Vietnam’s non-life sector attracts robust foreign direct investment

Recent regulations supported the industry’s stable outlook.

Non-life insurers in Vietnam may breathe easily, driven by accelerating premium growth and higher demand for commercial lines products, AM Best projected.

“Vietnam remains a magnet for foreign direct investment, as investors continue to seek global supply chain diversification. FDI inflows are expected to continue as one of the growth engines of the country’s economy, which in turn will bolster demand for commercial lines insurance,” Ken Lau, senior financial analyst at AM Best said

The recent regulatory changes under Vietnam’s Insurance Business Law have supported this stable outlook, according to the Best’s Market Segment Report titled “Market Segment Outlook: Vietnam Non-Life Insurance”. 

The newly adopted requirements focus on enhancing risk management, internal controls, internal audits, and actuarial standards, which are expected to improve risk governance and strengthen financial conduct in the industry.

Property insurance emerged as a key growth driver in 2023, with government spending on renewable energy, transportation, and large-scale infrastructure projects contributing to the demand for insurance coverage. 

Vietnam's non-life insurance market is also poised to benefit from the country’s continued attractiveness as a destination for foreign direct investment (FDI).

However, the report notes that increased market competition has squeezed underwriting profit margins in the motor and health insurance segments, partly due to looser underwriting practices. 

Near-term pricing competition in these lines is expected to constrain technical margins.

The industry’s earnings may also be affected by lower investment yields in the near term. 

The State Bank of Vietnam reduced the policy interest rate multiple times in the first half of 2023 and is expected to maintain an accommodative monetary policy throughout 2024.

“Even though insurance companies have increased their asset allocations to higher-risk investments for yield enhancement, investment yields are expected to remain subdued over the near term given the companies’ typically large allocations to term deposits and government bonds,” said Chris Lim, associate director, analytics at AM Best.