Protected Cell Companies | Islamic Finance

Malta is the only full EU member state with Protected Cell Company (PCC) legislation, which provides numerous advantages compared to stand-alone insurance companies or captives. A unique element of a PCC is that an insurer can write business through the ownership of a protected cell, using the core’s capital.

Benefits of a Protected Cell Company

The PCC set-up allows the start-up and ongoing regulatory burden of an insurance company to be spread throughout the owners of the various cells and the core of the PCC without putting any individual cell owners’ assets at risk from liabilities of the others. Cells are particularly attractive to medium-sized corporate groups wishing to establish their own insurance vehicle.

Key Features of a Protected Cell Company

Corporate Form: Limited Liability Company

Name: The name of the company must include the expression ‘Protected Cell Company’ or its abbreviation ‘PCC’. This title needs to be displayed on all its business letters and forms to inform all parties dealing with the company of its status. Each cell needs to have its own distinct name.

Permitted Business: The cell company and its cells may conduct business of insurance and reinsurance as principals, captives, insurance brokers and insurance management companies in respect of general and long-term business. However, insurance PCCs can only have insurance cells, management PCCs management cells and broker PCCs broker cells.

Licensing Timeframe: Six months, reduced to three months in respect to the individual protected cells.

Redomiciliation allowed: Yes. Individual cells cannot redomicile on their own.

Own Funds (applying to the PCC as a whole):

  • Long Term Business: €3.7m
  • General Business: €2.5m-3.7m
  • Reinsurance: €3.4m, reduced to €1.2m for affiliated insurance
  • Insurance and Reinsurance: €2.5m-€7.4m

Own funds are to consist of: initial paid up share capital which must not be less than 50 per cent of the value of Own Funds requirement, cumulative preferential share capital, subordinated loans, retained profits, reserves other than reserves corresponding to the technical provisions and where applicable, the equalisation reserves and securities with no specified maturity date and other instruments including cumulative preferential shares. The minimum own funds requirements do not apply to individual cells, but to the PCC as a whole. *Changes expected under Solvency II

Solvency Margin: Calculated on a cellular basis. Any deficit in the cellular solvency margin is funded through non-cellular assets. The solvency margin must not fall below the guarantee fund.

Minimum Guarantee Fund: The core of the cell company shall maintain at all times a guarantee fund of an amount of assets equal to the greater of the minimum guarantee fund or the value of one-third of the margin of solvency. Cells can use the minimum guarantee fund of the core.

Technical Provisions: Calculated in accordance with regulations modelled on EU directives.

Cell Management: The board of directors of the cell company has ultimate responsibility for all cells and cellular assets. The board may delegate the management and administration of a cell, or parts thereof, to a third-party insurance manager or/and a cell committee which many include representatives of the cell owner.

Power to contract: Cells contract through the PCC which acts on behalf of the cell.

Liability: Assets and liabilities are held separately within each cell. However, if the cellular assets of one cell have been exhausted, the company’s core assets may be secondarily liable to satisfy any cellular liability of one of its cells.

Intercompany Loans: Allowed with approval from the Malta Financial Services Authority.

Financial Reporting Requirements: Audited accounts under IFRS. Captive PCCs are exempt from:

  • publishing abridged accounts in local newspapers
  • contributing to the protection and compensation fund
  • covering technical provisions by equivalent and matching assets to cover currency risk
  • localisation rules and custody of assets rules
  • the payment of duty on any contract of insurance relating to a risk situated in Malta
  • depositing a minimum guarantee fund with an external institution

Regulatory Fees: Authorisation application fees are one-time fees and non-refundable irrespective of whether the application is accepted or refused.

Application Fees:

  • PCC: €6,500
  • Individual Cells: €2,500

Annual fees: According to Schedule in the Insurance Business (Fees) Regulations reduced to €3,250 in respect of cells carrying on exclusively business of affiliated insurance