Malta's insurance sector is highly oriented towards international insurers, with insurance management companies based in the country heavily involved in helping to run them on behalf of their parent organisations.

The number of insurers in Malta has grown rapidly over the past five years, mainly because of an increase in international and captive insurance business, though there was a slowdown last year due to the overall economic environment.

There are now 37 internationally oriented insurance companies in the country, compared with 36 in 2008 and only nine in 2005. Among them are eight captives and three protected cell companies (PCCs). A captive insurance company underwrites the risks of a parent company and its subsidiaries, or the risks of members of a trade or professional association. A PCC is a company which, in addition to its core, contains a number of segregated parts, or 'cells'; each cell is legally independent from the others, as well as from the core, so its assets, liabilities and activities are 'protected' from the rest should any of the others get into trouble.

In addition, there are seven insurers that are locally oriented, writing mainly local business, including Middlesea Insurance and HSBC Life Assurance. Finally, not shown in either the table or Figure 1 are two 'non-EU insurance principals' - American Home Assurance and QIC International.

Most, if not all of the internationally oriented insurers have appointed insurance managers to run their Maltese operations, and there are 12 such insurance managers on the island, up from six in 2005 (Figure 2). An insurance manager is an insurance company, broker or individual that provides management services to other insurance companies, including captives, where it is not feasible or cost-effective for an insurer to carry out these functions itself.

Malta offers pure captives, and captives writing third-party business, a number of benefits. These include EU membership, which allows Maltese captives to dispense with the need for fronting companies into the EU; EU-compliant regulation with additional flexibility and responsiveness; a headline corporate tax of 35%, but for captives insuring risks outside Malta, tax refunds which reduce the effective rate to 5%.

Other benefits include the PCC legislation; good local insurance, legal and accounting expertise; and regulations that allow captives to be easily relocated from other jurisdictions that have similar legislation.

Management opportunities

Insurance management has proved to be fertile ground. Among the 12 insurance managers active on the island are global big-hitters such as Aon, Marsh and Willis. The sort of management services provided to foreign insurers setting up in Malta range from carrying out feasibility studies on the viability of a project, and then incorporating the company and applying for a licence.

Once an insurance company is up and running, the insurance manager can then provide every service imaginable, such as insurance, reinsurance, accounting, cash management, risk management, company secretariat services and compliance services, even down to basic back-office functions such as payroll, IT and general administration.

According to a survey conducted by the Malta Insurance Management Association (MIMA) last year, the number of managed insurers and reinsurers in the country almost doubled between 2007 to 2009, from 20 to 38. The total gross premium written in Malta in 2008 by these insurers amounted to €512m, 28% above the 2007 figure. In addition, the gross fee revenues generated by the insurance managers in 2008 rose by almost 200% to €3.7m, from €1.3m in 2007, while the total cash and investments balance for insurers under management increased by 59% to €883m.

Former MIMA chairman John Tortell says the survey provides a clear indication that the international insurance market has become a substantial source of revenue in Malta's financial services sector, "due largely to unrelenting efforts of all the licensed insurance managers to promote their services worldwide and the regulatory authorities to ensure a consistent application of the laws and regulations".

However, the economic downturn last year injected a sober air of reality. Elizabeth Carbonaro, general manager of International Insurance Management Services (IIMS), which is owned by Middlesea Insurance, the country's biggest local insurer, says many insurers were not keen on starting new ventures given the volatility of the markets.

"In 2008, more than 11 third-party writers and seven cells were registered, but in 2009 only two insurance companies and one cell were registered, one of which is managed by IIMS," says Ms Carbonaro. "Having said that, I think 2009 can be seen as an explorative year by clients with a lot of interest being shown by potential clients. We do therefore have certain projects in the pipeline."

Locally oriented insurers

The domestic insurance sector is not as developed as in the more mature EU states. The percentage of premiums collected as a proportion of the country's gross domestic product (GDP) stood at 5.39% in 2008, compared with an EU average of 9%, according to the Malta Insurance Association.

However, for countries at a similar level of development, Malta has a higher level of insurance penetration than everywhere except Portugal. General insurance premiums amount to about 2.2% of GDP compared with the EU average of 3.25%, while premiums derived from life insurance products amount to about 4.2% of GDP compared with 5.5% for the EU as a whole.

Gross premiums written (GPW) for general business by insurance companies with head offices in Malta amounted to €650m in 2008 (€509m in 2007) according to figures published by the Malta Financial Services Authority towards the end of 2009. The increase in GPW came from risks insured both inside and outside Malta, the latter business attaining the largest increase (33% as against 3%). For 2008, the GPW for general business breaks down to €50.2m

for accident and health, €88.5m for motor, €9.8m for aviation, marine and transport, €313.4m for fire and other damage to property, €104m for general liability, €5.4m for credit and suretyship, and €79m for other classes.

Gross premiums written for life business by insurance companies with head offices in Malta amounted to €221.4m in 2008 (€265.2m in 2007). After registering a significant increase in GPW in 2007, there was a significant drop in 2008.

Hard times for some

Middlesea Insurance had a difficult 2009. At an extraordinary general meeting (EGM) last November, executive chairman Mario Grech (who has since retired) revealed that the forecast post-tax loss for 2009 was €41.75m, compared with a loss of €20.6m in 2008 and a profit of €6.9m in 2007.

Middlesea companies operating in Malta ran at a profit last year. The problem has been the losses made by its Italian subsidiary, Progress Assicurazioni. Middlesea issued a statement in February this year saying it planned to wind it up.

Progress had made a profit for the group since its acquisition in 2001 up to the end of 2007. The "substantial" losses incurred since then had been caused by a number of factors, "the combination of which had a devastating impact", said Mr Grech at the EGM.

The saga has placed an unprecedented strain on Middlesea's capital resources, reducing its capital base from €85.8m in December 2007 to €40.1m in September 2009. It therefore made a capital call of €40.2m through a rights issue in December which was supported by the three main shareholders, Bank of Valletta, Mapfre Internacional and Munich Re, and was fully subscribed. It also negotiated additional bank financing of about €8m.

"The group will now strengthen its position in Malta by consolidating its participation in a market which has potential space for substantial growth," said Mr Grech.

Good times for others

It is certainly not all doom and gloom for local insurers. The fortunes of HSBC Life Assurance (Malta) are in direct contrast to those of Middlesea. HSBC's insurance performance held up in a difficult environment. Regular premium sales were up in 2009 compared with the previous year.

Life insurance operations generated a reasonable pre-tax profit, in the circumstances, of €11.7m, down 29% from the previous year.

Last year's recession certainly made its mark on Malta's domestic insurance market. But the ease with which Middlesea raised additional capital shows there is everything to play for as the economy recovers.

Figure 1

Figure 1

Insurance companies operating internationally

Insurance companies operating internationally


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