Abay Insurance Capital High, Profit Low


Shareholders sacrificed dividends to meet NBE requirement but the advice is to increase their returns




Abay Insurance reported a nine per cent profit rise to 29.2 million Br, although tripling its capital meant a whopping 63.5pc decrease in earnings per share to nearly 13,000 Br.
The par value of Abay’s shares is 25,000 Br.
The past fiscal year has seen it increasing its capital from just 23.6 million Br to 69.2 million Br by the end of the reporting year. The company’s June 2015 report indicated that its capital was six million Birr short of the 75 million Br capital the central bank required insurers to attain by December 2015. But by September 2015, it had already attained 95 million Br.
“The effect of this capitalization will be felt by the shareholders in the years to come”, commented Abdulmenan Mohammed Hamza, accounts manager for Portobello Group Ltd., based in London. Established in 2010 with 12 shareholders, most of them companies located in Amhara Regional State, Abay Insurance S.C. started turning profit two years ago.
Its profit has been derived from increased underwriting surplus and surge in interest income. Underwriting surplus has gone up by 12.8pc to 44.4 million Br and interest income has soared by 112.7pc to 14.7 million Br. Gross premiums written have also increased by 32pc to 150 million Br. Its commission from reinsurers, including Africa Re and Swiss Re, has increased by 19pc to 13.77 million Br, while it also paid agents 7.4 million Br commission, up 27pc. Among the clients whose risks Abay transferred to reinsurers because of its low capital base in the last fiscal year, was Dashen Brewery, according to Alemnew Tegen, CEO of Abay. Dashen’s new plant alone, located at Debre Birhan, has capital of 2.5 billion Br.
Out of the total gross written premium Abay has retained 72pc, which is pretty similar to last year. Its premium portfolio was dominated by motor insurance, with 52.6pc share. Claims paid and provided for have disproportionately soared by 71.6pc to 58.28 million Br. Abay is increasing the number of its high risk customers, says Abdulmenan, advising better risk assessment of customers.
Abay has been deliberately welcoming the high risk customers, according to Alemnew, in order not to lose them to the competition.
The surge in claims has hugely undermined the improvements made in gross written premiums. Abay has incurred net claims paid of 35.7 million Br, up by 30pc, with motor accidents accounting for 83pc.
Abay’s staff and general administration expenses have increased by 54pc to 24.13 million Br. Abay should seriously consider areas of business that are costing it too much, advised Abdulmenan.
The total assets held by Abay have increased by 67pc to 255.66 million Br. From this 202.55 million Br have been invested in interest-earning deposits and shares in banks and the rest is cash and bank balances. Abay is an influential shareholder in its sister company Abay Bank S.C., it has also paid-up share of 17.5 million Br in Ethiopia Re-Insuranc S.C.
Liquidity analysis shows that cash and bank balances have gone down to 7.82pc from 10.4pc of the total assets of Abay and current ratio, which shows Abay’s ability to fulfil short term obligations, increased to 144.27pc from 125.66pc. The liquidity as well as current ratio level of Abay has been well-managed, says Abdulmenan.
By the end of the last fiscal year, when its paid-up capital had reached 69.29 million Br, its capital and reserves account was 29.8pc of its total assets.
“Abay is well-capitalized firm. It should use its strong capital base to increase its shareholders’ returns,” Abdulmenan further commented.
Abay has recognised in its report the problem it faced with troubled Israeli road contractor, Tidhar Excavation & Earth Moving Ltd. The insurer had issued this company an outstanding performance bond totalling 62.5 million Br for construction of two roads from Petros to Pasteur and from Sidist Kilo to Ferensay to Gurara. With the contractor unable to complete these projects, Abay will compensate the Addis Abeba City Roads Authority (AACRA) a sum which is yet to be determined, said Alemnew.
“The compensation will depend on how much Tidhar had properly spent on the projects and how much AACRA has lost in terminating the contract and transferring to other contractors. Abay could take Tidhar to court to reclaim the compensation it has to pay to the Authority,” he added.
Tidhar and its general manager, Menashe Levy, who is now in custody, face multiple charges of fraud and corruption.



By DAWIT ENDESHAW
FORTUNE STAFF WRITER

Published on Jan 24,2016 [ Vol 16 ,No 821]


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