DECREE

ON FINANCIAL REGIME FOR INSURERS AND INSURANCE BROKERS

THE GOVERNMENT

Pursuant to the Law on Organization of the Government dated 25 December 2001; Pursuant to the Law on Insurance Business dated 9 December 2000;

On the proposal of the Minister of Finance;

DECREES:

Chapter I

GENERAL PROVISIONS

Article 1. Governing scope

1. This Decree regulates the financial regime applicable to insurers and insurance brokers established, organized and operating pursuant to the Law on Insurance Business.

2. This Decree shall not apply to mutual insurers.

Article 2. Principles of financial management and supervision

Insurers and insurance brokers shall have financial autonomy, shall assume self-responsibility for managing and supervising their financial activities and for the results of their business operation, and shall perform their obligations and fulfil their undertakings in accordance with law.

Article 3 State administrative body

The Ministry of Finance shall exercise State administration of finance and shall provide guidelines on and inspect implementation of the financial regime by insurers and insurance brokers in accordance with law.

Chapter II

MANAGEMENT AND USE OF CAPITAL AND ASSETS

Section 1. LEGAL CAPITAL, CHARTER CAPITAL, SECURITY DEPOSITS AND MANAGEMENT OF ASSETS

Article 4. Legal capital

1. Levels of legal capital of insurers:

(a) Non-life insurance business: three hundred billion (300,000,000,000) Vietnamese dong;

(b) Life insurance business: six hundred billion (600,000,000,000) Vietnamese dong.

2. Level of legal capital of insurance brokers: four billion (4,000,000,000) Vietnamese dong.

Article 5. Charter capital

1. The charter capital of an insurer or insurance broker means the capital contributed or committed to contribute within a specified period by members and recorded in the charter of the enterprise.

2. Insurers and insurance brokers must, throughout the course of their operation, constantly maintain their paid-up charter capital at a level not less than the legal capital level stipulated in article 4 of this Decree and must supplement their charter capital analogous with the contents, scope and geographical area of their business operation. The Ministry of Finance shall provide specific regulations on the level of supplementary charter capital.

3. When an insurer or insurance broker changes its charter capital, it shall be required to submit a request application and an explanatory statement to the Ministry of Finance. The Ministry of Finance shall be responsible for notifying in writing its approval or refusal to approve within thirty (30) days from the date of receipt of a request application and valid file. In a case of refusal, the Ministry of Finance must provide a written explanation of its reasons.

4. Insurers which were established, organized and operating prior to the date of effectiveness of this Decree and have charter capital less than the level of legal capital stipulated in article 4 of this Decree must supplement their charter capital to the stipulated level within three years from the date of effectiveness of this Decree.

Article 6. Security deposits

1. Insurers must use a part of their paid-up charter capital to pay a security deposit into a commercial bank operating in Vietnam within sixty (60) days from the date of issuance of their establishment and operating licence. A security deposit shall bear interest in accordance with the agreement reached with the bank into which it is paid.

2. The rate of security deposits of insurers shall be equal to two (2) per cent of the legal capital stipulated in article 4.1 of this Decree.

3. An insurer may only use its security deposit to meet undertakings to purchasers of insurance when its solvency is inadequate and upon written approval of the Ministry of Finance. An insurer shall be responsible for paying an additional security deposit equivalent to the amount used within ninety (90) days from the date of use of the security deposit.

4. Insurers may withdraw the whole amount of their security deposit upon termination of their operation.

5. Insurers which were established, organized and operating prior to the date of effectiveness of this Decree and have an amount of security deposit less than the amount stipulated in clause 2 of this article must supplement their security deposit to ensure it is at the stipulated level within thirty (30) days from the date of effectiveness of this Decree.

Article 7. Other provisions on management and use of capital and assets

Insurers and insurance brokers must comply with provisions of other relevant laws on management and use of capital and assets in addition to the provisions of this Decree.

Section 2. INSURANCE RESERVES

Article 8. Insurance reserves for non-life insurance

1. A non-life insurer must establish an insurance reserve for each type of insurance product with respect to that part of liability retained by the insurer.

2. Insurance reserves shall include:

(a) An unearned premium reserve to be used to pay claims arising in subsequent years during the effective period of contracts of insurance;

(b) An outstanding claim reserve to be used to pay claims for losses for which the insurer is liable, irrespective of whether a claim has been lodged or not, which are unresolved at the expiry of the financial year;

(c) A large loss fluctuation reserve, to be used to pay claims when there are large fluctuations in losses or when large losses occur and the total premiums retained for the financial year after deduction of the unearned premium reserve and the outstanding claim reserve are insufficient to pay claims on that part of the liability retained by the insurer.

Article 9. Insurance reserves for life insurance

1. A life insurer must establish an insurance reserve for each contract of life insurance with respect to that part of liability retained by the insurer.

2. Insurance reserves shall include:

(a) An actuarial reserve which is the difference between the current value of the sum insured and the current value of premiums earned in the future to be used for payment of the insurance proceeds in respect of liabilities undertaken upon occurrence of an insured event;

(b) An unearned premium reserve to be used to pay insurance proceeds arising in subsequent years during the effective period of contracts of insurance;

(c) A compensation reserve for payment of insurance proceeds upon occurrence of insured events which remain unsettled at the expiry of the financial year;

(d) A profit distribution reserve for payment of profits agreed by the insurer with purchasers of insurance in the contracts of insurance;

(dd) A balance reserve for payment of insurance proceeds upon occurrence of an insured event resulting from material increase in the mortality rate or technical interest rate.

3. The Ministry of Finance shall provide specific regulations on insurance reserves for investment linked contracts.

Article 10. Level of deductions and method of deduction to establish reserves

The Ministry of Finance shall provide specific regulations on the level of deductions and the method of deduction for establishing the insurance reserves stipulated in articles 8 and 9 of this Decree.

Section 3. INVESTMENT OF CAPITAL

Article 11. Investment capital sources

Investment capital sources of an insurer and of an insurance broker shall comprise:

1. Owner's capital.

2. Idle capital from insurance reserves.

3. Other legal sources as stipulated by law.

Article 12. Investments from owner's capital

1. Investments from owner's capital must be safe, effective and of a liquid nature in accordance with guidelines of the Ministry of Finance.

2. Insurers and insurance brokers shall be permitted to make offshore investments in accordance with law of that part of owner's capital which exceeds the legal capital level or the minimum solvency margin, whichever is the greater.

Article 13. Idle capital from insurance reserves

1. Idle capital from insurance reserves of an insurer means the total insurance reserves less (-) sums of money used by the insurer for regular payments of non-life insurance claims in a period and for regular payments of life insurance proceeds in a period.

2. In the case of non-life insurers, sums of money for regular payments of compensation for claims in a period shall not be lower than twenty five (25) per cent of the total insurance reserves and shall be deposited with credit institutions operating in Vietnam.

3. In the case of life insurers, sums of money for regular payments of insurance proceeds in a period shall not be lower than five per cent of the total insurance reserves and shall be deposited with credit institutions operating in Vietnam.

Article 14. Investment of idle capital from insurance reserves

Investments of idle capital from insurance reserves of insurers as stipulated in article 13.1 of this Decree may be made directly by the insurer or by entrusting another entity to make the investment, but shall only be invested in Vietnam in the following sectors:

1. With respect to non-life insurers:

(a) Purchase of Government bonds or guaranteed bonds of enterprises, or deposits with credit institutions without any restriction;

(b) Purchase of shares, unsecured bonds of enterprises, and capital contribution in other enterprises but not to exceed thirty five (35) per cent of idle capital from insurance reserves;

(c) Real estate business and lending but not to exceed twenty (20) per cent of idle capital from insurance reserves.

2. With respect to life insurers:

(a) Purchase of Government bonds or guaranteed bonds of enterprises, or deposits with credit institutions without any restriction;

(b) Purchase of shares, unsecured bonds of enterprises, and capital contribution in other enterprises but not to exceed fifty (50) per cent of idle capital from insurance reserves;

(c) Real estate business and lending but not to exceed forty (40) per cent of idle capital from insurance reserves.

Chapter III

SOLVENCY AND RECOVERY OF SOLVENCY

Article 15. Solvency

1. An insurer must always maintain solvency during its entire insurance business operation.

2. An insurer shall be deemed to have adequate solvency when all insurance reserves have been established and its solvency margin is not less than the minimum solvency margin set out in article 16 of this Decree.

Article 16. Minimum solvency margin

1. The minimum solvency margin of a non-life insurer shall be the greater of the following two calculations:

(a) Twenty five (25) per cent of the total premiums actually retained at the time of determination of the solvency margin;

(b) Twelve point five (12.5) per cent of the total primary insurance premiums plus reinsurance premiums at the time of determination of the solvency margin.

2. The minimum solvency margin of a life insurer shall be:

(a) In the case of contracts of life insurance with a term of ten years or less, four per cent of the insurance reserves and one tenth of one (0.1) per cent of the sums insured which carry risks;

(b) In the case of contracts of life insurance with a term of over ten years, four per cent of the insurance reserves and three tenths of one (0.3) per cent of the sums insured which carry risks.

Article 17. Solvency margin of insurers

The solvency margin of an insurer means the difference between asset value and debts payable by the insurer at the time of determination of the solvency margin. When calculating the solvency margin of an insurer, only liquid assets may be used, and the whole or part of some assets shall be deducted in accordance with guidelines of the Ministry of Finance.

Article 18. Danger of insolvency

An insurer shall be deemed to be in danger of insolvency when its solvency margin is less than the minimum solvency margin.

Article 19. Recovery of solvency

1. When an insurer is in danger of insolvency, it must immediately take its own measures to recover solvency and at the same time report to the Ministry of Finance on its current financial status and the reasons which lead to the danger of insolvency, and provide a plan for recovery of solvency.

2. If the insurer fails to recover solvency after taking its own measures, the Ministry of Finance shall have the right to request the insurer to take the following measures:

(a) Supplement owner's capital;

(b) Cede reinsurance; curtail the contents, scope and geographical area of the business operation; suspend a part of or the whole operation;

(c) Strengthen the organizational structure and change the managers and executives of the enterprise;

(d) Request assignment of insurance contracts;

(dd) Other measures.

3. If the insurer fails to recover its solvency at the request of the Ministry of Finance as stipulated in clause 2 of this article, the insurer shall be put under special control. The Ministry of Finance shall issue a decision on establishment of a Solvency Control Committee to implement measures to recover the solvency of the enterprise in accordance with article 80 of the Law on Insurance Business.

Chapter IV

REVENUE AND EXPENSES

Section 1. REVENUE AND EXPENSES OF INSURERS

Article 20. Revenue of insurers

Revenue of an insurer means amounts receivable in a period, including:

1. Revenue from insurance business activities being amounts receivable in a period after deduction of amounts payable which reduces the revenue earned in the period.

(a) Amounts receivable in a period shall include the following:

- Primary insurance premiums;

- Revenue from reinsurance accepted;

- Commissions from ceding reinsurance;

- Revenue from fees for provision of agency services including loss surveys, evaluation of compensation, making claims on third parties, or salvage recovery following total loss settlements;

- Revenue from fees for loss surveys excluding surveys for internal cost accounting member entities within the one independent cost accounting insurer.

(b) Amounts payable which reduce the revenue earned in a period shall include the following:

- Refunds of insurance premiums;

- Reductions of insurance premiums;

- Premiums on ceding reinsurance;

- Refunds of premiums for reinsurance accepted;

- Reductions of premiums for reinsurance accepted;

- Refunds of commissions on ceding reinsurance;

- Reductions of commissions on ceding reinsurance.

2. Revenue from financial activities:

(a) Revenue received from investments as stipulated in Section 3 of Chapter II of this Decree;

(b) Revenue received from trading securities;

(c) Interest received on the amount of the security deposit;

(d) Revenue earned from leasing out assets;

(dd) Other revenue as stipulated by law.

3. Revenue from other activities:

(a) Proceeds from sale or liquidation of fixed assets;

(b) Bad debts which had been written-off but are recovered;

(c) Other revenue as stipulated by law.

Article 21. Expenses of insurers

Expenses of an insurer means amounts payable or which must be allocated in a period including the following:

1. Expenses of insurance business activities are amounts payable or which must be allocated in a period after deducting amounts receivable in order to reduce expenditure in the period.

(a) Amounts payable or which must be allocated in a period shall include the following:

- Compensation payments for claims with respect to primary non-life insurance; payments of insurance proceeds with respect to life insurance;

- Compensation payments for re-insurance accepted;

- Payments into insurance reserves;

- Payments of insurance commission;

- Expenses of loss assessment;

- Expenses for agency fees for provision of services for loss assessment, evaluation of compensation or making claims on third parties;

- Expenses for salvage recovery following total loss settlements;

- Expenses for management of insurance agents;

- Expenses for prevention and limitation of risks and losses;

- Expenses for assessment of risks of subject-matters insured;

- Other expenses and allocations as stipulated by law.

(b) Amounts receivable in order to reduce expenditure in a period, including:

- Compensation received for cessions;

- Compensation recovered from third parties;

- Proceeds from salvage recoveries following total loss settlements.

2. Expenses of financial activities:

(a) Expenses incurred for investment activities in accordance with Section 3 of Chapter II of this Decree;

(b) Investment income payable to purchasers of insurance pursuant to undertakings in contracts of life insurance;

(c) Costs of leasing out assets;

(d) Bank charges, and payment of interest on loans;

(dd) Other expenses and allocations as stipulated by law.

3. Expenses of other activities:

(a) Expenses of sale or liquidation of fixed assets;

(b) Expenses of recovery of bad debts which had been written off but are now recovered;

(c) Other expenses and allocations as stipulated by law.

Article 22. Other provisions on revenue and expenses of insurers

Insurers must comply with other relevant laws on other revenue and expenses of insurers in addition to the provisions in articles 20 and 21 of this Decree.

Article 23. Splitting owner's capital fund and premium fund in life insurance

Life insurers must split into separate accounts owner's capital from premium collected from purchasers of insurance in accordance with guidelines of the Ministry of Finance.

Section 2. REVENUE AND EXPENSES OF INSURANCE BROKERS

Article 24. Revenue of insurance brokers

Revenue of an insurance broker means amounts receivable in a period including:

1. Revenue from insurance broking activities:

(a) Revenue from insurance brokerage commission after deducting refunds and reductions of insurance brokerage commission;

(b) Other revenue as stipulated by law.

2. Revenue from financial activities:

(a) Revenue received from trading securities;

(b) Interest received on deposits and on loans;

(c) Revenue earned from leasing out assets;

(d) Other revenue as stipulated by law.

3. Revenue from other operations:

(a) Proceeds from sale or liquidation of fixed assets;

(b) Bad debts which had been written off but are recovered;

(c) Other revenue as stipulated by law.

Article 25. Expenses of insurance brokers

Expenses of an insurance broker means amounts payable or which must be allocated in a period, including:

1. Expenses of insurance broking activities:

(a) Expenses of insurance broking activities;

(b) Expenses of purchasing professional indemnity insurance;

(c) Other amounts payable or which must be allocated as stipulated by law.

2. Expenses of financial activities:

(a) Expenses of leasing out assets;

(b) Bank charges, and payment of interest on loans;

(c) Other amounts payable or which must be allocated as stipulated by law.

3. Expenses of other activities:

(a) Expenses of sale and liquidation of fixed assets;

(b) Expenses of recovery of bad debts which had been written off;

(c) Other expenses payable or which must be allocated as stipulated by law.

Article 26. Other provisions on revenue and expenses of insurance brokers

Insurers brokers must comply with other relevant laws on other revenue and expenses of insurance brokers in addition to the provisions in articles 24 and 25 of this Decree.

Chapter V

PROFIT AND DISTRIBUTION OF PROFIT

Article 27. Profit of insurers

1. Profit earned in any one year means the business results of an insurer, including profit from insurance business activities, profit from financial activities, and profit from other activities.

2. Profit of an insurer shall be the difference determined between total revenue less (-) total expenses of the insurer.

Article 28. Profit of insurance brokers

1. Profit earned in any one year means the business results of an insurance broker, including profit from insurance brokerage business activities, profit from financial activities, and profit from other activities.

2. Profit of an insurance broker shall be the difference determined between the total revenue less (-) the total expenses of the insurance broker.

Article 29. Obligations to the State Budget

Insurers and insurance brokers must fulfil all of their obligations to the State Budget as stipulated by law.

Article 30. Distribution of profit

After payment of corporate income tax as stipulated by law and after making contributions to the compulsory reserve fund, insurers and insurance brokers shall be entitled to distribute their remaining profit in accordance with law.

Article 31. Compulsory reserve fund

Insurers and insurance brokers must make an annual appropriation of five per cent of after-tax profit to establish a compulsory reserve fund. The maximum level of the compulsory reserve fund shall be maintained equivalent to ten (10) per cent of the charter capital of the enterprise.

Chapter VI

ACCOUNTING, AUDITING, STATISTICS AND FINANCIAL REPORTING REGIMES

Article 32. Accounting regime

Insurers and insurance brokers must record full details of initial source documents, update their accounting books, and record all economic and financial activities completely, promptly, honestly, accurately and objectively.

Article 33. Financial year

The financial year of insurers and insurance brokers shall commence on 1 January and end on 31 December of the same Gregorian year. The initial financial year of insurers and insurance brokers shall commence as from the date of issuance of their licence for establishment and operation, and end on the last day of that same year.

Article 34. Financial reports

1. Insurers and insurance brokers shall be responsible to prepare and forward both periodical and one- off financial reports, statistics reports and professional reports in accordance with current law and guidelines of the Ministry of Finance.

2. Annual financial reports of insurers and insurance brokers must be audited and certified for compliance with the main financial requirements in this Decree by an independent auditing organization legally operating in Vietnam, prior to submission to the Ministry of Finance.

Article 35. Internal audit

Insurers and insurance brokers must conduct internal audits of their financial activities.

Article 36. Enterprise financial management

1. Insurers and insurance brokers shall carry out financial management work in accordance with the principles and standards stipulated by the Ministry of Finance.

2. Insurers and insurance brokers must prepare, implement and supervise implementation of finance rules, investment rules, internal control and audit rules, and other similar procedural rules.

Article 37. Publication of financial reports

1. Insurers and insurance brokers must publicly announce their financial reports as stipulated by law.

2. Any information which is publicly disclosed must be consistent with the financial reports of the insurer or insurance broker which have been audited and certified by an independent auditing organization.

Article 38. Financial inspections and checks

The Ministry of Finance shall conduct inspections and checks of compliance with the financial regime by insurers and insurance brokers.

Chapter VII

IMPLEMENTING PROVISIONS

Article 39. Effectiveness

1. This Decree shall be of full force and effect after fifteen (15) days from the date of its proclamation in the Official Gazette.

2. This Decree shall replace Decree 43/2001/ND-CP of the Government dated 1 August 2001 on the financial regime applicable to insurers and insurance brokers.

Article 40. Organization of implementation

1. The Minister of Finance shall provide guidelines for implementation of this Decree.

2. Ministers, heads of ministerial equivalent bodies and Government bodies, and chairmen of people's committees of provinces and cities under central authority shall be responsible for implementation of this Decree.