Financial scrutiny of insurers to bolster transparency

September 13, 2022 | 09:55
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Insurance companies, reinsurance businesses, and foreign insurers must now widely publicise their financial statements, according to an official letter from the Ministry of Finance’s Insurance Supervision and Administration Department issued last month.

The department is drafting guiding papers for the updated Law on Insurance Business that goes into effect at the start of 2023, while insurance businesses must quickly upgrade their procedures to comply with the new standards.

Financial scrutiny of insurers to bolster transparency
Financial scrutiny of insurers to bolster transparency-illustration photo/ source:

PVI Insurance, one of Vietnam’s major non-life insurers, only provided summary financial results from 2013 to 2019. In 2020 and 2021, the firm did not issue any financial statements, even in summary form.

In the non-life insurance segment, companies such as HD Insurance Company, Xuan Thanh Insurance Corporation, Phu Hung Insurance JSC, Cathay Vietnam Non-Life Insurance Company, and MSIG Vietnam have not disclosed comprehensive financial statements.

Several firms make their financial statements available on their websites, but only to shareholders who have registered an account and been granted access.

Some life insurers, such as Hanwha Life, have released executive financial summaries instead of full financial information. Several insurance firms, including Cathay Life, BIDV MetLife, and Bao Viet Life, have not yet released their 2021 audited financial results.

Meanwhile, insurance firms (including brokers) must provide certain disclosures on their websites under the existing rules set out in a circular in 2017 on the Law on Insurance Business. Within 120 days of the fiscal year ending, all of a company’s audited financial statements and the opinions of an independent auditor must be publicly disclosed.

While disclosing financial information is important for shareholders, partners, and customers to understand the financial health of their companies and make sound investment decisions, this practice is often overlooked.

According to Nguyen Ngoc Phu, founding partner at NPLaw, although the current law has provisions on the obligation to disclose insurance information, there is no specific regulation on violations. “Decree No.156/2020/ND-CP dated December 2020 is the sole legislative framework on administrative sanctions for violations in the securities market, which only stipulates violations of public companies. For insurance companies that are not in this category, there are no sanctioning procedures. Because of this legal loophole, many companies seem reluctant to engage in this initiative,” Phu said.

Bui Quoc Tuan of the Ho Chi Minh City Bar Association said this could be considered against the law for listed companies that disclose financial information strictly for shareholders. As current regulations require financial information to be made public with no limitation, viewers should not have to obtain a shareholder account to access financial reports through company websites.

“The more transparent an insurance company is with its financial information, the more confidence it creates for customers and investors. Refusing to disclose full financial statements as prescribed is unintentionally self-harming,” Tuan said. “Like a bank or a securities company, an insurance company is a financial institution with a large cash flow. Therefore, the more public they are, the better.”

Going forward, the revised insurance business law will require insurance firms to disclose the results of retrospective adjustments to financial statements, change in independent auditors, and periodic information on the actual capital and capital adequacy ratio. Also, industry insiders hope for regulations on a standardised information disclosure procedure and stronger compliance supervision.

Law on Insurance Business and amendments

Annually, insurers, foreign branches, and insurance brokers must publish financial information following Article 82 of Decree No.73/2016/ND-CP and the following regulations:

- Publish financial statements that have been audited enclosed with opinions of the independent auditor on their website;

- Publish the details below in a newspaper in three consecutive issues: Annual report (form No.1-CBTT) and financial statement summary (form No.2-CBTT). The published information shall enclose with the opinions of the independent auditor;

- Apart from the forms of publishing prescribed in point a) and b), the insurer/foreign branch or insurance broker may, at its own discretion, publish information in the form of publications, written notices to regulatory agencies, press conferences, radio or television stations;

- The publishing of information prescribed in point a) and b) must be carried out within 120 days of the end of the fiscal year. Within 10 days of publishing the annual report and financial statement summary, the insurer/foreign branch or insurance broker must send original copies and photocopies of the published information to the Ministry of Finance;

- The information must be published promptly and precisely. Any change of the published information must go through formalities prescribed in points a), b), and d), accompanied by an explanation;

- Public companies shall publish information as prescribed by law.Source: Ministry of Finance

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