Reinsurance Activities of Vietnam National Reinsurance Corporation

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As noted earlier, an insurer’s ability to grow may be restricted by the unearned premium reserve requirement. This is because the entire gross premium must be placed in the unearned premium reserve when the policy is first written. The insurer also incurs relatively heavy first-year acquisition expenses in the form of commission, state premium taxes, underwriting expenses, expenses in issuing policy, and other expenses. In determining the size of the unearned premium reserve, there is no allowance for this first-year acquisition expenses, and the insurer must pay them out of its surplus.

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Provide protection against a catastrophic loss

Reinsurance provides financial protection against a catastrophic loss. Reinsurer pays part or all of the losses that exceed the ceding company’s retention up to some specified maximum limit.

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Other reasons

An insurer can use reinsurance to retire from the business or from a given line of insurance or territory. Reinsurance permits the insurer for existing insurance to transfer liability to another carrier.

An insurer can also obtain the underwriting advice and assistance of the reinsurer.

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Types of reinsurance

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Facultative reinsurance

Facultative reinsurance is an optional, case-by-case method that is used when the ceding company receives an application for insurance that exceed its retention limit.

This type of reinsurance has an advantage of flexibility because a reinsurance contract can be arranged to fit any kind of case. It can increase the insurer’s capacity to write large amount of insurance. The reinsurance tends to stabilize the insurer’s operation by shifting large losses to the reinsurer.

The major disadvantage of the type is uncertainty. The ceding insurer is does not know in advance if a reinsurer will accept any part of the insurance.

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Treaty reinsurance

Treaty reinsurance means the primary insurer has agreed to cede insurance to the reinsurer and the reinsurer has agreed to accept the business. There are several types of treaty reinsurance, including quota-share treaty, surplus-share treaty, excess-of-loss treaty and reinsurance pool.

- Quota-share treaty: Under a quota-share treaty, the ceding insurer and the reinsurer agree to share premium and losses based on some proportion. The ceding insurer’s retention limit is stated as a percentage rather than an amount of money. Premiums are also shared based on the same agreed-on percentage. However, the reinsurer pays a ceding commission to the primary insurer to help compensate for the expense incurred in writing the business.

- Surplus-share treaty: Under a surplus-share treaty, the reinsurer agrees to accept insurance in excess of the ceding insurer’s retention limit, up to some maximum amount. The retention limit is referred to as a line and is stated as an amount of money. Premiums are also shared based on the fraction of total insurance retained by each party. However, the reinsurer pays a ceding commission to the primary insurer to help compensate for the acquisition expenses.

- Excess-of-loss treaty: This type of reinsurance is designed largely for catastrophic protection. Losses in excess of the retention limit are paid by the reinsurance up to some maximum limit. The excess-of-loss treaty can cover a single exposure, a single occurrence or excess losses when the primary insurer’s cumulative losses exceed a certain amount during some stated time period such as a year.

- Reinsurance pool: A reinsurance pool is an organization of insurers that underwrites insurance on a joint basis. Reinsurance pool have been formed because a single insurer alone may not have the financial capacity to write large amounts of insurance, but the insurers as a group can combine their financial resource to obtain the necessary capacity. The method for sharing losses and premiums varies depending on the type of reinsurance pool. Pool works in two ways. First, each pool member agrees to pay a certain percentage of every loss. A second arrangement is similar to the excess-of-loss reinsurance treaty. Each pool member is responsible for its own losses below a certain amount. Losses exceeding that amount are shared by all members in the pool.

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Overview of Vietnam National Reinsurance Corporation

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Historical milestones

1994

Founding of VINARE as the first domestic reinsurance company with initial charter capital of VND 40 billion.

2001

The head quarter building was inaugurated and put into operation.

2004-2005

- Successfully equitized and started operation as Corporation with charter capital of VND 500 billion.

- 13 indirect insurers as strategic shareholders committed to cede to VINARE

2006

The first enterprise listed in insurance industry and the tenth enterprise listed on Hanoi Stock Trading Center.

2007-2008

- Increased the paid-up capital to VND 627 billion.

- Swiss Re became strategic partner (25% stake)

2011

Issued bonus shares to increase paid-up capital to VND 1,008 billion and total assets reached VND 3,898 billion

2012-2013

- Corporate restructuring

- New IT system (WebXL) be put in use

- Assigned a financial strength rating of B++ (good) and issuer credit rating of “bbb” by A.M Best Asia-Pacific Ltd

2014

Issued bonus shares to increase charter capital to VND 1,310 billion. Received Third Class Independence Order of the State on the 20th Anniversary of