Ian-Edward Stafrace of Atlas Insurance PCC, a FinanceMalta member, explores how Malta’s innovative protected cell structures provide global captives with more efficient EU and UK risk coverage and market access

The Republic of Malta is a full member of the EU, strategically located in the middle of the Mediterranean Sea, with English as its business language. Malta’s cell growth continues to outpace that of standalone companies.

In 2023, Malta’s insurance undertaking cells grew by 3% to 79, while the number of non-domestic insurance companies and captives reduced by 3% to 57. The total gross premiums written for risks outside Malta in 2023 reached €7.6 billion ($8.3 billion).

Malta’s regulatory framework, tailored to understand and enable captives while adhering to EU standards, has been instrumental in the sector’s growth.

With almost two decades of experience in cell company structures, Atlas Insurance has built deep expertise in hosting cells with varying strategies and purposes. Protected cells in Malta cater to diverse sectors, from risk-financing captive insurance solutions to insurtech innovators retaining underwriting profits.

Cells are often more cost-effective than owning a standalone carrier or captive, particularly within the EU, where the costs of robust regulation are significantly reduced when shared within a protected cell company (PCC) structure.

Malta is the only EU PCC domicile offering direct access to the European Economic Area (EEA). Having been active in the UK since 2010 and recognising the challenges the country’s departure from the EU brought, Atlas became the first EU-based PCC to obtain a UK branch licence.

This milestone reinforces Atlas’s century-long innovation legacy and supports the continuity and growth of seamless cross-border insurance services across the UK and EEA for the cells it hosts.

Fronting partners can offer added value and simplify compliance requirements. However, they can be increasingly selective and add costs to the programme, affecting feasibility, especially when premiums are below their rising minimums.

EU direct writing cells are slightly more costly than pure reinsurance cells. However, saving fronting fees can make them more cost-effective, notably where local compliance and outsourcing needs in the country of risk are limited.

Stakeholders are raising the bar for the substance of captives. With their shared economies of scale, PCCs can help address substance requirements as cells form part of a broader single entity that provides shared board, governance, key functions, premises and resources.

Maltese PCCs provide confidence in being onshore in the EU while avoiding the complexities, costs, and time associated with a standalone company.

Furthermore, EU Solvency II recognises cells as ring-fenced funds, meaning there are no minimum capital requirements for individual protected cells having recourse to the core, as these apply at an overall company level.

Cell owners retain complete legal protection of their assets from liabilities of the core or other cells.

Innovative solutions and flexibility

Atlas is a long-established contributor to Malta’s local economy, actively insuring risks in Malta through its non-cellular core.

It was the first traditional insurance company in the world to convert to a PCC. This conversion back in 2006 enabled Atlas to quickly gain experience hosting cells writing direct third-party risks and consumer insurance.

Its active local business helps address domicile arbitrage questions and enables it to front and incubate risks quickly, providing additional valuable time for setting up and assessing a cell.

For example, a global captive manager had a client with a Vermont captive which wished to set up a protected cell to cover its EU-based risks. As discussions progressed, it was clear in December that there would not be sufficient time to license a cell for its January 1 renewal.

As Atlas was already passported to all the countries where the risks were situated for the required classes of insurance, it underwrote the renewal through its core, reinsuring back to the US captive.

Atlas provided a quick solution within a couple of weeks during the holiday season while allowing much more time for the setting up of a cell to be considered within the same PCC.

In the insurtech space, an intermediary providing embedded insurance established a cell to become its own carrier, thus gaining control over capacity, retaining profits, and expanding offerings across the EU and UK.

This approach enabled the company to test, refine, and scale its solutions without relying on insurers and without the substantial time, investments, and expenses required to set up an insurance company.

With the pace of change ever-increasing, organisations appreciate the ability to adopt an agile, iterative approach to setting up their insurance vehicles with real options to scale and evolve.

As an independent PCC host, Atlas extends the win-win opportunities for global insurance and captive management companies, brokers and consultancies, and their customers.

Economic strength

Malta offers businesses an efficient environment with lower operational costs versus other EU domiciles, yet with a highly qualified and experienced local workforce.

As an onshore EU domicile of choice for a growing number of insurance operators with EU and Organisation for Economic Cooperation and Development compliant financial and tax regulations facilitated further by its more than 70 double taxation treaties, Malta has a reputation as an established finance centre.

The Malta Financial Services Authority (MFSA) is a well-established, respected, yet approachable regulator. MFSA is a member of the European System of Financial Supervision, including the European Banking Authority and the European Insurance Authority.

MFSA forms part of the Single Supervisory Mechanism within the European Central Bank. Malta has a well-diversified and resilient economy.

In March 2024, Fitch affirmed the country’s A+ long-term rating with a stable outlook. In its spring 2024 economic forecast, the European Commission projected that Malta would have the highest economic growth rate in the EU in 2024 and 2025.

In May 2024, the unemployment rate stood at 3.2%. Having the euro as its official currency, reliable and well-developed IT infrastructure, excellent flight connections, and a safe and pleasant lifestyle further attract international business to Malta.

Malta’s insurance protected cells provide a strategic opportunity for global captives seeking more efficient EU and UK risk coverage and market access.

With its favourable regulations, EU membership, and experienced PCCs and insurance management companies, Malta offers cost-effective, flexible, and agile solutions for businesses seeking to address and thrive through emerging captive insurance challenges.

Pioneering excellence in the insurance sector

Graziella Grech, chief operations officer of FinanceMalta:

FinanceMalta, the public-private initiative tasked with promoting Malta’s financial services sector, continues to enhance Malta’s reputation as a prime jurisdiction for insurance and captives.

Positioned strategically in the heart of the Mediterranean, Malta offers a robust regulatory framework, a favourable business environment, and a wealth of expertise, making it an attractive destination for captive insurance companies.

FinanceMalta plays a crucial role in promoting Malta’s insurance sector. Through targeted marketing campaigns, participation in international conferences, and the active fostering of connections between industry stakeholders, FinanceMalta ensures that Malta remains at the forefront of the global insurance market.

Their efforts in showcasing Malta’s strengths at events such as the VCIA Annual Conference highlight the island’s unique offerings and foster new business opportunities, creating a sense of inclusivity and collaboration in the industry.

Malta’s unique combination of regulatory excellence, innovative structures, tax efficiency, skilled workforce, and strategic location makes it an ideal jurisdiction for captive insurance companies.

As FinanceMalta continues to champion Malta’s financial services sector, the island’s reputation as a premier destination for insurance and captives is set to grow even stronger. Malta stands out as a beacon of opportunity for businesses seeking a dynamic and supportive environment for their captive insurance needs.