International General Insurance Holdings Ltd. (IGIC) Q1 2024 Earnings Report, Transcript and Summary

Good day and welcome to the International General Insurance Holdings Ltd’s First Quarter 2024 Financial Results Conference Call. All participants are in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Robin Sidders, Head of Investor Relations. Please go ahead.

Thank you, Debbie, and good morning. Welcome to today's conference call. Today, we'll be discussing our first quarter 2024 results. You will have seen our press release that we issued after the market closed yesterday. You can also get a copy of the press release on the Investors section of our website at www.iginsure.com. We've also posted a supplementary investor presentation, which can be found on our website as well also in the Investors section and on the Presentations page. On today's call are Executive Chairman of IGI Wasef Jabsheh; President and CEO, Waleed Jabsheh and Chief Financial Officer, Pervez Rizvi. As always, Wasef will begin the call with some high-level comments before handing over to Waleed to talk you through the key drivers of the results for the quarter and finish up with our views on the market conditions and our outlook for the remainder of 2024. At that point, we'll open the call up for Q&A. Before I hand over, I'll just go through the customary Safe Harbor language. Our speakers' remarks may contain forward-looking statements. Some of the 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 by us that the future plans estimates or expectations contemplated by us will in fact be achieved. Forward-looking statements involve risks, uncertainties and assumptions. Actual events or results may differ materially from those projected in the forward-looking statements due to a variety of factors, including the risk factors that are set out in the company's annual report on Forms 20-F for the year ended December 31, 2023 and the company's reports on forms 6-K and other filings with the SEC as well as our results press release issued yesterday evening. We undertake no obligation to update or revise publicly any forward-looking statements, which speak only as of the date they are made. During this call, we'll use certain non-GAAP financial measures for a reconciliation of non-GAAP measures to the nearest GAAP measure. Please see our earnings release, which has been filed with the SEC and is also available on our website. With that, [Technical Difficulty] Jabsheh.

Thank you, Robin, and good day to everybody. Thank you for joining us on today's call. I'll just make a few short remarks before handing the call over to Waleed. We had an excellent start to 2024 as you can see from our results that we issued last month. Once again we posted a combined ratio in the 70s, the return on average equity of 27.6% and the core operating return on average equity of 29.2 [ph]. We grew our book value per share by 1.5% on top of the more than 26% in 2023. Waleed can go into more detail on what behind these numbers. As you know, our primary focus is managing the cycles that are inherent in our business. One of the hallmarks of IGI is our deep technical underwriting talent, people who understand the dynamics of their business. We'll have strong relationships and who can add space shifting tides in their markets and respond accordingly. Our business doesn't move in some different line and markets move at different times and at different spaces. What's most important at any stage of our cycle is that we maintain our discipline, execute consistently and move our capital to those areas with the strongest rate momentum and the highest margins. And always work within our risk and time and policies. This is exactly what we are doing today. Throughout our two-year history, we have consistently demonstrated our ability to do this. While producing high quality results, we have also seen a lot of growth that is entrusted to us by our shareholders. Our markets remain globally positive overall, more so in insurance and some of our core specialty lines and a little more challenging in others. It is natural to see more competition in those lines where conditions are strong and this appetite is increasing. I'm conference 2024 will represent more opportunities for IGI to seize that will both expand and diversify our footprint, and generate profitable results as we continue to build on our very solid foundation. We will continue to actively and efficiently manage our capital. The point gets first to underwriting opportunities and then returning excess capital to shareholders as we have demonstrated in recent quarters. I will now hand over to Waleed who will discuss the first quarter results in more detail and talk about market conditions and our outlook for the remainder of 2024. I remain on the call for any questions at the end. Waleed?

Good morning. Thank you all for joining us today and thank you, Wasef. As Wasef said, I mean, we've had a very strong start to the year with really solid results. We started the year with relatively healthy but some more challenging conditions, and it's fair to say that we are responding quickly and decisively to changes that are proceeding in our markets. To date this year, we've had a relatively active loss environment from a natural capacity perspective, and this has carried into the second quarter with the earthquake in Taiwan and the flooding in Oman and the United Arab Emirates, along with some storms in the US, of course. We also witnessed a major market loss, potentially in the billions of dollars and potentially the largest ever marine loss when the container ship, NBW, collided with Baltimore's Francis Scott Key Bridge, which resulted in its collapse. And as we've said in prior quarters, we're seeing an increasing degree of polarization, heightened tensions in many parts of the world, and we expect this to continue for the foreseeable future. We're working on some specific initiatives undertaking to continue growing and strengthening our company, specifically our new Lloyds presence that we just announced this morning, further growing and diversifying our reinsurance portfolio, adding talent across our offices and teams, and expanding geographic spread of our products. I'll elaborate on these a little bit more later in the call. So now I'll just give a quick recap of the results for the first quarter, and I'll talk more about our outlook for the market and for us for the remainder of 2024. As I said, our markets are still relatively healthy, although as we noted in prior reports, as we're seeing more competitive pressures, mixed rating environments, mixed condition market conditions. From an overall rating perspective, we're not seeing and consequently not benefiting from the larger rate increases that we've seen in recent years. But we are still within positive territory overall and across many of our business lines. Given the very healthy conditions at the start of last year, there's definitely a great degree of competition among existing players who are wanting to show more growth and are expanding their risk appetite. But on the positive side, we're not really seeing this coming from new capital entering the market. It's more from existing players getting hungry. For IGI gross written premium growth in the first quarter as follows 4.5%. This is on top of the significant growth we saw the same quarter last year. Similar to the patterns of the past several quarters growth coming from both the short tail and reinsurance segments, but mostly from the reinsurers portfolio, which grew 21% compared to the first quarter of 2022. In the short-tail segment we're seeing good opportunities for growth as well particularly in light of engineering contingency property and marine cargo. Gross premiums in the first quarter in this segment were up 2.8% and were impacted by some timing issues and I'm happy to expand on that in the Q&A session. Long-tail segment saw some contraction in gross premium in the first quarter as rates and conditions are reaching levels where we were choosing to non-renew some mid -- non-renew some business at this time. Given that our long-tail book similar to many of our competitors still low we don't write in the US business, the pace of breaking decline and adequacy of business for us a little more measured than the broad market commentary [indiscernible]. The decline in gross premiums was also somewhat distorted as a result of our decision to focus our IDA portfolio, the inherent defects portfolio into runoff as returns. We're just not meeting our requirements. You'll recall the significant growth we experienced in segments over the years since about 2018. That was to take advantage of strong conditions on a healthy rate of refunds. And now that those that long-tail lines by several of the sector of course is embracing the time albeit from very quite high levels. We have been and continue to take a for cautious Q-o-Q and that's all part of our foods segment. Lastly and I've said this many times before one quarter does not a trend. We expect growth for the full year of 2024 and to be in the high single-digits to low double-digits. There's still opportunity to grow but maybe just perhaps lesser than compared to previous years. I'll talk more later on our goals initiatives. Specifically on the first quarter losses I mentioned a moment ago, our share of those losses were relatively small and very manageable. From the Baltimore bridge, we've taken a very conservative view on this of this based on our full disclosure and fully reserved for this event in Q1, which we expect to be more than that. Our combined ratio of 74.1% was well below our long-term average and excellent results. This included eight points of higher favorable development than the favorable development recorded in the first quarter of last year. Net investment income similar to past several quarters showed significant improvement in Q1 when compared to the same period the year before. This resulted in a 0.7 point improvement in the annualized investment yield to 4.2% for the first vote. Specifically, in our fixed income portfolio we will maintain our first average rating at A, average duration of 3.1 years. Net income for the first quarter was just under $38 million compared to just under $34 million first quarter a year ago. This increase was driven by a higher level of underwriting income of a larger portfolio as well as a $3 million increase in net investment income. All those being offset by a $5.6 million of higher net ForEx losses and a higher general administrative expenses mostly relating to adding new talent across our team's. Core operating income which we believe is a truer measure of fundamental performance was $40 million in first quarter of this year representing an increase of more than 35% versus 29 million in the first quarter of last year. On the G&A expense ratio which was 2.3 points higher in the first quarter when compared to same period a year ago, we do expect it to be running a little higher in the near term, as IGI continues to grow in numbers we are now more almost 425 people across the group. In addition to supplementing times across our offices, we've also been taking the important step of replacing what were previously outsourced roles with dedicated in-house teams providing greater control and features on our site. Now turning to the balance sheet. Total assets increased a little over 2% to $1.88 billion and total equity has increased a little over 3% to $567 million at the end of Q1. The second tranche of burn-off shares totaling 600,000 with a vesting threshold of $12.75 vested during the first quarter. In total to date, $2 million earnout shares invested and a little over one million remain with vesting thresholds of our $14 and $15.25. On the capital management front, we continued to repurchase our common shares under our existing five million shares repurchase authorization and we now have around one million shares remaining under the existing authorization. As always this wasn’t -- mentioned a moment ago, our priority is underwriting first and where we have capital in excess of the opportunities for tomorrow in underwriting, we will return it to shareholders. You will recall, we announced special dividends of $0.50 per share alongside the regular quarterly dividend of $0.01 per share during the first quarter, which meant our equity was impacted by a payout of just under $24 million during Q1. Ultimately we recorded a core operating ROE of just shy of 30% for the first quarter, compared to 27.9% in the same period last year. And we grew our book value per share by 1.5% to $12.58 at March 31st. So all-in a very solid quarter and the start to the year with a few moving pieces. But we continue to be optimistic about 2024. Just moving on to our markets for bids, we're seeing a continuation of the trends that we saw during 2023, opportunities are still very much prevalent across much of our portfolio, but momentum is solid. As I noted a moment ago, we expect to see the growth rates of around high single digits to low double-digit percentages, which I'll say a few more words about in moment. Overall, I think we're in that critical transitional phase where cycle management levels -- leverage come into play. And this is where we are most affected. We are shifting or increasing our focus on those areas with better conditions, higher returns or returns that beat our profitability and risk return thresholds. And we're reducing or moving away from areas that no longer meet those thresholds. This is exactly the type of market where we can demonstrate our strengths. As we've always said, we were very much technical underwriters here with IGI, the conditions we're seeing today are all of us technical underwriting instance smart grids as such. When we think about the short ail segment, we're most encouraged by opportunities in engineering, property, contingency and marine cargo, But then other lines like aviation, upstream energy are definitely more challenging. Engineering and construction continues to be a bright spot for us in many of our markets, including the Middle East and Asia. And we're expanding teams and our underwriting expertise across many offices, most recently in the nation callable. As you know we've entered the US construction market and we'll continue to build our presence there, while always staying well within our risk appetite, of course, mindful of our cat exposures. In our treaty reinsurance business, our reinsurance segment, we saw net price improvements of more than 70% in the first quarter on the back of 25 plus percent increases last year. And this is by far the most attractive area of our portfolio right now. And there continues to be plenty of opportunity to drive the business. And we, of course, are exploring ways to diversify the spoke and expense especially our specialty insurance footprint, which historically had not made up a significant proportion of our portfolio. We expect this book of business to continue to grow in proportion to our overall book for the foreseeable future as conditions remain positive. In the long tail segment, where we – it’s a rate -- in the US Business. Rates continue to follow the past several quarters trending downward, but mostly in an order. Overall net rates remained broadly adequate. But again, like the other areas of our business, there's much variation by line and where rates are not adequate we are walking away from business. One thing I will note is, I would not expect to have -- see much growth in this segment in 2024. Turning to our geographic markets. Rates in the US continue to outpace all other markets in the -- again sort of deadline to property, energy, PV, and contingency and this remains at the big growth areas for us. In the first quarter of the year, we witnessed just over $34 million in gross premiums in the US and that represents about 35% growth over the same period last year. We expect to benefit from our entry into the US construction market. As I noted earlier, while we're evolving it cautiously right in small to medium-sized projects, with manageable positive variance, managed cat exposures, it's been varying from the way we might International General [indiscernible] In Europe, where we wrote over $22 million in Q1 versus about 19 million in the same quarter last year. We do expect to see further opportunity to show growth throughout the year especially given our new Oslo platform where we've bolstered our underwriting team to expand our presence and relationships in Nordic markets specifically for -- say at this time on professional financial loans. Uncovered other opportunity though there's already like engineering in these nations. I'm not going to go for five over that. I am particularly excited about our announcement this morning that we've established a presence at Lloyd's of London, with a company box and we begin trading tomorrow. We're offering a number of lines of business, Property, Energy, Contingency Political Violence Ports and Terminals and Marine Cargo as well as various long tail lines including Marine Liability Pressure Identity and Financial Institutions. Our underwriting teams will be there and operate on a rotational basis while our offices online see here in London are just sold throw away from the Lloyd's building at -- of the London market at Lloyd's offers us a significant opportunity for us to build on the profile of the presence. And more importantly, benefit from the additional distribution opportunities that Lloyd spreads. Everything we're doing today and the significant enhancements we have made over the past several years. Our work continues to strengthen our solid foundation. We've grown and diversified our company focused on our core principles of selective and disciplined underwriting, dynamic cycle management spend cautious reserving with the ultimate goal of protecting the profitability profile of our company and the capital that is entrusted to us. We've generated excellent results, that will serve us well in the quarters and years ahead, and allow us to continue to deliver on our promises to all stakeholders. So, I'm going to pause here and we'll turn it over for questions. Operator? We're ready to take the first question, please.

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Alan Chen with RBC Capital Markets. Please go ahead.

Hey thanks. I'm on for Scott this morning. My first question would be on reserve that looks like the reserve release in the first quarter was very strong. Can you maybe provide more color on the 19.4 points favorable development we see there? And does that change your view on the reserve release for the next few quarters? Thanks.

Thanks for the question. I think I think the reserve releases yes they were healthy in Q1. I think that's a reflection of ours cautious approach to reserving as we mentioned every quarter, but it's also a reflection of the year than we had last year and now 2023 was still very much visible. Again one of the more benign years for us cat exposure perspective of how talks perspective or severe Capital's perspective and also even from a from a loan growth perspective for us. So that has resulted in the release of some reserves. Our approach continues to be cautious, will always be independent and it looks like this. We expect a continuation basis could tell the level going forward, but you know in environments like this from releases are expected to continue.

Okay, thanks. That's very helpful. And then my second question will be on the short tail line. But it appears there's been has been more competition in the space estimation. And can you maybe expand more on the competitive landscape that you see there and maybe if you can touch on the reinsurance segment as well. Thanks.

So, sorry for that short tail.

Yes, can you briefly on maybe expand on the short-tail line and maybe talk about the competitive landscape that you see there. And then if you could also talk about reinsurance segment as well, it will be helpful.

Yes, absolutely. So I'll start with the business short tail. We've always had ended in 2023 because there are a reflection of that as well. But clearly, it's very -- it's fairly mixed. It's mixed by line of business by territory. Again the US is definitely the best area for short-tail business for us, but focusing our own guarantee or on the selected wireless side from the onshore energy side, the rest are fairly modest. You know this segment saw net rate movements in China in Q1 of just under 3% which is still marginal in our opinion and relatively flat, but areas such as aviation, we're definitely under volume pressure. And our book is actually shrinking in that time of business. And if you look at -- if you turn to the reinsurance side of things, I mean this is as we said on the call this is by far the most exciting part of working. We practically doubled our both last year and our portfolio in the first quarter has grown by further 21%. I think you're not getting the same level of rate increase and rate movements in the quarter. But in this year as you saw last year however the market looks to remain disciplined to a certain extent. Although, as we mentioned I mean after the year to the market and instituted last year especially the re-insurers payments, you are seeing a lot more hunger this year than we did last year. So people want a bigger piece of this. People want a bigger piece of the pie. So that's just something we have to deal with. But the opportunities are abundant. Historically our book of business has been more focused on non-marine property including check books, but we've now expanded that into areas such as political violence, aviation, cyber and we're looking to bring now to bring in Phoenix and the team to further diversify and grow our specialty portfolio which historically has elevated the vast proportion of the overall book up and so definitely the most exciting participant.

Got it. Thanks. If I can maybe ask one more?

Yeah. Go ahead.

Yeah. Thanks. If I can maybe ask one more. It looks like the investment yield went up during the quarter and I noticed that your cash balance went down by like 30 million and can you provide additional color on where you deploy the cash and what opportunities that you might see there? Thanks.

The cash balances to a place now where we take the money from an investment perspective. I mean our investment approach and that has not changed. We continue to focus on fixed deposits and that was for the bulk of fixed income deposits in a portfolio. So it's just a matter of making sure any cash lying around was put to good use.

Yeah. Got it. Thanks for answering my question.

Pleasure. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to management, for any closing remarks.

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 will be happy to assist. We look forward to speaking to you on next quarter's call. Everyone, have a good day.