Published 25 July 2022 by Dr. Oliver Massmann, Duane Morris Vietnam LLC
Market overview
Member of IAIS? Yes, Vietnam became member of IAIS in 2007.
Global regulators, bodies and legislation applicable to country
The project “ComFrame” was set up by the Internationally Active Insurance Groups (IAIG, related to IAIS) to establish regulatory framework with mandatory standards. It came into effect at the end of 2019. Vietnam, as a member of the IAIS, has to comply with its regulations.
As a member of the WTO and WHO, Vietnam must also comply with regulations of these organizations with respect to insurance. In its bilateral / multilateral agreements such as Korea – Vietnam FTA, EU- Vietnam FTA, Hong Kong – ASEAN FTA, ASEAN- China FTA, ASEAN – Australia – New Zealand FTA, CPTPP and EU-Vietnam Free Trade Agreement, commitments on insurance are also binding on Vietnam.
In addition, Vietnam is a member of the OECD, which issues guidelines and good practices of non-binding nature for member countries.
Domestic
The Ministry of Finance is in charge of the state regulation on insurance business. In addition, on February 12, 2009, the Ministry of Finance (MOF) issued Decision No. 288/QD-BTC to establish the Insurance Supervisory Authority (ISA) under the MoF. The ISA will assist the Minister of the MOF to regulate insurance business nationwide; directly govern and supervise insurance business activities and services related to insurance business in accordance with law. Currently, the role of the ISA is regulated under Decision 1799/QD-BTC issued on 11 September 2017.
In June 2009, Insurance Research and Training Centre (IRTC) under the ISA was established according to Decision No. 1379/QD-BTC. The IRTC is tasked with organizing scientific study and training on insurance and insurance market.
Laws and relevant court decisions/judgements
The following laws and regulations mainly govern insurance business in Vietnam:
• Law on Insurance Business issued by the National Assembly on December 9, 2000, as amended by Law No. 61/2010/QH12 dated November 24, 2010 (Law on Insurance Business). This Law will expire on 31 December 2022 and will be replaced by Law on Insurance Business 2022 ;
• Decree No. 73/2016/ND-CP on guiding the implementation of the Law on Insurance Business issued by the Government on July 1, 2016 (Decree 73) as amended by Decree 80/2019/ND-CP dated November 1, 2019 (Decree 80);
• Decree No. 98/2013/ND-CP on administrative sanctions on insurance business and lottery business issued by the Government on August 28, 2013 (Decree 98) as amended by Decree 48/2018/ND-CP dated March 21, 2018 (Decree 48) and Decree 80;
• Circular No. 195/2014/TT-BTC on guiding the assessment and classification of insurance companies issued by the Ministry of Finance on December 17, 2014 (Circular 195);
• Circular No. 50/2017/TT-BTC on guiding Decree 73 issued by the MOF on May 15, 2017 (Circular 50) (as amended by Circular 01/2019/TT-BTC dated January 2, 2019), and replaced Circular No. 125/2012/TT-BTC on guiding financial regime applicable to insurers, reinsurance businesses, insurance brokers and branches of foreign non-life insurers issued by the MOF on July 30, 2012;
• Decision No. 1826/QD-TTg of the Prime Minister on approving the Plan on “Restructuring the securities market and insurance companies” on December 28, 2012 (Decision 1826).
Key rules and requirements
Senior management responsibilities
• Promulgation of legal instruments and implementing guidelines on insurance business; formulation of strategies, policies, master planning and specific plans for the development of the Vietnamese insurance market;
• Issuance and withdrawal of licenses for establishment and operation insurers and insurance brokers, and of licenses for establishment of representative offices of foreign insurers and foreign insurance brokers in Vietnam;
• Promulgation, ratification and guiding the implementation of insurance regulations, provisions, scales of premiums and commissions;
• Supervision of insurance business activities via professional activities, financial status, enterprise management, risk management and compliance with the law on insurers and brokers; application of necessary measures to ensure that insurers satisfy the financial requirements and fulfil their undertakings to purchasers of insurance;
• Organization of provision of information on the status of the insurance market and market forecasts;
• International cooperation in the area of insurance;
• Consent for overseas operations of insurers and insurance brokers;
• Administration of the operations of representative offices of foreign insurers and foreign insurance brokers in Vietnam;
• Organization of the formation and training of a workforce of insurance management personnel and insurance professional experts; and
• Inspection and checks of insurance business activities; resolution of complaints and denunciations, and dealing with breaches of the laws on insurance business.
Whistle-blowing rules
There are no such rules specifically for the insurance sector.
Foreign ownership limit in an existing shareholding insurance company
Foreign investors are entitled to own shares or contributed capital up to 100% of charter capital of insurance enterprises and reinsurance enterprises.
Capital reserve requirements
Reserve funds
Insurers and insurance brokers must establish a compulsory fund to supplement their charter capital and ensure their solvency. Appropriations for the compulsory reserve fund shall be made annually at 5% of after-tax profits. The maximum amount of compulsory reserve fund is equivalent to 10% of the charter capital of the insurance enterprise or issued capital of the foreign branch.
In addition to this compulsory reserve fund, insurers and insurer brokers may establish other reserve funds from their after-tax profits of the fiscal year as determined in their charter. It is noted that after-tax profits may be shared among shareholders but only after 5% of such profits is contributed to the compulsory reserve fund as provided above.
Insurance reserves
Insurance reserve means an amount of money which an insurer must set aside to pay for its insurance liabilities determined in advance and arising from the insurance contracts which it has entered into.
Insurance reserve must be established for each type of insurance product or insurance contract with respect to that part of liability retained by the insurer or foreign branch. Specific amount contributed for insurance reserve is provided in Circular 50. Insurance companies are entitled to choose methods of and basis for setting insurance reserves but must seek prior approval from the MOF for implementation such insurance reserve methods / basis.
Security deposit
Insurers must pay a security deposit into a commercial bank operating in Vietnam in an amount of 2% of the legal capital as specified for each type of insurance company (for example, a health insurance company must pay a security deposit of VND6 billion or $255,000 equivalent) within 60 days from the issuance date of the operating license in Vietnam. An insurance enterprise or foreign branch may only use its security deposit to meet undertakings to purchasers of insurance when its solvency is inadequate and upon written approval of the MOF. The whole amount of their security deposit can only be withdrawn upon termination of their operation.
Product specific legislation
Relevant advisory documentation or other requirements, including tax
Life
Legal capital
• For life insurance business (excluding unit linked insurance and retirement insurance) and health care insurance business: VND600 billion
• Life insurance business and unit linked insurance business or retirement insurance business: VND800 billion
• Life insurance business, unit linked insurance business and retirement insurance business: VND1,000 billion.
Qualifications of the appointed actuary
• Not be prohibited from managing an enterprise according to Vietnam laws;
• In the three consecutive years prior to the time of appointment:
o Not have been subject to an administrative penalty for a breach in the insurance business sector with the form of penalty being compulsory dismissal from his or her position as a manager or executive, approved by the MOF, or with the form of penalty being suspension from a position to which such person was appointed by an insurance enterprise, insurance broker or foreign branch;
o Not have been disciplined in the form of dismissal for a breach of internal rules on underwriting, assessment, compensation and indemnity, internal control, management of finance and investment or management of a re-insurance program in an insurance enterprise or foreign branch; or for a breach of the rules on professional insurance broking operations, on internal control or professional ethics of an insurance broker;
• At the time of being appointed as a manager or executive of an insurance enterprise or foreign branch, not be directly related to any case prosecuted by a competent agency.
• Have undergone training as an appointed actuary, and have at least 10 years’ work experience as an appointed actuary in the life insurance and be a fellow of one of the Associations of Actuaries which are widely recognized internationally such as the Institute of Actuaries of England; the Society of Actuaries of the USA; the Institute of Actuaries of Australia; the Canadian Institute of Actuaries; or be a member of another Association of Actuaries which is an official member of the International Associations of Actuaries; or have at least five years’ work experience as an appointed actuary in the life insurance or health insurance sector from the time of becoming a fellow of one of the above associations.
• Not have committed any breach of the professional ethics of actuaries.
• Be an employee of the life insurer.
• Be resident in Vietnam during the term of office.
Permitted scope of business
Life insurers are not allowed to do non-life business.
Life insurance products and health insurance products must be approved by the MOF in advance.
Insurance reserve
Insurance reserve for life insurance companies includes: actuarial reserve, unearned premium reserve, compensation reserve, profit distribution reserve, committed interest rate reserve and balance reserve.
Investment of idle capital from insurance reserves
Investments of idle capital from insurance reserves of insurance enterprises or foreign branches may be made directly by the insurance enterprise or foreign branch or by entrusting another entity to make the investment, but shall only be invested in Vietnam in the following sectors:
• Purchase of Government bonds, Treasury bills, Treasury bonds, public bonds for construction of the Homeland, local authority bonds and Government guaranteed bonds without any restriction;
• Deposits with credit institutions without any restriction;
• Purchase of shares, bonds of enterprises and fund certificates but not to exceed 50 percent of idle capital from insurance reserves;
• Real estate business in accordance with the Law on Real Estate Business but not to exceed 20 percent of idle capital from insurance reserves;
• Capital contribution to other enterprises but not to exceed 20 percent of idle capital from insurance reserves.
General insurance
Under Vietnam laws, general insurance is called non-life insurance, which means the types of insurance products being property insurance, civil liability insurance and other products which are not life insurance.
Legal capital
• For non-life insurance business (excluding aviation insurance business and satellite insurance business) and health insurance: VND300 billion
• For non-life insurance business (including aviation insurance business or satellite insurance business) and health insurance: VND350 billion
• For non-life insurance business, including aviation insurance business and satellite insurance business and health insurance: VND400 billion
Qualifications of an appointed actuary regarding reserves and solvency of non-life insurer
• Not be prohibited from managing an enterprise according to Vietnam laws;
• In the three consecutive years prior to the time of appointment:
o Not have been subject to an administrative penalty for a breach in the insurance business sector with the form of penalty being compulsory dismissal from his or her position as a manager or executive, approved by the MOF, or with the form of penalty being suspension from a position to which such person was appointed by an insurance enterprise, insurance broker or foreign branch;
o Not have been disciplined in the form of dismissal for a breach of internal rules on underwriting, assessment, compensation and indemnity, internal control, management of finance and investment or management of a re-insurance program in an insurance enterprise or foreign branch; or for a breach of the rules on professional insurance broking operations, on internal control or professional ethics of an insurance broker;
• At the time of being appointed as a manager or executive of insurance enterprise or foreign branch, not be directly related to any case prosecuted by a competent agency.
• Be an associate of an Association of Actuaries which is an official member of the International Associations of Actuaries; or
• Have at least five years’ work experience in the non-life insurance sector and have evidence of passing two exams of one of the following Associations: the Institute of Actuaries of England; the Society of Actuaries of the USA; the Institute of Actuaries of Australia, and the Canadian Institute of Actuaries, or evidence of passing exams of a training course or program on actuaries recognized by the above Associations as equivalent to two exams of the above Associations; and
• Not have committed any breach of the professional ethics of actuaries.
Permitted scope of business
Non-life insurance companies are allowed to do health insurance business.
Insurance reserve
Insurance reserve for non-life insurance companies includes unearned premium reserve, claim reserve, and large loss fluctuation reserve.
Investment of idle capital from insurance reserves
• Purchase of Government bonds, Treasury bills, Treasury bonds, public bonds for construction of the Homeland, local authority bonds and Government guaranteed bonds without any restriction;
• Deposits with credit institutions without any restriction;
• Purchase of shares, bonds of enterprises, fund certificates and capital contribution in other enterprises but not to exceed 35% of idle capital from insurance reserves; and
• Real estate business in accordance with the Law on Real Estate Business but not to exceed 10% of idle capital from insurance reserves.
Reinsurance
Legal capital
• For non-life reinsurance business or both non-life reinsurance business and health reinsurance business: VND400 billion;
• For life reinsurance business or both life reinsurance business and health reinsurance business: VND700 billion;
• For business in all three types of life reinsurance, non-life reinsurance and health reinsurance, VND1,100 billion.
Qualifications of an appointed actuary regarding reserves and solvency of reinsurer
Same as in non-life insurance.
Permitted scope of business
• An insurance enterprise may transfer part but is not permitted to assign all of the liability for which insurance has already been accepted in an insurance contract to one or a number of domestic and foreign insurance enterprises, and other foreign branches;
• The maximum level of the liability retained on each risk or on each separate loss shall not exceed 10% of equity.
• If an insurance enterprise cedes reinsurance as appointed by an insured person, the maximum rate for re-insurance by appointment shall be 90% of the liability insured;
• An insurance enterprise may accept reinsurance of the liability for which another insurance enterprise has already accepted insurance.
Insurance reserve
• For non-life reinsurance: unearned premium reserve, claim reserve, and large loss fluctuation reserve;
• For life reinsurance: actuarial reserve, unearned premium reserve, compensation reserve, profit distribution reserve, committed interest rate reserve and balance reserve;
• For health reinsurance: actuarial reserve, unearned premium reserve, compensation reserve, and balance reserve.
Investment of idle capital from insurance reserves
For non-life reinsurance: same as non-life insurance
For life reinsurance and health reinsurance: same as life insurance and health insurance
Commercial insurance
Please refer to the section on general insurance above.
Investment management and markets
Overview of relevant regulation affecting insurers’ investment portfolios, including Asset Liability Management (ALM)
An insurance enterprise can make investment from its equity, idle capital from insurance reserves and other lawful sources.
In addition to rules of domestic investment of idle capital from insurance reserves as mentioned above for each type of insurance business, the following principles apply:
• It is not permitted to borrow loans for purposes of direct investment or entrusted investment in securities, real estate, or capital contribution to other enterprises;
• It is not permitted to reinvest in any form [being lending to or reinvesting with] capital contributing shareholders (members) or related persons [affiliated persons] as defined in the Law on Enterprises, except for deposits with shareholders (or members) which are credit institutions;
• It is not permitted to invest more than 30% of its investment capital sources in companies within one Group or within one group of companies with a mutual ownership relationship (this provision shall not apply to deposits at credit institutions and offshore investment capital sources in the form of establishment of enterprises or branches overseas);
• In the case of investment entrustment, the organization accepting entrustment must be issued by the competent agency with a licence to carry out the activities of acceptance of investment entrustment in compliance with the contents of acceptance of investment entrustment.
An insurance enterprise may also make offshore investment but only to set up offshore insurance company or an offshore insurance branch. Such offshore investment must be approved by the MOF.
Enforcement and investigation
Rules of regulatory investigation
Insurance business activities must be checked without overlapping and no more than once in respect of one item in any one year with respect to enterprises (except for the case of an extraordinary or unscheduled check).
Complaints procedure
There is no specific rule on complaints handling procedures in insurance enterprises. Instead, such rules are as indicated in the insurance contracts and must follow relevant regulations of the Civil Code and economic agreements.
Complaints on administrative decisions will be handled according to laws on complaints and denunciations, which are applied for all sectors.
Redress, including Ombudsman service
Depending on the nature and seriousness of violations, the violators may be subject to administrative sanctions (warnings, monetary fines, suspension of operation, remedies) or criminal penalty. In case of causing damages, they must compensate according to Vietnam laws.
Insurance mediation compensation schemes
As indicated in the insurance contract. The insured person has maximum one year to claim for indemnity from the date of occurrence of the insured event. Upon occurrence of such insured event, the insurer must pay the indemnity with the time-limit stated in the insurance contract. If there is no statement in the contract, the time-limit is 15 days from the date of receipt of a complete and proper application requesting payment of indemnity.
Personal accident and health care insurance
Personal accident insurance: the insurer must pay insurance proceeds to the beneficiary up to the sum insured, based on the actual injury of the person insured and as agreed in the contract.
Health care insurance: the insurer must pay insurance proceeds to the beneficiary up to the sum insured, based on the costs of medical examination, treatment and convalescence of the insured person arising as a result of an illness or accident and as agreed in the contract.
Property insurance
Property insurance below value: the insurer is only responsible to indemnify in accordance with the ratio of the sum insured to the market value of the insured property at the date of entering the contract.
Double insurance contracts
Upon occurrence of the insured event, each insurer is only responsible to indemnify in accordance with the ratio of the agreed sum insured to the total sum insured under all insurance contracts which the purchaser of the insurance has entered into. The total sum of indemnity payable by all the insurers will not exceed the value of the actual property damage.
Insolvency and policy-holder protection
Relevant resolution regime?
There is no separate insolvency regime for insurers. Instead, the Law on Bankruptcy which deals with bankruptcy and insolvency in all sectors will apply.
The general procedure to handle bankruptcy cases is as follows:
• Filing the petition to the court to commence bankruptcy procedures (by creditors, employees, grass-root trade union, legal representative of the company, shareholders, Chairman of the Board of Management, etc.)
• The court will handle the bankruptcy case according to its competence within 6 working days from the receipt of the petition. Decisions to open bankruptcy procedure must be sent to all relevant parties and published on local newspapers and the People’s Supreme Court web portal.
• Calling for the meeting of creditors
• Depending on the Resolution of the Creditors’ meeting, the company’s operation can be recovered or the court is requested to announce the bankruptcy.
• Management and liquidation of assets are conducted by a liquidator or company that is appointed by the court and specializes in the management and liquidation of assets.
Data protection
There is no separate rule governing data protection in the insurance sector in Vietnam. Instead, Vietnam’s data protection laws are scattered in many legislations, which include the Civil Code, the Penal Code, the Law on Cyber Information Security, the Law on Information Technology, the Law on Telecommunications, the Law on Consumer Protection, the Law on E-Transactions, cybersecurity law and relevant Decrees guiding implementation of the mentioned laws.
These laws include provisions to prevent, detect, stop and address spam, computer viruses and cyber-attacks, and protect information exchanged in cyberspace.
There is no consistent definition of “personal information” in Vietnam laws. General speaking, personal information could be any information that could be used to identify a specific person, including information on payment transactions.
Organisations processing personal information must take appropriate management and technical measures to protect personal information that they have collected and stored and ensure that the personal information is not lost, stolen, disclosed, modified or destroyed without consent.
Depending on the nature of violations of data protection policies, administrative fines (warning, monetary fine) and possible remedial measures or criminal penalties might apply.
Corporate governance
Managers and executives of insurance enterprises, foreign branches and insurance brokers are:
• Chairman of the board of management (chairman of the members’ council or company chairman); members of the board of management (members of the members’ council);
• Head of the inspection committee; head of the internal audit committee; inspectors (if the enterprise does not establish an inspection committee);
• General Director (Director); Deputy General Director (Deputy Director);
• Head of the internal control or audit division; chief accountant; branch directors; heads of representative offices; heads of professional sections; appointed actuaries (in the case of a life insurer or health insurer); appointed actuaries regarding reserves and solvency (in the case of a non-life insurer or foreign branch).
Allocation of these people must follow the below principles:
• A member of the board of management or members’ council of an insurance enterprise or insurance broker is not permitted to concurrently be a member of the board of management or members’ council of an enterprise operating in the same sector (non-life insurance, life insurance, reinsurance or insurance brokerage);
• The general director (director) or deputy general director (deputy director) of an insurance enterprise, foreign branch or insurance broker is not permitted to concurrently work for another insurance enterprise, foreign branch or insurance broker operating in the same sector in Vietnam; and the general director (director) of an insurance enterprise, foreign branch or insurance broker is not permitted to be a member of the board of management or members’ council of another insurance enterprise or insurance broker operating in the same sector in Vietnam;
• The general director (director), deputy general director (deputy director), a branch director or a head of a representative office of an insurance enterprise or insurance broker is only permitted to concurrently be the head of no more than one branch or representative office or professional section of the insurance enterprise or insurance broker. The director or deputy director of a foreign branch is only permitted to concurrently be the head of no more than one professional section of such branch;
• An appointed actuary of a life insurer or health insurer, an appointed actuary regarding reserves and solvency of a non-life insurer, of a reinsurer or of a foreign branch has the duty of organizing implementation of work to ensure the financial safety of the insurance enterprise or foreign branch. An appointed actuary or an appointed actuary regarding reserves and solvency has independent rights regarding his or her professional specialty and is not permitted to concurrently be the general director (director) or chief accountant.
Financial crime prevention
Member of FATF? On FATF blacklist?
Not a member of FATF and not blacklisted.
Dr. Oliver Massmann is a partner and director at Duane Morris Vietnam LLC