The Group Chief Executive Officer (CEO) of Hollard Ghana, Patience Akyianu has intimated that the recapitalization of the insurance industry will boost its capacity, improving insurance penetration rate which lingers around 1 percent.
Patience Akyianu posits that if there’s an extension of the June 2021 deadline for the enforcement of the new capital requirement due to the disruptions brought about by the pandemic which hit the economy early this year, slowing down economic output and consumer spending, it would not be in the industry’s best interests.
Although these submissions are contrary to the views of some industry players who propose that the recapitalization exercise will put a strain on existing firms, Patience Akyianu holds that a proper understanding of the rationale behind it and its potential impact shows that the move bodes well for the industry, as it will lead to enhanced capacity of firms, ensure greater resilience and drive the insurance penetration rate in the country.
“This is an industry in dire need of building capacity, and one of the ways this can be effectively achieved is through increasing the stated capital. This must be done as quickly as possible, as it will result in the creation of a stronger industry that will be able to take on more risk and be more supportive of businesses,” she opined.
The Group CEO further asserted that delaying the original timeframe set for recapitalization could result in an erosion of gains made recently by the industry in terms of premium gains.
Insurance firms who are unable to meet the new capital requirement can consider partnering others as they stand to benefit from such partnerships. Mergers present the opportunity to not only raise required capital but also pool together some of the best human resources which creates synergies and a situation that would serve to drive innovation and move the industry further.
“If raising the needed capital becomes very difficult, companies must look to partner the right people. It may be better to consolidate, as this would lead to improved effectiveness.”
Hollard Ghana for instance, is well-placed to meet the new minimum capital requirement internally through a combination of the capitalisation of relevant reserves it has built over time, particularly for its general business, with the possibility of a further injection for its life operations from the Hollard Group, Mrs. Akyianu revealed.
New Minimum Capital Requirement
In June 2019, the National Insurance Commission (NIC), the regulatory body in charge of the Insurance sector in Ghana announced a new minimum capital requirement for the different arms within the industry.
According to the latest financial sector review report released by the Bank of Ghana “to situate the industry for ‘deep-pockets’ to support ‘big-ticket’ transactions in line with macroeconomic development, the minimum operating capital was revised upward in the banking and insurance sectors”.
The recapitalization exercise is “to mainly ensure that insurance companies have enough capacity to absorb and retain risks in the country” as part of ongoing efforts to stabilise, strengthen and enhance the financial services sector’s capacity to support socio-economic development, the report added.
Henceforth, effective June 2021, the minimum capital requirement for Life and Non-Life entities will be tripling from GH¢15million to GH¢50million; reinsurance companies from GH¢40million to GH¢125million; and for insurance broking companies from GH¢300,000 to GH¢500,000.