Insurance, Reinsurance, Captives and Cell Companies in GMC

Summary

• A "Contract of Insurance" in GMC means "any contract of insurance or contract of reinsurance" (Financial Services Act 2025, Schedule 1, para. 100), so reinsurers are licensed under the same activities as direct insurers.
• Four insurance activities require a GFSO licence: Effecting Contracts of Insurance (para. 31), Carrying Out Contracts of Insurance as Principal (para. 32), Insurance Intermediation (para. 33) and Insurance Management (para. 36).
• The Act specifies seven classes of life insurance (paras. 102–108) and nine classes of non-life insurance (paras. 109–117); GFSO may limit a licence by reference to them (s. 30(4)(a)).
• An insurer must be a Body Corporate (GEN 5.2.2(2)), appoint a Finance Officer (GEN 5.5.1(1)(b)) and, unless it is a Captive Insurer or Licensed ISPV, have a majority non-executive board (GEN 3.3.41A).
• A Protected Cell Company or Incorporated Cell Company cannot be established in GMC without GFSO consent, and each new cell needs GFSO approval (GEN 8.9).
• Insurers must keep separate tax accounts for onshore and offshore life and non-life business (Income Tax Act 2025, s. 26). Section 43R provides a 10% or 15% concessionary rate for approved insurance brokers.

The GMC insurance framework at a glance

Insurance in GMC is regulated by the Gelephu Financial Services Office (GFSO) under the Financial Services Act 2025 (the Act) and its Rulebooks. GFSO lists Prudential Rules for "Insurance Business" (PIN), Prudential Rules for "Investment, Insurance Intermediation and Banking" (PRU) and Captive Insurance Business Rules (CIB), which apply through Schedule B of the Application of Laws Act 2024 (s. 5). This article covers what the Act and the General Rulebook (GEN) say; the prudential detail must be taken from PIN, PRU and CIB. "$" in GMC law means United States dollars (Companies Act 2025, s. 4A).

What is a Contract of Insurance?

A Contract of Insurance "means any contract of insurance or contract of reinsurance" (Schedule 1, para. 100). The Act goes no further; whether a contract is one of insurance is a question for the common law, which in GMC is the common law and equity received from established common law jurisdictions (Application of Laws Act 2024, s. 3). Rights under a Contract of Insurance are a Specified Investment (para. 86). Because reinsurance is included, a reinsurer is licensed under the same paragraphs as a direct insurer; the Act distinguishes reinsurance only by excluding it from the intermediation carve-outs for firms licensed to advise on or arrange investments (para. 35(2)–(3)).

The four insurance activities

Effecting and carrying out contracts as principal (paras. 31–32)

"Effecting a Contract of Insurance as principal" (para. 31) and "Carrying out a Contract of Insurance as Principal" (para. 32) are separate specified activities. Effecting is entering into the contract; carrying out is performing it, handling claims and paying benefits. A run-off insurer that writes no new business still needs a licence for para. 32. The Act defines an "Insurer" as a person authorised to carry on either activity (s. 258).

Insurance Intermediation (para. 33)

Insurance Intermediation means:

• advising on Contracts of Insurance;
• acting as agent for another person in buying or selling Contracts of Insurance; or
• making arrangements with a view to another person buying Contracts of Insurance (para. 33(2)).

"Advice" includes any statement, opinion or report intended to influence the choice of a particular contract or cover (para. 33(4)), and arranging includes arrangements that do not bring about the transaction (para. 33(5)). Brokers, agents, comparison services and embedded-insurance platforms should all test their model against this paragraph. The exclusions are targeted: entering the contract as principal is not intermediation (para. 34); merely providing a means of communication is not arranging (para. 35(1)); a firm licensed to advise on or arrange investments needs no separate permission for long-term insurance other than reinsurance (para. 35(2)–(3)); and the general exclusions for professions (para. 75), incidental information (para. 81) and incidental intermediation (para. 80) apply. See our guide to the Schedule 1 exclusions.

Insurance Management (para. 36)

Insurance Management means "providing management services or exercising managerial functions for an insurer", including administration and underwriting (para. 36(2)–(3)). This is the activity carried on by captive managers and third-party administrators. An employee of the insurer is not providing Insurance Management to it (para. 37(1)), a Licensed Firm that is itself an Insurer is not an insurance manager (para. 37(2)), and the professional-business exclusion in para. 75 applies (para. 37(3)).

The classes of insurance

Part 4 sets out the classes of Contracts of Insurance (para. 101), and GFSO may incorporate "limitations and stipulations" in the description of a permitted activity (s. 30(4)(a)), so expect a licence to be framed by class. The Act's own headings are:

Some definitions matter for product design. Linked long term (para. 104) covers life or annuity contracts whose benefits track the value of property or an index. Permanent health (para. 105) requires a term of at least five years, to retirement age or without limit. Suretyship (para. 116) covers fidelity, performance, administration, bail and customs bonds. Class 9 (para. 117) covers business interruption, unforeseen expense, legal expenses and travel assistance. Marine, aviation and transport (para. 112) extends to goods in transit "irrespective of the form of transport", relevant to GMC's aviation and logistics pillar.

The printed text of para. 115 (Class 7, Credit) repeats the wording of para. 114 (Liability). Applicants writing credit insurance should rely on the class heading and confirm the intended scope with GFSO.

Licensing an insurer or intermediary

The application follows the standard route to In-Principle Approval and licence published by the Gelephu Financial Services Office. GEN adds the following for insurance:

• Legal form. An applicant to effect or carry out contracts of insurance "must be a Body Corporate" (GEN 5.2.2(2)). Intermediaries and managers may be a Body Corporate or a Partnership (GEN 5.2.2(1)). A GMC-incorporated firm must keep its head office and registered office in GMC (GEN 4.5.1(1)).
• Mandatory appointments. Insurers must appoint a Finance Officer as an Approved Person, alongside the Senior Executive Officer, Compliance Officer and Money Laundering Reporting Officer required of all Licensed Firms (GEN 5.5.1(1)). For an Insurer, the Actuary is a Person undertaking a Key Control Function (GEN 3.3.2, guidance para. 4).
• Governance. For Insurers other than Captive Insurers or Licensed ISPVs, a majority of the Governing Body must be Non-Executive Directors, at least one independent, and the chair must be a non-executive (GEN 3.3.41A(2)–(3)); GFSO may require audit and risk committees (GEN 3.3.41A(5)). GEN expects an Insurer, other than a captive or ISPV, to appoint a Senior Manager other than the Senior Executive Officer to advise on risk (GEN 5.3, guidance para. 2).
• Prudential. Capital, solvency and reserving are in PIN (insurers), PRU (intermediaries) and CIB (captives). The Act and GEN do not state figures, and this article does not estimate them.

Captives

A captive writes the risks of its own group. The Act creates no separate captive activity; a captive effects and carries out contracts of insurance under paras. 31–32 and is an "Insurer". What differs is the rulebook: GFSO lists Captive Insurance Business Rules (CIB), and GEN carves Captive Insurers and Licensed ISPVs out of the board-composition rule (GEN 3.3.41A) and the additional risk-manager expectation (GEN 5.3 guidance). An external captive manager needs an Insurance Management licence (para. 36).

Protected cell and incorporated cell companies

GEN 8.9 governs "Creation of additional Cell of a Protected Cell Company or an Incorporated Cell Company for an Insurer". The rule applies to Insurers that are Protected Cell Companies (PCCs) or Incorporated Cell Companies (ICCs) (GEN 8.9.1). Its guidance describes a PCC or ICC as a company "incorporated as, or converted into" that form "in accordance with the provisions of the Companies Regulations" (GEN 8.9.1, guidance). The mechanics are:

1. A PCC or ICC "cannot be established in GMC without the consent of the Regulator" (GEN 8.9.2), applied for in the form GFSO prescribes (GEN 8.9.3).
2. An Insurer that is a PCC or ICC "may not create a new Cell unless approval has been granted by the Regulator" (GEN 8.9.4), on a prescribed application with supporting documents (GEN 8.9.5).
3. GFSO may grant approval, grant it with conditions or restrictions, or refuse (GEN 8.9.6(1)). A conditional approval or refusal follows the Part 21 decision-notice procedure (GEN 8.9.6(2)) and can be referred to the Appeals Panel (GEN 8.9.6(3)).
4. A PCC or ICC Insurer must tell GFSO immediately of any actual or prospective significant change in the type or scale of business conducted through a Cell, or in the ownership of the Cell Shares (GEN 8.10.13).

Cell structures suit rent-a-captive programmes, multi-sponsor captives and segregated reinsurance vehicles. GEN refers to the "Companies Regulations" for the cell-company form. The corporate-law basis for a PCC or ICC is confirmed with GFSO and the Gelephu Corporate Registration Office before a structure is committed to; Basnet Law can assist.

Tax treatment of insurers and brokers

Profits of insurers (s. 26)

Section 26 of the Income Tax Act 2025 overrides the general computation rules for insurers. An insurer must maintain separate accounts for four businesses: onshore life; offshore life; non-life insurance and reinsurance of onshore risks; and non-life insurance and reinsurance of offshore risks (s. 26(2)). For a non-life insurer whose profits accrue partly outside GMC, taxable profits start from gross premiums, interest and other income received in GMC, less returned premiums and reinsurance premiums paid, adjusted for the movement in policy liabilities determined under insurance law net of reinsurance ceded (s. 26(3)). The general corporate rate is 15% (s. 43(1)(a)).

Approved insurance brokers (s. 43R)

Section 43R allows regulations to levy tax at 10% for an approved insurance broker approved between commencement and 18 February 2025, and at 10% or 15% for one approved between 19 February 2025 and 31 December 2028, on prescribed income from direct insurance broking, reinsurance broking or insurance advisory services (s. 43R(1)). Approval can be granted to a direct insurance broker, general reinsurance broker or life reinsurance broker (s. 43R(3)), and only until 31 December 2028 (s. 43R(4)).

Practical checklist

1. Characterise the product: is it a contract of insurance or reinsurance (para. 100), and which classes in paras. 102–117 does it fall within?
2. Characterise the role: principal (paras. 31–32), intermediary (para. 33) or manager (para. 36), and test the exclusions in paras. 34, 35, 37, 75, 80 and 81.
3. Incorporate a Body Corporate for an insurer (GEN 5.2.2(2)) with head office in GMC (GEN 4.5.1).
4. Line up Approved Persons: Senior Executive Officer, Finance Officer, Compliance Officer, MLRO, and an actuary as a Key Control Function holder (GEN 5.5.1, 3.3.2 guidance).
5. Design the board to meet GEN 3.3.41A unless the vehicle is a captive or ISPV.
6. Obtain PIN, PRU or CIB from GFSO and model capital and solvency.
7. For a cell company, apply for GFSO consent to establish the PCC or ICC (GEN 8.9.2) and separate approval for each cell (GEN 8.9.4), and confirm the corporate-law basis.
8. Set up the four separate tax accounts required by s. 26(2) from the start.
9. Brokers: prepare a s. 43R approval application before the 31 December 2028 deadline.

Frequently asked questions

Is reinsurance a separately licensed activity in GMC?

No. Para. 100 defines a Contract of Insurance to include a contract of reinsurance, so a reinsurer is licensed under paras. 31–32 like a direct insurer. The classes in paras. 102–117 apply equally.

Can a captive be set up as a cell of an existing company?

GEN 8.9 contemplates Insurers that are Protected Cell Companies or Incorporated Cell Companies and requires GFSO consent to establish the company and approval for each new cell. The corporate-law vehicle is confirmed with GFSO and GCRO under the Companies Regulations that GEN refers to.

Does an insurance broker need a GMC licence to advise GMC clients?

Yes, if it does so by way of business. Advising on, arranging or acting as agent for Contracts of Insurance is Insurance Intermediation (para. 33). Limited exclusions apply for incidental intermediation (para. 80) and activities in the course of a profession (para. 75).

What rate applies to approved insurance brokers?

Section 43R of the Income Tax Act 2025 provides for regulations to levy tax at 10% or 15% on prescribed income of an approved insurance broker, with approvals available until 31 December 2028. The general corporate rate in s. 43(1)(a) is 15%.

Key takeaways

• Insurance and reinsurance share one definition (para. 100) and one set of activities (paras. 31–33, 36).
• Licences are framed by 16 statutory classes (paras. 102–117).
• Insurers must be bodies corporate with a Finance Officer and, unless captives or ISPVs, a majority non-executive board.
• Cell companies need GFSO consent to exist and approval for each cell (GEN 8.9).
• Section 26 requires four separate tax accounts, and s. 43R provides the broker concession.

This article is general information about the law of the Gelephu Mindfulness City Special Administrative Region as at the date above. It is not legal advice and does not create a lawyer–client relationship.

You may contact Basnet Law at basnet@basnetgmc.com or office@basnetgmc.com for any legal queries related to GMC.

References

• Financial Services Act 2025, ss. 30(4), 258 (definition of "Insurer"); Schedule 1, paras. 31–37, 75, 80, 81, 86, 100–117
• GEN Rulebook 2026, Rules 3.3.2 (guidance), 3.3.41A, 4.5.1, 5.2.2, 5.3 (guidance), 5.5.1, 8.9, 8.10.13
• Income Tax Act 2025, ss. 1(3), 26, 43(1)(a), 43R
• Companies Act 2025, s. 4A
• Application of Laws Act 2024, ss. 3, 5 and Schedule B (CIB, PIN, PRU)