Even though gross written premiums showed no significant increase, the decade-old insurance firm Ethio Life & General registered 19pc profit growth in the past fiscal year with the support of investment income.
In the reported period, the firm managed to net 23.61 million Br in profits, which pushed shareholder returns to 235.12 Br a share, an 8.8pc increase from the previous year.
The year was multifaceted, an exciting as well as a challenging year, according to Yoseph Endeshaw, board chairperson of the firm.
“The stiff and unethical competition and a critical shortage of insurance professionals posed challenging conditions in our business undertakings,” said Yoseph, addressing shareholders in the firm’s annual report. “Despite the hurdles, we continued to perform strongly.”
Along with a high underwriting surplus, incomes generated from time deposit interest and dividends jumped by 15pc to 17.59 million Br and by 18pc to 1.72 million Br, respectively.
The firm put 143.37 million Br in fixed time deposits and 47.62 million Br invested in shares, bonds and properties.
Underwriting surplus has also risen by 47pc to 50.66 million Br due to a reduction in premiums ceded and claims.
The total gross written premiums, both in life and general insurance, has increased marginally by two percent to 131.9 million Br.
“The increase in gross written premiums is not satisfactory,” commented Abdulemenan Mohammed, a financial statement analyst with vast experience in the financial industry.
Being very selective in issuing insurance coverage has kept the firm from writing huge premiums, according to Shimeles G. Giorgis, the firm’s chief executive officer.
“It lowered our market share in the industry,” Shimeles told Fortune. “At the same time, it helped us to control claims.”
Claims paid by the firm went down by four percent to 49.24 million Br. This is recorded despite the trend in the industry, where claims have been soaring.
Out of total gross written premiums, 36.25 million Br was ceded to reinsurers. The retention rate rose to 72.5pc from 68.8pc.
“There is still room for increasing the retention rate,” Abdulemenan says.
A huge expansion of expenses accompanied the income surge.
Salaries and benefits and general administration expenses went up by 49pc to 23.7 million Br and by 14pc to 17.05 million Br, respectively.
Last year, Ethio Life opened a single branch, which was one of the 40 new branches opened by the 17 insurance companies last year. About 84pc of the total new branches were privately owned.
The total assets held by Ethio Life & General increased by 34pc to 400 million Br.
Total investments of the firm account for 47.7pc of total assets of the company. This proportion is far lower than the preceding year’s ratio of 55.8pc.
This must have been due to a huge amount of money held in receivables, according to Abdulmenan.
“The company should collect this money and put it in income-earning activities,” said Abdulmenan.
Liquidity analysis shows that cash and bank balances of Ethio Life decreased in value as well as in relative terms. Cash and bank balances decreased by nine percent to 40.94 million Br.
Cash and bank balances to total assets fell to 10.2pc from 15.1pc.
Despite the reduction, the liquidity level of Ethio Life & General is at a reasonable level, according to Abdulmenan.
The firm’s capital and non-distributable reserves account for 24pc of its total assets, demonstrating Ethio Life’s strong capital.
However, the capital of the firm has increased by a marginal increase of four percent to 89.92 million Br; while the industry in gross recorded a 26.4pc growth to 5.5 billion Br. Out of this, the share of private insurance companies was 72.1pc.
The insurer had a plan of raising its capital to 200 million Br during its latest general assembly but failed, because it did not have a quorum.
“We have called for an extraordinary meeting to raise our capital,” Shimeles said.
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