Veteran insurance executive Asfaw Benti has taken over as the new CEO of Oromia Insurance Company S.C, in the aftermath of a net profit decline. OIC recorded a profit of 27pc less than the last fiscal year’s profit, coming to 33.5 million Br this year. National Bank of Ethiopia has approved his appointment as of September 21,2016.
Asfaw, an American citizen of Ethiopian origin, has over two decades of experience in insurance industry in Ethiopia. He previously worked at Nile Insurance S.C. for two years from General Operation manager to Chief Executive Officer, between 2004 and 2006. Since then, he left for the United States and earn a US citizenship. Prior to 2004, Asfaw had spent two decades at Ethiopian Insurance Corporation, where his most recent title was Deputy to the Chief Executive Officer. He officially took up his post last week.
The company’s former CEO, Tesfaye Desta, is now General Manager at United Insurance. Tesfaye served in OIC for the past five years until he resigned from his post earlier this year. During his tenure, the company saw a three fold increase in its profit from 11 million in 2012 to over 33 million Br. Tesfaye has been serving as CEO of Oromia Insurance after Mitiku Abdissa, the founding CEO, who resigned in 2011.
One of the reasons that the board of directors, chaired by Elias Geneti, fired Mitiku in May 2011, was overstatement of profit. This time, under the same chairman, Tesfaye resigned from his post in May due to his own personal reasons.
The reduction in the company’s profit after tax is attributable to a modest increase in net earned premium accompanied by massive surge in claims paid and provided for.
However, the mood at the seventh annual general shareholders meeting of the company, which kicked-off in the presence of the shareholders, was buoyant even as the firm reported a significant shrinkage in net profits and earning per share (EPS).
“Even though the EPS and profit plummeted, we hope for a positive change as the company becomes more capitalized,” commented a shareholder who wished to remain anonymous.
Faced with a fall in EPS of 27pc to 337 Br, OIC’s shareholders had cause to be optimistic about the future with Asfaw, the new CEO.
Overall, analysis of the Company’s financial statement reveals that the reduction in EPS must have been caused by plummeting profit after tax coupled with increased capitalization.
The paid up capital has surged by 36pc to 115 million Br
Income and revenue of insurers, for the major part, comes from premium generated from sale of insurance policies.
Likewise, OIC Registered a premium sales of 334 million Br in 2016. This is assumed by an insurer before deductions for reinsurance and ceding commissions and it is 12pc high comparing with 2014/15.
Moreover, the achieved growth in written premium is two times less than the firm’s target and also four percent lower than the industry’s average.
Out of the total written premium 76.17 million Br has been ceded to reinsurers, which resulted in a reduction of the company’s retention rate to 77.2pc from 82pc.
Commission earned from reinsurers surged by 32pc to 12.5 million Br.
Despite a reduction in retention rate, Oromia, however, reported a massive surge in claims paid. They have soared by 30pc to 184.7 million Br.
The increment has consumed the modest gains obtained from increased written premium and commission earned from reinsurers.
“OIC should thoroughly look into its risk management system and install appropriate mechanisms of risk reduction,” Abdulmenen Mohammed Hamza commented.
All these reasons caused OIC’s underwriting surplus to drop by 50pc, reaching 27.22 million Br.
As explained by the OIC’s Underwriting Manager, Tigstu Shiferaw, the decrease in underwriting surplus is the result of incurring higher cost of claim to motor policies.
“We did an assessment on our loss ratio and charged high premium on those high risk customers,” specifically on motor policies, Tigstu argued.
Among the brands which caused a high loss ratio to the company, the major one is Sinotruck. The assessment of OIC showed that the company had been paying 184 Br for each 100 Br it received for Sinotruck. A look at the portfolio mix of the firm shows that the lion share, 72pc, was contributed by motor, which is eight percentage points higher than the target it set to achieve for the period.
At the same time, motor insurance claimed the largest accident compensation followed by marine insurance. Out of all the compensation payment that EIC was asked, it paid 86pc for motor class of business.
“The fruit of the assessment cannot be seen in the short run,” Tigstu added.
Apart from operating income, OIC did well in investment activities. Interest earned on deposits increased by 18pc to 33.05 million Br and investments in dividends has brought in 2.78 million Br, an increase of 26pc. Beside short term investments in bank fixed time deposits, the company has made investments in equity shares of several business entities. The company’s total equity investment grew from 44.6 million Br to 58.7 million Br. Out of these, investments in property, where the headquarters of OIC will be built, constituted 25pc.
The company signed an agreement with Oromia Coffee Union to build a G+32 joint headquarters in the so called financial district, along Ras Abebe Aregay Street.
The construction is expected to begin in the coming year.
In addition, the company has also invested 12.75 million Br at the newly established Ethiopian Reinsurance, along with 16 insurance companies. Ethiopian was re established in February 2016, with a 40pc share owned by The Ethiopian Insurance Corporation (EIC) and the Commercial Bank of Ethiopia (CBE). The aim of the reinsurance firm is to promote financial resource mobilization and reduce costs related to cross border reinsurance transaction.
The latest OIC report indicates that its market share has dropped to 5.5pc from 5.7pc last year. Its market outlets grew to 39 from 37 last year, represents 9pc of the industry.
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