International is the trading name of Nexia International Limited, a company registered in the Isle of Man. Company registration number: 53513C. Registered office: 1st floor, Sixty Circular Road, Douglas,

Isle of Man, IM1 1SA. The trademarks NEXIA INTERNATIONAL, NEXIA and the NEXIA logo are owned by Nexia International Limited. Nexia International and its member firms are not part of a worldwide partnership. Member firms of Nexia International are independently owned and operated. Nexia International does not accept any responsibility for the commission of any act, or omission to

act by, or the liabilities of, any of its members.

WHY NEXIA BT?

Nexia BT provides a wide range of services ranging from basic company incorporation and compliance to

specialised advisory services, audit, tax and accounting, for particular sectors such as financial services,

international trade, remote gaming, investment funds, shipping and aviation. We offer international support

including back office operations and advisory services, in a responsive, proficient and professional manner.

Through a collaboration with a major insurance manager, we can provide the full range of consultancy,

project management and ongoing management services for your Malta insurance vehicle:

• feasibility study

• incorporation and licensing

• underwriting

• reinsurance

• accounting

• corporate Secretary

• cash management

• compliance

We offer IT system & compliance audits, covering areas such as: CONTACTSFor further information please contact:

karl.cini@nexiabt.com

www.nexiabt.com

T: +356 21637778 F: +356 21634383

This marketing material has been issued by Nexia BT, having registered address at The Penthouse, Suite 2, Capital Business Centre, Entrance C, Triq taz-Zwejt, San Gwann SGN 3000, Malta. Any information within this brochure should be taken as a general guide only and should not be taken as advice. Its application to specific situations will depend on the particular circumstances involved. Readers are recommended to seek professional advice and should not rely on information provided in this brochure as a substitute for such advice. While all reasonable attempts have been made to ensure that the information contained herein is accurate, Nexia BT accepts no responsibility for any errors or omissions it may contain, whether caused by negligence or otherwise, or for any losses, however caused, sustained by any person that relies upon it. BTI Management Limited is registered as a Company Service Provider by the Malta Financial Services Authority. BT International Limited is authorised by the Malta Financial Services Authority to provide fiduciary services which do not include acting as a Trustee.

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