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News & Events 
 
Management Day 2008

The University of Ghana Business School celebrated the 29th Annual Management Day on Wednesday, April 30, 2008. The theme for this year was The Changing Face of the Financial Services Sector in Ghana. Sub-themes were Off-Shore Banking and the Economy of Ghana, Regulating International Banking and International Financial Services for the Benefit of the Economy, Life Insurance and the Economy of Ghana, and Challenges in Regulating Life Insurance Companies. The Chairman for the occasion was Togbe Afede XIV, Paramount Chief of Asogli Traditional Area and Chief Executive Officer of Strategic African Securities Finance Group.

SPEECHES
Chairman’s Opening Remarks

The Provost of the College of Agriculture, the Dean of UGBS, former deans of UGBS, the Managing Director of Barclays Bank of Ghana, professors and lecturers of UGBS, students of UGBS, distinguished invited guests, ladies and gentlemen:

It is indeed a great honour and privilege for me to be invited to this function, and I would first of all like to thank the management of UGBS and the organizers of this event for bringing me back home. I completed my BSc. Administration course in 1979 and was a lecturer here from 1990 to 1994. I miss my time here as a student, and indeed, I miss my time here as a lecturer.

Secondly, I want to congratulate the school for maintaining the tradition of commemorating this day over the past twenty-nine years, and I want to pay tribute to the originators of this annual event.

Thirdly, I want to congratulate the planners of this event for choosing a most appropriate theme – The Changing Face of the Financial Services Sector of Ghana. This theme is appropriate given the trends that are observable in this very important sector.

As students, and future innovators, it is important that you understand the nature and the causes of these trends. This is why I also want to commend planners for assembling a very distinguished panel of speakers to do justice to the subject.

The financial services sector is one of the most important sectors of our economy, and obviously, of all other economies. And this is why our governments over the years have pursued various programmes to reform or develop the sector so that it can propel our economic growth.

You would recall programmes that were implemented as part of our structural adjustment programmes of the 1980s and 1990s.  These programmes spawned the various discount houses, which contributed significantly to the development of our money markets, and the Ghana Stock Exchange, which was a mere three-broker market with only eleven listed companies in November, 1990.  Today, we have several stockbrokers and more than thirty listed companies. We also have several fund management companies, finance houses and other non-bank financial institutions.

On the banking front, we have moved from specialist commercial, merchant and development banks, and have embraced the concept of universal banks, while seeing an influx of foreign banks, especially from Nigeria. We have also seen the emergence of individual bank-owned ATMs and an independent platform, with the launch of e-zwich by the Bank of Ghana. And Barclays Bank Ghana recently launched the first-ever off-shore banking facility in West Africa.

Similar developments are changing the face of our insurance industry, which has also seen a big increase in the number of players. Life insurance and off-shore banking are two very important sub-sectors of our financial sector.

Life insurance premiums are part of the nation’s long-term savings, and so life insurance companies are very important in channeling savings into investments, thereby enhancing capital formation. If you recall that lack of capital is often cited as the  bane in our development, then you would appreciate that the activities of life insurance  companies have important implications for our economic growth and development. 

Also, by providing a hedge against adversity, life insurance enhances economic and social stability, which is vital for growth.  The benefits are the reasons why the government provides various fiscal and other incentives to encourage people to take up life insurance in the hope of increasing life premium incomes as a percentage of GDP.

Off-shore banks are also very important in mobilizing capital, in this case, international capital. They are therefore a source of foreign exchange.  They also encourage cross-border trade, and provide employment and income. That is why the government has offered the required tax incentives to help launch the Barclays off-shore banking as the international banking component of the international financial services centre objective of the Financial Sector Development Programme.

As I said earlier, I am happy we have a distinguished group of professionals to speak to us on the subject. All that I need to say by way of introduction is what I have said.

Once again, I want to thank the organizers for the honour and the privilege of chairing this event which has brought together our very distinguished professors and speakers.

I count on your support and cooperation so that at the end of the day, we all would feel our time has been well spent, and we would leave with pleasant memories of a successful event.

THANK YOU.

“OFFSHORE BANKING AND THE ECONOMY OF GHANA” - MRS. MARGARET MWANAKATWE, THE M.D. OF BARCLAYS BANK OF GHANA LIMITED, 

Mr. Chairman,
The Acting Dean of the University of Ghana Business School
Head of Banking Supervision of the Bank of Ghana
The Executive Director, Enterprise Life Assurance Company
President of the Ghana Insurers Association
Staff and Students of the University of Ghana Business School
Distinguished Guests, Ladies and Gentlemen!

My commendations, first and foremost, to the University of Ghana for the leading role you have played over the years, and still play in providing for the human capital essentially needed by organizations, both in the private and public sectors of the economy. Most leaders of businesses and organizations in Ghana today have served their time with this prestigious institution of learning. Their usefulness in today’s corporate and public space derives from the fountain of knowledge that this university has been to many. I am persuaded that you deserve commendation for that.

Since the establishment of the University of Ghana Business School (UGBS), it has served as a platform for honing the knowledge and skills of senior level management personnel, providing them with the competencies required in today’s competitive and rapidly changing business and work environment. The UGBS MBA Programme is the most sought after post-graduate programme in Ghana today, and it is you, the students, the staff and the alumni, who have made this possible.

It is in line with the achievements of the University of Ghana in general, and the UGBS in particular, that I consider it a privilege and an honour to be part of this year’s Annual Management Day. I very much appreciate the invitation extended to me.

Mr. Chairman, Distinguished Guests, Ladies and Gentlemen!
I am told the theme for this year’s Management Day is “The changing face of the financial services sector in Ghana”. Specifically, I was assigned to talk on the topic “Offshore Banking and the Economy of Ghana”. What I propose to do is to attempt an explanation of what Offshore Banking is about, delve into some of the perceptions we have about Offshore Banking and then highlight its benefits to the economy. I believe I have your permission to proceed along the path I have outlined.

Distinguished Guests, Ladies and Gentlemen!
The term Offshore Bank originates from the Channel Islands which had a bank which was “offshore” from Britain. However, its customers were mostly from Britain and other areas outside the Channel Islands. That appears to have set the stage for today, where we have most offshore banks located in island nations, such as British Virgin Islands, Cayman Islands, Cook Islands, Isle of Man, Malta, Mauritius, Seychelles, Bahamas, Barbados, Belize and Bermuda.

Offshore is used figuratively to refer to such banks regardless of location. As a result, despite the fact that a number of such banks have been established in such landlocked countries like Switzerland, Luxembourg and Ghana, they are still referred to as offshore banks.

In the main, an offshore bank is a bank located outside the country of residence of the depositor, typically in a low tax jurisdiction (or tax haven) that provides financial and legal advantages. Their main activities involve the management of non-resident deposits, funds, funding requirement and banking transactions in a country other than the jurisdiction of the depositor.

Perceptions
Offshore banking has many a time been associated with the underground economy, organized crime, tax evasion and money laundering. It ought to be pointed out that legally, offshore banking does not prevent assets from being subjected to personal income tax on interest. The personal income tax of many countries makes no distinction between interest earned in local banks and those earned abroad.

Persons subject to US income tax for example, are required to declare on a penalty of perjury, any offshore bank accounts which may or may not be numbered, that they may have. Although offshore banks may decide not to report income tax to other tax authorities, and have no legal obligation to do so as they are protected by bank secrecy, this does not make the non-declaration of the income by the tax-payer or the evasion of the tax on that income legal.

Benefits to Ghana’s economy
The advantages of offshore banking to the customer typically include strong privacy, less restrictive legal regulation, low or no taxation, easy access to deposits and protection against local political or financial instability.

Offshore banks provide access to politically and economically stable jurisdictions. This may be an advantage for those residents in areas where there is a risk of political turmoil, who fear their assets may be frozen, seized or disappear.

Some offshore banks may operate with a lower cost base and can provide higher interest rates than the legal rate in the home country, due to lower overheads and a lack of government intervention. Advocates of offshore banking often characterize government regulation as a form of tax on domestic banks, reducing interest rates on deposits.

Interest is generally paid by offshore banks without tax deducted. This is an advantage to individuals who do not pay tax on worldwide income, or who do not pay tax until the tax return is agreed. Offshore banking is often linked to other structures, such as offshore companies, trusts or foundations, which may have specific tax advantages for some individuals.

Many advocates of offshore banking also assert that the creation of tax and banking competition is an advantage of the industry, arguing that tax competition allows people to choose an appropriate balance of services and taxes.

Some offshore banks also offer banking services that may not be available from domestic banks, such as anonymous bank accounts, higher or lower rate loans based on risk and investment opportunities.

To Ghana’s economy though, the main benefit is the attraction of foreign deposits in foreign currencies. The large volumes of deposits that will flow in will form the basis of developing more lending solutions to Ghana’s private sector, and will help generate employment and create wealth.

Looking at the operations of offshore banks across the world, one can discern a very positive impact on the banking environment and the economy in general. It generates employment, and in most offshore banking sectors, output per employee is higher than in other sectors. This indicates high productivity and efficiency. It contributes to the development of knowledge and skills and leads to a significant rise in the business of accountants, lawyers, chartered secretaries among others.

A centre like Bermuda, with a population of fewer than 70,000 people, has about 28% of the world’s captive insurance market, with 1,491 insurance companies having assets worth over $290 billion. Its banks hold assets worth over $22 billion. Financial services represent 26% of GDP. Cayman Islands houses 312 banks with assets of over $1 trillion. Financial services represent 30% of the Islands’ GDP.

Indeed offshore banking provides a more friendly legal regulation, tax benefits and protection for customers. Offshore banking however, is not about tax benefits, but also about access to investment products and opportunities that might not be available from domestic banks, as well as effective assets protection and a high level of privacy.
Other benefits that could be derived from offshore banking are Aircraft Financing and Leasing, Ship Registration, Trust Incorporations, Assets Management, Insurance, Pension Funds, Consultancy Services etc.

Mr. Chairman, Distinguished Guests, Ladies and Gentlemen!
I hope I have been able to convince you about the benefits that offshore banking holds for Ghana’s economy. At Barclays, what we need at the moment is a lot more ambassadors of our Offshore Banking brand. I am sure I have recruited enough ambassadors from amongst you this morning, who would help Barclays to make its Offshore Banking brand the choicest destination yet for the offshore bank customer.

I thank you for your attention.

CHALLENGES OF REGULATING LIFE INSURANCE COMPANIES IN GHANA – MAHAMA EMMANUEL BABA, VANGUARD ASSURANCE

 INTRODUCTION

Historical Perspective
Insurance was introduced into Ghana by British merchants in the late 19th century. However it was not until 1955 that the first local insurance company, Gold Coast Insurance Company, was established to transact only life insurance business, and African life to be precise.

Life assurance was sold to Europeans and few elite Africans; hence the vast market for life assurance was, therefore literally untapped.

The first attempt to regulate the insurance industry in Ghana came in the form of the Insurance Act, 1965 which was intended to ‘regulate the business of insurance in Ghana and to provide for matters connected therewith or incidental thereto’. The new Act also created the office of the Commissioner of Insurance – to be appointed by the Ministry of Finance.

Several pieces of legislation were passed in the 1970’s. A heart these laws were amendments to the Insurance Act of 1965. In 1989, PNDC Law 227 was passed, setting up the National Insurance Commission as the independent regulator, and also streamlining certain aspects of the existing pieces of insurance legislation. The main object of the National insurance Commission under this law was to ensure the effective administration, supervision and regulation of the business of insurance in Ghana.

However, PNDC Law 227 in many sections was out of line with current international practices especially the International Association of Insurance Supervision’ (IAIS) Core Principles on insurance. PNDC Law 227, basically because of the period it was passed, did not adequately address certain serious matters of corporate governance. This occasioned the passage of the extant Insurance Act, 2006 (Act 724)

ACT 724
One of the key features of the new law, insofar as life assurance goes, is the requirement that Life and Non-Life insurance be run under separate insurance companies.

Section 26 (1) of the Act states that: ‘the Commission shall not issue a license after the commencement of this Act that authorizes an insurer to operate a composite insurance business’.

(2) A company licensed to operate (a) Life Assurance business as a speciality shall not be licensed subsequently to operate a Non-Life Insurance business, and (b) Non-Life insurance business as a speciality shall not be licensed subsequently to operate Life Assurance business.’

As a result of this unequivocal prohibition of composite insurance business by the new law, composite insurance companies at the time of the passage of the law were allowed a transition period of one year to separate their Life and Non-Life operations under two distinct companies. And so since January 2008 all licensed insurance are specialists insurance companies.

WHY IT WAS NECESSARY TO SEPARATE GENERAL AND LIFE INSURANCE
The separation is not disconnected from International best practice as enunciated in the Directives of the EU, the IAIS Core Principles of Insurance and, to a limited extent, the objectives of FINSSP. It is the general international thinking that specialization of insurance business and separate management of Life and Non-Life will ensure that the respective interests of life and non-life policyholders are not prejudiced, and especially that profits from life insurance benefit only life policy holders. Additionally, the separation is to ensure that the minimum financial obligations, especially solvency margins in respect of one or the other of the two activities – Life and Non-Life – are not borne by the other activity.

And for us in Ghana, the separation is seen as a measure to allow the two different segments of insurance business to each focus on building the competencies that will enable them to compete favourable. In the specific case of Life business (which has since 1955 been run largely as an appendage of Non-Life business) the separation is informed by the desire to bring Life Business out of the shadow of Non-Life so that Life Assurance can fulfill its potential as a major vehicle for the mobilization of long-term funds.   

HOW THE LAW ENCOURAGES INSURERS TO PAY ATTENTION TO LIFE INSURANCE

Separation
The separation of the two classes of insurance business, as already mentioned, allows life assurance to receive better attention than under the old regime of composite companies.

Quite apart from the separation, there are a number of mechanisms which the Act 724 has introduced to ensure the Insurers pay attention to life assurance.

Minimum Capital
Under PNDC Law 227, the minimum capital for Non-Life and Life was pegged at C40 million and C20 million respectively. With the new insurance law (Second Schedule/Section 69) the absolute minimum capital requirement for an insurance company has been pitched at the cedi equivalent of one million United States dollars.

By equally resourcing both Non-Life and Life it is felt that Life would have the wherewithal to acquire the needed material and human resources to contribute more vigorously to the development of the national economy as pertains in other jurisdictions.

Principal Officers and Actuary
Life companies, like Non-Life companies are required to have two Principal Officers who are qualified insurance professionals. In addition Life companies are required to appoint and maintain at all times an Actuary, approved in writing by the Commission.

The appointment of actuaries in all life insurance is to serve a number of objectives, including whistle blowing, proper evaluation of insurance funds and products.

Protection of Life Funds in the event of liquidation
The law provides that in the event of liquidation, notwithstanding any provision in the Bodies Corporate Official Liquidation Act, Act 180, a Life company’s assets shall first be applied to meet its liabilities to policyholders.

HOW THE LAW IS DESIGNED TO ENSURE THAT LIFE INSURANCE CONTRIBUTES TO THE ECONOMY OF GHANA

Life companies the whole world over are seen as vehicles for the mobilization of investment funds.

Under PNDCL 227 Life companies were required to keep fifty per cent of their investments in government bills and the other fifty per cent in securities approved by the National Insurance Commission (NIC). This position was clearly awkward since it failed to accentuate the long-term posture of Life business.  The impending regulations of the new law, Act 2006 seeks to remove this restriction and replace it with a more flexible regime of guidelines that encourages life companies to channel the bulk of their funds into long-term investments.

HOW THE LAW ENCOURAGES LIFE INSURERS TO DEVELOP PRODUCTS THAT ARE APPROPRIATE TO THE ECONOMY OF GHANA

The law does not directly take a position as to products that a life insurance company must deploy. What it does is to vest the NIC with the power to approve products and premium rates.

CHALLENGES
There are number of challenges which must be addressed, if insurance regulation is to produce the best out of Ghana’s Life business sector.

INADEQUATELY RESOURCED REGULATOR
There has been vast improvement in the conditions of the National Insurance Commission since it migrated from a desk at the Ministry of Finance to a fully fledged independent regulator. The NIC, in collaboration with the other industry bodies, has worked hard to inject a lot of sanity into the insurance industry. However much more needs to be done to move the industry from its present position where it contributes a little less than 1.5% of GDP to the double digits that our counterparts in South Africa are contributing.

The hard reality is that the NIC is under resourced. For instance there is no in-house actuary at the Commission to ensure that it delivers promptly on life product evaluations and conduct prompt actuarial investigations should the need arise. Currently it does not possess a sufficiently large enough inspectorate unit to ensure that insurers keep to market agreements and walk the straight and narrow.

In a country where implementation and not the existence of laws and regulations is the issue, this is a major strike against regulation.

The insurance players are doing their bit by contributing more than sixty percent of the Commission’s annual revenue. We expect the Government to weigh in strongly to help foot certain one-off capital costs.

PAUCITY OF QUALIFIED INSURANCE PROFESSIONALS
While the directive that each insurance company should have two principal officers with Chartered Insurance qualification or its equivalent is a good one, it leaves in its wake an artificial constraint to the opening up of more Life companies because there is currently a severe shortage of insurance professionals in the market. Admittedly the situation is being addressed by the Ghana Insurance College which is offering a fast track insurance diploma programme in conjunction with Malta Insurance Training School to produce sufficient professionals in the shortest possible time to meet this gaping need.

However, indications are that the problem of dearth of professional personnel in the insurance business will be with us for the next five years or more. Meanwhile the critical shortage is driving up staffing costs and for that matter underwriting expenses in a manner that could make life underwriters uncompetitive in relation to their other financial sector cousins.

The need for personnel is more acute when we talk of actuaries. In fact there is only one local actuarial firm in the country that can carry out the valuation of policyholders’ funds as required under the law (Section 89). This situation leaves life companies in a double bind: do they all line up to engage the services of this solitary firm in which case some of them stand the real risk of not meeting the annual reporting deadlines of the NIC, or should they resort to the services of non-local actuaries who are very likely to be disconnected from the nuances of the local insurance environment?

NARROW INVESTMENT MARKET
The flexibility that the intended solvency guidelines offer in terms of investment is very much in the right direction. Nonetheless one must quickly add that the narrowness of the investment market leaves insurance companies with very little elbow room in spreading out their investments. The stock market as it is today is driven by a few blue chip stocks that don’t easily change hands. And with the slippery road to acquisition of land titles, it must be pretty clear why not a few insurance companies deploy a significant portion of their investment portfolio in the short to medium-term markets.

FOREIGN INVESTORS
Insofar as investment inflows are concerned, the flood of foreign investors who have come into, or are interested in our insurance market is welcome. It is remiss however to assume that all of them will deploy healthy insurance practices. There is the need for stringent initial checks on new entrants to ensure that they pass muster. And herein lies the rub! The paltry inspectorate resources of the NIC are already over-stretched. Under the circumstances how sure are we that our market is not going to be flooded with sub-standard operational practices?

ABSENCE OF MORTALITY TABLES BASED ON GHANAIAN EXPERIENCE
The Ghanaian life market operates on mortality tables borrowed from the US or South African lives modified to suit our situation. One of my professional colleagues thinks because the approach delivers what he considers reasonably accurate results there is no urgent need for mortality tables based wholly on Ghanaian lives. I beg to differ. Ghana’s insurance industry needs mortality tables premised on Ghanaian lives, if for nothing at all, for the psychological victory this will entail.

When the Gold Coast Insurance Company was established as the first company to transact only life insurance business, its premium rates were based on those of the United Kingdom with additional premiums for ‘climate extra’. By this term ‘climate extra’ was meant additional hazards connected with the climate of the country.

It is untenable that fifty three odd years on we should be subsisting on the practice of using borrowed mortality tables which, if truth be faced, is a rehash of ‘climate extra’. Mortality tables based on Ghanaian lives will enable insurers charge their clients premiums rates that are informed by our situation and that can stand robust enquiry. Fortunately the Ghana Insurers Association and the NIC are working seriously to address this problem.

MINIMUM CAPITAL
One is not too clear as to how the absolute minimum capital of the cedi equivalent of one million US dollars was arrived at. There is a sneaky suspicion there might be no scientific justification. 

It is the feeling of some that in view of the oil discovery and the mega risks that the industry will cover there is the strong call for an uplift of the minimum capital of insurance companies. If this call is addressed to non-life companies that are interested in going into the oil business one would say the call is legitimate. But by how much should the capital of life companies be raised, if at all? And would the same capitalization be required of a company that decides to specialize by writing say, only funeral insurance?  I have no ready answers.

CONCLUSION
Many of the challenges that I have recited are really opportunities for institutions like the University of Ghana. The Insurance Industry has a huge potential which has barely been scratched. Many of our students should be prepared to take up careers in the Life Industry. Equally many of our researchers should begin to turn their searchlight on the Insurance Industry to enable the industry develop innovative products that answer to the peculiar conditions of our country.

Since 2000 the Life Sector has been returning growth of not less than 50% year after year. I may be wrong, but if what is going in the US and Europe, and even in our own continent in SA is anything to go by, I daresay that the Life Business Sector is the future of the Financial Services Industry.

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