Q1 2024 Global Indemnity Group LLC Earnings Call
Thank you for standing by my name is Kathleen and I will be your conference operator today.
Kathleen: Thank you for standing by. My name is Kathleen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Global Indemnity Group first quarter 2020 earnings call. All lines have been placed on mute to prevent any background noise.
Kathleen: 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 the star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press the star 1 again. We will also be taking questions from the Internet. If you'd like to submit a question, please use the Q&A button located at the bottom right of your webcast screen. Thank you. I would now like to turn the call over to Steve Ries, Head of Investor Relations. Please go ahead.
Speaker Change: At this time I would like to welcome everyone to the global Indemnity Group first quarter 2024 earnings call.
Stephen Warren Ries: All lines have been placed on mute to prevent any background noise.
Stephen Warren Ries: After the Speakers' remarks, there will be a question and answer session.
Stephen Warren Ries: If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
Stephen Warren Ries: If you would like to withdraw your question press the star one again.
Stephen Warren Ries: We will also be taking questions from the webcast if you'd like to submit a question. Please use the Q&A button located at the bottom right of your webcast screen.
Stephen Warren Ries: Thank you I would like turn the call over to Steve Reese head of Investor Relations. Please go ahead.
Kathleen: Yeah.
Stephen Warren Ries: Thank you, Kathleen. 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 a representation by us that the future plans, estimates, or expectations contemplated by us will in fact be realized. 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 important factors that may materially affect our results.
Stephen Warren Ries: Thank you Kathleen.
Stephen Warren Ries: As a reminder, today's conference call is being recorded at some remarks may contain forward looking statements.
Stephen Warren Ries: The forward looking statements can be identified by the use of forward looking words.
Stephen Warren Ries: 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.
Stephen Warren Ries: And that's our expectations contemplated by us when in fact be achieved.
Stephen Warren Ries: 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 important factors that may materially affect our results.
Stephen Warren Ries: 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, Global Indemnity.
Stephen Warren Ries: Are there any 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.
Stephen Warren Ries: It's now my pleasure to turn the call over to Mr. Jay Brown, Chief Executive Officer Global Indemnity.
Joseph Warner Brown: Thank you Steve.
Joseph Warner Brown: Good morning, and thank you all for joining us for our first quarter call. I will first provide a few overview comments, and our new Chief Financial Officer, Brian Reilly, will review the financial highlights for our insurance operation. What a difference a year makes.
Joseph Warner Brown: Good morning, and thank you all.
Joseph Warner Brown: For joining us.
Joseph Warner Brown: For our first quarter call.
Joseph Warner Brown: I will first provide a few overview comments.
Joseph Warner Brown: And then our new Chief Financial Officer, Brian Reilly, who will review the financial highlights for our insurance operations.
Joseph Warner Brown: What a difference a year makes.
Joseph Warner Brown: 12 months ago, we were in the midst of a significant restructuring of our insurance activities.
Joseph Warner Brown: 12 months ago, we were in the midst of a significant restructuring of our insurance activity. Our then current results were a mix of ongoing and exited businesses, making it difficult to gauge performance to assist investors in how to assess our progress. We have reaffirmed a simple set of objectives consisting of three long-term metrics as guidelines for measuring the performance of our ongoing insurance operation: revenue growth, underwriting performance, and expense management. The Metric Goal for Revenue Growth was to achieve a long-term annual average for premium written of plus 10%.
Joseph Warner Brown: Our then current results were a mix of ongoing and exited businesses, making it difficult to gauge performance.
Joseph Warner Brown: To assist investors on how to assess our progress we have reaffirmed our simple set of objectives, consisting of three long term metrics as guidelines for measuring the performance of our ongoing insurance operations.
Joseph Warner Brown: Revenue growth underwriting performance and expense management.
Joseph Warner Brown: The metric goal for revenue growth was to achieve a long term annual average for premium written up plus 10%.
Joseph Warner Brown: Our underwriting performance, we want to see a combined ratio in the low nineties.
Joseph Warner Brown: For underwriting performance, we want to see a combined ratio in the low 90s. And then to achieve our desired underwriting performance, we need to have a 36% to 37% expense ratio over time, given our current mix. As Brian will highlight, we have made substantial progress against these goals, and the comparison to first quarter results from a year ago demonstrates real value creation for our shareholders in terms of revenues. Furthermore, most of our insurance divisions are tracking against long-term double-digit growth.
Joseph Warner Brown: And then to achieve our desired underwriting performance, we need to have a 36% to 37% expense ratio over time, given our current mix.
Joseph Warner Brown: As Brian will highlight we have made substantial progress against these goals and the comparison to first quarter results from a year ago demonstrates real value creation for our shareholders.
Joseph Warner Brown: In terms of revenues.
Joseph Warner Brown: Most of our insurance divisions are tracking against long term double digit growth.
Joseph Warner Brown: We expect that the combination of.
Joseph Warner Brown: We expect that the combination of Pan America Wholesale Commercial, InsureTech, and Assumed Reinsurance will achieve this target by year end. However, the expansion of our program division remains a work in progress and will lag behind a bit in 2024.
Joseph Warner Brown: Pan America wholesale commercial.
Joseph Warner Brown: And sure check and assumed reinsurance will achieve this target by year end.
Joseph Warner Brown: However, the expansion of our program Division remains a work in progress and will lag behind a bit in 2024.
Joseph Warner Brown: Okay.
Joseph Warner Brown: Looking at the underwriting performance, I was extremely gratified to see a combined ratio of 94.0% for the Penn America segment in the first quarter. This performance was driven by a continuation of the achievement of solid casualty loss ratios and a super quarter for property loss ratios. Offsetting this a bit was a higher-than-target expense ratio of 39.2%. While we have kept our internal costs in check from last year, after the dramatic drop we experienced in premium from 2022 to 2023, it will take another couple of years for us to start hitting our long-term targets for expense ratio. This reflects a very conscious decision to maintain our PEN America staff this year at 2023 levels after a substantial reduction from 2022 in order to continue to meet the service needs of our customers.
Joseph Warner Brown: Looking at the underwriting performance.
Joseph Warner Brown: I was extremely gratified to see a combined ratio of 94.0% toward the Pan America segment.
Joseph Warner Brown: In the first quarter.
Joseph Warner Brown: Okay.
Joseph Warner Brown: This performance was driven by a continuation of achievement of solid casualty loss ratios.
Joseph Warner Brown: And a super quarter for property loss ratios.
Joseph Warner Brown: Offsetting this debt was a higher than target expense ratio of 39, 2%.
Joseph Warner Brown: While we have kept our internal cost in check from last year. After the dramatic drop we experienced in premium from 2022 to 2023. It will take another couple of years for us to start hitting our long term targets for expense ratio.
Joseph Warner Brown: This reflects a very conscious decision to maintain our Pan America staff this year at 2023 levels.
Joseph Warner Brown: After the substantial reduction from 2022 in order to continue to meet the service needs of our customers.
Joseph Warner Brown: We are also investing heavily in a full digital transformation of our existing technology infrastructure to stay competitive in the markets we serve.
Joseph Warner Brown: We are also investing heavily in a full digital transformation of our existing technology infrastructure to stay competitive in the markets we serve. We do continue to achieve rate increases that are modestly in excess of our assessment of underlying inflation trends. This should allow us to maintain a consistent long-term loss ratio result. We are both currently achieving and have experienced historical, We also continue to deliver outstanding investment returns following the repositioning of our investment portfolio to take advantage of the dramatic increase that has taken place in short-term interest rates.
Joseph Warner Brown: We do continue to achieve rate increases that are modestly in excess of our assessment of underlying inflation trends.
Joseph Warner Brown: This should allow us to maintain a consistent long term loss ratio results were.
Joseph Warner Brown: We are both currently achieve achieving and having having experienced historically.
Joseph Warner Brown: Okay.
Joseph Warner Brown: We also continued to deliver outstanding investment returns following the reposition repositioning of our investment portfolio to take advantage of the dramatic increase that has taken place in short term interest rates.
Joseph Warner Brown: Booked yield should continue to increase modestly throughout the year as roughly half of our existing investments will mature in the next 12 months.
Joseph Warner Brown: Book yields should continue to increase modestly throughout the year as roughly half of our existing investments will mature in the next 12 months. Overall, I was very pleased with the improved results we saw this quarter, and we'll now turn it over to Brian to provide a more detailed review of the numbers.
Joseph Warner Brown: Overall I was very pleased with the improved results. We saw this quarter I will now turn it over to Brian to provide a more detailed review of the numbers.
Brian: Thank you Jay.
Brian Reilly: Net income was $11.4 million compared to $2.5 million in 2023; the combination of net income and a $3 million increase in market value of the fixed income portfolio. Book value per share increased from $47.53 at year end to $48.18 at March 31st. Including dividends paid in 2024, return to shareholders was 2.1% for the first quarter of 2024. Dividends of $0.35 per share were paid during the quarter, an increase of 40% over the $0.25 per share paid quarterly since inception in 2018.
Brian: Net income was $11 4 million compared to $2 5 million in 2023.
Brian Reilly: The combination of net income and a $3 million increase in market value of the fixed income portfolio book value per share increased from $47.53 a year end to $48 18 at March 31.
Brian Reilly: Including dividends paid in 2020 for return to shareholders was two 1% for the first quarter of 2024.
Brian Reilly: Dividends of 35 per share were paid during the quarter, an increase of 40% over the 25 per share paid quarterly since inception in 2018.
Brian Reilly: This quarter, both underwriting and investment performance contributed to the improvement in net income, starting with investors. Investment income increased 21% to $14.5 million a year ago. Actions taken since early 2020 to sell longer-dated securities and shorten duration have translated into much higher current book yields. Cash flows of $22 million plus $146 million of fixed income securities yielding 3.4% that matured during the quarter were reinvested at an average yield of 5%.
Brian Reilly: This quarter, both underwriting and investment performance contributed to the improvement in net income.
Brian Reilly: Starting with investments investment income increased 21% to $14 5 million a year ago.
Brian Reilly: The actions taken since early 'twenty two.
Brian Reilly: To sell longer dated securities and shortened duration have translated into much higher current book yields.
Brian Reilly: Cash flows of $22 million plus $146 million of fixed income securities, yielding three 4% that matured during the quarter were reinvested at an average yield of 5%.
Brian Reilly: The current book yield on the fixed income portfolio is now four 3% and.
Brian Reilly: Current book yield on the fixed income portfolio is now 4.3%, an increase of 26 basis points in the last three months. Duration on the fixed income portfolio is 1.06 years at March, down from 1.15 at year-end. The average credit quality of the fixed income portfolio remains at double A minus.
Brian Reilly: An increase of 26 basis points in the last three months.
Brian Reilly: Duration on the fixed income portfolio is 1.06 years at March down from 1.15 at year end.
Brian Reilly: The average credit quality of the fixed income portfolio remains at double a minus.
Brian Reilly: It is noteworthy noteworthy where it.
Brian Reilly: It is worth noting the magnitude of the change in our fixed income portfolio in the last nine quarters, comparing the current yield of 4.3% with a duration of 1.06 years. At December 31-22, the book yield was 3.4% with a duration of 1.7 years. And at December 31st, 2021, book yield was 2.2% with a duration of 3.2 years. For the remainder of 2024, we expect our investment portfolio will generate an additional $700 million of cash flow from investment income and maturity. For reference, the average book yield on the fixed income investments maturing in the remainder of 24 is approximately 4%.
Brian Reilly: Worth, noting that the magnitude of the change in our fixed income portfolio in the last nine quarters comparing.
Brian Reilly: Comparing the current yield of four 3% and duration of 1.06 years at.
Brian Reilly: At December 31, 22 book yield was three 4% with a duration of one seven years and at December 31, 2021 book yield was two 2% with a duration of three two years.
Brian Reilly: For the remainder of 'twenty four we expect investment portfolio will generate an additional $700 million of cash flow from investment income and maturities for reference the average book yield on the fixed income investments maturing in the remainder of 'twenty four is approximately 4%.
Brian Reilly: If the current interest rate environment continues through year-end, our portfolio remains well positioned to further increase investment returns. Now, let's move to underwriting performance. We had a very strong start to the year. The current accident year consolidated underwriting income was $5.3 million compared to a loss of $600,000 in 2023. This was driven by a consolidated accident year combined ratio of 94.9 compared to 100.6 in 2023. The improvement in the current X-year underwriting income was due to strong performance in our core business, Pen America, and America's actionary underwriting income of $5.7 million was compared to a loss of 800,000 in 2023. As Jay noted, PEN America's action-year combined ratio is 94 and is improving to 7.2 points from 101.2 in 2023.
Brian Reilly: If the current higher interest rate environment continues through year end, our portfolio remains well positioned to further increase investment returns.
Brian Reilly: Now, let's move to underwriting performance.
Brian Reilly: The excellent overall accident loss ratio of 54.8 was mainly due to the performance of our property business. The property loss ratio improved to 50.1 compared to 68.7 in 2023. Non-catastrophic performance was the primary driver due to a decline in the number of large fire losses we experienced in 2023. The non-CAT loss ratio improved to 41.9 compared to 59.9 in 2023. The cat loss ratio improved slightly to 8.2 compared to 8.8 in 2023. The casualty loss ratio of 58.6 remains in line with expectations. Unlike our non-core operations, which have diminished, I have a diminished effect on the overall performance.
Brian Reilly: We had a very strong start to the year.
Brian Reilly: The current accident year consolidated underwriting income was $5 3 million compared to a loss of $600000 in 2023.
Brian Reilly: This was driven by a consolidated accident year combined ratio of $94 nine compared to 106 in 2023.
Brian Reilly: The improvement in the current extra underwriting income was due to strong performance in our core business in America.
Brian Reilly: Pan American's accident year underwriting income of $5 7 million.
Brian Reilly: Compared to a loss of 800000 2023, as Jay noted pad America's accident year combined ratio was 94, an improvement of $7 two points from 101, two and 2023.
Brian Reilly: The excellent overall accident loss to loss ratio of $54 eight was mainly due to performance of our property business.
Brian Reilly: The property loss ratio improved to 51 compared to $68 seven in 2023.
Brian Reilly: Non catastrophe performance was the primary driver due to a decline in the number of large fire losses, we experienced in 2023.
Brian Reilly: The non cat loss ratio improved to 41, 9% compared to $59 nine in 2023.
Brian Reilly: The cat loss ratio improved slightly to $8 two compared to eight 8% in 2023.
Brian Reilly: The casualty loss ratio of 58 search remains in line with expectations.
Brian Reilly: Unlike our noncore, unlike our noncore operations have diminished.
Brian Reilly: I have a diverse effect on the overall performance are noncore operations net earned premiums dropped $7 5 million compared to $49 $5 million in 2023.
Brian Reilly: Our non-core operations net earned premiums dropped $7.5 million compared to $49.5 million in 2023. The drop in earned premium from 2023 is mainly from an assumed retrocession casualty treaty which was terminated at the end of 2020. For 2024, the underwriting loss was only $400,000. The combined ratio was 105.5. The loss ratio was in line with expectations at 60.6.
Brian Reilly: The drop in earned premium from 2020 threes, mainly from an assumed retro session casualty Treaty, which was terminated end of 'twenty two.
Brian Reilly: For 2020 for the underwriting loss was only 400000.
Brian Reilly: The combined ratio was 105 five.
Brian Reilly: The loss ratio was in line with expectations at 66, but runoff expenses remain a bit high as we wind down a number of smaller underwriting portfolios.
Brian Reilly: But runoff expenses remain a bit high as we wind down a number of smaller underwriting portfolios. Moving to calendar year underwriting, consolidated calendar year underwriting income was virtually identical to the accident year, with $5.3 million in 2024. This compares to a loss of $1.1 million in 2023. The impact of prior accident years changed by less than $1,000 in 2024. Book reserves remain solidly above our current actuarial indications.
Brian Reilly: Moving to calendar year underwriting income.
Brian Reilly: Consolidated calendar year underwriting income was virtually identical to the accident year was to $5 3 million in 2020 for.
Brian Reilly: This compares to a loss of $1 1 million in 2023.
Brian Reilly: The impact of prior accident years changed by less than a $1000 in 2024.
Brian Reilly: Booked reserves remains solidly above our current actuarial indications.
Brian Reilly: Sure.
Brian Reilly: Turning to insurance revenue, consolidated gross written premiums were $93.5 million in 2024 compared to $123 million in 2023. The majority of the decrease is from our runoff business and our non-core segment, which declined 28.1 million year over year.
Brian Reilly: Turning to insurance revenues.
Brian Reilly: Consolidated gross written premiums was $93 5 million in 2024 compared to $123 million in 2023.
Brian Reilly: The majority of the decrease is from a run off business in our noncore segment, which declined $28 1 million year over year.
Brian Reilly: Pan American's gross written premiums was $94 million in 2024 compared to $95 4 million in 2023.
Brian Reilly: Penn America's gross written premiums was $94 million in 2024 compared to $95.4 million in 2023. This decrease is in line with our plan due to programs terminated in 2023 that did not meet our long-term growth and underwriting expectations. Excluding these terminated programs, PetAmerica's gross written premiums grew from $90.7 million in 2023 to $94 million in 2024, a 4% increase. As for each of the divisions within PEN America, first, Wholesale Commercial, which focuses on Main Street small business, grew 5% to $61.1 million, compared to $58.3 million in 2023. Rate and exposure increases were 10% in the first quarter.
Brian Reilly: This decrease is in line with our plan due to programs terminated in 'twenty three that did not meet our long term growth and underwriting expectations.
Brian Reilly: Excluding these terminated programs.
Brian Reilly: Americas gross written premiums grew from $90 7 million in 2023% to $94 million in 2024.
Brian Reilly: A 4% increase.
Brian Reilly: As for each of the divisions within Pet America first wholesale commercial which focuses on main street small business grew 5% to $61 1 million compared to $58 3 million in 2023.
Brian Reilly: Rate and exposure increases were 10% in the first quarter.
Brian Reilly: Overall, the short term growth rate is in line with expectation.
Brian Reilly: Overall, the short-term growth rate is in line with expectations. Underwriting actions in certain states to improve underwriting income suppressed first-quarter growth to 5%, but we expect it to close, close to 10% for the full year. Second, InsureTech, which consists of Bacon Express and Collectibles, grew 17% to $12.5 million, compared to $10.7 million in 2023. Let me break down those two products.
Brian Reilly: Underwriting actions in certain states to improve underwriting income has suppressed first quarter growth of 5%.
Brian Reilly: We expect to close close to 10% for the full year.
Brian Reilly: Second ensure tech, which consists of Bacon express and collectibles grew 17% to $12 5 million compared to $10 7 million in 2023.
Brian Reilly: Let me break down those two products.
Brian Reilly: First vacant express through 2022% to $8 9 million driven by organic growth from existing agents and agency appointments.
Brian Reilly: First Bacon Express grew 22% to $8.9 million driven by organic growth from existing agents and agency employment. New technical automation implemented in the third quarter of 2023 for vacant dwelling products, including an expansion of the model on the general liability product, contributes to the growth and premium our agents are producing. Collectibles, group
Brian Reilly: New technical automation implemented in the third quarter of 2023 for our vacant dwelling products.
Brian Reilly: Including expansion of Mono line general liability products contributes to the growth in premium our agents are producing.
Brian Reilly: Collectibles growth.
Brian Reilly: Gross written premiums grew 6% to $3.6 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 expect at least three new treaties commencing in 2020. Programs, excluding the terminated programs I mentioned earlier, were $20.5 million, lower than 23 by 1.4 million. New programs contributed $600,000 during the quarter. In closing, we are pleased with the start of 2020. Further,
Brian Reilly: Gross written premiums grew 6% to $3 6 million.
Brian Reilly: Our assumed reinsurance book of business continues to grow at a nice pace tracking with our plan to see significant growth in 2024, we expect at least three new trees commencing in 2024.
Brian Reilly: Programs, excluding the terminated programs I mentioned earlier was $20 5 million.
Brian Reilly: Lower than 23 by $1 4 million.
Brian Reilly: New programs contributed $600000 during the quarter.
Brian Reilly: In closing.
Brian Reilly: We are pleased with the start of 2020 for further.
Brian Reilly: Our outlook for the full year is very positive. PEN America continues to show strong current acts in your performance. We believe premium pricing is meeting loss inflation, and discretionary capital continues to increase due to income and reduced capital needs for the runoff non-core business. This will support growth and other corporate opportunities. We expect a continued increase in book yield on the fixed income portfolio as the $700 million of cash flows from investment income and maturities, currently yielding 4%, will be invested at higher rates during the remainder of 2024. Thank you. We will now take your questions.
Brian Reilly: Our outlook for the full year is very positive.
Brian Reilly: <unk> continues to show strong current accident year performance, we believe premium pricing is meeting loss inflation.
Brian Reilly: Discretionary capital continues to increase due to income and reduced capital needs for the run off non core business.
Brian Reilly: This will support growth and other corporate opportunities.
Brian Reilly: We expect continued increase in book yield on the fixed income portfolio as the 730 $700 million of cash flows from investment income in maturities currently yielding 4% will be invested at higher rates during the remainder of 2024.
Speaker Change: Thank you we will now take your questions.
Speaker Change: We will now begin the question and answer session. If you have dialed in and we'd like to ask a question. Please press star one on your telephone keypad.
Kathleen: We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, press star 1 again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.
Kathleen: And joined the queue.
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Kathleen: Again, we will also be taking questions from the webcast, so if you'd like to submit a question, please use the Q&A button located at the bottom right of your webcast screen. Your first question comes from the line of Dan Baldini of Auburn. Please go ahead.
Kathleen: Again, we will also be taking questions from the webcast. So if you'd like to submit a question. Please use the Q&A button located at the bottom right of your screen.
Kathleen: Yeah.
Kathleen: Your first question comes from the line of Dan Baldini of Albright. Please go ahead.
Kathleen: Okay.
Dan Baldini: Hi, good morning. Thanks for taking my question. The companies' combined ratios improve very nicely, and so does the investment income, but the ROE remains sort of pedestrian, and I'm wondering what you can do to improve the ROE going forward.
Dan Baldini: Hi, good morning, Thanks for taking my question.
Dan Baldini: Hey.
Dan Baldini: Company's combined ratio has improved very nicely.
Dan Baldini: As the investment income.
Dan Baldini: <unk>, the ROE remains sort of pedestrian.
Dan Baldini: And I'm wondering what you can do to improve the Roe.
Dan Baldini: Going forward.
Dan Baldini: Thanks.
Speaker Change: It's a good question the biggest reason that our reported ROE.
Joseph Warner Brown: It's a good question. The biggest reason that our reported ROE continues to be low, even at these good results, is the simple fact that we're overcapitalized to a significant degree. We estimate we have approximately $200 million in excess capital available for other purposes. Our board continues to evaluate what the best alternatives are for that board. As noted in our press release, we did increase our dividend in the last quarter from 25% to 35% of a 40% increase. And we're going to continue to look at that throughout this year to determine what's the best use of that cash on an ongoing basis.
Joseph Warner Brown: Thanks. It's a good question.
Joseph Warner Brown: Is continues to be low even at these good results is the simple fact is is that we're overcapitalized to a significant degree we estimate we have approximately $200 million in excess capital available for other purpose purposes. Our board continues to evaluate what the best alternatives are.
Joseph Warner Brown: For that board as noted in our press release, we did increase our dividend in the last quarter from 25% to 35% or 40% increase and we're going to continue to look at that throughout this year to determine what's the best best use of that cash.
Joseph Warner Brown: On an ongoing basis.
Joseph Warner Brown: Okay.
Joseph Warner Brown: Thanks.
Joseph Warner Brown: And can we have one comment and webcast from Nathan Schwartz.
Joseph Warner Brown: Okay, we have one comment on the webcast from Nathan Schwartz. Please discuss GDLI's interest in pursuing a transaction with James River Insurance.
Joseph Warner Brown: It says please discuss GBS interest in pursuing a transaction with James River insurance.
Joseph Warner Brown: Yes, I've heard about that.
Joseph Warner Brown: I've heard about that, in terms of what I've read in the papers. We have had conversations with James River. Those conversations are on hold at this point. We may re-examine that later on if there's continued interest on both parties' part to pursue something.
Joseph Warner Brown: In terms of what I've read read in the papers, we have had conversation with James River.
Joseph Warner Brown: Those conversations.
Joseph Warner Brown: Are on pause at this point.
Joseph Warner Brown: We may reexamine that later on if there is continued interest on both parties' part to pursue something.
Speaker Change: Thank you for that and.
Thomas Kerr: and their next question comes from the line of Tom Kerr of Zach Investment Research.
Joseph Warner Brown: And your next question comes from the line of Tom Curran.
Thomas Kerr: Zack investment research. Please go ahead.
Thomas Kerr: Good morning, guys.
Joseph Warner Brown: Good morning, guys. Can you go over the expense ratio issue again? I didn't understand it completely. If Penn America continues to grow organically or sequentially, programs will decline. I'm not sure why it would take years to get down to your target 36-37% expense ratio. So maybe I'm missing something.
Thomas Kerr: Can you go over the expense ratio issue again, I didn't understand it completely Pan American continues to grow organically or sequentially.
Joseph Warner Brown: And programs declined.
Speaker Change: Not sure if I would take years to get down to your target 36, 37%.
Joseph Warner Brown: The expense ratio, so maybe I'm missing something.
Joseph Warner Brown: No, your accuracy depends on how much growth we have over the next two years, which will determine when that becomes earned premium. Because we're still in a decline in terms of earned premium as a company as a result of the steep drop that we experienced in premiums written last year and as that works through the system. So we're still cruising down a little bit in terms of earned premium. In terms of the dollars associated with the expense ratio, most two-thirds of our expenses are basically set as a percentage of premium written based on commissions and other premium-related charges. So the big variable over time is our internal operating costs. For PEN America, those currently run around $47 million a year.
Joseph Warner Brown: I know youre accurate it depends on how much growth we have over the next two years, which will determine when that becomes earned premium because we're still in a decline in terms of earned premium as a company as a result of the steep drop that we experienced in in premiums written last year and as that works.
Joseph Warner Brown: Through the system. So we're still cruising down a little bit in terms of earned premium in terms of the dollars associated with.
Joseph Warner Brown: Expense ratio most two thirds of our expenses are basically set as a percentage of premium written based on commissions and other premium related charges. So the big variable over time.
Joseph Warner Brown: Is our internal operating cost for Pan America. Those currently run around 47% $48 million a year, that's roughly where they were last year. They will increase modestly in terms of staff to staff makes up about two thirds of that expense and so as as we go forward, assuming we have a 3% to 5%.
Joseph Warner Brown: That's roughly where they were last year. They will increase modestly in terms of staff because staff makes up about two-thirds of that expense. And so as we go forward, assuming we have a 3% to 5% kind of change in salaries, we have to kind of overcome that with greater growth for that ratio to actually come down. We expect that that should be achieved by 2026, with progress shown throughout this
Joseph Warner Brown: <unk> kind of change in salaries, we have to kind of overcome that with greater growth for that ratio to actual come down.
Joseph Warner Brown: We expect that that should be achieved by 2026 with progress shown.
Joseph Warner Brown: Throughout this year and into next year, hopefully marketing that in terms of incremental quarterly by quarterly.
Joseph Warner Brown: Okay, just to reiterate that last point, there is going to be incremental improvement.
Joseph Warner Brown: Okay, just to reiterate that last point, there is going to be incremental improvement quarter over quarter sequentially, but just not the target for a couple years. Okay, right? Comparison for 24 will be modestly higher for each of the quarters in 23, but in terms of its actual... The percentage of earned premium, it should start going down as the year progresses.
Joseph Warner Brown: Quarter over quarter sequentially, but just not the target for a couple of years right. We're going to that comparison for 24 will be modestly higher for each of the quarters in 2003, but in terms of its actual.
Joseph Warner Brown: Percentage of earned premium it should start going down as the year progresses.
Speaker Change: Got it okay.
Thomas Kerr: Got it. Okay. One more question. The last time we talked about a lot of problematic books out there. Anything on the horizon worth discussing? Serious problematic programs out there that are nagging on you still.
Speaker Change: One more question. The last time, we talked about a lot of problem notebooks out there anything in the horizon worth discussing any.
Thomas Kerr: Heroes problematic programs up for later.
Speaker Change: Good morning Bill.
Thomas Kerr: Now it is at this point, we're pretty happy with the book of business. The reserve development, which we experienced last year was which was a result of exiting those businesses at the beginning of 'twenty three.
Joseph Warner Brown: Now, at this point, we're pretty happy with the book of business, and the reserve development which we experienced last year, which was a result of exiting those businesses at the beginning of 2023. That effect has died down. We had very little volatility in our reserve book during this past quarter. We are experiencing a little bit of a lingering effect in terms of growth opportunities because when we take down a portion of our business, for example, New York Habitational, it takes down some of the agent's interest in giving us other business during that time period.
Joseph Warner Brown: That effect has died down we had very little volatility in our reserve book during this past quarter, we are experiencing a little bit of lingering effect in.
Joseph Warner Brown: In terms of growth opportunities because when we take down a portion of our business for example, New York habitation all.
Joseph Warner Brown: It takes down some of the agents interest in giving us other business during that time period. So we saw our east region. For example is relatively flat year over year, whereas our west region is up almost 20% during the same time periods. So that's so it has an effect not necessarily on losses, but it does have a lingering effect.
Joseph Warner Brown: So we saw our east region, for example, is relatively flat year over year, whereas our west region is up almost 20% during the same time period. So it has an effect, not necessarily on losses, but it does have a lingering effect on premium.
Joseph Warner Brown: On premium revenue.
Speaker Change: Great Thats all I have for now thanks.
Thomas Kerr: Great, that's all I have for now. Thanks.
Thomas Kerr: Your next question comes from the line of Ross Haberman of each investments.
Ross Haberman: Your next question comes from the line of Ross Haberman of RLH Investments.
Ross Haberman: Please go ahead.
Ross Haberman: Good morning. Thank you for taking my call.
Ross Haberman: Good morning, Thank you for taking my call I had.
Ross Haberman: Two quick questions could you talk a little bit about.
Ross Haberman: Your plans.
Ross Haberman: I had two quick questions. Could you talk a little bit about how we can put that $200 million of excess capital to work? One of your earlier questions talked about that James River potential deal. Could you talk about acquisitions in general? What do you think about them?
Ross Haberman: To put to work that $200 million of.
Ross Haberman: Excess capital one of your earlier questions.
Ross Haberman: <unk> talked about that James River potential deal could you talk about acquisitions in general what do you think about them are you actively looking for them.
Joseph Warner Brown: And related to that, it looks like the stock and the number of shares actually went up in the quarter. In prior calls, you were talking about buying back shares. Are you currently doing that now? Thank you.
Joseph Warner Brown: And related to that.
Joseph Warner Brown: It looks like the stock.
Joseph Warner Brown: The number of shares actually went up in the quarter.
Joseph Warner Brown: In prior calls you were talking about buying back shares are you currently doing that now thank you.
Speaker Change: We can let me take the latter question first in terms of share buyback. We are active in terms of entertaining reverse inquiries.
Joseph Warner Brown: Let me take the latter question first in terms of share buyback. We are active in terms of entertaining reverse inquiries. During the past quarter, we did not have any in-market repurchase activity, partially because in the first quarter we have a very narrow window which is actually open. I think it's less than 10 days that we feel comfortable buying back shares.
Joseph Warner Brown: During the past quarter, we did not.
Joseph Warner Brown: Have any.
Joseph Warner Brown: In market.
Joseph Warner Brown: Repurchase activity, partially because in the first quarter, we have a very narrow window.
Joseph Warner Brown: Which is actually open I think its less than 10 days that we feel comfortable buying back shares.
Joseph Warner Brown: In terms of the disposition or what will happen eventually with the $200 million, obviously, we always want to keep a comfortable cushion for internal growth, but we're generating positive capital at our current growth rate, so this is going to be an ongoing question for us. We are active and have always been active in terms of looking at other potential acquisitions. We, like most companies, find that you have to be extremely careful when you make those decisions.
Joseph Warner Brown: In terms of the disposition.
Joseph Warner Brown: Or what will happen eventually with the $200 million obviously.
Joseph Warner Brown: We always want to keep a comfortable cushion for internal growth, but we're generating positive capital.
Joseph Warner Brown: At our current growth rate. So this is going to be an ongoing question for us. We are active and have always been active in terms of looking at other potential acquisitions.
Joseph Warner Brown: We like most companies find.
Joseph Warner Brown: You have to be extremely careful when you make those decisions. We have had some success over the years and we've had some sideways.
Joseph Warner Brown: We've had some success over the years, and we've had some sideways results from investments in terms of making acquisitions. But there are opportunities out there. Our chairman, Mr. Fox, Fox Payne, has a... We have a 25, 30, 40-year record of investing in insurance operations, so a lot of people approach him from time to time with different ideas, and we continue to entertain those. But like everything, it's right now; we just don't have anything to announce that we're actively working on or looking at at the moment.
Joseph Warner Brown: Results from from investments in terms of making acquisitions.
Joseph Warner Brown: There are opportunities out there our chairman.
Joseph Warner Brown: Mr Fox and Fox pain.
Joseph Warner Brown: 25, 30, 40 year record of investing in insurance operation. So a lot of people approach them from time to time with the different ideas and we continue to entertain those.
Joseph Warner Brown: But like everything it's right now we just don't have.
Joseph Warner Brown: Anything to announce that we're actively working on or looking at at current times.
Ross Haberman: Just connected to that, vis-a-vis... When you're looking for new books of business or other companies, do you weigh that option as opposed to continuing to be maybe more aggressive in terms of buying back your own shares, which is a better option? Thanks again for all your help. It is a perfect question that.
Joseph Warner Brown: Just just connected to that vis vis <unk> <unk>.
Ross Haberman: When you are looking for new <unk>.
Ross Haberman: New books of business or our other companies do.
Ross Haberman: Do you weigh that.
Ross Haberman: <unk> as opposed to continuing to be maybe more aggressive in terms of buying back your own shares.
Ross Haberman: Which is the better option, thanks again failure.
Ross Haberman: No.
Joseph Warner Brown: That is a perfect question that we debate continuously on our board in terms of what the benefits of buying back shares are versus potentially either putting the accelerator down and trying to grow organically faster or adding books of business. I think at this point in time, at this share price, obviously, any shares that we could buy back, anything resembling close to where it is right now would be very, very accretive to book value and create value for all shareholders when that occurs. So we're going to continue to try and explore that over the short term with a portion of our excess capital.
Ross Haberman: There is a perfect question that we debate continuously at our board in terms of what the what the benefits of buying back shares.
Joseph Warner Brown: Sure.
Joseph Warner Brown: And versus <unk> versus <unk>.
Joseph Warner Brown: Potentially either putting the accelerator down and trying to grow organically faster or adding books of business I think at this point in time at this share price.
Joseph Warner Brown: Obviously any any shares that we could buyback anything resembling close to where it is right now are very very accretive.
Joseph Warner Brown: To book value and create value for all shareholders. When that occurs so we're going to continue to try and explore that over the short term for a portion of our excess capital.
Joseph Warner Brown: Yeah.
Speaker Change: Thank you.
Speaker Change: Thank you we have another question from the webcast from Michael O'brien.
Michael O'Brien: Thank you. We have another question from the webcast from Michael O'Brien. It seems like a buyback program is a no-brainer at this level. Why not be more proactive with the buyback?
Michael O'Brien: Seems like a buyback program is a no brainer at these levels why not be more proactive with our buyback.
Michael O'Brien: Yes.
Joseph Warner Brown: I think I kind of answered that with the last question, so unless there's a follow-on, I think we'll let it ride with what I already answered.
Speaker Change: I think I kind of answered that with the last question.
Joseph Warner Brown: There's a follow on I think we'll let it let it ride with what I already answered.
Speaker Change: Thank you the next is from Andrew <unk>.
Andrew Vindigny: Thank you. The next question is from Andrew Vindigny. Any consideration for a special dividend, understanding that this may not be a tax-efficient bill?
Andrew Vindigny: And the consideration for special dividend understanding that this may not be as tax efficient though.
Joseph Warner Brown: The question is, is there any interest in doing a special dividend? One of the things that is unique about our structure as a publicly traded limited partnership is that a majority of the dividends that we distribute are deemed as a return of capital given most investors and most shareholders. So it's unlike a lot of companies where it is not necessarily tax efficient to do special dividends. We look at that through a slightly different lens in evaluating whether that's a good thing to do. And again, that fits with the other uses of excess capital that are continuously evaluated by our board.
Andrew Vindigny: The.
Andrew Vindigny: <unk> is is there any interest in doing a special dividend.
Joseph Warner Brown: One of the things that is.
Dan Baldini: Thank you. And we have a follow-up question from Dan Baldini of Auburn. Please go ahead.
Dan Baldini: Unique about our our structure.
Dan Baldini: A publicly traded limited partnership a majority of the dividends that we distribute are deemed as return of capital given most most investors and most shareholders basis.
Dan Baldini: So it's unlike a lot of companies, where it is not necessarily tax efficient to do special dividends, we look at that through a slightly different lens in evaluating whether that's a good thing to do and again that sits with the other uses of excess capital that is continuously evaluated by our board.
Dan Baldini: Okay.
Dan Baldini: Thank you and we have a follow up question from Dan Baldini of all Burton. Please go ahead.
Joseph Warner Brown: Thanks. So at some point, I can't remember, last year you announced that you'd received interest in what was an inbound interest in PEN America, and then you announced that you were reviewing alternatives for PEN America and the entire company, I believe. And then a few months later, you announced that those discussions had ended. And I imagine it was because of any of this interest that came in, or was that a valuation that you didn't agree with
Dan Baldini: Thanks.
Joseph Warner Brown: At some point I can't remember last year, you announced that you'd received interest in.
Joseph Warner Brown: Inbound interest in Pan America, and then Q.
Joseph Warner Brown: We announced that you were reviewing alternatives for Pan America, and the entire company I believe and then a few months later you announced those discussions ended and I imagine, it's because any interest that came in.
Joseph Warner Brown: At a valuation that you didnt agree with and.
Joseph Warner Brown: No.
Joseph Warner Brown: Now, these James River stories that were out there, maybe they're wrong, mentioned that you were considering paying in part for James River with stock. And I'm just curious, are there any sort of circumstances under which you give away shares at the current valuation in an acquisition?
Joseph Warner Brown: These James River stories that were out there maybe they're wrong.
Joseph Warner Brown: Mentioned that you were considering.
Joseph Warner Brown: Paying in part for James River with stock.
Joseph Warner Brown: And I'm just curious are there any sort of.
Joseph Warner Brown: Circumstances under which you give away shares at the current valuation and an acquisition.
Joseph Warner Brown: It takes a very unusual situation given where our shares are currently trading to use our shares in any kind of an acquisition.
Joseph Warner Brown: It takes a very unusual situation given where our shares are currently trading to use our shares in any kind of acquisition. Obviously, we have a large amount of excess capital, which would be the first thing we would tap before we consider any share issuance once in a while. You run across a transaction that, for a variety of reasons, you might want to use stock, but that's a pretty rare occurrence. As to any comments about a transaction that was at or was potentially discussed with James River, I can't offer any commentary.
Joseph Warner Brown: We have obviously, we have a large amount of excess capital, which would be the first thing we would tap before we consider any share issuance.
Joseph Warner Brown: Once in a while.
Joseph Warner Brown: You run across a transaction that for a variety of reasons you might want to use.
Joseph Warner Brown: Stock.
Joseph Warner Brown: That's a pretty rare occurrence as to any comments about.
Joseph Warner Brown: A transaction that was Ed or was potentially discussed with James River I can't offer any commentary.
Speaker Change: Sure Okay. Thanks.
Speaker Change: We have another follow up question from Tom <unk> of Zacks investment Research. Please go ahead.
Thomas Kerr: We have another follow-up question from Tom Kerr of Zach Investment Research. Please go ahead.
Thomas Kerr: Yes, just a quick one on the investment portfolio I heard you guys comment on the level of equity securities in a long time remains at low levels and $17 million and a $1 $3 billion portfolio.
Joseph Warner Brown: Yeah, just a quick one on the investment portfolio. I've heard you guys comment on the level of equity securities for a long time, and it remains at a low level $17 million in a $1.3 billion portfolio. Any change in thinking on that and increasing equity securities investment?
Joseph Warner Brown: Change in thinking.
Joseph Warner Brown: Matt.
Joseph Warner Brown: Creasing equity securities investments.
Joseph Warner Brown: Okay.
Joseph Warner Brown: Our board is.
Joseph Warner Brown: Our board has been playing, and we played defense, as I think you know from our history two years ago in making a decision to dramatically shorten our investment portfolio and to liquidate our then portion of equity securities. We are looking at what our long-term portfolio should look like as we go through this period of interest rates, which are starting to stabilize and perhaps eventually kind of come down a bit or even maybe more likely to stay sideways.
Joseph Warner Brown: Has been playing we played defense as I think you know from our history, two years ago, and making a decision to dramatically shorten.
Joseph Warner Brown: Our investment portfolio and to liquidate.
Joseph Warner Brown: Our then portion of equity securities.
Joseph Warner Brown: We are looking at what our long term portfolio should look like as we go through this period.
Joseph Warner Brown: Of interest rates, which are starting to stabilize and perhaps eventually kind of come down a bit or even maybe more likely stay sideways at that point.
Joseph Warner Brown: At that point, it behooves us to start making changes in our portfolio composition from a 100% short-duration fixed income portfolio. Personally, from my perspective, it always makes sense to have a portion of your portfolio in equity securities, and I would expect that redeployment to take place sometime in the next couple years in our portfolio.
Joseph Warner Brown: And becomes behooves us to start making changes in our portfolio composition from what is essentially right now.
Joseph Warner Brown: 100% short duration fixed income portfolio.
Joseph Warner Brown: Personally from my perspective.
Joseph Warner Brown: Always makes sense to have a portion of your portfolio in eco.
Joseph Warner Brown: Equity Securities and that I would expect that Youll see that redeployment take place sometime in the next couple of years in our portfolio.
Speaker Change: Great. Thanks for the answer.
Joseph Warner Brown: Again, if you would like to ask a question. Please press star one on your telephone keypad or if you'd like to submit a question. Please use the Q&A button located at the bottom right of your webcast screen.
Kathleen: Again, if you would like to ask a question, please press star 1 on your telephone keypad. Or if you'd like to submit a question, please use the Q&A button located at the bottom right of your webcast screen. There are no further questions at this time. I will now turn the conference back over to Steve Ries for closing remarks.
Stephen Warren Ries: There are no further questions at this time I will now further question back over to Steve.
Stephen Warren Ries: <unk> remarks.
Stephen Warren Ries: Thank you, Kathleen, and thank you everybody for joining us for our first quarter 24 call. If you have any additional questions, please reach out to me, and we look forward to talking to you after the second quarter. Ladies and gentlemen, that concludes today's call. Thank you all for joining us.
Stephen Warren Ries: Thank you Kathleen and thank you everybody for joining us for our first quarter 'twenty four call. If you have any additional questions. Please reach out to me and we look forward to talking to you after the second quarter.
Stephen Warren Ries: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining us. You may now disconnect.
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