Oromia Insurance Doubles Profit to 22.4m Br, Provides Highest Claims

Oromia Insurance SC, one of the country’s youngest private insurance firms, doubled its profit after tax, in 2012/13, to 22.4 million Br.

Oromia’s audited annual report was released during its general assembly on November 24, 2013. It shows a successful year overall for the Company, with cash and bank balances representing 9.1pc of total assets and a current assets to current liabilities ratio of 218pc.

The introduction of the no-premium-no-coverage directive that bans the sale of insurance policy on credit, except to state-owned institutions, has played a part in this year’s success, according to Tesfaye Desta, CEO of Oromia.

“That directive has a positive effect on our liquidity,” he told Fortune. “The fact that private companies are not allowed to get insured on credit has boosted our net income.”

The good news continues for Oromia with its underwriting surplus – the difference between net premiums earned and claims incurred – doubling to 32.1 million Br. The Company, according to the report, has underwritten gross premiums of 193.4 million Br, an increase of 23.6pc and paid claims amounting to 34.3 million Br. The premium (customer) retention rate of 85.6pc at Oromia is also far higher than the industry average of 67pc.

Having opened its doors for service back in February 2009, exactly a year after it was established, the Company had an 85 million Br subscribed capital and a 26 million Br initial paid-up capital.

“That has given us a competitive advantage,” says Tesfaye. “It has also become our basis for having a good market share command.”

The increase in retained premiums has not been without its costs, however. The Company has paid and provided for claims worth 91.69 million Br. This accounts to 61.6pc of net premiums earned before commission and other expenses. This figure is far higher than other insurance companies, although better than last year.

“Oromia should strengthen the risk management process to identify those risky customers,” advised Abdulmena Mohammed Hamza, an accounts manager for Portobello Group Ltd – a London-based holding company with subsidiaries in property investment and development.

The management of the Company agrees with the accounts manager and say that they will work hard the beginning of this year to increase the share of gross premium from non-motor accidents.

The Company’s major shareholders are Oromia International Bank (OIB) and Cooperative Bank of Oromia (CBO), which jointly hold 40pc (16 million Br) of the total capital; the two banks account for six million Br and 6.5 million Br, respectively, of the insurance company’s paid-up capital. Farmers’ cooperatives in Oromia Regional State jointly have a 16.9pc share in the Company.

“I see even more promising results for next year,” said Arega Della, a shareholder with the Company. “The sense of cooperation between the management and the Board is commendable.”

Interest earned on deposits increased by a staggering 435pc to nine million Birr and investments in shares has brought in 1.1 million Br – an increase of 51.3pc.

Staff and general administration expenses expanded hugely. They have gone up by 44.4pc to 13.7 million Br. Compared to the total income growth, the increase in expenses is reasonable.

The total assets of Oromia have increased by 41.2pc to 262.2 million Br.  Out of this, 178.8 million Br has been invested in fixed time deposits.

Oromia has increased its paid-up capital to 41.9 million Br. The capital and reserves to total assets ratio has gone down to 18.1pc from 21.2pc. This ratio has declined over the past few years.

Abdulmena, the accounts manager, says a high retention ratio coupled with expansion in business could expose Oromia to more risks.

“The Company must build up its capital and reserves to protect itself against unfavourable conditions,” he recommended.

The insurance sector currently has an aggregate capital of 1.8 billion Br – an increase of 600 Br million from the previous year. In paid-up capital, too, there has been a welcome change in the sector.

Although previously a paid-up capital of only seven million Birr (four million Birr for general and three million Birr for life) was required, this has been raised to 75 million Br (60 million Br and 15 million Br, for general and life, respectively), in another directive.


Posted

in

by

Tags:

Comments

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.