Zacks Small Cap Research – GBLI: Global Indemnity investment income more than doubles in 2023. – Technologist

By Thomas Kerr, CFA

NYSE:GBLI

READ THE FULL GBLI RESEARCH REPORT

Global Indemnity Group (NYSE:GBLI) reported 4th quarter 2023 and full year financial and operating results on March 13, 2024, which were mostly in line with expectations. Underwriting income was $3.0 million for the full year compared to $8.3 million in the prior year period. However, there were two unusually problematic casualty books of business, a New York habitational book and a restaurant book which created losses. Excluding those two books of business, underwriting income would have been $37.7 million for the year. Underwriting actions and rate increases have been taken on the New York habitational book to improve profitability and the restaurant book was not renewed as of March 1, 2023.

In the company’s core operating subsidiary, Penn-America, gross written premiums in aggregate for Wholesale Commercial, InsurTech, and Assumed Reinsurance business grew by 11.6% in 2023. Gross written premiums for the Programs line decreased 40.5% in 2023 due to rate and underwriting actions taken to improve profitability in October 2022.

Penn-America’s accident year underwriting income was $18.5 million for 2023 compared to $13.5 million in the prior year period. Excluding the New York habitational book, accident year underwriting income would have been $23.1 million for 2023. Penn-America’s accident year loss ratio was 57.4% for 2023 which was an improvement of 1.6 points from the same period in 2022. Excluding the New York Habitational book, Penn-America’s 2023 accident year loss ratio was 55.8%.

Net investment income increased to $55.4 million in 2023 which more than doubled from $27.6 million in 2022. The increase in net investment income was primarily due to strategies employed in April 2022 to take advantage of the rising interest rate environment. This resulted in a 74% increase in book yield on the fixed income portfolio to 4.0% as of December 31, 2023 from 2.3% at March 31, 2022. The average duration of these securities was shortened to 1.1 years as of December 31, 2023 from 3.3 years as of March 31, 2022.

Approximately $850 million of cash flow, or approximately 60% of the company’s fixed income portfolio, will be generated from maturities and investment income in the calendar year 2024. This positions the company to continue to increase book yield by investing maturities in higher yielding bonds.

The consolidated combined ratio was 99.7% for the full year (Loss Ratio 61.1% and Expense Ratio 38.6%) as compared to 98.8% (Loss Ratio 59.6% and Expense Ratio 39.2%) for 2022. The consolidated accident year property loss ratio improved by 6.6 points to 55.0% in 2023 from 61.6% in 2022. The improvement is primarily due to lower non-catastrophe claims frequency and severity within Penn-America partially offset by higher catastrophe claims frequency. The consolidated accident year casualty loss ratio increased by 0.5 point to 61.1% in 2023 from 60.6% in 2022. Higher claims severity in the two problematic books mentioned above contributed to the increase.

In the Penn-America segment, the accident year combined ratio was 95.2% for 2023 (Loss Ratio 57.4% and Expense Ratio 37.8%) as compared to 96.5% (Loss Ratio 59.0% and Expense Ratio 37.5%) for 2022. Excluding the New York habitational book, Penn-America’s accident year combined ratio was 93.8%. The calendar year combined ratio for Penn-America was 103.6% for 2023 (Loss Ratio 65.8% and Expense Ratio 37.8%) compared to 97.4% (Loss Ratio 59.8% and Expense Ratio 37.6%) in 2022. Penn-America’s 2023 calendar year combined ratio was impacted by loss reserve strengthening primarily from casualty business for the 2019 through 2022 accident years. The New York habitational book comprised $13.2 million of strengthening. It also impacted results in the 2023 accident year. Excluding the New York habitational book, Penn-America’s calendar year combined ratio was 98.6%.

In the Non-Core Operations segment, the calendar year combined ratio was 87.9% for 2023 (Loss Ratio 47.1% and Expense Ratio 40.8%) which compares to 101.1% (Loss Ratio 59.4% and Expense Ratio 41.7%) in 2022. The decline in the loss ratio resulted from the commutation of a reinsurance treaty and favorable development in the exited Farm, Ranch & Stable business.

Valuation and Estimates

GBLI book value per share increased $2.66 per share, or 8.2% (including $1.00 per share of dividends paid during 2023), to $47.53 as of December 31, 2023 compared to $44.87 at the end of 2022. On March 6, 2024, the Board of Directors approved a dividend of $0.35 per common share payable on March 28, 2024, a 40% increase over the prior quarterly dividend rate of $0.25 per common share. The current dividend yield is approximately 4.81%.

Or 2024 total revenue estimate is $453.7 million which includes $387.2 million in Net Earned Premiums and $66.5 million in Investment Income. Our 2024 EPS estimate is adjusted to $2.43.

GBLI stock is currently selling at 61.9% of book value based on December 31, 2023 shareholders’ equity.

We maintain our long-term price target of $55.00 per share based on the stock selling at a small premium to future book value per share.

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