Life Insurance Market Heats up with New Investors

Vietnamese Minister of Finance Nguyen Sinh Hung, on the behalf of the Vietnamese Government, handed over investment licenses to New York Life and ACE INA International Holdings, two of the US’s largest insurance companies, at the recent Vietnam-US Business Forum. After 10 years Vietnam opened its insurance market to foreign enterprises, the country now has some 10 operational insurance companies and about 30 other representative offices waiting for licenses. Previously, the State-owned Vietnam Insurance Corporation (Bao Viet) was the only insurance provider in the country.

 

The average annual growth rates of non-life insurance and life insurance are estimated to reach 34 per cent and over 60 per cent respectively, while insurance revenues are on the continuous rise, accounting for 2 per cent of GDP in 2004, up from 0.37 per cent of GDP in 1993. The total revenues of the commercial insurance sector were forecast to reach nearly VND8,000 billion (US$500 million) in the first six months of 2005, up 18 per cent on year, and were predicted to be VND17,000 billion (US$1.06 billion), accounting for 2 per cent of GDP. According to the Ministry of Finance, aggregate insurance premiums in Vietnam may make up 4.2 per cent of GDP by 2010. In the life insurance market segment alone, Bao Viet recorded a total turnover of VND750 billion (US$46.87 million) in the first quarter of 2005, holding 41.8 per cent of the market share, followed by Prudential Vietnam with VND660 billion (US$41.25 million) or 36.8 per cent of market share, Manulife with 11.7 per cent, AIA with 6.6 per cent and Bao Minh CMG with 3.1 per cent.

 

The life insurance market in Vietnam is developing into a new era, which will spark off a fiercer competition not only in products but also in service quality and enclosed services. Currently, several insurers have begun introducing products that are more practical and suitable for locals to attract more clients. Even, the American life insurer AIA has launched the new life insurance product “An Tam Bao Gia” with the lowest annual premium of VND135,000 (US$8.43), or VND400 (2.5 US cents) a day. To buy this accident insurance product, clients only need occupations for the company to determine occupational risks. The French-invested Prévoir Vietnam is the first to use post office systems nationwide to sell its life insurance products, instead of selling through individual agents and banks, the main distribution channels of other companies. The newly licensed ACE Life, apart from developing its agent network, will introduce many products that are still unavailable in Vietnam but suitable for all social classes. ACE Life will also design special products for the wealthy.

 

Life insurance companies in the country also cooperated with several other service providers of various fields in order to provide better customer care activities. For example, Prudential has signed a deal with the Bank for Foreign Trade of Vietnam (Vietcombank) to open insurance premium transaction services for Connect 24 credit card holders and open life insurance transaction counters at banks, aiming to save up times for its clients who can use both banking services and insurance services at Vietcombank. All insurance procedures such as agreement forms and insurance premium payments can be carried out at insurance consulting counters at Vietcombank transaction locations.

 

Vietnam Life Insurance Company (Bao Viet Life), the current largest life insurer in the country, has extended its businesses in all provinces and cities nationwide. According official statistics, Bao Viet Life has reported total accumulated insurance premiums of nearly VND13,000 billion (US$812.5) to date, and in the first six month of 2005, the company reported total insurance premiums of VND1,550 billion (US$96.87 million), financial investment turnover of VND350 billion (US$21.87 million) and insurance compensation of VND775 billion (US$48.43 million).

 

Prudential Vietnam, after nearly five years of operation, has nearly two million clients and extends its services to over 45 provinces and cities nationwide. Prudential Vietnam’s investment capital also increased to US$75 million, becoming the largest foreign-invested insurance company operating in Vietnam. By the end of 2004, Prudential Vietnam attained total insurance premiums of VND3,100 billion (US$193.75 million) and made a profit of VND61 billion (US$3.81 million). The year 2004 is the first year Prudential Vietnam made a profit since it began operations in Vietnam.

 

AIA Vietnam, in the past five years, also reaped remarkable successes with over 10,000 professional insurance brokerages. AIA Vietnam now has 20 offices and over 200,000 clients nationwide.

 

The Canadian-owned Manulife Vietnam presently serves over 300,000 clients through its 4,000 agents. In 2004, it recorded total insurance premiums of VND880 billion (US$55 million). Manulife Vietnam is the first insurance companies in the country made a profit. In 2002, its first profit was over VND20 billion (US$1.25 million).

 

Higher reinvestment

According to official estimates, insurance companies reinvested VND23,000 billion (US$1.43 billion) from their insurance premiums into the economy in 2004. The figure showed a considerable contribution of insurance companies to the country. Prudential has recently invested a large sum of money in Kinh Do Corporation to help the latter build a new factory in Vietnam-Singapore Industrial Park in Binh Duong Province. Besides, the State Securities Commission allowed Prudential to set up Prudential Vietnam Fund Management Company (PFM) in Ho Chi Minh City in June 2005. PFM is the fifth fund management company operating in Vietnam after Vietnam Fund Management Co. (VFM), PXP Vietnam Fund, VinaCapital and Dragon Capital. However, it is the first fund management company opened by a life insurance company. Prudential Vietnam Fund Management Company, with a registered capital of VND23 billion (US$1.43 million), is now managing VND6,500 billion (US$420 million) authorized by Prudential Vietnam. Following Prudential, the Manulife Vietnam Fund Management Co. Ltd (VMFM Co. Ltd) was granted an establishment license in June 2005, with a chartered capital of VND5 billion (US$312,500). These two companies are authorized to set up and manage securities investment funds and provide financial and securities consultation services. According to the State Securities Commission, the establishment of fund management companies is an important advance in building and developing intermediary financial institutions. The establishment of these kind of companies also goes in line with the Government’s Vietnam Stock Market Development Strategy by 2010.