Global Indemnity Group, LLC Q1 FY2025 earnings call

• Jay Brown mentioned that when he joined 2.5 years ago, they established a tactical plan to maximize long-term value. 2023 was a realignment and transition year, and 2024 saw growth in core business, hitting underwriting targets, and deploying proprietary software. - In the first quarter of 2025, underlying core growth excluding terminated products was 16%, and underwriting results excluding California wildfires had a combined ratio of 94.8%. - Completed Project Manifest strategic restructuring at the end of 2024 to facilitate product expansion. - Rate increases and exposure growth exceeded inflation trends. Reserve margins remained solid. - Had a $15 million catastrophic loss from Los Angeles wildfires, rethinking wildfire cat exposure models and reducing property exposures to wildfires. - Expenses were higher than long-term targets due to Project Manifest and agency build-out, but aiming for expense ratio below 37% in the long run. - Brian Riley discussed investment income increase, underwriting performance including excluding wildfire losses, and segment breakdowns.

The company has three segments: Agency and Insurance Services, Belmont Core, and Belmont Non-Core. The Agency and Insurance Services segment generated income on affiliated agreements of $1.8 million before tax for the quarter. Consolidated gross premiums increased 6% to $98.7 million in 2025 compared to $93.5 million in 2024. Excluding terminated products, gross written premiums increased 16% to $98.4 million in 2025 compared to $85 million in 2024. Wholesale Commercial grew 6% to $64.9 million compared to $61.1 million in 2024, with underlying premium trends at 14% including 5% rate increases. InsurTech grew 20% to $15 million in 2025 compared to $12.5 million in 2024, with Vacant Express growing 23% to $10.9 million and Collectibles growing 12% to $4.1 million. Assumed business gross written premiums grew to $10.9 million in 2025 compared to $2.9 million in 2024. Specialty Products, excluding terminated products, was $7.6 million compared to $8.6 million in 2024.

• Expect premium growth of at least 10% in 2025. - Underwriting performance for the last three quarters of 2025 expected to improve compared to same period in 2024. - Expense ratio expected to be in 39% - 40% range in 2025, with long-term target of 37% in '26, '27 range. - Investment portfolio well positioned for longer duration maturities at higher yields.

• $15 million catastrophic loss from Los Angeles wildfires, which exceeded wildfire risk models used. - Need to reevaluate wildfire cat exposure severity model estimates. - Elevated expenses in the short term due to Project Manifest and agency build-out affecting expense ratio.

Q: Could you go back to the expense ratio you said, do you think we can get down below 40% in the next two or three quarters? Or is that going to be a 2026 event?

A: Brian Riley said long-term, that 37% we targeted is into that '26, '27 range. I would expect this year to be in that 39% to 40% range this year.

Q: I saw the shares were up by roughly 0.5 million shares. I guess you call it A2. Could you explain that? What -- how did that come about? And where were those issued?

A: Jay Brown said There was 550,000 A2 shares issued to Fox Paine as a fee for their advice and counsel and implementation of Project Manifest at the end of last year. Those shares were issued in the first quarter, which is why they are appearing for the first time this quarter.

Q: Book value per share declined from $49.98 at December 31 to $47.85 at March 31, primarily because you increased your common shares outstanding by 4.4% in one quarter by issuing stock compensation to the Board Chairman's private equity firm. Can you explain why you're issuing stock to insiders rather than repurchasing stock when you're trading at roughly 60% of book value?

A: Jay Brown said The decision to issue shares to Fox Paine was a result of a request under the contract that Fox Paine has with Global that a fee be paid for the creation and implementation of Project Manifest. Our Conflicts Committee of the Board evaluated that request and made a determination based with the assistance of outside legal and financial advice that, that compensation for that advice would be paid in terms of the shares that are described in our 10-K and in our 10-Q, which are the A2 shares, the 550,000. In terms of the second part of the question, which is why aren't we buying back shares at 60% of book value, I think the reason for that, as we've said in the past, is our Board currently feels that we can create more long-term value by investing in our operations, particularly in the new Penn-America underwriter operation, which is designed to create additional growth and profits for Global Indemnity. And that's a decision our Board has made and has continued to reinforce at this point in time that that's where we're going to be investing funds going forward.

Q: Can we expect more or can we expect any more losses from the L.A. fire or has all been paid?

A: Jay Brown said It hasn't all been paid, but the majority of it has been paid out, but our estimates are very solid at this point in time. So we don't expect any material change in the numbers that we reported in the first quarter results.

Q: Given the increased tariffs and a looming economic recession, how might these microeconomic factors impact claim volumes, underwriting profitability, and investment income for our portfolio? And what financial or operational strategies should we consider strengthening our resilience in the upcoming market?

A: Jay Brown said I think there's two parts of the impact of the economics on our company. The first impact, which is really on the fluctuating interest rates that are dramatically fluctuating from day-to-day in some cases, but certainly from quarter-to-quarter. And it's the reason we have chosen as a company to remain extremely short duration in fixed income. We're definitely playing a defensive strategy, waiting for the horizon to be clear in terms of making long-term investments. And that's kind of on the investment side. In terms of the short-term impact on claims, the biggest thing that we worry about in economic depression or when economics turn down for the country is probably more watching carefully for fraud claims and particularly any interruption in people making their premium payments that are due to us. But insurance is a long-term game. And the reality is it operates pretty much the same way over a long-term, and we have to be able to handle the ups and downs of short-term economic fluctuations.

Q: What was the tangible book value dilution for the 550,000 shares issued to Fox Paine on March 6, 2025?

A: Brian Riley said Yes. The per share impact was $1.74.

Q: On the SG&A, you said that was high because of Project Manifest. Does that maintain those levels throughout the year as you invest in that project?

A: Brian Riley said No. The first -- Tom, the first quarter includes $2.7 million related to the A2 shares that's not going to repeat as related to those adviser fees. So no, I don't expect those to repeat at the same levels. But as Jay mentioned, we are -- we will be investing. So there will be some elevated costs compared to last year.

Q: Does the investment in Project Manifest happen in the other line items? Or is it only SG&A?

A: Brian Riley said That's in the corporate expense line item.

Q: For the expense ratio, right? Okay. Last question was, can you refresh our memory of when the Specialty Products terminated business anniversaries, and you have apples-to-apples comparison, when will that happen?

A: Jay Brown said We had a very large program was terminated at year-end, and it was instantaneous. And so essentially, it will be a full 12-month rollout and the apples-and-apples comparison will occur starting January next year.

Q: If the shares issued to Fox Paine are some combination of restricted stock and the option in the event of a sale of the business, why is the book value calculated including all of the A2 Fox Paine shares? Doesn't that understate the current book value?

A: Jay Brown said That's a very good question. Brian, it's really an accounting question in terms of how it gets included in the book value. Brian Riley said Yes. In the numerator of the book value is only the dividend portion of the value, which is $2.6 million. The additional $8.3 million is the option value. So that, from an accounting perspective, is not recognized as an expense with the reciprocating increased equity until there's a change in control. And as Jay mentioned, the only way that ultimately that the $8.2 million is liquidated is upon a change in control event, which is sale of the company or a substantial part of the company.

Q: Should we expect corporate expenses to trend back towards prior year levels post Q1 and the expense impact of Project Manifest? Or should we model it higher for the mentioned growth initiatives?

A: Jay Brown said I think in terms of a run rate, it will trend back towards what we have spent historically. But to the extent we actually -- which we expect we will make potentially purchasing some target operations, there will be expenses associated with those transactions. And so -- and they would be identified and separated out at the time of the transaction. So we'd be able to essentially give you that number as it occurs. But as of right now, there's nothing in our forecast that's planned for. So we will essentially trend back to our historical numbers for corporate expenses.