In the first full year of mandatory third-party vehicle insurance, the insurance sector has witnessed a leap in aggregate performance
Insurance companies operating in Ethiopia have collected combined gross premiums of 4.5 billion Br from general insurance, in the 2012/13 fiscal year, according to the National Bank of Ethiopia's (NBE) unaudited aggregated report. This is a leap of 17.7pc from the 2011/12 aggregate performance.
The state-owned Ethiopian Insurance Corporation (EIC) and the other 16 private insurers also earned combined net premiums of 2.9 billion Br. Out of this, claims worth 1.9 billion Br were incurred.
This is the first full year of implementation of mandatory third-party insurance, where all vehicle owners must get coverage against third-party risks, paying standard prices set by the government. It was thought this would help drive up premium collection, whilst also increasing the amount of claims incurred. Motor insurance has the largest portfolio of all policy coverage advanced, with a high number of recorded accidents, according to industry observers.
However, premiums earned increased by a larger amount than claims incurred, helping insurance companies achieve an overall claims ratio of 65.5pc. This is 2.5 percentage points lower than the performance in 2011/2012. The premium collected has grown by 700 million Br and claims incurred by 400 million Br, when compared to the previous year.
This fiscal year also saw an apex in insurance-related legislative acts, with a new proclamation to regulate the entire sector being ratified at the start of the fiscal year. Three directives will follow, thereafter.
It was feared that the new proclamation, called "no premium-no cover" - because it bans the sale of insurance policy on credit, except to state-owned institutions - would affect premium collection and net income.
Indeed, the net income collected this year amounts to 580 million Br, which is a modest 16pc increase when compared to last year. Furthermore, the EIC is the preferred insurer of most state-owned institutions getting coverage on credit, which boosts its net income. However, since its data is not separately accounted, the increase in net income of the rest of insurers may be even lower, argued insurers Fortune interviewed.
On the other hand, most insurers no longer have to keep provisions for loans since state-owned enterprises prefer the EIC and private companies are not allowed to get insured on credit. This could boost net income, argued an official from the insurance supervision directorate at the NBE.
Provisions, however, may change for the coming year. One of the directives issued in April of this year, calls for all prior debts to be collected by 2014. Otherwise they will be considered as defaults, for which a 100pc provision must be held.
The insurance sector currently has an aggregate capital of 1.8 billion Br, an increase of 600 million from the previous year. In paid-up capital too, there has been a welcome change in the sector. Although previously a paid-up capital of only seven million Birr (four million Birr for general and three million Birr for life) was required, this has been raised to 75 million Br (60 million and 15 million, for general and life, respectively), in another directive issued in April.
Only around three companies have surpassed the new requirement so far, according to the official from the NBE. However, there are now nine insurance companies with a subscribed capital above 60 million Br for general insurance. There is, therefore, the potential that they will also meet the minimum requirement soon. Insurance companies are given a minimum of three years to reach the new baseline.
A total of 4.02 billion Br was invested by insurance companies, up to March 2013. This is an increase of 34.4pc when compared to the previous year.
In the last fiscal year, the sector has also welcomed two new private insurance companies, Bunna Insurance S.C. and Lucy Insurance S.C.