Recapitalisation blues: Errant insurance companies seek cover – NIC engages defaulters

The National Insurance Commission (NIC) is engaging insurance companies who failed to meet the new minimum capital requirement to find an amicable solution, sources close to the regulator have told the Graphic Business.

The engagements have become necessary to protect the image of the industry, protect policy holders, and save jobs.

It has emerged that some insurance companies in the country have not been able to meet the minimum capital requirement set by the commission and which deadline expired on December 31, 2021.

The stated capital for life and non-life insurance companies moved from GHȼ15 million to GHȼ50 million, with that of reinsurance companies also moving from GHȼ40 million to GHȼ125 million.

Insurance broking companies had their stated capital also increased from GHȼ300,000 to GHȼ500,000, while that for reinsurance broking companies was maintained at the current GHȼ1 million.

The Graphic Business has gathered that some of the companies which were not able to meet the requirement have been written to by the commission and processes are currently underway to help them to meet the requirement or risk losing their licences.

Although the NIC is yet to make an official statement on the development, the sources indicated that, the regulator was currently engaging with the affected companies to resolve the issues in a way that will protect the image of the industry, protect policy holders and save jobs.

The sources tell the paper that some of the options being considered include the possibility of mergers.

“Yes, a few have not been able to meet the requirement but there is no cause for alarm. In their present state, they can pay claims and operate but our policy was to ensure that they have a stronger buffer.

“We are in constant engagement with them and we trust that in the next few months, all will be well,” one of the sources stated.

It is not clear what a formal announcement will do for the industry which alrready has very low penetration as a result of a myriad of reasons, chief of which is lack of trust and confidence in the industry.

Proposal on way forward

With regard to the way forward, the Founder and Executive Chairman of the Glico Group, Mr Kwame Akyeampong Kyei, has made a passionate appeal to the NIC to protect local indigenous insurance companies which failed to meet the new minimum requirement set by the commission.

He also urged the commission to collaborate with the Ghana Insurance Association (GIA) to lobby the government to establish a special purpose investment vehicle to support indigenous insurance companies to recapitalise and remain in business, just as was done for some of the indigenous banks.

Mr Akyeampong Kyei who is regarded as one of the most outstanding players in the insurance industry, made this appeal when he gave the keynote address at the investiture of the new executive of the GIA.

NIC consultations

The NIC in June 2019 announced a new capital requirement for insurance companies operating in the country after a series of consultations and discussions between the industry players and the regulator.

All the companies were expected to meet this new requirement by June 30, 2021. However, six months to the deadline, the NIC extended the deadline by a further six months to January 2020 due to the outbreak of the COVID-19 pandemic which hit hard at businesses all over the world.

Despite the deadline elapsing last month, the NIC is yet to make any official statement on the status of insurance companies in the country after the deadline.

Confidence in industry

Mr Akyeampong Kyei noted that, unlike banks, the insurance industry could be likened to a house of cards, where any action against one company could have very severe impact on the whole industry, hence the need for the NIC to tread with caution.

“The industry is hinged on public perception and any major adverse public perception of weaknesses or troubles such as the collapse of some companies could have domino effect on the industry. If the recent banking crisis had hit the insurance industry, it would have found out it hard to stand back on its feet. Thankfully, as an insurance industry, we are not facing any crisis. However, the requirements for recapitalisation may result in some insurance companies, particularly the indigenous ones, either collapsing or being bought by foreign companies,” he explained.

He said if that should happen, it would create a negative public perception and this would adversely affect the business of the industry.

“On the other hand, if the affected indigenous affected companies are acquired by foreign companies, we will have a case of an insurance industry being dominated by foreign investors, which would come with the consequences of capital flight and profit repatriation, which could seriously affect the economy,” he stated.

Indigenous companies vital to economy

Mr Akyeampong-Kyei noted that indigenous insurance companies were very vital in the development of the insurance industry and the economy as a whole.

“These companies provide employment opportunities for indigenes and profits made by such companies are kept within the country for development.

“They also pay taxes to support government’s efforts to develop the country, so the growth and success of indigenous companies inure to the benefit of the country,” he noted.

Strengthening corporate governance

The renowned entrepreneur advised managements of insurance companies to also strengthen their corporate governance structures to ensure the sustained operation of robust companies within the industry.

He said management must at all times have an absolute sense of ownership of the companies entrusted to them by the boards.

“Without an ownership intellect, management may focus only on achieving targets by any means necessary so as to be rewarded with bonuses and other incentives and in the process take on all liabilities or create unmitigated risks that will put the companies in serious financial distress.

“The management must seek to entrench good corporate governance,” he stated.

He also urged the boards of the companies to step up their key role of improving leadership to the companies and delivering on shareholder’s value.

“The boards must ensure that the governance framework includes empowering management and also putting in place measures that will benefit the company,” he said.

NIC response

The Commissioner of Insurance, Dr Justice Yaw Ofori, who was also present at the event, said the NIC would take the recommendation of Dr Akyeampong Kyei in good faith and consider it.

“I have listened to all that my big brother has said and I’ve taken them in good faith and will work on them. We all have to be dedicated and respect the industry that we represent. I also urge the leadership of the association to collaborate well with the NIC and other trade associations to deepen the industry,” he stated.

Source: Daily Graphic