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Vietnam Insurance Report Q4 2011
Business Monitor International, Oct 2011, Pages: 86
The double-digit growth in premiums through H111 obscures the risks and challenges. ?? Inflation is constraining the ability of poor households to save. No fewer than 95% of Vietnamese people do not (yet) have life insurance. The hard data that has come available in H111 suggests that this is not changing.
The sub-scale local non-life companies are finding it difficult to access the capital that they need. ?? Vietnam’s capital markets are under-developed and volatile. This complicates investment strategies – and makes it more important that most insurers produce and underwrite profit.
At first glance, Vietnam appears to be one of the most exciting and dynamic insurance markets in the world. We think that it is reasonable to look for life premiums to rise by 16% in 2011, and for non-life premiums to grow by 22%. These growth rates are only marginally lower than those achieved (17% and 25% respectively) in 2010. Life insurance companies expanded the size of their combined agency forces by one-third in 2010 and continued to boost the numbers (and/or the productivity of agents) in H111.
There is substantial representation of major cross-border non-life companies such as Chartis and QBE in the non-life segment. There are clear signs of pricing discipline in the non-life segment, in which business is written over a broad variety of lines. (Put another way, the market is not characterised by dozens of small local firms who are slashing premiums and paying out fraudulent claims relating to motor insurance in order to maintain market share.) International majors such as Prudential plc, Manulife and AIA dominate the life segment. By most metrics, the entire sector is very under-developed.
Unfortunately, we suspect that the entire sector will remain overshadowed by the challenges. The most important one is that the vast majority of Vietnamese people cannot afford to save – whether via life insurance or through other channels. In calendar 2010, the number of in-force life policies rose by 5% – and this was in a country where only 5% of people have life cover and where, as noted above, there has been an enormous expansion of the insurers’ agency forces. Most recently, a number of press reports have hinted that persistent inflation may be limiting the real disposable income of Vietnamese households – with the result that their ability to use life insurance has been constrained further. One somewhat worrying statistic was published by Bao Viet Holdings, the former state-owned monopoly insurer – but now a listed company in which HSBC has an 18% stake and the country’s only composite insurer – in May 2011: its Q111 life premiums were only 6% higher than they had been in Q210. In short, the life segment is dominated by a small number of overwhelmingly foreign, but strong companies whose customers are finding it difficult to afford their products.
In the non-life segment, the situation is the reverse. A fragmented segment, it contains nearly 30 sub-scale firms, most of which are Vietnamese companies with limited access to the capital they need. In H111, several insurers publicly spoke about their desire to list on one of the country’s two stock exchanges. As of mid-September 2011, however, PJICO and BIDV Insurance were the only ones to have actually done so. As of the end of 2010, there had been just four listed insurers – Bao Viet Holdings, Bao Minh, PVI and VinaRe. Meanwhile, (predominantly) commercial customers are increasing their demand for a wide variety of products. It may be that the consequent need for new capital is met by foreign non-life groups who make strategic investments in Vietnamese companies. In August 2011, HDI Gerling, a subsidiary of German multi-national giant Talanx, said that it would buy a 25% stake in (an enlarged) PVI for VND1,920bn (US$92mn).
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