GBLI: Global Indemnity Group reported 3rd quarter 2023 earnings which showed solid growth in the Package Specialty E&S lines of business.
NASDAQ:GBLI
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Global Indemnity Group (NASDAQ:GBLI) reported 3rd quarter 2023 financial and operating results on November 8th which showed mixed results. Net Written Premiums declined 33.1% to $95.6 million, which was primarily driven by the planned non-renewal of a large Reinsurance casualty treaty as well as the roll off of premiums from Exited Lines. Consolidated net income for the 3rd quarter was $7.6 million, or $0.55 per diluted share.
In the 3rd quarter, Commercial Specialty gross written premiums and net written premiums decreased 9.4% and 9.7%, respectively compared to the prior year period. These declines were driven by planned actions taken to improve underwriting results through increased rates, reducing exposure to catastrophe related business, and the non-renewal of underperforming business lines.
Package Specialty E&S, the company’s primary division within the Commercial Specialty segment increased gross written premiums (excluding terminated business) by 6.1% in the 3rd quarter when compared to the prior year period. This increase was primarily driven by driven by new agency appointments, strong rate increases as well as increased exposure growth in both property and general liability.
Targeted Specialty E&S, another division within the company’s Commercial Specialty segment, gross written premiums excluding terminated business decreased by 21.7% in the quarter compared to the prior year period. This was driven by actions taken to improve underwriting results by not renewing underperforming business.
Within the Targeted Specialty business, the lines of business under InsurTech increased gross written premiums 22.7%. This includes the Vacant Express product which generated $8.5 million in premiums in the quarter, which was an increase of 28% compared to the prior year period. The Collectibles line grew approximately 14% to $4.8 million.
Targeted Specialty Class Specific lines of business were largely responsible for the declines in Commercial Specialty as gross written premiums declined 36.9% as the company reduced exposures to catastrophe business and did not renew underperforming business.
The other part of Continuing Lines is Reinsurance Operations where gross written premiums and net written premiums both decreased 72.4% in the 3rd quarter. The reduction in gross written premiums and net written premiums was primarily due to the non-renewal of a major casualty treaty in 2022.
On a consolidated basis, underwriting income for the company was $0.7 million in the 3rd quarter compared to $4.6 million in the prior year period. However, Continuing Lines showed an underwriting loss of ($9.9) million due to loss reserve strengthening primarily driven by the restaurant book of business that was not renewed as well as other terminated business.
The consolidated combined ratio was 99.7% for the 3rd quarter (Loss Ratio 58.3%, Expense Ratio 41.4%) which compared to 97.2% (Loss Ratio 57.6%, Expense Ratio 39.6%) for the 3rd quarter of 2022.
The accident year combined ratio for Continuing Lines was 97.8% for the 3rd quarter (Loss Ratio 59.3%, Expense Ratio 38.5%) as compared to 97.7% (Loss Ratio 59.6%, Expense Ratio 38.1%) for the 3rd quarter of 2022. The calendar year combined ratio for Continuing Lines was 109.2% for the 3rd quarter of 2023, (Loss Ratio 70.0%, Expense Ratio 39.2%) as compared to 95.7% (Loss Ratio 57.7%, Expense Ratio 38.0%) for the 3rd quarter of 2022. The calendar year combined ratio for Continuing Lines was impacted by loss reserve strengthening primarily driven by the restaurant book of business that was not renewed as well as strengthening related to other non-renewed business. The tragic Maui fires were responsible for 2.3% of the Continuing Lines accident year loss ratio.
In the Continuing Lines business, the accident year casualty loss ratio increased by 3.7 points to 63.7% in 2023 from 60.0% in 2022. The consolidated accident year casualty loss ratio increased by 3.4 points to 62.9% in 2023 from 59.5% in 2022. The increase in the Continuing Lines and the Consolidated accident year casualty loss ratios was principally driven by higher claims severity.
Also in the Continuing Lines business, the accident year property loss ratio improved by 8.9 points to 49.4% in 2023 from 58.3% in 2022. The consolidated accident year property loss ratio improved by 11.5 points to 48.1% in 2023 from 59.6% in 2022. This improvement was primarily due to lower non-catastrophe claims severity partially offset by higher catastrophe claims frequency. Within the Continuing Lines segment, loss reserves were strengthened by approximately $11.8 million.
The company provides a Non-GAAP adjusted operating income figure in order to provide an underlying metric for the health of the core Continuing Lines businesses. Adjusted operating income excludes exited lines underwriting losses, realized investment losses, as well as other extraordinary gains and losses. The 3rd quarter 2023 adjusted operating income was a loss of ($0.55) million, or ($0.05) per diluted share, compared to $6.5 million in adjusted operating income and $0.43 per diluted share in the prior year period.
Net investment income increased to $14.2 million in the 3rd quarter of 2023 which compares to $8.4 million in the 3rd quarter of 2022. The increase in net investment income was primarily due to the strategies undertaken by the company in April 2022 to take advantage of rising interest rates, which resulted in a 74% increase in book yield over time on the fixed income portfolio to 4.0% as of September 30, 2023 from 2.3% as of March 31, 2022. Average duration of these fixed income securities was shortened to 1.2 years as of September 30, 2023 from 3.3 years as of March 31, 2022.
Approximately $800 million of cash flow, or roughly 60% of the fixed income portfolio, will be generated from maturities and investment income between September 30, 2023 and December 31, 2024, which positions the company to continue to increase book yield by investing maturities in higher yielding bonds. Some of this cash flow is being reinvested at rates above 5.0%. It’s possible that the total fixed income book yield could increase to above 5.0% at some point in 2024.
Book value per share was $46.27 at the end of the 3rd quarter, compared to $46.03 at the end of the 2nd quarter of 2023 and $44.87 as of 12/31/2022. The increase was primarily due to consolidated net income of $7.6 million and offset by dividends to common shareholders of $0.25 per share. There were no share buybacks in the quarter and year-to-date share buybacks have totaled $12.7 million.
Acquisition Interest
On June 9th, 2023, the company announced multiple parties have indicated preliminary interest in exploring an acquisition of, or merger with Penn-America, Global Indemnity's insurance group, or an acquisition of, or merger with the company itself. The company is responding to certain of these preliminary indications of interest, but no further update or information was provided on the 3rd quarter 2023 earnings call.
Valuation and Estimates
We are adjusting our full year 2023 EPS estimate to $1.92 based on 3rd quarter and year-to-date operating results. This may prove to be conservative if the company’s combined ratio on its Continuing Lines continues to decline significantly in the 4th quarter of 2023. We also adjust our 2024 EPS estimate to $2.98 based on the expected significant improvement in the Continuing Lines combined ratio. The company is currently selling at 75% of book value based on September 30, 2023 shareholders’ equity. There are no changes to our valuation target of $60.00 at this time as we believe that in the long term, the company can trade at a small premium to future book value per share.
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