He said most often, insurance companies accepted to provide bond credit guarantees without assessing the liabilities because they saw it as free money, something he described as very risky.

He urged them to seek clarity on some possible ambiguities that were often associated with bond businesses before agreeing to provide cover.

Mr Siale gave this caution at the 2nd public lecture of the Chartered Insurance Institute of Ghana (CIIG), on the topic: ‘Bonds: to underwrite or not.’

“There is no free lunch anywhere so it is very important for our underwriters of bond businesses to be mindful of this. If you accept a bond business make sure you put in place a reinsurance package,” he stated.

Like most other financial products, he said, there was a wide range of bonds which needed clarity.

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The former MD also advised insurers not to underwrite bond business assuming that because the insured posted a collateral there is no need for reinsurance.

“Never leave under the illusion that because collateral has been provided, there is no need for reinsurance,” he noted.

He also urged them not to accept a bond business which would put at risk the total premium income for the year of the company without ensuring that they had in place a reinsurance cover.

“The reinsurers are there to help you carry the risk that is why whether to write or not to write is a decision taken by you, and reinsurers are there to support you to carry the risk,” he said.

Engaging professionals

The President of CIIG, Rev. Asante Ahenkorah, indicated that insurance facilitates business activities in the economies of nations by being a risk transfer mechanism.

He said bonds, though not traditional insurance models by nature, also allowed for risk transfer and risk management, thereby facilitating economic activities.

Rev. Ahenkorah noted that bonds generally came with their strict wording, leaving no room for underwriting and the courts had been interpreting the clauses strictly against companies who underwrote them as the cases showed.

In a bid to litigate some of those claims, he said, some insurance companies had been pushed towards the precipice of collapse.

“The CIIG, therefore, believe it is time to engage in this dialogue at the professional level and take a united stance or position going forward so that public trust is not eroded by this paradox,” he stated.

Growing bond market

The Commissioner of Insurance at the National Insurance Commission, Mr Justice Yaw Ofori, for his part, commended the CIIG for its efforts at ensuring that it fosters principles, ethics, technical competence and the right business acumen for insurance professionals. Mr Ofori said statistics available indicated that the total market premium for bonds was growing each year.

He added that the market premium grew from GH¢30 million in 2014 to GH¢41 million in 2015 and by 2016, he said, the total premium was in excess of GH¢54 million.

“By these figures, there is no denying that the bond market is growing year by year and this makes the public lecture on it timely,” he indicated.

The commissioner also pointed out that in the spirit of the risk-based supervisory regime which it was currently operating, insurance companies with high risk on their books would be expected to increase their capital over and above the required minimum capital to back such risks.