Only half of Ghana’s life insurance companies reported profits for 2021, and those that did earned them from investment income rather than actual underwriting of life insurance policies. ELLIOT WILLIAMS & TOMA IMIRHE explain how this works, and also why insurers want to take a longer-term perspective than the life insurance market currently offers.
The era when the then State Insurance Company ruled Ghana’s life industry is over – although not for want of effort on the part of SIC Life, the dedicated life insurance company that now runs that aspect of the since renamed and split up company. SIC Life, still owned by the state, is now the 2nd in Premium Income but third in Assets behind fully privately-owned competitors.
The largest is Enterprise Life Assurance Company, part of the publicly-listed Enterprise Group which now leads in both the life and non-life markets. Enterprise Life has brought new levels of intense focus, innovation and sophistication to Ghana’s life insurance industry; and just as crucially, currently has ownership and management politically connected enough to win a large chunk of government’s insurance business – which until a decade and a half ago was the mainstay of the state-owned SIC Group. The effect of its winning market share is not as intense as it is in the non-life (general insurance) market because of the nature of life insurance, but it has been enough to propel it to top of the industry by both total assets (2021: GH¢1,247.496billion) and gross premiums (2021: GH¢608.800billion).
It is instructive that Star Life, which up to a decade ago enjoyed similar political connections to those now working on Enterprise Life’s behalf, is 2nd biggest by total assets that rose to GH¢1,106.280billion by the end of 2021 – leaving SIC Life in 3rd place in regard to size with total assets of GH¢921.216billion. However, SIC Life, has defended its once-dominant market share stoutly and is still second only to Enterprise with regard to gross premiums – generating GH¢476.033billion last year, ahead of Star Life’s GH¢411.799billion.
The 5th biggest life insurer in Ghana is GLICO Life, which evolved out of the former Gemini Life Insurance Company – the fully indigenous, fully privately-owned company that pioneered dedicated life insurance back in the 1980s before venturing into general insurance later: a sequence that is opposite to the usual one of starting with general insurance and diversifying into life insurance afterward.
GLICO Life’s realistic approach to life insurance during periods of high inflation and consequent high interest rates, by offering short-term policies, set the foundation for the rise of investment yields – linked universal life products – a decade later, which have since dominated the life insurance market in Ghana. However, they are losing the enthusiasm of life insurers which offer them because the profit margins are slim compared with traditional life insurance that simply offers risk benefits for the premiums paid by policyholders.
On the upside though, because life insurance risks – and consequent risk-related claims – are lower than with general insurance, and are long-term funds rather than non-life’s short-term policies, Ghana’s life insurers have retained most of the gross premiums they generate and used them to build investment portfolios that are crucial to their profitability.
However, the life insurance market is dominated by its leaders: Enterprise alone accounts for very nearly a quarter of the entire market (24.2%, measured by gross premiums generated annually). SIC Life accounts for 18.9% and Starlife accounts for 16.4%. The 3 biggest life insurance cause account for more than 60% and between Enterprise, SIC Life and Star Life, the three biggest life insurers account for about 60%. At the other end of the spectrum, seven of Ghana’s 20 life insurers each had less than 1.0% of the entire market last year.
Indeed, half of Ghana’s life insurance companies reported losses last year – a performance that is actually impressive, considering only one of the 20 made underwriting profits – Donewell Life; and indeed its GH¢72.454million underwriting profit for 2021 was only marginal.
Indeed, these underwriting losses more or less reflect each life insurer’s size and premium income. Enterprise made the biggest underwriting loss of GH¢104.216million last year, followed by SIC Life’s GH¢80.851million and Star Life’s GH¢48.684million. Some of the smaller life insurers displayed better underwriting quality than their bigger counterparts, thus minimising their underwriting losses relative to their gross premiums. For instance, Saham Life ranked 11th by gross premiums, raking in GH¢33.463million last year, but kept its underwriting losses down to GH¢1.997million – the lowest among all 19 life insurers that made underwriting losses.
All this makes their respective investment portfolios their most prized possessions with regard to corporate financial performance although life insurers – sagely recognising that these profit-spinning investments are purely the result of their policyholders, even though on their own the policies themselves do not generate profits for them.
The investment incomes that life insurers earn are inevitably correlated largely to the size of their respective investment portfolios. However, the quality of investment decisions also counts for a lot, and the best-yielding portfolios compete with bigger but less cleverly structured ones.
Enterprise leads by both measures: it has the biggest investment portfolio in the industry, of GH¢1,804.446million and the company is renowned for its emphasis on superior investment strategy (instructively, the Enterprise Group is currently managed by one of Ghana’s most accomplished investment bankers, rather than an insurance professional), both factors combining to generate, by far, the highest investment income in the industry at GH¢194.611million.
In comparison, the next biggest investment portfolio is Star Life’s GH¢938.026million which generated the second biggest investment income of GH¢97.583million.
Despite the strong performance of investment – focused life insurance companies, the industry on average only earned 12.2% from its investments in 2021. This reflects the conservative nature of life insurance investment portfolios, in part imposed by regulation (which basically aims to ensure that most insurance premiums are invested in low-risk investments such as government debt securities) and by the necessity of investing long-term funds in long-term growth assets.
As a result of necessary investment conservatism and underwriting losses incurred by nearly all life insurers in Ghana, only half of them reported profits for 2021. Inevitably, the biggest premium earners and investors rank among the profit-makers – Enterprise first, followed by Star Life. However, SIC Life only ranks 9th with regard to profit after tax; beaten in this regard by several mid-sized insurance companies such as Metropolitan Life, Old Mutual Life and Prudential Life.
Perhaps most welcome for Ghana’s life insurance industry, though, is the progress being made in micro-insurance; an area that holds strong promise for increasing life insurance penetration in Ghana. Having been given regulatory focus in the 2021 Insurance Act, Ghana’s life insurers now have a more orderly framework; and many have embraced it, offering micro-insurance products using a generic name that customers are already familiar with – Susu insurance.
Life insurance may be the future of Ghana’s insurance industry, but with as much as 90% of potentially life-insured Ghanaians still uninsured, micro insurance might well be the future of the country’s life insurance market.