Life insurers swim against the tide

Life insurers still have an upbeat outlook despite the economy forecast to continue facing severe challenges. Takashi Fujii, chairman and general director of Dai-ichi Life Insurance Company of Vietnam, Ltd, explains why to Dau Tu.

Given the cautious comments about this year’s economic outlook and macro-economic indicators, do you think your recent optimistic forecast for your company and the life insurance sector is still realistic?

Frankly speaking, last year we could not expect good business results as we achieved considering the very difficult economic conditions. That is the precondition for my upbeat forecast for this year, which is expected to face better conditions. However, given what has happened since the beginning of 2010, I do not think inflation this year will stay in single digits, although it will not be as high as in 2008. Double-digit inflation will certainly impact on exchange and interest rates. From this view, my optimism has started to weaken.

Nevertheless, the insurance industry is different from the banking sector where high interest rates are short-lived. Interest and exchange rates are just short-term factors, while insurance policies normally last for 10-15 years and policy-holders can enjoy much more stable yields despite the market going up and down.

Moreover, considering the fast fluctuations in other investment channels, insurance is increasingly attractive to people looking for stability and increasingly aware of the importance of insurance. I am still upbeat about the insurance industry’s outlook, even if inflation will be higher than single digits this year.

Will this year be very different from 2009, as the negative impacts of the economic slowdown may really hit home and people will tighten their budgets for insurance policies?

The matter here is people’ psychology. It is wrong to say that people do not have money, but the problem is that whether they spend it on insurance policies or not. However, at present, people have more knowledge about insurance and understand what is long-term and stable, what is short-term and how to make good decisions on how to spend their money.

With inflation and interest rates going together, will it be much more challenging for insurers’ investment channels?

Higher inflation will certainly lead to increasing interest rates, which will also result in rising yields of treasury and government bonds. This will be good for insurers like us rather than providing pressure because we have to choose safe channels for our investments. Higher yields of T-bonds and G-bonds will bring us higher profits than expected. There is no single answer for all questions.

Does a high proportion of bonds in your portfolio show a too conservative approach?

It depends on how much money you are managing to take on the appropriate risks. Since our company is still smaller than some others, we can only afford a lower risk level. It is significant to secure a balanced situation. Whether it is viewed as too conservative or not, the most important thing is to protect policy-holders’ money.

Being an investment expert, which investment channel do you prefer?

It is not a question of preference when I am assigned the task to manage policy-holders’ money and make it be profitable. My responsibility is to work out how to realise our commitments to guard both the reputation of our company and our clients. It is meaningful to generate a high profit, which may come from different investment channels like securities, property and bonds.

But as I said earlier, it depends on how much money you are managing, with a $500 million fund being very different from a $100 million one. Each insurance company has its own strategy and can afford different risk levels.

Given previous lessons learnt from Japan-based life insurance companies which collapsed after failing to undertake their pledges to pay a fixed annual interest to policy-holders, what can you say about the similar commitments being offered in Vietnam?

The core problem for the collapsed Japanese companies was deflation. Deflation makes investments profitabless, while those companies committed to pay high interest rates. So whether insurers can pledge to pay a fixed interest for policy holders depends on the economic growth.

I think with the low starting level of the Vietnamese economy, there will still be positive gross domestic product growth in the next 10 years, even at a 7-8 per cent rate annually.

In other words, the Vietnam’s outlook is optimistic from an insurer’s point of view?

It is true. Vietnam is becoming a middle-income country and the only way for the economy to go is up, fast or slowly. The only question is how to increase the quality of growth.

Tags: Vietnam insurance, Vietnam insurance industry, Vietnam insurance markets, Vietnam life insurers