The firm reported unsatisfactory performances for the prior two years

Feb 16 , 2019

Africa Insurance, one of the pioneer insurance firms in the country, has reversed its unsatisfactory performances of the preceding two years by increasing its profit and shareholder return in the last fiscal year.

In the reported period, the insurer netted 59.1 million Br in profit, an increase of 10pc. This led the company's earnings per share to grow by 15 Br to 334 Br.

The increase in share earnings must have been due to the growth in profit after tax outstripping the increase in paid-up capital, according to Abdulmenan Mohammed, a financial statement analyst with a decade and a half of experience in Ethiopia and the United Kingdom.

In the past two years, the profit of the company has stagnated, even showing a slight decline in the preceding fiscal year. Earnings per share has also declined in the preceding two years.

Last fiscal year, the firm reversed the declines and reported positive performance.

Ahmed Ibrahim, the board chairperson, asserts the company’s performance for both life and general and long term business has been increasing.

“This growth placed the company among the top three private insurance companies,” asserted Ahmed.

Analysis of the profit and loss account shows that Africa made a small improvement in the performance of its general insurance business. It has reported an underwriting surplus of 71.2 million Br, an increase of two percent.

Africa has brought in gross written premiums both in general and life of 584.2 million Br, an increase of 12pc. The entire insurance industry in the country has generated 8.5 billion Br in premium production during the last fiscal year.

Out of its total premium production, Africa has ceded 104.9 million Br to re-insurers, leading the retention rate to decline to 82pc from 83pc.

"The retention rate is still very good despite the small reduction," applauded Abdulmenan.

Despite a reduced retention rate, total claims paid and provided for and other technical provisions have increased by 29pc to 396.3 million Br.

The soaring claims undermined the gains on increased net earnings from premiums.

"The level of increase in claims is very concerning," commented Abdulmenan. "The management of Africa needs to scrutinise its customer screening and risk management policies."

The motor loss ratio, which dominated the claims portfolio of the company, caused the expansion of claims, according to Kiros Jiranie, CEO of the firm for more than a decade.

“Traffic accidents in the country are growing,” Kiros said. “At the same time, expenses to recover losses are mounting as the price of spare parts is increasing.”

Africa earned a commission of 37.62 million Br, an increase of 18pc and paid commission expenses of 32.49 million Br, an increase of 39pc.

This reveals that the expansion of commission expenses needs attention, according to Abdulmenan.

A good performance in investment activities has compensated the small growth in the general insurance business.

Total interest from general and life and savings increased by 17pc to 42.84 million Br, and dividends from investments increased by six percent to 13.99 million Br. Rental income of Africa has also soared by 33pc to 34.76 million Br.

The total assets held by Africa increased by one percent to 1.12 billion Br. Out of this, 341.31 million Br was maintained in interest-earning time deposits, 169.38 million Br in shares and government bonds and 147 million Br in income generating properties.

These investments accounted for 58.6pc of the total assets of the insurance firm.

Unlike many companies in the financial industry, Africa did well in controlling expenses. General and administrative expenses increased by nine percent to 96.9 million Br.

Africa opened one branch last year, contributing to the 40 branches opened by the 17 insurance companies last fiscal year.

Liquidity analysis shows that Africa decreased its liquidity level considerably. Cash and bank balances declined by 26pc to 64.57 million Br. Cash and bank balances to total assets went down to six percent from nine percent.

In the reported period, Africa has increased its paid-up capital by only three percent to 178.6 million Br.

The paid-up capital growth was made slow intentionally, according to Kiros.

“We gave priority for increasing premium production rather than increasing capital,” Kiros told Fortune.

The capital and reserves of Africa account for 22.6pc of its total assets.

Africa is a highly-capitalised insurance company, so it should use its strong capital base to generate more income, recommended Abdulmenan.

PUBLISHED ON Feb 16,2019 [ VOL 19 , NO 981]

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