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GBLI: INITIATION: Smallcap specialty property & casualty insurer entering a new and focused growth phase. The company operates in specialty areas primarily in excess and surplus lines.

By Thomas Kerr, CFA NYSE:GBLI READ THE FULL GBLI RESEARCH REPORT

Benzinga · 09/13/2022 13:04

By Thomas Kerr, CFA

NYSE:GBLI

READ THE FULL GBLI RESEARCH REPORT

GBLI (NYSE:GBLI) provides insurance products across a distribution network that includes binding authority, program, brokerage, and reinsurance. Commercial Specialty offers specialty property and casualty products designed for product lines such as small business binding authority, professional lines, excess casualty, environmental, InsurTech business, and specialized programs. Reinsurance Operations provides reinsurance and insurance solutions through brokers and primary writers including insurance and reinsurance companies. The company also has an Exited Lines segment that contains lines of business that are no longer being written or are in runoff.

From September 5, 2003, the date Fox Paine & Company acquired control of the Company, to December 31, 2021, the Company has generated cumulative net income of $582 million. $525 million has been returned to shareholders in the form of dividends, share repurchases and share redemptions since the initial public offering in December 2003.

David Charlton was recruited as Global Indemnity's Chief Executive in April 2021. Mr. Charlton is a well experienced and highly successful insurance industry leader with distinguished tenures at three of the industry's leading competitors (Philadelphia Consolidated, Berkshire Hathaway's USLI, and Chubb's Westchester Specialty operation). Mr. Charlton has been focused on hiring experienced insurance executives with long track records of success, growing core businesses, eliminating less profitable and higher risk businesses, improving technology, utilizing third party data and enhancing analytical capabilities.

Since becoming Chief Executive in April 2021, Mr. Charlton has already substantially improved the breadth and depth of the company's management team by recruiting Reiner Mauer as Global Indemnity's Chief Operations Officer. Mr. Mauer was formerly the president of the Property/Casualty division of Berkshire Hathaway's USLI operation. In addition, he has recruited eight other new executives as divisional and operational leaders, all of whom have had highly successful careers managing small business and middle market casualty underwriting operations.

For the first six months of 2022 gross written premium in the Commercial Specialty and Reinsurance segments, which are the core businesses, grew by 28.4% compared to the first six months of 2021. The increase was due to organic growth and rate increases. The combined ratio for these segments was 95.4%.

Several less profitable and higher risk businesses have been sold. GBLI disposed of American Reliable Insurance Company and its Farm, Ranch & Equine division in the 3rd quarter of 2022 and the Specialty Property division in the 4th quarter of 2021. These transactions generated $175 million in aggregate proceeds for GBLI, which includes the release of capital supporting these businesses, as compared to the price originally paid for American Reliable in 2015 of $100 million. American Reliable was the most volatile and poorest performing segment of GBLI due to the increasing frequency and severity of natural catastrophes (such as hurricanes, tornados, hailstorms, and monsoons) sweeping across the U.S. in the last five years.

The sale of the Farm, Ranch & Equine renewal rights completes the 5-year transformation of GBLI from a complex, offshore, property-catastrophe oriented insurer subject to considerable earnings volatility, to a simplified U.S. company focused on its highly profitable specialty commercial casualty business without the volatility from property-oriented books of business.

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