Rules for insurance businesses in Vietnam

The Government has issued Decree No 73/2016/ND-CP on July 1, 2016 detailing the implementation of the Law on Insurance Business. The Decree regulates the establishment and operation of life insurance, non-life insurance, health insurance, reinsurance enterprises and foreign insurer branches.

The Law on Insurance Business regulates the establishment and operation of life insurance, non-life insurance, health insurance, reinsurance enterprises and foreign insurer branches.

Licensing for insurance enterprises, foreign branches and insurance broker enterprises

To establish and operate an insurance enterprise, foreign branch or insurance broker enterprise, an investor must use their capital contribution in cash and not be financed by other organisations or individuals. Additionally, investors that are organisations contributing 10 per cent or more of the charter capital are required to have conducted a profitable business for three consecutive years before the year of licence submission, and to have not incurred cumulative losses prior to the submission.

Specific requirements for the establishment of insurance enterprises

To establish an insurance enterprise in Viet Nam, a foreign organisation must operate the business intending to engage in Viet Nam for at least ten years, and have total assets of at least US$2 billion in the year before the year of licence submission.

For Vietnamese organisations, the investor must have total assets of at least VND2 trillion in the year before the year of licence submission. In the case where an insurance joint stock enterprise is established, there must be at least two founding shareholders being organizations together holding at least 20per cent of the shares in the incorporated company.

Specific requirements for the establishment of insurance broker enterprises

In the case of the establishment of an insurance broker enterprise, a foreign organisation must have operated an insurance brokerage business for at least ten years. Additionally, it must not have seriously violated any insurance brokerage provisions in its country for three consecutive years before the year of licence submission.

Legal capital required for insurance business companies

The legal capital must be within the required range:

– VND300 - 400 billion for non-life insurance enterprises

– VND600 - 1,000 billion for life insurance enterprises

– VND300 billion for health insurance enterprises

– VND200 - 300 billion for foreign branches

– VND400 - 1,100 billion for reinsurance enterprises

– VND4 - 8 billion for insurance broker enterprises.

Insurance business enterprises' M&A

Once an insurance business enterprise conducts M&A activities, it must obtain approval from the Ministry of Finance (MOF) except for assignments of less than 10 per cent of charter capital. The MOF must approve applications within 30 days of receiving an eligible dossier.

Technical reserves and mandatory reserves

Technical reserves. An insurance business enterprise must set up technical reserves for each line of insurance or insurance contract respective to its liabilities. Subject to the type of insurance business enterprise, reserves comprise of reserves for unearned premiums, claim reserves, claim reserves for large loss fluctuations, profit sharing reserves, interest rate commitment reserves and others.

Compulsory reserve. An insurance enterprise, insurance broker enterprise or foreign branch must extract 5 per cent of its annual net profit to establish a compulsory reserve with the cap being 10 per cent of the enterprise charter capital or the foreign branch allocated capital.

Cross-border insurance services

To provide cross-border insurance services in Viet Nam, a foreign insurance enterprise must have total assets of at least US$2 billion, and an insurance broker enterprise must have total assets of at least $100 million in the fiscal year before the year that the cross-border insurance services are provided.

Funds for insured protection

An insurance enterprise or foreign branch (except for reinsurance enterprises) must contribute to a fund for insured protection ("Fund"). The highest contribution must not exceed 0.3 per cent of total premiums from primary insurance contracts retained by the insurance enterprise or the foreign branch in the fiscal year before the year the contribution is given. The contribution is made until the value of the Fund is equivalent to 5 per cent of the total assets of non-life insurance enterprises, health insurance enterprises and foreign branches, and to 3 per cent of the total assets of a life insurance enterprise.

The Decree takes effect on July 1, 2016 and replaces the Government Decrees No 45/2007/ND-CP and its amendments and No 46/2007/ND-CP.

(Source: MAI COUNSEL)