BUY. Softlogic Life Insurance PLC. Aggressive player with growing market share. Equity Research. Initiation Coverage

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1 LKR Softlogic Life Insurance PLC Initiation Coverage Aggressive player with growing market share Sri Lanka's life insurance penetration remains very low compared to peer countries enabling companies to operate aggressively with low industry competition despite robust growth seen in last seven years with total assets growing by 17% CAGR. While industry is equipped with strong growth drivers AAIC, one of highest growth life insurer, is well positioned to capture industry rise and outperform the peers. With its aggressive business model AAIC is expected to show strong bottom-line growth. Investment Considerations Low insurance penetration along with GDP per capita rise and demographic changes to drive industry growth: Sri Lanka's life insurance industry is expected to have a promising growth with low penetration. Considering targeted GDP per capita rise, affordability will improve and more people will spend on life insurance products. Certain demographic changes will also provide an impetus for the industry growth. Accordingly, we expect country to reach LKR 115 billion (USD 72 mn) GWP with 21% CAGR and.65% penetration by 219 where AAIC being a growing life insurer will be positioned well to capture the industry growth potential. Life insurance business to benefit on zero taxable profit: Prevailing tax policy has enabled most of life insurers to operate with no income tax as opposed to standard rate of 28%. We expect the policy to remain same benefiting, AAIC as well. Company will grow over peers in a growing industry: AAIC has been the fastest growing life insurer in terms of GWP and life fund growth. Its new business premium growth also has been the highest resulting a consistent growth in the market share since 21 and we expect company to capture 11% market share by 219 from 8% in 215. Aggressive business model to create a competitive advantage: Company will leverage its aggressive business model in achieving strong new business growth and superior policy persistency while maintaining a modest cost base with higher expenses to leverage on low claim cost. High yielding investment portfolio: We expect AAIC to beat industry benchmark yields through an aggressive investment strategy with a focus on high yielding long term assets. High profitability to continue on aggressive business strategy: AAIC has one of the industry highest EBITDA margin and profitability ratios based on its strong topline performance and modest cost base in comparison to premiums. Strength in Group's value chain to benefit AAIC: Support of Softlogic Group being a leading conglomerate will augur well with growth prospects of AAIC while corporate governance will be strengthened with strategic foreign partnerships. Valuation We believe Sri Lanka s insurance sector to have strong growth momentum and AAIC continue to increase market share. We have valued the counter using Residual Income Valuation model and derived a value of a share at LKR Accordingly the counter is trading at discount to our valuation. We give Buy recommendation for AAIC. Salient Sections of the Report Low insurance penetration along with GDP per capita rise (pg.2) Life insurance business to benefit on zero taxable profit (pg.5) Company will grow over peers (pg.6) Aggressive business model (pg.8) High yielding investment portfolio (pg.1) High profitability to continue (pg.12) Strenght in group's value chain (pg.14) Valuation (pg.15) Sensitivity (pg.16) Earnings risk comment (pg.17) Appendices (pg.18 ) 15 December 16 Recommendation Guidance, Important Disclosures and Analyst Certification: Page 3 BUY LOLC SEC Valuation 12M Tgt Price (excl.dividend) Share Price Upside/(Downside) Risk Level (refer page 3 for recommendation guidance) Share Details Bloomberg Ticker GICS Sector AAIC SL Financials Market Cap (LKR Mn) 7,5 Issued Quantity (Mn) day avg T/O (LKR Mn).17 Beta (6 months) 1.34 Investment Fundamentals LKR Bn 12M Trail FY16(E) FY17(F) FY18(F) Net Income Net Profit S/H's Equity Total Assets ROA (%) 9.1% 8.7% 1.3% 11.3% ROE (%) 52.7% 38.8% 39.5% 4.5% Investment Ratios PE (X) 6.1 PBV (X) 3.2 Price to Sales (X) 1. Divdend Yield (%) 2.4% Price Behaviour Equity Research Per Share Details as at (LKR) Earnings per share (trailing 12m) 3.11 Net Asset Value per share 5.9 Dividend Per Share (trailing 12m) 5.33 Business Nature AAIC is a life insurance service provider with an island-wide customer reach. It is a Softlogic Group company which is a leading conglomerate in Sri Lanka. Shareholder Details as at Softlogic Capital Ltd 59.2% Nederlandse Financierings (FMO) 19. State Street Munich (DEG) 19. Sandwave Ltd.4% Shareholders below 5% 2.8% Source:CSE, Bloomberg, LOLC SEC Research Note: AAIC's public holding is 3% and it is to be increased to 1 by the end of 216 as per directions given by CSE. Companies listed in DiriSavi board should maintain minimum 1 public float if float adjusted market is less than LKR 1bn. Analyst: Gayan Rajakaruna gayanraj@lolcsecurities.com LKR 28.8 LKR 24.2 LKR % Medium Dec Mar Jun Sep Dec-1 AAIC Share Price ASI movement (adjusted to AAIC base price)

2 USD Initiation Coverage: Softlogic Life Insurance PLC 15 December 16 Low insurance penetration along with GDP per-capita rise and demographic changes to drive industry growth Low penetration to augur well with industry growth Sri Lankan life insurance industry has been growing steadily with a total asset CAGR of 17% since 29. But Sri Lanka being a country largely characterised by the collectivism and dependency where the need for a life insurance policy is yet to be realised, industry still remains to be a small sub sector accounting less than 3% of total financial sector assets by 215. Accordingly industry is heavily under-penetrated compared to regional peers who have comparable GDP per capita (Vietnam, Indonesia and Philippines) giving a strong impetus for a steady growth along with GDP per capita rise (level of income growth) while industry becoming attractive for life insurers due to low competition. Graph 1: Low life insurance penetration and density compared to peers will drive the industry growth 4.5% % % % 1..5% Sri Lanka Vietnam Indonesia Philippines India North America avg Malysia Asia avg. Thailand Europe avg Insurance penetration - Life premiums in % of GDP (LHS) Insurance density - Life premiums per capita in USD (RHS) Source:Swiss Re sigma No3/216 GDP per capita to reach USD 52 by 219 Industry has grown above the economic growth (GDP) due to rise in demand for life covers led by personal income growth and pushy sales tactics especially with low penetration. Although low per capita income which is common for a developing country like Sri Lanka and higher cost of living have historically been deterrent factors in obtaining life insurance policies, its present direction of achieving upper middle income status by 218 is likely to give a convenient phase for more people to spend on life policies. Accordingly we expect increase in per capita GDP to mainly lead the demand for life insurance in coming years. We estimate country to record moderate 5.3% real GDP growth over next 4 years and resulting 7.3% nominal GDP per capita CAGR to achieve USD 52 by 219. Accordingly with greater spending power and excess income, industry penetration is expected to be improved (estimated:.65% by 219) benefiting life insurers. Graph 2: Higher industry growth compared to economic growth Graph 3: GDP per capita to record 7.3% CAGR for USD 25% 2 15% 25% 2 15% % 5% GDP growth Life GWP growth Life Insurance Asset growth Source: IBSL Per capita GDP Source: CBSL, LOLC SEC Estimates 2 LOLC Securities Limited

3 Initiation Coverage: Softlogic Life Insurance PLC 15 December 16 Low insurance penetration along with GDP per-capita rise and demographic changes to drive industry growth (cont ) Industry to record LKR 115 bn GWP by 219 As per the projected S-Curve below, Sri Lankas' life insurance industry is poised for a steep growth after USD 5. Based on the S-curve and GDP per capita estimates, we forecast a moderate penetration of.65% by 219 and thus recording 21% GWP CAGR for next 4 years as opposed to 11% growth historically. This forecasted growth consists of estimated GDP per capita growth, estimated population growth, premium added on higher industry growth over per capita GDP growth due to increasing demand for life products at a higher rate as income rises and premium added for demographic changes (see graph 5,6 & 7). With.65% penetration, we forecast industry GWP to be LKR 115 billion by 219 compared to LKR 54 billion in 215. In a medium to long run target (5-15 years) of USD 5-1, we expect industry to record a steeper growth with penetration level increasing from.65% to 1.6% as country will then be into high middle income countries' (such as Thailand and Malaysia) income level bracket and thus emanating similar level of penetration. However at high income level (USD 15), the industry operates in a manner that the income elasticity of demand for life insurance reaches maximum resulting a flat industry growth. Graph 4: Life insurance penetration to reach.65% by 219 from.49% in 215 life premium per capita as % of GDP per capita Our S-Curve projection suggests country to move from.49% to ~.9% premium penetration as country crosses USD 5 per capita. However with a more conservative estimate based on historical figures and impending industry challenges, we estimate.65% by 219. Here insurance penetration implies the life insurance premium per capita as a % of GDP per capita. Nepal 3.3% annual rate of urbanization over next 15 years India Philippines Indonesia Kenya Morocco Vietnam Pakistan Sri Lanka Bangladesh Nigeria Thailand China Brazil Malaysia Mexico ColombiaLebanon Serbia Bulgaria Hungary Poland Increasing urbanisation and urban living to drive industry growth Bahrain Kuwait Turkey Oman Russia 5 Ukraine Source:Swiss Re sigma No3/216, CBSL, LOLC SEC Estimates Country is expected to see rapid urbanisation with 3.3% annual growth rate over next 15 years giving an impetus for the industry growth. As families relocate to cities, their ability to depend on a village support and other means of localized security diminishes. Thus sustaining an urban family, should the breadwinner of the family face a tragedy that affects the household's income, spurs the desire to have life insurance coverage. Additionally, housing market boom and low unemployment rate is also poised well for urban living, creating an opportunity for life industry growth. Chile Greece Cyprus South Korea Italy Israel France New Zealand Singapore Switzerland Sweden Norway Australia Canada United States Germany UAE United Kingdom Denmark Macao GDP per capita USD Graph 5: Trend of urbanisation in Sri Lanka and forecast for 23 Urban population as % of total population 13.1% 18.2% 18.4% Source: World Bank, CBSL 3 LOLC Securities Limited

4 % Number of deaths GDP Per capita (USD) Initiation Coverage: Softlogic Life Insurance PLC 15 December 16 Low insurance penetration along with GDP per-capita rise and demographic changes to drive industry growth (cont ) Expanding ageing population and increasing Non Communicable Diseases (NCDs) Growth of ageing population and NCDs Sri Lanka's population is one of the fastest ageing populations in the world. As per estimates, above 65 years old will increase to 17.1% of total population by 241 from 7.9% in 212. Accordingly people would set aside more money for health risk that they would potentially expose to. In recent times, rapid growth of NCDs due to demographic changes and growing ageing population was also witnessed (NCDs account 71% of annual deaths). Therefore compared to few decades back, we believe that people have become more aware of the risks associated with NCDs and thereby looking for life/health covers providing an impetus for the industry. Graph 6: Rapid expected growth of ageing population Graph 7: Increasing trend in deaths due to NCDs , 4,5 4, , 6, 3,5 3, 2, , 2, 1, , 1, (F) 241 (F) * * Cancer Heart diseases Diabetes GDP per capita Source: Sri Lanka Paradigm shifts in population, W.Indralal De Silva Source:Health Ministry, World Bank Increasing demand for life insurance as a risk based financial product Gen Y to drive the demand of life products We believe that Sri Lanka's Generation Y (born in 198-2) is more interested for risk based insurance products compared to Gen. X as Gen. Y seeks more financial security and stability for their families due to complexities in their lifestyle. Furthermore, Gen Y will find it difficult to accumulate wealth to finance emerging needs, especially with decreasing real interest rates. The statistics also suggest that the industry is heading north with new life polices recording 5% CAGR since 21 (at a faster phase than population growth of.9% due to low penetration). With the development in IT and mobile technology along with high mobile phone penetration (17%), industry could conveniently reach to more and new customers. To support this growth, distribution channels have also seen a strong growth of 17% CAGR over last 5 years. Thus we believe that the industry is positioned in a clear growth trajectory benefiting its players to record higher profitability. Graph 8: New policies grow at 5% CAGR 35% 3 Graph 9: Branch, Agent and Employee growth % 2 15% % No. of Life Policies in Force as % of the total population No. of Life Policies in Force as % of the labour force Source: IBSL No of Branches No of Employees & Agents Source: IBSL, LOLC SEC Estimates 4 LOLC Securities Limited

5 Initiation Coverage: Softlogic Life Insurance PLC 15 December 16 Life insurance business to benefit on zero taxable profit AAIC has zero income tax for life business Life insurance industry currently enjoys an appealing income tax advantage based on its taxable profit calculation method as opposed to standard tax rate of 28% of financial services creating a competitive landscape over other sectors. Over the years most of life companies apart from top 3 players (SLIC, CINS and CTCE) have been enjoying zero income tax due to taxable losses impacting their profitability substantially. Inland Revenue Act suggests that life businesses to calculate taxable profit based on only investment income minus management expenses but excluding premium income which has resulted companies to make continuous taxable losses with zero income tax. Taxable profit = Investment income - management expenses The section 92 of the Inland Revenue Act No.1 of 26 states the ascertainment of taxable profit of life insurance companies for income tax as: "The profits of a company whether mutual or proprietary, from the business of life insurance, shall be the investment income of the Life Insurance Fund, less the management expenses (including commission) attributable to that business". As new and growing life company, AAIC is opt to incur higher management expenses over investment income generating from shareholder and policy holder funds resulting zero taxable profits. Therefore company has made heavy carried forward tax losses resulting no income tax payment. However larger industry players with their sizable investment portfolios generate excess investment income over expenses creating a taxable profit subject to 28% rate. While such tax polices make the industry very attractive, Gvt at any time could change them as part of ongoing fiscal consolidation process through tax tightening. Further Budget 217 has suggested WHT and income tax increases on dividends and interest of government securities impacting life businesses in coming years. However we believe that Gvt will not implement a drastic tax policy change as industry requires a steady growth to increase penetration level and Gvt's helping hands will be essential for life insurers to aggressively expand their premium base and to improve assets and profitability. LKR 454 mn carried forward tax loss Accordingly, we expect industry to continue with existing tax mechanism in short and medium term and thereby benefiting AAIC as well in maintaining its profitability. AAIC's carried forward tax loss as of stands at LKR 454 mn and it is unlikely that additional significant tax liability will arise in next 4 years. However any negative change to the same will have a material impact to the industry including AAIC while affecting its valuations. The sensitivity of statutory and effective tax rate changes on AAIC valuation is as follows: Table 1: Valuations will have a material impact on tax policy changes Est. Effective tax rate 2 28% 4 Impact on valuation % -27.5% -39.3% Source: LOLC SEC Estimates, Annual Reports 5 LOLC Securities Limited

6 Initiation Coverage: Softlogic Life Insurance PLC 15 December 16 Company will grow over peers in a growing industry 27% GWP CAGR since 21 Being in a growing industry, AAIC has been the fastest growing life insurer in terms of GWP and the life fund size since 21. With a relatively short span in business since 1999, company has been successful in acquiring businesses based on its aggressive business model (see pg. 8) and product innovation along with group synergies (see pg. 14) which have resulted it to record 27% GWP CAGR and 29% life fund CAGR over last 6 years surpassing comparable peers well above. We expect company will continue to leverage the same to capture industry upside (as discussed in pg. 2-4) and to record higher 'new business premium (see graph:13)' and 'total GWP' growth for next 4 years compared to that was witnessed historically. Accordingly we forecast 33% GWP CAGR of AAIC for Graph 1: AAIC GWP growth is well above the peers Graph 11: AAIC life fund CAGR is 29%, industry highest 3 25% 2 15% 1 5% AAIC CTCE CINS HASU UAL JINS SLIC CAGR of GWP Industry GWP CAGR 35% 33% 3 28% 25% 23% 2 18% 15% 13% 1 8% 5% 3% HASU AAIC CTCE CINS UAL JINS SLIC AAIC life fund-cagr Source: Annual Reports, IBSL Source: Annual Reports, IBSL GWP market share will increase to 11% by 219 Highest new business premium growth With aggressive GWP growth, AAIC recorded a GWP market share of 8% and ranked 5th by 215. It has been the only company amongst selected peers to see a consistent market share growth since 21 while market leaders (SLIC, CINS) losing the market. Based on our expectation of company's high growth rates over industry, we estimate AAIC to reach 11% GWP market share by 219. Compared to competitors, AAIC's GWP growth has been largely supported by higher new business premium growth registering 44% CAGR. This clearly reflects its strengths in new business acquisition over peers and signals a proven growth potential in the near term. However AAIC's growth rates of new policy issues are not overly high (4.3%) which suggests that company is selective with their clients and look for a sustainable GWP growth through a sound mix between new policy acquisitions and their premiums which are generally at a higher rate as opposed to low premium strategy followed by certain competitors. Graph 12: AAIC's GWP market share has been heading north registering 8% by 215 (5th place) Graph 13: AAIC has high new business premium growth 19% 19% % 19% 5% 5% 5% 5% 5% 5% 11% 13% 3% 4% 14% 13% 13% 13% 4% 5% 5% 5% 28% 28% 29% 27% 27% 25% 25% 22% 17% 16% 16% 16% 4% 4% 5% 6% 7% 8% AAIC CTCE CINS HASU UAL JINS SLIC Source: Annual Reports, IBSL 5 45% 4 35% 3 25% 2 15% 1 5% AAIC CTCE CINS HASU UAL JINS SLIC Annualised new business premium CAGR-6 yrs Average CAGR - 6 yrs Source: Annual Reports, IBSL 6 LOLC Securities Limited

7 LKR Initiation Coverage: Softlogic Life Insurance PLC 15 December 16 Company will grow over peers in a growing industry (cont ) Graph 14: AAIC has a sound mix between new business acquisition and premiums charged 1, 9, 8, 7, 6, 5, 4, 3, 2, 1, - 9.2% 4.3% 4.1% % % AAIC CTCE CINS HASU UAL JINS SLIC Avg premium per new policy issued (LHS) Annual growth of new policies issued (RHS) Source: IBSL, LOLC SEC Estimates Sound mix between new policy issues and premium charge Accordingly, AAIC has been able to maintain a sound mix between attracting new businesses (new policy issued) and simultaneously offering clients relative higher premiums (LKR 78, per new policy as of 214) through their aggressive business model (see pg. 8) while competitors have mismatch in their mix as illustrated above. We expect company to maintain the same strategy of looking through a sustainable premium growth with low lapses while capturing a selected client base. 7 LOLC Securities Limited

8 Claim Ratio Initiation Coverage: Softlogic Life Insurance PLC 15 December 16 Aggressive business model to create a competitive advantage Aggressive business model High persistency AAIC continues to have an aggressive expansion with higher operational expenses (see graph:17) compared to peers which is supported by low claim cost (see graph:16). Accordingly AAIC has been able to record a high new premium growth (see pg: 6) backed by high commission structures, specialised unit being responsible for premium renewal from 2nd year resulting high persistency and targeting a niche customer segment resulting high premiums and low lapses. Our survey has identified that company has been offering first year commission/incentives upto 75%, motivating agents for new businesses. Agents are thus thrived for getting new policies on a yearly basis and securing clients' premium for the first year to enjoy high commissions. (*Maximum commission payable for year 1 is capped at 3 of premium as per IBSL) Their meticulous customer selection seems to attract policy holders with capacity of undertaking relatively high premium policies resulting AAIC to enjoy higher GWP growth and persistency over peers (see graph:15). The specialised unit to collect premiums will provide greater and flexible customer service resulting premium persistency exceeding industry. Table 2: High first year agents' commissions will bring more new policies to AAIC Attractive agent commissions surpassing peers Policy year Maximum Commission/Incentive payable AAIC SLIC CINS CTCE JINS HASU UAL 1 * Up to 75% * Up to 65% % % 15% 5% % 1 8% 5% % 7.5% 8% 2% 7.5% 5 1 5% 8% 2% 5% 6-1 5% 5% 2% 3.5% Source: LOLC SEC Research AAIC has the lowest claim ratio Company's strategic focus on high premium charge along with low rate of policy maturing due to its short business history in comparison to others have enabled company to consistently record the lowest claim ratio amongst peers creating a competitive advantage. Graph 15: AAIC has a better policy persistency enabling to maintain healthy GWP Graph 16: AAIC records the lowest claim ratio due to high average policy premium value AAIC - first year premium persistency Industry - first year premium persistency AAIC CTCE CINS HASU UAL JINS SLIC Source: Annual Reports, IBSL, LOLC SEC Estimates Source: Annual Reports, IBSL AAIC has the highest expense ratio, but declining However, company registers the highest expense ratio (Agent commissions + Operational & Admin. expenses (Opex)) reflecting its high cost base (see graph 17) due to superior sales commissions and expansion in terms of physical and IT infrastructure. Amongst top 7 companies, AAIC has been the last market entrant and expanded rapidly specially after Softlogic acquisition incurring higher sales and operational cost relative to premiums. But high expenses have helped company to build-up taxable losses minimising negative impact on its bottom-line. 8 LOLC Securities Limited

9 Expense Ratio Combined Ratio Initiation Coverage: Softlogic Life Insurance PLC 15 December 16 Aggressive business model to create a competitive advantage (cont ) But Expense Ratio has been in a declining trend which is likely due to greater use of Group strengths such as sales through Softlogic outlets (see pg.14) thus reducing expenses. We expect Softlogic outlets to increase its contribution on AAIC's branch expansion strategy in short and medium term and thereby controlling Opex and Capex growth rates in comparison to its topline growth. Expense ratio will decline based on Opex decline While strong agency force and Softlogic network providing convenient access to AAIC products and services, we expect company to move in to alternate channels specially Bancassurance based on highly penetrated bank branch network and thereby curtailing Opex ratio gradually over next 4 years to record 27% by 219 from 3 in 215 improving operational margins. However we expect 'Commission Expense ratio' to remain at the same level to enforce agents for more new businesses. Graph 17: AAIC has higher sales and operational expenses, but gradually declining towards industry average Graph 18: AAIC's total cost base is at the lower end of the industry 75% 7 65% 6 55% 5 45% 4 35% AAIC CTCE CINS HASU UAL JINS SLIC AAIC CTCE CINS HASU UAL JINS SLIC Source: Annual Reports, IBSL, LOLC SEC Estimates Source: Annual Reports, IBSL, LOLC SEC Estimates AAIC maintains modest total cost base Despite negativity on high expense ratio, company's total expenses (claim cost + sales cost + operational cost) compared to premiums continue to remain at the lower end of the industry which suggests that company is positioned well with a modest cost base to record strong profits in coming years. We expect company to see an increase in claim ratio in medium to long term as more policies will require maturity and benefit payments by then, but given that the company being able to manage its other Opex, AAIC to maintain a cost advantage in the future while strengthening its profitability. 9 LOLC Securities Limited

10 % of financial asset allocation based on 3 maturity brackets Initiation Coverage: Softlogic Life Insurance PLC 15 December 16 High yielding investment portfolio Higher investment returns historically Apart from 211, company has been able to generate higher investment yields compared to the industry (see graph: 19) through an aggressive investment strategy by investing in high yielding long term assets (see graph:21) and translating them to a superior profitability. Further, its equity portfolio was restructured in 211 after company acquisition by Softlogic Group by selling off underperforming equities at losses and reinvesting in fundamentally sound stocks, but with relatively high exposure to shares of NDB Bank PLC (NDB) which has resulted company equity returns to beat ASPI during last 4 years (see graph:23). Graph 19: AAIC has been able to generate an investment return above the industry except 211 Graph 2: Superior investment return over last 3 years compared to selected peers, but 211 had a lag 3 25% 2 15% % 2 15% 1 5% 5% (Trail) Overall investment yield of life industry AAIC overall investment yield AAIC CTCE CINS HASU UAL JINS Source: Annual Reports, IBSL, LOLC SEC Estimates Source: Annual Reports, Bloomberg, LOLC SEC Estimates Greater allocation for long term high yielding assets With a focus on an aggressive investment strategy, AAIC has allocated a higher % for long term financial assets (> 3/5 years) compared to peers resulting high yields to cover long term liabilities. As a new entrant to the industry with very low claim cost (see pg: 8), AAIC has yet to experience more short term liabilities and thus currently booked their assets for more long term tenors with high yields relative to peers. With expected low claim ratio in coming years company could conveniently leverage the same for generating high yields and strengthening its bottom-line. Further, while the industry invests avg. 48% of its financial assets under Gvt debt securities and avg. 13% of financial assets in equity to minimise investment risk on market volatility, AAIC has been successful executing a different investment mix with 31% exposure to equity and relatively low exposure to Gvt securities (see graph:22). Graph 21: AAIC has allocated higher % of financial assets in long term tenor compared to peers >1yr 1-3 yr or 1-5 yr >3 yr or >5 yr AAIC HASU CTCE UAL JINS Source: Annual Reports, Bloomberg 1 LOLC Securities Limited

11 Initiation Coverage: Softlogic Life Insurance PLC 15 December 16 High yielding investment portfolio (cont ) Graph 22: AAIC's high equity exposure has enabled it to generate greater investment yield Graph 23: AAIC's equity portfolio has outperformed the industry benchmark, except % % % 1 2%.2% % AAIC T-Bonds Industry-Gvt debt securities AAIC-Equity Industry-Equity AAIC Equity return Total ASPI return Source: Annual Reports, IBSL, LOLC SEC Estimates Source: Annual Reports, LOLC SEC Estimates High exposure to single counter However company's equity exposure to a single counter is still fairly significant with ~58% of total equity assets being invested in NDB Bank PLC by end of December 215 amid position reduction of 1.4mn shares since then. Thus company will be exposed to a considerable risk of price volatility where 1% change in current market price (LKR 16) will create c. +/- LKR 11.3 mn fair value impact to existing investment portfolio. 11 LOLC Securities Limited

12 Initiation Coverage: Softlogic Life Insurance PLC 15 December 16 High profitability to continue on aggressive business strategy Superior EBITDA margins AAIC's operational profitability (EBITDA margin) is superior to peers and growing due to modest cost structure supported by low claim cost and modest Opex (see pg. 9) while topline being backed by higher growth in GWP (see pg. 6) and investment yields (see pg. 1). AAIC being a relatively new entrant, company will continue to enjoy a low cost on policy claims and maturing benefits in short term strengthening its profits. Graph 24: AAIC has higher EBITDA margins in their life business compared to peers 25% 2 15% 1 5% AAIC HASU CTCE CINS UAL JINS SLIC Average Source: Annual Reports, Bloomberg Higher profitability compared to industry peers Thus AAIC has managed to record superior net profitability by indicating one of the highest industry ROE and ROA levels. Company's higher profit margins and better revenue generation on their assets have helped them to record high ROEs despite company having a relatively high financial leverage (more liabilities on policy holders compared to equity contribution), putting pressure on policy holders at unforeseen exigencies. But AAIC has been maintaining a sufficient solvency margin (see graph:27) above regulatory requirement, albeit lower than larger peers. However interms of business risk, sound reinsurance cover will safeguard policy holders at major unforeseen events. Graph 25: AAIC outperforms the sector profitability (ROE) Graph 26: AAIC generates the highest return from its assets (ROA) compared to selected peers 5 9% 45% 8% 4 35% 3 25% 2 15% 1 5% 7% 6% 5% 4% 3% 2% 1% AAIC HASU CTCE CINS UAL JINS SLIC AAIC HASU CTCE CINS UAL JINS SLIC Average Average Source: Annual Reports, Bloomberg Source: Annual Reports, Bloomberg 12 LOLC Securities Limited

13 Solvency ratio (Available solvency margin/required solvency margin) Initiation Coverage: Softlogic Life Insurance PLC 15 December 16 High profitability to continue on aggressive business strategy (cont ) Satisfactory solvency position Company maintains the minimum regulatory requirement of solvency (solvency ratio should be greater than 1), reflecting its prudent risk management. However company's solvency position hovers at a lower end due to thin equity base relative to peers. Graph 27: AAIC's low solvency reflecting aggressive business model Regulatory requirement = 1 AAIC CTCE CINS HASU UAL JINS SLIC Source: Annual Reports, Bloomberg 13 LOLC Securities Limited

14 % Initiation Coverage: Softlogic Life Insurance PLC 15 December 16 Strength in Group's value chain to benefit AAIC AAIC has a competitive advantage due to its parent Softlogic Group, which is Sri Lanka's one of most diversified conglomerate operating largely in Retail and Health Sectors. Through Asiri Hospital Chain (ASIR) which is the market leader in private health care industry with 6 market share, AAIC has been able to gain synergies in its processes and financial performance in terms of cost savings in claims and service level improvements in customer care. AAIC to leverage on ASIR's strengths Further Sri Lanka's health spending financed by pre-paid plans remains low compared to upper middle income countries. Therefore with expected growth in health spending as country reaches to upper-middle income status which also will result a growth of prepaid health plans, we expect AAIC to leverage on Asiri Hospital chain to capture this market development. Graph 28: Out of pocket expenditure vs. private prepaid plans Out-of-pocket expenditure as % of private expenditure on health Private prepaid plans as % of private expenditure on health Upper middle income countries Sri Lanka Lower middle income countries 4 Source: World Health Statistics,215 Leverage on Softlogic retail network Softlogic Group owns one of the largest retail channels in the country with 232 Softlogic showrooms islandwide and AAIC can conveniently utilise them to establish window offices creating a wider outreach to its customers. Given that AAIC to utilise at least 5 of such showrooms in future years, company can easily build up a large branch network in life insurance business with ~195 branches to compete with peers who have higher bancassurance presence based on the support of their Group network. Table 3: Comparison of branch network and future potential Company # of existing branches Bancassurence % contribution to total GWP AAIC 79 - CTCE 112 7% CINS 15 * HASU 54 24% (with 2 bancassurence units) UAL 17 5% JINS 19 * SLIC 115 * * Data is not publicly available Source: Annual Reports Strengths of foreign funding partners German Investment and Development Corporation (DEG) and Netherland Development Financing Company (FMO) that are rated 'AAA" jointly account 38% stake in AAIC along with a board representation which will bring the company a strong corporate governance structure, diverse experience and technical know-how of global life insurance business, benefiting AAIC. DEG and FMO have undertaken similar investments in emerging markets and account wealth of experience in insurance industry which we believe as a key driver in company's aggrieve growth. Further we expect that the leadership of Softlogic Group and AAIC chairman as a leading entrepreneur and capital market expert will essentially lead the growth momentum and business expansion in the future. 14 LOLC Securities Limited

15 Medium Term Growth Rate Initiation Coverage: Softlogic Life Insurance PLC 15 December 16 Valuation We have used Residual Income (RI) valuation in deriving the valuation for AAIC. Accordingly we estimate total valuation for the company at LKR 1.8 billion. AAIC s current book value (as at ) stands at LKR 2.21 billion and we estimate additional 388% value to be generated from value drivers we have discussed above. The market (CSE) has priced the company at LKR 7.5 billion which is still at a 53% discount for LOLC SEC valuation. Accordingly, we value the share at LKR 28.8 and give BUY recommendation. We have taken Cost of Equity at 18.62% which is 7% premium to 3 year Sri Lanka Govt Treasury Bond Yield. We have added an illiquidity premium of 2% as the counter is not sufficiently liquid with an average 644 day holding period. However AAIC should increase its public holding upto 1 from 3% by end of 216 as per CSE directives on minimum public holding. Accordingly we expect counter to have more trading volumes from 217 onwards (refer pg. 3: Recommendation Guidance for calculation criteria of illiquidity risk premium). We have applied a multi stage RI valuation model and forecasted the long-term residual income (over 6 years) by applying a persistence factor with the assumption of RI declining to a constant level. We expect company's current very high ROEs to revert downward in the long run and to maintain a low dividend pay-out for more reinvestments and thus estimate moderate persistence factor of.6. Sensitivity of valuation for 'Medium Term Growth' and 'Cost of Equity' is indicated below and sensitivity of key underlying assumptions are evaluated separately in proceeding section. Key assumptions of Residual Income valuation methodology are as follows: Risk free rate = 3 year secondary bond market yield of 11.62% Risk premium including illiquidity risk = 7% Illiquidity risk premium = 2% Persistence factor =.6 Medium term residual income growth (5-7 years) = 2 (Based on a 7% premium added to avg. life insurance GWP 5yr CAGR of selected upper-middle income countries) Table 4: Valuation Sensitivity Matrix Share price in LKR Cost of Equity 16.6% 17.6% 18.6% 19.6% 2.6% 18% % % % Table 5: Peer Comparison Name Source:CSE, Bloomberg, LOLC SEC Research Counter is currently trading at a discount to market cap weighted insurance sector average PE of 7.28X and at a premium to sector PBV of 1.91X. Price Market Cap (USD Mn) ROA (%) ROE (%) Net Assets Growth-5yrs Div Yield (%) (%) Softlogic Life Insurance Plc (Sri Lanka) Hnb Assurance Plc (Sri Lanka) Aia Insurance Lanka Plc (Sri Lanka) Ceylinco Insurance Co Plc (Sri Lanka) Union Assurance Plc (Sri Lanka) Janashakthi Insurance Co Plc (Sri Lanka) Sri Lanka Insurance Sector Average Fidelity & Guaranty Life (United States) Tune Protect Group Bhd (Malaysia) Jubilee Life Insurance Co Lt (Pakistan) Bangkok Life Assurance Pcl (Thailand) Mirae Asset Life Insurance (South Korea) Panin Financial Tbk Pt (Indonesia) PER (X) PBV (X) Source:CSE, Bloomberg, LOLC SEC Research 15 LOLC Securities Limited

16 Valuation (LKR per share) Valuation (LKR per share) Valuation (LKR per share) Valuation (LKR per share) Valuation (LKR per share) Valuation (LKR per share) Initiation Coverage: Softlogic Life Insurance PLC 15 December 16 Summarised Sensitivity Assumptions Graph 29: Growth of surplus fund transfer to shareholders: High Graph 3: Real GDP Growth: Medium % % +1.2% % +1% Growth forecast of surplus fund transfer to shareholders % +1% Real GDP growth forecast Source:LOLC SEC Research Source:LOLC SEC Research Graph 31: Investment Income Yield: High Graph 32: Insurance Benefits & Claim Expenses: Medium % +3.2% % -2% % +1% Investment income yield forecast % +1% Insurance benefits & claim expenses forecast Source:LOLC SEC Research Source:LOLC SEC Research Graph 33: Agent Commission Expenses: Medium Graph 34: Renewal Persistency Level: Medium % -2% % +1% % +1% Underwriting and net acquisition cost forecast % +1% Renewal persistency growth forecast Source:LOLC SEC Research Source:LOLC SEC Research 16 LOLC Securities Limited

17 % Initiation Coverage: Softlogic Life Insurance PLC 15 December 16 Earnings Risk Comment The main risk for AAIC stems from the country remaining to be at low per-capita GDP AAIC s valuation is dependent on the overall economic growth and increase in per capita income. We have assumed GDP per capita growth of USD 52 by 219 (country will be at upper-middle status) which will gradually result life insurance penetration to be inline with comparable countries. Thus any broader economic slowdown declining GDP per capita will diminish the affordability of protection based and savings related insurance products. But even with a low GDP growth than expected, industry could grow relatively at a higher rate due to low penetration, growing awareness and pushy sales tactics, while limiting possible industry decline. But continuous upside growth trajectory will attract new entrants negatively affecting AAIC's earnings. Changes in regulatory framework or corporate tax policy of insurance industry brings uncertainties for companies' future plans, impacting topline and bottom-line performance. Despite zero taxable profit currently, any change to the tax policy will thus have a material impact to earnings. However with recent regulatory changes made through Insurance Industry Act No.3 of 211, we would not expect further major changes in short and medium term, benefiting AAIC to set their direction concretely. If Gvt expands its capacity of free health services and pension programmes for private sector employees which are currently available only to public sector employees will create a significant threat to the industry as such services may eliminate the need for pre-paid plans. However with prolonging fiscal issues, such expansion is highly unlikely. Local life insurance industry is highly vulnerable to credit risk due to high rate of lapses. However AAIC currently maintains above the industry policy persistency levels (low lapse rate) and also have adopted stringent company policies to mitigate the credit risk stemming from lapses and surrenders. Volatility in interest rates creates a significant risk to value of company's financial assets and the liability level. Despite value of trading bond portfolio to come down and equity becoming less attractive at rising interest rates, local insurance industry has witnessed otherwise with high investment returns at rising interest rates and vise versa (see graph: 35). Though AAIC is expected to benefit on prevailing interest rate rise in short term, impact will be more cyclical with country's economic cycle. However on a negative note, customers may swift towards high yielding deposits instead of insurance products at high interest rate scenario. Despite company being reinsured by reputed reinsurers, AAIC could still expose to a liquidity risk of not been able to settle a bulk of claims which may arise at once due to unexpected disasters such as floods, Tsunamis that have been frequent in recent times. But strong growth of company's premium base will reduce the dependence on reinsurers and mitigate the liquidity risk to a certain extent. AAIC may suffer from reputational risk due to any possible impairment of the corporate image and goodwill created by an unforeseeable event. As AAIC heavily depending on its parent's brand name "Softlogic", any possible incident that could negatively affect the Group will be spilled over to AAIC. Further recent corporate name change to 'Softlogic Life' from 'Asian Alliance Insurance' may lead to a brand dilution negatively affecting its future business growth. However we expect that such slowdown to be temporally and any negativity to be settled down through an effective brand building strategy. In summary, We don't see a much risk of losing a substantial market share of AAIC in short to medium term other than the impact on bottom-line due to possible regulatory or tax policy change. Therefore with expected growth of the life insurance industry with low competition, we are confident that AAIC will not run into significant risks in short to medium term. Graph 35: Movement of Interest rate and investment yield (Trail) Average investment yield of selected insurers Avg 1 yr T-Bill rate Source:Bloomberg, Annual Reports 17 LOLC Securities Limited

18 Volume Rs Initiation Coverage: Softlogic Life Insurance PLC 15 December 16 Appendices Table 6: Return comparison Graph 36: Share Price Movement 6,, 5,, 4,, 3,, 2,, 1,, - % AAIC ASPI Index S&P SL 2 Index HASU 3 months months YTD year Volume Price SMAVG (5) SMAVG (1) Highest price as at : LKR 23.9 Lowest price as at : LKR 8. Source:CSE, Bloomberg RSI (14) /14/13 6/14/14 12/14/14 6/14/15 12/14/15 6/14/16 12/14/1 Source:CSE, Bloomberg Graph 37: AAIC PE Chart /31/14 6/3/15 12/31/15 6/3/16 PE ratio Highest Average Lowest Source:CSE, Bloomberg Graph 38: AAIC PBV Chart /14/13 6/14/14 12/14/14 6/14/15 12/14/15 6/14/16 12/14/16 PBV ratio Highest Average Lowest Source:CSE, Bloomberg Graph 39: AAIC Price per Sales /31/14 6/3/15 12/31/15 6/3/16 Price to Sales ratio Highest Average Lowest Source:CSE, Bloomberg Graph 4: AAIC Dividend Yield /31/14 6/3/15 12/31/15 6/3/16 AAIC dividend yield Highest Average Lowest Source:CSE, Bloomberg Graph 41: CSE PE Chart /14/13 6/14/14 12/14/14 6/14/15 12/14/15 6/14/16 12/14/16 ASI PE ratio Highest Average Lowest Graph 42: CSE PBV Chart /14/13 6/14/14 12/14/14 6/14/15 12/14/15 6/14/16 12/14/16 ASI PBV ratio Highest Average Lowest Source:CSE, Bloomberg Source:CSE, Bloomberg 18 LOLC Securities Limited

19 Initiation Coverage: Softlogic Life Insurance PLC 15 December 16 Table 7: Financial Summary Forecast Figures in LKR Mn (31st December) FY 15 FY 16 (9M) FY 16 (E) FY 17 (F) FY 18 (F) FY 19 (F) Income Statement Gross Written Premium 5,922 4,146 5,39 7,176 9,53 12,744 Premiums Ceded to Reinsurers (749) (434) (629) (837) (1,13) (1,359) Net Earned Premium 5,173 3,712 4,761 6,339 8,49 11,385 Other Revenue 1, ,238 1,93 2,542 3,194 Net Income 6,237 4,23 5,999 8,243 11,32 14,579 Net Insurance Benefits & Claims Paid (1,629) (762) (857) (1,24) (1,698) (2,391) Underwriting and Net Acquisition Cost (1,149) (1,25) (1,33) (1,735) (2,298) (3,81) Other Opperating & Admin Ex. (1,599) (1,148) (1,422) (1,838) (2,377) (3,74) Total Benefits, Claims and Ex. (4,377) (3,116) (3,582) (4,778) (6,373) (8,546) Change in Insurance Contract - Life Fund (966) (25) (1,86) (2,4) (2,641) (3,193) Profit Before Taxation ,331 1,425 2,19 2,839 Income Tax Reversal / (Expense) Profit/Loss from Discontinued Operations - (31) (31) Net Profit ,21 1,425 2,19 2,839 Balance Sheet Assets Cash & Near Cash Items * 224 * ,96 1,969 Reinsurance and Premium Receivables Total Investments *** 9,411 8,35 1,595 13,251 16,722 2,933 Deferred Policy Acquisition Costs Net Fixed Assets ,221 Other Assets ,274 1,911 Total Assets 11,472 12,89 11,985 15,555 2,316 26,44 Liabilities & Shareholders' Equity Insurance Contract Liability - Life 6,193 6,491 7,322 9,412 12,145 15,458 Insurance Contract Liabilities - General 1, Short Term Borrowings 1, ,136 1,363 1,635 Other short-term liabilities ** 152 ** Other long term liabilities Total Liabilities 9,249 1,598 8,945 11,375 14,522 18,338 Share Capital & APIC 1,63 1,63 1,63 1,63 1,63 1,63 Retained Earnings & Other Equity 1,161 1,149 1,977 3,117 4,732 7,4 Total Equity 2,223 2,211 3,4 4,18 5,794 8,66 Total Liabilities & Equity 11,472 12,89 11,985 15,555 2,316 26,44 Source:CSE, Bloomberg, LOLC SEC Estimates Note: AAIC has disposed 1 of its General Insurance business (AAGI) to Fairfax Asia Limited (Union Assurance General Limited) for a consideration of LKR mn which is a value equivalent to 1.7X of NAV of AAGI. We have factored the impact of divestment on our forecasted financial statements. * Cash & Near Cash Items as at includes LKR mn 'Assets Held for Sale' which is the total assets of general insurance business to be disposed. ** Short-term liabilities as at includes LKR mn 'Liabilities Held for Sale' which is the total liabilities of general business to be disposed. *** Closing balance of the line item "total investments" as at (FY16 E) includes LKR Mn cash proceeds received from the disposal of AAIG. 19 LOLC Securities Limited

20 Initiation Coverage: Softlogic Life Insurance PLC 15 December 16 Table 8: Forecast Ratios FY 15 FY 16 (9M) FY 16 (E) FY 17 (F) FY 18 (F) FY 19 (F) Life Insurance Industry Ratios Net Earned Premium Margin 87.4% 88.5% 88.3% 88.3% 89.3% 89.3% NP Margin 14.8% 19.3% % 18.3% 19.5% Return on Assets 8.5% 9.1% 8.7% 1.3% 11.3% 12.2% Return on Common Equity 4.2% 52.6% 38.8% 39.5% 4.5% 41. Net Claims Ratio 31.5% 2.5% Expense Ratio 53.1% 63.4% 57.2% 56.4% 55.1% 54.1% Combined Ratio 84.6% 83.9% 75.2% 75.4% 75.1% 75.1% Net Acquisition Cost Ratio 19.4% 29.1% 24.2% 24.2% 24.2% 24.2% Reinsurance Ratio 12.6% 1.4% 11.7% 11.7% 1.7% 1.7% Common Equity/Total Assets 19.4% 17.3% 25.4% 26.9% 28.5% 3.5% Growth Ratios GWP Growth % % 32.4% 34.1% Net Earned Premium Growth 24.9% -.7% % 33.9% 34.1% Investment Income Growth -45.9% -26.8% 16.3% 53.8% 33.6% 25.6% Net Income Growth 2.1% -4.9% -3.8% 37.4% 33.8% 32.2% Claims Growth 5.2% -4.1% -47.4% 4.5% % Underwriting & Acquisition Cost Growth 37.9% 52.7% 13.4% 33.1% 32.4% 34.1% Operating & Admin Cost Growth -6.1% -.3% -11.1% 29.3% 29.3% 29.3% Earnings (Net Profit) Growth 22.4% % 39.6% 41.7% 4.7% Earning Assets Growth 2.3% 19.4% 1.5% 19.2% 25.7% 25.6% Total Assets Growth 11.3% % 29.8% 3.6% 3. Insurance Contract Liability Growth 18.1% % 28.5% % Net Worth Growth -6.3% 18.6% 36.7% 37.5% 38.6% 39.2% Investment Ratios Earnings per share (LKR) Book value per share (LKR) PE Ratio (X) Price to Book Value (X) Dividend Yield (%). 2.6% 2.9% % 8.1% Source:CSE, Bloomberg, LOLC SEC Estimates Table 9: Dividend Forecast FY Frequency Declared Date XD Date Type Amount (LKR) 21 Final 2/15/211 3/28/211 Cash Final 2/22/212 3/27/212 Cash Final 2/17/214 2/26/214 Cash Interim 11/14/214 11/25/214 Cash 5. Final 2/13/215 2/25/215 Cash Interim 9/7/216 9/2/216 Cash (E) Final Feb-March 217 Feb-March 217 Cash (F) Interim Sep-Oct 217 Sep-Oct 217 Cash.5 Final Feb-March 218 Feb-March 218 Cash (F) Interim Sep-Oct 218 Sep-Oct 218 Cash.5 Final Feb-March 219 Feb-March 219 Cash (F) Interim Sep-Oct 219 Sep-Oct 219 Cash.5 Final Feb-March 22 Feb-March 22 Cash 1.1 Source:CSE, LOLC SEC Estimates 2 LOLC Securities Limited

21 Initiation Coverage: Softlogic Life Insurance PLC 15 December 16 Company Softlogic Life Insurance PLC (earlier Asian Alliance Insurance PLC (AAIC)) is a fast growing life insurance solution provider and has reached amongst top six life insurers within a period of 16 years. AAIC holds the 5th place with 8% market share of total GWP and 6th place by total assets by 215. It used to operate as a composite insurance solution provider and since October 216 it operates as a life insurance service provider after the divestment of its General Insurance business to Fairfax Asia Limited for LKR Mn. The company's growth has been accelerated after Softlogic Group, a leading conglomerate in the country acquiring 59% stake in 211. AAIC records a market capitalisation of LKR 75 million amongst 7 listed insurance companies in the Colombo Stock Exchange. Ownership Structure Softlogic Holdings PLC 74% DEG* 19% FMO* 19% Softlogic Capital PLC 59% Public 3% AAIC * DEG - Deutsche Investitions-und Entwicklungsgsellschaft mbh of Germany * FMO - Nethelands Financeirings - Maatschappij voor Ontwikkelingslanden N.V of Netherlands Source:Annual Report Company History Company incorporation with non life insurance operations Company declared bonus for the first time for life policy holders Acquisition of the company by Softlogic Group a diversified conglomerate in strategic growth sectors Life business acquired the 5th position in the market surpassing a traditional market leader Company segregated Life and General Insurance operations Company unveils USD 1Mn Health Cover an alltime first by a Sri Lankan insurance company Commencement of life insurance operations LIFE GWP reached LKR 1 bn mark Acquisition of company shares by Development Financial Institutions, DEG and FMO Introduction of new innovation such as DRIVE THRU insurance & 365 DAY INSURANCE for the 1st time in Sri Lanka Divestment of its general insurance business to Fairfax Asia Limited for a consideration of LKR 1.26 Bn in October 216 Source:Annual Report Company name was changed to "Softlogic Life PLC" 21 LOLC Securities Limited

22 Initiation Coverage: Softlogic Life Insurance PLC 15 December 16 AAIC Shareholding Distribution - (as at ) Shareholder # of Shares Last Qtr. Filing Date % Institution Type Country Position Change Softlogic Capital Ltd 221,952,81-9/3/ Holding Company Sri Lanka Nederlandse Financierings-Maa 71,25, - 9/3/ Investment Advisor Netherlands State Street Munich 71,25, - 9/3/ Investment Advisor Germany Sandwave Limited 1,428,889-9/3/ Corporation Sri Lanka Palihena S N P 1,, - 9/3/ Investor Sri Lanka Goonetilleke G C 775,5-9/3/ Investor Sri Lanka Ananda Rajapaksha 615,95-9/3/ Investor Sri Lanka United Motors Lanka PLC 394,3-9/3/ Corporation Sri Lanka Wickramarathne Don S J 35, +3, 9/3/216.9 Investor Sri Lanka Ekanayaka Nahimala 25, - 9/3/216.5 Investor Sri Lanka D M P Dissanayake 2,3 9/3/216.5 Investor Sri Lanka Kumara G H S 2, - 9/3/216.5 Investor Sri Lanka Softlogic Holdings Plc 175,55-9/3/216.5 Corporation Sri Lanka Wafi M Z M 156,19-9/3/216.4 Investor n/a Md Fuad Mushtaq 141, ,663 9/3/216.4 Investor n/a Mrs. Hanifa 123,237-9/3/216.3 Investor n/a Mr. Kandegedara 11, - 9/3/216.3 Investor Sri Lanka Union Investment 1, - 9/3/216.3 Bank Sri Lanka Gunathunga Edgar 1, - 9/3/216.3 Investor Sri Lanka Elgin Investments Ltd ,247 9/3/216 Other Switzerland Total 37,519, Source: Bloomberg Graph 43: Shareholder Structure-Domain (as at ) Graph 44: Shareholder Structure-Institution type (as at ) 2% 38% 62% Local Foreign Individual 98% Institutional Source:Annual Report Source:Annual Report Corporate Governance Structure AAIC is controlled by Softlogic Group owned by Mr. Ashok Pathirage etel. Softlogic Group exerts significant influence on AAIC and recently name was changed to 'Softlogic Life Insurance' bringing AAIC under Softlogic brand umbrella. Softlogic represents 7 board seats of the company. AAIC has 6 non-executive directors and 5 independent nonexecutive directors. Board represents sufficient independence and non-executive director representation to strengthen the corporate governance. Further board representation of two foreign strategic partners limits the absolute control Softlogic Group has over AAIC, strengthening the case for Minority investors. In LMD ranking for 216, AAIC has been ranked just below the two insurance giants 'Sri Lanka Insurance' and 'Ceylinco' while its parent "Softlogic Holdings" has been amongst top 2 most respected entities. Recognising its excellence in financial reporting, company was awarded the Gold Award in the insurance category for its annual report at CA annual report awards 216. AAIC operations are subjected to regulations of various governing bodies including Insurance Board of Sri Lanka, CBSL, CSE & SEC. 22 LOLC Securities Limited

23 Initiation Coverage: Softlogic Life Insurance PLC 15 December 16 Key Management of AAIC Name & Designation Ashok Pathirage Chairman/Non-Executive Director Paul Rathnayake Deputy Chairman/ Independent Non-Executive Director Profile Mr. Pathirage is one of the co-founders of Softlogic and was appointed Chairman of Softlogic in 2. He serves as Chairman/ Managing Director of the Asiri Hospital chain, Softlogic Capital PLC, Softlogic Finance PLC, Asian Alliance Insurance PLC and Odel PLC, all listed entities, in addition to the private companies of the group operating in Leisure & Restaurants, Retail, Automobile and ICT industries. He is Deputy Chairman of the National Development Bank PLC and Chairman of NDB Capital Holdings PLC. Considering his wealth of business acumen and corporate leadership, he is one of the leading business leaders in the country. Mr. Paul Ratnayeke is a leading commercial lawyer and a Senior Partner and Founder of Paul Ratnayeke Associates, an established law firm in Sri Lanka. He graduated with Honours from the University of Ceylon (Colombo) and has also been awarded a Masters Degree in Law by the University of London. He is a Solicitor of the Supreme Court of England and Wales and an Attorney-at-Law of the Supreme Court of Sri Lanka. Currently, he holds directorships in several companies, in some of which he has been appointed Deputy Chairman or Chairman. Iftikar Ahamed Managing Director Mr. Iftikar Ahamed was appointed Managing Director of Asian Alliance Insurance PLC in January 214. He counts over 3 years of experience in a wide range of métiers within the financial services industry and has extensive banking experience both in Sri Lanka and overseas, having held senior management positions as Deputy Chief Executive Officer at Nations Trust Bank PLC and Senior Associate Director at Deutsche Bank AG. He holds an MBA from University of Wales, UK. Johannes Richters Independent Non-Executive Director Sujeewa Rajapakshe Independent Non-Executive Director Ray Abeywardena Independent Non-Executive Director Jatinder Mukhi Independent Non-Executive Director Mr. Johannes W. H. Richters has garnered international management experience in markets as varied as South America, the Caribbean and Asia. He holds a Masters Degree in Law from the Free University of Amsterdam and underwent further corporate management training at ING Insurance, Netherlands. He has functioned as Chairman and CEO of ING Mexico and CEO and Managing Director of ING Argentina in the past. He has almost 4 years experience in the global insurance field and is affiliated to government committees in Suriname and other global insurance bodies. A Fellow of the Institute of Chartered Accountants of Sri Lanka and the Society of Certified Management Accountants of Sri Lanka, Mr. Sujeewa Rajapakse is the Managing Partner of BDO Partners a Firm of Chartered Accountants. He holds a MBA from the Postgraduate Institute of Management, University of Sri Jayewardenepura. Mr. Rajapakse is a Past President of the Institute of Chartered Accountants of Sri Lanka. He was the Technical Advisor of the South Asian Federation of Accountants (SAFA). Mr. Abeywardena holds an MBA from the University of Wales and a Post Graduate Diploma in Marketing from the Chartered Institute of Marketing, UK (CIM). He serves as the Group Managing Director/ CEO of Acuity Partners (Pvt) Ltd; a Joint Venture Investment Banking firm equally owned by the DFCC Bank and Hatton National Bank PLC. He has over 29 years of work experience in the Capital markets in Sri Lanka, of which 23 years were spent in stockbroking. Mr. Jatinder Mukhi is currently the CEO of Asia Insurance 195 Pte Ltd.,a fully registered Insurance Company in Thailand, dealing mainly in Non-Life Insurance. He has spent the whole of his working career in the Insurance industry and has over 4 years of Insurance experience of which 2 years have been in Asia. He has provided advice to insurance companies in Asia in order to improve operations and sales distribution. Graph 45: Composition of the Board Executive Directors Non-Executive Directors Independent Non-Executive Directors Source:Annual Report LOLC Securities Limited