Insurance market carries potential despite downturn

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The insurance market is expected to experience a more difficult year in 2013 after a comparatively good showing in 2012, experts say.

With the economy showing no signs of recovery, new customers will be harder to come by but insurers can find other channels to make money, and the sector is likely to remain attractive to foreign firms, they add.

"The economy is forecast not to rebound this year with the hike in dissolved firms and unemployment. This will create many difficulties for insurers in attracting customers," said Trinh Thanh Hoan, director of the Ministry of Finance's Insurance Supervisory Authority.

The market is expected to grow 10-12 percent this year, compared to 11.7 percent last year, he said. In 2012, life insurance revenue reached VND17.9 trillion (US$852.4 million), up 12 percent, while non-life insurance ones reached VND22.9 trillion, up 11.5 percent.

Echoing Hoan, Phung Dac Loc, general secretary of the Association of Vietnamese Insurers, said insurers, despite not gaining the high growth rates of a few years ago, could be considered successful businesses given that the property market has frozen, public investment has reduced and firm have cut back on production. 

He said the legal capital of insurers is very high at an average of VND300 billion for non-life insurers and $600 billion for life insurers. Thus, the firms can earn huge benefits by just depositing the funds in banks, if at all they are not able to find more customers.

Hoan said insurers are forecast to reinvest some VND95 trillion this year, up from VND90.6 trillion in 2012.

Loc said: "There will be no insurers dissolving or narrowing their business because of the gloomy market. Many insurers are considering ways to expand their business, or infiltrate further into Vietnam's market."

Takashi Fujii, chairman and CEO of life insurer Dai-ichi Life Vietnam, said Vietnam is obviously affected by the global economic downturn, but life insurance is a medium and long-term investment industry, so insurers should have 10-20 year development strategies, and not let difficulties  affect their opportunities.

The firm would continue to improve its agent network and diversify product distribution channels to expand the market this year, he said.

Loc said the market is expected to see more mergers and acquisitions (M&A) this year, as foreign investors want to make use of existing agent networks and customer bases of insurers.  "Amid the bearish stock market, M&A will be the best way for an investor that wants to enter Vietnam, as it would help them cut cost and time to study the market and seek customers."

Late last year, HSBC Holdings Plc's (HSBC) announced it was selling an 18 percent stake in Vietnam's biggest insurer Bao Viet Holdings (BVH) for VND7.1 trillion ($340 million) to Sumitomo Life Insurance.

The sale is expected to be completed this quarter, according to an HSBC press release.

Sumitomo Life's President Yoshio Sato said at a press conference in Hanoi that life insurance in Japan has reached saturation point, while Vietnam, with its large population and high ratio of young population, has a lot of potential to develop in the future.

Loc said HSBC's withdrawal was part of its 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 their home markets for growth, he said.

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