Circular No. 86/2009/TT-BTC amending and supplementing certain points of Circular No. 155/2007/TT-BTC dated December 20, 2007 of the Ministry of Finance guiding the implementation 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 Circular No. 156/2007/TT-BTC dated December 20, 2007 guiding the implementation of Decree No. 46/2007/NĐ-CP dated March 27, 2007 of the Government on financial regulations for insurance companies and insurance brokerage companies.

CIRCULAR

Article 1. Amending and supplementing Circular 155

1. Amending and supplementing Point 2.2, Clause 2, Section II on financial capacity assessment as follows:

“2.2.1. A list of organizations and individuals participating in capital contribution to establish an insurance enterprise or an insurance brokerage enterprise, specifying the founding shareholders (members); the amount of capital contribution; the number and type of shares (for applications to establish a joint-stock company); the method of capital contribution; the corresponding time limit for capital contribution;

2.2.2. The founding shareholders must collectively hold at least 50% of the initial charter capital when establishing an insurance enterprise or an insurance brokerage enterprise within three years (for applications to establish a joint-stock company);

2.2.3. A document from the competent authority of the country where the enterprise's headquarters is located certifying that the foreign investor is in sound financial condition and meets all management requirements in the home country up to the end of the fiscal year immediately preceding the application for a license;

2.2.4. The structure of capital contribution to establish an insurance enterprise or an insurance brokerage enterprise must comply with the provisions of Decree No. 46/2007/NĐ-CP dated March 27, 2007 of the Government stipulating financial regulations for insurance enterprises and insurance brokerage enterprises (hereinafter referred to as Decree 46/2007/NĐ-CP) and the guiding documents;

2.2.5. Evidence proving the ability to fully pay the registered capital for establishing an insurance enterprise or an insurance brokerage enterprise of the investors:

a) Financial statements for the three consecutive years prior to the establishment of the insurance enterprise or the insurance brokerage enterprise certified by an independent auditing organization for organizations that are founding shareholders or contribute more than 10% of the charter capital; financial statements for the three consecutive years prior to the establishment of the insurance enterprise or the insurance brokerage enterprise for corporate investors who are not founding shareholders or contribute less than 10% of the charter capital;

b) The capital contribution to establish an insurance enterprise or an insurance brokerage enterprise must be legal sources; no borrowing or entrusted investment under any form shall be used to contribute capital to establish an insurance enterprise or an insurance brokerage enterprise;

c) For Vietnamese organizations participating in capital contribution to establish an insurance enterprise as founding shareholders or contributing more than 10% of the charter capital of the insurance enterprise: They must be enterprises established according to the Enterprise Law, have a minimum net asset value of 150 billion VND, contribute capital into the insurance enterprise with an amount not exceeding 25% of their net asset value, operate profitably, and be confirmed in the audited financial reports for the last three consecutive years;

d) For Vietnamese organizations participating in capital contribution to establish an insurance enterprise with less than 10% of the charter capital of the insurance enterprise: They must be enterprises established according to the Enterprise Law, have sound financial conditions in the last three consecutive fiscal years, and have net assets minus large long-term investments greater than the expected capital contribution to the insurance enterprise.

2.2.6. There must be a minimum of four organizations participating in capital contribution to establish an insurance enterprise.

2. Supplementing Clause 3, Section II on procedures before issuing a license for establishing and operating an insurance enterprise or an insurance brokerage enterprise as follows:

"3.1 Based on a complete and valid application, if the investor meets the conditions stipulated, the Ministry of Finance will issue a principle approval letter.

3.2 Within six months from the date of receiving the principle approval, the insurance enterprise or the insurance brokerage enterprise must fully pay the charter capital and submit to the Ministry of Finance a confirmation from the bank regarding the deposited charter capital into the frozen account of each organization or individual listed in the application for the license.

3.3 In addition to the provisions of point 3.2, the insurance enterprise must prove compliance with the following conditions:

- Management and executive positions such as General Director (Director), Chairman of the Board of Directors (Board of Members, Company Chairman), Deputy General Director (Deputy Director), Chief Accountant, Actuary (life insurance), Head of Sales, Appraisal, Compensation Department, Head of Investment Department, Reserve and Solvency Margin Actuary (non-life insurance) must meet the conditions stipulated in Circular No. 155/2007/TT-BTC dated December 20, 2007 of the Ministry of Finance and this Circular;

- Proving compliance with the conditions regarding information technology for business operations, accounting-finance, investment, information staff, and infrastructure conditions.

3.4. After the insurance company meets all the conditions for implementation set out in points 3.1, 3.2, and 3.3, the Ministry of Finance will officially grant the license to establish and operate to the insurance company. In case the insurance company fails to meet one of the conditions specified in points 3.2 or 3.3 within six months, the approval in principle mentioned in point 3.1 will no longer be valid.

3.5. In addition to the provisions set forth in point 3.2 above, the insurance brokerage company must prove that it fully satisfies the following conditions:

- The positions of management and operation such as General Director (Director), Chairman of the Board of Directors (Board Members, Company Chairman), Deputy General Director (Deputy Director), Chief Accountant must meet the requirements stipulated in Circular 155/2007/TT-BTC dated December 20, 2007, issued by the Ministry of Finance, and this Circular;

- All staff in business departments must hold degrees or certificates from recognized domestic or international insurance training institutions;

- Meet the conditions regarding information technology for business operations, accounting-finance, investment, information officers, and infrastructure.

3.6. After the insurance brokerage company meets all the conditions for implementation set out in points 3.1, 3.2, and 3.5, the Ministry of Finance will officially grant the license to establish and operate to the insurance brokerage company. In case the insurance brokerage company fails to meet one of the conditions specified in points 3.2 or 3.5 within six months, the approval in principle mentioned in point 3.1 will no longer be valid.

3. Amend Clause 3, Section II on procedures before the insurance company and insurance brokerage company officially commence operations to Clause 4.

4. Amend and supplement Point 3.1.3, Clause 3, Section II on procedures before the insurance company and insurance brokerage company officially commence operations as follows:

"4.1.3. Hold elections for the Board of Directors, Board Members, Chairman, and General Director (Director) in accordance with the Articles of Association and relevant laws; complete the procedures for approval of the Chairman and General Director (Director)."

5. Add Point 2.5, Clause 2, Section III on increasing or decreasing the charter capital of the insurance company and insurance brokerage company as follows:

"2.5. Within six months from the date of approval in principle by the Ministry of Finance for increasing or decreasing the charter capital, the insurance company and insurance brokerage company must complete the increase or decrease of the charter capital according to the approved plan and report to the Ministry of Finance the results for review and issuance of the adjustment permit. If the plan to increase capital cannot be implemented, the insurance company and insurance brokerage company must report to the Ministry of Finance for consideration and resolution."

6. Amend Point 4.3, Clause 4, Section III on changing the location of the main office, branch, or representative office of the insurance company and insurance brokerage company as follows:

"4.3. Evidence of the right to use the location of the main office, branch, or representative office (rented or owned)."

7. Amend and supplement Clause 1, Section IV on standards for managers and executives of the insurance company and insurance brokerage company as follows:

7.1. Add Points 1.1.5 and 1.1.6 on general standards as follows:

"1.1.5. For three consecutive years prior to the date of appointment as a manager or executive of the insurance company or insurance brokerage company:

- Has not been administratively punished in the field of insurance with the form of being forced to resign from the managerial position already approved by the Ministry of Finance or being suspended from the position already appointed by the enterprise;

- Has not been disciplined under the form of dismissal or termination of employment due to violation of internal procedures for exploitation, appraisal, compensation, internal control, financial management and investment, reinsurance program management in the insurance company or brokerage procedures, internal control, professional ethics rules in the insurance brokerage company."

"1.1.6. At the time of appointment as a manager or executive of the insurance company or insurance brokerage company, is not directly involved in cases currently being investigated or verified by competent authorities."

7.2. Amend Points 1.4.2 and 1.4.3 on standards for the General Director (Director) or legal representative as follows:

"1.4.2. Holds a bachelor's degree or higher;

1.4.3. Holds a degree or certificate in the field intended to manage from recognized domestic or international insurance training institutions;"

1.4.4. Has worked directly in the insurance, finance, banking sector for at least five years;

1.4.5. Has held a position of at least department head at the headquarters or branch director for at least three years in an insurance company (if assuming a position in an insurance company), or in an insurance brokerage company (if assuming a position in an insurance brokerage company);

1.4.6. Resides in Vietnam during the term of office."

7.3. Amend Point 1.5 on standards for Deputy General Director (Deputy Director), Branch Director, Head of Representative Office, Chief Accountant, Head of Supervisory Board as follows::

"1.5.1. Common standards prescribed in Point 1.1 above;

1.5.2. Holds a bachelor's degree or higher;

1.5.3. Holds a degree or certificate in the field intended to manage from recognized domestic or international insurance training institutions;

1.5.4. Has worked directly in the insurance, finance, banking sector or the specialized field intended to manage for at least three years."

7.4. Amend and supplement Point 1.6 on standards for heads of business development, claims, reinsurance, and investment departments as follows:

"1.6. Standards for heads of business development, claims, reinsurance, and investment departments:

1.6.1. Common standards prescribed in Point 1.1 above;

1.6.2. Holds a bachelor's degree or higher;

1.6.3. Hold a diploma or training certificate in the field intended to be responsible for, issued by domestic or international insurance training institutions recognized.

1.6.4. Have at least three years of work experience in the field intended to be responsible for.

7.5. Amend and supplement Point 1.7 on the principles of assignment of positions in insurance companies and insurance brokerage companies as follows:

a. Points 1.7.1 and 1.7.2: Delete the phrase "except in the case of a subsidiary company".

b. Add Points 1.7.3 and 1.7.4 under Section IV as follows:

"1.7.3. The General Director (Director), Deputy General Director (Deputy Director) shall not concurrently hold the position of branch manager or representative office director in more than one branch or representative office.

Branch managers and heads of business units at the headquarters of insurance companies and insurance brokerage companies shall not concurrently hold the position of branch manager or representative office director in other branches or representative offices of the same insurance company or insurance brokerage company.

1.7.4. The General Director (Director) and Deputy General Director (Deputy Director) of insurance companies shall not concurrently serve as risk assessment experts of the same insurance company."

8. Amend and supplement the provisions in Clause 2, Section IV on internal audit and control as follows:

Delete Points 2.1, 2.2, and 2.3 of this clause and replace them with the following provisions:

"2.1. Insurance companies and insurance brokerage companies must establish procedures and organize internal audits and controls, ensuring that internal audit and control activities are independent from management and business operations of the insurance company or insurance brokerage company, and ensure timely identification and reporting of all risks that may adversely affect the effectiveness and objectives of the company's operations to the competent authority of the insurance company or insurance brokerage company for appropriate measures to be taken.

2.2. Individuals engaged in internal audit and control must have a bachelor's degree or higher; have at least three years of work experience in the fields of finance, banking, or insurance."

9. Add Clause 4, Section IV on risk assessment experts in non-life insurance businesses as follows:

"4. Risk assessment experts in non-life insurance businesses and their ability to pay

4.1. Non-life insurance companies must employ experts to perform the following tasks:

4.1.1. Establish reserves according to legal regulations.

4.1.2. Evaluate the situation of claims payments and reserve levels in previous fiscal years, compare with the established levels and report to the Ministry of Finance according to the attached Circular.

4.1.3. Regularly calculate the solvency of the non-life insurance company and confirm it in the solvency report sent to the Ministry of Finance according to legal regulations.

4.2. Standards for risk assessment experts and solvency in non-life insurance companies:

4.2.1. Hold a bachelor's degree or higher;

4.2.2. Have at least five years of work experience in financial accounting in insurance companies;

4.2.3. Have good moral character, and have not been administratively punished in the insurance business;

4.3. Non-life insurance companies must register with the Ministry of Finance the risk assessment experts and their solvency. The registration dossier includes the following basic information:

- A registration document for risk assessment experts and their solvency signed by the Chairman of the Board of Directors or the General Director of the company.

- Academic certificates, qualification certificates, curriculum vitae regarding the expertise, qualifications, and professional experience of the person intended to be appointed as a risk assessment expert and their solvency.

4.4. In cases where necessary, the Ministry of Finance may request the risk assessment expert and their solvency or the person intended to be appointed as a risk assessment expert and their solvency to explain their professional capabilities before the Ministry of Finance to meet the tasks specified in Point 4.1, Clause 4, Article 1 of this Circular."

10. Amend and supplement the provisions in Point 3.3.3, Clause 3, Section V on insurance exploitation as follows:

"3.3.3. Strictly prohibit insurance companies from taking advantage of the reputation, influence, and directives of state management agencies, superior supervisory agencies, and capital contributors in any form to provide insurance services, affecting the legitimate rights and interests of policyholders."

11. Amend the provisions in Point 2.3, Clause 2, Section VI on retention limits as follows:

"2.3. Insurance companies are only allowed to retain a maximum liability limit on each risk or individual loss not exceeding 5% of the company's equity." 

12. Amend the provisions in Point 4.2, Clause 4, Section VI on conditions for foreign reinsurance companies as follows:

"4.2. The lead reinsurer and reinsurers receiving more than 10% of the total liability of each reinsurance contract must have a minimum rating of "BBB" according to Standard & Poor's, "B++" according to A.M.Best, "Baa" according to Moody’s, or equivalent ratings at the most recent fiscal year compared to the time of signing the reinsurance contract.

In the case of reinsuring a parent company abroad or companies within a group without credit ratings as specified above, the insurance company must submit a report to the Ministry of Finance."

13. Amend and supplement the provisions in Clause 1, Section VII as follows:

13.1. Amend the name of Clause 1, Section VII as follows:

"Provisions on training, examination, and issuance of insurance agent certificates

13.2. Amend and supplement Point 1.1, Clause 1, Section VII as follows:

"1.1. Insurance agent training institutions wishing to train insurance agents must submit a proposal to the Ministry of Finance for approval of the insurance agent training program according to Clause 2, Article 31 of Decree 45/2007/NĐ-CP, along with training procedures and quality evaluation procedures, examination procedures for issuing training certificates (in cases where authorized by the Ministry of Finance to organize examinations), and procedures for issuing and managing insurance agent training certificates."

13.3. Amend and supplement Point 1.3.1, Clause 1, Section VII as follows:

"1.3.1. Only training institutions for insurance agents that have been approved by the Ministry of Finance to operate may issue certificates of training for insurance agents. The person who receives the certificate must complete the insurance agent training program organized by the training institution for insurance agents and pass the examination for the issuance of the insurance agent training certificate organized by the Ministry of Finance or by a training institution for insurance agents authorized by the Ministry of Finance.

14. Supplement the provisions at Clause 5, Section VIII on insurance brokerage as follows:

"5.5. Utilize collaborators to perform one or more stages of the insurance brokerage process."

Article 2: Amend and supplement Circular 156

1. Amend Point 3.4.1.c, Clause 3, Section III on the basis for calculating reserves as follows:

"c) Basis for calculating reserves: life insurance enterprises shall use the following bases to calculate mathematical reserves:

+ The mortality table prescribed in the Appendix issued together with Circular 156 (the CSO 1980 mortality table).

+ The maximum technical interest rate equal to 80% of the government bond interest rate for a ten-year term at the nearest point in time before the reserve is established. Life insurance enterprises may adjust the technical interest rate downward to comply with this provision. In case a life insurance enterprise wishes to increase the technical interest rate, it must obtain approval from the Ministry of Finance in accordance with Point 3.3, Clause 3, Section III of Circular 156." 

2. Amend and supplement Point 1.2.1, Clause 1, Section VI on revenue from insurance business operations as follows:

"1.2.1. Revenue from non-life insurance business operations is the amount receivable arising during the period determined according to the following principles:

- The insurance enterprise records the premium income when the insurance liability arises for the insured party upon the conclusion of the insurance contract, specifically as follows:

+ When the insurance contract has been concluded between the insurance enterprise and the insured party and the insured party has paid the full premium.

+ There is evidence that the insurance enterprise has accepted the insurance and the insured party has paid the full premium.

+ The insurance contract has been concluded and the insurance enterprise has agreed in the insurance contract for the insured party to owe the premium.

++ In the case where the insurance enterprise agrees to extend the payment period for the premium, a supplementary agreement to the insurance contract must be established within the validity period of the insurance contract and before the occurrence of loss.

++ In the case where the insurance enterprise agrees with the insured party to pay the premium periodically, the enterprise records the income corresponding to the period or periods in which the premiums have arisen, not recording income for the portion of the premium that has not yet become due according to the agreement.

++ In all cases, the period for owing the premium cannot exceed the duration of the insurance contract. For cargo transportation insurance contracts involving multiple shipments participating in insurance throughout the year, if the insurance enterprise and the insured party have signed a principle insurance contract (or blanket insurance contract) regarding the method of participation in insurance and the payment method, then the payment deadline for the premiums of the insurance contracts signed in the current month shall not be later than the 15th day of the following month.

++ In the event that the insured party does not pay the full premium or fails to pay the premium according to the agreed schedule in the insurance contract, the insurance contract will terminate its insurance effectivity on the next day following the date the insured party should have paid the premium according to the contract.

++ The insurance enterprise reduces revenue corresponding to the period during which the insurance contract does not generate insurance liability due to the insured party's failure to pay the premium according to the agreed payment terms.

For insurance contracts without an agreed payment period, the insurance contract will not generate insurance liability and the insurance enterprise shall not record such income.

- In the case of an insurance contract, the insurance enterprise records the allocated premium income based on the proportion of the insurance coverage.

- The insurance enterprise records the reinsurance premium income, commission income from ceding reinsurance, and other income arising from reinsurance activities when the reinsurance settlement statement is confirmed.

If the insurance enterprise agrees with the reinsurer to pay the premium periodically, it shall record the income corresponding to the period or periods in which the reinsurance premiums have arisen, not recording income for the portion of the premium that has not yet become due according to the agreement.

- For the remaining revenues: the insurance enterprise records the income immediately when the economic activity occurs, with evidence of approval for payment from all parties, regardless of whether the money has been received or not.

- For expenses to reduce revenue: the insurance enterprise records the reduction in income immediately when the economic activity occurs, with evidence of approval from all parties, regardless of whether the money has been spent or not.

For life insurance enterprises, revenue is recorded according to the provisions of Circular No. 156/2007 dated December 20, 2007, guiding the implementation of Decree No. 46/2007/NĐ-CP dated March 27, 2007 of the Government on financial regulations for insurance enterprises and insurance brokerage enterprises.

3. Amend Point 2.1, Clause 2, Section VI on operating costs of insurance business as follows:

"2.1. Operating costs of insurance business:

2.1.1. Claims payments under original insurance contracts (claims payments for non-life insurance, benefit payments for life insurance), reinsurance contracts after deducting amounts receivable to reduce costs such as reinsurance claims recovery, third-party indemnity recoveries, fully settled claims, etc.;

The principle for claims payments for non-life insurance enterprises: strictly in accordance with the scope and conditions of insurance stipulated in the insurance contract agreed upon by the parties and supported by evidence of damage occurrence."

2.1.2. Provision for business operations as prescribed in Section III of this Circular;

2.1.3. Payment of insurance commissions and insurance brokerage commissions as prescribed in Section V of Circular No. 155/2007/TT-BTC dated December 20, 2007, guiding the implementation of Decree No. 45/2007/NĐ-CP;

2.1.4. Loss adjustment expenses as prescribed in Article 26 of Decree No. 45/2007/NĐ-CP;

2.1.5. Expenses related to agency services including loss adjustment, examination and settlement of indemnities, and claims against third parties;

2.1.6. Costs for handling goods that have been fully compensated for losses;

2.1.7. Agency management expenses:

- For life insurance companies, agency management expenses include training and certification examination fees for agents, advanced knowledge training fees for agents, recruitment fees for agents, and agent incentive fees.

- For non-life insurance companies, agency management expenses include training and certification examination fees for agents. No support for agents in any form other than the insurance commission rate as stipulated by the Ministry of Finance shall be allowed.

2.1.8. Prevention and limitation of losses expenses, not exceeding 2% of actual premium income in the fiscal year for measures to prevent and limit losses as prescribed in Clause 2, Article 25 of Decree No. 45/2007/NĐ-CP;

Prevention and limitation of losses expenses must comply with legal purposes and ensure full invoices, receipts, or evidence proving such expenses.

2.1.9. Risk assessment expenses for insured objects, including expenses for information gathering, investigation, and evaluation of insured objects;

2.1.10. Allocate 5% of the total annual premiums collected from compulsory fire and explosion insurance to fund fire prevention and firefighting activities; allocate at least 2% of the annual revenue from compulsory civil liability insurance for motor vehicles to the Motor Vehicle Insurance Fund; other expense allocations for insurance operations as prescribed by law;

2.1.11. Other expenses and allocations as prescribed by law".

4. Amend Point 2.1.1, Clause 2, Section VII on insurance brokerage company expenses as follows:

"2.1.1. Insurance brokerage operation expenses: expenses for insurance brokerage activities; expenses for purchasing professional liability insurance. Insurance brokerage companies are not permitted to pay collaborators or any other form to perform one or more steps of insurance brokerage activities";

5. Amend Point 2.3.1, Clause 2, Section XI on statistical reports and operational reports for life insurance companies as follows:

"2.3.1. Monthly activity report: In accordance with the model issued together with this Circular".

Article 3. Implementation Organization

1. This Circular shall take effect 45 days from the date of signature.

2. During the implementation process, if there are any difficulties, they should be reported promptly to the Ministry of Finance for study and resolution./.