Method and basis for setting aside life insurance reserves in Vietnam

Method and basis for setting aside life insurance reserves in Vietnam (Internet image)

1. Method and basis for setting aside life insurance reserves in Vietnam

The methods and basis for setting aside life insurance reserves according to Article 41 Decree 46/2023/ND-CP are as follows:

- Mathematical reserves for term insurance, endowment insurance, mixed insurance, whole life insurance, and annuity insurance:

• Life insurance companies, life reinsurance businesses, foreign reinsurance company branches conducting life reinsurance business have the autonomy to choose methods for setting aside mathematical reserves for insurance contracts with terms longer than 01 year to ensure future insurance liabilities such as: gross premium method, net premium method, adjusted net premium (Zillmer) method, or other methods as per international practices.

• The basis for setting aside reserves using the methods mentioned in point a, clause 1, Article 41 Decree 46/2023/ND-CP includes: CSO1980 mortality table, technical interest rates based on the average interest rate of 10-year or longer Government Bonds, and other technical bases corresponding to each insurance product.

- Mathematical reserves for universal life products, unit-linked insurance, retirement insurance, including:

• Insurance risk reserves: This is the greater of the reserve calculated by the unearned premium method or the reserve calculated by the cash flow method to meet all future insurance risk benefit costs throughout the contract term.

• Operations reserves for the universal segment (applied to universal life insurance) are calculated by one of the following methods: Total surrender value of universal life insurance contracts plus reserves to ensure the payment of account value for contracts expected to have insurance events during the period; Total account value of universal life contracts.

The insurance company is responsible for evaluating and choosing the operational reserve method for the universal segment to ensure the commitments made in the insurance contract.

• Operations reserves for the unit-linked segment (applied to unit-linked insurance) is the sum of:

The total number of policyholder investment units on the valuation date multiplied by the buying price of fund units on the valuation date;

The total received premiums from policyholders on the valuation date after deducting the fees charged to policyholders, with the remaining portion used to purchase fund units but not yet performed.

• Operations reserves for the retirement account (applied to retirement insurance) are the total value of the retirement insurance account at the time of setting aside.

• Reserves for other insurance benefits besides insurance risk benefits and investment benefits.

- Unearned premium reserves: Calculated on gross premiums using methods prescribed in clause 1, Article 39 Decree 46/2023/ND-CP for insurance contracts with terms up to 01 year.

- Claim reserves:

• Claim reserve setting aside method based on statistical claim files;

• Claim reserve setting aside method based on claim occurrence coefficients.

- Profit-sharing reserves include:

• Reserves for announced profits are the total value of cash or the present value of accumulated dividends announced and shared with policyholders up to the current fiscal year and not yet paid;

• Reserves for unannounced profits:

Reserves for unannounced profits are set aside to pay additional profits to policyholders in the future, calculated by the assets of the profit-sharing policyholders’ fund minus the fund's liabilities, support capital from the owner, and profits allocated in the current year.

- Guaranteed interest rate reserves: In case the investment market fluctuates or the expected investment results from premium funds are lower than the guaranteed rate, the insurance company sets aside reserves to ensure the guaranteed interest rate. The reserve amount corresponds to the difference between the expected investment results from premium funds and the guaranteed interest rate of the company to the customer as agreed in the insurance contract.

- Balance guarantee reserves are set aside based on a percentage of the pre-tax profit of life insurance companies, life reinsurance companies, foreign reinsurance company branches conducting life insurance business.

2. Regulations on technical reserve for health insurance in Vietnam

Regulations on technical reserve for health insurance according to Article 42 Decree 46/2023/ND-CP are as follows:

- Insurance companies, reinsurance companies, foreign branches in Vietnam must set aside operational reserves for each health insurance contract corresponding to the liability of the company, foreign branch in Vietnam and must be verified by a calculation expert.

- Operational reserves include:

• Mathematical reserves: Used to pay insurance money for committed liabilities when an insurance event occurs.

• Unearned premium reserves: Used to pay insurance money that will arise during the validity period of the insurance contract in the following year.

• Claim reserves: Used to pay for insurance events that have occurred but not yet claimed, or claimed but not settled by the end of the financial year.

• Balance guarantee reserves: Used to pay insurance money when an insurance event occurs due to significant fluctuations in risk rates, technical interest rates.

- Insurance companies, reinsurance companies, foreign branches in Vietnam have the autonomy to choose methods and bases for setting aside operational reserves for insurance according to Article 43 Decree 46/2023/ND-CP or other more accurate and complete methods, and propose for approval from the Ministry of Finance according to Article 45 Decree 46/2023/ND-CP before applying.

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