A Complete Report on business performance of the company with detailed analysis of the business units and forecasts for the next 5 years.

1.
IGI Insurance Li
imited (IGI
S
IIL):
Sailing throu
ugh unchart
ted waters
AHC
CML

2.
AHCML
IGIIL: BUY with Price Objective of PKR 220
We are initiating coverage on IGI Insurance Limited (IGIIL‐KSE) with a price objective (PO)
of PKR220.00 (SOP based), thereby assigning a ‘BUY’ rating.
Analysis
IGI Insurance will continue to witness steady growth in its underwriting income with major
contribution from Health segment despite disappointing results in FY12, due to 1st year of
operations. We believe the Health Insurance business will continue to grow at a rapid pace in the
initial years thereafter normalizing in FY15 and beyond.
Fire and Property Damage (FPD) segment remains the major business segment for the company,
however more than 85% of the FPD business is being passed on to the reinsurers in this segment.
Motor insurance remains the second biggest segment where the net retention is approximately
90% in this segment.
Furthermore, IGI Insurance reported net loss in the FY2012, which was represented as ‘Loss from
Discontinued Operations’. This was attributed to discontinuation of Paper & Paperboard and
Corrugated businesses of Packages Limited (an associate) as a requirement to be fulfilled for the
completion of an agreement with ‘Stora Enso Finland’. The loss is expected to disappear in the
future years.
We believe that current shares price does not reflect the fundamental stories, particularly on the
expansion of company into new segments i.e. Health & Life segments. Life insurance business will
be managed under a separate company after acquisition of 81.97% stake of ALICO. Furthermore,
the stock price remained depressed during the year as the ‘loss from associates’ dented the
company’s net income and consequently the dividend payment ability.
Therefore, we foresee growing net income with sound dividend payout in the future years for the
company. IGIIL offers Potential upside of 60% at current price; which requires us to assign a ‘BUY’
rating for the stock.
IGIIL: Company Profile
IGI Insurance Limited ("the Company"), a Packages Group Company, was incorporated as a public
limited company in 1953 under Companies Ordinance, 1984 and is quoted on the Karachi and
Lahore Stock Exchanges and is engaged in providing non‐life insurance services in spheres of Fire,
Marine, Motor, Health and Miscellaneous.
During the current period, the Company announced on January 22, 2013 that following the
completion of the due diligence in respect of ALICO Pakistan, the Company and ALICO have entered
into a share purchase agreement dated January 21, 2013 (the “SPA”) in respect of the sale by ALICO
of their entire shareholding in ALICO Pakistan (40,986,690 ordinary shares of Rs. 10 each,
representing approximately 81.97% of the total issued, subscribed and paid up capital of ALICO
Pakistan) to the Company at Rs. 20 per share.
Brief Snapshot
KATS Code IGIIL
Bloomberg Code IGIIL:PA
Reuters Code IGI.KA
Sector
Non Life
Insurance
Fair Value 220.00
Potential Upside 60%
Analyst’s Comment BUY
Paid‐up Capital (PKR mn) 1,115.36
O/S shares (mn) 111.54
Free Float % 34%
Mkt. Cap. (PKR bn) 15.28
Mkt. Cap. (US$ bn) 0.15
Volume, Shares (Jul 26'13) 30,700
Contact:
Muhammad Ali Khan
Senior Research Analyst
ali.khan@ahcml.com

3.
AHCML
Valuation
We have arrived at a SOP based value of PKR220; which includes DCF based fair value of its core
operations (insurance business) of PKR29.00 and a portfolio value of PKR191. Furthermore, we
have applied a 40% discount on the market price of quoted equity investments (both AFS and
associates) and investments in Government securities and in unquoted companies (associates)
have been taken at carrying value in the balance sheet thereby arriving at the appropriate value of
company’s invested portfolio. ‘Invested Property’ has been taken at the market value, provided in
the financial statements, as evaluated from external evaluators as on Dec 31, 2010.
Assumptions
We have used WACC (16.01%) for discounting the cash flows of the company. We have assumed
that 50% of the Gross Written to be recorded as Premiums Earned in the current year and the
remainder in following year. Loss & Loss Adjustment Expense (LAE) Ratio is assumed at 50% while
the Loss Paid in Cash assumed at 95% of the Loss Expense. Reinsurance share have been assumed
at 45% of the Gross Written Premium.
IGI Insurance Company ‐ Discounted Cash Flow Statement
2013 2014 2015 2016 2017
Underwriting Income: 239,630 263,946 290,974 320,770 353,617
Tax on Underwriting Income (83,870) (92,381) (101,841) (112,269) (123,766)
Cash Flow from Operations:
(Incr.) / Decr. In Ceded UEPrem. (41,554) (46,807) (51,600) (56,884) (62,708)
(Incr.) / Decr. In Reins. Recover. (8,532) (9,406) (10,369) (11,431) (12,602)
Incr. / (Decr.) in G. UEPR 92,343 104,015 114,666 126,408 139,352
Incr. / (Decr.) in G. Loss & LAE Reserve 53,328 58,789 64,809 71,445 78,761
Incr. / (Decr.) in Comm. Inc. unearned 4,564 4,884 5,226 5,592 5,983
Total CF from Und. Writing Activ. 255,908 283,040 311,865 343,630 378,637
Cash Flow from oth. Operating Activ. 5,948 81,170 90,563 100,992 112,568
Depreciation and Amortization 40,933 45,124 49,745 54,839 60,454
Total Cash Flow from Operations: 302,788 409,334 452,172 499,461 551,659
Cash Flow from Investing:
Capex: (40,933) (45,124) (49,745) (54,839) (60,454)
Total Cash Flow from Investing: (40,933) (45,124) (49,745) (54,839) (60,454)
Total Free Cash Flow: 261,856 364,210 402,427 444,622 491,205
WACC: 16.02% 16.02% 16.02% 16.02% 16.02%
Date of Valuation: July 29, 2013
PV of after tax Cash Flows 245,884 294,773 280,733 267,604 254,465
Terminal Value 1,851,366
ENTERPRISE VALUE 3,194,825
Deduct: Net Debt (2,364)
INTRINSIC VALUE 3,197,189
Per Share Value 28.67
Portfolio Value 191.38
Sum of the Parts Value 220.05
“A DCF based fair value of its core
operations (insurance business) of
PKR29.00 and a portfolio value of
PKR191”
“Applying a 40% discount on the
market price of quoted equity
investments in the portfolio”
“Invested Property’ has been
taken at the market value valued
as at Dec 31, 2010”
“Loss & Loss Adjustment Expense
(LAE) Ratio is assumed at 50%
while the Loss Paid in Cash
assumed at 95% of the Loss
Expense”

4.
AHCML
Industry overview: Non‐life Insurance
Non‐life Insurance industry is comprised of 36 insurance companies (22 listed and 14 non‐listed)
and 3 General Takaful operators (non‐listed). Gross Written Premium (GWP) stands at PKR 56.8bn
during the FY12 for both Insurance and Takaful companies (Insurance 55.33bn, Takaful 1.48bn).
Insurance Sector
Gross Premium
(PKR: mn)
Insurance
Penetration
Insurance
Density
PKR
Insurance
Density
US$
Life Insurance Sector
(excluding family Takaful)
89,872 0.44% 502.33 5.02
Non‐Life Insurance Sector
(excluding general Takaful)
55,333 0.27% 309.28 3.09
Family Takaful Sector 3,848 0.02% 21.51 0.22
General Takaful Sector 1,482 0.01% 8.28 0.08
Life Insurance Sector
(including family Takaful)
93,720 0.46% 523.84 5.24
Non‐Life Insurance Sector
(including general Takaful)
56,815 0.28% 317.56 3.18
Total 150,535 0.74% 841.40 8.41
*GDP 2011‐12 (MP) Current Prices: PKR 20,441,580 million
*Population 2012: 178.91million
Non‐life Insurance industry (including Takaful) grew at a pace of 18% (CAGR) in the last decade
(2003‐2012). Despite that a declining growth rate trend of GWP is a bone of contention for the
whole industry as the rate dropped from 42% in 2005 to 5% in 2013.
“Gross Written Premium (GWP)
for the industry stood at PKR
56.8bn during the FY12”
“Insurance penetration remains
low at 0.74% and insurance
density at PKR 841.40”
“Average growth rate for the
industry remains at 8% during the
last 5 years”

5.
AHCML
Non‐Life Insurance Business Class‐wise
Market Share: Largely skewed
Non‐life insurance industry depicts an oligopolistic market structure with larger part of the market
being captured by a few major insurance companies; about 63% of the market share is captured by
top 4 companies. Adding further, about 80% of the market share is distributed among top 10
companies while the remaining 20% is shared among 29 companies. IGIIL ranked 5th in the FY12,
capturing only 3% of the market share in non‐life insurance followed by Atlas Insurance Limited
and United Insurance Limited both capturing approximately 3% market share. It is alarming to
observe that the bottom 10 companies, out of 39 companies, are hardly able to make up to 1% of
market share in the industry.
“‘Fire and Property’ is the largest
class of business capturing 34% of
the insurance business followed
by Motor segment, comprising of
26% market share in 2011”
“63% of the market share was
captured by top 4 companies in
2012”
“Bottom 25% of the companies is
hardly able to capture only 1% of
the market share”

6.
AHCML
Similarly, bottom 20 companies’ collective market share reaches up to mere 9% of the total
insurance business. The oligopolistic market structure ensures the survival of the fittest; hence we
may see the bottom of the list companies either winding up their businesses or focusing on
product innovation in order to ensure their survival in the longer run.
Segment Analysis: IGI Insurance
IGIIL witnessed 16% growth (CAGR) in its Gross Written Premium (GWP) during the previous 5 year
period; however, Underwriting Income (UI) grew by meager 5% in the same period. Scanty growth
in underwriting income resulted from increased Loss &LAE (claims) ratio which increased from 45%
to 62% during the last 5 years. However, the Expense ratio remained fairly stable during the same
period around 26%. Net commissions remained positive, commission inward outpaced commission
outwards, showing a healthy increase of 30% over the 5 year period. Furthermore, the company
obtained approximately 40% of the business from the associated and related parties which
indicate its dependence on associates thus posing a concentration risk to the organization.
Share of each segment in total business remained fairly unchanged over the past 5 years; Fire and
Property Damage (FPD), Motor segment and Marine, Aviation & Transport represented the major
segments. Health segment introduced in FY12 also represents major share in the total business.
“IGIIL ranked 5th
in the 39
companies insurance sector by
capturing only 3% market share”
“Gross Written Premium is
growing at a decent rate as the
company enters new segments
(health in 2012)”
“Share of each segment in GWP
has slightly changed over the last
5 years”

7.
AHCML
Health Insurance
Health insurance business represents a ‘question‐mark’ on BCG‐matrix of the company, although
FY12 was the first year of health insurance business. The segment depicted an underwriting loss of
PKR 47mn due to higher loss ratio (net claims to earned premium) i.e. 107% for the FY12.
Additionally, the company has to bear the brunt of the loss as it didn’t cede the health business to
reinsurer or any other insurance company (co‐insurer); in contrast to company’s ceding policy, i.e.
50% approx. of total business is ceded to reinsurers. Therefore, we expect the company to follow
the ceding trend in the health business as well in the coming years. We also expect significant
potential for growth of the company in this segment in the future years.
Fire and Property Damage (FPD)
FPD is the biggest class of business in the insurance industry same is the case with IGIIL which
underwrites 34% (for 2012) of its total business in this segment. However the company’s net
retention in this segment is merely 10% which translates into 90% of business being ceded to
reinsurers. The company manages to bring down its claims ratio (net claims to premium earned) to
as low as 1%. The lower loss ratio coupled with handsome commissions from reinsurer both results
in higher profitability in this segment although much lower than Marine, Aviation & Transport
(MAT). The underwriting income to gross written premium for FPD stands at 11% in FY12 while for
MAT it stands at 37% for the same year.
“Health Segment: Net Claims
ratio stood at 107% during the
FY12; presumably due to
inception phase of the segment”
“FPD: The Company cedes 90% of
its business to reinsurers “
“FPD: Net Claims Ratio stood at
1% only”

8.
AHCML
Marine, Aviation & Transport (MAT)
MAT is the 3rd largest class of business in the insurance industry while in case of IGIIL; the
company underwrites 16% (for 2012) of its total business in this segment. The company’s net
retention in this segment is about 46% which translates into 54% of business being ceded to
reinsurers. The company manages to bring down its claims ratio (net claims to premium earned) to
as low as 24%. The lower loss ratio coupled with handsome commissions from reinsurer both
results in highest profitability in this segment compared to all other business segment. The
underwriting income to gross written premium for MAT stands at 37% in FY12 which is double
then the second most profitable segment i.e. motor segment.
Motor
Motor insurance is the 2rd largest class of business in the insurance industry while in case of IGIIL;
the company underwrites 26% (for 2012) of its total business in this segment. The company’s net
retention in this segment is about 95% which translates into 5% of business being ceded to
reinsurers. The company’s claims ratio (net claims to premium earned) reaches up‐to 53% making
a segment having the 2nd highest net claims ratio. Company receives nominal commission from
reinsurers but still the profitability in this segment depicts a consoling picture as compared to a
few other business segments. The underwriting income to gross written premium for Motor
segment stands at 18% in FY12 which is second most profitable segment for the insurance
company.
“MAT: The Company passes on
54% of its business to reinsurers
“MAT: A highly profitable
segment due to prudent policy in
ceding and retention”
“Motor: The Company retains
95% of the business with itself”

9.
AHCML
Re‐insurance: A profitable advice?
The review of past ten years of company’s ceding practice indicate that it had paid PKR 100mn, on
average, in excess of what the company received in benefits from the re‐insurers. We have also
observed that the re‐insurers have offered above industry average commissions to IGIIL for passing
on clean business to them. Loss/claims ratio for ceded business remained significantly lower than
the un‐ceded business; resulting in a better profitability for reinsurers and healthier commissions
for IGIIL.
Portfolio Value: an objective assessment
Equity portfolio has been objectively value; considering the illiquidity of the shares held in the
quoted equity investment portfolio (both AFS and investments in associates). Therefore, we have
applied a 40% discount on the market price of quoted equity investments of both AFS and
associates, and investments in Government securities and in unquoted companies (associates)
have been taken at carrying value in the balance sheet thereby arriving at the appropriate value of
company’s invested portfolio. ‘Invested Property’ has been taken at the market value, provided in
the financial statements, as evaluated from external evaluators as on Dec 31, 2010. (Graphs)
“The Company has paid
approximately PKR 1Bn in excess
of benefits received from
reinsurers”
“Nestle & Packages remain the
major contributors in the portfolio
value”

10.
AHCML
Recommendation: BUY
IGIIL is trading at a discount of 50% to its fair value which requires us to assign a ‘BUY’ rating for
the stock.
Key Matrices and Ratios
2013 2014 2015 2016 2017
Gross Written Premiums % Growth 10.0% 10.2% 10.2% 10.2% 10.2%
Retention Ratio 55.0% 55.0% 55.0% 55.0% 55.0%
Weighted Investment Returns: 4.6% 4.8% 5.1% 5.3% 5.6%
Return on Equity 6.6% 6.7% 6.8% 6.9% 6.9%
Loss & LAE Ratio: 52.50% 52.50% 52.50% 52.50% 52.50%
Net Commission Ratio (9.5%) (9.5%) (9.5%) (9.5%) (9.5%)
Expense Ratio 29.3% 29.4% 29.4% 29.5% 29.5%
Combined Ratio: 81.8% 81.9% 81.9% 82.0% 82.0%
Underwriting Margin 18.2% 18.1% 18.1% 18.0% 18.0%
NWP/ Stat Cap & Surplus 0.1 x 0.1 x 0.1 x 0.1 x 0.1 x
Solvency Ratio 11.35 10.77 10.24 9.77 9.33

11.
AHCML
IGI Insurance Limited ‐ Income Statement
2012(A) 2013(F) 2014(F) 2015(F) 2016(F) 2017(F)
Net Earned Premiums (NEP): 939,849 1,108,114 1,221,363 1,346,430 1,484,305 1,636,298
Interest & Investment Income: 402,173 490,250 514,763 540,501 567,526 595,902
Total Revenue: 1,342,022 1,598,364 1,736,125 1,886,931 2,051,830 2,232,200
Losses & LAE Incurred: 583,482 639,936 705,465 777,705 857,342 945,133
Net Commission Expense: (146,993) (106,656) (117,578) (129,617) (142,890) (157,522)
Underwriting Expenses: 271,529 335,204 369,529 407,369 449,084 495,070
Selling & Admin Exp: 152,372 162,523 179,166 197,512 217,738 240,034
Total Expenses: 860,390 1,031,007 1,136,583 1,252,969 1,381,273 1,522,715
Underwriting Income: 231,831 239,630 263,946 290,974 320,770 353,617
Shares of profit of associates‐ net (865,781) 185,000 194,250 203,963 214,161 224,869
Rental Income 21,389 21,389 21,389 21,389 21,389 21,389
Financial Charges (59,068) (63,192) (69,662) (76,796) (84,660) (93,329)
Operating Income:
Profit on deposits
Other Income 7,632 7,632 7,632 7,632 7,632 7,632
Pre‐Tax Income: (414,196) 718,186 753,151 790,150 829,080 870,045
Income Taxes: (11,128) (17,955) (18,829) (19,754) (20,727) (21,751)
Net Income: (425,324) 700,231 734,323 770,396 808,353 848,294
Shares Outstanding: (mn) 111,536 111,536 111,536 111,536 111,536 111,536
Earnings Per Share (EPS): (3.81) 6.28 6.58 6.91 7.25 7.61

12.
AHCML
IGI Insurance Limited‐ Balance Sheet
Assets: 2012(A) 2013(F) 2014(F) 2015(F) 2016(F) 2017(F)
Cash & Cash‐Equivalents: 2,364 418,316 954,907 1,548,222 2,202,320 2,921,593
Investments: 10,672,089 10,672,089 10,672,089 10,672,089 10,672,089 10,672,089
Investment Property 84,936 84,936 84,936 84,936 84,936 84,936
Amounts due from other insurers/reins. (Ceeded Unearned) 440,294 471,115 504,093 539,379 577,136 617,535
Reinsurance Recoverables: 370,053 378,585 387,992 398,361 409,792 422,394
Taxation‐ Payments Less provision 78,605 82,535 82,535 82,535 82,535 82,535
Prepaid reinsurance premium ceded 279,906 321,460 368,267 419,867 476,750 539,459
other prepayments 14,116 14,187 14,187 14,187 14,187 14,187
Premiums due but unpaid 197,503 211,328 211,328 211,328 211,328 211,328
Accrued Investment Income 5,862 5,877 5,891 5,906 5,921 5,936
Sundry Receivables 50,596 50,722 50,849 50,976 51,104 51,232
Asset classified as held for sale 202,615 202,615 202,615 202,615 202,615 202,615
Deferred Taxation Asset (DTA) 10,742 10,742 10,742 10,742 10,742 10,742
Fixed Assets:
Buildings on freehold land 84,937 84,937 84,937 84,937 84,937 84,937
Furniture, Fixture and Off. Equipment 19,811 19,811 19,811 19,811 19,811 19,811
Computer softwares 7,449 7,449 7,449 7,449 7,449 7,449
Motor Vehicles 51,600 51,600 51,600 51,600 51,600 51,600
Total Assets: 12,573,478 13,088,304 13,714,228 14,404,940 15,165,252 16,000,377
Shareholders' Equity & Liabilities:
Paid up Capital 1,115,359 1,115,359 1,115,359 1,115,359 1,115,359 1,115,359
Unappropriated Profits 216,842 526,697 870,644 1,250,664 1,668,641 2,126,560
Reserves 8,972,692 8,972,692 8,972,692 8,972,692 8,972,692 8,972,692
Shareholders' Equity: 10,304,893 10,614,749 10,958,695 11,338,716 11,756,693 12,214,611
Underwriting Provisions:
Gross Unearned Premium Reserve: 600,136 692,479 796,494 911,160 1,037,568 1,176,920
Gross Loss & LAE Reserve: 541,686 595,014 653,803 718,611 790,057 868,818
Commission income unearned 65,206 69,770 74,654 79,880 85,472 91,455
Creditors and Accruals : Short term
Premiums received in advance 575 565 623 686 757 834
Amounts due to other insurer/re‐ins. 156,942 154,126 169,908 187,307 206,487 227,632
Accrued expenses 69,578 68,330 75,326 83,040 91,543 100,917
Sundry Creditors 186,637 183,288 202,057 222,747 245,557 270,702
Short Term Finance 640,684 702,129 774,027 853,288 940,664 1,036,988
Unclaimed Dividends 7,141 7,855 8,641 9,505 10,455 11,501
Total Liabilities & Shareholders' Equity: 12,573,478 13,088,304 13,714,228 14,404,940 15,165,252 16,000,377

13.
AHCML
IGI Insurance Limited ‐ Cash Flow Statement
2013(F) 2014(F) 2015(F) 2016(F) 2017(F)
Cash Flow from Operations:
Net Income: 700,231 734,323 770,396 808,353 848,294
(Increase) / Decrease in Ceded Unearned Prem.: (41,554) (46,807) (51,600) (56,884) (62,708)
(Increase) / Decrease in Reins. Recoverables: (8,532) (9,406) (10,369) (11,431) (12,602)
Increase / (Decrease) in Gross UEPR: 92,343 104,015 114,666 126,408 139,352
Increase / (Decrease) in Gross Loss & LAE Reserve: 53,328 58,789 64,809 71,445 78,761
Increase / (Decrease) in Commission Income unearned: 4,564 4,884 5,226 5,592 5,983
Total Cash Flow from Underwriting Activities: 800,379 845,797 893,128 943,483 997,080
Cash Flow from other operating Activities:
Depreciation and Amortization 40,933 45,124 49,745 54,839 60,454
(Increase)/Decrease in Current Assets (44,858) (33,120) (35,428) (37,899) (40,542)
Increase/(Decrease) in Current Liabilities 54,022 113,504 125,127 137,940 152,065
(Increase)/Decrease in Taxation Provision less payment (3,930) ‐ ‐ ‐ ‐
Increase/(Decrease) in Unclaimed Dividends 714 786 864 950 1,046
Total Cash Flow from Operations: 847,260 972,091 1,033,435 1,099,313 1,170,103
Cash Flow from Investing:
Capex: (40,933) (45,124) (49,745) (54,839) (60,454)
Total Cash Flow from Investing: (40,933) (45,124) (49,745) (54,839) (60,454)
Cash Flow from Financing:
Common Dividends: (390,376) (390,376) (390,376) (390,376) (390,376)
Total Cash Flow from Financing: (390,376) (390,376) (390,376) (390,376) (390,376)
Net Change in Cash: 415,952 536,591 593,315 654,098 719,273
Beginning Cash Balance: 2,364 418,316 954,907 1,548,222 2,202,320
Ending Cash Balance: 418,316 954,907 1,548,222 2,202,320 2,921,593

14.
AHCML
Contact:
Head Office:
GF‐01, Techno City,
Hasrat Mohani Road, Karachi
Ph: +92 21 32270808‐13
Fax: +92 21 32270519
Stock Office:
Room No. 16 Ground Floor,
New Stock Exchange Bldg.,
Stock Exchange Road, Karachi
Ph: +92 21 32460867‐ 32460869
Muhammad Ali Khan, Senior Research Analyst
ali.khan@ahcml.com
Abdul Samad, Supervising Database Officer
abdul.samad@ahcml.com
Disclaimer
The views expressed in this research accurately reflect the personal views of the AL Habib Capital Markets (Pvt.) Ltd. analyst about the
subject securities or issuers and no part of the compensation of the analyst was, is, or will be directly or indirectly related to the inclusion
of specific recommendations or views expressed by the analyst in this research. The analyst principally responsible for the preparation of
this research receives compensation based on overall revenues of AL Habib Capital Markets (Pvt.) Ltd. and has taken reasonable care to
achieve and maintain independence and objectivity in making any recommendations.
All rights reserved. The information presented in this report is compiled from sources we believed to be reliable in preparation of this
report. However, we do not accept any responsibility for its accuracy and completeness. This report is not intended to be an offer or
solicitation to buy or sell any security. AL Habib Capital Markets (Pvt.) Ltd. and its employees may or may not have a position in or with
respect to the securities mentioned in this report. In particular, the report takes no account of investment objectives, financial situation &
particular needs of investors who should seek further professional advice or rely upon their own judgment before making any investment.
Date of distribution: July 30, 2013
Prices as at: July 26, 2013