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Malta could become alternative to the UK after Brexit: finance leaders

6th November 2019 - Author: Matt Sheehan

Malta could develop into an alternative base for UK re/insurers after Brexit, according to leading figures from financial and re/insurance industry bodies in Malta.

Speaking at a recent roundtable in London, Matthew Bianchi, Governor of FinanceMalta, said expected the jurisdiction to evolve into an attractive option for re/insurers looking to retain their business in the European market after Brexit.

Like other popular destinations for re-domiciliation ahead of Brexit – such as Ireland – Malta is a member of the European Union (EU) and offers a flexible regulatory environment.

Malta in particular, Bianchi noted, has benefitted from the protected cell company (PCC) structure that it offers, which will be a unique feature of the jurisdiction once the UK departs from the EU.

“We’re the only jurisdiction – especially now with Brexit happening – with PCC legislation on the cards,” Bianchi told participants at the roundtable. “The other jurisdiction is Gibraltar, but Gibraltar leaves with the UK.”

“It shows you how pliable and how innovative we are as a jurisdiction,” he said. “We don’t like to box ourselves into corners and say no to business.”

“Cells do provide a certain degree of efficiency when it comes to moving things around and setting up costs,” added Raymond Schembri, Head of Insurance & Pensions Supervision at the Malta Financial Services Authority (MFSA).

Cost-efficiency also continues to make Malta an attractive option for re/insurers, although the speakers did acknowledge that this benefit may start to erode as the cost base starts to become more expensive.

“I think we’re still at a point where if you compare us to Luxembourg or Ireland – which are the two obvious comparative jurisdictions – you’ll that we are still half or three-quarters away in terms of cost,” Bianchi said. “And hopefully we will retain an element of cost efficiency.”

However, while there may be opportunities ahead for Malta, the island has not yet seen a real positive impact from the market disruption caused by Brexit.

“I think we’ve probably gained as much as we’ve lost,” Bianchi said. “I think Brexit is a bad idea for everyone, and that’s how we’re seeing it as a jurisdiction. We’re certainly not like vultures trying to take anything from others.”

An ongoing challenge for Malta is the limited size of the talent pool on the island, which presents a barrier for larger operations looking to migrate, as they may need to employ hundreds of people.

With employment on the island around 98%, companies with business there need to be careful with cost efficiencies, because labour-intensive operations can very easily drive up wages.

But Malta has still seen an influx of smaller operations in recent years, particularly in the space relating to the broker PCC model, the speakers explained. This unique model allows intermediaries to establish segregated cells exactly like with insurance companies.

“The intermediary market has been a bit slower than the insurer market in catching on to the problem of Brexit,” said John Tortell, Chairman of the Malta Insurance Management Association, and Managing Director & Owner of Jatco Insurance Brokers.

“The first flood was the insurer flood,” Tortell explained. “The intermediaries tended to say ‘it will sort itself out,’ but now it has actually come about that they cannot give advice in the European Union in a very hard Brexit.

“Now nobody is willing to take that risk, so other jurisdictions are actually asking for small fronting arrangements where the local broker would take on that deal for the UK broker for the beginning for the first year to see how it pans out.”

Malta is also trying to position itself as a “mini hub” for run-off business, which the speakers noted has grown substantially in recent years.

There is also a big ecosystem around run-off, they observed, with big financings and Part VII reinsurance transfers out of the UK.

“A lot of the larger European run-off operators have either their main consolidator or one of their main undertakings established in Malta,” Bianchi said. “So I have a feeling there could be opportunities there, because there will be some portfolios that will have to go into run-off.”

Going forward, the jurisdiction will similarly be angling for new business by focusing on regulatory innovation, Schembri said.

This is evidenced by the upcoming launch of a new sandbox environment targeted at insurance and reinsurance companies experimenting with new fintech ideas.

In addition, Malta intends to encourage more technological efficiencies in the re/insurance sector by expanding on its reputation as a blockchain leader.

“Unfortunately, with insurance most of the policies nowadays are very similar to the policies that I first encountered way back in the mid-80s,” Schembri remarked. “It’s just a shame with all the technology that’s readily available that we haven’t seen enough digitisation in insurance. And clearly that is the future.”

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