As insurance companies in the country race to double their capital or even resort to syndications to enable them reap fully from an expanded and oil drilling economy, reinsurance companies would have to more-than triple theirs or risk loosing contracts, reports Maxwell Adombila Akalaare.
THE Ghana Reinsurance Company Limited (Ghana Re) is seeking an approval from the Ministry of Finance and Economic Planning (MoFEP), to enable it undertake a private placement aimed at soaring up the company’s capital base.
The company is of the view that its current capital base of a little above GH¢28 million makes it financially weak to compete effectively with colleague reinsurance companies in the country and the sub-region at large.
Competing reinsurance companies in Ghana and the sub-region have a capital base of about GH¢100 million, the industry standard for reinsurance companies.
Presenting a GH¢1.5million cheque as dividend for 2010 to the Ministry of Finance and Economic Planning in Accra, the board chairman of Ghana Re, Mr Lionel Molbila said that “the board has decided to seek the ministry’s approval to raise additional capital through private placement to enable the company to compete effectively with its competitors.
The Ministry of Finance and Economic Planning is the sole shareholder of Ghana Re.
He said a recapitalised Ghana Re would also be empowered to carry on with its expansion programme into “viable African insurance markets.
“This expansion is becoming necessary because the potential growth area identified is inward businesses from African insurance markets,” Mr Molbila noted and mentioned that the company has currently opened a branch in Cameroon while plans were underway to do same in other African countries.
The Acting Managing Director of the company, Mr Gustav W. K. Siale was confident that the request for a private placement will meet the ministry’s approval.
He was, however, not certain on how much equity stake the ministry will be willing to give out to the private investor.
“How much we will raise from that private placement will depend on the level of dilution the shareholder will be willing to allow,” Mr Siale said but added that the capital worth of the company could also inform how much should be raised from that private placement. Ghana Re is yet to be valued with respect to the private placement.
Director of Public Investment at the MoFEP, Mrs Magdalene Ewuraesi Apenteng has, meanwhile hinted of the ministry’s willingness to allow for a private placement “to enable them compete effectively.”
Lamenting the consequences of the Ghana Re’s weak capital base to its sole shareholder, the board chairman said “the level of capitalisation of the company made it extremely difficult for the retention of larger share of business written during the 2010 business year.”
The situation, he said was even worsen by the unexpectantly high values emanating from the country’s oil and gas business.
Ghana Re’s weak financial woes are even deepened by most ceding companies’ resort to increaseing their retention capital which consequently reduces their need for reinsurance protection, a situation the Ghana Re board chair said was putting the company in a difficult position.
Other ceding companies, according to Mr Molbila also have the habit of passing on reinsurance deals to foreign companies without first satisfying local capacity, a clear contravention of the National Insurance Commission’s regulatory guideline on when and how a local ceding company can pass on a reinsurance deal to a foreign reinsurance company. The act is even said to have contributed significantly to a 9.21 per cent dip in Ghana Re’s gross premium income from the 2009 figure of GH¢50.16million to GH¢45.83 million in 2010.
The increasing resort to syndications by local insurance companies to enable them raise required amounts to take up bigger deals is also not helping matters at Ghana Re.
Continuing with the challenges facing Ghana Re resulting from its current lean financial standing, Mr Molbila said “there is also the phenomenon of direct companies trading among themselves” to the neglect of reinsurers.
LEVEL PLAYING FIELD
Prior to the coming into force of the new Insurance Act, Act 742 in 2009, compulsory cessions to Ghana Re amounted to about 20 per cent of premiums in the country’s insurance industry, contributing to about 60 per cent of Ghana Re’s end-year gross premium incomes.
The new act which was aimed at providing a level playing field in the industry has, however stripped off this mandatory ceding to Ghana Re causing it to loose 60 per cent of its income outrightly.
Consequently, the company’s gross premium income has been struggling to pick-up, inching from GH¢49.22 million in 2008 to GH¢50.16 million in 2009 to currently record a 9.21 dip in 2010, a development company’s sole shareholder was not impressed of.
The board chairman has, meanwhile affirmed the board and management’s commitment to finding alternative sources of funds to replace the 60 per cent lost and consequently cause its gross premium income to rise.
Despite the marginal dip in its gross premium and investment income for 2010, Ghana Re’s net profit for 2010 stood at GH¢11.24 million, representing a 37.2 per cent growth from the previous year’s.
But with competition in the insurance sector virtually at high gear following insurance companies’ focused attention on an oil drilling economy, resort to syndications and an influx of foreign reinsurance companies into the Ghanaian insurance market, Ghana Re would have to quickly up its stance, including raising at least GH#$100 million to enable it attract juicy deals that may escape it to foreign companies.
No comments:
Post a Comment