Underwriting losses and declining investment yields pose risks to profitability within the insurance industry, the Bank of Ghana says in its financial stability report.
For both life insurance and non-life insurance companies, the combination of weak underwriting performance and declining investment income has led to a reduction in return on equity, reported myjoyonline.com quoting the report.
“Given the general decline in investment income and underwriting losses, there is the need for insurers to strengthen their cost control measures, deal with underpricing issues and adjust business models to address underwriting losses”, the report stated.
The Bank however expects the introduction of the new minimum capital regime will help improve efficiencies through consolidation.
It said declining investment yields in the presence of weak underwriting performance is gradually reinforcing an investment strategy shift towards investment properties.
The assets of the insurance sector continues to be concentrated in fixed income securities particularly fixed income instruments such as fixed deposits, treasury instruments and Bank of Ghana securities.
Amidst persistent underwriting losses, the report says that investment income continues to play a pivotal role in the near to medium term sustainability of the insurance sector.
To optimise returns on investment and maintain profit margins, the report advises insurers to gradually readjust their investment portfolio in favour of investment properties, in order to reduce investment losses.
The report states that in addition, to preserving investment income, there is the need for the government to expand the bond market as an alternative investment option for investors, including insurers.