Malta, a domicile targeting the insurance-linked securities (ILS), catastrophe bond and reinsurance convergence sector, has now completed its Securitisation Cell Company regulations which 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 followed up with a consultation for a proposed set of regulations for ‘Securitisation Cell Companies’ (SCC) as Malta 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 securitisation.
The SCC regulations have now been completed and brought into force, a copy of the documentation can be found here, making Malta the first European Union member state to legislate for the use of protected cell companies as securitisation vehicles.
Professor Bannister, Chairman of the Board of Governors of the Malta Financial Services Authority, commented on the completion of the ILS regulations in Malta; “The Malta Financial Services Authority has been reviewing insurance legislation for sometime as part of its effects to introduce innovation within the existing EU legislation. We first introduced specific legislation for re-domiciliation of insurance companies, then the Protected Cell Company legislation and more recently as part of our drive to introduce Capital Markets activity in Malta, legislation for Re-insurance Special Purpose Vehicles was introduced. However, this latest introduction – the Securitisation Cell Company legislation allows Securitization Vehicles to set up cell structures . This is a unique type of legislation not available in any other jurisdiction as it allows a single cell to issue separate tranches, to transact in different currencies and keep accounts in the currency of choice. The Securitization Cell company is also applicable for all types of securitization transactions.”
Matthew Mizzi, Advocate at Malta based law firm GANADO Advocates, explained the importance of the SCC regulations; “The new regulations complete Malta’s legislative framework for Insurance Linked Securities and continue enhancing Malta’s legislative strengths in the capital markets and securitisation sectors. The drafters of the new law have leveraged on Malta’s experience in legislating for cells in other sectors including the funds and captive insurance industries, where dedicated cell legislation has kick-started Malta’s growth in financial services. Some innovations in the Maltese law are the possibility for separate tranches to be issued from the same cell, and the ability for a cell to transact in separate currencies and keep accounts in a single base currency chosen by the directors for the purpose. It is important to note that SCCs will be available for all kinds of securitisation transactions and will not only be limited to ILS deals.”
“A frequent question about cell structures is how ring-fencing between cells is achieved. The Maltese regulations state that each cell is a separate patrimony of the cell company. In addition, the regulations state that assets attributable to a cell are only available to pay liabilities of creditors transacting with that cell and are protected from claims of creditors of other cells. No business may be transacted through the core therefore eliminating the risk of insolvency of the core.”
Mizzi also explained how the introduction of SCC regulation complements the SPRV regulations to complete the ILS framework for Malta; “Malta has already established legislation for special purpose reinsurance vehicles. The need was felt to legislate for securitisation cell companies after discussions with market stakeholders during 2013 and early 2014 who mostly focused on continental risks. It transpired that there appears to be an opportunity for small to medium sized deals especially in light of the upcoming implementation of Solvency II. The SCC may in some instances be a more advantageous vehicle compared to a stand-alone special purpose vehicle for small to medium sized deals because of reduced set-up costs and faster regulatory processing times. This ties in well with the regulator’s stated goal of fast processing times for all ILS applications.”
With Malta’s ILS regulatory framework now in place it will be able to begin attracting ILS or catastrophe bond business to its shores. It will face stiff competition from the other domiciles active in the space or targeting ILS.
The competition for ILS domicile business is heating up. Established players such as Bermuda, the Cayman Islands, Guernsey and Dublin lead the way, while newcomers such as Malta, Gibraltar and Puerto Rico are targeting the sector now too. But with further growth of the ILS market expected in the future there seems room for more choice to enable sponsors to locate their ILS vehicles in a variety of locations.
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