Global Indemnity Group, LLC (NYSE:GBLI) Q1 2024 Earnings Call Transcript

Global Indemnity Group, LLC (NYSE:GBLI) Q1 2024 Earnings Call Transcript May 11, 2024

Global Indemnity Group, LLC  isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Thank you for standing by. My name is Kathleen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Global Indemnity Group First Quarter 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. I would now like to turn the call over to Steve Ries, Head of Investor Relations. Please go ahead.

Steve Ries: Thank you, Kathleen. As a reminder, today's conference call is being recorded, and some remarks may contain forward-looking statements. Some of the forward-looking statements can be identified by the use of forward-looking words, including without limitation, beliefs, expectations or estimates. We caution you that such forward-looking statements should not be regarded as a representation by us that the future plans, estimates or expectations contemplated by us will, in fact, be achieved. Please refer to our annual report on Form 10-K and our other filings with the SEC for descriptions of the business environment in which we operate and important factors that may materially affect our results. Global Indemnity Group LLC is not under any obligation and expressly disclaims any such obligation to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.

It is now my pleasure to turn the call over to Mr. Jay Brown, Chief Executive Officer of Global Indemnity.

Jay Brown: Thank you, Steve. Good morning, and thank you all for joining us for our first quarter call. I will first provide a few overview comments and then our new Chief Financial Officer, Brian Riley, will review the financial highlights for our insurance operations. What a difference a year makes? 12 months ago, we were in the midst of a significant restructuring of our insurance activities. Our then current results were a mix of ongoing and exited businesses, making it difficult to gauge performance. To assist investors on how to assess our progress, we have reaffirmed a simple set of objectives, consisting of 3 long-term metrics as guidelines for measuring the performance of our ongoing insurance operations, revenue growth, underwriting performance and expense management.

The metric goal for revenue growth was to achieve a long-term annual average for premium written of plus 10%. Our underwriting performance, we want to see a combined ratio in the low 90s. And then to achieve our desired underwriting performance, we need to have a 36% to 37% expense ratio over time given our current mix. As Brian will highlight, we have made substantial progress against these goals and the comparison to first quarter results from a year ago, demonstrates real value creation for our shareholders. In terms of revenues, most of our insurance divisions are tracking against long-term double digit growth. We expect that the combination of Penn-America wholesale commercial InsurTech and assumed reinsurance will achieve this target by year-end.

However, the expansion of our program division remains a work in progress and will lag behind a bit in 2024. Looking at the underwriting performance, I was extremely gratified to see a combined ratio of 94.0% for the Penn-America segment in the first quarter. This performance was driven by a continuation of achievement of solid casualty loss ratios and a super quarter for property loss ratios. Offsetting this a bit was a higher than target expense ratio of 39.2%. While we have kept our internal costs in check from last year after the dramatic drop we experienced in premium from 2022 to 2023, it will take another couple of years for us to start hitting our long-term targets for expense ratio. This reflects a very conscious decision to maintain our Penn-America staff this year at 2023 levels after the substantial reduction from 2022 in order to continue to meet the service needs of our customers.

We are also investing heavily in a full digital transformation of our existing technology infrastructure to stay competitive in the markets we serve. We do continue to achieve rate increases that are modestly in excess of our assessment of underlying inflation trends. This should allow us to maintain the consistent long-term loss ratio results, we are both currently achieving and having experienced historically. We also continue to deliver outstanding investment returns following the repositioning of our investment portfolio to take advantage of the dramatic increase that has taken place in short-term interest rates. Book yield should continue to increase modestly throughout the year as roughly half of our existing investments will mature in the next 12 months.

Overall, I was very pleased with the improved results we saw this quarter. I will now turn it over to Brian to provide a more detailed review of the numbers.

Brian Riley: Thank you, Jay. Net income was $11.4 million compared to $2.5 million in 2023. The combination of net income and a $3 million increase in market value of the fixed income portfolio. Book value per share increased from $47.53 at year-end to $48.18 at March 31. Including dividends paid in 2024, return to shareholders was 2.1% for the first quarter of 2024. Dividends of $0.35 per share were paid during the quarter, an increase of 40% over the $0.25 per share paid quarterly since inception in 2018. This quarter, both underwriting and investment performance contributed to the improvement in net income. Starting with investments, investment income increased 21% to $14.5 million a year ago. Actions taken since early '22 to sell longer-dated securities and shortened duration have translated into much higher current book yields.

Cash flows of $22 million plus $146 million of fixed income securities yielding 3.4% that matured during the quarter were reinvested at an average yield of 5%. The current book yield on the fixed income portfolio is now 4.3%, an increase of 26 basis points in the last three months. Duration on the fixed income portfolio is 1.06 years at March, down from 1.15% at year-end. The average credit quality of the fixed income portfolio remains at AA minus. It is worth noting that the magnitude of the change in our fixed income portfolio in the last 9 quarters. Comparing the current yield of 4.3% duration of 1.06 years, at December 31, '22, book yield was 3.4% with the duration of 1.7 years. And at December 31, 2021, book yield was 2.2% with the duration of 3.2 years.

For the remainder of '24, we expect investment portfolio will generate an additional $700 million of cash flow from investment income and maturities. For reference, the average book yield on the fixed income investments maturing in the remainder of '24 is approximately 4%. If the current entire interest rate environment continues through year-end, our portfolio remains well positioned to further increase investment returns. Now let's move to underwriting performance. We had a very strong start to the year. The current accident year consolidated underwriting income was $5.3 million compared to a loss of $600,000 in 2023. This was driven by a consolidated accident year combined ratio of 94.9% compared to 100.6% in 2023. The improvement in the current extra underwriting income was due to strong performance in our core business, Penn-America.

Penn-America's accident underwriting income of $5.7 million compared to a loss of $800,000 in 2023. As Jay noted, Penn-America's accident year combined ratio is 94%, an improvement of 7.2 points from 101.2% in 2023. The excellent overall accident year loss ratio of 54.8% was mainly due to the performance of our property business. The property loss ratio improved to 50.1% compared to 68.7% in 2023. Non-catastrophe performance was the primary driver due to a decline in the number of large fire losses we experienced in 2023. The non-cat loss ratio improved to 41.9% compared to 59.9% in 2023. The cat loss ratio improved slightly to 8.2% compared to 8.8% in 2023. The casualty loss ratio of 58.6% remains in line with expectations. Unlike our noncore operations have diminished effect on the overall performance.

Our noncore operations, net earned premiums dropped $7.5 million compared to $49.5 million in 2023. The drop in earned premium from 2023 is mainly from an assumed retrocession casual treaty, which was determinated at end of '22. For 2024, the underwriting loss was only $400,000. The client ratio was 105.5%. The loss ratio was in line with expectations at 60.6%, but runoff expenses remain a bit high, as we wind down a number of smaller underwriting portfolios. Moving to calendar year underwriting income. Consolidated calendar year underwriting income was virtually identical to the accident year with $5.3 million in 2024. This compares to a loss of $1.1 million in 2023. The impact of prior accident years changed by less than $1,000 in 2024. Booked reserves remain solidly above our current actuarial indications.

Turning to insurance revenues. Consolidated gross written premiums was $93.5 million in 2024 compared to $123 million in 2023. The majority of the decrease is from our runoff business in our noncore segment, which declined $28.1 million year-over-year. Penn-America's gross written premiums was $94 million in 2024 compared to $95.4 million in 2023. This decrease is in line with our plan due to programs terminated in '23 that did not meet our long-term growth and underwriting expectations. Excluding these terminated programs, Penn-America's gross written premiums grew from $90.7 million in 2023 to $94 million in 2024, a 4% increase. As for each of the divisions within Penn-America, first, wholesale commercial, which focuses on Main Street small business, grew 5% to $61.1 million compared to $58.3 million in 2023.

Rate and exposure increases were 10% in the first quarter. Overall, the short-term growth rate is in line with expectation. Underwriting actions in certain states to improve underwriting income has suppressed first quarter growth to 5%, but we expect to close, close to 10% for the full year. Second, InsurTech, which consists of Bacon Express and Collectibles grew 17% to $12.5 million compared to $10.7 million in 2023. Let me break down those two products. First Bacon Express grew 22% to $8.9 million, driven by organic growth from existing agents and agency appointments. New technical automation implemented in the third quarter of 2023 for our Bacon dwelling products, including expansion of monoline general liability product contributes to the growth in premium our agents are producing.

Collectibles gross written premiums grew 6% to $3.6 million. Our assumed reinsurance book of business continues to grow at a nice pace tracking with our plan to see significant growth in 2024. We expect at least 3 new trees commencing in 2024. Programs, excluding the terminated programs I mentioned earlier, was $20.5 million, lower than $23 million by $1.4 million. New programs contributed $600,000 during the quarter. In closing, we are pleased with the start of 2024. Further, our outlook for the full year is very positive. Penn-America continues to show strong current accident performance. We believe premium pricing is meeting loss inflation. Discretionary capital continues to increase due to income and reduced capital needs for the runoff noncore business.

This will support growth and other corporate opportunities. We expect continued increase in book yield on the fixed income portfolio as the $700 million of cash flows from investment income and maturities currently yielding 4% will be invested at higher rates during the remainder of 2024. Thank you. We will now take your questions.

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