Numerous insurers expect negative profit growth in 2022

DNHN - According to the Vietnam Insurance Association, given the recent emergence of negative factors affecting Vietnam's economic growth, growth in non-life insurance premiums is projected to decelerate in the coming months.

In the updated outlook for insurance stocks just released, Rong Viet Securities - VDSC said that insurance premium revenue in 2022 will return to a high growth momentum after two years of 2020 and 2021, due to a decrease in growth due to the pandemic. . 

The government targets GDP growth of 6-6.5 percent in 2022, and non-life insurance premium revenue growth typically exceeds GDP growth. Recent geopolitical upheavals, on the other hand, have had a number of negative repercussions on Vietnam's economic growth, thereby hurting future insurance demand. Nonetheless, fee revenue is expected to recover significantly from its low base in 2021.

The preferential registration charge policy for domestically made and built vehicles, which will take effect in December 2021 and run for six months, will be the primary driver of vehicle sales and premiums. 

However, Circular 14/2022/TT-BTC (effective from February 28, 2022) on supplementing regulations on the agreement to change the payment term of premium/debt and extend the term Insurance for customers applying measures to prevent and control the COVID-19 epidemic in accordance with the law may affect the sales of motor vehicle insurance premiums in the opposite direction. 

Decree 97/2021/ND-CP on compulsory fire and explosion insurance, effective from December 2021, is expected to raise risk awareness of industrial production enterprises, indirectly encouraging the demand to buy fire insurance and reduce the claim rate of this product.

Decree No. 20/2022 ND-CP on compulsory insurance in construction investment activities supplement regulations on compulsory insurance of civil liability for third parties, creating a basis for revenue growth for insurance liability or construction insurance (depending on the insurance company's classification). 

According to statistics of the Insurance Association of Vietnam (IAV), total non-life insurance premium revenue in the first two months of the year reached VND 11,248 billion, up 15.3% over the same period last year. 

Considering the recently emerging adverse factors to Vietnam's economic growth, growth in non-life insurance premiums is likely to slow in the coming months and full-year growth could reach approx. 13-14% or 65,386 billion VND.

Notably, in the summary of business plans for 2022 announced to date by publicly traded non-life insurance companies, the majority anticipate positive growth in premium revenue but are cautious about profitability, with plans for negative growth or positive growth but at a slower rate than the original premium. 

Apart from the fact that the compensation rate will return to normal levels following the abrupt decline in 2021, the reintroduction of business support programmes following a year of cuts will have a significant influence on selling expenses. Accordingly, gross profit from the insurance industry is projected to decline.

With regard to investment income, which typically contributes for more than 70% of insurance firms' profits, the significant profits realised from stock investments and the reversal of provision for devaluation of investments seen in 2021 will not be duplicated this year, given the dismal stock market. 

Bank deposit interest rates will only increase slightly by 30-50 basis points for terms of less than 1 year, popular deposit terms of non-life insurance companies in line with the Government's orientation to support economic recovery. while deposit size will increase in proportion to premium size (13-14%). The rise in the rate of return on deposits will not be sufficient to offset the fall in the rate of return on shares. Therefore, investment returns will drop this year as well.

Phu Thanh