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

Good morning, everyone, and welcome to the Semiannual Investors Meeting. I welcome everybody who is on the floor. I think everybody is on mute. We will leave the questions until the end. So it will take roughly 15 to 30 minutes, and we'll open the floor for any questions that attendants may have. We'll go over the performance of -- now just to make sure everybody hearing me, the sound is okay? Lamya, can you hear me? The sound is fine?

Yes, sir, definitely. We can all hear you clearly.

Okay. You have with you, like, my name is Ahmad Al Tayeb. I'm the Chief Financial Officer for Arabia Falcon Insurance. And we have with us Lamya Al Zadjali, and she is the Board Secretary. And we can start right now. So we'll go over the financial performance for the first half of the year, and we'll see how things are developing towards the end of the year and the projection of the management towards the end of the year. So the agenda will include: first, we'll go over P&L and profitability. Then we'll see our insurance portfolio in terms of production and top line, the technical KPIs achievement in the first half and the investment income, which are the component of our profit and loss for the first half of the year. I've included here the -- first half of the year with comparable results for the last 3 years from '24, '25 and '26, and we'll go over these results 1 by 1 now. And please, if you have any questions, keep notes, so we can discuss at the end of the presentation. In terms of performance for the first half, our gross written premium decreased by 8% to OMR 17 million (sic) [ OMR 15.7 million ] compared to OMR 15.7 million (sic) [ OMR 17 million ] first half last year. The decrease was mainly because of exiting the Medical business in the second half of 2025. So we had -- in our last year comparable results, we had Medical business. This year, we don't have Medical business because of the strategic exit of Medical line of business. This constitutes to already almost OMR 2 million last year was booked as Medical business. And this year, while we booked already in the fag end in Medical business, which the difference is OMR 2 million. So if we factor the Medical business, we have a growth in production year-on-year. The insurance revenue decreased by 3%. Our net insurance service result, inclusive of other financing expenses, decreased from OMR 306,000 in 2025 it was to OMR 259,000 loss in 2026 compared with OMR 306,000 in first half of last year. So we had a loss in terms of net technical results, including the operating expenses. Investment income decreased by 6% to almost OMR 1.3 million from OMR 1.4 million. We'll go over the elements in the next slides. Net profit for the first half was OMR 490,000, net profit after tax, compared with almost OMR 1 million in the same period last year. Shareholder equities increased to OMR 23 million at the end of June 30, 2026, compared with OMR 22 million, almost OMR 1 million increase. During the first half, the company paid OMR 1.2 million, OMR 0.012 per share distributed to shareholders. Now, in terms of breakdown of the first half results for Q1 stand-alone and Q2 stand-alone and the first half that we spoke about before. So you can see like we start -- the start of the year was rough. We ended the first quarter with a loss -- net loss after tax of OMR 80,000. However, there is recovery, was done in Q3 (sic) [ Q2 ] . And the second quarter stand-alone net profit was OMR 571,000, which brought the first half year-to-date to OMR 491,000. Main reason for the profitability improvement in Q2 was controlling the motor loss ratio, which decreased to 80% year-to-date compared with 89% at the end of first quarter. In addition to the improvement in investment income that grew to OMR 500,000 -- from OMR 500,000 in Q1 to OMR 800,000 in Q2 standalone. Now, we go to the production in terms of our portfolio. Our Motor production for the first half increased 13% compared to the same period last year. It was main contributor for the profitability for the first half. Medical, we had, as mentioned before, the strategic exit and resulted in OMR 1.5 million decrease in net premium of Medical. As you are aware now, the regulator introduced category A and category B for Medical Insurance business. And Arabia Falcon was classified as category B. So we don't issue directly Medical business now, just we take share from other companies who are issuing Medical business. Life Insurance, after a couple of years of double-digit growth stabilized, the growth stabilized to 4%. And we expect this to be stable in the coming future. The only decline was in the Property and Casualty business, which dropped 5% due to a few projects that ended during the first half, and it was not renewed like engineering projects. It's not a real decrease in the premium. It's just because of the project and -- now related to technical KPIs. Mainly, we have good improvement in Motor loss ratio, and we are seeing improvement in the -- during the year. Even in July, August, we -- this improved further. Motor loss ratio now at the end of June was 80%, improved from 89% at the end of Q1. And we're expecting further improvement towards the year-end. Already, July and August showed good improvement. And we're expecting Q3 and Q4 better improvement towards probably the low 70s. Other than Motor, all other core foundation are good. Aside from Motor, all other lines are performing within acceptable technical parameters. Reinsurance structure, pricing adequacy and expense ratio across the remaining book are stable and well managed. Now the plan for the second half of the year. The management's plan is to control claims and further improve the loss ratio, especially in the Motor line of business. There are many initiatives started earlier in the year and continue towards the end of the year. Other than that, we'll try to achieve the targeted budget production growth by year-end. So we need to have positive growth year-over-year, inclusive of the Medical exit. So we need to compensate for the loss of Medical business by increasing other line of businesses. As normal, we just keep managing the expenses to protect our bottom line delivery and sustain our good investment income to achieve higher than target investment income by year-end. Now in terms of investment income, a very brief summary, as you are all aware, last 2 years witnessed decline in investment rates, investment interest. And in addition to the recent geopolitical risk, this affected the portfolio as the bank deposits this year is paying less interest rate on -- compared to last year and the previous years. And the bond rates declined too because of the Fed's decrease in the interest rate. So just to take apple-to-apple, last 2 years, the interest rate declined by 36%. However, in spite of the decline in interest rate as most of our portfolio, more than 90% of our portfolio are in fixed deposits, fixed deposit and bonds, which is fixed income. It's very sensitive to interest rate in the market. In spite of the decrease of 36% in absolute interest rate in the last 2 years, we managed that this year for total investment income to be only 6% compared to previous year. And this is because of the active management of the portfolio and reallocation of the portfolio between short term and long term, changing the duration of the portfolio to just generate more investment income. Our investment income stand at 9% above the target we booked during the year, and we're expecting this to sustain towards the year-end. And now, we have investment portfolio allocation. When I look at it, now we have 47% of our portfolio is in short- and long-term bonds. Last year, it was 30%, so increased to 40% -- 47%. This is how we managed to increase the investment income in spite of the decline in the interest rates. Our bonds generating now 53% of our total investment income. We will continue working on the investment portfolio mix based -- depending on the market conditions. Now the outlook for second half of the year. We expect this year to be challenging because of geopolitical risk that the region is facing. Technical profitability and investment income are expected to improve towards the year-end. So probably we'll try to achieve the same profitability that -- or close to the same profitability we achieved last year. Management recently last 2 years implemented necessary measures to address rising claims, especially Motor claims. So we're adjusting the portfolio and adjusting the pricing, the portfolio mix to achieve higher profitability over the year-end. And other line of business are performing as normal. It's profitable business, and we expect to continue the profitable business for the second half of the year and the coming years. Now management is committed to keep growing the investment -- to keep growing the insurance portfolio and keep growing both top and bottom line and maintain control over expenses and continue active management of investment portfolio to contribute positively to the bottom line of the company. And currently, the company is in the phase -- mid of implementing new core insurance systems as a part of the company's strategy of digital transformation. And we're expecting by year-end the system to be ready, and we plan to implement -- to plan to start the new system in next year in 2027. That's it for the brief financial results, and we'll open the floor for any questions that you might have. So please unmute yourself when you want to ask question, and we are ready to answer. Any questions? If you have any issue like with, you can raise your hand -- I mean, I don't know if somebody is speaking, but we didn't receive any questions until now. I see everybody is on mute. So please before speaking, unmute yourself or raise your hand if you are facing any issue. All right. In case there's no question, we'll close the meeting. So thank you, everyone, for attending. And in case if you have any questions later on, you can e-mail the Investment Relationship Officer. The e-mail is on our website, and we will be happy to answer any questions that come to your mind later. And you can contact me directly to my e-mail, and we'll be happy to answer your questions. You can find all the contacts in our website. Thank you very much, everyone, and I wish you a very good remaining of the day. Thank you very much. Lamya, we can close the meeting right now, and...

Yes. Sure.