Below are key requirements and procedures for setting up a joint venture life insurance (JV) in form of a limited liability company (LLC) between a foreign insurer and a local partner. This post is contributed by Mai Chi, a VILAF trainee.
Pre-licensing - Conditions applicable to all investors
Both the local partner and the foreign insurer must satisfy certain conditions when applying for setting up the JV as a LLC including the following:
- the local partner and the foreign insurer must use their own equity capital to contribute to the charter capital of the JV and must not use loan or entrusted capital from other entities to contribute to the charter capital of the JV;
- the equity capital of the local partner and the foreign insurer after deducting long term investment funded by equity capital must be greater than the amount of capital proposed to be contributed to the JV in the year preceding the year in which the application for establishing the JV is submitted;
- if each of the local partner and the foreign insurer holds 10% or more charter capital in the JV then, the business operation of the local partner and the foreign insurer must have been profitable and has no accumulated loss in the three consecutive financial years prior to the year in which the application for establishing the JV is submitted;
- the equity capital of the local partner and the foreign insurer must be at least equal to VND 600 billion; and
- the amount of capital contributed by the local partner and the foreign insurer must not exceed 25% of the equity capital of the local partner and the foreign insurer respectively.
In addition to the common conditions, the local partner and the foreign insurer must also satisfy other separate conditions when applying for setting up the JV as a LLC.
Pre-licensing - Conditions applicable to the foreign insurer
A foreign insurer must satisfy the following conditions when applying for setting up the JV as a LLC:
- it must be permitted by the regulator in the country where the foreign insurer is headquartered to set up the JV in Vietnam with the proposed scope of operation of the JV;
- it must have been lawfully operating under the laws of the country where the foreign insurer is headquartered for at least 10 years prior to submission of the application to set up the JV;
- its total assets must be at least US$2 billion in the year preceding the year in which the application for setting the JV is submitted;
- it has not committed any serious violation of insurance laws and other laws in its home country for at least three years before the year in which the application for setting the JV is submitted; and
- it must comply with all prudential ratios applicable to it.
Pre-licensing - Conditions applicable to the local partner
The local partner must satisfy the following conditions when applying for setting up the JV as a LLC:
- it must be a bank, an insurance company or a finance company;
- it must have total assets of at least VND 1,500 billion; and
- it must comply with all prudential ratios applicable to it.
Pre-licensing - Charter Capital
In order to provide life insurance policies and health insurance policies, the JV’s paid-up charter capital must be not less than VND 600 billion at all times and must be put into an escrow account when applying to set up the JV. If the JV wishes to provide pension insurance and investment-linked insurance then the charter capital of the JV must be not less than VND 1,000 billionand VND 800 billion respectively.
Pre-licensing: Other requirements
When applying for setting up the JV, the foreign insurer and the local partner must also include in the application file the following:
- Proposed insurance products including rules, clauses and conditions, premium rates and commission rates; formula, method and explanation of technical bases used to calculate premiums of insurance products proposed to be underwritten;
- Business plan for the first five years of the JV
- Proposed internal rules including internal control rules; procedures for researching and developing of insurance product, underwriting, assessment, compensation; financial rules and investment rules;
- Proposed method of calculating and establishing reserves including mathematical reserve; unearned premium reserve; indemnity reserve; interest sharing reserve; and balance reserve;
- Projected solvency margin which is determined by the difference between the total asset value and outstanding liabilities and must not be less than the minimum solvency level. The minimum solvency level for the JV as a life insurer is: (1) 4% of the reserve fund plus (2) either 0.1% of the sums insured carrying risks in the insurance contracts with term of five years or less; or 0.3% of the sums insured carrying risks in the longer term contracts); and
- Evidence on the qualifications of that the proposed managers and executives of the JV. The managers and executives of the JV. A manager of the JV should satisfy the following common standards, among other things: (1) he/she has not been subject to criminal penalty and does not relate to any ongoing criminal investigation; (2) he/she has not served as the legal representative of a bankrupt enterprise; (3) he/she is not a manager of an insurer whose operation license is revoked due to violation in insurance business activities; and (4) in the three consecutive years before being appointed, he/she has not been subject to certain administrative sanction intheinsurancebusiness sector or has not been fired from his/her management positions due to violation internal rules of an insurer.
To set up the JV, the foreign insurer and the local partner must apply for an Establishment and Operating Licence (Operating Licence) from the Ministry of Finance (MOF). The application for the Operating Licence in general must include documents evidencing the foreign insurer and the local partner’s satisfaction of the pre-licensing conditions discussed above. At law, the MOF has 60 days after it receives the full application documents to review the application and decide whether to issue the Operating Licence for the JV.
Within 12 months after obtaining the Operating Licence, the JV is required to complete various key post licensing procedures and to officially commence its operation as follows:
- Public announcement - Within 30 days after the date of the Operating Licence, the JV must make public announcement about its incorporation;
- Appointment of officers and managers - Subject to approval by the MOF, within 30 days from the date of the Operational Licence, the JV must complete procedures to appoint Chairman of the Members’ Council, the General Director and Appointed Actuary;
- Deposit - Within 60 days after the date of the Operational Licence, the JV must deposit VND 12 billion from its paid up capital into an escrow account opened at a licensed bank in Vietnam. The JV may only use the deposit to fulfill its commitments towards insurance buyers when their solvency falls short, and such use must be approved in writing by the MOF;
- Contributing charter capital - Within 12 months from the date of the Operating Licence, the foreign insurer and the local partner must transfer the funds that has been put into the escrow account at the time of applying for the Operating Licence to the JV’s bank account to contribute charter capital of the JV;
- Operational approvals from MOF - Within 12 months from the date of the Operating Licence, the JV must obtain approvals from the MOF on: (a) the method for establishing insurance reserves; (b) insurance products which it is proposed to provide; and (c) the method for separating funds and distributing any surplus between the owners' fund and policyholders fund involved in distribution of profit;
- Issuing internal rules - Within 12 months from the date of the Operating Licence, the JV must issue internal rules on underwriting, assessment, paying compensation, internal control, financial and investment management;
- Setting up necessary infrastructure - Within 12 months from the date of the Operating Licence, the JV must set up infrastructure system, equipment and software of information technology which satisfy the requirements for corporate governance and state management of insurance business activities; and
- Other general corporate tasks - The JV must carry out the following general corporate tasks including (a) obtaining a corporate seal; and (b) registering for a tax identification number.