GBLI: UPDATE: The company reported strong 3rd quarter earnings on November 8th which were above our expectations. An executive transition also occurred recently.
NYSE:GBLI
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Global Indemnity Group (NYSE:GBLI) reported 3rd quarter financial results on November 8th which were above our expectations. Gross Written Premiums for continuing lines of business increased 13% while consolidated company Gross Written Premiums increased 0.9%. Consolidated Gross Written Premiums includes premiums from exited lines which dropped 32.0% compared to the prior year period. Total revenues from Continuing Lines increased 20% to $136.2 million.
The combined ratio for Continuing Lines was 96.9% for the 3rd quarter which was comprised of a Loss Ratio of 58.3% and an Expense Ratio of 38.6%. The company experienced lower catastrophe claims with losses of $9.3 million for the nine-month period ending 9/30/22 compared to $20.5 million in losses for the same period in 2021. Losses related to hurricane Ian were approximately $1.5 million. The company generated net income of $23.6 million, or $1.60 per share, for the 3rd quarter compared to a loss of $7.8 million, or $0.54 per share, in the prior year period.
Results were solid in the core Penn-America segment. In recent years, the company has made efforts to expand and enhance the more profitable lines of business in Penn America such as small artists, contractors, and vacant buildings. At the same time, they have exited problematic areas such as lodging, liquor liability and the Colorado construction business.
Reinsurance operations showed strong growth with Gross Written Premiums increasing 47.0% due to organic growth of existing casualty treaties. This includes their largest casualty quota share treaty and the company’s Excess Professional business. Premium rate increases in this area of the insurance market continue to be strong.
Investment income generated during the quarter totaled $8.4 million compared to $9.3 million in the 3rd quarter of 2021. Normalized investment income, which excludes alternative assets, was $9.5 million compared to $6.3 million in the prior year period. The duration of the fixed income portfolio at quarter end was 1.7 years compared to a duration of 3.0 years as of December 31, 2021. The book yield on the portfolio increased from 2.2% at 2021 year-end to 3.1% as of 9/30/22. Shareholder’s equity increased $2.3 million from 6/30/22 to $643.6 million at 9/30/22. Book value per share was $43.76 at the end of the 3rd quarter.
GBLI also announced that it will start a stock repurchase program beginning in the 4th quarter of 2022. Repurchases of up to $32 million of GBLI’s outstanding Common A Shares have been authorized by GBLI’s board of directors. The authorization to repurchase will expire on December 31, 2027.
On October 21st, the company announced that CEO David Charlton and COO Reiner R. Mauer are no longer officers or directors of GBLI. The board of directors appointed Joseph (Jay) Brown as its Chief Executive Officer. Mr. Brown has served as a GBLI director since December 2015 and will remain a board member. Mr. Brown has almost 50 years of insurance industry experience, including prior tenures as a director, chairman, and chief executive officer of MBIA, Inc. (NYSE:MBI), chairman of the board of Safeco, chairman of the board of Talegen Holdings, Inc., chairman of Noblr, and president and CEO of Fireman’s Fund Insurance Company.
GBLI also announced that Jason Hurwitz, 50, rejoined GBLI’s board of directors. Mr. Hurwitz had previously served on GBLI’s board from September 2017 to January 2022. Mr. Hurwitz is a partner with Osier Capital LLC, an investment firm focused on insurance and other long-term investments.
GBLI Chairman Saul Fox, stated: “I wish to thank David Charlton and Reiner Mauer for their significant contributions to GBLI during their 18-month and 16-month respective tenures with GBLI. However, GBLI’s board of directors believes that the company would be best served at this time by Jay Brown as its Chief Executive Officer, given Jay’s vast experience as a chief executive and as a board chairman of several prominent and highly esteemed property & casualty insurance companies, where Jay orchestrated enterprise transformative results. Jay’s decades of insurance company senior leadership expertise will be of tremendous value to GBLI as it transitions to an information technology and data driven casualty lines focused provider.” Jay Brown added: “It has been a terrific experience as a director working with the GBLI board and management team over the past 5 years developing the long-term strategy for our company. I look forward to shifting to the senior executive role at the company leading the effort to make that vision a reality.”
We are increasing our Q4 2022 estimates to $0.60 and full year 2022 estimates to $0.33. We increase our full year 2023 estimate to $3.03. These estimates assume a small but steady decrease in the company’s combined ratio over each of the next five quarters. There are no changes to our valuation target of $60 at this time as we believe that over the long-term, the company can trade at a small premium to future book value per share.
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