Despite a reported growth in profits for the third year in a row, Lucy Insurance has suffered a decline in earnings per share.
Indeed, the private insurers board of directors reported at a meeting held at the Sheraton Hotel November 5, that the company’s operating profit grew to a little over 13 million Br. However it’s earning per share plummeted to 166 Br from 247 Birr last year.
The board justified the decline as a spill over effect of the previous year’s capital increase by 300pc and current year’s increase of 32pc.
Lucy’s paid up capital increased by 32pc to 82.25 million Birr, fulfilling the NBE directive that insurance companies should have paid up capital of 75 million Br by the end of 2015.
There are 17 insurance companies in Ethiopia. Among them, Lucy and Bunna Insurance are the newest industry players.
Lucy was established in 2012 by 39 business professionals. Currently, the bank has 508 shareholders with over 85,000 shares.
The major driver behind the profit growth is the decent increase in underwriting surplus and a massive surge interest income.
Last year, Lucy achieved an underwriting surplus of 17 million Birr, 14pc higher than the 2014/15 fiscal year.
Meanwhile, the growth of gross written premium was two times higher than underwriting surplus, reaching over 74.5 million Birr.
During the recently ended fiscal year, the insurance industry generated a premium income of six billion Birr. The state owned giant, Ethiopian Insurance Companies was responsible for half this figure, while Lucy enjoyed only 1.2pc of the market share.
The overall performance of the industry has been declining over the past two years. The aggregate net profit of all insurance companies experienced a slight decline by four percent, to a little over one billion Birr.
Lucy has been increasing its retention rate year by year. Out of the total gross written premium around 17pc was ceded to reinsurers.
Accordingly, its retention rate slightly increased to 82.8pc from 81.4pc, indicating that the company increased its premium production capacity, and helping to reduce the premiums ceded to reinsurers.
“The rise in retention rate is the result of an increase in paid up capital,” said Alemseged Abraham, CEO of Lucy.
Lucy earned 4.4 million Birr in commission from reinsurers, an increase of 15.2pc.
The increased gross written premiums and the higher retention rate resulted in more claims.
Claims paid and provided for, as well as other technical provisions increased by 13.94pc to 23.37 million Br.
Lucy’s interest on deposits soared by a staggering 127pc to 8.3 million Birr.
Last year, Lucy purchased shares worth six million Birr and two million Birr from Bunna International Bank and Ethiopian Reinsurance Corporation, respectively.
Bunna recently posted a record profit of 187 million Br, the highest in its seven years of operation, while its earning per 1,000 shares rose by 20pc to 343 Birr.
Expansion in the insurance business was accompanied by a surge in direct operating and commission expenses.
During the previous fiscal year, Lucy spent 40 cents to earn one Birr of income. The figure was at 42 cents in 2014/15.
Lucy’s expenses have also risen.
Commissions paid went up by 34.2pc to five million Birr. Commissions paid account for 6.5pc of the gross premium written. The current year’s rate is higher than the previous rate of 6.3pc; it’s an indication that the insurance industry if getting highly competitive.
Staff, and general and administrative expenses increased by 30.5pc to 10.4 million Birr.
“Even though the expansion in expenses is less than the growth in income, Lucy should keep an eye on them so that expense growth is held at bay,” Abdulmenan Mohammed Hamza, analyst at London Portobello commented.
Expenses have grown by 32pc while income surged by 39pc.
“Liquidity analysis reveals that despite the liquidity level considerably declined, it is still at a reasonable level,” Abdulmenan said.
Cash and bank balances to total assets are three times lower, landing at 10.3pc.
“It is a very good move that the piles of cash Lucy was sitting on have been channelled into investment activities as reflected in its investments income,” Abdulmenan told Fortune.
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