Technical reserve for non-life insurance and life insurance in Vietnam

Technical reserve for non-life insurance in Vietnam

Pursuant to Article 38 of Decree 46/2023/ND-CP, non-life insurers, non-life reinsurers, and foreign branches in Vietnam must set aside technical reserve for each insurance type or insurance policy corresponding to the liability portion committed as agreed in the insurance policy and must be certified by their Appointed Actuary.

Technical reserve includes:

- Unearned premium reserve: Used to pay out the claims that will arise during the validity of the insurance policy in the following year;

- Claim reserve:  Used to satisfy those claims that have not been reported or have been reported to the company but not yet resolved or paid at the end of the fiscal year;

- Loss reserve: Used to pay out claims when a loss fluctuation or a major loss occurs that the total insurance premium in the fiscal year, less the unearned premium reserve and the claim reserve, is not enough to cover the part of the liability of the insurer or foreign branch in Vietnam.

Non-life insurers, foreign branches in Vietnam, non-life reinsurers may either choose methods of setting aside reserves under the guidance in Article 39 of Decree 46/2023/ND-CP, or choose other methods as long as they could prove that those methods are more accurate and complete, and obtain a prior approval from the Ministry of Finance as prescribed in Article 45 of Decree 46/2023/ND-CP.

Technical reserve for non-life insurance and life insurance in Vietnam (Internet image) 

Technical reserve for life insurance in Vietnam

Pursuant to Article 40 of Decree 46/2023/ND-CP, life insurers, life reinsurers, and foreign life insurance branches in Vietnam must set aside technical reserve for each insurance policy corresponding to the liability portion committed as agreed in the insurance policy and must be certified by their Appointed Actuary.

Technical reserve includes:

- Mathematical reserve: Used to pay out claims for the liabilities as committed upon occurrence of insured events.

- Unearned premium reserve: Used to pay out claims that will arise during the validity of the insurance policy in the following year;

- Claim reserve: Used to satisfy those claims that have not been reported, or have been reported to the company but not yet resolved or paid at the end of the fiscal year;

- Profit distribution reserve: Used to pay the profit that the insurer has agreed with the insurance policyholder in the insurance policy;

- Reserve to secure committed interest rates:  Used to secure the committed interest rates that the insurer/reinsurer/branch pays customers as agreed in the universal life insurance and retirement insurance policies;

- Equalization reserve: Used to pay out claims when the insured event occurs due to large fluctuations in the risk ratio and technical interest rate.

Life insurers, life reinsurers, life insurance foreign branches in Vietnam may either choose methods of setting aside reserves under the guidance in Article 41 of Decree 46/2023/ND-CP, or choose other methods as long as they could prove that those methods are more accurate and complete, and obtain a prior approval from the Ministry of Finance as prescribed in Article 45 of Decree 46/2023/ND-CP.

Life insurers, life reinsurers, and branches of foreign life reinsurers must regularly their methods and basis of setting aside reserves and maintain sufficient reserves to meet the insurance liabilities that they have underwritten.

In case of changing the method of setting up technical reserves, life insurers, life reinsurers, branches of foreign life reinsurers shall seek an approval prescribed in Article 45 of Decree 46/2023/ND-CP. 

In case of changing the basis of setting up technical reserves (except for the case of reducing the technical interest rate to meet the guidance of the Ministry of Finance), the life insurer, life reinsurer, or branch of foreign life reinsurer shall obtain a prior approval from Ministry of Finance, together with documents proving the basis for setting up technical reserves in accordance with Article 45 of Decree 46/2023/ND-CP.

Mai Thanh Loi

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