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Qatar Insurance Company S.A.Q. DSM Code: QATI | Bloomberg Code: QATI QD| Reuters Code: QINS.QA Current Market Price: QAR 111.2 (As of 09 November 08)

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Qatar Insurance Company S.A.Q. DSM Code: QATI | Bloomberg Code: QATI QD| Reuters Code: QINS.QA Current Market Price: QAR 111.2 (As of 09 November 08) Kuwait Financial Centre “Markaz” R E S E A R C H Qatar Insurance Company S.A.Q. DSM Code: QATI | Bloomberg Code: QATI QD| Reuters Code: QINS.QA Current Market Price: QAR 111.2 (As of 09 November 08) Expected Return November 2008 Low Medium High Low Stock Medium Volatility High On YTD basis, Qatar Insurance Company S.A.Q. (QIC)’s stock fell 35%, broadly in line with the DSM index’s decline of 27%. However, in 2007, the stock rose 52%, outperforming the index’s gain of 34%. Capitalizing on its dominance in the domestic insurance market, QIC’s gross premium written increased 29% YoY to USD 449 Mn in 9M08. In addition, Markaz Research is decline in premium paid for reinsurance (as a percentage of gross premium available on Bloomberg written) and gross claims (as a percentage of net premium earned) led to a Type “MRKZ” <Go> 237-basis-points (bps) YoY improvement in the combined ratio to 72%. This Thomson Financial coupled with higher investment income resulted in a 54% YoY growth in the Reuters Knowledge company’s bottom line to USD 142 Mn in 9M08. Zawya Investor In 3Q08, QIC’s gross premium written increased 52% YoY to USD 131 Mn, Noozz while combined ratio increased 56 bps over the previous year to 76% due to higher reinsurance premium payment. Net profit rose 19% YoY to USD 30 Mn during the quarter. The company’s asset portfolio is mainly concentrated in Qatar (83% in 2007). However, the International segment (constituting the UAE, Saudi Arabia, Oman and Kuwait) has displayed better underwriting results, with a loss ratio of 49% relative to 69% for Qatar in 2007. However, current credit crisis and fall in oil & gas prices might delay planned or announced capex by the Qatari firms as well as the government, thus denting the growth in demand for QIC’s insurance services in the near term. Nevertheless, given the low insurance penetration rate in Qatar and the government’s emphasis on group health covers, we believe the demand for insurance services is poised to grow in the long term. Considering its dominance in the domestic market and a high-profile clientele, we believe QIC is well placed to witness growth going forward. QIC also fares well in regional peer comparison, with the best combined ratio among the top five insurance companies, on the basis of gross premium written, in the MENA region. We, therefore, expect QIC’s net income to grow 34% YoY to USD 188 Mn in M.R. Raghu CFA, FRM 2008. The stock is trading at a PE of 6.83x, lower than our fair value PE of 9.0x Head of Research and its short-term and long-term average of 13.05x and 11.95x, respectively. At +965 224 8280 current level of valuation, we believe the stock offers high returns, though with [email protected] high risk (as measured by the Markaz Volatility Index). However, in light of the current financial market turmoil, we remain concerned regarding the realization of this upside in the near term. USD Mn 2003 2004 2005 2006 2007 2008F Kuwait Financial Centre Gross Premium Written 112 151 202 328 417 N/A “Markaz” Net underwriting results 14 18 25 44 61 N/A Net Income 27 34 78 107 141 188 P.O. Box 23444, Safat 13095, P/E (LFY) 19.32 41.91 25.02 12.25 14.13 6.83 Kuwait P/B (LFI) 1.75 3.61 2.36 1.81 2.13 1.54 Market Cap 586 1,604 1,954 1,331 2,008 1,276 Tel: +965 224 8000 Stock Returns N/A 174% 37% -33% 52% -35%* Fax: +965 242 5828 Shareholders’ Equity 298 395 829 720 934 827 www.markaz.com Note: 2008 figures – PE, P/B and M.Cap as on 09 November 08, YTD: 2008 YTD returns Source: QIC, Reuters Knowledge, Bloomberg Kuwait Financial Centre “Markaz” R E S E A R C H November 2008 Analyst Discussion Notes Underwriting business expanded in 3Q08 as well as 9M08 Figure 1: Net Income and Combined Ratio Trend 80 Net Income (USD Mn) Combined Ratio (%) 90% Combined Ratio (%) 60 80% 40 70% 20 60% Net Income (USD Mn) (USD Income Net 0 50% 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 Source: QIC On YoY basis, QIC’s net profit rose 19% to USD 30 Mn in 3Q08 owing to Net profit rose 19% YoY to 33% increase in underwriting profit to USD 21 Mn and 18% growth in USD 30 Mn in 3Q08; it grew investment income to USD 18 Mn (figure 1). However, the net profit for 54% YoY on 9M basis 3Q08 is lower by 35% compared to 2Q08 and declined 56% compared to 1Q08. The strong growth in gross premium written (52% YoY to USD 131 Mn) boosted the net underwriting profit. However, combined ratio1 increased by 56 bps YoY to 76% in the quarter mainly due to higher premium paid on reinsurance. QIC offers a wide range of insurance services—construction & project engineering, property, marine & aviation, onshore and offshore energy, motor and group health insurance. We believe the rising demand for these insurance services in end markets is fueling the growth in the company’s underwriting business. In 9M08, gross premium written increased 29% YoY to USD 449 Mn. In addition, reinsurance premium paid in 9M08 declined 309 bps YoY to 53% of gross premium written. These two factors led to a 40% YoY rise in QIC’s net premium earned to USD 181 Mn. Moreover, gross claims paid declined by 211 bps YoY to 71% of net premium earned in 9M08. Consequently, combined ratio improved by 237 bps to 72% and the net underwriting income increased 50% YoY to USD 71 Mn in 9M08. Investment income also rose 61% YoY to USD 98 Mn, enabling the company to register a 54% YoY growth in bottom line to USD 142 Mn in 9M08. At the end of 9M08, QIC’s total capital base grew 4% YoY to reach USD 827 Mn and increased 30% YoY to USD 934 Mn in 2007. The expanding capital base, in turn, has increased the company’s underwriting capacity. As indicated in table 1, the company’s gross premium written is mainly QIC’s asset portfolio is mainly contributed by its underwriting business in Qatar (61% in 2007), while the concentrated in Qatar International segment comprising operations in the UAE, Saudi Arabia, Oman and Kuwait accounts for the remaining. The loss ratio in the International segment (49% in 2007) is relatively better than that of Qatar 1 Combined ratio has been calculated as sum of loss ratio ((Gross claims paid + Reinsurance and other recoveries + Movement in outstanding claims) / Net premium earned) and expense ratio ((Net commission + G&A expenses) / Net Premium). Kuwait Financial Centre “Markaz” 2 R E S E A R C H November 2008 (69% in 2007). Consequently, International segment’s contribution to QIC’s total underwriting income was 43% in 2007. Table 1: Geographical Segmentation - 2007 Gross Net Net Loss Total Geographical Written Premium Underwriting Ratio Assets Segment Premium Earned Income (%) (USD Mn) (USD Mn) (USD Mn) (USD Mn) Qatar 253 91 35 69% 1,330 As % of total 61% 54% 57% 83% International 164 78 26 49% 280 As % of total 39% 46% 43% 17% Total 417 170 61 60% 1,611 Source: QIC On basis of the nature of business, QIC classifies its underwriting business under two segments – Marine & aviation and Fire & general. As indicated in table 2, Fire & general segment accounted for majority of its underwriting income in 6M08. Table 2: Segmental Breakdown of Underwriting Activities – 6M08 Net Gross Written Net Premium Loss Underwriting Segments Premium Earned Ratio Income (USD Mn) (USD Mn) (%) (USD Mn) Marine and Aviation 36 14 3 72% As % of total 11% 11% 6% Fire and General 281 110 47 51% As % of total 89% 89% 94% Total 318 124 50 53% Source: QIC QIC to benefit from rising demand for insurance services in Qatar QIC holds the dominant As indicated in figure 2, QIC dominates the domestic market and captured 60% of total gross premium earned by national insurance companies in position in Qatar, with 60% of 2 market share of national 9M08 . insurance companies Figure 2: Gross Premium Share of National Insurance Companies 100% 10% 9% 8% 8% 10% 10% 9% 9% 80% 24% 27% 28% 29% 60% 40% 53% 53% 53% 60% 20% 0% 2005 2006 2007 9M08 Qatar Insurance Co. Qatar General Insurance and Reins. Co. Doha Insurance Co. Al Khaleej Insurance and Reins. Co. Source: Zawya Moreover, Qatar, QIC’s primary end market, has a low insurance penetration rate of 0.9% of GDP compared to the 7.5% world average in 2007 (Source: Swiss Re, Sigma No. 3/2008). Qatar Financial Centre (QFC) 2 We have excluded Qatar Islamic Insurance Co. while calculating the total gross premium as it is mainly into Islamic insurance. Kuwait Financial Centre “Markaz” 3 R E S E A R C H November 2008 expects non-life insurance premiums in Qatar to reach USD 640 Mn in 2009 from USD 538 Mn in 2007. Qatar witnessed an increase in business development activities driven by Demand for insurance service high hydrocarbon prices. Moreover, the Qatari government’s aim to emerge likely to increase across all as the leading global LNG producer also fuelled development in the oil & sectors in Qatar gas sector and increased marine activities in the country. Accordingly, the demand for property, construction & project engineering, onshore and offshore energy and marine insurance services also increased in Qatar historically.
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