Good afternoon, and welcome to GBLI's 2022 Investor Day. I'm Stephen Reese, head of Investor Relations. We are excited that you're joining us as we discuss the execution of GBLI's strategic vision, our Penn-America business, and our financials. Our presentation will be followed by a question and answer session at the end. During the presentation, a copy of which can be found at gbli.com, we may make forward-looking statements. These statements are based on current expectations and assumptions that are subject to various risks and uncertainties. Actual results may differ materially from the results expressed or implied here today, and we undertake no duty to update any forward-looking statement. With us today, we have our directors, Chairman Saul Fox, Jay Brown, Seth Gersch, Jamie Holt.
Speakers from our management team are our Chief Executive, David Charlton, our Chief Financial Officer, Thomas McGeehan, and the Head of Penn-America, Stan Lamb. I would now like to welcome to the podium GBLI's Chairman, Saul Fox.
Well, greetings, everyone. We very much appreciate our investors and others coming to our Investor Day presentation. We also welcome and thank those who are hooked in through the telephone system. Is the sound okay? Okay. First, a little bit about our strategy. This year, 2022, we feel that we've reached a very important milestone in terms of the transformation of Global Indemnity from a complex offshore proprietary property catastrophe-oriented insurer subject to considerable earnings volatility, to a streamlined, primarily casualty lines, excess and surplus domestic carrier. Now, as we all know, you're never truly done. There's always things to do.
We trust we'll keep evolving even further and improving, but we've come a long way. Since over the last five years, since 2017, we've shed almost 60% of our what had been our premium of $516 million. The business we shed had a combined ratio of about 120%. At the same time, we've grown our continuing, what we call our continuing lines, which you'll hear more about, which in 2017 was $193 million and to $462 million by the end of 2021. That business has a combined ratio of about 90%.
We completed our re-domestication from offshore in 2020 back to the U.S.. It's nice to be home, but it was a good trip away. Over those 17 years we were offshore, GBLI earned net income of $562 million and incurred less than $100,000 of income tax expense cumulatively. Also, over the last five years, we've repaid $230 million of long-term indebtedness, the only indebtedness that we had. The company is debt-free. In terms of our investment portfolio, we took early steps to reduce our duration risk as well as our investment risk.
Five years ago our duration was even a year and a half ago was 4.6 years for our bonds at May 2021, compared to 1.7 years today at June 2022. We've maintained, at the same time, an average credit quality for our bond portfolio of double A minus. Starting in January of 2022, we decided to exit our equities and sold. We had a $76 million equity portfolio, and we sold the whole thing in the first quarter, most of it in the early part of the first quarter.
We will go back into equities at some point when we think it's appropriate and makes good sense, as well as we're always looking at alternative type investments as well. As you can see by the chart on this page, from 2017, in terms of our Continuing Lines, we grew that at a compounded growth rate of 24% a year from $193 million to $554 million, we estimate, for the end of 2022. Part of the transformation was getting rid of the American Reliable investment that we made in 2015, which was not a good investment. But we got out okay.
We had originally paid $100 million for the company, and through breaking the company up, selling renewal rights to parts, finding the right buyers for the different parts, we were able to, in effect, take out $175 million and exit personal lines and also substantial cat risk. The price that we were able to realize in effect was 180% of book value in effect. In terms of the cat volatility, in 2017, our 1 in 250-year exposure was about $250 million. Today it's $51 million, 1 in 250-year event. We have a
The lines that we exited were running at a 28% cat loss ratio. The lines we've kept run at about a 6% cat loss ratio. In terms of growth, we've grown our gross premium over these last five years from $213 million to $488 million. Our exited lines were at $303 million. As of the end of 2021, they were in terms of premium they were $195 million. Actually, most of that 195 is already gone, and will be and there won't be any. There's some lingering right now, but by 2023, we should have zero.
The little bit of premium that we did keep for the 2022 period is actually very profitable. If you look at our growth rate compared to our peers, and the peers are listed at the bottom of the page, over that same period, while we've grown at about a 23% rate on the top line, our peers have grown at about an 11% rate. In terms of our profitability, on a calendar year basis, our Continuing Lines have run at an 88% combined ratio versus 113 that we exited, and 94% in terms of our peers.
Looking at it on an accident year basis, these lines over the last five years have been running at a 96% combined ratio versus almost exactly the same number as our peer companies. Again, peers are at the bottom. It's the same group. We try to be ever mindful of who we work for, which is you, our shareholders. Originally, the nucleus of what became Global Indemnity was United National, and that was acquired in September 2003. From December 2003 until the end of last year, the company generated $582 million of net income. Of that $582 million, we've distributed $525 million to our shareholders.
Essentially 90% of all of our net after-tax income, and that's been distributed through dividends, share buybacks, and redemptions. When we first acquired this company through my private equity firm, Fox Paine, I in effect owned less than 1% of the company. I've never sold a share of stock. I've reinvested, I've invested substantially more capital and reinvested, and today, Fox Paine owns roughly 40, a little over 40% of the equity of the company. With that, the guy who's doing the real heavy labor here is David Charlton, our CEO. Thank you.
Well, good afternoon. I'd like to start out first by just thanking our chairman, Saul Fox, and the board of Global Indemnity, and just for the support they've shown to me personally, to our management team, and really just supporting us to be successful, really building a special company. Last year at our Investor Day, I shared with you our strategic vision, and that was to be a best-in-class specialty insurance company focused on small to middle market business, achieving steady growth in a combined ratio in the low 90s. This afternoon, what I want to do is update you on our progress on executing on that strategic vision over the past 12 months. More importantly, did we do what we said we were gonna do? First, let's review our overall corporate strategy.
We wanna be a overall 70% or more casualty company, less than 30% property company. Why is that important? By reducing large property, getting off property that's cat-prone, it reduces our volatility, it gives the ability to have much more consistent earnings quarter to quarter. Okay. We also wanna write business that is appropriate for a company our size, small to middle market business in the commercial lines area. We really wanna have a focus on excess and surplus lines business, E&S business, and also specialty business. For us to accomplish our combined ratio and growth goals, we need number one, we need to retain and hire talented people. I'll share more on that. Develop efficiencies with technology, innovation, automation. We need to utilize third-party data effectively, and we need to deliver our products with best-in-class service.
When I took over as chief executive about a year and a half ago now, you know, my assessment of our senior leadership team was, you know, we had a strong team in place from claims, legal, actuarial, audit, finance. We also had some terrific businesses with some real underwriting expertise. However, to be truly best in class, we had to double down and hire talent at the senior leadership level and within our businesses and various divisions. Since my joining GBLI, we have now hired over 21 experienced, highly talented executive officers to the company. We have made a real investment in underwriting talent and added depth throughout our company. Our people are truly our number one competitive advantage. If you look at our history, we were a holding company built through acquisition, and our companies worked independently.
When I first arrived at the company, I would ask our employees, "Who do you work for?" The answer I typically received was, "I work for Penn-America," "I work for United National," "I work for Diamond State." Rarely did they say, "I work for Global Indemnity or GBLI." When I met with brokers and distribution, they often shared they did some business with one company or another, but did not really understand all that we could offer, and frankly, found us complex and hard to understand. Today, we are simply GBLI, and we have businesses, such as GBLI Programs, GBLI Professional, GBLI Environmental. Our transformation to one GBLI makes us a much simpler and easier company to understand and do business with. This GBLI shared brand recognition enables us to have stronger trading relationships across multiple businesses with our brokers.
I attended an industry conference last week with our wholesalers, and it was eye-opening for our brokers to see how many different business we had where they could transact business with us as active trading partners. This makes us more relevant and meaningful to our distribution in a competitive marketplace. It has also been terrific to see how our business leaders of our different business areas are now working together, passing opportunities to each other and finding a way to write the business. Okay, let's now get into last year, 12 months ago, we shared a strategic vision. We laid out the details, and I wanna go through that with you and really, really show you that we did what we set out to do. The first one was that we wanted to grow our historically profitable core business, which we now define as Continuing Lines.
In the first six months of 2022, our continuing lines net written premium was up 30.4%. We are growing our company in the right places where we can make a strong and consistent underwriting profit. Secondly, we shared we wanted to get the mix to 70% casualty and 30% property, once again to reduce volatility and cat losses. We have exceeded our goal in a short amount of time. As of June 2022, we are now a 72% casualty company with property down to 28%. Of that remaining property, most of the large property values are off our books, and our cat exposure is down significantly. Next, we set out to build three brand new businesses in core businesses that are historically very profitable areas, professional liability, environmental, and excess casualty.
We executed on this with all three businesses going live in the first quarter of this year. We are actively writing business across a range of products. We are in the market appointing brokers. We've received over 4,000 submissions to date, over $8 million of premium and growing, and it's still very early days. We're just really getting these businesses up and running, but they're in a place now today where they're building out a regional and then a national footprint. We're very excited about what's on the horizon with the new businesses. I also shared with you last year that we either need to make the non-core business core or we had to sell the business. I just wanted to walk you through kind of how we thought about that.
We looked at each business that we had, and we put it through our core business definition. Is it small to middle market? Is it commercial? And is it predominantly casualty business? When we reviewed our farm and ranch and equine business, Property and commercial auto, another five we're not looking to write, made up 76% of the premium, and casualty only 24%. We're also very focused on writing E&S business, and the farm business was written on an admitted basis. When we looked at that, we did not believe we could make it a core business for GBLI, and we sold it. A similar exercise was done when we looked at our personal lines and mobile home-based businesses. You know, not surprisingly, people like to have their mobile homes in nice places.
Nine out of 10 largest states for mobile homes are basically on the coast in cat-prone areas. We determined that it would be very difficult to grow a meaningful mobile home business that was not cat exposed. This business was also personal versus commercial. It was made up of 94% property and only 6% casualty. It was written admitted versus E&S. We had very high reinsurance costs to protect against volatility. For these reasons, we did not believe we could make it core, and we sold it. We also decided to exit our property brokerage business in unprofitable classes, and it accounts for over $10 million in TIV. To us, running business larger than TIV is a business a company our size should not write.
This business was also made up of tougher and less profitable habitational business with high reinsurance costs associated with it. However, when we looked at our under $10 million TIV business, we found that habitational made up less than 10% of our portfolio, and there were some really, some areas in there that we have very profitable historical results within the property. Our go-forward strategy is to focus our writings in the under $10 million TIV profitable classes of business, examples being vacant buildings, cannabis, mercantile, and offices in non-cat areas. We've also reduced our cat volatility. We executed on our strategy AAL, or average annual loss, in 2020 was $56.3 million. By repositioning our reinsurance portfolio from property to casualty, reducing property brokerage, and selling mobile home and farm, today AAL is $10.4 million, a reduction of 81%.
These actions have resulted in significant reinsurance savings. This also helps us lower our expense ratio. By reducing our property and cat exposure, we saved $3 million in our per risk treaty and $11 million in our cat treaty for $14 million of total savings in 2022 alone, with more reinsurance savings to come in 2023. Historically, we spent 11.7% of our direct written premium on reinsurance. Today, that is down to 5% for Continuing Lines. I want to close by updating you on some key initiatives that we're working on.
The first is that a market need we have identified within the wholesale distribution area and our partners have brought to us is they really need a facility that can write middle market casualty and property business that sits above our Penn-America binding business, but also below brokerage. This area is often referred to as brokerage light. We are building out a middle market business focused on profitable casualty products, more in that $10,000-$25,000 premium range, and that property within that $2 million-$10 million range that's more profitable. This will be a new core GBLI middle market business that's going to sit very nicely over our Penn-America business. Now that all Continuing Lines business is core, it is time to take our growth initiatives to the next level.
We have brought on a chief marketing officer and are building out a sales and business development team to strengthen our existing wholesale relationships and also develop new relationships. We're rolling out a communication strategy to increase penetration of GBLI products and brand in the marketplace. Finally, we recently launched our InsurTech business, and it's built upon our highly profitable collectibles and VacantExpress business. A lot these days you hear a lot about InsurTech today. I think one way we're very different is what we started our InsurTech business are two of our very most profitable business within the portfolio. Our InsurTech business utilizes technology to complete the transaction 100% online from quote to issuance to billing. We are building new products that we embed in the sales process with retailers, aggregators, and also direct to consumers. Let me highlight a few examples.
Our InsurTech business is currently launching a new embedded special events product for banquet venues. When you think about it, say you were going to a banquet, and you were going to do a wedding there. What will now happen is as you're going through signing the contracts, in real time, our special events product will come up and basically be part of that, embedded in that transaction. You know, they'll be able to meet their contractual needs to the banquet hall. That is an area that if we can embed ourselves in how insurance is done, we see as a terrific growth opportunity. You know, another new product we're working on within our InsurTech business is for the home-based business marketplace. A lot more people today are working out of their homes.
It's a growing marketplace, and we'll be building product to meet that need, especially where somebody might have a professional liability exposure, and we can add that piece on and really differentiate our product. Lots more to come here, but a very exciting opportunity utilizing alternative distribution and technology to sell specialty products. In summary, we are on track executing on our strategic vision. We have a very talented team in place, and we're driving key initiatives to grow our core profitable business. With that, I would like to turn it over to Stan Lamb, who leads our Penn-America business. Penn-America is a great example of a long time historical core business for GBLI that's consistently produced profitable underwriting results and strong, steady growth. Stan, over to you.
Thank you, David, and good afternoon. My name is Stan Lamb, and I'm the Senior Vice President overseeing our Penn-America Binding Division. The term binding refers to business that is written on behalf of our appointed wholesale agents within a certain set of authority guidelines that are delegated by Penn-America. Over the next several minutes, I'm going to share with you some additional details about our business model, along with key initiatives that help to drive our historical and future profitable growth. As you can see on the chart, since 2017, our compound annual growth rate is over 13%, showing strong, steady growth. It all starts with profitability. Over the past seven years, Penn-America's calendar year combined ratio has averaged in the low 90s.
We write small commercial lines business with average premium about $2,600 per account, typically on what we call a commercial package, which is a policy that combines small property and general liability, along with, at times, in marine and excess liability. Our book is made up of over 800 unique classes of business, with our largest classes being contractors, vacant buildings, habitational business like apartments, mercantile and retail, lessor's risk, which in another way said is commercial landlord type risk. You can see on the bottom of this page that over the past seven years, we've intentionally transformed our book from one that was half property and half casualty in 2015 to one that's 70% casualty today.
As Dave mentioned earlier, positioning our brands to be casualty oriented allows us to not be significantly impacted by adverse weather events or frequency of large fire losses. Penn-America is a recognized national brand in the E&S space. We write business in all 50 states and in Washington, D.C., distributed by over 100 independent wholesalers. To support our consistent growth, this past year, we expanded our regional structure going from two regions to three. Today, we divide the country into East, Central, and West. With each region led by a regional vice president responsible for profitable growth and agency relationship management of their territories. Each region is supported by several production underwriters.
In addition, we are backed by a centralized underwriting services unit, which handles underwriting for certain renewal policies, as well as performing continuous quality reviews on our over 60,000+ policies and growing. Our core strategy is simple, write more of the most profitable business and reduce or exit areas that have not been profitable. Over the past several years, our product development team has spent considerable time and effort expanding and enhancing some of our most profitable business segments, such as small contractors, vacant buildings and land, and our auto services product. At the same time, we've moved swiftly to exit areas that have been problematic for us and the rest of the industry, such as hotel motels, liquor liability coverage, and certain areas made difficult by unique legal or regulatory issues, such as construction business in the state of Colorado.
Beyond strategies focused on class of business profitability, GBLI has invested heavily in third-party data and underwriting analytics. Penn-America has certainly been in the forefront of leveraging these tools, as well as being one of the beneficiaries of this investment. While most of our products are ISO-based industry-standard, we've supplemented these products with our own proprietary analytics. With the use of various third-party data vendors, we fully integrated into our rate-quote-bind technology, highly granular census data that have enabled us to better analyze select risk. For example, through the use of our proprietary analytics, we've been able to reduce the number of firearms-related claims by over 85%, saving the company million dollars. The same tool has enabled us to target specific pricing actions in areas with higher propensity for losses.
Another underwriting tool allows us to independently verify property values, such as sales and payroll figures, to ensure that our accounts are properly rated and priced for. A third example, we are now using drones and satellite imagery through a vendor who provides us with a roof quality indicator, allowing us to more efficiently use our loss control and underwriting staff to focus on those risks that truly require our attention. Despite all the underwriting and profitability initiatives I've shared with you so far, it's true that our industry is operating in a challenging time. Sales, payroll, building values, and cost of goods inflation have required that we be even more diligent in ensuring our products and underwriting are positioned to generate an underwriting profit. From a pricing standpoint, the current quarter marks the eighteenth consecutive quarter of pricing increases for Penn-America.
Far this year, we've achieved an 8.2% rate increase on our book of business with an additional 5.1% in exposure growth. Said differently, a policy written by Penn-America this year would generate over 13% more premium than the exact same account written last year. Now with approximately 60% of our casualty business being rated on auditable exposures, such as payroll and sales, our ability to collect additional premium for increasing exposures has served as additional offset for loss inflation. As you can see on the right-hand side of this page, our audit premium has increased from 2018 to 2022, 180%. From 2021 to 2022, we're seeing well over 90% increase, a number we expect to continue to grow into the future, further improving both our top line and our bottom line.
In closing, I'm very proud how far Penn-America Binding has come in the last several years, and I'm very excited to lead this business and continue our goal to profitably grow this core business for GBLI. I thank you for your time today. Now I'd like to turn it over to Mr. Thomas McGeehan, our Chief Financial Officer.
Good afternoon, everyone. It's nice to see some familiar faces back in the audience again, and for the new people, welcome. Let me get to my part of the presentation. So starting with board objectives from last year. We noted two objectives. The first was net written premium growth from 2022 to 2026, and we wanted it to be at least 6%-8%. David touched on through 6 months of this year, we're very pleased with the growth of our Continuing Lines. When we look at the growth of our Continuing Lines from 2017 to what we're estimating at the end of 2022, we expect a CAGR of 24%, and we believe that these lines will continue to support our growth as we move into the future.
The second objective that we discussed last year was return on equity for our insurance operations. We wanted that return on equity to be in a range of 8.37% at the low end to 12.5%. Obviously, we'd be much happier if it even goes higher than that. What we did this year is we took a lot of actions to reposition our business. As we look at our results, and if we take out some of the noise that is in our income statement, and I'll start with the first one, is we sold our farm renewal rights. It generated a huge gain. It's not going to repeat. We sold investments and impaired some in the first quarter that we had identified for sale, but we shortened duration.
That to reposition the portfolio down to a shorter duration. At the end of June, we sold an alternative investment that we believed would perform poorly on a going forward basis. Without those drags on the income statement and looking at our income statement for what we believe it could run at on an ongoing basis, we're touching on the lower end for our insurance operations at the lower end of the return on equity. As we go forward, we believe that return on equity will continue to improve. There's several reasons. One, the book is going to continue to grow. Two, the combined ratio will improve. Three, casualty business is longer-tailed business. It will increase the leverage of our investment portfolio. It'll take longer for our loss reserves to pay out, and we're investing in a rising rate environment.
All of these things will contribute to greater return on equity. Some of the actions that we took to reposition our portfolio, and Saul's already touched upon a few of them, is the first one, our common stock portfolio. If anyone's looked, Nasdaq's down over 20%. The Dow, the last time I looked, was down about 16 or 17%. The stock market has been extremely volatile this year. We sold our common stock portfolio during the first quarter. The second thing we did is we had an alternative investment that invested in bank loans, and many of the loans within that portfolio were single B rated or double B rated.
If our country goes into a recession, and it could, that portfolio would have performed very poorly, and we made a decision in the second quarter to exit our bank loan investment. The bond portfolio, and I'm gonna flip to the next page on this, we actually recognized that interest rates would rise and took action starting in May of last year. Let me move to the next slide so you can see the impacts of what has happened in our fixed income portfolio. Starting on the left, May of last year, company recognizes that there's a much higher risk that rates would rise. We instructed our investment managers at that time to short duration. We gave them a target of a three-year duration. They executed on that.
We completed that by August of last year, and we were able to maintain our book yields, our book yields on the right-hand side of the chart at 2.3%. We essentially came out at the end of August at a book yield that was very similar to that. Moving ahead to the first quarter of this year. The risk of interest rates rising became much more significant, and we took action to restructure our portfolio. We sold all of or most of our, there's a few that are a little illiquid, but we sold close to $400 million of securities that have maturities of five years and greater. We lowered our duration to 1.7 years.
You can see by the chart on the right, the book yield increased as we've been reinvesting those funds to 2.62%. At the end of August, our book yield is currently 2.9%. This morning, I looked at Treasury rates, and the one-year rate, amazingly, is over 4%. It was 4.03 at the end of yesterday. We have a significant opportunity to increase the book yield of our portfolio on a going-forward basis. At the end of each quarter, we compare our investment returns to those of our competitors. 2022 was a very, very difficult year for the industry. As interest rates rose, the values of portfolios declined, and companies that had common stocks in their portfolio generally had market value declines on their common stocks also.
You can see on this chart that Global Indemnity's returns, we were able to mitigate much of the risk that occurred in the P&C industry this year, and our returns are more in the top quintile of the industry. Moving to this next chart, we compare our asset mix to our peer companies. This chart shows several things. One, it shows duration of the fixed income portfolio. Two, it shows the composition of the classes that are in the bond portfolios of the companies on this chart. The columns to the right show the percentage of equity exposure and alternative exposure as a percent of the total portfolio. When you go to the bottom left and you look at GBLI's duration, and this does not include cash, it's 1.8 years at the end of June.
It is the lowest number on the chart compared to all of these other companies. When you look at our equity exposure, we had minimal equity exposure. We do have some preferred stocks in our portfolio, but the short duration and minimal exposure to equities contributed to the returns that you saw on the prior slide. What do we expect over the next several years? One, we've touched upon that we are moving our book to more of a casualty mix. It's longer-tail business. It will take longer to pay losses. We're expecting that significant cash flows will be generated from our underwriting portfolio. Two, our investment portfolio has a very short duration of 1.7 years. Maturities, pay downs, and investment income will generate a significant amount of cash flow over the next several years.
Between now and the end of 2024, we estimate that we will have approximately $1 billion that can be invested into a rising rate environment. Looking at our loss reserves, and I'll touch more upon our balance sheet in a minute or two, but we have well-matched assets and liabilities. Again, we're now in the process. We're shifting more from a property book to a casualty book. All right, we have a short duration investment portfolio. We do believe that we can meet the cash flow needs of our loss payouts from incoming cash. But nonetheless, our investment portfolio is well-matched against the current loss duration. In terms of capital to support the business, we currently estimate that we have $200 million of discretionary capital. I've already noted the market turbulence that has occurred this year.
Even with that, market turbulence, selling the non-core businesses has contributed to preserving our capital. It generated gains. The net premium and the loss reserves of the businesses that were sold, it has freed up capital that can be deployed to support our growth. The other actions that have been taken over the last several years to exit retrocessional cat business, and David touched upon exiting property brokerage business with insured values of $10 million and greater. Again, it's lowering the amount of capital that we need to support our business, and it's allowing us to have the capital that's freed up to support the future growth of our businesses. To finalize Global Indemnity, several things are needed to create value, and it starts with a strong balance sheet.
The short duration bond portfolio has an average credit rating of double A minus. There is no debt on our balance sheet. Loss reserves are strong. Global Indemnity has a long history of reserve releases. There's $200 million of discretionary capital. It's an extremely strong balance sheet. We have a strong control environment. We have a robust enterprise risk process. We regularly model catastrophe exposure, and we have many other control processes in place. Selling non-core business lowered catastrophe risk, generated gains, and freed up capital to support future growth. Other actions to reduce catastrophe exposure lowered the amount of capital required to support our book, and it also protected our capital base. Our insurance companies have a financial strength rating from AM Best of A, and I'm very happy to report that as it's been an A rating for many, many, many years.
I've been here since 2001, and long before I came to this company, United National has had a rating of A or better. Our core businesses, we're optimizing performances. Our core businesses are expected to generate strong underwriting returns, and returns from the investment portfolio are going to increase. One, we're going to increase our investment leverage, and two, we're investing funds into a rising rate environment. All of these factors are going to have a very positive effect on return on equity. These actions are creating value. With that, I'd like to pass it to Mr. Reece.
Thank you. Thank you, Tom. Now it's time for the question and answer session. Please raise your hand if you'd like to ask a question, and I'll call on you. I will repeat the question for the audience here and for our friends on the web. Our first question will be from. Don't all jump at once. Jeff.
Last year's presentation, you referenced the need for $150 million of capital to support growth. I didn't see any mention of that.
I'm sorry. Could you repeat that?
Yeah. He asked last year, you said you needed $150 million to support our growth. Jeff, can I stand up?
You can do that.
It's on.
Yeah. Last year we still had, at Investor Day, we had not sold our manufactured home business, nor had we sold our dwelling business. Selling those businesses as well as selling the farm renewal rights this year, it's done two things. One, it's generated significant gains. Two, the net written premium that's no longer on the books and the loss reserves that are running off, it's freeing up capital. Less capital need for the business. Plus the gains right now as we look ahead, you know, we believe that those actions actually are supporting the capital that we might need to support our future.
The answer is no. Joel.
Why don't you buy back stock if you have discretionary capital? You expect the ROE to be at a level that should justify a book value type multiple, and you're trading at half book.
It's a great question. Sorry. Yeah. It's this?
It's on now.
Okay. Excuse me. It's a great question, and it's something that we think about certainly at the board level all the time. We think there's much greater upside for the company, for our shareholders by investing in our business and the growth, than buying back stock at this point in time. That's something you wake up and you think about what we're doing with capital every single day.
Thank you.
Thank you, Jeremy.
Your reinsurance business grew 90% year-over-year. Can you give a little more clarity in terms of what is the growth of the
It's really coming from a number of different areas. We're on a retrocession agreement where we basically get to kind of play in the rising casualty market across our wide range of treaties. We basically we like it because it gives us more diversification on our casualty book and it also, you know, in a number of different types of casualty products. We've been getting most of that growth has really been coming from rate they're getting on the book of business, year over year. We've also started to really write more reinsurance treaties that are in line with really where we have expertise within the company. An example of that would be we've done some cannabis reinsurance, where there's a real need in the marketplace today. Now we have a really strong professional liability team.
We just signed on as an example to a cannabis D&O for private companies as another example. We're trying to use reinsurance as another way to play in areas that we have underwriting competency.
No, the existing book is accretive to book value for two reasons. One is first, it's running with a combined ratio that's today booked at the 97%-98% range. We do conservatively reserve, as David noted. There's been a lot of rate increase, but we're prudent on watching and making sure that what might occur over time, that it really does before we take action. Two, we're getting a hold of that cash. When I think about ROE and you know, casualty business, this is where it gets fun.
You know, if you had $100 million of casualty reserves and you looked at an AM Best BCAR model, you might need 40%-45% before what they call a covariance of capital to support it. After that, it's a 25%, right? You get $100 million of reserves. You gotta support it with $25 million of capital. You now have $125 million of cash and investments between loss reserves and the capital supporting that. Invest that at 4%-5%, okay? Even at 4%, you're making $5 million a year pre-tax. You've got $25 million on that. You're making on that capital a 20% pre-tax return. Casualty business in the long term is something that can be very, very beneficial to us.
We believe that book is accretive to return on equity.
Joel.
Why do you pay a dividend, particularly at the current valuation?
The question is, why do we pay a dividend at the current valuation?
Why we pay a dividend?
Yes.
Because we like to return money to shareholders, and it's an amount that we feel very comfortable with, we can afford. Theoretically, we could keep all of it, not distribute it. I think recognizing your obligation to shareholders, particularly in a company that's like ours, that's relatively opaque from the outside, is something that's worthwhile, and that we believe in.
You could be buying back stock, but is it because you think you're too illiquid to buy back stock?
Yes. Certainly could buy back stock. Our stock, as I'm sure you know, it sort of trades by appointment at this point. There's few shares. Average trading volume is what? 10,000 shares or less a day. It wouldn't really make sense to buy back stock and make it even more difficult for people to get in and get out. We don't think that would be a good idea.
You could do a Dutch tender at a premium instead of get a discount to where you expect to trade before long, though, right?
You certainly could do a tender, but you'd have even less shares trading. Again, it'd be harder to develop a shareholder base. For those who believe in the company and don't tender, even more difficult to get out. We don't think that would serve the interest of our shareholders.
Keenan.
Have you considered converting back to a corporation so that you would be part of the?
I'm sorry. I didn't hear you.
Have you considered converting back to a corporation so that you could be included in the Russell 2000 and other indices, which would create more demand for the stock?
Have you considered going back to being a corporation so that?
I'm sorry. I didn't hear you.
Yeah. I'm sorry. I'll just get it out. If you converted back to a corporation, then you could be included in the Russell 2000 and other indexes, which would require mutual funds and trackers to buy the stock, and that could create some liquidity. I'm curious if you considered that?
Yeah. There would be a short-term bump, and then you're back to where you were. Our volume today is significantly less. Maybe it's even less than it was when we were part of the Russell.
Scott Lindjan.
Yeah. It does seem like there's a lot of conservatism in your balance sheet. I just wanted to confirm that ROE that you put up, I think it was expected for 2022 of about 8%. Is that unlevered? That assumes no debt, and that also has that redeployable or discretionary capital part of the denominator. I mean, is that correct?
What I was saying on that one, that is our insurance operations. I'm sorry. That is our insurance operations. We're measuring that at the Penn-Patriot level. High level, a lot of our discretionary capital is held at Global Indemnity Group, LLC. The LLC returns would be approximately 2% less than the Penn-Patriot numbers on an overall basis. But management is measured on the results of the insurance group. The 8% that we put up there, again, it's taking out the noise of this year. We will have in our income statement at year-end, the loss from divesting the alternative investment, the loss from selling our bonds, the gain from selling renewal rights.
That 8% was representing if you take out the noise, where we believe our businesses would be running. Essentially the capital is the right size, and it still is unlevered though, right? That-
It's unlevered. We have no debt in that number. That's correct.
Okay. Julia?
Sorry. Do you foresee the relationship with Fox Paine changing in some way on a go-forward basis? I think there is a bit of a perception out there in the public markets that.
I'm sorry, I'm not hearing. I heard Fox Paine.
Yeah.
Can you speak up, so I can hear you?
Is there a plan to change the relationship potentially with Fox Paine on a go-forward basis in the future? I think there's a bit of a perception that it's somewhat of an overhang on the stock because there are a lot of fees that are being paid. Are the targets, the financial targets after fees to Fox Paine or before?
Well, considering that Fox Paine hasn't sold a share of stock in 18 years, I don't think there's an overhang, okay, in the marketplace. If there is, it's a hell of a irrational marketplace.
Joel?
What would be your maximum equity exposure in your investment portfolio if you thought the market was extremely attractive? The stock market.
That's again a great question. I don't have an answer for you right now. I mean, you'd have to look at your book of business, which we would be doing, and look at everything else going on in the investment portfolios. It's hard to give a rule of thumb, but we had $76 million in the market before. I think we certainly could afford substantially more than that.
I'll touch upon that. I mean, if you look back in the company's history, there were times that our common stock exposure was north of $200 million. There were other investment classes, such as bank loans, that we had at the same time. This was back, more prior to 2015. At those points in time, we were getting close to $300 million. Again, a lot of it depends on how we perceive market conditions as to how much is going to be invested in various asset classes. Ryan?
Similar question on the bond portfolio. Do you have a yield target in mind before you start taking the duration back up or an interest rate hurdle that you want to get over before the 1.7 starts expanding?
Also a great question. Ryan, it's not a matter of percentage rate per se. It's really where you think rates will be going. If you think they're gonna stabilize, you'd go longer. Or if you think they're gonna go down, you go even longer. That's something, again, you think about every single day, particularly in today's world. I don't know what Mr. Powell did today. Does anybody know? 75? 100? What was the answer?
I don't think it's come out yet.
Okay. All right. Well, we're living in a world where for day to day in this world, this country, it would be very difficult for me at least to answer your question.
If I can just touch upon one thing, though, and just interestingly, and I'm not sure today would be the day to do it. I noted a one-year rate of 4.03%. The two-year rate was, and don't hold me to the exact number, but it closed yesterday. It was like a 3.97 and the three. So right now, yeah, it's. Actually, as I go out longer than that, Ryan, it even goes down even more. I think for today, we're actually at a pretty good place.
I would also add to the prior question, ma'am, you had asked about the overhang. In addition to never selling a share of stock and only buying, in effect, going from 1% to 40% of the company in terms of share ownership, Fox Paine has, this is not a guarantee, but in terms of its history, has never sold out its interest other than in a global transaction in which everybody participated.
Understood. How much have you been keeping Fox Paine in the last, say, two years?
I don't know, but it's all disclosed, so you could add it up. Yeah.
Out of the $8 million in advisory fees, how much of that was to Fox Paine?
Is that, is that what you said it is? I don't know.
That was the number mentioned on the conference call.
Don't know. Yeah.
It sounded like a very large number relative to the size of the transaction.
I'm sorry?
Sounded like a very large number compared to the size of the transaction. $8 million in advisory fees is fairly large number.
Don't know if that's correct.
That's what was said on the conference call.
What conference call?
The latest earnings call.
Yeah.
I don't think that is how it breaks down.
There were no-
Well, it was the total number of fees. I was wondering how much of that-
Yeah, there were no advisory fees on the sale of the farm renewal rights, no advisory fees on the sale of the manufactured home, and dwelling book. There was a fee on the redomestication, but that's really the only significant transaction that occurred. I mean, most of the other ones were done for no cost.
Well, there was a number of $8 million that was disclosed on the last conference call, so I was a little-
Oh, I understand where you're going. On the last conference call, that $8 million was not Fox Paine's fee.
Okay.
We had to pay a fee to. There was an investment advisor that did help us identify some potential buyers. We have to pay our lawyers. We also have some fixed assets and intangible assets that we're not gonna write this business on a going forward basis. We're going to impair those assets. The $8 million was comprised of those items.
Okay. It wasn't clear from the call. It sounded like it's all advisory fees.
No advisory fees actually.
It just sounded like an astronomical number.
No, no.
That's why. Okay.
Advisory fees to Fox Paine were zero.
Okay. Thank you.
Jeremy?
Last year you set an objective for net premium growth about 6%-8%. Thanks. Are you changing that guidance going forward given the tremendous growth you've shown this year, or are you sticking with the 6%-8%?
You know, we don't give forward guidance, but it's a great time to be in the E&S business. You know, we're getting, as you saw just from rate alone is driving growth. If you kind of broke that into a few different ways, you know, standard E&S is getting with rate and exposure about 13%. If you look at our programs division, very similar type results. When you look at the new businesses, that's all new growth to us. We're very bullish. I feel very comfortable on our growth targets.
I think time for one more. Ryan?
Maybe end on a happy note. You guys have done a lot of great stuff. You've sold businesses at good multiples that were arguably inferior to what you have left. Made some good, you know, seemed like crushing calls on duration of the fixed income portfolios, on the equity portfolio. Premiums are growing. You're investing in a rising yield environment. Are you frustrated by the stock price? Kinda what's your vision of how it. Do you think execution is what will improve the situation or?
Yeah.
Very frustrated. I'd like to say time will tell, but so far it hasn't told us anything. You know, for that reason, we've structured equity for our top executives based on book value growth in the underlying insurance companies because equity in the market, it doesn't provide an incentive at all. So we'll see. If our stock continues to do nothing, I think it's incumbent upon the board to focus on that on behalf of all shareholders.
Yeah.
Thank you very much.
Thank you, everybody. We look forward to seeing you in 2023.