Debt Exchange: Policy will collapse insurance industry – Seth Aklatsi

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

The programme, which was announced by the Finance Minister, Ken Ofori-Atta, 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.

Speaking on JoyNews’ PM Express Business Edition in Accra on Thursday, Seth Aklatsi said with the terms and conditions provided under the debt exchange programme, the Finance Minister might as well collapse the insurance industry himself.

“What the government is putting out, it might as well just come out to tell insurance companies ‘ok 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 was at stake, he said; “Because here’s a business that we take the fractions in premium and we pay out the whole numbers. I earlier on explained that there is the life aspect where we actually know that definitely there is going to be a claim that is made. People take policies like guarantee”.

“We take it that you took a policy 7 years ago of maybe 1 million. 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. Or touch wood, 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,” he said.

“So if 7 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 government of Ghana instrument then they’re not even recognising your solvency within which is asked if you’re liquid enough to pay claims or not,” he said.

He said, “Then, touch wood, you drop dead now, we haven’t gotten to the ten 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 per cent, 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.

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