The National Insurance Commission (NIC) has been urged to choose business continuity over the demand to raise new capital because the economic slowdown caused by the novel Coronavirus pandemic has made it nearly impossible for even ‘good’ insurance companies to raise funds.

“Yes, most players would meet the new minimum capital requirement. I, however, believe that the effect of the banking and financial sector crises is lingering on. This had led to a liquidity crunch and that coupled with the dire effects of COVID-19 would make it difficult for good insurance companies to raise funds to meet the new Minimum Capital Requirement (MCR) by June 2021,” Solomon Lartey, a former Chief Executive Officer of Activa International Insurance Ghana, has said.

Mr. Lartey who was asked by the B&FT, if he foresees industry players meeting the new capital requirements amid the disruptions caused by the virus, added that: “Companies are now looking at business sustainability and continuity beyond COVID-19, not increased investments. Efforts must be geared towards ensuring the survival of companies first.”

The commission wants insurance companies to increase their stated capital from GH¢15million to GH¢50million. Reinsurers, meanwhile, are expected to boost their capital from GH¢40million to GH¢125million, while insurance intermediaries are also facing a new capital demand, with brokers being asked to hold GH¢500,000 – up from GH¢300,000. The companies have until June 30, 2021, to meet the new levels.

However, with the spread of the Coronavirus – which has led to a slowdown in economic activity and consequently lowered economic growth, coupled with the effects of the financial sector crises, he believes that it will be prudent on the part of the regulator to prioritise the sector’s recovery over the demand to raise new MCR.

Tellingly, the NIC already has pointed to a slowdown in the life insurance business sub-sector to COVID-19 pandemic because life policies, according to the regulator, are mostly sold physically, have been affected by restrictions on movement and preventive health protocols like social distancing.

For instance, an analysis of life insurance distribution channels in the country shows that around 65percent of life businesses are sold through agents. While the country has resorted to a phased approach to easing the COVID-19 economic restrictions, the work of insurance agents will remain largely affected until the rate of new cases drop significantly because of the person-to-person nature of life insurance transactions.

Apart from this, scientists and the World Health Organisation are not expecting a cure for the deadly virus to be ready until after the next 17 months – which potentially means the current economic climate might extend into 2021, leaving players with little chance of raising enough capital to be able to beat the current deadline unless there is an early medical breakthrough.

Should the number of new infections, therefore, keep rising and no cure found, it will mean that the current economic restrictions might take a longer time to be completely eased. If this happens, the implications, according to economists and health experts, are that it will not be long before people and organisations start to choose between basic needs and other needs, like insurance.

Meanwhile, on whether the NIC should push forward the recapitalisation deadline, Mr. Lartey responded in the affirmative, saying: “Yes. I think the regulator must be thinking in that direction but it is still early days yet.”

He, however, warned that any decision by the regulator should be backed by credible data. “I am sure insurance companies would know their fate by the end of the year. We may be looking at an extension of the road map/deadline; or maintenance of the existing MCR with tighter risk-based supervision protocols.”

Mergers and acquisitions

Mergers and acquisitions had been one of the theme songs of the NIC and some market watchers including Mr. Lartey, prior to the upward review of the industry’s MCR, believe it would take time to materialise.

“Well, I was hoping it would have happened earlier. There should be mergers and acquisitions going forward. With good corporate governance and management systems under the strict supervision of the NIC, mergers and acquisitions should yield better results,” Mr. Lartey, who is now an international insurance business partner, stated.