Yahoo Finance Global Indemnity Group LLC (GBLI) Q1 2024 Earnings Call Transcript Highlights: Strong Financial ...
Net Income: $11.4 million, up from $2.5 million in 2023.
Book Value Per Share: Increased to $48.18 from $47.53 at year-end.
Dividends: $0.35 per share, a 40% increase from $0.25 per share.
Investment Income: Grew 21% to $14.5 million.
Book Yield on Fixed Income Portfolio: Increased to 4.3% from 3.4% at the end of the previous year.
Underwriting Income: $5.3 million, improved from a loss of $600,000 in 2023.
Combined Ratio: Improved to 94.9 from 100.6 in 2023.
Gross Written Premiums: $93.5 million, down from $123 million in 2023.
Release Date: May 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Net income significantly increased to $11.4 million from $2.5 million in the previous year.
Underwriting performance improved with a combined ratio of 94.0% for the Penn-America segment, indicating efficient operations.
Investment income rose by 21% due to strategic adjustments in the investment portfolio, enhancing yields.
Dividends increased by 40% to $0.35 per share, reflecting strong financial health and commitment to shareholder returns.
Successful digital transformation initiatives are underway, aiming to enhance competitive edge in the market.
Negative Points
The expense ratio was higher than the target at 39.2%, indicating cost management challenges.
Growth in the program division lagged, showing slower progress in certain business segments.
Despite overall growth, certain regional performances were flat, such as in the East region, due to previous business downsizing.
The company is still recovering from a significant drop in premiums written last year, affecting current financial dynamics.
Ongoing debates about the best use of $200 million in excess capital suggest potential uncertainty in strategic financial planning.
Q & A Highlights
Q: Hi, good morning. Thanks for taking my question. Say the Company's combined ratios improved very nicely and the so is the investment income, but the ROE remains sort of pedestrian. And I'm wondering what you can do to improve the ROE going forward? 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%, 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.
Q: Please discuss GBLI's interest in pursuing a transaction with James River Insurance. A: I've heard about that in terms of what I've read in the papers, we have had conversation with James River and those conversations are on pause at this point in time. We may re-examine that later on if there's continued interest on both parties' part to pursue something.
Q: Good morning, guys. Bob, can you go over the expense ratio issue again, I didn't understand completely. The Penn-America continues to grow organically or sequentially and programs declined. 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. Thanks. A: I know you're 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 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 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 overtime is our internal operating costs for Penn-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. The staff makes up about two thirds of that expense. And so as 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 on. We expect that that should be achieved by 2026 with progress shown throughout this year and into next year, hopefully marketing that in terms of increments quarterly by quarterly.
Q: Good morning. Thank you for taking my call. I had two quick questions. Could you talk a little bit about your plans to put to work that $200 million of excess capital. One of your earlier questions was 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? And related to that, it looks like you stopped the number of shares actually went up in the quarter. You in prior calls you were talking about buying back shares. Are you currently doing that now? Thank you. A: We can take let me take the latter question first, in terms of share buybacks, we are active in terms of entertaining reverse inquiries at during the past quarter, we did not have any end market repurchase activity, partially because in the first quarter we have a very narrow window and which is actually open. I think it's less than 10 days that we feel comfortable buying back shares in terms of the disposition or what will happen eventually with the $200 million. Obviously, we always want to keep a comfortable cash cushion for internal growth, but we're generating positive capital as and 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 on we like most companies find. And if you have to be extremely careful when you make those decisions, we've had some success over the years and we've had some sideways results from from investments in terms of making acquisitions, and there are opportunities out there.
Q: Yes, just a quick one on the investment portfolio. I've heard you guys comment on the level of equity securities in a long time remains at low level, 17 million, $1.3 billion portfolio. Any change in thinking on that and increasing equity securities investment? A: Our Board is has been playing with play 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 are 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 stay sideways at that point on, it becomes behooves us to start making changes in our portfolio composition from what is essentially right now, 100% short-duration fixed income portfolio. I'm personally, from my perspective, it always makes sense to have a portion of your portfolio in equity securities and that I would expect that you'll see that redeployment take place sometime in the next couple of years in our portfolio.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
