Issue link: https://maltatoday.uberflip.com/i/266770
14 BUSINESS & FINANCE This week I was walking in drizzling rain down the street leading from the Holborn tube station in London towards the venue of the Royal College of Sur- geons at Chancery Lane, where an event uniquely designed for risk managers called the Captive Live UK, a two-day conference and exhibition, was being held. FinanceMalta was there with a stand, among other Malta-based insurance companies. PKF invested in promoting the island as an ideal place to set up 'captives' – be it a PCC or ICC – and encourage investors to consider Malta as a EU jurisdiction where it is possible to maximise the effectiveness of corporate insurance programs. Among a list of speakers we find Steve Butterworth, the same person who helped MFSA set up the captive legislature and procedures in the early years. Other topics in the sessions ranged from issues relating to the onset of new regulations of Solvency 11 and advice on where to re-domicile your insurance company. A discussion on how to conduct a feasibility study was chaired by a panel of three namely Alan Fleming (AIRMIC), Julian Philips (R&G) and Tony welter (Citadel). PKF joined the session and spoke in one of a panel of three discussing the rise of the cell companies and whether they are really the smarter Alternative Risk transfer vehicles that they propose to be. The central theme concerns the solutions for insurers and reinsurers with international operations on how to best set a captive insurance company and where this is domiciled to mitigate compliance and tax costs. An interesting subject was how to cover insurance relating to emerging risks, such as cyber fraud, which was discussed at an interesting session composed of a panel consisting of Philippe Gourand (AIG) Alessandro E Felipe (Prysmian group) Tony teixeira (Willis) and Tracey Skinner (Bt Group). A common trend in the sessions was the strategy behind merging and closing inactive captives, which is of topical interest in an economic slowdown. Surely inactive captives can be a burden on the bottom line, so timely awareness of when to close or re-domicile your captives successfully is an invaluable tool. This involves many tasks such as how to properly assess the factors, players and costs involved 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 a better understanding of the reinsurance market realities, conditions and the captive live event is an excellent venue to meet and discuss latest trends with reinsurance market leaders. Successful captive managers need to actively estimate 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 London event talked in some detail about the best way to tackle the added pressures arising from tougher regulation (typically Solvency 11), through which all EU countries have decided to combat banking crisis linked to 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. The main advantages of using a captive registered in Malta covering European risks is that there will be no need for setting up a fronting company. This comes with a number of advantages 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 case of larger corporate structures it goes to show why captives are considered to be a more cost effective solution in a downturn. To quote an 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 because of the clever way that captives generally retain a portion of the overall risk and reinsure the balance. My presentation on day one focused on the advantages of selecting Malta as a captive domicile, in particular the use of Protected Cell Companies or Incorporated Cell Companies. Malta is so far the only EU member that affords a gateway to such vehicles. My presentation consisted of a virtual tour comparing the largest and fastest growing onshore and offshore domiciles. Malta's attributes include its European regulatory environment for licensing and security requirements for effective captive asset management. This tries to explain the protection to captive owners of international standards such as TIEA, OECD and Solvency II. Other speakers presented case studies elucidating 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. A popular topic was how to utilize technology and incentives to manage complex claims and this was tackled by one of the main sponsors, Websure. Really and truly one realizes how Malta, which started offering PCC facilities in 2004, still has a long way to go to catch up with other competing jurisdictions such as Dublin, Luxembourg and Guernsey. Of course efforts by practitioners to attend international conferences and fly the flag are commendable and the government ought to increase its budget to encourage such initiatives. For a start, everyone agrees that London is an ideal venue for competing captive jurisdictions to showcase their advantages for prospective captive owners. In addition to captive management and optimisation, insurance companies will 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. 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 conclusion of QIS 5 assessment within Solvency 11, which is fast becoming a buzz word in insurance circles making it an undeniable fact that Solvency 11 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 of major insurance centres such as Vermont, Bermuda, Switzerland and Cayman to Solvency 11. All such places with the exception of Guernsey have tuned their regulation to mirror the Solvency 11 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 getting closer to that of the European model? 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 need 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 managers namely Marsh, AON, AIG, JLT, 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 continuous upgrading of legislation to allow finer alignments to rules. Since joining the EU, Malta has taken bold steps towards implementing a robust regulatory regime, which 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 62 countries (including USA and Canada) are clear examples of Malta's growing appeal. PKF welcomes the arrival of interested investors to test the waters and join the international family of growing insurance companies. George M. Mangion gmm@pkfmalta.com The writer is a partner in PKFMALTA, an audit and business advisory firm. maltatoday, WEDNESDAY, 26 FEBRUARY 2014 Captives: promoting Malta in London letters of credit ship nance payments forfaiting factoring mbank.com 2132 2100 FIMBank is an international trade nance specialist with an established reputation as a dynamic and customer-driven provider of trade nance solutions. FIMBank is headquartered in Malta and benets from a growing network of international oces. documentary collections bonds and guarantees treasury management structured trade nance commodity trade nance letters of credit ship nance payments forfaiting factoring Trade Finance Solutions engineered for business success Timely awareness of when to close or re- domicile your captives successfully is an invaluable tool George Mangion