When will an insurance enterprise in Vietnam be deemed financially safe and prudent? What are the measures to ensure financial safety?
- When will an insurance enterprise in Vietnam be deemed financially safe and prudent? What are the measures to ensure financial safety?
- What are the enhancement measures to ensure financial safety in Vietnam?
- Vietnam: When will early intervention measures be applied?
- Vietnam: When will control measures be applied?
When will an insurance enterprise in Vietnam be deemed financially safe and prudent? What are the measures to ensure financial safety?
Pursuant to the provisions of Article 109 of the Law on Insurance Business 2022, it is stipulated as follows:
Financial safety or prudence
1. Insurance companies, reinsurance companies and foreign branches in Vietnam may be deemed financially safe and prudent when meeting regulations regarding capital, assets, solvency and investment.
2. Whilst doing business, insurance companies, reinsurance companies and foreign branches in Vietnam must review their procedures, rules, regulations and systems for risk management and business plans; assess their insurance, reinsurance and financial performance; ensure that their business is safe, efficient and obeys law with the aim of meeting financial safety requirements set out in this Law.
3. The Minister of Finance shall impose regulations on subjects of application of enhancement measures, early intervention measures and control measures stipulated in Article 111, 112 and 113 herein for maintenance of financial safety.
According to the above regulations, an insurance enterprise may be deemed financially safe and prudent when meeting regulations regarding capital, assets, solvency and investment.
To ensure financial safety, early intervention measures must be applied, control measures include:
- enhancement measures
- early intervention measures
- control measures
When will an insurance enterprise in Vietnam be deemed financially safe and prudent? What are the measures to ensure financial safety?
What are the enhancement measures to ensure financial safety in Vietnam?
Pursuant to the provisions of Article 111 of the Law on Insurance Business 2022, the following regulations:
Enhancement measures
1. Where it is mandatory to apply enhancement measures, insurance companies, reinsurance companies and foreign branches in Vietnam may have the freedom of deciding on and carrying out one or several enhancement measures prescribed in clause 2 of this Article, and shall notify the Ministry of Finance of the current state, causes and enhancement measures to be applied.
2. Enhancement measures shall comprise the following actions:
a) Increase the amount of charter capital or allocated capital;
b) Improve business performance, including focusing on offering insurance products in an effective manner; reviewing insurance premiums in line with conditions and responsibilities of insurance; restructuring reinsurance plans or schemes; reducing operating expenses, administrative expenses and selling expenses;
c) Restructure investment portfolios, including improving the possession of the most liquid assets; sell and dispose of ineffective or high-risk assets;
d) Strengthen risk management; reorganize the management and staff machinery; control purchase of fixed assets; control setting-aside of funds for establishment and use of funds;
dd) Take other measures in accordance with law.
3. During the process of implementation of enhancement measures, insurance companies, reinsurance companies and foreign branches in Vietnam shall not be allowed to perform the following acts:
a) Remittance of profits abroad, distribution of profits, payment of dividends;
b) Increase in acceptance of reinsurance.
Accordingly, enhancement measures shall comprise the following actions:
- Increase the amount of charter capital or allocated capital;
- Improve business performance, including focusing on offering insurance products in an effective manner; reviewing insurance premiums in line with conditions and responsibilities of insurance; restructuring reinsurance plans or schemes; reducing operating expenses, administrative expenses and selling expenses;
- Restructure investment portfolios, including improving the possession of the most liquid assets; sell and dispose of ineffective or high-risk assets;
- Strengthen risk management; reorganize the management and staff machinery; control purchase of fixed assets; control setting-aside of funds for establishment and use of funds;
- Take other measures in accordance with law.
Vietnam: When will early intervention measures be applied?
Pursuant to the provisions of Article 112 of the Law on Insurance Business 2022, the following regulations:
Early intervention measures
1. If any insurance company, reinsurance company or foreign branch in Vietnam has their capital adequacy ratio which is not satisfactory to the extent of needing an early intervention measure; or if such capital adequacy ratio remains unsatisfactory even after completing an enhancement measure specified in Article 111 herein during 12 consecutive months, the Ministry of Finance shall issue the written instruction on application of the early intervention measure.
2. Within 60 days from the date of the Ministry of Finance’s issuance of the written instruction on application of the early intervention measure, the receiving insurance company, reinsurance company or foreign branch in Vietnam shall be responsible for formulating the plan for correction of the capital adequacy ratio prescribed in clause 4 of this Article and implementing that plan; concurrently, reporting to the Ministry of Finance on the current state, causes and the plan for correction of the capital adequacy ratio. The Ministry of Finance shall issue the written demand for any modification of the correction plan to the insurance company, reinsurance company or foreign branch in Vietnam where necessary.
...
According to the above provisions, early intervention measures are applied when an insurer in Vietnam has a capital adequacy ratio at the level that requires early intervention or has applied an improvement measure in the past 12 consecutive months. continued but still failed to overcome the capital adequacy ratio.
Vietnam: When will control measures be applied?
Pursuant to the provisions of Clause 1, Article 113 of the Law on Insurance Business 2022, as follows:
Control measures
1. If any insurance company, reinsurance company or foreign branch in Vietnam has their capital adequacy ratio which is not satisfactory to the extent of needing a control measure, then the Ministry of Finance shall consider deciding to issue the written instruction on application of the control measure to that insurance company, reinsurance company or foreign branch in Vietnam.
According to the above provisions, control measures are applied to insurance enterprises when the insurance enterprises have capital adequacy ratio at the level where control measures must be applied.
LawNet