NIC must remain firm on companies
Since the early 2000s, when the number of insurance companies started swelling despite a sluggish growth in insurance penetration, the National Insurance Commission (NIC), which regulates the sector, started encouraging companies to merge.
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The commission’s trump card at the time was that mergers and acquisitions would help the companies with bigger balance sheets to enable them to insure bigger deals, reduce capital flight and cut out some of the unprofessional practices that weaker balance sheets bred.
The commission's objective, however, was not achieved. Instead, the number of insurers increased from 15 to 49 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 regulator, the NIC pointed to the meagre 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 consolidated objective.
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."
The GRAPHIC BUSINESS has learnt that 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.
When asked why the companies were hesitant in merging, the Deputy Commissioner of Insurance, Mr Simon S. K. Davor, said his outfit could not figure out why they were not keen on pooling their resources.
He said the situation required some investigation to ascertain the real cause.
If all the companies were local companies, Mr Davo said one would have easily thought that their refusal to merge was as a result of the old system, where people always wanted to feel good by being owners of companies.
While it is not compulsory for companies to merge, it is always advisable for them to use that mechanism when it came to the issue of recapitalisation.
This is timely in the insurance sector given that nine of the companies were unable to recapitalise up to the required amount by June this year and that prompted the regulator to extend the recapitalisation deadline by three months.
With insurers now refusing to merge, the commission should now concentrate more on ensuring that the companies were well capitalised and solvent.
It must invoke its powers to withdraw the licences of companies that would not meet the capital requirement by the September deadline.