Decree No. 43/2001/ND-CP on financial regulations for insurance companies and insurance brokerage companies

DECREE

Regulations on financial regime for insurance enterprises

and insurance brokerage enterprises

___________________

 

THE GOVERNMENT

Based on the Government Organization Law dated September 30, 1992,

Pursuant to the Insurance Business Law on December 9, 2000;

At the proposal of the Minister of Finance,

DECREE:

Chapter 1:

GENERAL PROVISIONS

Article 1. Scope of Application

1. This Decree stipulates the financial regime for insurance enterprises and insurance brokerage enterprises established, organized, and operated in accordance with the Insurance Business Law

2. This Decree does not apply to mutual insurance organizations.

Article 2. Financial management principles

Insurance enterprises and insurance brokerage enterprises are financially autonomous, bear responsibility for the results of their business operations, and fulfill their legal obligations and commitments.

Article 3. State management agencies

The Ministry of Finance shall perform state management functions regarding finance, guide, and inspect the implementation of the financial regime for insurance enterprises and insurance brokerage enterprises in accordance with the law.

Chapter 2:

MANAGEMENT AND USE OF CAPITAL AND ASSETS

SECTION 1: REGULATED CAPITAL, CHARTER CAPITAL, DEPOSIT, AND ASSET MANAGEMENT

Article 4. Statutory Capital

1. The level of regulated capital for insurance enterprises:

a) Non-life insurance business: 70,000,000,000 Vietnamese dong or 5,000,000 US dollars;

b) Life insurance business: 140,000,000,000 Vietnamese dong or 10,000,000 US dollars.

2. The level of regulated capital for insurance brokerage enterprises: 4,000,000,000 Vietnamese dong or 300,000 US dollars.

Article 5. Charter Capital

1. The charter capital of insurance enterprises and insurance brokerage enterprises is the capital recorded in the enterprise's articles of association.

2. During the course of operation, insurance enterprises and insurance brokerage enterprises must always maintain the contributed charter capital at a level not lower than the regulated capital specified in Article 4 of this Decree.

3. In cases where insurance enterprises and insurance brokerage enterprises change the charter capital recorded in the enterprise's articles of association; the transfer of shares by shareholders or the contribution of joint venture parties holding 10% or more of the charter capital, insurance enterprises and insurance brokerage enterprises must submit a request and explanatory document to the Ministry of Finance. Within thirty days from the date of receipt of the request and explanation, the Ministry of Finance must respond in writing regarding approval or disapproval. In case of disapproval, the Ministry of Finance must provide a written explanation of the reasons.

4. Insurance enterprises and insurance brokerage enterprises established, organized, and operating before the Insurance Business Law comes into effect, with a charter capital lower than the regulated capital specified in Article 4 of this Decree, must supplement the charter capital according to the regulations within three years from the date this Decree takes effect.

Article 6. Deposit Guarantee

1. Within sixty days from the date of issuance of the license for establishment and operation, insurance enterprises must use part of the contributed charter capital to deposit at a commercial bank operating in Vietnam. The deposit interest is agreed upon with the depositing bank.

2. The amount of deposit for insurance enterprises is 5% of the regulated capital specified in Clause 1 of Article 4 of this Decree.

3. Insurance enterprises may only use the deposit to meet commitments to policyholders when payment capacity is insufficient and must obtain written approval from the Ministry of Finance. Within ninety days from the date of using the deposit, the insurance enterprise is responsible for replenishing the used deposit.

4. Insurance enterprises may withdraw the entire deposit when ceasing operations.

Article 7. Other provisions on the management and use of capital and assets

In addition to the provisions of this Decree, insurance enterprises and insurance brokerage enterprises must comply with the regulations on the management and use of capital and assets according to relevant laws applicable to each type of enterprise.

PART 2: BUSINESS PRECAUTIONS FOR INSURANCE

Article 8. Business Precautions for Non-Life Insurance

1. A non-life insurance business must establish business precautions from the premium of each insurance operation for the portion of retained responsibility of the enterprise.

2. Business precautions include:

a) Unearned premium reserve, used to compensate for liabilities that will arise during the validity period of the insurance contract in the following year;

b) Unresolved claim reserve, used to compensate losses that have occurred but have not been claimed or have been claimed but not resolved by the end of the fiscal year;

c) Large fluctuation loss reserve, used to compensate when there are large fluctuations in losses or significant losses occur where the total retained premium for the next fiscal year, after setting aside unearned premium reserve and unresolved claim reserve, is insufficient to cover compensation for the portion of retained responsibility of the insurance enterprise.

Article 9. Business Precautions for Life Insurance

1. A life insurance business must establish business precautions from the premium of each life insurance contract for the portion of retained responsibility of the insurance enterprise.

2. Business precautions include:

a) Mathematical reserve is the difference between the present value of the insurance amount and the present value of future premiums expected to be collected, used to pay insurance money upon occurrence of insured events as committed in contracts;

b) Unearned premium reserve applies to life insurance contracts with a term of less than one year, used to pay insurance money that will arise during the remaining validity period of the insurance contract in the following year;

c) Claim reserve, used to pay insurance money upon occurrence of insured events but not resolved by the end of the fiscal year;

d) Profit-sharing reserve, used to pay interest agreed upon by the insurance enterprise with the policyholder in the insurance contract;

đ) Balance guarantee reserve, used to pay insurance money upon occurrence of insured events due to significant fluctuations in mortality rates or technical interest rates.

Article 10. Level of Establishment and Method of Establishing Business Precautions

The Ministry of Finance shall specify in detail the level of establishment and method of establishing business precautions for each type of insurance operation as stipulated in Article 8 and Article 9 of this Decree.

PART 3: INVESTMENT CAPITAL

Article 11. Sources of Investment Capital

The sources of investment capital of an insurance enterprise include:

1. Registered capital;

2. Mandatory Reserve Fund;

3. Voluntary Reserve Fund;

4. Unused profits from previous years and funds used for investment formed from retained earnings of the enterprise;

5. Idle capital from business precaution reserves.

Article 12. Idle Capital from Business Precaution Reserves

1. Idle capital from business precaution reserves of an insurance enterprise is the total business precaution reserves minus the amounts of money that the insurance enterprise uses for regular insurance compensation during the period for non-life insurance, and regular payment of insurance money during the period for life insurance.

2. The amount of money used for regular insurance compensation during the period for non-life insurance enterprises must not be lower than 25% of the total business precaution reserves and must be deposited at credit institutions operating in Vietnam.

3. The amount of money used for regular payment of insurance money during the period for life insurance enterprises must not be lower than 5% of the total business precaution reserves and must be deposited at credit institutions operating in Vietnam.

Article 13. Investment of Idle Capital from Business Precaution Reserves

1. The investment of idle capital from business precaution reserves of an insurance enterprise as stipulated in Clause 1 of Article 12 of this Decree can only be invested within Vietnam in the following areas:

a) For non-life insurance enterprises:

Purchase government bonds, corporate bonds with guarantees, deposit money at credit institutions without limit;

Purchase stocks, corporate bonds without guarantees, invest in other enterprises up to 35% of idle capital from business precaution reserves;

Real estate business, lending, entrusting investment through financial-credit organizations up to 20% of idle capital from business precaution reserves.

b) For life insurance enterprises:

Purchase government bonds, corporate bonds with guarantees, deposit money at credit institutions without limit,

Purchase stocks, corporate bonds without guarantees, invest in other enterprises up to 50% of idle capital from business precaution reserves;

Real estate business, lending, entrusting investment through financial-credit organizations up to 40% of idle capital from business precaution reserves.

2. Insurance enterprises established before the Insurance Business Law comes into effect, with higher investment ratios than those specified in Clause 1 of this Article, must adjust their investments to comply within one year from the date this Decree takes effect.

3. Investments from the sources of capital specified in Clause 1, 2, 3, and 4 of Article 11 of this Decree shall be carried out in accordance with the provisions of the law.

Chapter 3:

PAYMENT CAPABILITY AND RESTORATION OF PAYMENT CAPABILITY

Article 14. Payment Capability

1. An insurance enterprise must maintain its payment capability throughout the entire process of conducting insurance business.

2. An insurance enterprise is considered to have sufficient payment capability when it has fully established business precaution reserves and its payment capability ratio is not lower than the minimum payment capability ratio prescribed in Article 15 of this Decree.

Article 15. Minimum Payment Capability Ratio

1. The minimum payment capability ratio of a non-life insurance enterprise equals 20% of the total actual retained premium at the time of determining the payment capability ratio.

2. The minimum payment capability ratio of a life insurance enterprise:

a) For life insurance contracts with a term of 10 years or less equals the sum of 4% of business precaution reserves and 0.1% of the risk-bearing insurance amount;

b) For life insurance contracts with a term exceeding 10 years equals the sum of 4% of business precaution reserves and 0.3% of the risk-bearing insurance amount.

Article 16. Payment Capability of an Insurance Enterprise

1. The solvency margin of a non-life insurance company is calculated based on the capital to determine the solvency margin divided by the total premium corresponding to the retained liability portion at the time of determining the solvency margin.

2. The solvency margin of a life insurance company is calculated based on the capital to determine the solvency margin divided by the total reserve for insurance operations and the amount of insurance subject to risk at the time of determining the solvency margin.

3. The capital for determining the solvency margin is the shareholders' equity after deducting the capital contributions for establishing other insurance companies and unrecoverable debts.

Article 17. Risk of losing solvency

An insurance company is considered to be at risk of losing solvency when its solvency margin is lower than the minimum solvency margin.

Article 18. Solvency restoration plan

1. When there is a risk of losing solvency, the insurance company must immediately report to the Ministry of Finance about the current financial status, the reasons leading to the risk of losing solvency, and the solvency restoration plan, including the following measures:

a) Plan to supplement shareholders' equity;

b) Reinsurance plan; narrowing the scope and content of activities;

c) Plan to strengthen organizational structure and anticipate changes in the Chairman of the Board of Directors, General Director (Director) of the company;

d) Plan to transfer insurance contracts;

đ) Other measures.

2. Within fifteen days from receiving the report from the company, the Ministry of Finance shall issue a decision regarding the implementation of the solvency restoration plan.

3. Within ninety days from the date the Ministry of Finance issues a decision on implementing the solvency restoration plan, if the insurance company fails to restore its solvency as prescribed, then the company will be placed under special supervision. The Ministry of Finance decides to establish a Solvency Supervisory Committee to apply measures to restore solvency according to Article 80 of the Insurance Business Law.

Chapter 4:

REVENUE AND EXPENSES

SECTION 1: REVENUE AND EXPENSES OF INSURANCE COMPANIES

Article 19. Revenue of insurance companies

The revenue of an insurance company is the amount receivable arising during the period, including:

1. Insurance business revenue is the amount receivable arising during the period after deducting the amounts payable to reduce revenue arising during the period.

a) The amount receivable arising during the period includes:

Premium income;

Reinsurance premium income;

Reinsurance commission income;

Service fee income including loss assessment, claim settlement, third-party reimbursement request, and full compensation processing;

Loss assessment fee income excluding internal loss assessment between affiliated units within the same independently accounting insurance company.

b) The amounts payable to reduce revenue arising during the period include:

Refund of premiums;

Reduction of premiums;

Reinsurance commission;

Refund of reinsurance premiums;

Reduction of reinsurance premiums;

Refund of reinsurance commission;

Reduction of reinsurance commission.

2. Financial activity revenue:

a) Investment activity income as stipulated in Section 3 Chapter II of this Decree;

b) Income from securities trading activities;

c) Interest income on deposits;

d) Rental income;

đ) Recovery of excess provisions for impairment of securities;

e) Other income as prescribed by law.

3. Other operating income:

a) Income from fixed asset disposal;

b) Recovered bad debts that were previously written off;

c) Contract breach penalty income;

d) Other income as prescribed by law.

Article 20. Expenses of insurance companies

The expenses of an insurance company are the amounts payable and provisions arising during the period, including:

1. Insurance business expenses are the amounts payable and provisions arising during the period after deducting the amounts receivable to reduce expenses arising during the period.

a) The amounts payable and provisions arising during the period include:

Direct insurance claims payment for non-life insurance, insurance benefit payment for life insurance;

Reinsurance claims payment;

Establishment of reserves for insurance operations;

Insurance commission expense;

Loss assessment expense;

Service fee expense including loss assessment, claim settlement, third-party reimbursement request;

Full compensation processing expense;

Insurance agency management expense;

Expense for prevention and limitation of risks and losses;

Risk assessment expense of insured objects;

Wages, salaries, bonuses, severance pay, and other amounts with the nature of wages and salaries as prescribed by law corresponding to each type of enterprise;

Social insurance and health insurance contributions as prescribed by law;

Other expenses as prescribed by law corresponding to each type of enterprise.

b) The amounts receivable to reduce expenses arising during the period include:

Reinsurance claims recovery;

Third-party reimbursement recovery;

Recovery of processed and fully compensated items.

2. Financial activity expenses:

a) Investment activity expenses as stipulated in Section 3 Chapter II of this Decree;

b) Interest paid to life insurance policyholders;

c) Rental expense;

d) Bank service fees and interest on loans;

đ) Provision for impairment of securities;

e) Other expenses as prescribed by law.

3. Other operating expenses:

a) Fixed asset disposal expense;

b) Expense for recovering previously written-off bad debts;

c) Contract breach penalty expense;

d) Other expenses as prescribed by law.

Article 21. Excluded expenses

An insurance company shall not record the following items as expenses:

1. Penalties that individuals or groups must pay due to violation of laws;

2. Expenses for basic construction investment, purchase of fixed assets, employee hardship allowances, and support payments to organizations and individuals as prescribed by law corresponding to each type of enterprise;

3. Expenses for public welfare, awards, benefits, regular and extraordinary hardship allowances, and other expenses funded by other sources;

4. Other unreasonable expenses as prescribed by law.

PART 2: REVENUE AND EXPENSES OF INSURANCE BROKERING ENTERPRISES

Article 22. Revenue of insurance brokering enterprises

Revenue of insurance brokering enterprises is the amount receivable arising during the period including:

1. Revenue from insurance brokering activities:

a) Commission income from insurance brokering after deducting the amount of commission refunds and reduced commissions;

b) Other income as prescribed by law.

2. Financial activity revenue:

a) Income from securities trading activities;

b) Interest income from deposits, interest on loaned funds;

c) Rental income from assets;

d) Reimbursement of the balance of provisions for impairment of securities;

đ) Other income as prescribed by law.

3. Other operating income:

a) Income from fixed asset disposal;

b) Recovered bad debts that were previously written off;

c) Contract breach penalty income;

d) Other income as prescribed by law.

Article 23. Expenses of insurance brokering enterprises

Expenses of insurance brokering enterprises are the amount payable arising during the period including:

1. Expenses for insurance brokering activities:

a) Expenses for insurance brokering activities;

b) Premiums for professional liability insurance;

c) Wages, salaries, bonuses, severance pay, and other amounts having the nature of wages and salaries as prescribed by law corresponding to each type of enterprise;

d) Social insurance and health insurance contributions as prescribed by law;

đ) Other expenses as prescribed by law corresponding to each type of enterprise.

2. Financial activity expenses:

a) Rental expenses for assets;

b) Bank processing fees, interest payments on loans;

c) Provisions for impairment of various types of securities;

d) Other expenses as prescribed by law.

3. Other operating expenses:

a) Fixed asset disposal expense;

b) Expense for recovering previously written-off bad debts;

c) Contract breach penalty expense;

d) Other expenses as prescribed by law.

Article 24. Excluded expenses

Insurance brokering enterprises shall not include in their operating expenses the expenses as prescribed in Article 21 of this Decree.

Chapter 5:

PROFIT AND DISTRIBUTION OF PROFITS

Article 25. Profit of insurance enterprises

1. Profit realized in the year is the business result of insurance enterprises, including profit from insurance business operations, financial activity profit, and other activity profit.

2. The profit of insurance enterprises is the difference determined between total revenue and total expenses of the insurance enterprise.

Article 26. Profit of insurance brokering enterprises

1. Profit realized in the year is the business result of insurance brokering enterprises, including profit from insurance brokering business operations, financial activity profit, and other activity profit.

2. The profit of insurance brokering enterprises is the difference determined between total revenue and total expenses of the insurance brokering enterprise.

Article 27. Obligations to the state budget

Insurance enterprises and insurance brokering enterprises must fulfill all obligations to the state budget as prescribed by law.

Article 28. Distribution of profits

After paying corporate income tax as prescribed by law, setting up the mandatory reserve fund, insurance enterprises and insurance brokering enterprises may distribute the remaining profit according to the provisions of law.

Article 29. Mandatory reserve fund

Insurance enterprises and insurance brokering enterprises must set aside 5% of annual post-tax profit to establish a mandatory reserve fund. The maximum level of the mandatory reserve fund equals 10% of the charter capital of the enterprise.

Chapter 6:

ACCOUNTING SYSTEM, STATISTICAL RECORDS, AUDITING, AND FINANCIAL REPORTING

Article 30. Accounting system

Insurance enterprises and insurance brokering enterprises must record complete original vouchers, update accounting ledgers, and fully, timely, truthfully, accurately, and objectively reflect economic and financial activities.

Article 31. Fiscal Year

The fiscal year of insurance enterprises and insurance brokering enterprises begins on January 1 and ends on December 31 of the same calendar year. The first fiscal year of insurance enterprises and insurance brokering enterprises begins on the date of issuance of the establishment license and ends on the last day of that year.

Article 32. Financial Reports

1. Insurance enterprises and insurance brokering enterprises are responsible for preparing and submitting periodic and extraordinary financial reports, statistical reports, and operational reports as prescribed by current laws and guidelines issued by the Ministry of Finance.

2. Annual financial reports of insurance enterprises and insurance brokering enterprises must be audited and certified by an independent auditing organization legally operating in Vietnam before submission to the Ministry of Finance.

3. In addition to the reports prescribed in Clause 1 and 2 of this Article, foreign-invested insurance enterprises and insurance brokering enterprises must submit their annual financial reports to the Ministry of Finance within 180 days from the end of the fiscal year.

Article 33. Disclosure of Financial Statements

Within 120 days from the end of the fiscal year, insurance enterprises and insurance brokering enterprises must publicly disclose their financial reports as prescribed by law.

Article 34. Financial inspection and audit

The Ministry of Finance will conduct inspections and audits of compliance with financial regulations by insurance enterprises and insurance brokering enterprises.

Chapter 7:

IMPLEMENTING PROVISIONS

Article 35. Effectiveness of the Decree

1. This Decree shall take effect fifteen days from the date of signature.

2. Previous regulations on financial systems for insurance enterprises and insurance brokering enterprises cease to be effective from the date this Decree takes effect.

Article 36. Implementation

1. The Minister of Finance shall provide guidance on the implementation of this Decree.

2. Ministers, Heads of ministerial-level agencies, Heads of government-affiliated agencies, Chairpersons of People's Committees of provinces and centrally-administered cities shall be responsible for implementing this Decree.