Ethio Life & General Insurance (ELGI) registered an improved performance last year, doubling its profit.

The Insurer netted 17.76 million Br profit last year, paying its shareholders 185.5 Br. Last year’s earning per share (EPS) was lower than what it was two years ago, but its paid-up capital remained at 86 million Br, accounting to 32.4pc of its total assets.

“It is heading in a new direction with some notable achievements,” said Yoseph Endeshaw, chairperson of the Firm to the shareholders in the financial report. “The achievements are the cumulative results of the strategic decisions made in the past years.”

The Firm, having opened two branches last year, performed better than its peer Lion Insurance which recorded 14.84 million Br profit with a shareholders’ return of 5.58 Br.

A shareholder at the Firm was delighted with the performance.

“Despite being a young Firm in the industry, we have been paid dividends thrice, which is promising,” said a shareholder, who preferred to remain anonymous.

The Firm has reported notable results in its profit and loss account due to mounting underwriting surplus, increased interest income and huge transfers from life fund. Interest earned on time deposits has increased by 53pc to 10.64 million Br and dividend income surged by 30pc to 920,000 Br. It also transferred 5.46 million Br from the life fund, contributing to its improved performance.

Underwriting measures, risk management tactics and employee motivation coupled with the opening of new branches enhanced the Insurer’s performance, according to the Firm’s management.

Underwriting surplus from general insurance has increased by 261pc to 19 million Br due to a huge rise in written premium. The total gross for written premiums, both general and life, have increased by 12pc to 129 million Br.

Premiums from general insurance have increased by 30pc to 109 million Br, whereas those from life insurance have plummeted by 36.5pc to 20 million Br owing to fierce price competition.

“The decline in premiums from life insurance business is concerning. The management of ELGI should review its life insurance pricing policy to be competitive,” comments Abdulmenan Mohammed, a financial statement analyst with 15 years of experience in Ethiopia and UK.

“Price cutting in the industry is very concerning,” said Shimeles G.Giorgis, the Firm’s chief executive officer. “Due to this, we lost three big companies we gave life insurance coverage to.”

Expenses of ELGI have ballooned as the business is expanding. Salaries and benefits have soared by 59pc to 8.59 million Br and general administration expenses have gone up by nine percent to 9.3 million Br.

“The expansion of salaries and benefit expenses are worrying. Hence, the management should keep tabs on these as well,” said Abdulmenan.

But for Shimeles, the salaries and benefits the insurer pays are fair compared to the industry.

“We have been paying below the industry average, and we have balanced it with last year’s adjustment,” Shimeles said.

The total assets held by the Firm have increased by 26pc to 277 million Br. Out of this, 140.6 million Br has been put in fixed time deposits, and 14.2 million Br invested in shares. These investments account for 56pc of the Insurer’s total assets. This proportion is much lower than the preceding year’s ratio of 63.7pc.

“This must have been due to a large amount of money held as liquid assets,” said Abdulmenan.

Liquidity analysis shows that cash and bank balances have shot up by 75pc to 45 million Br. Cash and bank balances to total assets ratio have likewise gone up to 16pc from 12pc.

“The liquidity level of ELGI is far more than its operational needs. The management should divert some of these liquid resources into income generating activities,” said Abdulmenan.

“The capital and reserve account ratio to the Firm’s total asset indicates that ELGI has a strong capital,” adds Abdulmenan. “So, it should utilise this for further business expansion.”

Source : AddisFortune