Setting up a reinsurance company in Vietnam

Reinsurance company is one type of insurance business activity for profit, which plays an important role in the insurance industry in Vietnam. Therefore, to establish a reinsurance company, clients need to meet certain regulated conditions. To clarify this issue according to many clients’ inquiries, Viet An Law Firm offers the following article on conditions for setting up a reinsurance company in Vietnam.

Legal basis

• Vietnam’s Schedule of Commitments in the WTO.
• Law on Insurance Business 2022.
• Decree 46/2023/ND-CP detailing elaboration of the law on insurance business.

What is reinsurance?

Reinsurance is a type of insurance profession that an insurer uses to transfer part of the responsibility it has accepted with the Insured to another insurer based on ceding to that insurer a part of the insurance costs through a reinsurance contract.

In other words, when the insurance company can no longer afford to pay, they need another party to share the risk. In this case, the insured person will only need to know the insurance company that insures him or her, and a reinsurance contract is a contract between an insurance enterprise and a reinsurance enterprise; the insured person has no responsibility related to this contract.

Basic forms of reinsurance business

Reinsurance is divided into the following 3 forms:

Temporary reinsurance

• It is a form of reinsurance in which the original insurance company transfers each service or each insurance policy to the reinsurance company individually.
• The original insurance company has the full right to decide which reinsurance to perform, at what rate, and for which reinsurer. They are allowed to make decisions regarding insurance contents beyond their means.
• To ensure related rights and interests, as well as determine the risks that may be taken, the reinsurance company has the right to accept or refuse or only accept reinsurance at a rate they consider appropriate.

Fixed reinsurance

• A form in which the original insurance company will transfer all risks from the agreed original insurance to the reinsurance company. The reinsurer is required to insure all of those risks.

Optional reinsurance – mandatory

• This is a form of reinsurance that does not require the transfer of all insurance services, but the reinsurance company is required to accept all services that the original insurance company has agreed upon.
• The parties participating in the reinsurance contract are free to choose – absolute honesty is required to ensure the benefits of the reinsurers. In particular, there must be a firm agreement on rights, benefits as well as specific insurance features

Market access conditions for reinsurance business

Vietnam’s commitments in WTO

Based on section 7 of Vietnam’s Schedule of Commitments in the WTO regulating financial services, it can be seen that when Vietnam joined the WTO, it committed to opening the door for foreign investors to access the market for reinsurance services in Vietnam for the sub-sector: reinsurance.

Vietnam’s Commitment in CPTPP

Vietnam’s commitments to opening insurance auxiliary services in CPTPP are also similar to commitments in the WTO. Accordingly, in Chapter 11 of the Schedule of Commitments on Financial Services, Vietnam commits without limitation to financial services including all insurance services and insurance-related services. This includes reinsurance and cession of reinsurance. Accordingly, reinsurance is not limited to accessing the market.

Condition for setting up a reinsurance company in Vietnam

Conditions on legal capital

Pursuant to the provisions of Article 64 of the Law on Insurance Business 2022 on legal capital when establishing a reinsurance company as follows:

• Charter capital is contributed in Vietnam Dong and is not lower than the minimum level as prescribed by the Government;
• Shareholders and capital contributing members are not allowed to use loan capital or investment trust capital from other organizations or individuals to contribute capital.

Pursuant to Clause 4, Article 35 of Decree 46/2023/ND-CP regulating the minimum charter capital of reinsurance business includes:

Insurance enterprises established, organized, and operating before July 1, 2023, have a charter capital lower than the above level, before January 1, 2028, the charter capital and deposit must be completed according to regulations.

Conditions for shareholders and capital contributing members

According to Point a, Clause 1, Article 64 of the Law on Insurance Business 2022 stipulates conditions for shareholders and capital contributing members to establish:

• Organizations and individuals have the right to establish and manage businesses
• The organization has legal status and is operating legally;
• In case of contributing 10% or more of charter capital, the business must have a profitable business for the last 3 consecutive financial years up to the time of submitting the license application and meet the financial conditions according to the Government’s regulations;
• Insurance enterprises and reinsurance enterprises that have been granted licenses to establish and operate in Vietnam contributing capital to establish an insurance enterprise, the new reinsurance enterprise must be profitable for the last 3 consecutive financial years up to the time of applying for the license and meet the capital adequacy ratio as prescribed.

Personnel conditions

General conditions

• Have the right to manage the enterprise according to Vietnamese Enterprise Law;
• Not being sanctioned for administrative violations in the insurance business field, not being disciplined in the form of dismissal for violating internal procedures for 03 consecutive years before the time of appointment.
• Not be prosecuted by competent authorities according to the provisions of law at the time of election or appointment.

Conditions for the positions of Chairman of the Board of Directors, Chairman of the Board of Members, member of the Board of Directors, member of the Board of Members

• Meet the general conditions and standards mentioned above;
• Have a university degree or higher;
• Chairman of the Board of Directors, Chairman of the Board of Members has at least 05 years directly working in the field of insurance, finance, and banking / has at least 03 years in a position as a manager, executive, or control at enterprises operating in the fields of insurance, finance, and banking; Member of the Board of Directors, member of the Board of Members with at least 03 years directly working in the field of insurance, finance, banking/at least 03 years in a position as a manager, executive, control at enterprises operating in the fields of insurance, finance and banking.

Conditions for the position of Director or General Director, legal representative

• Meet the general conditions and standards mentioned above;
• Have a university degree or higher in insurance. In case you do not have a university degree or higher in an insurance major, so you must have a university degree or higher in another major and have an insurance certificate issued by insurance training institutions legally established and operating domestically or abroad;
• Have at least 05 years of working experience in the field of insurance, finance, and banking, including at least 03 years holding the position of manager or controller of an insurance enterprise, reinsurance enterprise, or foreign branch;
• Resided in Vietnam during his term of office.

Application for a license to establish and operate

According to Article 69 of the Law on Insurance Business 2022, regulations on application dossiers for a license to establish and operate a reinsurance company are as follows:

• Document requesting the issuance of a license for establishment and operation;
• Draft charter for reinsurance enterprises;
• Draft organizational and operational regulations for foreign business in Vietnam;
• Operational plan for the first 05 years, clearly stating the insurance operations expected to be implemented, risk management model, method of setting up professional reserves, reinsurance program, capital investment, solvency of reinsurance enterprises and foreign branches in Vietnam;
• Curriculum vitae, police clearance, copies of diplomas certificate proving the capacity, professional qualifications, and skills of the person expected to be appointed as Chairman of the Board of Directors or Chairman of the Board of Members, Director or General Director, legal representative, the calculation specialist;
• Level of capital contribution and method of capital contribution, list of founding organizations, individuals or members, shareholders expected to contribute 10% or more of charter capital, and documents proving the satisfaction of conditions corresponding to the type of reinsurance enterprise and foreign branch in Vietnam of those organizations and individuals;
• Power of Attorney for Viet An Law to conduct the procedure.

Note:

• After being granted an establishment and operation license, the company shall carry out the procedures for establishing an enterprise at the business registration agency as prescribed (as necessary).
• The Ministry of Finance shall make information about business licenses of foreign reinsurance companies in Vietnam available to the public on the Web Portal within 30 days of issuance of these business licenses.
• Reinsurance companies in Vietnam must officially commence their business within 12 months of issuance of business licenses, except in case of force majeure events or circumstantial obstacles.

Clients want to invest in setting up a reinsurance company in Vietnam, please contact Viet An Law Firm for the best support!