Malta’s Securitisation Cell Company regulation for ILS near completion

by Artemis on November 6, 2014

Malta, one of the domiciles targeting the insurance-linked securities (ILS), catastrophe bond and reinsurance convergence sector, has nearly completed its new regulations which will bring together the special purpose reinsurer concept with protected cells.

Malta launched its ambitions to become a domicile for the ILS and cat bond sector in 2013, before finalising and bringing into law its regulations governing the formation and domicile of Reinsurance Special Purpose Vehicles (RSPV) at the start of 2014.

It then launched a consultation for a proposed set of regulations for what it is calling ‘Securitisation Cell Companies’ (SCC) as it looked to ensure it had a flexible range of options for reinsurance, catastrophe bonds and insurance-linked securities (ILS), as well as other forms of securities. Once adopted Malta will become the first European Union member state to legislate for the use of protected cells companies as securitisation vehicles.

Matthew Mizzi, Advocate at Malta based law firm GANADO Advocates, told Artemis; “The new Malta SCC regulations enable the market to break new ground in ILS. A number of established and new players in the ILS market have already started engaging with Malta. Some are already planning innovative solutions. This is a healthy development for the market and very much in line with the Malta’s philosophy: Innovation is welcome.”

The Malta Financial Services Authority (MFSA) has now published some commentary regarding the feedback it received during the consultation process for SCC’s. A final draft of the proposed legislation has also been published which includes the changes made due to feedback received.

One of the changes is interesting as it will allow for a single vehicle to be used by multiple sponsors over time. That would make the SCC vehicle potentially suitable as a private catastrophe bond platform, or a facility for ILS fund managers to use to structure collateralized reinsurance contracts into securities.

By adding flexibility into the proposed vehicles Malta will stand more chance of attracting ILS or cat bond business. The domicile market is becoming increasingly competitive, with established player Bermuda leading the way in ILS, followed by the Caymans Islands, Guernsey, Dublin and now Gibraltar and Puerto Rico too, but with further growth of the ILS market expected there seems room for more choice enabling sponsors to locate their ILS vehicles in different locations.

The new legislation is expected to come into law by the end of this year. You can find the feedback and the MFSA’s responses and amendments made to the SCC legislation detailed here.

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