* Global values QIC stock at QR76.8 and initiates coverage with a 'BUY'.

Global Investment House -- Kuwait - Qatar Insurance Company (QIC) is a pan GCC Property & Causality insurer with operating history of more than 45 years and underwriting footprints across the Middle East, Africa and Asia. It's the highest rated insurer within the GCC with a rating of "A/Stable" from Standard & Poor's. QIC is headquartered in Qatar with branches in Dubai, Abu Dhabi, Saudi Arabia, Oman and Kuwait. It's a dominant insurer in Qatar with a market share exceeding 50%.

QIC also offers financial risks insurance to the corporate clients, it covers the loss of money due to infidelity risk, loss of cash in transit and cash in premises. It also offers Marine insurance, under which it offers Cargo insurance for shipment by Sea, Air and Land and Marine Hull Insurance.

QIC's property insurance products are designed to provide the widest possible protection to all the fixed assets like buildings & contents, machinery and stock against unfortunate events like fire or natural perils. The company offers personal line of insurance covering home protection, personal protection division and motor insurance.

Financial Performance

QIC has reported two year CAGR (2006-08) of 29%, 46%, 38% and 17% for Gross Premiums Written, Net Premiums, Net Underwriting Profit and Net Profit. The growth in gross premiums will be driven by non-life growth arising from Fire & General segments. The growth in net premiums is driven by increasing retention ratio from 38.3% in 2006 to 49.4% in 2008, this was mainly due to change in premiums mix from Energy to Fire and General Accident policies facilitating the company to report higher retention ratio and higher growth in net premiums.

QIC has reported 30% growth in G&A expenses in FY08 as compared to FY07. The higher growth in expenses was due to addition of employees in FY08, the total employee strength was 330 during at end of FY08. The employee expenses have increased by 49% and contribute to 48% of the total G&A expenses. Other operating expenses have not increased with the same pace of rise in Gross Premiums.

The gross claims have reported a CAGR (2006-2008) of 41%. The gross claims have almost doubled in absolute terms during the last two years from QR337.0mn in 2006 to QR672.1mn in 2008. The gross claims have doubled but the gross premiums has also reported two year CAGR (206-2008) of 29% and the ratio of gross claims to gross premiums is ranging between 28-34% during 2006-08. The company is adequately cushioned to absorb any hit in any additional claims as it stands at 26% of total networth.

The growth in Net Income is driven by higher investment income reported by QIC during 2006-08, despite the tough business environment and a fall in equity markets the company has reported investment income of QR371.7mn in 2008 as compared to QR377.3mn in 2007. The company has reported profit on sale of investment of QR364.7mn in 2008 as compared to QR149.1mn in the same period last year, the company also reported unrealised the losses on the portfolio during 2008 of QR45.7mn.

Analysis of 9M09 Results

QIC reported 9%, 17% and 28% YoY growth in Gross premiums, net premiums and net underwriting profit during 9M09 as compared to 9M08. The company delivers a strong topline and operating performance as compared to the other players in the industry. QIC's net profit has declined by 12% in 9M09 as compared to 9M08 this was due to 37% decline in investment income due to fall in equity markets, as most of the investments are in the local markets and Qatari markets have posted a lackluster performance as compared to other markets outperforming on yield to date basis.

Table 01: Third Quarter Results..

Amounts (QRmn)

Q309

Q209

Q308

YoY

QoQ

Gross Premiums

525.0

618.9

477.7

10%

-15%

Net Underwriting Income 

89.8

94.3

77.9

15%

-5%

PAT

117.6

129.1

114.6

3%

-9%

Source: Company Reports

The company has delivered a strong YoY performance, but on QoQ basis there is decline in core operating performance. The gross premiums have declined by 15% on QoQ mainly due to slow down in economy's growth. The net income has declined on QoQ basis due to 5% decline in investment income in Q309 as compared to Q209.

The investment income has dropped sharply in 9M09 as compared to 9M08, this can be seen from the chart above, but QIC continues to impress on the operational parameters. The underwriting profit has reported growth highlighting a strong positioning of the company in the market. QIC dominates the non-life risk market in Qatar with highest market share of more than 50%.

The gross claims have gone up by 65% in 9M09 as compared to 9M08 raising a concern over the risk management, but considering the cash position of QR2.5bn on the books in the third quarter will cushion it from any volatile movement in claims. We remain positive going ahead with the company's core operating performance, since a rebound in economic growth with global recovery in markets will place QIC as a GCC leader in underwriting non-life risk.

Price as on 25th October'09 (QR)

Shares in Issue (QRmn)

Market Capitalisation (QRmn)

52 Week Hi-Low (QR)

65.1

74.3

4838.5

87.2-33.3

Table 02: Investment Indicators

Year

Net Profit (QRmn)

EPS (QR)

BVPS (QR)

P/E (x)

P/BV (x)

2007 (A)

482.8

11.4

80.0

8.5

1.2

02008 (A)

530.1

12.5

60.4

4.1

0.9

2009 (F)

549.0

7.4

36.3

8.8

1.8

2010 (F)

649.1

8.7

38.4

7.5

1.7

Source: Company Reports, Global Research

Note: Historical P/E and P/BV multiples pertain to respective year-end prices, while those for future years are based on closing price as at October 25, 2009.

At the CMP of QR65.1 the stock trades at 8.8x and 1.8x FY09E P/E and P/BV and 7.5x and 1.7x FY10E P/E and P/BV. Using the Embedded Value Method and Price to book method we arrive at a price target of QR76.8 indicating a premium of 17.9% to the current market price. We recommend a "BUY" on the stock. 2009 Al Bawaba (www.albawaba.com)

2009 Al Bawaba (Albawaba.com)

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