The Strategy Institute of Toronto will hold the eighth Annual Canadian Captives & Corporate Insurance Strategies Summit at the Sutton Place Hotel in Toronto, Canada on 16 and 17 May. This annual event is uniquely designed for risk managers and is the ideal place to gain the crucial business intelligence needed to maximise the effectiveness of corporate insurance programmes. One of the speakers is Gordon Anderson, president of Cidel Trust, whose theme will centre on the maxim that if any company has significant, profitable international operations, a captive insurance company is worth serious consideration. An interesting case study is being presented by Richard Christensen, president and general manager of Nissan Global Reinsurance (Nissan has a captive registered in Malta). Mr Christensen will talk about the process behind merging and closing inactive captives, which is of topical interest in an economic slowdown. Inactive captives can be a burden on the bottom line so timely awareness of when to close or merge your captives successfully is an invaluable tool. This involves many tasks, such as how to properly assess the factors, players and costs at play when any captive starts underperforming.
While the soft market continues, catastrophes have raged on with a number of ever increasing natural disasters. All this points to better understanding of the reinsurance market realities, conditions and the summit is an excellent venue to meet and discuss latest trends with reinsurance market leaders. Successful captive managers need to estimate correctly the market’s capacity and accurately assess the new collateral regime of reinsurance securities agreements. Rising premiums, changing regulations, and multi-national exposures are some of the challenges facing risk managers, and this and other topics will be discussed at this event. Speakers at the Toronto seminar will dwell in detail on the best solution on how to tackle the added pressures arising from tougher regulation (typically Solvency II) which countries may impose to combat the aftermath of the sub-prime collapse and its disastrous effect on bank credit insurance. This heightens the need for well-organised units to provide a superlative means of risk management in a turbulent market.
Their main advantages are factors such as reduced costs, flexibility and improved claims management. With heightened frequency, corporate insurance buyers and mid-sized business owners who are squeezed by higher costs are exacerbating the compensation of captive ownership. As these factors can be significant in cases of larger corporate structures, it shows why captives are considered to be a more cost effective solution in a downturn. For example, we can say that living in a soft market, risk managers can opt to rent a captive, thus taking advantage of the low rates by reinsuring a relatively large proportion of risks. The lower cost of reinsurance allows the captive to build its reserve base. This is due to the clever way that captives generally retain a portion of the overall risk and reinsure the balance. My presentation on day one will focus on the advantages and disadvantages of selecting Malta as a captive domicile. This will consist of a virtual tour, comparing the largest and fastest growing onshore and offshore domiciles. Malta’s attributes will include its European regulatory environment for licensing and security requirements for effective captive asset management. This will explain standards such as TIEA, OECD and Solvency II to Canadian parents.
Other speakers will present case studies supplying the information needed to establish whether a captive is the right fit, giving tips on how to determine risk appetite, define exit strategies and gauge the impact of new international legislations. This is an ideal venue for competing captive jurisdictions to showcase their advantages for prospective captive owners. In addition to captive management and optimisation, attendees will also be able to expand their risk management tool-box by exploring alternative risk transfer (ART) strategies as well as gain a “fuller understanding of the enormous benefits available to larger public sector organisations from risk pooling’.
One looks forward to more practitioners pooling their efforts to promote Malta as a jurisdiction ideal for the commercial use of captive insurance. Over the years, this promotion has found the tacit support it merits from organisations such as Malta Enterprise, MFSA and Finance Malta. My presence at the two-day seminar may attract attention from practitioners hailing from North America, Canada and some European countries all interested to participate in a packed technical programme. Experts from various jurisdictions will tackle the problems and solutions arising from the severe financial fallout for the insurance industry experienced post Lehman collapse. It will also compare and contrast the new regulatory arena in Europe following the finalisation of QIS 5 assessment within Solvency II, which is fast becoming a buzzword in insurance circles. It is an undeniable fact that Solvency II is an international benchmark on how to assess risk and the scientific assessment of minimum capital requirement to match such risks.
A recent study compared the equivalence levels to Solvency II of major insurance centres such as Vermont, Bermuda, Switzerland and Cayman. All such places have tuned their regulation to mirror the Solvency II methodology and its structured assessment of risks. Over a short span, all such leading jurisdictions will have tweaked their rules and reached a closer equivalence to the new regulatory platform in Europe. So one may well ask: “Is the convergence of regulatory platforms in Northern America with that of the European model getting closer?” If this is the case how can Malta provide a solution for captive insurance operators from the other side of the Atlantic which happen to have European subsidiaries and therefore have to insure their commercial risks at the most efficient and economical rates? The case for discovering what Malta has to offer has never been more poignant and news that Malta is on the radar is confirmed by the issuing of licences to insurance brokers acting as global managers namely Marsh, AON, AIG, Willis and others.
The financial regulator MFSA is committed to the development of the captive insurance sector and it is alert to changes in international requisites in a drive to continuously upgrade legislation to allow finer alignments to rules. A typical example is the launching of the Incorporated Cell Companies (ICC), apart from the setting up of Protected Cell Captives (PCCs). The latter was first introduced in the Companies Act (Cell Companies Carrying on Business of Insurance) Regulations, 2004; Legal Notice 218 2004. The ICC followed suit two years later so that operators have a wider choice of company structures to choose from. This is the opinion of Professor Joe Bannister (chairman MFSA) concerning the regulation in new emerging jurisdictions. He says that the attractiveness of Malta’s legislation can be measured by the ease with which a body corporate licensed in another jurisdiction to carry out any insurance business or provide insurance management or brokering services, may be authorised to continue as a company formed or registered in Malta. A tangible fiscal benefit is that of an outright exemption from duty under the Duty on Documents and Transfers Act, 1993 in respect of any contract of insurance relating to a risk situated outside Malta.
Furthermore, captive management services are also zero rated for VAT purposes under the Value Added Tax Act. There are exemplary tax advantages since a ‘Captive’ is taxable at the normal company rate of tax, which at present is 35 per cent. However, if such a company underwrites risks situated outside Malta, it is able to operate the foreign income account and non-resident shareholders may benefit from the refund of tax on distributions from this account bringing the effective tax rate to five per cent. There are no withholding taxes, no CFC and no transfer pricing rules.
But one may well ask that with so much competition and living in global financial turmoil, do captives retain their advantages in Malta. One may question the strength of Malta’s appeal when captives remain under the unchallenged sphere of influence in established centres such as Bermuda, Cayman Islands, Hong Kong, BVI, and some US states. In Europe, Guernsey, Dublin and Luxembourg are the leaders. But the added pressure resulting from the credit crunch and the softening of markets has intensified attempts to relocate to more cost efficient centres and Malta is one of them. In this unprecedented financial squeeze on premiums captives are proven to be the right and cost effective solution for well organised insurance services. If anything, owners found additional, creative ways to utilise their captives more so in the cutthroat competition for new business suffering particularly from low yields on investments.
Undoubtedly there is a very competitive market among risk managers to present the most cost effective solution for relocating captive insurance companies. It is here that one can appreciate the unique advantages that captives can yield. They permit their parent companies to release unique services that were previously provided by a single insurance carrier. Critical insurance services such as administration/management, actuarial, legal, accounting, claims and loss control all had to be included in the captives operations. Will risk managers be tempted to relocate to Malta to exploit PCCs or ICC’s unique features?
From market research one can expect a number of positive enquiries at the Toronto seminar given that risk managers are becoming more interested in exploring the unique qualities of a protected cell company, or incorporated cell companies, which in the EU can only be registered in Malta.
In conclusion, Malta has the necessary local expertise to compete in the Canadian market so as to ensure that the formation and running of a captive insurance company can be achieved with maximum ease. It is becoming an increasingly attractive domicile for multinational companies in which to form a captive. Since joining the EU, Malta has taken bold steps towards implementing a robust regulatory regime that is in line with the European Union Insurance Directives. The ability to ‘passport’ insurance to all territories within the European Economic Area (EEA) and the double tax agreements held with over 60 countries (including USA and Canada) are clear examples of Malta’s growing appeal.
Readers interested in attending can email Audrey-Ann Casingena at [email protected] or call +356 2133 5715
The writer is a partner in
PKFMALTA, an audit and
business advisory firm
[email protected]