According to the Vietnam Insurance Association (IAV), life insurance premium revenue in the first six months of 2019 reached 48.134 trillion dong, up 28 percent compared to the same period last year.
This growth is lower than the 32 percent growth in the first six months of 2018. Of which, the new contract fee revenue reached 14.759 trillion dong, up 15 percent, much lower than the 32 percent increase in the same period last year.
The new fee revenue structure also has strong fluctuations in two main products: investment links and mix, namely:
Fee revenue from investment-linked products grew by 52 percent over the same period, contributed 70 percent of total new fee revenue and became the main growth driver of new fee revenue (the contribution in the first nine months of 2018 was only 60 percent)
Meanwhile, fee revenue from mixed products dropped sharply by 38 percent y-o-y. The proportion of this segment in total new fee revenue also decreased from 25 percent in the first nine months of 2018 to 14 percent in the first half of this year.
According to VDSC Securities Company, the change in revenue of these two products comes from the fact that insurance companies promote the sale of investment-linked products after the issuance of a new decree on selling investment-linked products.
Specifically, Decree 151/2018/ ND-CP, effective from November 2018, amends a number of articles of Decree 73/2016/ ND-CP and Decree 67/2014/ ND-CP, removing the regulation requiring agents to have insurance consulting experience or work in the finance, banking and insurance industries in order to sell investment-linked insurance.
In addition, insurance companies actively reduce selling mixed insurance products during the period of low government bond interest rate. Because, the average G-bond interest rate is a parameter used in mathematical reserve calculation and the lower the average G-bond interest rate, the higher the cost of mathematical reserve. If sales of this product are promoted, the cost of setting up mathematical provisions is likely to increase sharply. The winning interest rate of VGBs is directly proportional to the maximum technical interest rate, and inversely proportional to the cost of mathematical reserve.
Therefore, until the winning interest rate of VGBs increases, insurance companies will not promote sales of mixed insurance products.
The burden of mathematical reserve may decrease after the effective date of Circular 01/2019/ TT-BTC, due to the change in the formula of technical interest rates in calculation of mathematical reserve:
According to Circular 50/2017/ TT-BTC: Maximum technical interest rate = Average interest rate of government bonds with a term of 10 years or more issued in the latest six months x 70 percent.
Circular 01/2019/ TT-BTC (amended some articles of Circular 50): Maximum technical interest = Average interest rate of government bonds with a term of 10 years or more issued in the latest 24 months x 80 percent.
Given the low winning interest rates of VGBs since the end of 2017, VDSC believes that adjusting the length of the average interest rate period from 6 months to 24 months can help the profits of life insurance companies remain unchanged.
