According to the November 2019 Bond market update report of Vietcombank Securities Company (VCBS), the winning interest rate of government bonds dropped sharply in October 2019 across all terms, especially long terms of 20 to 30 years.
Specifically, the winning rates are recorded at 2.85%, three percent, 3.58%, 3.76%, 4.32 percent and 4.65 percent per annum for terms of respectively five, seven, 10, 15, 20 and 3- years. Meanwhile, the Development Bank and Bank for Social Policies did not mobilise via bond channel in this month.
In November, the government bond yields continued to slightly decline or moved sideways in a narrow band.
The question is that how the downtrend of government bond yields affect the business results of life insurance companies.
Representative of an insurance company said that the decline in government bond interest rate will certainly influence insurance companies, because businesses have to provision for risks.
However, the level of impact may not be as severe as in 2018, because the Ministry of Finance (MOF) has adjusted the method used to calculate interest rates for setting aside reserve (the MOF has adjusted Circular 50 on provisioning to reduce mathematical reserve of life insurance companies).
“But if bond yields continue to plummet, life insurance companies will face difficulties, especially those previously sold mix products. Universal life (UL) products are less affected if the bond yields fall below three percent per annum,” said the above presentative.
It is known that the average government bond yield is a parameter used in calculating mathematical reserve. The lower it is, the higher the mathematical reserve.
Thus, in addition to the solutions of management authorities, insurance companies themselves have made changes in business strategies, especially the introduction of the insurance products which are less dependent on the fluctuations of interest rates.
For some products that are being sold, insurance companies have also made adjustments to be more suitable to the interest rate movements of the market.
Particularly, from mid-2018, insurance companies have actively promoted UL products and reduced the sale of mixed products in order to lower the pressure of risk provisioning costs for those products under Circular 50/2017/TT-BTC.
In the first half of 2019, according to statistics of the Insurance Administration and Supervision Department (MOF), UL products accounted for the largest proportion, with 70.89 percent of the newly exploited premium revenue; followed by mixed products with 13.67%, death insurance with 2.55%, revenue from supplement insurance premiums with 10.57%.
Compared to the same period of last year, the new premium revenue of UL increased by 49.53%, followed by mixed products which declined by 37.75%, etc.
According to Ngo The Trieu, general director of Eastsprining Vietnam Fund Management Company, Not only Vietnam, the world financial market is also in a cycle of interest rate declines.
Financial groups in countries always have to find solutions to increase the total assets of customers and restructure their portfolios.
The current government 10-year bond yield is now just about 3.7 percent per annum the lowest rate ever.
Since it is difficult to predict about these interest rate ups and downs, all companies must study different types of market to increase investment, profitability, such as the shift to corporate bonds and other investment types such as securities, etc. in order to boost profits.
