Bupa Arabia Q2 2018 Earnings Conference Call and Webcast August 30, 2018
Disclaimer This presentation has been prepared by the management of Bupa Arabia ( The Company ). It does not constitute or form part of, and should not be construed as, an offer, solicitation or invitation to subscribe for, underwrite or otherwise acquire, any securities of the Company or any member of its group nor should it or any part of it form the basis of, or be relied on in connection with, any contract to purchase or subscribe for any securities of the Company or any member of its group, nor shall it or any part of it form the basis of or be relied on in connection with any contract or commitment whatsoever. The information included in this presentation has been provided to you solely for your information and background and is subject to updating, completion, revision and amendment and such information may change materially. Unless required by applicable law or regulation, no person is under any obligation to update or keep current the information contained in this presentation and any opinions expressed in relation thereto are subject to change without notice. No representation or warranty, express or implied, is made as to the fairness, accuracy, reasonableness or completeness of the information contained herein. Neither Bupa Arabia nor any other person accepts any liability for any loss howsoever arising, directly or indirectly, from this presentation or its contents. This presentation may include forward-looking statements that reflect the Company's intentions, beliefs or current expectations concerning, among other things, the Company s results of operations, financial condition, liquidity, performance, growth, strategies and the industry. These forwardlooking statements are subject to risks, uncertainties and assumptions and other factors that could cause the Company's actual results of operations, financial condition, liquidity, performance, prospects, growth or opportunities, as well as those of the markets it serves or intends to serve, to differ materially from those expressed in, or suggested by, these forward-looking statements. The Company cautions you that forwardlooking statements are not guarantees of future performance and that its actual results of operations, financial condition and liquidity and the development of the industry in which the Company operates may differ materially from those made in or suggested by the forward-looking statements contained in this presentation. In addition, even if the Company's results of operations, financial condition, liquidity and growth and the development of the industry in which the Company operates are consistent with the forward-looking statements contained in this presentation, those results or developments may not be indicative of results or developments in future periods. The Company and each of its directors, officers and employees expressly disclaim any obligation or undertaking to review, update or release any update of or revisions to any forward-looking statements in this presentation or any change in the Company's expectations or any change in events, conditions or circumstances on which these forward-looking statements are based, except as required by applicable law or regulation. The distribution of this document in certain jurisdictions may be restricted by law and persons into whose possession this document comes should inform themselves about, and observe any such restrictions. This document and any materials distributed in connection with this document are not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would require any registration or licensing within such jurisdiction. 2
Chief Executive Team Tal Nazer Chief Executive Officer (CEO) Nader Ashoor* Chief Financial Officer (CFO) Ali F. Hamdan Chief Risk Officer (CRO) Ali Sheneamer* Chief Business Development Officer (CBDO) *Today s speakers Tariq Alamoudi Chief Human Resources Officer (CHRO) Mohamed El Missaoui Chief Operations Officer (COO) Atef Mufti Chief Sales Officer (CSO) 3
Agenda Financial Performance Market Outlook Other Highlights Abbreviations & Glossary 4
KPIs (1/2) H1 2018 reports healthy GWP, contribution and loss ratio SR mn +9.3% 1,848 2,020 GWP 4,274 4,101 +10.0% 4,509 387 +12.7% 436 Contribution 631 595 +8.6% 646 146 +22.6% 179 EBT 1 167 182 +3.3% 188 Q2 2017 Q2 2018 H1 2016 H1 2017 H1 2018 Q2 2017 Q2 2018 H1 2016 H1 2017 H1 2018 Q2 2017 Q2 2018 H1 2016 H1 2017 H1 2018 EBT Margin ROE Loss Ratio 7,6% 1,4 bps 9,1% 4,5% -0,01 bps 4,8% 4,8% 46,9% -10,9 bps 34,2% 23,3% 79.7% -1.8 bps 77.9% 83.2% 84.3% -0.8 bps 83.5% Q2 2017 Q2 2018 H1 2016 H1 2017 H1 2018 1 Earnings Before Taxes and Zakat or EBT represent net income attributed to the shareholders H1 2016 H1 2017 H1 2018 Q2 2017 Q2 2018 H1 2016 H1 2017 H1 2018 5
KPIs (2/2) Stable combined ratio YoY and higher dividend payout 92.2% 91.2% 94.4% 95.2% 95.5% 79.7% 77.9% 83.2% 84.3% 83.5% 12.5% 13.3% 11.2% 10.9% 12.0% Q2 2017 Q2 2018 H1 2016 H1 2017 H1 2018 Loss Ratio Expense Ratio Combined ratio 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2-2.0 26% 1.5 19% 2.0 32% 2015 2016 2017 Dividend per share Dividend payout ratio 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 200 Share Performance Against TASI (100 basis point) 150 100 50 0 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Bupa Tadawul All Share Index Tawuniya Medgulf Rajhi Takaful Source: Tadawul & Argaam.com Note: Share prices for Aug 18 are as of 7 August 2018 6
EBT SR m EBT on the rise through favorable contribution and investment income 145.8 Contribution 48.8 m 64.3-15.5 +22.7% -25.6 11.4-1.5 178.9 Q2 2017 Earned Premium Claims Incurred Expenses Investment & Other Income 1 PH Surplus Payable Q2 2018-9.7-49.9-4.1 38.1 G&A BDP Other S&M Contribution 51.7 m +3.1% -74.3 126.0 182.5-60.6 188.2 13.1 1.5 H1 2017 Earned Premium Claims Incurred Expenses Investment & Other Income 1 PH Surplus Payable H1 2018-25.7-47.3 9.3 3.1 1 PH: Policyholders share of surplus from insurance operation G&A BDP S&M Other 7
Market Share and Positioning Bupa Arabia is leading the Saudi health insurance market as of H1 2018 Total Insurance Market Share Total Insurance Market Share 45% Q2 2017 21% 10% 38% Q2 2018 27% 4% 42% H1 2017 20% 8% 43% H1 2018 24% 4% 5% 19% 8% 23% 9% 20% 9% 21% Health Insurance Market Share Health Insurance Market Share 18% 17% 18% 18% 3% Q2 2017 39% 4% Q2 2018 47% 2% H1 2017 41% 3% H1 2018 46% 28% 28% 28% 29% 12% 4% 12% 5% Source: respective insurance companies filings, and Bupa Arabia estimates Bupa Medgulf Tawuniya Al Rajhi Takaful Others 8
Loss Ratio and Technical Reserves Bupa Arabia reports favorable loss ratios and reserve profile Loss Ratio Health Insurance Market 100.6% 97.8% 86.2% 79.7% 84.3% 85.8% 77.9% 83.5% 107.2% 104.3% 105.1% 99.1% 75.6% 77.9% 81.1% 80.4% 73.0% 77.9% 62.3% 62.1% Bupa Arabia Tawuniya Medgulf Al Rajhi Takaful Others Q2 2017 Q2 2018 H1 2017 H1 2018 20% 20% 27% OCP (reserves)/ttm Claims Health Insurance Market 32% 25% 25% 24% 26% 26% 27% 25% 22% 30% 30% 36% 34% Bupa Tawuniya MedGulf AlRajhi Takaful Q2 2016 Q2 2017 Q1 2018 Q2 2018 Source: respective insurance companies filings, and Bupa Arabia estimates 9
Investment Portfolio and Results Improved investment income through further portfolio diversification and local equity performance Investment Income Income Breakdown Asset Allocation 7,0% 158 185 200 204 17,0% 2,0% H1 2018 130 42 25% 74,0% 63 35 Q/Q (yoy) +12.5% 89 41% 44% 1,0% 16,0% 2,0% H1 2017 21 40 45 75% 81,0% 39 16 10 4 9 35 12 41 44 59% 56% 10,0% 11,0% H1 2016 2015 2016 2017 2018 H1 2016 H1 2017 H1 2018 76,0% Q4 Q3 Q2 Q1 Investment Income Underwriting results Funds Sukuk Equities Deposit
Agenda Financial Performance Market Outlook Other Highlights Abbreviations & Glossary 11
Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Trends of Expats and Saudis in The Saudi Insured Market Expats continued to depart from the insured market at higher rates in 2018 Expats Saudis 9.8 9.7 9.6-5.6% 9.4 9.3 9.3 9.3 9.2 9.1-11.2% 8.9 8.7 8.3 8.2 2.5 +7.8% +0.1% 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.8 2.8 2.8 2.7-550K -1M +197K +1K Source: Stats.gov.sa, GOSI, MoL, CCHI, and Bupa Arabia estimates 12
How We See The Health Insurance Market Today (1/2) Market provides promising growth opportunity subject to enforcement Expats 10.2 Private Sector 44% Saudis 5.0 Expats 12.7 Saudis 20.7 Stats Gov Est. Q2 2018* Population 33.4 m * Doesn t include recent deportation of illegal expats Public Sector 56% Saudis 15.7 Umrah 1.4 Visitors & tourists 1.9 Expats 2.5 Umrah & Visitors 8.7 m Umrah pre-ramadan 5.4 Saudis 2.7 Private Insurance Mandate (Addressable Market) 15.2 m Expats 8.2 Insured end Q2 18 10.9 m Under Insured Expats 1.2 Saudis 2.2 Dependent of expats & illegal residents 0.9 Under/Uninsured 4.3m Others 0.5 Retired 2.4 Unemployed 0.8 Saudis 15.7 m Public Coverage 18.2 m Gov. Employees 12.0 Gov. Employees 0.4 Expats 2.5 m Domestic Helpers 1 2.1 Source: Stats.gov.sa, GOSI, MoL, CCHI, and Bupa Arabia estimates 1 Not under public coverage but also not under private insurance mandate 13
How We See The Health Insurance Market Today (2/2) Slight growth in the Saudi insured lives surpassed by expats departure Total Population (m) Insured Lives (m) 0.3% 32.7 33.5 34.2 33.3 32.8 33.4 14.4 15.0 15.0 15.4 15.4 15.7 11.8 2.5-7.4% +4.2% -1.5% -0.7% 12.3 12.1 12.0 2.5 2.7 2.7-2.8% 11.7 2.8-6% 10.9 2.7 2.5 2.5 2.7 2.5 2.5 2.3 2.7 2.7 2.7 9.3 9.8 9.4 2.7 2.8 2.7 2.3 2.2 2.2 2.7 2.5 2.5 9.3 8.9 8.2 9.3 9.8 9.4 9.3 8.9 8.2 1.4 0.9 0.9 2.0 0.8 1.0 2.1 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Saudi-Public Coverage Saudi-Insured Expats-Public Coverage Expats-Insured Saudis Expats Saudi-Uninsured Expats-Uninsured Source: Stats.gov.sa, GOSI, MoL, CCHI, and Bupa Arabia estimates 14
Saudi Health Insurance Market Trends (1/2) Expats departure outweighed the inclusion of Saudis into the health insurance market -11% +10% -16% 12,273 10,943 2,506 2,747 9,767 8,195 H1 2017 H1 2018 Total Insured Lives H1 2017 H1 2018 Saudi - Total H1 2017 H1 2018 Expat - Total 8,405-14% -4% 7,214 1,549 +7% +11% 1,720 7,449-17% -13% 6,186 3,868 3,729 957 1,028 2,319 2,009 H1 2017 H1 2018 H1 2017 H1 2018 H1 2017 H1 2018 Total - Primary Total - Dependents Saudi - Primary Saudi - Dependents Expat - Primary Expat - Dependents Source: Stats.gov.sa, GOSI, MoL, CCHI, and Bupa Arabia estimates 15
Saudi Health Insurance Market Trends (2/2) CCHI s new ToB 1 impact to be washed away by expats departure Total Health GWP (bn) Total Insured Lives (m) 11.3 +15% +20% -2% +2% -2% +22% 19.0 18.6 19.0 18.6 15.8 12.9 8.7 +13% -2% 9.9 9.6 +12% -0.3% +12% 12.1 12.0 10.8-7% 11.2 2012 2013 2014 2015 2016 2017 2018 (F) 2018 Market Drivers/ Key Assumptions (m) 2012 2013 2014 2015 2016 2017 2018 (F) 2018 Market Drivers/ Key Assumptions (000 ) 959 Saudi Enforcement in H2 73 Saudi Employees 669 Loss Ratio Price-up 80 Saudi Dependents 484 Impact of CCHI new TOB 667 Saudi Enforcement -1,557 Expats Departure -1,149 Expats Employees -975 Downtrading -517 Expats Dependents F= forecast 1 CCHI updated TOB starting July 2018 to include organ transplantation, Alzheimer s disease, Autism, Heart valves, and Neonatal Early screening Source : CCHI Annual Reports & Bupa Arabia estimates 16
Agenda Financial Performance Market Outlook Other Highlights Abbreviations & Glossary 17
Other Highlights 1 Bupa Group Bupa Group increased its stake in Bupa Arabia by 5% from 34.25% to 39.25% 2 MOH Contracts Cancellation of MOH contracts limited to medical facilities affiliated with the ministry with discussion underway to restore relationship 3 4 Foreign Ownership 400 m Capital Increase Foreign ownership limit increased exceptionally to 60% allowing for Bupa Arabia s stock inclusion in the Emerging Markets indices Bupa Arabia s BOD has recently recommended an increase in the capital of the company through issuing of 1 bonus share for every 2 shares held 1 1 The proposed increase in capital will only be initiated once all necessary approvals are received from all the required official authorities, as well as subject thereafter to the approval from the shareholders in the Extraordinary General Assembly Meeting (EGM) 18
Agenda Financial Performance Market Outlook Other Highlights Abbreviations & Glossary 19
Abbreviations BDP BOD Bps DAC EBT EGM FVIS G&A GWP KPI NEP OCP ROE S&M Bad debt provision Board of Directors Basis points Deferred acquisition costs Earnings before tax Extraordinary general assembly meeting Fair value through income statement General and administrative expenses Gross written premium Key performance indicator Net earned premiums Outstanding claims provision (known as technical reserve) Return on equity Selling and marketing expenses 20
Glossary of terms Understanding our Financial Statements A customer buys a one-year medical insurance policy for SR 5,000 on July 1, 2017. The coverage ends on June 30, 2018. The annual reporting period for the business in this example is for the year ended December 31, 2017. A Gross written premium (GWP) 5,000 When a customer buys a health insurance policy on July 1, the total premium for the duration of the contract assuming no additions or deletion is SR 5,000. This amount is classified as Gross Written Premium (GWP). Market share is measured using GWP. B Premiums ceded to reinsurers -50 A*Reinsurance rate The portion of risk that is transferred to a reinsurance company in exchange for a stated premium. In this case the reinsurer has been paid SR 50 and will be responsible for a specified risk according to the agreement with the reinsurer (reinsurance is mandatory per SAMA regulations) C Net written premium (NWP) 4950 A-B The total value of the written premium that will be earned by the insurer during the duration of the contract (12 months) between July 1, 2017 and June 30, 2018 D Unearned premium (UEP) 2475 C*50% The portion of the premium that has not been earned in the reporting period and is recorded as a liability on the insurer s balance sheet. Since the contract was written on 1 July 2017, only half of the premium is earned in 2017 E Net earned premium (NEP) 2475 C*50% The net earned portion represents the expired i.e. completed amount of the net written premium; The portion of the total premium that was exposed to a potential claim loss during the completed period. If a customer is enrolled mid-year, as is the case in this example, then half of the exposure will be in the year he enrolled (2017) and half will be reflected in the year after (2018) 21
Glossary of terms F Gross claims paid 1825 The actual amount of all paid claims on behalf of the customers. There are two types of claims; 1. Provider claims on direct billing and to be refunded to the customer 2. Reimbursement claims requested by the member A claim is a request for payment received by the insurer to pay for services that were provided by a health care professional to an insured member. A claim may be sent by a medical provider at which the treatment was offered as a provider claim, or directly submitted by the insured member as a reimbursement claim. G Reinsurance share -25 F*% The portion of claims the reinsurers are responsible for in exchange for certain premium (as mentioned in Reinsurance ceded -B) H Net claims paid 1800 F-G Net amounts paid for claims requests after deducting the reinsurer s share I Outstanding claims provision (OCP) 200 Based on actuarial estimates The outstanding claims provision incudes the Incurred But Not Reported claims (IBNR), which is defined as all claims that have taken place but have not been reported yet, either because the claim was not yet received by the insurer, or it has been received but not yet processed or paid by the insurer. This is also referred to as an insurer s claims reserve, and is recorded as a liability on the insurer s balance sheet. Before final payment to providers, the insurer adjudicates the claims. This is the process by which the claim is compared to the patient's health plan benefits to verify that the required information is available to process the claim, that the claim is not a duplicate, that the insurer s rules and procedures have been followed, and that the procedures performed or the services provided are for covered benefits 22
Glossary of terms J Net claims incurred 2000 H+I All payment requests received from hospitals or members to pay for a certain service or projected to be received for the duration of the earned portion of the contract (July 1, 2017 to Dec 31, 2017) K Underwriting result (Contribution) 475 E-J The surplus of net earned premium less net claims incurred is the contribution. It measures profitability of the policy before accounting for overhead costs. L Costs and expenses 250 Includes selling & marketing, general & administration expenses, and regulatory levies, etc. M Underlying trading results 725 K-L (excluding nonrecurring item) The total profit excluding one-time charges and investment income N O Ratios Surplus from insurance operations Distribution of surplus (Cooperative Distribution) 225 K-L The excess amounts from the earned premium less the medical costs and all expenses (including non-recurring items) plus other income (i.e. insurance operations, investment income and all other sundry income) 22.5 N*10% The SAMA regulatory required surplus to be distributed to policyholders is 10% of the surplus from insurance operations and the full surplus is distributed as follows: Transfer to Policyholders payables 10% Transfer to Shareholders operation 90% Loss ratio (LR) 81% J/E The net claims incurred divided by the net earned premium. It measures the % of medical claims cost versus the earned portion of all policyholders Expense ratio 10% L/E The operating expenses divided by the net earned premium Combined ratio 91% (J+L)/E The loss ratio plus the expense ratio. It is a proxy for the surplus from insurance operations Return on Equity (ROE) ROE is trailing twelve months net income after tax / average equity 23
Glossary of terms Understanding Bupa Arabia s Balance Sheet Goodwill Goodwill represents the intangible asset which resulted from the Bupa Arabia purchase of the Saudi Health insurance portfolio from Bupa Middle East Limited E.C. in accordance with the assessment by SAMA and the prescribed SAMA guidelines of 2008. The insurance portfolio transfer agreement was completed during 2009 Fixed Assets Cash & Investments Fixed assets include the company s investment in new retail outlets, IT, and fixtures, equipment, machinery, etc. All cash in the banks, investments, and statutory deposits Working Capital The working capital represents the operating liquidity available to the organization. The current assets include the receivables, net of bad debt provision, deferred acquisition costs, and other pre-paid expenses. The current liabilities include the technical reserves of outstanding claims provision (OCP) and unearned premium (UEP) and other accrued liabilities. Unlike many businesses, working capital is not favourable in an insurance business. This is because the premium is usually received before the claims liabilities are incurred and ultimately paid Equity Borrowings Shareholders' equity represents the paid up capital, plus retained earnings, statutory reserve, and is net of accumulated Zakat/Income tax charges since inception Generally speaking, insurance companies do not need the support of bank borrowings due to the favourable funding of working capital by customers 24
THANK YOU Bupa Arabia Business Advisory & Investor Relations Tel: +966 920 000 456 Ext: 3583 ba.bair@bupa.com.sa www.bupa.com.sa