Exchange Re has received approval for the EU’s first SSC platform for cell-based ILS and collateralised reinsurance transactions. How will this work and what do you have to go through to set it up?
Malta is the first EU member state to adapt cell structures for insurance-linked securities (ILS) transactions. Dedicated regulations give certainty to securing capital for insurance entities.
This is the first ILS platform in Malta for private collateralised reinsurance and other ILS transactions organised as a securitisation cell company (SCC).
Exchange Re’s segregated cells will be constituted to enter into securitisation transactions. Authorised as a reinsurance special purpose vehicle (RSPV) under the Maltese RSPVs regulations and fully compliant with the EU Solvency II regime, the platform offers lower costs and a quicker set-up time for individual transactions.
Exchange Re invites all managers to populate and manage cells on the platform. This is an independent structure that will allow other managers to manage cells in the structure. The purpose of this is to relieve the managers from the requirement of owning a platform together with the issues of conflict of interest that these may generate.
Market research was done and a niche market exists. Therefore, together with the Malta Financial Services Authority (MFSA), a process was enacted to ensure the application process was initiated and over the period a seamless transition to the market was made.
Do you think the approval of Exchange Re will spur an interest in others to follow suit?
It could be that others follow suit. In an ever-evolving market new solutions are continuously being looked at but first-mover advantage is what we were also looking at.
With time, do you think Malta has the potential to become a European ILS hub?
Definitely. As Malta has become an EU destination for captive entities, we also feel that Malta will also eventually also become a European ILS hub. The regulator has been providing the tools to the market operators, enacting laws that increase the visibility of Malta as an insurance destination.
Over the years, the local market operators, which include all the major international names, have moved ahead with these tools to enhance the local product offering internationally.
Cell creation is subject to regulatory approval and the MFSA is committed to processing applications in line with market-standard timeframes that are established with applicants beforehand. This business approach of the MFSA is crucial to the whole process.
The benefits of cells in the SCC include: a market-friendly authorisation process; cost-efficient structure; Solvency II-ready; managed or self-managed; tax neutral irrespective of funding model; all benefits of the Securitisation Act, for example statutory bankruptcy remoteness; and robust legal structure and segregation. These are all important if Malta is to become an EU ILS hub.
What more does Malta need to do to achieve a European ILS hub status and compete with the likes of Cayman and Bermuda?
The importance is credibility from all the service providers’ side and speed to market from the regulator. Malta needs to compete with the likes of Cayman and Bermuda to become an ILS hub that can provide an alternative cost-effective efficient solution. Being EU-based can add to the attraction for operators that need ease of access to markets.
In five years, where do you see Malta’s ILS market?
We see that EU companies would want to be located in the EU especially with the increasing compliance requests and ease of access. With some cells being authorised, one will be able to test the benefits of the scenario and will therefore push more arrangers, sponsors and brokers to use the domicile for their transactions.