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.
Vietnam: Key Changes To Reinsurance Business
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