Debt Exchange Programme Will Collapse Insurance Industry – Insurers Lament

President of the Ghana Insurers Association, Seth Aklatsi, has disclosed that the government’s debt exchange programme as proposed by the Finance Minister, threatens to collapse the insurance industry in Ghana entirely.

The programme, which Finance Minister Ken Ofori-Atta announced on November 5, will result in a slash in interest payments for domestic bondholders to zero per cent in 2023 and five per cent in 2024.

Again, existing domestic bonds as of December 1, 2022, will be exchanged for a set of four new bonds maturing in 2027, 2029, 2032 and 2037 – all in a bid to restore the nation’s capacity to service its debt.

Also, eligible domestic bondholders who fail to participate in the exercise may have their bonds transformed into liquid assets at a low cost.

But Mr Aklatsi has pointed out that the terms of the arrangement threaten the insurance sector.

“What government is putting out, it might as well just come out to tell insurance companies, ‘okay, all of you, close your company, go home’. Because then there isn’t an industry again if he goes ahead with this plan as it is,” he said.

Explaining the fine details of what is at stake, he said:

“We take the fractions in premium and pay out the whole numbers. I mentioned earlier on explained that there is the life aspect where we actually know that there is definitely going to be a claim that is made. People take policies like guarantees.

“We take it that, George, maybe you took a policy seven years ago. Because you’re a big journalist, we say that you took a policy with an endowment, maybe 1 million, seven years ago. You have been paying premiums for the past seven years, where they have guaranteed that after 10 years, you’re going to get 1 million.

“If you drop dead now, we’ll pay your beneficiaries 1 million. It’s based on an investment principle or an investment climate to say that maybe the discount rate or interest income will actually build up to that 1 million.

“So if seven years you’ve paid your premium with investors…and it’s not like we really had a choice, our regulator mandated that if we don’t invest in the government of Ghana instrument, then they’re not even recognizing your solvency within which is asked if you’re liquid enough to pay claims or not,” he said.

He continued: “If you drop dead now, we haven’t gotten to the 10 years for you to claim the 1 million. But that 1 million will have to be paid now. Imagine we go back and tell your family that ‘okay because for the next year we’re not getting interest and then subsequently we’re getting 5%, we’re going to reduce that because we couldn’t have earned the 1 million or we couldn’t have certain returns for the 1 million.’ How are you going to take it? Would people go ahead to buy insurance?”

He stated that the above reasons would discourage others from investing in the insurance industry, and this would lead to the rapid decline of the nation’s insurance industry.

He noted that particularly now that the country is going through economic turmoil, it is important to protect the assets of insurance companies for Ghanaians who have invested in them to have something to fall back on in hard times.

“So effectively what government is doing now is that if there are no interests, then you might as well tell insurance companies that ‘okay for this period that we’re going through economic challenges, we don’t have an industry called insurance again. So all of you close camp and then go home,” Mr Aklatsi expressed on Joy News.