Overview of Non-Life Insurance Companies in Vietnam

CHAPTER 3

CURRENT STATE OF BUSINESS AND STATE MANAGEMENT OF BUSINESS ACTIVITIES OF NON-LIFE INSURANCE ENTERPRISES IN VIETNAM

3.1 CURRENT STATUS OF BUSINESS ACTIVITIES OF NON-LIFE INSURANCE ENTERPRISES IN VIETNAM

3.1.1 Overview of non-life insurance companies in Vietnam

3.1.1.1 The emergence and development of the non-life insurance market in Vietnam

The insurance industry has been born and existed in the world for thousands of years with an indispensable role in the development and socio-economic stability of countries. Compared to the birth of insurance companies in the world, insurance companies in Vietnam were born quite late. The development of non-life insurance in Vietnam can be divided into two stages:

- Period from 1965 to 1993:

This period was marked by the birth of the first insurance company in Vietnam, now the Vietnam Insurance Group (Bao Viet), however, the insurance market had not yet really formed because there was only one company operating exclusively in the insurance sector. After 1975, the South was completely liberated, the State had a policy of allowing the takeover of all insurance establishments of the old regime and unifying operations nationwide under the direct management of the Ministry of Finance. Since 1987, the State has carried out the transformation of economic management from a centralized planning mechanism to a market mechanism, causing the management mechanism of insurance activities during this period to also change, requiring the construction of a vibrant and diverse insurance market with domestic and foreign economic sectors. On December 18, 1993, the Government issued Decree 100/1993/ND-CP on insurance business to diversify and promote the development of the insurance market.

- Period from 1993 to present:

Decree No. 100/1993/ND-CP marked a new turning point in the development of Vietnam's insurance market in both quality and quantity, with a series of insurance companies being established and operating instead of the state monopoly. Vietnam's insurance market really changed when two more insurance companies appeared, namely Ho Chi Minh City Insurance Company (Bao Minh) and Vinare National Reinsurance Company. The market became increasingly vibrant with the establishment of Petrolimex Insurance Joint Stock Company (Pjico) and Nha Rong Insurance Joint Stock Company (Bao Long). Then, Vietnam Oil and Gas Insurance Company (PVI) and Post and Telecommunication Insurance Joint Stock Company (PTI) were established in 1996 and 1997 respectively. It was not until August 1996 that the Ministry of Finance approved Bao Viet's expansion to become the first insurance company to do life insurance business. It can be seen that the birth and development of non-life insurance is the birth and development of Vietnamese insurance.

1999 was the year that marked the explosion of non-life insurance market with the continuous establishment of 5 insurance companies, requiring a professional organization to unify the activities of insurance companies in the Vietnamese market, as a focal point to receive and reflect the recommendations of companies to the insurance management agency and other relevant authorities. At the end of 1999, the Vietnam Insurance Association was officially established, marking a new development step of Vietnam's insurance market. After more than 50 years of formation and development, Vietnam's non-life insurance market currently has 30 insurance companies operating and initially bringing positive results, contributing to the socio-economic development of the country.

3.1.1.2 Number of enterprises and business networks of non-life insurance enterprises in Vietnam

By the end of 2017, the entire market had 30 non-life insurance companies operating, including 9 single-member LLCs, 4 LLCs with 2 or more members, 16 joint stock companies and 1 branch of a foreign non-life insurance company. Among the non-life insurance companies, some large enterprises have high market shares and have affirmed their positions such as Bao Viet; Bao Minh; Pjico; PVI; PTI.

Non-life insurance companies have provided insurance products through many different channels such as: direct sales, through insurance agents (including individual agents and organizational agents), insurance brokers. In addition, the bancassurance distribution channel has initially contributed to market expansion, many companies are expanding this model such as PTI, PVI, Bao Minh, Bao Viet, PJICO. In particular, companies with bank investment capital use bancassurance thoroughly such as BIC, MIC, VBI. Although using many distribution channels, the premium revenue of non-life insurance companies mostly comes from the direct exploitation channel. The operating network of non-life insurance companies is increasingly expanding, currently there are more than 600 branches in the whole market.

The number of non-life insurance products has increased from 200 products in 1999 to more than 800 products currently for all 12 insurance operations. Vietnamese law stipulates the following compulsory non-life insurance products: (1) Civil liability insurance for motor vehicle owners; (2) Civil liability insurance of airlines for customers; (3) Professional liability insurance for the provision of legal services; (4) Professional liability insurance for insurance brokers; (5) Fire and explosion insurance. Among voluntary insurance products, some specific products are also encouraged to develop such as agricultural insurance, aquatic insurance, micro-insurance, export credit insurance, etc. To improve competitiveness and be consistent with socio-economic development, insurance companies are implementing new insurance products to better meet the needs of insurance participants.

3.1.1.3 Financial capacity of non-life insurance companies in Vietnam

The financial capacity of non-life insurance companies is shown through the scale, asset growth rate and equity of the entire market in the following chart:

Chart 3.1: Asset and equity situation of the entire non-life insurance market in Vietnam in the period 2010 - 2017

Unit: billion VND

80,000

70,000

73,735

66,488

60,000

55,583

59,128

50,000

40,000

34,350

34,791

35,907

37,294

30,000

20,000

Total assets

Equity

21,444

22,699

23,781

17,165 16,431 17,250

17,381

18,539

10,000

2010 2011 2012 2013 2014 2015 2016 2017

(Source: Insurance Management and Supervision Department)

During the period from 2010 to 2017, the total equity of the entire non-life insurance market increased by an average of 5.5% per year, especially from 2014 to present, the growth rate has been faster, about 10.2% per year, which is a positive sign for the growth of non-life insurance companies. Also during this period, the average total assets increased by 15.6%, reaching 73,755 billion VND in 2017.

In addition, the thesis also synthesizes data on total equity and total assets of the entire non-life insurance market according to some leading insurance companies presented in Appendix 8 and Appendix 9. Total equity of the entire market tends to increase along with the stability of the equity holding ratio of 5 large companies: Bao Viet, PVI, Bao Minh, Pjico; PTI. In 2010, these 5 companies held 51.5% of the total market equity, and in the following years, it was always maintained at around 45%. Among the companies, PTI's equity increased dramatically from 675 billion in 2014 to 1,843 billion in 2015, contributing to the total market equity in 2015 increasing by 15.7% compared to 2014.

Although equity accounts for about 45% of the total non-life insurance market, the average total assets of the 5 largest non-life insurance companies account for more than 55% and are on the rise. Most of the large insurance companies have stable total assets with Bao Viet and PVI chasing each other to lead the market, only Bao Minh is the insurance company that has decreased in the past few years. Meanwhile, PTI broke through and increased rapidly in 2015 and is currently following closely behind Bao Minh. The remaining non-life insurance companies have equity accounting for about 55% but only account for nearly 45% of the total assets of the entire market, proving that the surplus of equity capital as well as the profits of these businesses are not high.

3.1.2 Business situation of non-life insurance companies in Vietnam

3.1.2.1 Current status of insurance premium collection of non-life insurance companies

longevity in Vietnam

The current status of insurance premium collection is assessed based on the total market's original premium revenue in relation to GDP, the proportion of original premium revenue by insurance company and the proportion of original premium revenue by each business. Table 3.1 shows the scale, growth rate of insurance premium revenue and the proportion of premium revenue/GDP:

Table 3.1. Growth rate of insurance premium revenue and proportion

Premium revenue/GDP of the entire non-life insurance market in Vietnam in the period 2010 - 2017

Target

Year 2010	Year 2011	Year 2012	Year 2013	Year 2014	Year 2015	Year 2016	Year 2017
Insurance premium revenue (billion VND)	17,070	20,554	22,849	24,521	27,522	31,891	36,864	41,594
Insurance premium growth rate (%)	24.11	20.41	11.17	7.32	12.24	15.87	15.59	12.83
Fee/GDP ratio (%)	0.86	0.81	0.86	0.96	0.70	0.76	0.82	0.83

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(Source: Insurance Management and Supervision Department)

Non-life insurance companies have an increasing scale of premium revenue, but the growth rate of premiums is not consistent over the years. After a period of rapid growth of over 20% per year from 2010 to 2011, the growth rate has decreased significantly. In 2017, the premium revenue of non-life insurance companies increased by only 12.83% compared to 2016, showing that the growth rate of premiums is decreasing compared to the previous two years. Although the growth rate of premiums has fluctuated over the years, in terms of value, the revenue

Non-life insurance premiums have increased over the years in line with the GDP growth rate. Therefore, the ratio of non-life insurance premiums/GDP over the years has been relatively stable at over 0.8%, only in 2015 did the ratio decrease, down to 0.7%.

The market share of original insurance premium revenue of some non-life insurance companies and by business line is presented in detail in appendices 10, 11 and 12. Regarding the original insurance premium revenue situation by business line, according to data from appendices 10 and 12, non-life insurance companies are providing 12 insurance lines. In terms of structure, over 70% of revenue belongs to 3 basic groups: motor vehicle insurance; property and damage insurance; health and personal accident insurance. Of which, motor vehicle insurance is the insurance line that always accounts for the highest proportion, reaching over 30% of total original insurance premium revenue in the whole market. In terms of the rate of increase in premiums, health and personal accident insurance has increased the most, from 2,512 billion in 2010 to 12,225 billion in 2017, an increase of nearly 5 times in 8 years. Some lines of business with very small original premium revenue such as guarantee insurance, credit and financial risk insurance, agricultural insurance and business loss insurance, account for less than 1% but are showing an increasing trend in value as well as premium revenue ratio.

The proportion of annual original insurance premium revenue of the 5 largest non-life insurance companies still accounts for a high proportion of total original insurance premium revenue. The most prominent point of the whole market in the past 8 years is that the original insurance premium revenue of small non-life insurance companies has gradually increased. If in 2010, these companies only collected 5,095 billion VND in original insurance premium, by 2017, this figure had reached 17,640 billion VND, 3.5 times higher than in 2010. This increase has brought the rate of 29.85% of the total non-life insurance premium revenue in 2010 to 42.41% in 2017. These figures show the increasing market penetration of small non-life insurance companies, a signal for a market that is tending towards balance.

3.1.2.2 Insurance compensation situation of non-life insurance companies

longevity in Vietnam

The situation of non-life insurance compensation payment is shown through the amount of original insurance compensation compared to the original insurance premium revenue and the amount of original insurance compensation of each business.

Chart 3.2 Original insurance compensation amount and original insurance premium revenue of the entire non-life insurance market in Vietnam in the period 2011 - 2017

70,000

60,000

41,594

50,000

36,864

31,891

40,000

24,521

27,522

30,000

20,554

22,849

20,000

Fee revenue

Original warranty

Total original insurance compensation amount

10,000

13,851

15,958

8,735

8,855

10,668

10,955

13,247

2011 2012 2013 2014 2015 2016 2017

(Source: Insurance Management and Supervision Department)

From the chart, it can be seen that the amount of original insurance compensation tends to fluctuate more than the original insurance premium revenue. In general, most of the businesses are profitable, meaning the amount of original insurance compensation is lower than the original insurance premium revenue. Only in 2013 did there appear to be losses in agricultural insurance, hull insurance and shipowners' civil liability insurance, and aviation insurance, and a few other businesses suffered losses. However, the business profit situation of non-life insurance companies is often not high, and some companies even suffer technical losses.

The amount of original insurance compensation corresponding to 12 lines of business is shown in appendixes 13 and 14. The original insurance premium revenue of 12 lines of business mostly tends to increase while the original insurance compensation amount of non-life insurance companies according to the lines of business does not have the same trend as the original insurance premium revenue. Accordingly, if most lines of business increase the original insurance premium, the compensation amount tends to decrease for some lines of business such as property and damage insurance; fire and explosion insurance; cargo and transportation insurance. The reason may be that non-life insurance companies have better risk management measures leading to a decrease in compensation costs. In terms of the proportion of compensation amount, motor vehicle insurance still accounts for the largest proportion, over 30%, especially in 2016 and 2017, it increased to nearly half of the market, corresponding to 43.82% and 45.80%. Next are health and personal accident insurance; property and damage insurance. Thus, these three insurance lines account for 80% of the compensation amount, while the other nine lines account for only 20% of the compensation amount.

3.1.2.3 The situation of operational reserves of the entire non-life insurance market in Vietnam

Reserve data on 3 items: premium reserve, compensation reserve and large fluctuation reserve are shown in Appendix 15. The total non-life insurance market has the highest proportion of premium reserve and the largest fluctuation reserve in the total reserve. The total reserve tends to increase over the years, contributing to ensuring the KNTT for insurance companies in relation to their responsibilities. To analyze in depth the scale and growth rate of total operational reserve, see the following chart:

Chart 3.3 Scale and growth rate of technical reserves in the entire non-life insurance market in Vietnam in the period 2010 - 2017

25,000

30.00%

27.10%

24.87%

19,907 25.00%

20,000 18,474

15,685

20.00%

15,000

17.84% 17.78%

11,770

11,617

12,090

13,310

15.00%

10,000

9,426

10.09%

Total

Speed

4.07%

10.00%

7.76%

5.00%

5,000

-1.30%

0.00%

-5.00%

2010 2011 2012 2013 2014 2015 2016 2017

(Source: Insurance Management and Supervision Department)

Along with the increase in premium revenue, the provisioning of the entire market is increasing, contributing to financial stability for insurance companies and the market when risks occur. The provisioning of correct and sufficient provisions is a factor ensuring the financial stability of insurance companies. Over the past 8 years, operational provisions have increased by an average of 15.88%, in which premium reserves and compensation reserves have increased the most while large fluctuation reserves have increased more slowly. This shows that non-life insurance companies have not focused on providing for large fluctuations compared to premium revenue but mainly provide for compensation for their insurance liabilities.

3.1.2.4 Investment status of non-life insurance enterprises in Vietnam

The scale and forms of investment of non-life insurance companies in Vietnam are presented in detail in Appendix 16. From the data in Appendix 16, it can be seen that the scale of investment activities of non-life insurance companies has increased gradually over the years at a rate of about 7.5% per year, only in 2014 did the scale of investment decrease slightly by about 3% compared to 2013. In 2015 alone, the investment level increased dramatically to 27.18% and stagnated in 2016 and 2017 with an increase of about 10%. The forms of investment that non-life insurance companies choose are: Deposits at credit institutions; Buying government bonds; Guaranteed corporate bonds; Stocks, guaranteed corporate bonds; Capital contributions to other enterprises; Real estate business; Lending; Investment trust and other forms.

Due to the relatively short-term nature of non-life insurance business, non-life insurance companies often choose short-term investment forms, mainly investing in fixed-income instruments to ensure the ability to pay for insurance contracts. The main investment activities are deposits at credit institutions; buying shares of enterprises without guarantees, investment trusts, in which deposits at credit institutions always account for a very large proportion, from about 57% in 2010 to over 70% in 2012 to 2016. The two forms of investment in shares, corporate bonds without guarantees and capital contributions to other enterprises have been relatively stable over the past 8 years with a proportion of about 7% to 9%. In particular, 2017 recorded a sudden increase in both the amount and proportion of investment trusts of non-life insurance companies with 5,111 billion VND, accounting for 12.9%. The investment portfolio is relatively safe, highly liquid, and risky assets account for a small proportion. According to the financial statements of non-life insurance companies, the operating profits of these companies are mainly generated by investment activities. In general, the investment activities of non-life insurance companies are relatively stable and have not fluctuated significantly in recent times.

3.1.3 Achievements and issues arising in the business operations of non-life insurance companies in Vietnam

3.1.3.1 Business results of non-life insurance companies in Vietnam

To evaluate the business performance of non-life insurance companies, the researcher combined the analysis of market data with the evaluation of the scale of business performance of non-life insurance companies in Vietnam. The scale was built with 5 observed variables described through questions in the survey (Appendix 4) , the statements will be measured by Likert scale from 1 to 5. The survey questions were distributed to 250 respondents, the results obtained 225 valid responses. Using the processing technique on SPSS 20 software, the author first tested the reliability of the scale by the internal consistency method through the Cronbach's Alpha coefficient (Appendix 4).

Appendix 18) . The test results show that the overall reliability of the business performance scale of non-life insurance companies is 0.767 - a fairly high value (> 0.7) in which the reliability coefficient of each variable is from 0.69 to 0.744, which means it meets the requirements and can be used [54].

Cronbach's Alpha reliability coefficient only indicates whether the measurements are related to each other or not; but does not indicate which observed variables should be removed and which observed variables should be retained. In that case, calculating the correlation coefficient between the variable - total will help eliminate the observed variables that do not contribute much to the description of the concept to be measured. The correlation coefficient between the variable - total from 0.485 to 0.634 is greater than 0.3, indicating that all 5 observed variables of this scale have discriminant value.

To assess more specifically the business activities of non-life insurance companies in Vietnam, the thesis conducts descriptive statistics for each observed variable (Appendix 19) . The results show that the distribution channels of non-life insurance companies are increasingly diverse, which is assessed with the highest level of agreement (average score of 3.89 and standard deviation of 0.824), followed by the business activities of non-life insurance companies increasingly showing an important role in socio-economic development (average score of 3.79 and standard deviation of 0.788). This result is similar to market data with the following general assessments:

- Initially diversify distribution channels for non-life insurance products

In addition to using traditional distribution channels (brokers, agents), insurance companies also use non-traditional channels (banks, post offices, etc.) to distribute insurance products. Non-traditional distribution channels are gradually asserting their superiority and contributing to the development of insurance market. According to statistics, non-life insurance premiums arranged through non-traditional distribution channels accounted for about 8% of total insurance premium revenue in 2014 [57].

Although the proportion is not high, the distribution channel through banks, post offices, etc. has helped customers enjoy lower insurance premiums because insurance companies save costs when cooperating with these organizations. In addition, insurance companies have also begun to implement direct sales via the internet for standardized insurance products and simple risk assessment procedures. This distribution channel also helps customers enjoy lower insurance premiums by taking advantage of information technology in sales.

- Non-life insurance business activities grow relatively high compared to GDP growth rate, contributing to stabilizing production and life.

Non-life insurance premium revenue grew on average from 2010 to 2017 at about 13.6% per year. Corresponding to the absolute number, non-life insurance premium revenue increased from VND 17,070 billion in 2010 to VND 41,594 billion in 2017, nearly reaching the target for the period 2011-2020. Non-life insurance companies settled compensation and paid insurance in the period 2011-2017 was VND 82,220 billion, an average of VND 11,753 billion per year (in which many large losses were compensated by insurance companies with tens, hundreds of billions of VND/case). Settling compensation and paying insurance has helped organizations and people quickly stabilize production, business and life, reduce the burden on the state budget, creating a favorable environment for socio-economic development.

- Solving employment problems, contributing to socio-economic stability

To illustrate the contribution of non-life insurance to socio-economic stability and people's lives, Table 3.2 provides data on compensation, professional reserves and investment in the economy of the whole market from 2010 to 2017.

Table 3.2. Compensation amount, operational reserves and investment in the economy of non-life insurance companies in Vietnam

Unit: billion VND

Target

Year 2010	Year 2011	Year 2012	Year 2013	Year 2014	Year 2015	Year 2016	Year 2017
Compensation, insurance payment	-	8,735	8,855	10,667	10,955	13,851	13,246	15,957
Business reserve	9,426	11,770	11,617	12,090	13,310	15,685	18,474	19,907
Invest back into the economy	23,052	22,946	24,688	26,545	25,678	32,658	35,927	39,612

(Source: Insurance Management and Supervision Department)

All three indicators of compensation, professional reserves and reinvestment in the economy have increased over the years, showing that non-life insurance companies have contributed to compensating for losses incurred by insurance participants. At the same time, the reserve fund has continuously grown, contributing to providing capital for the economy while ensuring the financial capacity of non-life insurance companies. In addition, the number of employees working in the insurance industry has increased rapidly with the entry of new insurance companies into the market and the expansion of business operations of existing insurance companies. By the end of 2017, out of more than 608,000 employees and officers working in the insurance industry, nearly 230,000 were agents working for non-life insurance companies, contributing to creating a large and relatively stable number of jobs for the police force in society [23].

- Raising people's awareness of insurance in general and non-life insurance in particular

Insurance is becoming an increasingly familiar concept for production and business units and residents. Many individuals and organizations have paid more attention to insurance in protecting their families and production and business, considering it a financial stability solution without relying on relief and subsidies from the state budget. By the end of 2017, out of more than 10 million people with health insurance, 4 million people participated in non-life insurance [23]. The average insurance premium per capita increased from 347,000 VND/year in 2010 to 1,100,000 VND/year (an increase of nearly 3.2 times).

3.1.3.2 Issues arising in the business operations of non-life insurance companies in Vietnam

Firstly, the business performance of non-life insurance companies is still

limit

Vietnam's non-life insurance market has developed at a high speed in recent years, but has only focused on developing quantity without paying enough attention to quality, leading to potential risks in the market, as shown by the number of insurance companies making losses in insurance business. According to the Special Report on the Non-Life Insurance and Reinsurance Market of the Department of Insurance Management and Supervision, currently only 17/31 non-life insurance companies have net profits from insurance business activities. If calculating pre-tax accounting profits, 28/31 non-life insurance companies have profits due to profits from financial investment activities. In the short term, this loss is reasonable.

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