DECISION

ISSUING REGULATIONS ON UNDERWRITING UNIT LINKED INSURANCE

THE MINISTER OF FINANCE

Pursuant to the Law on Insurance Business dated 9 December 2000;
Pursuant to Decree 45/2007/ND-CP of the Government dated 27 March 2007 on implementation of the Law on Insurance Business;
Pursuant to Decree 46/2007/ND-CP of the Government dated 27 March 2007 on the financial regime applicable to insurers and insurance brokers;
Pursuant to Decree 77/2003/ND-CP of the Government dated 1 July 2003 on functions, duties, powers and organizational structure of the Ministry of Finance;
On the proposal of the Director of the Insurance Department;

DECIDES:

Article 1. To issue with this Decision Regulations on Underwriting Unit Linked Insurance as part of investment linked insurance.

Article 2. This Decision shall be of full force and effect fifteen (15) days after the date of its publication in the Official Gazette.

Article 3. The Head of the Office of the Ministry; the Director of the Insurance Department; the Chairman of the State Securities Commission; life insurers; and other organizations, individuals and parties involved shall be responsible for implementation of this Decision.

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FOR THE MINISTER OF FINANCE
DEPUTY MINISTER




Tran Xuan Ha

REGULATIONS

ON UNDERWRITING UNIT LINKED INSURANCE
(Issued with Decision 102/2007/QD-BTC of the Minister of Finance dated 14 December 2007)

Chapter 1

GENERAL PROVISIONS

Article 1. Governing scope

These Regulations regulate the underwriting by life insurers and by other related organizations and individuals of unit linked insurance products within the territory of the Socialist Republic of Vietnam.

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Unit linked insurance means a life insurance product within the category of investment linked insurance products, with the following special characteristics:

1. The premium structure and the insurance benefits are clearly distinguished as between the risk insurance component and the investment component. The insurance purchaser has flexibility in deciding the premium and the assured sum pursuant to agreements in the insurance contract.

2. Policyholders are entitled to select to invest their premiums to purchase units in Unit Funds established by the insurer, and are entitled to the entire results of investments from such selected Funds and bear the investment risks of such selected Funds in proportion to their invested premiums.

3. The insurer is entitled to all premiums which policyholders pay in accordance with agreements in the insurance contracts.

Article 3. Interpretation of terms

1. Unit Fund means a Fund formed from premiums from policyholders of unit linked insurance contracts and shall be a component of policyholders' funds.

2. A unit in a Unit Fund means an equal part after the assets of such Fund have been divided into a number of equal parts.

3. Selling price means the price of one unit in a Unit Fund when the insurer sells a unit to a policyholder.

4. Purchase price means the price of one unit in a Unit Fund when the insurer purchases a unit from a policyholder.

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6. Next valuation day means the valuation day immediately after the day on which the insurer receives a request from a policyholder for the purchase or sale of a unit in a Unit Fund.

Article 4. Conditions in order for insurers to underwrite unit linked insurance

A life insurer must satisfy all the following conditions in order to underwrite unit linked insurance:

1. The solvency margin of the insurer must be two hundred billion dong greater than the minimum (stipulated) solvency margin.

2. The insurer must have an information technology system which is appropriate for managing and controlling its Unit Funds in a meticulous and effective manner.

3. The insurer must have the capacity to value assets and units in Unit Funds objectively, accurately and periodically at least once each week, and to publicly announce the purchase price and selling price of units in Unit Funds to policyholders.

4. Insurance agents who are recruited, trained and employed to sell unit linked insurance must satisfy all the requirements stipulated in article 25 of these Regulations.

5. Unit linked insurance products must be approved by the Ministry of Finance.

Chapter II

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Article 5. Unit linked insurance products

1. A life insurer must comply with the provisions of this Chapter and of other relevant laws when designing its unit linked insurance product.

2. The name of a unit linked insurance product and the names of Unit Funds must be clear, must be consistent with the nature of the product and the investment objectives for the assets in each Unit Fund, and must ensure that purchasers of insurance are able to distinguish the product in question from other products.

Article 6. Unit linked insurance benefits

1. Insurance benefits pursuant to a unit linked insurance policy shall include risk insurance benefits and investment benefits.

2. Risk insurance benefits: The insurer and the insurance purchaser may agree on risk insurance benefits which must ensure that the minimum benefit in the case of death of the insured person is:

(a) Thirty five million dong, or one hundred and twenty-five (125) per cent of the premium, whichever is the higher sum, in the case of a policy for which the premium is paid on one single occasion.

(b) Thirty five million dong, or five (5) times the annual premium paid, whichever is the higher sum, in the case of a policy with periodic premium payments.

(c) The insurer may stipulate a provision on benefits in the case of death of an insured person aged sixty (60) or above below the amount stipulated above, but the benefit must be a minimum of thirty five million dong.

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(dd) An insurer may provide auxiliary insurance products with a unit linked insurance policy, and the method of paying premium for such auxiliary products shall be as agreed by the parties when they enter into the contract.

3. Investment benefits: The policyholder shall be entitled to select to invest his or her premiums in Unit Fund/s established by the insurer, and shall be entitled to the entire results of investment by such selected Fund/s and shall bear the investment risks of such selected Fund/s in proportion to his or her invested premiums.

4. The insurer and the insurance purchaser may agree on the contents and method of payment of insurance benefits on the occurrence of the assured event pursuant to the provisions in clauses 2 and 3 of this article.

Article 7. Fees

1. An insurer shall only be permitted to charge the following types of fees:

(a) An initial fee being the total amount of money which the insurer is permitted to deduct prior to allocating premium to Unit Funds.

(b) A risk insurance premium being the fee in order to pay risk insurance benefits in accordance with undertakings in the insurance contract.

(c) A policy administrative fee being the fee to cover costs of maintaining the policy and of supplying information regarding the policy to the policyholder.

(d) A fund management fee used to pay the costs of managing the Unit Funds.

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(e) A policy cancellation fee being the fee charged to clients for cancellation of a policy prior to its date of maturity and designed to cover relevant reasonable expenses.

(g) Any other fees shall be subject to [prior] written approval from the Ministry of Finance.

2. An insurer must calculate the above-mentioned fees accurately, fairly and reasonably, and must ensure they are appropriate for the product as approved by the Ministry of Finance. The insurer must notify the insurance purchaser of the fees when entering into the contract.

3. A unit linked insurance contract must specify the maximum fees applicable to the insurance purchaser. The insurer must publicly, clearly and fully disclose all types of fees, the method of calculating them, and the maximum rate of fees applicable to insurance purchasers in its data introducing the product and in its data explaining sale of the product.

4. During the process of performance of a contract and within the maximum quotas stipulated in the insurance contract, the insurer may change the ratios of all types of applicable fees after notifying the policyholder and reaching agreement in writing with the policyholder at least three (3) months prior to officially making such change.

Article 8. Additional premium payments

1. A policyholder may, in addition to the premiums agreed in advance in the insurance contract, pay additional premium for the purchase of units in Unit Funds.

2. All additional premiums which are paid shall be invested in Unit Funds after deducting an initial fee.

3. In each year of the contract, the total amount of additional premiums paid shall not exceed ten (10) times the premium for the initial year in the case of a policy with periodic premium payments, or shall not exceed the amount of the initial premium in the case of a policy for which a single premium payment is made.

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In the case of policies for which a single premium is made on one occasion, an insurer shall be responsible to design the insurance product to ensure that premium of the policyholder shall only be sufficient to purchase units in Funds with an investment ratio below the form of that for bank savings deposits, Government bonds and other securities with a fixed return not less than sixty (60) per cent of the total asset value of such Unit Fund.

Article 10. Surrender value

The surrender value of any one unit linked insurance policy shall be determined on the basis of the purchase price of a unit in a Unit Fund on the next valuation day immediately after the date of cancellation of the contract less the fee for cancellation of the contract.

Chapter III

RESPONSIBILITIES OF INSURERS TO DISCLOSE INFORMATION

Article 11. Information about unit linked insurance

1. An insurer shall be responsible to announce accurately, completely and promptly to a policyholder information about the unit linked insurance contract which was signed. The information supplied to the policyholder must be appropriate for the unit linked insurance product as approved by the Ministry of Finance.

2. An insurance purchaser shall have the right to require the insurer to supply him or her with complete information and to explain the insurance clauses and conditions in order for the insurance purchaser to have a clear understanding of the relevant risks when entering into the unit linked insurance contract.

3. An insurer shall be responsible to announce on its website the following information and data:

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(b) Data introducing the product;

(c) Data explaining sale of the product and typical cases;

(d) Operational status of its Unit Funds;

(dd) Price of one unit in a Unit Fund.

Article 12. Data introducing products

An insurer shall write its own data introducing its product, and must use such data in compliance with law and the following provisions:

1. Information in the data introducing a product must be accurate, objective, complete and truthful, and it must be appropriate for the unit linked insurance product as approved by the Ministry of Finance.

2. Data introducing a unit linked insurance product must, in addition to compliance with the general regulations applicable to life insurance, contain a minimum of the following information:

(a) All types of Unit Funds of the insurer, and the nature of investment risks and the investment policy of each Unit Fund.

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(c) Circumstances in which the insurer is entitled to temporarily cease the sale or purchase of units in Unit Funds.

(d) Ratio of allocation of premium to purchase units in a Unit Fund and method of calculating the initial fee, the Fund management fee, the insurance risk fee and any other fees. This information must include an illustrative example and the method of allocating premium to the purchase of units in Unit Funds.

(dd) All of the guaranteed benefits to the policyholder must be clearly specified, including the maximum fees and the minimum insurance benefits on the death of the insured person, and the benefits receivable on maturity of the policy and on cancellation of the policy. The insurer must also clearly notify the policyholder of all non-guaranteed benefits.

(e) The basis and periodical times for valuing assets in Unit Funds.

(g) Operational results of all the current Unit Funds for the most recent five (5) consecutive years, or for the entire duration for which the Funds have been established and operating if such period is less than 5 years. The insurer must specify the above information being past operational results in order for policyholders to refer to same, and not for the purpose of promising that operational results of the Funds in the future will be similar.

(h) Clear information explaining to the insurance purchaser that signing a unit linked insurance contract is a long-term commitment and that the insurance purchaser should not cancel the contract because the fees payable may be very high during the initial period of the contract.

Article 13. Data explaining sale of the product

Data explaining sale of the product must comply with law and the following provisions:

1. Data explaining sale of a unit linked insurance product must be provided to clients prior to their entering into the contract and must contain the minimum information stipulated in Appendix 1 to these Regulations.

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3. The actual investment rates of each Unit Fund must be calculated on an annual basis and must differentiate between each Fund. The actual investment rates shall be calculated on the basis of net profits of the Fund within the previous five (5) years, or within the period for which such Fund has been in existence if it is has not been operating for 5 years. The insurer must explain to purchasers of insurance for their information that the listing of investment rates does not concern the difference between selling prices and purchase prices and does not relate to other fees which may be additionally charged to the purchaser of insurance.

4. The fees and the maximum quotas which the policyholder must pay must be clearly explained on the basis of a clear distinction between premiums payable for risk insurance benefits and other fees payable.

5. If a unit linked insurance contract includes auxiliary insurance benefits, then the insurer must clearly explain these in its data explaining sale of the product and must also explain the impact of such auxiliary products on the insurance purchaser.

6. Data explaining sale of a product must be set out clearly, must be easy to understand, and must not encourage a false expectation about the amount of money receivable.

Article 14. Insurance contracts

A unit linked insurance contract must comply with law and must contain all of the following information:

1. Benefits and the regime for linking benefits to operational results of Unit Funds selected by the policyholder.

2. Objectives and investment policies of Unit Funds.

3. Ratio of allocation of premium for purchase of units in Unit Funds.

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5. Method of valuing one unit in a Unit Fund.

6. Choices which the insurance purchaser has in order to change risk benefits, to change the ratio of premiums allocated to Unit Funds, to change premiums and to change between Funds, and the grace period for payment of premiums.

7. Provisions specifying circumstances in which the insurer is permitted to apply the following measures to protect and increase benefits of policyholders:

(a) Closure of a Unit Fund in order to transfer all the assets into a new Unit Fund with the same investment objectives;

(b) Changing the name of a Unit Fund;

(c) Separation or merger of currently existing Unit Funds;

(d) Suspension of valuation of units in Unit Funds and of transactions relating to policies in a case where a Securities Trading Centre and/or Stock Exchange on which Unit Funds are currently investing temporarily suspends trading;

(dd) Other measures as required by the competent State body or as stipulated by law.

An insurer which applies any of the measures stipulated in sub-clauses (a), (b), (c) and (dd) above must provide written notice to policyholders three (3) days in advance.

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An insurer must provide written notice to policyholders of the following items, within a time-limit of ninety (90) days from the end of the financial year or from the end of a contract year:

1. Status of the unit linked insurance policy including the following information:

(a) Number and value of units in Unit Funds held at the beginning of the report year;

(b) Number and value of units in Unit Funds which were purchased [or] sold during the report year;

(c) Number and value of units in Unit Funds at the end of the report year;

(d) Fees arising during the year;

(dd) Total insurance premiums paid and amount of such premiums allocated to purchase of units in Unit Funds within the year of the report;

(e) Risk insurance benefits and surrender value at the beginning of the report year;

(g) Risk insurance benefits and surrender value at the end of the report year.

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(a) Summarized information about the financial status of the Unit Fund on the standard form stipulated in Appendix 2 issued with these Regulations;

(b) Investment objectives of the Unit Fund and the method for allocating assets at the time of the report;

(c) Analysis of the operational status of the Unit Fund in the five (5) most recent years regarding the net investment ratio of the Unit Fund, or such information for the period during which the Unit Fund has been in existence in the case of a Fund operating for less than five years;

(d) Fees payable relevant to the Unit Fund and other expenses arising within the year;

(dd) Any changes to the investment objectives of the Fund and any changes to restrictions applicable to the Fund during the year;

(e) Details of profit already distributed [to policyholders] and proposed distributions within the year of the report; the impact on the net asset value of each fund in the Unit Fund both prior to and after distribution of profit;

(g) An assessment of the future expectation from proposed investments and investment policies of the Unit Fund;

(h) Criteria relevant to investment sectors in which the Unit Fund is currently investing;

(i) Certification from an independent auditor of the above-mentioned information items.

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1. An insurer must periodically announce the following items in at least one central newspaper and on its website:

(a) Selling price of one unit in a Unit Fund;

(b) Purchase price of one unit in a Unit Fund;

(c) Net asset value of each unit in a Unit Fund.

2. The notification of the price of a unit in a Unit Fund as stipulated in clause 1 above must be consistent with the periodical times for valuation of one unit in a Unit Fund by the enterprise, and notification must be conducted on the next business day after a valuation day.

Chapter IV

ESTABLISHMENT AND MANAGEMENT OF UNIT FUNDS

Article 17. Unit Funds

1. An insurer must establish a minimum of two Unit Funds with different investment objectives for each unit linked insurance product.

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3. An insurer must ensure that the total value of Unit Funds is not less than one hundred (100) billion dong within a time-limit of sixty (60) days from the date of entering into the first unit linked insurance contract.

4. If the premiums allocated to any one Unit Fund are not capable of satisfying the condition stipulated in clause 3 above, the insurer must use a part of the owners' fund in order to form initial assets of the Unit Fund, and the owners' fund shall be entitled to the investment results corresponding to the amount of money contributed to establish such Fund. The insurer may be refunded a part or the entire sum as contributed if such refund still ensures that the condition stipulated in clause 3 will be satisfied.

5. Unit Funds shall be managed and must use investments in conformity with the financial regime applicable to insurers.

6. Premiums and additional premiums, after deducting the initial fee, must be invested in conformity with the objectives of the Unit Fund within a time-limit of sixty (60) days from the date on which the insurer receives them.

7. An insurer must either establish a fund management company or entrust management of its Unit Funds to a fund management company which is legally established and operating in Vietnam.

Article 18. Objectives of Unit Funds

1. The operational objectives of any one Unit Fund must be specified clearly and in detail, in order to enable an insurance purchaser to objectively assess the operational status of such Fund and the nature of the assets within such Fund and the risks which the Fund may meet.

2. An insurer must ensure that Unit Funds make investments which are consistent with the objectives as announced and that they comply with the investment restrictions stipulated by law and by article 19 of these Regulations.

3. The objectives and manner of allocation of investment assets by Unit Funds must be notified in a complete and clear manner in the data introducing the insurance product and the insurance contract.

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1. A Unit Fund shall not be permitted to invest in more than fifteen (15) per cent of the total value of currently circulating securities of one issuing organization, except for Government bonds.

2. A Unit Fund shall not be permitted to invest more than twenty (20) per cent of its total asset value in the currently circulating securities of one issuing organization, except for Government bonds.

3. A Unit Fund shall not be permitted to invest more than ten (10) per cent of its total asset value in real estate.

4. A Unit Fund shall not be permitted to invest more than thirty (30) per cent of its total asset value in companies within the one Group or within the one group of companies with a mutual ownership relationship.

5. The investment structure of a Unit Fund may fluctuate [from the above provisions] but it must not fluctuate by more than fifteen (15) per cent of all the investment restrictions stipulated from clauses 1 to 4 of this article. Any such fluctuation must be the result of the increase or reduction of market value of investment assets and of legal payments of such Unit Fund. If such a situation arises, a Unit Fund shall not be permitted to invest in assets which make up the above-mentioned fluctuations, and the insurer must amend its investment portfolio so as to ensure that it complies with the restrictions on investment stipulated in this article within a time-limit of three (3) months from the date the fluctuation arose.

An insurer must notify the Ministry of Finance and also provide information to policyholders about the reasons for the above-mentioned fluctuations, about remedial action, and about the results of taking such remedial action.

Article 20. Fixing the selling price and purchase price of units in Unit Funds

1. The selling price and the purchase price of one unit in a Unit Fund shall be fixed on the basis of the net asset value of one unit in the Fund on the next valuation day after the insurer receives a request to purchase or sell units in such Fund. The difference between the selling price and the purchase price of a unit in a Fund shall not exceed five (5) per cent of the selling price.

The net asset value of one unit in a Unit Fund shall be equal to the total market value of the assets which such Fund has, less all relevant debts divided by the total number of units in such Fund.

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Article 21. Valuation of Unit Funds

1. An insurer must conduct a valuation, in accordance with market values, of the assets in a Unit Fund on a periodical basis of at least once per week.

2. A determination of the net asset value of a Unit Fund must comply with the principles stipulated in article 17 of the Regulations of establishment and management of securities investment funds issued with Decision 45/2007/QD-BTC of the Minister of Finance dated 5 June 2007. The provisions requiring approval from the custodian bank shall be replaced by a requirement for approval by a professional valuer legally established and operating in Vietnam.

Chapter V

SOLVENCY AND PROFESSIONAL RESERVES

Article 22. Solvency

1. An insurer must constantly maintain solvency as stipulated by law.

2. The minimum solvency margin applicable to unit linked insurance policies shall be equal to 1.5% of professional reserves plus 0.3% of risk-bearing insured sums.

3. The solvency margin of an insurer must be two hundred (200) billion dong more than the minimum solvency margin.

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1. An insurer must establish the following professional reserves:

(a) A risk insurance reserve which shall be the higher amount as between reserving by the unearned premium reserve method or by the cashflow reserve method in order to cover all expenses arising in the future during the entire term of a policy.

(b) An indemnity reserve which shall be established by reserving an amount for each file on the basis of the statistics of the insured sum payable on each file for which a claim has been made on the insurer but which remains unsettled at the expiry of the financial year.

(c) A reserve for the unit linked component, being the total of:

(i)The total number of investment units of the policyholder on valuation day multiplied by the purchase price of one unit on valuation day;

(ii) The total amount of premiums received from the policyholder on valuation day after deducting fees calculated and payable by such policyholder and where the residual sum used in order to purchase units has not yet been spent;

(d) A resilience reserve3 used to ensure the insurer will be able to meet commitments made in insurance contracts to policyholders when the investment market undergoes large fluctuations.

2. The insurer's appointed actuary shall be responsible to determine the methods, bases and data for reserving in order to constantly ensure that the undertakings made to policyholders will be discharged in accordance with actuarial principles and methods which are widely recognized in international practice.

Chapter VI

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Article 24. Analysis of client needs

1. Prior to entering into a contract with a client, an insurer must conduct an analysis of the client's needs in order to advise the client on the insurance product and the assured sum appropriate for the current financial status and future financial requirements of the client

2. An insurer must formulate a standard form for analysis of client needs and a set of questions aimed at assessing the level at which the client is able to accept investment risks. On the basis of the information provided by the client when it answers such questions, the insurer must determine the level of risks which the client is able to accept, and formulate at least five client categories as follows:

- Category 1: Cautious investments;

- Category 2: Relatively cautious investments;

- Category 3: Balanced investments;

- Category 4: Relatively speculative investments; and

- Category 5: Speculative investments.

A client must sign the document assessing the level of risks which he or she is able to bear during investments.

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Article 25. Requirements applicable to insurance agency

1. In order to underwrite unit linked insurance, an insurer must recruit insurance agents who satisfy all the following conditions:

(a) The agent must have at least one year's experience operating as an insurance agent;

(b) The agent must not have breached the professional ethics for agents provided by an insurer during the course of practising as an insurance agent.

2. An insurance agent who is recruited must undertake training on the unit linked insurance product for a minimum of forty-five (45) hours, and the insurer must have issued the insurance agent with a certificate of having completed such course before the agent may commence to sell the product.

3. An insurer shall be wholly liable for errors committed by an insurance agent resulting in loss and damage to the legal rights and interests of policyholders. An insurance agent shall be liable to refund to the insurer any sum of moneys which the insurer has paid to a policyholder as a result of fault of the insurance agent.

Article 26. Insurance commission

Insurance commission payable on a unit linked insurance product shall be implemented in accordance with the law on the maximum rate of commission which an insurer is permitted to pay to an insurance agent for each insurance contract as stipulated in Appendix 3 issued with these Regulations.

Chapter VII

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Article 27. Approval of insurance products

1. The Ministry of Finance must approve a unit linked insurance product prior to an insurer commencing to underwrite such product.

2. An application file requesting approval of a unit linked insurance product shall be prepared in accordance with law and must enclose a plan on underwriting such product with the following data:

(a). Summary of the main contents of the unit linked insurance product which it is proposed to underwrite;

(b) Investment policy which the insurer proposes to apply to assets in the Unit Funds;

(c) Basis for allocation of premiums and fees between Unit Funds;

(d) Contents of the training program for insurance agents on the unit linked insurance product which it is proposed to underwrite;

(dd) Information about the appointed actuary and about outside investment experts and other outside consultants;

(e) Information about the academic qualifications, professional skills and experience of the staff who will be responsible for managing the Unit Funds;

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Article 28. Obligations of insurers

1. An insurer conducting unit linked insurance business must comply with these Regulations and the provisions of other relevant laws.

2. Based on these Regulations and other relevant laws, an insurer shall issue its professional Rules on underwriting unit linked insurance consistent with its own conditions, special characteristics and operational charter.

3. An insurer must formulate a consolidated report on unit linked insurance business conducted by it and report same to the Ministry of Finance in accordance with current regulations on the reporting and information regime. An insurer shall [also] be responsible to co-operate with the Ministry of Finance and report to the Ministry on the actual status of underwriting unit linked insurance at the request of the Ministry of Finance.

4. An insurer's appointed actuary shall be responsible to assess compliance by the insurer with these Regulations throughout the process of conducting unit linked insurance business. The assessment report of the appointed actuary must be forwarded to the Ministry of Finance within a time-limit of five (5) business days from the last day of any one month. If the appointed actuary discovers any error on the part of the insurer, he or she must report same to the Ministry of Finance with a time-limit of three (3) working days from the date of discovery of such error or breach.

Article 29. Dealing with breaches

Any insurer, insurance agent or related organization or individual who breaches the provisions in these Regulations shall be dealt with in accordance with law.

Article 30. Supervision by the Ministry of Finance

1. Insurers, insurance agents and related organizations and individuals shall be subject to supervision by the Ministry of Finance in accordance with law during the entire process of conducting unit linked insurance business.

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FOR THE MINISTER OF FINANCE
DEPUTY MINISTER




Tran Xuan Ha