Insurance premiums paid in the country increased by 22% as at the end of December 2019, as compared to 18% at the end of December 2018, the Bank of Ghana (BoG) says in its Financial Stability Review.
According to the report, the total assets of the insurance industry also grew at an annual rate of 19% to GHC6.54 billion as at the end of December 2019.
The improved growth can be attributed to improvement in the operational environment of the insurance sector and policy reforms. The BoG report says the solvency risk within the insurance industry has also remained broadly contained.
In the year under review, the National Insurance Commission (NIC) continued to work closely with industry players to address issues on underpricing, underwriting capacity, enforcement of compulsory insurance, market conduct practices and claims management.
“Going forward, risks associated with premium income growth is expected to remain subdued given favourable economic prospects, the broad-based introduction of innovative insurance products (micro-insurance etc), the recapitalisation exercise, implementation of the Motor Insurance Database (MID), and the expected passage of the draft Insurance Bill, among others,” the report said.
Penetration still low
Despite increases in premium income, the insurance penetration remains unchanged. From December 2014 to December 2019, insurance penetration, which is defined as the proportion of premium income in comparison to gross domestic product has remained relatively stable at roughly 1%.
The low level of penetration suggests that the insurance industry has significant room to grow.
In the medium term, the outlook remains positive on the back of an enhanced risk-based solvency regime, the broad-based introduction of innovative insurance products, and new minimum capital requirements, the report says.
The report also says that the pensions sector continued to expand in 2019 despite emerging vulnerabilities from weak investment outturns.
Growth in pension funds
Total pension funds grew by 18% year-on-year to GHC26.29 billion – 7.5% of GDP at the end of December 2019.
The strong growth was driven mainly by private pension funds.
“Broadly, the pensions sector exhibits strong potential for growth in the medium to long term as policy measures are targeted at increasing contributions flows, improving the sustainability of the public pension fund and broadening the third-tier scheme via the inclusion of the informal sector,” the report says.
It adds: “The consistent rise in benefit payouts from the public pension scheme amidst a stable dependency ratio (pensioners to active contributors) suggests that enforcement of mandatory contributions and optimisation of investment returns remain critical in ensuring the sustainability of the public pension fund.”
According to the report, overseas reinsurance premium transfers generally increased in 2019.
The NIC approved the transfer of reinsurance premiums amounting to GHC222.5 million in the course of the year, a substantial increase on the GHC79.74 million recorded in 2018.
“The government’s objective of driving private sector growth and industrialisation is expected to increase overseas reinsurance premium transfers in the short term,” the report says.
In the medium term, however, the recapitalisation efforts of insurers and reinsurers will probably drive the overseas reinsurance premium transfers significantly downwards.