dps 0.012 0.015 0.018 eps 0.018 0.030 0.035 insurance ......national life and general insurance...

Insurance IPO Note – National Life & General Insurance

2016 2017E 2018E

EPS 0.018 0.030 0.035

DPS 0.012 0.015 0.018

BVPS 0.167 0.186 0.207

P/E 18.0 10.6 9.1

P/B 1.9 1.7 1.5

Yield 3.6% 4.7% 5.5%

Post IPO Shareholders

OMINVEST (73.45%)

Bank Muscat (1.55%)

Public (25%)

Source: IPO Prospectus, US Research

Category I application size

Minimum: 1,000 shares

Maximum: 250,000 shares

Category II: 23.19 million shares (35% of the

issue)

Category II application size

Minimum: 250,100 shares

SUBSCRIBE; Fair Value @ RO 0.326

Offer snapshot

Face Value - RO 0.100

IPO price: RO 0.320

Company paid up capital: RO 26.5 million

Subscription calendar

Offer open on: 22 October 2017

Offer closes on: 20 November 2017

Major Shareholders

Maximum: 6.63 million shares (10% of the

issue)

Shares on offer: 66.25 million

Total value of offer: RO 21.2 million

Offer Distribution

Category I: 43.06 million shares (65% of the

issue)

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National Life and General Insurance Company (NLGIC) is the undisputed market leader in Oman's health insurance sector. Apart from being the largest insurer in the Sultanate, it is fast growing as a regional insurance company that has operations in UAE and is about to enter Kuwait in FY2017. With 55% of the business contribution from UAE, the company established itself as a major insurer there. NLGIC has achieved business growth rate of 21% per annum over the last 4 years and expects to maintain 13% growth during FY17-21E, contributed by favourable regulatory changes in Oman's insurance landscape and new business acquisitions from Kuwait. The management guides at 4 year profit CAGR of 17%, supported by 15% CAGR at underwriting level and additional efficiency gains from its recent acquisition of TPA in Dubai. We feel that given the management's strategy execution track record, these targets could be achieved with relative ease. The company aims to be a Participating Insurer in Dubai, which would enable the company to tap enhanced opportunities and better margins in the UAE market. While we see NLGIC as an excellent play to tap growth opportunities in the regional health and life insurance segment, we feel that the pricing of its IPO fully captures the near term opportunities, leaving little room for the short-term, listing-gain oriented investors. Our blended DDM-Excess ROE-Justified P/B valuation of NLGIC resulted in a fair value of RO 0.326/Share, which is a couple of percentage points higher than the offer price. We recommend the IPO to long term investors who are intending to position themselves to capitalize on regional growth opportunities and potential changes in Oman's health insurance regulation. Key Positives:

Regional player and undisputed domestic market leader in health and life insurance segment

Strong and stable management with proven strategy execution capabilities

Favourable regulatory developments in the domestic market are expected to help maintain superior growth trajectory momentum.

Premium valuation to peers result in limited listing gain potential despite high quality growth opportunities: The IPO is being offered at 1.9x and 1.7x NLGIC’s 16A and 17E book value respectively, and 18.0x and 10.6x its FY16 and 17E earnings. While the insurance companies listed in MSM are trading at average P/B of 1.1x and adjusted P/E of 10.8x FY17E, we feel that NLGIC’s valuations as a little demanding despite the growth outlook. The shares’ dividend yield of 4.7% if lower than the sector average, but we hope that the lost income opportunity would be compensated with higher regional growth potential offered by the company. Our blended fair value of RO 0.326/Share offers limited upside for short term listing-gain oriented investors. However, we are convinced of the high growth opportunities offered by the company, and feels that the IPO is fully priced for near term trading opportunities in the shares. We recommend the IPO for medium and long term investors who are looking to institute quality exposure to regional insurance sector at limited impact cost. Note: In this report, we do not intend to comment on or try to arrive at the listing price of the stock as it is a function of aggregate demand for the IPO and the general market conditions prevailing at the time of listing.

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IPO Note – National Life & General insurance 12 November 2017

Favourable demographics and low insurance penetration to drive long term growth in Insurance Long term growth opportunities of insurance sector should come from the lower insurance penetration, a favourable demographics with 56% of the population between the age group of 15-40 years, and product innovation focusing a growing SME segment. In the wake of increasing effect of technology on our daily lives, and the increasing level of cyber threats at personal and commercial levels, coverage against cyber risks could be an evolving area for insurance coverage over the long term.

Source: NCSI; IPO Prospectus; US Research Oman’s insurance sector growth is driven by life and medical insurance Oman's combined life and general GWP reached RO 450 million, registering a growth of 7.7% during the past 3 years. This growth was contributed by rapid growth of health and life insurance premium, which grew by 25.8% and 21.4% per annum respectively during 2013-16A. As a result of the rapid growth of life and health premium, the combined market share of these two segments rose from 26.6% in 2013 to 40.8% in 2016. The largest segment in Oman's insurance sector is motor insurance, which contributes to around 35% of the sector GWP and grew at CAGR of 2.3% during the last 3 years. Health insurance GWP's share in the total GWP grew from 16.2% in 2013 to 25.8% in 2016 and that of life insurance grew from 10.5% to 15.0% during the same period.

Source: CMA Insurance market review; US Research

We believe that future growth in GWP will be contributed by further expansion of health and life insurance premium as the government is pushing for mandatory health insurance for all employees in the country. Supported by continued momentum in health and life policies, we estimate Oman's GWP to grow at marginal rate of 1.9% per annum during 2016-18, reaching RO 467 million. General insurance premium is likely to decline to RO 378 million in 2018E as compared to RO 383 million in 2016A, driven primarily by the decline in motor, property, and engineering segments. Motor insurance segment premium s to remain under pressure; benign claim development to stay here New vehicle registrations in the country are showing a declining trend during the last 3 years. Despite unprecedented sales promotion efforts by vehicle dealerships, average monthly vehicle registrations came down by 29% to 6,199 in 1H17 from 8,769 per month during the year ago period. Even during the

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seasonally better Ramadan month sales also showed a lackluster performance in terms of new vehicle registrations. During 2016, the average monthly registrations came down by 5% to 8,309 vehicles from 2015 levels. The growth in total number of vehicles in the Sultanate also is on a declining path, resulting in an increase in the average age of vehicles on the roads

Source: NCSI; US Research

These trends are causing a shift in the vehicle insurance pattern in the country. The proportion of third party premium is increasing while the comprehensive motor premiums are showing a declining trend. Total comprehensive premium written by the companies declined by 5% per annum during 2013-16, with the decline more pronounced in 2016 where it was 13% compared to 2015 levels. Comprehensive premium collection of companies stood at RO 94 million in 2016 as compared to RO 108 million in 2015. TP premium collection by companies grew by 10% per annum during the last three years to reach RO 64 million. It grew by 13% in 2016 alone. We feel that companies with heavy motor portfolio would find a challenging scenario in maintaining overall GWP levels unless look for opportunities in other sectors, which might result in intensified competition and price war.


Motor premium are likely to decline as growth in new vehicle registration slows, and customers resort to cost saving strategies by preferring third party insurance. Double digit growth seen in Motor TP premium and policies indicate the new trend in motor insurance. As new car registrations in the country is slowing down on account of challenging macro-economic environment, we estimate motor segment premium to register average annual decline of 4.9% over 2016-18E, reaching RO 143 million from RO 158 million. We have seen 3.5% decline in the number of comprehensive policies being written in 2016, while the average premium declined by 9.2% to RO 315/policy. Insurance companies used to retain more than 85% of the premium from motor insurance in 2013. However, the retention ratio witnessed a declining trend in 2016, down to 81.3% in third party premiums and 83.7% in comprehensive segment. The claim ratio of motor TP has reached more than 100% in 2016 from 77% in 2014, while that of comprehensive segment increased to 70% in 2016 from 64% a couple of years ago. We attribute the unusual claim ratio in Motor TP to the restructuring in the insurance portfolio

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of Dhofar Insurance. On a normalized level, the average claim level of motor portfolio is likely to stabilize at 70% during 2016A-18E.


The pricing outlook on motor insurance is challenging due to surplus capital and benign claims development. We feel that prices are likely to continue on a downward path in motor insurance and companies will strive for growth in market share in the near future. Increased capacity resulting from capital injections and absence of large natural catastrophe events are likely to result in softening of rates in a shrinking market. Customer retention cost in the form of discounted premium is likely to grow through 2018E. Premium growth of non-motor general insurance segment is likely to remain muted with a negative bias through 2018. Premium from property insurance has been steadily declining over the last three years, and registered annual decline rate of 3.4% to reach at RO 45 million in 2016. Lower levels of government and private sector spending on new real estate development projects led to the decline, and we estimate a further decline of 4.2% through 2018E, before activities are likely to pick up in 2019.


We see limited GWP growth opportunities general insurers in the domestic market as macro headwinds deterring volume growth in 2016-18E. Health insurance premium is estimated to maintain double digit growth as regulatory initiative towards mandatory health insurance takes a definite shape. Life premium also is maintaining growth momentum on account of increased insurance awareness and the rise of middle income population. Claim ratios to decline barring catastrophe events, leading to improvement in underwriting results Until recent past, Oman used to be notorious for the number of road accidents and deaths on roads. The improvement in road infrastructure along with awareness campaign and strict law implementation by the ROP has resulted in drastic improvements in Oman's road safety. The number of accidents got reduced from 7,201 in 2013 to 4,219 in 2016, and 1,989 accidents in 1H2017. Number of personal injuries from these accidents was as high as 9,965 in 2013, but the same got reduced to 2,929 by 2016. These

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numbers have favourably reflected on the motor portfolio of insurance companies in terms of reduction in claim ratio and incurred claims. Claims ratio on comprehensive motor insurance policies improved from 73.0% in 2013 to 69.8% in 2016.

Source: NCSI; US Research

Combined ratios to improve on better underwriting results and efficient cost management Despite softening of rates, underwriting profitability of insurance companies is likely to see marginal improvement on account of higher retentions, lower claims, and control of admin expenses. Commission income plays a major role in the expense ratios of most of the national players as they have a higher ceding ratio. We estimate net commission income to witness marginal decline in the short term as retentions rise. However, as companies roll out more direct sales channel strategies such as online policy selling, we expect the pressure on broker commissions to ease off over the longer term outlook.


Investment income of Omani Insurance Sector has been weak in the past due to low interest rate environment. However, we see investment income gradually rising in tune with rise in interest rates, but with a lag effect. National companies who had fresh capital injection this year are likely to benefit more as they most likely placed the funds in high yield deposits. Total investments of Omani insurers were at RO 564 million at the end of 2016, with ca.85% being placed in bank deposits and fixed income securities. Average yield on fixed income instruments were 3.1% during 2016 and we expect the yields to go up by 75 bps in 2017E. Regulatory restrictions, low liquidity of the local market and general risk aversion of insurance companies along with bleak market outlook restrict the scope for high level of equity allocations.

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NLGIC’s GWP to grow at 13% CAGR supported by new markets and growth in Oman’s health

insurance segment: NLGIC reported 2013-2017 GWP CAGR of 21%, aided by 30% growth in UAE

health insurance business. The management is hopeful of maintaining the growth momentum with

increased business growth in Oman as a result of mandatory health insurance for all employees which is

likely to be effective from early 2018E. The company expects to generate GWP growth of 12% from

domestic operations while UAE business growth is likely to be stable at high single digit rates. NLGIC is

also hopeful of generating significant business from its Kuwait branch, which is likely to start operations

by December this year. It has forecasted to grow Kuwaiti business to RO 19 million by 2020E, which we

feel is achievable.

Source: NLGIC IPO Prospectus; US Research

Mandatory health insurance in Oman to drive GWP growth: NLGIC believes that out of 2.1 million

private sector workers in Oman, only 25% is covered by medical insurance. With the introduction of

mandatory medical insurance for all private sector employees in 2018, NLGIC believes that a RO 130

million market is getting opened up for new business, and the company is hopeful of grabbing a quarter of

the new business opportunity. The GCC market experience of mandatory health insurance for employees

indicate the bigger players tend to monopolise the large medical contracts as their scale allows them to

negotiate bigger discounts from hospitals, and healthcare institutions, which allows insurers to offer very

competitive tariffs in group medical relative to smaller peers. Also, employers will generally look for the

cheapest covers that are administered efficiently and without complaints from their employees or

regulators. NLGIC being an established prominent player in the market stands a good chance to

capitalize on this front.

Source: NCSI Statistics, NLGIC IPO Prospectus; US Research

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Marginal yet steady improvement in retention ratios to drive NEP growth: NLGIC forecasts its NEP

to grow at CAGR of 15% during the next 4 years as compared to 39% per annum during 2013-17.

Recently NLGIC has re-strategized its pricing structure in UAE by increasing premium rates for low quality

portfolios or rejecting that business, which has resulted in lowering the ceding ratios. The confidence

gained from these portfolio restructuring coupled with high retention ratio in the company’s motor book

has resulted in very high levels of NEP growth in the past. We expect the overall retention ratios to

improve steadily as the company focuses more in Oman motor portfolio, where reinsurance ceding is very

low. Management forecasts retention ratios to improve by 500 bps over the next four years, mainly by

adopting to technical pricing strategies rather than focusing on market share growth. Obtaining

Participating insurer status in UAE would help the company to write high quality high volume business

and reduce dependence on reinsurers.

Source: NLGIC IPO Prospectus and US Research

The net underwriting results have been increasing consistently in the past, except during 2016 when the

same was impacted due to higher claims against the GWP during 2015 in the UAE market. The Company

has since re-strategized the insurance premium pricing by improvement in underwriting of loss making

schemes and overall claim control measures, for the UAE market which has resulted in reduction in loss

ratio from 97% in 2016 to 73% in first half of 2017. NLGIC estimates the claims ratio for UAE market to

drop to 81% in 2017 against 97% in 2016. Further, NLGIC is in the process of acquiring a controlling

interest in a UAE based TPA provider licenced by the UAE Insurance Authority which will provide

enhanced control over claims costs.


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NLGIC allocates ca.79% of float into fixed deposits with highly rated regional banks, 7% in bonds and

11% in equity instruments. The company projects to achieve stable investment yield of 4.1% throughout

the forecast period. We feel that achieving this should be relatively easy given the outlook for rising

interest rate scenario going forward. NLGIC has recorded a profit after tax of RO 4.7 million in 2016 which

the Company estimates to reach RO 8.0 million in 2017 primarily out of business growth, claim

management and Investment income. Further advancement in cost reduction initiatives such as own TPA

is expected to further enhance the profitability of the Company.


Moderate IPO valuations; 12 Month Target Price of RO 0.326/share: At the offer price of RO

0.320/shares, NLGIC shares are valued at 10.6x its FY17E earnings and 1.7x its FY17E forecasted book

value. The company projects to distribute cash dividend of 15 bz/share from the retained earnings of

2017E, resulting in dividend yield of 4.7%, which is at the lower end of dividend yield offered by other

national insurance companies.

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NLGIC’s weighted Residual Income-DDM-Relative valuation shows limited upside potential of 1.9% from the IPO price: We used a multi valuation approach to see possible implications on NLGIC’s intrinsic value. The three methods adopted for valuation resulted in fair value falling between RO 0.306 and RO 0.336. The deviation from mean was less than 5%, indicating a high probability of NLGIC fair value falling within this range. We believe that the blended valuation approach is in line with the company risk and we used the financial projections provided by the company in our valuation exercises. The valuation considered higher weights to intrinsic valuation methodologies and a lower weight to the justified P/B. The blended fair value thus arrived of RO 0.326 is 1.9% higher than the issue price of RO 0.320, indicating lower likelihood of major listing gains. Hence, we recommend the IPO for medium and long term investors who are looking to institute quality exposure to regional insurance sector at limited impact cost only. Residual Income Model valuation at 0.336/Share; 5% higher than the offer price We valued NLGIC using residual income method and the fair value of RO 0.336 thus arrived offers an upside potential of 5% from the offer price. We used cost of equity of 11.0% derived from risk free rate of 5.0%, equity risk premium of 6%, and assumed beta of 1.0 which is the weighted average beta of listed insurance players in Oman. We further assumed that the company's ROE is likely to expand, supported by underwriting profit growth and growth in investment income. For valuation purposes, we assumed that NLGIC's terminal ROE would be 13.8%, which is at a premium to sector ROE. Owing to the company’s dividend policy of 50% of net profit we have assumed a terminal growth rate of 3% beyond the forecast period.

Source: NLGIC IPO Prospectus; US Research

Residual income valuation assumptions National Life Insurance 2017 2018E 2019E 2020E 2021E 2022EDec-17 Dec-18 Dec-19 Dec-20 Dec-21 Dec-22

Valuation inputs Beginning book value 44,378 49,419 54,881 61,114 68,926 76,476

Risk free rate 5.0% Net income 8,001 9,333 10,744 13,003 15,100 15,855

Market return 11.0% %YoY 16.6% 15.1% 21.0% 16.1% 5.0%

Risk premium 6.0% Dividends 4,001 4,666 5,372 6,502 7,550 7,928

Beta 1.01 Payout ratio 50.0% 50.0% 50.0% 50.0% 50.0% 50.0%

Cost of equity 11.0% Ending book value 49,419 54,881 61,114 68,926 76,476 84,403

Terminal growth rate 3.0% Cost of equity 11.0% 6,061 6,750 7,612 8,446 9,322

Current Price 0.320 Residual income 8,001 3,272 3,994 5,391 6,654 6,533

Residual income Valuation 2017E 2018E 2019E 2020E 2021E

Year fraction 0.14 1.14 2.14 3.14 4.14

PV of residual income 7,888 2,904 3,193 3,881 4,314

ROE 17.1% 17.9% 18.5% 20.0% 20.8%

Terminal ROE 13.8%

Terminal growth rate 3.0%

Beginning book value 49,419

PV of terminal residual income 17,479

Total equity value 89,079

No of shares 265,000

Fair value per share 0.336

Offer Price 0.320

Upside/downside 5.0%

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Relative valuation – Justified Price to Book value We have valued NLGIC using comparable ratios of peers. There are 6 listed conventional insurance companies in Oman and two Takaful Companies. NLGIC has projected to generate ROE of 17.1% in 2017E. Using cost of equity of 11.0% and terminal growth rate of 3.0%, the justified P/B value of National Life & General Insurance Company was derived at 1.75x its FY17E book value. The valuation thus arrived through justified P/B indicate fair value of RO 0.326 for the stock, which is 1.9% higher than the offer price.

Justified P/B Model Multiple Equity Profit CMP Mcap ROE P/B (x) Yield P/E (x)

2017E Book Value per share 0.186 OUIC 28,963 4,073 0.354 35,400 14% 1.2 8.5% 8.7

2017E ROE 17.1% AMAT 23,898 1,843 0.102 17,850 8% 0.7 5.9% 9.7

Cost of equity 11.0% Dhofar 17,569 -6,850 0.200 40,000 -39% 2.3 0.0% -5.8

Terminal Growth Rate 3.0% MNHI 16,190 1,339 0.856 8,560 8% 0.5 5.8% 6.4

Justified P/B Multiple 1.75 TAOI 13,852 1,991 0.165 16,500 14% 1.2 0.0% 8.3

Fair value per share 0.326 Al Ahlia 37,348 3,249 0.310 31,000 9% 0.8 9.8% 9.5

Vision Insurance14,535 1,788 0.145 14,500 12% 1.0 8.6% 8.1

OQIC 15,091 2,336 0.150 15,000 15% 1.0 4.7% 6.4

National Life49,419 8,001 0.320 84,800 16% 1.7 4.7% 10.6

Total 167,446 9,771 178,810 9% 1.1 5.3% 18.3

All figures in RO ,000 unless mentioned otherwise. Dhofar Insurance loss is not considered while calculating the sector profit.

Source: Company reports, IPO Prospectus, & US Research

GWP NEP Net claimsUnderwriting

result

Admin

expenses

Investment

incomeNet income

Total

equityMcap

OUIC 38.5 21.5 16.2 5.7 4.2 2.4 4.1 29.0 35.4

AMAT 27.2 13.7 8.4 -1.0 4.3 0.8 1.8 23.9 17.9

Dhofar 55.2 23.6 29.9 -3.8 7.8 2.2 -6.8 17.6 40.0

MNHI 14.9 6.5 4.1 2.8 2.1 1.3 1.3 16.2 8.6

TAOI 14.9 7.0 7.1 -5.1 2.3 0.3 2.0 13.9 16.5

Al Ahlia 27.7 24.2 14.8 7.5 6.1 1.6 3.2 37.3 31.0

Vision Insurance 24.4 7.1 4.6 3.7 2.4 0.6 1.8 14.5 14.5

OQIC 27.2 10.1 6.7 2.6 1.7 1.7 2.3 15.1 15.0

National Life 119.1 70.3 53.9 15.6 7.7 2.8 8.0 49.4 84.8

All Figures in RO millions unless mentioed otherwise


Retention

ratio

Claims

ratio

Expense

ratio

Combined

ratio

Investment

yield

EPS

(RO)

BVPS

(RO)

DPS

(RO)

Payout

ratio

OUIC 56% 75% 18% 93% 4% 0.041 0.290 0.030 74%

AMAT 50% 61% 41% 102% 3% 0.011 0.137 0.006 57%

Dhofar 43% 127% 22% 149% 4% -0.034 0.088 0.000 0%

MNHI 44% 63% 26% 89% 6% 0.134 1.619 0.050 37%

TAOI 47% 102% 43% 145% 3% 0.020 0.139 0.000 0%

Al Ahlia 88% 61% 33% 94% 4% 0.032 0.373 0.031 94%

Vision Insurance 29% 65% 16% 81% 6% 0.018 0.145 0.013 70%

OQIC 37% 67% 21% 87% 6% 0.023 0.151 0.007 30%

National Life 59% 77% 14% 91% 4% 0.030 0.186 0.015 50%


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Dividend Discount Model: DDM valuation of 0.306/Share is higher than the provided in the prospectus, but still 4.5% below offer price We used Dividend Discount Method to value NLGIC, and arrived at value of RO 0.306/Share, which is 4.6% below the offer price. We have assumed management guidance of 15bz/Share in 2017E, growing to 28bz/Share in 2021E, and further assumed to grow at 3.0% into perpetuity. We used discount factor of 11.0% being the cost of equity, derived from risk free rate of 5%, equity market risk premium of 6%, and weighted average insurance sector beta of 1.0. We note that the DDM valuation thus arrived is 8.9% higher than the corresponding DDM valuation provided in the company’s IPO Prospectus.

Price

(RO)

P/E

(x)

P/B

(x)Div yield ROE ROA Beta

Cost of

equity

OUIC 0.354 8.7 1.2 8.5% 14.1% 4.0% 1.6 14.8%

AMAT 0.102 9.7 0.7 5.9% 7.7% 3.5% 1.0 10.8%

Dhofar 0.200 -5.8 2.3 0.0% -39.0% -6.4% 0.6 8.8%

MNHI 0.856 6.4 0.5 5.8% 8.3% 2.8% 0.4 7.1%

TAOI 0.165 8.3 1.2 0.0% 14.4% 13.7% 0.6 8.8%

Al Ahlia 0.310 9.5 0.8 9.8% 8.7% 4.3% 1.0 10.8%

Vision Insurance 0.145 8.1 1.0 8.6% 12.3% 4.7% 0.8 9.8%

OQIC 0.150 6.4 1.0 4.7% 15.5% 4.6% 1.7 15.0%

National Life 0.320 10.6 1.7 4.7% 16.2% 5.2% 1.0 11.0%

Dividend Discount Model 2017E 2018E 2019E 2020E 2021E######## ######## ######## ######## ########

Year fraction 0.1 1.1 2.1 3.1 4.1

Dividend 4,001 4,666 5,372 6,502 7,550

PV of dividend 3,944 4,142 4,294 4,679 4,893

Cost of equity 11.0%

Terminal growth rate 3.0%

PV of terminal value 59,005

Value of equity 80,958

No of shares 265,000

Fair value per share 0.306

Offer price 0.320

Upside/downside -4.5%

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Blended fair value of RO 0.326 indicate the issue is fully priced in for indicated growth. The blended Residual income-DDM-Justified P/B valuation resulted in arriving at RO 0.326 as the intrinsic fair value of NLGIC, which is very close to the offer price of RO 0.320. We have applied high weights to cash flow based valuations as we believe these valuations better reflect the long term intrinsic value of the company. While the relative valuations reflect current market and economic situation, we will be looking at the long term value embedded in the company's shares.

Valuation Methods

Residual income

Justified P/B Model

DDM

Fair Value

Upside 1.9%

0.306 20% 0.061

0.326

0.336 40% 0.134

0.326 40% 0.130

Fair Value/ Weightage Weighted Value

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Corporate profile and shareholding pattern

NLGIC is engaged in the business of life and general insurance business within the Sultanate of Oman

and UAE. The headquarters of the Company is in Muscat, Oman. The Company was established as an

SAOC as a subsidiary of ONIC Holding, pursuant to a scheme of transfer under Article 39 of Insurance

Law. The life insurance portfolio of Oman National Insurance Company SAOG has transferred to National

Life Insurance Company SAOC. Subsequent to the merger of ONIC Holding with OMINVEST on merger

effective from 19th August, 2015, the Company became a subsidiary of OMINVEST. As at the date of this

Prospectus, the Issued and Paid-Up Share Capital is RO 26,500,000 divided into 265,000,000 Shares of

RO 0.100 each, 97.93% of which is held by OMINVEST.

Since incorporation, the Company started underwriting insurance business by providing various types of

insurance business. In 2006, the Company received a license from CMA to conduct general insurance

business and was renamed as National Life & General Insurance Company SAOC. NLGIC currently has

17 branches (16 branches and 1 head office counter) in Oman and has also expanded its operations in

the region by obtaining licence for operating insurance business in Dubai and Abu Dhabi when it opened

branches in 2007 and 2014/2015 respectively. The Company also proposes to open a branch in Kuwait

for which it is in discussion with the concerned regulator.

The Company commenced its operations with life and health business in Oman and diversified into

general insurance business in 2006. NLGIC further expanded its operations to UAE market by opening a

branch each in Dubai (2007) and Abu Dhabi (2015) to transact life and health insurance business, in

accordance with the licence issued by United Arab Emirates Insurance Authority. During 2016, the

Company invested in a fully owned subsidiary “NLGIC Support Services Private Limited’ in Chennai, India.

The captive unit is mainly set up for claims processing and is expected to result in reduced costs, greater

efficiency with regards to company resources and business processes. The Indian subsidiary is currently

engaged in processing of medical claims for Oman operations and supporting IT, Finance and

underwriting operations. Going forward, with the growing medical business in Dubai and Abu Dhabi, the

claims processing of UAE operations will also be done in house through the captive unit in India. This will

enable NLGIC to save costs as compared to using the services of an external TPA and also provide

enhanced control on claims.

The Company further proposes to commence operations in Kuwait. Kuwait is one of the fastest growing

insurance markets in the GCC region and is expected to offer great opportunities in motor and medical

segment which are NLGIC’s core focus areas. The move is in alignment with Board approved strategy of

being a major GCC player. The law in Kuwait allows for 100% foreign owned branches and do not have

stringent capital requirements for a branch setup. NLGIC is in the process of acquiring a controlling

interest in a UAE based third party administration services (TPA) provider licenced by the UAE Insurance

Authority. The Company expects the said acquisition to be completed before the listing of the IPO.

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Balance Sheet 2014 2015 2016 2017E 2018E 2019E 2020E

Cash and bank Balances 1,346 1,235 16,610 2,468 2,678 3,337 3,484

Investments 34,657 46,888 52,531 79,478 89,431 99,314 111,726

Insurance and other receivables 25,440 29,796 37,377 39,528 44,800 51,127 57,392

Reinsurers share of outstanding claims 7,340 8,357 8,765 10,291 10,705 11,876 13,073

Reinsurers share of UPR 13,892 13,832 17,920 18,588 21,037 23,784 26,592

Property and equipment 570 751 1,393 1,471 1,385 1,197 931

Good will 146 146 146 146 146 146 146

Total Assets 84,153 101,577 135,251 152,443 170,620 191,186 213,713

Gross outstanding Claims 14,864 17,801 20,580 26,459 30,347 34,297 38,527

Insurance reserve and UPR 33,740 41,999 47,252 54,669 61,773 70,917 80,025

Due to reinsurers and other liabilities 12,233 14,575 18,586 20,578 22,078 23,078 24,078

Income Tax payable 551 567 555 1,318 1,541 1,780 2,157

Total Liabilities 61,388 75,442 90,873 103,024 115,738 130,072 144,787

Share capital 10,500 10,500 26,500 26,500 26,500 26,500 26,500

Legal Reserve 3,110 3,500 3,970 4,770 5,703 6,778 8,078

Contingency reserve 4,213 5,227 6,367 7,654 9,054 10,574 12,210

Retained Earnings 4,997 7,185 7,662 10,520 13,520 17,002 21,697

Total equity 22,765 26,134 44,378 49,419 54,881 61,114 68,926

Total equity and Liabilities 84,153 101,577 135,251 152,443 170,620 191,186 213,713

Income statement

Gross written premium 67,330 90,564 101,236 119,059 134,996 153,894 172,690

Gross premium earned 63,669 82,041 95,954 111,643 127,892 144,750 163,581

Ceded premium (36,263) (36,164) (38,566) (41,327) (43,943) (48,474) (53,390)

Net premium earned 27,406 45,877 57,387 70,316 83,948 96,276 110,192

Reinsurance commission income 6,785 7,916 8,452 7,344 8,180 9,049 9,986

Income from policy fees 1,145 1,496 1,680 1,591 1,754 2,166 2,480

Gross claims expense (44,955) (67,169) (83,881) (88,198) (101,156) (114,325) (128,423)

Reinsurers share of claims 24,854 30,013 35,415 34,303 35,683 39,587 43,578

Net claims incurred (20,101) (37,155) (48,466) (53,895) (65,474) (74,738) (84,845)

Commission expense (6,328) (7,558) (8,469) (9,750) (10,920) (12,443) (13,966)

Net underwriting result 8,907 10,575 10,584 15,605 17,488 20,309 23,847

Investment Income -net 405 1,281 2,085 2,837 3,430 3,830 4,330

Other operating income 2 (18) 152 25 25 25 25

Third party administration fees (1,184) (1,846) (1,634) (1,410) (1,354) (1,467) (1,533)

General and admin expenses (3,839) (5,063) (5,830) (7,741) (8,720) (10,177) (11,513)

Finance cost 0 (12) (105) 0 0 0 0

Good will impairment 0 0 0 0 0 0 0

Profit before income tax 4,291 4,918 5,252 9,316 10,870 12,520 15,157

Income Tax (546) (558) (551) (1,315) (1,537) (1,776) (2,153)

Profit for the year 3,745 4,360 4,700 8,001 9,333 10,744 13,003

Cash Flow Statement

Profit before taxation 4,291 4,918 5,252 9,316 10,870 12,520 15,157

Allowance for impaired debts 285 172 134 200 250 300 300

Interest income (941) (1,070) (1,624) (2,453) (2,744) (3,070) (3,406)

Dividend income (410) (330) (370) (322) (531) (604) (769)

Depreciation 139 257 410 530 686 788 866

Premium and Insurance balances receivable (5,559) (3,945) (6,326) (2,431) (5,458) (6,567) (6,501)

Reinsurers share of outstanding claims 544 (358) (408) (1,526) (414) (1,171) (1,197)

Reinsurers share of insurance reserve 848 (1,571) (4,088) (668) (2,449) (2,747) (2,808)

Insurance Fund 4,943 11,460 8,032 7,416 7,104 9,144 9,109

Due to reinsurers 1,224 (2,632) (461) 2,000 1,500 1,000 1,000

Other liabilities 528 5,662 3,215 5,879 3,888 3,950 4,230

Total changes in working capital 2,752 8,248 105 10,671 4,171 3,610 3,831

Cash from operating activities 6,947 12,390 3,967 17,881 12,548 13,387 15,824

Net cash from operating activities 6,428 11,835 3,391 17,299 11,195 11,805 14,003

Purchase of Property and Equipment (387) (438) (1,148) (609) (600) (600) (600)

Purchase of Investment Securities (4,602) (1,822) (3,792) (26,774) (9,774) (9,674) (12,174)

Interest received 928 784 1,264 2,490 2,679 3,010 3,342

Dividends received 410 330 370 322 531 604 769

Net cash used in investment activities (4,675) (11,684) (4,695) (24,485) (6,985) (6,480) (8,484)

Dividend paid (750) (750) (2,616) (3,055) (4,001) (4,666) (5,372)

Net cash used in financing activities (750) (262) 16,679 (6,955) (4,001) (4,666) (5,372)

Net changes in cash 1,004 (111) 15,375 (14,141) 210 659 147

Cash at the beginning of the year 343 1,346 1,235 16,610 2,469 2,679 3,338

Cash at the end of the year 1,346 1,235 16,610 2,469 2,679 3,338 3,485

16 | P a g e


RATIOS

Insurance ratios

Retention ratio (%) 41% 51% 57% 59% 62% 63% 64%

Loss ratio (%) 73% 81% 84% 77% 78% 78% 77%

Expense ratio (%) 17% 14% 13% 16% 15% 16% 15%

Combined ratio (%) 90% 95% 98% 93% 93% 93% 92%

Investments

Total investments & bank deposits 34,657 46,888 52,531 79,478 89,431 99,314 111,726

Investment income 405 1,281 2,085 2,837 3,430 3,830 4,330

Investment yield (%) 1.3% 3.1% 4.2% 4.3% 4.1% 4.1% 4.1%

Investment income/NEP (%) 1.5% 2.8% 3.6% 4.0% 4.1% 4.0% 3.9%

Investments/Assets (x) 0.4 0.5 0.4 0.5 0.5 0.5 0.5

Investments/Total Equity (x) 1.5 1.8 1.2 1.6 1.6 1.6 1.6

Growth

GWP (yoy) 20.2% 34.5% 11.8% 17.6% 13.4% 14.0% 12.2%

NEP (yoy) 44.5% 67.4% 25.1% 22.5% 19.4% 14.7% 14.5%

Net claims (yoy) 51.5% 84.8% 30.4% 11.2% 21.5% 14.1% 13.5%

Commission income (yoy) 9.3% 16.7% 6.8% -13.1% 11.4% 10.6% 10.4%

Commission expense (yoy) 12.1% 19.4% 12.1% 15.1% 12.0% 13.9% 12.2%

Underwriting profit (yoy) 27.8% 18.7% 0.1% 47.4% 12.1% 16.1% 17.4%

Investment income (yoy) -85.9% 216.7% 62.7% 36.1% 20.9% 11.7% 13.1%

Net income (yoy) -14.1% 16.4% 7.8% 70.2% 16.6% 15.1% 21.0%

Total investments (yoy) 16.0% 35.3% 12.0% 51.3% 12.5% 11.1% 12.5%

Per share

EPS (RO) 0.036 0.042 0.018 0.030 0.035 0.041 0.049

BVPS (RO) 0.217 0.249 0.167 0.186 0.207 0.231 0.260

DPS (RO) 0.007 0.025 0.012 0.015 0.018 0.020 0.025

Payout ratio 20% 60% 65% 50% 50% 50% 50%

ROE (%) 17.6% 17.8% 13.3% 17.1% 17.9% 18.5% 20.0%

ROA (%) 4.7% 4.7% 4.0% 5.6% 5.8% 5.9% 6.4%

Valuation

Offer price (RO) 0.320 0.320 0.320 0.320 0.320 0.320 0.320

P/E (x) 9.0 7.7 18.0 10.6 9.1 7.9 6.5

P/B (x) 1.5 1.3 1.91 1.72 1.5 1.4 1.2

Price/GWP (x) 0.5 0.4 0.8 0.7 0.6 0.6 0.5

Dividend Yield (%) 2% 8% 4% 4.7% 6% 6% 8%

17 | P a g e


Joice Mathew Jose Paul Contact Address

Senior Manager - Research Research Analyst P.O BOX 2566, PC 112

E-Mail: [email protected] E-Mail: [email protected] Next to Ruwi Hotel

Tel: +968 2476 3311 Tel: +968 2476 3335 Ruwi, Muscat

Tel: +968 2476 3300

Key Contacts

Research Team

Neutral This recommendation is used for stocks whose current market price

offers a premium to our 12-Month target price and has a downside

side potential between 0% to -10%

Rating Criteria and Definitions

Strong Sell This recommendation is used for stocks whose current market price


side potential in excess of 20%

Rating DefinitionsRating

Hold

This recommendation is used for stocks whose current market price

offers a deep discount to our 12-Month target price and has an

upside potential in excess of 20%

Strong Buy



side potential between -10% to -20%


offers a discount to our 12-Month target price and has an upside

potential between 0% to 10%

Buy This recommendation is used for stocks whose current market price

offers a discount to our 12-Month target price and has an upside

potential between 10% to 20%

Not rated This recommendation used for stocks which does not form part of

Coverage Universe

Sell

Disclaimer

>20%

10-20%

0%-10%

-10% to 0%

-10 to -

20%%

>-20%

Strong

Buy

Buy Hold Neutral Sell Strong

Sell

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dps 0.012 0.015 0.018 eps 0.018 0.030 0.035 insurance ......national life and general insurance...

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