INTERNATIONAL GENERAL INSURANCE COMPANY LIMITED

MARC has affirmed the 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 mainly reflects 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 is a mid-sized insurer with a well-diversified insurance portfolio across geographies and business lines, of which the onshore and offshore energy lines accounted for a combined 33.6% of gross written premium (GWP) in 2016, followed by property (17.0%) and casualty (9.0%). In 2016, its GWP contracted by 4.5% year-on-year (y-o-y) to US$231.4 million largely due to pricing pressures arising from a capital glut in the insurance market. As a consequence, premium pricing is expected to persist and weigh on IGI’s earnings over the near term. In 2016, the lower GWP coupled with a slight increase in net claim expenses have resulted in a 2.2% y-o-y decline in earnings to US$34.7 million.

IGI’s net incurred loss ratio of 49.1% in 2016 (2015: 42.8%) remained low compared to a five-year average of 71.6% of global non-life insurers based on Aon Benfield Inc. The low loss ratio continued to reflect IGI’s prudent approach to underwriting and its focus on specialty insurance products. This, however, exposes the insurer to low-frequency high-severity risk, which is managed through reinsurance protection. In 2016, 35.6% of its premium was ceded to reinsurers (2015: 36.6%). IGI also avoids exposure to regions and products with high loss experience to further mitigate the risk. This is evident in its withdrawal of container insurance offering in 2016 on the weak shipping industry, as well as its exit from the US Gulf of Mexico in 2008 due to a high risk of catastrophes.

MARC notes that IGI maintains a prudent reserving practice which is reflected in a favourable loss development trend. Due to low actual loss experience, IGI has been releasing its prior year loss reserves since 2008. Additionally, IGI continues to maintain a higher incurred but not reported (IBNR) provision, which stood at US$70.6 million in 2016 against an independent actuary estimation of US$43.9 million (2015: US$76.2 million; US$46.5 million). MARC also considers IGI’s capital position as strong despite a decline in the solvency ratio to 302.0% as at end-2016 (2015: 359.0%). The decline is due to a change in the Bermuda Monetary Authority’s (BMA) calculation of minimum capital requirement.

IGI’s liquid position remains strong, with its liquid assets to net technical reserves ratio increasing to 153.4% as at end-2016 (2015: 142.5%). Its liquidity profile continues to be underpinned by its investment approach of maintaining the bulk of its investment assets in cash and short-term deposits (2016: 43.7%; 2015: 51.5%), followed by fixed income securities (2016: 36.7%; 2015: 28.8%). MARC notes that the overall credit quality of IGI’s fixed income portfolio has improved during the year; investment-grade securities based on the international rating scale accounted for 95.9% of the portfolio (2015: 94.4%), with securities rated A- or above constituting 80.3% as at end-2016 (2015: 71.3%). The insurer’s strong liquidity and its capitalisation levels mitigate concerns on its comparatively weaker financial flexibility given its private shareholding structure. IGI is indirectly majority-owned by individuals (67.0%) with the remaining 20.0% stake held by Oman International Development & Investment Company SAOG (Ominvest), a banking and insurance investment holding company and 13.0% by Argo Re Ltd, an international (re)insurance player. Ominvest has a representative on IGIH’s board of directors. IGI’s management and operational functions are carried out by its sister company based in Amman, Jordan. The insurer also has separate regulated operations in the United Arab Emirates (UAE), United Kingdom (UK), Malaysia, and Morocco.

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.