Insurance industry solvency risks fairly contained – Report
The Bank of Ghana (BoG) in its 2020 Financial Stability Review report has said solvency risks present in the local insurance industry is fairly contained.
According to the Central Bank, in the year 2020, the industry’s Capital Adequacy Ratio (CAR) – a metric that measures the quality of available assets to meet obligations – stood at 415 per cent and 328 per cent for the life and non-life insurance subsectors respectively.
Exceeding the minimum requirement of 150 per cent CAR for both the life and non-life insurance industry in the review year.
Adding that, the industry’s total capital base increased to GHs 2.91 billion at end-December 2020 from GHS 2.53 billion at end- December 2019, a growth of 15 per cent over the financial year.
Solvency risk in the insurance industry, the BoG asserts was mitigated by the National Insurance Commission’s (NIC) GHS 50 million new minimum capital requirement directive to insurance firms in the country.
“To address solvency risk, the NIC has increased the minimum paid-up capital for the insurance industry. Insolvent insurance companies could leave policyholders exposed to various threats. To mitigate solvency risks and improve confidence in the insurance market, the NIC is enforcing a new minimum capital regime from 1st January, 2022 and is currently engaged with industry participants to ensure that companies are able to meet the new directive,” stated the BoG in the report.
“The outlook for the solvency position of insurance institutions within the industry remains positive especially with the on-going recapitalisation exercise,” the BoG added.
The on-going recapitalisation of the insurance industry the Central Bank further noted, is expected to further improve retention of insurance business in the country.
According to the Bank, in the year under review, non-life insurers retained 66 per cent of premiums, as compared to 84 per cent by life insurers. The lower retention ratio of non-life insurers was due to the nature of the risks underwritten and the high gross insurance risk ratio.
Gross premiums within the insurance industry, the Central Bank also noted, grew by 20.6 per cent in the review year. Gross premium at end-December 2020 stood at GHS 4.20 billion as compared to GHS 3.49 billion at end-December 2019.
The steady growth in gross premiums was attributable to the rollout of various alternative distribution channels on digital platforms and the introduction of a digital platform (Motor Insurance Database – MID) by the NIC in January, 2020.
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The MID, introduced in the review year, ensured that sales of insurance policies were not compromised during the pandemic and that premiums generated from motor insurance, were commensurate with the risks associated with the asset insured.
Total investment assets of insurance industry
The total investment assets of the insurance industry for the review period grew to GHS 5.7 billion at end-December 2020 from GH¢4.9 billion at endDecember 2019. In the non-life sub-sector, total investment assets amounted to GH¢1.9 billion, as compared to GH¢3.9 billion in the life sub-sector.
The total investment assets in both the non-life and life sub-sectors were concentrated in fixed income securities, with a gradual shift of investments to the real estate sector, moderating in 2020.
In the life subsector, investments were primarily in GoG and BoG securities (42.0%), investment properties (24.7%) and fixed deposits (19.5%). Similarly, in the nonlife sub-sector, investments were primarily in fixed deposits (28.5%), GoG and BoG securities (24.7%) and investment properties (24.7%).
Amid underwriting losses, investment income will continue to play a pivotal role in the near-to-medium-term sustainability of the Insurance industry.
