Awash Insurance S.C. (AIC) has witnessed a significant decline in its earnings per share (EPS), which dropped by 65.2pc, from last year’s 433 Br. Its net profit has also gone down by 16pc to 59.2 million Br, from the previous year.
This is a bleak news to one of the oldest private insurance firms in the country. In business since 1995, and employs 380 people in its 33 branches, the firm is to celebrate its two decade in business, recently launching a new system that will interconnect all its branches with one electronic system.
Nonetheless, its latest performance in profit is dismal when compared to its operations in fiscal year 2012/13, where the insurance firm had registered a 114pc boost in its net profit. AIC was unable to repeat this success due to an increase in paid claims and payment for reinsurance, according to Adane Seyum, financial manager at Awash Insurance.
Net claims incurred have increased by 8.38pc to 174.9 million Br, accounting for 58pc of net premiums. This figure was at 52.75pc in the previous year. The increase in claims ratio owes much to soaring motor claims, maintenance and spare part costs, AIC’s annual financial report for last year reveals. It also attributed the decline to bond, marine and fire claims sustained during the year, overshadowing the net results of the fiscal year.
Despite this, the firm raised its underwritten premium by 2.5pc, to 355 million Br, and managed to retain 84pc of it. This is a far higher retention rate than the industry’s average of 70pc, and its previous year rate of 67pc, according to Abdulmenan Mohammed Hamza, financial commentator and accounts manager for Portobello Group Ltd, a London based holding company.
“Such significant change in retention rate has helped AIC to earn a considerable amount of surplus, while exposing the company to higher risk,” says Abdulmenan. “Given the fact that the size of claims at AIC has been consistently increasing over the past couple of years, it is time for the management to review its retention policy, as well as customers’ screening procedures.”
Tadesse Roba, AIC manager of Corporate Business Development & Marketing Department, see no cause for alarm attributing his firm’s ability to manage unforeseen risks to a good reserve.
The interest earned on savings has gone up by 47.22pc to 23.63 million Br, and dividends earned on investments has slowly increased by 3.24pc to 15.95 million Br, from last year’s performance of 16.05 million Br and 15.4 million Br, respectively. In addition, the company had managed to decrease its commission paid to 17 million Br, while its figures last year showed a double increase on 2011/12 performance.
AIC has made significant adjustments related to previous years’ accounts, which cut the current year’s profit by 9.39 million Br. The adjustments are related to reinsurance premium and sales commission.
“Such adjustment on the financial performance of AIC is huge,” Abdulmena noted. “It should be explained to shareholders adequately; moreover, the management of AIC should also make sure that such adjustments will not occur again.”
In contrast, total staff and general administration expenses have increased by 18.2pc, from 34.8 million Br to 46.15 million Br.
AIC has also registered 10.6 million Br and 24.8 million Br cash and bank balances, respectively, as its total assets have increased by 8.7pc to 701.25 million Br. In the same bid, its paid-up capital shows progress of 38.65pc, to 110 million Br, where its capital and reserves account for 20pc of its total assets.
Even though this figure is better than last year’s, it is well below that of other insurance companies. Nib and Nyala Insurance S.C have registered paid-up capital of 130 million Br and 125 million Br, respectively.
“As AIC has retained more risk, it should increase its capital in line with its risk exposure and expansion of business,” according to Abdulmena. “It also needs to increase its profit so that shareholders returns improve.”
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