Insurance: Industry solvency risk fairly contained – Report
The 2021 Financial Stability Review report by the Bank of Ghana, indicates that, solvency risk in the insurance industry continues to be fairly contained, with a positive and stable outlook into the near future.
Per the report, the total capital base for the insurance industry grew by 33.0 per cent to GH₵3.88 billion in 2021, from GH₵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 456.0
per cent and 524.0 per cent in the Non-Life and Life sectors, respectively.
“The maintenance of CAR above the required 150.0 per cent will partly depend on the willingness of the insurance industry to stick to and continuously improve on good corporate governance practices,” said the report.
The industry’s total investment assets grew by 26 per cent to GH₵7.1 billion at year-end 2021 from GH₵ 5.7 billion at year-end 2020.
Investment assets in the Life sector amounted to GH₵ 4.8 billion compared to GH₵ 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.
For the review period, the investment portfolio in the insurance industry was diverse. In the Life sector, investments were concentrated in GoG and BoG securities (49.0%), followed by the real estate sector (20.0%) and fixed deposits (16.0%).
In the non-life sector, investments were concentrated in GoG and BoG securities (35%) followed by the fixed deposits (26.0%) and listed securities (20.0%). In the near to medium term, the sustainability of the insurance industry will continue to be propelled by investment income.
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 expected to build on the recapitalisation exercise to institute efficient and effective cost measures to improve underwriting results in the near to medium term.
