Malta provides the opportunity for companies to locate their captive insurance business and insurance management activities within an OECD-recognised tax environment that combines tax efficiency with controlled foreign company tax legislation requirements. Under Maltese legislation captive insurance companies are referred to as “Affiliated Insurance Companies” (AICs).
Affiliated Insurance is defined as the business of an insurance company which is registered in Malta and whose business of insurance is restricted to risks originating with shareholders or connected undertakings or entities.
AICs may insure risks originating with a wide range of persons including:
- parent companies;
- associated or group companies;
- undertakings having common membership up to the ultimate beneficial owner level, with the AIC, amounting to at least 51%.
- individuals or other entities having a majority ownership or controlling interest in the AIC; and
- members of trade, industry or profession associations or organisations insuring risks related to the particular trade, industry or profession.
AICs are subject to a specific licensing framework and are regulated by a set of tailor made rules, with the Insurance Business Act, 1998 and the regulations and directives issued thereunder being subject to certain modifications and exemptions in the case of AICs.
Minimum Own Funds
AICs are required to maintain own funds, which must be unencumbered at all times.
The own funds should amount to:
- General business (i) 3,000,000 Euro; or (ii) 2,000,000 Euro (where the business of affiliated Insurance is restricted to classes 1 to 9, 16 to 18)
- Long term business 3,000,000 Euro
- Business of reinsurance 500,000 Euro (where the business of affiliated insurance is restricted to business of reinsurance)
The Own Funds may comprise:
- the paid up share capital of the AIC which must not be less than 50% of the value of the own funds requirement;
- reserves (not technical provisions or equalisation reserves);
- retained earnings;
- preferential share capital, subordinated loan capital and securities (subject to restrictions).
Solvency Margin
AICs are to maintain at all times a minimum margin of solvency. For general business this is the greater of the amount calculated on a premium basis and the amount calculated on the claims basis.
With regards to long term business, a different formula is adopted for the calculation of the minimum solvency margins for each class of long term business.
The minimum solvency requirement must be covered by net admissible assets. The valuation of assets and the determination of liabilities are prescribed by the relative regulations. There are both qualitative and quantitative restrictions on the value of assets.
The Malta Financial Services Authority also employs a risk based assessment of the amount of cover for the minimum solvency margin requirement.
Technical Provisions
AICs are also required to maintain adequate technical provisions including mathematical provisions. Technical provisions must be supported by equivalent and matching assets. The spread of assets requirements for solvency purposes apply to both assets covering technical provisions and shareholders’ assets.
Guarantee Fund
It is also necessary for AICs to maintain a guarantee fund of an amount of assets which shall not be less than the Minimum Guarantee Fund calculated in accordance with the relative regulations.
Protected Cell Companies
An AIC may be registered as or convert to a Protected Cell Company (PCC).
Re-Domiciliation
A body corporate authorised in another jurisdiction to carry on any insurance business (including AICs) or to provide insurance management or broking services, may be authorised by the Malta Financial Services Authority to continue as a company registered or constituted in Malta and operate under Maltese insurance legislation, subject to certain criteria being satisfied.
Similarly, the Malta Financial Services Authority is empowered to authorise a Maltese registered and licensed company to be continued as a body corporate registered, incorporated or constituted under the laws of a country outside Malta, subject to certain criteria being satisfied.
Taxation
There are a number of fiscal incentives applicable to AICs. More information may be obtained under the heading Taxation.
Furthermore, duty is not chargeable under the Duty on Documents and Transfers Act, 1993 in respect of any contract of insurance relating to a risk situated outside Malta.
Advance revenue rulings may be obtained as to the tax treatment of transactions involving financial instruments and international business. These rulings apply for 5 years and may be renewed for a further 5 years. Such rulings also survive any change in the relevant legislation for a maximum period of 2 years.
