Qatar Insurance Company Q.S.P.C. (QATI) Earnings Call Transcript & Summary

Good day, and welcome to the Qatar Insurance Group Quarter 3, 2021 Conference Call. Today's conference is being recorded. And at this time, I would like to turn the conference over to Mr. Roy Thomas. Please go ahead, sir.

Hello, everyone. This is Roy Thomas from QNB Financial Services. I want to welcome everyone to Qatar Insurance Group's Third Quarter 2021 Financial Results Conference Call. On this call from QIC, we have Varghese David, the Group Chief Financial Officer; Chirag Doshi, the Group Chief Investment Officer; and Mena Mounir, the Senior Vice President for the Group Finance. We will conduct this conference call with management first reviewing the company's results followed by a Q&A. I will turn the call now over to Varghese David. Go ahead, Varghese.

Hi, good afternoon, everyone. Welcome once again to our third quarter quarterly call. I mean, we are pleased to announce that, I mean, as we are all aware of, QIC Group has reported a net profit of QAR 511 million as of 30th September compared to -- and it's almost a 491% increase on quarter-to-quarter growth. I mean, in this quarter from an insurance operations point of view has been quite stable. I mean, we have passed partly through the hurricane season. So we had no major market events across the industry. I mean, QIC as a group from a top line point of view, we remain stable, I mean, compared to the previous quarter. Our top line stands at QAR 10 billion for the period. Our international operations, I mean, we still continue our successful derisking of the international operations that's going on very well as planned. So quarter-to-quarter, we have a 4% increase in the top line, out of which we have close to double-digit growth coming from the MENA region from the north. We have seen especially recovery in the UAE market, a couple of the new major clients wins that we see in the UAE markets, and especially in Doha also we have seen successful renewal of business. Oman, especially in MENA region looks to be buoyant. So overall, the MENA region performed as expected, maybe, I mean, beyond our expectation from a top line and bottom line point of view. Coming to the international operations. I mean, with our derisking exploits going on well as expected. I mean, so we are more focused on the bottom line driven growth, where we are focused to less volatile short tail business. International business currently constitutes around 79% of the overall top line. We expect the same trend to continue by end of this year. I mean, we expect our derisking exercise, I mean, to reach a level where, I mean, it's been logically we've been concluded. So overall, our underwriting results for the first 9 months, we have QAR 226 million of net insurance income. Our investment income has done exceptionally well. I mean, it's contributed to the QAR 775 million. Expenses has been under control. So overall, I think this quarter has been stable as expected. So we have a net profit of QAR 510 million for this quarter. Now -- coming now to the other key, I mean, business and development during this quarter, I would say that the one aspect from the group perspective is that we have been -- we have seen further development of the non-risk generating pillars to grow further. One aspect, which I need to mentioned is our IP, I mean, on a wholly owned subsidiary company of QIC called Anoud Technologies that I mean -- that's gone up to the market. We have successfully won 2 external clients, that's the public institution. Currently, our IP subsidiary has one of the leading Caribbean insurers also and an insurer -- insurance company out of Europe. So this is as planned, this brings to the group a new stream of revenue of our risk-free insurance, I mean, it's not linked to insurance or it's fee revenue of income. Also, I mean, we need to mention our initiatives with regards to the secured asset management company, and that is as planned, it's going well on track, on which rate our Group Chief Investment Officer give an update further. See overall, I mean, as a group, I mean, we are feeling buoyant the way the market -- the insurance market, the recovery we have seen in the MENA region. Also, with regard to the international side, especially in the Lloyd's market, we have seen some double-digit growth rate hardening compared to Q1 and Q2, even though it's coming down a bit. Still, we are having early double-digit rate hardening, especially it's seen in our Lloyd's operation. So that is positive. So overall, I mean, we are reasonably confident that, I mean, this trend of improvement from an insurance point of view, we have seen improved from Q1 to Q2 to Q3. So the same level of improvement we're expecting to continue to this year -- at the end of this year. So this is a general overview of where we stand as of now. And if you have any other specific queries, I mean, we welcome.

[Operator Instructions] We'll now move to our first question over the phone, which comes from [ Stacy Zee ] from 91 U.K.

Thank you very much for the overview of the quarterly performance. Just a few questions from my side. One is that during the quarter, there is below the bottom line other comprehensive loss from fair value securities. So if you could elaborate what exactly is the reason to this? And then as usual, your preliminary Q3 solvency ratio, please? And then the market study. I think you mentioned in the report as well that it has been resolved. So if you could comment on where the new investments in market study, where does this sit on your balance sheet? And then lastly, your plans for the perpetual security that's coming up for core next year?

All right. Stacy, this is Chirag here. I hope you're able to hear me properly. Let me start with the solvency ratio. On the solvency ratio, we're not very far from where we were in H1 2021, which is at 180%. We should be tentatively 181% to 182% for quarter 3, 2021. In terms of issuance, yes, I think the call date for the 2017 issuance is in September of 2022. As a group, we are looking at various options and we would be taking a call fairly soon on -- in terms of =on any new issuance, if possible, and that should happen in the next couple of months from our side. Coming to the question on fair value losses. As you know, the interest rates in this year have gone up slightly. We QIC has a fairly large fixed income portfolio, while the duration of the fixed income portfolio is fairly low at 3.13. The size of the fixed income book is over $3.5 billion. The increase in interest rate naturally would have some impact. And we -- our fixed income book is fair value through OCI. So the negative number, which you see in the other comprehensive income is primarily due to the increase in the interest rates from December to now. On market study, I think I'll let Varghese answer market study question. Varghese, can you?

Yes. Yes. Both of you, thanks. Yes. See, with regard to market steady, Stacy, I mean the debt from market study that as of now that has fully settled. So that is as we expected, we'll deal it with a receipt. So that is cleared completely from the balance sheet as of now.

And your participation in the new investments into market study, are you able to disclose the size and where does that sit on your balance sheet, please?

We have an investment in market -- in the market study as part of the settlement. See and that impact, I mean, currently, it has been shown as part of the investments. But I mean, we are going to show that more details on that because we'll -- at the moment, we are seeking further advisers on the classification of that. That will be shown further. It's not material. I mean, it's an immaterial from a investments point of view. So that will be shown with more -- based on the advisers we get from our advisers in Q4 reporting.

[Operator Instructions] We'll now move to our next question over the phone, which comes from [ Mujib Moosa ] from Commercial Bank of Qatar.

Thanks for the presentation. Looking at the segment-wise reporting, which is not new for Qatar Insurance historically. When you add just the OpEx cost against insurance on the segment-wise reporting, the dependability of the P&L and the investment income is quite a huge factor. So my 2 questions specific element here would be going forward to 2020, what's your outlook? Although you touched upon it. If you can just touch upon a bit more on are you looking at the underwriting business to report a net loss going forward in 2022? And depending on the investment at Chirag did give a profile of the FI book. So a predominant part of your investment portfolio is in the bond book. Looking at the last 3 years, the trajectory of the investment income when the rates were on the low side, there was a pretty decent investment income earnings that are coming. Now in 2021, we already tested what is in the bond market, things are a bit wobbly their, bond yields are slightly going up. There is already an impact on the comprehensive value, QAR 174 million has been booked into your [indiscernible]. Going forward in 2022, knowing that the interest rate, the financial markets are already pricing in probably a 50 basis point rise on the Fed rates. And you're looking for that Chirag. My question would be what would be your thoughts on the bond book, looking at the investment book looking at the fact that the P&L is quite sensitive to the investment income. How is the management trying to have a strategy on making sure the investment income continues the way it has been all these years?

The insurance side, let me take and the investment side Chirag can explain further. See with regard to the insurance income, if you see, I mean, as we explained in the previous costs, Q1 and Q2 calls, for 2021, I mean, we had a couple of losses coming from the previous years, arising out of our Lloyd's syndicate. We had a couple of losses pertaining to the year 2008 and '09. And based on some Canadian Supreme Court decision, some professional indemnity claims, some settlements were there. So which had a total impact of close to $35 million, I mean, which came as an abnormal even for an item for this year. Also in Q2, I mean, based on the U.K. motor market trends we have seen. As the QIC management, we have taken a conservative view on that aspect because the matters they are still evolving. We didn't know which way the COVID was moving. So based on that, we did the reserve strengthening in Q2 with regard to the U.K. motor. So both together, I mean, we had close to $75 million to $80 million of abnormal events coming in. So if you keep aside these 2 aspects of the PI losses, and with little motor strengthening, which we are still awaiting. So we are -- our normalized combined ratio stands at 98%. So we are at profit. So if you compare from Q1, Q2, Q3, the actual combined ratio as of Q3 currently stands at 102.6%. So our expectation is, in Q4, I mean, when things become more clear, we have more clarity on the COVID situation arising, so we can revisit the reserve strengthening position we have taken. We are also looking at the total IBNR position. So the same trend of improvement in combined ratio, which we have seen from Q1, Q2 to Q3, we're expecting that to further continue. And we expect our combined ratio as of Q4 -- as of end of this year to reach in the level of 99%. So that is our expectation. Going forward, for 2022, you also asked our outlook on that. I mean certainly, I mean, we know that we have a better buoyancy on the coming year. Number 1 is with regard to the key things happening in the MENA region, especially in UAE, Qatar, Oman and the MENA region. Also in the international front, with the rates hardening happening and with the rein tuning of our reinsurance, I mean, retro protection, the reinsurance protections we have, our target combined ratio for next year is 98%. Also, let me add, I mean, as I explained briefly in my introductory session. I mean, we are further developing our non-risk streams of revenue, especially, I mean, the new source that Anoud Technologies, I think Anoud Technologies is 1 of the bespoke insurance -- insuretech companies, specifically providing software solutions to insurance companies. This is being set up as a joint venture. I mean, we had -- with the collaboration with Swiss Re, who is a leading global reinsurer. Together with Swiss Re, we have integrated Swiss Re products with our product, which is called Anoud+. QIC has its suite of products, which have been developed internally over the period of last 10 years. So at the moment, I mean, all our fully integrated products, which combines of underwriting claims, CRM, all the aspects. So we provide a total solution. And with that, we have bought in the Swiss Re products integrated brand. And to justify, I mean, the value of our product. I mean, we launched the company beginning of this year. Within a couple of months, we have 1 of the leading Caribbean reinsurer has been added to our client. And also, we have, I mean, 1 other client in Europe. So incidentally, we are the first Qatari IT company to have, I mean, clients -- winning clients in Europe and Caribbean. So this is an area where we are -- we think a more developments are going to happen. I think Chirag can explain later. Other aspect that, we are, I mean, actually very focused as a group to the personal line victim innovations. Just to give a few example is that with regard to the travel insurance, which we know is going to be the hot product with a football World Cup 2022 coming in. Currently, we are the only company in the Middle East who has integrated with 3 leading travel aggregators, which is the Galileo, [ Amides ] and Sabre. So with this -- we know that I mean, with the travel insurance, we are in it. Similarly, I mean, with regard to the digital innovations we are doing on the motor front, we are one of the leaders. So we have a renewed focus in the personal lines -- direct personal lines business. So all put together, even though from a top line point of view, we still will have internationals contributing around 80%. But from a bottom line point of view, we have a strong, stable, consistent MENA base and with the innovations, with the initiatives, particularly in the initiatives we're doing with regard to the personal lines and the other streams of income, which we are developing, I think overall, I mean, 2022, I mean, we are reasonably buoyant. So this is from the insurance point of view. Chirag, you can take over the other part, Chirag.

Sure. On the investment side, we have -- the portfolio duration is fairly short. As I mentioned, the duration of the portfolio is about -- on an average, is about 3 a quarter. We do invest in longer-dated bonds, but what we do is anything which is more than 5 years currently, it has been hedged already. So any potential interest rate hikes will have a small impact on the portfolio and not -- it's not expected to have a massive impact on the bond portfolio. The other factor is about 20% to 25% of the investment portfolio given its lower duration, will be maturing in the next 12 to 18 months. So as that matures, that money is getting invested or reinvested at higher rates as the rates go up. So that creates a sort of a -- that counterbalances the impact of the hike in interest rates. And third factor is, if you see on our cash and deposits, we've got close to 24% -- 22% of our investment portfolio with cash and deposits. That portfolio, as interest rates go up, will always have a positive impact. So that's how it gets rebalanced. The increase in interest rates as long as they are gradual in nature and not very sharp in certain, will not create a massive impact on an overall basis for QIC. I hope that answers the question.

Just a follow-through question. Since you said that the duration will be less. So can that be reason the estimated that the investment income that has been booked for 2021, there's reasonable clarity that those levels of investment income that will be foreseen for 2022 is more or less sustainable? Is that what...

Yes. So this year, the equity markets have been -- have outperformed, as you know. And if you expect a similar sort of an outperformance next year, then definitely, yes. If you don't expect them, then the mark-to-market gains, which are booked in the income statement, will obviously not be there for next year. So you may for your internal calculation, strip out the mark-to-market gains and see what is the -- and the details of that are available in the financial statement, to see the impact from the interest income versus mark-to-market rates.

And Chirag one related question also. What's the size of the equity book in your QAR 15 billion total investment? What is the equity exposure?

So of the total investment and cash portfolio of QAR 22 billion, only 8% is in listed equities.

And just listed equities, I believe are -- some of them are high historically at cost. Or is it helped MTM?

No, these are fair value through P&L. Now as for IFRS 9, we have classified our equity book as a value to P&L.

And this -- the equity book been largely QE listed equity portfolio, which I believe. Then effectively, what you are saying is that for this year's mark-to-market gains, which has flowed in the P&L, as you indicated earlier, unless we see that kind of a similar 15%, 20% movement in the market, those MTM gains would have to be stripped off to see sustainability of the investment income.

That's right. So by quarter 3 -- end of quarter 3, so DSM is obviously, if you -- I'm not sure whether you have the presentation. On Page 20, you have the split of equity book. 77% is in Qatar. That are still split predominantly in the region. And yes.

On which presentation on the slide number, what's the slide number?

Page #20, Slide 20.

Slide 20.

Slide #20, there is the split of equity.

And we're also talking about a much more MTM gains in the regional market. So if you are to see the sustainability of investment income, it is by and large coming from the interest income from the bond book. And the rest all the MTM...

So interest income from the bond book. Cash and deposits, obviously, a large part of that is in Qatar, which generates a good amount of carry compared to other markets. Also, there is -- as you -- I mean, you're based in Qatar. So you know the stickiness of dividend income. The dividend income is also quite sticky. And the advisory fees, which are rental income is again sticky and where the disease is sticky. So I would say of the total investment income about 50% to 60% is sustainable. The rest is mark-to-market.

We'll now move to our next question over the phone, Mr. [indiscernible] Abdul Kedar from Entegris Asset Management.

Basically, I have a question on the insurance side. When we have the call in, you mentioned that you plan to [indiscernible] basically the loan book. Again given what you have in terms of your exposure to [indiscernible] and also the moment of segment, so you have to basically derisk that book. So I just want to understand, how is that progressing from that side? And shall we -- there was several items actually. So I just want to understand what that shall we expect some surprises from your side, some sort of additional reserves that you have to take? Or that's my first question.

Okay. Yes. Thank you. I think it's a very important, very valid question. See, I think we explained this earlier in the previous calls. See, I mean post 2017, I think the group has taken a very conscious decision that to come out of the high volatile, high severity cat exposures over a period of time. So as of now, I mean, we have -- I mean, compared to the 2017 exposures, I mean, we have very limited -- we have brought down the exposures for the net cat. So it's also been proven. I mean, if you see in Q3, we had 2 major -- I mean 1 of the big cat it's the market even as the IDA event, which happened in the U.S. As far as QATI is concern -- QATI group is concerned, we didn't have major losses coming out of that. So that is the result of our successful de-risking we did. So that way, I mean -- but whereas in Q1, we had a winter storm coming again from the U.S. There also -- since we are there in international market, we had an exposure, but I mean it's not a key major event, which will impact our P&L for this year. So the only abnormal event as I told in the beginning of the call is because of the previous year's PI losses, that's coming through our Lloyd's business. But from a cat exposure point of view, as a group, we have taken a very conscious decision that we need to limit this exposure because we know that this is a much -- I mean, it's a capital loaded line of business we are writing. But we got our specialist underwriters in U.K. and Bermuda. So there, the underwriting strategy is to make sure that the risk is well diversified on a global basis. The risk they are writing is within our risk appetite. We got very well-defined risk appetite and tolerance designed for all these assets. So currently, I think we write -- we do write cat business, but that's in a very, I would say, in a much controlled manner, which is very well within our approved risk appetite and tolerance limits. That is with regard to cat. And with regard to the U.K. motor business, I think you asked also. So there, 2020, as you know, I mean it's been a good year, a reasonably good year for the U.K. motor business because of the COVID impact, the positive impact of COVID. With regard to 2021, as of now, our loss ratios are as per the business planned loss ratios. But it's an evolving situation. Yes, I mean, it's an evolving situation. We are still carefully monitoring that. The group has taken a prudent position with regard to the reserving. But having said that, we see impacts in the premium rates. This is a global -- it's a U.K. phenomenon because of post-COVID. I mean the market was expecting premium rates, but we're very conscious, and we are very careful of that. I mean, because we are focused to the bottom line. So the challenges are there. But as of now, as on Q3 update, our U.K. motor loss ratios are as per our planned business loss ratios.

Okay. On then just going back to mentioned on the, you said you are seeing some losses on your Lloyd's business. Is that for the adequate results for that?

Sorry, your question was not that clear. Can you repeat? It will go back to reserve or just your results?

Yes. You mentioned on the Lloyd's you're expecting some losses from there.

I mean what I said is, we had taken the losses. I mean, we're not expecting any losses. All losses are taken. The only thing what I explained is, yes, in Q1 and Q2, we had some abnormal losses coming from our Lloyd's syndicate pertained through the -- it's all fully taken in. So if you take out these abnormal losses, we have a combined ratio of 98.5%, normalized ratio is 98.5%.

Okay. So that's your guidance for next year. That's including the net cat business and everything?

Absolutely. I mean, as of now, I mean, we have -- our exposure to net cap is that is in no way going to bring any dent to our P&L. So we are -- that way we are reasonably confident based on the reinsurance protections we have, based on the risk diversification we have done with regards to the net cap exposure be right. We are reasonably confident from this line of business, certainly, we will not have any dent to our profit going forward. We have seen in 2021, this year is a testament of that. We had either was a big market event, which is closing close to $15 million. So for IDA, I mean, as QIC Group, we had very limited exposures and losses coming out of that.

Okay. Just one last question from my side. Given your solvency approved, so we expect from what you reserve from 2021 back to [indiscernible]

Our solvency?

Yes.

Yes. I think with solvency, I mean our experiments currently that remains reasonably stable. It used to -- it was 180% at end of the total Q2 numbers. As of Q3, it is in the range of 181%, 182%. So that is stable. We expect that to only improve as we move on.

There are currently no further questions queued over the phone at this time.

If there are no further questions, we would like to thank QIC's management for the results update and look forward to speaking to you all for the final quarter results. Thank you.

Thank you.

Thank you. Bye-bye.

Ladies and gentlemen, this does conclude today's call. Thank you very much for your participation. You may now disconnect.