Navigating Brexit Breakfast Briefing Insurance Cells In Malta

Navigating Brexit Breakfast Briefing Insurance Cells In Malta

Brexit Considerations Neil Coulson 26 May 2017

Brexit considerations Brexit preparation Location considerations EU regulatory requirements insurance intermediary EU regulatory requirements insurance carrier PKF Littlejohn LLP

Brexit preparation Impact assessment (both directions) Income restrictions on broking in EU from UK Supplies restrictions on intermediaries/underwriting in EU from UK People restrictions on staff residence between UK & EU Prepare a plan Allow for any change in trading volumes Identify any need for relocation of some trading Implement plan Regulatory approval & corporate/tax structuring Local resources staff, accommodation, advisors Systems requirements PKF Littlejohn LLP

Location considerations Customers - do you need to be somewhere specific for them, need for rated paper? Regulation speed & access, fees, flexible structures, minimum local requirements Taxation corporate & indirect tax levels, employment tax levels, complexity, treaties Insurance infrastructure managers, intermediaries, carriers, professional advisers Costs regulation, administration, staff, premises, systems, travel Staff availability, flexibility of employment, cost, taxation Commercial & social infrastructure attractiveness of business & social scene Property availability & cost for offices & housing Language acceptability of English including for regulation, difficulty of local language Travel distance, flexibility, cost PKF Littlejohn LLP

EU requirements - insurance intermediary 2002 Insurance Mediation Directive 2016 Insurance Distribution Directive Permitted activity of being allowed to place or assist in the administration of insurance risks underwritten in the EU (some limited exemptions) Become regulated in EU home state and access local customers and insurers Permission from home state regulator to passport to other countries within EU Few detailed specific EU requirements (NB: variable local requirements) Capital requirement: 18,750 minimum or 4% of premiums (or other safeguards) Professional standards PI insurance 1.25m or 1.85m Information to customers including 10% voting interests with insurers Much more detail on dealing with customers in future under IDD PKF Littlejohn LLP

EU requirements - insurance carrier Solvency II Directive Solvency II does not apply if meet all of the following: gross premium below 5m gross technical provisions below 25m does not include liability or credit & suretyship risks reinsurance operations represent less than 10% of above limits No exclusions for captives or run-offs in excess of these limits PKF Littlejohn LLP

EU requirements - insurance carrier Pillar 1 Capital requirements Minimum capital requirement 2.5m or 3.7m if liability risks Detailed rules regarding valuation of assets & liabilities & acceptable capital Risk based capital requirements to cover 99.5% probability outcome Based upon standard formula or approved model Pillar 2 Supervisory review Detailed rules regarding risk management & governance ORSA Regulatory supervision Pillar 3 Disclosure Detailed public and regulatory reporting requirements quarterly & annual PKF Littlejohn LLP

Malta s Financial Services Industry Key Opportunities Kenneth Farrugia Chairman FinanceMalta Navigating Brexit Insurance Cells in Malta London, UK 26 th May 2017

Agenda 1. Malta s financial services industry - Key financial sectors and opportunities 2. Malta s critical success factors 10

Financial services industry - a strong economic enabler Malta s Financial Centre Key milestones VISION 2017 A strong and diverse financial ecosystem. GDP Contribution increases from 3% to 12% - workforce of 10,000. 2008 Adoption of the Euro 2004 EU Membership Malta s legal and regulatory framework meet EU standards. Euro adoption in 2008 1988 1994 International Corporate & Trusts Legislation Overhaul of Malta s financial, legal and regulatory framework. Onshore Malta response to Globalization & EU membership 11

Malta s financial services industry Strength through innovation & financial diversity

Key financial sectors An ecosystem of financial sector diversity Securitisation Asset Management Fintech Trusts Blockchain & Foundations Key Financial Sectors Insurance Crowdfunding Private Wealth Financial Institutions Pensions 13

Malta s financial services industry Defined service clusters 44 158 Investment Services Operations 58 Insurance Operations Retirement Schemes and Pension Managers SECTOR CLUSTERS 70 Credit and Financial Institutions 26 Fund Administrators 32 Foundation Administrators 137 Trustees

Malta s banking sector Key business tractions Banking Act allows for the setting up of credit institutions that may passport their services cross border in Europe. Legislation and Regulatory Framework allows for on-line banks Financial Institutions Act allows for the setting up of operations which may provide various services to include: - Lending, financial leasing and venture or risk capital - E-Money transmission services, issuing and administering means of payment guarantees and commitments - Trading in money market instruments, foreign exchange, financial futures and options, interest rate and transferable instruments - Underwriting and participating in share issues - Money broking Increasing numbers of Expats and HNWI moving to Malta

80 70 A jurisdiction for banking and Credit Institutions Financial Institutions Total financial institutions 68 70 60 55 60 50 40 30 25 40 50 40 33 29 27 26 27 28 27 23 43 20 15 10 0 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 16

Funds & asset management sector Sustained growth over 2016 Developed clusters Funds +114 New Fund Licences + 32 Q1 2017 Investment Services Providers 158 Investment Services Licences Over 652 Funds serviced in and from Malta 109 billion in assets serviced in and from Malta 27 Fund Administrators 8 Custodians + 11 New Investment Services Licences + 5 Q1 2017 17

Malta s asset management sector Investment opportunities Presence of a comprehensive legal and regulatory framework which presents a number of opportunities: Establish Asset Servicing Operations in Malta - Asset Management/Asset Advisory Organisations - Custody and Fund Administration Operations - Redomiciliation Legislation leading to EU Passporting Rights Ability to set-up various Fund structures - Private Equity/Venture Capital Funds tax treaty network - Alternative Investment Funds - Real Estate and Infrastructure Funds - Loan Funds Flexible Investment Fund Framework - UCITS - Professional Investor Funds (PIFs) - Alternative Investment Funds (AIFs) - Innovative Notified AIF (NAIFs)

Malta s private wealth sector Structuring opportunities TRUSTS: Structured under the Trust and Trustees Act Cater for asset protection, estate or tax planning, as a commercial tool or for testamentary usage. Trust setups may include: Discretionary Trusts; Maintenance Trusts; Charitable Trusts; Fixed Interest Trusts and Unit Trusts FOUNDATIONS: Structured under the Foundations Act - setup for the benefit of a named person or class of persons such foundations being designated private foundations ; or - for the fulfilment of a specified purpose such foundations being designated purpose foundations. OTHERS: Pleasure Boat and Aircraft Registration Schemes, Private Funds, Incorporated Cell Companies and International Pensions Schemes (QROPS) amongst others

Malta s insurance sector Growth driven by international business CY 2004: 8 Insurance Operators CY 2016: 58 Insurance Operators 3.78 bn Dec-15 3.80 bn Dec-16 Gross Premiums Written 2.83 bn Dec-14 2.58 bn Dec-13 2.31 billion Dec-12 20

Malta s insurance sector Investment opportunities The legislative and regulatory framework for the insurance sector has attracted to Malta various insurance business typologies including: Insurance (and reinsurance) Principal Companies Insurance Intermediaries Insurance Management Companies Captives Incorporated Cell Companies (ICCs) Reinsurance SPVs Protected Cell Companies (PCCs) Redomiciliation - Continuation of Companies Act allows migration of foreign insurance companies to Malta

Features of a Protected Cell Company Malta is the only EU Member state to offer PCC Legislation Enables different owners and different interests to participate in one insurance company through the setting up of own cells Provides legal segregation of assets and liabilities ringfencing cells from each other The PCC is single legal entity and the cells do not have a separate legal personality The PCC will fall under related legislation in Malta pertaining to insurance and company law SCC Core Cell 1 Cell 2 22

Malta s value proposition Meticulous, accessible & pro-business single regulator Comprehensive legal and regulatory framework Highly educated workforce Robust operational infrastructure Cost competitive financial centre Political and economic stability

An unparalleled lifestyle History - over 7,000 years of history concentrated in just over 316 square kilometres Health System - a World Health Organization (WHO) survey ranked Malta 5th in the world for its standard of medical care Flight Connections - Malta well connected to international destinations 24

Malta well connected internationally 25

Rank out of 138 Countries International attestations Global Competitiveness Index 2016 2017 3 rd 16 th 20 th 19 th 22 nd 22 nd Internet Bandwidth per User Soundness of the Banks Strength of the auditing/reporting standards Quality of the Education System Quality of Maths and Science Education Regulation of Securities Exchanges

Thank you Further information Corporate Website: www.financemalta.org Kenneth Farrugia Chairman email: chairman@financemalta.org Ivan Grech Head of Business Development email: ivan.grech@financemalta.org Follow us on Social Media Twitter LinkedIn Facebook You Tube - @FinanceMalta - FinanceMalta - FinanceMalta - FinanceMaltaYT

Your Gateway to a World of Insurance Future proofing your business Michael Whitfield 26 th May 2017

A little about Building Block One of the new breed of insurance start- up businesses Established in 2013 and actively trading since 2016 Hybrid business model strategy writing from core capacity and establishing PCCs Based in Malta and regulated by the MFSA Working with partners across the EEA to distribute insurance products via EEA passporting

The PCC Structure A single legal entity structure, comprising a core and a number of Cells The Cells and the core are legally separate in terms of their assets and liabilities Cells can have separate beneficial ownership operating under the umbrella of the PCC in respect of regulatory, governance and fiscal matters Capital requirement can reflect the capital needs of the individual Cell rather than the potentially much higher minimum capital requirement under Solvency II for an insurer The PCC overall must satisfy Solvency II capital requirements

Why might you consider setting up a Cell You want to guarantee that you will be able to commence or continue marketing an insurance scheme in EEA jurisdictions post-brexit You are looking for a more efficient capital model than could be achieved by establishing your own insurer entity under Solvency II Solvency II Minimum Capital Requirement (MCR) for an insurance entity writing business with any liability exposure is 3.7 million Under a Cell arrangement providing the PCC fulfils the Solvency II MCR the Cell capital requirement need only reflect its portion of the whole You need practical and governance support in running your insurance business across single or multiple (non-uk) EEA jurisdictions

Setting up a Cell Help with feasibility study Flexible capital model Quasi JV approach possible. First step is identifying the capital requirement Practical help to formulate business plan and to go through the legal and regulatory application process Support to identify and obtain the relevant business class permissions Ongoing compliance and governance support in conjunction with the Insurance Managers

How else can we help? Working with PKF and other partners to provide a comprehensive pre and post authorisation support package including: Product design, manufacture and development support (for example rating, wording, collateral on a multi-lingual basis) Relationship management, claims management and audit support Advice and assistance on marketing and distribution Platform provision and support a range of options

Timescales Time to conduct feasibility study and conduct business case depends on proposition MFSA SLA (upon receipt of fully complete plan and application ) 3 months

Contact me michael.whitfield@buildingblockpcc.com 07860 255260

Any questions? Neil Coulson, PKF Littlejohn Kenneth Farrugia, FinanceMalta Michael Whitfield, Building Block PCC Danielle Hermansen, PKF Malta PKF Littlejohn LLP

Navigating Brexit Breakfast Briefing Insurance Cells In Malta

This seminar and the accompanying handouts cover topics only in general terms and are intended to give a wide audience an outline understanding of issues relating to accounting applicable to entities in general, and therefore cannot be relied upon to cover specific situations; applications of the principles would depend on the particular circumstances involved. Furthermore, responses given in the seminar to questions are only based on an outline understanding of the facts and circumstances of the cases and therefore do not form an appropriate substitute for considered specific advice tailored to your circumstances. We recommend that you obtain professional advice before acting, or refraining from acting, on any of the contents. We would be pleased to advise you on the application of the principles demonstrated at the seminar, or on any other matters, to your specific circumstances, but in the absence of such specific advice, we cannot be responsible or held liable. PKF Littlejohn PKF Littlejohn LLP