International General Insurance Holdings Ltd. — 2020 Form 20-F Summary
Business context and reporting period
IGI is a Bermuda-based global specialty insurance and reinsurance group operating in more than 200 countries and territories. Its principal lines include casualty, energy, property, construction and engineering, ports and terminals, aviation, political violence, financial institutions, marine and treaty reinsurance. The filing covers the fiscal year ended December 31, 2020 and presents consolidated financial statements under IFRS as issued by the IASB.
IGI completed its Business Combination with Tiberius Acquisition Corp. on March 17, 2020 and became publicly listed on Nasdaq under IGIC and IGICW. The transaction is accounted for as a continuation of IGI, with Tiberius treated as the accounting acquiree.
Key financial metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Gross written premiums | $467.3 million | $349.3 million | +33.8% |
| Net premiums earned | $283.5 million | $215.5 million | +31.6% |
| Net underwriting results | $77.4 million | $52.0 million | +48.8% |
| Profit before tax | $33.7 million | $25.3 million | +33.6% |
| Profit for the year | $31.7 million | $23.6 million | +34.4% |
| Basic and diluted EPS | $0.69 | $0.69 | Flat |
| Core operating income | $34.1 million | $21.2 million | +60.8% |
| Core operating return on average equity | 9.6% | 6.9% | +2.7 points |
The net claims ratio improved to 53.5% from 54.8%, while the net policy acquisition expense ratio improved to 19.2% from 21.1%. The resulting underwriting ratio was approximately 72.7%, compared with approximately 75.9% in 2019. Net underwriting margin was approximately 27.3% of net premiums earned.
Total assets were $1.279 billion at year-end, compared with $1.009 billion in 2019. Shareholders’ equity was $394.6 million, compared with $312.1 million. Book value per share was $8.69; tangible book value per share was $8.59. Tangible book value per share plus accumulated dividends was $11.00, compared with $3.09 in 2019, although the comparison is affected by the Business Combination and share-count changes.
Cash flow, liquidity, debt and capital
- Cash flow from operating activities after tax was negative $90.6 million, compared with positive $21.4 million in 2019. Operations generated approximately $105.7 million before a $196.2 million net deployment into investments and term deposits.
- Cash flow from investing activities was negative $1.9 million, primarily reflecting purchases of software and licenses.
- Financing cash flow was positive $35.7 million, including a $120.8 million Business Combination cash injection, offset by the $80.0 million cash consideration paid to former IGI shareholders and $4.4 million of dividends.
- Cash and cash equivalents declined to $133.4 million from $192.5 million. Term deposits increased to $172.2 million from $119.8 million.
- IGI states that it has not historically incurred debt. At December 31, 2020, it had $8.0 million of letters of credit and a $0.3 million letter of guarantee outstanding. Lease liabilities were $3.0 million.
- Investment assets, cash and term deposits totaled approximately $775.3 million. Fixed maturity securities were $393.6 million, or 50.8% of the investment and cash portfolio; cash and equivalents represented 39.4% of invested assets.
- IGI Bermuda reported statutory capital and surplus of $359.2 million, versus a $199.7 million enhanced capital requirement and $239.6 million target capital level. Its reported BSCR ratio was 180%, with $119.6 million of headroom over the target capital level.
- IGI UK’s statutory capital surplus exceeded PRA requirements by 51%. The operating subsidiaries retained financial strength ratings of A/Stable from A.M. Best and A-/Stable from S&P.
Material changes versus 2019
- Specialty long-tail premiums increased 42.0% to $201.9 million, led by casualty and financial institutions. Specialty short-tail premiums increased 30.1% to $246.1 million, led by energy, property and construction. Reinsurance premiums increased 7.2% to $19.3 million.
- Net claims increased 28.5% to $151.7 million, but grew more slowly than net premiums earned. Current-year catastrophe losses were $13.5 million, including the Jawaharlal Nehru port loss and Hurricane Laura.
- Prior-year reserve development was favorable by $6.1 million, compared with $6.3 million in 2019. Net outstanding claims increased to $304.8 million from $236.8 million, and net IBNR plus unallocated loss adjustment expenses increased to $152.8 million from $107.3 million.
- General and administrative expenses increased 19.3% to $46.9 million because of planned growth, higher technology and personnel costs, and incremental public-company expenses.
- Net investment income decreased from $13.4 million to $10.0 million, while total investment income, net as presented by management, was $11.5 million. Investment properties experienced a $2.0 million fair-value loss, and the Group recorded a $1.5 million loss from associates.
- Insurance receivable impairment increased to $2.9 million from $0.6 million. Foreign-exchange gains declined to $2.5 million from $5.7 million.
- COVID-19 led to remote-work requirements and market volatility. Management stated that COVID-19 reserves were not significant at year-end and that stress testing indicated continued compliance with regulatory capital requirements and sufficient liquidity.
- Brexit ended IGI UK’s EU passporting rights. IGI applied to establish an EU insurance operation in Malta and received notice that the regulator was minded to authorize it, subject to due diligence and other conditions. Approximately $21.6 million of EU-domiciled direct business was affected at year-end, excluding $15.7 million of Norway business.
Guidance, outlook, risks and unusual items
The filing does not provide formal numerical earnings or premium guidance. Management’s stated strategy is to expand in existing markets and adjacent specialty lines while maintaining disciplined underwriting, conservative investments, reinsurance protection, liquidity and capital strength. Management expects operating cash flow and available liquidity to meet requirements for at least the next 12 months and targets a solvency ratio above 120% of group capital requirements.
- Major risks include catastrophe losses, reserve inadequacy, long-tail casualty exposure, inflation and social inflation, reinsurance availability and counterparty collectability, investment credit and interest-rate risk, foreign-exchange movements, broker concentration, regulatory capital requirements, cyber and operational disruption, and COVID-19 uncertainty.
- The top five international brokers generated 67.4% of 2020 underwriting premiums, creating distribution concentration.
- Reinsurers owed IGI approximately $29.1 million for paid claims and $160.3 million relating to case reserves. Approximately 88.3% of reinsurance recoverables on unpaid losses were due from carriers rated A- or better by A.M. Best.
- IGI is in arbitration with certain reinsurers concerning outward reinsurance arrangements for 2012–2017. IGI was seeking approximately $15.3 million plus interest and legal costs as of year-end; no liability provision was recorded. An adverse outcome could affect recoveries and future claims protection.
- Investment properties in Jordan and Lebanon were revalued downward, with the filing describing approximately 10% and 15% declines, respectively, from the prior year-end values. The Group’s 32.7% interest in Lebanese associates was valued at $11.6 million.
- IFRS 17 becomes effective for annual periods beginning January 1, 2023, with comparative figures required. IGI was evaluating the impact, which could change the timing of profit recognition and increase systems and implementation costs.
- Management concluded that internal control over financial reporting was effective as of December 31, 2020 and stated that a previously identified material weakness had been remediated. The auditor was not required to provide an attestation opinion because IGI remained an emerging growth company.
- The Board declared and paid a $4.4 million dividend, or $0.09 per share, in August 2020. Future dividends remain subject to board decisions, regulatory capital and liquidity constraints, and market conditions.
Important facts for investors to verify
- Reconcile the reported $90.6 million operating cash outflow with the substantial investment purchases and assess liquidity under stressed claims scenarios.
- Review reserve adequacy, including the increase in net IBNR and the sensitivity that a 7.5% adverse gross reserve movement would reduce pre-tax profit by approximately $22.9 million.
- Monitor the reinsurer arbitration, the $187.5 million reinsurance share of outstanding claims, and the collectability and ratings of major reinsurers.
- Confirm the status, capitalization requirements and business impact of the proposed Malta insurance operation following Brexit.
- Assess exposure to investment-property valuation declines, Lebanese political and economic conditions, and interest-rate and credit-spread movements affecting the fixed-income portfolio.
- Review the effect of the March 2020 Business Combination, earnout shares, warrants, restricted shares and registration rights on dilution and future share supply.
- Evaluate the sustainability of premium growth, particularly in casualty and other long-tail lines, and whether claims inflation or reserve strengthening could offset underwriting gains.
- Assess the timing and accounting impact of IFRS 17 implementation beginning in 2023.