Global Indemnity Group, LLC Price & Performance (GBLI)

Today's conference call is being recorded. GBLI's 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, believes, expectations or estimates. We caution you that such forward looking statements should not be regarded as a representation by us [indiscernible] estimates or expectations contemplated by us will in fact be achieved. Please refer to our annual report on Form 10 ks and our other filings with the SEC 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 is now my pleasure to turn the call over to Mr. Jay Brown, Chief Executive of Global Indemnity. Thank you, Evan. Good morning and thank you all for joining us for the GBLI year end update on our 2024 financial and operational results. Consistent with our past calls, I will first provide a few overview comments on the ongoing results in our Penn America segment.

Given the fact that year end numbers are consistent with prior quarters, I will keep my comments to a minimum. Then our Chief Financial Officer, Brian Reilly, will expand on the 2024 financial highlights for both our insurance operations and the holding company. It gives me great pleasure to report that the GBLI team achieved solid insurance results consistent with the goals we had established for 2024. They continue building momentum to consistently hit the long term metrics for revenue growth that we had established to great value for our shareholders.

Pan America Insurance revenue momentum as measured by gross premium maintained the pattern we saw in the third quarter with total premium excluding terminated programs, having finished up 12% through 2024. This was driven by the excellent 17% growth we achieved in Insurtech coupled with 12% growth in our largest division, wholesale commercial. Our assumed reinsurance operation finished up 83% in its second full year of operations. We expect these segment wide positive trends to continue in 2025. Turning to insurance underwriting performance, I am very delighted to report a full year 94.4% underwriting result for the Pan America segment. This result was modestly better than the 95.2% we recorded in 2023. The good results continue for both our casualty and Importantly, our rate increases continued to modestly our own estimates of inflation trends. This will continue to be a key objective for 2025 given the continued uncertainty on the national inflation front. Also, our estimates for the past year results remained stable with virtually no difference between calendar and accident year numbers. Our reserve margins remained solid with modest improvement recorded throughout the year. The ongoing efforts to manage catastrophe exposures for our property sentiments continue to be reflected in our modest losses from catastrophes in 2024.

Total cat losses for the full year were down roughly 26% from 2023.

I will note that we experienced $15,000,000 in caps traffic losses from the recent Los Angeles wildfires. Given the magnitude of the LA fires, this result was modestly below our property market share in California. Albeit still significant for a company of our size. Although we expect an annual average of around $17,000,000 from cat losses given our current book of business. The sheer magnitude of this single loss exceeded the different models we have used for wildfires in the LA Basin. Like most industry players, we are rethinking the validity of our past severity model estimates for wildfire cat exposures. We continue to manage internal expenses a bit higher than our long term targets to provide the best service to our customers. As noted in past quarters, we have maintained Pen America's staff numbers just slightly below twenty twenty three as we grow our business at double digit levels and keep expense growth at roughly half of that growth rate. Our Penn America expense ratio is starting to trend in the right direction with the 2024 ratio of 38.1%. But we still have significant work to do in order to get this down to 37% or lower. As noted last quarter, a key factor in growing our business [indiscernible] outstanding underwriting results, achieving competitive expense levels and utilizing technology effectively across all dimensions.

We have just completed the first full year of a multiyear effort to transform our technology platforms. Transactions, and information software and data storage.

These investments are well underway with our transition to the cloud about 75% completed. With the remaining migration to be completed in 2025. As I mentioned last quarter, the first transactional application went live in September. And we are now processing all aspects of our wholesale commercial excess liability policies in the new technology environment. We recently added similar capabilities for special events, in wholesale commercial An additional module is in development, which is focused on our agents, underwriters and operations staff. They will receive an integrated underwriting workstation in the next few months to improve the time to handle referral business and service for our wholesale commercial agents. As a follow-up to my comments from last quarter, the decision to focus on the underwriting areas where we can excel has begun to pay dividends. We completed a legal and operational transformation that was announced in January Global Project Manifest. One of the main objectives of this project was to enhance our ability to attract additional talent to complement our existing teams. These efforts will provide the expertise needed to accelerate our ability to use our growing excess capital in order to expand our product offerings for both existing and new customers.

I am very, very pleased that we kicked off this talent expansion with the hiring of Praveen Reddy, to head up Penn American Underwriters LLC. Which is comprised of all of our existing underwriting and service teams. Praveen joined us last week and has begun his efforts to rapidly expand our current product offerings. I am thankful that we have the support of the full Board and Fox Paine as our financial advisor. To affect these structural changes.

I personally believe will yield significant future results for our company. Equally important, I remain blessed to benefit from the superb efforts of all the managers and staff at Global. We are all looking forward to 2025 and beyond as we enhance and implement our tactical and strategic plans.

Brian?

Thank you, Jay.

My commentary will focus on full year results Of course, we can answer any questions you may have on the fourth quarter numbers.

Net income was 43,200,000.0 compared to $25,400,000 in 2023. The combination of net income and a $12,000,000 increase in market value of the fixed income portfolio book value per share increased from $47.53 year end 2023 to $49.98 at December 31. Including dividends paid in 2024 of $1.4 per share return to shareholders was 8.1% for 2024. For 2024, both underwriting income and investment forms again contributed to the improvement in net income. Starting with investments, Investment income increased 13% to $62,400,000 from a year ago. Actions taken since early 'twenty two to sell longer dated securities in short duration have translated into much higher current book yields. Cash flows and maturities of fixed income securities of 1,100,000,000.0 billion dollars yielding 4.36% were reinvested in average yield of 4.87%. Current book yield on the fixed income portfolio is now 4.4%, with a duration of zero point eight years at 12/31/2024. Comparatively, at 12/31/2023, book yield was 4% with the duration of one point one years At the December 2022, book yield was 3.5% with duration of one point seven years. And at 12/31/2021, book yield was 2.2% duration of three point two years. The average credit quality of existing portfolio remains at AA minus.

As a result of the low duration we have $1,000,000,000 of investments maturing in 2025. We expect that a significant amount of those maturities to be reinvested on longer matured ensuring fixed income investments to improve returns.

February 25, approximately $320,000,000 of the portfolio was reinvested consisting of two thirds in high quality corporate and structured securities. We expect this strategy will increase duration about one point two five years by the end of the first quarter of twenty twenty five. Now let's move to underwriting performance for 2024. We continue to see good results as the current accident year consolidated operating income was $18,800,000 compared to $14,300,000 in 2023. This was driven by consolidated year combined ratio of 95.4 in 2024 compared to 97.3 in 2023. The improvement in the current extra underwriting income as students strong performance of our core business at America. Penn America tax and E or underwriting income was $22,100,000 in 2024 compared to $18,500,000 in 2023. As Jay noted, Penn America's active combined ratio improved to 94.4% in 2024 compared to 95.2% in 2023. The accident loss ratio of 56.4 is a point better than the 57.4 in 2023. The property loss ratio close to 53.9 compared to 53.4 in 2023. Point three in '24 and a 43.6% in '23. Cap loss ratio improved to 7.6% in 2024 compared to 9.8% in 'twenty three. Overall, cat losses declined to $12,700,000 compared to $13,800,000 in 2023.

The casualty loss ratio is fifty eight point four twenty twenty four compared to 59.9 in 2023. Unlike last year, our non core operations have a diminished effect on our overall performance. Our non core operations net our premium drop to $7,200,000 compared to $118,800,000 in 2023. Mainly from an assumed retrocession casualty treaty which we did not Further, the runoff of our exited special property business resulted in no statutory losses in 'twenty four, compared to 3,400,000.0 last year.

The current next year underwriting loss was $3,300,000 for 'twenty four compared to $4,200,000 in Combined ratio was 145.6 The loss ratio was in line with but run off expenses remain a bit high as we wind down a number of the smaller underwriting portfolios. As for the calendar year underwriting income, have consolidated calendar year underwriting income of $17,800,000 dollars compared to $3,000,000 in 2023. Looking at prior accident year losses, book reserves remained solidly above our current actuarial indications. 2024 loss in LNG related to prior accident years was only a modest increase of $72,000 $72,000 Turning to premiums. Consolidated gross premiums in 2023. This decrease is entirely due to the runoff business of our non core segment, declined $57,000,000 dollars year over year, offset partially by the growth of CutAmerica. Penn America's gross rate increase 8 percent $400,000,000 compared to $369,700,000 in 2023. As Jay noted, excluding terminated products, $352,400,000 in 2023 to $395,100,000 in 2024, a 12% increase. Let me add a little color on each of those divisions. Wholesale commercial, which focuses on Main Street small business grew 6% to $248,600,000 compared to $234,900,000 in 2023. Excluding premium audit in these calendar year numbers, the underlying policy premium trends are best indicator of growth was 12% which includes rate increases of 7%.

In Shore Tech, which consists of vacant express and collectibles, grew 17% to $56,300,000 in 2024, compared to $48,300,000 in 2023. Let me break down those two products a bit. One's for Bacon Express, grew twenty four percent and forty to forty $500,000 driven by organic growth from existing agents and agency appointments. New technical automation implemented the third quarter of twenty twenty three for vacant dwelling products.

Including the expansion of monoline general liability product, contributed to the growth in premium our agents are producing. [indiscernible] gross written premium of $15,800,000 was slightly higher than 2023 by 2%. We've implemented underwriting action on cash repo risk that has curtailed growth a bit. But is expected to improve overall profitability.

Our assumed reinsurance business continues to grow at a nice pace. We signed on eight new treaties in 2024. Gross written premiums grew to 25,400,000.0 compared to $13,900,000 in 2023. Specialty Products, smoothing terminated products was $64,700,000 compared to $55,300,000 in '20 We signed on two new products in 2024 that We expect to have four new products signed on over the next six twelve months. In closing, we are pleased with the '24 results. Further, despite the impact of the first quarter wildfires, as Jay mentioned, our outlook for 2025 is very positive. We continue to expect revenue growth of 10% from Penn America Further, we expect to see continued improvement in our non catastrophe accident year loss ratio. Book reserves remained solidly above current ex ROE allocations We believe premium pricing is continuing to track with loss inflation. Discretionary capital, which is considered the amount of consolidated equity in excess of debt amount required to maintain the strongest levels with our rating agencies increased to $255,000,000 at 12/31/2024 compared to $200,000,000 at 12/31/2023. Due to growth in equity, and the reduced capital needed to run off the non core business. As Jay noted earlier, this will support the efforts to invest in the growth of Penn America underwriters.

Lastly, portfolio is well positioned to invest in longer term duration maturities at higher yields. Thank you. We'll now take your questions.

Of your webcast screen. Your first question comes from the line of Tom Kerr with Vaxx Mo Cap Research. Please go ahead.

Good morning, guys. Real quick on the California fires, was that just the underwriting type issues or you guys been trying to get rate increases and deal with that issue?

We've had an outstanding rate increase for our vacant express probably for a year plus at this point in time. Like most carriers, it's just stalled completely in the regulatory environment. But otherwise, it was a it's actually a sizable loss for us, but involved very few number of properties. I think it was less than less than 10 properties overall were involved in the fire.

Okay, great. And can you provide a little more color on the reinsurance segment and that growth in that? And what is the plans? I mean, could that continue its strong growth in 2025?

Yes. Our growth there was if you recall, two years ago when we cut back dramatically when I first arrived at the company, Obviously, our view at that point in time with the reduced volume we were doing in other sectors that we had a lot of capacity available We had a history of doing some reinsurance but we decided over the near term being two years ago and a couple of years forward that the best use of our internal capital was to develop some existing specialty product relationships into assumed reinsurance. So we're up to Brian how many? 16. 16 treaties at this point in time. Roughly $45,000,000 in force and we expect that we're going to have a nice increase in $25,000,000 and and 26. At that point, we'll be looking at our other lines of business and allocation of capital across our businesses to decide if we want to grow it much beyond that.

Got it. Two more quick ones for me on the Project Manifests, have you seen any benefits yet on the the de stacking of your organization in terms of ability to move capital between organizations? Is that kind of started yet?

Yes.

We picked up net of dividends paid to the holding company about 50,000,000 So our statutory surplus is right around $500,000,000 As we get above that, that will give us more capacity in the insurance market.

Got it. Last one, I'll ask the standard share buyback question with $55,000,000 in discretionary capital.

Any portion of that could be used to buy back the stock at a discount to book value?

Of course, could be used to buy back stock at a discount. But right now, the Board feels more enthusiastic about our prospects for adding additional products and different types of underwriting into our company through the Penn America. Our decision to hire Praveen is very much focused on this and we expect that we can get better [indiscernible] on growing our insurance business in the short term than just buying back stock. Got it. All right. I'll jump back in the queue. Thank you.

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

Good morning, gentlemen. Thanks for taking the call. I have a quick question. Could you go back to the California? Could you tell us what your total exposure is there? And is it on the direct commercial side or is it mostly on the reinsurance side?

Thank you.

Our total exposure in California is about six basis points of the total property market.

I don't have it at my fingertips exactly how much the premium was.

Was all on our direct book. It was not on any assumed reinsurance.

And And the $15,000,000 could that could that be a bigger number as time goes on or that's that's your best guess at least as of today?

We're we paid over half the losses at this point. Because of the small number. It's, as I said, it's less than 10 losses, 10 individual properties that were involved. So we're pretty confident the number is not going to move too much at this point. Okay. And And your total fire or wildfire exposure, which you said you're reassessing is that number today?

Well, it depends on on the frequency and the location of loss. It's we have wildfire exposure in California and other states. My comment there was really focused on the fact that we use catastrophe models to estimate our exposure and manage how much we'll do in particular areas. [indiscernible] one of the ways those models work is to assess the frequency of a cat loss of a particular size And so we typically manage to a one in two fifty or one in five hundred kind of level.

As the maximum that we expect from a loss. This one went almost double that in terms against what the model estimated. And so what I'm saying is that we're like a lot of people wondering at the tail of the individual models that we're using are they that inaccurate? Why are they off that much? Now this was an unusual fire, but it is it is something that we expect in California. We have different zones that we have fire exposure. One of the two fires was in a a more exposed area that was the Eaton fire. We actually had no losses in the Eaton location Pasadena, which was slightly better in terms of the rating and expected a less frequency of loss actually turned out for us to be where all of the properties were were there were burned in that particular situation. So again, it's a modeling question for us We're constantly trying to improve our models and this one came at somewhat of a surprise, but we've all seen an escalation in the size of cat losses. Now in comparison, if we go back for the prior four years, there were cat losses, wildfire losses, And in each of the four years, we had no wildfire losses at all.

And so we were very we were pretty comfortable and with the way we're managing that exposure. But again, the models for this type of loss don't seem to work very well.

So basically, you've got to reassess it and rejigger, I guess, the assumptions there?

Yes, we're looking at it. It's we're trying to there's a couple of minor adjustments that we're making very quickly in terms of what we would do in a zone three versus a zone four or a five and we're trying to say maybe we have to move that out a little bit to contain that exposure. But again, this size loss is not disproportionate for a company our size. Mean, it's kind of the in the if you're going to write any property business, you're going to have some cat exposures than this for us. It always hurts more when it comes in first quarter but over the course of the year, we typically expect, as I mentioned, something like or $17,000,000 in cat losses. Some years, it's more, some years it's less. But that's what our current book would would expect over time to see in a normal year.

Overall, just a follow-up question, overall given what happened California, what kind of rate increases going forward do you expect in that state or in that general area? Given what happened? [indiscernible] we need at least 50% on the type of business that was affected by this particular wildfire and perhaps more depending on the types of individual exposures. But it's California has been tough. On rates and it's a real obstacle and they're creating a real problem for themselves in terms of not allowing carriers to get an adequate rate, which may it much harder for people to obtain coverage. And that's obviously not the goal of the insurance industry. We want to provide coverage for every possible exposure that we feel we can rate appropriately. I guess if you can't get an appropriately risk rate, whether it's 50% as you hope to, do you say hypothetically, if you can only get 20% or 20 do you say it's not worth it to us, it's not worth the risk we're just not going to write there anymore.

Typically, that will be a decision that we face selectively over time and we try and manage it in line with what our customers are trying to achieve, meaning our agent partners But the reality is we are a for profit business. We're very, very focused on making good shareholders And if we can't make it in California selling cat exposed business, we'll find some place else in The United States to sell more business.

And just one last question. You brought in this new gentleman to expand your lines of business. Do you have a rough idea of what kind of lines is he sort of going to be focused on yet Stay tuned.

Okay.

Your next question comes from the line of Andrew Vendegme That's from the web. Is there room to reduce the expense ratio without compromising underwriting quality? Any uses for excess capital maybe a special dividend We don't currently plan any special dividends. And in terms of our expense ratio, there is room. We expect that as we've run off the remaining terminated business there'll be a little bit of pickup in terms of that area not needing expenses. But the big lift for us terms of where we are, given that we were $250,000,000 higher a couple of years ago is really growing back to that size over the next couple of years and bringing the expense ratio down another 0.5, from where it currently exists. It's the expense ratio somewhat misleading sometimes to look at. You see 3038% and kind of go, wow, that's a big number. And then you have to realize that less than 12% or 13% of that is our internal expenses. And the remainder is commissions we pay our agents licensing fees, etcetera. And so the act million dollars is percent is roughly 12% or 13% of that total. Not percent, but portion of. So about a third of the expense is something that we're focused on managing down a point and a point and a point and a point and a half the next couple of years.

Your next question comes from Justin Saunders of expenses wraps to $7,000,000 for the Q? [indiscernible] Yes. From the year, corporate expenses are up $5,000,000 Professional fees related to project manifest and implementation drove most of that.

Your next question comes from the line of Joel Stracca via Web. Regarding Project Manifist, GBLI has tried growth strategies in the past and failed. You were brought into the map of those out. Can you explain why a growth strategy will work this time? [indiscernible] our new structure allows us to bring in additional underwriting teams coupled with the technology investment we're making. Our growth structure that we try to attempt to two or three years ago Our biggest problem was the underwriting teams were bought in and were operating in a essentially a manual environment with no technology support.