Determinants Of Financial Health Of Life Insurance Companies In Ghana

Abstract

This study investigates determinants of financial health of Ghanaian life insurance companies, a market that has experienced significant change in recent years. It examines the solvency of life insurance companies and the current system used by the National Insurance Commission (NIC) to monitor solvency of life insurance companies in Ghana. Secondary data obtained from financial reports of 16 sampled life insurance companies from 2007 to 2013 were analysed using the unbalanced panel regression analysis technique. The study used solvency ratio as a proxy for financial health and assessed the impact of nine predictor variables, both macro and firm specific variables on it. Analysis of the data showed that all the predictor variables, with the exception of premium growth and reforms are significant determinants of financial health. The results also indicated that aside claims incurred, combined ratio and inflation, all the other predictor variables are positively related to solvency. Further, analysis indicated a weak to moderate total financial health of the sampled life insurers during the study. It was revealed an the end of the project that less than 40% of the registered life companies were strongly solvent every year based on the categorization of solvency by the study. Therefore, aside the routine checks and ensuring compliance of insurance regulation by insures which is currently done, the NIC can monitor these ratios published annually by insurers in addition to moving towards the proposed Risk Based supervision in order to detect early signs of insurer distress.