Vietnam: What is insurance risk? What do the insurance risks include? What is the information about insurance risks to be specified in the insurance policy?
- What is insurance risk? What do the insurance risks in Vietnam include?
- What does the information about insurance risks to be specified in the insurance policy in Vietnam include?
- What are the notes for insurers upon establishing the insurance risk fund to spread and distribute insurance against major risks in Vietnam?
What is insurance risk? What do the insurance risks in Vietnam include?
Section 5 of Vietnamese Accounting Standard No. 19 promulgated and announced under Decision 100/2005/QD-BTC stipulates:
05. The following terms are used in this Standard with the meanings specified:
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Reinsurance policy: An insurance policy issued by the reinsurer to compensate the cedant for losses on one or more policies issued by the cedant.
The primary insurer (ceding company): A direct insurer that transfers risk under a reinsurance policy.
Insurance risk: Risk, other than financial risk, transferred from the policyholder to the insurer.
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Thus, insurance risks are understood as risks other than financial risks transferred from the policyholder to the insurer.
Reference to Article 94 of the Law on Insurance Business 2022:
Capital and assets
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5. Risk-weighted asset is determined by the measurement and quantitative assessment of impacts of classes of risk on business of an insurer, reinsurer or foreign branch in Vietnam, including:
a) Insurance risk class, including risks arising from changes in technical factors in response to lines of life, non-life or health insurance;
b) Market risk class, including risks arising from market activities to investments of an insurer, reinsurer or foreign branch in Vietnam;
c) Operational risk class, including risks arising from the operating procedures, system and governance of an insurer, reinsurer or foreign branch in Vietnam;
d) Other risks, including risks arising from other partners or other factors that have not yet been allowed for during the process of quantitatively assessing insurance risks, market risks and operational risks.
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Thus, insurance risks include risks arising from changes in technical factors in response to lines of life, non-life or health insurance.
Download Vietnamese Accounting Standard No. 19 - Insurance policy
What does the information about insurance risks to be specified in the insurance policy in Vietnam include?
Section 35 of Vietnamese Accounting Standard No. 19 promulgated and published under Decision 100/2005/QD-BTC stipulates:
35. To comply with paragraph 34, an insurer shall disclose:
(a) Its objectives in managing risks arising from insurance policies and its policies for mitigating those risks.
(b) Those terms and conditions of insurance policies that have a material effect on the amount, timing and uncertainty of the insurers future cash flows.
(c) Information about insurance risk (both before and after risk mitigation by reinsurance), including information about:
(i) The sensitivity of profit or loss and equity to changes in variables that have a material effect on them.
(ii) Concentrations of insurance risk.
(iii) Actual claims compared with previous estimates (ie claims development). The disclosure about claims development shall go back to the period when the earliest material claim arose for which there is still uncertainty about the amount and timing of the claims payments, but need not go back more than ten years. An insurer does not need to disclose this information for claims for which uncertainty about the amount and timing of claims payments is typically resolved within one year.
(d) the information about interest rate risk and credit risk that VAS on Financial Instruments would require if the insurance policies were within the scope of the VAS.
(e) Information about exposures to interest rate risk or market risk under embedded derivatives contained in a host insurance policy if the insurer is not required to, and does not, measure the embedded derivatives at fair value.
Thus, the following information about insurance risks (both before and after risk mitigation by reinsurance) must be specified in the insurance policy:
(i) The sensitivity of profit or loss and equity to changes in variables that have a material effect on them.
(ii) Concentrations of insurance risk.
(iii) Actual claims compared with previous estimates (ie claims development).
The disclosure about claims development shall go back to the period when the earliest material claim arose for which there is still uncertainty about the amount and timing of the claims payments, but need not go back more than ten years.
An insurer does not need to disclose this information for claims for which uncertainty about the amount and timing of claims payments is typically resolved within one year.
What are the notes for insurers upon establishing the insurance risk fund to spread and distribute insurance against major risks in Vietnam?
According to Article 89 of the Law on Insurance Business 2022:
Reinsurance; reinsurance cession; coinsurance; motor vehicle insurance fund; insurance risk fund
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4. Insurers, reinsurers and foreign branches in Vietnam can negotiate about establishment of the insurance risk fund to spread and distribute insurance against major risks, catastrophic risks or new risks that are not or are less insured against on the insurance market. Arrangements and agreements on establishment of the state-contributed or state-aided insurance risk fund shall be subject to the Government’s regulations; where the fund is funded by the state budget’s grants, the regulations of the Law on State Budget shall apply.
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Thus, insurers can negotiate about establishment of the insurance risk fund to spread and distribute insurance against major risks, catastrophic risks or new risks that are not or are less insured against on the insurance market.
However, arrangements and agreements on establishment of the state-contributed or state-aided insurance risk fund shall be subject to the Government’s regulations; where the fund is funded by the state budget’s grants, the regulations of the Law on State Budget shall apply.
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