Low interest rates put pressure on non-life insurers
Low interest rates put pressure on non-life insurers
Though the economic recovery can give non-life insurers opportunities to improve revenue, it will be still difficult for them to increase profits as the majority of their investment portfolios are bank savings and government bonds, whose interest rates are forecast to remain at low levels this year.
According to the current legal regulations, non-life insurers have to use at least 70 per cent of their capital to deposit at banks or buy government bonds to ensure the insurers’ capital safety. Therefore, the current low interest rates of the two channels are a disadvantage for insurers to increase their profits.
Besides, the insurers are not also allowed to invest much in real estate and stock markets, which are forecast to have positive growth in 2022, due to the control of the ratio in their investment portfolios. According to Law on Insurance Business, non-life insurers are allowed to spend a maximum of 35 per cent of their idle capital from insurance reserves to invest in securities, corporate bonds, fund certificates, capital contribution to other businesses; and a maximum of 10 per cent of their idle capital in real estate. The two channels therefore will be unlikely to account for a high proportion of the insurers’ total profits.
Industry insiders said the key solution to maintain stable profits for non-life insurers this year is still to strictly control the compensation rate and increase effectiveness from investment activities.
Among the investment channels, non-life insurance companies are expected to continually pay more attention to corporate bonds this year. The Saigon Securities Incorporation’s Research Centre forecast profits from the corporate bond channel of non-life insurers will increase by 8-10 per cent this year in the condition that savings interest rates increase slightly by 0.2 0.25 per cent per year. Meanwhile, profits from investment in securities or provision reversal will not be high due to the high comparison base in 2021.
Regarding compensation control, besides better controlling input costs in health treatment, non-life insurers will continue to promote the application of information technology to optimise management costs. Claims are also more tightly managed to limit insurance fraud.
The non-life insurance industry increased by only 1.7 per cent in revenue last year compared to 2020, a record low growth compared to previous years. The declining revenue growth was foreseen as the revenue of the industry’s two main business lines - personal insurance and motor vehicle insurance - continuously decreased, even recording negative growth for many months.
Although there are different views and assessments about the market's recovery, insurers expect the non-life insurance market will continue to grow.
