Tighter licencing restrictions are not deterring firms from attempting to enter Vietnam’s insurance sector. An MoF source said there had been numerous applications for new insurance businesses submitted by domestic and foreign entities since the new legal framework was released in early 2007.

Domestic firms have focused mainly on non-life insurance products and foreign firms have expressed interest in the life insurance sector. However, the official refused to provide any concrete numbers.

“Foreign insurers with representative offices in Vietnam are the most desired players in the race to set up a business in Vietnam,” said Phung Dac Loc, general secretary of the Vietnam Insurers Association. At present, Vietnam has 30 foreign insurers with representative offices, 12 of which specialise in life insurance.
Decrees 45/ND-CP and 46/ND-CP set strict conditions on the establishment of new insurance businesses. Accordingly, the minimum chartered capital for non-life insurance companies was raised to VND300 billion ($18.75 million) from VND70 billion ($4.37 million). For life insurance companies, the minimum chartered capital was raised to VND600 billion ($37.5 million) from VND140 billion ($8.74 million).

For foreign firms, the parent company must have been operating in the insurance business for at least 10 years before submitting an application in Vietnam. Additionally, the parent company should have had total assets of at least $2 billion in the year before submitting the application.

The MoF has granted only one licence this year which was won by the domestic-owned Military Insurance Company (MIC) last week.
“Granting licences to new insurance companies has always been a time consuming process as the MoF has to ensure the stability of the local insurance sector,” said Loc.

However, according to some experts, the time consuming process could be a real hurdle for foreign insurers as markets conditions change quickly. In 2006, American giant New York Life decided to pull out of Vietnam’s insurance market after five years of procedural red tape. Meanwhile, New York Life’s business has boomed in India and China.

Loc expected more insurance businesses would be established before the year’s end, following the MoF’s guiding circulars to be released later this month.

According to the MoF, one circular will allow local life insurers to provide investment-linked products and the other will specify conditions on establishing new insurance companies.

In newly-established insurer MIC, the Military Bank of Vietnam, the biggest shareholder, holds only an 18 per cent stake while the others hold less than 7 per cent each.

Loc said that the local insurance market was still attractive to foreign investors, as evidenced by their continued interest in the sector.

Last month, HSBC Insurance acquired a 10 per cent stake in Vietnam’s leading insurer Bao Viet with an agreement to raise the level to 25 per cent in five years.

In another move, French insurance company AXA bought 16.6 per cent stake in the second largest non-life insurer Bao Minh.