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GLOBAL INDEMNITY GROUP, LLC – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the consolidated financial statements and accompanying notes of the Company included elsewhere in this report. Some of the information contained in this discussion and analysis or set forth elsewhere in this report, including information with respect to the Company's plans and strategy, constitutes forward-looking statements that involve risks and uncertainties. Please see "Cautionary Note Regarding Forward-Looking Statements" at the end of this Item 2 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained herein. For more information regarding the Company's business and operations, please see the Company's Annual Report on Form 10-K for the year endedDecember 31, 2020 . Recent Developments
Sale of Manufactured and Dwelling Homes Business Lines
OnOctober 26, 2021 the Company announced the sale of its manufactured and dwelling homes business lines toK2 Insurance Services andAmerican Family Mutual Insurance Company . Pursuant to the tripartite transaction, the Company will receive$30.4 million in cash as well as retain the American Reliable 50-state licensed operating unit,$65 million of net capital supporting the business, and a related$42 million unearned premium reserve. The sales price of manufactured and dwelling homes business lines was$28 million . In addition, K2 is subleasing approximately a third of the Company'sScottsdale Arizona office. Payments from the sublease are expected to be$2.4 million betweenOctober 2021 andNovember 2029 . To facilitate the transaction, American Reliable retained the specialty residential property business inFlorida andLouisiana and also retained business that was previously placed in runoff. American Reliable plans to cease writing manufactured home and dwelling insurance inFlorida andLouisiana as soon as possible. American Family is assuming 100% of the risks for all policies covered under the renewal rights agreement which are written or renewed afterOctober 26, 2021 , except for policies covering properties in the state ofFlorida . For the nine months endedSeptember 30, 2021 , Manufactured Home and Dwelling gross written premium was$79.6 million .
Appointment of Chief Executive
OnApril 19, 2021 , the Company announced thatDavid S. Charlton was named chief executive of the Company's insurance operations and was appointed to serve as the principal executive officer of the Company. Furthermore, in connection withMr. Charlton's appointment, the board of directors ofGlobal Indemnity Group, LLC (the "Board") has increased the size of the Board from six to seven directors and appointedMr. Charlton to fill the newly-created directorship, in each case, with effect as of execution of the CEO Agreement.
Appointment of Chief Operations Officer
On
Operations Officer of the Company's insurance business and will serve as the
principal operating officer of the Company.
COVID-19
The global outbreak of COVID-19 continues to present significant risks to the
Company. The COVID-19 pandemic may affect the Company's operations
indefinitely. The Company may experience reductions in premium volume, delays in
the collection of premiums, and increases in COVID-19 related claims. Any
resulting volatility in the global financial markets may negatively impact the
market value of the Company's investment portfolio and may result in net
realized investment losses as well as a decline in the liquidity of the
investment portfolio. All of these factors may have far reaching impacts on the
Company's business, operations, and financial results and conditions, directly
and indirectly, including without limitation impacts on the health of the
Company's management and employees, distribution, marketing, customers and
agents, and on the overall economy. The scope and nature of these impacts, most
of which are beyond the Company's control, continue to evolve and such effects
could exist for an extended period of time even after the pandemic ends.
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GLOBAL INDEMNITY GROUP, LLC Distributions During 2021, the Board of Directors approved a distribution payment of$0.25 per common share to all shareholders of record on the close of business onMarch 22, 2021 ,June 21, 2021 , andSeptember 23, 2021 . Distributions paid to common shareholders were$10.8 million during the nine months endedSeptember 30, 2021 . In addition, distributions of$0.3 million were paid toGlobal Indemnity Group, LLC's preferred shareholder during the nine months endedSeptember 30, 2021 . AM Best Rating AM Best has seven Rating Categories in the AM Best Financial Strength Rating Scale. The categories ranging from best to worst are Superior, Excellent, Good, Fair, Marginal, Weak and Poor. Within each rating category, there are rating notches of plus or minus to show additional gradation of the ratings. OnApril 21, 2021 , AM Best affirmed the financial strength rating of "A" (Excellent) for theU.S. operating subsidiaries ofGlobal Indemnity Group, LLC . Overview The Company's Commercial Specialty segment sells its property and casualty insurance products through a group of approximately 205 professional general agencies that have limited quoting and binding authority, as well as a number of wholesale insurance brokers who in turn sell the Company's insurance products to insureds through retail insurance brokers. Commercial Specialty operates predominantly in the excess and surplus lines marketplace. The Company manages its Commercial Specialty segment via product classifications. These product classifications are: 1) Penn-America, which includes property and general liability products for small commercial businesses sold through a select network of wholesale general agents with specific binding authority; 2) United National, which includes property, general liability, and professional lines products sold through program administrators with specific binding authority; 3) Diamond State, which includes property, casualty, and professional lines products sold through wholesale brokers and program administrators with specific binding authority; and 4) Vacant Express, which primarily insures dwellings which are currently vacant, undergoing renovation, or are under construction and is sold through aggregators, brokers, and retail agents. The Company's Specialty Property segment, primarily via American Reliable, offers specialty personal lines property and casualty insurance products through a group of approximately 205 agents, primarily comprised of wholesale general agents, with specific binding authority. TheCompany's Farm , Ranch & Stable segment, primarily via American Reliable, provides specialized property and casualty coverage includingCommercial Farm Auto and Excess/Umbrella Coverage for the agriculture industry as well as specialized insurance products for the equine mortality and equine major medical industry. These insurance products are sold through a group of approximately 230 agents, primarily comprised of wholesalers and retail agents, with a selected number having specific binding authority. The Company's Reinsurance Operations provides reinsurance solutions through brokers and on a direct basis. It uses its capital capacity to write niche and specialty-focused treaties and business which meet the Company's risk tolerance and return thresholds. Prior to the redomestication, the Company's Reinsurance Operations consisted solely of the operations ofGlobal Indemnity Reinsurance. In connection with the redomestication,Global Indemnity Reinsurance merged intoPenn-Patriot Insurance Company and all of its business was assumed by the Company's existing insurance company subsidiaries. The Company derives its revenues primarily from premiums paid on insurance policies that it writes and from income generated by its investment portfolio, net of fees paid for investment management services. The amount of insurance premiums that the Company receives is a function of the amount and type of policies it writes, as well as prevailing market prices. The Company's expenses include losses and loss adjustment expenses, acquisition costs and other underwriting expenses, corporate and other operating expenses, interest, investment expenses, and income taxes. Losses and loss adjustment expenses are estimated by management and reflect the Company's best estimate of ultimate losses and costs arising during the reporting period and revisions of prior period estimates. The Company records its best estimate of losses and loss 45 --------------------------------------------------------------------------------GLOBAL INDEMNITY GROUP, LLC adjustment expenses considering both internal and external actuarial analyses of the estimated losses the Company expects to incur on the insurance policies it writes. The ultimate losses and loss adjustment expenses will depend on the actual costs to resolve claims. Acquisition costs consist principally of commissions and premium taxes that are typically a percentage of the premiums on the insurance policies the Company writes, net of ceding commissions earned from reinsurers. Other underwriting expenses consist primarily of personnel expenses and general operating expenses related to underwriting activities. Corporate and other operating expenses are comprised primarily of outside legal fees, other professional and accounting fees, directors' fees, management fees & advisory fees, and salaries and benefits for company personnel whose services relate to the support of corporate activities. Interest expense is primarily comprised of amounts due on outstanding debt. Critical Accounting Estimates and Policies
The Company's consolidated financial statements are prepared in conformity with
GAAP, which require it to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates and
assumptions.
The most critical accounting policies involve significant estimates and include those used in determining the liability for unpaid losses and loss adjustment expenses, recoverability of reinsurance receivables, investments, fair value measurements, goodwill and intangible assets, deferred acquisition costs, and taxation. For a detailed discussion on each of these policies, please see the Company's Annual Report on Form 10-K for the year endedDecember 31, 2020 . There have been no significant changes to any of these policies or underlying methodologies during the current year except for the following: The receipt of results for investments in limited partnerships and limited liability companies may vary. If results are received on a timely basis, they are included in current results. If they are not received on a timely basis, they are recorded on a one quarter lag. The recording of such results is applied consistently for each investment once the timing of receiving the results has been established. 46
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GLOBAL INDEMNITY GROUP, LLC
Results of Operations
The following table summarizes the Company's results for the quarters and nine
months ended
Quarters Ended Nine Months Ended
September 30, % September 30, %
(Dollars in thousands) 2021 2020 Change 2021 2020 Change
Gross written premiums $ 174,303 $ 143,749 21.3 % $ 513,097 $ 464,022 10.6 %
Net written premiums $ 162,299 $ 130,611 24.3 % $ 470,635 $ 416,987 12.9 %
Net earned premiums $ 157,565 $ 140,302 12.3 % $ 450,673 $ 426,617 5.6 %
Other income 414 597 (30.7 %) 1,334 1,509 (11.6 %)
Total revenues 157,979 140,899 12.1 % 452,007 428,126 5.6 %
Losses and expenses:
Net losses and loss adjustment
expenses 109,195 97,148 12.4 % 290,916 242,092 20.2 %
Acquisition costs and other
underwriting expenses 59,282 53,268 11.3 % 171,259 163,258 4.9 %
Underwriting income (loss) (10,498 ) (9,517 ) (10.3 %) (10,168 ) 22,776 (144.6 %)
Net investment income 9,344 11,746 (20.4 %) 29,813 19,516 52.8 %
Net realized investment gains
(losses) (310 ) 7,323 (104.2 %) 7,342 (22,332 ) 132.9 %
Other loss (25 ) (55 ) 54.5 % (47 ) (36 ) (30.6 %)
Corporate and other operating
expenses (5,387 ) (21,196 ) (74.6 %) (15,992 ) (34,037 ) (53.0 %)
Interest expense (2,596 ) (3,620 ) (28.3 %) (7,887 ) (13,197 ) (40.2 %)
Loss on extinguishment of debt - (3,060 ) (100.0 %) - (3,060 ) (100.0 %)
Income (loss) before income
taxes (9,472 ) (18,379 ) (48.5 %)
3,061 (30,370 ) 110.1 %
Income tax benefit (1,759 ) (3,209 ) (45.2 %) (1,118 ) (8,173 ) (86.3 %) Net income (loss)$ (7,713 ) $ (15,170 ) 49.2 %
Underwriting Ratios: Loss ratio (1): 69.3 % 69.2 % 64.5 % 56.7 % Expense ratio (2) 37.6 % 38.0 % 38.0 % 38.3 % Combined ratio (3) 106.9 % 107.2 % 102.5 % 95.0 %
NM - not meaningful
(1) The loss ratio is a GAAP financial measure that is generally viewed in the
insurance industry as an indicator of underwriting profitability and is
calculated by dividing net losses and loss adjustment expenses by net earned
premiums.
(2) The expense ratio is a GAAP financial measure that is calculated by dividing
the sum of acquisition costs and other underwriting expenses by net earned
premiums.
(3) The combined ratio is a GAAP financial measure and is the sum of the
Company's loss and expense ratios.
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GLOBAL INDEMNITY GROUP, LLC
Premiums
The following table summarizes the change in premium volume by business segment:
Quarters Ended Nine Months Ended
September 30, September 30,
(Dollars in thousands) 2021 2020 % Change 2021 2020 % Change
Gross written premiums (1)
Commercial Specialty $ 95,734 $ 74,971 27.7 % $ 279,746 $ 243,099 15.1 %
Specialty Property 30,504 34,730 (12.2 %) 96,875 107,951 (10.3 %)
Farm, Ranch & Stable 18,500 19,443 (4.9 %) 60,353 64,798 (6.9 %)
Reinsurance (3) 29,565 14,605 102.4 % 76,123 48,174 58.0 %
Total gross written premiums $ 174,303 $ 143,749 21.3 % $ 513,097 $ 464,022 10.6 %
Ceded written premiums
Commercial Specialty $ 6,574 $ 5,897 11.5 % $ 23,739 $ 23,662 0.3 %
Specialty Property 3,300 4,759 (30.7 %) 10,223 14,898 (31.4 %)
Farm, Ranch & Stable 2,130 2,482 (14.2 %) 8,500 8,475 0.3 %
Reinsurance (3) - - - - - -
Total ceded written premiums $ 12,004 $ 13,138 (8.6 %) $ 42,462 $ 47,035 (9.7 %)
Net written premiums (2)
Commercial Specialty $ 89,160 $ 69,074 29.1 % $ 256,007 $ 219,437 16.7 %
Specialty Property 27,204 29,971 (9.2 %) 86,652 93,053 (6.9 %)
Farm, Ranch & Stable 16,370 16,961 (3.5 %) 51,853 56,323 (7.9 %)
Reinsurance (3) 29,565 14,605 102.4 % 76,123 48,174 58.0 %
Total net written premiums $ 162,299 $ 130,611 24.3 % $ 470,635 $ 416,987 12.9 %
Net earned premiums
Commercial Specialty $ 84,209 $ 73,887 14.0 % $ 240,505 $ 211,329 13.8 %
Specialty Property 29,343 31,388 (6.5 %) 89,826 99,147 (9.4 %)
Farm, Ranch & Stable 17,936 19,978 (10.2 %) 54,037 57,691 (6.3 %)
Reinsurance (3) 26,077 15,049 73.3 % 66,305 58,450 13.4 %
Total net earned premiums $ 157,565 $ 140,302 12.3 % $ 450,673 $ 426,617 5.6 %
(1) Gross written premiums represent the amount received or to be received for
insurance policies written without reduction for reinsurance costs, ceded
premiums, or other deductions.
(2) Net written premiums equal gross written premiums less ceded written
premiums.
(3) External business only, excluding business assumed from affiliates.
Gross written premiums increased by 21.3% and 10.6% for the quarter and nine months endedSeptember 30, 2021 , respectively, as compared to same periods in 2020. The increase in gross written premiums for both the quarter and nine months endedSeptember 30, 2021 is mainly due to the continued growth of existing programs, increased pricing, and several new programs within Commercial Specialty as well as the organic growth of an existing casualty treaty and the assumption of three new smaller casualty treaties within Reinsurance Operations. This growth in premiums was partially offset by the continued reduction of catastrophe exposed business within both Specialty Property and Farm, Ranch & Stable, the continued reduction in business not providing an adequate return on capital within Specialty Property, and the non-renewal of its property catastrophe treaties within Reinsurance Operations. In addition, the gross written premiums for the nine months endedSeptember 30, 2021 were also further reduced by actions taken by Commercial Specialty to reduce risk and increase profitability of Property Brokerage. 48 --------------------------------------------------------------------------------GLOBAL INDEMNITY GROUP, LLC
Net Retention
The ratio of net written premiums to gross written premiums is referred to as
the Company's net premium retention. The Company's net premium retention is
summarized by segments as follows:
Quarters Ended Nine Months Ended
September 30, Point September 30, Point
(Dollars in thousands) 2021 2020 Change 2021 2020 Change
Commercial Specialty 93.1 % 92.1 % 1.0 91.5 % 90.3 % 1.2
Specialty Property 89.2 % 86.3 % 2.9 89.4 % 86.2 % 3.2
Farm, Ranch & Stable 88.5 % 87.2 % 1.3 85.9 % 86.9 % (1.0 )
Reinsurance 100.0 % 100.0 % - 100.0 % 100.0 % -
Total 93.1 % 90.9 % 2.2 91.7 % 89.9 % 1.8
The net premium retention for the quarter and nine months ended September 30,
2021 increased by 2.3 points and 1.9 points, respectively, as compared to the
same periods in 2020. This increase in retention is primarily driven by the
restructuring of the Company's catastrophe reinsurance treaties which occurred
on June 1, 2020 as well as a change in the mix of business.
Net Earned Premiums
Net earned premiums within the Commercial Specialty segment increased by 14.0%
and 13.8% for the quarter and nine months ended September 30, 2021 ,
respectively, as compared to the same periods in 2020. The increase in net
earned premiums was primarily due to a growth in premiums written as a result of
organic growth from existing agents, pricing increases, and several new programs
partially offset by a reduction in Property Brokerage's net earned premiums as a
result of actions taken to reduce risk and increase profitability. Property net
earned premiums were $34.8 million for each of the quarters ended September 30,
2021 and 2020 and $102.3 million and $97.2 million for the nine months ended
September 30, 2021 and 2020, respectively. Casualty net earned premiums were
$49.5 million and $39.1 million for the quarters ended September 30, 2021 and
2020, respectively, and $138.2 million and $114.1 million for the nine months
ended September 30, 2021 and 2020, respectively.
Net earned premiums within the Specialty Property segment decreased by 6.5% and
9.4% for the quarter and nine months ended September 30, 2021 , respectively, as
compared to the same periods in 2020 primarily due to a continued reduction of
catastrophe exposed business and a reduction in business not providing an
adequate return on capital. Property net earned premiums were $27.7 million and
$29.3 million for the quarters ended September 30, 2021 and 2020, respectively,
and $84.6 million and $92.2 million for the nine months ended September 30, 2021
and 2020, respectively. Casualty net earned premiums were $1.7 million and $2.1
million for the quarters ended September 30, 2021 and 2020, respectively, and
$5.3 million and $7.0 million for the nine months ended September 30, 2021 and
2020, respectively.
Net earned premiums within the Farm, Ranch & Stable segment decreased by 10.2%
and 6.3% for the quarter and nine months ended September 30, 2021 , respectively,
as compared to the same periods in 2020. The decrease in net earned premiums was
primarily due to the continued reduction of catastrophe exposed
business. Property net earned premiums were $13.4 million and $15.0 million for
the quarters ended September 30, 2021 and 2020, respectively, and $40.4 million
and $42.1 million for the nine months ended September 30, 2021 and 2020,
respectively. Casualty net earned premiums were $4.5 million and $5.0 million
for the quarters ended September 30, 2021 and 2020, respectively, and $13.7
million and $15.6 million for the nine months ended September 30, 2021 and 2020,
respectively.
Net earned premiums within the Reinsurance Operations segment increased by 73.3%
and 13.4% for the quarter and nine months ended September 30, 2021 as compared
to the same period in 2020 primarily due to organic growth of an existing
casualty treaty partially offset by a reduction in premiums written due to the
non-renewal of its property catastrophe treaties. Property net earned premiums
were $1.8 million and $5.5 million for the quarters ended September 30, 2021 and
2020, respectively, and $7.2 million and $24.5 million for the nine months ended
September 30, 2021 and 2020, respectively. Casualty net earned premiums were
$24.2 million and $9.6 million for the quarters ended September 30, 2021 and
2020, respectively, and $59.1 million and $33.9 million for the nine months
ended September 30, 2021 and 2020, respectively.
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GLOBAL INDEMNITY GROUP, LLC Reserves Management's best estimate atSeptember 30, 2021 was recorded as the loss reserve. Management's best estimate is as of a particular point in time and is based upon known facts, the Company's actuarial analyses, current law, and the Company's judgment. This resulted in carried gross and net reserves of$731.8 million and$643.0 million , respectively, as ofSeptember 30, 2021 . A breakout of the Company's gross and net reserves, as ofSeptember 30, 2021 , is as follows: Gross Reserves
(Dollars in thousands) Case IBNR (1) Total
Commercial Specialty
Specialty Property 12,541 27,378 39,919
Farm, Ranch & Stable 12,144 33,227 45,371
Reinsurance Operations 41,197 124,572 165,769
Total
$ 253,080 $ 478,685 $ 731,765 Net Reserves (2)
(Dollars in thousands) Case IBNR (1) Total
Commercial Specialty
Specialty Property 10,461 24,184 34,645
Farm, Ranch & Stable 9,898 25,196 35,094
Reinsurance Operations 41,197 124,572 165,769
Total
$ 208,325 $ 434,708 $ 643,033
(1) Losses incurred but not reported, including the expected future emergence of
case reserves.
(2) Does not include reinsurance receivable on paid losses.
Each reserve category has an implicit frequency and severity for each accident year as a result of the various assumptions made. If the actual levels of loss frequency and severity are higher or lower than expected, the ultimate losses will be different than management's best estimate. For most of its reserve categories, the Company believes that frequency can be predicted with greater accuracy than severity. Therefore, the Company believes management's best estimate is more likely influenced by changes in severity than frequency. The following table, which the Company believes reflects a reasonable range of variability around its best estimate based on historical loss experience and management's judgment, reflects the impact of changes (which could be favorable or unfavorable) in frequency and severity on the Company's current accident year net loss estimate of$290.2 million for claims occurring during the nine months endedSeptember 30, 2021 : Severity Change (Dollars in thousands) -10% -5% 0% 5% 10% Frequency Change -5% (42,079 ) (28,295 ) (14,510 ) (726 ) 13,059 -3% (36,855 ) (22,781 ) (8,706 ) 5,369 19,443 -2% (34,244 ) (20,024 ) (5,804 ) 8,416 22,636 -1% (31,632 ) (17,267 ) (2,902 ) 11,463 25,828 0% (29,020 ) (14,510 ) - 14,510 29,020 1% (26,408 ) (11,753 ) 2,902 17,557 32,212 2% (23,796 ) (8,996 ) 5,804 20,604 35,404 3% (21,185 ) (6,239 ) 8,706 23,651 38,597 5% (15,961 ) (726 ) 14,510 29,746 44,981 The Company's net reserves for losses and loss adjustment expenses of$643.0 million as ofSeptember 30, 2021 relate to multiple accident years. Therefore, the impact of changes in frequency and severity for more than one accident year could be higher or lower than the amounts reflected above. 50 --------------------------------------------------------------------------------
GLOBAL INDEMNITY GROUP, LLC Underwriting Results Commercial Specialty
The components of income and loss from the Company's Commercial Specialty
segment and corresponding underwriting ratios are as follows:
Nine Months Ended
Quarters Ended September 30, % September 30, %
(Dollars in thousands) 2021 2020 Change 2021 2020 Change
Gross written premiums $ 95,734 $ 74,971 27.7 % $ 279,746 $ 243,099 15.1 %
Net written premiums $ 89,160 $ 69,074 29.1 % $ 256,007 $ 219,437 16.7 %
Net earned premiums $ 84,209 $ 73,887 14.0 % $ 240,505 $ 211,329 13.8 %
Total revenues 84,209 73,887 14.0 % 240,505 211,329 13.8 %
Losses and expenses:
Net losses and loss
adjustment expenses 62,545 42,879 45.9 % 167,598 109,191 53.5 %
Acquisition costs and
other underwriting
expenses 30,257 26,943 12.3 % 88,067 79,452 10.8 %
Underwriting income
(loss) $ (8,593 ) $ 4,065 NM $ (15,160 ) $ 22,686 (166.8 %)
Quarters Ended September 30, Point Nine Months Ended September 30, Point
2021 2020 Change 2021 2020 Change
Underwriting Ratios:
Loss ratio:
Current accident year 74.4 % 62.8 % 11.6 67.4 % 60.1 % 7.3
Prior accident year (0.1 %) (4.8 %) 4.7 2.3 % (8.4 %) 10.7
Calendar year loss ratio 74.3 % 58.0 % 16.3 69.7 % 51.7 % 18.0
Expense ratio 35.9 % 36.5 % (0.6 ) 36.6 % 37.6 % (1.0 )
Combined ratio 110.2 % 94.5 % 15.7 106.3 % 89.3 % 17.0
NM - not meaningful
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GLOBAL INDEMNITY GROUP, LLC
Reconciliation of non-GAAP financial measures and ratios
The table below reconciles the non-GAAP measures or ratios, which excludes the
impact of prior accident year adjustments, to its most directly comparable GAAP
measure or ratio. The Company believes the non-GAAP measures or ratios are
useful to investors when evaluating the Company's underwriting performance as
trends within Commercial Specialty may be obscured by prior accident year
adjustments. These non-GAAP measures or ratios should not be considered as a
substitute for its most directly comparable GAAP measure or ratio and does not
reflect the overall underwriting profitability of the Company.
Quarters Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Loss Loss Loss Loss
(Dollars in thousands) Losses Ratio Losses Ratio Losses Ratio Losses Ratio
Property
Non catastrophe property
losses and ratio excluding
the effect of prior accident
year (1) $ 18,936 54.5 % $ 14,769 42.4 % $ 55,321 54.1 % $ 41,581 42.8 %
Effect of prior accident
year 6,385 18.4 % (568 ) (1.6 %) 5,046 4.9 % (238 ) (0.2 %)
Non catastrophe property
losses and ratio (2) $ 25,321 72.9 % $ 14,201 40.8 % $ 60,367 59.0 % $ 41,343 42.6 %
Catastrophe losses and ratio
excluding the effect of
prior accident year (1) $ 11,911 34.3 % $ 9,537 27.4 % $ 24,881 24.3 % $ 23,116 23.8 %
Effect of prior accident
year 1,283 3.7 % 626
1.8 % 9,385 9.2 % 6,063 6.2 %
Catastrophe losses and ratio
(2)
$ 13,194 38.0 %$ 10,163
29.2 %
Total property losses and ratio excluding the effect of prior accident year (1)$ 30,847 88.8 %$ 24,306 69.8 %$ 80,202 78.4 %$ 64,697 66.6 % Effect of prior accident year 7,668 22.1 % 58
0.2 % 14,431 14.1 % 5,825 6.0 %
Total property losses and
ratio (2)
$ 38,515 110.9 %$ 24,364
70.0 %
Casualty
Total casualty losses and ratio excluding the effect of prior accident year (1)$ 31,773 64.2 %$ 22,119 56.6 %$ 81,919 59.3 %$ 62,289 54.6 % Effect of prior accident year (7,743 ) (15.7 %) (3,604 )
(9.2 %) (8,954 ) (6.5 %) (23,620 ) (20.7 %)
Total casualty losses and
ratio (2)
$ 24,030 48.5 %$ 18,515
47.4 %
Total Total net losses and loss adjustment expense and total loss ratio excluding the effect of prior accident year (1)$ 62,620 74.4 %$ 46,425
62.8 %
Effect of prior accident
year
(75 ) (0.1 %) (3,546 ) (4.8 %) 5,477 2.3 % (17,795 ) (8.4 %) Total net losses and loss adjustment expense and total loss ratio (2)$ 62,545 74.3 %$ 42,879 58.0 %$ 167,598 69.7 %$ 109,191 51.7 %
(1) Non-GAAP measure / ratio
(2) Most directly comparable GAAP measure / ratio
Premiums
See "Result of Operations" above for a discussion on consolidated premiums.
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GLOBAL INDEMNITY GROUP, LLC
Loss Ratio
The current accident year losses and loss ratio is summarized as follows:
Quarters Ended Nine Months Ended
September 30, % September 30, %
(Dollars in thousands) 2021 2020 Change 2021 2020 Change
Property losses
Non-catastrophe $ 18,936 $ 14,769 28.2 % $ 55,321 $ 41,581 33.0 %
Catastrophe 11,911 9,537 24.9 % 24,881 23,116 7.6 %
Property losses 30,847 24,306 26.9 % 80,202 64,697 24.0 %
Casualty losses 31,773 22,119 43.6 % 81,919 62,289 31.5 %
Total accident year losses $ 62,620 $ 46,425 34.9 % $ 162,121 $ 126,986 27.7 %
Quarters Ended September 30, Point Nine Months Ended September 30, Point
2021 2020 Change 2021 2020 Change
Current accident year
loss ratio:
Property
Non-catastrophe 54.5 % 42.4 % 12.1 54.1 % 42.8 % 11.3
Catastrophe 34.3 % 27.4 % 6.9 24.3 % 23.8 % 0.5
Property loss ratio 88.8 % 69.8 % 19.0 78.4 % 66.6 % 11.8
Casualty loss ratio 64.2 % 56.6 % 7.6 59.3 % 54.6 % 4.7
Total accident year loss
ratio 74.4 % 62.8 % 11.6 67.4 % 60.1 % 7.3
The current accident year non-catastrophe property loss ratio increased by 12.1
points during the quarter ended
period in 2020 reflecting higher claims severity.
The current accident year non-catastrophe property loss ratio increased by 11.3 points during the nine months endedSeptember 30, 2021 as compared to the same period in 2020 due to higher claims severity. The current accident year catastrophe loss ratio increased by 6.9 points during the quarter endedSeptember 30, 2021 as compared to the same period in 2020 recognizing higher claims severity. The impact from Hurricane Ida on the third quarter loss ratio was 27.4 points which was the main driver of the higher loss ratio in 2021. The current accident year catastrophe loss ratio increased by 0.5 points during the nine months endedSeptember 30, 2021 as compared to the same period in 2020 due to higher claims severity. The impact from Hurricane Ida and the FebruaryTexas winter storms (PCS Catastrophes 2160 and 2117) on the 2021 loss ratio was 16.3 points.
The current accident year casualty loss ratio increased by 7.6 points during the
quarter ended
reflecting higher claims frequency.
The current accident year casualty loss ratio increased by 4.7 points during the nine months endedSeptember 30, 2021 as compared to the same period in 2020 due to higher claims frequency. The calendar year loss ratio for the quarter and nine months endedSeptember 30, 2021 includes a decrease of$0.1 million , or 0.1 percentage points, and an increase of$5.5 million , or 2.3 percentage points, respectively, related to reserve development on prior accident years. The calendar year loss ratio for the quarter and nine months endedSeptember 30, 2020 includes a decrease of$3.5 million , or 4.8 percentage points, and a decrease of$17.8 million , or 8.4 percentage points, respectively, related to reserve development on prior accident years. Please see Note 8 of the notes to the consolidated financial statements in Item 1 of Part I of this report for further discussion on prior accident year development. 53
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GLOBAL INDEMNITY GROUP, LLC
Expense Ratios
The expense ratio for the Company's Commercial Specialty segment improved by 0.6 points from 36.5% for the quarter endedSeptember 30, 2020 to 35.9% for the quarter endedSeptember 30, 2021 and improved by 1.0 points from 37.6% for the nine months endedSeptember 30, 2020 to 36.6% for the nine months endedSeptember 30, 2021 . The improvement in the expense ratio is primarily due to higher earned premiums. COVID-19
COVID-19's lasting impacts could result in declines in business, non-payment of
premiums, and increases in claims that could adversely affect Commercial
Specialty's business, financial condition, and results of operation.
There is continued risk that legislation could be passed or there could be a court ruling which would require the Company to cover business interruption claims regardless of terms, exclusions including the virus exclusions contained within the Company's Commercial Specialty policies, or other conditions included in these policies that would otherwise preclude coverage.
Specialty Property
The components of income from the Company's Specialty Property segment and
corresponding underwriting ratios are as follows:
Quarters Ended September 30, % Nine Months Ended September 30, %
(Dollars in thousands) 2021 2020 Change 2021 2020 Change
Gross written premiums $ 30,504 $ 34,730 (12.2 %) $ 96,875 $ 107,951 (10.3 %)
Net written premiums $ 27,204 $ 29,971 (9.2 %) $ 86,652 $ 93,053 (6.9 %)
Net earned premiums $ 29,343 $ 31,388 (6.5 %) $ 89,826 $ 99,147 (9.4 %)
Other income 435 450 (3.3 %) 1,323 1,306 1.3 %
Total revenues 29,778 31,838 (6.5 %) 91,149 100,453 (9.3 %)
Losses and expenses:
Net losses and loss
adjustment expenses 20,516 34,430 (40.4 %) 50,296 65,619 (23.4 %)
Acquisition costs and
other underwriting
expenses 12,127 13,364 (9.3 %) 37,745 41,357 (8.7 %)
Underwriting income
(loss) $ (2,865 ) $ (15,956 ) 82.0 % $ 3,108 $ (6,523 ) 147.6 %
Quarters Ended September 30, Point Nine Months Ended September 30, Point
2021 2020 Change 2021 2020 Change
Underwriting Ratios:
Loss ratio:
Current accident year 71.3 % 116.1 % (44.8 ) 58.3 % 72.8 % (14.5 )
Prior accident year (1.4 %) (6.4 %) 5.0 (2.3 %) (6.6 %) 4.3
Calendar year loss ratio 69.9 % 109.7 % (39.8 ) 56.0 % 66.2 % (10.2 )
Expense ratio 41.3 % 42.6 % (1.3 ) 42.0 % 41.7 % 0.3
Combined ratio 111.2 % 152.3 % (41.1 ) 98.0 % 107.9 % (9.9 )
54
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GLOBAL INDEMNITY GROUP, LLC
Reconciliation of non-GAAP financial measures and ratios
The table below reconciles the non-GAAP measures or ratios, which excludes the
impact of prior accident year adjustments, to its most directly comparable GAAP
measure or ratio. The Company believes the non-GAAP measures or ratios are
useful to investors when evaluating the Company's underwriting performance as
trends within Specialty Property may be obscured by prior accident year
adjustments. These non-GAAP measures or ratios should not be considered as a
substitute for its most directly comparable GAAP measure or ratio and does not
reflect the overall underwriting profitability of the Company.
Quarters Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(Dollars in thousands) Losses Loss Ratio Losses Loss Ratio Losses Loss Ratio Losses Loss Ratio
Property
Non catastrophe property
losses and ratio excluding
the effect of prior
accident year (1) $ 10,988 39.7 % $ 15,264 52.0 % $ 34,374 40.6 % $ 40,689 44.2 %
Effect of prior accident
year (108 ) (0.4 %) 66 0.2 % (448 ) (0.5 %) (2,979 ) (3.2 %)
Non catastrophe property
losses and ratio (2) $ 10,880 39.3 % $ 15,330 52.2 % $ 33,926 40.1 % $ 37,710 41.0 %
Catastrophe losses and
ratio excluding the effect
of prior accident year (1) $ 8,968 32.4 % $ 20,060 68.4 % $ 15,043 17.8 % $ 28,367 30.8 %
Effect of prior accident
year (196 ) (0.7 %) (1,828 ) (6.2 %) (253 ) (0.3 %) (1,619 ) (1.8 %)
Catastrophe losses and
ratio (2) $ 8,772 31.7 % $ 18,232 62.2 % $ 14,790 17.5 % $ 26,748 29.0 %
Total property losses and
ratio excluding the effect
of prior accident year (1) $ 19,956 72.1 % $ 35,324 120.4 % $ 49,417 58.4 % $ 69,056 75.0 %
Effect of prior accident
year (304 ) (1.1 %) (1,762 ) (6.0 %) (701 ) (0.8 %) (4,598 ) (5.0 %)
Total property losses and
ratio (2) $ 19,652 71.0 % $ 33,562 114.4 % $ 48,716 57.6 % $ 64,458 70.0 %
Casualty
Total casualty losses and
ratio excluding the effect
of prior accident year (1) $ 967 57.9 % $ 1,109 53.9 % $ 2,911 55.3 % $ 3,154 45.1 %
Effect of prior accident
year (103 ) (6.2 %) (241 ) (11.7 %) (1,331 ) (25.3 %) (1,993 ) (28.5 %)
Total casualty losses and
ratio (2) $ 864 51.7 % $ 868 42.2 % $ 1,580 30.0 % $ 1,161 16.6 %
Total
Total net losses and loss
adjustment expense and
total loss ratio excluding
the effect of prior
accident year (1) $ 20,923 71.3 % $ 36,433 116.1 % $ 52,328 58.3 % $ 72,210 72.8 %
Effect of prior accident
year (407 ) (1.4 %) (2,003 ) (6.4 %) (2,032 ) (2.3 %) (6,591 ) (6.6 %)
Total net losses and loss
adjustment expense and
total loss ratio (2) $ 20,516 69.9 % $ 34,430 109.7 % $ 50,296 56.0 % $ 65,619 66.2 %
(1) Non-GAAP measure / ratio
(2) Most directly comparable GAAP measure / ratio
Premiums
See "Result of Operations" above for a discussion on consolidated premiums.
55 --------------------------------------------------------------------------------
GLOBAL INDEMNITY GROUP, LLC Other Income Other income was$0.4 million and$0.5 million for the quarters endedSeptember 30, 2021 and 2020, respectively, and$1.3 million for both the nine months endedSeptember 30, 2021 and 2020. Other income is primarily comprised of fee income. Loss Ratio
The current accident year losses and loss ratio is summarized as follows:
Quarters Ended
September 30, % Nine Months Ended September 30, %
(Dollars in
thousands) 2021 2020 Change 2021 2020 Change
Property losses
Non-catastrophe $ 10,988 $ 15,264 (28.0 %) $ 34,374 $ 40,689 (15.5 %)
Catastrophe 8,968 20,060 (55.3 %) 15,043 28,367 (47.0 %)
Property losses 19,956 35,324 (43.5 %) 49,417 69,056 (28.4 %)
Casualty losses 967 1,109 (12.8 %) 2,911 3,154 (7.7 %)
Total accident year
losses $ 20,923 $ 36,433 (42.6 %) $ 52,328 $ 72,210 (27.5 %)
Quarters Ended September 30, Point Nine Months Ended September 30, Point
2021 2020 Change 2021 2020 Change
Current accident year
loss ratio:
Property
Non-catastrophe 39.7 % 52.0 % (12.3 ) 40.6 % 44.2 % (3.6 )
Catastrophe 32.4 % 68.4 % (36.0 ) 17.8 % 30.8 % (13.0 )
Property loss ratio 72.1 % 120.4 % (48.3 ) 58.4 % 75.0 % (16.6 )
Casualty loss ratio 57.9 % 53.9 % 4.0 55.3 % 45.1 % 10.2
Total accident year loss
ratio 71.3 % 116.1 % (44.8 ) 58.3 % 72.8 % (14.5 )
The current accident year non-catastrophe property loss ratio improved by 12.3
points during the quarter ended
period in 2020 reflecting lower claims frequency.
The current accident year non-catastrophe property loss ratio improved by 3.6 points during the nine months endedSeptember 30, 2021 as compared to the same period in 2020 due to lower claims frequency. The current accident year catastrophe loss ratio improved by 36.0 points during the quarter endedSeptember 30, 2021 as compared to the same period in 2020 recognizing lower claims frequency and severity in the current calendar quarter. The impact from Hurricane Ida on the current quarter loss ratio was 18.6 points and the impact from Hurricane Laura on the 2020 third quarter loss ratio was 36.2 points. The current accident year catastrophe loss ratio improved by 13.0 points during the nine months endedSeptember 30, 2021 as compared to the same period in 2020 due to lower claims frequency and severity. The impact from Hurricane Ida on the current nine month loss ratio was 6.1 points and the impact from Hurricane Laura on the 2020 nine month loss ratio was 11.5 points.
The current accident year casualty loss ratio increased by 4.0 points during the
quarter ended
reflecting higher claims severity.
The current accident year casualty loss ratio increased by 10.2 points during the nine months endedSeptember 30, 2021 as compared to the same period in 2020 due to higher claims severity. The calendar year loss ratio for the quarter and nine months endedSeptember 30, 2021 includes a decrease of$0.4 million , or 1.4 percentage points, and a decrease of$2.0 million , or 2.3 percentage points, respectively, related to reserve development on prior accident years. The calendar year loss ratio for the quarter and nine months endedSeptember 30, 2020 includes a decrease of$2.0 million , or 6.4 percentage points, and a decrease of$6.6 million , or 6.6 percentage points, respectively, 56 --------------------------------------------------------------------------------GLOBAL INDEMNITY GROUP, LLC
related to reserve development on prior accident years. Please see Note 8 of the
notes to the consolidated financial statements in Item 1 of Part I of this
report for further discussion on prior accident year development.
Expense Ratios
The expense ratio for the Company's Specialty Property segment improved 1.3
points from 42.6% for the quarter ended
quarter ended
expense which was partially offset by an increase in the expense ratio as a
result of a reduction in net earned premiums.
The expense ratio for the Company's Specialty Property segment increased by 0.3 points from 41.7% for the nine months endedSeptember 30, 2020 to 42.0% for the nine months endedSeptember 30, 2021 . The increase in the expense ratio is primarily due to a reduction in earned premiums partially offset by a reduction in commission expense. COVID-19 COVID-19's lasting impacts could result in declines in business and non-payment of premiums that could adversely affect Specialty Property's business, financial condition, and results of operation. 57 --------------------------------------------------------------------------------GLOBAL INDEMNITY GROUP, LLC
Farm, Ranch & Stable
The components of loss from the
corresponding underwriting ratios are as follows:
Nine Months Ended
Quarters Ended September 30, % September 30, %
(Dollars in thousands) 2021 2020 Change 2021 2020 Change
Gross written premiums $ 18,500 $ 19,443 (4.9 %) $ 60,353 $ 64,798 (6.9 %)
Net written premiums $ 16,370 $ 16,961 (3.5 %) $ 51,853 $ 56,323 (7.9 %)
Net earned premiums $ 17,936 $ 19,978 (10.2 %) $ 54,037 $ 57,691 (6.3 %)
Other income 37 35 5.7 % 111 107 3.7 %
Total revenues 17,973 20,013 (10.2 %) 54,148 57,798 (6.3 %)
Losses and expenses:
Net losses and loss
adjustment expenses 10,678 14,649 (27.1 %) 33,640 37,698 (10.8 %)
Acquisition costs and
other underwriting
expenses 7,267 7,443 (2.4 %) 21,440 22,687 (5.5 %)
Underwriting income
(loss) $ 28 $ (2,079 ) 101.3 % $ (932 ) $ (2,587 ) 64.0 %
Quarters Ended September 30, Point Nine Months Ended September 30, Point
2021 2020 Change 2021 2020 Change
Underwriting Ratios:
Loss ratio:
Current accident year 62.0 % 79.9 % (17.9 ) 64.7 % 69.0 % (4.3 )
Prior accident year (2.5 %) (6.5 %) 4.0 (2.4 %) (3.7 %) 1.3
Calendar year loss ratio 59.5 % 73.4 % (13.9 ) 62.3 % 65.3 % (3.0 )
Expense ratio 40.5 % 37.3 % 3.2 39.7 % 39.3 % 0.4
Combined ratio 100.0 % 110.7 % (10.7 ) 102.0 % 104.6 % (2.6 )
58
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GLOBAL INDEMNITY GROUP, LLC
Reconciliation of non-GAAP financial measures and ratios
The table below reconciles the non-GAAP measures or ratios, which excludes the
impact of prior accident year adjustments, to its most directly comparable GAAP
measure or ratio. The Company believes the non-GAAP measures or ratios are
useful to investors when evaluating the Company's underwriting performance as
trends within Farm, Ranch & Stable may be obscured by prior accident year
adjustments. These non-GAAP measures or ratios should not be considered as a
substitute for its most directly comparable GAAP measure or ratio and does not
reflect the overall underwriting profitability of the Company.
Quarters Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
(Dollars in thousands) Losses Loss Ratio Losses Loss Ratio Losses Loss Ratio Losses Loss Ratio
Property
Non catastrophe property
losses and ratio excluding
the effect of prior
accident year (1) $ 7,400 55.2 % $ 6,292 41.9 % $ 20,824 51.6 % $ 16,106 38.2 %
Effect of prior accident
year 6 - (850 ) (5.7 %) 307 0.8 % (2,115 ) (5.0 %)
Non catastrophe property
losses and ratio (2) $ 7,406 55.2 % $ 5,442 36.2 % $ 21,131 52.4 % $ 13,991 33.2 %
Catastrophe losses and
ratio excluding the effect
of prior accident year (1) $ 1,432 10.7 % $ 6,970 46.4 % $ 6,931 17.2 % $ 15,488 36.8 %
Effect of prior accident
year 685 5.1 % (472 ) (3.1 %) (350 ) (0.9 %) 89 0.2 %
Catastrophe losses and
ratio (2) $ 2,117 15.8 % $ 6,498 43.3 % $ 6,581 16.3 % $ 15,577 37.0 %
Total property losses and
ratio excluding the effect
of prior accident year (1) $ 8,832 65.9 % $ 13,262 88.3 % $ 27,755 68.8 % $ 31,594 75.0 %
Effect of prior accident
year 691 5.1 % (1,322 ) (8.8 %) (43 ) (0.1 %) (2,026 ) (4.8 %)
Total property losses and
ratio (2) $ 9,523 71.0 % $ 11,940 79.5 % $ 27,712 68.7 % $ 29,568 70.2 %
Casualty
Total casualty losses and
ratio excluding the effect
of prior accident year (1) $ 2,297 50.6 % $ 2,693 54.4 % $ 7,188 52.5 % $ 8,213 52.7 %
Effect of prior accident
year (1,142 ) (25.2 %) 16 0.3 % (1,260 ) (9.2 %) (83 ) (0.5 %)
Total casualty losses and
ratio (2) $ 1,155 25.4 % $ 2,709 54.7 % $ 5,928 43.3 % $ 8,130 52.2 %
Total
Total net losses and loss
adjustment expense and
total loss ratio excluding
the effect of prior
accident year (1) $ 11,129 62.0 % $ 15,955 79.9 % $ 34,943 64.7 % $ 39,807 69.0 %
Effect of prior accident
year (451 ) (2.5 %) (1,306 ) (6.5 %) (1,303 ) (2.4 %) (2,109 ) (3.7 %)
Total net losses and loss
adjustment expense and
total loss ratio (2) $ 10,678 59.5 % $ 14,649 73.4 % $ 33,640 62.3 % $ 37,698 65.3 %
(1) Non-GAAP measure / ratio
(2) Most directly comparable GAAP measure / ratio
Premiums
See "Result of Operations" above for a discussion on consolidated premiums.
59
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GLOBAL INDEMNITY GROUP, LLC
Other Income
Other income was less than
Loss Ratio
The current accident year losses and loss ratio is summarized as follows:
Nine Months Ended
Quarters Ended September 30, % September 30, %
(Dollars in thousands) 2021 2020 Change 2021 2020 Change Property losses Non-catastrophe$ 7,400 $ 6,292 17.6 %$ 20,824 $ 16,106 29.3 % Catastrophe 1,432 6,970 (79.5 %) 6,931 15,488 (55.2 %) Property losses 8,832 13,262 (33.4 %) 27,755 31,594 (12.2 %) Casualty losses 2,297 2,693 (14.7 %) 7,188 8,213 (12.5 %) Total accident year losses$ 11,129 $ 15,955 (30.2 %)$ 34,943 $ 39,807 (12.2 %) Quarters Ended September 30, Point Nine Months Ended September 30, Point 2021 2020 Change 2021 2020 Change Current accident year loss ratio: Property Non-catastrophe 55.2 % 41.9 % 13.3 51.6 % 38.2 % 13.4 Catastrophe 10.7 % 46.4 % (35.7 ) 17.2 % 36.8 % (19.6 ) Property loss ratio 65.9 % 88.3 % (22.4 ) 68.8 % 75.0 % (6.2 ) Casualty loss ratio 50.6 % 54.4 % (3.8 ) 52.5 % 52.7 % (0.2 ) Total accident year loss ratio 62.0 % 79.9 % (17.9 ) 64.7 % 69.0 % (4.3 )
The current accident year non-catastrophe property loss ratio increased by 13.3
points during the quarter ended
period in 2020 reflecting higher claims severity.
The current accident year non-catastrophe property loss ratio increased by 13.4 points during the nine months endedSeptember 30, 2021 as compared to the same period in 2020 due to higher claims frequency and severity. The current accident year catastrophe loss ratio improved by 35.7 points during the quarter endedSeptember 30, 2021 as compared to the same period in 2020 recognizing lower claims frequency and severity. The impact from the Midwest derecho on the 2020 third quarter loss ratio was 30.1 points. The current accident year catastrophe loss ratio improved by 19.6 points during the nine months endedSeptember 30, 2021 as compared to the same period in 2020 due to lower claims frequency and severity in the current calendar year. The impact from the Midwest derecho on the 2020 nine-month loss ratio was 10.7 points.
The current accident year casualty loss ratio improved by 3.8 points during the
quarter ended
reflecting lower claims severity.
The current accident year casualty loss ratio improved by 0.2 points during the nine months endedSeptember 30, 2021 as compared to the same period in 2020 due to lower claims severity. The calendar year loss ratio for the quarter and nine months endedSeptember 30, 2021 includes a decrease of$0.5 million , or 2.5 percentage points, and a decrease of$1.3 million , or 2.4 percentage points, respectively, related to reserve development on prior accident years. The calendar year loss ratio for the quarter and nine months endedSeptember 30, 2020 includes a decrease of$1.3 million , or 6.5 percentage points, and a decrease of$2.1 million , or 3.7 percentage points, respectively, related to reserve development on prior accident years. Please see Note 8 of the notes to the consolidated financial statements in Item 1 of Part I of this report for further discussion on prior accident year development. 60
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GLOBAL INDEMNITY GROUP, LLC
Expense Ratios
The expense ratio for theCompany's Farm , Ranch & Stable Segment increased by 3.2 points from 37.3% for the quarter endedSeptember 30, 2020 to 40.5% for the quarter endedSeptember 30, 2021 and increased 0.4 points from 39.3% for the nine months endedSeptember 30, 2020 to 39.7% for the nine months endedSeptember 30, 2021 . The increase in the expense ratio is primarily due to a reduction in earned premiums partially offset by a reduction in the commission rate partially driven by a change in agent distribution.
COVID-19
There is continued risk that legislation could be passed or there could be a court ruling which would require the Company to cover business interruption claims regardless of terms, exclusions including the virus exclusions contained within theCompany's Farm , Ranch & Stable policies, or other conditions included in these policies that would otherwise preclude coverage.
COVID-19's lasting impacts could result in declines in business, non-payment of
premiums, and increases in claims that could adversely affect Farm, Ranch &
Stable's business, financial condition, and results of operation.
Reinsurance Operations
The components of income from the Company's Reinsurance Operations segment and
corresponding underwriting ratios are as follows:
Nine Months Ended
Quarters Ended September 30, % September 30, %
(Dollars in thousands) 2021 (1) 2020 (1) Change 2021 (1) 2020 (1) Change
Gross written premiums $ 29,565 $ 14,605 102.4 % $ 76,123 $ 48,174 58.0 %
Net written premiums $ 29,565 $ 14,605 102.4 % $ 76,123 $ 48,174 58.0 %
Net earned premiums $ 26,077 $ 15,049 73.3 % $ 66,305 $ 58,450 13.4 %
Other income (loss) (58 ) 112 (151.8 %) (100 ) 96 NM
Total revenues 26,019 15,161 71.6 % 66,205 58,546 13.1 %
Losses and expenses:
Net losses and loss
adjustment expenses 15,456 5,190 197.8 % 39,382 29,584 33.1 %
Acquisition costs and
other underwriting
expenses 9,631 5,518 74.5 % 24,007 19,762 21.5 %
Underwriting income $ 932 $ 4,453 (79.1 %) $ 2,816 $ 9,200 (69.4 %)
Quarters Ended September 30, Point Nine Months Ended September 30, Point
2021 2020 Change 2021 2020 Change
Underwriting Ratios:
Loss ratio:
Current accident year (2) 61.2 % 66.8 % (5.6 ) 61.6 % 59.4 % 2.2
Prior accident year (2.0 %) (32.3 %) 30.3 (2.2 %) (8.8 %) 6.6
Calendar year loss ratio (3) 59.2 % 34.5 % 24.7 59.4 % 50.6 % 8.8
Expense ratio 36.9 % 36.7 % 0.2 36.2 % 33.8 % 2.4
Combined ratio 96.1 % 71.2 % 24.9 95.6 % 84.4 % 11.2
NM - not meaningful
(1) External business only, excluding business assumed from affiliates
(2) Non-GAAP ratio
(3) Most directly comparable GAAP ratio
61
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GLOBAL INDEMNITY GROUP, LLC
Reconciliation of non-GAAP financial ratios
The table above includes a reconciliation of the current accident year loss ratio, which is a non-GAAP ratio, to its calendar year loss ratio, which is its most directly comparable GAAP ratio. The Company believes the non-GAAP ratio is useful to investors when evaluating the Company's underwriting performance as trends in the Company's Reinsurance Operations may be obscured by prior accident year adjustments. This non-GAAP ratio should not be considered as a substitute for its most directly comparable GAAP ratio and does not reflect the overall underwriting profitability of the Company.
Premiums
See "Result of Operations" above for a discussion on consolidated premiums.
Other Income (Loss)
The Company recognized other loss of$0.1 million and other income of$0.1 million during the quarter endedSeptember 30, 2021 and 2020, respectively, and recognized other loss of$0.1 million and other income of$0.1 million for the nine months endedSeptember 30, 2021 and 2020, respectively. Other income (loss) is comprised of foreign exchange gains and losses.
Loss Ratio
The current accident year loss ratio improved by 5.6 points during the quarter endedSeptember 30, 2021 as compared to the same period in 2020. The decrease in the current accident year loss ratio reflects an improvement in both the property and casualty loss ratios.
The current accident year loss ratio increased by 2.2 points during the nine
months ended
increase in the current accident year loss ratio reflects a mix of business
shift to more casualty premium which has a higher expected loss ratio than
property.
The calendar year loss ratio for the quarter and nine months endedSeptember 30, 2021 includes a decrease of$0.5 million , or 2.0 percentage points, and a decrease of$1.5 million , or 2.2 percentage points, respectively, related to reserve development on prior accident years. The calendar year loss ratio for the quarter and nine months endedSeptember 30, 2020 includes a decrease of$4.9 million , or 32.3 percentage points, and a decrease of$5.1 million , or 8.8 percentage points, respectively, related to reserve development on prior accident years. Please see Note 8 of the notes to the consolidated financial statements in Item 1 of Part I of this report for further discussion on prior accident year development. Expense Ratio
The expense ratio for the Company's Reinsurance Operations increased by 0.2
points from 36.7% for the quarter ended
quarter ended
The expense ratio for the Company's Reinsurance Operations increased by 2.4
points from 33.8% for the nine months ended
nine months ended
primarily due to a change in business mix as well as an increase in profit
commissions.
COVID-19 COVID-19's lasting impacts could result in declines in business, non-payment of premiums, and increases in claims that could adversely affect the Reinsurance Operations' business, financial condition, and results of operation. Unallocated Corporate Items
The Company's fixed income portfolio, excluding cash, continues to maintain high
quality with an A average rating and a duration of 3.3 years.
62
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GLOBAL INDEMNITY GROUP, LLC
Net Investment Income
Nine Months Ended
Quarters Ended September 30, % September 30, %
(Dollars in thousands) 2021 2020 Change 2021 2020 Change
Gross investment income (1) $ 10,010 $ 12,556 (20.3 %) $ 31,827 $ 21,662 46.9 %
Investment expenses (666 ) (810 ) (17.8 %) (2,014 ) (2,146 ) (6.2 %)
Net investment income $ 9,344 $ 11,746 (20.4 %) $ 29,813 $ 19,516 52.8 %
(1) Excludes realized gains and losses
Gross investment income decreased by 20.3% for the quarter and increased by 46.9% for the nine months endedSeptember 30, 2021 , respectively, as compared to the same period in 2020. The decrease for the quarter was primarily due to a decrease in yield within the fixed maturities portfolio. The increase for nine months ended was primarily due to increased returns from alternative investments offset by a decrease in yield within the fixed maturities portfolio. Investment expenses decreased by 17.8% and 6.2% for the quarter and nine months endedSeptember 30, 2021 , respectively, as compared to the same period in 2020 due to decreased investment management expenses as a result of a reduction in the size of the investment portfolio. AtSeptember 30, 2021 , the Company held agency mortgage-backed securities with a market value of$170.8 million . Excluding the agency mortgage-backed securities, the average duration of the Company's fixed maturities portfolio was 3.8 years as ofSeptember 30, 2021 , compared with 4.8 years as ofSeptember 30, 2020 . Including cash and short-term investments, the average duration of the Company's fixed maturities portfolio, excluding agency mortgage-backed securities, was 3.6 years and 4.6 years as ofSeptember 30, 2021 andSeptember 30, 2020 , respectively. Changes in interest rates can cause principal payments on certain investments to extend or shorten which can impact duration. The Company's embedded book yield on its fixed maturities, not including cash, was 2.1% as ofSeptember 30, 2021 , compared to 2.4% as ofSeptember 30, 2020 . The embedded book yield on the$54.4 million of taxable municipal bonds in the Company's portfolio, was 2.7% atSeptember 30, 2021 , compared to an embedded book yield of 3.0% on the Company's taxable municipal bonds of$62.0 million atSeptember 30, 2020 .
Net Realized Investment Gains (Losses)
The components of net realized investment gains (losses) for the quarters and
nine months ended
Quarters Ended September 30, Nine Months Ended September 30,
(Dollars in thousands) 2021 2020 2021 2020
Equity securities $ (1,662 ) $ 4,887 $ 6,101 $ (17,201 )
Fixed maturities 1,447 2,276 741 17,028
Derivatives (95 ) 160 500 (22,159 )
Net realized investment gains
(losses) $ (310 ) $ 7,323 $ 7,342 $ (22,332 )
See Note 3 of the notes to the consolidated financial statements in Item 1 of
Part I of this report for an analysis of total investment return on a pre-tax
basis for the quarters and nine months ended September 30, 2021 and 2020.
63
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GLOBAL INDEMNITY GROUP, LLC
Corporate and Other Operating Expenses
Corporate and other operating expenses consist of outside legal fees, other professional fees, directors' fees, management fees & advisory fees, salaries and benefits for holding company personnel, development costs for new products, and taxes incurred which are not directly related to operations. Corporate and other operating expenses were$5.4 million and$21.2 million during the quarters endedSeptember 30, 2021 and 2020, respectively, and$16.0 million and$34.0 million during the nine months endedSeptember 30, 2021 and 2020, respectively. Corporate expenses were higher in 2020 due to incurring additional professional fees related to the redomestication.
Interest Expense
Interest expense decreased 28.3% and 40.2% during the quarter and nine months endedSeptember 30, 2021 , respectively, as compared to the same period in 2020 primarily due to the redemption of the Company's 7.75% Subordinated Notes due in 2045 and the repayment of the margin borrowing facility in August, 2020.
Income Tax Benefit
Income tax benefit was$1.8 million and$3.2 million for the quarters endedSeptember 30, 2021 and 2020, respectively. The reduction in the income tax benefit is primarily due to the recognition of a tax benefit of$1.7 million for a change in tax status for net insurance liabilities that were redomiciled fromBermuda at 0% tax rate tothe United States in 2020. Income tax benefit was$1.1 million and$8.2 million for the nine months endedSeptember 30, 2021 and 2020, respectively. The reduction in the income tax benefit is primarily due to an increase in pre-tax income of the Company'sU.S. subsidiaries.
See Note 7 of the notes to the consolidated financial statements in Item 1 of
Part I of this report for a comparison of income tax between periods.
Net Income (Loss)
The factors described above resulted in a net loss of$7.7 million and$15.2 million for the quarters endedSeptember 30, 2021 and 2020, respectively, and a net income of$4.2 million and net loss of$22.2 million for the nine months endedSeptember 30, 2021 and 2020, respectively. Liquidity and Capital Resources
Sources and Uses of Funds
Global Indemnity Group, LLC is a holding company. Its principal asset is its ownership of the shares of its direct and indirect subsidiaries, including those of its insurance companies:United National Insurance Company ,Diamond State Insurance Company ,Penn-America Insurance Company ,Penn-Star Insurance Company ,Penn-Patriot Insurance Company , andAmerican Reliable Insurance Company .Global Indemnity Group, LLC's short term and long term liquidity needs include but are not limited to the payment of corporate expenses, debt service payments, distributions to shareholders, and share repurchases. In order to meet their short term and long term needs,Global Indemnity Group, LLC's principal sources of cash includes investment income, dividends from subsidiaries, other permitted disbursements from its direct and indirect subsidiaries, reimbursement for equity awards granted to employees and intercompany borrowings. The principal sources of funds at these direct and indirect subsidiaries include underwriting operations, investment income, proceeds from sales and redemptions of investments, capital contributions, intercompany borrowings, and dividends from subsidiaries. Funds are used principally by these operating subsidiaries to pay claims and operating expenses, to make debt payments, fund margin requirements on interest rate swap agreements, to purchase investments, and to make distribution payments. In addition, the Company periodically reviews opportunities related to business acquisitions and as a result, liquidity may be needed in the future. 64
--------------------------------------------------------------------------------
GLOBAL INDEMNITY GROUP, LLC
GBLI Holdings, LLC is a holding company which is a wholly-owned subsidiary of
Penn-Patriot Insurance Company . GBLI Holdings, LLC's principal asset is its
ownership of the shares of its direct and indirect subsidiaries which include
United National Insurance Company , Diamond State Insurance Company , Penn-America
Insurance Company , Penn-Star Insurance Company , and American Reliable Insurance
Company . GBLI Holdings, LLC is dependent on dividends from its subsidiaries to
meet its debt obligations as well as corporate expense obligations.
As of September 30, 2021 , the Company also had future funding commitments of
$31.2 million related to investments that are currently in their harvest period
and it is unlikely that a capital call will be made.
The future liquidity of both Global Indemnity Group, LLC and GBLI Holdings, LLC
is dependent on the ability of its subsidiaries to pay dividends. Global
Indemnity Group, LLC and GBLI Holdings, LLC's insurance companies are restricted
by statute as to the amount of dividends that they may pay without the prior
approval of regulatory authorities. The dividend limitations imposed by state
laws are based on the statutory financial results of each insurance company that
are determined by using statutory accounting practices that differ in various
respects from accounting principles used in financial statements prepared in
conformity with GAAP. See "Regulation - Statutory Accounting Principles" in Item
1 of Part I of the Company's 2020 Annual Report on Form 10-K. Key differences
relate to, among other items, deferred acquisition costs, limitations on
deferred income taxes, reserve calculation assumptions and surplus notes. See
Note 20 of the notes to the consolidated financial statements in Item 8 of Part
II of the Company's 2020 Annual Report on Form 10-K for further information on
dividend limitations related to the Insurance Companies. The Insurance Companies
did not declare or pay any dividends during the quarter and nine months ended
September 30, 2021 .
Cash Flows
Sources of operating funds consist primarily of net written premiums and
investment income. Funds are used primarily to pay claims and operating expenses
and to purchase investments. As a result of the distribution policy, funds may
also be used in the future to pay distributions to shareholders of the Company.
The Company's reconciliation of net income (loss) to net cash provided by
operations is generally influenced by the following:
• the fact that the Company collects premiums, net of commissions, in advance
of losses paid; • the timing of the Company's settlements with its reinsurers; and • the timing of the Company's loss payments. Net cash provided by operating activities was$66.1 million and$33.9 million for the nine months endedSeptember 30, 2021 and 2020, respectively. The increase in operating cash flows of approximately$32.1 million from the prior year was primarily a net result of the following items: Nine Months Ended September 30, (Dollars in thousands) 2021 2020 Change Net premiums collected$ 464,650 $ 418,598 $ 46,052 Net losses paid (226,152 ) (231,038 ) 4,886 Underwriting and corporate expenses (192,147 ) (183,883 ) (8,264 ) Net investment income 27,495 33,428 (5,933 ) Net federal income taxes recovered (paid) (11 ) 10,859 (10,870 ) Interest paid (7,781 ) (14,028 ) 6,247 Net cash provided by operating activities $ 66,054 $
33,936
See the consolidated statements of cash flows in the consolidated financial
statements in Item 1 of Part I of this report for details concerning the
Company's investing and financing activities.
65 --------------------------------------------------------------------------------
GLOBAL INDEMNITY GROUP, LLC Liquidity COVID-19 The Company's liquidity could be negatively impacted by the cancellation, delays, or non-payment of premiums related to the ongoing COVID-19 pandemic and its lasting impacts. There is continued risk that legislation could be passed or there could be a court ruling which would require the Company to cover business interruption claims regardless of terms, exclusions including the virus exclusions contained within the Company's Commercial Specialty and Farm, Ranch & Stable policies, or other conditions included in policies that would otherwise preclude coverage which would negatively impact liquidity. In addition, the liquidity of the Company's investment portfolio could be negatively impacted by disruption experienced in global financial markets. Management is taking actions it considers prudent to minimize the impact on the Company's liquidity. However, given the ongoing uncertainty surrounding the duration, magnitude and geographic reach of COVID-19, the Company is regularly evaluating the impact of COVID-19 on its liquidity. Dividends / Distributions During 2021, the Board of Directors approved a distribution payment of$0.25 per common share to all shareholders of record on the close of business onMarch 22, 2021 ,June 21, 2021 , andSeptember 23, 2021 . Distributions paid to common shareholders were$10.8 million during the nine months endedSeptember 30, 2021 . In addition, distributions of$0.3 million were paid toGlobal Indemnity Group, LLC's preferred shareholder during the nine months endedSeptember 30, 2021 .
Sale of Manufactured and Dwelling Homes Business Lines
OnOctober 26, 2021 the Company announced the sale of its manufactured and dwelling homes business lines toK2 Insurance Services andAmerican Family Mutual Insurance Company . Pursuant to the tripartite transaction, the Company will receive$30.4 million in cash as well as retain the American Reliable 50-state licensed operating unit,$65 million of net capital supporting the business, and a related$42 million unearned premium reserve. The sales price of manufactured and dwelling homes business lines was$28 million . In addition, K2 is subleasing approximately a third of the Company'sScottsdale Arizona office. Payments from the sublease are expected to be$2.4 million betweenOctober 2021 andNovember 2029 . To facilitate the transaction, American Reliable retained the specialty residential property business inFlorida andLouisiana and also retained business that was previously placed in runoff. American Reliable plans to cease writing manufactured home and dwelling insurance inFlorida andLouisiana as soon as possible. American Family is assuming 100% of the risks for all policies covered under the renewal rights agreement which are written or renewed afterOctober 26, 2021 , except for policies covering properties in the state ofFlorida . For the nine months endedSeptember 30, 2021 , Manufactured Home and Dwelling gross written premium was$79.6 million . Other than the items discussed in the preceding paragraphs, there have been no material changes to the Company's liquidity during the quarter and nine months endedSeptember 30, 2021 . Please see Item 7 of Part II in the Company's 2020 Annual Report on Form 10-K for information regarding the Company's liquidity. Capital Resources OnSeptember 27, 2021 ,Global Indemnity Investments Inc. repaid its promissory note withGlobal Indemnity Group, LLC . As ofSeptember 30, 2021 , there are no intercompany notes outstanding. Other than the item discussed in the preceding paragraph, there have been no material changes to the Company's capital resources during the quarter and nine months endedSeptember 30, 2021 . Please see Item 7 of Part II in the Company's 2020 Annual Report on Form 10-K for information regarding the Company's capital resources.
Co-obligor Financial Information
The Company is providing the following information in compliance with Rule 13-01 of Regulation S-X, "Financial Disclosures about Guarantors and Issuers ofGuaranteed Securities " with respect to the Company's 7.875% Subordinated Notes due in 2047 ("2047 Notes").Global Indemnity Group, LLC (parent co-obligor) andGBLI Holdings, LLC (subsidiary co-obligor) are co-obligors of the 2047 Notes.GBLI Holdings, LLC is a wholly-owned indirect subsidiary ofGlobal Indemnity Group, LLC . The 2047 Notes are subordinated unsecured obligations and rank (i) senior to the companies' 66 --------------------------------------------------------------------------------GLOBAL INDEMNITY GROUP, LLC existing and future capital stock, (ii) senior in right of payment to the companies' future junior subordinated debt, (iii) equally in right of payment with any existing unsecured, subordinated debt that the companies have issued or may issue in the future that ranks equally with the 2047 Notes, and (iv) subordinate in right of payment to any of the companies' future senior debt. In addition, the 2047 Notes are structurally subordinated to all existing and future indebtedness, liabilities and other obligations ofGlobal Indemnity Group, LLC's subsidiaries, except forGBLI Holdings, LLC .GBLI Holdings, LLC is a subordinated co-obligor with respect to the 2047 Notes with the same obligations and duties asGlobal Indemnity Group, LLC under the Indenture (including the due and punctual performance and observance of all of the covenants and conditions to be performed byGlobal Indemnity Group, LLC , including, without limitation, the obligation to pay the principal of, and interest on, the 2047 Notes when due whether at maturity, by acceleration, redemption or otherwise), and with the same rights, benefits and privileges ofGlobal Indemnity Group, LLC thereunder. Notwithstanding the foregoing,GBLI Holdings, LLC's obligations (including the obligation to pay the principal of and interest in respect of the 2047 Notes) are subject to subordination to all monetary obligations or liabilities ofGBLI Holdings, LLC owing to any regulated reinsurance or insurance company that is a direct or indirect subsidiary ofGlobal Indemnity Group, LLC , in addition to indebtedness ofGBLI Holdings, LLC for borrowed money. IfGlobal Indemnity Group, LLC pays any amount with respect to the subordinated note obligations,Global Indemnity Group, LLC is entitled to be reimbursed byGBLI Holdings, LLC within 10 business days after a demand is made toGBLI Holding, LLC byGlobal Indemnity Group, LLC .
The following tables present summarized financial information for
Indemnity Group, LLC
co-obligor) on a combined basis after transactions and balances within the
combined entities have been eliminated.
Parent and Subsidiary Co-obligors
The following table presents the summarized balance sheet information as of
(Dollars in thousands) September 30, 2021 December 31, 2020 Intercompany note receivable $ - $ 11,283 Intercompany receivables 654 57 Investments 242,565 250,863 Total assets excluding investment in subsidiaries 305,180 324,229 Intercompany payables 7,450 5,515 Total liabilities 156,649 158,423
The following table presents the summarized statement of operations information
for the nine months ended
(Dollars in thousands) Total revenue$ 12,754 Intercompany interest income 64 Intercompany interest expense - Loss before income taxes (1) (10,631 ) Net loss (1) (6,654 ) (1) excludes equity in the earning of a subsidiary Off Balance Sheet Arrangements
The Company has no off balance sheet arrangements.
Cautionary Note Regarding Forward-Looking Statements
Some of the statements under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this report may include
forward-looking statements within the meaning of Section 21E of the Security
Exchange Act of 1934, as amended, that reflect the Company's current views with
respect to future events and financial
67
--------------------------------------------------------------------------------
GLOBAL INDEMNITY GROUP, LLC
performance. Forward-looking statements are statements that are not historical
facts. These statements can be identified by the use of forward-looking
terminology such as "believe," "expect," "may," "will," "should," "project,"
"plan," "seek," "intend," or "anticipate" or the negative thereof or comparable
terminology, and include discussions of strategy, financial projections and
estimates and their underlying assumptions, statements regarding plans,
objectives, expectations or consequences of identified transactions or natural
disasters, and statements about the future performance, operations, products and
services of the companies.
The Company's business and operations are and will be subject to a variety of
risks, uncertainties and other factors. Consequently, actual results and
experience may materially differ from those contained in any forward-looking
statements. See "Risk Factors" in Item 1A of Part I in the Company's 2020 Annual
Report on Form 10-K for risks, uncertainties and other factors that could cause
actual results and experience to differ from those projected. The Company's
forward-looking statements speak only as of the date of this report or as of the
date they were made. The Company undertakes no obligation to publicly update or
review any forward-looking statement, whether as a result of new information,
future developments or otherwise.
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