Full Year 2023 Global Indemnity Group LLC Earnings Call

Yes.

Thank you for standing by and welcome to the GB ally 2023 earnings call.

I would now like to welcome Steve Reese head of IR to begin the call Steve over to you.

Thank you Mandy today's conference call is being recorded if you.

I realised remarks may contain forward looking statements.

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 a 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 description of the business environment in which we operate and the important factors that may be.

Sure they affect our results global memory 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 Global identity.

Thank you Steve.

Good morning, and thanks to everyone for joining us this morning for our 2023 results call.

Before I turn it over to our CFO, Tom again to take you through a detailed synopsis of our 2023 financial results.

I will provide a brief overview of the past year.

Where we are now and where we're going.

Okay.

After seven years on the board of global Indemnity.

Accepted the position as CEO 16 months ago.

Okay.

My mandate was very straightforward.

Determining which businesses we're working.

Execute our strategy to exit everything that didn't make sense.

And then right size the company expense structure.

To manage the business profitably and have utilized capital efficiently.

These tasks were accomplished in the first 90 days and have been reported on through the last four results call.

We also reaffirmed some simple long term objectives that we would use to measure our insurance operations.

They are.

One achieve a consistent combined ratio in the low nineties.

To.

Grow the insurance business at a compound rate of 10% or greater.

And three manage our expense ratio to 37% or better subs.

Subject to business mix.

As we announced in our earnings release this morning.

We are tracking towards these objectives, but fell a bit short in 2023.

First.

Our accident year loss ratio for our ongoing business and our Pan America segment.

So a couple of points short of target.

As Tom will detail.

This was due to the overhang in the current year from the remaining effect of exposures in our New York habitation or book of business.

Okay.

The good news is our exposure in terms of number of units in that book is now down 85% from its peak and 75% in the past 12 months.

Okay.

The significant reserve strengthening on our 2019 through 2023 for the Pan American's segment was driven primarily from this exposure.

Yes.

Second.

Our growth in three of our four divisions was approximately 12%.

Insistent with our long term target.

In the fourth division programs.

The purpose purposeful underwriting and pricing actions, we undertook resulted in a 40% reduction in the amount of business. We wrote in the past year.

Third in terms of expense management, we met our dollar budget target for the year, but still fell about 80 basis points short of our target expense ratio.

Okay.

Looking at where we are now I was very happy to see us have net income of $25 million for last year.

A nice increase in book value per share.

Anna.

Robust and growing discretionary capital position.

Okay.

Given that we have excellent liquidity and estimate and estimate that our current discretionary capital is around 200 million Europe.

<unk> approved a 40% increase in our dividend last week.

As we noted in that dividend announcement, we have now returned more than $600 million to shareholders. Since we went public.

Reflecting on our current operations I have greater confidence now that we are well positioned with businesses that have excellent and consistent and profitable results over the past two decades.

Turning to this year and our plans and expectations for results.

Unlike the recent patch, which was a year of restructuring we are now focusing on both expanding our product offerings, where our current customer base and beginning to deliver on our revamp of our customer facing technology platforms.

Much of our past success has been achieved with customer friendly technology.

But it is now an absolute priority that we upgrade across the board to maintain a competitor a competitive offering.

Yes.

In terms of financial results.

The most predictable component is our high yielding short duration investment portfolio.

This should increase the investment income portion of our returns for shareholders by 15% in 2024.

Obviously, our insurance underwriting results are much harder to forecast given the inherent variability in short term results.

But I currently expect we will continue to achieve rate and exposure changes.

Modestly above our long term inflation trends.

As such we would expect our 2024 accident year underwriting results to be a bit better than that achieved in 2023.

Given the reserve actions, we took in 2023.

I would expect that our calendar year results will be much closer to our accident year results in 2024.

The overall strengthening that we took of $10 million or one 3% of our carried reserves reflects the continued strength in our reserve position.

As we saw in 2023.

We would expect the wholesale commercial insured tech and assumed reinsurance divisions to achieve a minimum 10% growth.

Given new leadership in programs and a much smaller base of in force business, we expect some growth, but we're not yet sure. It will hit long term targets in 2024.

Our dollar budget for internal expenses in 2024 is consistent with last year, but the lag in earned premium stream, we will still be short of meeting our target of 37% expense ratio.

Standing back and seeing how this all comes together, we expect to generate positive underwriting returns.

And investment returns for our shareholders.

In addition to our intent to return a share of our returns to shareholders with a higher quarterly dividend.

We also expect that our current estimated to discretionary capital position of $200 million will increase by approximately $15 million per year over the next three years.

In summary, while we continue to make substantial progress against our longer term goals.

Both the accident year and calendar year underwriting results for our continuing operations still fell a little bit short of these objectives.

Most importantly, the consistent underlying profitability of our continuing book of business Cements My view that better results will be forthcoming in the future.

Before I turn it over to Tom.

To go through his explanation of financial results I would like to announce that theres going to be a change in Tom's responsibilities and role at global and damning.

Tom has elected to retire as CEO effective April <unk> CFO.

It's probably going to want my job next.

As CFO.

On April one.

Tom will then take on and join our board of directors.

Effective on the same day and take on the role of being on our board going forward.

I am very excited about this for Tom.

Uh huh.

They have really appreciated the time I've worked with Tom over the last now 859 years.

More importantly, it's always good to have somebody who knows our business as well as Tom does actually working with our board to further develop and establish ways to create value for our shareholders with that I'll turn it over to you Tom for your.

Report on 2023.

Before I start I just wanted to say thank you to saw Fox, our chairman and the rest of the board for expressing confidence in May I look very forward to.

Working more closely with the board very happy.

Honor to remain associated with global local indemnity yen.

We'll work hard to continue to increase value to our shareholders. So with that let me jump into.

My my section of the presentation.

Net income for 2023 was $25 4 million compared to a net loss of $1.

$85 million in the comparable period in 2022.

Book value per share increased from $44 87 at December 31, 2022 to $47 53 at December 31 2023.

Net income increases as the market value with a fixed income portfolio and share repurchases all contributed to the increases in book value per share.

Including the one dollar distribution paid to shareholders. During 2023 returns to shareholders were eight to eight 2%.

I will now discuss some of the key drivers of net income starting with investment performance.

Net income was $55 4 million compared to $27 6 million in 2022.

Actions taken in early 'twenty, two to sell longer dated securities and shortened duration have translated into much higher book yields both the yield on the fixed income portfolio is 454, 5% at December 31, 2023 and its duration.

As 115 years.

The average credit quality of the fixed income portfolio is double a minus as a comparison at December 31, 2021 bulk yield on the fixed income portfolio was two 2% and duration was three two years.

In 2024, we expect our investment portfolio will generate over $800 million of cash flow as bonds mature in investment income is realized.

Average book yield on investments maturing in 2024 is approximately three 5%.

And this higher interest rate environment, our portfolio was well positioned to increase investment in R&D.

Moving to underwriting.

We have strong accident year results.

<unk> consolidated underwriting income was $14 3 million compared to $4 million in 2022.

The consolidated accident year combined ratio was 97, 3% compared to 99, 6% in 2022.

In 2023, Panama Erika had an accident year underwriting profit of $18 5 million compared to an accident year underwriting profit of $13 5 million in 2020 to Panama.

Mark is accident year combined ratio in 2023 was 95, 1% compared to 96, 6% in 2022.

Excluding the poor performing New York Capitation of bulk that Jay mentioned Pan American's accident year combined ratio would have been 93, 8%.

This accident year loss ratio was 57, 2% in 2003 compared to 59% in 2022.

Earlier in 2023, we reported that the Panamera property bulk was impacted by several lawsuits in large commercial vacant properties. As 2023 progressed property results improved kind of America finished with an accident year property ratio was <unk>.

53, 4% compared to 58, 2% in 2022.

<unk> wholesale property bulk achieved rate increases of 10, 4%.

Exposure change added an additional rate of one 8%.

For casualty Pan-american casualty both performed similarly to 2022.

In 2023 Pan America wholesale commercial casualty bulk cap rate increases of nine 6%. The casualty loss ratio was 59, 9% in 2023 compared to 59, 5% in 2022.

The increase.

And the loss ratio was driven by the aforementioned New York Capitation book.

Noncore operations had a 2020 to react to.

I had a 2023 accident year underwriting loss of $4 2 million compared to an accident year underwriting loss of $9 5 million in 2022.

The drag from the noncore book will decline as the business shrugs off and support for this business is no longer required.

Lastly impacts from catastrophes of lessons.

On a consolidated basis total catastrophes were $17 2 million in 2023 compared to $22 million in 2022.

Okay.

Moving to our calendar year underwriting results.

Calendar year underwriting income was 3 million compared to $8 3 million in 2022.

On a consolidated basis loss reserves were strengthened by $9 5 million.

2022 had loss reserve releases of $8 1 million.

Global Indemnity has always been prudent in setting in setting loss reserves in 2023 kind of America strengthened reserves $29 nine 9 million and non core had releases of $23 million.

Panama is calendar year underwriting results were negatively impacted by adverse emergence from casualty and the 2019 through 2022 accident years. The same New York bulk that we previously noted drove much of this increase to improve New York results.

<unk> rate and underwriting actions have been taken.

For our casualty book, we believe rate increases are exceeding loss inflation panamera wholesale casualty bulk cap rate and exposure rate increases of 14, 7% in 2022 and nine 6% in 2023.

In noncore approximately $17 million of the $23 million release was from property treaties from accident years prior to 2021.

Casualty releases makeup the difference within casualty there were decreases and increases in prior year reserves. There was a $10 2 million increase in the 2019 to 2022 accident years, mainly related to a restaurant that was not renewed as of March FERC too.

2023.

No additional premium has been written or earned on that bulk since March.

'twenty three we pretty much stayed level with our expectation for long term trends. We now think we're matching that pretty well. So a combination of rate increases and exposure changes probably will be in the 6% to 7% range.

Exposure changes can drive that quite a bit different as the book starts to shift in terms of the size of risk that we're underwriting, but that's kind of what level, we have against our long term trends right now.

Alright, Thanks, I'll get back in the queue.

Thank you.

We have received a question from Michael O'brien.

Could you talk about your strategy related to stock buyback given the big discount to BV also do you have the TBB number.

I expect let me speak to the stock buyback.

Our stock buyback approach has been really for reverse inquiry, we have not participated in open market purchases. The reason being for that is our volume is so small that if we went in there with any kind of ongoing program, we would distort how the market is.

Re pricing our stock so we've chosen not to participate in open market.

We have been approached at different points in time.

Blocks of shares so, which we've considered depending on where we are at that point in time.

Whether we could buy it back or not at that price a lot of it depends on what we might currently be doing at that moment in time, who we're talking to or what we're thinking about so we can't always buyback of 100 or 365 days of the year. While we continue to encourage people that have substantial blocks of business blocks of our shares.

That's me.

To call, Steve and we will always consider buybacks.

As Tom mentioned, we still have a $100 million available under our buyback program when we certainly would entertain.

Any any sizable blocks of stock at the current price.

Regarding your tangible book value per share question I didn't compute the exact value before I came on this call, but we.

We don't have much in the way of goodwill or intangibles on our balance sheet round numbers, we have 649 million of equity, our goodwill and intangibles, you're only $19 million, which round numbers thats about $1 50 per share so goodwill.

Goodwill and.

Intangibles are really not that big of a drag on our overall book value.

Our next question comes from the line of Ross Haberman with <unk> L. H investments. Please go ahead.

Thanks for taking the call again.

In terms of the corporate and overhead expenses could you tell us how much of the 23 and $23 4 million.

Say as nonrecurring or less recurring maybe related to your.

Yeah.

Your merger negotiations then whatever light you might be able to shed on why.

That did not or why that fell apart.

Okay. Thanks.

On a normal year, we would expect our corporate expenses to be 18% to $20 million nothing fell apart in the last few years Mark corporate expenses.

In that low $20 million range.

Year ago, We 2022, we sold our farm business and incurred expenses for that this year early in the year, we had some restructuring charges.

And really most of what you are seeing this year is one time charges as we reposition the business to move ahead.

In terms of falling apart I am assuming you are asking a question why we didn't complete any kind of a transaction and the reality.

We did not achieve.

Our price indication that matched our expectation of what we thought was the right decision for our shareholders with a with a shareholder that owns over 40% of the stock that's a fairly easy decision process of.

We made it a number that debt saw Fox and Fox Paine field is acceptable. We of course would then go and engage in a transaction, but we have not yet achieved that.

Okay.

Thank you for that.

Yes.

Yes.

Again as a reminder, the floor is now open for your questions to ask a question at this time simply press the star followed by the number one on your telephone keypad. You May also submit a question via webcast by clicking the Q&A button to the bottom right of the page and clicking submit.

We do have a question from Michael O'brien.

Yes.

Are you searching for a new CFO.

The answer to that is now.

Tom and I have been discussing for the past six months the timing what would be the right.

Time for him to make the transition from being our CFO to becoming a board member. We are extremely fortunate to have Brian Reilly, who has been a member of senior member of the senior member underneath Tom in our Finance Department for the last 18 years.

And who will be taking on the role of CFO on April one so that is not going to involve a external search at this at this point obviously since we are very happy to have an internal candidate to take on that role.

Okay.

This concludes today's question answer session I would now like to turn the call over to Steve <unk> for closing remarks.

Thank you again Monday once again, if you have questions you may.

Reach out to me.

And we look forward to speaking with you in the next quarter.

This concludes today's call you may now disconnect.

Yeah.