AMIDST a low growth rate and high twin deficits (fiscal and current account deficits) which are weighing heavily on business performance,insurance companies in the country haveup tillMarch this year to raise their minimum capital, failing which they must go into mergersorsimply sell out.
Industry regulator, the National Insurance Commission (NIC) in its bid to tackle obstacles to growth in the sector is demanding capitalisation of GH¢15million from each insurer from the current GH¢5million.
In all, there are about 52 insurance companies currently operating in the country, made up of four reinsurance companies, 26 non-life and 22 life insurance companies.
Eventhough the industry has been reporting strong profits and good premium growth, over the years,significant challenges remain.
Large fiscal and current account deficits have eroded Ghana’s international reserve position while debt servicing costs are at high risk levels. With Ghanaians grappling with high cost of living, companies starved of credit and insurance sales increasingly becoming unattractive, analysts are expecting more difficult times for insurers, especially the providers down the ladder.
Checks done by the Business Finder revealed that less than half the total number of insurancecompanies may be able to recapitalise adequately as demanded by the NIC. This is due largely to the deterioration in the macro-economic environment which has resulted in rapidly declining business and consumer confidence.
This paper’s interactions with some insurers revealed their frustration over rising operational costs and the ramifications of some well intended policies from the regulator.
They blamed the situation squarely on the liquidity challenges facing the economy as both individuals and corporate institutions continue to struggle to meet their insurance obligations, a phenomenon which is in turn affecting the survival of the insurance companies.
The ‘No premium, No cover’ policy which has been hailed by industry participants as highly successful was introduced to prevent insurance companies from granting policies on credit but it has also reduced the patronage of comprehensive insurance in favour of third party cover.
“A clienthas bought a new car; she must insure comprehensively in order to benefit if she makes a claim but she is unable to pay the GH¢1,600 for the comprehensive cover; She is therefore compelled to opt for the third party cover which is worth GH¢109,” an official with an insurance company told this paper.
Insurers find it worrying that even though customers acknowledge the fact that they need to go for what provides a higher benefit, they do not have the means and are compelled to settle for less.
Additionally, corporate institutions expected to pay between GH¢50,000 and GH¢300,000 in premiums(depending on the policy they subscribe to) are unable to honour the payments due to the hostile business prospects in the country.
As things stand now, with little or no time to spare, majority of the insurerswho on their own cannot meet the capital requirement must necessarily go into acquisitions or mergers, with their attendant implicationsforthe companies in terms of growth prospects and long-term outlook.
President of the Ghana Insurers Association (GIA), the trade association of insurance and reinsurance companies, Mr Ivan Avereyireh told this paper the Association was yet to receive any formal complaint from any of its members with regard to the recapitalisation.
MrAvereyirehwho said he was confident most companies will successfully recapitalise under the guidance of the regulator, explained that “recapitalisation has to do with shareholders of the companies looking for assets to meet the requirements,”
“We have received no complaints because it is the shareholders of the companies who are determining decisions to recapitalise; they may only come to GIA to appeal for an extension of the deadline,”
According to the GIA Boss, “Companies must recapitalise, merge or sell out.” He cautioned that insurers to be wary of decisions to sell out their businesses, pointing out that “at this stage when you are selling and the company isn’t strong you won’t get what you put in.”
MrAvereyirehadvised young companies to partner one another to capitalise and continue with business.
“Where companies are facing challenges, it is prudent for two small companies to come together, pooltheir assets and liabilities and if their assets are more than their liabilities by the required capital, they will be licensed to operate,” he explained.
It is important to recall that there have been some mergers and acquisitions since 2013.
LeapFrog Investments, a specialist investor in emerging markets has recently acquired a majority stake in UT Life Insurance Company Ltd (UT Life).LeapFrog is set to inject capital, deep expertise and exceptional local knowledge into the companies into UT Life.
In January 2015, IVM Inter-insurer, an arm of Hollard Insurance, South Africa’s largest Insurance group bought a 51 per cent stake in Ghana’s Metropolitan Insurance Company (MET).
MET has recently rebranded as Hollard and the investor says it will use its new acquisition as a base from which to develop business regionally, especially in neighbouring Nigeria
One of the biggest acquisitions in recent years was the purchase of a 40 per cent stake in Enterprise Insurance, a non-life company by Sanlam Emerging Markets for $20.74 million. Sanlam already had significant interests in the group, owning 49 per cent of Enterprise Life and 40 per cent of that company’s pension administration arm.
In late 2013, Prudential PLCof the United Kingdom bought Ghana’s Express Life. Around the same time, Old Mutual, another South African company acquired a controlling interest in Provident Life Assurance.
Insurance analysts say French firm, AXA is looking seriously at the Ghanaian market and could possibly strike some collaboration with state insurer, SIC.
Capital requirements in the insurance industry have seen some adjustments since 1989, in tandem with global standards and most importantly to strengthen balance sheets and accounts of players.
The NIC in 2012 realised the industry was too small and so lacked the financial muscle to collectively insure big businesses such as “the oil business.”
“If the FPSO has to be insured, Ghanaian insurance companies can only take 1 per cent of the value to be insured ($1 billion), meaning the remaining 99 per cent must be insured internationally,” Deputy Commissionerof the NIC, MrKodjoDavor told Business Finder.
This, analysts say presents capacity challenges for the industry and justifies the regulator’s insistence that minimum capital be adjusted upwards.
The NIC is confident the new rules on capital growth will make the sector stronger and better prepared for risks.
“For insurance companies to operate efficiently there will be the need for them to at least have a minimum capitalisation of the cedi equivalent of $5million each.” MrDavor said.
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