The booming of bancassurance is expected to help banks and insurers move forward in the future. However, after cooperation deals were achieved, while many banks reported large profits with the large contribution from insurance, the three life insurance giants suddenly have backward business results, even suffering from heavy losses.
Developing credit at high speed and in a long time has left a lot of heavy consequences for the banking system.
Therefore, banks have found many ways to avoid relying too much on credit, of which, there have had strategic steps to increase income proportion from service fee, especially by shaking hands with big life insurers.
Bancassurance has been booming in Vietnam in recent years. The common “marriage” is that a large insurer will sign exclusive insurance distribution contract with a bank. The cooperation duration may last five years, 10 years or even 15 years, 20 years.
In 2017, a series of banks had cooperation agreements with large insurers. Typically, Techcombank and Manulife signed exclusive insurance cooperation agreement for 15 years at the end of September 2017.
Or Dai-ichi Life signed contract with Sacombank and SHB to get these banks distribute exclusive insurance in the long run. Maritime Bank and VIB are cross selling insurance products for Prudential.
In return, insurers have to pay banks a fee to sell insurance products to the banks’ customer bases.
These “handshakes” are expected to bring about a new “wind”, helping both sides to Win-Win, thanks to the resonance power of the system. However, the immediate result after a period of cooperation shows that while banks report large profit, their partners i.e. insurance companies recorded heavy losses.
*Banks earn large profits from insurance
By the end of the fiscal year 2017, many banks surprisingly reported large profits from the trustees and insurers. The most typical was Techcombank which has profit from service to soar 95 percent to 3.812 trillion dong, of which, revenue from trust services and agents increased 25 times to 1.543 trillion dong; insurance commissions touched 513 billion dong, up 52.6 percent from 2016.
At Sacombank, the net profit from service of this bank swelled 83.6 percent to 2.625 trillion dong, of which, income from trusted services and agents touched 936 billion dong, up 7.4 times. For the first time, there is revenue from insurance commission service with 74.7 billion dong.
Meanwhile, SHB also earned 1.446 trillion dong profits from service operation, of which, revenue from agent service, consultancy reached 1.242 trillion dong, up 6.5 times from 2016. The partner of this bank was Dai-ichi Life with the exclusive cooperation package of 15 years
*Insurers suffer from heavy losses
While the aforementioned banks earned large profits, the recently released financial statements of life insurers unexpectedly showed backward business results.
Among four giants of the insurance sector, Bao Viet Life Insurance attained positive profit growth, while the three remaining insurers including Prudential, Dai-ichi Life, and Manulife achieved negative growth, even suffered from heavy losses. Coincidentally, all these three agents had cult cooperation deals with banks in 2017.
First of all, there must mention Manulife. The insurer suffered from 1.245 trillion dong profit after attaining the profit of 463 billion dong in 2016. The company’s total revenue still achieved good growth (34 percent), reaching 10.066 trillion dong.
However, the total costs of the company increased 61 percent to 11.311 trillion dong, of which, the majority came from the increase in insurance business costs (up 81 percent to 8.145 trillion dong).
Similarly, at Dai-ichi Vietnam (the partner of Sacombank and SHB), the reason also came from the strong increase in insurance business costs at 65 percent, causing the company to suffer from the pre-tax loss of 515 billion dong compared to the profit of 135 billion dong in the previous year.
In spite of not suffering from losses in 2017, another 100 percent foreign owned company i.e. Prudential Vietnam also recorded remarkable decline in profits.
If in 2016, the pre-tax profit of Prudential Vietnam reached 1.603 trillion dong then in 2017, and the profit only remained 645 billion dong, equivalent to the loss of nearly one trillion dong, or a 60 percent decline.
*Why is there such a conflict?
Although financial statement of insurers is in summary form, the suddenly rising cost is still unclear. However, among the reasons, a certain reason surely comes from the handshakes with banks.
According to long-term cooperation contracts, insurers will have to pay a certain amount of money to banks called pre-paid fees, which is paid only once during the cooperation period.
While insurance must be recorded into expenses, then banks will account that part in the unexpected revenue in the service business segment. For example, Techcombank recorded nearly 1.5 trillion dong profit last year, compared to several hundreds of billions of dong each bank.
And, the contrast between business results of banks and insurers as the market has witnessed probably only recorded the first year of cooperation. For the following years, with the forecast that the insurance market will grow 20-30 percent/annum, many banks expect a lot.
For example, Sacombank wants the revenue from premium commissions to contribute 15-20 percent to the bank’s total revenue within the next five years, or Techcombank wants to raise the revenue from premium by 20 times within five years (2016-2020) to 10 trillion dong, then the profits earned by the two sides will surely have a lot of changes.
