Circular No. 78/1998/TT-BTC stipulates on insurance business activities

CIRCULAR

Provisions on Reinsurance Business Activities

Implementing Decree No. 100/CP dated December 18, 1993 of the Government on Insurance Business and Decree No. 74/CP dated June 14, 1997 of the Government on Amending and Supplementing Certain Provisions of Decree No. 100/CP dated December 18, 1993 of the Government on Insurance Business; To strengthen state management over reinsurance business activities, increase retention levels in the Vietnamese insurance market;

The Ministry of Finance stipulates reinsurance business activities as follows:

I. GENERAL PROVISIONS:

1. This Circular applies to the National Reinsurance Corporation of Vietnam, insurance enterprises permitted to be established and operate legally in Vietnam, aiming to regulate reinsurance activities based on reinsurance acceptance contracts and reinsurance cession contracts.

2. In this Circular, the following terms are understood as follows:

Insurance enterprise: An enterprise permitted to engage in insurance and reinsurance business according to specific provisions set forth in the Certificate of Eligibility for Insurance Business issued by the Ministry of Finance.

Reinsurance business activities include: Reinsurance acceptance and reinsurance cession.

Reinsurance acceptance: The act of an insurance enterprise or the National Reinsurance Corporation of Vietnam accepting to insure part or all of the risks of another insurance enterprise or an overseas insurance organization.

Reinsurance cession: The act of an insurance enterprise or the National Reinsurance Corporation of Vietnam transferring part or all of the risks already accepted for reinsurance to another insurance enterprise or an overseas insurance organization.

Designated reinsurance: The reinsurance activity of an insurance enterprise pursuant to the designation of a customer or the service provider bringing the insurance service to that insurance enterprise.

3. Principles of reinsurance business operations:

An insurance enterprise is the sole entity responsible towards policyholders participating in insurance, including cases where it has ceded reinsurance for risks it has accepted.

Insurance enterprises and the National Reinsurance Corporation of Vietnam must prioritize arranging reinsurance for insurance enterprises permitted to operate in Vietnam before ceding reinsurance abroad.

II. SPECIFIC PROVISIONS:

1. Provisions on mandatory reinsurance:

In the case of reinsurance for overseas insurance organizations, insurance enterprises must reinsure a portion of their liability under the original insurance contract or application to the National Reinsurance Corporation of Vietnam.

The implementation of mandatory reinsurance is as follows:

The mandatory reinsurance ratio, mandatory reinsurance commission ratio, and list of mandatory reinsurance operations shall be carried out according to the attached appendix to this Circular.

For insurance contracts, the mandatory reinsurance ratio is calculated based on the insured value within the liability of the insurance enterprise in the original insurance contract or application.

The National Reinsurance Corporation of Vietnam is responsible for accepting mandatory reinsurance from insurance enterprises at a minimum level as prescribed.

If it can be proven that the risk accepted by the insurance enterprise does not align with international insurance market practices regarding terms, premiums, etc., the National Reinsurance Corporation of Vietnam may refuse to accept partial or full reinsurance for such risks.

Prior to ceding mandatory reinsurance abroad, the National Reinsurance Corporation of Vietnam must prioritize ceding reinsurance to insurance enterprises permitted to operate in Vietnam up to the maximum possible amount and arrange ceding reinsurance abroad in the most effective manner. In necessary cases, the Ministry of Finance will require the National Reinsurance Corporation of Vietnam to demonstrate the execution of ceding reinsurance for the mandatory reinsurance liability already accepted.

d. The rights and obligations of the National Reinsurance Corporation of Vietnam concerning each risk related to mandatory reinsurance acceptance contracts will commence and terminate concurrently with the original insurance contract or application of the insurance enterprises.

The payment of reinsurance premiums, reinsurance commissions, and reinsurance indemnities related to mandatory reinsurance liability between insurance enterprises and the National Reinsurance Corporation of Vietnam shall be conducted quarterly based on the statistical report of the original insurance enterprise according to the reinsurance contract.

In the event that an insurance enterprise or the National Reinsurance Corporation of Vietnam fails to make payments as stipulated above, they will be subject to late payment penalties as prescribed by the State Bank of Vietnam.

Insurance enterprises and the National Reinsurance Corporation of Vietnam may agree on other provisions in the mandatory reinsurance contract but must not contravene the provisions of this Circular.

2. Provisions on non-mandatory reinsurance:

After implementing mandatory reinsurance as prescribed in this Circular, insurance enterprises must prioritize reinsuring a portion of the insurance contract for insurance enterprises permitted to operate in Vietnam based on the financial capacity of these enterprises and mutual benefits before reinsuring abroad.

Unless otherwise approved by the Ministry of Finance, in the case of designated reinsurance, insurance enterprises must comply with the following provisions:

Maximum designated reinsurance ratio for overseas insurance organizations: 50% of the contract or application value (except when the National Reinsurance Corporation of Vietnam refuses to accept reinsurance as provided in Clause c, Section 1 of this Chapter).

Maximum designated reinsurance ratio for one overseas insurance organization: 40% of the contract or application value.

An insurance enterprise may not cede full (100%) responsibility for risks accepted in an insurance service to another insurance enterprise or an overseas insurance organization (even after having performed mandatory reinsurance for the National Reinsurance Corporation of Vietnam) to earn reinsurance commissions.

3. Provisions on reinsurance acceptance:

The Ministry of Finance encourages insurance enterprises to accept reinsurance from other insurance enterprises or foreign insurance organizations. When accepting reinsurance, insurance enterprises must carefully assess each reinsured risk, their financial capacity for those risks, and consider the business effectiveness of the reinsurance acceptance activity.

III. IMPLEMENTATION PROVISIONS:

1. This Circular takes effect from July 1, 1998. All previous regulations that conflict with this Circular are hereby abolished.

2. Insurance enterprises and Vietnam National Reinsurance Corporation that violate the provisions of this Circular shall be subject to handling according to Clause 10, Article 1 of Decree No. 74/CP dated June 14, 1997 of the Government on amending and supplementing certain provisions of Decree No. 100/CP dated December 18, 1993 of the Government on insurance operations.

During implementation, if there are any difficulties, insurance enterprises and Vietnam National Reinsurance Corporation are requested to promptly report to the Ministry of Finance for consideration and amendment.

ANNEX

REGULATIONS ON THE RATIO OF COMPULSORY REINSURANCE AND COMMISSION FOR COMPULSORY REINSURANCE
LIST OF COMPULSORY REINSURANCE BUSINESS AND THE RATIO OF COMMISSION FOR COMPULSORY REINSURANCE
(Annexed to Circular No. 78/1998/TT-BTC dated June 9, 1998
Port Authority Name

1. Ratio of compulsory reinsurance:

The ratio of compulsory reinsurance is set at 20% of the value of the original insurance contract or policy.

2. List of compulsory reinsurance business and the ratio of commission for compulsory reinsurance:

a. For fixed reinsurance contracts:

b. For temporary reinsurance contracts: The ratio of commission for compulsory reinsurance is equal to 85% of the commission rate for the same type of service on the international market./.