The National Insurance Commission (NIC) is proposing a new minimum capital requirement of GH¢50 million for insurance companies. This will represent an increase of about 233% from the current minimum of GH¢15 million.
The commission is in the process of putting together a strong proposal to back the new capital requirement.
“We’re considering GH¢50 million capital requirement for the insurance sector, both life and non-life, and GH¢150 million for the reinsurance companies,” Simon Nerro Davor, Deputy Commissioner of the NIC told the Daily Express in an interview.
Mr. Davor mentioned that Ghana’s economy is growing but 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. 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 GH¢2 million. The subsequent 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 increase in the minimum capital requirement to GHc15 million.”
The NIC, he said, is in discussions with the Ministry of Finance for a further increase to make sure the companies can operate more efficiently and able to undertake bigger transactions in the economy.
The insurance industry for the past five years has been growing at an average of 24% annually in terms of premium generation for both life and non-life businesses.
Last year, the sector managed to generate a total gross premium of GH¢1.93 billion, rising from GH¢1.56 billion in 2015. The gross premium excluded reinsurance companies.
In terms of asset base of the industry (Life and non-Life), as at the end of 2016 the industry had GH¢3.76 billion, rising from GH¢3,06 billion.
Mr. Davor explained 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, 3 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 GH¢2.8 billion, rising from GH¢2.1 billion, excluding the Reinsurance sector.
“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%.”
A Financial Analyst, Jerry Afolabi, lauded the National Insurance Commission for conceiving the idea of increasing the minimum capital requirement.
“At a point where the banks are being asked to increase their capital to GH¢400 million, it is important that an industry such as the insurance sector will prepare to meet the challenges ahead,” he told the Daily Express.
“Personally, I think the GH¢50 million is even too small. Between GH¢50 million and GH¢80 million will not be bad at all,” he suggested.
Source: Fred Sarpong