Abay Bounces Back with 26.81m Br in Profits

To the delight of its 93 shareholders, Abay Insurance S.C. has bounced back from consecutive losses over the past few years since its establishment in July 2010, registering a net profit of 26.81 million Br during the fiscal year 2013/14. Earnings per share (EPS) have reached 35,373 Br essentially starting from the scratch, as opposed to the previous fiscal year, with a par value share of 25,000 Br.

However, considering the risks the firm takes to grow its market presence, Abay needs further capitalization, experts suggest.

Alemnew Tegen, chief executive officer (CEO) of the insurance firm, credited a change of policy its directors made on the underwriting for the U-turn on the company’s positive performance.

“After we identified the high and low risk businesses, we adjusted the payments on the underwriting,” Alemnew told Fortune.

Underwriting is an amount that clients pay to have an insurance coverage.

“If high risk businesses pay a small premium, the risk of loss is very high,” he said. “Therefore, we adjusted the payment according to this calculation.”

Abay, one of the latest entrants in the industry where 17 firms compete with a combined branches of 334, underwrote 23 million Br, 47 million Br, 92 million Br and 113.7 million Br, respectively, in the four consecutive years beginning 2011/12.

The firm has recovered from the accumulated loss of 5.6 million Br and retained a profit of 18.5 million Br from its last year’s operations. The underwriting surplus, which is the income that the company gains when the amount paid for damages is retained, has grown 10-fold, reaching 39.38 million Br and the interest income, which has grown by 117pc, reached at 6.91 million Br.

The gross written premium (GWP), and amount paid for reinsurance coverage is 113.7 million Br, which is 32pc less than planned and a 23pc increase from the previous year. The retention rate has also increased from 50.4pc to 72.7pc.

Marine insurance performance of the firm was not, however, growing as the case was with engineering insurance performance.

“Performances in marine and engineering insurance were not satisfactory for two reasons,” Alemnew told Fortune.

Fall on marine coverage was due to shortage of foreign currency, which could have been gained through exports, and the engineering insurance performance was due to a lack of upcoming new projects in the fiscal year, says the CEO.

The company paid 27.5 million Br for claims, a 37.48pc increase on the previous year.

Abay’s total staff and general administrative expenses reached 15.66 million Br, up 79.9pc on the previous fiscal year. The provision of doubtful debts was less than the previous year’s, standing at 418,000 Br. The company’s total assets have reached at 153.27 million Br, having increased by 57.3pc on the previous fiscal year. Current company assets are 80pc of the total assets, while fixed assets, share investments and the statutory deposit take their shares of six per cent, four per cent, and two per cent, respectively.

The company has increased its paid-up capital by 37.64pc, to 23.6 million Br, and the capital and reserve of Abay Insurance accounts for 17.5pc of total assets.

The capitalization which took place at Abay was not sufficient, according to Abdulmena Mohammed Hamza, a financial commentator and analyst working for Portobello Group Limited.

“As Abay has retained more risks, it should increase its capital in line with increasing risks,” he noted.

The company’s capital has now reached the compulsory 60 million Br, and its directors, chaired by Mitiku Beyene, are working towards adding another 15 million in order to meet the requirement to provide life insurance coverage, sources disclosed to Fortune. If insurance companies do not reach 60 million Br threshold capital by December 2015, they will be exposed to merging or will liquidate, according to National Bank of Ethiopia (NBE) directive.

“The fear of merging is not our concern now,” Alemnew told Fortune. “We want to raise our capital to reach the required amount to give life insurance coverage. We are not going to go back to losing again.”

The company now has 17 branches, two of which were opened in the new fiscal year that followed the reporting year. Four new branches are planned to open in the 2014/15 fiscal year. Three of the new branches will be in regional towns, bringing the regional town branches to a total of 11, while one is planned to open in Addis Abeba.

Abay Insurance is also planning to have its own building with a projected cost of 30 million Br, the CEO disclosed to Fortune.

Shareholders, such as Gizachew Teklu, are content with the firm’s latest results.

“I’m happy with the current performance of the company and that is why I agreed to recapitalize our divided,” Gizachew told Fortune.


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