Business Class Mix of Gross Premiums

The Corporation is heavily reliant on motor insurance policies with over 57% of gross premiums in 2002 being either from comprehensive or third party motor coverage. The second largest business class in 2002 was fire and accident at 23.7% of the total value of gross premiums. A history of the breakdown of gross premiums per business class volume and as a percentage of total volume is as follows:

The business class breakdown of gross premiums in terms of percentage of total premiums is as follows:

The Corporation’s success to date has been due to its ability to controls claims. With its ability to successfully control claims, the Corporation has not raised premium rates since its inception in 1992 (that is not to say premium levels have not risen due to clients increasing insurance coverage and the value of assets rising due to inflation). Over the years, NICE Sh.Co has continually recorded underwriting profits due to the loss ratios being kept low as per the table below.

The total loss ratio of 46% in 2002 was adversely affected by a large fire claim that resulted in an underwriting loss in that class of business for the first time. Overall, the average loss ratio of the last six years has been 40%, an impressive figure. In the rest of East Africa, it is not unusual for insurance companies to make underwriting losses in general insurance classes due to high claims levels.

NICE Sh.Co has been able to manage its claim levels through various methodologies:

Client education

NICE Sh.Co holds seminars on a regular basis to help educate and remind clients how to avoid accidents. The Corporation also helps clients introduce safety programmes for their businesses, factories, homes etc. In addition, it also holds driver safety programmes to help reduce the number of motor vehicle accidents on the roads of Eritrea.

Own medical facilities and medical staff

NICE Sh.Co has its own medical clinic within the headquarters in Asmara along with its own medical staff.

By having these facilities, the Corporation is able to assess for themselves the medical conditions of accident victims and recommend the appropriate testing and treatment. The Corporation also owns an ambulance to facilitate the movement of accident victims.

By having these facilities and personnel within the Corporation, the Corporation is able to control costs, assess the validity of claims and provide efficient claims payments on behalf of its clients.

Cost recoveries

NICE Sh.Co also owns and operates a Recovery Depot in the Merhano Industrial area to collect, store and sell motor vehicles that have been involved in accidents.

When a vehicle is not sold in its entirety, individual car parts are sold as well. In addition striped chassises are sold as scrap metal. This allows the Corporation to partially recover claims paid to clients, thus improving underwriting profits. The Depot was independently valued in September 2003 at Nfa 12,293,323.

The Corporation also owns a Kato crane to facilitate the recovery and movement of vehicles not able to move under their own accord due to being involved in severe accidents.

Client Mix

Insurance Corporation of Eritrea insures both individuals as well as institutions. Approximately 15 – 20 percent of premiums stem from policies underwritten for individuals with the remaining being sourced from institutions. NICE Sh.Co has an institutional client spread between Government and the private sector of 19.1% and 80.9% respectively.

institutional clients in 2001, five were from the private sector representing 62.7% of the total top ten premium values. The other five, from the Government, accounted for 37.3% of total top ten premiums.

Risk Mitigation

To help spread the risk involved in underwriting, NICE Sh.Co cedes various proportions of its underwriting business with re-insurers (100% of aviation is ceded). In recent years the Corporation has ceded approximately 23.5% of its business to re-insurers. However, this rate was as high as 30.7% in 1993 as can be seen in the table to the left:
Through agreements with the re-insurance companies, commissions are also earned when placing policies with re-insurance companies, similar to the commissions paid to agents for creating business. Commission rates can be as high as 45% in some business classes. Some re-insurance

companies also share a percentage of profits to provide incentives to insurance companies to only cede quality policies and to help mitigate and manage claims.

The Corporation places its re-insurance programmes with internationally recognized companies with first class securities. NICE Sh.Co has relationships with numerous re-insurance companies including some of the world’s largest: e.g. Munich Re and Swiss Re to provide risk mitigation. In fact, 85% of its re-insurance business is placed with companies of credit ratings of “B” or above. Each year it reviews its treaties with the re-insurance companies to minimize re-insurance premium costs. Since the terrorist attacks on the World Trade Center on September 11th 2001, the costs of re-insurance policies have escalated, and the insurance markets have hardened significantly. Despite the hardening of the re-insurance market NICE Sh.Co is still able to secure favourable terms for its re-insurance programmes.