Necessary Reform of Insurance Business Law in Vietnam After Its Accession to the World Trade Organization: Prudential Regulatory Aspects
Fordham Journal of Corporate & Financial Law
Vu Nhu Thang L.L.M. 0
0 Deputy Director, Legal Department , Ministry of Finance , Vietnam
Copyright c 2007 by the authors. Fordham Journal of Corporate & Financial Law is produced by The Berkeley Electronic Press (bepress). http://ir.lawnet.fordham.edu/jcfl
Vu Nhu Thang∗
In 1986 during the Sixth Congress of the Communist Party,
Vietnam launched a fundamental economic reform program, called doi
moi (Renovation), a turning point that marked the country’s transition
from a centrally-planned economy to a market-driven economy with a
socialist orientation. Key elements of this reform include (i)
stateowned enterprise reform and private sector development, (ii) external
trade and foreign investment, and (iii) liberalization of financial market.
Along with the domestic economic reform, at the bilateral level,
Vietnam has established and fostered economic relationships with other
countries with a view to facilitating foreign trade relations and
integration into the world economy. By 2003, Vietnam had entered into
seventy-two bilateral trade agreements and set up trade relations with
165 countries.1 At the regional level, an important landmark in
Vietnam’s integration was joining the Association of Southeast Asian
Nations in 1995 and the Asia-Pacific Economic Co-operation Forum in
1998. The road toward membership in the World Trade Organization
(WTO) has been marked by observatory status in the General
Agreement on Tariffs and Trade since June 1994. Vietnam became the
150th member of the WTO in 2007.
∗ L.LM (Queen Mary College, University of London), Deputy Director, Legal
Department, Ministry of Finance, Vietnam.
1. Symposium, Opportunities and Challenges for Vietnam in WTO Accession,
(2003), available at http://siteresources.worldbank.org/INTRANETTRADE/Resources
Concerning Vietnam’s insurance services sector, commitments to
liberalization of the domestic market under the market access and
national treatment principles of the General Agreement on Trade in
Services (GATS) require Vietnam to treat foreign insurance services and
suppliers no less favorably than domestic counterparts.2 Consequently,
equal treatment between domestic and foreign insurers in the provision
of services will put domestic insurers under pressure to restructure and
innovate corporate governance in order to enhance their efficiency. On
the other hand, the national treatment probably makes it difficult for
regulators to protect domestic insurance companies. This regulatory
equity also restrains administrative intervention in the domestic
insurance sector. In other words, it would eliminate regulatory discretion
Literature review shows that liberalization of services in general
and insurance services in particular require regulation, including
increasing the strength and quality of certain regulations, as well as
introducing new rules that facilitate transition to a more open system.3
A more liberal insurance sector, therefore, will require a more complex
and effective regulatory and supervisory framework. Under GATS,
Vietnam, nevertheless, is not limited in introducing prudential measures
for consumer protection and systemic concerns.4
Accordingly, this paper presents the necessity of enhancing
prudential regulation and supervision on insurance business operations
in Vietnam in order to protect the interests of consumers in the domestic
insurance market. Comparative analysis provides an appropriate
methodology. Experiences of the European Union (EU), the United
States (US), and Japan are employed to analyze current solvency
regulations in Vietnam because the US is the world largest insurance
market.5 The EU and Japan are the second largest insurance markets in
2. General Agreement on Trade in Services, Apr. 15, 1994, Marrakesh Agreement
Establishing the World Trade Organization [hereinafter WTO Agreement], Annex 1B,
Legal Instrument Result of the Uruguay Round [hereinafter GATS], art. XVI and XVII.
3. See MARKUS KRAJEWSKI, NATIONAL REGULATION AND TRADE LIBERALIZATION
IN SERVICES: THE LEGAL IMPACT OF THE GENERAL AGREEMENT ON TRADE IN SERVICES
(GATS) ON NATIONAL REGULATORY AUTONOMY 5 (2003); Carlo Gamberale & Aaditya
Mattoo, Development, Trade and the WTO - A Handbook, xi (Bernard Hoekman et al.
eds., World Bank, 2002); HAROLD D SKIPPER, JR., HARMONIZATION VERSUS
COMPETITION: INTERNATIONAL FINANCIAL MARKETS 3 (Claude E. Barfield ed., AEI
4. GATS, supra note 2, at Annex on Financial Services, para. 2.
5. WTO Secretariat, Trade Policy Review – The United States,
the world, just behind the US.6 In the case of the US, because the
insurance industry is regulated at the state level but not at the federal
level, model laws, which are developed by the National Association of
Insurance Commissioners (NAIC)7 and can be adopted by states, shall
be examined. Part II will provide a brief history of Vietnam’s insurance
services market and its regulations. Part III will present Vietnam’s
obligations and commitments in the field of insurance services under the
multilateral framework. The review of compliance with commitments
will be analyzed in Part IV. The necessity of future reforms of
prudential regulations in the insurance sector is discussed in detail in
Part V. Finally, with Part VI, this paper will conclude.
II. VIETNAM’S INSURANCE SECTOR AND REGULATORY DEVELOPMENT
A. Brief History of the Insurance Market
In the insurance sector, there are two important landmarks in the
legal environment after doi moi. The first is the governmental decree on
insurance, introduced in late 1993. The second legal landmark is the
first Law on Insurance Business (the “Vietnam Insurance Law”) passed
in 2000. Therefore, the trend of development of the insurance services
market in Vietnam might be divided into three stages: pre-1993,
19942000, and post-2001.
Three characteristics of Vietnam’s insurance sector before 1993
were (i) the state monopoly in supplying insurance services; (ii) the
modest role of the sector in the economy as a whole; and (iii) no
separate regulator and supervisor. The state-owned insurance company,
Vietnam Insurance Corporation, was established in 1964 in the North
under the Ministry of Finance (MOF) to provide cargo insurance, marine
hull insurance, and personal accident insurance.8 After the country’s
WT/TPR/S/160/Rev.1, at 95 ( Jun. 20, 2006).
6. WTO Secretariat, Trade Policy Review – European Communities, WT/TPR/
S/136, at 120 (Jun. 23, 2004).
7. NAIC, which was established in 1871, is an organization of the chief state
insurance regulatory officials with a view to coordinating supervision and regulation.
The coordinated activities include maintenance of database, analysis of financial
conditions of insurers, design of uniform statutory financial statements and accounting
rules for insurers. See INSURANCE SOLVENCY SUPERVISION: OECD COUNTRY PROFILES
295-96 (OECD, 2002).
8. Decision 179/CP dated Dec. 17, 1964 of the Prime Minister (Vietnam).
reunification, fifty-two insurance and reinsurance companies operating
in the South merged with the Vietnam Insurance Corporation in
19761977.9 Along with the economic development of the 1980s, several new
insurance services were supplied, such as personal accident, aviation
insurance, agriculture insurance, and insurance services to foreign direct
investment projects.10 In terms of foreign participation into the
domestic insurance market, there was only one insurance brokerage
company, which was set up in 1993 with wholly foreign ownership.
There were no life insurance services in this period. According to
Seibel, this was due to the high inflation rate and the scarcity of
longterm investment opportunities.11 The total insurance premiums written
accounted for 0.37 percent of the Gross Domestic Product (GDP) in
1993. 12 Concerning the regulatory and supervisory body, the Vietnam
Insurance Corporation conducted both insurance business activities and
the state management function over the sector until 1992. The Insurance
Division under the MOF was established in 1992 and separated from the
Vietnam Insurance Corporation in order to conduct regulatory and
supervisory functions over the insurance market.
The second period, from 1994 until 2000, experienced fundamental
changes in the domestic insurance market. The total insurance
premiums written in 2000 increased seven times since 1993. During this
period, the non-life insurance premiums doubled.13 The insurance
sector, therefore, played a clearer and more important role in economic
growth during this period. Compared to 1993, the total investment
capital from the insurance sector into the economy in 1999 increased
considerably by fifty-eight times.14 Life insurance services have been
supplied since 1996. Private sector and foreign access to the domestic
insurance market were permitted. By the end of 2000, there were three
domestic joint-stock, four state-owned, and nine foreign insurers in
Vietnam.15 Among foreign counterparts, Japanese insurers were the
9. Truong Moc Lam, Nganh kinh doanh bao hiem o Vietnam – Mot chang duong
[Vietnam Insurance Sector – A History], 2 TAP CHI BAO HIEM 1, 1 (2003).
11. HANS DIETER SEIBEL, THE MAKING OF A MARKET ECONOMY: MONETARY
REFORM, ECONOMIC TRANSFORMATION AND RURAL FINANCE IN VIETNAM 67 (1992).
12. Ministry of Finance, Thi Truong Bao Hiem Viet Nam Nam 2004 [Vietnam
Insurance Market 2004] at 6 (2005).
15. Id. at 19.
main players in 1996-1997, while European and American insurers were
dominant in 1999-2000.
In the third period, from 2001 to the present, Vietnam’s insurance
sector has recorded significant growth and expansion. The total
insurance premiums written amounted to 1.76 percent of GDP in 2005.
As of the end of 2005
, thirty-two insurance companies participated in
the domestic insurance market. In terms of ownership, there were
twelve companies with wholly foreign-owned capital, six joint-venture
companies, eleven domestically joint-stock companies, and three
stateowned insurers. The number of foreign insurers has doubled since 2000.
One of the main reasons for this growth is the implementation of trade
agreements between Vietnam and the US and EU.17 While foreign
insurers play an insignificant role in the non-life insurance market with
market shares less than ten percent, their share in the life insurance
market accounts for approximately two thirds.18 Capital investment in
the economy increased tenfold between 19
99 and 2005
insurers climbed gradually from thirty-five percent of the total capital
investment from the insurance sector in 2003 up to forty percent and
forty-seven percent in 2004 and 2005, respectively.20
However, the insurance sector is still characterized by its small size
and the limited variety of insurance products available, as well as lower
competitiveness of domestic insurers. As noted earlier, the total value of
insurance premiums in Vietnam accounted for less than two percent of
GDP in 2005.21 In 2004, premiums per GDP of the US were 9.44
percent, and that of the EU and Japan were 8.64 and 10.47 percent,
respectively.22 While the number of insurance products increased
sharply to around six hundred by the early years of this decade, because
of the lack of adequate governance by the existing legal framework there
are still many areas which have not yet been adequately covered, such as
credit insurance, business risk insurance, and professional liability
insurance.23 Investment portfolios of insurers were not diversified.
Investment in corporate bonds and shares as well as loans and real estate
accounted for less than fifteen percent of the total investment capital of
insurers in Vietnam, while this figure was eighty percent in the EU.24
B. Insurance regulations before Vietnam Insurance Law
As described earlier, before 1993, there was only one insurance
company operating in the insurance market. The supply of insurance
services was governed by rules of the MOF, which was designated
exclusively to the Vietnam Insurance Corporation. Those rules included
insurance products, insurance contracts, terms and conditions, premium
rates, and dispute settlements.25 However, there was no regulation on
new entrance and exit of insurers. In addition to rules of the MOF,
certain insurance services were regulated by different laws, such as
marine insurance contracts under Marine Code 1990 and civil liabilities
of carriers under Law on Aviation 1992.
The governmental decree in 1993 on business insurance, as the sole
regulation guiding the industry, was considered an initial step for
22. SwissRe Sigma, World Insurance in 2004: Growing Premiums and Stronger
Balance Sheets 17 (Feb. 2005), available at http://www.swissre.com/INTERNET/
23. Nguyen Trong Nghia, Thuc trang va Giai phap Hoan thien He thong Phap luat
Phat trien Thi truong Tai chinh va Dich vu Tai chinh [Current Situation and Solutions
for Improving Legal System on the Development of Financial Markets and Financial
Services] at 46 (2004) (academic research paper, Ministry of Finance, Vietnam) (on file
with the Financial Scientific Institute).
24. Le Song Lai, Thuc trang va Giai phap nang cao hieu qua hoat dong dau tu cua
cac doanh nghiep tren thi truong bao hiem Viet Nam [Current situation and Solutions
on improving investment efficiency by companies in Vietnam’s Insurance Market] 22-23
(2005), (Symposium on Solutions for facilitating efficient investments by insurers into
the economy) (on file with the Association of Vietnamese Insurers).
25. See, e.g., Decision 254-TC/QD-BH dated May 25, 1990 of the Finance
Minister (Vietnam) (permitting Vietnam Insurance Corporation to supply marine
opening the insurance market.26 It was a landmark for diversifying
insurance services in Vietnam, including direct insurance, both life and
non-life; reinsurance; brokerage; and agency.27 Apart from those
insurance services, an insurance company was also permitted to conduct
assessment, inspection, calculation for loss distribution, and act as agent
in assessment and settlement of compensation.28 Parallel to the policy
on promotion of private sector and encouragement of foreign direct
investment in Vietnam, the monopoly in the insurance sector has been
replaced by diversifying players.29 The opening of this sector, however,
was subject to various licensing criteria, including clear objectives and
areas of business activity, and proposed insurance services necessary for
the national economy.30 The implementation of these procedures
allowed for the speed at which the insurance sector opened to be better
C. Vietnam Insurance Law
Vietnam Insurance Law, effective April 1, 2001, reinforces the
safety and soundness of the domestic insurance market, strengthens the
financial capacity of insurance companies, and protects interests of
policyholders.31 The law consists of 129 articles, which are divided into
nine chapters. Chapter One covers general principles, including the
application of law, terms and definitions, and classes of insurance
services. This Chapter also asserts that consumers may only purchase
insurance services from insurers authorized to operate in Vietnam.32
Chapter Two covers forty-six articles governing insurance contracts,
including categories of insurance contracts, their contents, rights and
obligations of insurers and insured. Chapters Three through Five
provide rules for market entry and operations of domestic insurance
26. Vietnam Decree 100/CP of the Government on Insurance Business (Dec. 18,
27. Id. art. 3, 7.
28. Id. art. 8.
29. Id. art. 2. Forms of insurance companies include state owned company, joint
stock company, mutual insurance company, joint venture company, branch of foreign
insurance company, and insurance company with 100 percent foreign owned capital.
30. Id. art. 17.
31. Law on Insurance Business (Vietnam), at XIV-1221, 8th Sess. (Dec. 9, 2000).
32. Id. art. 6.
companies, insurance brokers and agents, including licensing
procedures, transfer of insurance contracts, recovery of solvency,
dissolution, bankruptcy, as well as accounting and financial statements.
There are five categories of insurance companies, which are classified
by ownership: (1) state-owned, (2) joint-stock, (3) mutual-aid, (4)
jointventure, and (5) wholly foreign-owned capital.33 Chapter Six deals with
specific requirements for licensing and operations of foreign invested
insurance companies and foreign invested insurance brokers in Vietnam.
Chapter Seven gives rules for the state administration of the insurance
industry, including regulatory and supervisory functions. While Chapter
Eight includes provisions on rewards and handling of breaches of the
law, the final chapter is comprised of implementing provisions.
III. VIETNAM’S OBLIGATIONS AND COMMITMENTS UNDER THE MULTILATERAL FRAMEWORK
A. General Obligations
While the WTO agreement addresses institutional and operational
matters of this organization extensively, it also sets out fundamental
obligations of its members. As a member of the WTO, Vietnam is
required to ensure conformity of its laws, regulations and administrative
procedures with its obligations as provided in the annexed agreements,
including GATS.34 It indicates that as a general obligation under the
multilateral trading system, Vietnam shall promulgate new legislations
or amend existing laws in accordance with WTO obligations.
Accordingly, any provision in Vietnam Insurance Law and other related
regulations, which is inconsistent with the multilateral rules and
principles, must be revised in conformity with GATS, unless exceptions
B. Obligations Under GATS
The GATS framework provides a set of principles and rules that
require Vietnam to remove both discriminatory and non-discriminatory
restrictions on trade in insurance services. While a number of principles
address exclusively either discriminatory or non-discriminatory
restrictions, some others concern both types of restrictions. There are
33. Id. art. 59.
34. WTO Agreement, supra note 2, at art. XVI(4).
two fundamental general principles in Part Two of GATS, addressing
the problem of non-discriminatory restrictions on the trade in services,
namely regulatory transparency (Article III) and domestic regulation
(Article VI). Although discriminatory restrictions are dealt with by
most-favored-nation treatment (MFN) and national treatment in Articles
II and XVII, respectively, only the MFN is the general principle.
Under the regulatory transparency obligation, Vietnam is required,
firstly, to publish all relevant measures “of general application” relating
to trade in services.35 Second, Vietnam also is required to annually
notify the WTO on new or changed laws, regulations, or administrative
guidelines which significantly affect trade in services, and thirdly, to
respond promptly to all requests by any other Member for specific
information on any of measures of general application.36 The purpose of
this Article is call for the removal of unnecessary restrictions on trade in
services as a result of a lack of clarity, unfairness, as well as to assure
compliance with specific commitments in national treatment and market
access.37 Regulatory transparency involves not only designing but also
applying regulations by requiring WTO Members to establish “enquiry
points” in order to provide information to other Members.38
GATS Article VI on domestic regulation provides a framework for
minimizing the distortions of trade created by domestic regulations. It
requires that any measure of general application affecting trade in
services is to be administered in a reasonable, objective and impartial
manner.39 Domestic regulation involving qualification requirements and
procedures, technical standards and licensing requirements do not
constitute unnecessary barriers to trade in services.40 Such disciplines
are to be: (a) based on objective and transparent criteria, (b) not more
burdensome than necessary to ensure the quality of the services, and (c)
in the case of licensing procedure, not in themselves a restriction on the
supply of the services. Moreover, in scheduled sectors, for example,
Vietnam is required to restrain from applying licensing and qualification
35. Id. at GATS art. III:1
36. GATS, supra note 2, at art. III:3, III:4
37. SYDNEY J. KEY, THE DOHA ROUND AND FINANCIAL SERVICES NEGOTIATIONS
38. RACHEL THOMPSON AND KEIYA IIDA, TRADE IN SERVICES: NEGOTIATING ISSUES
AND APPROACHES 105-110 (OECD, 2001).
39. GATS, supra note 2, at art. VI:1.
40. Id. art. VI:4.
requirements as well as technical standards that cause nullification or
impairment of such commitments on the market access and national
treatment on insurance and insurance-related services.41
Under the MFN obligation of GATS, Vietnam must accord
immediately and unconditionally to services and service suppliers of any
other WTO Member “no less favourable” treatment than it provides to
“like” services and service suppliers of other Members.42 The “no less
favourable” treatment encompasses both de jure and de facto
discrimination.43 GATS allows an exemption to the MFN obligation
whereby Vietnam is not prohibited from granting advantageous
treatment to “adjacent countries in order to facilitate exchanges limited
to contiguous frontier zones of services that are both locally produced
and consumed.”44 Another exemption from the MFN obligation is the
economic integration, whereby Vietnam is not prohibited from being a
party or entering into an agreement liberalizing trade in services between
or among parties to such an agreement.45
Article XVI on market access extends to all measures that restrict
either domestic or foreign services and service suppliers from getting
access to Vietnam’s insurance market, regardless of discriminatory or
non-discriminatory basis.46 There are six types of limitations which are
prohibited by this Article, namely: (a) limitations on the number of
suppliers; (b) limitations on the total value of service transactions or
assets; (c) limitations on the total number of service operations or on the
total quantity of service output; (d) limitations on the total number of
natural persons that may be employed; (e) measures which restrict or
require specific types of legal entity or joint venture; and (f) limitations
on the participation of foreign capital, either in terms of a percentage
limit on foreign shareholding or on the total value of foreign investment,
either in the aggregate or by a single entity.47 Under Article XVII on
national treatment, Vietnam is required to treat foreign services and
service suppliers of any other Member no less favorably than it does its
own “like” services and service suppliers.48 However, the application of
the market access and national treatment principles is conditional upon
the schedule of specific commitments by Vietnam regarding insurance
and insurance-related services.
C. Vietnam’s Commitments in Insurance and Insurance-Related Services
1. Scope of Business
For liberalization under the multilateral framework, Vietnam
schedules direct insurance, excluding heath insurance services;
reinsurance and retrocession; insurance intermediation, such as brokerage
and agency; and services auxiliary to insurance, such as consultancy,
actuarial risk assessment and claim settlement.49 Market access on the
cross-border supply (Mode 1) of insurance services is applicable to
certain insurance services, namely insurance services in international
transportation; reinsurance services; insurance brokerage and
reinsurance brokerage services; and consultancy, claim settlement and
risk assessment services.50 In addition, foreign insurers are permitted to
engage in cross-border transactions with foreign invested companies or
foreigners working in Vietnam.51 Vietnam has agreed to ensure no
limitations on market access with respect to consumption abroad (Mode
2).52 Statutory insurance services are permitted to be supplied by a
wholly foreign-owned insurance company from 2008.53
With regard to commercial presence (Mode 3), foreign insurers are
permitted to establish either joint-venture or wholly foreign-owned
company from the date of accession, i.e. as of 2007. The form of
branches of foreign non-life insurers shall be allowed after five years
from the date of accession, i.e. by 2012 in accordance with prudential
2. Movement of Natural Persons
Limitations on market access in supplying insurance services under
Mode 4 are consistent with the horizontal commitments that apply to all
services, including insurance services, provided through the presence of
foreign natural persons in Vietnam. Vietnam inscribed no commitments
on the market access, except for measures relating to entry and
temporary stay of five categories of natural persons, namely
intracorporate transferees, other personnel, service sales persons, persons
responsible for setting up a commercial presence, and contractual
3. National Treatment
Full national treatment is granted to Modes 1, 2, and 3. With
respect to Mode 4, Vietnam undertakes commitments with limitations,
whereby only five categories of natural persons shall enjoy full national
treatment when supplying insurance services in Vietnam. In other
words, Vietnam may impose restrictions on the national treatment with
regard to the movement of natural persons other than the five above-said
categories of natural persons.
In general, it may be observed that Vietnam’s commitments to
liberalization of insurance services at the multilateral level are relatively
liberal compared to competition by foreign insurance services and
IV. REVIEW OF COMPLIANCE WITH WTO COMMITMENTS
As Vietnam acceded to the WTO, its commitments in the Protocol
on the Accession56 and other multilateral agreements, including GATS,
55. WTO. supra note 49, at 4-8. The entry of “contractual service suppliers” is
allowed for computer and related services, and engineering services.
56. Protocol, Accession of the Socialist Republic of Vietnam, WT/L/662 (Nov. 15,
became international treaties, to which Vietnam is a party.57 According
to the Constitution, the National Assembly has the power to ratify an
international treaty, which is directly signed by or upon the proposal of
the President of State.58 The ratification of international treaties by the
National Assembly shall be made in the following circumstances: (i) as
provided in the international treaties, (ii) as signed on behalf of the State,
and (iii) as signed on behalf of the Government but containing
provisions contrary to domestic laws.59 As several commitments of
Vietnam on the accession to the WTO are inconsistent with its current
legislation, 60 the Protocol on the Accession was ratified by the National
Assembly on November 29, 2006.61
International treaties bind Vietnam in accordance with provisions
stated in those treaties.62 In theory, international treaties might be
applied directly or implemented by legislative and other measures.63 In
Vietnam, for the purpose of application of WTO obligations and
commitments, an implementation plan is required which consists of
proposals on amendment of and addition to or repeal of current
legislations, or enactment of new laws.64 Accordingly, the National
Assembly has power to incorporate international treaties into domestic
laws and the government may provide administrative regulations and
rules for such implementation. On the other hand, direct application of
WTO commitments in the insurance sector is permitted, whereby
insurers are not required to cede a compulsory amount of non-life
insurance liabilities to the Vietnam Reinsurance Corporation in case of
ceding to foreign insurers abroad.65 Moreover, in cases where there
might be conflict between international treaties and domestic laws, the
multilateral agreements and commitments shall prevail.66 It would
suggest a clear legal basis of direct effect of WTO obligations and
commitments in Vietnam.
With regard to insurance service sub-sectors, both life and non-life
insurance are permitted to be supplied in Vietnam.67 The scope of
reinsurance comprises: (1) ceding part of the risk assumed to one or
more other insurance companies; and (2) assuming part or the entire risk
insured by other insurance companies.68 Concerning insurance
intermediation, Vietnam has permitted insurance companies to supply
insurance agency services and brokerage services.69 Therefore, it is
submitted that the scope of life and non-life insurance, reinsurance
services, and insurance intermediation in Vietnam Insurance Law are
consistent with Vietnam’s commitments.
The scope of services auxiliary to insurance includes: (i) prevention
and mitigation of risks and losses; (ii) loss surveys; (iii) acting as loss
survey and claim settlement agents and/or third party claim agents; (iv)
fund management and investment; and (v) other operations as provided
by laws.70 However, compared to Vietnam’s commitments on services
auxiliary to insurance, there is no provision on insurance consultancy
services and actuarial services in Vietnam Insurance Law. Although one
may argue that those two auxiliary services could be included in “other
operations as provided by laws,” a clear provision on consultancy and
actuarial services is necessary to ensure transparency and consistency
with Vietnam’s commitments.
An article on favorable conditions towards state-owned insurers
may raise concern over the possibility of violating GATS obligations on
65. Resolution 71, supra note 61, at para. 2. Law on Insurance Business, supra note
31, at art. 9.2, stipulates that in case of reinsurance abroad, all insurers are obliged to
reinsure a portion of the liability under reinsurance contracts to a domestic enterprise,
which is engaging in reinsurance business in conformity with governmental regulations.
66. Resolution 71, supra note 62, at para. 2. Vietnam Insurance Law, supra note
30, at art. 2.2.
67. Law on Insurance Business, supra note 31, at art. 7.
68. Id. art. 61.
69. Id. art. 85, 90.
70. Id. art. 60.1.
the national treatment. According to Vietnam Insurance Law, the State
shall invest capital and other resources in those enterprises to bolster
their development and safeguard their dominant role in the insurance
market.71 This suggests discrimination against both foreign
participation and the domestic private sector. However, until the end of
2006, all three state-owned insurers had been subjected to privatization –
the so-called equitization in Vietnam.72 This evidence indicates that
there will be no more state-owned insurers in the domestic insurance
market. Meanwhile, the government has decided to refrain from
establishing new state-owned insurance brokerage enterprises, as well as
new insurers wholly owned by other state-owned enterprises.73 As a
result, the dominant role of state-owned insurers will not de facto exist
in the insurance services market. As far as foreign insurance service
suppliers are concerned, this article would constitute de jure
discrimination in favor of domestic state-owned insurers under the
meaning of GATS Article XVII. It is submitted that this measure, which
safeguards the dominate role of state-owned insurers is irrelevant to
prudential reasons, and accordingly could not be justified by the
prudential exception under the Annex on Financial Services.74
In addition, other commitments on the market access and national
treatment shall require the revision of Vietnam Insurance Law, including
71. Id. art. 4.2.
72. Decision 310/2005/QD-TTg dated November 26, 2005 of the Prime Minister
on the equitization plan and pilot establishment of Baoviet Financial-Insurance
Conglomerate (Vietnam), art. 1.1; see also Decision 175/2003/QD-TTg dated August
29, 2003 of the Prime Minister on approving the Strategy on Development of Vietnam
Insurance Market 2003–2010 (Vietnam) [hereinafter Decision 175].
73. Decision 175, supra note 72, at art. 1.3.a, 1.3.b.
74. Literature has provided several interpretative discussions on three factors of the
prudential exception applicable to financial services, including insurance services, in
the Annex on Financial Services of GATS, namely the concept of “prudential reasons”
connection between the prudential objectives and measures, and anti-avoidance
provision. See Key, supra note 37, at 37, 51. See also Eric H. Leroux, Trade in
Financial Services under the World Trade Organization, 36(3) J. WORLD TRADE 413,
430-31 (2002); Aaditya Mattoo, Financial Services and the WTO: Liberalization
Commitments of the Developing and Transitional Economies, 23(3) THE WORLD
ECONOMY 251, 254 (2000); KALYPSO NICOLAIDIS & JOEL P. TRACHTMAN, GATS 2000 –
NEW DIRECTIONS IN SERVICES TRADE LIBERALIZATION 255-56 (Pierre Sauve and Robert
M. Stern eds., The Brookings Institution, 2000); Joel P. Trachtman, Trade in Financial
Services under GATS, NAFTA and the EC: A Regulatory Jurisdiction Analysis, 34
COLUM. J. TRANSNAT’L L. 37, 71-72 (1995).
permission of across-border supply of certain insurance services, and
acceptance of branch form of foreign insurers.
V. NECESSITY FOR FUTURE REFORM: PRUDENTIAL
While it is indispensable to amend Vietnam Insurance Law
consistent with commitments in the multilateral trading system, further
enhancements of this law are necessary in order to ensure the safety and
soundness of the insurance market and to pursue consumer protection.
Under GATS, Vietnam is allowed to introduce prudential measures with
respect to “the protection of investors, depositors, policy holders or
persons to whom a fiduciary duty is owned by a financial service
supplier” and “to ensure the integrity and stability of the financial
system.”75 Introduction of such prudential regulations, nevertheless, is
not employed as a means of avoiding Vietnam’s obligations under the
multilateral framework as well as its commitments on insurance and
Experiences of Japan, the EU, and China show evidence that
enhancement of prudential regulations is considered as one of crucial
measures when implementing commitments on liberalization of
insurance services. In the case of Japan, parallel with implementing
commitments on ensuring the national treatment between domestic and
foreign insurance companies, Japan amended certain insurance
enforcement regulations with a view to introducing more stringent
solvency margin standards and disclosure requirements.76 While
undertaking commitments on the national treatment with regard to trade
in insurance services, the EU introduced new legislation in order to
increase solvency requirements of life and non-life insurers, especially
in the areas of maritime, aviation and general liability business.77 With
regard to China, as observed by Chen and Shih, the level of competition
became more intense due to the implementation of WTO commitments
on China’s insurance services.78 This includes abolition of
75. GATS, supra note 2, at Annex on Financial Services, para. 2.
76. WTO Secretariat, Trade Policy Review – Japan, WT/TPR/S/107 at 62-63 (Oct.
77. WTO Secretariat, supra note 6, at 121.
78. CHIEN-HSUN CHEN AND HUI-TZU SHIH, BANKING AND INSURANCE IN THE NEW
CHINA: COMPETITION AND THE CHALLENGE OF ACCESSION TO THE WTO 146-148
discriminatory measures.79 Accordingly, the supervision of insurance
companies has been strengthened, including monitoring minimum
solvency requirements, regulating allocations of technical provisions and
The prudential regulations, which address the solvency situation of
insurers, broadly cover requirements on technical provisions, solvency
margin, and investment rules.81 Accordingly, the following section shall
examine prudential regulations under Vietnam Insurance Law in details.
A. Establishment of Technical Provisions
In Vietnam, with regard to liabilities, insurers are required to set up
technical provisions, which must be calculated from insurance premiums
separately for each class of insurance.82 There are different types of
technical provisions, namely (i) provision for unearned premiums; (ii)
provision for claims outstanding; (iii) equalization provision; (iv)
mathematical provision (life insurance); and (v) reserve for dividend to
policyholders (life insurance).83 The fundamental purpose of setting up
technical provisions is to ensure that insurers are capable of meeting the
commitment towards policyholders at all times.84 In the words of the
International Association of Insurance Supervisors (IAIS),85 “the
establishment of sufficient technical provisions is. . .a cornerstone of a
sound capital adequacy and solvency regime”.86
Nevertheless, the regulations on establishing technical provisions
are based on sound accounting and actuarial principles.87 Specifically,
the importance of auditors is to verify the correctness of the annual
accounts.88 In addition, the actuary plays a critical role in maintenance
of the financial soundness of insurers.89 In Vietnam, every company is
required to prepare four financial statements: (i) balance sheet; (ii) profit
and loss statement; (iii) cash flow statement; and (iv) explanatory notes
for the financial statements.90 Insurers are required to make these
financial statements public.91 However, the scope of information
disclosure does not cover a requirement on disclosure of risks to which
insurers are subject. As guided by the IAIS, public information should
include financial position, financial performance, risk exposure, and
management by insurers.92 Risks relevant to public disclosure might
include technical risks and investment risks.93 The main objective of
disclosure of those financial statements is to give the public a clear view
of the insurer’s business activities as well as financial position, and also
ensure a smooth functioning of the insurance market.94 Moreover, these
requirements would be important for public confidence, especially
because they would enable policyholders to monitor what categories of
assets support their insurance contracts.95
In the insurance sector, in addition to accounting requirements,
financial statements of insurers must be certified by an independent
auditor, one authorized to conduct business in Vietnam.96 However,
there are no requirements in Vietnam Insurance Law and its regulations
for what kind of information or comments must be produced by an
independent auditor. Auditors play a crucial role in expressing their
opinions on the compliance of financial statements with the financial
reporting regime.97 For example, in EU approved balance sheets, profit
and loss statements, annual reports, and reports by the persons
responsible for auditing accounts must be published.98 In addition,
auditors have the duty to report promptly to the supervisory authority
any fact or decision, which based on their awareness, would constitute a
material breach of laws and regulations, affect the continuous
functioning of the life insurer, or lead to refusal to certify the accounts or
to the expression of reservations.99
As noted earlier, Vietnam Insurance Law has no provision
regarding actuaries. However, under the MOF rules, appointment of an
actuary in life insurers is obligatory in Vietnam. 100 This means that the
use of an actuary is irrelevant to non-life insurance companies. Duties of
an actuary include setting up mathematical provisions, appraising the
financial conditions of the life insurer and estimating future
performance.101 There is, nevertheless, a lack of requirements on the
actuary to report financial conditions of insurers to the supervisory
authority. Appointed actuaries are common in both life and non-life
insurance in several countries, such as the US, United Kingdom,
Canada, and Belgium.102 Actuarial skills are important to assess risks
exposed by insurers as well as to set up technical provisions for both life
and non-life insurance.103 In Japan, all insurers are required by law to
appoint an actuary by board of management. An appointed actuary is
required to submit a statement of opinions to the board of management
on: (i) underwriting reserves; (ii) fair and equitable distribution with
regard to policyholder dividend or surplus; and (iii) other matters
specified by a Cabinet Office ordinance.104 Moreover, an actuary must
concurrently submit a copy of his or her statement of opinions to the
Prime Minister.105 This means that an actuary is required to submit
reports to both the insurer’s board of management as well as the
insurance supervisors. By this provision, the supervisory authority shall
simultaneously be able to monitor the appropriateness of financial
conditions of life insurers as well as rightly conduct an intervention if
the underwriting reserves prove to be insufficient in the light of
In the case of the US, every life and non-life insurance company is
required to submit an actuarial opinion on an annual basis.107 The
opinion given by an actuary must cover the adequacy of reserves, which
are in compliance with requirements of insurance laws and
regulations.108 If an insurance company fails to provide actuarial
opinions, the supervisory authority has the power to assign another
actuary to prepare a report at the expense of that insurance company.109
B. Assets Representing Solvency Margin
In Vietnam, in order to start a business, the insurance company
must have chartered capital higher than the legal capital as stipulated by
governmental regulations.110 In the on-going business, the insurer is
required to have sufficient funds or assets to cover future insurance
contracts. This requirement is called the “solvency margin”, which is
defined by the difference between the value of the insurer’s assets and
its outstanding liabilities.111 This buffering capital ensures that insurers
are capable of absorbing financial losses.112 However, what appears to
be missing here is the lack of a provision on categories of assets that can
represent solvency margin. Vietnam’s approach towards identifying
assets eligible for the solvency margin would suggest that all assets are
acceptable. This approach seems to simplify the credit risks associated
with insurers’ assets, such as loans and securities. Moreover, it does not
take into consideration the liquidity of assets. In principle, capital
adequacy requirements must be correspondent to the size, complexity
and risks of an insurer’s operations.113 As noted by Leflaive, different
categories of assets must be weighed for the purpose of examining the
solvency margin according to the nature, degree of liquidity and class of
credit risks.114 To be more specific, the solvency position of an
insurance company must reflect the “ultimate collectability” of all
income under assets.115
In contrast, the approach of both the EU and US is to adopt a
positive list of assets that are acceptable for solvency margin. In the EU,
the solvency margin shall consist of the following assets: (i) the paid-up
share capital; (ii) statutory and free reserves; (iii) profit or loss brought
forward after deduction of dividends to be paid, profit reserves; (iv)
cumulative preferential share capital and subordinated loan capital up to
fifty percent of the lesser of the available solvency margin and the
required solvency margin; and (v) securities with no specified maturity
date and other instruments up to fifty percent of the lesser of the
available solvency margin and the required solvency margin.116 In the
same approach, New York Insurance Law lists twenty-two admitted
assets owned by insurers for the purpose of determining solvency
margin, including cash, investment, interests, and insurance
premiums.117 In addition, rules for valuation of those assets are also
clearly stipulated. For example, investment in securities may be valued
at market value, appraised value, or at price set by the supervisory
authority.118 Similarly, Japan also specifies assets, which are eligible for
determining the solvency margin of insurers. In particular, solvency
margin consists of: (i) capital; (ii) price fluctuation reserve; (iii) risk
reserve; (iv) general bad debt reserve; (iii) unrealized gains/losses on
securities and real estates; and (iv) any other amounts determined by the
Financial Service Agency, such as subordinated debts, margin contained
in statutory provision.119 In the case of unrealized gains/losses on
securities and real estates, for example, ninety percent of latent profit on
stocks and eighty-five percent on latent profit on land are calculated for
determination of solvency margin, but one hundred percent of unrealized
C. Investment Rules
Investment regimes have been widely recognized as a main
function of insurers. As the nature of liabilities of an insurance
company decide the nature of assets in the investment portfolio, the
primary consideration of the investment regime is security of capital and
liquidity in order to convert those assets to cash to pay out claims or
satisfy unexpected claims.121 In most OECD countries, including the
EU, US, and Japan, the investment regulations only relate to the funds
that constitute the contractual liabilities to policyholders, i.e. technical
provisions, rather than the capital base of insurers because if investment
regulations extend to and restrict investment of the capital base, they
may discourage insurers to hold high level of capital, and thus weaken
the financial conditions of insurers.122
In the case of Vietnam, investment portfolios of insurers may cover
117. N.Y. INS. LAW § 1301 (McKinney 2007).
118. Id., § 1414 b(1).
119. The General Insurance Association of Japan, Fact book 2004-2005 General
Insurance in Japan 70 (2006).
121. J. FRANCOIS OUTREVILLE, THEORY AND PRACTICE OF INSURANCE 248 (1998).
122. See Vollbrecht, supra note 84, at 44; see also Dickinson, supra note 115, at.
government bonds, corporate shares and bonds, real estate, equity in
other companies, loans, and bank deposits.123 Specifically, quantitative
restrictions have been set out to limit categories of assets to be included
in the investment portfolio of an insurance company, and they differ
between life and non-life insurance.124 First, there is no ceiling
restriction for both life and non-life insurers with regard to government
bonds, secured corporate bonds, and deposits in credit institutions.
Second, investment in unsecured corporate bonds and shares, and capital
contributions to other enterprises shall not exceed thirty-five percent for
non-life insurers, and fifty percent for life insurers, of permitted funds
from technical provisions. Third, investment in real estate, loans, and
other authorized investments through financial institutions shall not
exceed twenty percent for non-life insurers, and forty percent for life
insurers, of permitted funds from technical provisions.
As noted by the IAIS, different investment-related risks are
embedded in an investment portfolio, and might affect the coverage of
technical provisions and the solvency margin.125 Moreover, there is
strong correlation between credit risks of investment from the same
issuer, and consequently a insurance company may be over indebted or
insolvent.126 In examining the effect of life insurer insolvency in the
US-First Executive Corporation on the value of other life insurers,
Fields et al. concluded that the failure of an insurer may lead to losses in
investment portfolios of other insurers, substantially for weak insurance
companies, and those that engaged in more risky investment portfolios,
junk bonds, and real estates.127 However, under Vietnam’s current
regulations, while an insurer is allowed to invest a maximum amount in
each category, there is no restriction on a single investment. In other
words, insurers may invest all permitted capital (i.e. twenty percent and
forty percent regarding non-life and life insurance, respectively) from
technical provisions into one piece of land or building, or provide loans
to one borrower. Such regulation may provide incentives for insurers to
adopt highly speculative investment portfolios, and may lead an
insurance company to a mismatched portfolio, whereby the technical
provisions for fulfilling obligations against policyholders are not fully
covered by those investment assets. This problem could be found
especially in the case of an insurance company that is faced with
financial difficulties.128 This is worrisome because insurers in Vietnam
are limited both in capacity and the professional skills needed to expand
their investment activities to complicated sectors, such as corporate
shares and bonds, and real estate.129
Concerns over diversification and concentration risks have been
addressed intensively by other countries. In the EU, investment rules set
limitations on a single investment and issuer by ten percent and five
percent, respectively, of total gross technical provisions.130 In the US,
while providing a list of authorized classes of investment,131 a maximum
limitation is set for each class of assets.132 Moreover, individual ceilings
of three percent and five percent of permitted assets in life and non-life
insurance, respectively, are established for securities of a single issuer
and its affiliates.133 A similar approach dealing with the concentration
risk has also been found in Japan:
No insurance company may use for investment the kinds of assets
specified by a Cabinet Office ordinance in excess of an amount
calculated in accordance with such ordinance.134
A special account may be created in order to separate those assets
corresponding to the underwriting reserve for insurance contracts.135 In
particular, the aggregate of the same asset categories shall not exceed ten
percent of the total of the special account assets with respect to: (1)
corporate bonds and stocks used by one and the same person/group; (2)
loans and lending securities to one and the same person/group; (3)
deposits with one and the same person/group; (4) guarantee of obligation
for one and the same person/group; and (5) assets related to trading in
derivatives with one and the same person/group.136
D. Supervision of Insurance Holding Companies
In Vietnam, there is a tendency for banks to expand their activities
into the insurance sector by establishing insurance subsidiaries.137 On
the other hand, insurance companies also seek involvement in banking
and securities sectors. The first attempt was the establishment of
BaoViet Financial-Insurance Conglomerate, which has a banking
subsidiary and holds shares in three other commercial banks and two
insurers.138 Accordingly, this trend would raise a concern over
prudential regulation and supervision of those financial conglomerates.
Although Vietnam’s current regulations have empowered the
supervisory authority to enforce the compliance of insurers with
solvency requirements, there is a lack of power in the supervision of
financial conglomerates. As in China, these supervisory issues and
problems may be overlooked due to the fact that financial conglomerates
are only at an initial stage of development.139
According to Skipper, the rationale for financial services integration
is cost advantage and revenue effects.140 However, the challenge posed
by financial conglomerates is to understand their risk profile as a whole
and to develop appropriate risk management systems for the entire
group.141 As noted by Leflaive, the fundamental concern is to formulate
a solvency requirement applicable to the group because of an “increased
contagion risk.”142 Therefore, the scope of supervision on financial
conglomerates must address, inter alia, their capital adequacy,
reinsurance and risk concentration, intra-group transactions and
exposure, and risk management.143
The experiences of other countries might be useful references for
Vietnam in its revision of the insurance law in this area. In the case of
the EU, additional supervision is introduced to insurance groups and
conglomerates, whereby supplementary supervision is extended to an
insurance company which is a parent company of or holds participation
in at least one insurance company, or the parent company of which is an
insurance holding company or non-insurance holding company.144
Accordingly, the adjusted solvency margin of insurance conglomerates
is calculated based on one of three methods: (i) deduction and
aggregation method; (ii) requirement deduction method; or (iii)
accounting consolidation-based method.145 With regard to insurance
holding companies in Japan, there is a distinction between company and
supervisory levels. An insurance holding company is required by law to
secure the sound and proper operation of the activities of insurance
companies that are its subsidiaries.146 Moreover, an insurance holding
company must prepare and submit to the supervisory authority a
business report, including activities and assets of the company and its
subsidiaries.147 At the supervisory level, additional oversight is focused
on capital adequacy148 and on risk management systems, including risk
141. Id. at 115.
142. Leflaive, supra note 88, at 36.
143. International Association of Insurance Supervisors, supra note 86, at 31.
144. Council Directive 98/78/EC, art. 2 (European Cmty.) (mandating
supplementary supervision of insurance undertakings in an insurance group).
145. Id. Annex I, § 3.
146. Japan Insurance Business Law, supra note 104, at art. 271-5.2.
147. Id. art. 271-8.1.
148. Capital adequacy of financial conglomerates may be calculated based on either
combined equity capital or requisite equity capital, with adjustments for companies that
are not subject to prudential regulations. See Japan Financial Services Agency,
Guideline for Financial Conglomerate Supervision, § II-2.1 (May 2006), available at
contagion, credit risk, market risk and liquidity risk.149 The supervisory
authority is empowered to require insurance holding companies to
submit or alter the reform plan in order to secure the sound and proper
operation of insurance holding companies as well as to protect
In the US, rules provide for the solvency supervision of an
insurance holding company relating to acquisition of control or merger,
standards and management, examination, and receivership.151
Specifically, under New York Insurance Law, insurance holding
companies are required to disclose information which materially affects
their financial conditions.152 In addition, the supervisory authority has
the power to examine holding insurance companies if supervisors
believe that the operations materially affect the financial conditions of
E. A Need for the Establishment of Policyholder Protection Funds
Effective regulation and supervision cannot ensure the prevention
of financial difficulties. In Vietnam, an insurance company is required
to apply remedial measures in cases where that insurance company’s
solvency margin is less than the minimum solvency margin.154 In such a
circumstance, an insurer must submit a solvency recovery plan to the
supervisory authority, and if the insurer is unable to recover its solvency,
a solvency control committee shall be established by the MOF.155
However, as commented by Skipper and Klein, some insolvency is
inevitable in a competitive insurance market.156 Crisis in a key
insurance company may affect the integrity and stability of the insurance
market as well as the whole financial system; even the difficulty of a
small insurer may also affect a wide range of policyholders.157
The main idea of policyholder protection funds is to protect
policyholders in a situation where the insurer becomes insolvent, which
may cause financial losses to those policyholders due to unpaid claims.
As noted by Sekiguchi, policyholders’ concerns are over the solvency of
insurers, and thus the availability of such protection funds would protect
them in case of an insurer’s failure.158 In theory, according to Yasui,
there are four main arguments for the establishment of such a safety net
in the insurance market, namely protection of non-professional
policyholders, maintenance of public confidence, development of
competitive markets, and a level playing field across the financial
sector.159 Moreover, from the perspective of consumers, the
establishment of policyholder protection funds would ensure equal
treatment among consumers.160 This concern might be true in cases
where foreign insurers who participate in safety net schemes in their
home countries are permitted to supply insurance business in domestic
markets. Accordingly, consumers of foreign insurers would be better
protected than those of domestic insurers.
However, one of main drawbacks of policyholder protection funds
is the moral hazard problem, which may provide consumers, insurers
and supervisors with disincentives for appraising financial conditions of
insurers.161 It was believed that if a safety net sexisted, insurance
supervisors would feel less pressure to ensure effective supervision.162
Moreover, while insurers may develop a tendency to adopt risky
business practices,163 and consumers may become less careful in
selecting insurers because they only consider the price rather than the
quality and financial soundness.164
In response, the moral hazard problem might not be intensified due
to the existence of a similar safety net in other financial services sectors,
particularly deposit insurance in the banking sector.165 In other words,
although the problem of moral hazard exists when introducing a safety
net scheme to the insurance sector, the experience of the banking sector
would be persuasive for setting up a similar system in insurance sector.
The practice of the US and Japan would demonstrate that this problem
could be mitigated by the design, powers and duties of policyholder
protection funds, whereby claims are partially compensated.166 In the
US, state guaranty associations are operated on a state-by-state basis,
which were established in the late 1970’s with a view toward protecting
consumers from insurers’ insolvency.167 Policyholders are guaranteed to
be paid up to a specified ceiling in case of failures of insurers.168 For
example, the purpose of the New York property/casualty insurance
security fund is to pay allowed claims remaining unpaid due to the
insolvency of an authorized insurer, and the payment of any one claim
shall not exceed one million dollars.169 The Policyholder Protection
Corporation as a compulsory system was established in Japan in 1998
following the enforcement of the revised insurance law.170 Membership
in those funds is compulsory for insurers,171 and the amount of levy shall
be calculated based on both insurance premiums and underwriting
reserves for the payment of insurance claims.172 This requirement
would ensure a fair contribution among insurers.173 In order to mitigate
the problems of moral hazard, the limitations on compensation are set at
ninety percent for both life and non-life claims, and at one hundred
percent for compulsory insurance.174
The second argument against this safety net scheme is that it may
impose extra financial burdens on insurers who participate in this
mechanism.175 Such financial burdens may weaken the financial
soundness of an insurer. Another aspect of this argument is that prudent
insurers may object to paying for their competitors’ mismanagement.176
In other words, bad performance of insolvent insurers would be
supported at the expense of other participating insurers, who conduct
business operations in a prudent manner. Sekiguchi commented that,
from the social point of view, because the funds provide a safety net for
a broad coverage of people, those extra financial costs incurred by
insurers could be justified, and thus the impact of failure of insurers on
policyholders or beneficiaries is minimized.177 In practice, concerns
regarding financial burdens on the insurer may be addressed by
assessment of contributions based on risk factors as well as the financial
soundness of insurers.178 Moreover, the experience of New York
Insurance Law shows that when the fund is well capitalized, the
members shall not be required to make further contributions.179
Another concern is that the existence of other available preventive
and corrective measures, such as technical provisions and investment
REGULATION AND SUPERVISION IN ASIA 396
171. Japan Insurance Business Law, supra note 104, at art. 265-3.1.
172. Japan Insurance Business Law, supra note 104, at art. 265-34.1.
173. See Hara, supra note 170, at 398.
174. Yasui, supra note 159, at 315.
175. Id. at 310.
176. Roberts, supra note 162.
177. Sekiguchi, supra note 158.
178. For example, it is reported that in the Korean system, insurers are classified
under three groups corresponding to their respective financial soundness, whereby the
least risky group shall enjoy the lowest contributions, and the most risky group shall be
required to pay highest contributions. See Yasui, supra note 159, at 320-21.
179. No further contribution shall be made when the net value of the
property/casualty insurance security fund is at least 150 million dollars. N.Y. INS. LAW
§ 7603(c)(1) (McKinney 2007).
rules, would make policyholder protection funds redundant.180 While
the main purpose of current existing solvency measures is to ensure the
soundness of financial conditions of insurers, the objective of
policyholder protection funds is, at least, to assure the minimum of
payment of claims by policyholders in case of insolvency of an insurer.
Accordingly, there may be a situation that even when all preventive and
corrective measures are employed, an insurer still becomes insolvent,
and then there might not be sufficient assets to cover its obligations to its
insured. Moreover, as observed by Yasui, the recently introduced
policyholder protection funds in several countries would suggest some
limitations in the supervision of insurers’ solvency through current
preventive and corrective measures.181
Therefore, by setting up a policyholder protection fund in Vietnam,
policyholders would be well protected against losses in the event that an
insurer fails financially and is unable to pay claims and benefits. This
system would strengthen public confidence in the domestic insurance
market. Moreover, a similar system, the deposit insurance system, has
been in place in Vietnam’s banking sector since 1999.182 Thus,
establishment of this fund in the insurance sector could place insurers on
the same level as banks. It might also increase competitiveness of
domestic insurers compared to foreign insurers, who enjoy safety net
schemes in their home countries.
Prudential regulations over insurance companies have been partly
addressed by Vietnamese Insurance Law. However, compared to US,
EU, and Japanese legislation, Vietnam’s lack of detailed and proper
regulations may cause problems with supervision of the financial health
of insurers in Vietnam. Lessons from other jurisdictions are helpful for
Vietnam in adopting regulations. Enhancements of prudential
regulations to ensure the solvency of insurers and thus protect
policyholders are desperately needed because Vietnam’s insurance
180. European Commission, Working Paper on Insurance Guarantee Schemes,
MARKT/2525/03-EN 3 (2003), available at http://ec.europa.eu/internal_market/
181. Yasui, supra note 159, at 312.
182. Decree No. 89/1999/ND-CP of the Government on Deposit Insurance
(Vietnam) (Sept. 1, 1999).
sector is open to foreign participation and competition. The introduction
and application of new prudential regulations, nevertheless, would be
safe if Vietnam could satisfy the anti-avoidance provision under the
prudential exception provided in the Annex on Financial Services. In
other words, any measure found to be discriminatory against foreign
insurance services and service suppliers, could not be justified by the
prudential exception if it is used as a means of avoiding Vietnam’s
commitments and obligations under GATS.
Revision and introduction of new prudential regulations may be
burdensome for law makers as well as the supervisory authority.
Therefore, all prudential measures might not be implemented at once.
Moreover, the enhancement of prudential regulations should proceed in
accordance with the phased-in liberalization of the insurance service
sector as well as the development of the market. At the present time, as
weaknesses of Vietnam’s insurance market include lack of management
skills of insurance companies and inexperienced individual
consumers,183 supplementary measures for compliance with the current
regulations seem to be a priority. Those measures provide for better
information disclosure of the risk profile of an insurance company. The
role of auditors and actuaries must be strengthened, including
requirements of appointed actuaries for non-life insurers. Another
provision necessary is that auditors and actuaries are required to report
directly to the supervisory authority in cases where there is any issue
which materially affects the solvency of an insurer. The reason is that
those measures would ensure sufficient and qualified information to the
public, enable prompt intervention by the supervisory authority in case
of financially troubled insurers, and then improve public confidence in
the insurance market. The success of implementation of those measures
would facilitate conditions for introducing more complicated prudential
In a later period, with further expansion of the insurance market by
diversifying market players, more stringent prudential measures are
required. Accordingly, there would be, among other things, a
fundamental improvement of solvency regime, including clearly
identifying permissible assets for the purpose of determining the
solvency margin, diversification of investment portfolios, and
supervision of insurance holding companies. These measures would
allow the supervisory authority to cope with an increasingly competitive
183. Decision 175, supra note 72, at § A.II.3.
16. Ministry of Finance, Thi Truong Bao Hiem Viet Nam Nam 2005 [Vietnam Insurance Market 2005] at 6 , ( 2006 ).
17. The Bilateral Trade Agreement between the US and Vietnam, which was concluded in 2001, is the most comprehensive and the first agreement to encompass trade in services, which significantly influences the development of the domestic insurance market . In addition, Under the EU-Vietnam Agreement on Mutually Beneficial Trade Liberalization, concluded in February 2003 , Vietnam committed to grant an additional insurance brokerage license to an EU-origin company, among other things, as a condition for an increased quota in the EU textile market .
18. Ministry of Finance, supra note 16, at 6.
19. Id . at 5.
20. Id . at 5; see also, Ministry of Finance , Vietnam's Economic and Social Statistic Data in the First Quarter of 2005 (Jun . 26, 2005 ), available at http://www.mofa.gov.vn/en/tt_baochi/nr041126171753/ns050628153332.
21. Ministry of Finance, supra note 16.
41. Id .
42. Id . art. II:1.
43. WTO Dispute Appellate Body Report , European Community-Regime for the Importation, Sale and Distribution of Bananas, para . 234, WT/DS27/AB/R (adopted on Sep. 25 , 1997 ).
44. GATS, supra note 2, at art. II:3.
45. GATS, supra note 2, at art. V.
46. GATS, supra note 2, at art. XVI:2.
47. The Appellate Body found that in the context of Article XVI:2 (a) and (c), any measure prohibiting supply of services that constitutes a zero quota is quantitative limitation . See WTO Dispute Appellate Body Report, United States-Measures Affecting the Cross-Border Supply of Gambling and Betting Services, para. 214 , 238 , 251, WT/DS285/AB/R, (adopted on April 20 , 2005 ).
48. GATS Article XVII on national treatment would enjoy a broad scope of obligation due to the uncertainty in determination of “like” services and service suppliers, and the broad coverage of “no less favourable” treatment between domestic and foreign services and services suppliers. For further discussion, see Vu Nhu Thang, Interpreting GATS national treatment principle: Possibilities and problems of transplant from GATT, 32 FORUM OF INT'L DEV . STUD. 173 ( 2006 ).
49. WTO, Vietnam-Schedule of Specific Commitments , GATS/SC/142, at 42-43, (Mar. 19, 2007 ).
50. Id .
51. Id .
52. Id .
53. Id . 2006 ).
57. Law on Signing, Acceding to, and Implementing International Treaties (Jun. 14 , 2005 ) ( Vietnam) [hereinafter Law on Treaties] , art. 2 .1.
58. Resolution of the National Assembly No. 51/2001/QH10 (Dec. 25 , 2001 ), on amendment of and addition to the 1992 Constitution of the Socialist Republic of Vietnam (Vietnam), para . 17 .
59. Law on Treaties, supra note 57 , at art. 31 .
60. For example, in insurance services, Vietnam commits to open market access for foreign non-life insurance companies to supply insurance services in Vietnam in the form of branches, while this form is prohibited in Vietnam Insurance Law .
61. Resolution of the National Assembly No. 71 /2006/NQ-QH11 (Nov. 29 , 2006 ), on ratifying the Protocol of Accession to the WTO Agreement (Vietnam) [hereinafter Resolution 71] .
62. Law on Treaties, supra note 57 , at art. 71 .2( c ).
63. Qingjiang Kong , China's WTO Accession: Commitments and Implications , J. OF INT'L ECO . L. 655 , 679 ( 2000 ).
64. Law on Treaties, supra note 57 , at art. 31. See also Resolution 71, supra note 61, at para. 3.
79. Id .
80. Id .
81. International Association of Insurance Supervisors, Sub-Committee on Solvency and Actuarial Issues , Issues Paper on Solvency, Solvency Assessments and Actuarial Issues 7 ( Mar . 15, 2000 ), available at http://www.iaisweb.org.
82. Law on Insurance Business, supra note 311 , at art. 96 .2.
83. Decree 46/ 2007 /ND-CP dated Mar . 27 2007 of the Government regulating financial issues of insurance enterprises and insurance brokerage enterprises (Vietnam), art. 8 and 9 .
84. Jorg Vollbrecht , Insurance Regulation and Supervision, POLICY ISSUES IN INSURANCE: INSURANCE REGULATION AND SUPERVISION IN THE OECD .
85. The International Association of Insurance Supervisors (the “IAIS”), established in 1994, represents insurance regulators and supervisors of some 180 jurisdictions in more than 130 countries, as well as more than 100 observers representing industry associations, professional associations, insurers and re-insurers, consultants and international financial institutions. The IAIS was formed to promote cooperation between insurance regulators and supervisors in improved supervision of insurance industry on domestic and international levels. In doing so, the IAIS issues global insurance principles, standards and guidance papers. For more information, visit the IAIS's homepage , at http://www.iaisweb.org.
86. International Association of Insurance Supervisors, Insurance Core Principles and Methodology 34 (Oct. 30 , 2003 ).
87. Id .
88. Viviane Leflaive , Comparative Analysis , INSURANCE SOLVENCY SUPERVISION: OECD COUNTRY PROFILES 45 (OECD , 2002 ).
89. International Association of Insurance Supervisors, supra note 81 , at 25.
90. Accounting Law (Jun. 17, 2003 ) (Vietnam), art. 29.3.
91. Law on Insurance Business, supra note 31 , at art. 104 .
92. International Association of Insurance Supervisors, Task Force on Enhanced Disclosure, Guidance Paper No. 4 on Public Disclosure by Insurers 7 ( Jan . 2002 ).
93. International Association of Insurance Supervisors, supra note 81 , at 9.
94. International Association of Insurance Supervisors, supra note 86 , at 42-43.
95. Chris O'Brien, The Regulation of Life Assurers in a Law Solvency Environment: The UK Experience, 23(3) ECON . AFF. 16 , 19 (Sept. 2003 ).
96. Law on Insurance Business, supra note 31 , at art. 102 .
97. International Association of Insurance Supervisors, Guidance Paper No. 7 on The Use of actuaries as part of a supervisory model 5 (Oct . 2003 ).
98. Council Directive 91/674, On the Annual Accounts and Consolidated Accounts of Insurance Undertakings , 1991 O.J. (L 374) (EC).
99. Council Directive 2002 /83/EC, art. 17 .1 ( a ), 2002 O.J. (L 345) 1, (concerning life assurance ); Council Directive 2005 /68/EC, art. 31 .1 2005 O.J. (L 323) 1, (on reinsurance).
100. Ministry of Finance, Circular on Insurance Business, Providing guidelines for implementation of Decree 42-2001-ND-CP of the Government dated 1 August 2001 providing detailed regulations for implementation of a number of articles of the Law on Insurance Business, § I.1.1 . 2 ( 19 October 2004 ) (Vietnam).
101. Id. § I.1.1.1.
102. Chris Dykin , The Role of the Actuary in the Supervision of Insurance, INSURANCE REGULATION AND SUPERVISION IN ASIA 272 (OECD 1999 ).
103. International Association of Insurance Supervisors, supra note 97.
104. Japan Insurance Business Law art. 121.1 ( 2001 ),
105. Id ., art. 121.2.
106. KOJI KINOSHITA , ECONOMIC REGULATION AND COMPETITION: REGULATION OF SERVICES IN THE EU, GERMANY AND JAPAN 200- 01 (Jurgen Basedow et al. eds., Kluwer Law International, 2002 ).
107. Model Laws , Regulations and Guidelines 822 -1 § 5 .A, Actuarial Opinion and Memorandum Regulation (Nat'l Ass ' n of Insurance Commissioners 2006 ) ; Model Laws, Regulations and Guidelines 745-1 § 2.A, Property and Casualty Actuarial Opinion Model Law (Nat'l Ass ' n of Insurance Commissioners 2006 ).
108. Model Laws , Regulations and Guidelines 822 -1 § 4 .A, Actuarial Opinion and Memorandum Regulation (Nat'l Ass ' n of Insurance Commissioners 2006 ).
109. Model Laws , Regulations and Guidelines 745 -1 § 2. C , Property and Casualty Actuarial Opinion Model Law (Nat'l Assn ' of Insurance Commissioners 2006 ).
110. Law on Insurance Business, supra note 31 , at art. 63 .1.
111. Id . art. 77 .3.
112. Vollbrecht , supra note 84, at 37.
113. International Association of Insurance Supervisors, supra note 86 , at 39.
114. Leflaive , supra note 88, at 28.
115. Gerry Dickinson , The Changing Focus in the Supervision of Insurance Company Investment, INSURANCE REGULATION AND SUPERVISION IN ASIA 340 ( OECD , 1999 ).
116. Directive 2002 /83/EC, supra note 99, at art. 27.2 and 3; Directive 2002 /13/EC of the European Parliament and the Council of Mar. 5, 2002 amending Council Directive 73 /239/ EEC as regards the solvency margin requirements for non-life insurance undertaking , art. 1.2; Directive 2005 /68/EC, supra note 99, at art. 36.1 , 36 .3. The available solvency margin, however, shall be reduced by the amount of own shares directly held by the insurers/re-insurers.
123. Law on Insurance Business, supra note 311, art. 98.2.
124. Decree 46, supra note 83, art. 13 .
125. International Association of Insurance Supervisors, supra note 86 , at 35.
126. Leflaive , supra note 88, at 26.
127. Joseph A . Fields , James B. Ross , Chinmoy Ghosh, and Keith B. Johnson , Junk Bonds, Life Insurer Insolvency, and Stock Market Reactions: The Case of First Executive Corporation, J. FIN. SERV. RES . 95 , 108 ( 1994 ).
128. Kathy Ruby Petroni , Optimistic Reporting within the Property-Casualty Insurance Industry, 15 J. ACCT. AND ECON . 485 , 504 ( 1992 ).
129. Lai , supra note 24, at 27-28.
130. Directive 2002 /83/EC, supra note 99, at art. 24.1; see also Council Directive 92 /49/EEC of Jun. 18 , 1992 on the coordination of laws, regulations and administrative provisions relating to direct insurance other than life insurance and amending Directive 73 /239/EEC and 88/357/EEC ( third non-life insurance Directive) , art. 22.1.
131. NAIC, INVESTMENTS OF INSURERS MODEL ACT ( 2004 ), § 7 .
132. Id . at § 8.A.
133. Id . at § 8.B.
134. Japan Insurance Business Law, supra note 104, at art. 97-2 .1.
135. Id . art. 118 .1.
136. The General Insurance Association of Japan, supra note 119, at 81.
137. An expansion of banks to the insurance sector is evidenced by the establishment of BIDV-QBE Insurance Company Limited in 1999, a joint-venture between Bank for Investment and Development of Vietnam and Australian QBE Insurance Group, as well as the establishment of Incombank-Asia Insurance Company Limited in 2002, a joint-venture between Industrial and Commercial Bank of Vietnam and Asia Insurance Company to conduct non-life insurance .
138. Decision 310/ 2005 /QD-TTg, supra note 72, at art. 1 .2( g ), 1.2(i).
139. Kuan-Chun Chang , The Supervision of Financial Conglomerates in China in the Post WTO Era - The Challenges of Risk Concentration and Risk Contagion, 11 U. MIAMI INT'L & COMP. L. REV . 1 , 2 ( 2003 ).
140. Harold D. Skipper , Jr., Liberalization of Insurance Markets: Issues and Concerns, POLICY ISSUES IN INSURANCE: INSURANCE REGULATION AND SUPERVISION IN THE OECD COUNTRIES 99 , 105 - 08 ( OECD , 2001 ). Cost advantages of financial conglomerates could materialize through economies of scale (increase in production leading to decrease of average cost), economies of scope (multiple products produced at less cost than the sum of costs to produce each separately), and operational efficiencies. Revenue effect might materialize through economies of scope in consumption and market power .
149. Id . § II-2 .2.
150. Japan Insurance Business Law, supra note 104 , at art. 271 - 13 .1.
151. NAT'L ASS'N OF INS . COMM'RS, INSURANCE HOLDING COMPANY SYSTEM REGULATORY ACT 440-1 ( 2006 ).
152. N.Y. INS. LAW § 1504 (a) ( McKinney 2007 ).
153. Id . § 1504 (b).
154. Law on Insurance Business, supra note 31 , at art. 78 .1.
155. See id. arts. 79 , 80 .
156. Harold D. Skipper , Jr. and Robert W. Klein , Insurance Regulation in the Public Interest: The Path Towards Solvent , Competitive Markets, 25 ( 4) THE GENEVA PAPERS ON RISK AND INSURANCE 482 , 496 ( 2002 ).
157. Vollbrecht , supra note 84, at 54.
158. Alan Sekiguchi , Policyholders Protection Funds in OECD Countries, INSURANCE REGULATION AND SUPERVISION IN ASIA 367 ( OECD , 1999 ).
159. Takahiro Yasui , Policyholder Protection Funds: Rationale and Structure, POLICY ISSUES IN INSURANCE: INSURANCE REGULATION AND SUPERVISION IN THE OECD COUNTRIES 303 , 305 - 309 ( OECD , 2001 ).
160. See European Commission , Insurance Guarantee Schemes: State of Play and Orientation of the Future Work , Discussion Paper MARKT/2517/02-EN 4 ( 2002 ), available at http://ec.europa.eu/internal_market/insurance/docs/markt-2517/markt2517-02_en.pdf.
161. Yasui , supra note 159, at 309.
162. Paul G. Roberts, Insurance Company Insolvencies and Insurance Guaranty Funds: A Look at the Nonduplication of Recovery Clause, 74 IOWA L . REV. 927 , 932 ( 1989 ).
163. Jeff Hawkins , Comment, Which Faultless Party Will Be Forced To Pay For Another's Failure? A Proposal For Legislatively Extending The Use of State Guaranty Funds to Absorb the Orphan Shares of Long-tail Claims, 37 TEX . TECH L. REV. 215 , 237 ( 2004 ).
164. European Commission, supra note 160 , at 5.
165. See id.
166. There is no common approach to policyholder protection funds because the EU is in the process of harmonizing its insurance guarantee system. A draft Directive on policyholder protection funds addresses the problem of moral hazard by setting the coverage of compensation up to 90 percent of both life and non-life claims which are above 100 Euro . See European Commission, Working Paper on Insurance Guarantee Schemes: Meeting on Jun. 1 , 2005 , MARKT/25/2/05-EN 6, 8 ( 2005 ), available at http://ec.europa.eu/internal_market/insurance/docs/2005-markt-docs/markt-2512- 05_en.pdf
167. William Goddard , The Revolution of the Times: Recent Changes in U.K. Insurance Insolvency Laws and the Implications of Those Changes Viewed from a U.S. Perspective, 10 CONN . INS. L. J. 139 , 163 ( 2003 ).
168. See Nat'l Ass 'n of Ins. Comm'rs, Post-assessment Property and Liability Insurance Guaranty Association Model Act § 8(A ) ( 1996 ) ; see also Nat'l Ass'n of Ins. Comm'rs, Life and Health Insurance Guaranty Association Model Act § 3(C) ( 2001 ).
169. N.Y. INS. LAW § 7603 (McKinney 2007 ).
170. Nobuo Hara , Policyholders' Protection Measures in Japan, INSURANCE