Amongst other changes, Decree 73 imposes restrictions, in
certain circumstances, on the amount of risk and premium that can
be transferred by insurers operating in Vietnam to their
reinsurers, and could therefore have an impact on foreign insurers
operating in Vietnam, who may now be more restricted in ceding
liability and transferring premium to their parent companies
overseas through overseas reinsurance contracts. It is thought that
the implementation of these restrictions under Decree 73 might be
the result of concerns raised by the Vietnam Insurance Supervisory
Authority ("ISA"), which operates under the Ministry of
Finance ("MOF"), as to the amount of foreign currency
that local insurers transfer to their partners abroad through the
use of overseas reinsurance contracts. Reports indicate that the
Association of Vietnam Insurance ("AVI") estimates that
approximately one third of all insurance revenue in 2015 was
transferred outside of Vietnam.
The following are a few of the key changes introduced under
Decree 73 which seem to be aimed at improving the retention level
of the local insurance market, reducing the local market's
reliance on reinsurers, and keeping financial resources and foreign
currency reserves within Vietnam:
A new cap has been introduced with
respect to any fronting arrangement (where an insured risk is ceded
at the instruction of the insured) under which insurers are only
permitted to reinsure (either domestically or overseas) up to 90%
of their total insurance liability. This regulation does not
preclude an insurer from ceding more than 90% of its insured
liability to a reinsurer, provided there is no instruction made by
the insured to the insurer to do so.
The maximum level of liability
permitted to be retained by each local insurer per single risk or
loss must not exceed 10% of its owner equity capital (this has been
increased from 5%).
The MOF will prescribe a minimum rate
of reinsurance commission which must be collected by local insurers
to cover their costs and expenses of their insurance arrangements
and corporate management.
Asia Pacific based Clyde & Co lawyers answer important questions on the Reinsurance industry.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).