VIETNAM, January 16 –
HÀ NỘI — Insurance companies will have the opportunity to make higher profits in 2023 thanks to a continued upward trend in interest rates.
There is scope for insurers to continuously increase their profits this year, as the majority of their investment portfolios are made up of bank savings and government bonds, whose interest rates are expected to remain at high levels. during the year.
According to current legal regulations, insurers must use at least 70% of their capital to deposit in banks or buy government bonds to ensure the safety of insurers’ capital. Therefore, the current high interest rates of both channels are an advantage for insurers to increase their profits.
As the upward trend in interest rates is expected to continue in 2023, the financial activities of insurance companies should continue to register positive results this year.
Last year, the US Federal Reserve (Fed) raised interest rates by a total of 4.25 to 4.5 percent a year to curb inflation, the highest rate since January 2008. Fed is expected to continue raising interest rates in the first quarter of 2023.
The Fed’s interest rate hike caused a change in money flows. Investors gradually withdrew from most emerging and frontier countries and returned to the United States. This pushed the US dollar index to 104.2 points on December 27 last year, up 8.6% from the start of 2022.
Faced with the pressure of the devaluation of the local currency, as well as the withdrawal of investment flows, most countries had to raise their interest rates. Việt Nam is no exception, especially when the market is thirsty for capital, with credit growth growing faster than capital raising growth. To cope with the difficulties, the State Bank of Vietnam (SBV) raised key interest rates twice in September and October 2022, by 1% per year each time.
As part of the SBV’s decision, interest rates for 12-month term deposits in banks in 2022 increased by 2-4% per year on average. For example, the 12-month interest rate at BIDV is currently 7.4% per annum compared to 5.5% at the beginning of 2022. Similarly, the rate has increased from 5% to 9.1% per annum at VPBank, rising from 5.8% to 8.9 percent per year at Sacombank, from 5.5 percent to 7.4 percent per year at Vietcombank.
Interest rates on savings are expected to remain high or even rise over the next six to 12 months.
Because interest rates are high, borrowing costs are high and economic growth slows. It is currently a difficult time for most companies. However, this is an opportunity for companies, including insurance companies, which have a large amount of cash.
Statistics of seven listed insurance companies, including Bảo Việt Holdings (BVH), Bảo Minh Insurance Corporation (BMI), PetroVietnam Insurance Corporation (PVI), Vietnam Reinsurance Corporation (VNR), Post and Telecommunications Insurance Corporation (PTI), Petrolimex Insurance Company ( PGI) and Military Insurance Corporation (MIG), showed that at the end of the third quarter of 2022, the companies had more than 127.5 trillion VNĐ in cash. Cash consisted of short-term financial investments, mainly short-term bank savings, which accounted for some 42 per cent of the companies’ total assets.
As banks’ short-term savings interest rates were adjusted upwards, especially at the end of September and October last year, short-term financial investments of VN 127.5 trillion by insurers generated significant profits.
According to experts, the financial income of insurers often depends on market interest rates. When interest rates increase, the financial income of insurers increases and vice versa.
Data from Viet Dragon Securities Company (VDSC) also showed that interest rates tended to rise during the 2009-11 period. They then slowed over the 2011-15 period, and have increased again since 2016.
The financial income of insurers also experienced the same evolution over the periods. The financial income of three typical insurance companies, including BVH, BMI and PVI, also increased from 2009 to 2011, when interest rates rose in the domestic market. In the period of falling interest rates in 2012-15, the financial income of insurers slowed down before increasing again in the period 2017-19.
Indeed, apart from the insurance business segment, the financial revenues of insurance companies are often high compared to their total pre-tax profit. More specifically, at BVH, during the period 2008-21, the insurer’s financial income/pre-tax profit ratio averaged 339.7%. The ratio to BMI and PVI was 102.5% and 150.7%, respectively.
According to Ngô Việt Trung, Director of the Insurance Supervisory Administration of the Ministry of Finance, despite the difficulties and challenges in the economy after the COVID-19 pandemic, insurance companies have been adapting proactively and flexibly. , helping the country’s insurance market maintain a good growth rate in 2022.
As of December 12, 2022, insurance premiums in Việt Nam increased by 15.1% year-on-year to over VNĐ251.3 trillion, of which VNĐ68.2 trillion came from non-life insurers and 183. 10 trillion VNĐ from life insurers.
As of December 12, the total assets of insurance companies increased by 14.51% compared to the beginning of the year to reach VNĐ811.310 billion, while shareholders’ equity reached VNĐ162.810 billion, up of 3.83%.
The numbers are positive in the current environment, Trung noted, adding that insurance companies have been actively improving their competitiveness and expanding their area of operation. —VNS