Managing arms to flex muscle

Foreign life insurers have a great appetite for setting up fund management arms

In fact, establishing a fund management affiliate in Vietnam has become urgent for life insurers. Cathay Life, AIA and Dai-ichi Life Vietnam all have plans for fund management arms.

“With increasing amount of insurance premiums, life insurers should have their own fund management companies to maximise profits,” said Phung Dac Loc, general secretary of Association of Vietnamese Insurers (AVI). “The main hurdle is still the definition of fund management affiliates under foreign life insurers,” said Loc.

According to Vietnam’s World Trade Organization commitments, the country will allow the establishment of 100 per cent, foreign-owned fund management companies from 2012, five years from accession. While local financial organisations are allowed to set up fund management companies, until the end of 2011, foreign organisations are only allowed to set up joint venture fund management companies with a maximum 49 per cent stake.

“Thus, for now, foreign life insurers could take the joint-stock option with maximum 49 per cent stake. We, Dai-ichi Life Vietnam, were offered some similar opportunities. But, ultimately, we prefer to wait for further one and half year to set up our wholly foreign-owned fund management arm,” said Dai-ichi Life Vietnam’s Chairman Takashi Fujii.

So far, amongst 12 life insurers operating in the market, only Bao Viet, Prudential and Manulife already set up fund management companies. While Bao Viet has advantage of being a domestic insurer, Prudential and Manulife were both licenced to establish fund management companies in mid-2005 under a pilot-scheme.

Loc argued that a fund management affiliate under foreign life insurance companies in Vietnam should not be considered as foreign entities, but domestic ones. “In Vietnam, foreign life insurers are locally incorporated. The money for fund management arm is mobilised from Vietnamese customers via their premiums for investment within Vietnam.”

“Thus, I think it is reasonable to consider these entities as domestic ones. If this definition is corrected this way, foreign life insurers do not have to wait until 2012 for fund management arms,” said Loc. Fujii said that with a fund management affiliate, life insurance companies can maximise profit and better manage their investments.

According to a Ministry of Finance (MoF) source, the authority has organised some discussions with the Ministry of Planning and Investment over this issue. “MoF supports a change in this definition. Fund management arms of foreign life insurers in Vietnam should be regarded as domestic entities,” said the MoF source.