Vietnam’s non-life insurance market shows less efficiency

Vietnam’s non-life insurance market has posted an average revenue growth of approximately 30% per year in recent years, but it is showing less efficiency and potential risks of instability.

The unfair competition in Vietnam has prompted a number of non-life insurance companies to suffer big losses in business.

According to the Ministry of Finance’s data in 2008, up to 16 out of 25 non-life insurance companies reported losses in non-life insurance operations with the total loss of 163 billion dong.

In 2009, only 10 insurers made a profit, ranging from 1 billion to 52 billion dong on the insurance market, but the whole non-life insurance market posted a total loss of 200 billion dong.

Consequently, insurance companies had to take profits from financial investments in equity (including surplus capital of share issues) and reserves to offset the losses. Since then, the dividend allocated to shareholders was low, resulting in less attractiveness of insurance shares on the securities market.

Many insurance companies had low payment margins, and even insurers made an accumulative loss after 2 consecutive years of operations amounting to 299 billion dong, and they had to raise equity capital from their holding companies to continue performance.

The major causes of a prolonged loss of insurance companies were blamed on large operating costs and increased compensation compared to premiums earned.

The new companies entering the insurance market always focuses on criteria for revenue growth through the development of branches, and sales agents. The non-life insurance market witnessed up to 80% -85% of branches and sale agents of each insurance firm post negative results or losses.

The situation of “at all cost” competition has made many insurance companies face low solvency margins, even approximately losing the ability to pay, said Trinyh Tuyet Nga, head of non-life insurance department of Vietnam Insurance Association.

According to Tuyet, an insurer had completely lost its payment capacity as they suffered accumulated losses after three-years of operation amounting up to 299 billion dong on equity of 312 billion dong. And, this company had to add US$20 million to its chartered capital to ensure eligibility continue to operate the insurance business. “If this situation lasts, the confidence in insurance companies in particular and the insurance market will be reduced,” said Tuyet. – Dau tu chung khoan

Tags: Vietnam insurance, Vietnam insurance industry, Vietnam insurance market