UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition Period from to
Commission File Number
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive office including zip code)
Registrant's telephone number, including area code: (
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that registrant was required to submit such files.).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
Large accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol |
Name of each exchange on which registered |
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As of October 29, 2020, the registrant had outstanding
TABLE OF CONTENTS
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Item 1. |
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3 |
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Consolidated Balance Sheets |
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8 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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56 |
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Item 3. |
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78 |
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Item 4. |
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79 |
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Item 1. |
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80 |
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Item 1A. |
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80 |
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Item 2. |
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81 |
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Item 3. |
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81 |
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Item 4. |
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81 |
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Item 5. |
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81 |
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Item 6. |
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82 |
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84 |
2
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
GLOBAL INDEMNITY GROUP, LLC
Consolidated Balance Sheets
(In thousands, except share amounts)
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(Unaudited) September 30, 2020 |
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December 31, 2019 |
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ASSETS |
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Fixed maturities: |
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Available for sale, at fair value (amortized cost: $ |
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$ |
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$ |
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Equity securities, at fair value |
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Other invested assets |
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Total investments |
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Cash and cash equivalents |
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Premiums receivable, net of allowance for credit losses of $ |
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Reinsurance receivables, net of allowance for credit losses of $ |
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Funds held by ceding insurers |
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Federal income taxes receivable |
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Deferred federal income taxes |
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Deferred acquisition costs |
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Intangible assets |
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Goodwill |
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Prepaid reinsurance premiums |
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Other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Liabilities: |
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Unpaid losses and loss adjustment expenses |
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$ |
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$ |
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Unearned premiums |
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Ceded balances payable |
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Payable for securities purchased |
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Contingent commissions |
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Debt |
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Other liabilities |
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Total liabilities |
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$ |
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$ |
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Commitments and contingencies (Note 11) |
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Shareholders’ equity: |
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Series A cumulative fixed rate preferred shares, $ |
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Common shares, par value: no par at September 30, 2020 and $ |
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Additional paid-in capital |
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Accumulated other comprehensive income, net of taxes |
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Retained earnings |
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Class A common shares in treasury, at cost: |
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( |
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Total shareholders’ equity |
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Total liabilities and shareholders’ equity |
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$ |
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$ |
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See accompanying notes to consolidated financial statements.
3
GLOBAL INDEMNITY GROUP, LLC
Consolidated Statements of Operations
(In thousands, except shares and per share data)
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(Unaudited) Quarters Ended September 30, |
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(Unaudited) Nine Months Ended September 30, |
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2020 |
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2019 |
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2020 |
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2019 |
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Revenues: |
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Gross written premiums |
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$ |
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$ |
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$ |
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$ |
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Net written premiums |
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$ |
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$ |
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$ |
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$ |
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Net earned premiums |
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$ |
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$ |
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$ |
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$ |
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Net investment income |
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Net realized investment gains (losses): |
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Other than temporary impairment losses on investments |
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( |
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Other net realized investment gains (losses) |
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( |
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( |
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Total net realized investment gains (losses) |
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( |
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Other income |
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Total revenues |
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Losses and Expenses: |
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Net losses and loss adjustment expenses |
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Acquisition costs and other underwriting expenses |
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Corporate and other operating expenses |
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Interest expense |
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Loss on extinguishment of debt |
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Income (loss) before income taxes |
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( |
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( |
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Income tax expense (benefit) |
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( |
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( |
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( |
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Net income (loss) |
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$ |
( |
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$ |
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$ |
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$ |
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Less: Preferred stock distributions |
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Net income (loss) available to common shareholders |
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$ |
( |
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$ |
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$ |
( |
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$ |
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Per share data: |
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Net income (loss) available to common shareholders (1) |
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Basic |
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$ |
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$ |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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$ |
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$ |
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Weighted-average number of shares outstanding |
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Basic |
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Diluted |
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Cash dividends/distributions declared per common share |
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$ |
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$ |
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$ |
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$ |
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(1) |
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See accompanying notes to consolidated financial statements.
4
GLOBAL INDEMNITY GROUP, LLC
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
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(Unaudited) Quarters Ended September 30, |
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(Unaudited) Nine Months Ended September 30, |
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2020 |
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2019 |
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2020 |
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2019 |
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Net income (loss) |
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$ |
( |
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$ |
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$ |
( |
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$ |
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Other comprehensive income (loss), net of tax: |
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Unrealized holding gain |
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( |
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Portion of other-than-temporary impairment losses recognized in other comprehensive income (loss) |
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( |
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( |
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Reclassification adjustment for gains included in net income (loss) |
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( |
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( |
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( |
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( |
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Unrealized foreign currency translation gain (loss) |
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Other comprehensive income (loss), net of tax |
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( |
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Comprehensive income (loss), net of tax |
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$ |
( |
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$ |
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$ |
( |
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$ |
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See accompanying notes to consolidated financial statements.
5
GLOBAL INDEMNITY GROUP, LLC
Consolidated Statements of Changes in Shareholders’ Equity
(In thousands, except share amounts)
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(Unaudited) Quarters Ended September 30, |
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(Unaudited) Nine Months Ended September 30, |
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2020 |
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2019 |
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2020 |
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2019 |
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Number of Series A Cumulative Fixed Rate Preferred Shares |
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Preferred shares issued |
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Number at end of period |
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Number of class A common shares issued: |
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Number at beginning of period |
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Common shares issued / (forfeited) under share incentive plans |
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( |
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Common shares issued to directors |
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Reduction in treasury shares due to redomestication |
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( |
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( |
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Number at end of period |
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Number of class B common shares issued: |
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Number at beginning and end of period |
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Par value of Series A Cumulative Fixed Rate Preferred Shares |
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Preferred shares issued |
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$ |
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$ |
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Balance at end of period |
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$ |
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$ |
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Par value of class A common shares: |
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Balance at beginning of period |
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$ |
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$ |
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$ |
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$ |
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Reduction in par due to redomestication |
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( |
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( |
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Balance at end of period |
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$ |
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$ |
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$ |
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$ |
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Par value of class B common shares: |
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Balance at beginning of period |
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$ |
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$ |
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$ |
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$ |
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Reduction in par due to redomestication |
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( |
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( |
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Balance at end of period |
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$ |
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$ |
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$ |
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$ |
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Additional paid-in capital: |
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Balance at beginning of period |
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$ |
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$ |
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$ |
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$ |
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Reduction in treasury shares due to redomestication |
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( |
) |
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( |
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Share compensation plans |
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Balance at end of period |
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$ |
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$ |
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$ |
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$ |
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Accumulated other comprehensive income, net of deferred income tax: |
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Balance at beginning of period |
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$ |
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$ |
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$ |
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$ |
( |
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Other comprehensive income (loss): |
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Change in unrealized holding gains (losses) |
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( |
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Change in other than temporary impairment losses recognized in other comprehensive income (loss) |
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( |
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( |
) |
Unrealized foreign currency translation gains |
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|
|
|
|
|
Other comprehensive income (loss) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Cumulative effect adjustment resulting from adoption of new accounting guidance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
Net income (loss) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
Preferred share distributions |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
Dividends / distributions to shareholders ($ |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance at end of period |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of treasury shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number at beginning of period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common shares purchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement of shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction in treasury shares due to redomestication |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
Number at end of period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury shares, at cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Class A common shares purchased, at cost |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
Reduction in treasury shares due to redomestication |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
Total shareholders’ equity |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
See accompanying notes to consolidated financial statements.
6
GLOBAL INDEMNITY GROUP, LLC
Consolidated Statements of Cash Flows
(In thousands)
|
|
(Unaudited) Nine Months Ended September 30, |
|
|||||
|
|
2020 |
|
|
2019 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
( |
) |
|
$ |
|
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Amortization and depreciation |
|
|
|
|
|
|
|
|
Amortization of debt issuance costs |
|
|
|
|
|
|
|
|
Restricted stock and stock option expense |
|
|
|
|
|
|
|
|
Deferred federal income taxes |
|
|
( |
) |
|
|
|
|
Amortization of bond premium and discount, net |
|
|
|
|
|
|
|
|
Net realized investment (gains) loss |
|
|
|
|
|
|
( |
) |
Loss on extinguishment of debt |
|
|
|
|
|
|
— |
|
Equity in the earnings of equity method limited liability investments |
|
|
|
|
|
|
|
|
Changes in: |
|
|
|
|
|
|
|
|
Premiums receivable, net |
|
|
|
|
|
|
( |
) |
Reinsurance receivables, net |
|
|
( |
) |
|
|
|
|
Funds held by ceding insurers |
|
|
|
|
|
|
|
|
Unpaid losses and loss adjustment expenses |
|
|
|
|
|
|
( |
) |
Unearned premiums |
|
|
( |
) |
|
|
|
|
Ceded balances payable |
|
|
( |
) |
|
|
|
|
Other assets and liabilities, net |
|
|
|
|
|
|
( |
) |
Contingent commissions |
|
|
( |
) |
|
|
( |
) |
Federal income tax receivable/payable |
|
|
|
|
|
|
( |
) |
Deferred acquisition costs, net |
|
|
|
|
|
|
( |
) |
Prepaid reinsurance premiums |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Proceeds from sale of fixed maturities |
|
|
|
|
|
|
|
|
Proceeds from sale of equity securities |
|
|
|
|
|
|
|
|
Proceeds from maturity of fixed maturities |
|
|
|
|
|
|
|
|
Proceeds from other invested assets |
|
|
|
|
|
|
|
|
Amounts paid in connection with derivatives |
|
|
( |
) |
|
|
( |
) |
Purchases of fixed maturities |
|
|
( |
) |
|
|
( |
) |
Purchases of equity securities |
|
|
( |
) |
|
|
( |
) |
Purchases of other invested assets |
|
|
( |
) |
|
|
( |
) |
Net cash provided by (used for) investing activities |
|
|
|
|
|
|
( |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Net borrowings (repayments) under margin borrowing facility |
|
|
( |
) |
|
|
|
|
Dividends paid to common shareholders |
|
|
( |
) |
|
|
( |
) |
Issuance of series A cumulative fixed rate preferred shares |
|
|
|
|
|
|
|
|
Purchases of class A common shares |
|
|
( |
) |
|
|
( |
) |
Redemption of subordinated notes |
|
|
( |
) |
|
|
|
|
Net cash provided by (used for) financing activities |
|
|
( |
) |
|
|
|
|
Net change in cash and cash equivalents |
|
|
( |
) |
|
|
( |
) |
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
|
|
|
$ |
|
|
See accompanying notes to consolidated financial statements.
7
GLOBAL INDEMNITY GROUP, LLC
1. |
Principles of Consolidation and Basis of Presentation |
References to “the Company” refer to Global Indemnity Group, LLC and its subsidiaries. If prior to August 28, 2020, references to the Company refer to Global Indemnity Limited and its subsidiaries.
Global Indemnity Group, LLC (“Global Indemnity” or “the Company”), a
The Company manages its business through
The interim consolidated financial statements are unaudited, but have been prepared in conformity with United States of America generally accepted accounting principles (“GAAP”), which differs in certain respects from those principles followed in reports to insurance regulatory authorities. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The unaudited consolidated financial statements include all adjustments that are, in the opinion of management, of a normal recurring nature and are necessary for a fair statement of results for the interim periods. Results of operations for the quarters and nine months ended September 30, 2020 and 2019 are not necessarily indicative of the results of a full year. The accompanying notes to the unaudited consolidated financial statements should be read in conjunction with the notes to the consolidated financial statements contained in the Company’s 2019 Annual Report on Form 10-K.
The consolidated financial statements include the accounts of Global Indemnity and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
8
GLOBAL INDEMNITY GROUP, LLC
2.Redomestication
At 12:01 a.m., Eastern Time, on
|
1. |
Global Indemnity Limited merged with and into New CayCo, a newly formed and wholly owned subsidiary of the Company incorporated in the Cayman Islands as an exempted company with limited liability, following which, New CayCo survived the merger (the "Amalgamation"); |
|
|
2. |
in |
|
|
3. |
pursuant to the Scheme of Arrangement and as part of the Amalgamation, Global Indemnity Limited was dissolved without being wound up and ceases to exist as a separate legal entity. |
|
As a result, any references to class A common shares after the Effective Time refer to Global Indemnity Group, LLC class A common shares and any references to class A common shares prior to the Effective Time refers to Global Indemnity Limited A ordinary shares.
As previously disclosed, the Redomestication was approved by Global Indemnity Limited’s shareholders at a special meeting and an extraordinary general meeting held on
Following completion of the Scheme of Arrangement, New CayCo merged with and into the Company, with the Company surviving as the ultimate parent company. Additionally, as part of the Redomestication transactions, Global Indemnity Reinsurance Company was merged with and into Penn-Patriot, with Penn-Patriot surviving, resulting in the assumption of Global Indemnity Reinsurance’s business by the Company’s existing U.S. insurance company subsidiaries (the "GI Bermuda Transaction" and, together with the Redomestication and the other transactions described in Global Indemnity Limited's Definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on July 23, 2020 (the "Redomestication Proxy Statement"), the "Transactions").
Prior to the Redomestication, the Global Indemnity Limited A ordinary shares were listed on the Nasdaq Global Select Market ("Nasdaq") under the symbol "GBLI" and registered under Section 12(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). At the Effective Time, the Company’s class A common shares are deemed to be registered under Section 12(b) of the Exchange Act pursuant to Rule 12g-3(a) under the Exchange Act. The issuance of the class A common shares by the Company in the Redomestication was exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"), by virtue of Section 3(a)(10) of the Securities Act. The Company’s class A common shares began trading on Nasdaq under the symbol "GBLI," the same symbol under which the Global Indemnity Limited ordinary shares previously traded, at the commencement of trading on Nasdaq on August 28, 2020.
On August 27, 2020, the Company issued
9
GLOBAL INDEMNITY GROUP, LLC
3. |
Investments |
The Company implemented new accounting guidance on January 1, 2020 related to the measurement of credit losses on financial instruments. For financial assets held at amortized cost basis, the new guidance requires a forward-looking methodology for in-scope financial assets that reflects expected credit losses and requires consideration of a broader range of information for credit loss estimates, including historical experience, current economic conditions and supportable forecasts that affect the collectability of the financial assets. For available for sale debt securities, credit losses are still measured similar to the old guidance; however, the new guidance requires that credit losses be presented as an allowance rather than as a write-down of the amortized cost basis of the impaired security and allows for the reversal of credit losses in the current period net income. Any impairments related to factors other than credit losses continue to be recorded through other comprehensive income, net of taxes.
The Company elected the practical expedient to exclude accrued interest from both the fair value and the amortized cost basis of the available for sale debt securities for the purposes of identifying and measuring an impairment and to not measure an allowance for credit losses for accrued interest receivables. Accrued interest receivable is written off through net realized investment gains (losses) at the time the issuer of the bond defaults or is expected to default on payment. The Company made an accounting policy election to present the accrued interest receivable balance with other assets on the Company’s consolidated statements of financial position. Accrued interest receivable was $
The amortized cost and estimated fair value of the Company’s fixed maturities securities were as follows as of September 30, 2020 and December 31, 2019:
(Dollars in thousands) |
|
Amortized Cost |
|
|
Allowance for Credit Losses |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Estimated Fair Value |
|
|||||
As of September 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury and agency obligations |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Obligations of states and political subdivisions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Asset-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Commercial mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Foreign corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Total fixed maturities |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
(Dollars in thousands) |
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Estimated Fair Value |
|
||||
As of December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury and agency obligations |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Obligations of states and political subdivisions |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Asset-backed securities |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Commercial mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Foreign corporate bonds |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Total fixed maturities |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
10
GLOBAL INDEMNITY GROUP, LLC
As of September 30, 2020 and December 31, 2019, the Company’s investments in equity securities consist of the following:
(Dollars in thousands) |
|
September 30, 2020 |
|
|
December 31, 2019 |
|
||
Common stock |
|
$ |
|
|
|
$ |
|
|
Preferred stock |
|
|
|
|
|
|
|
|
Index funds that invest in fixed maturities |
|
|
|
|
|
|
|
|
Index funds that invest in common stock |
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
As of September 30, 2020 and December 31, 2019, the Company held Fannie Mae mortgage pools that totaled as much as
The amortized cost and estimated fair value of the Company’s fixed maturities portfolio classified as available for sale at September 30, 2020, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
(Dollars in thousands) |
|
Amortized Cost |
|
|
Estimated Fair Value |
|
||
Due in one year or less |
|
$ |
|
|
|
$ |
|
|
Due in one year through five years |
|
|
|
|
|
|
|
|
Due in five years through ten years |
|
|
|
|
|
|
|
|
Due in ten years through fifteen years |
|
|
|
|
|
|
|
|
Due after fifteen years |
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
Asset-backed securities |
|
|
|
|
|
|
|
|
Commercial mortgage-backed securities |
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
The following table contains an analysis of the Company’s fixed income securities with gross unrealized losses that are not deemed to have credit losses, categorized by the period that the securities were in a continuous loss position as of September 30, 2020. The fair value amounts reported in the table are estimates that are prepared using the process described in Note 5 of the notes to the consolidated financial statements in Item 1 of Part I of this report:
|
|
Less than 12 months |
|
|
12 months or longer |
|
|
Total (1) |
|
|||||||||||||||
(Dollars in thousands) |
|
Fair Value |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
|
Gross Unrealized Losses |
|
||||||
Fixed maturities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury and agency obligations |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
Obligations of states and political subdivisions |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
Mortgage-backed securities |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Asset-backed securities |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Commercial mortgage-backed securities |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Corporate bonds |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
Foreign corporate bonds |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
Total fixed maturities |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
(1) |
|
11
GLOBAL INDEMNITY GROUP, LLC
The following table contains an analysis of the Company’s fixed income securities with gross unrealized losses, categorized by the period that the securities were in a continuous loss position as of December 31, 2019. The fair value amounts reported in the table are estimates that are prepared using the process described in Note 5 of the notes to the consolidated financial statements in Item 1 of Part I of this report:
|
|
Less than 12 months |
|
|
12 months or longer |
|
|
Total (1) |
|
|||||||||||||||
(Dollars in thousands) |
|
Fair Value |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
|
Gross Unrealized Losses |
|
||||||
Fixed maturities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury and agency obligations |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
Obligations of states and political subdivisions |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
Mortgage-backed securities |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Asset-backed securities |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Commercial mortgage-backed securities |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Corporate bonds |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
Foreign corporate bonds |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Total fixed maturities |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
(1) |
Fixed maturities in a gross unrealized loss position are comprised of non-credit losses on investment grade securities where management does not intend to sell, and it is more likely than not that the Company will not be forced to sell the security before recovery. |
The Company regularly performs various analytical valuation procedures with respect to its investments, including reviewing each available for sale debt security in an unrealized loss position to assess whether the decline in fair value below amortized cost basis has resulted from a credit loss or other factors. In assessing whether a credit loss exists, the Company compares the present value of the cash flows expected to be collected from the security to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis of the security, a credit loss exists and an allowance for credit losses is recorded. Subsequent changes in the allowances are recorded in the period of change as either credit loss expense or reversal of credit loss expense. Any impairments related to factors other than credit losses are recorded through other comprehensive income, net of taxes.
For fixed maturities, the factors considered in reaching the conclusion that a credit loss exists include, among others, whether:
|
(1) |
the extent to which the fair value is less than the amortized cost basis; |
|
(2) |
the issuer is in financial distress; |
|
(3) |
the investment is secured; |
|
(4) |
a significant credit rating action occurred; |
|
(5) |
scheduled interest payments were delayed or missed; |
|
(6) |
changes in laws or regulations have affected an issuer or industry; |
|
(7) |
the investment has an unrealized loss and was identified by the Company’s investment manager as an investment to be sold before recovery or maturity; |
|
(8) |
the investment failed cash flow projection testing to determine if anticipated principal and interest payments will be realized; and |
|
(9) |
changes in US Treasury rates and/or credit spreads since original purchase to identify whether the unrealized loss is simply due to interest rate movement. |
According to accounting guidance for debt securities in an unrealized loss position, the Company is required to assess whether it has the intent to sell the debt security or more likely than not will be required to sell the debt security before the anticipated recovery. If either of these conditions is met, any allowance for credit losses is written off and the amortized cost basis is written down to the fair value of the fixed maturity security with any incremental impairment reported in earnings. That new amortized cost basis shall not be adjusted for subsequent recoveries in fair value.
12
GLOBAL INDEMNITY GROUP, LLC
The following is a description, by asset type, of the methodology and significant inputs that the Company used to measure the amount of credit loss recognized in earnings, if any:
U.S. treasury and agency obligations – As of September 30, 2020, gross unrealized losses related to U.S. treasury and agency obligations were $
Obligations of states and political subdivisions – As of September 30, 2020, gross unrealized losses related to obligations of states and political subdivisions were $
Mortgage-backed securities (“MBS”) – As of September 30, 2020, gross unrealized losses related to mortgage-backed securities were $
Asset backed securities (“ABS”) - As of September 30, 2020, gross unrealized losses related to asset backed securities were $
Commercial mortgage-backed securities (“CMBS”) - As of September 30, 2020, gross unrealized losses related to the CMBS portfolio were $
Corporate bonds - As of September 30, 2020, gross unrealized losses related to corporate bonds were $
13
GLOBAL INDEMNITY GROUP, LLC
asset class includes maintaining detailed financial models that include a projection of each issuer’s future financial performance, including prospective debt servicing capabilities, capital structure composition, and the value of the collateral. The analysis incorporates the macroeconomic environment, industry conditions in which the issuer operates, the issuer’s current competitive position, its vulnerability to changes in the competitive and regulatory environment, issuer liquidity, issuer commitment to bondholders, issuer creditworthiness, and asset protection. Part of the process also includes running downside scenarios to evaluate the expected likelihood of default as well as potential losses in the event of default. Based on the analysis performed, the Company did not recognize a credit loss on corporate bonds during the period.
Foreign bonds – As of September 30, 2020, gross unrealized losses related to foreign bonds were $
The Company has evaluated its investment portfolio and has determined that an allowance for credit losses on its investments is not required.
The Company recorded the following other than temporary impairments (“OTTI”) on its investment portfolio for the quarter and nine months ended September 30, 2019:
|
|
Quarter Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||
(Dollars in thousands) |
|
2019 |
|
|
2019 |
|
||
Fixed maturities: |
|
|
|
|
|
|
|
|
OTTI losses, gross |
|
$ |
|
|
|
$ |
( |
) |
Portion of loss recognized in other comprehensive income (pre-tax) |
|
|
|
|
|
|
|
|
Net impairment losses on fixed maturities recognized in earnings |
|
$ |
|
|
|
$ |
( |
) |
The following table is an analysis of the credit losses recognized in earnings on fixed maturities held by the Company for the quarter and nine months ended September 30, 2019 for which a portion of the OTTI loss was recognized in other comprehensive income.
|
|
Quarter Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||
(Dollars in thousands) |
|
2019 |
|
|
2019 |
|
||
Balance at beginning of period |
|
$ |
|
|
|
$ |
|
|
Additions where no OTTI was previously recorded |
|
|
|
|
|
|
|
|
Additions where an OTTI was previously recorded |
|
|
|
|
|
|
|
|
Reductions for securities for which the company intends to sell or more likely than not will be required to sell before recovery |
|
|
|
|
|
|
|
|
Reductions reflecting increases in expected cashflows to be collected |
|
|
|
|
|
|
|
|
Reductions for securities sold during the period |
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
|
|
|
$ |
|
|
14
GLOBAL INDEMNITY GROUP, LLC
Accumulated Other Comprehensive Income, Net of Tax
Accumulated other comprehensive income, net of tax, as of September 30, 2020 and December 31, 2019 was as follows:
(Dollars in thousands) |
|
September 30, 2020 |
|
|
December 31, 2019 |
|
||
Net unrealized gains (losses) from: |
|
|
|
|
|
|
|
|
Fixed maturities |
|
$ |
|
|
|
$ |
|
|
Foreign currency fluctuations |
|
|
( |
) |
|
|
( |
) |
Deferred taxes |
|
|
( |
) |
|
|
( |
) |
Accumulated other comprehensive income, net of tax |
|
$ |
|
|
|
$ |
|
|
The following tables present the changes in accumulated other comprehensive income, net of tax, by component for the quarters and nine months ended September 30, 2020 and 2019:
Quarter Ended September 30, 2020 (Dollars In Thousands) |
|
Unrealized Gains and Losses on Available for Sale Securities |
|
|
Foreign Currency Items |
|
|
Accumulated Other Comprehensive Income |
|
|||
Beginning balance, net of tax |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Other comprehensive income before reclassification, before tax |
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive income, before tax |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Other comprehensive income, before tax |
|
|
( |
) |
|
|
|
|
|
|
|
|
Income tax (expense) benefit |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Ending balance, net of tax |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Quarter Ended September 30, 2019 (Dollars In Thousands) |
|
Unrealized Gains and Losses on Available for Sale Securities |
|
|
Foreign Currency Items |
|
|
Accumulated Other Comprehensive Income |
|
|||
Beginning balance, net of tax |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Other comprehensive income (loss) before reclassification, before tax |
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive income, before tax |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Other comprehensive income (loss), before tax |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Ending balance, net of tax |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Nine Months Ended September 30, 2020 (Dollars In Thousands) |
|
Unrealized Gains and Losses on Available for Sale Securities |
|
|
Foreign Currency Items |
|
|
Accumulated Other Comprehensive Income |
|
|||
Beginning balance, net of tax |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Other comprehensive income before reclassification, before tax |
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive income, before tax |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Other comprehensive income, before tax |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense) benefit |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Ending balance, net of tax |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
15
GLOBAL INDEMNITY GROUP, LLC
Nine Months Ended September 30, 2019 (Dollars In Thousands) |
|
Unrealized Gains and Losses on Available for Sale Securities |
|
|
Foreign Currency Items |
|
|
Accumulated Other Comprehensive Income |
|
|||
Beginning balance, net of tax |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Other comprehensive income before reclassification, before tax |
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive income, before tax |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Other comprehensive income, before tax |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Ending balance, net of tax |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
The reclassifications out of accumulated other comprehensive income for the quarters and nine months ended September 30, 2020 and 2019 were as follows:
|
|
|
|
Amounts Reclassified from Accumulated Other Comprehensive Income |
|
|||||
(Dollars in thousands) |
|
|
|
Quarters Ended September 30, |
|
|||||
Details about Accumulated Other Comprehensive Income Components |
|
Affected Line Item in the Consolidated Statements of Operations |
|
2020 |
|
|
2019 |
|
||
Unrealized gains and losses on available for sale securities |
|
Other net realized investment (gains) losses |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
Other than temporary impairment losses on investments |
|
|
|
|
|
|
|
|
|
|
Total before tax |
|
|
( |
) |
|
|
( |
) |
|
|
Income tax expense (benefit) |
|
|
|
|
|
|
|
|
|
|
Unrealized gains and losses on available for sale securities, net of tax |
|
|
( |
) |
|
|
( |
) |
Foreign currency items |
|
Other net realized investment (gains) losses |
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
Foreign currency items, net of tax |
|
|
|
|
|
|
|
|
Total reclassifications |
|
Total reclassifications, net of tax |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
Amounts Reclassified from Accumulated Other Comprehensive Income |
|
|||||
(Dollars in thousands) |
|
|
|
Nine Months Ended September 30, |
|
|||||
Details about Accumulated Other Comprehensive Income Components |
|
Affected Line Item in the Consolidated Statements of Operations |
|
2020 |
|
|
2019 |
|
||
Unrealized gains and losses on available for sale securities |
|
Other net realized investment (gains) losses |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
Other than temporary impairment losses on investments |
|
|
|
|
|
|
|
|
|
|
Total before tax |
|
|
( |
) |
|
|
( |
) |
|
|
Income tax expense (benefit) |
|
|
|
|
|
|
|
|
|
|
Unrealized gains and losses on available for sale securities, net of tax |
|
|
( |
) |
|
|
( |
) |
Foreign currency items |
|
Other net realized investment (gains) losses |
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
Foreign currency items, net of tax |
|
|
|
|
|
|
|
|
Total reclassifications |
|
Total reclassifications, net of tax |
|
$ |
( |
) |
|
$ |
( |
) |
16
GLOBAL INDEMNITY GROUP, LLC
Net Realized Investment Gains (Losses)
The components of net realized investment gains (losses) for the quarters and nine months ended September 30, 2020 and 2019 were as follows:
|
|
Quarters Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Dollars in thousands) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
Fixed maturities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross realized gains |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Gross realized losses |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net realized gains (losses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross realized gains |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross realized losses |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net realized gains (losses) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross realized gains |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross realized losses |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net realized gains (losses) (1) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total net realized investment gains (losses) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
(1) |
|
Net realized investment gains (losses) for the quarter and nine months ended September 30, 2020 were primarily due to the impact of changes in fair value due to the recent disruption in the global financial markets.
The following table shows the calculation of the portion of realized gains and losses related to equity securities held as of September 30, 2020 and 2019:
|
|
Quarters Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Dollars in thousands) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
Net gains and (losses) recognized during the period on equity securities |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
Less: Net gains (losses) recognized during the period on equity securities sold during the period |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Unrealized gains and (losses) recognized during the reporting period on equity securities still held at the reporting date |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
The proceeds from sales and redemptions of available for sale and equity securities resulting in net realized investment gains (losses) for the nine months ended September 30, 2020 and 2019 were as follows:
|
|
Nine Months Ended September 30, |
|
|||||
(Dollars in thousands) |
|
2020 |
|
|
2019 |
|
||
Fixed maturities |
|
$ |
|
|
|
$ |
|
|
Equity securities |
|
|
|
|
|
|
|
|
17
GLOBAL INDEMNITY GROUP, LLC
Net Investment Income
The sources of net investment income for the quarters and nine months ended September 30, 2020 and 2019 were as follows:
|
|
Quarters Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Dollars in thousands) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
Fixed maturities |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Equity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other invested assets |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Total investment income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment expense |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net investment income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The Company’s total investment return on a pre-tax basis for the quarters and nine months ended September 30, 2020 and 2019 were as follows:
|
|
Quarters Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Dollars in thousands) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
Net investment income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Net realized investment gains (losses) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Change in unrealized holding gains and losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized investment returns |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Total investment return |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Total investment return % (1) |
|
|
|
% |
|
|
|
% |
|
|
|
% |
|
|
|
% |
Average investment portfolio (2) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
(1) |
|
(2) |
|
As of September 30, 2020 and December 31, 2019, the Company did
Insurance Enhanced Asset-Backed and Credit Securities
As of September 30, 2020, the Company held insurance enhanced bonds with a market value of approximately $
The insurance enhanced bonds are comprised of $
The Company had no direct investments in the entities that have provided financial guarantees or other credit support to any security held by the Company at September 30, 2020.
18
GLOBAL INDEMNITY GROUP, LLC
Bonds Held on Deposit
Certain cash balances, cash equivalents, equity securities, and bonds available for sale were deposited with various governmental authorities in accordance with statutory requirements, were held as collateral, or were held in trust pursuant to intercompany reinsurance agreements.
|
|
Estimated Fair Value |
|
|||||
(Dollars in thousands) |
|
September 30, 2020 |
|
|
December 31, 2019 |
|
||
On deposit with governmental authorities |
|
$ |
|
|
|
$ |
|
|
Intercompany trusts held for the benefit of U.S. policyholders |
|
|
|
|
|
|
|
|
Held in trust pursuant to third party requirements |
|
|
|
|
|
|
|
|
Letter of credit held for third party requirements |
|
|
|
|
|
|
|
|
Securities held as collateral |
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
Variable Interest Entities
A Variable Interest Entity (“VIE”) refers to an investment in which an investor holds a controlling interest that is not based on the majority of voting rights. Under the VIE model, the party that has the power to exercise significant management influence and maintain a controlling financial interest in the entity’s economics is said to be the primary beneficiary, and is required to consolidate the entity within their results. Other entities that participate in a VIE, for which their financial interests fluctuate with changes in the fair value of the investment entity’s net assets but do not have significant management influence and the ability to direct the VIE’s significant economic activities are said to have a variable interest in the VIE but do not consolidate the VIE in their financial results.
The Company has variable interests in
The carrying value of one of the Company’s VIE’s, which invests in distressed securities and assets, was $
4. |
Derivative Instruments |
Derivatives are used by the Company to reduce risks from changes in interest rates and limit exposure to severe equity market changes. The Company has interest rate swaps with terms to exchange, at specified intervals, the difference between fixed rate and floating rate interest amounts as calculated by reference to an agreed notional amount. In 2019, the Company began to utilize exchange-traded futures contracts, which give the holder the right and obligation to participate in market movements at a future date, to allow the Company to react faster to market conditions. The Company posts collateral and settles variation margin in cash on a daily basis equal to the amount of the futures contracts’ change in value scaled by a multiplier.
The Company accounts for the interest rate swaps and futures as non-hedge instruments and recognizes the fair value of the interest rate swaps in other assets or other liabilities on the consolidated balance sheets with the changes in fair value recognized as net realized investment gains or losses in the consolidated statements of operations. The Company is ultimately responsible for the valuation of the interest rate swaps. To aid in determining the estimated fair value of the
19
GLOBAL INDEMNITY GROUP, LLC
interest rate swaps, the Company relies on the forward interest rate curve and information obtained from a third party financial institution.
The following table summarizes information on the location and the gross amount of the derivatives on the consolidated balance sheets as of September 30, 2020 and December 31, 2019:
(Dollars in thousands) |
|
|
|
September 30, 2020 |
|
|
December 31, 2019 |
|
||||||||||
Derivatives Not Designated as Hedging Instruments under ASC 815 |
|
Balance Sheet Location |
|
Notional Amount |
|
|
Fair Value |
|
|
Notional Amount |
|
|
Fair Value |
|
||||
Interest rate swap agreements |
|
Other assets/liabilities |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
Futures contracts on bonds (1) |
|
Other assets/liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures contracts on equities (1) |
|
Other assets/liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
(1) |
|
The following table summarizes the net gains (losses) included in the consolidated statements of operations for changes in the fair value of the derivatives and the periodic net interest settlements under the derivatives for the quarters and nine months ended September 30, 2020 and 2019:
|
|
|
|
Quarters Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Dollars in thousands) |
|
Consolidated Statements of Operations Line |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
Interest rate swap agreements |
|
Net realized investment gains (losses) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Futures contracts on bonds |
|
Net realized investment gains (losses) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Futures contracts on equities |
|
Net realized investment gains (losses) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
As of both September 30, 2020 and December 31, 2019, the Company is due $
As of September 30, 2020 and December 31, 2019, the Company posted initial margin of $
5. |
Fair Value Measurements |
The accounting standards related to fair value measurements define fair value, establish a framework for measuring fair value, outline a fair value hierarchy based on inputs used to measure fair value, and enhance disclosure requirements for fair value measurements. These standards do not change existing guidance as to whether or not an instrument is carried at fair value. The Company has determined that its fair value measurements are in accordance with the requirements of these accounting standards.
The Company’s invested assets and derivative instruments are carried at their fair value and are categorized based upon a fair value hierarchy:
|
• |
Level 1 – inputs utilize quoted prices (unadjusted) in active markets for identical assets that the Company has the ability to access at the measurement date. |
|
• |
Level 2 – inputs utilize other than quoted prices included in Level 1 that are observable for similar assets, either directly or indirectly. |
20
GLOBAL INDEMNITY GROUP, LLC
|
• |
Level 3 – inputs are unobservable for the asset, and include situations where there is little, if any, market activity for the asset. |
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset.
The following table presents information about the Company’s invested assets and derivative instruments measured at fair value on a recurring basis as of September 30, 2020 and December 31, 2019 and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value.
|
|
Fair Value Measurements |
|
|||||||||||||
As of September 30, 2020 (Dollars in thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury and agency obligations |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Obligations of states and political subdivisions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Total liabilities measured at fair value |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
Fair Value Measurements |
|
|||||||||||||
As of December 31, 2019 (Dollars in thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury and agency obligations |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Obligations of states and political subdivisions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-backed securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Total liabilities measured at fair value |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The securities classified as Level 1 in the above table consist of U.S. Treasuries and equity securities actively traded on an exchange.
21
GLOBAL INDEMNITY GROUP, LLC
The securities classified as Level 2 in the above table consist primarily of fixed maturity securities and derivative instruments. Based on the typical trading volumes and the lack of quoted market prices for fixed maturities, security prices are derived through recent reported trades for identical or similar securities making adjustments through the reporting date based upon available market observable information. If there are no recent reported trades, matrix or model processes are used to develop a security price where future cash flow expectations are developed based upon collateral performance and discounted at an estimated market rate. Included in the pricing of asset-backed securities, collateralized mortgage obligations, and mortgage-backed securities are estimates of the rate of future prepayments of principal over the remaining life of the securities. Such estimates are derived based on the characteristics of the underlying structure and prepayment speeds previously experienced at the interest rate levels projected for the underlying collateral. The estimated fair value of the derivative instruments, consisting of interest rate swaps, is obtained from a third party financial institution that utilizes observable inputs such as the forward interest rate curve.
For the Company’s material debt arrangements, the current fair value of the Company’s debt at September 30, 2020 and December 31, 2019 was as follows:
|
|
September 30, 2020 |
|
|
December 31, 2019 |
|
||||||||||
(Dollars in thousands) |
|
Carrying Value |
|
|
Fair Value |
|
|
Carrying Value |
|
|
Fair Value |
|
||||
Margin Borrowing Facility (1) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
7.75% Subordinated Notes due 2045 (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.875% Subordinated Notes due 2047 (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
(1) |
|
(2) |
|
(3) |
|
The fair value of the margin borrowing facility approximates its carrying value due to the facility being due on demand. The subordinated notes due
22
GLOBAL INDEMNITY GROUP, LLC
Fair Value of Alternative Investments
Other invested assets consist of limited liability partnerships whose carrying value approximates fair value.
|
|
September 30, 2020 |
|
|
December 31, 2019 |
|
||||||||||
(Dollars in thousands) |
|
Fair Value |
|
|
Future Funding Commitment |
|
|
Fair Value |
|
|
Future Funding Commitment |
|
||||
European Non-Performing Loan Fund, LP (1) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Distressed Debt Fund, LP (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Debt Fund, LP (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
(1) |
|
(2) |
|
(3) |
|
Limited Partnerships with ownership interest exceeding 3%
The Company uses the equity method to account for investments in limited partnerships where its ownership interest exceeds
Pricing
The Company’s pricing vendors provide prices for all investment categories except for investments in limited partnerships. Two primary vendors are utilized to provide prices for equity and fixed maturity securities.
The following is a description of the valuation methodologies used by the Company’s pricing vendors for investment securities carried at fair value:
|
• |
Equity security prices are received from primary and secondary exchanges. |
|
• |
Corporate and agency bonds are evaluated by utilizing a spread to a benchmark curve. Bonds with similar characteristics are grouped into specific sectors. Inputs for both asset classes consist of trade prices, broker quotes, the new issue market, and prices on comparable securities. |
|
• |
Data from commercial vendors is aggregated with market information, then converted into an option adjusted spread (“OAS”) matrix and prepayment model used for commercial mortgage obligations (“CMO”). CMOs are categorized with mortgage-backed securities in the tables listed above. For asset-backed securities, spread data is derived from trade prices, dealer quotations, and research reports. For both asset classes, evaluations utilize standard inputs plus new issue data, and collateral performance. The evaluated pricing models incorporate cash flows, broker quotes, market trades, historical prepayment speeds, and dealer projected speeds. |
|
• |
For obligations of state and political subdivisions, an attribute-based modeling system is used. The pricing model incorporates trades, market clearing yields, market color, and fundamental credit research. |
23
GLOBAL INDEMNITY GROUP, LLC
|
• |
U.S. treasuries are evaluated by obtaining feeds from a number of live data sources including primary and secondary dealers as well as inter-dealer brokers. |
|
• |
For mortgage-backed securities, various external analytical products are utilized and purchased from commercial vendors. |
The Company performs certain procedures to validate whether the pricing information received from the pricing vendors is reasonable, to ensure that the fair value determination is consistent with accounting guidance, and to ensure that its assets are properly classified in the fair value hierarchy. The Company’s procedures include, but are not limited to:
|
• |
Reviewing periodic reports provided by the Investment Manager that provides information regarding rating changes and securities placed on watch. This procedure allows the Company to understand why a particular security’s market value may have changed or may potentially change. |
|
• |
Understanding and periodically evaluating the various pricing methods and procedures used by the Company’s pricing vendors to ensure that investments are properly classified within the fair value hierarchy. |
|
• |
On a quarterly basis, the Company corroborates investment security prices received from its pricing vendors by obtaining pricing from a second pricing vendor for a sample of securities. |
During the quarters and nine months ended September 30, 2020 and 2019, the Company has not adjusted quotes or prices obtained from the pricing vendors.
6.Allowance for Credit Losses - Premiums Receivable and Reinsurance Receivables
The Company implemented new accounting guidance on January 1, 2020 related to the measurement of credit losses on financial instruments. Please see Note 17 for further discussion on this new accounting guidance.
For premiums receivables, the allowance is based upon the Company’s ongoing review of key aspects of amounts outstanding, including but not limited to, length of collection periods, direct placement with collection agencies, solvency of insured or agent, terminated agents, and other relevant factors.
For reinsurance receivables, the allowance is based upon the Company’s ongoing review of key aspects of amounts outstanding, including but not limited to, length of collection periods, disputes, applicable coverage defenses, insolvent reinsurers, financial strength of solvent reinsurers based on A.M Best Ratings and other relevant factors.
The following table is an analysis of the allowance for credit losses related to the Company's premiums receivable and reinsurance receivables for the quarter and nine months ended September 30, 2020:
|
|
Quarter Ended September 30, 2020 |
|
|
Nine Months Ended September 30, 2020 |
|
||||||||||
(Dollars in thousands) |
|
Premiums Receivable |
|
|
Reinsurance Receivables |
|
|
Premiums Receivable |
|
|
Reinsurance Receivables |
|
||||
Beginning balance |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Current period provision for expected credit losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-offs |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
Ending balance |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
7.Income Taxes
Effective August 28, 2020, the parent Company, Global Indemnity Group, LLC is a publicly traded partnership for U.S. federal income tax purposes and meets the qualifying income exception to maintain partnership status. As a publicly traded partnership, Global Indemnity Group, LLC is generally not subject to federal income tax and most state income taxes. However, income earned by the subsidiaries of Global Indemnity Group, LLC is subject to corporate tax in the United States and certain foreign jurisdictions.
24
GLOBAL INDEMNITY GROUP, LLC
As of September 30, 2020, the statutory income tax rates of the countries where the Company conducts or conducted business are
The Company’s income (loss) before income taxes from its non-U.S. subsidiaries and U.S. subsidiaries for the quarters and nine months ended September 30, 2020 and 2019 were as follows:
Quarter Ended September 30, 2020 (Dollars in thousands) |
|
Non-U.S. Subsidiaries |
|
|
U.S. Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross written premiums |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Net written premiums |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Net earned premiums |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Net investment income |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Net realized investment gains |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Losses and Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses and loss adjustment expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition costs and other underwriting expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Loss on extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
Quarter Ended September 30, 2019 (Dollars in thousands) |
|
Non-U.S. Subsidiaries |
|
|
U.S. Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross written premiums |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Net written premiums |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Net earned premiums |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Net investment income |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Net realized investment gains (losses) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Other income (loss) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Losses and Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses and loss adjustment expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition costs and other underwriting expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Income (loss) before income taxes |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
25
GLOBAL INDEMNITY GROUP, LLC
Nine Months Ended September 30, 2020 (Dollars in thousands) |
|
Non-U.S. Subsidiaries |
|
|
U.S. Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross written premiums |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Net written premiums |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Net earned premiums |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Net investment income |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Net realized investment losses |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Other income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Losses and Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses and loss adjustment expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition costs and other underwriting expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Loss on extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
Nine Months Ended September 30, 2019 (Dollars in thousands) |
|
Non-U.S. Subsidiaries |
|
|
U.S. Subsidiaries |
|
|
Eliminations |
|
|
Total |
|
||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross written premiums |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Net written premiums |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Net earned premiums |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Net investment income |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Net realized investment gains |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (loss) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Losses and Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses and loss adjustment expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition costs and other underwriting expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Income before income taxes |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The following table summarizes the components of income tax expense (benefit):
|
|
Quarters Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Dollars in thousands) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
Current income tax expense (benefit): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
U.S. Federal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current income tax expense (benefit) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Deferred income tax expense (benefit): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Total deferred income tax expense (benefit) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Total income tax expense (benefit) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
The weighted average expected tax provision has been calculated using income (loss) before income taxes in each jurisdiction multiplied by that jurisdiction’s applicable statutory tax rate.
26
GLOBAL INDEMNITY GROUP, LLC
The following table summarizes the differences between the tax provision for financial statement purposes and the expected tax provision at the weighted average tax rate:
|
|
Quarters Ended September 30, |
|
|||||||||||||
|
|
2020 |
|
|
2019 |
|
||||||||||
(Dollars in thousands) |
|
Amount |
|
|
% of Pre- Tax Income |
|
|
Amount |
|
|
% of Pre- Tax Income |
|
||||
Expected tax provision at weighted average tax rate |
|
$ |
( |
) |
|
|
|
% |
|
$ |
( |
) |
|
|
|
% |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax exempt interest |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Dividend exclusion |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
Non-deductible interest |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Change in tax status |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Parent income treated as partnership for tax |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Effective income tax benefit |
|
$ |
( |
) |
|
|
|
% |
|
$ |
( |
) |
|
|
|
% |
The effective income tax benefit rate for the quarter ended September 30, 2020 was
|
|
Nine Months Ended September 30, |
|
|||||||||||||
|
|
2020 |
|
|
2019 |
|
||||||||||
(Dollars in thousands) |
|
Amount |
|
|
% of Pre- Tax Income |
|
|
Amount |
|
|
% of Pre- Tax Income |
|
||||
Expected tax provision at weighted average tax rate |
|
$ |
( |
) |
|
|
|
% |
|
$ |
|
|
|
|
|
% |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax exempt interest |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
Dividend exclusion |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
Non-deductible interest |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
Change in tax status |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Parent income treated as partnership for tax |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Effective income tax expense (benefit) |
|
$ |
( |
) |
|
|
|
% |
|
$ |
|
|
|
|
|
% |
The effective income tax benefit rate for the nine months ended September 30, 2020 was
The Company has a net operating loss (“NOL”) carryforward of $
The Company has a Section 163(j) (“163(j)”) carryforward of $
The Company had an alternative minimum tax (“AMT”) credit carryforward of $
27
GLOBAL INDEMNITY GROUP, LLC
million and $
8.Liability for Unpaid Losses and Loss Adjustment Expenses
Activity in the liability for unpaid losses and loss adjustment expenses is summarized as follows:
|
|
Quarters Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Dollars in thousands) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
Balance at beginning of period |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Less: Ceded reinsurance receivables |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net balance at beginning of period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incurred losses and loss adjustment expenses related to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior years |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total incurred losses and loss adjustment expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid losses and loss adjustment expenses related to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total paid losses and loss adjustment expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net balance at end of period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plus: Ceded reinsurance receivables |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
When analyzing loss reserves and prior year development, the Company considers many factors, including the frequency and severity of claims, loss trends, case reserve settlements that may have resulted in significant development, and any other additional or pertinent factors that may impact reserve estimates.
During the third quarter of 2020, the Company reduced its prior accident year loss reserves by $
The $
|
• |
General Liability: A $ |
|
• |
Property: An increase of $ |
|
• |
Professional: A $ |
The $
|
• |
General Liability: A $ |
28
GLOBAL INDEMNITY GROUP, LLC
|
• |
Property: A $ |
The $
|
• |
Property: A $ |
The $4.9 million decrease in prior accident year loss reserves related to Reinsurance Operations were based on a review of the experience reported from cedants. There was a $
During the third quarter of 2019, the Company reduced its prior accident year loss reserves by $
The $
|
• |
General Liability: A $ |
|
• |
Commercial Auto Liability: A $ |
The $
|
• |
General Liability: A $ |
|
• |
Property: A $ |
The $
|
• |
Property: A $ |
The $
|
• |
Property: A $ |
29
GLOBAL INDEMNITY GROUP, LLC
During the first nine months of 2020, the Company reduced its prior accident year loss reserves by $
The $
|
• |
General Liability: A $ |
|
• |
Professional: A $ |
|
• |
Commercial Auto Liability: A $ |
|
• |
Workers Compensation: A $ |
|
• |
Property: An increase of $ |
The $
|
• |
General Liability: A $ |
|
• |
Property: A $ |
The $
|
• |
Property: A $ |
|
• |
General Liability: A $ |
The $5.1 million decrease in prior accident year loss reserves related to Reinsurance Operations were based on a review of the experience reported from cedants. There was a $
30
GLOBAL INDEMNITY GROUP, LLC
During the first nine months of 2019, the Company reduced its prior accident year loss reserves by $
The $
|
• |
General Liability: A $ |
|
• |
Commercial Auto Liability: A $ |
|
• |
Property: A $ |
|
• |
Professional: A $ |
|
• |
Reinsurance: A $ |
The $
|
• |
Property: A $ |
|
• |
General Liability: A $ |
The $
|
• |
Liability: A $ |
|
• |
Property: A $ |
The $
|
• |
Property: A $ |
31
GLOBAL INDEMNITY GROUP, LLC
|
• |
Professional: A $ |
9. |
Debt |
The Company’s outstanding debt consisted of the following at September 30, 2020 and December 31, 2019:
(Dollars in thousands) |
|
September 30, 2020 |
|
|
December 31, 2019 |
|
||
Margin Borrowing Facility |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
Margin Borrowing Facility
The Company has available a margin borrowing facility. The borrowing rate for this facility is tied to the Fed Funds Effective rate and was approximately
The Company recorded interest expense related to the Margin Borrowing Facility of approximately $
7.75% Subordinated Notes due 2045
The Company redeemed the entire $
Interest expense, including amortization of deferred issuance costs through the date of redemption, recognized on the 2045 Notes was $
7.875% Subordinated Notes due 2047
On March 23, 2017, Global Indemnity Limited issued Subordinated Notes due in
The 2047 Notes bear interest at an annual rate equal to
32
GLOBAL INDEMNITY GROUP, LLC
The 2047 Notes are subordinated unsecured obligations and rank (i) senior to the Company’s existing and future capital stock, (ii) senior in right of payment to future junior subordinated debt, (iii) equally in right of payment with any existing unsecured, subordinated debt that the Company has 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 Company’s future senior debt. In addition, the 2047 Notes are structurally subordinated to all existing and future indebtedness, liabilities and other obligations of the Company’s subsidiaries including the Company’s margin borrowing facility.
The 2047 Notes do not require the maintenance of any financial ratios or specified levels of net worth or liquidity, and do not contain provisions that would afford holders of the 2047 Notes protection in the event of a sudden and dramatic decline in the Company’s credit quality resulting from any highly leveraged transaction, reorganization, restructuring, merger or similar transaction involving the Company that may adversely affect holders. The 2047 Notes do not restrict the Company in any way, now or in the future, from incurring additional indebtedness, including senior indebtedness that would rank senior in right of payment to the 2047 Notes. There is no right of acceleration of maturity of the 2047 Notes in the case of default in the payment of principal, premium, if any, or interest on the 2047 Notes or in the performance of any other obligation of the Company under the notes or if the Company defaults on any other debt securities. Holders may accelerate payment of indebtedness on the 2047 Notes only upon the Company’s bankruptcy, insolvency or reorganization.
The Company incurred $
The following table represents the amounts recorded for the subordinated notes as of September 30, 2020 and December 31, 2019:
|
|
September 30, 2020 |
|
|||||||||
(Dollars in thousands) |
|
Outstanding Principal |
|
|
Unamortized Debt Issuance Costs |
|
|
Net Carrying Amount |
|
|||
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
December 31, 2019 |
|
|||||||||
(Dollars in thousands) |
|
Outstanding Principal |
|
|
Unamortized Debt Issuance Costs |
|
|
Net Carrying Amount |
|
|||
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Supplemental Indentures
On August 28, 2020, in connection with the merger of Global Indemnity Limited with and into New Cayco, each of Global Indemnity Limited, as successor to Global Indemnity plc, an Irish public limited company, GBLI Holdings, LLC, a Delaware limited liability company, as co-obligor (the "Co-Obligor"), New CayCo, Wells Fargo Bank, National Association, as trustee (the "Original Trustee"), and U.S. Bank National Association, as series trustee of the
33
GLOBAL INDEMNITY GROUP, LLC
Pursuant to the Fourth Supplemental Indenture, New CayCo expressly assumed the obligations of Global Indemnity Limited under the Indenture, including the obligations of Global Indemnity Limited under the outstanding 2047 Notes issued pursuant to such Indenture.
On August 28, 2020, in connection with the merger of New Cayco with and into Global Indemnity Group, LLC, each of New CayCo, the Co-Obligor, Global Indemnity Group, LLC and the Trustees entered into a Fifth Supplemental Indenture, dated as of August 28, 2020 (the "Fifth Supplemental Indenture"), to the Indenture.
Pursuant to the Fifth Supplemental Indenture, Global Indemnity Group, LLC expressly assumed the obligations of New CayCo under the Indenture, including the obligations of New CayCo under the outstanding 2047 Notes issued pursuant to such Indenture.
Co-obligor Transaction
On April 25, 2018, GBLI Holdings, LLC, an indirect wholly owned subsidiary of the Company, became a subordinated co-obligor with respect to the
10.Shareholders’ Equity
On August 28, 2020, Global Indemnity Limited completed the previously disclosed scheme of arrangement and amalgamation that effected certain transactions (the "Redomestication") that resulted in the shareholders of Global Indemnity Limited becoming the holders of all of the issued and outstanding common shares of the Company. Please see Note 2 for details on the redomestication.
The treasury shares of Global Indemnity Limited were not subject to the scheme of arrangement. The carrying value of the Global Indemnity Limited treasury shares, $
Issuance of Preferred Shares
On August 27, 2020, the Company issued and sold to Wyncote LLC (“Wyncote”), an affiliate of Fox Paine & Company, LLC,
34
GLOBAL INDEMNITY GROUP, LLC
Following the Effective Time, all of the issued and outstanding Series A Preferred Interests sold to Wyncote remain outstanding as "Series A Cumulative Fixed Rate Preferred Shares", unaffected by the Scheme of Arrangement and subject to the terms of the Second Amended and Restated Limited Liability Company Agreement of the Company (the “LLC Agreement”) and that certain Share Designation, effective as of the Effective Time, that sets forth the designation, rights, preferences, powers, duties, restrictions, limitations and obligations of the Series A Cumulative Fixed Rate Preferred Shares from and after the Effective Time.
The following table provides information with respect to the class A common shares that were surrendered or repurchased during the quarter ended September 30, 2020:
Period (1) |
|
Total Number of Shares Purchased |
|
|
Average Price Paid Per Share |
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plan or Program |
|
|
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
|
||||
August 1-31, 2020 |
|
|
|
|
(2) |
$ |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
(1) |
|
(2)
There were
The following table provides information with respect to the class A common shares that were surrendered or repurchased during the nine months ended September 30, 2020:
Period (1) |
|
Total Number of Shares Purchased |
|
|
Average Price Paid Per Share |
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plan or Program |
|
|
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
|
||||
January 1-31, 2020 |
|
|
|
|
(2) |
$ |
|
|
|
|
|
|
|
|
|
|
February 1-29, 2020 |
|
|
|
|
(2) |
$ |
|
|
|
|
|
|
|
|
|
|
August 1-31, 2020 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
(1) |
Based on settlement date. |
(2) Surrendered by employees as payment of taxes withheld on the vesting of restricted stock.
The following table provides information with respect to the class A common shares that were surrendered or repurchased during the nine months ended September 30, 2019:
Period (1) |
|
Total Number of Shares Purchased |
|
|
Average Price Paid Per Share |
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plan or Program |
|
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
||
January 1-31, 2019 |
|
|
|
|
(2) |
$ |
|
|
|
|
|
|
February 1-28, 2019 |
|
|
|
|
(2) |
$ |
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
|
|
|
|
|
|
(1) |
Based on settlement date. |
(2) |
Surrendered by employees as payment of taxes withheld on the vesting of restricted stock. |
There were
35
GLOBAL INDEMNITY GROUP, LLC
As of September 30, 2020, the Company’s class A common shares were held by approximately
Please see Note 12 of the notes to the consolidated financial statements in Item 8 Part II of the Company’s 2019 Annual Report on Form 10-K for more information on the Company’s repurchase program.
Dividends / Distributions
Dividend & distribution payments of $
Approval Date |
|
Record Date |
|
Payment Date |
|
Total Dividends / Distributions Declared (Dollars in thousands) |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
|
|
|
(1) |
Represents dividend payments |
|
(2) |
Represents distribution / return of capital payments |
|
(3) |
Represents dividends / distributions declared on unvested shares, net of forfeitures. |
Dividend payments of $
Approval Date |
|
Record Date |
|
Payment Date |
|
Total Dividends Declared (Dollars in thousands) |
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
|
|
|
(1) |
|
As of September 30, 2020 and December 31, 2019, accrued distributions on unvested shares, which were included in other liabilities on the consolidated balance sheets, were $
Please see Note 12 of the notes to the consolidated financial statements in Item 8 Part II of the Company’s 2019 Annual Report on Form 10-K for more information on the Company’s dividend program.
36
GLOBAL INDEMNITY GROUP, LLC
11. |
Related Party Transactions |
Fox Paine Entities
As of September 30, 2020, Fox Paine Capital Fund II International, L.P. and certain of its affiliates (collectively, the “Fox Paine Funds”), which are managed by Fox Paine & Company, LLC, beneficially own approximately
On August 27, 2020, the Company issued and sold to Wyncote LLC, an affiliate of Fox Paine & Company, LLC,
The Company relies on Fox Paine & Company, LLC to provide management services and other services related to the operations of the Company. Starting in 2014, the management fee is adjusted annually to reflect the percentage change in the CPI-U. On May 6, 2020, Global Indemnity Limited and Fox Paine & Company, LLC entered into the Second Amended and Restated Management Agreement, effective as of September 5, 2019 (the “Management Agreement”), to: (i) eliminate the Company’s obligation to reimburse Fox Paine & Company, LLC for its travel, lodging, meals, and other items relating to attendance at regularly scheduled meetings of the Board of Directors, which have averaged approximately $
Management fee expense of $
In addition, Fox Paine & Company, LLC may also propose and negotiate transaction fees with the Company subject to the provisions of the Company’s related party transaction policies, including approval of the Company’s Conflicts Committee of the Board of Directors or Global Indemnity Limited’s Audit Committee of the Board of Directors, for those services from time to time. Each of the Company’s transactions with Fox Paine & Company, LLC described below was reviewed and approved by the Company’s Conflicts Committee or Audit Committee, which is composed of independent directors, and the Board of Directors (other than Saul A. Fox, Chairman of the Board of Directors of the Company and Chief Executive of Fox Paine & Company, LLC, who is not a member of the Conflicts Committee and was not a member of Global Indemnity Limited’s Audit Committee and recused himself from the Board of Directors’ deliberations).
37
GLOBAL INDEMNITY GROUP, LLC
Illiquid Investment Fund Divestiture Fee
On December 21, 2018, GBLI Holdings, LLC exited an investment in a private credit fund pursuant to a sale of GBLI Holdings, LLC’s investment to third parties at par plus accrued interest. Fox Paine & Company, LLC provided services to GBLI Holdings, LLC in connection with the sale, including conducting due diligence to evaluate the private fund, recommending that GBLI Holdings, LLC withdraw from the private fund, and conducting extended negotiations with the private fund to secure GBLI Holdings, LLC’s withdrawal from the private fund on favorable terms. Fox Paine & Company, LLC’s services for GBLI Holdings, LLC in connection with the sale were performed during the second, third, and fourth quarters of 2018. The total fee for these services was $
Redomestication Fee
Pursuant to the Management Agreement, Fox Paine & Company, LLC performed extensive financial advisory services for the Company in connection with the conceptualization, design, structuring and implementation of the redomestication plan. In accordance with the Management Agreement, Fox Paine & Company, LLC may propose and negotiate advisory fees for such services with the Company, subject to the provisions of the Company’s related party transaction policies. The Company agreed to pay an advisory fee to Fox Paine & Company, LLC for such services in an amount of $
12.Commitments and Contingencies
Legal Proceedings
The Company is, from time to time, involved in various legal proceedings in the ordinary course of business. The Company maintains insurance and reinsurance coverage for such risks in amounts that it considers adequate. However, there can be no assurance that the insurance and reinsurance coverage that the Company maintains is sufficient or will be available in adequate amounts or at a reasonable cost. The Company does not believe that the resolution of any currently pending legal proceedings, either individually or taken as a whole, will have a material adverse effect on its business, results of operations, cash flows, or financial condition.
There is a greater potential for disputes with reinsurers who are in runoff. Some of the Company’s reinsurers’ have operations that are in runoff, and therefore, the Company closely monitors those relationships. The Company anticipates that, similar to the rest of the insurance and reinsurance industry, it will continue to be subject to litigation and arbitration proceedings in the ordinary course of business.
Commitments
In 2014, the Company entered into a $
In 2017, the Company entered into a $
In 2019, the Company entered into a $
Other Commitments
The Company is party to a Management Agreement, as amended, with Fox Paine & Company, LLC, whereby in connection with certain management services provided to it by Fox Paine & Company, LLC, the Company agreed to pay an annual
38
GLOBAL INDEMNITY GROUP, LLC
management fee to Fox Paine & Company, LLC. See Note 11 above for additional information pertaining to this management agreement.
COVID-19
There is risk that legislation could be passed 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.
13. |
Share-Based Compensation Plans |
In connection with the Redomestication, the 2018 Share Incentive Plan was amended and restated to reflect Global Indemnity Group, LLC’s assumption of the sponsorship of the plan and other changes deemed necessary and appropriate to reflect the completion of the Redomestication.
Options
Restricted Shares / Restricted Stock Units
There were
During the nine months ended September 30, 2019, the Company granted
|
• |
|
|
• |
Subject to Board approval, |
There were
During the nine months ended September 30, 2020, the Company granted
|
• |
|
The remaining
|
• |
|
|
• |
Subject to Board approval, |
39
GLOBAL INDEMNITY GROUP, LLC
During the nine months ended September 30, 2019, the Company granted
|
• |
|
During the quarters ended September 30, 2020 and 2019, the Company granted
14.Earnings Per Share
Earnings per share have been computed using the weighted average number of common shares and common share equivalents outstanding during the period.
The following table sets forth the computation of basic and diluted earnings per share:
|
|
Quarters Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Dollars in thousands, except share and per share data) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Less: preferred stock distributions |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
Net income (loss) available to common shareholders |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares for basic earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested restricted stock |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Non-vested restricted stock units |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Options |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Weighted average shares for diluted earnings per share (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share - Basic |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Earnings per share - Diluted |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
(1) |
For the quarter and nine months ended September 30, 2020, weighted average shares outstanding – basic was used to calculate diluted earnings per share due to a net loss for these periods. |
If the Company had not incurred a loss in the quarter ended September 30, 2020,
If the Company had not incurred a loss in the nine months ended September 30, 2020,
The weighted average shares outstanding used to determine dilutive earnings per share does not include
40
GLOBAL INDEMNITY GROUP, LLC
15. |
Segment Information |
The Company manages its business through
The following are tabulations of business segment information for the quarters and nine months ended September 30, 2020 and 2019:
Quarter Ended September 30, 2020 (Dollars in thousands) |
|
Commercial Specialty |
|
(1) |
Specialty Property |
|
(1) |
Farm, Ranch, & Stable |
|
(1) |
Reinsurance Operations |
|
(2) |
Total |
|
|||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross written premiums |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Net written premiums |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Net earned premiums |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Other income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses and loss adjustment expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition costs and other underwriting expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from segments |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
Unallocated Items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized investment gains |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
Corporate and other operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
Loss on extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
Loss before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
Income tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Corporate assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
(1) |
|
(2) |
|
41
GLOBAL INDEMNITY GROUP, LLC
Quarter Ended September 30, 2019 (Dollars in thousands) |
|
Commercial Specialty |
|
(1) |
Specialty Property |
|
(1) |
Farm, Ranch, & Stable |
|
(1) |
Reinsurance Operations |
|
(2) |
Total |
|
|||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross written premiums |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Net written premiums |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Net earned premiums |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Other income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Total revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses and loss adjustment expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition costs and other underwriting expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from segments |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
Unallocated Items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized investment loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
Corporate and other operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Corporate assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
(1) |
Includes business ceded to the Company’s Reinsurance Operations. This quota share agreement was cancelled effective January 1, 2018. |
(2) |
External business only, excluding business assumed from affiliates. |
42
GLOBAL INDEMNITY GROUP, LLC
Nine Months Ended September 30, 2020 (Dollars in thousands) |
|
Commercial Specialty |
|
(1) |
Specialty Property |
|
(1) |
Farm, Ranch, & Stable |
|
(1) |
Reinsurance Operations |
|
(2) |
Total |
|
|||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross written premiums |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Net written premiums |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Net earned premiums |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Other income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses and loss adjustment expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition costs and other underwriting expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from segments |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
Unallocated Items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized investment loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
Other loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
Corporate and other operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
Loss on extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
Loss before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
Income tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Corporate assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
(1) |
Includes business ceded to the Company’s Reinsurance Operations. This quota share agreement was cancelled effective January 1, 2018. |
(2) |
External business only, excluding business assumed from affiliates. |
43
GLOBAL INDEMNITY GROUP, LLC
Nine Months Ended September 30, 2019 (Dollars in thousands) |
|
Commercial Specialty |
|
(1) |
Specialty Property |
|
(1) |
Farm, Ranch, & Stable |
|
(1) |
Reinsurance Operations |
|
(2) |
Total |
|
|||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross written premiums |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Net written premiums |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Net earned premiums |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Other income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Total revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses and loss adjustment expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition costs and other underwriting expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from segments |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
Unallocated Items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized investment gain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Corporate assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
(1) |
Includes business ceded to the Company’s Reinsurance Operations. This quota share agreement was cancelled effective January 1, 2018. |
(2) |
External business only, excluding business assumed from affiliates. |
16.Condensed Consolidating Financial Information Provided in Connection with Outstanding Debt of Subsidiaries
The following tables present condensed consolidating balance sheets at September 30, 2020 and December 31, 2019, condensed consolidating statements of operations and condensed consolidating statements of comprehensive income for the quarters and nine months ended September 30, 2020 and 2019 and condensed consolidating statements of cash flows for the nine months ended September 30, 2020 and 2019. GBLI Holdings, LLC is a
44
GLOBAL INDEMNITY GROUP, LLC
Condensed Consolidating Balance Sheets at September 30, 2020 (Dollars in thousands) |
|
Global Indemnity Group, LLC (Parent co- obligor) |
|
|
GBLI Holdings, LLC (Subsidiary co-obligor) |
|
|
Other Global Indemnity Group, LLC Subsidiaries and Eliminations (non-co-obligor subsidiaries) (1) |
|
|
Consolidating Adjustments (2) |
|
|
Global Indemnity Group, LLC Consolidated |
|
|||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Due from subsidiaries and affiliates |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable – affiliate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Interest receivable – affiliate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Premiums receivable, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance receivables, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds held by ceding insurers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal income taxes receivable |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
Deferred federal income taxes |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
Deferred acquisition costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid reinsurance premiums |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Total assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid losses and loss adjustment expenses |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Unearned premiums |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceded balances payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payable for Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent commissions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Notes payable – affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Accrued interest payable – affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Other liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
(1) |
|
(2) |
|
45
GLOBAL INDEMNITY GROUP, LLC
Condensed Consolidating Balance Sheets at December 31, 2019 (Dollars in thousands) |
|
Global Indemnity Limited (Parent co-obligor) |
|
|
GBLI Holdings, LLC (Subsidiary co-obligor) |
|
|
Other Global Indemnity Limited Subsidiaries and Eliminations (non-co-obligor subsidiaries) (1) |
|
|
Consolidating Adjustments (2) |
|
|
Global Indemnity Limited Consolidated |
|
|||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Due from subsidiaries and affiliates |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable – affiliate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Interest receivable – affiliate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Premiums receivable, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance receivables, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds held by ceding insurers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal income taxes receivable |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
Deferred federal income taxes |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
Deferred acquisition costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid reinsurance premiums |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Total assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid losses and loss adjustment expenses |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Unearned premiums |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceded balances payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payable for securities purchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent commissions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Notes payable – affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Accrued interest payable – affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Other liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
(1) |
|
(2) |
Includes Parent co-obligor and subsidiary co-obligor consolidating adjustments |
46
GLOBAL INDEMNITY GROUP, LLC
Condensed Consolidating Statements of Operations for the Quarter Ended September 30, 2020 (Dollars in thousands) |
|
Global Indemnity Group, LLC (Parent co-obligor)(3) |
|
|
GBLI Holdings, LLC (Subsidiary co-obligor) |
|
|
Other Global Indemnity Group, LLC Subsidiaries and Eliminations (non-co-obligor subsidiaries) (1) |
|
|
Consolidating Adjustments (2) |
|
|
Global Indemnity Group, LLC Consolidated |
|
|||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earned premiums |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Net investment income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Net realized investment gains |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (loss) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Losses and Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses and loss adjustment expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition costs and other underwriting expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Loss on extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in net income (loss) of subsidiaries and income taxes |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Equity in net income (loss) of subsidiaries |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Income tax benefit |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
(1) |
Includes all other subsidiaries of Global Indemnity Group, LLC and eliminations |
(2) |
Includes Parent co-obligor and subsidiary co-obligor consolidating adjustments |
(3)
47
GLOBAL INDEMNITY GROUP, LLC
Condensed Consolidating Statements of Operations for the Quarter Ended September 30, 2019 (Dollars in thousands) |
|
Global Indemnity Limited (Parent co-obligor) |
|
|
GBLI Holdings, LLC (Subsidiary co-obligor) |
|
|
Other Global Indemnity Limited Subsidiaries and Eliminations (non-co-obligor subsidiaries) (1) |
|
|
Consolidating Adjustments (2) |
|
|
Global Indemnity Limited Consolidated |
|
|||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earned premiums |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Net investment income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Net realized investment gains (losses) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
Other income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
Losses and Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses and loss adjustment expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition costs and other underwriting expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Income (loss) before equity in net income (loss) of subsidiaries and income taxes |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
— |
|
|
|
|
|
Equity in net income (loss) of subsidiaries |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Income (loss) before income taxes |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
Income tax expense (benefit) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
Net income (loss) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
(1) |
Includes all other subsidiaries of Global Indemnity Limited and eliminations |
(2) |
Includes Parent co-obligor and subsidiary co-obligor consolidating adjustments |
48
GLOBAL INDEMNITY GROUP, LLC
Condensed Consolidating Statements of Operations for the Nine Months Ended September 30, 2020 (Dollars in thousands) |
|
Global Indemnity Group, LLC (Parent co-obligor)(3) |
|
|
GBLI Holdings, LLC (Subsidiary co-obligor) |
|
|
Other Global Indemnity Group, LLC Subsidiaries and Eliminations (non-co-obligor subsidiaries) (1) |
|
|
Consolidating Adjustments (2) |
|
|
Global Indemnity Group, LLC Consolidated |
|
|||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earned premiums |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Net investment income (loss) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
Net realized investment gains (losses) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
Other income (loss) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
Losses and Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses and loss adjustment expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition costs and other underwriting expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Loss on extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity in net income (loss) of subsidiaries and income taxes |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
Equity in net income (loss) of subsidiaries |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Income (loss) before income taxes |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
Income tax expense (benefit) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
Net income (loss) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
(1) |
Includes all other subsidiaries of Global Indemnity Group, LLC and eliminations |
(2) |
Includes Parent co-obligor and subsidiary co-obligor consolidating adjustments |
(3)
49
GLOBAL INDEMNITY GROUP, LLC
Condensed Consolidating Statements of Operations for the Nine Months Ended September 30, 2019 (Dollars in thousands) |
|
Global Indemnity Limited (Parent co-obligor) |
|
|
GBLI Holdings, LLC (Subsidiary co-obligor) |
|
|
Other Global Indemnity Limited Subsidiaries and Eliminations (non-co-obligor subsidiaries) (1) |
|
|
Consolidating Adjustments (2) |
|
|
Global Indemnity Limited Consolidated |
|
|||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earned premiums |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Net investment income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Net realized investment gains |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Losses and Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses and loss adjustment expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition costs and other underwriting expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Income (loss) before equity in net income of subsidiaries and income taxes |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Equity in net income of subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Income tax expense (benefit) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
(1) |
Includes all other subsidiaries of Global Indemnity Limited and eliminations |
(2) |
Includes Parent co-obligor and subsidiary co-obligor consolidating adjustments |
Condensed Consolidating Statements of Comprehensive Income (Loss) for the Quarter Ended September 30, 2020 (Dollars in thousands) |
|
Global Indemnity Group, LLC (Parent co-obligor)(3) |
|
|
GBLI Holdings, LLC (Subsidiary co-obligor) |
|
|
Other Global Indemnity Group, LLC Subsidiaries and Eliminations (non-co-obligor subsidiaries) (1) |
|
|
Consolidating Adjustments (2) |
|
|
Global Indemnity Group, LLC Consolidated |
|
|||||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
Equity in other comprehensive income of unconsolidated subsidiaries |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Reclassification adjustment for gains included in net income |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Unrealized foreign currency translation gains |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, net of tax |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss, net of tax |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
(1) |
Includes all other subsidiaries of Global Indemnity Group, LLC and eliminations |
(2) |
Includes Parent co-obligor and subsidiary co-obligor consolidating adjustments |
(3) Includes activity for Global Indemnity Limited from July 1, 2020 to August 27, 2020 and activity for Global Indemnity Group, LLC from August 28, 2020 to September 30, 2020
50
GLOBAL INDEMNITY GROUP, LLC
Condensed Consolidating Statements of Comprehensive Income (Loss) for the Quarter Ended September 30, 2019 (Dollars in thousands) |
|
Global Indemnity Limited (Parent co-obligor) |
|
|
GBLI Holdings, LLC (Subsidiary co-obligor) |
|
|
Other Global Indemnity Limited Subsidiaries and Eliminations (non-co-obligor subsidiaries) (1) |
|
|
Consolidating Adjustments (2) |
|
|
Global Indemnity Limited Consolidated |
|
|||||
Net income (loss) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in other comprehensive income of unconsolidated subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Portion of other-than-temporary impairment losses recognized in other comprehensive income |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Reclassification adjustment for gains included in net income |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Unrealized foreign currency translation losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income, net of tax |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
(1) |
Includes all other subsidiaries of Global Indemnity Limited and eliminations |
(2) |
Includes Parent co-obligor and subsidiary co-obligor consolidating adjustments |
Condensed Consolidating Statements of Comprehensive Income (Loss) for the Nine Months Ended September 30, 2020 (Dollars in thousands) |
|
Global Indemnity Group, LLC (Parent co-obligor)(3) |
|
|
GBLI Holdings, LLC (Subsidiary co-obligor) |
|
|
Other Global Indemnity Group, LLC Subsidiaries and Eliminations (non-co-obligor subsidiaries) (1) |
|
|
Consolidating Adjustments (2) |
|
|
Global Indemnity Group, LLC Consolidated |
|
|||||
Net income (loss) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Equity in other comprehensive income (loss) of unconsolidated subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Reclassification adjustment for (gains) losses included in net income |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Unrealized foreign currency translation gains |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss), net of tax |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
(1) |
Includes all other subsidiaries of Global Indemnity Group, LLC and eliminations |
(2) |
Includes Parent co-obligor and subsidiary co-obligor consolidating adjustments |
(3) Includes activity for Global Indemnity Limited from January 1, 2020 to August 27, 2020 and activity for Global Indemnity Group, LLC from August 28, 2020 to September 30, 2020
51
GLOBAL INDEMNITY GROUP, LLC
Condensed Consolidating Statements of Comprehensive Income (Loss) for the Nine Months Ended September 30, 2019 (Dollars in thousands) |
|
Global Indemnity Limited (Parent co-obligor) |
|
|
GBLI Holdings, LLC (Subsidiary co-obligor) |
|
|
Other Global Indemnity Limited Subsidiaries and Eliminations (non-co-obligor subsidiaries) (1) |
|
|
Consolidating Adjustments (2) |
|
|
Global Indemnity Limited Consolidated |
|
|||||
Net income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in other comprehensive income (loss) of unconsolidated subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Portion of other-than-temporary impairment losses recognized in other comprehensive losses |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Reclassification adjustment for (gains) losses included in net income |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Unrealized foreign currency translation gains |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income, net of tax |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
(1) |
Includes all other subsidiaries of Global Indemnity Limited and eliminations |
(2) |
Includes Parent co-obligor and subsidiary co-obligor consolidating adjustments |
52
GLOBAL INDEMNITY GROUP, LLC
Condensed Consolidating Statements of Cash Flows for the Nine Months Ended September 30, 2020 (Dollars in thousands) |
|
Global Indemnity Group, LLC (Parent co-obligor)(2) |
|
|
GBLI Holdings, LLC (Subsidiary co-obligor) |
|
|
Other Global Indemnity Group, LLC Subsidiaries and Eliminations (non-co-obligor subsidiaries) (1) |
|
|
Global Indemnity Group, LLC Consolidated |
|
||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) operating activities |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of fixed maturities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of equity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from maturity of fixed maturities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from other invested assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts paid in connection with derivatives |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Purchases of fixed maturities |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Purchases of equity securities |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Purchases of other invested assets |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Net cash provided by (used for) investing activities |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings under margin borrowing facility |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Proceeds (repayment) of note to affiliates |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Dividends paid to shareholders |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
Issuance of series A cumulative fixed rate preferred shares |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
Dividends from subsidiaries |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
Capital contribution |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of class A common shares |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
Redemption of subordinated notes |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Net cash provided by (used for) financing activities |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
(1) |
Includes all other subsidiaries of Global Indemnity Group, LLC and eliminations |
|
(2) |
Includes activity for Global Indemnity Limited from January 1, 2020 to August 27, 2020 and activity for Global Indemnity Group, LLC from August 28, 2020 to September 30, 2020 |
53
GLOBAL INDEMNITY GROUP, LLC
Condensed Consolidating Statements of Cash Flows for the Nine Months Ended September 30, 2019 (Dollars in thousands) |
|
Global Indemnity Limited (Parent co-obligor) |
|
|
GBLI Holdings, LLC (Subsidiary co-obligor) |
|
|
Other Global Indemnity Limited Subsidiaries and Eliminations (non-co-obligor subsidiaries) (1) |
|
|
Global Indemnity Limited Consolidated |
|
||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of fixed maturities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of equity securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from maturity of fixed maturities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from other invested assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts paid in connection with derivatives |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Purchases of fixed maturities |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Purchases of equity securities |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Purchases of other invested assets |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
Net cash provided by (used for) investing activities |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings under margin borrowing facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid to shareholders |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
Purchase of class A common shares |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
Net cash provided by (used for) financing activities |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
(1) |
Includes all other subsidiaries of Global Indemnity Limited and eliminations |
17. |
New Accounting Pronouncements |
Accounting Standards Adopted in 2020
In March, 2020, the FASB issued new accounting guidance that affected a variety of topics in the Codification. The amendments in this update are meant to make the Codification easier to understand and easier to apply by eliminating inconsistencies and providing clarification. This guidance is effective for all fiscal years beginning after December 15, 2019 including interim periods within those fiscal years. The Company adopted this guidance on January 1, 2020. The adoption of this new accounting guidance did not have a material impact on the Company’s financial condition, results of operations, or cash flows.
In August, 2018, the FASB issued new accounting guidance which removed, modified, and added certain disclosures related to Topic 820, Fair Value. The affected disclosures are related to transfers between fair value levels, level 3 assets, and investments in certain entities that calculate net asset value. This guidance is effective for all fiscal years beginning after December 15, 2019 including interim periods within those fiscal years. The Company adopted this guidance on
54
GLOBAL INDEMNITY GROUP, LLC
In January, 2017, the FASB issued updated guidance that simplifies how an entity is required to test goodwill for impairment by eliminating the requirement to calculate the implied fair value of goodwill (i.e. Step 2 of the current goodwill impairment test). Under the new amendments, an entity may still first assess qualitative factors to determine whether it is necessary to perform a quantitative goodwill impairment test. If determined to be necessary, the quantitative impairment test shall be used to identify goodwill impairment and measure the amount of a goodwill impairment loss to be recognized, if any. A goodwill impairment loss is recognized for the amount that the carrying amount of a reporting unit, including goodwill, exceeds its fair value, limited to the total amount of goodwill allocated to that reporting unit. This guidance is effective for public business entities’ annual or interim goodwill impairment testing in fiscal years beginning after December 15, 2019. The Company adopted this guidance on January 1, 2020. The adoption of this new accounting guidance did not have a material impact on the Company’s financial condition, results of operations, or cash flows.
In June, 2016, the FASB issued new accounting guidance addressing the measurement of credit losses on financial instruments. The new guidance requires financial assets measured at amortized cost, which includes but are not limited to premiums receivable and reinsurance receivables, to be presented at the net amount expected to be collected over the life of the asset using an allowance for credit losses. Changes in the allowance are charged to earnings. The measurement of expected credit losses should consider relevant information about past events, including historical experience, current information, as well as reasonable and supportable forecasts that affect the collectability of the financial assets. For available for sale debt securities, credit losses should be measured similar to the old guidance; however, the new guidance requires that credit losses be presented as an allowance rather than as a write-down of the amortized cost basis of the impaired securities and allows for the reversal of credit losses in the current period net income. In addition, the Company made certain accounting policy elections related to accrued interest receivables which are described in Note 3. The Company adopted this new accounting guidance on January 1, 2020 using a modified-retrospective approach. The adoption of this new accounting guidance and the impact on the Company’s financial condition, results of operations, and cash flows is described primarily within Note 3 and Note 6.
Please see Note 22 of the notes to the consolidated financial statements in Item 8 Part II of the Company’s 2019 Annual Report on Form 10-K for more information on accounting pronouncements issued but not yet adopted.
55
GLOBAL INDEMNITY GROUP, LLC
Item 2. 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 Global Indemnity 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 ended December 31, 2019.
Recent Developments
COVID-19
The global outbreak of COVID-19 presents significant risks to the Company which the Company is not able to fully evaluate at the current time. The COVID-19 pandemic may affect the Company’s operations in the fourth quarter and may continue to do so indefinitely, thereafter. The Company may experience reductions in premium volume, delays in the collection of premiums, and increases in COVID-19 related claims. The 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.
Redomestication
On August 28, 2020, the Company completed its plan to redomesticate to the United States. Please see Note 2 of the notes to the consolidated financial statements in Item 1 of Part I of this report for additional information on the redomestication.
Redemption of Debt
In August 2020, the Company redeemed the entire $100 million in aggregate principal amount of the outstanding 2045 Notes plus accrued and unpaid interest on the 2045 Notes redeemed to, but not including, the Redemption Date of August 15, 2020.
Dividends / Distributions
During 2020, the Board of Directors approved a dividend payment of $0.25 per common share to all shareholders of record on the close of business on March 24, 2020 and June 23, 2020 and approved a distribution payment of $0.25 per common share to all shareholders of record on the close of business on September 25, 2020. Dividends / distributions paid were $10.7 million during the nine months ended September 30, 2020.
A.M. Best Rating
A.M. Best has seven Rating Categories in the A.M. 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. On September 23, 2020, A.M. Best assigned the companies in the Insurance Operations and Reinsurance Operations a financial strength rating of "A" (Excellent).
Overview
The Company’s Commercial Specialty segment sells its property and casualty insurance products through a group of approximately 185 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
56
GLOBAL INDEMNITY GROUP, LLC
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 225 agents, primarily comprised of wholesale general agents, with specific binding authority.
The Company’s Farm, Ranch, & Stable segment, primarily via American Reliable, provides specialized property and casualty coverage including Commercial 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 220 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 of Global Indemnity Reinsurance. In connection with the redomestication, Global Indemnity Reinsurance merged into Penn 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 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 ended December 31, 2019. There have been no significant changes to any of these policies or underlying methodologies during the current year except for the following.
57
GLOBAL INDEMNITY GROUP, LLC
Effective January 1, 2020, the Company adopted new accounting guidance related to the measurement of credit losses on financial instruments. In conjunction with implementing this new guidance, the Company modified its impairment process as well as made certain accounting policy elections related to accrued interest receivables. Please see Note 3 of the notes to the consolidated financial statements in Item 1 of Part I of this report for a discussion on the Company’s impairment process and accounting policy elections related to accrued interest receivable. Please see Note 6 for a discussion on the Company’s policies related to the evaluation process when estimating expected credit losses for premiums receivable and reinsurance receivables.
Results of Operations
The following table summarizes the Company’s results for the quarters and nine months ended September 30, 2020 and 2019:
|
|
Quarters Ended September 30, |
|
|
% |
|
|
Nine Months Ended September 30, |
|
|
% |
|
||||||||||||
(Dollars in thousands) |
|
2020 |
|
|
2019 |
|
|
Change |
|
|
2020 |
|
|
2019 |
|
|
Change |
|
||||||
Gross written premiums |
|
$ |
143,749 |
|
|
$ |
157,177 |
|
|
|
(8.5 |
%) |
|
$ |
464,022 |
|
|
$ |
478,699 |
|
|
|
(3.1 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net written premiums |
|
$ |
130,611 |
|
|
$ |
138,836 |
|
|
|
(5.9 |
%) |
|
$ |
416,987 |
|
|
$ |
421,321 |
|
|
|
(1.0 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earned premiums |
|
$ |
140,302 |
|
|
$ |
133,312 |
|
|
|
5.2 |
% |
|
$ |
426,617 |
|
|
$ |
383,602 |
|
|
|
11.2 |
% |
Other income |
|
|
597 |
|
|
|
264 |
|
|
|
126.1 |
% |
|
|
1,509 |
|
|
|
1,274 |
|
|
|
18.4 |
% |
Total revenues |
|
|
140,899 |
|
|
|
133,576 |
|
|
|
5.5 |
% |
|
|
428,126 |
|
|
|
384,876 |
|
|
|
11.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses and loss adjustment expenses |
|
|
97,148 |
|
|
|
73,583 |
|
|
|
32.0 |
% |
|
|
242,092 |
|
|
|
201,979 |
|
|
|
19.9 |
% |
Acquisition costs and other underwriting expenses |
|
|
53,268 |
|
|
|
53,366 |
|
|
|
(0.2 |
%) |
|
|
163,258 |
|
|
|
153,643 |
|
|
|
6.3 |
% |
Underwriting income (loss) |
|
|
(9,517 |
) |
|
|
6,627 |
|
|
NM |
|
|
|
22,776 |
|
|
|
29,254 |
|
|
|
(22.1 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
11,746 |
|
|
|
11,348 |
|
|
|
3.5 |
% |
|
|
19,516 |
|
|
|
32,393 |
|
|
|
(39.8 |
%) |
Net realized investment gains (losses) |
|
|
7,323 |
|
|
|
(2,690 |
) |
|
NM |
|
|
|
(22,332 |
) |
|
|
11,290 |
|
|
NM |
|
||
Other loss |
|
|
(55 |
) |
|
|
— |
|
|
|
100.0 |
% |
|
|
(36 |
) |
|
|
— |
|
|
|
100.0 |
% |
Corporate and other operating expenses |
|
|
(21,196 |
) |
|
|
(3,858 |
) |
|
NM |
|
|
|
(34,037 |
) |
|
|
(11,702 |
) |
|
|
190.9 |
% |
|
Interest expense |
|
|
(3,620 |
) |
|
|
(5,023 |
) |
|
|
(27.9 |
%) |
|
|
(13,197 |
) |
|
|
(15,088 |
) |
|
|
(12.5 |
%) |
Loss on extinguishment of debt |
|
|
(3,060 |
) |
|
|
— |
|
|
NM |
|
|
|
(3,060 |
) |
|
|
— |
|
|
NM |
|
||
Income (loss) before income taxes |
|
|
(18,379 |
) |
|
|
6,404 |
|
|
NM |
|
|
|
(30,370 |
) |
|
|
46,147 |
|
|
|
(165.8 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) |
|
|
(3,209 |
) |
|
|
(317 |
) |
|
NM |
|
|
|
(8,173 |
) |
|
|
5,163 |
|
|
NM |
|
||
Net income (loss) |
|
$ |
(15,170 |
) |
|
$ |
6,721 |
|
|
NM |
|
|
$ |
(22,197 |
) |
|
$ |
40,984 |
|
|
|
(154.2 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio (1): |
|
|
69.2 |
% |
|
|
55.2 |
% |
|
|
|
|
|
|
56.7 |
% |
|
|
52.7 |
% |
|
|
|
|
Expense ratio (2) |
|
|
38.0 |
% |
|
|
40.0 |
% |
|
|
|
|
|
|
38.3 |
% |
|
|
40.1 |
% |
|
|
|
|
Combined ratio (3) |
|
|
107.2 |
% |
|
|
95.2 |
% |
|
|
|
|
|
|
95.0 |
% |
|
|
92.8 |
% |
|
|
|
|
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. |
58
GLOBAL INDEMNITY GROUP, LLC
Premiums
The following table summarizes the change in premium volume by business segment:
|
|
Quarters Ended September 30, |
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
||||||||||
(Dollars in thousands) |
|
2020 |
|
|
2019 |
|
|
% Change |
|
|
2020 |
|
|
2019 |
|
|
% Change |
|
||||||
Gross written premiums (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Specialty |
|
$ |
74,971 |
|
|
$ |
73,175 |
|
|
|
2.5 |
% |
|
$ |
243,099 |
|
|
$ |
214,467 |
|
|
|
13.4 |
% |
Specialty Property |
|
|
34,730 |
|
|
|
42,611 |
|
|
|
(18.5 |
%) |
|
|
107,951 |
|
|
|
128,771 |
|
|
|
(16.2 |
%) |
Farm, Ranch, & Stable |
|
|
19,443 |
|
|
|
21,410 |
|
|
|
(9.2 |
%) |
|
|
64,798 |
|
|
|
65,872 |
|
|
|
(1.6 |
%) |
Reinsurance (3) |
|
|
14,605 |
|
|
|
19,981 |
|
|
|
(26.9 |
%) |
|
|
48,174 |
|
|
|
69,589 |
|
|
|
(30.8 |
%) |
Total gross written premiums |
|
$ |
143,749 |
|
|
$ |
157,177 |
|
|
|
(8.5 |
%) |
|
$ |
464,022 |
|
|
$ |
478,699 |
|
|
|
(3.1 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceded written premiums |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Specialty |
|
$ |
5,897 |
|
|
$ |
10,250 |
|
|
|
(42.5 |
%) |
|
$ |
23,662 |
|
|
$ |
29,265 |
|
|
|
(19.1 |
%) |
Specialty Property |
|
|
4,759 |
|
|
|
4,983 |
|
|
|
(4.5 |
%) |
|
|
14,898 |
|
|
|
18,103 |
|
|
|
(17.7 |
%) |
Farm, Ranch, & Stable |
|
|
2,482 |
|
|
|
3,116 |
|
|
|
(20.3 |
%) |
|
|
8,475 |
|
|
|
10,011 |
|
|
|
(15.3 |
%) |
Reinsurance (3) |
|
|
— |
|
|
|
(8 |
) |
|
|
(100.0 |
%) |
|
|
— |
|
|
|
(1 |
) |
|
|
(100.0 |
%) |
Total ceded written premiums |
|
$ |
13,138 |
|
|
$ |
18,341 |
|
|
|
(28.4 |
%) |
|
$ |
47,035 |
|
|
$ |
57,378 |
|
|
|
(18.0 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net written premiums (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Specialty |
|
$ |
69,074 |
|
|
$ |
62,925 |
|
|
|
9.8 |
% |
|
$ |
219,437 |
|
|
$ |
185,202 |
|
|
|
18.5 |
% |
Specialty Property |
|
|
29,971 |
|
|
|
37,628 |
|
|
|
(20.3 |
%) |
|
|
93,053 |
|
|
|
110,668 |
|
|
|
(15.9 |
%) |
Farm, Ranch, & Stable |
|
|
16,961 |
|
|
|
18,294 |
|
|
|
(7.3 |
%) |
|
|
56,323 |
|
|
|
55,861 |
|
|
|
0.8 |
% |
Reinsurance (3) |
|
|
14,605 |
|
|
|
19,989 |
|
|
|
(26.9 |
%) |
|
|
48,174 |
|
|
|
69,590 |
|
|
|
(30.8 |
%) |
Total net written premiums |
|
$ |
130,611 |
|
|
$ |
138,836 |
|
|
|
(5.9 |
%) |
|
$ |
416,987 |
|
|
$ |
421,321 |
|
|
|
(1.0 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earned premiums |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Specialty |
|
$ |
73,887 |
|
|
$ |
60,869 |
|
|
|
21.4 |
% |
|
$ |
211,329 |
|
|
$ |
173,215 |
|
|
|
22.0 |
% |
Specialty Property |
|
|
31,388 |
|
|
|
34,554 |
|
|
|
(9.2 |
%) |
|
|
99,147 |
|
|
|
104,740 |
|
|
|
(5.3 |
%) |
Farm, Ranch, & Stable |
|
|
19,978 |
|
|
|
18,377 |
|
|
|
8.7 |
% |
|
|
57,691 |
|
|
|
52,849 |
|
|
|
9.2 |
% |
Reinsurance (3) |
|
|
15,049 |
|
|
|
19,512 |
|
|
|
(22.9 |
%) |
|
|
58,450 |
|
|
|
52,798 |
|
|
|
10.7 |
% |
Total net earned premiums |
|
$ |
140,302 |
|
|
$ |
133,312 |
|
|
|
5.2 |
% |
|
$ |
426,617 |
|
|
$ |
383,602 |
|
|
|
11.2 |
% |
(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 decreased by 8.5% and 3.1% for the quarter and nine months ended September 30, 2020 as compared to same period in 2019. The decrease is mainly due to the reduction of catastrophe exposed business within both Specialty Property and Farm, Ranch, & Stable, reduction in business not providing an adequate return on capital within Specialty Property, and Reinsurance Operations’ non-renewal of its property catastrophe treaties. In addition, non-renewals of several small business classes was higher and new business growth slowed within Commercial Specialty which was likely the result of Covid-19. These reductions in premiums were partially offset by organic growth from existing agents, increased pricing, and several new programs within Commercial Specialty and growth of the new casualty treaty entered into by Reinsurance Operations in 2019.
59
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 September 30, |
|
|
Point |
|
|
Nine Months Ended September 30, |
|
|
Point |
|
||||||||||||
(Dollars in thousands) |
|
2020 |
|
|
2019 |
|
|
Change |
|
|
2020 |
|
|
2019 |
|
|
Change |
|
||||||
Commercial Specialty |
|
|
92.1 |
% |
|
|
86.0 |
% |
|
|
6.1 |
|
|
|
90.3 |
% |
|
|
86.4 |
% |
|
|
3.9 |
|
Specialty Property |
|
|
86.3 |
% |
|
|
88.3 |
% |
|
|
(2.0 |
) |
|
|
86.2 |
% |
|
|
85.9 |
% |
|
|
0.3 |
|
Farm, Ranch, & Stable |
|
|
87.2 |
% |
|
|
85.4 |
% |
|
|
1.8 |
|
|
|
86.9 |
% |
|
|
84.8 |
% |
|
|
2.1 |
|
Reinsurance |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
— |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
— |
|
Total |
|
|
90.9 |
% |
|
|
88.3 |
% |
|
|
2.6 |
|
|
|
89.9 |
% |
|
|
88.0 |
% |
|
|
1.9 |
|
The net premium retention for the quarter and nine months ended September 30, 2020 increased by 2.6 points and 1.9 points, respectively, as compared to the same period in 2019. This increase in retention is primarily driven by the restructuring of the Company’s catastrophe reinsurance treaties as well as a change in the mix of business.
Net Earned Premiums
Net earned premiums within the Commercial Specialty segment increased by 21.4% and 22.0% for the quarter and nine months ended September 30, 2020, respectively, as compared to the same period in 2019. 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 $34.8 million and $28.1 million for the quarters ended September 30, 2020 and 2019, respectively, and $97.2 million and $82.1 million for the nine months ended September 30, 2020 and 2019, respectively. Casualty net earned premiums were $39.1 million and $32.8 million for the quarters ended September 30, 2020 and 2019, respectively, and $114.1 million and $91.1 million for the nine months ended September 30, 2020 and 2019, respectively.
Net earned premiums within the Specialty Property segment decreased by 9.2% and 5.3% for the quarter and nine months ended September 30, 2020, respectively, as compared to the same period in 2019 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 $29.3 million and $31.9 million for the quarters ended September 30, 2020 and 2019, respectively, and $92.2 million and $96.7 million for the nine months ended September 30, 2020 and 2019, respectively. Casualty net earned premiums were $2.1 million and $2.6 million for the quarters ended September 30, 2020 and 2019, respectively, and $7.0 million and $8.1 million for the nine months ended September 30, 2020 and 2019, respectively.
Net earned premiums within the Farm, Ranch, & Stable segment increased by 8.7% and 9.2% for the quarter and nine months ended September 30, 2020, respectively, as compared to the same period in 2019. The increase in net earned premiums was primarily due to a growth in premiums written in prior periods as a result of rate increases and new agent appointments. Property net earned premiums were $15.0 million and $13.1 million for the quarters ended September 30, 2020 and 2019, respectively, and $42.1 million and $37.7 million for the nine months ended September 30, 2020 and 2019, respectively. Casualty net earned premiums were $5.0 million and $5.3 million for the quarters ended September 30, 2020 and 2019, respectively, and $15.6 million and $15.2 million for the nine months ended September 30, 2020 and 2019, respectively.
Net earned premiums within the Reinsurance Operations segment decreased by 22.9% for the quarter ended September 30, 2020 as compared to the same period in 2019 primarily due to the non-renewal of its property catastrophe treaties partially offset by the new casualty treaty entered into during 2019. Net earned premiums within the Reinsurance Operations segment increased by 10.7% for the nine months ended September 30, 2020 as compared to the same period in 2019 primarily due to the new casualty treaty entered into during 2019 partially offset by the non-renewal of its property catastrophe treaties. Property net earned premiums were $5.5 million and $13.8 million for the quarters ended September 30, 2020 and 2019, respectively, and $24.5 million and $40.6 million for the nine months ended September 30, 2020 and 2019, respectively. Casualty net earned premiums were $9.6 million and $5.7 million for the quarters ended September 30, 2020 and 2019, respectively, and $33.9 million and $12.2 million for the nine months ended September 30, 2020 and 2019, respectively.
60
GLOBAL INDEMNITY GROUP, LLC
Reserves
Management’s best estimate at September 30, 2020 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 $669.9 million and $571.3 million, respectively, as of September 30, 2020. A breakout of the Company’s gross and net reserves, as of September 30, 2020, is as follows:
|
|
Gross Reserves |
|
|||||||||
(Dollars in thousands) |
|
Case |
|
|
IBNR (1) |
|
|
Total |
|
|||
Commercial Specialty |
|
$ |
139,513 |
|
|
$ |
275,802 |
|
|
$ |
415,315 |
|
Specialty Property |
|
|
22,738 |
|
|
|
35,307 |
|
|
|
58,045 |
|
Farm, Ranch, & Stable |
|
|
16,812 |
|
|
|
33,987 |
|
|
|
50,799 |
|
Reinsurance Operations |
|
|
56,627 |
|
|
|
89,144 |
|
|
|
145,771 |
|
Total |
|
$ |
235,690 |
|
|
$ |
434,240 |
|
|
$ |
669,930 |
|
|
|
Net Reserves (2) |
|
|||||||||
(Dollars in thousands) |
|
Case |
|
|
IBNR (1) |
|
|
Total |
|
|||
Commercial Specialty |
|
$ |
113,322 |
|
|
$ |
234,304 |
|
|
$ |
347,626 |
|
Specialty Property |
|
|
11,536 |
|
|
|
25,806 |
|
|
|
37,342 |
|
Farm, Ranch, & Stable |
|
|
12,608 |
|
|
|
27,927 |
|
|
|
40,535 |
|
Reinsurance Operations |
|
|
56,627 |
|
|
|
89,144 |
|
|
|
145,771 |
|
Total |
|
$ |
194,093 |
|
|
$ |
377,181 |
|
|
$ |
571,274 |
|
(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 $273.7 million for claims occurring during the nine months ended September 30, 2020:
|
|
|
|
|
|
Severity Change |
|
|||||||||||||||||
(Dollars in thousands) |
|
|
-10% |
|
|
-5% |
|
|
0% |
|
|
5% |
|
|
10% |
|
||||||||
Frequency Change |
|
-5% |
|
|
|
(39,687 |
) |
|
|
(26,686 |
) |
|
|
(13,685 |
) |
|
|
(684 |
) |
|
|
12,317 |
|
|
|
|
-3% |
|
|
|
(34,760 |
) |
|
|
(21,485 |
) |
|
|
(8,211 |
) |
|
|
5,063 |
|
|
|
18,338 |
|
|
|
|
-2% |
|
|
|
(32,297 |
) |
|
|
(18,885 |
) |
|
|
(5,474 |
) |
|
|
7,937 |
|
|
|
21,349 |
|
|
|
|
-1% |
|
|
|
(29,833 |
) |
|
|
(16,285 |
) |
|
|
(2,737 |
) |
|
|
10,811 |
|
|
|
24,359 |
|
|
|
|
0% |
|
|
|
(27,370 |
) |
|
|
(13,685 |
) |
|
|
— |
|
|
|
13,685 |
|
|
|
27,370 |
|
|
|
|
1% |
|
|
|
(24,907 |
) |
|
|
(11,085 |
) |
|
|
2,737 |
|
|
|
16,559 |
|
|
|
30,381 |
|
|
|
|
2% |
|
|
|
(22,443 |
) |
|
|
(8,485 |
) |
|
|
5,474 |
|
|
|
19,433 |
|
|
|
33,391 |
|
|
|
|
3% |
|
|
|
(19,980 |
) |
|
|
(5,885 |
) |
|
|
8,211 |
|
|
|
22,307 |
|
|
|
36,402 |
|
|
|
|
5% |
|
|
|
(15,054 |
) |
|
|
(684 |
) |
|
|
13,685 |
|
|
|
28,054 |
|
|
|
42,424 |
|
The Company’s net reserves for losses and loss adjustment expenses of $571.3 million as of September 30, 2020 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.
61
GLOBAL INDEMNITY GROUP, LLC
Underwriting Results
Commercial Specialty
The components of income from the Company’s Commercial Specialty segment and corresponding underwriting ratios are as follows:
|
|
Quarters Ended September 30, |
|
|
% |
|
|
Nine Months Ended September 30, |
|
|
% |
|
||||||||||||
(Dollars in thousands) |
|
2020 (1) |
|
|
2019 (1) |
|
|
Change |
|
|
2020 (1) |
|
|
2019 (1) |
|
|
Change |
|
||||||
Gross written premiums |
|
$ |
74,971 |
|
|
$ |
73,175 |
|
|
|
2.5 |
% |
|
$ |
243,099 |
|
|
$ |
214,467 |
|
|
|
13.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net written premiums |
|
$ |
69,074 |
|
|
$ |
62,925 |
|
|
|
9.8 |
% |
|
$ |
219,437 |
|
|
$ |
185,202 |
|
|
|
18.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earned premiums |
|
$ |
73,887 |
|
|
$ |
60,869 |
|
|
|
21.4 |
% |
|
$ |
211,329 |
|
|
$ |
173,215 |
|
|
|
22.0 |
% |
Total revenues |
|
|
73,887 |
|
|
|
60,869 |
|
|
|
21.4 |
% |
|
|
211,329 |
|
|
|
173,215 |
|
|
|
22.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses and loss adjustment expenses |
|
|
42,879 |
|
|
|
27,389 |
|
|
|
56.6 |
% |
|
|
109,191 |
|
|
|
81,731 |
|
|
|
33.6 |
% |
Acquisition costs and other underwriting expenses |
|
|
26,943 |
|
|
|
24,820 |
|
|
|
8.6 |
% |
|
|
79,452 |
|
|
|
70,522 |
|
|
|
12.7 |
% |
Underwriting income |
|
$ |
4,065 |
|
|
$ |
8,660 |
|
|
|
(53.1 |
%) |
|
$ |
22,686 |
|
|
$ |
20,962 |
|
|
|
8.2 |
% |
|
|
Quarters Ended September 30, |
|
|
Point |
|
|
Nine Months Ended September 30, |
|
|
Point |
|
||||||||||||
|
|
2020 |
|
|
2019 |
|
|
Change |
|
|
2020 |
|
|
2019 |
|
|
Change |
|
||||||
Underwriting Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current accident year |
|
|
62.8 |
% |
|
|
53.5 |
% |
|
|
9.3 |
|
|
|
60.1 |
% |
|
|
54.2 |
% |
|
|
5.9 |
|
Prior accident year |
|
|
(4.8 |
%) |
|
|
(8.5 |
%) |
|
|
3.7 |
|
|
|
(8.4 |
%) |
|
|
(7.0 |
%) |
|
|
(1.4 |
) |
Calendar year loss ratio |
|
|
58.0 |
% |
|
|
45.0 |
% |
|
|
13.0 |
|
|
|
51.7 |
% |
|
|
47.2 |
% |
|
|
4.5 |
|
Expense ratio |
|
|
36.5 |
% |
|
|
40.8 |
% |
|
|
(4.3 |
) |
|
|
37.6 |
% |
|
|
40.7 |
% |
|
|
(3.1 |
) |
Combined ratio |
|
|
94.5 |
% |
|
|
85.8 |
% |
|
|
8.7 |
|
|
|
89.3 |
% |
|
|
87.9 |
% |
|
|
1.4 |
|
(1) |
Includes business ceded to the Company’s Reinsurance Operations under a quota share agreement. This quota share agreement was cancelled effective January 1, 2018. |
62
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, |
|
||||||||||||||||||||||||||
(Dollars in thousands) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||||||||||||||||||
|
|
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) |
|
$ |
14,769 |
|
|
|
42.4 |
% |
|
$ |
13,641 |
|
|
|
48.5 |
% |
|
$ |
41,581 |
|
|
|
42.8 |
% |
|
$ |
35,694 |
|
|
|
43.5 |
% |
Effect of prior accident year |
|
|
(568 |
) |
|
|
(1.6 |
%) |
|
|
16 |
|
|
|
0.1 |
% |
|
|
(238 |
) |
|
|
(0.2 |
%) |
|
|
(959 |
) |
|
|
(1.2 |
%) |
Non catastrophe property losses and ratio (2) |
|
$ |
14,201 |
|
|
|
40.8 |
% |
|
$ |
13,657 |
|
|
|
48.6 |
% |
|
$ |
41,343 |
|
|
|
42.6 |
% |
|
$ |
34,735 |
|
|
|
42.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Catastrophe losses and ratio excluding the effect of prior accident year (1) |
|
$ |
9,537 |
|
|
|
27.4 |
% |
|
$ |
1,731 |
|
|
|
6.2 |
% |
|
$ |
23,116 |
|
|
|
23.8 |
% |
|
$ |
7,088 |
|
|
|
8.6 |
% |
Effect of prior accident year |
|
|
626 |
|
|
|
1.8 |
% |
|
|
(14 |
) |
|
|
(0.1 |
%) |
|
|
6,063 |
|
|
|
6.2 |
% |
|
|
34 |
|
|
|
0.1 |
% |
Catastrophe losses and ratio (2) |
|
$ |
10,163 |
|
|
|
29.2 |
% |
|
$ |
1,717 |
|
|
|
6.1 |
% |
|
$ |
29,179 |
|
|
|
30.0 |
% |
|
$ |
7,122 |
|
|
|
8.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property losses and ratio excluding the effect of prior accident year (1) |
|
$ |
24,306 |
|
|
|
69.8 |
% |
|
$ |
15,372 |
|
|
|
54.7 |
% |
|
$ |
64,697 |
|
|
|
66.6 |
% |
|
$ |
42,782 |
|
|
|
52.1 |
% |
Effect of prior accident year |
|
|
58 |
|
|
|
0.2 |
% |
|
|
2 |
|
|
|
— |
% |
|
|
5,825 |
|
|
|
6.0 |
% |
|
|
(925 |
) |
|
|
(1.1 |
%) |
Total property losses and ratio (2) |
|
$ |
24,364 |
|
|
|
70.0 |
% |
|
$ |
15,374 |
|
|
|
54.7 |
% |
|
$ |
70,522 |
|
|
|
72.6 |
% |
|
$ |
41,857 |
|
|
|
51.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casualty |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Casualty losses and ratio excluding the effect of prior accident year (1) |
|
$ |
22,119 |
|
|
|
56.6 |
% |
|
$ |
17,205 |
|
|
|
52.5 |
% |
|
$ |
62,289 |
|
|
|
54.6 |
% |
|
$ |
51,023 |
|
|
|
56.0 |
% |
Effect of prior accident year |
|
|
(3,604 |
) |
|
|
(9.2 |
%) |
|
|
(5,190 |
) |
|
|
(15.8 |
%) |
|
|
(23,620 |
) |
|
|
(20.7 |
%) |
|
|
(11,149 |
) |
|
|
(12.2 |
%) |
Total Casualty losses and ratio (2) |
|
$ |
18,515 |
|
|
|
47.4 |
% |
|
$ |
12,015 |
|
|
|
36.7 |
% |
|
$ |
38,669 |
|
|
|
33.9 |
% |
|
$ |
39,874 |
|
|
|
43.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net losses and loss adjustment expense and total loss ratio excluding the effect of prior accident year (1) |
|
$ |
46,425 |
|
|
|
62.8 |
% |
|
$ |
32,577 |
|
|
|
53.5 |
% |
|
$ |
126,986 |
|
|
|
60.1 |
% |
|
$ |
93,805 |
|
|
|
54.2 |
% |
Effect of prior accident year |
|
|
(3,546 |
) |
|
|
(4.8 |
%) |
|
|
(5,188 |
) |
|
|
(8.5 |
%) |
|
|
(17,795 |
) |
|
|
(8.4 |
%) |
|
|
(12,074 |
) |
|
|
(7.0 |
%) |
Total net losses and loss adjustment expense and total loss ratio (2) |
|
$ |
42,879 |
|
|
|
58.0 |
% |
|
$ |
27,389 |
|
|
|
45.0 |
% |
|
$ |
109,191 |
|
|
|
51.7 |
% |
|
$ |
81,731 |
|
|
|
47.2 |
% |
(1) |
Non-GAAP measure / ratio |
(2) |
Most directly comparable GAAP measure / ratio |
Premiums
See “Result of Operations” above for a discussion on consolidated premiums.
63
GLOBAL INDEMNITY GROUP, LLC
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) |
|
2020 |
|
|
2019 |
|
|
Change |
|
|
2020 |
|
|
2019 |
|
|
Change |
|
||||||
Property losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-catastrophe |
|
$ |
14,769 |
|
|
$ |
13,641 |
|
|
|
8.3 |
% |
|
$ |
41,581 |
|
|
$ |
35,694 |
|
|
|
16.5 |
% |
Catastrophe |
|
|
9,537 |
|
|
|
1,731 |
|
|
NM |
|
|
|
23,116 |
|
|
|
7,088 |
|
|
NM |
|
||
Property losses |
|
|
24,306 |
|
|
|
15,372 |
|
|
|
58.1 |
% |
|
|
64,697 |
|
|
|
42,782 |
|
|
|
51.2 |
% |
Casualty losses |
|
|
22,119 |
|
|
|
17,205 |
|
|
|
28.6 |
% |
|
|
62,289 |
|
|
|
51,023 |
|
|
|
22.1 |
% |
Total accident year losses |
|
$ |
46,425 |
|
|
$ |
32,577 |
|
|
|
42.5 |
% |
|
$ |
126,986 |
|
|
$ |
93,805 |
|
|
|
35.4 |
% |
NM – not meaningful
|
|
Quarters Ended September 30, |
|
|
Point |
|
|
Nine Months Ended September 30, |
|
|
Point |
|
||||||||||||
|
|
2020 |
|
|
2019 |
|
|
Change |
|
|
2020 |
|
|
2019 |
|
|
Change |
|
||||||
Current accident year loss ratio: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-catastrophe |
|
|
42.4 |
% |
|
|
48.5 |
% |
|
|
(6.1 |
) |
|
|
42.8 |
% |
|
|
43.5 |
% |
|
|
(0.7 |
) |
Catastrophe |
|
|
27.4 |
% |
|
|
6.2 |
% |
|
|
21.2 |
|
|
|
23.8 |
% |
|
|
8.6 |
% |
|
|
15.2 |
|
Property loss ratio |
|
|
69.8 |
% |
|
|
54.7 |
% |
|
|
15.1 |
|
|
|
66.6 |
% |
|
|
52.1 |
% |
|
|
14.5 |
|
Casualty loss ratio |
|
|
56.6 |
% |
|
|
52.5 |
% |
|
|
4.1 |
|
|
|
54.6 |
% |
|
|
56.0 |
% |
|
|
(1.4 |
) |
Total accident year loss ratio |
|
|
62.8 |
% |
|
|
53.5 |
% |
|
|
9.3 |
|
|
|
60.1 |
% |
|
|
54.2 |
% |
|
|
5.9 |
|
The current accident year non-catastrophe property loss ratio improved by 6.1 points during the quarter ended September 30, 2020 as compared to the same period in 2019 reflecting a lower claims severity in the third accident quarter and calendar quarter compared to last year.
The current accident year non-catastrophe property loss ratio improved by 0.7 points during the nine months ended September 30, 2020 as compared to the same period in 2019 reflecting a lower claims severity for the first nine months compared to last year.
The current accident year catastrophe loss ratio increased by 21.2 points during the quarter ended September 30, 2020 as compared to the same period in 2019 due to a higher claims frequency and severity for the third accident quarter and calendar quarter compared to last year.
The current accident year catastrophe loss ratio increased by 15.2 points during the nine months ended September 30, 2020 as compared to the same period in 2019 due to a higher claims frequency and severity for the first nine months compared to last year.
The current accident year casualty loss ratio increased by 4.1 points during the quarter ended September 30, 2020 as compared to the same period in 2019 due to a slightly higher claims frequency for the third accident quarter and higher claims severity in the calendar quarter compared to last year.
The current accident year casualty loss ratio improved by 1.4 points during the nine months ended September 30, 2020 as compared to the same period in 2019 due to a lower claims frequency through the first nine months compared to last year.
The calendar year loss ratio for the quarter and nine months ended September 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. The calendar year loss ratio for the quarter and nine months ended September 30, 2019 includes a decrease of $5.2 million, or 8.5 percentage points, and a decrease of $12.1 million, or 7.0 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.
64
GLOBAL INDEMNITY GROUP, LLC
Expense Ratios
The expense ratio for the Company’s Commercial Specialty segment improved by 4.3 points from 40.8% for the quarter ended September 30, 2019 to 36.5% for the quarter ended September 30, 2020 and improved by 3.1 points from 40.7% for the nine months ended September 30, 2019 to 37.6% for the nine months ended September 30, 2020. The improvement in the expense ratio is primarily due to higher earned premiums.
COVID-19
COVID-19 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 risk that legislation could be passed 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 and loss 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) |
|
2020 (1) |
|
|
2019 (1) |
|
|
Change |
|
|
2020 (1) |
|
|
2019 (1) |
|
|
Change |
|
||||||
Gross written premiums |
|
$ |
34,730 |
|
|
$ |
42,611 |
|
|
|
(18.5 |
%) |
|
$ |
107,951 |
|
|
$ |
128,771 |
|
|
|
(16.2 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net written premiums |
|
$ |
29,971 |
|
|
$ |
37,628 |
|
|
|
(20.3 |
%) |
|
$ |
93,053 |
|
|
$ |
110,668 |
|
|
|
(15.9 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earned premiums |
|
$ |
31,388 |
|
|
$ |
34,554 |
|
|
|
(9.2 |
%) |
|
$ |
99,147 |
|
|
$ |
104,740 |
|
|
|
(5.3 |
%) |
Other income |
|
|
450 |
|
|
|
465 |
|
|
|
(3.2 |
%) |
|
|
1,306 |
|
|
|
1,406 |
|
|
|
(7.1 |
%) |
Total revenues |
|
|
31,838 |
|
|
|
35,019 |
|
|
|
(9.1 |
%) |
|
|
100,453 |
|
|
|
106,146 |
|
|
|
(5.4 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses and loss adjustment expenses |
|
|
34,430 |
|
|
|
25,997 |
|
|
|
32.4 |
% |
|
|
65,619 |
|
|
|
57,611 |
|
|
|
13.9 |
% |
Acquisition costs and other underwriting expenses |
|
|
13,364 |
|
|
|
14,571 |
|
|
|
(8.3 |
%) |
|
|
41,357 |
|
|
|
44,163 |
|
|
|
(6.4 |
%) |
Underwriting income (loss) |
|
$ |
(15,956 |
) |
|
$ |
(5,549 |
) |
|
|
187.5 |
% |
|
$ |
(6,523 |
) |
|
$ |
4,372 |
|
|
NM |
|
NM – not meaningful
|
|
Quarters Ended September 30, |
|
|
Point |
|
|
Nine Months Ended September 30, |
|
|
Point |
|
||||||||||||
|
|
2020 |
|
|
2019 |
|
|
Change |
|
|
2020 |
|
|
2019 |
|
|
Change |
|
||||||
Underwriting Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current accident year |
|
|
116.1 |
% |
|
|
78.9 |
% |
|
|
37.2 |
|
|
|
72.8 |
% |
|
|
65.1 |
% |
|
|
7.7 |
|
Prior accident year |
|
|
(6.4 |
%) |
|
|
(3.7 |
%) |
|
|
(2.7 |
) |
|
|
(6.6 |
%) |
|
|
(10.0 |
%) |
|
|
3.4 |
|
Calendar year loss ratio |
|
|
109.7 |
% |
|
|
75.2 |
% |
|
|
34.5 |
|
|
|
66.2 |
% |
|
|
55.1 |
% |
|
|
11.1 |
|
Expense ratio |
|
|
42.6 |
% |
|
|
42.2 |
% |
|
|
0.4 |
|
|
|
41.7 |
% |
|
|
42.2 |
% |
|
|
(0.5 |
) |
Combined ratio |
|
|
152.3 |
% |
|
|
117.4 |
% |
|
|
34.9 |
|
|
|
107.9 |
% |
|
|
97.3 |
% |
|
|
10.6 |
|
(1) |
Includes business ceded to the Company’s Reinsurance Operations under a quota share agreement. This quota share agreement was cancelled effective January 1, 2018. |
65
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, |
|
||||||||||||||||||||||||||
(Dollars in thousands) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||||||||||||||||||
|
|
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) |
|
$ |
15,264 |
|
|
|
52.0 |
% |
|
$ |
19,388 |
|
|
|
60.7 |
% |
|
$ |
40,689 |
|
|
|
44.2 |
% |
|
$ |
53,401 |
|
|
|
55.2 |
% |
Effect of prior accident year |
|
|
66 |
|
|
|
0.2 |
% |
|
|
368 |
|
|
|
1.2 |
% |
|
|
(2,979 |
) |
|
|
(3.2 |
%) |
|
|
188 |
|
|
|
0.2 |
% |
Non catastrophe property losses and ratio (2) |
|
$ |
15,330 |
|
|
|
52.2 |
% |
|
$ |
19,756 |
|
|
|
61.9 |
% |
|
$ |
37,710 |
|
|
|
41.0 |
% |
|
$ |
53,589 |
|
|
|
55.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Catastrophe losses and ratio excluding the effect of prior accident year (1) |
|
$ |
20,060 |
|
|
|
68.4 |
% |
|
$ |
5,996 |
|
|
|
18.8 |
% |
|
$ |
28,367 |
|
|
|
30.8 |
% |
|
$ |
10,080 |
|
|
|
10.4 |
% |
Effect of prior accident year |
|
|
(1,828 |
) |
|
|
(6.2 |
%) |
|
|
(1,297 |
) |
|
|
(4.1 |
%) |
|
|
(1,619 |
) |
|
|
(1.8 |
%) |
|
|
(10,286 |
) |
|
|
(10.6 |
%) |
Catastrophe losses and ratio (2) |
|
$ |
18,232 |
|
|
|
62.2 |
% |
|
$ |
4,699 |
|
|
|
14.7 |
% |
|
$ |
26,748 |
|
|
|
29.0 |
% |
|
$ |
(206 |
) |
|
|
(0.2 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property losses and ratio excluding the effect of prior accident year (1) |
|
$ |
35,324 |
|
|
|
120.4 |
% |
|
$ |
25,384 |
|
|
|
79.5 |
% |
|
$ |
69,056 |
|
|
|
75.0 |
% |
|
$ |
63,481 |
|
|
|
65.6 |
% |
Effect of prior accident year |
|
|
(1,762 |
) |
|
|
(6.0 |
%) |
|
|
(929 |
) |
|
|
(2.9 |
%) |
|
|
(4,598 |
) |
|
|
(5.0 |
%) |
|
|
(10,098 |
) |
|
|
(10.4 |
%) |
Total property losses and ratio (2) |
|
$ |
33,562 |
|
|
|
114.4 |
% |
|
$ |
24,455 |
|
|
|
76.6 |
% |
|
$ |
64,458 |
|
|
|
70.0 |
% |
|
$ |
53,383 |
|
|
|
55.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casualty |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Casualty losses and ratio excluding the effect of prior accident year (1) |
|
$ |
1,109 |
|
|
|
53.9 |
% |
|
$ |
1,895 |
|
|
|
72.4 |
% |
|
$ |
3,154 |
|
|
|
45.1 |
% |
|
$ |
4,656 |
|
|
|
57.6 |
% |
Effect of prior accident year |
|
|
(241 |
) |
|
|
(11.7 |
%) |
|
|
(353 |
) |
|
|
(13.5 |
%) |
|
|
(1,993 |
) |
|
|
(28.5 |
%) |
|
|
(428 |
) |
|
|
(5.3 |
%) |
Total Casualty losses and ratio (2) |
|
$ |
868 |
|
|
|
42.2 |
% |
|
$ |
1,542 |
|
|
|
58.9 |
% |
|
$ |
1,161 |
|
|
|
16.6 |
% |
|
$ |
4,228 |
|
|
|
52.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net losses and loss adjustment expense and total loss ratio excluding the effect of prior accident year (1) |
|
$ |
36,433 |
|
|
|
116.1 |
% |
|
$ |
27,279 |
|
|
|
78.9 |
% |
|
$ |
72,210 |
|
|
|
72.8 |
% |
|
$ |
68,137 |
|
|
|
65.1 |
% |
Effect of prior accident year |
|
|
(2,003 |
) |
|
|
(6.4 |
%) |
|
|
(1,282 |
) |
|
|
(3.7 |
%) |
|
|
(6,591 |
) |
|
|
(6.6 |
%) |
|
|
(10,526 |
) |
|
|
(10.0 |
%) |
Total net losses and loss adjustment expense and total loss ratio (2) |
|
$ |
34,430 |
|
|
|
109.7 |
% |
|
$ |
25,997 |
|
|
|
75.2 |
% |
|
$ |
65,619 |
|
|
|
66.2 |
% |
|
$ |
57,611 |
|
|
|
55.1 |
% |
(1) |
Non-GAAP measure / ratio |
(2) |
Most directly comparable GAAP measure / ratio |
Premiums
See “Result of Operations” above for a discussion on consolidated premiums.
66
GLOBAL INDEMNITY GROUP, LLC
Other Income
Other income was $0.5 million for each of the quarters ended September 30, 2020 and 2019 and $1.3 million and $1.4 million for the nine months ended September 30, 2020 and 2019, respectively. 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) |
|
2020 |
|
|
2019 |
|
|
Change |
|
|
2020 |
|
|
2019 |
|
|
Change |
|
||||||
Property losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-catastrophe |
|
$ |
15,264 |
|
|
$ |
19,388 |
|
|
|
(21.3 |
%) |
|
$ |
40,689 |
|
|
$ |
53,401 |
|
|
|
(23.8 |
%) |
Catastrophe |
|
|
20,060 |
|
|
|
5,996 |
|
|
NM |
|
|
|
28,367 |
|
|
|
10,080 |
|
|
|
181.4 |
% |
|
Property losses |
|
|
35,324 |
|
|
|
25,384 |
|
|
|
39.2 |
% |
|
|
69,056 |
|
|
|
63,481 |
|
|
|
8.8 |
% |
Casualty losses |
|
|
1,109 |
|
|
|
1,895 |
|
|
|
(41.5 |
%) |
|
|
3,154 |
|
|
|
4,656 |
|
|
|
(32.3 |
%) |
Total accident year losses |
|
$ |
36,433 |
|
|
$ |
27,279 |
|
|
|
33.6 |
% |
|
$ |
72,210 |
|
|
$ |
68,137 |
|
|
|
6.0 |
% |
NM – not meaningful
|
|
Quarters Ended September 30, |
|
|
Point |
|
|
Nine Months Ended September 30, |
|
|
Point |
|
||||||||||||
|
|
2020 |
|
|
2019 |
|
|
Change |
|
|
2020 |
|
|
2019 |
|
|
Change |
|
||||||
Current accident year loss ratio: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-catastrophe |
|
|
52.0 |
% |
|
|
60.7 |
% |
|
|
(8.7 |
) |
|
|
44.2 |
% |
|
|
55.2 |
% |
|
|
(11.0 |
) |
Catastrophe |
|
|
68.4 |
% |
|
|
18.8 |
% |
|
|
49.6 |
|
|
|
30.8 |
% |
|
|
10.4 |
% |
|
|
20.4 |
|
Property loss ratio |
|
|
120.4 |
% |
|
|
79.5 |
% |
|
|
40.9 |
|
|
|
75.0 |
% |
|
|
65.6 |
% |
|
|
9.4 |
|
Casualty loss ratio |
|
|
53.9 |
% |
|
|
72.4 |
% |
|
|
(18.5 |
) |
|
|
45.1 |
% |
|
|
57.6 |
% |
|
|
(12.5 |
) |
Total accident year loss ratio |
|
|
116.1 |
% |
|
|
78.9 |
% |
|
|
37.2 |
|
|
|
72.8 |
% |
|
|
65.1 |
% |
|
|
7.7 |
|
The current accident year non-catastrophe property loss ratio improved by 8.7 points during the quarter ended September 30, 2020 as compared to the same period in 2019 reflecting a lower claims severity in the third accident quarter and calendar quarter compared to last year.
The current accident year non-catastrophe property loss ratio improved by 11.0 points during the nine months ended September 30, 2020 as compared to the same period in 2019 due to a lower claims frequency and severity through nine months compared to last year.
The current accident year catastrophe loss ratio increased by 49.6 points during the quarter ended September 30, 2020 as compared to the same period in 2019 due to a higher claims frequency and severity for the third accident quarter and calendar quarter compared to last year. The impact from Hurricane Laura on the third calendar quarter loss ratio was 36.2 points which was the main driver of the higher loss ratio in the quarter.
The current accident year catastrophe loss ratio increased by 20.4 points during the nine months ended September 30, 2020 as compared to the same period in 2019 due to a higher claims frequency and severity for the first nine months compared to last year. The impact from Hurricane Laura on the nine month loss ratio was 11.5 points.
The current accident year casualty loss ratio improved by 18.5 points during the quarter ended September 30, 2020 as compared to the same period in 2019 reflecting a lower claims frequency and severity in the third accident quarter and lower claims severity in the calendar quarter compared to last year.
The current accident year casualty loss ratio improved by 12.5 points during the nine months ended September 30, 2020 as compared to the same period in 2019 due to a lower claims severity through nine months compared to last year.
67
GLOBAL INDEMNITY GROUP, LLC
The calendar year loss ratio for the quarter and nine months ended September 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, related to reserve development on prior accident years. The calendar year loss ratio for the quarter and nine months ended September 30, 2019 includes a decrease of $1.3 million, or 3.7 percentage points, and a decrease of $10.5 million, or 10.0 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 Ratios
The expense ratio for the Company’s Specialty Property segment increased 0.4 points from 42.2% for the quarter ended September 30, 2019 to 42.6% for the quarter ended September 30, 2020 primarily due to a reduction in earned premiums. The expense ratio improved by 0.5 points from 42.2% for the nine months ended September 30, 2019 to 41.7% for the nine months ended September 30, 2020 primarily due to a reduction in compensation and travel cost partially offset by the impact of lower earned premiums.
COVID-19
COVID-19 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.
68
GLOBAL INDEMNITY GROUP, LLC
Farm, Ranch, & Stable
The components of income and loss from the Company’s Farm, Ranch, & Stable segment and corresponding underwriting ratios are as follows:
|
|
Quarters Ended September 30, |
|
|
% |
|
|
Nine Months Ended September 30, |
|
|
% |
|
||||||||||||
(Dollars in thousands) |
|
2020 (1) |
|
|
2019 (1) |
|
|
Change |
|
|
2020 (1) |
|
|
2019 (1) |
|
|
Change |
|
||||||
Gross written premiums |
|
$ |
19,443 |
|
|
$ |
21,410 |
|
|
|
(9.2 |
%) |
|
$ |
64,798 |
|
|
$ |
65,872 |
|
|
|
(1.6 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net written premiums |
|
$ |
16,961 |
|
|
$ |
18,294 |
|
|
|
(7.3 |
%) |
|
$ |
56,323 |
|
|
$ |
55,861 |
|
|
|
0.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earned premiums |
|
$ |
19,978 |
|
|
$ |
18,377 |
|
|
|
8.7 |
% |
|
$ |
57,691 |
|
|
$ |
52,849 |
|
|
|
9.2 |
% |
Other income |
|
|
35 |
|
|
|
34 |
|
|
|
2.9 |
% |
|
|
107 |
|
|
|
96 |
|
|
|
11.5 |
% |
Total revenues |
|
|
20,013 |
|
|
|
18,411 |
|
|
|
8.7 |
% |
|
|
57,798 |
|
|
|
52,945 |
|
|
|
9.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses and loss adjustment expenses |
|
|
14,649 |
|
|
|
10,939 |
|
|
|
33.9 |
% |
|
|
37,698 |
|
|
|
32,203 |
|
|
|
17.1 |
% |
Acquisition costs and other underwriting expenses |
|
|
7,443 |
|
|
|
7,776 |
|
|
|
(4.3 |
%) |
|
|
22,687 |
|
|
|
22,403 |
|
|
|
1.3 |
% |
Underwriting loss |
|
$ |
(2,079 |
) |
|
$ |
(304 |
) |
|
NM |
|
|
$ |
(2,587 |
) |
|
$ |
(1,661 |
) |
|
|
(55.7 |
%) |
NM – not meaningful
|
|
Quarters Ended September 30, |
|
|
Point |
|
|
Nine Months Ended September 30, |
|
|
Point |
|
||||||||||||
|
|
2020 |
|
|
2019 |
|
|
Change |
|
|
2020 |
|
|
2019 |
|
|
Change |
|
||||||
Underwriting Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current accident year |
|
|
79.9 |
% |
|
|
65.8 |
% |
|
|
14.1 |
|
|
|
69.0 |
% |
|
|
68.4 |
% |
|
|
0.6 |
|
Prior accident year |
|
|
(6.5 |
%) |
|
|
(6.3 |
%) |
|
|
(0.2 |
) |
|
|
(3.7 |
%) |
|
|
(7.5 |
%) |
|
|
3.8 |
|
Calendar year loss ratio |
|
|
73.4 |
% |
|
|
59.5 |
% |
|
|
13.9 |
|
|
|
65.3 |
% |
|
|
60.9 |
% |
|
|
4.4 |
|
Expense ratio |
|
|
37.3 |
% |
|
|
42.3 |
% |
|
|
(5.0 |
) |
|
|
39.3 |
% |
|
|
42.4 |
% |
|
|
(3.1 |
) |
Combined ratio |
|
|
110.7 |
% |
|
|
101.8 |
% |
|
|
8.9 |
|
|
|
104.6 |
% |
|
|
103.3 |
% |
|
|
1.3 |
|
(1) |
Includes business ceded to the Company’s Reinsurance Operations under a quote share agreement. The quota share agreement was terminated effective January 1, 2018. |
69
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, |
|
||||||||||||||||||||||||||
(Dollars in thousands) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||||||||||||||||||
|
|
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) |
|
$ |
6,292 |
|
|
|
41.9 |
% |
|
$ |
7,542 |
|
|
|
57.6 |
% |
|
$ |
16,106 |
|
|
|
38.2 |
% |
|
$ |
21,943 |
|
|
|
58.2 |
% |
Effect of prior accident year |
|
|
(850 |
) |
|
|
(5.7 |
%) |
|
|
(17 |
) |
|
|
(0.1 |
%) |
|
|
(2,115 |
) |
|
|
(5.0 |
%) |
|
|
(448 |
) |
|
|
(1.2 |
%) |
Non catastrophe property losses and ratio (2) |
|
$ |
5,442 |
|
|
|
36.2 |
% |
|
$ |
7,525 |
|
|
|
57.5 |
% |
|
$ |
13,991 |
|
|
|
33.2 |
% |
|
$ |
21,495 |
|
|
|
57.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Catastrophe losses and ratio excluding the effect of prior accident year (1) |
|
$ |
6,970 |
|
|
|
46.4 |
% |
|
$ |
2,044 |
|
|
|
15.6 |
% |
|
$ |
15,488 |
|
|
|
36.8 |
% |
|
$ |
6,769 |
|
|
|
18.0 |
% |
Effect of prior accident year |
|
|
(472 |
) |
|
|
(3.1 |
%) |
|
|
(1,089 |
) |
|
|
(8.3 |
%) |
|
|
89 |
|
|
|
0.2 |
% |
|
|
(1,784 |
) |
|
|
(4.7 |
%) |
Catastrophe losses and ratio (2) |
|
$ |
6,498 |
|
|
|
43.3 |
% |
|
$ |
955 |
|
|
|
7.3 |
% |
|
$ |
15,577 |
|
|
|
37.0 |
% |
|
$ |
4,985 |
|
|
|
13.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property losses and ratio excluding the effect of prior accident year (1) |
|
$ |
13,262 |
|
|
|
88.3 |
% |
|
$ |
9,586 |
|
|
|
73.2 |
% |
|
$ |
31,594 |
|
|
|
75.0 |
% |
|
$ |
28,712 |
|
|
|
76.2 |
% |
Effect of prior accident year |
|
|
(1,322 |
) |
|
|
(8.8 |
%) |
|
|
(1,106 |
) |
|
|
(8.4 |
%) |
|
|
(2,026 |
) |
|
|
(4.8 |
%) |
|
|
(2,232 |
) |
|
|
(5.9 |
%) |
Total property losses and ratio (2) |
|
$ |
11,940 |
|
|
|
79.5 |
% |
|
$ |
8,480 |
|
|
|
64.8 |
% |
|
$ |
29,568 |
|
|
|
70.2 |
% |
|
$ |
26,480 |
|
|
|
70.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casualty |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Casualty losses and ratio excluding the effect of prior accident year (1) |
|
$ |
2,693 |
|
|
|
54.4 |
% |
|
$ |
2,503 |
|
|
|
47.4 |
% |
|
$ |
8,213 |
|
|
|
52.7 |
% |
|
$ |
7,462 |
|
|
|
49.2 |
% |
Effect of prior accident year |
|
|
16 |
|
|
|
0.3 |
% |
|
|
(44 |
) |
|
|
(0.8 |
%) |
|
|
(83 |
) |
|
|
(0.5 |
%) |
|
|
(1,739 |
) |
|
|
(11.5 |
%) |
Total Casualty losses and ratio (2) |
|
$ |
2,709 |
|
|
|
54.7 |
% |
|
$ |
2,459 |
|
|
|
46.6 |
% |
|
$ |
8,130 |
|
|
|
52.2 |
% |
|
$ |
5,723 |
|
|
|
37.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net losses and loss adjustment expense and total loss ratio excluding the effect of prior accident year (1) |
|
$ |
15,955 |
|
|
|
79.9 |
% |
|
$ |
12,089 |
|
|
|
65.8 |
% |
|
$ |
39,807 |
|
|
|
69.0 |
% |
|
$ |
36,174 |
|
|
|
68.4 |
% |
Effect of prior accident year |
|
|
(1,306 |
) |
|
|
(6.5 |
%) |
|
|
(1,150 |
) |
|
|
(6.3 |
%) |
|
|
(2,109 |
) |
|
|
(3.7 |
%) |
|
|
(3,971 |
) |
|
|
(7.5 |
%) |
Total net losses and loss adjustment expense and total loss ratio (2) |
|
$ |
14,649 |
|
|
|
73.4 |
% |
|
$ |
10,939 |
|
|
|
59.5 |
% |
|
$ |
37,698 |
|
|
|
65.3 |
% |
|
$ |
32,203 |
|
|
|
60.9 |
% |
(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 less than $0.1 million for each of the quarters ended September 30, 2020 and 2019 and $0.1 million for each of the nine months ended September 30, 2020 and 2019. Other income is primarily comprised of fee income.
70
GLOBAL INDEMNITY GROUP, LLC
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) |
|
2020 |
|
|
2019 |
|
|
Change |
|
|
2020 |
|
|
2019 |
|
|
Change |
|
||||||
Property losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-catastrophe |
|
$ |
6,292 |
|
|
$ |
7,542 |
|
|
|
(16.6 |
%) |
|
$ |
16,106 |
|
|
$ |
21,943 |
|
|
|
(26.6 |
%) |
Catastrophe |
|
|
6,970 |
|
|
|
2,044 |
|
|
NM |
|
|
|
15,488 |
|
|
|
6,769 |
|
|
|
128.8 |
% |
|
Property losses |
|
|
13,262 |
|
|
|
9,586 |
|
|
|
38.3 |
% |
|
|
31,594 |
|
|
|
28,712 |
|
|
|
10.0 |
% |
Casualty losses |
|
|
2,693 |
|
|
|
2,503 |
|
|
|
7.6 |
% |
|
|
8,213 |
|
|
|
7,462 |
|
|
|
10.1 |
% |
Total accident year losses |
|
$ |
15,955 |
|
|
$ |
12,089 |
|
|
|
32.0 |
% |
|
$ |
39,807 |
|
|
$ |
36,174 |
|
|
|
10.0 |
% |
NM – not meaningful
|
|
Quarters Ended September 30, |
|
|
Point |
|
|
Nine Months Ended September 30, |
|
|
Point |
|
||||||||||||
|
|
2020 |
|
|
2019 |
|
|
Change |
|
|
2020 |
|
|
2019 |
|
|
Change |
|
||||||
Current accident year loss ratio: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-catastrophe |
|
|
41.9 |
% |
|
|
57.6 |
% |
|
|
(15.7 |
) |
|
|
38.2 |
% |
|
|
58.2 |
% |
|
|
(20.0 |
) |
Catastrophe |
|
|
46.4 |
% |
|
|
15.6 |
% |
|
|
30.8 |
|
|
|
36.8 |
% |
|
|
18.0 |
% |
|
|
18.8 |
|
Property loss ratio |
|
|
88.3 |
% |
|
|
73.2 |
% |
|
|
15.1 |
|
|
|
75.0 |
% |
|
|
76.2 |
% |
|
|
(1.2 |
) |
Casualty loss ratio |
|
|
54.4 |
% |
|
|
47.4 |
% |
|
|
7.0 |
|
|
|
52.7 |
% |
|
|
49.2 |
% |
|
|
3.5 |
|
Total accident year loss ratio |
|
|
79.9 |
% |
|
|
65.8 |
% |
|
|
14.1 |
|
|
|
69.0 |
% |
|
|
68.4 |
% |
|
|
0.6 |
|
The current accident year non-catastrophe property loss ratio improved by 15.7 points during the quarter ended September 30, 2020 as compared to the same period in 2019 due to a lower claims frequency for the third accident quarter and lower claims frequency and severity in the calendar quarter compared to last year.
The current accident year non-catastrophe property loss ratio improved by 20.0 points during the nine months ended September 30, 2020 as compared to the same period in 2019 reflecting a lower claims frequency and severity for the first nine months compared to last year.
The current accident year catastrophe loss ratio increased by 30.8 points during the quarter ended September 30, 2020 as compared to the same period in 2019 reflecting a higher claims frequency and severity for the third accident quarter and calendar quarter compared to last year. The impact from the Midwest Derecho on the third calendar quarter loss ratio was 30.1 points which accounted for almost the entire increase from last year.
The current accident year catastrophe loss ratio increased by 18.8 points during the nine months ended September 30, 2020 as compared to the same period in 2019 reflecting a higher claims frequency and severity through nine months compared to last year. The impact from the Midwest Derecho on the nine month loss ratio was 10.7 points.
The current accident year casualty loss ratio increased by 7.0 points during the quarter ended September 30, 2020 as compared to the same period in 2019 due to a higher claims severity for the third accident quarter and calendar quarter compared to last year.
The current accident year casualty loss ratio increased by 3.5 points during the nine months ended September 30, 2020 as compared to the same period in 2019. The increase in the loss ratio reflects a higher claims severity through nine months compared to last year.
The calendar year loss ratio for the quarter and nine months ended September 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. The calendar year loss ratio for the quarter and nine months ended September 30, 2019 includes a decrease of $1.2 million, or 6.3 percentage points, and a decrease of $4.0 million, or 7.5 percentage points, respectively,
71
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 Farm, Ranch, & Stable Segment improved 5.0 points from 42.3% for the quarter ended September 30, 2019 to 37.3% for the quarter ended September 30, 2020 primarily due to a reduction in compensation and travel cost as well as higher earned premiums. The expense ratio improved 3.1 points from 42.4% for the nine months ended September 30, 2019 to 39.3% for the nine months ended September 30, 2020 primarily due to higher earned premiums.
COVID-19
There is risk that legislation could be passed which would require the Company to cover business interruption claims regardless of terms, exclusions including the virus exclusions contained within the Company’s Farm, Ranch & Stable policies, or other conditions included in these policies that would otherwise preclude coverage.
COVID-19 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:
|
|
Quarters Ended September 30, |
|
|
% |
|
|
Nine Months Ended September 30, |
|
|
% |
|
||||||||||||
(Dollars in thousands) |
|
2020 (1) |
|
|
2019 (1) |
|
|
Change |
|
|
2020 (1) |
|
|
2019 (1) |
|
|
Change |
|
||||||
Gross written premiums |
|
$ |
14,605 |
|
|
$ |
19,981 |
|
|
|
(26.9 |
%) |
|
$ |
48,174 |
|
|
$ |
69,589 |
|
|
|
(30.8 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net written premiums |
|
$ |
14,605 |
|
|
$ |
19,989 |
|
|
|
(26.9 |
%) |
|
$ |
48,174 |
|
|
$ |
69,590 |
|
|
|
(30.8 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earned premiums |
|
$ |
15,049 |
|
|
$ |
19,512 |
|
|
|
(22.9 |
%) |
|
$ |
58,450 |
|
|
$ |
52,798 |
|
|
|
10.7 |
% |
Other income (loss) |
|
|
112 |
|
|
|
(235 |
) |
|
|
(147.7 |
%) |
|
|
96 |
|
|
|
(228 |
) |
|
|
(142.1 |
%) |
Total revenues |
|
|
15,161 |
|
|
|
19,277 |
|
|
|
(21.4 |
%) |
|
|
58,546 |
|
|
|
52,570 |
|
|
|
11.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses and loss adjustment expenses |
|
|
5,190 |
|
|
|
9,258 |
|
|
|
(43.9 |
%) |
|
|
29,584 |
|
|
|
30,434 |
|
|
|
(2.8 |
%) |
Acquisition costs and other underwriting expenses |
|
|
5,518 |
|
|
|
6,199 |
|
|
|
(11.0 |
%) |
|
|
19,762 |
|
|
|
16,555 |
|
|
|
19.4 |
% |
Underwriting income |
|
$ |
4,453 |
|
|
$ |
3,820 |
|
|
|
16.6 |
% |
|
$ |
9,200 |
|
|
$ |
5,581 |
|
|
|
64.8 |
% |
|
|
Quarters Ended September 30, |
|
|
Point |
|
|
Nine Months Ended September 30, |
|
|
Point |
|
||||||||||||
|
|
2020 |
|
|
2019 |
|
|
Change |
|
|
2020 |
|
|
2019 |
|
|
Change |
|
||||||
Underwriting Ratios: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current accident year (2) |
|
|
66.8 |
% |
|
|
44.0 |
% |
|
|
22.8 |
|
|
|
59.4 |
% |
|
|
51.0 |
% |
|
|
8.4 |
|
Prior accident year |
|
|
(32.3 |
%) |
|
|
3.4 |
% |
|
|
(35.7 |
) |
|
|
(8.8 |
%) |
|
|
6.7 |
% |
|
|
(15.5 |
) |
Calendar year loss ratio (3) |
|
|
34.5 |
% |
|
|
47.4 |
% |
|
|
(12.9 |
) |
|
|
50.6 |
% |
|
|
57.7 |
% |
|
|
(7.1 |
) |
Expense ratio |
|
|
36.7 |
% |
|
|
31.8 |
% |
|
|
4.9 |
|
|
|
33.8 |
% |
|
|
31.4 |
% |
|
|
2.4 |
|
Combined ratio |
|
|
71.2 |
% |
|
|
79.2 |
% |
|
|
(8.0 |
) |
|
|
84.4 |
% |
|
|
89.1 |
% |
|
|
(4.7 |
) |
(1) |
External business only, excluding business assumed from affiliates |
(2) |
Non-GAAP ratio |
(3) |
Most directly comparable GAAP ratio |
72
GLOBAL INDEMNITY GROUP, LLC
Reconciliation of non-GAAP financial measures and 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 premiums.
Other Income
The Company recognized income of $0.1 million in both the quarter and nine months ended September 30, 2020 and a loss of $0.2 million in both the quarter and nine months ended September 30, 2019. Other income is comprised of foreign exchange gains and losses.
Loss Ratio
The current accident year loss ratio increased by 22.8 points during the quarter ended September 30, 2020 as compared to the same period in 2019. The current accident year loss ratio increased for property lines compared to the same period last year. Also, the increase in the total loss ratio reflects a mix of business shift to more casualty premium which has a higher expected loss ratio than property.
The current accident year loss ratio increased by 8.4 points during the nine months ended September 30, 2020 as compared to the same period in 2019 due to an increase in the property non-catastrophe loss ratio and the change in mix of business, as there is more casualty premium being written which has a higher expected loss ratio than property.
The calendar year loss ratio for the quarter and nine months ended September 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. The calendar year loss ratio for the quarter and nine months ended September 30, 2019 includes an increase of $0.7 million, or 3.4 percentage points, and an increase of $3.5 million, or 6.7 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.
Expense Ratio
The expense ratio for the Company’s Reinsurance Operations increased by 4.9 points from 31.8% for the quarter ended September 30, 2019 to 36.7% for the quarter ended September 30, 2020 and increased by 2.4 points from 31.4% for the nine months ended September 30, 2019 to 33.8% for the nine months ended September 30, 2020. The increase in the expense ratio is primarily due to an increase in commission expense resulting from a change in business mix.
COVID-19
COVID-19 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 AA- average rating and a duration of 4.2 years.
73
GLOBAL INDEMNITY GROUP, LLC
Net Investment Income
|
|
Quarters Ended September 30, |
|
|
% |
|
|
Nine Months Ended September 30, |
|
|
% |
|
||||||||||||
(Dollars in thousands) |
|
2020 |
|
|
2019 |
|
|
Change |
|
|
2020 |
|
|
2019 |
|
|
Change |
|
||||||
Gross investment income (loss) (1) |
|
$ |
12,556 |
|
|
$ |
12,162 |
|
|
|
3.2 |
% |
|
$ |
21,662 |
|
|
$ |
34,712 |
|
|
|
(37.6 |
%) |
Investment expenses |
|
|
(810 |
) |
|
|
(814 |
) |
|
|
(0.5 |
%) |
|
|
(2,146 |
) |
|
|
(2,319 |
) |
|
|
(7.5 |
%) |
Net investment income |
|
$ |
11,746 |
|
|
$ |
11,348 |
|
|
|
3.5 |
% |
|
$ |
19,516 |
|
|
$ |
32,393 |
|
|
|
(39.8 |
%) |
(1) |
Excludes realized gains and losses |
Gross investment income increased by 3.2% for the quarter, and decreased 37.6% for the nine months ended September 30, 2020, respectively, as compared to the same period in 2019. The increase for the quarter was primarily due to increased returns from alternative investments offset by a decrease in income related to the fixed maturities portfolio. The decrease for nine months ended was primarily due to poor returns from alternative investments during the early part of 2020. Alternative investments are booked on a one quarter lag due to the limited partnerships typically not reporting results until one to three months following the end of the reporting period.
Investment expenses decreased by 0.5% and 7.5% for the quarter ended and nine months ended September 30, 2020, respectively, as compared to the same period in 2019 due to including investment expenses related to mutual funds as a direct offset to investment income.
At September 30, 2020, the Company held agency mortgage-backed securities with a market value of $289.7 million. Excluding the agency mortgage-backed securities, the average duration of the Company’s fixed maturities portfolio was 4.8 years as of September 30, 2020, compared with 3.8 years as of September 30, 2019. Including cash and short-term investments, the average duration of the Company’s fixed maturities portfolio, excluding agency mortgage-backed securities, was 4.6 years as of September 30, 2020, compared with 3.5 years as of September 30, 2019. 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 2.4% as of September 30, 2020, compared to 3.0% as of September 30, 2019. The embedded book yield on the $62.0 million of taxable municipal bonds in the Company’s portfolio, was 3.0% at September 30, 2020, compared to an embedded book yield of 3.3% on the Company’s taxable municipal bonds of $55.6 million at September 30, 2019.
Net Realized Investment Gains (Losses)
The components of net realized investment gains (losses) for the quarters and nine months ended September 30, 2020 and 2019 were as follows:
|
|
Quarters Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
(Dollars in thousands) |
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
Equity securities |
|
$ |
4,887 |
|
|
$ |
(1,465 |
) |
|
$ |
(17,201 |
) |
|
$ |
17,860 |
|
Fixed maturities |
|
|
2,276 |
|
|
|
946 |
|
|
|
17,028 |
|
|
|
4,731 |
|
Derivatives |
|
|
160 |
|
|
|
(2,171 |
) |
|
|
(22,159 |
) |
|
|
(9,404 |
) |
Other than temporary impairment losses |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,897 |
) |
Net realized investment gains (losses) |
|
$ |
7,323 |
|
|
$ |
(2,690 |
) |
|
$ |
(22,332 |
) |
|
$ |
11,290 |
|
Net realized investment gains (losses) for the quarter ended and nine months ended September 30, 2020 were primarily due to the impact of changes in fair value on equity securities and derivatives due to the recent disruption in the global financial markets as a result of COVID-19.
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, 2020 and 2019.
74
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 $21.2 million and $3.9 million during the quarters ended September 30, 2020 and 2019, respectively, and $34.0 million and $11.7 million during the nine months ended September 30, 2020 and 2019, respectively. The increase in corporate expenses is primarily due to incurring $10.0 million in advisory fees related to the redomestication as well as an increase in legal and professional fees due to the redomestication. See Note 11 of the notes to the consolidated financial statements in Item 1 of Part I of this report for additional information on the redomestication fee.
Interest Expense
Interest expense decreased 27.9% and 12.5% during the quarter and nine months ended September 30, 2020, respectively, as compared to the same period in 2019 primarily due to a reduction in the Fed Funds effective interest rate in March, 2020 as well as the redemption of the 2045 Notes and repayment of the margin borrowing facility during the quarter ended September 30, 2020.
Income Tax Expense / Benefit
Income tax benefit was $3.2 million for the quarter ended September 30, 2020 compared with an income tax benefit of $0.3 million for the quarter ended September 30, 2019. The increase in income tax benefit was primarily due to higher pre-tax loss for the Company’s U.S. subsidiaries for the quarter ended September 30, 2020 as compared to the same period in 2019 and the change in tax status which is the income tax benefit recognized on net insurance liabilities that were redomiciled from Bermuda at 0% tax rate to the United States at a 21% tax rate.
Income tax benefit was $8.2 million for the nine months ended September 30, 2020 compared with an income tax expense of $5.2 million for the nine months ended September 30, 2019. The increase in income tax benefit was primarily due to a pre-tax loss for the Company’s U.S. subsidiaries for the nine months ended September 30, 2020 as compared to a gain in the same period in 2019 and the change in tax status which is the income tax benefit recognized on net insurance liabilities that were redomiciled from Bermuda at 0% tax rate to the United States at a 21% tax rate.
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
The factors described above resulted in a net loss of $15.2 million and net income of $6.7 million for the quarters ended September 30, 2020 and 2019, respectively, and a net loss of $22.2 million and net income of $41.0 million for the nine months ended September 30, 2020 and 2019, respectively.
Liquidity and Capital Resources
Sources and Uses of Funds
Global Indemnity 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, and American Reliable Insurance Company.
Global Indemnity’s short term and long term liquidity needs include but are not limited to the payment of corporate expenses, debt service payments, dividend payments to shareholders, and share repurchases. In order to meet their short term and long term needs, the Company’s principal sources of cash includes 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
75
GLOBAL INDEMNITY GROUP, LLC
to make dividend payments. In addition, the Company periodically reviews opportunities related to business acquisitions and as a result, liquidity may be needed in the future.
As of September 30, 2020, the Company also had future funding commitments of $31.2 million related to investments. However, the related investments are currently in their harvest period and it is unlikely that a capital call will be made.
Global Indemnity’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 within the Insurance Operations 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 2019 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 18 of the notes to the consolidated financial statements in Item 8 of Part II of the Company’s 2019 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, 2020.
Global Indemnity Reinsurance was prohibited, without the approval of the Bermuda Monetary Authority (“BMA”), from reducing by 15% or more its total statutory capital or 25% or more of its total statutory capital and surplus as set out in its previous year’s statutory financial statements, and any application for such approval must include such information as the BMA may require. See “Regulation—Bermuda Insurance Regulation” in Item 1 of Part I of the Company’s 2019 Annual Report on Form 10-K. In June, 2020, the Board of Directors of Global Indemnity Reinsurance declared and paid a dividend of $226 million to its parent company, Global Indemnity Limited. On August 26, 2020, Global Indemnity Reinsurance merged into Penn Patriot Insurance Company.
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 dividend policy established in 2017, funds may also be used in the future to pay dividends 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 $33.9 million and $45.9 million for the nine months ended September 30, 2020 and 2019, respectively. The decrease in operating cash flows of approximately $12.0 million from the prior year was primarily a net result of the following items:
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|||||
(Dollars in thousands) |
|
2020 |
|
|
2019 |
|
|
Change |
|
|||
Net premiums collected |
|
$ |
418,598 |
|
|
$ |
417,803 |
|
|
$ |
795 |
|
Net losses paid |
|
|
(231,038 |
) |
|
|
(220,924 |
) |
|
|
(10,114 |
) |
Underwriting and corporate expenses |
|
|
(183,883 |
) |
|
|
(174,526 |
) |
|
|
(9,357 |
) |
Net investment income |
|
|
33,428 |
|
|
|
38,700 |
|
|
|
(5,272 |
) |
Net federal income taxes recovered (paid) |
|
|
10,859 |
|
|
|
(235 |
) |
|
|
11,094 |
|
Interest paid |
|
|
(14,028 |
) |
|
|
(14,888 |
) |
|
|
860 |
|
Net cash provided by (used for) operating activities |
|
$ |
33,936 |
|
|
$ |
45,930 |
|
|
$ |
(11,994 |
) |
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.
76
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. There is risk that legislation could be passed 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 the 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 2020, the Board of Directors approved a dividend payment of $0.25 per common share to all shareholders of record on the close of business on March 24, 2020 and June 23, 2020 and approved a distribution payment of $0.25 per common share to all shareholders of record on the close of business on September 25, 2020. Dividends/distributions paid were $10.7 million during the nine months ended September 30, 2020.
Redemption of Debt
In August 2020, the Company redeemed the entire $100 million in aggregate principal amount of the outstanding 2045 Notes plus accrued and unpaid interest on the 2045 Notes redeemed to, but not including, the Redemption Date of August 15, 2020.
Repayment of Margin Borrowing Facility
The Company repaid all of the outstanding debt on the margin borrowing facility in August, 2020.
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 ended September 30, 2020. Please see Item 7 of Part II in the Company’s 2019 Annual Report on Form 10-K for information regarding the Company’s liquidity.
Capital Resources
In connection with the Company’s redomestication to the United States, actions were taken to simplify the Company’s current corporate structure. As a result, a series of intercompany capital contributions and distributions took place between many of the Company’s subsidiaries. Several of the Company’s subsidiaries merged into new or existing companies. This included, but was not limited to, the merger of Global Indemnity Reinsurance into Penn Patriot Insurance Company (“Penn Patriot”) with Penn Patriot surviving as well as the amalgamation of Global Indemnity Limited with a newly formed company, New Cayco. The surviving company, New Cayco, merged into the newly formed parent company, Global Indemnity Group, LLC. In addition, $541.4 million of intercompany debt between Global Indemnity Limited and Global Indemnity Reinsurance was cancelled. The cancellation of this debt had no impact to the consolidated results of the Company.
Intercompany Dividends
In June, 2020, Global Indemnity Reinsurance declared and paid a dividend of $226.0 million to its parent, Global Indemnity Limited.
Intercompany Loan
On June 16, 2020, GBLI Holdings, LLC entered into a loan agreement with Global Indemnity Reinsurance. Under the terms of the loan agreement, GBLI Holdings, LLC agreed to lend $40.0 million to Global Indemnity Reinsurance by transferring cash and / or securities to Global Indemnity Reinsurance. This loan bears interest at a rate of 0.18% and is due on June 16, 2023. This loan was fully repaid at September 30, 2020.
77
GLOBAL INDEMNITY GROUP, LLC
On August 28, 2020, Global Indemnity Investments, Inc. entered into a promissory note with Global Indemnity Group, LLC for the principal amount of $11.3 million. This note was issued in conjunction with Global Indemnity Investment Inc.’s purchase of limited liability partnership interests from Global Indemnity Group, LLC. The note bears interest at a rate of 1.47% and is due on August 28, 2030. The outstanding balance on the note was $11.3 million at September 30, 2030.
Other than the items discussed in the preceding paragraphs, there have been no material changes to the Company’s capital resources during the quarter and nine months ended September 30, 2020. Please see Item 7 of Part II in the Company’s 2019 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 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 2019 Annual Report on Form 10-K, as supplemented by the Company’s Quarterly Report on Form 10Q for the quarterly period ending March 31, 2020 and the Company’s definitive proxy statement on Schedule 14A filed July 23, 2020, 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.
Item 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
For the quarter ending September 30, 2020, global equities rose approximately 8.3% with U.S. equities returning slightly more at approximately 8.9%. US fixed income rose approximately 0.6% as spreads in all sectors compressed and the treasury curve modestly steepened. Economic releases continued to be above expectations but lower than during the summer, leaving overall economic activity below beginning-of-year levels. The market will continue to focus on the massive amount of fiscal stimulus and monetary policy actions, but will need to monitor the recent upturn in new COVID-19 infections and the volatility that may be introduced with upcoming U.S. elections.
The Company’s investment grade fixed income portfolio continues to maintain high quality with an AA- average rating and a duration of 4.2 years. Portfolio purchases were focused within MBS and US Treasury securities. These purchases were funded primarily through cash inflows, sales of CMBS, MBS, and US Treasury securities, as well as maturities and paydowns. During the third quarter, the portfolio’s allocation to ABS, MBS, and investment grade credit increased, while the portfolio’s exposure to CMO and US Treasuries decreased. There have been no other material changes to the Company’s market risk since December 31, 2019. Please see Item 7A of Part II in the Company’s 2019 Annual Report on Form 10-K for information regarding the Company’s market risk.
78
GLOBAL INDEMNITY GROUP, LLC
Item 4. |
CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 30, 2020. Based upon that evaluation, and subject to the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2020, the design and operation of the Company’s disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal controls over financial reporting that occurred during the quarter ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
79
GLOBAL INDEMNITY GROUP, LLC
PART II-OTHER INFORMATION
Item 1. |
Legal Proceedings |
The Company is, from time to time, involved in various legal proceedings in the ordinary course of business. The Company maintains insurance and reinsurance coverage for risks in amounts that it considers adequate. However, there can be no assurance that the insurance and reinsurance coverage that the Company maintains is sufficient or will be available in adequate amounts or at a reasonable cost. The Company does not believe that the resolution of any currently pending legal proceedings, either individually or taken as a whole, will have a material adverse effect on its business, results of operations, cash flows, or financial condition.
There is a greater potential for disputes with reinsurers who are in runoff. Some of the Company’s reinsurers’ have operations that are in runoff, and therefore, the Company closely monitors those relationships. The Company anticipates that, similar to the rest of the insurance and reinsurance industry, it will continue to be subject to litigation and arbitration proceedings in the ordinary course of business.
Item 1A. |
Risk Factors |
The Company’s results of operations and financial condition are subject to numerous risks and uncertainties described in Item 1A of Part I in the Company’s 2019 Annual Report on Form 10-K, filed with the SEC on March 6, 2020, as supplemented by the Company’s Quarterly Report on Form 10Q for the quarterly period ending March 31, 2020 filed on May 8, 2020, and the Company’s definitive proxy statement on Schedule 14A filed July 23, 2020. The risk factors identified therein have not materially changed except as follows:
Holders of the Company’s common shares will be subject to U.S. federal income tax and state and local income taxes on their share of the Company’s taxable income, regardless of whether they receive any cash dividends.
Under current law, so long as the Company is not required to register as an investment company under the Investment Company Act and 90% of the Company’s gross income for each taxable year constitutes “qualifying income” within the meaning of the Internal Revenue Code on a continuing basis, the Company currently expects that it will be treated, for U.S. federal income tax purposes, as a partnership and not as an association or publicly traded partnership taxable as a corporation. Holders of the Company’s common shares will be subject to U.S. federal, state, and local taxation on their allocable share of the Company’s items of income, gain, loss, deduction and credit, for each of the Company’s taxable years ending with or within their taxable year, regardless of whether they receive cash dividends. Such holders may not receive cash dividends equal to their allocable share of the Company’s net taxable income or even the tax liability that results from that income. The characterization of an item of our income, gain, loss, deduction or credit generally will be determined at the Company’s (rather than at the holder’s) level.
The IRS Schedules K-1 the Company will provide holders of the Company’s common shares will be more complicated than the IRS Forms 1099 provided by corporations to their stockholders, and holders of the Company’s common shares may be required to request an extension of time to file their tax returns.
Holders of the Company’s common shares will be required to take into account their allocable share of the Company’s items of income, gain, loss, deduction and other items of the partnership for the Company’s taxable year ending within or with their taxable year, regardless of whether they received cash dividends. The Company has agreed to furnish holders of the common shares, as soon as reasonably practicable after the close of each calendar year, with tax information (including IRS Schedules K-1), which describes their allocable share of gross ordinary income for the Company’s preceding taxable year. However, it may require longer than 90 days after the end of the Company’s calendar year to obtain the requisite information so that IRS Schedules K-1 may be prepared by the Company. Consequently, holders of the Company’s common shares who are U.S. taxpayers should anticipate the need to file annually with the IRS (and certain states) a request for an extension past April 15 or the otherwise applicable due date of their income tax return for the taxable year.
In addition, each holder of the Company’s common shares will be required to report for all tax purposes consistently with the information provided by the Company for the taxable year. Because holders will be required to report their allocable share of gross ordinary income, tax reporting for holders of the Company’s common shares will be more complicated than for shareholders of a regular corporation.
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GLOBAL INDEMNITY GROUP, LLC
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
Except as disclosed in the Company’s current report on Form 8-K filed with the SEC on August 28, 2020, there were no sales of unregistered equity securities during the quarter ended September 30, 2020.
Shares surrendered
The Company’s Share Incentive Plan allows employees to surrender the Company’s class A common shares as payment for the tax liability incurred upon the vesting of restricted stock. There were 396 shares surrendered by the Company’s employees during the quarter ended September 30, 2020. All class A common shares surrendered by the Company’s employees are held as treasury stock and recorded at cost until formally retired. All treasury stock existing as of August 28, 2020 was retired as part of the redomestication transaction.
Item 3. |
Defaults upon Senior Securities |
None.
Item 4. |
Mine Safety Disclosures |
None.
Item 5. |
Other Information |
None
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GLOBAL INDEMNITY GROUP, LLC
Item 6. |
Exhibits |
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3.1 |
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3.2 |
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4.1 |
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4.2 |
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10.1 |
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10.2 |
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10.3 |
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10.4 |
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10.5 |
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10.6 |
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10.7 |
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10.8 |
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31.1+ |
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31.2+ |
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GLOBAL INDEMNITY GROUP, LLC
32.1+ |
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32.2+ |
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101.INS |
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Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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Filed or furnished herewith, as applicable. |
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GLOBAL INDEMNITY GROUP, LLC
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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GLOBAL INDEMNITY GROUP, LLC |
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Registrant |
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November 9, 2020 |
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By: |
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/s/ Thomas M. McGeehan |
Date: November 9, 2020 |
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Thomas M. McGeehan |
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Chief Financial Officer |
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(Authorized Signatory and Principal Financial and Accounting Officer) |
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