Nyala has reported an unsatisfactory performance for the recently ended fiscal year, facing an 18pc decline in its net profits. However, Nyala still had cause for optimism after reporting a profit after tax of 71.4 million Br, the second highest amongst 16 private insurers in the country.
The 2015/2016 fiscal year brought trouble for the rest of the industry as well, with the total industry profit declining by four percent to one billion birr. The firm’s performance was reported during its general assembly at Sheraton Addis Hotel a month ago.
Nyala’s profit decrease was less steep than that of its nearest competitors, such as Nile Insurance, which saw a 57pc decline in its net profit to less than 21 million. Although, Nyala’s profit was lower than Awash Insurance, which was established three months before Nyala. Last year, Awash reported a 33pc increase in its profit to 91 million Br.
Nyala also reported that earnings per share plummeted by 300 Br to 659 Br. The same trend was observed in the industry last year; over half of the 16 private insurance companies experienced profit slumps and drops in earnings per share.
Challenges of low levels of awareness about insurance, a shortage of skilled manpower, and a low level of integrations among insurers were some of the reasons behind the firm’s negative performance, according to the bank’s management.
Although Nyala has managed to raise its premium production by 17pc to almost 400 million Br, its retention rate declined to 67pc from 69pc. It was lower than Awash, which registered 78.3pc, indicating that Nyala ceded more premiums to reinsurance.
The fall, however, is not fully attributable to lack of capacity to handle big risks but chiefly due to the heftiness of some risks during the past fiscal year, according to the company’s report.
“Nyala needs to consider increasing its retention rate to increase its net written premium,” said Abdulmenan Mohammed Hamza, an analyst at London Portobello Ltd.
Despite the substantial increase in life funds by 26.5pc to 84.4 million Br, Nyala’s profit from life insurance was not declared this year because of the requirement for actuarial valuation which is usually carried out every two years. The next valuation will be carried out in 2017. The Company’s profit would have been around 90 million Br if earnings from life funds were included in the latest report.
The gross written premium has grown at a slower rate than the commissions paid to agents for every premium brought in. The former grew by 37pc while the latter grew by 56pc. Experts connect this with the stiff competition in the insurance industry.
However, despite the reduction in retention rate, claims paid and provided for soared by 30pc to over 176 million Br, undermining the good performance in bringing in more premiums.
Abdulmenan connects the surge in claims with the increase in high-risk customers.
“Nyala should thoroughly look into its risk management system,” Abdulmenan said.
Tegegne Masresha, executive officer of Nyala’s Marketing and Business Development, argues differently.
“This has nothing to do with our risk management system,” he says. ” Our portfolio mix is not exceptional in the industry.”
The motor class of business took the major share of the firm’s portfolio mix at about 41pc, followed by engineering, fire and marine. The same trend is also observed in the industry. Motor insurance accounts more than half of the premium written by all insurances.
The severity of claims also contributed for the soaring of the claim, according to the Nyala’s report.
Nyala also maintained a huge amount of cash and cash equivalents last year. Its cash and bank balances increased by 12pc to 150 million Br, which represents 15pc of the total assets of the firm. The level of liquidity is not only higher than other insurance companies but also higher than Nyala’s operational needs. Nyala has the highest liquidity level among the country’s 16 private insurers.
“As this practice is depriving shareholders of more income, Nyala’s management should channel the excess liquid resources into income generating activities,” says Abdulmenan.
“We allocate our money not to fill our coffers, but based on the requirements set by the central bank,” Tegegne added. “We are already using our resources efficiently.”
In a bid to expand its business, a few weeks ago the company introduced terrorism insurance coverage to its customers, which is the first of its kind in the country. Four months ago, a significant number of factories were looted due to the unrest in Oromia and Amhara Regional States. As a result, the owners of the companies were complaning about the lack of insurance coverage during protests and civil unrest.
Established two decades ago, Nyala has over 220 million Br of paid up capital, the highest of all insurance companies. Currently, the firm has 43 service outlets throughout the country.
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