Q1 2023 International General Insurance Holdings Ltd Earnings Call
Speaker 1: I.
Speaker 1: C.
Speaker 1: I.
Speaker 2: Welcome to the International General Insurance Holdings Limited's first quarter, 2023 financial results conference call.
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Speaker 2: After today's presentation, there will be an opportunity to ask questions.
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Speaker 2: Please also note today's event is being recorded.
Speaker 2: At this time, I'd like to turn the conference call over to Robin Sitters, Head of Investor Relations. Ma'am, please go ahead.
Speaker 3: Thank you, Jamie, and good morning. Welcome to today's conference call. Today will be discussing a first quarter 2023 results.
Speaker 3: You'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'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 press release page.
Speaker 3: handing over to Walid to talk you through the key drivers of our results for the first quarter and also give some insight into current market conditions and our outlook for the remainder of 2023. At that point we'll open the call up for questions and answers.
Speaker 3: I'll begin with a customary safe harbor language.
Speaker 3: Our speakers remarks today may contain forward-looking statements. Some of the forward-looking statements can be identified by the use of forward-looking words. We caution you that such forward-looking statements should not be regarded as a representation by us that the future plans, estimates or expectations contemplated by us will in fact be achieved.
Speaker 3: Board-looking treatments involve risks on certain keys and assumptions.
Speaker 3: Actual events or results may differ materially from those projected in the forward looking statement due to a variety of factors.
Speaker 3: including the risk factor set forth in the company's annual report on forms 20F for the year ended December 31st, 2022, and the company's reports on forms 6K and other filings with the SEC as well as our results press release issued yesterday evening. We undertake no obligation update or revise publicly any forward-looking statements which speak only as of the date they are made.
Speaker 3: In addition, as you are aware, we've all and terribly changed the basis of accounting from IFRS to US GAP effective January 1, 2020-23. During this conference call, we use certain non- GAAP financial measures for reconciliation of non- GAAP financial measures to the nearest GAP measure.
Speaker 3: please see our earnings release which has been filed with the SEC and is available on our website.
Speaker 3: With that, I'll turn the call over to...
Speaker 4: Thank you, Robin.
Speaker 4: And good day everyone.
Speaker 4: Thank you for joining us on today's call.
Speaker 4: Thank you for joining us on today's call.
Speaker 4: We had a very strong start to 2023 with excellent results across most metrics.
Speaker 4: We deliver a combined ratio of 78.4%.
Speaker 4: while growing our premiums by more than 67%.
Speaker 4: our premiums by more than 57%. With higher yields, we have a higher yield
Speaker 4: and reinvestment rates leading to much improved investment income. We delivered a profit of $33.9 million representing an increase of more than 52%.
Speaker 4: over the first quarter of 2022.
Speaker 4: This culminated in a 27.9% annualized core operating return on equity.
Speaker 4: At March 31, our book value per share was $9.98, representing an increase of 10% from December 31, 2022.
Speaker 4: Our results in the first quarter clearly demonstrate our consistency in effectively exerting our strategy.
Speaker 4: shifting our focus to those areas of the market with the most profitable opportunities.
Speaker 4: our focus to those areas of the market with the most profitable opportunities. As we had expected, the short termrageug
Speaker 4: We are seeing some excellent opportunities in both our short tail and reinsurance segments.
Speaker 4: which is where you saw the growth in our growth premiums during first quarter.
Speaker 4: The operating environment continues to be very healthy.
Speaker 4: and we expect to continue to show profitable growth.
Speaker 4: in these segments going forward.
Speaker 4: while taking a more cautious approach to long-tailed business.
Speaker 4: where we are seeing increasing pricing pressure. Here the landscape has become increasingly competitive with new capacity recently entering these markets. So as we add to our short tail and reinsurance business and these segments become a greater proportion are.
Speaker 4: Total Book of Business, we will continue to maintain a diversified and balanced portfolio. We are seeing positive momentum in many areas of our business, and we expect this to continue throughout 2023. The market today for IGI is one of the healthiest we have seen in more than a decade.
Speaker 4: And we were very excited about the opportunities in front of us.
Speaker 4: We have remained focused and disciplined.
Speaker 4: remain focused and disciplined, which has positioned us.
Speaker 4: very well to be able to anticipate and take advantage of opportunities at the right time.
Speaker 4: There has been significant increase in this law of business that we are seeing and that has allowed us to be more selective.
Speaker 4: while capacity in some areas of the market remains that constraint.
Speaker 5: than we had initially anticipated, which for IGI has led to an abundance of opportunities to expand and further diversify our portfolio with profitable business.
Speaker 5: I'll focus on some key highlights for the first quarter at the moment before moving on to what we're seeing in our markets and opportunities ahead of us.
Speaker 5: But first, I want to provide some comments on the change in the basis of accounting from IFRS, the US gap as of 1123. This decision, which was made on a purely voluntary basis, makes sense for us as we're now in our fourth year of trading on NASDAQ and immediately proportion of IGHICE.
Speaker 5: Common shares are helped by US and US groups. All the numbers and the purchases we issued last night in our first quarter, 2020, three financial results were prepared in accordance with US gap. So they may deviate from or not correspond to numbers previously presented under IFR. Turning to our first quarter result.
Speaker 5: There's a few points I would like to focus on.
Speaker 5: Growth premium growth was very healthy in the first quarters, at 37% representing one of the highest quarterly growth premium growth rates for us, that we've seen in recent years.
Speaker 5: This growth was primarily in the short tail and reinsurance segments and to a much lesser extent some of the general casualty lines in our long tail segment.
Speaker 5: Although overall goes beyond in this segment, we're about 6%.
Speaker 5: Specifically in the short tail segment, we recorded over 35% growth and gross premiums versus Q1 of last year.
Speaker 5: Growth was an all-shore airline, except for generally aviation, with the most significant opportunities to ride profit of the new business and a rate improvement on renewable business. In our energy book, predominantly power, oil and gas, as well as property and political violence. Our reinsurance-freeze book grew almost threefold over the first.
Speaker 5: quarter of 22 over the first quarter of this year sorry as we took advantage of the hardening market that we talked about in last quarter's call.
Speaker 5: More important than actual growth itself is the profitability of the increased level of premiums. A combined ratio of 78.4% while a few points higher than Q1 2022 which you may recall benefited from current currency movements. Was very healthy.
Speaker 5: More important than actual growth itself is the profitability of the increased level of premiums. A combined ratio of 78.4% while a few points higher than Q1 2022 which you may recall benefited from currency movements was very healthy and below our long-term average in the mid to high 80s.
Speaker 5: while still reflecting a higher level of loss in the first quarter as a result of the flooding in New Zealand from Cyclone Gabriel and the earthquake in Turkey.
Speaker 5: of locks in the first quarter as a result of the flooding in New Zealand from Pactone Gabrielle and the earthquake in Turkey. Overall.
Speaker 5: Profit for the first quarter of this year was more than 50% higher at $33.9 million when compared to Q1-22. I will quickly address the acquisition and G&A expense ratios which were down 3.3 points and 3.4 points respectively.
Speaker 5: First, the acquisition expense ratio. The key driver here relates to a change in our business mix and the level of seed and commissions earned in the quarter as well as the growth in net earned premium in Q23 versus Q122.
Speaker 5: Similarly with the G&A expense ratio, the key drivers here are favorable currency movements in the first quarter of 23 compared to Q1 of 22, higher net premiums earned as well as the reduction in IT consultancy fees partially offset by higher salary costs related to new hires. It unprotected, not DOS or breakeven.
Speaker 5: Investment income, which was up significantly in the first quarter when compared to Q1 of last year. I mean, there's not really a lot here to say. It's a simple story of the impact of the rising interest rates on yield.
Speaker 5: and reinvestment rates and a growing investment portfolio. And that's led to a 1.7 point improvement.
Speaker 5: in the annualized investment yield to 3.5%.
Speaker 5: Daring to the balance sheet, double-half the increase 2.6% to over 1.6 billion dollars.
Speaker 5: Total equity increase 4.7% to just over $430 million.
Speaker 5: We continue to repurchase common shares under our existing 5 million common share repurchase authorization. Do you have all the specifics as set out in our press release issued last night?
Speaker 5: All in, we delivered an annualized return on average equity of 32.2%, representing 8.6 points of improvement over Q1 last year.
Speaker 5: and an annualized core operating return average equity of 27.9%. Representing a 3.2 point improvement over Q1 last year.
Speaker 5: We drew book value per share by 10% from December 31st, 22 to $9.98 as at the end of Q1 this year.
Speaker 5: So an excellent start to 23. And as I said, much better than we had initially expected when we spoke in last quarter's call.
Speaker 5: I'm really proud of our ability as a company even as we continue to grow to numbers to remain disciplined and to adapt quickly and decisively to the changes in the market that we've seen over the past several months.
Speaker 5: That is one of our key attributes and it's supported by our flat operating structure and our culture of collaboration and transparent communications.
Speaker 5: Moving on to the market, it's very similar to what we said in last course call, although the dissertation that I mentioned earlier was more pronounced than we did initially anticipated, which has meant greater opportunity for us in the form of improving pricing conditions and a far greater submission form.
Speaker 5: So we are increasingly bullish about the momentum in our markets and the opportunities ahead.
Speaker 5: Our outfit for the remainder of the year is very positive. Already in the second quarter, we've seen significant growth in our treaty reinsurance portfolio, and, in virtually, all of our short-term lives, with the greatest opportunities, similar to Q1 in energy, property, and political balance.
Speaker 5: While the majority of the portfolio renews in the first seven months of the year, we continue to renew business evenly throughout the remainder of the year. So we'll continue to take advantage of the opportunities in front of us.
Speaker 5: Caring to the short-catalign, we saw next rate increases 9.1% in the first quarter.
Speaker 5: The landscape here is robust with good recordment and most times with the exception of general aviation as I mentioned earlier.
Speaker 5: Obviously, there is much variation by line and territory. For instance, downstream energy saw renewal net rate increases of 17%, while property shows average net increases of more than 9 and contingency almost 11.
Speaker 5: We continue to see significant dislocation and opportunity.
Speaker 5: in the PV market given reason to your political events. So in the first quarter, in this line of business, we saw that rate increases north of 40%.
Speaker 5: But I would note that the reinsurance capacity for the TB is
Speaker 5: so I'm more costier at the moment.
Speaker 5: In our treaty reinsurance business, where we saw a net rate improvement of almost 30% in Q1, we're continuing to see increasing storm momentum and would note that these are some of the best conditions we've seen in the history of ITR.
Speaker 5: The reinsurance market continues to be pressured with a lack of cat capacity, as many others have significantly reduced their appetite for cat risk.
Speaker 5: As we mentioned in the last quarter's call, when we saw the way the mark was behaving, leading up to and in the fourth quarter, we initially remained very cautious and made the decision to wait until seeing the outcome of the one-one region. It has allowed us to deploy our capacity in a more meaningful way, as we saw from our first quarter results, without moving outside of our prescribed risk tolerances.
Speaker 5: Our 3TV insurance portfolio is a well-diversified global book of business, both territorially and by class of 2018. The company is a well-diversified global book of business, both rhetorially and by class
Speaker 5: We expect this to become a more meaningful piece of our overall portfolio, probably around 10%, as long as current conditions persist, which we believe they will, at least in the near term. This is a question that is no longer needed about our
Speaker 5: In the long tail segment, the story remains mixed as we continue to see the impacts of competitive and pricing pressures.
Speaker 5: Overall, in the first quarter, we saw cumulative net rate increases of 1.5%.
Speaker 5: quite a bit of variation by line of business in this segment. We noted in last quarter's call, renewal rates both pressure D&O and financial institutions.
Speaker 5: And where we've seen several consecutive courses of margin compression. General casualty lines are following this trend, although we're still fighting some for this of opportunity predominantly in the Middle East and to let their extent be true.
Speaker 5: I'll reiterate again that we don't like any of this business in the US. Elsewhere, professional indemnity, which is predominantly a UK-based local business, is holding up and remains more than adequate with net rate increases of more than 5%.
Speaker 5: Overall, we really continue to take a cautious and selective approach to this business.
Speaker 5: Looking at our geographical market, the US is clearly outpacing other markets with great increases of almost 30% from the lines we're writing. All short-tailed and predominantly energy property and contingency.
Speaker 5: In the first quarter we more than doubled our US premiums to over 25 million dollars.
Speaker 5: from around 11Q1 last year.
Speaker 5: elsewhere we're seeing positive movement in Europe where we're writing mostly long-tailed business supplemented by some short-tailed and treaty-reincured business. And Latin America, which is, as you all know, is kind of exposed.
Speaker 5: Are Casablanca and Dubai offices seeing strong production out of the MENA region, while Asia
Speaker 5: Which, as you probably know, has had to happen.
Speaker 5: has arguably had the highest level of competition for many years. It's finally improving. Are we ready to sit very healthy, growth there of almost 130%?
Speaker 5: For IDI, one of our unique advantages is having regional offices with our people on the ground and all of these key markets, where understanding of local video synthesis and cultural capabilities essential to providing service to our clients.
Speaker 5: and thereby ensuring that we make the right moves at the right times. So in summary, as I said, we remain very positive on current mathematicians and words.
Speaker 5: extremely excited about the opportunities for us to continue to expand our portfolio with profitable new business and further diversification.
Speaker 5: excellence in underwriting, remaining focused, disciplined and adept, and anticipating and shifting to those areas with the strongest risk adjusted returns is, we believe, where we can best continue generating long-term shareholder value. We are very optimistic and bullish of what's ahead of us. 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.
Speaker 2: Ladies and gentlemen, at this time we'll begin the question and answer session. To ask a question, you may press star and then one on your telephone keypad.
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Speaker 2: Once again, that is star and then one to join the question queue. We'll pause momentarily to assemble the roster.
Speaker 5: Yes, good morning. A few questions. Maybe starting with some of the catastrophe losses, could you talk about kind of where you saw exposure and how the claims are developing? Yeah, Bob, I mean, as I said in my comments earlier, I mean the majority of the cat are the cat losses in Q1, from the earthquake in Turkey, as along with the cyclone Gabrielle in
Speaker 5: New Zealand. The losses came predominantly from our reinsurance portfolio but there was an element of property as well. Turkey was the most pronounced, I believe it was a very severe earthquake and we've been a right business there for a long time so we're comfortable with the provisions that we've taken and the reserves that we've taken although it is still a fluid position but we feel our existing loads, camp loads and reserves will be enough to cover any development.
Speaker 6: I hope that gives you time. Yeah, that's helpful. I had heard some, I guess I had seen some commentary in the media and whatnot that the claims in Turkey are developing pretty slowly. So I guess I was just, if anything you can share in terms of how you thought about that claim, those claims in particular.
Speaker 5: given the complexity of earthquakes always having the first place. We haven't seen a unusual trend. I think they will develop differently when you have a
Speaker 5: a loss of that sort of magnitude or invent of that magnitude in a territory like this, it will take time.
Speaker 5: just like anywhere else. So again, our book and our exposures are...
Speaker 5: you know, quite pronounced and we can identify quite quickly where we believe any loss will come from. So again, you know, we've undertaken our own internal, obviously, analysis of the situation and we're very comfortable with where it is at the moment.
Speaker 6: Okay, that's helpful. Turning over to the reserving, there was a pretty good amount of favorable development in the quarter. Was that primarily FX related as it's been in some prior quarters? Was it primarily actual favorable development on near-lying lines?
Speaker 6: maybe provide a little bit more breakdown about how, you know, the composition of that.
Speaker 5: No, I mean, if anything, the effects movement in Q1 works against us.
Speaker 5: as the pound and the euro.
Speaker 5: strengthened. So these releases were purely favorable development, but nothing to do with the effects predominantly from the short tail segment.
Speaker 5: a little bit from the reinsurance segment and there was actually a little bit of adverse development on the long tail. And that again, that would have been driven by the FX movements in the quarter. Okay, that was actually going to be my next question is which lines it was. So you've already beaten me to the question on that one.
Speaker 6: The other question that I wanted to just spend a minute on was just the reinsurance book obviously grew quite substantially. You commented in your opening remarks about how favorable that market was.
Speaker 6: Is that that continues to be predominantly treaty business? Did I understand that correctly?
Speaker 6: Yes, it's all practically all of it. It's just. Okay. And then it looks like then you're you're seeding a certain amount of that treaty. So you're just taking advantage of retrocapacity in order to kind of take a primary treaty and then seed some of that off and then then retain.
Speaker 5: which is what we expected and we mentioned on last quarter's call. Our treated book is predominantly based on a net basis and it's very very geographically diversified and diversified by line of business. So the goals that you saw in Q1 is not, you know, focused.
Speaker 5: on cat business. I mean, we have grown our cat exposure. That's, you know, I mean, in certain parts of the world where we're seeing a lot of dislocation now, we're actually quite underweight and have a lot of runway left and to stick within our risk tolerance.
Speaker 5: And the market conditions at this point are, as I said, on the treaty side, probably the best we've seen in the 21 year history of IGI. So it's a diversified book. It's not focused truly on property.
Speaker 5: On the treaty side also in the US, our book has grown, but we minimize heavily our exposure to coastal Ebola.
Speaker 5: So we don't have a lot of Florida and Gulf of Mexico type exposures. It's written in an extremely cautious way. And we've capitalized on opportunities in the reinsurance market and other parts. As I said, it's not focused on property.
Speaker 5: we've gone into several other areas. So it's not a clashing sort of book of business in all forms.
Speaker 6: That's helpful. Thank you. And then I guess one last other question. I mean, given the market opportunity that you're seeing, are you at all kind of capacity constrained as far as the volumes that you're able to write or you're seeing opportunities that are kind of...
Speaker 5: level with the ability or the capital that you have to match it? No, I mean I don't think we're capacity constrained. I mean we're generating very healthy returns in the business.
Speaker 5: which continues to contribute to the overall capital of the company, reinvesting, as we mentioned all the time, it's an underwriting first approach.
Speaker 5: these are the best conditions for esteem and then extremely, extremely long time. We have one way ahead of us. And in the event that, you know, we feel we, we might be constrained, I think there's various ways obviously to be able to...
Speaker 5: put yourself in a position to continue capitalizing. But we do have a cautious approach Mark. I mean.
Speaker 5: You know, the growth in Q1, I love that it was rate driven. We continue to refine our portfolio, we continue to underwrite them, you know, in a sort of, in a personal way. And...
Speaker 5: in Q1 a lot of it was rate driven. We continued to refine our portfolios. We continued to underwrite them in a personal way.
Speaker 5: you know, one that corresponds with our risk appetite. And we don't sort of take a broad brush approach. We're very selective, we're very cautious, and with this growth, you know, we are cautious, but we're just seeing such an abundance of opportunity, good opportunities.
Speaker 5: our capacity has become a lot more relevant and a lot more in demand. So as long as these conditions persist we will...
Speaker 5: with capacities that come a lot more relevant and a lot more in demand. So because only these conditions proceed, we will continue to take advantage of them.
Speaker 6: That's a very helpful color. Maybe one last question. You did a fairly substantial share repurchase during the quarter. Maybe just update your thoughts in terms of how you are thinking about capital management and how you are viewing that. The repurchase program continues.
Speaker 5: should achieve and grow the business. But we feel we can continue to do both. As we said, the dislocation in the markets and the performance in the first quarter was ahead of expectations.
Speaker 5: and we are quite foolish about the rest of the year. And continuing to deliver such results, which we're confident we can, will continue to give us the flexibility to grow the business and continue repurchasing when the opportunities are there.
Speaker 6: Thank you very much for all the answers. I appreciate it.
Speaker 6: Thank you very much for all the answers. I appreciate it. You're welcome. Thank you.
Speaker 2: Once again, if you would like to ask a question, please press star and then 1. To withdraw your questions, you may press star and 2. Ladies and gentlemen, at this time in showing no additional questions.
Speaker 5: I'd like to turn the floor back over to management for any closing remarks. Thank you all for joining us today and thank you for your continued support of IGI. If you have any additional questions, please contact Robert and she'll be happy to assist.