Q2 2024 Global Indemnity Group LLC Earnings Call
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Thank you for standing by my name is Krista and I will be your conference operator today at this time I would like to welcome everyone to the global Indemnity group second quarter 'twenty 'twenty four earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks.
Krista: Thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Global Indemnity Group second quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise.
Krista: 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 one on your telephone keypad. And if you would like to withdraw your question, again, press star one. We will also be taking web questions. If you would like to submit a question, use the Q&A button located at the right, at the bottom right-hand corner of your screen. Thank you. I would now like to turn the conference over to Stephen Ries, Head of Investor Relations. Stephen, you may begin.
There will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad and if you would like to withdraw your question I got and press Star. One we will be we will also be taking what questions. If you would like to submit a question you used the cumin.
Speaker Change: Hey button located at the rate.
Speaker Change: At the bottom right hand corner of your screen.
Speaker Change: Thank you I would now like to turn the conference over to Stephen Reiff head of Investor Relations. Steven you may begin.
Stephen Ries: Thank you, Krista. 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 representations 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 descriptions of the business environment in which we operate and important factors that may materially affect our results.
Stephen Reiff: Thank you Christa as a reminder, today's conference call is being recorded some remarks may contain forward looking statements.
Speaker Change: 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 representation by us that the future plans estimates or expectations contemplated by US we went back.
Pete: Pete please.
Pete: 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.
Pete: Factors that may materially affect our <unk>.
Jay Brown: <unk> 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 of Global Indemnity.
Stephen 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 of Global Indemnity.
Jay Brown: Thank you Steve.
Jay Brown: Good morning, and thank you all for joining us for the GBLI Mid-Year Update on Financial and Operational Results. As usual, we will follow our usual format.
Jay Brown: Good morning, and thank you all for joining us for the <unk> mid year update on financial and operational results.
Jay Brown: Following our usual format I'll.
Jay Brown: I will first provide a few overview comments, and then our Chief Financial Officer, Brian Riley, will review the financial highlights for our insurance operation. Halfway through the year, our team continues to achieve results that are consistent with our plan for 2024 and tracking towards the long-term metrics we established last year. They remain profitable, growing our business at around 10% per annum.
Speaker Change: We'll first provide a few overview comments and then our Chief Financial Officer, Brian Reilly will review the financial highlights for our insurance operations.
Speaker Change: Halfway through the year. Our team continues to achieve results that are consistent with our plan for 2024 and tracking towards the long term metrics, we established last year.
Speaker Change: They remain first.
Brian Reilly: Growing our business at around 10% per annum.
Brian Reilly: Second.
Jay Brown: Associating a combined ratio in the low 90s, and third, manage our insurance expenses to a competitive level. 36 to 37% While the exits from certain business segments that we entered here 18 months ago are no longer having a material effect on this year's financial results, as Brian will note later, they do have a significant effect when you compare this year's results to last year, in terms of revenues.
Brian Reilly: Achieving a combined ratio in the low nineties.
Brian Reilly: And third manage our insurance expenses to a competitive level.
Brian Reilly: 36% to 37%.
Brian Reilly: While the exit from certain business segments that we engineer 18 months ago.
Brian Reilly: No longer having a material effect on this year's financial results as Brian will note later, they do have a significant effect when you compare this year's results to last year.
Brian Reilly: In terms of revenues as noted in our press release most of our insurance divisions are tracking against long term double digit growth.
Jay Brown: As noted in our press release, most of our insurance divisions are tracking against long-term double-digit growth. We expect that the combination of Pan America Wholesale Commercial, InsureTech, and Assumed Reinsurance will be close to this target at year end after recording a 9% increase through the first six months of 2024. However, the expansion of our program division is still a work in progress, and will continue to lag a bit in 2024 with revenue growth flat for six months, excluding the terminated 2023 program.
Brian Reilly: We expect that the combination of Pan America wholesale commercial.
Brian Reilly: And sure Tac and assumed reinsurance will be close to this target at year end after recording a 9% increase through the first six months of 2024.
Brian Reilly: However, the expansion of our program Division is still a work in progress.
Brian Reilly: And we will continue to lag a bit in 2024 with revenue growth flat through six months, excluding terminated 2023 programs.
Jay Brown: Brian will provide a more detailed breakdown of revenue growth in a few moments. Turning to underwriting performance, I was very pleased to record a six-month combined ratio of 94.8 for the PEN America segment. In line with our first quarter, this performance was again driven by a continuation of the achievement of solid casualty loss ratios and another good quarter for property loss ratios. Despite the industry again seeing catastrophic losses, our six month property catastrophic losses dropped by 35% from last year. Similar to the level we saw in the first quarter.
Brian Reilly: Brian will provide a more detailed breakdown of revenue growth in a few moments.
Brian Reilly: Turning to underwriting performance I was very pleased to record a six month combined ratio of 94, 8% for the Pan America segment.
Brian Reilly: In line with our first quarter.
Brian Reilly: This performance was again driven.
Brian Reilly: By a continuation of achievement of solid casualty loss ratios and another good quarter for property loss ratios.
Brian Reilly: Despite the industry again seeing catastrophic losses.
Our six month property cat <unk> catastrophic losses dropped by 35% from last year.
Brian Reilly: Similar to the level, we saw in the first quarter.
Jay Brown: We continue to record a higher than target expense ratio of 38.6. However, as I noted last quarter, we have kept our internal dollar costs in check since last year after the dramatic drop in premium from 2022. And it will take another couple of years for us to start hitting our long-term targets for expense ratio. This reflects a conscious decision to keep our 2024 PEN America staff levels at the same level as last year after a substantial reduction in premium from 22 in order to continue to meet the service needs of our customers.
We continue to record a higher than target expense ratio of $38 six.
Brian Reilly: As I noted last quarter, we have kept our internal dollar cost in check since last year. After the dramatic drop in premium from 2022.
Brian Reilly: And it will take another couple of years for us to start hitting our long term targets for expense ratio.
Brian Reilly: This reflects a conscious decision to keep our 2024 Pan America staff levels at the same level as last year. After the substantial reduction of premium from 'twenty two in order to continue to meet the service needs of our customers.
Jay Brown: We are also investing heavily in a full digital transformation of our existing technology infrastructure to stay competitive in the markets we serve. The first couple releases of our new modular transaction cloud-based infrastructure will go into production for our wholesale commercial binding business agent partners in the second half of this year, supporting our excess liability and special event products. The remaining of our commercial wholesale products will be added next year.
Brian Reilly: We are also investing heavily in a full digital transformation of our existing technology infrastructure to stay competitive in the markets we serve.
Brian Reilly: The first couple releases of our new modular transaction cloud based infrastructure will go into production for our wholesale commercial binding business agent partners in the second half of this year supporting our excess liability and special events products.
Brian Reilly: The remainder of our commercial wholesale products will be added next year.
Brian Reilly: Yes.
Jay Brown: We continue to achieve rate increases that are modestly in excess of our assessment of underlying inflation trends, although the market is still somewhat hard in the markets we serve. There is no question that the level of rate increases that are now being achieved is tempered from what we saw in the past few years. However, this should allow us to support the consistent long-term loss ratio results we are currently achieving and have experienced historically.
Brian Reilly: We continue to achieve rate increases there are modestly in excess of our assessment of underlying inflation trends.
Brian Reilly: While the market is still somewhat hard in the markets. We serve there is no question that the level of rate increases that we are now that are now being achieved is tempered from what we saw in the past few years.
Brian Reilly: However, this should allow us to support the consistent long term loss ratio results. We're currently achieving and have experienced historically.
Jay Brown: We also continue to deliver favorable investment returns following the repositioning of our investment portfolio to take advantage of the dramatic increases taking place in short-term interest rates over the past 27 months. Book yields on our portfolio have continued to increase since the beginning of the year and now sit at 4.5%. Given that the duration of our portfolio is now at just 1.0 years, we remain well positioned to redeploy our cash flow and maturity in longer-dated, higher-yielding investments as we get past the election and enter 2025.
Brian Reilly: We also continued to deliver favorable investment returns following the repositioning of our investment portfolio to take advantage of the dramatic increases has taken place in short term interest rates over the past 27 months.
Brian Reilly: Book yields on our portfolio have continued to increase since the beginning of the year and now sit at four 5%.
Brian Reilly: Given that the duration of our portfolio is now at just 1.0 years, we remain well positioned to redeploy our cash flow our maturities into longer dated higher yielding investments as we get past the election and entered 2025.
Jay Brown: As we look ahead, we continue to expect an increase in our excess capital from an extraordinarily strong position. However, as I am constantly reminded, excess capital is always in the eyes of the beholder. That said, we were very pleased to have AM Best affirm our A rating and note that our balance sheet strength was again rated at the strongest level. Overall, I am very pleased with the improved results. My colleagues have recorded the data for the first six months of 2024 and will now turn it over to Brian to provide a more detailed review of the numbers.
Brian Reilly: As we look ahead, we continue to expect an increase in our excess capital from an extraordinarily strong position.
Brian Reilly: Yes.
Speaker Change: As I am constantly reminded excess capital is always in the high in the eyes of BBA holder.
Speaker Change: That said, we were very pleased to have a M. Best affirm our a rating and note that our balance sheet strength was again rated at best strongest levels.
Speaker Change: Yes.
Speaker Change: Overall I am very pleased with their improved results my.
Speaker Change: My colleagues have recorded for the first six months of 2024 and will now turn it over to Brian to provide a more detailed review of the numbers.
Thank you Jay.
Brian Riley: As the six-month results are tracking similarly to the first quarter, my commentary will focus on results for the first six months. Of course, we can answer any questions you may have about the second quarter.
Brian Reilly: As the six months results are tracking similarly to the first quarter My commentary will focus on results for the first six months.
Brian Reilly: Of course, we can answer any questions you may have on the second quarter numbers.
Brian Riley: Net income was $21.5 million in 24 compared to $11.8 million in 23. The combination of net income and a $5 million increase in the market value of the fixed income portfolio, book value per share increased from $47.53 at year-end to $48.56 at June 30, including dividends paid in 24 of 70 cents per share. Return to shareholders was 3.6% for the first half of 24. For the first six months of 24, both underwriting and investment performance contributed to the improvement in net income, starting with the best. Investment income increased 18% to $29.8 million from a year ago.
Speaker Change: Net income was $21 5 million and 24 compared to $11 8 million in 2003.
The combination of net income.
Speaker Change: And a $5 million increase in the market value of the fixed income portfolio.
Speaker Change: Value per share increased from $47 53 at year end to $48 56 at June 30.
Speaker Change: Including dividends paid and 24 of <unk> 70 per share.
Speaker Change: Return to shareholders was three 6% for the first half of 'twenty four.
Speaker Change: For the first six months of 2000, <unk>, both underwriting and investment performance contributed to the improvement in net income.
Speaker Change: Starting with investments.
Speaker Change: <unk> investment income increased 18% to $29 8 million from a year ago.
Brian Riley: Actions taken since early 2022 to sell longer-dated securities and shorten duration have translated into much higher current book yields. Cash flows of $37 million plus $394 million of fixed income securities yielding 3% that matured during the year were reinvested at an average rate of 5.1%. As Jay noted earlier, the current book yield on our fixed income portfolio is now 4.5% with a one-year duration at June 30, 2024. Comparatively, at December 31, 22, the book yield was 3.4% with a duration of 1.7 years. And that the December 31, 21, book yield was 2.2% with a duration of 3.2 years. The average credit quality of the fixed income portfolio remains at double A minus.
Speaker Change: Actions taken since early 2022 to sell longer dated securities and shortened durations have translated into much higher current book yields.
Speaker Change: Cash flows of 37 million plus $394 million of fixed income securities, yielding 3% that matured during the year were reinvested at an average rate of five 1%.
Speaker Change: As Jay noted earlier, the current book yield on our fixed income portfolio is now four 5% with a one year duration at June 32024.
Jay Brown: Comparatively at December 31, 22 book yield was three 4% with duration of one seven years.
Jay Brown: And at December 31, 21 book yield was two 2% with a duration of three two years.
Jay Brown: The average credit quality of the fixed income portfolio remains at a double a minus.
Brian Riley: As Jay mentioned earlier, our short-term duration portfolio is well positioned. We have 423 million in investments maturing in the second half of 2024. We have the flexibility to continue investing in low-risk securities in this higher interest rate environment or invest in longer maturities to further increase investment returns if the interest rate environment were to soften significantly.
Jay Brown: As Jay mentioned earlier, our short term duration portfolio is well positioned.
Jay Brown: We have $423 million of investments maturing in the second half of 2024.
Jay Brown: We have the flexibility to continue investing in low risk securities and this higher interest rate environment or.
Jay Brown: Invest in longer maturities to further increase investment returns if the interest rate environment were to soften significantly.
Brian Riley: Now let's move to underwriting performance for the first six months of the year. We continue to see good results, as the current acts of your consolidated underwriting income was $8.7 million. This was driven by a consolidated Axonear combined ratio of 95.8 in 24 compared to 99.1 in 23.
Jay Brown: Now, let's move to underwriting performance for the first six months of the year.
Jay Brown: We continue to see good results as.
Jay Brown: Does the current <unk> underwriting income was $8 7 million.
Jay Brown: In 24, compared to $3 2 million and 23.
Speaker Change: This was driven by a consolidated accident year combined ratio of 95, eight and 24 compared to 99, 1% and 23.
Brian Riley: The improvement in the current X-year underwriting income was due to strong performance in our core business, Penn America. Pet America's actual year underwriting income was $9.9 million in 2024 compared to $6.3 million in 2023. As Jay noted, Penn America's Action Year Combined Ratio is 94.8 and 24, an improvement of two points from 96.8 in the same period last year.
Jay Brown: The improvement in the current extra underwriting income was due to strong performance in our core business Pan America.
Speaker Change: Pat America's accident year underwriting income was $9 9 million and 24 compared to $6 $3 million in 'twenty three.
Speaker Change: As Jay noted <unk> combined ratio was $94 $8 24, an improvement of two points from $96 eight in the same period last year.
Brian Riley: The excellent overall Axonear loss ratio of 56.3 was mainly due to the performance of our property business. The property loss ratio improved to 53.1 in 24 compared to 63 in 23 due to both non-catastrophe and catastrophe performance. The non-catastrophe loss ratio improved at 44.5 in 2024, compared to 52.9% a year ago, due to the decline in the number of large fire losses we experienced in 2023. The catastrophe loss ratio improved to 8.6% in 24 compared to 10.1 in 23. As for the casualty loss ratio, it remains in line with expectations at 58.8%. Unlike 2023, our non-core operations have a diminished effect on our overall performance.
Speaker Change: The excellent excellent overall accident loss ratio of 56, three was mainly due to performance of our property business.
Speaker Change: The property loss ratio improved to 53, 1% and 24 compared to <unk> 63, and 23 due to both non catastrophe and catastrophe performance.
Speaker Change: The non catastrophe loss ratio improved to $44 five and 2024.
Speaker Change: Compared to 52, 9% a year ago.
Speaker Change: Due to the decline in the number of large large large fire losses, we experienced in 2023.
Speaker Change: The cat loss ratio improved to eight 6% and 24 compared to 10, 1% and 23.
Speaker Change: As for the casualty loss ratio. It remains it remains in line in line with expectations at 58, 8%.
Speaker Change: Yes.
Speaker Change: Unlike 2023, our noncore operations have a diminished effect on our overall performance.
Brian Riley: Our non-core operations net earned premium dropped to $10.9 million in 2024 compared to $85.9 million in 2023, mainly from an assumed retrocession casualty treaty which was terminated at the end of 2022. Further, the runoff of our Exit Specialty Property business resulted in no catastrophe losses in 2024, compared to $3.2 million a year ago. The overall underwriting loss was $1.2 million for 2024 compared to $3.1 million in 2023, $2 million better than last year. The combined ratio is 110.7.
Speaker Change: Our noncore operations that earned premium has dropped to $10 9 million in 2024 compared to $85 9 million in 2023.
Speaker Change: Mainly from an assumed retro session casualty treaty, which was terminated at the end of 2022.
Speaker Change: Further the run off of our exited specialty property business resulted in no catastrophe losses in 2024 compared to $3 2 million a year ago.
Speaker Change: The overall underwriting loss was $1 2 million for 2024 compared to $3 $1 million in 'twenty three.
Speaker Change: $2 million better than last year.
Speaker Change: The combined ratio was 110, 7%.
Brian Riley: The loss ratio is in line with expectations at 61.6, but the runoff expenses remain a bit high as we wind down a number of smaller underwriting portfolios. Moving to County Year Underwriting Inc. Consolidated calendar year underwriting income was slightly better than the accident year, at $8.8 million in 2024. This compares to $3.2 million a year ago. The impact of prior accident years is favorable by 80,000.
Speaker Change: The loss ratio is in line with expectations at 61, six but the runoff expenses remain a bit high as we wind down a number of smaller underwriting portfolios.
Speaker Change: Moving to calendar year underwriting income.
Speaker Change: Consolidated calendar year underwriting income was slightly better than the accident year results at $8 $8 million and 24. This compares to $3 2 million a year ago.
Speaker Change: The impact of prior accident years was favorable by 80000 Boe.
Brian Riley: Both reserves remain solidly above our current actuarial indication. Turning to insurance revenue, consolidated gross written premiums were $194.2 million in 2024 compared to $233.1 million in 2023. This decrease is entirely due to the runoff business in our non-core segment, which declined $43 million from a year ago.
Speaker Change: Booked reserves remains solidly above our <unk> at our current actuarial indications.
Speaker Change: Turning to insurance revenues.
Speaker Change: Consolidated gross written premiums of $194 2 million and 24 compared to $233 1 million in 2003.
Speaker Change: Decrease is entirely due to the runoff business in our noncore segment, which declined $43 million from a year ago.
Brian Riley: PEN America's gross written premiums was $194.6 million in 24 compared to $190.4 million in 23. This is in line with our plan. However, due to programs terminated in the fourth quarter of 2023, it did not meet our long-term growth and underwriting expectations.
Speaker Change: Pan American's gross written premiums was $194 6 million and 24 compared to $194 million in 'twenty three.
Speaker Change: This is in line with our plan.
Speaker Change: And due to due to programs terminated in the fourth quarter of 2023 that did not meet our long term growth and underwriting expectations.
Brian Riley: Excluding these terminated programs, PEN America's gross written premiums grew from $182.3 million in 23 to $194.6 million in 24, a 7% increase. As Jay mentioned earlier, aggregate growth of 9% was achieved on the wholesale, commercial, insurtech, and assumed reinsurance business. Let me add a little bit of color on those divisions.
Speaker Change: Excluding these terminated programs pet America's gross written premiums grew from $182 3 million and 23 to $194 6 million and 24, 7% increase.
Speaker Change: As Jay mentioned earlier aggregate growth of 9% was achieved on the wholesale commercial and short tech and assumed reinsurance business.
Jay Brown: Let me add a little bit of color on those divisions.
Brian Riley: Wholesale commercial, which focuses on main street small business, grew 3% to $124.9 million compared to $121 million in 2023. Excluding premium audit in these calendar year numbers, the underlying policy year trends, our best indicator growth was 12%, which includes rate increases of 9%. Overall, the short-term growth rate is in line with expectations.
Jay Brown: Wholesale commercial which focuses on main street small business grew 3% to $124 9 million compared to $121 million in 2023.
Jay Brown: Excluding excluding premium audit and these calendar year numbers, the underlying policy year trends, our best indicator growth was 12% which includes rate increases of 9%.
Jay Brown: Overall, the short term growth rate is in line with expectation.
Brian Riley: We expect to exceed 8% for the full calendar year. InsureTech, which consists of vacant expression collectibles, grew 18% to $26.3 million in 2024, compared to $22.3 million in 2023. Let me break down those two products.
Jay Brown: We expect to exceed 8% for the full calendar year.
Jay Brown: Ensure tech which consists of vacant expressing collectibles grew 18% to $26 3 million in 2024 compared to $22 3 million and 23.
Jay Brown: Let me break down those two products.
Brian Riley: Vacant Express grew 23% to $18.6 million, driven by organic growth from our existing agents as well as agency appointments. New technical automation implemented in the third quarter of 2023 for vacant dwelling products, including the expansion of monoline general liability products, contributed to the growth and premium our agents are producing. Collectibles, gross rate, and premium grew 6% to $7.6 million. Our assumed reinsurance book of business continues to grow at a nice pace, tracking with our plan to see significant growth in 2024.
Jay Brown: They can express grew 23% to $18 6 million driven by organic growth from our existing agents as well as agency appointments.
Jay Brown: Sure.
Jay Brown: New technical automation implemented in the third quarter of 2023, four vacant dwelling products, including the expansion of motto line general liability product.
Jay Brown: Contribute to the growth in premium our agents are producing.
Jay Brown: Collectibles.
Gross written premiums grew 6% to seven 6 million.
Jay Brown: Our assumed reinsurance book of business continues to grow at a nice pace tracking with our plan to see significant growth in 2024.
Brian Riley: We signed on six new treaties during the second quarter. Gross written premiums grew $9.4 million in 2024 compared to $4.3 million in 2023, and lastly, programs excluding terminated business, as we mentioned earlier, with $34.0 million, lower than 2023 by 1.4 million. We signed on two new treaties in 24 that contributed $700,000 for the first six months of the year. We expect to have four new programs signed on over the next six to 12 months. In closing, we are pleased with the first six months of 24. The further outlook for the full year is very positive. PEN America continues to show strong acts of the year performances.
Jay Brown: We signed on six new treaties during the second quarter gross written premiums grew $9 4 million in 2004.
Jay Brown: So 'twenty work compared to $4 $3 million in 2023.
Jay Brown: Sure.
Jay Brown: And lastly programs excluding terminated business, we mentioned earlier was 34 point.
Jay Brown: Zero million.
Jay Brown: Lower than 2023 by $1 4 million.
Jay Brown: We signed on two new treaties in 'twenty four they contributed 700000 for the first six months of the year, we expect to have four new programs signed on over the next six to 12 months.
Jay Brown: In closing we are pleased with the first six months of 'twenty four.
Jay Brown: Further our outlook for the full year is very positive Pet America continues to show strong accident year performance.
Brian Riley: We believe premium pricing is meeting loss inflation. Discretionary capital continues to increase student income and reduce capital needed for the runoff of non-core business, which will support growth and other corporate opportunities. And last, our investment portfolio is well positioned to take advantage of this higher interest rate environment or invest in longer maturities at higher yields if the interest rate environment were to soften significantly. Thank you. We will now take your questions.
Jay Brown: We believe premium prices pricing is meeting loss inflation.
Jay Brown: Discretionary capital continues to increase due to income and reduced capital needed for the runoff of noncore business.
Speaker Change: This will support growth and other corporate opportunities.
Speaker Change: And last our investment portfolio is well positioned to take advantage of this higher interest rate environment or invest in longer maturities at higher yields at the interest rate environment were to soften significantly.
Thank you we will now take your questions.
Operator: Thank you. We will begin the question and answer session now. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. And if you would like to withdraw that question, again, press star 1. And if you would like to ask a web question, please type your question in the question box on the bottom right-hand corner of your screen. Your first question comes from the line of Jeffrey Bronchick with Cove Street Capital. Please go ahead.
Speaker Change: Thank you we will begin the question and answer session.
Speaker Change: I would like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue.
Speaker Change: If you would like to withdraw that question again press Star one and if you would like to ask a web question. Please type your question in the.
Speaker Change: <unk> box on the bottom right hand corner of your screen.
Speaker Change: Your first question comes from the line of Jeffrey of Brian <unk> with Cove Street Capital. Please go ahead.
Jeffrey Bronchick: Good morning, gentlemen. Thank you for your time today. Thank you. Three general questions. Do you know, is it the 92nd version, but would you describe the reinsurance efforts of, you know, kind of what you are, what you think, what you saw you had where you think you could add value and dollars and and how you're going about executing it?
Speaker Change: Good morning, gentlemen, thank you for your time today.
Speaker Change: Thank you.
Speaker Change: General questions.
Speaker Change: It is.
Speaker Change: The 92nd version, but when you describe.
Speaker Change: The reinsurance upwards.
Speaker Change: Kind of what your what you thought what you saw you had where you think you could add value.
Speaker Change: And and how youre going about executing it.
Jay Brown: Sure, it's a good question. Prior to last year, we basically offered reinsurance originally out of our Bermuda operation, and then subsequently, we moved back to the United States on a retrocession basis to other reinsurers. When I arrived at the company, we made the decision that the margin on that business, while it had been attractive, would be better for us to actually shift our efforts in the reinsurance market into reinsuring insurance carriers directly.
Speaker Change: Sure. So good question.
Prior to last year, we had basically offered reinsurance originally out of our Bermuda operation and then subsequently then move back to the United States on a retro session basis to other reinsurers.
Speaker Change: When I arrived at the company, we made the decision that the margin in that business, while it had been attractive who would be better for us to actually shift our efforts in the reinsurance market into re insuring.
Speaker Change: <unk> carriers directly.
Jay Brown: We took a look at where we had, what we thought was an appropriate skill set, starting in the cannabis book and then some of the program areas, and decided that's where we would emphasize and set up our operation to start participating with small lines on a multitude of different treaties. We expanded the number of treaties, doubled them, in the space of 18 months and expect to continue to grow that business, probably going up 30 to 40 percent per year for the next three or four years.
Speaker Change: We took a look at where we had.
Speaker Change: What we thought was an appropriate skill set starting in the cannabis book and then some of the program areas and decided Thats, where we would emphasize and set up our operation to start participating with small lines on a multitude of different treaties.
Speaker Change: Expanded the number of treaties doubled them.
Speaker Change: In the space of 18 months and expect to continue to grow that business probably.
Speaker Change: Going up 30% to 40% per year for the next three or four years.
Jay Brown: We think the reinsurance market is an attractive market right now. We believe that the tiny little niche that we're operating in provides a good return on capital, and we feel comfortable with what we've been able to achieve so far.
Speaker Change: We think the reinsurance market is an attractive market right now we believe that the tiny little niche that we're operating in provides a good return on capital and we feel comfortable with what we've been able to achieve so far.
Jay Brown: and is this this tend to be UNSC-oriented, or is this, you know, property and weather? I mean, what, what's, just help me out.
Speaker Change: And is this is this tend to be.
Speaker Change: <unk> SC oriented or is this.
Speaker Change: Pretty and weather.
Speaker Change: Just to help me out.
Jay Brown: Absolutely. It's very much ENSE. It's a good description. The types of products that we're reinsuring are very similar to the products we underwrite on a direct basis.
Speaker Change: Absolutely.
Speaker Change: Much NSE into good description.
Speaker Change: The types of products that were re insuring are very similar to the products. We underwrite on a direct basis one of the reasons, we feel comfortable in that space.
Jay Brown: One of the reasons we feel comfortable in that space is that, given our background and what we've achieved over the last three or four years, we have tended to get kept away from large weather related exposures. We haven't seen much in terms of any significant catastrophe losses on the book. This is in contrast to where we were positioned three or four years ago. We were very heavy on retrocession catastrophic business, and that was really related to when we were based in Bermuda.
Speaker Change: We are.
Speaker Change: Given our our background in what we've achieved over the last three or four years.
Speaker Change: We have tended to get keep away from large weather related exposures.
<unk> seen much in terms of any <unk>.
Speaker Change: Significant catastrophe losses in the book. This is in contrast to where we were positioned three or four years ago. We were very heavy on our retrocession catastrophic business and that was really related to one where we're based in Bermuda.
Jay Brown: And just lastly on this piece, is there any primary insurer that you're sort of latched on to here, or is it widely spread?
Speaker Change: And just lastly on this basis is there any primary insurer that youre sort of latched on to here or is it widely spread.
Jay Brown: It's widely spread. I think we're currently probably dealing with about 15 different customers at this point in time and expect to see that continue to expand over the next couple of years.
Speaker Change: It's widely spread.
Speaker Change: I think we're currently probably.
Speaker Change: We're probably dealing with about 15 different customers at this point in time and expect to see that to continue to expand over the next couple of years.
Jay Brown: Next question would be, What would you say today about the James River ventures that have taken place this year? What's, Is there a conclusion that you would care to share with us?
Speaker Change: Next question will we be.
Speaker Change: What would you say.
Speaker Change: Say today about the James River.
Speaker Change: <unk> over the <unk>.
Speaker Change: Over.
Speaker Change: This year.
Speaker Change: Is there a conclusion that you would care to share with us.
Jay Brown: As to James River, it's probably appropriate that I don't make any comments for my lawyers, in terms of the agreements we had with James River or in terms of the actual experience of looking at any particular opportunities. It's something that we have done constantly for the last 20 years. We have a substantial amount of excess capital at this point in time that we'd like to deploy. If we can't deploy it in businesses that we are currently engaged in, certain types of M&A activity might be able to create increases in returns for our shareholders. And so that's the type of thing that we're going to continue to look at as this year unfolds and going forward.
Speaker Change: As to James Raft River.
Speaker Change: It's probably appropriate that I don't make any comments per my lawyers.
Speaker Change: In terms of agreements, we had with James River in terms of the actual experience of looking.
Speaker Change: At any particular opportunities, it's something that we have done constantly for the last 20 years.
Speaker Change: We have a substantial amount of excess capital at this point in time that we'd like to deploy.
Speaker Change: If we can't deploy it in businesses that we are currently engaged in.
Speaker Change: Certain types of M&A activity might be able to create increases in returns for our shareholders and so that's the type of thing that we're going to continue to look at as this year unfolds in going forward.
Jay Brown: Would you say that that episode is complete? No comment, would it be can you comment as to whether the nature of these opportunities is sort of a reverse? Transcripts provided by Transcription Outsourcing, LLC. Team Global is the, you know, continuing and, you know, running and
Speaker Change: Would you say that.
Speaker Change: That episode is complete.
Speaker Change: No comment.
Speaker Change: Can you comment as to.
Speaker Change: Is the nature of these opportunities sort of a reverse.
Speaker Change: Sale or truly an acquisition where.
Speaker Change: Our team.
Speaker Change: Team global is the continuing in <unk>.
Speaker Change: Running entity.
Jay Brown: I'm not sure, maybe you can clarify that a little bit more if I'm not sure exactly what you're asking. Well, I'm making a guess. I don't know if there are lawyers talking about age issues that I may just trample on here.
Speaker Change: Not sure maybe you can clarify that a little bit more of a I'm not sure exactly what you are.
Speaker Change: I'm, making.
Speaker Change: I don't know of their lawyers talking about age issues that they may just trample on here, but.
Jay Brown: But you know, clearly, the companies had an interesting path. The gentleman who is on this call running the insurance companies is no spring chicken. And its controlling owner is no spring chicken either.
Speaker Change: Clearly the company has had an interesting path.
Speaker Change: The the gentleman, who is on this call running the insurance companies is no spring chicken.
Speaker Change: <unk> control owner is no spring chicken.
Jay Brown: And one could perceive that the James River trend, you know, chit chat, was sort of a sale, which in using this capital structure, which would enable the James River management team to effectively run a show. I'm just trying to get a sense of, you know, the what's next concept. Was that structured as a sale and you were leaving? Or no, you guys were actually, you know, buying and running and, you know, couldn't wait to get your hands on it. I guess you don't take the no comment, https://www.globalindemnity.org
Speaker Change: And one could perceive that the James River.
Speaker Change: Chat was sort of.
Speaker Change: No.
Speaker Change: A sale, which in using this capital structure, which would enable.
Speaker Change: The James River management teams will definitely run issue I'm, just trying to get a sense of.
Speaker Change: But what's next concept was that structured as a sale and you were leaving or no you guys were actually buying and running.
Speaker Change: Couldnt wait to get your hands on it.
Speaker Change: I guess, you don't take the no comment.
Speaker Change: Two seriously Sal, let that go and we'll move onto the next questioner, Okay I'll get one.
Operator: Your next question comes from Joel Estreca. Can you explain why Jason Hurwicz recently left the board?
Speaker Change: Your next question comes from the line of.
Speaker Change: <unk> can you explain why Jason Horowitz recently left the board.
Jay Brown: Sure, Jason is a long-time friend. I've known him for 25 plus years now in various roles that I have had in the insurance field.
Speaker Change: Sure Jason as long term friend I've known Jason for 25 plus years now.
Jay Brown: James, Jason had served on the board for quite a long time and had actually left while I was on the board before I became the CEO. When I joined the company as the CEO, I specifically asked Jason if he would mind coming back on the board for a certain time period and helping us out because there was a lot of change that was going to take place. In my time here as the CEO, he did that.
Speaker Change: In various roles that I've had in the insurance area James Jason had served the board for quite a long time and had actually left.
Speaker Change: While I was on the board before I became the CEO.
Speaker Change: When I joined the company as the Chief Executive Officer, I, specifically asked Jason if he would mind coming back on the board for a certain time period.
Speaker Change: And help us out because there is a lot of change that was going to take place I expected in the first year or so of my.
Jay Brown: And I think he's now elected to go back and pursue other interests, which he had already started doing before he joined our board, and he didn't want to have any conflicts in terms of different things he might do in the property casualty space. Jason has been an incredible contributor to our company for a long time. I miss him, but I also understand when somebody has to choose to pursue other things. You are next.
Speaker Change: My time here as CEO, he did that and I think he has now elected to go back and pursue other interests, which he had already started doing before he joined our board and.
Speaker Change: And didn't want to have any conflicts in terms of different things he might do in the property casualty space.
Speaker Change: Jason.
Jason: When an incredible contributor to our company for a long time.
Speaker Change: <unk>.
Speaker Change: But I also understand when somebody asked to choose to pursue other things.
Operator: Your next question comes from the line of Ross Haberman with RLH Investments. Please go ahead.
Speaker Change: Your next question comes from the line of Ross Haberman with <unk> investments. Please go ahead.
Ross Haberman: Morning, gentlemen. How are you? I just had a quick follow-up question. You referred to your expenses and how it would take, I guess, a year or two to get them back in line, in the line you would want them to. Could you explain that a little more? And do you think you'd lose?
Ross Haberman: Good morning, gentlemen, how are you I just had a quick follow up question. You were you referred to your expenses and how it would take.
Speaker Change: A year or two.
Speaker Change: Get them back in line.
Speaker Change: Why you would want them to could you explain that a little more and do you think you'd lose.
Brian Riley: business, if you plot them down, quicker. Thank you.
Speaker Change: Business.
Speaker Change: You.
Speaker Change: Go up and down.
Speaker Change: Quicker. Thank you.
Brian Riley: Yeah, hi, this is Brian. As we mentioned in previous calls, we kept our staffing levels to ensure that our customer service levels were at a top level and continued to exceed expectations. You know, we're currently, when I think about our 39, we're about 26 points are variable, and 13 points are fixed. You know, in that $39,000 to get to $37,000, we'd expect that $26,000 to remain to achieve that decline from $13,000 to $11,000 on our fixed costs. It's really a combination of double-digit premium growth combined with, you know, inflationary four to five percent increase in expenses.
Tyler: Yes Tyler.
Brian Reilly: Hi, This is Brian.
Brian Riley: Thank you very much.
Speaker Change: As we mentioned in previous calls we kept our staffing levels to ensure that our customer service levels were at top of it.
Speaker Change: Continue to be.
Speaker Change: And exceed expectations.
Speaker Change: We're currently when I think about our 39 were about 26 points is variable.
Speaker Change: 13 points is fixed.
Speaker Change: And that 39 to get to a 37, we'd expect that 26 to remain.
Speaker Change: To achieve that declined from 13 to 11 in our fixed costs.
Speaker Change: It's really a combination of double digit premium growth.
Speaker Change: Combined with.
Speaker Change: Inflationary, 4% to 5% increase in expenses.
Speaker Change: Thank you very much.
Operator: Your next question comes from the line of Tom Kerr with Zach's Small Cap Research. Please go ahead. Good morning, guys.
Tom <unk>: Your next question comes from the line of Tom <unk> with Zacks small cap research. Please go ahead.
Thomas Kerr: Good morning, guys. Most of my questions have been answered.
Thomas Kerr: Just a quick one on discretionary capital. Did you mention a dollar amount in your comments? If I missed that, is it still in the $200 million range?
Tom <unk>: Good morning, guys. Most of my questions have been answered just a quick one on the discretionary capital did you mention the dollar amount in your comments if I missed that there is still a a $200 million range.
Brian Riley: Yeah, as Jay mentioned, Discretionary Capital of the Eye of the Beholder, you know, so we're really measured in two ways. One is, you know, a regulatory authority through RBC, and a rating agency through BCAR with, you know, BCAR.
Jay Brown: Yes, as Jay mentioned.
Jay Brown: Discretionary.
Jay Brown: Sure Kathryn the eyes of a whole.
Jay Brown: <unk>.
Speaker Change: We're really mess.
Speaker Change: Measured by.
Speaker Change: In two ways one is a <unk>.
Speaker Change: Regulatory authority to RBC.
Speaker Change: Rating agency <unk> with <unk>.
Speaker Change: Yes.
Brian Riley: I would I would say that we are probably able to deploy about 125 million of capital. Um, yeah, to maintain the strong adequacy of our capital scores. Yeah, and as well as you know, we would expect growth year over year, about 30 million of excess capital.
Speaker Change: I would I would say that we're probably able to deploy about $125 million of capital.
Speaker Change: Yes.
Speaker Change: To maintain the strong adequacy of our of our of our capital scores.
Speaker Change: Yes, and as well.
Speaker Change: We'd expect growth over year over year about $30 million.
Speaker Change: Excess capital.
Brian Riley: That's a reduction from previous comments, even though the balance sheet has got stronger. Is that just to maintain the rating?
Speaker Change: That's a reduction from previous comments, even though the balance sheet got stronger or is that just to maintain the rating.
Brian Riley: That's if we want to be at the absolute highest rating where we currently operate. And so, you know, obviously, we could operate down 10% below that. And that's kind of where the $200 million number that we've used historically over the last two or three quarters has come from. Our position stays the same. But again, we're always reminded that different people look at excess capital in different ways.
Speaker Change: That said, if we want to be at the absolute highest rating.
Speaker Change: Where we currently operate and so obviously, we could operate down 10% below that and that's kind of where that $200 million number that we've used historically over the last two or three quarters has come from.
Speaker Change: Our position stays the same but again were always reminded that different people look at excess capital different ways.
Thomas Kerr: Got it. Thanks. That's all I have for today. Thank you.
Speaker Change: Got it. Thanks, that's all I have for today. Thank you.
Speaker Change: Yes.
Operator: Your next question comes from Chris Coranda. You've expressed the opinion that buying back stock would be a good use of shareholder capital, but also a reluctance to do so in the open market. What are your thoughts on a tender offer as a Way to Reconcile Those Two Issues?
Speaker Change: Your next question comes from Chris Koranda.
Speaker Change: You've expressed the opinion that buying back stock would be a good use of shareholder capital.
Chris Koranda: So reluctant to do so in the open market what are your thoughts on that.
Speaker Change: The tender offer as a way to reconcile those two issues.
Speaker Change: Okay.
Jay Brown: It's something we continue to look at and something that I think the company has used historically at different points along the way, and it's certainly something that, if no other things arise, eventually, one of two things is going to happen. Either we'll do a special dividend, or we'll do a tender offer if we can't deploy the capital into the business in a way to provide good returns to our shareholders.
Speaker Change: It's something that we continue to look at and something that I think the company has used historically at different points.
Speaker Change: Along the way and it's certainly something that if no other things arise.
Speaker Change: <unk> one of two things is going to happen that will do a special dividend or we will do a tender offer if we can't deploy the capital into the business in a way to provide good returns to our shareholders.
Speaker Change: Thank you.
Operator: Your next question comes from Anthony Mottolese.
Speaker Change: Next question comes from.
Anthony Mato less.
Anthony Mottolese: How is your casualty book positioned from the impact of social inflation? Can you discuss lost trends, assumptions, and your confidence in the company's reserve?
How is your casualty book positioned from social inflation impacts can you discuss loss trends assumptions and your confidence in company reserve trends.
Speaker Change: Sure.
Speaker Change: Probably over the past couple of years have upped, our long term loss trends for the casualty business, probably two or three points that you should probably be in the four 5%, we're probably operating with a 776% to 7% range at this point in time.
Speaker Change: In terms of.
Speaker Change: Where we're positioned and how our reserves.
Jay Brown: are holding up. Over the past two quarters, we've actually seen a nice expansion in our margin from where it was at the beginning of the year. This is mainly a result of the last, if you go back to 2022 and 23, we had a couple of casualty exposures that were causing us some problems. Our New York Habitational Book and one particular program, both of those have those exposures either eliminated or substantially reduced.
Speaker Change: Our holding up over.
Speaker Change: Over the past two quarters, we've actually seen a nice <unk>.
Speaker Change: Spansion and our margin.
Speaker Change: From from where it was at the beginning of the year.
Speaker Change: This is mainly a result of the last if you go back to 2022 and 'twenty three we had a couple of casually exposures that were causing us. Some problems are New York Cavitation book in one particular program.
Speaker Change: Are those have.
Speaker Change: Those exposures are either eliminated or substantially reduced so at this point in time their impact on the overall book has been reduced significantly.
Jay Brown: So at this point in time, their impact on the overall book has been significantly reduced. Otherwise, our reserves and our historical exposure in the casualty area look pretty well behaved compared to some of the things that we read about in the industry today. I think that's mainly a reflection of the type of business that we have traditionally underwritten, which is a small commercial focus of the company. We are certainly affected by social inflation in those areas, but it's not as bad as it appears in some of the larger casualty exposures that exist in the industry.
Speaker Change: Otherwise our reserves and our historical exposure in the casualty area looks pretty well behaved compared to some of the things that we read about in the industry today, and then thats, mainly a reflection of the type of business that we have.
Speaker Change: Traditionally underwritten, which is small commercial.
Speaker Change: Focus of the company.
Speaker Change: Tom.
Speaker Change: We are certainly affected by social inflation in those areas, but it's not as bad as it is it appears and some of them the larger casualty exposures that exist in the industry.
Operator: Your next question comes from the line of Joel Strakka. Why aren't you buying back stock in the open market or conducting a Dutch tender share repurchase? If you believe your own projections, your stock price and multiple should increase substantially going forward. Why wait until the price and multiples are higher and the return on investment is lower when you have substantial excess capital?
Joel Straka: Your next question comes from the line of Joel Straka, why aren't you buying back stock in the open market or conducting a Dutch tender share repurchase if you believe in your own projections your stock price and multiple should increase substantially going forward.
Speaker Change: Why wait until the price and multiples are higher and their return on investment is lower when you have substantial excess capital now.
Jay Brown: I believe I answered that question earlier in another questionnaire, but I'll repeat. Basically, I don't disagree with the observation that if we were able to buy a substantial amount of stock in the market right now, either through an open market operation or a Dutch tender, it would add to book value. But the timing of when that will take place is still far in the future, and it's not something that we're currently doing at this particular time.
Speaker Change: I believe I am.
Speaker Change: Answered that question earlier from another questionnaire, but I'll repeat basically I don't disagree with the observation that if we were able to buy a substantial amount of stock in the market right now either through an open market operation or a Dutch tender it would add to book value but.
Speaker Change: The timing of when that will take place is still out in the future and it's not something that we're currently.
Speaker Change: Doing it at this particular time.
Speaker Change: Yeah.
Stephen Ries: Ladies and gentlemen, that does conclude our question and answer session. I will now turn the conference back over to Stephen Ries for his closing remarks.
Speaker Change: Ladies and gentlemen that does conclude our question and answer session I will now turn the conference back over to Steven Roth for closing remarks.
Stephen Ries: Thank you everybody for joining us for our second quarter call. We look forward to speaking with you in the third quarter. In the interim, please reach out to me if you have any questions. Thank you.
Operator: This concludes today's conference call. Thank you for your participation, and you may now disconnect.
Steven Roth: Thank you everybody for joining us for our second quarter call and we look forward to speaking with you in the third quarter in the interim please reach out to me if you have any questions. Thank you.
Speaker Change: This concludes today's conference call. Thank you for your participation and you may now disconnect.