50% of insurance industry’s assets exposed to gov’t securities; DDEP to disable industry’s ability to pay claims to policyholders
The Ghana Insurers Association (GIA) has requested to government that the latter exclude the industry from the announced Domestic Debt Exchange Programme (DDEP).
In a statement issued on Friday, December 9, 2022, by the GIA, failure by the government to exclude the industry from the DDEP will result in the inability of insurance companies to pay claims made by policy holders.
This, the GIA noted, is due to the fact that the insurance industry has over 50% (GHS 6.1bn) of its total assets invested in government securities.
“If there is debt exchange programme on the insurance industry, quite a sizeable amount of Insurers’ assets will be gone and insurance companies will be greatly challenged.
“Any reduction in investments of insurance companies will wipe away their ability to pay claims,” read parts of the statement by the GIA.
According to the GIA, the DDEP if applied to investments of the industry, will further compound the underwriting losses made by insurance firms.
Per the statement, insurance firms in the country made total underwriting losses of GHS 356m in the third quarter of 2022 alone.
“Since the industry is making underwriting losses overall, it means that insurance companies rely on investment income to meet their claim obligations to policy holders.
“Therefore, any debt exchange programme will negatively affect our ability to pay claims and lead to asset-liability mismatch.
“Taking into consideration the fact that insurance companies are making underwriting losses, the effect of the debt exchange programme will be so devastating that there will not be an insurance industry after we surmount the economic challenges,” said the GIA.
On the back of the concerns raised by the GIA, the Association recommended to government that, it pays to insurance companies accrued interests on government bonds so as to enable them pay claims that have already crystalized.
Adding that, insurance companies must be exempted from the DDEP as “in uncertain times like this, entities must protect their assets through insurance, which is the key risk management tool. Anything short of an exemption will have far reaching consequences for the insurance industry and the important role they play in protecting assets and liabilities.”
