CREDIT ANALYSIS REPORT

International General Insurance Company Limited - 2015

Report ID 5022 Popularity 1260 views 8 downloads 
Report Date Apr 2015 Product  
Company / Issuer International General Insurance Company Limited Sector Insurance Company
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Rationale

MARC has assigned an insurer financial strength rating of AA+ to Bermuda-based International General Insurance Co. Ltd. (IGI). The outlook on the rating is stable. The assigned rating reflects MARC’s assessment on the ability of IGI to meet its insurance obligations on Malaysia’s national rating scale. The rating considers IGI’s competitive underwriting capabilities, diverse business lines and geographical spread. The rating also incorporates IGI’s prudent underwriting approach, underpinned by strong capitalisation levels. Moderating the rating are IGI’s moderate size and fairly limited track record as well as competitive pressures in the general insurance environment.  

IGI currently underwrites businesses across several key business lines and geographies, underwriting premiums in more than 180 countries as at end-2014. With a portfolio that includes energy, property, construction and engineering, casualty and non-proportional reinsurance treaty businesses, IGI’s main focus is in the Middle East and North Africa (MENA), Africa and Asia regions which collectively contributed 44% of total gross written premiums (GWP) of US$251.5 million in 2014. MARC notes that the insurer’s steadily expanding geographical presence, including a branch in Labuan established in 2006, has also been a factor in the rapid increase of its insurance portfolio. The growth of GWP, however, has continued to taper in recent years, registering 4.8% year-on-year in 2014 (2013: 6.4%); onshore and offshore energy, and property respectively accounted for 40.0% and 15.1% of GWP in 2014 (2013: 40.2%; 18.9%).

MARC observes that as with other general insurers, IGI’s growth prospects are likely to be affected by excess underwriting capacity amid a current benign loss claims environment, exacerbated by new capacity from alternative investment funds. Additionally, its energy segment would face lower demand and pricing pressures from the sharp downturn in the oil and gas industry. Nonetheless, IGI is expected to continue to adopt a selective underwriting approach and expand business lines to underserved markets in Africa, Eastern Europe and Latin America. Despite the headwinds, IGI has continued to record resilient earnings and positive net underwriting results; the combined ratio remained healthy at 86.9% in 2014 (2013: 87.9%) while net underwriting stood at US$36.7 million (2013: US$32.0 million).

IGI uses both proportional and non-proportional reinsurance policies to balance its risks and maintain the size of its business lines; the proportion of reinsurance to GWP stood at 27% in 2014 (2013: 24%). Large risk and catastrophe exposures are limited by excess of loss reinsurance, accounting for the largest portion of IGI’s reinsurance protection. IGI remains selective in accepting risks, as is evident in its declinature ratio (defined as declined business divided by total seen business) of above 70% in five of its business lines in 2014.

IGI’s positive earnings track record has steadily led to a stronger capitalisation level of US$276 million as at end-December 2014. Generally, about 60% of IGI’s earnings is redeployed to strengthen its underwriting capacity. MARC notes that IGI has shown prudence in managing its operating leverage with the insurer’s net written premium to equity ranging from 0.64 times to 0.77 times in the last five years. In addition, MARC observes that IGI has maintained relatively favourable loss reserves as evidenced by the higher provisioning of incurred but not reported (IBNR) reserves as compared to the estimates provided by external independent actuaries. IGI’s solvency ratio of 324% as at end-2014 (2013: 237%) remains well above the minimum regulatory requirement, which would support the insurer’s underwriting capacity. 

IGI’s liquidity position is strong with cash and fixed income securities accounting for approximately 52% and 24% respectively of IGI’s investment assets. Cash holdings were US$225.8 million as at end-December 2014 (2013: US$204.0 million) while fixed income investments were predominantly investment grade on the international rating scale. The insurer’s strong liquidity and capitalisation levels mitigate some concerns on IGI’s comparatively weak financial flexibility given its private shareholding structure.

The stable outlook reflects MARC’s expectations that IGI will continue to balance its prudent underwriting policies with underwriting business and earnings generation for the next 12 to 18 months.

Major Rating Factors

Strengths

  • Well diversified insurance business;
  • Consistent profitability underpinned by conservative underwriting approach; and
  • Strong capitalisation and prudent reserving policy.

Challenges

  • Moderate size and fairly limited track record; and
  • Managing pricing pressures across most business lines.
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