With the introduction of the new Insurance Code in January 2016, the concept of the captive insurer and the captive reinsurer appear for the first time in Bulgarian insurance law. 

Although captive insurance undertakings have existed in developed countries for decades, the Bulgarian insurance market was apparently not ready for such companies until now. Captive insurance companies are established the same way and under the same conditions as ordinary insurance companies, but their nature and purpose differs. 

The classic example of a captive insurer is a corporation, large firm or group of firms that establishes an insurance undertaking as its subsidiary, observing the laws of the state of incorporation and with a license for performing insurance activity. Unlike ordinary insurers, captive insures exist only to meet the basic insurance needs of the parent. The parent company exclusively measures the insurance risks which its captive company shall insure while the captive insurer sets the insurance premiums, issues insurance policies, collects premiums and pays insurance claims. 

European and global companies decide to establish or acquire a captive insurance undertaking because of benefits they provide to their business, such as: reduction of risk optimization costs, responsibility to cover all or part of the parent’s losses, keeping funds from insurance premiums within the captive company, facilitating risk management, flexibility in selecting insurance products, stability and security of insurance premium levels, etc. 

Companies who wish to establish a captive insurance undertaking must comply with the legislative, regulatory and financial requirements for incorporation of an insurance company in the respective country and verify that the state has capacity to assume more players in the insurance market. 

In addition, Solvency II provides a simplified regime for captive companies in several directions, taking into account their specific function only to cover risks associated with the industrial or commercial group to which they belong. Solvency II provides simplified calculations of solvency capital requirements, simplified methods and techniques to calculate technical provisions, lower absolute floor in calculating the minimum capital requirement for captive insurers and reinsurers, etc.