The National Insurance Commission has finally confirmed its increase in the minimum capital requirement for insurance companies in the country from GHc15million to GHc50 million. According to a statement from the NIC, insurance companies have up until June 30, 2021, to meet the new minimum capital requirement.
This ends months of speculation and intense debate from stakeholders since the NIC’s intentions in this regard were first leaked to the media – apparently before a firm decision had been made. The increase almost exactly mirrors the magnitude of the 233 percent increase in the universal banking industry’s minimum capital, effected last year.
Importantly, NIC is also preparing to introduce risk based capital requirements, under which some insurance firms may be required to provide additional capital to support extraordinary risks.
Many insurance firms have been protesting the new minimum capital level since it was first leaked to the public, arguing that it is more than needed by most insurers considering their business volumes and risk profiles. Instructively, the Ghana Actuaries Society agrees, arguing that risk based capital requirements should replace an across the board minimum capital requirement altogether.
The minimum capital requirement for Reinsurance companies will increase from GHc40 million to GH¢ 125 million.
Insurance Broking companies Loss Adjustors will also see its minimum capital increased from GHc 300,000 to GHc 500,000
However, Reinsurance Broking companies’ minimum capital will see no increment and will remain at GH¢ l million
“As part of ongoing efforts to stabilise, strengthen and enhance the capacity of the financial services sector to support socio-economic development, the National insurance Commission has revised the Minimum Capital Requirements of all insurance entities,” the statement said.
The statement signed by the Commissioner of Insurance, Justice Yaw Ofori added that “The new Minimum Capital Requirements for the insurance industry will help strengthen the balance sheets of regulated insurance entities, thereby enhancing their underwriting capacity, make resources available for investment in essential technology and the development and distribution of appropriate products which will help increase insurance penetration.”
But perhaps most importantly, bigger capital will enable insurers to retain more of the risks they underwrite locally, and thus cede less to foreign reinsurers which require passing on an inordinate proportion of the premiums paid by clients as reinsurance premiums paid in foreign exchange on policies whose primary premiums are paid in cedis. This practice has caused major foreign exchange outflows.
NIC said, increasing the minimum capital requirement is only one of a number of steps being taken by the NIC to develop a robust insurance industry.
Other steps include improving strengthening the regulatory framework, implementation of Risk-Based Supervision and solvency requirements, strengthening risk management and Corporate Governance structures and practices within the industry and thus improving the claims payment culture. The regulator is also seeking to expand the scope of risks addressed by Ghana’s insurance companies and enforce laws that require insurance cover to be provided locally rather than from abroad.
The Commission has, therefore, urged insurance companies to ensure that they are adequately capitalized to bear the risks they underwrite.
Currently, there are 142 regulated insurance entities made up of 24 life insurance companies, 29 non-life insurance companies, three reinsurance companies and 85 insurance brokers and loss adjusters.
The total assets of the insurance sector as of 2018 is in excess of GH¢6billion and the total Gross Written Premium is about GH¢3 billion.
By Toma Imirhe