Circular No. 52/2016/TT-BTC dated March 21, 2016 of the Ministry of Finance guiding the implementation of universal life insurance products

                                   CIRCULAR  

Guiding the provision of universal life insurance products[1]

Pursuant to December 9, 2000 Law No. 24/2000/QH10 on Insurance Business;

Pursuant to November 24, 2010 Law No. 61/2010/QH12 Amending and Supplementing a Number of Articles of the Law on Insurance Business;

Pursuant to the Government’s Decree No. 45/2007/ND-CP of March 27, 2007, detailing a number of articles of the Law on Insurance Business;

Pursuant to the Government’s Decree No. 215/2013/ND-CP of December 23, 2013, defining the functions, tasks, powers and organizational structure of the Ministry of Finance;

At the proposal of the Director of the Insurance Supervisory Authority,

The Minister of Finance promulgates the Circular guiding the provision of universal life insurance products.

Chapter I

GENERAL PROVISIONS

Article 1. Scope of regulation and subjects of application

1. This Circular guides the provision of universal life insurance products in the investment-linked insurance operation.

2. This Circular applies to life insurance businesses (below referred to as insurers), insurance agents, insurance buyers and organizations and individuals involved in the provision of universal life insurance products in the territory of the Socialist Republic of Vietnam.

Article 2. Characteristics of universal life insurance products

1. Risk insurance component and investment component in the premium structure and insurance benefits shall be separated. Insurance buyers have multi-choices in the determination of insurance premiums and insurance sums as agreed upon in insurance policies.

2. Insurance buyers may enjoy all yields from investment of the universal life fund of insurers which must not be lower than the minimum investment ratio committed by insurers in insurance policies.

3. Insurers may enjoy premiums paid by insurance buyers as agreed upon in insurance policies.

Article 3. Universal life fund     

Universal life fund is a fund formed from premiums of universal life insurance policies and belongs to the insurance policyholders’ fund. Assets of the universal life fund may not be divided but shall be determined for all universal life insurance policies.

Article 4. Conditions on insurers providing universal life insurance products     

To provide universal life insurance products, an insurer must satisfy the following conditions:

1. Its solvency margin is at least VND 100 billion larger than the minimum solvency margin.

2. It has an appropriate information technology system to manage and control the universal life fund in a prudent and efficient manner.

3. Its universal life insurance product is approved by the Ministry of Finance under Article 20 of this Circular.

Chapter II

SPECIFIC PROVISIONS

Section 1

DESIGN OF PRODUCTS

Article 5. Universal life insurance benefits

1. Insurance benefits under universal life policies include risk insurance benefit and investment benefit.

2. Risk insurance benefit:

a/ An insurer and an insurance buyer may agree on the risk insurance benefit but shall ensure that the minimum insurance sum is not lower than five times the first year’s premium amount for multiple-premium policies, or is not lower than 125% of the total premium amount for single-premium policies;

b/ The provision on the minimum benefit in case of death is not applicable to additionally paid premiums specified in Article 7 of this Circular;

c/ Insurers may provide insurance products to complement universal life insurance products. Methods of premium payment for complementary insurance products shall be agreed upon by parties when entering into insurance policies.

3. Investment benefit: Insurance buyers benefit from yields from investment of the universal life fund at the minimum investment ratio stated in insurance policies.

4. An insurer and an insurance buyer may agree on the content and method of payment of insurance benefits upon the occurrence of insured events under Clauses 2 and 3 of this Article.

Article 6. Premiums      

1. Insurers may only compute premiums specified below:

a/ Initial premium, which means money amounts insurers may credit before they are allocated into the universal life fund;

b/ Risk insurance premium, which means a premium to pay the risk insurance benefit as committed in the insurance policy;

c/ Insurance policy management premium, which means a premium to cover expenses related to the maintenance of the insurance policy and provision of information about the insurance policy to the insurance buyer;

d/ Fund management premium, which is used to pay for investment and management of the universal life fund. In any circumstances, the investment ratio payable to the insurance buyer must not be lower than the minimum investment ratio committed in the insurance policy;

dd/ Insurance policy cancellation premium, which means a premium computed for the client that cancels the policy before the maturity date to cover related reasonable expenses;

e/ Other premiums (if any), which shall be approved in writing by the Ministry of Finance.

2. Insurers shall compute the above premiums in an accurate, fair and reasonable manner to ensure their conformity with technical bases of products approved and notified by the Ministry of Finance to insurance buyers upon entry into insurance policies.

3. Universal life insurance policies must clearly state the above premiums, including the maximum premium levels applicable to insurance buyers. Insurers shall clearly and fully state premiums and maximum premium levels applicable to insurance buyers in product introduction brochures and sale demonstration sheets.

4. In the course of policy performance and within the maximum levels stated in insurance policies, insurers may change percentage of applied premiums after notifying such to, and reaching agreement in writing with, insurance buyers at least three (3) months before officially effecting the change.

Article 7. Additionally paid premiums         

1. In addition to premiums agreed upon in insurance policies, insurance buyers may additionally pay premiums in order to contribute to the universal life fund.

2. All additionally paid premiums shall be invested in the universal life fund after subtracting an initial premium.

3. For every year of the policy term, the total additionally paid premium amount must not exceed five (5) times the first year’s premium for multiple-premium policies or must not exceed 50 percent of the initial premium for single-premium policies.

Article 8. Cash surrender value 

The cash surrender value of a universal life insurance policy shall be determined to be the value of such policy in the universal life fund on the date of policy cancellation minus the policy cancellation premium.

Article 9. Setting up and management of the universal life fund

1. Insurers shall set up a universal life fund for all of their universal life insurance policies. The universal life fund shall be separated from the owner fund and other policyholder funds of insurers.

2. Within 60 days from the date the first universal life insurance policy is entered into, an insurer shall ensure that the total value of the universal life fund is always not lower than VND 50 billion.

3. In case premiums allocated into the universal life fund cannot satisfy the condition prescribed in Clause 2 of this Article, an insurer shall use part of its owner fund to form initial assets of the universal life fund and may enjoy the investment yield in proportion to the money amount it has contributed to the universal life fund. The insurer may get part or the whole of the contributed amount refunded provided it satisfies the condition prescribed in Clause 2 of this Article.

4. The universal life fund shall be managed and used for investment in conformity with the financial regime applicable to insurers.

5. Premiums and additionally paid premiums, after subtracting initial premiums, shall be invested to achieve the objectives of the universal life fund within 60 days from the date the insurer receives premiums.

Section 2

RESPONSIBILITY OF INSURERS TO DISCLOSE INFORMATION   

Article 10. Information about universal life insurance

1. Insurers shall disclose information about the signed universal life insurance policies to insurance buyers in an accurate, adequate and prompt manner. Information provided to insurance buyers must be consistent to universal life insurance products approved by the Ministry of Finance.

2. Insurance buyers may request insurers to provide adequate information and explain insurance terms and clauses in order to identify related risks when entering into universal life insurance policies.

3. Insurers shall publicize on their websites the following:

a/ Rules and clauses of insurance products approved by the Ministry of Finance;

b/ Product introduction brochures;

c/ Sales sheets demonstrating typical cases;

d/ Information about operation of the universal life fund.

Article 11. Product introduction brochures

A product introduction brochure compiled and used by an insurer must comply with law and the following regulations:

1. Its information must be accurate, objective, adequate and true to universal life insurance products approved by the Ministry of Finance.

2. In addition to general information required for life insurance, it must at least contain the following information:

a/ Policy, objectives and structure of asset investment of the universal life fund;

b/ Rates and maximum levels of the initial premium, risk insurance premium, policy management premium, universal life fund management premium, policy cancellation premium and other premiums;

c/ The minimum investment rate committed with the insurance buyer for the premium amount allocated for investment in the universal life fund;

d/ Bases and period for determination of investment benefits of the insurance policy from the universal life fund;

dd/ Clear information provided to the insurance buyer that the signed universal life insurance policy is a long-term commitment and the insurance buyer should not cancel the insurance policy for the reason that premiums payable by the insurance buyer might be very high in the initial period of the policy.

Article 12. Sales demonstration sheets   

Sales demonstration sheets must satisfy the conditions prescribed by law and the following conditions:

1. Sales demonstration sheets for a universal life insurance product shall be provided to clients before entering into insurance policies and at least have the information details specified in Appendix I to this Circular.

2. Insurers shall clearly explain client benefits receivable by insurance buyers when entering into insurance policies, including risk insurance benefits and benefits from the universal life fund.

3. Premiums and maximum amounts payable by insurance buyers shall be clearly demonstrated on the basis of separating insurance premiums for risk insurance benefits and other premiums.

4. In case a universal life insurance policy provides a complementary insurance benefit, the insurer shall clearly explain in the sales demonstration sheets such complementary insurance benefit and its impact on the insurance buyer.

5. Sales demonstration sheets shall be clearly and understandably presented.

Article 13. Insurance policies       

A universal life insurance policy must comply with law and fully contain the following information:

1. Policy, objectives and structure of asset investment of the universal life fund;

2. Rates, specific amounts and maximum levels of premiums related to the universal life insurance policy computed for the client;

3. Ratio of premiums allocated for investment in the universal life fund;

4. Method of determining investment benefits from the universal life fund;

5. Choices for the insurance buyer to change risk insurance benefits, ratio of premiums allocated to the universal life fund and extended deadline for insurance premium payment.

Article 14. Notification of the policy status to insurance buyers

Within 90 days after the end of a fiscal year or policy year, an insurer shall notify in writing an insurance buyer of the following:

1. The insurance policy status, including the following information:

a/ Risk insurance benefits;

b/ Cash surrender value at the beginning of the reporting year;

c/ Cash surrender value at the end of the reporting year;     

d/ Premiums paid in the year, including risk insurance premium and other premiums;

dd/ Total premium amount paid and premium amount allocated to the universal life fund in the reporting year;

e/ Yield and ratio of investment from premiums invested in the universal life fund.

2. Operation result of the universal life fund, including the following information:

a/ Summary information about the financial status of the universal life fund, as specified in Appendix II to this Circular;

b/ Operation of the universal life fund in the last five (5) years or the actual existence period of the fund in case the fund has operated for less than five (5) years;

c/ Detailed information about investment benefits divided and expected to be divided to the insurance buyer in the reporting year;

d/ Certification by an independent audit firm of the above information.

Section 3

SOLVENCY AND PROFESSIONAL OPERATION RESERVES

Article 15. Solvency

1. Insurers shall always maintain their solvency as prescribed by law.

2. The minimum solvency margin for universal life insurance policies is equal to 4% of the professional operation reserves plus 0.3% of risk insurance sum.

3. The solvency margin of insurers must be at least VND 100 billion higher than the minimum solvency margin.

Article 16. Setting aside of professional operation reserves 

1. An insurer shall set aside the following professional operation reserves:

a/ Insured risk reserve, which means the amount computed by the unearned premium method or that computed by the cash-flow method, whichever is larger, to cover all future expenses throughout the policy term.

Of which, the reserve computed by the unearned premium method is equal to 100% of the risk insurance premium collected under the universal life policy;

b/ Indemnity reserve, which shall be set aside by claim file-based method at a level computed on the basis of statistics on insurance sum payable for each file claiming indemnity from the insurer which remains unsettled at the end of the fiscal year;

c/ Professional operation reserve for the universal life part shall be set aside based on:

- Cash surrender value of the universal life insurance policy; or,

- Account value of the universal life insurance policy.

Insurers shall assess and select method of setting aside the professional operation reserve for the universal life part in order to secure liabilities committed in insurance policies.

Insurers may not change the method and bases for setting aside professional operation reserves during a fiscal year. If wishing to change the method and bases for setting aside professional operation reserves for the next fiscal year, an insurer shall ensure a higher reserve and obtain written approval of the Ministry of Finance before effecting it under the Minister of Finance’s Circular No. 125/2012/TT-BTC of July 30, 2012, Circular No. 194/2014/TT-BTC of December 17, 2014, and legal documents amending, supplementing or replacing these circulars;

d/ Resilience reserve, which is used to secure insurers’ commitments towards clients as agreed upon in insurance policies when the investment market sees a big fluctuation.

2. Computing experts of insurers shall determine methods of setting aside, bases for determination and data of professional operation reserves in order to always secure commitments toward insurance buyers in accordance with the internationally accredited principles and computing methods.

Section 4

ANALYSIS OF CLIENT NEEDS, REQUIREMENTS ON INSURANCE AGENTS AND INSURANCE COMMISSIONS

Article 17. Analysis of client needs

Before entering into insurance policies with clients, insurers shall analyze client needs and obtain clients’ certification of their clear understanding of insurance products they are expected to buy and their clear perception of insurance benefits, investment benefits and investment risks they may encounter when participating in universal life insurance products and premiums computed by insurers for clients.

Article 18. Requirements on insurance agents

An insurance agent that provides a universal life insurance product must satisfy the following conditions:

1. Having committed no violation of the regulations on insurance agency and the code of professional ethics of insurance agents prescribed by the insurer.

2. Having been trained and certified by the insurer as having completed the training course on universal life insurance products.

3. Having at least three (3) months’ experience in insurance agency operation or at least one (1) year’s working experience in the finance, banking or insurance field or possessing a college or higher degree in the finance, banking or insurance field.

Article 19. Insurance commissions   

Insurance commissions for universal life insurance products must comply with relevant regulations with the maximum commission percentage which insurers may pay to insurance agents for each insurance policy specified in Appendix III to this Circular.

Section 5

OTHER PROVISIONS

Article 20. Approval of insurance products

1. Insurers shall have their universal life insurance products approved by the Ministry of Finance before providing them.

2. A dossier of request for approval of a universal life insurance product shall be made in accordance with law and enclosed with a plan on provision of this product, and must comprise:

a/ Summary principal contents of the universal life insurance product to be provided;

b/ Investment policy expected to be applied by the insurer to assets of the universal life fund;

c/ Bases for allocation of insurance premiums and expenses;

d/ Contents of insurance agency training in the universal life insurance product to be provided;

dd/ Information about computing experts, investment experts and other hired consultancy services;

e/ Information about professional qualifications, capacity and experience of officers in charge of investment;

g/ Written commitments enclosed with detailed explanations about the insurer’s satisfaction of the conditions prescribed in Article 4 of this Circular.

Article 21. Obligations of insurers     

1. To comply with this Circular and other relevant regulations.

2. To promulgate professional processes for providing universal life insurance products suitable to conditions, characteristics and operation charters of insurers.

3. To summarize and report on the provision of universal life insurance products in accordance with current law.

4. Annually, computing experts of insurers shall assess the compliance with this Circular by insurers in the course of provision of universal life insurance products.

Chapter III

EFFECT

Article 22. Effect

1. This Circular takes effect on June 1, 2016.

2. This Circular replaces the Minister of Finance’s Decision No. 96/2007/QD-BTC of November 23, 2007, promulgating the Regulation on provision of universal life insurance products.

3. Any difficulties or problems arising in the course of implementation of this Circular should be immediately reported to the Ministry of Finance for consideration and settlement.-

For the Minister of Finance
Deputy Minister
TRAN XUAN HA