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THE MINISTRY OF
FINANCE
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SOCIALIST REPUBLIC
OF VIET NAM
Independence - Freedom - Happiness
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No. 156/2007/TT-BTC
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Hanoi, December 20,
2007
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CIRCULAR
PROVIDING
GUIDELINES FOR IMPLEMENTATION OF DECREE 46-2007-ND-CP OF THE GOVERNMENT DATED
27 MARCH 2007 ON FINANCIAL REGIME APPLICABLE TO INSURERS AND INSURANCE BROKERS
Pursuant to the Law on Insurance Business
24-2000-QH10 dated 9 December 2000;
Pursuant to Decree 46/2007/ND-CP of the Government dated 27 March
2007 on the financial regime applicable to insurers and insurance brokers
("Decree 46");
Pursuant to Decree 77/2003/ND-CP of the Government dated 1 July 2003 on
functions, duties, powers and organizational structure of the Ministry of
Finance;
Pursuant to instructions from the Prime Minister in Official Letter
7195-VPCP-KTTH dated 11 December 2007 on issuing a Circular for implementation
of Decree 46;
The Ministry of Finance provides the following guidelines on the financial
regime applicable to insurers and insurance brokers:
I. GENERAL PROVISIONS
1. This Circular provides guidelines on the
financial regime applicable to insurers and insurance brokers established,
organized and operating pursuant to the Law on Insurance Business.
2. Insurers and insurance brokers shall be responsible
to comply with the provisions in this Circular and with other relevant laws on
finance.
3. Chairmen of boards of management,
chairmen of members' councils, company chairmen, and general directors
(directors) of insurers and of insurance brokers shall be responsible before
the law and before the State administrative body for implementing the regime on
financial management of enterprises.
4. The Ministry of Finance shall guide and
facilitate insurers and insurance brokers to implement the provisions of this
Circular and of other relevant laws on finance, and shall take measures to
strictly deal with any enterprise which breaches the law.
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1. Provisions on charter capital of insurers
and insurance brokers shall be implemented in accordance with article 5 of
Decree 46.
2. After an enterprise has been issued with a
licence for establishment and operation, the amount held in the escrow
account at a bank as stipulated in article 7.1 of Decree
45-2007-ND-CP of the Government dated 27 March 2007 providing guidelines for
implementation of the Law on Insurance Business (hereinafter referred to as
Decree 45) shall be remitted to become paid-up capital of the insurer or
insurance broker and shall be used in accordance with the provisions on charter
capital of enterprises stipulated in this Circular and in other relevant laws.
3. The paid-up charter capital of an insurer
or insurance broker shall be the amount actually contributed by the owner to
the charter capital of the enterprise.
4. Insurers and insurance brokers must,
throughout the whole course of their operation, constantly maintain
their paid-up charter capital at no less than the level specified in article 4
of Decree 46.
5. The amount of paid-up charter
capital of an insurer or of a broker must correspond with the
operational contents, scope and geographical area of the enterprise as follows:
5.1 If during the process of conducting
business, equity [owner's capital] in the insurance or broking
enterprise is less than the level of legal capital, then the enterprise must
add to its charter capital to ensure that equity is not less than legal
capital.
5.2 A non-life insurer whose paid-up
charter capital is equal to its legal capital shall be permitted to
conduct business in primary insurance of all types of non-life insurance except
for aviation insurance, petroleum insurance, and satellite insurance. In order
to conduct business in one or all of these latter types of insurance, the
enterprise must add to its paid-up charter capital so that it is one hundred (100)
billion Vietnamese dong more than the amount of its legal capital.
5.3 An insurance broker which
simultaneously conducts business in primary insurance broking and
reinsurance broking must supplement its paid-up charter capital so
that it is four (4) billion Vietnamese dong more than the amount of its
legal capital.
5.4 An insurer whose paid-up charter capital
is equal to the amount of its legal capital shall be permitted to open a
maximum of twenty (20) branches and representative officers; and each time it
opens a new branch or representative office, the insurer must supplement its
paid-up charter capital by ten (10) billion dong.
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6.1 In the case of an enterprise which does
not change its operational contents, scope and geographical area, it must
implement the provisions in clause 5 above and supplement paid-up
charter capital within a time limit of three (3) years from the date on which
Decree 46 took effect.
6.2 In the case of an enterprise which
does change its operational contents, scope and geographical area, it
must immediately implement the provisions in clause 5 above and
supplement paid-up charter capital.
7. Within a time-limit of six (6) months from
the date on which this Circular takes effect, any insurer or insurance broker
whose paid-up charter capital is less than the level of paid-up
charter capital stipulated in this Circular must prepare and send the Ministry
of Finance a plan to supplement charter capital in accordance with clause 6
above, and thereafter such enterprise must implement such plan.
III. INSURANCE
RESERVES
1. Insurance reserve means the amount of
money which an enterprise must set aside for the objective of paying out
its insurance liabilities determined in advance and arising from
insurance contracts which it has entered into.
2. With respect to non-life insurers:
2.1 Non-life insurers must establish various
insurance reserves in accordance with article 8 of Decree 46.
2.2 Non-life insurers shall be permitted to
select and register with the Ministry of Finance a method of establishing
insurance reserves in accordance with the guidelines provided in clause 2.4
below. If an enterprise applies a different method of establishing
insurance reserves, then it must be able to ensure a higher reserving
result and must have written approval from the Ministry of Finance prior to
application.
2.3 A non-life insurer may not change its
method of establishing insurance reserves in the same fiscal year. Where an
insurer changes its method of establishing insurance reserves for the following
fiscal year, it must propose same to the Ministry of Finance which must provide
written approval prior to application.
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2.4.1 Unearned premium reserve:
(a) Method of establishing the reserve as a
percentage of total premiums:
+ In the case of insurance products for goods
in transit by road, sea, river, rail and air: equal to twenty- five (25) per
cent of the total retained premiums for this insurance product of the fiscal
year.
+ In the case of other insurance products:
equal to fifty (50) per cent of the total retained premiums for the insurance product
of the fiscal year.
(b) Method of establishing the reserve in
accordance with a coefficient of the term of insurance contracts:
+ The 1/8 method: This method assumes that
premium from all contracts arising in a quarter of the insurer is evenly distributed
to the months in that quarter, or put another way all insurance contracts in a
specific quarter are assumed to be valid in the middle of that quarter. The
reserve for unearned premiums shall be calculated by the formula:
Unearned premium reserve = Retained premiums
x Proportion of unearned premiums.
For example:
The reserve for unearned premiums as at 31
December 2007 shall be calculated as follows:
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Date of expiry of
effectiveness of contract
Proportion of
unearned premiums
Year
Quarter
2008
First
1/8
Second
3/8
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5/8
Fourth
7/8
In the case of insurance contracts with a
term above one year, the proportion of unearned premiums under the above
formula will have a denominator equal to the term of the insurance contract
(the number of years) multiplied by 8. Therefore the reserve for unearned
premiums as at 31 December 2007 in the case of insurance contracts with a term
of two years and still effective as at 31 December 2007 shall be calculated as
follows:
Date of expiry of
effectiveness of contract
Proportion of
unearned premiums
Year
Quarter
2008
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1/16
Second
3/16
Third
5/16
Fourth
7/16
2009
First
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Second
11/16
Third
13/16
Fourth
15/16
+ The 1/24 method assumes that premium from
all contracts arising in a month of the insurer is evenly distributed over
the month, or put another way all insurance contracts in a specific
month are assumed to be valid in the middle of that month. The
reserve for unearned premiums shall be calculated by the formula:
Unearned premium
reserve = Retained premiums x Proportion of unearned premiums.
For example:
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In the case of insurance contracts with a
term of one year and still effective as at 31 December 2007:
Date of expiry of
effectiveness of contract
Proportion of
unearned premiums
Year
Month
2008
1
1/24
2
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3
5/24
4
7/24
5
9/24
6
11/24
7
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8
15/24
9
17/24
10
19/24
11
21/24
12
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In the case of insurance contracts with a
term above one year, the proportion of unearned premiums under the above
formula will have a denominator equal to the term of the insurance contract
(the number of years) multiplied by 24. Therefore the reserve for unearned
premiums as at 31 December 2007 in the case of insurance contracts with a term
of two years and still effective as at 31 December 2007 shall be calculated as
follows:
Date of expiry of
effectiveness of contract
Proportion of
unearned premiums
Year
Month
2008
1
1/48
2
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3
5/48
4
7/48
5
9/48
6
11/48
7
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8
15/48
9
17/48
10
19/48
11
21/48
12
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2009
1
25/48
2
27/48
3
29/48
4
31/48
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33/48
6
35/48
7
37/48
8
39/48
9
41/48
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43/48
11
45/48
12
47/48
(c) Method of establishing premium reserve on
a daily basis: This method may be applied to calculate a reserve for unearned
premiums on insurance contracts with whatever term, by using the following
comprehensive formula:
Unearned premium reserve shall equal
(Retained premium x Number of remaining insured days under the insurance
contract) divided by Total number of insured days under the insurance contract.
2.4.2 Indemnity reserve2:
(a) Method of establishing this reserve based
on each claim file: According to this method, a non-life insurer must
establish two types of reserve:
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+ A reserve for payment of losses which have
arisen and for which the insurer is liable, but claims are not yet notified or
made. This reserve must be established for each product by the following
formula:
Reserve for payment of losses which have
arisen but for which claims have not yet been notified or made for the current fiscal
year = (Total indemnity for claims unmade at the end of the last three
consecutive fiscal years) divided by (Total indemnity for losses arising in the
last three consecutive fiscal years) x Indemnity for losses arising in the
current fiscal year x (Net revenue from business operations of the current
fiscal year) divided by (Net revenue from insurance business operations of the
previous fiscal year) x (Average delay in making claims of current fiscal year)
divided by (Average delay in making claims of previous fiscal year).
In which:
- Indemnity for losses arising in any one
fiscal year shall be indemnity for losses actually paid out in the year plus
the reserve for claims unresolved at the end of that year.
- The average delay in making claims shall be
the average period from the date loss occurs until the date the insurer
receives notice of loss or a claim (calculated as a number of days).
(b)Method of establishing an indemnity
reserve in accordance with the coefficient of arising indemnity:
This method shall apply to establish an
indemnity reserve for each product based on the principle of using data on
indemnity in previous years in order to calculate coefficients of
arising indemnity in order to forecast what the non-life insurer will have to
pay out in the future. Therefore the non-life insurer must analyse past data
to ensure that payment of indemnity over the years complies with fixed
regulations and does not fluctuate abnormally.
For example: The indemnity reserve in
accordance with the coefficient of arising indemnity for a specified
product as at 31 December 2007 shall be calculated as follows:
Step 1: Statistics on all indemnity pay-outs
actually made up to 31 December 2007 and distributed to the year of the loss
and to the year of payment are set out in the following table (the data in the
table is for illustrative purposes only):
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Year of Loss
Year of Indemnity
1
2
3
4
5
6
7
...
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2000
5,445
3,157
2,450
1,412
600
352
431
185
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5,847
3,486
1,366
848
1,045
1,054
369
2002
...
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4,854
1,948
2,554
1,680
489
2003
7,835
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3,888
3,335
2,088
2004
9,763
6,517
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3,984
2005
10,745
6,184
4,549
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2006
14,137
8,116
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2007
15,162
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According to the above statistical table on
indemnity (see line for year 2000):
- The actual indemnity pay-out in 2000 (first
year of indemnity) for losses occurring in 2000 is 5,445 million dong.
- The actual indemnity pay-out in 2001
(second year of indemnity) for losses occurring in 2000 is 3,157 million dong.
- The actual indemnity pay-out in 2002 (third
year of indemnity) for losses occurring in 2000 is 2,450 million dong.
Statistics on indemnity in the
following years for losses occurring in 2000 shall be calculated the
same as above until there is no more indemnity arising. In this example, after
year 2007 (eighth year of indemnity) there is no indemnity payable for losses
occurring in 2000.
Statistics on indemnity for losses occurring
in each year 2001 through to 2007 shall be calculated the same as for year 2000
above. The number of years for which statistics need to be kept will depend on
the length of the period from the date the loss occurred until indemnity has
been paid out in full. Normally liability insurance will have a greater number
of such years than say property insurance.
Step 2: Make the above table into a table of
statistics on accumulated indemnity pay-outs, in which the accumulated
indemnity pay-out of any one year shall be total actual pay-outs of that year
plus those of the previous years:
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Year of
Loss
Year of Indemnity
1
2
3
4
5
6
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8
2000
5,445
8,602
11,052
12,464
13,064
13,416
13,847
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2001
5,847
9,333
10,699
11,547
12,592
13,646
14,015
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5,981
10,835
12,783
15,337
17,017
17,506
2003
...
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12,288
16,176
19,511
21,599
2004
9,763
...
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19,843
23,827
2005
10,745
16,929
...
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2006
14,137
22,253
...
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2007
15,162
...
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According to the above statistical table on
accumulated indemnity pay-outs (line for year 2000):
- The accumulated indemnity pay-out in 2000
(first year of indemnity) for losses occurring in 2000 is 5,445 million dong.
- The accumulated indemnity pay-out in 2001
(second year of indemnity) for losses occurring in 2000 is 3,157 million dong +
5,445 million dong = 8,602 million dong.
- The accumulated indemnity pay-out in 2002
(third year of indemnity) for losses occurring in 2000 is 2,450 million dong +
8,602 million dong = 11,052 million dong.
Step 3: Calculate the coefficient of arising
indemnity over the years by dividing the accumulated indemnity pay-out
for a later year by that of the previous year:
Year of Loss
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2/1
3/2
4/3
5/4
6/5
7/6
8/7
2000
1,580
...
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1,128
1,048
1,027
1,032
1,013
2001
1,596
1,146
1,079
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1,084
1,027
2002
1,812
1,180
1,200
1,110
1,029
...
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2003
1,568
1,316
1,206
1,107
...
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1,668
1,219
1,201
2005
1,576
...
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2006
1,574
...
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Coefficient of
average arising indemnity
1.625
1.236
1.163
1.089
1.047
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1.013
Then calculate the average coefficient of
indemnity from the first year to the second year, from the second year to the
third year and so on, by calculating the average value of the coefficient in
each column in the above table.
Step 4: Use the average coefficient of
indemnity calculated in step 3 above in order to calculate the accumulated
indemnity pay-out of each year for losses occurring in 2000, 2001 etc. up to
2007 (the figures in bold print below):
Unit: Million dong
Year of Loss
Year of Indemnity
1
2
3
...
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5
6
7
8
2000
5,445
8,602
11,052
12,464
...
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13,416
13,847
14,032
2001
5,847
9,333
10,699
11,547
12,592
...
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14,015
14,197
2002
5,981
10,835
12,783
15,337
17,017
17,506
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18,266
2003
7,835
12,288
16,176
19,511
21,599
22,614
23,293
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2004
9,763
16,280
19,843
23,827
25,948
27,167
27,982
28,346
...
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10,745
16,929
21,478
24,979
27,202
28,481
29,335
29,716
2006
...
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22,253
27,505
31,988
34,835
36,472
37,566
38,055
2007
15,162
...
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30,453
35,417
38,569
40,382
41,593
42,134
According to the table (looking at the line
for year 2007):
- The accumulated indemnity pay-out in 2008
(second year of indemnity) for losses occurring in 2007 is 15,162 million dong
x 1.625 = 24,638 million dong (1.625 is the average coefficient of indemnity
from the first to the second year).
- The accumulated indemnity pay-out in 2009
(third year of indemnity) for losses occurring in 2007 is 24,638 million dong x
1.236 = 30,453 million dong (1.236 is the average coefficient of indemnity from
the second to the third year).
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- The accumulated indemnity pay-out for each
year for losses occurring in years 2006, 2005 down to year 2000 shall be
calculated the same as it was for year 2007.
Step 5: Calculate the indemnity reserve:
The indemnity reserve as at 31 December 2007
shall be calculated by taking the total estimated pay- out for losses
occurring in all years 2000 through to 2007, less total actual
pay-outs for all such losses calculated up to 31 December 2007, in which:
-The total estimated pay-out for losses
occurring in all years 2000 through to 2007 is simply the accumulated
indemnity pay-out for the eighth year of indemnity in the table above.
-The total actual pay-outs for all losses
occurring in all years 2000 through to 2007 calculated at 31 December 2007 is
simply the accumulated indemnity figure for the year in the diagonally adjacent
box in the table above.
Unit: Million dong
Year of loss
Year of Indemnity
Calculation of
Indemnity
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1
2
3
4
5
6
7
8
Total estim- ated
pay-out
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Estim- ated Indem-
nity Reserve
2000
...
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14,032
14,032
0
2001
...
...
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14,015
14,197
14,197
14,015
182
2002
...
...
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17,506
18,266
18,266
17,506
760
2003
...
...
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21,599
23,595
23,595
21,599
1,996
...
...
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23,827
28,346
28,346
...
...
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4,519
2005
21,478
...
...
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29,716
21,478
8,238
2006
22,253
...
...
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38,055
38,055
22,253
15,802
2007
15,162
...
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42,134
42,134
15,162
26,972
TOTAL
208,341
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58,469
Therefore, on the basis of the above statistical
data on indemnity, the estimated indemnity reserve for products being
researched as at 31 December 2007 will be 58,469 million dong.
2.4.3 Large loss fluctuation reserve:
With respect to the reserve for payment of
large fluctuations in losses, contributions shall be made annually until the
balance in the reserve is equal to one hundred (100) per cent of premiums
actually retained in the fiscal year of the insurer. Contributions made
annually shall be from three (3) to five (5) per cent of premiums
actually retained.
3. With respect to life insurers:
3.1 Life insurers must establish various
insurance reserves in accordance with article 9 of Decree 46 which
must be certified by the appointed actuary.
3.2 Life insurers shall be permitted to
select and register with the Ministry of Finance a method and basis of
establishing insurance reserves in accordance with the guidelines provided in
clause 3.4 below. If an enterprise applies a different method and basis of
establishing insurance reserves, then it must be able to ensure a higher
reserving result and must have written approval from the Ministry of Finance
prior to application.
3.3 A life insurer may not change its method
and basis of establishing insurance reserves in the same fiscal year. Where an
insurer changes its method and basis of establishing insurance reserves for the
following fiscal year, it must propose same to the Ministry of Finance which
must provide written approval prior to application.
3.4 Methods of establishing life insurance
reserves:
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(a) The method of establishing this reserve
shall be in accordance with the net premium valuation method adjusted by the
Zillmer coefficient of three (3) per cent of insured sums. The adjusted net
premium used to calculate this reserve must not be higher than ninety
(90) per cent of premium actually collected.
(b) Actuarial reserving calculated by this
net premium method as adjusted by Zillmer 3% shall follow this principle:
Actuarial reserve = Present value of total
insurance liabilities payable in future - (less) Present value of total net
premiums collectible in the future adjusted by the Zillmer coefficient of 3% of
insured sums.
(c) Life insurers shall use the following
basis to calculate actuarial reserves:
- Mortality table CSO 1980 in the Appendix to
this Circular.
- A maximum technical interest rate
equal to eighty (80) per cent of the ten (10) year Government bond
interest rate at the most recent date before establishing the reserve.
(d) Actuarial reserves will be deemed equal
to zero (0) if the result after calculations using the above- mentioned method
and bases is a negative number.
3.4.2 Unearned premium reserve: This shall
apply the same as to non-life insurance contracts.
3.4.3 Indemnity reserve 4:
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3.4.4 Profit distribution reserve:
This reserve shall only be applicable
to contracts with accumulated dividends distributable in insurance
contract years and shall be calculated by the following formula:
Profit distribution reserve = (Total
dividends declared to policy holders in fiscal year) plus (Accumulated value of
unpaid dividends declared to policy holders in previous fiscal years).
3.4.5 Balance reserve:
Annual contributions shall be made up until
the time when this reserve is equal to five (5) per cent of the premiums
collected in the fiscal year of an insurer. The rate of annual contributions
shall be one (1) per cent of the before-tax profit of the insurer.
IV. CAPITAL
INVESTMENT
1. Insurers shall carry out investment
of capital in accordance with the provisions of Section 3 of Chapter
II of Decree 46.
2. Owner's capital of an insurer or insurance
broker equivalent to the legal capital of the enterprise may only be invested
within Vietnam and shall not be permitted to be used to invest in any of the
forms being lending to or re-investing with shareholders or related persons as
defined in article 4 of the Law on Enterprises except for banks deposits.
3. That part of owner's capital [equity] of
an insurer equivalent to the minimum solvency margin may be invested as
stipulated in article 4 of Decree 46 the same as idle capital from insurance
reserves but shall not be permitted to be used to invest in any of the forms
being lending to or re-investing with shareholders or related persons as defined
in article 4 of the Law on Enterprises except for banks deposits.
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5. Insurers and insurance brokers must
account separately for investments from owner's capital and for investments
from idle capital from insurance reserves, ensuring that the recording of
invested assets is conducted uniformly.
V. SOLVENCY OF
INSURERS
1. An insurer must always maintain solvency
during the operation of insurance business in accordance with the provisions of
article 15 of Decree 46.
2. An insurer shall be deemed to be in danger
of insolvency when its solvency margin is less than the minimum solvency
margin.
3. Minimum solvency margins:
3.1 The minimum solvency margin of a non-life
insurer shall be the greater of the following two calculations:
+ Twenty five (25) per cent of the total
premiums actually retained at the time of determination of the solvency margin;
+ 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.
In the case of ceded reinsurance contracts
which fail to satisfy the conditions on ceded reinsurance stipulated by the
Ministry of Finance, the minimum solvency margin shall be one hundred (100) per
cent of the primary premiums for such contracts.
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3.2.1 In the case of contracts of life
insurance with a term of five (5) years or less, four (4) per cent of the
insurance reserves and one tenth of one (0.1) per cent of the sums insured
which carry risks.
3.2.2 In the case of contracts of life
insurance with a term of over five (5) years, four (4) per cent of the
insurance reserves and three tenths of one (0.3) per cent of the sums insured
which carry risks.
Sums insured which carry risks means the difference
between the sums insured of effective policies and total reserves.
4. 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. Assets shall be calculated as follows
when calculating the solvency margin:
4.1 The total accounting value of all of the
following assets may be used when calculating the solvency margin:
4.1.1 Cash items, bank deposits, items of
money currently being remitted, and Government bonds.
4.1.2 Assets corresponding to investment
linked insurance policies.
4.2 The total accounting value of the
following assets shall be excluded when calculating the solvency margin:
4.2.1 Capital contributions in order to
establish other insurers from equity of the insurer in question.
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4.2.3 Bad debts which are deemed by
law to be irrecoverable after deducting contributions to the equivalent
bad debts reserve.
4.2.4 Intangible fixed assets, except for
computer software.
4.2.5 Expenses paid in advance,
non-guaranteed loans [lending], provisional items paid, office equipment and
apparatus, and items which are recoverable but only internally.
4.2.6 Outstanding premiums including
premiums on accepting reinsurance which are more than two (2) years
overdue, after deducting contributions to the corresponding bad debts reserve
as stipulated by law.
4.2.7 Lending to or reinvesting with
shareholders or related persons as defined in article 4 of the Law on Enterprises,
except for bank deposits.
4.3 Part of the accounting value of the
following assets shall be excluded when calculating the solvency margin:
4.3.1 Investment assets as follows:
(a) Guaranteed enterprise bonds: 1% of the
accounting value shall be excluded;
(b) Non-guaranteed enterprise bonds: 3% of
the accounting value shall be excluded;
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(d) Unlisted shares: 20% of the accounting
value shall be excluded;
(dd) Direct investment in real estate which
the enterprise itself uses: 8% of the accounting value shall be excluded;
(e) Direct investment in real estate in order
to lease out, and guaranteed commercial lending: 15% of the accounting value shall
be excluded;
(g) Capital contributions to other
enterprises which are not insurers: 20% of the accounting value shall be
excluded.
4.3.2 Debts receivable:
(a) Outstanding premium and premium on
accepting reinsurance which is collectable and which has been
outstanding for a period from 90 days up until less than 1 year, after
excluding contributions to the equivalent bad debts reserve in
accordance with law: 30% of such debts collectable shall be excluded;
(b) Outstanding premium and premium on
accepting reinsurance which is collectable and which has been
outstanding for a period from 1 year up to 2 years, after excluding
contributions to the equivalent bad debts reserve in accordance with
law: 50% of such debts collectable shall be excluded.
4.3.3 Tangible fixed assets, and intangible
fixed assets being computer software and goods in store: 25% of the accounting
value shall be excluded.
4.3.4 Other assets: 15% of the accounting
value shall be excluded.
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1. Revenue:
1.1 Revenue of an insurer means amounts
receivable as stipulated in article 20 of Decree 46, comprising:
1.1.1 Revenue from insurance business
activities being primary insurance premiums; 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 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, after deducting amounts payable which reduce revenue such as
refunds of insurance premiums, reductions of insurance premiums,
premiums on ceding reinsurance, refunds of premiums for reinsurance
accepted, reductions of premiums for reinsurance accepted, refunds of
commissions on ceding reinsurance, and reductions of commissions on ceding
reinsurance.
1.1.2 Revenue from financial activities:
revenue received from investments as stipulated in Section 3 of Chapter II of
Decree 46; revenue received from trading securities; interest received on the
amount of the security deposit; revenue earned from leasing out assets, and
other revenue as stipulated by law.
1.1.3 Revenue from other activities: proceeds
from sale or liquidation of fixed assets; bad debts which had been written-off
but are recovered, and other revenue as stipulated by law.
1.2 Principles for calculation of revenue:
1.2.1 Revenue from insurance business
activities means amounts receivable in a period, which shall be calculated on
the following principles:
- The insurer shall account for primary
insurance premiums in revenue at the point of time when the insurance liability
of the insurer to the purchaser of insurance arises as stipulated in article 15
of the Law on Insurance Business, and specifically as follows:
+ The insurer shall account for revenue
when an insurance contract has been entered into by the insurer with
the purchaser of insurance, or when there is evidence that the
insurer has agreed to insure and the purchaser has paid premium.
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+ The insurer agrees for the purchaser
of insurance to pay premium periodically: In this case the insurer
shall account in revenue for the corresponding periods or for the periods
arising during which premium is payable; but shall not account premium
as revenue when the period for payment as agreed has not yet been
reached.
+ In the case of co-insurance, the
insurer shall account in revenue for primary insurance premium when it
is allocated at the co-insured ratio.
- The insurer shall account in revenue for
premium for accepting reinsurance, commission for ceding reinsurance and
other income from ceding reinsurance when the reinsurance payment
slip is certified. If the insurer agrees with the party ceding reinsurance on
payment of premium periodically, then the insurer shall account for the
premium in revenue in the corresponding periods or in the periods
when reinsurance premium arises, but shall not account premium as
revenue when the period for payment by the party ceding reinsurance has not
yet been reached.
- Other income shall be recognized as soon as
it arises from any economic activity and there is proof that the relevant
party has agreed to pay, irrespective of whether or not the insurer
has received payment.
- With respect to amounts payable which
reduce revenue: The insurer shall account for and deduct such amounts from
revenue as soon as they arise from any economic activity and there is proof
that the parties have agreed on payment, irrespective of whether or not the
insurer makes a payment.
1.2.2 Revenue from financial activities means
amounts receivable in the fiscal year.
1.2.3 Income arising from other activities
means proceeds from sales of goods or services after deducting reductions in
price or returns of goods (supported by proper documents) for which clients
agreed to pay, irrespective of whether or not the insurer receives the revenue.
2. Expenses:
Expenses of an insurer means amounts payable
or which must be allocated in a period as stipulated in article 21 of Decree
46, comprising:
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2.1.1 Compensation payments for claims
with respect to primary insurance (payments for claims with respect
to primary non-life insurance, and payments of insurance proceeds
with respect to life insurance), and compensation payments for
reinsurance accepted after deducting amounts receivable in order to
reduce expenditure such as compensation received for cessions,
compensation recovered from third parties, and proceeds from goods
dealt with or one hundred (100) per cent recoveries.
2.1.2 Payments into insurance reserves as
provided in Section III of this Circular.
2.1.3 Payments of insurance and broker's
commission as stipulated in clause 6 of Section IV of Circular 155/2007/TT-BTC
of the Ministry of Finance dated 20 December 2007.
2.1.4 Expenses of loss assessment as
stipulated in article 26 of Decree 45.
2.1.5 Expenses for agency fees for provision
of services for loss assessment, evaluation of compensation or making claims on
third parties.
2.1.6 Expenses for dealing with one hundred
(100) per cent recoveries.
2.1.7 Expenses incurred for management
of insurance agents such as training, recruiting, granting bonuses and
rewards to agents, and other payments as agreed in contracts with the agents.
2.1.8 Expenses for prevention and
limitation of losses but not to exceed two (2) per cent of premiums
actually received in a fiscal year as stipulated in article 25.2 of Decree 45.
2.1.9 Expenses for assessment of risks
of items insured, including expenses for tasks of gathering
information, surveying and assessing items to be insured.
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2.1.11 Other expenses and amounts allocated
as stipulated by law.
2.2 Expenses of financial operations means
amounts payable in the fiscal year, comprising:
2.2.1 Expenses incurred for investment
activities in accordance with Section 3 of Chapter II of Decree 46.
2.2.2 Investment income payable to life
insurance policyholders in accordance with commitments in such policies.
2.2.3 Costs of leasing out assets.
2.2.4 Expenses for bank charges for banking
procedures, payment of interest on loans.
2.2.5 Other expenses and amounts allocated as
stipulated by law.
2.3. Expenses of other operations means amounts
payable in the fiscal year, comprising:
2.3.1 Expenses of sale or liquidation of
fixed assets.
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2.3.3 Other expenses and amounts allocated as
stipulated by law.
3. 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
clauses 1 and 2 above.
VII. REVENUE AND
EXPENSES OF BROKERS
1. Revenue:
Revenue of an insurance broker means amounts
as stipulated in article 24 of Decree 46, comprising:
1.1 Revenue from insurance broking activities
being revenue from insurance brokerage commission after deducting refunds and
reductions of insurance brokerage commission.
1.2 Revenue from financial activities being
revenue received from trading securities; interest received on deposits and on
loans; revenue earned from leasing out assets, and other revenue as stipulated
by law.
1.3 Revenue from other operations being
proceeds from sale or liquidation of fixed assets; and bad debts which
had been written off but are recovered.
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2.1 Expenses of an insurance broker means
amounts as stipulated in article 25 of Decree 46, comprising:
2.1.1 Expenses being expenses of insurance
broking activities and expenses of purchasing professional indemnity insurance.
2.1.2 Expenses of financial activities
being expenses of leasing out assets; and bank charges, and payment of
interest on loans.
2.1.3 Expenses of other activities being
expenses of sale and liquidation of fixed assets; and expenses of recovery of
bad debts which had been written off.
3. Insurance brokers must comply with other
relevant laws on other revenue and expenses of insurance brokers in addition to
the provisions in clauses 1 and 2 above.
VIII. SEPARATION OF
FUNDS AND DISTRIBUTION OF SURPLUS IN LIFE INSURANCE
1. Separation of owners' funds and
policyholders' funds:
1.1 A life insurer must separate and
also account separately for owner's capital and for premiums collected
from purchasers of insurance (hereinafter abbreviated to owner's funds and
policyholders' funds respectively).
1.2 Policyholders' funds must be further
separated into policyholders' funds entitled to distribution of
dividends, and policyholders' funds not entitled to distribution of
dividends. Depending on the requirements of the Ministry of Finance and of the
life insurer itself, these funds may be separated further into sub-category
funds.
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1.4 The assets forming a policyholders' fund
shall be used to discharge the obligations and to pay the expenses relating to
business transactions of such fund. An insurer shall not be permitted to use
assets of a policyholders' fund in order to pay fines for a breach of law or
for a contractual breach by such life insurer.
1.5 Any transaction regarding the assets,
capital sources, revenue or expenses directly relating to any one fund shall
be recorded separately for such fund. The appointed actuary of the
insurance enterprise shall be responsible to ensure that transactions which
relate to a number of funds shall be collated and allocated to each fund on a
fair and appropriate basis. An enterprise must confirm and register with the
Ministry of Finance its principles for allocation, prior to applying them. The
Ministry of Finance must provide approval to any changes in these principles.
1.6 Life insurers shall be responsible to
report on the separation and maintenance of owner's funds and of policyholders'
funds in accordance with law.
2. Ensuring solvency of policyholders' funds:
2.1 Throughout the entire operational period,
a life insurer must ensure the solvency of each policyholders' fund. If any
deficit appears in a policyholder's fund (namely the asset value of the fund is
less than the level of its liabilities), then the enterprise shall
be responsible to supplement the deficit in the policyholders' fund from
the owners' fund. If a policyholder's fund has a surplus (i.e. the difference
between the assets and liabilities of the fund is a positive number),
then the enterprise may refund part or all of the money which was previously
supplemented into the fund on condition that such refund does not impact on the
solvency of the owners' fund. All of these transactions must be certified by
the appointed actuary of the enterprise.
2.2 If a life insurer maintains a number of
owners' funds, then it shall not be permitted to use the surplus in any one
such fund to supplement a deficit in another owners' fund.
2.3 An insurer must make a written record
of all transactions relating to supplementing a deficit in a
policyholders' fund from [assets in] the owners' fund, and similarly of any
transaction relating to the refund of such sum from the policyholders' fund to
the owners' fund.
3. Distribution of surplus in life insurance:
3.1 If a policyholders' fund entitled to
distribution of dividends has a surplus at the end of the fiscal year, the life
insurer may use a part or all of such surplus to distribute to policyholders in
the fund and to the owner after receiving ratification from the appointed
actuary of the enterprise. The undistributed surplus of a policyholders' fund
shall be left in the fund for the purpose of ensuring stability of future
surplus distributions.
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IX. PROFIT AND
DISTRIBUTION OF PROFIT
1. Profit and distribution of profit of
insurers and insurance brokers shall be in accordance with the
provisions of Chapter V of Decree 46.
2. Insurers shall only be permitted to
distribute residual profit in accordance with law after they have satisfied the
regulations on solvency.
X. FINANCIAL
MANAGEMENT, INTERNAL AUDITING, AND INDEPENDENT AUDITING OF INSURERS AND BROKERS
1. Financial management of a
shareholding insurance company and of a shareholding insurance broking
company must ensure the following principles:
1.1 Charter capital structure:
1.1.1 Any one shareholder being an individual
may own a maximum of 10% of the charter capital.
1.1.2 Any one shareholder being an
organization may own a maximum of 20% of the charter capital.
1.1.3 Any one shareholder and related persons
of such shareholder may own a maximum of 20% of the charter capital.
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1.1.5 Founding shareholders must jointly own
a minimum of 50% of the charter capital on establishment of the enterprise, of
which the founding shareholders being organizations must jointly own a minimum of
50% of the total number of shares of founding shareholders. This restriction
shall be rescinded after the expiry of three (3) years from the date on which
the enterprise is issued with its licence for establishment and operation.
1.2 A related person means any organization
or individual with the direct or indirect relationship with the shareholder
stipulated in article 4.17 of the Law on Enterprises.
2. Insurers and brokers must implement
management and supervision in accordance with the provisions in article 36.2 of
Decree 46.
2.1 The formulation of self-management
and self-regulatory rules including finance rules, investment rules,
internal control and audit rules, and other equivalent procedural rules by an
insurer or broker must ensure the following:
2.1.1 The operation of the enterprise
complies with the law on finance applicable to insurers and brokers.
2.1.2 Prevention and limitation of
financial risks of an insurer or broker must ensure that the value
of investment assets corresponds to liabilities and the special risks of the
enterprise.
2.1.3 There must be a clear deliniation of
the responsibilities of managers and executives of the enterprise, of staff,
and of relevant agents.
2.1.4 There must be clear rules on taking
disciplinary action when there are errors or breaches.
2.2 Insurers and brokers must implement their
rules on self-management and self-regulation, and they must conduct checks and
supervision on a periodical and one-off basis of compliance with the rules
within the enterprise.
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3. Internal control rules of insurers and
brokers:
3.1 Insurers and brokers must undertake
internal control activities.
3.2 The basic principles of internal control
shall be as follows:
3.2.1 Independence: internal control
activities must be independent from executive and professional
activities of the enterprise.
3.2.2 Objectivity: internal control
activities and activities of internal auditors must be objective, honest and
fair, and practitioners must not be prejudiced when conducting internal audit
tasks.
3.2.3 Professionalism: internal auditors must
be people with professional skills and the necessary qualifications for
conducting internal audits, and they must not concurrently hold
positions or undertake work as other experts within or for an insurance or
insurance broking enterprise.
3.3 The work of internal audit shall include
checks and assessments:
3.3.1 Internal auditors must check and assess
the level of completeness, validity and effectiveness of the internal control
and internal audit systems.
3.3.2 They must check the applicability,
validity and effectiveness of rules for identifying risks of the
enterprise, methods for measuring such risks, and risk management methods.
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3.3.4 Internal auditors must check and assess
the completeness, truthfulness, promptness, and level of accuracy of the system
of accounts charts and of financial reporting.
3.3.5 Internal auditors must check and
assess the regimes ensuring compliance with the law, with the
regulations on establishment of reserves, the regulations on investment, the
regulations on solvency of the enterprise, and ensuring compliance with all
internal rules and procedures, professional rules and professional ethics.
3.3.6 Internal auditors must undertake other
tasks relevant to the functions and duties of internal auditors.
3.3.7 Insurers and brokers must formulate
professional ethics rules and must ensure that such rules are complied with
during internal audit work.
3.4 Within a time-limit of six (6) months
from the date on which this Circular takes effect, insurers and insurance
brokers must report to the Ministry of Finance on their having implemented the
provisions on internal audit in this Circular.
4. The annual financial statements of
insurers and of insurance brokers must be audited by an independent auditor
legally operating in Vietnam, and the auditor must certify the following main
financial matters:
4.1 Applicable to insurers:
Activities being acceptance of and ceding
reinsurance, establishment of reserves, solvency, commissions, revenue and
expenses, profit and distribution of profit, investments made from equity,
investments made from reserves, fixed assets and depreciation, items
receivable, debts payable, equity, expenses for capital construction in
progress; and separation of funds and distribution of surplus from
policyholders' funds in the case of a life insurer.
4.2 Applicable to brokers:
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XI. REPORTING REGIME
Insurers and insurance brokers shall be
responsible to prepare and submit financial statements, statistics reports and
professional reports in accordance with the applicable laws.
1. Financial statements:
1.1 Insurers and insurance brokers shall
carry out financial finalization, comply with all regulations relating
to financial statements, and prepare and submit reports to the State financial
authority, to the statistics authority and the tax authority in accordance with
the applicable laws.
1.2 Balance sheets, profit and loss
statements, cash flow statements and explanations of financial
statements prepared in accordance with the law on accounting must be certified
by an independent auditor licensed to operate in Vietnam.
1.3 Insurers and brokers must prepare and
submit financial statements to the Ministry of Finance on a quarterly and
annual basis, enclosing a soft copy.
2. Statistics reports and professional reports:
Insurers and insurance brokers shall prepare and submit the following
statistics reports and professional reports to the Ministry of
Finance on a monthly, quarterly [and/or] annual basis, enclosing a soft
copy:
2.1 With respect to non-life insurers:
2.1.1 Report on monthly operational results
in Form 1-PNT.
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2.1.3 Report on economic indicators on a
quarterly and annual basis in Form 3-PNT.
2.1.4 Report on claims paid on a quarterly
and annual basis in Form 4-PNT.
2.1.5 Report on establishment of insurance
reserves on a quarterly and annual basis in Forms 5-PNT(A) and 5-PNT(B).
2.1.6 Report on investment activities from
owner's capital on a quarterly and annual basis in Form 6- PNT(A).
2.1.7 Report on investment activities from
insurance reserves on a quarterly and annual basis in Form 6- PNT(B).
2.1.8 Report on solvency on a quarterly and
annual basis in Form 7-PNT.
2.1.9 ASEAN Report on an annual basis in Form
8-PNT.
2.2 With respect to insurers specializing in
reinsurance, in addition to the above reports in Forms 5-PNT, 6-PNT(A) and (B),
7-PNT and 8-PNT, the following reports shall be prepared and submitted:
2.2.1 Report on reinsurance premium revenue
on a quarterly and annual basis in Form 1-TBH.
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2.3 With respect to life insurers:
2.3.1 Report on monthly operational results
in Form 1-NT.
2.3.2 Report on the number of life insurance
contracts and sums insured of life insurance on a quarterly and annual basis in
Form 2-NT.
2.3.3 Report on life insurance premium
revenue on a quarterly and annual basis in Form 3-NT.
2.3.4 Report on payment of life insurance
proceeds on a quarterly and annual basis in Form 4-NT.
2.3.5 Status report on rescinded contracts of
life insurance on a quarterly and annual basis in Form 5-NT.
2.3.6 Report on establishment of insurance
reserves on a quarterly and annual basis in Forms 6-NT(A) to 6-NT(E).
2.3.7 Report on investment activities from
owner's capital on a quarterly and annual basis in Form 7-NT(A).
2.3.8 Report on investment activities from
insurance reserves on a quarterly and annual basis in Form 7- NT(B).
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2.3.10 ASEAN Report on an annual basis in
Form 9-NT.
2.4 With respect to brokers: Report [on
insurance brokerage operations] on a quarterly and annual basis in Form 1-MGBH.
3. Time-limits:
3.1 Monthly reports: Insurers must prepare
and submit monthly reports to the Ministry of Finance no later than fifteen
(15) days after the last day of the month.
3.2 Quarterly reports: Insurers and brokers
must prepare and submit quarterly reports to the Ministry of Finance no later
than thirty (30) days after the last day of the quarter.
3.3 Annual reports: Insurers and brokers
must prepare and submit annual reports to the Ministry of Finance no
later than ninety (90) days after the last day of the fiscal year.
4. In addition to the reports mentioned in
clauses 1 and 2 above, the Ministry of Finance may require an insurer or broker
to provide supplementary reports on operational status and financial status in
order to service statistical and market analysis work.
5. Inspection and supervision of compliance
with the financial regime:
Boards of management and general directors
(directors) of insurers and brokers shall be responsible to give an account of
related financial matters at the request of State administrative bodies when
the latter exercise State administration in accordance with law.
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5.1.1 Periodic or random inspections.
5.1.2 Inspections of each specialized
area, depending on the requirements for the work of financial
management.
5.2 Insurers and brokers in breach of the
State financial regime shall be dealt with in accordance with law.
XII. PUBLIC
ANNOUNCEMENT OF INFORMATION BY INSURERS
1. The items within the financial statements
of an insurer or broker which must be publicly announced on an annual basis
are the annual report (Form 1-CBTT) and summarized financial statements
(Form 2-CBTT). The public announcement of these items must be accompanied by
the opinion of an independent auditor.
2. Insurers and brokers must make a
public announcement of the above-mentioned items from their annual
financial statements in three (3) consecutive editions of a central newspaper
and of a local newspaper in the locality where the enterprise has its head
office. In addition to the above, an insurer or a broker may make its own
decision on further public announcements of such items on its website; in
publications; in written notices to the State administrative bodies; by making
an announcement at a press conference; or by making an announcement on central
or local radio stations.
3. Insurers and brokers must make the
above-mentioned public announcement within a time-limit of one hundred
and twenty days (120 days) from the end of the fiscal year. Within ten (10)
business days from the date of the public announcement, the insurer or broker
must send the original or a notarized copy of the announcement to the Ministry
of Finance.
4. Insurers and brokers must implement the
regime on public announcement of information promptly and accurately in
accordance with law. Any insurer or broker which changes the
contents of information already announced must do so correctly in
accordance with the provisions and procedures stipulated in clauses 1, 2
and 3 above, and must enclose an explanation of the reasons for the change.
XIII. ORGANIZATION OF
IMPLEMENTATION
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2. This Circular shall replace Circular 99/2004/TT-BTC
of the Ministry of Finance dated 19 October 2004 implementing Decree 43/2001/ND-CP
of the Government dated 1 August 2001 providing detailed regulations for
implementation of a number of articles of the Law on Insurance Business.
3. Shareholding insurance companies and
shareholding insurance broking companies issued with a licence for
establishment and operation prior to the date on which this Circular
takes effect must adjust the structure of their charter capital for
compliance with the provisions in section X of this Circular within a
time limit of three (3) years as from the date on which Decree 46 took effect6.
4. Any problems or difficulties during
implementation should be reported promptly to the Ministry of Finance
for its consideration and resolution.
FOR THE MINISTER OF
FINANCE
DEPUTY MINISTER
Tran Xuan Ha