Circular No. 156/2007/TT-BTC guiding the implementation of Decree No. 46/2007/NĐ-CP dated March 27, 2007 of the Government on financial regulations for insurance enterprises and insurance brokerage enterprises.

CIRCULAR

Guidelines for implementing Decree No. 46/2007/NĐ-CP dated March 27

 2007 of the Government on financial regulations for insurance enterprises and insurance brokerage enterprises

 

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Pursuant to the Law on Insurance Business No. 24/2000/QH10 dated December 9, 2000;

Pursuant to Decree No. 46/2007/NĐ-CP dated March 27, 2007 of the Government on financial regulations for insurance enterprises and insurance brokerage enterprises;

Pursuant to Decree No. 77/2003/NĐ-CP dated July 1, 2003 of the Government on the functions, tasks, powers, and organizational structure of the Ministry of Finance;

Pursuant to the guidance of the Prime Minister in Official Letter No. 7195/VPCP-KTTH dated December 11, 2007 of the Office of the Government regarding the issuance of Circular guiding Decree No. 46/2007/NĐ-CP.

The Ministry of Finance guides the financial regime for insurance enterprises and insurance brokerage enterprises as follows:

This technical regulation sets out technical requirements, testing methods, sampling procedures; management requirements; responsibilities of organizations and individuals producing, trading, and importing cigarettes.

1. This Circular guides the financial regime for insurance enterprises and insurance brokerage enterprises established, organized, and operating under the Law on Insurance Business.

2. Insurance enterprises and insurance brokerage enterprises shall be responsible for complying with the provisions of this Circular and related laws on finance.

3. The Chairman of the Board of Directors, the Chairman of the Board of Members, the Chairman of the Company, and the General Director (Director) of insurance enterprises and insurance brokerage enterprises shall bear responsibility under the law and before state management agencies for the implementation of the financial management regime of the enterprise.

4. The Ministry of Finance shall guide and create conditions for insurance enterprises and insurance brokerage enterprises to implement the provisions of this Circular and related laws on finance, and take strict measures against enterprises that violate the law.

II. REGISTERED CAPITAL

1. The provisions on registered capital of insurance enterprises and insurance brokerage enterprises shall be implemented according to Article 5 of Decree No. 46/2007/NĐ-CP dated March 27, 2007 of the Government on financial regulations for insurance enterprises and insurance brokerage enterprises ("Decree No. 46/2007/NĐ-CP").

2. After being granted permission to establish and operate, the amount of money in the frozen account at the bank as stipulated in Clause 1, Article 7 of Decree No. 45/2007/NĐ-CP dated March 27, 2007 of the Government detailing the implementation of certain articles of the Law on Insurance Business ("Decree No. 45/2007/NĐ-CP") shall be converted into contributed registered capital of insurance enterprises and insurance brokerage enterprises and used according to the provisions on registered capital of enterprises in this Circular and related laws.

3. Contributed registered capital of insurance enterprises and insurance brokerage enterprises is the amount of registered capital contributed by the owner into the enterprise.

4. Throughout the course of operation, insurance enterprises and insurance brokerage enterprises must always maintain their contributed registered capital not lower than the statutory capital as prescribed in Article 4 of Decree No. 46/2007/NĐ-CP.

5. The contributed registered capital of insurance enterprises and insurance brokerage enterprises must be commensurate with the content, scope, and geographical area of operation of the enterprise as follows:

5.1. During the process of business operations, if the equity capital of insurance enterprises and insurance brokerage enterprises is lower than the statutory capital, the enterprise must increase its contributed registered capital to ensure that the equity capital does not fall below the statutory capital.

5.2. An insurance enterprise engaged in non-life insurance with contributed registered capital equal to the statutory capital may conduct all types of non-life insurance except aviation insurance, oil and gas insurance, and satellite insurance. To engage in one or all of these types of insurance, the enterprise must increase its contributed registered capital by an additional 100 billion Vietnamese dong above the statutory capital.

5.3. An insurance brokerage enterprise engaging simultaneously in both primary insurance brokerage and reinsurance brokerage must increase its contributed registered capital by an additional 4 billion Vietnamese dong above the statutory capital.

5.4. An insurance enterprise with contributed registered capital equal to the statutory capital may open a maximum of 20 branches and representative offices. For each additional branch or representative office, the insurance enterprise must increase its contributed registered capital by 10 billion Vietnamese dong.

6. For insurance enterprises and insurance brokerage enterprises established, organized, and operating before the effective date of Decree No. 46/2007/NĐ-CP, the specific provisions on supplementary registered capital are as follows:

6.1. In cases where the enterprise does not change the content, scope, and geographical area of operation, it must comply with the provisions on supplementary contributed registered capital as stipulated in Clause 5, Part II of this Circular within three years from the effective date of Decree No. 46/2007/NĐ-CP.

6.2. In cases where the enterprise changes the content, scope, and geographical area of operation, it must immediately comply with the provisions on supplementary contributed registered capital as stipulated in Clause 5, Part II of this Circular.

Within six months from the effective date of this Circular, insurance enterprises and insurance brokerage enterprises with contributed registered capital lower than the stipulated level in this Circular must submit to the Ministry of Finance a plan to supplement registered capital as stipulated in Clause 6, Part II of this Circular and must implement the plan submitted to the Ministry of Finance.

III. INSURANCE BUSINESS RESERVES

1. Insurance business reserves are amounts of money that enterprises must set aside for the purpose of settling pre-determined and arising liabilities from insurance contracts.

2. For enterprises engaged in non-life insurance:

2.1. Enterprises engaged in non-life insurance must establish various types of insurance business reserves as prescribed in Article 8 of Decree No. 46/2007/NĐ-CP.

2.2. Enterprises engaged in non-life insurance are permitted to choose and register with the Ministry of Finance the method of establishing insurance business reserves as guided in Point 2.4, Clause 2, Part III of this Circular. If an enterprise applies a different method of establishing insurance business reserves, it must ensure that the result of the reserves is higher and obtain written approval from the Ministry of Finance before applying such method.

2.3. Non-life insurance enterprises shall not change the method of establishing insurance business reserve during the fiscal year. In case of changing the method of establishing insurance business reserve for the next fiscal year, the non-life insurance enterprise must request and obtain written approval from the Ministry of Finance before implementation.

2.4. Methods of establishing insurance business reserves for non-life insurance:

2.4.1. Unearned premium reserve:

a) Method based on a percentage of total premiums:

+ For cargo transportation insurance business via road, sea, river, rail, and air: 25% of the total retained premiums of the insurance business in the fiscal year.

+ For other insurance businesses: 50% of the total retained premiums of the insurance businesses in the fiscal year.

b) Method based on a factor of the term of the insurance contract:

+ Method 1/8: This method assumes that premiums from insurance contracts issued in a quarter by the insurer are evenly distributed throughout the quarter, or in other words, all insurance contracts of a specific quarter are assumed to be effective in the middle of that quarter. The unearned premium reserve will be calculated according to the following formula:

Example: The unearned premium reserve at December 31, 2007, is calculated as follows:

For insurance contracts with a term of one year and still valid on December 31, 2007:

For insurance contracts with a term over one year: The unearned premium ratio according to the above formula will have a denominator equal to the term of the insurance contract (in years) multiplied by 8. The unearned premium reserve at December 31, 2007, for an insurance contract with a two-year term and still valid on December 31, 2007, is calculated as follows:

+ Method 1/24: This method assumes that premiums from insurance contracts issued in a month by the insurer are evenly distributed throughout the month, or in other words, all insurance contracts of a specific month are assumed to be effective in the middle of that month. The unearned premium reserve will be calculated according to the following formula:

Example: The unearned premium reserve at December 31, 2007, is calculated as follows:

For insurance contracts with a term of one year and still valid on December 31, 2007:

For insurance contracts with a term over one year: The unearned premium ratio according to the above formula will have a denominator equal to the term of the insurance contract (in years) multiplied by 24. The unearned premium reserve at December 31, 2007, for an insurance contract with a two-year term and still valid on December 31, 2007, is calculated as follows:

c) Method of establishing unearned premium reserve on a daily basis: This method can be applied to calculate the unearned premium reserve for insurance contracts of any term according to the general formula below:

2.4.2 Claim reserve:

a) Method of establishing claim reserve based on claim settlement files: According to this method, non-life insurance enterprises must establish two types of reserves:

+ Claim reserve for unsettled claims: Established for each insurance business according to the estimated amount of compensation for each loss within the scope of insurance liability that has been reported or claimed but not settled by the end of the fiscal year.

+ Claim reserve for losses within the scope of insurance liability that have occurred but not reported or claimed: Established for each insurance business according to the following formula:

Where:

The compensation amount generated in a fiscal year includes the actual compensation paid in the year plus the claim reserve for unsettled claims at the end of the year.

The average delay in claim reporting is the average time from when the loss occurs until the insurer receives the loss report or claim file (in days).

b) Method of establishing claim reserve based on the emergence ratio:

This method is applied to establish claim reserve for each insurance business based on the principle of using past compensation data to calculate emergence ratios to predict the amount of compensation that the non-life insurance enterprise will need to pay in the future. To calculate the claim reserve according to this method, the non-life insurance enterprise needs to analyze past data to ensure that compensation payments over the years follow stable patterns and there are no anomalies.

Example: Calculating the claim reserve according to the emergence ratio method for a specific insurance business at December 31, 2007:

+ Step 1: Statistics of all actual compensation payments up to December 31, 2007, classified by the year of loss occurrence and the year of compensation as shown in the table below (data for illustrative purposes only):

Unit: million dong

According to the above claim statistics (row 2000):

The actual compensation paid in 2000 (the first year of compensation) for losses occurring in 2000 was 5.445 billion VND.

The actual compensation amount paid in 2001 (the second year of compensation) for losses occurring in 2000 was 3,157 million VND.

The actual compensation amount paid in 2002 (the third year of compensation) for losses occurring in 2000 was 2,450 million VND.

The statistics of compensation amounts in subsequent years for losses occurring in 2000 were conducted similarly until there were no additional compensation amounts to be paid. In this example, after 2007 (the eighth year of compensation), there were no further compensation amounts to be paid for losses occurring in 2000.

The statistics of compensation amounts for losses occurring in 2001, 2002,..., 2007 were carried out similarly to those for 2000. The number of past years required for statistical data on compensation will depend on the length of time from when the loss occurred to when it was fully compensated. Generally, liability insurance operations require more past years for statistical data on compensation compared to other types of insurance such as property insurance...

+ Step 2: Convert the annual compensation statistics table prepared above into a cumulative compensation statistics table, where the cumulative compensation amount for each year is the total of the actual compensation amounts paid that year and all previous years.

Unit: million dong

According to the cumulative compensation statistics table mentioned above (row for the year 2000):

The cumulative compensation amount for 2000 (the first year of compensation) for losses occurring in 2000 was 5,445 million VND.

The cumulative compensation amount for 2001 (the second year of compensation) for losses occurring in 2000 was 3,157 million VND + 5,445 million VND = 8,602 million VND.

The cumulative compensation amount for 2002 (the third year of compensation) for losses occurring in 2000 was 2,450 million VND + 8,602 million VND = 11,052 million VND.

+ Step 3: Calculate the compensation emergence factor for each year by dividing the cumulative compensation amount of the following year by that of the preceding year.

Unit: million dong

Then calculate the average compensation emergence factor from the first year to the second year, from the second year to the third year, from the third year to the fourth year...by calculating the average value of the compensation emergence factors in each column in the table above.

+ Step 4: Use the average compensation emergence factor obtained in step 3 to estimate the cumulative compensation amount for each year for losses occurring in 2000, 2001,..., 2007 (bolded part in the table below):

Unit: million dong

According to the table above (row for the year 2007):

The cumulative compensation amount for 2008 (the second year of compensation) for losses occurring in 2007 was 15,162 million VND x 1.625 = 24,638 million VND (1.625 is the average compensation emergence factor from the first year to the second year).

The cumulative compensation amount for 2009 (the third year of compensation) for losses occurring in 2007 was 24,638 million VND x 1.236 = 30,453 million VND (1.236 is the average compensation emergence factor from the second year to the third year).

The cumulative compensation amount for 2010 (the fourth year of compensation) for losses occurring in 2007 was 30,453 million VND x 1.163 = 35,417 million VND (1.163 is the average compensation emergence factor from the third year to the fourth year).

The cumulative compensation amount for each year for losses occurring in 2006, 2005,..., 2000 is calculated similarly to that for 2007.

+ Step 5: Estimate the provision for compensation:

The estimated provision for compensation at December 31, 2007 is calculated by subtracting the total amount of compensation already paid for losses occurring in 2000, 2001,..., 2007 up to December 31, 2007 from the total estimated amount of compensation to be paid for those losses, wherein:

The total estimated amount of compensation to be paid for losses occurring in 2000, 2001,..., 2007 is the cumulative compensation amount at the eighth year of compensation in the table above.

The total amount of compensation already paid for losses occurring in 2000, 2001,..., 2007 up to December 31, 2007 is the cumulative compensation amount along the diagonal of the table above.

Unit: million dong

Therefore, with the compensation statistics data as above, the estimated provision for compensation of the insurance business under study at December 31, 2007 is 58,469 million VND.

2.4.3. Provision for compensation for significant fluctuations in losses:

The provision for compensation for significant fluctuations in losses is established annually until the provision equals 100% of the actual premium retained by the insurance company in the fiscal year. The annual establishment rate is applied at a ratio of 3% to 5% of the actual premium retained.

3. For life insurance companies:

3.1. Life insurance companies must establish various types of insurance operation provisions in accordance with Article 9 of Decree No. 46/2007/NĐ-CP and must be confirmed by the company's actuarial experts.

3.2. Life insurance companies are permitted to choose and propose to the Ministry of Finance for approval the method and basis for establishing insurance operation provisions as stipulated in Point 3.4 Clause 3 Section III of this Circular. In cases where the company applies a different method and basis for establishing insurance operation provisions, it must ensure that the results of the insurance operation provisions are higher and approved in writing by the Ministry of Finance before implementation.

3.3. Life insurance companies are not allowed to change the method and basis for establishing insurance operation provisions within a fiscal year. In the case of changing the method and basis for establishing insurance operation provisions for the next fiscal year, the life insurance company must request and obtain written approval from the Ministry of Finance before implementation.

3.4. Method of establishing insurance operation provisions:

3.4.1. Mathematical reserve:

a) Establishment method: according to the adjusted pure premium method, adjusted by a 3% Zillmer factor of the sum insured. The adjusted pure premium used to calculate the reserve may not exceed 90% of the actual premium received.

b) The principle of mathematical reserve calculation: the mathematical reserve is calculated using the pure premium method adjusted by Zillmer 3% of the insurance amount according to the following principles:

c) Basis for calculating reserves: life insurance enterprises shall use the following bases to calculate mathematical reserves:

+ The mortality table prescribed in the Appendix attached to this Circular (CSO 1980 Mortality Table).

+ The maximum technical interest rate equal to 80% of the government bond interest rate with a term of 10 years at the nearest point in time before the reserve is established.

d) The mathematical reserve is considered to be zero when the result obtained from the method and basis mentioned above is negative.

3.4.2. Unearned premium reserve: shall be applied as for non-life insurance contracts.

3.4.3. Claims reserve: shall be extracted on a case-by-case basis with the level of extraction calculated based on the statistical amount of insurance payable for each claim file requested for compensation by the insurer but not resolved by the end of the fiscal year.

3.4.4. Dividend reserve: only applies to contracts with accumulated dividends over the years of the insurance policy and is calculated according to the following formula:

3.4.5. Balance guarantee reserve: shall be established annually until this reserve equals 5% of the premiums received in the fiscal year of the insurance enterprise. The annual establishment rate is 1% of the pre-tax profit of the insurance enterprise.

IV. INVESTMENT OF CAPITAL

1. Insurance enterprises and insurance brokerage enterprises shall implement capital investment in accordance with the provisions of Section 3, Chapter II of Decree No. 46/2007/ND-CP.

2. The portion of the owner's equity of insurance enterprises and insurance brokerage enterprises corresponding to the statutory capital of the enterprise may only be invested in Vietnam and may not be used for investment in the form of loans, reinvestment in shareholders or related parties as stipulated in Article 4 of the Enterprise Law except for bank deposits.

3. The portion of the owner's equity corresponding to the minimum solvency margin of insurance enterprises shall be invested in accordance with the regulations governing idle capital from business reserves as stipulated in Article 14 of Decree No. 46/2007/ND-CP and may not be used for investment in the form of loans, reinvestment in shareholders or related parties as stipulated in Article 4 of the Enterprise Law except for bank deposits.

4. All overseas investments of insurance enterprises and insurance brokerage enterprises must comply with current laws on overseas investment and must be conducted under the name of the enterprise and approved in writing by the Ministry of Finance before implementation.

5. Insurance enterprises and insurance brokerage enterprises must account separately for investments from owner's equity and idle capital from business reserves and ensure consistent recording of investment assets.

V. SOLVENCY OF INSURANCE ENTERPRISES

1. Insurance enterprises must maintain solvency throughout their insurance operations in accordance with the provisions of Article 15 of Decree No. 46/2007/ND-CP.

2. Insurance enterprises are at risk of losing solvency when the solvency margin of the insurance enterprise is lower than the minimum solvency margin.

3. Minimum solvency margin:

3.1. The minimum solvency margin of non-life insurance enterprises is the greater of the following calculation results:

+ 25% of the total retained premium at the time of calculating the solvency margin;

+ 12.5% of the total original premium and reinsurance premium at the time of calculating the solvency margin.

For insurance contracts that do not meet the conditions for reinsurance as prescribed by the Ministry of Finance, the minimum solvency margin is calculated as 100% of the original premium of those insurance contracts.

3.2. The minimum solvency margin of life insurance enterprises:

3.2.1. For life insurance contracts with a term of five years or less, it is the sum of 4% of the business reserve and 0.1% of the risked insurance amount;

3.2.2. For life insurance contracts with a term exceeding five years, it is the sum of 4% of the business reserve and 0.3% of the risked insurance amount.

The risked insurance amount is the difference between the total insurance amount of valid insurance contracts and the total business reserve.

4. The solvency margin of insurance enterprises is the difference between the asset value and liabilities of the insurance enterprise at the time of calculating the solvency margin. The liquidity of assets when calculating the solvency margin is determined as follows:

4.1. Assets accepted at full book value:

4.1.1. Cash balances including cash, bank deposits, funds in transit, government bonds.

4.1.2. Assets corresponding to insurance contracts under investment-linked insurance business.

4.2. Assets excluded from full book value:

4.2.1. Capital contributions to establish other insurance enterprises from the owner's equity of the insurance enterprise;

4.2.2. Assets corresponding to bonus and welfare funds (if any);

4.2.3. Debts with no prospect of recovery as prescribed by law after deducting corresponding bad debt provisions;

4.2.4. Intangible fixed assets excluding computer software;

4.2.5. Prepaid expenses, unsecured loans, advances, office equipment and supplies, internal receivables;

4.2.6. Overdue insurance and reinsurance premiums more than two years after deducting corresponding bad debt provisions as prescribed by law;

4.2.7. Loans and investments returned to shareholders or related parties as prescribed in Article 4 of the Enterprise Law, except for bank deposits.

4.3. Assets excluded from the full value for accounting purposes:

4.3.1. Investment assets:

a) Guaranteed corporate bonds: exclude 1% of the accounting value;

b) Non-guaranteed corporate bonds: exclude 3% of the accounting value;

c) Listed shares: exclude 15% of the accounting value;

d) Unlisted shares: exclude 20% of the accounting value;

đ) Direct investment in real estate used by the enterprise itself: exclude 8% of the accounting value;

e) Direct investment in real estate for leasing, commercial loans with guarantees: exclude 15% of the accounting value;

g) Capital contributions to other enterprises excluding insurance companies: exclude 20% of the accounting value.

4.3.2. Accounts receivable:

a) Premiums and reinsurance fees receivable overdue from 90 days to less than one year, after deducting corresponding provisions for doubtful debts as prescribed by law: exclude 30%;

b) Premiums and reinsurance fees receivable overdue from one year to less than two years, after deducting corresponding provisions for doubtful debts as prescribed by law: exclude 50%.

4.3.3. Tangible fixed assets, intangible fixed assets which are computer software, and inventory: exclude 25% of the accounting value.

4.3.4. Other assets: exclude 15% of the accounting value.

VI.  INSURANCE ENTERPRISE REVENUE AND EXPENSES

1.  Revenue:

1.1. Insurance enterprise revenue includes receipts as prescribed in Article 20 of Decree No. 46/2007/NĐ-CP, including:

1.1.1. Revenue from insurance operations: premium income; reinsurance fee income; reinsurance commission income; service agent fees including loss assessment, claim settlement review, third-party reimbursement request, 100% claim processing; loss assessment fees excluding internal loss assessment between affiliated units within the same independently accounting insurance enterprise after deducting expenses to reduce revenue such as: premium refunds; premium reductions; reinsurance premium payments; reinsurance fee refunds; reinsurance fee reductions; reinsurance commission refunds; reinsurance commission reductions.

1.1.2. Financial operation revenue: investment income as prescribed in Section 3 Chapter II of Decree No. 46/2007/NĐ-CP; income from securities trading; interest on pledged funds; rental income and other financial operation income as prescribed by law.

1.1.3. Other operating income: income from the sale and liquidation of fixed assets; recovered bad debts and other income as prescribed by law.

1.2. Principles for determining revenue:

1.2.1. Revenue from insurance operations is the amount receivable generated during the period determined according to the following principles:

- The insurance enterprise records the original premium income as income when the insurance enterprise assumes liability towards the policyholder as prescribed in Article 15 of the Insurance Business Law, specifically as follows:

+ The insurance enterprise records as income when the insurance contract has been concluded between the insurance enterprise and the policyholder or there is evidence that the insurance enterprise has accepted the insurance and the policyholder has paid the premium.

 + The insurance enterprise agrees to allow the policyholder to owe the premium. In this case, the insurance enterprise must still record the owed amount as income even though the policyholder has not yet paid the premium.

+ The insurance enterprise agrees with the policyholder to pay premiums periodically. In this case, the insurance enterprise records as income the corresponding or multiple periods' premiums that have occurred, not recording as income the portion of the premium that has not yet reached the payment period agreed upon.

+ For cases where the insurance contract stipulates the allocation of original premium income based on the proportion of the insurance contract, the insurance enterprise records as income the allocated premium income.

- The insurance enterprise records reinsurance fee income, reinsurance commission income, and other income generated from reinsurance activities when the reinsurance settlement statement is confirmed. If the insurance enterprise agrees with the reinsurer to pay premiums periodically, it will record as income the corresponding or multiple periods' reinsurance fees that have occurred, not recording as income the portion of the reinsurance fee that has not yet reached the payment period agreed upon.

- For remaining receipts: the insurance enterprise records as income immediately when economic activities occur, with evidence of approval for payment from all parties, regardless of whether the money has been received or not.

- For expenses to reduce revenue: the insurance enterprise records as reduced income immediately when economic activities occur, with evidence of approval from all parties, regardless of whether the money has been spent or not.

1.2.2. Financial operation revenue is the amount receivable generated during the fiscal year.

1.2.3. Other operating income is the total amount from selling goods and services after deducting sales discounts, returned goods (if valid documentation exists) approved for payment by customers, regardless of whether the money has been received or not.

2. Expenses:

Insurance enterprise expenses include expenditures and provisions arising during the period as prescribed in Article 21 of Decree No. 46/2007/NĐ-CP, including:

2.1. Insurance operation expenses:

2.1.1 Claims payments under original insurance contracts (original insurance claims payments for non-life insurance, insurance benefit payments for life insurance), reinsurance contracts after deducting receivables to reduce expenses such as reinsurance claim payments, third-party reimbursement collections, processed and fully compensated items;

2.1.2. Provisions for business risks as prescribed in this Circular's Section III;

2.1.3. Payment for insurance commissions and insurance brokerage commissions in accordance with Point 6, Section V, Circular No. 155/2007/TT-BTC dated December 20, 2007 of the Ministry of Finance guiding the implementation of Decree No. 45/2007/NĐ-CP;

2.1.4. Loss assessment costs in accordance with Article 26 of Decree No. 45/2007/NĐ-CP;

2.1.5. Agency service fees including loss assessment, examination and settlement of compensation claims, and third-party reimbursement requests;

2.1.6. Costs for handling fully compensated losses;

2.1.7. Agency management costs such as training and recruitment expenses for agents, agent incentive payments, and other agreed-upon expenses under the agency contract;

2.1.8. Prevention and limitation of losses costs not exceeding 2% of the actual premium income in the fiscal year for measures to prevent and limit losses as stipulated in Clause 2, Article 25 of Decree No. 45/2007/NĐ-CP;

2.1.9. Risk assessment costs for insured objects including expenses for information gathering, investigation, and evaluation of insured objects;

2.1.10. Allocating 5% of the total mandatory fire and explosion insurance premiums collected annually towards fire prevention and firefighting activities; allocating at least 2% of the annual revenue from compulsory civil liability insurance premiums for motor vehicles towards public awareness campaigns and traffic safety assurance funds; other business expense allocations according to legal provisions;

2.1.11. Other expenses and allocations as prescribed by law;

2.2. Financial activity costs are the amounts to be expended in the fiscal year, including:

2.2.1. Investment activity costs as stipulated in Section 3, Chapter II of Decree No. 46/2007/NĐ-CP;

2.2.2. Investment income payable to policyholders as committed in life insurance contracts;

2.2.3. Asset rental costs;

2.2.4. Bank transaction fees and interest on loans;

2.2.5. Other expenses and allocations as prescribed by law;

2.3. Other activity costs are the amounts to be expended in the fiscal year, including:

2.3.1. Proceeds from the sale and liquidation of fixed assets;

2.3.2. Costs for recovering previously written-off difficult-to-collect receivables that have now been recovered;

2.3.3. Other expenses and allocations as prescribed by law;

3. Other provisions regarding the revenue and costs of insurance companies;

In addition to the provisions set forth in Points 1 and 2 above, other revenues and costs of insurance companies shall be implemented in accordance with legal regulations;

VII. REVENUE AND COSTS OF INSURANCE BROKER COMPANIES;

1. Revenue;

The revenue of insurance broker companies is defined in Article 24 of Decree No. 46/2007/NĐ-CP, including:

1.1. Brokerage revenue: commission income from insurance brokerage after deducting brokerage commissions and reduced brokerage commissions;

1.2. Financial activity revenue: income from securities trading; interest income from deposits and loans; income from asset leasing and other financial activity revenues as prescribed by law;

1.3. Other activity income: proceeds from the sale and liquidation of fixed assets; recovery of previously written-off difficult-to-collect receivables;

2. Costs;

2.1. Costs of insurance broker companies are defined in Article 25 of Decree No. 46/2007/NĐ-CP, including:

2.1.1. Brokerage activity costs: brokerage activity costs; purchase of professional liability insurance costs;

2.1.2. Financial activity costs: asset rental costs; bank transaction fees and interest on loans;

2.1.3. Other activity costs: proceeds from the sale and liquidation of fixed assets; costs for recovering previously written-off difficult-to-collect receivables;

2.2. Insurance broker company expenses incurred during the period must be supported by valid invoices or receipts;

3. In addition to the provisions in Items 1 and 2 above, other revenues and costs of insurance broker companies shall be implemented in accordance with legal regulations;

VIII. SEPARATION OF FUNDS AND DISTRIBUTION OF SURPLUS IN LIFE INSURANCE;

1. Separation of owner's fund and policyholder's fund;

1.1. Life insurance companies must separate and account for owner's capital and policyholder's premiums separately (hereinafter referred to as owner's fund and policyholder's fund);

1.2. The policyholder's fund may be further divided into non-participating policyholder's fund and participating policyholder's fund. Depending on the requirements of the Ministry of Finance, life insurance companies may further detail these policyholder's funds;

1.3. The separation of assets, capital, revenue, costs, and business results of each fund must ensure fairness, reasonableness, and objectivity;

1.4. Assets formed from policyholder's funds must be used to meet the obligations and costs related to the transactions of the respective policyholder's fund. Life insurance companies may not use policyholder's fund assets to pay fines resulting from violations of laws or breaches of contracts by life insurance companies;

1.5. Transactions directly related to a specific fund must be recorded separately for that fund. Calculation experts of the company are responsible for ensuring that transactions involving multiple funds are aggregated and allocated to each fund based on fair and reasonable criteria. The company must determine and register with the Ministry of Finance the allocation principles before applying them. Any changes to these principles must be approved by the Ministry of Finance;

1.6. Life insurance companies must report on the separation and maintenance of owner's fund and policyholder's fund in accordance with legal regulations;

2. Ensuring the payment capacity of the policyholder's fund:

2.1. During the period of operation, life insurance enterprises must ensure the payment capacity for each policyholder fund. In case the policyholder fund is in deficit (the asset value is lower than the liability level), the enterprise shall be responsible for supplementing the deficit from the shareholder fund to that policyholder fund. When the policyholder fund has surplus (the positive difference between assets and liabilities of the fund), the enterprise may be refunded part or all of the previously supplemented amount provided that such refund does not affect the payment capacity of that policyholder fund. These transactions must be confirmed by the actuary of the insurance enterprise.

2.2. In case life insurance enterprises maintain multiple policyholder funds, the enterprise shall not use the surplus of one policyholder fund to supplement another policyholder fund that is in deficit.

2.3. Life insurance enterprises must record in writing all transactions related to the supplementation of deficits from the shareholder fund to the policyholder fund and the refund from the policyholder fund back to the shareholder fund.

3. Distribution of surplus in life insurance:

3.1. In case the participating policyholder fund has surplus at the end of the fiscal year, the life insurance enterprise may use part or all of the surplus to distribute to the policyholders of that policyholder fund and shareholders upon approval by the enterprise's actuary. The surplus retained by the policyholder fund for distribution purposes aims to ensure the stability of future surplus distributions.

3.2. Life insurance enterprises may choose methods of distributing surplus from the policyholder fund in the form of cash payments to policyholders, accumulated bonuses, or increased insurance amounts, subject to approval by the Ministry of Finance. The method of distributing surplus from the policyholder fund must ensure that policyholders receive no less than seventy percent of the total profits obtained and fairness among policyholders.

IX. PROFIT AND DISTRIBUTION OF PROFITS

1. Profit and profit distribution of insurance enterprises, insurance brokerage enterprises shall be carried out in accordance with the provisions of Chapter V of Decree No. 46/2007/NĐ-CP.

2. Insurance enterprises may only distribute remaining profits according to the law after meeting the requirements regarding payment capacity.

X. FINANCIAL MANAGEMENT, INTERNAL AUDITING AND INDEPENDENT AUDITING OF INSURANCE ENTERPRISES, INSURANCE BROKERAGE ENTERPRISES

1. Financial management work of joint-stock insurance companies and joint-stock insurance brokerage companies must ensure the following principles:

1.1. Share capital structure:

1.1.1. An individual shareholder may own up to ten percent of the share capital;

1.1.2. An organizational shareholder may own up to twenty percent of the share capital;

1.1.3. Shareholders and those related to them may own up to twenty percent of the share capital;

1.1.4. Ownership of shares exceeding the above ratio must be approved by the Minister of Finance based on national interests.

1.1.5. Founding shareholders must jointly own at least fifty percent of the share capital when establishing the enterprise, wherein founding shareholders who are organizations must jointly own at least fifty percent of the total number of shares held by founding shareholders. This restriction will be lifted three years after the date the enterprise is granted permission to establish and operate.

1.2. Related parties are organizations or individuals having direct or indirect relationships with shareholders in cases prescribed in Clause 17, Article 4 of the Enterprise Law.

2. Insurance enterprises, insurance brokerage enterprises must implement self-management and supervision in accordance with Clause 2, Article 36 of Decree No. 46/2007/NĐ-CP.

2.1. The establishment of self-management and supervision regulations including financial regulations, investment regulations, internal control and audit regulations, and corresponding procedures of insurance enterprises, insurance brokerage enterprises must ensure:

2.1.1. The activities of insurance enterprises, insurance brokerage enterprises comply with legal financial regulations for insurance enterprises, insurance brokerage enterprises.

2.1.2. Limitation and prevention of financial risks for insurance enterprises, insurance brokerage enterprises, ensuring that the value of investment assets corresponds to the liability and specific risks of the enterprise.

2.1.3. Clearly define the responsibilities of corporate managers, enterprise executives, relevant employees, and agents.

2.1.4. Clearly stipulate disciplinary measures for violations.

2.2. Insurance enterprises, insurance brokerage enterprises must organize the implementation of self-management and supervision regulations and periodically and unexpectedly inspect and supervise the implementation of these regulations within the enterprise.

2.3. Regulations on self-management and supervision; periodic and unexpected reports on supervising the implementation of these regulations and reports on handling violations must be fully stored in writing to serve inspection, auditing, and enterprise management and supervision work.

3. Provisions on internal auditing of insurance enterprises, insurance brokerage enterprises:

3.1. Insurance enterprises, insurance brokerage enterprises must carry out internal auditing activities.

3.2. Basic principles of internal auditing:

3.2.1 Independence: Internal auditing activities must be independent from the enterprise's operational and business activities.

3.2.2 Objectivity: Internal auditing activities and internal auditors must ensure objectivity, honesty, fairness, and lack of bias when performing internal auditing tasks.

3.2.3 Professionalism: Internal auditors must have the necessary knowledge, qualifications, and skills in internal auditing, and shall not concurrently hold other specialized positions or jobs in insurance enterprises, insurance brokerage enterprises.

3.3. The content of internal auditing activities includes reviewing and evaluating:

3.3.1. The adequacy, effectiveness, and efficiency of the internal control and monitoring system.

3.3.2. The application, effectiveness, and impact of identification processes, measurement methods, and risk management procedures of the enterprise.

3.3.3. Management information systems and financial information systems.

3.3.4. The completeness, timeliness, truthfulness, and level of accuracy of accounting records and financial reports.

3.3.5. Mechanisms to ensure compliance with legal regulations, provisions on reserve provisioning, investment, and solvency of the enterprise, internal regulations, operational procedures, and professional ethics rules.

3.3.6. Implementation of other contents related to the functions and responsibilities of internal auditing.

3.3.7 Insurance enterprises and insurance brokerage enterprises must establish a code of professional ethics and ensure the maintenance of professional ethics in the implementation of internal audit activities.

3.4. Within six months from the date this Circular takes effect, insurance enterprises and insurance brokerage enterprises must report to the Ministry of Finance on the implementation of the internal audit regulations stipulated in this Circular.

4. Annual financial statements of insurance enterprises and insurance brokerage enterprises must be audited and confirmed by an independent auditing organization legally operating in Vietnam regarding the following significant financial issues:

4.1. For insurance enterprises

Reinsurance operations, reserve provisioning, solvency, commissions, revenue, expenses, profits and profit distribution, investments from equity capital, reserve funds, fixed assets and depreciation, receivables, payables, equity capital, unfinished construction costs; separation and distribution of surplus funds for life insurance contracts.

4.2. For insurance brokerage enterprises

Revenue, expenses, profits and profit distribution, investments, fixed assets and depreciation, receivables, payables, equity capital, unfinished construction costs.

XI. REPORTING REGIME

Insurance enterprises and insurance brokerage enterprises are responsible for preparing and submitting financial reports, statistical reports, and business reports in accordance with current laws.

1. Financial Reports:

1.1. Insurance enterprises and insurance brokerage enterprises shall settle their finances and comply fully with the regulations on financial reporting, prepare and submit to state financial agencies, statistical agencies, and tax authorities as prescribed by current laws.

1.2. The balance sheet, income statement, cash flow statement, and notes to the financial statements must be confirmed by an independent auditing organization authorized to operate in Vietnam, as required by accounting laws.

1.3. Quarterly and annually, insurance enterprises and insurance brokerage enterprises must prepare and submit financial reports to the Ministry of Finance along with electronic versions.

2. Statistical Reports and Business Reports: Insurance enterprises and insurance brokerage enterprises must prepare and submit statistical reports and business reports monthly, quarterly, and annually to the Ministry of Finance, along with electronic versions, as follows:

2.1. For non-life insurance enterprises:

2.1.1. Monthly activity report: Form No. 1-PNT

2.1.2. Quarterly and annual premium income report: Form No. 2-PNT

2.1.3. Quarterly and annual economic indicators report: Form No. 3-PNT

2.1.4. Quarterly and annual claims payment report: Form No. 4-PNT

2.1.5. Quarterly and annual reserve provisioning report: Forms No. 5-PNT (A) and 5-PNT (B)

2.1.6. Quarterly and annual investment activity report from equity capital: Form No. 6-PNT (A)

2.1.7. Quarterly and annual investment activity report from reserve funds: Form No. 6-PNT (B)

2.1.8. Quarterly and annual solvency report: Form No. 7-PNT

2.1.9. Annual ASEAN report: Form No. 8-PNT

2.2. For reinsurance enterprises, in addition to the above-mentioned forms, they must also prepare and submit the following reports:

2.2.1. Quarterly and annual reinsurance premium income report: Form No. 1-TBH

2.2.2. Quarterly and annual reinsurance claims payment report: Form No. 2-TBH

2.3. For life insurance enterprises:

2.3.1. Monthly activity report: Form No. 1-NT

2.3.2. Quarterly and annual number of policies and insurance amount report: Form No. 2-NT

2.3.3. Quarterly and annual premium income report: Form No. 3-NT

2.3.4. Quarterly and annual insurance payment report: Form No. 4-NT

2.3.5. Quarterly and annual policy cancellation report: Form No. 5-NT

2.3.6. Quarterly and annual reserve provisioning report: Forms No. 6-NT (A) to 6-NT (E)

2.3.7. Quarterly and annual investment activity report from equity capital: Form No. 7-NT (A)

2.3.8. Quarterly and annual investment activity report from reserve funds: Form No. 7-NT (B)

2.3.9. Quarterly and annual solvency report: Form No. 8-NT

2.3.10. Annual ASEAN report: Form No. 9-NT

2.4. For insurance brokerage enterprises, quarterly and annual reports: Form No. 1-MGBH.

3. Reporting deadlines:

3.1. Monthly reports: Insurance enterprises must prepare and submit to the Ministry of Finance no later than fifteen days after the end of the month.

3.2. Quarterly reports: Insurance enterprises and insurance brokerage enterprises must prepare and submit to the Ministry of Finance no later than thirty days after the end of the quarter.

3.3. Annual reports: Insurance enterprises and insurance brokerage enterprises must prepare and submit to the Ministry of Finance no later than ninety days after the end of the fiscal year.

4. In addition to the financial reports, statistical reports, and business reports specified in points 1 and 2 above, the Ministry of Finance may request insurance enterprises and insurance brokerage enterprises to submit additional reports on their operational and financial status to serve statistical work and market analysis.

5. Inspection and Audit of Financial Compliance

The Board of Directors and General Director (Director) of insurance enterprises and insurance brokerage enterprises are responsible for explaining financial matters related to the requirements of state management agencies when performing state management functions as prescribed by law.

5.1. Insurance enterprises and insurance brokerage enterprises shall be responsible for the accuracy and honesty of their financial reports, statistical reports, and business reports. Financial inspections shall be conducted in the following forms:

5.1.1 Regular or surprise inspections;

5.1.2 Special topic inspections as required by financial management work.

5.2. Insurance enterprises and insurance brokerage enterprises that violate state financial regulations shall be subject to penalties as prescribed by law.

XII. PUBLIC DISCLOSURE OF INFORMATION BY INSURANCE ENTERPRISES AND INSURANCE BROKERAGE ENTERPRISES

1. The contents of information in annual financial reports published annually by insurance enterprises and insurance brokerage enterprises are the annual report (Form No. 1-CBTT) and the summary financial report (Form No. 2-CBTT). When publishing such information publicly, insurance enterprises and insurance brokerage enterprises must include the opinion of an independent auditing organization.

2. Insurance enterprises and insurance brokerage enterprises must publish the information in their annual financial reports on central newspapers and local newspapers where the enterprises have their main offices for three consecutive issues. Additionally, insurance enterprises and insurance brokerage enterprises may decide to publish the information in their annual financial reports on their websites; through the issuance of publications; by sending written notifications to state management agencies; through press conferences; and on central and local radio and television stations.

3. Insurance enterprises and insurance brokerage enterprises must publish their annual financial reports within 120 days from the end of the fiscal year. Within 10 working days from the date of public disclosure of the financial reports as stipulated above, insurance enterprises and insurance brokerage enterprises must submit original copies or certified copies of the published financial reports to the Ministry of Finance.

4. Insurance enterprises and insurance brokerage enterprises must promptly and accurately implement the public disclosure of financial reports as prescribed by law. In cases where insurance enterprises and insurance brokerage enterprises change the disclosed information, they must follow the procedures and formalities specified in Clauses 1, 2, and 3 of Section XII of this Circular, along with explanations for the changes.

XIII. IMPLEMENTATION

1. This Circular shall take effect 15 days from the date of publication in the Official Gazette.

2. This Circular replaces Circular No. 99/2004/TT-BTC dated October 19, 2004, issued by the Ministry of Finance, guiding the implementation of Decree No. 43/2001/NĐ-CP dated August 1, 2001, of the Government, which stipulates financial regulations applicable to insurance enterprises and insurance brokerage enterprises.

3. Within three years from the effective date of Decree No. 46/2007/NĐ-CP, joint-stock insurance companies and joint-stock insurance brokerage companies licensed to operate before the effective date of this Circular must adjust their charter capital structure in accordance with the provisions of Section X of this Circular.

4. Any difficulties encountered during implementation should be reported to the Ministry of Finance for consideration and resolution./.