Insurance firms risk losing 50% of assets to domestic debt exchange programme - GIA warns

The Ghana Insurers Association (GIA), has cautioned that insurance firms are at risk of losing about 50 percent of their assets invested in government securities, banks, and fund managers if the domestic debt exchange programme of the government does not exempt the sector.

According to the GIA, whilst about 40 percent of the sector assets are invested in government securities, an additional 10 percent are exposed in the hands of licensed banks and fund managers.

“Insurance companies invested over GH₵1.5 billion in terms of deposits with licensed banks and money market mutual funds. Considering the fact that these banks and fund management companies have also invested in the government of Ghana securities, the debt exchange will further compound the investment base of the insurance industry, since 40 percent of our investments are directly exposed to the government of Ghana securities and an additional 10 percent exposure from the licensed banks and fund managers will further worsen our situation,” the NIC stated.

The statistics show that non-life insurance funds of the companies invested in government securities stand at GH₵4,929,714,527, whilst that of life insurance is GH₵6,604,295,694, totaling about GH₵11,534,010,22 for the third quarter only. Overall total assets in GOG securities are 40 percent.

This means if there is a domestic debt exchange quite a sizeable number of insurers’ assets will be gone and insurance companies will be highly challenged.

Furthermore, the association indicated that insurance companies made an underwriting loss of GH₵356 million for both life and non-life in the third quarter of the year, meaning that insurance companies would rely on investment income to meet their claim obligations to policy holders.

Therefore, any debt exchange will negatively affect the ability to pay claims and lead to an asset-liability mismatch, a situation that will negatively affect the planned cash flow of insurance companies.

The GIA, with the backdrop, therefore, cautions that insurance companies must be exempted from the domestic debt exchange Programme because, in uncertain times like this, entities must protect their assets through insurance, which is the key risk management tool.

“Anything short of an exemption will have far-reaching consequences for the insurance industry and the important role they play in protecting assets and liabilities. The accrued interest on the government of Ghana Bonds should be paid to insurance companies to enable them to pay claims that have already crystalized,” GIA urged.

The GIA Stressed that Insurance has been identified as one of the important tools for increasing financial inclusion from the current 58 percent to 75 percent by the year 2023. There must therefore be actions of the government that repose confidence in insurance. This is important to help formalize the informal sector which constitutes over 80 percent of the Ghanaian workforce.

The Association maintains that this exemption is also very critical as some insurance companies still have their funds locked up in banks and other institutions which were part of the banking cleanup.

The Government must ensure the release of these funds to the insurance companies concerned to help improve liquidity.