NIC helpless as insurers refuse to merge
Apart from NEM Insurance and Regency Alliance Insurance, none of the 49 insurance companies in the country is willing to merge or be acquired by a counterpart company as a measure to meet a new capital requirement for insurance companies.
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The two merged into Regency-NEM Insurance to be able to meet the National Insurance Commission's new capitalisation requirement, while their counterparts continue to strive individually to raise their stated capitals to GH¢15 million.
Meanwhile, nine of the companies were unable to recapitalise up to the required amount by June this year, prompting the regulator to extend the recapitalisation deadline by three months.
While the commission is confident that the defaulting companies will be able to recapitalise to the GH¢15 million by September 30, this year, it is disappointed that almost all the companies "prefer to remain small instead of merge and consolidate."
"I can say that the rate at which we thought it will lead to mergers is rather slow because we did not see it apart from the two companies that merged," the Deputy Commissioner of Insurance, Mr Simon S. K. Davo, told the GRAPHIC BUSINESS on August 18.
"I just can't figure out why they are not really keen on pulling their resources. It is something that we need to investigate and find out why," he added.
"If they were all to be local companies, I will think that it is the old system where people will want to feel good by saying 'this is my company' but not all of them are local; there are foreign companies too," Mr Davo said.
When asked why insurance companies are jittery over mergers and acquisitions, the President of the Ghana Insurers Association (GIA), Mr Ivan A. Avereyireh, said company consolidation was outside the remits of members of the association.
"For us as industry players, we want stronger members that can compete and be able to meet the expectations of policyholders and other stakeholders. It’s good to merge and consolidate but we do not have a hand in those decisions," he added.
The association is the umbrella body of insurers in the country.
Optional decision
Since the early 2000s, when the number of insurance companies started swelling in the midst of a sluggish growth in insurance penetration, the NIC, which regulates the sector, started encouraging the companies to merge.
Its trump card was that mergers and acquisition will help the companies with bigger balance sheets to enable them to insure bigger deals, reduce capital flight and cut out the worsening unprofessional practices that weaker balance sheets breed.
The commission's objective, however, was not achieved. Instead, the number of insurers kept increasing; from 15 to 49, all within a spate of 16 years.
While many blamed the saturated nature of the companies in the sector on the open door policy of the NIC, the commission, in turn, points to the meagre nature of the amount a company required to set up an insurance operation in the country.
As a result, when the time came for the companies to recapitalise from GH¢5 million to GH¢15 million, the commission saw it opportune to achieve its consolidation objective.
"The merger is one thing we expected the companies to do through the recapitalisation but it appears that is not working," the Deputy Commissioner said.
With insurers now shoving off the idea of mergers and acquisition, Mr Davo said the commission would now concentrate more on ensuring that the companies were well capitalised and solvent.
"If you think you want to stay on your own and meet our capital requirement and be solvent, we are satisfied. But if you are not able to meet the solvency and recapitalisation requirement, then we will fall on the insurance law," he said.
Currently, Mr Davo said the commission was contemplating invoking its powers to withdraw the licenses of companies that would not meet the capital requirement by the September deadline.
While that will be hurting to implement, Mr Davo said it could be a good lesson to the companies that mergers and acquisition are credible tools for recapitalisation.
Door still open
While admitting that the number of companies in the country far exceeded the amount of business in the sector, the deputy commissioner said the commission was constrained by the law from shutting the door to new entrants.
"We cannot stop issuing new licenses because there is no limit on the number of insurance companies. If a new application comes, we only need to make sure that that company meets all our requirements. If it meets them, there is no way we can say we are not going to issue if a license," he said.
Should the commission refuse a prospective insurer a license, Mr Davo said that company could take the NIC to court because "the law does not say that this is the maximum number of insurance companies that should be allowed to operate. It only gives requirements."
"Even as of now, we are still working on some applications and what we are doing is to be sure that those applications meet our requirements," he added.
Pull quote
I just can't figure out why they are not really keen on pulling their resources. It is something that we need to investigate.
Number crunch
GH¢15m
The NIC's new recapitalisation directive requires that insurance companies raise their minimum capital from the previous GH¢5 million to GH¢15 million by September 30, this year