Legislative Amendments made to the Insurance PCC Regulations

On 30th August 2024, Legal Notice 201 of 2024, (The Companies Act (Cell Companies Carrying On Business Of Insurance) (Amendment) Regulations, 2024) (the “PCC Amendment Regulations”) was published in the Malta Government Gazette. The Amendment Regulations modify key provisions of the Companies Act (Cell Companies Carrying On Business Of Insurance) Regulations (the "PCC Regulations").

The Amendment Regulations introduce legislative amendments in three main areas:

A) The availability of non-recourse by certain cells’ creditors against the core;

B)Transfer of cellular assets; and

C) Winding up of cells.

A. Exclusion of Non-Recourse‍

Position under the PCC Regulations: Availability of Non-Recourse for Captive Cells and Reinsurance Cells

The PCC Regulations allowed for the possibility of written agreements to be entered into whereby the creditors of cells which carried on exclusively either (a) business of affiliated insurance or (b) business of reinsurance, would not have recourse against the assets of the core.  In case of compulsory insurance this was only possible if the MFSA was satisfied that there was sufficient protection for the insureds, policyholders, creditors and other interested parties. The PCC Amendment Regulations significantly limit the availability of non-recourse. The non-recourse is now available only with respect to cells carrying on exclusively business of affiliated insurance and where the cell holds enough capital to cover the higher of the Solvency Capital Requirement or the Minimum Capital Requirement.  In case of compulsory insurance, the MFSA has to be satisfied that there is adequate protection for the insureds, policyholders, creditors and other interested parties.

Grandfathering clause

The PCC Amendment Regulations introduce a grand-fathering clause for existing non-recourse agreements entered into by captive and reinsurance cells before the entry into force of the said regulations.

Such agreements may continue to operate for ten (10) years from the date of the PCC Amendment Regulations.

B. Transfer of cellular assets

Previously, the PCC Regulations allowed for the transfer of cellular assets to any person, regardless of their residency or incorporation status, and whether or not they were a cell company.

However, the PCC Amendment Regulations abolish this provision and now restrict the transfer of cellular assets. The Amendment Regulations state that cellular assets attributable to any cell of a cell company may only be transferred to:

Another cell company authorized under the Insurance Business Act (Chapter 403 of the Laws of Malta) (the “Act”);

An authorized insurance undertaking, European insurance undertaking, or European reinsurance undertaking as defined under the Act;

A third-country insurance undertaking as defined under the Act; or

Another cell of the same cell company, but only in the following cases:

i. Where the transferring cell does not limit its liability to its cellular assets; and

ii. Where the shareholders of the transferring cell and the receiving cell are the same persons.

The PCC Amendment Regulations also refers to the transfer of the cellular assets attributable to any cell of a cell company enrolled in the Brokers and Managers Lists (as defined in the Insurance Distribution Act, Chapter 487 of the Laws of Malta).

The PCC Amendment Regulations authorize the MFSA to determine the transfer procedure through the Insurance Rules. The MFSA has published such rules which are found in Chapter 17 of the Insurance Rules and are titled Cell Companies Carrying on Business of Insurance.

While the transfer of cellular assets still requires MFSA approval, the PCC Amendment Regulations prima facie abolish the provisions in the PCC Regulations requiring creditor consent during the transfer procedure. However, though such requirement is no longer found in the legislation itself, it has been transposed into the Insurance Rules.  The latter indeed requires the publication of a transfer notice either in the Malta Government Gazette or on a website maintained by the Malta Business Registry for a period of 3 months, during which a creditor may file an objection.

Furthermore, the PCC Amendment Regulations specify that provisions relating to the reduction of share capital under the Companies Act (Chapter 386 of the Laws of Malta) do not apply. Instead, the cell company must, immediately after seeking MFSA approval for the transfer of cellular assets, but before the transfer is approved, file a notice of transfer with the Malta Business Registry using the form found in the First Schedule of the Amendment Regulations.

C. Winding up of cells

The PCC Amendment Regulations introduce new procedures for winding up cells.  The applicable provisions are found both in the PCC Amendment Regulations and in the Insurance Rules published by the MFSA.

The salient take-aways are the following:

- In case of a solvent winding up, the insurance company is required to provide (a) an external auditor’s certificate to certify that the cell has no outstanding liabilities arising from the business of insurance and (b) a directors’ declaration of solvency of the cell in the form as per the Second Schedule of the PCC Amendment Regulations; and

- In case of an insolvent winding up – either because (i) the cell’s assets are insufficient to meet its liabilities and  no recourse is available to the core’s assets or (ii) the cell’s assets are insufficient to meet its liabilities and notwithstanding recourse is available to the core’s assets, the core’s assets are also insufficient to meet the cell’s liabilities, the cell has to be reorganised or wound up as if it were a Maltese insurance company in accordance with the provisions of the Insurance Business (Reorganisation and Winding up of Insurance Undertakings) regulations.

Authors: Nadia Cassar (Senior Associate, Ganado Advocates) & Roberta Attard (Advocate, Ganado Advocates)