$IGIC - My Research Notes

International General Insurance Holdings

DISCLAIMER: This article is not a recommendation to buy or sell any financial instrument. Please do your own research. My analysis could be totally wrong and the stock could have negative returns. This information is for general purposes only and should not be considered as investment advice. I am not a financial advisor and do not offer investment recommendations.
DISCLOSURE: I currently own a position in International General Insurance Holdings IGIC 0.00%↑ shares.

It was Friday night and IGIC 0.00%↑ popped in my TIKR screener:

(Yes, I do look at stocks on Friday nights, lmao). I found it very interesting so I spent the weekend researching and taking notes, which I am sharing with you.

I had already seen the company on Fintwit, it was Inspector Cluseau who found it first and wrote it up here. Make sure to read his writeup. At first I dismissed the company, because I was fully focused on Fairfax, but now I found out that this is also very cheap and well managed. And I loved the 5% share buyback last year.

IGIC is an insurance hard market beneficiary. While the hard market lasts, they will be posting superb results:

As the world around us becomes increasingly chaotic with unrest and uncertainty across the globe, the demand for security and quality risk protection has never been greater. Our industry continues to face significant challenges – political instability, extreme weather events, social and financial inflation among them. This dislocation led to hard market conditions in many specialty and reinsurance lines of business during 2022, which we believe will persist throughout 2023, allowing us to generate strong value for our shareholders. - IGIC press releases and reports

Their discipline allowed them to be positioned to take full advantage of tough conditions for insurers, taking market share at attractive margins.

Their combined ratios (an insurance term for profit margins, the lower the better) are great, and have gotten even better with the hard market reaching 82% in 2023.

My compliation from annual reports and Q1 press release

Q1 2024 combined ratio is awesome (74%), but it won’t sustain for the full year as most insurers have better margins in Q1 due to catastrophes happening in other parts of the year. I think that 2024 will have a Combined Ratio as good or better than 2023 (so 82% or lower).

Premiums have been growing fast (extracted from TIKR). This is an organic growth story, a small insurer that is growing in a disciplined and profitable way.

Over the past 5 years, we have grown our premiums at a compounded annual rate of more than 17% per year, while achieving an average combined ratio of 87.4% and an average core operating return on equity of 12.3% - IGIC press releases and reports

For being such a small insurer (market cap: 660m) they have a pretty good combined ratio. How is that? Well they specialize in niche insurance contracts:

Geographically diverse, specialty and niche book of business Since IGI’s inception, management’s objective has been to offer specialty and niche products requiring underwriting and technical skills balanced by geography and line of business. We actively manage our exposures by geographic zone to maintain a diverse portfolio of underlying risks. - IGIC press releases and reports

That is kind of a moat. Niche insurers tend to have higher margins, and you can get it for a very cheap valuation (we will talk about this later).

Now let’s look at capital allocation:

When we think about growth, our philosophy is simple: grow when the conditions are ripe, and pull back – but not necessarily exit – when pricing, terms and conditions don’t meet our risk/profitability profile. - IGIC press releases and reports

That’s like music to my ears! They won’t sacrifice margins for growth.

Some more on capital allocation:

Our philosophy on capital allocation is and always has been “underwriting first”, as that is where we believe we can achieve the best returns and add the most value. As a predominantly facultative underwriter, we understand our exposures and we are realistic about our capabilities. When we generate capital that is beyond our appetite to deploy into the business, we will return it to our shareholders

Growth in book value per share is our most important measure, as increases over time are a key indicator of long-term shareholder value creation. 

Our investment portfolio remains conservatively positioned with 94% of invested assets in fixed income securities, term deposits and cash and cash equivalents

- IGIC press releases and reports

Now let’s look at insider alignment:

Our management team has an average of over 30 years of relevant experience working in insurance, reinsurance and capital markets in various countries. We are led by our Founder and Chief Executive Officer, Wasef Jabsheh, who has over 50 years of industry experience and has been recognized with multiple industry accolades. - IGIC press releases and reports

Wasef Jabsheh (Executive Chairman and founder) owns 31% of the company.

Valuation

So what are we paying for this insurer?

Book Value Per Share (2024E): 14.6

Price to 2024E Book Value: 1x

Earnings 2024E: 2.91 (Return on Equity = 20%)

Earnings 2025E: 3

Price to 2024E earnings: 5x

This seems dirt cheap and I am glad they are buying back shares.

But why is it so cheap?

Cluseau answers very well in his writeup:

1. Liquidity - With average volume just shy of $750k, most funds won't touch it.

2. IGICphobia - Data providers seem to think it is headquarter in Jordan. Wrong. Also missing financials.

3. Risk - Despite its middle eastern roots, 81% of IGIC's brokers are London Based, and nearly half of its annual revenue comes from NA and UK alone…. (weee ooo weee)

Inspector Cluseau’s writeup

So yeah, IGIC has some middle eastern roots, but as you can see below, only 10% of gross written premiums are from the Middle East. Does it deserve such a low price? I don’t think so. But I’m glad they are taking advantage by buying back shares.

Even if the hard market was to end, and combined ratio go back to an average of 89%, it would still be pretty cheap. This is a quality insurer trading at 1x book value (check out the price to book of other niche insurance businesses and you will get your mind blown, for example: Kinsale). It’s in the NASDAQ also so I wouldn’t be surprised if it gets discovered.

Kind regards,
Oscar.

Updates

19 July 2024: New more detailed writeup from Cluseau. Check it out here, it’s great!