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Asian News - Vietnam: Finance Ministry to set minimum reinsurance retention

Source: Asia Insurance Review | May 2016

The Ministry of Finance is proposing to limit the amount of reinsurance placed overseas, by stipulating a compulsory minimum retention level for insurers. 
   Mr Pham Thu Phuong, deputy head of Vietnam Insurance Supervisory Authority which is a unit under the Finance Ministry, said that the move was due to “certain issues with overseas reinsurance”, including the outflow of foreign exchange to reinsurers abroad, reported Vietnam Investment Review (VIR). The Ministry aims to increase the use of the Vietnamese dong in reinsurance.
   According to the Association of Vietnam Insurance (AVI), overseas reinsurance premiums currently account for a third of the domestic market’s total premiums collected, meaning one third of insurance revenues are sent outside Vietnam.
   Under prevailing regulations, the compulsory level of retention is set at a maximum of 10% of the equity on each risk or each separate loss. This requirement aims to reduce risk in large projects such as satellites, hydropower, or nuclear power plants, but fails to restrict premiums transferred overseas.
Half of business are reinsured overseas
“The move is to control enterprises which reinsure up to a massive 99.5% of their insurance premiums with overseas firms,” AVI’s General Secretary Phung Dac Loc told VIR.
   He pointed out that except for life and motor vehicle insurance policies, insurers on average place over 50% of their business with reinsurers overseas. 
   He said that the insurance capacity of domestic firms should be utilised to the utmost before turning to reinsurers abroad.
   Vietnam is currently home to around 60 insurance entities, including 29 non-life insurers, 17 life insurers, 12 insurance brokers and two local reinsurers, namely, Vietnam Reinsurance and PVI Reinsurance.
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