Circular No. 52/2016/TT-BTC guiding the implementation of joint life insurance products

CIRCULAR

GUIDELINES FOR IMPLEMENTATION OF UNIVERSAL LIFE INSURANCE PRODUCTS

 

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

On the basis ofThe Law Amending and Supplementing Certain Articles of the Insurance Business Law No. 61/2010/QH12 dated November 24, 2010;

Pursuant to Decree No. 45/2007/NĐ-CP dated March 27, 2007 of the Government detailing the implementation of certain articles of the Insurance Business Law;

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

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

The Minister of Finance issues this Circular guiding the implementation of universal life insurance products.

PART I

GENERAL PROVISIONS

Article 1. Scope of Regulation and Applicability

Article 1. This Circular guides the implementation of universal life insurance products (universal life) under investment-linked insurance business.

Article 2. This Circular applies to life insurance enterprises (hereinafter referred to as insurance enterprises), insurance agents, policyholders, and organizations and individuals related to the implementation of universal life insurance products on the territory of the Socialist Republic of Vietnam.

Article 2. Characteristics of Universal Life Insurance Products

Clause 1. The premium structure and insurance benefits are separated between the risk protection component and the investment component. The policyholder has flexibility in determining the premium and the amount of insurance according to the agreement in the insurance contract.

Clause 2. The policyholder enjoys the entire investment results from the universal fund of the insurance enterprise but not less than the minimum investment rate guaranteed by the insurance enterprise in the insurance contract.

Clause 3. The insurance enterprise receives the fees paid by the policyholder as agreed upon in the insurance contract.

Article 3. Universal Fund

The universal fund is formed from the premiums of universal life insurance contracts and belongs to the policyholder's main fund. The assets of the universal fund are not divided but are collectively determined for all linked insurance contracts.

Article 4. Conditions for Insurance Enterprises Implementing Universal Life Insurance Products

When implementing universal life insurance products, insurance enterprises must meet the following conditions:

Clause 1. The solvency margin of the insurance enterprise must be greater than the minimum solvency margin of 100 billion VND.

Clause 2. There must be an appropriate information technology system to manage and control the universal fund carefully and effectively.

Clause 3. The universal life insurance product must be approved by the Ministry of Finance in accordance with Article 20 of this Circular.

Chapter II

SPECIFIC PROVISIONS

Section 1

PRODUCT DESIGN

Article 5. Insurance Benefits of Universal Life Insurance

Clause 1. The insurance benefits under the universal life insurance contract include risk protection benefits and investment benefits.

Clause 2. Risk protection benefits:

Subpoint a) The insurance enterprise and the policyholder agree on the risk protection benefits but must ensure that the minimum sum insured is not less than five times the annual periodic premium for periodic payment contracts or not less than 125% of the single premium for single payment contracts.

Subpoint b) The provisions regarding minimum benefits in the event of death do not apply to additional premiums specified in Article 7 of this Circular.

Subpoint c) The insurance enterprise may provide supplementary insurance products for universal life insurance products. The method of paying premiums for supplementary insurance products will be agreed upon by the parties when concluding the contract.

Clause 3. Investment benefits: The policyholder enjoys benefits from the investment results of the universal fund at the minimum investment rate stipulated in the insurance contract.

Clause 4. The insurance enterprise and the policyholder may agree on the content and method of payment of insurance benefits upon the occurrence of an insured event as provided for in Clauses 2 and 3 of this Article.

Article 6. Fees

1. Insurance enterprises are only permitted to charge the types of fees specified below:

a) Initial fee is the total amount of money that insurance enterprises are allowed to deduct before the insurance premium is allocated to the joint fund.

b) Risk insurance fee is the fee for paying out risk insurance benefits as committed in the insurance contract.

c) Insurance contract management fee is the fee to cover costs related to maintaining the insurance contract and providing information related to the insurance contract to the policyholder.

d) Fund management fee is used to pay for investment and management activities of the joint fund. In all cases, the investment return rate paid to the policyholder shall not be lower than the minimum investment return rate committed in the insurance contract.

đ) Contract cancellation fee is the fee charged to customers when canceling the contract before the expiration date to compensate for reasonable expenses related to the cancellation.

e) Other fees (if any) must be approved in writing by the Ministry of Finance.

2. Insurance enterprises must calculate the above fees accurately, fairly, and reasonably to ensure they are consistent with the technical basis of the product already approved and announced by the Ministry of Finance at the time of concluding the contract.

3. The insurance contract must clearly specify the aforementioned fees including the maximum rates applicable to the policyholder. Insurance enterprises must publicly disclose all types of fees and the maximum rates applicable to the policyholder in product introduction materials and sales illustration documents.

4. During the execution of the contract and within the maximum limit stipulated in the insurance contract, insurance enterprises may change the ratio of the applicable fees after notifying and reaching a written agreement with the policyholder at least three (03) months prior to the official change date.

Article 7. Additional Premiums

1. In addition to the agreed-upon insurance premiums in the insurance contract, the policyholder may pay additional premiums to participate in the joint fund.

2. All additional premiums will be invested in the joint fund after deducting an initial fee.

3. In each contract year, the total amount of additional premiums shall not exceed five (05) times the first-year premium for periodic payment contracts or fifty percent (50%) of the initial premium for single-payment contracts.

Article 8. Refund Value

The refund value of a joint fund-linked insurance contract is determined as the value of that contract in the joint fund on the day of insurance contract cancellation minus the insurance contract cancellation fee.

Article 9. Establishment and Management of Joint Funds

1. Insurance enterprises establish a joint fund for all joint fund-linked insurance contracts of the enterprise. The joint fund must be separated from the owner's fund and other funds of the enterprise.

2. Within sixty (60) days from the date of the first joint fund-linked insurance contract conclusion, insurance enterprises must ensure the total value of the joint fund is always not less than fifty billion VND.

3. If the insurance premium allocated to the joint fund does not meet the provisions of Clause 2 of this Article, the insurance enterprise must use part of the owner's fund to form the initial assets of the joint fund and enjoy corresponding investment results based on the amount contributed to establishing the joint fund. The insurance enterprise may be refunded a portion or the entire amount contributed if such a refund complies with the provisions of Clause 2 of this Article.

4. The joint fund is managed and utilized for investment in accordance with the financial regulations applicable to insurance enterprises.

5. Insurance premiums and additional premiums, after deducting initial fees, must be invested in accordance with the objectives of the joint fund within sixty (60) days from the date the insurance enterprise receives the insurance premiums.

Section 2

INFORMATION DISCLOSURE OBLIGATIONS OF

INSURANCE ENTERPRISES

Article 10. Information on Joint Linked Insurance

1. The insurance company shall be responsible for accurately, fully, and promptly providing the buyer of insurance with information related to joint linked insurance contracts that have been concluded. The information provided to the buyer of insurance must be consistent with the joint linked insurance product approved by the Ministry of Finance.

2. The buyer of insurance has the right to request the insurance company to provide full information and explain the conditions and terms of insurance to understand the risks associated with concluding a joint linked insurance contract.

3. The insurance company shall be responsible for publishing on its website the following documents:

a) Rules and terms of the insurance product approved by the Ministry of Finance;

b) Product introduction materials;

c) Sales illustration materials for typical cases;

d) Operation status of the joint linked fund.

Article 11. Product Introduction Materials

Product introduction materials compiled and used by the insurance company must comply with the provisions of the law and the following regulations:

1. Information in the product introduction materials must be accurate, objective, complete, truthful, and must be consistent with the joint linked insurance product approved by the Ministry of Finance.

2. In addition to general provisions in life insurance, product introduction materials for joint linked insurance must include the following minimum information:

a) Investment policy, objectives, and asset investment structure of the joint linked fund;

b) Ratio and maximum level of initial fees, risk insurance premiums, contract management fees, joint linked fund management fees, contract cancellation fees, and other fees;

c) Minimum guaranteed interest rate committed to the buyer of insurance for the portion of the insurance premium allocated for investment in the joint linked fund;

d) Basis and periodic determination of investment benefits of the insurance contract from the joint linked fund;

e) Clear information for the buyer of insurance to know that concluding a joint linked insurance contract is a long-term commitment and the buyer of insurance should not cancel the insurance contract because the fees the buyer of insurance must pay may be very high at the beginning of the contract.

Article 12. Sales Illustration Materials

Sales illustration materials must comply with the provisions of the law and the following regulations:

1. Sales illustration materials for joint linked insurance products must be provided to customers before concluding the insurance contract and must contain the minimum information as set out in Appendix I attached hereto.

2. The insurance company must clearly explain to the buyer of insurance the benefits that the customer may receive when concluding the insurance contract, including risk insurance benefits and benefits received from the joint linked fund.

3. Fees and maximum limits that the buyer of insurance must pay must be clearly presented based on the separation between insurance premiums for risk insurance benefits and other fees.

4. In case the joint linked insurance contract includes supplementary insurance benefits, the insurance company must clearly present in the sales illustration materials these supplementary benefits and their impact on the buyer of insurance.

5. Sales illustration materials must be clearly presented and easy to understand.

Article 13. Insurance Contract

The joint-linked insurance contract must comply with the provisions of the law and contain all of the following information:

1. Investment policy, objectives, and asset investment structure of the joint-linked fund;

2. Specific rates, amounts, and maximum levels of fees related to the joint-linked insurance contract charged to customers;

3. The proportion of insurance premiums allocated for investment in the joint-linked fund;

4. Methods for determining investment benefits from the joint-linked fund;

5. Options for the insured party to change risk benefit rights, the proportion of insurance premiums allocated to the joint-linked fund, and the time for premium payment extension.

Article 14. Notification to the Insured Party Regarding the Status of the Contract

Within ninety days from the end of the fiscal year or the contract year, the insurance company must notify the insured party in writing about the following contents:

1. The status of the insurance contract including the following information:

a) Risk protection benefits;

b) The return value at the beginning of the reporting year;

c) The return value at the end of the reporting year;

d) Detailed fees incurred during the year according to risk insurance premiums and other fees;

đ) Total premiums paid and the amount of premiums allocated to the joint-linked fund during the reporting year;

e) Investment results and the rate of return from the portion of premiums invested in the joint-linked fund.

2. The operation results of the joint-linked fund including the following contents:

a) Summary financial information of the joint-linked fund according to Appendix II issued together with this Circular;

b) The operational situation of the joint-linked fund over the last five years or the actual existence period of the fund if the fund's operating period has not reached five years;

c) Details of investment benefits distributed and expected to be provided to the insured party during the reporting year;

d) Confirmation by an independent auditing company regarding the above information.

Section 3

PAYMENT CAPABILITY AND OPERATIONAL RESERVE

Article 15. Payment Capability

1. The insurance company must always maintain its payment capability in accordance with the provisions of the law.

2. The minimum solvency margin for joint-linked insurance contracts is 4% of the operational reserve plus 0.3% of the amount of risk-insured sums.

3. The solvency margin of the insurance company must exceed the minimum solvency margin by one hundred billion dong.

Article 16. Establishment of Operational Reserve

1. The insurance company must establish an operational reserve as follows:

a) Insurance risk reserve: the larger amount between the reserve calculated using the unearned premium method or the reserve calculated using the cash flow method to cover all future costs throughout the term of the contract.

In which, the reserve calculated using the unearned premium method equals 100% of the risk insurance premiums received from the joint-linked insurance contract.

b) Claim reserve: established on a case-by-case basis with the amount of the reserve calculated based on statistics of the insurance sums payable for each claim requested but not settled by the insurance company by the end of the fiscal year.

c) Operational reserve for the linked portion is carried out as follows:

- The return value of the joint-linked insurance contract, or:

- The account value of the joint-linked insurance contract. The insurance company is responsible for evaluating and selecting the method of establishing the operational reserve for the linked portion to ensure the commitments made under the insurance contract.

The insurance company may not change the method and basis for establishing the operational reserve within the fiscal year. If changing the method and basis for establishing the insurance operational reserve for the next fiscal year, the insurance company must ensure that the result of the operational reserve is higher and obtain written approval from the Ministry of Finance before implementation in accordance with Circular No. 125/2012/TT-BTC dated July 30, 2012, Circular No. 194/2014/TT-BTC dated December 17, 2014, issued by the Minister of Finance, and any subsequent amendments, supplements, or replacements thereof.

d) Resilience reserve to ensure payment capability: This reserve is used to guarantee the company's commitment to customers according to the agreement in the insurance contract when there is significant market investment volatility.

2. The company's actuary is responsible for determining the method, basis, and data for the operational reserve to always ensure commitments to the insured party according to widely recognized principles and calculation methods internationally.

Section 4

CUSTOMER NEED ANALYSIS,

REQUIREMENTS FOR INSURANCE AGENTS AND COMMISSIONS

Article 17. Customer Needs Analysis

Prior to entering into an insurance contract, the insurance enterprise must conduct a customer needs analysis and must obtain confirmation from the customer that they fully understand the insurance product they intend to purchase, clearly recognize the insurance benefits, investment benefits, and investment risks that they may encounter when participating in joint-linked insurance products, and the fees calculated by the insurance enterprise for the customer.

Article 18. Requirements for Insurance Agents

Insurance agents implementing joint-linked insurance products must meet the following conditions:

1. Not violating laws and regulations on insurance agency activities and the ethical code of conduct of the insurance enterprise.

2. Having been trained and certified by the insurance enterprise to complete a course on joint-linked insurance products.

3. Having at least three (03) months of experience in insurance agency activities or having worked for at least one (01) year in the financial, banking, or insurance sector, or having graduated from a college or higher institution in the fields of finance, banking, or insurance.

Article 19. Insurance Commission

The insurance commission for joint-linked insurance products shall be implemented according to the provisions of the law with the maximum commission rate that the insurance enterprise is permitted to pay to insurance agents for each insurance contract as stipulated in Appendix III issued together with this Circular.

Section 5

OTHER PROVISIONS

Article 20. Approval of Insurance Products

1. The insurance enterprise must obtain approval from the Ministry of Finance for joint-linked insurance products before implementation.

2. The application for approval of joint-linked insurance products must be prepared in accordance with the law and include the implementation plan for joint-linked products, including the following contents:

a) A summary of the main content of the proposed joint-linked insurance product to be implemented;

b) The investment policy that the insurance enterprise intends to apply to assets within the joint fund;

c) The basis for allocating insurance fees and costs;

d) The training content for insurance agents on the proposed joint-linked insurance product;

đ) Information about actuaries, investment specialists, and other outsourced advisory services;

e) Information about the qualifications, capabilities, and professional experience of staff responsible for investments;

g) A written commitment accompanied by detailed explanations regarding the insurance enterprise's compliance with the Conditions stipulated in Article 4 of this Circular.

Article 21. Obligations of Insurance Enterprises

1. Adhering to the provisions of this Circular and other relevant laws.

2. Issuing operational procedures for implementing joint-linked insurance products consistent with the conditions, characteristics, and operational charter of the enterprise.

3. Compiling and reporting on the business situation of joint-linked insurance products in accordance with current legal regulations.

4. Annually, the actuary of the enterprise is responsible for evaluating the compliance with the provisions of this Circular by the insurance enterprise during the operation of joint-linked insurance products.

Chapter III

EFFECTIVE DATE

Article 22. Effectiveness

1. This Circular takes effect from June 1, 2016.

2. This Circular replaces Decision No. 96/2007/QD-BTC dated November 23, 2007, of the Minister of Finance on the issuance of the Implementation Regulations for Joint-Linked Insurance Products.

3. During the implementation process, if there are difficulties or obstacles, please promptly report them to the Ministry of Finance for consideration and resolution./.