Malta open for reinsurance special purpose vehicles business

Coming late to the SPV party should work in Malta's favour, said Professor Joe Bannister, Chairman of the Malta Financial Services Authority (MFSA), as he outlined the country's reinsurance SPV working environment. The Maltese regulator, together with its government, have developed a regulatory environment in which they believe reinsurance SPVs can flourish, but Professor Bannister stressed that Malta is not trying to compete with any other jurisdiction. However, at the seminar in London last week arranged by Rubicon Media, publishers' of Commercial Risk Europe, he told delegates that knowledge gained from the experience of others in the sector had informed Malta's decision-making process.hideThis should mean that setting up reinsurance SPV in Malta is easier and ultimately more successful as a result, attendees at the event sponsored by the Institute of Financial Services Practitioners (IFSP) heard. According to the IFSP, reinsurance SPVs are designed to complement traditional (re)insurance arrangements and be a cost-effective mechanism to provide additional capital to (re)insurers while contributing to premium price competitiveness and smoothing against adverse insurance market cycles. Professor Bannister said the island has no specific targets in terms of numbers of reinsurance SPVs established but is determined to deliver in terms of quality and reputation. He added the jurisdiction has already gained considerable traction in this area since January. His words were echoed by the IFSP's Neville Gatt who said that the system in Malta was designed to be as straightforward as possible. From a taxation perspective, for example, the rules in Malta are clearer than other countries and are designed to be cost neutral for businesses bringing a RSPV to the island, he said. "We wanted to ensure there were no tax obstacles," he explained. Professor Bannister opened the seminar by commenting: "This has been an ongoing story in terms of the ambition and aims of the country in creating innovation with a new style of regulation, more openness in terms of regulation." Malta hopes to be the first European Union member state to offer an operating environment for reinsurance SPVs compliant with Solvency II. The EU Reinsurance Directive provides member states with an authorisation and regulatory framework that enables insurance or reinsurance undertakings to transfer risks to reinsurance SPVs. The MFSA has been aligning the regulatory regime for reinsurance SPVs under the Insurance Business Act (Cap.403) to EIOPA Advice for Level 2 Implementing Measures on Solvency II: Special Purpose Vehicles. The Maltese Reinsurance SPV Regulations define such entities as 'an undertaking, other than an existing insurance undertaking or reinsurance undertaking, which assumes risks from a ceding undertaking and which fully funds its exposure to such risks through the proceeds of a debt instrument or any other financing mechanism where the repayment right of the providers of the particular debt or financing mechanism are subordinated to the reinsurance obligations of the RSPV'. The regulatory framework for reinsurance SPVs includes: Authorisation process-the detailed procedures to be followed for the grant of an authorisation for a reinsurance SPV for a specific use or uses Mandatory conditions for all contractual arrangements that must ensure that the claims of the providers of capital to the reinsurance SPV are at all times subordinated to the reinsurance obligations of the reinsurance SPV Governance requirements which ensure that qualifying shareholders and all persons who effectively direct or manage an authorised reinsurance SPV are fit and proper persons and the reinsurance SPV's system of governance is appropriate to the nature, scale and complexity of the risk that it assumes Supervisory reporting that requires the reinsurance SPV to report to the MFSA on the value of its assets, its aggregate maximum exposure, any conflicts of interest and any significant transactions entered into within a reporting period, and Solvency requirements particular to reinsurance SPVs that must be 'fully funded' at all times. 'Fully funded' means an authorised reinsurance SPV must at all times have assets of value equal to or exceeding the aggregate maximum risk exposure, and that the reinsurance SPV is able to pay the amounts for which it is liable as claims fall. Richard Ambery of the IFSP gave an overview of this legal framework, stressing: "Malta is not a new territory. The island has the experience and has a solid foundation in which to operate." An over-riding message from the seminar was the way in which the Maltese regulator is open to conversation with the market. Professor Bannister said: "We feel regulators should meet companies and companies should be meeting regulators. That's why we are here." As well as reinsurance SPVs, Professor Bannister explained the island's approach to protected cell companies and incorporated cell companies. Additionally, Maltese regulations allow for the possible listing of wholesale securities issued by a reinsurance SPV. A new regulated market-the European Wholesale Securities Market (EWSM)-for wholesale fixed income securities, jointly owned by the Irish Stock Exchange and the Malta Stock Exchange, was set up, registered and domiciled in Malta in 2012. The EWSM is an approved EU-regulated market under MiFID and is a 'Recognised Stock Exchange' under the UK Income Tax Act, 2007. Gerard Scully from the EWSM gave delegates an overview of the exchange, explaining that it has seen significant growth in insurance-linked securities (ILS) in recent years. "We certainly bring considerable expertise and experience to the party," he said. The key speakers at the event agreed on the key message: Malta is open for reinsurance SPV business and to discuss deals on an individual basis. Professor Bannister urged those interested in this type of vehicle to talk to the regulator as well as the experts already based on the island.

Malta open for reinsurance special purpose vehicles business

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