10 February 2018

Ethiopia: Lion's Profit Stagnates Due to Massive Claims

The Insurer's profit shows a decline of one percent from the preceding year

Lion Insurance's profits from last year have slightly declined for the second year, registering a 14.84 million Br profit. Its earning per share (EPS) has also slumped to 5.58 Br from 5.93 Br.

Lion's current profit stands one percent and 13pc below the amount in the preceding couple of years, respectively.

"The slow down in the country's economic activity forced us to stick to our motor policy, which has a high rate of claim due to accidents," said Samuel Assefa, deputy CEO of Corporate Services at Lion.

The EPS has likewise been declining continuously over the last four years. Lion's 2017 EPS is less than half of what it was in 2013.

"The management of Lion should take measures to reverse this trend," said Abdulmenan Mohammed, a financial statement analyst with one and half decades of experience.

Lion, a decade old insurance firm, has reported mixed performance in its primary areas of business.

The Insurer has done well in increasing gross written premium which rose by two percent to 349.55 million Br. Out of this, Lion has ceded 23pc to reinsurers.

The retention rate at Lion has declined to 77pc from 83pc. Despite the slump in the rate, net claims have soared by 35pc to 186 million Br. This has hugely undermined the gains obtained from increased written premiums. Claims rose by 46pc in the preceding years.

The massive increase in claims resulted in the reduction of underwriting surplus, an excess of the total premium contributions policyholders paid, by 19pc to 23.74 million Br.

"This reveals that there may be some gaps in risk pricing and management," Abdulmenan said. "Lion should thoroughly review its risk management to reduce further expansion."

Currently, the Insurer is following stringent strategies to minimise risks, according to Samuel.

"We have made a premium adjustment on vehicles identified to cause more accidents," he said, "and we adjusted premiums on corporate customers who received claims higher than the premium they paid."

Commissions earned from reinsurers have surged by 62pc to 20 million Br while claims paid to agents have also soared by 45pc to 21.46 million Br. Direct management expenses have increased by a modest figure of six percent to 42.18 million Br.

"Despite the rapidly evolving and dynamic financial sector, our Company has managed to cope-up with the volatile business conditions and recorded notable growth," remarks Gebru Meshesha, board chairperson of the Insurer in the annual report.

Income from investment activities has increased considerably. Interest and dividend incomes have gone up by 40pc and 33pc, respectively.

Unlike other financial institutions, Lion managed the staff and general administrative expenses with a two percent raise to 25.24 million Br.

Lion's total assets have increased by 22pc to 408 million Br, of which 148.27 million Br was invested in time deposits, shares and bonds. These investments represent 36pc of total assets of Lion, which has a 4.9pc market share in the insurance business with 39 branches and contact offices across the country.

The liquidity level of the Insurer shot up last fiscal year.

Cash and bank balances have increased by 27pc to 50.25 million Br, and its cash and bank balances to total assets has gone up to 12.3pc from 11.8pc.

"There is some room for reducing liquid assets and earn more income from investment activities," said Abdulmenan.

Lion's paid-up capital remained the same, 66.4 million Br. Its capital and non-distributable reserves to total assets have decreased to 18.3pc from 22pc.

"Still, Lion has a strong capital, and it should utilise this resource by expanding its business," remarks Abdulmenan.

Ethiopia

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