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Kenya Insurance Sector

August 2014 Update
Equity research | Kenya | Insurance

Scaling the Warren Buffett criterion

13 August 2014

The listed Kenya insurers are actively implementing various initiatives
concurrently. These include strategic acquisitions and partnerships, crossborder expansion, forays into property business, new business lines
(microinsurance) and debt capital raises to fund all these activities. Although the
insurers are currently still exceeding the Warren Buffett criterion for a
successful insurance business in terms of cost of float, these new strategies
could put pressure on underwriting margins in the next 2-3 years. Meanwhile,
half of the insurance stocks covered in our September 2013 initiation piece
(‘Against the odds’) have since rallied by more than 100%, but there still seems
to be value in Kenya Re, Jubilee and Liberty in particular, as well as the OTCtraded UAP Insurance on which we initiate coverage in this note. Four insurers
now have a market capitalisation in the USD 200m - 500m range, while three are
averaging between USD 70,000 – 140,000 in daily value of shares traded.

Running the numbers
Our updated comparative ratio analysis of the insurers reveals that (a) With the
exception of Britam and contrary to well established perception, short term
insurance contributes far more to the bottom line than long term business does,
despite long term business being allocated the bigger proportion of investment
income (b) despite having higher net loss ratios than Britam, Jubilee and CIC have
consistently had the highest RoEs because they both have much lower expense
ratios than Britam (c) Jubilee and Liberty are the only insurers with solvency
margin ratios below 100% (d) Insurance RoAs continue to outperform the banks,
with Kenya Re’s RoA in the double digits (e) in contrast to the banks, regional
subsidiaries (especially Uganda and Tanzania) seem to be more profitable relative
to revenue generated compared to Kenya.

The latest and greatest
(a) The new Insurance Act should come into effect in the next 12 months, with a
focus on self-assessments and risk-based supervision and the regulator issuing
implementation guidelines much in the same way CBK does (b) despite Britam
only recognising half of the gains in Equity Bank’s share price in its P&L, the
impact of the 2014 rally in that share alone could match Britam’s FY13 earnings
(c) latest data indicates that microinsurance is exerting pressure on underwriting
margins (d) Britam, Jubilee and CIC will expand their operations in East, Central,
Southern and even West Africa in the next two years via inorganic acquisitions and
joint ventures.

Updated recommendations
We derive updated valuations from our risk-adjusted RoE-P/B regression analysis
and place BUY recommendations on Kenya Re (175% upside), Jubilee (50%
upside), Liberty (30% upside) and UAP (27% upside). We use the same model to
downgrade Britam to HOLD (4% upside), CIC (14% downside) to REDUCE and Pan
Africa (20% downside) to SELL.

Analyst:
Judd Murigi +254 20 276 2637
murigij@africanalliance.co.ke

Online:
https://aas.sharefile.com

Refer to important terms of use, disclaimers and disclosures on back page.

Kenya Insurance Sector
August 2014 Update
Equity research | Kenya | Insurance

Table of contents
Investment thesis ...................................................................................................................... 3
Explaining the Warren Buffett criterion ............................................................................... 5
Valuation summary ............................................................................................................... 8
Industry update: Upgrading with a new Insurance Act ........................................................ 9
P&L analysis: Operating efficiency the RoE differentiator ................................................ 10
Balance Sheets reveal high solvency margins................................................................... 11
Short term business surprisingly outperforms long term ................................................ 12
Regional subsidiaries more profitable than Kenya? .......................................................... 13
Britam: Voracious appetite ................................................................................................. 14
UAP: The medicine men ...................................................................................................... 20
Kenya Re: Back to black...................................................................................................... 25
Jubilee: Gearing up for M&A............................................................................................... 29
CIC: Under pressure............................................................................................................ 33
Liberty Kenya: P&L noise continues ................................................................................... 37
Pan Africa: New moves ....................................................................................................... 41

13 August 2014
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Kenya Insurance Sector
August 2014 Update
Equity research | Kenya | Insurance

Investment thesis

Still passing the Warren Buffett test, despite declining margins. Review of the
available 2013 underwriting performance (Britam, CIC and Kenya Re) reveals
contrasting trends. Britam which traditionally has had a vastly superior short term
underwriting margin over its peers saw its underwriting margin almost halved to 8%
in 2013, while CIC’s margin of 5% was its lowest since 2010 at least. One cause was
microinsurance which is a new medical insurance product targeting the low income
market and is still incurring significant losses due to low volumes and prevailing antiselection. On the positive side, Kenya Re bounced back to underwriting profitability in
2013. All things considered, the insurers are still maintaining a positive cost of float in
their short term insurance businesses, which means that they are effectively not only
meeting but surpassing Warren Buffett’s criteria for a successful insurance business.
Warren Buffett regularly explains to Berkshire Hathaway shareholders that an
insurance business has value if its cost of float over time is less than the cost the
company would otherwise incur to obtain funds (for the Kenyan insurers, this
benchmark cost would be 10% which has been the average prevailing rate on
government treasuries over the last two years) Float refers the funds that an
insurance company has available for investment due to the time lag between receipt
of premium revenue and incurrence of claims as and when they occur. It is calculated
by deducting insurance-related assets (such as premiums recoverable and loss
recoverable from reinsurance) from insurance liabilities (such as claims & benefits
incurred but not paid, and unearned premiums). Cost of float is measured by
underwriting losses incurred. We use the concept of underwriting profit or loss only
for short term insurance, because the nature of long term insurance is such that
investment income is an integral element of the business and it would probably not be
appropriate to compare life insurance benefits with life insurance premiums alone.
Whilst Warren Buffett sets a benchmark of underwriting losses of up to 10% for a
successful insurance business, we find that the Kenya insurers are actually in positive
underwriting margin territory to start with.

Underwriting margin (underwriting profit/gross written premium)
Aviation Engineering
Britam

CIC

WIBA

Misc

Medical Micro* Total

FY13

14%

16%

15%

20%

19%

-12%

17%

20%

18%

10%

55%

9% -54%

FY12

21%

44%

-10%

69%

6%

10%

19%

36%

18%

22%

55%

7%

16%

FY11

17%

30%

12%

-91%

21%

7%

28%

38%

11%

72%

25%

-5%

18%

FY10

16%

11%

0%

-20%

25%

-27%

14%

37%

44%

9% -14%

5%

FY13

7%

46%

18%

-29%

26%

-8%

24%

16%

14%

34%

4%

-12%

FY12

11%

43%

34%

-17%

11%

-7%

17%

7%

23%

29%

7%

-6%

6%

FY11

3%

43%

16%

-73%

13%

0%

15%

27%

21%

32%

6%

-9%

8%

8%

11%

9%
65%

5%

15%

29%

14%

11%

14%

-14%

13%

33%

29%

2%

-2%

6%

FY13

38%

33%

46%

12%

32%

17%

43%

11%

-15% -33%

4%

7%

-29%

1%

FY10
Kenya Re

Fire
Fire
Motor
Motor Personal
Liability Marine
Theft
domestic industrial
private commercial accident

FY12

-217%

29%

37%

-4%

21%

7%

53%

-7%

-33% -26% 1424%

20%

-38%

-8%

FY11

564%

10%

-442%

-15%

51%

-8%

102%

28%

-29%

-334%

26%

-27%

-4%

FY10

-5%

10%

-723%

-15%

43%

-12%

177%

153%

-23% -18% 2340%

11%

18%

2%

Source: Association of Kenya Insurers, African Alliance Research. *For Britam, this is micro insurance. For CIC, this is described as ‘micro solutions’, and it is
unclear whether it encompasses micro insurance or not.

13 August 2014
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Kenya Insurance Sector
August 2014 Update
Equity research | Kenya | Insurance

There’s still value despite significant rally in insurance shares. Since our initiation of
coverage in September 2013, insurance sector share prices have rallied by 200%
(Britam), 43% (Jubilee), 148% (CIC), 108% (Pan Africa), 16% (Kenya Re) and 50%
(Liberty). As such, we have been forced to cut our recommendation on a number of
these shares. Nevertheless, we still see significant value in Kenya Re, Jubilee, Liberty
based on their price-to-book ratios relative to their RoEs, as well as Britam due to
expected strong FY14 results.

New Insurance Act still on the way. The Insurance Regulatory Authority (IRA) is still
rolling out the risk-based supervision model using a more flexible regulatory
framework. The new Insurance Act, expected to become effective in the next twelve
months, will be much less prescriptive and the IRA will, just as the CBK does, issue
guidelines to direct insurers on how to apply the requirements of the Act.

13 August 2014
Page 4 of 43

life has been far more difficult: In aggregate. For most insurers. That leaves it running an "underwriting loss". We hold an exceptional amount of float compared to premium volume. because it sometimes takes many years for losses to be reported (asbestos liability losses would be an example .). during 1990 we held about $1. our core business.and if the cost is significantly lower. the property-casualty industry almost invariably operates at an underwriting loss. we are actually paid for holding other people's money. however. which is the cost of float. And the cost of float is measured by our underwriting loss. sometimes devastatingly so. we've had five terrible years in which float cost us more than 10%. meaning we were actually paid for holding money. our results have been good. before virulently manifesting themselves. And the quantity of this cheap money has grown far beyond what I dreamed it could when we entered the business in 1967 (Berkshire purchased National Indemnity ("NICO") in 1967). negotiated and settled. the insurance business qualifies as a very valuable asset. prepaid acquisition costs and deferred charges applicable to assumed reinsurance. "Float" is money that doesn't belong to us but that we temporarily hold. float is better than free. This pleasant activity typically carries with it a downside: The premiums that an insurer takes in usually do not cover the losses and expenses it eventually must pay.Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance Explaining the Warren Buffett criterion We reproduce below some of Warren Buffett’s explanations regarding assessment of insurance companies: ‘What counts in insurance. During that time. If this cost (including the tax penalty) is higher than that applying to alternative sources of funds. Its cost is determined by underwriting results. But in 18 of the 37 years Berkshire has been in the insurance business. loss adjustment expense reserves and unearned premium reserves minus agent’s balances. Float is the total of loss reserves. When an insurer earns an underwriting profit. the insurer invests the money. float becomes expensive.the problems they signify lie dormant for decades. But the business is a lemon if its cost of float is higher than market rates for money. meaning how the expenses and losses we will ultimately pay compare with the premiums we have received. the value is negative. In such years. Overall. Float is wonderful if it doesn't come at a high price. True. an interval that sometimes extends over many years. Float arises because premiums are received before losses are paid. we have operated at an underwriting profit. The underwriting loss we sustained during the year was $27 13 August 2014 Page 5 of 43 . An insurance business has value if its cost of float over time is less than the cost the company would otherwise incur to obtain funds. When that loss is large. the value is positive . If the cost is lower.6 billion of float slated eventually to find its way into the hands of others. For example. Insurance has provided a fountain of funds with which we've acquired the securities and businesses that now give us an everwidening variety of earnings streams. loss events that occur today do not always result in our immediately paying claims. is the amount of "Float" and its cost over time.

and we won't know our true 1967 . this calculation excludes the earnings the insurer realizes on net worth . Of course. 4% was tolerable because government bonds yielded twice as much. on the funds provided by shareholders. our float threw off profits. must deliver an underwriting profit if it is to be judged a good business. Today. Under these conditions. Nevertheless. That is. and if a farmer sustains a loss he will be paid almost immediately. There are important qualifications to this calculation . Because the funds are available to be invested. to obtain the replacement equity. Combined ratio and long tails The combined ratio represents total insurance costs (losses incurred plus expenses) compared to revenue from premiums. we had replaced it with $3.more shares. each of our insurance operations. exclusive of earnings on the funds provided by shareholders. let alone sing. the typical property-casualty insurer can absorb losses and expenses that exceed premiums by 7% to 11% and still be able to break even on its business.the fat lady has yet to gargle.6%. equal assets and lower earnings . a combined ratio in the 107-111 range typically produces an overall breakeven result. it has had a value to Berkshire greater than an equal amount of net worth would have had. Premiums on this kind of business are paid to the insurer just prior to the time hailstorms are a threat. The downward trend of interest rates in recent years has transformed underwriting losses that formerly were tolerable into burdens that move insurance businesses deeply into the lemon category. And.4 billion of equity.if it is obtained at a low cost. Accounting irony: Though our float is shown on our balance sheet as a liability.would have materially reduced the value of our stock. However.Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance million and thus our insurance operation produced funds for us at a cost of about 1. malpractice insurance covering the potential liabilities of doctors. have had somewhat lower earnings because the cost of float was negative last year. many exceptions to this 7% to 11% range exist. lawyers and accountants produces a very high amount of float compared to annual premium volume. insurance covering losses to crops from hail damage produces virtually no float at all. say. when the investment income that an insurer earns from holding on to policyholders' funds ("the float") is taken into account. Some years back. fat returns are nowhere to be found (at least we can't find them) and shortterm funds earn less than 2%. and stocks prospectively offered still loftier returns. however. of course. Under this scenario. let's assume that instead of our having $3. Since our float has cost us virtually nothing over the years. it has in effect served as equity. i. The industry calls malpractice and certain other kinds of liability insurance "long-tail" business.1990 cost of funds until all losses from this period have been settled many decades from now. we would have owned no more assets than we did during 1995. Again.that is. So you can understand why float wonderfully benefits a business . a combined ratio of 100 for crop hail insurance produces no profit for the insurer. in recognition of the extended period during which insurers 13 August 2014 Page 6 of 43 . For example. The float materializes because claims are often brought long after the alleged wrongdoing takes place and because their payment may be still further delayed by lengthy litigation. At the other extreme. We would.e. The net result .4 billion of float at the end of 1994. we would have needed to sell many new shares of Berkshire. Thus. it differs from true equity in that it doesn't belong to us. float costing. save one.

a high cost translates into a poor business. carry the expectancy of profit.and it's true that this yardstick usually is a good indicator of where a company ranks in profitability. 300 or worse when the years have rolled by and all claims have finally been settled. Ignore market-share considerations and be sanguine about losing business to competitors that are offering foolish prices or policy conditions). We believe a better measure. Profitability and low cost is all that counts (rather than underwriting volume (sales) Property/casualty companies are judged by their cost of float. since earnings produced by the float will exceed the 15% by which claims and expenses overrun premiums. A low cost of funds signifies a good business. to be a comparison of underwriting loss to float developed. But when the ratio takes in a period of years. Instead. they must: (a) underwrite with unwavering discipline (accept only those risks that you are able to properly evaluate (staying within your circle of competence) and that. In long-tail situations a combined ratio of 115 (or even more) can prove profitable. however. and (c) avoid an aggregation of exposures that would allow a supposedly "impossible" incident to threaten their solvency. though. and (b) reserve conservatively. Setting a target of 100 can itself result in heavy losses. 13 August 2014 Page 7 of 43 . prices must provide a healthy margin of safety against the societal trends that are forever springing expensive surprises on the insurance industry. it gives a rough indication of the cost of funds generated by insurance operations. after you have evaluated all relevant factors including remote loss scenarios. aiming for 110 . is that "long-tail" means exactly that: Liability business written in a given year and presumed at first to have produced a combined ratio of 115 may eventually smack the insurer with 200. The pitfalls of this business mandate an operating principle that too often is ignored: Though certain long-tail lines may prove profitable at combined ratios of 110 or 115. like any statistic used in evaluating insurance results. This loss/float ratio.115 is business suicide. The catch. What's the preferable measure? Combined ratio or cost of float? What should the measure of an insurer's profitability be? Analysts and managers customarily look to the combined ratio .Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance get to hold large sums that in the end will go to claimants and their lawyers (and to the insurer's lawyers as well). is meaningless over short time periods: Quarterly underwriting figures and even annual ones are too heavily based on estimates to be much good. insurers will invariably find it unprofitable to price using those ratios as targets. If our insurance operations are to generate low-cost float over time.

6 17.99 2.4 30.00 0.0 1.31 Liberty Pan Africa 10.2.91 193.5% 139.70 14% 2.51 18% 2. on FY13 EPS) RoE.0 23% 24% 0.67 0.5 0. FY13 RoE.89 -14% 267 1.00 50% 2.61 10% 12.34 34.24 1.2 years out Exit price to book ratio (x) Exit price FY13 DPS Forecast annual DPS growth* Forecast DPS . * Based on average growth 2007-2013.0 1.5 1.5 2.76 0.6 9.07 7.72 23.8 809. while Liberty is not too far off Jubilee.28 2. risk premium 5%. on FY13 NAV) PE ratio (x.23 10.6 14.00 15% 9.0 22% 23% 5.26 818.87 175% Source: Company filings.20 137.08 18% 2. Kenya Re and Liberty look cheap relative to peers.72 25.00 0.5 2.0 14% 15% 1. African Alliance Research 13 August 2014 Page 8 of 43 . P/B ratios down from historical levels RoE vs P/B regression Only Jubilee and Kenya Re are trading within historical price-to-book ranges.4% 48.0 Price-to-book 3.0 UAP Liberty 1.96 25% 13.77 13% 44. beta 1.40 2.96 30% 118.5 CIC Pan Africa Britam 3.76 Source: Company filings. Fair value (KES) FY13 NAV per share Forecast annual NAV growth* Forecast NAV .Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance Valuation summary Valuation metrics Britam Jubilee Market cap (USD m) Daily liquidity (USD '000) Price to book ratio (x.84 2.9% 7.50 35% 8.9 129.00 0.32 22% 287.0 Kenya Re 0.0 4.5 Pan Africa CIC Britam Jubilee Liberty Kenya Re Kenya Insurers: RoE vs P/B 3.00 0.41 36.49 18% 2.5 Jubilee 2.6% 23. African Alliance research.31 4.1 18% 18% 3.0% 25.28 50% CIC UAP Liberty 277 73 3.3 10.73 2. as adjusted for sustainability.98 18% 2. 2009 -2013 average Dividend yield (on FY13 DPS) Fair value (KES) Upside/(downside) to current price 543 136 2.89 69.00 0.1 25% 31% 1.9 18% 14% 1.5 35.32 20% 2. 4.0 2.next 2 years Exit price + forecast dividends Cost of equity* Discount period Discount factor at cost of equity Fair value Britam Jubilee CIC UAP 8.8 17.72 139.00 0.25 32.6% 98.7 4.77 1. African Alliance research.31 27% 106 18 1.8% 568.0 10.25 28% 0.76 -20% 143 100 0.24 1.08 65% 0.21 193.91 4% 262 23 2.66 2.5 44% 33% 3.6 191.69 568.72 98.7 9.34 30% Pan Africa Kenya Re 137 18 3. ** Risk free rate 12%.72 7.0 3.5 Jun-14 Feb-14 Oct-13 Jun-13 Oct-12 Feb-13 Jun-12 Feb-12 Oct-11 Jun-11 Oct-10 Feb-11 Jun-10 Feb-10 Oct-09 Jun-09 - 10% 15% 20% 25% 30% 35% Return on equity Source: Company filings.56 35% 4.99 18% 2.

As such the current minimum capital requirement (10% of gross premiums) which applies across the board will be replaced by different requirements for different insurers. Insurers will be required to conduct internal assessments so as to determine their capital requirements based on risk and actuarial evaluations. c. d. Bill 2013 was passed into law under the current insurance Act. internal audit and compliance functions. although some insurance industry players indicate that it has had the opposite effect in other countries. Insurers will be required to have actuarial control. This is aimed at curbing collusion in facilitating fraudulent claims. In order to enhance the integrity of the process. The previous capital requirements only took insurance risk into account. risk management. The amendment outlines a schedule of structured payments of compensation to provide a maximum compensation in respect of death or fix compensation for each body part based on individual income levels. nature and extent of injury sustained and lower insurance premiums. it is apparent that the risk-based supervision model is premised upon self-assessment and transparency. there will be checks and balances such as back testing and forward testing of information submitted. 13 August 2014 Page 9 of 43 . These functions will report quarterly to the board of directors and will also compile and submit reports to the Insurance Regulatory Authority (IRA). The Insurance Motor Vehicle Third Party Risks (Amendment). The main changes contained in the Insurance Act are: a. In the meantime. The current law is detailed while the envisaged outlines the principles and the details will be contained in regulations to be issued by the Insurance Regulatory Authority (IRA). but the new regulations factor in investment risk and operational risk as well. b. The current law is prescriptive and compliance-based while the envisaged law is riskbased.Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance Industry update: Upgrading with a new Insurance Act The insurance bill for the new Insurance Act is expected to be tabled before parliament for debate and approval possibly in 2Q14 or 1H15 at the latest. From the above.

with Kenya Re’s RoA in the double digits (d) only Britam and UAP saw higher premium growth in 2013 than in 2012 (e) Dividend payout ratios are largely at or below 20%. Gross premium revenue mix FY13 FY12 FY11 Gross claims & benefits mix FY13 FY12 FY11 Net earned premium growth Net claims & benefits growth Net claims/net premiums (Short term insurance) Investment income growth Investment income/total income Return on investments (investment income + fair value gains/losses) Expenses & comms/premiums RoA RoE Dividend payout FY13 FY12 FY11 FY13 FY12 FY11 FY13 FY12 FY11 FY13 FY12 FY11 FY13 FY12 FY11 FY13 FY12 FY11 FY13 FY12 FY11 FY13 FY12 FY11 FY13 FY12 FY11 FY13 FY12 FY11 Short term insurance Long term business Short term insurance Long term business Short term insurance Long term business Short term insurance Long term business Short term insurance Long term business Short term insurance Long term business Britam Jubilee CIC 43% 57% 42% 58% 38% 62% 25% 75% 41% 59% 38% 62% 30% 21% 35% 33% 136% -41% 59% 59% 56% 26% 341% -145% 42% 43% -62% 25% 25% -13% 57% 55% 53% 6% 8% -8% 18% 24% -20% 18% 18% -14% 85% 15% 85% 15% 84% 16% 67% 33% 70% 30% 70% 30% 15% 28% 37% 28% 40% 9% 68% 69% 64% 55% 52% -38% 31% 25% 22% 16% 14% 12% 27% 27% 28% 5% 5% 6% 25% 30% 31% 21% 20% 16% 70% 30% 70% 30% 65% 35% 68% 32% 68% 32% 60% 40% 26% 36% 51% 30% 47% 57% 65% 63% 56% 1% 169% 60% 13% 16% 9% 14% 16% 9% 32% 32% 34% 9% 11% 6% 23% 28% 17% 16% 16% 34% UAP Liberty Pan Africa Kenya Re 89% 11% 91% 9% 92% 8% 79% 21% 81% 19% 83% 17% 38% 26% 25% 46% 35% 21% 77% 23% 78% 22% 75% 25% 76% 24% 47% 53% 71% 29% 2% -6% 17% 129% -4% 22% 26% 16% 13% 17% 11% 41% 43% 39% 6% 7% 7% 13% 16% 19% 12% 16% 23% -18% 95% -5% 7% 36% 40% 17% 20% 40% 44% 4% 3% 24% 21% 50% 25% 0% 100% 0% 100% 0% 100% 0% 100% 0% 100% 0% 100% 0% 55% -7% -4% 194% -37% 103% 108% 57% 17% 1.168% -118% 32% 27% -5% 15% 17% -2% 33% 29% 50% 7% 5% 4% 42% 29% 22% 35% 41% 43% 88% 12% 86% 14% 84% 16% 92% 8% 94% 6% 85% 15% 22% 23% 34% 16% 38% 44% 57% 62% 51% -14% 49% 4% 24% 31% 27% 13% 19% 15% 39% 42% 41% 12% 13% 11% 18% 21% 17% 14% 10% 11% 13 August 2014 Page 10 of 43 .Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance P&L analysis: Operating efficiency the RoE differentiator Our comparative P&L analysis table reveals that (a) Despite having higher net loss ratios than Britam. Jubilee and CIC have the consistently highest RoEs due because they both have much lower expense ratios than Britam (b) Only Britam makes more premiums from long term insurance rather than short term insurance (c) Insurance RoAs continue to outperform the banks.

Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance Balance Sheets reveal high solvency margins Our Balance Sheet analysis table reveals that (a) Jubilee and Liberty are the only insurers with solvency margin ratios below 100% (c) Britam and Pan Africa have a high exposure to equities compared to the other insurers (d) UAP and Kenya Re have a high exposure to investment properties relative to the other insurers (e) Jubilee. Britam Jubilee Investments/claims & benefits liabilities (solvency margin proxy) Investments mix (% of total assets) FY13 FY12 Claims & benefits liabilities mix (% of total assets) FY13 FY12 Investments growth Claims & benefits liabilities growth NAV growth FY13 FY12 FY11 Investment properties Government securities Public equities Unquoted shares Unit trusts Bank deposits Associate companies Investment properties Government securities Public equities Unquoted shares Unit trusts Bank deposits Associate companies Insurance contracts Deposit admin contracts Investment contracts Unearned premiums Insurance contracts Deposit admin contracts Investment contracts Unearned premiums FY13 FY12 FY11 FY13 FY12 FY11 FY13 FY12 FY11 135% 131% 140% 8% 17% 29% 17% 6% 5% 19% 31% 17% 6% 6% 26% 17% 14% 4% 29% 16% 14% 4% 32% 35% -6% 28% 44% 15% 36% 46% -19% CIC UAP Liberty Pan Africa Kenya Re 92% 90% 89% 7% 31% 12% 121% 123% 125% 21% 14% 175% 187% 130% 34% 14% 13% 10% 11% 8% 28% 11% 20% 6% 18% 15% 33% 13% 11% 12% 13% 25% 37% 26% 12% 30% 16% 8% 10% 26% 35% 24% 35% 14% 14% 9% 11% 31% 25% 30% 30% 23% 27% 33% 30% 20% 22% 14% 29% 58% 16% 32% 54% 22% 27% 65% 14% 32% 77% 14% 40% 24% 23% 27% 150% 0% 70% 73% 125% 117% 121% 4% 26% 21% 18% 245% 241% 217% 23% 27% 10% 21% 15% 5% 25% 21% 9% 25% 23% 10% 25% 18% 33% 35% 8% 32% 6% 38% 20% 27% 38% 8% 32% 7% 41% 13% -14% 43% 59% 28% 26% 52% 8% 27% 24% 16% 21% 7% 18% 28% 4% 15% 19% 12% 20% 9% 12% 22% 11% 19% 27% 13% 17% 14% 14% 23% 27% 9% 13 August 2014 Page 11 of 43 . Pan Africa and Kenya Re have the highest exposure to government securities.

Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance Short term business surprisingly outperforms long term An analysis of operating segment profitability shows that (a) With the exception of Britam and contrary to well established perception. Net premium revenue mix FY13 FY12 FY11 Investment income allocation FY13 FY12 FY11 Segment profit contribution FY13 FY12 FY11 Short term insurance Long term business Short term insurance Long term business Short term insurance Long term business Short term insurance Long term business Asset management Property Corporate & other Short term insurance Long term business Asset management Property Corporate & other Short term insurance Long term business Asset management Property Corporate & other Short term insurance Long term business Asset management Property Corporate & other Short term insurance Long term business Asset management Property Corporate & other Short term insurance Long term business Asset management Property Corporate & other Britam Jubilee CIC 40% 60% 39% 61% 34% 66% 5% 77% 78% 22% 80% 20% 78% 22% 21% 77% 69% 31% 68% 32% 64% 36% 67% 33% 51% 44% 23% 77% 0% 100% 0% 100% 0% 100% 0% 100% 3% 14% 4% 58% 21% 71% 53% 40% 32% 68% 0% 100% 37% 1% 30% 27% 67% 52% 43% 27% 73% 0% 100% 93% 8% 52% 31% 66% 34% 0% 100% 89% 1% 49% 21% 97% 3% 0% 100% 108% -11% 82% 18% 69% 16% 57% 8% 7% 13% 22% 24% 5% 0% 49% -17% 22% -3% 0% 99% UAP Liberty Pan Africa Kenya Re 88% 12% 87% 13% 85% 15% 0% 100% 13 August 2014 Page 12 of 43 . this despite long term business being allocated the bigger proportion of investment income. short term insurance contributes far more to the bottom line than long term business does.

Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance Regional subsidiaries more profitable than Kenya? The geographical segment analysis table reveals that regional subsidiaries (especially Uganda and Tanzania) seem to be more profitable relative to revenue generated compared to Kenya. Net premium revenue mix FY13 FY12 FY11 Net profit contribution FY13 FY12 FY11 Kenya Uganda South Sudan Tanzania Rwanda Burundi Mauritius Kenya Uganda South Sudan Tanzania Rwanda Burundi Mauritius Kenya Uganda South Sudan Tanzania Rwanda Burundi Mauritius Kenya Uganda South Sudan Tanzania Rwanda Burundi Mauritius Kenya Uganda South Sudan Tanzania Rwanda Burundi Mauritius Kenya Uganda South Sudan Tanzania Rwanda Burundi Mauritius Britam Jubilee 97% 2% 1% 76% 9% 11% 99% 1% 3% 79% 9% CIC UAP 84% 75% 15% 10% 86% 10% 100% 1% 81% 9% Liberty Pan Africa Kenya Re 73% 15% 9% 2% 1% 16% 14% 71% 20% 9% 88% 12% 9% 55% 35% 9% 61% 34% 75% 26% 4% 2% -5% 82% 96% 6% 6% 84% 4% 50% 48% 4% 18% 16% 70% 8% 1% 91% 9% -3% 13 August 2014 Page 13 of 43 .

› Conti Re next up? Britam was recently reported in the media as looking to acquire a 30% stake in Continental Re. The bond will cost Britam KES 680m. we expect that RoE could recover significantly due to the Equity Bank share. Britam’s earnings this year should be lifted considerably by the rally in Equity Bank’s share. paid via 60% cash and 40% equity) was completed on August 1st. while the price-to-book ratio is rather high relative to its RoE. Britam is acquiring Real Insurance so as to move its short term market share position as well as to penetrate the Tanzania market (where Real has 26% market share) and other regional markets where Real has a presence. Hence there will be an earnings drag.90 63% 1yr performance % 217% Issued shares m 1. a purely short term insurer. Britam is now focussed on talent mapping probably to identify and eliminate duplicated roles. so it does not appear that there will be significant earnings accretion in the near term. like Mozambique and Malawi. The KES 2. The company continues to be on an expansion spree.05 20% 12 month high/low KES YTD performance % 25. We understand however that this would be a private equity transaction of Britam’s asset management business and not an investment by the holding company.0 Year end December Bloomberg BRIT KN Reuters BRIT NR 13 August 2014 Page 14 of 43 .Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance Britam: Voracious appetite Despite an expected surge in finance costs arising from the bond. *** HOLD *** Current price KES 25.91 Upside/(downside) % Target price KES Price return % Dividend yield (ntm) % 1% Forecast total return % 21% 4% 30. › We anticipate strong 1H14 and FY14 earnings despite surge in finance costs.7bn (one half of 10% of the increase in Equity Bank market cap this year) alone due to Britam’s 10% stake (Britam accounts for half of the changes in fair value of its Equity Bank stake through OCI. › Consummating Real. with the acquisition of Real Insurance giving it access to at least three new geographies in the region. or 20% of FY13 PAT. hence the overall KES 5.4bn (USD 16m.7bn is equivalent to 90% of Britam’s FY13 earnings and should therefore more than compensate for the interest expense on the bond. The company has also been reported as mulling over acquiring a stake in the Kenyan operations of Nigerian insurer Continental Re. yet the income from the related property investments will probably only start coming through in 2016 via revaluations as the properties start to develop. Britam has raised KES 6bn from its five-year medium term note at a 13% fixed interest rate.00/7. but will it add value? Britam’s acquisition of a 99% stake in Real Insurance.00 Fair value KES 25. and may appoint McKinsey as integration consultants. especially considering integration costs that will be incurred over the next two years. the 50% ytd rise in Equity Bank’s share price will earn Britam approximately KES 2. Britam management however see opportunities to improve Real’s performance by professionalising the working culture there as well as improving the expense management process.891 Market cap (m) USD Free float % 543 20% Free float market cap(m) USD 109 Monthly value traded USD 3. such as the 2013 Acorn and 2014 Housing Finance deals) as well as ICT and regional investments (10%). for a purchase consideration of KES 1.5bn gain won’t all go through the P&L). The share has rallied 200% since our initiation in September but we now update our recommendation to HOLD because. Meanwhile. The bond proceeds will be used for property (50%). However. Britam has raised KES 6bn (USD 70m) via a medium term bond to fund the company’s property plans as well as regional subsidiaries. strategic private equity transactions (40%. Real’s net income has averaged 3% of Britam’s in recent years.

master planned developments. the insurers foray into microinsurance is expected to compress margins somewhat until the business line generates sufficient volumes because this line is predominantly focussed on medical insurance and is experiencing considerable anti-selection (people signing up for the policies tend to be those that are more likely to fall sick) at this stage. Unlike other insurers who will underwrite risky customers and aim to compensate on the investment income side.Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance Property strategy. residential housing. although this came down significantly in 2013. Reliable payment of claims ensures recurring customers. and possibly top line as well if Britam elects to that it has sufficient control of HF to account for it as a subsidiary despite being short of an ownership stake. The company’s ratio of premium earned to loss insured is also usually double that of its peers. Britam plans to utilize its 21-acre land bank in Ngong. almost. Management put these disparities down to prudent underwriting – profitable insurance categories like personal accident and motor commercial insurance (the latter often from bancassurance) form a large proportion of the company’s premiums. Britam insists on making underwriting profit on its own before factoring in investment income. well. However. Britam is targeting the lower middle income segment and the informal business sector rather than the top end of the market where demand may be softer. The acquisition of HF is aligned with Britam’s property strategy in terms of financing (now that HF will be a deposit taker) and development and will also help grow the retail bancassurance target market. and Britam also earns reinsurance commissions as well. 10 acres on Mombasa road (in Nairobi) and 2 acres in the prime Kilimani area of Nairobi. budget hotels and shopping malls. High-severity categories of insurance such as fire industrial and marine insurance are heavily re-insured. Britam’s planned acquisition of Equity Bank’s 25% stake in Housing Finance will see the insurer now own 46% of HF. To this end. Britam’s underwriting margins are often double or triple those of its competition. 13 August 2014 Page 15 of 43 . The acquisition of the additional stake in HF should also result in an additional 5% annual earnings accretion to Britam’s bottom line going forward. Housing Finance to become a subsidiary. As outlined in our initiation of coverage note (‘Kenya Insurance Sector: Against the odds’) published in September last year. Superior underwriting margins could see some pressure. Britam plans to deploy the bond proceeds across its five property themes which encompass commercial mixed use. Britam also forfeits potential customers (and the related premiums) where the risk is deemed to be too high. in categories such as group life insurance.

Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance Short term insurance metrics: Britam vs Real Gross Fire Fire premium mix Aviation Engineering domestic industrial Liability Marine Britam FY12 FY11 FY10 Real FY12 FY11 FY10 Market share Britam FY12 FY11 FY10 Real FY12 FY11 FY10 Reinsurance ratio Britam FY12 FY11 Real FY12 FY11 Net loss ratio Britam FY12 Real FY12 Underwriting margin Britam FY12 FY11 FY10 Real FY12 FY11 FY10 0% 0% 0% 0% 0% 0% 4% 3% 3% 11% 6% 4% 2% 2% 2% 1% 2% 2% 5% 5% 5% 9% 16% 11% 1% 1% 1% 2% 3% 1% 6% 6% 6% 6% 2% 2% Fire Fire Aviation Engineering domestic industrial Liability Marine 0% 0% 0% 0% 0% 0% 5% 4% 4% 9% 4% 4% 5% 4% 4% 3% 3% 3% 2% 2% 2% 3% 4% 3% 1% 1% 1% 4% 3% 2% 7% 6% 5% 5% 1% 1% Fire Fire Aviation Engineering domestic industrial Liability Marine 82% 52% 67% 61% 33% 34% 18% 23% 81% 78% 83% 59% 74% 79% 36% 13% 82% 80% 86% 71% Fire Fire Aviation Engineering domestic industrial Liability Marine 37% 11% 11% 27% 155% 198% -200% 38% 48% 105% Fire Fire Aviation Engineering domestic industrial Liability Marine 21% 17% 16% -2% 24% -49% 44% 30% 11% 25% -16% 24% -10% 12% 0% -18% -7% -34% 69% -91% -20% 6% 1% 60% 6% 21% 25% -12% 21% -15% Motor Motor Personal private commercial accident Theft WIBA Misc Medical Total 13% 17% 17% 21% 28% 32% 23% 25% 22% 21% 26% 26% 12% 15% 14% 6% 6% 11% 3% 3% 3% 2% 2% 2% 2% 2% 3% 4% 5% 6% 2% 2% 2% 1% 5% 3% 27% 100% 19% 100% 23% 100% 14% 100% 1% 100% 0% 100% Motor Motor Personal private commercial accident Theft WIBA Misc Medical Total 3% 3% 3% 4% 4% 4% 4% 4% 3% 3% 3% 3% 12% 13% 10% 5% 3% 6% 3% 3% 3% 2% 1% 1% 2% 1% 1% 2% 2% 2% 2% 2% 2% 1% 4% 3% 7% 5% 6% 2% 0% 0% 4% 4% 3% 3% 3% 3% Motor Motor Personal private commercial accident Theft WIBA Misc Medical Total 4% 3% 3% 3% 3% 3% 2% 2% 43% 31% 65% 69% 3% 7% 1% 2% 4% 7% 3% 8% 3% 71% 5% 18% 2% 3% 35% -11% 20% 19% 33% 21% Motor Motor Personal private commercial accident Theft WIBA Misc Medical Total 63% 61% 49% 43% 12% 52% 36% 6% 57% 77% 47% 63% 48% 47% 12% 49% Motor Motor Personal private commercial accident Theft WIBA Misc Medical Total 10% 7% -27% 10% 0% -1% 19% 28% 14% 27% 14% 21% 36% 38% 37% -10% -14% -7% 18% 11% 44% -22% 9% 40% 22% 72% 9% 12% 6% 21% 55% 25% -14% 69% 10% 15% 7% 16% -5% 18% 5% 9% -2% 6% 16% 4% 2% 13 August 2014 Page 16 of 43 .

not change in ratio 13 August 2014 Page 17 of 43 .Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance Britam ratios FY08 FY09 FY10 FY11 FY12 FY13 76% 14% 86% 5% 41% 52% 146% -62% 51% 43% 51% 42% Britam P&L trend (y/y change) FY08 FY09 FY10 FY11 FY12 FY13 Gross earned premium revenue 26% 19% 15% 29% 22% 29% Net earned premium revenue 39% 17% 12% 35% 21% 30% Investment and other income -80% -62% 2315% -145% 141% 26% Total income -24% 3% 136% -62% 247% 29% 9% 24% 91% -42% 197% 3% Net claims and benefits payable 10% 26% 93% -41% 136% 33% Expenses and commissions 35% 21% 5% 30% 27% 35% Profit before tax -84% -198% 954% -160% 265% 12% Profit after tax -88% -273% 741% -172% 229% 5% RoA** 2% -3% 13% -8% 8% 6% RoE** 4% -7% 34% -20% 24% 18% Earnings per share* -88% -273% 741% -172% 229% 5% Dividend per share* 0% 0% 67% 35% 68% 0% Dividend payout ratio** 73% 119% 39% 23% 16% 12% Change in NAV 12% -19% 103% -19% 46% 36% Premium income to total income Investment income to total income Gross claims and benefits payable *Based on current number of issued shares. **Actual ratio.

Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance Britam premium mix FY08 FY09 FY10 FY11 FY12 FY13 Gross premiums Long term insurance premiums Ordinary life premiums Group life premiums Short term insurance business premiums Motor premiums Personal accident and medical premiums Fire premiums Marine premiums Other short term premiums Outward reinsurance Net earned premium 100% 74% 59% 15% 100% 66% 51% 16% 100% 62% 48% 14% 100% 62% 46% 16% 100% 58% 41% 16% 100% 57% 43% 14% 26% 34% 38% 38% 42% 43% 6% 11% 14% 15% 17% 15% 12% 14% 14% 13% 15% 15% 3% 2% 3% -12% 88% 3% 2% 4% -13% 87% 3% 3% 5% -16% 84% 3% 3% 5% -12% 88% 3% 2% 5% -13% 87% 3% 2% 8% -12% 88% Britam premium growth FY08 FY09 FY10 FY11 FY12 FY13 26% 27% 26% 19% 56% 7% 15% 30% 7% 29% 28% 30% 22% 36% 13% 29% 31% 28% FY08 FY09 FY10 FY11 FY12 FY13 100% 100% 100% 100% 100% 100% 75% 66% 76% 94% 36% 45% 31% 28% 33% 40% 13% 12% 29% 29% 21% 19% 6% 8% 15% 9% 22% 35% 17% 25% -32% 23% 30% 38% 17% 15% 3% 1% 3% -6% -2% -4% 94% 41% 8% 6% 1% 24% 1% -25% -1% -25% 75% 25% 10% 10% 0% 1% 4% -4% -1% -3% 96% Gross earned premium revenue Short term business Long term insurance business Britam claims mix Claims and policy holders benefits composition: Long term business Death. maturity and surrender benefits Bonuses Increase in policy holders' liabilities Interest payments/increase (decrease) in unit value Short term insurance business Motor Personal accident and medical Fire Marine Other Less reinsurer's share: Long term business Short term business Net insurance benefits and claims 25% 8% 13% 1% 1% 2% -9% -3% -6% 91% 34% 17% 9% 1% 2% 4% -8% -3% -4% 92% 24% 12% 8% 2% 0% 1% -7% -2% -4% 93% Britam claims & policyholders benefits growth FY08 FY09 FY10 FY11 FY12 FY13 9% 46% 1% 24% 71% 9% 91% 33% 121% -42% -6% -28% 197% 222% 14% 3% -39% 31% Gross claims Short term claims Long term claims 13 August 2014 Page 18 of 43 .

Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance Britam investment income mix FY08 FY09 FY10 FY11 FY12 FY13 Total Fair value gains/(losses) on financial assets at fair value through profit or loss Interest from government securities Other interest receivable Fair value gain on investment property Dividends receivable from equity investments Rental income from investment properties Realised losses on available for sale financial assets Realised gains on sale of non-current assets Interest on bank deposits Sale of investment property Realised gain on government securities at fair value Realised gains/losses on quoted investments at fair value through P&L Realised gains on sale of unit trusts Other 100% -30% 23% 31% 34% 23% 9% 0% 1% 5% 0% 3% 100% -296% 95% 78% 84% 97% 28% -3% 1% 15% 0% 1% 95% 76% 5% 3% 2% 5% 1% 0% 0% 1% 0% 2% 100% 159% -14% -5% -10% -20% -2% 0% 0% -11% 0% 0% 100% 60% 13% 3% 4% 9% 1% 0% 0% 10% 0% 0% 0% 0% 0% 3% 1% 100% 53% 13% 2% 16% 9% 1% 0% 0% 3% 0% 0% 3% 1% 0% Britam balance sheet composition (expressed as a % of assets) FY08 FY09 FY10 FY11 FY12 FY13 Investment properties Quoted shares at fair value through profit and loss Unit trusts through profit and loss Quoted shares at fair value through other comprehensive income Government securities held to maturity 6% 33% 6% 26% 5% 7% 28% 13% 20% 10% 5% 30% 17% 24% 8% 5% 17% 17% 13% 17% 5% 17% 17% 14% 19% 8% 16% 17% 13% 17% Insurance contract liabilities Amounts payable under deposit administration contracts Liabilities under investment contracts Unearned premium reserve 30% 12% 5% 3% 30% 17% 10% 3% 25% 13% 13% 3% 29% 16% 12% 4% 29% 16% 14% 4% 26% 17% 14% 4% 13 August 2014 Page 19 of 43 .

AfricInvest and Aureos. Short term insurance comprises 90% of the company’s revenues. › What we like about UAP. In 2012. Risks include a high dependence on medical insurance and underwriting more risk than its peers relative to premiums earned. UAP is issuing a KES 2bn bond and also intends to list via introduction in 2H15. UAP also has a sizeable property portfolio including the buildings in which Equity Bank and Telkom Kenya are headquartered. Meanwhile. › What are the potential hazards? Medical insurance comprised 40% of the company’s short term insurance premiums in 2012. and geographic expansion). while group life encompasses approximately 70% of the company’s life insurance business. Medical. managing costs (via a shared services centre) and service excellence (product innovation and distribution). The monies are being used to expand the company’s operations in Rwanda. motor and fire industrial insurance account for almost 80% of short term premiums. with the exception of Britam. The company has also turned around its life and medical insurance businesses by improving management as well as internal processes and the overall customer experience.31 Upside/(downside) % Target price KES Price return % Dividend yield (ntm) % 2% Forecast total return % 50% 27% 48% 12 month high/low KES YTD performance % 1yr performance % Issued shares m Market cap (m) USD Free float % 211 267 10% Free float market cap(m) USD Monthly value traded USD Year end 162. The company has managed to post impressive underwriting profits despite insuring tricky segments such as fire industrial and medical insurance. UAP’s loss ratio of 52% in 2012 was better than the industry average of 56% as well as peers Jubilee and CIC. Uganda and South Sudan (where it has a 40% market share.00 Fair value KES 139. UAP Towers which will be one of the tallest buildings in subsaharan Africa is slated for completion in May next year. › Introducing UAP. The company also has lower actuarial surpluses compared to its peers. UAP has operations in Kenya. › What’s the strategy going forward? UAP’s strategy is focussed on diversifying revenues (organic & inorganic growth. UAP raised KES 750m (USD 9m) via a public offer and an additional KES 4bn (USD 46m) from private equity funds Swedfund. UAP is the third largest short term insurer in Kenya. and the company is able to churn underwriting profits in tricky segments such as fire industrial and medical insurance. with life insurance making up 10%. *** BUY *** Current price KES 110. growing in investment management. The company’s underwriting margins are better than any of the listed insurers. Rwanda and South Sudan. all short term insurance) and is owned by a mix of local (Centum) and international private equity funds as well as local businessmen. indicating that the company assumes much higher risk in relation to its premium revenues.99 27 December Bloomberg Reuters 13 August 2014 Page 20 of 43 .Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance UAP: The medicine men We initiate coverage on UAP Insurance with a BUY recommendation. The life business is also 70% skewed towards the ultra-competitive group life insurance. UAP’s ratio of premium earned to loss insured is much lower than that of peers. Tanzania and the DRC (brokerage only in this case) as well as to fund the company’s property projects in Kenya. › Capital raise was done for regional and property strategies. Currently trading on the OTC market rather than the NSE itself.

Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance UAP ratios (short term insurance business) Gross Fire Fire premium mix Aviation Engineering domestic industrial Liability Marine FY12 FY11 FY10 Market share FY12 FY11 FY10 Reinsurance ratio FY12 Reinsurance ratio FY12 Underwriting margin FY12 FY11 FY10 0% 0% 0% 2% 2% 2% 2% 2% 2% 13% 13% 11% 2% 3% 2% 2% 3% 4% Fire Fire Aviation Engineering domestic industrial Liability Marine 0% 0% 0% 5% 6% 6% 10% 10% 10% 10% 10% 8% 9% 9% 5% 5% 6% 7% Fire Fire Aviation Engineering domestic industrial Liability Marine 67% 17% 77% 50% 39% Fire Fire Aviation Engineering domestic industrial Liability Marine 7% 24% 26% 10% 61% Fire Fire Aviation Engineering domestic industrial Liability Marine 37% -7% 17% 24% 45% 16% 13% 20% 7% 23% 11% 11% 2% 40% 12% Motor Motor Personal private commercial accident Theft WIBA Misc Medical Total 17% 19% 20% 17% 20% 22% 2% 3% 3% 3% 3% 3% 4% 5% 6% 3% 2% 3% 32% 100% 25% 100% 22% 100% Motor Motor Personal private commercial accident Theft WIBA Misc Medical Total 8% 8% 8% 6% 6% 6% 4% 4% 4% 6% 6% 6% 6% 6% 7% 7% 5% 6% 15% 13% 12% 8% 8% 7% Motor Motor Personal private commercial accident Theft WIBA Misc Medical Total 3% 4% 28% 24% 4% 86% 2% 19% Motor Motor Personal private commercial accident Theft WIBA Misc Medical Total 62% 47% 49% 39% 20% 76% 60% 52% Motor Motor Personal private commercial accident Theft WIBA Misc Medical Total 0% 8% -9% 18% 22% 13% -12% 14% 37% -2% 12% -7% 30% 10% 38% 30% 28% 5% 2% 9% -7% 11% -19% 3% 13 August 2014 Page 21 of 43 .

not change in ratio 13 August 2014 Page 22 of 43 .Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance Other UAP ratios FY08 FY09 FY10 FY11 FY12 FY13 79% 12% 81% 12% 74% 20% 77% 16% 69% 26% 71% 22% FY08 FY09 FY10 FY11 FY12 FY13 Gross earned premium revenue 19% 27% 30% 23% 28% 37% Net earned premium revenue 20% 33% 24% 25% 26% 38% Investment and other income -64% 33% 120% -4% 129% 17% -1% 29% 37% 20% 40% 34% 8% 62% 33% 8% 52% 41% Net claims and benefits payable 16% 72% 24% 21% 35% 46% Expenses and commissions 26% 15% 30% 9% 42% 30% Profit before tax -55% -38% 183% 54% 44% 27% Profit after tax -63% -36% 225% 36% 50% 31% RoA** 4% 2% 6% 7% 7% 6% RoE** 6% 4% 13% 19% 16% 13% Earnings per share* -66% -39% 209% 68% 45% 29% Dividend per share* -49% 0% 0% 0% 0% 0% 73% 119% 39% 23% 16% 12% -16% -10% 27% 0% 150% 27% Premium income to total income Investment income to total income UAP P&L trend (y/y change) Total income Gross claims and benefits payable Dividend payout ratio** Change in NAV *Based on current number of issued shares. **Actual ratio.

maturity and benefits payable Increase in policy owners' liabilities Interest payable on deposit administration and unit linked investment contracts Amounts recoverable from reinsurers Net insurance benefits and claims 97% 95% 2% 4% 1% 4% 43% 1% 100% 89% 5% 2% 0% 4% 38% 2% 100% 81% 5% 8% 1% 3% 30% 3% 100% 83% 0% 6% 3% 2% 34% 4% 100% 81% 8% 5% 0% 4% 27% 2% 100% 79% 0% 6% 0% 2% 25% 2% 32% 32% 28% 30% 4% 1% 7% 4% 3% 4% 1% 3% 1% 11% 1% 19% 1% 17% 2% 27% 2% 19% 3% 37% 4% 21% 4% 5% 8% 8% 9% 9% -1% 2% 8% 7% 7% 10% 0% 4% 3% 2% 3% 1% -15% -10% -16% -6% -16% -13% 85% 90% 84% 94% 84% 87% UAP claims & policyholders benefits growth FY08 FY09 FY10 FY11 FY12 FY13 Gross claims Short term claims Long term claims 8% 11% -63% 62% 53% 550% 33% 21% 130% 8% 10% -2% 52% 48% 70% 41% 38% 52% 13 August 2014 Page 23 of 43 .Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance UAP premium mix FY08 FY09 FY10 FY11 FY12 FY13 Gross earned premium revenue Short term business: Engineering Fire Liability Marine Motor Workmen's compensation Personal accident (includes medical up to 2010) Theft Medical Others Long term insurance business Ordinary life Group life Outward reinsurance Net earned premium 100% 92% 4% 16% 3% 6% 29% 3% 100% 91% 5% 13% 3% 6% 30% 5% 100% 94% 3% 13% 3% 4% 35% 6% 100% 92% 4% 14% 2% 4% 34% 7% 100% 91% 4% 12% 2% 3% 36% 5% 100% 89% 3% 13% 3% 3% 30% 4% 24% 6% 23% 6% 23% 7% 21% 4% 21% 4% 1% 8% 1% 7% -24% 76% 2% 9% 4% 5% -23% 77% 1% 6% 2% 4% -20% 80% 3% 8% 3% 5% -23% 77% 3% 9% 4% 5% -21% 79% 20% 4% 5% 3% 11% 5% 7% -23% 77% UAP premium growth FY08 FY09 FY10 FY11 FY12 FY13 19% 18% 31% 27% 31% -7% 30% 27% 63% 23% 22% 32% 28% 24% 68% 37% 36% 41% Gross earned premium revenue Short term business: Long term insurance business UAP claims mix FY08 FY09 FY10 FY11 FY12 FY13 Total Short term business Engineering Fire Liability Marine Motor Workmen's compensation Personal accident (includes medical up to 2010) Theft Medical Others Long term insurance business Death.

Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance UAP investment income mix FY08 FY09 FY10 FY11 FY12 FY13 Total Interest from government securities Bank deposit interest Loan interest receivable Rental income from investment properties Miscellaneous income Gain in foreign exchange Interest on debentures Fair value gains on investment properties Fair value (losses)/gains on equity assets at fair value through profit or loss Dividends receivable from equity investments Realised gains on sale of financial assets Fair value (losses)/gains on government securities assets at fair value through profit or loss Investment fees 100% 23% 7% 2% 37% 3% -3% 0% 49% 0% 21% 23% 100% 19% 8% 3% 38% 1% -1% 0% 24% 18% 0% 3% 100% 10% 4% 2% 18% 0% 0% 0% 33% 9% 0% 0% 100% 12% 7% 1% 20% 1% 3% 0% 66% -23% 13% 0% 100% 15% 12% 1% 9% 0% 0% 3% 47% 8% 7% 0% 100% 18% 12% 1% 9% 0% -2% 4% 40% 16% 5% 0% -61% -12% 23% 0% 1% 0% -3% -5% UAP balance sheet composition (expressed as a % of assets) FY08 FY09 FY10 FY11 FY12 FY13 Investment properties Receivables arising out of direct insurance arrangements Equity instruments Equity investment at fair value through OCI Government securities Deposits with financial institutions 29% 6% 29% 0% 10% 5% 30% 6% 24% 0% 11% 7% 26% 6% 27% 0% 11% 7% 35% 7% 17% 0% 12% 5% 33% 8% 0% 11% 13% 12% 34% 7% 0% 13% 14% 6% Liabilities Payables under deposit administration contracts Insurance contract liabilities Unearned premium 8% 16% 16% 10% 18% 18% 12% 17% 18% 12% 19% 19% 9% 14% 14% 8% 16% 14% 13 August 2014 Page 24 of 43 .

80 Fair value KES 48. 98% of Kenya Re’s business is treaty (as opposed to facultative) business. Most insurers would want to reinsure a huge proportion of fire industrial insurance due to the severity of potential losses.18 Price return % 221% Dividend yield (ntm) % 3. unlike the previous years when the converse occurred. Kenya contributes about half of Kenya Re’s premium revenues). Kenya Re generated underwriting profits in its short term reinsurance business.9bn gross fire claim. Kenya Re derives a significant proportion (30%) of its premiums from fire industrial insurance because it is a well-developed class of insurance in this region and mainly relates to property. and Kenya Re is lobbying for a renewal. Meanwhile. Current price KES 17. Strong premium growth in personal accident and miscellaneous insurance categories also contributed to this turnaround. We upgrade our recommendation to BUY. meaning that insurers in Kenya have to cede at least 18% of their reinsurance premiums to Kenya Re.Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance Kenya Re: Back to black In 2013. Given that Kenya Re’s competitors also enjoy mandatory cessions in Kenya. which was the first time it did so since 2010. and as such there is need to revisit the pricing of premiums. even though Kenya Re had a 20% share of the KES 1. whose growth in premiums exceeded growth in claims. 13 August 2014 Page 25 of 43 . meaning there is a significant element of optional share in addition to the compulsory share. This was attributed to strong premium growth in fire industrial as well as medical insurance. we would expect that Kenye Re’s compulsory share be extended further. The mandatory cession however expires at the end of 2015.35 143 40% December Bloomberg KNRE KN Reuters KNRE NR Expiring mandatory cession should get renewed. In addition. Kenya Re’s underwriting profit in short term business in 2013 were driven largely by fire industrial and medical insurance. the company’s mandatory cession expires next year but we think it is likely to be renewed. The fact that Kenya Re’s business is overwhelmingly treatybased also shields the reinsurer from large losses. Kenya Re’s retrocessors include General Insurance Corporation of India. *** BUY *** › 12 month high/low KES YTD performance % 15% 1yr performance % 4% Issued shares m 700 Market cap (m) USD Free float % Free float market cap(m) USD 57 Monthly value traded USD 2. Kenya Re also incurred minimal claims from the JKIA fire due to the excess of loss protection arrangements it was with its retrocessors. as does receivables. Kenya Re enjoys 18% mandatory cession in Kenya. Although this is a high severity and therefore high risk reinsurance class. unlike previous years when claim growth in these categories exceeded premium growth. Kenya Re however enjoys 25-30% market share in Kenya (overall. Meanwhile. which means that Kenya Re only retains the first level of losses and hence is less exposed.2 › Fire industrial and medical insurance drive turnaround. African Re and Lloyds Securities. as well as the likes of Korean Re.4% Forecast total return % 224% Year end 20. the company had a much lower impairment expense for its receivables. it appears that Kenya Re has excess of loss retrocession policies in place that shield it from incurring massive claims.50/14.87 Upside/(downside) % 175% Target price KES 57. In addition. the company incurred underwriting losses in personal accident insurance because the government introduced an Injury Benefits Act under which employees are compensated for 96 months of earnings. We also note that the company’s excess of loss protection from its retrocessors meant that the net claim incurred from 2013 airport fire claim was only KES 30 million.

**Actual ratio. not change in ratio 13 August 2014 Page 26 of 43 .Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance Kenya Re ratios FY08 FY09 FY10 FY11 FY12 FY13 Premium income to total income Investment income to total income 66% 22% 70% 23% 66% 26% 72% 18% 68% 26% 75% 20% Kenya Re P&L trend (y/y change) FY08 FY09 FY10 FY11 FY12 FY13 Gross earned premium revenue 6% 8% 23% 34% 22% 21% Net earned premium revenue 5% 11% 24% 34% 23% 22% Investment and other income -2% 10% 48% -14% 82% -14% Total income 12% 4% 31% 24% 30% 10% 1% 25% 12% 48% 29% 24% Net claims and benefits payable -4% 30% 12% 44% 38% 16% Expenses and commissions -9% 10% 62% 12% 14% 2% Profit before tax 66% -18% 13% 23% 45% 11% Profit after tax 79% -11% 16% 24% 46% 7% RoA** 11% 9% 10% 11% 13% 12% RoE** 19% 15% 16% 17% 21% 19% Earnings per share* 79% -11% 16% 24% 46% 7% Dividend per share* 43% 0% -30% 0% 33% 50% Dividend payout ratio** 20% 23% 14% 11% 10% 14% Change in NAV 15% 10% 16% 9% 27% 23% Gross claims and benefits payable *Based on current number of issued shares.

Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance Kenya Re premium mix FY08 FY09 FY10 FY11 FY12 FY13 Gross earned premium Short term business: Motor private Motor commercial Fire domestic Fire industrial Personal accident Theft Miscellaneous Liability Engineering Workmen compensation Marine Aviation Medical Long term business: Ordinary life Superannuation Less: retrocession premiums Net earned premium 100% 83% 0% 7% 0% 36% 4% 10% 8% 2% 8% 0% 8% 0% 0% 17% 1% 15% -9% 91% 100% 83% 0% 7% 0% 38% 5% 8% 8% 2% 9% 0% 7% 0% 0% 17% 1% 16% -7% 93% 100% 85% 0% 7% 0% 38% 8% 8% 6% 1% 8% 0% 7% 1% 0% 15% 1% 14% -6% 94% 100% 84% 0% 6% 0% 36% 7% 7% 5% 1% 9% 0% 8% 0% 5% 16% 2% 14% -6% 94% 100% 86% 0% 5% 0% 33% 6% 7% 5% 1% 9% 0% 7% 0% 12% 14% 2% 12% -5% 95% 100% 88% 0% 5% 0% 32% 8% 7% 6% 1% 7% 0% 7% 0% 15% 12% 2% 10% -5% 95% Kenya Re premium growth FY08 FY09 FY10 FY11 FY12 FY13 6% 8% -1% 8% 8% 11% 23% 26% 9% 34% 33% 41% 22% 25% 7% 21% 24% 4% FY08 FY09 FY10 FY11 FY12 FY13 100% 100% 100% 100% 100% 100% 90% 0% 8% 0% 31% 5% 8% 9% 2% 4% 0% 5% 0% 0% 17% 10% 0% 20% 0% -10% 79% 0% 5% 0% 43% 5% 9% 7% 1% 3% 0% 5% 0% 0% 0% 21% 0% 0% 0% 0% 83% 0% 6% 0% 41% 11% 7% 5% 0% 4% 0% 8% 1% 0% 0% 17% 0% 0% 12% 4% 85% 0% 5% 0% 41% 11% 4% 2% 0% 5% 0% 11% -1% 8% 0% 15% 0% 0% 11% 4% 94% 0% 8% 0% 31% 11% 10% 4% 1% 3% 0% 5% 0% 22% 0% 6% 0% 0% 11% -5% 92% 0% 5% 0% 29% 10% 10% 5% 1% 3% 0% 4% 0% 24% 0% 8% 0% 7% 0% 0% -10% -7% -7% -10% -4% -10% 90% 93% 93% 90% 96% 90% Gross earned premium revenue Short term business: Long term insurance business Kenya Re claims mix Claims and policy holders benefits composition: Short term business: Motor private Motor commercial Fire domestic Fire industrial Personal accident Theft Miscellaneous Liability Engineering Workmen compensation Marine Aviation Medical Provision for outstanding claims Long term business: Ordinary life Superannuation Other Change in actuarial liability Claims recoverable from retrocessionaires Net claims incurred 13 August 2014 Page 27 of 43 .

Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance Kenya Re claims & policyholders benefits growth FY08 FY09 FY10 FY11 FY12 FY13 Gross claims Short term claims Long term claims 1% 15% -52% 25% 10% 159% 12% 18% -9% 48% 51% 36% 29% 44% -50% 24% 21% 65% Kenya Re investment income mix FY08 FY09 FY10 FY11 FY12 FY13 Investment income composition: Rental income from investment properties Interest on government securities Reclassification of fair value gain on valuation of AFS quoted equities Gain on disposal of available for sale quoted equity instruments Dividends receivable Net foreign exchange gain/loss Interest on commercial mortgages Interest on deposits with financial institutions Interest on corporate bonds Gain on disposal of investment property Gain on disposal of non-current asset held for sale Other income Gain on disposal of inventories Interest on staff mortgages and loans Gain on disposal of equipment Fair value gains on revaluation of investment properties 100% 25% 15% 0% 7% 6% 0% 4% 2% 0% 2% 1% 1% 1% 1% 0% 35% 100% 30% 19% 0% 10% 10% 0% 4% 5% 0% 0% 0% 1% 0% 1% 0% 21% 100% 23% 13% 21% 9% 6% 0% 2% 6% 0% 0% 0% 0% 0% 0% 0% 18% 100% 23% 16% 11% -1% 7% 0% 2% 9% 0% 0% 0% 0% 0% 0% 0% 32% 100% 18% 16% 10% 3% 4% 0% 1% 20% 0% 0% 10% 0% 0% 0% 0% 16% 100% 23% 31% 11% 3% 4% 0% 2% 8% 1% 0% 0% 0% 0% 0% 0% 16% Kenya Re balance sheet composition (expressed as a % of assets) FY08 FY09 FY10 FY11 FY12 FY13 Investment properties Receivables arising out of reinsurance arrangements Premium and loss reserves Mortgage loans Quoted equity instruments Government securities Deposits with financial institutions 28% 11% 2% 3% 16% 20% 7% 28% 10% 3% 3% 13% 21% 6% 27% 7% 3% 2% 15% 16% 16% 28% 7% 2% 2% 11% 18% 19% 25% 6% 1% 2% 10% 23% 18% 23% 7% 1% 3% 10% 27% 15% Liabilities Long term reinsurance contract liabilities Short term reinsurance contract liabilities Unearned premiums 14% 14% 8% 14% 15% 8% 12% 13% 10% 12% 12% 11% 9% 13% 11% 7% 13% 12% 13 August 2014 Page 28 of 43 .

Jubilee has also appointed a Regional Senior Executive (who was up to that point heading AIG’s business in Kenya and before that worked for ACE Insurance in South Africa) and a Regional CFO. This was a commendable feat in a business line where the majority of industry players are still regularly incurring underwriting losses. which means that the first acquisition may well take place by 1H15 if not earlier. In FY12 net claims had grown by 40% compared to 28% premium growth. Jubilee already has a presence in Uganda. the real estate company. This was driven by reduced earnings from the Mauritius-incorporated IPS Cable Holdings as well as PDML holdings of Kenya. which represented an underwriting margin of 7. short term insurance growth contracted. motor and fire insurance categories. Meanwhile.28 Upside/(downside) % Target price KES Price return % Dividend yield (ntm) % 2% Forecast total return % 75% 50% 659.00 Fair value KES 568. › Associates still core to strategy despite reduced earnings. › Claims growth outstrips premium growth by a wide margin once again. During its FY13 results announcement Jubilee had stated its intention to acquire up to five insurers in Kenya and the region over the next 3 years. Net premium growth of 15% in FY13 was the slowest in at least the last six years. The share is trading at a low price-to-book ratio relative to its RoE (the most consistent among the listed insurers) and we therefore upgrade our recommendation to BUY. The main reason for the rapid growth in claims is increase in policy holders benefits in the pension/annuity business. Jubilee’s share of profit from associates was down 18% in 2013. › Top line slows down. While life insurance had better growth. Management also hinted that Jubilee has already held discussions with three insurers. Management have hinted at significant inorganic acquisition activity in the next 2-3 years. Burundi and Mauritius. › Regional M&A aspirations. *** BUY *** Current price KES 380. Jubilee is also looking at making a greenfield entry in West Africa. especially in the medical.5 Year end 46% December Bloomberg JBIC KN Reuters JUB NR 13 August 2014 Page 29 of 43 .Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance Jubilee: Gearing up for M&A Jubilee insurance’s 10% earnings growth in 2013 was appreciable considering the company had its slowest premium growth in recent memory and had to cope with yet another surge in policy holder benefits expense and a sizeable reduction in profit contribution from associates. While acquisitions are preferred. and recent appointments of senior regional executives indicate that much of this may well take place in the region. › Still the medical doctor. Jubilee plans to make residential and commercial property investments of KES 3. and beyond.3bn in FY13.20 73% 12 month high/low KES YTD performance % 414/255 33% 1yr performance % 35% Issued shares m Market cap (m) USD 60 262 Free float % Free float market cap(m) USD 121 Monthly value traded USD 0. Jubilee still made underwriting profits of KES 470 million. hence the impending acquisitions are more of a consolidation strategy rather than market entry. Jubilee continues to have stakes in companies such as Seacom (fibre optic) and Bujagali (hydropower) where it has a satisfactory and guaranteed IRR to meet its long term business obligations. Despite a 25% growth in medical insurance premiums to KES 6.5%.3bn in Uganda and Tanzania using PDML and has already purchased the land. Tanzania. Net claims grew by 28% in FY13.

not change in ratio 13 August 2014 Page 30 of 43 .Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance Jubilee Holdings ratios FY08 FY09 FY10 FY11 FY12 FY13 71% 21% 70% 23% 55% 39% 69% 22% 65% 25% 60% 31% Jubilee P&L trend (y/y change) FY08 FY09 FY10 FY11 FY12 FY13 Gross earned premium revenue 38% 21% 20% 42% 28% 17% Net earned premium revenue 35% 20% 8% 37% 28% 15% Investment and other income 14% -24% 63% 25% 17% 17% Total income 20% 22% 39% 8% 36% 26% Gross claims and benefits payable 27% 24% 55% 20% 36% 36% Net claims and benefits payable 21% 25% 41% 9% 40% 28% Expenses and commissions 30% 19% 15% 38% 25% 14% Profit before tax 12% 23% 84% 4% 26% 17% Profit after tax 8% 27% 102% 4% 20% 10% RoA** 4% 4% 7% 6% 5% 5% RoE** 20% 26% 39% 31% 30% 25% Earnings per share* 4% 29% 113% 3% 17% 7% Dividend per share* 0% 11% 40% 0% 41% 14% 30% 26% 17% 16% 20% 21% -17% 18% 47% 20% 30% 33% Premium income to total income Investment income to total income Dividend payout ratio** Change in NAV *Based on current number of issued shares. **Actual ratio.

Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance Jubilee premium mix FY08 FY09 FY10 FY11 FY12 FY13 Gross premiums composition Short term business: Medical Motor Personal accident (2007 & 2008 includes medical) Fire Other Long term business: Ordinary life Group life (2007 and 2008 includes superannuation) Pension/annuity Outward reinsurance % of gross premiums Net earned premium 100% 83% 0% 20% 100% 84% 23% 20% 100% 83% 26% 18% 100% 84% 28% 20% 100% 85% 30% 20% 100% 85% 33% 21% 31% 25% 21% 21% 16% 14% 11% 21% 17% 7% 11% 6% 16% 7% 13% 5% 17% 8% 10% 7% 16% 8% 12% 7% 15% 8% 12% 5% 15% 8% 10% 5% 6% 6% 5% 5% 0% 4% 3% 2% 2% 2% -30% -30% -37% -39% -39% -40% 70% 70% 63% 61% 61% 60% Jubilee premium growth FY08 FY09 FY10 FY11 FY12 FY13 38% 40% 33% 21% 22% 14% 20% 19% 28% 42% 45% 27% 28% 29% 20% 17% 16% 24% FY08 FY09 FY10 FY11 FY12 FY13 100% 100% 100% 100% 100% 100% 68% 0% 24% 67% 26% 18% 58% 23% 13% 70% 26% 15% 70% 30% 20% 67% 26% 16% 30% 19% 7% 16% 12% 9% 5% 10% 32% 7% 1% 4% 12% 4% 10% 4% 10% 3% 10% 3% 10% 3% 6% 3% 9% 3% 14% 2% 8% 3% 16% 0% 0% 0% 0% 0% 8% 5% 4% 4% 2% 2% 0% 0% 0% 0% 0% -18% 82% 3% 20% 2% 1% 17% -18% 82% 3% 33% 5% 2% 26% -25% 75% 2% 20% 7% 1% 12% -32% 68% 4% 21% 4% 0% 17% -30% 70% 2% 25% 2% 1% 22% -34% 66% FY08 27% 29% 23% FY09 24% 22% -51% FY10 55% 33% 20% 151% FY11 20% 45% 22% -27% FY12 36% 36% 20% 43% FY13 36% 30% 20% 63% Gross earned premium revenue Short term business: Long term insurance business Jubilee claims mix Claims and policyholders benefits (gross) Short term business: Medical Motor Personal accident (2007 & 2008 includes medical) Fire Other Long term business: Ordinary life Interest payable on deposit administration contracts Group life (2007 and 2008 includes 'other superannuation') Pension/annuity Increase in policy holders benefits Ordinary life Group life Pension/annuity Recoverable from re-insurers: Net insurance benefits and claims Jubilee claims & policyholders benefits growth Gross claims Short term claims Long term claims Increase in policyholders benefits 13 August 2014 Page 31 of 43 .

Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance Jubilee investment income mix FY08 FY09 FY10 FY11 FY12 FY13 Investment income composition: Mortgage loan interest Bank deposit interest Government securities Interest on policy loans Dividends receivable from equity investments Rental income from investment properties (net of expenses) Gain on sale of investments Fair value gain on investment properties Exchange loss Realised gains on disposal of quoted shares Realised gains on disposal of government securities Other income Net fair value gains on financial assets at fair-value-through-profit-and-loss 100% 1% 18% 33% 2% 16% 16% 10% 45% -1% 0% 0% 1% -41% 100% 0% 21% 27% 2% 14% 15% 0% 0% 0% 0% 0% 1% 20% 100% 0% 9% 15% 1% 6% 6% 0% 6% 1% 9% 2% 1% 43% 100% 0% 13% 41% 2% 10% 9% 0% 30% 4% 2% 0% 1% -14% 100% 0% 19% 43% 2% 7% 6% 0% 6% 1% 2% 0% 2% 12% 100% 0% 10% 38% 1% 3% 4% 0% 3% 0% 5% 0% 1% 34% Jubilee balance sheet composition (expressed as a % of assets) FY08 FY09 FY10 FY11 FY12 FY13 Investment properties Investment in associates Quoted shares at fair value through profit and loss Government securities at amortised cost Deposits with financial institutions Reinsurers' share of insurance contract liabilities 12% 11% 19% 15% 14% 7% 11% 16% 13% 18% 14% 7% 9% 13% 17% 21% 11% 8% 9% 13% 10% 27% 7% 10% 8% 13% 9% 28% 12% 10% 7% 11% 10% 31% 10% 11% Insurance contract liabilities Payable under deposit administration contracts Unearned premium reserve 29% 30% 10% 28% 32% 11% 25% 34% 11% 28% 33% 12% 26% 35% 11% 25% 37% 10% 13 August 2014 Page 32 of 43 .

CIC has already entered into a joint venture with Malawi Union of Savings and Credit Co-operatives (Muscco). The insurer may potentially restore investment returns via a suggested foray into equities but underwriting margins may remain under pressure with the continued focus on medical and especially micro insurance. underwriting margins in this segment declined marginally in FY13 to -8%. it will issue a KES 5bn bond instead.Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance CIC: Under pressure CIC’s disappointing FY13 earnings growth was attributable to declining investment income and thinning underwriting margins. › What’s the money for? CIC like many of its peers is focused on property investments and regional expansion. CIC’s overall underwriting margin of 5% in 2013 was the lowest in at least the last four years. CIC is also finalising its real estate blueprint that will see the company set up commercial and residential developments on 700 acres of land in semi-rural and rural areas. Tanzania and Malawi expected in FY14. Uganda. › › Hints at more aggressive investing strategy as conservatism hurts earnings growth. *** REDUCE *** Current price KES 9. However. the loss making trend in medical insurance could persist for another 2-3 years. Further.45 277 20% December Bloomberg CIC KN Reuters CIC NR 13 August 2014 Page 33 of 43 . CIC’s medical insurance underwriting margin of -12% was double that of 2012 and the worst performance since at least 2010. › Debt over equity.75/4. Meanwhile. The share has however rallied 125% since our initiation in 4Q13 and we downgrade our recommendation to REDUCE. the stage is set for a corporate bond issue (the rights issue plans have been shelved) in 2H14 as the insurer joins the race for property investments and regional expansion. Regional expansion is also gaining traction with entry into South Sudan. It is now only second to motor commercial insurance in CIC’s short term insurance business mix. FY13 earnings growth of 1% was the slowest in at least the last six years and was caused primarily by a 9% contraction in interest income as bank deposit interest earned fell following the normalisation of the interest rate environment in 2013 in contrast to the high rate environment that prevailed in 2012. The CIC Plaza II building located in the prime Upper Hill area was completed in FY13. In May 2014 the insurer’s shareholders resolved to double the authorised share capital from KES 3bn to KES 6bn in preparation for a rights issue that should take place in 2H14. To this end. despite a commendable reduction in dependence on the high risk motor private insurance. The CEO’s statement in the annual report specifically pinpoints an intention to have a greater exposure to equities going forward so as to restore investment returns. Medical insurance comprised only 3% of short term insurance premiums in 2010 but now comprises 18% and actually overtook motor private insurance in 2012. With CIC focussed on micro insurance. This can be attributed to medical insurance which is poised to become the insurer’s biggest revenue line in the next two years.616 Market cap (m) USD Free float % Free float market cap(m) USD 56 Monthly value traded USD 1.20 Fair value KES Upside/(downside) % 7.89 Target price KES 9. management has subsequently clarified that in the interests of time.6 Year end 9. Underwriting margins fall as medical overtakes motor insurance.15 Price return % -1% Dividend yield (ntm) % 1% Forecast total return % 0% -14% 12 month high/low KES YTD performance % 52% 1yr performance % 89% Issued shares m 2.

Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance CIC ratios FY08 FY09 FY10 FY11 FY12 FY13 89% 9% 90% 7% 90% 8% 89% 9% 82% 16% 84% 13% FY08 FY09 FY10 FY11 FY12 FY13 Gross earned premium revenue 13% 24% 42% 56% 34% 23% Net earned premium revenue 12% 25% 44% 51% 36% 26% Investment and other income 86% 1% 31% 129% 47% -9% Total income 14% 23% 45% 53% 48% 22% 12% 33% 49% 58% 31% 9% 22% 35% 57% 47% 30% Expenses and commissions 15% 24% 39% 55% 26% 23% Profit before tax 55% 27% 118% 30% 110% 1% Profit after tax 41% 34% 106% 20% 138% 1% RoA** 6% 6% 8% 6% 11% 9% RoE** 26% 27% 27% 17% 28% 23% Earnings per share* 41% 34% 106% 20% 138% 1% Dividend per share* 4% 21% 182% 104% 11% 0% Dividend payout ratio** 16% 14% 20% 34% 16% 16% Change in NAV 32% 31% 164% 65% 27% 22% Premium income to total income Investment income to total income CIC P&L trend (y/y change) Gross claims and benefits payable Net claims and benefits payable *Based on current number of issued shares. not change in ratio 13 August 2014 Page 34 of 43 . **Actual ratio.

accident Micro solutions Long term insurance: Ordinary life Group life Outward reinsurance composition Net earned premium 100% 51% 1% 1% 4% 0% 0% 15% 12% 0% 3% 5% 8% 2% 0% 0% 49% 4% 45% -11% 89% 100% 56% 2% 1% 4% 0% 0% 16% 15% 0% 3% 5% 7% 2% 0% 0% 44% 4% 41% -11% 89% 100% 59% 1% 1% 4% 0% 0% 19% 18% 0% 4% 3% 7% 2% 1% 0% 41% 5% 36% -9% 91% 100% 65% 1% 1% 4% 0% 0% 20% 20% 0% 8% 2% 5% 2% 1% 0% 35% 5% 31% -13% 87% 100% 70% 1% 1% 4% 1% 0% 16% 20% 0% 17% 2% 5% 2% 1% 0% 30% 4% 26% -11% 89% 100% 70% 1% 1% 5% 2% 1% 14% 20% 0% 18% 2% 4% 2% 1% 0% 30% 4% 25% -9% 91% CIC premium growth FY08 FY09 FY10 FY11 FY12 FY13 24% 36% 12% 42% 50% 31% 56% 71% 35% 34% 44% 14% 23% 24% 22% FY08 FY09 FY10 FY11 FY12 FY13 100% 100% 100% 100% 100% 100% 47% 1% 1% 0% -1% 0% 25% 10% 0% 2% 3% 5% 0% 0% 53% 42% 1% 0% 54% 0% 0% 1% 0% 0% 30% 13% 0% 2% 1% 4% 1% 0% 46% 32% 2% 0% 58% 0% 1% 1% 0% 0% 30% 15% 0% 3% 2% 4% 1% 0% 42% 32% 4% 0% 60% 0% 0% 1% 0% 0% 26% 18% 0% 7% 1% 4% 1% 0% 40% 25% 3% 0% 68% 0% 0% 0% 0% 0% 22% 19% 0% 19% 2% 3% 1% 1% 32% 22% 2% 0% 68% 1% 0% 1% 1% 0% 19% 15% 0% 26% 1% 3% 1% 0% 32% 24% 1% 0% 11% 12% 6% 12% 8% 6% -18% 82% -12% 88% -7% 93% -8% 92% -10% 90% -10% 90% Gross earned premium revenue Short term business: Long term insurance business CIC claims mix Net claims and policyholders benefits payable General insurance: CAR & engineering Fire domestic Fire industrial Liability insurance Marine & transit Motor private Motor commercial Motor pool Medical insurance Personal accident Theft insurance Workmen's compensation Misc. accident Policyholders' benefits: Life and health claims Maturities Surrenders Actuarial adjustment of policy holders liability Recoverable from re-insurers: Net insurance benefits and claims 13 August 2014 Page 35 of 43 .Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance CIC premium mix FY08 FY09 FY10 FY11 FY12 FY13 Gross earned premium revenue General insurance: CAR & engineering Fire domestic Fire industrial Liability insurance Marine & transit Motor private Motor commercial Motor pool Medical insurance Personal accident Theft insurance Workmen's compensation Misc.

Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance CIC claims & policyholders benefits growth FY08 Gross claims Short term claims Increase in policyholders benefits FY09 FY10 FY11 FY12 FY13 22% 42% 35% 44% 57% 63% 47% 66% 30% 31% 5% 23% 49% 20% 27% CIC investment income mix FY08 FY09 FY10 FY11 FY12 FY13 Investment income composition: Interest on government securities held to maturity Bank deposit interest Interest on staff loan receivables Dividend income Rental income from investment property Fair value gains on investment property Fair value (loss)/gain on equity investments at fair value through profit and loss Amortisation/discount on government securities held to maturity Other gains and losses 100% 47% 30% 3% 0% 7% 10% -6% 0% 8% 100% 38% 35% 9% 0% 7% 0% 0% 0% 11% 100% 41% 24% 3% 0% 4% 0% 0% 0% 28% 100% 52% 41% 5% 2% 3% 0% 0% 0% -2% 100% 16% 35% 1% 3% 1% 0% 0% 0% 44% 100% 22% 25% 2% 3% 1% 0% 0% -2% 49% CIC balance sheet composition (expressed as a % of assets) FY08 FY09 FY10 FY11 FY12 FY13 Investment properties Reinsurers' share of contract liabilities and reserves Government securities held to maturity Deposits with financial institutions 6% 14% 25% 17% 6% 15% 23% 16% 12% 12% 15% 25% 12% 15% 22% 25% 18% 14% 15% 26% 21% 10% 14% 20% Insurance contract liabilities Unearned premium reserve Actuarial value of policyholder liabilities 37% 15% 17% 34% 15% 19% 22% 18% 12% 23% 19% 11% 23% 22% 12% 18% 24% 12% 13 August 2014 Page 36 of 43 .

Optional scrip dividend. but there was a lot of noise in the P&L. We upgrade our recommendation to BUY. While total income was down 9% due to a fall in investment income. the dividend payout ratio was 20%. Shareholders however had an option to elect for a cash dividend. investment income declined measurably. The net effect was a 2% downward restatement of FY12 net income.90 Fair value KES 23. similar to FY12. but this was to be in the form of a scrip dividend to be ‘paid’ from the share premium account. › Change in accounting policy for financial instruments has minimal P&L impact. *** BUY *** Current price KES 17. Liberty’s 26% earnings growth in 2013 was a strong recovery from a 14% earnings contraction in FY12. In 2013 Liberty reviewed its accounting policy for insurance liabilities and matching assets in order to conform to the policies of its ultimate holding company.Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance Liberty Kenya: P&L noise continues Liberty’s FY13 results reflected an impressive bounceback from 2012.4 Year end Bloomberg 22. As a result. Liberty retained the dividend at 40cts a share.6% 30% 26.6% Forecast total return % 51. The scrip dividend is like a bonus issue and therefore results in more issued share capital. although earnings in that year were boosted by a one-off sale of an associate company. this was largely offset by a 20% decline in net claims incurred (again due to a net reinsurance gain on an unusually large fire claim). Ultimately what made the difference was a reduction in commissions payable. Liberty also changed its accounting policy for financial instruments and disposed of an associate company in Tanzania (and appears likely to dispose of another one this year). Liberty is also in the process of reviewing its shareholder agreements for another associate. a substantial proportion of the company’s financial assets were moved from an available-for-sale and held-to-maturity classification to a fair-value-through-profit-or-loss classification.34 Upside/(downside) % Target price KES Price return % 46% Dividend yield (ntm) % 5. although its reinsurers in Tanzania were significantly impacted and have therefore adjusted their rates significantly.50/4. The insurer’s conservative strategy did results in significant claims protection from large fire claims in 2013. Overall. and expected to finalize the process in 1H14.90 December CFCI KN Reuters 13 August 2014 Page 37 of 43 . However this was more than offset by hefty declines in net claims. An unprecedented number of large claims on fire and engineering policies in 2013 meant that underwriting profits were less than half those in 2012. financing costs and income tax expense. namely Strategis Insurance Limited. › Tanzania takes a hit.14 12 month high/low KES YTD performance % -18% 1yr performance % 48% Issued shares m 515 Market cap (m) USD 106 Free float % 5 Free float market cap(m) USD 6 Monthly value traded USD 0. Whilst premium income was relatively flat (with a 77:23 mix between short term and life insurance). › › Reduction in expenses drives FY13 earnings. commission expenses and income tax expense. although there has been no announcement in this regard. and overall PBT was less than one-third of FY12.

Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance Liberty Kenya ratios FY08 FY09 FY10 FY11 FY12 FY13 66% 29% 66% 26% 49% 40% 55% 36% FY10 FY11 FY12 FY13 Gross earned premium revenue 33% 9% 6% Net earned premium revenue 20% -6% 2% Investment and other income 4% 95% -18% Total income 20% 25% -8% Gross claims and benefits payable 21% 8% 122% Net claims and benefits payable -9% 52% -18% Expenses and commissions 33% 7% -5% Profit before tax 110% 17% 9% Profit after tax 266% -9% 27% RoA** 4% 3% 4% RoE** 23% 21% 24% 266% -14% 26% 100% 0% 0% 25% 20% -11% 9% 20% Premium income to total income Investment income to total income Liberty P&L trend (y/y change) FY08 FY09 Earnings per share* Dividend per share* Dividend payout ratio** Change in NAV *Based on current number of issued shares. **Actual ratio. not change in ratio 13 August 2014 Page 38 of 43 .

Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance Liberty premium mix FY11 FY12 FY13 Gross earned premium revenue Short term business: Motor Fire Personal accident and medical Other Long term business: Retail life Group life Outward reinsurance Net premiums 100% 75% 19% 20% 20% 16% 25% 20% 5% -34% 66% 100% 78% 18% 22% 24% 14% 22% 17% 5% -40% 60% 100% 77% 16% 21% 20% 20% 23% 16% 7% -45% 57% Liberty premium growth FY11 FY12 FY13 33% 9% 14% -5% 6% 5% 11% FY11 FY12 FY13 100% 100% 100% 71% 18% 14% 29% 9% 28% 18% 47% 11% 0% 15% 14% 34% 12% 76% 7% 53% 9% 4% 18% 8% 10% 16% 9% 0% 1% -27% 73% 0% 19% -16% 84% 0% 6% -64% 36% FY11 FY12 FY13 Gross earned premium revenue Short term business: Long term insurance business Liberty claims mix Claims and policyholders benefits composition: Short term business: Motor Fire Personal accident and medical Others Long term business: Death. maturity and surrender benefits Interest payable on deposit administration contracts Others Change in insurance contract liabilities Recoverable from re-insurers: Net insurance benefits and claims Liberty claims & policyholders benefits growth Gross claims 22% Short term claims Increase in policyholders benefits 31% 92% -12% 59% 207% 3% Liberty investment income mix FY11 FY12 FY13 Investment income composition: Interest from government securities Interest on bank deposits Interest from corporate bonds and commercial paper Interest on loans and receivables Rental income from investment property Gain on sale of financial investments Fair value gain on investment property Interest on policy loans Dividend income Impairment loss on available for sale investments Others 100% 51% 8% 12% 5% 2% 15% 6% 100% 35% 11% 6% 4% 1% 4% 3% 9% 4% 0% 22% 100% 41% 18% 7% 1% 4% 17% 7% 4% 12% 0% -12% 11% -6% -4% 13 August 2014 Page 39 of 43 .

Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance Liberty balance sheet composition (expressed as a % of assets) FY11 FY12 FY13 Financial investments held to maturity Fair value through profit or loss financial assets Cash and bank balances 28% 19% 22% 21% 25% 21% 28% 19% 22% Insurance contract liabilities Deposit administration liabilities Unearned premium reserve 28% 38% 9% 27% 38% 8% 33% 35% 8% 13 August 2014 Page 40 of 43 .

84 times the minimum regulatory requirement. › › Investment in Family Bank now stands at 5%.1x.Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance Pan Africa: New moves Pan Africa undertook new investments in 2013.76 Upside/(downside) % -20% Target price KES Price return % Dividend yield (ntm) % 4% Forecast total return % -6% 111.59 -10% 12 month high/low KES YTD performance % 141/56 42% 1yr performance % 132% Issued shares m Market cap (m) USD 96 137 Free float % Free float market cap(m) USD 27 Monthly value traded USD 0. the company also retained the most risk it has in at least the last seven years.6m were however expensed during the year. Overall. during which period 6-11% of premiums were ceded to reinsurers. Pan Africa only ceded 4% of its insurance premiums to reinsurance. Pan Africa’s 80% EPS growth in 2013 was driven primarily by the double impact of an 8% increase in investment & other income and a 5% decrease in net claims. The life insurer increased its ownership of Family Bank to 5% and also bought out the other shareholders in Sanlam Investments Kenya. In May 2014 Pan Africa acquired an additional 1.4% stake to bring its total ownership of Family Bank to 5%. due to a large volume of bulk annuities that were received in 2012 and not expected to recur the following year. earnings were down 52% as the large fair value gains of 2013 did not recur and there was a 30% surge in claims and benefits.000 and no goodwill was recorded because Pan Africa acquired SIM-K’s net assets at a small discount. › Retaining more risk than ever. The interest in Family Bank seems to be driven to a large extent by a bancassurance strategy that will seek to benefit from the bank’s credit growth. plot sales also boosted this income line. at 3. › Fair value gains and claims drive earnings performance. 2013 also saw record RoA and RoE achieved on the back of improvements in investment income and claims experience.4 Year end Bloomberg Reuters 20% December PAIL KN PAFR NR 13 August 2014 Page 41 of 43 . however. The seemingly small overall percentage changes in investment income and net claims impacted the bottom line significantly because of the size of the numbers involved. And Sanlam Investments Kenya (SIM-K) is now a wholly owned subsidiary. The share is now trading at a very high price-to-book ratio relative to its RoE and we therefore downgrade our recommendation to SELL. the highest for the company in at least the last seven years. Reported EPS was up 80% y/y while embedded value earnings rose 116% over 2012. Embedded value earnings saw a 116% increase mainly due to the change in NAV for other subsidiaries. Investment & other income rose due to interest income as well as fair value gains on investment property and other investments. *** SELL *** Current price KES 124 Fair value KES 98. even though the price-to-embedded value at 1H14 is much lower at 2. In 1H14 however. Single premium business declined by 10% though. This was the lowest level of risk retained in the last seven years. SIM-K earnings comprised less than 0. Acquisition related costs of USD 2. In line with previous years. Gross claims were actually up 35% but this was more than offset by a 39% decrease in the actuarial value of market linked liabilities. resulting in a 7% RoA and a 42% RoE. In 2013. However. In September 2013 Pan Africa acquired the remaining 83% that it did not own to bring its ownership of SIM-K to 100%. investment income contributed 71% to PBT (FY12: 61%) while life insurance made up the remainder.5% of group earnings in 2013. The purchase consideration was USD 640. Capital adequacy remains strong.

**Actual ratio.Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance Pan Africa ratios FY08 FY09 FY10 FY11 FY12 FY13 Premium income to total income Investment income to total income 90% 8% 83% 14% 73% 23% 78% -5% 65% 27% 60% 32% Pan Africa P&L trend (y/y change) FY08 FY09 FY10 FY11 FY12 FY13 Gross earned premium revenue 21% 21% 27% -5% 49% -2% Net earned premium revenue 26% 22% 26% -7% 55% 0% Investment and other income 4% -17% 16% 66% 79% 23% Total income 9% 32% 43% -13% 87% 8% Gross claims and benefits payable 14% 44% 34% -34% 176% -7% Net claims and benefits payable 19% 47% 34% -37% 194% -4% 7% 11% 44% 22% -14% 12% Profit before tax -108% 1013% 273% -17% 51% 82% Profit after tax -148% 49% 311% -25% 58% 79% RoA** -2% 2% 6% 4% 5% 7% RoE** -7% 11% 37% 22% 29% 42% Earnings per share* -148% 249% 311% -25% 58% 79% Dividend per share* -100% 100% 76% 33% 50% 50% 0% 57% 24% 43% 41% 35% -18% -12% 38% 16% 24% 27% Expenses and commissions Dividend payout ratio** Change in NAV *Based on current number of issued shares. not change in ratio 13 August 2014 Page 42 of 43 .

Kenya Insurance Sector August 2014 Update Equity research | Kenya | Insurance Pan Africa premium mix FY08 FY09 FY10 FY11 FY12 FY13 Gross earned premium revenue Individual life Group business/superannuation Premium ceded to reinsurers: Net premium income 100% 60% 40% -8% 92% 100% 50% 50% -7% 93% 100% 44% 56% -8% 92% 100% 56% 44% -10% 90% 100% 42% 58% -6% 94% 100% 48% 52% -4% 96% Pan Africa premium growth FY08 FY09 FY10 FY11 FY12 FY13 Gross earned premium revenue Individual life Group business/superannuation 21% 23% 18% 21% 1% 50% 27% 12% 41% -5% 20% -24% 49% 13% 94% -2% 12% -13% Pan Africa claims mix FY08 FY09 FY10 FY11 FY12 FY13 Gross earned premium revenue Individual life Group business/superannuation Premium ceded to reinsurers Net insurance benefits and claims 100% 60% 40% -8% 92% 100% 50% 50% -7% 93% 100% 44% 56% -8% 92% 100% 56% 44% -10% 90% 100% 42% 58% -6% 94% 100% 48% 52% -4% 96% FY08 FY09 FY10 FY11 FY12 FY13 14% 91% 44% -13% 34% 5% -34% 32% 176% 19% -7% 35% -27% -6% 34% 42% 3% -90% Pan Africa claims & policyholders benefits growth Gross claims and benefits growth Gross claims growth Claims and contract liabilities ceded to reinsurers growth Pan Africa investment income mix FY08 FY09 FY10 FY11 FY12 FY13 Investment income composition: Rental income. net of expenses Dividend income Interest on financial assets at fair value through profit or loss Interest on loans to related parties Interest on other loans and receivables Interest on held to maturity financial assets Interest on cash and cash equivalents Realised gains/(losses) on equity securities Realised gains/(losses) on debt securities Fair value (losses) and gains 100% 11% 12% 100% 4% 6% 100% -100% 2% 7% 4% 34% 100% 1% 4% 100% 1% 1% 108% 39% 11% 93% 13% 18% 0% 11% 17% 0% 52% 0% -113% 0% 8% 22% 0% 0% 0% 21% 0% 5% 16% 1% 0% 0% 62% 0% 36% 143% 38% 0% 0% -450% 0% 3% 21% 17% 0% 0% 41% 0% 2% 22% 13% 0% 0% 43% FY08 FY09 FY10 FY11 FY12 FY13 Pan Africa balance sheet composition (expressed as a % of assets) Held to maturity financial assets Financial assets at fair value through profit and loss Deposits with financial institutions 8% 15% 19% 21% 25% 26% 50% 40% 37% 30% 31% 39% 0% 0% 12% 24% 25% 21% Insurance contract liabilities Market linked (Investment contract) liabilities 61% 0% 32% 35% 30% 38% 30% 38% 32% 41% 32% 38% 13 August 2014 Page 43 of 43 .

equivalent to NAV cost of equity dividends per share dividend yield expected earnings per share forecast financial year financial year 200n thousands local currency millions month. mths NAV ntm PAT PBT ROA ROE ttm WACC Currencies actual / reported billions book value per share.Abbreviations General a bn BPS COE DPS DY e EPS f FY FY0n k LC m mth. months net asset value per share next twelve months profit after tax profit before tax return on assets return on equity trailing twelve months weighted average cost of capital Banking sector CASA CIR COF LDR LLR NII NIM NIR NPL BWP EGP GBP GHS KES LSL MAD MUR MWK NAD NGN RWF SZL TND TZS UGX USD XOF ZAR ZMK Botswana pula Egyptian pound British pound Ghanaian cedi Kenyan shilling Lesotho loti Moroccan dirham Mauritian rupee Malawian kwacha Namibia dollar Nigerian naira Rwandan franc Swazi lilangeni Tunisian dinar Tanzanian shilling Ugandan shilling United States dollar West African CFA franc South African rand Zambian kwacha Industrial sector Current & savings account to total deposits Cost to income ratio Cost of funds Loans to deposits ratio Loan loss reserve Net interest income Net interest margin Non-interest revenue Non-performing loans ARPU hl LDA PCC RTD Average revenue per user per month Hectolitre (100 litre) Legal drinking age Per capital consumption Ready to drink .

financial information is sourced from subject company filings. and the fair value (FV) of the share as calculated by African Alliance. Rating categories are defined as follow: (Buy (Accumulate (Hold (Reduce (Sell FV more than 15% above CSP FV between 5% and 15% above CSP FV between -5% and 5% around CSP FV between 5% and 15% below CSP FV more than 15% below CSP .Sources Unless otherwise noted. and forecasts and analysis are prepared by African Alliance analysts. market data is sourced from the relevant exchange. Recommendation system The African Alliance recommendation system is based on the difference between the current share price value (CSP).

Agriculture Tracy Kivunyu +254 20 276 2634 +254 733 379 459 kivunyut@africanalliance. Brewers & Beverages Analyst: Banks.com Thomson Reuters: https://www.com Sales Trader ndungug@africanalliance. Oil & Gas Regional Head of Research: Banks.co. Utilities.ke Analyst: Brewers & Beverages. Mobile Nr. Ashika Dasen +27 11 214 5926 +27 71 990 7147 dasena@africanalliance.com Analyst: Banks.ke Analyst: Telco & Media.com Deborah Muriuki +254 20 276 2632 +254 72 733 7281 muriukid@africanalliance. e-mail Position/Role Jared Coetzer +27 11 214 8352 +27 82 746 4120 coetzerj@africanalliance.com Corporate Access and Investor Relations Barbara Mungai +254 20 276 2000 +254 20 276 2664 +267 364 3912 +254 735 297 646 mungaib@africanalliance. Telco & Media Lead Macroeconomic & Equity Strategist .co.ug bbukuf@africanalliance. Insurance David MarfoAhenkorah +233 30 267 9761/2 +233 54 530 9996 marfoahenkorahd@africanalliance.bw Kenya Equities Botswana Kwadwo Boateng Emmanuel Odum +233 302 679 761/2 +233 302 679 761/2 +233 24 7577 980 +233 24 4235 434 boatengk@africanalliance.A.com Nigeria Nigeria Isabella Ingabire Iza Irame +250 785 694 490 +250 785 694 490 +250 788 352 369 +250 788 308 511 ingabirei@africanalliance.African Alliance Capital Markets Contact Details Sales Tel.com Factset: https://www.ke setholeh@africanalliance.ke Corporate Access and Investor Relations +267 72 77 3029 pelotonam@africanalliance.Africa Christopher Blaine +27 11 214 8324 +27 82 715 1774 blainec@africanalliance. Nr. U.com gavazay@africanalliance.S.sharefile.com Uganda Zambia Joshua Tembo +260 211 840 513 +260 955 984 280 temboj@africanalliance.com beckerc@africanalliance.thomsonreuters/financial .factset.ke Kenya Equities Stanslaus Kimani +254 20 276 2610 +254 723 392 219 kimanis@africanalliance.com Analyst: Banks Henry Irungu Judd Murigi +254 20 276 2658 +254 20 276 2637 +254 723 280 910 +254 789 338 365 irunguh@africanalliance.com iramei@africanalliance.co.com smithk@africanalliance.com Institutional Sales Ashley Bendell +1 212 792 6959 +1 646 417 0788 bendella@africanalliance.com Pan-Africa Equities Jesse van Rensburg Gerry Ndung’u +27 11 214 8412 +254 20 276 2623 +27 82 536 8278 +25 47 22 37 06 27 vanrensburgj@africanalliance. Consumer & Leisure Analyst: Consumer & Leisure Derrick Mensah +233 302 679 761 +233 24 415 5765 mensahd@africanalliance.co.capitaliq. Cement Analyst: Cement.co.co.co.com Quants Analyst: Macro.com uzump@africanalliance.com Zambia Corporate Access Marang Pelotona Research Trading Online African Alliance: https://aas. Strategy & Analytics Senior Analyst: Banks.co.com Amanda Bbosa Chris Becker +256 417 777 713 +27 11 214 8384 +256 776 532 520 +27 82 880 2248 bbosaa@africanalliance.ke Analyst: Telco & Media Vuyiswa Nzimande Yeukai Gavaza +27 11 214 8458 +27 11 214 8472 +27 72 569 5740 +27 71 217 2445 nzimandev@africanalliance.com Malawi Biodun Fagbulu Paul Uzum +234 703 956 6476 +234 1 4605 065 +234 703 956 6476 +234 703 785 4111 fagbulub@africanalliance.com Ghana Ghana Regina Nzima +265 183 1995 +265 884 352 125 nzimar@africanalliance.co.bw Corporate Access and Investor Relations Adriana Benedetti +27 83 258 9887 +27 83 258 9887 benedettia@africanalliance. Insurance James Starke Kyle Smith +27 11 214 8434 +27 11 214 8333 +27 84 415 7323 +27 61 225 3229 starkej@africanalliance.com Senior Analyst: Consumer & Leisure.com Analyst: Oil and Gas Paul Stromsoe +27 11 214 8464 +27 82 838 1111 stromsoep@africanalliance.ke murigij@africanalliance.ke Kenya Fixed Income Tito Namu Hajira Sethole +254 20 276 2643 +267 364 3948 +254 721 557 071 +267 7219 1243 namut@africanalliance.com odume@africanalliance.com Head of Distribution.com Rwanda Rwanda Arthur Nsiko Fumanikile Bbuku +256 417 77 7712 +260 211 840 513 +256 772 253 753 +260 969 500 475 nsikoa@africanalliance.com Bloomberg NH AAR <GO> Capital IQ: https://www.

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