The 18th insurance firm, Zemen, is in the last stage of joining the insurance industry, only waiting for final approval from the National Bank of Ethiopia.

Zemen has finalised the formation process by 926 shareholders, who raised 81.5 million Br in paid-up capital from the subscribed capital of 114.6 million Br.

Initiated by five promoters from banking, accounting and the insurance industries, Zemen finalised selling shares last July and is currently waiting for the final approvals from the central bank to commence operations. Zemen started selling shares in December 2017 with the target of reaching 100 million Br in paid-up capital and 180 million Br in subscribed capital.

Zemen’s share has a par value of 5,000 Br, and the minimum subscription allowed by the founding shareholders was 10. Tulu Tokuma Trade & Transport S.C subscribed the highest shares of 980 worth 4.9 million Br making it the largest shareholder.

The initiation to form the insurance firm came up following repeated requests by shareholders of Zemen Bank during general assemblies, according to Amare Habe, former board chairperson of Zemen.

“Then five promoters from the shareholders took the initiative to start the process of forming the firm,” Amare, who currently chairs the promoters board, told Fortune.

While most of the shareholders of Zemen Bank bought shares in the firm, Zemen Bank itself is not on the founding shareholders’ list.

The Bank’s investment policy limits the Bank from investing in companies under formation, according to Abebe Dinku (Prof), the current board chairperson of Zemen Bank.

“Our investment policy has clearly outlined that the Bank can invest in companies that are three years old and above,” Abebe told Fortune. “The Bank will asses their profitability before investing.”

Abebe also says that even though shareholders have requested the formation of the firm during general assemblies, the topic has never been included in the agenda of the general meetings, which made it very difficult to table for approval.

Since the shareholders of the Bank formed Zemen Insurance, the board and the management of the Bank should handle this case with exceptions, believes Amare.

Expecting to commence operations in July or August, the promoters expect to earn profit in the first year of service. They also planned to start operation with four branches.

An expert in the financial industry, Abdulmenan Mohammed, says that Zemen will be joining an industry that is very competitive and has been hit by declining premiums and escalating claims that made the insurance companies depend on interest income from their investments.

The most recent insurance firm to enter the industry is Bunna Insurance, which was established in 2013 with 237 shareholders and 6.5 million Br in paid-up capital. Currently, it has increased its paid-up capital by 17pc to 91.9 million Br, and it netted 25.1 million Br in profit last year.

The 17 insurance companies, both state-owned and private that operate in the country, paid out 3.5 billion Br in claims in the reported period. The companies have also increased their total capital by 26.4pc to 5.5 billion Br, of which the share of private insurance companies was 72.1pc.

“Zemen, as a newcomer to the industry, will have a tough time to learn, penetrate the industry and secure a sufficient number of customers to earn profit from the insurance business,” Abdulmenan said.

Pricing of insurance products matters very much, and this may force Zemen to take risky customers with a lower premium to penetrate the industry, according to the expert.

Pricing has been the main competitive strategy in the industry as the insurance products are pretty similar from company to company.

“We will be very selective in choosing clients and selling policies,” Amare said.