International General Insurance Holdings Ltd. Q2 FY2025 Earnings Call

Good day, and welcome to the International General Insurance Holdings Limited Second Quarter and First Half 2025 Financial Results Conference Call. Please note that this event is being recorded. I would now like to turn the conference over to Robin Sidders, Head of Investor Relations. Please go ahead.

Thanks, Nick, and good morning, and welcome to today's conference call. Today we'll be discussing the financial results for the second quarter and first half of 2025. You will have seen our press release that we issued after the market closed yesterday. That press release can be found on our website at www.iginsure.com. We've also posted a supplementary investor presentation, which can be found also on our website on the Presentations page in the Investors section. On today's call are Executive Chairman of IGI, Wasef Jabsheh; President and CEO, Waleed Jabsheh; and Chief Financial Officer, Pervez Rizvi. As always, Wasef will begin the call with some high-level comments before handing over to Waleed to talk you through the key drivers of our results for the second quarter and first half and finish up with our views on market conditions and the outlook for the remainder of 2025. At that point, we'll open up the call for questions that any of the dialers may have. So I'll begin with the customary safe harbor language. Our speakers' 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 by us that the future plans, estimates, or expectations contemplated by us will, in fact, be achieved. 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 set forth in the company's annual report on Form 20-F for the year ended 31st of December 2024, the company's reports on Form 6-K, and other filings with the SEC as well as our results press release that we 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. During this call, we use certain non-GAAP financial measures. For a reconciliation of non-GAAP measures to the nearest GAAP measure, please see our earnings release, which has been filed with the SEC and, as I said, is available on our website. With that, I'll turn the call over to our Executive Chairman, Wasef Jabsheh. Wasef?

IGI once again delivered excellent results both for the second quarter and first 6 months of 2025. We generated net income of $34.1 million and $61.4 million for the second quarter and first 6 months, respectively. And this resulted in an annualized return on average equity of 20.8% for the second quarter and 18.6% for the first half of the year. I'm very pleased with our strong performance, particularly our ability to maintain our focus, exercise discipline, and execute consistently. Given the very integrated nature of our portfolio as well as our presence in many regions, we are often directly exposed to some form of geopolitical and/or macroeconomic uncertainty. Over more than 20 years, we have consistently demonstrated our strength and proficiency in managing through all stages of cycles, moving our capital to those areas with the strongest rate momentum and the highest margins, and reducing in other areas where conditions are such that we are not able to meet our profitability targets. That is the tailwind and the benefit of having a very diversified platform and always working within our risk appetite and tolerances. Our value at IGI is in our ability to generate consistently high-quality results in any stage of market cycles so that we continue to reward our shareholders who have put their trust in us and supported us. So far in 2025, in addition to strong earnings, our proactive capital management has resulted in us growing book value per share by 3.4% to $15.36 per share in the first half of the year and returning a total of $77 million to shareholders in dividends and share repurchases. I will now let Waleed discuss the numbers in more detail and talk about market conditions and our outlook for the remainder of the year. I will remain on the call for any questions at the end.

Thank you, Wasef. Good morning, everyone, and thank you for joining us today. We had an excellent second quarter and first half of 2025. As Wasef indicated, we're in a strong position as we move through the second half of the year. We're still seeing solid additions and adequate rates across much of our portfolio and are actively pursuing opportunities to enhance our distribution capabilities that will ultimately generate additional value. Our goal is to create opportunities that will generate consistent and sustainable long-term value, something we've demonstrated over our more than 20-year history. Our strength lies in our ability to manage this throughout market cycles. In 2025, while overall conditions remain generally healthy, some areas of our portfolio are facing slightly more competitive pressures, which we've mentioned in previous calls. Therefore, we're focusing on lines and markets that remain strong and reducing our exposures in areas that don't provide an acceptable level of risk-adjusted return. This is what effective cycle management entails. Before I delve into the numbers, I want to highlight the significant impact of foreign currency movements on our results this quarter, particularly in the revaluation of our non-U.S. dollar-denominated loss reserves and how this affects various line items in our results, especially our underwriting results, as you've seen for the second quarter and the first half of the year. Our underwriting portfolio is very international in nature, and similarly, our investment portfolio is also geographically diversified. This diversity allows us to strive for an accurate match between our assets and liabilities, although perfect matching is never achievable. About half of our underwriting portfolio is transacted in non-U.S. dollars or currencies. This is most pronounced in our long-tail segment, which accounted for approximately 22% of total gross premium as of June 30. About 80% of this portfolio is in British pounds. Notably, almost half of the group’s total reserves are allocated to the long-tail segment, which means these reserves are held for longer periods, averaging around 6 to 8 years for us. So when the U.S. dollar depreciates significantly against the pound, as it did early in the year and even more so in the second quarter, the subsequent impact on the revaluation of our reserves leads to a distorted view of our underwriting results, particularly our loss ratio and therefore our combined ratio and core operating results. As I walk through the results, I'll provide dollar or percentage impacts where they significantly skew period-over-period comparisons. Now, specifically regarding the numbers, gross premiums in the second quarter of 2025 were just under $190 million, down 8.7%, reflecting competitive pressures in both the short-tail and long-tail segments. For the first six months, gross premiums were nearly 2% higher at around $395 million, driven mainly by growth in the reinsurance segment, which benefited from favorable market conditions. Net earned premium was $115 million for the second quarter compared to around $122 million in the same period last year. For the first half, net premiums earned were $227.8 million versus approximately $236 million. Both the second quarter and first half figures include impacts from reinstatement premiums, which amounted to $2.6 million this quarter and $9.9 million for the first half. We strategically purchase reinsurance to mitigate volatility in high-severity lines that we participate in. The combined ratio for the second quarter was 90.5%, while for the first half, it was 92.4%. These figures were negatively influenced by the revaluation of non-U.S. dollar loss reserves, impacting approximately 21 points in Q2 and 15 points in the first half. These numbers underscore our strong fundamental performance amid increasing competition. The first six months also witnessed a higher volume of losses compared to the same period in 2024, especially in Q1, coupled with lower net earned premium from reinstatement premium impacts. Overall, we reported net income of $34.1 million or $0.77 per share for the second quarter, up from $32.8 million or $0.73 per share in the same quarter last year. Despite the nearly 10-point rise in our combined ratio and a 6.6% reduction in our net earned premium base for Q2, we produced net income that was 4% higher than the second quarter of 2024, illustrating the strength of our underlying performance. For the first half of this year, we generated net income of $61.4 million or $1.36 per share, compared to $70.7 million or $1.55 per share for the prior year. The decline in net income in the first half is primarily due to a lower level of underwriting income, largely impacted by currency revaluation movements, along with higher loss activity and increased reinstatement premiums. Core operating income was $22.8 million or $0.51 per share in Q2 compared to $33.2 million or $0.74 per share in Q2 last year. For the first six months of 2025, core operating income was $42.2 million or $0.93 per share, down from $73.3 million or $1.61 per share, with the variance mainly due to lower underwriting income affected by currency devaluation and higher loss activity, particularly 16.9 points for current accident year catastrophe losses observed primarily in Q1. Prior year development was unfavorable in Q2 at approximately $6.3 million, mainly driven by roughly $20 million in currency revaluation, of which nearly $14 million came from the long-tail segment, where the bulk of our transactions occur in pounds. For the first half, prior year development was favorable by just under $20 million compared to $41.5 million for the same period last year, with the decrease primarily linked to currency revaluation, which totaled approximately $32 million in the first half. On a constant FX basis, we would have seen favorable development of just under $13 million for Q2 and about $52 million for the first six months. The G&A expense ratio was 21% in Q2 against 20.1% for the first half. In our short-tail segment, gross premiums were down 8.5% and 4.2% for the second quarter and first half, respectively. Consequently, earned premiums also declined by 8.4% and 6.9% for Q2 and H1 of 2025 compared to the previous year. The reduction in both periods reflects a lower level of written premiums and the effect of reinstated premiums on our reinsurance purchases. Underwriting income was up nearly 21% to $25.6 million in Q2, largely due to lower losses recorded in Q2 versus the same period last year. For the first half, underwriting income was just over $50 million, down about 10 points compared to the prior year. We continue to see new business opportunities in various lines, particularly in engineering and construction, and some marine lines, while competition remains adequate in general. Engineering stands out as a strong growth opportunity, with many infrastructure projects emerging across several markets globally. Gross premiums in the Reinsurance segment were flat compared to last year for Q2 but grew about 33% for the first half of 2025, primarily due to a combination of strong renewals and new business generated in Q1 around January 1. Growth was mainly seen in marine, energy, and property lines despite some competitive pressure starting to emerge. Underwriting income rose nearly 60% in Q2 and about 55% in the first half, highlighting our strategic shift last year towards higher-margin reinsurance business, which is now evident in our financial results. The long-tail segment remains the most challenging part of our portfolio, an issue that has persisted for several quarters. This segment is significantly impacted by competitive pressures, leading us to purposefully contract the book by around 15% since 2021 after years of strong growth in favorable market conditions. We’ve been cautious about rates, which have been on a steady decline for many quarters, indicating signs of slowing down. Gross premiums in this segment fell nearly 12% and almost 5% in Q2 and the first half, respectively. In Q2, we faced an underwriting loss of about $3 million as opposed to a profit of around $15 million in Q2 last year. The first half recorded an underwriting loss of about $10 million compared to a profit of approximately $26 million last year. First, regarding foreign exchange, the revaluation of non-U.S. dollar reserves profoundly impacts the long-tail segment, as most of our business operates in pounds. On a currency-neutral basis, underwriting income would have been just under $12 million in the second quarter and just over $13 million for the first half. This downturn is also attributed to purposeful portfolio contraction due to competitive pressures in these lines, leading to reduced written and earned premiums. Higher loss levels in this segment, particularly in the professional hedge fund area, have resulted in increased reinstatement activity. We've previously indicated our review of one segment of our professional indemnity portfolio that hasn't performed adequately. We have decided not to renew it, as its performance doesn't meet our expectations, and the outlook for improvement isn’t promising. This will lead to a decline in gross premiums of about $60 million, with 10% reflected in Q3, 50% in Q4, and the rest in the first half of the following year. While this may seem significant at first glance, the restructuring we’ve conducted over the past few years means the actual impact on net written premium will be only about $6 million to $7 million. Taking this action now should enhance the overall profitability profile of the long-tail segment going forward. Turning to our balance sheet, total assets increased a little over 4% to around $2.1 billion. Total investments in cash amounted to $1.3 billion. Our fixed-income securities, which constitute about 80% of our investment portfolio, generated just under $14 million in investment income in Q2, an increase of over 5% from last year. In the first half of the year, investment income rose by more than 10% to around $27.5 million, with an average annualized yield of 4.4%. We slightly extended the portfolio duration to 3.5 years during the quarter to lock in better rates on new bonds. In Q2, we repurchased over 1.34 million common shares at an average price of $23.28. By the end of Q2, approximately 800,000 shares remain on our existing 7.5 million repurchase authorization. Total equity stood at $662.2 million at the end of Q2, factoring in share repurchases and the payment of $42 million in dividends, which included a special dividend of $0.85 paid in April. This compares to total equity of $654.8 million at the end of last year. We recorded a return on average shareholders' equity of 20.8% for the second quarter and 18.6% for the first six months of the year. From a total return perspective, we grew book value per share by 3.4% in the first six months, returning a total of $77 million to shareholders in share repurchases and dividends during this period. Disregarding the noise from currency movements, it was an excellent quarter and a strong first half of 2025. We are witnessing elevated competitive pressures in certain areas, with some regions seeing more pronounced effects than others. Despite the challenges in our sector, we are continually seeking and identifying profitable opportunities to write new business across many lines within our portfolio. I expect to see some contraction in top line in certain areas where profitability and coverage do not meet our required targets. The benefit of our multifaceted diversification strategy, specialized expertise, and local presence in regional markets provides us with increased flexibility. Even when market conditions are particularly competitive in one line or region, other lines and areas may still be strong. The elements of our portfolio do not move uniformly. I previously mentioned that domestic markets worldwide are strengthening and becoming more resilient, with a greater desire to retain business locally. Our placement in these regions and the presence of local professionals enable us to access domestic business that no longer flows to London. We note mixed conditions across our portfolio, consistent with our commentary from earlier quarters. While some areas remain quite healthy, others are experiencing added competition and resultant rate pressures. Generally, reinsurance lines appear healthy, as evidenced in the short-tail lines. We are at a crucial point in the broader cycle where managing our portfolio and exposure is vital. I want to be clear that at IGI, we will not compromise our profitability to grow revenues. Our primary focus is on generating sustainable long-term value, and that can't be achieved if we yield to pressures that ultimately undermine rates and profitability. In our long-tail segment, net rates overall remain adequate in most areas, and the decline in rates has slowed somewhat. We are actively seeking new opportunities and expanding our footprint in specific markets while maintaining our lack of appetite for U.S. liability business. We've expanded our capabilities in both Oslo and Malta over the past year, and these efforts are beginning to yield positive results. Our outlook on short-tail lines remains consistent with prior quarters, although the market is becoming tougher as we navigate this earnings season. We see the most intense pressure in property, particularly in downstream energy, while we are encountering the most opportunities in specialized lines such as construction and engineering. Some marine lines are renewing at flat rates or slightly higher. The loss events we experienced in early 2025 have not significantly affected market conditions universally. We continue to face increasing competition from large multinational carriers and MGAs, and comments from other carriers reflect the impact of MGAs on the market. Overall, we support and utilize alternative business where feasible, and we have established a robust internal insurance team to manage that business. However, certain aspects of alternative business exhibit less discipline in pricing, terms, and coverage. In the reinsurance segment, we are still seeing a fair number of opportunities that align with our risk tolerances, and I anticipate this trend will persist throughout the rest of the year. However, with the major January 1 and April 1 renewals behind us, we expect significant growth in this segment to be more subdued in the latter half of the year. Like other areas of our business, we are pursuing efforts to improve our distribution capabilities in this segment, which should help us continue to expand our portfolio. The reinsurance market has displayed relatively disciplined behavior concerning structure, terms, and wordings, which is contributing to stable pricing conditions. Some carriers remain willing to reduce prices despite the ability to maintain margins. In our geographic markets, we've consistently maintained a lesser presence in the U.S., where we expect to see the most significant opportunities for new business. As always, we remain conscious of our risk appetite, particularly in regions prone to high catastrophe exposure. There is potential for growth in both our specialty treaty book and short-tail lines. Europe also presents itself as a growth area, similarly in the MENA and Asia Pacific regions, benefiting from our expanded presence and capabilities. Before we open the call to questions, I want to share some concluding thoughts. As I mentioned at the beginning of the call, we are fully prepared for any potential challenges. These are inherent in our business and industry. Our strategy, expertise, and geographic presence are all specifically designed to manage the cyclicality and volatility of our operations, where markets and lines can behave independently. Our balance sheet is entirely unleveraged, our underwriting portfolio is diversified through multiple layers, and with our physical presence in key regions, we stay closely connected to our markets. We possess the necessary infrastructure alongside experienced personnel to effectively execute our strategy and navigate through all market phases. This foundation is what we rely on to provide the resilience required to flourish through market cycles, as evidenced in our track record. We look ahead with optimism, confident in our ability to continue generating superior long-term value. I will pause here and turn it over for questions.

First question today will come from Nic Iacoviello with Dowling & Partners.

Great quarter considering the FX impact. I was curious on the net to gross retention on a written premium basis was 64% in the quarter. It was down from 73% year-over-year. Can you speak a bit to that? I was wondering if that was mix driven in any way? Or was there just additional opportunistic outward buying in the quarter?

Thanks for the question, Nic. Our approach is primarily opportunistic. We've increased our acquisition of facultative reinsurance during the softer market to generate additional fee income or overwriting income. Additionally, we have enhanced our capabilities in specific business lines thanks to support from large European reinsurers interested in our portfolio. While some of this strategy is strategic, there are also opportunistic elements involved.

And then I was just curious that one area of the professional indemnity portfolio that sounds like will be non-renewed. Based on the net to gross figure you gave, it sounds like there was around 85% quota share on the book. Has it always been at that level? Or has that feed increased in recent years? Or can you just help me think about maybe what the session was a couple of years ago versus now, that would be helpful?

I mean over the last few years, it's hovered between sort of the 60% to 80%, 85% session. It wasn't always like that. In the initial years, it was a much smaller book that we retained for the first couple of years and then we started. As we developed the book and grew it, we did it on the back of reinsurance support. Now that last year was around 80%, 82.5%. And hence, the net impact, the gross number looks like it's a big one, a high one. But once it trickles down through your net numbers and down to your bottom line, at the end of the day, it's not material. And ultimately, what we're doing by non-renewing a book of this size, which I think speaks volumes as to the discipline and our razor-sharp focus on the bottom line. With the non-renewal of this sizeable portfolio, the intent here is to improve overall profitability, and that's what we expect will ultimately occur.

Seeing no further questions, this will conclude our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Thank you, Nick. And just thank you all for joining us today, and thank you for your continued support of IGI. As always, any additional questions, please get in touch with Robin, and she'll be happy to assist. And we all look forward to speaking with you on the Q3 call. Have a good day, everyone. Thank you very much.

Thank you.

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