Decision No. 102/2007/QD-BTC dated December 14, 2007 of the Ministry of Finance issuing regulations on underwriting unit linked insurance
Article 1. To issue with this Decision Regulations on Underwriting Unit Linked Insurance as part of investment linked insurance.
Article 2. This Decision shall be of full force and effect fifteen (15) days after the date of its publication in the Official Gazette.
Article 3. The Head of the Office of the Ministry; the Director of the Insurance Department; the Chairman of the State Securities Commission; life insurers; and other organizations, individuals and parties involved shall be responsible for implementation of this Decision.
ON UNDERWRITING UNIT LINKED INSURANCE
Article 1. Governing scope
These Regulations regulate the underwriting by life insurers and by other related organizations and individuals of unit linked insurance products within the territory of the Socialist Republic of Vietnam.
Article 2. Unit linked insurance
Unit linked insurance means a life insurance product within the category of investment linked insurance products, with the following special characteristics:
1. The premium structure and the insurance benefits are clearly distinguished as between the risk insurance component and the investment component. The insurance purchaser has flexibility in deciding the premium and the assured sum pursuant to agreements in the insurance contract.
2. Policyholders are entitled to select to invest their premiums to purchase units in Unit Funds established by the insurer, and are entitled to the entire results of investments from such selected Funds and bear the investment risks of such selected Funds in proportion to their invested premiums.
3. The insurer is entitled to all premiums which policyholders pay in accordance with agreements in the insurance contracts.
Article 3. Interpretation of terms
1. Unit Fund means a Fund formed from premiums from policyholders of unit linked insurance contracts and shall be a component of policyholders' funds.
2. A unit in a Unit Fund means an equal part after the assets of such Fund have been divided into a number of equal parts.
3. Selling price means the price of one unit in a Unit Fund when the insurer sells a unit to a policyholder.
4. Purchase price means the price of one unit in a Unit Fund when the insurer purchases a unit from a policyholder.
5. Valuation day means the day on which the insurer conducts valuation of the selling price and the purchase price of one unit in a Unit Fund.
6. Next valuation day means the valuation day immediately after the day on which the insurer receives a request from a policyholder for the purchase or sale of a unit in a Unit Fund.
Article 4. Conditions in order for insurers to underwrite unit linked insurance
A life insurer must satisfy all the following conditions in order to underwrite unit linked insurance:
1. The solvency margin of the insurer must be two hundred billion dong greater than the minimum (stipulated) solvency margin.
2. The insurer must have an information technology system which is appropriate for managing and controlling its Unit Funds in a meticulous and effective manner.
3. The insurer must have the capacity to value assets and units in Unit Funds objectively, accurately and periodically at least once each week, and to publicly announce the purchase price and selling price of units in Unit Funds to policyholders.
4. Insurance agents who are recruited, trained and employed to sell unit linked insurance must satisfy all the requirements stipulated in article 25 of these Regulations.
5. Unit linked insurance products must be approved by the Ministry of Finance.
DESIGN OF PRODUCTS
Article 5. Unit linked insurance products
1. A life insurer must comply with the provisions of this Chapter and of other relevant laws when designing its unit linked insurance product.
2. The name of a unit linked insurance product and the names of Unit Funds must be clear, must be consistent with the nature of the product and the investment objectives for the assets in each Unit Fund, and must ensure that purchasers of insurance are able to distinguish the product in question from other products.
Article 6. Unit linked insurance benefits
1. Insurance benefits pursuant to a unit linked insurance policy shall include risk insurance benefits and investment benefits.
2. Risk insurance benefits: The insurer and the insurance purchaser may agree on risk insurance benefits which must ensure that the minimum benefit in the case of death of the insured person is:
(a) Thirty five million dong, or one hundred and twenty-five (125) per cent of the premium, whichever is the higher sum, in the case of a policy for which the premium is paid on one single occasion.
(b) Thirty five million dong, or five (5) times the annual premium paid, whichever is the higher sum, in the case of a policy with periodic premium payments.
(c) The insurer may stipulate a provision on benefits in the case of death of an insured person aged sixty (60) or above below the amount stipulated above, but the benefit must be a minimum of thirty five million dong.
(d) The [above] provisions on the minimum benefit payable in the case of death of the insured person shall not apply to additional premium payments stipulated in article 8 of these Regulations.
(dd) An insurer may provide auxiliary insurance products with a unit linked insurance policy, and the method of paying premium for such auxiliary products shall be as agreed by the parties when they enter into the contract.
3. Investment benefits: The policyholder shall be entitled to select to invest his or her premiums in Unit Fund/s established by the insurer, and shall be entitled to the entire results of investment by such selected Fund/s and shall bear the investment risks of such selected Fund/s in proportion to his or her invested premiums.
4. The insurer and the insurance purchaser may agree on the contents and method of payment of insurance benefits on the occurrence of the assured event pursuant to the provisions in clauses 2 and 3 of this article.
Article 7. Fees
1. An insurer shall only be permitted to charge the following types of fees:
(a) An initial fee being the total amount of money which the insurer is permitted to deduct prior to allocating premium to Unit Funds.
(b) A risk insurance premium being the fee in order to pay risk insurance benefits in accordance with undertakings in the insurance contract.
(c) A policy administrative fee being the fee to cover costs of maintaining the policy and of supplying information regarding the policy to the policyholder.
(d) A fund management fee used to pay the costs of managing the Unit Funds.
(dd) Fees on changing between Unit Funds being a fee which the policyholder must pay to the insurer when changing investment assets between Unit Funds. The policyholder shall have the right to change between Unit Funds free of charge for the first occasion of change in each contract year.
(e) A policy cancellation fee being the fee charged to clients for cancellation of a policy prior to its date of maturity and designed to cover relevant reasonable expenses.
(g) Any other fees shall be subject to [prior] written approval from the Ministry of Finance.
2. An insurer must calculate the above-mentioned fees accurately, fairly and reasonably, and must ensure they are appropriate for the product as approved by the Ministry of Finance. The insurer must notify the insurance purchaser of the fees when entering into the contract.
3. A unit linked insurance contract must specify the maximum fees applicable to the insurance purchaser. The insurer must publicly, clearly and fully disclose all types of fees, the method of calculating them, and the maximum rate of fees applicable to insurance purchasers in its data introducing the product and in its data explaining sale of the product.
4. During the process of performance of a contract and within the maximum quotas stipulated in the insurance contract, the insurer may change the ratios of all types of applicable fees after notifying the policyholder and reaching agreement in writing with the policyholder at least three (3) months prior to officially making such change.
Article 8. Additional premium payments
1. A policyholder may, in addition to the premiums agreed in advance in the insurance contract, pay additional premium for the purchase of units in Unit Funds.
2. All additional premiums which are paid shall be invested in Unit Funds after deducting an initial fee.
3. In each year of the contract, the total amount of additional premiums paid shall not exceed ten (10) times the premium for the initial year in the case of a policy with periodic premium payments, or shall not exceed the amount of the initial premium in the case of a policy for which a single premium payment is made.
Article 9. Unit Funds in the case of policies for which a single premium payment is made
In the case of policies for which a single premium is made on one occasion, an insurer shall be responsible to design the insurance product to ensure that premium of the policyholder shall only be sufficient to purchase units in Funds with an investment ratio below the form of that for bank savings deposits, Government bonds and other securities with a fixed return not less than sixty (60) per cent of the total asset value of such Unit Fund.
Article 10. Surrender value
The surrender value of any one unit linked insurance policy shall be determined on the basis of the purchase price of a unit in a Unit Fund on the next valuation day immediately after the date of cancellation of the contract less the fee for cancellation of the contract.
RESPONSIBILITIES OF INSURERS TO DISCLOSE INFORMATION
Article 11. Information about unit linked insurance
1. An insurer shall be responsible to announce accurately, completely and promptly to a policyholder information about the unit linked insurance contract which was signed. The information supplied to the policyholder must be appropriate for the unit linked insurance product as approved by the Ministry of Finance.
2. An insurance purchaser shall have the right to require the insurer to supply him or her with complete information and to explain the insurance clauses and conditions in order for the insurance purchaser to have a clear understanding of the relevant risks when entering into the unit linked insurance contract.
3. An insurer shall be responsible to announce on its website the following information and data:
(a) The Rules, and clauses of the insurance product as approved by the Ministry of Finance;
(b) Data introducing the product;
(c) Data explaining sale of the product and typical cases;
(d) Operational status of its Unit Funds;
(dd) Price of one unit in a Unit Fund.
Article 12. Data introducing products
An insurer shall write its own data introducing its product, and must use such data in compliance with law and the following provisions:
1. Information in the data introducing a product must be accurate, objective, complete and truthful, and it must be appropriate for the unit linked insurance product as approved by the Ministry of Finance.
2. Data introducing a unit linked insurance product must, in addition to compliance with the general regulations applicable to life insurance, contain a minimum of the following information:
(a) All types of Unit Funds of the insurer, and the nature of investment risks and the investment policy of each Unit Fund.
(b) Information to the effect that policy benefits will fluctuate depending on the operational results of the Unit Funds and that the purchaser of insurance must bear all investment risks.
(c) Circumstances in which the insurer is entitled to temporarily cease the sale or purchase of units in Unit Funds.
(d) Ratio of allocation of premium to purchase units in a Unit Fund and method of calculating the initial fee, the Fund management fee, the insurance risk fee and any other fees. This information must include an illustrative example and the method of allocating premium to the purchase of units in Unit Funds.
(dd) All of the guaranteed benefits to the policyholder must be clearly specified, including the maximum fees and the minimum insurance benefits on the death of the insured person, and the benefits receivable on maturity of the policy and on cancellation of the policy. The insurer must also clearly notify the policyholder of all non-guaranteed benefits.
(e) The basis and periodical times for valuing assets in Unit Funds.
(g) Operational results of all the current Unit Funds for the most recent five (5) consecutive years, or for the entire duration for which the Funds have been established and operating if such period is less than 5 years. The insurer must specify the above information being past operational results in order for policyholders to refer to same, and not for the purpose of promising that operational results of the Funds in the future will be similar.
(h) Clear information explaining to the insurance purchaser that signing a unit linked insurance contract is a long-term commitment and that the insurance purchaser should not cancel the contract because the fees payable may be very high during the initial period of the contract.
Article 13. Data explaining sale of the product
Data explaining sale of the product must comply with law and the following provisions:
1. Data explaining sale of a unit linked insurance product must be provided to clients prior to their entering into the contract and must contain the minimum information stipulated in Appendix 1 to these Regulations.
2. The insurer must clearly explain to the insurance purchaser the benefits which the client may receive when entering into the insurance contract, including risk insurance benefits and benefits receivable from Unit Funds.
3. The actual investment rates of each Unit Fund must be calculated on an annual basis and must differentiate between each Fund. The actual investment rates shall be calculated on the basis of net profits of the Fund within the previous five (5) years, or within the period for which such Fund has been in existence if it is has not been operating for 5 years. The insurer must explain to purchasers of insurance for their information that the listing of investment rates does not concern the difference between selling prices and purchase prices and does not relate to other fees which may be additionally charged to the purchaser of insurance.
4. The fees and the maximum quotas which the policyholder must pay must be clearly explained on the basis of a clear distinction between premiums payable for risk insurance benefits and other fees payable.
5. If a unit linked insurance contract includes auxiliary insurance benefits, then the insurer must clearly explain these in its data explaining sale of the product and must also explain the impact of such auxiliary products on the insurance purchaser.
6. Data explaining sale of a product must be set out clearly, must be easy to understand, and must not encourage a false expectation about the amount of money receivable.
Article 14. Insurance contracts
A unit linked insurance contract must comply with law and must contain all of the following information:
1. Benefits and the regime for linking benefits to operational results of Unit Funds selected by the policyholder.
2. Objectives and investment policies of Unit Funds.
3. Ratio of allocation of premium for purchase of units in Unit Funds.
4. Ratios, specific sums of money, maximum levels and method of calculating fees relating to the unit linked insurance contract.
5. Method of valuing one unit in a Unit Fund.
6. Choices which the insurance purchaser has in order to change risk benefits, to change the ratio of premiums allocated to Unit Funds, to change premiums and to change between Funds, and the grace period for payment of premiums.
7. Provisions specifying circumstances in which the insurer is permitted to apply the following measures to protect and increase benefits of policyholders:
(a) Closure of a Unit Fund in order to transfer all the assets into a new Unit Fund with the same investment objectives;
(b) Changing the name of a Unit Fund;
(c) Separation or merger of currently existing Unit Funds;
(d) Suspension of valuation of units in Unit Funds and of transactions relating to policies in a case where a Securities Trading Centre and/or Stock Exchange on which Unit Funds are currently investing temporarily suspends trading;
(dd) Other measures as required by the competent State body or as stipulated by law.
An insurer which applies any of the measures stipulated in sub-clauses (a), (b), (c) and (dd) above must provide written notice to policyholders three (3) days in advance.
Article 15. Notification to policyholders about policy status
An insurer must provide written notice to policyholders of the following items, within a time-limit of ninety (90) days from the end of the financial year or from the end of a contract year:
1. Status of the unit linked insurance policy including the following information:
(a) Number and value of units in Unit Funds held at the beginning of the report year;
(b) Number and value of units in Unit Funds which were purchased [or] sold during the report year;
(c) Number and value of units in Unit Funds at the end of the report year;
(d) Fees arising during the year;
(dd) Total insurance premiums paid and amount of such premiums allocated to purchase of units in Unit Funds within the year of the report;
(e) Risk insurance benefits and surrender value at the beginning of the report year;
(g) Risk insurance benefits and surrender value at the end of the report year.
2. Operational results of a Unit Fund in which the policyholder has units, with the following particulars:
(a) Summarized information about the financial status of the Unit Fund on the standard form stipulated in Appendix 2 issued with these Regulations;
(b) Investment objectives of the Unit Fund and the method for allocating assets at the time of the report;
(c) Analysis of the operational status of the Unit Fund in the five (5) most recent years regarding the net investment ratio of the Unit Fund, or such information for the period during which the Unit Fund has been in existence in the case of a Fund operating for less than five years;
(d) Fees payable relevant to the Unit Fund and other expenses arising within the ye
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