286 tal-2007 - Insurance Business (Assets and Liabilities) Regulations, 2007(English Version only)

Suppliment tal-Gazzetta tal-Gvern ta’ Malta, Nru. 18,135, 12 ta’ Ottubru, 2007

Taqsima B

L.N. 286 of 2007

INSURANCE BUSINESS (ASSETS AND LIABILITIES)

REGULATIONS, 2007

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

commencement.

(Assets and Liabilities) Regulations.

(2) These regulations shall come into force on the 15th

October, 2007 other than for regulation 4(1) and regulation 8(3)(a) in

so far as these regulations refer to a Swiss general insurer.

(Regulation 9)

LONG TERM BUSINESS SOLVENCY MARGIN>

FIRST AND SECOND CALCULATIONS

1. In this Schedule -

“first calculation” and “second calculation” have the meaning given in paragraph

2 of this Schedule.

Long term business classes I, II and IX

2. (1) For long term business of class I, II or IX the required margin of solvency

shall be determined by taking the aggregate of the results arrived at by applying the

calculation described in subparagraph (2) (“the first calculation”) and the calculation

described in subparagraphs (3) to (5) (“the second calculation”).

(2) For the first calculation -

(a) there shall be taken a sum equal to 4 per centum of the mathematical

reserves for direct business and reinsurance acceptances without any deduction

for reinsurance cessions,

(b) the amount of the mathematical reserves at the end of the financial

year in question after the deduction of reinsurance cessions and, upon application,

with supporting evidence, amounts recoverable from special purpose vehicles

referred to in article 46 of Directive 2005#68#EC, shall be expressed as a percentage

of the amount of those mathematical reserves before any such deductions, and

(c)

the sum mentioned in indent (a) shall be multiplied -

(i) where the percentage arrived at under indent (b) is greater than 85

per centum, by that greater percentage, and

(ii) in any other case, by 85 per centum.

(3) For the second calculation -

(a) there shall be taken, subject to subparagraphs (4) and (5), a sum equal

to 0.3 per centum of the capital at risk for contracts on which the capital at risk is

not a negative figure,

(b) the amount of the capital at risk at the end of the financial year in

question for contracts on which the capital at risk is not a negative figure, after the

deduction of reinsurance cessions and, upon application, with supporting evidence,

amounts recoverable from special purpose vehicles referred to in article 46 of

Directive 2005#68#EC, shall be expressed as a percentage of the amount of that

capital at risk before any such deduction, and

(c)

the sum arrived at under indent (a) shall be multiplied -

(i) where the percentage arrived at under indent (b) is greater than 50

per centum, by that greater percentage, and

(ii) in any other case, by 50 per centum.

(4) Where a contract provides for benefits payable only on death within a

specified period and is valid for a period of not more than three years from the date

when the contract was first made, the percentage to be taken for the purposes of

subparagraph (3)(a) shall be 0.1 per centum< and where the period of validity from that

date is more than three years but not more than five years, the percentage to be so taken

shall be 0.15 per centum.

(5) For the purposes of subparagraph (4), the period of validity of the

contract evidencing a group policy is the period from the date when the premium rates

under the contract were last reviewed for which the premium rates are guaranteed.

(6) For the purposes of the second calculation, the capital at risk is -

(a) in any case in which an amount is payable in consequence of death

other than a case falling within indent (b), the amount payable on death, and

(b) in any case in which the benefit under the contract in question consists

of the making, in consequence of death, of the payment of an annuity, payment of

a sum by instalments or any other kind of periodic payments, the present value of

that benefit, less in either case the mathematical reserves in respect of the relevant

contracts.

(7) When the amount of the mathematical reserves referred to in

subparagraph (2)(a), or the amount of the capital at risk referred to in subparagraph

(3)(a), is to be calculated for the purposes of determining the required margin of

solvency, the day as on which that amount is calculated shall be the same as that as on

which the margin of solvency is determined< and the mathematical reserves referred to

in subparagraph (6) shall also be calculated as on that day when the capital at risk in

question is that referred to in subparagraph (3)(a), but shall be calculated as at the end

of the financial year in question when the capital at risk in question is that referred to in

paragraph (3)(b).

Long term business classes III, VII and VIII

3. (1) For long term business of class III, VII or VIII, the required margin of

solvency shall be determined in accordance with subparagraphs (2) to (5).

(2) In so far as an insurer bears an investment risk, the first calculation

shall be applied.

(3) In so far as -

(a)

an insurer bears no investment risk, and

(b) the allocation to cover management expenses in the relevant contract

has a fixed upper limit which is effective for a period exceeding five years,

the first calculation shall be applied, but as if paragraph 2(2)(a) of this Schedule

contained a reference to 1 per centum instead of 4 per centum.

(4) In so far as -

(a)

an insurer bears no investment risk, and

(b) the allocation to cover management expenses in the relevant contract

is not fixed for a period exceeding five years,

the margin of solvency is an amount equivalent to 25 per centum of the financial year

in question’s net administrative expenses pertaining to such business.

(5) Where an insurer covers a death risk, a sum arrived at by applying the

second calculation (paragraph 2(4) and (5) of this Schedule being disregarded) shall

be added to any required margin of solvency, including a margin of solvency of zero,

arrived at under subparagraph (2), (3) or (4).

Long term business classes IV and VI

4. (1) For long term business of class IV, the margin of solvency shall be

determined by applying the first calculation plus the sum arrived at by applying the

greater of the higher of the two sums resulting from the application of the method of

calculation set out in the Second Schedule and the sum resulting from the application

of the method of calculation set out in the Third Schedule as though it were general

business of class 2.

(2) For long term business of class VI, the margin of solvency shall be

determined by applying the first calculation.

(3) If both subparagraph (1) of this paragraph and regulation 9(4)(b) of the

regulations apply, a single combined margin of solvency must be calculated by applying

the greater of the higher of the two sums resulting from the application of the method

of calculation set out in the Second Schedule and the sum resulting from the application

of the method of calculation set out in the Third Schedule in respect of the class IV and

supplementary general business classes 1 and 2.

Long term business class V

5. For long term business of class V the required margin of solvency shall be

equal to 1 per centum of the assets of the relevant tontine.

(1)

In these regulations, unless the context otherwise Interpretation.

requires -

“the Act” means the Insurance Business Act<

“the 1981 Act” means the Insurance Business Act, 1981, Cap. 290.

repealed by the Act<

“accident year accounting” means the basis of accounting for

general insurance business, whereby a result is determined at the

end of the accounting period reflecting the profit or loss from

providing insurance or reinsurance cover during that period and

any adjustments to the profit or loss of providing insurance or

reinsurance cover during earlier accounting periods<

“affiliated reinsurance company” means a pure reinsurer

owned either by a financial undertaking other than an insurer, an

EEA insurer, a pure reinsurer, an EEA pure reinsurer or a group of

insurance undertakings or reinsurance undertakings to which the

Insurance Business (Supplementary Supervision of Insurance and

Reinsurance Undertakings in an Insurance Group) Regulations, 2007 L.N. of 2007.

apply, or by a non-financial undertaking, the purpose of which is to

provide reinsurance cover exclusively for the risks of the undertaking

or undertakings to which it belongs or of an undertaking or

undertakings of the group of which the affiliated reinsurance

company is a member<

“authorisation” means an authorisation under article 7 of the

Act to carry on business of insurance<

“cede” and “cession”, in relation to business of reinsurance,

include retrocede and retrocession<

“Central Bank of Malta” and “the Central Bank” mean the

Central Bank of Malta established by article 3 of the Central Bank

of Malta Act and includes any of its appointed agents<

“competent authority”means the Malta Financial Services

Authority established by article 3 of the Malta Financial Services

Authority Act and appointed under article 3 of the Act to be the

competent authority for the purposes of the Act<

“deposit back arrangement”, in relation to any contract of

reinsurance, means an arrangement whereby an amount is deposited

by the reinsurer with the cedant<

“EEA insurer” means an insurance undertaking whose head

office is in an EEA State, other than Malta, and which has received

authorisation in accordance with article 4 of Directive 2002#83#EC

or article 6 of Directive 73#239#EEC<

“EEA margin of solvency” means the margin of solvency of

an insurer computed by reference to the assets and liabilities of the

business carried on by the insurer in EEA States, taken together,

in accordance with regulation 9(3)(b)<

“EEA pure reinsurer” means a reinsurance undertaking whose

head office is in an EEA State, other than Malta, and which has

received authorisation in accordance with article 3 of Directive

2005#68#EC<

“EEA State” means a State which is a contracting party to the

agreement on the European Economic Area signed at Oporto on 2

May, 1992 as amended by the Protocol signed at Brussels on 17

March, 1993 and as amended from time to time<

“financial undertaking” means one of the following entities>

(a) a credit institution, a financial institution or an

ancillary services undertaking within the meaning of Article

4(5) and (21) of Directive 2006#48##EC<

(b) an insurer, an EEA insurer, a pure reinsurer, an

EEA pure reinsurer, or an insurance holding company within

the meaning of Article 1(i) of Directive 98#78#EC<

(c) an investment firm or a financial institution within

the meaning of point 1 of Article 4(1) of Directive

2004#39#EC<

(d) a mixed financial holding company within the

meaning of Article 2(15) of Directive 2002#87#EC<

“financial year” means>

(a) for the purposes of Part VIII of these regulations, a

period of account< and

(b) for all other purposes of these regulations, each

period at the end of which the balance of the accounts of the

insurer or the pure reinsurer is struck or, if no such balance is

struck, the calendar year<

“financial year in question” means the last financial year to

end before the date on which the latest accounts of the insurer or

pure reinsurer are required to be submitted to the competent

authority under article 20 of the Act, and the preceding financial

year and previous financial years shall be construed accordingly<

“gross premiums”, in relation to an insurer or a pure reinsurer

and a financial year>

(a) means premiums after deduction of discounts,

refunds and rebates of premium but before deduction of

premiums for reinsurance ceded and before deduction of

commission payable< and

(b) includes premiums receivable by the insurer or the

pure reinsurer under reinsurance contracts accepted by the

insurer or the pure reinsurer<

“gross premiums earned” in respect of a financial year means

such proportion of gross premiums written or gross premiums

receivable, as the case may be, as is attributable to risks borne by

the insurer or the pure reinsurer during that financial year<

“gross premiums written” means the amounts required by the

First Schedule to the Insurance Business (Companies Accounts)

Regulations, 2000 to be shown in the profit and loss account of an

insurer or a pure reinsurer at general business technical account

item I.1.(a)<

“hypothec” shall be construed in accordance with Sub-title II

of Title XXIII of the Civil Code<

“implicit items” shall be construed in accordance with regulation

7<

“insurance holding company” means a parent undertaking,

the main business of which is to acquire and hold participations in

subsidiary undertakings, where those subsidiary undertakings are

exclusively or mainly insurers, EEA insurers, pure reinsurers, EEA

pure reinsurers, non-EEA insurers or non-EEA pure reinsurers, at

least one of such subsidiary undertakings being an insurer or a

pure reinsurer and which is not a mixed financial holding company

in terms of regulation 2 of the Financial Conglomerates Regulations,

2004<

“insurance parent undertaking”, in relation to an insurer, an

EEA insurer, a pure reinsurer or an EEA pure reinsurer, is a parent

undertaking of that insurer, EEA insurer, pure reinsurer or EEA

pure reinsurer which is either itself an insurance undertaking, a

reinsurance undertaking or an insurance holding company<

“insurance undertaking” means an undertaking, whether or not

an insurer, which carries on insurance business<

“insurer” means a company having authorisation to carry on

business of direct insurance and includes a company authorised to

carry on direct and reinsurance business<

“insurer whose head office is in Malta” means an insurer whose

head office is in Malta and which is entitled to carry on business of

insurance in an EEA State in exercise of a European right<

“leading insurance undertaking” in relation to a relevant co-

insurance operation, means an insurance undertaking which>

(a) is recognised as the leading insurance undertaking

by the other insurance undertakings involved in the operation<

and

(b) determines the terms and conditions of insurance

for the operation<

“linked long term contract” means a contract of the kind

described in paragraph 2, Roman number III, of the Second

Schedule to the Act<

“Malta Financial Services Authority” means the Malta

Financial Services Authority established by article 3 of the Malta

Financial Services Authority Act<

“Malta margin of solvency” means an insurer’s margin of

solvency computed by reference to the assets and liabilities of the

business carried on by that insurer in Malta under regulation 9<

“Malta Stock Exchange” means the Malta Stock Exchange

established by article 24 of the Financial Markets Act<

“Maltese liri” means Maltese liri or their equivalent in other

currencies acceptable to the competent authority<

“margin of solvency” means the excess of the value of assets

over the amount of liabilities, that value and amount being

determined in accordance with Part IX and Part X and regulation 10

of these regulations<

“mathematical provisions” and “mathematical reserves” mean

the provision made by a long term business insurer or pure reinsurer

to cover liabilities (excluding liabilities which have fallen due and

liabilities arising from deposit back arrangements) arising under

or in connection with contracts for long term business<

“mutual” means an insurance company which is a body

corporate having no share capital (except a wholly owned

subsidiary with no share capital but limited by guarantee)<

“non-directive insurer” means -

(a)

a mutual (carrying on long term business) whose -

(i) articles of association contain provisions for

calling up additional contributions from members or

reducing their benefits or claiming assistance from other

persons who have undertaken to provide it< and

(ii) annual gross premium income (other than

from contracts of reinsurance) has not exceeded 5 million

Euro for each of the financial year in question and the

two previous financial years<

(b) a mutual (carrying on general business) whose -

(i) articles of association contain provisions for

calling up additional contributions from members or

reducing their benefits<

(ii) business does not cover liability risks, other

than ancillary risks, or credit or surety ship risks<

(iii) gross premium income (other than from

contracts of reinsurance) for the financial year in question

did not exceed 5 million Euro< and

(iv) members provided at least half of that gross

premium income<

(c) an insurer whose business of insurance (other than

reinsurance) is -

(i) restricted to the provision of assistance for

persons who get into difficulties while travelling, while

away from home or while away from their permanent

residence<

(ii) carried out exclusively on a local basis and

consists only of benefits in kind< and

(iii) such that the gross premium income from the

provision of assistance in the financial year in question

did not exceed 200,000 Euro,

and whose business of insurance is limited to that described

in the foregoing paragraphs (a) to (c).

“non-EEA insurer” means an insurance undertaking whose

head office is not in an EEA State<

“non-EEA pure reinsurer” means a reinsurance undertaking

whose head office is not in an EEA State<

“pure reinsurer” means a company having authorisation to

carry on business restricted to reinsurance<

“recognised investment exchange” means a person issued with

a recognition order in terms of the Recognised Investment

Exchange (Recognition Requirements) Regulations, 2003<

L.N. 3 of 2003.

“Registrar of Companies” means the person appointed under

article 400(1) of the Companies Act<

“reinsurance undertaking” means an undertaking, whether or

not a pure reinsurer, whose business is restricted to reinsurance<

“required margin of solvency” means a margin of solvency

required by article 14 of the Act and regulation 8<

“relevant co-insurance operation” means an insurance

operation which>

(a)

is not a reinsurance acceptance< and

(b) relates to classes 3 to 16 of general insurance

business as outlined in Part I of the Third Schedule to the Act<

and

(c) relates to a risk which is covered by a single contract

at an overall premium and for the same period by two or more

insurance companies, each for its own part< and

(d) relates to a risk which is situated within an EEA

State< and

(e) is subject to the condition that one of the insurance

companies participating in the operation does so through a

head office or branch established in an EEA State other than

that in which the leading insurance undertaking’s head office

(or if the leading insurance undertaking is participating through

a branch, that branch) is established<

“relevant date” in relation to the valuation of any asset for

any purpose for which Part IX of these regulations applies, the

date when the asset falls to be valued for that purpose and in relation

to the determination of any liability for which Part X of these

regulations applies, the date when the liability falls to be determined

for that purpose<

“relevant insurer” means an insurer whose business is

restricted to reinsurance of the marine mutual on terms that provide

that the marine mutual can cancel the reinsurance arrangements at

any time and can require the insurer immediately to transfer its

assets and liabilities to the marine mutual<

“relevant regulatory requirements” means, in the case of a

group undertaking that is an insurance undertaking or a reinsurance

undertaking, ultimate insurance parent undertaking or ultimate EEA

insurance parent undertaking established in a country within the

zone of countries at the option of the insurer or the pure reinsurer>

(a) the regulatory requirements of that country

applicable to an undertaking carrying on business of insurance

(even if it is an insurance holding company)< or

(b) in the case of any other undertaking carrying on

business of insurance or insurance holding company, the rules

contained in these regulations applicable to an insurer whose

head office is in Malta or to a pure reinsurer whose head office

is in Malta (whether it is or not)<

“special purpose vehicle” means an undertaking, whether

incorporated or not, other than an existing insurer, EEA insurer,

pure reinsurer or EEA pure reinsurer, which assumes risks from

insurers or pure reinsurers and which fully funds its exposure to

such risks through the proceeds of a debt issuance or some other

financing mechanism where the repayment rights of the providers

of such debt or other financing mechanism are subordinated to the

reinsurance obligations of such a vehicle<

“subsidiary undertaking” means an undertaking within the

meaning of article 2(2)(c) of the Companies Act<

“Swiss general insurer” means an insurer -

(a)

whose head office is in Switzerland,

(b) who is authorised by the supervsiory authority in

Switzerland as mentioned in article 7.1 of the agreement of 10

October 1989 between the Eureopan Economic Communty and

the Swiss Confederation on direct insurance other than life

insurance approved on behalf of the Eureopan Economic

Community by the Council Decision of 20 June 1999

(91#370#EEC), and

(c) who is authorised in Malta to carry on general

business<

“technical provisions” means the amount, net of the amount

recoverable by an insurer or a pure reinsurer under contracts of

reinsurance ceded by it (but excluding any rights of recovery in

respect of insurance liabilities already discharged by the insurer

or the pure reinsurer), set aside by the insurer or the pure reinsurer

to meet its liabilities under or in connection with contracts of

insurance or reinsurance< and includes mathematical provisions<

“ultimate EEA insurance parent undertaking” means an EEA

insurance parent undertaking that is not itself the subsidiary

undertaking of another EEA insurance parent undertaking<

“ultimate insurance parent undertaking” means an insurance

parent undertaking that is not itself the subsidiary undertaking of

another insurance parent undertaking<

“undertaking” has the same meaning as is assigned to it by

article 2(1) of the Companies Act<

“underwriting year accounting” means the method of

accounting for general insurance business whereby premiums,

claims and associated expenses are related to the underwriting year

in which the policies incept rather than the period of risk and the

recognition of any underwriting profit is deferred until a subsequent

accounting period<

“zone of countries” means a zone of countries as may be

determined by an insurance rule made by the competent authority

by virtue of article 4(3) of the Act for the purposes of any provision

of any regulation made under the Act,

and the words and expressions which are also used in the Act shall,

in these regulations, have the same meanings as in the Act.

(2) In these regulations any reference to “long term fund or

funds” shall be deemed to be a reference to “technical provisions” which

an insurer or a pure reinsurer establishes and maintains under the Act in

respect of long term business.

(3) For the purposes of these regulations and the definition

of non-directive insurer, the exchange rate from the Euro to the Maltese

lira for each year beginning on 31 December is the rate applicable on

the last day of the preceding October for which the exchange rates for

the currencies of all the European Union Member States were published

in the Official Journal of the European Communities.

(Regulation 9)

GENERAL BUSINESS SOLVENCY MARGIN>

FIRST METHOD OF CALCULATION

(PREMIUM BASIS)

1. In this Schedule -

“incepted” refers to the time when the liability to risk of an insurer or a pure

reinsurer under a contract of insurance or reinsurance commenced and, for this

purpose, a contract providing continuous cover shall be deemed to commence on

each anniversary date of the contract<

“receivable”, in relation to an insurer or a pure reinsurer, a financial year and

a premium, means due to the insurer or the pure reinsurer in respect of contracts

of insurance or reinsurance incepted during that financial year, whether or not the

premium is received during that financial year<

“recoverable”, in relation to an insurer or a pure reinsurer and a financial

year, means recorded in the insurers’s or the pure reinsurer’s books as due in that

year, whether or not the insurer or the pure reinsurer has received any payment<

2. The gross premiums receivable (or contributions, as the case may be) in respect

of the insurer’s or the pure reinsurer’s general business for the financial year in question

shall be aggregated and the method of calculation in paragraphs 4 to 17 applied.

3. The gross premiums earned (or contributions, as the case may be) in respect

of the company’s general business for the financial year in question shall be aggregated

and the method of calculation in paragraphs 4 to 17 applied.

4. Premiums in respect of classes 11, 12 and 13 must be increased by 50 per

centum. Statistical methods may be used to allocate the premiums in respect of these

classes.

5. From each of the aggregates arrived at under paragraphs 2 and 3 of this

Schedule there shall be deducted -

(a)

any taxes included in the gross premiums, and

(b) any levies that are related to premiums and are recorded in the insurer’s

or the pure reinsurer’s books as payable in the financial year in question in respect

of general business.

6. The amount arrived at under paragraph 5 of this Schedule shall be multiplied

by twelve and divided by the number of months in the financial year.

7. Subject to paragraph 14 of the Fourth Schedule, if the amount arrived at

under paragraph 6 of this Schedule in the case of an insurer is more than 53.1 million

Euro or in the case of a pure reinsurer is more than 50 million Euro, it shall be divided

into two portions, the former consisting of 53.1 million Euro or 50 million Euro as the

case may be, and the latter comprising the excess.

8. Where there has been a division into two portions pursuant to paragraph 7 of

this Schedule, there shall be calculated and added together 18 per centum and 16 per

centum of the two portions respectively< and where there has been no such division,

there shall be calculated 18 per centum of the amount arrived at under paragraph 6 of

this Schedule.

9. In the case of general business consisting of health insurance based on actuarial

principles, paragraph 8 of this Schedule shall apply with the substitution of “6 per

centum” for “18 per centum” and “5 1#3 per centum” for “16 per centum”, but only if

all the necessary conditions are satisfied.

10. For the purposes of paragraph 9 of this Schedule, the necessary conditions

are the following -

(a) the gross premiums shall be calculated on the basis of sickness tables

appropriate to business of insurance<

(b) the reserves include provision for increasing age or, in the case of class

IV, either the reserves include provision for increasing age, or the business is

conducted on a group basis<

(c) an additional premium shall be collected in order to set up a safety

margin of an appropriate amount<

(d) the contract does not allow the insurer to cancel the contract after the

end of the third year of the contract< and

(e) the contract provides for the possibility of increasing premiums or

reducing payments during its currency.

11. Where paragraph 9 of this Schedule applies to a company whose general

business consists partly of health insurance based on actuarial principles and partly of

other business, the procedure provided in paragraphs 2 to 9 of this Schedule shall

operate separately for each part of the general business, so as to produce a sum under

paragraph 9 thereof for the health insurance and a sum under paragraph 8 thereof for

the other business.

12. (1) If the provision for claims outstanding at the end of the financial year

in question exceeds the provision for claims outstanding at the beginning of the financial

year two years prior to the financial year in question, then the amount of the excess

shall be added to the amount of claims paid in the 3 year period.

(2) If the provision for claims outstanding at the beginning of the financial

year two years prior to the financial year in question exceeds the provision for claims

outstanding at the end of the financial year in question, then the amount of the excess

shall be deducted from the amount of claims paid in the 3 year period.

13. (1) For the purposes of paragraph 12 of this Schedule, the amount of claims

paid, in each financial year, is the amount that is recorded in the insurer’s or the pure

reinsurer’s books as at the end of the financial year -

(a) in relation to general business classes 1 to 17 and long term business

classes, as paid by the insurer or the pure reinsurer (whether or not payment has

been effected in that year) in full or partial settlement of the claims described in

subparagraph (2) and the expenses described in subparagraph (3), or,

(b) in relation to general business class 18, as being the costs borne by the

insurer or the pure reinsurer (whether or not borne in that year) in respect of the

assistance given, less (in either case) any recoverable amounts within the meaning

of subparagraph (4).

(2) The claims mentioned in subparagraph (1) are claims under contracts

of insurance or reinsurance including claims relating to business accounted for over a

longer period than a financial year.

(3) The expenses mentioned in subparagraph (1) are expenses (such as, for

example, legal, medical, surveying or engineering costs) which are incurred by the

insurer or the pure reinsurer, whether through the employment of its own staff or

otherwise, and are directly attributable to the settlement of individual claims, whether

or not the individual claims in question are those mentioned in that subparagraph.

(4) Recoverable amounts for the purposes of subparagraph (1) are amounts

recoverable by the company in respect of the claims mentioned in that subparagraph or

other claims, including amounts recoverable by way of salvage, amounts recoverable

from third parties and amounts recoverable from other insurance undertakings or

reinsurance undertakings but excluding amounts recoverable in respect of reinsurance

ceded.

14. (1) For the purposes of paragraph 12 of this Schedule, the provision for

claims outstanding, is (subject to any applicable provisions contained in Part IX and X

of these regulations) the amount set aside by the insurer or the pure reinsurer as at the

beginning or end of the period of three financial years as being an amount likely to be

sufficient to meet -

(a)

the claims described in subparagraph (2), and

(b) the expenses described in subparagraph (3),

less any recoverable amounts within the meaning of subparagraph (4).

(2) The claims mentioned in subparagraph (1) are claims under contracts

of insurance or reinsurance in respect of incidents occurring -

(a) in the case of an amount set aside as at the beginning of the financial

year, before the beginning of that year, and

(b) in the case of an amount set aside as at the end of a financial year,

before the end of that year,

being claims which have not been treated as claims paid including claims relating to

business accounted for over a longer period than a financial year, the claims the amounts

of which have not been determined and the claims arising out of incidents that have

not been notified to the insurer or the pure reinsurer.

(3) The expenses mentioned in subparagraph (1) are expenses (such as, for

example, legal, medical, surveying or engineering costs) which are likely to be incurred

by the insurer or the pure reinsurer, whether through the employment of its own staff

or otherwise, and are directly attributable to the settlement of individual claims, whether

or not the individual claims in question are those mentioned in that subparagraph.

(4) Recoverable amounts for the purposes of subparagraph (1) are amounts

estimated by the insurer or the pure reinsurer to be recoverable by it in respect of the

claims mentioned in that subparagraph, including amounts recoverable by way of

salvage, amounts recoverable from third parties and amounts recoverable from other

insurance undertakings or reinsurance undertakings but excluding amounts recoverable

in respect of reinsurance ceded.

15. From the amount determined under paragraph 12(1) or (2) of this Schedule

there shall be deducted the total sum recoverable in respect of that amount under

reinsurance contracts ceded, including, upon application, with supporting evidence,

amounts recoverable from special purpose vehicles referred to in article 46 of Directive

2005#68#EC, during the relevant period.

16. The amount determined under paragraph 15 of this Schedule shall be

expressed as a percentage of the amount determined under paragraph 12(1) or (2) of

this Schedule.

17. The sum arrived at under paragraph 8 or 9 of this Schedule or the aggregate

of the sums arrived at under those paragraphs, as the case may be, shall be multiplied-

(a) where the percentage arrived at under paragraph 16 of this Schedule is

greater than 50 per centum but not greater than 100 per centum, by the percentage

so arrived at,

(b) where the percentage so arrived at is greater than 100 per centum, by

100 per centum, and

(c)

in any other case, by 50 per centum.

The purpose of these regulations is to implement the provisions

of Directives 73#239#EEC, 88#357#EEC, 92#49#EEC, 2002#83#EC,

2002#13#EC, 98#78#EC, 2002#87#EC and 2005#68#EC, and they shall

be interpreted and applied accordingly.

PART II

MAINTENANCE OF ASSETS IN MALTA

(Regulation 9)

GENERAL BUSINESS SOLVENCY MARGIN>

SECOND METHOD OF CALCULATION

(CLAIMS BASIS)

1. In this Schedule “reference period”, in relation to an insurer or a pure reinsurer,

means either -

(a)

the financial year in question and the two previous financial years< or

(b) the financial year in question and the six previous financial years if

more than 50 per centum of the gross premiums in that period were in respect of

all or any of the following, namely, storm (as included in general business class

8), hail (as included in general business class 9), frost (as included in general

business class 9) and credit (as included in general business class 14)<

2. If an insurer or a pure reinsurer has not been in existence long enough to

acquire a reference period, this Schedule shall be deemed to give a lower result than

that given by the Second Schedule and shall otherwise not apply to the insurer or the

pure reinsurer.

3. Provisions and recoveries in respect of general business classes 11, 12 and

13 must be increased by 50 per centum. Statistical methods may be used to allocate the

claims, provisions and recoveries in respect of these classes.

4. (1) If the provision for claims outstanding at the end of the reference period

exceeds the provision for claims outstanding at the beginning of the reference period,

the amount of the excess shall be added to the amount of claims paid in the reference

period.

(2) If the provision for claims outstanding at the beginning of the reference

period exceeds the provision for claims outstanding at the end of the reference period,

the amount of the excess shall be deducted from the amount of claims paid in the

reference period.

(3) For the purposes of this paragraph, the expressions “amount of claims

paid” and “provision for claims outstanding” have, in relation to a reference period,

the same meaning as they have in paragraph 12 of the Second Schedule.

5. The aggregate obtained under paragraph 4(1) or (2) of this Schedule shall be

divided by the number of months in the reference period and multiplied by twelve.

6. Subject to paragraph 14 of the Fourth Schedule, if the amount arrived at

under paragraph 4 of this Schedule in the case of an insurer is more than 37.2 million

Euro or in the case of a pure reinsurer is more than 35 million Euro, it shall be divided

into two portions, the former consisting of 37.2 million Euro or 35 million Euro, as the

case may be, and the latter comprising the excess.

7. Where there has been a division into two portions pursuant to paragraph 6 of

this Schedule, there shall be calculated and added together 26 per centum and 23 per

centum of the two portions respectively< and where there has been no such division,

there shall be calculated 26 per centum of the amount arrived at under paragraph 5 of

this Schedule.

8. In the case of general business consisting of health insurance based on actuarial

principles, paragraph 7 of this Schedule shall apply with the substitution of “8 2#3 per

centum” for “26 per centum” and “7 2#3 per centum” for “23 per centum”, but only if

all the necessary conditions are satisfied.

9. The necessary conditions for the purposes of paragraph 8 of this Schedule

are the same as those set out in paragraph 10 of the Second Schedule.

10. In a case of the kind mentioned in paragraph 11 of the Second Schedule,

that paragraph shall apply (with the necessary modifications) so as to produce separate

sums under paragraphs 7 and 8 of this Schedule.

11. The sum arrived at under paragraph 7 or 8 of this Schedule or the aggregate

of the sums arrived at under those paragraphs, as the case may be, shall be multiplied

by the same percentage as is applicable for the purposes of paragraph 17 of the Second

Schedule.

(1) Subject to subregulation (2) of this regulation, and subject

to regulation 5, and a non-EEA insurer which is authorised under the

Act to carry on direct insurance business, other than a Swiss general

insurer, must make and maintain a deposit in Malta of any asset of the

type mentioned in regulation 6 which is no less than one-half of the

minimum guarantee fund appropriate to the margin of solvency which

the insurer is required to maintain under regulation 8(2)(b) or regulation

8(3)(c)(ii)

(2) Where -

(a) the insurer carries on insurance business in Malta and

one or more other EEA States< and

(b) the competent authority and the appropriate supervisory

authority or authorities in the EEA States have agreed that this

regulation should apply,

the insurer shall make and maintain the deposit with such person as may

be agreed between the competent authority and the other authority or

authorities.

Amount of assets to be maintained in Malta in the case of

insurers carrying out servicing or run-off of business of insurance.

(Regulation 16)

MINIMUM GUARANTEE FUND

Long term business

1. Subject to paragraphs 8, 13 and 14 of this Schedule, the minimum guarantee

fund for long term business shall be -

(a)

in the case of a mutual, 2,250,000 Euro<

(b) in the case of a pure reinsurer, 3,000,000 Euro<

(c)

in the case of an affiliated reinsurance company, 1,000,000 Euro< and

(d) in any other case, 3, 200,000 Euro.

General business

2. Subject to paragraphs 3 to 9 and 14 of this Schedule, the minimum guarantee

fund for general business shall be 2,200,000 Euro.

3. Where insurance business is carried on in respect of some or all of the risks

included in classes 10 to 15, the minimum guarantee fund shall be 3,200,000 Euro.

4. In the case of an insurer, which is also authorised to carry on reinsurance

where -

(1) the reinsurance premiums collected exceed 10 per centum of the

insurer’s total premium<

(2) the reinsurance premiums collected exceed 50,000,000 Euro< or

(3) the technical provisions resulting from its reinsurance acceptances

exceed 10 per centum of its total technical provisions,

the minimum guarantee fund shall be 3,000,000 Euro.

5. Where the business is restricted to that of an affiliated reinsurance company,

the minimum guarantee fund shall be 1,000,000 Euro.

6. In the case of a pure reinsurer,other than an affilaited reinsurance company,

the minimum guarantee fund shall be 3,000,000 Euro.

7. In the case of a mutual, the minimum guarantee fund shall be reduced by 25

per centum.

Long term business and general business

8. In relation to a Malta margin of solvency or EEA margin of solvency

maintained under regulation 8(2)(b) and regulation 8(3)(c)(ii) of these regulations

respectively, the minimum guarantee fund for long term business or general business

shall be one-half of the amount arrived at by applying the foregoing provisions of this

Schedule.

Non-directive insurers

9. For non-directive insurers, subject to paragraphs 10 to 12 of this Schedule,

the minimum guarantee fund for general business is the amount shown in the table

below as applicable to the general business class (or the highest such amount if the

insurer carries out business in more than one class).

General Business Class

Amount

Class 10, 11, 12, 13, 14 or 15

400,000 Euro

Class 1, 2, 3, 4, 5, 6, 7, 8, 16 or 18

300,000 Euro

Class 9 or 17

200,000 Euro

10. In the case where the risks covered fall within class 14 and where the annual

amount of premiums or contributions of the insurer due in respect of that class for each

of the financial years in question and the two previous financial years exceeded

2,500,000 Euro or 4 per centum of the total amount of premiums or contributions

receivable or earned by the insurer, for the amount of Euro given in the table in paragraph

9 of this Schedule there shall be substituted the amount of 1,400,000 Euro.

11. An insurer which carries out insurance business for part of a class shall, for

the purposes of paragraph 9 of this Schedule, be regarded as carrying out business for

the whole of the class.

12. In the case of a mutual, the minimum guarantee fund required by paragraphs

9 to 11 of this Schedule shall be reduced by 25 per centum.

13. For non-directive insurers, the minimum guarantee fund for long-term

business is -

(a)

in the case of a mutual, 600,000 Euro< and

(b) in any other case, 800,000 Euro.

Increases to reflect consumer price index

14. The base amounts in Euro specified in paragraphs 1 and 2 of this Schedule

and the Second and Third Schedules shall be reviewed in accordance with the provisions

of article 17a of Directive 73#239#EEC, article 30 of Directive 2002#83#EC and article

41 of Directive 2005#68#EC.

In the case of an insurer which at the time of coming into

force of these regulations had ceased to carry on the business it was

licensed to carry on under the 1981 Act or the Act and the insurer is

out servicing or run-

only servicing or running-off that business, the amount of deposit which

the insurer concerned is required to maintain in Malta shall be the amount

of deposit which the insurer was required to maintain, pursuant to

regulation 5 of the Insurance Business (Companies Assets and

Liabilities) Regulations, 2000 (revoked by the Insurance Business

(Insurers’ Assets and Liabilities) Regulations, 2004) or such higher L.N. 310 of 2004.

amount as determined by the competent authority.

(Regulation 27)

PERSONS ACTING AS CUSTODIAN OF ASSETS

1. The persons listed in this Schedule shall act as custodian of assets for the

purposes of article 18 of the Act and hold in custody for insurers’ account assets of a

description specified and assigned to their exclusive custody in this Schedule.

2. (1) The Central Bank of Malta shall act as custodian of assets of the following

description -

(a) investments approved by the competent authority listed or dealt in on a

foreign stock exchange or regulated market acceptable to the competent authority<

and

(b) currency deposits acceptable to the competent authority in a bank or

credit institution of first class standing lawfully carrying on the business of banking

in a country outside Malta.

(2) Any document of title of assets of such description shall be made in the

name of the Central Bank of Malta for the account of the company and be deposited

with and held in custody by the Central Bank as custodian for the insurer.

3. (1) Any bank or credit institution lawfully carrying on the business of

banking in Malta shall act as custodian of assets consisting of currency deposits whether

such deposits are in a currency acceptable to the competent authority.

(2) Any such deposits shall be made in the name of the Malta Financial

Services Authority for the account of the insurer.

4. For the purposes of this Schedule -

“bank” and “credit institution” have the meaning given in regulation 6(2) of

these regulations<

“deposit” has the meaning given in regulation 6(2) of these regulations<

“regulated market” has the meaning given in regulation 41(1) of these

regulations.

(1) The assets mentioned in regulations 4 and 5 shall be assets Kind of assets to be

maintained in

of the following kind and shall be treated to be assets of that kind only if Malta.

they satisfy the conditions applicable to assets of that kind>

(a) an asset consisting of an approved security where the

issuer is established in Malta or a country falling within the zone

of countries if the security is in the name of, and held in custody for

the insurer’s account by, the Central Bank of Malta<

(b) an asset consisting of a deposit in a currency acceptable

to the competent authority with a bank or credit institution lawfully

carrying on the business of banking in Malta if the deposit is in the

name of the Malta Financial Services Authority for the insurer’s

account or pledged by the insurer concerned in favour of the Malta

Financial Services Authority and the document constituting the

pledge is delivered to the competent authority<

(c) an asset consisting of a deposit in a currency acceptable

to the competent authority with a foreign bank or credit institution

of first class standing lawfully permitted in the country where the

deposit is held to carry on the business of banking acceptable to

the competent authority if the deposit is in the name of the Central

Bank of Malta for the insurer’s account<

(d) an asset consisting of a listed investment on the Malta

Stock Exchange, or a recognised investment exchange if the

investment is pledged in favour of the Malta Financial Services

Authority and the document constituting the pledge is registered

by the insurer concerned with the Central Securities Depository of

the Malta Stock Exchange or a recognised investment exchange and

delivered to the competent authority.

(2) For the purpose of subregulation (1) -

“approved security” has the same meaning as in regulation

41(1)<

“bank” and “credit institution”, in relation to local deposits,

have the same meaning as is assigned to them by article 2(1) of the

Banking Act<

“deposit”, in relation to any currency, has the same meaning

as is assigned to it by article 2(1) of the Banking Act.

PART III

MARGINS OF SOLVENCY

In this Part of these regulations -

(Regulation 40)

METHOD OF CALCULATING THE EQUALISATION RESERVE

FOR CREDIT INSURANCE BUSINESS

1. The insurer or the pure reinsurer shall maintain a credit insurance equalisation

reserve to which shall be charged, at the end of each financial year, any technical

deficit arising in respect of credit insurance business during that financial year.

2. Subject to paragraph 4 of this Schedule, such reserve shall at the end of each

financial year receive seventy-five per centum of any technical surplus arising in respect

of credit insurance business, subject to a limit of twelve per centum of net premiums

written during that financial year until the reserve has reached one hundred and fifty

per centum of the highest annual amount of net premiums written during the previous

five financial years.

3. For the purposes of this Schedule, technical surplus or technical deficit in

respect of credit insurance business for a financial year means>

(a) for business which is accounted for on an accident year basis, the amount

by which the aggregate of net premiums earned and other technical income exceeds,

or falls short of, the aggregate of net claims incurred, claims management costs

and any technical charges< and

(b) for business which is accounted for on an underwriting year basis, the

amount by which the aggregate of net premiums written and other technical income

exceeds, or falls short of, net claims paid plus the increase (or less the decrease)

in the net technical provisions (exclusive of any change in the credit insurance

equalisation reserve) and net operating expenses.

4. In determining any technical surplus referred to in paragraph 2 of this Schedule

the calculation shall be made before tax and before any transfer to or from the credit

insurance equalisation reserve. Investment income shall not be included in these

calculations.

“EEA-deposit insurer” means a non-EEA insurer which has

made a deposit in an EEA State (other than in Malta) in accordance

with the provisions of regulation 4 of these regulations<

“implicit items” has the meaning given by regulations 11 to 13

and “implicit item” shall be construed accordingly<

“Malta-deposit insurer” means a non-EEA insurer which has

made a deposit in Malta in accordance with the provisions of

regulation 4<

“zillmerising” means the method known by that name for

modifying the net premium reserve method of valuing a long term

business policy by increasing the part of the future premiums for

which credit is taken so as to allow for initial expenses.

(Regulation 54)

ASSETS TO BE TAKEN INTO ACCOUNT ONLY TO A SPECIFIED EXTENT

PART I

EXCESS EXPOSURE> METHOD OF CALCULATION

1. Unless the context otherwise requires, words and expressions contained in

this Schedule bear the same meaning as in Parts IX and X of the regulations.

2. For the purposes of this Schedule -

“business amount” means -

(a) in relation to business carried on by an insurer, in respect of which

the margin of solvency is determined by the method of calculation set out in

the Second and Third Schedules in terms of regulations 9(1) or 9(2), the

general business amount<

(b) in relation to business carried on by an insurer, in respect of which

the margin of solvency is determined by the method of calculation set out in

the First Schedule in terms of regulation 9(1) or 9(2), the long term business

amount<

“connected company” of any company means -

(a)

that company’s holding company<

(b) a subsidiary of that company<

(c)

a subsidiary of the holding company of that company.

“counterparty” in relation to an insurer means -

(a)

any one individual<

(b) any one unincorporated body of persons<

(c)

any one company not being a member of a group<

(d) any group of companies excluding any companies within the group

which are subsidiary undertakings of the insurer< or

(e) any government of a state as the competent authority may, from

time to time, either generally or specifically, approve for such purpose together

with all the public bodies, local authorities or nationalised industries of that

state,

in which the insurer has made investments or against whom it has rights whether

in pursuance of a contract entered into by the insurer or otherwise< and reference

to dealings with or by a counterparty includes dealings with or by any person or

body of persons included within the definition of counterparty<

“counterparty exposure” shall be determined in accordance with paragraph

13 of this Part of this Schedule<

“debts due or to become due” includes any debts which would become due

if the insurer were to exercise any right to which it is entitled to require payment

or repayment of the same<

“diversified contract for differences” means a contract for differences whose

value does not depend to a significant extent on fluctuations in the value of, or

income from, assets or any of the descriptions in paragraphs 1 to 9, 11 or 13 to 19

of Part II of this Schedule and “undiversified contract for differences” shall be

construed accordingly<

“excess concentration with a number of counterparties” shall be determined

in accordance with paragraph 23 of this Part of this Schedule<

“general business amount” means the aggregate of the insurer’s insurance

liabilities (net of reinsurance) in respect of>

(a)

general business carried on by an insurer< and

(b) long term reinsurance business carried on by an insurer in respect

of which the margin of solvency is determined by the method of calculation

set out in the Second and Third Schedule in terms of regulation 9(2), and

an amount equal to whichever is the greater of the insurer’s applicable minimum

guarantee fund or 20 per centum of the general premium income.

“group” has the same meaning as is assigned to the term “group company”

in article 2(1) of the Companies Act<

“hybrid security” means a debt security, other than an approved security, the

terms of which provide, or have the effect that, or contain an option which if

exercised by the issuer would have the effect that the holder does not or would

not have an unconditional entitlement to payment of interest and repayment of

capital in full within seventy-five years of the relevant date<

“index linked liabilities” means insurance liabilities in respect of index linked

benefits<

“insurance liabilities” means amounts calculated in accordance with Part X

of the regulations in respect of those items shown at C and D under the heading

“Liabilities” listed in the balance sheet format set out immediately following

paragraph 15 of the First Schedule to the Insurance Business (Companies Accounts)

Regulations<

“long term business amount” means the higher of -

(a) the amount of the insurer’s insurance liabilities (net of reinsurance

ceded and excluding property linked liabilities) in respect of>

(i) long term direct business carried on by an insurer< and

(ii) long term reinsurance business carried on by an insurer in

respect of which the margin of solvency is determined by the method

of calculation set out in the First Schedule in terms of regulation 9(2)<

and

together with>

(aa) the amount of the required margin of solvency (or the amount of

the minimum guarantee fund if greater) determined in accordance with

regulation 16 of these regulations and paragraphs 2 to 5 of the First Schedule

thereto (or, in the case of an insurer whose head office is not in Malta, the

amount which would apply if its head office were in Malta), less the amount

of any implicit item valued in accordance with regulation 11 to 13 of the

regulations< and

(bb) the amount of any deposit back in connection with a contract of

reinsurance in respect of long term business< or

(b) such other amount as the insurer may select not exceeding the value of

its assets (other than general insurance business assets if the insurer is a general

insurer and excluding reinsurance recoveries and assets required to match property

linked liabilities) in accordance with the provisions of Part IX of these regulations,

except that for the purposes of determining the permitted asset exposure limit

under paragraph 3 of this Part of this Schedule, index linked liabilities must also

be excluded from (a) and assets required to match such liabilities must also be

excluded from (b).

“permitted asset exposure limit” has the meaning set out in paragraph 3 of

this Part of this Schedule<

“permitted counterparty exposure limit” has the meaning set out in paragraph

4 of this Part of this Schedule<

“property linked liabilities” means insurance liabilities in respect of property

linked benefits<

“readily realisable” in relation to a listed investment means a listed investment

to which regulation 48(3) of the regulations either does not apply or applies by

reason only that -

(a) the listing of the investment has been temporarily suspended

following receipt of price sensitive information by the stock exchange on

which the investment is listed or the regulated market on which facilities for

dealing have been granted< or

(b) the extent of the holding would prevent an orderly disposal of the

investment for an amount equal to or greater than 97.5 per cent of the market

value<

“short term deposit” means a sum of money which may be withdrawn at the

discretion of the lender without penalty or loss of accrued interest by giving notice

of withdrawal of one month or less.

3. The permitted asset exposure limit for assets of any of the descriptions in any

paragraph of Part II of this Schedule is the percentage of the business amount set out

immediately below that paragraph. In the case of an asset which is not covered by any

of the descriptions in Part II of this Schedule (other than a derivative contract) the

permitted asset exposure limit is nil.

4. The permitted counterparty exposure limit is -

(a) where the counterparty is an individual or an unincorporated body of

persons, 5 per centum of the business amount<

(b) where the counterparty is a counterparty of the type mentioned in

paragraph (e) in the definition of counterparty, 10 per centum of the business

amount<

(c)

where the counterparty is a body corporate or group, each of>

(i) 30 per centum of the business amount<

(ii) 15 per centum of the business amount or such lower amount as

the insurer may decide where the exposure arises other than by reason that

debts are due or to become due as a result of short term deposits made with

an approved credit institution<

(iii) 10 per centum of the business amount where the exposure is other

than to bodies which are approved counterparties.

Calculation of exposure to assets

5. A value shall be ascribed to assets of each description which shall be an

amount determined in accordance with the provisions of Part IX of the regulations, or

where the assets are of a description for the valuation of which no provision is made in

Part IX of the regulations, an amount which would reasonably be paid by way of

consideration for an immediate assignment or transfer of such assets. The amount by

which the insurer is exposed to assets of each description shall be determined by

adjusting the value of the assets in accordance with paragraphs 6 to 13 of this Part of

this Schedule.

Adjustments in respect of futures contracts

6. The figure arrived at under paragraph 5 of this Part of this Schedule in respect

of assets of each description shall be increased or decreased by the value of assets of

that description which the insurer is deemed to have acquired or disposed of pursuant

to a futures contract.

7. For the purposes of paragraph 6 of this Part of this Schedule, the insurer shall

be deemed to have acquired or disposed of assets pursuant to a futures contract if, at

the relevant date, it has entered into (and not closed out) a futures contract which -

(a)

provides for the acquisition of assets by that insurer< or

(b) is listed and provides for the disposal of assets by the insurer< or

(c) is not listed but provides for the disposal of assets by the insurer to an

approved counterparty and it is prudent to assume that such disposal will take

place within one year of the relevant date.

Adjustments in respect of options

8. The figure arrived at under paragraphs 5 to 7 of this Part of this Schedule in

respect of assets of each description shall be increased or decreased by the value of

assets of that description which the insurer is deemed to have acquired or disposed of

pursuant to an option.

9. For the purposes of paragraph 8 of this Part of this Schedule, the insurer shall

be deemed to have acquired or disposed of assets pursuant to an option if, at the relevant

date, it is a party to an option and it is prudent to assume that the option will be exercised

and the option is one which -

(a)

provides for the acquisition of assets by the insurer< or

(b) is listed and provides for the disposal of assets by the insurer< or

(c) is not listed but provides for the disposal of assets by the insurer to an

approved counterparty and it is prudent to assume that such disposal will take

place within one year of the relevant date.

Adjustments in respect of initial margins

10. The figure arrived at under paragraphs 5 to 9 of this Part of this Schedule in

respect of assets of each description shall be increased by an amount representing the

value of any assets of that description which have been transferred by the insurer by

way of initial margin.

Adjustments in respect of an undiversified contract for differences or a contract

or asset having the effect of a derivative contract

11. The amount arrived at in accordance with paragraphs 6 to 10 of this Part of

this Schedule shall be increased or decreased by an amount representing the value of

assets which the insurer is deemed to have acquired or disposed of under -

(a)

an undiversified contract for differences< or

(b) a contract or asset other than a diversified contract for differences which

has the effect of a derivative contract.

12. For the purposes of paragraph 11 of this Part of this Schedule, the insurer

shall be deemed to have achieved the effect of such contract by entering into appropriate

futures contracts or options. The assets deemed to be acquired or disposed of shall be

dealt with in accordance with the provisions in paragraphs 6 and 8 respectively.

Adjustments in respect of subsidiary undertakings

13. Subject to paragraphs 14 and 15 of this Part of this Schedule, the amount of

the company’s exposure to assets arrived at under paragraphs 5 to 12 of this Schedule

must be increased by an amount representing the exposure, if any, of the insurer’s

dependants to assets of that description.

14. For the purposes of paragraph 13 of this Part of this Schedule, the exposure

of each dependant must be calculated by applying paragraphs 5 to 12 of this Schedule

to that dependant as if it were an insurance undertaking to which those provisions

apply.

15. In relation to a dependant>

(a)

which is an insurance undertaking or a reinsurance undertaking< or

(b) for which regulation 54(1)(a) to (c) has (notwithstanding regulation

43(5)(b)) been applied when valuing the assets selected under regulation 43(4)(a),

paragraph 13 of this Part of this Schedule applies only in relation to the dependant’s

surplus assets (or proportional share).

Excess asset exposure

16. The amount by which the insurer is exposed to assets of a particular

description in excess of the permitted asset exposure limit shall be calculated by

subtracting the permitted asset exposure limit for assets of that description from the

corresponding amount of the exposure, calculated in accordance with paragraphs 5 to

12 of this Part of this Schedule. For this purpose, exposure to assets shall be excluded

to the extent that such exposure has caused the recognition of excess exposure to assets

of a different description. If the figure arrived at is negative, it shall be taken to be zero.

Calculation of exposure to a counterparty

17. Subject to paragraphs 18 and 19 of this Part of this Schedule, the value of all

investments (determined in accordance with regulation 48 of these regulations) issued

by any one counterparty and the value of all rights (determined in accordance with

regulations 45, 52 and 53 of these regulations) against that counterparty, in each case

up to the amount of the appropriate permitted asset exposure limit, shall be aggregated.

Where the counterparty is an issuer of a collective investment scheme falling within

regulation 49(1)(b) of these regulations, the value of units or other beneficial interest

in the collective investment scheme shall be included.

18. Where an insurer has rights in respect of an obligation to be fulfilled by a

counterparty and -

(a)

the obligation is a secured obligation which>

(i) is secured by cash deposited with, or a letter of credit established

with, or securities issued by, or a guarantee provided by, an approved credit

institution or an approved financial institution< and

(ii) is due to be fulfilled within twelve months of the relevant date< or

(b) the obligation is a secured obligation which is secured by listed securities

which are readily realisable or by approved securities which in either case>

(i) have been deposited with an approved credit institution or an

approved financial institution< and

(ii) are beneficially owned by the counterparty but will not be available

for the benefit of creditors generally in the event of the winding-up of the

counterparty,

the aggregation required by paragraph 17 of this Part of this Schedule need not

include the value of such rights.

19. If the insurer has liabilities to the counterparty which may be offset against

the above-mentioned assets in accordance with generally accepted accounting concepts,

bases and policies or other generally accepted methods appropriate for insurers, then,

such liabilities may be offset for the purposes of the aggregation required by paragraph

17 of this Part of this Schedule.

20. Subject to paragraph 21 of this Part of this Schedule, the amount arrived at

in accordance with paragraphs 17 to 19 of this Part of this Schedule must be increased

by the amount by which any dependant of the insurer is exposed to the same

counterparty.

21. In relation to a dependant>

(a)

which is an insurance undertaking or a reinsurance undertaking< or

(b) for which regulation 54(1)(a) to (c) has (notwithstanding regulation

43(5)(b)) been applied when valuing the assets selected under regulation 43(4)(a),

paragraph 20 applies only in relation to the dependant’s surplus assets (or proportional

share).

Excess counterparty exposure

22. The amount by which the insurer is exposed to a counterparty in excess of

the permitted counterparty exposure limit shall be calculated by subtracting from the

amount of the exposure to such counterparty the amount of the permitted counterparty

exposure limit for such counterparty. If the figure arrived at is negative, it shall be

taken to be zero. If the insurer is exposed to a counterparty in excess of the permitted

counterparty exposure limit in more than one of the circumstances set out in paragraph

4(c) of this Part of this Schedule, it shall make the deduction required under regulation

54(1)(b) of the regulations only in respect of the circumstances leading to the greatest

excess exposure.

Excess concentration with a number of counterparties

23. Where there is exposure to a counterparty of the type mentioned in paragraph

4(c)(ii) of this Part of this Schedule, 40 per centum of the business amount shall be

deducted from the aggregate of such exposures. The amount so arrived at shall be the

excess concentration with a number of counterparties. Where this amount is negative

it shall be taken to be zero. For the purposes of this paragraph -

(a) exposure to a counterparty shall be taken into account only up to the

level of the permitted counterparty exposure limit for that counterparty< and

(b) exposure to a counterparty shall not be taken into account if it does not

exceed 10 per centum of the business amount< and

(c) exposure to a counterparty shall not be taken into account if the

corresponding permitted counterparty exposure limit does not exceed 10 per

centum of the business amount.

PART II

DESCRIPTION OF ASSET AND CORRESPONDING BUSINESS AMOUNT

1(a). A piece of land or a number of pieces of land (or an interest in such pieces

of land) to which in the most recent proper valuation of such pieces of land an aggregate

value is ascribed which is greater than the value of each of such pieces of land valued

separately -

(a)

in the case of general business amount>

(i) value of a piece of land 10%

(ii) aggregate value of a number of pieces of land 20%

(b) in the case of long term business amount>

(i) value of a piece of land 10%

(ii) aggregate value of a number of pieces of land 30%

Provided that, in the case of an aggregate value of a number of pieces of land, no

individual piece of land exceeds the maximum permitted exposure to one piece of

land.

1(b). A reversionary interest or a remainder not falling within

paragraph 1(a) of this Part of this Schedule

2. All debts due or to become due from any one individual being

debts which are fully secured on any dwelling or any land

appurtenant thereto owned or to be purchased by the

individual and used or to be used by him for his own

residence

3. All debts due or to become due from an individual, other than

debts specified in paragraph 2 of this Part of this Schedule 1 # 4 %

4. All unsecured debts (other than debts arising under the terms of

debt securities or debts from a regulated institution) due

or to become due from any one counterparty other than

an individual, body corporate or group

5. All unsecured debts (other than debts arising under the terms

of debt securities or debts from a regulated institution)

due or to become due from any one company, taken

together with all such debts due or to become due

from a connected company of that company

6. All unsecured debts (other than debts arising under the terms

of debt securities or debts from an approved

counterparty) due or to become due from any one

regulated institution, taken together with all such debts

due or to become due from a connected company of that

institution

7. All debts, other than debts arising under the terms of debt

securities, due or to become due from any one

counterparty which is not an approved counterparty

taken together with all such debts due or to become

due from any connected company (other than an

approved counterparty) of that counterparty

8. All debts, other than short-term deposits with an approved

credit institution or debts arising under the terms of

debt securities, due or to become due from any

one approved counterparty, taken together with all such

debts due or to become due from any connected

company of that approved counterparty

9. All debts due or to become due from an approved credit

institution (or a connected company of that institution)

taken together

10. The aggregate of debts of the descriptions in paragraphs

3, 4 and 5 of this Part of this Schedule

11. All investments of a kind which may be valued in accordance

with regulation 48 of the regulations (other than secured

debt securities, debt securities (other than hybrid

securities) issued by a regulated institution or investments

which are listed and readily realisable) issued by any one

issuer taken together with -

(a)

all units or other beneficial interests in a collective

investment scheme falling within regulation

49(1)(b) of the regulations issued by that issuer<

and with

(b) all investments of the kinds mentioned in this

paragraph issued by a connected company of that

issuer

12. The aggregate of assets of any of the descriptions in paragraph

11(b) of this Part of this Schedule 1

13. All shares and hybrid securities issued by any one issuer

taken together with all such securities issued by a

connected company of that issuer

14. All securities issued by any one issuer which is not an

approved counterparty taken together with all securities

issued by a connected company, other than an approved

counterparty, of that issuer

15. All securities issued by any one counterparty

16. All holdings in any one licensed collective investment scheme

or recognised scheme

17. All cash

18. All computer equipment

19. All office machinery (other than computer equipment) taken

together with all furniture, motor vehicles and other

equipment

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

(1) Every insurer or pure reinsurer, whose head office is in

Malta, shall maintain a margin of solvency in accordance with this Part

of these regulations.

(2) Subject to subregulation (3), every insurer whose head

office is not in Malta or an EEA State shall maintain -

(a)

a margin of solvency< and

(b) a Malta margin of solvency,

in accordance with this Part of these regulations.

(3) Subregulation (2) shall not apply to an insurer if -

(a)

it is a Swiss general insurer<

(b) it is an EEA-deposit insurer< or

(c) it is a Malta deposit insurer which has made a deposit

under regulation 4(2), but a Malta deposit insurer which has made

a deposit under regulation 4(2) must maintain -

(i) a margin of solvency< and

(ii) an EEA margin of solvency,

in accordance with this Part of these regulations.

(4) In the case of an insurer or a pure insurer that carries on

both long term business and general business, subregulations (1), (2)

and (3) shall have effect as if the requirement to maintain -

(a)

a margin of solvency<

(b) a Malta margin of solvency< or

(c)

an EEA margin of solvency,

were requirements to maintain separate margins in respect of the two

kinds of business.

(5) In calculating the margin of solvency, the Malta margin

of solvency and the EEA margin of solvency, the amount of the insurer’s

or the pure reinsurer’s liabilities shall be increased by the amount of

any reserve maintained under Part VIII of these regulations.

(1) (a) Subject to paragraph (b) of this subregulation and Determination of

margins of

subject to subregulations (3) to (9), the margin of solvency to be solvency.

maintained in respect of general business carried on by an insurer or a

pure reinsurer and in respect of long term business carried on by a pure

reinsurer, shall be determined by taking the greater of -

(i) the higher of the two sums resulting from the application

of the method of calculation set out in the Second Schedule< and

(ii) the sum resulting from the application of the method of

calculation set out in the Third Schedule<

(b) The margin of solvency to be maintained by a pure

reinsurer in respect of classes of long term business covered by Article

2(1)(a) of Directive 2002#83#EC linked to investment funds or

participating contracts and for the operations referred to in Article

2(1)(b), 2(2)(b), (c), (d) and (e) of Directive 2002#83#EC, may, with the

approval of the competent authority upon application made to it in

writing setting out the reasons of the change, be determined in

accordance with the provisions of the First Schedule<

(c) A pure reinsurer which determines the margin of

solvency in accordance with paragraph (b) of this subregulation, may,

with the approval of the competent authority upon application made to

it in writing setting out the reasons of the change, determine the margin

of solvency in accordance with paragraph (a).

(2) (a) Subject to paragraph (b) of this subregulation and

subject to subregulations (3) to (9), the margin of solvency to be

maintained in respect of long term business carried on by an insurer,

shall be determined in accordance with the provisions of the First

Schedule<

(b) Where>

(i) the reinsurance premiums collected exceed 10% of the

insurer’s total premium<

(ii) the reinsurance premiums collected exceed

EUR50,000,000< or

(iii) the technical provisions resulting from its reinsurance

acceptances exceed 10% of its total technical provisions,

the margin of solvency in respect of the long term reinsurance business

carried on by the insurer shall, subject to paragraph (c), be determined by

taking the greater of -

(aa) the higher of the two sums resulting from the application

of the method of calculation set out in the Second Schedule< and

(bb) the sum resulting from the application of the method

of calculation set out in the Third Schedule<

(c) The margin of solvency to be maintained by an

insurer, in respect of classes of long term reinsurance business covered

by Article 2(1)(a) of Directive 2002#83#EC linked to investment funds

or participating contracts and for the operations referred to in Article

2(1)(b), 2(2)(b), (c), (d) and (e) of Directive 2002#83#EC, may, with the

approval of the competent authority upon application made to it in

writing setting out the reasons of the change, be determined in

accordance with the provisions of the First Schedule<

(d) An insurer which determines the margin of

solvency in accordance with paragraph (c) of this subregulation, may,

with the approval of the competent authority upon application made to

it in writing setting out the reasons of the change, determine the margin

of solvency in accordance with paragraph (a) of this subregulation.

(3) Where an insurer is required to maintain a Malta margin

of solvency or an EEA margin of solvency -

(a) the Malta margin of solvency shall be determined by

applying subregulations (1) or (2), but only to business carried on

in Malta< and

(b) the EEA margin of solvency shall be determined by

applying subregulations (1) or (2), but only to business carried on

in the EEA States taken together.

(4) For a contract of direct insurance to which article 5(3) of

the Act applies, the required margin of solvency shall be determined by

taking the aggregate of the results arrived at by applying -

(a) in the case of so much of the contract as is within any

class of long term business, the appropriate method of calculation

set out in the First Schedule, and

(b) in the case of so much of the contract as is within general

business class 1 or 2, the method of calculation taking the greater

of>

(i) higher of the two sums resulting from the application

of the method of calculation set out in the Second Schedule<

and

(ii) the sum resulting from the application of the

method of calculation set out in the Third Schedule..

(5) Where an insurer or a pure reinsurer carries on long term

business and owing to the nature of that business more than one margin

of solvency is produced in respect of that business by the operation of

this Part of these regulations, the margins in question shall be aggregated

as regards the insurer or the pure reinsurer in order to arrive at the

insurer’s or the pure reinsurer’s required margin of solvency for long

term business.

(6) Where an insurer carries on both long term business and

general business and is accordingly required to maintain separate

margins of solvency in respect of the two kinds of business -

(a) these regulations shall apply for determining the margin

of solvency for each kind of business separately< and

(b) assets other than those representing the fund or funds

maintained by the insurer in respect of its long term business, if

they are not included among the assets covering the liabilities and

the margin of solvency relating to the insurer’s general business,

may be included among the assets taken into account in covering

the liabilities and the margin of solvency for the company’s long

term business.

(7) Subject to subregulation (8), in each case where the

margin of solvency is determined in accordance with the Second and

Third Schedules, including under subregulation (4) and paragraph 4(1)

of the First Schedule is lower than the required margin of solvency of

the prior financial year, then the margin of solvency must be adjusted so

that it is at least equal to the required margin of solvency of the prior

financial year multiplied by the ratio of the amount of the technical

provisions for claims outstanding at the end of the financial year in

question and the amount of the technical provisions for claims outstanding

at the beginning of the financial year in question.

(8) For the purpose of subregulation (7) -

(a) technical provisions must not be discounted, or reduced,

to take account of investment income, unless-

(i) they relate to risks in general business classes 1 or

2< or

(ii) they are reduced to reflect the discounting of

annuities< and

(b) technical provisions shall be calculated net of

reinsurance< but the ratio must not be higher than 1.

(9) Where the nature or quality of reinsurance relied on to

reduce the required margin of solvency changes significantly during

the financial year, an insurer or a pure reinsurer must notify the

competent authority forthwith of the change, and the competent authority

shall have the power to decrease the reduction based on reinsurance to

the solvency margins as determined in accordance with the First, Second

and Third Schedules.

(10) For the purposes of paragraph (b) of subregulation (1)

and paragraph (c) of subregulation (2), the provisions of the First

Schedule shall apply to a pure reinsurer, as if reference in such Schedule

to “insurer” were a reference to “pure reinsurer”.

(1) Where an insurer or a pure reinsurer has assets equal to Valuation.

or in excess of its liabilities, then, in addition to any other applicable

valuation regulations, subregulations (2) to (4) shall have effect for

determining the extent to which the value of the assets exceeds the amount

of the liabilities in connection with the required margin of solvency.

(2) Notwithstanding regulations 58(2) and 76(2), liabilities

may be left out of account in respect of>

(a) cumulative preferential share capital and subordinated loan

capital up to fifty per centum of the value of the margin of solvency

of the insurer or the pure reinsurer provided that no more than twenty-

five per centum of margin of solvency shall consist of subordinated

loans with a fixed maturity, or fixed term preferential share capital,

and provided the following minimum criteria are met -

(i) in the event of the bankruptcy or liquidation of the

insurer or pure reinsurer, binding agreements must exist under

which the subordinated loan capital or the cumulative

preferential share capital ranks after the claims of all other

creditors and is not to be repaid until all other debts outstanding

at the time have been settled<

(ii) subordinated loan capital must fulfil the following

additional conditions -

(aa)

only fully paid-up funds may be taken into

account<

(bb) for loans with a fixed maturity, the original

maturity must be at least five years. Not later than one

year before the repayment date, the insurer or pure insurer

must submit to the competent authority for its approval

a plan showing how the margin of solvency of the insurer

or the pure reinsurer will be kept at, or brought up to,

the required level at maturity, unless the extent to which

the loan may rank as component of the margin of

solvency is gradually reduced during at least the last five

years before the repayment date. The competent

authority may authorise the early repayment of such loans

provided application is made in writing by the issuing

company and its margin of solvency will not fall below

the required margin of solvency<

(cc) loans the maturity of which is not fixed must

be repayable only subject to five years’ notice unless

the loans are no longer considered a component of the

margin of solvency of the insurer or the pure reinsurer,

or unless the prior consent of the competent authority is

specifically required for early repayment. In the latter

event, the insurer or the pure reinsurer must notify the

competent authority in writing at least six months before

the date of the proposed repayment, specifying the actual

and required margin of solvency both before and after

that repayment. The competent authority shall authorise

repayment only if the insurer’s or pure reinsurer’s value

of the margin of solvency will not fall below the required

margin of solvency<

(dd) the loan agreement must not include any

clause providing that in specified circumstances, other than

the winding-up of the insurer or the pure reinsurer, the

debt will become repayable before the agreed repayment

dates< and

(ee) the loan agreement may be amended only after

the competent authority has confirmed in writing that it

has no objection to the amendment proposed.

(b) issued securities with no specified maturity date and other

instruments, including cumulative preferential shares other than those

mentioned in subregulation (2)(a) of this regulation, up to fifty

per centum of the value of the margin of solvency of the insurer or

the pure reinsurer for the total of such securities and the

subordinated loan capital referred to in that subregulation, provided

that they fulfil the following -

(i) they may not be repaid on the initiative of the bearer

or without the prior consent of the competent authority<

(ii) the contract of issue must enable the insurer or the

pure reinsurer to defer the payment of interest on the loan<

(iii) the lender’s claims on the insurer or the pure

reinsurer must rank entirely after those of all non-subordinated

creditors<

(iv) the documents governing the issue of the securities

must provide for the loss-absorption capacity of the debt and

unpaid interest, while enabling the insurer or the pure reinsurer

to continue its business< and

(v) only fully paid-up amounts may be taken into

account.

(3) The margin of solvency shall be reduced by the amount

of own shares directly held by the insurer or the pure reinsurer.

(4) Subject to subregulation (6), in the case of an insurer or

a pure reinsurer which discounts or reduces its technical provisions for

claims outstanding to take account of investment income as permitted

by article 60(1)(g) of Council Directive 91#674#EEC of 19 December

1991 on the annual accounts and consolidated accounts of insurance

undertakings, the margin of solvency must be reduced by the difference

between -

(a) the undiscounted technical provisions for claims

outstanding or the technical provisions for claims outstanding

before deductions as disclosed in the notes to the accounts< and

(b) the discounted technical provisions for claims outstanding

or the technical provisions for claims outstanding after deductions.

(5) For the purposes of subregulation (4), technical

provisions must be calculated net of reinsurance.

(6) Subregulation (4) does not apply to risks of classes 1 or

2, or in respect of the discounting of annuities.

(7) The margin of solvency shall also be reduced by the

following items>

(a) participations which the insurer or the pure reinsurer

holds in -

(i) insurance undertakings<

(ii) reinsurance undertakings<

(iii) insurance holding companies<

(iv) credit institutions and financial institutions within

the meaning of Article 4(1) and (5) of Directive 2006#48#EC

of the European Parliament and of the Council of the 14th

June, 2006 relating to the taking up and pursuit of the business

of credit institutions (recast)<

(v) investment firms and financial institutions within the

meaning of Article 1(1) of Directive 2004#39#EC of the of the

European Parliament and of the Council of the 21st April 2004

on markets and financial instruments and amending Council

Diretcives 85#611#EEC and 93#6#EEC and Directive

2000#12#EC of the European Parliament and of the Council

and repealing Council Directive 93#22#EEC and of Article

3(1)(d) and 3(2) of Directive 2006#49#EC of the Eurepean

Parliament and of the Council of 14th June 2006 on the capital

adequacy of investment firms and credit institutions (recast)<

(b) each of the following items which the insurer or the pure

reinsurer holds in respect of the entities defined in paragraph (a) in

which it holds a participation>

(i) instruments referred to in regulation 10(2)< and

(ii) subordinated claims and instruments referred to in

Article 63 and Article 64(3) of Directive 2006#48#EC of the

European Parliament and of the Council of the 14th June, 2006

relating to the taking up and pursuit of the business of credit

institutions (recast).

(8) Where shares in another credit institution, investment

firm, financial institution, insurance or reinsurance undertaking or

insurance holding company are held temporarily for the purposes of a

financial assistance operation designed to reorganise and save that entity,

the competent authority may, upon application by the insurer or the

pure reinsurer concerned, waive the provisions on deduction referred

to under subregulation (7)(a) and (b).

(9) As an alternative to the deduction of the items referred

to in subregulation (7)(a) and (b) which an insurer or a pure reinsurer

holding an authorisation holds in credit institutions, investment firms

and financial institutions, the insurer or the pure reinsurer may, with the

approval of the competent authority given in writing, apply mutatis

mutandis Methods 1, 2, or 3 of the First Schedule to the Financial

Conglomerates Regulations, 2004.

Provided that, the approval shall be given by the competent

authority in respect of Method 1 of the First Schedule to the Financial

Conglomerates Regulations, 2004 if the competent authority is confident L.N. 521 of 2004.

about the level of integrated management and internal control regarding

the entities which would be included in the scope of consolidation. The

method chosen shall be applied in a consistent manner over a period of

time.

(10) For the calculation of the margin of solvency, insurers

or pure reinsurers subject to supplementary supervision in accordance

with the Insurance Business (Supplementary Supervision of Insurance

and Reinsurance Undertakings in an Insurance Group) Regulations, 2007, L.N. of 2007.

or to supplementary supervision in accordance with the Financial

Conglomerates Regulations, 2004, need not deduct the items referred L.N 521 of 2004.

to in subregulation (7)(a) and (b) which are held in credit institutions,

investment firms, financial institutions, insurers, EEA insurers, pure

reinsurers, EEA pure reinsurers or insurance holding companies which

are included in the supplementary supervision.

(11) For the purposes of the deduction of participations

referred to in subregulations (7) to (10) of this regulation, “participation”

shall have the same meaning as is assigned to it in regulation 2 of the

Insurance Business (Supplementary Supervision of Insurance and

Reinsurance Undertakings in an Insurance Group) Regulations, 2007. L.N. of 2007.

(12) Subject to regulation 11(5), the items mentioned in

regulations 11 to 15 shall have no value except with the approval of the

competent authority given in writing upon application with supporting

documentation made to it by an insurer or a pure reinsurer in writing in

that behalf.

(1) Subject to subregulation (5), in the case of long term Implicit items>

future profits.

business the implicit item relating to future profits may be valued at not

more than 50 per centum of the full amount of future profits but not

exceeding 25 per centum of the lesser of the margin of solvency and the

required margin of solvency.

(2) For the purposes of subregulation (1), the full amount

of future profits shall be obtained by multiplying the estimated annual

profit by a factor which represents the average number of years

remaining to run on policies but shall, if it exceeds 6, be reduced to 6.

(3) For the purposes of subregulation (2) -

(a) the estimated annual profit shall be taken to be one-fifth

of the profits made in long term business over a period of five

years (“the relevant period”) ending on the last day of the most

recent financial year for which a valuation under article 23 of the

Act has been carried out, substantial items of an exceptional nature

being excluded< and

(b) the average number of years remaining to run on policies

shall be calculated -

(i) by multiplying the number of years to run on each

policy by the actuarial value of the benefits payable under

the policy, adding together the products so obtained and

dividing the total by the aggregate of the actuarial values of

the benefits payable under all the policies< or

(ii) by an approximation to this method of calculation

suitable to the circumstances of the case, including, where

appropriate, an approximation involving the grouping of

contracts,

appropriate allowance being made in either case for premature

termination of contracts.

(4) For the purposes of subregulation (3)(a) -

(a) where a valuation under article 23 of the Act has been

carried out annually in relation to the relevant period, the profits

made in long term business for any particular year of the relevant

period shall be taken to be the surplus (if any) arising in the long

term fund since the last such valuation, and the profits so made for

that period shall be taken to be the aggregate of those surpluses

less any deficiencies in the long term fund during that period<

(b) where an insurer or a pure reinsurer has carried on long

term business throughout the relevant period but valuations under

article 23 of the Act have not been made annually in that period,

the profits so made for that period shall be taken to be the aggregate

of surpluses arising in the long term fund since the last valuation

preceding the relevant period less any deficiencies in the long term

fund since that last valuation, except that the surplus or deficiency

arising in the period ending with the first valuation within the

relevant period shall be proportionately reduced to allow for any

period of time falling outside the relevant period<

(c) where an insurer or a pure reinsurer has not carried on

long term business throughout the relevant period, the profits made

in long term business for the relevant period shall be taken to be

the aggregate of any surpluses arising in the long term fund during

that part of the relevant period for which long term business was

carried on less any deficiencies in the long term fund during that

part of that period.

(5) Notwithstanding anything contained in this Part of these

regulations, future profits shall have no value after 31 December 2009,

and for this purpose, the insurer or the pure reinsurer shall submit>

(a) an actuarial report substantiating the likelihood of the

emergence of the future profits in the future< and

(b) a plan as to how it intends to comply with the future

limits on, and termination of use of, implicit items for future profits

required by the Life Directive (2002#83#EC) or by the Reinsurance

Directive (2005#68#EC).

(1) In the case of long term business where zillmerising is Implicit items>

appropriate but either is not practised or is at a rate less than the loading zillmerising.

for acquisition costs included in the premium, then, subject to

subregulation (6), the implicit item relating to zillmerising may be valued

at an amount not exceeding the difference between -

(a) the non-zillmerised or partially zillmerised figure for

mathematical reserves maintained by the insurer or the pure

reinsurer concerned, and

(b) a figure for mathematical reserves (not less than those

required by Part X of these regulations) zillmerised at a rate equal

to the loading for acquisition costs included or allowed for in the

premium.

(2) Where zillmerising is not practised, then, subject to

subregulation (6), the value given by subregulation (1) (less any amount

relating to temporary assurances) shall not exceed 3.5 per centum of

the aggregate of the difference between -

(a) the relevant capital sums for long term business activities,

and

(b) the mathematical reserves (excluding mathematical

reserves for temporary assurances).

(3) Where zillmerising is practised but is at a rate less than

the loading for acquisition costs, then, subject to subregulation (6), the

value given by subregulation (1) (less any amount relating to temporary

assurances) together with the difference between the partially zillmerised

mathematical reserves and the non-zillmerised mathematical reserves

shall not exceed 3.5 per centum of the aggregate of the difference

between -

(a) the relevant capital sums of long term business activities,

and

(b) the mathematical reserves (excluding mathematical

reserves for temporary assurances).

(4) In subregulations (2) and (3) “relevant capital sums”

(a)

for whole life assurances, the sum assured<

(b) for policies where a sum is payable on maturity (including

policies where a sum is also payable on earlier death), the sum

payable on maturity<

(c) for deferred annuities, the capitalised value of the annuity

at the vesting date (or the cash option if it is greater)<

(d) for capital redemption contracts, the sums payable at

the end of the contract period< and

(e) for linked long term contracts, notwithstanding

paragraphs (a) to (d), the lesser of -

(i) the amount for the time being payable on death,

and

(ii) the aggregate of the value for the time being of the

units allocated to the contract (or, where entitlement is not

denoted by means of units, the value for the time being of

any other measure of entitlement under the contract equivalent

to units) and the total amount of the premiums remaining to

be paid during such of the term of the contract as is appropriate

for zillmerising or, if such premiums are payable beyond the

age of seventy-five, until that age,

excluding in all cases any vested reversionary bonus and any capital

sums for temporary assurances.

(5) Where, under the contract relating to any such business

as is mentioned in subregulation (4), the payment of premiums is to

stop before the sum assured becomes due, then, notwithstanding the

said subregulation (4), “relevant capital sums” in subregulations (1) to

(3) shall be taken to mean the mathematical reserves appropriate for

that contract at the end of the premium-paying term.

(6) For the purposes of this regulation -

(a) reserves for vested reversionary bonuses shall not be

regarded as mathematical reserves< and

(b) the result given by subregulations (1), (2) or (3) shall be

reduced by the amount of any undepreciated acquisition costs

brought into account as an asset.

The implicit item relating to hidden reserves, if it consists of Implicit items>

hidden reserves.

hidden reserves resulting from the underestimation of assets and

overestimation of liabilities (other than mathematical reserves), may,

in so far as the hidden reserves in question are not of an exceptional

nature, be given its full value.

Unpaid share capital

Where -

or initial fund.

(a) an insurer or a pure reinsurer has issued shares some or

all of which are not fully paid and the total paid-up value of all the

shares is equal to or greater than one quarter of their nominal value

or, in the case of shares issued at a premium, of the aggregate of

their nominal value and the premium, or

(b) at least one quarter of the fund of a mutual is paid up,

an amount not greater than half of the lesser of the margin of solvency

and the required margin of solvency may be taken into account as an

asset upon application, by the insurer or pure reinsurer, with supporting

evidence< and for the purposes of this paragraph a share shall not be

regarded as fully paid if there are any amounts due but unpaid thereon.

In the case of general business, any claim which a mutual Claims which a

mutual with

with variable contributions has against its members by way of a call for variable

supplementary contributions for a financial year, an amount up to one contributions has

against its members

half of the difference between the maximum contributions and the by way of a call for

contributions actually called in, and subject to a limit of 50 per centum supplementary

contributions.

of the lesser of the margin of solvency and the required margin of

solvency may be taken into account as an asset, upon application, with

supporting evidence, by the mutual.

PART IV

GUARANTEE FUND AND MINIMUM GUARANTEE FUND

(1) An insurer or a pure reinsurer shall ensure that its margin

minimum guarantee

of solvency does not fall below the guarantee fund.

(2) Subject to subregulations (3) and (4), one-third of the

required margin of solvency constitutes the guarantee fund.

(3) The guarantee fund shall not be less than the amount

(the minimum guarantee fund) arrived at in accordance with the Fourth

Schedule, whether the required margin of solvency is greater or less

than that amount.

(4) In the case of long term business, items that are not

implicit items shall be at least large enough to cover either the minimum

guarantee fund or 50 per centum of the guarantee fund, whichever is

the greater.

(5) In the case of general business, unpaid share capital (or

intial fund of a mutual) and any claim which a mutual with variable

contributions has against its members by way of a call for supplementary

contributions for a financial year shall not be taken into account in

complying with subregulation (1).

(6) In the case of long term business, unpaid share capital

(or intial fund of a mutual) and implict items which relate to future

profits and zillmerising shall not be taken into account in complying

with subregulation (1).

The provisions of regulations 11 to 15 shall apply to a

guarantee fund and a minimum guarantee fund in the same manner and

to the same extent as they apply to a required margin of solvency.

PART V

CURRENCY MATCHING, LOCALISATION

(1) Where an insurer’s liabilities in any particular currency

exceed 5 per centum of its total liabilities, the insurer shall hold sufficient

assets in that currency to cover at least 80 per centum of the insurer’s

liabilities in that currency.

(2) Where an insurer carries on both long term business and

general business, the requirements of subregulation (1) apply to the assets

and liabilities of each kind of business separately.

(3) Where the contract of insurance expresses any liability in

terms of a particular currency, that liability shall be regarded as a liability

in that currency.

(4) For the purposes of this regulation -

“assets”, except in the case of assets of the kind referred to in

regulation 42(2), means assets valued in accordance with Part IX

of these regulations< and

“liabilities” means provision by an insurer to cover liabilities

arising under or in connection with contracts of insurance (not

being liabilities relating to business of insurance excluded by

regulation 23).

(5) For the purposes of this regulation, references to assets

in a currency shall be construed as references to assets expressed in or

capable of being realised (without exchange risk) in that currency< and

an asset is capable of being realised (without exchange risk) in a currency

if it is reasonably capable of being realised in that currency without risk

that changes in exchange rates would reduce the cover of liabilities in

that currency.

(6) The provisions of this regulation have effect subject to

regulations 19 to 21.

(1) In so far as the liabilities for property linked benefits Matching> property

linked benefits.

and index linked benefits are covered by assets which determine the

benefits payable under a linked long term contract, regulation 18 does

not apply.

(2) In so far as the liabilities for property linked benefits

are determined by reference to assets in a currency other than that in

which the insurer’s obligations to the policyholder are expressed, those

liabilities shall for the purposes of the said regulation 18 be deemed to

be liabilities in the first-mentioned currency.

(3) In this regulation “property linked benefits” and “index

linked benefits” have the meanings given by regulation 41(1).

(1) The currency of an insurer’s general business liabilities

shall, for the purposes of regulation 18, be determined as follows.

(2) Where the liabilities are not expressed as liabilities in

terms of a particular currency, they shall be regarded as liabilities in the

currency of the country in which the risk is situated or, if the insurer on

reasonable grounds so determines, in the currency in which the premium

payable under the contract is expressed.

(3) However, the insurer may regard its liabilities as

liabilities in the currency which it will use in accordance with past

experience or, in the absence of such experience, in the currency of the

country in which it is established -

(a) for contracts covering risks falling within general

business classes 4, 5, 6, 7, 11, 12 and 13 (producer’s liability only)<

(b) for contracts covering risks falling within any other

general business class where, in accordance with the nature of the

risks, the insurer’s liabilities are liabilities in a currency other than

that determined in accordance with subregulation (2).

(4) Where a claim has been notified to an insurer and the

insurer’s liability in respect of that claim is payable in a currency other

than one which would result from the application of the above provisions,

the liability shall be regarded as a liability in the currency in which the

insurer is actually obliged to pay it.

(5) Where a claim is assessed in a currency which is known

to the insurer in advance but which is different from a currency

determined in accordance with the above provisions, the insurer may

regard its liabilities as liabilities in that currency.

An insurer need not cover its liabilities by assets in a particular

Matching> exception

currency if those assets would amount to 7 per centum or less of the

remainder of its assets in other currencies.

(1) Assets maintained pursuant to regulation 18 shall be

maintained in any EEA State or the country of the currency of the

liability.

(2) In the case of a relevant co-insurance operation and a

relevant insurer, assets held pursuant to regulation 18 shall be held in

any EEA State.

(3) For the purpose of applying subregulations (1) and (2)

to tangible assets and assets consisting of a claim against a debtor or a

listed or unlisted investment, the following provisions shall have effect>

(a) a tangible asset shall be regarded as maintained in the

place where it is situated<

(b) an asset consisting of a claim against a debtor shall be

regarded as maintained in any place where it can be enforced by

legal action<

(c) an asset consisting of a listed investment shall be

regarded as maintained in any place where>

(i) there is a stock exchange or a recognised investment

exchange (of the kind described in paragraph (a) of the

definition of “listed” in regulation 41(1)) where it is listed, or

(ii) there is a regulated market as defined in regulation

41(1) where it is dealt in<

(d) an asset consisting of an unlisted investment issued by a

company shall be regarded as maintained in the place where the

head office of that company is situated.

(4) In this regulation -

“assets” and “liabilities” have the same meaning as in

regulation 18(4)<

“listed” and “unlisted” have the meaning given in regulation

41(1).

Exclusions from

(1) Regulations 18 to 22 shall not apply to -

regulations 18 to 22.

(a) business of insurance carried on outside the EEA States

by an insurer whose head office is in Malta<

(b) business of insurance carried on in any country outside

Malta by an insurer whose head office is in a country outside Malta<

(c) business of reinsurance (unless it is facultative

reinsurance written by an insurer which also carries on business of

insurance that is not reinsurance).

(2) Regulation 20 shall not apply to business of insurance

of groups 3 and 4 (within the meaning of Part II of the Third Schedule

to the Act).

Without prejudice to regulation 22 -

(a) the assets covering a Malta margin of solvency

maintained under regulation 8(2)(b) by a non-EEA insurer must

be held>

(i) up to an amount at least equal to the appropriate

guarantee fund or minimum guarantee fund (whichever is the

greater) in Malta, and

(ii) as to the remainder, in the EEA States< and

(b) the assets covering an EEA margin of solvency maintained

under regulation 8(3)(c)(ii) by a non-EEA insurer must be held>

(i) up to an amount at least equal to the appropriate

guarantee fund or minimum guarantee fund (whichever is

the greater) in the EEA States where the insurer carries on

insurance business (or in any one or more of them), and

(ii) as to the remainder, in the EEA States.

PART VI

CUSTODIAN OF ASSETS

In this Part of these regulations -

“assets”, in relation to a custodian of assets, shall be construed

in accordance with the provisions of regulation 6<

“company”, means an insurer which has made a deposit in

accordance with the provisions of regulations 4 or 5<

“custodian of assets” and “custodian”, in relation to assets

held or required to be held in custody for a company’s account by

or under any provision of the Act, shall be construed in accordance

with the provisions of regulation 27 and the Fifth Schedule.

(1) The deposit required to be maintained in accordance Custody of assets

maintained in

with the provisions of regulations 4 or 5 shall be maintained by the Malta.

company in Malta and shall be deposited with and held in custody for

the company’s account by a person as custodian of assets for the company<

and the company shall deposit such assets with a person as prescribed by

regulation 27 and that person shall hold such assets in custody for the

company’s account in accordance with written arrangements made

between the company, that person and the competent authority.

(2) The arrangements referred to in subregulation (1) shall

be made in such form and manner as to satisfy the provisions of the Act

relevant to such requirement, these regulations and any such directive

which the competent authority may, from time to time, either generally

or specifically, issue in writing with respect to the purpose or security of

those assets.

(3) The competent authority shall be party to those

arrangements solely for the purpose of ensuring the enforceability of

the provisions of those arrangements and the Act< and any expenses

incurred by or under those arrangements shall be borne by the company

concerned.

(4) Assets of a company held in custody for the company’s

account by a person as custodian for the company shall be taken to be

held by that person in compliance with a requirement imposed by or

under any provision of the Act if, and only if, they are assets in whose

case the company has made with that person and the competent authority

written arrangements in the form and manner specified in subregulation

(2) that they are to be held by that person in compliance with such a

requirement.

(5) No assets held in custody for a company’s account by a

person as custodian for the company in compliance with a requirement

imposed by or under any provision of the Act shall, so long as the

requirement is in force, be released except with the approval of the

competent authority given in writing.

(6) The provisions of this regulation shall not apply to a

company if the business carried on by the company is restricted to

reinsurance.

For the purposes of article 18 of the Act and of the provisions Persons acting as

custodian of assets.

of these regulations, any person listed in the Fifth Schedule shall act as

custodian of assets for a company and hold in custody for the company’s

account assets of a description specified and assigned to that person’s

custody in the said Schedule.

Where assets of a company held in custody for the company’s

Assets deemed to be

account by or under any provision of the Act by a person as custodian

for the company are held by the Central Bank of Malta, such assets

shall be deemed to have been deposited with and held by the Central

Bank if, and only if, the documents of title of such assets are unassailable

in that the assets held in custody by the Central Bank are not subject to

any court injunction or encashment by the registered holder without the

knowledge of the Central Bank on the basis of a duplicate certificate.

PART VII

DEPOSIT OF ASSETS

In this Part of these regulations -

“custodian of assets” and “custodian” have the meaning given

in regulation 25<

“deposit” means the assets required to be maintained in Malta

by an insurer in accordance with regulations 4 or 5<

“required amount” means the amount of assets maintained in

accordance with regulations 4 or 5.

(1) Subject to subregulation (2) of this regulation, every

deposit made, or required to be made, pursuant to regulations 4 or 5

shall be made with a custodian of assets in the manner set out in

regulation 26 and shall be maintained by the insurer at all times during

the continuance of the authorisation at a level equal to at least the

appropriate required amount.

(2) Where an asset constituting or forming part of any

deposit made in accordance with subregulation (1) is an asset expressed

in a currency other than Maltese lira or Euro, a sum equal to ten per

centum of the value of that asset to make good any loss of value of that

asset, in that other currency, which might arise out of exchange risk

shall be aggregated with the amount of assets constituting the deposit.

(1) Subject to subregulation (2) of this regulation, where it

appears to the competent authority that the amount of assets constituting

any deposit made in accordance with regulation 30 is likely to fall, or

falls, below the appropriate required amount, or on the written

application of the insurer having regard to such circumstances, the

competent authority shall direct in writing the insurer to increase the

amount of assets by a specified sum to maintain the appropriate required

amount and the custodian to receive and hold in custody the specified

sum and aggregate it with the amount of assets constituting the deposit.

(2) Any increase in the amount of deposit required to be

made under subregulation (1) shall be made by the insurer as early as

practicable but not later than fourteen days from the date of the competent

authority’s direction in that regard to the insurer.

(1) Subject to subregulation (3), where an insurer proposes Replacing assets of

to replace assets of a kind constituting or forming part of any deposit a any

(“assets of the old kind”) with assets of any other kind (“assets of the

new kind”), the insurer shall make an application in writing to the

competent authority in that regard giving the relevant details of the

assets of the old kind and the assets of the new kind forming the object

of the application and the competent authority shall determine the

application within thirty days of receiving the details required to be

given under this subregulation< and, if it refuses the application, the

competent authority shall inform the insurer in writing of the reasons

for the refusal.

(2) Where the competent authority approves of an

application made under subregulation (1), the competent authority shall

direct in writing the insurer to carry out the replacement of the assets of

the old kind with the assets of the new kind in accordance with any

conditions which it may deem fit to impose and the custodian to receive

and hold in custody, under those conditions, the assets of the new kind

and to release from custody, in accordance with subregulation (3), the

assets of the old kind.

(3) Assets of any kind constituting or forming part of any

deposit replaced or to be replaced with assets of any other kind shall

not be released from custody unless and until the competent authority

is satisfied that the assets replacing those assets have been received and

held in custody in accordance with regulation 26 of these regulations.

(1) Subject to subregulations (3) and (4) of this regulation, Reducing the

where it appears to an insurer that the amount of assets constituting any amount of assets.

deposit is higher than the appropriate required amount, the insurer may

propose to reduce the amount of assets to an amount being an amount

not less than the appropriate required amount by making an application

in writing to the competent authority in that regard giving the relevant

details and specifying the sum proposed to be reduced and the competent

authority shall determine the application within thirty days of receiving

the details required to be given under this subregulation< and, if it refuses

the application, the competent authority shall inform the insurer in

writing of the reasons for the refusal.

(2) Where the competent authority approves of an

application made under subregulation (1), the competent authority shall

direct in writing the insurer to reduce the amount of assets constituting

the deposit by the sum specified by the insurer, or any other lower sum

determined by the competent authority, and the custodian to release

from custody an amount equal to the specified sum, or the lower sum, as

the case may be.

(3) The competent authority shall not approve of an

application made under subregulation (1) unless it is satisfied that the

remaining amount of assets constituting the deposit after the release

from custody of an amount equal to the specified sum or any other

lower sum is adequate to maintain the appropriate required amount.

(4) Nothing in subregulations (2) and (3) shall relieve the

insurer of the obligation imposed on him by regulation 30 to maintain

at all times the deposit at least at the appropriate required amount.

(1) Where an insurer has ceased to carry on in Malta the

business in respect of which the deposit was made, the insurer may

apply in writing to the competent authority for those funds to be released

to it.

(2) The competent authority shall, on receipt of an

application under subregulation (1) accompanied by an appropriate

declaration, determine the application having cognizance to the

provisions of articles 16(4), 28, 41 and 42 of the Act and direct the

custodian in writing as it deems appropriate in the circumstances.

(3) In subregulation (2) an “appropriate declaration” means

a written declaration by the applicant as is required by article 16(4) of the

Act or in consequence of a direction given in writing by the competent

authority under article 28 of the Act -

(a) stating and proving by submission of documentary

evidence acceptable to, or required by, the competent authority

that to the best of his knowledge and belief the insurer has no

further liability to discharge<, and

(b) if the applicant is not the insurer -

(i) declaring that the applicant is entitled to give a good

discharge for the relevant funds< and

(ii) stating and proving by submission of documentary

evidence acceptable to, or required by, the competent authority

the circumstances in which the applicant is so entitled.

A direction given by the competent authority pursuant to this Effect of direction.

Part of these regulations shall be sufficient authority for a custodian of

assets to comply with it.

(1) Notwithstanding anything contained in any other Producing security

regulation in this Part of these regulations, subject to the following in

deposit.

subregulations of this regulation, any insurer to whom regulation 4 or 5

applies may, in like manner, satisfy the requirements of that regulation

by producing to the competent authority, in lieu of making a deposit

with a custodian of assets under this Part of these regulations, a security

on assets for an amount equal to at least the appropriate required amount

and maintaining security on those assets for that amount at all times

during the currency of the security.

(2) The content of every security produced under

subregulation (1) shall have to be agreed in advance between the insurer,

the issuer and the competent authority< and the security shall have to be

reinstated by the depositor to secure the appropriate required amount

each time the level of the amount is likely to fall, or falls, below the

required amount.

(3) The provisions of regulations 31, 33, 34 and 35 shall

apply mutatis mutandis in relation to a security as they apply in relation

to a deposit.

(4) Where -

(a) an insurer makes a deposit with a custodian of assets in

accordance with regulation 30 and, at a later date, elects to substitute

that deposit with a security to be produced to the competent

authority in accordance with subregulation (1)< or

(b) an insurer produces to the competent authority a security

in accordance with subregulation (1) and, at a later date, elects to

substitute that security with a deposit to be made with a custodian of

assets in accordance with regulation 30,

in every case, the insurer shall make an application in writing to the

competent authority in that regard, giving the relevant details, and -

(i) if the application is to substitute a deposit with a security,

the competent authority shall direct in writing the insurer to carry

out the substitution in accordance with subregulations (1) and (2)

and, when the security is produced, the custodian to release from

custody the deposit< and

(ii) if the application is to substitute a security with a deposit,

the competent authority shall direct in writing the insurer to carry

out the substitution in accordance with regulation 30, and when

the deposit is made and held in custody, the issuer to terminate the

security without prejudice to any claims which the competent

authority may have, or may have had, against the security prior to

its termination.

For the purposes of regulation 36 -

“security” means -

(a) a contract of pledge as construed in Title XXI of

the Civil Code<

(b) a guarantee provided by,or

(c) an irrevocable letter of credit established with, a bank

or credit institution>

(i) licensed to carry on the business of banking

under the laws of Malta, or

(ii) lawfully permitted to carry on the business of

banking in a country outside Malta acceptable to the

competent authority provided that the bank or credit

institution is of first class standing,

and “issuer” shall be construed accordingly.

PART VIII

EQUALISATION RESERVE - CREDIT INSURANCE BUSINESS

In this Part of these regulations, unless the context otherwise

requires -

“accounted for” means reported in accordance with an

insurance rule to be made by the competent authority for the

purposes of article 32 of the Act<

“claim” means a claim against an insurer or a pure reinsurer

under a contract of insurance<

“claims management costs” refers to those claims

management costs required by the shareholder accounts rules (note

(4) to the profit and loss account format) to be included in claims

incurred other than those which, whether or not incurred through

the employment of the insurer’s or the pure reinsurer’s own staff,

are directly attributable to particular claims<

“contract of insurance” includes a contract of reinsurance<

“credit insurance business” means all business of insurance

falling within general business class 14<

“equalisation reserve” means a reserve to be maintained under

subarticle (6) of article 17 of the Act<

“net claims incurred” in respect of a financial year means claims

arising from incidents occurring during that financial year (including

direct claims handling expenses), net of reinsurance and other

recoveries but excluding claims management costs<

“net claims paid” in respect of a financial year means claims

paid during that financial year (including direct claims handling

expenses), net of reinsurance and other recoveries but excluding

claims management costs, regardless of whether incidents giving

rise to such claims occurred during that financial year or any prior

financial year<

“net operating expenses” means the net amount paid in a

financial year in respect of commissions, other acquisition

expenses, administrative expenses, reinsurers’ commissions and

profit participations<

“net premiums earned” and “net premiums written” mean,

respectively, gross premiums earned, net of reinsurance premiums

earned and gross premiums written, net of reinsurance premiums

payable under reinsurance ceded<

“reinsurance” and “reinsurer” include retrocession and

retrocessionaire respectively<

“the shareholder accounts rules” means the rules contained

in the First Schedule to the Insurance Business (Companies

Accounts) Regulations, 2000 for the preparation of accounts by

insurers or pure reinsurers<

“technical provisions” means the items required by the First

Schedule to the Insurance Business (Companies Accounts)

Regulations, 2000 to be shown in the balance sheet of an insurer

or a pure reinsurer at liabilities items C.1 to 6<

and references to a numbered class of general business are references

to the class so numbered in Part I of the Third Schedule to the Act.

(1) This Part of these regulations applies to an insurer or a

pure reinsurer authorised to carry on credit insurance business.

(2) This Part of these regulations does not apply>

(a)

to an insurer whose head office is in a country outside

Malta<

(b) in the case of an insurer whose head office is in Malta

or a pure reinsurer whose head office is in Malta, where the net

premiums written in any financial year in respect of credit insurance

business are less than 4% of the total net premiums written by it in

that financial year and less than 2,500,000 Euro.

An insurer or pure reinsurer shall maintain an equalisation

reserve in respect of credit insurance business carried on by the company

in accordance with the Sixth Schedule .

PART IX

VALUATION OF ASSETS

(1) In this Part of these regulations, unless the context

otherwise requires -

“approved counterparty” means an approved credit institution

or any other institution as may be approved for such purpose by

the competent authority<

“approved credit institution” means an institution licensed as

such under the Banking Act and any other institution approved for

such purposes by the competent authority<

“approved financial institution” means any of the following>

(i) The European Central Bank<

(ii) The Central Bank of an EEA State<

(iii) The International Bank for Reconstruction and

Development<

(iv) The European Bank for Reconstruction and

Development<

(v) The International Finance Corporation<

(vi) The International Monetary Fund<

(vii) The Inter-American Development Bank<

(viii) The African Development Bank<

(ix) The Asian Development Bank<

(x) The Nordic Investment Bank<

(xi) The Caribbean Development Bank<

(xii) The European Investment Bank<

(xiii) The European Investment Fund<

(xiv) The European Community<

(xv) The European Atomic Energy Community<

(xvi) The Council of Europe Development Bank<

(xvii) The Bank for International Settlements<

(xiv) The Multilateral Investment Guarantee Agency<

“approved securities” means any of the following -

(a) any securities issued or guaranteed by, or the

repayment of the principal of which, or the interest on which

is guaranteed by, and any loans to or deposits with any

Government, public or local authority or nationalised industry

or undertaking which belongs to the zone of countries< and

(b) any loan to, or deposit with, an approved financial

institution<

“asset” includes part of an asset<

“associated company” has the same meaning as is assigned

to the term “associated undertaking” in paragraph 21 to the Fourth

Schedule to the Companies Act<

“collective investment scheme” has the same meaning as is

assigned to it by article 2(1) of the Investment Services Act<

“company” includes any body corporate<

“contract for differences” shall be construed in accordance with

the Second Schedule to the Investment Services Act<

“counterparty” has the meaning set out in the Seventh

Schedule<

“debt” includes an obligation to pay a sum of money under a

negotiable instrument<

“debt security” includes bonds, notes, debentures and

debenture stock<

“deferred acquisition costs” means those items shown at GII

under the heading “Assets” listed in the balance sheet format set

out immediately following paragraph 15 of the First Schedule to

the Insurance Business (Companies Accounts) Regulations, 2000<

“dependant” means a subsidiary undertaking, the value of

whose shares is taken to be the value of its surplus assets under

regulation 43<

“derivative contract” means a contract for differences, a

futures contract or an option< and includes a contract under which

the amount payable by either party is calculated by reference to

the amortised value of any property<

“equivalent securities” means securities issued by the same

issuer being of an identical type and having the same nominal value,

description and amount<

“excess concentration with a number of counterparties” has

the same meaning set out in the Seventh Schedule<

“exposure” -

(a) in relation to assets, means an amount determined

in accordance with regulation 54, and paragraph 5 of the

Seventh Schedule< and

(b) in relation to a counterparty, means an amount

determined in accordance with regulation 54, and paragraphs

17 to 21 of the Seventh Schedule<

“fixed interest securities” means securities which under their

terms of issue provide for fixed amounts of interest<

“futures contract” shall be construed in accordance with the

Second Schedule to the Investment Services Act<

“general business amount” has the meaning given in the

Seventh Schedule<

“general business assets” and “general business liabilities”

mean respectively assets and liabilities of an insurer which are not

long term business assets or long term business liabilities<

“general premium income” means, in relation to an insurer in

any year, the net amount, after deduction of any premiums payable

for reinsurance, of the premiums receivable by the insurer in that

year in respect of all business of insurance other than long term

business<

“group undertaking”, in relation to an insurer or a pure

reinsurer, means any one of>

(a)

the insurer or the pure reinsurer<

(b) its related undertakings<

(c)

its participating undertakings< and

(d) the related undertakings of its participating

undertakings<

“index linked benefits” means benefits -

(a) provided for under any contract the effecting of

which constitutes the carrying on of long term business of

insurance< and

(b) determined by reference to fluctuations in any index

of the value of property (whether specified in the contract or

not)<

“initial margin”, in respect of a derivative contract or a contract

or asset having the effect of a derivative contract, means assets

which, before or at the time the contract is entered into, are

transferred by the insurer subject to a condition that such assets

(or where the assets transferred are securities, equivalent securities)

will be returned to the insurer on completion of that contract<

“insurance group” means an insurance parent undertaking and

its related undertakings that are>

(a)

insurance undertakings<

(b)

reinsurance undertakings< or

(c)

insurance holding companies<

“intermediary” means a person enrolled under article 13 or

article 37 of the Insurance Intermediaries Act and includes any

other persons who carry out similar activities<

“issuer”, in respect of a collective investment scheme, means

the manager or operator of the scheme and in respect of an interest

in a commercial partnership, means the partnership<

“land” means land or building< and “piece of land” shall be

construed accordingly<

“linked assets” means, in relation to an insurer, long term

business assets of the insurer which are, for the time being,

identified in the records of the insurer as being assets by reference

to the value of which property linked benefits are to be determined<

“listed”, in relation to an investment, means that -

(a) there has been granted and not withdrawn a listing

in respect of that investment on the Malta Stock Exchange or

any other stock exchange or recognised investment exchange

acceptable to or by the competent authority in any other state

which is a stock exchange within the law of that state< or

(b) facilities for dealing in that investment have been

granted on a regulated market,

and “unlisted” shall be construed accordingly<

“long term business amount” has the meaning given in

paragraph 2 of the Seventh Schedule<

“long term business assets” and “long term business liabilities”

mean respectively assets of an insurer which are, for the time

being, identified as covering the long term fund or funds maintained

by the company in respect of its long term business and liabilities

of the insurer which are attributable to its long term business<

“long term business fund” refers to the long term liabilities

that are required to be provided for under regulation 63<

“Markets in Financial Instruments Directive” means Directive

2004#39#EC of the European Parliament and of the Council of 21

April 2004 on markets in financial instruments amending Council

Directives 85#611#EEC and 93#6#EEC and Directive 2000#12#EC

of the Eureopan Parliament and of the Council and repealing

Council Directives 93#22#EEC<

“market value” means the market value as determined in

accordance with generally accepted accounting concepts, bases

and policies or other generally accepted methods appropriate to

insurers<

“notional required minimum margin” means>

(a) in the case of an insurance undertaking or a

reinsurance undertaking that has its head office in the zone of

countries the amount of the required minimum margin, or

equivalent, under the regulatory requirements of that country<

and

(b) in all other cases, the amount of the required

minimum margin that would apply if the insurance

undertaking or the reinsurance undertaking were an insurer

whose head office is in Malta or a pure reinsurer whose head

office is in Malta (whether it is or not)<

“option” shall be construed in accordance with the Second

Schedule to the Investment Services Act and inlcludes a warrant< Cap. 370.

“parent undertaking” has the same meaning as is assigned to

it by article 2 of the Companies Act<

“participation” means the holding of a participating interest

or the holding, directly or indirectly, of 20% or more of the voting

rights or capital<

“participating interest” shall have the meaning as is assigned

to it by article 2 of the Companies Act<

“participating undertaking” means an undertaking which is

either a parent undertaking or other undertaking which holds a

participation or an undertaking linked with another undertaking

by a relationship within the meaning of Article 12(1) of the Seventh

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

the Article 54(3)(g) of the Treaty on consolidated accounts<

“permitted asset exposure limit” has the meaning set out in

paragraph 3 of the Seventh Schedule<

“permitted counterparty exposure limit” has the meaning set

out in paragraph 4 of the Seventh Schedule<

“proper valuation” means, in relation to land, a valuation made

by a qualified valuer not more than three years before the relevant

date which determined the amount which would be realised at the

time of the valuation on an open market sale of the land free from

any hypothec, mortgage or charge<

“property linked benefits” means benefits other than index

linked benefits -

(a) provided for under any contract the effecting of

which constitutes the carrying on of long term business of

insurance< and

(b) determined by reference to the value of, or the

income from, property of any description (whether specified

in the contract or not)<

“proportional share” in relation to a related undertaking, means

the percentage which is the percentage holding (directly or

indirectly) in the related undertaking’s capital<

“qualified valuer”, in relation to any particular type of land

in any particular area, means a person who holds a warrant to

practise as a building professional (Perit) granted under the

Architecture and Civil Engineering Professionals (Periti) Act and,

where the qualified valuer is a person whose country of domicile

is a country outside Malta, a person who is duly qualified and

authorised in the country of his domicile to practise as a building

professional (equivalent to a Perit) under the laws of the country

of his domicile governing architecture and civil engineering

professionals acceptable to the competent authority<

“regulated institution” means any of the following>

(a) a company formed and registered under the

Companies Act carrying on the business of insurance< and Cap. 386.

(b) an approved credit institution<

“regulated market” means either of the following>

(a) in the case of a market situated in an EEA State, a

regulated market as defined in Article 4(1)(14) of the Markets

in Financial Instruments Directive<

(b) in the case of a market situated in a non-EEA State,

a financial market which fulfills the following conditions>

(i) it is recognised by the competent authority of

the insurer and meets requirements comparable to those

under the Markets in Financial Instruments Directive<

(ii) the financial instruments dealt in on that

market are of a quality comparable to that of the

instruments dealt in on the regulated market or markets

of the competent authority<

“related undertaking” means either a subsidiary or another

undertaking in which a participation is held, or an undertaking

linked with another undertaking by a relationship within the

meaning of Article 12(1) of the Seventh Council Directive 83#349#

EEC of the 13th June, 1983 based on the Article 54(3)(g) of the

Treaty on consolidated accounts<

“salvage right” means any right of an insurer under a contract

of insurance to take possession of and to dispose of property by

virtue of the fact that the insurer has made a payment or has become

liable to make a payment in respect of a loss thereof<

“securities” includes shares, debt securities, other similar

instruments or Treasury Bills<

“settlement date” means any date on which the fulfilment of

an obligation under a derivative contract is or may be required<

“share” includes stock, except where a distinction between

stocks and shares is expressed or implied<

“subordinated debt” means any debt which, on a winding up

of the debtor, ranks for payment after the claims of general creditors

and is not to be repaid until the claims of all the general creditors

outstanding at the time have been settled<

“UCITS Directive” means Council Directive 85#611#EEC of

20 December 1985 on the co-ordination of laws, regulations and

administrative provisions relating to undertakings for collective

investments in transferable securities<

“variation margin” means -

(a) in respect of a derivative contract, or a contract

having the effect of a derivative contract, assets (other than

assets transferred by way of initial margin) which, at the

relevant date, have been transferred by, to, or for the benefit

of, the insurer in pursuance of a condition in that contract or

a related contract< and

(b) in respect of an asset having the effect of a

derivative contract, assets which, at the relevant date, have

been transferred by, to, or for the benefit of, the insurer in

pursuance of a contractual right conferred, or obligation

imposed, by the holding of the asset having the effect of a

derivative contract<

“warrant” shall be construed in accordance with the Second

Schedule of the Investment Services Act.

(2) For the purposes of these regulations, a debt owed to

(or an obligation to be fulfilled for the benefit of) an insurer shall be

regarded as being secured only to the extent that it is -

(a)

secured by -

(i) a letter of credit established with an approved credit

institution< or

(ii) a guarantee provided by an approved credit

institution,

and the sum of the aggregate amount available under all letters of credit

established for the benefit of the insurer with the same counterparty,

the aggregate amount of all guarantees issued for the benefit of the

insurer by that counterparty and the amount of any exposure of the

insurer to that counterparty does not exceed the permitted counterparty

exposure limit for that counterparty< or

(b) secured by assets for the valuation of which provision

is made in this Part of these regulations and -

(i) the value of such assets (after deducting reasonable

expenses of sale and the amount of any other debt or obligation

secured thereon having priority to or ranking equally with

the debt or obligation) is sufficient to enable the debt or

obligation to be discharged in full< and

(ii) the value of the assets when aggregated with the

insurer’s exposure to assets of the same description does not

exceed the permitted exposure limit for assets of that

description (as defined in regulation 54 and the Seventh

Schedule)<

(iii) where the assets give rise to exposure to a

counterparty, the exposure of the insurer to that counterparty,

when added to the aggregate amount available under all letters

of credit established for the benefit of the insurer with that

counterparty, and to the aggregate amount of all guarantees

issued for the benefit of that insurer by that counterparty, does

not exceed the permitted counterparty exposure limit for that

counterparty< or

(c) secured by a contract of pledge within the meaning of

Title XXI of the Civil Code.

(3) For the purposes of subregulation (2) -

(a) the aggregate amount available under letters of credit

established with a counterparty shall be taken not to exceed the

sum of the aggregate amount of all debts and the aggregate value

of all obligations in respect of which those letters of credit were

established< and

(b) the aggregate amount of guarantees issued by a

counterparty shall be taken not to exceed the sum of the aggregate

amount of all debts and the aggregate value of all obligations so

guaranteed< and

(c) assets which are securing any other debt owed to (or

obligation to be fulfilled for the benefit of) the insurer shall be

treated as if they were assets of the insurer.

(1) Subject to subregulations (2) and (11), this Part of these

regulations applies with respect to the determination of the value of

assets of insurers for the purposes of -

(a)

articles 11(1)(c), 17, 18, 41(4) and 42(2) and (3) of the

Act<

(b) any investigation to which article 23 of the Act applies<

and

(c) any actuarial investigation made in pursuance of a

directive made by the competent authority under any other

provision of the Act.

(2) Where an insurer has entered into any contracts

providing for the payment of property linked benefits, this Part of these

regulations shall not apply with respect to the determination of the value

of the linked assets to the extent that they are held to match liabilities in

respect of such benefits.

(3) Subject to subregulation (4), any asset to which this Part

of these regulations applies (other than cash) for the valuation of which

no provision is made in this Part of these regulations shall be left out of

account for the purposes specified in subregulation (1).

(4) Subject to article 17(3) of the Act, the competent

authority may, in exceptional circumstances, on application made to it

in writing for that purpose -

(a) permit any asset as is referred to in subregulation (3) to

be taken into account, or to be taken into account to a specified

extent, and, if the asset is taken into account, or taken into account

to a specified extent, the value of such asset shall be determined in

accordance with specific valuation provisions issued in writing

for such purposes by the competent authority< or

(b) temporarily and under a properly reasoned decision,

permit any asset for which provision is made in this Part of these

regulations for their valuation to be taken into account to an extent,

other than that specified in Part II of the Seventh Schedule.

(5) Where in all the circumstances of the case it appears

that the value of any asset is of a lesser value than the amount calculated

in accordance with this Part of these regulations, such lesser value shall

be the value of the asset.

(6) For the purposes of subregulation (5), in determining

whether it appears that an asset is of a lesser value than a specified

amount, regard shall be had to the underlying security and, in the case

of bonds, debt securities and other money and capital market instruments,

the credit rating of the issuer, including whether the issuer belongs to

the zone of countries,and where the issuer is an international

organisation, whether it includes at least one EEA State among its

members.

(7) Notwithstanding subregulation (1) (but subject to the

conditions set out in subregulation (8)), an insurer may, for the purposes

of an investigation to which article 23 of the Act applies or any actuarial

investigation made in pursuance of a directive made by the competent

authority under any other provision of the Act, elect to assign to any of

its assets the value given to the asset in question in the books or other

records of the insurer.

(8) The conditions referred to in subregulation (7) are that-

(a) the election shall not enable the insurer to bring into

account any asset for the valuation of which no provision is made

in this Part of these regulations<

(b) the value assigned to the aggregate of the assets shall

not be higher than the aggregate of the value of those assets as

determined in accordance with regulations 43 to 54.

(9) Where an insurer has entered into a contract for the

conversion of currency which satisfies the conditions set out in

subregulation (10), then, for any of the purposes for which this Part of

these regulations applies, the insurer shall treat the conversion as having

been made on the relevant date.

(10)

The conditions referred to in subregulation (9) are

that -

(a)

either -

(i) the contract provides for the conversion into another

currency of an amount representing the sale of an asset which

has, on the relevant date, been sold but not delivered, or

(ii) the contract provides for the purchase of currency

for the purpose of settling the purchase of an asset which has,

on the relevant date, been purchased but not delivered<

(b) the conversion is to take place during a period which is-

(i) where the contract is in connection with the delivery

of a listed security, a period commencing on the date of the

contract and extending for the usual period of settlement as

laid down by the rules of the relevant stock exchange,

recognised investment exchange or regulated market, or

(ii) where the contract is in connection with the delivery

of any other asset, a period commencing on the date of the

contract and extending for twenty working days thereafter<

and

(c) the contract is listed or has been entered into with an

approved counterparty<

(11) This Part of these regulations shall not apply to a pure

reinsurer other than regulations 43, 44 and 55 with respect to the

determination of the value of assets of the said reinsurers for the purposes

(a)

article 17 of the Act<

(b) an investigation to which article 23 of the Act applies<

and

(c) any actuarial investigation made in pursuance of a

directive made by the competent authority under any other

provision of the Act.

(1) Subject to the provisions of this regulation, the

calculations required by any provision of this regulation shall be carried

out at all levels of the undertakings forming part of the insurance group.

(2) Notwithstanding regulation 48, the value of any shares

held in a group undertaking which is an insurance undertaking, a

reinsurance undertaking or an insurance holding company may be taken

as and, in any event, shall not exceed the value (or, where the

shareholding, whether held directly or indirectly, is less than 100%, the

relevant proportional share of the value), determined in accordance with

this Part of these regulations (other than regulation 54(1)(a) to (c)), of

its surplus assets.

(3) The value of any shares held in a group undertaking

which is not an insurance undertaking, a reinsurance undertaking or an

insurance holding company must not exceed the greater of -

(a) the value, (or, where the shareholding, whether held

directly or indirectly, is less than 100% the relevant proportional

share of the value), determined in accordance with this Part of

these regulations (other than regulation 54(1)(a) to (c)), of its

surplus assets< and

(b) the value of those shares as determined under regulation

48 reduced by>

(i) an appropriate amount, to the extent that the shares

cannot effectively be made available or realised to meet losses

(if any) arising in the insurer or the pure reinsurer<

(ii) an appropriate amount, to the extent needed to

exclude goodwill generated from business with members of

the insurance group< and

(iii) the amount by which the value of any shares held

by the group undertaking in a related undertaking of the

company which is an insurance undertaking, a reinsurance

undertaking or an insurance holding company exceeds the

value (or proportional share), determined in accordance with

this Part of these regulations (other than regulation 54(1)(a)

to (c)), of the surplus assets of the related undertaking.

(4) The surplus assets of a group undertaking are its total

assets excluding -

(a) the assets that are selected to cover liabilities and, in the

case of a group undertaking which is an insurance undertaking or

a reinsurance undertaking, to cover the notional required minimum

margin<

(b) assets that are interests directly or indirectly held in>

(i) the group undertaking’s own capital (as defined in

the relevant regulatory requirements for that undertaking)< or

(ii) the insurer’s or the pure reinsurer’s capital<

(c) where the group undertaking carries on long-term

insurance business, profit reserves and future profits<

(d) assets which represent either a long term insurance fund

or a fund the allocation of which as between policyholders and

other purposes has yet to be determined<

(e) amounts due, or to become due, in respect of share

capital, or other contributions from members of the group

undertaking, subscribed or called for but not fully paid up< and

(f) amounts due, or to become due, in respect of loans or

similar debts, from members of the group undertaking, if such

amounts would have otherwise been eligible for the solvency

margin of the group undertaking<

(g) assets that cannot effectively be made available or realised

to meet losses (if any) arising in the insurer or the pure reinsurer,

including assets that represent capital not owned, directly or

indirectly, by the insurer or the pure reinsurer<

(h) any other item, which would otherwise be available to

cover the solvency margin of a related insurance undertaking or

related reinsurance undertaking, which cannot effectively be made

available to cover the solvency margin requirement of the

participating insurance undertaking or the participating reinsurance

undertaking for which the adjusted solvency is calculated.

(5) The assets selected in subregulation (4)(a) to be excluded

from the total assets -

(a) where the group undertaking is an insurance undertaking

or a reinsurance undertaking, must be identified and valued in

accordance with relevant regulatory requirements as to the value,

admissibility, nature, location or matching that apply to the assets

available to cover its liabilities (determined under the relevant

regulatory requirements) and the notional required minimum

margin<

(b) where the group undertaking is not an insurance

undertaking or a reinsurance undertaking, must be of a value at

least equal to the amount of its liabilities, determining that value

and that amount in accordance with this Part of these regulations

(other than regulation 54(1)(a) to (c)) and Part X of these

regulations< and

(c)

in both cases must not include>

(i) assets falling within subregulation (4)(b), or

(ii) assets falling within subregulation (4)(e), where

the amount is due, or to become due, from a group

undertaking< but

(d) notwithstanding paragraphs (a) and (b), a liability of a

group undertaking which is a debt due to the insurer or the pure

reinsurer is not required to be determined at an amount which is

higher than the value placed on that debt as an asset of the insurer

or the pure reinsurer.

(6) For the purposes of subregulation (5), the relevant

regulatory requirements must be treated as if -

(a) where regulation 10 (or its equivalent in a country falling

within the zone of countries) applies, the insurance undertaking or

the reinsurance undertaking satisfied the condition in regulation

10(1)< and

(b) regulation 54(1)(a) to (c) (or its equivalent in a country

falling within the zone of countries) does not apply for the purpose

of valuing shares in group undertakings that are not dependants or

for the purpose of the parent undertaking solvency calculation.

(7) For the purposes of the foregoing, the parent undertaking

shall be treated as if it were an insurance undertaking or a reinsurance

undertaking subject to a zero solvency requirement where it is an

insurance holding company.

The value of any debt due, or to become due, from a group Debts due or to

undertaking must not exceed the amount reasonably expected to be become

group undertaking.

recovered in respect of the debt taking into account only the value of -

(a)

the assets identified in regulation 43(4)(a)< and

(b) any security in respect of the debt.

(1) The value of any secured debt due, or to become due, Debts due or to

to an insurer, other than a debt to which regulation 44 or subregulation become

group undertaking.

(2), (3) or (6) of this regulation applies, shall be -

(a) in the case of any such debt which is due, or will become

due, within twelve months of the relevant date (including any debt

which would become due within that period if the insurer were to

exercise any right to which it is entitled to require payment of the

same), the amount which can reasonably be expected to be

recovered in respect of that debt (due account being taken of the

nature and quality of the security and the terms and conditions for

payment thereof)< and

(b) in the case of any other such debt, the amount which

would reasonably be paid by way of consideration for an immediate

assignment of the debt (due account being taken of the nature and

quality of the security and the terms and conditions for payment

thereof).

(2) Any debt due, or to become due, to an insurer under a

letter of credit shall be left out of account for the purposes of this Part

of these regulations.

(3) In the case of long term business carried on by an insurer,

the value of any debt due, or to become due, to the insurer which is

secured on a policy of insurance issued by the insurer and which (together

with any other debt secured on that policy) does not exceed the amount

payable on a surrender of that policy at the relevant date shall be the

amount of that debt.

(4) The value of any unsecured debt due, or to become due,

to an insurer, other than a debt to which regulation 44,subregulation (5)

or (6) of this regulation or regulation 50 or 53 applies, shall be -

(a) in the case of any such debt which is due, or will become

due, within twelve months of the relevant date (including any debt

which would become due within that period if the insurer were to

exercise any right to which it is entitled to require payment of the

same), the amount which can reasonably be expected to be

recovered in respect of that debt (due account being taken of the

terms and conditions for payment thereof)< and

(b) in the case of any other such debt, the amount which

would reasonably be paid by way of consideration for an immediate

assignment of the debt (due account being taken of the terms and

conditions for payment thereof).

(5) The value of any rights of the insurer under a contract

of reinsurance to which it is a party shall be the amount which can

reasonably be expected to be recovered in respect of those rights>

Provided that those provisions shall not apply to-

(a) rights under a contract of reinsurance in respect of long

term business except to the extent that debts are due under such

contracts< or

(b) debts to which regulation 44 applies which are due or to

become due.

(6) Any debt due, or to become due, to the insurer -

(a) from an intermediary in respect of money advanced on

account of commission to which that intermediary is not absolutely

entitled at the relevant date< or

(b) in respect of unpaid share capital of the insurer< or

(c) from a company of which it is a subsidiary undertaking

where such debt is subordinated debt< or

(d) which is a debt to which subregulation (7) applies,

shall be left out of account for the purposes for which this Part of these

regulations applies.

(7) For the purposes of subregulation (6)(d), this

subregulation applies to a debt which is a debt owed in respect of

premiums (due account being taken of rebates, refunds, and commissions

payable) which is recorded in the insurer’s accounting records as due

and payable and has been outstanding for more than three months.

(8) In the case of general business carried on by an insurer,

the value of any subrogation rights of the insurer shall be the amount

which can reasonably be expected to be recovered by virtue of the

exercise of those rights.

(9) In the case of general business carried on by an insurer,

the value of any salvage right of the insurer shall be the amount which

can reasonably be expected to be recovered by virtue of the exercise of

that right.

(10) The value of any right to recover assets transferred by

way of initial margin shall be determined -

(a) where the initial margin was a payment in cash, as if

there were a debt owed to the insurer for that amount, and

(b) where the initial margin took the form of a transfer of

securities, as if there were a debt owed to the insurer of an amount

equal to the value of such securities as determined in accordance

with this Part of these regulations.

(11) The value of any rights arising under a derivative

contract to which regulation 52 does not apply, or under a contract or

asset having the effect of a derivative contract to which the said

regulation 52 does not apply, shall be the value of any right to recover

assets transferred by way of initial margin together with the value of any

other unconditional right to receive a specified amount.

(12) This regulation shall not apply to any rights (other than

debts due) in respect of -

(a)

investments in group undertakings<

(b) securities or beneficial interests in a commercial

partnership<

(c) units or other beneficial interests in a collective

investment scheme<

(d) a derivative contract, except as provided under

subregulation (10) or (11)< or

(e) a contract or asset which has the effect of a derivative

contract except as provided under subregulation (10) or (11) or

under regulation 53(4) or (5).

(1) The value of any land of an insurer (other than land

held by the insurer as security for a debt or to which subregulation (2)

or regulation 51 applies) shall be not greater than the amount which

(after deduction of the reasonable expenses of sale) would be realised if

the land were sold at a price equal to the most recent proper valuation

of that land which has been provided to the company and any such land

of which there is no proper valuation shall be left out of account for the

purposes for which this Part of these regulations applies.

(2) The value of any interest in land which is determinable

upon the death of any person or upon the happening of some other

future event or at some future time shall be the amount which would

reasonably be paid by way of consideration for an immediate transfer

thereof.

The value of any office machinery (including computer

equipment), furniture, motor vehicles and other equipment of an

insurer -

(a) in the financial year of the insurer in which it is

purchased, shall be not greater than 75 per centum of the cost thereof

to the insurer<

(b) in the first financial year thereafter, shall be not greater

than 50 per centum of that cost<

(c) in the second financial year thereafter, shall be not greater

than 25 per centum of that cost< and

(d) in any subsequent financial year, shall be left out of

account for the purposes for which this Part of these regulations

applies.

(1) This regulation applies to the valuation of investments Securities

beneficial interests

comprising securities and beneficial interests in commercial partnerships in commercial

and, for the purposes of subregulation (5), investments include loans. partnerships.

However, this regulation shall not apply to the valuation of securities

which are -

(a)

derivative contracts<

(b) units or other beneficial interests in collective investment

schemes, except as provided in regulation 49(2)< or

(c) contracts or assets having the effect of derivative

contracts, except as provided in regulation 53(4).

(2) Subject to subregulations (4) and (5) of this regulation

and regulation 53, the value of an investment to which this regulation

applies shall be -

(a) where the investment is transferable and subregulation

(3) does not apply, the market value< and

(b) where the investment is transferable and subregulation

(3) applies, the lower of -

(i) the market value< and

(ii) the amount which would reasonably be expected

to be received by way of consideration for an assignment or

transfer of the investment at a date not later than twelve months

after the relevant date, it being assumed that negotiations for

the assignment or transfer commenced on the relevant date

and the assignment or transfer was made other than to the

issuer or to an associate or an associated company of the issuer

or of the insurer< and

(c)

where the investment is not transferable -

(i) the amount payable on redemption on the relevant

date or the most recent date before the relevant date on which

the issuer of the investment could have been required to

redeem the investment< or

(ii) where the investment cannot be redeemed, the

amount which would reasonably be paid by way of

compensation for the surrender of the interest in the

investment.

(3) This subregulation applies where it is not reasonable to

assume that, had negotiations for the assignment or transfer of the

investment commenced not more than seven working days before the

relevant date, the investment could have been assigned or transferred

on the relevant date for an amount not less than 97.5 per centum of the

market value other than to the issuer or to an associate or associated

company of the issuer or of the insurer.

(4) Subregulation (3) shall be taken not to apply if it applies

by reason only that -

(a) the listing of the investment has been temporarily

suspended following receipt of price sensitive information by the

stock exchange or a recognised investment exchange on which

the investment is listed or the regulated market on which facilities

for dealing have been granted< or

(b) the extent of the holding would prevent an orderly

disposal of the investment for an amount equal to or greater than

97.5 per centum of the market value.

(5) Where an insurer has made more than one unlisted

investment (other than a number of investments exclusively comprising

loans) and the value of such investments when taken together is greater

than the aggregate of the values of each investment valued separately,

then, such higher value may be ascribed to the investments if it is

reasonable to assume that none of the investments would be assigned

or transferred separately.

(1) Subject to subregulation (3), this regulation applies to

holdings of units or other beneficial interests in -

(a)

a scheme falling within the UCITS Directive<

(b) a collective investment scheme within the meaning of

the Investment Services Act (not falling within paragraph (a))<

(c) an overseas scheme managed in a country falling within

the zone of countries and recognised by the competent authority

(“recognised scheme”)< or

(d) any other collective investment scheme where>

(i) the scheme does not employ derivative contracts

unless they are contracts to which regulation 52 applies< and

(ii) the scheme does not employ contracts or assets

having the effect of derivative contracts unless they have the

effect of derivative contracts to which the said regulation 52

applies< and

(iii) the property of the scheme does not include assets

other than those for the valuation of which provision is made

in this Part of these regulations.

(2) The value of units or other beneficial interests in a

collective investment scheme to which this regulation applies shall be -

(a) where the issuer can be required to purchase the units or

other beneficial interests from the holder upon the holder giving

notice of one month or less, the price at which the issuer would

have purchased the units or other beneficial interests on the relevant

date or the most recent date before the relevant date on which it

could have been required to make such a purchase< and

(b) where the issuer cannot be required to purchase the units

or other beneficial interests as set out in paragraph (a), a value

determined in accordance with regulation 48.

(3) Other than as provided in regulation 53(4), this

regulation shall not apply to units or other beneficial interests in a

collective investment scheme which has the effect of a derivative

contract.

In the case of general business, the value of deferred Deferred acquisition

costs.

acquisition costs shall be the value as determined in accordance with

generally accepted accounting concepts, bases and policies or other

generally accepted methods appropriate to insurers.

The value of any long term business asset of an insurer

consisting of an interest in property which is a remainder, reversionary

interest, right of fee subject to a different or other future interest, whether

vested or contingent, shall be the amount which would reasonably be

paid by way of consideration for an immediate transfer or assignment

thereof.

(1) The value of rights (other than rights to recover assets

transferred by way of initial margin) under a derivative contract to which

this regulation applies shall be -

(a) in the case of a listed derivative contract, the market

value< and

(b) in the case of an unlisted derivative contract, the amount

which would reasonably be paid by way of consideration for closing

out that contract,

in either case, taking into account the market value of any assets which,

at the relevant date, have been transferred by way of variation margin.

(2) This regulation applies to an approved derivative

contract which is covered and -

(a) which is held in connection with a contract or asset of

the type described in subregulation (3) for the purposes of reduction

of investment risks or efficient portfolio management< or

(b) which has the effect of an approved derivative contract

held in connection with a contract or asset of the type mentioned

in the said subregulation (3) for such purposes.

(3) The contract or asset described in this subregulation shall

be either -

(a) an approved derivative contract or a contract or asset

having the effect of an approved derivative contract either of which,

when taken together with the approved derivative contract the rights

under which are being valued in accordance with this regulation,

would have the effect that the company either holds an asset for

the valuation of which provision is made in this Part of these

regulations or holds an approved derivative contract in connection

with such an asset< or

(b) an asset for the valuation of which provision is made in

this Part of these regulations, being neither a derivative contract

nor a contract or asset having the effect of a derivative contract.

(4) For the purposes of this regulation, an approved

derivative contract is covered if it does not require a significant provision

to be made in respect of it pursuant to regulation 59.

(5) For the purposes of determining in accordance with

subregulation (4) whether a required provision is significant, regard

shall be had to the obligations of the insurer under the contract and the

volatility of the assets identified by the insurer as being suitable to cover

such obligations, and the required provision in respect of any one

derivative contract shall be deemed to be significant if -

(a) the aggregate provision required in respect of all

contracts having a similar effect is significant< or

(b) the aggregate provision required in respect of all

contracts with which it is connected is significant.

(6) In this regulation “approved derivative contract” means

a derivative contract which -

(a) either is listed or has been entered into with an approved

counterparty< and

(b) the insurer reasonably believes may be readily closed

out< and

(c) is either a contract for differences to which subregulation

(7) applies or a futures contract or an option to either of which

subregulation (8) applies.

(7) This subregulation applies to -

(a) a contract for differences under which the amount

payable by either party is calculated solely by reference to

fluctuations in any of the following, namely>

(i) the value of an asset for the valuation of which

provision is made in this Part of these regulations<

(ii) the amount of income from such an asset over a

defined period<

(iii) an index of such assets, being an index in respect

of which a derivative contract is listed< or

(iv) a national index of retail prices published by or

under the authority of the Government of Malta or a

government of a State belonging to the zone of countries,

or an arithmetic average thereof, and -

(b) a contract under which the amount payable by either

party is calculated by reference to the difference between the market

value and the amortised value of any asset for the valuation of

which provision is made in this Part of these regulations.

(8) This regulation applies to a futures contract or an option

which in either case provides for the acquisition or disposal of assets

for the valuation of all of which provision is made in this Part of these

regulations at a price which is determined by one or more of the

following methods>

(a) for each date on which the contract may be completed

or the option exercised, the price is a fixed amount under the terms

of the contract or option<

(b) it is determined by reference to the market value or the

amortised value of an asset for the valuation of which provision is

made in this Part of these regulations or the amount of income

over a defined period from such an asset<

(c) it is determined by reference to an index of the kind

mentioned in indent (iii) or (iv) of paragraph (a) of subregulation

(7) of this regulation.

(1) Subject to subregulation (3), for the purposes of this

Part of these regulations, a contract has the effect of a derivative contract

if it is a contract (other than a derivative contract) which provides whether

upon the exercise of a right by the insurer, or otherwise -

(a) for payment (at any time) of amounts which are

determined by fluctuations in>

(i) the value of property of any description<

(ii) an index of the value of property of any description<

(iii) income from property of any description< or

(iv) an index of income from property of any

description<

(b) for delivery of an asset other than an asset for the

valuation of which provision is made in regulation 47 to or by the

insurer< or

(c) for the conversion of an asset held by the insurer or

another party to -

(i) an asset of a different type< or

(ii) a different asset of the same type.

(2) Subject to subregulation (3), for the purposes of this

Part of these regulations an asset has the effect of a derivative contract

if the asset is an asset (other than an approved security or an asset falling

within regulation 49(1)(a) to (c) and the holding of the asset confers

contractual rights or imposes contractual obligations to make or accept

payment, delivery or conversion as set out in subregulation (1)(a) to

(3) A contract or asset does not have the effect of a derivative

contract by reason only that -

(a) it provides for the unconditional delivery of assets, or

for the payment for unconditional delivery of assets, such delivery

or payment to be made within a period commencing at the date of

the contract and extending>

(i) in the case of a listed security, for the usual period

for delivery or payment as determined by the rules of the

recognised investment exchange or stock exchange or

regulated market on which the securities are listed or facilities

for dealing have been granted<

(ii) in any other case, for twenty working days<

(b) it is a contract of the type described in regulation 42(9)

in respect of which the conditions set out in regulation 42(10) have

been satisfied.

(4) Rights in respect of a contract or asset which has the

effect of a derivative contract to which regulation 52 applies shall -

(a) where the asset is a security, be valued in accordance

with regulation 48<

(b) where the asset comprises units or other beneficial

interests in a collective investment scheme, be valued in accordance

with regulation 49< and

(c) where the asset is a debt or other right, be valued in

accordance with regulation 45.

(5) Rights in respect of a contract or asset having the effect

of a derivative contract to which regulation 52 does not apply shall

have a value determined in accordance with regulation 45(11).

(6) For the purposes of determining whether a contract or

asset has the effect of a derivative contract to which regulation 52 applies,

it shall be deemed to have the effect of a derivative contract which is

listed or transacted with an approved counterparty if it is itself listed or

so transacted.

(1) Subject to subregulations (5) and (6) the aggregate value

of the assets of an insurer as determined in accordance with this Part of

these regulations shall, for any of the purposes for which this Part of

these regulations apply, be reduced by an amount representing the

aggregate of -

(a) the amount by which the insurer is exposed to assets of

any description in excess of the permitted asset exposure limit for

assets of that description<

(b) the amount by which the insurer is exposed to a

counterparty in excess of the permitted counterparty exposure limit

for such counterparty<

(c) the amount by which the insurer has an excess

concentration with a number of counterparties<

(d) the value of any assets transferred to or for the benefit

of the insurer in pursuance of a condition in a derivative contract

to which regulation 52(2) does not apply or a related contract< and

(e) the value of any assets transferred to or for the benefit

of the insurer in pursuance of a contract having the effect of a

derivative contract to which regulation 52(2) does not apply or a

related contract, as determined in accordance with the Seventh

Schedule.

(2) Where an insurer is exposed to assets of any description

in excess of the permitted asset exposure limit for such assets, the

reduction required to be made by subregulation (1)(a) shall be made -

(a) by deducting (as far as possible) the amount of the excess

from the assets of that description held by the insurer< and

(b) where the insurer does not hold sufficient assets of that

description to eliminate the excess (or does not hold any assets of

that description) by making an appropriate deduction from the

aggregate value of the assets which the insurer would otherwise

be permitted to take into account for any of the purposes for which

this Part of these regulations applies.

(3) Where an insurer is required to make a reduction in

accordance with subregulation (1)(b), (c), (d) or (e), the reduction shall

be made by making a deduction from the aggregate value of the assets

which the insurer would otherwise be permitted to take into account for

any of the purposes for which this Part of these regulations applies.

(4) Where an insurer carrying on long term business has

attributed assets partly to a long term business fund and partly to its

other assets, any reduction required to be made by this regulation shall

be made in the same proportion as the attribution.

(5) Assets of an insurer comprising -

(a)

approved securities or any interest accrued thereon<

(b) debts to which 45(3) applies<

(c)

rights to which regulation 45(5), (8) or (9) applies<

(d) debts in respect of premiums<

(e) moneys due from, or guaranteed by, the Government of

Malta or a government of a State belonging to the zone of countries<

(f) shares in or debts due or to become due from a dependant

falling within regulations 43 and 44<

(g) holdings in a scheme falling within the UCITS Directive<

(h) deferred acquisition costs,

shall not be taken into account in any of the calculations described in

subregulation (1).

(6) Assets of dependants of the insurer that are debts due or

to become due from the insurer or from a dependant of the insurer must

not be taken into account in any of the calculations described in

subregulation (1).

(7) Where an insurer has entered into any contracts

providing for the payment of index linked benefits, the provisions of

subregulation (1)(a) shall not apply to assets of that insurer to the extent

that they are held to match liabilities in respect of such benefits.

A pure reinsurer shall invest its assets in accordance with

the following requirements>

(a) the assets shall take account of the type of business

carried on by the pure reinsurer, in particular the nature, amount

and duration of expected claims payments, in such a way as to

secure the sufficiency, liquidity, security, quality, profitability, and

matching of its investments<

(b) the pure reinsurer shall ensure that the assets are

diversified and adequately spread and allow the pure reinsurer to

respond adequately to changing economic circumstances, in

particular developments in the financial markets and real estate

markets or major catastrophic events< the pure reinsurer shall assess

the impact of irregular market circumstances on its assets and shall

diversify the assets in such a way as to reduce such impact<

(c) investments in assets which are not admitted to trading

on a regulated market shall be kept to prudent levels<

(d) investment in derivatives shall contribute to a reduction

of investment risks or facilitate efficient portfolio management

and such investments shall be valued on a prudent basis, taking

into account the underlying assets, and included in the valuation

of the pure reinsurer’s assets. The pure reinsurer shall also avoid

excessive risk exposure to a single counterparty and to other

derivative operations<

(e) the assets shall be properly diversified in such a way as to

avoid excessive reliance on any one particular asset, issuer or group

of undertakings and accumulations of risk in the portfolio as a

whole. Investments in assets issued by the same issuer or by issuers

belonging to the same group shall not expose the pure reinsurer to

excessive risk concentration< and

(f) paragraph (e) shall not apply to investment in government

bonds.

PART X

DETERMINATION OF LIABILITIES

In this Part of these regulations -

Interpretation.

“derivative contract” has the meaning given in regulation 41(1)<

“established surplus” means an excess of assets representing

the whole or a particular part of the long term insurance fund or

funds over the liabilities or a particular part of the liabilities, of the

insurer attributable to the business as shown by an actuarial

investigation to which article 23 of the Act applies<

“general business liabilities” has the same meaning as in

regulation 41(1)<

“insurance liabilities” means amounts calculated in

accordance with this Part of these regulations in respect of those

items shown at C and D under the heading “Liabilities” set out in

the balance sheet format set immediately following paragraph 15

of the First Schedule to the Insurance Business (Companies L.N. 103 of 2000.

Accounts) Regulations, 2000<

“long term liabilities” means liabilities of an insurer arising

under or in connection with contracts for long term business,

including liabilities arising from deposit back arrangements<

“the valuation date”, in relation to an actuarial investigation,

means the date to which the investigation relates.

(1) Subject to subregulation (2), this Part of these regulations Application.

applies with respect to the determination of the amount of liabilities of

insurers, for the purposes of -

(a)

articles 17, 41(4) and 42(2) and (3) of the Act<

(b) an investigation to which article 23 of the Act applies<

and

(c) any actuarial investigation made in pursuance of a

directive made by the competent authority under any other

provision of the Act.

(2) This Part of these regulations shall not apply to a pure

reinsurer other than regulations 76 and 77 with respect to the

determination of the amount of liabilities of a pure reinsurer for the

purposes of >

(a)

article 17 of the Act<

(b) an investigation to which article 23 of the Act applies<

and

(c) any actuarial investigation made in pursuance of a

directive made by the competent authority under any other

provision of the Act.

(1) Subject to this Part of these regulations, the amount of

liabilities of an insurer shall be determined in accordance with generally

accepted accounting concepts, bases and policies or other generally

accepted methods appropriate for insurers.

(2) In determining under subregulation (1) the amount of

liabilities of an insurer, all contingent and prospective liabilities shall

be taken into account including all liabilities in respect of cumulative

preference share capital but excluding other liabilities in respect of share

capital.

(1) An insurer which has or may have (following the

exercise of any right by the insurer or any other party) an obligation

to which this regulation applies to deliver assets or make a payment

shall -

(a) at all times identify the assets held by it which it considers

to be the most suitable to cover such obligation< and

(b) make prudent provision for the effect on the amount of

its excess assets of adverse variations between the value of the

assets identified and the value of the assets which it is or may be

obliged to deliver or the amount of the payment which it is or may

be obliged to make.

(2) For the purposes of subregulation (1) the insurer shall

take into account all reasonably foreseeable adverse variations and shall

have particular regard to past volatility in the value of the assets

concerned (or assets of a similar nature) and the possibility of adverse

changes in such volatility in the future.

(3) For the purposes of this regulation -

“linked assets” has the meaning given in regulation 41(1)<

“property linked liabilities” has the meaning given in

paragraph 2 of Part I of the Seventh Schedule<

“solvency deficit” means a deficit in the assets available to

cover the undertaking’s liabilities and represent its notional required

minimum margin, if any<

“the amount of its excess assets” means the difference between

the aggregate value of its assets (other than linked assets to the extent

that they are held to match property linked liabilities), determined

in accordance with Part IX of these regulations, and the amount of

its liabilities (other than property linked liabilities or liabilities for

which provision is made in accordance with this regulation).

(4) Subject to subregulation (5), this regulation applies to

an obligation -

(a) under a contract relating to investments of the kinds

mentioned in item C under the heading “Assets” set out in the balance

sheet format set immediately following paragraph 15 of the First

Schedule to the Insurance Business (Companies Accounts)

Regulations, 2000 (whether such contract constitutes an asset or L.N. 103 of 2000.

liability of the company)<

(b) undertaken for the purposes of, or in connection with

the making of, investments of the kind mentioned in paragraph

(a)< or

(c) under a contract providing for the purchase, sale or

exchange of currency.

(5) This regulation shall not apply to a contract to the extent

that it relates to, or is for the purposes of the making of an investment

in, or is in connection with the making of an investment in, a building

which is to be occupied by the insurer and used by the insurer for the

conduct of its business.

(1) Except to the extent that provision for the deficit has Provision for related

undertakings.

been made (whether in the calculation of surplus assets or otherwise) in

another group undertaking the value of whose shares is determined

having regard to the value of its surplus assets under regulation 43(1) or

regulation 43(3)(a) (but only to the extent of the insurer’s proportional

share of that undertaking), an insurer must make provision in respect of

a related undertaking that is an insurance undertaking, a reinsurance

undertaking or an insurance holding company -

(a) where the related undertaking is also a subsidiary

undertaking of the insurer, for the whole of any solvency deficit<

and

(b) in any other case, for the insurer’s proportional share of

any such deficit.

(2) For the purposes of subregulation (1), the identification

and valuation of assets available to cover liabilities and the notional

required minimum margin must be determined in accordance with

regulation 43(4).

The amount of insurance liabilities which are general business

liabilities shall be determined in accordance with the rules set out in the

“Rules for determining provisions” of Title II of the First Schedule to

the Insurance Business (Companies Accounts) Regulations, 2000>

Provided that, the amount of any reserve maintained under article

17(6) of the Act shall be determined in accordance with Part VIII of

these regulations.

Where a relevant insurer determines the amount of a liability

in order to make provision for outstanding claims arising under a relevant

co-insurance operation, then, if the leading insurance undertaking has

informed the relevant insurer of the amount of the provision made by

the leading insurance undertaking for such claims, the amount

determined by the relevant insurer>

(a) must be at least as great as the amount of the provision

made by the leading insurance undertaking< or

(b) in a case where it is not the practice to make such

provision separately, must be sufficient, when all liabilities are

taken into account, to include provision at least as great as that

made by the leading insurance undertaking for such claims,

due regard being had in either case to the proportion of the risk covered

by the relevant insurer and by the leading insurance undertaking

respectively.

(1) The determination of the amount of long term liabilities Long

liabilities.

(other than liabilities which have fallen due for payment before the

valuation date) shall be made on actuarial principles which have due

regard to the reasonable expectations of policyholders and shall make

proper provision for all liabilities on prudent assumptions that shall

include appropriate margins for adverse deviation of the relevant factors.

(2) The determination shall take account of all prospective

liabilities as determined by the policy conditions for each existing

contract, taking credit for premiums payable after the relevant date.

(3) Without prejudice to the generality of subregulation (1),

the amount of the long term liabilities shall be determined in compliance

with each of regulations 64 to 74 and shall take into account, inter alia,

the following factors -

(a)

all guaranteed benefits, including guaranteed surrender

values<

(b) vested, declared or allotted bonuses to which

policyholders are already either collectively or individually

contractually entitled<

(c) all options available to the policyholder under the terms

of the contract<

(d) discretionary charges and deductions, in so far as they

do not exceed the reasonable expectations of policyholders<

(e)

expenses, including commissions<

(f) any rights under contracts of reinsurance in respect of

long term business.

(1) Subject to subregulations (2), (3) and (4), the amount Method of

of the long term liabilities shall be determined separately for each calculation.

contract by a prospective calculation.

(2) A retrospective calculation may be applied to determine

the liabilities where a prospective method cannot be applied to a

particular type of contract or benefit, or where it can be demonstrated

that the resulting amount of the liabilities would be no lower than would

be required by a prudent prospective calculation.

(3) Appropriate approximations or generalisations may be

made where they are likely to provide the same, or a higher, result than

individual calculations of the same amount of the liabilities in respect

of each contract.

(4) Where necessary, additional amounts shall be set aside

on an aggregated basis for general risks which are not individualised.

(5) The method of calculation of the amount of the liabilities

and the assumptions used shall not be subject to discontinuities from

year to year arising from arbitrary changes and shall be such as to

recognise the distribution of profits in an appropriate way over the

duration of each policy.

(6) The liabilities for contracts under which the policyholder

is eligible to participate in any established surplus shall have regard to

the level of the premiums under the contracts, to the assets held in respect

of those liabilities, and to custom and practice of the insurer in the manner

and timing of the distribution of profits or the granting of discretionary

additions, as the case may be.

(1) The amount of the liability determined in respect of a

Avoidance of future

group of contracts shall not be less than such amount as, if the

assumptions adopted for the valuation were to remain unaltered and

were fulfilled in practice, would enable liabilities similarly determined

at all times in the future to be covered from resources arising solely

from the contracts and the assets covering the amount of the liability

determined at the current valuation.

(2) The appointed actuary of an insurer shall include in the

report of any investigation made under article 23 of the Act or in

pursuance of a directive made by the competent authority under any

other provision of the Act, a statement that premiums for new business

are sufficient, on reasonable actuarial assumptions, to enable the

company to meet all its commitments and, in particular, to establish

and maintain adequate technical provisions.

(3) For the purposes of subregulation (2), all aspects of the

financial situation of an insurer may be taken into account, without the

input from resources other than premiums and income earned thereon

being systemic and permanent in such way that it may jeopardise the

insurer’s solvency in the long term.

(1) Where further specified premiums are payable by the

policyholder under a contract (not being a linked long term contract)

under which benefits (other than benefits arising from a distribution of

profits) are determined from the outset in relation to the total premiums

payable thereunder, then, subject to subregulation (4) and regulation

67 -

(a) where the premiums under the contract are at a uniform

rate throughout the period for which they are payable, the premiums

to be valued shall be not greater than such level premiums as, if

payable for the same period as the actual premiums under the

contract and calculated according to the rates of interest and rates

of mortality or disability which are to be employed in calculating

the liability under the contract, would have been sufficient at the

outset to provide for the benefits under the contract according to

the contingencies upon which they are payable, exclusive of any

additions for profits, expenses or other charges<

(b) where the premiums under the contract are not at a

uniform rate throughout the period for which they are payable, the

premiums to be valued shall be not greater than such premiums as

would be determined on the principles set out in paragraph (a)

modified as appropriate to take account of the variations in the

premiums payable by the policyholder in each year<

save that a premium to be valued shall in no year be greater than the

amount of the premium payable by the policyholder.

(2) Where the terms of the contract have changed since the

contract was first made (the terms of the contract being taken to change

for the purposes of this subregulation if the change is indicated in an

endorsement on the policy but not if a new policy is issued), then, for

the purpose of subregulation (1), one of the following assumptions must

be made, namely that>

(a) the change from the date it occurred was provided for in

the contract when it was made<

(b) the terms of the contract are those which apply from the

date of change except that a single premium is payable, at the date

of the change, of an amount equal to the liability under the policy

immediately before the change, calculated on a basis consistent

with this Part of these regulations and with the premiums actually

payable from the date of the change< or

(c) the contract is in two parts, the first of which is for the

benefits purchased by the actual premiums payable from the date

of the change under the insurer’s scales of premiums at that date,

and the second of which is for all other benefits under the policy

for which no premiums are payable after that date.

(3) Where under a contract (not being linked long term

contract) the policy holder is eligible to participate in any established

surplus, and -

(a) each premium paid increases the benefits (other than

benefits arising from a distribution of profits) provided under the

contract, or

(b) the amount of a premium payable in future is not

determinable until it comes to be paid,

future premiums and the corresponding liability may be left out of

account so long as adequate provision is made against any risk that the

increase in the liabilities of the insurer resulting from the payment of

future premiums might exceed the amount of the premiums.

(4) An alternative valuation method to that described in

subregulations (1) to (3) may be used where it can be demonstrated that

the alternative method results in reserves no less, in aggregate, than

would result from the use of the method described in those

subregulations.

(1) In order to take account of acquisition expenses, the

maximum annual premium to be valued under regulation 66 may (subject

to subregulations (2) and (3) of this regulation) be increased by an

amount not greater than the equivalent, taken over the whole period of

premium payments and calculated according to the rates of interest and

rates of mortality or disability employed in valuing the contract, of 3.5

per centum (or the defined percentage, if it is lower than 3.5 per centum)

of the relevant capital sum under the contract.

(2) For the purposes of subregulation (1) “the defined

percentage” is the percentage arrived at by taking (for all contracts of

the same type as the contract in question for which an adjustment is

made) the average of the percentages of the relevant capital sum under

each such contract that represent the acquisition costs incurred which,

after allowing for the effects of taxation, might reasonably be expected

to be recovered from the premiums payable under the contract.

(3) The amount of a future premium valued must not exceed

the amount of the premium actually payable by the policyholder.

(4) For the purposes of this regulation -

(a) subject to paragraphs (b) and (c), relevant capital sum

under a contract means>

(i) for whole life assurances, the sum assured<

(ii) for policies where a sum is payable on maturity

(including policies where a sum is also payable on earlier

death), the sum payable on maturity<

(iii) for deferred annuities, the capitalised value of the

annuity at the vesting date (or the cash option if it is greater)<

(iv) for capital redemption contracts, the sums payable

at the end of the contract period< and

(v) for linked long term contracts, notwithstanding (i) to

(iv), the lesser of>

(aa) the amount for the time being payable on

death< and

(bb) the aggregate of the value for the time being

of the units allocated to the contract (or, where

entitlement is not denoted by means of units, the value

for the time being of any other measure of entitlement

under the contract equivalent to units) and the total

amount of the premiums remaining to be paid during

such of the term of the contract as is appropriate for

zillmerising or, if such premiums are payable beyond

the age of seventy-five, until that age, excluding in all

cases any vested reversionary bonus<

(b) notwithstanding paragraph (a), where, under a contract

relating to any such business as is mentioned in paragraph (a), the

payment of premiums is to stop before the sum assured becomes

due, relevant capital sum means the mathematical reserves

appropriate for that contract at the end of the premium-paying term<

(c) notwithstanding paragraph (a), for temporary assurances,

the relevant capital sum means the sum assured on the relevant

(1) The rates of interest to be used in calculating the present Rates of interest.

value of future payments by or to an insurer shall be no greater than the

rates of interest determined from a prudent assessment of the yields on

existing assets attributed to the long term business and, to the extent

appropriate, the yields which it is expected will be obtained on sums to

be invested in the future.

(2) For the purposes of subregulation (1), the assumed yield

on an asset attributed to the long term business, before any adjustment

to take account of the effect of taxation, shall not exceed the yield on

that asset calculated in accordance with subregulations (3) to (7), reduced

by 2.5 per centum of that yield.

(3) For the purpose of calculating the yield on an asset -

(a) the asset shall be valued in accordance with Part IX of

these regulations, excluding any provision under which assets may

be taken at lower book values for the purposes of any investigation

to which article 23 of the Act applies or any actuarial investigation

made in pursuance of a directive made by the competent authority

under any other provision of the Act< and

(b) the future income from any asset required to be taken

into account (whether interest, dividends or repayment of capital)

shall be reduced by a proportion corresponding to such of the excess

exposure to assets of that description, calculated in accordance

with paragraph 16 of Part I of the Seventh Schedule, as may

reasonably be attributed to such assets.

(4) For fixed interest investments (that is to say, investments

which are fixed interest securities as defined in regulation 41(1)) the

yield on an asset, subject to subregulation (7), shall be that annual rate

of interest which, if used to calculate the present value of future payments

of interest before the deduction of tax and the present value of

repayments of capital, would result in the sum of those amounts being

equal to the value of the asset.

(5) For variable interest investments (that is to say,

investments which are not fixed interest securities as defined in

regulation 41(1)) that are equity shares or land, the yield on an asset,

subject to subregulation (7), shall be the ratio to the value of the asset of

the income before deduction of tax which would be received in the

period of twelve months following the valuation date on the assumption

that the asset will be held throughout that period and that the factors

which affect income will remain unchanged, so however that account

shall be taken of any changes in those factors known to have occurred

by the valuation date in particular, without prejudice to the generality

of the foregoing, of -

(a) any known changes in the rental income from property

or in dividends on equity shares<

(b) any forecast changes in dividends which have been

publicly announced by the valuation date<

(c)

the effect of any alterations in capital structure< and

(d) the value (at the most recent date for which it is known

at the valuation date) of any determinant of the amount of any

future interest payment, the said value being deemed to remain

unaltered for all subsequent dates.

(6) For variable interest investments that are equity shares

in companies subject to, or drawing up accounts as if subject to the

Companies Act, the yield on an asset, subject to subregulation (14), Cap. 386.

must be the ratio to the value of the asset of>

(a)

A + B< or

(b) 2 times A,

whichever is the lower,

where A is the income which would be received if it were calculated in

accordance with subregulation (5), and B is half the excess (if any) on

the relevant amount over A, but if B is less than zero, then it is treated

as zero.

(7) For the purposes of subregulation (6), the relevant

amount in relation to equity shares is the issuing company’s profits

after taxation from its ordinary activities for the most recent financial

year ending on or before the relevant date which is reported in accounts

drawn up in accordance with subregulation (8), which are publicly

available, in so far as attributable to those equity shares, so however,

without prejudice to the generality of the foregoing, that account is taken

of the effect of any alterations in capital structure.

(8) For the purposes of subregulation (7), the issuing

company’s profits after taxation from its ordinary activities from the

relevant financial year must be derived from accounts drawn up in

accordance with the Companies Act.

(9) Where subregulation (6) applies, and a company’s

accounting period is longer or shorter than a year, the amount of profits

or losses for that period must be annualised, and the annualised figure

must be used to calculate the yield.

(10) If the requirements of subregulations (7) and (8) are

not, or cannot be, met, then relevant amount is zero.

(11) Subject to subregulation (12), for variable interest

investments (that is to say, investments which are not fixed interest

securities as defined in regulation 41(1)) other than equity shares or

land, the yield on an asset, subject to subregulation (7), shall be that

annual rate of interest which, if used to calculate the present value of

future payments of interest, before deduction of tax, and the present

value of repayments of capital, where applicable, would result in the

sum of these amounts being equal to the value of the asset, on the

assumption that -

(a) the value of any determinant of the amount of the next

interest rate payment and capital repayment made during the

following twelve months will be the value of that determinant at

the most recent date for which it is known at the valuation date<

(b) the amount of future interest payments and capital

repayments will take account, where appropriate, of -

(i) the right of either party to have the investment

repaid, and

(ii) an assumed yield on other comparable investments

made in the future not exceeding an amount determined in

accordance with subregulations (8) to (10)< and

(c) indices and all other factors which affect future income

payments or capital repayments will remain unchanged after the

valuation date.

(12) For investments in collective investment schemes given

a value as an asset in accordance with regulation 49, the yield may be

determined as the weighted average of the yields (as determined by this

regulation) on each of the investments held by the collective investment

(13) In calculating the yield on an asset under this regulation

(a)

if the asset does not consist of equity shares or land -

(i) a prudent adjustment shall be made to exclude that

part of the yield estimated to represent compensation for the

risk that the income from the asset might not be maintained

or that capital repayments might not be received as they fall

due, and

(ii) in making that adjustment, regard shall be had

wherever possible to the yields on risk-free investments of a

similar term in the same currency<

(b) for assets which are equity shares or land, adjustments

to yields shall be made as appropriate to exclude that part, if any,

of the yield from each category of asset that is needed to compensate

for the risk that the aggregate income from that category of asset,

taking one year with another, might not be maintained> for the

purposes of this paragraph, a “category of asset” comprises assets

of a similar nature, type and degree of risk.

(14) Notwithstanding subregulation (13)(b), for equity

shares within the meaning of subregulation (6), adjustments to yields

must be made as appropriate to exclude that part, if any, of the yield

from each ‘category of asset’ that is needed to compensate for this risk

that the aggregate profits earned by the company might not be

maintained< and for the purposes of this subregulation, category of asset

has the same meaning as in subregulation (13)(b).

(15) To the extent that it is necessary to make an assumption

about the yields which will be obtained on sums to be invested in future,

the yield shall be determined in accordance with subregulations (16)

and (17).

(16) Where the liabilities are denominated in Maltese lira,

the yield assumed, before any adjustment to take account of the effect

of taxation -

(a) on any investment to be made more than three years

after the valuation date shall not exceed the yield of the most recent

issue of any local development registered stock of a term of not

less than ten years and not more than fifteen years or, in the absence

of any such local development registered stock, such other

determinant as the Minister may, after consultation with the

competent authority, by Order in the Gazette, from time to time,

establish for the purposes of this regulation<

(b) on any investment to be made at any time not more than

three years after the valuation date shall not exceed the assumed

yield determined under subregulation (2) adjusted linearly over

the said three years to the yield determined in accordance with

paragraph (a) of this subregulation.

(17) Where the liabilities are denominated in currencies

other than Maltese lira, the yield shall be determined on assumptions

that are as prudent as those made under subregulation (16).

(18) In no case shall a rate of interest determined for the

purposes of subregulation (1) exceed the adjusted overall yield on assets

calculated as the weighted average of the reduced yields on the individual

assets arrived at under subregulation (2)< and when that weighted average

is calculated -

(a) the weight given to each investment shall be its value as

an asset determined in accordance with Part IX of these regulations,

excluding any provision under which assets may be taken at lower

book values for the purposes of any investigation to which article

23 of the Act applies or any actuarial investigation made in

pursuance of a directive made by the competent authority under

any other provision of the Act< and

(b) except in relation to the rate of interest used in valuing

payments of property linked benefits (as defined in regulation

41(1)), both the yield and the value of any linked assets (as so

defined) shall be omitted from the calculation.

(19) For the purpose of determining the rates of interest to

be used in valuing a particular category of contracts the assets may,

where appropriate, be notionally apportioned between different

categories of contracts and in such cases the limit under subregulation

(16) shall be applied on the basis of the overall yield on the assets

apportioned to the contracts in question.

The amount of the liability in respect of any category of

contract shall, where relevant, be determined on the basis of prudent

rates of mortality and disability that have regard to the country of the

commitment.

(1) Provision for expenses, whether implicit or explicit,

shall be not less than the amount required, on prudent assumptions, to

meet the total net cost, after taking account of the effect of taxation,

that would be likely to be incurred in fulfilling contracts if the insurer

were to cease to transact new business twelve months after the valuation

date.

(2) The provision mentioned in subregulation (1) shall have

regard to, among other things, the insurer’s actual expenses in the last

twelve months before the valuation date and to the effects of inflation

on future expenses on prudent assumptions as to the future rates of

increase in prices and earnings.

(1) Provision shall be made on prudent assumptions to cover Options.

any increase in liabilities caused by policyholders exercising options

under their contracts.

(2) Where a contract includes an option whereby the

policyholder could secure a guaranteed cash payment within twelve

months following the valuation date, the provision for that option shall

be such as to ensure that the value placed on the contract is not less than

the amount required to provide for the payments that would have to be

made if the option were exercised.

(3) Where a contract includes an option whereby the

policyholder could secure a cash payment but subregulation (2) does not

apply, the provision for that option must be such as to ensure that, if the

assumptions adopted for the valuation of the contract are fulfilled in

practice -

(a) the resulting value (and therefore the provision) is not

less than the amount required to provide for the payment which

would have to be made if the option were exercised< and

(b) the payment when it falls due is covered from resources

arising solely from the contract and from the assets covering the

amount of the liability determined at the current valuation.

(4) For the purposes of subregulation (3), the amount of a

cash payment secured by the exercise of an option is assumed to be>

(a) in the case of an accumulating with-profits policy, the

lower of>

(i) the amount which would reasonably be expected

to be paid if the option were exercised, having regard to the

representations of the insurer< and

(ii) the amount, disregarding all discretionary

adjustments< and

(b) in the case of any other policy to which this regulation

applies, the amount which would reasonably be expected to be

paid if the option were exercised, having regard to the

representations of the insurer, without taking into account any

expectations regarding future distributions of profits or the granting

of discretionary additions in respect of an established surplus or in

anticipation of such additions.

No contract for long term business shall be treated as an asset.

Allowance shall not be made in the valuation for the voluntary

No credit for profits

discontinuance of any contract if the amount of the liability so

determined would thereby be reduced.

The determination of the amount of long term liabilities shall

take into account the nature and term of the assets representing those

liabilities and the value placed upon them and shall include prudent

provision against the effects of possible future changes in the value of

the assets on -

(a) the ability of the insurer to meet its obligations arising

under contracts for long term business as they arise< and

(b) the adequacy of the assets to meet the liabilities as

determined in accordance with regulations 64 to 73.

(1) Where the benefits provided by a contract are directly

linked to the value of units in an UCITS or to the value of assets contained

in an internal fund held by the insurer, usually divided into units, the

technical provisions in respect of those benefits must be represented as

closely as possible by those units or, in the case where units are not

established, by those assets.

(2) Where the benefits provided by a contract are directly

linked to a share index or some other reference value, other than those

referred to in subregulation (1), the technical provisions in respect of

those benefits must be represented as closely as possible either by the

units deemed to represent the reference value or, in the case where units

are not established, by assets of appropriate security and marketability

which correspond as closely as possible with those on which the

particular reference value is based.

(3) The provisions of article 17(3) of the Act and of Part II

of the Seventh Schedule shall not apply to assets held to match liabilities

which are directly linked to the benefits referred to in subregulations

(1) and (2). Reference to the long term business amount in Part I of the

Seventh Schedule shall be to the liabilities excluding those in respect of

liabilities mentioned in subregulation (1).

(4) Where the benefits referred to in subregulations (1) and

(2) include a guarantee of investment performance or some other

guaranteed benefit, the corresponding additional mathematical reserves

shall be subject to subarticle 3 of article 17 of the Act, and of Part II of

the Seventh Schedule.

(1) The amount of liabilities of a pure reinsurer shall be Long term business

and general

determined in accordance with generally accepted accounting concepts, business for pure

bases and policies or other generally accepted methods appropriate for reinsurers.

L.N. 103 of 2000.

pure reinsurers.

(2) In determining under subregulation (1) the amount of

liabilities of a pure reinsurer, all contingent and prospective liabilities

shall be taken into account including all liabilities in respect of

cumulative preference share capital but excluding other liabilities in

respect of share capital.

(1) Except to the extent that provision for the deficit Provision for related

undertakings of

has been made (whether in the calculation of surplus assets or pure reinsurers.

otherwise) in another group undertaking the value of whose shares

is determined having regard to the value of its surplus assets under

regulation 43(1) or regulation 43(3)(a) (but only to the extent of the

pure reinsurer’s proportional share of that undertaking), a pure

reinsurer must make provision in respect of a related undertaking

that is an insurance undertaking, a reinsurance undertaking or an

insurance holding company -

(a) where the related undertaking is also a subsidiary

undertaking of the pure reinsurer, for the whole of any solvency

deficit< and

(b) in any other case, for the pure reinsurer’s proportional

share of any such deficit.

(2) For the purposes of subregulation (1), the identification

and valuation of assets available to cover liabilities and the notional

required minimum margin must be determined in accordance with

regulation 43(4).

PART XI

PARENT UNDERTAKING SOLVENCY CALCULATION

(1) This Part of these regulations applies to insurers and to Application and

pure reinsurers that are subsidiary undertakings of ultimate insurance timing.

parent undertakings and whose head office is in Malta.

(2) In this Part of these regulations>

“used notional group solvency margin” in relation to an

ultimate insurance parent undertaking or an ultimate EEA insurance

parent undertaking, is the sum of>

(a) in the case of a parent, which is itself an insurance

undertaking or a reinsurance undertaking, all liabilities in

respect of cumulative preference shares left out of account in

accordance with regulation 10(2), or in accordance with the

relevant regulatory requirements of the state or territory where

the head office of the parent is situated, as the case may be<

and

(b) the parent’s proportional share of all liabilities in

respect of cumulative preference shares left out of account

by its related insurance undertakings or related reinsurance

undertakings in accordance with regulation 10(2) or the

relevant regulatory requirements of the state or territory where

the head office of the relevant insurance undertaking or the

relevant reinsurance undertaking is situated, as the case may

be.

(3) The information and calculations required to be provided

under this Part of these regulations shall>

(a) be as at the end of the financial year of the insurer or the

pure reinsurer or as at the end of the financial year of the ultimate

EEA insurance parent undertaking or as at the end of the financial

year of the ultimate insurance parent undertaking<

(b) follow the relevant principles on accounting for

subsidiary undertakings found in International Financial Reporting

Standards issued by the International Accounting Standards Board<

and

(c) be as at a date not later than twelve months from the day

after the end of the financial year by reference to which the

information and calculations were last provided.

(4) Subject to subregulation (5), the information and

calculations required under this Part of these regulations must be

provided by not later than six months from the end of>

(a) the financial year in question< or

(b) the financial year of the relevant parent, where the

information and calculations are provided as at the end of the

financial year under subregulation (3)(a).

(5) Where the calculation is provided in accordance with

regulation 79(3), the information required under this Part of these

regulations must be provided not later than>

(a) six months from the end of the financial year in question<

or

(b) the date by which the parent undertaking solvency

calculation is required in the EEA State of supplementary

supervision or of the relevant head office under regulation 79, as

the case may be,

whichever is the earlier.

(1) Subject to the provisions of this regulation, the Rules for

calculations required by any provision of this regulation shall be carried determining

assets and deficits.

out at all levels of the undertakings forming part of the insurance group.

(2) The amount of any deficit and the identification of

surplus assets shall be determined as though>

(a) the phrase “except in the case of an ultimate insurance

parent undertaking or an ultimate EEA insurance parent

undertaking which is a mutual which carries on long-term insurance

business,” was inserted before regulation 43(4)(d)<

(b) regulation 43(4)(f) was replaced with “assets that cannot

effectively be made available or realised to make good any deficiency

of assets of the ultimate insurance parent undertaking or ultimate

EEA insurance parent undertaking, as the case may be”< and

(c) notwithstanding regulation 58(2), where the ultimate

insurance parent undertaking or the ultimate EEA insurance parent

undertaking has issued cumulative preference shares, liabilities in

respect of such shares may be left out of account>

(i) to the extent that they (taken with the used notional

group solvency margin) do not exceed 50 per centum of the

notional group solvency margin, but

(ii) liabilities in respect of shares which are redeemable

for the purposes of article 115 of the Companies Act may be Cap. 386.

left out of account only to the extent that they (taken with the

total of liabilities in respect of redeemable preference shares

and subordinated debt with a fixed maturity in the used

notional group solvency margin) do not exceed 25 per centum

of the notional group solvency margin.

(3) In determining the surplus assets or solvency deficit of

a group undertaking which is not a related undertaking of the insurer or

the pure reinsurer appropriate approximations or generalisations may

be applied where they are likely to provide the same, or a lower, amount

of surplus assets or the same, or a higher, amount of solvency deficit to

that which would otherwise have been required under this regulation.

PART XII

MISCELLANEOUS PROVISIONS

(1) Without prejudice to regulation 5 of these regulations

and saving the provisions of the following subregulations of this

regulation, Insurance Business (Insurers’ Assets and Liabilities)

Regulations, 2004 are hereby repealed without prejudice to anything

done or omitted to be done thereunder.

(2) (a) Every insurer (other than for a non-EEA insurer)

that, pursuant to Insurance Business (Companies Assets and Liabilities)

Regulations, 2000 (revoked by the Insurance Business (Insurers’ Assets

and Liabilities) Regulations, 2004)was required to maintain in Malta

assets of such an amount and of the kind as determined by Part II of

Insurance Business (Companies Assets and Liabilities) Regulations, 2000

and to whom this requirement no longer applied from the coming into

force of the Insurance Business (Insurers’ Assets and Liabilities), 2004

may apply in writing to the competent authority for the release of these

assets.

(b) Every non-EEA insurer which carries on business

of insurance in Malta and in one or more EEA States and which maintains

deposits in Malta in respect of which an agreement has been entered

into between the competent authority and another EEA supervisory

authority or authorities to maintain the assets required under regulation

4(1) in the jurisdiction of the EEA supervisory authority, the non-EEA

insurer may apply in writing to the competent authority for the release

of those deposits.

(c) Subject to paragraph (d), the competent authority

shall determine an application received under paragraphs (a) and (b)

within two months of its receipt.

(d) The competent authority shall, in the case of an

application submitted by an insurer whose head office is in an EEA

State and which at the time of coming into force of these regulations

was authorised under the Act to carry on business of insurance, determine

such an application only if the insurer concerned elects to exercise a

European right and satisfies the establishment or service conditions

specified in Part I of the European Passport Rights for Insurance and

L.N. 89 of 2004.

Reinsurance Undertakings Regulations, 2004.