Rule to tighten cap on insurance company shareholding

A draft Ministry of Finance regulation would limit individuals and organisations to holding no more than 10% and 20%, respectively, of insurance company's total equity.

The policy would apply to both domestic and foreign investors, said the ministry.

The limits would help ensure that insurance companies are not dominated by a few major shareholders and would help maintain sustainable development over the long term for newly created insurance companies, said Phung Dac Loc, general secretary of the Viet Nam Insurance Association.

The director of Ernst & Young Viet Nam's business consulting sector, Allanda McConnell, disagreed, saying that the ownership limits would make investment in domestic insurance companies less attractive to foreign investors.

Local players' capacity in terms of technology, management and business strategy is still limited,. McConnell said. The presence of strategic investors with higher stakes in these local companies was a positive solution to these shortcomings.

A 49-per-cent limit, similar to the rate stipulated for foreign individuals and organisations investing in companies listed on the stock market, would be suitable, she suggested.

Currently, there are only some 40 insurers operating on the market. Many foreign insurers are eyeing the market, and many domestic banks were also developing financial group models to expand their businesses into the insurance arena.

The issuance of stricter regulations on the insurance industry has limited the number of new insurance companies, however, with Agribank Insurance Joint Stock Co, established earlier this month, the only new player on the market.

Earlier this year, the Ministry of Finance issued Decree No 46 stipulating that non-life insurance companies have legal capital of at least VND300bil (US$18.75mil), up from the previous VND70bil. Life insurers were required to have capital of VND600bil ($37.5mil), up from VND140bil.

Source: VNE