Global Indemnity Group, LLC Q4 FY2024 earnings call

• Penn America insurance revenue momentum: Total premium excluding terminated programs up 12% in 2024, driven by 17% growth in Insurtech and 12% growth in wholesale commercial. Assumed reinsurance up 83% in second full year.
• Underwriting performance: Full-year 94.4% underwriting result for Penn America segment, modestly better than 2023. Rate increases exceeded inflation estimates. Reserve margins solid, cat losses down 26% from 2023, but $15 million in catastrophe losses from LA wildfires led to rethinking wildfire cat exposure models.
• Expenses and staff: Maintained staff numbers slightly below 2023, Penn America expense ratio 38.1% in 2024, working to get it below 37%.
• Technology transformation: Transition to cloud above 75% complete, first transactional application went live in September, processing wholesale commercial excess liability policies in new environment, additional module in development for agents, underwriters, etc.
• Project Manifest: Completed legal and operational transformation, hired Praveen Reddy to head Penn American Underwriters LLC to expand product offerings.

Penn America segment: Total premium excluding terminated programs finished up 12% in 2024. Insurtech grew 17%, wholesale commercial grew 12%, and assumed reinsurance operation finished up 83% in its second full year. Penn America's underwriting result for 2024 was 94.4%, modestly better than 95.2% in 2023. Investment income increased 13% to $62.4 million. Consolidated gross premiums were $389.8 million in 2024 compared to $416.4 million in 2023, with the decrease due to runoff business. Penn America's gross premium increased 8% to $400 million. Wholesale commercial grew 6% to $248.6 million, Insurtech grew 17% to $56.3 million, assumed reinsurance gross written premiums grew to $25.4 million, and specialty products excluding terminated products was $64.7 million.

• Expect revenue growth of 10% from Penn America in 2025.
• Continued improvement in non-catastrophe accident year loss ratios.
• Premium pricing continuing to track with loss inflation.
• Discretionary capital increased to $255 million at Dec 31, 2024, supporting investment in Penn America underwriters.
• Portfolio well positioned to invest in longer-term duration maturities at higher yields.

• $15 million catastrophe losses from recent Los Angeles wildfires, which exceeded past severity model estimates for wildfire cat exposures in the LA basin, leading to rethinking of severity model estimates for wildfire cat exposures.
• California insurance market rate increases stalled in regulatory environment, making it a challenge to get adequate rates for exposed business.

Q: Good morning, guys. Real quick on the California fires. Was that just the underwriting type issues or you guys been trying to get rate increases and deal with that issue?

A: We've had an outstanding rate increase for our vacant express probably for a year plus at this point in time. Like most carriers, it's just stalled completely in the regulatory environment. But otherwise, you know, it was actually a sizable loss for us, but it involved very few number of properties. I think it was less than ten properties overall were involved in the fire.

Q: Good morning, gentlemen. Thanks for taking the call. I have a quick question. Could you go back to the California? Could you tell us what your total exposure is there? And is it on the direct commercial side, or is it mostly on the reinsurance side?

A: Our total exposure in California is about six basis points of the total market. I don't have it at my fingertips exactly how much the premium was. It was all on our direct book. It was not on any assumed reinsurance.

Q: Is there room to reduce the expense ratio without compromising underwriting quality? Any uses for excess capital, maybe a special dividend?

A: We don't currently plan any special dividends. And in terms of our expense ratio, there is room. We expect that as we've run off the remaining terminated business there'll be a little bit of pickup in terms of that area not needing expenses. But the big lift for us in terms of where we are, given that we were $250 million higher a couple years ago is really growing back to that size over the next couple of years and bringing the expense ratio down another point and a half. From where it currently exists. The expense ratio is somewhat misleading sometimes to look at. You see 38% and kinda go, wow. That's a big number. And then you have to realize that less than twelve or thirteen percent of that is our internal expenses. And the remainder is commissions. We pay our agents licensing fees, etcetera. And so the actual cost that we're dealing with is out of that 38 is roughly twelve or thirteen percent of that total. Not percent, but portion of. So about a third of the expense is something that we're focused on managing down a point and a point and a half. In the next couple of years.

Q: Regarding Project Manifest, GBLI has tried growth strategies in the past and failed. You were brought in to map those out. Can you explain why a growth strategy will work this time?

A: Sure. One is our new structure allows us to bring in additional underwriting teams coupled with the technology investment we're making. Our growth structure that we tried and attempted two or three years ago, our biggest problem was the underwriting teams were bought in and were operating in an essentially a manual environment with no technology support. That was a mistake on our part. We talked about it at the time, and it's certainly not a mistake we're gonna make going forward. This time around, we feel much more comfortable that our technology investments are creating a platform that will allow a variety of products we don't currently sell to be offered to existing and new agency partners. The other thing to, I guess, kinda reflect on is we made a very clear decision to bring in a particular individual with a lot of experience with products that we don't currently offer, and so we're looking to expand given his knowledge and contacts in the industry. Some of which will be built internally. Some of which will be by bringing in additional people. And finally, in some cases, by actually buying certain types of operations from other carriers. It's always hard to say if you weren't successful in the past, why do you think you're gonna be successful this time? But I would tell you that based on my last two and a half years here, the team and the board and particularly Fox Paine have focused very carefully about a comprehensive plan to bring this out where we can grow at a greater rate than we've been able to grow over the last few weeks and past. And I think time will tell if we're successful at that. But I think now that we have a very stable profitable underwriting base in place, we don't have any major decisions to make about staffing in the short term in terms of having too much. And having approximately fifteen months behind us in a three-year technology spend, I feel very, very personally confident that this is gonna be a special strategy for global to pursue.