On November 24 2010, the National Assembly adopted the Law on Amendment of and Addition to the Law on Insurance Business, with the goal of improving state management of the insurance market, as well as complying with Vietnam's World Trade Organisation commitments.
The effect the Amended Insurance Law may have on international insurance providers considering entering the Vietnam market, or who may already have a presence is considered below. The Amended Insurance Law takes effect as from July 1 2011 and, among other issues:
- opens up the insurance market for cross-border insurance companies;
- changes the rules on re-insurance; and
- permits new corporate forms for insurance companies.
Cross-border insurance services
Cross-border insurance services is a new field of insurance business in Vietnam, and previously unregulated. Pursuant to Vietnam's WTO Commitments, the Amended Insurance Law opens the insurance market to permit non-life foreign insurance enterprises to invest in the Vietnamese insurance market and supply non-life insurance products through branches opened in Vietnam rather than having to go through the joint-venture route or establishing a 100% foreign-owned company in Vietnam.
Under the Amended Insurance Law, these cross-border insurance services can only be provided to foreign-owned enterprises or foreign nationals working in Vietnam, limiting the potential market at present.
Furthermore, under Article 105, insurers must provide the cross-border insurance services in accordance with the Government's conditions and requirements. A draft Government decree implementing the Amended Insurance Law has recently been published.
This sets out the conditions and requirements that a foreign insurer must satisfy before it will be licensed to open a branch office and provide non-life insurance services in Vietnam. The conditions provisionally set out in the draft regulations provide for fairly stringent standards to be met in order for a foreign insurer to comply. Some of the most notable conditions are as follows:
The insurer itself must originate from a WTO member country, have been established for at least 10 years, not have committed any regulatory breaches in the previous three years in its insurance business operations and must be licensed by its own insurance management authority to provide such services. The insurer must own assets with a value of at least $2 billion and meet a minimum credit rating with one of the internationally-recognised credit rating agencies.
Furthermore it must have an escrow account with a Vietnamese bank containing at least $3 million and have in place bank guarantees for any insurance liabilities in excess of $3 million.
This draft decree is implemented in its current form it seems that a high bar will be set for foreign insurance companies to surmount before they can provide cross border insurance services in Vietnam.
Under the Law on Insurance Business 2000, domestic insurers that provided reinsurance for foreign insurance enterprises, also had to reinsure a part of the insurance liability (up to 20%) with a domestic reinsurance enterprise.
However, in order to comply with Vietnam's WTO Commitments, the Amended Insurance Law changes the compulsory re-insurance regime. Under Article 9 of the Insurance Amendment Law, this obligation has been removed. Instead, additional requirements have been included stipulating that foreign insurance enterprises and/or organisations which accept foreign reinsurance must satisfy a credit-rating test based on a ranking by an international credit-valuation company, as determined by the Ministry of Finance.
Types of insurance enterprises
Under the Amended Insurance Law, insurance joint-venture companies and insurance companies with foreign-owned capital are permitted to operate in a wider variety of corporate forms.
Article 59 states that insurance enterprises may be established in the form of either an insurance joint stock company, limited insurance company, insurance cooperative or mutual insurance organisation.
There is also a change to the licensing conditions for the establishment and operation of foreign insurance enterprises. Pursuant to Article 63, the financial capacity of an investor as well as evidence of the lawful source of finance of organisations and individuals contributing capital in establishing an insurance enterprise or insurance-brokerage enterprise, is also a condition in order to obtain the necessary licences.
With respect to insurance agencies' activities, Article 86 stipulates that only an insurance agency certificate issued by one of the training establishments of the Ministry of Finance shall be considered valid, tackling the many insurance agencies who set up in recent years without adequate training or suitably qualified personnel.
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