Decree No. 46/2007/ND-CP on financial regime for insurance enterprises and insurance brokerage enterprises

DECREE

Regulations on financial regime for insurance enterprises and insurance brokerage enterprises

and insurance brokerage enterprises

_______________

THE GOVERNMENT

Pursuant to the Law on Organization of the Government dated December 25, 2001;

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

Considering the proposal of the Minister of Finance,

DECREE:

PART I

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 provisions of the Insurance Business Law.

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

Article 2. Principles of financial management and supervision

Insurance enterprises and insurance brokerage enterprises are autonomous in finance, bear responsibility for managing and supervising their financial activities, business results, and fulfilling their obligations and commitments in accordance with the law.

Article 3. State management agencies

The Ministry of Finance performs state management functions regarding finance, guides and inspects the implementation of the financial regime for insurance enterprises and insurance brokerage enterprises in accordance with the law.

Chapter II

MANAGEMENT AND USE OF CAPITAL AND ASSETS

Section 1

REGULATED CAPITAL, CHARTER CAPITAL, DEPOSIT GUARANTEE FUNDS AND ASSET MANAGEMENT

Article 4. Regulated capital

1. The level of regulated capital for insurance enterprises:

a) Non-life insurance business: 300,000,000,000 Vietnamese dong;

b) Life insurance business: 600,000,000,000 Vietnamese dong.

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

Article 5. Charter capital

1. The charter capital of insurance enterprises and insurance brokerage enterprises is the amount of capital contributed or committed to contribute by members or shareholders within a certain period and recorded in the charter of the insurance enterprise or insurance brokerage enterprise.

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 prescribed in Article 4 of this Decree and must be supplemented proportionately with the content, scope, and business operating area of the enterprise. The Ministry of Finance shall specify the level of supplementary charter capital.

3. In case of changes to the charter capital, insurance enterprises and insurance brokerage enterprises must submit a request and explanatory documents to the Ministry of Finance. Within thirty days from the date of receipt of the request and complete documentation, 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 established, organized, and operated before the effective date of this Decree, with a charter capital lower than the regulated capital prescribed in Article 4 of this Decree, must supplement the charter capital to the required level within three years from the effective date of this Decree.

Article 6. is the margin deposit made before executing a derivative securities transaction.

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 as a guarantee fund in a commercial bank operating in Vietnam. The guarantee fund earns interest according to an agreement with the bank where it is deposited.

2. The amount of the guarantee fund for insurance enterprises is two percent of the regulated capital prescribed in Clause 1 of Article 4 of this Decree.

3. Insurance enterprises may only use the guarantee fund 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 guarantee fund, the insurance enterprise has the responsibility to replenish the used guarantee fund.

4. Insurance enterprises can withdraw the entire guarantee fund when ceasing operations.

5. Insurance enterprises established, organized, and operated before the effective date of this Decree, with a guarantee fund lower than the amount prescribed in Clause 2 of this Article, must supplement the guarantee fund to the required level within thirty days from the effective date of this Decree.

Article 7. Other regulations on management and use of capital and assets

In addition to the regulations in this Decree, insurance enterprises and insurance brokerage enterprises must comply with the regulations on the management and use of capital and assets as prescribed by relevant laws.

Section 2

INSURANCE BUSINESS RESERVES

Article 8. Reserves for non-life insurance business

1. Enterprises engaged in non-life insurance business must establish reserves for each type of insurance business corresponding to the portion retained by the enterprise.

2. Reserves include:

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

b) Reserve for claims not yet settled, used to compensate for losses that have occurred but have not been claimed or have been claimed but not resolved by the end of the fiscal year.

Article 9. Reserves for life insurance business

1. Enterprises engaged in life insurance business must establish reserves for each life insurance contract corresponding to the liability of the insurance enterprise.

2. Reserves include:

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

b) Unearned premium reserve, used to pay insurance proceeds that will arise during the remaining term of the insurance contract in the following year;

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

d) Dividend reserve, used to pay dividends agreed upon with policyholders in the insurance contract;

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

3. Reserves for investment-linked insurance are implemented in accordance with the guidance of the Ministry of Finance.

Article 10. Level of reserve establishment and methods of establishing reserves

The Ministry of Finance shall specify in detail the levels and methods of establishing reserves as prescribed in Articles 8 and 9 of this Decree.

Section 3

INVESTMENT OF CAPITAL

Article 11. Sources of investment capital

The sources of investment capital for insurance enterprises and insurance brokerage enterprises include:

1. Shareholder equity.

2. Idle funds from insurance business reserves.

3. Other lawful sources as prescribed by law.

Article 12. Investment from own capital

1. Investment from own capital must ensure safety, efficiency, and liquidity in accordance with the guidelines of the Ministry of Finance.

2. Insurance enterprises and insurance brokerage enterprises are permitted to invest abroad according to the provisions of the law for the portion of own capital exceeding the statutory capital requirement or minimum solvency margin, whichever is larger.

Article 13. Idle funds from insurance business reserves

1. The idle funds from insurance business reserves of insurance enterprises are the total insurance business reserves minus the amounts of money that the insurance enterprise uses for regular insurance claims payments during the period for non-life insurance, and regular insurance benefit payments during the period for life insurance.

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

3. The amount of money used for regular insurance benefit payments during the period for life insurance enterprises shall not be less than 5% of the total insurance business reserves and shall be deposited at credit institutions operating in Vietnam.

Article 14. Investment of idle funds from insurance business reserves

The investment of idle funds from insurance business reserves of insurance enterprises as stipulated in Clause 1, Article 13 of this Decree shall be directly carried out by the insurance enterprise or through entrusted investment and may only be invested in Vietnam in the following fields:

1. For non-life insurance enterprises:

a) Purchasing government bonds, corporate bonds with guarantees, depositing money at credit institutions without limitation;

b) Purchasing shares, corporate bonds without guarantees, contributing capital to other enterprises up to a maximum of 35% of idle funds from insurance business reserves;

c) Engaging in real estate business, lending up to a maximum of 20% of idle funds from insurance business reserves.

2. For life insurance enterprises:

a) Purchasing government bonds, corporate bonds with guarantees, depositing money at credit institutions without limitation;

b) Purchasing shares, corporate bonds without guarantees, contributing capital to other enterprises up to a maximum of 50% of idle funds from insurance business reserves;

c) Engaging in real estate business, lending up to a maximum of 40% of idle funds from insurance business reserves.

Chapter III

SOLVENCY AND RESTORATION OF SOLVENCY

Article 15. Solvency

1. Insurance enterprises must maintain solvency throughout their insurance business operations.

2. An insurance enterprise is considered to have sufficient solvency when it has fully established insurance business reserves and its solvency margin is not lower than the minimum solvency margin prescribed in Article 16 of this Decree.

Article 16. Minimum solvency margin

1. The minimum solvency margin of non-life insurance enterprises is the greater of the two results calculated as follows:

a) 25% of the total premiums retained at the time of calculating the solvency margin;

b) 12.5% of the total original premiums and reinsurance premiums received at the time of calculating the solvency margin.

2. The minimum solvency margin of life insurance enterprises:

a) For life insurance contracts with a term of five years or less, it is the sum of 4% of the insurance business reserves and 0.1% of the risk exposure of the insurance benefits;

b) For life insurance contracts with a term exceeding five years, it is the sum of 4% of the insurance business reserves and 0.3% of the risk exposure of the insurance benefits.

Article 17. Solvency margin of insurance enterprises

The solvency margin of insurance enterprises is the difference between the value of assets and liabilities of the insurance enterprise at the time of calculating the solvency margin. Assets included in the calculation of the solvency margin of insurance enterprises must ensure liquidity. Assets excluded entirely or partially from the calculation of the solvency margin of insurance enterprises are implemented in accordance with the guidelines of the Ministry of Finance.

Article 18. Risk of loss of solvency

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

Article 19. Restoration of solvency

1. When there is a risk of losing solvency, the insurance enterprise must proactively implement measures to restore solvency immediately while reporting to the Ministry of Finance on the financial status, causes leading to the risk of losing solvency, and plans to restore solvency.

2. In cases where the insurance enterprise cannot restore solvency on its own, the Ministry of Finance has the right to require the insurance enterprise to restore solvency, including the following measures:

a) Supplementing own capital;

b) Reinsurance; narrowing the scope and scale of operations; suspending part or all activities;

c) Strengthening organizational structure and changing management personnel of the enterprise;

d) Requesting the transfer of insurance contracts;

e) Other measures.

3. In cases where the insurance enterprise fails to restore solvency as required by the Ministry of Finance under Clause 2 of this Article, the insurance enterprise will be placed under special supervision. The Ministry of Finance decides to establish a Solvency Restoration Committee to apply measures to restore solvency as prescribed in Article 80 of the Law on Insurance Business.

Chapter IV

REVENUE AND EXPENSES

Section 1

REVENUE AND EXPENSES OF INSURANCE ENTERPRISES

Article 20. Revenue of insurance enterprises

The revenue of insurance enterprises is the amount receivable generated during the period, including:

1. Revenue from insurance business operations is the amount receivable generated during the period after deducting the amounts payable to reduce revenue generated during the period:

a) The amount receivable generated during the period includes:

- Premium income;

- Reinsurance premium income;

- Reinsurance commission income;

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

- Loss assessment fees excluding loss assessment services provided among internal units within the same independently accounting insurance enterprise.

b) The expenses to reduce revenue generated during the period include:

- Refund of insurance premiums;

- Reduction of insurance premiums;

- Reinsurance premium fees;

- Refund of reinsurance received premiums;

- Reduction of reinsurance received premiums;

- Refund of reinsurance commission fees;

- Reduction of reinsurance commission fees.

2. Financial activity income:

a) Income from investment activities as stipulated in Section 3 Chapter II of this Decree;

b) Income from securities trading activities;

c) Interest on deposit balances;

d) Rental income from assets;

đ) Other income as prescribed by law.

3. Other operating income:

a) Income from the sale or liquidation of fixed assets;

b) Recovered amounts from previously written-off bad debts;

c) Other income as prescribed by law.

Article 21. Insurance company expenses

Insurance company expenses are the amounts that must be paid or set aside during the period, including:

1. Insurance business operation expenses are the amounts that must be paid or set aside during the period after deducting receivables to reduce expenses incurred during the period:

a) The amount of money to be spent and set aside during the period includes:

- Original insurance claims payment for non-life insurance; insurance benefit payment for life insurance;

- Reinsurance claims payment;

- Setting up business reserve;

- Insurance commission expense;

- Loss adjustment expense;

- Service agent costs including loss assessment, claim settlement review, and third-party reimbursement requests;

- Full claim processing expense;

- Management costs for insurance agents;

- Risk prevention and loss limitation expense;

- Risk assessment costs for insured objects;

- Other costs and deductions as prescribed by law.

b) Receivables to reduce expenses incurred during the period include:

- Reimbursement of reinsurance claims;

- Third-party reimbursement recovery;

- Recovery of fully processed and compensated items.

2. Financial activity expenses:

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

b) Investment income payable to policyholders under life insurance contracts;

c) Asset rental expenses;

d) Bank transaction fees and interest payments on loans;

đ) Other costs and deductions as prescribed by law.

3. Other operating expenses:

b) Costs for recovering written-off debts: The Company may pay to organizations and individuals who have contributed to the recovery of written-off debts based on their efforts and effectiveness. The procedures, formalities, and legal responsibilities for implementing this payment shall be carried out as stipulated in point d, clause 1 of this Article;

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

c) Other costs and deductions as prescribed by law.

Article 22. Other provisions regarding income and expenses of insurance companies

In addition to the provisions in Article 20 and Article 21 of this Decree, other income and expenses of insurance companies shall be implemented in accordance with the law.

Article 23. Separation of capital and insurance premium funds in life insurance

Life insurance companies must separately allocate their capital and insurance premiums collected from policyholders according to the guidelines of the Ministry of Finance.

Section 2

INCOME AND EXPENSES OF INSURANCE BROKER COMPANIES

Article 24. Income of insurance broker companies

The income of insurance broker companies is the amount receivable generated during the period, including:

1. Brokerage income:

a) Brokerage commissions after deducting brokerage commissions and reduced brokerage commissions;

b) Other income as prescribed by law.

2. Financial activity income:

a) Income from securities trading activities;

b) Deposit interest and interest on loan balances;

c) Rental income from assets;

d) Other income as prescribed by law.

3. Other operating income:

a) Income from the sale or liquidation of fixed assets;

b) Recovered amounts from previously written-off bad debts;

c) Other income as prescribed by law.

Article 25. Expenses of insurance broker companies

The expenses of insurance broker companies are the amounts that must be paid or set aside during the period, including:

1. Brokerage operation expenses:

a) Brokerage operation expenses;

b) Premiums for professional liability insurance;

c) Other costs and deductions as prescribed by law.

2. Financial activity expenses:

a) Asset rental expenses;

b) Bank transaction fees and interest payments on loans;

c) Other costs and deductions as prescribed by law.

3. Other operating expenses:

b) Costs for recovering written-off debts: The Company may pay to organizations and individuals who have contributed to the recovery of written-off debts based on their efforts and effectiveness. The procedures, formalities, and legal responsibilities for implementing this payment shall be carried out as stipulated in point d, clause 1 of this Article;

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

c) Other costs and deductions as prescribed by law.

Article 26. Other provisions regarding income and expenses of insurance broker companies

In addition to the provisions in Article 24 and Article 25 of this Decree, other income and expenses of insurance broker companies shall be implemented in accordance with the law.

Chapter V

PROFIT AND DISTRIBUTION OF PROFIT

Article 27. Profit of insurance companies

1. Annual profit is the business result of insurance companies, including operating profit from insurance activities, financial profit, and other operating profits.

2. The profit of insurance companies is the difference determined between total income and total expenses of the insurance company.

Article 28. Profit of insurance broker companies

1. Annual profit is the business result of insurance broker companies, including operating profit from brokerage activities, financial profit, and other operating profits.

2. The profit of insurance broker companies is the difference determined between total income and total expenses of the insurance broker company.

Article 29. Obligations to the state budget

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

Article 30. Profit distribution

After paying corporate income tax as required by law, setting up mandatory reserve funds, insurance companies and insurance broker companies may distribute remaining profits according to the law.

Article 31. Mandatory Reserve Fund

Insurance companies and insurance broker companies must allocate 5% of annual post-tax profits to establish a mandatory reserve fund. The maximum level of the mandatory reserve fund equals 10% of the company's charter capital.

Chapter VI

ACCOUNTING, AUDITING, STATISTICAL REPORTING, AND FINANCIAL REPORTING REGULATIONS

Article 32. Accounting system

Insurance companies and insurance broker companies must maintain complete original documentation, update accounting ledgers, and accurately, timely, truthfully, and objectively reflect economic and financial activities.

Article 33. Fiscal year

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

Article 34. Financial reports

1. Insurance companies and insurance broker companies are responsible for preparing and submitting periodic and ad hoc financial reports, statistical reports, and operational reports as prescribed by current laws and guidelines of the Ministry of Finance.

2. Annual financial reports of insurance companies and insurance broker companies must be audited and confirmed by independent auditing organizations legally operating in Vietnam on the financial issues specified in this Decree before submission to the Ministry of Finance.

Article 35. Internal audit

Insurance enterprises and insurance brokerage enterprises must conduct internal audits of their financial activities.

Article 36. Financial management of enterprises

1. Insurance enterprises and insurance brokerage enterprises shall carry out financial management in accordance with the principles and standards prescribed by the Ministry of Finance.

2. Insurance enterprises and insurance brokerage enterprises must establish, implement, and monitor the execution of financial regulations, investment regulations, control and internal audit regulations, and corresponding procedures and processes.

Article 37. Public disclosure of financial reports

1. Insurance enterprises and insurance brokerage enterprises must publicly disclose financial reports in accordance with the provisions of the law.

2. Information disclosed publicly must be consistent with the financial reports of insurance enterprises and insurance brokerage enterprises that have been audited and confirmed by independent auditing organizations.

Article 38. Financial inspection and supervision

The Ministry of Finance shall conduct inspections and audits to ensure compliance with financial systems by insurance enterprises and insurance brokerage enterprises.

Chapter VII

IMPLEMENTING PROVISIONS

Article 39. Effectiveness of the Decree

1. This Decree shall take effect fifteen days from the date of publication in the Official Gazette.

2. This Decree replaces Government Decree No. 43/2001/NĐ-CP dated August 1, 2001, which stipulates financial systems for insurance enterprises and insurance brokerage enterprises.

Article 40. Implementation

1. The Minister of Finance shall guide the implementation of this Decree.

2. Ministers, Heads of ministerial-level agencies, Heads of government-affiliated agencies, Chairpersons of provincial and centrally governed city People's Committees are responsible for implementing this Decree./.