Hello and welcome to the GBLI second quarter 2023 Earnings Call. 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 joining us to discuss our second quarter results. Before we delve into the results, I want to address an important matter. As mentioned in our June 9 press release, the company is in discussions that could lead to a sale of part of our insurance operations or the entire company. These discussions are ongoing, and we won't provide further comments until they are either completed or suspended, so we won't have additional remarks on that today. Now, let's move on to the second quarter results. As noted in our previous calls, the significant restructuring over the last two quarters makes it challenging to compare our overall results with the previous year. Our main operating segments are commercial specialty and, to a lesser degree, reinsurance operations. I will concentrate my comments on the commercial specialty results, as this area will influence our future underwriting outcomes. Following my remarks, Tom will cover the financial aspects of our GAAP results. For commercial operations, we are focusing on long-term metrics such as loss and loss expense ratios consistent with our long-term average in the mid-50s, an expense ratio of below 38% this year aimed to trend to 36% in a few years, a combined ratio in the low 90s, and growth averaging 10%. I am pleased with our second quarter accident year results, although there is still room for improvement. For the second quarter, our accident year loss and loss expense ratio was 57.5%. Our expense ratio was 36.2%, and the combined ratio was 93.7%. Additionally, despite industry-wide catastrophic losses during the quarter, we only recorded $4.1 million in cat losses, which are part of the 57.5% loss and loss expense ratio I mentioned. These figures are strong and in line with our metrics. However, our core business faced disappointing growth of minus 6% in the second quarter. This lack of growth stemmed entirely from one of our three divisions, which focuses on specific agents with concentrated single-class business or substantial reunderwriting. Pricing changes led to a significant premium loss of $15 million compared to the same period in 2022. In stark contrast, our core packaged specialty business grew by 13%, and our retail-oriented Vacant Express and collectible business rose by 14%. As an insurance underwriter, we constantly balance profitable pricing and underwriting with our growth goals. Given our primary goal of being a consistent, profitable underwriter, we chose to forgo some unprofitable business to enhance our bottom line. Tom will share more details, but our strategy to defend against interest rate fluctuations by significantly shortening the duration of our bond portfolio 18 months ago is starting to yield favorable results, as our investment book yield is increasing monthly, with investment income reaching $13 million for the quarter, roughly double what it was a year ago. With $800 million of our investment portfolio maturing in the next six quarters, we expect this number to continue rising. During the quarter, we increased the share repurchase authorization from $60 million to $135 million. Due to the low trading volume, our repurchase efforts are focused on reverse inquiry opportunities. In this quarter, we repurchased 200,000 shares at an average price of $28 and have $101 million left for share buybacks. Overall, this was a solid quarter, but we recognize there’s still work to be done to achieve these profitability results consistently while also driving higher growth to ensure an acceptable return for our shareholders. Tom?

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, 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. 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, which was made up 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 actions taken in early 2022 to sell longer-dated securities and shift to short duration. Book 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 the 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 million of cash flow, composed of $800 million from maturities and the remainder from investment income. We expect these funds will be invested at rates that will further increase book yield. Realized losses in the second quarter of 2023 were $0.8 million, mainly due to selling several assets to improve overall investment returns. Unrealized losses increased by $3.2 million in the second quarter of 2023 due to the rise in rates. The short duration fixed-income portfolio helped minimize unrealized losses. Moving to underwriting, in the second quarter of 2023, our continuing lines had an accident year underwriting profit of $6.4 million compared to an underwriting profit of $4.5 million in 2022. Continuing lines in the second quarter performed in line with our expectations. The continuing lines accident year combined ratio in the second quarter was 94.9%. On a consolidated basis, in the second quarter of 2023, there was an underwriting gain of $4.3 million compared to an underwriting gain of $2.1 million in 2022. On a consolidated basis, prior year reserve development was flat. Exited lines had good development of approximately $6 million, primarily from property catastrophe reserves. Within our continuing lines, loss reserves were strengthened by approximately $6 million, primarily related to nonrenewed casualty business. In the second quarter of 2023, gross written premium in our continuing lines was $110.2 million compared to $151.5 million in 2022. Much of the decrease was planned. Reinsurance operations wrote $14.8 million in 2023 compared to $46.5 million in 2022. This decline is mainly due to nonrenewing casualty treaties in 2023. Within Commercial Specialty, package E&S, which includes Penn-America business, increased gross written premiums from $58.3 million to $62.7 million in 2023. Packaged specialty grew approximately 8%, driven by new agency appointments, strong rate increases, and exposure growth in both property and general liability. Excluding underperforming business that was terminated, packaged specialty grew by 13%. Targeted specialty had $32.7 million of premium in 2023, compared to $46.7 million in the second quarter of 2022. This decline was mainly due to not writing business from wholesale agents that were not providing an acceptable return and managing catastrophe capacity within targeted specialty. The Vacant Express product generated $7.9 million of premium in the second quarter of 2023, which is up 23% compared to the second quarter of 2022. Collector policies for private collectors grew approximately 4%. Exited lines include the farm business sold in August 2022 and the specialty property book sold in the fourth quarter of 2021, as well as other lines we have exited. Exited lines are continuing to reduce as expected. Net written premium for the quarter was negative $0.7 million. Corporate expenses in the second quarter of 2023 were $5 million compared to $3 million in 2022. The prior year included a $2.7 million CARES Act employee retention credit. We are pleased with our results this quarter. Our core business is providing good returns, ratios performed as expected compared to 2022, and expenses are much lower due to actions taken in early 2023. The company's fixed-income portfolio book yield is 3.8%. 96% of the portfolio is invested in fixed maturity investments and a little bit in cash. The fixed-income portfolio has an average rating of A and a duration of 1.4 years. Maturities and investment income are expected to generate $900 million of cash flow between June 30, 2023, and December 31, 2024. The funds that become available are being invested at yields higher than 5%. The actions that have been taken are providing value to our shareholders. Thank you. We will now take your questions.

There are no questions. My apologies, but we do have a question from 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.

Your next question is from John Schuster. 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 primarily due to the actions that we've taken to reduce our catastrophe-exposed business. We were able to buy less.

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.

It's going to be a very small amount. We only had $6.2 million of earned premium in the second quarter and $18.2 million year-to-date. So we went from $12 million to $6 million. We're likely to decrease 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 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 one 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 whether you have any plans for mergers and acquisitions or any smaller business opportunities right now, or are you just concentrating 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 two 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 six 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 excluding investment losses. 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 roughly proportional or linear, generally 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.

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