Regulations, 2005

Suppliment tal-Gazzetta tal-Gvern ta’ Malta, Nru. 17,759, 26 ta’ April, 2005

L.N. 126 of 2005

INSURANCE BUSINESS ACT

(CAP. 403)

Insurance Business (Companies Accounts) (Amendment)

Regulations, 2005

IN exercise of the powers conferred by articles 20 and 64 of the

Insurance Business Act, the Prime Minister and Minister of Finance,

after consultation with the Malta Financial Services Authority, has made

the following regulations>-

(1) The title of these regulations is the Insurance Business Citation and

commencement.

(Companies Accounts) (Amendment) Regulations, 2005, and they shall

be read and construed as one with the Insurance Business (Companies

Accounts) Regulations, 2000, hereinafter referred to as “the principal L.N. 103 of 2000.

regulations”.

(2) These regulations shall come into force on the 26 th April,

2005, and have effect in respect of the financial years of companies

which begin on or after the 1 st January, 2005.

(3) The purpose of these regulations is to implement the

provisions of Directive 2001#65#EC of the European Parliament and of

the Council of 27 September 2001 amending Directives 78#660#EEC,

83#349#EEC and 86#635#EEC as regards the valuation rules for the

annual and consolidated accounts of certain types of companies as well

as of banks and other financial institutions, and of Directive 2003#51#EC

of the European Parliament of the Council of 18 June 2003 amending

Directives 78#660#EEC, 83#349#EEC, 86#635#EEC and 91#674#EEC on

the annual and consolidated accounts of certain types of companies,

banks and other financial institutions and insurance undertakings, and

they shall be interpreted and applied accordingly.

Regulation 2 of the principal regulations shall be amended as Amends regulation

2 of the principal

follows>

regulations.

(a)

sub-regulation (1) thereof, shall be amended as follows>

(i) immediately after the definition of “the Act” there

shall be added the following new definition>

“ “the Authority” means the competent authority

appointed under article 3 of the Act<”<

(ii) the definition of “Centre” shall be deleted, and for

the word “Centre” wherever it appears in the principal

regulations, there shall be substituted the word “Authority”<

(iii) for the word “section”, wherever it appears, there

shall be substituted the word “article”<

(iv) immediately after the definition of “group” there

shall be added the following new definition>

“ “investment property” means land held to earn

rent or for capital appreciation<”<

(b) immediately after sub-regulation (2) thereof, there shall

be added the following new sub-regulations>

“(3) For the purposes of these regulations, references

to “derivatives” include commodity-based contracts that give

either contracting party the right to settle in cash or some

other financial instrument, except when such contracts –

(a) were entered into for the purpose of, and

continue to meet, the company’s expected purchase, sale

or usage requirements<

(b) were designated for such purpose at their

inception< and

(c) are expected to be settled by delivery of the

commodity.

(4) (a) The expressions listed in paragraph (b) of this

sub-regulation contained in paragraphs 41A to 41F and

paragraphs 54A to 54D of the First Schedule to these

regulations shall have the same meaning as is assigned to

them by the International Accounting Standards as may be

issued from time to time by the International Accounting

Standards Board or any other Body succeeding it by whatever

name it may be known.

(b) The expressions referred to in paragraph (a)

of this sub-regulation are “available for sale financial asset”,

“business combination”, “commodity-based contracts”,

“derivative”, “equity instrument”, “exchange difference”, “fair

value hedge accounting system”, “financial fixed asset”,

“financial instrument”, “foreign entity”, “hedge accounting”,

“hedge accounting system”, “hedged items”, “hedging

instrument”, “held for trading purposes”, “held to maturity”,

“monetary item”, “receivables”, “reliable market” and

“trading portfolio”.”

Regulation 4 of the principal regulations shall be amended as Amends regulation

4 of the principal

follows>

regulations.

(a) for the words “of the First Schedule to these regulations>”

there shall be substituted the words “of the First Schedule to these

regulations.”< and

(b) the proviso to this regulation shall be deleted.

In regulation 5 of the principal regulations, for the words “shall Amends regulation

5 of the principal

apply in accordance with the provisions of Title I of the Third Schedule regulations.

to these regulations” there shall be substituted the words “shall apply in

accordance with the provisions of Title I of the Second Schedule to

these regulations”.

Regulation 7 of the principal regulations shall be amended as Amends regulation

7 of the principal

follows -

regulations.

(a) in paragraph (a) of sub-regulation (2) thereof, for the

words “in accordance with the provisions of the Fourth Schedule

to these regulations and” there shall be substituted the words “in

accordance with the provisions of the Third Schedule to these

regulations and”<

(b) in paragraph (b) of sub-regulation (2) thereof, for the

words “a company whose head office is in a country outside Malta”

there shall be substituted the words “a company whose head office

is not in a Member State or an EEA State” and for the words “detract

materially from the provisions of the said Fourth Schedule” there

shall be substituted the words “detract materially from the

provisions of the said Third Schedule”<

(c) in sub-regulation (4) thereof, for the words “a company

whose head office is in a country outside Malta” there shall be

substituted the words “a company whose head office is not in a

Member State or an EEA State”<

(d) in sub-regulations (5) and (6) thereof, for the words “the

general information which is mentioned in Title II of the Fourth

Schedule to these regulations” there shall be substituted the words

“the general information which is mentioned in Title II of the Third

Schedule to these regulations”.

For regulation 8 of the principal regulations, there shall be

substituted the following -

The purpose of these regulations is to implement

“Interpretation.

the provisions of the Fourth Council Directive 78#660#EEC

of 25 July 1978 based on article 54(3)(g) of the Treaty on the

annual accounts of certain types of companies, Seventh

Council Directive 83#349#EEC of 13 June 1983 based on the

Article 57(3)(g) of the Treaty on consolidated accounts,

Council Directive 91#674#EEC of 19 December 1991 on the

annual accounts and consolidated accounts of insurance

undertakings, Directive 2001#65#EC of the European

Parliament and of the Council of 27 September 2001 amending

Directives 78#660#EEC, 83#349#EEC and 86#635#EEC as

regards the valuation rules for the annual and consolidated

accounts of certain types of companies as well as of banks

and other financial institutions, and Directive 2003#51#EC of

the European Parliament of the Council of 18 June 2003

amending Directives 78#660#EEC, 83#349#EEC, 86#635#EEC

and 91#674#EEC on the annual and consolidated accounts of

certain types of companies, banks and other financial

institutions and insurance undertakings and shall be

interpreted and applied accordingly.”.

7. The First Schedule to the principal regulations shall be

amended as follows –

(a) in sub-paragraphs (1) and (2) of paragraph 7 of Title I

thereof, for the words “Provisions for other risks and charges”

there shall be substituted the words “Provisions for other risks”<

(b) for paragraph 11 thereof, there shall be substituted the

following –

“11. The directors of a company shall, in determining

how amounts are presented within items in the profit and loss

account and balance sheet, have regard to the substance of

the reported transaction or arrangement, in accordance with

generally accepted accounting principles or practice.”<

(c) (i) in the Balance Sheet Format set out immediately

following paragraph 15 thereof, under the heading “LIABILITIES”,

in item E, for the words “Provisions for other risks and charges

(27)” there shall be substituted the words “Provisions for other

risks (27)”<

(ii) in the “Notes on the balance sheet format”, note

(24) Equalisation provison, for the words “This item shall comprise

the amount of any reserve maintained by the company under

subsection (7) of section 17 of the Act.”, there shall be substituted

the words “ This item shall comprise any amounts which, in

accordance with Council Directive 87#343#EEC of 22 June 1987

amending, as regards credit insurance and suretyship insurance,

First Directive 73#239#EEC on the coordination of laws, regulations

and administrative provisions relating to the taking-up and pursuit

of the business of direct insurance other than life assurance, are

required to be set aside by a company to equalise fluctuations in

loss ratio in future years or to provide for special risks.”< and

(iii) in the “Notes on the balance sheet format”, note

(27) Provisions for other risks and charges, for the words

“provisions for other risks and charges”, wherever it appears, there

shall be substituted the words “provisions for other risks”<

(d) for indent (ii) of sub-paragraph (c) of paragraph 19

thereof, there shall be substituted the following>

“(ii) account shall be taken of all liabilities arising in

the course of the accounting period concerned or of a previous

one, even if such liabilities become apparent only between

the date of the balance sheet and the date on which it is drawn

up.”<

(e) for paragraph 21 thereof, there shall be substituted the

following-

“Valuation

(1) The amounts to be included in respect of

assets of any description mentioned in paragraph 34 are

determined either –

(a) in accordance with that paragraph and

paragraph 36 (but subject to paragraphs 39 to 41)< or

(b) in so far as applicable to an asset of that

description, in accordance with paragraphs 41A to 41F.

(2) The amounts to be included in respect of assets

of any description mentioned in paragraph 36 may be

determined -

(a) in accordance with that paragraph (but subject

to paragraphs 39 to 41)< or

(b) in so far as applicable to an asset of that

description, in accordance with paragraphs 41A to 41F.

(3) The amounts to be included in respect of assets

which are not assets of a description mentioned in paragraph

34 or 35, but are assets of a description to which paragraphs

41A to 41F are applicable, may be determined in accordance

with paragraphs 41A to 41F.

(4) Subject to sub-paragraphs (1) to (3) of this

paragraph, the amounts to be included in respect of all items

shown in a company’s accounts are determined in accordance

with paragraphs 21 to 32.”<

(f) sub-paragraph (2) of paragraph 31 shall be deleted and

sub-paragraph (1) of paragraph 31 shall be renumbered as

paragraph 31<

(g) for paragraphs 32 and 33 thereof, there shall be

substituted the following new paragraphs>

“32. Where any amount as referred to in paragraph

31 is treated as an asset –

(a) it shall be written-off by reasonable amounts

each year<

(b) it shall be completely written-off before

repayment of the debt< and

(c) if the current amount is not shown as a separate

item in the company’s balance sheet it shall be disclosed

in the notes to the accounts.

CURRENT VALUE ACCOUNTING RULES

The same valuation method shall be applied to all

investments included in any item in the balance sheet format

which is denoted by an Arabic numeral.”<

(h) in sub-paragraph (1) of paragraph 39, for the words “and

paragraphs 23 to 27 and 31 of this Schedule” there shall be

substituted the words “and paragraphs 23 to 27 and 31 and 32 of

this Schedule”<

(i) the following paragraphs shall be inserted immediately

after paragraph 41 -

“VALUATION AT FAIR VALUE

Inclusion of financial instruments at fair value

(1) Subject to sub-paragraphs (2) to (4) of this

paragraph, financial instruments (including derivatives) may

be included at fair value.

(2) Sub-paragraph (1) of this paragraph does not

apply to financial instruments which constitute liabilities

unless-

(a)

they are held as part of a trading portfolio< or

(b) they are derivatives.

(3) Except where they fall to be included under

Assets item D (Assets held to cover linked liabilities), sub-

paragraph (1) of this paragraph does not apply to-

(a) financial instruments (other than derivatives)

held to maturity<

(b) loans and receivables originated by the

company and not held for trading purposes<

(c) interests in subsidiary companies, associated

companies and joint ventures<

(d) equity instruments issued by the company<

(e) contracts for contingent consideration in a

business combination<

(f) other financial instruments with such special

characteristics that the instruments, according to

generally accepted accounting principles or practice,

should be accounted for differently from other financial

instruments.

(4) If the fair value of a financial instrument

cannot be determined reliably in accordance with paragraph

41B of this Schedule, sub-paragraph (1) of this paragraph

does not apply to that financial instrument.

(5) For the purpose of this paragraph, “joint

venture” has the same meaning as is assigned to it in paragraph

20 of the Fourth Schedule to the Companies Act.

Determination of fair value

(1) The fair value of a financial instrument is

determined in accordance with this paragraph.

(2) If a reliable market can readily be identified

for the financial instrument, its fair value is determined by

reference to its market value.

(3) If a reliable market cannot readily be identified

for the financial instrument but can be identified for its

components or for a similar instrument, its fair value is

determined by reference to the market value of its components

or of the similar instrument.

(4) If neither sub-paragraph (2) nor (3) of this

paragraph applies, the fair value of the financial instrument

is a value resulting from generally accepted valuation models

and techniques.

(5) Any valuation models and techniques used for

the purposes of sub-paragraph (4) of this paragraph must

ensure a reasonable approximation of the market value.

Inclusion of hedged items at fair value

A company may include any assets and liabilities

that qualify as hedged items under a fair value hedge

accounting system, or identified portions of such assets or

liabilities, at the amount required under that system.

Other assets that may be included at fair value

(1) This paragraph applies to-

(a)

investment property, and

(b) living animals and plants,

that, under International Accounting Standards, may be

included in accounts at fair value.

(2) Such investment property and such living animals

and plants may be included at fair value, provided that all

such investment property or, as the case may be, all such living

animals and plants are so included where their fair value can

reliably be determined.

(3) For the purpose of this paragraph, “fair value”

means fair value determined in accordance with relevant

International Accounting Standards.

Accounting for changes in value

(1) This paragraph applies where a financial

instrument is valued in accordance with paragraph 41A or

41C or an asset is valued in accordance with paragraph 41D.

(2) Notwithstanding paragraph 19 of this Schedule, and

subject to sub-paragraphs (3) and (4) of this paragraph, a

change in the value of the financial instrument or of the

investment property or of the living animal or plant must be

included in the profit and loss account.

(3) Where –

(a) the financial instrument accounted for is a

hedging instrument under a hedge accounting system

that allows some or all of the change in value not to be

shown in the profit and loss account< or

(b) the change in value relates to an exchange

difference arising on a monetary item that forms part of

a company’s net investment in a foreign entity,

the amount of the change in value must be credited to or (as

the case may be) debited from a separate reserve (“the fair

value reserve”).

(4) Where the instrument accounted for-

(a)

is an available for sale financial asset, and

(b) is not a derivative,

the change in value may be credited to or (as the case may

be) debited from the fair value reserve.

The fair value reserve

(1) The fair value reserve must be adjusted to

the extent that the amounts shown in it are no longer necessary

for the purposes of sub-paragraph (3) or (4) of paragraph

41E. (2) The treatment for taxation purposes of amounts

credited or debited to the fair value reserve shall be disclosed

in a note to the accounts.”<

(j) for paragraph 50 thereof, there shall be

substituted the following-

“The amount required to be set aside by the

company to equalise fluctuations in loss ratios in

future years or to provide for special risks shall be

determined in accordance with Council Directive

87#343#EEC of 22 June 1987 amending, as regards

credit insurance and suretyship insurance, First

Directive 73#239#EEC on the coordination of laws,

regulations and administrative provisions relating

to the taking-up and pursuit of the business of direct

insurance other than life assurance.”<

(k) the following new sub-paragraph (v) shall be

inserted immediately following sub-paragraph (u) of

paragraph 54 –

“Reserves and dividends

(a) any amount set aside or proposed to be

set aside to, or withdrawn or proposed to be

withdrawn from, reserves,

(b) the aggregate amount of dividends paid

in the financial year (other than those for which a

liability existed at the immediately preceding

balance sheet date),

(c) the aggregate amount of dividends that

the company is liable to pay at the balance sheet

date, and

(d) the aggregate amount of dividends that

are proposed before the date of approval of the

accounts, and not otherwise disclosed under indents

(b) or (c) of sub-paragraph (v) of paragraph 54.”<

(l) the following new paragraphs 54A to 54D shall

be inserted after sub-paragraph (v) of paragraph 54 of

this Schedule-

“Information about fair value of assets and liabilities

(1) This paragraph applies where financial

instruments have been valued in accordance with paragraph

41A or 41C.

(2) The items affected and the basis of valuation

adopted in determining the amounts of the financial

instruments shall be disclosed.

(3) The purchase price of the financial instruments shall

be disclosed.

(4) There shall be stated-

(a) where the fair value of the instruments has

been determined in accordance with sub paragraph (4)

of paragraph 41B, the significant assumptions underlying

the valuation models and techniques used<

(b) for each category of financial instrument, the

fair value of the instruments in that category and the

changes in value-

(i) included in the profit and loss account<

or

(ii) credited to or (as the case may be) debited

from the fair value reserve,

in respect of those instruments, and

(c) for each class of derivatives, the extent and

nature of the instruments, including significant terms and

conditions that may affect the amount, timing and

certainty of future cash flows.

(5) Where any amount is transferred to or from the

fair value reserve during the financial year, there must be

stated in tabular form-

(a) amount of the reserve as at the date of the

beginning of the financial year and as at the balance sheet

date respectively<

(b) the amount transferred to or from the reserve

during that year< and

(c) the source and application respectively of the

amounts so transferred.

Where the company has derivatives that it has

not included at fair value, there must be stated for each class

of such derivatives-

(1) the fair value of the derivatives in that class,

if such a value can be determined in accordance with

paragraph 41B< and

(2) the extent and nature of the derivatives.

(1) Sub-paragraph (2) of this paragraph applies

(a) the company has financial fixed assets that

could be included at fair value by virtue of paragraph

41A<

(b) the amount at which those assets are included

under any item in the company’s accounts is in excess

of their fair value< and

(c) the company has not made provision for

diminution in value of those assets in accordance with

sub-paragraph (2) of paragraph 25 of this Schedule.

(2) There shall be stated-

(a) the amount at which either the individual

assets or appropriate groupings of those individual assets

are included in the company’s accounts<

(b) the fair value of those assets or groupings< and

(c) the reasons for not making a provision for

diminution in value of those assets, including the nature

of the evidence that provides the basis for the belief that

the amount at which they are stated in the accounts will

be recovered.

Information where investment property and living animals

and plants are included at fair value

(1) This paragraph applies where the amounts

to be included in a company’s accounts in respect of

investment property or living animals and plants have been

determined in accordance with paragraph 41D.

(2) The balance sheet items affected and the basis of

valuation adopted in determining the amounts of the assets in

question in the case of each such item shall be disclosed in a

note to the accounts.

(3) In the case of investment property, for each balance

sheet item affected there shall be shown, either separately in

the balance sheet or in a note to the accounts-

(a) the comparable amounts determined according

to the historical cost accounting rules< or

(b) the differences between those amounts and the

corresponding amounts actually shown in the balance

sheet in respect of that item.

(4) In sub-paragraph (3) of this paragraph, references

in relation to any item to the comparable amounts determined

in accordance with that sub-paragraph are references to-

(a) the aggregate amount which would be required

to be shown in respect of that item if the amounts to be

included in respect of all the assets covered by that item

were determined according to the historical cost

accounting rules< and

(b) the aggregate amount of the cumulative

provisions for depreciation or diminution in value which

would be permitted or required in determining those

amounts according to those rules.”< and

(m) in indents (b) and (c) of sub-paragraph (1) of

paragraph 59 for the words “provisions for liabilities and

charges” there shall be substituted the words “provisions

for other risks”.

The Second Schedule to the principal regulations shall Deletes the Second

Schedule to the

principal regulations

and renumbers

Third and Fourth

Schedules.

(b) The Third and Fourth Schedule to the principal

regulations shall be renumbered as the Second and Third Schedule

respectively.

9. (a) In sub-paragraph (a) of paragraph 2 of Title I of the

Amends the Second

Second Schedule to the principal regulations, as renumbered, for the

principal regulations

words, “First Schedule to the regulations modified as mentioned in Title

II of the Third Schedule thereto<” there shall be substituted the words

“First Schedule to the regulations modified as mentioned in Title II of

the Second Schedule thereto<”<

(b) In indent (i) of sub-paragraph (b) of paragraph 2 of Title

I of the Second Schedule to the principal regulations, as renumbered,

for the words “without prejudice to the provisions of the Schedule as

modified by the Third Schedule to the regulations” there shall be

substituted the words “without prejudice to the provisions of the

Schedule as modified by the Second Schedule to the regulations”<

(c) For indent (ii) of sub-paragraph (b) of paragraph 2 of

Title I to the Second Schedule to the principal regulations, as

renumbered, there shall be substituted the following-

“reference to the provisions of “Part I of the Second Schedule”

were a reference to the provisions of the “First Schedule to the

regulations as modified by Title II of the Second Schedule thereto”<

and”.

10. For indent (c) of sub-paragraph (1) of paragraph 1 of Title I

of the Third Schedule to the principal regulations, as renumbered, there

principal regulations

shall be substituted the following-

“(c) A statement indicating whether an unqualified, qualified

or adverse audit opinion was expressed by the approved auditor to

the members of the company, or whether the auditor was unable

to express an audit opinion. It shall also be disclosed whether the

report of the auditors included a reference to any matters to which

the auditor drew attention by way of emphasis without qualifying

the audit opinion.”.

11. In sub-paragraph (2) of paragraph 1 of Title I of the Third

Schedule to the principal regulations, as renumbered, for the words

principal regulations

“whose head office is in a country outside Malta” there shall be

substituted the words “whose head office is not in a Member State or an

EEA State ”.

12. In sub-paragraph (b) of paragraph 3 of Title II of the Third Amends

the Third

Schedule to the

Schedule to the principal regulations, as renumbered, for the words principal regulations

“whose head office is in a country outside Malta, other than Lloyd’s” as renumbered.

there shall be substituted the words “whose head office is not in a

Member State or an EEA State”.

13. Sub-paragraph (c) of paragraph 3 to Title II of the Third Amends the Third

Schedule to the

Schedule to the principal regulations, as renumbered, shall be deleted. principal regulations

as renumbered.

Mitbug[ fl-Istamperija tal-Gvern — Printed at the Government Printing Press