Thank you for standing by. My name is Christa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Global Indemnity Group Second Quarter 2024 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Stephen Ries, Head of Investor Relations. Stephen, you may begin.

Thank you, Christa. As a reminder, today’s conference call is being recorded as some 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 representations 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 descriptions of the business environment in which we operate and 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 thank you all for joining us for the GBLI midyear update on financial and operational results. Following our usual format, I will first provide a few overview comments and then our Chief Financial Officer, Brian Riley, will review the financial highlights for our insurance operations. Halfway through the year, our team continues to achieve results that are consistent with our plan for 2024 and tracking towards the long-term metrics we established last year. They remain first, growing our business at around 10% per annum, second, achieving a combined ratio in the low 90s, and third, manage our insurance expenses to a competitive level of 36% to 37%. While the exits from certain business segments that we enter 18 months ago are no longer having a material effect on this year’s financial results. As Brian will note later, they do have a significant effect when you compare this year’s results to last year. In terms of revenues, as noted in our press release, most of our insurance divisions are tracking against long-term double-digit growth. We expect that the combination of Penn-America wholesale commercial, InsurTech and assumed reinsurance will be close to this target at year-end after recording a 9% increase through the first 6 months of 2024. However, the expansion of our program division is still a work in progress and will continue to lag a bit in 2024 with revenue growth flat through 6 months, excluding terminated 2023 programs. Brian will provide a more detailed breakdown of revenue growth in a few moments. Turning to underwriting performance, I was very pleased to record a 6-month combined ratio of 94.8% for the Penn-America segment. In line with our first quarter, this performance was again driven by a continuation of achievement of solid casualty loss ratios…

Thank you, Jay. As the 6-month results are tracking similarly to the first quarter, my commentary will focus on results for the first 6 months. Of course, we can answer any questions you may have on the second quarter numbers. Net income was $21.5 million in ‘24 compared to $11.8 million in ‘23. The combination of net income and a $5 million increase in the market value of the fixed income portfolio, book value per share increased from $47.53 at year-end to $48.56 at June 30, including dividends paid in ‘24 of $0.70 per share. Return to shareholders was 3.6% for the first half of ‘24. For the first 6 months of ‘24, both underwriting and investment performance contributed to the improvement in net income. Starting with investments. Investments income increased 18% to $29.8 million from a year ago. Actions taken since early 2022 to sell longer-dated securities and shortened duration have translated into much higher current book yields. Cash flows of $37 million plus $394 million of fixed income securities yielding 3% that matured during the year were reinvested at an average rate of 5.1%. As Jay noted earlier, the current book yield on our fixed income portfolio is now 4.5% with 1-year duration at June 30, 2024. Comparatively, at December 31 of ‘22, book yield was 3.4% with duration of 1.7 years. And at December 31, ‘21, book yield was 2.2% with duration of 3.2 years. The average credit quality of the fixed income portfolio remains at a AA minus. As Jay mentioned earlier, our short-term duration portfolio is well positioned. We have $423 million of investments maturing in the second half of 2024. We have the flexibility to continue investing in low-risk securities in this higher interest rate environment or invest in longer maturities to further increase…

Thank you. [Operator Instructions] Your first question comes from the line of Jeffrey Bronchick with Cove Street Capital. Please go ahead.

Good morning, gentlemen. Thank you for your time today. Just three general questions. Do you – is the 92nd version, but would you describe the reinsurance efforts of kind of what your – what you thought – what you saw you had where you think you could add value in dollars and how you’re going about executing it?

Sure. That’s a good question. Prior to last year, we had basically offered reinsurance originally out of our Bermuda operation and then subsequently, we moved back to the United States on a retrocession basis to other reinsurers. When I arrived at the company, we made the decision that the margin in that business, while it had been attractive, it would be better for us to actually shift our efforts in the reinsurance market into reinsuring insurance carriers directly. We took a look at where we had what we thought was an appropriate skill set, starting in the cannabis book and then some of the program areas and decided that’s where we would emphasize and set up our operation to start participating with small lines on a multitude of different treaties. We’ve expanded the number of treaties, doubled them in the space of 18 months and expect to continue to grow that business probably going up 30% to 40% per year for the next 3 or 4 years. We think the reinsurance market is an attractive market right now. We believe that the tiny little niche that we’re operating in provides a good return on capital, and we feel comfortable with what we’ve been able to achieve so far.

And is this tend to be ENSE oriented? Or is this property and weather? Or what – just help me out.

Absolutely. It’s very much ENSE. It’s a good description. The types of products that we’re reinsuring are very similar to the products we underwrite on a direct basis. One of the reasons we feel comfortable in that space. We are – given our background and what we’ve achieved over the last 3 or 4 years, we have tended to get keep away from large weather-related exposures. We haven’t seen much in terms of any significant catastrophe losses in the book. This is in contrast to where we were positioned 3 or 4 years ago. We were very heavy on retrocession catastrophic business, and that was really related to when we were based in Bermuda.

And just lastly, on this piece. Is there any primary insurer that you’re sort of latched on to here? Or is it widely spread?

It’s widely spread. We’re – I think we’re – we’re probably dealing with about 15 different customers at this point in time and expect to see that to continue to expand over the next couple of years.

Next question would be, what would you say today about the James River Ventures over that – over this year. What’s – is there a conclusion that you would care to share with us?

As to James River, it’s probably appropriate that I don’t make any comments for my lawyers in terms of agreements we had with James River. In terms of the actual experience of looking at any particular opportunities. It’s something that we have done constantly for the last 20 years. We have a substantial amount of excess capital at this point in time that we’d like to deploy. If we can’t deploy it in businesses that we are currently engaged in, certain types of M&A activity might be able to create increases in returns for our shareholders. And so that’s the type of thing that we’re going to continue to look at as this year unfolds and going forward.

Would you say that episode is complete?

No comment.

Would – can you comment as to – is the nature of these opportunities, sort of a reverse sale or truly an acquisition where team, Team Global is the continuing in running entity?

Not sure. Maybe you can clarify that a little bit more. But I am not sure exactly what you are asking.

Well, I am making a – I don’t know, if the lawyers talking about age issues that I may just trample on here. But clearly, the company has had an interesting path. The gentleman who is on this call run the insurance companies is no spring chicken, it’s control owner is no spring chicken, and one could perceive that the James River chat [ph] was sort of a sale, which in using this capital structure, which would enable the James River management team to effectively run the show. I am just trying to get a sense of what’s next concept. Was that structured as a sale and you were leaving, or no, you guys were actually buying and running and you couldn’t wait to get your hands on it.

I guess you don’t take the no comment too seriously. So, I will let that go, and we will move on to the next question here.

Okay.

Your next question comes from the line of Joel Straka. Can you explain why Jason Hurwitz recently left the Board?

Sure. Jason is a long-term friend. I have known Jason for 25-plus years now in various roles that I have had in the insurance area. Jason has served the Board for quite a long time and had actually left, while I was on the Board before I became the CEO. When I joined the company as the Chief Executive Officer, I specifically asked Jason if he would mind coming back on the Board for a certain time period and help us out because there was a lot of change that was going to take place. I expect in the first year or so of my time here as the CEO, he did that. And I think he is now elected to go back and pursue other interests, which he had already started doing before he joined our Board and didn’t want to have any conflicts in terms of different things he might do in the property casualty space. Jason has been an incredible contributor to our company for a long time. I miss him. But I also understand when somebody has to choose to pursue other things.

Your next question comes from the line of Ross Haberman with RLH Investments. Please go ahead.

Good morning gentlemen. How are you? I just had a quick follow-up question. You were – you referred to your expenses and how it would take, I guess a year or 2 years to get them back in the line you would want them to. Could you explain that a little more? And do you think you lose business if you got them down quicker? Thank you.

Yes. This is Brian. As we mentioned in previous calls, we kept our staffing levels to ensure that our customer service levels were at top – continue to be exceed our expectations. We are currently – when I think about our 39 points, we are about 26 points is variable. 13 points is fixed. In that 39 points to get to a 37 points, we would expect that 26 points to remain to achieve that decline from 13 points to 11 points in our fixed costs. It’s a really a combination of double-digit premium growth, combined with inflationary 4% to 5% increase in expenses.

Thank you very much.

Your next question comes from the line of Tom Kerr with Zacks Small-Cap Research. Please go ahead.

Good morning guys. Most of my questions have been answered. Just a quick one on the discretionary capital, did you mention a dollar amount in your comments, if I missed that, is it still in the $200 million range?

Yes. As Jay mentioned, discretionary capital is the beholder. So, we are really measured by – in two ways. One is a regulatory authority to RBC rating agency through BCAR. I would say that we are probably able to deploy about $125 million of capital to maintain the strong adequacy of our capital scores. Yes, and as well as we would expect growth over – year-over-year, about $30 million of excess capital.

That’s a reduction from previous comments, even though the balance sheet has got stronger. Is that just to maintain the rating?

That’s, if we want to be at the absolute highest rating where we currently operate. And so obviously, we could operate down 10% below that, and that’s kind of where that $200 million number that we have used historically over the last two quarters or three quarters has come from. Our position stays the same. But again, we are always reminded that different people look at excess capital in different ways.

Got it. Thanks. That’s all I have for today. Thank you.

Your next question comes from Chris Koranda. You have expressed the opinion that buying back stock would be a good use of shareholder capital, but also reluctance to do so in the open market. What are your thoughts on tender offer as a way to reconcile those two issues?

It’s something we continue to look at and something that I think the company has used historically at different points along the way. And it’s certainly something that if no other things arise, eventually one of two things is going to happen, either we will do a special dividend or we will do a tender offer if we can’t deploy the capital into the business in a way to provide good returns to our shareholders.

Thank you. Your next question comes from Anthony Mottolese. How is your casualty book position from social inflation impacts? Can you discuss loss trends, assumptions and your confidence in company reserve trend?

Sure. We probably over the past couple of years, have upped our long-term loss trends for the casualty business, probably 2 points or 3 points. They used to probably be in the 4% or 5%. We are probably operating with a 6% to 7% range at this point in time. In terms of where we are positioned and how our reserves are holding up over the past two quarters, we have actually seen a nice expansion in our margin from where it was at the beginning of the year. This is mainly a result of the last – if you go back to 2022 and ‘23, we had a couple of casualty exposures that were causing us some problems. Our New York capitation [ph] book in one particular program, both of those have – those exposures are either eliminated or substantially reduced. So, at this point in time, their impact on the overall book has been reduced significantly. Otherwise, our reserves and our historical exposure in the casualty area looks pretty well behaved compared to some of the things that we read about in the industry today. I think that’s mainly a reflection of the type of business that we have traditionally underwritten, which is a small commercial focus of the company. We are certainly affected by social inflation in those areas, but it’s not as bad as it appears in some of the larger casualty exposures that exist in the industry.

Your next question comes from the line of Joel Straka. Why are you buying back stock in the open market or conducting a Dutch Tender share repurchase? If you believe in your own projections, your stock price and multiple should increase substantially going forward, why wait until the price and multiples are higher and the return on investment is lower when you have substantial excess capital now?

I believe I answered that question earlier from another questionnaire, but I will repeat. Basically, I don’t disagree with the observation that if we were able to buy a substantial amount of stock in the market right now, either through an open market operation or a Dutch Tender, it would add to book value. But our – the timing of when that will take place is still out in the future. It’s not something we are currently out doing at this particular time.

Ladies and gentlemen, that does conclude our question-and-answer session. I will now turn the conference back over to Stephen Ries for closing remarks.

Thank you everybody for joining us for our second quarter call. We look forward to speaking with you in the third quarter. In the interim, please reach out to me if you have any questions. Thank you.

This concludes today’s conference call. Thank you for your participation and you may now disconnect.