Joseph Oscar Akotey, Godfred Aawaar and Nicholas Addai Boamah
This research explores to answer the question: What accounts for the substantial underwriting losses in the Ghanaian insurance industry?
Abstract
Purpose
This research explores to answer the question: What accounts for the substantial underwriting losses in the Ghanaian insurance industry?
Design/methodology/approach
Thirty-four (34) insurers' audited financial reports covering the period of 2007 to 2017 were analysed through dynamic panel regression to uncover the underlying causes of high underwriting losses in the Ghanaian insurance industry.
Findings
The findings indicate that efforts at increasing market share by overtrading add no value to insurers underwriting profitability. The underwriting risk suggests that the industry charges disproportionately too small premiums for the risks it underwrites. This may indicate under-pricing by some insurers to grow their customer base.
Practical implications
The findings have implications for managerial efficiency and risk management structures that align compensation with underwriting efficiency.
Originality/value
The association between managerial preference and the underwriting performance of insurers in emerging markets has rarely been researched. This study responds to this knowledge challenge.
Details
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Joyce Patience Awo and Joseph Oscar Akotey
Rural and community banks (RCBs) provide financial services to small enterprises in rural and sub-urban areas. The purpose of this paper is to examine their financial performance…
Abstract
Purpose
Rural and community banks (RCBs) provide financial services to small enterprises in rural and sub-urban areas. The purpose of this paper is to examine their financial performance through a case-specific evaluation of a small bank situated in the northern part of Ghana.
Design/methodology/approach
The authors employed a triangulation method comprising relative ratio analysis, bivariate and generalized method of moments (GMM) techniques for the evaluation of the audited annual financial statements of the bank covering a period of 15 years.
Findings
The relative ratio analysis show that the bank's financial performance has generally been above the average of the rural banking industry. The bivariate analysis indicates that although the loans portfolio is positive, it is not properly fitted. That is, some of its loan portfolio deviates from the path of expectation. The GMM analysis indicates that its financial performance is significantly influenced by liquidity management, bank capital and size which have enhanced its expansion and intermediation to rural households and microenterprises. However, an increase in the government treasury bill rate has a declining effect on the bank’s profitability.
Practical implications
The findings have significant policy implications for the management and supervision of RCBs. RCBs should deal with the spillover effects of the banking and MFIs’ crisis by educating and re-assuring their customers of their financial integrity. Most importantly, they differentiate their services from the other financial institutions within the space of the rural financial architecture.
Originality/value
Majority of research into this area has focused heavily on large commercial banks. This research adds value to the literature by re-focusing the searchlight on the financial performance of small banks.
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William Mawuli K. Adjimah, Nicholas Addai Boamah, Joseph Oscar Akotey and Kingsley Opoku Appiah
This study aims to investigate the conditioning effect of formal institutional environments on the relationship between religious diversity and bank capital decisions.
Abstract
Purpose
This study aims to investigate the conditioning effect of formal institutional environments on the relationship between religious diversity and bank capital decisions.
Design/methodology/approach
The study used random effects, generalised least squares regression and the method of moments quantile regression to analyse cross-country variations in bank capital decisions using data from 151 countries between 2000 and 2021.
Findings
The findings show managers take more risks and perceive low regulatory capital as an avenue to success and innovation in more religiously diverse countries. Additionally, institutional quality reverts the negative consequence of religious differences on bank regulatory capital in developing and emerging countries but worsens in developed countries.
Research limitations/implications
The role of deregulation and economic policy uncertainty can be considered for future research on religious diversity and bank capital decision dynamics.
Practical implications
Bank managers may adapt capital ratios to informal institutional factors in individual countries without overlooking the influence of formal institutional indicators.
Originality/value
By advancing studies from an institutional perspective, the authors contribute theoretically to the literature by examining the joint effect of the informal and formal institutional environments on regulatory capital decisions. This will help regulators, supervisors and policymakers better understand the drivers of bank regulatory capital decisions to safeguard the banking systems with the right strategy and policy.
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Oscar Joseph Akotey, Kofi A. Osei and Albert Gemegah
The purpose of this paper is to identify the factors which influence the demand for micro‐insurance services among the informal sector workers of Ghana who are quite vulnerable to…
Abstract
Purpose
The purpose of this paper is to identify the factors which influence the demand for micro‐insurance services among the informal sector workers of Ghana who are quite vulnerable to various risks in the economy.
Design/methodology/approach
The study adopts a quantitative technique based on primary data sampled randomly from 100 informal sector workers from four major market centers in Accra, Ghana. The probit regression model was used for the empirical investigation.
Findings
Empirical investigation using the probit model indicates that premium flexibility, income level and nodal agency are significant determinants of micro‐insurance demand. Insurance knowledge, expectation (trust) and marital status were also found to have positive and significant impact on the demand for micro insurance. Interestingly, the empirical analysis shows that formal education is not a significant determinant; rather one's level of insurance knowledge has a positive and significant impact on micro‐insurance demand.
Social implications
Insurers must consider the nature of the cash‐flow of informal workers in the design of premiums. The government must integrate micro insurance into its poverty reduction program.
Originality/value
The micro‐insurance market is very new and unresearched in Ghana. This foundational study is, therefore, very original and a most valuable guide to commercial insurance companies which want to venture into this huge untapped opportunity in the Ghanaian informal sector.
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Joseph Oscar Akotey, Frank G. Sackey, Lordina Amoah and Richard Frimpong Manso
The aim of this research is to assess the financial performance of the life insurance industry of an emerging economy. In particular the study delves into the major determinants…
Abstract
Purpose
The aim of this research is to assess the financial performance of the life insurance industry of an emerging economy. In particular the study delves into the major determinants of the profitability of the life insurance industry of Ghana. The study also examines the relationship among the three measures of insurers' profitability, which are investment income, underwriting profit and the overall (total) net profit.
Design/methodology/approach
The annual financial statements of ten life insurance companies covering a period of 11 years (2000‐2010) were sampled and analyzed through panel regression.
Findings
The findings indicate that whereas gross written premiums have a positive relationship with insurers' sales profitability, its relationship with investment income is a negative one. Also, the results showed that life insurers have been incurring large underwriting losses due to overtrading and price undercutting. The results further revealed a setting‐off rather than a complementary relationship between underwriting profit and investment income towards the enhancement of the overall profitability of life insurers.
Practical implications
The policy implications of this study for the stakeholders of the life insurance industry are enormous. For instance, insurers must have well‐resourced actuary departments to perform price validation of all policies in order to prevent over‐trading and price undercutting by insurance marketing agents. In addition, the intention of the NIC to adopt a risk‐based approach in its supervision is not only timely but a very significant move that will improve upon the accounting and records keeping standards of the industry as well as the governance and risk management structures of the sector.
Social implications
Being too obsessed with premium growth without adequate price validation can lead to self‐destruction such as huge underwriting losses. Large underwriting losses can lead to insurance insolvency during periods of cluster claims.
Originality/value
This study fulfills an urgent need to investigate the things that are crucial for the survival, growth and profitability of life insurers in an emerging economy.
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Joseph Oscar Akotey and Joshua Abor
The purpose of this paper is to examine the risk management practices of life assurance firms and non‐life insurance firms.
Abstract
Purpose
The purpose of this paper is to examine the risk management practices of life assurance firms and non‐life insurance firms.
Design/methodology/approach
Through a comparative case study methodology, the study assesses the state of risk management in both life assurance companies and non‐life insurance firms to determine whether they exhibit different or similar risk management practices. The results of the survey were also analyzed and compared to the principles of good practices in financial risk management.
Findings
The findings of the study revealed some differences and similarities in the risk management practices of life and non‐life insurance firms. Almost all the life companies have stated their risk appetite levels, which enable them to identify which risks to absorb and which ones to transfer. But non‐life insurance firms have not laid down their risk tolerance levels explicitly. The results further revealed that the industry lacks sufficient personnel with the requisite risk management skills and that the sector does not manage risks proactively, rather they do so in a reactive response to regulatory directives.
Practical implications
Effective management of risks by insurers will increase the penetration of insurance in Ghana.
Social implications
Risk management is a crucial issue, not only for the survival and profitability of the insurance industry, but also for the socio‐economic growth and development of the whole economy. As major risks underwriters, insurance companies need to adopt good practices or quality measures in the management of financial risk. This is important, more so, as the industry prepares to re‐position itself to underwrite the risks in the emerging oil and gas industry of Ghana.
Originality/value
Research into financial risk management in the insurance industry from the Ghanaian perspective is rare. This study is therefore timely and its findings are invaluable for the efficient management of financial risk in the insurance industry.