Deloitte urges insurance firms explore alternative investments amid regulatory changes
Deloitte is urging insurance companies in Ghana to seize the opportunities presented by regulatory interventions by the National Insurance Commission (NIC) and consider diversifying their investment choices to enhance returns.
In its 2023 Africa Insurance Outlook Update, Deloitte underscores the significance of insurance companies maintaining diversified investment portfolios, particularly in light of the Domestic Debt Exchange Programme (DDEP).
While the DDEP is still in its early stages, industry consensus points to its long-term impact on the insurance sector. Deloitte suggests that, although the program aims to alleviate the country’s debt burden, it may also have implications for insurance companies’ return on investment.
Consequently, insurers are encouraged to leverage regulatory measures and explore alternative investment avenues to bolster their returns.
Liquidity risk stands out as a critical challenge facing Ghana’s insurance industry. Deloitte notes that if the new debt instruments resulting from the DDEP have extended maturities, insurance companies may find themselves holding onto these assets for longer durations than anticipated.
Additionally, limited tradability of old bonds could reduce liquidity, potentially affecting insurers’ ability to meet claims. The NIC has addressed this issue by revising claims payment guidelines, extending the timeframes for both non-life and life claims, and streamlining the claims payment process.
To alleviate liquidity concerns, the NIC has also announced plans to release up to 50% of the minimum statutory deposit to eligible regulated entities upon request.
In Ghana, insurers, like banks, have significant holdings in bonds. According to the Ghana Insurers Association (GIA), government securities represent 40% of the industry’s total assets, amounting to GHS 11.5 billion.
While this allocation is expected to decrease slightly in the future, it highlights the profound impact of the DDEP on the profitability and investment strategies of insurance companies in the country.
