Set up a reinsurance company in Vietnam

Reinsurance business is the activity of an insurance enterprise for the purpose of profitability and plays an important role in the insurance sector. Therefore, to set up a reinsurance company, customers need to meet certain conditions. So what are the conditions for setting up a health insurance company? To answer your questions, Viet An Law Firm offers the article on conditions for setting up a reinsurance company in Vietnam below.

Legal bases

• Schedule of commitments Vietnam in WTO.
• Insurance Business Law 2022.

• Decree No. 46/2023/ND-CP details the implementation of a number of articles of the Law on Insurance Business.

• Decree No. 151/2018/ND-CP amending and supplementing a number of decrees regulating investment and business conditions under state management of the Ministry of Finance

What is reinsurance?

Reinsurance is a type of business that an Insurer uses to transfer part of the accepted liability to another Insurer, on the basis of assigning to that Insurer a part of the insurance cost through a reinsurance contract.

Thus, in a simpler way, when insurance companies can no longer afford it, they need another party to share the risk with them. In this case, the insured will only need to know the insurer for himself, while the reinsurance contract is a contract between the insurer and the reinsurer, the insured has no liability related to this contract.

Basic forms of reinsurance recently in Vietnam

Reinsurance is divided into the following 3 forms:

Temporary reinsurance

• A form of reinsurance that the original insurance company transfers to the reinsurance company for each service or each insurance policy individually.
• The original insurer reserves the right to decide at its sole discretion as to perform for which service, at what rate, to which reinsurer. They are made decisions over coverage beyond their means.
• In order to secure the relevant rights and benefits, as well as to determine the risk that may be receivable, the reinsurer reserves the right to accept or refuse or accept reinsurance only at such rate as it deems appropriate.

Fixed reinsurance

• A form in which the original insurance company will transfer all risks from the agreed original insurance to the reinsurer. The reinsurer is obliged to insure all that risk.

Optional reinsurance – mandatory

• This is a form of reinsurance that is not required to transfer all insurance services, but the reinsurer is required to accept all services agreed upon by the original insurance company.
• The parties to the reinsurance contract choose at their discretion – it is imperative to have absolute honesty to ensure the benefits of the reinsurers. In particular, there must be a firm agreement on rights, benefits as well as specific insurance properties.

Market access conditions for reinsurance business:

Vietnam’s commitment to join the 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 open the market for foreign investors to access the market for reinsurance services in Vietnam for sub-sectors:  reinsurance.

Vietnam’s commitments in CPTPP

Vietnam’s commitments to open insurance ancillary services in the CPTPP are 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 reinsurance assignments. Accordingly, reinsurance is not restricted in market access.

Conditions to set up a reinsurance company in Vietnam

Conditions on legal capital

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

• Charter capital shall be contributed in Vietnamese Dong and not lower than the minimum level prescribed by the Government;
• Shareholders and capital-contributing members are not allowed to use loans or investment trust capital of other organizations or individuals to participate in capital contribution.

Pursuant to Clause 4 Article 35 of Decree No. 46/2023/ND-CP stipulating the minimum charter capital of reinsurance enterprises, including:

• Reinsurance business, non-life reinsurance franchise or both types of non-life reinsurance and health reinsurance: VND 500 billion;
• Reinsurance business, life reinsurance franchise or both types of life reinsurance and health reinsurance: VND 900 billion;
• Reinsurance business, receiving reinsurance for all 03 types of life reinsurance, non-life reinsurance and health reinsurance: VND 1,400 billion.

Insurance enterprises established, organized and operating before July 1, 2023 with charter capital lower than the above-mentioned level must  complete the addition of charter capital and deposit as prescribed by January 1, 2028.

Conditions on shareholders and members contributing capital to set up

Pursuant to Point a, Clause 1, Article 64 of the Law on Insurance Business in 2022 stipulates conditions for shareholders and capital-contributing members to set up:

• Organizations and individuals have the right to set up and manage enterprises
• The organization has legal status, is operating legally;
• In case of contributing 10% or more of charter capital, it must do business profitably for the last 03 consecutive fiscal years up to the time of submitting the application for a license and satisfy the financial conditions prescribed by the Government;
• Insurers and reinsurance enterprises that have been granted establishment licenses and operate in Vietnam contribute capital to set up insurance enterprises or new reinsurance enterprises must do business profitably in the last 03 consecutive financial years up to the time of submitting the application for a license and meet the capital adequacy ratio as prescribed by the Law this.

Personnel conditions

General conditions

• Have the right to manage the enterprise under the Enterprise Law;
• Not be sanctioned for administrative violations in the field of insurance business, not be disciplined in the form of dismissal for violating internal processes for 03 consecutive years before the time of appointment.
• Not be prosecuted by competent agencies in accordance with law at the time of being elected or appointed.

Conditions for the titles of Chairman of the Board of Directors, Chairman of the Members’ Council, members of the Board of Directors, members of the Members’ Council

• Meet the above general conditions and standards;
• Have a university degree or higher;
• The Chairman of the Board of Directors, the Chairman of the Members’ Council has at least 05 years directly working in the field of insurance, finance and banking/has at least 03 years holding the position of manager, executive and controller at enterprises operating in the field of insurance, finance, banking; members of the Board of Directors, members of the Members’ Council who have at least 03 years of direct working in the field of insurance, finance and banking/have at least 03 years of holding positions as managers, operators and controllers at enterprises operating in the field of insurance,  finance, banking.

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

• Meet the above general conditions and standards;
• Have a university degree or higher in insurance. In case of not having a university degree or higher in insurance, they must have a university degree or higher in another major and have insurance certificates issued by insurance training institutions legally set up and operating at home or abroad;
• Having at least 05 years of working experience in the fields of insurance, finance and banking, including at least 03 years as a manager and controller of insurance enterprises, reinsurance enterprises, foreign branches;
• Residing in Vietnam during the term of office.

Having a dossier of application for an establishment and operation license according to regulations

Pursuant to Article 69 of the Law on Insurance Business 2022 stipulates the dossier of application for a license to establish and operate a reinsurance company as follows:

• A written request for an establishment and operation license;
• Draft charter for reinsurance enterprises;
• Draft organizational and operational regulations for foreign branches in Vietnam;
• The operation plan for the first 5 years, clearly stating the expected insurance operations, risk management model, method of setting up business provisions, reinsurance program, capital investment, solvency of reinsurance enterprises and foreign branches in Vietnam;
• Curriculum vitae, criminal record cards, copies of diplomas and certificates proving the capacity, professional qualifications and profession of the person who is expected to be appointed as the Chairman of the Board of Directors or Chairman of the Members’ Council, Director or General Director, legal representative, Actuarial;
• The level of capital contribution and method of capital contribution, the list of organizations, founding individuals or members, shareholders expected to contribute 10% or more of the charter capital and documents proving the satisfaction of conditions corresponding to the type of reinsurance enterprise, foreign branches in Vietnam of organizations, that individual;

If you want to set up a reinsurance company, please contact Viet An Law Firm for the best support!