Hello and welcome to the GBLI 2Q 2023 Earnings Call. [Operator Instructions] I will now turn the conference over to Mr. Steve Ries. Please go ahead.

Thank you, Sarah. 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 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's now my pleasure to turn the call over to Mr. Jay Brown, Chief Executive Officer of Global Indemnity.

Thank you, Steve. Good morning, and thanks to everyone on the call for taking the time this morning to join us for our second quarter results discussion. Before we review our results for the quarter, let me address the elephant in the room. As we stated in our June 9 press release, the company is engaged in conversations that could potentially lead to a transaction to sell a portion of our insurance operations for the entire company. These conversations are continuing, and as stated in our press release, we do not intend to make any further comments unless or until it has been completed or suspended. As such, we will not be making any further comments today. That said, let's turn to the results for the second quarter. As we noted in our last 2 calls, the significant restructuring that has occurred in the prior 2 quarters does not make direct comparisons to prior year overall results somewhat difficult. Our ongoing operating segments are primarily commercial specialty and to a much lesser extent, reinsurance operations. I will focus my comments on commercial specialty results as this is the portion of our operations, which will dictate future underwriting results. Following my comments, Tom will address all the financial aspects of our GAAP results. The long-term operating metrics we are focused on for ongoing commercial, our loss and loss expense ratios consistent with our long-term average in the mid-50s and an expense ratio of below 38% this year, trending to 36% in a couple of years, a combined ratio in the low 90s and growth averaging 10%. I am very encouraged by our second quarter accident year results, albeit we still have some work to do. For the second quarter, our accident year loss and loss expense ratio was 57.5%. Our expense…

Thank you, Jay, and good morning to everyone. Net income for the second quarter of 2023 was $9.3 million and adjusted operating income, which excludes realized losses and results of exited lines was $6.9 million. We are pleased with the direction of our results. Actions taken to focus on core business lines, reduce expenses, reduce catastrophe exposure and reposition the investment portfolio are being realized. Book value per share increased from $45.68 at March 31, 2023 to $46.03 at June 30, 2023, due to good underwriting results, strong investment income and share repurchases. As Jay noted, during the quarter, 200,000 shares were acquired. Since the share repurchase program was initiated in the fourth quarter of 2022, the company has repurchased 1,357,082 shares from third parties for an aggregate amount of $34 million. I will now discuss some of the key drivers of net income starting with investment performance. Investment income was $13.2 million during the second quarter of 2023. On a year-to-date basis, investment income is $25.2 million comprised of $24.1 million from fixed-income investments and $1.1 million from alternative investments. This compares to $8.5 million in 2022 and comprised of $13.3 million from fixed-income investments and negative investment income of $4.8 million from alternatives. Investment income from the fixed-income portfolio was almost double what it was in 2022 due to the actions taken in early 2022 to sell longer-dated securities and short duration. Bulk yield on the portfolio was 3.8% at June 30, 2023, and duration is 1.4 years. As a comparison, at December 31, 2021, book yield on the fixed-income portfolio was 2.2% and duration was 3.2 years. At December 31, 2022, book yield was 3.5% and duration was 1.7 years. Between June 30, 2023 and December 31, 2024, we expect our investment portfolio will generate approximately $900…

[Operator Instructions] There are no questions -- my apologies, we do have a question from the line of Ross Haberman with RLH Investment.

Thank you, Chairman. I'm sorry I got on a bit late. Did you mention anything about the press release you issued, I want to say about a month ago. You said something about a number of companies that approached you in an informal or formal way? And can you say anything about the status of that now?

The conversations are continuing. That's all we're going to say at this time. Go ahead.

Other quick one, I have a follow-up. How much is left in terms of your buyback authorization?

I'm sorry. Could you repeat the question, please? I couldn't quite hear it.

How much is left in terms of your buyback authorization in dollars?

$101 million.

And that lasts through the end of the calendar year?

It's open for several years still.

[Operator Instructions] Your next question is from John Schuster. [Ph] What forward earnings impact should we see from the reduced reinsurance costs?

Well, our reinsurance costs last year before our June 1 renewal were approximately $10 million annually. This year, when we renewed the costs dropped to approximately $5 million. And that's due to the actions -- primarily due to the actions that we've taken to reduce our catastrophe-exposed business. We were able to buy less.

[Operator Instructions] Your next question comes from the line of Tom Kerr with Zacks Investments.

A couple of quick ones here. On the Exit Line Business and the net-earned premiums, can you give any more color on how that trends down? Or will there still be earned premiums the rest of the year, maybe into '24, I know it's going to be a small amount.

Yes. It's going to be a very small amount. I mean, hang on just 1 second, Tom. Round numbers, we -- just bear with me for 1 second. We only had $6 million of -- $6.2 million of earned premium in the second quarter. We were $18.2 million year-to-date. So we went from $12 million to $6 million. We're probably going to go down somewhere between $2 million and $3 million and by the end of the year, it should be virtually nothing.

Okay. That's helpful. Can you repeat on the targeted specialty lines, the decrease there. Can you kind of give color or repeat what you said? I think you mentioned dropping wholesalers, or was there anything else?

Well, we had a couple of things in our -- in some of our wholesale business, we non-renewed business that was not providing an adequate return on capital. We also were managing catastrophe exposure. We were able to grow in our Vacant Express line, and we also grew our individual collector policies by 4%. So down a little bit in 1 area, up in a few others. Tom, it was really increased overall profitability. As Jay noted, we had to sacrifice some business to improve overall results.

When we started the year after our review in the fourth quarter, we set specific targets for reunderwriting and pricing changes per individual agents that had large blocks of business with us, and a number of those have resulted in nonrenewals.

Okay. That's helpful. And on the book yield, and I can't do the math in my head, but if you're investing that much above 5% by the end of next year, does that mean a book yield could reach for 5% or over? And I know that's a crystal ball.

Our portfolio today, Tom, is round numbers, $1.35 billion. We have 800 maturing where the extra $100 million when I noted $900 million, $100 million of that. I'm using round numbers was investment income. You're going to get a yield that if rates stay where they are today, we should have yields that are approaching the mid-4s, but that's kind of what you should be expecting.

Got it. All right. Last question is the -- I know you guys have a lot of excess capital is sort of M&A or any tuck-in lines of business on the table right now? Or are you just focused on share buybacks and operating results?

Primarily on share buybacks at this point in time, but we're always open to additional expansion if we see an opportunity out there.

Your next question comes from the line of Guy Baron with Springview.

I had a question about excess capital, similar to the previous caller. Could you give us a sense of how much excess capital, what the amount is of your excess capital above and beyond what is required to support the ongoing business?

It's been between $100 million and $200 million right now. It's always hard to specify exactly what it is. The key for us is we have excess capital in excess of the $101 million that we bought for our remaining authorization for share buyback. It will increase over time because of our shrinkage of our business down to the core business. So we expect our excess capital will probably grow over the next 2 years, absent a substantial change in our forecast of probably another $100 million or so.

Your next question is from Justin Saunders.

Are we bullish about getting growth back in targeted specialty segments after the book was cleaned up?

Are we bullish? I think we're confident that we'll shift from shrinking to growing. We will have probably a similar comparison in the second 6 months of the year before we roll into '24. But in '24, against the base that we'll have in '23, we assume that we'll be able to hit our targets of 10% or more.

Your next question comes from the line of Andrew Vindigni, with General American Investors Company.

I noticed that there was roughly an $8 difference between your book value and your book value ex investment losses. So that -- if you take that $800 million divided by $1,350 million, roughly speaking, straight line, you might get that back as the portfolio rolls off. Is there any kind of...

No, it's absolutely correct. As I noted, we have $800 million maturing between now and the end of next year. We have another round numbers, $250 million that's maturing in 2025. We're expecting that most of that unrealized loss will be recovered over that time period.

So it's pretty -- it's roughly proportion or roughly linear roughly speaking.

Yes, I haven't mapped it out month-by-month side. But as I noted, we expect that most of the unrealized loss will be recovered over the time period.

Now I noticed that I think you bought back stock and you paid kind of in the high 20s roughly. And the stock is at $34, given the expected increase in real book value with the losses going away, maybe you could be a little more aggressive in buying back stock or still be price sensitive, I guess.

I would agree with your observation.

[Operator Instructions] There are no further questions at this time. This concludes today's conference call. Thank you for joining. You may now disconnect.