Mario Xuereb, strategy lead, Strategy, Business Intelligence & International Business at Atlas Insurance PCC, explains why US and offshore captives can turn to Malta for EU and UK risks.

Captives looking to insure European risks often face structural and regulatory hurdles that drive up costs and complexity. Fronting arrangements, commonly used by US and offshore captives, can consume 7-10 per cent of premiums, and post-Brexit rules now require separate authorisations for EU and UK coverage. Meanwhile, companies offering value-added services such as extended warranties or cancellation benefits are increasingly subject to being classified as insurance in Europe, making admitted carrier solutions essential for compliance.

The Republic of Malta — a full EU member — offers a strategic solution through its Protected Cell Company (PCC) regime. By establishing a ring-fenced cell within an EU PCC, global companies can significantly reduce fronting costs associated with EU risks, write admitted cover in the post-Brexit UK using a single structure, and capture underwriting profits from the growing market for embedded insurance products. This article explores how the PCC model operates and under what circumstances it delivers meaningful economic advantages.

Reducing the cost of market access

A significant advantage of Maltese protected cells is the reduction or elimination of fronting costs for European risks. Traditionally, US and offshore captives have been forced to engage licensed fronting insurers for EU risks. These fronting carriers charge commissions, administrative fees, and collateral demands, which can be expensive. For instance, a captive with US$5 million in European premiums might pay US$500,000 annually in fronting fees, excluding the cost of additional collateral that may be demanded.

By using a Maltese protected cell, captives can directly write risks without the need for a fronting partner, saving significant costs. These costs are fixed rather than a percentage of the premium. Once the premium volume reaches approximately US$5 million, the cost load decreases to around two per cent of the premium, resulting in savings of over 80 per cent compared to fronting fees. Additionally, having direct control over the vehicle removes renewal uncertainties that arise with fronting carriers, who may change terms unexpectedly.

Turning compliance into profit

Captives are evolving from purely financing internal risks to capturing revenue through insurance products. Many global corporations offer value-added services like warranties, cancellation covers, or maintenance packages, especially in sectors like manufacturing, telecoms, and electronics.

These products are increasingly being regulated as insurance, meaning companies need to structure them through licensed carriers to remain compliant.

For example, in Germany, paid warranties are now considered insurance products subject to insurance premium tax (IPT).

To comply with this regulation, some companies have established Maltese insurance vehicles to offer these products in a regulated manner, while maintaining control over their revenue streams.

By owning these regulated insurance products, captives not only manage their risk but also capture underwriting profit and enhance customer loyalty. Moreover, these products tend to be uncorrelated with the parent company’s insurance programme, providing diversification benefits that improve solvency ratios.

Through a cell within a well-structured PCC, this can be done in compliance with EU and UK regulations, helping companies manage their obligations in the evolving regulatory environment.

Dual market access with a single structure

Brexit has created challenges for cross-border insurance, with UK-EU passporting rights no longer in effect. This has led many companies to seek dual licenses or fronting arrangements to cover risks across both jurisdictions.

While a Maltese PCC is authorised to write risks across the European Economic Area (EEA), if it also has a UK branch authorised by the Prudential Regulation Authority (PRA), it enables it to access both EU and UK risks from a single structure.

This dual-market capability allows companies to serve both regions without needing multiple licenses, separate entities, or fronting arrangements.

This streamlined structure is particularly appealing to multinational groups with operations in both the EU and UK, reducing complexity and administrative burden. Malta’s position as an EU member with PCC legislation allows companies to bridge the regulatory gap created by Brexit, offering a flexible, cost-effective insurance solution.

Building credible, compliant insurance platforms

The increased focus on sustainability and stakeholder expectations, particularly around governance, substance, and regulatory compliance, has led companies to reconsider offshore insurance structures. While offshore jurisdictions can offer lower capital and costs, stakeholders now often require a stronger onshore presence.

Malta’s PCCs offer the best of both worlds — the regulatory rigour of an onshore jurisdiction, with the flexibility and cost-effectiveness of a shared services model.

By providing a ready-made governance framework, compliance infrastructure, and reporting mechanisms, Maltese PCCs ease the burden of regulatory oversight, particularly for captives accustomed to less stringent jurisdictions.

Moreover, Malta’s PCCs address the growing demand for ‘substance’ in the insurance industry. Captives are expected to employ key function holders and staff on the ground. A PCC provides the necessary structure to meet these requirements while maintaining the financial and legal protection of a ring-fenced cell.

Simplified compliance in a complex landscape

Malta’s approach to regulatory compliance is particularly attractive for businesses looking to simplify their insurance structures. The Malta Financial Services Authority (MFSA) has streamlined the application process for PCCs, making it faster and more cost-effective to establish a cell. The MFSA’s principles-based approach, which is proportional to the business’s risk profile, makes Malta a particularly appealing jurisdiction for captives.

Additionally, the MFSA has invested heavily in enhancing its supervisory capacity, including technology upgrades and increased staffing. This has enhanced the jurisdiction’s responsiveness, providing companies with greater confidence in the regulatory environment.
Since Maltese PCCs are a single legal entity, the same regulatory filings (such as the Own Risk and Solvency Assessment) cover all cells, which reduces the administrative burden. Additionally, Maltese PCCs benefit from the EU Solvency II framework, which recognises cells as ring-fenced funds. This structure can lead to lower capital requirements compared to standalone insurers.
It is worth qualifying that this lower requirement arises because there are no absolute minimum capital thresholds applied at the individual cell level, but rather to the PCC structure as a whole.
Consequently, capital efficiencies are achieved when a cell’s notional Solvency Capital Requirement (SCR) falls below the absolute floor that would otherwise be imposed on a standalone insurer.

Recent regulatory updates have enhanced the flexibility of Malta’s PCC regime. Cells can now be more easily transferred from one PCC to another or even converted into standalone entities.

This flexibility allows companies to experiment with new insurance strategies within the safety of a cost-effective, shared structure before deciding to create a standalone entity.

Furthermore, Malta’s exemption from IFRS 17 for eligible captives and entities provides another advantage for companies seeking to simplify their financial reporting. While many PCCs are becoming proficient in IFRS 17, this exemption is an attractive option for captives that wish to avoid the complexities of the standard.

The business case for Maltese PCCs

Maltese protected cells offer a compelling solution for multinationals navigating the increasing cost and regulatory complexity of European and UK insurance markets. These cells provide significant advantages, including lower costs, enhanced compliance, and a platform for generating new revenue streams through embedded insurance.

For companies with over US$2 million in European premiums, or those facing the reclassification of add-on services as insurance, Maltese cells eliminate fronting fees, streamline regulatory compliance, and unlock new commercial opportunities, delivering value on multiple fronts.

As European regulations evolve and insurance shifts from a cost center to a value-generating function, Malta’s PCCs are strategically positioned to provide companies with a flexible, cost-effective, and future-ready insurance strategy.

Leveraging Malta’s unique position as an EU member with PCC legislation, and when the PCC operates a UK branch, it has the ability to service both EU and UK markets from a single platform, further enhancing its appeal, offering seamless access to both regions with robust governance and operational scalability.