Insurance industry succumbs to govt pressure – Accepts revised conditions under debt exchange programme

The government and the insurance industry have fundamentally reached a deal on the terms of participation of insurance companies in the Domestic Debt Exchange Programme (DDEP).

On similar lines as the agreement with the banks late last week, the GraphicOnilne has picked information from sources that the new agreement with the insurance industry encompasses final improvements to the terms of the programme.

The banks agreed to terms including; an agreement to pay five per cent coupon for 2023 and a single coupon rate for each of the twelve new bonds resulting in an effective coupon rate of nine per cent, clarity on the operational framework and terms of access to the Ghana Financial Stability Fund (GFSF) and the removal or amendment of all clauses in the Exchange Memorandum that empowers the Republic to, at its sole discretion, vary the terms of the Exchange.

The sources did not give further details but the GraphicOnline can confirm that the agreement, albeit, reluctantly agreed by the insurance companies, is no different from the one agreed with the banks.

A joint statement to that effect is expected later in the day and the GraphicOnline will keep readers up-to-date with further details on the deal.

Impact

The insurance sector is expected to take a huge hit of 40 per cent on its investments as the deadline for Domestic Debt Exchange Programme (DDEP) approaches.

Although sector players were strongly pushing for an exemption from the exercise to enable it to honour its claim payments timeously, the government said: “Total exemption is not an option.”

Data available to GraphicOnline indicate that the sector has 40 per cent of its investments amounting to some GH¢4.6 billion directly exposed to Government of Ghana securities with an additional 10 per cent invested in licensed banks and fund managers.

The third quarter of last year’s financial analysis showed that assets of non-life insurance companies stood at GH¢4.92 billion while that of life was GH¢6.60 billion. That brings the total to GH¢11.53 billion out of which 40 per cent is at risk of being either lost or placed in the worst state.

At his official inauguration, the new President of the Chartered Insurance Institute of Ghana (CIIG), Mr Solomon Lartey, warned that insurance companies might not be able to meet their obligations with total liabilities amounting to GH¢5.96 billion under the current DDEP programme.

The Minister of Finance, Ken Ofori-Atta, had warned last week that the government could not guarantee a total exemption of insurance companies under its DDE programme.

The Insurance Sector challenges come at a time the entire financial sector was facing severe challenges on account of the DDEP. The banks are equally reeling under a lot of pressure with some four banks considered to be under stress.

The government is seeking a US$ 3 billion IMF bailout as its debt to gross domestic product (GDP) ratio reaches an unsustainable level of almost 100 per cent.

In an industry such as insurance, liquidity is a key component of the business. In Ghana, insurance companies pay as much as GH¢4.3 million daily as claims to deserving clients and it is feared that should the exercise be carried out without proper measures to ensure liquidity, the consequences could cripple the sector.