Major players in Ghana's life insurance segment weigh routes to profitability

Performance in the Ghanaian life insurance market has shown mixed results. While some providers have remained profitable despite the challenging environment caused by the crisis in the banking sector (see Banking chapter), others are struggling to achieve underwriting profitability. Those that are securing a margin are doing so with the help of high levels of investment income stemming from the country’s double-digit interest rates. A growing middle class and the recent increase of micro-insurance products, where life policies are particularly strong, suggest that the segment has potential; however, expansion has remained behind its non-life counterpart, showing an 8% increase in assets in 2018, compared to non-life’s 28%.

Mixed Picture

Ghana’s largest life insurers, whose underwriting standards tend to be the highest, have shown their ability to secure profit. The largest provider by assets, Enterprise Life, posted a profit after tax of GHS73m ($14.1m) in 2018, while two other major players, StarLife Assurance and SIC Life Insurance, reported figures of GHS24m ($4.6m) and GHS23m ($4.5m), respectively. The aggregate performance of the segment, however, is more mixed. The return-onequity ratio has been falling over the past six years, and in 2018 recorded its first negative growth, with nine companies reporting losses after tax. While the larger players have posted consistently positive results, nearly half of the market is showing underwriting losses.

The exposure of insurers to debt instruments issued by the nation’s troubled financial sector has exacerbated the challenge for those that sought profit through investment returns rather than sound underwriting. A perception that their businesses are unsustainable threatens to limit future growth. Compounding issues, in 2018 more than twice as many complaints were made to the regulator regarding life insurance companies than their non-life counterparts. The main issues were unauthorised premium deductions, perceived low surrender values, delays in processing matured policies and refunding incorrect deductions. Broad regulatory change is another challenge to the segment, although such actions are likely to boost sector sustainability. “New insurance regulations covering capitalisation rates are expected to take effect from 2021,” Gideon Ataraire, CEO of Allianz Life Insurance Company, told OBG. “The government has invested a lot of time to ensure all the key players are on board by consulting with the Ministry of Finance, and major global and domestic companies.”

In addition, Ghana’s life insurers are adapting to a number of specific regulator interventions. The most significant of these, published in 2018, is a new set of requirements for the writing of annuities. The National Insurance Commission (NIC) has held numerous workshops to help build the capacity of insurance companies to administer this important component.

Future Promise

Ghana’s life insurers have several routes to future profitability. For many, a first possible step is a total reform of internal processes aimed at reducing inefficiency. In 2018 just two companies posted an expense ratio lower than the 40% figure generally considered acceptable by international standards. This suggests that local life insurers are using most of the premium they receive to cover expenses rather than building up their business and strengthening policyholders’ benefit reserves.

Another answer to this challenge is the adoption of new technologies for back-office operations and product distribution. New insurance products, suited to Ghana’s largely untapped market, are also central to the growth prospects. In this area 29 of the 35 new products approved by the NIC in 2018 originated in the life insurance segment. These included policies targeting education cover, group risk, wealth, funeral plans, family plans, employee benefits, bancassurance and children’s insurance. The increasing diversity of the life segment’s product range is a major asset as the industry looks to establishing a sustainable growth trajectory.