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INSURANCE FUTURE SUMMIT IN NIGERIA: EMERGING OPPORTUNITIES
Nigerian Insurance Market
Capital Market Perspectives
Prepared By
7 April 2008
Introduction
Page 2

Nigeria’s GDP has grown at an average rate of 6% per
annum over the past five years

This economic growth; coupled with recent reforms in the
banking, pensions, capital markets, oil/gas and insurance
sectors are creating significant new opportunities for
risk underwriting business

Measured by Gross Premium Income, the insurance
market has grown on a compounded basis at only 15%
per annum over the last 5 years

In the last twelve months to March 2008, insurance sector
stock valuations have gone up 185%, versus 61% for the
NSE All Share Index

We see long term opportunity for genuine value
creation in Nigerian insurance despite concerns of short
term market exuberance
Economy Has Shown Stable GDP Growth
In recent years,
Nigeria has
witnessed stable
GDP growth
averaging 6%
per annum,…
9.0
(%)
8.0
7.0
Average = 6.1%
6.0
5.0
Page 3
Q3 07
Q2 07
Q1 07
Q4 06
Q3 06
Q2 06
Q1 06
Q4 05
Q3 05
4.0
Amid Declining Inflation
…with inflation
declining to
single digit
levels.
25.0
(% )
Overall Inflation
Food Inflation
20.0
15.0
10.0
5.0
Page 4
Q3 07
Q2 07
Q1 07
Q4 06
Q3 06
Q2 06
Q1 06
Q4 05
Q3 05
0.0
GDP Has Benefited from Rising Oil
Prices
High oil prices
and economic
reform are
aiding strong
economic
growth…
65.00
Price per barrel (US$)
55.00
Average = US$47.00
45.00
35.00
Page 5
2007
2006
2005
2004
2003
25.00
Growth/Reform has Fueled Liquidity
…and fuelling
a domestic
liquidity glut,
translating to
strong demand
for equities.
23.0%
Trading Liquidity: Values Traded / Market Capitalization
21.0%
19.0%
17.0%
15.0%
13.0%
11.0%
9.0%
7.0%
5.0%
2003
* As at March 2008
Page 6
2004
2005
2006
2007
2008*
Nigeria Insurance Market versus Africa
While Nigeria
is one of the
faster growing
insurance
markets in
Africa…
35.0
% Grow th (Nominal)
30.0
25.0
20.0
15.0
Average = 14.8%
10.0
5.0
Page 7
Tunisia
Namibia
Algeria
Egypt
South
Africa
Nigeria
Kenya
Angola
0.0
Insurance Growth versus Banks
…the
insurance
sector is still
the slowest of
the Nigerian
financial
services
sector.
120%
103.7%
100%
80%
60%
40%
36.2%
15.3%
20%
0%
Stockmarket Turnover Banking Sector Assets
Page 8
Insurance Gross
Premiums
Insurance Industry Structure
Competitive
and
fragmented
industry
despite recent
capitalization
and induced
consolidation.
Page 9

Characterized by numerous players – 49 at last count – most of
similar size and competitive positioning

Average underwriter reported only N1.5bn of GPI in 2006

Most premiums sourced from covering risks in same insurance
class (life, motor, fire, marine, aviation, general accident and
workmen’s compensation)

Large number of insurance brokers (510 in 2006) who act as major
intermediaries between corporate customers and underwriters

Broker dominance ensures corporate premium payments are hardly
ever received on time (53% premiums receivables ratio in 2006)

Industry is hence highly competitive (especially on pricing)
considering slow growth of overall market size

Industry also easy to enter for new players as evidenced by influx of
commercial bank subsidiaries eager to take advantage of captive
parent insurance business
Key Drivers of Market Opportunity
But, we see a
genuine long
term market
opportunity for
insurance
business in
Nigeria.

Banking Sector Consolidation
•

Pension Industry Reforms
•

Strong growth in capital markets and financial assets will
increase pool of insurable assets and individuals in Nigeria
while creating investment and risk dispersion opportunities for
insurance companies
Local Content Participation in Oil and Gas
•
Page 10
Compulsory group life insurance, and the market for annuities
by pension account holders upon retirement will drive growth in
life insurance
Capital Markets Growth
•

Bigger Nigerian banks with greater risk appetite are lending
more to middle class which will drive insurance cover for these
loans.
Mandatory local content guidelines in the oil and gas sector will
eventually open up huge market for local underwriters
Insurance Sector Index versus NSE
Index
The market
appears to
have priced in
this long term
opportunity.
300
Insurance Stocks
NSE
250
200
150
Page 11
Mar-08
Feb-08
Jan-08
Dec-07
Nov-07
Oct-07
Sep-07
Aug-07
Jul-07
Jul-07
Jun-07
May-07
Apr-07
Mar-07
100
General Index versus Composite Index
The current
pricing favors
General
Insurers over
the Composite
Insurance
segment.
500
Composite
General
450
NSE
400
350
300
250
200
150
Page 12
Mar-08
Feb-08
Jan-08
Dec-07
Nov-07
Oct-07
Sep-07
Aug-07
Jul-07
Jul-07
Jun-07
May-07
Apr-07
Mar-07
100
Top 10 Insurers: Shareholders Funds
Amounts in Billions of Naira
Leadway,
WAPIC and IGI
are the leading
players by
shareholders
funds.
10.0
9.4
9.3
9.0
8.0
7.5
7.0
5.9
6.0
5.9
5.9
5.5
5.4
5.3
5.0
4.0
4.0
3.0
2.0
1.0
Source: Afrinvest Research, based on most recent public data
Page 13
Mutual Benefits
GTA
Goldlink
Niger
Zenith
Aiico
GNI
IGI
Wapic
Leadw ay
-
Top 10 Insurers: Gross Premium Income
Amounts in Billions of Naira
IGI, Leadway
and WAPIC
are also
leaders by
GPI.
7.0
6.1
5.7
6.0
5.0
4.0
3.2
3.1
3.0
3.0
2.7
2.6
2.4
1.9
2.0
1.7
1.0
Source: Afrinvest Research, based on most recent public data
Page 14
St aco
Mut ual
Benef it s
Royal
Exchange
Goldlink
Cornerst one
Aiico
Niger
Wapic
Leadw ay
IGI
-
Top 10 Insurers: Market Capitalization
Amounts in Billions of Naira
60.0
53.5
50.0
46.4
37.0
34.9
34.3
33.4
30.5
30.0
27.9
26.2
25.3
Prest ige
40.0
Aiico
Among listed
underwriters,
WAPIC is the
most
capitalized
followed by
Goldlink and
Niger.
20.0
10.0
Source: Afrinvest Research, based 10th March Share Prices
Page 15
St aco
Cornerst one
Equit y
Assurance
IEI
Lasaco
Niger
Goldlink
Wapic
-
Top 10 Insurers: 2009 P/E Ratio
P/E Multiples Valuation
140.0
124.0
120.0
100.0
90.4
80.0
39.9
40.0
35.1
31.6
31.4
27.9
27.8
Presit ge
49.9
NEM
50.5
IEI
60.0
Wapic
Oasis, Equity
and Linkage
are the highest
priced stocks
in the industry
in terms of
price to
earnings ratio.
20.0
Royal
Exchange
Goldlink
Niger
Linkage
Equit y
Assurance
Oasis
Insurance
-
Source: Afrinvest Research, based 10th March Share Prices
Page 16
Sector Trading at Steep Multiples
The Nigerian
stock market
currently
trades at a P/E
ratio of 20.5x
2008E
earnings.
Insurance

General insurance companies trade at generous P/E
multiple of 48.8x 2008E earnings

Composite underwriters are somewhat lower at
39.0x 2008E earnings
Banking
Page 17

Large cap Nigerian banks trade at multiple of 21.7x
2008E earnings, while

Mid-cap banks are at 20.9x 2008E earnings
Conclusions
Insurance is
not the new
banking…
…we
recommend
caution in
selecting
insurance
opportunities.
Page 18

Sector trading at a significant premium to the overall
market

Aggressive players have used the capital markets
window to raise large amounts of capital to invest in
growth

The expectation is that large and sustained spending on
marketing & PR (like in the banking sector) will generate
greater market share

We prefer measured operators with a clear market focus
and deeper understanding of the long term nature of the
insurance industry opportunity

We believe that careful investments in people, systems,
processes and delivery channels will be most valueadding
Thank You
For more
information on
this and other
reports, as well
as our other
products and
services,
please contact
us:
CONTACT INFORMATION
Afrinvest (West Africa) Limited
12th Floor, Foreshore Towers
2A Osborne Road
Ikoyi, Lagos
Nigeria.
[email protected]
www.afrinvestwa.com
Investment Research
Page 19
Fola Fagbule
[email protected]
Securities Trading
Jude Chiemeka
[email protected]
Investment Banking
Olusegun Oso
[email protected]
Asset Management
Winston Osuchukwu
[email protected]