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THE
GOVERNMENT
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SOCIALIST
REPUBLIC OF VIET NAM
Independence - Freedom - Happiness
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No.
46/2007/ND-CP
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Hanoi,
March 27, 2007
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DECREE
ON FINANCIAL REGIME FOR INSURERS AND INSURANCE BROKERS
THE GOVERNMENT
Pursuant to the Law on Organization
of the Government dated 25 December 2001; Pursuant to the Law on Insurance
Business dated 9 December 2000;
On the proposal of the Minister of Finance;
DECREES:
Chapter I
GENERAL PROVISIONS
Article 1. Governing
scope
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2. This Decree shall not apply
to mutual insurers.
Article 2.
Principles of financial management and supervision
Insurers and insurance brokers
shall have financial autonomy, shall assume self-responsibility for managing
and supervising their financial activities and for the results of their
business operation, and shall perform their obligations and fulfil their undertakings
in accordance with law.
Article 3 State
administrative body
The Ministry of Finance shall
exercise State administration of finance and shall provide guidelines on and
inspect implementation of the financial regime by insurers and insurance brokers
in accordance with law.
Chapter II
MANAGEMENT AND USE OF
CAPITAL AND ASSETS
Section 1.
LEGAL CAPITAL, CHARTER CAPITAL, SECURITY DEPOSITS AND MANAGEMENT OF ASSETS
Article 4. Legal
capital
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(a) Non-life insurance business:
three hundred billion (300,000,000,000) Vietnamese dong;
(b) Life insurance business: six
hundred billion (600,000,000,000) Vietnamese dong.
2. Level of legal capital of
insurance brokers: four billion (4,000,000,000) Vietnamese dong.
Article 5. Charter
capital
1. The charter capital of an
insurer or insurance broker means the capital contributed or committed to
contribute within a specified period by members and recorded in the charter of
the enterprise.
2. Insurers and insurance
brokers must, throughout the course of their operation, constantly maintain
their paid-up charter capital at a level not less than the legal capital level
stipulated in article 4 of this Decree and must supplement their charter
capital analogous with the contents, scope and geographical area of their
business operation. The Ministry of Finance shall provide specific regulations
on the level of supplementary charter capital.
3. When an insurer or insurance
broker changes its charter capital, it shall be required to submit a request
application and an explanatory statement to the Ministry of Finance. The
Ministry of Finance shall be responsible for notifying in writing its approval
or refusal to approve within thirty (30) days from the date of receipt of a
request application and valid file. In a case of refusal, the Ministry of
Finance must provide a written explanation of its reasons.
4. Insurers which were
established, organized and operating prior to the date of effectiveness of this
Decree and have charter capital less than the level of legal capital stipulated
in article 4 of this Decree must supplement their charter capital to the
stipulated level within three years from the date of effectiveness of this
Decree.
Article 6.
Security deposits
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2. The rate of security deposits
of insurers shall be equal to two (2) per cent of the legal capital stipulated
in article 4.1 of this Decree.
3. An insurer may only use its security
deposit to meet undertakings to purchasers of insurance when its solvency is
inadequate and upon written approval of the Ministry of Finance. An insurer
shall be responsible for paying an additional security deposit equivalent to
the amount used within ninety (90) days from the date of use of the security
deposit.
4. Insurers may withdraw the
whole amount of their security deposit upon termination of their operation.
5. Insurers which were
established, organized and operating prior to the date of effectiveness of this
Decree and have an amount of security deposit less than the amount stipulated
in clause 2 of this article must supplement their security deposit to ensure it
is at the stipulated level within thirty (30) days from the date of effectiveness
of this Decree.
Article 7. Other
provisions on management and use of capital and assets
Insurers and insurance brokers
must comply with provisions of other relevant laws on management and use of
capital and assets in addition to the provisions of this Decree.
Section 2.
INSURANCE RESERVES
Article 8. Insurance
reserves for non-life insurance
1. A non-life insurer must
establish an insurance reserve for each type of insurance product with respect
to that part of liability retained by the insurer.
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(a) An unearned premium reserve
to be used to pay claims arising in subsequent years during the effective
period of contracts of insurance;
(b) An outstanding claim reserve
to be used to pay claims for losses for which the insurer is liable,
irrespective of whether a claim has been lodged or not, which are unresolved at
the expiry of the financial year;
(c) A large loss fluctuation
reserve, to be used to pay claims when there are large fluctuations in losses
or when large losses occur and the total premiums retained for the financial
year after deduction of the unearned premium reserve and the outstanding claim
reserve are insufficient to pay claims on that part of the liability retained
by the insurer.
Article 9. Insurance
reserves for life insurance
1. A life insurer must establish
an insurance reserve for each contract of life insurance with respect to that
part of liability retained by the insurer.
2. Insurance reserves shall
include:
(a) An actuarial reserve which
is the difference between the current value of the sum insured and the current
value of premiums earned in the future to be used for payment of the insurance
proceeds in respect of liabilities undertaken upon occurrence of an insured
event;
(b) An unearned premium reserve
to be used to pay insurance proceeds arising in subsequent years during the
effective period of contracts of insurance;
(c) A compensation reserve for
payment of insurance proceeds upon occurrence of insured events which remain
unsettled at the expiry of the financial year;
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(dd) A balance reserve for
payment of insurance proceeds upon occurrence of an insured event resulting
from material increase in the mortality rate or technical interest rate.
3. The Ministry of Finance shall
provide specific regulations on insurance reserves for investment linked
contracts.
Article 10.
Level of deductions and method of deduction to establish reserves
The Ministry of Finance shall
provide specific regulations on the level of deductions and the method of
deduction for establishing the insurance reserves stipulated in articles 8 and
9 of this Decree.
Section 3.
INVESTMENT OF CAPITAL
Article 11.
Investment capital sources
Investment capital sources of an
insurer and of an insurance broker shall comprise:
1. Owner's capital.
2. Idle capital from insurance
reserves.
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Article 12.
Investments from owner's capital
1. Investments from owner's
capital must be safe, effective and of a liquid nature in accordance with
guidelines of the Ministry of Finance.
2. Insurers and insurance
brokers shall be permitted to make offshore investments in accordance with law
of that part of owner's capital which exceeds the legal capital level or the
minimum solvency margin, whichever is the greater.
Article 13.
Idle capital from insurance reserves
1. Idle capital from insurance
reserves of an insurer means the total insurance reserves less (-) sums of
money used by the insurer for regular payments of non-life insurance claims in
a period and for regular payments of life insurance proceeds in a period.
2. In the case of non-life
insurers, sums of money for regular payments of compensation for claims in a
period shall not be lower than twenty five (25) per cent of the total insurance
reserves and shall be deposited with credit institutions operating in Vietnam.
3. In the case of life insurers,
sums of money for regular payments of insurance proceeds in a period shall not
be lower than five per cent of the total insurance reserves and shall be
deposited with credit institutions operating in Vietnam.
Article 14.
Investment of idle capital from insurance reserves
Investments of idle capital from
insurance reserves of insurers as stipulated in article 13.1 of this Decree may
be made directly by the insurer or by entrusting another entity to make the
investment, but shall only be invested in Vietnam in the following sectors:
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(a) Purchase of Government bonds
or guaranteed bonds of enterprises, or deposits with credit institutions
without any restriction;
(b) Purchase of shares,
unsecured bonds of enterprises, and capital contribution in other enterprises
but not to exceed thirty five (35) per cent of idle capital from insurance
reserves;
(c) Real estate business and
lending but not to exceed twenty (20) per cent of idle capital from insurance
reserves.
2. With respect to life
insurers:
(a) Purchase of Government bonds
or guaranteed bonds of enterprises, or deposits with credit institutions
without any restriction;
(b) Purchase of shares,
unsecured bonds of enterprises, and capital contribution in other enterprises
but not to exceed fifty (50) per cent of idle capital from insurance reserves;
(c) Real estate business and
lending but not to exceed forty (40) per cent of idle capital from insurance
reserves.
Chapter
III
SOLVENCY AND RECOVERY OF
SOLVENCY
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1. An insurer must always
maintain solvency during its entire insurance business operation.
2. An insurer shall be deemed to
have adequate solvency when all insurance reserves have been established and
its solvency margin is not less than the minimum solvency margin set out in article
16 of this Decree.
Article 16.
Minimum solvency margin
1. The minimum solvency margin
of a non-life insurer shall be the greater of the following two calculations:
(a) Twenty five (25) per cent of
the total premiums actually retained at the time of determination of the
solvency margin;
(b) Twelve point five (12.5) per
cent of the total primary insurance premiums plus reinsurance premiums at the
time of determination of the solvency margin.
2. The minimum solvency margin
of a life insurer shall be:
(a) In the case of contracts of
life insurance with a term of ten years or less, four per cent of the insurance
reserves and one tenth of one (0.1) per cent of the sums insured which carry
risks;
(b) In the case of contracts of life
insurance with a term of over ten years, four per cent of the insurance
reserves and three tenths of one (0.3) per cent of the sums insured which carry
risks.
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The solvency margin of an
insurer means the difference between asset value and debts payable by the
insurer at the time of determination of the solvency margin. When calculating
the solvency margin of an insurer, only liquid assets may be used, and the
whole or part of some assets shall be deducted in accordance with guidelines of
the Ministry of Finance.
Article 18.
Danger of insolvency
An insurer shall be deemed to be
in danger of insolvency when its solvency margin is less than the minimum
solvency margin.
Article 19.
Recovery of solvency
1. When an insurer is in danger
of insolvency, it must immediately take its own measures to recover solvency
and at the same time report to the Ministry of Finance on its current financial
status and the reasons which lead to the danger of insolvency, and provide a
plan for recovery of solvency.
2. If the insurer fails to
recover solvency after taking its own measures, the Ministry of Finance shall
have the right to request the insurer to take the following measures:
(a) Supplement owner's capital;
(b) Cede reinsurance; curtail
the contents, scope and geographical area of the business operation; suspend a
part of or the whole operation;
(c) Strengthen the
organizational structure and change the managers and executives of the
enterprise;
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(dd) Other measures.
3. If the insurer fails to
recover its solvency at the request of the Ministry of Finance as stipulated in
clause 2 of this article, the insurer shall be put under special control. The
Ministry of Finance shall issue a decision on establishment of a Solvency
Control Committee to implement measures to recover the solvency of the
enterprise in accordance with article 80 of the Law on Insurance Business.
Chapter IV
REVENUE AND EXPENSES
Section 1.
REVENUE AND EXPENSES OF INSURERS
Article 20.
Revenue of insurers
Revenue of an insurer means
amounts receivable in a period, including:
1. Revenue from insurance
business activities being amounts receivable in a period after deduction of
amounts payable which reduces the revenue earned in the period.
(a) Amounts receivable in a
period shall include the following:
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- Revenue from reinsurance
accepted;
- Commissions from ceding
reinsurance;
- Revenue from fees for
provision of agency services including loss surveys, evaluation of
compensation, making claims on third parties, or salvage recovery following
total loss settlements;
- Revenue from fees for loss
surveys excluding surveys for internal cost accounting member entities within
the one independent cost accounting insurer.
(b) Amounts payable which reduce
the revenue earned in a period shall include the following:
- Refunds of insurance premiums;
- Reductions of insurance
premiums;
- Premiums on ceding
reinsurance;
- Refunds of premiums for
reinsurance accepted;
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- Refunds of commissions on
ceding reinsurance;
- Reductions of commissions on
ceding reinsurance.
2. Revenue from financial
activities:
(a) Revenue received from
investments as stipulated in Section 3 of Chapter II of this Decree;
(b) Revenue received from
trading securities;
(c) Interest received on the
amount of the security deposit;
(d) Revenue earned from leasing
out assets;
(dd) Other revenue as stipulated
by law.
3. Revenue from other activities:
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(b) Bad debts which had been
written-off but are recovered;
(c) Other revenue as stipulated
by law.
Article 21.
Expenses of insurers
Expenses of an insurer means
amounts payable or which must be allocated in a period including the following:
1. Expenses of insurance
business activities are amounts payable or which must be allocated in a period
after deducting amounts receivable in order to reduce expenditure in the
period.
(a) Amounts payable or which
must be allocated in a period shall include the following:
- Compensation payments for
claims with respect to primary non-life insurance; payments of insurance
proceeds with respect to life insurance;
- Compensation payments for
re-insurance accepted;
- Payments into insurance
reserves;
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- Expenses of loss assessment;
- Expenses for agency fees for
provision of services for loss assessment, evaluation of compensation or making
claims on third parties;
- Expenses for salvage recovery
following total loss settlements;
- Expenses for management of
insurance agents;
- Expenses for prevention and
limitation of risks and losses;
- Expenses for assessment of
risks of subject-matters insured;
- Other expenses and allocations
as stipulated by law.
(b) Amounts receivable in order
to reduce expenditure in a period, including:
- Compensation received for
cessions;
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- Proceeds from salvage
recoveries following total loss settlements.
2. Expenses of financial
activities:
(a) Expenses incurred for
investment activities in accordance with Section 3 of Chapter II of this
Decree;
(b) Investment income payable to
purchasers of insurance pursuant to undertakings in contracts of life
insurance;
(c) Costs of leasing out assets;
(d) Bank charges, and payment of
interest on loans;
(dd) Other expenses and
allocations as stipulated by law.
3. Expenses of other activities:
(a) Expenses of sale or
liquidation of fixed assets;
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(c) Other expenses and
allocations as stipulated by law.
Article 22.
Other provisions on revenue and expenses of insurers
Insurers must comply with other relevant
laws on other revenue and expenses of insurers in addition to the provisions in
articles 20 and 21 of this Decree.
Article 23.
Splitting owner's capital fund and premium fund in life insurance
Life insurers must split into
separate accounts owner's capital from premium collected from purchasers of
insurance in accordance with guidelines of the Ministry of Finance.
Section 2.
REVENUE AND EXPENSES OF INSURANCE BROKERS
Article 24.
Revenue of insurance brokers
Revenue of an insurance broker
means amounts receivable in a period including:
1. Revenue from insurance
broking activities:
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(b) Other revenue as stipulated
by law.
2. Revenue from financial
activities:
(a) Revenue received from
trading securities;
(b) Interest received on
deposits and on loans;
(c) Revenue earned from leasing
out assets;
(d) Other revenue as stipulated
by law.
3. Revenue from other
operations:
(a) Proceeds from sale or
liquidation of fixed assets;
(b) Bad debts which had been
written off but are recovered;
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Article 25.
Expenses of insurance brokers
Expenses of an insurance broker
means amounts payable or which must be allocated in a period, including:
1. Expenses of insurance broking
activities:
(a) Expenses of insurance
broking activities;
(b) Expenses of purchasing
professional indemnity insurance;
(c) Other amounts payable or
which must be allocated as stipulated by law.
2. Expenses of financial
activities:
(a) Expenses of leasing out
assets;
(b) Bank charges, and payment of
interest on loans;
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3. Expenses of other activities:
(a) Expenses of sale and
liquidation of fixed assets;
(b) Expenses of recovery of bad
debts which had been written off;
(c) Other expenses payable or
which must be allocated as stipulated by law.
Article 26.
Other provisions on revenue and expenses of insurance brokers
Insurers brokers must comply
with other relevant laws on other revenue and expenses of insurance brokers in
addition to the provisions in articles 24 and 25 of this Decree.
Chapter V
PROFIT AND DISTRIBUTION
OF PROFIT
Article 27.
Profit of insurers
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2. Profit of an insurer shall be
the difference determined between total revenue less (-) total expenses of the
insurer.
Article 28.
Profit of insurance brokers
1. Profit earned in any one year
means the business results of an insurance broker, including profit from insurance
brokerage business activities, profit from financial activities, and profit
from other activities.
2. Profit of an insurance broker
shall be the difference determined between the total revenue less (-) the total
expenses of the insurance broker.
Article 29.
Obligations to the State Budget
Insurers and insurance brokers
must fulfil all of their obligations to the State Budget as stipulated by law.
Article 30.
Distribution of profit
After payment of corporate
income tax as stipulated by law and after making contributions to the
compulsory reserve fund, insurers and insurance brokers shall be entitled to
distribute their remaining profit in accordance with law.
Article 31.
Compulsory reserve fund
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Chapter VI
ACCOUNTING, AUDITING,
STATISTICS AND FINANCIAL REPORTING REGIMES
Article 32.
Accounting regime
Insurers and insurance brokers
must record full details of initial source documents, update their accounting
books, and record all economic and financial activities completely, promptly,
honestly, accurately and objectively.
Article 33.
Financial year
The financial year of insurers
and insurance brokers shall commence on 1 January and end on 31 December of the
same Gregorian year. The initial financial year of insurers and insurance
brokers shall commence as from the date of issuance of their licence for
establishment and operation, and end on the last day of that same year.
Article 34.
Financial reports
1. Insurers and insurance
brokers shall be responsible to prepare and forward both periodical and one-
off financial reports, statistics reports and professional reports in
accordance with current law and guidelines of the Ministry of Finance.
2. Annual financial reports of
insurers and insurance brokers must be audited and certified for compliance
with the main financial requirements in this Decree by an independent auditing
organization legally operating in Vietnam, prior to submission to the Ministry
of Finance.
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Insurers and insurance brokers
must conduct internal audits of their financial activities.
Article 36.
Enterprise financial management
1. Insurers and insurance
brokers shall carry out financial management work in accordance with the
principles and standards stipulated by the Ministry of Finance.
2. Insurers and insurance
brokers must prepare, implement and supervise implementation of finance rules,
investment rules, internal control and audit rules, and other similar
procedural rules.
Article 37.
Publication of financial reports
1. Insurers and insurance
brokers must publicly announce their financial reports as stipulated by law.
2. Any information which is
publicly disclosed must be consistent with the financial reports of the insurer
or insurance broker which have been audited and certified by an independent
auditing organization.
Article 38.
Financial inspections and checks
The Ministry of Finance shall
conduct inspections and checks of compliance with the financial regime by
insurers and insurance brokers.
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IMPLEMENTING PROVISIONS
Article 39.
Effectiveness
1. This Decree shall be of full
force and effect after fifteen (15) days from the date of its proclamation in
the Official Gazette.
2. This Decree shall replace
Decree 43/2001/ND-CP of the Government dated 1 August 2001 on the financial
regime applicable to insurers and insurance brokers.
Article 40.
Organization of implementation
1. The Minister of Finance shall
provide guidelines for implementation of this Decree.
2. Ministers, heads of
ministerial equivalent bodies and Government bodies, and chairmen of people's
committees of provinces and cities under central authority shall be responsible
for implementation of this Decree.
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