Financial regime applicable to the insurance industry

By Le Thi Hong Tham, Legal Assistant  

The Ministry of Finance has issued Circular No. 125/2012/TT-BTC ("Circular 125"), dated 30 July 2012, providing detailed guidelines on the financial regime applicable to insurers, re-insurers, insurance brokers ("Insurers") and branches of foreign non-life insurers ("FBNI") duly established and operating in Vietnam.

Within the territory of Vietnam, if the charter capital corresponds with the legal capital, an insurance business (meaning: life insurer, non-life insurer, or health insurance business) may open up to 20 branches and representative offices. For each new office an amount of at least 10 billion Vietnamese dong must be added to the registered charter capital.

A non-life insurer, FBNIs may conduct business in primary insurance of all types of non-life and health insurance other than aviation insurance and satellite insurance. If a non-life insurer, FBNIs wish to offer these two restricted products, they must supplement their paid-up charter capital by at least 50 million Vietnamese dong. As prescribed by laws, insurers, FBNIs must maintain their paid-up charter capital at a level not less than the legal capital level stipulated in this Circular and must develop and maintain plans to supplement its charter capital as necessary to ensure that it remains at the required levels. This provision is checked every fiscal year and based on audited financial statement reports. And yearly, based on the audited financial statement, insurers, FBNIs must re-asset their equity. If the equity fails to meet regulations as stated in this Circular, insurers, FBNIs must conduct the processes for additional capital within six (06) months since the closing date of the fiscal year.

Besides, this Circular also requests insurers, FBNIs must perform the internal audit activities in accordance with the fundamental principles as required by laws; prepare and submit audited financial statements to relevant authorities and make public information disclosures on their websites and a centre and a local newspaper at the place locating their headquarters in three consecutive issues.

Non-life insurers, health insurance businesses and FBNIs must set up various insurance reserves which must be certified by set by an appointed actuary and based on their reserves and solvency. They shall be permitted to select the method and register such with the Ministry of Finance on an annual basis. The selected method must be applied throughout an entire fiscal year.

Insurers and FBNIs have the right to make outside investments based on the capital excess over minimum solvency margins. Accordingly, insurers can establish offices or branches in a foreign country in accordance with relevant prevailing laws. These offices or branches must comply with provisions of law on insurance business, law on offshore investment, law on foreign exchange control, be approved by the Ministry of Finance and made in the name of such insurers, foreign branches.

These provisions shall come into effect on 1 October 2012. Circular 125 replaces Circular No. 156/2007TT-BTC.

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