2 December 2012

Ethiopia: Nile Insurance Reports Profit to Shareholders Grumbling About the Future

An otherwise glowing performance by Nile Insurance where almost all positive performance indicators showed double digit growth for the year 2011/12, was marred by an 84.5pc increase in the provision of doubtful debts, something that shareholders decried.

Nilehas announced a profit after tax of 33.4 million Br, which is an increase of 57.82pc when compared to the previous year. Total income grew by 44pc to 81.6 million Br and Earnings per Share grew by 26.49pc reaching 425.6Br.

But the dominating conversation when the report was announced at the 18th annual and 15th extraordinary shareholders meeting on November 20, 2012, at Hilton Hotel, wasNile's decreasing market share in the industry, despite the insurance company being one of the earliest private insurers in operation.

The insurance company, founded in April 1995, is one of the earliest private insurers to arrive at the scene and yet it is being beaten by those who have come later, several shareholders separately commented.

Current data shows thatNilecomes third in profit, following Nyala and United Insurance, and fourth in premium collection after Africa Insurance, Nib Insurance and Awash Insurance.

Nile's increase in doubtful debts, its thorny relationship with brokers and agents and a low staff retention rate were repeated concerns raised by at least three shareholders during the half a day long meeting.

Nilehas an uncollected debt of 46.5 million Br which is an increase of 48pc when compared to the year before.

Such an increase is 'disappointing', according to Abdulmena Mohammed Hamza, accounts manager at theLondonbased Portobello Group, especially when considering that it is a year where more insurance companies have reduced their doubtful debts.

Nilewill no longer have to worry about increasing its doubtful debts because of the new 'no premium no cover' proclamation, something Maseresha Woldeselassie, Chairman of the Board of Directors, took care to note at the meeting.

However, it is crucial for the management of the insurance company to review its current credit management practice, Abdulmena advises. The management is already doing so, according to Dawit Gebreamanuel, CEO of Nile Insurance.

"For previous debts,Nileis working with other insurance companies to share credit information and settle them quickly," he told Fortune.

Aside from uncollected debts, net claims incurred during 2011/12 for the insurance company, stands at 133.3 million Br, a 37.3pc increase. All these have raised the Company's total expenses by 25.31pc to 44.43 millionBr.

The rise in expenses, however, is compensated by an even better increase in income both from the collection of premiums and investments. Earned premium forNileamounted to 189.6 million Br, which is a 38.15pc increase.

Unlike most other companies in the sector, Nile Insurance still contributed the largest share of the premium at 60.5pc. This is despite the fact that the insurance company had cut down the commission it gave to agents for motor insurance in 2011/12 in an attempt to minimize risks bought by the class. In previous years it had also increased rates on certain vehicles like Isuzu pickup trucks and minibus taxis.

The cut down in commission had raised contention between management, brokers and agents who have in turn complained to shareholders.

"They are saying they will not work withNileonce their contract is over, which makes shareholders ask where the company is heading," Bogale Teka, a shareholder stated during the meeting.

Other shareholders also echoed this sentiment, stating that this may be one of the factors affectingNile's market share.

It was later decided in the meeting that a detailed study should be conducted on whether cutting down on motor insurance commissions, with the possible and subsequent loss of agents and brokers, would be beneficial for the insurance company.

When looking at different classes of premium, motor's growth from the previous year stands at 48pc and is exceeded by engineering, liability and pecuniary insurances which showed an increase of 68pc and 56pc, respectively.

All these classes have contributed to the 50.3pc increase in underwriting surplus, which currently stands at 54 millionBr.

Investment and interest income forNileis also substantial, bringing in 27.5 million Br which is a 33.1 pc increase.Nile's interest income is considerably higher than its peers, according to Abdulmena.

"This must have been due to well managed investment portfolios andNilemust be appreciated for this performance," he stated.

A large part of the investment income is from the insurance company's shares in Abyssinia Bank and interest income, according to an audit report. Fixed time deposits and shares brought in 26.3 million Br, which is an increase of 40.9pc.

Income from shares in Abyssinia Bank, however, are bound to decrease in the coming year, as Nile will sell of excess shares worth 17.7 million Br in a public auction, in accordance with requirements by the National Bank of Ethiopia on how much shares a single shareholder can hold. The insurance company will sell the shares this year from January to April.

Other indicators show a liquid and well capitalised insurance company, according to Abdulmena.Nilehad increased its paid-up capital to 73.8 million Br from 65.7 million Br a year earlier. Total assets for Nile have increased by 36.63pc to 397.2 millionBr.In addition, the assets to liability ratio, forNileincreased to 166pc from 133pc. This indicates thatNileis well positioned to fulfil its short term obligations, according to Abdulmena.

As the overall performance is good, the management and board ofNileinsist that the company will do better in the future.

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