Retained insurance fee ratio should be lower, specialists

In fact, a Vietnamese insurance firm cannot take charge of many insurance responsibilities such as insurance for big works, aviation and maritime because of weak finance so these insurers decided to share responsibility with other reinsurers as the business method.

The profitability of insurance business mainly comes from the insurance capacity. The retained fee of Vietnam’s insurance market (after sharing insurance responsibility with reinsurers) remains fairly low at 64.83 percent in 2007 and 68.14 percent in 2008 compared with total collected premium. Just in the specifications that do not almost need reinsurance such as insurance for mechanical vehicles, health and accident, the retained fee also is lower at 50 percent.

Under Circular No 155/2007/TT-BTC, the retained fee ratio must be 10 percent of ownership capital of at least 300 billion dong or $1.8 million. Factually, most of insurers keep the fee ratio of $100,000-$500,000 as sharing insurance responsibility with reinsurers because they have not had clear business strategy, not enough authorised capital in line with current laws or they are facing unpaid debts, low revenue and unsuitable revenue structure, high damage ratio.

But, the regulation forcing insurers to retain 10 percent of insurance fee is too high in Vietnam’s current situation. According to data of Singapore College of Insurance, the retained fee ratio is popular at 0.5-2.5 percent of ownership capital or no more than 20 percent of working capital of insurance firms.

In Vietnam, Vietnam Reinsurance Co (Vinare) is responsible for reinsuring the insurance firms to increase the domestically retained fee ratio. Statistics from Vinare showed that total retained insurance fee ratio in domestic market reached nearly 400 billion dong a year, accounting for 80 percent of total compulsory insurance premium.

At present, some insurances transfer the retrocession to others. The doing violates the current regulations because the reinsurance operation brings in new risks.

Tags: Vietnam insurance, Vietnam insurance industry, Vietnam insurance markets, Vietnam Life insurance