Q3 2023 Global Indemnity Group LLC Earnings Call
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Thank you for standing by my name is Dana and I'll be your conference operator today at this time I would like to welcome everyone to the J B L. I third quarter 2023 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. He would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star one again, thank you.
I'd now like to turn the call over to Steve Reese head of Investor Relations. Please go ahead.
Thank you Danica today's conference call is being recorded <unk> remarks may contain forward looking statements.
Some of the forward looking statements can be identified by the use of forward looking words, including allocation beliefs expectations 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 we went back to be achieved.
Please refer to our annual report on Form 10-K, and our other filings with the SEC for a description 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 Officer of Global <unk>.
Thank you Steve.
Good morning, and thanks to everyone for joining us this morning.
For our third quarter results call.
Before I provide some commentary on our 2023 resolved.
Let me address an obvious topic.
As we have previously disclosed the company has been engaged in conversations that could potentially lead to a transaction to sell a portion of our insurance operations for the entire company.
<unk> has now retained an investment banker, Tony or Sano of insurance Advisory partners to assist the company in evaluating the efficacy of any potential transaction.
We expect this process will likely conclude conclude in the next few months.
Given where we are in the process, we will not saying anything more today or respond to any questions on this topic during this call.
As we have noticed in our previous calls.
This year the significant restructuring that occurred at the beginning of 2023 continues to make direct comparisons to prior year prior.
Prior year overall results somewhat difficult.
Our ongoing operating segments are primarily commercial specialty and to a lesser extent reinsurance operations.
I will focus my comments on commercial specialty year to date accident year results.
And then Tom will address all of the financial aspects of our GAAP results.
As a reminder, the long term operating metrics, we are focused on for commercial specialty our loss and loss expense ratios.
Assistant with our long term average in the mid fifties.
And expense ratio of below 38% for this year trending to 36% and a couple of years.
And a combined ratio in the low nineties and growth averaging 10%.
Although we continue to make good progress against our growth objectives. We are still observing some continued negative effects from our restructuring efforts primarily in our targeted specialty class specific segment, where our priority focus on profitability.
<unk> has caused a drop in gross written premiums through the first nine months of 32%.
Offsetting the results were more than satisfactory growth of 12% and packaged Bachelor Lake and 17% and insure Tech.
Both of which are consistent with our long term growth objectives.
Okay.
Turning to our nine month accident year results for our continuing lines.
We recorded a 97, 6% combined ratio.
Comprised of our loss and loss expense ratio of 62% and expense ratio of 37, 4%.
Our third quarter results were similar with a combined ratio of 97, 8% comprised of a loss and loss expense ratio of $59 three.
And an expense ratio of 38 five.
Although we are on target for expense dollars premium shortfall in targeted class specific means that going forward, we have a bit more work to do to achieve our long term, 36% expense ratio objective.
In terms of loss and loss expense ratio to 62% ratio is falling short of our long term target due to a combination of high.
High catastrophe losses about two points higher than expected year to date.
And continued loss emergence for terminated casualty business and package specialty and targeted.
Specialty class specific causing another couple of points below target.
We continue to achieve strong pricing of 9% in package faster link and 10% in targeted specialty class specific which is in line with our expectation and exceed expected loss trends.
Although Tom will report on all of our GAAP results I will share the observation that the same terminated business that has hurt our 2023 accident year results was the source of reserve strengthening that we have experienced this year in commercial specialty.
The net effect on calendar year loss ratio was $12 million in the third quarter and 19 million through nine months.
Which was a.
Translates into 10 seven points in the quarter and five three points year to date.
Although this strengthening was offset by the release of some redundancy.
<unk> lines. It reinforces the decisions we have made to exit these specific books of business.
Tom will provide more details, but our decision to play defense on interest rates by dramatically shorting the duration of our bond portfolio, starting 21 months ago continues to pay dividends.
Our investment yield is rising every month with overall investment income coming in at $14 million for the quarter and $39 million year to date.
More than double that from a year ago.
With our current book yield of 4%.
A duration of one two years.
And $800 million of cash flow from the investment portfolio in the next five quarters, we fully expect that this number should keep rising every quarter.
While we continue to make progress against our longer term goals, both the overall accident year and calendar year underwriting results of our continuing operates operations fell modestly short of our objectives. The underlying profitability of our continuing book of business. So Thats My view.
You that better results will be forthcoming in the future.
I will now turn it over to our CFO, Tom Mcgann before making before taking any questions.
Thank you Jay and good morning to everyone.
Net income for the third quarter of 2023, with seven 7 million compared to net income of $7 3 million in the comparable period of 2022.
The $7 3 million and 22 excludes the net gain from the sale of the farm business in August 2022.
Loss reserve releases were zero point $1 million in the third quarter of 2023 compared to $3 million in the corresponding periods last year.
Actions taken to focus on core business lines reduce expenses reduce catastrophe exposure and repositioned the investment portfolio are being realized the company is moving in the right direction.
Book value per share increased from $46 <unk> per share at June 32023.
To $46 27 per share at September 32023.
Investment income increased significantly in 2023 and underwriting income was positive.
I will now discuss some of the key drivers of net income starting with investment performance.
Investment income was $14 2 million.
$13 3 million was from fixed income 900000, which from alternatives. This is well ahead of the third quarter of last year, which at $8 4 million comprised of $9 5 million of fixed income and a negative $1 1 million from alternatives on.
On a year to date basis investment income was $39 4 million comprised of $37 $3 million from fixed income investments and $2 1 million from alternative investments. This compares to $16 9 million in 2002 comprised of $22 8 million.
Fixed income investments and negative investment income of $5 9 million from alternatives.
Investment income from the fixed income portfolio was almost double what it was in 2022 due to the actions taken in early 2022 to sell longer dated securities and short duration.
Market interest rates increased in the third quarter of 2023.
Even though interest rates rose the short duration portfolio kept unrealized losses to 0.9 million net of tax during the quarter.
Book yield on the portfolio was 4% at September 30th at duration is one two years the average credit quality of the fixed income portfolio is a plus as a comparison at.
At December 31, 2021 book yield on the fixed income portfolio was two 2% and duration was three two years.
Between September of this year at December 31, 2024, we expect the investment portfolio will generate approximately $800 million of cash flow as bonds mature in investment income is realized in this higher interest rate environment, our portfolio is well positioned.
To increase book yield.
Moving to underwriting.
In the third quarter of 2023 are continuing lines had an X.
Third quarter numbers in the third quarter of 2023 are continuing lines had an accident year underwriting profit of $2 7 million compared to an underwriting profit of $3 million in 2022.
The $2 seven accident year underwriting profit contains losses from the Maui fires of $2 5 million.
The continuing lines accident year combined ratio for the third quarter of 2023 was 97, 8%.
Now the Maui fires had a loss ratio of two 3% which were contained in the 97, 8% number I just quoted.
Exited lines at an accident year underwriting loss of zero point $9 million in the third quarter of 2023.
We expect the drag from this exited business will decline as the business runs off and support for business was solid in 2021, and 2022 is no longer required to be provided.
Accident year underwriting income from our continuing and exited lines was $1 8 million in the third quarter of 2023 compared to underwriting income of $2 million in the third quarter of 2022.
On a consolidated basis prior year loss reserve releases in the third quarter of 2023 were 0.1 billion.
2022 had loss reserve releases of $3 million and.
In the third quarter of 2003 exited lines had good development of approximately $11 9 million primarily from property reserves within our continuing lines loss reserves were strengthened by approximately $11 8 million.
Approximately 7 million is related to targeted specialty business. The remainder is mainly related to accident years 2020 and prior.
Booked reserves remain above actuarial indications.
In the third quarter of 2023 gross written premium in our continuing lines was $98 9 million compared to $139 1 million in 2022.
Much of this decrease was planned <unk>.
Reinsurance operations Rote of $11 9 million in 2023 compared to $43 1 million in 2022.
This decline is mainly due to non renewing a casualty treaty.
Within commercial specialty there are two main product lines packaged specialty and targeted specialty.
Packaged specialty which is comprised of printer market business the company's primary device.
Increased gross written premiums from $52 7 million to $53 5 million.
In 'twenty three.
Excluding $2 $3 million of underperforming business that was terminated from 2022 packaged specialty grew 6% during the quarter.
Targeted targeted specialty which contains three remaining business in commercial specialty had $33 $5 million of premium in 2023 compared to $43 3 million in the third quarter of 2022.
Within targeted specialty several products growth.
They can express product generated $8 $5 million of premium in the third quarter of 2023, which is up 28% compared to the third quarter of 2022 collectibles grew approximately 14% to $4 8 million.
The decline in targeted specialty class specific was primarily due to actions to improve income by increasing rate rich.
Reducing exposures to catastrophe prone business and non renewing underperforming businesses.
Exited lines include the farm business sold in August 2022.
The specialty property book to solve in the fourth quarter of 2021 as well as other lines. We have exited exited lines are continuing to run down as expected.
Net written premium for the quarter.
23 were $5 3 million compared to $14 4 million in 2022.
2022 included $9 2 million of expenses related to the sale of the farm business, which occurred in August 2022.
We are pleased with the direction of our company.
Our core business is providing positive returns compared to 2022 expenses are much lower due to actions taken in early 2023 expenses are being managed to align with the business being written and supportive.
96% of the portfolio was invested in fixed maturity investments in cash the portfolio was well positioned to generate cash flow that can be that can be invested at higher yields. The funds that become available are currently being invested at yields higher than 5%.
Thank you and we will now take your questions.
Great. Thank you at this time I would like to remind everyone in order to ask a question.
Simply press Star then the number one on your telephone keypad.
We will pause for just a moment to compile the Q&A roster.
Alright.
Question comes from David Schick, with chip and sharing.
Please go ahead.
Hi, there Jay it's David How're you.
I just was asked wanted to ask one question. If you all are.
Able to buy back stock at the present.
We are we continue to entertain reverse inquiries given the small amount of business that's available in the market on a daily basis, we don't have any kind of enacted.
Repurchase program in the marketplace.
Okay. Thank you.
Okay.
Alright. Our next question comes from Tom Kerr from Zacks Investment Research. Please go ahead.
Hi, good morning, guys.
Can you go back in a more detail on the insured tech growth I think you mentioned baking in some other what were the drivers of those individual lines growing strongly.
Yes, no its marketing efforts one eye on the vacant side a.
A number of new agents have been appointed we've also.
Introduced a new model line liability product both of those things are driving a lot of growth there and on collections.
<unk>.
We focused marketing efforts, which are driving a lot of business to our portals.
Okay great.
And then you guys mentioned, the 9% average pricing increase was that across all commercial specialty or just package or I missed part of that kind of came from.
Yes.
Package.
So the whole place okay.
Are there other problematic books of business like the restaurant out there or is that pretty much the worst or is that just an ongoing process to get rid of these problem books of business.
In terms of.
Where we were.
About nine or 10 months ago, we went through a pretty thorough review when I got here, we made some very quick decisions to exit.
Combination of products or books of business that Werent profitable. We also made a decision to exit some some lines of business that we werent in a position to have proper expense ratios all of that was done at the beginning of the year and obviously, we're in a continuous process of underwriting.
And looking at individual risks and individual books of business, but at this point in time, we're very satisfied with the book of business that we're underwriting.
Okay, two more quick ones and then what's left in the cat losses.
Is that being eliminated or reduced or how do you sort of measure how much cat exposure you have or what in the future.
No it's been significantly reduced.
Our reinsurance by hedge.
<unk> been able to come down significantly.
Sure.
The upper limit of our of our Cat tower, now was $75 million, which still provides protection nor.
North of 102 wanted 250 year event or losses on our continuing lines cat losses for the quarter were only $5 2 million to $1 5 million of that was valley. There were no other really big losses during the quarter was just <unk>.
Several little ones. So we're very very happy with the actions that we've taken to reduce.
For this company.
That's great one more quick one on the book yield.
So the timing path to go from 4% to 5% I mean is that a.
12, or 18 months process or any color you can give on.
Look.
Well I'll, let I'll, let you figure it out to some degree not to be coy.
$800 million of cash flow coming off between now and the end of next year.
That is being invested at close to literally you can get yields on treasuries close to five 5% today. So it's.
We have full expectations that <unk>.
<unk> of our portfolio will continue to increase and if rates stay at the levels. They are today.
I mean yields in that range will eventually be realized.
Yes.
Great Thats, all I have for the <unk> five range.
Great. That's all I have for now thanks.
Alright very good.
Great. Thank you.
As a reminder to ask a question. Please press star followed by the number one.
Our next question comes from Anthony Moulder Lee.
<unk> and partners. Please go ahead.
Hi, guys.
I just was hoping to get a little bit more color on the reserve strengthening in the continuing lines.
And you mentioned it was $7 million target and targeted specialty and then just the remainder was.
Years 2020, and prior are there any specific years, there and could any color on exactly what you were seeing in targeted specialty.
Certain areas or geographies anything would be helpful. There.
Sure when we when we did our review of the business at the end of last year.
We made some decisions that created and exited line or discontinued line certain books of business because of the way. They were coded stayed inside packaged specialty for example, so we have a run off significant reduction.
Probably going to be about 75%, 80% in a target and a small book of business in New York habitation all so it affected current accident year.
Does that business is running off to the tune of about $7 million and that was the $7 million that Tom referred to very specifically the rest of the reserves strengthening.
Primarily occurred in the year 2020 or prior.
Part of the reason that 2020 continues to be a little bit of an in mid month is because of COVID-19.
A big slowdown in reported claims and then the backlog.
And certain litigation environments, and obviously, we've tried to estimate that precisely as we've gone through 'twenty, one 'twenty two 'twenty three but there has been some lag effect and so what we did with some corrections during the course of the quarter there for 2020 and prior yes, Im just going to add one thing too.
Jay to what Jay said also is.
Within targeted specialty there was also an underperforming program that was terminated in the first quarter of this year. There is no more premium after the first quarter, but.
But we did have some earned from that program. This year and we continued to see some adverse development related to that program, which is included in the reserve strengthening numbers that we noted.
Okay. Thank you so much that was my only question.
Okay. Our next question comes from Tony Polak with Aegis. Please.
Please go ahead.
Hi.
And as were answered thank you.
Thank you that concludes our Q&A session I will now turn the call back over to Steve restrict closing remarks.
Thank you Danica.
For joining us and your continued interest and investment in global Indemnity and look forward to speaking with you. After 2023 results are released.
Thank you ladies and gentlemen that concludes today's call you may now disconnect.
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