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Malta's captive insurance business is now working in full swing. There were some 25 insurers being managed by Malta's 12 insurance management companies towards the end of April this year, with at leas three others at an advanced stage of the licensing process, waiting for their license to be granted. This includes the first active cell within Malta's first protected cell company, Atlas Insurance PCC.
More pertinent is the value of the business these companies are generating. The 20 captives registered, licensed and operating by the end of December 2007 wrote €398,031,706 in gross premiums last year, according to data gathered by the Malta Insurance Management Association (MIMA). To put that figure into context, it is 70% more than the gross total premium generated by the domestic Maltese market in 2006.
The captive insurers had funds worth €555,305,454 under management by the end of 2007, in cash and investments. They paid €10,415,618 in Maltese income tax, and generated €1,277,862 in fees for the management companies. The business generated employment for 83 people by the end of the year, 75 of them full time – a number that is set to increase as more captives choose Malta as their domicile.
And of course, there are knock on effects. The management companies say they generated 587 bed nights over 2007, as clients and prospective clients visit Malta. MIMA also estimates that they have generated €1,729,486 in business for Maltese service providers and professionals (including banks, lawyers and auditors) over the course of the year.
The Economic Update asked Michael Gatt, MD at Atlas Insurance PCC and Peter Grima of First United where they see the business going. Both were upbeat. Both are looking at a fast developing market, with increasing interest in what Malta has to offer, and both were confident that the solutions their organisations have to offer the international market are being well received.
“We now have our first cell registered,” Mr Gatt told the Economic Update. “And we have others in the pipeline – by the end of 2008, we expect to have three or four cells functioning.” Atlas has found considerable interest across Europe in establishing a cell in Malta, and that, for the moment means going through Atlas which remains the first and only PCC on the island.
Mr Gatt told the Economic Update that Atlas has handled a considerable number of enquiries so far, some directly from potential clients and others through one of the 12 insurance managers operating in Malta. Of these, he indicated that some 25% were what he termed “serious” enquiries – that is, more than a simple testing of the waters. And in an interesting twist, he also said that a number of people Atlas had been in contact with two years ago, when preparing to convert to a PCC, have got in touch with the company after a long, quiescent period.
This shows, if nothing else, that the decision making process on cells and captives in general can be a long drawn out process.
The Economic Update understands that AON Insurance Managers are in the process of establishing their own PCC in Malta. The company, the largest international insurance manager is also the largest player in the international cell company segment with its White Rock PCC in Guernsey, and it has cell operations in other jurisdictions as well. Furthermore, it has leapt into the latest development in cell companies, establishing the White Rock ICC (incorporated cell company, in contrast to a protected cell company or PCC) in Guernsey.
The main difference between a PCC and an ICC is that the newer version allows the cell to have a legal and corporate identity of its own. With a protected cell, the assets and liabilities of each cell in the company are isolated from each other, and each cell may have completely different shareholders. But the protected cell does not exist as a distinct entity, separate from the core of the PCC. And the concept of the ICC is not yet widely accepted, with only very few jurisdictions including them in their arsenal.
Paul Sykes, the Gibraltar-based MD of AON Insurance Management (Malta) announced at the Malta Insurance Rendezvous late last year that the company would be establishing a PCC, probably under its White Rock brand (there are already five White Rock PCCs established in Guernsey, Gibraltar, Luxembourg and Bermuda, and one White Rock ICC in Guernsey). Indications are plans are well advanced.
What is interesting about the Maltese captive scene is that the wholly local insurance managers are holding their own well faced with the reach of the international managers operating from Malta. The competition they face is strong: the most important global players, with all the network of contacts this status implies, are all active here. These are names like Marsh, Aon, Willis, Heath Lambert and JLT.
Atlas is a case in point. FirstUnited is another. This purely home-grown company has registered an insurer for its first client. This is one of the first insurance managers to be registered in Malta, starting life as United Insurance Managers. It became First United after Mr Grima's United Insurance Brokers merged with First Insurance Brokers in mid-2006.
The merged company has now settled down, Mr Grima told the Economic Update, admitting that, despite the extensive preparation the two companies made to prepare staff for the changes and the very similar set of values of the two organisations, a merger is not an easy change to manage. And the company is now actively chasing international insurance opportunities,
“We can offer high level insurance skills and experience, and there is a lot of demand from the UK and continental Europe,” Mr Grima said, echoing Atlas's Mr Gatt. “And this market is not so big that you have to be talking to hundreds of people!”
The first insurer Mr Grima's company is managing provides insurance to divers and diving associations across Europe. It is, in many ways, a classic captive scenario: the client organisation understands the risks involved in diving better than the insurance market does, and can therefore manage the risk better. Their managers, FirstUnited, bring their insurance expertise to bear to make it work as a product.
This means that, first, the insurer is not a captive. It is a direct writer, because it covers risks not associated with its shareholders, members or a group of companies it belongs to. And furthermore, it passports its services from Malta to every other jurisdiction in the EU and the EEA.
And this means a lot of work for FirstUnited. Mr Grima told the Economic Update that the management takes up a considerable amount of time and effort. But it is bearing fruit for FirstUnited, which continues to discuss with other clients in what is a fast rowing business – so much so that competitors are likely to help grow the market faster.
In Mr Grima's view, the marketing effort to establish Malta as a captive domicile to be reckoned with is now moving to a new phase. “Phase I has been very successful. The MFSA wanted to establish the credibility of Malta as a domicile, and it has done so by attracting the major insurance managers like AON, Marsh, Heath Lambert and Willis to Malta, and by commissioning a report during the very early stages which brought Malta to the attention of the international captive industry when they got questionnaires to answer,” he said.
The marketing now needs to become more direct, he concluded.
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