Circular No. 195/2014/TT-BTC guiding the assessment and classification of insurance companies

CIRCULAR

Guidelines for evaluating and classifying insurance companies

 

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

Pursuant to the Law Amending and Supplementing Certain Provisions of the Insurance Business Law No. 61/2010/QH12 dated November 24, 2010;

The Minister of Finance hereby promulgates this Circular amending and supplementing some articles of Circular No. 124/2012/TT-BTC dated July 30, 2012 of the Ministry of Finance guiding the implementation of certain provisions of Decree No. 45/2007/NĐ-CP dated March 27, 2007 of the Government detailing the implementation of certain provisions of the Insurance Business Law and Decree No. 123/2011/NĐ-CP dated December 28, 2011 of the Government detailing the implementation of certain provisions of the Law amending and supplementing some articles of the Insurance Business Law (hereinafter referred to as "Circular No. 124/2012/TT-BTC") and Circular No. 125/2012/TT-BTC dated July 30, 2012 of the Ministry of Finance guiding the financial regime for insurance companies, reinsurance companies, insurance brokerage companies and branches of foreign non-life insurance companies (hereinafter referred to as "Circular No. 125/2012/TT-BTC").

Article 1. Amending and supplementing some articles of Circular No. 124/2012/TT-BTC

Pursuant to Decree No. 123/2011/NĐ-CP dated December 28, 2011 of the Government detailing implementation of certain provisions of the Law amending and supplementing some articles of the Insurance Business Law and amending and supplementing some articles of Decree No. 45/2007/NĐ-CP dated March 27, 2007 of the Government detailing implementation of certain provisions of the Insurance Business Law;

Pursuant to Decree No. 215/2013/NĐ-CP dated December 23, 2013 of the Government stipulating the functions, tasks, powers, and organizational structure of the Ministry of Finance;

Implementing Decision No. 1826/QĐ-TTg dated December 6, 2012 of the Prime Minister approving the Project "Reorganizing the Securities Market and Insurance Companies" (hereinafter referred to as Decision No. 1826/QĐ-TTg);

At the proposal of the Director of the Department of Management and Supervision of Insurance;

The Minister of Finance issues this Circular guiding the evaluation and classification of insurance companies.

Article 1. Scope of Application

This Circular guides the evaluation and classification of non-life insurance companies, specialized health insurance companies, life insurance companies, reinsurance companies, and branches of foreign non-life insurance companies licensed to operate legally in Vietnam (hereinafter referred to as insurance companies).

Article 2. Scope of Application

1. Non-life insurance companies, specialized health insurance companies, reinsurance companies, and branches of foreign non-life insurance companies licensed to operate legally in Vietnam (hereinafter referred to as non-life insurance companies).

2. Life insurance companies licensed to operate legally in Vietnam (hereinafter referred to as life insurance companies).

3. Organizations and individuals related to the evaluation and classification of insurance companies.

Article 3. Purpose of evaluating and classifying insurance companies

1. Insurance companies shall evaluate, classify, and proactively implement appropriate measures to enhance operational efficiency, financial capacity, corporate governance quality, and risk management.

2. The Ministry of Finance shall supervise the implementation of the contents stipulated in Clause 1 of this Article by insurance companies; and take appropriate measures to ensure that insurance companies and the insurance market operate safely, soundly, and stably.

Article 4. Evaluation of insurance companies

1. Evaluation criteria for insurance companies

Insurance companies are responsible for evaluating based on the following criteria:

1. 1. Non-life insurance companies shall conduct evaluations based on the criteria for evaluating non-life insurance companies as guided in Appendix 1 attached hereto and the Range Table, scoring method for non-life insurance company evaluation criteria as guided in Appendix 2 attached hereto.

1. 2. Life insurance companies shall conduct evaluations based on the criteria for evaluating life insurance companies as guided in Appendix 4 attached hereto and the Range Table, scoring method for life insurance company evaluation criteria as guided in Appendix 5 attached hereto.

2. Range and scoring method for evaluation criteria of insurance companies

2. 1. For non-life insurance companies:

a) The group of criteria assessing payment ability, reserve, and business operation effectiveness is evaluated based on the range of each criterion;

b) The group of criteria assessing insurance business operations is evaluated based on the range, maximum score, and deduction points (if applicable) of each criterion. This group of criteria has a maximum score of 300 points, including:

- Level A: Score from 200 to 300 points.

- Level B: Score below 200 points.

c) The group of criteria assessing capital, asset quality, and financial investment is evaluated based on the range, maximum score, and deduction points (if applicable) of each criterion. This group of criteria has a maximum score of 500 points, including:

- Level A: Score from 400 to 500 points.

- Level B: Score below 400 points.

d) The group of criteria assessing corporate governance and transparency is evaluated based on the range, maximum score, and deduction points (if applicable) of each criterion. This group of criteria has a maximum score of 200 points, including:

- Level A: Score from 100 to 200 points.

- Level B: Score below 100 points.

2. 2. For life insurance companies:

a) The group of criteria assessing payment ability and reserve is evaluated based on the range of each criterion.

b) The group of criteria assessing insurance business operations is evaluated based on the range, maximum score, and deduction points (if applicable) of each criterion. This group of criteria has a maximum score of 300 points, including:

- Level A: Score from 250 to 300 points.

- Level B: Score from 200 to under 250 points.

- Level C: Score from 100 to under 200 points.

- Level D: Score below 100 points.

c) The group of criteria assessing capital, asset quality, and business effectiveness is evaluated based on the range, maximum score, and deduction points (if applicable) of each criterion. This group of criteria has a maximum score of 500 points, including:

- Level A: Score from 450 to 500 points.

- Level B: Score from 350 to under 450 points.

- Level C: Score from 250 to under 350 points.

- Level D: Score below 250 points.

d) The group of criteria assessing corporate governance and transparency is evaluated based on the range, maximum score, and deduction points (if applicable) of each criterion. This group of criteria has a maximum score of 200 points, including:

- Level A: Score from 150 to 200 points.

- Level B: Score from 100 to under 150 points.

- Level C: Score from 50 to under 100 points.

- Level D: Score below 50 points.

Article 5. Classification of insurance enterprises

Based on the assessment results as stipulated in Article 4 of this Circular, insurance enterprises shall be responsible for classifying themselves as follows:

1. For non-life insurance enterprises:

1.1. Group 1: Non-life insurance enterprises that ensure solvency and have profit from core insurance business operations for two (02) consecutive years, including:

a) Group 1A: Non-life insurance enterprises that ensure solvency and have profit from core insurance business operations for two (02) consecutive years; with a total score of all groups of indicators exceeding seven hundred (700) points and all groups of indicators ranked at level A.

b) Group 1B: Non-life insurance enterprises that ensure solvency and have profit from core insurance business operations for two (02) consecutive years; with a total score of all groups of indicators not exceeding seven hundred (700) points.

1.2. Group 2: Non-life insurance enterprises that ensure solvency but do not have profit from core insurance business operations for two (02) consecutive years, including:

a) Group 2A: Non-life insurance enterprises that ensure solvency but do not have profit from core insurance business operations for two (02) consecutive years, with a total score of all groups of indicators exceeding seven hundred (700) points, and all groups of indicators ranked at level A.

b) Group 2B: Non-life insurance enterprises that ensure solvency but do not have profit from core insurance business operations for two (02) consecutive years, with a total score of all groups of indicators not exceeding seven hundred (700) points.

1.3. Group 3: Non-life insurance enterprises that pose a risk of not ensuring solvency, including non-life insurance enterprises with solvency margin ratio indicators that do not meet the threshold or operational reserve provision indicators that do not comply with the guidelines set out in Appendix 1 issued together with this Circular.

1.4. Group 4: Non-life insurance enterprises that lose solvency and are placed under special supervision, including non-life insurance enterprises classified in Group 3 and unable to restore solvency as required by the Ministry of Finance.

2. For life insurance enterprises:

2.1. Group 1: Life insurance enterprises that ensure solvency, including:

a) Group 1A: Life insurance enterprises that ensure solvency, with a total score of all groups of indicators reaching eight hundred and fifty (850) points or more, and all groups of indicators ranked at level A.

b) Group 1B: Life insurance enterprises that ensure solvency, with a total score of all groups of indicators ranging from six hundred and fifty (650) points to less than eight hundred and fifty (850) points, with at least one (01) group of indicators ranked at level B and no group of indicators ranked at level C or D.

c) Group 1C: Life insurance enterprises that ensure solvency, with a total score of all groups of indicators ranging from four hundred (400) points to less than six hundred and fifty (650) points, with at least one (01) group of indicators ranked at level C and no group of indicators ranked at level D.

d) Group 1D: Life insurance enterprises that ensure solvency, which are not classified in Groups 1A, 1B, or 1C.

2.2. Group 2: Life insurance enterprises do not classify themselves into Group 2 according to the provisions of item iii point a Clause 5 Section III Decision No. 1826/QĐ-TTg.

2.3. Group 3: Life insurance enterprises that pose a risk of not ensuring solvency, including life insurance enterprises with solvency margin ratio indicators that do not meet the threshold or operational reserve provision indicators that do not comply with the guidelines set out in Appendix 4 issued together with this Circular.

2.4. Group 4: Life insurance enterprises that lose solvency and are placed under special supervision, including life insurance enterprises classified in Group 3 and unable to restore solvency as required by the Ministry of Finance.

Article 6. Implementation measures

1. For insurance enterprises:

1.1. Proactively implement measures to ensure the margin, maximum point (if applicable) of each indicator:

a) For non-life insurance enterprises: In cases where the margin, maximum point (if applicable) of each indicator is not ensured in accordance with the guidelines set out in Appendix 2 issued together with this Circular, the non-life insurance enterprise shall implement measures in accordance with the guidelines set out in Appendix 3 issued together with this Circular and measures to restore payment capacity as prescribed by law.

b) For life insurance enterprises: In cases where the margin, maximum point (if applicable) of each indicator is not ensured in accordance with the guidelines set out in Appendix 5 issued together with this Circular, the life insurance enterprise shall implement measures in accordance with the guidelines set out in Appendix 6 issued together with this Circular and measures to restore payment capacity as prescribed by law.

1.2. Report to the Ministry of Finance in accordance with Article 7 of this Circular.

1.3. Implement measures as required by the Ministry of Finance as stipulated in Clause 2 of this Article.

2. For the Ministry of Finance:

Based on the classification results of insurance enterprises as prescribed in Article 5 of this Circular, the Ministry of Finance shall implement one or more management and supervision measures as follows:

2. 1. For non-life insurance companies:

a) For non-life insurance enterprises classified into Group 1A:

- Encourage the insurance enterprise to expand the scope, range, and operating area;

- Conduct remote monitoring.

b) For non-life insurance enterprises classified into Group 1B:

- Direct the non-life insurance enterprise to assess the causes and implement measures to ensure the margin, maximum point (if applicable) of each indicator;

- Supervise the non-life insurance enterprise to implement measures to ensure the margin, maximum point (if applicable) of each indicator;

- Direct the non-life insurance enterprise to strengthen internal inspection and control work; review the network and organizational structure for operations;

- Allow expansion of the scope, range, and operating area based on ensuring effectiveness, fair competition, and compliance with current laws.

c) For non-life insurance enterprises classified into Group 2A:

In addition to the management and supervision measures prescribed in paragraph b, Clause 2.1, Article 2 of this Circular, the Ministry of Finance shall implement the following measures:

- Warn the non-life insurance enterprise and investors about the current status of the enterprise;

- Direct the non-life insurance enterprise to increase the registered capital (if necessary); review the efficiency, safety, and liquidity of investment assets to restructure investment activities appropriately;

- Direct the non-life insurance enterprise to review and amend product insurance rules, terms, and premium rates to ensure the financial safety of the enterprise and the rights of customers; adjust the reinsurance program (if necessary);

- Direct the non-life insurance enterprise to reassess the effectiveness of management processes, business processes, and internal inspection and control work;

- Direct the non-life insurance enterprise to evaluate and adjust business plans; improve corporate governance and risk management;

- Conduct specialized inspections at the non-life insurance enterprise.

d) For non-life insurance enterprises classified into Group 2B:

In addition to the management and supervision measures prescribed in paragraphs b and c, Clause 2.1, Article 2 of this Circular, the Ministry of Finance shall implement the following measures:

- Inspect the non-life insurance enterprise;

- Narrow the scope and range of activities of the insurance enterprise if it does not achieve profitability within twenty-four (24) months from the date of operation.

đ) For non-life insurance enterprises classified into Group 3:

The Ministry of Finance shall implement measures as prescribed in Article 80 of the Insurance Business Law.

e) For non-life insurance enterprises classified into Group 4:

The Ministry of Finance shall revoke the Enterprise Establishment and Operation License of the non-life insurance enterprise in accordance with point e, Clause 1, Article 68 of the Insurance Business Law.

2. 2. For life insurance companies:

a) For life insurance enterprises classified into Group 1A:

- Encourage the life insurance enterprise to expand the scope, range, and operating area;

- Conduct remote monitoring.

b) For life insurance enterprises classified into Group 1B:

- Direct the life insurance enterprise to report on the causes and implement measures to ensure the margin, maximum point (if applicable) of each indicator;

- Supervise the life insurance enterprise to implement measures to ensure the margin, maximum point (if applicable) of each indicator.

c) For life insurance enterprises classified into Group 1C:

In addition to the management and supervision measures prescribed in paragraph b, Clause 2.2, Article 2 of this Circular, the Ministry of Finance shall implement the following measures:

- Warn the life insurance enterprise and investors about the current status of the enterprise;

- Conduct specialized inspections at the life insurance enterprise;

- Only allow expansion of the scope, range, and operating area if the life insurance enterprise has a group of indicators assessing capital, asset quality, and operational efficiency rated level B.

d) For life insurance enterprises classified into Group 1D:

In addition to the management and supervision measures prescribed in paragraphs b and c, Clause 2.2, Article 2 of this Circular, the Ministry of Finance shall conduct inspections of the life insurance enterprise.

đ) For life insurance enterprises classified into Group 3:

The Ministry of Finance shall implement measures as prescribed in Article 80 of the Insurance Business Law.

e) For life insurance enterprises classified into Group 4:

The Ministry of Finance shall revoke the Enterprise Establishment and Operation License of the life insurance enterprise in accordance with point e, Clause 1, Article 68 of the Insurance Business Law.

Article 7. Reporting System

2. In case there is a risk of losing payment capability, the insurance company must implement the reporting regime as prescribed in Article 78 of the Insurance Business Law.

Article 8. Effective Date

1. This Circular takes effect from February 1, 2015.

2. This Circular replaces Decision No. 153/2003/QD-BTC dated September 22, 2003 of the Ministry of Finance on issuing the system of supervisory indicators for insurance companies.

3. During the implementation process, if there are difficulties or obstacles, they are requested to be reported promptly to the Ministry of Finance for consideration and resolution.