International General Insurance Holdings Ltd. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Performance Overview: Through the first nine months of 2024, achieved a combined ratio of 80.5%, net income over $100 million, and an annualized return on average shareholders’ equity of 23.5%.
• Company Milestones: Nearing fifth anniversary as a public company on NASDAQ, with compounded annual growth of book value per share plus dividends of 12.3% since 2020.
• Q3 Results: Gross written premiums down 8% in Q3 across segments. Combined ratio for Q3 was 86% (impacted by higher losses and FX), while nine-month combined ratio was 80.5% (well below long-term averages).
• Losses: Managed share of losses from events like Hurricanes Helene and Milton, European floods, Taiwan earthquake, etc. Reserve strengthening in long-tail portfolio due to development in professional indemnity.
• Market Conditions: Capacity plentiful in many markets with competitive pressures. More active loss environment had stabilizing effect. Focus on short-tail and reinsurance lines; long-tail lines pressured but some stabilization seen. U.S. business growing with over $100 million in gross premium in first nine months, focusing on short-tail lines.

Segment Performance

• Short-tail Segment: Q3 gross premiums down 3%; nine months gross premiums up more than 3%. Earned premium and underwriting income were up in Q3 and the first nine months. Focus areas include engineering, onshore energy, property, contingency, and marine.
• Reinsurance Segment: Q3 gross premiums down just under 12%, but underwriting income and net earned premiums were up compared to the same period last year. Treaty portfolio shows around 5% positive rate movement overall.
• Long-tail Segment: Q3 contraction 13%, same for the first nine months. Net earned premiums and underwriting income down. Reserve strengthening in the long-tail portfolio, particularly in the professional indemnity portfolio due to development in earlier years. Rates under pressure but some signs of stabilization in certain lines.

Guidance

• Expect to continue growth in 2025, with growth on minds for both short-tail and reinsurance segments.
• Reinsurance segment is a bright spot with continued growth expected.
• U.S. business to continue growing if market remains conducive for profitable growth, with focus on expanding product suite and addressing competitive pressures by potentially operating directly from the U.S. or Bermuda.
• Investment income expected to show slight growth going forward as yields increase and duration is adjusted.

Risks

• Foreign currency movements impacting reserve development and combined ratio.
• Active loss environment affecting pricing and competitive behaviors.
• Competitive pressures in various lines of business, particularly in some segments like aviation and upstream energy.
• Political landscape leading to increased polarization and pressure on the insurance industry.

Q: Good day, Waleed, hope you're doing well. Just the first question was just on gross written premiums. Not surprised to see the long-tail line down in premiums. It's been that way for a little while now. The short-tail and reinsurance, it was a little below what we would have expected. You did show some growth there in the second quarter, but are you viewing that pullback is temporary there? You talk about where you're seeing the competition and do you expect to see overall premium growth in 2025 across the organization based on what you're seeing now?

A: Thanks Scott. Thanks for the question. Hope all is well. I mean, as we said on the call, this is nothing to be overly concerned about. Q3 is always the tricky quarter throughout the year where outside of the first of July, honestly there's not as much consistency in the business that comes through the quarter as there are in the other quarters. So we're not concerned about the slight decrease in premium in Q3. I think Q4 and it's not an indication of a trend. Long-tail lines, I think as we said the pressure will be there. But in terms of short-tail and reinsurance especially, I think we're laying the groundwork for continued growth and profitable growth in those areas. And I think whilst the market is more competitive, it's still in a state where it is conducive for healthy underwriting and profitable underwriting. So for 2025, we're not, definitely not thinking that we're going to stand still or growth is very much on our minds, and expect to continue to grow in 2025.

Q: Just on the reinsurance unit too, I know some companies, there's some lumpiness and timing that happens too in revenues when contracts are renewed. Do you see a lot of that in your book? Was there anything in this quarter where there's any timing issues in terms of something that was non-renewed or anything like that? And is that fair to say that there is some lumpiness that happens in that book, if you can talk about that at all?

A: On the reinsurance side, I mean, the biggest period for us is the first half of the year and then your adjustment starts coming through throughout the second half and you get, as we mentioned those what we call true ups. The reinsurance is the brightest spot for us and we will write most of it in the first half and the adjustments will come through. Again it's nothing really to be. It's not indication or anything like that, it can get. The Q3 is always a bit of the sort of trickier, more messy quarters. But for us, reinsurance is as I said as I mentioned earlier, the brightest segment in our portfolio now. And we're working hard to continue to take advantage of the market and continue to grow this segment. It's by far if done right, by far the most attractive segment at the moment.

Q: Just on U.S. business, I know you touched on a little bit. So it’s over $100 million in premium now. Can you just talk about the profitability of that business you started? You’ve been in it for four or five years now. Can you just talk about how the profitability has trended over that time and just your future growth plans on that? I know you talked about the market being a little more competitive in E&S. But where do you see that heading in the next five years just that U.S. business? And where’s the profitability compared to where you expect it to be?

A: Yes, I mean, I think the results on the U.S. book for us have improved over the years. Obviously as we started, it was on a much smaller sort of premium base and we’ve grown that over the years. We’re $100 million now, all Short-tail. It’s been an extremely profitable book of business for us. And just like any other part of the world, if there are opportunities to grow, we will continue growing. We – it is becoming a more competitive environment. We are seeing a lot more aggressiveness from domestic markets. As you know, Scott, we write that U.S. book here from London which has served us well for the time that we have been writing it. But we are seeing more of that business stay local and London orders reducing. So we are looking at ways now to try and to tackle that business from not just from London but directly from the U.S. or Bermuda. So as long as we feel the market is going to – is conducive for profitable growth, we will continue to grow. Our intention is definitely to continue to grow in the U.S. I mean, the U.S. is the biggest market in the world by far and even $100 million book for us plus over a handful of lines of business, we haven’t scratched the surface there. So it is definitely – it definitely continues to be a big focus for growth for us going forward. Again, always caveat, as long as the market is on our side and we feel is conducive for that profitable growth. We added engineering and construction to our product suite in the U.S. this year. And if there are opportunities to add more going forward, then I mean that’s definitely something that we will do. So yes, very much still focused on growing in the U.S.

Q: Just the last question I had was just a numbers [ph] question on the net investment income level for Q3 was pretty similar to Q2. Is there anything that we should be aware of in that? I guess with higher yield I would have thought it’d be up a little bit. And is there anything I should be aware of and do you expect that to grow from the Q3 base, the net investment income level over the next few quarters?

A: I mean, I don’t think there’s much really to what do you call it outline on it. I mean it may have been relatively flattish, but our yields are slightly going up and I think that will take a little bit of time to filter through maybe. You’ll probably start seeing more, a bit more growth in the investment income going forward, but it’s not going to be significant. I think we’ve hit a relatively what do you call it sort of we’ve hit the peak on the interest rate environment. And remember, we’ve edged out the duration, so I wouldn’t make much of it, I mean...