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.
Claims for the motor class of business were natural, according to Yohannes. The motor claims made up 58pc of total claims, which is lower than the industry average of 65pc, according to Yohannes.
Abay also did well in investment activities. Total investment income increased by 16.3pc to 38.5 million Br, where dividend earnings surged by 10.7pc to 27.9 million Br. Abay received commissions of 29 million Br, an increase of 29.3pc. Other operating income increased significantly by 64pc to 4.1 million Br.
A marginal rise in expenses also accompanied the income increase. Salaries and other operating costs of Abay went up by 18pc to 59.8 million Br.
The firm's total employee count had reached 219 by the end of the last fiscal year, with staff working across its 30 branches.
The expansion of expenses is reasonable, according to Abdulmenan.
The total assets of Abay also expanded by 17.2pc to 860.2 million Br. Out of this, 25.7pc was invested in interest-earning time deposits. Abay’s investment in shares was 12.4 pc. Receivables from reinsurers were 108.8 million Br.
Cash and bank balances were 83.4 million Br, an increase of 7.3pc. The ratio of cash and bank balances to total assets went down to 9.7pc from 10.6pc.
Despite the reduction, the liquidity level of Abay was good, according to Abdulmenan.
Abay had capital and non-distributable reserves of 269.9 million Br. The paid-up capital and the non-distributable reserves represent 31.4pc of its total assets.
This indicates that Abay has strong capital, which should be used efficiently, according to Abdulmenan.
Habtamu T. Tsadik, who joined Abay a year after it became operational, says that the firm achieved more than his expectations despite the industry's challenges due to the pandemic and political violence.
Habtamu joined Abay with one share, worth 25,000 Br, and now he is subscribed for shares worth a half a million Birr.
"During the first three consecutive years of operations, the firm was registering losses," said Habtamu, "Now, it is among the top firms with higher premium production and owns a building.”
PUBLISHED ON Jan 16,2021 [ VOL 21 , NO 1081]
Fortune News | Dec 19,2021
Fortune News | Dec 27,2018
Radar | Apr 03,2021
Fortune News | Sep 24,2018
Radar | Jan 11,2020
Fortune News | Jan 05,2019
Fortune News | Dec 19,2020
Fortune News | Nov 23,2019
Fortune News | Oct 17,2020
Fortune News | Dec 27,2018
November 27 , 2021
Against my will, I have witnessed the most terrible defeat of reason and the most sa...
November 13 , 2021
Plans and reality do not always gel. They rarely do in a fast-moving world. Every act...
October 16 , 2021 . By HAWI DADHI
Residing in a country with no capital market, an organised marketplace for trading se...
August 28 , 2021 . By HAWI DADHI
The streets of Addis Abeba are as varied as they are many, although too many of them have yet to be named. From the narrow alleyways of the...
Leaders of the National Election Board are in a charm offensive mood, of a sort. Last week, they organised a rare tour for members of the me...
When the country’s most senior diplomats and envoys return back to their posts after two-week debriefings, they leave behind a point or tw...
May 21 , 2022
There was a great deal of handshaking and patting each other on the back at the Hyatt...
May 14 , 2022
Diana Yohannes is one of those actively engaging in social media platforms with her T...
May 7 , 2022
The Ethiopian Economic Association (EEA) recently proposed the formation of a macroec...
April 30 , 2022
There is no ambiguity in the UNDP's assessment of Ethiopia’s economic performance a...
PM Abiy Ahmed (PhD) at a Gala Dinner Called for the Awarding of the Félix Houphouët-Boigny Peace Prize
May 6 , 2019
Adulteration is getting out of hand. Consumers in Ethiopia are being left to their ow...
Or see contact page