CREDIT ANALYSIS REPORT

INTERNATIONAL GENERAL INSURANCE COMPANY LIMITED - 2016

Report ID 5263 Popularity 1564 views 2 downloads 
Report Date May 2016 Product  
Company / Issuer International General Insurance Company Limited Sector Insurance Company
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Rationale

MARC has affirmed its insurer financial strength rating of AA+ on Bermuda-based International General Insurance Co. Ltd. (IGI) with a stable outlook. The rating is based on Malaysia’s national rating scale. The rating affirmation reflects mainly IGI’s strong capitalisation level and well-diversified portfolio, underpinned by a prudent underwriting approach. The rating is moderated by IGI’s modest size and fairly limited track record.

IGI’s broad spread of business across 11 business lines and geographies diversifies its underwriting risks and mitigates the impact from slower growth in certain business lines or countries. In part due to the challenging environment for insurers, stemming mainly from increased insurance capacities that have weighed on insurance premium rates, IGI’s gross written premium (GWP) contracted by 3.7% y-o-y to US$242.3 million in 2015. Additionally, IGI’s withdrawal from non-profitable markets and products, including eliminating exposures in Yemen on heightened political risks, has contributed to the GWP contraction. Its key business lines are onshore and offshore energy (41% of GWP), property (16%) and casualty (8%).

MARC notes that IGI is exposed to low-frequency high-severity risks given the insurer’s focus on specialty insurance products. Nonetheless, the net loss ratio has remained low, standing at 44.5% in 2015 (2014: 52.9%), reflecting IGI’s relatively prudent approach to underwriting. MARC observes that IGI manages its large risk and catastrophe exposures by varying its levels of reinsurance protection; the reinsurance rate stood at 36.6% in 2015 (2014: 26.7%). MARC understands that for undertaking new business risk, IGI reinsures a higher proportion at the initial stage but steadily reduces the reinsurance protection as the business line develops. IGI’s reserve level is considered prudent given the favorable loss development; the insurer has been releasing its prior year loss reserves due to lower actual loss experience since 2008. Additionally, IGI continued to maintain an incurred but not reported (IBNR) provision of US$76.2 million in 2015 (2014: US$73.5 million) that is higher than the independent actuary estimation of US$46.5 million (2014: US$46.6 million).

MARC considers IGI’s capital position as strong, supported by its steady internal capital generation over the years. Its solvency ratio of 359% as at end-2015 (2014: 324%) was above the minimum solvency capital requirement of 120% as stipulated by the Bermuda Monetary Authority, whose prudential standards for its insurance sector has been granted equivalence to the European Union’s Solvency II regulations. In addition, IGI has separate regulated operations in Amman, Jordan; Dubai; London, UK; Labuan, Malaysia; and Casablanca, Morocco. IGI’s management and operational functions are carried out by sister company IGI Underwriting Co. Ltd in Amman.

The insurer’s operating leverage, as measured by the net written premium to equity ratio, remained conservative at 0.54x in 2015 (2014: 0.67x). For 2015, IGI’s earnings was flat at US$35.5 million (2014: US$35.6 million) due to contraction in GWP and a lower investment income of US$12.7 million (2014: US$14.1 million), although they were offset by lower net claims.

With a liquid assets to net technical reserves ratio of 142.5% (2014: 134.1%), IGI has a strong liquidity position. IGI actively adjusts its investment portfolio in response to market conditions by paring down its equity portfolio on high stock market volatility while increasing its investments in short-term deposits and fixed income securities. As at end-2015, cash and short-term deposits, and fixed income securities accounted for 51.5% and 28.8% of the total portfolio (2014: 50.5%; 23.5%). The insurer’s strong liquidity and its capitalisation levels mitigate concerns on its comparatively weaker 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 business growth and earnings generation for the next 12 to 18 months. However, downward rating pressure could develop should IGI’s capital position weaken in the event of any unexpected large claim losses.

Major Rating Factors

Strengths

  • Well diversified underwriting portfolio;
  • Conservative underwriting approach;
  • Strong capitalisation; and
  • Prudent reserving policy.

Challenges/Risks

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