Fortune News | Apr 03,2023
The two-decade-old United Insurance has cheered up its shareholders by doubling its net profit in the last budget year.
Triggered by higher underwriting surpluses and investment returns, the shareholder return also doubled to 504.5 Br a share in the same period.
The company’s underwriting income after deductions for claims saw a 25pc rise. United earned additional revenue from the sale of its stake in Raya Breweries, where share values multiplied several fold since its initial investment in BGI Breweries.
“The gains from the Raya Beer shares directly added to profits,” says Meseret Bezabih, the CEO of United.
United Insurance was one of the early investors in Raya Beer, established in 2010 with 2,441 shareholders. The insurer gained 54 million Br from the sale of its shares in the brewery.
This income helped the insurance firm reverse the direction of shareholder return, which has been declining for the past three years.
The firm’s total gross premiums also saw a boost, increasing by 13.6pc compared to two years ago.
“This is a reasonable increase,” comments Abdulmenan Mohammed, a financial expert with more than 15 years of experience in the financial industry.
From its gross underwriting, the company retained more than three-fourths of its total production and transferred 20pc of it to reinsurers.
“The life insurance underwriting result was much better than the preceding years,” the CEO said - the company earned over 40 million Br from life insurance in the reporting period.
Founder and major shareholder of the firm, Eyesuswork Zafu, is excited about United’s performance in the last fiscal year.
“I am delighted with the result,” Eyesuswork, told Fortune. “Despite the hurdles and the competition challenges, the result is admirable.”
Claims paid by the firm increased by 18pc, reaching 232 million Br.
The expert believes that United should investigate its risk management system and implement a new system that will properly price high-risk customers.
Meseret, however, states that the company was able to manage its claim payments by segmenting its customer base.
“Our major clients are large companies who have a low claims profile,” Meseret said.
Also, claims rose accompanied by increases in employee expense benefits. Staff and general administration expenses rose by 26.8pc in the reporting year.
Last financial year, United opened several contact offices and branch outlets, and brought up its total employee number to 359. The attributed branch expansion and salary adjustment are considered the primary causes for the rise in expenses.
“With the aggressive expansion, rent cost and salary increases bolstered our expenses,” Meseret told Fortune.
Total assets of the firm are valued at 1.3 billion Br. United holds investments in time deposits, properties and company shares in excess of 600 million Br.
As a result of launching of the new reporting system - International Financial Reporting Standards, the value of some of the firm's assets have increased.
The value of the bank’s properties in the Bole Medhanialem area in Addis Ababa and Bahir Dar have appreciated by 90 million Br in current market evaluation.
The liquidity ratio, the ratio between the liquid assets and the liabilities of the company, indicate improvements in value and in relative terms. Its cash and cash equivalents has doubled to 41.47 million Br.
Abdulmenan points out United is operating under tight liquidity.
“We have been investing our resources,” Meseret told Fortune.
“As the shareholders are going to increase the capital and more production opportunities are in the pipeline, we will solve the issue of tight liquidity," she added.
The achievement was not without challenges, according to Girma Wake, former CEO of Ethiopian Airlines and the current board chairperson of United, who mentioned that stiff price competition was the major challenge for the insurance industry.
“Our company is drawn to join the cut throat competition on the ground,” he remarked in the annual report. “The insurers are supposed to come together to find common ground and lessen the burden.”
There are 17 insurance firms in Ethiopia with total capital of 5.4 billion Br. Three-fourths of this capital is under private insurers.
United’s shareholders have agreed to double the capital to half a billion Birr. Last year, the capital and non-distributable reserves reached 401.95 million Br.
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