Vietnamese insurers permitted to issue surety bonds

Under Decree 68/2014, a Vietnamese non-life insurance company may now issue a “guarantee insurance” (bảo hiểm bảo lãnh) to guarantee contractual obligations of its customers in favour of a third party. The customer will need to pay insurance premium to the insurance company for the guarantee insurance. Thereafter, if the customer fails to perform the guaranteed obligations then the insurance company must perform the guaranteed obligations and will have a right to require reimbursement from the customer. In essence, a guarantee insurance is not a traditional insurance product but is similar to a surety bond or a bank guarantee. So for the first time, insurance companies will be competing with banks in performance bonds and guarantee market. This must be an important product for some non-life insurance companies in Vietnam as the whole Decree 68/2014 is all about definition of guarantee insurance.