Nib Insurance Hit by Industry Downturn

Boost in paid up capital brought down the EPS by 27pc

Nib Insurance S.C. has posted a profit decline for the second year in a row as operational income dipped. The 14-year-old company declared a 25pc fall in its profits to 42 million Br.

“The huge reduction in what goes to shareholders should be bad news for the shareholders of Nib,” said Abdulmenan Mohammed Hamza, analyst at London Portobello Ltd.

Nib’s profit after tax increased to 50.6 million Br including last year’s adjustment to 8.6 million Br.

“Such a big adjustment has a material distortionary impact on the financial statements; Nib should extend every effort to avoid such practices,” Abdulmenan added.

“The adjustment is also one headache for us. But it was necessary due to management failures,” commented Berhanu W/Giorgis (Eng.), Board chairman of Nib.

During the early 2015/16 fiscal year, the company lost its founding CEO, Hailemariam Assefa, due to personal issues and health problems. Shiferaw Bante replaced him as acting CEO. Since September 2016, the company has been headed by another acting CEO, Zufan Abebe.

The reduction in profit after tax was the result of stagnation in gross written premiums accompanied by increased claims, and administration and employee expenses. Nib currently has more than 400 employees.

The profit decline, however, is better than some industry competitors.

Recently, Nile Insurance S.C. and Oromia Insurance S.C registered profit declines of 57pc and 27pc, respectively.

Nib’s earnings per 1,000 shares (EPS) have gone down to 216 Br from close to 300 Br, mainly due to the increase in the company’s paid up capital and a decrease in operational results. During the end of the fiscal year, Nib raised its paid up capital by 25pc to 233.48 million Br.

The last fiscal year has been a challenging year for most of the insurance companies struggling to show profits. Among 16 private insurance companies, half of them saw a decline in profit.

Data from the National Bank of Ethiopia indicates the industry has leveraged a profit of a little over of one billion Br last year, with Nib taking 4.2pc.

The decline in shareholder returns is also connected with the underperformance registered in operational results.

Nib’s gross written premiums showed a one percent increase to 366.8 million Br.

Motor insurance contributed more than half the total written premium.

Out of the total written premiums, 13pc has been ceded to reinsurers. Nib’s retention rate has increased to 87pc from 80pc, much higher than the industry average of 76pc.

As much as retention rates have brought in more income for Nib, it has also been accompanied by more claims.

Claims paid and provided for have increased by 14pc to 215 million Br.

Nib would be well advised to look into its risk management system to reduce such huge claims, according to Abdulmenan, the banking expert.

“Had it not been for our risk management system, the situation could have been worse,” Berhanu, Nib’s board chairman told Fortune.

Claims paid for motor policies constituted the lion share of claims with 85pc of the total claims, in keeping with industry trends.

On the other hand, net commission paid has gone up five fold to nearly eight million Birr.

One of the striking things about Nib’s net commission is that most insurance companies bring in net commission rather than pay it out. Nib must have paid more commission than it earned. This was due to a lower retention rate, which means less commission from reinsurers, and huge commission expenses to bring in gross written premium.

Unlike its investment income, Nib’s operation performance saw a slight decline.

Underwriting surplus has gone down by seven percent to 82 million Br.

“Instead of relying on increased income from investment activities, Nib should exert considerable efforts on securing more income from the insurance business,” Abdulmenan commented.

“Since it is turbulent time for the insurance industry, we are working to contain the dangers by focusing on investments,” Berhanu told Fortune.

Pecuniary policies, which cover businesses against financial losses, contributed a lion share of 18pc to the underwriting result of the company.


Published on Jan 10,2017 [ Vol 17 ,No 871]



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