Despite retrocession prices and claims surging due to growing natural and man-made catastrophes, Ethiopian Reinsurance (Ethio-Re) has posted a whopping 63 percent growth in profits for 2024.
The reinsurer’s net profits for the fiscal year that ended on June 30, 2024, clocked in at 400 million birr. Its reinsurance revenue, which includes revenues from policy sales, stood at 2.2 billion birr, up 29 percent from the previous year’s figure.
Meanwhile, the firm’s reinsurance service expenses, which are primarily made up of claims paid out, remained steady at two billion birr, up just two percent from the year prior.
Despite the encouraging performance, Ethio-Re’s executives observe their industry is shifting from a ‘soft’ market to a ‘hard’ one. A soft market is the business-as-usual scenario, where the number of catastrophes is low, competition is high due to a large number of reinsurers in the market, and premium prices go down.
On the other hand, a hard market sees claims surge and premiums (retrocessions) climb as natural and man-made catastrophes become increasingly common, pushing most reinsurers out and leaving only the most competitive in the market.
Ethio-Re buys retrocessions from global re-insurers.
“Natural and man-made catastrophes have highly increased in the past few years. Starting from the Ukraine-Russia war, to other global, regional and domestic catastrophes, there are a lot of hazards. There is also increasing terrorism, cybersecurity threats and other disasters. Due to these catastrophes, the reinsurance industry has shifted from a soft market to hard-market,” said Fikru Tsegaye, acting CEO. “The retrocession price [the price of the premiums Ethio-Re buys from global re-insurers] has surged.”
Though the increasingly common catastrophes have created more demand for reinsurers, the increment in retrocession prices have become an obstacle for business, according to Fikru.
Despite these challenges, Ethio-Re registered remarkable achievements for the year. The company generated 317 million birr from investments across a range of businesses, including real estate and a plot of land in Addis Ababa.
“We bought a large building in the financial district, in Lideta. We are changing it to our headquarters now,” said Fikru.
The firm also acquired a 1,885 square meter plot in Arada Sub-city from the City Administration through auction in June 2024. It paid 162 million birr.
“We will change it into another HQ for the future and also use the land for other property investments,” said the Acting CEO.
Ethio-Re is planning to buy up equity in commercial banks and in real estate, according to Fikru.
The reinsurer currently boasts 1.96 billion birr in paid-up capital, well above the central bank’s half a billion birr threshold. Ethio-Re has 2.5 billion birr in subscribed capital, through 250,000 shares each valued at 10,000 birr.
The firm’s earnings per share for 2023/24 registered at 21.8 percent.
Ethiopian insurance firms hold a 67 percent ownership stake in Ethio-Re, while commercial banks hold 31 percent. The remaining two percent is held by 102 individuals and one trade union. The state-owned Ethiopian Insurance Corporation (EIC) and Commercial Bank of Ethiopia (CBE) each hold a 20 percent stake.
AM Best, a US-based credit rating agency that focuses on the insurance industry, gave Ethio-Re a BB rating, while GCR Ratings, an African agency, gave the firm a AA rating.
“Our overall performances and investments have helped us earn good ratings. We have also launched our own IT solution system,” said Fikru.
The insurance industry generated 18.4 billion birr from premiums in 2023/24, up by 24 percent from the year prior, according to regulators at the National Bank of Ethiopia (NBE).
Insurers paid out 9.8 billion birr in claims over the same period.