International General Insurance Holdings Ltd.

Good day and welcome to the International General Insurance Holdings LPD's second quarter and half-year 2022 financial results conference call. All participants are in the list-and-owning mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note this event is being recorded. I would like to turn the call to Robin Sitters, Head of Investor Relations. Please go ahead.

Thanks, Anthony. And good morning, everyone. Welcome to today's conference call where we will be discussing our second quarter and half year 2022 results. You will have seen our results press release, which we issued after the market closed yesterday. If you'd like a copy of the press release, it's available in the investor section of our website at www.ijinsure.com. We've also posted a supplementary investor presentation which can be found also on our website on the presentations page in the investor section. On today's call are Wasif Jobche, Chairman and CEO, Waleed Jobche, President, and Pervez Rizvi, Chief Financial Officer. Wasif 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 second quarter and half year. and also giving some insight into current market conditions and our outlook for the remainder of 2022. At that point, we'll open the call up for Q&A. So, before we begin, I'll just cover some of the customary Safe Harbor language. Our speaker's remarks may contain forward-looking statements. Some of the forward-looking statements can be identified by the use of forward-looking words. that such forward-looking statements should not be regarded as a representation bias that future plans, estimates, or expectations contemplated bias 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 set forth in the company's annual report on Forms 20F for the year ended December 31st, 2021, the company's reports on Form 6K 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. In addition, we used some non-IRS financial measures in this conference call. For a reconciliation of non-IRS financial measures to the nearest IFRS measure, please see our earnings release, which has been filed with the SEC and is available on our website. So with that, I'll turn the call over to our Chairman and CEO, Wasip Jobche.

Thank you, Aubyn, and to everyone. Thank you for joining us on today's call. On the back of our strong start in the first quarter of 2022, IGI continues to perform well with another set of excellent results recorded for the second quarter and set-up of 2022. Our six-month combined ratio of 73.5% and cooperating return on average shareholder equity of 26.8% demonstrate how our strategy and execution capabilities are driving continued high quality returns and shareholder value. We look at our success over a long term period. One or two quarters may stand out compared to others. We are solely focused on our ability to perform well over a sustained period of time. And that is what we are doing at IGI. Over the past 10 years, we have achieved an average combined ratio of 80%, and a core operating return average equity of more than 11%. This is an impressive track record of earnings, stability, and consistency. In our 20 years, we have grown significantly on every measure, and we are continuing to grow at a steady pace. We are expanding our underwriting portfolio and our footprint. into new lines of business and territories. We are offering new options and taking on new underwriting support. Walid will talk more on this respect, but I would simply note that we are focused on managing this growth in such a way that we maintain all those qualities that have helped drive our past and current success. We are initiating and implementing the measures across the company to ensure that we have the right infrastructure and the right people to support all these changes. In a moment, I will hand over to Walid to discuss our results in more detail and our outlook on the market and the specifics of the opportunities ahead of us. is peaking, market conditions remain favorable, and we continue to see attractive rate increases across a number of business lines and territories, and we see excellent opportunities to expand our portfolio. We have noted in prior quarters that the pace of rate increases is declining, but we are still achieving meaningful increases across most of the lines we like and we are exactly where we need to be to continue to benefit from the momentum for the foreseeable future. Clearly we are operating in an increasingly challenging environment where elevated inflationary pressures and rising interest rates and broader economic pressure pose really challenges our business. While we are very focused on what's going on inside AGI, we are equally focused on what's going on around us. to navigate these challenges and stay successful means having the right people with the right experience and the right level of focus and discipline to manage through any scenario and deliver the promises we make. This is what we have at IGI and I'm confident that we will stay the course and continue delivering the quality of results that we are seeing from us. We are very optimistic about our future and continuing to deliver on our commitment to creating value for the long term. Now Waleed can take you through the results for the quarter and half year and provide more details on our outlook for the remainder of 2022. Waleed, you can go ahead.

Thank you, Wasif, and thanks all for joining us today. I'm going to take a slightly different approach this quarter and focus more on what's going on inside IGI and also what we're seeing in the market and the opportunities ahead of us. But just a few comments on the results to begin with. As Wasif said, the results for the second quarter and half year are very strong. We recorded solid profitable growth in all areas of the business, and we're continuing to make decent and excellent progress in identifying new diversified opportunities. Our six-month combined ratio of 73.5% is particularly strong on the back of the 72.2 we recorded in the first quarter of the year. And I would note that this includes about 12.6 points of favorable development. While the HACU result is exceptional, like Wasif said, we do look at our performance over a longer-term period. rather than specific quarters or years. Another item of note in our results this quarter, as well as the prior quarters, is the balance sheet impact of the foreign currency exchange movements driven by the continued strengthening of the US dollar. For the second quarter, first six months, that impact was a negative 9.2 million and a negative 12.7 million, respectively. It's important to understand where this is having the biggest impact for us and what we're doing about it. where the currency impacts one side of our balance sheet, there is typically a corresponding impact elsewhere in our financial. We're continually monitoring currency movements on both sides of our balance sheet to better manage this volatility. As you know, our industry will always have quarterly volatility in one form or another, and we've said this many times before, it's more indicative to look at the longer-term trends. Clearly, there are broader social and financial challenges that are facing our industry today. With our 20-year history, IGI has obviously been tested many times and we've got a history of adapting as and when we need to. And now is no different. As we continue to experience instability and uncertainty across the globe, rising inflation, both social and financial, is impacting our business. We're monitoring this closely and have adjusted our views on pricing appropriately. We tend to take a conservative view with our loss picks, given the complexity and inherent uncertainty in our industry, but we took additional steps during the second quarter to account for the inflation uptick. Lastly, we made some adjustments to asset allocation in our investment portfolio during Q2, including increasing our allocation to higher rated bonds and managing the duration of the bond portfolio, bringing it down from 3.9 years average at the 31st of March to three and a half years at the 30th of June. We've also increased our cash and short-term deposits to take advantage of the more attractive returns. I'll say a few words about market conditions, our position in the market and the outlook for the remainder of 2022 and beyond. I mean, we're now more than halfway through the year and all indications are trending in the right direction. Just elaborating on Wasif's earlier remarks, We're continuing to see healthy rate movements across our portfolio. Cumulative net increases for the first six months of 22 registered 11.3% in the long-tail lines and 4.3% in short-tail. The reinsurance portfolio continues to see moderate rate improvement of about 5%. It's probably fair to say that we're seeing more opportunities in short-tail lines than long-tail lines. That landscape is becoming more competitive with new capacity in the markets we ride, particularly in the UK. There's not been any change in claims activity, but we're taking a cautious view here. In our short-tail portfolio, we've increased line sizes in energy, engineering, and property, where rates remain healthy and...

territorial commentary.

US and Europe are both growth markets for us. And we expect to see further expansion in those regions during the remainder of the year and further growth in 2023. In the US, as you're all aware, we're primarily writing energy and property business. We've more than doubled gross premiums through the first half. Similarly in Europe, where our focus has been actually been more on the long-tail opportunities, primarily DNO and PI. We've risen close to $24 million of premium for the first half, and we expect to see steady growth going forward. As you know, we opened our European subsidiary in Malta last year in July to access this business directly in Europe. We've also recently announced that we've signed a letter of intent to acquire Energy Insurance Oslo. It's a Norwegian-based MGA, which we've had an exclusive underwriting agency agreement with since 2009, writing a portfolio mostly upstream energy and construction business. We expect this acquisition to be completed during the third quarter. This gives us two opportunities. First is to expand the existing business that we've been writing for many years. but second, also to leverage our relationships to access further growth opportunities, not just in Norway, but throughout the Scandinavian markets. I would note here that this is an excellent example of the value of true partnerships and how IGI is benefiting from strong relationships with our partners. This relationship with EIO has been particularly beneficial to IGI for many years. The principles of EIO have built IGI's brand in Norway, especially in the energy sphere, where we have a strong reputation and broad name recognition, and where their efforts have produced solid results for IGI and built a foundation we can now expand upon. We've also recently began the process of establishing an on-the-ground presence in Bermuda, where we moved our domicile in 2019, but where we've had the subsidiary underwriting entity for many years. With the new office in Hamilton, We expect to expand our portfolio of reinsurance treaty business in the near term. And we'll be providing more details on this later in the year. So it's fair to say we've got a lot going on. What you're not seeing is all the work being done to manage our growth, continue the momentum, manage our risk appetite, and ensure that we maintain the track record of strong results that you've seen from us so far this year. This is something we talk about across our management teams regularly. We've launched a number of initiatives and made a number of new hires in recent months across the company, not just in underwriting, as I've said previously, but also in investments, IT, and operations. This all and always effectively integrates all the change. Our continued success depends heavily on the people and talent we can attract and retain at IGI. Our business, specialty insurance business, requires experience, technical expertise, discipline, and strong leadership. We have that at IGI and we are always working hard to ensure we maintain and improve it. We have good people and a strong performance-based culture. We've proven our ability to manage growth, volatility, and the cyclicality of this business. And our track record demonstrates this. So one last point before we open the call for questions. We began utilizing the new share repurchase authorization we announced in May. You saw the update in our press release issued last night that as of earlier this week, we had repurchased more than 35,000 common shares at an average price per share of $7.51, well below our 30th of June stated book value of $8.64. We will continue to repurchase until we tell you otherwise. Lastly, I would just highlight the dividend announcement we made earlier this morning, which reflects the new dividend policy announcement made Again, our commitment is to generate value for our shareholders through excellence in underwriting, growing our book value per share, and leveraging other capital initiatives. So I'm going to pause here, and we'll turn it over for questions now. Operator, we're ready to take the first question, please.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble our roster. Our first question will come from Mark Dwell with RBC. You may now go ahead.

Yeah, good morning. A couple of questions. The first two are sort of numbers questions. It looked like the tax rate in the quarter was actually negative. Was there some sort of a benefit or kind of a one-time item or something in there that might have benefited that result?

Hi, Mark. Thanks. I'll divert that question to Pervez. Pervez, do you want to address the tax rate?

Tax rate is applicable to our UK operation only. Our Bermuda operation, we don't pay any tax. It is tax-free. But the general tax rate for the UK is around 30%. But I can get specific later after checking with our UK operation. The reason why it is negative, we have a deferred tax asset for our malt operation. This has turned into negative because we have the first half year of operation which was a loss recorded and we created a deferred tax asset. That is why it is negative.

Okay, thank you. The second question I had related to some of the reserve releases in the corridor. It looked like those were primarily on the long tail lines. Could you maybe talk about kind of which lines were impacted and maybe which accident years?

Thank you, Mark, for the question. The reserve releases from prior years is predominantly on the long tail lines. a more cautious view, especially with long-tail business. In terms of the specific accident years, I don't have the specifics in front of me, but they are on the older years. Obviously, the newer years will be kept, and the ULRs not really adjusted that much until we feel more comfortable that we can adjust them. But yeah, most of our reserve releases would be on the long-tail segment, where most of our reserves lie anyway.

Okay. The other question I had, you had commented about, I guess, expanding the scope of the operations in the Bermuda subsidiary, and you mentioned reinsurance treaty business. Would that be mainly property-oriented, or would it be casualty, or maybe both?

I mean, in the near term, it'll most likely be focused on property. It's going to be a small operation to begin with, and we'll provide more details later in the year. But as time goes by, the operation is undoubtedly going to grow, and it'll grow based on what we feel the opportunities are and where they take us. Initially, this will be a property claim.

The last question that I had, you had commented at the beginning of your remarks on some of the rate increases. The rate increase in the short tail lines of 4.3% is probably a little bit lower than what I've seen reported from some other similar companies. I was just wondering if you could elaborate on that a little bit more. We've seen other companies that were really more in the mid and high single digits on some of those lines.

I mean, it all depends more on the composition of the portfolio territorially as well. So, you know, our book, our property book, for example, or the short tail book is very much diversified. A small element of that is in the U.S., which I would assume is the others who have reported would be more weighted towards the U.S., whereas the U.S. makes up about 10% or less than 10% of our overall portfolio. So various territories, different underlying market conditions, it's not going to be the same. But if you look at Our U.S. property portfolio, for example, you know, we average rate increases in the U.S. of about just under 20%. But overall, as an average within the short sale segment, that comes in at about 4%. So it depends on the weighting of your book, and we're seeing different conditions in different parts of the world.

Okay, that's definitely very helpful. I mean, obviously you're making good combined ratios on the rates that you're getting, so I guess that's a factor in it as well. I'll stop there and let some others have a chance. Thank you for the answers.

Thanks, Mark.

Again, if you have a question, please press star then 1. It appears there are no further questions. 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. We appreciate your continued support and we will continue building on our successes so that we continue to generate value for you in future years. If you have any additional questions, please contact Robin and she will be happy to assist. Have a good day. Thank you. Thank you.

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