International General Insurance Holdings Ltd. annual report, Q4 FY2022

International General Insurance Holdings Ltd. — 2022 Form 20-F Summary

Reporting period: Fiscal year ended December 31, 2022. The filing is an annual Form 20-F, not a standalone fourth-quarter filing. Financial statements are prepared under IFRS as issued by the IASB, in U.S. dollars.

Business context

IGI is a Bermuda-based global specialty insurance and reinsurance group operating in more than 200 countries and territories. Its principal lines include professional lines, energy, property, construction and engineering, marine, aviation, political violence, contingency, financial institutions and treaty reinsurance. Reportable segments are Specialty Long-tail, Specialty Short-tail and Reinsurance.

Gross written premiums were concentrated in the UK, North America, the Middle East and Europe; the UK represented 33% of 2022 GWP.
Specialty long-tail represented 39.9% of GWP, specialty short-tail 54.8% and reinsurance 5.3%.
The five largest international brokers generated 61% of 2022 GWP, creating broker concentration risk.

Key financial metrics

Metric	2022	2021	Change
Gross written premiums	$581.8 million	$545.6 million	+6.6%
Net written premiums	$395.4 million	$382.6 million	+3.3%
Net premiums earned	$376.5 million	$345.2 million	+9.0%
Net underwriting results	$148.5 million	$105.8 million	+40.4%
Profit before tax	$87.7 million	$45.4 million	+93.1%
Profit for the year	$85.5 million	$43.7 million	+95.6%
Basic and diluted EPS	$1.74	$0.89	+95.5%
Core operating income	$94.4 million	$53.2 million	+77.4%
Core operating return on average equity	22.7%	13.6%	+9.1 percentage points
Net claims ratio	41.9%	51.0%	Down 9.1 points
Policy acquisition expense ratio	18.7%	18.3%	Up 0.4 points
Net cash flow from operating activities after tax	$(85.4) million	$129.8 million	Outflow in 2022
Total assets	$1.561 billion	$1.452 billion	+7.5%
Total shareholders’ equity	$429.8 million	$401.9 million	+6.9%

Margins, underwriting and claims

The implied underwriting margin on net premiums earned was approximately 39.4% in 2022, compared with approximately 30.7% in 2021.
Net claims and claim adjustment expenses declined to $157.7 million from $176.2 million despite gross claims increasing to $235.3 million. Reinsurance recoveries increased materially to $77.6 million from $27.2 million.
Favorable prior-year reserve development increased to $40.4 million from $16.1 million. Excluding prior-year development and current-year catastrophe losses, the net claims ratio was 46.1% versus 47.3%.
Current accident-year catastrophe losses were $24.4 million, compared with $28.9 million in 2021. Notable 2022 events included Hurricane Ian and Australia floods.
Segment net underwriting results were $83.7 million for Specialty Long-tail, $57.2 million for Specialty Short-tail and $7.6 million for Reinsurance.

Investments, liquidity and capital

Investment income, net increased to $20.7 million from $14.1 million, primarily because of higher interest income from rising rates and larger fixed-income and term-deposit balances.
The investment and cash portfolio was approximately $990.8 million at year-end, including $491.1 million of fixed-income securities, $366.9 million of fixed and call deposits and $68.1 million of cash.
Fixed-income securities were 98.5% corporate securities and 1.5% government securities. Approximately 69.1% of the fixed-income portfolio was rated A or better.
Cash and cash equivalents declined to $137.9 million from $242.1 million, while term deposits increased to $297.0 million from $180.0 million.
Operating cash flow was negative because $159.4 million was generated from operations before investment deployment, while $244.8 million was deployed into investments, net of sale proceeds, including term deposits.
IGI has historically not incurred debt. It had $2.9 million of letters of credit supporting reinsurance arrangements and a $0.3 million rent-related letter of guarantee at December 31, 2022.
IGI Bermuda reported statutory capital and surplus of $413.8 million, exceeding its $231.0 million ECR by 179% and its $277.2 million target capital level by $136.6 million. IGI UK exceeded PRA requirements by 52%, and IGI Europe exceeded MFSA requirements by 108%.
Management expects operating cash flows and available liquidity to meet requirements for at least the next 12 months and targets a solvency ratio above 120% of the group capital requirement.

Material changes versus 2021

Growth was led by Specialty Short-tail GWP, up 13.0% to $318.6 million, and Reinsurance GWP, up 29.2% to $31.0 million. Specialty Long-tail GWP declined 3.1% to $232.2 million.
Average renewal premium rates increased 5.8%, while currency translation, particularly for sterling- and euro-denominated business, reduced reported premium growth.
The overall reinsurance cession increased to 32% of GWP from 30%, reflecting higher facultative and non-proportional purchases.
General and administrative expenses rose 14.6% to $67.5 million due primarily to higher employee costs, increased travel and technology investment.
Foreign-exchange losses increased to $9.1 million from $4.9 million, mainly because sterling and the euro weakened against the U.S. dollar.
The fair-value reserve moved from a positive $8.2 million to a negative $39.0 million, primarily reflecting declines in the fair value of bonds and equities recognized through other comprehensive income.
The warrant liability declined to $10.0 million from $12.9 million, producing a non-cash fair-value gain of $2.9 million.
The Group repurchased 310,542 shares for $2.4 million during 2022, and paid $10.8 million of dividends. In January 2023, it repurchased an additional 2.27 million shares at $8.60 per share for $19.5 million.

Guidance, outlook and management commentary

The filing does not provide quantitative earnings or premium guidance. Management’s stated strategy is to expand in existing profitable markets, enter adjacent specialty lines, maintain conservative reserving and investment practices, and continue purchasing reinsurance to manage catastrophe and large-loss volatility.

Management emphasizes disciplined underwriting, rate adequacy, geographic and line-of-business diversification, and maintaining strong regulatory capital.
IGI will change its accounting basis from IFRS to U.S. GAAP beginning January 1, 2023. The filing warns that future results may not be directly comparable with prior IFRS results and that IGI discontinued implementation of IFRS 17.
The filing states that IGI completed the acquisition of Norway-based Energy Insurance Oslo AS in March 2023, after the reporting date.

Principal risks and unusual items

Insurance reserves are inherently uncertain. Net outstanding claims were $445.7 million, including $239.2 million of net IBNR and unallocated loss adjustment expense reserves. A 7.5% adverse change in gross outstanding claims would reduce estimated profit before tax by approximately $33.6 million.
Catastrophe, climate, inflation, social inflation, long-tail casualty claims and emerging coverage disputes could materially increase losses.
Reinsurance recoverables on unpaid losses were $188.9 million; amounts owed for paid claims were approximately $12.9 million and the portion of case reserves due from reinsurers was approximately $102.0 million. Collection and counterparty risk remain material.
Fixed-income assets are exposed to interest-rate increases, credit deterioration and unrealized fair-value losses. The filing estimates that a 50-basis-point decrease in relevant interest rates would reduce profit before tax by approximately $4.2 million; the effect of increases is expected to be approximately opposite.
Lebanese associates and investment properties are subject to significant valuation uncertainty because of hyperinflation, currency controls and limited market data. The Group’s 32.7% investment in these associates was carried at $6.0 million.
IGI is subject to extensive regulation in Bermuda, the UK, Malta, Jordan, Malaysia, the UAE and other jurisdictions. Dividend capacity depends on subsidiary solvency, liquidity and regulatory approvals.
The Company is a Bermuda holding company dependent on distributions from subsidiaries. Former IGI Dubai shareholders owned more than 60% of the issued shares at December 31, 2022, while Wasef Jabsheh beneficially owned approximately 34.4% at that date.
One operating subsidiary is involved in an arbitration concerning policy coverage. Management believes existing reserves are adequate and does not expect a material adverse effect, but the ultimate cost could exceed specific reserves.
The Company’s warrants are classified as liabilities and remeasured through earnings each period, potentially increasing reported earnings volatility.
The filing identifies cybersecurity, sanctions, broker concentration, Brexit-related regulatory divergence, foreign exchange, Nasdaq listing and potential PFIC tax status as additional investor risks.

Most important facts for investors to verify

Whether the favorable $40.4 million prior-year reserve release and lower catastrophe losses are sustainable or primarily explain the 2022 earnings increase.
The quality, duration, ratings and unrealized losses of the $491.1 million fixed-income portfolio, particularly in a changing interest-rate environment.
The collectability and concentration of the $188.9 million reinsurance recoverable balance and the financial strength of major reinsurers.
The effect of the January 2023 $19.5 million share repurchase on liquidity, capital and future share count.
The impact of switching from IFRS to U.S. GAAP beginning January 1, 2023, including the comparability of earnings, reserves, equity and non-IFRS measures.
Future dividend capacity after considering Bermuda, UK and Malta regulatory capital requirements and the Company’s holding-company cash needs.
Exposure to broker concentration, with the top five brokers representing 61% of 2022 GWP.
Whether the Company continues to meet regulatory solvency requirements after subsequent catastrophe losses, investment-market changes and business growth.