International General Insurance Holdings Ltd.

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

Thank you, and good morning, and welcome to today's conference call. Today we'll be discussing our fourth quarter and full year 2022 results. You will have seen our 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 iginsure.com. We also posted a supplementary investor presentation, which can be found on our website on the Presentations page in the Investors section. With me on today's call are Wasif Jobche, Chairman and CEO of IGI, 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 walk through the key drivers of our results for the fourth quarter and full year 2022, and also give some insight into current marking conditions and our outlook for 2023. At that point, we'll open the call up for Q&A. I'll begin with some 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. We caution you that such forward-looking statements should not be regarded as a representation bias 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 set forth in the company's annual report on Form 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 use non-IFRS financial measures in this conference call. For a reconciliation of non-IFRS measures to the nearest IFRS measure, please see our earnings release which has been filed with the SEC and is available on our website. With that, I'll turn the call over to our Chairman and CEO, Wasip Jobche.

Thank you, Robin, and good day, everyone. Thank you for joining us on today's call. We had another excellent year in 2022 to close out our 20th anniversary year. As we begin our third decade, we are in our strongest position ever with exceptional teams across the company. a performance-based culture, and a proven ability to manage the growth, volatility, and the cyclicality of this business. For 20 years, our focus has been on creating a solid and lasting company built on financial strength, innovation, and one that is a fair partner to all our stakeholders. Our track record of earnings stability and consistency shows that we are certainly on the right path. We posted record results in many of our key metrics in 2022. Our full year combined ratio of 78.5% and core operating return on average shareholders' equity of 22.7% demonstrate how our strategy and execution capabilities are driving consistent high-quality returns and shareholder value. I want to thank all of our IGI family for their focus and dedication to the continued success of IGI. Walid will talk about the results in more detail and specifics on what we are seeing in the market. So just a few more comments from me. Overall, the market remains robust with varying competitive pressures leading to some fragmentation between lines and territories. Our industry continues to face a lot of headwinds, with social and financial inflation, political instability, and increasing frequency and severity in natural catastrophes, among others. The market is becoming more challenging generally. Nevertheless, We are still seeing and expect to continue to see some very good opportunities for new business across our portfolio. So we continue to be optimistic about our future and continuing to deliver on our commitment to creating value for the long term. Now, Walid can take you through the results for the quarter and full year and provide more details on our outlook for the remainder of 2023.

Walid. Thank you, Wasif, and thank you all for joining us today. I'm going to start with some key highlights in our results for the fourth quarter and full year, and then we'll move on to what we're seeing in our markets and the opportunities ahead. As Wasif said, our results in 2022 were excellent. and really demonstrate the consistent execution of our strategy, the focus and commitment of our people, and our ability to shift gears within the changing market conditions. I'd echo Wasik's comments and commend everybody at IGI on their hard work, their dedication, and the great results we've achieved in 2022. You saw from our press release issued last night that we had record results in a number of line items. Net underwriting results increased over 40% to 148.5 million, leading to an after-tax profit of 85.5%, almost double that of the previous year, 2021. And a combined ratio of 78.5%, showing 7.9 points of improvement over 2021. And our book value per share was $9.49, up 7.5% from year-end 21, and over 25% since we became a public company in March of 2020. Other highlights for the full year, gross premiums written increased by 6.6%. This is on the back of increases of more than 16% in 2021 and more than 33% in 2020. Total assets increased 7.5%, total equity up by 6.9%, We continue to make some adjustments in our investment portfolio during the fourth quarter, increasing our allocation to higher rated bonds, managing the duration of the bond portfolio down to three years at December 31, 2022 from 3.3 years at September 30th. And that's the fourth straight quarter we've reduced the duration of our bond portfolio whilst maintaining average credit quality at A-minus. We also increased our cash and short-term deposits to take advantage of the more attractive returns. All in, we delivered 20.6% return on average equity and a 22.7% core operating return on average equity. I'll address a few themes coming out of 2022. First is the impact that foreign currency movement played in our results. As you know, we report in U.S. dollars, but a sizable percentage of our transactional currencies are the pound sterling and the euro. So there can be some volatility in currency translation. We saw the first three quarters of 22 being impacted by the strengthening of the U.S. dollar against the pound and euro. And we said each quarter that at some point this would change and it would have the opposite effect on our underwriting results. Well, that happened during the fourth quarter. The pound strengthened against the dollar and virtually reversed the impact of the prior three quarters. Also, during the fourth quarter, we took steps to mitigate some of that FX volatility by lowering the foreign currency exposure in our balance sheet and holding more assets in pounds and euros. Our results for the fourth quarter clearly demonstrate what we've been saying each quarter this year, that one quarter is not a true measure of our performance, and looking at results and our profitability over a longer term is more indicative. In each quarter's results in 22, currency movements have contributed to volatility in most of our key metrics, specifically net underwriting results, combined ratio, and core operating results. Positively during the first three quarters when the US dollar strengthened against the pound and euro, and the reversal of that in the fourth quarter when the pound and euro strengthened against the dollar. Our industry will always have quarterly volatility for a variety of reasons, so it's more indicative, as I mentioned, again, to look at the longer periods. In other developments during the year, previously announced we created a new Chief Underwriting Officer role, and I'm pleased to say that Chris Jarvis joined us in October of last year. Chris brings significant London market experience, most recently with Canopias, and we're already benefiting from his experience, his relationships in the market, and the fresh perspective that he brings to the business. We opened an office in Bermuda, where we've had a principal and underwriting subsidiary for many years. With the new office in Hamilton, it is a small but growing team there. We expect to expand our portfolio of reinsurance treaty business in the near term. Back in August, we announced the acquisition of an Oslo, Norway-based MGA called Energy Insurance Oslo, or EIO. with whom we've had an exclusive underwriting agency arrangement since 2009, writing a portfolio of mostly upstream energy and construction business. We launched a number of initiatives, made a number of new hires across the company in underwriting, investments, IT, operations, in order to effectively integrate and service the growth we've seen over the past few years, and that we anticipate going forward. And on the capital management front, we announced a new dividend policy, a 5 million common share buyback. You saw the update in our press release issued last night that we've utilized more than half of our 5 million share repurchase authorization. Specifically, we repurchased a total of 2,582,317 common shares in open market purchases and one privately negotiated transaction during the first quarter of 2013. all at prices well below our December 31st stated book value per share of $9.49. Before moving to commentary on the market, I'll address some items to take into consideration relating to the first quarter of 23. First, as mentioned in our 20F filings for year 21, we have voluntarily decided to change our basis of accounting from IFRS to US GAAP. We will report our consolidated financial statements in US GAAP effective 1st of January, 2023. Accordingly, the companies evaluated the potential conversion impact of this change and the first time application of US GAAP. So as a result, we estimate total reported equity of 429.8 million as it stands now on an IFRS basis as at 31st of December, 22, will be in the range of 405 to 415 million on a US GAAP basis. It's also important to bear in mind the large repurchase we made in January, which will be reflected in our first quarter 23 results. Turning to the market, our industry continues to be challenged on a number of fronts, with instability and uncertainty across the globe, inflationary pressures, both social and financial, all of these impacting our business. Broadly speaking, the market overall remains robust, but there's wide variation in pricing terms and conditions, not just by line of business, but by geographies across our entire portfolio. While we continue to see positive rate movement across our portfolio, with cumulative net rate increases for 22 of 5.2% in short tail lines, 7.1% in long tail lines, and 5.4% in reinsurance, This isn't wholly indicative of the underlying trends that we're seeing in each of these segments. Overall, we're seeing more opportunities in our short tail and reinsurance segments. I'll start with our short tail business. We're seeing some excellent opportunities across our portfolio, but specifically property as well as construction engineering, contingency, PV, and marine cargo. Clearly, following Hurricane Ian, the US markets are showing more dislocation with reduced and restricted market capacity, along with higher retentions and significant price increases being imposed. Where we're seeing the most opportunity is in our property DNF book, where we've been seeing significant increases in submission flows. On the PV side, we're seeing a greater degree of dislocation with tighter wordings and event coverages, and reinsurance capacity for PV is much harder to come by following the events in Chile, South Africa, and more recently, the Russia-Ukraine war. At 1.1, our contingency business, while still small in terms of dollar premium for us, is showing healthy rate momentum and we expect to show growth in this line. We're seeing healthy rates in terms of engineering and construction with plenty of opportunities, especially coming out of the GCC and MENA regions. where there's significant infrastructure development going on with many large projects. For us, these are markets we know very well, and we have people on the ground who have long and deep relationships in the region. Our Dubai office specifically performed very well last year, writing about 25% more business than the prior year, and we are expecting this trend to continue. There's been much said already about the January 1st renewal period. While 1.1 is an important renewal for us, our business renews fairly evenly throughout the year, and our reinsurance business is comparatively small overall. However, we did take advantage of the significant dislocation in the treaty reinsurance market so far this year, where we wrote over 65% more than we normally would, and that's on a diversified multi-line base. You can expect to see our reinsurance segment globally diversified, become a more significant piece of our portfolio and probably closer to 10% of our overall book in 2023. Having said that, we witnessed some unusual dynamics in the direct markets in the fourth quarter, at the same time as we were seeing tightening in the reinsurance markets in the lead up to 1.1. I mean, as far back as June, July of last year, we were seeing some erratic behavior in the direct markets. And what really seemed to be somewhat of a lack of direction and discipline. As a result, we took a much more cautious approach in the fourth quarter, waiting to see the outcome of 1.1. And this was one of the reasons you saw that our gross premiums written in the fourth quarter were down compared to Q4 2021. Specifically, no growth in short tail lines and the non-renewable, some long tail business. Turning to our long-tail segment, the story is quite different. I mean, we're seeing more headwinds with increasing socioeconomic inflationary pressures, and the landscapes become more competitive with new capacity in the markets we write. I'll reiterate, again, you know, we don't write any long-tail business in the U.S. While rates overall in our long-tail segments were still adequate in the fourth quarter, we've seen several consecutive quarters now where renewal rates are trending down, and this is more pronounced in FI and DNO. But PI and general casualty lines are also following a similar trend. We haven't seen any real change in claims activity yet, but it's something that we continue to monitor and take a cautious view here. So you can expect more of a leveling off following 16 straight quarters of compound rate increases and significant growth in this segment. We've always prided ourselves on our ability to anticipate shifting markets and respond quickly and decisively. And we've demonstrated this ability, or the ability, to successfully navigate the volatility and the cyclicality of this business. And our track record, including the results that we're talking about today, clearly illustrate this. This is the driver behind the success we've achieved over many years, and that is what you're seeing us do again so far in 2023, focusing more on those short-tail reinsurance lines that are showing positive momentum and being more selective on the long-tail business. So all in, we're seeing some very good opportunities at the outset of 2023. You can expect to see some good growth when we issue our first quarter 2023 results. Also, we're close to completing the acquisition of EIO, and we expect that will present some additional opportunities to expand the existing business and also leverage our relationships to access future growth opportunities, not just in Norway, but throughout the Nordic markets. So just one last point from my end before we open the call for questions. We typically announce a common share dividend at the same time as we issue our results, as our board typically meets at that time. Following year end, however, our board typically doesn't meet until close to the end of March, and that is the same this year. So you can expect an announcement at that time. Again, I'd like to thank you for your interest in and support of IGI. We're committed to generating value for our shareholders through excellent and 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. Operator, we're ready to take the first question, please.

Thank you. We'll 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 comes from Mark Dwell from RBC. Please go ahead.

Hey, good morning. A couple questions. First, there was a relatively higher level of catastrophe losses in the quarter than maybe what I was expecting. Can you talk about where you had exposure there and what the factors were in that?

Yeah. Hi, Mark. Thanks. There wasn't any specific event that made up those numbers. It was really the majority of that amount is more general catloads that we have in our reserves and we kept Following Ian and some of the other events that happened throughout the year, we've noticed maybe a little bit of a slowdown in the way it's being reported. Most of that is made up of the general catalog. We had a couple of million dollars exposure on Hurricane Ian and a little bit on Australian floods, but there was no specific event that had any sort of material impact on the numbers.

Okay, that's helpful. I knew some of the winter storms in the U.S. were big for a lot of the U.S. carriers, but I wouldn't have figured you had exposure there. So I was curious if there was something I missed, and that helps clarify. The second question that I had, and this is really just trying to patch together a couple of the comments you made in your opening remarks, So it sounded like in the fourth quarter you saw some market behavior that you weren't keen on and accordingly, you know, refrained a little bit from, you know, growing the book at that point, and particularly in the long tail lines. And then if I'm interpreting it correctly, that gave you the opportunity to then, you know, take a little bit better, fuller advantage of some of the conditions that prevailed you know, around the January one and early first quarter renewals. Is that the right way to think about your comments?

That's almost exactly the way to think about my comments. I mean, we were pretty surprised and disappointed with the behavior that we were seeing in the markets. I mean, especially following, you know, from August, September of last year, you know, the market had at the reinsurance markets was showing clear direction of where it was going. Unfortunately, from what we observed in the latter part of the year, the direct markets chose to really ignore that. Whilst they knew what was coming, we felt that they didn't choose to react or be proactive with it. And so you did find some erratic behavior, some increased competition. And it was behavior that we weren't willing to be a part of. That being said, come 1.1, the reinsurance markets were true to their words and actions. And since then, we've seen a huge shift in dynamics within certain markets, certain territories, certain lines of business. And as we said, especially really where we're seeing it on the short-tail business, on the reinsurance segment. And it's a markedly changed environment than what it was just a couple of months ago. And so the opportunities have so far this year, I can say, have in all honesty exceeded our expectations and hope. hope that this, and expect that this continues throughout the remainder of the year.

And that's helpful color. Were there any particular lines in the fourth quarter or late in last year that seemed to be particularly erratic?

I mean, we saw and we've been seeing But it's almost like consistent. In the long tail side, on the FI, the DNO, we've seen trending and downward pressure on rates consistently. And we expect that to continue throughout the year. Where we probably saw the erratic behavior that has now reversed itself more so far this year is probably on the property side, in all honesty. more so on the international book than the U.S. book, but that's, again, that's become, that's come around to a different story so far this year. I mean, we will continue to focus on those areas where we feel the returns are healthiest, and that's always been how we've done things, and I think a critical part of our strength and competitive edge. And I think 23 is gonna provide great opportunity and more opportunity than 22 did.

Okay, that's helpful. And can you just remind me about what percentage of your book is written in pounds and euros as compared to dollars?

It's about a third of the book that is written in pounds and euros combined. Maybe a little over a third, 35 to 40%. Okay, that's helpful.

I'll give others a chance, thanks.

Again, if you have a question, please press star, then one. This concludes our question and answer session. I would like to turn the conference back over to Wasif Jobche 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 the future years. If you have any additional questions, please contact Robin, and she will be happy to assist. Have a good day.

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