Vietnam is determined to keep the insurance sector’s door open to new players. Phung Dac Loc, general secretary of the Association of Vietnamese Insurers (AVI), said Vietnam had almost no restrictions on foreign insurers when it entered the World Trade Organization (WTO) in early 2007. “In comparison with China, Vietnam’s insurance market is quite open,” said Loc.

Foreign insurers have not been backward about coming forward

At the time of Vietnam’s WTO accession, foreign life, non-life and foreign insurance brokers were all in the country. In late 2007, the Ministry of Finance (MoF) granted two licences to Taiwan-based Cathay Life Insurance and Singapore-based Great Eastern to enter the life insurance market. “Granting new licences to foreign insurance companies before and after WTO accession demonstrates Vietnam’s commitment to opening up the industry to foreign investors,” said Loc.

Additionally, the MoF also opened a “side-door” for foreign insurers coming into the country by allowing them to buy stakes in state-owned insurance companies. In September 2007, HSBC Insurance acquired a 10 per cent stake in national insurance corporation Bao Viet with a term to increase its stake to 25 per cent within the first five years. In late 2009, HSBC Insurance had already increased it to 18 per cent.

State-owned, non-life insurer Bao Minh offered a 16.6 per cent stake to French insurer AXA for $74.6 million in late 2007. Meanwhile, the Vietnam National Reinsurance Company (Vinare) sold a 25 per cent stake to Swiss Re for VND1,260 billion ($79 million) in early 2008.

Before that, Japanese giant Dai-ichi Life Insurance paid $25 million to take over Bao Minh CMG, a joint venture between the state-owned Bao Minh and the Commonwealth Bank of Australia. “We see almost no barriers to foreign insurers,” said Loc.

According to Vietnam’s WTO commitments, 100 per cent foreign-invested insurance enterprises shall not be allowed to engage in statutory insurance practices, including insurance for motor vehicle third party liability, construction and installation, oil and gas, and insurance for projects and construction works of high danger to public security and the environment. As of January 2008, this limitation was abolished.
“Looking at the China market, the statutory insurance business was just gradually opened to foreign insurers after five years,” said Loc.

Carlos Vanegas, country general director of Liberty, a US non-life insurer in Vietnam, said Vietnam had fully respected its WTO commitments. In early 2008, Liberty became the first foreign non-life insurer to receive a revised operation licence from the MoF. In other words, from January 1, 2008, foreign non-life insurers were treated equally to domestic players.

So far, amongst the 27 non-life insurers operating in the market, eight were wholly foreign-owned. In 1999, the first foreign life insurance companies like Prudential and Manulife were licenced to operate in Vietnam without any restrictions. “Because of this open mindset, foreign life insurers have been dominating the market ever since,” said Loc.

By the end of 2009, of the 11 life insurers operating in the market, Bao Viet Life Insurance was the only domestic player. By end of September 2009, Bao Viet’s market share was 32 per cent, according to AVI’s data. The Vietcombank-Cardiff joint venture also began operations this year.

“So, foreign life insurance companies are together dominating the market with market shares of up to 68 per cent. This domination also demonstrates Vietnam’s open market status,” said Loc. Since 2007, stricter conditions over licencing new insurance companies have been narrowing the entry for local players.

With decrees 45/ND-CP and 46/ND-CP, released in mid 2007, the MoF set strict conditions on the establishment of new insurance businesses. Accordingly, the minimum chartered capital for non-life insurance companies was raised to VND300 billion ($18.75 million) from VND70 billion ($4.37 million). For life insurance companies, the minimum was raised to VND600 billion ($37.5 million) from VND140 billion ($8.74 million).

For foreign firms, the parent company must have been operating in the insurance business for at least 10 years before submitting an application in Vietnam. Additionally, the parent company should have had total assets of at least $2 billion in the year before submitting the application. “The technical criteria are simple for large foreign insurers, but not for Vietnamese institutions,” said Loc.

In late 2008, according to a MoF source, two applications for new life insurance businesses from local enterprises were finally rejected, because of “inadequate technical criteria”. “Because of this, I think the life insurance market will be dominated by foreign firms,” said Loc.

Source: VIR.COM.VN