Insurance firms grow capital base to GHS 3.8bn in 2021 – Report
The 2021 Financial Stability Review report indicates that the total capital base for the insurance industry grew by 33% to GHS 3.88 billion in 2021 from GHS 2.91 billion in 2020.
This improved the Capital Adequacy Ratio (CAR) in both the Non-Life and Life sectors of the insurance industry. In 2021, the industry average CAR improved to 456% and 524% in the Non-Life and Life sectors, respectively.
The maintenance of CAR above the required 150%, the report said, will partly depend on the willingness of the insurance industry to stick to and continuously improve on good corporate governance practices.
Provisional results by the National Insurance Commission indicate that solvency risk continues to be fairly contained, with a positive and stable outlook into the near future.
Gross premiums for the review period increased by 19% in 2021. Gross premiums stood at GHS 54.70 billion in the review year, compared to GHS 3.95 billion in 2020. Premiums grew on the back of the digitisation drive by NIC.
In 2021, Return on Equity improved significantly for the Life sector. In contrast, the Non-Life sector witnessed a slump.
With respect to the Life sector, the increase was propelled by investment income which compensated for the poor underwriting results in the sector.
In the non-Life sector, the slump was partly due to the implementation of the new Minimum Capital Requirements, which pumped up the equity base of most Non-Life insurers, as underwriting and investment returns improved over the period. Broadly, profitability risk remained contained in 2021.
Insurers are therefore expected to build on the recapitalisation exercise to institute efficient and effective cost measures to improve underwriting results in the near to medium term.
Total investment assets grew by 26% to ¢7.1 billion at year-end 2021 from ¢5.7 billion at year-end 2020.
Investment assets in the Life sector amounted to ¢5 4.8 billion compared to ¢2.8 billion in the Non-Life sector. Both Life and Non-Life sectors maintained the trend of having the concentration of investment assets in fixed income instruments.
For the first time in three years, growth in real estate investments for the Non-Life sector plummeted. On both fronts (Life and Non-Life sectors), investment assets continue to be concentrated in Government of Ghana (GoG) and Bank of Ghana (BoG) securities.
The retention ratio continued its ascendancy in 2021 on both fronts (Non-Life and Life sectors).
Whereas Non-Life insurers retained 70.0% of premiums, Life insurers retained 89.0%. The relatively lower retention ratio for non-life insurers, the NIC pointed out, continues to reflect the nature of risks underwritten and the high gross premiums, relative to capital ratio in the industry.
On the other hand, the high retention ratio among Life insurers can be generally attributed to compliance with the NIC’s Reinsurance Guidelines, and specifically to the demand for savings-linked insurance products and the long-term nature of their actuarial liabilities.
In the medium to long-term, it is expected that improved capitalisation will lead to a higher retention ratio in the Non-Life sector while encouraging the underwriting of pure risk insurance products in the Life sector.
The NIC as of December 2021, had approved ¢ 278 million in respect of overseas reinsurance premium transfers.
