Ghana Deals at Risk as Virus Threatens Insurance Revamp

ACCRA (Capital Markets in Africa) –  The spread of the coronavirus threatens to slow efforts by Ghana to overhaul its insurance industry as companies race to boost their capital levels.
“It will certainly have an impact,” Seth Eshun, head of supervision at the West African nation’s National Insurance Commission, said. “Because of Covid-19 there’s a slowdown in general economic activity, which implies that companies’ ability to generate revenue and make savings will be affected.”
Insurers seeking to tap foreign investors for funding may also struggle. For now, the directive remains in force with companies having until the end of June next year to raise as much as 900 million cedis ($160 million) to meet new capital thresholds, according to the regulator.
The recapitalization process could culminate in about five mergers, Eshun said.
“Some of them are talking to each other,” he said, declining to identify the companies. “Sometimes you need a certain minimum capital which would ensure that the companies can be profitable.”
The recapitalization will mark the end of Ghana’s financial sector reforms that started in 2017 with a more than threefold increase in minimum capital of banks. The regulator in June raised the minimum capital for both life and non-life insurance providers by more than a third to 50 million cedis. Re-insurers need to set aside 125 million cedis, from 40 million cedis previously.
Some firms are in talks with the stock exchange on initial public offerings, which will allow them to tap cash-rich private pensions, Eshun said.
In the event companies fall short, the commission will appoint an administrator to run their affairs or transfer their liabilities and assets to a stronger company, Eshun said. The industry collected 3 billion cedis in premium contributions in 2019, half of which was paid out in claims.
“There’ll be no policyholder that’ll be left hanging.”
Of the 22 life businesses in the country, 12 have already met the threshold, while the rest might need between 200 million cedis and 250 million cedis to get there. Eight of the 29 non-life companies are good to go, with the rest needing 400 million cedis to 500 million cedis. Of the three re-insurers, one has met the requirements, while the others require 150 million cedis.