International General Insurance Q3 2023 Earnings Call Transcript

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November 15, 2023

There are 4 speakers on the call.

Operator

Good day, and welcome to the International General Insurance Holdings Limited Third Quarter and First 9 Months of 2023 Financial Results Conference Call. All participants are in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Robin Sitter, Head of Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you, Betsy, and good morning, and welcome to today's conference call. Today, we'll be discussing our 2023 Q3 9 months results. You will have seen our results press release that we issued after the market closed yesterday. If you'd like a copy of the press release, it's available on our website in the Investors section. We've also posted a supplementary investor Presentation, which can also be found on our website on the Presentations page in the Investors section.

Speaker 1

With me on today's call are our Executive Chairman, Wasif Jabscha our CEO, Walid Jabscha and our CFO, Wazak will begin the call with some high level comments before handing over to Waleed to talk through the key drivers of our results for the Q3 and also giving some insight into current market conditions and our outlook for the remainder of 2023. At that point, we'll open the call up for Q and A. And before we I will just go through some of the customary Safe Harbor language. Our speakers' remarks may contain forward Some of these forward looking statements can be identified by the use of forward looking words. We caution you that such forward looking statements should not be regarded as a representation Factors, including the risk factors set forth in the company's annual report on Forms 20 F for the year ended December 31, 2022, the company's reports on Form 6 ks and other filings with the SEC as well as our results press release issued yesterday afternoon.

Speaker 1

We undertake No obligation to update or revise publicly any forward looking statements, which speak only as of the date they are made. In addition, as you are aware, we voluntarily changed our basis of accounting from IFRS to U. S. GAAP as of the 1st January GAAP measure, please see the earnings release, which we posted and which has now been filed with the SEC and is available on our website. With that, I'll turn the call over to our Executive Chairman, Wasif Jabsheh.

Speaker 2

Thank you, Robin, and good day, everyone. Thank you for joining us on today's call. I'll just make a few short remarks before handing the call over to Alik. We had an excellent Q3 With very strong performance across all key metrics. For the quarter, we exceeded our long term Our deep understanding of our markets and being able to anticipate shifting trends in our markets, I expect this We'll continue as we close out 2023.

Speaker 2

The current market conditions continue to provide us With the opportunity to clearly demonstrate our proficiency at shifting our focus to those It is this discipline and focus that is leading to the Consistency and quality of our results. In 6 of the last 7 quarters, We've recorded combined ratios in the low to mid-70s, with core operating Auro is well in excess of 20% and sometimes 30%. I would like to say that IGI is currently one of the best performing specialty lines companies. This is the result of Focused, experienced and cohesive team of people and the strategy well existed. For the year to date, we have grown our book value per share by more than 20 We are committed to continuing to build value for our shareholders who have put their trust We take the promise Seriously, and I'm very pleased with what we have been able to achieve.

Speaker 2

I will now hand over to Alid, who will take you through the results and provide More details on our outlook for the remainder of 2023 and the year ahead. I will remain on the call for any questions at the end. Thank you.

Speaker 3

Thank you, Walter. Thank you all for joining us today. I'll just start with a quick recap of the results for the quarter and the 9 months and then move on to our markets. As Vasanth said, we've And a core operating ROE of 31.4 percent for the 9 months. I said on last quarter's call that we don't expect to Our longer term averages are around the mid- to high 80s combined ratio wise and mid- to high teens from an ROE perspective.

Speaker 3

And that's how we look at things over a long period Having said that, we are very clearly riding The wave of some very favorable market conditions and all indications are that this will continue for the foreseeable future. Now just move on to some key highlights for the Q3 and the year to date. Gross Premium growth was very strong at over 25% in Q3, leading to over more than or growth of over more than 22% for 1st 9 months. Again, the growth in 2023 this year is concentrated in the Short Tail and Reinsurance And as we've said in previous quarters, the long tail segments remain under a bit of pressure. Specifically in the short tail segment, We grew gross premiums by over 28% in Q3 and 22.5% for the first Construction and contingent areas where we're achieving rate improvement on renewal business continue to be more pronounced In our property, engineering and political violence portfolios, the reinsurance treaty business was also Well, more than double that of Q3 and the 1st 9 months as we continue to The housing market we've been speaking about.

Speaker 3

Over here, cumulative net rate increases continue to exceed 25 And as we said at the beginning of the year, historically, this book is comprised about 5% of the overall of our overall portfolio. Year to date, it's around 12.5% for 2023, expected to stabilize at around 10% as we continue to Take advantage of the opportunities in this attractive segment at the moment. Of course, We do all that whilst staying within our defined risk appetite. Moving on to investment income similar to the first 2023 showed significant improvement in Q3 and the result of the rising interest rates and overall larger investment portfolio. This resulted in a 1.4.

Speaker 3

Improvement in the annualized investment yield to 3.9% for Q3. The 1st 9 months fared very similarly, again with a 1.6. Improvement in the Annual investment yield up to 33.8%. Specifically, in our fixed The portfolio maintains the overall average credit rating of at A with an average duration of 3.1 years. And more Unlike you will probably going to see that duration increase somewhat over the next few quarters.

Speaker 3

Net income for Q3 was €10,900,000 which was a decrease of about 52% versus €22,600,000 in Q3 last You did see, however, from our press release that net income was impacted by a movement of about $17,200,000 in the fair value of warrants and earn You'll recall that we executed cash conversion of all outstanding warrants during the Q3 and they have now And delisted. So this is one of those one offs and will not be recurring. Separately, we've got the earnout Shares which amount to just over 3,000,000 and have staggered vesting levels, those are impacted by the market price IGI's common shares when the fair value is calculated and that runs through net income as well. So but for the 1st 9 months, net income was up 27.5% when compared to It's the same period a year ago. But I would say a true measure of our performance is core operating income, which increased almost 30% in Q3 3% 29% for the 1st 9 months when compared to the same periods last year.

Speaker 3

Just moving to the balance sheet, total assets increased more than 10% to €1,750,000,000 Total equity increased almost 15% to €470,000,000 for the year through September 30. On the capital management front, we continue to repurchase common shares under our existing authorization. Repurchase €5,000,000 is the authorized amount of specifics set out in our press release from last night. We have around 1,500,000 shares left under the existing repurchase authorization. And as I mentioned a moment ago, we executed the warrant exchange transaction for cash During Q3, the warrants delisted on the 4th October, which helps in simplifying our balance sheet and providing us with greater Flexibility as we look to the future.

Speaker 3

I mentioned our ROEs earlier for the Q3 9 months. I would just add That we grew our book value year to date per share by more than 21% to Q2 year to date in 2023 with plenty to be optimistic about for the remainder of the year and going into 4. Just moving on to the market, we're seeing continuation of the trends that we saw in the first half of the year. And there continues to An abundance of profitable opportunities across our portfolio, but particularly, as we've seen recently in our short tail And reinsurance segments. But within these segments, even within these segments, I mean, rates and conditions vary by line and by territory.

Speaker 3

In terms of the bright spot, as I noted earlier, these are property these are in property, engineering and political violence lines within the short tail But overall, within the Short Tail segment, we've seen cumulative net rate increases of over 9 And this is fairly steady with what we've been seeing since the beginning of the year. Again, there's a lot of variation By line of business, for example, property seeing overall increase of a little bit more than 15% with the higher rate increases in the U. S, lower levels of increases in other regions and in some regions We're actually seeing reductions. We are closely monitoring the tragic events currently unfolding in Palestine And while we do have some exposures in that region, we don't expect any material losses arising from the situation as it stands now. So all in all, the landscape for ShoreTel remains very encouraging with lots of opportunity and strong rate momentum.

Speaker 3

In our 3T Reinsurance business, we saw cumulative net rate increases of more than 20 6% in Q3, and we definitely expect that strong momentum to continue as we head into the January 1st renewals. There continues to be plenty of opportunities to drive new business and maintain this portfolio, as we said earlier, at around 10% of our Overall, the story in the long tail segment is not dissimilar to what we've mentioned in the last Couple of quarters, rates continue to trend downward, but mostly In a northerly fashion, overall, cumulative net rates remain about flat for the overall segment Marginally down, but like other areas of our business, there's much variation by line. I noted in last quarter's call that most of these lines have I've had compound rate increases well over 100% in the last 3 to 4 years and some excess of 150%. So while rates are coming down, they're coming down from decently high levels. And as a result, largely remain More than adequate.

Speaker 3

We've seen renewal rates most pressured in DNO and Financial Institutions, where there's a greater degree of margin compression and therefore a higher degree of We will continue as ever to take a cautious and selective approach in this to this business. Looking at our geographic markets, it's not surprising that the U. S. Continues to outpace all other markets with rate increases more than 20 In the 1st 9 months Of the year, we've written close to $73,000,000 in gross premium in the U. S, which represents growth of about Almost 40% from the same period last year.

Speaker 3

In Europe, we wrote over $53,000,000 in the 1st 9 months versus 34 in the same period last year, and we expect to see further opportunities in 2024 In 2024 in that area. You'll recall that Earlier this year, we acquired an MGA based in Oslo, and we're currently building out a team in order to expand our relationships They are in the Nordic market and the product offering and our product offering. So that's An area to focus on going forward for us. Latin America continues to show healthy rate momentum. Whilst Asia is improving, it's not responding as impactfully as we had anticipated.

Speaker 3

In the Middle East, where we've got a broad and diversified portfolio representing a little less than 10% of our overall But there are still pockets of opportunities, particularly in engineering and construction across the GCC. In summary, we remain very optimistic with the current market overall and the opportunities for us to expand our We will continue as always to maintain our focus and remain selective so that we I would just like to take a moment to congratulate all our people IGI, we're now more than 400 people spread across 8 offices around the world. Our teams have remained steadfastly focused on the task And the strong collaboration and cooperation underpinning consistently solid execution. This is critical to our ability to achieve the results you're seeing from us today and what is driving our successful track record at IGI. So I will pause here and we'll turn it over for questions, please.

Speaker 3

Operator, we're ready to take the first question.

Operator

We will now begin the question and answer session. There appears to be no questions at this time. I'd like to turn the conference back over to management for closing remarks.

Speaker 3

Well, thank you all for joining us today and thank you for your continued support of IGI. If you have any additional questions, Please contact Robin, and she'll be happy to assist. Have a good day, everyone.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Key Takeaways

  • IGI delivered an excellent Q3 and nine-month performance, with a combined ratio in the low- to mid-70s, a core operating ROE of 31.4% YTD, and book value per share up over 21% year-to-date.
  • Gross premiums grew by over 25% in Q3 (22% YTD), driven by a 28% increase in short-tail lines and more than doubling in reinsurance, while long-tail segments remain under pressure.
  • Investment income benefited from rising rates, lifting Q3 annualized investment yield by 1.4 points to 3.9% and first nine-month yield by 1.6 points to 3.8%, with an A-rated fixed-income portfolio averaging 3.1 years duration.
  • On the capital front, IGI repurchased €5 million of shares under its authorization, completed a cash conversion and delisting of warrants, and maintains €470 million in equity, up nearly 15% YTD.
  • Market conditions remain favorable, with rate momentum strongest in short-tail (over 15% property increases) and reinsurance (20%+ net rate rises), led by the US and Europe, while the company stays selective in long-tail and emerging regions.
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Earnings Conference Call
International General Insurance Q3 2023
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