The four are among eight other insurers that were unable to recapitalise to GH¢15 million by June this year, forcing the commission to extend the deadline by some three months.

Despite the lenient nature of the NIC in getting the companies to comply, the Commissioner of Insurance, Ms Lydia Lariba Bawa, told the GRAPHIC BUSINESS in Accra that signals picked by the commission showed that "it will be extremely difficult for the four companies to meet the requirement by September 30."

"We have already written to them and told the companies that we will apply the law after the deadline," she said on the sidelines of a three-day seminar on insurance in Accra.

Nature of companies

Although Ms Bawa declined to give details on the four prospective defaulting companies, the paper has learnt that all of them are indigenous insurers. Some of the companies also exhibited systematic risks, having operated with weaker balance sheets and made losses over the years.

They have also declined proposals for mergers, with each opting to stay independent.

Should the companies miss the recapitalisation directive after the September 30, 2016 dateline, Ms Bawah said the NIC would apply the law. Article 31(c) of the Insurance Act (2006), Act 742, mandates the NIC to notify a company in writing on the commission’s decision to revoke the licence.

The commission is also enjoined by the Act to explain the reasons behind the decision to revoke the licence in writing.

Seminar

The international seminar, which is hosted by the NIC, brought together industry players and regulators from across the world to brainstorm on the need for insurance sector regulators to shift from compliance-based supervisions to risk-based supervisions.

Unlike the compliance-based supervision, the risk-based supervision allows regulators to properly assess the risks of the various insurers and consequently put more emphasis on finding solutions to the risks.

It is currently the most preferred among financial sector regulators, having proven more versatile and effective to the resolution of emerging risks in the industry. Ghana's insurance sector shifted to the risk-based supervision framework some six years ago.

Insurance industry

Since the early 2000s, when the number of insurance companies started swelling in the midst of a reduced growth in insurance penetration, the NIC, which regulates the sector, started canvassing for the companies to merge.

The objective card was that mergers and acquisitions would help to consolidate the balance sheets of the insurers to enable them to insure bigger deals, reduce the capital flight in the sector and cut out the worsening unprofessional practices that weaker balance sheets breed.

The commission's objective, however, was not achieved, as the number of insurers kept increasing; from 15 to 35 and now to 52, all within a spate of 16 years. As a result, when the time came for the companies to recapitalise from GH¢5 million to GH¢15 million, the Commissioner of Insurance said her outfit thought the companies would have used that opportunity to merge and easily meet the requirement.

Unfortunately, however, that has not happened, much to the disappointment of the commission. Mergers, she explained were needed to help strengthen the balance sheets of the companies to be able to take up bigger deals and reduce the rising incidence of capital flight, arising from lack of capacity.

She said it was saddening to note that the capital base of the entire insurance industry could only insure about one per cent of the floating and production vessel used to produce oil at the Jubilee Field, leaving the remaining 99 per cent to foreign interest.

That needed to change, she said, pointing to the push for increased minimum capital from the companies.“I even think that the value of the GH¢15 million has eroded over time and we should even be looking at raising it because at the time we issued the directive (two years ago), it was big enough but now, it is not the same,” she said.