Regulations, 2007

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

L.N. 287 of 2007

INSURANCE BUSINESS ACT

(CAP. 403)

Insurance Business (Supplementary Supervision of Insurance

and Reinsurance Undertakings in an Insurance Group)

Regulations, 2007

IN exercise of the powers conferred by articles 63 and 64 of the

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

after consultation with the Malta Financial Services Authority, has made

the following regulations>-

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

commencement.

(Supplementary Supervision of Insurance and Reinsurance Undertakings

in an Insurance Group) Regulations, 2007.

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

October 2007.

In these regulations, unless the context otherwise requires –

Interpretation.

“the Act” means the Insurance Business Act<

“the 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<

“EEA insurance parent undertaking” means an insurance

parent undertaking whose head office is in Malta or another EEA

State<

“EEA insurer” means an insurance undertaking or a non-

directive insurer 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 from the foreign authority<

“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 from the foreign authority<

“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 the

17th March, 1993 and as amended from time to time<

“financial year” means each period at the end of which the

balance of the accounts of an insurance undertaking or a reinsurance

undertaking 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 an insurance

undertaking or a reinsurance undertaking are required to be

submitted to the competent authority<

“foreign authority” means a competent authority within the

meaning of article 1(k) of Directive 92#49#EEC or article 1(n) of

Directive 2002#83#EC of an EEA State<

“insurance group” means an insurance parent undertaking and

its related undertakings that are>

(a)

insurance undertakings<

(b) reinsurance undertakings< or

(c)

insurance holding companies<

“Insurance Groups Directive” means the Directive, 98#78#EC,

of the European Parliament and of the Council of the 27th October,

1998 on the supplementary supervision of insurance and

reinsurance undertakings in an insurance or reinsurance group<

“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 authorised under article 7 of the

Act to carry on business of direct insurance and includes a company

authorised to carry on direct and reinsurance business<

“mixed-activity insurance holding company” means a parent

undertaking, other than an insurer, an EEA insurer, a non-EEA

insurer, a pure reinsurer, an EEA pure reinsurer, a non-EEA pure

reinsurer, an insurance holding company or a mixed financial

holding company in terms of regulation 2 of the Financial

Conglomerates Regulations, 2004, which includes at least one

insurer, EEA insurer, pure reinsurer or EEA pure reinsurer among

its subsidiary undertakings<

“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 suretyship 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<

“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

or a pure reinsurer, whose head office is in Malta, (whether it

is or not)<

“parent undertaking” has the same meaning as is assigned to

it by article 2 of the Companies Act<

“parent undertaking solvency calculation” means the

calculation required by Part XI of the Regulations<

“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 Seventh

Council Directive 83#349#EEC of the 13th June, 1983<

“pure reinsurer” means a company authorised under article 7

of the Act to carry on business restricted to reinsurance<

“the Regulations” means the Insurance Business (Assets and

L.N. of 2007.

Liabilities) Regulations, 2007<

“reinsurance undertaking” means an undertaking, whether or

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

“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<

“solvency deficit” means a deficit in the assets available to

cover the undertaking’s liabilities and represent its notional required

minimum margin, if any<

“subsidiary undertaking” means an undertaking within the

meaning of article 2 of the Companies Act<

“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<

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

determined by an insurance rule made by the competent authority

by virtue of sub-article (3) of article 4 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.

Every insurer or pure reinsurer, whose head office is in Malta>

(a) which is a participating undertaking in at least one

insurer, pure reinsurer, EEA insurer, EEA pure reinsurer, non-EEA

insurer or non-EEA pure reinsurer<

(b) the parent undertaking of which is an insurance holding

company, a non-EEA insurer or a non-EEA pure reinsurer<

(c) the parent undertaking of which is a mixed-activity

insurance holding company,

shall be subject to supplementary supervision in accordance with

regulation 4 of these regulations>

Provided that, in each case the exercise of supplementary

supervision shall not imply that the competent authority is required to

carry out a supervisory role in relation to the non-EEA insurer, non-

EEA pure reinsurer, insurance holding company or mixed activity

insurance holding company taken individually.

(1) The supplementary supervision shall take into account>

(a) related undertakings of an insurer or of a pure reinsurer,

whose head office is in Malta<

(b) participating undertakings in an insurer or in a pure

reinsurer, whose head office is in Malta< and

(c) related undertakings of a participating undertaking in an

insurer or in a pure reinsurer, whose head office is in Malta.

(2) Without prejudice to regulation 6 of these regulations,

the competent authority may decide not to take into account in the

supplementary supervision referred to in sub-regulation (1) of this

regulation, non-EEA insurers or non-EEA pure reinsurers where there

are legal impediments to the transfer of the necessary information.

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

Malta, subject to supplementary supervision shall have adequate internal

control mechanisms in place for the production of any data and

information relevant for the purposes of such supplementary supervision.

(4) Undertakings that are subject to supplementary

supervision and their related undertakings and participating undertakings

shall exchange among themselves any information relevant for the

purposes of such supplementary supervision.

(5) (a) The competent authority shall have access to any

information which would be relevant for the purpose of supervision of

an insurer or a pure reinsurer, whose head office is in Malta, subject to

supplementary supervision<

(b) The competent authority may address itself directly

to the relevant undertakings referred to in sub-regulation (4) of this

regulation, to obtain the necessary information only if such information

has been requested from the insurer or the pure reinsurer, whose head

office is in Malta, and has not been supplied by such undertaking.

(6) The competent authority may carry out, in Malta, itself,

or through an inspector appointed in terms of article 30 of the Act, on-

the-spot verification of information referred to in sub-regulation (3) of

this regulation at>

(a) the insurer or the pure reinsurer, whose head office is in

Malta, subject to supplementary supervision<

(b) subsidiary undertakings of that insurer or pure reinsurer<

(c) parent undertakings of that insurer or pure reinsurer< and

(d) subsidiary undertakings of a parent undertaking of that

insurer or pure reinsurer.

(7) (a) Where the foreign authority wishes to verify

information concerning an undertaking situated in Malta which is a

related insurance undertaking, a related reinsurance undertaking, a

subsidiary undertaking, a parent undertaking or a subsidiary undertaking

of a parent undertaking of the insurance undertaking or the reinsurance

undertaking subject to supplementary supervision, the foreign authority

may request the competent authority to have that verification carried

out on its behalf<

(b) The competent authority may allow the foreign authority

making the request to carry out on-the-spot verification itself or by

allowing an auditor or expert to carry it out<

(c) The foreign authority making the request may participate

in the verification when it does not carry out the verification itself.

(1) General supervision shall be carried out by the competent

authority over transactions between>

(a) an insurer or a pure reinsurer, whose head office is in

Malta< and

(i) a related undertaking of that insurer or pure

reinsurer<

(ii) a participating undertaking in that insurer or pure

reinsurer<

(iii) a related undertaking of a participating undertaking

in that insurer or pure reinsurer<

(b) an insurer a pure reinsurer, whose head office is in Malta,

and a natural person who holds a participation in>

(i) that insurer, pure reinsurer or any of its related

undertakings<

(ii) a participating undertaking in that insurer or pure

reinsurer<

(iii) a related undertaking of a participating undertaking

in that insurer or pure reinsurer.

(2) An insurer or a pure reinsurer, whose head office is in

Malta, shall provide the competent authority with a declaration of the

following information in respect of itself and, subject to the exceptions

in sub-regulation (3) of this regulation, in respect of each member of

the insurance group>

(a)

the name, location of head office and principal activity<

(b) the relationship with each other member of the insurance

group, including the amounts and descriptions of holdings of share

capital and voting rights<

(c)

loans between members of the insurance group<

(d) guarantees and off-balance sheet transactions between

members of the insurance group<

(e)

investments between members of the insurance group<

(f) reinsurance operations between members of the

insurance group<

(g) agreements to share costs between members of the

insurance group<

(h) whether the member of the group is a subsidiary

undertaking of the ultimate insurance parent undertaking and, if

different, of the ultimate EEA insurance parent undertaking<

(i) subject to sub-regulation (3) of this regulation, the

ultimate insurance parent undertaking’s proportional share of, or

if the group member is a subsidiary undertaking of that parent the

whole of, any solvency deficit<

(j) subject to sub-regulation (3) of this regulation, the

ultimate EEA insurance parent undertaking’s proportional share

of, or if the group member is a subsidiary undertaking of that parent

the whole of, any solvency deficit< and

(k) a statement that>

(i) the declaration has been properly prepared in

accordance with this regulation< and

(ii) proper records have been maintained and adequate

information obtained by the insurer or the pure reinsurer,

whose head office is in Malta, for the purpose of the

declaration required by this regulation.

(3) Paragraphs (i) and (j) of sub-regulation (2) of this

regulation shall not apply with respect to a group member, other than

the insurer with head office in Malta or the pure reinsurer with head

office in Malta, where>

(a) the parent undertaking solvency calculation in relation

to the ultimate insurance parent undertaking or the ultimate EEA

insurance parent undertaking, as the case may be, is positive<

(b) the group member is not a parent undertaking of the

insurer or the pure reinsurer, whose head office is in Malta<

(c) the group member is not a participating undertaking in

the insurer or the pure reinsurer, whose head office is in Malta<

(d) the group member is not a related undertaking of the

insurer or the pure reinsurer, whose head office is in Malta<

(e) the group member’s solvency deficit does not exceed

5% of the positive parent undertaking solvency calculation in

relation to the ultimate insurance parent undertaking or the ultimate

EEA insurance parent undertaking, as the case may be< and

(f) the insurer or the pure reinsurer, whose head office is in

Malta, has complied with paragraphs (i) or (j) of sub-regulation

(2) of this regulation, as the case may be, in relation to sufficient

group members so that the sum of the solvency deficits in the

remaining group members does not exceed 10% of the positive

parent undertaking solvency calculation in relation to the ultimate

insurance parent undertaking or the ultimate EEA insurance parent

undertaking, as the case may be.

(4) Subject to sub-regulations (6), (7), (8) and (9) of this

regulation, the declaration required by sub-regulation (2) of this

regulation shall also include>

(a) calculations (“the parent undertaking solvency

calculations”) in respect of each of the ultimate insurance parent

undertaking and ultimate EEA insurance parent undertaking of

the value of its surplus assets, determined in accordance with the

requirements of Part IX of the Regulations (other than paragraphs

(a) to (c) of sub-regulation (1) of regulation 54), less>

(i) any provision for related undertakings valued on

the basis of regulations 60 or 77 of the Regulations, except to

the extent already allowed for in the value of surplus assets<

and

(ii) where the surplus assets are valued at nil, the

amount of any deficit in the assets available to cover>

(aa)

any liabilities not already provided for< and

(bb) the notional required minimum margin, if

any, of the ultimate insurance parent undertaking or the

ultimate EEA insurance parent undertaking, as the case

may be< and

(b) if either of the parent undertaking solvency calculations

is negative, a statement as to the reasons why such deficit or deficits

has or have arisen and of any remedial action taken or planned.

(5) The information and calculations required under this

regulation must be provided by not later than six months from the end

(a)

the financial year in question< or

(b) the financial year of the ultimate EEA insurance parent

undertaking< or

(c) the financial year of the ultimate insurance parent

undertaking.

(6) If the foreign authority has agreed to be the supervisor

responsible for exercising supplementary supervision of the EEA insurer

or the EEA pure reinsurer under sub-article (2) of article 4 of the

Insurance Groups Directive or, where no such agreement has been

reached, but>

(a) the head office of the ultimate EEA insurance parent

undertaking is situated in an EEA State, other than Malta, and that

parent is itself an insurance undertaking or a reinsurance

undertaking< or

(b) where that parent is not an insurance undertaking or a

reinsurance undertaking, and another member of the insurance

group is an EEA insurer or an EEA pure reinsurer, and that member>

(i) is a parent undertaking of the insurer or the pure

reinsurer, whose head office is in Malta< or

(ii) has a notional required minimum margin which

exceeds the notional required minimum margin of the insurer

or the pure reinsurer, whose head office is in Malta,

and, in each case, that insurance undertaking or reinsurance

undertaking may provide the information and calculations required

under paragraphs (i) and (j) of sub-regulation (2) of this regulation

and the parent undertaking solvency calculation in relation to the

ultimate EEA insurance parent undertaking prepared in accordance

with the requirements of the EEA State of supplementary

supervision or of the relevant head office for>

(i) the valuation of assets and the determination of

liabilities of insurance undertakings, reinsurance undertakings

and insurance holding companies< and

(ii) the calculation of the required minimum solvency

margin of insurance undertakings or reinsurance undertakings.

(7) If the head office of the ultimate insurance parent

undertaking is situated in a country within the zone of countries other

than an EEA State, then the insurance undertaking or the reinsurance

undertaking may provide>

(a) the parent undertaking solvency calculation, in

accordance with the provisions of Part XI of the Regulations, in

relation to the ultimate insurance parent undertaking prepared in

accordance with accounting practice applicable for the purposes

of the supervision of insurance undertakings or reinsurance

undertakings in the state or territory of the head office>

(i) adapted as necessary to apply the general principles

set out in paragraphs 1.B, 1.C, and 1.D of Annex I of the

Insurance Groups Directive< and

(ii) using the deduction and aggregation method or the

accounting consolidation-based method set out in Annex I of

the Insurance Groups Directive< and

(b) the solvency deficits under paragraph (i) of sub-

regulation (2) of this regulation prepared in accordance with the

requirements>

(i) for the valuation of assets and the determination of

liabilities of insurance undertakings, reinsurance undertakings

and insurance holding companies< and

(ii) for the calculation of the required minimum

solvency margin of insurance undertakings and reinsurance

undertakings,

in the state or territory where the ultimate insurance parent

undertaking’s head office is situated.

(8) If the head office of the insurance undertaking or the

head office of the reinsurance undertaking’s ultimate insurance parent

undertaking is not situated in Malta or in a country within the zone of

countries, then the undertaking may provide the parent undertaking

solvency calculation in relation to the ultimate insurance parent

undertaking prepared in accordance with the requirements of Part IX of

the Regulations (other than paragraphs (a) to (c) of sub-regulation (1)

of regulation 54 of the Regulations).

(9) If the ultimate insurance parent undertaking or, as the

case may be, the ultimate EEA insurance parent undertaking of the

insurance undertaking or the reinsurance undertaking is itself an insurer

or pure reinsurer to which Part IX of the Regulations apply, then the

insurance undertaking or the reinsurance undertaking is not required to

provide a parent undertaking solvency calculation in relation to that

parent.

(10) The declarations required by sub-regulations (2) and

(4) of this regulation>

(a) subject to paragraph (c), must be signed by, where there

are more than two directors of the company, at least two of those

directors and, where there are not more than two directors, all the

directors< and

(b) subject to sub-regulation (11) of this regulation, must

include a statement from the auditors of the insurance undertaking

or the reinsurance undertaking, or of an undertaking under

paragraph (c) of this sub-regulation that, in their opinion, it has

been properly compiled in accordance with this regulation from

information provided by members of the insurance group and from

the insurance undertaking or the reinsurance undertaking’s own

records< and

(c) may be provided on behalf of the insurance undertaking

or the reinsurance undertaking (the first insurance undertaking or

reinsurance undertaking) by any other insurance undertaking or

reinsurance undertaking to which this regulation applies and which

is a member of the insurance group (the second insurance

undertaking or reinsurance undertaking) where>

(i) it is signed by two directors of the second insurance

undertaking or reinsurance undertaking< and

(ii) it contains a statement that it has been copied to

the board of directors of the first insurance undertaking or

reinsurance undertaking.

(11) The statement under paragraph (b) of sub-regulation

(10) of this regulation need not include the parent undertaking solvency

calculation or a calculation with respect to that parent under paragraphs

(i) or (j) of sub-regulation (2) of this regulation>

(a) where the parent undertaking solvency calculation is

provided in accordance with sub-regulation (6) of this regulation<

and

(b) to the extent that a statement is provided from auditors

qualified in the EEA State of supplementary supervision or of the

relevant head office, that in their opinion the calculation complies

with the requirements applicable in that State to the preparation of

solvency calculations for insurance groups pursuant to the

Insurance Groups Directive.

(12) Without prejudice to sub-regulation (3) of regulation

4, and for the purposes of sub-regulations (1) and (2) of this regulation,

insurance undertakings and reinsurance undertakings shall have in place

adequate risk management processes and internal control mechanisms,

including sound reporting and accounting procedures, in order to

identify, measure, monitor and control transactions.

(1) Where any information necessary for any of the

calculations required by these regulations or Part XI of the Regulations,

concerning a related undertaking with its registered office in an EEA

State or a non-EEA State, is not available to the competent authority,

for whatever reason, the book value of that undertaking in the

participating undertaking shall be deducted from the elements eligible

for the calculation provided for under regulation 43 of the Regulations.

In that case, the unrealised gains connected with such participation shall

not be allowed as an element eligible for the calculation.

(2) If, on the basis of any of the calculations provided for in

Part IX of the Regulations, it results that the solvency of a subsidiary

insurer whose head office is in Malta or a subsidiary pure reinsurer

whose head office is in Malta, of the insurance holding company, the

non-EEA insurer or the non-EEA pure reinsurer is, or may be,

jeopardised, the competent authority shall take appropriate measures at

the level of the insurer or the pure reinsurer, whose head office is in

Malta.

The purpose of these regulations is to implement the provisions Implementation

Council Directives.

of Directive 98#78#EC of the European Parliament and of the Council

of the 27th October, 1998 on the supplementary supervision of insurance

and reinsurance undertakings in an insurance or reinsurance group which

shall be interpreted and applied accordingly.

Saving the provisions of this regulation, the Insurance Business Repeals

L.N. 311 of 2004.

(Supplementary Supervision of Insurance Undertakings in an Insurance

Group) Regulations, 2004 are hereby repealed.

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