Hello, welcome to the GBLI 2Q 2023 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press start one on your telephone keypad. I will now turn the conference over to Mr. Steve Ries. Please go ahead.
Thank you, Sarah. 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 a description 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's now my pleasure to turn the call over to Mr.
Jay Brown, Chief Executive Officer of Global Indemnity.
Thank you, Steve. Good morning, and thanks to everyone on the call for taking the time this morning to join us for our Q2 results discussion. Before we review, review our results for the quarter, let me address the elephant in the room. As we stated in our June 9th press release, the company is engaged in conversations that could potentially lead to a transaction to sell a portion of our insurance operations or the entire company. These conversations are continuing, and as stated in our press release, we do not intend to make any further comments unless or until it has been completed or suspended. As such, we will not be making any further comments today. That said, let's turn to the results for the Q2.
As we noted in our last two calls, the significant restructuring that has occurred in the prior two quarters does not make direct comparisons to prior year overall results somewhat difficult. Our ongoing operating segments are primarily Commercial Specialty and to a much lesser extent, reinsurance operations. I will focus my comments on Commercial Specialty results as this is the portion of our operation which will dictate future underwriting results. Following my comments, Tom will address all the financial aspects of our GAAP results. The long-term operating metrics we are focused on for ongoing commercial are loss and loss expense ratios consistent with our long-term average in the mid-50s, an expense ratio of below 38% this year, trending to 36% in a couple of years, a combined ratio in the low 90s, and growth averaging 10%.
I am very encouraged by our Q2 accident year results, albeit we still have some work to do. For the Q2, our accident year loss and loss expense ratio was 57.5%. Our expense ratio was 36.2%, and the combined ratio was 93.7%. In addition, despite the high industry catastrophic losses in the quarter, our ongoing efforts to increase the proportion of our business that's casualty and continue to manage our catastrophic property exposures, we only incurred $4.1 million in cat losses, which are reflected in the 57.5% loss and loss expense ratio I referenced above. All excellent profitability figures, which are consistent with our metrics, but unfortunately, our core business had a very disappointing growth of -6% in the Q2.
The lack of growth was all driven by just one of our three divisions. This division targets specific agents with concentrated books of single-class business, where substantial reunderwriting and pricing actions resulted in a loss of significant amount of premium of $15 million compared to the same period in 2022. In sharp contrast, our core Package Specialty business grew 13%, and our retail-focused Vacant Express and collectible business grew 14%. As an insurance underwriter, we are consistently faced with balancing profitable pricing and underwriting with our growth objectives. Given our overarching objective to be a consistent, profitable underwriter, this is 1 of those periods where we sacrificed some unprofitable business to benefit the bottom line.
Tom will provide more details, our decision to play defense on interest rates by dramatically shortening the duration of our bond portfolio starting 18 months ago, is really beginning to pay dividends as our investment book yield is rising every month, with investment income coming in at $13 million for the quarter, roughly double that of a year ago. With $800 million of our investment portfolio maturing in the next six quarters, we fully expect this number should keep rising every quarter. During the quarter, we increased the board-authorized share repurchase from $60 million- $135 million. Because of the extremely small volume of shares traded each day, our repurchase efforts are focused on reverse inquiry opportunities.
During the quarter, we repurchased 200,000 shares at an average price of $28 and have $101 million remaining available for share repurchases. Standing back, this is a pretty good quarter. We obviously have more work to do to both achieve these property profitability results on a consistent basis quarter after quarter, with higher growth to deliver an acceptable return for our shareholders. Tom?
Thank you, Jay. Good morning, everyone. Net income for the Q2 of 2023 was $9.3 million, and adjusted operating income, which excludes realized losses and results of exited lines, was $6.9 million. We are pleased with the direction of our results. Actions taken to focus on core business lines, reduce expenses, reduce catastrophe exposure, and reposition the investment portfolio are being realized. Book value per share increased from $45.68 at March 31st, 2023, to $46.03 at June 30th, 2023, due to good underwriting results, strong investment income, and share repurchases. As Jay noted, during the quarter, 200,000 shares were acquired.
Since the share repurchase program was initiated in the Q4 of 2022, the company has repurchased 1,357,082 shares from third parties for an aggregate amount of $34 million. I will now discuss some of the key drivers of net income, starting with investment performance. Investment income was $13.2 million during the Q2 of 2023. On a year-to-date basis, investment income is $25.2 million, comprised of $24.1 million from fixed income investments and $1.1 million from alternative investments. This compares to $8.5 million in 2022, comprised of $13.3 million from fixed income investments and negative investment income of $4.8 million from alternatives.
Investment income from the fixed income portfolio is almost double what it was in 2022, due to the actions taken in early 2022 to sell longer-dated securities and short duration. Book yield on the portfolio was 3.8% at June 30th, 2023, and duration is 1.4 years. As a comparison, at December 31st, 2021, book yield on the fixed income portfolio was 2.2%, and duration was 3.2 years. At December 31st, 2022, book yield was 3.5%, and duration was 1.7 years. Between June 30th, 2023, and December 31st, 2024, we expect our investment portfolio will generate approximately $900 million of cash flow.
This is comprised of $800 million from maturities and the remainder from investment income. We expect these funds will be invested at rates that will further increase book yield. Realized losses in the Q2 of 2023 were $0.8 million, mainly due to selling several assets to improve overall investment returns. Unrealized losses increased by $3.2 million in the Q2 of 2023 due to the rise in rates. The short duration fixed income portfolio helped minimize unrealized losses. Moving to underwriting. In the Q2 of 2023, our continuing lines had an accident year underwriting profit of $6.4 million, compared to an underwriting profit of $4.5 million in 2022. Continuing lines in the Q2 performed in line with our expectations.
The continuing lines accident year combined ratio in the Q2 was 94.9%. On a consolidated basis, in the Q2 of 2023, there was an underwriting gain of $4.3 million, compared to an underwriting gain of $2.1 million in 2022. On a consolidated basis, prior year reserve development was flat. Exited lines had good development of approximately $6 million, primarily from property catastrophe reserves. Within our continuing lines, loss reserves were strengthened by approximately $6 million, primarily related to non-renewed casualty business. In the Q2 of 2023, gross written premium in our continuing lines was $110.2 million, compared to $151.5 million in 2022. Much of the decrease was planned.
Reinsurance operations wrote $14.8 million in 2023, compared to $46.5 million in 2022. This decline is mainly due to not renewing a casualty treaty in 2023. Within Commercial Specialty, Package E&S, which is comprised of Penn-America business, the company's primary division within its Commercial Specialty segment, it increased gross written premiums from $58.3 millionmillion- $62.7 million in 2023. Package Specialty grew approximately 8%, driven by new agency appointments, strong rate increases, as well as exposure growth in both property and general liability. Excluding underperforming business that was terminated, Package Specialty grew by 13%. Targeted Specialty, which contains the remaining business lines in Commercial Specialty, had $32.7 million of premium in 2023, compared to $46.7 million in the Q2 of 2022.
As Jay noted, this decline was mainly due to not writing business from wholesale agents that were not providing an acceptable return and managing catastrophe capacity. Within Targeted Specialty, several products grew. The Vacant Express product generated $7.9 million of premium in the Q2 of 2023, which is up 23% compared to the Q2 of 2022. collector policies for private collectors grew approximately 4%. Exited lines include the farm business sold in August 2022, the specialty property book that was sold in the Q4 of 2021, as well as other lines we have exited. Exited lines are continuing to run down as expected. Net written premium for the quarter was -$0.7 million. Corporate expenses in the Q2 of 2023 were $5 million, compared to $3 million in 2022.
2022 included a $2.7 million CARES Act Employee Retention Credit. We are pleased with our results this quarter. Our core business is providing good returns. Loss ratios performed as expected compared to 2022. Expenses are much lower due to actions taken in early 2023. The company's fixed income portfolio's book yield is 3.8%. 96% of the portfolio is invested in fixed maturity investments and a little bit in cash. The fixed income portfolio has an average rating of A and a duration of 1.4 years. Maturities and investment income are expected to generate $900 million of cash flow between June 30, 2023, and December 31st, 2024. The funds that become available are currently being invested at yields higher than 5%.
The actions that have been taken are providing value to our shareholders. Thank you. We will now take your questions.
Thank you. If you have a question, please press star one on your telephone keypad. If you have queued up for a question and wish to withdraw, you may simply press star one again. Again, it is star one to ask a question. We will pause for a moment. And there are no questions. Oh, my apologies. We do have a question from the line of Ross Haberman with RLH Investments. Your line is open.
Thank you, gentlemen. I'm sorry , I got on a bit late. Did you mention anything about the press release you issued, I want to say, about a month ago? Where you, you said something about a number of, of companies approached you in an informal or formal way, and, can you say anything about the status of that now? Thank you.
The conversations are continuing.
But, but-
That's all.
And-
That's all we're going to say at this point in time. Go ahead.
Other question I had, a follow-up. How much is left in terms of your buyback authorization?
I'm sorry, could you repeat the question, please? I couldn't quite hear it.
How much is left in terms of your buyback authorization in dollars?
Oh, $101 million.
That, and that lasts through the end of the calendar year?
It's open for several years still.
Okay. Thank you very much. I greatly appreciate your help. The best of luck.
Once again, ladies and gentlemen, if you have a question, it is star one. Our next question is from John Shafter. What forward earnings impact should we see from the reduced reinsurance costs?
Well, our reinsurance costs last year, for our June first renewal were approximately $10 million annually. This year, when we renewed, the cost dropped to approximately $5 million, and that's due to primarily due to the actions that we've taken to reduce our catastrophe-exposed business. We were able to buy less.
Thank you. Once again, it is star one to ask a question. Your next question comes from the line of Tom Kerr with Zacks Investment Research. Your line is open.
Good morning, guys. A couple quick ones here. On the exit line business and the net earned premiums, can you give any more color on how that trends down? Will there still be earned premiums the rest of the year, maybe into 2024? I know it's gonna be a small amount.
Yeah, it's going to be a very small amount. I mean, hang, hang on just one second, Tom. Round, round numbers, just bear with me for one second. We only had $6 million of $6.2 million of earned premium in the Q2. We were $18.2 million year to date, so we went from $12 million to $6 million. We're probably gonna go down somewhere between $2 million and $3 million, and by the end of the year, it should be virtually nothing.
Okay, that's helpful. Can you repeat on the Targeted Specialty lines, the decrease there, can you kind of give color, repeat what you said? I think you'd mentioned dropping wholesalers, or was there anything else?
Well, we had a couple of things. In some of our wholesale business, we non-renewed business that was not providing an adequate return on capital. We also were managing catastrophe exposure. We were able to grow in our Vacant Express line, and we also grew our individual collector policies by 4%. Down a little bit in one area, up in a few others.
Okay, that makes sense.
The goal, Tom, was really to increase overall profitability. As Jay noted, we had to sacrifice some business to improve overall results.
When we started the year after our review in the Q4, we set specific targets for reunderwriting and pricing changes, for individual agents that had large blocks of business with us, and a number of those have resulted in non-renewals.
Okay, that's helpful. On the book yield, I can't do the math in my head, but if you're investing that much about 5% by the end of next year, does that mean a book yield could reach five or over? I know that's a-
I don't know if it'll get quite to five.
crystal ball.
It's, our portfolio today, Tom, is, is round numbers, $1.35 billion. We have $800 million maturing, where, the extra $100 million, when I noted $900 million, $100 million of that, I'm using round numbers, was investment income. You're gonna get a yield that if rates stay where they are today, we should have yields that are approaching the mid-4s, but, that, that's kind of what you should be expecting.
Got it. All right, last question is the. I know you guys have a lot of excess capital. Is, sort of M&A or any tuck-in lines of business on the table right now, or are you just focused on share buybacks and operating results?
Primarily on share buybacks at this point in time, but we're always open to additional expansion if we see an opportunity out there.
Okay, great. That's all I have for this morning.
Thank you.
Your next question comes from the line of Guy Baron with Springview. Your line is open.
Hi, Jay. Hi, hi, folks. I had a question about excess capital, similar to the previous caller. Could you give us a sense of how much excess capital, what the amount is of, of your excess capital above and beyond what is required to support the ongoing business?
It's, you know, it's between $100 million-$200 million right now. It's always hard to, to specify exactly what it is. The key for us is we have excess capital and excess of the $101 million that we bought for our remaining authorization for share buyback. It will increase over time because of our shrinkage of our, our business down to the core business. We expect our, our excess capital will probably grow over the next two years, absent a substantial change in, in our forecast of probably another $100 million or so.
Great. Thank you so much.
You're welcome.
Your next question is from Justin Saunders. Are we bullish about getting growth back in Targeted Specialty segments after the book was cleaned up?
Are we bullish? I think we're, we're confident that, we'll shift from shrinking- to growing. We will have probably a similar comparison in the cond six months of the year before we roll into 2024. In 2024, against the base that we'll have in 2023, we assume that we'll be able to hit our targets of 10% or more.
Thank you. Your next question comes from the line of y. Your line is open.
Hi. I noticed that the, there's roughly an $8 difference between your book value and your book value ex investment losses. I see that, if you take that $800 million and divide it by 1,350, you know, roughly speaking, straight line, you might get that back as the portfolio rolls off. Is there any kind of.
No, that's absolutely correct. As I, as I noted, we have $800 million maturing between now and the end of next year. We have another, in round numbers, $250 million that's maturing in 2025. We're expecting that most of that unrealized loss will be recovered over that time period.
It's roughly proportional, roughly linear, roughly speaking?
Yeah. I haven't mapped it out month by month-
Right.
As I noted, we, we expect that most of the unrealized loss will be recovered over, over the time period.
Now, now I noticed that, I think you bought back stock, and you paid, kind of in the high $20s, roughly, and your stock's at $34. Given, given, you know, the expected increase in real real book value with the losses going away, maybe, maybe you could be a little more aggressive in buying back stock or still, be, price sensitive, I guess.
I, I would agree with your observation.
Thank you.
As a reminder.