Ghana Reinsurance PLC, the country’s largest reinsurer, has demonstrated its resilience by navigating the effects of the Domestic Debt Exchange Programme (DDEP) – which imposed a cumulative GH¢6billion loss on the country’s commercial banking industry in 2022 – and still declaring a profit for the year.
Indeed, Ghana Re’s group pre-tax profit for 2022 of GH¢67.55million was actually marginally higher than the GH¢66.74million of the previous year. However, tightening the fiscal regime to meet government’s financial challenges led to a slight drop in profit after tax to GH¢49.50million, down from GH¢51.73million for 2021.
This was achieved despite the company incurring impairment charges on its investment portfolio in government domestic debt securities of GH¢60.6million. Indeed, the company also had to overcome a 77% increase in net claims which rose to GH¢248.3million in 2022 – up from GH¢140.2million in 2021, the result primarily of bond claims from oil marketing companies and depreciation of the cedi during second-half of the year.
But it was that same cedi depreciation that proved pivotal in ensuring that Ghana Re overcame those severe headwinds to remain eminently profitable in 2022. The company’s Chairman at last week’s annual general meeting in Accra explained: “The decline in profit for the year is attributable to the high claims ratio and impairment loss on financial assets from the DDEP. The position would have been a loss but for the GH¢108.56million (foreign) exchange gain recorded on the Group’s foreign currency-denominated financial assets, due to depreciation of the cedi against major international currencies in the second half of 2022”.
Although the company’s profitability for 2022 was only preserved through an unusual source, this was required to overcome an even more unusual cost – the impairment charges. And indeed, Ghana Re’s underlying financial performance with regard to its usual activities was impressive – providing a strong testimonial to the tenure of its Managing Director and CEO George Yaw Mensah, who is retiring this month after six years at the helm.
The company’s group composite (life and general business) gross premium income for 2022 was GH¢550.23million, up 42.6% over the GH¢385.92million generated in 2021. General business contributed about 95% of the group gross premium, amounting to GH¢520.69million. The largest contributor to the general business portfolio was fire, which contributed 63% of general business premiums and 59% to composite total premiums. Motor insurance contributed 7.7% of general business premiums; other accidents 21.4%; marine cargo 5.8%; marine hull 1.7%; and both aviation and workmen’s compensation contributed 0.3%.
The life portfolio contributed another 5% of total premiums, this amounting to GH¢29.54million – up from GH¢26.58million in the previous year and translating to 11% annual growth.
Investment income grew even faster, driven primarily by sharply rising interest rates on fixed income securities. Investment income as a whole increased by 51% to GH¢70.35million, up from GH¢46.45million in 2021. Interest income from fixed income securities contributed 91% of this. Dividend income also rose significantly by 47% from GH¢3.6million for 2021, to GH¢5.35million in 2022.
Conversely, though, net commission expense rose by 33% to GH¢142.06 million from GH¢106.76million in the previous year. However, the increase in gross premium income enabled the commission ratio to fall from 28% to 26%. Management expenses grew a little faster, from GH¢66.5million in 2021 to GH¢91.25million in2022; a 37% increase forced upon the company by record high inflation levels in 2022.
Importantly, Ghana Re has already taken its hit in the form of impairment charges for both domestic and foreign debt (primarily Eurobonds); which means government’s ongoing external debt restructuring is unlikely to have any appreciable further negative effects on the company’s finances.
To ensure its financial solidity against future shocks, however, the company has strengthened its balance sheet further; hence sacrificing dividends to government – its sole shareholder – for this. Dividends for 2022 are just GH¢5million, down from GH¢12million on a nearly identical profit level paid out for 2021.
This has enabled a 205 increase in shareholders’ equity to GH¢521.72million by the end of 2022, up from GH¢435.75million a year previously. Total assets covered total liabilities by 190% in 2022, compared to 220% in 2021.
Ghana Re celebrated its 50th-anniversary last year and is now in the final year of its three-year strategic plan, most of the targets having been met.