[Vnbiz] LexisNexis Life Insurance Vietnam the Next Big Hope

[Craig Stevenson]

Life Insurance International
August 15, 2006
*SECTION:* Pg. 10

*LENGTH:* 953 words

*HEADLINE:* EMERGING MARKETS - *Vietnam:* the next big hope

*BODY:*


*Vietnam* has caught the attention of foreign insurers looking for an
alternative to the twin super-economies of India and China. However, while *
Vietnam* holds undoubted promise, new entrants can expect to face many
difficulties. Titien Ahmad reports from Singapore

*Vietnam* is producing heady growth numbers once thought possible only in
India and China. GDP in the country rose 8.4 percent in 2005 and has
increased by 50 percent since 2001. *Vietnam's* population of 82 million -
more than 60 percent of whom are aged under 30 - and a savings culture also
add attractions for insurers. Notably, *Vietnam's* Ministry of Finance
expects insurance premium revenues to make up 4.2 percent of *Vietnam's* GDP
in 2010, up from 1 percent in 2005 and 0.4 percent in 1993.

*Vietnam* has been opening its insurance market since 1996 and foreign
insurers can operate in the country, though in most instances this is only
through a joint venture with a local partner.

Asian, US and European investors have been actively lobbying the Vietnamese
government for access to the local insurance market. Upon the country's
accession to the World Trade Organization - which may come as soon as late
this year - foreign insurers expect to be allowed to establish more wholly
owned units and to benefit from progressively declining limitations on their
scope of business.

For instance, foreign insurers have not been able to enter fully into
non-life business as there are restrictions in this area. State-owned Bao
Viet Finance-Insurance has leader-ship in the non-life market, garnering 39
percent of total premium income in 2005.

However, laws governing the insurance industry are sketchy at best and there
has been limited legislation to permit insurers to diversify investments.
For example, under existing regulations, insurers can invest only in
government bonds and bank deposits.

According to the *Vietnam* Insurance Association, there are 120,000
insurance agents and 10,000 employees in the country. There are currently 16
non-life insurers, eight life insurers and seven insurance brokers.

*Vietnam's* life insurers offer about 100 products and generated premium
income of VND8.1 trillion ($511 million) in 2005 - an increase of
5.3percent from 2004. Fifteen foreign insurers have established
operations and
30 others have representative offices. Foreign-owned insurers dominate the
life insurance market. After six years in *Vietnam,* the UK's Prudential
owns more than 40 percent of the life insurance market.

Domestic insurers are more dominant in the non-life insurance market and
foreign insurers hold only a 7 percent market share.

Tied agents, of which there are about 92,000, are the mainstay of
distribution in *Vietnam* and only 12 percent of policies are negotiated by
insurance brokers. However, the number of insurance brokers is expected to
rise. Broker Aon *Vietnam* holds the largest market share, accounting for 46
percent of broker-generated premiums.

Foreign insurers that entered *Vietnam* early are now reaping the benefits.
In 2002, Manulife *Vietnam,* the first fully foreign-owned life insurer in *
Vietnam,* said that after three years of operation it had become the first
profitable insurer. In 2004, Prudential *Vietnam* said it earned profits of
$3.8 million after five years of operation.

Japanese insurers are also in the market - Dai-ichi Mutual Life Insurance
launched its representative office earlier in 2006 and Nipponkoa Insurance
forged a product sales alliance with Bao Viet Finance-Insurance.

*Vietnam* is seen as an attractive option by Japanese companies seeking to
reduce their dependence on China. *Vietnam* jumped from being the eighth
most popular destination for Japanese investment in 2000 to fourth in 2005,
behind China, India and Thailand.

A report by US consulting firm Towers Perrin on *Vietnam's* life insurance
market concluded: "With less than 10 percent of the population having some
form of life insurance coverage, the potential for growth is clearly one of
the best in the Asia-Pacific region. The lack of experienced and qualified
personnel and the need for capital offer foreign investors potentially
attractive opportunities."

However, despite the country's attractions, life insurers are facing stiff
competition from banks that have raised rates in a bid to stem the flow of
deposits into insurance products. At present, deposit rates are 10 percent
compared with yearly dividends of about 2 percent on insurance products.

The banks' strategy and low returns on life products have prompted many
people to shift from life policies to bank deposits.

According to the *Vietnam* Insurance Association, the number of new policies
written in the first quarter of 2006 fell 27 percent compared with the first
quarter of 2005. Manulife reported a 56 percent fall, American International
Assurance a 44 percent fall, Prudential a 30 percent fall and Bao Minh CMG,
in which Australia's CMG has a 50 percent stake, a 31 percent fall.

Words of advice

Potential entrants should heed the words of *Vietnam* banking veteran Adil
Ahmad, general manager of alliances for Australia's ANZ, who advised: "We
need to engage at all levels. In *Vietnam,* there is a lot of historical
baggage - foreigners have been looting *Vietnam* for years and the locals
have an instinct against foreigners. We have to work through this and
communicate that we do not want to take over, but want to work with local
partners."

Foreign insurers are already contributing expertise to the local insurance
sector. Examples include Singapore's largest insurer Great Eastern which is
funding a study of insurance industries in Singapore and Malaysia by *
Vietnam's* Ministry of Finance. Hong Kong's Cathay Life runs seminars on
setting up insurance organisations locally.

*LOAD-DATE:* August 16, 2006
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