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Vietnam’s insurance companies with bleak profit outlook

Vietnam’s insurance companies with bleak profit outlook

Tuesday 19, 04 2022
Vietnam's insurance companies are not too optimistic about their profit plans. Some insurance companies project negative profit growth. Others anticipated positive growth but with a slower growth rate than the original premium revenue.

Bleak profit outlook due to high compensation costs

Vietnam's insurance companies are not too optimistic about their profit plans. They anticipate that insurance premium revenue in 2022 will return with high growth momentum, but compensation costs will also increase higher.

The context of economic recovery and policy changes are opening up many opportunities for growth in the premium revenue of many insurance products.

In the updated outlook for insurance stocks just released, Viet Dragon Securities Corporation (VDSC) said that insurance premium revenue in 2022 will return to a high growth momentum after two years of 2020 and 2021, due to a decrease in growth due to the pandemic.

Viet Dragon Securities Corporation

The government sets a target of GDP growth of 6-6.5% in 2022. Normally, growth in non-life insurance premium revenue is always double GDP growth. However, recent geopolitical fluctuations have been causing many negative effects on Vietnam's economic growth, indirectly affecting insurance demand in the coming time. Nevertheless, it is expected that fee revenue will recover well from the low base of 2021.

According to statistics from the Insurance Association of Vietnam (IAV), total non-life insurance premium revenue in the first two months of 2022 reached 11,248 billion VND, up 15.3% over the same period last year. Considering the recently emerging adverse factors to Vietnam's economic growth, growth in non-life insurance premiums is likely to slow in the coming months. Full-year growth could reach approximately 13-14%, equivalent to 65,386 billion VND.

However, compensation costs may be higher. According to the Insurance Administration and Supervision (ISA), the actual percentage of original insurance claims (excluding provisions) in 2021 is 32.8%, the lowest in recent years.

While non-life primary insurance premium revenue in 2021 increased slightly by 1.7% to 57,609 billion VND from 56,669 billion VND in 2020, the actual amount of principal insurance claims for the whole industry in the year reached 18,891 billion VND, down 10.4%.

non-life primary insurance

The compensation ratio of listed companies also shows a strong improvement in 2021. Low compensation costs may be the result of socio-economic activities being suspended for a long time, resulting in fewer risk events and delayed claims and settlement operations due to movement restrictions.

On the basis that socio-economic activities have returned to normal, VDSC believes that it is likely that compensation costs will increase sharply in 2022. It is estimated that the actual amount of principal insurance claims for the whole industry can increase sharply by 34.6%, to 25,435 billion VND.

Multiple factors for profit decrease

Up until now, some of Vietnam's listed non-life insurance companies have announced business plans for 2022. Most companies expect positive growth in premium revenue but are cautious about profit. Some insurance companies project negative profit growth. Others anticipated positive growth but with a slower growth rate than the original premium revenue.

non-life primary insurance

 

(Source: VDSC)

VDSC experts are citing two reasons for such predictions. The first reason is that the compensation rate will return to normal, recovering from the sudden low in 2021. The second reason is the restart of business support programs after a year of cuts. That restart will increase selling expenses sharply.

As for investment income which usually accounts for more than 70% of the profits of insurance companies, the high profits from realizing profits from stock investments and the reversal of provision for devaluation of investments like in 2021 will not be repeated, given the gloomy stock market this year.

Bank deposit interest rates will only increase by 30-50 basis points for terms of less than one year, which is the popular deposit terms of non-life insurance companies, in line with the Government's orientation to support economic recovery. In the meantime, the deposit size will increase in proportion to the premium size (13-14%).

"The increase in profit from deposits will not be large enough to compensate for the decrease in profit from shares. Therefore, investment return will also decline this year." VDSC commented.

 

Compiled by VietnamCredit

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