The Maltese Insurance Sector - Risk Consulting Advisory Services 2011
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Risk Consulting Advisory Services The Maltese Insurance Sector 2011
Why Malta ?
Some key data
Malta became the smallest member Economic sectors are tourism,
state of the EU in May 2004 and joined electronics, pharmaceuticals, ICT and
the euro zone in January 2008 Financial Services
GDP per capita is €15,337 (78% of EU). Malta‟s main trading partners are the
GDP growth in 2010 averaged 3.7% United Kingdom, Germany, Italy and
France
Malta has one of the best e-government
services within the EU and there is The Maltese have a very high regard for
strong government drive to promote the education and some 60% of students
financial services sector remain in education to tertiary level
English, a joint official language with With respect to higher education and
Maltese, is universally spoken and training, the latest global report index Malta is increasingly being viewed as
written and is the principle language of report -2011-2012 , revealed that Malta an alternative to Luxembourg and
education and business. Many Maltese ranks 37 out of 142 countries Ireland, especially in the field of
are fluent in Italian, and may also speak insurance, funds and investment
German and French The financial services sector currently services
contributes about 15% to GDP and is
In 2010 inbound tourists reached the expected to contribute 25% to GDP by
1.332 million mark, whereby 31% were 2015
British
© 2011 KPMG, a Maltese civil partnership and a member firm of the KPMG network of independent member firms affiliated 2
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Why Malta?
Factors contributing to Malta’s competitive advantage
Flexible, legal and regulatory environment with a legislative Maltese standard time is one hour ahead of Greenwich Mean
framework in line with EU Directives. Malta is fundamentally Time (GMT) and six hours ahead of US Eastern Standard
a civil law jurisdiction, however business legislation is Time (EST) so business runs smoothly with the international
principally based upon English law principles community
With an excellent infrastructure , Malta may boast of more
An ever-growing supply of high-quality office space for rent at
than 16 years of offering cross-border financial services
cheaper prices than Western Europe
Malta boasts a high level of education with graduates
representing a cross-section of the various disciplines related Malta‟s development as an international financial centre is
to financial services. Specific training in financial services is reflected in the range of financial services available.
offered at various post-secondary and tertiary education Complementing the traditional retail functions, banks are
levels. The accounting profession is well-established on the increasingly offering private and investment banking, project
island. Accountants are either university graduates or in finance, treasury services and syndicated loans. Malta also
possession of a certified accountant qualification hosts a number of institutions specializing in trade-related
(ACA/ACCA) products such as structured trade finance, factoring and
forfeiting. Major international accountancy firms, including the
Big 4 firms, are present on the island
No restrictions on the granting of work permits for EU and
EEA nationals
International Financial Reporting Standards entrenched in
company legislation and applicable since 1997, so no local
A very competitive tax regime, also for expatriates and
GAAP requirements to deal with
extensive and growing, double taxation treaty network
Most audit and legal firms form part of international legal
A flexible and proactive regulator that is very approachable
networks; with many practitioners pursuing training and
and business-minded
studies overseas
© 2011 KPMG, a Maltese civil partnership and a member firm of the KPMG network of independent member firms affiliated 3
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.Global Competitiveness Index 2011-2012 rankings
How Malta scored
The World Economic Forum’s Centre for Global MALTA
Competitiveness and Performance through its
Global Competitiveness Report and report series,
aims to mirror the business operating environment
and competitiveness of over 130 economies
worldwide. The Report identifies advantages as well
as impediments to national growth thereby offering
a unique benchmarking tool to the public and
private sectors as well as academia and civil
society.
The Report provides an analysis of their strengths
and weaknesses related to national competitiveness
using the Global Competitiveness Index as the main
methodology. Competitiveness is defined as “the
set of institutions, policies, and factors that
determine the level of productivity of a country” and
is gauged on 12 pillars.
With Switzerland topping the overall rankings, this
year’s Report emphasises the multiple challenges
currently being faced by the global economy and
highlights a continuing shift in the balance of
economic activity away from advanced economies
and toward emerging markets.
Source: GCI Report, 2011-2012
© 2011 KPMG, a Maltese civil partnership and a member firm of the KPMG network of independent member firms affiliated 4
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.The integrated approach of the Malta Financial Services Authority (MFSA)
The Malta Financial Services Authority (MFSA) is the single regulator for financial services in Malta and regulates banking,
insurance, pensions and investment services (securities) business. The MFSA adopts a firm but flexible approach to regulation.
The licensing process is personalised Co-ordinates the development of cross-sector policy
initiatives and enables the MFSA to address market and
Regulation is business-friendly and mindful of regulatory developments as they arise Supervision Units are
business needs responsible for the
post-licensing
ongoing supervision
Business oriented and hence mindful of
Regulatory Development of the regulated
transposing all potentially beneficial discretionary entities in their
clauses in EU Directives respective area
The regulator is extremely conscious of
reputational risk
Insurance & Securities &
Banking
Supervision is risk based and minimally intrusive Pensions Markets
Supervision
Supervision Supervision
Several institutions in Malta choose to target
“niche” segments of the market
The MFSA is open to new business models Authorisation
As from 2010 the MFSA has adopted a Single
Regulator „Integrated‟ Approach which includes a
single Authorisation Unit, Specialist Supervision
Receives and processes all applications for authorisations to
Units and a Regulatory Development Unit conduct regulated financial services in Malta
© 2011 KPMG, a Maltese civil partnership and a member firm of the KPMG network of independent member firms affiliated 5
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.Taxation in Malta
Corporate taxation – general issues
A Maltese licensed financial services institution carrying out international operations from Malta may benefit from Malta’s
beneficial tax system
Malta has a full imputation tax system which completely eliminates the economic double taxation of company profits. Shareholders in
receipt of dividends are entitled to a tax credit equal to the tax borne on the profits out of which the dividends are paid. Since the tax rate
of 35% applicable to companies is also the highest tax rate in Malta, shareholders will not suffer any additional tax on the receipt of
dividends.
In support of Malta‟s drive to eliminate economic double taxation, ever since 1994 Malta has adopted a system of tax refunds to
shareholders, upon a distribution of dividends. Various refunds are available which may reduce the effective tax rate on profits distributed
by Maltese resident companies to between nil and 6.25%.
The tax refund system, vetted by the EU Commission, extends to both resident and non-resident shareholders, and applies to all profits
derived from local and foreign sources with the exclusion of profits derived directly or indirectly from immovable property situated in Malta.
Participation Exemption Transfer Pricing Value Added Tax (VAT) implications
A participation exemption with There are no transfer pricing rules in Malta. Malta operates a value added tax (VAT)
respect to income derived from system based on the EU VAT Directive.
qualifying equity holdings is Under Maltese VAT law, supplies made by
available. collective investment schemes as well as by
their managers and administrators are
No Capital Gains Thin Capitalisation
deemed exempt without credit. This means
The transfer of shares in a resident There are no thin capitalisation rules in Malta. that no VAT is chargeable thereby, whereas
company by a non-resident is any VAT chargeable thereto by other service
exempt from tax, provided there Controlled Foreign Company (CFC) rules providers (such as accountants, auditors,
are no interests in immovable There are no CFC rules in Malta. lawyers) will be absorbed thereby.
property situated in Malta.
© 2011 KPMG, a Maltese civil partnership and a member firm of the KPMG network of independent member firms affiliated 6
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.Taxation in Malta
Corporate taxation – the tax refund system
Upon a distribution of profits by a company registered in Malta (i.e. a company resident in Malta or a non-resident company which has a
Maltese branch), its shareholders are entitled to claim the following tax refunds of the Malta tax charge of the distributing company:
The general rule is that the tax refund is 6/7ths of the Malta tax charge of the distributing company. The tax refund is generally 30%
(6/7ths of 35%) of taxable profits and where no double taxation relief („DTR‟) has been claimed, the effective tax in Malta on distributed
profits will generally be 5%. Thus where foreign taxes suffered are 5% or more, the effective Malta tax suffered after tax refunds is nil;
On certain foreign source income, where double taxation relief has been claimed, the Malta tax suffered will generally be as follows:
1. Where foreign taxes are less than 11.67%, the Malta tax suffered will be between 2.49% and 6.25%;
2. Where foreign taxes are 11.67% or more, the Malta tax suffered is nil.
No DTR With DTR
Revenue 1000 1000
Operating Expenses (200) (200)
Tax Depreciation including intangibles (200) (200)
Royalty Expenses (200) (200)
Interest Expense (300) (300)
Taxable Profit 100 100
Tax at 35% 35 35
Relief for foreign tax (5)
35 30
6/7ths tax refund (30) (30)
Tax suffered in Malta 5 0
% Tax suffered in Malta 5.0% 0.0%
© 2011 KPMG, a Maltese civil partnership and a member firm of the KPMG network of independent member firms affiliated 7
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.Taxation in Malta
Personal taxation
Highly Qualified Expatriates working in Financial Services may benefit from a flat rate tax of 15%, in terms of the Highly
Qualified Persons Rules, 2011 ... The 15% flat rate is imposed up to a maximum income of €5,000,000 over which the
remaining amount is exempt from tax. This rate applies for a maximum consecutive period of five years for EEA and
Swiss nationals and for a maximum consecutive period of four years for third country nationals
In order to accede to this beneficial tax rate, the individual must be employed by a company licensed and/or recognised by the MFSA and
must hold an eligible office. An „eligible office‟ is an employment in one of the following posts:
CEO, CRO, CFO, COO, CTO;
Portfolio Manager, CIO, Senior Trader or Trader, Senior Analyst, Actuarial Professional, Chief Underwriting Officer, Chief Insurance
Technical Officer;
Head of Marketing, Head of Investor Relations.
In order to be eligible for the reduced rate of 15%, an expatriate must satisfy the following conditions:
Minimum employment income of €75,000 (excluding value of fringe benefits) from holding eligible office
Employment contract in terms of Maltese law and relating to the exercise of genuine and effective work for the employer
Possession of professional qualifications proven to MFSA‟s satisfaction
MFSA is satisfied that the individual performs activities of an eligible office
MFSA is satisfied that the expatriate: (i) receives sufficient stable and regular resources; (ii) resides in a “comparable”
accommodation meeting general health and safety standards; (iii) possesses a valid travel document; (iv) possesses
sickness insurance; and (v) is not domiciled in Malta.
© 2011 KPMG, a Maltese civil partnership and a member firm of the KPMG network of independent member firms affiliated 8
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.An overview of the Maltese insurance business sector
The insurance sector in Malta witnessed significant growth since Malta joined the EU in 2004. The below highlights this growth in terms of
number of licence holders between 2004-2010
Source: Malta Financial Services Authority
© 2011 KPMG, a Maltese civil partnership and a member firm of the KPMG network of independent member firms affiliated 9
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.An overview of the Maltese insurance business sector
Insurance Undertakings as at the end of the 2nd quarter of 2011 (Provisional)
Total licences as Total licences as Total licences as
at end 2009 at end 2010 at end June 2011
Non-Life 30 33 35
Life 8 8 8
Composite 3 2 2
Reinsurance 4 7 7
TOTAL 45 50 52
of which:
Affiliated 8 10 10
Protected Cell Companies 3 4 7
(12 cells) (13 cells) (15 cells)
Insurers of domestic origin 8 8 8
Insurers of foreign origin^ 2 2 2
^Foreign insurers refer to insurance undertakings with head office outside the EU/EEA Member States and which hold an authorisation under the
Insurance Business Act (Cap.403)
Source: Malta Financial Services Authority
© 2011 KPMG, a Maltese civil partnership and a member firm of the KPMG network of independent member firms affiliated 10
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.An overview of the Maltese insurance business sector
Insurance Principals Statistics 2009
Total Gross Written Premium
Companies with Head Office in Malta – General Business
Risks situated in Malta Risks Situated outside Malta
Total GWP
Eur000’s GWP % Total GWP % Total
Eur000’s Eur000’s
Total GWP 716,314 95,676 13.4 620,638 86.6
Total Gross Written Premium
Companies with Head Office in Malta – Long-term Business
Commitments where Malta is the Commitments where Malta is NOT
country of commitment the country of commitment Totals
Insurance Reinsurance Insurance Reinsurance Eur000’s
Eur000’s Eur000’s Eur000’s Eur000’s
Total 193,400 1,093 29,008 103,933 327,434
GWP
© 2011 KPMG, a Maltese civil partnership and a member firm of the KPMG network of independent member firms affiliated 11
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.An overview of the Maltese insurance business sector
Insurance operations in Malta are financially strong and exhibit good performance. The table below shows the solvency covers split by
type of undertaking for the years 2007, 2008 and 2009:
© 2011 KPMG, a Maltese civil partnership and a member firm of the KPMG network of independent member firms affiliated 12
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.An overview of the Maltese insurance business sector
Insurance Managers
Abacus Risk Management Services PCC Ltd
Names of repute
Alternative Risk Management (Malta) Ltd
Renault AXA Aon Insurance Managers (Malta) Ltd
Nissan Heidelberg Cement Ark Insurance Management (Malta) Ltd
Bright House Arnold Clark Bee Insurance Management Ltd
Qatar International BIFFA FirstUnited Insurance Management Ltd
White Rock PCC E.ON Heritage Insurance Management(Malta) Ltd
Practice Plan Pro Assist HSBC Insurance Management (Malta) Ltd
Central Trust Deloitte HSBC Insurance Management Services (Europe)
Ltd
Vodafone Munich RE
Island Insurance Management Services Ltd
BUPA BMW
JLT Insurance Management Malta Ltd
April SA (France) Aon
Marsh Management Services Malta Ltd
Auchan Group PSA Peugeot Citroen
STM Malta Insurance Management Ltd
USA Risk Group (Malta) Ltd
Willis Management (Malta) Ltd
© 2011 KPMG, a Maltese civil partnership and a member firm of the KPMG network of independent member firms affiliated 13
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.The local insurance legislative and regulatory framework
Insurance Business Act, 1998
Ch. 403 of the Laws of Malta
IBA
Supplemented by
Regulations issued under the Act
Insurance Rules issued by the MFSA
Malta currently operates under the Solvency I regime. As a member of the European Union, preparations are under way in order to adopt the Solvency
II regime once this comes into force
© 2011 KPMG, a Maltese civil partnership and a member firm of the KPMG network of independent member firms affiliated 14
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.Setting up an insurance operation in Malta
The application and licensing process
Phase Three
Phase One Phase Two Post Licensing &
Preparatory Licence Application Pre Commencement of
Business
Initial meeting with the MFSA Submission of documents in draft form to Applicant to satisfy all post
Authorisation Unit the MFSA Authorisation Unit licensing matters prior to formal
Communication of the applicant‟s Fit and proper tests carried out by MFSA
commencement of business
intended activities to the regulator on the applicant Ongoing supervision by the
Preliminary indication by the MFSA feedback on documents
Insurance & Pensions Supervision
regulator to move to the second Unit
Provision of replies to MFSA queries by
stage applicant
Completion of review of the application
and all documents to the satisfaction of
the MFSA
MFSA will issue its „in principle‟ approval
subject to licence conditions
Applicant to finalize all outstanding
matters and submit full application in final
format
Registration of company establishing the
institution requesting a licence
Issuing of official licence
© 2011 KPMG, a Maltese civil partnership and a member firm of the KPMG network of independent member firms affiliated 15
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.Authorisation requirements
Authorisation requirements to carry on business of insurance in Malta
No person may engage in the business of insurance or reinsurance in Malta unless duly authorised by the MFSA. An authorisation
will be granted if the following conditions are fulfilled:
an application for authorisation is made in writing in a prescribed form;
the company satisfies the minimum own funds requirement;
the company‟s objects are limited to business of insurance/reinsurance and related operations;
the company has disclosed information on persons having any proprietary, financial or other interest in, or in connection with, the
company;
all qualifying shareholders, controllers, and all persons who will effectively direct the business of insurance are fit and proper to
ensure the company‟s sound and prudent management;
Scheme of Operations has been submitted in accordance with the requirements of Insurance Rule 6 of 2007;
the company discloses to the satisfaction of the Authority any close links that it may have with any other person.
© 2011 KPMG, a Maltese civil partnership and a member firm of the KPMG network of independent member firms affiliated 16
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.Content of Scheme of Operations
Description of business strategy, background information, pricing and market penetration:
marketing plan
investment strategy
personnel and internal controls
group structure
outsourcing and third party arrangements
reinsurance arrangements
Financial projections (3 scenarios: realistic, pessimistic, optimistic) complete with assumptions and accounting policies and regulatory
ratios;
Report of the company‟s auditors or insurance managers;
Report of the actuary for long term business
Completion of Personal Questionnaires for all directors, controllers and senior managers and Compliance Officer and Money Laundering
Reporting Officer where these are necessary
Other documentation to be submitted includes agreements, board resolutions, M&A, reinsurance treaties, etc…
© 2011 KPMG, a Maltese civil partnership and a member firm of the KPMG network of independent member firms affiliated 17
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.Ongoing obligations: prudential requirements
Own Funds Levels
Regular Insurers
Type of business Own Fund Levels (EUR) Comments
General Business 3,500,000
Where the business of insurance is
2,300,000
restricted to certain classes
Long Term Business 3,500,000
Business of Reinsurance 3,200,000
© 2011 KPMG, a Maltese civil partnership and a member firm of the KPMG network of independent member firms affiliated 18
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.Ongoing obligations: prudential requirements
As part of its ongoing obligations an insurance company must, in respect of business that it is authorised to carry on:
Maintain an equalisation reserve in respect of the general business of a credit nature
Maintain adequate technical provisions, including mathematical provisions
Assets covering technical provisions are subject to valuation rules, exposure limits and currency matching rules (pure reinsurers are
not subject to such rules but are expected to adopt a prudent person approach with respect to their investments)
Maintain at all times margin of solvency as prescribed by the Insurance Business (Assets and Liabilities) Regulations, 2007
For companies carrying on both long term business and general business, separate margins of solvency are to be maintained in
respect of the two kinds of business
The MFSA generally requires regulated entities to maintain an additional buffer, the extent of which would depend on the type of risks
and business being written. As a general rule, however, the maximum buffer would be 50% above the minimum solvency margin
requirement
© 2011 KPMG, a Maltese civil partnership and a member firm of the KPMG network of independent member firms affiliated 19
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.Ongoing obligations: other requirements
There is no specified number of individuals of which the Board should be composed although MFSA would expect that the Board
composition includes non-executive directors and independent non-executive directors
The Board of Directors must delegate the setting of the investment policy and strategy to an Investment Committee, which should
include at least one independent non-executive person with adequate qualifications/experience in the investment field
An authorised company is obliged to inform the MFSA of any changes to information held on directors, controllers or senior managers
and is also obliged to inform the Authority, within a prescribed period of time, if a person from the aforementioned ceases to hold such
position with the company concerned
No licensing of brass plate entities. Hence, requirement for:
Books and records to be kept in Malta
Sufficient number of board meetings are to be held in Malta and board minutes are also required to be held in Malta
The MFSA would require that at least one of the members of the Board of Directors is resident in Malta (though not necessarily being
a Maltese national)
© 2011 KPMG, a Maltese civil partnership and a member firm of the KPMG network of independent member firms affiliated 20
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.Ongoing obligations: reporting requirements
Within 6 months from end of financial year insurers have to forward to the MFSA the audited annual accounts, including the auditor‟s
management letter and company‟s reply thereto
They are also obliged to publish such accounts in an abridged form in two local newspapers
Submission of business of insurance statements, including solvency returns, on a calendar year basis, within 6 months from end of
financial year or calendar year, as applicable
Licence conditions typically also include the requirement for submission of quarterly management accounts and operational reports
including amongst others solvency computations and asset mix
© 2011 KPMG, a Maltese civil partnership and a member firm of the KPMG network of independent member firms affiliated 21
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.European passporting rights
Maltese licensed financial services institutions may exercise the right to passport to other EU and EEA states either by way of
the freedom of establishment in another member state or via the freedom to provide services
Passporting under freedom of establishment (establishment of a branch)
The Maltese financial services institution intending to establish a branch outside Malta shall give the MFSA notice of its intention to
do so. Together with this notice, the applicant must also submit a business plan in the form of a „Programme of Operations‟ outlining
its intended corporate and commercial strategies, organisational structure, systems and controls, and details of any tied agents. A
financial forecast statement for profit and loss and cash flow (both over a 12-month period) must also be submitted.
The MFSA is to give notice to the foreign regulator of the institution‟s desire to passport within 3 months of receiving the original
request from the institution.
The Maltese financial services institution may commence activity in the other jurisdiction either upon receipt of notice from the
regulatory authority in the other jurisdiction of the applicable provisions by which the branch must abide; or after the elapse of two
months from the date on which the MFSA has given its consent notice to the regulator in the other jurisdiction and there has been no
receipt of any communication from the European regulatory authority.
The institution is to abide with the regulatory requirements of the country in which it is establishing the branch.
Passporting under freedom of services (provision of services)
The Maltese financial services institution intending to provide services outside Malta shall give the MFSA a notice of intention.
The MFSA is to give notice to the foreign regulator of the institution‟s desire to passport within 1 month of receiving the original
request from the institution.
The institution may commence services on receiving the consent notice from the MFSA and shall abide by any general good
provisions the foreign authority may stipulate thereof.
© 2011 KPMG, a Maltese civil partnership and a member firm of the KPMG network of independent member firms affiliated 22
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.Schedule of fees payable to the regulator
Licensing fees
Business Application Acceptance
of insurance/reinsurance for authorisation of application
EUR 250 per class. EUR 250 per class.
Long term business
Minimum of EUR 1000 Minimum of EUR 1000
EUR 75 per class. EUR 75 per class.
General Business
Minimum of EUR750 Minimum of EUR750
© 2011 KPMG, a Maltese civil partnership and a member firm of the KPMG network of independent member firms affiliated 23
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.Contact details
Juanita Bencini
Partner – Risk Consulting Advisory Services
KPMG in Malta
+356 2563 1053
juanitabencini@kpmg.com.mt
www.kpmg.com.mt
Josianne Briffa
Senior Manager- Risk Consulting Advisory Services
KPMG in Malta
+356 2563 1159
josiannebriffa@kpmg.com.mt
www.kpmg.com.mt
© 2011 KPMG, a Maltese civil partnership and a member firm of the KPMG network of independent member firms affiliated 24
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.You can also read
