The insurance industry retained 79 percent of the premium income received in the year 2019.

This was captured in the Financial Stability Review Report released on September 30, 2020, by the Bank of Ghana.

The report indicated that the dampening of solvency risk and a robust capital base reinforced the high retention ratio recorded.

“The high retention ratio is broadly supported by a strong capital base, dampening solvency risk. The capital base of the insurance sector grew at an annual rate of 22 percent to settle at GH₵2.53 billion at end-December 2019, improving the CAR position of insurers. At end-December 2019, the CAR of the life and non-life insurance segment of the insurance sector respectively stood at 535 percent and 330 percent, well above the regulatory minimum CAR of 150 percent”.

Again, the report stated that as a result of the entrant of new firms into the insurance industry and the institution of regulatory reforms by the National Insurance Commission (NIC) capital base improved.

“The improvement in capital is underpinned by the entry of new firms and recent regulatory reforms introduced by the NIC to strengthen the financial position of insurers through the introduction of a risk-based solvency regime, implementation of sound corporate governance practices, risk management frameworks and the ongoing recapitalisation exercise”.

The report further asserted that whereas life insurers retained 98 percent of their premium, non-life insurers retained 68 percent of their premium.

According to the report, “the low retention ratio of premium by non-life insurers is partly due to the nature of risks underwritten and high gross premium to capital ratio. On the other hand, the high retention ratio among life insurers is mainly due to the increased purchasing of savings-linked insurance products and the long-term nature of their actuarial liabilities”.

The report went on to say it’s anticipated that the National Insurance Commission’s recapitalisation exercise is going to drive risk retention and underwriting of pure risk insurance products for non-life insurers and life insurers respectively.

“The implementation of the recapitalisation exercise by the NIC is expected to drive risk retention in the non-life insurance segments and also drive the [underwriting] of pure risks insurance products for Life insurers”.

The report also added that as a result of underwriting losses and the waning of investment earnings, return on equity deteriorated for insurance companies, including life and non-life insurers. To deal with such unexpected losses and declines the report suggested that insurers put in place measures to control cost, address underwriting issues and losses.

“Underwriting losses and declining investment yields are risks to the profitability within the insurance industry. For both life insurance and non-life insurance companies, the combination of weak underwriting performance and declining investment income has led to a reduction in Return on Equity. Given the general decline in investment income and underwriting losses, there is the need for insurers to strengthen their cost control measures, deal with underpricing issues and adjust business models to address underwriting losses”.

In conclusion, the report said that efficiency is likely to improve with the institution of the new minimum capital requirement system.