Tsehay Insurance once again has reported an impressive profit performance last year with 47pc soaring of profit after tax.
Tsehay’s net profit has increased to 20.76 million Br and its earnings per share (EPS) has gone up to 27 Br from 24 Br. Despite EPS showing an increase, it is still lower than what it was in 2015.
“Though the insurance Industry is tough and difficult for beginners, we have managed to register notable success,” Mandefro Erkou, chairman of Tsehay’s board of directors remarked in his statement to the shareholders.
Expansion in all income items has driven the growth in net profit after tax. Underwriting surplus has soared by 47pc to 18.77 million Br due to increased written premium and soaring commission from reinsurers. Net earned premium has also increased by 37pc to 147.13 million Br while commission received has gone up by 54pc to 10.35 million Br.
Tsehay’s income from interest has gone up by 45pc to 16.56 million Br due to increased investments in interest-earning deposits. Dividend income has soared by 153pc to 1.9 million Br.
Parallel growth in claims has followed increased premium. Claims paid and provided for, and other technical provisions have increased by 36pc to 103.86 million Br.
“This shows that Tsehay has underwritten insurance policies for high-risk clients. Thus, the management needs to have a system that screens high-risk clients,” said Abdulmenan Mohammed, accounts manager at London Portobello Ltd.
Kassa Lisanework, Chief Executive Officer of Tsehay, claims that the management is extensively working on screening high-risk clients, such as motor insurance coverage with high exposure to accidents.
“We tried to avoid such kind of clients and add premiums on high-risk vehicles,” he told Fortune.
Commission to paid agents has increased by 48pc to 19.88 million Br. The growth rate of a commission has outpaced the increase rate in premiums. The commission rate of Tsehay is much higher than that of most insurance companies.
“This has an impact on the financial performance of Tsehay so it should keep an eye on this expense,” said Abdulmenan.
On a yearly bases, the firm trains 20 to 30 commission agents who sell policies on behalf of the firm.
“This is our mechanism to reach the mass and get more clients,” said Kassa, whose firm was established in 2012 and currently has 16 branches, with a market share of 3.1pc out of the total 442 branches.
Staff and general administration and direct expenses are also the other areas which showed a remarkable jack up with 34pc growth reaching 30.27 million Br.
“The growth in expenses of Tsehay is considerable, so, Tsehay should install cost control mechanisms to keep expenses at bay,” comments Abdulmenan.
The balance sheet of Tsehay has expanded massively. Total assets have grown by 29pc to 304.99 million Br of which 193.26 million Br has been invested in shares and time deposits. These investments represent 63.4pc of its total assets helping it to generate more income.
Liquidity analysis indicates that the liquidity level of Tsehay has improved. Its cash and bank balances have increased by 58pc to 41.32 million Br. Cash and bank balances to total assets have gone up to 13.54pc from 11pc.
The liquidity level of Tsehay is higher than the industry average of nine percent, Tsehay needs to invest some of its liquid resources in income generating activities, according to Abdulmenan.
“We are working to expand our investment horizon,” said Kassa, “we will soon start investing in the real estate business.”
The ratio of current assets to current liabilities, which is an indicator of Tsehay’s ability to pay short-term obligations, has slightly increased to 228pc from 225pc revealing the firm’s condition in fulfiling its short-term obligations.
The paid-up capital of Tsehay has increased by 18pc to 74.47 million Br. The capital and non-distributable reserves of Tsehay account 26.29pc of its total assets. This unveils that Tsehay is a well-capitalised insurance company.
All of the 17 insurers registered 4.3 billion Br in paid-up capital last year in which private insurance companies took the dominant share of 75.6pc while the remaining was registered by the state-owned insurer Ethiopian Insurance Company (EIC).