Lucy Insurance, one of the late entrant insurance firms, recorded a 76pc decline in profit after tax during the last fiscal year.

In the reporting period, the firm netted 6.3 million Br in profits, a sharp drop from the 26 million Br it recorded the preceding year. The firm's earnings per share (EPS) also fell by 193 Br to 51 Br.

Stagnant gross written premium, an increase in commission payments, a surge in claims and rising expenses have resulted in the dwindling profits and EPS.

This must be disappointing for the shareholders, according to Abdulmenan Mohammed, a financial analyst with close to two decades of experience.

Tewodros Teklu, acting chief executive officer of Lucy, explains that the firm faced many challenges in the reporting period, including a surge in claim expenses for motor and bond class businesses.

Lucy's claim ratio, the percentage of claims paid to the premiums earned, stood at 80pc, which is well above the 70pc minimum standard set by the National Bank of Ethiopia (NBE).

In the reporting period, Lucy’s gross written premium increased by only one percent to 137 million Br. Out of the total gross written premium, Lucy ceded 24pc to reinsurers, leading the retention rate to decrease by 76pc.

Gross written premium has expanded slightly due to not only unfair but unethical competition in the industry based on price-cutting, according to Tewodros.

"The slowdown of the export and construction businesses, as well as the political instability, have affected the nation’s economy in general and the industry in particular," said Tewodros.

The board of directors of the firm urged the shareholders to work with the insurance company to address the problems.

"To address the problems ... the board of directors strongly believe the contribution of the shareholders is indispensable," reads the statement to the shareholders, "hence, we urge you to closely work with your own insurance company for a better result."

Despite the reduced retention rate, claims paid and provided for soared by 32pc to 80.1 million Br. This hugely undermined the underwriting surplus, which decreased by 42pc to 25.1 million Br due to surging claims and increased commission payments. Commissions paid to agents went up by 19pc to 11.1 million Br, whereas commissions from re-insurers increased by only two percent to 7.3 million Br.

“The growth in claims is very concerning," comments Abdulmenan, "The management should thoroughly review the risk pricing and management of the company."

Tewodros says that the management of the firm is working on tracing the cause for the growth in motor and bond claims as well as outstanding bond claims registered for the period.