The youngest kid around the bloc, the concluding fiscal year was a time of bonanza to Lucy Insurance S.C. Not only has its bottom-line got better in its books; the profit it declared has soared to millions, from an inconsequential 69,000 Br its managers had declared in 2012/13.
Supported by a solid year of underwriting surplus, and income from interest, Lucy shareholders have enjoyed watching their company galloped to bag 4.2 million Br in profit last year. The underwriting surplus, or what is left off after claims have been paid, has grown by 239pc to 8.2 million Br. The interest income of the company has also soared from 124,000 Br to 1.74 million Br, disclosed the firm’s second annual report, released during the second annual regular and fourth extraordinary general meeting of shareholders held, at the Hilton Hotel, on October 18, 2014.
The firm has also achieved a 42.66 million Br gross written premium (GWP) out of which nine million is ceded to reinsurers. The previous year’s ceded amount from the GWP was 4.47 million Br, where Lucy has retained 78.7pc, which is a lot bigger than the previous year’s 77.7pc and the industry’s average retention rate of 67pc.
Named after the oldest fossil on earth, Lucy, the firm has paid 6.7 million Br for claims, standing for 22.4pc of net premium earned. The claims paid have dropped from the previous year’s figure of 37.7pc, a trend showing Lucy’s customer checking for risks has improved tremendously, according to Abdulmena Mohammed Hamza, an analyst working as an account manager at the Portobello Group Ltd.
Lucy incurred commissions of 2.62 million Br, which is about 6.14pc of the gross premiums underwritten.
“The commission rate is higher than at other insurance companies as well as last year’s six per cent,” Abdulmena noted. “This must have been due to cut-throat competition in the industry.”
The total asset of the company has increased by 84pc to 54 million Br, out of which 31 million Br is held in interest-bearing deposit account. The cash and the bank balances held by the company’s account is 16.35pc of the total asset. Lucy’s liquidity has moved from 1.2 to 1.35, “which is pretty good,” according to Abdulmena.
Lucy has capital and reserves of 20.53 million Br and the paid-up capital of the company has increased by 93.3pc to 15.53 million Br, which is 60 million Br short of the 75 million Br capital the central bank wants the industry to have in 14 months.
Abdulmena sees a tough time ahead of the firm’s management.
“Increasing paid up capital by five-fold in a little over a year will surely undermine the earnings per share (EPS),” Abdulmena said. “Shareholders will have to be ready to assume lower than the current EPS of 283.6 Br.”
The shareholders have now resolved to transfer their EPS to recapitalize their firm.
“They are glad with the current operation of the company,” Alemseged Abreham, the CEO of Lucy, told Fortune. “The EPS will not diminish but it might appear that it has diminished as the amount given in the form of dividend will be in the phase of investments; the asset will increase.”
Temesgen Dengago, who owns a tanker transport service company, is a founding shareholder with 1,750 shares. The decision of the shareholders to give up their dividends this year is a felicitous one, he told Fortune.
“We look for a better future,” he stated. “We are also insuring our properties with Lucy.”
The bank has also agreed with Debub Global Bank (DGB) to collaborate, after signing a non-binding memorandum of understanding (MoU). Each company has bought 3.75 million Br worth of shares from the other.
“This will help both companies to speed up their attempts to take on the central bank’s standard,” said Alemseged. “Lucy has 14 months to reach 75 million Br and DGB has to reach 500 million Br.”
DGB, presided by Addisu Habba, who moved here after resigning from the Bank of Abyssinia where he had outstanding accomplishments, has a three-year grace period to attain the half a billion Birr capital threshold.
“The MoU is not binding,” Addisu told Fortune. “We’ll work with other similar firms which will be willing to work with us.”
He said the Bank is encouraging clients that take loans to go to Lucy, for their insurance needs.
“This will give us mutual benefits,” he pronounced.
The capital and reserve of Lucy represent 38.1pc of the total assets and 61.56pc of the total liabilities of the company, which indicates the strong capital base of the firm, according to the analyst, Abdulmena.
For an insurance firm 39 founding shareholders established two years ago, in November 2012, Lucy holds a bright future in front of it. It is expanding its branch network, planning to open two in Addis Abeba and one in Hawassa, seat of the regional government of the Southern State. It thinks to spread out two more in Addis Abeba, and one in Adama Alemseged disclosed to Fortune.
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