Since mid-2017, many new insurance policies have come into effect. This is expected to increase costs, thereby affecting the profits of insurance companies, especially non-life insurers.
The report presented at the 2018 Annual general Meeting about 2018 business plan of PTI stated that the non-life insurance market can hardly expect breakthrough this year and the growth is forecasted to remain around 10-13 percent. “The general trend is that non-life insurers continue to focus on developing distribution channels to support retail products, as marine insurance, hull insurance and technical insurance products have shown not much prosperity.
Moreover, insurers are not really confident with the high compensation rate in such services as motor vehicle, health insurance and fire insurance products, not to mention the unforeseen risks of natural disasters, etc. Therefore, not only the revenue growth is set cautiously, the expected profitability growth in 2018 of insurance companies is also set at low level, even lower than 2017, mainly due to the must to increase risk provisions when there are many additional costs incurred under the new regulations, such as regulations on social insurance premiums, etc.”, PTI’s report clearly stated.
In this situation, PTI aims to generate 3.683 trillion dong revenue from insurance business in 2018, up by 9.9 percent of the realised figure in 2017 (3.350 trillion dong). The company also targets 119.2 billion dong of after-tax profit, down compared to the 148.5 billion dong in 2017.
Not only PTI, the business plan in 2018 of BIC also shows caution. Specifically, in 2018, the parent company BIC set a target of 2.040 trillion dong in insurance premium revenue, up by 12 percent compared to the realised figure in 2017, but the consolidated pre-tax profit growth is set at only 2.2 percent, reaching 190 billion dong.
According to information, closing year 2017, BIC parent’s company recorded a total insurance revenue 1.810 trillion dong, up by 6.4 percent compared to 2016. Nevertheless, the pre-tax profit growth reached 213 billion dong, up by 54.3 percent, thanks to the dividends of Lao Viet Insurance Company (LVI). The company’s consolidated pre-tax profit in 2017 was 186 billion dong, up by 12.6 percent.
Talking to Dau tu Chung khoan, representative of a non-life insurance company said that there are two main reasons causing the profitability growth of many non-life insurers to be forecasted at low level or even lower than 2017.
Firstly, starting from 2018, insurers will have to increase the spending on social insurance or employees under the revised Social Insurance Law. In the past, social insurance was paid based on basic salary, but now the premium will increase accordingly to the actual salary the employee is paid.
Secondly, insurance companies must apply the new regulations on professional reserve in accordance with Circular 50/2017 of the Ministry of Finance which guides the implementation of the Law on insurance business and the Law on amendments to certain articles of the Law on insurance business which took effect from July 2017. This may lead to the rise in the professional reserve of insurance companies.
In fact, at the financial report in 2017 of MIC, its insurance reserve was made under the new regulation from July 1st 2017. Accordingly, the unearned premium reserve of MIC in 2017 increased by over 3.8 billion dong.
According to experts, along with the unpredictable movements of the market and the policy changes, along with the goal to maintain the development in scale in parallel with efficiency, companies must adjust their revenue and profit plans to fit the new situation.
The fact shows that that the slowdown in growth will help insurance companies keep abreast with market reality, thereby reviewing the corporate governance as well as increasing the quality of after-sales service to customers. In addition, in order to keep up with future business trends, non-life insurance companies also need to invest stronger in developing information technology applications and the business activities based on modern technology platforms.
