How to regulate capital sources and use of equity capital, real capital, risk-based capital, insurance company charter capital for deposits, reserves, foreign investment…? Let’s find out with fdiinvietnam.com in the article below.
Insurance company capital regulations
1. Charter capital of insurance business company
Charter capital is the total amount of money that members commit to contribute/have contributed when establishing a limited liability company or the total par value of shares registered to buy/have sold when opening a joint stock company and must be recorded in the charter of the insurance company.
The charter capital of a life insurance company is regulated from 750 billion VND – 1,300 billion VND depending on the type of insurance. For non-life insurance companies, the charter capital is from 400 billion VND to 500 billion VND and for health insurance companies, the minimum charter capital is from 400 billion VND.
>> See more: Procedures for establishing an insurance brokerage company.
2. Equity of insurance business company
Owner’s equity includes the charter capital that the enterprise has contributed, reserve funds, undistributed after-tax profits and owner’s funds set aside from after-tax profits according to regulations.
For insurance companies and reinsurance enterprises licensed to operate before January 1, 2023, the equity capital must not be lower than the legal capital as prescribed in Article 10 of Decree 73/2016/ND-CP. However, from January 1, 2023, these enterprises must have an equity capital level not lower than the minimum charter capital prescribed in Article 35 of Decree 46/2023/ND-CP.
Enterprises licensed from January 1, 2023 must have equity capital at least equal to the charter capital as prescribed in Article 35 of Decree 46/2023/ND-CP.
3. Real capital of insurance business company
Capital includes equity and other sources of capital recorded or deducted by the Ministry of Finance according to regulations.
4. Risk-based capital of insurance companies
Determine risk-based capital based on the scale and quantify the impact of risk factor groups on the business operations of insurance and reinsurance companies.
>> See more: Procedures for opening an insurance agency.
Insurance company capital use regulations
With such diverse capital sources, the state stipulates that insurance companies will use this capital for specific activities as follows:
1. Margin operations
Insurance companies must use a portion of their charter capital to deposit at a commercial bank operating in Vietnam.
The deposit is equal to 2% of the charter capital and the entire deposit can only be withdrawn when the insurance company ceases operations.
The insurance company is allowed to use this deposit to meet its commitments to the insurance buyer in case of a solvency shortfall and must have written approval from the Ministry of Finance. This amount must be supplemented within 90 days from the date the company uses the deposit.
2. Business reserve
Insurance companies must set aside this amount to pay for insurance liabilities that may arise from signed insurance contracts.
The provision must ensure the following requirements:
- Separate from insurance business;
- Must ensure corresponding to the committed responsibility as agreed in the contract;
- Separation between insurance contracts of insured objects within and outside the territory of Vietnam;
- Have actuaries to calculate and set up provisions;
- Ensure that there are always assets corresponding to the provision for operational contingencies.
3. Reserve fund
This is the amount of money that insurance companies are required to set aside to supplement equity and ensure solvency.
Every year, insurance companies must set aside 5% of their after-tax profits to establish a mandatory reserve fund. The maximum level of the fund is 10% of the insurance company’s charter capital.
4. Investment
Insurance enterprises are allowed to use their equity capital or idle capital from technical reserves to carry out investment activities. However, enterprises must comply with the following principles:
- Comply with legal regulations, ensure safety, efficiency, liquidity and take responsibility for investment activities;
- Not allowed to borrow to invest or entrust investment in real estate business, securities, or contribute capital to other enterprises;
- It is not allowed to invest more than 30% of investment capital in the same group of companies with mutual ownership, except in the case of depositing money in credit institutions and investing abroad to establish enterprises or branches abroad;
- Not allowed to reinvest in shareholders/capital contributing members or people related to shareholders/members (except in cases where shareholders/members are credit institutions);
- Investment capital may not be used to purchase corporate bonds issued for the purpose of restructuring the debts of the issuing enterprise;
- In the case of investment trust, the trust recipient organization must be licensed to perform the trust in accordance with the content of the trust.
5. Overseas investment
Foreign investment must be made in the following forms:
- Establish or contribute capital to establish, buy back capital contribution/shares of foreign insurance enterprises;
- Open branches or representative offices abroad;
Insurance enterprises are only allowed to use the following two capital sources to carry out overseas investment activities:
- Equity after deducting the capital that meets the requirements on capital safety ratio and solvency;
- Idle capital from technical reserves of insurance contracts with foreign elements.
Foreign investment must also comply with the same principles as domestic investment and add the following regulations:
- Compliance with legal regulations;
- Approved in writing by the Ministry of Finance;
- Need to ensure capital safety ratio and solvency;
- Must be made in the name of the insurance company;
- Manage, monitor and separate capital sources, revenue, expenses… of foreign investment activities;
- Do not use assets of domestic insurance buyers to cover losses from foreign investment activities.
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You need advice on establishing an insurance brokerage business and need answers to questions about the use of capital by insurance companies. Refer to the company establishment service of fdiinvietnam.com below:
Insurance brokerage and business establishment services:
- Full service fee from only 1,000,000 VND;
- Get business license after 4 working days;
- Free consultation on conditions, documents and procedures for establishing an insurance company;
- Free legal advice for insurance companies during operations.
>> See details: Insurance company establishment service.
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Call us at 0978 578 866 (North) – 033 9962 333 (Central) – 033 9962 333 (South) for support.