NYSE:GBLI
READ THE FULL GBLI RESEARCH REPORT
Global Indemnity Group (NYSE:GBLI) reported 2nd quarter 2024 financial and operating results which were broadly in line with expectations. Underwriting income was $3.5 million in the 2nd quarter compared to $5.3 million in the 1st quarter and $4.3 million in the prior year period. Net income was $10.0 million, or $0.73 per diluted share compared to $11.3 million and EPS of $0.82 in the 1st quarter and $9.2 million and $0.67 per share in the prior year period.
In the company’s core operating subsidiary, Penn-America, gross written premiums in aggregate for Wholesale Commercial, InsurTech, and Assumed Reinsurance business grew by 9.0% in the 1st half of 2024. Gross written premiums for the Programs line decreased 21.0% in the 1st half as a result of rate and underwriting actions taken to improve profitability in late 2022.
Penn-America’s accident year underwriting income was $4.2 million in the 2nd quarter compared to $5.7 million in the 1st quarter of 2024. Penn-America’s loss ratio was 57.8% for the quarter which was an improvement from 60.5% for the same period in 2023.
Net investment income increased to $15.3 million in the quarter, an increase from $13.2 million in the prior year period as a result of strategies employed in late 2022 to take advantage of the rising interest rate environment. Book yield on the investment portfolio increased to 4.5% from 4.0% at the end of 2023. The average duration of these securities was shortened to 1.0 years as of June 30, 2024 compared to 1.1 years on December 31, 2023 and 3.3 years as of March 31, 2022. Approximately $423 million of cash flow will be generated from maturities and investment income for the remaining quarters in 2024. This positions the company to continue to increase book yield by investing maturities in higher yielding bonds and management indicated that the bonds are being reinvested at approximately 5.1%. Currently, approximately 57% of the fixed-income portfolio is invested in U.S. treasuries.
Segment Review
During the 4th quarter of 2023, the company re-evaluated its segments and determined that the business should be managed through two reportable segments: Penn-America and Non-Core Operations. The Penn-America segment comprises the company’s core products which include Wholesale Commercial, Programs, InsurTech, and Assumed Reinsurance. The Non-Core Operations segment contains lines of business that have been de-emphasized or are no longer being written.
For the 1st half of 2024, Penn-America gross written premiums for the Wholesale Commercial, InsurTech, and Assumed Reinsurance businesses increased 9.0%. This growth was driven by organic agency growth and price increases. Gross written premiums for Programs decreased 21.0%. Penn-America’s total gross written premiums increased 2.0% reflecting the large decline in Programs. Management indicated that the reinsurance business is an attractive market currently and may grow 30%-40% over the next 3-4 years.
In the Non-Core Operations segment, gross written premiums declined to ($0.4) million in the 1st half of 2024 from $42.7 million in the prior year period. The decrease in gross written premiums was primarily due to selling the manufactured home & dwelling and farm businesses and the non-renewal of a casualty reinsurance treaty.
Combined Ratios
The consolidated combined ratio was 95.7% for the 1st half of 2024 (Loss Ratio 56.5% and Expense Ratio 39.2%) as compared to 99.0% (Loss Ratio 61.7% and Expense Ratio 37.3%) for the prior year period. The improvement is primarily due to improved performance in non-catastrophe related business. The consolidated accident year casualty loss was 56.6% in 2024 down from 61.7% in the prior year period.
In the Penn-America segment, the accident year combined ratio was 94.8% as compared to 96.8% for the prior year period. In the Non-core Operations segment, the calendar year combined ratio was 113.9% for the 1st half compared to 99.9% in the prior year period. The expense ratio at Penn-America remains elevated as the company made a conscious decision not to reduce staff levels after the premium reductions since 2022 in order to maintain high levels of customer service.
Valuation and Estimates
GBLI book value per share increased to $48.56 as of June 30, 2024. On June 6, 2024, the Board of Directors approved a dividend of $0.35 per common share which was paid on June 28, 2024. The current dividend yield is approximately 4.35%.
Our 2024 total revenue estimate is adjusted to $477.4 million which includes $409.2 million in Net Earned Premiums and $66.5 million in Investment Income. Our 2024 EPS estimate is adjusted to $2.71. As the consolidated expense ratio continues to drift down, we believe EPS can increase to approximately $2.87 in 2025.
Management stated its long-term financial goals which are:
1) Grow the overall business at a rate of 10% or higher,
2) Achieve a combined ratio in the low 90’s,
3) Manage the expense ratio to a competitive level of 36%-37%.
GBLI stock is currently selling at 66.3% of book value based on June 30, 2024 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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