Securitisation cell companies and their use as reinsurance special purpose vehicles : a legal and regulatory perspective

Abstract

The principal scope of the thesis is to analyse key legal and regulatory issues of the recent introduction of Securitization Cell Companies (“SCCs”) and their use as Reinsurance Special Purpose Vehicles (“RSPVs”). By uniting the highly sophisticated frameworks of the Securitization Act and the Reinsurance Special Purpose Vehicle Regulations with the segregated cell company concept, the SCCs Regulations provide a legally entrenched framework for the segregation of different sets of assets and risk-instruments within a single special purpose vehicle; allowing for the launch of multiple asset-backed or insurance-linked securities whilst mitigating the risk of cross-contamination between the different sets of creditors and investors. The first chapter provides a brief description of the development of cell company legislation in Malta, whilst comparing the existent cell companies to the innovative SCC, namely in terms of its principal characteristics and intended functions. The second chapter examines certain legal and regulatory requirements underlying the incorporation and continued existence of the SCC, and analyses how the segregated cell concept mitigates the risks of insolvency. Prevention of bankruptcy and insolvency remoteness can be achieved in a number of ways, including but not limited to the legal form, ownership structure and corporate governance of an undertaking, which is the subject-matter of the third chapter. The fourth chapter analyses key issues fundamental to the use of SCCs as RSPVs for the carrying out of insurance-linked securitisation (“ILS”) transactions and the use of such corporate structure for the assumption of multiple risks. The final chapter examines the tax treatment of RSPV SCCs, and applicable tax incentives, which encourage the transfer of risks by ceding undertakings through such corporate structure. The Solvency II Regime, which came into force on 1 January 2016, addresses specific issues of ILS and facilitates the growth thereof by regulating the use of special purpose vehicles as a risk mitigation technique. It is safely held that Malta’s ILS framework was well prepared for the implementation of the Solvency II Regime, as Malta was the first member state in the EU to introduce an alternative segregated cell concept in the reinsurance industry. During the write up of this thesis, the RSPV Regulations were amended in line with the Solvency II Regime, the provisions of which apply mutatis mutandis to SCC Regulations. It is important to note that minor amendments to the SCC Regulations are also expected to be implemented shortly.