Has the appeal of insurance persisted?

ABI's 2Q2022 financial report shows that their net profit was over 43 billion VND, down 50% from 2Q2021.

In comparison to 1H2021, total insurance premiums increased by 14.25%, total assets by 21.7%, investment by 23.4%, and insurance benefit payments by 10.32%, according to a report on insurance from the Ministry of Finance. 

The Insurance Business Law (amended) was submitted by the Ministry of Finance for approval by the Government and National Assembly during the third session (June 2022). Additionally, the Ministry of Finance submitted to the Government to issue Decree No. 20/2022/ND-CP amending and supplementing regulations on mandatory insurance in investment and construction, Decision No. 13/2022/QD-TTg on agricultural insurance support policies, and a draft of the Insurance Market Development Strategy to 2030.

Even though the compensation rate has returned to normal, SSI Research predicts that the performance of the majority of insurers in the second quarter of 2022 won't be favorable. In the case of a stock market decline, insurers can consider adding extra provisions for stock investments that have a negative impact on their net profit. All insurers, with the exception of Agriculture Bank Insurance Joint - Stock Corporation (UPCoM: ABI), invest in the stock market.

ABI's 2Q2022 financial report shows that their net profit was over 43 billion VND, down 50% from 2Q2021. It gained 332 billion VND in total business expenses, up 26%, and about 470 billion VND in net revenue, up 9%.

ABI reported net revenue of 924 billion VND in the first six months, up 6% over the same time, and a net profit of 99 billion VND, down 41% from the same period in 2021.

According to ABI, compensation expenditures increased by 42.9 billion VND, or 31.5 percent, in the second quarter of 2022, which triggered a reduction in net profit. In the first six months, the cost of compensation increased by 34.7 percent, or 89.3 billion VND.ABI owns assets worth about 3.500 billion VND, of which 3.200 billion VND are short-term assets (as of June 30 2022). 

However, by 2022, large enterprise productivity in industrially dense areas such as Bac Ninh, Hai Phong, Binh Duong, and others had returned to pre-pandemic levels of 90-95 percent.As a result, the net profit of insurers may actually decline when compared to the same time last year.  

"The economic rebound will boost the insurance sector in 2022, and rising interest rates will also help to improve its profitability, but high claims costs will make profit growth unsustainable. Therefore, investors should give priority to equities with strong fundamentals, valuable assets, long-term competitive advantages, beneficial developments in business operations, and favorable circumstances. Additionally, this year, investors might keep an eye out for stocks with a divestiture story", said Mr. Do Long Khanh, an analyst with Bao Viet Securities Joint Stock Company.   

The Insurance Business Law (amended), which would take effect on January 1, 2023, is anticipated to have a positive influence on the insurance market over the long run. However, as current profits are not fairly dispersed along the industry's value chain, a solution is required to improve the market's overall structure.

In particular, insurance brokers currently earn significant profit margins, while insurers are weighed down by fixed insurance costs, cost of sales, fees of insurance...