Awash Insurance Company (AIC) declared the lowest shareholders’ return in five years and a four percent slump in net profit chiefly due to a significant growth in paid-up capital and massive expenses.
Yet, the 23-year old firm had a reason to be optimistic about its latest performance as it reported 87.7 million Br net profits in the past fiscal year- the third highest in the insurance industry next to Nyala Insurance and Nile Insurance.
Awash, whose earnings per share (EPS) have plunged to 178 Br from 239 Br, will pay less return to shareholders compared to its closest competitor. Founded half a year after Awash in 1995, Nile managed to boost its shareholders’ return by five folds to 546 Br in the recently concluded fiscal year.
“This is bad news for Awash’s shareholders,” said Abdulmenan Mohammed, a financial analyst and accountant in the UK and Ethiopia.
Nonetheless, the Board Chairperson, Hambissa Wakwaya, deemed the latest performance of the Firm as satisfactory.
Closely looking at its performance in the past fiscal year, the gap is not entirely linked to a drop in profits but primarily owing to a surge in paid-up capital and non-calculated life insurance policy.
“Had we computed earnings from life insurance, our profits would have increased by 20 million Br,” Tsegaye Kemsi, chief executive officer of the Firm, told Fortune. “Furthermore, as our plan is long-term growth, we significantly raised our share capital last year.”
Awash has increased its paid capital by 30pc to almost a quarter of a billion Birr. This, coupled with the non-distributable reserves of AIC, represents a little over one-fourth of its total assets, indicating that the Firm is well-capitalised, according to Abdulmenan.
Despite the slight dip in profit, Awash has shown a positive growth in both general insurance business and investment activities.
It was the forerunner amongst private insurers in general and long-term lines of business, collecting 543.9 million Br and 55 million Br, respectively, in the past fiscal year. Its underwriting surplus- the netted income from the difference between written premiums and claims- has reached 121.98 million Br in 2016/17, 31pc up from the preceding fiscal year.
“This is a remarkable performance,” said Abdulmenan.
The rise in underwriting surplus is attributed to the bulge in gross written premium, a climb of commissions earned and a modest uptick in claims.
Awash earned a ceding and profit commission of 45.48 million Br, 21pc higher than the preceding fiscal year. Conversely, the commissions paid to agents have gone up by one percent to 30.2 million Br, accounting for five percent of the gross written premiums. Current year’s rate is slightly better than last year’s 5.7pc.
Despite a slight growth, for Abdulmenan paying lower commission levels in the most competitive industry is impressive.
Increased gross written premiums have been followed by a modest growth in paid claims and other provisions.
Net claims paid and provided for have gone up by nine percent to 267.62 million Br. This is gratifying news for the management of the Firm, which was challenged by the existing trend in the insurance industry- where insurers choose to compete by price undercutting.
“At any rate, the increase in claims is well controlled, for which the management of Awash should be appreciated,” said Abdulmenan.
It has also performed well in investment activities. Interest earned on savings has increased by 32pc to almost 50 million Br. Awash, having a stake in Awash Bank and five other companies, managed to amplify its dividend by 16pc to 28.5 million Br.
This, however, had not been without expenses.
Expenses of AIC have expanded considerably. Salaries and benefits have increased by 32pc to 27.38 million Br and general administration expenses have shot up by 24pc to 51.5 million Br.
“As these increases are far higher than yesteryear, they need to be monitored,” said Abdulmenan.
Concurring with the analyst, Tsegaye relates the soar in expenses with the intense competition in the financial industry to hire employees and the inflationary pressure.
“The increments in salary and benefits coupled with ever-increasing rents have contributed to the rise in expenditure,” he said. “But, for this fiscal year, this won’t happen as our priority is reducing controllable expenses.”
Source : AddisFortune