International General Insurance Holdings Ltd.

Good day and welcome to the International General Insurance Holdings LTD's fourth quarter and full year 2023 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 touchtone phone. 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 2023 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 www.iginsure.com. We've also posted a supplementary investor presentation, which can be found on our website on the presentation page in the investor section. On today's call are Executive Chairman of IGI, Wasif Jobche, CEO, Waleed Jobche, and Chief Financial Officer, Pervez Rizvi. Wasif will begin the call with some high-level comments before handing over to Waleed to talk you through the drivers of our results for the fourth quarter and full year, 2023. Also giving some insight into current market conditions and our outlook for 2024. At that point, we'll open the call up for Q&A. I'll begin with the customary State 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 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 forth in the company's annual report on Forms 20F, for the year ended December 31st, 2022, 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, as you're aware, we voluntarily changed our basis of accounting from IFRS to US GAAP effective January 1, 2023, During the conference call today, we'll use certain non-GAAP financial measures for reconciliation of non-GAAP financial measures. To the nearest GAAP 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 Executive Chairman, Wasif Jobche.

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 Alip. I'm very proud of our achievements in 2023, both financial and non-financial. It is very much the year where many things came together and we really demonstrated what IGI is capable of. During the year, we had our first CEO transition in our 22-year history, and I'm pleased with the seamless way in which this has occurred all around. Not just the leadership, but Walid has displayed but the support given to a need by all our people and the cultural integrity that has been maintained throughout. You saw from our press release last night that we had a strong fourth quarter to finish a superb 2023, clearly demonstrating how our focus, discipline, and consistency in execution are paying off. Our results for the full year 2023 are the best in our 22-year history. And this is on the back of very strong results in recent prior years. We recorded significant growth in all areas of our business. our underwriting portfolio, our investment portfolio, and our shareholders' equity, which is now comfortably in the space of half a billion dollars. We took advantage of the opportunities to capitalize on what were worldly positive conditions across our business. We continued to actively and efficiently manage our capital deploying it first to our underwriting operations and returning excess capital to shareholders in the form of share repurchase and dividends. During 2023, we bought back 3.4 million shares for $31.1 million. We purchased all outstanding warrants at a total cost of $16.3 million. And we paid $1.9 million in dividends. As you saw from our second announcement last night, I'm particularly pleased that our board has declared a special cash dividend of $0.50 per share for 2023, in addition to the regular quarterly dividend of $0.01 per share. Ultimately, we delivered 28.1% core operating return on average equity, the highest annual core ROE we have ever recorded. And we grew book value per share by over 36% in 2023. These are exceptional results, and I congratulate the whole IGI family for their dedication, commitment, and focus. We are a diverse, experienced, hardworking, and cohesive team at IGI. We are existing at a high level in all areas of our business, and where we have capital that is greater than we are able to put to work is underwriting. We are returning that capital to our shareholders in the form of dividends, share repurchase, and other capital management actions, as you saw from our announcements last night. We are firmly committed to delivering on our promise to continuously generate value for our shareholders. who have put their trust in IGI and supported us. We take this promise seriously and I'm very pleased with what we have achieved as a company, especially in 2023. I will now hand over to Alit who will take you through the results in more detail and talk about our outlook for the remainder of 24. I will remain on the call for any questions at the end. Walid, please.

Thank you. Good morning, Wasif. Thank you all for joining us today, and thank you, Wasif. I'm just going to follow the usual agenda and start with a quick recap of the results for the fourth quarter and the full year of 2023, and then we'll move on to our markets and our outlook for the remainder of 2024. As you saw from our press release last night and as Wasif highlighted, we produced exceptional results in both the fourth quarter and the full year. Before going through the financial highlights, I would first just like to echo Wasif's comments and congratulate our people on the high quality and consistent focus on execution throughout the year. Our results in 2023 as well as in recent years are differentiated and some of the best in the specialty insurance market. and we're clearly outperforming the current industry tailwinds. More than this though is the execution behind the numbers, and that is all about our people. We're technical underwriters first and foremost. That is what we do. Every team member understands our strategy, what their individual and collective responsibility is, and also how what they do impacts the end result. We're details focused, We've got a deep understanding of our markets with people on the ground providing cultural compatibility. We communicate with transparency, and we execute with precision. And to be perfectly honest, we're passionate about the business that we're in. Just moving on to some specific highlights. Growth in premium growth in the fourth quarter was 6.5%. which is more muted than prior quarters and in line with the historical patterns. For the full year, which obviously is a better indicator, we recorded growth of just over 18%. Again, the growth in 2023 is concentrated in the short-tail and reinsurance segments, while the long-tail segment remains more challenged, as we previously said. Specifically in the short-tail segment, we recorded just over 38% growth in gross premiums for the fourth quarter and just over 26% growth for the full year when compared to 2022. Growth in Q4 was in most short-tail lines, most significantly energy, engineering, and contingency. Areas where we are achieving rate improvements on renewal business continue to be most evident in property, entrepreneurial energy, and political violence. Our reinsurance 3T business, where we're seeing a continued strong pricing environment and plenty of new business opportunities, finished the year at 9% of our overall premium portfolio, almost double that of the year before. In 2023, cumulative net rate increases exceeded 25% in this segment. You will have seen the reinsurance growth written premium shortfall of $4.9 million recorded in the fourth quarter of 2023. I think most reinsurance companies go through a true-op process in the fourth quarter where there is some differential between actual written premium against expected premium recorded earlier in the year. For us, however, given the relatively small size of our reinsurance book in dollar terms, especially in Q4, that year end true-op resulted in a shortfall. For the full year, however, we almost doubled our reinsurance premiums to over $61 million. We expect to continue to take advantage of the many reinsurance opportunities out there while staying within our defined risk appetite. Our combined ratio of 81.8% for the fourth quarter and 76.7% for the full year were well below our long-term averages. While as I said earlier, our full year combined ratio was the best in our history. This included 2.9 points of unfavorable development of prior accident tier net losses in the fourth quarter of 23 compared to 4.3 points of unfavorable development for the same period in 22. Both periods were impacted by FX movements. And I mean, whilst I don't like to play the but-for card, both periods would have shown positive reserve developments on a neutral FX basis. For the full year, we recorded 8.8 points of favorable development versus 11.2 points in 2022. Net investment income, similar to the first three quarters of 2023, showed significant improvement in Q4 as a result of the rising rates and an overall larger investment portfolio. This resulted in a 1.4% improvement in the annualized investment yield to 4.3% for Q4. For the full year, net investment income increased almost 250%, with a 1.5 point investment yield improvement to 3.9%. Specifically in our fixed income portfolio, similar to the past, we maintained the overall credit rating at A, average duration at 3.2 years. And most likely we're probably going to see a slight duration increase over the next few quarters. Net income for the fourth quarter of 23 was 33 million compared to 22 and a half million in the fourth quarter a year ago. And $118.2 million for the full year compared to 89.2 million for 22. A truer measure of our performance is core operating income. which more than doubled in the fourth quarter and increased 42.5% for the full year 23 compared to the same period in 22. Just turning to the balance sheet, total assets increased more than 16% to $1.84 billion, and total equity increased more than 31% to $540 million for the full year. On the capital management front, we are increasingly demonstrating our ability to pull the right levers to maximize shareholder value. As we've always said, our priority is underwriting first. And as Wasif said, where we have capital in excess of the opportunities to put to work in underwriting, we will return it to shareholders. During 2023, we continue to repurchase common shares under our existing 5 million common share repurchase authorization. and you'll have the specifics in our press release issued last night. We've got around 1.3 million shares left under our existing authorization. And last night, we announced a special dividend of 50 cents per share alongside the regular quarterly dividend of one cent per share. In addition, during the year, we redeemed all outstanding warrants for cash at an average purchase price of 95 cents per warrant for a total cost of just over $16 million. Ultimately, we recorded a core operating ROE of 23.7% for the fourth quarter and 28.1% for the full year 2023, which is the highest annual core operating ROE we've ever recorded in our 22 year history. We also grew our book value per share by almost 37% to $12.40 at December 31st. So all in, there really is lots to be proud of in what we've achieved, and we continue to be optimistic about the year ahead. Moving on to our markets, we're seeing continuation of the trends that we saw during 2023, and there continues to be a decent amount of profitable opportunities, most significantly in our short-tail and reinsurance segments. But within these, rates and conditions continue to vary by line and by territory. Just talking about the short-tail segment for a bit, we're most encouraged by conditions and opportunities in property, engineering, and PV. But all lines, really, with the exception of aviation, are holding up relatively well. Overall, in this segment, we've seen cumulative net rate increases of 9%, and that's fairly steady with what we saw throughout the year from the beginning. Again, there's a lot of variation by line of business. For instance, property seeing overall increases just shy of 14%, but these are higher in the US, for example. Lower level of increases in some other regions, and in some regions, we're seeing reductions. PV continues to see increases of 25%, given the geopolitical events of the past few years. There's quite a bit of tension in many parts of the world. 2024 is also a heavy election year across the globe where more than 40% of the world will be heading to the polls. So we expect this to continue. So all in all, as we really said throughout 2023, the landscape overall for short-tail remains encouraging along with reinsurance. and with continued opportunity and relatively positive rate momentum. In our 3T reinsurance business, we saw cumulative net rate improvements of more than 25% in 2023, and we expect the strong momentum to continue throughout 2024, whilst most importantly keeping a close eye on our risk tolerance. This is by far the most exciting area of our business, and there continues to be plenty of opportunity to write new business. We expect this portfolio to remain around 10% of our overall book for the foreseeable future, which is double historical levels. And at January 1st, rates held up quite well with continued positive momentum. The story in the long-tail segment conversely remains a little murkier. Rates continue to trend downward but mostly in an orderly manner though. Net rates overall are down slightly, but while they're coming off several years of compound increases, the most important thing is they remain broadly adequate across the portfolio. Again, like the other areas of our business, there is much variegation by line. We're continuing to take a cautious approach, selective approach to this business, and I would expect growth in these lines to be quite challenging in 2024. Lastly, we've heard a lot this earnings season about social inflation. And once again, I'd just like to reiterate that IGI doesn't write any US casualty business. So while we are impacted like everyone else with this environment, it doesn't impact us to the same magnitude it would to US casualty underwriters. Looking at our geographic markets, the US definitely continues to outpace all other markets with rate increases of almost 20% in the lines we're writing. I'll remind you they're all short-tailed lines, including property, PV, energy, contingency, and cargo. And these continue to be growth areas for us. In 2023, we wrote just over $94 million in GWP in the US, which represents growth over the same period of about 45% compared to 22. We recently also entered the US construction market, but are taking a cautious approach here. We're writing small to medium-sized projects, shorter policy periods, and as always, within strict CAT risk tolerances. In Europe, We rose over $80 million in GWP in 2023 versus about $52 million in 2022. And we expect to see more opportunities to show growth in the coming year ahead, especially given our newly opened platform in Oslo in Norway. In January this year, we added two new team members in Oslo. our oslo platform focusing on professional financial lines and as we've said before this is in line with our expansion of relationships and product offerings in the nordic markets in the middle east which makes them about uh under 10 just under 10 percent of our overall gwp conditions are quite mixed uh with evidence of increasing competitive pressures in certain lines of business But no doubt there are still pockets of opportunity, particularly in engineering and construction across the GCC countries. In summary, again, 23 was an exceptional year for IGI. Really, a year in which it really felt like we hit our stride. We're gaining recognition from our various audiences, and all the feedback we received has been quite positive. But we know that our work is not done and we continue to keep our heads down. We keep our sleeves rolled up and we remain steadfastly focused on the task at hand. That is to continue to grow a strong, diversified and profitable portfolio while actively managing the cyclicality and inherent volatility of our business. Focusing on those lines and markets with the strongest margins, as we always said. And very importantly, pulling back when and where the conditions just aren't right for us. We can't control what's driving change in our markets and in the broader world around us. Conditions are constantly shifting. And we're seeing more of that lately. Our success lies in our ability to understand and anticipate these dynamics. And obviously to respond quickly and decisively and allocate our capital accordingly. which I think we're very good at. As we did throughout the last 12 months, we're gonna continue to explore the best and most efficient uses of our capital so that we continue to deliver on our promise of maximizing value for our shareholders. We are very optimistic about our future, our ability to continue to deliver on that promise through consistently solid execution and prudent and active capital management underpinned by strong cooperation and collaboration from all of us at IGI. This is what is driving our success and our strong and successful track record. So I'm gonna 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. To ask a question, you may press star then one 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 and then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Scott Helniak with RBC Capital Markets. Please go ahead.

Good morning. Just a couple of quick questions on a few of the areas across your business. First, just the growth trends you're seeing in U.S., E&S, and Europe for short tail. It sounds like that's pretty promising. I'm wondering if you can talk about just kind of what sort of runway for growth you have there and whether you're seeing anything new on the competitive front. I know you mentioned some more challenging conditions in the long tail, but... Anything new there to talk about on the competitive front and then, and then, uh, you know, do you expect to see continued, uh, strong growth in that, um, you know, in the years ahead?

Yeah, Scott, thanks. Thanks for the questions. I mean, listen, there's no doubt that, you know, we're, we're coming probably up to the, to the, to the tip of that, uh, hard market in a lot of these lines within the short tail segments. You know, we're not getting the rate increases we got in 22 and 21 and 20. There are signs of more hungry competition in the market. The good sign is that it's not necessarily all new, you know, it's largely existing capacity that is getting hungrier rather than new capacity coming in, which tends to be the driver behind severe competition. You know, in 24, we don't expect to get the rate or achieve the rate increases in short tail that necessarily we've achieved in previous years. But, again, it's all about rating adequacy rather than just rate movement. And I think we continue to see healthy opportunities throughout the year. I think growth in long tail will definitely be challenged. Growth in short tail will continue. also be more challenging but the opportunities definitely will be there. For US and Europe specifically our books are relatively young so the runway for growth in those areas for us is I would say is more promising than the more established players in those markets. As we said You know, we're relatively underweight in Europe. Although we are growing, we are investing. So we continue to expect continued growth for us in the U.S. and Europe. So I hope that answers your question.

Yeah, no, that's definitely helpful. I wanted to follow up just real quick, too, on the long tail, where it sounds like you're pulling back a little bit and the pricing isn't quite as good. It's maybe down a little bit. Was there any particular – area that you want to call out? Any areas or any lines that are specifically weaker? Or is it just kind of general, a little bit weaker across the board? Or is anything kind of dragging that down more than any other line?

I mean, but definitely there's more competition on the financial institutions and D&O lines. The PI... you know, is a lot more flat, really, or was a lot more flat throughout 2023 than we saw in the FI and DNO lines. PI is definitely holding up better, which makes up, you know, the vast majority of our long tail book. So that's positive. But, you know, the trends, as we said throughout 2023, the trends on the PI side are in the same direction. We will take a cautious approach. We've always said when conditions are healthy, we'll put our foot on the gas and when they start to get more challenging, then we'll take the necessary steps and scale back if we have to. I don't think we're necessarily quite there per se. I would also say that You know, our renewable book is not necessarily a reflection of the market because there is a lot of business that we push away that is much more aggressively sought after that obviously does not get captured within our rate increases. So the rate increases we've mentioned are specifically to our portfolio and not necessarily a reflection of the market conditions themselves.

Okay, that's great. Just wanted to ask, too, about the – No, you don't write U.S. casually, but can you just talk about what drove the accident-year loss ratio improvement in the quarter year over year? I know probably some of that's mixed-driven just because you're writing more short-tail, but anything to comment on there specifically on the loss trend front across your book?

No, honestly, I mean, as you said, I mean, there's nothing specific that, you know, that sticks out. I think we're just following it. We've always said we'll shift focus towards the areas where we believe margins are going to be highest, and reinsurance was definitely one of them this year. By and large, it was a more benign loss year as a market as well, so we got benefit of that in line with other players.

Great. And then just one final one just on the special dividend. That was a nice surprise and something new for you guys. But I wonder if you could talk about just some of the factors that you guys considered that led you to the special dividend versus other areas of capital return or growth. And I know you mentioned excess capital, but just Anything more you can comment on that, how you were thinking about that in terms of ultimately declaring a special dividend?

As you know, a couple of years ago, we announced a new capital management strategy where we had announced a new ordinary dividend. We saw the opportunities in the market, Scott, and As we've said, it's underwriting first and foremost. We went towards growing the portfolio when the opportunities were there, which we have done. We announced a share buyback program, which we felt would be most beneficial to shareholders and adding and creating value. We used those funds to buy back the warrants last year. But in all honesty, The returns that we've achieved over the last couple of years have exceeded our expectations, and the returns we've made are extremely healthy, some of the best in the market, allowing us with the financial flexibility to be able to declare a dividend on top of all the actions that we took in 2023, and a recognition of the support that our shareholders have given us and the rewards they deserve. So capital wise, we remain very adequate and with this dividend, we are confident we've got the runway and the capital for us to continue on that runway of growth.

Great, appreciate all the answers.

Thank you, Scott.

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

Thank you, and 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. Have a good day, everyone. Thank you.

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