Upstream in the midst of a red market, is Insurance stock a safe haven?

Insurance shares are popular in the context that investors tend to look to industry groups with high resilience in the environment of inflation and rising interest rates.

The stock market on March 23 suddenly appeared a reversal phase, VN-Index from an increase of more than 10 points closed below reference, thereby retreating to close to 1,500 points. In the midst of the red market, Upstream Insurance stocks overcome the shaking with a wide green color.

Many names have started to become popular since the end of January, such as MIG (30%), BMI (25%), BIC (21%), VNR (19%), PRE (18%), BVH (15) %).

Insurance shares are popular in the context that investors tend to look to industry groups with high resilience in the environment of inflation and rising interest rates.

Recently, the US Federal Reserve (Fed) has officially announced to raise the reference interest rate by 0.25 percentage points, to around 0.25 – 0.5%; At the same time, it signaled that there could be 6 more rate hikes from here to the end of 2022. This is the first time the Fed has raised interest rates since 2018, due to fears of record-high inflation.

In fact, the domestic interest rate level is also difficult to stay out of the above trend after remaining at low levels throughout 2020 and 2021 to support the economy to overcome difficulties caused by the Covid-19 pandemic. The income source of the insurance company mainly comes from bond investment and interest rates on bank deposits, so when interest rates rise, these two investment channels are forecasted to benefit significantly.

Besides, the market also expects a positive effect from the divestment of the State Capital Investment Corporation (SCIC) in a number of insurance companies such as BVH, BMI. BVSC Securities believes that the divestment process in these businesses can create a short-term price increase because share prices in past deals are often paid at a higher price-to-book value (PB). compared to the market price.

Appreciating the growth prospects when the Covid-19 pandemic passes, BVSC believes that the non-life insurance industry will quickly return to the average growth rate of 15% in the previous period, while life insurance still maintain a high growth rate of 25 -30%/year.

With the base scenario being that the reopening of the economy will take place strongly in the second half of 2022, SSI Research also expects sales activities to also recover well this year. Life insurance premium revenue is estimated to increase by 22-24% YoY, while the non-life segment is 8%-10% YoY (still lower than pre-Covid). Total insurance premium revenue is forecast to reach VND256,000 billion, up 18-20% over the previous year.

In addition, the confirmation of foreign ownership ratio (FOL) of insurance companies creates a positive sentiment for Insurance shares. In August 2021, on the National Investment Portal, the Ministry of Planning and Investment officially updated the market access conditions for foreign investors, clearly stating the FOL ratio for foreign investors. Insurance industry is 100%.

According to SSI Research, this move has removed difficulties for many insurance companies in the past years when they planned to increase the percentage of foreign investors’ ownership (BMI, PTI, PGI). After that, some companies reported on adjusting the FOL ratio with the State Securities Commission to 100% (PTI, PVI, PRE) and 49% (BVH).

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