Life insurance market outperforming expectations

Vietnamese and foreign insurers have announced impressive incomes early, revealing the potential in a young market.

Manulife Vietnam in 2002 announced its first profitable year to the tune of VND20bil, three years after setting up shop.

Prudential Vietnam, the second foreign-invested life insurance firm in the country, also reported profits for the first time in five years of operation, banking VND61bil.

The Bao Viet Life Insurance Company, a member of the Vietnam Insurance Corporation (Bao Viet), has also announced that it has made money for the past two years. Last year was the first year Bao Viet operated as an independent financial mechanism and profits increased six-fold compared to 2003.

And even with the appearance of international life insurance groups, the Vietnamese life insurance market has room to grow.

Aiming to profit

Managers of life insurance firms in Vietnam previously said that they only expected to earn a profit after several years in Vietnam. But some have been surprised with performance. Bao Viet, in its first year independent, operating with VND1.5tril chartered capital and 400 customer offices nationwide, had a turnover of VND3,960bil, taking the lead in the life insurance market. Its income from financial investment also hit a record high of VND655bil, a profit of over VND30bil.

And Prudential’s VND61bil figure surprised analysts as well.

“According to analysis of domestic and foreign financial experts, Prudential Vietnam actually got profit several years before under international accounting rules. However, under strict accounting regulations in Vietnam, Prudential Vietnam can currently announce its first profitable year in Vietnam,” said Prudential Vietnam General Director Huynh Thanh Phong.

According to the Finance Ministry’s statistics, Prudential Vietnam collected over 3,100bil in premiums last year, accounting for over 41% of the life insurance market. It also took the lead in market share and customers among foreign-invested life insurance providers in Vietnam and signs remain good as the market expands.

Life insurance market defined

Accounting for 12% of the Vietnamese life insurance market, Manulife Vietnam now serves over 250,000 clients in 12 provinces and cities via a system of 6,000 professional agents and 300 employees. By the end of 2004, the total assets value managed by Manulife Vietnam grew by 56% while total premium was up 12% over 2003.

Last year, Bao Minh – CMG, the only life insurance joint venture in Vietnam, had a turnover of more than VND200bil. After five years, the firm makes up 5.17% of the market share, the smallest in the industry according to the Ministry of Finance.

AIA, although saying nothing about its targeted profit for 2005, also wants a piece of the market and aims to become a leader in life insurance.

Profits from financial investment

According to the Finance Ministry, life insurance firms have re-invested VND8,400bil in 2004, raising the total investment capital of the insurance industry to VND23,002bil, up by 60% over 2003. Some 87.08% of funds are deposited at credit institutions or are used to purchase government bonds.

But with few options for investment, what do life insurance companies do with their huge premium?

Huynh Thanh Phong, General Director of Prudential Vietnam, said that business at Prudential Vietnam is conducted under Vietnamese rules. By the end of 2004, total assets of Prudential Vietnam were over VND5tril, a considerable figure for a life insurance provider that has operated for only five years in the country. The financial investment market in Vietnam still shows some difficulties that need time to run their course, especially for long-term projects, while capital turnover of life insurance is longer term.

The Government has recently has responded by permitting Prudential Vietnam to establish a fund management company, which can help the firm to safely and effectively seek and expand investment opportunities.

Apart from investing in government bonds, a less risky form of investment with stable interest rates and a reputation for predictability, life insurance companies also invest in the economy. Bao Viet Life Insurance’s Thanh revealed that his company has invested in 30 production, trading, finance-banking and tourism projects and the firm obtained VND655bil in profits from financial investment in 2004.

VietNamNet, May 5, 2005