BVH released consolidated results for H1 2021 with gross written premium of VND19.3tn (USD833mn; +9.5% YoY) and NPAT-MI of VND942bn (USD41mn; +45.1% YoY), achieving 46% and 53% of our FY2021 forecasts, respectively. The strong increase in the bottom line was mainly thanks to (1) a 5% YoY decrease in underwriting expenses as well as (2) a 4.6% YoY increase in net financial income that was mainly derived from a 48.6% YoY decrease in financial expenses. We see no material changes to our forecast for BVH, pending a fuller review.

- H1 2021 total direct premium was VND19.2tn (+9.5% YoY; completing 46% of our 2021F), in which life premium reached VND14.7tn (+14.7% YoY) and non-life premium reached VND4.5tn (-4.7% YoY). Overall, the top line was slightly below our expectation.
- H1 2021 net written premium was VND17.5tn (+11.5% YoY; completing 46% of our 2021F), implying a retention ratio of 91.0% (vs 89.5% in H1 2020).
- The claims ratio and reserve ratio in Q1 2021 were 31.7% (-1.6 ppts YoY) and 55.4% (+0.6 ppts YoY), respectively.
- H1 2021 mathematical reserve expenses were VND9.6tn (+12.1% YoY; completing 45% of our 2021F).
- H1 2021 net financial income reached VND4.0tn (+4.6% YoY; completing 53% of our 2021F).

H1 2021 direct premium growth continued to slow in the non-life insurance sector but remained stable in the life insurance sector. A 3.6% YoY decline in direct premium for the non-life insurance sector in H1 2021 was the biggest drop since 2016; however, we still observed improvement in the earnings capability of the sector. Specifically, the loss ratio continued to trend down to 47.7% from 52.6% in H1 2020 while a drop of 5 ppts YoY in the expense ratio to 27.2% in H1 2021 led to a 9.9-ppt YoY decline in the combined ratio to 74.9% in H1 2021. The plunge in the loss ratio was mainly driven by a 14.9% YoY decline in claims expenses. In addition, competition in the non-life insurance industry continued to intensify; however, we believe BVH has enough capacity to regain the market share in the future. Despite the difficulties when Vietnam applied social distancing measures amid the third and fourth waves of COVID-19, life insurance direct premium continued to grow at 14.7% YoY in H1 2021 thanks to the deployment of digital sales channels that is seemingly overcoming historic obstacles to digitize the sales process. 

Mathematical reserve expenses increased 12.1% YoY in H1 2021, which is quite in line with 14.7% YoY growth of life insurance direct premium. 10-year Government bond yields look stagnant since a dip to 2.16% on January 19, 2021, and the current level of ~2.2% remains low. Such bond yield levels put pressure on mathematical reserve expenses, outweighing the positive effect of Cir.89, in our view.

H1 2021 net financial income and well-managed underwriting expenses support net profit growth. BVH reported H1 2021 net financial income of VND4.0tn (+4.6% YoY), which was mainly driven by a 48.6% YoY decrease in financial expenses due to (1) a 33.6% YoY decrease in interest expenses amid the low-rate environment and (2) a provision reversal of VND86.1bn in H1 2021 vs VND77bn of provision expenses in H1 2020 due to the recovery of the stock market, in our view. In addition, BVH managed to reduce underwriting expenses in H1 2021 to VND3.3tn (-5% YoY) thanks to a 30% YoY drop in other insurance operating expenses that outweighed a 2.8% YoY increase in commission and selling expenses.