A central bank directive has helped United Insurance SC make 59.87 million Br profit after tax in 2012/13, a staggering 65pc boost over its 2011/12 performance.
The results, announced during the company’s general assembly on Thursday, October 24, 2013, at the Hilton Hotel, show an overall successful year for the company. In addition to its profit, the company has continued to record healthy liquidity, with its cash and cash equivalents representing 63.26pc of its total assets, a slight increase from the previous year’s 61.53pc.
The introduction of the no-premium-no-cover 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 Meseret Bezabih, managing director and CEO of United.
“That directive has positive effect on our liquidity,” she told Fortune. “Our success is more attributable to the external environment than to any different operation on our part. We take delight in the result.”
The good news continues for United with its underwriting surplus – the difference between net premiums earned and claims incurred – rising by 52pc to 80.1 million Br, due to improvements in claims incurred, as recorded in the decline of the net claims to net premiums earned ratio to 48.84pc from the previous year’s 56.43pc.
“This improvement is commendable and it indicates that there is huge possibility for further reduction in claims expenses by instituting good risk management,” states Abdulmena Mohammed Hamza, an accounts manager for Portobello Group Ltd – a London-based holding company with subsidiaries in property investment and development.
In terms of premiums, however, the achievement was a rather modest 4.15pc growth to reach 248.94 million Br. Marine cargo and engineering in particular, actually experienced declines of 32.6pc and 11.3pc, respectively.
“The drop in marine cargo is all over the industry,” defends Meseret, who attributes it to the declining value of the Birr.
As for the negative performance in engineering, United, like all other private insurance companies, has not been able to win large projects, which are offered to government institutions, according to the CEO.
“With the government being the primary employer and investor, a large portion of the premiums generated by the economy have gone to the state insurer,” said an insurance expert who has worked for 10 years at the Ethiopian Insurance Corporation (EIC).
The country’s non-life insurance premiums, which in the last fiscal year registered 22.24pc growth, have been driven by huge public project initiatives and rapid economic growth, he said.
Although mandatory third party insurance and the growing economy open up opportunities for the industry, Meseret also harbours some concerns, particularly due to the price-driven competition strategy insurers followed in previous years.
The insurance expert, however, cautions the lack of a level playing field could hurt private insurers.
“The most appreciable growth still continues to occur in the public sector,” he told Fortune. “Thus, much of the gain in written premiums may not translate into a significant income for United.”
Another point of note from the report is the increase in expenses outpacing net premium earned. While United’s total general expenses have shown a decline, a significant reduction in the provision for doubtful debts seems to be the case. When that is excluded, the general expenses actually increased by 25.6pc to 28.21 million Br.
“As expenses have increased faster than net premium earned, appropriate cost control mechanisms should be in place,” cautions Abdulmena.
The expenses of the company swelled, Meseret said, because of soaring rent and the purchase of office goods.
At the end of the last fiscal year, United held capital and reserves of 116.38 million Br, which accounts for 23.7pc of total assets and 36pc of total liabilities.
“The figure is reasonably good,” commends Abdulmena. “However, United still needs to increase its capital in line with expansion of its business.”
Established in 1994 with an authorised capital of 25 million Br and an initial paid up capital of 8.073 million Br, United is currently owned by 340 shareholders, 25pc of which are staff.
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