With the clock ticking for insurance firms in the country to comply with new minimum capital requirements as directed by the National Insurance Commission (NIC), public equity represents an ideal way of meeting the stipulated target, according to financial market consultant, David Ganesha Tetteh.
The NIC in June 2019, as part of measures aimed at strengthening the industry, gave the country’s life and non-life underwriters a new minimum capital requirement of GH¢50million, up 233.3% from the previous value of GH¢15million.
Similarly, reinsurance companies had theirs up 212.5% from GH¢40 million to GH¢125million with broking firms witnessing a 66.7% uptick in their stated capital. All insurance firms were expected to meet the new requirements by the end of June 2021. The deadline, however, saw a six-month extension by the NIC, to the end of December 2021, owing to the disruptions caused by COVID-19.
Speaking during a session of an investor webinar series organised by Black Star Brokerage (BSB), Mr. Tetteh, argued that with a number of firms yet to hit the target, the highly regulated nature of insurance firms, which ensures proper bookkeeping, coupled with the modest listing requirements of the local bourse, offered the best bet at raising capital for these firms.
He stated that such an arrangement – through initial public offers (IPOs) or follow-on public offers (FPOs) – takes on the average six months to close, as opposed to approximately 12 months for mergers and acquisitions.
With the entire industry needing a total injection of about GH¢900 million to satisfy the new conditions, he stated that funds available for investment in listed stocks by pensions funds – which is in excess of GH¢2 billion – are more than capable of recapitalising all outstanding firms and growing the industry.
“Public equity represents one of the best ways in which you [insurance comapnies] can raise capital… The buy-side opportunity available for local pensions is more than GH¢2.6 billion, which is available for insurance companies… you do not need to go too far to meet your regulatory requirements… right here, locally, there is enough for you and giving where you are as a regulated company, it should be a walk in the park,” he said.
With only two insurance companies currently listed on the Ghana Stock Exchange – SIC Insurance and Enterprise Insurance – Mr. Tetteh suggested that public equity could be the vehicle required to drive more robust insurance companies capable of handling more diverse and financially demanding risks.
Seeing that the market historically returning 25% on the average over its 30-years of operation, the former stockbroker said public listings would enable insurance firms to expand, without being saddled with mounting debt financing in addition to claims payments.
Also speaking during the session, which had as its theme: ‘Reliability in times of uncertainty: Making investment decisions while transitioning from a pandemic and financial sector reform,’ Managing Partner at Black Star Brokerage, Eric Appiah intimated that his outfit is working closely with the NIC and other stakeholders to see how best to aid insurance firms to meet their capital requirements through public equity, whilst allaying their concerns.