Captive Insurance: Internal Management of Corporate Risks
Captive Insurance is a sophisticated risk management tool primarily used by large holdings and international groups. It involves creating a subsidiary insurance company (a captive) whose main purpose is to insure the risks of its parent group. In Georgia, this practice is still in the developmental stage but is becoming increasingly attractive for large businesses wishing to save on insurance premiums, gain direct access to the reinsurance market, and tailor insurance terms to their specific needs. Legal support for captive insurance involves proper structural formation, licensing, and ensuring tax efficiency. It is a strategic decision allowing a company to turn insurance from a cost center into a profit center.
What Does This Service Cover?
Captive insurance services are complex and include elements of corporate, insurance, and tax law:
- Feasibility Study: Analyzing whether creating a captive is profitable for the company, considering risk volume and premiums.
- Structure Selection and Registration: Incorporating the legal entity and setting up the corporate structure in compliance with Georgian law.
- Licensing: Managing the process of obtaining an insurance license from the Insurance State Supervision Service of Georgia.
- Regulatory Compliance: Legal oversight of capital adequacy, reserve creation, and reporting.
- Tax Planning: Managing Transfer Pricing risks and optimizing tax effects within the legal framework.
- Reinsurance Contracts: Legally formalizing relationships between the captive and international reinsurers.
Common Scenarios When You Need This Service
Captive insurance is relevant in the following cases:
- Specific Risks: The company has risks (e.g., environmental liability, cyber risks) that are either too expensive or impossible to insure on the commercial market.
- High Insurance Costs: A holding company pays millions in premiums annually with low loss ratios. A captive allows keeping these funds within the group.
- Cash Flow Management: The company wants to earn investment income from insurance reserves.
- Direct Access to Reinsurance: A captive can access the international reinsurance market directly, bypassing the local insurer's margin.
Georgian Legal Framework
The activities of captive insurance companies are regulated by the Law of Georgia on Insurance. Legislation does not differentiate a captive from a regular insurer, so standard licensing and supervisory requirements apply. This includes minimum capital requirements and fit-and-proper criteria for managers. From a tax perspective, the Tax Code of Georgia and Transfer Pricing regulations are crucial to ensuring premium payments are not viewed as profit shifting.
Process of Service Delivery
The process begins with actuarial and legal analysis. If the decision is made to create a captive, lawyers prepare founding documentation and a business plan for the regulator. After obtaining the license, operational processes (claims handling, reporting) are set up. Lawyers ensure the captive's activities remain in constant compliance with the law, eliminating risks of fines and license revocation.
Why Legal.ge?
Captive insurance is the highest level of corporate risk management. Legal.ge gives you access to lawyers and consultants experienced in creating complex financial structures. We will help you assess whether owning an insurance company is worth it for your business and guide you through the entire journey from idea to license. Manage your risks and finances smartly with Legal.ge.
Updated: ...