CREDIT ANALYSIS REPORT

INTERNATIONAL GENERAL INSURANCE COMPANY LIMITED - 2018

Report ID 5758 Popularity 1011 views 25 downloads 
Report Date Aug 2018 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+ with a stable outlook on International General Insurance Co Ltd (IGI).

The rating affirmation reflects IGI’s strong capitalisation level and prudent reserving policy as well as proactive underwriting approach that have enabled the insurer to withstand the impact from periodic catastrophic events. Moderating the rating are the insurer’s moderate size and concern over the increase in investment risk.

The stable outlook reflects MARC’s expectations that IGI will continue to balance its prudent underwriting policies with business growth and earnings generation. Downward rating pressure could develop if IGI’s capital position weakens in the event of any unexpected large claim losses that are not adequately covered by reinsurance.

IGI is a mid-sized specialty insurer with total assets of US$900 million as at end-2017 and whose insurance portfolio is well-diversified across geographies and business lines. As a specialty insurer, IGI is exposed to low frequency-high severity loss events. In 3Q2017, several natural catastrophes namely hurricane Maria in the US and hurricane Irma in the Caribbean as well as two earthquakes in Mexico had impacted IGI’s performance for the year. While IGI recorded gross written premium (GWP) of US$275 million, net profit declined 70.0% y-o-y to US$10.4 million in 2017. Net combined ratio rose to 101.2% from 85.4% in the previous year.

The rating agency notes that because of an effective reinsurance policy, IGI was able to pass on a significant portion of claims to reinsurer; total claims was only US$93.5 million net of reinsurance in 2017 (2016: US$71.5 million). In managing its underwriting risks through reinsurance protection, IGI has increased its reinsurance rate to 38.7% in 2017 (2016: 35.8%) through proportional (70%) and non-proportional (30%) reinsurance.

MARC also observes that IGI manages exposures by reducing net exposure in softening markets in premium rates (energy and property lines) and by increasing net exposure in strengthening markets (casualty). This has been evident in the decline in the proportion of energy and property lines to net written premiums (NWP) to 23% and 17% in 2017 (2013: 38%; 19%) whereas, as premium rates rose in the casualty business line, this proportion increased to 21% (2013: 3%). IGI continues to adhere to a prudent reserving policy; its incurred but not reported (IBNR) provision which stood at US$72.0 million remained sufficient against an independent actuary’s estimate of US$70.4 million in 2017.

In 2017, IGI’s fixed income securities portfolio saw an increase in the composition of lower-rated bonds; A and BBB-rated bonds made up 73.8% (2016: 59.1%) while AAA and AA-rated bonds made up 23.2% (2016: 36.8%). However, the absolute amount of A and BBB-rated bonds of US$33.5 million is relatively small compared to total investment assets of US$487.5 million, of which a sizeable 43.0% is in cash and short-term deposits. As at end-2017, liquid assets-to-net technical reserves ratio remained strong, although it had declined to 141.8% (2016: 153.4%) due to higher provisions following the recent natural catastrophes.

IGI’s strong capital position as reflected by a solvency ratio of 304.0% as at end-2017 moderates concern on financial flexibility given its shareholding structure that remains majority-owned by individuals. IGI maintains a strong pool of underwriting talent; its management and operational functions are carried out by its sister company based in Amman, Jordan.

Major Rating Factors

Strengths

  • Strong capitalisation;
  • Sound liquidity profile; and
  • Prudent reserving policy.

Challenges/Risks

  • Moderate size and fairly limited track record; and
  • Significant catastrophe underwriting exposure relative to earnings.
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