Abay Earns Profit Amid Industry Downturn


The insurance industry has experienced a fall in profits over the past two years




In the midst of a fall in premiums, Abay Insurance has registered a profit of 44 million Br, an increase of 51pc. However, its earning per 25,000 shares saw a decline by 11pc to around 11,000 Br.

The decline is linked to a massive capitalisation at the company. The Insurance was expected to have a much better earning per share (EPS.)

In the last two years, paid up capital, the money the company has received from shareholders in exchange for shares, showed a fivefold increase to 100 million Br.

Abay’s closest competitor, such as Nib Insurance, reported a 38pc decline in its EPS. Nib was established in 2002, a decade before Abay.

In total, the insurance industry earned a profit of one billion birr last year; four percent lower than the preceding year. Out of this, the state owned Ethiopian Insurance Corporation(EIC), the largest insurance company in the country, is responsible for 50pc.

Abay’s increase in profit can be attributed to profits from underwriting and investment.

The underwriting surplus shot up by 37pc to over 61 million Br.

“The achievement is remarkable and to be applauded,” Abdulmenan Mohammed Hamza, analyst at London Portobello Ltd told Fortune.

Abay’s premiums have been rising over the past six year by almost 60pc. However, the company has been earning almost no profit for the three years since its establishment, largely due to high claims on written premiums.

The company incurred net claims of 93.4 million Br in 2015/16, 16pc higher than the preceding fiscal year. Among its policies, motor insurance constitutes 79pc of the total claims incurred. It also constitutes nearly 50pc of the company’s premium portfolio.

Insurance companies experienced a high loss ratio associated with a surge in motor claims by high risk customers. The industry paid 2.3 billion Br for claims, out of 2.9 billion Br earned premiums on motor insurance policy.

Motor policy insurance surged after the implementation of mandatory third-party insurance in 2013, where all vehicle owners must get coverage against third-party risks, paying standard prices set by the government.

The loss ratio, however, is the difference between earned premium and net claims and was almost constant over the past two years, reaching 60pc

Meanwhile, the retention rate of the Insurance declined to 72pc from 74pc a year ago. This is largely due to a surge in premiums ceded to reinsurers.

“We insured high capital projects, so our retention rate has declined,” reflected Alemnew Tegen, Chief Executive Officer.

Last year, the company insured no less than five mega projects. Among these, Welqayit Sugar Project is the biggest.

Initiated six years ago, the Welqayit project was originally planned to be completed in six years. The overall cost of the project is approximately 20 billion Br.

Abay was founded by nine shareholders in January 2010, with a paid-up capital of eight million Birr. TiqurAbay Transport, Ambassel Transport SC, Amhara Design and Control Organisation, Abay Bank and Amhara Credit and Saving each hold five percent of the total shares of Abay, whose single share value is 25,000 Br, the highest for an insurance company to date.

Half of its 22 branches are located in Addis Abeba. It has about 140 employees. It was the tenth private company to join the industry. Since then, six companies have been established. Over the past five years, the industry’s profits have doubled. However, falling premium rates over the last two years have put companies under pressure.

Abay’s investment income soared by 52pc to 23 million Br, mostly due to interest income earned on deposits from various banks. Abay currently owns 11.3 million Br worth of shares in Abay Bank.

In addition, it has invested 17.8 million Br in the newly established Ethiopian Reinsurance.

EIC and the Commercial Bank of Ethiopia were the first to support the establishment of Ethiopian Re and have become major shareholders in the company.

Named after the largest river in the country, Abay now has 361.6 million Br in assets.

 

 



By Samson Berhane
Fortune Staff Writer

Published on Dec 13,2016 [ Vol 17 ,No 867]


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