GBLI: Global Indemnity reports 1st quarter results and remains on the path to profitable growth this year.
NYSE:GBLI
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Global Indemnity Group (NYSE:GBLI) reported 1st quarter 2023 financial and operating results on May 10th. Net Earned Premiums were largely in line with expectations. When excluding terminated business, Gross written premiums for the Commercial Specialty segment of Continuing Lines businesses increased 5.7%.
Including terminated businesses, Gross written premiums declined 7.1% which was primarily driven by the non-renewal of a restaurant-related book of business as well as actions taken to improve underwriting results by not renewing underperforming business and was partially offset by increased pricing.
Within the Commercial Specialty segment, excluding terminated business, Package Specialty E&S (primarily Penn-America) increased Gross written premiums by 18.7% to $57.3 million primarily driven by new agency appointments, strong rate increases as well as exposure growth in both property and general liability. In Targeted Special E&S (InsurTech and related businesses), Gross written premiums declined by 9.8% to $36.8 million which was driven by actions to improve underwriting results by not renewing poorly performing business. As a whole, the Commercial Specialty segment grew Gross written premiums by 5.7%.
The other part of Continuing Lines is Reinsurance Operations where Gross written premiums decreased 42.9% which was driven by the non-renewal of a large casualty treaty in 2022.
For the Exited Lines segment, Gross written premiums and Net written premiums decreased 91.4% and 94.0%, respectively, during the quarter compared to the prior year period. This decrease was driven by the sale of the manufactured home business and the farm related businesses in 2022.
There was an Underwriting loss in the Continuing Lines business which was ($1.4) million in the 1st quarter compared Underwriting income of $5.5 million in the 1st quarter of 2022. Consolidated underwriting loss was ($1.0) million in the 1st quarter compared to Underwriting income of $7.8 million in the 1st quarter of 2022. The combined ratio for Continuing Lines was 101.4% in the 1st quarter, which was comprised of a Loss Ratio of 63.6% and an Expense Ratio of 37.8%. The Consolidated combined ratio was 101.0%.
The increase in the accident year gross property loss ratio is largely due to higher non-catastrophe claims severity related to fire losses at vacant properties in the Los Angeles area. As the growing homeless population sought shelter from unusually low winter temperatures and high levels of precipitation, fires were set in commercial vacant buildings. The company has taken underwriting actions to address this exposure considering the evolving conditions in Los Angeles and other urban areas. The homeless population in the Los Angeles area is estimated to exceed 70,000.
The company provides an 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 1st quarter 2022 adjusted operating income was $3.4 million, or $0.24 per diluted shares, compared to $3.8 million in adjusted operating income and $0.25 per diluted shares in the prior year period.
Net investment income increased 82.2% to $12.0 million in the 1st quarter of 2023 compared to $6.6 million in the 1st quarter 2022. The increase in net investment income was primarily due to the strategies utilized by the company to take advantage of higher prevailing interest rates which resulted in a 56% increase in book yield on the fixed income portfolio. Book yield improved to 3.6% as of March 31, 2023 compared to 2.3% as of March 31, 2022 while the average maturity of these securities was shortened to 2.5 years at quarter end compared to 5.1 years as of the end of March 2022. Approximately $900 million, or 72%, of the company’s fixed income portfolio, will mature over the next two years which positions the company to continue increasing book yield in coming years.
Book value per share was $45.68 at the end of the 1st quarter, an increase from $44.87 as of 12/31/2022. The increase was primarily due to consolidated net income of $2.4 million and the positive effect of unrealized investment gains and share buybacks in the quarter totaling $6.6 million in the quarter.
In the 4th quarter of 2022, the company announced it would begin a stock repurchase program before the end of the year. Repurchases of up to $32 million (since increased to $60 million) of GBLI’s outstanding Common A Shares were authorized with an expiration of December 31, 2027. Under this program, the company repurchased 907,082 shares an aggregate amount of $21.9 million, or $24.17 per share during the 4th quarter of 2022. Share repurchases in the 1st quarter of 2023 totaled $6.6 million.
Subsequent to the end of the 1st quarter, from April 1, 2023 through May 1, 2023, an additional 200,000 shares with an average cost of $28.00 per share were repurchased as part of the share repurchase program. Including these purchases, a total of 1,357,082 shares with an average purchase price of $25.05 per share were repurchased under the share repurchase program that was initially authorized on October 21, 2022.
Valuation and Estimates
We are lowering our full year 2023 EPS estimate to $2.29 due to higher underwriting losses in the 1st quarter which was partially offset by a lower share count. This may prove to be conservative if the company’s combined ratio on its Continuing Lines continues to decline more rapidly than expected. The company is currently selling at 61.3% of book value based on March 31, 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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