Mounting arrears due from insurance companies is posing a debt threat to the state reinsurer, the Ghana Reinsurance Company Limited, which can be detrimental to the entire insurance industry, reports Maxwell Adombila Akalaare
The Ghana Reinsurance Company (Ghana Re) is refusing to pay claims to its clients (some insurance companies in the country) as part of measures towards getting those companies to settle their mounting arears to the reinsurer.
Insurance companies in the country owe Ghana Re over GH¢27 million, which is gradually becoming a bad debt, with direc consequences for the local insurance industry.
As a result, the insurance companies indebted to the reinsurance company will now have to look for thier own funds to settle their obligations to policy holders when claims fall due.
The Head of Finance, Mr Seth Nyamadi, said “our latest move is the only option that seem to be working. And we will carry on with it for the time being.
He added: “it is a harsh decision and we know it. But we are better off taking it than relying on the companies to willingly come and pay,” he added.
Massive default in claims payments by the ceding companies due to their inability to raise those monies independently could thus plunge the entire insurance industry into severe debt crisis leading to a loss of trust by the insuring public in the sector.
Mr Nyamadi said the unwillingness of some of the ceding companies to pay Ghana Re premiums covering policies the company had underwritten with them “is making the whole thing dicey.”
“We reinsurers carry much of the risk that insurance companies enter into through policy underwritings and so if the insurer is refusing to pay us premiums, how do you expect us to reimburse them when big claims come from a policy holder,” he asked.
The Ghana Re Head of Finance wondered how the ceding companies expected their reinsurer to raise money to pay them their claims when they themselves were not willing to pay premiums.
But while admitting that the company’s latest move was “drastic and could cause massive defaults,” Mr Nyamadi maintained the company will carry on with it as far as the debt continues to stay in Ghana Re’s books.
Head of Operations at Ghana Re, Mr M. Rogers-Akpatah also told the GRAPHIC BUSINESS that the company’s latest move could even lead to it loosing more customers, but it was determined to carry through their resolve.
He said the situation was putting a strain on the company’s ability to invest, undertake bigger projects and compete effectively.
Mr Rogers-Akpatah said earlier efforts by the company through constant reminders “were not working. And we can’t say that the companies should be left to pay at their own time because once the debts are left to stay, then the cash flow of the company is stressed, our investment premiums are limited and that intend puts our operations in a difficult position.”
The arrangements in the country’s insurance industry makes it possible for ceding companies to contractually transfer all or part of the risks of policies they have written to their clients onto the reinsurer, with the agreement that the reinsurer will be called upon when it comes to settling the claim.
The reinsurer thus acts as an insurer of the ceding company, collecting and keeping premiums from the cedant periodically while the ceding company intend collects premiums from its policy holders.
Officials of Ghana Re are hoping that latest revisions by the industry regulator, the National Insurance Commission (NIC), will help ease those difficulties in the industry and cause Ghana Re to operate in a debt-free situation.
They thus called on the commission to be tough in implementing its own rules, particularly, the one that mandates insurance companies to pay their premiums within 90 days after entering into a policy with a reinsurer.
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