Arabia Falcon Insurance SAOG (AFIC) Earnings Call Transcript & Summary

Hello, everyone. Welcome to the Semi-Annual Investors Meeting. We have here from Arabia Falcon, have Mr. Roland Zaatar, the Chief Executive Officer; myself, Ahmad Al Tayeb, the Chief Financial Officer and Faiz Mufti, the Investment and Treasury Manager. We will present to you today the audited financial statements for financial year 2024. And then we will take your questions. Let me introduce Faiz. He will take you through the presentation. And if you have any questions, please leave it till the end of the presentation, we'll answer your questions.

Thank you. My name is Faiz Mufti and I'm the Investment and Treasury Manager as introduced. I'll be taking you throughout the presentation, and you can share your questions at the end of the presentation. To start off, 2024 was an excellent year for Arabia Falcon Insurance. Our gross written premiums increased by 23% from QAR 24 million to QAR 29.8 million. This is the highest increase for an insurance company in the sector. Our net insurance service results increased by 158%. We made a loss of QAR 600,000 last year, and now it's a profit at QAR 363,000 in 2024. Our investment income grew from QAR 2.1 million to QAR 2.179 million this is an increase of 3% and this is basically due to new money coming in and our investments in Oman government bonds and an improvement in our interest income from bank deposits. The net profit or the bottom line of the company compared to last year doubled or more than doubled. It was up by 114%. We made a profit of QAR 1.5 million compared to a profit of QAR 742,000 last year. The shareholders' equity in December was QAR 22.2 million compared to QAR 19.9 million last year. So this is also again an increase of more than 10% in the shareholders' equity . From 2025, the outlook seems to be challenging especially in terms of reported motor claims. This [indiscernible] claims in the motor division will increase. During the last few years, the management has taken necessary measures to tackle the increase in claims and our underwriting has become much better and we are much more prominent [indiscernible]. Our business is expected to grow at higher rate and we have introduced a [indiscernible] policy in medical 2024 and we expect that to do very well going forward in 2025. We also expect [indiscernible] to release a plan for compulsory medical insurance scheme and during this year-end this will have a growth as well on our health insurance businesses. We are also committed to grow our insurance portfolio profitability and keep control on our expenses with the main objective of delivering better technical profit at the year-end. More importantly, the company is also engaged in digital transform strategy. We are introducing new softwares and new tools to enhance our market leadership, make it convenient for customers to acquire new products and overall improve the efficiency in terms of the daily work. If I drill down into the financial performance for the last 2, 3 years, gross written premiums in 2022 were QAR 23.1 million and now they have increased up to QAR 29.8 million. So we have seen a steady rise in both years 2023 and 2024 with 2024 being an exceptional and outstanding year for gross written premiums. Our net profit from insurance contracts was in a loss in 2023 and it's now in a profit zone of QAR 362,000. Our expenses have remained stagnant or in fact, have decreased by 1% and our income or our net profit from insurance contract has more than increased by 158%. Our investment income, which is the major source of income in the business has also increased by 3%. So it is clocking at QAR 2.17 million. Our profit before tax more than doubled. Decreased by QAR 121% from QAR 847,000 to QAR 1.87 million. We've also contributed in the government taxation and our taxation liability has decreased to QAR 288,000 this year from last year of QAR 105,000. This brings our net profit for the QAR 1.58 million which is an increased on 114% from last year. This also translates into earnings per share which is doubled from [indiscernible] to QAR 0.1015 or [indiscernible]. The gross written premiums, if you can see have steadily increased with 2024 being an outstanding year, whereby all efforts were put into increasing our gross written premium. And we have written the quality business this year as well so that we are able to grow and minimize our teams. This high growth is majorly driven by growth in P&C, life and [indiscernible] which I'll detailed down in our next segment. Talking about our market share. Our market share we are ranked seventh biggest by market share and if you can see insurance is the biggest one, followed by Dofar, Oman Qatar, Almadina, [indiscernible] Oman United Insurance and then Arabia Falcon. If you can see Oman United Insurance used to be 34 million and we were at 24 million in 2023. But this year, due to our outstanding growth and fall in Oman United Insurance, we are now almost neck to neck with Oman United Insurance in terms of market share. Coming to the profitability or the whole growth in the industry, the whole industry shrank by 6.2%. So the industry saw a decline in the gross written premiums. However, Arabia Falcon grew by 23%. Similarly, the net profit of the whole Oman Insurance market saw 69% versus Arabia Falcon Insurance we were able to increase our profit by 114%. So we have outperformed the market substantially in 2024 and we'll again do it in the next year as well. Comparing some of the key performance indicators we have motor business, we have P&C, we have medical [indiscernible] so our loss ratio can be seen to be falling from 82% to 70% in motor. It grew in P&C from 2% to 22% and medical again saw a fall from 58% to 54%. Life, it grew as well from 29% to 34% and overall it fell from 56% to 51%. Our operating expenses overall were 9% but the breakdown is like motor is 22% from 23% versus 23% to 24% a 1% difference in our [indiscernible] motor. However in the P&C medical [indiscernible] saw a decline of 1% and then we have a slight rise from 4% to 5% in [indiscernible]. Our overall combined ratios are almost at last year's level that is the same. Our proposed [indiscernible] to shareholders this year is a [indiscernible] per share representing QAR 1.033 million on the [indiscernible] capital. The retained earnings balance as at December 31, 2024, is 1.1 million. So most of the retained balance is being proposed to be paid out as dividend. e will be transferring 500,000 approximately from net profit to the legal contingency reserves. This comes out as a payout ratio of 66% for 2024. I'd like to conclude the presentation, and I'll open the floor for any questions from the participants.

Thank you. Now we open the floor for questions. Please feel free to ask your question. I think you are in mute too much. Good afternoon.

I have a few questions if I can continue.

Yes, please.

So with regards to the motor accidents, how do you see the trends compared to the previous years? Is it...

Hello, everyone. Let me take this question, Ahmad. So thank you for your question. In fact, the major improvement in the underwriting results related to Arabia Falcon Insurance Company is mainly coming from the strategy we put at the beginning of the year, which come up with the good results of the motor business. We were the first one in the market to go and start pushing the rates up, which affected our top line, but this is not important for us as much as the profit itself. And the strategy that we put in terms of restructuring the book, increasing our pricing come up with the good results. We're going to keep doing this. We're going to keep focusing on delivering profit rather than top line. I think after one year, the market followed us, we see ourselves within the market, and we started seeing the fruits of the strategy by increasing or growing the book of business in the first quarter 2025. What's going on with the market today is we as insurance companies in Oman, we appointed a consultant who is doing a burning cost for the motor business with the coordination of the regulators. Once the study is out, we might see some changes in the behavior of the companies, and we might even see a minimum rate for the motor business related to TPL. I'm not sure if this has answered your question.

Understood. Thank you. And also what is the loss ratio targets you set for different insurance products.

Go back to the slide of the KPIs. You can see that our motor loss ratio improved compared to the previous year from 82% to 70%, and we are targeting this year to improve it further.

Yes. And the aim of any insurance company is to run at the end of the year with the combined ratio below 100%.

How do you account for the risk adjustments and contractual service margin under IFRS 17, just for my understanding, if you can provide some insights.

Yes. Can you repeat the question, please?

How do you account for the risk adjustment and the contractual service margin under IFRS 17?

How we account for this? Yes, we follow the international accounting standards, IFRS 17, and this is provided by our external actuary. So he estimate the risk margin and he provides us with all the information based on our portfolio. So I'm not sure if I answered your question because it's not clear.

Okay. And I'm trying to understand the assumptions that you use (indiscernible) some of that.

Yes. we're following the international rules in this sense. And that's why we have the multinational actuaries working on our numbers, and they are applying the same rules which is applicable for any company in the world. So we have more or less the same approach as any company. So whenever we have a loss under any portfolio, we're taking the reserving for this loss whenever we have a profit to profit and we run those numbers through the actuaries. So it's more actuaries involvement studies rather than setting the criteria by ourselves.

There's modeling, I mean the modeling developed by the actuary to finalize the reserve for every period. And this modeling is tested by the external auditor actually and by the regulators too.

Given the current interest rate environment, do you expect any changes in your current asset allocation strategy?

Actually, yes, we started now because we have the drop in the interest rate. The interest rate started dropping last year, especially for bank deposits. So what we did or what we are doing right now are shifting from bank deposits to more fixed income. And we are increasing our equity exposure too as well. Faiz you can provide more information[indiscernible] .

Yes, so basically we have major maturities in the second half of the year and those are mostly from our banking deposit portfolio. So right now, Omani bank deposits are yielding somewhere around 4.5%, while bonds are yielding more than 5%. So the idea is to rise as much as possible in the bonds and preserve our investment income. However, we are regulatory required to limit ourselves maximum to 30% in the foreign currency portfolio. So there's an overall trend for an interest rate we will definitely see a fall in our percentage ROI. But at the same time, we have a growing business and new money coming in. So for some kind of a forecast, there will be a fall in the interest ROI income as a percentage, but we'll see nominal hopefully increase in the portfolio income.

And would there be any increase in your equity allocation side?

Yes, we definitely increased our allocation in equities, and it's mostly in international capital markets. It's China, U.S. and other countries. And we also tend to increase but at the same time, we are limited to 30% maximum limit. So we are in a trade-off position where we can choose between equities or foreign bonds in currency. So that's a trade-off that we talk about in our investment committee discussions every month. And whenever we see an opportunity, we allocate it. But at the same time, the plan is to increase it to 5% in this year, our equity allocation. Also, what we have done is we have improved our working capital management. We are placing more funds in our money market funds and money market funds are also tax friendly. So the idea is to keep as much as possible in money market funds as the taxation of them is much friendlier compared to keeping them [indiscernible].

Understood, thank you. Thank you so much.

You're welcome. Any further questions please? Well, thank you, everyone, for attending the semiannual investment meeting. And if you have any questions, we will post this video in the market AFIC portal. Anyone who listen to this video or have any questions, please feel free to e-mail us or call us. You can get our contact information from our website, www.afic.om. You can go to the investment relationship function, and you can get all the information there, and you can download our financial statements from there as well. Please feel free to contact us or get in touch with us for any further questions. Thank you very much, and have a nice day.