As Ghana celebrates 60 years of its national currency, the cedi, attention has rightly turned to the forces that support its long-term stability. While monetary policy and fiscal discipline often dominate the conversation, one lesser-known but vital ally in this effort is the insurance industry. Beyond its primary role of managing risk, insurance provides a financial cushion that promotes investor confidence, trade continuity, and economic resilience— all of which are crucial to maintaining currency stability.
In an interview with Mr. Fredrick Adotey Saka, The Chairman of the Ghana National Bureau as well as CEO of Vanguard Assurance, he revealed that the insurance industry plays a vital role in the stability of the currency. According to him, through marine and transit insurance, the industry has facilitated smooth import and export activities, which contribute directly to foreign exchange inflows and a balanced trade position. The presence of robust risk-transfer mechanisms, he explained, also attracts foreign direct investment (FDI), which strengthens the cedi.
During times of economic distress— such as the 2022 economic downturn, Mr. Adotey explained that insurance firms often act as net buyers of assets, injecting liquidity into the financial system and avoiding panic sell-offs of local currency instruments. However, currency instability poses risks of its own, including inflated foreign-denominated liabilities and rising operational costs. Still, by protecting key sectors like manufacturing, he noted that the insurance industry continues to play a stabilizing role in Ghana’s economic and currency environment.
Currency volatility has a severe impact on foreign-denominated claims, and reinsurance contracts. The insurance industry experiences increase in liabilities when the cedi depreciates. Currency volatility significantly impacts asset-liability mismatches, where insurers hold cedi-denominated assets but have dollar- or euro-linked liabilities. It also impacts operational costs negatively, especially when insurers need to import parts, services, or access international expertise such as actuarial or loss adjustment services.”
Vanguard Assurance’s Role in Safeguarding the Cedi
Vanguard Assurance has actively contributed to the stability of the Ghanaian cedi through strategic insurance operations that support key sectors of the economy. According to CEO, the company insures vital industries such as manufacturing, enabling rapid recovery after incidents like fire or machinery breakdown. This prevents prolonged production halts that could trigger increased imports and strain the cedi.
Additionally, Vanguard plays a crucial role in facilitating international trade through marine cargo insurance. By securing goods in transit, the company enhances trade reliability, builds confidence among foreign partners, and mitigates potential foreign exchange losses from uninsured disruptions. The firm also supports export-driven sectors by providing bonds and guarantees that strengthen Ghana’s trade competitiveness.
Crucially, Vanguard maintains a prudent, risk-based capital structure. This financial resilience allows the company to absorb economic shocks internally, reducing dependence on foreign exchange and supporting broader monetary stability.
Reminiscing the recent economic shocks, Mr. Adotey noted that the high inflation, rising interest rates, and the DDEP strained insurers’ financials, reducing investment income and asset values. These pressures, as such, can weaken capital buffers, potentially increasing reliance on foreign exchange and indirectly impacting the stability of the cedi.
It has reduced investment income, especially as the government bonds restructuring (via DDEP) led to lower yields on cedi-denominated instruments. This adversely affected liquidity for claim payouts to an extent. The non-renewal of some policies was triggered as clients reprioritize spending, reducing insurance penetration and coverage stability— all as a result of weakening public confidence in the cedi.”
Managing Exchange Rate Fluctuations
As the nation celebrates 60 years of the cedi, the issue of currency instability— especially due to exchange rate fluctuations— remains a critical concern. According to the CEO OF Vanguard Assurance Ltd., the insurance industry faces significant exposure when liabilities are denominated in foreign currencies. When the cedi weakens, insurers revalue their obligations, often resulting in exchange losses that can impact financial stability and reduce capital buffers.
To manage these risks, Mr. Adotey disclosed that the industry adopts strategic measures such as natural hedging. This involves aligning the currency in which premiums are collected with the currency of expected claims, minimizing the mismatch between assets and liabilities. Additionally, he noted that some insurers diversify their investment portfolios across currencies and negotiate reinsurance contracts that mitigate forex exposure.
Insurers invest in diversified portfolios, including foreign assets, where permitted, to mitigate foreign exchange exposure. Furthermore, the Bank of Ghana’s foreign exchange guidelines and NIC’s prudential regulations guide the pricing and disclosure of multi-currency policies, ensuring transparency and prudence.”
Vanguard’s Strategy for Managing Currency Instability in Claims Payment
Claims payment remains a cornerstone of trust in the insurance industry, as it enables swift business recovery, prevents insolvency, and sustains economic activity. Expressing how Vanguard General Assurance manages currency instability— a major risk to claims payment— the CEO explained that the company maintains claim reserves in matching currencies for the specific insurance policies it underwrites. By aligning reserves with potential claim obligations, Vanguard ensures timely and stable claim settlements, even amid exchange rate volatility.
Also, we have reinsurance partnerships with some key global players, ensuring that part of the significant risks we carry is externally underwritten to provide the requisite reinsurance support. We moreover have currency hedging mechanisms in place for anticipated claims.”
Vanguard’s Swift Claims Settlement
Vanguard Assurance’s prompt claims payment process plays a vital role in ensuring the financial stability of its clients and, by extension, the broader economy. According to Mr. Fredrick Adotey Saka, the company operates a robust claims turnaround policy, settling claims of GHS 30,000 or less within 24 hours.
For larger claims, he stated that once all required documentation is submitted, settlement is typically completed within two weeks. This rapid response allows businesses to recover quickly from losses, maintain operations, and avoid disruptions that could trigger financial distress.
Importantly, it fosters trust in the insurance system and reduces the tendency of insured parties to hold excess foreign currency as a hedge against risk, thereby easing pressure on the cedi and supporting monetary stability.
Goodwill Message As The Cedi Celebrates This Milestone Of 60 Years
As the cedi marks 60 years of national service, Vanguard Assurance proudly celebrates this milestone as a symbol of our resilience and identity. Through six decades of economic transformation, insurance has stood as a shield, reinforcing the cedi’s stability by protecting lives, businesses, and national investments. We reaffirm our commitment to sound financial stewardship, client trust, and the unwavering belief that a stable cedi means a stronger Ghana.”