Ghana’s general insurers tend to rely more on investment income than on actual risk underwriting income for their profits. Elliot WILLIAMS and Toma IMIRHE examine how this worked – and in a few cases did not work – for the non-life insurance companies in 2021
In 2021, only 16 out of the 26 general (non-life) insurers in Ghana made underwriting profits by attracting more net premium revenue than the combination of their net claims, management expenses, commission expenses through which more than two-thirds of their business come. The six other general insurers failed to do this, leaving them with underwriting losses.
However, this is not altogether unusual in the insurance industry – although underwriting losses are not encouraged by regulators or by industry analysts. But most insurers that churn up underwriting losses cover them, or at least most of them, with the income they earn from their investments. It is instructive that insurance companies rank among the biggest institutional investors in the global economy, and in Ghana this is no different.
The biggest underwriting loss, though, could not be redeemed through its investment income. This was Prime Insurance which racked up an underwriting loss of GH¢9.802million, far more than its investment income of just GH¢1.761million. However, other income – which was made outside its usual activities such as foreign exchange gains or property sales – came to the rescue. GH¢13.159million from Other Income enabled the company to deliver profit after tax at a respectable GH¢5.118million; the 16th-highest profit in the industry last year.
This illustrates the importance of such extraordinary income flows, even though they are usually one-off gains. Allianz made a similar underwriting loss of GH¢9.920million, even though this was nearly entirely offset by investment income of GH¢9.803million; but since the company did not generate any unusual ‘Other Income’ at all, it was condemned to an after-tax loss of GH¢117,416.
Bedrock suffered a similar fate, ending the year with a GH¢754,667 loss as investment income fell far short of its GH¢1.076million underwriting loss.
However, the other companies which made underwriting losses – Best, Coronation, NSIA, Provident, Serene and SIC – all more than made up for those losses with even bigger investment income.
Some insurers however made huge underwriting profits. The biggest of all was generated by Priority Insurance which amounted to GH¢14.9million; and even though its investment income of GH¢1.9million was one of the smallest in the industry (ranking 22nd out of 26) and Other Income was GH¢282,006, this enabled the company to deliver after tax profit of GH¢12.356million – the 7th-best in the industry.
Some insurers established a balance between underwriting profits and investment income. The best in this regard was Activa, which earned an underwriting profit of GH¢6.989million – matching its GH¢6.435million in investment income to make a profit after tax of GH¢13.429million despite negligible ‘Other Income’.
But the overall best performance came from the biggest premium earner – Enterprise. In 2021 it made an underwriting profit of GH¢14.100million, the 2nd-biggest in the industry; and trumped this with the industry’s biggest investment income at GH¢31.326million. With Other Income of GH¢4.854million added on, Enterprise thus made the largest profit after tax in the industry of GH¢35.382million.
Instructively, the 2nd-biggest premium earner, SIC, also made the 2nd-largest profit after tax of GH¢29.112million. However, its route to such high profitability was different from that of Enterprise. SIC made a small underwriting loss of GH¢205,149 – but this was easily wiped away by investment income of GH¢12,214million. But its trump card was its ‘Other Income’ of GH¢29.580million.
GLICO General emerged the 3rd most-profitable insurer (despite ranking 5th by gross premiums), and instructively it was the most profitable indigenous wholly-privately owned non-life insurance company, delivering GH¢22.414million in after-tax profits. Again, it was ‘Other Income’ that facilitated such high profitability, accounting for GH¢18.682million in revenue. Underwriting income and investment income were more modest at GH¢862,000 and GH¢4.470million respectively.
Star Assurance resumes the direct correlation between ranking by gross premiums and profit after tax, ranking 4th by both parameters. Instructively, though, the company did not have to rely on ‘Other Income’ for its strong profitability – earning a mere GH¢57,009. This is important because ‘Other Income’ is usually one-off and may not be sustainable in subsequent years. Star’s profits are sustainable though; it made the 3rd-best underwriting income of GH¢9.066million and as well the 3rd-best investment income of GH¢14.490million.
The 5th most-profitable general insurer for 2021 was Hollard, which ranked 3rd by gross premiums but, instructively, 5th by net premiums; the latter matching its ranking by profit after tax of GH¢15.331million. Hollard made a modest underwriting profit of GH¢961,375 but delivered the 2nd-best investment income of GH¢20,609million.
Only three general insurers made losses in 2021, and none of these were large enough to impair their overall financial sturdiness – which has anyway been increased heavily by the latest major recapitalisation imposed on them by the NIC.
Unique Insurance’s marginal loss of GH¢54,318 is the most unusual, in that the company made an underwriting profit of GH¢378,302 but was the only insurer to declare a loss on its investment activities of GH¢451,518 – the company presumably having fallen victim to the fallout from the financial intermediation industry’s meltdown.
Allianz’s GH¢117,416 loss was wholly the result of its GH¢9.920million loss that GH¢9.803.024million of investment income did not quite cover.
But by far the biggest loss was incurred by Bedrock at GH¢754,667. This was entirely caused by a GH¢1.076million underwriting loss, which the company’s GH¢321,646 investment income could not even nearly overcome.
In all, the insurance industry in 2021 showed its sturdiness even though by end of last year most companies had not finished recapitalising. Cumulative profits after tax generated by the industry amounted to GH¢227.803million – built on GH¢45.772million in underwriting income, GH¢178.219million in investment income and GH¢71.804million in income from various other non-core sources.
How the companies fared in underwriting profits
|2021 General Business Financials
|Underwriting Income||Total Investment Income||Profit After Tax|
|Activa International Insurance Company Limited||6,988,610||6,434,753||13,429,418|
|Allianz Insurance Company Limited||-9,920,440||9,803,024||-117,416|
|Bedrock Insurance Company Limited||-1,076,313||321,646||-754,667|
|Best Assurance Company Limited||-578,251||2,251,027||1,254,583|
|Coronation Insurance Ghana Limited||-1,857,934||4,456,568||2,123,026|
|Donewell Insurance Company Limited||2,156,906||6,118,353||5,831,863|
|Enterprise Insurance Company Limited||14,099,984||31,325,669||35,381,830|
|Ghana Union Assurance Company Limited||5,722,816||6,047,297||8,722,035|
|Glico General Insurance Company Limited||862,000||4,470,398||22,414,418|
|Hollard Insurance Ghana Limited||961,375||20,608,621||15,330,710|
|Imperial General Assurance Co. Ltd.||267,826||2,803,802||3,278,629|
|Loyalty Insurance Company Limited||2,421,130||3,195,812||5,537,132|
|Millennium Insurance Company Limited||5,913,681||4,195,259||6,248,177|
|NSIA Ghana Insurance Company Limited||-2,224,036||5,487,502||3,587,941|
|Phoenix Insurance Company Limited||6,856,281||6,107,045||9,242,819|
|Prime Insurance Company Limited||-9,801,799||1,760,573||5,117,812|
|Priority Insurance Company||15,093,563||2,251,934||12,356,367|
|Provident Insurance Company Limited||-1,248,300||4,934,937||3,381,843|
|Quality Insurance Company Limited||1,928,870||5,588,846||5,348,294|
|Saham Insurance Ghana Limited||78,937||4,645,416||4,056,849|
|Serene Insurance Company Limited||-3,724,683||8,116,066||3,083,973|
|SIC Insurance Company Limited||-205,149||12,213,603||29,111,751|
|Star Assurance Company Limited||9,065,504||14,489,552||21,574,379|
|Sunu Assurance Company Limited||1,571,172||5,845,286||6,385,013|
|Unique Insurance Company Limited||378,302||-451,518||-54,518|
|Vanguard Assurance Company Limited||2,042,259||5,197,350||5,930,647|