The country’s insurance sector is open and liberalised and, as with Ghana’s other major financial service sectors, has benefitted extensively from foreign investment. Since the 1990s, capital and expertise have entered the insurance market and helped in the development of the sector. As of early 2014, more than half of the insurance companies in Ghana were foreign controlled. However, as is the case throughout the continent, the national insurance regulator is also looking to increase local content and improve the ability of domestically listed firms to cover largescale transactions. As a result, efforts have been made to try and keep more insurance risk onshore, as well as help strengthen enforcement and oversight of the insurance sector, and prevent the unnecessary shifting of premiums offshore.
Ghana’s recent economic growth has highlighted the efforts the authorities are making in their push to domicile more risk locally, as well as the challenges of actually doing so. The nascent upstream oil sector, which has attracted billions of dollars worth of capital, throws this into stark relief. To ensure that the benefits of crude and gas production from the Jubilee field and its associated deposits accrue in some measure to the local economy, Ghana has established guidelines for local procurement and local content in a host of affiliated sectors, ranging from storage and infrastructure to insurance. Under the Insurance Act of 2006 and the Petroleum (Local Content and Local Participation) Regulations, upstream oil producers should seek to have their risks underwritten within the country.
However, this has been difficult to do in practice because Ghanaian insurers do not have the capital to write policies for large oil facilities. According to local press reports, premiums have necessarily been channelled overseas for coverage from insurers that have sufficient capacity. The issue is far from unique to Ghana, and countries from Nigeria to Kenya have also experienced problems in the face of large-scale coverage contracts that can, in some cases, exceed domestic capitalisation.
Balancing the need of providing adequate coverage with the official push to build up local capacity, the government has been rolling out a host of new initiatives. In late 2014, for example, the National Insurance Commission (NIC) and the Petroleum Commission met and discussed the situation in a bid to outline a framework for future projects. As a result of these discussions, a resolution was issued that reiterated and clarified the requirements under the new legislation and set out guidelines for oil companies. The mandate recognises that domestic insurers will be limited in what they can do and contemplates the use of syndication and international reinsurance, but it nevertheless calls for more risk being kept within the country. In total, 10 guidelines were established by the authorities with the help of insurance companies and brokers.
Looking At The Options
Currently, oil producers have two options for insuring large risk locally. They can go through the Ghana Oil and Gas Insurance Pool (GOGIP), which was established by general insurance companies, or they can use the Ghana Insurance Brokers Association’s GIBA Energy Company. But even though these facilities exist, leakage is significant. Local press reported that of the $61m collected by GOGIP between 2009 and 2013, only $1m was retained domestically. The rest went to offshore insurers to cover risk that was beyond the capacity of the domestic market. Under the new guidelines, GOGIP will become the primary entity for oil companies to insure their risk.
The onus is not solely on the potential customers, however, as Ghana’s insurers are being pushed to respond to ensure their products and services address the needs of the energy sector. The government has warned that despite the new guidelines, the sector is going to have to do its part to win contracts with the oil companies. “Indeed, there are opportunities for insurance and other services in the entire petroleum value chain. These opportunities will not be gained on a silver platter – we must work harder,” Emmanuel Armah-Kofi Buah, the minister of energy and petroleum, told the local press.
The potential capacity of the local market is set to greatly increase, and this could help in reducing the value being placed outside of the country. In late 2014 Ghana’s third domestic reinsurer was formed. The GN Reinsurance Company (GN RE) was founded by Groupe Nduom, a private family firm with interests in money management, hotels, banks, media, mining and food packaging. GN RE will provide a significant fillip to the sector’s capacity. It will be capitalised at GHS80m ($30.5m), far higher than the GHS25m ($9.53m) minimum, and will be able to underwrite risks up to GHS25m ($9.53m), the company has told local press.
Prior to the formation of GN RE, the country had only two local reinsurance companies: Ghana Reinsurance and Mainstream Reinsurance. The NIC said that the addition of a new reinsurer will help the country keep more risk onshore. Under the law, companies have to exhaust all capacity within Ghana before seeking reinsurance overseas, but in the past the limits of the market have been quickly exhausted and firms have had to look elsewhere.
The Next Wave
Similarly, new acquisitions and purchases by foreign insurers may help improve the capacity of the local sector and expand the ability of local firms to help fulfil the requirements of the 2006 local content and participation law. The most recent arrival came about in late 2014, when Sanlam Emerging Markets bought 40% of Ghana’s Enterprise Insurance for R240m ($22.73m). The South African acquirer is an insurer founded in 1919, and it has been particularly active in the sector within the region. The company was already in Ghana in a significant way at the time of the deal. Sanlam has a 49% stake in Enterprise Life Assurance and is part owner of Enterprise Trustees (both of which are related to Enterprise Insurance, the general insurer within the group). Sanlam is positive on the market in Ghana, and while the South African Company recognises the difficulties being faced by the Ghanaian economy, it also notes the low insurance penetration rate and the great potential of the market.
While international merger and acquisition activities in Ghana’s insurance sector have traditionally been from neighbouring Africa countries – such as Nigeria, Côte d’Ivoire and Cameroon – recently companies from further afield have been showing an equally keen interest. Between 2009 and 2014 Germany’s Allianz, Old Mutual of South Africa and the UK’s Prudential entered the market either through acquisitions or by obtaining local licences. South Africa’s Liberty Insurance has also recently entered Ghana – although by acquiring an asset management firm in the country in October 2014.
The sheer size and scale of upstream oil and gas activity has often meant that domestic African financial institutions may face challenges in meeting the requirements of credit or risk coverage on their own. In some cases, syndication has been an option, but for such multibillion projects it is difficult to ensure local participation. As a result, Ghana’s efforts to improve local capacity and encourage more risk being domestically domiciled will take some time to yield results, but, ultimately, it will help to ensure that the increase in activity in the Jubilee field translates to more activity in the insurance sector as well.
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