Insurance and Reinsurance in Vietnam 2024

Insurance and Reinsurance in Vietnam 2024

INSURANCE AND REINSURANCE 2024

VIETNAM

Hoang Nguyen Ha Quyen , Nguyen Duy Thanh, Ngo Thi Phuc Tam

(LNT & Partners)

REGULATION

Regulatory agencies

1. Identify the regulatory agencies responsible for regulating insurance and reinsurance companies.

The Ministry of Finance (MOF) is a government agency responsible for state management of the finance sector, including the insurance sector.

The Insurance Supervisory Authority (a subordinate body within the MOF) assists the Minister of Finance in managing the insurance sector in Vietnam and supervising insurance business activities and other services in the insurance industry as prescribed by law.

Formation and licensing

2. What are the requirements for formation and licensing of new insurance and reinsurance companies?

Insurance, classified as a financial service under the supervision of the MOF, is strictly governed under the law. Applicants for a new insurance or reinsurance license must satisfy certain criteria to set up and operate their business in Vietnam. Insurance-related experience and financial capability are two of the key requirements applicable to investors, especially foreign investors.

The requirements for the formation and licensing of new insurance and reinsurance companies can be grouped into five categories:

• form of enterprise and charters;
• investor’s insurance-related experience and financial capability;
• paid-in capital requirement;
• establishment and operation license; and
• personnel qualifications.

Form of enterprise and charters

An insurance or reinsurance company could be incorporated as a joint-stock company or a limited liability company. The charter of each type of company shall comply with the applicable law on enterprises.

Investor’s insurance-related experience and financial capability

An investor, whether foreign or local, must ensure that:

• the capital contribution is made in Vietnamese dong, in cash and is not financed by loans or entrusted investment capital from other organizations or individuals;
• the difference between its equity and its legal capital is at least equal to the amount of capital intended for contribution to the insurance or reinsurance company;
• where the investor is an insurance company, an insurance broker, a commercial bank, a financial company or a securities company, it complies with financial prudence conditions and is permitted by the competent agency to contribute capital under the applicable specialized laws; and
• in the case of an investor who owns 10 percent or more of the charter capital of the to-be-established insurance or reinsurance company, the investor must prove that it has been profitable for three consecutive years immediately preceding the year it applies for the establishment and operation license.

In addition to the above, foreign investors wishing to enter the Vietnamese insurance or reinsurance market are subject to more requirements than domestic investors.

Specifically, a local Vietnamese investor needs to prove that it has minimum total assets of 2 trillion Vietnamese dong in the year immediately preceding the year it applies for the establishment and operation license.

Meanwhile, foreign investors who wish to obtain an insurance or reinsurance operation license in Vietnam to set up an insurance or reinsurance business under the form of a limited liability company (LLC) must do as follows:

1. They must be a foreign insurance or reinsurance company or a finance and insurance group. If it wishes, the qualified foreign investor may use a subsidiary as the investment vehicle to establish the insurance or reinsurance company in Vietnam, provided that it authorizes such investment vehicle to carry out investment activities in Vietnam and the subsidiary satisfies the minimum total assets requirement in item 3 herein below.
2. They must have directly carried out or have a subsidiary carrying out business in the sector in which it proposes to do business in Vietnam for at least seven years (i.e, life insurance or non-life insurance).
3. They must have minimum total assets of US$2 billion in the year immediately preceding the year it applies for the establishment and operation license.
4. They must be certified by a competent foreign authority that it has not committed any serious breach of the applicable law on insurance of the country where it is headquartered in the three years preceding the year it applies for the establishment and operation license.
5. They must commit to support in finances, technology, enterprise management, risk management, direction and operation for the insurance and reinsurance enterprises to be established in Vietnam.

If the company to be established takes the form of a joint-stock company (JSC), there must be at least two shareholders satisfying the aforementioned requirements (i.e, items (1) to (5)), and each shareholder’s equity contribution must make up at least 10 percent of the charter capital of the insurance company to be established. An individual shareholder’s equity contribution shall not exceed 10 percent of the charter capital of the JSC to be established.

Paid-in capital requirements

The minimum paid-in capital requirements are determined according to the company’s scope of business as follows:

Personnel qualifications

Managerial and operational personnel of insurance and reinsurance companies shall have appropriate general and specific qualifications as stipulated in the Law on Insurance Business.

General qualifications

The shareholders or the members (of a to-be-established insurance or reinsurance company) must:

• be permitted to manage companies under the Law on Enterprises; and
• have not been prosecuted under the applicable laws at the time of appointment.

In addition, for three consecutive years before the appointment, the managerial and operational personnel must:

• have not committed any administrative violations of insurance business regulations; and
• have not been dismissed for violation of internal procedures.

Specific qualifications

Specific qualifications are determined according to the position in question. For instance, a CEO or legal representative must:

• have an undergraduate or postgraduate degree in insurance majority, or have an undergraduate degree in another majority and a certificate in insurance awarded by a qualified insurance training institution;
• have been working in insurance, finance or banking for at least five years, three of which in the position of manager or controller of an insurance company, reinsurance company or foreign branch;
• reside in Vietnam during the CEO or legal representative tenure.

Other licenses, authorizations and qualifications

3. What licenses, authorizations or qualifications are required for insurance and reinsurance companies to conduct business?

Upon receiving the establishment and operation license from the MOF, the insurance/reinsurance company must carry out post-licensing processes and satisfy other requirements for their operation as follows:

• at least 30 days before the official operation date, announce the contents of its establishment and operation license and expected official operation date in a printed newspaper for three consecutive issues or in an electronic newspaper of Vietnam;
• make a deposit of 2 percent of the minimum of charter capital or allocated capital (of foreign branches) at the time of establishment; and
• within 12 months of the date of issuance of the license, carry out the following post-licensing procedure: withdrawal of the capital in the escrow account to establish charter capital; build the company’s organizational structure, management, internal control, internal auditing, and risk management system suitable for its operation as prescribed by the law; elect and designate a legal representative according to the law; elect and assign positions approved in principle by the Ministry of Finance; issue internal management rules regarding operation and organization, internal rules on risk management, and basic professional procedures as prescribed by law; and have headquarters, infrastructure, techniques, and technological systems suitable for professional insurance business activities.

The insurance/reinsurance company must notify the MOF regarding their satisfaction of the conditions above at least 15 days before officially commencing operation.

During operation, the insurance or reinsurance company must obtain the MOF’s approval if there are changes to any of the following:

• the company’s name or the head office’s address;
• amount of charter capital, allocated capital (of foreign branches);
• scope and period of business;
• transfer of shares or contributed capital whereby the ownership ratio of a shareholder or a member increases to 10 percent of the company’s charter capital or above, or decreases to under 10 percent of the company’s charter capital;
• chairperson of the board of directors or chairperson of the board of members, director or general director (CEO) or the actuary;
• split-up, split-off, merger, amalgamation, dissolution of or transformation into other enterprise type;
• outward investment, including the establishment of new branches, representative offices, and other types of commercial establishment in foreign countries.

Officers and directors

4. What are the minimum qualification requirements for officers and directors of insurance and reinsurance companies?

Any prospective chair of the board of directors (chair of members’ council), CEO, or appointed actuary must obtain the MOF’s approval of his or her qualifications for the position. Generally, such candidate must:

• not be prohibited from managing enterprises under the applicable law on enterprises, and have not been prosecuted under the applicable laws at the time of appointment; and
• in the three consecutive years before the appointment:
• have not committed any administrative violations of insurance business regulations; and
• have not been dismissed for violation of internal procedures.

Additional qualification criteria may be applied according to the specific position.

For other positions, such as members of the board of directors (or members of members’ council), chair and members of the inspection committee, head of internal auditors, head of risk management, head of compliance, vice CEO, chief accountant, head of branch, head of representative office and head of each professional division, there are certain required qualifications that must be met. However, appointing and replacing these positions are not subject to the MOF’s approval.

Capital and surplus requirements

5. What are the capital and surplus requirements for insurance and reinsurance companies?

The minimum paid-in capital shall not be lower than the legal capital prescribed by law. Specifically, the legal capital is as follows:

Concerning the surplus, a life insurer must obtain prior approval from the MOF for the distribution of the surplus of a policyholder’s fund with the allocation of profit. In all cases, the life insurer must ensure all policyholders receive no less than 70 percent of the higher of (1) the surplus of the total profit received; or (2) the difference between the actual surplus and forecast surplus resulting from the death rate, investment profit and expenses. There is no regulation on surplus with respect to non-life insurance and reinsurance.

Reserves

6. What are the requirements with respect to reserves maintained by insurance and reinsurance companies?

The Law on Insurance Business requires insurance and reinsurance companies to set aside liability reserves necessary for the purposes of payment of their insurance liabilities that may arise from the insurance contracts into which they have entered.

Insurance reserves must:

• set aside technical reserves exclusively for each line of insurance;
• ensure correspondence to the part of the committed responsibility as agreed upon in insurance contracts;
• separate insurance contracts of insurance objects inside the territory of Vietnam from those outside the territory of Vietnam, even when they are in the same line of insurance or insurance product, unless otherwise provided by law;
• ensure that there are always assets corresponding to technical reserves already set aside, and concurrently separating assets corresponding to the reserves as specified in the preceding point;
• have actuary experts to calculate and set aside technical reserves; and
• regularly review and evaluate the setting aside of technical reserves, and promptly take measures to fully set aside reserves for paying liabilities of insurance enterprises, reinsurance enterprises and Vietnam-based foreign branches.

The MOF has promulgated detailed methodology for calculating minimum reserves, which insurance and reinsurance companies may opt to use; alternatively, such companies can choose other methods deemed more sufficient and precise (except for large loss fluctuation reserves). In either case, the MOF’s endorsement must be requested before implementation.

Product regulation

7. What are the regulatory requirements with respect to insurance products offered for sale? Are some products regulated by multiple agencies?

Life insurance, health insurance and motor vehicle insurance products (excluding civil liability insurance for motor vehicle owners) are subject to the MOF’s approval prior to distribution on the market. As for non-life insurance products, non-life insurers and Vietnamese branches of foreign non-life insurance companies are permitted to take the initiative in formulating insurance rules, terms and conditions and premium scales.

Furthermore, the MOF has promulgated the insurance rules, terms and conditions, premium scales and minimum sums insured that are applicable to compulsory insurance products. These products include:

• civil liability insurance for motor vehicle owners;
• fire and explosion insurance;
• construction business insurance; and
• other types of insurance regulated in other laws serving the purposes of protection of public interest, the environment and social safety.

Regulatory examinations

8. What are the frequency, types and scope of financial, market conduct or other periodic examinations of insurance and reinsurance companies?

The Insurance Supervisory Authority carries out regular assessments on the operation of insurance and reinsurance companies in compliance with the laws. An assessment must be initiated at the decision of an authorized person. There must be written conclusions after the assessment is completed. The head of the examination team is responsible for the contents of the minutes and conclusions of the assessment. When necessary, to carry out a specialized inspection of an insurance business, the authorities may hire an independent audit firm, a consultancy firm or experts to evaluate and give their professional opinions on contents that threaten to affect the safety and health of the inspected subjects. These contents include technical reserves, solvency, reinsurance, investment, separation of equity and premiums, division of surpluses, insurance rules, terms and premiums schedule.

Furthermore, insurance and reinsurance companies must submit to the MOF financial reports, professional reports, separation of equity and insurance premiums reports, reports on assessment of solvency and risk management, and reports on changes to capital corresponding to each type of risk.

Investments

9. What are the rules on the kinds and amounts of investments that insurance and reinsurance companies may make?

Insurance and reinsurance companies are entitled to use their equity funds, idle capital from insurance reserves, and other legal sources of funds for investment activities. Investment activities of insurance and reinsurance companies are restricted from the following:

• investing in real estate, except for: purchasing shares of real estate businesses listed on the stock exchange market, or fund certificates of public funds; purchasing, investing or owning real estate for use as business quarters, workplaces or warehouses that directly serve professional activities; leasing business quarters under their ownership or usership that are not currently occupied; holding real estate through processing bonds guaranteed by real estate or deducting debts in the form of real estate for a period of three years since possession starts;
• investing in precious metals and gemstones;
• investing in intangible fixed assets, except where they serve the insurance-associated operations of the enterprise; and

Investing in derivative stocks or contracts, except for where the derivative stocks are listed for purposes of preventing risks that arise out of insurance contracts, reinsurance contracts, and stock investments of insurance enterprises, reinsurance enterprises, and foreign branches in Vietnam.

The investment limits for insurance enterprises and reinsurance enterprises shall be prescribed by the government. However, the latest Decree providing guidance on implementation of the Law on Insurance Business is still silent on this matter.

Change of control

10. What are the regulatory requirements on a change of control of insurance and reinsurance companies? Are officers, directors and controlling persons of the acquirer subject to background investigations?

Transfer of shares or contributed capital portions resulting in a shareholder’s or capital-contributing member’s holding rate increasing to 10 percent or more of the charter capital or decreasing to under 10 percent of the charter capital is subject to the MOF’s prior review and approval.

The insurance or reinsurance company in question must report to the MOF on the implementation results within 10 working days of the date of completion of the change of control according to the approved plan. Where it is impossible to carry out the approved plan, the company must report to the MOF with a plan to deal with the matter.

The investor must submit, among others, documents evidencing that capital-contributing organizations and individuals, managers, and executives satisfy the requirements applicable to organizations or individuals contributing capital to insurance and reinsurance companies.

In practice, there is no investigation of the background of officers, directors and controlling persons; however, any criminal record must be disclosed in the application submitted to the authority.

Financing of an acquisition

11. What are the requirements and restrictions regarding financing of the acquisition of an insurance or reinsurance company?

The acquirer must use its own capital for the acquisition and is not permitted to resort to any financing arrangements.

Minority interest

12. What are the regulatory requirements and restrictions on investors acquiring a minority interest in an insurance or reinsurance company?

Generally, there is no requirement for acquiring a minority interest in an insurance or reinsurance company. However, if the acquisition results in the ownership ratio of the acquirer increasing to 10 percent or the ownership ratio of the seller decreasing to under 10 percent of the charter capital, the transaction is subject to the MOF’s prior review and approval.

The insurance or reinsurance company in question must report to the MOF on the implementation results within 10 working days of the date of completion of the change of control according to the approved plan. Where it is impossible to carry out the approved plan, the company must report to the MOF with a plan to deal with the matter.

Foreign ownership

13. What are the regulatory requirements and restrictions concerning the investment in an insurance or reinsurance company by foreign citizens, companies or governments?

A foreign investor seeking to invest in an insurance or reinsurance company must satisfy both the general and specific requirements that are applicable to foreign investors.

General requirements

The foreign investor must:

• contribute capital in Vietnamese dong in cash and not finance the capital contribution by loans or entrusted investment capital from other organizations or individuals;
• if the investment is of 10 percent or more of the charter capital, be profitable for three consecutive years immediately preceding the year it applies for the establishment and operation license;
• ensure that the difference between its equity and its legal capital is at least equal to the amount of capital intended for contribution; and
• if the investor is an insurance company, insurance broker, commercial bank, financial company or securities company, ensure compliance with financial prudence conditions and be permitted by the competent agency to contribute capital under the applicable specialized

Specific requirements

Additionally, for establishing an LLC the foreign investor must:

1. be a foreign insurance or reinsurance company or a finance and insurance group. If it wishes, the foreign investor may use a subsidiary as the investment vehicle to establish the insurance or reinsurance company in Vietnam and, provided that it authorizes the vehicle to carry out investment activities in Vietnam, the subsidiary must satisfy the requirement of minimum total assets in item (3) herein below;
2. directly carry out or have a subsidiary carrying out the sector in which it proposes to do business in Vietnam for at least seven years (i.e, life insurance or non-life insurance);
3. have minimum total assets of US$2 billion in the year immediately preceding the year it applies for the establishment and operation license;
4. be certified by a competent foreign authority that it has not committed any serious breach of the applicable law on insurance of the country where it is headquartered in the three years preceding the year it applies for the establishment and operation license; and
5. commit to support in finances, technology, enterprise management, risk management, direction and operation for the insurance and reinsurance enterprises to be established in Vietnam.

If the company to be established takes the form of a JSC, there must be at least two shareholders satisfying the aforementioned requirements, and each shareholder’s equity contribution must make up at least 10 percent of the charter capital of the insurance company to be established. An individual shareholder’s equity contribution shall not exceed 10 percent of the charter capital of the insurance company to be established.

A foreign individual is not permitted to invest in an insurance or reinsurance company having the corporate form of an LLC. Foreign governments are also not permitted to invest in insurance and reinsurance companies, regardless of the corporate form. Other than these two limitations, there is no restriction on the investment of a foreign investor in an insurance or reinsurance company under the Law on Insurance Business.

Group supervision and capital requirements

14. What is the supervisory framework for groups of companies containing an insurer or reinsurer in a holding company system? What are the enterprise risk assessment and reporting requirements for an insurer or reinsurer and its holding company? What holding company or group capital requirements exist in addition to individual legal entity capital requirements for insurers and reinsurers?

Vietnamese laws do not promulgate any special requirements in respect of groups of companies containing an insurer or reinsurer.

Reinsurance agreements

15. What are the regulatory requirements with respect to reinsurance agreements between insurance and reinsurance companies domiciled in your jurisdiction?

Vietnamese laws set out general principles with respect to reinsurance agreements instead of regulating the specific contractual provisions, namely:

• an insurance company may cede part (but not all) of its contractual insurance liability to one or several domestic or foreign insurance companies, or Vietnamese branches of foreign non-life insurance companies; and
• the maximum liability retained on each risk or each separate loss shall not exceed 10 percent of the cedent’s equity. The primary insurance company must calculate the retention suitable for each type of insurance, risk or individual loss by considering the following factors:
• regulations on solvency ratio;
• underwriting capacity;
• financial situation;
• risk tolerance levels for the insurer or the Vietnamese branch of a foreign non-life insurance company;
• coverage of significant risks and catastrophic risks;
• balance of financial performance;
• components of a list of insurance policies; and
• domestic and international reinsurance market development.

An insurance company must not accept reinsurance concerning risks for which reinsurance has already been ceded.

Ceded reinsurance and retention of risk

16. What requirements and restrictions govern the amount of ceded reinsurance and retention of risk by insurers?

If an insurance company cedes reinsurance as instructed by an insured person, the maximum amount of ceded reinsurance shall be 90 percent of the liability insured.

In cases of finite reinsurance, after concluding a reinsurance agreement, the insurance company must notify the MOF in writing of the main contents of the reinsurance agreement, purposes thereof and undertakings thereto in compliance with the applicable laws on insurance business and accounting. The notice must be executed by the company’s legal representative.

Collateral

17. What are the collateral requirements for reinsurers in a reinsurance transaction?

Vietnamese laws do not require a reinsurer to post collateral in a reinsurance transaction.

Credit for reinsurance

18. What are the regulatory requirements for cedents to obtain credit for reinsurance on their financial statements?

Insurance companies, including cedents, must prepare their financial statements in accordance with the laws on accounting and must periodically report on their operations to the MOF. Prior to submission to the MOF, annual financial statements must be audited and certified by an independent auditing organization legally operating in Vietnam.

In addition to periodical reports, insurance companies, including cedents, must also submit reports to the MOF upon the occurrence of any unusual event during the course of business, or when they fail to fulfil their financial undertakings to policyholders.

Insolvent and financially troubled companies

19. What laws govern insolvent or financially troubled insurance and reinsurance companies?

Insolvent insurance and reinsurance companies are subject to the Vietnamese Bankruptcy Law as well as the Vietnamese Law on Insurance Business and their guiding legal documents.

According to the Law on Insurance Business, an insurance or reinsurance company is deemed fully solvent when it:

• makes reserves in full; and
• meets capital adequacy ratios.

The MOF shall apply regulatory enhancement measures, early intervention measures or control measures to ensure the financial safety of insurance and reinsurance companies.

After the MOF issues a notice to end control measures where an insurance or reinsurance company has failed to overcome its under-control status, the insurance or reinsurance company is obligated to submit to the court a request of bankruptcy according to the Law on Bankruptcy; if not, the MOF shall submit the request of bankruptcy. The court opens a case for a declaration of bankruptcy, declaring that the insurance or reinsurance company has gone bankrupt, and promptly initiates the procedure for liquidation of assets of the insurance or reinsurance company without organizing creditors’ meetings or proceeding to recover business operations.

Claim priority in insolvency

20. What is the priority of claims (insurance and otherwise) against an insurance or reinsurance company in an insolvency proceeding?

When an insurance or reinsurance company is declared bankrupt, the assets of the company will be applied in the following order:

• bankruptcy costs;
• unpaid wages, severance allowances, social insurance and health insurance of employees;
• indemnities, insurance money payments for indemnity and insurance payment requests approved by the insurance and reinsurance company for payments of refundable amounts, insurance account values or premium refunds;
• financial obligations to the state, unsecured debts payable to the creditors named in the list of creditors, and secured debts that remain unpaid due to the value of the assets being insufficient to repay them; and
• owners, capital-contributing members, and shareholders of insurance enterprises and reinsurance enterprises.

In cases where the assets are insufficient for the payments as above, entities of equal priority order shall receive payments proportionate in percentage to the debts.

Intermediaries

21. What are the licensing requirements for intermediaries representing insurance and reinsurance companies?

Insurance intermediaries in Vietnam comprise insurance agencies and insurance brokerage companies.

Insurance agencies

An insurance agency is an organization or individual authorized by an insurance company, a branch of a foreign non-life insurance company or a mutual providing micro-insurance products (on the basis of an insurance agency contract) to conduct insurance agency activities.

Individuals conducting insurance agency activities must be Vietnamese citizens permanently residing in Vietnam, with full capacity for civil acts, and have an insurance agent’s practicing certificate conforming to the Law on Insurance Business. Organizations conducting insurance agency activities must:

• be legally established and operating in Vietnam;
• obtain registration for the scope of insurance agent services under the regulatory provisions of the Law on Enterprise;
• obtain a license, certificate and other approval or certification document (if any) containing information about permission for insurance agent services;
• ensure that the personnel directly conducting insurance agency activities satisfy the conditions applicable to individuals conducting insurance agency activities; and
• satisfy other requirements on personnel and others as prescribed by the government.

Insurance brokerage companies

An insurance brokerage company is a company conducting insurance brokerage and reinsurance brokerage activities; auxiliary insurance services; and other operations related to on-demand insurance contracts per purchasers’ requests.

To establish an insurance brokerage company, the following conditions must be satisfied:

• Founding shareholders or members must:
• have the rights of business incorporation and management in Vietnam under the Law on Enterprise; and
• if being an organization, have legal status, be operating in Vietnam, and meet financial conditions in accordance with the government’s regulations.
• Regarding capital or assets:
• the amount of the charter capital contribution must be in Vietnamese dong and not be less than the minimum required amount of charter capital; and
• shareholders and capital-contributing members shall not be allowed to contribute borrowed funds or funds or assets held in trust for other entities and persons for equity participation purposes.

Regarding personnel of the insurance brokerage company: any nominee for chairperson of the board of directors or chairperson of the board of members, director or general director or legal representative must meet managerial competency and professional qualification requirements and credentials.

The business type of the insurance brokerage company must be in accordance with the Law on Insurance Business and its draft charter must conform to the regulations of the Law on Enterprise.

A foreign organization contributing capital to the establishment or purchasing shares or paid-in capital (of an LLC) of at least 10 percent of the charter capital of an insurance brokerage company must:

• be a foreign organization directly performing or have a subsidiary performing insurance brokerage activities in the past five consecutive years up to the time of application for establishment and operation; and
• be permitted by a foreign competent authority to establish an insurance brokerage company in Vietnam and be certified for not seriously violating the provisions of the laws on insurance brokerage of the country where the organization is headquartered for the past three consecutive years up to the time of application for establishment and operation.

INSURANCE CLAIMS AND COVERAGE

Third-party actions

22. Can a third party bring a direct action against an insurer for coverage?

Generally, a third party cannot bring a direct claim against an insurer under an insurance policy, unless the laws provide otherwise. Accordingly, an insurer shall directly compensate:

• a third party (under a liability insurance policy) if the insured is dead or lacks legal capacity; or
• a mortgagee, provided that the mortgaged property is insured, and the mortgagee has notified the insurer of the mortgage.

Late notice of claim

23. Can an insurer deny coverage based on late notice of claim without demonstrating prejudice?

Under the laws, an insurer can generally deny coverage based on late notice of claim, with the exception of:

• events of force majeure or any other objective interruption, the duration of which shall not be included when calculating the notice time limit; and
• cases where the insured or the beneficiary proves that it did not know the date of occurrence of the insured event, in which case the notice time limit shall run from the date the insured or the beneficiary becomes aware of the occurrence of the insured event.

Wrongful denial of claim

24. Is an insurer subject to extra-contractual exposure for wrongful denial of a claim?

If its claim has been wrongfully denied, a claimant may file a complaint against the insurer to the Insurance Administration and Supervision Department, which may investigate the matter and impose on the insurer a monetary penalty from 40 million Vietnamese dong to 60 million Vietnamese dong.

Defense of claim

25. What triggers a liability insurer’s duty to defend a claim?

Under the Law on Insurance Business, a liability insurer does not have a duty to defend a claim unless it is provided for in the insurance contract.

Indemnity policies

26. For indemnity policies, what triggers the insurer’s payment obligations?

In indemnity policies, the insurer’s liability shall arise only if a third party requests the insured to pay compensation for damage caused to such third party by the fault of the insured. Under the applicable insurance laws of Vietnam, the insurance policy can provide for the time limit for the insurer to pay the insurance proceeds or indemnity. Otherwise, the insurer must pay the insurance proceeds or indemnity within 15 days of the date of receipt of a complete and valid claim request.

Incontestability

27. Is there a period beyond which a life insurer cannot contest coverage based on misrepresentation in the application?

Vietnamese laws do not provide for any time bar against a life insurer’s contest of coverage based on misrepresentation in the application.

Punitive damages

28. Are punitive damages insurable?

Vietnamese law does not recognize punitive damages. Therefore, in practice, insurance policies generally do not cover punitive damages.

Excess insurer obligations

29. What is the obligation of an excess insurer to ‘drop down and defend’, and pay a claim, if the primary insurer is insolvent or its coverage is otherwise unavailable without full exhaustion of primary limits?

The Law on Insurance Business allows the situation where there are at least two insurance contracts providing insurance for the same subject matter on the same conditions and for the same insured events, and the total sum insured of these insurance contracts exceeds the market value of the insured property at the time of conclusion of the insurance contracts. Upon the occurrence of an insured event, the amount of the indemnity in each insurance contract is calculated proportionally to the ratio of the insurance amount agreed upon over the total insurance amount from all the contracts entered into by the policyholder. The total sum of indemnity payable by all insurers shall not exceed the value of the actual damage.

Self-insurance default

30. What is an insurer’s obligation if the policy provides that the insured has a self-insured retention or deductible and is insolvent and unable to pay it?

The Law on Insurance Business is silent on this matter. Thus, an insurer’s obligation in the event the insured has a self-insured retention or deductible and is insolvent and unable to pay it would depend on the terms and conditions of the policy.

Claim priority

31. What is the order of priority for payment when there are multiple claims under the same policy?

The Law on Insurance Business does not regulate the order of priority for payment when there are multiple claims under the same policy. Therefore, it is subject to the parties’ agreement in the insurance policy.

Allocation of payment

32. How are payments allocated among multiple policies triggered by the same claim?

Upon the occurrence of the insured event, the amount of the indemnity in each insurance contract is calculated according to the relevant proportion of the agreed sum insured to the total of the sums insured in all insurance contracts that the policyholder enters into. The total sum of indemnity payable by all insurers shall not exceed the value of the actual damage.

Disgorgement or restitution

33. Are disgorgement or restitution claims insurable losses?

Whether disgorgement or restitution claims are insurable losses under Vietnam laws is uncertain. However, courts will enforce a duly executed insurance policy unless it is void or terminated according to the laws.

Under the laws, an insurance policy will be void if:

• the policyholder does not have an insurable interest at the time the insurance contract is executed;
• at the time the insurance contract is executed, the insured subject matter does not exist;
• at the time of entering into the insurance contract, the policyholder knows that the insured event has already occurred;
• the objectives and contents of the insurance contract violate prohibition clauses and social ethics;
• the insurer, the foreign non-life insurer’s branch and the policyholder enter into the fraudulent insurance policy;
• the policyholder is a juvenile, a person who is incapable of civil acts, a person who has cognitive and behavioral difficulties, or a person whose capacity to perform civil acts is restricted;
• the insurance contract contains any confusion that causes one or more parties to fail to achieve the purposes of entering into that contract, unless the contractual purposes of the contracting parties have been achieved, or the contracting parties can take immediate remedial actions against such confusion to make the purposes of entering into the contract successfully achieved;
• the insurance contract is concluded by fraud;
• the insurance contract is concluded under threat or pressure;
• the policyholder is not aware of and could not control his or her behavior when entering into an insurance contract; or
• the insurance contract does not comply with the regulations on forms of contract.

In addition, under the laws, the insurance policy can be unilaterally terminated by the other party if:

• the policyholder does not pay the insurance premium or does not pay the insurance premium in full as per the time agreed in the insurance contract or after the extended due date;
• the insurer or the policyholder does not accept the request for change in the level of insurable risks;
• the insured fails to apply safety measures to protect the subject matters insured;
• the policyholder does not agree to have the policy transferred to another insurance company; or
• the policy is terminated in accordance with the Civil Code, for example, where the contract has been completed, canceled or the parties agree to terminate the contract.

Definition of occurrence

34. How do courts determine whether a single event resulting in multiple injuries or claims constitutes more than one occurrence under an insurance policy?

Vietnam laws do not regulate this issue. According to the Civil Code, courts will likely interpret the scope of ‘occurrence’ based on its definition and usage in the insurance contract and general interpretation principles.

Rescission based on misstatements

35. Under what circumstances can misstatements in the application be the basis for rescission?

If an applicant intentionally provides inadequate or false information to enter into an insurance contract, the Law on Insurance Business allows the insurer to cancel the insurance contract. In this case, the insurer, or the foreign non-life insurer’s branch, is not required to indemnify or pay the sum insured and must refund the premiums to the policyholder after deducting reasonable expenses (if any) as agreed in the insurance contract. The policyholder must compensate for the damage incurred to the insurer (if any).

REINSURANCE DISPUTES AND ARBITRATION

Reinsurance disputes

36. Are formal reinsurance disputes common, or do insurers and reinsurers tend to prefer business solutions for their disputes without formal proceedings?

Formal reinsurance disputes are uncommon in Vietnam. Insurers and reinsurers generally prefer business solutions as the primary means to resolve their disputes without resorting to litigation or arbitration.

In Vietnam, case law is applied when the issue is not regulated by any existing statutory instruments. To date, no case law relating to reinsurance disputes has been formally adopted as precedent.

Common dispute issues

37. What are the most common issues that arise in reinsurance disputes?

Reinsurance disputes are not common in Vietnam. The most recent dispute that is publicly available concerns the renewal time of the reinsurance contract

Arbitration awards

38. Do reinsurance arbitration awards typically include the reasoning for the decision?

Under the Law on Commercial Arbitration of Vietnam, unless the parties agree otherwise, an arbitral award must state the reasoning for the decision. This rule applies to any arbitral award, including reinsurance arbitral awards issued by a tribunal located in Vietnam.

Power of arbitrators

39. What powers do reinsurance arbitrators have over non-parties to the arbitration agreement?

Generally, under Vietnamese laws, arbitrators have no power over non-parties to an arbitration agreement. The Law on Commercial Arbitration only allows the arbitrators to gather evidence and request third parties to provide relevant materials and attend arbitration hearings.

Appeal of arbitration awards

40. Can parties to reinsurance arbitrations seek to vacate, modify or confirm arbitration awards through the judicial system? What level of deference does the judiciary give to arbitral awards?

Under the Law on Commercial Arbitration of Vietnam, an arbitral award will be legally effective as of the date on which it is made. However, within 30 days of receiving the award, any party to the arbitration may petition the competent court to vacate the award. The petitioner must demonstrate one of the following grounds to prevail:

• there was no arbitration agreement or the arbitration agreement is void;
• the composition of the arbitration tribunal or arbitration proceedings was inconsistent with the agreement of the parties or contrary to the Law on Commercial Arbitration;
• the dispute was not within the jurisdiction of the arbitral tribunal (the part of the award that falls outside the jurisdiction of the tribunal shall be set aside);
• the evidence supplied by the parties on which the arbitral tribunal relied to issue the award was forged, or an arbitrator received money, assets, or some other material benefit from one of the parties that affected the objectivity and impartiality of the arbitral award; or
• the arbitral award is contrary to the fundamental principles of the laws of Vietnam.

Normally, the judiciary will give substantial deference to arbitral awards. Although the court can vacate or confirm arbitral awards, it cannot modify the arbitral awards. The tribunal itself has the right to rectify obvious spelling or number errors in the arbitral award caused by a mistake or incorrect computation.

In the case of foreign arbitral awards, under the Civil Procedure Code of Vietnam the competent court may vacate an arbitral award under specified circumstances. The Code provides that a party must request the competent court to recognize and enforce the foreign arbitral award. Normally, the judiciary will give substantial deference to the foreign arbitral award and enforce it under international treaties to which Vietnam is a party or under the principle of reciprocity. Vietnam is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958.

REINSURANCE PRINCIPLES AND PRACTICES

Obligation to follow cedent

41. Does a reinsurer have an obligation to follow its cedent’s underwriting fortunes and claims payments or settlements in the absence of an express contractual provision? Where such an obligation exists, what is the scope of the obligation, and what defenses are available to a reinsurer?

A reinsurer is not statutorily obliged to follow its cedent’s underwriting fortunes and claims payments or settlements in the absence of an express contractual provision. Accordingly, the laws leave these matters to be governed by the reinsurance agreement.

Good faith

42. Is a duty of utmost good faith implied in reinsurance agreements? If so, please describe that duty in comparison to the duty of good faith applicable to other commercial agreements.

Vietnamese laws require a general duty of good faith between contractual parties. Unlike other commercial agreements, under the Law on Insurance Business, the courts will construe ambiguities in insurance contracts in favor of insurance buyers.

Facultative reinsurance and treaty reinsurance

43. Is there a different set of laws for facultative reinsurance and treaty reinsurance?

Vietnamese laws only regulate reinsurance in general and do not have special provisions for facultative reinsurance or treaty reinsurance.

Third-party action

44. Can a policyholder or non-signatory to a reinsurance agreement bring a direct action against a reinsurer for coverage?

The policyholder or non-signatory to a reinsurance agreement cannot enforce the reinsurance contract against a reinsurer.

Insolvent insurer

45. What is the obligation of a reinsurer to pay a policyholder’s claim where the insurer is insolvent and cannot pay?

The Law on Insurance Business does not allow a policyholder to make a claim with the reinsurer. The law is also silent on the obligation of a reinsurer to pay a policyholder’s claim where the insurer is insolvent and cannot pay. The law leaves this matter to the agreement of the involved parties.

Notice and information

46. What type of notice and information must a cedent typically provide its reinsurer with respect to an underlying claim? If the cedent fails to provide timely or sufficient notice, what remedies are available to a reinsurer and how does the language of a reinsurance contract affect the availability of such remedies?

There are no specific requirements under Vietnamese law applicable to the notice and information provided by a cedent to its reinsurer under a reinsurance contract. Accordingly, the reinsurance contract would need to specify the type of notice and information that the cedent must provide to the reinsurer concerning an underlying claim and the available remedies of the reinsurer. Subject to the terms of the reinsurance contract, the reinsurer may deny indemnification to a cedent under specified circumstances.

Allocation of underlying claim payments or settlements

47. Where an underlying loss or claim provides for payment under multiple underlying reinsured policies, how does the reinsured allocate its claims or settlement payments among those policies? Do the reinsured’s allocations to the underlying policies have to be mirrored in its allocations to the applicable reinsurance agreements?

The Law on Insurance Business does not require reinsurance agreements to mirror the allocation principles in the underlying policies. Under the legislation, the liability of reinsurers to cedents depends on the terms of the reinsurance contracts.

Review

48. What type of review does the governing law afford reinsurers with respect to a cedent’s claims handling, and settlement and allocation decisions?

The right to review a cedent’s claims handling, settlement and allocation decisions is not regulated under Vietnamese law. However, the reinsurance contract may provide for such review rights.

Reimbursement of commutation payments

49. What type of obligation does a reinsurer have to reimburse a cedent for commutation payments made to the cedent’s policyholders? Must a reinsurer indemnify its cedent for ‘incurred but not reported’ claims?

The Law on Insurance Business does not impose an obligation on a reinsurer to reimburse a cedent for commutation payments made to the cedent’s policyholders. Accordingly, the reinsurance contract could govern such obligation.

Extracontractual obligations (ECOs)

50. What is the obligation of a reinsurer to reimburse a cedent for ECOs?

The Law on Insurance Business does not impose an obligation on a reinsurer to reimburse a cedent for ECOs. Accordingly, the reinsurance contract could govern such obligation. It is usual for reinsurance contracts to relieve reinsurers from obligations to reimburse cedents for ECOs.

UPDATES & TRENDS IN INSURANCE AND REINSURANCE IN VIETNAM

Key developments

51. Are there any emerging trends or hot topics in insurance and reinsurance regulation in your jurisdiction?

In the past year, the insurance sector faced challenges, especially within the life insurance market, which garnered negative attention due to issues surrounding bancassurance and agent misconduct. This led to a decline in both customer trust and revenue. To address these issues, authorities intervened and implemented two important pieces of legislation aimed at improving the quality and transparency of life insurance products and services, particularly those distributed through commercial banks. Specifically, in 2023, the government and Ministry of Finance issued Decree No. 46/2023/N -CP and Circular No. 67/2023/TT-BTC, respectively. These regulations focus on enhancing transparency in disclosures, supervision, and compliance related to the distribution of life insurance products via commercial banks, ultimately aiming to bolster customer protection and elevate the professionalism of bancassurance activities in Vietnam.

* The information in this chapter was accurate as of March 2024.

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“The article’s content refers to the regulations that were applicable at the time of its creation and is intended solely for reference purposes. To obtain accurate information, it is advisable to seek the guidance of a consulting lawyer.”

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