Claim control has helped Berhan Insurance, one of the nation’s younger insurance firms, to register a 114pc profit increase in the past fiscal year.
Berhan, which lost seven million Birr two years ago, netted 20.6 million Br profit in the last fiscal year, which allowed the firm to increase shareholder returns to 22pc of par value, as compared to the previous financial year’s rate of 10pc.
A portion of the profit, 16 million Br, was disbursed as dividends to the insurer’s 1,600 shareholders.
A massive surge in underwriting surplus, higher interest and dividend income paired with a reduction in claims paid aligned to improve the firm’s performance.
Daniel Wondimu, board chairperson of Berhan, asserts that the success came while going through various challenging scenarios.
“The year was filled with unexpected political changes, which resulted in an economic slowdown. Despite these scenarios, Berhan has registered growth,” Daniel said.
Berhan’s underwriting surplus, total premiums paid by policyholders minus claims paid, grew by 86pc to reached 34.3 million Br.
Gross written premiums, the total revenue before deductions for reinsurance or ceding commissions, also increased by a modest rate of five percent to hit 104.3 million Br.
Out of the total premiums the firm amassed, it managed to retain 81.9pc. The seven-year-old firm’s retention rate was higher than most of the other insurance companies.
This was achieved as the firm improved its risk-absorbing capacity, according to Alemayehu Tefera, CEO of Berhan Insurance.
“Last year we were largely able to cover most of the risks we insured,” Alemayehu told Fortune.
Berhan’s retention has led to a decline in commission income by the firm. Last year Berhan earned 5.3 million Br from commissions, a decrease of three percent, and paid out 4.5 million Br, a decrease of four percent.
Reduced claims is also the other key factor that helped the firm to enjoy a profit bonanza. Claims paid decreased by 19pc to 66.6 million Br.
Increased incomes from interest and dividends as a result of investment activities in time deposits and company shares pushed profits higher. In the reported time, the firm earned 16.1 million Br and 5.02 million Br from interest and dividend income, respectively.
The income was generated from 135.4 million Br Berhan held in time deposits and 44.52 million Br from investments in shares and bonds.
Increase in income, however, was accompanied by a substantial rise in expenses.
Salaries and benefits went up by five percent to 19.85 million Br, and other operating expenses increased by 25pc to 15.5 million Br.
Branch expansion also contributed to soaring expenses. Last year, Berhan opened three branches, two in Bahir Dar and one in Meqelle. In the last fiscal year, the 17 insurance companies have opened 40 new branches.
“Berhan needs to keep an eye on expanding expenses,” said Abdulemenan Mohammed, a financial statement analyst with a wide range of experience in accounting and auditing in Ethiopia as well as the United Kingdom.
Total assets of Berhan showed a 17pc increase, reaching 316.2 million Br. Investment in time deposits, shares and bonds accounted for 56.9pc of total assets, decreasing by three percent.
Liquidity analysis shows that the liquidity level of Berhan increased in value and relative terms.
Cash and bank balances went up by 44pc to 32.35 million Br, and cash and bank balances to total assets increased to 10.2pc from 8.3pc.
“This must have been due to fewer funds being transferred to investment activities,” commented Abdulmenan.
The liquidity ratio of Berhan is close to the industry’s average.
Established in 2011 by 455 shareholders, Berhan increased its paid-up capital by only two percent to 88.2 million Br. Berhan’s paid-up capital is lower compared to the industry, which grossly recorded a 26.4pc growth of paid-up capital to 5.5 billion Br in the reported period.
The paid-up capital of Berhan has stagnated as it did not offer shares for subscriptions last fiscal year, according to the CEO.
“Due to the losses we incurred two years ago, we didn’t put up shares for sale. We are waiting until our shareholders’ financial capacity recovers,” Alemayehu said.
During the latest general assembly of the company, shareholders agreed to pay 11 million Br in subscribed capital, which will push the paid up capital of the firm to 100 million Br.
Capital and non-distributable reserves at Berhan account for 29.5pc of its total assets.
“This shows that Berhan is a well-capitalised insurance company,” commented the expert.
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