A global ratings company, A. M. Best has revised the outlook for Ghana Reinsurance Company to negative.
In a press release the company says Ghana Re’s outlook has been revised to negative from stable. It however affirmed the financial strength rating of B (Fair) and issuer credit rating of “bb+” for Ghana Re.
A. M. Best says on its website that it was founded in 1899 and it is a full-service credit rating organization dedicated to serving the financial services industries, focusing on the insurance sector.
It also says policyholders and depositors refer to its ratings and analysis as a means of assessing the financial strength and creditworthiness of risk-bearing entities and investment vehicles.
According to the release the ratings of Ghana Re reflect the company’s strong risk-adjusted capitalization, with the company continuing to transfer profit to capital over successive years. In 2008, it says there was a transfer of GH¢12 million, followed by a further transfer of GH¢8 million in 2009.
A. M. Best says in 2008, the compulsory cession enjoyed by Ghana Re, which obliged insurers to cede 20% of their business written to the reinsurer, was removed. For Ghana Re in 2009 and the year to date, the effects of this legislative change begin to materialize, it says.
To maintain premium volumes, the company has replaced existing arrangements with quota share contracts that pay very high commissions. Despite this, premiums written have fallen in real terms and are likely to fall further, it adds.
A. M. Best expresses further concern that Ghana Re holds a large asset, relative to the size of the balance sheet and premium income, for premium debtors, adding that new regulations from the Ghanaian insurance regulator, the National Insurance Commission stating that premiums older than a year must be written off is likely to put pressure on the company’s technical profitability.
In its view therefore, it is still uncertain whether the removal of the compulsory cession may help to improve technical profitability.
“A.M. Best understands from Ghana Re that a significant proportion of the premium arrears are in respect of the insurers who were forced to cede business to the company. There are material pressures on the rating, but to the extent that the company can improve its business profile, there may be scope for a smaller, more profitable organisation to emerge,” it says.
Efforts to reach officials of Ghana Reinsurance Company for their response were unsuccessful.
By Emmanuel K. Dogbevi