Global Insurance Company has shown a significant decline in its net profits and shareholders’ returns, caused by a higher amount of paid claims and a reduction in written premiums.
Its profits after taxes have dropped by 28pc to 15.15 million Br while its earnings per share (EPS) have plummeted to 91 Br from 137 Br.
The drop in EPS was caused by a massive reduction in after-tax profits coupled with a massive increase in paid-up capital, a slight decrease in gross written premium, soaring claims, a small decline in interest income, expanding direct costs and employee and general administrative expenses.
Ahmed A. Sherif, board chairman of the Firm, confirms this.
“The last fiscal year passed with challenges and opportunities,” he stated in his message to the shareholders in the Firm’s financial report. “The final net result has also shown corresponding decreases mainly as a result of soaring claims.”
Global’s case is not singular. Most of the insurers in the Ethiopian insurance industry, which is still in the early stages, contributing only one percent to the country’s GDP, have been challenged by fierce competition characterized by price cutting.
Last year, industry premiums amounted to 7.5 billion Birr. Of this, 36pc was collected by the state giant, the Ethiopian Insurance Corporation (EIC).
The claims have risen by 26pc to 46.52 million Br, resulting in a loss ratio of 75.2pc, while the private insurance average is 65pc. Interest income has declined by five percent to 9.56 million Br, and rental income has decreased by one percent to 8.59 million Br.
The underwriting surplus of the Firm has plummeted by 34pc to 12 million Br, and its gross written premium has decreased by two percent to 80.6 million Br. Out of this, 21.43 million Br has been ceded to reinsurers. The retention rate of Global has gone down to 73.4pc from 77pc.
The level of claims at Global concerns Abdulmenan Mohammed, a financial statement analysis with vast experience in the UK and Ethiopia.
“Global should investigate its risk management and insurance pricing policies,” Abdulmenan said.
One of the major things the firm is doing to control the ever-growing claims is recruiting more staff, according to Yahya Mohammed, CEO of the Firm.
“With more staff members, we are trying to reach immediately to the places where the accidents occur,” said Yahya.
The Firm performed well in commission earnings, with 7.54 million Br, an increase of 34pc, and the commissions it paid have decreased by five percent to three million Br.
Its direct operating expenses have increased by nine percent to 7.88 million Br. The expansion in direct operating expenses has undermined the modest increase achieved in net earned premium.
Abdulmenan appreciates Global’s cost control mechanism.
“Global managed the expansion of expenses in line with growth in income,” said Abdulmenan.
Global, the 20-year-old Firm, has spent 16.02 million Br on staff and administrative expenses, an increase of 15pc.
“Expenses of Global are expanding while incomes are declining. So, Global should keep an eye on expenses,” Abdulmenan stated.
The total assets of Global have increased reasonably, with a nine percent increase to 240.4 million Br. Out of this, 81.5 million Br has been held in interest-earning fixed and saving deposits and 19.7 million Br has been invested in shares and saving bonds.
The proportion of savings and investments to total assets has dropped to 42.1pc from 49.6pc. Investment in fixed assets has soared by 128pc to 74.46 million Br.
Out of the total fixed assets acquisition, there is no explanation for the acquisition of fixed assets amounting to 38.58 million Br.
The firm leased a 1,465sqm plot of land in the Bole area to construct its headquarters for 38.58 million Br, according to Yahya.
“Currently, we’re working on the design of the building,” said Yahya.
Liquidity analysis indicates that the liquidity level of Global has declined. Cash and bank balances have dropped by 29pc to 29.69 million Br. Cash and bank balances over total assets have gone down to 12.35pc from to 18.9pc.
“Still, the liquidity level of Global is reasonable,” Abdulmenan comments.
Global has strongly performed by raising its paid-up capital by 26pc to 102.94 million Br. Its capital and non-distributable reserves represent 47.4pc of its total assets. This ratio is far higher than the industry average of 29pc.
“Global should refrain from expanding its capital as it is undermining its EPS. It should rather use its strong capital to expand its business,” remarks Abdulmenan.
Source : AddisFortune