Ghana Re battles legal cession removal

GHANA RE has noted that but for the fact that some insurance companies voluntarily withdrew from the special quota share agreement with a view to posting higher premium income in their balance sheets, its premium income growth would have been high by now.

The company’s management, which made this known to CITY & BUSINESS GUIDE recently, said the company’s huge outstanding premium debts due mainly from local insurance companies was a major challenge.

Gustav Siale, Chief Executive Officer (CEO) of Ghana Re, mentioned that “this challenge has gained the attention of the company’s international rating companies to the extent that these companies have posted a slightly decreased rating status for the company.”

“The withdrawal of the compulsory cession was a test case for the company because it constituted over 60 percent of its premium income.

“However, the two-year moratorium granted the company by the National Insurance Commission (NIC) gave Ghana Re’s management some latitude to formulate strategies to mitigate the effects of the withdrawal of the compulsory cession.”

The strategies included negotiations with local insurance companies to convert the legal cession into a quota share arrangement with enhanced commission rates and the introduction of profit commission, which hitherto was not part of the previous arrangement but which forms part of a treaty contract.

As part of measures to reduce the outstanding premium debt position, Mr. Siale said management was granting discounts to companies with long standing debts to make good such debts and to enable both parties to clean their books.

“This move has shown a relatively positive effect on the company’s balance sheet.”

Before the implementation of the current Insurance Law, Insurance Act 2006, Act 174, Ghana Re used to enjoy a 20 percent legal cession on all insurance policies and 5 percent of the compulsory cession. Ghana Re was granted a two-year moratorium, which ended in December 2008.

Ghana Re Reinsurance Company, originally known as Ghana Reinsurance Organization (GRO), was established as a unit of the State Insurance Corporation, (now SIC insurance Company).

It gained its autonomy in 1984 and was incorporated as a limited liability company in 1995 with 100 percent Ghana government shareholding.

Mr Siale commented: “Before the implementation of the law abrogating the legal cession, Ghana Reinsurance’s premium income in 2008 was a little above GHS35 million. By year end 2009, the company’s premium income stood at GHS49.2 million, showing a hike of 40.5 percent over the previous year’s premium income.

By the close of 2011, the company had recorded a premium income of GHS45.9 million. It is expected that by the close of 2012, Ghana Reinsurance would exceed GHS50 million by way of gross premium income.

In addition, Ghana Reinsurance’s management is intensifying its technical support by contributing towards the development of new products especially in the area of life insurance.

Again, management embarked on an intense marketing drive both locally and internationally. The main focus was on the international market with the objective of increasing the premium income generated from overseas markets.

Management is also increasing its training support to the insurance industry by organizing tailor-made programmes and attachments to companies that require them.

The company also organizes an annual international training programme for both its local and international partners.

Ghana Re is organizing the 7th in the series of international seminars in Advance Property Insurance slated from February 18-22 at the Volta Hotel, Akosombo.

Participants have been drawn from Sudan, Kenya, Zambia, Sierra Leone, Liberia, Nigeria and the Gambia.

In order to accelerate the growth of the company’s overseas premium income, Ghana Reinsurance has set up a subsidiary in Cameroon and contact office in Kenya.

These positive moves have considerably stemmed the anticipated negative effects of the withdrawal of the legal cession.

“Although the journey ahead of Ghana Reinsurance appears challenging, it is expected that with the strong resolve on the part of management of the company to make a positive impact, the obstacles will certainly be confronted with vigour,” Mr Siale indicates.

The objectives for establishing Ghana Re include increasing retention capacity within the country so as to reduce the outflow to foreign exchange, contributing towards the growth and development of local expertise in insurance and related fields and finally generating funds for investment in the national economy.