Africa’s leading professional services firm, Deloitte, is urging insurance firms to take advantage of the regulatory interventions by the National Insurance Commission and explore alternative investment choices to boost returns.

In its 2023 Africa Insurance Outlook Update, it said the Domestic Debt Exchange Programme (DDEP) underscores the importance of insurance companies having a diversified investment portfolio.

According to the firm, despite the Domestic Debt Exchange Programme being in the early stages, there is consensus on the long-term impact on the insurance industry.

“While the programme is expected to alleviate the country’s debt burden, it is also likely to impair the return on investment for insurance companies. Insurers are encouraged to take advantage of the regulatory interventions and explore alternative investment choices to boost returns”.

Insurance industry faces liquidity challenges

One of the most significant challenges to Ghana’s insurance industry is liquidity risk.

Deloitte said if the new debt instruments resulting from the DDEP have longer maturities, an insurance company may need to hold onto them for longer than anticipated.

“Again, the tradability of the old bonds is expected to be limited, thereby reducing liquidity and potentially affecting the ability to pay claims”, it added.

The NIC has approved revisions to the claims payment guidelines to address this.

The number of working days within which non-life and life claims are to be paid will be increased from 5 to 15, and 3 to 15, respectively.

The maximum period within which all processes leading to the payment of claims should be completed will also be increased from 4 to 8 weeks.

To shore up liquidity, the NIC will release up to 50% of the minimum statutory deposit to eligible regulated entities upon request

DDEP impact on profitability

In Ghana, insurers like banks have substantial holdings in bonds.

According to the Ghana Insurers Association (GIA), government securities account for ¢11.5 billion or 40% of the industry’s total assets.

This is anticipated to decrease slightly going forward.