International General Insurance(US:IGIC)2021-04-02 00:16PART I Item 3. Key Information The company faces significant risks related to the insurance industry, its business operations, and security ownership Risks Relating to the Insurance and Reinsurance Industry The company operates in a highly competitive, cyclical, and regulated industry with exposure to catastrophic events and accounting changes - The insurance and reinsurance industries are highly competitive, with pressure on premium rates and policy terms686973 - The company's results are affected by the cyclical nature of the insurance industry, which impacts premium rates and capacity7677 - IGI is subject to extensive insurance laws and regulations in multiple jurisdictions governing solvency and capital adequacy8485 - The upcoming IFRS 17 accounting standard is expected to introduce fundamental changes to financial reporting94 - The company is exposed to unpredictable claims from catastrophic events, with Hurricane Laura resulting in $20.7 million in net claims in 2020116119 - The COVID-19 pandemic poses significant risks to claims, investment performance, and operational continuity100101103 Risks Relating to Our Business and Operations Operational risks include uncertainty in loss reserves, dependency on brokers, investment portfolio volatility, and IT system vulnerabilities - Estimating insurance loss reserves is inherently uncertain, and insufficient reserves would negatively impact financial results151159160 - The company relies heavily on brokers, with the top 5 international brokers accounting for 67.4% of gross written premiums in 2020166 - Fixed maturity securities constituted 50.8% of the total investment portfolio, exposing the company to interest rate and credit risk189191 - A downgrade in the "A (Excellent)" A.M. Best rating could significantly hinder the ability to market products and retain business212213 - The business is highly dependent on IT systems, and a system failure or security breach could lead to significant losses220258261 - Brexit has resulted in the loss of passporting rights, prompting the establishment of an EU insurance operation in Malta284286 Risks Relating to Ownership of Our Securities Ownership risks stem from its Bermuda incorporation, foreign private issuer status, and significant ownership concentration - As a Bermuda-incorporated company, shareholders may face difficulties in enforcing U.S. judgments315322 - CEO Wasef Jabsheh beneficially owns about 33.8% of common shares, allowing for significant influence over shareholder matters334337 - The company's status as a "foreign private issuer" exempts it from certain SEC rules, resulting in less frequent disclosure328330 - As an "emerging growth company," the company can take advantage of reduced disclosure and governance requirements332 - The potential resale of a significant number of shares by former shareholders may adversely affect the market price338339 Item 4. Information on the Company The company is a global specialty insurance and reinsurance provider with a disciplined underwriting approach and a diversified portfolio - IGI is a global specialty insurance and reinsurance provider with a diversified portfolio across energy, property, and casualty lines in over 200 countries357 - The company's disciplined "underwriting first" strategy resulted in a 10.7% compound annual GWP growth rate from 2009 to 2020359 Gross Written Premium (GWP) by Geography and Segment (2020) | Category | Sub-Category | GWP ($M) | Percentage | | :--- | :--- | :--- | :--- | | By Geography | United Kingdom | 158.3 | 33.9% | | | Continental Europe | 60.0 | 12.8% | | | Middle East | 48.4 | 10.4% | | | Asia | 37.4 | 8.0% | | | Other | 163.2 | 34.9% | | By Segment | Specialty Short-tail | 246.1 | 52.7% | | | Specialty Long-tail | 201.9 | 43.2% | | | Reinsurance | 19.3 | 4.1% | - Key strengths include an experienced management team, deep broker relationships, and a scalable, technology-enabled operating platform363365370 - The strategy focuses on expanding in existing markets, growing into new specialty lines, and maintaining a conservative investment approach371373374 Item 5. Operating and Financial Review and Prospects The company reported significant growth in 2020, with increased premiums and improved underwriting results across all segments Results of Operations — Consolidated Consolidated results for 2020 show significant growth in premiums and net underwriting income, reflecting strong overall performance Consolidated Financial Highlights (2019 vs. 2020) | Metric | 2019 ($M) | 2020 ($M) | Change (%) | | :--- | :--- | :--- | :--- | | Gross Written Premiums | 349.2 | 467.3 | +33.8% | | Net Premiums Earned | 215.5 | 283.5 | +31.6% | | Net Underwriting Results | 52.0 | 77.4 | +48.8% | | Profit for the year | 23.6 | 31.6 | +33.9% | | Basic and diluted EPS ($) | 0.69 | 0.69 | 0.0% | - The 33.8% increase in gross written premiums was driven by growth across all segments, attributed to new business and favorable market conditions636 - Net claims and claim adjustment expenses increased by 28.5%, though the net claims ratio improved to 53.5% from 54.8% in 2019641 - General and administrative expenses rose 19.3% due to costs for planned growth and additional expenses following the Nasdaq listing654 Results of Operations — Segments All operating segments, including Specialty Long-tail, Short-tail, and Reinsurance, demonstrated strong premium growth and underwriting results in 2020 Segment Net Underwriting Results (2019 vs. 2020) | Segment | 2019 ($M) | 2020 ($M) | Change (%) | | :--- | :--- | :--- | :--- | | Specialty Long-tail | 16.4 | 23.5 | +43.3% | | Specialty Short-tail | 35.4 | 44.4 | +25.4% | | Reinsurance | 0.2 | 9.5 | +4650% | - Specialty Long-tail GWP growth was driven by significant positive rate movement, particularly in the casualty line of business684 - Specialty Short-tail GWP growth was led by the property and energy lines, benefiting from positive rate movements and new business701 - The Reinsurance segment's claims ratio dramatically improved from 82.0% to 33.2% due to reduced claims activity723731733 Liquidity and Capital Resources The company maintains strong liquidity and regulatory capital, with its Bermuda and UK subsidiaries significantly exceeding solvency requirements Cash Flow Summary (2019 vs. 2020) | Cash Flow Activity | 2019 ($M) | 2020 ($M) | | :--- | :--- | :--- | | Net cash from (used in) Operating Activities | 21.4 | (90.5) | | Net cash used in Investing Activities | (1.0) | (1.9) | | Net cash (used in) from Financing Activities | (16.5) | 35.7 | | Net change in cash and cash equivalents | 7.7 | (59.0) | - The Bermuda subsidiary maintained a Bermuda Solvency Capital Requirement (BSCR) Ratio of 180% as of Dec 31, 2020, significantly exceeding the regulatory minimum760 - The UK subsidiary exceeded its Solvency Capital Requirement (SCR) by 51% under the PRA's Solvency II regime as of Dec 31, 2020769 - The company holds financial strength ratings of "A" (Excellent) from A.M. Best and "A-" from S&P Global Ratings, both with a stable outlook749750 Reserves The company's reserving process involves complex judgments and is overseen by a committee with independent third-party reviews Net Outstanding Claims Reserves (2019 vs. 2020) | Reserve Component ($M) | Dec 31, 2019 | Dec 31, 2020 | Change | | :--- | :--- | :--- | :--- | | Net Reported Case Reserve | 129.5 | 151.9 | +22.4 | | Net IBNR Reserves & ULAE | 107.3 | 152.8 | +45.5 | | Total Net Outstanding Claims | 236.8 | 304.8 | +68.0 | - The company experienced a favorable prior-year reserve development of $6.1 million in 2020, driven by positive movements in several lines820824 - The reserving process involves a quarterly review by an internal actuarial team and is supplemented by semi-annual independent actuarial reviews796797798 Item 6. Directors, Senior Management and Employees This section details the company's leadership, compensation, board structure, and committee oversight - The board of directors is comprised of seven members and is divided into three staggered classes with three-year terms948 - Wasef Jabsheh, the company's founder, serves as Chairman and CEO, with family members in key executive roles936937945952 2020 Compensation Summary | Recipient Group | Aggregate Cash Compensation | Other Benefits | | :--- | :--- | :--- | | Executive Officers | ~$5.3 million | Accrued $0.3M in long-term benefits (restricted shares) | | Non-Employee Directors | ~$0.45 million | N/A | - The company has established an Audit Committee, a Nominating/Governance Committee, and a Compensation Committee99599610001002 - As of December 31, 2020, the company had 252 employees, with the majority based in Amman, Jordan10101011 Item 7. Major Shareholders and Related Party Transactions The company's ownership is concentrated, with the CEO being the largest shareholder, and key related party transactions stem from the 2020 Business Combination Major Shareholders (as of March 19, 2021) | Shareholder | Beneficial Ownership (%) | | :--- | :--- | | Wasef Salim Jabsheh (Chairman & CEO) | 33.8% | | Oman International Development & Investment Company SAOG | 14.2% | | Argo Re Limited | 9.7% | | Weiss Multi-Strategy Advisers LLC | 7.43% | | Church Mutual Insurance Company | 6.8% | | Michael T. Gray (Director) | 5.1% | - Key transactions related to the Business Combination include the Sponsor Share Letter, which transferred warrants and founder shares to Wasef Jabsheh and Argo Re10231024 - Major shareholders entered into Lock-Up Agreements restricting the sale of their shares for up to one year post-merger104310441046 - The company entered into employment agreements with its CEO, President, and COO, outlining salary, bonus, and severance benefits9671048 Item 10. Additional Information The company's governance as a Bermuda-exempted entity includes a classified board and special voting rights for its founder - The company is an exempted company incorporated under the laws of Bermuda, and its Amended and Restated Bye-laws govern its corporate structure10631064 - The bye-laws establish a classified board with three classes of directors serving staggered three-year terms1082 - Wasef Jabsheh holds special rights to appoint directors and influence major corporate actions based on his family's ownership level10841091 - Material contracts primarily relate to the Business Combination, including registration rights and forward purchase commitments111211221124 Item 11. Quantitative and Qualitative Disclosures about Market Risks The company is primarily exposed to insurance, financial, and credit risks, which are managed through disciplined underwriting and monitoring - The primary risks faced by the company are insurance risk, market risk (interest rate, currency, price), credit risk, and liquidity risk11801190 Insurance Risk Sensitivity Analysis (2020) | Sensitivity Factor | Impact on Gross Outstanding Claims ($M) | Impact on Net Outstanding Claims ($M) | Impact on Profit Before Tax ($M) | | :--- | :--- | :--- | :--- | | +7.5% | +36.9 | +22.9 | (22.9) | | -7.5% | (36.9) | (22.9) | +22.9 | Interest Rate Risk Sensitivity Analysis (2020) | Change in Basis Points | Effect on Profit Before Tax ($M) | | :--- | :--- | | -25 bps | (1.4) | | -50 bps | (2.9) | - As of December 31, 2020, 88.3% of reinsurance recoverables were with carriers rated "A-" or better by A.M. Best788 - The company is exposed to foreign currency risk, primarily from the Pound Sterling (GBP) and Euro (EUR)11961198 PART II Item 15. Control and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of year-end 2020 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 20201218 - Based on an assessment using the COSO framework, management determined that internal control over financial reporting was effective12221223 - As an emerging growth company, IGI is currently exempt from the auditor attestation report on internal controls1224 Item 16. Other Information This section covers governance topics including the audit committee financial expert, auditor fees, and foreign private issuer exemptions - The Board of Directors has determined that Wanda Mwaura is an "audit committee financial expert"1226 Principal Accountant Fees (Ernst & Young LLP) | Fee Category | 2019 ($ thousands) | 2020 ($ thousands) | | :--- | :--- | :--- | | Audit Fees | 1,029 | 1,303 | | Audit-Related Fees | 0 | 0 | | Tax Fees | 61 | 5 | | All Other Fees | 42 | 47 | | Total | 1,132 | 1,355 | - As a foreign private issuer, the company follows Bermuda corporate governance practices in lieu of certain Nasdaq requirements1241 PART III Item 18. Financial Statements This section contains the company's audited consolidated financial statements for the fiscal year ended December 31, 2020, prepared under IFRS Report of Independent Registered Public Accounting Firm Ernst & Young LLP issued an unqualified opinion on the company's consolidated financial statements for the three years ended December 31, 2020 - Ernst & Young LLP expressed an unqualified opinion that the consolidated financial statements are presented fairly in accordance with IFRS1260 - The audit was conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States)1262 Consolidated Financial Statements The financial statements show significant growth in total assets and equity, with the 2020 business combination treated as a share-based payment Consolidated Statement of Financial Position Highlights | Metric ($ thousands) | Dec 31, 2019 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Assets | 1,009,074 | 1,279,207 | | Total Liabilities | 696,931 | 884,568 | | Total Equity | 312,143 | 394,639 | Consolidated Statement of Income Highlights | Metric ($ thousands) | 2018 | 2019 | 2020 | | :--- | :--- | :--- | :--- | | Gross Written Premiums | 301,618 | 349,292 | 467,273 | | Net Premiums Earned | 183,309 | 215,544 | 283,516 | | Net Underwriting Results | 56,058 | 52,045 | 77,354 | | Profit for the year | 25,542 | 23,565 | 31,669 | - The business combination was accounted for as a continuation of IGI, with the transaction treated as a share-based payment under IFRS 212731274 - The company is currently evaluating the impact of IFRS 17 (Insurance Contracts), effective January 1, 202313011302