Marmore Company Reports. Company for Cooperative Insurance (Tawuniya).

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1 Marmore Company Reports Company for Cooperative Insurance (Tawuniya). Country Sector Saudi rabia Financial Services

2 MRMORE COMPNY REPORTS Company for Cooperative Insurance (Tawuniya) ugust 2015 Research Team M.R. Raghu CF, FRM Head of Research N.C. Karthik Ramesh Manager Research Nivas Lakshminarasimhan Research nalyst Siva Sindhura Palepu Intern Support Team Jenevivu Lasrado Secretary, Research Nataraj Balakrishnan Manager dmin & Support Disclaimer This report has been prepared and issued by Marmore MEN Intelligence Ltd (Marmore), a fully owned research of Kuwait Financial Centre Markaz K.P.S.C. Marmore is a private limited company registered with the Registrar of Companies in India. This Report is owned by Marmore and is privileged and proprietary and is subject to copyrights. Sale of any copies of this Report is strictly prohibited. This Report cannot be quoted without the prior written consent of Marmore. ny user after obtaining Marmore's permission to use this Report must clearly mention the source as Marmore." The Report is intended to be circulated for general information only and should not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy in any jurisdiction. The information and statistical data herein have been obtained from sources we believe to be reliable, but no representation or warranty, expressed or implied, is made that such information and data is accurate or complete, and therefore should not be relied upon as such. Opinions, interpretations, estimates, and projections in this report constitute the current judgment of the author as of the date of this Report. They do not necessarily reflect the opinion of Markaz or Marmore or other identified parties and are subject to change without prior notice. Neither Marmore nor Markaz have an obligation to update, modify, or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast, or estimate set forth herein, changes or subsequently becomes inaccurate, or if research on the subject company is withdrawn. This Report may not consider the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors are urged to seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and to understand that statements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each security s price or value may rise or fall. Investors should be able and willing to accept a total or partial loss of their investment. ccordingly, investors may receive back less than originally invested. Past performance is not necessarily indicative of future performance. Markaz may seek to do business, including investment banking deals, with companies covered in its research reports. Markaz may have interests in the areas covered in this research report. Markaz, Markaz managed entities, its clients, or its employees may have from time to time long or short positions in any security, derivative or other types of assets referred to in this research report. s a result, investors should be aware that Markaz may have a conflict of interest that could affect the objectivity of this report. This report may provide the addresses of or contain hyperlinks to websites. Except to the extent to which the report refers to website material of Markaz and Marmore, Markaz has not reviewed the linked site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to Markaz s or Marmore s own website material) is provided solely for your convenience and information, and the content of the linked site does not in any way form part of this document. ccessing such website or following such link through this report or Markaz s or Marmore s website shall be at your own risk. For further information, please contact Markaz at P.O. Box 23444, Safat 13095, Kuwait; info@e-marmore.com; Tel: ; Fax:

3 MRMORE COMPNY REPORTS Company for Cooperative Insurance (Tawuniya) ugust 2015 Table of contents 1. Executive Summary Business Overview... 8 Overview... 8 Porter five force analysis STEEPLED analysis Financial Overview...24 Revenue Key Financial Ratios Return on Equity (ROE) and Return on sset (RO) CFO-to-Sales Earnings Quality (EQ) Projections Peer nalysis...34 Regional Peers Global Peers Share Market Overview...38 Dividend Risk Metrics Liquidity nalyst Calls Credit Rating ppendix...44 Sector Overview Sector Drivers Corporate Governance

4 MRMORE COMPNY REPORTS Company for Cooperative Insurance (Tawuniya) ugust 2015 Tables and Charts Tables Charts 1.1 Summary 2.1 NCCI Business lines 1.2 Business View 2.2 NCCI Revenue: Business Line-Wise, (2014) 1.3 Financial View(Long Term View) 2.3 Key Milestones 2.1 Performance Indicators (Millions) NCCI GWP, Premium Ceded to Reinsurers and 2.4 Insurance retention 2.2 Summary of Porter s Five Forces analysis Commission Ratio, Investment Yield and GWP, Summary of STEEPLED analysis 3.1 Gross Premium Written , (USD Million) 2.4 SWOT analysis Major segment Revenue (Net Premium Earned: (USD million) 3.1 Financial Ratios 3.3 Du Pont nalysis 3.2 Earnings Quality across time periods 3.5 ROE & RO, ( ) 3.3 Earnings Quality Components (Period End: Cash Flow from Operations (in USD million) and 3.6 March 2015) CFO-to-Revenue ratio, Projections for Income Statement, Balance NCCI vs. Saudi Tadawul Index, Rebased Sheet to 31st Dec, Growth of Insurance Industry 6.2 NCCI Volume traded (in million) vs. Price 5.1 Select Peer comparison based on size, P/E Risk vs. Return: NCCI, Peers and Saudi Index, 6.3 and dividends Peer comparison based on returns and GWP growth in Saudi rabia 7.1 margins (2014) 5.3 Peer comparison based on Balance Sheet Retention rates by lines of business 7.2 strength 5.4 Rankings against Global Peers based on Market Cap 6.1 Returns of NCCI Co vs. Saudi Index 6.2 NCCI, Risk Metrics 6.4 Liquidity Metrics 7.1 Projections for Income Statement, Balance Sheet 7.2 Board of Directors and Executive Management 4

5 MRMORE COMPNY REPORTS Company for Cooperative Insurance (Tawuniya) ugust Executive Summary Table 1.1: Summary Market Cap (Jan 15) USD 2.5billion GWP (2014 USD billion) 1.6 Listing Saudi SE % share in the index 0.56% of TSI Index Net Profit (USD million) Total ssets (USD billion) Number of employees P/E 17.1 Number of countries 6 P/B 4.62 Regional ranking 2 nd (out of 25) Div. Yield 78% Source: Thomson Reuters, Zawya, Data as on pril, 2015 NCCI is the biggest takaful insurer in the region, with a market cap exceeding USD 2.5bn. It is the only company in Saudi writing more than USD 1 billion annual premiums till early The Company for Cooperative Insurance (lso known as NCCI, Tawuniya), established in 1986, offers insurance and re-insurance solutions It is based in Riyadh, Saudi rabia and it has more than 100 regional and sales offices across Saudi rabia. NCCI is the biggest takaful insurer in the region, with a market cap exceeding USD 2.5bn. Its closest competitor in the industry is QGI, which has less than half the market cap, and deals in both conventional and Islamic insurance products. The three operating segments of NCCI are Medical, Property & Casualty and Motor Insurance. It is the only company in Saudi writing more than USD 1 billion annual premiums till early In the middle of 2013, NCCI entered into a strategic alliance with etna, a healthcare solutions company and started extending its services to Saudi citizens abroad 3. 1 Zawya 2 Businesswire 3 US-sabc.org 5

6 MRMORE COMPNY REPORTS Company for Cooperative Insurance (Tawuniya) ugust 2015 The company has increased its gross premiums written (GWP) at a CGR of over 10.4 per cent during the period , rising from USD 1.1bn in 2010 to USD 1.7bn in Gross premiums written (GWP) increased at a CGR of over 10.4 per cent during the period The net income for the company from underwriting premiums in 2014 was USD million. Investments in the preceding year yielded an investment income of around USD 59.4 million in Table 1.2: Business View Ratings Sector ttractiveness High Business Model ttractiveness High Industry Competitiveness STEEPLED nalysis Source: Marmore nalysis High Good NCCI s services are now extended to Saudi citizens living abroad. Low market penetration levels of Insurance in the region make the insurance sector highly attractive. NCCI has significant presence in the domestic market, and is currently ranked number 1 in the insurance sector of Saudi rabia 4. In addition, NCCI entered into a strategic alliance with etna, a health care solutions company in 2013.Owing to this alliance, NCCI s services are now extended to Saudi citizens living abroad. Though the intensity of competition is high in the global markets and Saudi rabia, lower insurance penetration levels and favourable dynamics offer NCCI opportunities for further growth. The government policies on insurance and the high affluence of the country s citizens, coupled with insurance providers going online to sell their products will enable the growth of the insurance sector in the near- to medium-term. 4 Gulfbase 6

7 MRMORE COMPNY REPORTS Company for Cooperative Insurance (Tawuniya) ugust 2015 Table 1.3: Financial View(Long Term View) Financial View Top line Growth Bottom-line Growth Margins ROE Earnings Quality Source: Marmore nalysis Ratings Good Good Moderate Good Poor Higher retention of premium gives NCCI the opportunity to make higher profits. NCCI s top-line i.e. gross premiums written have grown at a CGR of 10.4 per cent during the period , while operating expenses increased at a rate of 17.9 per cent. This has led to marginal growth in the company s profits, which have risen at a CGR of 3.7 per cent. The cession ratio for NCCI has dropped gradually from 32.5 per cent in 2010 to 20.1 per cent in Higher retention of premium gives NCCI the opportunity to make higher profits, is case of lower insurance loss claims. However, this also exposes NCCI to higher risk. NCCI s ROE is one of the best among regional and global peers, and follows the trend of net income margin. Earnings quality has fallen since Q3 2013, due to decline in operating efficiency and increase in accruals. 7

8 Research Library (Complimentary Research) Capital Markets Researches Berkshire Hathaway (2015) pple (2015) Mother of ll IPOs - National Commercial Bank (2015) Saudi rabian Markets Set to Open (2014) MEN sset Management Policy Perspectives (2013) Including in the MSCI EM Index (2012) lpha bound: Study to explore lpha generation in (2012) Kuwait Investment Sector (2012) Defensive Bellwether Stocks (2012) Kuwait 15 Index (2011) SWFs: The Golden Portfolio (2010) Persistence in performance: The Experience (2010) Will catch up with GEM? -What is left for 2009 This Too Shall Pass: What can we expect in 2009 for Markets? (2009) Missing the rally (2009) Fishing in Troubled Waters (2008) Down and Out: Saudi Stock Outlook (2008) Mr. Market-Manic Depressive (2008) To Yield or Not To Yield: Examining the Potential of Yield Stocks in (2008) China and India: Too Much Too Fast(2007) Kuwait sset Management Industry (2007) Gulf Emerging Portfolio: nd Why Not? (2007) Derivatives Market in (2007) Managing Volatility (2007) Regulatory Researches Regulatory Digest (Semi-nnual) Kuwait s new Law on Preference Shares (2015) Kuwait's BOT law (2014) Land Reforms in Kuwait (2014) Kuwait s PPP Law (2013) Bankruptcy Law in the (2013) Got a CM (Kuwait): What Next? (2012) The New Regulations for Kuwait Investment Sector (2010) Wanted: Kuwait Capital Market uthority (2010) To Leap or To Lag: Choices before Regulators (2007) Economic Researches Kuwait Dealing with Construction Permits (2015) Dubai Government Summit 2015 (2015) Negative Interest Rates (2015) Central Bank Shocks (2015) Fiscal Breakeven Oil Price (2015) Kuwait starting Business (2015) Kuwait Electricity Tariff Hikes (2015) Basel III Norms (2015) Kuwait Real Estate (2015) Swiss Franc (2015) Cheaper Oil (2015) Rising Fuel Prices in Kuwait (2015) Cloud Computing (2014) Free Trade Zones (2014) Disruptive Technology: Bitcoins (2014) The Internet of Things! Big Data (2014) Kuwait Credit Growth (2014) Kuwait SME s (2014) Multiple directorships in KS (2013) Demographic Shift (2012) How is preparing for a + World? (2011) Kuwait Development Plan (2011) Political Risk moving to the forefront in MEN: Impact nalysis (2011) Policy Researches Kuwait Reforms (Series) - Education Oil & Gas Markets and the Emergence of New Resources (2014) Countries & sia: Bolstering Energy Ties (2014) Energy Strategies: The Way Forward (2014) Blueprint for Public Sector Good Governance in Kuwait (2013) Kuwait - Private Labor Market (2013) Kuwait - lternatives for Power Generation (2013) Kuwait - Sustainable Power Strategy (2012) Tools to Strengthen & Support Kuwait's Private Sector (2012) Daily Morning Brief Kuwait Daily Monthly MEN Markets Review International Market Update Quarterly Marmore Bulletin Half yearly Regulatory Digest Corporate Earnings nnual Periodic Reports Markets Outlook Equity Risk Premium Fixed Income Update

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