Preliminary statistics show that about 10 life insurance companies recorded losses in 2018, accounting for more than half of the current number of life insurance companies.
In which, Manulife suffered the biggest loss of up to 2.722 trillion dong, two times higher than the loss recorded in 2017. Accordingly, the accumulated loss of Manulife by the end of 2018 reached up to 2.356 trillion dong.
Despite seeing improvement over the previous year, generali, Aviva and Hanwha Life still suffered losses of respectively 998 billion dong, 320 billion dong and 187 billion dong in 2018.
In addition to the above names, numerous other life insurance companies such as Sun Life, Phu Hung Life, BIDV MetLife, MB Ageas Life, etc. also posted losses in 2018.
There are many reasons for this situation, including the fall of the government bond yields to a lower level than expected (life insurance companies have made large investment in government bonds), leading to the sharp decline in discount interest rate used for technical back up calculation.
Many life insurance companies had to make large provisions in the past year. According to Manulife, its total revenue in 2018 reached 13.118 trillion dong, in which the net insurance premium revenue was 10857 trillion dong, respectively up by 31 percent and 36 percent compared to 2017. However, Manulife set a provision of up to 7.288 trillion dong in the year, and that was the main reason leading to the company’s after-tax profit loss of more than 2.173 trillion dong. Manulife’s provision accounted for two third of the company’s operating expenses in 2018.
Meanwhile, generali also acknowledged that in 2017 and 2018, the loss was higher than expected when the insurance provision unexpectedly increased due to the impact of the government bond yield reduction and generali’s use of more prudent provisioning method. These objective requirements led to an increase in insurance provision and operating loss of 751 billion dong in 2017 and 922 billion dong in 2018.
In addition, the losses of life insurance companies, mainly new businesses, is due to specific characteristics of the life insurance field. A life insurance contract usually lasts many years, with insurance fee paid annually by customers. The cost that a life insurance company has to spend is often generated in the first few years when the new contract is issued. According to the Life Insurance Business Law, all these expenses must be settled in the profit and loss when incurred, while the premium revenue of this contract does not come immediately once but spread over the years. Thus, new life insurance companies in Vietnam, particularly companies with high revenue growth, often suffer losses over a number of years until they reach a large scale.
In addition to the above objective reasons, each company has its own circumstance. For example, at Aviva, according to the management board’s explanation, although the company did not record profit in 2018, the loss was lower than 2017. The company’s net revenue still increased by 485 billion dong compared to 2017, reaching 1.457 trillion dong. However, the ratio of sales expenses and administrative expenses to insurance premium revenue was still high at respectively 34 percent and 13 percent, insignificantly improved compared to 2017. Since Aviva is currently in the development phase and it is necessary to promote new exploitation, the cost on complement and reward, and on sales support is very large compared to other costs (accounting for 23 percent of the total insurance premium revenue. In addition, the company’s staff costs also account for a large proportion in the insurance premium revenue (13 percent).
Numerous life insurance companies suffering loss in the context of a boom in distributing products through banks (bancassurance) raised doubts that the cause of losses if due to the contracts signed with banks. However, it may only happen locally in the companies which have just signed contracts with banks in the first year.
While the above names suffered losses, some other companies not only escaped from losses but also recorded fairly high profits, typically Dai-ichi Life and Prudential.
The financial report of Dai-ichi Life showed that in 2018, the company attained a profit of 57 billion dong, while it posted a loss of 515 billion dong in 2017. The total revenue in 2018 of Dai-ichi Life increased by up to 40 percent to 12.337 trillion dong, while its expenses only increased by 32 percent.
For Prudential, the pre-tax profit was 554 billion dong, while it was a loss of 1.382 trillion dong in 2017. While the revenue from financial activities plummeted (by 15 percent), Prudential’s revenue from insurance business soared to 19.019 trillion dong (up by 19 percent).
Previously, both Prudential and Dai-ichi Life recorded heavy losses in 2017, mainly due to the signing of cooperation with banks, in which Prudential cooperated with Maritime Commercial Joint Stock Bank (Maritime Bank) and Vietnam International Commercial Joint Stock Bank (VIB), and Dai-ichi Life cooperated with Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank) and Saigon Hanoi Commercial Joint Stock Bank (SHB). Accordingly, insurance companies often have to pay a considerable amount of money to the bank which is called prepaid fee at the cooperation signing. While the insurance company records it into expenses, banks will account this amount in its unexpected revenue in service segment.
The unexpected return in 2018 of these two life insurers is perhaps thanks to the support from bancassurance channel, which helped to improve the insurance premium revenue significantly.
Life insurance companies recording the highest profit result in 2018 is still Bao Viet Life. Although its revenue still slightly declined, its profit was over 950 billion dong in 2018.
The prospect in 2019
Circular 01/2019/TT-BTC of the Ministry of Finance which took effect on February 16th 2019 which amended Circular 50/2017/TT-BTC, is expected to improve the capital and profit situation of life insurance companies.
“In February 2019, the Ministry of Finance issued a decision to allow insurance companies to make some changes related to interest rate used to set up professional provisions. With this adjustment, the provision will reduce and this reduction will be recorded in the operating profit of the company in 2019″, said generali when expecting more positive business results in 2019. Insurance companies also expect the rise of government bond yields from now until the end of the year.
In addition, after signing cooperation with banks, insurance companies also expect the bancassurance channel to bring higher premium revenue than before. While insurance companies have not updated their business results in the first quarter of 2019, many banks have reported huge profit with good growth in their insurance cooperation business, notably not the unexpected revenue recorded once from the signing of the cooperation. This may also be a good signal to expect that life insurance companies will revenue similar positive results, in the win-win relationship with banks.
