The strong decline of government bond yields and the difficulty to go up of banks’ interest rates in the near future are the factors that may affect the efficiency of insurance companies.
Once the profit is low, the dividend distribution plan will be affected. Thus, investment quality of insurance companies has become a bigger concern for investors.
At the annual general meetings (AGMs) held recently by many non-life insurance companies, the issue of investment portfolio and investment efficiency were constantly questioned by shareholders.
According to opinions of some shareholders, the investment portfolio of insurance companies is fairly monotonous and the profits are only at a safe level. Therefore, many investors expressed the desire to have new investment strategies.
Nevertheless, according to representatives of insurance companies, since the characteristic of insurance industry is to ensure liquidity when there is a need to pay compensation to customer, safe investment is still the most important task.
At the AGM of BIDV Insurance Company (BIC), representative of a shareholder raised a question about the estimated portfolio value in 2018 of BIC and whether there is a change in the structure of BIC’s portfolio this year. If the investment in deposits is lowered to 70 percent, what will the Return on Investment (ROI) in 2018 be and how will the structure of shares and bonds change?
Answering the question, director of BIC’s Investment Division Pham Bach said that in 2018, with the adjustment of investment in deposits to 70 percent, the investment in bonds is expected at 20 percent and in shares is expected at 10 percent.
BIC’s investment philosophy agreed by its Board of directors (BOD) and strategic shareholder Fairfax is to pursue long-term strategy and focus on value. Therefore, the company mainly invests in bonds of banks and enterprises which are growing well and safely. However, in fact, finding good bonds in the market is not easy.
In 2018, with bond yields higher than deposit rates by about 2 percent, BIC still tries to find more sources of good bonds, particularly from banks. The expected ROI of BIC’s portfolio is about 7 percent, because the proportion of investment in deposits is fairly high.
Meanwhile, according to the submission for approval on the 2018 business plan regarding investment options, the BOD of Bao Minh Insurance also proposed that in addition to banks’ deposits, the company will increase investment in the stock market a channel with high potential profitability in a prudent principle via seeking opportunities to invest in shares of good enterprises to ensure safety and efficiency for the investment capital.
Moreover, the search for investment opportunities in new projects is also paid attention, particularly the enhancement of regular analysis and evaluation of stock/corporate bond investment, in order to have early warnings about the performance in each point of time.
Concerning the effectiveness of investment activities, at the 2018 AGM of Posts and Telecommunications Insurance Company (PTI) held recently, a shareholder questioned about the company’s investment strategy in the near future, as PTI has been too cautious and the ROI is just around banks’ interest rate.
Talking about this issue, representative of PTI said that the ROI of PTI is about 7.7 percent, 0.7 percent higher than banks’ interest rate. The moderate ROI is due to the nature of insurance industry which is to ensure the liquidity when there is a need for compensation payment to customers (with investment limits for each item) and to ensure the immediate payment norm. Thus, investing in banks’ deposits still accounts for large proportion in the total investment.
Regarding the view that ROI being around banks’ interest rate would not be safe for investors when inflation rises, PTI’s representative shared that the annual investment capital of the company constantly increases over the years thanks to the growth in premium revenue. This also partly compensates for the inflation factor.
Regarding the investment strategy in the near future, PTI is currently building the direction to increase the proportion of investment with higher profitability such as real estate and securities.
“However, since this proportion still needs to comply with the State regulation, the ROI can hardly see significant changes like securities companies or investment funds”, PTI’s representative stressed.
