The Concept of Reinsurance and Its Place in Insurance Activity
Reinsurance is an operation defined by the Law of Georgia on Insurance: in the course of such an operation the insurer, on the basis of a reinsurance contract and taking into account the specifics of each such contract, transfers the insurable risk and the related loss, wholly or partially, to a reinsurer company. Insurance activity, as defined by the same law, is the insurer's activity connected with the conclusion and performance of insurance and reinsurance contracts — reinsurance contracts are thus an ordinary instrument of the insurance market.
Concluding Contracts with Foreign Reinsurers
The law grants a Georgian insurance organisation the right to conclude a reinsurance contract with one or several foreign reinsurers independently and directly. Moreover, in connection with reinsuring its risk abroad, a Georgian insurance organisation may directly use the services of a foreign broking organisation. This opens the legal route to the international reinsurance market.
In parallel, the law regulates the regime of foreign participants: the activity of a foreign insurance organisation as a direct insurer on the territory of Georgia is permitted only through the branch (representative office) provided for by the law; such a branch operates in accordance with Georgian legislation and has the right to appear in court as plaintiff and defendant. In Georgia, a foreign legal person carries on insurance broker activity through a branch (representative office) registered in the appropriate manner, on the basis of a contract concluded with Georgian legal persons.
The Insurer's Liability and Financial Stability Requirements
The central norm of the legal construction of reinsurance is this: the insurer remains responsible to the policyholder for the entire scope of obligations stipulated by the insurance contract notwithstanding the reinsurance contract concluded. In other words, the relationship with the reinsurer does not diminish the policyholder's rights — claims are addressed to the insurer, not to the reinsurer.
The basis of the insurer's financial stability is its capital, insurance reserves and the existence of a reinsurance system. At every stage of activity, the minimum amount of capital may not be less than one third of the calculated solvency margin, and the corresponding funds must be continuously placed in a licensed bank in Georgia in a segregated account, with a periodicity of at least 1 year. Upon the Service's request, the insurer must submit information about the foreign insurance organisation with which it has concluded a reinsurance contract, including data on the reinsurer company's financial condition. In addition, the insurer is prohibited from granting loans for the acquisition of its own shares, the shares of a significant shareholder or administrator, and the shares of a subsidiary.
The Licence Class for Reinsurance
Reinsurance is a separate licence class of insurance activity — the activity defined by sub-point „g“ of point 2 of Article 22 of the law. The licence is issued by the Insurance State Supervision Service and may be granted only to a joint-stock company. Where an insurer already holds a licence for another type of insurance and wishes to carry on reinsurance in the specific type for which it is already licensed, no additional licence is required — it suffices to notify the Service in writing within 10 working days of commencing the reinsurance activity.
A licence applicant submits to the Service, among other documents, a 3-year business plan including a reinsurance program. The licence is issued for an indefinite term, to a specific insurer, and is not transferable to another legal person.
Practical Issues of the Reinsurance Contract
When concluding the contract, the parties are free to agree on the extent of the risk transferred — full or partial transfer. The law directly recognises this freedom, since the definition of reinsurance implies taking into account the specifics of each such contract. For this reason the volume of the risk, the calculation of the premium and the compensation procedure should be spelled out precisely in the text of the document, so that in a disputed situation it is clear which part passes to the reinsurer and which remains on the insurer's own retention.
The insurer's internal procedures matter no less: any transaction connected with the minimum capital requires the Service's prior written consent and must be effected on a cashless settlement basis, while the funds accumulated in the account opened for this purpose may be used only on the basis of the Service's prior written consent. An insurer drafting a reinsurance program cannot circumvent these requirements, and their violation becomes a ground for sanctions.
Frequently Asked Questions
Does reinsurance reduce the insurer's liability to the policyholder?
No — notwithstanding the reinsurance contract, the insurer remains responsible to the policyholder for the entire scope of obligations stipulated by the insurance contract.
May a Georgian insurance organisation work directly with a foreign reinsurer?
Yes, the law allows it to conclude a reinsurance contract with one or several foreign reinsurers independently and directly, and also to use the services of a foreign broking organisation.
Which licence is needed for reinsurance?
Reinsurance is a separate licence class under sub-point „g“ of point 2 of Article 22; an insurer already holding an insurance licence needs no additional licence, provided it notifies the Service within 10 working days.
What information does the Service request about the reinsurer?
Upon request, the insurer submits information about the foreign insurance organisation with which it has concluded a reinsurance contract, including data on the reinsurer's financial condition.
How We Help on Legal.ge
The Legal.ge team assists in preparing and reviewing reinsurance contracts: we assess the reinsurer, distinguish the legal risks and protect your interests in relations with the insurer. Write to us — we will plan a secure reinsurance arrangement.