Thank you for standing by. My name is Danica, and I'll be your conference operator today. At this time, I would like to welcome everyone to the GBLI Third Quarter 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 star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Stephen Ries, Head of Investor Relations. Please go ahead.
Thank you, Danica. 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 allocation, 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'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 for joining us this morning for our third quarter results call. Before I provide some commentary on our 2023 results, let me address an obvious topic. As we have previously disclosed, the company has been engaged in conversations that could potentially lead to a transaction to sell a portion of our insurance operations or the entire company. GBLI has now retained an investment banker, Tony Ursano of Insurance Advisory Partners, to assist the company in evaluating the efficacy of any potential transaction. We expect this process will likely conclude in the next few months. Given where we are in the process, we will not say anything more today or respond to any questions on this topic during this call.
As we have noticed in our previous calls this year, the significant restructuring that occurred at the beginning of 2023 continues to make direct comparisons to prior year, prior year overall results, somewhat difficult. Our ongoing operating segments are primarily commercial specialty and to a lesser extent, Reinsurance Operations. I will focus my comments on commercial specialty, year-to-date, accident year results, and then Tom will address all the financial aspects of our GAAP results. As a reminder, the long-term operating metrics we are focused on for commercial specialty are loss and loss expense ratios, consistent with our long-term average in the mid-50s, an expense ratio of below 38% for this year, trending to 36% in a couple of years, and a combined ratio in the low 90s and growth averaging 10%.
Although we continue to make good progress against our growth objectives, we are still observing some continued negative effects from our restructuring efforts, primarily in our Targeted Specialty class specific segment, where our priority focus on profitability has caused a drop in gross written premium through the first nine months of 32%. Offsetting the results were more than satisfactory growth of 12% in Package Specialty and 17% in InsurTech, both of which are consistent with our long-term growth objectives. Turning to our nine-month accident year results for our Continuing Lines, we recorded a 97.6% combined ratio, comprised of a loss and loss expense ratio of 60.2% and expense ratio of 37.4%.
Our third quarter results were similar, with a combined ratio of 97.8%, comprised of a loss and loss expense ratio of 59.3 and an expense ratio of 38.5. Although we're on target for expense dollars, the premium shortfall in targeted class specific means that going forward, we have a bit more work to do to achieve our long-term 36% expense ratio objective. In terms of loss and loss expense ratio, the 60.2% ratio is falling short of our long-term target due to a combination of high catastrophe losses, about 2 points higher than expected year to date, and continued loss emergence for terminated casualty business in Package Specialty and Targeted Specialty class specific, causing another couple of points below target.
We continue to achieve strong pricing of 9% in Package Specialty and 10% in Targeted Specialty class specific, which is in line with our expectation and exceeds expected loss trends. Although Tom will report on all of our GAAP results, I will share the observation that the same terminated business that has hurt our 2023 accident year results, was the source of reserve strengthening that we have experienced this year in commercial specialty. The net effect on calendar year loss ratio was $12 million in the third quarter and $19 million through nine months, which translates into 10.7 points in the quarter and 5.3 points year- to- date. Although this strengthening was offset by the release of some redundancy in Exited Lines, it reinforces the decisions we have made to exit these specific books of business.
Tom will provide more details, but our decision to play defense on interest rates by dramatically shorting the duration of our bond portfolio, starting 21 months ago, continues to pay dividends. Our investment yield is rising every month, with overall investment income coming in at $14 million for the quarter and $39 million year to date, more than double that from a year ago. With a current book yield of 4%, a duration of 1.2 years, and $800 million of cash flow from the investment portfolio in the next five quarters, we fully expect that this number should keep rising every quarter. While we continue to make progress against our longer-term goals, both the overall accident year and calendar year underwriting results of our continuing operations fell modestly short of our objectives.
The underlying profitability of our continuing book of business cements my view that better results will be forthcoming in the future. I will now turn it over to our CFO, Tom McGeehan, before taking any questions.
Thank you, Jay, and good morning, everyone. Net income for the third quarter of 2023 was $7.7 million, compared to net income of $7.3 million in the comparable period of 2022. The $7.3 million in 2022 excludes the net gain from the sale of the Farm business in August 2022. Loss reserve releases were $0.1 million in the third quarter of 2023, compared to $3 million in the corresponding period last year. Actions taken to focus on core business lines, reduce expenses, reduce catastrophe exposure, and reposition the investment portfolio are being realized. The company is moving in the right direction.
Book value per share increased from $46.03 per share at June 30, 2023, to $46.27 per share at September 30, 2023. Investment income increased significantly in 2023, and underwriting income was positive. I will now discuss some of the key drivers of net income, starting with investment performance. Investment income was $14.2 million. $13.3 million was from fixed income, $900,000 was from alternatives. This is well ahead of the third quarter of last year, which had $8.4 million, comprised of $9.5 million of fixed income and -$1.1 million from alternatives. On a year-to-date basis, investment income is $39.4 million, comprised of $37.3 million from fixed income investments and $2.1 million from alternative investments.
This compares to $16.9 million in 2022, comprised of $22.8 million from fixed income investments and negative investment income of $5.9 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. Market interest rates increased in the third quarter of 2023. Even though interest rates rose, the short duration portfolio kept unrealized losses to $0.9 million net of tax during the quarter. Book yield on the portfolio is 4% at September 30, and duration is 1.2 years. The average credit quality of the fixed income portfolio is A+.
As a comparison, at December 31, 2021, book yield on the fixed income portfolio was 2.2%, and duration was 3.2 years. Between September of this year and December 31, 2024, we expect the investment portfolio will generate approximately $800 million of cash flow as bonds mature and investment income is realized. In this higher interest rate environment, our portfolio is well positioned to increase book yield. Moving to underwriting. In the third quarter of 2023, our Continuing Lines had an accident year underwriting profit of $2.7 million, compared to an underwriting profit of $3 million in 2022.
The 2.7 accident year underwriting profit contains losses from the Maui fires of $2.5 million. The Continuing Lines accident year combined ratio for the third quarter of 2023 was 97.8%. Maui, the Maui fires had a loss ratio of 2.3%, which were contained in the 97.8% number I just quoted. Exited Lines had an accident year underwriting loss of $0.9 million in the third quarter of 2023. We expect the drag from this exited business will decline as the business runs off, and support for businesses sold in 2021 and 2022 is no longer required to be provided.
Accident year underwriting income from our continuing and Exited Lines was $1.8 million in the third quarter of 2023, compared to underwriting income of $2 million in the third quarter of 2022. On a consolidated basis, prior year loss reserve releases in the third quarter of 2023 were $0.1 billion. 2022 had loss reserve releases of $3 million. In the third quarter of 2023, Exited Lines had good development of approximately $11.9 million, primarily from property reserves. Within our Continuing Lines, loss reserves were strengthened by approximately $11.8 million. Approximately $7 million is related to Targeted Specialty business. The remainder is mainly related to accident years 2020 and prior. Booked reserves remain above actuarial indications.
In the third quarter of 2023, gross written premium in our Continuing Lines was $98.9 million, compared to $139.1 million in 2022. Much of this decrease was planned. Reinsurance Operations wrote $11.9 million in 2023, compared to $43.1 million in 2022. This decline is mainly due to non-renewing a casualty treaty. Within commercial specialty, there are two main product lines: Package Specialty and Targeted Specialty. Package Specialty, which is comprised of Penn-America business, the company's primary division, increased gross written premiums from $52.7 million - $53.5 million in 2023. Excluding $2.3 million of underperforming business that was terminated from 2022, Package Specialty grew 6% during the quarter.
Targeted Specialty, which contains the remaining business and commercial specialty, had $33.5 million of premium in 2023, compared to $43.3 million in the third quarter of 2022. Within Targeted Specialty, several products grew. The Vacant Express product generated $8.5 million of premium in the third quarter of 2023, which is up 28% compared to the third quarter of 2022. Collectibles grew approximately 14% to $4.8 million. The decline in Targeted Specialty class specific was primarily due to actions to improve underwriting income by increasing rate, reducing exposures to catastrophe-prone business, and non-renewing underperforming businesses. Exited Lines include the Farm business sold in August 2022, the Specialty Property book that was sold in the fourth quarter of 2021, as well as other lines we have exited.
Excess lines are continuing to run down as expected. Net written premium for the quarter 2023 were $5.3 million, compared to $14.4 million in 2022. 2022 included $9.2 million of expenses related to the sale of the Farm business, which occurred in August 2022. We are pleased with the direction of our company. Our core business is providing positive returns. Compared to 2022, expenses are much lower due to actions taken in early 2023. Expenses are being managed to align with the business being written and supported. 96% of the portfolio is invested in fixed maturity investments in cash. The portfolio is well-positioned to generate cash flow that can be, that can be invested at higher yields. The funds that become available are currently being invested at yields higher than 5%.
Thank you, and we will now take your questions.
Great, thank you. At this time, I'd like to remind everyone, in order to ask a question, simply press star, then the number one on your telephone keypad. We will pause for just a moment to compile a Q&A roster. All right, our first question comes from David Schiff with Schiff Insurance. Please go ahead.
Hi there, Jay. It's David. How are you? I just wanted to ask one question: If you all are able to buy back stock at the present?
We continue to entertain reverse inquiry, given the small amount of business that's available in the market on a daily basis. We don't have any kind of an active repurchase program in the marketplace.
Okay, thank you.
All right. Our next question comes from Tom Kerr from Zacks Investment Research. Please go ahead.
Good morning, guys. Can you go back into more detail on the InsurTech growth? I think you mentioned Vacant and some other. What were sort of the drivers of those individual lines growing strongly?
Yeah. No, it's marketing efforts. One, on the Vacant side, a number of new agents have been appointed. We've also introduced a new monoline liability product. Both of those things are driving a lot of growth there. And on collect, it's a very focused marketing efforts, which are driving a lot of business to our portals.
Okay, great. And then you guys mentioned the 9% average pricing increase. Was that across all commercial specialty or just package, or I miss where that kind of came from?
Yes, a package.
The whole package. Okay. Are there other problematic books of business like the restaurant out there, or is that pretty much the worst, or is that just an ongoing process to get rid of these problem books of business?
In terms of where we were about nine or 10 months ago, we went through a pretty thorough review when I got here. We made some very quick decisions to exit a combination of products or books of business that weren't profitable. We also made a decision to exit some lines of business that we weren't in a position to have proper expense ratios. All of that was done at the beginning of the year, and obviously, we're in a continuous process of underwriting and looking at individual risks and individual books of business. But at this point in time, we're very satisfied with the book of business that we're underwriting.
Okay, two more quick ones, and then the. What's left in the cat losses? Is there or is that being eliminated or reduced, or how do you sort of measure how much cat exposure you have or want in the future?
No, it's been significantly reduced. Our Reinsurance buy has been able to come down significantly. You know, the upper limit of our cat tower now is $75 million, which still provides protection north of 102... one in 250-year event. Our losses on our Continuing Lines, cat losses for the quarter were only $5.2 million, $2.5 million of that was Maui. There were no other really big losses during the quarter. It was just several little ones. So we're very, very happy with the actions that we've taken to reduce for this company.
That's great. One more quick one on the book yield. Is there a sort of timing path to go from 4% - 5%? I mean, is that a 12- or 18-month process or any color you can give on how that looks?
Well, I'll let you figure it out to some degree, not to be coy-
Yeah
... we have $800 million of cash flow coming off between now and the end of next year. That is being invested at close to, literally, you can get yields very on treasuries, close to 5.5% today. So it's, you know, we, we have full expectations that, book yield of our portfolio will, will continue to increase, and if rates stay at the levels they are today, you know, I mean, yields in that range will eventually be realized.
Great. That's all I have for today.
Five range.
Great. That's all I have for now. Thanks.
All right. Very good.
Great. Thank you. All right, as a reminder, to ask a question, please press star followed by the number one. Our next question comes from Anthony Mottolese, from Dowling & Partners. Please go ahead.
Hi, guys. I just was hoping to get a little bit more color on the reserve strengthening in the Continuing Lines. I understand you mentioned it was $7 million in Targeted Specialty, and then just the remainder was years 2020 and prior.
Sure.
Are there any specific years there, and could any color on exactly what you were seeing in Targeted Specialty, certain areas or geographies, anything would be helpful there?
Sure. When we did our review of the business at the end of last year, we made some decisions that created an Exited Line or a Discontinued Line. Certain books of business, because of the way they were coded, stayed inside Package Specialty, for example. So we have a runoff, significant reduction, probably going to be about 75%-80% in a target, in a small book of business in New York habitational. So it affected current accident year because that business is running off to the tune of about $7 million, and that was the $7 million that Tom referred to very specifically. The rest of the reserve strengthening primarily occurred in the year 2020 or prior.
Part of the reason that 2020 continues to be a little bit of an enigma is because of COVID. We had a big slowdown in reported claims and then a backlog in certain litigation environments. Obviously, we've tried to estimate that precisely as we've gone through 2021, 2022, and 2023, but there has been some lag effect. So what we did was some corrections during the course of the quarter there for 2020 and prior.
Yeah, I'm just gonna add one thing to Jay, to what Jay said. Also, within Target Specialty, there was also an underperforming program that was terminated in the first quarter of this year. There is no more premium after the first quarter, but we did have some earned from that program this year, and we continued to see some adverse development related to that program, which is included in the reserve strengthening numbers that we noted.
Okay. Thank you so much. That was my only question.
Okay, our next question comes from Tony Pollock with Aegis. Please go ahead.
Hi. My questions were answered. Thank you.
Great, thank you. That concludes our Q&A session. I will now turn the call back over to Stephen Ries for closing remarks.
Thank you, Danica. Thank you for joining us and your continued interest and investment in Global Indemnity. We look forward to speaking with you after 2023 results are released.
Thank you, ladies and gentlemen. That concludes today's call. You may now disconnect.