COVID-19 With no source of growth and no cure in sight, insurance recapitalisation remains in limbo

The National Insurance Commission (NIC) in June last year announced new minimum capital requirements for players in the insurance space, as part of a broader plan to increase the sector’s financial stability and capacity to handle bigger risks or big ticket transactions.

The commission wants insurance companies to increase their stated capital from GH¢15million to GH¢50million. Reinsurers, meanwhile, are expected to boost their capital from GH¢40million to GH¢125million; while insurance intermediaries are also facing a new capital demand, with brokers being asked to hold GH¢500,000 – up from GH¢300,000. The companies have until June 30, 2021 to meet the new levels.

However, with the spread of novel coronavirus – which has led to a slowdown in economic activity and consequently lower than expected economic growth not only in Ghana but the world at large – it is becoming increasingly impossible for players to raise the sums being demanded in the current market conditions.

The pandemic has left no aspect of the world economy untouched. For instance, Ghana’s Gross Domestic Product (GDP) growth was projected to grow between 6 and 7 percent but has now been revised downward to less than 2 percent in light of the COVID-19 crisis, as the country’s economy faces disruptions from a variety of directions, according to Deloitte Africa.  The International Monetary Fund (IMF) meanwhile expects the global economy to contract by 3 percent, as against its earlier projection of a 3.3 percent expansion this year.

More compellingly, scientists and the World Health Organisation are not expecting a cure for the deadly virus to be ready until after 18 months – which potentially means the current economic climate is likely to extend into 2021, leaving players with little chance of raising enough capital to be able to beat the current deadline.

Already, the NIC has pointed to a slowdown in the life insurance business sub-sector. Kofi Andoh, a Deputy Commissioner at the NIC, via a media conversation said because life insurance policies are mostly sold physically, the three-week lockdown that was observed in the country’s two biggest economic hubs, Accra and Kumasi – coupled with preventive health measures such as social distancing – is disrupting that segment of the industry.

“There are some expected or assumed cases; but because we do not have the figures now, we don’t know exactly to what extent. But we are expecting that the life insurance space will be hit a little bit harder, because life insurance is usually sold by agents,” he said.

An analysis of life insurance distribution channels, according to him, shows that around 65percent of life businesses are sold through agents. “So, when you have this lockdown and social distancing, you have businesses slowing down because insurance is sold and not bought,” Mr. Andoh added.

Starkly, it means that the current insurance penetration rate of under 2 percent of the population could dip further; thereby eroding the modest gains made over the years.

With no growth expected due to the COVID-19-induced economic crisis, it is practically beyond the bounds of possibility for industry players – many of whom were already struggling or in intensive care – to be able to raise the sums being asked by the regulator.

Although recapitalisation of the industry is long overdue, considering the sizeable increase in the value of insured assets and the negative effect of frail macro conditions since the last exercise in 2015, conversations about extending the deadline have become vital, given the prevailing weak investor sentiment brought about by the coronavirus pandemic.

In Nigeria, for instance – where a similar exercise is to be carried out, discussions about an extension beyond the June 30, 2020 deadline has already started, and they are proposing an extension of 36 months.

Ideally, an extension of at least an additional 24 months, according to B&FT sources who pleaded anonymity, would be widely accepted by the local industry.


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