Insurance Firms to Enjoy Great Opportunities in 2006

In general, the growth rate of the Vietnamese insurance market was 8.66 per cent in 2005, considerably lower than 20.21 per cent in 2004. However with lower inflation rate (CPI in March was down 0.5 per cent versus February) and the entrance of two joint stock companies and four foreign-invested firms (AIG, ACE Life, Prevoir Vietnam and New York Life Vietnam into the insurance market, the Vietnamese insurance market will develop robustly in 2006.

 

According to recent statistics from the Ministry of Finance, operational insurance firms signed more than 820,000 life insurance policies in 2005, up 3.27 per cent, or 26,000 policies against 2004 but the total insurance revenue was down 5.73 per cent on year to VND20,626 billion (US$1.29 billion). The total life insurance premiums only reached VND1,348 billion (US$84.25 million), equalling 82.24 per cent compared with 2004.

 

Three out of five life insurance services suffered falling contracts and premium values. Lifetime insurance premiums fell from VND565 billion (US$35.31million) to VND331 billion (US$20.69 million), periodic insurance premiums dropped to VND28 billion (US$1.75 million) from VND105 billion (US$6.56 million), and complex insurance premiums plunged to VND15,452 billion ($965.75 million) from VND20,400 billion (US$1.28 billion). In addition, total cancelled insurance contracts in 2005 were over 747,000, including 331,000 first-year cancellations, equal to 4.5 per cent of effective policies and 40 per cent of total new policies.

 

However, according to Mr. Le Song Lai, Deputy Director of the Insurance Department under the Ministry of Finance, in spite of falling life insurance policies and increasing contract cancellations, the total number of effective policies in 2005 increased considerably. Notably, the premiums augmented VND28,720 billion (US$1.8 billion). With a rise in life insurance revenues, preventive funds were always enough to process indemnity. According to the Ministry of Finance’s figures, the total preventive funds of insurance firms reached VND20,383 billion (US$1.27 billion) in 2005, up 29 per cent against 2004. Therefore, they found no hardship international pay original premiums worth VND1,354 billion (US$84.63 million) and indemnities of VND766 billion (US$47.88 million).

 

Although the growth rate of life insurance segment is falling (up 4.05 per cent in 2005 vs 17.36 per cent in 2004), the non-life insurance segment made an on-year growth of 16.1 per cent. 18 out of 32 insurance firms are joint ventures or wholly foreign-owned enterprises, yet the non-life insurance segment is still dominated by four long-established Vietnamese firms (Bao Viet, Bao Minh, PJICO and PV Insurance), which hold 86.27 per cent of non-life insurance market. For example, PV Insurance (PVI) has a small legal capital of VND100 billion (US$6.25 million) but its revenues in 2005 still reached VND775.8 billion (US$485 million), up 27 per cent compared with 2004. The pre-tax profit was VND45 billion (US$2.8 million). Lai assessed: domestic insurance firms will dominate non-life insurance market although more international insurance firms may be licensed to operate in the country. 

 

Even in the life insurance market, which is provided by eight insurance firms, Bao Viet Life Insurance still has over 38 per cent of the market share and seven other firms hold the remainder. In 2005, in spite of shrinking life insurance market, Bao Viet Insurance held the second place with 27.38 per cent market share, nearly trebling that of the United States’ AIA. According to Lai, the general insurance market has been considerably improved after two years’ synchronous implementation of strategic solutions to develop the market, increase financial capacities and business abilities of all 32 insurance firms. The risk appraisal and loss prevention works have also been improved.

 

According to the Ministry of Finance, in the non-life insurance market, apart from falling aviation insurance and slow-growing agriculture, business and financial risk insurance, other services are still developing strongly. The asset insurance and damage insurance increased 19.48 per cent followed by health insurance and human accident 16.21 per cent, fire insurance 15.32 per cent and ship body 13.91 per cent.

 

According to Lai, in addition to Bao Viet’s transformation into a financial-insurance group, Bao Minh’s listing on the stock market and Vinare’s official transaction on the stock market, many foreign insurance firms have filed documents for establishments of offices and branches in Vietnam. High growth rates are expected to remain over the past 10 years.