Malta is making its mark on the European captive insurance industry, playing host to this year’s Federation of European Risk Management Associations (FERMA) Risk Management seminar, where Prime Minister Joseph Muscat boasted the island has gained a “significant brand” in the industry.
Malta is making its mark on the European captive insurance industry, playing host to this year’s Federation of European Risk Management Associations (FERMA) Risk Management seminar, where Prime Minister Joseph Muscat boasted the island has gained a “significant brand” in the industry.
Speaking during the conference opening ceremony, Muscat said the most significant innovation for Malta has been the introduction of the protected cell company (PCC) legislation for insurers, noting that Malta is the only EU member state to have this legislation.
In a later session, Ian-Edward Stafrace, chief risk officer at Atlas, also discussed the PCC legislation. Stafrace suggested that the rule has meant a number of cells are being set up in Malta, and are tapping into consumer business.
He used an example of a captive model, wherein a supermarket that owns a large fleet of vehicles has created a cell to insure its motor fleet directly, without the need of a fronting insurer.
Stafrace explained that a PCC is a single legal entity with a non-cellular core. Although it is licensed like any normal insurance company, there is one difference, whereby owners outside of the company can set up cells within that company.
Aside from PCCs, Muscat also noted that Malta has recently extended legislation to securitisation vehicles and reinsurance special purpose vehicles (RSPV), making it the first EU member state to adapt the cell structure for insurance-linked securities (ILS) transactions.
The first securitisation cell company (SCC) set up in Matla was Exchange Re. In a recent interview, John Tortell, general manager of Exchange Re, suggested that the segregated cells will be constituted to enter into securitisation transactions.
He said: “Authorised as a 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.”
He explained that, together with the Malta Financial Services Authority (MFSA), Exchange Re went through a process to ensure the application was initiated over a period of time, and a seamless transition to the market was made.
In his conference opening speech, Muscat revealed that this innovation has served the country well, citing written insurance premiums, which have risen from €596 million to €3.8 billion.
He suggested that Malta is benefitting from the current economic climate, consumer confidence and higher levels of tourism.
With the introduction of Solvency II at the beginning of this year, Muscat said that insurance companies have decided to be a part of the Maltese economy rather than sitting back. He said: “The economy is vibrating with success.”
He noted: “The message is to keep oiling the machine so that Malta can become a powerhouse of the economy.”
“We have continued to build the insurance industry. Malta has advanced significantly.”
However, the prime minister also suggested Malta can do better, and that the best is yet to come.
He explained that there is no success in being hit with risk; there are still cyber risks, economic risks, climate change and financial stability risks that Malta will have to face.
According to Muscat, there are opportunities for new structures in years to come and, in Malta, regulators will work with the industry to become part of the solution, not part of the problem.
During the conference, FERMA also revealed the results of its 2016 European Risk and Insurance Report. The results showed that the number of companies using captives in Europe has fallen from 39 percent in 2014 to 34 percent in 2016.
The eighth edition of the report, which is released every two years and reports the views of over 600 risk and insurance professionals from over 21 countries, found that the use of captives remains more prevalent in financial services, banking and mature insurance markets, compared to any other industries. Company size is also a key driver for take-up of captives.
FERMA said in the report: “This result is consistent with our concern about the significant increase in the operational cost of captives following the implementation of Solvency II and the higher scrutiny on captives by governments when implementing the Organisation for Economic Co-operation and Development’s recommendations on base erosion and profit sharing.”
“In addition, FERMA believes it is crucial that tax authorities take into account the positive contribution to enterprise risk management that captives represent for multinational organisations in protecting their assets.”
According to a seminar panellist, Philippe Gouraud, global head of strategic client and broker management at XL Catlin, captives are here to stay. However, he noted that, because captives are complex, there are a number of consequences.
Gouraud said: “The bar for captives is much higher to pass than it was in the past because they’re in a more complex environment, whether that be because of the compliance or governance.”
However, he revealed that the captives that have been used are being used “more intensively” than before. He said: “The captive has a strategic role to play around innovation.”
The results of the report also show that the implementation or further use of captive facilities has decreased by 6 percentage points since the last survey in 2014.
It was also revealed that European risk managers are taking a more strategic role in their companies with increasing access to top management levels and the board.
More than half of respondents play a part in implementing risk culture across their organisation (68 percent) and develop risk management as a part of business strategy (62 percent). Two thirds report to the board or top management level, according to the survey.
FERMA president Jo Willaert commented: “From this survey, we see that risk managers are moving into a position where they are helping embed risk management into the business model and culture of their organisations.”
“They are taking an enterprise-wide vision of risks, including the wider business environment, and the majority report to a chief officer or the board.”
The survey also showed rising concern among risk managers about economic conditions and business continuity disruption since the previous FERMA survey in 2014.
This, political risk and country instability emerged as the three top risks to businesses. Digital risks—that is, risk of cyber attack, data privacy, and risk to IT systems and data centres—also increased in importance in 2016.
Digital and cyber risks are, not surprisingly, according to FERMA, a rising concern, and risk managers are looking for a greater partnership with insurers on loss prevention and incident management.
The purchase of standalone cyber risk coverage has grown since 2014, but two thirds of companies still do not buy such protection.
“There is work to be done here in strengthening our resilience to these constantly evolving risks. FERMA has always emphasised that they are enterprise risks, and the survey shows that we need closer relationships between the risk management and IT functions,” Willaert said.
“We are also looking for a partnership with our advisers, brokers and insurers to strengthen our resilience and management of incidents.”
In the closing ceremony, Willaert reflected on this year’s conference but also invited attendees to the FERMA Risk Management Seminar 2017, which will be held in Monte Carlo between 15 and 18 October next year.
