Global Indemnity Group, LLC ($GBLI)

Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the Global Indemnity Group First Quarter 2026 Earnings Call. My name is Angela, and I will be your conference operator today. I'd like to remind everyone that this call is being recorded [Operator Instructions] I would now like to turn the call over to Evan Kasowitz, Chief Operating Officer of Global Indemnity Group. Please go ahead.

Thank you, operator. 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 descriptions 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 is now my pleasure to turn the call over to Mr. Jay Brown, Chief Executive of Global Indemnity.

Thank you, Evan. Good morning, and thanks for joining us for GBLI's First Quarter 2026 Results Conference Call. Joining me today are Evan Kasowitz, Chief Operating Officer of GBLI and President of Belmont Holdings; and Brian Riley, GBLI's Chief Financial Officer. As usual, I'll start with a quick overview of the quarter, what stood out in the results and what we're seeing in our longer-term trends. Then Brian will walk through the key financial and operating highlights. After that, we'll open it up for your questions. It's always nice to report solid first quarter results in the spring, especially in a year without a major catastrophe loss. I would add, it's also nice to have a very clean and straightforward story this quarter. Essentially, what you see is what you get. This quarter, our underlying insurance operating trends stayed very strong and consistent with what we've delivered over the last 4 years. Our accident quarter combined ratio was 94.9%, producing an underwriting profit of $5.5 million. That quarterly underwriting result is in line with what you've seen from us over each of the past 12 quarters, with the exception of the California wildfire a year ago. If you exclude the wildfire, the year-over-year comparison is essentially unchanged, 94.9% this year versus 94.8% in the first quarter of last year. On investments, our short-duration bond portfolio generated $14.5 million of net investment income. We also recorded a short-term market value loss of $2.3 million from a small investment partnership. Altogether, that produced total net investment income of $12.2 million, down from $14.8 million in the prior year quarter. Brian will go into more detail on the portfolio, but I'll just add this. We are still positioned very defensively, with an extremely short duration, about 1 year, comprised of very high-quality fixed income holdings. In today's uncertain global economic environment, I'm comfortable with that posture, and we'll be ready to redeploy into a more attractive long-term portfolio when conditions settle down. The other environmental dynamic emerging this quarter is the drop in available business in the overall E&S market. This presents additional challenges for growth in a market that is flat or shrinking. As we noted in the press release, overall reported premium growth was essentially flat versus the first quarter of last year. The main driver was wholesale commercial, where premiums declined by $3.4 million from $64.9 million to $61.5 million, down 5.2%. This decline offset the growth we saw in Vacant, Collectibles, Assumed Reinsurance, now newly branded as Valyn Re, and Specialty Products. As I mentioned last quarter, the wholesale commercial results were driven by a clear shift in pricing competition in the E&S wholesale space, both from our E&S peers and from the admitted market reentering the property segments in a significant way. Given where we play at the very small end of the wholesale commercial market, the crossover competition from the admitted market comes into play very quickly as the market turns. Reflecting on the past several quarters, while underwriting a pricing discipline remain my absolute priority, it's clear we didn't react fast enough to increase competition, particularly in the property segments where all our loss results have been outstanding. I am encouraged that our wholesale commercial month-over-month written premium comparisons have improved through the first 4 months of the year, with April now flat against last year. A few comments on our Kaleidoscope technology platform. Because our last call was less than 2 months ago, there isn't a major update on our investment. The good news is that the core cloud-based full cycle policy administration platform development is now virtually complete, and most of the remaining work has shifted to bringing Wholesale Commercial, Vacant and Collectibles onto the platform. As we noted last quarter, we remain confident that all 3 existing direct product groups will be fully integrated and operating by year-end. And just as importantly, will be ready to extend this same platform to the new product changes we've begun recruiting. After 3 years of significant IT investment and a renewed focus on our long-term core business, it can be easy to lose sight of how far we've come. But our unrelenting commitment to underwriting excellence has produced an exceptionally attractive book of in-force business. As the year progresses, we expect the business rationale for our organizational realignment last year and the 3-year digital transformation to continue to have a clear driving impact on our results. Stepping back, we remain satisfied with the solid underlying profitability of the business, driven by excellent loss results. Although expenses are still running roughly 4 points above our long-term targets. Optimizing our operational structure to leverage the technology investment over the last few years, combined with the ability to rapidly expand our product offerings will be the major tactical objective over the next 7 quarters. Looking ahead, based on the work we've done to improve the delivery of our products, coupled with the discipline to shed business that didn't meet our underwriting criteria, we continue to feel strongly that despite how we started the year, Belmont core gross premium should grow in the 15% to 20% range for the full year 2026. Let me repeat that. We do expect growth in the 15% to 20% level by the time we reach year-end. Finally, in closing, I'll reiterate a point that I've made in the past. I have a high level of conviction in the quality of our core business, and I'm confident we're well positioned to continue delivering substantial value to our owners. With that, I'll turn it over to Brian.

Thank you, Jay. Operating income, which excludes after-tax impact of market losses on investments, was $8.3 million compared to a loss of $4.1 million last year. Excluding the 2025 California wildfires, operating income of $8.3 million was up 2% compared to $8.1 million in 2025. As for the investment component, excluding impact to mark-to-market adjustments, investment income was down slightly to $14.5 million in '26 compared to $14.8 million in '25. The mark-to-market adjustments include impact from a $2.2 million loss on equities and a $2.3 million market value loss on limited partnership interest in the first quarter, for which a full recovery will be recorded in the second quarter. Since we record results of our limited partnerships on a one quarter lag, we are certain of the recovery. The overall investment portfolio is down about $30 million, driven by market value declines on the portfolio that are expected to recover and the expected first quarter operating cash flow, which includes a decline in loss reserves, driven by runoff of our Belmont noncore reserves. The current book yield on the fixed income portfolio was 4.3%, with an average duration of approximately 1 year as of March 31, almost unchanged since year-end, as the majority of the reinvested assets during the quarter were in U.S. treasuries. The average credit quality of the fixed income portfolio remains at AA-. [ Accident ] year underwriting income increased by 4% to $5.5 million, driven by growth in earned premiums and a steady combined ratio of 94.9%. Our loss ratio for the quarter remained strong at 54.8%, driven by both noncatastrophe and catastrophe performance compared to 71.5% in 2025. Excluding the 2025 California wildfires, the loss ratio of 54.8% is in line with '25 as we continue to maintain disciplined underwriting amidst the competitive nature of the market that Jay mentioned. The expense ratio remains at 40%. Turning to premiums. Gross written premiums was $96.5 million compared to $98.7 million in 2025. As Jay mentioned, excluding terminated projects, gross written premiums were basically flat. Let me add a little color at the divisional level. Our Wholesale Commercial business, Penn-America, which focuses on Main Street small business, was down 5% for the first quarter. This reflects maintaining pricing and return standards amidst the competitive market, property market that Jay mentioned. For the first quarter, our property rate change overall was flat, and the loss ratios remained strong. Further, we continue to adjust our products to grow the business with a goal of maintaining our loss ratio. All the other divisions experienced growth for the quarter. Collectibles was up 13%, and Vacant Express was up 5%, driven by continued agency expansion. Valyn Re's assumed gross written premiums grew 3% to $11.2 million. Specialty Products was up 2% overall and up 21% excluding terminated products. In closing, I have 4 key takeaways for you. One, although we're seeing increased competition in the marketplace, we are optimistic about our future underwriting performance, given the positioning of our current products and our loss ratio experience for the last 3 accident years. Two, our investment portfolio remains positioned to invest in longer duration maturities at higher yields. Three, booked reserves remained solidly above our current actuarial indications. And four, discretionary capital, which we consider to be the map of consolidated equity in excess of that amount required to remain -- maintain the strongest levels with our rating agencies, is $290 million at March 31, 2026. Thank you. We will now take your questions.

[Operator Instructions] And your first question comes from the line of Tom Kerr with Zacks SCR.

Just a little more color on the decline in the E&S markets and the increased competition. What is the visibility on that? Because I kind of -- I might have missed this, but then you're still expecting strong double-digit growth the last half of the year. So does that mean it's over? What am I missing?

No. I think you haven't missed anything. It's a little bit about mixing 2 different attributes. When we look at the E&S market in terms of both what we saw in the fourth quarter and some of the early reports in the first quarter plus what we've seen from the stamping offices, it's clear that the E&S market has stopped expanding at this point in time. And that's -- we're looking at 3 or 4 different indicators to draw that conclusion. In terms of where we are, it has to do with our mix and the growth in different divisions and how they're affected by competition, we would expect our -- as I said, and I've tried to say it very clearly, I believe that based on our current mix and our plans for the year, that we'll see 15% to 20% overall growth. But in terms of the segment that's most affected by that direct competition, in Wholesale Commercial, we were down in the first quarter, we're flat in April, and we expect we'll probably be in the high single digits growth by year-end for that division. And so the combination of all those things, particularly some extra growth that we expect because of the addition of additional product capabilities in our Assumed Reinsurance, we think we'll get into that 15% to 20% range. Yes, it is contradictory to say the market is getting harder, and we're still going to be growing at a pretty good rate. But those are the reasons that we believe that to be the case.

Got it. That makes sense. One more big picture one on -- is there any -- I don't know if you can talk about this, but is there any concerted effort to reduce overall exposure in California? Just thinking about the craziness in the insurance market there?

Is it crazy? And that's a good word for it. I have lots of -- lots of 4 letter words. Now I think the issue for us is we try and pick our spaces in California. Mid-last year, we flipped out of the admitted market into the non-admitted market for our vacant product. The reality of that was just simply we could not get the rate increases we had needed for 2.5 years in that case. And so our -- what's happened, unfortunately, as a result of that because other players continue to offer a competitive -- excuse me, an admitted product in that space, what we're seeing is that our drop in volume in that sector, Vacant Express, is very substantial. So yes, we're essentially out of the homeowners market or the only remaining exposure we have is really in our Wholesale Commercial book, and to a certain extent, obviously, in our Collectible book.

Your next question comes from the line of Ross Haberman with Rlh investments.

I just have a couple of quick numbers questions. Could you address -- you said you had a temporary reduction, I guess, in one of your funds and you expected it to rebound or get out of it in the fourth quarter. Could you talk a little bit about that? And the realized loss of $2.2 million, was that connected to, I think, some of the BDCs you talked about in the last quarter end, and if not, what did you end up doing with your private debt exposure?

Yes. So for starters, on the limited partnership, there was a [ 2 point -- one ] of the partnerships has an equity interest of -- and that declined $2.3 million during the quarter. We booked that on a one quarter lag. So we know today based on the results that, that will recover in second quarter. As far as the realized losses, that is related to the equities, that $2.2 million, $1.2 million of that is mark to market, which will -- which has recovered as of today, $1 million was actually realized.

Okay. And any further exposure to private -- to private debt or private debt funds or -- and what are your thoughts about that today?

No, no further exposure.

Okay. Sorry, there was just one last question. The stock issuance, I think there was about 20,000 shares, I believe, it was? Sorry, I think it was like 200,000 shares. Is that correct?

That is correct. It was 230,000 shares.

Was that option related? Or could you shed some light on that?

Let me give you some color on that. We have been looking at what were the appropriate tools for long-term retention awards. And we've been studying that for the past year or 2, trying to come up with a security that worked to create incentives to stay, but also minimize expense until there was value created. And we came up with these A2 shares, some of which were granted to Fox Paine last year. The shares that were granted in the first quarter to a select group of employees, I think there were 10 or 12 people who received the shares. Our design -- are there also A2 shares. They're non-dividend-paying. So there's no economic costs, real economic cost immediately. They only have value when the combination of 2 things occur. One is there's a change in control, and that the employee is still with us. And so the reality is it's a very strong option type tool that only has value when there's a change in control. And so we -- we felt that, that was an important thing to have in place long term. As I said, we spent a better part of a year looking at the right way to construct that. Finally got it done and went ahead granted those awards in the first quarter.

And will there be more granted over the coming year -- over fiscal '26?

I do not expect there to be any material additions. There obviously would be if somebody left and we hired somebody new or promote somebody new into the spot, we would probably grant a replacement grant of a similar magnitude. But other than that, we don't expect any this year.

Your next question comes from the line of Tom Kerr with Zacks SCR.

And just a quick follow-up on interest rates. When we saw the spike in rates with the Middle East conflict, can you guys move quickly enough to take advantage of that? Or do you look for more stability? Or how does that work?

No, it wasn't substantial enough to make a fundamental change in our portfolio. And I think like most people, those kind of spikes, if you're a trader, you can take advantage of it quickly. But if you're a long-term investor, it's hard to market time on a single event like that.

Got it. That's what I was thinking.

We will now move to our web questions to be taken by Evan Kasowitz. You may proceed.

Thank you, Angela. We have 2 webcast questions, which I will read. First one from Andrew. Does the slowdown in industry pricing and company premium growth change your share buyback calculus?

The answer to that is no, at least for this year. Our view is that we're going to utilize some of our excess capacity by growth during the course of 2026. Should that not occur, I assume that our Board will carefully reevaluate our current stance on investing in the business.

Thank you. The other question came from [ Joel Straka ]. A few parts to it, but most of that has been addressed previously. The one part which I will read is Bill Ackman Howard Hughes is acquiring Vantage for 1.4x book value, with the investment thesis that Ackman can improve the ROE by improving the investment returns, and that P&C insurers that generate a 15% to 20% return on equity should be traded near 2x book value. We're currently trading near half book value with enormous excess capital invested in short-term fixed income in a softening insurance market. I appreciate conservatism in the current market environment. But is the real opportunity here following Berkshire, Fairfax and others and focusing on investing?

It's a good question. We do believe that long term, fundamentally a well-run property casualty insurer should generate at least half of the expected return, and that the float properly invested will cover the other half to get you that 15% to 20%. I think for us at this point in time, in terms of going through a careful retuning of our existing business to get it back to core principles, it was not a good time to add investment risk at that same time. But now that we've got an incredibly solid, stable platform of business that we can grow organically and through adding new teams and new products, now is the time that I think over the next 12 to 24 months, that the Board will have to take a longer look at a more attractive yielding investment portfolio for the company. And so yes, I concur with the observation that a well-run company with a good investment return can generate pretty good returns and hit at 2x book value.

There are no further questions at this time. And with that, I will turn the call back over to Evan Kasowitz for closing remarks. Please go ahead.

Thank you. This concludes our 2026 first quarter earnings call. We look forward to speaking with you about our second quarter 2026 results.

Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect.