INSURANCE BUSINESS (LINKED LONG TERM CONTRACTS) REGULATIONS

INSURANCE BUSINESS (LINKED LONG TERM CONTRACTS)

SUBSIDIARY LEGISLATION 403.08

INSURANCE BUSINESS (LINKED LONG TERM

CONTRACTS) REGULATIONS

1st January, 2001

LEGAL NOTICE 104 of 2000, as amended by Legal Notices 353 of 2005

and 398 of 2015.

The title of these regulations is the Insurance Business

(Linked Long Term Contracts) Regulations.

Amended by

L.N. 353 of 2005.

(Regulation 3)

Substituted by

L.N. 398 of 2015.

PERMITTED LINKS

PART I

DESCRIPTIONS OF PROPERTY BY REFERENCE TO WHICH BENEFITS

MAY BE DETERMINED

1. Transferable securities and money market instruments admitted to or dealt in

on a regulated market as defined in Article 4(1)(14) of 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 European Parliament and of the Council and repealing Council

Directive 93/22/EEC.

2. Transferable securities and money market instruments dealt in on another

regulated market in a Member State or EEA State, which operates regularly and is

recognised and open to the public.

3. Transferable securities and money market instruments admitted to official

listing on a stock exchange in a third country or dealt in on another regulated market

in a third country which operates regularly and is recognised and open to the public

provided that the choice of stock exchange or market has been approved by the

Malta Financial Services Authority.

(1)

In these regulations, unless the context otherwise

requires -

"the Act" means the Insurance Business Act;

"authorised undertaking", in relation to linked long term

contracts, means an undertaking whose head office is in Malta

authorised to carry on long term business, including business of

insurance class III specified in the Second Schedule to the Act,

other than an authorised reinsurance undertaking or a captive

insurance undertaking or a captive reinsurance undertaking;

"Directive 2009/65/EC" means Directive 2009/65/EC of the

European Parliament and of the Council of 13 July 2009 on the

coordination of laws, regulations and administrative provisions

relating to undertakings for collective investment in transferable

securities (UCITS) (recast);

"index linked benefits" means benefits

(a) provided for under any contract the effecting of which

constitutes the carrying on of long term business; and

(b) determined by reference to fluctuations in any index of

the value of property (whether specified in the contract

or not);

"linked fund" means a real or notional account to which an

authorised undertaking appropriates linked assets for the purposes

of their being permitted links, and which may be subdivided into

units, the value of each of which is determined by the authorised

undertaking by reference to the value of those linked assets;

"linked long term contract" m eans a contract of the kind

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

Schedule to the Act;

"long term contract" means a contract for long term business;

"property linked benefits" means benefits other than index linked

benefits provided for under any contract the effecting of which

constitutes the carrying on of long-term insurance business and

determined by reference to the value of, or the income from,

property of any description (whether specified in the contract or

not);

INSURANCE BUSINESS (LINKED LONG TERM CONTRACTS)

"Malta Financial Services Authority" means the competent

authority established by the Malta Financial Services Authority

''third country'' means a country which is not a Member State or

EEA State;

and the words and expressions which are also used in the Act have

the same meanings as in the Act.

(2) These regulations shall apply only where the investment

risk is borne by a policyholder who is a natural person.

(1) Benefits payable under any contract to which this

regulation applies shall not be determined, either wholly or partly,

by reference to the value of, or the income from, or fluctuations in

the value of, property of any description other than property of any

of the descriptions specified in Part I of the Schedule which, where

appropriate, comply with the provisions of paragraph 17 of the said

(2) Benefits payable under any contract to which this

regulation applies shall not be determined, whether directly or

indirectly, either wholly or partly, by reference to fluctuations in

any index of the value of property other than an index described in

Part II of the Schedule.

(3)

This regulation applies to long term contracts which are -

(a) contracts entered into by authorised companies or have

been entered into by any such company at any time on

or after the 1st October, 1998 and are still in force;

(b) contracts under which the benefits payable to the

policyholder are wholly or partly to be determined by

reference to the value of, or the income from, property

of any description (whether or not specified in the

contract) or by reference to fluctuations in, or in an

index of, the value of property of any description

(whether or not so specified); and

(c) not contracts specified in subregulation (4) as being

contracts to which this regulation does not apply.

(4) The contracts referred to in subregulation (3)(c) to which

this regulation does not apply are -

(a) contracts entered into before the coming into force of

these regulations to the extent that they provide for

benefits to be determined by reference to the value of,

or the income from, property of any description or by

reference to fluctuations in, or in an index of, property

of any description, by reference to which benefits were

permitted to be determined before the coming into

force of these regulations;

(b) subject to subregulation (5), contracts to manage the

investments of pension funds that are not combined

with contracts of insurance covering either

conservation of capital or payment of a minimum

interest.

INSURANCE BUSINESS (LINKED LONG TERM CONTRACTS)

(5) Benefits payable under contracts referred to in

subregulation (4)(b) shall not be determined, either wholly or

partly, by reference to the value of, or the income from, or

fluctuations in the value of derivative instruments other than

financial derivative instruments as specified in paragraph 12 of Part

I of the Schedule.

INSURANCE BUSINESS (LINKED LONG TERM CONTRACTS)

Recently issued transferable securities, provided that

(a) the terms of issue include an undertaking that an application will be

made for admission to official listing on a stock exchange or to another

regulated market which operates regularly and is recognised and open to

the public, provided that the choice of stock exchange or market has

been approved by the Malta Financial Services Authority; and

(b) the admission referred to in sub-paragraph (a) is secured within a year

of issue.

Transferable securities not falling within paragraphs 1 to 4 of Part I of the

Schedule provided that they are readily realisable in the short term.

Land and buildings (including any interest in land) provided that

(a) it is considered by the authorised undertaking to be located in a territory

with a properly functioning market, indicated by the following criteria

(i)

a lack of artificial barriers, including barriers to foreign

ownership and repatriation of capital;

(ii) fair and accurate valuation;

(iii) suitably qualified and independent surveyors;

(iv) accurate financial information;

(v) enforceable contractual and other property rights;

(vi) clarity of taxation;

(vii) availability of reliable economic and property market data;

(viii) ethical transaction standards; and

(b) it is

INSURANCE BUSINESS (LINKED LONG TERM CONTRACTS)

(i) owned directly by the authorised undertaking; or

(ii) held in a structure, or a series of structures, that do not pose a

materially greater risk to the policyholders than a direct holding;

and

(iii) it is not geared in excess of 10% of the gross asset value of the

linked fund.

Loans

(a) which are fully secured by hypothec or charge on land and buildings (or

any interest in land) which

(i) satisfy the criteria in paragraph 6 of this Part of the Schedule; and

(ii) in the case of a loan made to a person other than a body corporate,

is not used wholly or mainly for domestic purposes, and

(b) in relation to which the rate of interest and the due dates for the

payment of interest and the repayment of principal can be fully

ascertained from the terms of any agreement relating to the loan.

Units of UCITS authorised according to Directive 2009/65/EC or other

collective investment undertakings within the meaning of Article 1(2)(a) and (b) of

Directive 2009/65/EC, whether or not established in a Member State or EEA State,

provided that

(a) such other collective investment undertakings are authorised under laws

which provide that they are subject to supervision considered by the

Malta Financial Services Authority to be equivalent to that laid down in

European Union law, and that cooperation between authorities is

sufficiently ensured;

(b) the level of protection for unit-holders in the other collective investment

undertakings is equivalent to that provided for unit-holders in a UCITS,

and in particular that the rules on asset segregation, borrowing, lending,

and uncovered sales of transferable securities and money market

instruments are equivalent to the requirements of Directive 2009/65/EC;

(c) the business of the other collective investment undertakings is reported

in half-yearly and annual reports to enable an assessment to be made of

the assets and liabilities, income and operations over the reporting

period; and

(d) no more than 10% of the assets of the UCITS or of the other collective

investment undertakings, whose acquisition is contemplated, can,

according to their fund rules or instruments of incorporation, be

invested in aggregate in units of other UCITS or other collective

investment undertakings.

Deposits with credit institutions which are repayable on demand or have the

right to be withdrawn, and maturing in no more than 12 months, provided that the

credit institution has its registered office in a Member State or EEA State or, if the

credit institution has its registered office in a third country, provided that it is subject

to prudential rules considered by the Malta Financial Services Authority as

equivalent to those laid down in European Union law.

Money market instruments other than those dealt in on a regulated market,

which fall under Article 2(1)(o) of Directive 2009/65/EC, if the issue or issuer of

such instruments is itself regulated for the purpose of protecting investors and

savings, provided that they are

(a) issued or guaranteed by a central, regional or local authority or central

INSURANCE BUSINESS (LINKED LONG TERM CONTRACTS)

bank of a Member State, the European Central Bank, the Community or

the European Investment Bank, a third country or, in the case of a

Federal State, by one of the members making up the federation, or by a

public international body to which one or more Member States belong;

(b) issued by an undertaking any securities of which are dealt in on

regulated markets referred to in paragraphs 1 to 3 of this Part of the

Schedule;

(c) issued or guaranteed by an establishment subject to prudential

supervision, in accordance with criteria defined by European Union law,

or by an establishment which is subject to and complies with prudential

rules considered by the Malta Financial Services Authority to be at least

as stringent as those laid down by European Union law; or

(d) issued by other bodies belonging to the categories approved by the

Malta Financial Services Authority provided that investments in such

instruments are subject to investor protection equivalent to that laid

down in sub-paragraphs (a), (b) or (c) and provided that the issuer is a

company whose capital and reserves amount to at least EUR 10,000,000

and which presents and publishes its annual accounts in accordance

with Directive 2013/34/EU of the European Parliament and of the

Council of 26 June 2013, is an entity which, within a group of

companies which includes one or several listed companies, is dedicated

to the financing of the group or is an entity which is dedicated to the

financing of securitisation vehicles which benefit from a banking

liquidity line.

11. Cash.

Financial derivative instruments, including equivalent cash-settled

instruments, dealt in on a regulated market referred to in paragraphs 1 to 3 of this

Part of the Schedule or financial derivative instruments dealt in over-the-counter

(OTC) derivatives, provided that

(a) the underlying of the derivative consists of instruments covered by this

paragraph, financial indices, interest rates, foreign exchange rates or

currencies;

(b) the counterparties to OTC derivative transactions are institutions

subject to prudential supervision, and belonging to the categories

approved by the Malta Financial Services Authority; and

(c) the OTC derivatives are subject to reliable and verifiable valuation on a

daily basis and can be sold, liquidated or closed by an offsetting

transaction at any time at their fair value at the UCITS’ initiative.

Units, by whatever name called, in a real or notional fund which is limited to

the descriptions of property mentioned in the foregoing paragraphs of this Schedule,

not being property falling within paragraphs 17(a) to (e) of Part III of the Schedule,

and which under the contract is to be managed either

(a) wholly by the insurer; or

(b) wholly or to any extent by another person being a person for whose acts

and omissions in managing the scheme the insurer assumes

responsibility towards the policyholder as if they were the acts or

omissions of the insurer, and otherwise (if at all) by the insurer.

INSURANCE BUSINESS (LINKED LONG TERM CONTRACTS)

PART II

INDICES BY REFERENCE TO WHICH BENEFITS

MAY BE DETERMINED

An index which is

(a) calculated independently;

(b) published at least once a week;

(c) based on constituents, each of which is property falling within

paragraphs 1 to 11 of Part I of the Schedule; and

(d) calculated on a basis which is made available to the public and which

includes both the rules for including and excluding constituents and the

rules for valuation which must use an arithmetic average of the value of

the constituents.

A national index of retail prices published by or under the authority of a

government of a Member State or EEA State.

An index which is

(a) based on constituents, each of which is property falling within

paragraphs 1 to 11 of Part I of the Schedule; and

(b) in respect of which a derivative contract is dealt in on a regulated

market referred to in paragraphs 1 to 3 of Part I of the Schedule.

PART III

INTERPRETATION

Benefits payable under any contract to which regulation 3 of the regulations

applies shall not be determined by reference to

(a) property of any of the descriptions specified in paragraph 5 and

paragraph 8 of Part I of the Schedule other than units of UCITS

authorised according to Directive 2009/65/EC, or paragraphs 9 or 10 of

Part I of the Schedule, if the value of such property is determined, either

wholly or partly, by reference to the value of, or the income from, or

fluctuations in the value of, or fluctuations in the income from, property

other than property of the descriptions in Part I of this Schedule; or

(b) property of the description specified in paragraph 5 of Part I of the

Schedule in excess of 10 per centum of the aggregate property linked

benefits under the contract; or

(c) property of the description specified in paragraph 8 of Part I of the

Schedule other than units of UCITS authorised according to Directive

2009/65/EC, which in aggregate value exceeds 10 per centum of the

property linked benefits, unless the contract; or

(d) property of the description specified in paragraph 8 of Part I of the

Schedule where the contract under which the benefits are payable has

been marketed in accordance with any legal restrictions which apply to

the marketing of the corresponding collective investment undertaking;

or

(e) property of any of the descriptions specified in Part I of this Schedule

which has the effect of a derivative instrument other than financial

derivative instruments specified in paragraph 12 of Part I of this

Schedule.

INSURANCE BUSINESS (LINKED LONG TERM CONTRACTS)

In this Schedule

(a) ''transferable securities'' has the meaning assigned to it in article 2(1) of

Directive 2009/65/EC;

(b) ''money market instruments'' has the meaning assigned to it in article

2(1) of Directive 2009/65/EC.