Oromia Insurance Company (OIC) reversed the profit decline history by registering a 20pc profit growth during the last financial year.
OIC netted 40.37 million Br in profit, however, its earnings per share (EPS) have dropped to 291 Br from 337.7 Br due to a huge increase in paid-up capital by 35pc to 155 million Br.
The increase in profit after tax is mainly attributable to a reduction in claims, both life and general insurance, and a considerable increase in interest income. Its claim has declined by nine percent to 170 million Br while the interest it has earned on deposits increased by 21pc to 40.28 million Br.
The performance was not recorded without a challenge, according to Elias Geneti, board chairperson of Oromia, which was established in 2009 with 540 shareholders.
“Operating environment during the period was very challenging due to persistent suicidal premium cut and the civil unrest that engulfed in the country at large and the Oromia Regional State,” remarked Elias in the financial report to the shareholders.
Not only OIC but also most of the insurers in the local insurance industry, which is still in the early stages, contributing one percent to the country’s GDP, have been challenged by fierce competition characterized by premium cutting.
Last year, industry premiums amounted to 7.5 billion Br . Of this, 36pc was generated by the state giant, the Ethiopian Insurance Corporation (EIC). OIC’s market share in the year also stood at five percent.
Underwriting surplus of OIC has soared by 49pc to 41.77 million Br. The total gross written premium has increased by seven percent to 362.72 million Br. Out of this 88.99 million Br has been ceded to reinsurers.
Asfaw Benti, CEO of the OIC attributed the risk management of the Firm for the positive performance.
“We have done a lot to reduce the paid claim,” he told Fortune. “One of them is to revise premiums on vehicles which are vulnerable to accidents.”
The retention rate of OIC has gone down to 75.5pc from 77.2pc. Its retention rate is slightly lower than the industry average of 77pc.
“It has shown a slight decline from last year which we have insured many engineering businesses,” said Berhanu Debela, the executive office for operations of the Firm. “Which directly went to resources.”
OIC has earned 19.54 million Br as a commission from reinsurers, an increase of 57pc and paid 9.52 million Br commission to agents, a decrease of nine percent.
Though the Firm has been performing well in income-generating and investment activities, its direct expenses are concerning, according to Abdulmenan Mohammed, a financial statement analyst with 15 years of experience.
“Both direct and general administrative expense of OIC has expanded at alarming rates, therefore, the management of OIC should put appropriate cost control mechanism in place,” said Abdulmenan.
Direct operating costs have increased by 42pc to 46.17 million Br where the total expense has increased by 34pc to 43.05 million Br.
“Compared with the premium we wrote, the expense is comparatively lower than 20pc,” Berhanu told Fortune.
The total assets of OIC have increased by 12pc to 666.6 million Br. Out of this 400.7 million Br has been invested in fixed time deposits, an increase of 13pc and 66.86 million Br in shares, and an increase of 14pc.
The total investment in savings and shares account 70.1pc of the total assets of OIC whereas the industry average is 57pc.
“OIC has outperformed the industry, for which it has been rewarded with more investment income,” said Abdulmenan.
Liquidity analysis shows that OIC is liquid insurance company despite a reduction in liquidity level. Its cash and bank balances have gone down by 16pc to 63.27 million Br. Cash and bank balances to total assets have decreased to 9.49pc from 12.7pc.
A current asset to current liabilities ratio, which is a yardstick to evaluate its ability to fulfil its short-term obligations, has soared to 183pc from 120pc.
The capital and none distributable reserves to total assets of OIC have gone up to 27.24pc from 22.7pc.
“As OIC has strong capital; the management must strive to use this resource efficiently rather than constantly increasing it,” comments Abdulmenan.
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