Interest rates

Low interest rates put pressure on non-life insurers

VIETNAM, March 1 –

An employee of a non-life insurance company meets with a client to sign an automobile insurance contract. — Stock Photo tinnhanhchungkhoan.vn

HÀ NỘI — Although the economic recovery may provide opportunities for non-life insurers to improve their revenues, it will still be difficult for them to increase their profits because the majority of their investment portfolios are made up of bank savings and government bonds, whose interest rates are expected to remain at low levels this year.

According to current legal regulations, non-life insurers must use at least 70 percent of their capital to deposit with banks or purchase government bonds to ensure the safety of insurers’ capital. Therefore, the current low interest rates of both channels are a disadvantage for insurers to increase their profits.

In addition, insurers are also not allowed to invest heavily in real estate and stock markets, which are expected to see positive growth in 2022, due to ratio control in their investment portfolios. Under the Insurance Business Act, non-life insurers are allowed to spend a maximum of 35 per cent of their dormant capital from insurance reserves to invest in securities, corporate bonds, fund certificates, capital contributions to other companies; and a maximum of 10 percent of their idle capital in real estate. It is therefore unlikely that the two channels represent a high share of the total profits of insurers.

Industry insiders said the key solution to maintaining stable earnings for non-life insurers this year is still to strictly control the payout rate and increase the efficiency of investment activities.

Among investment channels, non-life insurance companies are expected to pay more attention to corporate bonds this year. The Research Center of Saigon Securities Incorporation expects non-life insurers’ corporate bond channel profits to rise 8-10% this year provided interest rates on savings rise slightly from 0, 2 to 0.25% per year. At the same time, earnings from securities investment or provision reversal will not be high due to the high basis of comparison in 2021.

With regard to compensation control, in addition to better control of input costs in health care, non-life insurers will continue to promote the application of information technology to optimize management costs. Claims are also better managed to limit insurance fraud.

The non-life insurance sector increased its revenue by only 1.7% last year compared to 2020, a record growth compared to previous years. The decline in revenue growth was expected as revenue from the industry’s two main business lines – life and health insurance and auto insurance – have continuously declined, even recording negative growth for many months.

Although there are different opinions and assessments regarding the market recovery, insurers expect the non-life insurance market to continue to grow. —VNS