Ethio Life Earns Modest Profit Amid Plunging Premium

Ethio Life & General Insurance has reported a positive profit for the second year in a row. However, it registered a slower profit growth than the previous year, as its profit only increased by four percent.

The firm’s report came in the same year that insurance companies collected a combined profit of one billion Birr from general insurance; four percent lower than of 2014/15 fiscal year.

This modest performance makes Ethio Life one of the five lowest profit earners among all insurers in the country.

Founded as a life insurer in 2008, Ethio Life added general insurance business to its portfolio four years ago. However, it is struggling to break the loss-making trend in its general insurance business, which declined from 1.8 million Br profit to 800,000 Br losses last year.

Fierce competition in the insurance industry, which has escalated to the point of driving market rates below scientifically tenable levels, has been the challenge preventing new entrants from making an acceptable level of profit, according to Teshome Beyene, the Board Chairman of Ethio Life during the reporting period.

“It takes a significantly longer time to make a profit for late entrants in the industry than those which become operational decades ago,” said Board Chairman, explaining the challenges in the industry.

Ethio life’s earnings per share also plunged to 128.5 Br from 280 Br, owing to huge capitalisation.

“The reduction must be unpleasant for shareholders,” says Abdulmenan Mohammed Hamza, an analyst at London Portobello Ltd.

Last year, over half of the insurers in the country posted a decline in their earnings per share. Most of the firms related the decline with a surge in capital.

Ethio Life’s shareholders’ return is below half of its closest competitor, Oromia Insurance, which was established three months after Ethio Life.

“We doubled the number of shareholders to 1,300,” said Shimeles G. Giorgis, Chief Executive Officer of Ethiolife, while describing the fall in shareholders return.

During the previous fiscal year, the firm sold 50 million Br worth of shares to the public, which helped raise its paid-up capital by almost double to over 86 million Br, which is the fourth lowest in the industry.

Its capital and reserves account for 40pc of its total assets and 66pc of its total liabilities, indicating that the company has strong capital.

“It should utilise its strong capital for further business expansion,” Abdulmenan suggested.

Ethio Life reported mixed results in its income earnings activities.

Despite a considerable improvement in net earned premiums, underwriting surplus, the difference between net premiums earned and claims incurred, dropped by 37pc to 5.3 million Br.

A decline in retention rate was one of the reasons for the drop in underwriting surplus.

In spite of the increase in written premium by 43pc to 84 million Br, the retained amount of insurance has declined to 63pc from 73pc. Commission paid to agents grew two times higher than the rate of growth in commission earned.

The huge gains achieved by increased gross written premium and retention rate were undermined by soaring claims.

Claims paid and provided for bumped up by 119pc to 33.37 million Br. Experts think the increase in claims is very concerning.

“Apart from increasing customers, ELG should have a strong customer screening mechanism so that high-risk customers are appropriately priced,” says Abdulmenan, the financial sector expert commented.

“As our strategy was increasing market share, we were exposed to more claims,” said Shimeles. “Our motor portfolio soared from 45pc to 63pc.”

As observed in the industry, over half of Ethio Life’s claim comes from motor policies.

“We have diverted our strategy to what it was a year ago, in terms of being stringent in our screening policy,” Shimeles added.

Ethio Life did very well in investment activities, which have compensated for the massive reduction in the insurance business.

Interest earned on time deposits has increased by 252pc to 6.96 million and dividend income increased by 11pc to Birr 710,000.

Out of its total asset, about 127.5 million Br has been put in fixed time deposits and 12.8 million Br has been invested in shares. These investments account 64pc of total assets of the company.

The total assets held by Ethio Life and General increased by 94pc to Birr 220.37 million.

Staff and general administration expenses of Ethio Life showed a significant increase. Salaries and benefits soared by 84pc to 5.4 million Br and general administration expense went up by 34pc to 8.53 million Br.

“The the management of ELG should put cost control mechanisms in place,” says Abdulmenan.

“It is reasonable considering that we made a salary adjustment to our employees by almost 45pc,” said Shimeles.

Currently, Ethio Life has more than 140 employees who serve at its 22 outlets.


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