Global Indemnity Group, LLC (GBLI) Earnings Call Transcript & Summary

Welcome to the Global Indemnity Group second quarter 2026 earnings call. My name is Franz, and I will be the conference operator today. [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 second quarter 2026 results conference call. Joining me today are Evan Kasowitz, our Chief Operating Officer of GBLI and President of Belmont Holdings, and Brian Riley, our Chief Financial Officer. As usual, I'll start with a short overview of the quarter, including what stood out to me in the results and what we're seeing in our longer-term trends. Brian will then walk through the key financial highlights, after which we'll open the call for questions. Let me start with the headline. Our underlying insurance operating trends remain strong and consistent with the results we have delivered over the past several years. Accident year combined ratio was 94.7% for the quarter, producing an underwriting income of $5.8 million. Through June, our accident year combined ratio was 94.8%, with underwriting income of $11.2 million, modestly ahead of last year. Loss performance remains the strongest part of the story. Catastrophe experience was favorable and non-catastrophe experience and results remained strong and consistent. Expenses remain well above our long-term target levels by approximately 4.5 points, as we continue investing in Catalyx, Kaleidoscope, and related technology platform capabilities. While these investments are elevating current expense levels, operating expense dollars have remained exactly in line with our 2026 plan. We will achieve significantly improved operating leverage as these initiatives drive efficiency, AI-assisted decision-making, and support future growth. Turning to insurance revenue growth, Belmont Core gross written premium was $117 million for the quarter, up 7% year over year. Through the first half, Belmont Core gross written premium was $214 million, up 3% versus last year, still well below our rolling growth targets. Growth was led by Valiant Re, which was up 79%, and Collectibles, which was up 14%. Penn-America also returned to growth, increasing 2% during the quarter after 2 consecutive quarters of declines, an encouraging result against a more competitive E&S market backdrop. The broader E&S market is becoming more competitive as admitted capacity expands and rate momentum moderates. We are extremely focused on not chasing volume at the expense of profitability. Instead, we are staying disciplined and leaning for growth into those areas of the portfolio, including Valiant Re, Collectibles, and our new venture pipeline that are less exposed to cyclical competitive pressures. Excellent future results are dependent on making sure this is an execution reality versus not just words. Within specialty products, legacy programs are also pressured by admitted carriers and MGAs, but we continue to see opportunity in the programs we want to retain and new programs expected to launch later this year. Our retail and consumer-focused businesses continue to expand distribution with more than 700 retail agent appointments year-to-date. Collectibles grew 14% while continuing to deliver excellent underwriting results. VacantExpress delivered 5% growth despite challenging property market conditions and are no longer offering a California admitted property product. Our new venture initiatives continue to advance, including aging services and specialty casualty. We have recruited very talented leaders for our team to establish these new offerings. Both will be important medium-term growth opportunities, with product formation work progressing through the end of this year. Valiant Re remains on track for the year following strong growth in the first half. We continue to expand the portfolio thoughtfully, including the addition of new property quota share relationships, while maintaining underwriting discipline and exiting underperforming treaties where appropriate. Sayata is our digital distribution platform connecting agents and carriers in small commercial insurance and continue to make progress in the first half, with submissions increasing 8.5%, expanded carrier participation, and the launch of excess cyber. Just as importantly, operational efficiency continues to improve with automation initiatives reducing average daily ticket volume by more than 22%. These productivity gains, combined with enhancements to their leadership team, position the platform for improved operating leverage over time. On the technology front, the Penn-America Pro build is nearing launch, with testing substantially complete and deployment still targeted for September go-live. More broadly, the Kaleidoscope platform continues to be prepared to expand across our portfolio remains a key driver of future scalability, efficiency, and robust partner connectivity. The next phase of Kaleidoscope work will focus on VacantExpress and Collectibles, with broader application to new ventures and partner API connectivity in 2027. This remains a significant near-term lift for the teams, but it is foundational to our operating model and future scalability. Stepping back, we continue to remain very confident in the underlying quality of our business. Loss ratio performance remains strong, portfolio continues to diversify, and we are navigating a more competitive E&S market with discipline. We continue to expect Belmont Core gross written premium for the full year to finish approximately 15% above 2025 levels, while investment income should benefit from rising portfolio yields approaching 4.9% by year-end. With that, I'll turn it over to Brian to walk through the key financial details.

Thank you, Jay. Net income was $11.1 million for the second quarter, up 8% compared to $10.3 million in 2025. For the year, net income is at $15.3 million compared to $6.4 million in 2025. Starting with investments. Investment income for the second quarter was $16.4 million compared to $14.7 million in '25. For '26, this includes income on a mark-to-market adjustment of $2.3 million on limited partnership interest. Excluding income of limited partnerships, investment income was $14.1 million in the second quarter compared to $15.3 million in '25, driven by higher allocation of the fixed income portfolio to U.S. Treasuries. As for the first six months, net income was $28.6 million compared to $29.5 million in 2025. Excluding the impact of income related to limited partnerships, investment income was $28.3 million compared to $30.2 million, also driven by an increased allocation of U.S. Treasuries. The current book yield on the fixed income portfolio increased to 4.42% with an average duration of 1.08 years as of June 30, 2026, compared to 4.27% book yield and duration of 1.01 years as of December 31, 2025, resulting from reinvestment of $177 million of maturities at 5.45% that had an average yield of 4.26%. As Jay noted, we expect this reinvestment trend to continue, targeting book yield of 4.9% by December 31, 2026. The average credit quality of the fixed income portfolio remains at AA-. Moving to underwriting income. For the second quarter, accident year underwriting income increased by 3% to $5.8 million, driven by 4% growth in earned premiums and a combined ratio of 94.7%. Our loss ratio for the quarter remains strong at 53.8%, a 1.8-point improvement over '25 driven by catastrophe loss ratio performance. As Jay noted, the elevated expense ratio of 40.9% is driven by personnel costs related to build-out of products on the Catalyx platform. As for the year, and similar to the second quarter, accident year underwriting income increased by 3% to $11.2 million, driven by 4% growth in earned premiums and a combined ratio of 94.8%. Note that comparison excludes the impact of California wildfires from the 2025 figures. Turning to premiums, Belmont Core's gross written premiums increased 7% to $117 million for the second quarter and 3% to $214 million for the year. At the divisional level, starting with wholesale commercial, Penn-America, which focuses on Main Street small business, was up 2% for the quarter, an improvement over first quarter, which was down 5%. These trends continue to reflect maintaining pricing and return standards amidst the competitive market, as Jay mentioned, demonstrated by an overall flat rate change for the first half of the year, and continued strong loss ratios. We continue to adjust our products to grow the business with the goal of maintaining our loss ratio. Valiant Re, our assumed reinsurance business, is up 79% to $21.5 million for the second quarter and 43% to $32.7 million for the first six months of 2026. As 3 new treaties were added during the quarter, the number of in-force treaties has increased to 22 at June 30, 2026. VacantExpress is up 6% to $13.1 million for the second quarter, and 5% to $24.5 million for the first six months of 2026. Collectibles is up 14% to $4.8 million for the second quarter and 13% to $9.4 million for the year. And last, specialty products did experience a decline of 36% to $7.8 million during the second quarter and 21% to $15.5 million for the year, driven primarily by terminated products. Excluding terminated business, gross written premiums on the 11 ongoing programs is only down 1%. In closing, I have 5 takeaways. 1, we are on track to achieve growth of 15% in gross written premiums. 2, although we are 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 performance for the last 3.5 accident years. 3, our investment portfolio remains positioned to invest in longer duration maturities at higher yields. 4, book reserves remain solidly above our current actual indications. And 5, discretionary capital, which we consider to be the amount of consolidated equity in excess of that required to maintain the strongest levels for the rating agencies, is $302 million at June 30, 2026. Thank you.

Thank you. We will now take your questions. [Operator Instructions] And your first question comes from the line of Tom Kerr from Zacks SCR. Please go ahead.

Good morning, guys. Several quick ones. On the expense ratio, I think we all know why it's elevated, all the spending, but what is the timing or has the timing changed and when that gets back to normal? Is that a gradual occurrence in 2027, or does it happen like a clip, or how do we look about when it happens?

It gets back to what you think is normal? It will accelerate rapidly during 2027, and I would expect by the latter half of 2028, we'll be back to more normal levels.

Okay, so it's a 2028 issue, the normal levels. Okay.

At the end of the year, it'll be kind of an 8-quarter rollout change that you'll see very clearly as we go through the year.

Got it. And did you guys give a new level of discretionary capital? Sorry if I missed that.

Yes, $302 million, Tom.

Okay. One more big picture question about AI. Are you guys using traditional or new AI in any areas of the business? Is it claims or fraud detection or underwriting? Have you even...

Using AI in some form? That's a broad question. We have the entire employee population is being brought up the curve individually and collectively with AI skills. That's a process that we began at the beginning of the year. We're starting to see isolated examples of significant efficiencies that are being gained. The larger programs in terms of AI, assisting our underwriters in making better decisions and our claims officers in establishing more accurate settlement levels are in development, have yet to be fully deployed, though we're testing them in different aspects at this point in time. The underwriting will follow very shortly after the end of the year when Kaleidoscope is fully deployed across our existing direct product capabilities for Collectibles, Collectibles assumed, and Penn-America wholesale business, all of which have AI developments underway that will affect their business fairly significantly as we start to move through '27. It is early to declare any kind of significant victories, but I would say that from our viewpoint of looking forward is we are incredibly optimistic of the wide range of places that will impact the company. And it's just, it's too early. It'll become so integrated with the company, probably in a year or two, we won't be talking about it because it'll have overtaken our entire company during that time period.

Got it. All right, thanks. I will jump back in the queue.

And your next question comes from Ross Haberman from RLH Investments.

Good morning, Jay. How are you? I just wanted to go back to this earlier question. Was he referring to what you call your acquisition costs and other operating expenses at $41 million in the quarter? And if I understand it right, that number is going to ramp up, you said, through 2028. Is that correct?

No, he was actually trying to get the point that it's risen over the last 24 months as we've increased our expenses in development. And what I view right now is we're kind of at the pivot point where our expenses have started to level off and we'll start coming down. It's a percentage and it affects both acquisition costs and operating expenses. Our acquisition cost is a function of the different lines of business we're in. As we write more Valiant Re business, our commission percentage will be going up as a percentage, as you look at the total, while our expenses, our operating expenses, personnel-related expenses, will be coming down as a percentage of the total. But the goal is to get back roughly into the 36% range within a 2-year period. That hasn't changed.

You were lost and you recovered it. Could you explain what happened there?

I'm sorry, Ross, we lost you for a minute. Could you repeat the question?

You talked about a $2.3 million limited partnership. I think it was a loss or a temporary loss. Could you explain what happened there?

It's a fair value mark-to-market adjustment loss in the first quarter of $2.3 million, reversed in the second quarter fully. So for the year, the fair value change on the limited partnership was zero.

Can I ask what kind of investments that includes?

It's our limited partnership program funds that we disclosed in our 10-Q, the Global International Fund. It's really down to about $1 million at this point.

Do you plan to stay in it? Limited partnership. Is that equity or debt or a combination or what?