Vietnam Insurance Report Q2 2008

As was the case in Q108, the main focus of this report is BMI's proprietary Insurance Business Environment Rating (IBER). The rating brings together a number of pieces of relevant quantitative data, together with BMI's Country Risk Rating (CRR). The IBER makes it easier for the business environment's insurance sector in a particular country to be compared with the business environment for any other industry in that country that is surveyed by BMI. The IBER also allows an objective and meaningful comparison of the business environment for the insurance sector in one country with the business environment for insurance in another country.

Over the coming months, we will substantially change the format of the BMI insurance reports. In essence, we will focus to a much greater extent on the companies that are active in the non-life and life segments.

We believe the Vietnamese government will find it increasingly difficult to navigate through a stagflationary environment of decelerating growth and rising inflation without risking macroeconomic instability and political unrest. The growing risks facing the Vietnamese economy are reflected in our deteriorating short-term economic risk rating, which has fallen from levels in the mid-60s in much of 2007 to 50.6 at present.

The Vietnamese government faces a number of challenges in 2008, chief among which is bringing inflation back under control as lax monetary policy has propelled price growth into double digits.

Continuing the so-called equitisation process and raising the skill levels of Vietnamese workers are other requirements for sustaining the current growth level. Old ideological beliefs are, however, likely to influence government policies on certain issues as it seeks to combine its communist system with freemarket ideas.

Vietnam's IBER is 45.2. Relative to other countries in the Asia Pacific region, it is not an especially attractive insurance market for foreign insurers. The economic outlook is for continued growth.

Government policies are likely to remain constant over the long term, particularly as regards the entrance of foreign players, although there is the potential for inflation. The IBER is held back by the underdevelopment of the non-life segment in particular and the low GDP per capita.

Over the forecast period, we anticipate that non-life premiums will grow by 24% annually in local currency terms and by 25% in US dollar terms. Life premiums are expected to increase by 20% annually in local currency terms and by 21% in US dollar terms.

The competitive landscape in Vietnam, in both the non-life and the life segment, is concentrated. Both segments are open to participation by foreign groups, although foreigners are more important in the nonlife than in the life segment. The foreign presence, particularly in the life segment, remains small.

Vietnam's life and non-life segment are expected to continue their high annual rates of growth, in line with anticipated general economic growth. However, this growth will be coming off a small base.