Domestic non-life insurance companies expect the additional investment capital will help them expand distribution networks and enlarge market shares in the prosperous but competitive market.
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Bao Long Insurance Corporation has so far approved a plan to increase capital through share issue, with priority for foreign investors. Accordingly, the company’s capital will increase from the current VND600 billion (US$25.53 million) to VND1 trillion (US$42.55 million).
Currently, Saigon Commercial Bank and Eximbank are two large shareholders of Bao Long, holding 81.1 percent and 6.51 percent of the insurer’s charter capital, respectively.
Shareholders of AAA Assurance Corporation have also planned to issue shares valued at VND310 billion (US$13.19 million) for capital hike after getting a nod from the Ministry of Finance. AAA’s board of directors expected the issue will be implemented this year.
Military Insurance Company (MIC) has recently also ratified a merger and acquisition (M&A) plan, aiming to get more investment capital. Under the plan, strategic investors will hold 15 percent of MIC’s charter capital for at least 5-10 years.
According to MIC, looking for a strategic partner is an indispensable development trend in the highly open economy with the increasingly stiff competition. The insurer expected that M&A will help it enhance financial status, increase investment and expand network besides improve business efficiency and raise reputation. If the M&A plan succeeds, MIC expects to rank in top 3 in the country’s non-life sector.
The same move was also seen with Post and Telecommunication Insurance Corporation (PTI), which also has a roadmap to increase capital for their expansion. Accordingly, the insurance company will increase capital to VND1 trillion in an aim to enlarge market share. By the end of 2017, PTI accounted for 8.5 percent of the country’s total market share, ranking fourth in the country’s non-life insurance sector.
Under Bao Long’s plan, the new investment capital will help it increase the number of subsidiaries to 50 from the current 47, which will contribute to raising its total insurance premiums by 18 percent to VND1.28 trillion (US$54.47 million) and the return on equity (ROE) ratio of 5 percent next year.
Nguyen Thanh Long, Chairman of Bao Long Insurance said that the capital hike plan was set following the company’s success in using an additional capital of VND100 billion last year. After raising charter capital from VND500 billion (US$21.27 million) to VND600 billion (US$25.53 million) through share issue last year, Bao Long set up five new subsidiaries to increase the total to 47.
The network expansion has helped Bao Long rank sixth and eleventh in terms of network and market share among 29 non-life insurers in the market, Long said.
Many other insurers have also seen their capital increase plan to work effectively. After increasing capital from VND700 billion (US$29.78 million) to VND 1 trillion (US$42.55 million) last year, Saigon-Hanoi Insurance Company (BSH) for example also established 10 new subsidiaries, raising the total to 39.
According to BHS, besides strengthening financial status, the additional investment capital also contributed to increasing its competitive capacity in bidding for large projects, supplementing capital for investment activities and supporting its original insurance business.
The new investments are also expected to help the insurers raise their competitiveness, especially when some other peers have so far entered into strategic partnerships with foreign shareholders, such as Bao Viet Holdings with Japan’s Sumitomo, Bao Minh Insurance Corporation with France’s AXA Insurance and PJICO with Korea’s Samsung Fire & Marine Insurance Company.
The Ministry of Finance’s Insurance Supervisory Authority reported that the non-life insurance sector continued its sustained growth last year, posting an estimated premium revenue of VND40.5 trillion (US$1.72 billion), representing an 11 percent year-on-year increase.
The sector has targeted revenue of VND44.7 trillion (US$1.9 billion) in 2018 and total assets of VND77.3 trillion (US$3.29 billion).