Global Indemnity Group - Q2 2024

Executive Summary

• Q2 2024 delivered solid underwriting and investment results: total revenues were $108.7M, diluted EPS was $0.73, and the consolidated combined ratio held at 96.6% as property losses improved; Penn‑America posted a 95.2% combined ratio in the quarter.
• Investment income rose to $15.3M (+16% YoY) with book yield at 4.5% and portfolio duration ~1.0 year, positioning GBLI to redeploy large second‑half maturities into higher‑yielding assets, a key tailwind for NII into 2025.
• AM Best affirmed GBLI’s A (Excellent) ratings and “strongest” balance sheet strength (BCAR), reinforcing capital adequacy and consistency of earnings; quarterly distribution was maintained at $0.35/share in Q2.
• Management reiterated long‑term targets (≈10% growth, low‑90s combined ratio, 36–37% expense ratio); expense ratio remains elevated as GBLI invests in service levels and digital transformation—near‑term headwind but strategic for growth.
• Consensus estimates (S&P Global) were unavailable at time of request; no beat/miss assessment provided. Values retrieved from S&P Global were unavailable due to access limits.*

What Went Well and What Went Wrong

What Went Well

• Property loss performance improved materially; Penn‑America’s accident‑year loss ratio was 56.3% for 1H (vs 59.3% LY) and property non‑cat loss ratio fell to 44.5% (vs 52.9% LY), reducing catastrophe impact and driving combined ratio improvement.
• Investment portfolio repositioning continues to pay off; book yield reached 4.5% with duration ~1.0 year, and $423M of investments mature in H2 2024, offering reinvestment optionality into higher yields or longer maturities post‑election.
• Assumed reinsurance and InsurTech grew strongly (1H GWP +123% and +18%, respectively); management added six new reinsurance treaties in Q2 and sees 30–40% annual growth for several years in niche lines aligned with GBLI’s expertise.

Quotes

• “Book yields on our portfolio have continued to increase since the beginning of the year and now sit at 4.5%… duration… now at just 1.0 years” – CEO Jay Brown.
• “We signed on 6 new treaty store in the second quarter… expect to continue to grow that business probably going up 30% to 40% per year…” – CEO Jay Brown.

What Went Wrong

• Expense ratio remains above target (Q2 38.8% vs long‑term goal 36–37%) due to strategic staffing and technology investment; management expects it to take “another couple of years” to hit targets as earned premium rebuilds.
• Total GWP declined YoY (Q2 $100.7M vs $110.1M) and 1H total GWP down 17% due to runoff in non‑core business; Programs also lagged (1H −21%) despite progress adding new treaties.
• Rate environment tempering from recent highs; while still modestly above loss inflation, pricing tailwinds are less pronounced than prior years, limiting near‑term margin expansion upside.

Transcript

Operator (participant)

Thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Global Indemnity Group second quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, again, press star 1. We will also be taking web questions. If you would like to submit a question, use the Q&A button located at the right... at the bottom right-hand corner of your screen. Thank you. I would now like to turn the conference over to Stephen Ries, Head of Investor Relations.

Stephen, you may begin.

Stephen Ries (Head of Investor Relations)

Thank you, Krista. 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 representations 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 the 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's now my pleasure to turn the call over to Mr. Jay Brown, Chief Executive Officer of Global Indemnity.

Jay Brown (CEO)

Thank you, Steve. Good morning, and thank you all for joining us for the GBLI mid-year update on financial and operational results. Following our usual format, I will first provide a few overview comments, and then our Chief Financial Officer, Brian Riley, will review the financial highlights for our insurance operations. Halfway through the year, our team continues to achieve results that are consistent with our plan for 2024 and tracking towards the long-term metrics we established last year. They remain, first, growing our business at around 10% per annum. Second, achieving a combined ratio in the low 90s. And third, manage our insurance expenses to a competitive level of 36%-37%.

While the exits from certain business segments that we engineered 18 months ago are no longer having a material effect on this year's financial results, as Brian will note later, they do have a significant effect when you compare this year's results to last year. In terms of revenues, as noted in our press release, 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 be close to this target at year-end, after recording a 9% increase through the first 6 months of 2024. However, the expansion of our program division is still a work in progress and will continue to lag a bit in 2024, with revenue growth flat through 6 months, excluding terminated 2023 programs.

Brian will provide a more detailed breakdown of revenue growth in a few moments. Turning to underwriting performance, I was very pleased to record a six-month combined ratio of 94.8 for the Penn-America segment. In line with our first quarter, this performance was again driven by a continuation of achievement of solid casualty loss ratios and another good quarter for property loss ratios. Despite the industry again seeing catastrophic losses, our six-month property catastrophic losses dropped by 35% from last year. Similar to the level we saw in the first quarter, we continue to record a higher-than-target expense ratio of 38.6.

As I noted last quarter, we have kept our internal dollar costs in check since last year after the dramatic drop in premium from 2022, and it will take another couple of years for us to start hitting our long-term targets for expense ratio. This reflects a conscious decision to keep our 2024 Penn-America staff levels at the same level as last year after the substantial reduction of premium 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. The first couple releases of our new modular transaction cloud-based infrastructure-...

will go into production for our Wholesale Commercial binding business agent partners in the second half of this year, supporting our excess liability and special event products. The remaining of our commercial Wholesale Commercial products will be added next year. We continue to achieve rate increases that are modestly in excess of our assessment of underlying inflation trends. While the market is still somewhat hard in the markets we serve, there is no question that the level of rate increases that are now being achieved is tempered from what we saw in the past few years. However, this should allow us to support the consistent long-term loss ratio results we are currently achieving and have experienced historically.

We also continue to deliver favorable investment returns following the repositioning of our investment portfolio, to take advantage of the dramatic increases taken place in short-term interest rates over the past 27 months. Book yields on our portfolio have continued to increase since the beginning of the year and now sit at 4.5%. Given that the duration of our portfolio is now at just 1.0 years, we remain well-positioned to redeploy our cash flow and maturities into longer-dated, higher-yielding investments as we get past the election and enter 2025. As we look ahead, we continue to expect an increase in our excess capital from an extraordinarily strong position. As I am constantly reminded, excess capital is always in the eye of the beholder.

That said, we were very pleased to have AM Best affirm our A rating, and note that our balance sheet strength was again rated at Best's strongest level. Overall, I am very pleased with the improved results my colleagues have recorded for the first six months of 2024, and will now turn it over to Brian to provide a more detailed review of the numbers.

Brian Riley (CFO)

Thank you, Jay. As the 6-month results are tracking similarly to the first quarter, my commentary will focus on results for the first 6 months. Of course, we can answer any questions you may have on the second quarter numbers. Net income was $21.5 million in 2024, compared to $11.8 million in 2023. The combination of net income and a $5 million increase in the market value of the fixed income portfolio, book value per share increased from $47.53 at year-end to $48.56 at June 30. Including dividends paid in 2024 of $0.70 per share, return to shareholders was 3.6% for the first half of 2024. For the first 6 months of 2024, both underwriting and investment performance contributed to the improvement in net income. Starting with investments.

Investments - investment income increased 18% to $29.8 million from a year ago. Actions taken since early 2022 to sell longer-dated securities and shorten duration have translated into much higher current book yields. Cash flows of $37 million, plus $394 million of fixed income securities yielding 3% that matured during the year, were reinvested in average rate of 5.1%. As Jay noted earlier, the current book yield on our fixed income portfolio is now 4.5%, with a 1-year duration at June 30, 2024. Comparatively, at December 31, 2022, book yield was 3.4%, with duration of 1.7 years. At December 31, 2021, book yield was 2.2%, with a duration of 3.2 years.

The average credit quality of the fixed income portfolio remains at A, double A minus. As Jay mentioned earlier, our short-term duration portfolio is well-positioned. We have $423 million of investments maturing in the second half of 2024. We have the flexibility to continue investing in low-risk securities in this higher interest rate environment, or invest in longer maturities to further increase investment returns if the interest rate environment were to soften significantly. Now, let's move to underwriting performance for the first six months of the year. We continue to see good results, as the current accident year consolidated underwriting income was $8.7 million in 2024, compared to $3.2 million in 2023. This was driven by a consolidated accident year combined ratio of 95.8% in 2024, compared to 99.1% in 2023.

The improvement in the current accident year underwriting income was due to strong performance in our core business, Penn-America. Penn-America's accident year underwriting income was $9.9 million in 2024, compared to $6.3 million in 2023. As Jay noted, Penn-America's accident year combined ratio is 94.8% in 2024, an improvement of 2 points from 96.8% in the same period last year. The excellent, excellent overall accident year loss ratio of 56.3% was mainly due to performance of our property business. The property loss ratio improved to 53.1% in 2024, compared to 63% in 2023, due to both non-catastrophe and catastrophe performance.

The non-catastrophe loss ratio improved at 44.5 in 2024, compared to 52.9% a year ago, due to the decline in the number of large fire losses we experienced in 2023. The cat loss ratio improved to 8.6% in 2024, compared to 10.1% in 2023. As for the casualty loss ratio, it remains, it remains in line, in line with expectations at 58.8%. Unlike 2023, our non-core operations have a diminished effect on our overall performance. Our non-core operations net our own premium has dropped to $10.9 million in 2024, compared to $85.9 million in 2023, mainly from an assumed retrocession casualty treaty, which was terminated at the end of 2022.

Further, the runoff of our exit specialty property business resulted in no catastrophe losses in 2024, compared to $3.2 million a year ago. The overall underwriting loss was $1.2 million for 2024, compared to $3.1 million in 2023, $2 million better than last year. The combined ratio was 110.7%. The loss ratio is in line with expectations at 61.6%, but the runoff expenses remain a bit high as we wind down a number of smaller underwriting portfolios. Moving to calendar year underwriting income. Consolidated calendar underwriting income was slightly better than the accident year results at $8.8 million in 2024. This compares to $3.2 million a year ago. The impact of prior accident years is favorable by $80,000. Booked reserves remain solidly above our current actuarial indications.

Turning to insurance revenues. Consolidated gross written premiums was $194.2 million in 2024, compared to $233.1 million in 2023. This decrease is entirely due to the runoff business in our non-core segment, which declined $43 million from a year ago. Penn-America's gross written premiums was $194.6 million in 2024, compared to $190.4 million in 2023. This is in line with our plan, and due to programs terminated in the fourth quarter of 2023, this did not meet our long-term growth and underwriting expectations. Excluding these terminated programs, Penn-America's gross written premiums grew from $182.3 million in 2023 to $194.6 million in 2024, a 7% increase.

As Jay mentioned earlier, aggregate growth of 9% was achieved on the Wholesale Commercial, and InsurTech, and assumed reinsurance business. Let me add a little bit of color on those divisions. Wholesale Commercial, which focuses on Main Street small business, grew 3% to $124.9 million, compared to $121 million in 2023. Excluding premium audit in these calendar year numbers, the underlying policy year trends, our best indicator of growth, was 12%, which includes rate increases of 9%. Overall, the short-term growth rate is in line with expectation. We expect to exceed 8% for the full calendar year. In InsurTech, which consists of Vacant Express and Collectibles, grew 18% to $26.3 million in 2024, compared to $22.3 million in 2023. Let me break down those two products.

Vacant Express grew 23% to $18.6 million, driven by organic growth from our existing agents, as well as agency appointments. New technical automation implemented in the third quarter of 2023 for our vacant dwelling products, including the expansion of monoline general liability product, contributed to the growth and premium our agents are producing. Collectibles gross written premium grew 6% to $7.6 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 signed on six new treaties during the second quarter. Gross written premiums grew $9.4 million in 2024, compared to $4.3 million in 2023. And lastly, programs, excluding terminated business we mentioned earlier, was $34.0 million, lower than 2023 by $1.4 million.

We signed on two new treaties in 2024 that contributed $700,000 for the first six months of the year. We expect to have four new programs signed on over the next six to 12 months. In closing, we are pleased with the first six months of 2024. Further, our outlook for the full year is very positive. Penn-America continues to show strong accident year performance. We believe premium prices-- pricing is meeting loss inflation.

... Discretionary capital continues to increase due to income and reduced capital needed for the runoff of non-core business. This will support growth in other corporate opportunities. And last, our investment portfolio is well positioned to take advantage of this higher interest rate environment, or invest in longer maturities at higher yields if the interest rate environment were to soften significantly. Thank you. We will now take your questions.

Operator (participant)

Thank you. We will begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw that question, again, press star one. If you would like to ask a web question, please type your question in the question box on the bottom right-hand corner of your screen. Your first question comes from the line of Jeffrey Bronchick with Cove Street Capital. Please go ahead.

Jeffrey Bronchick (Principal)

Good morning, gentlemen. Thank you for your time today.

Jay Brown (CEO)

Thank you.

Jeffrey Bronchick (Principal)

So just three general questions. Do you, you know, is, you know, the 90-second version, but would you describe the reinsurance efforts of, you know, kind of what your, what your, what you thought, what you saw you had, where you think you could add value and dollars, and, and, and how you're going about executing it?

Jay Brown (CEO)

Sure. It's a good question. Prior to last year, we had basically offered reinsurance originally out of our Bermuda operation, and then subsequently we moved back to the United States on a retrocession basis to other reinsurers. When I arrived at the company, we made the decision that the margin in, in that business, while it had been attractive, it would be better for us to actually shift our efforts in the reinsurance market into reinsuring insurance carriers directly. We took a look at where we had, at what we thought was an appropriate skill set, starting in the cannabis book and then some of the program areas, and decided that's where we would emphasize and set up our operation to start participating with small lines on a multitude of different treaties.

We expanded the number of treaties, doubled them in the space of 18 months, and expect to continue to grow that business, probably, going up 30%-40% per year for the next 3 or 4 years. We think the reinsurance market is an attractive market right now. We believe that the tiny little niche that we're operating in provides a good return on capital, and we feel comfortable with what we've been able to achieve so far.

Jeffrey Bronchick (Principal)

And is this, is this tend to be E&S-oriented, or is this, you know, property and weather? I mean, what, what's – just help me out.

Jay Brown (CEO)

Absolutely. It's very much E&S. It's a good description. The types of products that we're reinsuring are very similar to the products we underwrite on a direct basis. One of the reasons we feel comfortable in that space, given our background and what we've achieved over the last three or four years, we have tended to keep away from large weather-related exposures. We haven't seen much in terms of any significant catastrophe losses in the book. This is in contrast to where we were positioned three or four years ago. We were very heavy on retrocession catastrophic business, and that was really related to when we were based in Bermuda.

Jeffrey Bronchick (Principal)

Just lastly, on this piece, is there any primary insurer that you're sort of latched onto here, or is it widely spread?

Jay Brown (CEO)

It's widely spread. I think we're currently probably dealing with about 15 different customers at this point in time, and expect to see that to continue to expand over the next couple of years.

Jeffrey Bronchick (Principal)

Next question would be: What would you say today about the James River ventures over this year? Is there a conclusion that you would care to share with us?

Jay Brown (CEO)

As to James River, it's probably appropriate that I don't make any comments per my lawyers, in terms of, agreements we had with James River. In terms of the actual experience of looking at, any particular opportunities, it's something that we have done constantly for the last 20 years. We have a substantial amount of excess capital at this point in time that we'd like to deploy. If we can't deploy it in businesses that we are currently engaged in, certain types of M&A activity might be able to create, increases in returns for our shareholders. And so that's the type of thing that we're going to continue to look at, as this year unfolds and going forward.

Jeffrey Bronchick (Principal)

Would you say that, that episode is complete?

Jay Brown (CEO)

No comment.

Jeffrey Bronchick (Principal)

Can you comment as to is the nature of these opportunities sort of a reverse sale or truly an acquisition where, you know, team global is the, you know, continuing and, you know, running entity?

Jay Brown (CEO)

Not sure. Maybe you can clarify that a little bit more. I'm not sure exactly what you're asking.

Jeffrey Bronchick (Principal)

Well, I'm making a, I don't know if there are lawyers talking about age issues that I may just trample on here, but, you know. Clearly, the company's had an interesting path. The gentleman who is on this call running the insurance companies is no spring chicken. Its control owner is no spring chicken. And one could perceive that the James River transaction, you know, chat was sort of a, you know, a sale, which in using this capital structure, which would enable, you know, the James River management team to effectively run the show. I'm just trying to get a sense of, you know, the what's next concept. Was that structured as a sale and you were leaving?

Or no, you guys were actually, you know, buying and running and, you know, you couldn't wait to get your hands on it?

Jay Brown (CEO)

I guess you don't take the no comment too seriously, so I'll let that go, and we'll move on to the next questioner.

Jeffrey Bronchick (Principal)

Okay, I'll go one-

Operator (participant)

Your next question comes from the line of Joel Straka. Can you explain why Jason Hurwitz recently left the board?

Jay Brown (CEO)

Sure. Jason is a long-term friend. I've known Jason for 25+ years now, in various roles that I've had in the insurance area at James. Jason had served the board, for quite a long time and had actually left, while I was on the board before I became the CEO. When I joined the company as the Chief Executive Officer, I specifically asked Jason if he would mind coming back on the board for a certain time period and help us out, because there was a lot of change that was gonna take place, I expected, in the first year or so of my, my time here as the CEO.

He did that, and I think he's now elected to go back and pursue other interests, which he had already started doing before he joined our board, and didn't want to have any conflicts in terms of different things he might do in the property casualty space. Jason has been an incredible contributor to our company for a long time. I miss him, but I also understand when somebody has to choose to pursue other things.

Operator (participant)

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

Ross Haberman (Money Manager)

Morning, gentlemen. How are you? I just had a quick follow-up question. You referred to your expenses and how it would take, I guess, a year or two to get them back in the line you would want them to. Could you explain that a little more? And do you think you'd lose business if you brought them down quicker? Thank you.

Brian Riley (CFO)

Yeah. Hi, this is Brian. You know, as we mentioned in previous calls, you know, we kept our staffing levels to ensure that our customer service levels were at top level continued to exceed expectations. You know, we're currently, when I think about our 39, we're about 26 points is variable, 13 points is fixed. You know, in that 39, to get to a 37, we'd expect that 26 to remain. To achieve that decline from 13 to 11 on our fixed costs, it's really a combination of double-digit premium growth, combined with, you know, inflationary 4%-5% increase in expenses.

Ross Haberman (Money Manager)

Thank you very much. So-

Operator (participant)

Your next question comes from the line of Tom Kerr with Zacks Small Cap Research. Please go ahead.

Tom Kerr (Senior Analyst)

Good morning, guys. Most of my questions have been answered. Just a quick one on the discretionary capital, did you mention a dollar amount in your comments if I missed that? Is it still in the $200 million range?

Brian Riley (CFO)

Yeah. As Jay mentioned, you know, discretionary capital is in the eye of the beholder, you know, so we're really measured by, in two ways. One is, you know, a regulatory authority through RBC, rating agency through BCAR, with, you know, BCAR. I would say that we are probably able to deploy about $125 million of capital to maintain the strong adequacy of our capital scores. Yeah.

Tom Kerr (Senior Analyst)

And-

Brian Riley (CFO)

As well as, you know, we would expect growth year-over-year, about $30 million of excess capital.

Tom Kerr (Senior Analyst)

Well, that's a reduction from previous comments, even though the balance sheet has got stronger. Is that just to maintain the rating?

Jay Brown (CEO)

That's if we want to be at the absolute highest rating, where we currently operate. And so, you know, obviously, we could operate down 10% below that, and that's, that's kind of where the $200 million number that we've used historically over the last, two or three quarters has come from. Our, our position stays the same, but again, we're always reminded that different people look at excess capital different ways.

Tom Kerr (Senior Analyst)

Got it. Thanks. That's all I have for today. Thank you.

Operator (participant)

Your next question comes from Chris Koranda. You've expressed the opinion that buying back stock would be a good use of shareholder capital, but also, reluctance to do so in the open market. What are your thoughts on a tender offer as a way to reconcile those two issues?

Jay Brown (CEO)

... It's something we continue to look at and something that I think the company has used historically at different points along the way, and it's certainly something that if no other things arise, eventually one of two things is gonna happen: either we'll do a special dividend, or we'll do a tender offer if we can't deploy the capital into the business in a way to provide good returns to our shareholders.

Operator (participant)

Thank you. Your next question comes from Anthony Matolas: How is your casualty book positioned from social inflation impacts? Can you discuss loss trends, assumptions, and your confidence in company reserve trends?

Jay Brown (CEO)

Sure. We probably over the past couple of years have upped our long-term loss trends for the casualty business, probably 2 or 3 points. They used to probably be in the 4% or 5%. We're probably operating with a 6%-7% range at this point in time. In terms of where we're positioned and how our reserves are holding up, over the past two quarters, we've actually seen a nice expansion in our margin from where it was at the beginning of the year. This is mainly a result of the last. If you go back to 2022 and 2023, we had a couple of casualty exposures that were causing us some problems, our New York habitational book in one particular program.

Both of those have those exposures are either eliminated or substantially reduced. So at this point in time, their impact on the overall book has been reduced significantly. Otherwise, our reserves and our historical exposure in the casualty area looks pretty well behaved compared to some of the things that we read about in the industry today. I think that's mainly a reflection of the type of business that we have traditionally underwritten, which is a small commercial focus of the company. We are certainly affected by social inflation in those areas, but it's not as bad as it appears in some of the larger casualty exposures that exist in the industry.

Operator (participant)

Your next question comes from the line of Joel Straka: Why aren't you buying back stock in the open market or conducting a Dutch tender share repurchase? If you believe in your own projections, your stock price and multiple should increase substantially going forward. Why wait until the price and multiples are higher and the return on investment is lower when you have substantial excess capital now?

Jay Brown (CEO)

I believe I answered that question earlier from another question there, but I'll repeat. Basically, I don't disagree with the observation that if we were able to buy a substantial amount of stock in the market right now, either through an open market operation or a Dutch tender, it would add to book value. But the timing of when that will take place is still out in the future, and it's not something we're currently out doing at this particular time.

Operator (participant)

Ladies and gentlemen, that does conclude our question-and-answer session. I will now turn the conference back over to Stephen Ries for closing remarks.

Stephen Ries (Head of Investor Relations)

Thank you, everybody, for joining us for our second quarter call. We look forward to speaking with you in the third quarter. In the interim, please reach out to me if you have any questions. Thank you.

Operator (participant)

This concludes today's conference call. Thank you for your participation, and you may now disconnect.