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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, 2021 . Recent Developments
Sale of Renewal Rights related to Farm, Ranch & Stable and Sale of
Reliable Insurance Company
OnAugust 8, 2022 , the Company sold the renewal rights related to all business lines within its Farm, Ranch & Stable segment for business written on or afterAugust 8, 2022 toEverett Cash Mutual Insurance Company . The Company will retain the unearned premium reserves for business written prior toAugust 8, 2022 .Everett Cash Mutual Insurance Company is also acquiring the Company's wholly owned subsidiary,American Reliable Insurance Company , for book value which is expected to be$10.0 million at the time of closing. The transaction is subject to receiving regulatory approval which is expected to be received during the 4th quarter of 2022. Under the agreements, total consideration to be paid byEverett Cash Mutual Insurance Company is$40 million .
Distributions
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 21, 2022 andJune 20, 2022 . Distributions paid to common shareholders were$7.3 million during the six months endedJune 30, 2022 . In addition, distributions of$0.2 million were paid toGlobal Indemnity Group, LLC's preferred shareholder during the six months endedJune 30, 2022 .
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. OnMay 19, 2022 , AM Best affirmed the financial strength rating of "A" (Excellent) for theU.S. operating subsidiaries ofGlobal Indemnity Group, LLC .
Redemption of Debt
OnApril 15, 2022 , the Company redeemed the entire$130 million in aggregate principal amount of the outstanding 2047 Notes plus accrued and unpaid interest on the 2047 Notes redeemed to, but not including the Redemption Date ofApril 15, 2022 . 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. 38 --------------------------------------------------------------------------------GLOBAL 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. Commercial Specialty also offers several specialty admitted property and casualty products. 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 has also created several start-up business lines which distribute professional, environmental, and excess casualty products.
The Company's Reinsurance Operations provides reinsurance solutions through
brokers and primary writers including insurance and reinsurance companies. It
uses its capital capacity to write niche and casualty-focused treaties and
business which meet the Company's risk tolerance and return thresholds.
The Company's Exited Lines segment represents lines of business that are no
longer being written or are in runoff. Exited Lines includes specialty personal
lines property and casualty products such as manufactured home, dwelling,
motorcycle, watercraft and certain homeowners business, certain business within
Property Brokerage, property and catastrophe reinsurance treaties, Farm, Ranch,
& Stable business, and specialized insurance products for the equine mortality
and equine major medical industry. These insurance products were distributed
through wholesale general agents, wholesale insurance brokers, program
administrators, and retail agents.
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
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,
39
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GLOBAL INDEMNITY GROUP, LLC
please see the Company's Annual Report on Form 10-K for the year ended December
31, 2021 . There have been no significant changes to any of these policies or
underlying methodologies during the current year.
Results of Operations
The following table summarizes the Company's results for the quarters and six
months ended
Quarters Ended Six Months Ended
June 30, % June 30, %
(Dollars in thousands) 2022 2021 Change 2022 2021 Change
Gross written premiums $ 196,823 $ 175,236 12.3 % $ 387,806 $ 338,794 14.5 %
Net written premiums $ 167,158 $ 160,653 4.0 % $ 326,640 $ 308,336 5.9 %
Net earned premiums $ 155,749 $ 149,408 4.2 % $ 304,572 $ 293,108 3.9 %
Other income 174 512 (66.0 %) 613 920 (33.4 %)
Total revenues 155,923 149,920 4.0 % 305,185 294,028 3.8 %
Losses and expenses:
Net losses and loss adjustment
expenses 92,618 90,938 1.8 % 177,313 181,721 (2.4 %)
Acquisition costs and other
underwriting expenses 61,098 57,213 6.8 % 117,790 111,977 5.2 %
Underwriting income 2,207 1,769 24.8 % 10,082 330 NM
Net investment income 1,930 10,633 (81.8 %) 8,522 20,469 (58.4 %)
Net realized investment gains
(losses) (9,916 ) 3,833 NM (35,301 ) 7,652 NM
Other income (loss) (77 ) 9 NM (90 ) (22 ) NM
Corporate and other operating
expenses (2,993 ) (6,329 ) (52.7 %) (7,653 ) (10,605 ) (27.8 %)
Interest expense (410 ) (2,696 ) (84.8 %) (3,005 ) (5,291 ) (43.2 %)
Loss on extinguishment of debt (3,529 ) - NM (3,529 ) - NM
Income (loss) before income
taxes (12,788 ) 7,219 NM
(30,974 ) 12,533 NM
Income tax expense (benefit) (626 ) 844 (174.2 %) (4,039 ) 641 NM Net income (loss)$ (12,162 ) $ 6,375 NM$ (26,935 ) $ 11,892 NM Underwriting Ratios: Loss ratio (1): 59.5 % 60.9 % 58.2 % 62.0 % Expense ratio (2) 39.2 % 38.3 % 38.7 % 38.2 % Combined ratio (3) 98.7 % 99.2 % 96.9 % 100.2 %
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.
40 --------------------------------------------------------------------------------
GLOBAL INDEMNITY GROUP, LLC
Premiums
The following table summarizes the change in premium volume by business segment:
Quarters Ended Six Months Ended
June 30, June 30,
(Dollars in thousands) 2022 2021 % Change 2022 2021 % Change
Gross written premiums (1)
Commercial Specialty $ 109,797 $ 99,406 10.5 % $ 214,063 $ 188,740 13.4 %
Reinsurance Operations (3) 46,394 24,487 89.5 % 87,839 46,438 89.2 %
Continuing Lines 156,191 123,893 26.1 % 301,902 235,178 28.4 %
Exited Lines 40,632 51,343 (20.9 %) 85,904 103,616 (17.1 %)
Total gross written premiums $ 196,823 $ 175,236 12.3 % $ 387,806 $ 338,794 14.5 %
Ceded written premiums
Commercial Specialty $ 8,626 $ 7,759 11.2 % $ 14,579 $ 14,921 (2.3 %)
Reinsurance Operations (3) - - - - - -
Continuing Lines 8,626 7,759 11.2 % 14,579 14,921 (2.3 %)
Exited Lines 21,039 6,824 NM 46,587 15,537 199.8 %
Total ceded written premiums $ 29,665 $ 14,583 103.4 % $ 61,166 $ 30,458 100.8 %
Net written premiums (2)
Commercial Specialty $ 101,171 $ 91,647 10.4 % $ 199,484 $ 173,819 14.8 %
Reinsurance Operations (3) 46,394 24,487 89.5 % 87,839 46,438 89.2 %
Continuing Lines 147,565 116,134 27.1 % 287,323 220,257 30.4 %
Exited Lines 19,593 44,519 (56.0 %) 39,317 88,079 (55.4 %)
Total net written premiums $ 167,158 $ 160,653 4.0 % $ 326,640 $ 308,336 5.9 %
Net earned premiums
Commercial Specialty $ 95,172 $ 81,965 16.1 % $ 186,935 $ 160,657 16.4 %
Reinsurance Operations (3) 38,596 18,061 113.7 % 73,559 34,859 111.0 %
Continuing Lines 133,768 100,026 33.7 % 260,494 195,516 33.2 %
Exited Lines 21,981 49,382 (55.5 %) 44,078 97,592 (54.8 %)
Total net earned premiums $ 155,749 $ 149,408 4.2 % $ 304,572 $ 293,108 3.9 %
NM - not meaningful
(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 12.3% and 14.5% for the quarter and six months endedJune 30, 2022 , respectively, as compared to same periods in 2021. The increase in gross written premiums is mainly due to the continued growth of existing programs, increased pricing, and several new programs within Commercial Specialty, the organic growth of existing casualty treaties within Reinsurance Operations, partially offset by a reduction in premiums within Exited Lines. 41 --------------------------------------------------------------------------------
GLOBAL INDEMNITY GROUP, LLC
Underwriting Ratios
Quarters Ended Six Months Ended
June 30, Point June 30, Point
2022 2021 Change 2022 2021 Change
Loss ratio
Commercial Specialty 58.9 % 52.1 % 6.8 57.8 % 57.6 % 0.2
Reinsurance Operations 58.3 % 64.2 % (5.9 ) 59.7 % 64.4 % (4.7 )
Continuing Lines 58.7 % 54.3 % 4.4 58.4 % 58.8 % (0.4 )
Exited Lines 64.1 % 74.2 % (10.1 ) 57.4 % 68.4 % (11.0 )
Total loss ratio 59.5 % 60.9 % (1.4 ) 58.2 % 62.0 % (3.8 )
Expense ratio
Commercial Specialty 38.1 % 37.3 % 0.8 37.4 % 37.1 % 0.3
Reinsurance Operations 37.2 % 34.3 % 2.9 36.1 % 34.4 % 1.7
Continuing Lines 37.8 % 36.8 % 1.0 37.0 % 36.6 % 0.4
Exited Lines 47.8 % 41.4 % 6.4 48.4 % 41.4 % 7.0
Total expense ratio 39.2 % 38.3 % 0.9 38.7 % 38.2 % 0.5
Combined ratio
Commercial Specialty 97.0 % 89.4 % 7.6 95.2 % 94.7 % 0.5
Reinsurance Operations 95.5 % 98.5 % (3.0 ) 95.8 % 98.8 % (3.0 )
Continuing Lines 96.5 % 91.1 % 5.4 95.4 % 95.4 % (0.0 )
Exited Lines 111.9 % 115.6 % (3.7 ) 105.8 % 109.8 % (4.0 )
Total combined ratio 98.7 % 99.2 % (0.5 ) 96.9 % 100.2 % (3.3 )
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 Six Months Ended
June 30, Point June 30, Point
(Dollars in thousands) 2022 2021 Change 2022 2021 Change
Commercial Specialty 92.1 % 92.2 % (0.1 ) 93.2 % 92.1 % 1.1
Reinsurance Operations 100.0 % 100.0 % - 100.0 % 100.0 % -
Continuing Lines 94.5 % 93.7 % 0.8 95.2 % 93.7 % 1.5
Exited Lines 48.2 % 86.7 % (38.5 ) 45.8 % 100.0 % (54.2 )
Total 84.9 % 91.7 % (6.8 ) 84.2 % 91.0 % (6.8 )
The net premium retention for both the quarter and six months ended June 30,
2022 decreased by 6.8 points as compared to the same periods in 2021. The
reduction in retention is primarily driven by the Company entering into an
agreement effective November 30, 2021 where American Family Mutual Insurance
Company agreed to reinsure 100% of the Company's unearned premium reserves of
the same types as the policies included in the sale of the renewal rights of the
Company's manufactured and dwelling homes products that were in force as of
November 30, 2021 . See Note 3 of the notes to the consolidated financial
statements in Item 8 Part II of the Company's 2021 Annual Report on Form 10-K
for additional information on this reinsurance agreement as well as the sale of
renewal rights related to the Company's manufactured and dwelling home products.
Net Earned Premiums
Net earned premiums within the Commercial Specialty segment increased by 16.1% and 16.4% for the quarter and six months endedJune 30, 2022 , respectively, as compared to the same periods in 2021. 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. Property net earned premiums were$36.8 million and$34.7 million for the quarters endedJune 30, 2022 and 2021, respectively, and$72.3 million and$71.9 million for the six months endedJune 30, 2022 and 2021, 42 --------------------------------------------------------------------------------GLOBAL INDEMNITY GROUP, LLC respectively. Casualty net earned premiums were$58.3 million and$47.2 million for the quarters endedJune 30, 2022 and 2021, respectively, and$114.6 million and$88.8 million for the six months endedJune 30, 2022 and 2021, respectively. Net earned premiums within the Reinsurance Operations segment increased by 113.7% and 111.0% for the quarter and six months endedJune 30, 2022 , respectively, as compared to the same periods in 2021 primarily due to organic growth of existing casualty treaties. There was no property net earned premiums for the quarters and six months endedJune 30, 2022 and 2021. Casualty net earned premiums were$38.6 million and$18.1 million for the quarters endedJune 30, 2022 and 2021, respectively, and$73.6 million and$34.9 million for the six months endedJune 30, 2022 and 2021, respectively. Net earned premiums within the Exited Lines segment decreased by 55.5% and 54.8% for the quarter and six months endedJune 30, 2022 , respectively, as compared to the same periods in 2021 primarily due to the sale of the renewal rights related to the Company's manufactured and dwelling home products onOctober 26, 2021 . The decrease in net earned premiums is also due to exiting lines of business unrelated to the company's continuing businesses. Property net earned premiums were$16.6 million and$43.1 million for the quarters endedJune 30, 2022 and 2021, respectively, and$34.2 million and$85.0 million for the six months endedJune 30, 2022 and 2021, respectively. Casualty net earned premiums were$5.4 million and$6.2 million for the quarters endedJune 30, 2022 and 2021, respectively, and$9.8 million and$12.6 million for the six months endedJune 30, 2022 and 2021, respectively.
Reserves
Management's best estimate atJune 30, 2022 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$804.7 million and$710.5 million , respectively, as ofJune 30, 2022 . A breakout of the Company's gross and net reserves, as ofJune 30, 2022 , is as follows: Gross Reserves (Dollars in thousands) Case IBNR (1) Total Commercial Specialty$ 163,650 $ 316,635 $ 480,285 Reinsurance Operations 6,249 138,272 144,521 Continuing Lines 169,899 454,907 624,806 Exited Lines 83,667 96,188 179,855 Total$ 253,566 $ 551,095 $ 804,661 Net Reserves (2)
(Dollars in thousands) Case IBNR (1) Total
Commercial Specialty
Reinsurance Operations 6,249 138,272 144,521
Continuing Lines
146,815 422,362 569,177 Exited Lines 63,867 77,432 141,299 Total$ 210,682 $ 499,794 $ 710,476
(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
43
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GLOBAL INDEMNITY GROUP, LLC
impact of changes (which could be favorable or unfavorable) in frequency and
severity on the Company's current accident year net loss estimate of
million
Severity Change
(Dollars in thousands) -10% -5% 0% 5% 10%
Frequency Change -5% (26,672 ) (17,935 ) (9,197 ) (460 ) 8,278
-3% (23,361 ) (14,440 ) (5,518 ) 3,403 12,324
-2% (21,706 ) (12,692 ) (3,679 ) 5,334 14,348
-1% (20,050 ) (10,945 ) (1,839 ) 7,266 16,371
0% (18,395 ) (9,197 ) - 9,197 18,395
1% (16,739 ) (7,450 ) 1,839 11,129 20,418
2% (15,084 ) (5,702 ) 3,679 13,060 22,442
3% (13,428 ) (3,955 ) 5,518 14,992 24,465
5% (10,117 ) (460 ) 9,197 18,855 28,512
The Company's net reserves for losses and loss adjustment expenses of $710.5
million as of June 30, 2022 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.
Underwriting Results
Commercial Specialty
The components of income from the Company's Commercial Specialty segment and
corresponding underwriting ratios are as follows:
Quarters Ended Six Months Ended
June 30, % June 30, %
(Dollars in thousands) 2022 2021 Change 2022 2021 Change
Gross written premiums $ 109,797 $ 99,406 10.5 % $ 214,063 $ 188,740 13.4 %
Net written premiums $ 101,171 $ 91,647 10.4 % $ 199,484 $ 173,819 14.8 %
Net earned premiums $ 95,172 $ 81,965 16.1 % $ 186,935 $ 160,657 16.4 %
Other income 260 $ 208 25.0 % $ 519 $ 452 14.8 %
Total revenues 95,432 82,173 16.1 % 187,454 161,109 16.4 %
Losses and expenses:
Net losses and loss
adjustment expenses 56,042 42,669 31.3 % 108,095 92,459 16.9 %
Acquisition costs and
other underwriting
expenses 36,222 30,577 18.5 % 69,911 59,629 17.2 %
Underwriting income $ 3,168 $ 8,927 (64.5 %) $ 9,448 $ 9,021 4.7 %
Quarters Ended Six Months Ended
June 30, Point June 30, Point
2022 2021 Change 2022 2021 Change
Underwriting Ratios:
Loss ratio:
Current accident year 58.6 % 52.7 % 5.9 57.5 % 59.5 % (2.0 )
Prior accident year 0.3 % (0.6 %) 0.9 0.3 % (1.9 %) 2.2
Calendar year loss ratio 58.9 % 52.1 % 6.8 57.8 % 57.6 % 0.2
Expense ratio 38.1 % 37.3 % 0.8 37.4 % 37.1 % 0.3
Combined ratio 97.0 % 89.4 % 7.6 95.2 % 94.7 % 0.5
44
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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 June 30, Six Months Ended June 30,
2022 2021 2022 2021
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)$ 18,125 49.2 %$ 13,218 38.0
%
Effect of prior accident
year
383 1.0 % (6 ) (0.0
%) (374 ) (0.5 %) (1,534 ) (2.1 %)
Non catastrophe property
losses and ratio (2)
Catastrophe losses and ratio excluding the effect of prior accident year (1)$ 3,189 8.7 %$ 2,855 8.2 %$ 5,423 7.5 %$ 11,573 16.1 % Effect of prior accident year (1,334 ) (3.6 %) 514 1.5
% (353 ) (0.5 %) (392 ) (0.6 %)
Catastrophe losses and
ratio (2)
$ 1,855 5.1 %$ 3,369 9.7
%
Total property losses and ratio excluding the effect of prior accident year (1)$ 21,314 57.9 %$ 16,073 46.2 %$ 41,130 56.9 %$ 45,363 63.1 % Effect of prior accident year (951 ) (2.6 %) 508 1.5
% (727 ) (1.0 %) (1,926 ) (2.7 %)
Total property losses and
ratio (2)
$ 20,363 55.3 %$ 16,581 47.7
%
Casualty
Total casualty losses and ratio excluding the effect of prior accident year (1)$ 34,460 59.1 %$ 27,126 57.4 %$ 66,420 58.0 %$ 50,220 56.6 % Effect of prior accident year 1,219 2.1 % (1,038 ) (2.2
%) 1,272 1.1 % (1,198 ) (1.3 %)
Total casualty losses and
ratio (2)
$ 35,679 61.2 %$ 26,088 55.2
%
Total
Total net losses and loss adjustment expense and total loss ratio excluding the effect of prior accident year (1)$ 55,774 58.6 %$ 43,199 52.7
%
Effect of prior accident
year
268 0.3 % (530 ) (0.6 %) 545 0.3 % (3,124 ) (1.9 %) Total net losses and loss adjustment expense and total loss ratio (2)$ 56,042 58.9 %$ 42,669 52.1 %$ 108,095 57.8 %$ 92,459 57.6 %
(1) Non-GAAP measure / ratio
(2) Most directly comparable GAAP measure / ratio
Premiums
See "Result of Operations" above for a discussion on consolidated premiums.
Other Income
Other income was$0.3 million and$0.2 million for the quarters endedJune 30, 2022 and 2021, respectively, and$0.5 million and$0.5 million for the six months endedJune 30, 2022 and 2021, respectively. Other income is primarily comprised of fee income. 45 --------------------------------------------------------------------------------GLOBAL INDEMNITY GROUP, LLC
Loss Ratio
The current accident year losses and loss ratio is summarized as follows:
Quarters Ended Six Months Ended
June 30, % June 30, %
(Dollars in thousands) 2022 2021 Change 2022 2021 Change
Property losses
Non-catastrophe $ 18,125 $ 13,218 37.1 % $ 35,707 $ 33,790 5.7 %
Catastrophe 3,189 2,855 11.7 % 5,423 11,573 (53.1 %)
Property losses 21,314 16,073 32.6 % 41,130 45,363 (9.3 %)
Casualty losses 34,460 27,126 27.0 % 66,420 50,220 32.3 %
Total accident year losses $ 55,774 $ 43,199 29.1 % $ 107,550 $ 95,583 12.5 %
Quarters Ended Six Months Ended
June 30, Point June 30, Point
2022 2021 Change 2022 2021 Change
Current accident year loss
ratio:
Property
Non-catastrophe 49.2 % 38.0 % 11.2 49.4 % 47.0 % 2.4
Catastrophe 8.7 % 8.2 % 0.5 7.5 % 16.1 % (8.6 )
Property loss ratio 57.9 % 46.2 % 11.7 56.9 % 63.1 % (6.2 )
Casualty loss ratio 59.1 % 57.4 % 1.7 58.0 % 56.6 % 1.4
Total accident year loss
ratio 58.6 % 52.7 % 5.9
57.5 % 59.5 % (2.0 )
The current accident year non-catastrophe property loss ratio increased by 11.2 points during the quarter endedJune 30, 2022 as compared to the same period in 2021 reflecting higher claims severity in the second accident quarter compared to last year. The current accident year non-catastrophe property loss ratio increased by 2.4 points during the six months endedJune 30, 2022 as compared to the same period in 2021 due to higher claims severity in the first six months compared to last year. The current accident year catastrophe loss ratio increased by 0.5 points during the quarter endedJune 30, 2022 as compared to the same period in 2021 recognizing higher claims frequency in the calendar quarter compared to last year. The current accident year catastrophe loss ratio improved by 8.6 points during the six months endedJune 30, 2022 as compared to the same period in 2021 due to lower claims frequency and severity in the first six months compared to last year. The current accident year casualty loss ratio increased by 1.7 points during the quarter endedJune 30, 2022 as compared to the same period in 2021 reflecting higher claims severity in the calendar quarter compared to last year. The current accident year casualty loss ratio increased by 1.4 points during the six months endedJune 30, 2022 as compared to the same period in 2021 due to higher claims severity in the first six months compared to last year. The calendar year loss ratio for the quarter and six months endedJune 30, 2022 includes a increase of$0.3 million , or 0.3 percentage points, and a increase of$0.5 million , or 0.3 percentage points, respectively, related to reserve development on prior accident years. The calendar year loss ratio for the quarter and six months endedJune 30, 2021 includes a decrease of$0.5 million , or 0.6 percentage points, and a decrease of$3.1 million , or 1.9 percentage points, respectively, related to reserve development on prior accident years. Please see Note 7 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 Commercial Specialty segment increased by 0.8 points from 37.3% for the quarter endedJune 30, 2021 to 38.1% for the quarter endedJune 30, 2022 and increased by 0.3 points from 37.1% for the six months endedJune 30, 2021 to 37.4% for the six months endedJune 30, 2022 . The increase in the expense ratio is primarily due to higher compensation cost resulting from the start-up business lines partially offset by a reduction in the expense ratio due to growth in net earned premiums. 46 --------------------------------------------------------------------------------GLOBAL INDEMNITY GROUP, LLC
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.
Reinsurance Operations
The components of income from the Company's Reinsurance Operations segment and
corresponding underwriting ratios are as follows:
Quarters Ended Six Months Ended
June 30, % June 30, %
(Dollars in thousands) 2022 (1) 2021 (1) Change 2022 (1) 2021 (1) Change
Gross written premiums $ 46,394 $ 24,487 89.5 % $ 87,839 $ 46,438 89.2 %
Net written premiums $ 46,394 $ 24,487 89.5 % $ 87,839 $ 46,438 89.2 %
Net earned premiums $ 38,596 $ 18,061 113.7 % $ 73,559 $ 34,859 111.0 %
Other income (loss) (61 ) 14 NM (81 ) (42 ) 92.9 %
Total revenues 38,535 18,075 113.2 % 73,478 34,817 111.0 %
Losses and expenses:
Net losses and loss
adjustment expenses 22,481 11,600 93.8 % 43,938 22,475 95.5 %
Acquisition costs and
other underwriting
expenses 14,369 6,198 131.8 % 26,546 11,977 121.6 %
Underwriting income $ 1,685 $ 277 NM $ 2,994 $ 365 NM
Quarters Ended Six Months Ended
June 30, Point June 30, Point
2022 2021 Change 2022 2021 Change
Underwriting Ratios:
Loss ratio:
Current accident year (2) 61.4 % 64.3 % (2.9 ) 61.3 % 64.5 % (3.2 )
Prior accident year (3.1 %) (0.1 %) (3.0 ) (1.6 %) (0.1 %) (1.5 )
Calendar year loss ratio (3) 58.3 % 64.2 % (5.9 ) 59.7 % 64.4 % (4.7 )
Expense ratio 37.2 % 34.3 % 2.9 36.1 % 34.4 % 1.7
Combined ratio 95.5 % 98.5 % (3.0 ) 95.8 % 98.8 % (3.0 )
(1) External business only, excluding business assumed from affiliates
(2) Non-GAAP ratio
(3) Most directly comparable GAAP ratio
NM - not meaningful
47
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GLOBAL INDEMNITY GROUP, LLC
Reconciliation of non-GAAP financial ratios
The table above reconciles the non-GAAP ratios, which excludes the impact of prior accident year adjustments, to its most directly comparable GAAP ratio. The Company believes the non-GAAP ratios are useful to investors when evaluating the Company's underwriting performance as trends within Reinsurance Operations may be obscured by prior accident year adjustments. These non-GAAP ratios 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 a loss of$0.1 million for each of the quarters endedJune 30, 2022 and 2021 and recognized income of less than$0.1 million and a loss of less than$0.1 million for the six months endedJune 30, 2022 and 2021, respectively. Other income (loss) is primarily comprised of foreign exchange gains and losses. Loss Ratio The current accident year loss ratio improved by 2.9 points during the quarter endedJune 30, 2022 as compared to the same period in 2021 reflecting a mix of business change and growth in a treaty that has a lower expected loss ratio than last year. The current accident year loss ratio improved by 3.2 points during six months endedJune 30, 2022 as compared to the same period in 2021 reflecting a mix of business change and growth in a treaty that has a lower expected loss ratio than last year. The calendar year loss ratios for the quarter and six months endedJune 30, 2022 includes a decrease of$1.2 million or 3.1 percentage points, and a decrease of$1.2 million , or 1.6 percentage points, respectively, related to reserve development on prior accident years. The calendar year loss ratios for both the quarter and six months endedJune 30, 2021 includes a decrease of less than$0.1 million or 0.1 percentage point, related to reserve development on prior accident years. Please see Note 7 of the notes to the consolidated financial statements in Item 1 of Part I of this report for further discussion on prior accident year development. Expense Ratios The expense ratio for the Company's Reinsurance Operations segment increased 2.9 points from 34.3% for the quarter endedJune 30, 2021 to 37.2% for the quarter endedJune 30, 2022 and increased 1.7 points from 34.4% for the six months endedJune 30, 2021 to 36.1% for the six months endedJune 30, 2022 . This increase in the expense ratio was primarily due to an increase in commission expense which was partially offset by a reduction in the expense ratio as a result of a growth in net earned premiums. COVID-19
COVID-19's lasting impacts could result in declines in business, non-payment of
premiums, and increases in claims that could adversely affect Reinsurance
Operations' business, financial condition, and results of operation.
48
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GLOBAL INDEMNITY GROUP, LLC
Exited Lines
The components of loss from the Company's Exited Lines segment and corresponding
underwriting ratios are as follows:
Quarters Ended Six
Months Ended
June 30, % June 30, %
(Dollars in thousands) 2022 2021 Change 2022
2021 Change Gross written premiums$ 40,632 $ 51,343 (20.9 %)$ 85,904
Net written premiums
Net earned premiums
$ 97,592 (54.8 %) Other income (loss) (25 ) 290 (108.6 %) 175 510 (65.7 %) Total revenues 21,956 49,672 (55.8 %) 44,253
98,102 (54.9 %)
Losses and expenses: Net losses and loss adjustment expenses 14,095 36,669 (61.6 %) 25,280 66,787 (62.1 %) Acquisition costs and other underwriting expenses 10,507 20,438 (48.6 %) 21,333 40,371 (47.2 %) Underwriting loss$ (2,646 ) $ (7,435 ) (64.4 %)$ (2,360 ) $ (9,056 ) (73.9 %) Quarters Ended Six Months Ended June 30, Point June 30, Point 2022 2021 Change 2022 2021 Change Underwriting Ratios: Loss ratio: Current accident year 76.1 % 61.9 % 14.2 70.9 % 63.0 % 7.9 Prior accident year (12.0 %) 12.3 % (24.3 ) (13.5 %) 5.4 % (18.9 ) Calendar year loss ratio 64.1 % 74.2 % (10.1 ) 57.4 % 68.4 % (11.0 ) Expense ratio 47.8 % 41.4 % 6.4 48.4 % 41.4 % 7.0 Combined ratio 111.9 % 115.6 % (3.7 ) 105.8 % 109.8 % (4.0 ) 49
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GLOBAL INDEMNITY GROUP, LLC
Reconciliation of non-GAAP financial 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 Exited Lines 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 June 30, Six Months Ended June 30,
2022 2021 2022 2021
(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) $ 9,229 55.5 % $ 22,271 51.6 % $ 19,108 55.8 % $ 41,608 48.9 %
Effect of prior accident
year (2,754 ) (16.6 %) (277 ) (0.6 %) (4,291 ) (12.5 %) 1,764 2.1 %
Non catastrophe property
losses and ratio (2) $ 6,475 39.0 % $ 21,994 51.0 % $ 14,817 43.3 % $ 43,372 51.0 %
Catastrophe losses and
ratio excluding the effect
of prior accident year (1) $ 5,189 31.2 % $ 4,958 11.5 % $ 7,262 21.2 % $ 13,150 15.5 %
Effect of prior accident
year 191 1.1 % 6,298 14.6 % (1,165 ) (3.4 %) 4,691 5.5 %
Catastrophe losses and
ratio (2) $ 5,380 32.3 % $ 11,256 26.1 % $ 6,097 17.8 % $ 17,841 21.0 %
Total property losses and
ratio excluding the effect
of prior accident year (1) $ 14,418 86.7 % $ 27,229 63.1 % $ 26,370 77.0 % $ 54,758 64.4 %
Effect of prior accident
year (2,563 ) (15.4 %) 6,021 14.0 % (5,456 ) (15.9 %) 6,455 7.6 %
Total property losses and
ratio (2) $ 11,855 71.3 % $ 33,250 77.1 % $ 20,914 61.1 % $ 61,213 72.0 %
Casualty
Total casualty losses and
ratio excluding the effect
of prior accident year (1) $ 2,307 43.0 % $ 3,358 53.8 % $ 4,880 49.6 % $ 6,764 53.9 %
Effect of prior accident
year (67 ) (1.3 %) 61 1.0 % (514 ) (5.2 %) (1,190 ) (9.5 %)
Total casualty losses and
ratio (2) $ 2,240 41.8 % $ 3,419 54.7 % $ 4,366 44.4 % $ 5,574 44.4 %
Total
Total net losses and loss
adjustment expense and
total loss ratio excluding
the effect of prior
accident year (1) $ 16,725 76.1 % $ 30,587 61.9 % $ 31,250 70.9 % $ 61,522 63.0 %
Effect of prior accident
year (2,630 ) (12.0 %) 6,082 12.3 % $ (5,970 ) (13.5 %) 5,265 5.4 %
Total net losses and loss
adjustment expense and
total loss ratio (2) $ 14,095 64.1 % $ 36,669 74.2 % $ 25,280 57.4 % $ 66,787 68.4 %
(1) Non-GAAP measure / ratio
(2) Most directly comparable GAAP measure / ratio
Premiums
See "Result of Operations" above for a discussion on consolidated premiums.
50
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GLOBAL INDEMNITY GROUP, LLC
Other Income (Loss)
The Company recognized a loss of less than$0.1 million and income of$0.3 million for the quarters endedJune 30, 2022 and 2021, respectively, and income of$0.2 million and income of$0.5 million for the six months endedJune 30, 2022 and 2021, respectively. Other income is primarily comprised of fee income net of bank fees. Loss Ratio
The current accident year losses and loss ratio is summarized as follows:
Quarters Ended Six Months Ended
June 30, % June 30, %
(Dollars in
thousands) 2022 2021 Change 2022 2021 Change
Property losses
Non-catastrophe $ 9,229 $ 22,271 (58.6 %) $ 19,108 $ 41,608 (54.1 %)
Catastrophe 5,189 4,958 4.7 % 7,262 13,150 (44.8 %)
Property losses 14,418 27,229 (47.0 %) 26,370 54,758 (51.8 %)
Casualty losses 2,307 3,358 (31.3 %) 4,880 6,764 (27.9 %)
Total accident year
losses $ 16,725 $ 30,587 (45.3 %) $ 31,250 $ 61,522 (49.2 %)
Quarters Ended Six Months Ended
June 30, Point June 30, Point
2022 2021 Change 2022 2021 Change
Current accident year loss ratio: Property Non-catastrophe 55.5 % 51.6 % 3.9 55.8 % 48.9 % 6.9 Catastrophe 31.2 % 11.5 % 19.7 21.2 % 15.5 % 5.7 Property loss ratio 86.7 % 63.1 % 23.6 77.0 % 64.4 % 12.6 Casualty loss ratio 43.0 % 53.8 % (10.8 ) 49.6 % 53.9 % (4.3 ) Total accident year loss ratio 76.1 % 61.9 % 14.2 70.9 % 63.0 % 7.9 The current accident year non-catastrophe property loss ratio increased by 3.9 points during the quarter endedJune 30, 2022 as compared to the same period in 2021 recognizing higher claims frequency in Farm, Ranch & Stable business lines partially offset by lower claims frequency in the specialty property lines and lower claims severity in the property brokerage lines. The current accident year non-catastrophe property loss ratio increased by 6.9 points during six months endedJune 30, 2022 as compared to the same period in 2021 due to a higher loss ratio in the specialty property lines as well as higher claims frequency and severity in the Farm, Ranch & Stable business lines. The current accident year catastrophe loss ratio increased by 19.7 points during the quarter endedJune 30, 2022 as compared to the same period in 2021 recognizing higher claims frequency and severity in the specialty property lines and Farm, Ranch & Stable business lines. The current accident year catastrophe loss ratio increased by 5.7 points during the six months endedJune 30, 2022 as compared to the same period in 2021 reflecting higher claims severity in the Farm, Ranch & Stable business lines partially offset by lower claims frequency and severity in the property brokerage lines. The current accident year casualty loss ratio improved by 10.8 points during the quarter endedJune 30, 2022 as compared to the same period in 2021 which reflects that the premium has been running off and is down to$0.9 million in net earned premiums for the specialty property lines, property brokerage, and property and catastrophe reinsurance treaties in the quarter as well as lower claims frequency in Farm, Ranch & Stable business lines. The current accident year casualty loss ratio improved by 4.3 points during the six months endedJune 30, 2022 as compared to the same period in 2021 primarily due to lower claims severity in the Farm, Ranch & Stable business lines partially offset by higher claims severity in the specialty property lines. 51 -------------------------------------------------------------------------------- GLOBAL INDEMNITY GROUP, LLC The calendar year loss ratio for the quarter and six months endedJune 30, 2022 includes a decrease of$2.6 million , or 12.0 percentage points, and a decrease of$6.0 million , or 13.5 percentage points, respectively related to reserve development on prior accident years. The calendar year loss ratio for the quarter and six months endedJune 30, 2021 includes an increase of$6.1 million , or 12.3 percentage points, and an increase of$5.3 million , or 5.4 percentage points, respectively, related to reserve development on prior accident years. Please see Note 7 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 Exited Lines increased by 6.4 points from 41.4% for the quarter endedJune 30, 2021 to 47.8% for the quarter endedJune 30, 2022 . The expense ratio for the Company's Exited Lines increased by 7.0 points from 41.4% for the six months endedJune 30, 2021 to 48.4% for the six months endedJune 30, 2022 . The increase in the expense ratio is primarily due to the reduction in earned premiums resulting from the runoff of lines of business that the Company is no longer writing.
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 the Company's Exited Lines' 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 the Exited Lines' 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 1.7 years.
Net Investment Income
Quarters Ended Six Months Ended
June 30, % June 30, %
(Dollars in thousands) 2022 2021 Change 2022 2021 Change
Gross investment income (1) $ 2,541 $ 11,268 (77.4 %) $ 9,737 $ 21,817 (55.4 %)
Investment expenses (611 ) (635 ) (3.8 %) (1,215 ) (1,348 ) (9.9 %)
Net investment income $ 1,930 $ 10,633 (81.8 %) $
8,522
(1) Excludes realized gains and losses
Gross investment income decreased by 77.4% and 55.4% for the quarter and six months endedJune 30, 2022 as compared to the same periods in 2021 primarily due to decreased returns from alternative investments and a decrease in dividend income as a result of the liquidation of the Company's common stock portfolio during the first quarter of 2022. The proceeds from the sale of the common stock portfolio as well as other proceeds were used to retire the 2047 Notes inApril 2022 . Investment expenses decreased by 3.8% and 9.9% for the quarter and six months endedJune 30, 2022 as compared to the same periods in 2021 due to decreased investment management expenses as a result of the liquidation of the Company's common stock portfolio during the year. AtJune 30, 2022 , the Company held agency mortgage-backed securities with a market value of$3.8 million . Excluding the agency mortgage-backed securities, the average duration of the Company's fixed maturities portfolio was 1.8 years as ofJune 30, 2022 , compared with 4.7 years as ofJune 30, 2021 . Including cash and short-term investments, the average duration of the Company's fixed maturities portfolio, excluding agency mortgage-backed securities, was 1.7 years and 4.5 years as ofJune 30, 2022 andJune 30, 2021 , 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 2.7% as ofJune 30, 2022 , compared to 2.3% as ofJune 30, 2021 . The embedded book yield on the$32.4 million of 52 --------------------------------------------------------------------------------GLOBAL INDEMNITY GROUP, LLC taxable municipal bonds in the Company's portfolio, was 3.1% atJune 30, 2022 , compared to an embedded book yield of 3.0% on the Company's taxable municipal bonds of$64.5 million atJune 30, 2021 .
Net Realized Investment Gains (Losses)
The components of net realized investment gains (losses) for the quarters and
six months ended
Quarters Ended Six Months Ended
June 30, June 30,
(Dollars in thousands) 2022 2021 2022 2021
Equity securities $ (2,415 ) $ 3,395 $ (3,760 ) $ 7,763
Fixed maturities (8,637 ) 453 (11,876 ) (706 )
Derivatives 1,816 (15 ) 6,540 595
Other-than-temporary impairment losses (680 ) - (26,205 ) -
Net realized investment gains (losses)
In response to a rising interest rate environment, the Company took action early inApril 2022 to shorten the duration of its fixed maturities portfolio. The Company identified fixed maturities securities with a weighted average life of five years or greater as having an intent to sell. Most of the proceeds from the sale of these securities were reinvested into fixed income investments with maturities of two years and less. See Note 2 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 six months endedJune 30, 2022 and 2021.
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$3.0 million and$6.3 million during the quarters endedJune 30, 2022 and 2021, respectively, and$7.7 million and$10.6 million during the six months endedJune 30, 2022 and 2021, respectively. The decrease in corporate expenses was primarily due to the Company receiving an employee retention credit under the CARES Act of$2.7 million . This credit, which reduced compensation cost, was received inMay 2022 .
Interest Expense
Interest expense was$0.4 million and$2.7 million during the quarters endedJune 30, 2022 and 2021, respectively,$3.0 million and$5.3 million during the six months endedJune 30, 2022 and 2021, respectively. The reduction in interest expense was due to the redemption of the 2047 Notes onApril 15, 2022 .
Income Tax Benefit
Income tax benefit was$0.6 million for the quarter endedJune 30, 2022 compared with income tax expense of$0.8 million for the quarter endedJune 30, 2021 . The increase in the income tax benefit is primarily due to investment losses incurred by the Company'sU.S. subsidiaries during the quarter endedJune 30, 2022 . Income tax benefit was$4.0 million for the six months endedJune 30, 2022 compared with an income tax expense of$0.6 million for the six months endedJune 30, 2021 . The increase in the income tax benefit is primarily due to investment losses incurred by the Company'sU.S. subsidiaries during the six months endedJune 30, 2021 .
See Note 6 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.
53
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GLOBAL INDEMNITY GROUP, LLC
Net Income (Loss)
The factors described above resulted in a net loss of
income of
respectively and a net loss of
the six months ended
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. The Company also has commitments in the form of operating leases, commitments to fund limited liability investments, and unpaid losses and loss expense obligations. In order to meet its 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.GBLI Holdings, LLC is a holding company which is a wholly-owned subsidiary ofPenn-Patriot Insurance Company .GBLI Holdings, LLC's principal asset is its ownership of the shares of its direct and indirect subsidiaries which includeUnited National Insurance Company ,Diamond State Insurance Company ,Penn-America Insurance Company ,Penn-Star Insurance Company , andAmerican 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 ofJune 30, 2022 , 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 bothGlobal Indemnity Group, LLC andGBLI Holdings, LLC is dependent on the ability of its subsidiaries to pay dividends.Global Indemnity Group, LLC andGBLI 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 2021 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 21 of the notes to the consolidated financial statements in Item 8 of Part II of the Company's 2021 Annual Report on Form 10-K for further information on dividend limitations related to the Insurance Companies. In April, 2022, the United National insurance companies, Penn-America insurance companies, andAmerican Reliable Insurance Company paid dividends in the amount of$4.5 million ,$7.5 million , and$22.5 million , respectively.
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 to pay distributions to shareholders of the Company.
54
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GLOBAL INDEMNITY GROUP, LLC
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$18.5 million and$47.5 million for the six months endedJune 30, 2022 and 2021, respectively. The decrease in operating cash flows of approximately$29.0 million from the prior year was primarily a net result of the following items: Six Months Ended June 30, (Dollars in thousands) 2022 2021 Change Net premiums collected$ 276,206 $ 308,353 $ (32,147 ) Net losses paid (136,756 ) (148,453 ) 11,697 Underwriting and corporate expenses (130,981 ) (126,144 ) (4,837 ) Net investment income 15,116 18,952 (3,836 ) Interest paid (5,126 ) (5,220 ) 94 Net cash provided by operating activities$ 18,459 $ 47,488
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.
Liquidity
Sale of Renewal Rights related to Farm, Ranch & Stable and Sale of
Reliable Insurance Company
OnAugust 8, 2022 , the Company sold the renewal rights related to all business lines within its Farm, Ranch & Stable segment for business written on or afterAugust 8, 2022 toEverett Cash Mutual Insurance Company . The Company will retain the unearned premium reserves for business written prior toAugust 8, 2022 .Everett Cash Mutual Insurance Company is also acquiring the Company's wholly owned subsidiary,American Reliable Insurance Company , for book value which is expected to be$10.0 million at the time of closing. The transaction is subject to receiving regulatory approval which is expected to be received during the 4th quarter of 2022. Under the agreements, total consideration to be paid byEverett Cash Mutual Insurance Company is$40 million .
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. Distributions 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 21, 2022 andJune 20, 2022 . Distributions paid to common shareholders were$7.3 million during the six months endedJune 30, 2022 . In addition, distributions of$0.2 million were paid toGlobal Indemnity Group, LLC's preferred shareholder during the six months endedJune 30, 2022 . 55 --------------------------------------------------------------------------------GLOBAL INDEMNITY GROUP, LLC
Investment Portfolio
Due to shortening duration, significantly more of the investment portfolio will
mature annually.
On
withdrawal requests in full. As outlined in the fund's offering documents,
redemption proceeds are wired to the account of record within 30 days of
30, 2022
income investments with maturities of two years and less.
Other than the items discussed in the preceding paragraphs, there have been no material changes to the Company's liquidity during the quarter and six months endedJune 30, 2022 . Please see Item 7 of Part II in the Company's 2021 Annual Report on Form 10-K for information regarding the Company's liquidity.
Capital Resources
Investment Portfolio
In response to a rising interest rate environment, the Company took action early inApril 2022 to shorten the duration of its fixed maturities portfolio. The Company identified fixed maturities securities with a weighted average life of five years or greater as having an intent to sell. Most of the proceeds from the sale of these securities are being reinvested into fixed income investments with maturities of two years and less.
Redemption of Debt
OnApril 15, 2022 , the Company redeemed the entire$130 million in aggregate principal amount of the outstanding 2047 Notes plus accrued and unpaid interest on the 2047 Notes redeemed to, but not including the Redemption Date ofApril 15, 2022 . The funds to redeem the debt were primarily obtained through the sale of the Company's equity portfolio in the amount of$75.9 million ,$32.0 million in dividends from insurance company subsidiaries,$18.4 million from distributions received from private equity investments, and the remainder from its subsidiary,GBLI Holdings, LLC .
Intercompany Pooling Arrangement
The Company'sU.S. insurance company participate in an intercompany pooling arrangement whereby premiums, losses, and expenses are shared pro rata amongst theU.S. insurance companies. American Reliable currently comprises 30% of the pool. Prior to the sale of American Reliable, the intercompany pooling agreement will be amended. American Reliable will be removed from the pool and its 30% participation in the business and capital will be allocated to the Company's remaining five insurance companies.
For additional information on the Sale of American Reliable, please see the
liquidity section above.
Other than the item discussed in the preceding paragraphs, there have been no material changes to the Company's capital resources during the quarter and six months endedJune 30, 2022 . Please see Item 7 of Part II in the Company's 2021 Annual Report on Form 10-K for information regarding the Company's capital resources. 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 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
56
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GLOBAL INDEMNITY GROUP, LLC
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 2021 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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