Reduced claims and improved investment income ushered Abay Insurance toward increasing its net profit by 12.3pc to 63 million Br in the last fiscal year. Yet its earnings per share (EPS) declined slightly.

The EPS fell by 9.7pc to 28pc due to the increased paid-up capital, which stood at 243.3 million Br, registering a 30pc rise.

Despite the reduction, the EPS level is good, according to Abdulmenan Mohammed, a financial statement analyst with close to two decades of experience.

Even though the firm was successful last year, there were challenges in the industry, according to Abate Sitotaw, board chairperson of Abay.

Lack of effective and transparent legal and regulatory systems in combination with the immature financial markets and common usage of informal types of insurance contributed to low insurance penetration, according to Abate.

“The critical shortage of hard currency, government attention toward poverty rehabilitation impacting investment, and the prevalence of COVID-19 and its prolonged effects on the country’s economy possibly hampered the insurance industry,” said Abate.

Gaps in communications with the industry operators, fierce price battles, shortages in high-calibre human resources, and huge investment required to launch a new product which has a lower return were the major challenges Abay faced, according to Abate.

The firm's increase in profit after tax was driven by increased gross written premium, reduced claims and improved investment activities and commission income. Gross written premium at Abay has increased by 8.5pc to 270.5 million Br. Out of this total, 70pc was retained, which is 3.2 percentage points lower than the preceding year’s rate.

This shows that a considerable sum of the premium was passed over to reinsurers, according to Abdulmenan.

"The retention rate of Abay is much lower than the industry average," added the expert.

Even though the rise in paid-up capital enabled Abay to boost its retention capacity, the firm ceded a higher value to the reinsurance companies last year, according to Yohannes Zewdie, Abay's CEO.

The share of facultative reinsurance arrangement, where the reinsurer covers a single risk or defined packages of risks, has dominated the treaty reinsurance, which covers a ceding company’s entire book of business, according to Yohannes.

Claims paid and provided for dropped by 5.4pc to 97.6 million Br, contributing to the improved profit performance.

"The management should keep up the practice of keeping claims down," recommended Abdulmenan.