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Good day, and welcome to the International General Insurance Holdings Limited Second Quarter and Half Year 2021 Financial Results Conference Call. [Operator Instructions].
I would now like to turn the conference over to Robin Sidders, Head of Investor Relations. Please go ahead.
Thank you, Andrew, and good morning, everyone. Welcome to today's conference call. Today, we'll be discussing our second quarter and half year 2021 results. You will have seen our results press release, which we issued after the market close yesterday. If you'd like a copy of the press release, it is available on the Investors section of our website at www.iginsure.com. We have also posted a supplementary investor presentation, which can also be found on our website on the Presentations page in the Investors section.
On today's call are Wasef Jabsheh, Chairman and CEO; Waleed Jabsheh, President; and Pervez Rizvi, Chief Financial Officer. Wasef will begin the call with some high-level comments before handing over to Waleed to talk through the results for the second quarter and half year 2021, also giving some insight into current market conditions and opportunities that we are seeing. At that point, we'll open up the call for question and answers.
And just before we start, I'll begin with some safe harbor language. Our speakers' remarks may contain forward-looking statements. Some of the forward-looking statements can be identified by the use of the forward-looking -- use of forward-looking words. We caution you that such forward-looking statements should not be regarded as a representation by us that future plans, estimates or expectations contemplated by us will, in fact, be achieved.
Forward-looking statements involve risks, uncertainties and assumptions. Actual events and results may differ materially from those projected in the forward-looking statements due to a variety of factors, including the risk factors that we had set out -- set forth in the company's annual report on Form 20-F for the year ended December 31, 2020, the company's reports on Form 6-K and other filings with the SEC, as well as our earnings press release issued yesterday evening. We undertake no obligation to update or revise publicly any forward-looking statements, which speak only as of the date which they are made.
In addition, we'll be using some non-IFRS financial measures in this conference call, and you can find a reconciliation of those non-IFRS financial measures to the nearest IFRS measures in our earnings release, which has been filed with the SEC and, again, is available on our website.
So with that, I'll turn the call over to our Chairman and CEO, Wasef Jabsheh.
Thank you, Robin, and good day to everyone. Thank you for joining us on today's call. Our results for the first half of 2021 continue to demonstrate that IGI is capable of achieving or speak not just to the numbers that you are seeing from us today, but also the thoughtfulness with which we have approached the business for many years to maintain our track record of generating shareholders' value for the long term.
On the back of our solid 2020 results, we recorded strong core operating results for the first half of '21, supported by excellent premium growth of over 13%, i.e., 21% in the second quarter of '21. Focused underwriting reflected an 88.5% combined ratio and steady investment income during the first half of '21.
Market conditions are holding up well and rate increases across our portfolio are close to 13%, with much variation by line of business and geography. I'm very pleased with the steady focus our underwriting teams have shown in maximizing the opportunities across our portfolio. Specifically, while we have grown our total book, we have, at the same time, maximized our diversification, which apparently speaks to our risk profile and our ability to continue creating value for our shareholders.
We have entered into new lines of business. We recently announced the opening of our European operation in Malta with the purpose of growing our footprint across Europe. And we have grown our long-tail casualty business outside of the United States. I want to focus on the long-tail business for a moment.
We started to write this business in 2015 and have grown it gradually over the past 5 years, adding long-tail business to our existing short-tail portfolio, offer the opportunity for better diversification to our overall risk profile. More recently, as market conditions have improved, rate increase has more than doubled and terms and conditions improved, we have expanded the long-tail book, growing existing lines of business and adding D&O non-U.S., which has seen significant improvement and rate momentum. We've done this carefully and methodically, and we believe that this book will continue to generate solid returns in future years.
We all know that the past 18 months have not been easy for anyone. We have all had to cope with finding new ways of managing our business through the pandemic. At IGI, we did this while also adapting to become a public company, which is a significant achievement in itself. We have shown our resolve, and we have built on our successes. I'm proud of the company that IGI is, and I'm very proud of all our people.
We have always been a trusted and reliable partner to all our stakeholders. And our focus is on ensuring that we remain so for the future. Again, there is still much work to be done, and we are focused on that. Waleed will expand more on what we are doing to better serve our shareholders.
So for now, I will hand the call over to Waleed, and thank you all very much.
Thank you, Wasef. Thank you all for joining us today. As Wasef said, we had a strong first half of 2021 with solid core underwriting results, and we continue to build a high-quality diversified book of business that will support our earnings profile in line with what we have achieved in our 20-year track record. We're very well positioned to continue to take advantage of what are still some of the strongest market conditions we've seen.
I'll start with a high-level recap of the numbers, as you have the press release and the story is fairly straightforward. Premium growth in the second quarter was solid at 21% when compared to the second quarter of 2020, which itself saw excellent production. While growth in the first quarter was more muted, we expect the remainder of the year to remain more or less in line with what we achieved in terms of premium growth in the second quarter of this half of 2020.
For the first 6 months of 2021, the most significant growth was in the long-tail segment, which accounted for approximately 38% of our portfolio and which recorded an increase in gross written premium of 16.3% for the period. Growth was primarily driven by professional indemnity and D&O business, where rates remain up on average over 30%. As we've mentioned previously, capacity and market appetite in these lines has reduced, as many players have either exited the business, significantly reduced their line size or have limited writing new business.
A large portion of our business in these lines is written on an excess basis and also on a claims-made basis. It's also worth reiterating that we do not write this business in the U.S. It's primarily made up of the U.K. and, to a lesser extent, Europe and the Middle East region.
In the short-tail segment, which accounted for approximately 57% of our total portfolio, growth for the first half of 2021 was primarily in the engineering and construction and energy lines. Here, we saw rate increases on average of 7.8%. We noted in our results commentary for the first quarter of 2021 that we are seeing some slowing in the pace of rate acceleration in the segment, and this was evident again in the second quarter.
In our treaty reinsurance book, we wrote gross premiums of $5.6 million and $14.6 million in the second quarter and first half of 2021, respectively. This represents increases of 24.4% and 27% for these periods. The treaty reinsurance business accounted for approximately 5% of total gross written premiums in 2020.
Net underwriting income was $20.9 million for the second quarter and $48.6 million for the first half of 2021. This compares with underwriting income of $22.9 million for the second quarter of 2020 and $46.1 million for the first half of 2020. Overall, the combined ratio was 92.3% for the second quarter of '21 and 88.5% for the first half of '21.
As you saw from our press release, the claims and claims expense ratios were up in the second quarter and first half of 2021, again, primarily recorded in the short-tail segment and related to an engineering loss. This is also reflected in the 1.2 points of unfavorable prior-year development on loss reserves, reflecting deterioration in the prior-year energy loss in the second quarter of 2021.
I would note here that this deterioration primarily related to a late notice on our 2020 loss in our energy portfolio, which is obviously short-tail in duration. This is a one-off event and certainly not indicative of any trend. For the first half of 2021, we saw 2 points of favorable development on prior-year loss reserves, as a result of a favorable development in the first quarter of '21, which more than offset the unfavorable development in the second quarter of '21.
Policy acquisition costs increased in both the second quarter and first half of 2021 when compared to the same periods of 2020 due to the increase in premiums written and earned in both periods. Consequently, the positive acquisition expense ratio increased by 0.5 point in the second quarter of 2021 when compared to the second quarter of 2020, but was lower by 1.5 points in the first half of 2021 on a higher earned premium when compared to the same period in 2020.
General and administrative expenses were slightly higher during the second quarter and first half of 2021, primarily due to increased professional fees and expenses and salary costs related to new hires.
Before I move on to the investment portfolio, I want to address the impact of foreign currency on our results for the second quarter and first half of 2021 when compared to the same periods in 2020, which benefited significantly from foreign currency. During 2020, IGI's foreign currency exposure was subject to extreme volatility due to market turbulence, primarily related to the COVID-19 pandemic. So it's important to take this into consideration when comparing numbers for '21 with '20.
In the first half of 2020, the claims and claims expense ratio benefited significantly from ForEx movements, resulting in an overall benefit of 6.6 points to the combined ratio for the first half of 2020. By contrast, there was little to no ForEx impact on the claims and claims expense ratio for the first half of '21. So on a like-for-like basis, you see the strength of the technical results achieved in the first half of 2021.
Now I'll turn over -- I'll turn to our investment portfolio. Despite lower interest yields available on our core interest-bearing portfolio, total investment income net increased in both the second quarter and first half of 2021 when compared to the same periods in 2020, due to a higher volume of funds deployed, particularly in the fixed maturity bond portfolio. Growth in the investment portfolio for the first half was supported by an increase in net cash flow from operations.
Total investment income net increased by 50% to $3.9 million in the second quarter of '21 compared to $2.6 million in the same period in 2020. For the first 6 months of '21, total investment income net increased by 51.9% to $7.9 million as compared to $5.2 million for the first half of 2020. Including realized and unrealized mark-to-market movement, total investment income was $4.5 million and $4.7 million for second quarter of '21 and '20, respectively, and $9.7 million and $2.6 million for the first half of 2021 and 2020, respectively.
Income from the core interest-bearing portfolio was up by 40.5% in the second quarter of '21 and 43% for the first half of 2021 when compared with the corresponding periods in 2020. Despite the decline in yields on both the fixed maturity and term deposit portfolio as a result of the continued low interest rate environment, interest income increased as a result of the higher volume of funds deployed, particularly the fixed maturity bond portfolio.
The yield for the fixed maturity bond portfolio was 2.8% for the second quarter of '21 and 2.9% for the first half of '21 compared with 2.6% and 2.6% for the second quarter and first half of 2020. The yield for the bank term deposits was 2.1% and 2.2% for the second quarter and first half of '21 compared with 2.4% and 2.9% for the second quarter and first half of 2020. Overall, yields on bank term deposits dropped by 0.7% in the first half of '21 compared to the same period of last year as the yields on turn deposits were better in the first half of 2020 until the economic impact of the COVID-19 pandemic started to emerge from the end of March 2020, causing a negative impact on the interest rate environment globally.
Our investment portfolio remains defensively positioned. The combination of the high quality and diversified nature of the bond and term deposit portfolio, along with a modest allocation to equities, yielded a positive mark-to-market adjustment of $3.3 million in IGI's investment portfolio in the second quarter of '21, although we recorded a negative mark-to-market adjustment of $1.7 million in the first half of '21, reflecting an improvement in the latter part of the first half of 2021 when we saw increasingly positive signs of economic recovery from the deterioration that started to emerge at the end of the first quarter of 2020 as a result of the global pandemic.
In our total fixed income portfolio, 62% is A rated and above. In our total term deposit portfolio, 52% is dealt with A rated and above banks. The average duration of the fixed maturity securities is 4.5 years at June 30, 2021, up from 3.4 years at December 31, 2020, as we purchased new better-yielding, longer-duration bonds during the second quarter of 2021.
Core operating income was $9 million for the second quarter of 2021 compared to core operating income of $10.3 million for the second quarter of 2020. Core operating income was $23.8 million and $23.7 million for the first half of '21 and '20, respectively. Core operating return on average equity annualized was 9% for the second quarter of '21 and 11.9% for the first half of '21.
Shareholders' equity was $403.1 million. Book value per share was $8.86 at June 30, 2021, representing a 1.9% increase from December 31, 2020, and a 17% increase from March 31, 2020, which is the first relevant data point for book value per share subsequent to our business combination with Tiberius Acquisition Corp.
As you saw from our announcement yesterday, our Board of Directors has declared an ordinary common share dividend of $0.16 per share, representing 40% of the company's net after-tax profit for the first half of 2021, in line with the half yearly dividend that IGI has paid for many years.
Now I'll spend some time discussing market positions, our position in the market and our outlook for the remainder of 2021. We are now well into the third quarter, and indications remain positive for the remainder of the year. While the majority of our portfolio renews during the first half of the year, we are taking advantage of new opportunities across our portfolio that have materialized in the third quarter.
You'll recall we recently launched the contingency line writing business from our U.K. subsidiary in London. And so far, we're seeing significant opportunities in event cancelation, particularly in the U.S. Also, as Wasef said, we received approval in mid-July from the Maltese regulators to begin writing business across Europe from our new Malta-based European subsidiary, IGI Europe.
You will have seen our press release issued earlier this morning that IGI Europe has been assigned the same financial strength ratings as the IGI Group, that is, A- by S&P and A (Excellent) by AM Best, both with a stable outlook. This obviously is an important step forward for our European expansion. Both rating agencies noted not only the strategic relationship to and support from the IGI parent as key factors in these decisions, but also IGI's balance sheet strength and its track record of strong operating performance.
Europe represents an attractive growth opportunity for IGI, and we've already seen strong interest, balancedness and expanded relationships. We expect to see opportunities in most lines of business, but initially more in the long-tail lines of professional indemnity, D&O and financial institutions. For now, we are in the buildup phase in 2021, similar to the contingency line. 2022 will be a better measure of what we can achieve in Europe. But to give you an indication, you should expect to see gross premium production of around $25 million in the first full calendar year of IGI Europe being up and running.
We're steadily growing our U.S. business with $13.8 million in premium in the first 6 months, and we expect that to grow to around $30 million by year-end. In other short-tail lines, the pace of rate acceleration is clearly showing, but we continue to see rate increases across most lines of business within this segment, although this varies widely depending on the line of business.
In the long-tail lines, rate improvement continues to be significant, particularly in the professional lines, specifically, D&O where rates are up more than 58% and professional indemnity where rates are up more than 34%. Again, I'd note that the majority of our long-tail portfolio is written on a claims-made basis, and we don't write any long-tail business from the U.S.
Our reinsurance portfolio, which is well spread geographically, continues to see moderate rate improvement of over 8%. There's a wide variation in rate improvement by geography. We previously talked about its location in the MENA markets, where a number of players have shut down their offices in the region, and IGI is a natural beneficiary of this business given our long-standing relationships across the region.
To expand upon Wasef's comments at the beginning of the call, I will talk more broadly for a moment about our total book of business. As Wasef said, we've grown and increased the diversification of our portfolio by line of business and geography significantly over the past 5 or so years. Our entry into the long-tail casualty lines was measured and thoughtful with the expressed intent of building a quality book that would generate solid returns in the long term.
Given that our book is made up of non-U.S. business and has a shorter tail than U.S. casualty business, typically around 4 to 7 years, this provides us with a solid footing for future years, and I'm optimistic about it. Like all of our business, we have taken a cautious view, and this is reflected in our prudent reserve position on this book. We've built a quality and experienced team who know and understand the dynamics of this business well. So we will continue to build our long-tail business while, just as importantly, we continue to expand our short-tail book, being opportunistic where we can but maintaining balance between short- and long-tail business in the overall portfolio.
Lastly, on the capital management front. We have not utilized our repurchase authorization that was approved by our Board in 2020. It was in mid-March of this year that we emerged from a post-transaction period where significant and staggered lockups imposed on our shareholders have been lifted. And I want to assure you that we are focused on unlocking the value of IGIC and being strong stewards of our shareholders' capital.
So I'm going to pause there, and we'll turn it over for questions. Operator, we're ready to take the first question, please.
[Operator Instructions]. The first question comes from Mark Dwelle of RBC.
Just a couple of questions. I wanted to start with the small reserve addition on the short-tail lines. If you could just maybe spend a minute kind of talking through that in a little bit more detail, kind of what trends you are observing and the lines that were involved?
Yes. Thanks, Mark. The reserve addition from prior years on the shorter-tail business is effectively down to one loss that we incurred at the -- or that happened at the beginning of last year of 2020. It was an onshore energy or power line where it was just one of those things that we knew about the loss. We attach at a certain level, all expectations were that the loss would end up below our attachment point and more recently due to whatever circumstances with the loss adjusting, the loss deteriorated. And so it ended up impacting us.
But as I said in my commentary, I mean this is a complete one-off, not a trend. It happens in our business. And we're prepared for the effects of movements and reflected within the overall reserving of the company.
Got it. That's helpful. Second question, kind of staying with, I guess, margins and things. I mean it looked like there was a fair amount of additional -- the growth rate, I guess, in the long-tail business was much higher than the short-tail business. Is that really one of the primary drivers as to why the core, the accident year margin was a little bit higher -- loss ratio was a little bit higher in the quarter relative to something that we've seen recently?
Yes. In part, Mark, that's an accurate statement. I mean the growth in the long-tail business is more pronounced simply because of the underlying market conditions. We've seen more recently in the last couple of quarters, as we've mentioned before, easing on the short-tail side, but we haven't really seen that on the long-tail side. So the opportunity in the market is still very much there on the long-tail book.
I've personally never been more confident or comfortable with our long-tail book than I am today. The underlying fundamentals are extremely strong. So -- but again, we said all along, we reserve very cautiously, we reserve very prudently. In the long term, we'll see the benefit of that. There was, however, additional claims activity on the engineering side in the first half and second quarter of this year that contributed to the higher accident year loss ratio.
Again, it's not an area of concern for us. It's not a trend. It's a normal part of the business that we're involved in the composition of our portfolio. And as we've always said, we've got to take a longer-term view of the company of the performance. That's always been our story, which we're following through on and prospects for the future look very bright.
That's good color. And it's actually very consistent with what we've heard other people say about the long-tail lines of business. It's some of the most attractive pricing in terms in probably 15 or 20 years. So I appreciate the color.
One last question just related to the Malta branch with sales office. Are you actually -- I know that it just got approved several weeks ago. Are you actually writing business at this point? Or is it you're still in the kind of hiring and ramp-up mode?
No, no, no. We started writing business on the day that we got our license. Our team was already on the ground and just waiting for the green light. So we've already written a couple of million dollars so far in this quarter. And we expect to write probably around $10 million between now and the end of the year. And as I mentioned in my commentary, first full calendar year, probably around the $25 million GWP mark.
[Operator Instructions]. This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.
Well, in that case, thank you all for joining us today. We appreciate your continued support, and we'll continue to build on our success so that we continue to generate value for you in the future years. If you have any additional questions, please contact Robin and she will be happy to assist. Have a great day.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.