BMI Vietnam Insurance Report Q2 2014

Q2 2014 www.businessmonitor.com

VIETNAM INSURANCE REPORT INCLUDES 5-YEAR FORECASTS TO 2018

ISSN 1752-8410 Published by:Business Monitor International

Vietnam Insurance Report Q2 2014 INCLUDES 5-YEAR FORECASTS TO 2018

Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Copy deadline: February 2014

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Vietnam Insurance Report Q2 2014

CONTENTS BMI Industry View ............................................................................................................... 7 SWOT .................................................................................................................................... 9 Insurance ................................................................................................................................................. 9 Political ................................................................................................................................................. 11 Economic ............................................................................................................................................... 12 Business Environment .............................................................................................................................. 13

Industry Forecast .............................................................................................................. 14 Total Premiums Forecast .......................................................................................................................... 14 Total premiums ...................................................................................................................................... 14 Table: Total Gross Premiums Written 2011-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Total Claims ......................................................................................................................................... 15 Table: Total Insurance Claims 2009-2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Life Premiums Forecast ............................................................................................................................ 16 Insurance Premiums ............................................................................................................................... 17 Table: Gross Life Premiums Written 2011-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Life Insurance Drivers ............................................................................................................................ 18 Table: PRIVATE HEALTH EXPENDITURE 2011-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Table: DISEASE ADJUSTED LIFE YEARS 2011-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Life Claims ........................................................................................................................................... 19 Table: Life Insurance Claims 2009-2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Non-Life Premiums Forecast ..................................................................................................................... 21 Non-Life Premiums ................................................................................................................................ 22 Table: Gross Non-Life Premiums 2011-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Table: Net Non-Life Premiums 2011-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Non-Life Reinsurance ............................................................................................................................. 23 Table: Reinsurance Non-Life Premiums 2011-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Non-Life Claims ..................................................................................................................................... 24 Table: Non-Life Insurance Claims 2008-2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Non-Life Sub-Sector Forecast .................................................................................................................... 26 Table: Non-Life % Breakdown 2011-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Motor Vehicle And Transport Insurance ..................................................................................................... 27 Table: Motor Vehicle Insurance 2011-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Table: Transport Insurance 2011-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Table: INSURANCE KEY DRIVERS, FREIGHT TONNAGE 2011-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Property Insurance ................................................................................................................................. 30 Table: Property Insurance 2011-2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Industry Risk Reward Ratings .......................................................................................... 32 Asia Risk/Reward Ratings ......................................................................................................................... 32

Market Overview ............................................................................................................... 38

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Vietnam Insurance Report Q2 2014 Life Market Overview ............................................................................................................................... 38 Non-Life Market Overview ........................................................................................................................ 39 Table: Non-Life Insurance Market (US$mn) 2006-2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Table: Non-Life Insurance Market (%) 2006-2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Company Profile ................................................................................................................ 43 AIA Group ............................................................................................................................................. American International Group (AIG) ........................................................................................................... Bao Viet Holdings .................................................................................................................................... Manulife Financial ..................................................................................................................................

43 46 50 53

Prudential plc ......................................................................................................................................... 57 PVI Holdings .......................................................................................................................................... 61 Sun Life Financial ................................................................................................................................... 64

Demographic Forecast ..................................................................................................... 66 Table: Vietnam's Population By Age Group, 1990-2020 ('000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Table: Vietnam's Population By Age Group, 1990-2020 (% of total) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Table: Vietnam's Key Population Ratios, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Table: Vietnam's Rural And Urban Population, 1990-2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Methodology ...................................................................................................................... 70 Industry Forecast Methodology ................................................................................................................ 70 Risk/Reward Rating Methodology ............................................................................................................. 73 Table: Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Table: Weighting of Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

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Vietnam Insurance Report Q2 2014

BMI Industry View BMI View: Vietnam's insurance sector appears to be one of the most dynamic in South East Asia. By many metrics, it is growing rapidly. In both of the main segments, companies are undertaking initiatives to grow premiums and profits. Nevertheless, a number of constraints and challenges remain. The small absolute size of the market, and a very challenging business environment mean that it may be some years before multinationals who have been attracted to Vietnam come close to building substantial local businesses in the way that they have in other countries in South East Asia.

BMI's new insurance report format provides forecasts of the life and non-life markets, including gross and net premiums, reinsurance premiums and assets. Moreover, it provides forecasts for key growth drivers such as vehicle fleet size, demographic factors and private health expenditure. The report also contains a comprehensive breakdown of the non-life insurance market, providing forecasts for motor and transport insurance, property, personal accident, health, general liability and credit insurance. Finally, the new report offers a detailed breakdown of the life and non-life competitive landscapes, covering the top companies present in each segment by premiums and market share.

There was a time when Vietnam was one of the new frontiers of insurance in the Asia Pacific, but the sector has moved into a more exciting phase of its development. Foreign insurance companies (particularly in the life segment) are present, and see Vietnam as a natural extension of their regional or global footprints. In 2012, Sun Life Financial (through a JV with PVI) was a newcomer to the life segment, as was Generali. In the non-life segment, Australia's IAG has taken a strategic stake in AAA, while Talanx has increased its shareholding in PVI. New products are being developed. Agency networks are being built. As in the rest of South East Asia, bancassurance is being seen as an opportunity by some of the players. In the non-life segment, the local companies have generally shown more pricing discipline than have their counterparts elsewhere in the region. Motor insurance - so often a thankless and profitless line in emerging markets accounts for only about one third of the premiums written in the non-life segment in Vietnam.

Nevertheless, there are reasons for caution. Non-life penetration stopped growing in 2012 . Although the non-life segment is less fragmented than its peers in other countries in South East Asia, most of the players are sub-scale local firms that do not necessarily have access to the capital that they need to grow.

In the life segment, the main challenge is that most of the households who can afford to use life insurance products understand the benefits, and are already doing so. In the short-to-medium term, there are not actually all that many potential new users. Most of the more than 90% of households who lack cover are too

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Vietnam Insurance Report Q2 2014

poor to pay for life insurance. How this is reconciled by the life insurers with the substantial expansions in agency forces through 2013 remains to be seen.

Key BMI Forecasts ■

In 2014, total premiums will rise by 13.6% to US$2.4bn.

■

Life premiums will grow by 10.2% to US$1.0bn.

■

Non-Life premiums will rise by 16.2% to US$1.4bn.

■

Within the non-life segment, motor vehicle insurance premiums will grow by 16.8% to US$0.4bn.

■

Commercial and industrial lines will rise by 16.0% to US$0.6bn.

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Vietnam Insurance Report Q2 2014

SWOT Insurance

Vietnam Insurance SWOT Analysis

Strengths

■

Both the life and non-life insurance segments are growing at double-digit rates, and should continue to do so for the foreseeable future.

■

There are clear signs of pricing discipline in the non-life segment.

■

Given the domination of the life segment by subsidiaries of regional and global majors, lack of capital will not pose a constraint.

■

The non-life segment is well diversified away from motor insurance - a staple line in many under-developed markets.

Weaknesses

■

The high growth anticipated in the life and non-life segments of the Vietnamese market is coming off a very small base.

Opportunities

■

Many of the non-life companies are subscale and lack ready access to new capital.

■

Many Vietnamese households are too poor to use life insurance.

■

Growth in the non-life segment is patchy.

■

The massive growth in agency networks that is currently underway in the life segment should enable a sizeable increase in overall premiums.

• The size and importance of commercial lines means that the non-life segment should grow in real terms as long as the economy can continue to expand. • Life companies are developing new and improved products. • Life companies are entering into bancassurance relationships and are undertaking other distribution initiatives. • The government has launched a trial program to promote the development of export credit insurance.

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Vietnam Insurance Report Q2 2014

Vietnam Insurance SWOT Analysis - Continued

• Substantial foreign companies continue to develop subsidiaries in the non-life and life segments. Threats

■

High inflation. This could constrain households from becoming first time users of life insurance, in a country where well over 90% lack cover.

■

Lack of development and volatility in the Vietnamese capital and bond markets complicate investment strategies.

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Vietnam Insurance Report Q2 2014

Political SWOT Analysis

Strengths

■

The Communist Party of Vietnam remains committed to market-oriented reforms and we do not expect major shifts in policy direction over the next five years. The oneparty system is generally conducive to short-term political stability.

■

Relations with the US have witnessed a marked improvement, and Washington sees Hanoi as a potential geopolitical ally in South East Asia.

Weaknesses

■

Corruption among government officials poses a major threat to the legitimacy of the ruling Communist Party.

■

There is increasing (albeit still limited) public dissatisfaction with the leadership's tight control over political dissent.

Opportunities

■

The government recognises the threat corruption poses to its legitimacy, and has acted to clamp down on graft among party officials.

■

Vietnam has allowed legislators to become more vocal in criticising government policies. This is opening up opportunities for more checks and balances within the one-party system.

Threats

■

Macroeconomic instabilities continue to weigh on public acceptance of the one-party system, and street demonstrations to protest economic conditions could develop into a full-on challenge of undemocractic rule.

■

Although strong domestic control will ensure little change to Vietnam's political scene in the next few years, over the longer term, the one-party-state will probably be unsustainable.

■

Relations with China have deteriorated over recent years due to Beijing's more assertive stance over disputed islands in the South China Sea and domestic criticism of a large Chinese investment into a bauxite mining project in the central highlands, which could potentially cause wide-scale environmental damage.

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Vietnam Insurance Report Q2 2014

Economic SWOT Analysis

Strengths

■

Vietnam has been one of the fastest-growing economies in Asia in recent years, with GDP growth averaging 7.1% annually between 2000 and 2012.

■

The economic boom has lifted many Vietnamese out of poverty, with the official poverty rate in the country falling from 58% in 1993 to 20.7% in 2012.

Weaknesses

■

Vietnam still suffers from substantial trade and fiscal deficits, leaving the economy vulnerable to global economic uncertainties. The fiscal deficit is dominated by substantial spending on social subsidies that could be difficult to withdraw.

■

The heavily-managed and weak currency reduces incentives to improve quality of exports, and also keeps import costs high, contributing to inflationary pressures.

Opportunities

■

WTO membership and the upcoming ASEAN AEC in 2015 should give Vietnam greater access to both foreign markets and capital, while making Vietnamese enterprises stronger through increased competition.

■

The government will in spite of the current macroeconomic woes, continue to move forward with market reforms, including privatisation of state-owned enterprises, and liberalising the banking sector.

■

Urbanisation will continue to be a long-term growth driver. The UN forecasts the urban population rising from 29% of the population to more than 50% by the early 2040s.

Threats

■

Inflation and deficit concerns have caused some investors to re-assess their hitherto upbeat view of Vietnam. If the government focuses too much on stimulating growth and fails to root out inflationary pressure, it risks prolonging macroeconomic instability, which could lead to a potential crisis.

■

Prolonged macroeconomic instability could prompt the authorities to put reforms on hold as they struggle to stabilise the economy.

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Vietnam Insurance Report Q2 2014

Business Environment SWOT Analysis

Strengths

■

Vietnam has a large, skilled and low-cost workforce, which has made the country attractive to foreign investors.

■

Vietnam's location - its proximity to China and South East Asia, and its good sea links - makes it a good base for foreign companies to export to the rest of Asia, and beyond.

Weaknesses

■

Vietnam's infrastructure is still weak. Roads, railways and ports are inadequate to cope with the country's economic growth and links with the outside world.

■

Vietnam remains one of the world's most corrupt countries. According to Transparency International's 2012 Corruption Perceptions Index, Vietnam ranks 123 out of 176 countries.

Opportunities

■

Vietnam is increasingly attracting investment from key Asian economies, such as Japan, South Korea and Taiwan. This offers the possibility of the transfer of high-tech skills and know-how.

■

Vietnam is pressing ahead with the privatisation of state-owned enterprises and the liberalisation of the banking sector. This should offer foreign investors new entry points.

Threats

■

Ongoing trade disputes with the US, and the general threat of American protectionism, which will remain a concern.

■

Labour unrest remains a lingering threat. A failure by the authorities to boost skills levels could leave Vietnam a second-rate economy for an indefinite period.

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Vietnam Insurance Report Q2 2014

Industry Forecast Total Premiums Forecast BMI View: Vietnam's insurance sector ranks in international terms as one that is small, but reasonably rapidly growing. During the forecast period, growth will be driven mainly by the expansion in commercial/ industrial lines in the non-life segment.

Basic lines such as motor vehicle and household property insurance are less important than they are in other South East Asian countries, or in other low income countries in the rest of the world. At least until 2018, the non-life segment will be dominated by the underwriting of large scale industrial/commercial risks for (predominantly) state owned companies. Life insurance is growing, but will still be at an embryonic state of development at the end of the forecast period.

Total premiums In world terms, Vietnam will be an important growth market for corporate planners in global/regional multinational insurers. However, this will be the case beyond the end of the forecast period. Total premiums appear likely to rise in line with nominal GDP, with the result that overall penetration will remain constant over the next five years at 1.2-1.3%. Total per capita premiums will nearly double over the period but will only be around US$43 per annum in 2018. These are low levels.

As noted above, growth will be driven mainly by the (currently) more important non-life segment, thanks to the evolution of commercial/industrial lines. Life insurance premiums will rise in absolute terms, but will remain constrained by the low income levels of most households in Vietnam.

Table: Total Gross Premiums Written 2011-2018

Total gross premiums written, VNDbn

2011

2012

2013e

2014f

2015f

2016f

2017f

2018f

31,877.2

41,148.8

44,986.7

49,945.5

56,601.4

64,060.6

72,185.8

81,304.7

3.4

29.1

9.3

11.0

13.3

13.2

12.7

12.6

Total gross premiums written, VND, % change y-o-y Total gross premiums written, VND per capita

354,530.1 453,202.2 490,693.9 539,671.3 606,097.5 680,113.9 760,157.6 849,609.0

Total gross premiums written, % of GDP

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1.1

1.3

1.3

1.2

1.3

1.3

1.3

1.3

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Vietnam Insurance Report Q2 2014

Total Gross Premiums Written 2011-2018 - Continued

2011

2012

2013e

2014f

2015f

2016f

2017f

2018f

1.5

2.0

2.1

2.4

2.8

3.2

3.6

4.1

Total gross premiums written, US$, % change y-o-y

-4.3

27.7

8.4

13.6

14.6

13.8

13.9

13.8

Total gross premiums written, US$ per capita

17.2

21.7

23.3

26.2

29.8

33.6

38.0

42.9

Total gross premiums written, US$bn

Source: AVI/ BMI

Total Claims The evolution of claims expenses over recent years has been quite erratic - although the trend has clearly been upwards. Changes from year to year have driven by the surge in life claims and payments from extremely low base levels. They have also been influenced by sizeable industrial/commercial claims. The Vietnamese non-life companies are heavy users of outwards reinsurance.

Table: Total Insurance Claims 2009-2012

2009

2010

2011

2012

7,780.00

9,170.70

12,666.80

14,613.70

Total insurance claims, VND, % change y-o-y

n.a.

17.9

38.1

15.4

Total insurance claims, VND per capita

88,209.10

102,986.30

140,876.40

160,951.70

Total insurance claims, % of GDP

0.4

0.4

0.5

0.5

Total insurance claims, US$bn

0.4

0.5

0.6

0.7

Total insurance claims, US$, % change y-o-y

n.a.

9.7

27.9

14.2

5

5.4

6.8

7.7

Total insurance claims, VNDbn

Total insurance claims, US$ per capita

Source: AVI/BMI

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Vietnam Insurance Report Q2 2014

Life Premiums Forecast BMI View: The latest data suggests that life insurance should grow quite rapidly, but from a very low base. By all metrics, the segment will remain underdeveloped at the end of the forecast period. The multi-national companies that have entered the market in the last three years clearly expect life insurance to play a key role in organised savings in Vietnam -just as it does elsewhere in South East Asia (and, to a greater extent, in North East Asia). This may yet happen, but is most unlikely to do so prior to 2018.

We would also note that the growth in premiums is vulnerable to setbacks from economic shocks. Vietnamese households generally do not yet understand the benefits of life insurance, although the insurers themselves are working to correct this. A more fundamental problem is that most households cannot afford life insurance.

Growth May Be Volatile Life Premiums (US$bn) And Y-o-Y Change (%) 100

2

50 1

2018f

2017f

2016f

2015f

-50 2014f

2012

2011

0

2013e

0

Gross life premiums written, US$bn (LHS) Gross life premiums written, US$~ % y-o-y (RHS)

Notes: 1 "AVI/BMI" 2 "AVI/BMI"

Relative to others in South East Asia, Vietnam is, and for sometime will remain, a small opportunity for international life insurers. Nevertheless, the segment benefits hugely from the product and distribution

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Vietnam Insurance Report Q2 2014

know-how and regional scale of (most of) the international companies. Particular companies have highlighted how they have been expanding their agency forces in the country over the last two years or so.

Insurance Premiums Life density is currently around US$10 per capita in Vietnam. Life penetration is around 0.5% of GDP. Low figures such as these are normally associated with countries where lack of property rights and/or persistently high inflation mean that households are very reluctant to enter into long-term contracts with life insurers. Neither of these structural challenges are present in Vietnam. Instead, the basic problem is that too many households are unable to afford to save via life insurance.

Table: Gross Life Premiums Written 2011-2018

2011

2012

2013e

2014f

2015f

2016f

2017f

2018f

Gross life premiums written, VNDbn

11,380.2

18,390.8

19,223.9

20,705.6

23,504.6

26,730.1

30,299.0

34,390.6

Gross life premiums written, VND, % change y-o-y

-17.5

61.6

4.5

7.7

13.5

13.7

13.4

13.5

Gross life premiums written, VND per capita

126,567.7

202,551.8

209,685.3

223,728.8

251,691.6

283,785.7

319,065.8

359,371.6

Gross life premiums written, % of GDP

0.4

0.6

0.5

0.5

0.5

0.5

0.5

0.5

Gross life premiums written, % of gross premiums written

35.7

44.7

42.7

41.5

41.5

41.7

42.0

42.3

Gross life premiums written, US$bn

0.6

0.9

0.9

1.0

1.2

1.3

1.5

1.7

Gross life premiums written, US$, % change y-o-y

-23.6

59.9

3.7

10.2

14.8

14.4

14.6

14.7

Gross life premiums written, US$ per capita

6.1

9.7

10.0

10.9

12.4

14.0

16.0

18.2

Source: BMI/ AVI

Our expectation is that premiums will rise, but in a somewhat erratic way, through the forecast period. Total premiums written in the segment should increase from about US$900mn now to US$1,700mn or so in 2018. Growth will likely be much more substantial after 2018. The various multi-national insurers that have

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established operations in Vietnam are, we believe, right to see the market as an attractive opportunity - but in the long-term. Between now and the end of the forecast period, it is likely that at least one of the majors will have significant success with the development and distribution of micro-insurance products.

Life Insurance Drivers There are some life insurance markets where the rapid growth of private healthcare expenditure offers a substantial opportunity - through the provision of health insurance riders to policies and/or other product offerings. Vietnam is not currently such a market and is unlikely to become one within the forecast period. In essence, the overall insurance market is too underdeveloped, because of widespread poverty. Nevertheless, we note that per capita spending on private healthcare is considerably higher than life insurance density (i.e. per capita premiums). This suggests that, for the small minority of households who understand and afford life insurance, there is some potential for the insurers to sell healthcare-related products and riders.

Table: PRIVATE HEALTH EXPENDITURE 2011-2018

2011

2012f

2013e

2014f

2015f

2016f

2017f

2018f

102,984.4

120,644.8

138,626.4

160,406.7

184,723.3

210,185.0

237,652.8

267,263.9

Private health expenditure, VND, % change y-o-y

21.0

17.1

14.9

15.7

15.2

13.8

13.1

12.5

Private health expenditure, US$bn

5.0

5.8

6.6

7.8

9.1

10.4

11.9

13.5

Private health expenditure, US$bn, % change y-o-y

12.0

15.9

13.9

18.4

16.5

14.4

14.3

13.6

Private health expenditure, US$ per capita

55.4

63.7

71.8

84.3

97.3

110.4

125.1

141.1

3.7

3.7

3.9

4.0

4.1

4.2

4.2

4.3

Private health expenditure, VNDbn

Private health expenditure, % of GDP

Source: AVI/ BMI

For countries at Vietnam's level of development, private healthcare spending is driven principally by changes in morbidity. In terms of Disease Adjusted Life Years (DALYs, a widely used metric) morbidity should increase slightly over the forecast period. Rising incomes and effective child healthcare policies

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Vietnam Insurance Report Q2 2014

should result in a fall in DALYs for the youngest age cohorts (to 15 years). However, these declines will be more than offset by an increase in DALYs in most older age cohorts.

Table: DISEASE ADJUSTED LIFE YEARS 2011-2018

2011 All Causes, DALYs

2012

2013e

2014f

2015f

2016f

2017f

2018f

11,898,272 11,933,865 11,968,439 12,001,992 12,034,522 12,066,030 12,096,513 12,125,971

Communicable, maternal, perinatal and nutritional conditions, DALYs

3,361,708

3,366,403

3,371,022

3,375,565

3,380,031

3,384,422

3,388,736

3,392,973

Noncommunicable diseases, DALYs

6,884,945

6,928,102

6,970,173

7,011,157

7,051,055

7,089,863

7,127,581

7,164,209

All diseases and injuries, 0-4 yrs, total, DALYs

1,468,354

1,399,208

1,333,074

1,270,112

1,210,424

1,154,059

1,101,023

1,051,282

All diseases and injuries, 15-29 yrs, total, DALYs

2,392,289

2,406,024

2,418,817

2,431,012

2,442,923

2,454,811

2,466,841

2,479,058

All diseases and injuries, 30-44 yrs, total, DALYs

2,077,024

2,123,095

2,168,709

2,212,369

2,252,764

2,288,799

2,319,618

2,344,638

All diseases and injuries, 45-59 yrs, total, DALYs

2,422,440

2,426,292

2,425,683

2,421,889

2,416,058

2,409,202

2,402,194

2,395,781

596,136

581,029

566,147

551,433

536,886

522,547

508,490

494,820

All diseases and injuries, 60-69 yrs, total, DALYs

1,425,932

1,447,547

1,467,741

1,487,452

1,507,330

1,527,762

1,548,883

1,570,589

All diseases and injuries, 70+ yrs, total, DALYs

1,516,097

1,550,670

1,588,268

1,627,726

1,668,137

1,708,851

1,749,463

1,789,803

All diseases and injuries, 5-14 yrs, total, DALYs

Source: WHO/World Bank/IMF/BMI

Life Claims The embryonic level of development of Vietnam's life segment means that it is difficult to comment on claims in a meaningful way. We suggest that the very rapid rise in claims and payments over recent years has been due to the fact that the claims and payments have been rising from a very low base. We expect that the pace of growth will moderate in the coming years.

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Vietnam Insurance Report Q2 2014

Table: Life Insurance Claims 2009-2012

2009

2010

2011

2012

Life insurance claims, VNDbn

2,507.70

2,786.50

4,221.80

5,740.10

Life insurance claims, VND, % change y-o-y

n.a.

11.1

51.5

36

Life insurance claims, VND per capita

28,432.10

31,292.50

46,953.20

63,220.40

Life insurance claims life, % of GDP

0.1

0.1

0.2

0.2

Life insurance claims, % of total claims

32.2

30.4

33.3

39.3

Life insurance claims, US$bn

0.1

0.1

0.2

0.3

Source: BMI/VI

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Vietnam Insurance Report Q2 2014

Non-Life Premiums Forecast BMI View: Thanks mainly to the ongoing development of industrial and commercial lines, which account for around 40% of all premiums written in Vietnam's non-life segment, growth should remain consistently in double digits through the forecast period. Nevertheless, we are not looking for non-life penetration to rise, as we see no obvious catalyst for this outcome.

By most metrics, the non-life segment will remain underdeveloped at the end of the forecast period. Premiums will also rise in absolute terms thanks to the further growth of motor vehicle insurance, transport insurance and property insurance.

Not Large, But Steadily Growing Non-Life Premiums (US$bn) And Y-o-Y Growth (%) 3

15 2

1

2018f

2017f

2016f

2015f

2014f

2012

2011

0

2013e

10

Gross non-life premiums written, US$bn (LHS) Gross non-life premiums written, US$~ % y-o-y (RHS)

Notes: 1 "AVI/BMI" 2 "AVI/BMI"

With total premiums of around US$1bn, Vietnam's non-life segment is small in absolute terms and in relation to its counterparts in other countries in South East Asia. This will remain the case in 2018. However, premiums should consistently sustain double-digit growth in the meantime.

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Vietnam Insurance Report Q2 2014

Non-Life Premiums Having fallen over recent years, non-life penetration (premiums as a percentage of GDP has stabilised at around 0.7%. At some stage in the future, it is reasonable to expect that some catalyst will cause penetration to rise. However, we anticipate this will happen only after the end of the forecast period. Per capita premiums (density) of around US$13 are indicative of most households being too poor to afford non-life insurance. Nevertheless, the likely growth of the economy, and associated increases in industrial/ commercial lines, imply that the segment should sustain double-digit growth rates.

Table: Gross Non-Life Premiums 2011-2018

2011

2012

2013e

2014f

2015f

2016f

2017f

2018f

20,497.0

22,758.0

25,762.8

29,239.8

33,096.8

37,330.6

41,886.8

46,914.1

20.2

11.0

13.2

13.5

13.2

12.8

12.2

12.0

227,962.4

250,650.4

281,008.6

315,942.6

354,405.9

396,328.1

441,091.8

490,237.5

Gross non-life premiums written, % of GDP

0.7

0.7

0.7

0.7

0.7

0.7

0.7

0.7

Gross non-life premiums written, % of gross premiums written

64.3

55.3

57.3

58.5

58.5

58.3

58.0

57.7

Gross non-life premiums written, US $bn

1.0

1.1

1.2

1.4

1.6

1.8

2.1

2.4

Gross non-life premiums written, US $, % change y-o-y

11.3

9.9

12.3

16.2

14.5

13.4

13.4

13.1

Gross non-life premiums written, US $ per capita

11.0

12.0

13.4

15.4

17.4

19.6

22.1

24.8

Gross non-life premiums written, VNDbn Gross non-life premiums written, VND, % change y-o-y Gross non-life premiums written, VND per capita

Source: BMI/ AVI

Retention ratios (net premiums as a percentage of gross premiums) are low, at around 60%. This reflects three factors: most of the Vietnamese non-life companies lack economies of scale; some 40% of the activity undertaken in the segment involves complex and large industrial/commercial risks; and the Vietnamese

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Vietnam Insurance Report Q2 2014

companies do not necessarily have ready access to global capital markets. Accordingly, net premiums should remain significantly below - and move in line with - gross premiums through the forecast period.

Table: Net Non-Life Premiums 2011-2018

2011

2012

2013e

2014f

2015f

2016f

2017f

2018f

Net non-life premiums written, VNDbn

15,572.3

17,074.1

15,550.7

17,595.4

19,935.3

22,478.8

25,224.7

28,251.4

Net non-life premiums written, VND, % change y-o-y

20.0

9.6

-8.9

13.1

13.3

12.8

12.2

12.0

Net non-life premiums written, VND per capita

173,191.5

188,049.6

169,619.4

190,121.8

213,470.9

238,651.5

265,630.6

295,218.3

Net non-life premiums written, % of GDP

0.6

0.5

0.4

0.4

0.4

0.4

0.4

0.5

Net non-life premiums written, US$bn

0.8

0.8

0.7

0.9

1.0

1.1

1.3

1.4

Net non-life premiums written, US$, % change y-o-y

11.1

8.5

-9.7

15.8

14.6

13.4

13.4

13.1

Net non-life premiums written, US$ per capita

8.4

9.0

8.1

9.2

10.5

11.8

13.3

14.9

Source: BMI/ AVI

Non-Life Reinsurance The corollary of this is that Vietnam represents a currently small opportunity for reinsurers, but one that is growing at double-digit rates. We are looking for outwards reinsurance premiums to grow from around US $500mn in 2013 to about US$900mn in 2018. Most of this business will pertain to large scale commercial/ industrial risks, which account for well over one third or the premiums written in the non-life segment.

Table: Reinsurance Non-Life Premiums 2011-2018

Reinsurance non-life premiums written, VNDbn Reinsurance non-life premiums written, VND, % change y-o-y

2011

2012

2013e

2014f

2015f

2016f

2017f

2018f

7,853.8

9,156.6

10,212.1

11,644.5

13,161.4

14,851.7

16,662.1

18,662.7

24.4

16.6

11.5

14.0

13.0

12.8

12.2

12.0

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Vietnam Insurance Report Q2 2014

Reinsurance Non-Life Premiums 2011-2018 - Continued

2011

2012

2013e

2014f

2015f

2016f

2017f

2018f

Reinsurance non-life premiums written, VND per capita

87,347.7

100,847.9

111,389.2

125,820.8

140,935.0

157,676.6

175,461.2

195,019.2

Reinsurance non-life premiums written, % of GDP

0.3

0.3

0.3

0.3

0.3

0.3

0.3

0.3

Reinsurance non-life premiums written, US $bn

0.4

0.4

0.5

0.6

0.6

0.7

0.8

0.9

Reinsurance non-life premiums written, US$, % change y-o-y

15.1

15.4

10.6

16.7

14.3

13.5

13.4

13.1

Reinsurance non-life premiums written, US$ per capita

4.2

4.8

5.3

6.1

6.9

7.8

8.8

9.8

Source: BMI/ AVI

Non-Life Claims Except in 2011, when non-life claims jumped by about one fifth, claims costs have typically evolved quite slowly in Vietnam. We would attribute this to the nature of the business that is written in the segment. With large scale commercial and industrial risks accounting for about 40% of premiums written, losses are relatively rare but, when they occur, substantial. Until motor vehicle and household lines come to dominate the business mix of the non-life segment (an outcome which we do not expect prior to 2018), claims should continue to grow quite slowly.

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Vietnam Insurance Report Q2 2014

Table: Non-Life Insurance Claims 2008-2012

2008

2009

2010

2011

Non-life insurance claims, VNDbn

4,510.70

5,272.30

6,384.20

8,445.00

Non-life insurance claims, VND, % change y-o-y

n.a.

16.9

21.1

32.3

Non-life insurance claims, VND per capita

51,627.70

59,777.00

71,693.90

93,923.10

Non-life insurance claims, % of GDP

0.3

0.3

0.3

0.3

Non-life insurance claims, % of total claims

n.a.

67.8

69.6

66.7

Source: BMI/ AVI

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Vietnam Insurance Report Q2 2014

Non-Life Sub-Sector Forecast BMI View: For a non-life segment that is still, by almost all metrics, underdeveloped, Vietnam's is unusual in that industrial/ commercial covers are relatively important. Conversely, basic motor vehicle insurance and household property lines account for a small percentage of premiums than would otherwise be the case. This is the consequence of the peculiar competitive landscape, in which many of the leading local non-life companies are affiliated with, and serve, state-owned enterprises.

Looking forward, we do not see any particular reason why this should change during the forecast period. Overall premiums have for several years been growing in line with GDP. In the absence of a clear catalyst for penetration to rise, the relative sizes of the various sub-sectors should stay broadly unchanged.

Table: Non-Life % Breakdown 2011-2018

2011

2012

2013e

2014f

2015f

2016f

2017f

2018f

29.9

27.8

27.7

27.8

28.0

28.2

28.4

28.7

Property insurance

8.4

9.6

9.3

9.2

9.0

8.8

8.5

8.1

Transport insurance

20.6

19.7

19.8

19.8

19.8

19.8

19.8

19.7

General liability insurance

2.1

2.3

2.3

2.3

2.2

2.2

2.2

2.2

Credit/financial guarantee insurance

0.4

0.2

0.3

0.3

0.3

0.3

0.3

0.3

38.5

40.4

40.7

40.6

40.6

40.7

40.8

41.0

Motor vehicle insurance

Other insurance

Source: AVI/ BMI

Commercial and industrial covers, which are predominantly provided to the various industrial state owned enterprises that play a dominant role in Vietnam's economy, account for about 40% of all non-life premiums. The next largest lines by this metric are motor vehicle insurance, transport insurance and property insurance. The non-life companies basically do not (yet) provide health insurance. Other lines, such as general liability insurance, are miniscule. None of the sub-sectors - including the larger ones represents a substantial commercial opportunity in regional terms.

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Vietnam Insurance Report Q2 2014

Commercial/ Industrial Lines Well Developed... Gross Written Premiums, Non-Life Segment (US$mn), 2013

Source: AVI/ BMI

Motor Vehicle And Transport Insurance Motor vehicle insurance is relatively less important in Vietnam's non-life segment than in counterparts in other low income countries. Nevertheless, motor vehicle related lines accounted for a little over one quarter of all premiums written in the segment during 2013, and should continue to do so through the forecast period. In essence, we are looking for steady double-digit growth in premiums over the next five years, as the sub-sector expands in line with the non-life segment. Given the fragmentation of the competitive landscape, we expect that the rise will be driven mainly by the increase in the numbers of vehicles on Vietnam's roads. In short, the development of the sub-sector will be driven by volume, rather than price/ rate, increases.

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Table: Motor Vehicle Insurance 2011-2018

2011

2012

2013e

2014f

2015f

2016f

2017f

2018f

Motor 6,134,000.0 6,329,214.0 7,126,728.4 8,135,470.8 9,269,922.2 10,537,068.4 11,909,588.8 13,446,284.8 vehicle insurance, VNDmn Motor vehicle insurance, VND, % change yo-y

14.1

3.2

12.6

14.2

13.9

13.7

13.0

12.9

Motor vehicle insurance, US$mn

296.9

303.2

338.6

395.6

456.0

521.2

595.5

679.1

Motor vehicle insurance, US$, % change yo-y

5.6

2.1

11.7

16.8

15.3

14.3

14.2

14.0

Motor vehicle insurance, % of nonlife insurance

29.9

27.8

27.7

27.8

28.0

28.2

28.4

28.7

Source: BMI/ AVI

Accounting for around one fifth of non-life premiums, transport insurance is not much less important by that measure than motor vehicle insurance. In other words, transport insurance accounts for a larger percentage of activity in the segment than one might expect in a country with Vietnam's per capita incomes. We think that this is reflective of buying of transport insurance by (predominantly) state owned enterprises and, very often, through the non-life insurance companies that are affiliated with them.

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Table: Transport Insurance 2011-2018

2011 Transport insurance, VNDmn

2012

2013e

2014f

2015f

2016f

2017f

2018f

4,214,000.0 4,493,131.0 5,104,693.5 5,792,681.0 6,558,509.1 7,384,425.5 8,285,054.5 9,265,397.0

Transport insurance, VND, % change yo-y

18.3

6.6

13.6

13.5

13.2

12.6

12.2

11.8

Transport insurance, US$mn

204.0

215.3

242.5

281.7

322.6

365.3

414.3

467.9

Transport insurance, US$, % change yo-y

9.5

5.5

12.7

16.1

14.5

13.2

13.4

13.0

Transport insurance, % of nonlife insurance

20.6

19.7

19.8

19.8

19.8

19.8

19.8

19.7

Source: AVI/ BMI

For now, we look for steady, double-digit, gains in transport insurance premiums each year through the forecast period. This will be driven mainly by the likely growth in road freight transport in Vietnam. Road freight easily dominates the nation's transport system in terms of tonnes carried. We also assume that the market will be orderly: rates/prices should increase slightly.

Table: INSURANCE KEY DRIVERS, FREIGHT TONNAGE 2011-2018

2011

2012f

2013e

2014f

2015f

2016f

2017f

2018f

Air Freight Tonnes (000)

200.3

178.7

189.0

202.3

216.9

232.4

248.5

265.5

Air Freight Tonnes (000), % change yo-y

5.4

-10.8

5.8

7.0

7.2

7.1

7.0

6.8

Rail Freight Tonnes (000)

7,285.1

7,003.5

7,292.0

7,519.6

7,759.3

8,010.4

8,269.7

8,537.8

Rail Freight Tonnes (000), % change yo-y

-7.3

-3.9

4.1

3.1

3.2

3.2

3.2

3.2

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INSURANCE KEY DRIVERS, FREIGHT TONNAGE 2011-2018 - Continued

2011

2012f

2013e

2014f

2015f

2016f

2017f

2018f

Road Freight Tonnes (000)

654,127.1

722,156.4

806,648.7

902,639.9

1,010,054.0

1,126,210.3

1,253,472.0

1,392,607.4

Road Freight Tonnes (000), % change yo-y

11.4

10.4

11.7

11.9

11.9

11.5

11.3

11.1

Inland Waterway Freight Tonnes (000)

160,164.5

168,493.0

177,454.6

186,691.3

196,424.5

206,615.1

217,144.5

228,010.9

Inland Waterway Freight Tonnes (000), % change yo-y

11.1

5.2

5.3

5.2

5.2

5.2

5.1

5.0

Source: AVI/BMI

Property Insurance Property insurance accounts for about one tenth of the total activity in Vietnam's non-life segment. We presume that it will achieve high single digit growth through the forecast period. This is a respectable outcome by most standards, but is consistent with the sub-sector slipping in importance relative to the nonlife segment as a whole, and in relation to the overall economy. We are taking the view that price competition in household and, perhaps, some commercial lines will be quite intense.

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Table: Property Insurance 2011-2018

2011 Property insurance, VNDmn

2012

2013e

2014f

2015f

2016f

2017f

2018f

1,723,000.0 2,185,362.0 2,399,020.6 2,700,247.3 2,994,576.8 3,279,767.9 3,554,125.0 3,815,620.6

Property insurance, VND, % change yo-y

20.0

26.8

9.8

12.6

10.9

9.5

8.4

7.4

Property insurance, US$mn

83.4

104.7

114.0

131.3

147.3

162.2

177.7

192.7

Property insurance, US$, % change yo-y

11.0

25.5

8.9

15.2

12.2

10.1

9.5

8.4

Property insurance, % of nonlife insurance

8.4

9.6

9.3

9.2

9.0

8.8

8.5

8.1

Source: BMI/ AVI

In most of the countries whose insurance sectors are monitored by BMI, 'other' insurance is something of a balancing item. It includes minor lines whose relative (and often absolute) sizes mean that we refrain (for now) from commenting on them specifically. In Vietnam, 'other' insurance includes industrial business that is undertaken for state owned enterprises by the non-life companies. Historically, the state owned enterprises have worked with the insurers that are affiliated with them. This business accounts for around 40% of total premiums written in the non-life segment. That premiums in this sub-sector have held up relative to the non-life insurance as a whole and in relation to GDP suggests to us that: it is benefiting from investment in plant, equipment and infrastructure as Vietnam's economy develops; and, the sub-sector is characterised by pricing discipline. We see no reason why this should not continue.

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Vietnam Insurance Report Q2 2014

Industry Risk Reward Ratings Asia Risk/Reward Ratings BMI View: Geographic diversification may be a favourable strategy for multinational pharmaceutical companies, but it is vital that firms recognise both the rewards and the risks present in a market, whether developed or emerging. BMI's Risk/Rewards Ratings (RRR) tool, which provides a globally comparative and numerically based assessment of a market's attractiveness, was established to address this. In BMI's Q214 RRRs, the Asia Pacific region scores 52 out of 100, below Western Europe (67), similar to Central and Eastern Europe (52) but compares favourably against Americas (51) and Middle East and Africa (42) regions.

The indicators used to assess the attractiveness of a pharmaceutical market are now visible, improving the transparency of the rating system and enabling the identification of regional or group outperformers across single indicators. A market's RRR score is made up of a sum of the Rewards score (Industry Rewards + Country Rewards) and the Risks score (Industry Risks + Country Risks).

The weight assigned to each subsector (such as Industry Rewards or Industry Risks) shows its influence within the final Rewards or Risks score and the final RRR score. The Rewards component accounts for 65% of the final RRR, while the Risks component accounts for 35%.

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Vietnam Insurance Report Q2 2014

Q214 Asia Pacific Pharmaceutical Risk/Reward Ratings Rewards And Risks Scores

Source: BMI. RRR scores out of 100, with 100 highest.

The Industry Rewards, Country Rewards, Industry Risks and Country Risks subsectors are each made up of a number of indicators. The weighting of each indicator (such as market expenditure which is used to assess Industry Reward or economic diligence which is used to assess Country Risk) reflects its relative importance to the pharmaceutical industry and subsequently the relative reward or risk that each factor poses to drug companies. In Q214, Japan is ranked as the most attractive market in the Asia Pacific region (scoring 74.5 out of 100), followed by Australia (67.0) and Taiwan (65.7). In the same quarter, Myanmar is ranked as the least attractive market in the region (scoring 26.9 out of 100), followed by Cambodia (32.4) and Sri Lanka (37.0).

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With regards to assessing rewards, we identify industry-specific factors, such as the size of the pharmaceutical market, and country-specific factors, such as the size of the pensionable population, which represent opportunities to would-be investors. Focusing on the rewards component of the rating system, Japan scores a total of 47.0 out of 65, the highest score in subsector. Japan's score is boosted by the large multi-billion dollar drug market (market expenditure score of 18.0 out of 20) and large pensionable population (pensionable population score of 8.0 out of 8), but dragged down by a declining pharmaceutical market (sector value growth score of 0 out of 12) and a declining population (population growth score of 1.0 out of 5). Meanwhile, Myanmar scores a total of 18.5 out of 65, the lowest score in the subsector.

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Vietnam Insurance Report Q2 2014

Q214 Asia Pacific Pharmaceutical Rewards Industry Rewards And Country Rewards Scores

Source: BMI. RRR scores out of 100, with 100 highest.

With regards to assessing risks, we identify industry-specific dangers, such as approvals expediency, and those emanating from the state's political and economic profile, such as bureaucracy, which call into question the likelihood of anticipated returns being realised over the assessed time period. With regards to the economic and political assessment, only the aspects most relevant to the pharmaceutical industry are incorporated into the assessment. Focusing on the risks component of the rating system, Myanmar scores a total of 8.4 out of 35, the lowest score in subsector. Compared to its peers, Myanmar's score is dragged

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down by industry characteristics such as the absence of patent respect (patent respect score of 0 out of 7) and policy enforcement (policy enforcement score of 1.5 out of 7). Meanwhile, Singapore scores a total of 28.1 out of 35, the highest score in the subsector.

Q214 Asia Pacific Pharmaceutical Risks Industry Risks And Country Risks Scores

Source: BMI. RRR scores out of 100, with 100 highest.

In the table below, the subsector scores (ie, Industry Rewards) and full component scores (ie, Rewards) have been expressed as a percentage of the total weight or as a percentage of the maximum score that can be

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Vietnam Insurance Report Q2 2014

achieved. This allows for the identification of the sub-sector or component that will most positively or negatively affect a single market.

Q214 Asia Pacific Pharmaceutical Risk/Reward Ratings Rewards And Risks Scores As A Percentage Of The Maximum Score

Source: BMI. RRR scores out of 100, with 100 highest.

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Vietnam Insurance Report Q2 2014

Market Overview Life Market Overview BMI View: As is the case in China, the insurance sector of Vietnam is characterised by the strong presence of companies in which the state maintains a strategic interest, whether direct or indirect. Regional life insurance companies play a key role in that segment.

In Vietnam, the insurance sector is regulated by the Insurance Supervisory Division within the Ministry of Finance. The insurance trade association, covering both the life and the non-life segments, is the Association of Vietnamese Insurers (AVI).

Bao Viet, the former state-owned monopoly insurer, is the only company that is effectively a composite insurer, active in both the non-life and the life segments. As of late 2013, the AVI identified another 14 players in the life segment. Among the major multi-nationals that have a presence across the region, AIA, Prudential plc and Manulife all have subsidiaries in Vietnam. Also on the ground is ACE Life. Asian life companies that are substantial in their home markets and which are present include Great Eastern, Cathay Life, Dai-Ichi Life and Korea Life. Vietnam is one of the three foreign countries in which France's Groupe Prévoir is active (the others being Portugal and Poland). Finally, the segment includes VCLI, an insurance joint venture that is 45% owned by Vietcombank, 43% by BNP Paribas Cardif and 12% by SeAbank, a local joint stock commercial bank.

Data published by the trade association in late 2013 showed that, in terms of gross written premiums, the leading players were Prudential plc (with a 34% market share), Bao Viet (29%) and Manulife (12%)

The latest newsflow from the segment indicates that it is developing quite rapidly, if in an erratic fashion. The widespread poverty (or, more correctly, incidence of household incomes that are too small to support purchase of life insurance products continues to constrain the potential of the segment. The leading insurers are competing through innovation in distribution and product development, and through enlargement of agency forces.

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Vietnam Insurance Report Q2 2014

Non-Life Market Overview BMI View: As of early 2014, it is possible to identify a number of strengths of Vietnam's non-life segment. A significant presence of leading foreign groups ensures that there is competition in terms of innovation and distribution. Unlike in many emerging markets where household incomes are low, the segment is not dominated by basic lines such as motor vehicle insurance. Premiums have been increasing in line with overall GDP and should continue to do so.

Vietnam's non-life segment is still in transition from a situation where it consisted of a state owned monopoly (the composite group Bao Viet) to one where local private sector firms and, usually through joint ventures, foreign groups are active.

A Fairly Fragmented Marketplace Non-Life Market Shares (%), 2012

Source: BMI/ AVI

The three largest players accounted for nearly half of the total premiums written in 2012. However, the remainder of the market is fragmented, with particular groups focusing on niche specialties. The insurance

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Vietnam Insurance Report Q2 2014

sector is overseen by the Insurance Supervisory Division within the Ministry of Finance. The trade association is the Association of Vietnamese Insurers (AVI).

Aside from Bao Viet, there are 25 players in the non-life segment, according to the AVI. Local companies include AAA, Agricultural Bank Insurance, Bao Minh JSC, BIC (a subsidiary of Bank for Investment and Development of Vietnam), Bao Tin, GIC, Great Mountain JSC, Hung Vuong JSC, Military Insurance, Petrolimex Joint Stock Insurance Company (PJICO), Nha Rong Insurance (Bao Long), Petrovietnam Insurance (PVI), Post Office Insurance, SVIC, Union Insurance, VietinBank Insurance, VNA Insurance, Vietnam National Reinsurance (VinaRe) and VASS. A key development in August 2011 was the announcement that HDI Gerling Industrie Versicherung, a subsidiary of Germany's Talanx, has agreed to buy a 25% stake in PVI, a listed subsidiary of Petrovietnam, for VND1,920bn (US$92mn). Reports in late 2011 indicated that PVI Re, a reinsurance subsidiary of PVI, will be entering the local reinsurance market. In April 2012, Australia's IAG announced that it had reached agreement to buy a 30% stake in AAA.

Joint ventures include Samsung Vina Insurance and Bao Viet Tokio Marine Insurance.

Foreign groups with a presence on the ground include AIG, QBE, Liberty Mutual, Fubon Insurance, MSIG and ACE (Non-Life).

Table: Non-Life Insurance Market (US$mn) 2006-2012

2007

2008

2009

2010

2011

2012

Bảo Viảt

161.7

201.9

n.a.

n.a.

237.2

257.9

PVI

102.6

122.9

n.a.

n.a.

204.7

223.2

Bảo Minh

100.2

114.6

n.a.

n.a.

103.6

109.5

PJICO

54.8

64.5

n.a.

n.a.

89.7

94.4

PTI

19.0

27.0

n.a.

n.a.

53.0

78.6

Samsung Vina

4.8

5.3

n.a.

n.a.

n.a.

35.1

BIC

9.2

16.1

n.a.

n.a.

n.a.

32.1

Toàn Cảu

10.8

11.8

n.a.

n.a.

n.a.

23.5

MIC

n.a.

8.7

n.a.

n.a.

n.a.

22.7

AAA

9.7

12.3

n.a.

n.a.

n.a.

22.7

ABIC

1.0

7.9

n.a.

n.a.

n.a.

21.8

VNI

n.a.

n.a.

n.a.

n.a.

n.a.

21.5

Liberty

0.3

2.7

n.a.

n.a.

n.a.

21.2

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Vietnam Insurance Report Q2 2014

Non-Life Insurance Market (US$mn) 2006-2012 - Continued

2007

2008

2009

2010

2011

2012

SVIC

n.a.

n.a.

n.a.

n.a.

n.a.

14.9

MSIG

n.a.

n.a.

n.a.

n.a.

n.a.

14.0

Baoviet Tokio Marine

7.6

10.3

n.a.

n.a.

n.a.

13.1

AIG Viảt Nam

4.2

6.3

n.a.

n.a.

n.a.

13.0

Bảo Long

10.2

15.4

n.a.

n.a.

n.a.

12.1

Viản Đông

9.7

13.4

n.a.

n.a.

n.a.

10.8

Xuân Thành

n.a.

n.a.

n.a.

n.a.

n.a.

10.6

Source: BMI/ AVI

The development of the premiums of the various non-life companies from 2007 to 2012 highlights a number of key features and trends. First, Vietnam's non-life segment is growing steadily in absolute terms, even if this increase is the result of an expansion in overall GDP rather than a life in penetration. Second, the larger companies (other than Bao Viet) have close links with state-owned enterprises that are not naturally in the insurance businesses. These insurance subsidiaries continue to handle industrial risks for their parents: this is an aspect of the market which makes it fairly unusual. Third, very few of the players have scale - although a number are affiliates of regional/ global insurers who can see their Vietnam operations in the context of a larger entity. Many of the companies that are active in the segment are writing premiums of around US$10mn annually. They are tiny by almost all standards.

Table: Non-Life Insurance Market (%) 2006-2012

2007

2008

2009

2010

2011

2012

Bảo Viảt

31.1

30.5

n.a.

n.a.

23.9

23.7

PVI

19.7

18.6

n.a.

n.a.

20.6

20.5

Bảo Minh

19.3

17.3

n.a.

n.a.

10.4

10.0

PJICO

10.5

9.8

n.a.

n.a.

9.0

8.7

PTI

3.6

4.1

n.a.

n.a.

5.3

7.2

Samsung Vina

0.9

0.8

n.a.

n.a.

n.a.

3.2

BIC

1.8

2.4

n.a.

n.a.

n.a.

2.9

Toàn Cảu

2.1

1.8

n.a.

n.a.

n.a.

2.2

MIC

n.a.

1.3

n.a.

n.a.

n.a.

2.1

AAA

1.9

1.9

n.a.

n.a.

n.a.

2.1

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Vietnam Insurance Report Q2 2014

Non-Life Insurance Market (%) 2006-2012 - Continued

2007

2008

2009

2010

2011

2012

ABIC

0.2

1.2

n.a.

n.a.

n.a.

2.0

VNI

n.a.

n.a.

n.a.

n.a.

n.a.

2.0

Liberty

0.1

0.4

n.a.

n.a.

n.a.

1.9

SVIC

n.a.

n.a.

n.a.

n.a.

n.a.

1.4

MSIG

n.a.

n.a.

n.a.

n.a.

n.a.

1.3

Baoviet Tokio Marine

1.5

1.6

n.a.

n.a.

n.a.

1.2

AIG Viảt Nam

0.8

1.0

n.a.

n.a.

n.a.

1.2

Bảo Long

2.0

2.3

n.a.

n.a.

n.a.

1.1

Viản Đông

1.9

2.0

n.a.

n.a.

n.a.

1.0

Xuân Thành

n.a.

n.a.

n.a.

n.a.

n.a.

1.0

Source: BMI/AVI

The various shifts in market shares (in terms of gross premiums written) are indicative of a market that is at a fairly embryonic state of development and which is being liberalised. Over the six years to the end of 2012, Bao Viet - the former state-owned monopoly - gradually lost market share. Not all the smaller companies achieved increases in market share. However, some players came from nowhere to positions with market shares in excess of 1%.

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Vietnam Insurance Report Q2 2014

Company Profile AIA Group SWOT Analysis

Strengths

■

Very large scale by any standard.

■

Strength of capital and access to global financial markets.

■

Strong and growing cashflows.

■

Unique status as the largest independent pan-Asian life insurer, with a footprint that spans 15 markets.

■

Only foreign company to operate on its own (as opposed to as a JV partner) in China.

■

Leadership, by many metrics, in many of the markets in which AIA operates (and crushing domination in some of these).

■

Continuing growth in annualised new premiums (ANP), value of new business (VONB) and VONB margins - across almost all the markets in which AIA operates.

■

Diverse products, for both individual and corporate clients.

■

Multi-channel distribution - complements very strong proprietary agency distribution channel in most of AIA's markets.

Weaknesses

■

Clear strategy to 'deliver quality growth'.

■

Long-standing presence in many of its markets.

■

Strong/improving brand in many of its markets.

■

There are some countries (e.g. South Korea, Taiwan and China) where AIA is still, by many metrics, a relatively minor player.

■

Like all large life companies, AIA is exposed to the challenges that arise from a global investment environment in which interest rates are, and will likely remain, low.

Opportunities

■

Arguably the leading beneficiary of the growth of organised savings in East and South East Asia.

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Vietnam Insurance Report Q2 2014

SWOT Analysis - Continued ■

Clear strategies to boost profitability - as well as premium income.

■

Successful product innovation in many of the markets in which AIA operates.

■

Potential to undertake substantial acquisitions.

■

Well placed to benefit from improving perceptions of risk in emerging markets of South East Asia.

Threats

■

Development of relationship with Nippon Life.

■

Potential but unlikely turmoil in regional financial markets. However, AIA has plainly thrived in spite of the Asian financial crisis of 1997-99, the critical phase of the global financial crisis (2008-09) and the massive financial problems of its previous shareholder.

■

Given the current structure of AIA's overall business, growth and profitability would suffer for a time in the event of political and/or economic instability in Thailand.

■

Robust competition, in some markets, from very large multi-national insurers, many of which share some of AIA's strengths.

■

Robust competition, in some markets, from truly enormous local insurance companies. (In China and India, the rules governing participation by foreigners present challenges.)

■

At some stage, the absolute size of AIA alone will mean that it becomes significantly more difficult to maintain growth in business and profitability at the rates that have been achieved in recent years.

Company Overview

AIA Group (AIA) describes itself as 'the largest independent listed pan-Asian life insurance group in the world', with a 'broad footprint spanning 15 markets in the AsiaPacific'. It is one of the three main insurance companies (the others being Alico, which is now a part of MetLife's global operations and Chartis) whose origins date back to the establishment of an insurance agency in Shanghai by Cornelius Vander Starr in 1919. For a long time, AIA was an important component of American International Group (AIG). The problems of AIG in the wake of the global financial crisis forced it to look for a

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sale. Through much of 2010, Prudential plc sought to purchase AIA, but was unable to raise the funds that it needed. In late October 2010, AIA was listed in Hong Kong in what was, at that time, the largest ever initial public offering (IPO). Although AIA offers accident and health products (which we would normally consider as part of the non-life segment) in some of the markets that it serves, it is - as its self description indicates - overwhelmingly a life insurer. The company classifies its wide range of products in six major groups: protection; savings; investment; retirement; wealth management, and corporate solutions (employee benefits, credit insurance and retirement services). As noted above, AIA has a presence in 15 different countries across the Asia-Pacific. AIA Vietnam has over 400 employees and more than 9,000 professional agents. It operates in 23 cities and provinces across Vietnam. 'AIA Vietnam offers a wide range of life insurance products and services including universal life, savings, education and protection, each designed to meet the needs and demands of individuals, corporates and banks customers.' Financial Data

E AIA reported that H113 (the six months to May 31) saw very good growth in both value of new business (VONB - the company's key performance measure) and annualised new premiums (ANP). Across the company as a whole, VONB rose by 27% to US$711mn, while ANP grew by 29% to US$1,527mn. Within national markets, changes in ANP were: Hong Kong, up 34% to US$326mn; Thailand, up 9% toUS $265mn; Singapore, down 3% to US$147mn; Malaysia, up 100% to US$152mn (thanks to the inclusion of the businesses bought from ING); China, up 11% to US$120mn; South Korea, up 75% to US$182mn and; other markets, up 29% to US$335mn. Total weighted premium income rose by 16%, from US$7,305mn in H112 to US $8,495mn in H113. Thanks to the ING acquisition, premiums rose by 106% to US $1,002mn in Malaysia. In most markets, though, they rose by 5-10%. Investment income amounted to US$2,465mn in H113, or 18% more than in H112. At the end of H113, total equity amounted to US$27,172mn, or 2% more than at the end of November 2012. Total assets rose by 9% over the six month period, to US $146,926mn. Total investments grew by 9% to US$125,421mn.

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Vietnam Insurance Report Q2 2014

American International Group (AIG) SWOT Analysis

Strengths

■

AIG enjoys the benefits of diversification across one of the leading US life companies and one of the world's largest non-life insurance companies, as well as additional businesses.

■

In its own right, AIG Life benefits from scale, diversity of products and diversity of distribution channels.

■

In its own right, AIG is one of the largest and (in terms of product range) diversified non-life groups.

■

AIG also has one of the broadest geographical footprints of any non-life company. This includes two major markets - Japan and the UK - where AIG Property Casualty has operations, which would count as large non-life insurers by any standard.

■

In Japan, in particular, AIG is unusual as it is a well established foreign company with a leadership position in the non-life market.

■

AIG also has a significant presence in many emerging markets- in all parts of the world.

■

AIG has low cost of capital that comes from being a large and strong financial institution.

■

The restructuring of AIG is over. Management can focus on growth opportunities once more.

■

Like virtually all major global non-life groups, AIG coped well with the massive catastrophes of 2011.

Weaknesses

■

Many of the markets in which AIG Life and AIG operate are relatively mature.

■

The low interest rate environment is having an adverse impact on sales of various of AIG Life's products. It also has implications for AIG.

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Vietnam Insurance Report Q2 2014

SWOT Analysis - Continued

• In many of the geographic markets in which AIG operates, it is a small player - often facing competition from well-entrenched and massive local non-life companies. This is true of Brazil, Russia, India, China and South Africa. Opportunities

■

AIG Life can benefit from product innovation and (re) development of particular distribution channels.

■

AIG is focusing on higher value added products and investing in new systems.

■

AIG Life is, par excellence, a beneficiary of the (gradual) greying of populations in the US.

■

AIG is well placed to benefit from the growth in the world economy and from rising demand for a broad variety of insurance solutions in emerging markets.

Threats

■

Potential, but unlikely turmoil in global financial markets.

■

Robust competition, in some markets, from very large local players. In the US, AIG Life faces competition from a number of rivals that share its advantages AIG is competing with non-life groups that are, by some measures, larger. However, AIG's global reach sets it apart from its US peers.

■

A simultaneous sharp downturn in the UK economy and the Japanese economy, at a time of volatility in financial markets would present AIG with a challenge.

Company Overview

Following its US$182bn rescue by the United States Government in 2008 and subsequent restructuring (which resulted in a profit to tax payers of nearly US$23bn) AIG is today one of the leading composite insurance companies in the United States, whose non-life businesses have a global presence. AIG Property Casualty is the leading commercial insurer in the United States and Canada. It is also the largest foreign property/casualty company in China and Japan and has a growing position in Latin America. It is also a significant non-life company across Europe and in the Middle East and Africa. AIG Property Casualty has over 70mn corporate and consumer clients globally. It notes that it provides products to 96% of the Fortune 1000 companies, to 90% of the Fortune Global 500 companies and to 40% of the 400 richest Americans as identified by Forbes magazine.

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Collectively, the various businesses of AIG Life and Retirement constitute one of the United States' largest life insurance companies. It serves over 18mn customers and works with 300,000 financial professionals who are licensed to sell life insurance and retirement savings products. Among much else, AIG Life and Retirement is: the fifth largest provider of life insurance and fourth of structured settlements; the leading provider of fixed annuities through banks (a position that the company has held for 16 years); one of the leading providers of K-12 and 403(b) group retirement services; and the fifth largest supplier of non-captive variable annuities. In addition, AIG Life and Retirement offers structured settlement annuities and mutual funds. It also runs one of the largest independent broker-dealer networks in the United States. Other businesses include United Guaranty Corporation (UGC), the leading provider of mortgage insurance in the United States and International Lease Finance Corporation (ILFC- the largest aircraft lesser globally, in terms of the number of aircraft owned (i.e. over 1,000 owned and managed). AIG Property Casualty is present in 21 markets across the Asia-Pacific: Australia; China; Guam; Hong Kong; Indonesia; Japan; South Korea; Kazakhstan; Macau; Malaysia; New Zealand; Pakistan; Papua New Guinea; Philippines; Saipan; Singapore; Sri Lanka; Taiwan; Thailand; Uzbekistan; and, Vietnam. In most of the major markets, it offers a comprehensive range of both personal and corporate lines. Recent Developments

AIG published its results for Q213 on August 1, 2013. AIG Property Casualty reported operating income of US$1.1bn for the quarter, or a little more than the US$936mn of the previous corresponding period. Highlights included: a slight rise in the combined ratio from 102.4% to 102.6%, thanks in part to costs relating to Hurricane Sandy; 1.8% increase in net premiums to US$9.3bn, thanks to firmer pricing and sales/marketing initiatives (such as a focus on higher value lines); a boost to net investment income thanks in part to the contribution from alternative investments. Net premiums written by AIG Property Casualty's commercial insurance business in H113 amounted to US$10,779mn, or the same as in H112. Net premiums written by the consumer insurance business in H113 amounted to US$6,922mn, or 3% less than in H112. Operating income of the former rose by 13% to US$1,576mn: operating income of the latter fell by 43% to US$244mn. Overall, AIG Property Casualty benefited in H113 from a better underwriting result thanks to lower claims. Net investment income rose thanks to 'the strong performance of alternative investments and income associated with the PICC P&C shares.' Total net premiums written by AIG Property Casualty in H113 amounted to US $17,700mn. Of this, US$8,983mn was derived from the Americas, while US$4,975mn and US$3,742mn came from the Asia Pacific and Europe/Middle East/Africa (EMEA) respectively. Commercial insurance premiums were split between the three main

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Vietnam Insurance Report Q2 2014

regions US$7,079mn/ US$1,107mn/ US$2,683mn respectively. Consumer insurance premiums were split US$1,905mn/ US$3,958mn and US$1,059mn respectively AIG Life and Retirement reported operating income of US$1.2bn for the quarter, or 23% more than the $933mn of Q212. Virtually all major trends were positive: sales of variable annuities and mutual funds were 'robust'; net investment income rose; fee income increased; net flows were positive in spite of outflows from fixed annuities (which, in turn, was partly due to the low interest rate environment; and, adroit management of crediting rates. At the end of June 2013, AIG Life and Retirement's assets under management were US $294bn, or 10% more than at the end of June 2012. Premiums and deposits during the quarter were US$6.8bn, or 24 more than in the previous corresponding period.

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Vietnam Insurance Report Q2 2014

Bao Viet Holdings SWOT Analysis

Strengths

■

A leading player in both the non-life and the life segments.

■

Breadth of product range, including aviation insurance.

■

Has significant asset management, banking and securities operations.

■

Strong brand and nationwide distribution network.

■

Capital strength.

■

Backing of SCIC and, for now, HSBC (which has an 18% stake and which has provided substantial technical assistance).

■

A key beneficiary of the growth of the overall economy and the increase in insurable assets.

■

A key beneficiary of the continuing development or organised savings.

• Strong top-line growth and rising profits in the recent past. Weaknesses

Opportunities

■

Vulnerable to swings in the economy.

■

Vulnerable to volatility in Vietnam's financial markets.

■

Lack of scale in anything other than a local context.

■

Under-development of bancassurance and alternative channels.

■

Further growth in the overall market for insurance - in both major segments.

■

Cross selling.

■

Product innovation.

■

Further improvements to cost control and business systems.

■

Optimisation of the investment portfolio.

■

Development of strategic relationship with HSBC or another major foreign group.

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Vietnam Insurance Report Q2 2014

SWOT Analysis - Continued

Threats

■

Volatile financial markets.

■

Potential major catastrophe losses.

■

Strong competition in the life segment from subsidiaries of major foreign multinationals.

Company Overview

Founded in 1965 as the state owned insurance monopoly, Bao Viet is today a listed (since 2009) composite insurance company with additional financial services activities. It had been corporatized in 2007. Bao Viet Life Corporation and Bao Viet Insurance Corporation are, respectively, the life (re)insurance and the general (re)insurance businesses. Bao Viet Fund Management Company is the group's asset management subsidiary. Other interests include Bao Viet Securities JSC (59.9%), Bao Viet Commercial Joint Stock Bank (52%), Bao Viet Investment JSC (real estate investment - 95%) and Bao Viet Au Lac LLC (vocational driving training services - 60%). HBSC has been the sole foreign strategic partner of Bao Viet, lifting its stake in the insurer from 8% to 18% in early 2010. HSBC maintained its 18% stake in the rights issue of November 2010. HSBC has provided considerable technical support. On August 9, 2012, Bao Viet issued a note of clarification to the State Securities Commission and the Ho Chi Minh City Stock Exchange: 'According to (the company's corporate charter), the restriction time for transferring of HSBC's shares in Bao Viet Holdings as a strategic shareholder is five years. HSBC has confirmed to Bao Viet Holdings that it is reviewing its strategic options with respect to its shareholding. No decision has been made as yet and a further statement will be made if or when appropriate.' The other strategic shareholder is the State Capital Investment Corporation (SCIC), the vehicle through which the government holds investments in state owned enterprises. SCIC became a major shareholder in September 2009, when it took over a stake previously held by Vietnam Shipbuilding Industry Corporation (Vinashin). For its core businesses, the strategic objectives in 2011-15 are as follows: 'General insurance: to maintain the number one position in the non-life insurance market in terms of retained premiums. By the end of 2015, direct insurance premium (should reach) VND8,800bn. PAT is VND480bn.'

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Vietnam Insurance Report Q2 2014

'Life insurance: to maintain the leading position in the life insurance market in terms of premium revenue and service quality. By end 2015, total premiums should reach VND6,700bn. New business premiums should be VND1,350bn. PAT is VND370bn.' Bao Viet also plans to become the leading Vietnamese retail bank, securities company and fund management company. Recent Developments

In early September 2013, Bao Viet highlighted that operating conditions had been quite challenging through the first half of the year, thanks to the slowing of overall economic growth in Vietnam and bad debt problems for the insurer. Gross written premiums, for both life and non-life business, rose by 10.3% to VND5,481bn in H113. Life insurance new business premium jumped by 32% to VND708bn. Profit after tax increased by 1.6% to VND598bn. Highlights of the first half of 2013 included: an increase in chartered capital to VND2,000bn; the launch of the OCB Care and a new version of the Medical Care health insurance products; and the introduction of a new life insurance financial package for premium and corporate customers. Baoviet Securities was the principal and only underwriter of the VND1,500bn bond issued by the State Treasury. The company has benefited from the development of alternative distribution channels. Bancassurance sales through Baoviet Bank were 52% higher than they had been in H112. Sales of Baoviet insurance products to Baoviet Life clients increased by 31%.

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Vietnam Insurance Report Q2 2014

Manulife Financial SWOT Analysis

Strengths

■

Massive scale, financial strength and access to capital from global markets

■

Multi-national diversification, across Canada, the US, Asia and (globally) through Manulife Asset Management.

■

Leadership positions in many of the markets in which it operates.

■

Huge variety of products and distribution channels.

■

Strong brands.

■

Par excellence an example of a leading multi-national insurer that can benefit from both the ageing of populations in rich countries and from the strong growth in demand for long-term savings products in emerging markets.

■

Proven capability to undertake successful acquisitions - of which the US insurance group John Hancock is the most important example.

Weaknesses

■

Clear and proven strategy.

■

Some of the markets in which Manulife operates are mature and/or highly competitive.

■

A small player in (or absent from) some of the most important emerging markets in Asia. India and South Korea stand out as key markets in which Manulife does not have a presence.

Opportunities

Threats

■

Impacted, like many insurance companies, by low interest rates

■

Product innovation.

■

Further expansion by way of acquisitions.

■

A natural beneficiary of the relatively strong growth of emerging markets in Asia

■

Potential, but unlikely, turmoil in global financial markets.

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SWOT Analysis - Continued ■

Robust competition in some markets, from companies that have many of the same strengths as Manulife

Company Overview

Originally founded in 1887, Manulife is one of the world's largest and financially strongest listed multi-national (mainly) life insurers. In general terms, it describes its product and service offerings as including: individual life insurance; group life and health insurance; long-term care insurance; retirement products; annuities; mutual funds and banking products. Manulife Asset Management serves external institutional clients around the world. Manulife has four main businesses: Canada; US (John Hancock); Asia; and Manulife Asset Management. As of Q112, Manulife's total investment assets amounted to CAD224bn. Total assets under management (AUM) amounted to CAD512bn). The global workforce exceeded 26,000.In Asia, Manulife is present in 11 geographic markets, 'with a wide array of product offerings and a diversified network of distribution channels including (around) 50,000 contracted agents, over 100 bank partnerships and more than 500 dealers, independent agents and brokers. 'Product offerings across the region include: traditional individual life insurance; group life & health insurance; accident & health; investment-linked products; universal life; mutual funds; variable & fixed annuities; group retirement products and; credit life insurance.

Operational Data

Regional operations include the following: China: Manulife-Sinochem Life, which was originally set up in 1996 as the first foreign invested joint venture (JV). The company has over 650,000 customers in 50 cities (in Shanghai, Beijing, Guangdong, Zhejiang, Jiangsu, Sichuan, Shandong, Fujian, Chongqing, Liaoning, Tianjin, Hubei and Hebei). It has 16,000 agents and employees. At the end of 2011, AUM amounted to US1.5bn. The main products are individual lines, group life & health and group pension. Hong Kong: Manulife (International) Limited, Manulife Asset Management (Hong Kong) Limited and Manulife Provident Funds Trust Company Limited are the three main subsidiaries. Manulife has had a presence in Hong Kong since 1987, where it 'is one of the largest financial services organisations. The company takes care of the financial and protection needs of about 1.7mn people in Hong Kong.' There are over 5,000 agents. At the end of 2011, AUM amounted to US$25bn. The main products are individual lines, employee benefits and investment funds. Japan: Manulife entered this market in 1999. There are 1,300 employees and over 3,000 agents. The company has around 1mn in-force policies in Japan. The company

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operates through a network of 120 sales offices. At the end of 2011, AUM amounted to US$30bn. The main products are individual lines (life and medical) and individual annuities. Indonesia: Manulife arrived in Indonesia in 1985. The local subsidiary is 95% owned: the other shareholder is PT Tirta Dhana Nugraha. There are over 1,250 employees and more than 7,800 agents. In Indonesia, the company has over 1.5mn in-force policies. At the end of 2011, AUM amounted to US$2.4bn. (However, Manulife notes that this excludes assets from the mutual fund and pensions businesses - in accordance with Indonesian accounting standards). Malaysia: Manulife has been present in Malaysia since 1963. There are 230 or so employees and nearly 2,000 agents, serving clients with nearly 300,000 in-force certificates. At the end of 2011, AUM amounted to US$1.13bn. The main products are insurance, unit trusts and asset management. The Philippines: Manulife originally arrived in 1907. It employs around 600 staff, plus well over 3,000 agents. There are around 350,000 in-force policies. As at the end of 2011, AUM amounted to US$1.1bn. The main products are life insurance, pensions and education savings plans. Singapore: Manulife entered the market in 1980. There are around 240 employees and about 1,000 agents, serving clients with nearly 300,000 in-force policies. As at the end of 2011, AUM amounted to US$3.5bn. The main products are life insurance, wealth management and asset management. Taiwan: Manulife entered the market in mid-1992. There are around 350 employees and over 1,000 agents. Clients have around 157,000 in-force policies. As at the end of 2011, AUM amounted to US$2.3bn. Thailand: Manulife first arrived in Thailand in 1951, Today it serves clients with around 40,000 in-force policies. There are over 100 employees and around 600 agents. As at the end of 2011, AUM amounted to US$258mn. The main products are insurance and asset management. Vietnam: Manulife originally entered the market in 1999. Today there are over 400 employees and about 12,000 agents. There are about 360,000 in-force policies. As at the end of 2011, AUM amounted to US$250mn. Life insurance is the main product offering. Cambodia: Manulife Cambodia PLC 'commenced operations in June 2012.'

Corporate Highlights

In its comments on its performance in Asia in Q213, Manulife differentiated between the fortunes of its wealth business in the region and those of its insurance business. Sales of wealth products in the quarter were over US$3bn, or double those of Q212. By contrast, insurance sales were 31% lower at US$254mn 'due to the unusually high level of sales in advance of tax and product changes (particularly in Hong Kong and Japan,

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as well as Taiwan). Elsewhere, sales achieved single-digit growth in China and Vietnam. Indonesia, where insurance sales in the quarter were US$33mn, or 31% more than in Q212, was a bright spot. The growth in Indonesia was driven by increased bancassurance sales and an increase in the size of Manulife's agency force. Across the region, Manulife employed around 54,800 agents at the end of June 2013, or 8% more than at the end of June 2012. Bank channel sales 'on a total annualised insurance and wealth premium equivalent basis' were up 52%. The very strong growth in wealth sales in Q213 relative to Q212 was driven by product innovations, which differed from market to market. In Japan, for instance, the key issue was 'the continued success of the Strategic Income Fund and other foreign currency denominated funds.' In Hong Kong, Manulife was a major beneficiary of the launch of the Mandatory Provident Fund's new Employee Choice Arrangement in 2012. 'Record mutual fund sales in China, fuelled by a new bond fund launch, along with strong mutual fund sales in Taiwan and the continued success of unit-linked product sales in the Philippines, were ... key contributors to the growth.'

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Vietnam Insurance Report Q2 2014

Prudential plc SWOT Analysis

Strengths

■

Massive scale, financial strength and access to capital from global markets.

■

Multi-national diversification, across Asia, the United States, the UK and through M&G and Eastspring Investments.

■

Leadership positions in many of the markets in which it operates.

■

Huge variety of products and distribution channels.

■

Strong brands.

■

Par excellence an example of a leading multi-national insurer that can benefit from both the ageing of populations in rich countries and from the strong growth in demand for long-term savings products in emerging markets.

■

Proven capability to undertake successful acquisitions - of which the SRLC deal in the US is the latest example.

Weaknesses

■

Clear and proven strategy.

■

Some of the markets in which Prudential operates are mature and/or highly competitive.

■

A small player in (or absent from) some of the most important emerging markets in Asia.

Opportunities

■

Impacted, like many insurance companies, by low interest rates.

■

Product innovation.

■

Further expansion by way of acquisitions.

■

Further growth in agency force in Asia.

■

Further growth in agent productivity in Asia.

■

A natural beneficiary of the relatively strong growth of emerging markets in Asia.

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Vietnam Insurance Report Q2 2014

SWOT Analysis - Continued

Threats

■

Further development of Eastspring Investments' business.

■

Potential, but unlikely, turmoil in global financial markets.

■

Robust competition in some markets, from companies that have many of the same strengths as Prudential plc.

Company Overview

Originally founded in 1848, Prudential plc is one of the world's largest and financially strongest listed multi-national life insurance companies. Globally, it has assets under management (AUM) of over GBP351bn. It serves 26mn customers and is listed in London, New York, Singapore and Hong Kong. Around the world, Prudential plc has over 26,000 employees. There are four main business units: Prudential Corporation Asia; Jackson National Life Insurance Company; Prudential UK; and, M&G, the group's principal asset management operation. In terms of APE new business premiums, around 45% of Prudential plc's overall business is derived from Prudential Corporation Asia. Jackson and the UK account for around 35% and 20% respectively. In relation to new business profit, the corresponding figures are 50%, 38% and 12%. Prudential Corporation Asia 'is a leading international life insurer in Asia with operations in 12 markets.' It has 'more market leading positions than any other life insurer in the region and the region's largest onshore mutual fund manager.' It provides regular premium savings and protection products, through agents and a growing number of bancassurance partners. Across the region, there are over 350,000 agents and 12mn clients. In February 2012, the asset management operation of Prudential Corporation Asia was rebranded as Eastspring Investments. It operates in 11 markets across the region (and, from July 2012, in the US). It has 2,000 employees and, as of the end of Q112, AUM of US$85bn. About half of its total AUM comes from third party clients. Eastspring is 'the largest multinational onshore mutual fund manager in the region.' Jackson 'is one of the largest life insurance companies in the United States, providing retirement savings and income solutions with over 2.9mn policies and contracts in force.' Jackson is one of the three largest providers of variable and total annuities. Prudential UK is 'a leading life and pensions provider to approximately seven million customers in the UK.' It has expertise in areas such as longevity, risk management and multi-asset management' along with 'financial strength and a highly respected brand.'

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Founded over 80 years ago, 'M&G is Prudential's UK and European fund management business with total assets under management (AUM) of GBP201bn as at December 31 2011.' Prudential Corporation AsiaAs is discussed below, Prudential Corporation Asia is one of the leading pan-Asian life insurance companies, with presence in 12 markets - China, Hong Kong, India, Indonesia, Japan, South Korea, Malaysia, the Philippines, Singapore, Taiwan, Thailand and Vietnam. Eastspring Investments, Prudential Corporation Asia's fund management business, manages assets for Prudential Corporation Asia and for Prudential plc. It also handles significant assets under management (AUM) for third party investors. It is 'one of the largest by measure of Asia-sourced AUM'. As at the end of 2011, Eastspring Investments' AUM amounted to GBP50.3bn. It has asset management operations in 11 locations - China, Hong Kong, India, Indonesia, Japan, South Korea, Malaysia, Taiwan, Vietnam and the UAE. Across the region, Prudential Corporation Asia identifies six business: life insurance; fund management; consumer finance (in Vietnam); retirement planning; health solutions; and Islamic financial products (in Malaysia, Indonesia and the Gulf). Prudential Corporation Asia's operations across the region, and their date of establishment, are as follows: Hong Kong (1964): is the regional head office. Prudential Corporation Asia is a leading life company and, through Eastspring Investments, asset manager. Its JV with Bank of China International provides administrative services for Mandatory Provident Fund (MPF) schemes. China (2000): Prudential Corporation has life insurance and asset management JVs with the CITIC group. India: The company's JVs with ICICI Bank are the largest private sector life insurer and the largest fund manager in the country. Indonesia (1995): Prudential Corporation Asia has grown to be the market leader in the Indonesian life segment. Eastspring Investments is also present in the country. Japan: PCA Life and Eastspring are active, respectively, as life insurer and asset manager. South Korea: PCA Life and Eastspring are active, respectively, as life insurer and asset manager. Malaysia (1924): Prudential Corporation Asia is one of the largest life companies in Malaysia. It has a family takaful JV with Bank Simpanan Nasional. Eastspring Investments is also present as asset manager and Islamic asset manager. Philippines (1996): Pru Life (UK) provides insurance products.

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Singapore (1931): Prudential Corporation Asia has substantial life insurance and asset management operations in the city-state. Taiwan: PCA Life and Eastspring are active, respectively, as life insurer and asset manager. Vietnam: The company is one of the leading life insurance companies in Vietnam. It has been a provider of consumer finance since 2007. It is also active as an asset manager. Eastspring Investments also has an asset management operation in Dubai, where it distributed funds. In early July 2012, the government of Cambodia gave its in-principle approval for Prudential Corporation Asia to establish an operation in that country. Financial Data

Prudential plc delivered another very strong result in H113. New life business profit rose by 20% to GBP659mn, while APE sales expanded by 12%. No fewer than seven of Prudential plc's operations posted record sales in the first six months of 2013, with strong increases in Hong Kong (up 21%), China (42%), Indonesia (17%), Singapore (21%), Thailand (32%), the Philippines (38%), South Korea (38%) and Vietnam (28%). Health and protection products accounted for just under one third of overall business through the region. Highlights of the half year included: further growth in the number and productivity of agents; sales of participating products and the launch of a new medical product, 'PRUmyhealth lifelong crisis protector' in Hong Kong; revised product offerings in Singapore; expanded presence in the Bumi sector in Malaysia; good growth in bancassurance sales across the region (except in Taiwan); and a boost to sales in South Korea ahead of a one-off change which restricts some of the policyholder tax benefits associated with life policies in that country. Prudential plc continues to invest in markets where its presence 'has not been as strong in the past.' The integration of Thanachart Life in Thailand is going well: sales through the branch network of Thanachart Bank are ahead of plans. Thanks in part to its relationship with Acleda, the largest bank in Cambodia, Prudential plc's new business in that country (which commenced operations in January 2013) is also making ground. Prudential plc has also opened a representative office in Myanmar. Meanwhile, 'Eastspring Investments saw net third party inflows of GBP2.0bn, 371% higher than last year, mainly due to the appeal of Taiwan's US high-yield bond funds, Japan's Asia Oceania equity fund, bond funds in India and new bond funds in China. 'Over the year to June 30, 2013, the assets under management (AUM) of Eastspring Investments rose by 15% to GBP62bn.

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Vietnam Insurance Report Q2 2014

PVI Holdings SWOT Analysis

Strengths

■

A leading player in the non-life segment, with dominant position in the energy and marine sub-sectors.

■

Blue chip corporate clients.

■

Capital strength, with backing of PetroVietnam, OIC and Talanx.

■

Growing rapidly and profitably.

■

A major player in reinsurance in Vietnam.

■

Capital strength.

■

A key beneficiary of the growth of the overall economy and the increase in insurable assets.

• Partnerships with major foreign insurers provides access to know-how. Weaknesses

Opportunities

Threats

■

Vulnerable to swings in the economy, if they affect the energy and marine sectors.

■

Vulnerable to volatility in Vietnam's financial markets.

■

Lack of scale in anything other than a local context.

■

Relative lack of presence in personal lines.

■

Further growth in the overall market for non-life insurance.

■

Development of PVI Sun Life JV.

■

Product innovation.

■

Further improvements to cost control and business systems.

■

Optimisation of the investment portfolio.

■

Development of diversified financial services business.

■

Volatile financial markets.

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SWOT Analysis - Continued ■

Company Overview

Potential major catastrophe losses.

PetroVietnam Insurance Corporation (PVI) was established in 1996 as a captive insurer for PetroVietnam, the state-owned oil and gas company. According to its website, 'PVI currently holds nearly all of the energy market (insurance) share.' It also accounts for 30% of marine insurance premiums written in Vietnam and about 40% of the property/ engineering insurance market. PVI's share of the overall non-life market has varied over the last few years, but has generally been in excess of 20%. Unsurprisingly, given the nature of its business, PVI's customers include major stateowned enterprises (such as shipbuilder Vinashin) and the local subsidiaries of international energy companies (such as Gazprom, Conoco Phillips and Chevron). The company claims to have consistently achieved faster growth and lower loss ratios than major rivals in the non-life market such as Bao Minh, Bao Viet and PJICO. PVI was the only Vietnamese insurer to be rated by AM Best (as of early 2012, at B+). It was also the 'only local insurer to accept foreign risks including risks in Singapore, Malaysia, Japan and Russia.' The lines offered by PVI are dominated by oil & gas and marine insurance. It also offers property insurance, liability/workers' compensation insurance, motor insurance and personal lines (including personal accident, travel and voluntary medical insurance). PVI is also a significant non-life reinsurer. Since 2010, PVI has been 'an Offshore Facility with the Lloyd's market and an Onshore Facility with leading international reinsurers having limits of liability of US$450mn and US$1,540mn respectively.' Like other Vietnamese insurers, PVI is now a listed public company (since 2006). Oman Investment Fund (OIF) is a strategic shareholder, with a 10.4% stake in PVI. It is hoped that OIF's involvement will facilitate the transformation, over the longer term, of PVI into a 'combined finance-insurance institution.' Talanx Group, the German multinational giant, is also a strategic investor in PVI and has a 25% stake. PetroVietnam Group and PetroVietnam Finance Corp. speak for 39.1% and 7.6% of the equity respectively. Red River Holdings/Temasia Capital are the fifth largest shareholder, with a 4.3% stake. The free float is 13.6%. Associated companies of PVI include: Petrovietnam Sapa Travel JSC; PVI Services JSC; Petrovietnam Hospital JSC; PV2 Investment JSC; Nangluongmoi Trading & Communication JSC; and Viet Xuan Investment JSC.

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Recent Developments

Total assets rose from VND8,195bn at the end of 2011 to VND10,771bn at the end of last year. Short term investment assets increased from VND4,183bn to VND5,276bn. Long term investment assets slipped slightly, from VND1,444bn to VND1,219bn. Direct insurance premiums rose from VND4,251bn in 2011 to VND4,659bn in 2012. Inwards reinsurance premiums increased from VND459bn to VND613bn. Outwards reinsurance premium rose from VND2,478bn to VND2,941bn. Operating profit increased from VND409bn to VND560bn. The shareholders at the end of the period were: Vietnam Oil & Gas Group (35.5%); Talanx (31.8%); Funderburk Lighthouse Group (11.6%); Petrovietnam Finance JSC (6.2%) and; other shareholders (14.9%).

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Vietnam Insurance Report Q2 2014

Sun Life Financial SWOT Analysis

Strengths

■

Massive scale, financial strength and access to capital from global markets

■

A leading North American life insurance company, with international presence through SLF Asia and SLF UK and, globally, through MFS.

■

Leadership positions in many of the markets in which it operates.

■

Huge variety of products and distribution channels - including the largest force of career agents in Canada.

■

Strong brands.

• Clear and proven strategy. Weaknesses

■

Some of the markets in which Sun Life Financial operates are mature and/or highly competitive.

■

A small player in (or absent from) some of the most important emerging markets in Asia.

Opportunities

■

Impacted, like many insurance companies, by low interest rates.

■

Product innovation.

■

Further expansion by way of acquisitions.

■

A potential major beneficiary of the relatively strong growth of emerging markets in Asia

Threats

■

Potential, but unlikely, turmoil in global financial markets.

■

Robust competition in some markets, from companies that have many of the same strengths as Sun Life Financial.

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Vietnam Insurance Report Q2 2014

Company Overview

Originally founded in 1865, Sun Life Financial is one of the world's largest and financially strongest listed international life insurers. It describes its main product offerings as including life and disability insurance, savings, investment management, retirement and pension products and services. It works with both individual and corporate clients. SLF Asia 'operates in five markets - the Philippines, Hong Kong, Indonesia, India and China - through subsidiaries, joint ventures and strategic investments.' The company's goal is to 'gain scale in each of the markets where (it) operates and develop into a significant long-term revenue and earnings growth operation.' SLF Asia's regional head office is in Hong Kong. The various operations include: Sun Life Everbright Life Insurance (JV - China); Sun Life Hong Kong Limited; Birla Sun life Insurance Company Limited and Birla Sun Life Asset Management Company Limited (JVs - India); PT Sun Life Financial Indonesia and PT CIMB Sun Life; Sun Life (Philippines).

Financial Data

Q213 was a positive period for Sun Life Financial's various businesses across the region. In the Philippines, where Sun Life was the largest life insurance company in terms of premiums in 2012, insurance sales in the quarter were 131% more than they had been in Q212. Wealth sales at the group's asset management business in the Philippines were up by over 300%. The PVI Sun Life Insurance Company JV began operation in Vietnam.

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Vietnam Insurance Report Q2 2014

Demographic Forecast Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model. Not only is the total population of a country a key variable in consumer demand, but an understanding of the demographic profile is key to understanding issues ranging from future population trends to productivity growth and government spending requirements.

The accompanying charts detail Vietnam's population pyramid for 2013, the change in the structure of the population between 2013 and 2050 and the total population between 1990 and 2050, as well as life expectancy. The tables show key datapoints from all of these charts, in addition to important metrics including the dependency ratio and the urban/rural split.

Population Pyramid 2013 (LHS) And 2013 Versus 2050 (RHS)

Source: World Bank, UN, BMI

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Vietnam Insurance Report Q2 2014

Population Indicators Population (mn, LHS) And Life Expectancy (years, RHS), 1990-2050

Source: World Bank, UN, BMI

Table: Vietnam's Population By Age Group, 1990-2020 ('000)

1990

1995

2000

2005

2010

2013e

2015f

2020f

68,910

76,020

80,888

84,948

89,047

91,680

93,387

97,057

0-4 years

9,315

9,323

7,128

6,898

7,229

7,152

7,012

6,575

5-9 years

8,606

9,212

9,253

7,023

6,791

7,052

7,181

6,968

10-14 years

7,857

8,541

9,162

9,117

6,899

6,619

6,757

7,147

15-19 years

7,359

7,788

8,492

9,050

9,011

7,686

6,866

6,726

20-24 years

6,644

7,222

7,673

8,333

8,874

9,148

8,936

6,802

25-29 years

6,006

6,470

7,065

7,471

8,112

8,528

8,772

8,837

30-34 years

5,138

5,890

6,352

6,910

7,286

7,703

8,022

8,680

35-39 years

3,888

5,065

5,803

6,242

6,763

7,011

7,208

7,940

40-44 years

2,463

3,826

4,994

5,719

6,147

6,472

6,685

7,127

45-49 years

2,017

2,409

3,753

4,935

5,648

5,894

6,054

6,589

50-54 years

1,968

1,959

2,346

3,700

4,855

5,306

5,521

5,926

55-59 years

2,046

1,891

1,885

2,237

3,542

4,278

4,677

5,330

60-64 years

1,669

1,934

1,790

1,734

2,068

2,795

3,352

4,444

65-69 years

1,412

1,522

1,771

1,610

1,562

1,673

1,906

3,104

70-74 years

1,028

1,216

1,322

1,530

1,399

1,360

1,379

1,695

Total

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Vietnam Insurance Report Q2 2014

Vietnam's Population By Age Group, 1990-2020 ('000) - Continued

1990

1995

2000

2005

2010

2013e

2015f

2020f

75-79 years

752

819

984

1,080

1,263

1,219

1,167

1,160

80-84 years

430

536

597

732

815

919

964

900

85-89 years

224

261

336

385

483

517

546

654

90-94 years

71

108

132

177

210

245

268

306

95-99 years

16

25

41

53

74

83

89

115

100+ years

2

4

7

12

17

21

24

30

e/f = BMI estimate/forecast. Source: World Bank, UN, BMI

Table: Vietnam's Population By Age Group, 1990-2020 (% of total)

1990

1995

2000

2005

2010

2013e

2015f

2020f

0-4 years

13.52

12.26

8.81

8.12

8.12

7.80

7.51

6.77

5-9 years

12.49

12.12

11.44

8.27

7.63

7.69

7.69

7.18

10-14 years

11.40

11.23

11.33

10.73

7.75

7.22

7.24

7.36

15-19 years

10.68

10.25

10.50

10.65

10.12

8.38

7.35

6.93

20-24 years

9.64

9.50

9.49

9.81

9.97

9.98

9.57

7.01

25-29 years

8.72

8.51

8.73

8.79

9.11

9.30

9.39

9.11

30-34 years

7.46

7.75

7.85

8.13

8.18

8.40

8.59

8.94

35-39 years

5.64

6.66

7.17

7.35

7.60

7.65

7.72

8.18

40-44 years

3.57

5.03

6.17

6.73

6.90

7.06

7.16

7.34

45-49 years

2.93

3.17

4.64

5.81

6.34

6.43

6.48

6.79

50-54 years

2.86

2.58

2.90

4.36

5.45

5.79

5.91

6.11

55-59 years

2.97

2.49

2.33

2.63

3.98

4.67

5.01

5.49

60-64 years

2.42

2.54

2.21

2.04

2.32

3.05

3.59

4.58

65-69 years

2.05

2.00

2.19

1.89

1.75

1.83

2.04

3.20

70-74 years

1.49

1.60

1.63

1.80

1.57

1.48

1.48

1.75

75-79 years

1.09

1.08

1.22

1.27

1.42

1.33

1.25

1.19

80-84 years

0.62

0.70

0.74

0.86

0.91

1.00

1.03

0.93

85-89 years

0.32

0.34

0.42

0.45

0.54

0.56

0.58

0.67

90-94 years

0.10

0.14

0.16

0.21

0.24

0.27

0.29

0.32

95-99 years

0.02

0.03

0.05

0.06

0.08

0.09

0.10

0.12

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Vietnam Insurance Report Q2 2014

Vietnam's Population By Age Group, 1990-2020 (% of total) - Continued

100+ years

1990

1995

2000

2005

2010

2013e

2015f

2020f

0.00

0.00

0.01

0.01

0.02

0.02

0.03

0.03

e/f = BMI estimate/forecast. Source: World Bank, UN, BMI

Table: Vietnam's Key Population Ratios, 1990-2020

Dependent ratio, % of total working age Dependent population, total, '000

1990

1995

2000

2005

2010 2013e

75.8

71.0

61.3

50.8

42.9

41.4

2015f

2020f

41.3

41.9

29,712 31,567 30,734 28,617 26,741 26,860 27,293 28,655

Active population, % of total

56.9

Active population, total, '000

58.5

62.0

66.3

70.0

70.7

70.8

70.5

39,198 44,453 50,154 56,331 62,306 64,820 66,094 68,402

Youth population, % of total working age

65.8

Youth population, total, '000

60.9

50.9

40.9

33.6

32.1

31.7

30.2

25,778 27,076 25,544 23,038 20,918 20,822 20,950 20,690

Pensionable population, % of total working age Pensionable population, total, '000

10.0

10.1

10.3

9.9

9.3

9.3

9.6

11.6

3,934

4,491

5,190

5,579

5,823

6,037

6,343

7,965

e/f = BMI estimate/forecast. Source: World Bank, UN, BMI

Table: Vietnam's Rural And Urban Population, 1990-2020

1990

1995

2000

2005

2010

2013e

2015f

2020f

Urban population, % of total

20.3

22.2

24.4

27.3

30.4

32.3

33.6

36.9

Rural population, % of total

79.7

77.8

75.6

72.7

69.6

67.7

66.4

63.1

Urban population, total, '000

13,958

16,867

19,716

23,175

27,064

29,632

31,384

35,771

Rural population, total, '000

54,952

59,153

61,172

61,773

61,983

62,048

62,003

61,286

e/f = BMI estimate/forecast. Source: World Bank, UN, BMI

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Vietnam Insurance Report Q2 2014

Methodology Industry Forecast Methodology BMI's industry forecasts are generated using the best-practice techniques of time-series modelling and causal/econometric modelling. The precise form of model we use varies from industry to industry, in each case being determined, as per standard practice, by the prevailing features of the industry data being examined.

Common to our analysis of every industry, is the use of vector autoregressions. Vector autoregressions allow us to forecast a variable using more than the variable's own history as explanatory information. For example, when forecasting oil prices, we can include information about oil consumption, supply and capacity.

When forecasting for some of our industry sub-component variables, however, using a variable's own history is often the most desirable method of analysis. Such single-variable analysis is called univariate modelling. We use the most common and versatile form of univariate models: the autoregressive moving average model (ARMA).

In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality is poor. In such cases, we use either traditional decomposition methods or smoothing methods as a basis for analysis and forecasting.

BMI mainly uses OLS estimators and, in order to avoid relying on subjective views and encourage the use of objective views, BMI uses a 'general-to-specific' method. BMI mainly uses a linear model, but simple non-linear models, such as the log-linear model, are used when necessary. During periods of 'industry shock', for example poor weather conditions impeding agricultural output, dummy variables are used to determine the level of impact.

Effective forecasting depends on appropriately selected regression models. BMI selects the best model according to various different criteria and tests, including but not exclusive to: ■

R2 tests explanatory power; adjusted R2 takes degree of freedom into account;

■

Testing the directional movement and magnitude of coefficients;

■

Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value); and

■

All results are assessed to alleviate issues related to auto-correlation and multi-co linearity.

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Sector-Specific Methodology

BMI's insurance reports provide detailed insight into insurance markets globally, examining both the present conditions in and prospects for each market. Incorporating the most up-to-date information available from sources such as industry regulators, trade associations, comparable information from other countries and BMI's own economic and risk data, our analysts provide a comprehensive picture of the insurance sector. The principal focus of the reports is on gross written premiums, to which 'premiums' refers unless otherwise stated.

The following are considered in our reporting of the sector: ■

BMI considers health insurance to be included in the non-life sector. As such, in instances where sources report health insurance as part of the life sector, the required adjustments are made to conform to our standardised definitions.

■

Where a market contains a significant inward reinsurance sector, these accepted premiums are considered as part of the non-life sector and are classed within the 'Other' category of our non-life breakdown.

■

Life insurance contains all long-term savings products that are legally structured as insurance products and therefore do not contain pension plan contributions and other long-term saving schemes that are not legally constituted as being within the insurance sector

Life

In projecting life insurance premiums, the following are considered: ■

The likely development of population

■

The likely development of life density (life premiums per capita)

■

Wider macroeconomic trends

In some instances, further factors are considered, including: ■

Maturity of the life insurance sector

■

Competitive and regulatory environments

■

Life density in nearby markets at similar levels of development

Non-Life

In projecting non-life insurance premiums on a line-by-line basis, the following are considered: ■

The likely development of nominal GDP

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■

The likely development of non-life penetration (non-life premiums as a percentage of GDP)

■

Autos sector data, typically passenger car fleet size

■

Banking sector data, typically Client Loans figures

■

Shipping/Freight data, typically freight tonnage

■

Household stratification data, typically number of permanent properties

■

Healthcare data, typically private health expenditure

In some instances, further factors are considered, including: ■

Maturity of the non-life insurance sector

■

Competitive and regulatory environments

■

Non-life penetration in nearby markets at similar levels of development

Reinsurance and Net Premiums

When forecasting the size of reinsurance markets, the following are considered: ■

Historic levels of reinsurance coverage in both life and non-life sectors

■

Projected development of the life and non-life sectors

■

Prevalence of reinsurance in similar markets

Where applicable, 'net premiums' refers to net written premiums and is considered as gross written premiums, less the cost of reinsurance. In some instances, source data is reported according to different definitions of 'net premiums'. In these cases, this data is used and forecasts for net premiums and reinsurance are made separately.

When forecasting net premiums independently of the reinsurance market, the following are considered: ■

Historic levels of net premiums in both life and non-life sectors

■

Projected development of the life and non-life sectors

At a general level we approach our forecasting from both a micro and macro perspective, taking into account the expansion plans of relevant domestic and international firms, as well as wider economic outlook. In this regard, BMI macro variable projections, such as output, consumption, investment, policy, and GDP growth are employed.

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Burden of Disease

The 'burden of disease' in a country is forecasted in disability-adjusted life years (DALYs) using BMI's Burden of Disease Database, which is based on the World Health Organization's burden of disease projections and incorporates World Bank and IMF data.

Risk/Reward Rating Methodology BMI's Risk/Reward Ratings (RRR) provide a comparative regional ranking system evaluating the ease of doing business and the industry-specific opportunities and limitations for potential investors in a given market.

The RRR system divides into two distinct areas:

Rewards: Evaluation of sector's size and growth potential in each state, and also broader industry/state characteristics that may inhibit its development. This is further broken down into two sub categories: ■

Industry Rewards (this is an industry specific category taking into account current industry size and growth forecasts, the openness of market to new entrants and foreign investors, to provide an overall score for potential returns for investors).

• Industry Rewards (this is a country specific category, and the score factors in favourable political and economic conditions for the industry). Risks: Evaluation of industry-specific dangers and those emanating from the state's political/economic profile that call into question the likelihood of anticipated returns being realised over the assessed time period. This is further broken down into two sub categories: ■

Industry Risks (this is an industry specific category whose score covers potential operational risks to investors, regulatory issues inhibiting the industry, and the relative maturity of a market).

■

Industry Risks (this is a country specific category in which political and economic instability, unfavourable legislation and a poor overall business environment are evaluated to provide an overall score).

We take a weighted average, combining market and country risks, or market and country rewards. These two results in turn provide an overall risk/reward rating, which is used to create our regional ranking system for the risks and rewards of involvement in a specific industry in a particular country.

For each category and sub-category, each state is scored out of 100 (100 being the best), with the overall risk/reward rating a weighted average of the total score. Importantly, as most of the countries and territories

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evaluated are considered by BMI to be 'emerging markets', our rating is revised on a quarterly basis. This ensures that the rating draws on the latest information and data across our broad range of sources, and the expertise of our analysts.

BMI's approach in assessing the risk/reward balance for infrastructure industry investors globally is

fourfold: ■

First, we identify factors (in terms of current industry/country trends and forecast industry/country growth) that represent opportunities to would-be investors.

■

Second, we identify country and industry-specific traits that pose or could pose operational risks to would-be investors.

■

Third, we attempt, where possible, to identify objective indicators that may serve as proxies for issues/ trends to avoid subjectivity.

■

Finally, we use BMI's proprietary Country Risk Ratings (CRR) in a nuanced manner to ensure that only the aspects most relevant to the infrastructure industry are incorporated. Overall, the system offers an industry-leading, comparative insight into the opportunities/risks for companies across the globe.

Sector-Specific Methodology

In constructing these ratings, the following indicators have been used. Almost all indicators are objectively based.

Table: Indicators

Rewards Insurance market rewards

Rationale

Non-life premiums, 2014 (US$mn)

Indicates overall sector attractiveness. Large markets more attractive than small ones.

Growth in non-life premiums, five years to end-2018 (US$mn)

Indicates growth potential. The greater the likely absolute growth in premiums the better.

Non-life penetration, %

Premiums expressed as % of GDP. An indicator of actual and (to an extent) potential development of non-life insurance. The greater the penetration the better.

Non-life segment measure of openness

Measure of market's accessibility to new entrants. The higher the score the better.

Life premiums, 2014 (US$mn)

Indicates overall sector attractiveness. Large markets more attractive than small ones.

Growth in life premiums, five years to Indicates growth potential. The greater the likely absolute growth in premiums the end-2018 (US$mn) better. Life penetration, %

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Premiums as % of GDP. An indicator of actual and (to a certain extent) potential development of life insurance. The greater the penetration the better.

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Indicators - Continued

Rewards Life segment measure of openness

Measure of market's accessibility to new entrants. The higher the score the better.

Country rewards GDP per capita (US$)

A proxy for wealth. High-income states receive better scores than low-income states.

Active population

Those aged 16-64 in each state, as a % of total population. A high proportion suggests that market is comparatively more attractive.

Corporate tax

A measure of the general fiscal drag on profits.

GDP volatility

Standard deviation of growth over 7-year economic cycle. A proxy for economic stability.

Financial infrastructure

Measure of financial sector's development, a crucial structural characteristic given the insurance industry's reliance on risk calculation.

Risks Regulatory framework Regulatory framework and development

Subjectively evaluates de facto/de jure regulations on development of insurance sector.

Regulatory framework and competitive landscape

Subjectively evaluates impact of regulatory environment on the competitive landscape.

Country risk (from BMI's Country Risk Ratings) Long-term financial risk

Evaluates currency volatility.

Long-term external risk

State's vulnerability to externally induced economic shock, which tend to be principal triggers of economic crises.

Policy continuity

Evaluates the risk of sharp change in broad direction of government policy.

Legal framework

Strength of legal institutions. Security of investment key risk in some emerging markets.

Bureaucracy

Denotes ease of conducting business in a state.

Source: BMI

Weighting

Given the number of indicators/datasets used, it would be inappropriate to give all sub-components equal weight. Consequently, the following weighting has been adopted:

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Table: Weighting of Indicators

Component Rewards

Weighting, % 70, of which

- Industry rewards

65

- Country rewards

35

Risks

30, of which

- Industry risks

40

- Country risks

60

Source: BMI

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