Nigerian Insurance Market Capital Market Perspectives

1. INSURANCE FUTURE SUMMIT IN NIGERIA: EMERGING OPPORTUNITIES Nigerian Insurance Market Capital Market Perspectives Prepared By 7 April 2008

2. Introduction • 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

3. Economy Has Shown Stable GDP Growth In recent years, Nigeria has witnessed stable GDP growth averaging 6% per annum,… (%)

4. Amid Declining Inflation …with inflation declining to single digit levels.

5. GDP Has Benefited from Rising Oil Prices High oil prices and economic reform are aiding strong economic growth…

6. Growth/Reform has Fueled Liquidity …and fuelling a domestic liquidity glut, translating to strong demand for equities. * As at March 2008

7. Nigeria Insurance Market versus Africa While Nigeria is one of the faster growing insurance markets in Africa…

8. Insurance Growth versus Banks …the insurance sector is still the slowest of the Nigerian financial services sector.

9. Insurance Industry Structure • 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 Competitive and fragmented industry despite recent capitalization and induced consolidation.

10. Key Drivers of Market Opportunity • Banking Sector Consolidation • Bigger Nigerian banks with greater risk appetite are lending more to middle class which will drive insurance cover for these loans. • Pension Industry Reforms • Compulsory group life insurance, and the market for annuities by pension account holders upon retirement will drive growth in life insurance • Capital Markets Growth • 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 • Mandatory local content guidelines in the oil and gas sector will eventually open up huge market for local underwriters But, we see a genuine long term market opportunity for insurance business in Nigeria.

11. Insurance Sector Index versus NSE Index The market appears to have priced in this long term opportunity.

12. General Index versus Composite Index The current pricing favors General Insurers over the Composite Insurance segment.

13. Top 10 Insurers: Shareholders Funds Amounts in Billions of Naira Leadway, WAPIC and IGI are the leading players by shareholders funds. Source: Afrinvest Research, based on most recent public data

14. Top 10 Insurers: Gross Premium Income Amounts in Billions of Naira IGI, Leadway and WAPIC are also leaders by GPI. Source: Afrinvest Research, based on most recent public data

15. Top 10 Insurers: Market Capitalization Amounts in Billions of Naira Among listed underwriters, WAPIC is the most capitalized followed by Goldlink and Niger. Source: Afrinvest Research, based 10th March Share Prices

16. Top 10 Insurers: 2009 P/E Ratio P/E Multiples Valuation Oasis, Equity and Linkage are the highest priced stocks in the industry in terms of price to earnings ratio. Source: Afrinvest Research, based 10th March Share Prices

17. Sector Trading at Steep Multiples 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 • Large cap Nigerian banks trade at multiple of 21.7x 2008E earnings, while • Mid-cap banks are at 20.9x 2008E earnings The Nigerian stock market currently trades at a P/E ratio of 20.5x 2008E earnings.

18. Conclusions • 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 value-adding Insurance is not the new banking… …we recommend caution in selecting insurance opportunities.

19. Thank You CONTACT INFORMATION Afrinvest (West Africa) Limited 12th Floor, Foreshore Towers 2A Osborne Road Ikoyi, Lagos Nigeria. info@afrinvestwa.com www.afrinvestwa.com Investment Research Fola Fagbule ffagbule@afrinvestwa.com Securities Trading Jude Chiemeka jchiemeka@afrinvestwa.com Investment Banking Olusegun Oso ooso@afrinvestwa.com Asset Management Winston Osuchukwu wosuchukwu@afrinvestwa.com For more information on this and other reports, as well as our other products and services, please contact us: