The net profit of United Insurance Company (UIC) has remained the same for the third consecutive year, reaching 61.7 million Br in the recently ended fiscal year.
The Firm, whose market share was constant at around five percent since 2015, has been reporting a slump in earnings per share for the past four years. In the past fiscal year alone, its earnings per share (EPS) have dived to 253.9 Br from 312.6 Br.
This must have been due to fierce competition, an increment in expenses and a massive increase in paid-up capital, according to Abdulmenan Mohammed, a financial and audit expert with 15 years of experience in Ethiopia and the UK.
United reported a stable growth in the midst of cut-throat competition among insurers, resulting in a decline in profit and shareholders’ return over the past two years.
“The adverse effects of the unhealthy competition forced us to charge unfair prices,” said Meseret Bezabih, chief executive officer of the Firm. “Also, the five percent growth in paid-up capital coupled with expansion in expenses undermined our efforts to increase profits.”
United’s profits remained stagnant in contrast to other insurance companies whose profits and shareholders’ returns have started to recover, unlike the trend observed in the past three years.
In the recently concluded fiscal year, the aggregate profit of insurance companies reached 1.3 billion Br- a record high in the history of the insurance industry, yet, its contribution to the Gross Domestic Product (GDP) is below one percent.
Furthermore, the closest competitor of United, Nile Insurance, managed to raise its profits and EPS by five folds to 100.7 million Br and 546 Br, respectively.
In spite of the static profits, the shareholders of United were optimistic about the latest performance of the Firm during the general assembly held at Sheraton Addis Hotel three weeks ago.
“Considering the industry we are operating in now, the profit is very positive,” said the shareholder, who owns 10,000 Br worth of shares.
United has reported good results in its major revenue items.
Its underwriting surplus- the difference of the premium collected by the Bank and the paid claims- has increased by seven percent to 76 million Br.
The total written premiums have reached 387.21 million Br, an increase of 23pc, accounting for 5.4pc of the industry aggregate premium production. Commissions earned from reinsurers have soared by a staggering 63pc to 35.56 million Br.
“This is a remarkable increase,” said Abdulmenan.
But the amount of premium passed to the reinsurers showed a 12 percentage point reduction to 77pc in the last budget year. This, coupled with a surge of net claims by 19pc to 190 million Br, has consumed the growth of premium collected by the Firm.
“It is mainly due to a rise in high-risk customers,” said Abdulmenan. “United should look into its risk management system and properly charge such customers.”
Sharing the idea of Abdulmenan over underpricing of customers, Meseret relates the soar in claims with the dominance of motor policy in the industry.
“We collect more than 60pc of our premium from the motor insurance policy. So, we are reactive to changes in the motor market such as a price increase in spare parts,” she remarked.
Motor insurance accounts for over half of the claims and premium production in United as well as all insurance firms in the country except the state giant Ethiopian Insurance Corporation.
A rise in indirect expenses has accompanied the increase in underwriting premiums of United.
Technical expenses have increased by 19pc to 21.07 million Br, whereas employees’ and general administration expenses excluding provision for doubtful debts have risen by 11pc to 58.92 million Br.
“This increase is reasonable in an industry where expenses are expanding massively,” said Abdulmenan.
Established in 1997, United managed to increase its assets by 18pc to 918.5 million Br. This is attributed to the increase in fixed assets by 26pc to 280.29 million Br. In the past fiscal year, the Bank managed to complete the construction of a six-storey building at the cost of 140 million Br.
Additionally, it is also constructing a 200 million Br headquarters with 16 storeys. The construction is expected to be finalised in the next three months.
United has also dedicated a considerable amount of its resources in income generating investments. It has invested 282.8 million Br in time deposits, an increase of eight percent and 109.89 million Br in shares.
Despite the growth in investment, United’s liquidity has slightly declined. The cash and bank balance to total assets ratio has decreased to two percent from 3.24pc.
“United has been operating under tight liquidity,” Abdulmenan cautioned. “It should be careful when working with tight liquid resources as it leads to a liquidity crunch.”
Source : AddisFortune