HSBC plan no indication of insurance market blues

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Vietnam still an attractive investment destination for foreign insurers

 
  A file photo of Bao Viet's headquarters in Hanoi. HSBC said in a recent statement that it is reviewing its options for its 18 percent stake in Vietnam's largest insurance company. Photo: Bloomberg

The fact that HSBC is considering selling its stake in Bao Viet Holdings does not reflect the status of the local life insurance market because its main motivation is to divest from non-core sectors, experts say.

Furthermore, the divestment, if it takes place, would not have a great impact on Vietnam's leading insurer, because HSBC has not been a direct participant in Bao Viet's main activity, they add.

HSBC said in a recent statement that it is reviewing its strategic options for its 18 percent stake in the local insurer. "No decision has been made as yet and HSBC will make a further statement if or when appropriate," it said.

Phung Dac Loc, general secretary of the Association of Vietnamese Insurers, said the anticipated withdrawal was mainly premised on HSBC's plan to divest from non-core business activities, and not because Vietnam's life insurance market has become less attractive.

"Vietnam's life insurance market is still profitable, as it can attract policy holders with high interest rates, (based on banks' interest rates)," he said. "No country in the world has interest rates as high as in Vietnam."

In addition, a combination of low insurance penetration less than 1 percent in both the life and non-life insurance markets and a growing middle class would make Vietnam attractive to insurance companies forced to look outside of their home markets for growth, he said.

Reuters reported last month that HSBC has been pulling back from unprofitable markets and businesses as part of a three-year recovery plan. It has already sold 28 businesses, taken 15,000 staff off its payroll and released about US$55 billion in risk-weighted assets under the plan.

Loc said the capital withdrawal will not seriously affect Bao Viet's business, as the London-based bank has mainly helped it improve corporate management, not create new products or expand the market, which are the most important activities for an insurer.

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"In fact, what a Vietnamese insurer wants to receive from its foreign partner is not capital, but experience. However, HSBC does not have much experience in the field," he said. "Having an experienced foreign partner will be much better for Bao Viet Holdings."

Echoing Loc, economist Bui Kien Thanh, former senior advisor of American International Group, AIG, said a partner that specializes in the insurance sector would be better for Bao Viet.

"Only an experienced international insurer with global operations can help Bao Viet win the fierce competition it is set to face with many foreign rivals in the domestic market," he said.

Sumitomo Life is in talks to acquire the stake, Japan's Nikkei newspaper reported July 19. HSBC bought 10 percent of Bao Viet in 2007 for $255 million. It increased that to 18 percent in a deal completed in January 2010. Unlisted Sumito Life is among Japan's four biggest life insurance companies.

HSBC is expecting a hefty premium due to Bao Viet's market position and the potential to raise the ownership level at a later stage. The bank expects a deal which could fetch about $400 million for the stake, Reuters quoted a source as saying.

Economist Thanh said Vietnam's insurance market is developing and therefore attracting many foreign investors. Meanwhile, Bao Viet has a good market position, so HSBC might succeed in selling its stake at a price it expects.

Hanoi-headquartered Bao Viet had more than 5,200 employees, 30,000-plus consultants and more than 130 branches, according to a fact-sheet dated March 2011 posted on its web site.

Vietnam has 29 non-life insurers and 14 life insurers, according to an April report from insurance ratings agency A.M. Best. Total insurance revenue rose 21.6 percent to VND37.5 trillion ($1.8 billion) in 2011, according to statistics from the Association of Vietnamese Insurers.

Vietnam's real GDP grew by 5.9 percent in 2011, according to the International Monetary Fund. Its growth is forecast to ease a bit this year and then speed up again in 2013.

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