Tsehay Insurance S.C witnessed another year of achievement despite an industry downturn for the second year in a row. The firm has managed to increase its profit after tax by 22pc, to 14 million Br.

The profit generated by all 16 insurance companies has declined by four percent to a little over one billion Birr over the past two years.

In addition, Tsehay’s profit earnings are seven percent higher than its nearest competitor Lucy Insurance, a firm established in the same year as Tsehay in 2012.

However its earnings per 1,009 Br share dropped by eight birr from 32 Br. The drop was due to an increase in paid up capital.

Last year, the paid up capital of the firm grew by 49pc to 63.3 million Br, meeting the minimum capital requirement of the National Bank of Ethiopia.

The growth in net profit was due to an expansion in all income items. The firm’s premium production reached 153 million Br, 26pc higher than the preceding fiscal year and nine percent higher than the industry’s growth rate. Last year, the industry generated a premium income of six billion Br, of which Tsehay’s share was  around 2.5pc.

Interest income has also gone up by 83pc to 11.39 million Br due to increased investments in interest earning deposits.

In his statement in the annual report, the chairman of the Board of Directors, Madefro Erkou,  pointed out that short term investment (fixed time deposit) was a single determining factor for the satisfactory profit made last year.

“We put a considerable amount of money in the bank as per NBE’s requirement,” said Kassa Lisanework, Chief Executive Officer of Tsehay.”We have 65pc of our liquid resources as a fixed deposit.”

The Company has 32.1 million Br worth of shares in United Bank, Tsehay Industry and Dynamic Microfinance.

The firm  earned a commission of 6.7 million Br from reinsurers, an increase of seven percent. It paid commissions of 13 million Br, an increase 24pc.The commission paid accounts for about eight percent of the Company’s gross written premium.

Meanwhile, claims paid and provided for and other technical provisions increased by 52pc to over 76 million Br, showing that Tsehay underwrote insurance for high risk clients.

The firm has put in place a system to screen high risk clients, according to Abdulmenan Mohammed Hamza, analyst at London Portobello Ltd.

“The surge in claims is the result of high premium production,” said Kassa, the CEO.

The motor class of business contributed 85pc of the claims paid by the firm last year. Motor class of business represent over half of the industry’s premium, the business has been rising since 2012/13, after the government implemented third-party insurance; all vehicle owners were required to have insurance coverage.Since then, the premium production of all insurance companies increased by 35.5pc to over six billion Birr.

Tsehay spent 22.6 million Br on staff and general administration and direct expenses, 37pc higher than the preceding fiscal year. The Company should be cautious about the growth in expenses, according to Abdulmenan, the banking expert. “Tsehay needs to keep an eye on soaring expenses,” he commented. Last year, the firm spent 36 cents to earn one birr of income.

Established in 2012, Tsehay has more than 13 branches, which is three percent of the industry.

Source : AddisFortune