Participants

Stephen Ries; Head of Investor Relations; Global Indemnity Group LLC

Joseph Brown; Chief Executive Officer, Director; Global Indemnity Group LLC

Brian Riley; Chief Financial Officer; Global Indemnity Gtoup LLC

Dan Bodini; Analyst; O'Brien

Tom Kerr; Analyst; Zack Investment Research

Ross Haberman; Analyst; RLH Investments

Presentation

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. (Operator Instructions) Thank you. I would now like to turn the call over to Steve Ries, Head of Investor Relations. Please go ahead.

Stephen Ries

Thank you, Kathleen.
As a reminder, today's conference call is being recorded as 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 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 Covanta M&E 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's now my pleasure to turn the call over to Mr. Jay Brown, Chief Executive Officer of Global Indemnity.

Joseph 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 Reilly, 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 three 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% for 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, the 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 Pan America, wholesale commercial insure tech 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 superb 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 and 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 achieve achieving and having having experienced historically, we also continue to deliver outstanding investment returns following the reposition 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, and we'll 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 31st, including dividends paid in 2020 for return to shareholders was 2.1% for the first quarter of 2020. For 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%. And 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 double A. minus reduced notes.
Worth noteworthy were note worth noting that the magnitude of the change in our fixed income portfolio in the last nine quarters comparing the current yield of 4.3% and duration of 1.06 years. At December 31st, 22, book yield was 3.4% with a duration of 1.7 years. And at December 31st, 2021, book yield was 2.2% with a 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 and higher 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 and 2023. The improvement in the current extra underwriting income was due to strong performance in our core business, Pan America at America's accident year underwriting income of $5.7 million was compared to a loss of 800,000 in 2023. As Jay noted, Pan America's accident year combined ratio was 94, an improvement of 7.2 points from 1.12 in 2023. The excellent overall Axiare loss loss ratio of 54.8 was mainly due to performance of our property business 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 and 2023. The casualty loss ratio of 58.6 remains in line with expectations. Unlike our non-core unlike our non-core operations have diminished private diminished effect on the overall performance, our non-core 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 casualty treaty, which was terminated end of 2010 for 2024 the underwriting loss was only 400,000. The combined ratio was one oh 5.5. 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. Both 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 and our non-core segment, which declined $28.1 million year over year. Pet 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, pet America's gross written premiums grew from $90.7 million in 2023 to $94 million in 2020 for 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 insure tech, which consists of Vacon expressing collectibles grew 17% to $12.5 million compared to 10.7 million in 2023. When you break down those two products, first bacon Express through 2022% to $8.9 million, driven by organic growth from existing agents and agency appointments, new technical automation and implemented in the third quarter of 2023 for our bacon dwelling products, including expansion of mono-line general liability product, contributes to the growth in premium. Our agents are producing collectibles growth. Gross written premiums grew 6%, 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 three Nutrio commencing in 2024. Programs, excluding the terminated programs I mentioned earlier, was $20.5 million lower than 23 by 1.4 million. New new programs contributed $600,000 during the quarter.
In closing, we are pleased with the start of 2020 for further, our outlook for the full year is very positive. Penn-america continues to show strong current accident year performance. We believe premium pricing is meaning loss inflation for discretionary capital continues to increase due to income and reduced capital needs for the runoff non-core business. This will support growth and other corporate opportunities. We expect continued increase in book yield on the fixed income portfolio as the $737 million of cash flows from investment income and maturities currently yielding 4% fully reinvested at higher rates during the remainder of 2024.
Thank you. We will now take your question.

Question and Answer Session

Operator

We will now begin the question and answer session. (Operator Instructions)
Your first question comes from the line of Dan Bodini of O'Brien. Please go ahead.

Dan Bodini

Hi, good morning. Thanks for taking my question. Say the Company's combined ratios improved very nicely and the so is the investment income, but the ROE remains sort of pedestrian. And I'm wondering what you can do to improve the ROE going forward?
Thanks.

Joseph Brown

Good question. The biggest reason that our reported ROE is is continues to be low. Even at these good results is the simple fact is that we're overcapitalized to a significant degree. We estimate we have approximately 200 million in excess capital available for other purposes purposes. Our Board continues to evaluate what the best alternatives are for that board. As noted in our press release, we did increase our dividend in the last quarter from 25% to 35% a 40% increase. And we're going to continue to look at that throughout this year to determine what's the best of best use of that cash on an ongoing basis.

Dan Bodini

Okay, thanks.

Operator

And we do have one comment in webcast from the benchmarks? It says please discuss GBLI. interest in pursuing a transaction with change lever insurance.

Joseph Brown

I've heard about that in terms of what I've read read in the papers, we have had conversation with James River on those conversations are on pause at this point in time. We may re-examine that later on if there's continued interest on both parties part to pursue something.

Operator

Thank you for that.
And your next question comes from the line of Tom Kerr of Zacks Investment Research.
Please go ahead.

Tom Kerr

Good morning, guys. Bob, can you go over the expense ratio issue again, I didn't understand completely. The Penn-America continues to grow organically or sequentially and programs declined. I'm not sure why it would take years to get down to your target 36, 37% expense ratio. So maybe I'm missing something. Thanks.

Joseph Brown

I know you're accurate. It depends on how much growth we have over the next two years, which will determine when that becomes earned premium because we're still in a decline in terms of earned premium as a company as a result of the steep drop that we experienced in premiums written last year and as that works through the system. So we're still cruising down a little bit in terms of earned premium in terms of the dollars associated with expense ratio, most two thirds of our expenses are basically set as a percentage of premium written based on commissions and other premium related charges. So the big variable overtime is our internal operating costs for Penn-America. Those currently run around 47, $48 million a year. That's roughly where they were last year, they will increase modestly in terms of staff. The staff makes up about two thirds of that expense. And so as as we go forward, assuming we have a 3% to 5% kind of change in salaries. We have to kind of overcome that with greater growth for that ratio to actually come down on. We expect that that should be achieved by 2026 with progress shown throughout this year and into next year, hopefully marketing that in terms of increments quarterly by quarterly.

Tom Kerr

Okay.
Just to reiterate that last point there is going to be incremental improvement quarter-over-quarter sequentially, but just not the target for a couple of years.

Joseph Brown

And you're right, we're going to that comparison for 24 will be modestly higher for each of the quarters in 23. But in terms of its actual percentage of earned premium, it should start going down as the year progresses.

Tom Kerr

Got it. A minor question. The last time we talked about a lot of problematic books out there. Anything in their horizon worth discussing any serious problematic programs up there that are negative and you still now?

Joseph Brown

It is at this point, we're pretty happy with the book of business. The reserve development, which we experienced last year was which was the result of exiting those businesses at the beginning of 23 on that effect has died down. We had very little volatility in our reserve book during this past quarter. We are experiencing a little bit of lingering effect in terms of growth opportunities because when we take down a portion of our business, for example, New York habitational, it takes down some of the agent's interest in giving us other business during that time period. So we saw our East region, for example, is relatively flat year over year, whereas our West region is up almost 20% during the same time period. So that's so it has an effect not necessarily on losses, but it does have a lingering effect on premium revenue.

Tom Kerr

Great.
That's all I have for now.
Thanks.

Operator

Your next question comes from the line of Ross Haberman of RLH Investments. Please go ahead.

Ross Haberman

Good morning. Thank you for taking my call. I had two quick questions. Could you talk a little bit about your plans to put to work that $200 million of excess capital. One of your earlier questions was talked about that James River potential deal could you talk about acquisitions in general? What do you think about them? Are you actively looking for them? And related to that, it looks like you stopped the number of shares actually went up in the quarter. You in prior calls you were talking about buying back shares. Are you currently doing that now? Thank you.

Joseph Brown

We can take let me take the latter question first, in terms of share buybacks, we are active in terms of entertaining reverse inquiries at during the past quarter, we did not have any end market repurchase activity, partially because in the first quarter we have a very narrow window and which is actually open. I think it's less than 10 days that we feel comfortable buying back shares in terms of the disposition or what will happen eventually with the $200 million. Obviously, we always want to keep a comfortable cash cushion for internal growth, but we're generating positive capital as and at our current growth rate. So this is going to be an ongoing question for us. We are active and have always been active in terms of looking at other potential acquisitions on we like most companies find. And if you have to be extremely careful when you make those decisions, we've had some success over the years and we've had some sideways results from from investments in terms of making acquisitions, and there are opportunities out there.
Our Chairman, Mr. Fox Fox Payne, has a 25 30 40-year record of investing in insurance operations. So a lot of people approach him from time to time with different ideas, and we continue to entertain those. But like everything it's right now, we just don't have a anything to announce that we're actively working on or looking at at current times.

Ross Haberman

And just just connected to that Vis-a-vis, when you're looking for new one new books of business or from our other companies do do you weigh that option as opposed to continuing to be maybe more aggressive in terms of buying back your own shares on which is a better option. Thanks again for your help.

Joseph Brown

That is a perfect question that we debate continuously at our Board in terms of what the what the benefits of buying back shares are and versus versus potentially either putting the accelerator down and trying to grow organically faster or adding books of business. I think at this point in time at this share price obviously any company shares that we can buy back, anything resembling close to where it is right now are very, very accretive to book value and create value for all shareholders.
When that occurs. So we're going to continue to trying to explore that over the short term for a portion of our excess capital.

Ross Haberman

Thank you.

Operator

Thank you. We have another question from the webcast from Michael O'Brien. It seems like a buyback from program is a no-brainer at these levels. Why not be more proactive with the buyback?

Joseph Brown

I think I kind of answered that with the last question. So I unless there's a follow on, I think we'll let it let it ride with what I already answered.

Operator

Thank you.
The next is from Andrew Vaino and the consideration line for a special dividend, understanding that this may not be a tax efficient, though?

Joseph Brown

The question is, is there any interest in doing a special dividend of one of the things that is on unique about our our structure as a publicly traded Limited Partnership, a majority of the dividends that we distribute are deemed as return of capital given most most investors and most shareholders basis. So it's unlike a lot of companies where it is not necessarily tax-efficient to do special dividends. We look at that through a slightly different lens in evaluating whether that's a good thing to do. And again, that fits with the other uses of excess capital that's continuously evaluated by our Board.

Operator

Thank you. And we have a follow-up question from Dan Bodini of Oberon. Please go ahead.

Dan Bodini

Thanks. On your So at some point, I can't remember last year you announced that you'd received interest in inbound interest in Pan America. And then you but announced that you are reviewing alternatives for Penn-America and entire company, I believe. And then a few months later, you announced that those discussions and it and I imagine it's because any of this interest that came in was that a valuation that you didn't agree with and now and these James River stories that were out there. Maybe they're wrong mentioned that you were considering paying in part for James River with stock. And I'm just curious, are there any sort of circumstances under which you'd give away shares current valuation in an acquisition.

Joseph Brown

It takes a very unusual situation given where our shares are currently trading to use our shares in any kind of an acquisition. We have a obviously, we have a large amount of excess capital, which would be the first thing we would tap before we consider any share issuance on once in a while. You run across a transaction that for a variety of reasons you might want to use on stock, but that's a pretty rare occurrence.
As to any comments about A. transaction that was at or was potentially discussed with James River?
I can't offer any commentary.

Dan Bodini

Sure.
Okay. Thanks.

Operator

We have another follow-up question from Tom Curry of Zacks Investment Research. Please go ahead.

Tom Kerr

Yes, just a quick one on the investment portfolio. I've heard you guys comment on the level of equity securities in a long time remains at low level, 17 million, $1.3 billion portfolio. Any change in thinking on that and increasing equity securities investment?

Joseph Brown

Our Board is has been playing with play defense, as I think you know from our history, two years ago in making a decision to dramatically shorten our investment portfolio and to liquidate are then portion of equity securities. We are looking at what our long-term portfolio should look like as we go through this period of interest rates, which are starting to stabilize and perhaps eventually kind of come down a bit or even maybe more likely stay sideways at that point on, it becomes behooves us to start making changes in our portfolio composition from what is essentially right now, 100% short-duration fixed income portfolio. I'm personally, from my perspective, it always makes sense to have a portion of your portfolio in equity securities and that I would expect that you'll see that redeployment take place sometime in the next couple of years in our portfolio.

Tom Kerr

Great.
Thanks for your answer.

Operator

(Operator Instructions)
There are no further questions at this time. I will now turn the conference back over to Steve Ries for closing remarks.

Stephen Ries

Thank you, Gregory, and thank you, everybody, for joining us for our first quarter 24 call. If you have any additional questions, please reach out to me, and we'll look forward to talking to you after the second quarter.

Operator

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.