Q4 2023 International General Insurance Holdings Ltd Earnings Call

Participants

Robin Sidders; Head of Investor Relations; International General Insurance Holdings Ltd

Wasef Jabsheh; Executive Chairman of the Board; International General Insurance Holdings Ltd

Waleed Jabsheh; CEO; International General Insurance Holdings Ltd

Scott Heleniak; Analyst; RBC Capital Markets

Presentation

Operator

Good day, and welcome to the International General Insurance Holdings Ltd.'s fourth-quarter and full-year 2023 financial results conference call. (Operator Instructions) Please note this event is being recorded.
I would now like to turn the conference over to Robin Sidders, Head of Investor Relations. Please go ahead.

Robin Sidders

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 close yesterday. If you'd like a copy of the press release, it's available on the Investors 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 Presentations page in the investor perspective.
On today's call are Executive Chairman of IGI, Wasef Jabsheh; CEO, Waleed Jabsheh; and Chief Financial Officer, Pervez Rizvi. Wasef 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 Safe Harbor language. Our speakers' remarks may contain forward-looking statements. Some of the fourth quarter 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 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 Form 20 F for the year ended December 31st, 2020, to the Company's reports on Form six K and other filings with the SEC as well as our results press release issued yesterday. We undertake no obligation to update or revise publicly any forward-looking statements, which speak only as of the date they are made. And in addition, as you're aware, we voluntarily changed our basis of accounting from IFRS to US GAAP effective January first, 2023. During the conference call today, we'll use certain non-GAAP financial measures for a reconciliation of non-GAAP financial measures to the nearest GAAP measure, please see our earnings release, which has been filed with the SEC. It is available on our website.
And with that, I'll turn the call over to our Executive Chairman, Wasef Jabsheh.

Wasef Jabsheh

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 Ali, and I'll just 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 Hoji I is capable of. And during the year, we had our SSC or transition and our 22 year history and I'm pleased with the seamless way in which this half because of care all around not just the leadership, but what we have displayed, but the support given to a lead by all our people and the culture integrity that has been maintained throughout. You saw from our press release last night that we have strong flows quarter two finishes the 2023 clearly demonstrating our focus, discipline and consistency and 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 excess of $5 billion. We took advantage of the opportunities to capitalize on what we were was the positive conditions across our business. We continue to actively and efficiently manage our capital deploying at first, our underwriting operations and returning excess capital to shareholders in the form of share repurchases and dividends.
During 2023, we bought back 3.4 million shares for $31.1 million repurchase 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 $0.5 per share for 2023, in addition to regular quarterly dividend of $0.01 per share. Ultimately, we delivered 38.1% core operating return on average equity, the highest annual core ROE we have ever record as we grew book value per share by over 36% in 23. These are exceptional results, and I congratulate the whole IGI. family for their dedication, commitment. And for us, we are a diverse, experienced, hard-working and creative team at ICR. We are exhibiting at a high level in all areas of our business and where we have cap where we have capital that is greater than as we are able to put to work in underwriting, we are returning that capital to our shareholders in the form of dividends, share repurchase and our 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'll now hand over to Waleed, 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. Waleed, please.

Waleed Jabsheh

Thank you. Good morning. Was just thank you all for joining us today, and thank you, US, and I'm just going to follow the usual agenda, I'll start with a quick recap of the results for the fourth quarter and the full year 2023, and then we'll move on to our markets and our outlook for the remainder of 24. As you saw from our press release last night, and as we have highlighted, we produced exceptional results in both the fourth quarter and the full year.
Before going through the financial highlights, I just would first just like to echo wanted comments and congratulate our people on the high-quality and consistent focus on execution throughout the year. Our results in 23 as well as in recent years are differentiated and some of the best in the specialty insurance market. And we are 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 impact there is that the end result for detail digital work were 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 with physicians and to be perfectly honest, we're passionate about was what about the business declared a wherein.
Just moving on to some specific highlights. Gross written premium growth in the fourth quarter was 6.5%, which is more muted than prior quarters and in line with historical patterns for the full year, which obviously is a better indicator. We recorded growth of just over 18%. Again, the growth in 23 is concentrated in the short tail on 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 continued to be most evident in property and onshore energy and political violence, our reinsurance treaty business, where we're seeing a continued strong pricing environment and plenty of new business opportunities faced the years 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 gross written premium shortfall of $4.9 million recorded in the fourth quarter of 2023. I think most reinsurance companies go through a true up process in the fourth quarter where there is some differential between actual written premium against expected premiums 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 to have resulted in a shortfall for the full year. However, we almost doubled our reinsurance premiums to over $61 million, and 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. But as I said earlier, our full year combined ratio was the best in our history. This includes 2.9 points of unfavorable development of prior accident year 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 meanwhile was I don't like to play that. But for cards, 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 2020 to net investment income. Similar to the first three quarters of 23 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 points 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 $22.5 million in the fourth quarter a year ago and $118.2 million for the full year compared to $89.2 million for 2012. A true 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 2019.
Just turning to the balance sheet. Total assets increased more than 16% to $1.84 billion and total equity increased more than 31%, too $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 Walter 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 continued 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 $0.5 per share alongside the regular quarterly dividend of $0.01 per share. In addition, during the year, we reserved we redeemed all outstanding warrants for cash at an average purchase price of $0.95 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 then there really is lots to be proud of and what we've achieved and we continue to be optimistic about the year ahead.
Moving on to our markets, we're seeing a 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 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 PP. 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 U.S., for example, lower level of increases in some other regions. And in other in some regions we're seeing reduction. Tv 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 where more than 40% of the world will be heading to the polls. And 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 relative positive relatively positive rate momentum in our treaty reinsurance business, we saw cumulative net rate improvements of more than 25% in two in 23. And we expect the strong momentum to continue throughout 2024. And 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 our historical levels. And at January first, rates held up quite well with continued positive momentum.
The story in the long-tail segment, conversely, remains a little market rates continue to trend downward from Bob, 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 there. They remain broadly adequate across the portfolio. Again, like the other areas of our business, there is much variation by line. We're continuing to take a cautious approach, a selective approach to this business. And I would expect growth in these lines to be quite challenging in 2024.
And 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 we while we are impacted like everyone else with this environment, it doesn't impact us to the same magnitude of what to U.S. casualty under looking at our geographic markets, the US definitely continues to outpace all other markets with rate increases of almost 20% in the lives 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 be a growth areas for us in 2023, we wrote just over $94 million in GWP in the U.S., 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 were writing small to medium-sized projects, shorter policy periods. And as always, within strict cat risk tolerances in Europe, we wrote over $80 million in GWP in 2023 versus about $62 million in 22. And we expect to see more opportunities to show growth in the coming year ahead, especially given our newly opened platform in Oslo, Norway. And in January this year, we added to tune two to two new team members in 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 perspective about under 10 just under 10% of our overall GWP conditions are quite mixed 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 U.S. GCC countries.
In summary, again, 23 was an exceptional year for IGI and really a year in which really felt like we hit our stride. We're gaining recognition for 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 contract for us, we can't control what's driving change in our markets and in the broader world around U.S. 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 going to 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 and 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 going to pause here and we'll turn it over for questions. Operator, we're ready to take the first question, please.

Question and Answer Session

Operator

We will now begin the question-and-answer session. (Operator Instructions) Scott Heleniak, RBC Capital Markets.

Scott Heleniak

Good morning. Just a couple of quick questions on a few of the areas across your business. First, the Yum. Just the growth trends you're seeing in USES. in Europe, for ShoreTel. It sounds like that's that's pretty pretty promising. 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 I'm more challenging conditions in some of the other long tail, but Tom, anything new there to talk about on the competitive front? And then do you expect to see continued strong growth in that years ahead?

Waleed Jabsheh

Yes, Caltex, thanks for the question. I mean, listen, there's no doubt that, you know, we're coming probably up to the to the to the tip of that hard market in a lot of these lines within the short-tail segments, you know, we're are 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. It's largely existing capacity that is getting hungrier rather than new capacity coming in, which tends to be the driver behind severe competition. So, 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 movements into. And I think we continue to see we will continue to see healthy opportunities throughout the year. I think growth in in tail will definitely be challenged growth in short, tail will also be more challenging, but the opportunities definitely will be there for U.S. and Europe, specifically, our books are relatively young. And so the runway for growth in those areas for us is I would say is it's more promising than then 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 US and Europe. So I hope that answers your question.

Scott Heleniak

Yes. No, that's certainly helpful. I wanted to follow up just real quick, too, on the long tail and for the year, sounds like you're pulling back a little bit and if 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?

Waleed Jabsheh

I mean, but definitely, there's more competition on the financial institutions and D&O lines. The PI., you know, a lot more flat, really or was a lot more flat throughout 2023 then than we saw in the FI and D&O lines on it, PI. is definitely holding up better, which makes up the vast majority of our long-tail book. So that's positive. But the trends, as we said, throughout 2023, the trends on the PA side are in the same direction. So, you know, we will take a cautious approach. We've always said when when times are when when the conditions are healthy, we'll put our foot on the gas and when they're when they start to get more challenging. And then we'll allow we'll take the necessary steps and scaled market. We have to I don't think we're necessarily quite there per se. I would also say that 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 aggressive. So 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.

Scott Heleniak

Okay, that's great. I just wanted to ask you about the Yum. You don't write U.S. casualty, but can you 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 mix driven just because you're writing more short-tail, but anything to comment on there specifically on the the loss trend front across your book?

Waleed Jabsheh

No, honestly, I mean, as you said, I mean, there's nothing specific that you are that sticks out. I think we're just following what 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 and and you know, by and large, it was a more benign loss year as a market as well. So we've got benefit of that in line with other players.
Great.

Scott Heleniak

And then just one final one, just on the special dividend. That was a nice surprise, not something new for you guys, but wondering if you could talk about just some of the factors that you guys consider that led you to the special dividend versus are there other other areas of capital return or growth?

Waleed Jabsheh

And I know I know you mentioned excess capital but any more you can kind of comment on that, how you how you came to you, how you are thinking about that in terms of ultimately declaring a special dividend as you know, I mean, couple of years ago, we announced a new capital management strategy where we where we had announced a new a new ordinary dividend and we saw the opportunities in the market, Scott. And as we've said, it's underwriting first for us. First and foremost, we went towards growing the portfolio when we went and 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. Some, but in all honesty, it's 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 are the best in the market, allowing us with the financial flexibility to be able to declare dividend on top of all the actions that we took in 2023 and the recognition of the support that our shareholders have given us and the reward they deserve. So you know, our capital wise and we remain very adequate. And with this dividend, we are we are confident we've got the runway and the capital to for us to continue on that runway of growth.

Scott Heleniak

Great. Appreciate all the answers and it all day.

Waleed Jabsheh

Thank you, Scott.
Have.

Operator

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

Waleed Jabsheh

Thank you, and thank you all for joining us today. And thank you for your continued support of IGI. If we have any feel 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 and have a good day, everyone.
Thank you.

Operator

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