Executive Summary - Private Placement



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Executive Summary - Private Placement Kuwait Reinsurance Company KSCC ( Kuwait Re ) Number of shares for sale: 15,000,000 shares (Fifteen Million Shares) Company name: Share Par Value: Share Sale Value: Kuwait Reinsurance Company KSCC KD 0.100 per share (One hundred Kuwaiti fils per share) KD 0.315 per share (includes 5% non-refundable marketing and allotment fees) Minimum Subscription: Maximum Subscription: Seller: Listing: 20,000 shares (Twenty Thousand Shares) 500,000 shares (Five Hundred Thousand Shares) Principal shareholders selling 15 % stake in the Company Kuwait Reinsurance Company KSCC has obtained clearance on listing the Company on the Kuwait Stock Exchange but only after increasing the number of shareholders of the company Lead Manager: Global Investment House KSCC Global or Lead Manager P.O. Box: 28807 Safat 13149 Telephone: (965) 2400551 Fax: (965) 2400661 Email: global@global.com.kw Website: www.globalinv.net Kuwait Insurance Market The insurance market in Kuwait has grown tremendously in the last few years. In terms of direct premiums (premium collected within Kuwait directly by the companies), the market size for insurance was KD94.6mn as of December 2002, non-life insurance being KD72mn and life insurance being KD22.6mn. The total insurance market grew at a compounded annual growth rate of 12% in the last five years (ending 2002). Along with the improvement in economic activity and the new health care policy, the increase in the insurance premium income could also be attributed to the new Takaful (Islamic insurance) companies which seems to have helped in the expansion of the market further. Last year backed by the above factors, the total insurance premiums written increased by 19%, with the life insurance premium income increasing by almost 23%. Translation- Draft Copy 1

Economic reforms, strong economic environment, and the growing population of Kuwait have turned the country into an insurance market with tremendous potential. The national insurance companies in Kuwait have benefited from the relaxed market environment of having almost a monopoly over the government insurance contracts and low levels of risks as well as natural disasters. Increase in the economic activity, which led to the setting up of new projects along with the new compulsory medical insurance scheme for the expatriates has led the local insurance industry to grow by more than 58.5% in the last three years. The increase in medical insurance has increased the national insurance companies revenues significantly. New legislation in the field of health insurance is expected to add KD50mn in the insurance market, but the data till the end of December 2002 shows the national insurance companies having added only KD7mn to their premium income. Comparing the penetration of insurance in Kuwait with other similar markets in the region (population, GDP per capita, growth rate, etc.) would suggest that a simple US$20 rise in per capita premium income would raise the total premium income of the Kuwaiti insurance companies to approximately KD109mn and a US$50 rise in per capita premium income would result in a premium income of KD131 mn. The potential can be judged from the fact that even after a US$50 rise in per capita premium income, Kuwait s penetration rate would be less than that of Bahrain and much less than that of U.A.E. The life insurance sector in Kuwait, which also includes the health insurance segment, has been growing at more than 20% in the last 6 years. The entrance of the new Takaful companies have contributed to the growth of the insurance market in the last two years. But expansion in the local insurance industry is still small when compared to the penetration rates of countries with similar per capita income. The coverage (market penetration) of insurance industry in Kuwait is limited due to the underdevelopment of the life insurance segment, which holds huge potential but is limited both by the culture and huge social security system offered by the government for the Kuwaitis. However, the insurance sector in Kuwait has grown significantly in the last four years, especially the last two years. The compounded annual growth rate of the insurance premiums in the last four years has increased 17% to reach KD94.6 million at the end of 2002. The life insurance segment contribution to total insurance premiums has increased from 17% in 1999 to 24% in 2002. At the same time, the non-life insurance share decreased from 83% to 76% of the overall insurance premiums. It is projected that the local insurance market will grow to KD150 million as insurance becomes more widely accepted and the insurance companies start launching new and innovative insurance products. The increase in insurance activity directly affects the reinsurance volume. The insurance market in Kuwait consists of a total of 20 insurers of which 8 are national companies, 6 Arabian and 6 foreign companies. The national companies are shareholding companies and consist of 5 conventional and 3 Takaful companies. The foreign and Arabian insurers are allowed to operate as agencies and pay the sponsor, a local entity, a fixed percentage of the gross premium written. This implies that the sponsors are not involved in the profitability of the agencies as their commission is based on business done. The five national companies include Kuwait Insurance Company, Al Ahleia Insurance Company, Gulf Insurance Company, Warba Insurance Company and Kuwait-Bahrain Insurance Company. The three takaful companies are First Takaful Insurance Company and Takaful Insurance Company, and the Translation- Draft Copy 2

newly found National Company for Takaful Insurance. The foreign insurance companies operating in Kuwait through an agency agreement include: New India Insurance Company Oriental Insurance Company Sumitomo Insurance Company* Northern Insurance Company* Gaurdian Royal Exchange Insurance Company* American Life Insurance Company * These firms have recently closed their offices The six Arabian insurance companies operating in Kuwait includes Arabian Insurance Company, Al-Ittihad Al Watani Insurance Company, Lebanese Insurance Co., Lebanon Suisse Insurance Company, National Insurance Co. of Egypt and the new entrant Saudi Arabian Insurance Co. Market Drivers The important variables that would affect the future business growth in the life insurance sector are described below: Reforms in the government-offered welfare services the current reforms in the health insurance sector and the difficulty on the part of the government to continue catering to the needs of its local population is leading to reforms in various market segments and ultimately the balance would tilt in favor of the private sector to manage investment and retirement benefits for the population. Demographic pressure for savings an ageing population and the consequent shift from short/medium-term savings products to medium/long-term savings products should benefit life insurance companies. A good investment market- a buoyant investment market encourages savings and therefore spending on life insurance products. Equity-linked life insurance looks particularly attractive when equity markets are rising. Strong population growth strong population growth of over 3% per annum presents strong present and future demand for insurance products, including life, vehicle, and general accidents insurance. Translation- Draft Copy 3

Kuwait Reinsurance Company KSCC Kuwait Reinsurance Company KSCC is a Kuwaiti Shareholding Company (Closed) refered to hence after as the Company. Its main activities include providing reinsurance and investments products in Kuwait. The Company was founded in 1972 with a paid-up capital of KD1 million. In parallel to the growing activities and financial necessities of the company, the Company has been increasing its capital since its incorporation. At the end of September 2003, the paid-up capital of the Company stands at KD9,955,575 while the shareholders equity stands at KD26,995,719. The capital of the Company has increased from KD5,973,337 to KD9,955,575 in December of 2000 due to the entrance of Transatlantic Reinsurance Company (US-based Company) as a 40% shareholder and strategic partner in the Company. The Transatlantic Reinsurance Company has a strong capital base and a long successful track record in the global reinsurance market. An investment in Kuwait Reinsurance Company has broadened the activities and diversified the revenues of Transatlantic Reinsurance Company. Shareholding Structure Currently the capital of the Company is KD9,955,575 spread over 99,555,750 shares among 12 shareholders, including some of the leading banks, insurance and investment companies in Kuwait. The shareholder structure stands as follows: 1 Shareholder Transatlantic Insurance Company New York Ownership (%) Shareholder Ownership (%) 40% 7 National Bank of Kuwait 5% 2 Kuwait Investment Company 10% 8 Commercial Bank of Kuwait 5% 3 Kuwait Insurance Company 5% 9 Al-Ahli Bank of Kuwait 5% 4 Gulf Insurance Company 5% 10 Bank of Kuwait and Middle East 5% 5 6 Al-Ahleia Insurance Company Warba Insurance Company 5% 11 Gulf Bank 5% 5% 12 Burgan Bank 5% Translation- Draft Copy 4

Kuwait Reinsurance Company KSCC has obtained clearance for listing the Company on the Kuwait Stock Exchange but only after increasing the shareholders of the company through the current private placement. Board of Directors The current board of directors encompassed ten directors under the chairmanship of Mr. Fahad Rashed Al-Ibrahim. The members include: Name Position Representing 1 Mr. Fahad Rashed Al-Ibrahim Chairman Kuwait Investment Co. 2 Mr. Issam Abulaziz Al-Usaimi Deputy Bank of Kuwait and the Middle Chairman East 3 Mr. Issa Ahmed Al-Khalaf Member Al-Ahleia Insurance Co. 4 Mr. Tewfik Al-Gharabally Member Warba insurance Co. 5 Mr. Faisal Saud Al-Fouzan Member Kuwait Insurance Co. 6 Mr. Khaled Saud Abdulaziz Al-Hassan Member Gulf Insurance Co. 7 Mr. Waleed Khaled Al-Yacout Member National Bank of Kuwait 8 Mr. Hussain Ahmed Qabazard Member Gulf Bank 9 Mr. Richard Loffler Member Transatlantic Reinsurance Co. 10 Mr. Alain Manfre Member Transatlantic Reinsurance Co. Executive Management The Executive Management team of Kuwait Re is highly qualified with a long established successful track record in the insurance and reinsurance business. They have contributed tremendously to the enhancement and development of Kuwait Re s operations in the last few years: Name Position Experience 1 Mr. Abdul Amir Al-Muhana General Manager 25 years in insurance Holder of ACCI 2 Mr. Veerappa Sundaram Deputy General 34 years in insurance Manager 3 Mr. Saad Ibrahim Makki Ibrahim Assist. Manager of Insurance (Exc. Marine) Holder of AIII and FCA 23 years in insurance 4 Mr. Kirshna Amritrao Patil Marine Manager 28 year in insurance 5 Mr. Ramaswamy Krishnan Chittoor Manager Finance and Administration 22 years in in accounting/auditing Holder of Mcom and FIII Translation- Draft Copy 5

The Company s Objectives The Company is founded to undergo the following activities: Undergoing reinsurance business as agent or principal in and out of Kuwait Founding or participating in insurance or reinsurance companies or any other companies in and outside of Kuwait Owning and administering the capital and real estate investments according to regulations Investing in securities including equity and bonds, in addition to issuing bonds and borrowing from government or quasi-government associations and local and foreign institutions Having interest or linking up with other institutions who are practicing businesses similar to its own, or who would assist it in achieving its purposes inside Kuwait or abroad. Also, it may establish or acquire these institutions or affiliate them to it Business Activities Insurance The main activity of the Company involves all types of reinsurance. In addition, the Company has an important competitive advantage as it owns the only reinsurance license in Kuwait and reinsurance is a basic element of the insurance industry in Kuwait. KD 1998 1999 2000 2001 2002 Gross Premiums Underwritten 3,105,470 3,191,133 3,146,724 2,959,145 3,488,652 Retained Earnings 1,395,700 1,575,604 1,652,578 1,814,998 3,113,799 Technical Reserves 6,222,955 6,702,498 8,025,641 8,479,536 9,616,442 The Company s income from premiums has increased by 18% as the previous table has shown. In 1998, the gross premiums written locally represented 60% of the overall premiums written. In the last four years, the Company has increased its foreign activities, especially in the Arabic Markets, increasing its premiums written from foreign sources to 75% of total premiums written. This has allowed the company to diversify its risk and reduce its exposure to the local market. Translation- Draft Copy 6

KD Premiums and Costs FY2002 Fire General Accidents Marine & Aviation Total Gross Premiums Written 2,137,006 503,455 848,191 3,488,652 Premiums Earned 975,964 250,849 542,522 1,769,335 Reinsurance Costs 1,476,158 333,048 308,090 2,117,296 Investment Another basic element of an insurance company is its investment activities and capabilities. The insurance companies invest their surpluses in different financial and investment products that produce high yields at low and managed risk. To achieve the Company s investment goals of diversifying its investments in local and global products, Kuwait Re s current investments include: 1. Time and call deposits representing the largest part of the Company s investments due to its high liquidity and low risk nature 2. Investment in local and external funds 3. Investments in local and external securities 4. Minority stake (10% of the capital ) in Bahrain Kuwait Insurance Company (BKIC). Represented on the board of BKIC. Key Financial Indicators At the end of September 2003, the Company s book value per share is 271 Fils The Price to Book Value equals 1.1 or a 10% premium over the book value For the nine months to September 2003, the net income of the company was KD 1,865,499 The Company projects net income of around KD2,487,332 for the end of 2003 or 25 Fils per share The Price to Earning (P/E) ratio is 12 times The Return on Equity has increased from 4.3% in 2002 to 6.9% at the end of September 2003. Meanwhile, the Return on Average Assets increased from 3.0% in 2002 to 3.6% in September of 2003 The net income of the company has a compounded annual growth rate of 23.8% Increasing growth in the last four years Translation- Draft Copy 7

30 Sept. 2000 2001 2002 2003 Audited Audited Audited Unaudited Book Value Per Share (Fils) 220 237 244 271 Earnings Per Share (Fils) 7.99 6.78 10.43 18.7* Return on Equity 3.60% 2.90% 4.30% 6.90% Return on Assets 2.90% 2.00% 3.00% 4.40% Debt to Equity 47.60% 44.10% 46.60% 55.90% *Note: Calculation used profit before KFAS and Directors Fees deduction Key Investment Factors The population growth and demographics in Kuwait are two promising drivers of future growth for the Kuwaiti insurance market. The young population of Kuwait (52% of population) provide future demand for insurance products The national insurance companies are benefiting from their control over all government contracts In general, Kuwait has low risk levels and few natural disasters The enforcement of medical insurance on the expatriate population will increase insurance premiums The insurance market has grown over 58.5% over the last three years The increase in the size and activity of the insurance market due to the emergence of the new Takaful insurance companies The penetration levels of insurance in Kuwait, compared to other similar markets in the region (population, GDP per capita, growth rate, etc.), is very low thus indicating a strong potential for growth and new insurance products in Kuwait Kuwait Reinsurance Company has a strong and consistent profitability The Company s adheres to a strictly conservative investment policy investing almost KD22 million (Overall assets are worth KD42 million) in time and call deposits, representing 52% of total assets The Company has got the clearance to list on the Kuwaiti Stock Exchange upon increasing the number of shareholders through a private placement of shares Translation- Draft Copy 8

Financial Performance KD Kuwait Reinsurance Company KSCC Profit & Loss Statement 30 Sept. 2000 2001 2002 2003 Audited Audited Audited Not Audited Premiums Earned 1,443,322 1,340,889 1,769,335 2,677,569 Reinsurance Costs and Incurred Claims 1,611,431 1,752,092 2,117,296 2,992,551 Technical Result -168,109-411,203-347,961-314,982 Investment Income 1,710,193 1,794,768 2,028,297 2,503,877 Exchange Gain - 6,390-12,052 Provision for Doubtful Debts No Longer Required - - 61,325 - Gross Profit 1,542,084 1,389,955 1,741,661 2,200,947 General and Administrative Expenses 588,967 646,458 588,607 327,035 Depreciation 36,122 12,368 10,008 8,413 Provision for Doubtful Debts 11,956 2,812 - - Exchange Loss 59,575-54,714 - Operating Income 845,464 728,317 1,088,332 1,865,499 KFAS Fees -15,218-13,110-9,795 - Directors' Fees -34,000-40,000-40,000 - Net Profit for the Year 796,246 675,207 1,038,537 1,865,499 Translation- Draft Copy 9

KD Kuwait Reinsurance Company KSCC Balance Sheet 30-Sept. 2000 2001 2002 2003 Audited Audited Audited Audited Cash On Hand and at Banks 166,809 99,515 73,488 108,564 Time and Call Deposits 23,319,139 21,758,175 20,685,601 21,864,064 Investments 6,610,905 9,835,255 12,563,260 14,649,354 Reinsurance Receivables 1,592,172 1,874,190 2,137,755 2,541,964 Other Receivables 287,779 336,214 165,647 359,889 Fixed Assets 22,880 12,766 28,624 32,326 Unused Lands - - - 2,540,924 Total Assets 31,999,684 33,916,115 35,654,375 42,097,085 Technical Reserves 8,025,641 8,479,536 9,616,442 11,132,765 Reinsurance Payables 1,676,911 1,422,355 1,217,933 1,059,158 Due to Banks - - - 2,500,000 Proposed Directors' Fees 34,000 40,000 40,000 - Other Payables 398,404 432,733 458,641 409,443 Total Liabilities 10,134,956 10,374,624 11,333,016 15,101,366 Share Capital 9,955,575 9,955,575 9,955,575 9,955,575 Share Premium 5,296,366 5,296,366 5,296,366 5,296,366 Statutory Reserve 1,036,161 1,108,993 1,217,826 1,217,826 Voluntary Reserve 1,036,161 1,108,993 1,217,826 1,217,826 General Reserve 3,760,000 3,760,000 3,760,000 3,760,000 Cumulative Change in Fair Value - 55,792 289,638 1,777,818 Retained Earnings 780,465 2,255,772 2,584,128 3,770,308 Total Shareholders' Equity 21,864,728 23,541,491 24,321,359 26,995,719 Total Liabilities and Shareholders' Equity 31,999,684 33,916,115 33,654,375 42,097,085 Translation- Draft Copy 10