Vietnam issues new decree on insurance business
Effective from July 1, 2016, Decree No. 73 makes amendments and improvements to the nearly 10-year-old rules on insurance business conditions.

Dang Chi Lieu

Partner, Baker & McKenzie (Vietnam) Ltd.

Effective from July 1, 2016, Decree No. 73[1] makes amendments and improvements to the nearly 10-year-old rules on insurance business conditions. With the view to reforming the insurance legal framework, Decree No. 73 covers a comprehensive scope of legal aspects, from corporate establishment and operation to financial and investment regimes, for local insurers, insurance brokers, agents and insurance-related entities in Vietnam. Previously, laws on insurance business fell under Decree No. 45[2], Decree No. 46[3], as amended in 2011 by Decree No. 123[4], and in 2014 by Decree No. 68[5] (collectively, the “Previous Rules”).

Decree No. 73 improves and streamlines the legal framework and addresses practical issues for the development of the market. However, Decree No. 73 also contains some stricter or new requirements. These include, among other things, qualifications and shareholding structure for institutional shareholders in local joint stock insurers, IT systems, additional operational reserves, and restrictions on offshore reinsurance.

Requirements for institutional shareholders in an insurance joint stock company

Under the Previous Rules, in order to set up a Vietnam-based insurance business in the form of joint stock company (JSC), there must be at least two founding institutional shareholders investing in the local insurer. Decree No. 73 additionally requires that those institutional shareholders must satisfy the same requirements as those which currently apply only to institutional investors in an insurance joint venture or limited liability company (LLC).

Accordingly, an offshore insurer wishing to set up or invest in a local insurer in Vietnam, whether in the form of LLC or JSC, must have, among other things, at least 10 years of operation experience; a minimum of USD 2 billion as its total asset value; and a good standing in the past three years.

Furthermore, the institutional shareholders must own at least 20 percent of the insurance JSC’s total shares. This requirement aims to improve corporate governance and financial capacity for insurance JSCs in Vietnam.

Licensing procedures for merger & acquisition (M&A) deals

Under Decree No. 73, the Ministry of Finance (MOF) will issue an approval for an M&A transaction within 30 days after receiving an application dossier. Within 10 business days from the date of completion of the transaction, the insurer is required to report the result on the implementation of the M&A transaction to the MOF. And within 10 business days after receiving the report and relevant documents, the MOF will issue an amended license.

In fact, we note that Decree No. 73’s amendment in this respect is basically to confirm the practice of the MOF’s approval process, rather than to provide an entirely new policy. The difference here is about the timing. The timeline to obtain the approval under Decree No. 73 is nearly double the timeline under the Previous Rules.

Deputy Prime Minister Vuong Dinh Hue addresses the working session with the Vietnam Social Security on social and health insurance laws and policies for the 2016-20 period _Duong Ngoc/VNA

Restrictions on reinsurance

Decree No. 73 includes revisions to the provisions on reinsurance. According to the MOF, these are aimed at improving the retention level of the local insurance market, reducing the Vietnamese market’s reliance on offshore reinsurers, and more quickly protecting the interest of the insured, especially for major projects in Vietnam.

Under Decree No. 73, the maximum level of liability per single risk or loss that a local insurer may retain must not exceed 10 percent of its owner equity capital.

If a local insurer cedes insurance in accordance with a designation of the insured, the maximum rate of reinsurance to be designated must not exceed 90 percent of the level of insurance liability.

Registration of vehicle insurance products

Decree No. 73 requires non-life insurers to register policy wording, terms and conditions, premium schedule of vehicle insurance products. An approval from the MOF is required before the relevant non-life insurers can sell those insurance products to the market.

Requirements for insurance agents

In term of requirements applicable to insurance agents, Decree No. 73 stipulates that every individual, who was granted an insurance agent certificate, must apply for a new certificate if he or she has not acted as an insurance agent for a period of three years. Not acting as an insurance agent is construed as either (i) not signing any individual insurance agent contract with an insurer; or (ii) not working in an organizational insurance agency for an insurer.

Other amendments

Decree No. 73 requires life insurers to make operational reserves for ensuring the interest rates that they commit to pay under insurance policies. Operational reserves, for reinsurance or health insurance, are also required for any insurers which provide reinsurance or health insurance, respectively.

Insurers can invest in, among other things under the Previous Rules, local authority bonds and fund certificates.

The sale of insurance products “via electronic transactions” is added into the possible channels that local insurers can use for sale of insurance products, together with those which are currently permitted, including: direct sale, via insurance agents, insurance brokers, and via tendering. This is to provide a legal basis to recognize and promote online distribution channel in the market.-

[1] Decree No. 73/2016/ND-CP dated July 1, 2016 ,of the Government providing detailed regulations on the implementation of the Law on Insurance Business and the amended Law on Insurance Business (“Decree No. 73”).
[2] Decree No. 45/2007/ND-CP dated March 27, 2007, of the Government providing detailed regulations on the implementation of a number of articles of the Law on Insurance Business (“Decree No. 45”).
[3] Decree No. 46/2007/ND-CP dated March 27, 2007, of the Government providing regulations on financial regime of insurance enterprises and insurance brokerage enterprises (“Decree No. 46”).
[4] Decree No. 123/2011/ND-CP dated 28 December 2011 of the Government providing detailed regulations on the implementation of a number of articles of the amended Law on Insurance Business, and amending and supplementing a number of articles of Decree No. 45 (“Decree No. 123”).
[5] Decree No. 68/2014/ND-CP dated July 9, 2014, of the Government on amendments to Decree No. 45 (“Decree No. 68”).

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