The decade-old Oromia Insurance Company registered one of the highest growth rates in the industry for the second year in a row.
The insurance firm grew its net profits by 127pc to 72.5 million Br compared to the previous year. It also increased its shareholder return by 41pc in the corresponding year.
The CEO of the insurer affirms that this is due to a reduction in claims and higher income from investments.
“The measures we took to underwrite prudently, investments and the decline of claims have contributed to the profit,” said Asfaw Benti, CEO of Oromia.
The company’s gross written premium reached 384.2 million Br, out of which 22.3 million was ceded to reinsurers. The firm provided 84.7 billion Br in insurance coverage for businesses last fiscal year.
“Increases in retention rates also contributed hugely to profits,” argues Abdulmenan Mohammed, a financial statement analyst with over 15 years of experience.
The company retained over three-fourths of the premiums it generated, which is higher than the industry average of 67pc.
Despite a massive increase in retention rate, the growth in claims and benefits is small, with claims standing at 182.6 million Br. While motor insurance made up 68pc of the total operation portfolio, the net claims showed a five percent increase.
The insurance firm’s return from its equity investments in companies such as Oromia International Bank and the Ethiopia Reinsurance Company was 52.7 million Br.
A significant surge in expenses accompanied the increase in income. Operating expenses, including staff and general administration costs, soared by 30pc to 115.52 million Br, which the expert suggest the insurer should keep an eye on.
Expenses grew as a result of branch and staff expansions, according to the CEO.
“But we have made an effort to control expenses,” Asfaw argued. “We also encourage our staff to strive for maximum efficiency, rather than expanding just in numbers.”
The company also started investing in financial technology in the budget year which increased its expenditures.
This has allowed Oromia’s balance sheet to expand at a reasonable rate. Its total assets increased by 11.3pc to 894.76 million Br.
The insurer invested 441 million Br in time deposits and savings accounts, while 86.79 million Br was put into company shares and bonds.
In the reporting period, the company transferred an additional 40 million Br toward paid-up capital, bringing that total to 196.4 million Br.
“Oromia Insurance is a well-capitalised firm and needs to work on expanding its business,” the expert suggested.
The liquidity analysis shows that the level has come down. The cash to total assets ratio went down to 7.2pc, a slight decline from two years ago, which the expert suggested could harm the firm if there is a further reduction.
“The investments we made resulted in lowering our liquidity level,” argued Asfaw.
The firm’s performance has delighted shareholders.
“Compared with previous periods, the firm’s performance has improved,” says Gutema Dibaba, one of the 865 shareholders of the insurance firm. “I am satisfied with the return I got this time.”
But the firm had not been without challenges in the last fiscal year, given the competitive business environment.
“The unhealthy business competition was mainly confined to the reduction of premium rates,” said Aberra Bekele during his message to shareholders. “Soaring costs of goods and office rentals are still among the major problems we face.”
Last Friday, the firm, which has 350 employees, awarded the design of its future headquarters in the financial district on Ras Abebe Aregay Street to Zeleke Belew Architects. The proposed 35-storey building will sit on a on 37,000Sqm lot leased from the city administration. The construction is estimated to cost nearly two billion Birr.