Insurance stocks upbeat

Vietnam’s insurance stocks are beginning to thrive

On the Vietnamese securities market, insurance stocks tend to attract less attention than real estate, banking, or consumer retail. However, analysts believe that this is about to change as the insurance market embarks on a new cycle of growth, fuelled by stable interest rates, a growing middle class, and improved financial literacy in the country.

In their latest report concerning strategies for 2018, analysts at Bao Viet Securities pointed out that the Vietnamese government can only take care of 39 per cent of healthcare needs in the country. Most Vietnamese citizens currently still have to pay for healthcare services using their own money. This presents a major opportunity for insurers in Vietnam, as consumers are starting to look for ways of reducing their healthcare costs.

A second factor promising growth, according to the analysts, is that only 21 per cent of Vietnamese people are entitled to a state-sponsored pension when they reach retirement age. This means that the vast majority of the population has no stable source of income for their retirement, which is a huge concern as healthcare costs tend to balloon when people get older. With this in mind, people will find their way to insurance companies, the report said.

“Thirdly, Vietnam is in great need of private capital for its infrastructure projects. Insurance firms, with their steady and long-term capital inflow from individuals and businesses, emerge as investors with high potential,” the report reads.

The life insurance market in Vietnam is expected to grow by 30 per cent in 2018, while Military Bank Securities believes that non-life insurers will see their business growing by at least 15 per cent. According to the firm, more and more Vietnamese people are concerned about their health due to worsening pollution, the rising number of traffic accidents, and questionable food safety standards in Vietnam, prompting them to sign insurance contracts.

Paul Nguyen, managing director at Manulife Vietnam, told VIR that the life insurance market is poised for good growth as consumers in Vietnam become more financially literate. Rising income levels enable them to spend on insurance products, said Nguyen.

In fact, stocks of leading insurance companies already had a good 2017. For instance, Bao Minh Insurance Corporation’s (BMI) stock appreciated by 35 per cent in a year, while Bao Viet Holdings’ (BVH) expanded by 16.53 per cent. The same growth rate was recorded for Vietnam National Reinsurance Corporation (VNR). The most impressive rise, however, was that of PVI Holdings’ stock (PVI), which grew by 39 per cent in 2017.

Overseas investors are also on the lookout for insurers that have scrapped their foreign ownership limit, most notably PVI Holdings which approved a plan to lift the foreign ownership to 100 per cent. BMI, which claims the third position in terms of market share for non-life insurance products, is also expecting new investors as the State Capital Investment Corporation readies to sell its 49 per cent stake.

Military Bank Securities analysts also reminded investors of sector-specific risks in selecting insurance stocks. Insurers, especially non-life ones, have to manage risks related to natural disasters, freak accidents, fire, and fraud.

The analysts believe that out of all insurances, healthcare insurance products are the least prone to fraud, as amounts tend to be small, tenures are one year or shorter, and risks are spread between insurers and hospitals. The greatest risks fall on non-life insurers, which explains why firms in this segment are usually cautious when setting business goals.

“To lessen risks related to insurance stocks, investors should aim for insurers with good business results, low payouts, and large provisions for any emergency that can put a dent on earnings,” the analysts advised.