D YER & BLAIR INVESTMENT BANK COMPANY UPDATE Founder Member of the Securities Exchange

December 2019

BRITAM : COMPANY UPDATE BRITAM: 52 WEEK PRICE PERFORMANCE We issue a BUY recommendation on Britam Group based on a 1 year target price of 9.91 per share representing a 20.9% upside from its current price of KES 8.20. We project a 4 year CAGR of 71.9% in earnings to KES 4.6 BN in FY21F. This is mainly attributable to an estimated 9.4%, 3 year CAGR in gross premiums to KES 31.8 BN in FY21F and a 1,379 bps y-o-y improvement in the group’s combined ratios to 104.7 in FY21F. In addition, we expect the group to record reduced fair value losses in the me- dium term courtesy of the group’s investment shift from equities to property and gov- ernment securities. We forecast EPS at KES 1.83 while ROA and ROE stand at 2.9% and 14.6% respectively in FY21F.

Upsides

 Premium growth: We project gross earned premiums to grow by a 3 year CAGR of 9.4% to (Source: Company Filings and DBIB Research) KES 31.8 BN in FY21F driven by a 3 year CAGR of 10.1% and 8.7% in life assurance and gen- eral insurance to KES 15.8 BN and KES 16.0 BN respectively. This will be driven by the ordi- KEY METRICS RECOMMENDATION BUY nary life business, the medical, motor and marine insurance businesses. 12-m Target Price (KES) 9.91 Current Price (KES) 8.20  Improved combined ratio: We expect the group’s combined ratio to decline to 104.7% in Capital Upside (%) 20.86 FY21F representing a 1,379 bps y-o-y improvement on account of improved risk pricing, 52 week Range (KES) 6.80-10.55 product rationalization and increased adaptation of digital channels and bancassurance. YTD Return (%) (18.00) Avg Trading Vol. (Mn) 3.26  Strategic investors backing: We believe that the investment by , AfricInvest and Avg Trading Val. (USD Mn) 0.02 IFC strengthens Britam’s board & technical expertise and improves the alignment of share- Issued Shares (Mn) 1,550.76 holders and managements’ interests Free float (%) 58.30 Foreign Inv. Holding (%) 44.30 Downside Market Cap (USD Mn) 12,716.23

 Heightened Competition: The insurance industry in recorded a penetration rate of Trailing EPS (KES) (0.89) 2.4% in 2018 with 26 and 37 participants in the life assurance and general insurance seg- Forward EPS (KES) 0.31 ments respectively. Britam Holdings controls a market share of 24.7% in the life assurance Forward P/E (x) 32.37 Forward P/B (x) 1.08 segment and a 6.4% in the general insurance segment in Kenya

Other CONTENT  Total investment income volatility: The group’s performance is substantially correlated Upsides……………….…...………………………..….02 with fair value adjustments through profit and loss which results from the market and thus Downsides……………………………………………..03 volatile. Valuation…....………………………………………...07 Britam Overview..……………...... ……..….…….11  Capital Adequacy: The group capital adequacy ratios stood at 150.0% as at FY18 which is below the prescribed adequacy ratio of 200.0% to be met by June 2020. Research Analyst Faith Muthoni [email protected] 1 +254 709930130

UPSIDES BRITAM LIFE ASSUARACE PREMIUMS SPLIT IN MN

Premium growth: We project gross earned premiums to grow by a 3 year CAGR of 9.4% to KES 31.8 BN in FY21F driven by a 3 year CAGR of 10.1% and 8.7% in life assurance and general insurance to KES 15.8 BN and KES 16.0 BN respectively.

Life Insurance: We expect the 10.1% average growth from the life assurance business to be main- ly driven by a 17.2% y-o-y average growth in ordinary life business to KES 11.8 BN in FY21F, primari- ly on account of the group’s focus on the life assurance segment through innovation and the group’s in house expertise being the largest life assurance company in Kenya. In Kenya, the Insur- ance Regulation Authority (IRA) recorded an average growth of 10.6% in the life assurance segment in the last 3 years to KES 87.4 BN in FY18 primarily on account of a 3 year CAGR of 15.5% and 13.2% in the pension and ordinary life assurance segments to KES 33.9 BN and KES 24.3 BN respectively in (Source: Company Filings and DBIB Research) FY18. According to IRA 2Q19 statistics, Britam life controls a market share of 24.7% which repre- sents a 479 bps, growth in the last 4 years. Management plans to launch life assurance in

BRITAM LIFE-GENERAL PREMIUM CONTRIBUTION its second largest market by premiums.

General Insurance: Historically, Britam’s reliance on the general insurance segment has been slightly higher than the life segment, in FY18, Britam’s reliance on general insurance stood at 55.1% relative to 62.3% in FY15. We forecast an 8.3%, 3 year CAGR on premiums from the general insur- ance segment to KES 16.0 BN courtesy of a 3 year CAGR of 9.4% in personal accident & medical (31.0% premium contribution) to KES 5.1 BN and a 3 year CAGR of 8.4% in motor insurance ( 34.5% premium contribution) to KES 5.5 BN courtesy of regulation (especially under motor insurance), improving living standards, and innovation. We note that Britam insurance has the highest market share in the marine insurance segment at 11.0% with the group recording a 4 year average growth

(Source: Company Filings and DBIB Research) of 26.8% to KES 614.9 MN in FY18 relative to the industry’s 6.5%. We attribute this to regulations on local marine insurance and the group’s expertise in the area given its prior track record. As a

result, we estimate a 3 year CAGR of 6.5% in gross premiums from marine insurance to KES 827.8 MN in FY21F. Management's one distribution strategy is expected to boost both life and general

insurance premium courtesy of increased cross selling opportunities which we believe will raise uptake of non conventional general insurance. BRITAM GENERAL INSURANCE PREMIUM SPLIT 2018

Claims: We estimate the claims ratio to rise to 68.4% in FY19F and to ease to 55.5% in FY20F from a claims ratio of 67.6% in FY18 and 61.6% in FY17. This is courtesy of improvement in risk pricing following the group’s product rationalization mainly through product re-design (e.g move from out patient medical to out patient fund) and efficiency through project Jawabu. The group’s investment in ‘Project Jawabu’ saw it automate its internal processes in medical underwriting and customer service resulting in a single distribution channel. Currently the group has a 24/7 contact centre which improves consumer engagement. Project Jawabu is expected to speed up medical under- writing and claim settlement processes through efficiency and allow for direct premiums collection. The medical and motor insurance segments continue to record the highest claims ratio with IRA recording an average 4 year average claims ratio of 50.7% and 67.7% respectively while Britam rec- orded an 3 year average claims ratios of 72.2% and 73.4% to contribute 36.5% and 41.0% to total claims in the general insurance segment respectively. We expect the claims ratio from the motor segment to ease to 72.7% by FY21 from 75.4% in FY18. The focus of growing the un conventional general insurance lines is expected to improve the overall claims ratio especially in Kenya given they (Source: Company Filings and DBIB Research) are typically lower.

Expense and net acquisition; We project a 3 year cumulative improvement of 365 bps improve- ment in Britam’s expense ratio to 36.5% in FY21F while net acquisition ratio increases by 282 bps to 2 14.3%.

UPSIDES

We believe that the expense improvement will be as a result of efficiency courtesy of the group’s project Jawabu, its adoption of additional distribution channels such as mobile(*778#), internet and banc assurance.

In addition, the group in 2018 laid off 110 employees incurring a one off expense of approximately

KES 600.0 MN. This is expected to result in savings on employee expenses. Overall, we expect the group’s combined ratio to decline to 104.7% in FY21F representing a 1,379 bps y-o-y improvement.

Britam’s broken down Combined ratio FY13 FY14 FY15 FY16 FY17 FY18 Incurred claims ratio 63.24 68.04 64.82 28.75 61.58 67.64 Net commission ratio 19.39 17.75 15.61 16.26 13.67 11.66 Expense ratio 41.43 39.15 41.02 40.79 36.24 39.14 TOP BRITAM SHAREHOLDERS 2019 Combined ratio 124.06 124.93 121.46 85.80 111.49 118.45 Top Shareholders % Africinvest 17.6 (Source: Company Filings and DBIB Research) Equity Group* 16.1 Swiss Re 15.8 Stanchart Nominee (NR) 9.1 Strategic investors backing-Strategic investors backing-We believe that the investment by Swiss Re, IFC 8.9 AfricInvest and IFC strengthens Britam’s board & technical expertise and improves interest align- Jimnah Mbaru 7.7 ment between shareholders and management. Others 24.8 (Source: Company Filings and DBIB Research) The direct investment by IFC (10.4%) and AfricInvest (14.3%) resulted in a capital injection of KES 9.3 Investment by IFC, AfricInvest and Swiss BN in 2017. The funds raised were aimed at; consolidating gains from its acquisition of Real Insur- Re occurred at P/B levels of 1.5x, 1.4x and ance in 2014 that saw the group expand to , and , enhancing the 1.3x respectively. group’s distribution channels, supporting the roll out of new products, completing project Jawabu, restructuring the group’s balance sheet and investing in property development. In 2018 and 2019,

Swiss Re acquired a 15.8% stake in Britam mainly from Plum Llp. Collectively, the three strategic investors control a 40.5% stake in Britam. Kindly find a chronology of shareholder changes in Britam’s since 2016 in the link STRATEGIC INVESTMENT SUMMARY

(Source: Company Filings and DBIB Research) * Exited investments

3

DOWNSIDES KENYA GENERAL INSURANCE MARKET SHARE 2Q19 Company % Heightened competition especially in the general insurance segment-The insurance industry in Jubilee 9.76 Kenya and the wider East Africa region is characterized by low penetration and large numbers of CIC 8.26 participants. According to Association of Kenya Insurers (AKI), in 2018 the insurance industry record- APA 7.38 ed a penetration level of 2.4% the lowest in the last 5 years, while Insurance Regulatory Authority of UAP 7.08 Uganda recorded a 0.8% penetration in 2018. Britam 6.39 2013 2014 2015 2016 2017 2018 GA 5.29 Kenya 2.72 2.88 2.75 2.71 2.68 2.43 ICEA LION 4.46 Uganda 0.85 0.86 0.76 0.73 0.81 0.84 (Source: IRA Kenya and DBIB Research) Tanzania 0.67 0.7 0.68 0.65 0.55 N/A

Rwanda 1.58 1.59 1.61 1.65 1.7 1.7 Mozambique 1.52 1.55 1.58 1.54 1.62 1.48

(Source: IRA Kenya, IRA Uganda, TIRA, NBR and ISSM)

In Kenya the number of players in the insurance industry is relatively high at 53 insurance companies KENYA LIFE ASSURANCE MARKET SHARE while Uganda records at least 20 participants. The low penetration levels are primarily due to low disposable income and low financial literacy on insurance. We believe that the above two factors coupled with increased price undercutting on account of low customer loyalty primarily in the auto insurance segment, lower investment income and high fraud levels especially in the motor and med- ical insurance segments (being the largest segments) contribute to the heightened competitive envi- ronment.

Britam gross premium reliance on the life and general insurance segments on average stands at 46.7% and 53.3%. Britam faces greater competition from the general insurance segment relative to the life assurance segment. This, we infer from the group’s control of 24.7% stake in the life assur- ance segment augmenting its position as the largest assurer in Kenya. The group controls a 6.4% (a drop from a market share of 7.3% in FY15) market share in the general insurance segment to emerge the 5th largest, behind Jubilee, CIC, APA and UAP. The Herfindahl-Hirschman Index (HHI)

(Source: IRA Kenya and DBIB Research) score for Kenya’s life and general insurance segments stands at 486 and 1,231 respectively as at 2Q19 indicating that the general insurance industry is more competitive attributable to its low con-

centration levels. A 4 firm concentration ratio (CR4) of the life assurance segment results in a medi-

um concentration level.

.

4

OTHERS

Investment income volatility- Britam has been recording volatile earnings performance in the IMPACT OF UNREALIZED FV CHANGES recent past. Over the last 4 years, the group’s earnings have oscillated between losses in FY15 ON BRITAM and FY18 of KES 1.0 BN and KES 2.2 BN respectively and profits of KES 2.3 BN (2013), KES 2.5 BN To access: DYER2AND4BLAIR4 (FY14) and KES 2.4 BN in FY16. This performance was partly on account of fair value losses and gains primarily from quoted securities. The losses made in FY15 and FY18 were partly on account of fair value losses of KES 2.0 BN in FY15 and KES 1.7 BN in FY18 coinciding with downward

trends in the securities market with the main index NSE 20 declining by 21.0% and 23.7% respec-

tively to close the respective years at 4,040.75 and 2,833.84. The group’s fair value adjustments

are correlated with the group’s overall performance by 0.67. We are of the view that volatility on investment income (esp. fair value adjustments) might continue due to the group’s presentation of quoted and government securities at fair value through profit and loss relative to amortized and other comprehensive income.

INVESTMENT INCOME VOLATILITY TABLE OVER 5 YEARS

(Source: Company Filings and DBIB Research)

Britam investment assets have historically been heavy on government and corporate bonds, as at FY18 the group held 46.0% of its portfolio in fixed income, 14.0% in property and 13.0% in equity. Although conservative in nature, the group holds approximately 57.6% of its investments at fair value through profit and loss. This exposes the group’s earnings performance to market

change (both positive and negative) resulting in fair value adjustments (non cash adjustments). Due to its heavy reliance on fixed income securities and sensitivity to equities investment at fair value through profit and loss an increase or decrease in the yield curve and NSE market prices will cause a decrease or increase in fair value reported on the income statement.

Following Britam’s drop in performance, management adopted a long term strategy to reduce its equity investment (which as at 1H15 stood at 35.0% of its assets) and increase its property and government investments which is expected to improve the group’s asset-liability matching. We believe that the shift was informed by the group’s volatile returns from investment especially from the securities market (equity investments). We are however concerned on the group’s in- vestment property portfolio whose performance has been dismal the last two years. Manage- ment reviewed their property strategy in 1H19 resulting in partnership with joint ventures and extension of its third party property offering. An analysis of the group’s investment portfolio shows that the group has since reduced its exposure in equities from 27.0% in 2015 to 13.0% in 1H19.

5

Cont….

HF Group: Britam currently holds a 48.4% in HF Group (associate) after increasing its sharehold- ings through a rights issue in 2015. This strategic investment in the lender, we believe assists Britam in accessing new customers through banc assurance. In the recent past, the lender recorded drops in its performance to record losses courtesy of a challenging environment characterized by the in- terest rate cap and slowed real estate market. Britam as a result recorded associate losses of KES 1.8 BN in FY15 and KES 2.0 BN in FY18. Following its deteriorating performance, Britam booked im- pairments of KES 1.6 BN in FY18, KES 1.3 BN in FY17 and KES 838.5 MN in FY16 in its investment in HF Group which previously stood at KES 6.8 BN in FY15. We don’t expect further impairment on the associate as HF Group has since adopted a turn around strategy focused on three areas; building a digital bank, expansion into new banking segments and maintaining the group’s dominance in mort- gage finance and they also revamped its top management.

Britam Capital Position

Britam Insurance’s capital adequacy ratio as at FY18 stood at 146.3% and 183.3% in the general and life assurance business a drop from 237.2% and 196.2% in FY17. This is mainly attributed to the drop in performance in FY18 where the group recorded a loss of KES 2.2 BN. Management expects the group’s capital adequacy ratios to range between 150.0% and 200.0%, relative to a minimum ade- quacy ratio of 100.0% and a prescribed adequacy ratio of 200.0%. Management expects its group capital adequacy ratio to close the year (FY19) between 140.0 and 170.0%.

We estimate a 20.0%, 3 year drop in borrowings to KES 1.4 BN in FY21F, courtesy of Britam’s early redemption of its KES 6.0 BN medium term bond in FY18 and an expected decrease in additional borrowings given the group’s capital requirement. In addition, we estimate a 13.5%, 3 year CAGR in financial assets at FVPL to KES 57.4 BN in FY21F to contribute 40.3% of total assets up from 37.9% in FY18. We believe that the group’s capital adequacy position will improve due to lower market risk charge on government securities of 0.0%.

6

VALUATION

Embedded valuation 31-Dec-19 31-Dec-20 31-Dec-21 Terminal Value Embedded Value (1,124.8) 772.3 2,292.3 24,951.9 Time 0.06 1.06 2.06 2.06 Present value 0.99 0.86 0.74 0.74 Embedded Value (1,115.6) 663.4 1,706.2 18,572.1 Dividend 757.0 757.0 757.0 8,240.6 Efficient embedded value (1,872.6) (93.7) 949.1 10,331.6 Gross Total 9,314.4 Capital (Free capital + locked in capital) 7,507.4 Net total 16,821.9 Number of shares 2,523.5 Price per share 6.67

Sum of parts Life Assurance 6.67 General Business 4.11 Total 10.79

P/B Method NAV 9.81 P/B 0.92 Target Price 9.04

Blended Valuation Target Price Weighting Price Sum of Parts 10.79 0.50 5.40 P/B 9.04 0.50 4.51 Target Price 9.91

Risk free rate(%) 10.20 Beta 0.68 Risk premium(%) 7.60 Cost of equity(%) 15.41

(Source: Bloomberg, DBIB Research)

7

INCOME STATEMENT (KES MN)

Income Statement (KES MN) FY14 FY15 FY16 FY17 FY18 FY19F FY20F FY21F 3YR CAGR Gross earned premiums 14,046 19,606 20,292 23,298 24,325 26,095 28,575 31,810 9.4 Premiums ceded (2,254) (3,232) (2,898) (3,000) (3,263) (3,689) (4,011) (4,353) 10.1 Net earned premiums 11,792 16,374 17,394 20,298 21,062 22,405 24,564 27,456 9.2 fund management fees 696 719 929 761 661 1,086 1,117 1,269 24.3 Investment income 7,422 1,504 2,779 5,860 3,576 7,353 8,279 11,112 (138.2) Other gains 782 1,535 1,258 918 1,094 970 1,018 1,066 (136.4) Total other income 8,900 3,757 4,967 7,539 5,332 9,409 10,414 13,447 (250.4) Total income 20,692 20,131 22,360 27,837 26,394 31,814 34,978 40,903 (241.1) Commission expense 2,713 3,292 3,547 3,520 3,314 4,102 4,607 4,943 14.3 Net benefits and claims paid 8,023 10,614 5,001 12,499 14,247 15,330 13,632 14,814 1.3 Interest payments 2,036 496 1,743 2,463 1,689 2,949 3,631 4,312 36.7 Operating and other expenses 4,616 6,717 7,095 7,356 8,245 7,951 8,951 10,007 6.7 Total expense 17,389 21,119 17,386 25,838 27,494 30,333 30,821 34,076 58.9 Finance cost 350 802 1,177 1,186 906 293 247 244 (35.4) Profit before associate 2,953 2,953 (1,790) 3,797 813 (2,006) 1,188 3,909 23.5 Share of associate's profit 259 595 442 53 (290) (85) - - (100.0) PBT 3,212 3,548 (1,348) 3,850 523 (2,091) 1,188 3,909 (76.5) Tax charge/credit (715) 185 (1,759) (338) 86 (331) (1,173) (1,975) (384.7) PAT 2,498 (1,009) 2,480 527 (2,210) 773 2,736 4,608 (461.2) EPS 1.29 (0.52) 1.28 0.24 (0.88) 0.31 1.08 1.83 (227.7) DPS 0.30 0.30 0.30 0.35 - - 0.30 0.30 N/A (Source: Company, DBIB Research)

CASH FLOW STATEMENT (KES MN)

FY14 FY15 FY16 FY17 FY18 FY19F FY20F FY21F 3YR CAGR PBT 3,212 -1,195 4,239 866 -2,296 1,104 3,909 6,583 (242.1) Adjustments Working capital changes 9,203 7,341 2,293 11,708 9,323 12,882 15,298 17,023 22.2 Cash generated from operations 4,672 5,394 5,230 8,408 5,245 7,696 11,976 13,652 37.6 Taxation paid (787) (467) (213) (466) (665) (331) (1,173) (1,975) 43.7 Net CFO 3,885 4,927 5,017 7,942 4,580 7,365 10,803 11,677 36.6 Net CFI (5,779) (6,027) (4,471) (5,871) (4,882) (4,207) (6,952) (9,603) 25.3 Net CFF 5,812 (974) 653 385 (1,148) (1,409) (425) (1,068) (2.4) Increase/decrease in cash 3,918 (2,074) 1,200 2,456 (1,451) 1,749 3,426 1,006 (188.5) Cash at 1 January 3,092 6,841 4,767 5,967 8,423 6,972 8,721 12,147 13.0 Cash at 31 December 7,010 4,767 5,967 8,423 6,972 8,721 12,147 13,153 23.6 (Source: Company, DBIB Research)

8

BALANCE SHEET SUMMARY (KES BN)

FY14 FY15 FY16 FY17 FY18 FY19F FY20F FY21F 3YR CAGR Property and equipment 1,329 1,749 1,692 1,503 1,365 1,289 1,252 1,181 (4.7) investment properties 5,605 3,602 4,891 5,912 7,652 9,633 12,168 15,300 26.0 intangible assets 1,286 1,752 1,989 2,094 2,122 1,918 1,701 1,460 (11.7) Investment in associate 4,863 6,821 6,309 5,022 2,924 2,924 2,924 2,924 - Financial assets at FVPL 21,172 17,312 18,397 30,611 39,282 47,400 58,221 73,759 23.4 Govt & corporate bonds at amort cost 10,286 15,911 18,640 17,419 16,157 16,564 17,594 18,567 4.7 Loans & policy receivables 4,881 6,147 8,344 10,765 13,011 17,432 22,363 28,753 30.3 Reinsurance Receivables 930 804 1,104 645 703 942 941 1,013 12.9 Insurance Receivables 2,505 2,291 2,390 2,161 2,317 2,531 2,618 2,915 8.0 Re-insurers' share of insurance liabilities 2,273 3,444 2,679 3,727 3,145 2,992 2,910 3,301 1.6 Other assets 55,130 59,835 66,435 79,859 88,679 103,623 122,691 149,173 18.9 Cash and bank balances 6,841 4,814 6,013 8,470 6,767 8,767 12,193 13,199 24.9 Total assets 46,903 72,450 77,632 83,643 99,025 103,656 117,142 135,834 11.1 Equity and Liabilities share capital 194 194 194 216 252 252 252 252 - share premium 4,263 4,263 4,263 7,707 13,237 13,237 13,237 13,237 - Reserves 12,883 10,425 11,874 13,580 11,757 11,757 11,757 11,757 - Retained earnings 3,478 2,221 897 333 (1,387) (615) 1,364 5,216 (255.5) Equity 21,400 17,685 17,810 22,593 23,859 24,632 27,368 31,219 9.4 NCI 40 (11) 67 77 97 120 215 301 45.9 Total equity 21,440 17,674 17,878 22,670 23,956 24,752 27,583 31,520 9.6 Liabilities Borrowings 6,550 6,968 9,380 7,963 2,787 1,671 1,493 1,427 (20.0) Other payables 1,633 2,553 2,444 3,552 2,727 2,187 2,376 2,698 (0.4) Deposits admin contracts 11,202 14,964 21,840 28,018 34,175 43,611 52,651 62,604 22.4 Reinsurance payables 847 800 545 752 1,253 1,344 1,472 1,638 9.4 Unearned premiums 5,211 5,261 4,360 4,572 4,696 5,038 5,547 6,044 8.8 Insurance contracts liabilities 16,146 21,787 18,745 23,896 28,221 33,303 39,951 48,343 19.7 Other liabilities 9,421 7,624 8,452 7,601 5,841 5,237 4,765 4,361 (9.3) Total Liabilities 51,011 59,958 65,765 76,355 79,700 92,391 108,255 127,116 16.8 (Source: Company, DBIB Research)

9

INSURANCE RATIOS

FY14 FY15 FY16 FY17 FY18 FY19F FY20F FY21F Cessation Rates 16.0 16.5 14.3 12.9 13.4 14.1 14.0 13.7 Net Retention Rates 84.0 83.5 85.7 87.1 86.6 85.9 86.0 86.3 Reinsurance Recoveries 4.3 4.6 6.2 2.8 2.9 3.8 3.4 3.2 (Source: Company, DBIB Research)

PROFITABILITY & QUALITY OF INVESTMENT RATIOS

FY14 FY15 FY16 FY17 FY18 FY19F FY20F FY21F Claims Ratio 68.0 64.8 28.8 61.6 67.6 68.4 55.5 54.0 Expense Ratio 39.1 41.0 40.8 36.2 39.1 35.5 36.4 36.4 Net acquisitions ratio 17.7 15.6 16.3 13.7 11.7 14.5 15.0 14.3 Combined Ratio 124.9 121.5 85.8 111.5 118.5 118.4 106.9 104.7 Investment Income Ratio 64.3 10.5 16.2 28.4 17.2 32.8 33.7 40.5 Operating Ratio 25.0 (10.9) 21.8 4.0 (9.5) 5.3 15.9 24.0 PAT margin 21.2 (6.2) 14.3 2.6 (10.5) 3.4 11.1 16.8 Investment income reliance ratio 36.6 8.5 12.6 20.7 13.7 23.1 23.7 27.2 UP to Earned Premium 44.2 32.1 25.1 22.5 22.3 22.5 22.6 22.0 Underwriting ratio 32.0 35.2 71.2 38.4 32.4 31.6 44.5 46.0 (Source: Company, DBIB Research)

FINANCIAL STABILITY & CAPITAL ADEQUACY

FY14 FY15 FY16 FY17 FY18 FY19F FY20F FY21F Asset mix: shares/Total Assets 16.3 16.0 11.8 9.0 10.4 9.4 8.3 6.5 Government securities to total assets 19.9 17.6 23.9 28.1 32.2 39.5 42.5 46.2 Investment Property - 1.1 7.6 10.3 9.4 8.5 7.6 6.6 (Source: Company, DBIB Research)

INVESTMENT RETURN RATIOS

FY14 FY15 FY16 FY17 FY18 FY19F FY20F FY21F Return on Invested Assets 4.62 (1.73) 3.92 0.70 (2.69) 0.83 2.54 3.60 Return on Total Assets 3.45 (1.30) 2.97 0.53 (2.13) 0.66 2.01 2.91 Return on average Equity 11.65 (5.71) 13.87 2.33 (9.23) 3.12 9.92 14.62 (Source: Company, DBIB Research)

10

BUSINESS DESCRIPTION Britam Insurance Group is involved in the general insurance, life assurance and asset management businesses. The in- surance group listed on the NSE on 2011 and has presence in seven countries in Africa namely; Kenya (1979), Uganda (2010), (2013), Mozambique (2013), (2012), Malawi (2013) and Tanzania (2013).

BRITAM GROUP STRUCTURE KEY PERFORMANCE DRIVERS

 Life assurance segment to continue driving premium growth

 Britam has amongst the highest capital adequacy ratios among listed insurance companies

 IFC, Africinvest and Swiss-re strategic investment to re- sult in greater collaboration and improved management RISK TO OUTLOOK

 IFRS 17 and IFRS 16-insurance contract and leases ac- counting standards changed and are expected to have a substantial impact on insurance companies

 Increased insurance regulation-cash and carry & motor- cycle. Source: Britam Group

 Competition-penetration levels in the region are low and the number of insurance companies participating in the

COMPANY MANAGEMENT

Name Job Description W. Andrew Hollas Group Chairman Benson I. Wairegi Group Managing Director Stephen O. Wandera Principal Executive Director - Business Gladys M. Karuri Director-Finance, Strategy and Operations Fridaclare K. Katusya Group-CFO Jude B. Anyiko Group CIO Ambrose N. Dabani CEO -Britam Life Margaret W. Kathanga CEO-Britam General

Source: Britam Group Filings

11

APPENDIX COMPANY INVESTMENT RATINGS

Buy: Share price may generate more than 15.0% upside over the next 12 months Overweight: Share price may generate between 10.0% and 15.0% upside over the next 12 months

Hold: Share price may fall within the range of +/- 10% over the next 12 months

Take Profit: Target price has been attained. Look to accumulate at lower levels. Company fundamentals how- ever remain strong

Underweight: Share price may generate between 10.0% and 15.0% downside over the next 12 months

Sell: Share price may generate more than 15.0% downside over the next 12 months, significant business and/ or financial risks present, industry concerns

Not Rated: Counter is not within regular research coverage

SECTOR INVESTMENT RATINGS Overweight：Industry performance better than that of the whole market

Equal weight： Industry performance about the same as that of the whole market

Underweight：Industry performance worse than that of the whole market

DISCLAIMER

While every care has been taken in preparing this report and it has been prepared from sources believed to be reliable, no representation, warranty, or undertaking (express or implied) is given and no responsibility is accept- ed by Dyer and Blair Investment Bank Limited, its related companies, subsidiaries, affiliates, its employees and agents, as to the accuracy and completeness of the information contained herein or in respect of any reliance on or use thereof. This report is solely intended for distribution to clients of Dyer and Blair Investment Bank Limited. Any information may be changed after distribution at any time without any notice.

12