International General Insurance Holdings Ltd. — Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2019. The filing is an annual Form 20-F, not a standalone fourth-quarter filing. Historical financial statements primarily relate to International General Insurance Holdings Limited (IGI), the operating subsidiary, and are prepared under IFRS as issued by the IASB in U.S. dollars.
Business context and reporting period
IGI is a global specialty insurance and reinsurance provider operating in more than 200 countries and territories. Its principal lines include energy, property, construction and engineering, ports and terminals, aviation, political violence, casualty, financial institutions, marine liability and treaty reinsurance. Reportable segments are Specialty Long-tail, Specialty Short-tail and Reinsurance.
International General Insurance Holdings Ltd. was incorporated in Bermuda on October 28, 2019 as a vehicle for the Business Combination with Tiberius Acquisition Corporation. The transaction closed on March 17, 2020, after the December 31, 2019 reporting date. The Company subsequently became the public parent, with common shares and warrants listed on Nasdaq under IGIC and IGICW.
Key financial metrics
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Gross written premiums | $349.2 million | $301.6 million | +15.8% |
| Net written premiums | $252.1 million | $203.4 million | +24.0% |
| Net premiums earned | $215.5 million | $183.3 million | +17.6% |
| Net underwriting results | $52.0 million | $56.1 million | -7.0% |
| Profit before tax | $25.3 million | $25.6 million | -1.4% |
| Profit for the year | $23.6 million | $25.5 million | -7.7% |
| Basic and diluted EPS | $0.17 | $0.18 | Declined |
| Core operating income | $21.2 million | $28.6 million | Declined |
| Return on average equity | 7.7% | 8.5% | Declined |
| Core operating return on average equity | 6.9% | 9.5% | Declined |
| Combined ratio | 94.1% | 88.7% | Worsened 5.4 points |
| Net cash from operating activities | $21.4 million | $104.1 million | Declined |
| Cash, cash equivalents and term deposits | $312.2 million | $260.1 million | +20.0% |
| Total investments | $292.5 million | $245.0 million | +19.4% |
| Total equity | $312.1 million | $301.2 million | +3.6% |
The claims and claim expense ratio increased to 54.8% from 46.5%, primarily because of higher losses and additional IBNR reserves in the growing Specialty Long-tail segment. The policy acquisition expense ratio improved to 21.1% from 22.9%, while the general and administrative expense ratio improved to 18.2% from 19.3%.
Investment income, net increased to $10.7 million from $9.1 million. The company reported a $5.7 million foreign-exchange gain, compared with a $3.4 million loss in 2018, and recognized $4.8 million of listing-related expenses.
Material changes versus the prior comparable period
- Premium growth was concentrated in Specialty Long-tail, where gross written premiums increased 55% to $142.5 million. Casualty premiums rose 57.3% to $115.9 million and financial institutions premiums rose 43.6% to $23.2 million.
- Specialty Short-tail gross written premiums declined 1.6% to $188.8 million, mainly because energy premiums fell 11.4% and political violence premiums fell 27.2%. Ports and terminals, construction and engineering, and general aviation grew.
- Net claims and claim adjustment expenses increased 38.4% to $118.1 million. Net IBNR reserves, including ULAE, increased to $107.3 million from $81.2 million, and net outstanding claims increased to approximately $236.8 million from $196.8 million.
- Catastrophe losses were $18.6 million net in 2019 versus $19.8 million in 2018. Notable 2019 events included the Petronas explosion and fire, floods, Hurricane Dorian and Typhoon Hagibis.
- Operating cash flow fell sharply because 2019 cash generated from operations was offset by approximately $86 million of net investment deployment, whereas 2018 benefited from approximately $58 million of net investment sales.
- The company had historically incurred no debt. At December 31, 2019, it had $8.0 million of letters of credit and a $0.3 million letter of guarantee outstanding.
- IGI paid $10.8 million of dividends and repurchased $5.1 million of treasury shares during 2019. Dividends declared were $0.04 per share in March and $0.04 per share in August.
- IGI Bermuda reported a 2019 BSCR ratio of 244%, with statutory capital and surplus of approximately $336 million versus an ECR of $136.8 million and target capital level of $164.2 million. IGI UK’s statutory capital surplus exceeded PRA requirements by 64% in 2019.
Guidance, outlook, commentary and unusual items
Management emphasized disciplined specialty underwriting, portfolio and geographic diversification, conservative investments, and the use of highly rated reinsurance to manage catastrophe and earnings volatility. Management also cited hardening market conditions and improved renewal pricing as drivers of premium growth.
The company withdrew previously issued 2020 and 2021 guidance because of the uncertainty surrounding COVID-19, financial-market volatility and the difficulty of forecasting claims, investment valuations and economic recovery. Preliminary first-quarter 2020 impacts included declines in foreign-exchange, equity and fixed-income unrealized valuations and initial potential COVID-19-related claim notifications. Management stated that adverse-scenario and reverse-stress testing indicated sufficient liquidity for at least one year and continued compliance with regulatory solvency requirements based on information available when the filing was prepared.
Material contingencies include an arbitration with reinsurers concerning approximately $6.9 million of claimed recoveries, plus interest and legal costs. The reinsurers allege inadequate disclosure and seek to avoid certain 2012–2017 reinsurance policies. Management believes the allegations lack merit and recorded no provision. If the policies were avoided, the filing states that approximately $33.2 million of premiums could be returned, approximately $29.6 million of previously paid claims could be returned, and further recoveries could be unavailable.
The filing identifies significant risks from reserve inadequacy, catastrophe and pandemic losses, reinsurer credit and disputes, broker concentration, investment-market volatility, interest rates, foreign exchange, regulatory capital requirements, Brexit, cyber and operational risks, and competition. The top five international brokers generated 64.7% of 2019 premiums.
IGI continued to report a material weakness in internal control over financial reporting related to the entity-level and financial-reporting control environment and accounting infrastructure. Management planned remediation by December 31, 2020. The independent auditor issued an unqualified opinion on the financial statements but did not provide an opinion on internal control effectiveness.
Most important facts for investors to verify
- Verify the distinction between the 2019 IGI operating results and the post-March 17, 2020 public-company structure created by the Business Combination.
- Assess whether premium growth, particularly in casualty and other long-tail lines, is translating into acceptable future loss ratios and reserve development.
- Review the adequacy and development of the $413.1 million gross outstanding claims balance and $120.3 million gross IBNR reserve.
- Monitor the reinsurer arbitration, recoverability of the approximately $176.2 million reinsurance share of outstanding claims, and the credit quality of reinsurers.
- Evaluate COVID-19 claim exposure, investment losses, liquidity, solvency ratios and the fact that 2020–2021 guidance was withdrawn.
- Review the remediation status of the material weakness in internal control over financial reporting.
- Consider concentration risks from brokers, long-tail casualty business, the UK and MENA markets, and fixed-income investments.
- Verify dividend capacity and restrictions at the holding-company and regulated-subsidiary levels, including regulatory capital and liquidity constraints.
- Assess dilution and market-overhang risks from 48.4 million post-combination common shares, 17.25 million warrants, registration rights and lock-up expirations.