A transaction office of Prudential Viet Nam Assurance Private Limited__Photo: https://www.prudential.com.vn/

The Government on July 1 issued Decree 46, detailing a number of articles of the Law on Insurance Business against the backdrop of several controversial cases recently occurring in the country’s insurance market.

The new decree is expected to serve as an important legal basis for stricter management of the insurance sector, thereby helping the insurance market develop in the right direction and bring about positive results.

Among other things, the Decree guides in detail licensing requirements for insurers and the insured, makes changes to minimum charter capital/allocated capital of insurance businesses, and tightens conditions for provision of “bancassurance”.

Expansion of the subjects of application

Compared to Decree 73 of 2016, the new decree specifies more clearly subjects of application, such as non-life insurers, life insurers, health insurers, reinsurers, insurance agents, insurance brokers, providers of insurance auxiliary services, and mutual organizations providing micro-insurance products.

It also adds a new group of subjects of application being branches of foreign non-life insurers and foreign reinsurers (below referred to as foreign branches), and representative offices of foreign insurers, reinsurers, insurance brokers, and financial and insurance corporations in Vietnam.

Insurance buyers, the insured, beneficiaries, state management agencies in charge of insurance business, and organizations and individuals involved in insurance business are also subjects of this Decree.

Higher financial requirements

Financial requirements for grant of establishment and operation licenses

Under Article 11, specifying financial requirements for grant of establishment and operation licenses for insurers, reinsurers and foreign branches, an organization that contributes a capital amount representing 10 percent or more of the charter capital for establishment of an insurer or a reinsurer must, in addition to the conditions specified in the Law on Insurance Business, satisfy the following financial requirements:

(i) If engaged in the business lines that require legal capital, minimum charter capital or minimum capital, it has a positive difference between its equity and the aforementioned required capital larger than or equal to its projected capital contribution;

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(ii) If established and operating in accordance with the Law on Credit Institutions, Law on Insurance Business or Law on Securities, it maintains its financial prudence conditions and is permitted by a competent authority to make capital contribution;

(iii) If a foreign insurer, foreign reinsurer or foreign financial and insurance corporation, it maintains its financial prudence conditions and is approved by a competent authority of the country where it is headquartered to establish an insurance or a reinsurance business in Vietnam; and

(iv) Its financial statements for three consecutive years preceding the year of license application receive unqualified opinions.

Financial requirements for setting up foreign branches

As required by the new decree, foreign non-life insurance and reinsurance firms must, when establishing their branches in Vietnam, in addition to the conditions specified at Points (i) and (iv) above and conditions specified in the Law on Insurance Business, be certified by competent authorities of their home countries of maintaining the financial prudence conditions and not seriously violating the law on insurance business in the last three consecutive years preceding the year of application.

Increase of minimum charter capital/allocated capital

The term “minimum charter capital” or “minimum allocated capital” is used in the new decree to replace the term “legal capital”.

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Compared to the old version, it requires insurers and reinsurers to increase their minimum charter capital while foreign branches to increase their minimum allocated capital. (See the Table)

Insurers, reinsurers and insurance brokers established, organized and operating before the effective date of Decree 46 and having charter capital lower than the minimum charter capital specified in this Decree must increase their charter capital to meet the minimum charter capital requirements before January 1, 2028.

According to the Ministry of Finance, the increase in the minimum charter capital of insurance firms is based on the development of Vietnam’s insurance market which has maintained a double-digit growth for a long time and is expected to help insurers improve their financial capacity, ensure their capacity to pay upon the occurrence of insured events and realize their commitments to insurance buyers.

Figures gathered by the Vietnam Investment Review show that, at present, the charter capital of most life and non-life insurers in the market is higher or even several times higher than the minimum level under the new regulations. For example, Manulife Vietnam is leading the life sector with a charter capital of VND 18,546 billion, while PVI Insurance is leading the non-life sector with a charter capital of VND 3,300 billion.

Tightened conditions for organization and operation of insurance agents

Credit institutions and foreign bank branches wishing to act as insurance agents are required to set up a specialized section to carry out insurance agency activities of which the head must have at least three years’ working experience in the finance, banking or insurance sector and possess a bachelor degree in insurance. If he/she does not possess a bachelor degree in insurance, a bachelor degree in another major and an insurance training certificate will be required.

In addition, a branch of a credit institution that carries out insurance agency activities must have at least three employees who are trained in insurance profession and possess insurance agent certificates.

Meanwhile, a transaction office of a credit institution that carries out insurance agency activities must have at least one employee who satisfies the above-mentioned conditions.

Moreover, credit institutions and foreign bank branches wishing to act as insurance agents are required to have appropriate information technology systems to promptly provide information related to insurance policies in a complete and accurate manner, and a process of supervising and controlling the quality of insurance agency activities performed by their employees in order to ensure that these employees strictly comply with agency operation principles stated in agency contract and relevant laws.

At each branch or transaction office of credit institutions and foreign bank branches acting as insurance agents, a separate transaction counter must be set up to carry out insurance agency activities separately from other professional operations of such credit institutions and foreign bank branches.

An insurance agent other than a unit of a credit institution or foreign bank branch is required to have at least three employees who directly perform insurance agency activities and a process of monitoring its employees’ compliance with operational principles.

Branches or transaction offices of credit institutions and foreign bank branches acting as insurance agents that fail to satisfy one of the specified requirements may no longer carry out insurance agency activities until all these requirements are satisfied and are required to notify such to their contracted insurers, foreign branches or mutual organizations providing micro-insurance products within five working days from the date of their failure.

Insurance agency contracts will be terminated if such branches or offices fail to satisfy the specified requirements within six months from the date of notification.

The deadline for organizations engaged in insurance agency activities to meet the newly specified conditions is July 1, 2024.-