VI When is an insurance company considered to have sufficient ability to pay? Can I use deposit money when the solvency is deficient? Who must confirm the report on the assessment of the solvency and risk management of an insurance company? Through today’s article, let’s find out about this issue with Pham Consult!
When is an insurance company considered to have sufficient ability to pay?
Pursuant to the provisions of Article 110 of the Law on Insurance Business 2022 as follows:
Solvency
1. Insurance enterprises, reinsurance enterprises, and foreign branches in Vietnam must maintain solvency throughout their operations.
2. Insurance enterprises, reinsurance enterprises, and foreign branches in Vietnam are considered to have sufficient solvency when they simultaneously meet the following conditions:
a) Set up adequate technical reserves;
b) Ensure the capital adequacy ratio.
Thus, pursuant to the above provisions, insurance enterprises are considered to have sufficient solvency if they meet the following conditions:
– Set up adequate technical reserves;
– Ensure the capital adequacy ratio.
Note: Insurance enterprises, reinsurance enterprises, and foreign branches in Vietnam must maintain solvency throughout their operations.
Are insurance enterprises allowed to use deposits when their solvency is deficient?
Pursuant to Article 96 of the Law on Insurance Business 2022, the following provisions are provided:
Deposit
1. Insurance enterprises, reinsurance enterprises, and foreign branches in Vietnam must use a portion of their charter capital and allocated capital to deposit at a commercial bank operating in Vietnam.
2. The deposit amount is equal to 02% of the minimum charter capital and allocated capital at the time of establishment of the insurance enterprise, reinsurance enterprise, or foreign branch in Vietnam.
3. Insurance enterprises, reinsurance enterprises, and foreign branches in Vietnam may only use the deposit to meet their commitments to insurance buyers when their payment capacity is insufficient and must be approved in writing by the Ministry of Finance. Within 90 days from the date of using the deposit, the insurance enterprise, reinsurance enterprise, or foreign branch in Vietnam is responsible for supplementing the used deposit.
4. Insurance enterprises, reinsurance enterprises, and foreign branches in Vietnam may only withdraw the entire deposit upon termination of operations.
Thus, insurance enterprises may only use the deposit to meet their commitments to insurance buyers when their payment capacity is insufficient.
Accordingly, the use of the deposit in the above case must be approved in writing by the Ministry of Finance.
Within 90 days from the date of using the deposit, the insurance enterprise is responsible for supplementing the used deposit.
Who must confirm the report on the assessment of the payment capacity and risk management of the insurance enterprise?
According to Article 105 of the Law on Insurance Business 2022, the following provisions are provided:
Independent audit
1. Insurance enterprises, reinsurance enterprises, and foreign branches in Vietnam must conduct an annual independent audit of their annual financial statements.
2. Insurance enterprises, reinsurance enterprises, and foreign branches in Vietnam must have the confirmation of an independent auditing organization for the report on the assessment of solvency and risk management; the report on the separation of equity capital and insurance premium sources; the report on the activities of the common fund, unit-linked fund, and pension fund.
3. When conducting audits and confirmations of reports specified in Clauses 1 and 2 of this Article, independent auditing organizations shall have the following responsibilities:
a) Comply with the provisions of law on independent auditing;
b) Use actuaries when auditing capital safety ratios and insurance reserves; risk management experts when auditing risk management and other experts corresponding to the content of the independent audit;
c) Explain and provide information and data related to the auditing activities of insurance enterprises, reinsurance enterprises, and foreign branches in Vietnam in case of request from the Ministry of Finance;
d) Notify the Ministry of Finance in writing when discovering that an insurance enterprise, reinsurance enterprise, or foreign branch in Vietnam has material violations in audited and confirmed reports due to non-compliance with the law, insurance fraud, or unusual transactions that may seriously affect the financial safety or rights of insurance participants;
d) Keep information confidential according to the provisions of law.
4. The Minister of Finance shall detail Clause 2 of this Article.
Accordingly, the report assessing the solvency and risk management of an insurance enterprise must have the confirmation of an independent auditing organization.
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