Good morning, and welcome to Global Indemnity Group 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer. [Operator Instructions] Thank you. Stephen Ries, Head of Investor Relations, you may begin your conference.

Thank you, operator. Today's conference call is being recorded. GBLI's remarks may contain forward-looking statements. Some of the forward-looking statements can be identified by the use of forward-looking words, including, without limitation, beliefs, expectations or estimates. We caution you that such forward-looking statements should not be regarded as a representation by us that the future plans, estimates or expectations contemplated by us will, in fact, be achieved. Please refer to our annual report on Form 10-K and our other filings made with the SEC for a description of the business environment in which we operate and the important factors that may materially affect our results. Global Indemnity Group, LLC is not under any obligation and expressly disclaims any such obligation to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise. It is now my pleasure to turn the call over to Jay Brown, Chief Executive Officer of GBLI.

Thank you, Steve. Good morning and thanks to everyone for taking the time to join us on the call this morning. I will first provide an update on what has transpired at Global since our last call. This will then be followed by Tom McGeehan, our CFO, providing a detailed explanation of how our results for fourth quarter and full year were compiled, how they compared to prior year and some of the implications for future results based on the actions we have recently taken. We will then take questions. Looking back to last November, just a week after I joined the company, I will admit that the amount of change that I have now brought to the organization has been far greater than I expected at that time. As documented at our Investor Day last fall, 2022 was planned as a major expansion of GBLI's product offerings with both new lines of business and new products added to our existing product lines. As we began the process of evaluating our business plans for 2023, including the major dependencies on technology that needed to be either acquired and/or developed. It became clear that we needed to stand back and assess with our Board what was best for our shareholders over the next few years. In December, the GBLI Board was presented with a three year business technology plan that highlighted the significant technology and staff costs and risks associated with the planned expansion of our product offerings. Following that meeting, my management team put together a radically different business plan that substantially reduced the risk and costs associated with what would have been a dramatic change to our historical positive position in the excess and surplus lines business. The first decision was to immediately exit four businesses that we have…

Thank you, Jay, and good morning, everyone. Book value per share decreased from $48.44 at December 31, 2021 to $44.87 at December 31, 2022. Excluding decreases in the market value of the fixed income portfolio due to rising interest rates, book value per share would have increased by $0.98 per share. The decrease in book value per share due to rising interest rates was partially offset by share repurchases during the fourth quarter of 2022. During the fourth quarter, 907,000 shares were acquired. Share buybacks during the fourth quarter increased book value per share by $1.09. Global Indemnity paid a distribution of $0.25 per share each quarter to our shareholders. There was a net loss in 2022 of $850,000. Net income includes realized investment losses that were incurred as the portfolio was restructured to lower duration. Adjusted operating income, which excludes realized gains and losses, discontinued operations and onetime events was $19.5 million versus $14.6 million in 2021. We are realizing the benefits of having a higher yielding short duration portfolio. Book yields continue to increase since cash flows are reinvested. Our continuing lines generated an underwriting profit of $16.2 million. Consolidated underwriting income was $8.3 million. As Jay noted, actions were taken in the fourth quarter of 2022 and the first quarter of 2023 to enable Global Indemnity to focus on its commercial specialty lines, which were Penn-America small business, InsurTech, Programs and selected specialty lines. As Jay also noted, a decision was made during the fourth quarter of 2022 to stop writing business from recently formed units. The amount of investment and time it would have taken to achieve a proper rate of return from these new units was too long. Charges incurred in the fourth quarter of 2022 to exit these units were $2.3 million. In addition,…

[Operator Instructions] And we do have a question from the line of Tom Kerr from Zacks Investment Research. Your line is open.

A couple of quick ones here, nothing to in-depth, but can you go over the fourth quarter of $5.5 million charge again. I think you said there are three components of that and missed what those were or misunderstood them?

Yes. Hang on one second. It was -- the $5.5 million was actually spread between the fourth quarter and the first quarter. During the fourth quarter, we had a severance cost of $23 million and we had asset impairments of $1.1 million and the remainder of the charges, Tom, were actually incurred in the first quarter of 2023 and they were mainly severance costs.

Okay. Got it. I took the press release of fourth quarter -- first quarter. [indiscernible] A big picture question sort of on the expense ratio for the last two years, it increased from 36 to 37. [Technical Difficulty] basically.

You broke up a bit, Tom. Could you repeat your question please?

The expense ratio on continuing lines went from 36.2% to 37.2% last year. But early last year, when you begin the restructuring and the severance, I thought that might have been different. I forget what the delta was.

And you're right, our expense ratio has been going up as we were investing in some of our new lines of business and as Jay noted, that's why we just took the actions that we took. We're selling the farm book, we're selling the manufactured homes with the new units where again as we look forward it would have taken too long to get a proper return of capital. We were making some very significant investments in people and technology in those lines, but those were the costs that as I said when we looked ahead we felt it was necessary to -- it would have taken too long. We took the actions that we took to eliminate those expenses and that will improve our expense ratio on a going forward basis.

So is it fair to get the combined ratio from 97% down to the low 90s, like you stated was your goal. Is it fair to say most of that comes from the expense ratio or equally with the expense and the loss?

Probably about 30% will come from the expense ratio side. The rest will just be on the underwriting side from loss ratio.

Okay. Sounds good. All right. One more, any change, and I think you mentioned this sort of at the Investor Day have or will have $200 million surplus capital going forward. Is that still a current number? Or is that looking out?

Well, no. As we look out, we look at it as discretionary capital, it will continue to increase. The share buybacks and rises in interest rates, which have lowered our equity. Right now, we're in that $150 million to $160 million range. We'll expect that that will continue to increase. As Jay noted, the actions we took have an immediate benefit to excess capital, discretionary capital, we will see -- we expect to see increases in our discretionary capital going forward.

All right. Sounds good. That's all I got for now.

Thank you.

Thank you. [Operator Instructions] And there are no further questions at this time. This does conclude today's conference call. Thank you for your participation. You may now disconnect.