The financial performance of Ghana’s life insurance industry for the first nine months of 2023 suggests that more than half of the country’s life insurers are headed for losses rather than profits for the year. Out of the 16 life insurers that have released their unaudited management accounts for the period January to September 2023 – one of them, GN Life, failed to report its financial results for the period – nine have announced after-tax losses for the period.

This follows poor underwriting results for the period, with only two of the 16 reporting underwriting profits and the other 14 reporting underwriting losses on the policies written for their customers.

Actually, the situation would have been worse if not for the high-interest rate regime that stayed in place through last year – with 91-day and 182-day treasury bills offering between 3 per cent and 36 per cent for most of the year – which enabled life insurers to rake in record investment income.

But even with this, some life insurers had to rely on what their accounts classify as other income – predominantly the gains realised on the sale of assets – to make profits, as even their unusually high investment income failed to make up for their underwriting losses.

The largest profit after tax for the first three quarters of 2023 was made by Enterprise Life Insurance at GH¢83.863million. This was followed by Star Life with GH¢56.231million, Mi-Life with GH¢36.236million, Glico Life with GH¢27.734million, and Prudential Life with GH¢25.613million. The other profit makers were Hollard Life Insurance, Sanlam Life Insurance, Donewell Life and Quality Life.

Interestingly, though, only Mi-Life and Glico Life declared underwriting profits of GH¢15.826million and GH¢7.819million respectively. Conversely, underwriting losses for the rest of the industry rose as high as GH¢90.424million for Enterprise Life and GH¢84.119million for SIC Life.

For most of the life insurers with underwriting losses, though, investment income came to the rescue, reversing those losses. For instance, Enterprise’s investment income of GH¢168.113million – the highest in the industry – completely outstripped its underwriting losses. Similarly, Star Life’s underwriting losses of GH¢44.726million were reversed by its investment income of GH¢81.819million; Prudential Life’s underwriting losses of GH¢21.011million as more than made up for by its investment income of GH¢48.200million, and Sanlam Life’s underwriting losses of GH¢6.4million were reversed by its GH¢8.139million in investment income.

But for most life insurers, even their relatively high investment incomes were insufficient to cover their underwriting losses. However, some of them were able to cover the residual deficit through gains realised on asset sales and interest payments and loan policyholders and staff. A prime example of this was the case of Hollard Life; its investment income of GH¢5.740million was insufficient to cover its GH¢8.273million in underwriting losses, but the residual deficit was more than covered by its GH¢7.731million in other income, enabling it to declare profit after tax of GH¢5.033million.

The best performances, though, came from the life insurers that made underwriting profits, earned strong investment income and tipped up both of these with other income. The only life insurers who achieved this were Glico Life and Mi-Life.

The performance of life insurers for the first nine months of 2023 provides warning signals going forward. The Ghana Insurers Association has advised its member companies to strive toward underwriting profits rather than rely on their other sources – investment income and gains on asset sales – to cover underwriting losses, pointing out that only this can confirm the quality of their risk underwriting skills and capacities on a sustainable basis.

However, the latest figures suggest that high interest rates, which offered high investment yields in 2023, encouraged life insurers to pursue gross premiums rather than positive margins on underwritten policies. But this may not be sustainable; already this year, in the wake of falling inflation and the consequent cut in the benchmark Monetary Policy Rate by the Bank of Ghana at the end of January this year, treasury bill rates have fallen below 30 percent during February.

Interest rates are expected to fall further this year in line with falling inflation – the central bank forecasts inflation falling to somewhere between 145 and 17 percent by the end of this year – and the relative stability of the cedi against the United States dollar over the past 12 months can be expected to squeeze profit margins on asset sales too.

Life insurers will soon begin releasing their audited full-year results for 2023, and judging by their performance during the first nine months of last year, there will be more loss makers than profit takers unless profitable asset sales have been grossly stepped up during the last quarter of the year.

Industry analysts blame the underwriting losses for 2023 on the emphasis on universal life and investment products by the industry. Indeed, by the end of September last year, the industry had attracted GH¢1,272.922million in premiums from those types of products, accounting for 45 per cent of the total gross premiums of GH¢2,819.540million generated during the period. This almost matched the cumulative contributions to gross premiums of group life, term policies, credit life, whole life and endowment policies, dread disease policies, annuities, permanent disability & income protection, and other approved products all put together.

But as interest rates fall and life insurance customers become less attracted by them, life insurers can be expected to turn their emphasis to traditional – and more profitable – life insurance products.