Navigating Brexit Breakfast Briefing

Insurance Cells In Malta

Brexit ConsiderationsNeil Coulson

26 May 2017

PKF Littlejohn LLP

Brexit considerations

• Brexit preparation

• Location considerations

• EU regulatory requirements – insurance intermediary

• EU regulatory requirements – insurance carrier

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Brexit preparationImpact assessment (both directions)

• Income – restrictions on broking in EU from UK

• Supplies – restrictions on intermediaries/underwriting in EU from UK

• People – restrictions on staff residence between UK & EU

Prepare a plan

• Allow for any change in trading volumes

• Identify any need for relocation of some trading

Implement plan

• Regulatory approval & corporate/tax structuring

• Local resources – staff, accommodation, advisors

• Systems requirements

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Location considerations

Customers - do you need to be somewhere specific for them, need for rated paper?

• Regulation – speed & access, fees, flexible structures, minimum local requirements

• Taxation – corporate & indirect tax levels, employment tax levels, complexity, treaties

• Insurance infrastructure – managers, intermediaries, carriers, professional advisers

• Costs – regulation, administration, staff, premises, systems, travel

• Staff – availability, flexibility of employment, cost, taxation

• Commercial & social infrastructure – attractiveness of business & social scene

• Property – availability & cost for offices & housing

• Language – acceptability of English including for regulation, difficulty of local language

• Travel – distance, flexibility, cost

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EU requirements - insurance intermediary

2002 Insurance Mediation Directive – 2016 Insurance Distribution Directive

Permitted activity of being allowed to place or assist in the administration of insurance risks

underwritten in the EU (some limited exemptions)

• Become regulated in EU home state and access local customers and insurers

• Permission from home state regulator to passport to other countries within EU

Few detailed specific EU requirements – (NB: variable local requirements)

• Capital requirement: €18,750 minimum or 4% of premiums (or other safeguards)

• Professional standards – PI insurance €1.25m or €1.85m

• Information to customers including 10% voting interests with insurers

• Much more detail on dealing with customers in future under IDD

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EU requirements - insurance carrier

Solvency II Directive

Solvency II does not apply if meet all of the following:

• gross premium below €5m

• gross technical provisions below €25m

• does not include liability or credit & suretyship risks

• reinsurance operations represent less than 10% of above limits

No exclusions for captives or run-offs in excess of these limits

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EU requirements - insurance carrier

Pillar 1 – Capital requirements

• Minimum capital requirement €2.5m or €3.7m if liability risks

• Detailed rules regarding valuation of assets & liabilities & acceptable capital

• Risk based capital requirements to cover 99.5% probability outcome

– Based upon standard formula or approved model

Pillar 2 – Supervisory review

• Detailed rules regarding risk management & governance – ORSA

• Regulatory supervision

Pillar 3 – Disclosure

• Detailed public and regulatory reporting requirements – quarterly & annual

Malta’s Financial Services Industry

Key Opportunities

Kenneth Farrugia

Chairman – FinanceMalta

Navigating Brexit

Insurance Cells in Malta

London, UK

26th May 2017

10

Agenda

1. Malta’s financial services industry

- Key financial sectors and opportunities

2. Malta’s critical success factors

111988 International Corporate & Trusts

Legislation

1994Overhaul of Malta’s financial, legal and regulatory framework. “Onshore Malta” response to Globalization & EU membership

2004EU Membership Malta’s legal and regulatory framework meet EU standards. Euro adoption in 2008

2008

A strong and diverse financial ecosystem. GDP Contribution increases from 3% to 12% -workforce of 10,000.

2017

VISIONMalta’s Financial Centre

Key milestones

Financial services industry

- a strong economic enabler

Adoption of the Euro

Malta’s financial services industryStrength through innovation & financial diversity

Key Financial Sectors

Asset Management

Insurance

Financial Institutions

Pensions

Private Wealth

Trusts

&

Foundations

Key financial sectors

An ecosystem of financial sector diversity

13

Crowdfunding

Fintech

Blockchain

Securitisation

Malta’s financial services industry

Defined service clusters

SECTOR

CLUSTERS

44 Retirement

Schemes and Pension

Managers 26Fund

Administrators

32Foundation

Administrators

137 Trustees70

Credit and Financial

Institutions

58Insurance

Operations

158 Investment

ServicesOperations

Malta’s banking sectorKey business tractions

• Banking Act allows for the setting up of credit institutions that may passport their services cross border in Europe. Legislation and Regulatory Framework allows for on-line banks

• Financial Institutions Act allows for the setting up of operations which may provide various services to include:

- Lending, financial leasing and venture or risk capital

- E-Money transmission services, issuing and administering means of payment guarantees and commitments

- Trading in money market instruments, foreign exchange, financial futures and options, interest rate and transferable instruments

- Underwriting and participating in share issues

- Money broking

• Increasing numbers of Expats and HNWI moving to Malta

16

A jurisdiction for banking and

financial institutions

16

2527 26 27 28 27

15

23

29

33

4043

40

50

55

60

6870

0

10

20

30

40

50

60

70

80

Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16

Credit Institutions Financial Institutions Total

Funds & asset management sector

Sustained growth over 2016

Funds

Investment Services Providers

17

+114 New Fund Licences

+ 32 Q1 2017

+ 11 New Investment Services Licences

+ 5 Q1 2017

Developed clusters

158 Investment Services Licences

Over 652 Funds serviced in and from Malta

€ 109 billion in assets serviced in and from Malta

27 Fund Administrators

8 Custodians

Malta’s asset management sectorInvestment opportunities

Presence of a comprehensive legal and regulatory framework

which presents a number of opportunities:

• Establish Asset Servicing Operations in Malta

- Asset Management/Asset Advisory Organisations

- Custody and Fund Administration Operations

- Redomiciliation Legislation leading to EU Passporting Rights

• Ability to set-up various Fund structures

- Private Equity/Venture Capital Funds – tax treaty network

- Alternative Investment Funds

- Real Estate and Infrastructure Funds

- Loan Funds

• Flexible Investment Fund Framework

- UCITS

- Professional Investor Funds (PIFs)

- Alternative Investment Funds (AIFs)

- Innovative Notified AIF (NAIFs)

Malta’s private wealth sectorStructuring opportunities

TRUSTS: Structured under the Trust and Trustees Act

Cater for asset protection, estate or tax planning, as a commercial

tool or for testamentary usage.

Trust setups may include: Discretionary Trusts; Maintenance Trusts;

Charitable Trusts; Fixed Interest Trusts and Unit Trusts

FOUNDATIONS: Structured under the Foundations Act - setup for the benefit of a named person or class of persons –

such foundations being designated ‘private foundations’; or

- for the fulfilment of a specified purpose – such foundations being designated ‘purpose foundations’.

OTHERS: Pleasure Boat and Aircraft Registration Schemes, Private Funds, Incorporated Cell Companies and International Pensions Schemes (QROPS) amongst others

Malta’s insurance sectorGrowth driven by international business

20

€ 2.83 bn

Dec-14

€ 2.58 bn

Dec-13

€ 2.31 billion

Dec-12

€ 3.78 bn

Dec-15

Gross Premiums Written

CY 2004: 8 Insurance Operators

CY 2016: 58 Insurance Operators

€ 3.80 bn

Dec-16

Malta’s insurance sectorInvestment opportunities

The legislative and regulatory framework for the insurance sector has

attracted to Malta various insurance business typologies including:

• Insurance (and reinsurance) Principal Companies

• Insurance Intermediaries

• Insurance Management Companies

• Captives

• Incorporated Cell Companies (ICCs)

• Reinsurance SPVs

• Protected Cell Companies (PCCs)

Redomiciliation - Continuation of Companies Act allows migration of

foreign insurance companies to Malta

Features of a Protected Cell Company

22

• Malta is the only EU Member state to offer PCC

Legislation

• Enables different owners and different interests

to participate in one insurance company through

the setting up of own cells

• Provides legal segregation of assets and

liabilities ringfencing cells from each other

• The PCC is single legal entity and the cells do

not have a separate legal personality

• The PCC will fall under related legislation in

Malta pertaining to insurance and company law

SCC Core

Cell 1 Cell 2

Malta’s value proposition

Meticulous, accessible & pro-business single regulator

Comprehensive legal and regulatory framework

Highly educated workforce

Robust operational infrastructure

Cost competitive financial centre

Political and economic stability

24

An unparalleled lifestyle

History - over 7,000 years of history concentrated in just over 316 square kilometres

Health System - a World Health Organization (WHO) survey ranked Malta 5th in the world for its standard of medical care

Flight Connections - Malta well connected to international destinations

25

Malta well connected internationally

International attestations

Global Competitiveness Index 2016 – 2017

• Internet Bandwidth per User3rd

• Soundness of the Banks16th

• Strength of the auditing/reporting standards 20th

• Quality of the Education System19th

• Quality of Maths and Science Education22nd

• Regulation of Securities Exchanges22nd

Rank out of 138 Countries

Thank you

Further information

Corporate Website: www.financemalta.org

Kenneth Farrugia – Chairmanemail: chairman@financemalta.org

Ivan Grech – Head of Business Development

email: ivan.grech@financemalta.org

Follow us on Social Media

Twitter - @FinanceMaltaLinkedIn - FinanceMaltaFacebook - FinanceMaltaYou Tube - FinanceMaltaYT

Your Gateway to a World of InsuranceFuture proofing your business

Michael Whitfield – 26th May 2017

A little about Building Block

• One of the new breed of insurance start- up businesses

• Established in 2013 and actively trading since 2016

• Hybrid business model strategy – writing from core capacity and establishing PCCs

• Based in Malta and regulated by the MFSA

• Working with partners across the EEA to distribute insurance products via EEA passporting

• A single legal entity structure, comprising a ‘core’ and a number of Cells

• The Cells and the core are legally separate in terms of their assets and liabilities

• Cells can have separate beneficial ownership operating under the umbrella of the PCC in respect of regulatory, governance and fiscal matters

• Capital requirement can reflect the capital needs of the individual Cell rather than the potentially much higher minimum capital requirement under Solvency II for an insurer

• The PCC overall must satisfy Solvency II capital requirements

The PCC Structure

• You want to guarantee that you will be able to commence or continue marketing an insurance scheme in EEA jurisdictions post-Brexit

• You are looking for a more efficient capital model than could be achieved by establishing your own insurer entity under Solvency II

• Solvency II Minimum Capital Requirement (MCR) for an insurance entity writing business with any liability exposure is €3.7 million

• Under a Cell arrangement providing the PCC fulfils the Solvency II MCR the Cell capital requirement need only reflect its portion of the whole

• You need practical and governance support in running your insurance business across single or multiple (non-UK) EEA jurisdictions

Why might you consider setting up a Cell

• Help with feasibility study

• Flexible capital model – Quasi JV approach possible. First step is identifying the capital requirement

• Practical help to formulate business plan and to go through the legal and regulatory application process

• Support to identify and obtain the relevant business class permissions

• Ongoing compliance and governance support in conjunction with the Insurance Managers

Setting up a Cell

How else can we help?

Working with PKF and other partners to provide a comprehensive pre and post authorisation support package including:

• Product design, manufacture and development support (for example rating, wording, collateral on a multi-lingual basis)

• Relationship management, claims management and audit support

• Advice and assistance on marketing and distribution

• Platform provision and support – a range of options

Timescales

• Time to conduct feasibility study and conduct business case depends on proposition

• MFSA SLA (upon receipt of fully complete plan and application ) 3 months

Contact me

michael.whitfield@buildingblockpcc.com

07860 255260

PKF Littlejohn LLP

Any questions?

Neil Coulson, PKF Littlejohn

Kenneth Farrugia, FinanceMalta

Michael Whitfield, Building Block PCC

Danielle Hermansen, PKF Malta

Navigating Brexit Breakfast Briefing

Insurance Cells In Malta

PKF Littlejohn LLP

This seminar and the accompanying handouts cover topics only in general terms and are intended to give a wide audience an outline understanding

of issues relating to accounting applicable to entities in general, and therefore cannot be relied upon to cover specific situations; applications of the

principles would depend on the particular circumstances involved. Furthermore, responses given in the seminar to questions are only based on an

outline understanding of the facts and circumstances of the cases and therefore do not form an appropriate substitute for considered specific advice

tailored to your circumstances. We recommend that you obtain professional advice before acting, or refraining from acting, on any of the contents.

We would be pleased to advise you on the application of the principles demonstrated at the seminar, or on any other matters, to your specific

circumstances, but in the absence of such specific advice, we cannot be responsible or held liable.

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