How the law secures the insurer's solvency
To secure its solvency, the insurer is obliged to observe the economic norms and limits defined by the law, the methodology of their ratio and the normative volume being established by the Service. This means that the requirement of financial stability rests upon the insurer continuously, and not only when an insured event occurs. In selecting the admissible assets to cover the reserves, the insurer must apply the conditions of diversification, returnability, profitability and liquidity — in other words, the assets must be varied, recoverable, income-generating and readily saleable.
As an additional element of stability, the law also defines the conditions of financial soundness for the insurance broker: its basis is the capital/guarantee fund and professional liability insurance. The broker is obliged, at every stage of carrying out intermediary activity, to hold the minimum amount of capital/guarantee fund established by the Service, which must be placed continuously, with a periodicity of no less than 1 year, in a licensed banking institution in Georgia, on a separate account opened for this purpose.
Compulsory administration — when it is appointed
In the event of a violation of the norms established by the Service, a significant deterioration of the financial condition and/or the existence of a threat of non-performance of insurance obligations, the Service is authorized to decide on appointing compulsory administration of the insurer. The decision enters into force upon its publication on the Service's website and is immediately published in the Legislative Herald of Georgia. The decision must contain information on the grounds for appointing compulsory administration, the temporary administrator, the duration of the process and the possible measures.
The stability of the process is important: challenging the decision on appointing compulsory administration in court does not suspend the process of compulsory administration. The temporary administrator starts performing duties from the date indicated in the decision. From the date of adoption of the decision, any action in the name and at the expense of the insurer is impermissible without the written consent of the temporary administrator. The full powers of all governing bodies of the insurer transfer to the temporary administrator, who exercises them in the established manner, in agreement with the Service. The temporary administrator must immediately, but no later than the day of appointment, notify the operator of the payment system of which the insurer is a participant about the appointment.
Liquidation — after revocation of the license
In the event of revocation of the insurance activity license, the insurer is liquidated. The decision on revoking the license enters into force upon its publication on the Service's website. The functions of the insurer's liquidator are performed by a person appointed by the Service, who must satisfy the fitness criteria established for the insurer's administrator. The appointment of a person connected with the insurer as its liquidator is impermissible. Upon the commencement of the liquidation process, compulsory enforcement is suspended.
The liquidator is obliged to compile the list of assets and obligations within 3 months from appointment and to hand a copy to the Service for publication; the liquidator is accountable to the Service in the manner determined by the Service. The liquidator is authorized to sell the insurer's assets at public auction or in another favourable form, to transfer to another insurer the right of claim on insurance policies, to transfer to another legal person the right of claim on the assets, and to organize the transfer of obligations.
From the day of appointment, the liquidator has the right to: terminate the employment contract of the insurer's employee; terminate a service contract in whose performance the insurer participated; terminate any obligation of the insurer as lessee of immovable property, if the lessor — who must be warned 60 days in advance that the insurer intends to exercise the right to cancel the lease agreement — has no claim to the lease payments, apart from the amount accrued by the date of cancellation, and does not demand compensation for the loss caused by such cancellation; and alienate the insurer's assets and obligations (including the insurance portfolio) or a part thereof to another legal person, including another insurer.
Challenging transactions made before the appointment
The insurer's temporary administrator, the liquidator and the bankruptcy trustee are authorized, by filing a claim in court, to dispute an action or transaction carried out by the insurer's administrator within 12 months before the appointment of the temporary administrator, liquidator or bankruptcy trustee, and to demand its invalidation, if as a result persons connected with the insurer received a property benefit at the insurer's expense or enjoyed any advantage, privilege or preference that caused damage to the insurer (its creditors). This mechanism protects the body of creditors from transactions by which assets were transferred out of the insurer precisely in the pre-insolvency period.
Bankruptcy proceedings
If, in the course of preparing the list of assets and obligations, the insurer's insolvency is established, the liquidator is obliged to notify the Service, on the basis of which the Service decides to stop the liquidation process and to open bankruptcy proceedings. Upon establishment of insolvency, the Service is also authorized to start bankruptcy proceedings without starting the liquidation process — in that case the bankruptcy trustee first performs the powers and duties defined for the liquidator. Upon the commencement of bankruptcy proceedings, compulsory enforcement is suspended. By decision of the Service, a bankruptcy trustee is appointed, who must satisfy the fitness criteria established for the insurer's administrator.
The bankruptcy trustee has obligations tied to clear deadlines: the trustee must publish in the Legislative Herald of Georgia and on the Service's official website an announcement on the decision to start bankruptcy proceedings within 14 days from the decision; the announcement must be republished within 1 month from the first publication. By this same announcement the insurer's obligation to the creditors is established: the insurer's creditors must submit to the bankruptcy trustee a substantiated written claim, indicating the amount and the grounds of their credit claim, within 1 month from the second publication of the announcement. The trustee is also obliged to notify the relevant tax authority of the start of bankruptcy proceedings. The circle of powers resembles that of the liquidator: selling assets at public auction or in another favourable form, transferring the right of claim on insurance policies to another insurer, transferring the right of claim on assets to another legal person, and organizing the transfer of obligations.
Completion of bankruptcy proceedings
The insurer's bankruptcy proceedings are completed after the bankruptcy trustee realizes the insurer's assets and distributes the received amount in the established manner. The trustee is obliged to compile and submit to the Service a final report on the realization of the insurer's property and the distribution of the received amount, on the basis of which the Service issues an administrative-legal act on the completion of the bankruptcy proceedings. That decision is immediately published in the Legislative Herald of Georgia. The entire process — from compulsory administration to the completion of bankruptcy proceedings — thus proceeds under the track of state supervision, and the protection of the interests of the insured and the policyholder is one of its defining purposes.