Oman Qatar Insurance Co Saog Under Transformation

SEP 2017

OMAN QATAR INSURANCE CO SAOG UNDER TRANSFORMATION

Offer Price: RO 0.160 Outlook: Neutral Fair Value: RO 0.165 OQIC ‐ IPO

Oman Qatar Ins. Co (OQIC)‐ Strong parentage and synergies support Investment theme, Valuation upside limited…

Outlook: Neutral IPO Rating: Average Fair Value: RO 0.165 . Being the subsidiary of Qatar Insurance (QIC) remain positive in terms of business strategies and underwriting standards . Mixed historical performance reported amid cleaning up of the book. Worst seems to be behind . Investment returns seems volatile historically with higher exposure in equities . IPO at premium, we remain neutral on valuations with no listing gains anticipated, considering optimistic projections . Strong Jan‐ July 2017 audited results supports FY2017 results, Dividend yield to remain supportive over the short term. . Challenges remain on the economic slowdown, increase in UPR reserves and higher contingency provisioning requirements

Strong Parentage to support, focus on targeted segments towards growth: OQIC is one of the subsidiaries of Qatar Insurance Co (QIC), one of the leading Insurance companies in the MENA region. The company has developed strong underwriting expertise, differentiated products, enhance customer base and strong reinsurance partners. OQIC has entered into a management & operational services agreement with QIC International LLC (QIC Company), to provide key services like management, admin. & operational and other services (Risk, IT, Compliance, Internal Audit) against payment of annual fee. During our IPO discussion, QIC reiterated their active strategy towards growing OQIC businesses and synergies going forward, this remain as key investment theme.

Concern remain on mixed historical performance: The insurance premium revenue has grown at a CAGR of 4.4% over 2013‐2016, while underwriting results reported annualized decline of 13.8% over the same period. Overall market share of the company remained between 4.5‐4.9% during 2013‐16. The reported decline in 2015 underwriting results is due to increased reserve against motor claims and increased losses in medical and life segments. OQIC maintains a loss ratio of about 76% levels as compared to 80% levels of National Insurers and the Industry. The Combined ratio remained above 100% levels during 2014‐16 like the Industry average.

Worst might be behind us, estimates optimistic beyond 2018: The company has reported mixed performance over the last three years and management gave guidance that worst is behind. The Management expects the claims ratio and the operating performance to improve going forward with better risk management and effective reinsurance strategy. The company projects gross premium revealing CAGR of 14.8% over 2016‐2021E amid diversified products and inroads in medical business, while underwriting results to show CAGR 30% during same period amid improved underwriting policy and lowering loss ratios, which remain optimistic in our view.

Higher solvency ratio to support growth, total reserves remain in surplus: End 2016, OQIC had overall solvency margin at 394% (297% for 2015 and 350% for 2014) as compared to minimum CMA solvency margin required of 100% levels. The higher solvency ratios would give room for increasing underwriting capacity and growth going forward. Added, as per the external actuary (end Q1 2017), total reserve (UPR, outstanding claims and IBNR) is in surplus of RO 521K. Management guided for conservative UPR provisions following either 45% of retained premium or 1/365 method, whichever is higher is incorporated, done on an actuarial basis

Outlook ‐ Issue for long term investors on QIC synergies, Neutral on valuations: We do see positives on the company amid progressive strategy, strong and active QIC parentage and improved underwriting results. While, the volatile historical performance, optimistic projections (market share gains and strong profits) on current competitive environment remain as key concerns. Overall, we rate the IPO as an average issuance. We initiate coverage with a Neutral rating, the offer price provides no major upside. Our weighted fair value out to be RO 0.165 (DDM, RoE and PBV, Div. Yield and PE basis). While, on a scenario of achieving the IPO projections, the issue can be favored by Institutional investors. We expect lower level of retail investors participation post mixed response in two previous Insurance IPOs with Al Ahlia being relatively successful as compared to lackluster interest seen in Vision Insurance. Downside earnings risk remain in lower growth rates, further pricing pressure on competition and tighten regulatory restrictions.

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OQIC ‐ IPO

Key Investment Highlights Table 1: Bear and Base Case approach

 Qatar Ins. Co (QIC) remain as strong and supportive parent Scenarios Key Assumptions with sharing of expertise on underwriting, business Bear Case In bear case, we lowered growth on economic strategy, risk management, policies, procedures and slowdown and pricing pressure on competition. advising on investment options. Gross premium to reveal annualized growth of 3%  OQIC works on a cost‐effective model with benefits driven over 2017‐20E. The underwriting results to grow by sharing of activities like Risk management, IT and 9% and PAT to reveal CAGR of 10% over the same reinsurance arrangements with QIC group period. Average RoAE for 2017‐2019E to lower to

 Diversified distribution network to benefit the company to c. 10% levels. In our bear case, the fair value offer wider solutions and enhanced customer reach, which works out to be lower than the offer price. would in turn benefit in achieving growth targets

 OQIC reported mixed performance over 2014‐16 and Base Case In base case, we have used the optimistic IPO

management seems optimistic on its projections and estimates which revealed gross premium CAGR of guided that worst is behind. 15.8% over 2017‐20E. During the same period,

 Overall market share of the company remained between underwriting result to grow 30.3% annualized and 4.5‐4.9% during 2013‐16. OQIC expects life and medical PAT to reveal CAGR of 42.2%. Average RoE for insurance business to remain as key growth drivers to 2017‐21E is at 17% levels. Fair Value on Base Case increase market share going forward. We see challenges on works out to be RO 0.165 (estimates till 2020). this due to competition from well established players.

 Amid better risk management and effective reinsurance Key upside seen on increased synergies driven strategy, the company anticipates claims ratio to lower and from the parent QIC. While the mandatory health operating performance to improve going forward. insurance introduction would be positive for the  Higher solvency margin of 394% levels as compared to company and the sector. minimum CMA solvency margin required of 100% would give enough room for increasing the underwriting capacity Table 2: Valuation Scenarios‐ Base Case going forward.

 Methodology Fair Value (In RO) End Q1 2017, total reserves (UPR, outstanding claims and IBNR) is in surplus of RO 521K. The company follow Dividend Discount Model (DDM) 0.166 conservative UPR provisions, done on an actuarial basis Price to Book Value Method 0.160  Investment performance remain volatile over the years amid challenging regional equities performance. The equity Relative‐ Div. Yield Methodology 0.169 portfolio is managed by Qatar Economic Advisor, a 100% subsidiary of QIC group. As per our workings, the projected Relative‐ P/E Methodology 0.163 annual returns over 2018‐201E works out to be 4.7% levels. Weighted Average Fair Value 0.165 Source: Company Report, GBCM Research Estimates

Table 3: Key Ratios‐ Base Case

Key Ratios ** 2014 2015 2016 2017E 2018E 2019E 2020E

Price to Earnings Ratio (PE) 7.9 (8.2) 11.1 6.9 8.8 6.4 4.9

Price toBank Book Muscat Value‐ PBV – BBB (on Scenarios Total Equity) 0.76 0.87 0.78 1.06 1.02 0.94 0.86

Dividend Yield (%) 0.0% 0.0% 0.0% 4.4% 7.9% 8.6% 11.3% Oman Insurance Sector‐ Peer Group Analysis Dividend Payout (%) 30.0% 70.0% 55.2% 54.9%

Source: Company Report, GBCM Research Estimates, ** Based on IPO price of RO 0.160

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OQIC ‐ IPO

Find below the table with the Oman Insurance Sector comparison details for you reference.

Table 4: Oman Insurance Sector comparison (on 2017E Estimates) 2017E Estimates Companies CMP P/E P/BV Dividend Yield ROAE (x) (x) (%) (%) Oman‐ Conventional Cos Al Ahlia Insurance * 0.310 12.4 0.8 10.2% 6.8% Oman United Insurance 0.336 9.9 1.2 7.6% 12.1% Dhofar Insurance 0.200 NM 2.4 0.0% 0.0% Vision Insurance * 0.136 7.6 0.9 9.2% 15.2% Oman Qatar Insurance # 0.160 6.9 1.1 4.4% 18.0% Average‐ Oman Conv. Ins. Cos (Weighted) 6.9 1.4 5.7% 8.3% Avg‐ Oman Conv. (Weighted) ‐ Ex. Dhofar Ins. 9.9 1.0 8.1% 11.8% Takaful Cos ** Takaful Oman 0.170 12.1 1.1 0.0% 9.8% Al Madina Takaful 0.101 10.1 0.7 5.0% 6.9% Average‐ Oman Takaful Ins. 11.1 0.9 2.5% 8.4% Average‐ Oman Ins. Sector (Weighted) 7.8 1.3 5.0% 8.3% Source: Company Reports, Bloomberg, Based on closing price as on 26‐Sep‐2017, * On Shareholders’ Funds, # On Offer price, GBCM Research

** RoAE‐ Return on Average Equity.

 Oman Conventional Insurance sector trades at PE (2017E, weighted) of 9.9X and PBV (2017E) of 1.0X. Average RoAE (2017E) of the Insurance Cos is at 8.3% levels. Excluding Dhofar Insurance, the conventional Insurance sector PE (2017E) would be 9.9X and PBV would be 1X and provides RoAE (2017E) of 11.8%.

 Based on the issue price, OQIC would trade at PE (2017E) of 6.9X and PBV (2017E) of 1.1X, the RoAE (2017E, on total equity) works out to be c. 18% (due to lower 2016 equity base prior to rights). The PBV (2018E) of OQIC works out to be 1X on a comparable RoAE (2018E) of 11.8% levels.

 On our justifiable Price to Book valuation and comparable Price to Earnings multiple methodology, the issue has been priced relatively reasonable.

 On the other hand, on 2017E dividend yield basis (annualized ‐ 8.8% on IPO), the offer is priced on par with the recent IPOs. Among the listed companies, Al Ahlia offers higher dividend yield of 10% on 2017E estimates and Vision Insurance offers 9.2% yield.

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OQIC ‐ IPO

Table 5: GCC Insurance Sector‐ Peer Group Analysis

Market Cap P/E‐ P/B Div. Yield ROE‐ LF ROA‐ LF (In millions) TTM (Latest) TTM In Local (x) (x) (%) (%) (%) currencies Oman Conventional Oman United Insurance Co 33.6 12.2 1.2 8.9 14.0 3.7 Dhofar Insurance 40.0 NA 2.4 NA NM NM Muscat National Holding 8.6 5.9 0.5 5.8 10.5 3.3 Al Ahlia Insurance 31.0 12.5 0.8 3.6 11.0 3.0 Vision Insurance 13.8 9.4 1.1 5.8 13.0 3.7 Average‐ Oman Conventional Ins. Cos 10.0 1.2 6.0 12.1 3.4 Takaful Al Madina Takaful Co Saoc 17.7 9.7 0.7 5.9 8.0 3.6 Takaful Oman 17.0 7.7 1.1 NA 18.9 18.4 Average‐ Oman Takaful Ins. Cos 8.7 0.9 5.9 13.5 11.0 Average‐ Oman Insurance Sector 9.6 1.1 6.0 12.6 6.0 Qatar Qatar Insurance Co 15,751.2 16.3 1.6 2.3 13.2 3.5 Qatar General Insurance & Re 3,429.4 19.8 0.6 3.8 2.8 1.8 Doha Insurance Co 715.0 8.4 0.7 4.2 7.3 4.6 Average‐ Qatar Conventional Ins. Cos 14.8 1.0 3.4 7.8 3.3 Saudi Tawniya 11,437.5 13.3 4.0 4.4 31.0 29.3 Walaa Cooperative Insurance 1,068.0 8.0 2.1 NA 32.3 30.4 Axa Cooperative Insurance 919.8 18.1 1.8 NA 9.2 8.9 SAICO 497.0 9.6 1.6 NA 21.7 20.9 Ace Arabia Cooperative Insur‐ Chubb 494.0 13.0 2.0 NA 17.7 16.6 Gulf Union Cooperative Insur 281.7 11.3 1.8 NA 17.8 16.5 Average‐ Saudi Cooperative. Ins. Cos 12.2 2.2 4.4 21.6 20.4 Kuwait Gulf Insurance Group Ksc 149.6 13.7 1.9 5.0 13.6 2.9 Al‐Ahleia Insurance Co 86.0 10.4 0.8 8.1 8.0 3.3 Average‐ Kuwait Conventional Ins. Cos 12.0 1.4 6.6 10.8 3.1 UAE Abu Dhabi National Insurance 1,500.0 8.7 0.8 3.8 15.7 3.6 Emirates Insurance Co. (Psc) 900.0 10.7 0.9 8.3 8.0 3.4 Al Buhaira National Ins. 550.0 12.3 0.9 4.5 7.3 2.5 Sharjah Insurance Co 529.4 12.8 2.5 2.0 18.0 9.3 Ras Al‐Khaimah National Ins 451.0 13.7 1.9 2.4 10.0 3.4 Average‐ UAE Conventional Ins. Cos 11.7 1.4 4.2 11.8 4.4 Average‐ GCC Insurance Cos 11.7 1.5 4.9 14.0 8.9 Source: Company Reports, Bloomberg, Based on closing price as on 26‐Sep‐2017, GBCM Research

 GCC Insurance sector trades at average PE‐TTM of 11.7X and PBV (latest) of 1.5X. Average RoE of the regional companies is at 14% levels. We observed that the pricing of the regional companies is more in line with the justifiable book value as compared to reported RoE. On this, we have emphasized in our valuations a higher weight to the justified PBV method.

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OQIC ‐ IPO

Table 6: IPO ‐ Term Sheet

Offer Details ** Nominal Value RO 0.100 Authorized Share Capital RO 20 million Paid up capital – Pre‐IPO RO 10 million Total No. of shares offered 25 million shares or 25% of the share capital Paid up capital – Post IPO RO 10 million Offer Price RO 0.160 Offer Expenses RO 0.002 Gross Proceeds from the offer (In RO) 4,000,000 IPO Expenses collected – (In RO) 50,000 Net Proceeds from the offer (In RO) 3,950,000 Total estimated expenses (In RO) 223,000 Difference between estimated expenses (In RO) 173,000 To comply with the provisions of Royal Decree 39/2014 which requires insurance companies to increase the capital Purpose of IPO and change their legal status from SAOC to an SAOG and list in MSM (by 17th Aug 2017) Foreign Ownership 70% Proposed allocation of Shares 16.25 million shares or 65% of the offer shares on a pro‐ Category I Investors rata basis 8.75 million shares or 35% of the offer shares on a pro‐rata Category II Investors basis Minimum Limit for the Subscription Category I Investors 1,000 shares and in multiples of 100 shares Category II Investors 100,100 shares and in multiples of 100 shares Maximum Limit for the Subscription Category I Investors 100,000 shares Category II Investors 2.5 million shares or 10% of the offer

Offer Opening Date 6‐Sep‐17 Offer Closing Date ** 5‐Oct‐17 Issue Manager ‐ Subscription data 11‐Oct‐17 Approval of CMA ‐ proposed allotment 15‐Oct‐17 Proposed Listing of shares 19‐Oct‐17

Financial Advisor and Issue Manager Ubhar Capital SAOC Subscription Banks Bank Dhofar, Oman Arab Bank, National Bank of Oman Legal Advisor Curtis, Mallet‐Prevost, Colt & Mosle LLP Reporting Accountants Deloitte & Touche (M.E) & Co. LLC Marketing Advisor OHI Leo Burnett Source: IPO Prospectus, GBCM Research

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OQIC ‐ IPO

Chart 1: Shareholding Pattern – Pre‐IPO Chart 2: Shareholding Pattern – Post IPO

Source: IPO Prospectus, GBCM Research

Table 7: Pre‐and Post IPO shareholder structure

Pre‐and Post IPO shareholder structure

No. of No. of shares Shareholding Shareholding Shareholders Shares (Pre‐IPO (%), Pre‐IPO (%), Post‐IPO (Post‐IPO)

Qatar Insurance Company S.A.Q 69,998,000 69.998% 52,498,500 52.498%

Al Hosn Investment Company SAOC 30,000,000 30.000% 22,500,000 22.500%

Mr. Khalifa Abdullah Turki Al‐Subaey 2,000 0.002% 1,500 0.002%

Public 0 0.000% 25,000,000 25.000%

Total 100,000,000 100.000% 100,000,000 100.000%

Source: IPO Prospectus, GBCM Research

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OQIC ‐ IPO

Oman Insurance Industry

Population and favorable demography, a boon for the industry:

The population in Oman has reported a CAGR of 5.8% during the period 2006 to 2016 as per the official data published by National Centre for Statistics and Information (NCSI). As of mid‐2017, the population in Oman stands at 4.558 million. The population of Omanis is expected to reach 4 million by 2040, up from the current 2.5 million, going by high‐fertility assumptions, as per the NCSI latest estimates. The increase in local population, inflow of expats due to setting up of new industrialization zones across the country and diversification efforts are expected to benefit the insurance sector over the medium to long term. Oman also has favourable demographics with c. 55% of the population is within the age group of 15 to 40 years, this provides opportunities for growth.

Chart 3: Population growth 5,000,000

4,000,000

3,000,000

2,000,000

1,000,000

0 2010 2011 2012 2013 2014 2015 2016 2017F 2018F

Source: NCSI; GBCM Research

Sector remains underpenetrated in the GCC region:

As per research done by SwissRe, the gross domestic product (GDP) in 2016 in the Middle East grew by an estimated 2.6% in real (adjusted for inflation) terms, as compared to 2015. Growth to an extent constrained by low oil prices and prevailing geo‐political tension. The growth in the GCC region slowed to 2.0% in 2016, lower than 3.8% in 2015. The short to medium term outlook for the region remains challenging against the backdrop of low oil prices. While the large markets like UAE and Saudi Arabia are cutting back on public social spending as oil revenues decline.

Non‐life insurance constitutes more than 80% of total insurance premiums written in the Middle East. Non‐life premiums grew rapidly between 2008 and 2016, by an average 7.2% annually in real terms. However, the penetration rate was 1.4% in 2016, in line with the emerging market but below the global average of 6.2%.

The sector remains underpenetrated in the GCC region and still have scope for growth over the long‐term perspective. Within GCC, Kuwait has the lowest insurance penetration of 0.9%, While Bahrain and UAE has the highest penetration levels of c. 2.5% levels. Oman also has one of the lowest penetration levels of 1.6% (life penetration at 0.24% and non‐life penetration at 1.37%, which reveals an underpenetrated market. The Insurance density (premium written/ population) is about USD 258 (RO 98.9) in Oman.

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OQIC ‐ IPO

Chart 4: Insurance penetration GCC Vs Rest of the world

8.0% 7.3% 6.9% 7.0% 6.2% 6.0% 5.0% 4.0% 3.0% 2.5% 2.4% 2.0% 1.6% 1.5% 1.5% 0.9% 1.0% 0.0% Bahrain UAE Oman Qatar KSA Kuwait USA Europe Global

Source: EY; GBCM Research

Motor Insurance‐ Key contributor in Oman Insurance sector:

The key segments in the Oman Insurance sector are motor, health, life, property, marine and others (including liability and engineering). Motor is the largest and the fastest growing segment in Oman especially due to the mandatory motor coverage. Added, Health is the second largest segment in Oman and has reported robust growth in recent times. Oman Qatar Insurance maintains leadership position in certain sectors. OQIC has 14.3% market share in Property and c. 19% share in Liability business (based on 2016 Gross Direct Premium).

Chart 5: Market share of the key segments of insurance sector

16% 15% 15% 13% 14% 11% 4% 3% 5% 4% 4% 3% 10% 13% 11% 15% 15% 14% 12% 15% 10% 11% 24% 24% 16% 19% 23% 26% 0% 0%

40% 42% 41% 40% 37% 35%

2011 2012 2013 2014 2015 2016

Motor Health Life Property Marine Others

Source: IPO prospectus/ CMA 2016 Insurance sector data, GBCM Research

Oman Insurance sector remain as highly competitive with 22 licensed companies operating, including 2 companies which are licensed to run takaful operations. The top 5 companies dominate the sector and have market share of closer to 60% levels in 2015. With the new Insurance companies in the market over the last three years, the market is witnessing intense competition amid attractive pricing to gain market share and through innovative products. Overall margins remain under pressure due to increase in competition in recent years, which remain challenging for the mid‐tier companies like OQIC.

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OQIC ‐ IPO

Chart 6: Total Oman ‐ GWP Break up (2016)

15% P&C ‐ Motor

35% P&C ‐ Non Motor

26% Health

Life 24%

Source: CMA, IPO prospectus, GBCM Research

For the Oman Insurance sector, Motor, Health and Life Insurance business combined forms c. 75% of total GWP. Health Insurance forms c. 26% of total GWP and Life Insurance forms c. 15% of the total premiums in Oman. OQIC primarily operates in Property & Motor Insurance Sectors which forms c. 68% of total GWP of the company in 2016. The company has strong market share in Property, Engineering and Liability Insurance businesses in Oman.

Growth projections to remain strong in certain segments, Non‐life segment to be key growth area

Insurance market in Oman has growth steadily over the years amid favorable demographics and growing working group population. In terms of Gross written premium, the Oman Insurance sector has revealed CAGR of 9.5% over 2011‐2016. As per BMI Research, the Non‐life segment in Oman to reveal annualized growth of 7.9% over 2015‐ 2020 on Gross Written Premium (GWP) basis amid stable economic growth on a longer forecasted period coupled with low insurance penetration and compulsory health insurance for expats. We see opportunities in increasing both general and life insurance penetration in Oman over the medium to long term perspective. While, we do see these as optimistic projections on current economic slowdown and lower level of Government Spending.

Chart 7: Sector growth estimates in Non‐life premiums Chart 8: Sector growth estimates in Life premiums

600 9.9% 12.0% 100 26.2% 30.0% 8.9% 9.0% 9.2% 23.5% 500 8.1% 10.0% 80 25.0% 7.3% 18.9% 400 8.0% 20.0% 60 300 4.4% 6.0% 9.5% 15.0% 40 8.7% 8.0% 8.6% 200 4.0% 10.0% 100 2.0% 20 5.0% 0 0.0% 0 0.0% 2013 2014 2015 2016 2017 2018 2019 2020 2013 2014 2015 2016 2017 2018 2019 2020

Non life premiums Growth % (YoY) Non life premiums Growth % (YoY)

Source: CMA, IPO prospectus, GBCM Research, * Non‐Life and Life Premium numbers in RO millions.

Similarly, as per BMI Research, the Life segment in Oman to reveal annualized growth of 8.9% over 2015‐2020 on Gross Written Premium (GWP) basis driven factors such as increase in nuclear families coupled with greater awareness among the local population, growth in disposable income and demand from expats community.

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OQIC ‐ IPO

Concern remain on fall in New vehicle sales:

The downturn in the economic activity in Oman since 2015 due to prolonged low oil prices has led to decrease in spending in both commercial and retail categories which has resulted in lower sales of new cars. This trend has been witnessed till May 2017 (YoY decline of 24.1%) and is far away from bottoming out over the short term. The decline in car sales would impact the growth in new business opportunities in the Motor segment for the Insurance companies. Despite the fall in new car sales, the Oman motor insurance market in terms of number of policies has reported annualized growth of 4.5% over 2014‐16.

Chart 9: New Vehicle registration trend since 2011 Chart 10: No. of Motor Car Ins. Policies since 2011

160000 30.0% 140000 20.0% Number of Motor car insurance 120000 policies 2011‐2016 ('000) 100000 10.0% 80000 0.0% 1500 1340 1175 1230 60000 1061 ‐10.0% 972 40000 1000 887 20000 ‐20.0% 0 ‐30.0% 500

0 New vehicle registration YoY (%) 2,011 2,012 2,013 2,014 2,015 2,016

Source: NCSI; IPO Prospectus, GBCM Research

Decline in accidents to remain positive:

Speeding has been the major cause for accidents and with Royal Oman Police taking significant steps to curb the same, has yielded fruit for the sector. Since 2013 the accidents are on a declining trend thereby benefitting the Insurance companies with less claims. As of June 2017, the accidents have declined by 18.1% YoY. This would in turn led to lower claims and improvement in underwriting results for the Insurance companies.

Chart 11: Accident trend since 2011

10000 10.0%

8000 0.0% 6000 ‐10.0% 4000 2000 ‐20.0% 0 ‐30.0% 2011 2012 2013 2014 2015 2016 Jun‐17

Road Accidents YoY (%)

Source: NCSI; GBCM Research

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OQIC ‐ IPO

Lower level retention ratios seen in National insurers:

Retention ratios are one of the key measures of the risk carried by an insurer in their balance sheet rather than being passed to reinsurers. The retention ratios for the national insurers have increased from 43% in 2011 to 52% in 2016, while the retention ratio of foreign insurers has decreased from 75% in 2011 to 70% in 2016. This has resulted in the industry‐wide ratios increasing from 53% in 2011 to 57% in 2016. The fall in accidents and claims coupled with increasing retention ratio in Motor segment is likely to improve the underwriting margins of the insurance companies going ahead.

In terms of segment, the retention ratios remain highest in motor business with 84%, followed by health and motor insurance at 58% levels.

Table 8: Oman Insurance Sector‐ Segment‐wise retention ratios Segment 2011 2012 2013 2014 2015 2016 Motor 78% 85% 87% 87% 87% 84% Health 41% 40% 37% 50% 58% 58% Property 8% 7% 8% 9% 10% 11%

Marine 27% 22% 21% 21% 17% 19% Engineering 27% 23% 28% 24% 21% 31% Liability 33% 35% 44% 40% 40% 36% Other 30% 33% 38% 47% 31% 29%

Source: CMA, IPO prospectus

Overall retention ratio for the Oman Insurance sector is c. 57% levels (2016) primarily due to lower level of retention from the national insurers (at 52% levels). Oman Qatar Insurance has lower level of retention ratios of c. 45% (2016) as compared to Industry average of 57% levels due to its reinsurance strategy in certain big ticket non‐motor business.

Loss Ratios remain high in Motor and health business: Overall loss ratio of the national insurance companies increased to 71% levels in 2016 as compared to 58% in 2015. While for the foreign companies the same has increased to 64% levels in 2016. The motor business (third party) loss remain the higher at 97% levels and the health insurance segment loss ratio is at 92% levels. Historically the loss ratio of Oman Qatar Insurance remains (76% in 2016) in line with the sector average (79% in 2015). Due to legacy issues, the company had higher claims in Motor and Health business segments. While as per the management, the loss ratios are expected to improve going forward on strong underwriting discipline and more active participation of parent company.

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OQIC ‐ IPO

Overview of Oman Qatar Insurance (OQIC)

OQIC incorporated in the Sultanate of Oman and started its operations from July 2004. The company currently holds insurance license by the CMA. OQIC provides general and life insurance products under its license and is supported by reinsurance arrangements with reinsurers. The company is a subsidiary of Qatar Insurance Company S.A.Q. (QIC) which holds 70% of the company’s equity prior to the IPO. The company has predominantly focused on the general insurance sector with Fire, Engineering, Energy, Motor, general accident, medical and third‐party liability forming 94% of total insurance premium of the company in 2016. Overall market share of the company is about 4.7% (end 2016).

Key Insurance business of the company includes Personal Insurance (Car, Travel and Home) and Business Insurance which would form Energy, Property & commercial, Marine & aviation, Life & medical and Corporate travel & fleet insurance. Motor Insurance accounted for 39% of total premium. While the combined property, engineering and liability forms about 49% of gross premium (in 2016).

OQIC operations have spread across other sectors of insurance including life and medical. The company has branches at Al Khoudh, Amerat, Salalah, Sohar, North Al Ghubra, Al Khuwair, Muttrah and the head office in Muscat. In addition, the company has developed strong reinsurance strategy towards risk management and this is being supervised by QIC Group reinsurance team.

Find below the table with the segmental market share details of Oman Qatar Insurance for your reference.

Table 9: OQIC Market Share Market Share Product Segment (2016) Marine 3.96% Property 14.28% Motors ‐ Third Party 3.48% Motors ‐ Comprehensive 6.47% Medical 0.48% Life ‐ Individual 0.00% Life ‐ Group 2.79% Engineering 9.51% Liability 18.67% Others 2.73% Total 4.70% Source: CMA, * Based on 2016 GWP, GBCM Research

OQIC has entered into a management and operational services agreement dated Jan 2008, with QIC International LLC (QICI), a QIC Group company, whereby QICI has agreed to provide the following services against payment of annual fee of QR 75,000 for management services and QR 175,000 for administrative and operational services. During our IPO discussion, QIC reiterated their active strategy towards growing OQIC businesses and synergies going forward, this remain as key investment theme.

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OQIC ‐ IPO

Offer Summary

Purpose of the Offer

The purpose of the offer is to transform the company from an SAOC to an SAOG and to be listed in the MSM. As per the Royal Decree 39/2014, Omani Insurance companies need to increase the share capital to RO 10 million and change the legal status to public joint stock companies (SAOGs) by 17th Aug 2017.

The Selling Shareholders are undertaking the IPO to comply with the requirements of Royal Decree and other CMA requirements.

The company has Issued and Paid‐Up Share Capital of RO 10 million prior to IPO. Oman Qatar Insurance Company has raised its paid‐up capital to RO 10 million in July 2017 through stock dividend (RO 1 million) and Right shares of RO 4 million issued at par.

Use of the Proceeds of the Offer

The offer shares do not represent an issuance of new shares of the company. The offer shares represent the sale of a part of the shares currently held by the Selling Shareholders.

The proceeds of the Offer (including the premium) would be remitted to the selling shareholders in the ratio of Shares offered. The company will not receive any amount collected other than offer expenses.

The proceeds of the Offer (including the premium) is estimated at RO 3.950 million, net of issue expenses, shall accrue to the Selling Shareholders in the ratio of Shares offered.

Expenses related to the offer

The Bzs 2 per offer share collected towards the Issue Expenses will cover a portion of the expenses incurred in relation to the IPO. Estimated Offer expenses collected in total would be RO 223,000.

The total offer expenses will be partially met out of the amount collected towards offer expenses. Any offer expense more than the amount collected will be borne by the selling shareholders. If the actual offer expenses are less than the amount collected from the successful applicants, the surplus will be retained by the company and credited to its reserves

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OQIC ‐ IPO

Investment Rationale

Strong Parentage to support, focus on targeted segments towards growth: OQIC is one of the subsidiaries of Qatar Insurance Co (QIC), one of the leading Insurance companies in the MENA region and the World. The company has developed strong underwriting expertise, differentiated products, enhance customer base and strong reinsurance partners. OQIC has entered into a management & operational services agreement with QIC International LLC (QIC Company), to provide key services like management, admin. & operational and other services (Risk, IT, Compliance, Internal Audit) against payment of annual fee. The company has focused on select niche segments using the technical expertise of the parent company to achieve incremental market share. During our IPO discussion, QIC reiterated their active strategy towards growing OQIC businesses and synergies going forward, this remain as key investment theme.

Diversified Distribution Network: OQIC has 7 full‐scale branches excluding the head office, offering extensive corporate and retail products. The company also has 6 agency branches and 30 brokers to sell products across all segments. OQIC has Bank assurance agreement with one of the banks to offer its general and life products. The company do offer online platform to sell retail products to both new and existing customers for renewals. In addition, OQIC offers efficient tele sales team and call center to provide timely solutions to the customers. Added, the company has worked on several affinity programs for their existing large corporate clients, this would mean larger share of cross selling business opportunities. During our interaction, the management gave confidence to achieve growth objectives through its diversified distribution network which would benefit the company to offer wider solutions and enhanced customer reach.

Worst might be behind us, estimates optimistic beyond 2018: The company has reported mixed performance over the last three years and management gave guidance that worst is behind. The Management expects the claims ratio and the operating performance to improve going forward with better risk management and effective reinsurance strategy. The company projects gross premium revealing CAGR of 14.8% over 2016‐2021E amid diversified products, while the underwriting results to improve with CAGR 30% during the same period amid improved underwriting policy and lowering loss ratios, which remain optimistic in our view.

Medical and Motor remain as great growth areas of the company going forward. Medical is expected to grow by 530% in 2017 (of which 200% in H1 2017) on select big client additions. OQIC has planned to partner with leading health insurance providers in the regional market to ensure stability, profitability and growth along with cost effective solutions to the customers.

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OQIC ‐ IPO

Chart 12: GWP – Robust Growth Projections over 2017‐ 2021E

Gross Written Premium (GWP) Projections 30% 27.1% 25% 20% 13.0% 12.5% 15% 11.4% 10.6% 10% 8% 8% 5% 5% 5% 5% 0% 2017 2018 2019 2020 2021

Motor Total

Source: IPO Prospectus, Company Reports

Chart 13: OQIC Loss Ratio Vs Sector Average – Declining trend seen on underwriting quality

OQIC Loss Ratio Vs Sector Average 90% 80% 80% 80% 76% 69.9% 79% 67.1% 70% 74% 63.7% 60% 64% 50%

40% 2014 2015 2016 2017E 2018E 2019E Sector OQIC

Source: IPO Prospectus, Company Reports

Chart 14: OQIC Retention Ratio Vs Sector ‐ Remain low on shift in reinsurance strategy in Health Business

Retention Ratio 70.0% 55.5% 55.9% 56.8% 60.0% 50.0% 40.0% 52.4% 47.5% 44.5% 30.0% 37.2% 37.1% 40.3% 20.0% 10.0% 0.0% 2014 2015 2016 2017E 2018E 2019E

Sector OQIC

Source: IPO Prospectus, Company Reports

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OQIC ‐ IPO

Higher solvency ratio to support growth, total reserves remain in surplus: End 2016, OQIC had overall solvency margin at 394% (297% for 2015 and 350% for 2014) as compared to minimum CMA solvency margin required of 100% levels. The higher solvency ratios would give enough room for increasing the underwriting capacity going forward. Added, as per the external actuary (end Q1 2017), total reserve (UPR, outstanding claims and IBNR) is in surplus of RO 521K. Management guided for conservative UPR provisions following either 45% of retained premium or 1/365 method, whichever is higher is incorporated, done on an actuarial basis

Chart 15: Solvency Margin remain Strong above 350% levels

Solvency Ratio 480.0%

380.0%

280.0%

180.0%

80.0% 2014 2015 2016 2017E 2018E 2019E OQIC

Source: IPO prospectus, GBCM Research

Investment returns remain volatile on higher equity allocation: OQIC derives predominant profits from its investment returns like the Insurance sector companies and this would mean the performance could remain volatile on the performance of its portfolio. As per the IPO document, the investment income contributes about 60‐64% of net profit during 2017E and 2018E, which remain high. As part of their strategy, the company has mandated Qatar Economic Advisor, the group investment managers of QIC with strong expertise, to manage its equity portfolio. Investment performance remain volatile historically and the company has reported significant impairment losses during 2015 on its equity portfolio. End 2017E, the equities would form c. 51% of total investments of the company, which remain aggressive and the earnings could remain volatile. As per our workings, the projected annual returns over 2018‐201E works out to be 4.7% levels.

Table 10: Asset Allocation Trend

Investments Breakup 2014 2015 2016 2017E 2018E 2019E 2020E 2021E

Bank Deposits 30.0% 29.9% 33.5% 31.4% 30.5% 29.9% 29.5% 28.3%

Local and Foreign‐ Quoted Equities 45.9% 45.6% 45.5% 51.4% 50.8% 51.4% 52.4% 54.3%

Unquoted Equities 0.4% 0.4% 0.4% 0.0% 0.0% 0.0% 0.0% 0.0%

Local and Foreign Bonds 21.7% 24.1% 20.6% 17.2% 18.6% 18.7% 18.1% 17.4%

Inv. in Mutual Funds 2.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Source: IPO prospectus, GBCM Research

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OQIC ‐ IPO

Table 11: Our Views on the Key IPO Assumptions Parameter Assumptions Comments Aggressive growth projections amid gain in market share in key segments and large business additions. While OQIC historical trend reveal lower level of growth over the last three years. 2016‐2021E ‐CAGR Gross Written Premium (GWP) 14.8% OQIC estimates GWP growth driven by exposure in life and medical businesses and increase in the retention premium levels.

Retention to lower during 2017 and 2018 amid 2017E‐2021E ‐ 43% of increase in reinsured medical insurance business. Retention Ratio Gross Written Premium The retention to increase over 2019 to 2021

UPR provisions is done following 45% of retained On higher of 45% of premium or 1/365 method, whichever is higher is Outstanding Claims and UPR retained premium or incorporated, done on an actuarial basis. reserve 1/365 method Realistic levels projected and the management points out that worst is behind in terms of UPR

Annual Investment Equity exposure remain at 50% levels, historically Investment Income return over 2017‐21 at the investment trend has been volatile 4.7%

Aggressive projections based on the higher 2017E‐ 70% claims reported historically. The change in Claim Ratio 2018E‐ 67% product mix and the increase in underwriting

Average 2019‐21E‐ 63% standards may improve the operating results.

Aggressive projections amid estimated robust underwriting results over 2016‐21E. 2016‐2021E ‐CAGR Profit After Tax 42.2% Jan‐July 2017 performance remain strong and in line with IPO projections, this would mean 2017 earnings and dividends remain achievable. Technically possible due to the fulfillment of regulatory reserves requirements. 2017E ‐ 30% 2018E ‐ 70% Insurance company do see several risks in terms Dividend Payout Average 2019‐21E‐ 55% of underwriting/ higher claims, increase in UPR and regulatory contingency provisions.

This would mean earnings to remain volatile and the dividends would get impacted. Source: IPO Prospectus, GBCM Research

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OQIC ‐ IPO

Table 12: Risks and Concerns…

Risks Involved Impact Mitigates Competitive Industry Insurance industry in Oman is highly OQIC offers diversified products to manage the competitive and OQIC being a mid‐tier competitive risk. While the pricing pressure entity faces challenges from both large continued to impact the performance. and small players.

Economic Risk Slowdown in Economic growth to OQIC offers products in certain niche categories impact the demand for the insurance and remain diversified to grow the business. services which would impact the This would to an extent lower risk associated. optimistic growth projections of OQIC.

Business Risk Several business risks like underwriting The company has strong internal policies and policy, operation risk, fraud, liquidity procedures to control the business risks. QIC and interest rate risk to impact the (the parent) continued to guide the overall performance strategy and process to be followed to mitigate the risks associated. Investment Risk The investment performance of the Qatar Economic Advisors (QIC group) manages company remains volatile amid the equity portfolio of the company. The weak challenging market conditions and equities performance in Oman and the GCC exposure to riskier equities (c. 50%). region to impact the earnings and dividends.

OQIC has assumed improved market We see the near term negative impact to lower conditions during H2 2017 in estimates, the dividends and the valuations. the risk associated remain high. Risks related to Exposed to reinsurance arrangements OQIC has reinsurance arrangements to protect reinsurance and settlement of claims. The company against losses and to report stable underwriting is exposed to the credit risk of the results. The significant portion of the reinsurers. reinsurance is covered under treaties, facultative and excess of loss reinsurance.

Being one of the subsidiaries of QIC, the company can mitigate these risks to a major extent. Receivables End 2016, the company has c. RO 3.152 Management believes that no further bad debt management million as past due for more than 121 provision is required as on April 2017 and found days. As per Group policy, the shortfall the current level remains adequate. The risks in provisions is c. RO 1.7 million are monitored by management periodically.

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OQIC ‐ IPO

Catastrophic Risk Insurance companies experience The risk is managed through proper reinsurance substantial claims from catastrophic strategy which would limit the extent of losses events which could lead to higher losses impacting the performance.

Volatile trend of profitability OQIC has reported volatility in earnings Management sees turnaround from 2016 with over three years and the trend remain improvement in operating results. While there inconsistent. The company reported are steps taken towards strong underwriting loss in 2015. policy and reduction in claims going forward.

Dividend policy is not Dividend payments of the Insurance OQIC has projected lower dividend payout guaranteed companies are not guaranteed, the during 2017 and 2018 to fulfil the provisioning same would depend on numerous requirements. Dividend payout policy from factors in terms of UPR and contingency 2019‐2021E is about 55% levels reserving requirements.

Source: IPO Prospectus, GBCM Research

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OQIC ‐ IPO

Valuations and Recommendation…

Table 13: Valuation method 1. Dividend Discount Model (DDM)

1. Dividend Discount Model (DDM) Sep‐17 Mar‐18 Mar‐19 Mar‐20 Mar‐21 Period 0.51 1.51 2.51 3.51

Dividend Per Share (In RO) 0.007 0.013 0.014 0.018 Total Dividends (RO 000s) 700,000 1,270,000 1,370,000 1,800,000 Present Value of Div. (RO 000s) 663 1,080 1,046 1,234

Terminal Value 18,274 Present value of TV 12,531 Fair Value 16,553 No. of Shares 100,000 Fair Value per share 0.166 Source: IPO Prospectus; GBCM Research

Valuation Assumptions

 Cost of Equity of the entity is assumed at 11.35% levels; Risk free rate assumed at 5.5% and Market return at 10%. BETA assumed at 1.3 based on our in‐house risk rating model taking into consideration of the risks associated with a mid‐sized Insurance company. Market risk premium is at 5.9%. We have assumed dividend projections (IPO) till 2020E and incorporated 1.5% terminal growth beyond projected period.

 On DDM methodology (IPO projections), the fair value on our base case works out to be RO 0.166

Table 14: DDM‐ Sensitivity Analysis

Discount Rate (%) 11.0% 11.3% 11.4% 11.8% 12.0% 0.5% 0.159 0.155 0.154 0.148 0.145 1.0% 0.165 0.161 0.159 0.153 0.150 Terminal Growth Rate (%) 1.5% 0.172 0.167 0.166 0.159 0.155 2.0% 0.179 0.174 0.172 0.165 0.161 2.5% 0.187 0.182 0.180 0.172 0.167 Source: GBCM Research

 On our sensitivity analysis (worst case), increasing the cost of equity to 12% and lowering the terminal growth to 0.5%, the value works out to be RO 0.145, discount to the offer price.

 On the other hand, lowering the cost of equity to 11% and increase the growth rates to 2.5% would value the stock at RO 0.187, this remain optimistic in our view.

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OQIC ‐ IPO

Table 15: Valuation method 2. Justified Price to Book Value (PBV) Method – On Total Equity

2. Price to Book Value Method 2016 2017 2018 2019 2020 Book Value 0.205 0.151 0.157 0.170 0.186 Return on Equity (RoE) 7.0% 15.5% 11.5% 14.7% 17.6%

RoE ‐ 2018E 11.5% Cost of Equity 11.4% Terminal Growth 1.5% PBV‐ Justified 1.02 Book Value (2018E) 0.157 Fair Value per Share 0.160 Source: IPO Prospectus; GBCM Research

Our Justified Price to Book Value (PBV) takes into consideration of RoAE of 11.5% for 2018E and Cost of Equity of 11.35% and Terminal growth rate of 1.5%. We have considered the near term RoAE estimates in our valuations due to the volatile historical earnings trend.

Based on the estimated RoAE (total equity), the justified book value of OQIC works out to be 1.02X. Based on 2018E Book Value multiples, the fair value works out to be RO 0.160

On the IPO projections beyond 2018, the RoE of the company increasing >15% levels which augur for higher valuations. We haven’t considered this in our valuations due to various sensitivities and dynamic scenarios associated to the long‐term projections.

Table 16: Valuation method 3. Relative‐ Div. Yield Methodology

3. Relative‐ Div. Yield Methodology 2016 2017E 2018E 2019E 2020E

Dividend Per Share ‐ 0.007 0.013 0.014 0.018

Dividend Yield (%) 4.4% 7.9% 8.6% 11.3%

Relative Div. Yield‐ 2018E (@7.5%) 0.169 Source: IPO Prospectus; GBCM Research

In our relative and comparable dividend yield approach, we have taken the Oman Insurance Sector average dividend yield of circa 7.5% and discounted the same with 2018E dividends.

Adjusting for 7.5% dividend yield, the fair value in this method works out to be RO 0.169, which is reasonable under this methodology

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OQIC ‐ IPO

Table 17: Valuation method 4. Relative‐ Price to Earnings (P/E) Methodology

4.Relative‐ P/E Methodology 2016 2017E 2018E 2019E 2020E

EPS 0.014 0.023 0.018 0.025 0.033

P/ E 11.1 6.9 8.8 6.4 4.9

Relative‐ P/E ‐ 2018E (9X) 0.163 Source: IPO Prospectus; GBCM Research

Based on our comparable P/E methodology, we have assumed the Oman Insurance Sector average PE of 9X and applied the same on projected 2018E Earnings per Share (EPS) of OQIC. The fair value on P/E method works out to be RO 0.163

On the optimistic IPO projections, the stock would trade 6X on 2019E EPS on the offer price.

Table 18: Weighted Fair value at RO 0.165, limited valuation upside seen

Find below the table with the synopsis of various valuation methodologies used.

Fair Value Weight Valuation Methodologies Comment (In RO) (%) Assumed IPO Dividends, Cost of Equity at 11.35% 1. Dividend Discount Model (DDM) 0.166 30% and Terminal Growth at 1.5% beyond 2020E 2. Price to Book Value Method 0.160 25% Justified PBV compared to RoE (2018E) Being an Insurance co, we have assumed 7.5% 3. Relative‐ Div. Yield Methodology 0.169 25% Div. Yield Adjustment (2018E) Assumed PE (2018E) of 9X on Insurance Sector 4.Relative‐ P/E Methodology 0.163 20% Average. We see 2017‐20E IPO projections remain optimistic

Weighted Fair Value 0.165 Upside of c. 3% from the offer price Source: GBCM Research Estimates

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OQIC ‐ IPO

Outlook‐ Strong parentage and synergies support Investment theme, Valuation upside limited

Issue for long term investors on QIC, no listing gains seen: We do see positives on the company amid progressive strategy, strong and active QIC parentage and improvement in underwriting results. While, the volatile historical performance, optimistic projections (market share gains and strong profits) on current competitive environment remain as key concerns. Overall, we rate the IPO as an average issuance. We initiate coverage with a Neutral rating, the offer price provides no major upside. Our weighted fair value out to be RO 0.165 (DDM, RoE and PBV, Div. Yield and PE basis).

While, on a scenario of achieving the IPO projections, the issue can be favored by Institutional investors. We expect lower level of retail investors participation post mixed investor participation in two previous Insurance IPOs with Al Ahlia being relatively successful as compared to lackluster interest seen in Vision Insurance. Downside earnings risk remain in lower growth rates, further pricing pressure on competition and tighten regulatory restrictions.

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OQIC ‐ IPO

Table 19: Income Statement Highlights

CAGR‐ Income Statement ‐ RO 000s 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2016‐2021E Insurance premium revenue 19,495 19,964 21,381 27,182 30,710 34,534 38,486 42,571 14.8% YoY (%) 3.8% 2.4% 7.1% 27.1% 13.0% 12.5% 11.4% 10.6% Insurance premium ceded to ‐10,244 ‐9,507 ‐11,860 ‐17,072 ‐19,327 ‐20,623 ‐19,863 ‐20,948 reinsurers YoY (%) 5.1% ‐7.2% 24.8% 43.9% 13.2% 6.7% ‐3.7% 5.5% Net insurance revenue 9,251 10,457 9,522 10,110 11,383 13,911 18,623 21,623 17.8% YoY (%) 2.4% 13.0% ‐8.9% 6.2% 12.6% 22.2% 33.9% 16.1% Movement in unexpired premium ‐106 ‐716 768 ‐485 ‐574 ‐1,137 ‐2,121 ‐1,352

Net premium earned 9,145 9,741 10,290 9,625 10,809 12,774 16,502 20,271 14.5% YoY (%) 9.3% 6.5% 5.6% ‐6.5% 12.3% 18.2% 29.2% 22.8% Claims paid ‐7,853 ‐9,187 ‐11,241 ‐12,471 ‐13,381 ‐14,462 ‐15,931 ‐17,230 Reinsurers share of claims 3,078 2,446 3,767 6,528 7,067 7,518 6,264 6,311 Net movement in outstanding claims ‐2,350 ‐1,298 ‐480 ‐782 ‐936 ‐1,189 ‐676 ‐1,640 Net commission ‐467 ‐720 ‐655 ‐346 ‐384 ‐624 ‐1,097 ‐1,392

Net underwriting results 1,552 982 1,681 2,554 3,174 4,017 5,063 6,320 30.3% YoY (%) ‐40.8% ‐36.8% 71.2% 52.0% 24.3% 26.5% 26.0% 24.8% Investment income (net) 1,800 875 900 1,495 1,094 1,185 1,332 1,463 YoY (%) 44.2% ‐51.4% 2.8% 66.2% ‐26.8% 8.3% 12.5% 9.8% Impairment loss on AFS ‐425 ‐1,032 ‐205 200 ‐286 ‐316 ‐344 ‐390 YoY (%) 440.2% 142.8% ‐80.2% ‐197.6% ‐243.0% 10.5% 8.9% 13.4% Other income 102 124 150 150 189 208 231 254 YoY (%) ‐7.9% 21.3% 20.9% 0.1% 26.1% 10.0% 11.0% 10.0% Total income 3,029 949 2,525 4,399 4,172 5,093 6,282 7,647 YoY (%) ‐22.4% ‐68.7% 166.2% 74.2% ‐5.2% 22.1% 23.3% 21.7% General and admin. expenses ‐1,837 ‐1,896 ‐1,746 ‐1,745 ‐1,944 ‐2,080 ‐2,338 ‐2,630 YoY (%) 3.2% 3.2% ‐7.9% ‐0.1% 11.4% 7.0% 12.4% 12.5% Depreciation ‐18 ‐25 ‐32 ‐52 ‐75 ‐75 ‐75 ‐90 YoY (%) ‐16.7% 35.5% 29.4% 63.9% 44.2% 0.0% 0.0% 20.0% Profit / (loss) before taxation 1,174 ‐972 748 2,603 2,153 2,939 3,869 4,927 YoY (%) ‐44.1% ‐182.8% ‐177.0% 248.0% ‐17.3% 36.5% 31.7% 27.3% Income tax expense ‐160 0 ‐29 ‐267 ‐338 ‐455 ‐593 ‐751 Profit / (loss) for the year 1,014 ‐972 719 2,336 1,815 2,484 3,276 4,176 42.2% YoY (%) ‐46.4% ‐195.8% ‐174.0% 225.0% ‐22.3% 36.8% 31.9% 27.5% Source: IPO Prospectus; GBCM Research

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OQIC ‐ IPO

Table 20: Balance Sheet Highlights

CAGR‐ Balance Sheet ‐ RO 000s 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2016‐21E Assets Cash and cash equivalents 2,604 2,648 2,385 4,117 4,339 3,401 2,363 2,582 1.6% Bank deposits 5,585 5,607 6,422 6,922 7,447 7,998 8,577 9,185 YoY (%) 5.8% 0.4% 14.5% 7.8% 7.6% 7.4% 7.2% 7.1% Premiums and reinsurance balances 3,484 4,551 7,907 10,473 11,422 12,674 12,870 13,677 11.6% receivable Reinsurers share of insurance contract 11,020 13,741 17,294 12,225 13,990 16,126 14,724 16,336 ‐1.1% liabilities Other receivables and prepayments 628 462 574 1,274 781 840 971 1,093 Available‐for‐sale investments 13,036 13,124 12,725 15,125 16,939 18,723 20,529 23,239 12.8% YoY (%) 0.0% 0.7% ‐3.0% 18.9% 12.0% 10.5% 9.6% 13.2% Property and equipment 43 42 77 175 165 132 107 67 Total assets 36,400 40,173 47,383 50,311 55,084 59,895 60,140 66,179 6.9% YoY (%) ‐0.9% 10.4% 17.9% 6.2% 9.5% 8.7% 0.4% 10.0% Liabilities and Equity Liabilities arising from insurance contract 20,628 25,363 28,628 26,895 30,612 34,520 33,451 37,191 5.4% Due to reinsurers 2,674 2,609 4,363 4,225 5,071 4,856 4,184 4,183 Other liabilities and accruals 2,553 2,990 4,137 4,100 3,666 3,566 3,928 4,248 Total liabilities 25,855 30,963 37,128 35,220 39,348 42,942 41,563 45,623 4.2% YoY (%) ‐2.7% 19.8% 19.9% ‐5.1% 11.7% 9.1% ‐3.2% 9.8% Capital and reserves Share capital 5,000 5,000 5,000 10,000 10,000 10,000 10,000 10,000 Legal reserve 490 490 561 795 977 1,225 1,553 1,970 Contingency reserve 1,828 2,396 3,004 3,713 4,516 5,438 6,429 7,584 Fair value reserve 867 505 831 31 131 231 381 481 Retained earnings 2,360 820 859 552 112 59 214 521 Total Equity 10,545 9,211 10,256 15,091 15,735 16,953 18,577 20,556 14.9% YoY (%) 4.0% ‐12.7% 11.3% 47.1% 4.3% 7.7% 9.6% 10.7% Total liabilities and equity 36,400 40,173 47,383 50,311 55,084 59,895 60,140 66,179 6.9% YoY (%) ‐0.9% 10.4% 17.9% 6.2% 9.5% 8.7% 0.4% 10.0% Source: IPO Prospectus; GBCM Research

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OQIC ‐ IPO

Table 21: Cash Flow Highlights

Cash Flow Statement‐ RO 000s 2014 2015 2016 2017E 2018E 2019E 2020E 2021E Cash flow from operating activities Profit / (loss) before tax for the year 1,174 ‐972 748 2,603 2,153 2,939 3,869 4,927 adjustment for: Depreciation of property and equipment 18 25 32 52 75 75 75 90 Provision for withholding tax liabilities 0 25 23 Investment income in profit or loss ‐1,800 ‐875 ‐900 ‐1,695 ‐808 ‐869 ‐988 ‐1,073 Impairment loss on AFS 425 1,032 205 ‐200 286 316 344 390 Provision for employees end of service ‐29 ‐38 23 Allowance for doubtful premiums and ‐102 ‐150 123 reinsurance balance receivables (Gain) / loss on disposal of property & equip 0 2 0

Operating cash flows before changes in ‐314 ‐952 253 760 1,706 2,461 3,300 4,334 operating assets and liabilities YoY (%) ‐138.1% 203.2% ‐126.6% 200.0% 124.5% 44.3% 34.1% 31.3% Change in reinsurance and other receivables ‐224 ‐750 ‐3,502 ‐2,566 ‐949 ‐1,252 ‐195 ‐808 Change in prepayments and other assets ‐701 493 ‐58 ‐131 ‐123 Change in provisions, due to reinsurers and ‐1,675 539 2,904 5,069 ‐1,766 ‐2,135 1,402 ‐1,612 other payables Change in due to reinsurance companies ‐138 845 ‐215 ‐672 0 Change in Insurance contract liabilities ‐1,733 3,717 3,908 ‐1,069 3,740 Change in Payables and other liabilities ‐37 ‐434 ‐100 362 320 Change in insurance reserve, net 2,456 2,014 ‐289 Cash (used in) / generated from operations 244 851 ‐634 655 3,612 2,608 2,997 5,851 YoY (%) ‐53.3% 249.0% ‐174.5% ‐203.3% 451.9% ‐27.8% 14.9% 95.2% Employees end of service benefit ‐5 ‐12 ‐41 Income taxes paid ‐210 ‐141 ‐37 Net cash (used in) / from operating activities 29 698 ‐712 655 3,612 2,608 2,997 5,851 Cash flows from investing activities Purchase of property and equipment ‐25 ‐26 ‐75 ‐150 ‐65 ‐42 ‐50 ‐50 Net movement in bank deposits ‐305 ‐22 ‐816 ‐500 ‐525 ‐551 ‐579 ‐608 Proceeds from disposal of AFS 7,640 4,490 1,824 1,695 808 869 988 1,073 Net payments for AFS investments ‐7,575 ‐5,925 ‐1,190 ‐3,000 ‐2,000 ‐2,000 ‐2,000 ‐3,000 Income tax paid ‐267 ‐338 ‐455 ‐593 ‐751 interest income received 415 340 309 Dividend income received 480 489 388 Proceeds from disposal of property & equip. 0 0 8 Net cash generated from investing activities ‐6,680 ‐5,096 ‐484 ‐2,222 ‐2,120 ‐2,179 ‐2,234 ‐3,336 YoY (%) 43.5% ‐23.7% ‐90.5% 358.9% ‐4.6% 2.8% 2.5% 49.3% Cash flow financing activities Share Capital 4,000 Dividends paid during the year ‐189 0 0 ‐701 ‐1,271 ‐1,366 ‐1,802 ‐2,297 Net cash generated from financing activities ‐189 0 0 3,299 ‐1,271 ‐1,366 ‐1,802 ‐2,297 Net (decrease) increase in cash and cash ‐6,841 ‐4,399 ‐1,196 1,732 222 ‐937 ‐1,038 219 YoY (%) 62.1% ‐35.7% ‐72.8% ‐244.8% ‐87.2% NM 10.8% NM Cash and cash equiv. at beginning of the year 2,135 2,604 2,648 2,385 4,117 4,339 3,401 2,363 Cash and cash equivalents at end of year 2,604 2,648 2,385 4,117 4,339 3,401 2,363 2,582 Source: IPO Prospectus; GBCM Research

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OQIC ‐ IPO

Table 22: Ratio Analysis

Key Ratios 2014 2015 2016 2017E 2018E 2019E 2020E 2021E Growth (YoY % Chg.) Gross Insurance premium revenue 3.8% 2.4% 7.1% 27.1% 13.0% 12.5% 11.4% 10.6% Net insurance premium revenue (NPR) 9.3% 6.5% 5.6% ‐6.5% 12.3% 18.2% 29.2% 22.8% Net underwriting result ‐40.8% ‐36.8% 71.2% 52.0% 24.3% 26.5% 26.0% 24.8% Investment income (net) 44.2% ‐51.4% 2.8% 66.2% ‐26.8% 8.3% 12.5% 9.8% Earnings Growth ‐46.4% NM NM 225.0% ‐22.3% 36.8% 31.9% 27.5% Total Assets Growth ‐0.9% 10.4% 17.9% 6.2% 9.5% 8.7% 0.4% 10.0% Total Equity Growth 4.0% ‐12.7% 11.3% 47.1% 4.3% 7.7% 9.6% 10.7%

Per Share Ratio (In RO) EPS 0.020 (0.019) 0.014 0.023 0.018 0.025 0.033 0.042 Book Value 0.211 0.184 0.205 0.151 0.157 0.170 0.186 0.206 Cash Dividend Per Share ‐ ‐ ‐ 0.007 0.013 0.014 0.018 0.023

Multiples (x) PE 7.9 (8.2) 11.1 6.9 8.8 6.4 4.9 3.8 PBV 0.76 0.87 0.78 1.06 1.02 0.94 0.86 0.78 Dividend Yield (%) 0.0% 0.0% 0.0% 4.4% 7.9% 8.6% 11.3% 14.4% Cash Dividend Payout (%) 30.0% 70.0% 55.2% 54.9% 55.1%

Profitability Ratio (%) Return on Equity (RoE) 9.6% ‐10.5% 7.0% 15.5% 11.5% 14.7% 17.6% 20.3% Return on Average Equity (RoAE) 9.8% ‐9.8% 7.4% 18.4% 11.8% 15.2% 18.4% 21.3% Return on Assets (RoA) 2.8% ‐2.4% 1.5% 4.6% 3.3% 4.1% 5.4% 6.3% Return on Average Assets (RoAA) 2.8% ‐2.5% 1.6% 4.8% 3.4% 4.3% 5.5% 6.6%

Key Ratios (%) Retention Ratio 47.5% 52.4% 44.5% 37.2% 37.1% 40.3% 48.4% 50.8% Loss Ratio 77.9% 82.5% 77.3% 69.9% 67.1% 63.7% 62.7% 62.0% Expense Ratio 20.3% 19.7% 17.3% 18.7% 18.7% 16.9% 14.6% 13.4% Commission Ratio 5.1% 7.4% 6.4% 3.6% 3.6% 4.9% 6.6% 6.9% Combined Ratio 103.3% 109.6% 100.9% 92.1% 89.3% 85.4% 83.9% 82.2% Overall Solvency Margin 350.0% 297.0% 394.0% 383‐400% levels over projected period Source: IPO Prospectus; GBCM Research

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OQIC ‐ IPO

Stock Rating Methodology:

Buy ‐ Upside more than 20% Accumulate ‐ Upside between 10% and 20% Neutral ‐ Upside or downside less than 10% Reduce ‐ Downside between 10% and 20% Sell‐ Downside more than 20% Not Rated ‐ Stocks not in regular research coverage

Time Horizon

LT – Long Term rating with a 12 to 18‐month horizon ST – Short Term rating with a 3 to 6‐month horizon

Disclaimer: This document has been prepared and issued by Gulf Baader Capital Markets SAOC ("the Company") based on publicly available information, internally developed data and other sources believed to be reliable. While all care has been taken to ensure that the facts stated are accurate and the opinions given are reasonable, neither Gulf Baader Capital Markets SAOC nor any employee shall be in anyway responsible for the contents of this report. The Company may have a position and may perform buying/selling for itself or its clients in any security mentioned in this report. This is not an offer to buy or sell the investments referred therein.

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