The state of the Ghanaian insurance sector in an oil and gas economy
Story by Gilbert Boyefio
Although the Ghanaian insurance market has been described by experts as a thriving one with huge potential for growth in both the life and non-life markets, with the inception of exploration and production of oil and gas in the country, many have questioned the ability and capacity of the players of the industry to handle and underwrite the huge risk associated with the industry.
According to experts, the major challenge facing the Ghanaian insurance sector in an oil and gas economy is the lack of capacity by the players of the sector to underwrite all the risks that comes with the huge premiums. Hitherto, the challenges of the sector has been the under pricing of policies and the worsening position of bad debts which has resulted in most insurance companies making significant underwriting losses.
Efforts by government to ensure full local participation in all aspects of the oil and gas value chain, which has been acclaimed as very ambitious, coupled with the Insurance Law 2006, Act 724 that requires among other things for insurers to utilize local capacity available before recourse to any overseas reinsurance, has brought into sharp focus the inadequacy of the Ghanaian insurance sector.
Taking the bull by the horn, players of the insurance sector has come together to form an oil and gas insurance pool thereby increasing their capacity to effectively and efficiently underwrite the industry as a unit, with a view to reducing foreign outflow.
Another objective of the pool, according to Mr. Faris Attrickie, the Pool Manager, is to ensure that oil companies operating in Ghana are charged competitive premium rates in order to enhance profitability and stabilize the Ghanaian oil and gas insurance market.
He further pointed out that one major advantage of the oil and gas insurance pool is that it affords the Ghanaian insurance sector the opportunity to have a united front and get the best premium for the Ghanaian economy. Because of the united stand that members of the pool has taken, the pool is on the right track to ensure that all the businesses insured will pay adequate premium to the industry and by so doing help stabilized the economy of the country.
“Since this is not the first time the pool concept is being implemented by a country, we have learnt from the mistakes of others such as Nigeria and we do not want to go their way”, he indicated.
In Nigeria individual members of the pool can underwrite on their own thereby increasing their liability if they bite more than they can chew. It also opens up the market for businesses to divide their front by using the divide and rule tactics.
In Ghana however, the picture is different and peculiar. All the underwriting of the oil and gas industry is done on behalf of the insurance pool by the SIC Insurance, managers of the pool. No individual member of the pool accepts or underwrites an upstream oil and gas risk on its own. Similarly, claims are made against the pool as a market and not against individual insurers.
SIC Insurance was chosen as the managers of the pool because they are bigger, has the capacity and financial mind and understand the market better. SIC Insurance performs all administrative and technical tasks necessary for the proper functioning of the pool including, acceptance of business, issuance of documents, arranging reinsurance cover, and keeping the accounts and registers of the pool.
According to the President of the Ghana Insurers Association and Managing Director of SIC Insurance, Mr. Benjamin Acolatse, “There has been significant international interest bordering on the legality of the Ghana Oil and Gas Insurance Pool particularly by some offshore reinsurance brokers and oil companies who appear not to be comfortable with the strong and united front that our pool arrangement presents.”
Through the peculiar and united approach of the Ghanaian insurance sector, the oil and gas insurance pool now has the capacity to underwrite risks up to US$19million. The rest will be reinsured overseas.
So far about 18 businesses have been underwritten by the oil and gas insurance pool. Some of the risks accepted during the pool’s short time of operation include, but not limited to the following: Construction risks for the Jubilee Fields from Kosmos/Tullow, Commercial general liability from Kosmos, Energy package from Kosmos, Excess liability from Kosmos, Third party liability from Kosmos, Energy package from Tullow, Remotely operated vehicles from Tullow, Construction risks for FPSO Kwame Nkrumah from MODEC, Operators extra expenses from HESS, Third party liability from HESS, Construction risk from GNPC.
Just under the two years of its operations, the various risks underwritten yielded a total premium (100%) of US$39,777,652.00. Unfortunately, the local market capacity gravely limits the extent to which the pool can participate.
So far the pool has received three claims notification since inception.
The first loss occurred on July 1, 2010, and relates to the construction all risks policy issued jointly to Kosmos and Tullow. The claim was in respect of damage to the flow line caused by a crane crush. The total (100%) claim amount was US$28,900,000.00. The local market share of the claim was US$247,935.99 being 0.86% of the total claim amount.
The second loss notification was on November 12, 2010. The loss was said to have been caused by a defective electrical flying leads. Later, the broker (RK Harrison) informed the pool manager that this particular claim has been closed, probably because the loss amount was within the limit of deductible.
The third loss notification was in December 2010, relating to a damage to West Production Riser a topside and fitting. The loss was settled at US$15,874,000.00. The pool’s share of the claim was US$136,184.63 representing the 0.86% participation in the risk.
In summary, the pool currently has an income of US$2,400,382.00 (made up of premium and reinsurance commission) from which a total claim amount of US$384,120.62 has been paid. This leaves the pool US$2,016,261.40 after two and half years of operations.
A number of international organizations have expressed high hopes in the future of Ghana’s oil and gas insurance pool.
The African Development Bank, for instance, aims at increasing the proportion of insurance and reinsurance premium that is kept on the African continent and in the country where it originates. The Bank therefore sees a clear alignment between its objectives and those of the Ghana Oil and Gas Insurance Pool, and is willing to provide technical assistance to improve the operational performance and technical capacity of the pool.
Mr. Acolatse, who is also a member of the management board, disclosed that “Discussions have begun with the African Development Bank, and officials from the Bank’s head office in Addis Ababa, Ethiopia, will arrive in the country next week for a meeting with the Ghana Oil and Gas Insurance Pool management board on the way forward. Munich Re has also expressed interest in providing technical and other forms of assistant to the pool.”
Adding to the euphoria, the Pool Manager, Mr. Attrickie indicated that “The pool is helping to build the future. Unlike other countries were oil has become a curse to them, the pool is making sure that the same does not happen to us. We have a situation where we will be creating an enhanced capacity for the industry and at the same time investing in the Ghanaian economy.”
The vision of the pool is to accumulate enough income to capitalize a special purpose limited liability company in the near future to manage oil and gas insurance business in Ghana. Member companies of the pool will be allotted shares in the new company according to their percentage shares in the accumulated income.
Ghana’s oil and gas insurance pool was established in August 2010 by a resolution from the General Council of the Ghana Insurance Association. Its membership is currently made up of all the twenty five (25) registered life and non life companies, and reinsurance companies in Ghana, including the Ghana Reinsurance, SIC, Metropolitan Insurance, Enterprise Insurance, Star Assurance, Vanguard Assurance, Donewell Insurance, Mainstream Reinsurance, Ghana Union Assurance, Phoenix Insurance, Allianz Insurance and Provident Insurance.
The rest are International Energy Insurance, Quality Insurance, NSIA Ghana, Unique Insurance, Glico General Insurance, Intercontinental Wapic Insurance, Activa International Insurance, Equity Assurance, Regency Alliance, NEM Insurance, Colina Insurance, IGI General Insurance and Prime Insurance.
Members participate up to 10% of their net assets as per the published account of the preceding year. This is subject to annual reviews based on the net assets levels of members. An access of loss reinsurance protection has been arranged to protect member’s subscription. The objective is to limit the exposure of members to a fraction of their pledged levels of subscriptions. Members’ share of the pool’s income is determined by their share subscription to the pool.
The pool has a well laid out structure and constitution. The CEOs of member companies are the shareholders, which is called the General Assembly. It has a management board made up of the top eight members of the pool namely the Ghana Reinsurance, SIC Insurance, Ghana Union Assurance, Glico General Insurance, Metropolitan Insurance, Enterprise Insurance, Star Assurance and Vanguard Assurance.
There is a secretary to the pool. The secretary has to be a lawyer of good standing and an employee of any of the members of the pool. The manager of the pool is appointed by the management board. The position of a pool manager, the secretary and members of the management board are for three years renewable.
But despite the major strides made by the oil and gas insurance pool within its short period of operations, all is not rosy as there are new challenges facing the pool as a result of some foreign companies not insuring their businesses here (locally) as stipulated by law.
According to the Pool Manager, all companies operating in the oil and gas industry have to be insured locally before a certificate of participation is issued to them by the GNPC for commencement of operation. This he observed is not being done as some foreign companies have managed to obtain the certificate of participation without adherence to the law. He partly attributes this situation to the inability of the GNPC to make reference to the law. “We are willing to confront this challenge with the best professionalism as we can. The oil and gas business is an international business and we do not want to have any friction with the people we do business with. We will like to serve them with the best international standard service but as much as possible we want these companies to respect the laws of the land,” he stated.
Mr. Faris Attrickie noted that to arrest this issue the cordial working relationship between the GNPC and the oil and gas insurance pool needs to be strengthen and proper communication channels established and maintained.
To him, if one considers the role insurance has to play in the economic and physical development of countries the future is bright.
Although the Ghanaian insurance market has been described by experts as a thriving one with huge potential for growth in both the life and non-life markets, with the inception of exploration and production of oil and gas in the country, many have questioned the ability and capacity of the players of the industry to handle and underwrite the huge risk associated with the industry.
According to experts, the major challenge facing the Ghanaian insurance sector in an oil and gas economy is the lack of capacity by the players of the sector to underwrite all the risks that comes with the huge premiums. Hitherto, the challenges of the sector has been the under pricing of policies and the worsening position of bad debts which has resulted in most insurance companies making significant underwriting losses.
Efforts by government to ensure full local participation in all aspects of the oil and gas value chain, which has been acclaimed as very ambitious, coupled with the Insurance Law 2006, Act 724 that requires among other things for insurers to utilize local capacity available before recourse to any overseas reinsurance, has brought into sharp focus the inadequacy of the Ghanaian insurance sector.
Taking the bull by the horn, players of the insurance sector has come together to form an oil and gas insurance pool thereby increasing their capacity to effectively and efficiently underwrite the industry as a unit, with a view to reducing foreign outflow.
Another objective of the pool, according to Mr. Faris Attrickie, the Pool Manager, is to ensure that oil companies operating in Ghana are charged competitive premium rates in order to enhance profitability and stabilize the Ghanaian oil and gas insurance market.
He further pointed out that one major advantage of the oil and gas insurance pool is that it affords the Ghanaian insurance sector the opportunity to have a united front and get the best premium for the Ghanaian economy. Because of the united stand that members of the pool has taken, the pool is on the right track to ensure that all the businesses insured will pay adequate premium to the industry and by so doing help stabilized the economy of the country.
“Since this is not the first time the pool concept is being implemented by a country, we have learnt from the mistakes of others such as Nigeria and we do not want to go their way”, he indicated.
In Nigeria individual members of the pool can underwrite on their own thereby increasing their liability if they bite more than they can chew. It also opens up the market for businesses to divide their front by using the divide and rule tactics.
In Ghana however, the picture is different and peculiar. All the underwriting of the oil and gas industry is done on behalf of the insurance pool by the SIC Insurance, managers of the pool. No individual member of the pool accepts or underwrites an upstream oil and gas risk on its own. Similarly, claims are made against the pool as a market and not against individual insurers.
SIC Insurance was chosen as the managers of the pool because they are bigger, has the capacity and financial mind and understand the market better. SIC Insurance performs all administrative and technical tasks necessary for the proper functioning of the pool including, acceptance of business, issuance of documents, arranging reinsurance cover, and keeping the accounts and registers of the pool.
According to the President of the Ghana Insurers Association and Managing Director of SIC Insurance, Mr. Benjamin Acolatse, “There has been significant international interest bordering on the legality of the Ghana Oil and Gas Insurance Pool particularly by some offshore reinsurance brokers and oil companies who appear not to be comfortable with the strong and united front that our pool arrangement presents.”
Through the peculiar and united approach of the Ghanaian insurance sector, the oil and gas insurance pool now has the capacity to underwrite risks up to US$19million. The rest will be reinsured overseas.
So far about 18 businesses have been underwritten by the oil and gas insurance pool. Some of the risks accepted during the pool’s short time of operation include, but not limited to the following: Construction risks for the Jubilee Fields from Kosmos/Tullow, Commercial general liability from Kosmos, Energy package from Kosmos, Excess liability from Kosmos, Third party liability from Kosmos, Energy package from Tullow, Remotely operated vehicles from Tullow, Construction risks for FPSO Kwame Nkrumah from MODEC, Operators extra expenses from HESS, Third party liability from HESS, Construction risk from GNPC.
Just under the two years of its operations, the various risks underwritten yielded a total premium (100%) of US$39,777,652.00. Unfortunately, the local market capacity gravely limits the extent to which the pool can participate.
So far the pool has received three claims notification since inception.
The first loss occurred on July 1, 2010, and relates to the construction all risks policy issued jointly to Kosmos and Tullow. The claim was in respect of damage to the flow line caused by a crane crush. The total (100%) claim amount was US$28,900,000.00. The local market share of the claim was US$247,935.99 being 0.86% of the total claim amount.
The second loss notification was on November 12, 2010. The loss was said to have been caused by a defective electrical flying leads. Later, the broker (RK Harrison) informed the pool manager that this particular claim has been closed, probably because the loss amount was within the limit of deductible.
The third loss notification was in December 2010, relating to a damage to West Production Riser a topside and fitting. The loss was settled at US$15,874,000.00. The pool’s share of the claim was US$136,184.63 representing the 0.86% participation in the risk.
In summary, the pool currently has an income of US$2,400,382.00 (made up of premium and reinsurance commission) from which a total claim amount of US$384,120.62 has been paid. This leaves the pool US$2,016,261.40 after two and half years of operations.
A number of international organizations have expressed high hopes in the future of Ghana’s oil and gas insurance pool.
The African Development Bank, for instance, aims at increasing the proportion of insurance and reinsurance premium that is kept on the African continent and in the country where it originates. The Bank therefore sees a clear alignment between its objectives and those of the Ghana Oil and Gas Insurance Pool, and is willing to provide technical assistance to improve the operational performance and technical capacity of the pool.
Mr. Acolatse, who is also a member of the management board, disclosed that “Discussions have begun with the African Development Bank, and officials from the Bank’s head office in Addis Ababa, Ethiopia, will arrive in the country next week for a meeting with the Ghana Oil and Gas Insurance Pool management board on the way forward. Munich Re has also expressed interest in providing technical and other forms of assistant to the pool.”
Adding to the euphoria, the Pool Manager, Mr. Attrickie indicated that “The pool is helping to build the future. Unlike other countries were oil has become a curse to them, the pool is making sure that the same does not happen to us. We have a situation where we will be creating an enhanced capacity for the industry and at the same time investing in the Ghanaian economy.”
The vision of the pool is to accumulate enough income to capitalize a special purpose limited liability company in the near future to manage oil and gas insurance business in Ghana. Member companies of the pool will be allotted shares in the new company according to their percentage shares in the accumulated income.
Ghana’s oil and gas insurance pool was established in August 2010 by a resolution from the General Council of the Ghana Insurance Association. Its membership is currently made up of all the twenty five (25) registered life and non life companies, and reinsurance companies in Ghana, including the Ghana Reinsurance, SIC, Metropolitan Insurance, Enterprise Insurance, Star Assurance, Vanguard Assurance, Donewell Insurance, Mainstream Reinsurance, Ghana Union Assurance, Phoenix Insurance, Allianz Insurance and Provident Insurance.
The rest are International Energy Insurance, Quality Insurance, NSIA Ghana, Unique Insurance, Glico General Insurance, Intercontinental Wapic Insurance, Activa International Insurance, Equity Assurance, Regency Alliance, NEM Insurance, Colina Insurance, IGI General Insurance and Prime Insurance.
Members participate up to 10% of their net assets as per the published account of the preceding year. This is subject to annual reviews based on the net assets levels of members. An access of loss reinsurance protection has been arranged to protect member’s subscription. The objective is to limit the exposure of members to a fraction of their pledged levels of subscriptions. Members’ share of the pool’s income is determined by their share subscription to the pool.
The pool has a well laid out structure and constitution. The CEOs of member companies are the shareholders, which is called the General Assembly. It has a management board made up of the top eight members of the pool namely the Ghana Reinsurance, SIC Insurance, Ghana Union Assurance, Glico General Insurance, Metropolitan Insurance, Enterprise Insurance, Star Assurance and Vanguard Assurance.
There is a secretary to the pool. The secretary has to be a lawyer of good standing and an employee of any of the members of the pool. The manager of the pool is appointed by the management board. The position of a pool manager, the secretary and members of the management board are for three years renewable.
But despite the major strides made by the oil and gas insurance pool within its short period of operations, all is not rosy as there are new challenges facing the pool as a result of some foreign companies not insuring their businesses here (locally) as stipulated by law.
According to the Pool Manager, all companies operating in the oil and gas industry have to be insured locally before a certificate of participation is issued to them by the GNPC for commencement of operation. This he observed is not being done as some foreign companies have managed to obtain the certificate of participation without adherence to the law. He partly attributes this situation to the inability of the GNPC to make reference to the law. “We are willing to confront this challenge with the best professionalism as we can. The oil and gas business is an international business and we do not want to have any friction with the people we do business with. We will like to serve them with the best international standard service but as much as possible we want these companies to respect the laws of the land,” he stated.
Mr. Faris Attrickie noted that to arrest this issue the cordial working relationship between the GNPC and the oil and gas insurance pool needs to be strengthen and proper communication channels established and maintained.
To him, if one considers the role insurance has to play in the economic and physical development of countries the future is bright.
Comments
Post a Comment