By: Fred Yaw SARPONG
fsarpong@theeventpr.com
The National Insurance Commission (NIC), the regulator of the insurance sector in Ghana is proposing a minimum capital requirements of GHc50 million for all the industry players.
The commission is in the process of putting together a strong proposal to back the GHc50 million minimum capital requirements.
The National Insurance Commission is yet to finalize the proposal. However, the commission is putting place data to support the proposed GHc50 million capital requirements.
“We’re considering GHc50 million capital requirements for the insurance sector (both life and non-life) and GHc150 million for the Reinsurance companies in the country,” Mr. Simon Nerro Davor, the Deputy Commissioner of NIC told the Daily Express in an interview.
Why the increased
Mr. Davor mentioned that Ghana’s economy is growing and the size of the insurance industry in the country is too small. “If you cannot do big business, you cannot benefit from all the projects coming on. Project such as such as the floating production storage and offloading (FPSOs).”
He mentioned that because the size of the insurance industry in terms of capitalization is too small, the companies are unable to invest in bigger projects.
“When you take the FPSO Kwame Nkrumah for instance, the whole insurance industry in Ghana could only take up 1% investment in the project. That time the capital was GHc2 million. The subsequence FPSOs, Atta Mills and J.A. Kuffour the insurance companies were able to take 2% of the investment portfolio. And that was as a result of the increased in the minimum capital requirement to GHc15 million,” he explained further.
Mr. Davor stated that even after the increase to GHc15 million, they realized that still the companies capitals are very small.
“We are currently in discussions with the sector minister at the Ministry of Finance so that we make a fresh proposals to the minister for consideration to allow us further increase the capital to GHc50 million. This is to make sure the companies can operate more efficiently and should be able to undertake bigger transactions in the economy.”
The Daily Express understands that while the insurance companies are made to pay GHc50 million capital requirements, the Reinsurance firms which takes bigger risk even more than the banks may required to pay GHc150 million as their capital. The Reinsurance companies are currently paying GHc40 million as capital.
Industry performance
“The insurance industry for the past five years has been growing at averagely of 24% annually in terms of premium generation for both life and non-life businesses,” Mr. Davor told the Daily Express.
Last year, the sector managed to generate total gross premium of GHc1.93 billion, rising from GHc1.56 billion in 2015.
In terms of asset base of the industry (Life and non-Life), as at the end of 2016 the industry had GHc3.76 billion, rising from GHc3,06 billion. This asset base and the gross premium excluded Reinsurance companies.
The Reinsurance, are the companies which the insurance firms (Life and non-Life) try to seed some of the risks to. They are also the transfers risk mechanism for the insurance companies.
Mr. Davor explained further that when the insurance companies take up the risk and they know that they cannot bear the full risk, they send the risk to the Reinsurance companies so that if something happens they will bear the additional cost.
In Ghana, there are 52 insurance companies. Three are Reinsurance companies, 27 are general or non-life insurance companies and 22 life insurance entities.
“The companies try as much as possible to invest in good assets like government bonds and Bank of Ghana (BoG) securities,” he told the Daily Express.
As at the end of 2016, the total investment portfolio for the insurance companies stood at GHc2.8 billion, rising from GHc2.1 billion, excluding the Reinsurance sector.
Concerns
“Our major concern about the industry now is how or what can we do to improve the insurance knowledge and penetration in the country. This is because the contribution of insurance to the gross domestic product (GDP) of the country is still below 2%.”
“So our major challenge now is how we can improve upon the level of penetration in the country. And one sure way of doing that is to try and increase the capital base so that they should be in a position to do more or bigger business so that they can improve upon their performances.”
He said that was why in 2015 the commission increased slightly the company’s capital level from GHc2 million to GHc15 million. “The deadline was December, 2015. As at now almost all the insurance companies have been able to meet the requirement except three companies,” he added.
According to him, the commission however gave these three companies some extensions for them to meet, due to some peculiars challenge. “We gave them up to the end of September, this year to meet it. With the efforts and action plans they submitted to us we think they should be able meet it by this month ending,” he told the Daily Expresss.
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