Earnings Call Transcript - IGIC Q4 2025

Operator, Operator

Good day, and welcome to the International General Insurance Holdings Fourth Quarter and Full Year 2025 Financial Results Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Robin Sidders, Head of Corporate Relations. Please go ahead.

Robin Sidders, Head of Corporate Relations

Thank you, Danielle, and good morning. Welcome to today's conference call. Today, we'll be discussing the financial results for the fourth quarter and full year 2025. We issued a press release after the close yesterday, and you can find that on our website in the Investor Relations section at iginsure.com. We've also posted a supplementary investor presentation, which can be found on our website as well 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 through the key drivers of our results for the fourth quarter and full year 2025, and finish up with our views on market conditions and our outlook for the remainder of 2026, and then 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 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 or 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 December 31, 2024, the company's reports on Form 6-K and other filings with the SEC as well as our press release issued last 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 will 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 is available on our website, as I said. With that, I'll turn the call over to Executive Chairman, Wasef Jabsheh.

Wasef Jabsheh, Executive Chairman

Thank you, Robin, and good day, everyone. Thank you for joining us on today's call. I'm very pleased with the outstanding results we achieved in 2025. Next year will be IGI's 25th anniversary year, which is quite a milestone for us. We have built a successful track record of consistently strong performance, generating significant value for our shareholders over this time. I'm delighted that in addition to our solid financial results, highlighted by roughly 14% growth in book value, plus the return of more than $108 million to shareholders through our capital management actions that we announced a special dividend of $1.15 per share this morning. This is the third consecutive year that we have taken the decision to pay a special dividend in addition to our regular quarterly dividend. Our ability to do this really shows our confidence in the strength of our balance sheet and our capital position. It rewards our shareholders for their trust and support of IGI over the years. I want to congratulate all of our people whose focus, dedication and loyalty not only produced these results but have helped to build our track record for over more than 2 decades. I'm very proud of the people we have at IGI. It is their passion for our business and their belief in what we have built and continue to build at IGI that continues to drive our success. With this excellent foundation, I'm confident that we will continue to serve as a stable market for our customers and generate strong value for our shareholders in '26 and beyond. I will now hand over to Waleed to discuss the numbers in more detail and talk about market conditions and our outlook, and I'll remain on the call for any questions at the end. Go ahead, Waleed.

Waleed Jabsheh, President and CEO

Thank you, Wasef. Good morning, everyone, and thanks for joining us on the call today. As Wasef mentioned, we had an excellent fourth quarter, concluding another exceptional year for IGI. Our strong underwriting execution and investment performance have led to a solid bottom line result, which adds to our consistent track record built over the past 24 years. I will highlight our performance for 2025 before getting into more details about the results. In the last 12 months, we achieved over $161 million in underwriting income, resulting in a combined ratio of just under 86% for the year, well below our 10-year average. We delivered a return on average equity of 18.6%, also surpassing our 10-year average, and saw book value per share growth of almost 14% to $16.91. Additionally, we returned over $108 million to shareholders through dividends and share repurchases. As Wasef said, we announced our ordinary common share dividend in our press release last night and declared a special cash dividend of $1.15 per common share this morning, marking the third consecutive year we've paid a special cash dividend. This level of performance stems from a clearly articulated strategy that is consistently executed at a high level. Our history shows that this strategy drives sustainable value for our partners, shareholders, and employees. We believe we possess strategic advantages unique to IGI that underpin our results. Firstly, we have a profitability-driven culture grounded in strict underwriting discipline. Secondly, we have deep specialist expertise with a local presence in our main regions, enabling us to operate in culturally compatible ways. Thirdly, we're value-driven and focused on the long term. Finally, our significant insider ownership aligns directly with shareholder interests. We measure our success over much longer periods, considering the ever-changing market conditions and global environments. Now I will move on to the results for the fourth quarter and full year of 2025, focusing on the key points for each period and the drivers behind the numbers. I'm happy to address any questions at the end. Starting with the top line, gross premiums written in the fourth quarter were down $33.4 million or just over 19%. Similarly, gross premiums for the full year were also down by $33.4 million, which translates to about 4.8 percentage points, primarily due to the non-renewal of a large professional indemnity binder in our long-tail portfolio, which we mentioned in our Q2 call last year. We anticipated that the impact would be felt over four consecutive quarters, starting with Q3, with the largest portion reflected in Q4. This explains the top line movements for the quarter. Net premiums earned were $111.4 million for Q4 2025 versus $120.6 million for the same period last year. For the full year, net premiums earned were $453.8 million compared to $483.1 million previously. Additionally, the net premiums earned for the full year included $10.2 million from reinstatement premiums on loss-affected business. Our approach to reinsurance is very strategic, aiming to mitigate volatility in high-severity lines of business. It’s vital to recognize that our reinsurance purchasing patterns vary depending on the market cycle; we tend to buy more facultative coverage in softer market conditions and retain more risk in tougher times. This cycle management can sometimes distort our combined ratio component parts, which I'll elaborate on shortly. The combined ratio for Q4 2025 was 82%, comprising 18.1 points of accident year catastrophe losses and 5.2 points of favorable reserve development. This is compared to 77.8% for Q4 2024, which included 6 points of accident year catastrophe losses and 2.3 points of favorable reserve development. The combined ratio for Q4 2024 also benefited from approximately 18.3 points of foreign currency revaluation. The full-year combined ratio for 2025 was just below 86%, including 14.5 points of accident year catastrophe losses and almost 8 points of favorable reserve development, negatively impacted by about 6 points due to negative currency revaluation. In contrast, the full-year 2024 combined ratio was 79.9%, including 9 points of accident year catastrophe losses, 7.7 points of favorable reserve development, and just under 2 points of positive currency revaluation. From an FX-neutral perspective, we are comparing a 79.9% ratio for the full year 2025 against 81.8% for 2024. During Q4 2025, currency revaluation movements minimally affected our results, but for the full year, the volatility of the U.S. dollar against our significant transactional currencies impacted several line items in the results in line with the performance of the first three quarters. Regarding the G&A expense ratio, we observed increases of 5.9 points or $4.8 million for the fourth quarter and 2.7 points or $6.6 million for the full year compared to the same periods last year. These increases largely result from new hires, system costs, and other investments made to enhance our business and visibility. Therefore, you're seeing a higher dollar expense load in Q4 compared to Q4 2024. The higher fourth quarter expense ratio is compounded by the lower level of net premiums earned. The G&A ratio in Q4 2024 benefited from a reclassification of expenses, creating a disparity in the year-over-year comparison. For the full year, the strengthening of the pound against the dollar also played a significant role in G&A expenses. Overall, the total expense ratio reflects the combination of G&A and acquisition costs, which may fluctuate based on our cycle management actions. Ultimately, we delivered net income of $32.3 million or $0.76 per share for Q4 2025, compared to $30 million or $0.65 per share for the same quarter in 2024. For the full year 2025, net income was $127.2 million or $2.89 per share versus $135 million or $2.98 per share in 2024. Looking at our segment results, conditions in the Short-tail segment are mixed, though rates remain generally adequate. Underwriting income in this segment improved over 14% for Q4 but declined a little over 7% for the full year, primarily due to lower net premiums earned and an increase in ceded premiums. As previously mentioned, our cycle management takes advantage of reduced reinsurance pricing to protect our portfolio from volatility, especially as the cycle softens. In the Reinsurance segment, conditions are relatively strong with more than adequate pricing in the business we handle. Underwriting income fell about 4.5% in Q4, mainly due to a lower level of net earned premiums, yet underwriting was up nearly 30% for the year; this reflects a strategic shift we made to focus on the higher-margin reinsurance business. The Long-tail segment, however, has continued to be the most challenging area of our portfolio. We are optimistic for some improvement in 2026 or at least stabilization in pricing and conditions. In Q2, we took action by non-renewing the large PI binder mentioned earlier, which affected both the Q4 and full-year results for this segment. Underwriting income for Q4 2025 was $10 million, compared to $14.3 million in Q4 2024, and for the full year, we recorded $10.9 million versus $39.5 million in 2024. On an FX-neutral basis, underwriting income would have been $29.2 million for 2025 compared to $34.3 million for 2024. Examining the balance sheet, total assets reached $2.1 billion, with total investments and cash at $1.32 billion. Fixed income securities account for just over 80% of our investments and cash portfolio, resulting in $14.2 million in investment income for Q4 and just under $55 million for the full year, yielding about 4.2%. We kept the duration steady at around 3.6 years. In Q4, we repurchased nearly 344,000 common shares at an average price of $23.51. By the year-end, we had approximately 4.65 million common shares remaining under the new $5 million repurchase authorization announced prior to last quarter's call. Share repurchases present a strong value generation lever for us and are regarded as highly accretive for our shareholders. At the end of the year, total equity stood at $710 million, inclusive of share repurchases and dividends, including the special dividend of $0.85 distributed in April, compared to total equity of roughly $655 million at the end of 2024. We achieved a return on average shareholders' equity of 18.5% for Q4 and 18.6% for the full year. From a total return standpoint, we increased book value per share by almost 14% in 2025, returning approximately $62 million in share repurchases and just over $46 million in dividends to shareholders. Overall, this has been an excellent quarter and year for IGI. Turning to our market outlook, there isn’t much that is new or surprising compared to what you may have heard from others. We've seen various reports indicating that competition is intensifying, which is true. Competitive pressure across much of the market remains elevated but generally disciplined, although slightly less disciplined than expected at the start of the year. It’s important to understand that while rates face pressure, they remain adequate for many lines of business we cover. For context, we observed average declines of about 10% at the start of the year. In the Reinsurance lines, margins remain healthy, leading to strong competition for market share, particularly among larger carriers. Our recent S&P upgrade has elevated our profile and led to more business opportunities. The short-tail portfolio presents mixed conditions, especially in our energy and property lines, which are two of our largest. However, we continue to see relatively healthy conditions in more specialized areas, such as construction and engineering, spurred by rising infrastructure projects and data center developments globally. In our marine lines, including cargo and liability, terms and conditions remain stable with new opportunities arising. Contingency also remains a strong area for us. In our Long-tail segment, we are cautiously optimistic, as we observe some stabilization in professional financial lines after many quarters of pricing decreases. This differs from what some U.S. carriers report, as we do not write long-tail U.S. business. In our UK-based Professional Indemnity portfolio, the pace of decline appears to be stabilizing, supported by strong relationships that are enabling new opportunities. In the Financial Institutions and D&O lines, while reductions continue, their magnitude is decreasing, and the pace is slowing. Geographically, we maintain a strong focus on the U.S. and specialty treaty and short-tail portfolios, while continuing to enhance our presence across Europe, the MENA region, and Asia-Pacific. For IGI, context is vital. Our size and global strategy are unique, and we've invested heavily in growing our top line in favorable market conditions while fortifying our business for when those conditions shift. A significant achievement has been our recent S&P financial strength rating upgrade, underscoring our quality results and balance sheet strength. Our strategy involves diversifying and positioning local talent with strong local knowledge in our core regions, enhancing our chances of success. Domestic markets worldwide are becoming stronger, making local operations increasingly vital. Our team members on the ground possess specialized technical knowledge and have built robust relationships, allowing them to engage effectively in local markets, providing us with a leverage point. Compared to larger competitors, we find it easier to identify profitable opportunities across various lines and geographies while maintaining healthy margins. Though it may be more challenging now, we have implemented numerous strategies to better manage conditions than 18 months ago. Every action we take aims to protect our portfolio while ensuring healthy margins and enhancing our value proposition. This is fundamentally part of our dynamic cycle management, a process we've effectively navigated multiple times in our nearly 25-year history. Recognizing our current cycle, it’s reasonable to anticipate a contraction in the top line in certain areas where we choose to exit business that does not meet our profitability or coverage targets. We have already experienced this in our general aviation book, which we have reduced in size by nearly half over the last few years due to adverse market conditions. We are witnessing similar trends in other lines. Nevertheless, our strict discipline guides these decisions, positioning us for optimal strength to capitalize on opportunities when they arise without being hindered by short-term thinking from the past. As we look to 2026, our key focus remains the same: consistency, discipline, and focus. This is the foundation of effective cycle management that fosters sustainable value creation through all stages of the cycle. In closing, I want to commend our outstanding teams at IGI. Our nearly 25-year track record demonstrates our resilience and commitment to our principles, even under pressure. We have built a robust level of resilience in IGI that places us in a stronger position than we were entering the last soft cycle, which will continue driving our success for all stakeholders. I will pause here and turn it over for questions.

Operator, Operator

The first question comes from Michael Phillips from Oppenheimer. The next question comes from Rowland Mayor from RBC Capital Markets.

Rowland Mayor, Analyst

Could you maybe walk through the state of competition? And I heard all your comments on it, but I just wanted to understand, do you think the durability of maybe the pricing competition, particularly in property, are we reaching a sort of bottom here? Or do you expect to continue throughout 2026?

Waleed Jabsheh, President and CEO

Thank you for the question, Rowland. The competition has been consistent with what we've experienced over several quarters. As I mentioned earlier, the energy and property segments appear to be the most pressured. I don’t expect that pressure to ease soon, even though there has been some discussion in the market about the underperformance of refining in the downstream segment in 2025. The demand still seems strong. Additionally, there’s substantial demand in the reinsurance market. In managing the cycle, it’s important not only to maintain discipline in the inward business but also to capitalize on the opportunities presented by a soft market, which can enhance the attractiveness of our inward business. So, do I foresee any short-term decline in competition? Honestly, I don’t. However, we can navigate through it, as we've managed the long-tail lines effectively for several years, including in aviation. Overall, I expect the competition to stay at least stable in the near term.

Rowland Mayor, Analyst

Yes, that makes sense. And I'm wondering just on the type of insurers you're running into. Is it traditional capital that has always been in the market? Or is it new capital coming in with maybe alternative backing that is creating all the competition right now?

Waleed Jabsheh, President and CEO

No, it's mostly traditional. A lot of it is coming from the larger carriers in both the short-tail lines and the property and energy lines, as well as the reinsurance lines. The market has performed well for several consecutive years. There is considerable excess capital, and they may feel pressured to utilize it. We do not position ourselves like that. We have a buyback program and are returning capital through special dividends. It's about maintaining discipline and only writing business that makes sense, without succumbing to the pressure to follow the crowd.

Rowland Mayor, Analyst

That's super helpful. And then I did want to talk about the capital. So in the past few years, you've done some M&A to reach into new markets. Is there any opportunity to do that here or multiples just not making sense?

Waleed Jabsheh, President and CEO

At this point, I would say there's nothing particularly strong on our radar regarding that. We need to be aware of the current market conditions and what they entail for capital management and M&A. Our focus is on our business, which, as you know from our history, is primarily driven by organic growth. That's truly our preferred approach. We continually seek new opportunities, and I believe there are growth prospects for a company like IGI, both this year and in the future, even though the market is challenging. We're actively working to identify and seize those opportunities, and I'm confident we will. However, the short answer to your question about M&A is that there’s nothing concrete at this time.

Rowland Mayor, Analyst

And then I did want to just try to squeeze one more in on the special dividend announcement this morning. Can you just walk through how you decide the size of the dividend versus buyback and your approach to capital management here?

Waleed Jabsheh, President and CEO

I mean, by and large, the buyback is something that we're doing throughout the year, right? And a lot of it depends on what ability we have and how much of that we are able to buy. I mean in terms of the special dividend, I mean, when we announced our sort of new at the time capital strategy a few years ago, we said it was basically a focus on the business, underwriting first. The capital position was a lot weaker than what it is, of course, today. But we saw the opportunities at the time in the market. And we said that when we don't see those same opportunities and we don't feel we can feed that capital or need that capital, then we would return it to shareholders. And you started seeing that a couple of years ago from a dividend perspective. Essentially, we want to make sure we are in a comfortable place from a capital adequacy perspective. Obviously, we've got the upgrade from S&P. That's a huge asset for us that needs protection. We always will. But we've had another fantastic year, generating just under $130 million of profit, growing book value. And the business from a top line perspective has not grown. And as a result, the required amount of capital where we stand hasn't increased, yet you've managed to grow the balance sheet in that regard. So we tend to wait until the end of the year, see what the results are like, see what our capital position is like and then assess whether we are in a position to give back to shareholders. And if we are, then the amount that we are able to give back to ensure that our capital position remains strong, protecting all our interests, internal and external.

Rowland Mayor, Analyst

Best of luck in your 25th year.

Operator, Operator

The next question comes from Michael Phillips from Oppenheimer.

Michael Phillips, Analyst

I apologize if any repeats, I was dropped for about 10 minutes here. So hopefully, no repeats. Congrats on the quarter. I guess, Waleed, I wanted to start with maybe just to what extent on the long-tail line business in the fourth quarter did you feel you had to walk away from business that didn't meet your hurdles more so than maybe you did earlier parts of the year?

Waleed Jabsheh, President and CEO

To be totally honest...

Michael Phillips, Analyst

And by the way, let me say this, I apologize. I'm asking not so much on the margins because I think there's lots of confidence in your ability to maintain margins as the soft market maybe continues. But just maybe more so if you consciously walk away, what impact that might have on top line. So if you've already done that, should that continue?

Waleed Jabsheh, President and CEO

Thank you for the question. The long-tail business has been in a decline for more than three years now, which has led us to step back from certain business areas. I mentioned during the call that we are noticing signs of stabilization in the downturn, and we hope to see this trend bottom out in 2026. We have largely completed our withdrawal from most of that business. Of course, there will always be instances where we have to walk away from some business, and new opportunities will arise. However, I don't expect the overall portfolio size to be negatively affected in any significant way once we finish with the portfolio we exited. You will continue to see the effects of the reduced premiums from that portfolio in the first and second quarters of this year, but we are offsetting that with new business opportunities. As I mentioned earlier, we have a solid pipeline with reliable partners and are making efforts to convert those opportunities into reality. Once we finish dealing with the repercussions of the exited portfolio and the lost income in the first two quarters of this year, I anticipate a more stable and possibly positive outlook for the long-tail portfolio.

Michael Phillips, Analyst

Okay. I appreciate your comments on the G&A and your opening remarks. I understand that some of the pressure this quarter was due to the new hires and the system build-out you mentioned. Is that process completed going forward? Can we expect any additional pressure on the dollar amount in the next couple of quarters?

Waleed Jabsheh, President and CEO

I believe we will see more stability moving forward. A significant portion of our expenses is incurred in pounds. If the pound appreciates, it will affect our dollar translation, and there’s little we can do about that. We have to consider a few factors. If we expect growth in our teams from an HR perspective, it will likely occur in the underwriting area. If we discover new opportunities and bring in teams to develop portfolios and attract new business, we will invest in that. I've addressed this in my previous comments, and I understand how the components of the combined ratio, such as the G&A ratio, acquisition cost ratio, and loss ratio, work together and are assessed individually. I want to point out that depending on the market cycle stage, your underwriting strategy—how you underwrite inward business and select reinsurance for optimal protection—will influence and potentially distort these ratios. For instance, we are currently purchasing more facultative reinsurance to offload certain risks. While this may lead to a higher expense ratio, we're confident that managing the loss ratio effectively will keep the overall combined ratio healthy. It involves taking various actions at different times and making adjustments as needed, even if they cause some temporary distortions in our numbers. Ultimately, when everything comes together, the results remain strong.

Michael Phillips, Analyst

No, that's perfect. Last one for me. You mentioned the construction business and infrastructure and data centers around the world. One of the things that I think we're seeing here in the U.S. is some of that stuff has been delayed and impacting some insurance companies' top line business. And I wonder if you've seen that in any parts of your construction business at all? Any concerns there?

Waleed Jabsheh, President and CEO

Do you mean a delay in starting the projects or delays in completion of the projects?

Michael Phillips, Analyst

Well, both, probably more so on starting, but kind of both.

Waleed Jabsheh, President and CEO

Yes, I think a lot of these projects are quite substantial. The smallest projects in this area typically have contract values in the low single-digit billions, and we've seen projects exceeding $20 billion, depending on the region. These projects usually require time to enter the market and be finalized and completed, involving multiple stakeholders, banks, and financing approvals, which also takes time. It's a natural aspect of our construction portfolio that we haven't seen any projects being pulled, which is a positive sign. While it may take time for them to be finalized, it's clear that this is a significant area, and many companies are investing heavily in facilities because it's a crucial sector moving forward.

Operator, Operator

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

Waleed Jabsheh, President and CEO

Just want to say thank you to everyone for joining us today, and thanks for your continued support of IGI. As always, any additional questions, please contact Robin. She'll be happy to assist. I wish you all a great day, and we look forward to speaking with you on next quarter's call. Thank you, everybody.

Operator, Operator

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