1

KenyaListedFullYear2016InsuranceSectorReport,&CytonnWeekly#18/2017

Disclaimer:Theviewsexpressedinthispublicationarethoseofthewriterswhereparticularsarenotwarranted.Thispublication,whichisincompliancewithSection2oftheCapitalMarketsAuthorityActCap485A,ismeantforgeneralinformationonly,andisnotawarranty,representation,adviceorsolicitationofanynature.Readersareadvisedinallcircumstancestoseektheadviceofaregisteredinvestmentadvisor.

ExecutiveSummary

FixedIncome:ThelevelofT-billsubscriptionincreasedduringtheweek,withoverallsubscriptionratecominginat196.2%comparedto103.1%recordedthepreviousweek.The182-daypaperwasonofferthisweekafter8weeksofsuspensionfromtheauctionmarket,recordingasubscriptionrateof253.8%atanaverageyieldof10.5%,comparedto412.5%and10.5%,respectively,thelasttimeitwasofferedinFebruary2017.The2017HumanDevelopmentIndexreleasedbytheUnitedNationsDevelopmentProgramme(UNDP)revealedthatKenyahadthehighestunemploymentrateintheEastAfricanregion,at39.1%in2016;

Equities:Duringtheweek,theequitiesmarketrecordedmixedtrendswithNASIandNSE25gaining1.5%and1.6%,respectively,whileNSE20declinedby0.3%.NICbankandStanbicbankreleasedQ1’2017resultswithbothbanksrecordingdeclinesincoreearningspershareby3.9%and9.3%toKshs1.5andKshs6.3,fromKshs1.6andKshs7.0,respectively;

Private Equity: Activity in the private equity space continues to gain traction based on acquisitions andpartnerships skewed towards the FMCG sector with: (i) GBfoods S.A. partnering with Helios InvestmentPartners,anAfrica-focusedprivateinvestmentfirm,tocreateoneofAfrica’slargestFMCGbusinesses,and(ii)EthosasouthernAfricanPrivateEquityfirm,acquiringanundisclosedmajoritystakeinLittleGreenBeverages(LGB);

RealEstate:TheKenyaBankersAssociationreleasedtheirQ12017HousingPriceIndex,whichshowedhousepricesgrewataslowerpaceinQ12017astheindexincreasedby1.10%comparedto1.40%sametimelastyear,amidreduceddemand.TheKenyaTourismBoardAuthorityannouncedplanstomarketKenya’stourismproductsthroughtheongoingIndianPremierLeague;

FocusoftheWeek:WefocusontheCytonnFY’2016InsuranceReport,analyzingthecurrentstateandfutureoutlookoftheindustrybasedontheyear2016results.Werankedthelistedinsurancefirmsbasedontheirattractiveness and stability for investment from a franchise value and from a future growth opportunityperspective.

CompanyUpdates

• CytonnDiasporahostedaninvestmentforuminLondonforKenyansintheUKinterestedininvestingbackinKenya.Formoreinformation,emaildiaspora@cytonn.com

• OurChiefInvestmentOfficer,ElizabethNkukuu,CFAspokeattheAfricanFinancialServicesInvestmentConference. Elizabeth discussed alternative investment opportunities in the East African financialservices industry. For more information on alternative investments in East Africa, emailinvestments@cytonn.com

• OurInvestmentsManager,MauriceOduor,wasonCitizenTVdiscussingtheminimumwageincreaseasannouncedbythepresidentduringtheLabourDaycelebrations.WatchMauriceOduoronCitizenTVhere

• CytonnFoundationconductedatrainingonFinancialStatementsAnalysisformedia;thetrainingwasattended by over 30 media personnel. Commenting on the training, Maurice Oduor, InvestmentManager,saidthat“aninformedandanalyticalfinancialpressisessentialtowell-functioningfinancialmarkets.Wehopethatthetrainingweoffereverysixmonthswillenhancethequalityofinformation

2

that goes into the dailies, which the general public relies on for their information.” For moreinformationonourmediatraining,emailfoundation@cytonn.com.Seeeventnote

• Wecontinuallyshowcaserealestatedevelopmentsbyourrealestatedevelopmentaffiliate,CytonnRealEstate, throughweeklysitevisits.Thesitevisits targetboth investors looking to invest in realestatedirectly,andalsothoseinterestedinhighyieldinvestmentproductstofamiliarizethemselveswithhowwesupportthehighyieldreturns.Ifinterestedinattendingthesitevisits,kindlyregisterhere

• WecontinuetoseeverystronginterestinourPrivateWealthManagementtraining,whichisatnocost,andisheldbi-weekly,butisopenonlytopre-screenedparticipants.Toregisterforthetrainingkindlyusethislink

• Forrecentnewsaboutthecompany,seeournewssectionhere• Wehave12investment-readyprojects,offeringattractivedevelopmentandbuyertargetedreturnsof

around25.0%p.a.Seefurtherdetailshere:Summaryofinvestment-readyprojects• Toinvestinanyofourcurrentorupcomingrealestateprojects,pleasevisitCytonnRealEstate

o TheAlma,which is over 55.0% sold, has delivered an annualized return of 55.0% p.a. forinvestorswhoboughtoff-plan.SeeTheAlma.

o Amara Ridge is currently 100.0% sold and has delivered 33.0% p.a. returns to investors.SeeAmaraRidge

o TheRidgePhaseOneiscurrently20.0%sold.SeeTheRidgeo TarajiHeightsiscurrently10.0%sold.SeeTarajiHeights

• FollowingthecompletionofsalesforAmaraRidge,wearecurrentlylookingforlandinKarenforournextdevelopment.Wearealsolookingfor3-10acresoflandinGardenEstate,MuthaigaNorth,SouthCandLang’ata.Contactusatres@cytonn.comifyouhaveanylandforsaleorjointventuresintheaboveareas

• Wecontinuetobeefuptheteamwiththeongoinghires:CareersatCytonn

FixedIncome

T-billswereoversubscribedforthe13thconsecutiveweek,withtheoverallsubscriptionraterisingto196.2%,comparedto103.1%recordedthepreviousweek.The182-daypaperwasfloatedinthisweek’sauctionafterbeingsuspendedfromtheauctionmarketforthelast8weeks.The182-daypaperrecordedasubscriptionrateof253.8%atanaverageyieldof10.5%ascomparedto412.5%and10.5%,respectively,thelasttimeitwasoffered inFebruary2017.Subscription rates for the91and364-daypapers came inat295.7%and98.9%,compared to 123.7% and 82.5% the previous week, respectively. The 364-day paper had the lowestsubscriptionrateduringtheweek,anindicationthatinvestorsarebiasedtowardsshortinvestmentdurationsduetouncertaintyintheinterestrateenvironment.Yieldsonthe91and364-daypapersremainedunchangedat8.8%and10.9%,respectively.Thismaybeduetoeither(i)theCBK’sdisciplinedstanceintheauctionmarketwherebidsthatareabovemarketarerejectedandthemarketisrespondingpositivelytothisbybiddingatyieldsthattheCBKconsidersreasonableandthatarewithinthemarket levels,or(ii)themarketviewstheheightenedinflationastemporary.

Theaverageinterbankratedeclinedslightlyto6.1%from6.4%recordedthepreviousweek,despitethenetliquidityreductionofKshs11.8bncomparedtoaKshs0.1bninjectionthepreviousweek.Thenetliquidityreductionduringtheweekwasasaresultofthegovernment’sliquiditymop-upactivitiesof(i)termauctiondepositsofKshs11.5bn,and(ii)OMOtapsalesofKshs7.2bn;aidedbytaxesremittedbybanks,T-billprimaryissues,reposandreverserepomaturitiestotalingKshs72.3bn.

3

Belowisasummaryofthemoneymarketactivityduringtheweek:

allvaluesinKshsbn,unlessstatedotherwise WeeklyLiquidityPosition–Kenya

LiquidityInjection LiquidityReduction TermAuctionDepositMaturities 1.0 T-bondsales 0.0GovernmentPayments 41.2 TransferfromBanks-Taxes 33.2T-bondRedemptions 0.0 T-bill(Primaryissues) 19.2T-billRedemption 22.3 TermAuctionDeposit 11.5T-bondInterest 0.0 ReverseRepoMaturities 4.9T-billRe-discounts 0.0 Repos 15.0ReverseRepoPurchases 3.4 OMOTapSales 7.2ReposMaturities 11.3 TotalLiquidityInjection 79.2 TotalLiquidityWithdrawal 91.0

NetLiquidityInjection (11.8)

AccordingtoBloomberg,yieldsonthe5-yearand10-yearEurobonds,with2.2yearsand7.2yearstomaturity,remainedrelativelyunchangedw/w,closingtheweekat4.2%and6.7%,respectively.Sincethemid-January2016peak,yieldsontheKenyaEurobondshavedeclinedby4.6%pointsand3.0%points,respectively,forthe5-year and 10-year bonds due to stable macroeconomic conditions. The declining Eurobond yields andStandard&Poor’s(S&P)havingmaintainedKenya’sforeignandlocalcurrencysovereigncreditratingsfortheshortandlongtermat“B+/B”,respectively,areindicationsthatKenyaremainsstableandhenceanattractiveinvestmentdestination.

TheKenyaShillingremainedrelativelystableagainstthedollarduringtheweektocloseatKshs103.1,fromKshs103.2recordedthepreviousweek.However,theShillingislikelytobeunderpressureincomingweeksonaccountof(i)increaseddollardemandfromoilimportersasglobaloilpricesdropbelowUSD50.0perbarrel,asitischeaperforoilimporterstoincreasepurchasesnowbeforepricesbeginonanupwardtrend,and(ii)sugar importsasproductiondeclineddueto lowrainfallexperienced inOctoberandNovember2016,thusrequiringthegovernmenttoimportanadditional400,000tonnesinthenext3weekstomeetthedemandforsugarinthecountry.Onayeartodatebasis,theshillinghasdepreciatedagainstthedollarby0.6%.Withthe

6.7%

4.2%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

10.00%

11.00%

Jul-1

4

Sep-14

Nov-14

Jan-15

Mar-15

May-15

Jul-1

5

Sep-15

Nov-15

Jan-16

Mar-16

May-16

Jul-1

6

Sep-16

Nov-16

Jan-17

Mar-17

May-17

KenyaEurobondYields

10-Year 5-Year 5-yearcoupon 10-yearcoupon

5-YearCoupon,5.9%

10-YearCoupon,6.9%

4

currentforexreservelevelcurrentlyatUSD8.3bn(equivalentto5.5monthsofimportcover),webelievetheCBKwillbeabletosupporttheshillingintheshortterm.

The2017HumanDevelopment Index (HDI),anannual report releasedbytheUnitedNationsDevelopmentProgramme(UNDP),revealedthatKenya,thelargesteconomyinEastAfricahasthehighestunemploymentrateat39.1%in2016upfrom24.1%in2015.UnemploymentratesforTanzania,Ethiopia,UgandaandRwandawere 24.0%, 21.6%, 18.1% and 17.1% in 2016, respectively. According to the report major causes ofunemploymentwere(i)inequalityofincomeinthecountry,and(ii)slowergrowthofjobswith832,900newjobshavingbeinggeneratedin2016-10.3%ofthesecomingfromtheformalsector-downfrom841,600in2015.Theloweremploymentgrowthislikelytoresultinincreasedcrimeandviolencecases,andlowlevelsofsavingsandinvestmentsincountryandthereforebecomingdetrimentaltoeconomicgrowthinthelongterm.

Africacontinuestobeanattractiveinvestmentdestinationsupportedbyhigheconomicactivityandagrowingmiddleclass.AccordingtoareportreleasedbyErnst&Young(EY)AfricadubbedtheEYAfricaAttractivenessProgram2017,therewasa31.9%increaseincapitalinvestmentsintoAfricatoUSD94.1bnin2016fromUSD71.3bnin2015.Keyhighlightsfromthereportinclude:

(i) ThenumberofFDIprojectsdeclinedby12.3%to676projectsandthenumberofjobscreatedfromtheseprojectsdeclinedby13.1%to129,150jobsin2016,

(ii) TheaveragecapitalinvestedperFDIprojectwasUSD139.0mnin2016upfromUSD92.5mnin2015duetothedeclineinnumberofFDIprojectsandincreaseintotalcapitalinvested,

(iii) MostoftheFDIinflowswereconcentratedinthelargesteconomiesperregionwithSouthAfricainsouthernAfrica,EgyptandMoroccoinnorthernAfrica,NigeriainwesternAfricaandKenyaineasternAfrica,

(iv) TheUSmaintaineditstoppositionasthelargestinvestorinAfricaaccountingfor13.5%ofFDIprojects,and

(v) Investment in the energy sector such as oil, gas and coal mining and exploration; andtransport&logisticsjointlyaccountedfor67.3%ofthetotalcapitalinvested.

Theratesinthefixedincomemarkethaveremainedstable,despiteindicationsofpossibleupwardpressureon interest rates. TheGovernment isaheadof itsdomesticborrowing for the current fiscal year, havingborrowedKshs294.1bnagainstatargetofKshs249.3bn(assumingapro-ratedborrowingthroughoutthefinancialyearofKshs294.6bnbudgetedforthefullfinancialyear).ThegovernmenthasonlyborrowedKshs205.8bnofthebudgetedforeignborrowing,representing44.5%ofitsforeignborrowingtargetofKshs462.3bn,andtheKenyaRevenueAuthority(KRA)isexpectedtomissitsoverallrevenuecollectiontargetofKshs1.5tnforthecurrentfiscalyearhavingmisseditsfirsthalftarget.Itisimportanttonotethatthegovernmentisalsobehinditsspendingtarget,withtotalexpenditureforthefirsthalfofthe2016/17fiscalyearcominginatKshs928.5bn,whichrepresents83.6%ofthepro-ratedtargetofKshs1.1tn.Developmentexpenditurefor the first half of the2016/17 fiscal yearhadanabsorption rateof 73.8%against 92.5% for recurrentexpenditure. Given that the government has historically exceeded the absorption rate on recurrentexpenditureaveraging103.5%whilethedevelopmentexpenditurehasaveraged65.0%,leavingtheoverallbudgetabsorptionratebelow100.0%consistentlyinthelast5fiscalyears,therestillexistsupwardspressureon interest rates, but may be subdued unless spending picks up. Government may also be looking atconcessionaryloanstofinancetheexpenditureratherthanborrowingfromtheforeignmarket.Thepossiblebudgetdeficitandhighinflationaryenvironmentthatwearecurrentlyincreateuncertaintyintheinterestrateenvironmentasdomesticborrowingmayexertanupwardpressureoninterestrates,andresultinlongertermpapersnotofferinginvestorsthebestreturnsonarisk-adjustedbasis.Itisduetothisthatwethinkitisprudentforinvestorstobebiasedtowardsshort-termfixedincomeinstruments.

5

Equities

Duringtheweek,theequitiesmarketrecordedmixedtrendswithNASIandNSE25gaining1.5%and1.6%,respectively,whileNSE20declinedby0.3%,takingtheirYTDperformancesto1.4%,(1.2%)and1.2%forNASI,NSE20andNSE25,respectively.Thisweek’sperformancewasdrivenbygainsinlargecapstockssuchasKCBGroup,EquityGroupandSafaricom,whichgained4.8%,4.5%and2.6%,respectively.SincetheFebruary2015peak,themarkethaslost42.8%and23.8%forNSE20andNASI,respectively.

Equitiesturnoverdecreasedby31.1%toclosetheweekatUSD20.6mn,fromUSD30.0mnthepreviousweek.ForeigninvestorsremainednetsellerswithanetoutflowofUSD2.7mncomparedtoanetoutflowofUSD1.5mnrecordedthepreviousweekandtheirparticipationdecreasedto63.2%,from69.5%recordedthepreviousweek. Safaricomwas the topmover for theweek,accounting for40.2%ofmarketactivity.Weexpect theKenyanequitiesmarket tobe flat in2017,drivenbyslowergrowth incorporateearnings,neutral investorsentimentmainlyduetotheforthcominggeneralelections,andtheaggressiveratehikecycleintheUS,whichmayreducethelevelofforeigninvestorparticipationinthelocalequitiesmarket.

Themarketiscurrentlytradingatapricetoearningsratioof10.8x,comparedtoahistoricalaverageof13.4x,andadividendyieldof6.0%,comparedtoahistoricalaverageof3.7%.Thecurrent10.8xvaluationis11.3%abovethemostrecenttroughvaluationof9.7xexperiencedinthefirstweekofFebruaryof2017,and30.0%abovetheprevioustroughvaluationof8.3xexperiencedinDecemberof2011.ThechartsbelowindicatethehistoricalP/Eanddividendyieldsofthemarket.

KCBGroupplanstotemporarilyclosesomeofits19branchesinSouthSudanfollowingcontinuedoperationalchallenges caused by ongoing political instability, devaluation of the South Sudanese Pound and hyper-inflationaryeffects,whichresultedinthebankreportingaKshs3.4bnlossinitsSouthSudansubsidiary.Themove,whichisaimedatprotectingshareholders’interests,isalsolikelytoleadtoanunspecifiednumberofjoblosses.ThiscomesafterallthefourKenyanbankswithoperationsinSouthSudan(EquityGroup,KCBGroup,

10.8x

8.0x

10.0x

12.0x

14.0x

16.0x

18.0x

20.0x

Apr-10

Aug-10

Dec-10

Apr-11

Aug-11

Dec-11

Apr-12

Aug-12

Dec-12

Apr-13

Aug-13

Dec-13

Apr-14

Aug-14

Dec-14

Apr-15

Aug-15

Dec-15

Apr-16

Aug-16

Dec-16

Apr-17

NASIP/E

Average=13.4x

6.0%

0.0%

2.0%

4.0%

6.0%

8.0%

Apr-10

Aug-10

Dec-10

Apr-11

Aug-11

Dec-11

Apr-12

Aug-12

Dec-12

Apr-13

Aug-13

Dec-13

Apr-14

Aug-14

Dec-14

Apr-15

Aug-15

Dec-15

Apr-16

Aug-16

Dec-16

Apr-17

NASIDividendYield

Average=3.7%

6

Co-operativeBankandStanbicHoldings)reportedlossesfromtheiroperationsinSouthSudanintheirFY’2016results.Thebank,however, stated thata change in theeconomic situation inSouthSudanwill lead to re-assessmentoftheviabilityofthebranches.AshighlightedinourCytonnWeekly#10/2017,wearestilloftheviewthattheregionalexpansionstrategyisadistractionandiserodingshareholdersvalueandassuch,KCBGroupandotherbanksshouldre-assesstheirregionalexpansionstrategy.Itislikelythatthetotalreturnthusfarontheregionalstrategyremainsdeeplynegativehencetheharddecisiontototally,ratherthantemporarily,closethebranchesmaybewiser.Regionalexpansioninbankingisbestpursuedbyacquiringsignificantstakesinlocalplayersratherthantryingtogroworganicallyinaforeignmarket.

TheCentralBank(CBK)hasshortlistedpotentialinvestorsinChaseBankoutofthe12thatexpressedinterestincluding3localbanks,4foreignfinancialinstitutionsand5otherfinancialinstitutionsandconsortia.TheCBKisseekingtosellChaseBankaspartofarestructuringplanmeanttospeeduprecoveryofthelender,havingbeenunderthemanagementofKCBGroupandtheKenyaDepositInsuranceCorporation(KDIC)astheofficialreceiver.TheinterestinChaseBankbybothlocalandforeignfinancialservicessectorplayersisanindicationthattheKenyanbankingsectorremainsattractiveasitoffersaccesstohighreturnswiththereturnonequitybeingamongthehighestintheworld,withlistedbankshavingrecordedreturnonequityof19.9%inFY’2016as highlighted in our CytonnWeekly #14/2017. Banks are trading at a current Price to Book ratio of 1.2xcomparedto1.9xthreeyearsago.ForCBKandKDIC,thisisahistoricdevelopmentasitisthefirsttimethataKenyanbankunderreceivershiphasbeenreopened,andtheownershipandcapitalchallengespostreopeningarebeingresolvedinaveryopenandtransparentprocesswithcleartimelines.Inamarketwhereregulatoryprocessesareoftenshroudedwithuncertaintiesandarbitrariness,theCBKandKDICprocesswithChaseBanksetsabenchmark.

NICBankreleasedQ1’2017results

NICBankreleasedQ1’2017results,recordinga3.9%declineincoreearningspersharetoKshs1.5fromKshs1.6inQ1’2016,duetoa9.7%declineintotaloperatingincomebutwascautionedbya13.6%declineintotaloperatingexpenses.KeyhighlightsfortheperformancefromQ1’2016toQ1’2017include:

• Total operating income declined by 9.7% to Kshs 3.7 bn from Kshs 4.1 bn in Q1’2016. This wasattributedtoa13.1%declineinNon-InterestIncome,andan8.4%declineinNetInterestIncome;

• InterestIncomedeclinedby13.9%toKshs4.3bnfromKshs5.0bninQ1’2016,owingtoresettingoftheloanbooktofitwithintheloanpricingframeworkstipulatedbytheinterestratecap,whileInterestexpensedeclinedmoreby21.8%toKshs1.6bnfromKshs2.1bninQ1’2016.TheNetInterestMarginthusdecreasedto7.9%from8.1%inQ1’2016;

• Non-FundedIncome(NFI)declinedby13.1%toKshs1.0bnfromKshs1.1bninQ1’2016.ThedeclineinNFIwasattributedtoa58.9%declineinotherincometoKshs0.1bnfromKshs0.3bninQ1'2016.Thecurrentrevenuemixstandsat73:27fundedtonon-fundedincomefrom72:28inQ1’2016;

• Totaloperatingexpensesdeclinedby13.6%toKshs2.3bnfromKshs2.7bninQ1’2016followinga33.4%decline inLoanLossProvision(LLP)toKshs0.9bnfromKshs1.3bn.WithoutLLP,operatingexpensesgrewby5.4%toKshs1.5bnfromKshs1.4bnregistered inQ1’2016.Staffcostsgrewby12.4%toKshs0.7bnfromKshs0.6bninQ1’2016;

• CosttoIncomeratio improvedto63.0%from65.8%inQ1’2016.WithoutLLP,costtoIncomeratiodeterioratedto39.3%from33.7%inQ1’2016;

• Profitaftertaxdeclinedby3.9%toKshs0.95bnfromKshs0.99bninQ1’2016;• Loansandadvancesgrewby3.9%toKshs116.3bnfromKshs112.0bninQ1'2016,whilecustomer

depositsgrewby6.8%toKshs117.8bnfromKshs110.3bninQ1’2016,leadingtoadeclineintheloantodepositratioto98.7%from101.5%inQ1'2016;

• NICBankKenyaiscurrentlysufficientlycapitalizedwithacorecapitaltoriskweightedassetsratioat17.9%,7.4%abovethestatutoryrequirementof10.5%,withtotalcapitaltototalriskweightedassetsexceedingstatutoryrequirementof14.5%by7.4%toclosetheperiodat21.9%

7

• Theboarddidnotrecommendpaymentofaninterimdividend.

NICBankconcludeditsmandateastheassetsandliabilityconsultantforImperialBank.Goingforward,NICBankwillthriveontheexpectedgainsfrominvestmentsininnovationandtechnologythatarelikelytoimprovethe bank’s efficiency. The bank also revamped its mobile banking platform, NIC NOW, adding newfunctionalities to enhance user experience, which is expected to continue driving growth in depositmobilization.Foramoredetailedanalysis,seeourNICBankQ1’2017EarningsNote.

StanbicBankreleasedQ1’2017results

StanbicBankreleasedQ1’2017results,recordinga9.3%declineincoreearningspersharetoKshs6.3fromKshs7.0inQ1’2016,attributedtoa9.9%declineintotaloperatingincome,whichoutpaceda4.7%declineintotaloperatingexpenses.KeyhighlightsfortheperformancefromQ1’2016toQ1’2017include:

• Totaloperatingincomedeclinedby9.9%toKshs4.2bnfromKshs4.7bninQ1’2016,attributedtoa12.4%declineinNetInterestIncome,anda6.3%declineinNon-InterestIncome;

• InterestIncomedeclinedby12.6%toKshs3.9bnfromKshs4.4bninQ1’2016,whileInterestExpensedeclinedby13.0%toKshs1.4bnfromKshs1.7bninQ1’2016.TheNetInterestMarginthusimprovedto6.9%from5.9%inQ1’2016.Thebankattributedthedeclineininterestincomedespiteagrowthinloanstotheinterestratecappinglaw;

• Non-FundedIncome(NFI)declinedby6.3%toKshs1.8bnfrom1.9bninQ1’2016.ThedeclineinNFIwasattributedtoa35.5%declineinforeignexchangetradingincometoKshs0.6bnfromKshs1.0bninQ1'2016,whichwasaffectedbyunrealized income fromtheSouthSudanbusiness.Thecurrentrevenuemixstandsat58:42fundedtonon-fundedincomefrom59:41inQ1’2016;

• Totaloperatingexpensesdeclinedby4.7%toKshs2.7bnfromKshs2.9bn inQ1’2016followinga42.3%decline inLoanLossProvision(LLP)toKshs0.3bnfromKshs0.6bn.WithoutLLP,operatingexpensesgrew4.7%toKshs2.4bnfromKshs2.3bnregisteredinQ1’2016.StaffcostsremainedflatatKshs1.2bnfromKshs1.1bninQ1’2016;

• CosttoIncomeratiodeterioratedto64.4%from60.9%inQ1’2016.WithoutLLP,CosttoIncomeratiodeterioratedto56.7%from48.8%inQ1’2016;

• Profitaftertaxdeclinedby9.4%toKshs1.1bnfromKshs1.2bninQ1’2016;• Loansandadvancesgrewby11.4%toKshs115.4bnfromKshs103.6bninQ1'2016,whilecustomer

depositsgrewby20.0%toKshs130.6bnfromKshs108.8bninQ1’2016,leadingtoadeclineintheloantodepositratioto88.4%from95.2%inQ1'2016;

• StanbicBank is currently sufficiently capitalizedwitha corecapital to riskweightedassets ratioat15.0%,4.5%abovethestatutoryrequirement,withtotalcapitaltototalriskweightedassetsexceedingstatutoryrequirementby2.5%toclosetheperiodat17.0%

• Theboarddidnotrecommendpaymentofaninterimdividend.

GoingforwardweexpectStanbicbank’sgrowthtobepropelledbytheirdiversifiedandclearlydefinedbusinessstrategy,enablingthebanktorespondeffectivelytoshiftingmarketdynamics,withtheirNon-FundedIncomeat42.3%oftotaloperatingincome,coupledwiththerolloutoftheirnewdigitalplatformandsupportsystems.

ARMCementreleasedFY’2016results

ARMCementreleasedtheirFY’2016results,recordinga3.1%declineinlosspersharetoKshs3.2fromKshs3.3inFY’2015.Thiswasdrivenbya13.2%declineinrevenuetoKshs12.8bnfromKshs14.7bnanda102.6%increase in interest expenses to Kshs 2.8 bn.Key highlights for the performance from FY’2015 to FY’2016include:

• Revenue declined by 13.2% to Kshs 12.8 bn from Kshs 14.7 bn due to operating environmentchallengesinTanzaniacharacterizedby(i)increasedcompetitionfromlowerpricedDangotecementatUSD53.0pertonneattheirplantinMtwara,comparedtoARM'sUSD65.0-75.0pertonne,(ii)lower

8

cementpricesinTanzaniaatUSD65.0-75.0pertonne,comparedtoUSD90.0pertonneinKenyahencelowermargins, (iii) theTanzaniagovernment'sbanon importationofcheapercoaltosupport localcoalprocurement,henceleadingtoincreasedmanufacturingcostsdespitethenormalizationoftheelectricitysupplywhichwasaprobleminH1'2016,and(iv)TangaandDaresSalaamplantsoperatingat50.0%capacitycomparedtoKenyaplantsat90.0%;

• Financecostswereup102.6%toKshs2.1bnfromKshs1.0bn;• Lossbeforetaxincreasedby12.4%toKshs4.0bnfromKshs3.5bn,whilelossaftertaxdecreasedby

3.1%toKshs2.8bnfromKshs2.9bnduetoincreaseintaxcredittoKshs1.2bnfromKshs0.6bn;• Total assets remained relatively flat atKshs. 51.1bn compared toKshs51.9bn in FY'2015. This is

because the companydid not invest in any capital projects in 2016 as they concentratedondebtrestructuring. The company formally announced that they would exit their non-cement business,fertilizermanufacturingbusiness,whichismostlycapitalintensivebuthaslowmargins;

• Totalliabilitiesdeclinedby33.7%toKshs23.3bnfromKshs35.1bnattributedto38.6%decreaseinnon-currentliabilitiestoKshs9.1bnfromKshs14.8bn,anda30.1%declineincurrentliabilitiestoKshs14.2fromKshs20.3bn.Thisdeclineinliabilitiesisattributedtodeclineinthedebtburdenby45.8%asthecompanyusedmostoftheKshs14bnequityinjectionreceivedfromCDCtopayofftheirdebt.

Goingforward,weexpecttheKenyanbusinesstocontinuedrivingARM’sgrowthsupportedbystablecementpricesanddouble-digitgrowthinvolumesdrivenbygrowthinconstructionsector,evenasthecompanyplanstoincreasecapacityoftheAthiRiverplantby650,000tonnes.DespitethechallengesinTanzania,wedon’texpect the firm to exit themarket given that ARMhas two plants in Tanzania already and is planning oncompletingtheTangaplant.Weexpectthatsaleofthenon-cementbusinesswillfreeupcashthatcanbeusedinthisexpansioninordertoreducedebtlevels.Inaddition,theintroductionofanewteamfromCDCintotheboardandcorporaterestructuringmeansthatthecompanyhastherightpeopletodrivetheirstrategicplantowardstheirrecovery.

BelowisourEquitiesRecommendationtable.Keychangesfromlastweekinclude:

• WehaveupdatedourvaluationonallinsurancestocksbasedontheirFY’2016performanceandouroutlookforthesectorinthemediumterm;

• WehaveplacedARMunderreviewasweupdateourvaluationfollowingreleaseofitsFY’2016results;• Safaricom moved from a “Hold” recommendation with an upside of 7.4% to a “Lighten”

recommendationwithanupsideof4.8%,followinga2.6%w/wpriceincrease;• NICBankmovedfroma“Lighten”recommendationwithanupsideof1.7%toa“Sell”recommendation

withadownsideof0.1%,followinga1.9%priceincrease.

allpricesinKshsunlessstatedotherwise EQUITYRECOMMENDATION

No. Company Priceasat28/04/17

Priceasat05/05/17

w/wChange

YTDChange

TargetPrice*

DividendYield

Upside/(Downside)** Recommendation

1. BamburiCement 160.0 160.0 0.0% 0.0% 231.7 7.8% 52.6% Buy

2. KCBGroup*** 31.5 33.0 4.8% 14.8% 40.1 0.0% 21.5% Buy

3. BAT(K) 844.0 817.0 (3.2%) (10.1%) 970.8 6.2% 25.0% Buy

4. Liberty 10.2 10.7 5.4% (18.9%) 13.0 0.0% 21.3% Buy

5. Britam 9.8 10.1 2.6% 0.5% 11.9 2.7% 21.1% Buy

6. KenyaRe 18.1 18.1 (0.3%) (19.8%) 20.5 4.4% 18.0% Accumulate

7. CICGroup 3.4 3.3 (3.0%) (14.5%) 3.7 3.2% 17.4% Accumulate

9

8. Barclays 8.2 8.1 (1.2%) (4.5%) 7.9 10.0% 7.5% Hold

9. Co-opBank 14.0 14.3 2.1% 8.3% 14.4 5.7% 6.2% Hold

10. JubileeInsurance 460.0 465.0 1.1% (5.1%) 482.2 1.8% 5.5% Hold

11. Stanchart 194.0 192.0 (1.0%) 1.6% 189.5 6.7% 5.4% Hold

12. StanbicHoldings 62.5 62.0 (0.8%) (12.1%) 60.2 8.1% 5.1% Hold

13. Safaricom 19.3 19.8 2.6% 3.1% 19.8 4.7% 4.8% Lighten

14. I&MHoldings 91.0 91.0 0.0% 1.1% 88.0 4.0% 0.7% Lighten

15. NIC 26.8 27.3 1.9% 4.8% 26.4 3.0% (0.1%) Sell

16. HFGroup 10.1 10.2 0.5% (27.5%) 9.2 4.7% (4.6%) Sell

17. EquityGroup 33.0 34.5 4.5% 15.0% 30.7 5.1% (5.9%) Sell

18. DTBK 125.0 124.0 (0.8%) 5.1% 104.0 2.2% (13.9%) Sell

19. SanlamKenya 25.0 24.8 (1.0%) (10.0%) 21.1 0.0% (14.9%) Sell

20. NBK 6.3 6.4 0.8% (11.8%) 1.7 0.0% (73.2%) Sell

*TargetPriceasperCytonnAnalystestimates

**Upside/(Downside)isadjustedforDividendYield***Forfulldisclosure,Cytonnand/oritsaffiliatesholdsasignificantstakeinKCBGroup,rankingasthe14thlargestshareholderAccumulate–Buyingshouldberestrainedandtimedtohappenwhentherearemomentarydipsinstockprices.Lighten–Investortoconsiderselling,timedtohappenwhentherearepricerallies

Weremain"neutralwithabiastopositive"forinvestorswithshorttomedium-terminvestmentshorizonandare"positive"forinvestorswithlong-terminvestmenthorizon.

PrivateEquity

GBfoodsS.A.,aleadingmultinationalfoodcompanyheadquarteredinBarcelona,hasformedajointventurewithHelios InvestmentPartners,anAfrica-focusedprivateequity investmentfirm,tocreateoneofAfrica’slargestFastMovingConsumerGoods(FMCG)businesses.Thejointventure,GBfoodsAfricaHoldcoB.V.,hasacquiredleadingAfricanFMCGcompaniessuchas:(i)GinoandPomo,atomatopastecompany,(ii)JumboandJago, a milk powder and mayonnaise producing company, and it has also secured Bama (mayonnaise)distribution rights. Following thepartnership and acquisitions,GBfoodswill nowhave a larger distributionnetworkwithpresence inover30Africancountries. Thepartnership isbeneficial tobothpartiesasHelioscontinuestoexpandtheirportfolioinAfrica’sFMCGcompanies,whileGBfoodswillbenefitfromHelios’accesstofundinganditsglobalbacking,whichwillbecoretotheirexpansionstrategythattargetsAfrica.RecentlyinJuly2016,HeliosandTheVitolGroup(Vitol),anenergyandcommoditiescompanybasedintheU.S.,boughta49% controlling stake valuedatUSD210mn inOandoPLC,Nigeria’s leading indigenous energy group. SeeCytonnWeekly

Ethos,aSouthAfricanPrivateEquityfirm,throughEthosFundVI,hasacquiredanundisclosedmajoritystakeinLittleGreenBeverages(LGB),inpartnershipwithNedbankPrivateEquityandthecompany’smanagement.ThisistheninthtransactionfortheUSD623.0mnEthosfundVI.LGBisaSouthAfricancompanythatproducesa variety of beverages such as carbonated soft drinks, energy and mineral water, headquartered inJohannesburg, and distributes in African countries such as Botswana,Mozambique, Zimbabwe, Swaziland,NamibiaandLesotho.Thiscapital injectionwillboostLGB’sgrowthstrategy inEuropeand inotherAfricancountries it has not ventured into. This continued investment in the FMCG sector inAfrica is drivenby (i)

10

increaseindisposableincomespentonconsumables,suchasbeveragesandprocessedfoodproductsinAfrica,(ii)infrastructuraldevelopments,suchasimprovedroadandtransportnetworks,(iii)easeofaccesstoFMCGproductsandimproveddistributionnetworks,and(iv)growthintheretailsector.Thesectorishoweverfacingchallenges,whichinclude(i)counterfeitgoods,(ii)lowexportlevelsofFMCGproductsandcheaperimports,and(iii)highcostofrawmaterials.Despitethesechallenges,theFMCGsectorcanmakesignificantgrowthbyadoptingtechnologicalinnovationsandinvestmentinnewproducts.

Privateequity investments inAfricaremainrobustasevidencedbythe increaseddealsanddealvolumesskewedtowardstheFMCGsector.Given(i)thehighnumberofglobal investors lookingtocashinonthegrowingmiddleclassofAfrica,(ii)theattractivevaluationsinfrontiermarketscomparedtoglobalmarkets,and(iii)bettereconomicprojectionsinSubSaharaAfricacomparedtoglobalmarkets,weremainbullishonPEasanassetclassinSub-SaharaAfrica.

RealEstate

Duringtheweek,KenyaBankersAssociationreleasedtheirQ1’2017HousingPriceIndex(KBA-HPI).Thekeytake-outsfromthereportwere:

1. ThehousingmarketgrewatamuchslowerrateinQ1’2017recordingamarginalpricegrowthof1.1%,whichisa0.5%pointsdeclinefromthe1.6%growthrecordedinQ4’2016.TherateofpricegrowthhasbeenonadownwardtrendsinceitspeakinQ3’2016,duringwhichpricesgrewby2.2%.Asperthereport,theslowergrowthinhousepricesinthemarketisduetoadeclineindemandinthehousingsector,which inourview ismainlyasa resultof: (i) reduced financing in themarketattributed tostructuralchallengesinthebankingsector,whichhasseenprivatesectorcreditgrowthdeclinetoalowof4.0%inMarch2017,fromahighof21.0%inAugust2015,and(ii)sloweruptakefrombuyersandinvestorsastheyadoptawaitandseeapproachovertheupcomingelections;

2. ApartmentsdominatedthehousingmarkettransactionsinQ1’2017,accountingfor76.0%ofthetotaltransactions in the market. Maisonettes and bungalows accounted for only 16.0% and 8.0% oftransactions,respectively.Weattributethistothefactthatapartmentsarecheaperthandetachedunits,andhencehaveanelementofaffordabilityandalsoprovideacentralcommunityleaving;

3. Wesaw thebuyers lookingmoreat functionalityof thehouseswith themain factorsdetermininghousepricesinthequarterbeingsizeofthehouseintermsoffloorarea,numberofbedrooms,ageofthehouse,proximitytomallsandprovisionofotheramenitiessuchasbalconies,garage,andensuitebathrooms,amongothers.Asperthereport,luxuriousamenitiessuchasgymsandswimmingpoolsdidnothaveasignificanteffectonthepricesofthehouses.

Thetablebelowshowschangesintheindexbetween2015and2017.

Source:KenyaBankersAssociation

Weexpecttheslowincreaseinpricestopersistin2017asbuyersandinvestorsadjusttothereducedcreditadvancement,aswellasincreasedsupplyinsomemarkets,andthewaryhome-buyersbuyinglessasaresultoftheupcomingelections.AshighlightedinourCytonnWeekly#7/2017,thereislikelytobeaslowdownintransactionvolumesbeingwitnessedinthe2ndand3rdquarterofthisyear,duetotheelections.Wehoweverexpectthemarkettopickuppaceinthelastquarterof2017aftertheconclusionoftheelections.

TableshowingKBA-HPIChangesbetween2015and2017

Year Change MainTypologybeingTransacted

Q1’2015 2.75% ApartmentsQ1’2016 1.40% ApartmentsQ1’2017 1.10% Apartments

11

Inabidtoincreasetouristarrivalsinthecountryandboostthehospitalitysector,theKenyanTourismBoard(KTB)isdiversifyingitsmarketingstrategies,withthelatestbeingapartnershipwiththeIndianPremierLeague(IPL),throughoneoftheteams,theRisingPuneSupergiant.TheKTBhaspaidtheteamKshs25.0mntomarketKenya’stourismproductsthroughactivitiessuchassocialmediaactivationsandbrandpromotions.KTBaimstoattainapproximatelya100mnpotentialtouristsgloballythroughthe15countriesthatwillairthegameincludingNewZealand,UK,CanadaandmostAsiancountries.TheIPListhemostattendedcricketleagueintheworldandrankssixthamongtheworld’smajorsports leagues.KTBhopestomaximizetheopportunitythroughdestinationmarketingandpromotionalcampaigns.Specifically,KTBaimstoincreasethenumberofIndiansvisitingthecountryby56.0%to100,000fromthe64,000 in2016.Other initiativesadoptedbyKTBincludehiringaSpanishconsultancyfirm,InnovativeTourismAdvisers(THR),toadvicetheKenyanGovernmentonhowtore-inventtourismsectoraswellas increasemarketingofdomestictourismthroughtheTembeaKenyainitiative.

Inourview, thehospitality sectorwill continue togrowsupportedby (i) increased touristarrivals into thecountryand(ii)AggressiveinvestmentbytheKenyangovernment

AnotherhighlightoftheweekwasUriithiHousingCooperative’sannouncementofaKshs1.5bnresidentialprojectinMurang’a.TheprojectknownasPanoramaGardenswillbea104-acrecontrolleddevelopmentzoneconsistingofquarter-acre-maisonettehomes,3-bedroombungalowsandcommercialzones,withaquarteracregoingforaslowasKshs2.9mn.Developersareincreasinglyfocusingonthelow-to-middleincomemarketsegment,whichhasthehighesthousingdeficit,andweexpectmorerealestateplayerstocontinuetargetingthislow–to-middleincomesegmentoftherealestatemarket.

Weexpectcontinuedinvestmentinthehousingsectordespitetheslowerpriceappreciationratesduetothehighdeficit,whichisestimatedat200,000unitsperannum.

KenyaListedInsuranceSectorFY’2016Report

FollowingthereleaseoftheFY’2016resultsby insurancefirms,wehavecarriedoutananalysisonKenya’sinsurancesectortodecipheranymaterialchangesfromourH1’2016InsuranceReport.Inouranalysisoftheinsurance sector,we seek to give a view onwhich insurance firms are themost attractive and stable forinvestmentfromafranchisevalueandfromafuturegrowthopportunityperspective.Thereportisthemed"Operational Efficiency and Product Innovation key to Growth of the Sector in an era of IncreasedRegulation",astheinsurancesectorstillstrugglesinthelocalmarketwithlowpenetrationlevels,excessiveduplicationofproductsandtherequiredincreaseincapitalfollowingadoptionofariskbasedcapitaladequacyframework.

OnthebackofagrowingandstableeconomicenvironmentinKenya,thecountry’sinsurancesectorhasalsoexperiencedrobustgrowthovertheyearstobecomeakeypartofKenya’sfinancialservicessector,withthefinancialservicessector inKenyacurrentlycontributing6.2%toKenya’sGDP, froma3.5%contribution10-yearsago. The insurance sectorhasbenefited from (i) convenienceandefficiency through insurance firmsadoptingalternativechannelsforbothproductsdistributionandpremiumcollectionsuchasBancassuranceand improvedagencynetworks, (ii)advancement in technologyand innovationmaking itpossible tomakepremiumpaymentsthroughmobilephones,and(iii)ademographicboostinKenya,suchasagrowingmiddleclass,whichhasledtoincreaseddisposableincome,therebyincreasingdemandforinsuranceproductsandservices.

Followingthestronggrowthachievedbytheinsurancesectoroverthelastdecade,thereisneedforthesectorto transition into amore stable and sustainable sector. The InsuranceRegulatoryAuthority (IRA) is at the

12

forefront of this initiative, pushing for (i) the observance of prudential guidelines, (ii) better corporategovernanceofinsurancecompanies,(iii)increasedtransparencyinreportingofresults,and(iv)usingarisk-basedapproachtocapitalization,withvaryingriskchargesonrespectiveinvestmentoptions.AsindicatedinourFY’2016InsuranceReport,thekeyareasoffocusinthesectorincludethefollowing;

1. OperationalEfficiency:InsurancecompaniesinKenyahavebeenaffectedadverselybytherisinglevelsofinefficiencyintheiroperationsinthelastthreeyears,ascollectionofpremiumsanddistributionofproductshaveemergedtobeacostlyaffairfortheinsurers.Insurancepenetrationstillremainslowat3.0%,lowerthantheaverageof3.5%inAfrica,indicatingthatforinsurancecompaniestopenetratetheKenyanmarkettheywillneedtoinvestinbetterandefficientdistributionchannels.Thegraphbelowhighlightstherisinglevelsofinefficienciesinthesectorsince2014,whichthefirmsoperatinginthesectorneedtopintosteergrowthandsustainprofitability;

Source;CytonnInvestments

2. ProductInnovation:Withanindustrycombinedratioaverageat126.5%,insurancecompaniesarenotprofitablefromtheircorebusiness,anddiversificationtoalternativerevenuestreamshasbeenkeytotheirprofitability. Insuranceproducts inthemarketarenottailoredtothecommonconsumerandplayers in themarket lack innovation to target customerswith low disposable income. The valueaddition area we see is innovation into more relevant products to improve uptake, while alsomaintainingeffectiveandefficientchannelsofdistributionfortheseproducts.Intherecentpast,wehavewitnessedincreasedpartnershipsbetweeninsurancefirmsandbanks,withplayersinthesectoraiming to target the banks’ large base of customers to sell their insurance products. Significantopportunities remain in the Kenyan insurance market, with growth areas identified especially incommerciallinessuchasoil,realestateandinfrastructure,and,

3. Regulation&Compliance:WiththenewInsuranceAct,thereisgoingtobeincreasedregulationoncapitaladequacyandriskchargesonrespectiveinvestmentoptions.Thiswillleadtoincreasedrisk-based analysis on investments, improved supervision on internal practices and a more regulatedinsurance sector, thereby improving investor sentiment. According to the Finance Bill (2017), allfinancialservicesfirmsexcludingbankswillberegulatedbytheFinancialServicesAuthority(FSA),andinourviewthismoveislikelytoseeincreasedtransparencyinthefinancialservicesindustry.

Basedontheabove,weexpectincreasedproductinnovationandoperationalefficiencyinthesectortodriveprofitabilityandthusgrowthofthesectoramidsttheheightenedregulation

48.0%46.0%

48.0% 47.0%44.0%

50.0%

56.3%

30.0%

35.0%

40.0%

45.0%

50.0%

55.0%

60.0%

2010 2011 2012 2013 2014 2015 2016

ListedInsuranceCompaniesExpenseRatio(%)

13

BelowaresomeoperatingmetricsforlistedinsurancecompaniesinKenya:

FY’2016InsuranceSectorMetrics

Insurance CoreEPSGrowth

NetPremiumGrowth

ClaimsGrowth LossRatio

ExpenseRatio

ROaE ROaA

1 Sanlam 157.9% 0.7% 5.2% 86.8% 48.8% 1.8% 0.3%

2 Jubilee 17.7% 18.9% 20.8% 79.4% 43.3% 17.6% 4.3%

3 KenyaRe (7.5%) (0.7%) (6.0%) 54.1% 48.3% 14.4% 9.0%

4 Liberty (12.4%) 0.9% 26.4% 70.9% 42.9% 11.3% 1.3%

5 CIC (83.3%) (6.5%) (11.2%) 63.5% 64.7% 1.3% 0.4%

6 Britam **N/A 6.2% (52.9%) 28.8% 78.0% 14.0% 3.1%

2016WeightedAverage* 3.4% 6.4% (5.5%) 61.6% 56.3% 13.8% 3.9%2015WeightedAverage* (39.1%) 6.4% (6.7%) 65.0% 50.0% 12.4% 4.2%*Averageismarketcapweighted**CannotbecalculatedsinceBritamregisteredaprofitin2016fromalossin2015

Keytakeoutsfromthetableaboveinclude:

• TheaveragecoreEPSroseto3.4%in2016from(39.1%)in2015acrosstheindustry,mainlyasaresultof change in valuation methodology for long-term insurance liabilities using Gross Premiums asopposedtoNetPremiumsinthepasteffectivelyreducingprovisionsforfutureclaims,

• The loss ratio across the sector declined to 61.6% from 65.0% in 2015, following introduction ofmeasuresbymarketplayerstoreducefraudulentclaims,

• Theexpenseratioincreasedto56.3%from50.0%in2015,owingtoincreaseinoperatingexpensesamidstasluggishgrowthinnetpremiumsearned,and

• On average the insurance sector has delivered a Return on Average Equity of 13.8% a marginalimprovementfrom12.4%in2015.

BasedontheCytonnFY’2016InsuranceReport,werankedinsurancefirmsfromafranchisevalueandfromafuturegrowthopportunityperspectivewiththeformergettingaweightof40%andthelatteraweightof60%.Therankingisasfollows:

CYTONN’SFY’2016INSURANCEREPORTRANKINGS

Company FranchiseValueTotalScore

TotalReturnScore

CompositeFY'2016Score FY'16Rank H1'16Rank

KenyaReInsurance 27 3 13 1 1BritamHoldings 33 2 14 2 3JubileeHoldings 29 5 15 3 3CICGroup 34 4 16 4 1LibertyHoldings 41 1 17 5 5SanlamKenya 46 6 22 6 6

Thekeytakeoutsfromtherankingwere;

• KenyaRemaintainedthetoppositionrankingtop inthefranchisescorecategoryonthebackofastrongcombinedratioandsolvencyratio,indicatingbettercapacitytogenerateprofitsfromitscorebusiness,

• Britamhasmovedonerankupfromposition3toposition2asaresultofanimprovedlossratioandreserveleverage,

14

• CICGroupdroppedthreepositionstorank4th fromtopposition inH1’2016asaresultofdeclinedprofitabilityrecordingareturnontangibleequity(ROaTE)of2.5%waybelowtheindustryaverageof10.9%,and

• Sanlamretaineditsbottompositionranking6thinboththetotalreturnscorecategoryandfranchisescorecategory.

Formoredetailsontherankingmethodology,seeourFY’2016InsuranceReport.

Whilethesectoriscurrentlystruggling,weareoftheviewthatinsurancecompanieshavealottheycandoinordertoregisterconsiderablegrowthandimprovepenetrationinthecountry.WeexpectthesynergybetweenbanksandinsurancecompaniestoofferBancassurancetocontinueaswellastheintegrationofmobilemoneypaymentstoallowforpolicypaymentsthroughthisincreasinglypreferredtransactionmedium.Itwouldbeagreat move for the sector to adopt mobile and online underwriting platforms enhancing convenience tocustomersintakinginsurancepoliciesthusraisingtheuptakeofinsuranceproducts.Wealsoexpectthattherewillbeincreasedregulationinthesector,aswellasincreasedconsolidationtoreduceduplicationofproductsby insurance companies. These efforts will improve revenue channels for insurance firms and uptake ofinsuranceasalifestyleandnecessaryexpense.