Atlas Insurance protected cell business grows

Published: 23 February 2009

Atlas Insurance has managed to license three cells within two years, a fourth is in the offing and others are in the pipeline, according to managing director Michael Gatt.

In collaboration with British Insurance Brokers Association (Biba) and with the support of the Malta Financial Services Authority (MFSA), Atlas Insurance has held an afternoon seminar at Lloyds Building in London with the theme Protected Cells - When Size Does Not Matter.

Atlas Insurance PCC Limited is actively promoting Malta as an ideal European location for insurance business and, particularly, its protected cell facility.

Back in Malta, Atlas managing director Michael Gatt, who co-chaired the seminar with Peter Staddon, head of Biba's technical services, is enthusiastic about the response and the interest that was generated among the 50-odd participants.

Mr Gatt is very optimistic about the prospects for the development of the protected cell business.

Mr Staddon is also satisfied with the feedback at the event, saying: "Most of the attendees thought it was worthwhile." Encouraged by the response, he hopes that Biba and Atlas will organise similar seminars for other regional brokers who were unable to travel to London.

In the UK, Mr Gatt outlined Atlas history and its connection to Commercial Union, Guardian Royal Exchange, Norwich Union and AXA, which merged into Atlas.

Mr Staddon described its conversion to an insurance company and ultimately into a protected cell company. Atlas Group comprises AXA PPP healthcare, an insurance broking arm, and an investment services provider.

AXA maintain a shareholding in the Atlas Group.

Matthew Bianchi, a partner at legal firm Ganado & Associates outlined Maltese PCC regulations and highlighted the insulation of cell assets and liabilities, possible arrangements for non-recourse to core assets, and cell dividend distributions.

Neville Gatt, a partner at PricewaterhouseCoopers (Malta), gave a presentation on the tax treatment of insurance business. "Malta is a high tax jurisdiction, but operates a full imputation system of taxation which results in tax refunds to shareholders, providing extremely tax-efficient results," he pointed out.

Praveen Sharma of Marsh Ltd, who attended the seminar, commented that the Malta tax system enjoys EU approval. The combination of EU-compliant PCC regulations and the Maltese tax system offer a very attractive package for Malta-based insurers and cell promoters.

Guest speaker Callum Beaton, managing director of Callum Beaton (Insurance Consulting) Limited, gave an independent view on captives and the Maltese connection. He highlighted the collection of benefits of creating a cell in a Maltese PCC and pointed to some issues which required careful consider for potential pitfalls to be avoided. The main strengths of a Maltese cell derive from the ability to underwrite risks cross border in the EU, he explained.

Mr Beaton highlighted the advantages of creating a captive cell within a PCC as opposed to forming a captive insurance company. "The PCC concept is well accepted and recognised: a cell does not have directors and therefore it holds no board meetings, reducing travel costs significantly. A cell offers simplified administration for cell owners who will be able to focus on insurance," he said.

David Mifsud, senior underwriter at Atlas, focused on cells writing third party risks and their distinction from captives. "A cell does not only cater for captive insurance business," he emphasised.

"A cell owner may be an intermediary or an intermediary's client with a plan for selling insurance to third parties." He underlined the various reasons for creating a cell and explained how the classic benefits of setting up a captive also apply to a cell.

He pointed out that the initial capital requirement and the running costs of a cell are much less than those for establishing a captive insurance company and therefore "the creation of a cell would be ideal for an intermediary or his client irrespective of their size".

Mr Mifsud presented case studies to highlight the various roles that a broker could play in different scenarios. A broker can be an owner of a cell, and can act as agent and/or claims handler of the cell in the country where the risk is situated. He can also act as the broker of the cell for reinsurance cover.

A cell within Atlas may also be managed by an insurance manager: Atlas enjoys excellent relations with Maltese subsidiaries of international managers.

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Atlas Adds Third Cell

Published: 19 December 2008

The Malta Financial Services Authority has approved the creation of a third cell within Atlas Insurance PCC, the Malta-based protected cell company.

The cell, which was licensed in December 2008, is called Travelodge Cell and will write Room Cancellation Insurance sold to persons booking accommodation with the parent hotel company, Travelodge. It operates over 350 hotels in UK, Ireland & Spain and is owned by Dubai International Capital. Six and a half million people stayed with Travelodge last year and 85% of reservations are currently made online at travelodge.co.uk.

The Cell client was introduced by Heath Lambert Insurance Management (Malta) Limited who have been appointed by Atlas to carry on management services to the Cell under a management services agreement. This agreement is in line with Atlas’ objective of working closely with Malta-based Insurance Management companies and providing the Protected Cell facility to their clients.

In the meantime Atlas has received a letter of intent from the MFSA in respect of an application submitted for a fourth Cell which, upon approval, will write captive insurance business.

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Atlas Adds Second Cell

Published: 18 August 2008

Atlas Insurance PCC (Atlas), the Malta-based protected cell company, has licensed a second cell and has submitted an application for a third.

The cell, which was licensed in the last week of June, is called PerfectHome and will write theft and accidental damage for the parent company, home goods hire purchase chain, PerfectHome.

Atlas managing director Michael Gatt confirmed that the cell is to be managed by Heath Lambert. Gatt said he expected confirmation on Atlas’s third cell application in about two months time.

PerfectHome, which sells electrical appliances and furniture in stores across the North West of England on a weekly in-store or monthly direct debit credit basis, is said to be planning a rapid store rollout across the UK.

Since opening its first store in Birkenhead, Merseyside, in July 2006, the company has committed to opening a minimum of 15 new shops a year over five years.

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Clearing the Insurance Premium Tax Compliance Hurdle

Published: 7 March 2008

To benefit from EU passporting opportunities, captives and insurers must first adopt effective means for achieving premium tax compliance, says Mike Stalley of FiscalReps

The great interest in Malta as a base for captives is a testament to the convenience and support offered by the MFSA and local business community to companies wishing to cover risks in the EU. However, while this helps to eliminate many immediate headaches, there are still various issues that a captive owner must wrestle with in Europe. One of the more complex and potentially troublesome is Insurance Premium Tax (‘IPT’) and it is important for captives to have an effective strategy to achieve compliance.

Atlas Insurance PCC Limited is one of the businesses operating at the forefront of Malta’s expanding insurance industry. Long-established as a direct insurer, the company recently converted into Malta’s first Protected Cell Company. By offering a cost-effective, flexible and secure alternative to traditional insurance, Atlas is poised to ride a wave as one of the first PCCs in Europe. However, to meet its objectives, Atlas first needed to find a solution to managing clients’ IPT obligations.

As Mark Camilleri, Atlas’s group financial controller for Compliance, explains, “To deliver the financial and administrative benefits of a Protected Cell Company, we needed to be able to ensure clients’ IPT compliance in any EU market. With FiscalReps, we have found a streamlined IPT compliance solution that is ideal for anyone looking to cover risks across Europe.”

A Complex Undertaking

IPT in the European Union is notoriously time-consuming, both to calculate and to pay. This is a consequence of the many parallel IPT regimes that a captive must often deal with: as the EU has no uniform IPT code, individual member states are free to operate their own national systems. At present, of the 27 EU member states, 21 operate their own IPT or parafiscal regimes, and, unhelpfully, their tax rates and regulations vary widely. This therefore demands specialist local knowledge, tailored filing arrangements, as well as mastery of local language and currency issues. In many territories, there is also a requirement to appoint a local fiscal representative.

Despite moves towards European integration on other fronts, there is no sign of a move towards standardised IPT across the EU. In fact, the situation may actually worsen, should the remaining members decide to introduce their own IPT schemes.

The need to comply with multiple jurisdictions stems from the principle upon which IPT liability is determined, namely the Location of Risk. According to this, the crucial factor is where the insured risk is located, rather than where the captive, manager or other party is based. If a captive is protecting assets in five European territories, it may find that it is accountable to the same number of national tax authorities.

In one respect at least the EU provides some region-wide uniformity: the Second Non-Life Directive provides a common definition for the Location of Risk, thereby avoiding the possibility of risks being double counted. Nevertheless, the intended efficiency of a captive can be quickly compromised by a web of IPT compliance concerns.

As a hypothetical illustration, consider a captive based in Malta that insures its British-based parent company’s Cadiz distribution centre and Munich sales office. Notwithstanding the involvement of other territories, the overriding issue is that the risks are located in Spain and Germany. Those counties’ tax authorities must therefore receive their due.

This principle applies regardless of how the policyholder accounts for the cost of insurance internally. These could be taken as a central cost to be borne by the parent or recharged to the subsidiaries or operations covered by the policy. In either event, the location of risk remains constant, so the appropriate taxes must be calculated and paid to the local authority, even if the local operation does not contribute to the cost of the coverage.

The amount of tax to be paid is calculated by allocating to each territory an appropriate share of the total risk premium. In this instance, whoever is responsible for making tax payments must use the Spanish and German tax rates and filing rules to arrive at the correct duty, and then ensure this is paid in the appropriate manner through the local fiscal representative.

The need for compliance

Understandably, insurers and captive owners alike have often found it challenging to complete this regulatory obstacle course. Most have done their best to comply in full, although many have fallen short through miscalculation or misinterpretation. For some, the likely administrative cost of compliance has proved a sufficient deterrent against insuring a risk in the first place. Generally, actual IPT compliance has been an area with ample room for improvement, with few insurers or captives fully confident of the extent of their compliance.

In the past this was judged an acceptable risk, as IPT was seldom examined closely. However, today’s corporate governance environment demands a far more rigorous approach. It is no longer sufficient to just “do one’s best” and hope that taxes have been settled correctly. Regulators, investors and tax authorities on both sides of the Atlantic now expect corporations, and therefore their captives, to have a thorough control of operational risks, including sources of financial and reputational exposure.

The consequences for failing to do so can be harsh. Businesses scrutinised by regulators, investors and the media run the risk of public criticism and the associated harm to share values and reputations. Furthermore, companies may also find themselves facing fines or even litigation if pursued by tax authorities, as happened in the Kvaerner case of 2001. In that instance, the European Court of Justice ruled Kvaerner, the policyholder, liable for insurance premium taxes that had not been properly paid by its insurer. Recent developments in markets including Italy and Germany show that other tax authorities are also tightening up on IPT compliance. As insurers are generally deemed responsible for collecting and settling premium taxes for their policyholders, a captive’s failure to comply with local tax laws could result in unpleasant consequences for its parent.

The streamlined solution

Faced with these realities, Atlas Insurance recognised that its Protected Cell clients would need confirmation that their IPT compliance was assured. While the conventional solution would have seen Atlas appoint a fiscal representative in each EU member state, this would quickly have created an administrative burden at odds with the company’s lean and efficient approach. The resulting number of relationships would also have made it difficult to achieve the degree of insight and responsiveness that compliance now demands.

Instead, Atlas turned to FiscalReps to provide an end-to-end solution to its needs. As the leader in IPT compliance, FiscalReps has a network of offices across the EU able to act as fiscal representatives in any required market. “Rather than building and managing our own network, we have FiscalReps act for us in each territory as needed”, says Camilleri.

As well as providing on-the-ground support, FiscalReps also assumes responsibility for calculating the appropriate amount to be paid. “We have effectively outsourced the IPT management process, with FiscalReps’s tax experts working out the appropriate amount per territory, and then filing and paying it according to local rules”, says Camilleri. “Crucially, there is complete transparency, so our clients can access detailed reports of calculations and see documented proof that taxes have been properly filed and paid.”

“Atlas aspires to become the leading PCC firm in Europe, which demands a scrupulous approach to every aspect of customer service. FiscalReps provides an important element of our programme of setting new standards in our market”, he concludes.

With its supportive regulation, stability and English language use, Malta is a progressive and attractive centre from which to operate into the EU and EEA. By adopting a similarly progressive approach to premium tax compliance, captives and insurers can derive the maximum benefit from their presence.

Mike Stalley is CEO of FiscalReps, the leading provider of outsourced IPT compliance solutions. For more information, visit www.fiscalreps.com

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First Protected Cell for Atlas Insurance and Malta

Published: 5 March 2008

The Malta Financial Services Authority has granted Atlas Insurance PCC Limited a licence to operate the first protected cell from Malta. This is Atlas’ first cell since it was granted a licence to operate as a Protected Cell Company, another first for Malta. Atlas Insurance PCC is a member of the Atlas Group, a market leader in the local insurance and investments sector.

The cell was introduced and will be managed by HSBC Insurance Management (Malta) Ltd. HIM is the marketing name under which the HSBC Group provides insurance management and/or third party administration to insurance/reinsurance companies, captives and cell companies.

The cell originates from the UK and will transact capital guarantee insurance.

“We are extremely pleased to have structured the first cell within Atlas. We are currently in discussion with a number of other interested promoters and we are confident that by the end of 2008 we shall have created a further number of cells underwriting insurance risks in different European countries. The formation of this cell marks the beginning of a new chapter in Malta’s insurance industry.” said Michael Gatt, Atlas’ CEO.

“This was a great opportunity for HSBC Insurance Management to demonstrate the benefits of Malta’s PCC legislation for clients who wish to establish their own insurance entity without having to pay-up the minimum own funds required to set up a standalone insurance company.” said Ray Schembri, HIMM’s Managing Director.

In response to the introduction of the Companies Act (Cell Companies Carrying on Business of Insurance) Regulations, 2004, Atlas has converted to a Protected Cell Company (PCC). This enables Atlas to create cells within its structure, providing the possibility for third parties to use this facility to carry on business of insurance with a lower level of required capital. The assets of each cell are segregated from the assets of the other cells and the core. The cells also take advantage of the PCC’s expertise and experience with local legislation, financial standards and other areas such as reduced costs of shared back office, legal and underwriting facilities.

Interest in this innovation has been substantial, especially due to the fact that there are less than 40 protected cell domiciles worldwide, several of them dormant, and with only a handful operating in or near Europe. Malta is presently the only EU member state providing protected cell facilities for non-EU companies wishing to passport their activities in the EU.

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Atlas Launches Website Aimed at International Business

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Interview with Managing Director, Michael Gatt

"In 2004, Malta introduced legislation providing for the establishment of Protected Cell Companies (”PCCs”) and also for the conversion of existing insurance companies into PCCs.

A PCC in Malta is subject to the strict regulatory requirements applicable to European insurers and therefore it may not be easy for insurance managers to justify the capital needed to set up their own PCCs. The Board of Atlas has taken advantage of this situation and converted its well established insurance company to a PCC. As a PCC Atlas will utilise its existent capital and administrative infrastructure and its insurance expertise in managing cells created within the company."

- Are you writing business for Atlas Insurance PCC yet? What has been the rate of take-up for cells since the company was licensed last November?

"During the past six months we have been answering various enquiries and working on feasibility studies. We have also been talking to insurance management companies and international insurance brokers extending our offer of the PCC facility to their clients. We have submitted our first application to the MFSA for the creation of a cell, which will be co-managed by a local subsidiary of an international management company. We are also looking at a business plan for a prospective cell writing property business in the U.K, which will likely lead to our second application.

We anticipate the creation of two cells this year and we are confident that the number of cells will grow at a higher rate next year.

We shall obviously continue to provide excellent insurance services to our existing and potential clients in Malta through the non-cellular part of the company."

- What is the attraction to insureds of a cell in a Malta-based PCC?

"A Malta based PCC is subject to the EU regulatory regime and, therefore, offers better security and comfort to prospective insureds, than cells operating from jurisdictions having less onerous requirements.

The administrative costs are relatively low. A flexible tax regime, which enjoys EU approval, and double tax treaties with over forty countries provide a very attractive environment to operate from."

- Where have the majority of your captive PCC clients come from? What were their reasons for choosing Malta and Atlas?

"The majority of enquiries and requests for feasibility studies emanated from European Union States. Most came from the UK but some also came from continental Europe like Germany, Belgium and Italy.

The ability of a Maltese cell to write directly into Europe under “the freedom to provide services” provisions is a distinct advantage over cells operating from a non-EU domicile. The use of fronting and relative fees are thus eliminated.

Atlas is well established as an insurance company writing third party risks in Malta. It has built an excellent reputation through its very long history of carrying on insurance business locally, as agents of AXA, Commercial Union, Guardian Royal Exchange and Norwich Union prior to becoming an insurer in 2004."

- What are the typical setup costs and turnaround for taking on a cell? How does this compare to Malta’s closest competitors in other PCC domiciles?

"The application fee to the MFSA is €698.81 (Lm300) and on acceptance a further fee of €698.81 (Lm300) is payable. Legal and other fees and expenses are lower than those found in competive domiciles.

Atlas charges a very modest fee for carrying out feasibility studies and for assisting in the application process. (These fees are refunded to the client should Atlas be appointesd as managers of the cell).

Annual Fees chargeable by Atlas:

• Fee for providing Cell facility
• Insurance Management fee depending on work involved (to be agreed with cell owner in advance)
• Risk premium to cover any risk gap arising from exposure to the core capital after taking into account own funds of the cell, reinsurance and other guarantees or letters of credit.

The application process should take no more than 3 months."

- Are PCC cells likely to be the biggest area of growth for Malta’s ART industry over the next year or two?

"Since Malta became an EU member, most international insurance management companies have set up an operation in Malta. They were successful in attracting a considerable number of insurers and captives to operate from the Island due to the attractive and flexible regulatory and tax environments prevailing locally. The added facility provided by Atlas Insurance PCC Limited is expected to enhance Malta’s ability to promote itself as a cell destination for smaller and medium sized companies that do not wish to set up their own captive insurance company. The cell facility is also expected to attract potential small insurers or reinsurers writing limited third party risks.

The PCC facility provides a welcome opportunity to prospective investors and complements the growth of the insurance sector in Malta."

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Atlas Insurance Limited converts to a Protected Cell Company

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