Q2 2021 International General Insurance Holdings Ltd Earnings Call
Good day and welcome to the International General Insurance Holdings, Limited's second quarter and half year 2021 financial results conference call.
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After todays 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.
Please note this event is being recorded.
I would now like to turn the conference over to Robyn <unk> head of Investor Relations. Please go ahead.
Yeah.
Thank you Andrew and good morning, everyone and welcome to today's conference call. They will be discussing our second quarter and half year 2021 results.
We'll 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 is available in Investor section of our website at Www Dot I G. Ensure dot com. We have also posted a supplementary investor presentation, which can also be found on our website on the presentations page in the investors section.
On today's call are what job Shea chairman and CEO Walid job Shea President Pervez risky Chief Financial Officer.
Whatsapp will begin the call with some high level comments before handing over to Walid to talk through the results for the second quarter and half year, 2020 one.
Also giving some insight into current market conditions and opportunities that we're seeing.
At that point, we'll open up the call for question and answers.
And just before we start I'll begin with the Safe Harbor language. Our Speakers' remarks may contain forward looking statements. Some of the port looking statements can be identified by the use of the pool.
Art looking words, we caution you that such forward looking statements should not be regarded as a representation by us that future plans estimates or expectations contemplated by us will in fact be achieved before.
Forward looking statements involve risks uncertainties and assumptions actual events and results may differ materially from those projected in the forward looking statements due to a variety of factors, including the risk factors that we had set up set forth in the company's annual report on form 20-F for the year ended December 2031st 2020.
The Companys reports on form 6K, and other filings with the SEC.
As well as our earnings 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, which they are made in addition, we'll be using some of our non <unk> financial measures in this conference call and you can find a reconciliation of those non I O for us.
Maverick measures to the nearest <unk> measures in our earnings release, which has been filed with the SEC and again. It is available on our website, so with that I'll turn the call over to our chairman and CEO lots of jobs.
Yeah.
Thank you Robert.
And good day to everyone and thank you for joining us on today's call.
Our results for the first two.
Thanks Jordan.
To demonstrate that <unk> is capable of achieving.
Oh I'll speak not just to the numbers that you are seeing from US today, but also the thoughtfulness with which we have approach.
Is this for many years to maintain our treasury.
It's called <unk>.
<unk> shareholders value for the long term.
On the back of what 'twenty results.
We recorded strong core operating results for the first half of 'twenty one.
Afforded by excellent premium growth of almost 15%.
21% in the second quarter of 'twenty one.
Focused underwritings are afflicted and 88, 5% combined ratio.
And steady investment income during the first half of 'twenty one.
Market conditions are holding up well and anything pieces that costar portfolio are close to 30%.
With much better.
Variation by line of business and geography, I'm very pleased with the steady progress.
I'm not writing teams have shown in maximizing opportunities.
Our portfolio.
Specifically one.
We have grown our total.
Cool.
We have at the same time maximize our diversification.
Which also speaks to our risk profile.
Ability to continue creating value for our shareholders.
We have entered into new lines of business.
We recently announced the opening of our European operation in Malta.
The purpose of growing our footprint across Europe.
And we have grown our long deep.
Casualty business outside of the United States.
I want to focus.
On the long tail business for a moment.
We started to write this business in 2015.
And have grown it gradually over the past five years.
Adding 10 business to our existing short sharp portfolio.
So far the unfortunate support breadth and diversification to our overall risk profile.
More recently as market conditions have improved.
This has more than doubled.
And and conditions improve we have expanded the long book growing existing lines of business and Oh.
Anyways.
Which has seen a significant improvement.
We've done this carefully and methodically and we believe.
This book will continue to generate solid returns in future years.
Okay.
We all know that the past 18 months have not been easy.
Before anyone.
We have all had to cope with finding new ways.
Our business through the pandemic.
We did this while.
I'll also add.
Adapting to become a public company, which is a significant achievement in itself.
We have shown a lot of resolve and we haven't been.
Our practices.
I'm proud.
Of the company that is.
And I'm very proud of all of our people, we have always been a trusted and reliable partner to all our stakeholders and our focus is on ensuring that we remain so for the future.
Again, there's still much work to be though and.
And we are focused on that.
What it will expand more on what we are doing to better serve our shareholders. So for now I would.
Joining the call.
Over to Walid and thank you all very much.
Thank you all thank you all for joining us today as well.
We had a strong half of 2021 with solid underwriting results and we continue to build a high quality diversified book of business that will support our earnings profile line with looking at have achieved in our 20 year track record.
We are very well positioned to continue to take advantage of what are still some of the strongest market conditions we've seen.
I'll start with a high level recap of the numbers as you have the press release and the story is fairly straightforward.
Our premium growth in the second quarter was solid at 21% when compared to the second quarter of 2020, which itself so excellent production well.
Well both in the first quarter was more muted we expect the remainder of the year to remain more or less in line with what we achieved in terms of premium growth in the second quarter of this year.
Second quarter was experienced in virtually all but one life as a result of increases in new and renewal business as well as pre strike.
And the long tail segment, specifically, we recorded growth in all lines with the exception of marine liability the.
The most significant growth in the long tail segment within the casualty life with.
You will recall is all non U S business and is predominantly professional indemnity and D&O.
In the short tailed segment. We also saw growth across the board in every line of business, but particularly in engineering as well as in the U S where you'll recall, we began writing E&S business from April 1st of life.
Specifically in the U S. We've written just shy of $14 million in the first half of 2021 which is an increase of roughly 50% from what we wrote in the first half of 2020.
For the first six months of 2021 the most significant growth was in the long tail segment, which accounted for approximately 38% of our portfolio.
We recorded an increase in gross written premium of 16, 3% for the period.
Growth was primarily driven by professional indemnity and D&O business, where rates remain up on average over 30%.
As we've mentioned previously capacity and market appetite and these life was reduced as many players have either exited the business significantly reduced their lifestyle.
I have limited writing new business.
A large proportion of our business in these lines as we can on an excess basis and also on a claims made basis.
It's also worth reiterating that we do not write this business in the U S.
I'm really made up of a U K and to a lesser extent Europe and the middle East region.
And the short tail segment.
<unk>, which accounted for approximately 57% of our total portfolio.
Growth for the first half of 2021 was primarily in the engineering and construction and energy life.
Here, we saw rate increases on average of seven 8%. We noted in our results commentary for the first quarter of 2021 that we are seeing some slowing in pace of rates acceleration in this segment and this was evident again in the second quarter.
And our Treaty reinsurance book, we wrote gross premiums of $5.6 million and $14.6 million in the second quarter and first half of 2021, respectively.
This represents increases of 24, 4% and 27% for these periods.
The treaty reinsurance business accounted for approximately 5% of total gross written premium.
In 2020.
Net underwriting income was $20.9 million for the second quarter and $48.6 million for the first half of 'twenty to 'twenty one.
This compares with underwriting income of $22.9 million for the second quarter of 2020.
$46.1 million for the first half of two I can talk to.
Overall, the combined ratio was 92, 3% for the second quarter of 'twenty, one and 88, 5% for the first half of 'twenty one.
As you saw from our press release, the claims and claims expense ratios were up this quarter and first half of 2021 again I'm ever recorded in the short tail segment and related to an engineering loss.
This is also reflected in the 1.2 points of unfavorable prior year development on loss reserves, reflecting deterioration in the prior year energy loss in the second quarter of 2021.
I would note here that this deterioration primarily related to the late notice on our 2020 loss in our energy portfolio, which is obviously short tailing duration. This is a one off event and certainly not indicative of any trend.
For the first half of 2021 we saw two points of favorable development on prior years loss reserves as a result of the favorable development in the first quarter of 'twenty, one which more than offset the unfavorable development in the second quarter of 'twenty one.
Policy acquisition cost increase in both the second quarter and first half of 2021 when compared to the same periods of 2020.
Due to the increase in premiums written and earned in both periods.
Consequently, the public acquisition expense ratio increased by half a point in the second quarter of 2021, when compared to the second quarter of 2020.
But it was lower by $1 five in the first half of FY 'twenty, one, but a higher premium when compared to the same periods in 2020.
General and administrative expenses were slightly higher during the second quarter and first half of 2021.
Primarily due to increased professional fees and expenses and salary costs related to new hires.
Before I move on to the to the investment portfolio.
I want to address the impact of foreign currency on our results for the second quarter and first half of FY 'twenty, one when compared to the same periods in 2020, which benefited significantly from foreign cars.
During 2020 is foreign currency exposure was subject to extreme volatility.
Due to market turbulence, primarily related to the COVID-19 pandemic.
So it's important to take this into consideration when comparing numbers for 'twenty one 'twenty.
In the first half of 2020, the claims and claims expense ratio benefited significantly from Forex movements, resulting in an overall benefit of $6 six points six six points to the combined ratio for the first half of 2025.
By contrast, there was little to no Forex impact on the claims and claims expense ratio for the first half of 'twenty. One so on a like for like basis, you see the strength of the technical result achieved in the first half of 2020 one.
Now I'll turn it over I'll turn to our investment portfolio.
Despite lower interest yields available on our core interest bearing portfolio total investment income net increase in both the second quarter and first half 2021 when compared to the same periods in 2020.
Due to a higher volume of funds deployed particularly in the fixed maturity bond portfolio.
Growth in the investment portfolio for the first half was supported by an increase in net cash flow from operations.
Total investment income net increased by 50% to $3.9 million in the second quarter of 'twenty, one compared to $2.6 million in the same periods in 2020.
For the first six months of 'twenty, one total investment income net increased by 61, 9% to $7.9 million as compared to $5.2 million for the first half of 2020.
Excluding realized and unrealized mark to market movement total investment income was four and a half million and $4.7 million for second quarters.
One in 'twenty, respectively, and $9.7 million and $2.6 million for the first half of 2020, one and 2020, respectively.
Income from our core interest bearing portfolio was up by 45% in the second quarter of 'twenty, one from 43% for the first half of 'twenty, one when compared with the corresponding periods in 2020.
Despite the decline in yield on both the fixed maturity in term deposit portfolio. As a result of the continued low interest rate environment interest income increased as a result of the higher volume of pumps deployed, particularly the fixed maturity bond portfolio.
The yield for the fixed maturity bond portfolio was two 8% for the second quarter of 'twenty, one and two 9% for the first half of 'twenty, one compared with two 6% and two 6% for the second quarter and first half of 2020.
The yields for the bank term deposits was two 1% to 2% for the second quarter and first half of 'twenty one.
Compared with two 4% and two points of life.
For the second quarter and first half of 2020.
Overall yields on back to term deposits dropped by <unk>, 7% in the first half of 'twenty, one compared to the same periods of last year as the yields on term deposits were better in the first half of 2020 until the economic impact of the COVID-19 pandemic starting to emerge.
March 2020, causing a negative impact on the interest rate environment globally.
Our investment portfolio remains defensively positioned the combination of the high quality and diversified nature of the bond and term deposits portfolio, along with a modest allocation to equities yielded a positive mark to market adjustment of $3.3 million in <unk> investment portfolio in the second quarter of 'twenty one.
Although we recorded a negative mark to market adjustment of $1.7 million in the first half of 'twenty.
'twenty one.
Reflecting.
An improvement in the latter part of the first half of 2021 what do we saw increasingly positive signs of economic recovery from the deterioration that start to emerge at the end of the first quarter of 2020 as a result of a global pandemic.
And our total fixed income portfolio.
62% is a rated and above and I've talked to a term deposit portfolio, 52% themselves with a rated and above bikes. The average duration of the fixed maturity securities just four and a half years at June 30 at June 32021 up from three four years at December 31, 2020 as well.
Purchased new better yielding longer duration bonds during the second quarter of 2021.
Core operating income was 9 million for the second quarter of 2021 compared to core operating income of $10.3 million for the second quarter of 2012.
Core operating income was $23.8 million and $23.7 million for the first half of 'twenty, one and 'twenty perspective.
Core operating return on average equity annualized with 9% for the second quarter of 'twenty, one and 11, 9% for the first half of 'twenty one.
Shareholders' equity was $403.1 million book value per share was $8.86 at June 30th 2021, representing a one 9% increase from December 31st 2020.
The 17% increase from March 31st 2020.
Which is the first of our 11th at a point for book value per share subsequent to our business combination with type acquisition Corp.
As you saw from our announcement yesterday, our board of directors has declared an ordinary common share dividend of <unk> 16 per share.
Presenting 40% of the company's debt after tax profit for the first half of 2021 in line with the half yearly dividends <unk> paid for many years.
Now I'll spend some time discussing our market position our position in the market.
The remainder of 2021.
We are now well into the third quarter and indications remain positive for the remainder of the year.
While the majority of our portfolio renews during the first half of the year.
We're taking advantage of new opportunities across our portfolio that have many life with third quarter.
You'll recall, we recently launched the contingency line why consensus from our UK subsidiary in London, and so far.
We're seeing significant opportunities.
And event cancellation, particularly in the U S.
Also as Bob said, we received approval in mid July from the Multis regulators to begin writing business across Europe from our new multi based European subsidiary.
Sure.
You will have seen our press release issued earlier this morning that hijacked Europe has been assigned the same financial strength ratings is the ICI group.
That is a minus by S&P and a excellent by a M best both with a stable outlook.
This obviously is an important step forward for our European expansion.
Both rating agencies noted not only the strategic relationship to and support from the Agi parents as key factors that decisions, but also.
L sheets strength and its track record of strong operating performance.
Europe represents an attractive growth opportunity for Agi, and we've already seen strong interest in this and expanding relationships.
We expect to see opportunities in most lines of business, but initially more in the long tail lines of professional indemnity D&O and financial institutions.
For now we are in the build up phase in 2020 one similar to the contingency line 2022 will be a better measure of what we can achieve in Europe, but to give you an indication you should expect to see gross premium production of around $25 million in the first full calendar year of Iga, our Europe being up and running.
We're steadily growing our U S business with $13.8 million in premium in the first six months.
And we expect that to grow to around $30 million by year end.
And other short tail lines the pace of rate acceleration is clearly showing.
But we continue to see rate increases across most lines of business within this segment. Although this varies widely depending on the line of business.
And the long tail lines right when continues to be significant particularly in the professional lines, specifically D&O where rates are up more than 58% and professional indemnity real rates are up more than 34%.
Again.
I'd note that the majority of our long tail portfolio was written on a claims made basis and we don't feel like any long tail business in the U S.
Our reinsurance portfolio, which is well spread geographically continue to see moderate price improvement of over 8%.
There's a wide variation in rate improvement by geography.
Previously you talked about the patient in the Mena markets, where a number of players have shut down their offices in the region at Agi is a natural beneficiary of this business given our long standing relationships across the region.
To expand upon what's up his comments at the beginning of the call.
More broadly for a moment about our total book of business.
That's why.
We've grown and increased the diversification of our portfolio by line of business and geography significantly over the past five or so years.
Our entry into the long tail casualty lines was measured and thoughtful with the express incentive building a quality book that would generate solid returns on long term.
Given that our book is made up of non U S business and has a shorter tail than U S. Casualty business typically around four to seven years. This provides us with a solid footing for future years and I'm optimistic about it.
All of our business, we have taken a cautious view and this is reflected in a prudent reserve position on this book.
Built a quality and experienced team, who know and understand the dynamics of this business well.
So we will continue to build a long tail business, while just as importantly, we continued to expand our short tail book being opportunistic where we can but maintaining balance between short and long tail business in the overall portfolio.
Lastly on the capital management front we.
We have not utilized our repurchase authorization that was approved by our board in 2020.
It was in mid March a tier that we emerge from our post transaction period, where significant staggered to lock up some post all of our shareholders have been lifted and I want to assure you that we are focused on unlocking the value Archie I see and being strong stewards of our shareholders' capital.
So I'm going to pause there 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 are using a speakerphone please pick up your handset equal pressing the keys.
To withdraw your question. Please press Star then two.
Once again it is star then one to ask a question.
Yes.
Okay.
Yeah.
Yeah.
The first question comes from Mark.
Hey, Bill.
Of RBC. Please go ahead.
Yeah. Good morning, just a couple of questions.
I wanted to start with the small reserve addition on the short tail lines. If you could just maybe spend a minute.
Talking through that in a little bit more detail.
Kind of what what trends you are observing in those.
The lines that were involved.
Yes, Thanks Buck the.
The Reserve addition from prior years on the shorter tail business is effectively down to one loss.
That we incurred at the a or the beginning of the.
2020.
It was an onshore energy power or power.
Where it.
It was just one of those things that are you know we knew about the loss are we attached at a certain level.
All expectations were that our that the that the loss with ended up below our attachment point.
And more recently due to whatever circumstances with at all suggesting.
The loss.
Deteriorated and so.
It ended up.
Impacting us.
But as I said in my commentary I mean, this is a complete one off not a trend it happens in our business.
And where were prepared for these types of movements and and and you know reflected the overall reserving as a company.
Got it that's helpful.
Second question.
Staying with I guess margins and things.
I mean, it looked like there was a fair amount of additional.
The growth rate I guess in the <unk> business was much higher than the short tail business is.
Is that really one of the primary drivers as to why the core of the accident your margin was.
A little bit higher.
Loss ratio was a little bit higher in the quarter relative to some that we've seen recently.
Yeah in in Park, a mark that's an accurate.
Statements.
I mean the growth in the long tail business is is is more pronounced simply because of the underlying market conditions.
We've seen more recently in the last couple of quarters as we've mentioned before easing on the short tail side, but we haven't really seen that in the long tail side, so the opportunity in the market.
It's still very fair on the on.
On the long tail book.
But you know I've personally never been.
More confident or comfortable with with our long tail book that I am today, the underlying fundamentals are extremely strong.
So, but again, we said all along we.
We reserve very cautiously reserved very prudently.
In the long term building see the benefits of that.
There was however, a additional claims activity on the engineering side.
In the first half second quarter of <unk> of.
This year that.
Tributes it.
To the higher accident.
Accident year loss ratio.
It's not an area of concern for us it's not a trend it's part of the normal part of business that are you know we were in Bolton.
Composition of our portfolio and as we've always said, we've got to take a longer term view Oh the company of the performance that's.
<unk> always been our story.
Which were following through.
<unk> Ah Ah and.
Prospects look very bright.
Thanks for that.
Good cooler and its actually very consistent with what we've heard other people say about the long tail lines of business with some of the most.
Attractive pricing and terms and probably 15 or 20 years. So I appreciate the cooler one last one last question just related to the multi.
The branch sales office.
Are you actually.
I know that it just got approved several weeks ago.
Or are you actually writing business at this point or is it.
Still in the kind of hiring in ramp up mode.
No no no we started writing business on the day that we got our license.
Our team was already on the ground.
And you know just go.
Waiting for the Green light so.
We've already written a couple of million dollars so far in this quarter.
We expect.
We expect to write probably around 10 million between now and the end of the year.
And as I mentioned in my commentary first full calendar year, probably around the 25 million a total of about GWB Mark.
Okay.
Appreciate the color on all that and I'll.
I'll jump off and let somebody else take two things.
Thank you Mark.
Yeah.
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 management for any closing remarks.
Yes.
Yes.
Yes.
Oh well.
Thank you all for joining us today.
We appreciate your continued support.
And we will continue to build on our success.
So that's we continue to generate value for you into future.
Yes, if you have any additional questions. Please contact Robyn.
She will be happy to assist have a great day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
Okay.
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