Malta: A platform, a partner and a winning proposition

Middle East: looking west?

The A.M. Best October 2010 report on Captive Insurance and with specific reference to the Middle East noted that a number of insurance regulators are encouraging captive formation. Dubai, Qatar and Bahrain, for instance, have introduced captive legislation, and insurance market participants are encouraging a greater understanding of enterprise risk management (ERM). It is interesting to note that although four out of the six national oil companies in the region have captive insurance subsidiaries, only one of these is actually domiciled in the Middle East.

In the aftermath of the financial crisis many enterprises within the Middle East region are re-visiting their earlier significant reliance on the local or regional conventional insurance markets. Traditionally, insurance pricing within the region has always been relatively soft because of the higher reliance on and excessive supply of international reinsurance; a supply that continued to grow unabated even during the crisis. Add this factor to the phenomenon of major trading families also owning shares in insurance companies within the region and the result is a rather promiscuous but accommodating insurance buyer / seller relationship that resisted change.

However, other factors suggest that there is a need for companies from the region to think outside the box and this is, indeed, happening. The Middle East’s share of global trade doubled between 2000 and 2008 and overseas investment and acquisition continued to grow despite of (or in some cases spurred by) the financial crisis. The proliferation of GCC investment, particularly, Saudi, UAE and Qatari money, in Europe is evident in sectors as diverse as aviation, transport, telecommunications, retail, logistics, finance, tourism, energy and real estate. GCC foreign direct investment also grew in Maghreb (Tunisia, Algeria and Morocco) countries neighbouring southern Europe. These dictate a risk management (including insurance) strategy that is also internationally relevant. The current political turmoil in Tunisia, for example, further attests to this need.

Proposed regulatory developments post-crisis, such as the impending Comframe directive, aimed at increasing regulation and supervision rigours for internationally active insurers, may also prove to be an inhibitor for internationally active buyers to significantly rely upon conventional insurance purchasing routes as a constantly predicable and optimum cost-effective risk transfer mechanism.

These, issues among others are spurring strategic thought towards locally relevant, multi-domicile solutions for internationally active corporate buyers. In this respect the Malta Financial Services Authority put in place memoranda of understanding with a number of insurance regulators internationally including with the more prominent Middle East regulators.

Why Malta?

The old adage is of course that it is all about, “location, location and location.” Before dwelling on Malta’s strategic position, whether geographically, economically, politically etc. it may be well-worth looking at its pedigree in the sector. As a centre of shipping and trade in the ‘old world’, Malta has had, for example, marine insurance legislation codified in the Codice De Rohan of 1784. Marine insurance practice in Malta, however, predates their codification by at least a few hundreds of years.

Both under Spanish rule as well as in the early years of the rule of the Order of St. John, Malta depended on Sicily for the provision of certain food sustenance supplies. Even then, such shipments to Malta and Tripoli (also governed by the Knights of St. John) were insured. One such documented voyage was that procured by Fra. Simone Bonanno on the vessel San Silvestro carrying wheat departing from Sciacca destined to Malta and Tripoli on the 12th November 1533. The wheat was insured on the basis of its value declared in the shipping contract. There are other references to insurance in the Liber Bullarum (ordinances and documentation) of the Order of the Knights of Malta from that era.

Beyond this heritage there are other very strong reasons today why Malta would be an ideal international partner for Middle East enterprise that is foraying westward. Some of these have been ‘best kept secrets’ until fairly recently. The following are some:

  • The most obvious is geographical location and affiliation. Malta is part of the European Union and, hence, can write insurance in all EU states on a direct basis. A company with diverse interests spread throughout the European Union can be consolidate its insurance purchasing in Malta;
  • Despite its ‘onshore’ status (a distinct advantage on several other insurance jurisdictions that geographically are in Europe but are not part of the EU) Malta has a favourable tax advantage on its European peers. This is a significant consideration for businesses emanating from a low or no tax regime as is the case, for example, with the Gulf Cooperation Council countries;
  • Culturally, again because of its history and geography, Malta is close both to the European and North African (Arab) cultures. It is viewed by Maghreb as the gateway to Europe and by Europeans as the threshold to North Africa. This presents advantages both in language and custom;
  • Malta’s university is older than some of the universities in Europe branded as the ‘Ancients’.  Specifically in insurance, banking, finance and business related disciplines these are well served both by the University of Malta as well as through professional institutes with international accreditations.  The professionally qualified head-count per capita in Malta is very high notwithstanding that the average cost of doing business is still lower than that of several European counterparts;
  • The insurance industry is complemented by a strong presence of local, regional and international banks, an arbitration centre, international accounting and auditing firms, chartered loss adjustors, insurance managers, a pool of non-executive directors etc. all of which further strengthens the island’s capability as a financial services’ centre.

The above factors amply satisfy the ‘people’, ‘place’ and ‘ product’ perspectives of Malta as the European insurance location of choice. From an extended product perspective, there are also the ‘packaging’ aspects that one has to consider. In this respect end of 2010 statistics indicate that despite the economic turmoil Malta and its ports continue to see increased visitor footfall, surpassing most of the other Euro-Med destinations. Malta offers a relatively safe friendly and socially vibrant environment that complements its strengths as an efficient business hub. It is also connected to more than 50 airports throughout the European and Mediterranean region with flying time varying mainly from less than an hour to 3 hours away. One can easily, for example, have breakfast in Malta, attend meetings in London, Paris, Rome, Zurich or Frankfurt and return to Malta by evening. For international enterprises operating on structures of hubs, Malta would prove to be an ideal hub away from home.

What do others have to say about Malta as a financial centre?

www.financemalta.org:

 1)       10th soundest banking sector: World Economic Forum Global Competitiveness Report 2010 -2011 (139 countries surveyed);

2)       11th position in financial market development: World Economic Forum Global Competitiveness Report 2010 -2011 (139 countries surveyed);

3)       1st in online sophistication and full online availability: European Commission (EU)’s 2009 report on e-Government services;

4)       4th place as a centre most likely to increase in importance in the next few years: Global Financial Services Index, City of London 2008

Advertisements

About insuranceguild

Sharing Knowledge for the Common Good: Many associate guilds with British pre-industrial era. However, predecessors of guilds are found as far back as the 3rd century BC in the Roman Empire. They were also present in various civilizations including Ptolemaic Egypt, India, Iran, China, African dynasties as well as various European countries such as medieval Germany and Italy. A guild is typically an association of practitioners from the same trade. In addition to protecting and developing crafts, trades and business, guilds also helped foster a learning environment among members. Through this platform I wish to share articles of an insurance / risk management nature and hopefully generate comments from readers that would help to enrich my knowledge as well as the knowledge of other insurance and/or risk management practitioners. About the Author: A Chartered Insurance Practitioner by profession, James Portelli is also a Fellow of the UK Chartered Insurance Institute and of the UK Institute of Risk Management and holds an MSc in Risk Management from Glasgow Caledonian University, U.K. James has been active in insurance and risk management since 1990 and in training since 1987. He started his insurance career in general insurance underwriting and agency/broker management with Middlesea Insurance plc (also forming part of the company's Risk Management Implementation Committee and assisting in captive insurance development). He first moved to the Middle East in 1998 occupying senior training, technical, consulting, business development, risk management and strategic development roles. James is also a 2008 CII (UK) Morgan Owen Prize Winner and the 2011 IRM (UK) Steve Butterworth Award Holder.
This entry was posted in Uncategorized. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s