Malta’s Securitisation Cell Company Regulation for ILS

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Malta has nearly completed its new regulations which will draw together the special purpose reinsurer concept with protected cells.

Cell companies have been an established feature of Maltese legislation since 2004, following the enactment of the Companies Act (Cell Companies carrying on business of insurance) Regulations, 2004. Moreover, the island is one of the domiciles which has been targeting the insurance-linked securities (ILS), catastrophe bond and reinsurance convergence sector since 2013. One year later, it put forward its regulations governing the formation and domicile of Reinsurance Special Purpose Vehicles (RSPV).

It then launched a consultation for a proposed set of regulations, known as Securitisation Cell Companies Regulations, 2014, hereinafter referred to as ‘SCC’. Its objective was to ensure that it had a flexible range of options for reinsurance, catastrophe bonds and insurance-linked securities (ILS).

As clearly stated in SCC, a “cell” means a “cell created by a cell company for the purpose of segregating and protecting the cellular assets of the company in the manner provided by these regulations and includes a reference to segregated accounts, compartments or units within a company having multiple accounts, compartments or units, by whatever name designated, and the word “cellular” shall be interpreted and applied accordingly.” Once adopted, Malta will become the first European Union Member State to legislate for the use of protected cells companies as securitization vehicles.

Particularly evident is the fact that there is an efficient segregation of assets and liabilities in the SCC structure. It prevents creditors of one cell from having recourse to the assets of another cell, thereby providing guaranteed protection to investors in relation to specific sets of assets. In cases of insolvency, the insolvency of one cell has no effect on the solvency of the other cells.

The Malta Financial Services Authority (MFSA) published some commentary regarding the feedback it received during the consultation process for SCCs on 27 October 2014. A final draft of the proposed legislation has also been published which includes the fine-tuning made by the MFSA in light of the feedback received.

The MFSA aims at processing applications as speedily as possible and is prepared to work to the timeframes agreed with applicants. Approvals need not require a lengthy process, and in most cases delays are caused as a result of applicants supplying incomplete or inaccurate documentation.

Malta will now attract a wide range of ILS or cat bond businesses due to the flexibility added into the proposed vehicles. The domicile market is becoming increasingly competitive, with established player Bermuda leading the way in ILS. However, with the expected further growth of the ILS market, there seems room for more choice enabling sponsors to locate their ILS vehicles in different locations.

The new legislation is expected to come into force by the end of this year.