International General Insurance Holdings - Earnings Call - Q2 2025

Transcript

Speaker 4

Good day and welcome to the International General Insurance Holdings Ltd. second quarter and first half 2025 financial results conference call. All participants are in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. 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.

Speaker 2

Thanks, Nick, and good morning and welcome to today's conference call. Today, we'll be discussing 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 presentation page in the investor 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 the 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. I'll begin with a customary safe harbor language. Our speaker's 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 Forms 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?

Speaker 0

IGI once again delivered excellent results for both the second quarter and first six months of 2025. We generated a net income of $34.1 million and $61.4 million for the second quarter and first six months. 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 intelligent 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 the cycle, moving our capital to those areas with the strongest rate of 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 barriers and the benefits of having a very diversified platform and always working within our risk and time and policy. Our advantage at IGI is in our ability to generate consistently high-quality results in any stage of the market cycle, so that we continue to reward our shareholders who have put their trust in us and some confidence.

In 2025, in addition to strong behavior, 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.

Speaker 1

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 continue through the second half of the year. We're still seeing decent conditions in rate and humidity across much of our portfolio and pursuing opportunities to enhance our distribution capabilities that will ultimately generate additional value. Our goal and our promise is to create opportunities that will generate consistent and sustainable value for the long term. We've demonstrated this over more than 20 years' history. Our strength is our ability to do this throughout the market cycle. In 2025, while conditions remain generally healthy, there are areas of our portfolio which are facing slightly more open-end pressures. We've mentioned those in previous calls.

We're focusing on those lines and markets that remain healthier and reducing our exposures in areas where we can't generate the acceptable level of risk and return. At the end of the day, this is what capital management is all about. Before I go through the numbers in detail, it's important to note upfront the meaningful impact that foreign exchange headwinds will face in our results, once again, this quarter. That is specifically on the revaluation of our non-U.S. dollar denominated loss reserves and how this flows through a number of line items in our results, most significantly on our underwriting itself, as you saw in both the second quarter and the first six months of the year. As you know, our underwriting portfolio, as Wasef mentioned, is very international in nature. Similarly, our investment portfolio is also very geographically diversified.

This ensures, however, that we're always striving to achieve as accurate a match as possible between our assets and our liabilities, although it's never the exact science. Now, roughly half of our underwriting portfolio is transacted in either non-U.S. dollars or non-U.S. dollar pegged currencies. This by far is more pronounced in our long-tail segment, which, as I mentioned, in 30 years represented around 22% of total gross premiums. About 80% of this portfolio is transacted in sterling, in British pounds. More importantly, almost half of the group's total loss reserves are held against the long-tail segment. The sheer nature of long-tail business means these reserves are held for a longer period of time. For IGI, that means about six to eight years on average. When the U.S.

dollar, our financial reporting currency, weakens meaningfully against the pound, as it did at the start of the year, and even more so during the second quarter, the resulting impact on the revaluation of our reserves undoubtedly led to a somewhat distorted view of the underwriting results, specifically our loss ratio, and obviously, therefore, ultimately, our combined ratio, and also our core operating results. As I go through the results, I'll try and provide the dollar or percentage value impact where it meaningfully distorts period over period comparisons in our results. Specifically on the numbers, and starting with the top line, gross premiums in the second quarter of 2025 were just under $190 million, reflecting a decrease of 8.7%. This is reflected in both the short-tail and the long-tail segments where competitive pressures are more prevalent.

For the first six months, gross premiums were up almost 2% to around $395 million, primarily driven by growth in the reinsurance segment where we continue to take advantage of the more positive market conditions, which I'll talk about more in a moment. Net earned premium was at $118 million for the second quarter of 2025 versus around $122 million for the same period last year. For the first six months, net premiums earned were $227.8 million versus approximately $236 million. For both the second quarter and first six months of this year, net premiums earned included the impact of reinstatement premiums, which we mentioned on the last quarter's call, on loss-affected business amounting to $2.6 million this quarter, and $9.9 million for the first half.

I would note that we are strategic buyers of reinsurance to help mitigate volatility in the high severity lines of business that we participate in. The combined ratio for the second quarter was 90.5%. The combined ratio for the first half was 92.4%. These were negatively impacted by the revaluation of those non-U.S. dollar loss reserves. The impact amounted to approximately 21 points in Q2 and 15 points in the first half. You hear these numbers, and this really underscores the strength of our fundamental performance in what is becoming a more competitive environment. The first six months also saw a higher volume of losses when compared to the same period in 2023, especially in Q1, as well as a lower volume of net earned premium from the reinstatement premium impact I mentioned in the whole of this year.

We delivered net income of $34.1 million or $0.77 per share for the second quarter versus $32.8 million or $0.73 per share for the second quarter of last year. It's important to note here that when you look at this second quarter specifically, even though our combined ratio was almost 10 points high and our net earned premium base was almost 6.6% lower, we still produced a net income that was higher by 4% over the second quarter of 2023, clearly 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, versus $70.7 million or $1.55 per share for the first half of last year.

The period over here in the quantity net income in the first half was the result of a lower level of underwriting income, again, due to currency revaluation movements in large part, but also a greater level of loss activity in the higher level of net reinstatement premiums. The 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 2023, core operating income was $42.2 million or $0.93 per share versus $73.3 million or $1.61 per share, with the difference, again, primarily attributable to a lower level of underwriting income impacted by the currency revaluation. There was a high loss activity, specifically 16.9 points per currency acquisition that we mainly saw in the first quarter.

Prior year development was unfavorable in Q2, amounting to $6.3 million, primarily driven by the impact of about just under $20 million currency revaluation, out of which the majority, as we mentioned earlier, in the long-tail segment came up to about almost $14 million. That business, as we said, is largely transacted in pound sterling. In the first six months, prior year development was favorable by just under $20 million versus $41.5 million for the first half of last year, with the lower volume primarily attributable to the currency revaluation, which in the first half amounted to about $32 million. On a constant effects basis or on an apples-to-apples basis, we would have seen favorable development of just under $13 million for the second quarter and about $52 million for the first six months of this year. I'll talk more about the long-tail segment in a moment.

The GND expense ratio was 21% in Q2 versus 21.1% for the first half. Now, a few comments on our segment results. In our short-tail segment, gross premiums were down 8.5% and 4.2% for the second quarter and the first half, respectively. Consequently, earnings premiums were also down 8.4% and 6.9% for Q2 and H1 of 2025 compared to the same period in 2024. The decline in both of these reflects the lower level of risk premiums as well as the impact of reinstated premiums on our reinsurance purchases. The result underwriting income was up almost 21% to $25.6 million in the second quarter, largely due to a lower level of losses recorded in Q2 versus the same period in the previous year. For the first six months, underwriting income was just over $50 million, down about 10 points when compared to the first half of 2024.

We continue to see new business opportunities in a number of lines, particularly engineering and construction, in marine lines, and to a lesser degree, contingency and property lines. Although, broadly speaking, the rating environment and pricing remains adequate. Engineering continues to stand out as an excellent growth opportunity, seeing a lot of infrastructure projects and opportunities coming to many of our markets across the globe. Gross premiums in the reinsurance segment, the treaty segment, which is, as we've been always saying, is very well diversified geographically, were flat compared to the second quarter of last year, while the first six months of 2025 showed growth of about 33% versus the same period in 2024, primarily driven by strong renewal and new business generated in Q1 and more around the first of January. Growth was mainly in marine, energy, TV, terror, and to a lesser extent in property lines.

Conditions generally remain strong and pricing adequate in this business, in this line, in this segment, but there has definitely been recent evidence of competitive pressures. Currently, premium was up just over 21% in Q2 and about a third in the first half of 2025 compared to the same periods the previous year. Underwriting income was up almost 60% in the second quarter and about 65% in the first half of this year compared to the same period last year. A significant increase in that underwriting income in the segment clearly illustrates the shift of focus, which we always talk about, that we made a year ago to higher margin in the reinsurance business. We're now seeing this flow through the financial results. The long-tail segment continues to be the area of our portfolio that is definitely the most challenging.

This has been the case now for many quarters, time and time again, and I expect will continue to be the case for at least the near term. This is the segment where our liable management capabilities are clearly evident. It's been perfectly reflected the book by around 15% in 2021 after several years of healthy top-line growth when market conditions were very much in upside. We've been taking a very cautious approach to the risk that we've been persistently now declining for many, many quarters, albeit from very high levels. The pain of decline is now showing signs of slowing down. In the second quarter and the first half of 2025, gross premiums were down almost 12% and almost 5%, respectively, segment. We recorded an underwriting loss of about $3 million per Q2 versus an underwriting profit of about $16 million in Q2 last year.

For the first half, we recorded an underwriting loss of about $10 million versus an underwriting profit of about $26 million last year. Now, I'll take a moment to add some context here. First, it's FX. You know the currency value, the revaluation of non-U.S. dollar reserves, which, as I said earlier, impacts this segment, the long-tail segment, the most by far, as the vast majority of our business is transacted in the past. On a currency-neutral basis, underwriting income would have been just under $12 million in the second quarter and just over $13 million in the first half. That is the first factor. Second, as we've been saying, we've been contracting this portfolio purposefully as competitive pressures in these lines have led to reductions in rates and lower margins. We're generating less written and earned premium.

Finally, we saw a higher level of losses in this segment, especially in the first quarter and specifically within our professional engineering platform. This has led to a higher level of reinstatement. We've indicated on our last two quarters, we were reviewing one area of our professional indemnity insurance portfolio, which has not been performing up to par. We have now made that decision to non-renew this. As I've said, nothing systemic, just generally poor performance where the results simply aren't meeting our targets and would be outlooked unlikely to improve enough for us in the near term to change our view. It's just easier to do just to continue profitability to renew this part of the portfolio. The effect of this will be a declining gross premium of about $60 million.

About 10% of that will be reflected in Q3, 50% in Q4, and the remainder will be spread over the first half of next year. While the impact overall feels very pronounced in the top line, the way that we actually restructured this business over the past few years means that the actual impact on net written premium is only around $6 or $7 million. Ultimately, taking this action now should, and we expect that it will, improve the overall profitability profile of the long-tail segment going forward, which ultimately is the whole point. Now, turning to the balance sheet, total assets increased by just over 4% to about $2.1 billion. Total investments and cash were $1.3 billion.

Around these income securities, which make approximately 80% of our investments and cash for the portfolio, generated just under $14 million in investment income in the second quarter, which is an increase over Q2 of last year of just over 5%. For the first six months of the year, investment income increased more than 10% to about $27.5 million with an average annualized yield of 4.4%. We also edged out the duration of flight between the three and a half years during the quarter to lock in higher rates on some new bonds. In the second quarter, we repurchased just over 1.34 million common shares at an average price per share of $23.28. As of the end of Q2, this leaves approximately 8 million shares remaining on our existing 7.5 million repurchase authorization. Platinum equity was $6.2 million at the end of Q2.

That includes the impact of share repurchases and the payment of $42 million in common share dividends, including the special dividend of $0.85 that we paid back in April. This compares to total equity of $654.8 million at the end of last year. Ultimately, we recorded a return on average shareholders' equity of 20.8% for the second quarter and 18.6% for the first six months of this year. From a total return perspective, we grew book value per share by 3.4% in the first six months, and we returned a total of $77 million to shareholders in share repurchases and dividends in the first half of the year. All the noise from currency movements aside, it was an excellent quarter and an excellent first half of 2025. Specifically, what we're seeing in our markets, that elevated competitive pressure is there. In some areas, it's increasing more than others.

In spite of the headwinds facing our sector, we continue to seek and find profitable opportunities to write new business across many lines within our portfolio. I expect that overall, we will continue to see some contraction in the top line in certain areas of our portfolio where profitability and coverages just don't meet our required targets. This is very much the benefit of having a multifaceted diversification strategy, specialist expertise, and people on the ground in our regional market. It just gives us more optionality and more levers to work with. When market conditions in one line or in one region are particularly competitive, there will be other lines in other regions where the market remains robust. The individual element of our portfolio don't seem to be unison, as we all know.

I said on last quarter's call that domestic markets across the world are becoming stronger and more resilient, and there's a much higher desire, growing desire to retain business within those local markets. Being situated in these regions and having local talent means we can still access domestic business that is no longer coming to run into the portfolio. We've seen these conditions across much of our portfolio consistent with what we said on previous quarter's calls. Some areas remain relatively quite healthy, while in other areas we're seeing a little more competition and, as such, raising pressure. Generally speaking, reinsurance lines remain healthy, as do some of the short-tail lines. We're clearly, though, at the stage of the broader cycle where portfolio and exposure management is absolutely critical. I'll make one thing very, very clear. At IGI, we will not sacrifice the bottom line to benefit the top line.

Our primary goal and our promise is to generate sustainable value for the long term. We won't succeed at that if we give in to some of the more pervasive pressures that are driving rates and ultimately profitability downwards. In our long-tail segment, net rates overall do remain adequate in most areas, and the pace of rating decline, as I said a few moments ago, has slowed down moderately. We're seeking new opportunities and taking action to expand our footprint in specific markets, keeping in mind that we have no appetite to write any U.S. liability business. In both household and mockup, where registration is a slower process, we've expanded our capabilities over a year. We won't need efforts of crowding now to bear fruit.

Our outlook on short-tail lines continues to be fairly consistent with what we've been saying in prior quarters, although the market is definitely becoming buffered, as you heard on our call this time of season. We're seeing greater pressure in property and especially energy lines, particularly downstream energy, where we're seeing the most opportunities in the more specialist lines like construction insurance, engineering, as I mentioned earlier, and the marine insurance lines. In those marine insurance lines, certainly a bunch of that business is renewing at least on a flat or as-before basis, if not slightly higher rates. The loss events, unfortunately, of the first few months of 2025 don't appear to have had much impact on market conditions in any specific line. Unfortunately, we continue to see more intense competition from both the large multinational carriers and from the MGAs.

You heard comments from other carriers this early season within active MGAs. On the whole, we are supporters of and users of facilitated business where we can't access the business ourselves. We've built a strong delegated authority team internally to vet and manage that business. There are certainly elements of that facilitated business that are less disciplined, not just on pricing, but also on terms, conditions, and most importantly, on coverages. In the reinsurance segment, we're still seeing a decent flow of opportunities that fall within our risk tolerances, and I expect that will continue for the remainder of the year. That said, the major 1/1 and 4/1 renewals are behind us. Significant growth in the segment in the second half of the year will be a lot more muted. Like all areas of our business, we're pursuing opportunities to enhance our distribution capabilities in this segment.

That should help us continue to expand our portfolio. Overall, the reinsurance markets seem to still be behaving in a relatively disciplined manner from a structure, terms, wordings perspective. No pricing pressure is evident. With conditions holding steady and there's still seed margin in the business, some carriers are willing to give up more on funds. We're continuing to see the large carriers pushing hard to maintain and build that market share we mentioned earlier, and that's obviously adding to the rating pressure. In our geographic markets, we've always been underweight in the U.S., and we expect that it'll continue to be one of the markets with the greatest opportunity for us to write new business. Like always, we're mindful of our risk tolerances, particularly in the high cash-exposed regions themselves. There's room for us to grow here, both in our specialty treaty book and in our short-tail lines.

Europe also remains a growth area for us. The story is similar in MENA, Asia-Pacific regions, and our expanded presence and capabilities on the ground in those regions are paying off. Before we open the call for questions, just some final thoughts from my end. Like I said at the start of the call, we're absolutely fully prepared for any headwinds. They're all part and parcel of our business, of our industry. Our strategy, our expertise, and footprint, they're all specifically geared towards managing the cyclicality and the volatility of our business, where lines and markets behave largely independent of each other. We've got a fully unlevered balance sheet. Our underwriting portfolios diversify to many levels. With our physical presence in key regions worldwide, we stay very close to our market.

We have the right infrastructure with the right experience and capabilities in our team to successfully execute on our strategy and navigate any and all stages of the cycle. This is the foundation that we have built upon and what gives us the resilience that we've seen through market cycles, as clearly evident in our track record. We're looking ahead with a healthy dose of optimism that we will continue our track record of generating superior value for the long term. I will pause here, and we will turn it over for questions. Operator, we're ready to take the first question.

Speaker 4

Thank you. We will now begin the question and answer session. Again, to ask a question, you may press star, then one on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing any keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. Your first question today will come from Nicolas Iacoviello with Dowling & Partners Securities LLC. Please go ahead.

Speaker 3

Hi. 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. Could you speak a bit to that? I was wondering if that was mix-driven in any way, or was there just additional opportunistic outwards buying in the quarter?

Speaker 1

Hi. Thanks for the question. It's really just more opportunistic. We've been buying a higher level of facultative reinsurance in the softer market. Again, more opportunistic, trying to generate a little bit higher levels of more fee income or overriding income as well. We've expanded also our capabilities in certain lines of business on the back of reinsurance support from the likes of the large European reinsurers that have sought a piece of the pie from our portfolio. Some of it is strategic, but a big element of it is opportunistic.

Speaker 3

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

Speaker 1

I mean, in the last two 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 fully 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, you know, that last year was around 80, 82.5%. Hence, you know, the net impact, the gross number, you know, looks like it's a big one, a high one. Once it trickles down through your net numbers and down to your bottom line, you know, at the end of the day, it's not material.

Ultimately, what we're doing by non-renewing a book of this size, which I think takes, you know, speaks volumes as to the discipline and our, you know, razor-sharp focus on the bottom line. You know, with the non-renewal of this size portfolio, you know, the intent here is to improve overall profitability. That's what we'd expect from what originally occurred.

Speaker 3

That makes sense. Thanks. That's all I have. Thank you.

Speaker 1

Thank you, Nicolas.

Speaker 4

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.

Speaker 1

Thank you, Nick. Thank you all for joining us today. 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. We all look forward to speaking with you on the Q3 call. Have a good day, everyone. Thank you very much.

Speaker 3

Thank you, Robin.

Speaker 4

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