Decision No. 96/2007/QD-BTC dated November 23, 2007 of the Ministry of Finance promulgating the Regulation on provision of the universal life insurance product

DECISION

PROMULGATING THE REGULATION ON PROVISION OF THE UNIVERSAL LIFE INSURANCE PRODUCT

THE MINISTER OF FINANCE

Pursuant to the December 9, 2000 Law on Insurance Business;

Pursuant to the Government's Decree No. 45/ 2000/ND-CP of March 27, 2007, guiding the implementation of a number of articles ofthe Law on Insurance Business;

Pursuant to the Government's Decree No. 46/ 2007/ND-CP of March 27,2007, providing financial regulations applicable to insurance enterprises and insurance brokerage businesses;

Pursuant to the Government's Decree No. 77/ 2003/ND-CP of July 1, 2003, defining the Junctions, tasks, powers and organizational structure of the Ministry of Finance;

At the proposal of the Director of the Insurance Department,

DECIDES:

Article 1.- To promulgate together with this Decision the Regulation on provision of the universal life insurance product in the operation of investment-linked insurance.

Article 2.-This Decision takes effect 15 days after its publication in "CONG BAO."

ON PROVISION OF THE UNIVERSAL LIFE INSURANCE PRODUCT

Article 3.- The Director of the Office and the Director of the Insurance Department of the Ministry of Finance, the Chairman of the Stale Securities Commission, life insurance enterprises, concerned organizations, individuals and parties shall implcment this Decision.

REGULATION

ON PROVISION OF THE UNIVERSAL LIFE INSURANCE PRODUCT
(Promulgated together with the Ministry of Finance's Decision No. 96/2007/QD-BTC of November 23, 2007)

Chapter 1

GENERAL PROVISIONS

Article 1.- Scope of regulation

This Regulation provides for the provision of the universal life insurance product by life insurance enterprises and concerned organizations and individuals in the territory of the Socialist Republic of Vietnam.

Article 2.- Characteristics of the universal life insurance product

Universal life insurance means a life insurance product in the operation of investment-linked insurance and characterized by the following:

1. Separation between risk insurance and investment in the structure of insurance premiums and benefits. Insurance buyers may flexibly determine insurance premiums and insurance sums as agreed upon in insurance policies.

2. Insurance buyers enjoy all investment yields brought about by the universal life fund of insurance enterprises at a rate not lower than the minimum investment ratio committed by insurance enterprises in insurance policies.

3. Insurance enterprises enjoy charges paid by insurance buyers as agreed in insurance policies.

Article.3.- Universal life fund

A universal life fund is raised from insurance premiums paid under universal life insurance policies and constitutes part of the policy holder fund. Assets of a uni versal life fund are undi vidable and commonly determined for all universalized insurance policies.

Article 4.- Conditions on insurance enterprises providing universal life insurance

When providing universal life insurance, a life insurance enterprise must satisfy the following conditions:

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

2. It has an information technology system suitable for managing and controlling the universal life fund in a pnident and efficient manner.

3. Insurance agents selling universal life insurance it has recruited, trained and employed satisfy the qualification requirements specified in Article 19 of this Regulation.

4. The universal life insurance product is approved by the Ministry of Finance.

Chapter 2

PRODUCT DESIGNING

Article 5.- Universal life insurance product

When designing the universal life insurance product, life insurance enterprises shall comply with the provisions of this Chapter and relevant legal provisions.

Article 6.- Universal life insurance benefits

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

2. Risk insurance benefit:

a/ Insurance enterprises and insurance buyers may agree on the benefit of risk insurance but shall ensure that the minimum insurance sum is not smaller than five times the insurance premium paid in the first year, for insurance policies with periodical premium payments, or 125% of the lump-sum insurance premium.

b/ Provisions on the minimum benefit in case of death are not applicable to additionally paid insurance premiums specified in Article 8 of this Regulation.

c/ Insurance enterprises may provide insurance products supplementary to the universal life insurance product. The mode of payment of premiums for supplementary insurance products must be agreed by the parties when entering into a policy.

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

4. Insurance enterprises and insurance buyers may agree on insurance benefits and modes of payment of insurance benefits upon occurrence of insured events under Clauses 2 and 3 of this Article.

Article 7.- Charges

1. An insurance enterprise may only calculate the following kinds of charges:

a/ Initial charge which means the whole money amount the insurance enterprise is allowed to deduct before insurance premiums are distributed to the universal life fund.

b/ Risk insurance premium which means the premium used to pay the risk insurance benefit as committed in the insurance policy.

cl Insurance policy management charge which means a charge paid to cover expenses for maintenance of the insurance policy and supply of information on the insurance policy to the insurance buyer.

61 Fund management charge which is used to pay for activities of managing the universal life fund. In any case, the investment ratio at which payment are paid to the insurance buyer must not be lower than the minimum investment ratio committed in the insurance policy.

e/ Insurance policy cancellation charge which means a charge calculated to be incurred by the insurance client who cancels the policy ahead of the date of the policy maturity to cover related reasonable expenses.

Other charges (if any), which must be approved in writing by the Ministry of Finance.

2. Insurance enterprises shall calculate in an accurate, fair and reasonable manner the above charges to suit technical bases of the product already approved by the Ministry of Finance and notify insurance buyers thereof when entering into insurance policies.

3. Universal life insurance policies must clearly state the above charges, including also maximum charge levels to be applicable to insurance buyers. Insurance enterprises shall clearly and fully publicize kinds of charges and maximum charge levels applicable to insurance buyers in product introduction documents and sale explanation documents.

4. In the course of performance of an insurance policy and within the maximum levels stated in the policy, an insurance enterprise may change applicable charge rates after notifying to and reaching a written agreement with the insurance buyer at least three months in advance.

Article 8.- Additionally paid insurance premiums

1. Apart from insurance premiums already agreed in the insurance policy, the insurance buyer may pay additional insurance premiums for joining in the universal life fund.

2. The whole additionally paid premium will be invested in the universal life fund after subtracting an initial charge.

3. In a contract year, the total amount of additionally paid insurance premium must not exceed five times the insurance premium amount of the first year, for insurance policies with periodical premium payments,  or 50% of the initial insurance premium, for insurance policies with lump-sum premium payments.

Article 9.- Refundable value

The refundable value of a universal life insurance policy is determined to be the value of that policy in the universal life fund on the date of cancellation of the insurance policy minus the insurance policy cancellation charge.

Article 10.- Setting up and management of the universal life fund

1. An insurance enterprise shall set up a universal life fund for all its universal life insurance policies. The universal life fund must be separated from the owner fund and other policyholder funds of the enterprise.

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

3. If insurance premiums distributed to the universal life fund fail to meet the requirements specified in Clause 2 of this Article, the insurance enterprise shall use part of the owner fund to create initial assets of the universal life fund and may enjoy investment yields in proportion to the money amount it has contributed to setting up the universal life fund. The insurance enterprise may be refunded pan or the whole contributed money amount if the refund satisfies the requirements specified in Clause 2 of this Article.

4. The universal life fund shall be managed and used for investment in compliance with financial regulations applicable to insurance enterprises.

5. Insurance premiums and additionally paid insurance premiums, after subtracting initial charges, must be invested to achieve the objectives of the universal life fund within 60 days after the insurance business receives insurance premiums.

Chapter 3

RESPONSIBILITY OF INSURANCE ENTERPRISES TO DISCLOSE INFORMATION

Article 11.- Information on universal life insurance

1. Insurance enterprises shall disclose in an accurate, sufficient and prompt manner information on universal life insurance policies already entered into to insurance buyers. Information disclosed to insurance buyers must be with universal life insurance products already approved by the Ministry of Finance.

2. Insurance buyers may request insurance enterprises lo supply sufficient information and explain insurance terms and conditions in order to be aware of risks which may arise when entering into universal life insurance policies.

3. Insurance enterprises shall post on their websites the following documents:

a/ Rules and clauses concerning the insurance product approved by the Ministry of Finance; b/ Product introduction document;

c/ Sale explanation document featuring typical cases;

d/ Operation of the universal life fund.

Article 12.- Product introduction documents

Product introduction documents that are compiled and used by insurance enterprises must comply with legal provisions and the following regulations:

1. Information in a production introduction document must be accurate,  objective, sufficient, truthful and compatible with the universal life insurance product already approved by the Ministry of Finance.

2. Apart from general provisions applicable to life insurance, a universal life insurance introduction document must also contain at least the following information:

a/ Investment policy, objectives and portfolio of investment of the universal life fund's assets;

b/ Percentages and maximum levels of initial charge, risk insurance premium, policy management charge, universal life fund management charge, policy cancellation charge and other charges.

c/ The minimum investment interest rate committed to the insurance buyer for the part of insurance premium distributed to the universal life fund for investment;

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

e/ Explicit information to be notified to the insurance buyer that entry into a universal life insurance policy is a long-term commitment and the insurance buyer is advised not to cancel the insurance policy for the reason that premiums to be paid by the insurance buyer may be extremely high in the initial period of the policy.

Article 13.- Sale explanation documents

Sale explanation documents must comply with relevant legal provisions and the following regulations:

1. Sale explanation documents of universal life insurance products must be supplied to clients before they enter into insurance policies and must contain at least the information specified in Appendix I to this Regulation (not printed herein).

2. Insurance enterprises shall clearly explain to insurance buyers benefits they may receive from insurance policies they enter, including risk insurance benefit and benefit from the universal life fund.

3. Charges and maximum charge levels payable by insurance buyers must be clearly stated with the insurance premium for the risk insurance benefit separated from other charges.

4.4. If universal life insurance contracts contain supplementary insurance benefits, insurance enterprises shall clearly explain these benefits in sale explanation documents and their impacts on insurance buyers.

5. Sale explanation documents must be presented in a clear and comprehensible manner.

Article 14.- Insurance policies

A universal life insurance contract must be compliant with legal provisions and contain all the following information:

1. Investment policy, objectives and portfolio of investment of the universal life fund's assets;

2. Percentages, specific amounts and maximum levels of charges related to the universal life insurance contract calculated for the client;

3. Percentage of insurance premiums to be distributed to the universal life fund for investment;

4. Method of determining investment benefits brought about by the universal life fund;

5. Options for the insurance buyer to change the risk insurance benefit, the percentage of insurance premiums to be distributed to the universal life fund and the extended deadline for premium payment.

Article 15.- Notification to insurance buyers on the status of policies

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

1. Status of the insurance policy, including the following information:

a/ The risk insurance benefit;

b/ The value refunded at the beginning of the reporting year;

c/ The value refunded at the end of the reporting year;

d/ Charge amounts arising in the year, including risk insurance premiums and other charges;

e/ Total amount of paid insurance premiums and the insurance premium amount distributed to the universal life fund in the reporting year;

f/ Investment yields and investment ratio for the insurance premium amount invested in the universal life fund.

2. Results of operation of the universal life fund with the following contents:

a/ Brief information on the financial status of the universal life fund, made according to Appendix II to this Regulation (not printed herein);

b/ Operation of the universal life fund over the past five years or the actual duration of existence of the fund if the fund has operated for less than five years;

c/ Details of investment benefits already divided and planned to be divided to the insurance buyer in the reporting year;

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

Chapter 4

SOLVENCY AND PROFESSIONAL OPERATION RESERVES

Article 16.- Solvency

1. Insurance enterprises shall always maintain their solvency prescribed by law.

2. The minimum solvency margin for universal life insurance policies is equal to 4% of the professional operation reserve plus 03% of the risk insurance sum.

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

Article 17.- Setting up of professional operation reserves

1. An insurance enterprise shall set up the following professional operation reserves:

a/ Insurance risk reserve: Either of the reserve calculated by the unearned premium method or the reserve calculated by the cash flow method, whichever is larger, and used to cover all future expenses throughout the term of the policy.

b/ Indemnity reserve, which is set up upon each dossier at a level calculated on the basis of insurance sums to be paid to each dossier under which a claim for indemnity to be paid by the insurance business has been made but remains unsettled at the end of the fiscal year.

c/ Professional operation reserve for the universal life insurance part, which is the refundable value of the policy in the universal life fund. The refundable value of the universal life insurance policy must be consistent with that committed in the insurance policy.

d/ Resilience reserve, which is used to fulfill the insurance enterprise's commitments to the client as agreed in the insurance policy upon big changes in the insurance market.

2. Actuaries of insurance enterprises shall determine calculation methods, cases and figures of professional operation reserves in order to always ensure the fulfillment of their commitments to insurance buyers under the rules and calculation methods widely recognized according to international practice.

Chapter 5

ANALYSIS OF CLIENTS' NEEDS, CONDITIONS FOR INSURANCE AGENTS AND INSURANCE COMMISSIONS

Article 18.- Analysis of clients' needs

Before entering into an insurance policy, an insurance enterprise shall analyze needs of the potential client and obtain that client's certification of his/her understanding of the insurance product he/ she intends to buy, clear awareness about insurance benefits, investment benefits and investment risks he/ she may face after buying the universal life insurance product and charges calculated by the insurance enterprise to be paid by the client.

Article 19.- Requirements for insurance agents

1. To provide the universal life insurance product, an insurance enterprise shall ensure that it recruits insurance agents who satisfy the following conditions:

a/ Having at least six months' experience of acting as insurance agent or at least two years' experience of working in the financial, banking or insurance field or possessing college or higher-level diplomas in finance, banking or insurance;

b/ Committing no violation of the rules of professional ethics of insurance agents in the duration they act as insurance agents.

2. Insurance agents shall attend at least 24 hours' intensive training in the universal life insurance product and be granted training certificates by insurance enterprises before being permitted to sell universal life insurance.

3. Insurance enterprises shall bear full responsibility for mistakes and errors made by their agents which harm lawful rights and interests of insurance buyers. Insurance agents shall indemnify their insurance enterprises for money amounts which the latter have paid to insurance buyers due to their agents' faults.

Article 20.- Insurance commissions

Insurance commissions for the universal life insurance product shall comply with legal provisions and be paid at the maximum level applicable to commissions paid by insurance enterprises to their insurance agents for each insurance policy in accordance with the provisions of Appendix III to this Regulation (not printed herein).

Chapter 6

OTHER PROVISIONS

Article 21.- Approval of insurance products

1. Insurance enterprises must have their universal life insurance product approved by the Ministry of Finance before providing it.

2. A dossier of request for approval of the universal life insurance product must be made according to law and enclosed with a plan on provision of the universal life insurance product, and comprise the following:

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

b/ Investment policy which the insurance enterprise intends to apply to the universal life fund's assets;

c/ Basis for distribution of insurance premiums and expenses;

d/ Contents and program of training of insurance agents in the universal life insurance product intended to be provided;

tl Information on actuaries, investment experts and other consultants hired from outside;

f/ Information on professional qualifications, capacity and experience of personnel in charge of investment;

g/ A written commitment enclosed with a detailed explanation of the insurance enterprise's satisfaction of the conditions specified in Article 4 of this Regulation.

Article 22.- Obligations of insurance enterprises

1. Insurance enterprises providing the universal life insurance product shall comply with the provisions of this Regulation and other relevant provisions of law.

2. Based on this Regulation and relevant provisions of law, insurance enterprises shall promulgate professional processes for provision of the universal life insurance product suitable to their operation conditions, characteristics and charters.

3. Insurance enterprises shall sum up and report their operation of providing the universal life insurance product to the Ministry of Finance according to current reporting and information supply regulations. Insurance enterprises shall cooperate with and report to the Ministry of Finance on the actual situation of their provision of the universal life insurance product at the latter's request.

4. Annually, actuaries of insurance enterprises shall assess the observance of this Regulation by their insurance enterprises in the course of providing the universal life insurance product.

Article 23.- Transitional provisions

1. Within 60 days after this Regulation takes effect, insurance enterprises that are providing the universal life insurance product shall complete the procedures in compliance with the provisions of this Regulation.

2. For universal life insurance policies entered into before the effective date of this Regulation, insurance enterprises and insurance buyers shall comply with the provisions of law effective at the time of contract entry and agreements in such insurance policies. Insurance enterprises shall notify insurance buyers of the status of insurance policies according to the provisions of Article 15 of this Regulation.

Article 24.- Handling of violations

Insurance enterprises, insurance agents, concerned organizations and individuals that violate the provisions of this Regulation shall be handled under law.

Article 25.- Supervision by the Ministry of Finance

1. Insurance enterprises, insurance agents, concerned organizations and individuals-are subject to supervision by the Ministry of Finance to the course of providing the universal life insurance product under law.

2. The Insurance Department shall evaluate on a quarterly basis the provision of the universal life insurance product; coordinate with concerned units in proposing to the Minister of Finance amendments and supplements to this Regulation to make it suitable to reality.