Nile Insurance S.C records a staggering performance in the past fiscal year, raising its net profit and earnings per share (EPS) by almost five folds.

Its net profit has reached 100.7 million Br- the second highest next to Nyala Insurance, whereas the shareholders’ return of the Firm rose to 546 Br.

In its latest annual meeting held at the Hilton Addis Hotel, the Firm affirmed a better growth and performance in all income generating activities, unlike the past two years where the Firm’s profits and shareholders’ returns plummeted.

“It was a successful year despite the unfair competition and price cutting in the insurance industry,” said Mekdes Aklilu, board chairperson of the Firm.

Many factors have contributed to this escalation in profit after tax and shareholders’ return in the past fiscal year.

Reduction in net commission paid, transfer of substantial unearned premiums from last year, increased income from investment activities and appropriation of life funds have been the main drivers for the Firm’s positive performance.

Underwriting surplus, the gain earned on written premiums, has increased by 61pc to 92 million Br. This is due to a four percent growth in gross written premiums of 405.3 million Br- the third highest amongst private insurers. The firm has shown an improvement in all of its classes of business except for pecuniary and workmen policies.

The decrease seen in the two policies was linked to the stiff competition in the insurance industry resulting from premium cutting, the board statement reads.

Engineering businesses exhibited the highest growth followed by personal accidents, liability and marine insurance policies.

The increase in written premium comes with a parallel growth in claims.

Claims paid and provided for have swelled by six percent to 271.5 million Br, while net commissions paid have gone down by 33pc to 9.56 million Br. This has contributed to a rise in underwriting surplus.

A closer look at its investment portfolio reveals that Nile has done well in investment activities.

Interest and dividend incomes have risen by 21pc to 33.7 million Br, and 24pc to 14.75 million Br, respectively. Nile has banked 14.14 million Br from other sources of revenue, portraying a 14 fold increase.

More investment income is expected the years ahead as the firm is undertaking various expansions. It is currently constructing its headquarters along Ras Abebe Aregay Street in the financial district. Rama Construction is hired to build it at the cost of 173 million Br.

“Half of the project is already completed,” said Mekdes. “We expect some income from the building in the coming year by renting out some parts.”

Besides the headquarters, Nile is also erecting an industrial zone with two multipurpose sheds at the cost of 12 million Br in Gelan. Presently, the project has reached completion except for some land development works.

Contrary to the trend observed in the insurance industry, the growth in Nile’s income is accompanied by a slight decline in major expenses. Operating costs have gone down by two percent to 76.82 million Br as a result of a reduction in general administrative expenditure.

“Such cost reduction in an industry where expenses are expanding is very remarkable,” said Abdulmenan Mohammed, a financial and audit expert with 15 years of experiences in the UK and Ethiopia.

Despite the decline, some of the shareholders of the Firm demanded a raise in some expenses such as salaries and benefits.

“We have to pay competitive salaries to attract better employees in the industry,” said the shareholder, citing the experiences of Bank of Abyssinia (BOA), which is one of the highest payers in the financial industry.

Hailu Makonnen, the year-old chief executive officer (CEO) of the Firm, sees the drop in operating costs from a different perspective.

“Last year’s growth in profit and shareholders’ return is attributed to the decrement in operating costs and tight risk management system,” he said.

Nile, which controls 7.6pc of the life insurance business amongst private insurers, transferred 35.23 million Br from its life fund to current year’s income.

“This has contributed massively to this year’s impressive performance,” Abdulmenan remarked.

The total assets of Nile have increased by 21pc to 889.73 million Br. Out of this, 42.3pc has been invested in interest-earning deposits and 15pc in shares.

Despite the blossoming figures, the liquidity level at Nile is much lower than the industry average. The liquidity analysis indicates that cash and bank balances to total assets ratio increased to 4.2pc from 3.5pc. Cash and bank balances to current liabilities ratio decreased from 10.3pc to 9.1pc- one percentage point lower than the industry average.

Yet, the capital- which indicates the Firm’s strength- has shown a five percent increment to 188.1 million Br in the past fiscal year.

In a bid to raise its potency, the Firm’s shareholders have agreed to triple their paid-up capital to half a billion Br in the next four years.

Source : AddisFortune