Vietnam Insurance Market

Vietnam Insurance Market
By Oliver Massmann
I. M&A and restructuring process for Vietnam insurance industry: how much value
do they really add?
1. UVietnam’s insurance market: after all a prospering business
Vietnam's insurance market has grown rapidly in recent years and continues to be considered a
promising market. In particular, the country’s demographic and economic development is
expected to fuel further demand for insurance services both in the non-life and life sectors. In the
last decade, Vietnam’s insurance sector has been transformed from a State-owned monopolist
sector to a more open industry with both domestic and foreign insurers as new entrants.
Vietnam’s international commitments under its WTO accession concessions (with Vietnam’s
WTO accession having taken effect in January 2007) and bilateral and multilateral market access
arrangements (such as the ASEAN Framework Agreement on Services, Bilateral Trade
Agreement with the US, and other bilateral and multilateral agreements) have helped to
gradually liberalize this sector of the economy further. Notably, from 1 July 2011, foreign
insurers are permitted to provide cross-border insurance services to the Vietnamese market. Also,
from 1 July 2011, non-life foreign insurers are permitted to set up branches in Vietnam.
With an average growth rate of over 20 percent in recent years, Vietnam’s insurance market is
not only attractive to “domestic” businesses but also falls into the sights of “foreign” businesses.
The wave of capital raising into the Vietnam insurance market will become more eventful,
forecasts A.M Best, a prestigious credit rating company in the world. In fact, an increasing
number of prestigious foreign insurers have become strategic partners of domestic insurance
companies. Recently, the Insurance Australia Group (IAG) bought 30 percent of AAA
Assurance’s shares (worth US$16 million) and became a strategic partner of AAA Assurance.
Mr. Justin Breheny, IAG’s Chief Executive Officer, Asia said IAG could buy more shares of
AAA Assurance to increase its ownership to 49 percent in the future.
The liberalization of the country's insurance industry has offered numerous investment
opportunities to foreign insurers. Currently about 58 insurance companies are operating in
Vietnam, among these 29 non-life insurers, 15 life insurers, 12 insurance brokers and 2 re-
insurance companies. Besides, there were 32 representative offices of foreign insurance and
insurance brokers companies. The non-life insurance market is still largely dominated by
domestic insurers. There are about 11 foreign-invested non-life insurers out of a total of 29
including 3 joint ventures and 8 wholly foreign-owned companies. With respect to life insurance,
foreign invested insurers make up 14 of the 15 life insurers (including 3 joint ventures and 11
wholly foreign-owned companies), clearly dominating the market.
Regarding brokerage services, seven domestic and five foreign-invested companies are operating
in this area, with foreign firms making up more than 80% of the market for brokerage services.
The number of Vietnamese reinsurance companies increased to two reinsurers in 2011 with a
new player - PVI Re (PetroVietnam Reinsurance) – in addition to Vietnam National Reinsurance
Corporation (VinaRe), both of which are domestic companies. Foreign participation in the

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H:Client DocsVietnam InsuranceBackground information for Vietnam Insurance.docx
Vietnamese insurance market still faces various regulatory challenges. For example, the
requirement that the foreign applicant must demonstrate USD2 billion in asset backing limits
smaller (and, possibly, newer) entrants. In addition, Vietnamese law also requires that a foreign
investor setting up a presence in Vietnam be an actual operator of insurance business when the
foreign investor may prefer to hold the investment under a holding company.
Full of potential
Even two new joiners were not from Asia, Vietnamese life insurance market still had insurance
companies from Asia, euro, and America. However, representatives from Asia took the majority
part.
It was not difficult to find out why Vietnamese life insurance market was still attractive even
after “hot growing” period. According to a survey of Manulife Investor Sentiment Index – MISI,
more than 30 percent of Asian investors still hold a large amount of money – which reflected
their pessimistic views about the economies. But from the view of financial groups, redundancy
cash in the hand of people meant potential for development. This situation could not be found in
euro or developed countries. From the point of investors, there were nowhere better than Asia,
where everyone could find their own investment chance and investment target, said Robert A.
Cook, Chair cum CEO of Manulife Asia.
In Vietnam’s case, this was not only the destination that helped many foreign insurance
companies CEOs be promoted, it also was the base for life insurance companies to attack other
Asian markets. For those reasons, in the near future, Vietnam would have 15, 17 even 20 life
insurance companies in the market.
Relating to the competitiveness of Vietnamese life insurance market with 15 companies, Robert
A. Cook said that his company would welcome the competition. Healthy competition would
bring more benefit to customers since they have more choices in products and prices. The
important thing would be customer have to feel that the appearance of these insurance companies
was to protect their lives, their families other than selling products and gaining profit.
Looking at the whole non-life insurance market, two leaders in term of premium revenue were
Prudential Vietnam and Bao Viet; the third ranking was Manulife Vietnam. All of companies
had tried to break out but many people believed that none of them would be able to surpass
Prudential Vietnam in premium revenue in the near future. However, ranking changing might
happened in a group of Dai-Ichi Life Vietnam, AIA Vietnam or ACE Life. For lower ranking
group, gaining 5 percent market share would not be easy and they have to choose development
strategies carefully.
2. URoad-map to restructure Vietnam’s Insurance Industry:
i. 4-tier classification
On 18 September 2012, Vietnam’s Minister of Finance issued Decision 2330/QD-BTC,
approving a plan to develop the insurance market in Vietnam during the period 2011-2015. The
plan includes, among other things, a restructuring plan for the Vietnamese insurance sector and a
classification of Vietnamese insurance companies into four groups, as follows:

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Group 1 – those insurers with good liquidity and profit will be permitted to expand their
operations provided they can present a feasible business plan. These companies are subject to
supervision by the ISA;
Group 2 – those insurance companies which maintain acceptable solvency ratios but face
challenges such as high operational costs and failure to post a profit for two consecutive years.
These companies will be evaluated on their operational efficiencies;
Group 3 – those insurance companies which fail to maintain minimum solvency levels. The ISA
shall assess these companies and may request that they restructure their investments or transfer
some policies to another insurer;
Group 4 – those insurance companies which are insolvent will be placed under special control
and may be forced to merge with other insurers or declare bankruptcy.
Minister of Finance Vuong Dinh Hue issued Decision 2330/QD-BTC approving a plan for
implementing six groups of solutions to develop the Vietnamese insurance market from 2011-
2015. This is a step towards realizing the development of the Vietnamese market by 2020 as
approved by Prime Minister Nguyen Tan Dung through Decision 193/QD-TTg dated February
15, 2012.
ii. The master plan’s key content
The Ministry of Finance issued Decision 2330/QD-BTC to approve a plan for implementing six
groups of solutions to develop the Vietnamese insurance market from 2011-2015. This is a step
towards realizing the development of the Vietnamese market by 2020 as approved by Prime
Minister Nguyen Tan Dung through Decision 193/QD-TTg dated February 15, 2012.
Under the strategy, the Vietnam insurance sector's revenue will account for 2-3 percent and 3-4
percent of the country's gross domestic product (GDP) by 2015 and 2020, respectively; the scale
of insurance reserve funds, used for compensation and insurance premium payments, will double
and increase 4.5 times in 2015 and 2020, respectively, compared to 2010; capital that insurance
pours into the economy will increase 1.7 times and 3.5 times in 2015 and 2020, respectively,
compared to 2010 to represent 3-4 percent of the country's GDP; the insurance sector's
contribution to the state budget will double in 2015 and quadruple by 2020, compared to 2010;
state authorities in charge of insurance management will observe 50 percent and all of insurance
management and control principles issued by the International Association of Insurance
Supervisors (IAIS) by 2015 and 2020, respectively.
To reach the previously mentioned targets, the Ministry of Finance prepared a plan for realizing
the insurance market development strategy to 2015, aimed at satisfying the different demands of
organizations and individuals, contributing to stabilizing the economy and social security,
accomplishing international commitments that Vietnam has committed itself to, and gradually
narrowing the gap in development level between Vietnam and other countries in the region
through the following groups of solutions.

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Improving the law
Guiding documents will be issued or amended and supplemented; guidelines will be issued for
organizations and individuals to implement new provisions in the law amending and
supplementing some clauses of the insurance business law that took effect July 1, 2012;
problems faced by insurance businesses in observing the law will be solved to make laws more
practical; things will be done to assure that international commitments that Vietnam joins will be
implemented effectively; and efforts will be made to make the state management of insurance
and insurance business in Vietnam compliant with international standards and international
insurance management and supervision rules.
Consistent laws related to insurance business will be issued or amended and supplemented;
administrative procedures will be simplified to meet international standards to improve the
competitiveness of Vietnam insurance sector compared to its counterparts in other countries in
the region and countries that have similar conditions with Vietnam; policies encouraging
organizations and individuals from the agricultural, forestry and fishery sectors and low-income
earners to buy insurance will be constructed.
Safety first: insurance business’ safety, efficiency and competitiveness
Less effective insurance businesses will be restructured, while the financial capability, service
quality, administration and competitiveness of all insurance businesses will be gradually
improved to meet international standards and in accordance with international rules.
Policies which encourage insurance businesses to diversify investment profiles, disperse risks,
and improve investment efficiency and capital sources safety in compliance with the objectives
and solutions described in the Vietnam securities market development strategy for the 2011-2020
period as well as the project for developing the Vietnamese capital market to 2020 and plans and
schedules for this project's implementation, will be constructed or improved.
Another solution is to take the initiative in working with the State Bank of Vietnam to share
information related to insurance business policies and the management of insurance businesses
belonging to financial and banking groups in accordance with cooperative regulations signed on
February 29, 2012 by the Ministry of Finance and the State Bank of Vietnam.
Closure and division of the insurance market will be stopped through improving policies on fair
competition between insurance businesses to which state groups and corporation contribute
capital and other insurance businesses; inspection and supervision will be strengthened and
organizations and individuals infracting fair competition policies and regulations will be
punished strictly; cooperation will be made to review and evaluate efficiency of state
corporations and groups’ investment capital in insurance businesses to further decrease their rate
of holdings in insurance businesses as according to the project to restructure state enterprises
during the 2011-2015 period.
The insurance sector workforce will be assessed and classified, with criteria and conditions for
individual positions reviewed and improved, while workforce training and quality will be
controlled.

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Breaking new ground
Regulations will be released on approving the quality of insurance products with simplified
administrative procedures to assure similar conditions for life and non-life insurance businesses
that offer the same health insurance products, increasing the attractiveness and competitiveness
of insurance products over other financial products especially investment connectivity insurance.
Other solutions are to work with relevant organizations to effectively implement programs
experimenting with types of insurance benefiting from state assistance, such as agriculture and
export credit insurance; to find and suggest ways to solve problems faced by insurance
businesses and the insured upon the programs' implementation; to summarize and assess the
programs and suggest measures to continue developing these types of insurance in the coming
period; to review, amend and supplement required insurance policies related to fire and
explosions and motorized vehicle driver liability in accordance with actual economic
development demands; to construct and issue regulations and rates of required insurance applied
to insurance brokers as stated in the insurance business law and documents providing guidelines
for implementing this law.
Training on the job
To issue new regulations on insurance brokerage workforces and insurance brokerage training; to
improve regulations on standardizing training for insurance agents and conditions and standards
subject to insurance agents training organizations; to strictly control insurance agent training and
certification; and to strengthen inspection and supervision of insurance businesses’ use of sales
agents.
Controlling policies
To construct an effective control and management system; to strengthen management and control
of insurance businesses based on concrete criteria; and to deal with violations according to law.
To standardize and develop state agency workforces in charge of insurance business
management; to construct proper policies for insurance business management workforces
especially those working in fields such as actuary.
Promoting international cooperation and integration
To construct schedules and plans for insurance business-related negotiations as part of bilateral
and multilateral trade agreements, aimed at assuring Vietnam's interests in international
integration.
To strengthen supervision of international integration; to assess the impact of integration and
timely change policies to minimize the negative impacts of the process;
To take the initiative in joining the forum of Southeast Asian insurance management agencies
and IAIS; to review the observation of management and supervision principles issued by IAIS,
based on which to improve insurance business policies; and

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To diversify international cooperation activities and partners; to combine international
cooperation with the development of insurance market management and supervision objectives;
and to improve the use of financial and technical assistance from international partners./.
3. UM&A activity in insurance industry
As an alternative (or in addition, for that matter) to setting up a new company, foreign insurers
may acquire shares/equity in existing insurance companies in Vietnam. Foreign investors can
also purchase shares in a listed/unlisted company or in an “equitised” (akin to privatized) State-
owned insurer. Under local law, every transaction that involves 10% or more of the charter
capital of a target insurance company (whether by way of an acquisition or an increase of
capital/subscription) is subject to the prior approval of the MoF. If acquiring capital contributions
in an existing insurer which operates in the form of a limited liability company, foreign investors
can acquire up to 100% of an existing insurance company. For example, in late 2005, Australia's
QBE Insurance Group Ltd. bought Allianz General Insurance (Vietnam) Co. Ltd. from German
insurer Allianz AG and from the International Finance Corporation to convert the company into
QBE Insurance (Vietnam) Co. Ltd. In 2007, Japanese Dai-ichi Life Insurance successfully
acquired the entire capital contributions in Bao Minh CMG, a joint venture between local Bao
Minh Joint Stock Company and Australian Colonial Mutual Life, converting it into a wholly
foreign-owned life insurance company.
If acquiring shares in an existing shareholding insurance company, the following foreign
ownership caps will apply:
a. The maximum shareholding by an individual shareholder is limited to 10% of the charter
capital of the target company;
b. The maximum shareholding by an institutional shareholder is limited to 20% of the
charter capital of the target company; and
c. The maximum shareholding owned by a shareholder and related persons/affiliates in
aggregate is limited to 20% of the charter capital of the target company.
An institutional shareholder may own more than 20% of the shares of a shareholding insurance
company in the following cases:
a. Ownership of shares for the purpose of restoring the solvency of an insurer and re-insurer
in case of insolvency;
b. Ownership of shares by the State in an insurer or reinsurer in accordance with a
restructuring plan; or
c. Ownership of shares by a strategic institutional shareholder subject to the MoF's
approval; the approval is subject to the following conditions:
i. An asset base of at least USD 2 billion;

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ii. Profitable operations (without accumulated losses) during the last three years preceding
the application;
iii. Operating experience in the finance, banking or insurance sector of at least five years;
and
iv. Committing not to withdraw capital from the target company for three years.
In the last decade, Vietnam has privatized its major State owned insurers by converting them into
joint stock companies (including the privatization of Bao Viet Insurance Corporation, the
country’s largest life and non-life insurance corporation, in 2005 and Bao Minh Insurance
Corporation, the country’s second largest insurer, in 2004). Whilst the State remains the majority
shareholder in Bao Viet and Bao Minh, Sumitomo Life Insurance has acquired an 18%
shareholding in Bao Viet Holdings and AXA became a foreign strategic investor with the
holding of its 16.65% stake in Bao Minh. Another financial and insurance group of Vietnam,
PVI Holdings also has Funderburk Lighthouse Limited and Germany’s HDI-Gerling
Versicherungs AG (part of the Talanx Group) as shareholders with a 12% and 25% stake
respectively. In 2008, SwissRe acquired 25% of the Vietnam National Reinsurance Corporation
(Vinare), after Vietnam’s main State-owned reinsurer was privatized.
4. UWhere did we come from?
Forecast:
As forecast by the Ministry of Finance (MOF), the insurance sector of Vietnam in 2013 will
maintain its good growth and the growth target of 10-12 percent against that of 2012. The life
insurance premium will be increased by two percent during the next year, after one year without
much change. Particularly, at emerging markets, the insurance premium will continue to go up
strongly, of which non-life insurance premium will be boosted to eight percent.
AM Best's 2012 report into the Vietnamese insurance market, predicted growth of 28% in the
country's general insurance market along with an 18% uplift in life insurance.
Status quo:
Non-life insurance premium revenue in the first six months of 2013 picked up only 2.5% year-
on-year as many businesses are performing poorly in the tough economic times, according to
Vietnam Insurance Association.
According to reports by non-life insurers, the premium revenue in the first half of the year
totaled some VND11.7 trillion, a slight increase of 2.5% year-on-year, said Phung Dac Loc,
general secretary of the insurance association.
Last year, the non-life insurance market recorded a growth rate of 12.7% in the first six months
and 10.3% over the whole year.

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Still, it is encouraging that premium revenue rebounded in the second quarter with a growth rate
of 7.5% after dropping 5% in the first quarter. “This partly shows that the economy is on the
recovery path,” said Loc.
Non-life insurers in the year’s first half paid total compensation of VND4.6 trillion, or nearly
40% of the total premium revenue.
Bao Viet took the lead in terms of premium revenue with VND2.58 trillion, a meager increase of
1.32% over the same period last year, followed by PetroVietnam Insurance (PVI) with VND2.46
trillion, up 12.4% year-on-year.
Bao Minh and Petrolimex Insurance (Pjico) came next with VND1.17 trillion and VND1.01
trillion, picking up 6.8% and 3.8% respectively. Only Post & Telecommunication Insurance
(PTI) suffered a decline in revenue, earning VND793 billion, down 15% year-on-year.
In its financial statement, PTI says the company had incurred a loss of VND10.16 billion from
production and business operations by the end of the second quarter, lower than VND26.5
trillion in the first half of 2012. However, its financial investment generated a profit of VND41.8
billion, giving the company a total pre-tax profit of VND27.6 billion, identical to the figure last
year.
Meanwhile, life insurance premium revenue in the first six months of 2013 amounted to
VND9.15 trillion, a significant increase of 13.6% year-on-year. In the same period last year, life
insurance premium revenue was over VND8 trillion, up 10.4%.
As citizens are burdened with many fees such as tuition and hospital charges and the traditional
investment channels are less profitable, many of them choose life insurance to invest for the
future and to hedge on possible risks, said Loc.
5. UOur recommendation: surviving of the fittest
There is a real need to re-structure the Vietnam non-life insurance industry. With currently 29
non-life insurance companies and a few of them facing losses for the past 3 years, the
Vietnamese insurance market shall let/push the weakest non-life insurance companies to go
bankrupt and create conditions for the others to be acquired and then merged with existing
champions insurers in Vietnam.
Taken into consideration the size of the Vietnamese insurance market as well as the opening of
the ASEAN market (free trade zone) by December 31st 2015, it is recommendable to Vietnam
having only 15 to 20 non-life insurance companies with a few champions (be it 3, 4 or 5) to be
well prepared tackling the opening of the market in the future. This should also ease
opportunities to get business outside of Vietnam within the ASEAN region.
To let a few of the weakest insurance companies going bankrupt will also help the Insureds to
realize that going for the lowest premium rates does not ensure them to be paid when losses
actually occur. Such "correction" of the market will also help the Vietnamese non-life sector to
avoid too fierce competition on premium, well under acceptable technical rate levels, especially
with respect to the motor/auto insurance sector.

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Regarding the life insurance market, with currently 15 life insurance companies in Vietnam and
in light of a quite low penetration rate/ insurance density, there is room for these life insurers to
improve and thrive their development in the Vietnamese market.
II. The Role of Brokers in Penetrating the Vietnam Insurance Market
6. UOverview on Insurance Broker
Insurance brokers must be licensed by the MoF and only enterprises may act as brokers. Brokers
provide information on types of insurance, policy terms and premiums, and general information
on insurance enterprises to insurance buyers. Brokers may also help the insurance buyers to
assess and manage risk, select suitable insurance products, and negotiate and enter into insurance
contracts. Normally a broker represents the insurance buyer but receives its commission payment
from the insurance company.
Brokerage services are most commonly utilized in non-life insurance such as liability insurance,
personal accident and health insurance, property insurance, or general liability insurance. In
practice, local insurance buyers tend to be not fully aware of the role insurance brokers. In
particular, small and medium-sized businesses in Vietnam tend to contact insurance companies
directly.
The maximum insurance brokerage commission for each insurance service arranged by a broker
must not exceed 15% of the actual insurance premium collectible by the insurance company.
Brokers and Commissions: the rules of the game
Insurance brokers must be licensed by the MOF in accordance with Article 62 to 69 of the Law
on Insurance. The scope of work of an insurance broker is always provided in the insurance
brokering contract entered into between the broker and insurance buyer. The insurance broker
provides the insurance buyer with information about insurance products, premiums, policy terms,
advice on the risks and suitable insurance products, facilitating the conclusion of the insurance
contract for the benefit of the insurance buyer. In addition, the insurance broker can be
authorized by the insurer without any consideration to collect insurance premiums, and pay
insurance compensation in relation to insurance contracts which have been facilitated by such
insurance broker. The insurer and insurance broker agree on the commissions subject to a cap of
15% of the insurance premiums. The commission for reinsurance brokering services should be in
accordance with applicable international practices.
7. UThe Broker as a key player to penetrate the Vietnam Insurance Market?
Brokers can definitely assist FDI investors to better understand the Vietnamese insurance market
and help them to "design" their insurance programs being in full compliance with Vietnamese
legislation & regulation. Brokers in Vietnam can also help proposing "out of the box" insurance
policies for specific needs such as tailor made Personal Accident Insurance for employees of
100% foreign owned companies and the like.
Concerning the standard local insurance business, i.e. standard policies for companies controlled
by Vietnamese Authorities and/or Vietnamese Individuals, the penetration of the brokers is close

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to 0. The competition by Vietnamese authorities for those kinds of companies remain being
awarded to the Vietnamese insurance companies. In principle, insurance brokers can help the
local insurance company having received the lead insurer position only for seeking reinsurance
capacity abroad.

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