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Global Indemnity Group, LLC (GBLI)·Q1 2024 Earnings Summary

Executive Summary

  • Q1 2024 delivered materially improved profitability: net income available to common shareholders rose to $11.3M ($0.82 diluted EPS) from $2.4M ($0.17) on a sharply better combined ratio (94.9% vs 101.0%), despite lower insurance revenues due to Non-Core runoff . Investment income rose 21% to $14.5M on higher book yields .
  • Penn-America (core E&S) posted a 94.0% combined ratio (vs 101.2% in Q1’23), with property non-cat performance driving an 8.2 pt improvement in the current accident year loss ratio to 54.8% .
  • Book value per share increased to $48.18 from $47.53 including a 40% higher quarterly dividend ($0.35) paid in Q1; Board subsequently approved another $0.35 distribution payable 6/28/24 .
  • Management reiterated long-term targets (10% premium growth, low-90s combined ratio, 36–37% expense ratio) and expects investment yield to continue rising as ~$700M of 2024 portfolio cash flows are reinvested at higher rates; noted ~$200M of excess capital and active consideration of buybacks/special dividends/acquisitions (James River discussions paused) .

What Went Well and What Went Wrong

What Went Well

  • Core underwriting inflection: Penn-America current accident year combined ratio improved to 94.0% (from 101.2%), driven by property non-cat improvement; property loss ratio fell to 50.1% (from 68.7%) as large fire losses abated .
    “I was extremely gratified to see a combined ratio of 94.0% for the Penn-America segment in the first quarter… driven by… a super quarter for property loss ratios.” — CEO .
  • Investment income momentum: Net investment income up 21% to $14.5M; book yield rose to 4.3% (up 26 bps q/q), duration shortened to 1.06 years; ~$700M of 2024 cash flows (avg 4% yield) expected to be reinvested at ~5% if rates hold .
  • Capital return and book value growth: BVPS rose to $48.18 (+2.1% including the $0.35 dividend); Q2 distribution of $0.35 approved (payable 6/28/24) .

What Went Wrong

  • Top-line contraction from runoff: Gross written premiums declined 24% to $93.5M, primarily due to Non-Core runoff; Penn-America GWP was roughly flat (-1.4%) with Programs down 26.7% (ex-terminated, -11.9%) .
  • Elevated expense ratio: Consolidated expense ratio increased to 39.6% (from 38.2%) as earned premium remains pressured by prior-year reductions; management expects gradual improvement but not at target until ~2026 .
  • Non-Core drag persists: Non-Core combined ratio of 105.5% produced a small underwriting loss; runoff expenses were “a bit high” as portfolios wind down .

Financial Results

Consolidated YoY Comparison (Q1 2024 vs Q1 2023)

MetricQ1 2023Q1 2024
Total Revenues ($M)$150.9 $112.3
Net Income to Common ($M)$2.4 $11.3
Diluted EPS ($)$0.17 $0.82
Net Investment Income ($M)$12.0 $14.5
Gross Written Premiums ($M)$123.0 $93.5
Loss Ratio (%)62.8% 55.3%
Expense Ratio (%)38.2% 39.6%
Combined Ratio (%)101.0% 94.9%

Notes:

  • Revenue and GWP were lower due to Non-Core runoff; core Penn-America roughly flat overall with growth in Wholesale, InsurTech, and Assumed Reinsurance offset by Programs .
  • Adjusted operating income was $10.7M ($0.77 diluted per share) vs $3.7M ($0.26) .

Segment Performance (Q1 2024 vs Q1 2023)

MetricPenn-America Q1 2023Penn-America Q1 2024Non-Core Q1 2023Non-Core Q1 2024Consolidated Q1 2023Consolidated Q1 2024
Net Earned Premiums ($M)$90.6 $89.1 $49.5 $7.5 $140.1 $96.6
Underwriting Income ($M)$(3.1) $5.6 $2.0 $(0.3) $(1.1) $5.3
Combined Ratio (%)103.7% 94.1% 96.0% 105.5% 101.0% 94.9%

KPIs and Balance Sheet

KPIDec 31, 2023Mar 31, 2024
Book Value per Share ($)$47.53 $48.18
Cash & Invested Assets, net ($M)$1,390.4 $1,417.3
Fixed Income Book Yield (%)4.0% (12/31/23) 4.3% (3/31/24)
Fixed Income Duration (years)1.15 (12/31/23) 1.06 (3/31/24)
Dividend per Share (Quarter) ($)$0.25 prior$0.35 (paid in Q1)

Estimate comparisons: S&P Global consensus for Q1 2024 EPS/revenue was unavailable at time of analysis due to access limits (we attempted retrieval). Investors should treat estimate comparisons as unavailable via S&P Global for this quarter.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Premium growth targetLong-term+10% annual premium growth Unchanged; tracking to achieve in 2024 across Wholesale, InsurTech, Assumed Reinsurance; Programs lagging Maintained
Combined ratio (Penn-America)Long-termLow 90s Unchanged; Q1 result 94.0% Maintained
Expense ratioLong-term36–37% over time Path extended; gradual improvement expected through 2026 given earned premium contraction and fixed internal costs Timing clarified
Investment yield2024N/ABook yield expected to rise as ~$700M of 2024 cash flows (avg ~4%) are reinvested near ~5% if rates hold Positive trajectory
Capital returns2024$0.25 quarterly dividend$0.35 quarterly dividend; June 28, 2024 payment approved Raised
Capital allocation2024N/A~$200M excess capital; board evaluating buybacks/special dividends/M&A; James River talks paused New disclosure

No formal numerical revenue/EPS guidance was provided in Q1 materials; management framed long-term targets and qualitative 2024 expectations .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2: Q3 2023; Q-1: Q4 2023)Current Period (Q1 2024)Trend
Underwriting performanceQ3’23 Continuing Lines AY combined ratio ~97.8%; Maui fire losses ~$2.5M; reserve strengthening offset by exits .Penn-America AY combined ratio 94.0%; property non-cat improvement drove 50.1% property LR; consolidated combined ratio 94.9% .Improving
Expense ratioQ3’23 expense ratio pressure at ~38% range; progress needed to reach 36% target .39.6% in Q1; management expects gradual improvement with earned premium recovery; 2026 target .Improving slowly
Investment portfolio & ratesBook yield 4.0%, duration 1.2 years; ~$800M cash flow through 2024-2025 .Book yield 4.3%, duration 1.06; ~$700M 2024 cash flows; reinvest near ~5% if rates steady .Positive carry
Programs segment2023: Programs down 40.5% as unprofitable programs exited .Q1’24 Programs GWP -26.7%; ex-terminated -11.9% .Still contracting
Capital allocationQ3’23: Process to evaluate potential transactions underway .~$200M excess capital; considering buybacks/special dividends; James River talks paused .Flexible, shareholder-friendly tilt
Technology/digitalNot highlighted in Q3’23 materials.“Investing heavily in a full digital transformation of our existing technology infrastructure” .Increased focus
Reserves/regulatoryQ3’23: Strengthening in Targeted Specialty and 2020/prior due to COVID-era lags .Prior-year impact immaterial in Q1; reserves above actuarial indications .Stabilizing

Management Commentary

  • Strategic focus and targets: “Three long-term metrics… revenue growth [10%], underwriting [combined ratio in the low 90s], expense ratio [36%–37%]… we have made substantial progress” — CEO .
  • Cost/investment posture: “We are… investing heavily in a full digital transformation… Book yield should continue to increase modestly throughout the year as roughly half of our existing investments will mature in the next 12 months.” — CEO .
  • Portfolio positioning: “Actions taken since early ’22 to sell longer-dated securities and shorten duration have translated into much higher current book yields… reinvested [maturities] at an average yield of 5%.” — CFO .
  • Reserves: “The impact of prior accident years changed by less than $1,000 in 2024. Booked reserves remain solidly above our current actuarial indications.” — CFO .
  • Capital: “We estimate we have approximately $200 million in excess capital… we did increase our dividend… 40%… we’re going to continue to look [at uses] throughout this year.” — CEO .

Q&A Highlights

  • ROE and excess capital deployment: Management attributes modest ROE to overcapitalization (~$200M excess) and is weighing buybacks vs. growth vs. M&A; dividend was raised 40% and further capital return is under evaluation .
  • James River discussions: Conversations occurred but are “on pause”; may revisit if mutual interest resumes; stock would be used only in unusual cases given valuation .
  • Expense ratio trajectory: Internal costs (~$47–48M) and lower earned premiums keep the ratio elevated near term; expected sequential improvement through 2024–2025 with target achievement by ~2026 .
  • Book of business health: Lingering growth impacts from taking down certain exposures (e.g., NY habitational) but loss volatility subsided; regional growth divergence noted (West up ~20%, East flat) .
  • Portfolio composition: Equity exposure remains low (~$17M); Board evaluating longer-term mix; potential gradual redeployment into equities over “next couple of years” .

Estimates Context

  • Wall Street consensus (S&P Global) for Q1 2024 EPS and revenue was unavailable due to access limits at the time of analysis (we attempted to retrieve S&P Global consensus). As a result, we cannot provide “vs. estimates” comparisons for this quarter.
  • Given the sharp YoY improvement in underwriting and EPS, estimate revisions may bias upward on core profitability and investment income run-rate, while expense ratio normalization timing (2026) could temper near-term margin expectations .

Key Takeaways for Investors

  • Core underwriting momentum: Penn-America’s combined ratio improved to 94.0% on better property non-cat performance; management targets low-90s over time .
  • Expense ratio near-term ceiling: 39.6% in Q1, with progress likely gradual as earned premiums rebuild; 36–37% target is a medium-term story to ~2026 .
  • Investment income tailwind: Book yield rising (4.3% vs 4.0% year-end) with ~$700M 2024 cash flows reinvestable near ~5% if rates hold; supports EPS and BVPS accretion .
  • Capital return optionality: Ongoing $0.35 quarterly distribution (40% increase) and ~$200M excess capital create pathways for buybacks/special dividends; M&A optionality remains (talks paused) .
  • Programs softness offset by growth engines: Wholesale, InsurTech, and Assumed Reinsurance growing; Programs remain a headwind but were culled for profitability .
  • Risk checks: Non-Core runoff expenses and elevated expense ratio are near-term drags; monitoring of reserve stability continues (minimal PYD in Q1; reserves above indications) .
  • Trading implications: Absent consensus comps, the narrative of underwriting improvement plus rising investment income and capital returns is constructive; incremental catalysts include tangible buyback execution or special dividend announcements and sustained low-90s combined ratios .

Additional Relevant Items

  • Dividend/distribution: Board approved $0.35 distribution payable June 28, 2024 (record date June 21, 2024) .
  • Book value momentum: BVPS up to $48.18 (+2.1% including the dividend) in Q1 2024 .
  • Non-GAAP: Adjusted operating income was $10.7M ($0.77 diluted/share) vs $3.7M ($0.26); non-GAAP excludes realized gains/losses and unique non-operating items .