Insurance businesses in Vietnam now mainly use idle capital to invest in government bonds and bank deposits, with the proportion of more than 85 percent.
According to Ngo Viet Trung, deputy Head of the Department for Insurance Management and Supervision (under the Ministry of Finance MOF), Vietnam insurance market is considered as one of the medium and long-term capital supply channels to the economy. This capital supply channel mainly comes from investment activity of insurers.
Accordingly, in 2011-2017 period, the total amount of money that insurers re-invest in the economy grew at an average of 17.7 percent/annum.
In 2017 alone, the re-investment to the economy of insurers was estimated to reach 251.158 trillion dong, up 27 percent from 2016.
“With the particular requirement of insurance business operation i.e. to always ensure financial capacity in order to meet long-term commitment of insurance contracts (especially in life insurance sector), insurers always give priority to selecting highly secured and long-term financial assets such as government bonds and bank deposits”, said Trung.
Specifically, in 2017, investments in government bonds accounted for more than 60 percent of the investment portfolio, of which, the life insurance sector alone was estimated to reach 132.963 trillion dong (accounting for 62.3 percent of the investment proportion of the entire life insurance market), and non-life insurance sector made up about 10 percent of bonds.
Also in 2017, life insurers successfully auctioned 26.254 trillion dong bonds, including 15.552 trillion dong 30-year tenor government bonds (accounting for 55.86 percent of the issuance volume), 5.377 trillion dong 20-year tenor government bonds (reckoning for 28.45 percent of the issuance volume), and 5.611 trillion dong 15-year tenor government bonds (making up 16.8 percent of the issuance volume).
Apart from the investment in government bonds, insurers in Vietnam also deposited in banks to enjoy interest rates, with the investment proportion of about 25 percent.
Investing in corporate bonds and securities, contributing capital to other businesses made up eight percent, while the remaining investment assets such as real estate loans and business, investment trust and other businesses account for insignificant proportion i.e. five percent.
Trung said the Law on insurance business and guiding documents allows insurers to use idle capital from insurance profession provision to invest in Vietnam in many fields. However, to ensure safe and efficient investment, insurers must comply with legal regulations on investment activities.
Particularly, for such investment forms as real estate business, capital contribution to other businesses, etc., the maximum investment is 10-15 percent.
“In addition, insurers must also comply with investment principles such as not to borrow for direct investment or to entrust investment, not to re-invest in any form for shareholders, not to invest more than 30 percent stake in companies in the same corporation. It can be said that investments of insurers are carried out prudentially, complying with legal regulations”, said Trung.
Assessing about insurance market in the near future, the deputy Head said Vietnam’s insurance market is still quite potential with many new types such as investment linked insurance.
This type includes universal life insurance products and unit linked insurance products, combining both protection and investment.
Accordingly, the structure of premiums and insurance benefits are divided between risk insurance and investment. The insurance buyer is flexible to determine the premiums and insurance amount, and to choose to invest in premium, enjoy all investment results and take all investment risks from selected affiliate funds.
“The advantage of this product is that customers know clearly about the amount of premiums and take the initiative in investing in premiums through the selection of suitable affiliated funds as well as have the right to change among affiliated funds”.
In Vietnam, 17/18 life insurers are carrying out joint insurance products and 4/18 businesses are carrying out unit linked insurance product. In 2017, investment-linked insurance accounted for 43 percent of the total premiums”, said Trung.
For insurance businesses, the implementation of investment-linked insurance helps businesses diversify products, meeting insurance demand combined with investment factors of customers and contributing to attracting customers. However, due to high requirements for implementation, only large insurers can meet.
Ngo Viet Trung also said to develop the type of investment-linked insurance, which benefits the insurance buyers, management agency plays important role in setting up legal framework to encourage insurers to carry out this type of insurance and the management and supervision to ensure that insurers develop safely and efficiently, protecting the interest of the insured.
“In terms of state management, MOF (the Department for Insurance Management and Supervision) has the role of creating a legal framework to encourage the development of this type of product and service.
In addition, the Ministry of Finance implements the management and supervision to ensure that businesses carrying out this product comply with the provisions of relevant laws in investment activities, enhancing the safety and effectiveness and ensuring the benefits of the insured”, Trung said.
