PKF Malta is in the process of getting a licence to provide internal audit services to the captive insurance industry.
“A normal insurance company has a lot of customers and the public needs to be protected, so there is more emphasis on their statutory audit. A captive is totally different as it is a parent company offering its insurance services to its own subsidiaries,” audit partner Mrs Donna Greaves explained.
“Nevertheless, in Malta, under the Insurance Business Act, you need to be an approved internal auditor for captives and we are in the process of getting that licence.”
The new section will be headed by Mrs Donna Greaves, who has worked for the company for eight years and a partner for the past three. She will be assisted by Attila Radnai, who joined the team from Hungary, bringing with him four years of experience working for a Big Four audit company. PKF Malta senior partner George Mangion will also be heavily involved.
Captive insurance legislation was introduced to Malta in 2009 and in anticipation of this, a year before, PKF Malta started promoting Malta as the ideal jurisdiction. Mr Mangion and other team members have attended several conferences in various countries, as well as organising PKF Malta’s own events.
The legislation has been repeatedly updated and has been extended to Protected Cell Companies and Incorporated Cells Companies: a PCC is a single legal entity and cells within a PCC have no legal personality; an ICC, on the other hand, is a unique vehicle with each cell having a separate corporate personality. Malta is the only EU member which has both PCC and ICC legislation. Captives are regulated by the Insurance Business Act and need to be licensed by the Malta Financial Services Authority. However, they have some advantages: their application is approved within three months, rather than six, although they still require a ‘fit and proper’ test for their executives and need to have ‘know your customer’ procedures in place, as well as an identified ‘ultimate beneficial owner’.
The proactive legislation is crucial as Malta has considerable competition from Ireland and Gibraltar. Malta’s membership of the EU gives it an edge over Gibraltar, which has a unique situation. For example, Mr Radnai explained, Gibraltar is part of the EU for VAT but not for insurance business. Malta also has lower servicing costs and a very favourable tax regime. PKF Malta is drawing on the expertise of another member of PKF International – PKF Littlejohn – which is already very active in this sphere, with seven partners and five managers dedicated to captive insurance.
Solvency II will impose considerable burdens on all insurance companies, and they will be very complex and costly. PKF Littlejohn has been in the insurance market for over 100 years in London but wants to expand and sees Malta as the ideal conduit. The implementation of Solvency II by 2016 has created a great demand for internal audit services for captive insurance industry – among other things – a demand that PKF Malta intends to fill with the support of PKF Littlejohn.
“Solvency II will impose considerable burdens on all insurance companies, and they will be very complex and costly. It will hopefully resolve some issues, by narrowing the accounting gap between IFRS and Solvency I, thereby reducing the need to report to two different regimes,” Mr Radnai said.
“Insurance companies will also probably be able to choose between an internal capital requirement calculation or the European standard. For smaller companies the standard calculation will be more advantageous as the internal model will be very expensive and complex. “The PCC structure offers great advantages because they can leverage their mutual funds to satisfy capital requirements. And since the Solvency II regime will probably require more and more capital, we believe the PCC will gain in popularity.”
Apart from capital requirements, Solvency II has another two pillars: risk governance; and disclosure. One of the details still being discussed is whether PCCs can disclose financial statements at a mutual level. “If this happens, it could be a very cost-effective structure for small insurance enterprises,” Mr Radnai added.
For now, PKF Malta is preparing for the launch, with training planned and a “significant” client already in the pipeline. Mrs Donna Greaves believes that the personalised services offered by smaller firms puts them in a good position to compete with the Big Four auditing firms. “We are able to offer services like consultancy, advisory, internal audit and other services – backed up by PKF Littejohn’s expertise. We also offer registration and licensing procedures.
“We will be meeting the regulator in the coming weeks and do not foresee any obstacles. In the meantime, we have spent several weeks developing working papers and standard formats as the audit procedures for normal companies are totally different. We are also inviting local insurers to meet us so they can see what we will be able to offer and we can understand their needs. This means that we will be able to hit the ground running,” she said.
According to the Malta Financial Services Authority, there are 11 affiliated companies – also known as captive insurances. There are also 10 PCCs, with 22 cells in all, up from eight in 2011. There were four incorporate cells companies, with 11 cells, up from one ICC in 2012.
Understanding the game
PKF Malta has been among the leaders in promoting the i-gaming industry in Malta but after years of spiralling growth, the sector is due for a revamp of its legislation, with an eye on “future-proofing the industry”, in the words of the head of the Lotteries and Gaming Authority, Joe Cuschieri.
The LGA has already made several changes to procedures – which it described as “quick wins”. But there is considerably more that needs to be done, from expanding the sector to digital games of skill, to introducing a multi-platform licence and casino licences for cruise ships.
“We have sent out 150 questionnaires to get feedback on what the operators want from the new legislation. We have several gaming clients and understand their opportunities and challenges… The ultimate scope of this study is to see what changes are needed,” Mrs Donna Greaves said. The study will also analyse whether they are interested in operating in other jurisdictions such as Asia and the US, using Maltese regulation, something that the LGA is trying to facilitate through various channels at political and diplomatic levels.
“It will be very difficult – but very interesting. The European market is saturated and this is where growth will come from,”Mrs Donna Greaves said. The study will also get feedback on the LGA itself, asking whether the operators feel that it has sufficient resources to cope with the rapid growth of the sector. “We also need to ensure that they are coping with the regulatory side. Are they vouching for financial statements, conducting oversight and monitoring?” Mrs Donna Greaves said.
For further information please contact Mrs Donna Greaves ACCA MIA CPA B.Com & Registered Auditor & Audit Partner
Email: firstname.lastname@example.org, Tel: (+356) 21 484 373, Mobile: (+356) 9948 4375