An analytical and comparative appraisal of recent developments in relation to cell companies with special focus on the effect of the Solvency II regime on the cell company industry

Abstract

This thesis focuses on certain key issues and legal developments of Protected and Incorporated Cell Companies, vehicles that are widely used in the insurance sector. It also examines the cell industry in Malta especially following the introduction of regulations dealing with ICCs earlier on this year. A comparative analysis of the different legislation regulating such vehicles as found in select jurisdictions is subsequently analysed. Considering that Malta is a full member state of the European Union, the thesis also provides a general overview of the Solvency II regime. This is the planned overhaul of prudential regulation for European insurers that is well under way and which according to the proposed latest draft of Omnibus II as issued on the 21 June 2011, should be implemented by 1 January 2014 thus necessitating that the Maltese insurance industry, including all insurance cell companies meet such requirements as set out under the Solvency II Directive. After analysing both the legal nature of the cell companies as well as the Solvency II requirements and their effects on such companies, the thesis brings forth the suggestion that both types of cell companies, with the PCC in particular, are an efficient and costeffective way of dealing with the increased costs and solvency capital requirements especially from a corporate governance perspective. Furthermore, these cell companies potentially facilitate market entry to start up insurance companies. Finally the thesis concludes that in order to ensure greater harmonisation in the field of Solvency II, account must be taken of all the various types of entities that make up the insurance industry. While indeed the two EEA member states to have Solvency II in place are Gibraltar and Malta, one cannot deny that the global insurance industry has no borders. This can be seen in relation to Bermuda, a non-EU member state that has cell company legislation in place and is seeking equivalence under Solvency II. Furthermore, the possibility that advantages relating to economies of scale may lead to an increasing number of cell companies being set up, strengthens the need for clear cut guidance of the treatment of such legal structures in order to guarantee an objective and consistent interpretation of the three pillars under the regime and provide certainty across the industry.