Accounting for Expenses under the Co-insurance Method according to Circular 116

Accounting for Costs According to the Co-Insurance Method under Circular 116 (Illustrative Photo)

The accounting for costs according to the co-insurance method is as follows:

- When purchasing goods or services for compensation or paying other expenses related to the insurance contract, the invoice shall be under the name, address, and tax code of the leading insurer. The leading insurance enterprise shall pay all expenses related to the insurance contract and then account for its own costs, according to the co-insurance contract, for the incurred expenses. The costs under the responsibility of other co-insurance enterprises will be accounted for by the leading insurer on their behalf.

- The allocation of costs is carried out as follows:- For management costs, sales expenses, insurance agent commissions, and remuneration for those directly involved in insurance deployment, the leading insurer allocates to the co-insurers up to 30% of the original insurance premium revenue corresponding to the liability ratio of the co-insuring enterprises, with insurance agent commissions and remuneration capped at 5%.- Direct business expenses in insurance are allocated according to the liability ratio in the insurance contract and the actual incurred expenses.

- Periodically, on a monthly basis, the leading insurer prepares a detailed list accompanied by a payment statement and sends it to the co-insuring enterprises. Within five (5) working days from the receipt of the list from the leading insurer, the co-insuring enterprises are responsible for confirming and paying the leading insurer for expenses corresponding to their insurance liability as listed.

Based on the signed and confirmed list from the leading insurer, the co-insurers account for the respective costs according to their liability in the insurance contract.

- In the case of reinsurance, the management costs of the reinsurance receiving enterprise do not exceed 3% of the reinsurance premium revenue. The reinsurance receiving enterprise accounts following the principles stipulated in Article 4 of Circular 47/2014/TT-BTNMT.

More details can be found in Circular 47/2014/TT-BTNMT, effective from August 22, 2014.

Thuy Tram

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