Evaluating The Financial Performance Of Bao Minh Insurance Corporation.pdf

Data collection The data used to calculate the financial indicators and models of the thesis are collected by the author from Balance sheet, Profit and loss statement, Statement of Cash

Rationale

The 2019-2022 period is volatile for the world economy The three main factors creating fluctuations in this period are pointed out by the Communist Journal as the influence of the US-China trade war, the Middle East political conflict and the Covid-19 pandemic These fluctuations have created significant impacts on the Vietnamese economy through data published by the General Statistics Office, we can see that in

2019, Vietnam's economy grew by about 7,09% but under the negative impact of the global economic situation and especially the impact of the Covid-19 pandemic, the growth rate of the Vietnamese economy in 2020 and 2021 decreased to only 2,87% and 2,56% compared to the previous year However, in 2022, Vietnam's economy had a strong recovery after the pandemic and achieved a growth rate of 8,02% compared to

Despite the negative impact of the COVID-19 pandemic on the economy and insurance industry, the latter experienced growth and positive results in 2021, achieving the highest growth rate from 2011-2022 This growth indicates that COVID-19 presented not only challenges but also business opportunities for insurance businesses, highlighting the industry's resilience and ability to adapt to evolving economic conditions.

Bao Minh Insurance Corporation has been a prominent non-life insurance provider for many years and has consistently ranked among the Top 10 most prestigious non-life insurance companies from 2017 to 2022, as assessed by the Vietnam Evaluation Report (Vietnam Report) This esteemed recognition is based on a comprehensive evaluation of four key criteria: company operations, service quality, product offerings, compensation payment process, and customer feedback Throughout its operations, Bao Minh Insurance Corporation has shown bravery and caution in every business decision and always managed risks well the view of Mr Le Van Thanh - General Director of Bao Minh Insurance Corporation is "When selling insurance, you must "balance" the risks" The risks of insurance businesses in general and Bao Minh in particular come from the industry's reverse business cycle because while other industries spend capital first and

2 then get back capital and interest in the form of revenue, the insurance business is completely opposite as revenue will be collected first in the form of insurance premiums and when a loss occurs, the insurance company will pay money to the insured object With the business characteristics of the industry and the continuously increasing difficulties in the period 2019-2020, Bao Minh must face many challenges to maintain financial capacity and complete stable growth goals Maintaining sustainable growth is very important for maintaining the trust of shareholders, customers, partners and employees in Bao Minh From 2019 to 2022, there will be many challenges that create economic pressure that can cause the Corporation (Bao Minh Insurance Corporation) to face the risk of falling into financial distress In addition, a question arises about whether Bao Minh adjusted profits to deal with these pressures The problems described above motivated the author to choose a research topic: “Evaluating the financial performance of Bao Minh Insurance Corporation” to further analyze how to manage risks and manage finances of the company during a period of economic volatility.

Objectives of the study

General objective

Identifying risks of profit manipulation on financial statements (FS) through the M-Score model and proposing solutions to improve the Corporation's financial capacity in the future through evaluating financial indicators during the period 2019-2022 and analyzing results of the Z-Score model.

Specific objective

- Overview of financial statements of the non-life insurance firms

- Systematize the literature review on financial statement analysis, Z-score, and M- score

- Analyze the financial performance of Bao Minh Insurance Corporation and compare it with the industry data to evaluate the financial performance of the Corporation in the period 2019-2022

- Apply the Z-Score model to evaluate the risk of probability of bankruptcy and apply the M-Score model to identify the risk of profit manipulation on the Corporation's

- Propose solutions to improve the financial performance of Bao Minh Insurance Corporation in the future.

Research data and methodology

Data collection

The financial indicators and models employed in this thesis are underpinned by data meticulously compiled by the author from various financial statements of Bao Minh Insurance Corporation, including the Balance Sheet, Profit and Loss Statement, Cash Flow Statement, and accompanying Notes These statements provide a comprehensive accounting of the corporation's financial position, profitability, and cash flow, ensuring the accuracy and reliability of the derived indicators and models.

Methodology

The data are analyzed using methods: comparative method to analyze financial situation and business performance, Dupont analysis method is used to analyze the relationship between factors and financial capacity of the Corporation.

Research Scope

Spatical scope

The thesis is conducted at Bao Minh Insurance Corporation.

Time scope

The thesis uses data collected from FS in the period from 2019 to 2022.

Structure of the study

The thesis is presented with 4 main contents including:

Chapter 1: General introduction to Bao Minh Insurance Corporation

Chapter 4: Proposing solutions to improve the financial performance of Bao Minh Insurance Corporation

GENERAL INTRODUCTION TO BAO MINH INSURANCE

General information about Bao Minh Insurance Corporation

- Company name: Bao Minh Insurance Corporation

- Main business sectors: Non-life insurance, Non-life reinsurance, Financial investment and others

- Legal representative: Mr Vu Anh Tuan

+ The image of the pink lotus bud is a symbol of beautiful purity “Near mud but it does not stink like mud”, this is also the image of Uncle Ho in the hearts of the Southern People, and also shows Bao Minh's name

+ The image of two arms holding lotus buds is a symbol of the will to strive for advancement and always respect and enhance Bao Minh's reputation

+ The words "Bao Minh" in white with serifs on a red background represent Bao Minh's solid and lasting foundation

- Head Office : 26 Ton That Dam, District 1, Ho Chi Minh City

- Email : marketing@baominh.com.vn

- Website : www.baominh.com.vn and tructuyen.baominh.vn

- Listing date : November 28, 2006 on HNX

Timeline and Milestone

In 1994, the State abolished the monopoly in insurance business activities and split Bao Viet's branch in Ho Chi Minh City into Ho Chi Minh City Insurance Company, the predecessor of Bao Minh Insurance Corporation on November 28 th , 1994, which was also an important milestone for the Vietnamese insurance market

At the beginning of the separation, Bao Minh had many favorable conditions to build a name such as its predecessor was one of the major branches of Bao Viet, which initially helped build a foothold in the hearts of customers In addition, there was also the direction and support of the Organizing Committee and the companionship of dedicated job-loving officials and employees with good professional expertise However, in addition to its advantages, Bao Minh also faced many difficulties and challenges in rebuilding its organizational structure, establishing processes, regulations and so on In addition, heavy pressure from monopoly ideology was still heavy in the insurance sector, difficulties in attracting new human resources and so on Although there were still many difficulties, thanks to the determination and relentless work, Bao Minh gradually overcame these problems To recognize Bao Minh's efforts in 1999, the President awarded the Third Class Labor Medal on the occasion of its 5 th anniversary

On October 1, 2004, Ho Chi Minh City Insurance Company officially went into operation under the Joint Stock Company model and was converted into Bao Minh Joint Stock Corporation with a charter capital of 434 billion dong, including the initial allocated capital, capital increased over the years of operation, professional reserve funds and capital mobilized from stock issuance In 2004, Bao Minh was awarded the Second Class Labor Medal by the President to celebrate its 10 th anniversary of establishment

On November 28, 2006, Bao Minh shares were officially listed on the Hanoi Stock Exchange (HXN) with stock code BMI

In 2007, Bao Minh completed the increase in charter capital from 434 billion dong to 755 billion dong and succeeded in inviting foreign strategic investors, the AXA Group (France)

On April 21, 2008, Bao Minh transferred the BMI stock code listed on the Ho Chi Minh City Stock Exchange (HOSE)

In 2009, Bao Minh deployed a core insurance management software (under the BEST project) The First Class Labor Medal was awarded by the President on the 15 th anniversary of its establishment

In 2011, the Annual General Meeting of Shareholders approved the Business Strategy for the period 2011-2015 with the goal of "Efficiency and sustainable development" as the core

In 2014, the Annual General Meeting of Advocates successfully elected the board of directors and supervisory board for the 2014-2019 term and approved a 10% increase in charter capital (from 755 billion dong to 830,5 billion dong) This year, the Corporation was awarded an Excellent Emulation Flag by the Organizing Committee

In 2016, Bao Minh was granted a B++ (Good)-level financial capacity certificate from the AM Best organization and increased the owner's contributed capital to 913,5 billion dong

In 2021, increased charter capital for the third time from 913,5 billion dong to 1.096 billion dong.

Scopes of activities and Operation network

Bao Minh operates in 4 main sectors: Non-life insurance, Non-life reinsurance, Financial investment and others The fastest growing field that many customers trust is Non-life insurance

According to the Annual report 2022, Bao Minh currently has 65 member companies and 550 transaction and exploitation departments spread evenly across the

7 country, 1 specialized training center in Ho Chi Minh City and 22 functional departments/centers under Headquarters.

Vision and Mission

Vision: Always to be one of the leading non-life insurance companies in Vietnam, operating in the field of financial services and insurance

Mission: Bringing safety and stability to the economy and society Contributing to the strong development of Vietnam’s insurance market Bringing benefits to shareholders and creating jobs for the people.

Motto, Slogan of action and Slogan of advertising

Motto of action: Safety, happiness and success of clients and society are our targets

Slogan of action: Bao Minh - Whole-hearted Service

Slogan of advertising: Think Insurance, Think Bao Minh.

Organize the company's management apparatus

1.6.1 Diagram of the management apparatus of Bao Minh Insurance Corporation

Remuneration Office of the Board Of Directors

Rep Office of Bao Minh in

Hanoi Legal Department Construction Department Risk Management & Actuary Department

Human Resources Division Information Technology Division Internal Audit Division

Marketing & Agency Division Finance & Planing Division

FIGURE 1 1: DIAGRAM OF THE MANAGEMENT APPARATUS

1.6.2 Functions and tasks of the management apparatus

The General Meeting of Shareholders is the body with the highest decision- making authority in the company, including all shareholders with voting rights and those authorized to vote

TABLE 1 1: LIST OF MAJOR SHAREHOLDERS Shareholder’s name Number of Shares Percentage

Bao Minh’s Employees And Others 29.596.353 27%

The General Meeting of Shareholders has the following functions:

- Approve the Corporation's quarterly and annual development plans through the annual FS and reports of the Board of Directors and Supervisory Board

- Approving the addition and correction of the Company's charter

- Conduct new elections, dismissals and discharges of members of the Board of Directors, Supervisory Board and other tasks, as prescribed in the Company's Charter

- Decide to change charter capital and change methods, through the Corporation's development orientation; through new investment decisions or liquidation and cession of assets with a value of over 35% of the total asset value (calculated according to the most recently audited FS)

- Decide on the organizational apparatus of the Corporation and the tasks of parts of that management apparatus

The Board of Directors elected by the General Meeting of Shareholders of the

Corporation is the body with full authority to represent the Corporation in making decisions and exercising rights and obligations, except for those under the authority of the General Meeting of Shareholders The Board of Directors of the corporation consists

10 of: Committee of Business Development, Committee of Human Resources, Committee of Labor and Remuneration and Office of the Board of Directors

- The functions of the Board of Directors are specified in the Company's Charter as follows:

- Decide on an annual plan, business strategy and budget

- Determine operational goals and strategic objectives based on the strategic goals set by the General Meeting of Shareholders

- Propose the annual dividend payment rate, determine the temporary dividend distribution and organize dividend payments to shareholders

- Adoption of projects and investment plans except for projects and plans under the authority of the General Meeting of Shareholders

- Decision-making regarding the establishment of member companies, functional departments, training centers and compensation centers

- Exercise other rights and duties according to the Company's Charter

The Board of Supervisors inspects and supervises all activities of the Corporation The Board of Supervisors has the following functions:

- Organize inspection and supervision of the implementation of Board resolutions and issues related to reasonableness and legality in business operations

- Appraisal of the Corporation's annual FS

- Examination of matters relating to financial operations where necessary or by decision of the General Meeting of Shareholders or at the request of the majority shareholder

- Responsible to the General Meeting of Shareholders for reasonableness, honesty and prudence in operating and managing business activities

- Inspection and review of documents, accounting records, FS and operation of the internal control system

- Recommend to the Board of Directors or the General Meeting of Shareholders about amending, supplementing, and changing the management structure of the Corporation

- Exercise other rights and duties according to the Company's Charter

The Corporation's Executive Board includes Administration Affairs Division, Rep Office at Bao Minh in Hanoi, Legal Department, Construction Department, Risk Management and Actuary Department, Accounting Division, Human Resources Division, Information Technology Division, Internal Audit Division, Marketing and Agency Division and Finance and Planning Division

Each department in the Executive Board undertakes separate functions Basic functions of the Executive Board:

- Implement work according to the work plan according to the detailed assignment of responsibilities, powers and scope of work of the General Meeting of Shareholders

- Develop business plans between member companies and check progress in completing goals, compliance, and compliance with company regulations

- Make decisions on issues within its jurisdiction or as authorized by the Board of Directors and the General Meeting of Shareholders

- Be responsible for accountability to the Board of Directors and shareholders and violations during the operation of the Corporation

- Proposing measures to improve the efficiency of the business and management activities of the Corporation and its member companies

Directors and officers of a company are held accountable for any losses or damages incurred by the company due to their violations of the law, the company charter, resolutions and decisions of the Board of Directors, and resolutions of the General Meeting of Shareholders.

- Exercise other rights and duties according to the Company's Charter.

Accounting regime

1.7.1 Accounting standards and system: Circular No 232/2012/TT-BTC

(Circular 232) dated 28 December 2012 and Vietnamese Enterprise Accounting

System stipulated in Circular No 200/2014/TT-BTC dated 22 December 2014, in accordance with Vietnamese Accounting Standards issued by the Ministry of Finance as per the:

- Decision No 149/2001/QD-BTC dated 31 December 2001 on the issuance and Promulgation of Four Vietnamese Accounting Standards (Series 1)

- Decision No 165/2002/QD-BTC dated 31 December 2002 on the issuance and Promulgation of Six Vietnamese Accounting Standards (Series 2)

- Decision No 100/2005/QD-BTC dated 28 December 2005 on the issuance and Promulgation of Four Vietnamese Accounting Standards (Series 5)

1.7.2 Regarding accounting form: The Corporation's applied accounting book form is Computerized Accounting

(Source: Finance Department, Bao Minh Saigon Company)

Summary table of similar accounting vouchers

Accounting Ledger General Journal General Ledger Subsidiary Ledger

Ghi chú: Enter daily data

Enter quarterly and annual Compare and check quarterly and annual

FIGURE 1 2: CHART OF ACCOUNTING BOOK RECORDING SEQUENCE IN THE

Accounting currency: The FS are prepared in Vietnam Dong (VND) which is also the Corporation’s accounting currency

Fiscal year: The Corporation’s fiscal year applicable for the preparation of its FS starts on 1January and ends on 31 December

Method of VAT calculation: The Corporation applies the Credit method of calculating VAT

Depreciation and amortization are accounting techniques used to allocate the cost of fixed assets over their useful life Depreciation is applied to tangible assets, such as buildings and equipment, while amortization is used for intangible assets, like patents and copyrights Both methods employ a straight-line approach, spreading the asset's cost evenly over its estimated lifespan.

TABLE 1 2: FIXED ASSET DEPRECIATION FRAMEWORK

Type of assets Number of years

Land use rights with finite terms Based on the term on Certificates of Land use rights

Land use rights with indefinite term are not amortised in accordance with Circular 45/2013/TT-BTC issued by the Ministry of Finance on 25 April 2013.

LITERATURE REVIEW

Overview of financial statement of the non-life insurance business (presented according to Circular 232/2012/TT-BTC)

The typical items on the FS of non-life enterprises are explained in Article 23 of Circular 232/2012/TT-BTC, Accounting instructions applicable to non-life insurance enterprises, reinsurance enterprises and branches of foreign non-life insurance enterprises

2.1.1 Overview of some typical items on the balance sheet - Form no B01-

DNPNT attached to Circular 232/2012/TT- BTC - (Appendix 1)

Item Trade receivables (Code 131) is used to reflect receivables with a payment term of less than one year (from the date of the report) related to the primary insurance business, reinsurance business, reinsurance ceded and other receivables

Item Prepaid expenses (Code 151) reflects actual payable insurance commissions that have been incurred but have not yet been allocated to expenses and prepaid expenses that have been paid but have not been included in insurance business expenses in the period at the time of reporting

Item Reinsurance assets (Code 190) reflects the amounts of reinsurance ceded premium reserve and reinsurance ceded indemnity reserve

Item 218, Other long-term receivables, encompasses long-term insurance deposits required by regulations and advances made to long-term vendors These receivables extend beyond the typical short-term accounts receivable period and represent a distinct category within the company's financial statements.

Item Trade payables (Code 312) is the amount payable with a payment term of less than one year or a course of business at the time of preparation of the report to subjects related to primary insurance business, reinsurance business and reinsurance ceded and other payables

Item Un-earned commission revenue (Code 319.1) reflects the portion of commission revenue that was actually incurred but not yet recognized in revenue during the period at the time of preparation of the report

Item Provision for payables (Code 320) provision for short-term payables at the time of preparation of the report

Item Technical reserves (Code 329) aggregate reflection of all unutilized operational provisions at the time of preparation of the report Technical reserves include:

- Item Premium reserve of primary insurance and reinsurance (Code 329.1) reflects the unearned premium reserve of primary insurance and reinsurance used to compensate for the liability of valid insurance contracts that may arise in the following year

Primary insurance and reinsurance indemnity reserve (Code 329.2) is a financial reserve established by insurance companies to meet potential claims that have been incurred but not yet reported or settled This reserve ensures that the insurer has sufficient funds available to fulfill its obligations to policyholders and avoid financial distress in the event of significant claims By recognizing potential liabilities and setting aside financial resources, insurance companies can maintain solvency and stability, ensuring their ability to continue providing essential risk protection to policyholders.

- Item Catastrophe reserve (Code 329.3) is a provision for large fluctuations in loss or when large losses occur, but the insurance premium retained after the professional reserve has been set aside is not yet entitled and compensation is not enough to pay compensation for the contracts that

Item Statutory reserve (Code 419) reflects the amount of mandatory reserves prepared according to the provisions of the 2022 Insurance Business Law but not used at the time of preparation of the report

2.1.2 Overview of some typical items on the Profit and loss statement - Form B02-DNPNT attached to Circular 232/2012/TT- BTC - (Appendix 2)

Item Insurance premium revenue (Code 01) is the total revenue from primary insurance business and reinsurance business after deducting amounts that reduce premium revenue, refunds from reinsurance receipts and differences in increases and decreases in reserves received from primary insurance business and reinsurance business not yet received during the period

Item Ceded premium (Code 02) is the fee the insurance firm must transfer to reinsurance firm arising in the period after minus the difference between the amount of

16 reinsurance premium reserve that must be set aside this year and the amount carried forward from last year

Item Ceding commission and other income from insurance activities (Code 04) is an item used to reflect the portion of commission revenue for reinsurance activities after deducting commission refunds and other revenue such as loss appraisal agency services, claims for reimbursement by third parties, disposition of loss goods that have settled 100% compensation and other

Claim expenses encompass total compensation costs incurred for insurance events, including expenditures on policyholders, loss appraisals, investigations, and information processing These costs are reduced by receipts from third-party reimbursements and fully compensated goods, resulting in Code 11's representation of overall compensation after deductions.

Item Recoveries from reinsurance ceded (Code 12) is the collection of compensation received by the enterprise from the enterprise receiving reinsurance, this collection causes the insurance compensation expenditure to decrease

Item Increase (Decrease) in direct and assumed claim reserve (Code 13) is the difference between the amount of primary insurance compensation provisions and reinsurance receivable that must be set aside during the year and the amount of provisions carried forward from the previous year

Item Increase (Decrease) in ceded claim reserve (Code 14) is the difference between the provision for reinsurance concessions that must be set aside during the year compared to the provision carried forward from the previous year

Overview of financial statements analysis

2.2.1 Definition of financial statements analysis

FS analysis involves using the information on FS to evaluate a company's financial situation, thereby providing information that meets the different needs of stakeholders (Nguyen Ngoc Quang, 2011)

FS analysis is the process of using analytical techniques to examine and compare current and past financial data Additionally, it involves using financial ratios to assess the financial condition and forecast the financial potential of the entity (Nguyen Thi Phuong Thao and Do Huyen Trang, 2015)

Thus, FS analysis is the process of evaluating the financial condition and business performance of companies by gathering, reviewing, comparing, and contrasting financial ratios with previous years, estimates or industry averages Based on these results, it assesses the current financial status and forecasts future financial potential in order to develop effective business strategies and financial plans

2.2.2 Objectives of financial statements analysis

First, transform the information from FS into useful information that meets the needs of users

Sencond, provide an objective evaluation of the financial situation of the enterprise to serve as a basis for related parties to make appropriate economic decisions

Third, serve as a foundation for building projected FS to help analysts forecast the financial potential of the enterprise

Thứ tư, act as an effective tool to control the financial and business situation of the company by comparing with planned targets, previous year’s figures or industry averages This helps to identify strengths and weaknesses in the financial situation,

18 thereby taking measures to leverage strengths and address weaknesses to promote the company’s development

2.2.3 Target users of financial statements analysis

FS analysis is extremely important for business owners as well as external stakeholders with related interests Some of the main users of FS analysis include:

Business managers use FS analysis to control, monitor and adjust the operational activities of the business Additionally, FS analysis helps managers make economic and financial decisions that are most suitable for the actual business conditions of the company

Investors use FS analysis to assess the profitability, risk, and potential return on their investments This helps them make informed decisions about buying, holding, or selling their shares in a company

Suppliers and lenders use the results of financial statement analysis to evaluate a company's ability to repay its debts Based on this evaluation, they determine the terms of credit sales or loans, the repayment period, and the risk of recovering amounts from credit sales or loans given to customers

Tax authorities use FS analysis to assess the financial status of a business, determine the amount of taxes owed, identify tax-related risks, and implement more effective management measures

Employees are interested in FS analysis because it relates to the stability of their income The business results directly affect their benefits, salaries, and bonuses Through the analysis results, they can understand the company's potential and career development prospects

We can see that FS analysis plays an important role for many stakeholders It is a useful tool for these parties to evaluate and make reasonable decisions that align with their goals and directions

2.2.4 Methods used in financial statements analysis a Horizontal analysis

The horizontal analysis method is used to analyze the changes in the scale of each item on the FS by comparing and contrasting the variations in both absolute and relative terms This method helps analysts easily identify changes and development trends of a business over different accounting periods (Nguyen Nang Phuc, 2008) b Vertical analysis

The vertical analysis method is used to analyze the structural changes of each item on the FS or between different FS by using ratios and coefficients that show the relationships between the items on the FS This method helps analysts compare companies of different sizes or industries (Nguyen Nang Phuc, 2008) c Trend analysis

The trend analysis method is used to forecast the financial trend of a business based on the information from FS of previous years This analysis method helps users examine the development trends of specific indicators in relation to overall scale indicators (Nguyen Nang Phuc, 2008)

Financial ratios are an effective tool for business owners and Stakeholders in the financial situation of the business to evaluate business performance and understand the financial situation of the business Financial ratios allow their users to evaluate business performance and compare with businesses in the same industry to evaluate the effectiveness of financial management activities in the business The current ratio is too high compared to other businesses in the same industry, so is inventory stagnant? Is the current cash balance optimal? Or when profitability on revenue (ROS) decreases compared to the previous year, is it because the business has a policy to reduce selling prices or is it because cost of capital increases or is it due to both? … Through financial ratios, business owners and financial report users can recognize the strengths and weaknesses of the business to make appropriate investment decisions

The current ratio is an index that measures a business's ability to pay current liabilities This ratio shows how many dong of current liabilities is guaranteed by each dong of current assets Current ratio is determined according to the formula:

The higher the current ratio, the larger the enterprise's payment capacity and vice versa But if this ratios of the enterprise is too high, it is not a good sign because at this time it is possible that the capital of the enterprise has not been used effectively due to overinvestment in current assets

The acid-test ratio assesses a company's capacity to cover current liabilities with highly liquid assets immediately This ratio calculates the proportion of current liabilities funded by highly liquid assets, which exclude inventory A higher acid-test ratio indicates a company's stability and ability to meet short-term obligations, making it a valuable measure of financial health and liquidity.

Acid-test ratio = Current assets−Inventories

When the acid-test ratio is too high for a long time, the business may be maintaining

Altman's Bankruptcy Prediction Model – Z-Score model

Financial distress occurs when a business's operating cash flow is not enough to satisfy current debt obligations such as having to pay suppliers or interest Financial distress can lead to a business violating contracts and when a business falls into financial

27 distress, it is forced to choose between two options: private workout and formal bankruptcy (Ross, et al., 2010)

In 1968, Altman developed the Z-Score model to predict the likelihood of a company going bankrupt, and this model was also a tool for managers to predict the possibility of financial distress to make timely corrective decisions to avoid going bankrupt The first Z-Score model was announced by Altman in 1968 and re-adjusted for the second time in 2002 to apply to non-manufacturing enterprises with listings determined by the following formula:

Total assets X 3 = Earnings before Interest and Taxes

Total assets X 4 = Market value of Equity

Book value of Total debt

 Meaning of results of the Z-Score model:

- Z-Score ≤ 1,1: Business is in distress zone with high probability of going bankrupt

- 1,1< Z-Score < 2,6: Business is in the grey zone, with a moderate probability of going bankrupt

- Z-Score ≥ 2,6: Businesses is in a safe zone are unlikely to go bankrupt.

Beneish’s Detecting Earnings Management model – M-Score model

Earnings management is the calculated intervention of managers to adjust profits to achieve the manager’s pre-established personal goals (Schipper, K., 1989) Earnings management occurs when the accountant makes a mistake due to the influence of the administrator, then the unit's profit & loss statement no longer honestly reflects the financial situation of the business but reflects the subjective wishes of the administrator (Levitt, A., 1998)

Some accounting adjustments are made as changes to estimates of asset life to reduce depreciation costs instead of cutting research and development costs to increase

28 profits (Peasnell et al., 2000, 2005), adjust profits through the choice of accounting policies such as: through estimates of the level of completion of work to recognize over or under revenue and cost prices, transfer profits between periods through the method of depreciation, recognition or advance deduction of fixed assets repair costs incorrectly increases costs, etc, adjust profits through cost of goods sold using different unfinished product evaluation methods or through capitalization of ineligible interest costs (Le Thi Phuong Trinh, 2019)

The M-score model is a statistical model supporting the assessment of fraud on

FS published by Professor Messod Beneish of Indiana University Bloomington in the research work The Detection of Earning Manipulation Although in his research work Beneish has eliminated 5 financial institutions that include insurance companies, in reality the M-Score models are still applied for insurance businesses, recently, there was research by Diza and colleagues (2022) applying Beneish's M-Score model (1999) to detect the risk of fraud on the FS of insurance businesses in Indonesia Since its publication in 1999, the M-score model has been widely used until now as an effective tool to help those using FS identify risks and adjust information on FS The M-Score model has the following formula:

M-score = -4,84 + 0,92*DSRI + 0,528*GMI + 0,404*AQI + 0,892*SGI + 0,115*DEPI – 0,172*SGAI +

A The group of variables that help identify fraud

Assets Quality Index AQI = (1 − Current Assets t +PP&E(∗) t

Total Assets t ) ÷ (1 − Current Assets t−1 +PP&E t−1

Assets TATA = Net income t −Cash Flows from the Operations t

B The group of variables reflecting fraud motives

Gross Margin Index GMI = Sales t−1 −COGS t−1

Sales Growth Index SGI = Net Sales t

Administrative Expenses SGAI = Selling Expense t + Administrarive Expense t

Net sales t ÷ Selling Expense t−1 + Administrarive Expense t−1

Leverage Index LVGI = Current Liabilities t +Long−term Debt t

Total Assets t ÷ Current Liabilities t−1 +Long−term Debt t−1

PP&E (*) including Tangible Fixed Assets, Financial Leased Fixed Assets, Capital construction in process,

Depreciation (**) is the accumulated depreciation value of PP&E(*)

 Meaning of results of the M-Score model:

- M-Score < -2,22: there is no possibility of profit manipulation

- -2,22 ≤ M-Score < -1,78: there is a moderate possibility of profit manipulation

- M-Score ≥-1,78: there is a high possibility of profit manipulation.

FIGURE 2 1: RESULTS OF APPLYING THE M-SCORE MODEL TO ASIAN COMPANIES

ANALYSIS RESULTS

Current status of the Non-life Insurance market in the period 2019-2022

In the period 2019-2020, the market share of non-life insurance premium revenue mainly belongs to 5 insurance enterprises in descending order by revenue as follows: Bao Viet, PVI, PTI, Bao Minh and Pjico but in the period 2021- 2022 Pjico lelf the Top

5 due to the rise of MIC.

(Source: Statistics and compilation from mof.gov.vn)

Bao Viet PVI PTI Bao Minh Pjico Other

FIGURE 3 2: MARKET SHARE OF INSURANCE PREMIUM INCOME IN 2019

FIGURE 3 1: MARKET SHARE OF INSURANCE PREMIUM INCOME IN 2020

According to statistical results, we can see that the market share of non-life insurance businesses in the period 2019-2022 had quite a lot of fluctuations While Bao Viet's market share decreased from 19,29% to 14,32%, PVI market share increased from 13,67% to 14,95%, PIT market share decreased to 10,67% to 9,3%, Bao Minh market share increased from 7,26% to 7,81% Although in the period 2019-2020, Pjico's share increased from 5,75% to 6,19%, in 2021 Pjico left the Top 5 instead as MIC with its market share increasing from 6,65% to 7,22% in the period 2021-2022

Bao Viet PVI PTI Bao Minh MIC Other

FIGURE 3 3: MARKET SHARE OF INSURANCE PREMIUM INCOME IN 2022 FIGURE 3 4: MARKET SHARE OF INSURANCE PREMIUM INCOME IN 2021

The growth rate of insurance operations in the period 2019-2022 also had fluctuations in each type of insurance product shown in the chart of insurance revenue proportion by products in the period 2019-2022

According to statistics from mof.gov.vn, it can be seen that in the period 2019-

2022, the Top 5 insurance products/services accounting for the highest proportion of revenue are: Health and Personal Accident Insurance, Vehicle Insurance, Property and Physical Damage Insurance, Fire & Explosion Insurance and Cargo Insurance It can be seen that in the period 2019-2021, the proportion of Health and Personal Accident Insurance tended to decrease, but the rate of decrease was not high from 32,53% to 32,05%, down 0,48% it can be explained that because this is the period when Vietnam was struggling with the Covid-19 pandemic, the entire economy was stagnant, causing people to consider more about investing their idle money in Health and Personal

Health and Personal Accident Insurance Property and Physical damage Insurance

Vehicle Insurance Fire & Explosion Insurance

Credit Insurance Business interruption Insurance

FIGURE 3 5: INSURANCE REVENUE PROPORTION BY PRODUCTS IN THE

Accident Insurance or withholding to cover life needs during times of social distancing

While the pandemic decreased demand for employee health insurance, leading to a reduction in its market share, the health insurance industry remained stable compared to other economic sectors.

But in the first 9 months of 2022, we can see that the proportion of health insurance has increased significantly from 32,05% to 34,01%, an increase of 1,96% faster than the decline rate in the 2019-2021 period From the beginning of 2022, our country stepped from the quarantine and social distancing phase to the new normal phase, causing the economy to gradually restore people's idle money to increase again, at the same time, the pandemic also made people more aware of health issues as well as realizing that support from insurance policies can greatly reduce the financial burden when risks or incidents occur, has caused health insurance demand to increase sharply In addition, some businesses have returned to operation, causing health insurance packages for businesses to recover and policies to increase budgets for employee health benefits to reduce costs and support when employees are sick

Vehicle Insurance is a type of insurance that helps vehicle drivers avoid unnecessary damage during traffic participation Vehicle insurance has two main types: one is mandatory civil liability insurance and the other is voluntary civil liability insurance, in the period 2019-2022 the proportion of this type of insurance tended to decrease from 30,56% to 25,70%, a fairly rapid decrease of 4,86% This is a period of social distancing, so people were limited to go out, causing the possibility of incidents to decrease significantly and adding to the impact of political conflicts in the Middle East, pushing up gasoline prices, also causing the demand to use vehicles to save costs, so some people and businesses had cut voluntary civil liability insurance causes revenue for this type of business to decrease

Subjecting to any economic benefits or obligations to perform contracts or obligations under the law that the insured person must bear when the loss occurs, in the period 2019-2022 the Property and Physical Damage Insurance had quite a lot of

35 fluctuations Specifically, in the period 2019-2021, the proportion of this type of insurance increased quite quickly from 11,74% to 13,12%, but according to records in the first 9 months of 2022, this proportion decreased to 12,08%, this fluctuation is in contrast to the Vehicle insurance Because the pandemic increases the risk of loss to the subject of this insurance due to a series of possible risks leading to individuals, businesses are limited in their ability to fulfill their obligations or cause economic benefits to decline, but by 2022 those risks have been reduced because Vietnam has entered a new normal phase

During the period 2019-2022, the proportion of Fire & Explosion Insurance revenue increased continuously from 10,95% to 13,77%, it can be seen that people and businesses' awareness of fire and explosion issues is still very high

Cargo Insurance is a type of insurance for all loss or damage to goods during domestic or foreign transportation During the period 2019-2020, the proportion of this type of insurance decreased from 4,74% to 3,99%, because the pandemic caused domestic sales and international trade activities to break down and seriously paralyze, causing contracts to domestic sales and foreign trade contracts both decreased, leading to a decrease in revenue for this service But in the period 2021-2022, the revenue share of Cargo Insurance increased and remained stable at 4,65%

In summary, through the fluctuations in the market share of insurance premium revenue as well as the shares of the 5 operations insurance products/services with the highest revenue share, we can see that the trend of fluctuations in the insurance market was greatly affected by the Covid-19

General analysis of the company's financial situation

3.2.1 Balance sheet analysis a Analysis of structure and asset movements

TABLE 3 1: ANALYSIS OF ASSET STRUCTURE AND CHANGES FOR THE PERIOD 2019-2022

II Short-term investments 36,7 37,1 42,1 46,6 325.887.959.579 15,5 678.034.751.641 27,9 169.435.326.564 5,4 III Short-term receivables 19,7 16,8 9,4 10,5 (28.741.507.444) (2,5) (407.127.356.318) (37,0) 45.405.836.217 6,6

II Fixed assets 5,3 4,7 4,1 4,1 2.039.263.395 0,7 (5.292.865.519) (1,7) (13.685.618.777) (4,5) III Investment properties 2,8 2,4 2,1 2,2 (3.091.412.999) (1,9) (2.882.098.195) (1,8) (2.241.419.215) (1,4)

(Source: Compiled and calculated by the author)

Based on the analysis results, we can observe that during the period from 2019 to

2022, the structure of the company's current assets tended to increase gradually each year from 82,9% to 89,3%, while the structure of non-current assets tended to decrease each year from 17,1% to 10,7% But in terms of volatility, the current assets value in the period 2019-2021 tended to increase, but in 2022 this value decreased compared to 2021 Regarding non-current assets, compared to 2019, the value increased compared to 2020, but non-current assets value decreased from 2021 to 2022 Specifically, as follows:

- In comparison to 2019, the total assets value increased by over 812 billion dong, corresponding to a growth rate of 14,2% in 2020 Asset structure changed with the upward trend of increasing current assets from 82,9% to 83,1% and decreasing non- current assets from 17,1% to 16,9% Regarding scale:

+ Current assets increased by more than 688 billion dong (up 14,5% compared to

In 2020, Bao Minh's Reinsurance assets saw a substantial 49.2% increase, accounting for a 474 billion dong rise This growth was largely driven by a surge in Reinsurance ceded claim reserves, which offset a decrease in Reinsurance ceded unearned premium reserves Conversely, Cash and cash equivalents experienced a significant 36.6% decline, or 86 billion dong, reducing its proportion of total assets from 4.1% to 2.3% As observed in Deloitte's 2020 report, the impact of the Covid-19 pandemic disrupted the insurance industry's growth trajectory, particularly affecting life insurance companies As a non-life insurance company, Bao Minh faced less impact, leading it to potentially reduce reserve funds to reinvest in the market for enhanced financial stability during the pandemic and economic recovery.

38 investment decision led to a 15,5% increase in Short-term investments with a value increase of over 325 billion dong and Held-to-maturity investments also increased by 39,2%, corresponding to a value increase of 103 billion dong

+ Non-current assets increased by over 123 billion dong (corresponding to 12,6% increased compared to 2019), with the item Other long-term assets increased by over 20 billion dong, corresponding to a growth rate of 58,7% The proportion of Other long- term assets increased from 0,6% to 0,9%, mainly due to the item Deferred tax assets increasing by 186,8% with a value increase of over 19,3 billion dong The reason for this increase is due to the provision for doubtful debts of the Corporation not meeting the required conditions for provisioning according to regulations (Appendix 15) The indicator with the fastest decline was Investment properties decreasing by over 3 billion dong with a decrease rate of 1,9% This decrease was not due to liquidation or transfer of investment properties but rather due to Accumulated depreciation increasing by over

3 billion dong, corresponding to a decrease rate of 16,8%, causing the proportion of investment properties to decrease from 2,8% to 2,4% Investment activities were also one of the main business activities of Bao Minh, so during this period, except for the value of Held-to-maturity investments increasing by 39,2%, corresponding to an additional 103 billion dong, other long-term investments did not show any significant changes Nevertheless, the additional provision of over 979 billion dong for Provision for impairment of other long-term investments indicates that the Corporation still highly regarded the negative impacts brought by the pandemic to the economy Although in

2020, Vietnam was one of the countries that effectively controlled the pandemic and achieved a GDP growth rate of approximately 2,87%, which was quite positive given the circumstances

- Compared to 2020, in 2021, the total assets value increased by 12,8%, corresponding to a value increase of over 835 billion dong The assets proportion tended to increase with current assets rising from 83,1% to 88,1% and non-current assets decreasing from 16,9% to 11,9%, in which:

+ Current assets increased by over 1.060 billion dong (a 19,5% increase compared to 2020) Specifically, the item Other short-term expenses increased by 50,2% with a value increase of over 159 billion dong Within this category, Unallocated commission expenses increased by over 32 billion dong (a 17,4% increase compared to 2020), and Other prepaid expenses increased by over 127 billion dong (a 95,9% increase compared to 2020) The Covid-19 pandemic has led to a significant downturn in business activities, resulting in reduced demand and the ability of individuals and businesses to participate in insurance To compete in this challenging business environment, the Corporation had to incur additional expenses to attract customers The proportion of the Short-term receivables item decreased from 16,8% to 9,4% Compared to 2020, the value of this item decreased by over 407 billion dong, with a decrease rate of 37% Within this, the Advances to suppliers item decreased the most by 52% (a decrease of over 4,1 billion dong) and the Trade receivables item decreased by 34,8% (a decrease of over 401 billion dong) According to the information provided in the disclosure of Trade receivables, receivables from reinsurance activities decreased the most, from over 536 billion dong to over 338 billion dong (Appendix 28) Reduced prepayments to vendors and shorter customer payment cycles resulted in an increase of 70,8 billion dong (a 47,3% increase) in cash and cash equivalents, and an increase of over 678 billion dong (a 27,9% increase) in short-term financial investments

+ Non-current assets decreased by over 225 billion dong (a 20,4% decrease compared to 2020), with most indicators in the Non-current assets section experiencing declines Specifically, the Long-term investments item decreased by 202 billion dong, corresponding to a decrease rate of 35,7% Within this, the item Provision for impairment of other long-term investments increased by over 1,2 billion dong, with a growth rate of 129,8%, while the Held-to-maturity investments item decreased by over 201 billion dong, with a decrease rate of 55% Perhaps due to the difficulties in predicting long-term profitability, the Corporation adjusted its investment portfolio by recalling Loans to other entities and payments for purchase of debt instruments of other entities At the

40 same time, provisions for investments were increased Therefore, the proportion of Long-term investments decreased significantly from 8,7% to 4,9%

Compared to 2021, in 2022, the total asset value decreased by over 350 billion dong, corresponding to a decrease rate of 4,7% The proportion of current assets increased from 88,1% to 89,3%, while the structure of non-current assets decreased from 11,9% to 10,7%, specific:

+ Current assets decreased by over 218 billion dong (a decrease of 3,4% compared to 2021) Within this, the Other long-term assets item increased the most by over 177 billion dong, with the increase rate of 37,3% This increase mainly stemmed from payments related to commissions and prepaid expenses not yet recognized as insurance business expenses during the period, leading to the structure of Other long-term assets increasing from 6,5% to 9,3% The indicator with the fastest decline was Reinsurance assets, decreasing by 28%, equivalent to a decrease of 558 billion dong This indicates that both incurred and unincurred liabilities for reinsurance contracts increased, leading to a reduction in the provision for compensation by over 634 billion dong, equivalent to a decrease of 39,2% This is the bitter consequence of increased revenue during the pandemic period Regarding the proportion, Reinsurance assets decreased from 27% in

2021 to only 20,4% in 2022 One significant change in value is the item Provision for trading securities, which increased by over 26 billion dong (a 146,8% increase compared to 2021) The explanation provided in the note on this item in 2022, Bao Minh allocated provisions for some stocks due to their decreased value

+ Non-current assets decreased by over 131 billion dong (a decrease of 14,9% compared to 2021), with most indicators within the non-current assets section experiencing declines However, the Long-term investments item saw the most significant decrease, dropping by 31% with a value reduction of over 113 billion dong The proportion of Long-term investments decreased from 4,9% to 3,6% This change was primarily due to the decrease in Held-to-maturity investments from over 164 billion dong to 52 billion dong Within this category, term deposits decreased from over 63 billion dong to just over 300 million dong and the value of bonds decreased from over

The company's total assets experienced a steady increase from 2019 to 2021, but witnessed a decline in 2022 This change requires further analysis of the asset formation sources to accurately assess the financial health of the organization Despite the decline in total assets, other indicators remained relatively stable compared to 2021.

42 b Analysis of structure and capital movements

TABLE 3 2: ANALYSIS OF CAPITAL STRUCTURE AND CHANGES FOR THE PERIOD 2019-2022

3 Payables to employees 3,2 1,6 2,4 2,4 (76.211.210.246) (41,4) 72.744.339.047 67,5 (9.347.447.661) (5,2) 4.Short-term unearned revenue 0,4 0,6 0,5 0,4 18.389.435.243 76,4 (6.766.844.431) (15,9) (8.457.267.415) (23,7)

Through the above analysis results, we can see that in the period 2019 -2022, due to the actual business situation, the liability structure gradually increased in the period

2019 – 2021, increasing from 60% to 68,4%, but in 2022, the liability ratio decreased to 65,6% The proportion of owners' equity changed corresponding to decreasing liabilities from 40% to 31,6% in the period 2019 -2022, but in 2022 this proportion increased to 34,4% In which:

Analyzing financial indicators on the Financial Statements of Bao Minh

Joint Stock Company for the period 2019-2022

The average ratios used for comparison are calculated by taking the average value of the financial ratios (Average ratios) of 20 out of 31 insurance companies operating in the non-life insurance sector (inclusive of Bao Minh), based on the report from the Insurance Supervisory Authority (Ministry of Finance) until the end of 2022 Among these 20 companies are selected are those that publish enough FS or summary FS with enough data to calculate financial ratios for the period from 2019 to 2022 Regarding the average value of the growth ratios, it is computed from the financial ratios of 10 out of the 20 selected companies, as only 10 of these companies are listed on the stock exchange

Bao Minh's current ratio in the period 2019-2022 had many fluctuations, specifically, at the end of the 2019 fiscal year, each short-term liabilities of the Corporation was guaranteed by 1,38 dong of current assets, but at the same time in 2020, each short-term liabilty was only guaranteed by 1,28 dong of current assets As of December 31, 2021, each short-term liability was guaranteed by about 1,29 dong of current assets and by the same time in 2022, each short-term debt was covered by 1,36 dong of current assets It can be seen that although in the period 2019-2022 the current ratio was greater than 1, the decrease in the current ratio in 2020 had shown that since this year Bao Minh has begun to have difficulty in paying off short-term liabilities This was due to the rapid increase in current assets in 2020, which rose by 14,5%, while short- term liabilities increased by 23,4% during the same period, the increase in short-term liabilities was mainly due to the increase in Short-term unearned revenue, meaning that at the end of 2020 there were still many insurance contracts valid for less than 12 months From 2021 this ratio began to increase and by 2022 this ratio had recovered to approximately equal to 2019, proving that the ability to pay short-term debt has gradually recovered, the reason was that at the end of fiscal year 2022, the size of short-term liabilities decreased because Bao Minh paid excess value added tax and other taxes, causing the Statutory obligations item to decrease sharply (appendix 20) Additionally,

FIGURE 3 6: BMI'S LIQUIDITY RATIOS FOR THE PERIOD 2019-2022

Current ratio 2020 Acid-test ratio 2021 Cash ratio 2022

62 provisions for compensation for contracts that were claimed but not yet compensated or for losses that had occurred but not yet claimed also decreased

Over the 2019-2022 period, Bao Minh's acid-test ratio fluctuated around industry averages, indicating a relatively stable liquidity position Its inventory was largely composed of materials and stationery, which excluded them from quick assets Bao Minh's cash ratio exhibited notable variations, ranging between 3.5% and 6.9%, reflecting its shifting ability to swiftly settle current liabilities While the cash ratio declined after 2020, it remained stable within the stated range.

When comparing Bao Minh's current ratio with the average current ratio, we can observe that throughout the period from 2019 to 2022, Bao Minh's current ratio remained about 4 times lower than the average However, it consistently maintained this ratio above 1 to ensure the ability to pay short-term liabilities with short-term assets In comparison to 2019, Bao Minh's current ratio decreased from 1,38 to 1,28 in 2020, while the average current ratio increased from 3,46 to 3,99 During this period, most non-life insurance companies maintained a relatively high current ratio The reason behind this is that companies in the same industry assessed the payment risk during this period to be high due to the complex developments of the Covid-19 pandemic As a long-standing enterprise in this field, Bao Minh reduced this liquidity ratio but still maintained it above

1 to ensure sufficient payment capability This reduction was not because Bao Minh did not appreciate the losses caused by the pandemic, but this decline was consistent with the challenging business situation of the Corporation In the context where Profit from insurance business operations decreased leading to a decrease in Retained earnings, short-term liabilities still increased due to the rise in Short-term unearned revenue and Trade payables

During the period 2020-2022, the average current ratio increased to 5,63, but in

2022 it decreased to 4,2 From the period 2020-2022, Bao Minh's current ratio has

FIGURE 3 7: COMPARING CURRENT RATIO OF BMI AND AVERAGE FOR

64 increased continuously due to many positive changes in the business situation thanks to Bao Minh issuing more shares to increase capital from equity (appendix 25), creating conditions for Bao Minh to access many large contracts, increase the ability to retain premiums thereby boosting profits That is shown through Mr Dinh Thai Huong's sharing, chairman of the Board of Directors of PJICO He emphasized the significance of developing business capital for non-life insurance companies as it enables easier participation in bidding projects and provides opportunities to access major clients, thereby enhancing competitiveness in the market Additionally, increasing equity capital helps non-life insurance companies improve financial capacity and the ability to retain insurance premiums, because according to regulations, insurance enterprises are only allowed to retain a maximum liability on each risk or on each individual loss not exceeding 10% of shareholders' equity Although short-term liabilities in 2021 increased compared to 2020, in terms of scale, short-term assets are still much larger In 2022, although both current assets and current liabilities decreased, the reduction in the scale of current assets was greater than that of current liabilities Overall, Bao Minh's current ratio during the period of 2019-2022 was quite large compared to the average but remained above 1 and consistently maintained at a stable level This indicates that the company's ability to pay off debts was lower than the average, but its financial situation remained quite stable

During the period from 2019 to 2022, Bao Minh's cash ratio consistently fluctuated between 3,5% and 6,9%, while the average cash ratio ranged from 16,1% to 20,7% It was evident that compared to the average, Bao Minh's cash ratio was significantly lower

At the end of fiscal year 2020, Bao Minh's cash ratio decreased sharply from 6,9% to 3,5% because the value of Cash and cash equivalents decreased This may be attributed to concerns about the negative impact of the pandemic on business operations, instead of maintaining cash balance, Bao Minh used cash to invest in short-term financial instruments to generate revenue from financial activities, aiming to improve business results more optimally Tracking the FS perhaps Bao Minh has increased the value of Short-term investments held to maturity At the end of the fiscal year 2021, the company's cash ratio increased to 4,4% as both short-term liabilities and Cash and cash equivalents increased However, the faster increase in Cash and cash equivalents led to the rise in the cash ratio The reason might be to anticipate potential compensation liabilities, so Bao Minh decided to increase the cash balance However, compared to the industry average, Bao Minh's cash ratio still worse By the end of 2022, Bao Minh's cash ratio decreased once again, despite the economy showing signs of recovery at the beginning of 2022 This could be because transitioning into the new normal phase led to increased losses, resulting in a decrease in the value of Cash and cash equivalents due to

FIGURE 3 8: COMPARING CASH RATIO OF BMI AND AVERAGE FOR THE

66 compensating contractual obligations Throughout the period from 2019 to 2022, Bao Minh's cash ratio remained significantly lower than the industry average, maintaining a cash ratio that was too low for a long time can create the risk of insolvency when costs arise from large value contracts, while also creating doubts for customers, investors, shareholders and lenders of the Cororation's financial capacity

3.3.2 Efficiency ratios a Asset turnover ratio

In general, Bao Minh's average total assets value has continuously increased during the period from 2019 to 2022 Specifically, in 2019, of the Corporation was 0,61 and increased to 0,62 by the end of 2020 Although the increase rate was not significant, it can still be seen that Bao Minh's ability to generate revenue from its assets have improved, due to the slowing economy, causing Bao Minh's net sales also suffered the same impact By the end of fiscal year 2022, Bao Minh's asset turnover ratio has reached its highest value in 4 years, thanks to the growth rate of net sales being faster than the growth rate of average total assets The main reason was that the recovery of the economy has boosted insurance business revenue, thereby improving the efficiency of using Bao Minh's assets Although the average total assets value in 2022 increased, according to the analysis table 2.1, we can observe that the total assets value in 2022 decreased compared to the total assets value in 2021 This was because both short-term

Net sales Average total assets Asset turnover ratio

FIGURE 3 9: BMI'S ASSET TURNOVER RATIO FOR

67 and long-term asset values decreased at this time, so the increase in the average total assets was mainly due to the value of the total assets in 2021 When considering the scale, the decrease in short-term assets was more significant due to the increase in revenue in the previous period, which led to the generation of insurance business expenses, thereby reducing the value of Reinsurance assets

When compared to the industry average, Bao Minh's asset turnover ratio in the period 2019-2022 was higher According to the 2022 annual report, Bao Minh focused on the group of insurance products about people and motor vehicles to achieve growth higher than the industry average, as the author stated in the overview of the non- insurance market, health insurance and vehicle insurance were two of the five operations accounting for the highest proportion in the non-life insurance sector in the period 2019-

2022 While Bao Minh's asset turnover ratio has fluctuated continuously, the average asset turnover ratio has tended to decrease from 0,45 in 2019, then further decreased to 0,41 in 2020, continued to decrease to 0,38 in 2021, and maintained this ratio in 2022 It could be observed that Bao Minh's ability to generate revenue from assets was better than the industry average, even during the late 2020 outbreak of the pandemic, as the Coporation's asset turnover ratio still increased This value decreased only once at the end of 2021 due to the increase in total assets value, while net sales also declined

FIGURE 3 10: COMPARING ASSET TURNOVER RATIO OF BMI AND

Despite the challenges posed by the pandemic, Bao Minh exhibited resilience in its revenue generation capabilities The year following the onset of the pandemic saw a swift recovery, with revenue levels surpassing pre-pandemic heights This resilience was evidenced by the company's strong ability to generate revenue from its assets, as reflected in its favorable asset turnover ratio.

In general, receivables turnover ratio increased gradually during the period of 2019-

2022 At the end of the fiscal year 2019, the receivables turnover ratio for the company was 3,22 turns, with an average collection period of 113 days By the end of 2020, the receivables turnover ratio increased to 3,4 turns, while the average collection period decreased to 107 days, as both net credit sales and average accounts receivables increased but the growth rate of net credit sales increased more slowly By the end of the fiscal year

Using the Z-Score to predict the probability of bankruptcy

The Altman Z-Score model is a tool used to predict the risk of bankruptcy and insolvency for companies across various sectors The author applied the adjusted Altman Z-Score model in 2002 to forecast the risk of bankruptcy for Bao Minh Insurance Corporation during the period of 2019-2022

TABLE 3 8: Z-SCORE MODEL ANALYSIS FOR THE PERIOD 2019-2022

Market Value of Equity/Book

Through the calculated results in the table, we can observe that during the period of 2019-2022, only in 2020 did the Z-Score reach a value of 2,274, which falls within the gray zone, indicating a risk of bankruptcy For the remaining three years, the Z-Score consistently remained in the safe zone as the Z-Score values were greater than or equal to 2,6, indicating financial stability and no likelihood of falling into financial distress Based on the Z-Score model results and the analysis of liquidity ratios presented in section 3.3.1, we can observe that in 2020, when Bao Minh's liquidity decreased created bankruptcy risk due to the risk of falling into financial distress However, the recovery of liquidity in 2021 and 2022 helped Bao Minh move out of the gray zone of the Z-Score model and into the safe zone, eliminating the risk of financial distress.

Using the M-Score model in detecting earnings management

The Beneish M-Score model, published in 1999 is a widely used tool for assessing the risk of FS manipulation The author applied the M-Score model to assess the adjusted risk on the FS in 2022:

M-score = -4,84 + 0,92*DSRI + 0,528*GMI + 0,404*AQI + 0,892*SGI + 0,115*DEPI – 0,172*SGAI + 4,679*TA – 0,327*LVGI

TABLE 3 9: M-SCORE MODEL ANALYSIS FOR THE YEAR 2022

DSRI (Receivables t/ Sales t) / (Receivables t-1 / Sales t-1)

[1 – (Current Assetst + PPEt) / Total Assetst] / [1 – ((Current Assets t-1+

(Profit before CIT t – Net cash flows (used in)/From operating activities t) / Total Assets t 0,061

GMI [(Sales t-1– COGS t-1) / Sales t-1] / [(Sales t – COGS t) / Sales t]

(Sales, General and Administrative Expense t / Sales t) / (Sales, General and Administrative t-1/ Sales t-1)

[(Current Liabilities t + Total Long Term Debt t) / Total Assets t] /

[(Current Liabilities t-1 + Total Long Term Debt t-1) / Total Assets t-1]

Bao Minh's M-Score index in 2022 is -2,128 greater than -2,22, indicating a potential manipulation of earnings in this year's FS Specifically:

- The group of variables that help identify fraud:

(1) The DSRI (Day’s Sales in Receivables Index) = 0,989 means that the receivables turnover ratio in 2022 is faster than in 2021 This could be due to two reasons: First, in 2020, BMI underwent changes in its debt collection policy, so it will push the

90 number of receivables turnover faster Second, there might be changes in revenue recognition policies, resulting in revenue from 2022 being recognized later

(2) The AQI (Assets Quality Index) = 0,845 being less than 1 means that compared to 2021, the proportion of non-current assets other than PP&E decreased in 2022 At the end of the 2022 fiscal year, the value of non-current assets other than PP&E decreased compared to 2021, primarily due to a decrease in Held-to-maturity investments from over 164 billion dong to 52 billion dong Specifically, term deposits decreased from over

63 billion dong to just over 300 million dong, and the value of bonds decreased from over 101 billion dong to 51,7 billion dong (Appendix 26), while other indicators saw insignificant changes compared to 2021

(3) The DEPI (Depreciation Index) = 0,932 indicates that the depreciation rate in 2021 was lower than in 2022 Based on the disclosure regarding fixed assets (Appendix 18), we can observe some fluctuations in fixed assets in 2022 at Bao Minh due to purchases, disposals, and acquisitions of fixed assets Additionally, the basic construction costs in progress in 2022 also increased due to the value of basic construction in progress, purchases of fixed assets, and repairs of fixed assets (Appendix 19)

(4) The TATA (Total Accruals to Total Assets) = 0,061 implies that cash flow from operating activities is less than the value of pre-tax profit This may raise concerns for users of financial reports about the risk of profit manipulation through accounting policies

So all four risk identification variables point to signs of profit management in the 2022 FS of the Corporation The identification variables indicate signs of adjustment through changes in debt recovery policies or revenue recognition policies, increased prepaid expenses, or recognition of reserves not in compliance with regulations, changes in depreciation policies, or determination of the timing of revenue and expense recognition

- The group of variables reflecting fraud motives:

(5) The GMI (Gross Margin Index) = 0,813 less than 1 means that the gross profit margin as a proportion of revenue in 2022 was higher than in 2021 This indicates that the proportion of costs in revenue in 2022 had decreased

(6) The SGI (Sales Growth Index) = 1,197 means that the net sales revenue in

2022 has experienced growth compared to 2021

(7) The SGAI (Sales, General and Administrative Expenses) = 0,872 indicates that the proportion of sales, general, and administrative expenses in 2022 decreased compared to 2021

(8) The LVGI (Leverage Index) = 0,959 means that the leverage ratio in 2022 decreased compared to 2021, indicating that the proportion of debt to total assets in 2022 decreased compared to 2021

Through analysis of variables identifying fraud motives, we can see that compared to 2021, there was an increase in net revenue in 2022, but the proportion of gross profit in net revenue decreased In addition, the proportion of sales and General and Administrative (G&A) expenses within net sales revenue also decreased Therefore, we can see that operating expenses in the insurance business accounted for a larger proportion of net sales revenue in 2022 compared to 2021 This may create pressure on costs and risks of not achieving the profit targets set by the company

Bao Minh's accounting practices include estimations and provisions that may be subject to subjective adjustments These provisions impact the company's expenses and ultimately affect its reported profits The stability of Bao Minh's profits from 2019 to 2022 suggests that the company may have used these provisions to manage its profit levels.

Financial statements (FS) of Bao Minh reveal potential profit manipulation Observing both FS and the annual report indicates irregularities.

92 the provisioning and refund of Provision for doubtful debts is not in accordance with regulations in the period 2020-2021 (Appendix 15-17) At the end of 2020, the company set up provisions for doubtful debts that did not meet the requirements as prescribed Subsequently, it continuously reversed these provisions improperly at the end of 2021 and in 2022 According to the author's own assessment, the uncertainties in the business situation during the period from 2019 to 2022 may have made Bao Minh concerned about maintaining stable profit growth during this period Therefore, they may have resorted to tricks to adjust profits through setting up or reversing provisions, aiming to increase or decrease expenses

PROPOSING SOLUTIONS TO IMPROVE THE FINANCIAL

Assessing the financial situation at Bao Minh Insurance Corporation

Through the analysis results during the period of 2019-2022, Bao Minh achieved several financial accomplishments as follows:

Firstly, the gradual increase in shareholder equity during the period of 2019-2022 demonstrates the strengthening financial capability of Bao Minh Although Bao Minh's shareholder equity accounted for only 13,9% to 15,9% of the Liabilities and Equity structure during the period of 2019-2022, it played a crucial role In the complex economic context, the profitability on shareholder equity of the corporation experienced fluctuations However, comparing Bao Minh's ROE with the industry average, we can observe that while Bao Minh's ROE was lower than the average in 2019 and 2020 However, from 2021 onwards, Bao Minh's ROE increased and was much higher than the average This may indicate that the company's ability to generate profit on shareholder equity experienced significant growth during this period

Secondly, throughout the period of 2019-2022, Bao Minh consistently maintained the practice of paying cash dividends to shareholders Although the dividend payout ratio fluctuated, showing a continuous increase from 2019 to 2021 and only decreasing in

2022, the dividend payout ratio of the corporation has always been significantly higher than the average This is an indication of Bao Minh's strong financial health and its stable dividend policy

Thirdly, Bao Minh's ability to generate revenue during this period fluctuated but only within a small margin and always remained at a higher level than the industry average This indicates that whether before, during, or after the pandemic, Bao Minh has consistently maintained a fairly stable business performance

Fourthly, the ability to manage risks well is reflected in the caution in provisioning for claims that have been reported but not yet compensated or claims that have occurred but have not yet been reported When observing profit & loss statement, we can see that

Prior to the COVID-19 pandemic in 2019, the provision for original and reinsurance claims stood at over 15 billion However, following the onset of the pandemic, these provisions witnessed a dramatic surge From 2020 to 2021, the value of provisions for original and reinsurance claims skyrocketed to over 607 billion and 599 billion respectively.

Fifthly, the capital investment activities have been highly effective from 2019 through 2022, contributing to the improvement of the Corporation's business results As capital investment activities are also one of Bao Minh's primary business operations, as observed on the profit & loss statement during this period there were a few times when Profit from financial activity was higher than Gross insurance operating profit

Alongside Bao Minh's financial achievements, there are still some remaining issues:

Firstly, the issue of liquidity Through the results of liquidity ratios, we can observe that Bao Minh's liquidity ratios remain lower than the industry average Additionally, from 2019 to 2022, only in 2020 did the company's Z-Score consistently fall within the grey zone, indicating a risk of bankruptcy, while in other years, Bao Minh's Z-Score remained in the safe zone It can be observed that the risk of financial distress at Bao Minh is not high, but maintaining lower-than-average liquidity ratios may raise concerns among customers, investors, shareholders, partners, and lending institutions about the company's financial capacity

Secondly, the issue of self-financing is reflected in two indicators: the first indicator is that from 2019 to 2022, although the value of equity increased, it mainly came from current liabilities, with only a small portion from Retained earnings This indicates that Bao Minh still relies on current liabilities, posing a risk to financial autonomy and inefficient operations The second indicator is that Bao Minh's ability to self financing non-current assets and fixed assets is lower than the average, especially the self- financing ratio of fixed assets significantly deviates from the average, which shows that Bao Minh's self-financing is not guaranteed

Thirdly, through the Dupont analysis results during the period of 2021-2022, we observe that costs have not been well controlled, leading to a decrease in the profitability on equity Combined with the findings of the M-Score model, we can see that the proportion of Insurance business operating expenses consistently accounts for a large portion of the revenue, creating cost pressure and the risk of not achieving profit targets Tracking on the income statement, we can observe that due to provisions made in previous years, the Total claim expenses in 2022 decreased from over 1.226 billion to over 1.225 billion, despite the fact that the actual value of Claim expenses in 2022 increased from over 1.610 billion to over 2.127 billion It can be said that the compensation expenses were spread out to ensure that profits did not experience significant fluctuations, but in reality, the gross profit margin remains low Additionally, other expenses such as Total direct operating expenses, Finance expenses and General and administrative expenses in 2022 all increased compared to 2021

Fourthly, there is a risk related to signs of profit manipulation on the FS As the results of the M-Score model analysis indicate, the 2022 FS of Bao Minh exhibit signs of profit manipulation, and profit manipulation behavior is positively correlated with the risk of bankruptcy (Vo Van Nhi and Hoang Cam Trang, 2013).

Recommendations to improve financial situation and business results at

To improve the financial situation and business performance of Bao Minh, the author proposes the following recommendations:

Improving liquidity involves effectively managing current liabilities Technical reserves are the largest component of current liabilities but cannot be adjusted due to regulatory restrictions Instead, Trade payables can be addressed by modifying the repayment policy to reduce the repayment period and consequently lower the value of Trade payables This adjustment enhances liquidity by increasing the availability of cash for the organization.

Proposal 2, reduces dependence on current liabilities by improving the

Corporation's business efficiency through effective good controls on compensation

96 costs Bao Minh can reduce compensation costs in several ways: First, prioritize cooperation with partners providing loss compensation services, good quality loss inspection and investigation units with reasonable prices and higher discounts Second, strengthen training for employees in recognizing, checking and evaluating insurance events within the scope of insurance contracts to avoid causing losses to the Corporation when having to compensate for obligations outside the scope of the contract Third, establish strict procedures for contract signing, insurance premium collection, loss assessment, handling compensation strictly to avoid loss of insurance premiums or compensation fraud Fourth, minimize unreasonable or unregulated expenses that significantly increase costs and reduce net income

Proposal 3, increases the reliability of stakeholders using the company's FS for investment decisions by reducing profit adjustments on the FS through by implementing the following steps:

(Source: The process proposed by the author)

Applying a scale to determine reserves

Assessing the effectiveness of the fixed scale

Adjusting the scale to fit the business circumstances

FIGURE 4 1: FINANCIAL STATEMENT PROJECTION PROCESS USING

Identifying risks associated with insurance contracts by constructing risk assumptions, potential losses that could occur from regularly updated and detailed internal data, thereby providing the most appropriate assessments

Developing a fixed scale to score the level of risk for insurance contracts and for contracts of significant value, establishing a Risk Assessment Committee

Based on the fixed scale constructed in step 2 to determine the appropriate reserves for each contract

- Step 4: Applying a scale to determine reserves

Apply the constructed scale fairly to all signed insurance contracts except for those of significant value, which are reserved based on the findings of the Risk Assessment Committee

- Step 5: Assessing the effectiveness of the fixed scale

Evaluate the effectiveness and rationality of the constructed scale when applied periodically and regularly in practice Based on the assessment results, continuously refine the scale to enhance its effectiveness and rationality

Proposal 4, using the loan option instead of issuing additional shares to raise capital Monitoring FS throughout the 2019-2022 period, we can see that although Bao Minh did not incur any interest expenses, Bao Minh raised more capital by issuing more shares in 2021 With its high dividend payout ratio significantly above its average, increasing capital through this method would substantially reduce retained earnings available for reinvestment This can be clearly seen in the first year of issuing additional shares, which is 2021 In that year, despite having profits available for dividends of over

216 billion, Bao Minh paid out dividends totaling more than 219 billion dong The author

98 constructs projected FS for the next fiscal year through the following steps:

- Step 1: Determine revenue growth rate

The author assumes that the revenue growth rate of the Corporation in 2023 will achieve the target presented in the Annual Report 2022, which is 6,9% (Appendix 27) Based on this, the author projects the revenue for 2023 as follows:

Projected revenue for 2023 = Actual revenue for 2022 * (1 + Revenue growth rate)

- Step 2: Identify indicators that have a direct relationship with revenue

Because the projected FS are constructed using the percentage revenue method, the author only identifies the items directly related to revenue Other items not directly related to revenue will remain unchanged Specifically:

- On the profit & loss statement, the Total direct operating expenses and General and administrative expenses are directly affected by revenue and impact the Gross insurance operating profit, Net operating income and Profit after corporate income tax of Bao Minh

- On the Balance sheet, the affected items are Cash and cash equivalents, Trade receivables, Reinsurance ceded unearned premium reserve, Reinsurance ceded claim reserve, Trade payables, Short-term unearned revenue, Un-earned commission revenue, Technical reserves, Statutory reserves and Retained earnings

To predict the fluctuations of the financial items on the FS, the author determines

Identify indicators that have a direct relationship with revenue

Profit and loss statement projections

Balance sheet projects and determines the capital needs to be mobilized

99 the percentage ratios of the identified items to revenue for the period 2019-2022 Then, the author calculates the average value of each item to forecast the ratios of those items to revenue in 2023 Specifically:

TABLE 4 1: THE AVERAGE WEIGHT OF THE DIRECTLY RELATED

Total direct operating expenses 93,07% 95,90% 94,85% 93,67% 94,37% General and administrative expenses

Reinsurance ceded unearned premium reserve

Short-term unearned revenue 0,70% 1,12% 0,95% 0,60% 0,84% Un-earned commission revenue 2,69% 2,10% 2,40% 2,32% 2,38%

(Source: Compiled and calculated by the author) The Retained earnings projected for 2023 are determined by the following formula: Retained earnings for 2023 = Retained earnings of 2022 * (1+

Average of Additional to RE

Profit after corporate income tax)

TABLE 4 2: THE AVERAGE OF ADDITIONAL RETAINED EARNINGS

Additional to RE 51.280.094.189 7.556.477.203 19.926.468.750 79.277.197.589 Profit after corporate income tax (Net income)

- Step 3: Profit & loss statement projections

Based on the weight ratios of the identified items, the author constructs the projected income statement as follows:

TABLE 4 3: PROJECTED PROFIT AND LOSS STATEMENT FOR

ITEMS 2022 2023 (Predict) Change from current year

Total operating revenues 4.510.394.614.092 4.822.964.960.849 312.570.346.757 Total direct operating expenses - 4.224.723.429.331 - 4.551.439.953.643 - 326.716.524.312 Gross insurance operating profit 285.671.184.761 271.525.007.206 - 14.146.177.555 Profit from investment properties 7.124.088.221 7.124.088.221 -

Profit before corporate income tax expenses 342.738.702.617 305.394.523.354 - 37.344.179.263 Corporate income tax expenses - 51.869.309.566 - 61.078.904.671 - 9.209.595.105 Profit after corporate income tax (Net income)

- Step 4: Statement of balance sheet projects and determines the capital needs to be mobilized

Based on the calculated fluctuations of the items directly influenced by revenue in step 2 and the result of the Profit after corporate income tax (Net income) in step 3, the author constructs the projected balance sheet as follows:

TABLE 4 4: PROJECTED BALANCE SHEET FOR THE YEAR 2023

ASSETS 2022 2023 (Predict) Change from current year

1 Reinsurance ceded unearned premium reserve 455.218.380.182 498.776.346.844 43.557.966.662

OWNERS'EQUITY 2022 2023 (Predict) Change from current year

The author predicts that in 2023, Bao Minh will require additional funding of X dong = 329.275.632.284 dong through either long-term borrowing* or by raising additional capital through issuing more shares**, where the value of the capital requirement X is determined by the difference between the total assets and total capital estimated for 2023 as shown in tables 4.3 and 4.4

The proposal to raise capital through long-term loan is calculated based on the analysis of the relationship between EBIT-EPS according to the projected FS for 2023 below:

Based on the projected FS for 2023, assuming Bao Minh needs to raise an additional 329.275.632.284 dong, the author compares the following two options:

+ Option 1: Long-term loan from the Joint Stock Commercial Bank for Investment

103 and Development of Vietnam (BIDV) at an interest rate of 6,5% per year (average interest rate according to the bank's website)

+ Option 2: Issuing an additional 32.927.563 shares at the issuance price equal to the par value of 10.000 dong per share (at the issuance price according to the 2021 FS) With the information provided on the projected FS for 2023: EBIT is 305.394.523.354 dong, the number of outstanding shares is 109.623.985 shares Assuming that in 2023, the distributed net profit to funds is 0 dong and no difference between net income and assessable income

TABLE 4 5: ANALYSIS OF THE RELATIONSHIP BETWEEN EBIT-EPS

ITEMS LONG-TERM LOANS COMMON SHARE

When comparing the two options, the long-term loans option provides higher income for shareholders By using this option, Bao Minh can also utilize tax shields to save 4.280.583.220 dong in CIT, as analyzed above Borrowing long-term capital also limits the dilution of control for existing shareholders However, this option also has some drawbacks, such as increasing the debt ratio, reducing liquidity and creating interest burdens

Looking at table 4.5, we can see that the amount of CIT tax saved is over 4,2 billion dong and the interest on loans to be paid amounts to 21,4 billion dong However, since

Bao Minh pays dividends in cash based on a percentage of equity capital, the author assumes that in 2023, Bao Minh will maintain the dividend payout ratio for shareholders at 15% of equity capital as in 2022 Here are the results:

TABLE 4 6: COMPARING THE DIVIDEND PAYMENTS BETWEEN THE

Long-term loan Common share Different Authorized capital

Dividend Payout on Authorized capital Ratio 15% 15%

Tiêu đề	Evaluating The Financial Performance Of Bao Minh Insurance Corporation
Tác giả	Le Doan Yen Nhi
Người hướng dẫn	Pham Hieu, MBA
Trường học	Ho Chi Minh City University of Technology and Education
Chuyên ngành	Accounting
Thể loại	Graduation Thesis
Năm xuất bản	2024
Thành phố	Ho Chi Minh City

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Số trang	163
Dung lượng	14,11 MB