Foreign-invested Prudential is one of big players ready to cash in on a post WTO landscape
The US-based ACE Life Insurance Company, one of the largest foreign insurers in operation in Vietnam, has recently asked the government for permission to expand its operation into the non-life insurance market.
David T. Chen, chief executive officer of ACE International Life’s Asia-Pacific arm, said Vietnam’s life insurance industry was young, dynamic and full of potential.
He said that it was time for ACE Life to develop its agency distribution network and impress its trademark on Vietnamese customers.
After just over six months of operation in Vietnam, at the end of March ACE Life boasted around 1,500 customers, who between them held life insurance policies worth some VND5 billion.
Industry experts said that these figures reflected strong growth for the company, especially given the market presence of other well-known players such as Prudential, Manulife, Bao Minh and Bao Viet.
Le Quang Binh, head of the Insurance Department of the Ministry of Finance (MoF), said that a number of foreign-invested insurance firms were racing against time to apply for licences to operate in Vietnam.
“Together with possible WTO membership this year, Vietnam will witness more foreign-invested insurance firms, which will make the competition tougher,” he said.
A source from the MoF said that Chinese, US and European investors were racing to lobby the government for access to the local insurance market.
A fertile market
A report released recently by the MoF stated that Vietnam was seeing unprecedented growth in its insurance market.
There are currently 16 non-life insurance, eight life insurance, one re-insurance, and seven insurance brokers and nearly 30 foreign insurance representative offices.
Eight of these operations are wholly foreign-invested companies - QBE, Groupama, Prudential, Manulife, AIA, Prevoir, ACE Life and York Life. Another five are foreign-invested joint ventures, while eight are joint-stock companies and four are state owned.
“The financial capability of insurance enterprises has increased remarkably, ensuring payments and provisional funds for possible compensation,” the report stated.
MoF statistics showed that the total chartered capital of insurance enterprises reached VND7,420bn ($480m), with the three biggest firms, Bao Viet Life Insurance, Bao Minh Insurance and Bao Viet National Insurance Corporation accounting for VND1,500bn ($92m), VND1,100bn ($70m) and VND900bn ($57m), respectively.
Experts said that the increasing number of insurance companies was healthy for a market like Vietnam, which has a population of over 80 million.
According to Vietnam Insurance Association general secretary Phung Dac Loc, local insurance companies brought in premiums of around VND15 trillion last year, doubling their chartered capital.
Of this, VND6tn ($390m) was pocketed by non-life insurers, while the remainder went to life insurance companies.
Loc said that the economy’s average annual growth rate of eight per cent, increasing import and export turnover and the high mobilisation capability of investment capital were providing momentum for the development of Vietnam’s insurance industry.
Last year, Vietnam saw record export turnover of $32bn and imports of $36bn, along with foreign direct investment of $5.8bn and official development assistance of $3.7bn.
The MoF report indicated that local insurance companies had invested VND27tn ($1.7bn) in the local economy, the majority of which had gone to long- and medium-term bonds for infrastructure projects.
The report said a huge number of jobs have been generated, with hundreds of thousands of labourers being involved directly and indirectly in both life and non-life insurance-related activities.
Le Quang Binh said successful WTO-accession negotiations with the US in Washington a week ago had increased the confidence of insurance firms and investors.
Domestic insurance companies are now aware that they will have to cope with increased competition from foreign rivals who have market advantages in terms of finance, experience and global networks.
Vietnam National Insurance Corporation, or Bao Viet, the country’s biggest local insurer, is set to finalise its equitisation process by the end of this year. Meanwhile, other domestic companies like Bao Minh are rushing to prepare for their listing on the bourse.
Bao Viet general director Tran Trong Phuc said that more and more foreign-invested rivals would enter the Vietnamese market after the nation became a member of the WTO, meaning the company should sharpen its competitiveness via equitisation.
Phuc said that despite foreign-invested insurance firms’ advantages in terms of finance and experience, domestic insurance companies would maintain an edge in their understanding of the habits, psychology and culture of Vietnamese people.
Korea’s second-largest insurer, Korea Life Insurance, recently opened its representative office in Hanoi. Office director Yun Hoi Kim said that this company’s research into the local market had prompted it to invest in Vietnam.
The Korea Life Insurance office opened just a week after the ACE Life Insurance Company announced the opening of its branch in the north, signaling an expansion intended to help it compete with other firms.
“There are a variety of sectors for investment in Vietnam’s burgeoning economy, such as government bonds and real estate,” ACE Life financial director Nguyen Hong Son said,
David Matthews, the general director of Manulife Vietnam, the first 100 per cent foreign-owned life insurance company in Vietnam said that “if you compare the number of customers who already buy a life insurance policy with the total population of more than 80 million in Vietnam, you will see that, as consumers’ living standards rise and people acquire more disposable income, life insurance still has a huge potential for development.
“Manulife will continue our strategy of providing a competitive array of financial and protection products to satisfy the diverse needs of our customers across Vietnam.”
“Manulife has always anticipated business opportunities and entered into markets that show growth potential,” Matthews said, adding that the recent establishment of the Manulife Vietnam Fund Management Company offered another opportunity for Manulife to expand its scope of business and attract large domestic savings for the development of the national economy.
To enhance its comparative edge, ACE recently launched its Universal Life product, a market first in Vietnam, which the company claims is a versatile permanent insurance product able to meet the changing insurance and financial needs of the Vietnamese people.
The most significant feature of ACE Life’s Universal Life product is its flexibility, with policyholders able to change when their premiums are paid and how much they wish to pay to best suit their budget.
Experts said that existing insurance firms were sharpening their competitive edge to prepare for the tougher competition of post-WTO Vietnam.
However, MoF officials said that an insurance premium turnover of more than $1bn was within reach this year and that tougher competition between insurance firms would surely bring profits, as well as added value for customers.
No. 762/May 22-28, 2006